BETHESDA, Md.—RLJ Lodging Trust has acquired the 215-room DoubleTree Grand Key Resort in Key West, Fla., for a purchase price of $77 million, or approximately $358,000 per key.
“We are excited to add an additional Key West asset to our portfolio at a significant discount to both replacement cost and recent per-key trades,” commented Thomas J. Baltimore Jr., president and chief executive officer. “We expect that our knowledge of the market along with the implementation of various initiatives will create additional upside at this strategically-located hotel.”
The company plans to implement several enhancements including upgrading the property and replacing the hotel’s management company. Upon completing an estimated $7 million renovation in 2015, the company expects that the purchase price plus capital expenditures will represent a forward capitalization rate of approximately 8 percent based on the hotel’s projected 2016 net operating income.
The hotel benefits from its location in Key West, which is one of the highest barrier-to-entry hotel markets in the country. Key West’s Rate of Growth Ordinance caps the number of building permits allowed on the island. As a result, new supply is highly constrained, providing a very favorable environment for lodging fundamentals and hotel ownership on the island.
In 2013, the Key West market revenue per available room (RevPAR) was almost $218, one of the highest RevPAR markets in the country. Key West’s RevPAR growth in 2013 was 17.8 percent and the trailing 12 months as of July 2014 was 20.5 percent. The hotel’s 2013 RevPAR is nearly a 50 percent premium to the company’s 2013 pro forma RevPAR, which will further enhance the composition of the company’s portfolio.
The market’s extremely restrictive development profile and strong leisure demand are expected to maintain positive lodging fundamentals in this premier market. The hotel is expected to capture additional upside after the completion of a comprehensive renovation and the implementation of new revenue management and cost containment initiatives.
With the addition of this asset, the company now owns 150 properties, comprised of 148 hotels with more than 23,300 rooms and two planned hotel conversions, located in 21 states and the District of Columbia.