RLJ Lodging Trust — Q1 2023 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. RLJ is a lodging REIT focused on premium-branded, focused-service and compact full-service hotels. At quarter-end it owned 97 hotels with approximately 21,400 rooms across 23 states and Washington, D.C.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $314.5 million | $242.9 million |
| Net income (loss) | $10.5 million | $(15.5) million |
| Net income (loss) attributable to common shareholders | $4.4 million; $0.03 per share | $(21.5) million; $(0.13) per share |
| Operating cash flow | $42.0 million | $10.3 million |
| Adjusted EBITDA | $82.7 million | $54.6 million |
| Adjusted FFO | $56.1 million | $23.9 million |
Revenue increased 29.5% year over year. Comparable-property occupancy was 68.6% versus 61.2%, ADR was $198.85 versus $175.57, and RevPAR was $136.38 versus $107.39. Revenue growth reflected stronger leisure demand and a recovery in business and group bookings from the Omicron-affected prior-year quarter. Food and beverage revenue also benefited from increased banquet and catering activity and reopened outlets.
Property operating expenses rose to $201.0 million from $159.0 million, broadly tracking higher demand. Revenue less property operating expenses was $113.5 million, or 36.1% of revenue, compared with $83.9 million, or 34.5%, in Q1 2022; this is a simple calculation, not a company-reported GAAP margin. Interest expense declined modestly to $24.1 million from $24.6 million. The prior period included a $1.4 million hotel-sale gain and $5.9 million of hedge gains reclassified to other income.
Liquidity, debt and capital
- Cash and cash equivalents were $474.3 million and restricted cash reserves were $31.2 million at March 31, 2023; combined cash and restricted cash was $505.6 million, down from $536.4 million at year-end 2022.
- Debt, net, was $2.219 billion. The $600 million revolving facility was undrawn, leaving $600 million of capacity. Reported debt fair value was $2.087 billion.
- Q1 investing cash outflow was $32.6 million, including $32.6 million of hotel improvements and additions. Financing cash outflow was $40.2 million, including $94.0 million of term-loan repayments and $24.5 million of share repurchases, partly offset by $95.0 million of term-loan borrowing.
- In January, RLJ drew the remaining $95 million on its 2026 term loan and used proceeds to repay approximately $94 million of loans maturing in 2023. It extended approximately $225 million of term loans to January 2024. After quarter-end, it exercised the final extension on a $200 million mortgage loan, extending it to April 2024.
- About 54.0% of total indebtedness was variable-rate debt; after hedging, 84.1% of debt was fixed or effectively fixed. A 100-basis-point increase in unhedged variable rates was estimated to reduce annual earnings and cash flows by approximately $3.6 million.
- RLJ repurchased approximately 2.4 million shares for $24.5 million during the quarter. It later reported additional repurchases, and approved a new program authorizing up to $250 million of common and preferred share repurchases for May 2023 through May 2024. The common dividend declared for Q1 was $0.08 per share; the preferred dividend was $0.4875 per share.
Outlook, risks and other notable items
The filing provides no quantified earnings or operating guidance. Management described portfolio conversion activity, including the launch of The Pierside Hotel conversion in Santa Monica, and emphasized portfolio quality, capital recycling and prudent capital structure. Management cautioned that actual results may differ from forward-looking expectations and directed investors to the company’s risk disclosures.
Key exposures include sensitivity to business-travel demand and broader economic conditions, interest-rate movements, hotel operating costs, property taxes, insurance premiums, ground rents and recurring renovation and capital needs. Management reported compliance with debt covenants at quarter-end; all mortgage loans met debt-yield or DSCR thresholds and none were in cash-trap events. The company reported no material litigation and no material changes to previously disclosed risk factors. Disclosure controls were deemed effective.
Important facts for investors to verify
- Near-term maturities and extension conditions, particularly the term loans due January 2024 and mortgage debt extended into 2024.
- Whether hotel demand, occupancy, ADR and RevPAR gains persist as business and group travel recover.
- Variable-rate exposure, hedge maturities and the effect of refinancing at prevailing rates.
- Capital expenditure requirements, operating-cost inflation and the cash available after distributions and share repurchases.
- Performance measures labeled Adjusted EBITDA, Adjusted FFO and FFO are non-GAAP and may not be comparable with similarly named measures at other companies.