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RLJ Lodging Closes Credit Facility

Zacks Equity Research

In order to attain ample flexibility and liquidity, Bethesda, Maryland-based real estate investment trust (:REIT), RLJ Lodging Trust (RLJ), has announced the completion of an unsecured credit facility worth $700 million. The facility, expandable to up to $1.2 billion, consists of a five-year and seven-year term loan worth $400 million and a revolving credit facility worth $300 million.

The joint lead arrangers and book running managers for the transaction were Wells Fargo Securities, LLC, – a unit of Wells Fargo & Company (WFC), PNC Capital Markets LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated – a wing of Bank of America Corporation (BAC).

With the new revolving credit facility, RLJ Lodging replaced the existing one. Due to these combined transactions, the company expects interest expense savings of roughly $8 million to $10 million in 2013. This is expected to benefit the company’s FFO (funds from operations) in 2013.

RLJ Lodging intends to use proceeds from the term loan to pay off around $70 million of the outstanding revolving credit facility worth $85 million. Moreover, the company plans to pay down its four secured mortgage loans worth $330 million, which was slated to mature in 2013. In addition to the mortgage loan retirement, the company’s revolving credit facility was adjusted and reiterated with favorable terms and conditions.

As a matter of fact, with the retirement of these four mortgage loans, four key assets of RLJ Lodging will be unmortgaged. The company’s unmortgaged assets will thus total 57, representing around 52% of the total hotel portfolio EBITDA in 2011.

Founded in 2000, RLJ Lodging invests in real estate markets and manages real estate funds in the U.S. It focuses on the acquisition of premium-branded, focused-service and compact full-service hotels.

The company reported adjusted FFO (funds from operations) of 48 cents in the third quarter of 2012, missing the Zacks Consensus Estimate by a penny. As of September 30, 2012, RLJ Lodging had cash and cash equivalent of $192.1 million and $1.4 billion of outstanding debt, including $85 million outstanding unsecured credit facility.

We have a long-term Neutral recommendation on RLJ Lodging. Also, it carries a short-term Zacks #3 Rank (Hold).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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