Significant Portfolio Revamp Has Helped RLJ Lodging Trust

comparison

Since its stock market launch in 2011, RLJ Lodging Trust has been running a good ride—their per-share FFO and dividends have both grown at a two-digit-percent pace. RLJ’s track record, while limited, also includes significant increases in ADR, EBITDA, occupancy and RevPAR. Although there might be a slowdown in performance metrics this year, RLJ stock has shown itself attractive for checking off major evaluation items.

RLJ targets focused service hotels, where they offer only services guests need. With 98 percent of its portfolio branded under Hilton, Hyatt and Marriott flags, RLJ invests in high-barrier city markets and operates with less square area, fewer food and beverage outlets and a limited amount of meeting space. Most income comes from rooms—the opposite of Ryman Hospitality’s strategy, but as with Ryman, the operating margins are greater. Other REITs also invest in focused service hotels, including Chatham Lodging Trust, Hersha Hospitality Trust and Summit Hotel Properties.

location

Since 2011, RLJ has been following an aggressive plan for recycling capital. The business has acquired 27 properties worth $1.1 billion and sold 39 assets for $370 million. Its portfolio dropped to 126 properties, but RLJ still has around 20,400 rooms located in 21 states and in Washington DC. The low-levered balance sheet (debt-to-capitalization being around 27 percent) has enabled the company to revamp its portfolio and improve its financial metrics.

performance

The management team, which has been together for at least ten years, has accomplished a great deal, but somehow, the market seems to have little enthusiasm for RLJ. Although it is the second-biggest company in the hospitality REIT sector, price-to-FFO hasn’t increased notably over the years. From a valuation perspective, dividend yield and price-to-FFO (4.3 and 12 percent respectively) have been more attractive than those of their peers.

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Source: RLJ Lodging Trust, Fast Graphs


Written by Heli Brecailo

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