RLJ Lodging Trust quarterly report, Q3 FY2021

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RLJ Lodging Trust — Q3 2021 Form 10-Q

Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated results. RLJ owned 98 hotels with approximately 22,300 rooms; 96 hotels were open at quarter-end. Comparisons below are year over year unless noted.

Financial performance

  • Quarterly revenue: $233.8 million, up $149.8 million from $83.9 million. Room revenue was $200.1 million, versus $72.5 million.
  • Quarterly hotel operating measures: Comparable occupancy was 61.4% (28.8% in 2020; 81.2% in 2019), ADR was $159.68 ($120.15; $179.92), and RevPAR was $98.11 ($34.59; $146.14). Recovery was substantial year over year, but RevPAR remained below 2019.
  • Quarterly earnings: Net loss was $151.8 million and loss attributable to common shareholders was $154.3 million, or $0.94 per share. Results included a $138.9 million impairment of the DoubleTree Metropolitan Hotel New York City. Adjusted EBITDA, a non-GAAP measure, was $60.1 million versus a loss of $19.2 million.
  • Nine-month revenue and earnings: Revenue was $547.6 million, up $165.6 million. Net loss was $283.2 million; loss attributable to common shareholders was $296.3 million, or $1.81 per share. Adjusted EBITDA was $107.3 million versus a loss of $28.3 million.
  • Cash flow: Operating activities provided $20.2 million in the first nine months, compared with $86.8 million used in the 2020 period. Investing activities used $63.9 million and financing activities used $230.8 million. Cash, cash equivalents and restricted cash totaled $660.3 million at quarter-end, down from $934.8 million at year-end 2020.
  • Debt and liquidity: Debt, net, was $2.381 billion, down from $2.588 billion at December 31, 2020. Cash and cash equivalents were $624.6 million, with another $35.8 million in restricted reserves. The company reported $400 million of remaining Revolver capacity. Three mortgage loans were in cash-trap events, with approximately $12.4 million held by lenders.
  • Margins and distributions: Property operating expenses rose to $148.4 million from $77.6 million as demand and revenue recovered. The filing does not provide a directly stated GAAP operating margin. Common dividends were $0.01 per share in each of the first three quarters; preferred dividends were $0.4875 per share each quarter.

Material changes and capital actions

  • Issued $500 million of 3.75% senior notes due 2026 and $500 million of 4.00% senior secured notes due 2029. Proceeds supported debt repayments and redemption of the 6.00% 2025 notes; the 2025 notes were redeemed in September.
  • Amended the Revolver and Term Loans, suspending financial maintenance covenant testing through March 31, 2022 and modifying later covenant terms. Certain maturity extensions were added. The amendments impose restrictions through the quarter ending June 30, 2022, including a $150 million minimum liquidity requirement, subject to terms and exceptions.
  • At September 30, the company said it was complying with the disclosed 2026 and 2029 note covenants except for the interest coverage ratio. It noted failure to meet an incurrence covenant alone is not an event of default. Revolver and term-loan maintenance covenant testing was suspended during the relief period.
  • Sold six hotels for approximately $39.5 million and recorded a $2.6 million net gain. Acquired the 186-room Hampton Inn and Suites Atlanta Midtown for $58 million. After quarter-end, acquired the 205-room AC Hotel Boston Downtown for $89 million.

Outlook, risks and unusual items

  • Outlook: No numerical earnings or operating guidance is provided in the supplied filing text. Management described improved demand, supported by vaccine distribution, easing restrictions and pent-up leisure travel, while emphasizing that the pandemic’s future effects remain uncertain.
  • Key risks: COVID-19 and variants, business-travel weakness, economic conditions, inflation and operating costs, access to financing, interest rates, hotel competition, and natural disasters. Business travelers are a major customer segment, making results sensitive to business travel.
  • Unusual items: The $138.9 million New York hotel impairment was the largest quarterly earnings item. The company also recorded a $5.9 million impairment on two hotels later sold, debt-extinguishment gains, and a $5.4 million nine-month benefit from reversal of excess California real estate tax accruals. Hurricane Ida remediation temporarily suspended one New Orleans hotel; uninsured hurricane costs included in adjusted measures were $1.5 million.
  • Interest-rate exposure: The filing reports approximately $1.4 billion of variable-rate debt, or 58.3% of indebtedness, but states that all indebtedness was fixed or effectively fixed after swaps. It estimates a 100-basis-point increase would not affect future earnings or cash flows under existing hedges. This depends on hedge arrangements remaining effective.
  • Management said COVID-19 has materially affected, and may continue to affect, results and liquidity; it could not estimate the ultimate impact. The company reported no material litigation and no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective.

Investor verification priorities

  1. Review the New York hotel impairment valuation and the assumptions behind the estimated $153 million fair value.
  2. Confirm covenant status, relief-period end dates, restrictions, minimum liquidity requirements and the availability of Revolver capacity.
  3. Assess the sustainability of the hotel-demand recovery against 2019 RevPAR, especially given exposure to business travel.
  4. Reconcile debt principal, net carrying value, maturities, cash-trap reserves and the effect of refinancing and hedging on interest costs.
  5. Review cash generation and capital needs, including property renovations, reserve requirements, the Boston acquisition and continuing distributions.