RLJ Lodging Trust (RLJ) is a self-advised, publicly traded real estate investment trust that owns primarily premium-branded, high-margin, focused-service and compact full-service hotels. The company has a diverse portfolio of 96 hotel properties with approximately 21,300 rooms, strategically located across 23 states and the District of Columbia.

RLJ Lodging Trust's Storied History

RLJ Lodging Trust was formed as a Maryland real estate investment trust (REIT) on January 31, 2011. The company is a self-advised and self-administered REIT that owns primarily premium-branded, rooms-oriented, high-margin, focused-service and compact full-service hotels located within high-growth urban markets. RLJ Lodging Trust elected to be taxed as a REIT, for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2011. Substantially all of the company's assets and liabilities are held by, and all of its operations are conducted through, RLJ Lodging Trust, L.P., the Operating Partnership. RLJ Lodging Trust is the sole general partner of the Operating Partnership.

The company was founded by Robert L. Johnson, the founder and former chairman of Black Entertainment Television (BET). The company's initial public offering raised $1.2 billion, making it one of the largest REIT IPOs at the time. Since its inception, RLJ Lodging Trust has grown its portfolio through strategic acquisitions, asset repositionings, and selective dispositions, positioning itself as a leading player in the hospitality REIT space.

As of September 30, 2024, RLJ Lodging Trust owned 96 hotel properties with approximately 21,300 rooms, located in 23 states and the District of Columbia. The company owned, through wholly-owned subsidiaries, a 100% interest in 94 of its hotel properties, a 95% controlling interest in one hotel property, and a 50% non-controlling interest in an entity owning one hotel property.

Throughout its history, RLJ Lodging Trust has faced various challenges. In 2020, the company was impacted by the COVID-19 pandemic, which significantly disrupted the hospitality industry. However, the company was able to navigate the crisis by implementing cost-saving measures and taking advantage of government relief programs. RLJ Lodging Trust also recycled capital by selectively selling non-core assets, which allowed it to strengthen its balance sheet. In 2022, the company undertook a strategic brand conversion program, renovating and repositioning several of its hotel properties to better align with evolving customer preferences.

Resilient Financial Performance and Disciplined Capital Allocation

As of the most recent quarter ended September 30, 2024, RLJ Lodging Trust reported total revenues of $329.99 million, representing a 3.2% year-over-year increase. The company's robust financial performance was driven by a 2% growth in RevPAR, led by a 1.4% increase in occupancy and a 0.6% rise in average daily rate (ADR). Notably, the company's business transient (BT) segment continued to outperform, with an 8.7% year-over-year increase in RevPAR, supported by a 5% gain in ADR and a 3% improvement in occupancy.

For the nine months ended September 30, 2024, the company reported total revenues of $1.04 billion from its hotel properties, consisting of $853.9 million in room revenue, $113.5 million in food and beverage revenue, and $72 million in other revenue. The company's comparable properties reported a 73.7% occupancy rate and an average daily rate (ADR) of $199.43, translating to a revenue per available room (RevPAR) of $147.04 for the comparable hotels, up from $144.28 in the prior year period.

RLJ Lodging Trust has demonstrated a disciplined approach to capital allocation, utilizing its strong balance sheet to fund strategic acquisitions, such as the Wyndham Boston Beacon Hill and the Hotel Teatro, while also recycling proceeds from non-core dispositions to repurchase approximately 2.3 million shares of common stock for $22 million in 2024. Additionally, the company has maintained a well-laddered debt maturity profile, addressing all of its 2024 and 2025 maturities during the year.

Operational Efficiency and Portfolio Transformation

RLJ Lodging Trust's portfolio transformation efforts have been a key driver of its performance. The company has successfully completed six hotel conversions to date, with an additional pipeline of future projects in the works. These conversions have yielded robust results, with the three phase one conversions achieving a 24% year-over-year increase in RevPAR during the fourth quarter of 2024, significantly outpacing the overall portfolio.

Furthermore, RLJ Lodging Trust has maintained a strong focus on operational efficiency, as evidenced by its ability to manage hotel operating expenses. During the third quarter of 2024, the company's total hotel operating cost growth was only 3.9%, underscoring the benefits of its portfolio composition and proactive cost management initiatives.

