RLJ Lodging Trust — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports annual results; the supplied text does not provide a separate fourth-quarter income statement. RLJ is a lodging REIT that owned 97 hotels with approximately 21,400 rooms across 23 states and Washington, D.C., primarily operated under premium brands.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $1,193.7 million | $785.7 million |
| Net income (loss) | $42.2 million | ($311.1 million) |
| Net income (loss) attributable to common shareholders | $16.8 million; $0.10 per diluted share | ($330.3 million); ($2.01) per diluted share |
| Operating cash flow | $256.5 million | $43.0 million |
| FFO attributable to common shareholders and unitholders | $201.6 million | $1.6 million |
| Adjusted FFO | $221.1 million | $31.4 million |
| Adjusted EBITDA | $336.5 million | $162.0 million |
Comparable-hotel occupancy improved to 69.0% from 57.8%; ADR rose to $187.25 from $149.08; and RevPAR increased to $129.13 from $86.11. Management said RevPAR remained below pre-pandemic levels. Room revenue was 84% of total revenue.
Property operating expenses were $744.4 million, up from $511.5 million. Total operating expenses were $1,072.3 million, compared with $980.6 million; the prior-year amount included $144.8 million of impairment losses, versus none in 2022. Interest expense declined to $93.2 million from $106.4 million.
At year-end, debt was approximately $2.2 billion, with a weighted-average interest rate of 3.57%. Cash, cash equivalents and restricted cash totaled $536.4 million, and $600 million was available on the revolving credit facility. The company reported $294.0 million of principal scheduled to mature in 2023 before giving effect to specified term-loan extensions exercised in January 2023. After swaps, 98.7% of debt was fixed or effectively fixed. A 100-basis-point increase in rates on unhedged variable-rate debt was estimated to reduce annual earnings and cash flow by approximately $0.3 million.
Cash dividends on common shares totaled $0.12 per share in 2022, versus $0.04 in 2021. The company repurchased approximately 4.9 million common shares for $57.6 million.
Material changes and notable activities
- Revenue increased $408.0 million year over year, reflecting stronger room demand, rate growth, leisure travel recovery, and some recovery in business and group bookings. Food and beverage revenue also benefited from increased banquet and catering activity and reopened outlets.
- The return to GAAP net income followed a 2021 loss that included substantial hotel impairment charges. The 2022 improvement also reflected higher hotel revenue and lower interest expense; it should not be viewed as solely a recurring operating comparison.
- RLJ acquired the 124-room 21c Hotel Nashville for $59.0 million, sold two hotels for approximately $49.9 million, and spent $124.3 million on hotel improvements and additions.
- The company repaid a $200 million revolver balance using cash, amended a term loan to increase capacity to $200 million and extend its maturity to January 2026, and exercised or announced term-loan extension options. It also exited COVID-related credit-agreement restrictions during 2022.
- Other income of $9.5 million included reclassification of unrealized gains and losses on discontinued cash-flow hedges. The $36 million Wyndham termination payment received in 2019 was fully recognized as a reduction of management and franchise expense by year-end 2022.
Outlook, risks and contingencies
The filing provides no specific 2023 revenue, earnings, RevPAR or capital-spending guidance. Management’s stated strategy is to own premium-branded focused-service and compact full-service hotels, improve property performance through asset management, selectively acquire or sell hotels, and maintain balance-sheet flexibility. Management cautions that actual results may differ materially from forward-looking statements.
- Key operating risks include recession or weaker lodging demand, inflation and rising labor and other costs, business-travel dependence, seasonality, new hotel supply, and competition from hotels and alternative lodging providers. Management noted that labor shortages and supply-chain constraints can affect operations and capital projects.
- Financing risks include refinancing substantial debt maturities, higher rates on future or unhedged borrowings, access to capital, and compliance with debt covenants. Failure to refinance on acceptable terms could require asset sales or other actions.
- The portfolio has exposure to concentrated markets, third-party hotel managers, and major brand families. Management also identifies risks from franchise standards and required property improvements, ground leases, natural disasters and climate impacts, and potentially uninsured losses.
- Thirteen consolidated hotels and one unconsolidated hotel were subject to ground leases. The Wyndham Boston Beacon Hill and Wyndham San Diego Bayside ground leases expire in 2028 and 2029, respectively, without listed extension terms.
- RLJ reported no material litigation, and management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2022. The auditor identified the hotel-property impairment assessment as a critical audit matter because of the judgment involved in assessing recoverability.
Important facts for investors to verify
- Review the 2022 recovery in comparable-hotel RevPAR and whether it continued toward pre-pandemic levels after year-end.
- Check the status and terms of debt maturities, extensions, refinancing, variable-rate exposure, and covenant compliance after the filing date.
- Assess whether operating costs—especially labor, insurance, utilities and property maintenance—are rising faster than room rates and revenue.
- Evaluate the sustainability of cash available for common distributions after preferred dividends, debt service, capital expenditures and REIT distribution requirements.
- Review the assumptions underlying hotel-property valuations and impairment testing, along with the execution and returns of planned renovations, acquisitions and dispositions.