The initial public offering, if successful, would make the trust headed by Robert L. Johnson one of the largest publicly traded lodging REITs. (Jeffrey MacMillan/Capital Business)
Robert L. Johnson, chief executive and co-founder of RLJ Development in Bethesda, is preparing this week to debut his newly formed hotel real estate investment trust on the New York Stock Exchange.
If the initial public offering is successful, the company would take its place as one of the largest publicly traded lodging REITs based on the number of hotels and rooms, adding to Maryland’s position as home to the world’s leading hotel trusts.
Launched in February, RLJ Lodging Trust plans to sell a maximum $664.1 million of common shares in the IPO at $19 to $21 per share. Proceeds from the offering will be used to repay $492 million of secured debt and $10.3 million in related prepayment penalties. Any remaining proceeds will be used as working capital.
The REIT comprises the hotel investments of RLJ Development and its two private equity funds, valued at approximately $743 million and $1.2 billion, respectively. Upon completion of the offering, the trust plans to own 140 hotels, with more than 20,400 rooms, in 19 states and the District. Nearly all of those properties fly Marriott, Hilton or Hyatt brand flags.
RLJ Lodging will debut in a very active domestic IPO market. There have been about 55 IPOs priced from January through the first week of May, a 31 percent increase from the same period a year ago, according to Renaissance Capital. Those offerings raised total proceeds of $19.2 billion, a 211.8 percent jump from last year.
“The U.S. IPO calendar is busy, which is a good signal for equity risk appetite in general,” said Matt Therian, a research analyst at Renaissance Capital. “But the prospects for a given REIT IPO really boils down to investment strategy, management track record and valuation.”
RLJ primarily concentrates on premium brands in urban and dense suburban markets. Its hotels generate most of their revenue from room rentals, and tend to have limited food and beverage as well as meeting space, mitigating operating costs, according to its prospectus. On a pro forma basis, the company reported revenue of $545.6 million for 2010, a 13.1 percent increase from the prior year.
Average occupancy rates at its hotels penciled in a 69.4 percent at the end of 2010, with average daily room rates of $118.46 and room revenue of $82.22. That compares to year-end national averages of 57.6 percent occupancy, average daily rates of $98.08 and room revenue of $56.47, according to Smith Travel Research.
In the 11 years since Johnson, the founder of Black Entertainment Television, teamed with hospitality veteran Thomas J. Baltimore to found RLJ Development, the company has completed some $5.7 billion in acquisitions and dispositions.