BETHESDA, MD—RLJ Lodging Trust has acquired the 215-room DoubleTree Grand Key Resort in Key West, FL, for a purchase price of $77 million or $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,” stated Thomas J. Baltimore, Jr., president and CEO. “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% based on the hotel’s projected 2016 net operating income.
The company noted that 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.
In 2013, the Key West market RevPAR was almost $218, Key West’s RevPAR growth was 17.8% and the trailing twelve months as of July 2014 was 20.5%, according to the company. The hotel’s 2013 RevPAR is nearly a 50% premium to the company’s 2013 Pro forma RevPAR.
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.