RLJ Lodging Trust 10-Q Summary: Period Ended March 31, 2011
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011. The filing presents the financial condition of RLJ Lodging Trust (the "Company") prior to its Initial Public Offering (IPO), which was completed on May 16, 2011. The financial statements reflect the combined operations of the Company's predecessor entities: RLJ Lodging Fund II, L.P., RLJ Real Estate Fund III, L.P., and RLJ Development, LLC. At the reporting date, the Company owned 141 hotels in 19 states and the District of Columbia, comprising approximately 20,924 rooms. The Company is a self-advised and self-administered real estate investment trust (REIT) focused on premium-branded, focused-service, and compact full-service hotels.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenue | $174.3 million | $115.5 million |
| Operating Income | $9.4 million | $2.7 million |
| Net Loss (GAAP) | $(16.3) million | $(18.3) million |
| Funds From Operations (FFO) | $16.5 million | $4.5 million |
| Adjusted FFO | $19.2 million | $5.0 million |
| EBITDA | $42.6 million | $26.5 million |
| Adjusted EBITDA | $45.3 million | $26.9 million |
| Total Assets | $3.29 billion | $3.05 billion |
| Total Debt (Mortgage + Term Loan) | $1.88 billion | $1.75 billion |
| Cash and Cash Equivalents | $323.6 million | $267.5 million |
| RevPAR (Revenue Per Available Room) | $82.36 | $68.89 |
| Occupancy Rate | 68.7% | 64.4% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 50.9% year-over-year, driven primarily by $50.2 million in revenue from nine hotels acquired in 2011 and 15 hotels acquired in 2010, alongside improving economic conditions.
- Operating Performance: Operating income surged 246.9% to $9.4 million. Portfolio RevPAR increased 19.5% to $82.36, with same-property RevPAR growth of 8.3% driven by a 3.5% increase in occupancy and a 4.7% increase in Average Daily Rate (ADR).
- Expense Increases: Total operating expenses rose 46.2% to $164.9 million. This includes a 51.7% increase in hotel operating expenses and a 38.1% increase in depreciation and amortization, largely attributable to the expanded portfolio. Transaction and pursuit costs increased significantly to $2.7 million due to nine acquisitions in the quarter.
- Net Loss Improvement: Net loss narrowed by 11.1% to $(16.3) million, despite a 19.7% increase in interest expense due to additional indebtedness incurred for acquisitions.
Guidance, Outlook, and Risks
Outlook and Subsequent Events: The Company completed its IPO on May 16, 2011, raising gross proceeds of $495.0 million, with an additional $73.7 million raised via the overallotment option in June 2011. Net proceeds were used to repay approximately $472.6 million of secured indebtedness. On June 20, 2011, the Company entered into a $300 million unsecured revolving credit facility. Management intends to invest approximately $220 million over the next two years to enhance hotel quality and complete property improvement plans.
Risks and Contingencies:
- Default Risk: The New York LaGuardia Airport Marriott was in default on its mortgage loan as of March 31, 2011. The property is expected to be transferred to a third party by September 14, 2011. The book value of this property equals its fair market value, which is less than the mortgage loan balance.
- Interest Rate Risk: Approximately 57.8% of total indebtedness ($1.1 billion) is variable rate debt. A 100 basis point increase in interest rates would decrease future earnings by approximately $3.6 million annually.
- Liquidity: The Company relies on net cash provided by operations, existing cash balances, and access to capital markets to fund operations, debt service, and capital expenditures. As a REIT, the Company must distribute at least 90% of taxable income, limiting retained earnings for capital projects.
Key Facts for Investor Verification
- Pre-IPO Status: Financial results reflect the predecessor entities prior to the May 2011 IPO and formation transactions; results may not be indicative of future performance as a public REIT.
- Asset Transfer: Verify the status and timeline of the New York LaGuardia Airport Marriott transfer, which is currently in default and expected to be sold by September 2011.
- Debt Structure: Confirm the impact of the $300 million new revolving credit facility and the repayment of $472.6 million in secured debt post-IPO on the Company's leverage ratios.
- Capital Expenditures: Monitor the execution of the planned $220 million capital investment program over the next two years for renovations and rebranding.
- Non-GAAP Measures: Review the reconciliation of Net Loss to FFO and Adjusted EBITDA, as these are primary metrics used by management to evaluate performance.