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RLJ Is Pricing In A Recovery That May Not Materialize

Jun. 12, 2020 7:57 AM ETRLJ Lodging Trust (RLJ)10 Comments


  • RLJ shares are well off their recent high, but not enough.
  • The dividend has been essentially eliminated, and the valuation is pricing in a speedy recovery.
  • With the stock at or above fair value, and so much uncertainty in lodging's recovery, RLJ is a sell.

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The recent action that has taken place in the lodging REIT market has left me a bit puzzled, if I'm honest. Stocks of trusts that have seen demand collapse to essentially nothing in recent months have recovered strongly in a lot of cases, although I have to admit I don't understand why.

One such stock is RLJ Lodging Trust (NYSE:RLJ), a hotel REIT that has been suffering along with its peers for the past three months. Shares reached $15 just a couple of weeks ago, or less than $3 from their pre-crash high, indicating that investors think the worst has come and gone. While shares have traded back down to $10, even at that price, I fail to see how RLJ represents value today. At best, it is fairly valued. However, I can see how things could deteriorate more longer-term for lodging, so I think investors should take what they can get and sell RLJ.

Assessing the damage

The first thing to do when looking at a REIT today is to assess the damage from COVID-19. Depending upon the specific type of real estate a REIT owns, damage could be anywhere between minimal and devastating. One sector I'd put firmly toward the latter end is lodging, as travel collapsed in March and hasn't recovered. In addition, we don't know when people will be able to travel as they once did, if they'll be willing to, or if the 40+ million recently unemployed Americans will even be able to afford to travel even if they are allowed. These are huge variables for lodging, and none of them look particularly favorable at the moment. In my view, therefore, RLJ is leveraged to exactly the wrong type of real estate for this year, and potentially beyond.

Source: Investor presentation

The good

This article was written by

Josh Arnold profile picture

I've been covering financial markets for ten years, using a combination of technical and fundamental analysis to identify potential winners (and losers) early, particularly when it comes to growth stocks.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (10)

What price would be a good entry spot for RLJ common? I am thinking 6-7 would be an area that over a year or so could see a double.
Just sold the November 7.50 puts on RLJ at .95, which gives me an average price of $6.55 if exercised. Seemed like a good trade. A 14.5% return on less than 1/2 a year holding period on your cash secured put money. If it executes, I get the stock at a bargain, if not I keep the premium. Seems like a no brainer., although always risk in the market.
The preferreds are well in the money and on sale right now below $22 and 9% yield.
legend.vs profile picture
When hotel recovery is in place, this is top of the list. The preferred are a gem in the fixed income space.
Gary Gambino profile picture
The negatives discussed here apply to every hotel REIT. You won’t find many that have as good a balance sheet as RLJ though. So, if you are looking for safe, growing income it’s probably a good move to avoid the group entirely. If you want to speculate on a quick recovery but don’t want to lose everything if you are wrong, RLJ is not a bad bet.
To the Author: At what price would RLJ be a buy in your book?
What other REITs that are beaten down have good balance sheets like RLJ?
@stocksman99 SHO common shares are also beaten down (well any hotel REIT really) and they have the best balance sheet among hotel REITs.
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