RLJ WACC - Weighted Average Cost of Capital

The WACC of RLJ Lodging Trust (RLJ) is 8.3%.

The Cost of Equity of RLJ Lodging Trust (RLJ) is 12.10%.

The Cost of Debt of RLJ Lodging Trust (RLJ) is 6.55%.

	Range	Selected
Cost of equity	10.50% - 13.70%	12.10%
Tax rate	2.00% - 2.70%	2.35%
Cost of debt	4.00% - 9.10%	6.55%
WACC	6.1% - 10.5%	8.3%

WACC

RLJ WACC calculation

Category	Low	High

Long-term bond rate	3.9%	4.4%
Equity market risk premium	4.6%	5.6%
Adjusted beta	1.44	1.58

Additional risk adjustments	0.0%	0.5%
Cost of equity	10.50%	13.70%

Tax rate	2.00%	2.70%
Debt/Equity ratio	2.04	2.04
Cost of debt	4.00%	9.10%

After-tax WACC	6.1%	10.5%


Selected WACC	8.3%

RLJ's CAPM model and how its cost of Equity is calculated

The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.

This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.

Here’s how we figure out the cost of equity for RLJ:

cost_of_equity (12.10%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.44) + risk_adjustments (0.25%)

We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.