While RLJ Lodging Trust executives expect to continue refining the portfolio indefinitely, President and CEO Leslie Hale said the company will finish selling off noncore assets from the acquisition of FelCor Lodging Trust in 2019.
BETHESDA, Maryland—After selling six of the 36 hotels acquired in the purchase of FelCor Lodging Trust, RLJ Lodging Trust officials said they expect to finish selling off what they view as noncore assets from that deal by the end of 2019.
Speaking during the company’s fourth-quarter and full-year 2018 earnings call, RLJ President and CEO Leslie Hale said the company is “well-positioned” to sell those assets, and she believes there is a heightened level of interested in high-profile properties, including two Myrtle Beach hotels and The Knickerbocker in New York.
Those hotels “are supported by the high quality of the assets and attractive market attributes,” she said, noting New York has seen a bounce back in fundamentals.
The company’s most-recent sale was of The Holiday Inn San Francisco-Fisherman’s Wharf, which has 585 rooms spread out between two buildings. The ground lease expired for one of the buildings on 31 October, transferring back to the lessor, and the company sold the other building for $75.2 million.
Sales will continue past this year, Hale said, of legacy RLJ assets that are also viewed as noncore to the real estate investment trust’s strategy of focusing on rooms-focused limited-service and compact-full service properties. She said she couldn’t define an end date for that part of the process.
“When you think about our portfolio long term, we have to continue to curate and refine,” she said. “It’s about skating where the puck is going. I think that’s what you do from a portfolio management perspective. You have to cull on an ongoing basis.”
She said market conditions right now seem to support the sales of both single assets and small portfolios, which the company will continue to pursue.
All told, the company sold seven hotels for roughly $533 million in 2018, and the company’s quarterly earnings news release noted they were sold at a 16.5-times blended earnings before interested, taxes, depreciation and amortization multiple.
Sale proceeds through the year were mainly used to pay down the company’s debt, with $635 million repaid.
For the time being, company officials seem uninterested in making acquisitions, noting that their capital is better spent lowering leverage and on return-on-investment projects, such as adding rooms to properties in high-occupancy markets.
“Relative to where asset prices are today, we think our internal returns are higher than what we’d get buying in the public market today,” said Sean Mahoney, EVP, CFO and treasurer for the company.
The company is projecting $90 million to $110 million in CapEx spending for full-year 2019.
RLJ saw revenue per available room decline for its portfolio in both the fourth-quarter and full-year 2018. The metric dropped 3% in the quarter and 0.8% for the year. Hale said those declines were in line with internal expectations, driven by softness in several key markets, tough year-over-year comparisons with hurricane-impacted markets and a significant amount of renovations activity across its portfolio.
Company officials expect metrics to be similarly challenged in 2019, with full-year RevPAR growth projected in a range of flat to 2%.
RLJ had full-year adjusted EBITDA of $522.1 million and net income of $190.9 million.
As of press time, RLJ stock was trading at $18.33 a share, up 11.7% year to date. The Baird/STR Hotel Stock Index was up 12.9% for the same period.