Navigating Industry Trends and Market Positioning

The hospitality industry has been navigating a dynamic landscape, with the lingering effects of the COVID-19 pandemic, evolving travel patterns, and macroeconomic uncertainties. RLJ Lodging Trust has demonstrated its ability to adapt to these challenges, leveraging its urban-centric portfolio and strategic investments to capitalize on the recovery in business transient and group travel, as well as the continued strength in leisure demand.

The global hotel market is valued at $1.37 trillion as of 2023 and is expected to reach $2.99 trillion by 2032, growing at a CAGR of 9.14% between 2024 and 2032. This growth is attributed to the surging travel demand post-Covid, resurgence in leisure and business activities, and increased disposable incomes. RLJ Lodging Trust's focus on premium-branded, focused-service hotels has allowed it to capitalize on this recovery in both business and leisure travel.

Looking ahead, the company's 2025 outlook reflects cautious optimism, with expectations for low single-digit RevPAR growth and continued outperformance in its urban markets. RLJ Lodging Trust's favorable market positioning, with a focus on high-growth urban destinations and a diverse customer base, positions it well to navigate the industry's evolving landscape.

Risks and Challenges

While RLJ Lodging Trust has exhibited resilience, the company is not without its risks and challenges. The hospitality industry remains susceptible to economic downturns, changes in consumer preferences, and increased competition from alternative lodging options. Additionally, the company's reliance on a limited number of large customers, as well as its exposure to rising interest rates and labor costs, could impact its financial performance.

Financials

RLJ Lodging Trust's financial performance has been solid, as evidenced by its revenue growth and RevPAR improvements. The company's focus on operational efficiency has helped maintain profitability despite industry challenges. Its strategic capital allocation, including share repurchases and targeted acquisitions, demonstrates a commitment to enhancing shareholder value.

In the most recent quarter, RLJ reported net income of $5.38 million, operating cash flow of $71.03 million, and free cash flow of $71.03 million. The company's year-over-year revenue growth in the most recent quarter was 3.2%.

For the full-year 2025, RLJ expects comparable RevPAR growth between 1% and 3%, comparable hotel EBITDA between $378 million and $408 million, corporate adjusted EBITDA between $345 million and $375 million, and adjusted FFO per diluted share between $1.46 and $1.66. The company estimates 2025 capital expenditures will be $80 million to $100 million and cash G&A will be $34 million to $35 million. Net interest expense in 2025 is expected to be $94 million to $96 million.

In Q4 2024, RLJ reported solid operating results, with Q4 RevPAR growth of 2.2% driven by a 2.5% increase in ADR. The business transient (BT) RevPAR grew 8% in Q4 2024, with healthy ADR growth of 7% and occupancy growth of 1%. The group segment performed well, with group revenues growing 3% led by a 1% improvement in demand and a 2% increase in ADR. Q4 2024 hotel EBITDA was $90.4 million, representing $0.5 million of growth above Q4 2023. Q4 2024 adjusted EBITDA was $81.1 million and adjusted FFO per diluted share was $0.33.

Liquidity

The company has maintained a strong liquidity position, with a well-managed balance sheet and strategic debt management. RLJ Lodging Trust's proactive approach to addressing near-term debt maturities and its disciplined capital recycling efforts have contributed to its financial flexibility, allowing it to pursue growth opportunities while maintaining a conservative financial profile.

As of September 30, 2024, RLJ had $385.38 million in cash and a $600 million revolving credit facility, of which $500 million was available. This strong liquidity position provides the company with ample resources to fund its operations and pursue strategic growth opportunities.

Conclusion

RLJ Lodging Trust has demonstrated its ability to navigate the dynamic hospitality industry, leveraging its strategic portfolio, operational expertise, and disciplined capital allocation to deliver consistent financial results. With a focus on high-growth urban markets, a diversified customer base, and a robust pipeline of value-enhancing initiatives, the company appears well-positioned to continue its trajectory of growth and shareholder value creation. The positive guidance for 2025, including expectations for RevPAR growth and improved EBITDA, further underscores the company's confidence in its strategic direction and ability to capitalize on the ongoing recovery in the hospitality sector.