RLJ Lodging Trust has acquired the historic Humble Oil Building complex in downtown Houston, for a purchase price of $79.5 million, or approximately $151,000 per key based on a combined forward room count of 528 keys.
The Humble Oil Building is a three-tower complex that occupies an entire city block in downtown Houston. The complex consists of an 82-unit apartment tower that will be converted to a 166-room SpringHill Suites and two existing hotels, the existing 191-room Courtyard Houston Downtown Convention Center (“the Courtyard”) and the 171-room Residence Inn Houston Downtown Convention Center (“the Residence Inn”). The purchase price represents a forward capitalization rate of approximately 10.1% for the Courtyard and 9.5% for the Residence Inn based on each hotel’s projected 2013 net operating income and applicable purchase price allocation. The Company purchased this portfolio of assets with its revolving credit facility.
“Our ability to execute this off-market transaction required the expertise, experience, and relationships that are unique to RLJ,” commented Thomas J. Baltimore, Jr., President and Chief Executive Officer. “Acquiring the Humble Oil Building complex represents a value-add opportunity. Both existing hotels have notable upside potential and our extensive experience managing complex renovations will enable us to deliver another conversion property that will help drive economies of scale.”
An estimated $70.0-million renovation of the premises was completed in 2003 that restored several historical features and converted the complex into its present use of two hotels and one apartment tower. The Company will leverage its proven in-house capabilities to convert the existing apartment tower into a high-quality, institutional-grade hotel. The conversion is expected to be completed in mid-2015 and will enable the Company to capitalize on design, brand, and operational efficiencies. The Courtyard and the Residence Inn underwent 6-year Marriott “Refresh” renovations in 2010 and 2011, respectively.
The Company remains selective and disciplined in its pursuit to acquire assets in markets that will create long-term shareholder value. Houston’s revenue per available room growth of 13.8% in 2012 was the third highest among the top 25 U.S. lodging markets. The Central Business District (“CBD”), the submarket in which the hotels are located, is currently underrepresented with premium-branded, focused-service hotels. Therefore, the Company expects that the hotels’ affiliation with Marriott’s strong reservation system and guest loyalty program, as well as their proximity to multiple demand generators, will benefit all three assets and position them for strong growth.
The hotels’ prime location in Houston’s CBD provides access to a wide variety of demand generators. While Houston is known as the energy capital of the world, its economy is well diversified. According to the Greater Houston Partnership, Houston ranks third among U.S. cities for Fortune 500 company headquarters, behind only New York and Chicago. With almost 40 million square feet of office space in the CBD housing companies within the energy, education, healthcare, and transportation sectors, corporate demand is expected to continue to drive future growth for the hotels. Furthermore, the city’s convention center, three major sporting arenas, and four performing arts companies, all located in downtown, create additional sources for group and leisure demand.
Houston serves as a major gateway for Latin America and several other countries. Houston’s largest airport, the George Bush Intercontinental Airport, offers nonstop service to approximately 116 domestic destinations, 70 international destinations, and offers service to more Mexican destinations than any other airport in the United States.
Overall, Houston is expected to benefit from continued economic growth in the energy sector as well as expansion of the healthcare, distribution, and trade industries. With limited premium-branded, focused-service hotels in the submarket, as well as the implementation of new efficiencies within the complex, the Company expects that these hotels will be well positioned to outperform.
With the addition of these three assets, the Company now owns 147 hotels with nearly 22,000 rooms and one planned hotel conversion across 21 states and the District of Columbia.
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