Back to top

Image: Bigstock

RLJ Lodging Obtains Covenant Waivers, Details Hotel Reopenings

Read MoreHide Full Article

RLJ Lodging Trust (RLJ - Free Report) secured an amendment to its $1.8-billion senior unsecured credit lines, consisting of a $600-million revolving credit facility and term loans worth $1,175 million.

Notably, the amended credit facility allows a waiver of quarterly financial covenants for a relief period starting from second-quarter 2020 to first-quarter 2021. During the term, certain restrictions were imposed on the company, including the prohibition on share buybacks as well as restriction on any dividend and distribution payment other than the payment of a cash dividend of 1 cent per common share and 48.75 per share on the company’s Series A cumulative convertible preferred shares and other payments necessary to maintain its REIT status.

Further, limitations on borrowing additional debt, asset dispositions, investments and discretionary capital expenditure, subject to certain exceptions and needing mandatory repayments, were imposed.

Nonetheless, the hotel REIT is permitted to make investments during the relief period like hotel acquisitions worth $200 million (depending on the outstanding balance on the revolving credit facility) and around $260 million in capital expenditure.

At the end of the covenant relief period, calculations of certain covenants will be modified to ease compliance through second-quarter 2022.

Notably, low lodging demand due to the COVID-19 outbreak likely impacted hotel earnings and hindered the company’s ability to comply with certain financial covenants.

Hence, the amendment and waivers enable it to obtain waivers from lenders prior to any violations. Other than staying in compliance with its entire loan requirements, the amendment provides it with the flexibility to pursue strategic initiatives.

Notably, it announced the suspension of operations at 57 hotels concurrent with first-quarter earnings release in response to government mandates and the significant reduction in demand due to the COVID-19 pandemic. Nonetheless, the company has been making progress with restarting its hotel operations as shelter-in-place restrictions are being lifted.

It recently reopened 19 hotels and continues to evaluate market conditions to restart additional hotels. In fact, it projects essential transient-oriented, select-service, and extended stay hotels situated in drive-to and leisure markets will likely witness faster reopening relative to other full-service hotels.

Moreover, shares of this Zacks Rank #4 (Sell) company have lost 50.3% over the past year compared with the industry’s decline of 8.3%.

Stocks to Consider

Alexander Baldwin Holdings, Inc.’s (ALEX - Free Report) Zacks Consensus Estimate for 2020 funds from operations (FFO) per share has been unchanged at 83 cents over the past month. The company currently flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

City Office REIT, Inc.’s (CIO - Free Report) FFO per share estimate for the ongoing year has been unchanged at $1.11 over the past 30 days. The company currently sports a Zacks Rank of 1.

Gladstone Land Corporation’s (LAND - Free Report) FFO per share estimate for 2020 has been unchanged at 68 cents over the past month. It currently carries a Zacks Rank of 2 (Buy).

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

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>

Published in