Chesapeake Lodging Trust on Thursday announced that it had entered into a definitive agreement with KSL Capital Partners to acquire for US$278 million (US$707,400 per key) the 393-room James Royal Palm, Miami Beach, Florida. The hotel will be managed by HEI Hotels & Resorts and affiliate with Starwood Hotels & Resorts’ new Collection brand.
R.W. Baird analyst David Loeb stated that Chesapeake expects to realize significant cost savings from having HEI Hotels & Resorts manage the property and revenue upside from the Starwood affiliation, which should help close both the ADR and occupancy gap to the comp set. Baird also estimated Chesapeake is acquiring the property at a 6.25%-6.50% NOI cap rate.
The hotel recently completed a two-year, US$43 million renovation and Chesapeake noted that Starwood-branded properties are under-represented in Miami, which should lead to strong SPG member demand upon rebranding.
As this property could be the first in Starwood’s new Collection, Baird also suggested Starwood could provide key money or incentives to Chesapeake, which it estimated at approximately US$5 million based on incentives provided by other major global brands for similar deals.
“We are very excited to announce our entrance into the highly desirable Miami South Beach market,” said James Francis, Chesapeake Lodging Trust’s president and CEO. “The Royal Palm, which recently underwent a comprehensive renovation, has an irreplaceable oceanfront location at the intersection of Collins Avenue and 15th Street. We believe the hotel has significant upside potential in both revenue and profitability.”