Credit Rating For The Unrated REITs (Part 6): RLJ Lodging Trust

An analysis by Strategic Yield assigns RLJ Lodging Trust a Ba1 credit rating, citing its diversified hotel portfolio, solid asset coverage, and moderate leverage as strengths, but noting weak liquidity and a challenging operating environment as significant risks. While RLJ's preferred stock (RLJ.PR.A) and OTC bonds offer yields, the author concludes they lack sufficient downside protection given the inherent risks.

Analysis

RLJ Lodging Trust (RLJ) has been assigned a Ba1 credit rating in a recent independent analysis, reflecting a balance of significant strengths and notable risks. The REIT's credit profile is supported by a sizable and diversified hotel portfolio, solid asset coverage, and moderate leverage metrics. However, these positive factors are counteracted by significant headwinds, specifically identified as weak liquidity and a broadly challenging operating environment for the hotel industry. The analysis extends to the company's fixed-income securities, concluding that while its preferred stock (RLJ.PR.A) and over-the-counter bonds provide yield, they do not offer adequate downside protection to compensate for the underlying credit and operational risks.

Key Decisions for Investors

• Investors considering RLJ's preferred stock (RLJ.PR.A) or its OTC bonds should be cautious, as the current yields may not adequately compensate for the highlighted credit risks and lack of downside protection.
• Portfolio managers should closely monitor RLJ's liquidity position and broader hotel industry trends, as these are identified as the primary threats to the company's stability.
• Given the Ba1 'speculative grade' assessment, investors should re-evaluate RLJ's position within their risk tolerance framework, particularly if their mandate requires investment-grade holdings.