Company Overview

RLJ Lodging Trust is a self-advised and self-administered Maryland real estate investment trust that owns a diversified portfolio of primarily premium-branded, rooms-oriented, high-margin, focused-service and compact full-service hotels located within heart of demand locations across the United States. With a strategic focus on urban markets, the company has demonstrated its ability to navigate the evolving hospitality landscape, delivering strong operational and financial performance.

Established in 2011, RLJ Lodging Trust has built a portfolio of 96 hotel properties with approximately 21,300 rooms, located in 23 states and the District of Columbia. The company's investment strategy centers on acquiring and operating hotels that can generate high levels of RevPAR (Revenue per Available Room), strong operating margins, and attractive long-term returns. RLJ Lodging Trust elected to be taxed as a REIT, commencing with its taxable year ended December 31, 2011.

Historical Performance

Throughout its history, RLJ has faced various challenges, including the significant disruption caused by the COVID-19 pandemic in 2020. During this period, the company implemented cost-saving measures to preserve liquidity and navigated a substantial decline in travel demand. Despite these headwinds, RLJ remained committed to its strategic direction and continued to actively manage its portfolio.

As travel demand began to rebound in 2021, RLJ focused on repositioning its portfolio and unlocking value through strategic initiatives such as hotel conversions and renovations. This approach has allowed the company to enhance the quality and competitiveness of its hotel properties, better positioning itself for the post-pandemic recovery.

Portfolio Strategy

RLJ's portfolio is heavily weighted toward urban markets, with over two-thirds of its hotels located in high-growth urban areas that exhibit multiple demand generators and favorable long-term growth prospects. This strategic positioning has allowed the company to capitalize on the recovery in business travel and the continued strength in group demand, as evidenced by its third-quarter 2024 results.

Recent Performance

During the third quarter of 2024, RLJ reported a 2% increase in RevPAR, which was twice the industry average, driven by a 1.4% rise in occupancy and a 0.6% increase in average daily rate (ADR). The company's urban hotels continued to be the primary driver of this outperformance, achieving a 2.5% RevPAR growth. Additionally, RLJ's urban lifestyle hotels, which represent approximately 40% of the portfolio, delivered a 3.2% RevPAR increase, highlighting the company's ability to capture seven-day-a-week demand.

The strength in RLJ's performance was further demonstrated by the 3.1% increase in its third-quarter weekday revenues, driven by the continued recovery in business transient demand, which grew nearly 9% year-over-year, and the solid performance of the group segment, which saw a 3.4% revenue increase. Despite the impact of recent storms and the holiday calendar shift, the company's disciplined approach to cost management enabled it to maintain flat margins and achieve a 2.6% year-over-year increase in hotel EBITDA.

Financials and Liquidity

RLJ's ability to execute on multiple strategic initiatives simultaneously is a testament to its strong balance sheet and free cash flow profile. In the third quarter, the company entered into a new $500 million term loan to refinance its 2025 maturities, further strengthening its financial position and adding flexibility. Additionally, the company continued its active portfolio management, selling two non-core hotel properties and recycling the proceeds into the accretive repurchase of 2.2 million shares.

For the fiscal year 2023, RLJ reported total revenue of $1.33 billion and net income of $76.41 million. The company generated operating cash flow (OCF) and free cash flow (FCF) of $315.14 million. In the most recent quarter ending September 30, 2024, RLJ reported revenue of $345.74 million, representing a 3.4% year-over-year growth. This increase was primarily due to a $20.48 million increase in room revenue, a $7.91 million increase in food and beverage revenue, and a $5.19 million increase in other revenue. Net income for the quarter stood at $20.64 million, with OCF of $73.01 million and FCF of $145.38 million.

RLJ's financial position remains strong, with a debt-to-equity ratio of 0.96 as of December 31, 2023. The company had $516.67 million in cash and a $500 million revolving credit facility available. The current ratio and quick ratio both stood at 2.85, indicating a healthy liquidity position.

Geographic Performance

RLJ's portfolio is diversified across various geographic markets, with notable performance in key urban areas. In the third quarter of 2024, Southern California led the revenue generation with $50.48 million, followed by Northern California with $41.79 million. Other significant markets included South Florida ($27.50 million), New York City ($22.29 million), Chicago ($21.80 million), Boston ($17.73 million), Louisville ($15.91 million), Washington, DC ($15.14 million), Houston ($12.80 million), and Charleston ($11.83 million). The remaining markets collectively contributed $108.47 million to the quarter's revenue.

Future Outlook

Looking ahead, RLJ remains well-positioned to capitalize on the industry's favorable fundamentals. The company's urban-centric portfolio, ongoing brand conversions, and continued improvement in business travel demand are expected to drive its performance. Furthermore, the company's favorable footprint in markets with strong citywide events, such as the Super Bowl in New Orleans and the Presidential Inauguration in Washington, D.C., should provide additional tailwinds.

Despite the unique headwinds faced in the fourth quarter, including the impact of Hurricane Milton and the election-related slowdown, RLJ's strong third-quarter results and the resilience of its portfolio give the company confidence in its overall outlook. As the industry positions for multiple years of demand-driven growth, RLJ's strategic focus, operational excellence, and disciplined capital allocation should continue to position the company as a top performer in the urban hospitality landscape.

2024 Guidance

RLJ has reaffirmed its guidance for 2024, anticipating the continuation of the current operating and economic environment. The company expects 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, and adjusted FFO per diluted share between $1.45 and $1.58. Capital expenditures for 2024 are estimated to be in the range of $100 million to $220 million, while net interest expense is expected to be between $92 million and $94 million.

This guidance reflects RLJ's confidence in its ability to navigate the evolving hospitality landscape and continue delivering strong operational and financial performance. The company's focus on urban markets, strategic portfolio management, and disciplined financial approach position it well to capitalize on the ongoing recovery in the hospitality sector and drive long-term value for shareholders.