RLJ continues to execute on disposition strategy
 
RLJ continues to execute on disposition strategy
11 NOVEMBER 2019 8:41 AM

RLJ Lodging Trust completed the sale of 19 hotels in the third quarter of 2019, and despite softening demand and a lowered guidance, RLJ President and CEO Leslie Hale says the REIT is on track with its long-term goals.

BETHESDA, Maryland—Despite performance decreases attributed to general industry trends and market conditions, RLJ Lodging Trust president and CEO Leslie Hale said on the company’s third-quarter earnings call with analysts she is pleased with the progress the company has made in its portfolio transformation efforts.

In the third quarter, the real estate investment trust completed the sale of 18 non-core hotels plus an additional opportunistic sale—the Residence Inn Columbia in Ellicott City, Maryland, outside of Washington, D.C.

“We’ve been pleased with the execution of our non-core disposition strategy this year, which has resulted in elevating our profile and unlocking value,” she said. “Our current portfolio is largely in line with our long-term vision.”

The asset sales have created investment capacity in the form of capital. Hale said the company is “actively working to deploy this capital successfully,” which will happen through continued share repurchases, brand conversion opportunities—largely through the eight Wyndham hotels it has terminated NOI agreements for, and ROI opportunities, such as exploring ways to reduce cost of debt.

As for additional sales, Hale said the company isn’t actively marketing any hotels but is always open to opportunistic sales.

That includes The Knickerbocker in New York City, which RLJ inherited as part of its 2017 merger with FelCor Lodging Trust, and which it has tried to market with no takers.

That’s not something Hale is worried about.

“We’ve executed well on our dispositions. We have capacity and a strong balance sheet, which gives us the ability to remain disciplined,” she said. “We’re going to be patient. (The Knickerbocker) is an asset that’s iconic, in a market we believe in. We’re going to be patient and are sure we’ll get the value eventually.”

In Q3, RLJ completed the final agreement to terminate Wyndham management and NOI agreements for eight hotels previously announced.

“There’s great value here,” Hale said. “We’re in active discussions with major brands—Hilton, Hyatt, Marriott and IHG. We expect to finalize brand selections for several by the end of this year or early next, which would let us start renovations on one or two next year.”

Q3 performance and full-year outlook
While Hale acknowledged headwinds facing many in the U.S. hotel industry such as softening corporate transient business and the effects of Hurricane Dorian, she said RLJ performed well in its urban and top 25 market properties in Q3 and gained market share.

Overall, the company’s pro forma revenue per available room decreased 0.3% in Q3 compared to the same quarter last year, driven by a 0.8% decrease in average daily rate and partially offset by 0.5% increase in occupancy, according to RLJ’s earnings release.

Adjusted earnings before interest, taxes, depreciation and amortization for Q3 was $106.3 million, a decrease of $26.4 million from Q3 2018. Adjusted EBITDA was impacted by approximately $2.0 million from Hurricane Dorian, and reduced by approximately $1.0 million from the earlier than expected closing of 18 hotels, and by approximately $0.1 million from the sale of Residence Inn Columbia.

Because Hale said the company continues to see softening lodging demand, including on the corporate side, and lower international inbound numbers, RLJ is reducing the top end of its RevPAR guidance for full-year 2019 to 0% to 1% growth, adjusted from the previous 0% to 2% range.

Total RevPAR grew 0.6% in the quarter, driven by a 4.6% increase in food-and-beverage revenue and an 8.1% increase in “other” revenue, largely parking and other revenue initiatives, said Sean Mahoney, EVP and CFO.

Mahoney and Tom Bardenett, EVP of asset management, said F&B and other revenue represent a lot of runway for the company, which because of its distribution is less exposed to resort fee revenue.

On the F&B side, Bardenett said the company “continues to see benefits of lobby renovations (in its Embassy Suites portfolio), making the lobbies more beverage-centric.”

Continuing to work with Hilton to re-imagine Embassy Suites design to capitalize on additional space for F&B and meetings is a priority, he said.

Market highlights
Hale mentioned several markets that performed particularly well during the quarter, as well as others that had challenges.

  • Louisville, Kentucky, benefited from strong group business and the ramp-up of the city’s renovated convention center.
  • Austin, Texas, hotels benefited from strong citywides and healthy business transient demand, which the company expects to continue.
  • Washington, D.C., and Denver both posted 3.2% RevPAR growth in Q3.
  • New York saw RevPAR decrease 2.4%, compared to Q3 2018, due to soft business and leisure demand.
  • Chicago and Northern California experienced fewer citywide events, leading to 2.6% and 3.2% RevPAR drops, respectively.
  • Hurricane Dorian had an impact on Southern Florida; Charleston, South Carolina; New Orleans and Atlanta.

At press time, RLJ’s stocks were trading at $16.93 per share, up 0.9% year to date. The Baird/STR Hotel Stock Index was up 12.47% for the same time period.

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