RLJ Lodging (RLJ) Refinances Loans, Reduces Interest Expense

RLJ Lodging Trust (NYSE:RLJ) recently enhanced its financial position by closing two refinancing transactions, consisting of two new mortgage loan worth $200 million and $96 million, respectively.

Specifically, the $200-million loan was originated by Bank of America (NYSE:BAC), N.A. and is secured by seven hotels. The five-year loan carries two one-year extension options and matures in April 2024 including the extension options. The floating rate loan carries an interest rate of LIBOR plus 152 basis points (bps).

Further, the $96-million loan was originated by PNC Bank, National Association and is secured by three hotels. With two one-year extensions, the seven-year floating-rate mortgage loan will be due in April 2026, after considering the extension options. It carries an interest rate of LIBOR plus 160 bps.

Proceeds from the new loans will be used to pay down two near-term maturing loans. This includes a secured loan worth $150 million that is slated to mature in October 2021 and another loan worth $140 million set to mature in March 2022.

Per management, the refinancing activities will extend the company’s debt maturities and reduce interest expense, thereby, strengthening its balance sheet. Additionally, a well-laddered debt maturity profile and low weighted average interest rate on debt enhances the company’s financial flexibility and will enable it to pursue strategic initiatives in future.

In fact, with these transactions, the company will be able to extend its weighted average maturity to 4.2 years. Also, the refinancing narrows the weighted average interest rate spread from LIBOR plus 225 bps on the loans repaid to LIBOR plus 155 bps on the new borrowings.

The decrease in spread will result in annual interest expense savings of more than $2 million. After considering interest cost saving, the company had provided net interest expense outlook range of $88-$90 million.

In 2018, the company resorted to non-core asset disposition in a bid to de-lever and strengthen its balance sheet. While such disposition will enable the company to efficiently recycle capital, such moves may weigh on its near-term earnings.

Shares of this Zacks Rank #4 (Sell) company have gained 3.8% over the past three months, underperforming the industry’s growth of 13.1%.

Stocks to Consider

Investors can consider better-ranked stocks from the same space like Terreno Realty Corporation (NYSE:TRNO) , Cousins Properties Incorporated (NYSE:CUZ) and Alexandria Real Estate Equities, Inc (NYSE:ARE) , carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Terreno Realty’s funds from operations (FFO) per share estimates for 2019 remained unchanged at $1.42, in the past two months. In addition, it has a long-term growth rate of 8.40%.

Cousins Properties’ Zacks Consensus Estimate for first-quarter 2019 FFO per share has been revised marginally upward to 20 cents in the past month. Moreover, it has a long-term growth rate of 3.50%.

Alexandria’s FFO per share estimate for the ongoing year has been revised marginally north to $6.96 in two months’ time. Additionally, it has a long-term growth rate of 4.40%.

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