RLJ Lodging Trust — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2012. Figures below are in millions of dollars unless noted. The 2011 comparison includes predecessor results before the May 2011 IPO, so periods are not fully comparable.
Business context
RLJ is a self-advised lodging REIT focused on premium-branded, focused-service and compact full-service hotels. At quarter-end it held interests in 144 hotels with 21,342 rooms across 20 states and Washington, D.C. Three hotels totaling 691 rooms were acquired during the first half for approximately $182.7 million.
Financial performance and position
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $223.3 | $204.3 | $406.5 | $372.4 |
| Operating income | $39.8 | $25.6 | $53.1 | $35.8 |
| Net income (loss) | $19.0 | ($2.5) | $12.1 | ($18.7) |
| Net income (loss) per common share | $0.18 | ($0.03) | $0.11 | ($0.23) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $58.2 | $52.6 |
- Q2 portfolio RevPAR rose 7.7% to $103.68, with occupancy of 76.9% and ADR of $134.85. Comparable-hotel RevPAR increased 6.7%.
- First-half portfolio RevPAR rose 6.1% to $94.44; comparable-hotel RevPAR increased 4.9%.
- Q2 operating margin was approximately 17.8%, versus 12.5% a year earlier; first-half operating margin was approximately 13.1%, versus 9.6%.
- At June 30, cash and cash equivalents were $155.6, down from $310.2 at year-end 2011; restricted cash reserves were $82.1. Total assets were $3,340.8 and total liabilities were $1,527.7.
- Debt comprised $1,335.2 of mortgage loans and $85.0 outstanding under the $300 million revolving credit facility. The filing reports $558.0 of variable-rate debt, or 41.8% of total indebtedness, at a weighted-average rate of 4.81%. A 100-basis-point increase in rates was estimated to reduce annual earnings and cash flow by about $3.1, after hedges.
- First-half investing cash use was $254.6, including $182.7 for hotel acquisitions and $77.0 for hotel improvements. Financing cash flow was positive $41.8.
- FFO attributable to common shareholders was $51.0 for Q2 and $78.1 for the first half; Adjusted FFO was $55.6 and $84.1, respectively. Adjusted EBITDA was $76.1 and $125.2. These are company-defined non-GAAP measures and should not be treated as substitutes for GAAP results or cash flow.
Changes, outlook and notable items
- Revenue increased 9.3% in Q2 and 9.1% in the first half year over year. Management attributed growth to improved RevPAR and acquired hotels. Net income improved from losses in both 2011 comparison periods.
- Interest expense fell 27.0% in Q2 and 24.6% in the first half, mainly reflecting debt paydowns funded with IPO proceeds, repayment of prior variable-rate debt and term loan, and lower hedge and financing-cost expense. Operating expenses rose 2.7% in Q2 and 4.9% in the first half.
- The 2012 capital plan targeted upgrades at 45 hotels for approximately $95 million. By June 30, an estimated $62.6 million of upgrades had been initiated across 22 hotels; $43.5 million was held in FF&E reserve accounts.
- Management described itself as cautiously optimistic about a multiyear lodging recovery and believed acquisition opportunities remained available. It noted that economic weakness, competition, lodging demand, interest rates and access to capital could affect results. No quantified earnings or operating guidance was provided.
- Two hotel mortgage defaults remained notable: SpringHill Suites Southfield (principal about $5.0 million) and Courtyard Goshen (about $5.6 million). The company was working with the Southfield lender toward an orderly transfer; a receiver took control of Goshen in June for the lender.
- The company reported compliance with credit-facility and mortgage financial covenants, no material litigation expected to adversely affect it, and no off-balance-sheet arrangements. It reported no material change to previously disclosed risk factors.
- A $0.634 million loss on disposal related to furniture and fixtures at a New Orleans hotel. The prior-year comparison included $10.2 million of IPO and formation costs, while 2012 did not.
- A $0.165-per-share dividend was paid July 13, 2012 to shareholders of record June 29.
Important facts for investors to verify
- How much reported growth came from comparable hotels versus acquisitions, and whether comparable RevPAR and margins continue to improve.
- Progress, total spending and expected returns from the hotel renovation program, including remaining capital commitments.
- Resolution and potential financial consequences of the Southfield and Goshen loan defaults, including any further asset transfers or impairment effects.
- Debt maturities, extension-option conditions, covenant headroom and sensitivity to interest-rate changes, particularly given the variable-rate exposure.
- Cash available after distributions, required hotel reserves and ongoing capital expenditures; the filing notes that REIT distribution requirements limit retained cash for investment.
- Comparability of 2011 predecessor results and company-defined FFO, Adjusted FFO and EBITDA with other periods and issuers.