RLJ Lodging Trust (RLJ) is a self-advised and self-administered real estate investment trust (REIT) that owns primarily premium-branded, rooms-oriented, high-margin, focused-service and compact full-service hotels located within high-growth urban markets. With a diversified portfolio of 96 hotel properties comprising approximately 21,300 rooms across 23 states and the District of Columbia, RLJ Lodging Trust has established itself as a prominent player in the hospitality industry.
Business Overview and History
RLJ Lodging Trust was formed as a Maryland REIT in 2011, with the company electing to be taxed as a REIT commencing with its 2011 taxable year. The company's strategy is to own primarily premium-branded, rooms-oriented, high-margin, focused-service and compact full-service hotels located within heart of demand locations. Over the years, RLJ Lodging Trust has steadily grown its portfolio, taking advantage of strategic acquisitions and asset repositioning opportunities.
As of September 30, 2024, the company owned 96 hotel properties, with 94 properties wholly-owned, one property with a 95% controlling interest, and one property with a 50% non-controlling interest. The company leases 95 of the 96 hotel properties to its taxable REIT subsidiaries, where it maintains a controlling financial interest.
In 2020, RLJ Lodging Trust faced significant challenges due to the COVID-19 pandemic, which severely impacted the hotel industry. The company experienced substantial declines in revenue and profitability during this period. To navigate through this crisis, RLJ Lodging Trust implemented measures to strengthen its balance sheet, including raising additional capital and reducing costs. The company also collaborated closely with its brand partners and hotel management companies to weather the storm.
Despite these obstacles, RLJ Lodging Trust has remained dedicated to its core strategy of owning high-quality, focused-service and compact full-service hotels in urban markets. The company has continued to actively manage its portfolio through strategic acquisitions and dispositions to optimize its footprint. Additionally, RLJ Lodging Trust has invested in renovations and conversions to enhance the quality and performance of its hotels, demonstrating its commitment to long-term value creation.
Financial Performance and Ratios
Financials
RLJ Lodging Trust's financial performance has been resilient, despite the challenges faced by the hospitality industry in recent years. For the nine months ended September 30, 2024, the company reported total revenues of $1.04 billion, a 3.3% increase compared to the same period in the prior year. Net income for the nine-month period was $62.68 million, with adjusted EBITDA and adjusted FFO per diluted share reaching $280.49 million and $1.24, respectively.
For the most recent quarter (Q3 2024), RLJ Lodging Trust reported revenue of $345,744,000, representing a 3% increase compared to Q3 2023. This growth was driven by a 2% increase in RevPAR, attributed to continued strength in business transient and group demand, as well as growth in non-room revenue. Net income for Q3 2024 was $14,323,000, with operating cash flow (OCF) of $73,007,000 and free cash flow (FCF) of $145,379,000.
The company's revenues are primarily derived from the operation of its hotels, including room revenue, food and beverage revenue, and other revenue such as parking fees, resort fees, gift shop sales, and other guest service fees. Room revenue is the largest component, accounting for $853.9 million, or 82.1%, of total revenues for the nine months ended September 30, 2024. This represents a $20.5 million, or 2.5%, increase compared to the same period in 2023, driven by increased corporate and group travel at comparable properties.
Food and beverage revenue totaled $113.5 million, or 10.9% of total revenues, for the nine months ended September 30, 2024, reflecting a 7.5% increase from the previous year. Other revenue, including parking fees, resort fees, and guest service fees, amounted to $72.0 million, or 6.9% of total revenues, showing a 7.8% increase compared to 2023.
Property operating expenses, including room expense, food and beverage expense, management and franchise fee expense, and other operating expenses, totaled $661.9 million for the nine months ended September 30, 2024. This represents a 5.7% increase compared to the same period in 2023, primarily due to increases in wages and benefits, as well as other operating expenses.
Liquidity
The company's balance sheet remains well-capitalized, with a debt-to-EBITDA ratio of 6.2x as of September 30, 2024. RLJ Lodging Trust's weighted average interest rate on its debt was 4.56% at the end of the third quarter, with 74% of its debt either fixed or effectively fixed through the use of interest rate swaps. The company's liquidity position was robust, with approximately $885 million in available cash and borrowing capacity under its revolving credit facility.
As of September 30, 2024, RLJ Lodging Trust reported the following key financial metrics:
- Debt/Equity Ratio: 0.96 - Cash and Cash Equivalents: $385,380,000 - Available Credit Line: $500,000,000 on a $600,000,000 revolving credit facility - Current Ratio: 1.93 - Quick Ratio: 1.93
Recent Developments and Outlook
In 2024, RLJ Lodging Trust made significant strides in strengthening its portfolio and balance sheet. The company acquired the fee simple interest in its Wyndham Boston Beacon Hill hotel property, which was previously owned via a leasehold interest. Additionally, the company acquired the 110-room Hotel Teatro in Denver, Colorado for $35.5 million, further expanding its presence in key urban markets.
To address its near-term debt maturities, RLJ Lodging Trust entered into a new $500 million term loan, which was used to refinance a $400 million term loan and partially repay outstanding borrowings under its revolving credit facility. This transaction, along with the company's active portfolio management and share repurchase program, demonstrates its commitment to maintaining a strong balance sheet and creating value for shareholders.
RLJ Lodging Trust has demonstrated strong operating performance, with six consecutive quarters of market share gains driven by the strength of its urban portfolio and differentiated operating model. In the third quarter of 2024, the company's RevPAR growth of 2% was twice the industry average, and its hotels gained 100 basis points of market share.
For 2024, RLJ Lodging Trust has reaffirmed its previous guidance:
- Comparable RevPAR growth between 1% and 2.5% - Comparable hotel EBITDA between $382.5 million and $402.5 million - Corporate adjusted EBITDA between $346.5 million and $366.5 million - Adjusted FFO per diluted share between $1.45 and $1.58
The company estimates 2024 capital expenditures will be in the range of $100 million to $220 million and expects net interest expense to be between $92 million and $94 million. This outlook assumes no additional acquisitions, dispositions, or refinancings.
Looking ahead, RLJ Lodging Trust remains well-positioned to capitalize on the continued recovery in the hospitality industry. The company's urban-centric portfolio, which accounts for over two-thirds of its assets, is expected to benefit from the ongoing improvement in business transient and group demand, as well as the recovery of international travel. Furthermore, the company's pipeline of hotel conversions and repositioning projects is expected to drive additional growth in the coming years.
Risks and Challenges
As with any REIT, RLJ Lodging Trust faces risks associated with the hospitality industry, including economic downturns, changes in travel patterns, and competition from alternative lodging options. The company's reliance on a limited number of hotel brands and management companies also exposes it to concentration risk. Additionally, the company's exposure to rising interest rates and potential supply chain disruptions could impact its financial performance.
Conclusion
RLJ Lodging Trust's strategic focus on premium-branded, urban-centric hotels has served the company well, enabling it to outperform the industry in recent quarters. The company's strong balance sheet, diversified portfolio, and pipeline of value-enhancing initiatives position it to navigate the evolving hospitality landscape and capitalize on the industry's recovery. While challenges persist, RLJ Lodging Trust's proven track record and disciplined approach to capital allocation suggest that the company is well-equipped to deliver long-term value for its shareholders.