RLJ Lodging Trust — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. RLJ is a hotel REIT with 97 properties and approximately 21,400 rooms across 22 states and Washington, D.C. Results compare with Q1 2021, when hotel operations were substantially affected by COVID-19. The company said Q1 2022 demand improved as restrictions eased, but comparable-property RevPAR remained below Q1 2019.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $242.9 million | $119.6 million |
| Net loss | $15.5 million | $79.1 million |
| Net loss attributable to common shareholders | $21.5 million; $0.13 per share | $84.3 million; $0.51 per share |
| Operating cash flow | $10.3 million | $(29.0) million |
| FFO attributable to common shareholders and unitholders | $24.1 million | $(32.6) million |
| Adjusted FFO | $23.9 million | $(29.8) million |
| Adjusted EBITDA | $54.6 million | $3.6 million |
Room revenue rose to $205.8 million from $102.8 million; food and beverage revenue increased to $20.9 million from $6.2 million. Comparable-property occupancy was 61.2% versus 44.6%, ADR was $175.57 versus $120.05, and RevPAR was $107.39 versus $53.54. Q1 2019 comparable-property benchmarks were 76.4% occupancy, $189.87 ADR, and $145.01 RevPAR.
Property operating expenses were $159.0 million, up from $88.5 million as demand and hotel activity recovered. Property operating margin, calculated as revenue less property operating expenses divided by revenue, was approximately 34.5%, compared with 26.0%. GAAP operating expenses totaled $242.6 million, leaving operating income of $0.3 million before other income, interest, and other items.
Balance sheet, debt, and liquidity
- At March 31, cash and cash equivalents were $479.0 million; restricted cash reserves were $43.3 million. Together these totaled $522.3 million.
- Debt, net, was $2.211 billion, down from $2.409 billion at December 31, 2021. RLJ repaid the $200 million revolver balance using cash; the $600 million revolver was undrawn at quarter-end.
- Operating, investing, and financing cash flows were $10.3 million, $9.8 million, and $(211.7) million, respectively. Financing outflow primarily reflected the revolver repayment and shareholder distributions.
- Approximately $418.7 million of term-loan principal was scheduled to mature in 2023, before extensions; $200 million of mortgage debt was scheduled for April 2022. In April, RLJ exercised an option extending that mortgage maturity to April 2023.
- Financial maintenance covenants under the revolver and term loans were waived through March 31, 2022; some thresholds were modified afterward. The company reported compliance with the minimum liquidity requirement and Senior Notes covenants. One mortgage loan was in a cash-trap event at quarter-end.
- About 53.9% of debt was variable-rate before considering swaps, but RLJ reported all debt fixed or effectively fixed after hedging. Management estimated a 100-basis-point rate increase would not affect future earnings or cash flows under then-current hedges.
Material changes, outlook, and risks
- Revenue more than doubled year over year, driven by higher demand, ADR, and occupancy, and by hotels operating for more of the quarter. Eight dispositions and three 2021 acquisitions also affected period comparability.
- Net loss narrowed substantially. Other income included a $5.9 million reclassification of unrealized gains from discontinued cash-flow hedges; this was a notable non-operating item. No impairment loss was recorded in Q1 2022, compared with $5.9 million in Q1 2021.
- RLJ sold the 238-room Marriott Denver Airport at Gateway Park in March for approximately $35.5 million and recorded a $1.4 million net gain. It also reported an April sale of a 164-room hotel; management cited two 2022 hotel sales for combined proceeds of approximately $50 million.
- In April, the company amended credit agreements to permit up to $50 million of share repurchases under specified funding sources. The board separately approved a share repurchase program of up to $250 million for May 9, 2022 through May 8, 2023.
- The filing provides no quantitative operating or earnings guidance. Management cautioned that COVID-19’s continuing effects and duration were uncertain and could materially affect results and liquidity. Other cited risks include business-travel demand, inflation and operating costs, interest rates, access to financing, seasonality, and broader lodging and economic conditions.
- Management reported no material litigation, no material changes to previously disclosed risk factors, and effective disclosure controls as of March 31, 2022.
Important facts for investors to verify
- Whether the recovery in occupancy, ADR, and RevPAR continued after Q1, and how quickly RevPAR could approach the 2019 level.
- Upcoming debt maturities, extension conditions, covenant thresholds after the relief period, and cash-trap restrictions on hotel cash.
- The sustainability of operating cash flow and adjusted measures, including the impact of hedge reclassifications and other exclusions from FFO and Adjusted EBITDA.
- Capital spending needs, restricted reserve availability, and the effects of inflation and higher hotel operating costs on margins.
- Repurchase-program authorization and execution, including the credit-agreement limits and competing liquidity needs.