RLJ Lodging Trust: A High-Conviction Buy Ahead of 2026 Sector Turnaround

The lodging REIT sector is on the cusp of a transformative year in 2026, and RLJ Lodging Trust (RLJ) stands out as a compelling long-term investment at a significant discount to its intrinsic value. Despite near-term headwinds, including a 5.1% year-over-year decline in Q3 2025 RevPAR, according to the RLJ Lodging Trust Q3 2025 results, the company's strategic positioning, robust balance sheet, and alignment with macroeconomic tailwinds make it a high-conviction opportunity. Recent upgrades from Raymond James, as noted in Raymond James upgrade, and improving fundamentals underscore RLJ's potential to outperform peers as the sector rebounds.

Q3 Earnings Resilience Amid Challenging Environment

RLJ's third-quarter 2025 results demonstrated operational resilience despite a difficult macroeconomic backdrop. The company generated $330.05 million in revenue, slightly exceeding analyst estimates, according to Finimize, while maintaining disciplined cost control and driving 1.3% growth in out-of-room revenues, as discussed in the earnings call transcript. This performance was achieved even as RevPAR contracted due to a 3.1% occupancy decline and a 2.1% drop in average daily rates, as reported in the RLJ outlook. Notably, urban markets like Northern California outperformed, with 19.4% RevPAR growth driven by demand for conferences, concerts, and special events, as highlighted in the TradingView brief.

The company's balance sheet remains a critical strength, with $1.0 billion in liquidity and 74% of its $2.2 billion debt portfolio fixed or hedged, as noted in the Yahoo Finance article. Share repurchases of 0.2 million shares for $1.3 million at an average price of $7.29, according to the Nasdaq article, further highlight management's confidence in RLJ's intrinsic value.

Near-Term Challenges and 2026 Catalysts

While the government shutdown and air traffic control disruptions dampened October's RevPAR, as noted in Sunstone Q4 outlook, these are temporary hurdles. RLJ's 2026 outlook is bolstered by three key catalysts:
1. 2026 FIFA World Cup in the U.S.: Urban markets with RLJ assets are expected to benefit from surging international and domestic travel demand. The company's focus on high-traffic urban properties, such as those in Nashville and Northern California, aligns with event-driven growth.
2. America 250 Celebrations: A wave of cultural and historical events across the U.S. will drive extended-stay demand and ancillary revenue. RLJ's portfolio includes properties in key markets likely to capitalize on this trend.
3. Low Supply Constraints: New hotel supply remains subdued, limiting competition and supporting pricing power. RLJ's recent renovations in Key West and Waikiki, delayed by 2025 disruptions, are now positioned to deliver high single-digit RevPAR growth in 2026, as discussed in the RLJ outlook.

Raymond James' recent upgrade to "Strong Buy" reflects confidence in these tailwinds, with analysts projecting double-digit gains if the recovery materializes as expected.

Undervaluation vs. Peers: A Compelling Discount

RLJ's valuation metrics highlight its undervaluation relative to peers. As of Q3 2025, the company traded at a price-to-FFO (P/FFO) ratio of approximately 8.5x, according to the Nasdaq article, significantly below the sector average of 12x. For comparison, Sunstone Hotel Investors (SHO), a direct peer, trades at a 12.5x P/FFO, according to the Sunstone Q4 outlook, despite similar exposure to urban markets. This discount is unjustified given RLJ's stronger balance sheet, active share repurchase program, and superior cost-containment strategies.

Strategic Positioning for 2026

RLJ's 2026 guidance, while conservative, provides a floor for upside. The company expects adjusted FFO per share of $1.31–$1.37, as noted in the RLJ Q3 results, implying a potential 20%+ price-to-FFO expansion if the stock trades at 10x by year-end. Management's emphasis on ROI initiatives-such as renovations driving 6% RevPAR growth in converted properties, as discussed in the RLJ outlook-further strengthens the case for long-term outperformance.

Conclusion: A High-Conviction Long-Term Play

RLJ Lodging Trust is a rare combination of undervaluation, operational discipline, and macroeconomic alignment. While 2025 challenges persist, the company's strategic focus on urban markets, renovation-driven growth, and 2026 catalysts position it to outperform peers. Investors seeking exposure to the lodging sector's next phase of growth should consider RLJ a compelling entry point at current levels.