Pebblebrook Hotel Trust Acquires the Doubletree Bethesda Hotel and Executive Meeting Center
Pebblebrook Hotel Trust (NYSE: PEB) announced that it has acquired the Doubletree Bethesda Hotel and Executive Meeting Center for $67.1 million.
The 269-room, upscale, full-service hotel is located in the heart of downtown Bethesda, one of the most affluent and vibrant suburban cities in the Washington, D.C. region. The hotel will continue to be operated pursuant to a franchise agreement with Doubletree, a subsidiary of Hilton Worldwide, and will be managed by Thayer Lodging Group, the current manager of the hotel. The transaction was funded entirely with proceeds from the Company’s initial public offering (“IPO”).
“We are thrilled to acquire this upscale hotel in downtown Bethesda”
“We are thrilled to acquire this upscale hotel in downtown Bethesda,” said Jon Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. “The metropolitan Washington, D.C. area continues to prosper and demonstrate itself as one of the healthiest lodging markets nationwide, due to the strength of its economy and the diversity of its various demand segments. The significant diversification of demand drivers in the area, including government, medical, corporate and tourism, has allowed this market to absorb the recession better than most and produce relatively stable cash flow streams even in market downturns.”
The Doubletree Bethesda Hotel and Executive Meeting Center is located in downtown Bethesda and is the closest hotel to the National Institutes of Health (“NIH”) and the National Naval Medical Center (“NNMC”), two of the nation’s most prestigious health and research facilities. NIH includes the nation’s premier medical research facilities, while NNMC is considered the flagship of the United States military’s system of medical centers, treating members of the uniformed services and senior government officials. NIH is the largest employer in Bethesda (forecasted to employ in excess of 20,000 people by late 2010) and is believed to be the market’s largest single generator of lodging demand.
Both campuses, NIH and NNMC, continue to undergo dramatic expansion with the NNMC’s $1.0 billion-plus expansion that is currently underway. The most notable aspect of the expansion is the closure and relocation of Walter Reed Army Medical Center to the NNMC campus. Following completion of its expansion at the end of 2011, the NNMC is expected to generate roughly 1 million annual visits, almost double the current number of annual visitors.
In combination with its close proximity to the NIH and NNMC campuses, downtown Bethesda is a highly affluent area of Washington, D.C., with a live-work-play atmosphere bustling with significant residential density, almost 7 million square feet of office space, over 300 retailers, including many prominent national chains and boutiques, more than 200 restaurants, two live theatres and two cinema complexes, all within walking distance of the Doubletree Bethesda Hotel and Executive Meeting Center. Additionally, the property is only 6.5 miles from downtown Washington, D.C., making it an ideal location for both business and leisure travelers.
The Doubletree Bethesda Hotel and Executive Meeting Center, a 15-story building, was built in 1971 and underwent a $19.3 million renovation in 2006 and 2007. The hotel includes 269 guestrooms, of which two floors are certified by PURETM to be 99.9% allergen free, and over 13,500 square feet of meeting space certified by the International Association of Conference Centers (“IACC”), which is also PURETM certified. The hotel features The Oz, The Wine Bar, Umi Sushi and The Cup, providing a three meal-a-day restaurant, as well as sushi, cocktails and a coffee and breakfast option. Other amenities include a rooftop fitness center and swimming pool, a full-service business center and on-site parking. The hotel is within walking distance of both the Bethesda Metro Station and the Medical Center Metro Station, both of which are on the Washington Metro Red Line.
The hotel is one of only two full-service hotels in downtown Bethesda, a high barrier to entry hotel market. For 2009, the hotel ran at approximately 71% occupancy, with an average daily rate of approximately $160. During the next 12 months, the Company currently forecasts that the hotel will generate earnings before interest, taxes, depreciation and amortization (“EBITDA”) of approximately $5.1 to $5.6 million and net operating income after capital reserves of approximately $4.4 to $4.9 million. These forecasts are prior to any impact resulting from the garage repairs and guestroom improvements described below.
The Company and Thayer believe the hotel has not fully stabilized from the renovation completed in 2007 and will be working closely together to maximize the hotel’s performance. The Company anticipates investing approximately $2.5 million over the next 12 to 24 months on guestroom improvements, while also evaluating the implementation of several value-creation opportunities at the property.
In addition to the guestroom improvements, the hotel’s on-site, underground garage requires significant repairs at an estimated cost of approximately $2.5 million. The Company is evaluating the scope, timing and impact of this work. When this project is commenced, likely later this year, it is expected to cause meaningful business displacement and reduced revenues and EBITDA. Assuming the project is commenced later this year, the Company anticipates the negative impact to the hotel’s net operating income after capital reserves for 2010 to be approximately $0.5 to $0.7 million. In addition, if the project is implemented in phases, the hotel’s net operating income during 2011 and early 2012 is expected to be reduced by a total of approximately $0.5 to $1.3 million. This impact is not reflected in the 12-month forecast for hotel EBITDA or net operating income after capital reserves detailed above.
The Company expects to incur approximately $1.8 million of costs related to the acquisition of this hotel that will be expensed as required by SFAS 141-R.
The Doubletree Bethesda Hotel and Executive Meeting Center marks the first completed acquisition for the Company since completing its IPO in December of 2009.
The Company has previously announced signed agreements to purchase four other hotels, including:
- $74 million for a hotel in the Washington, D.C. / Baltimore region
- $90 million for a hotel in the San Francisco / Oakland / San Jose region
- $36 million for a hotel in the Minneapolis / St. Paul region
- $105 million for a hotel in the Atlanta region
Closings for each of these properties are expected to occur within 45 to 60 days from the filing date of the corresponding Current Report on Form 8-K. However, because these acquisitions are subject to customary closing requirements, conditions and due diligence, the Company can give no assurance that the transactions will be consummated during that time period, or at all.
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