RLJ Lodging (RLJ) Divests Sheraton Philadelphia For $95.5M

RLJ Lodging Trust (NYSE:RLJ) announced that it has sold Sheraton Philadelphia Society Hill Hotel located in Philadelphia, PA for a price of $95.5 million. This 364-room hotel was sold for $262,000 per key.

The price represents a capitalization rate of around 5.6% on the hotel’s estimated net operating income (NOI) in 2017 and excludes planned capital expenditures. It also indicates a 14.7x multiple on the company’s 2017 EBITDA.

The company had acquired the property through its merger with FelCor Lodging Trust Inc. on Sep 1, 2017. The merger made RLJ Lodging the third-largest lodging real estate investment trust (REIT) by enterprise value. The company’s portfolio expanded to 160 hotels, concentrated primarily in the urban and coastal markets. Currently, its portfolio consists of 155 hotels.

RLJ Lodging plans to utilize the net proceeds from the disposal to pay off a part of its credit facility and for other general corporate purposes.

Per management, the sale of the hotel soon after the merger is in sync with the company’s target to achieve an optimal portfolio through strategic initiatives. While the combined entity is eyeing expansion in high-growth markets, it is also exploring opportunities to sell assets, which are non-core to its operations, through a disposition strategy.

Further, Ross H. Bierkan, president and chief executive officer, stated, “Not only is this disposition highly accretive on a valuation basis, but it is also accretive to our portfolio RevPAR and EBITDA margin. With this transaction, we have accomplished our initial goal of generating approximately $300 million from asset sales at an attractive aggregate multiple.”

Shares of this Zacks Rank #3 (Hold) company have lost 13.2% compared with the industry’s decline of 6.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

A few better-ranked stocks from the same space include Arbor Realty Trust (NYSE:ABR) , Investor Real Estate Trust (NYSE:IRET) and Extra Space Storage Inc. (NYSE:EXR) . All three stocks carry a Zacks Rank #2 (Buy).

Arbor Realty Trust’s Zacks Consensus Estimates for 2018 funds from operations (FFO) per share have remained unchanged at 90 cents over the past month. Its shares have returned 2.9% in three months’ time.

Investor Real Estate Trust’s Zacks Consensus Estimates for fiscal-year 2018 FFO per share have been revised upward by a cent to 36 cents over the past month. The stock has rallied 9.1% in a months’ time.

Extra Space Storage’s FFO per share estimates for 2018 have been revised upward 0.4% to $4.59 over the past week. The stock has gained 1.8% during the past three months.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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