UPDATE: BMO Capital Markets Initiates Coverage on RLJ Lodging TRust with Market Perform Rating, $23 PT on Mixed Factors

In a report published Wednesday, BMO Capital Markets analyst Mark Lutenski initiated coverage on RLJ Lodging Trust RLJ with a Market Perform rating and $23.00 price target. In the report, BMO Capital Markets noted, “We are initiating coverage of RLJ Lodging Trust with a Market Perform rating and $23 target price. RLJ went public in May 2011 as a roll-up of private equity funds, and has avoided some of the size-induced growing pains of other blind pool REITs to IPO in the sector. Pros: 1) We think RLJ's larger size gives it a cost-of-capital advantage against regional players; 2) its diversified portfolio adds defensiveness, and its transient traveler focus plays to the strongest growth trend in the lodging recovery; and 3) its balance sheet has refinancing opportunity and significant acquisition dry powder. Cons: 1) we consider RLJ's diversification as out of favor in a sector where investors can hand-pick diversification among 14 other lodging REITs; 2) supply growth presents a higher threat to RLJ's portfolio than some of its peers; and 3) cap-rate compression for select-service assets has encouraged the company to acquire hotels with turnaround characteristics, which is a more risky strategy. Ultimately, we like the stock, but its relative outperformance following the Fed's tapering commentary makes us look for a more attractive entry point, and we are initiating with a Market Perform rating.” RLJ Lodging Trust closed on Tuesday at $22.01.