(By Balaseshan) RLJ Lodging Trust (NYSE: RLJ) said it has agreed to buy the 231-room Hilton Cabana Miami Beach for a fixed purchase price of $71.6 million, or about $310,000 per key.
The Hotel, which is located directly on the beach, will benefit from it location along the 6200 block of Collins Avenue in Miami Beach. Several of the buildings located along Collins Avenue and Ocean Drive are historic in nature; therefore, the market's strict regulatory environment will make new development difficult.
Upon entering the purchase and sale agreement, the company committed to a $7.2 million deposit that will be refunded if the Hotel is not completed. The company is not assuming any construction risk, including construction overruns risk.
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RLJ expects that construction will be completed in about 12 months, with an anticipated opening late in fourth quarter of 2013.
The property opened as a hotel in the early 1950's and was closed and gutted in 2007 in anticipation of a condominium conversion. The conversion did not materialize and the property went into foreclosure.
In 2011, the current owners purchased the property to develop a new hotel, which they expect to complete and open in the fourth quarter of 2013 as a Hilton.
According to Smith Travel Research (STR), there are currently two Hilton affiliated hotels that represent about 1% of the total rooms in the Miami Beach market. The company expects that the Hotel's association with a premium brand, such as Hilton, will yield strong demand from brand loyal guests seeking accommodations in the area.
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The Miami market, which is one of the top-ranked lodging markets in the nation, garners one of the highest average daily rates and one of the highest revenue per available room (RevPAR) of any U.S. city and is surpassed only by New York, Oahu Island and San Francisco.
In 2011, the Miami-Hialeah market posted a 14.1% RevPAR increase over 2010 and it continued to show strong signs of growth with a 7.9% RevPAR growth year-to-date through September 2012, as reported by STR.
In the coming years, the Hotel will benefit from Miami's steadily increasing transient demand, robust convention activity, and strong ties to Latin America. The Hotel represents a unique opportunity for the company to own a high quality asset in a dynamic market with multiple demand generators.
RLJ is trading up 0.89% at $18.75 on Monday. The stock has been trading between $15.28 and $19.75 for the past 52 weeks.