RLJ Lodging Trust's High-Yielding Preferred Shares: A Hybrid Strategy for High-Interest Environments

In a high-interest-rate environment where traditional income-generating assets face headwinds, RLJ Lodging Trust's Series A Cumulative Convertible Preferred Shares (RLJ.PRA) emerge as a compelling hybrid instrument, blending equity and debt characteristics to offer resilience and yield. This analysis evaluates the preferred shares' structural advantages, sector positioning, and credit profile to determine their viability as a defensive income strategy.

Capital Structure and Hybrid Resilience

RLJ Lodging Trust's capital structure as of June 30, 2025, reveals a debt-to-equity ratio of 1.19, with $2.58 billion in long-term debt and $2.24 billion in shareholders' equity, according to published Treasury rates. The company's preferred shares, however, occupy a unique niche: they are cumulative, perpetual, and callable, with a fixed dividend of 7.90% paid quarterly as disclosed in the company's Q2 report. These shares are convertible into common stock at a rate of 0.2806 shares per preferred share, though conversion is contingent on the common stock trading above $89.09 for 20 consecutive days, per the preferred stock page. This structure provides investors with downside protection akin to debt (via cumulative dividends and liquidation preference) while retaining upside potential through conversion.

The company's liquidity further strengthens its ability to service obligations. The Q2 report shows RLJ holds $974 million in total liquidity, including $374 million in unrestricted cash and $600 million in revolving credit facilities. This buffer mitigates refinancing risks, particularly in a high-rate environment where debt costs are elevated.

Yield Advantages in a High-Yield Landscape

RLJ.PRA's current yield of 7.59% as of October 2025 outperforms the 4.12% yield of the 10-year U.S. Treasury bond and competes closely with high-yield corporate bonds, which average 7.5%, according to Morgan Stanley. Unlike Treasuries, which lack income growth potential, or high-yield bonds, which carry credit risk, RLJ.PRA offers a fixed dividend stream with seniority over common shares. Additionally, the preferred shares trade at a 2.72% premium to their $25.00 liquidation preference ($25.68 as of October 2025), signaling market confidence in their stability.

This yield advantage is amplified by RLJ's disciplined capital management. In Q2 2025, the company repurchased 0.8 million common shares for $6.0 million, demonstrating a commitment to shareholder value-a trait that indirectly supports preferred share resilience by preserving equity strength.

Sector Positioning and Operational Efficiency

The U.S. lodging sector faced a 1.2% year-over-year RevPAR decline in Q2 2025, the steepest drop since March 2024, according to Cushman & Wakefield. However, RLJ's focus on premium-branded, high-margin hotels allowed it to outperform peers in certain segments. While its portfolio RevPAR fell 2.1% to $155.08, the company maintained total revenues at $363.1 million, reflecting operational discipline as reported in the Q2 filing. Luxury hotels, a segment in which RLJ has significant exposure, saw a 3.3% RevPAR increase during the same period, underscoring the company's alignment with resilient demand.

RLJ's debt structure further insulates it from rate volatility. Over 80% of its debt is fixed-rate or hedged, reducing exposure to rising borrowing costs, as shown in the company's SEC filing. This stability is critical for maintaining dividend payments, as evidenced by the uninterrupted $0.4875 quarterly payout to preferred shareholders in Q2 2025.

Credit Profile and Analyst Perspectives

RLJ Lodging Trust holds a Ba1 credit rating from Moody's, a fact noted in a Seeking Alpha article. While this non-investment-grade rating introduces some risk, the company's quick ratio of 1.65, per MarketBeat, and $246.3 million remaining in its 2025 share repurchase program highlight its capacity to navigate stress scenarios. Analysts remain cautiously optimistic: despite downgrades from firms like Baird R W, a Nasdaq article shows the average price target of $9.10 for the common stock suggests confidence in long-term recovery.

For preferred shares, the cumulative dividend feature adds a layer of security. Unpaid dividends accrue as a liability, ensuring that preferred shareholders are prioritized over common shareholders-a critical advantage during earnings contractions.

Conclusion: A Balanced Approach to Income Resilience

RLJ Lodging Trust's Series A preferred shares present a hybrid strategy that bridges the gap between equity and debt. Their high yield, structural protections, and alignment with a sector showing pockets of resilience make them an attractive option for income-focused investors in a high-rate environment. While risks such as economic volatility and sector-specific challenges persist, RLJ's liquidity, fixed-rate debt profile, and management's proactive capital allocation mitigate these concerns. For those seeking a balance of yield and stability, RLJ.PRA warrants serious consideration.