By Jon Peterson
Bethesda, Md.-based RLJ Lodging Trust is planning on more than doubling its portfolio of hotel properties in the San Francisco Bay Area through an expected portfolio deal with Chicago-based Hyatt Hotels Corporation.
RLJ has signed a definitive purchase and sales agreement with Hyatt to buy 10 hotel properties for $313 million or $200,600 per key. The deal is expected to close in March. As part of the deal, RLJ has issued a $10 million non-refundable deposit for this transaction.
Half of the portfolio is located in the San Francisco Bay Area. These properties are the 234-room Hyatt House Emeryville/SF Bay Area in Emeryville, the 151-room Hyatt Place Fremont/Silicon Valley in Fremont, the 164-room Hyatt House San Jose/Silicon Valley in San Jose, the 142-room Hyatt House San Ramon in San Ramon and the 150-room Hyatt House Santa Clara in Santa Clara. The other properties in the portfolio are located in Cypress, San Diego, Woodlands, Texas, Charlotte and Madison, Wis.
RLJ presently owns two other hotels in the San Francisco Bay Area. Last year it paid $29.5 million for the 150-room Vantaggio Suites Cosmo hotel near Union Square in San Francisco. The publicly traded REIT made its first move into the market in June of 2012 when it paid $36.2 million to buy the 278-room Hilton Garden Inn San Francisco/Oakland Bay Bridge in Emeryville.
“We think the San Francisco Bay Area is a very strong hotel market. This is due to very strong job growth and significant barriers to entry as far as new development are considered. We look forward to conducting more business in the region in the future,” says Thomas Baltimore Jr., chief executive officer for RLJ.
The cap rate on this deal was 6.8 percent, according to sources familiar with the transaction. This return is based on the next operating income for the trailing 12 months. Once the $25 million renovation on the portfolio is complete, the cap rate is projected to increase to 7.7 percent by the year 2015.
The Hyatt House product is Hyatt’s extended stay hotel chain. These kinds of hotels attract business travelers and other guests who are looking to stay in a hotel for a while. This could include people who are doing some training for a new job or were recently transferred from another part of the country.
RLJ is a national buyer of premium-branded, focused-service and compact full-service hotels. The brands that it focuses on are Hyatt, Marriott and Hilton. When the Hyatt deal closes, the REIT’s portfolio will total 160 properties covering 24,000 rooms.
The RevPAR growth this year for hotels in San Francisco is expected to be strong. “We are projecting growth this year to be 10.3 percent. This is expected to be the last year of double-digit growth for three years. We are anticipating RevPAR growth to be 9 percent in 2015, 6 percent in 2016 and 3.5 percent in 2017. This is going to happen as the double-digit growth we have seen in recent years is just not sustainable over a long period of time,” says Tom Callahan, co-president and chief executive officer of PKF Consulting USA. He works out of the company’s regional office in San Francisco.