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Bethesda, MD-based RLJ Lodging Trust (RLJ - Snapshot Report) recently bought the long-term leasehold interest in a Hawaiian asset – Courtyard by Marriott Waikiki Beach – for $75.3 million. With the acquisition of this top-class property, the company hopes to expand its geographic footprint and strengthen its presence in the western part of the U.S.

The acquisition cost represents a forward capitalization rate of roughly 7.8%, based on the property’s estimated net operating income (NOI) in 2014. Notably, the lodging real estate investment trust (REIT) financed the purchase wholly with available cash in hand. 

Property Details

Courtyard by Marriott Waikiki Beach – one of the premium Marriott International, Inc. (MAR - Analyst Report) branded hotels – boasts 399 rooms and is situated in Honolulu, on the Hawaiian island of Oahu. The hotel is strategically close to Waikiki Beach and other various well-known tourist attractions of the region.

Including Courtyard by Marriott Waikiki Beach, RLJ Lodging now owns 149 assets located across 22 states and the District of Columbia. The property’s Revenue per Available Room (RevPAR) – which is over 40% premium to the RLJ Lodging’s pro forma RevPAR in 2012 – is expected to be among the company’s top-notch hotels and it further fortifies its overall portfolio mix. 

Strong Leisure Market

The Oahu market is emerging as one of the top hotel markets and tourist destinations in the U.S. According to Smith Travel Research, Inc. (STR), Oahu market experienced 16.7% growth in RevPAR in 2012. Notably, year-to-date through April 2013, RevPAR continued increasing with 17.9% year-over-year growth.

Moreover, Honolulu, one of the foremost tourist destinations in the U.S., is ranked the fourth highest port of entry for international travelers. According to the Department of Business, Economic Development & Tourism, visitor arrivals upped 9.6% and their spending jumped 18.5% year over year in 2012. This was registered mainly on the back of a strong influx of travelers from Asia and the South Pacific region – leading to beat the historical peak number of visitor arrivals and spending in pre-recession times, 2006 and 2007.

In Conclusion

In particular, RLJ Lodging expects the property’s RevPAR to gain from the impetus in the leisure and hospitality sectors as well as demand from the U.S. military, which has a striking presence on the island.  Moreover, with the demand remaining high and supply considerably low, RLJ Lodging anticipates the acquired property to benefit going forward.

We view the above-mentioned transaction as a strategic fit for RLJ Lodging. Moreover, we expect the property’s strong brand connection and prime location to help RLJ Lodging in experiencing significant growth in Oahu.

However, other lodging REITs are also making efforts to explore emergent opportunities in this particular market with their premium buyouts. Earlier this month, Host Hotels & Resorts Inc. (HST - Analyst Report) bought a Hawaii-based property – Hyatt Place Waikiki Beach – for $138.5 million. Thus, RLJ Lodging needs to achieve competitive edge over them, with sufficient efforts in value drivers.

Currently, RLJ Lodging carries a Zacks Rank #3 (Hold). Better performing lodging REITs include Sunstone Hotel Investors, Inc. (SHO - Snapshot Report) with a Zacks Rank #1 (Strong Buy).

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