RLJ Lodging Trust — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. RLJ owned 100 hotels with approximately 22,400 rooms in 23 states and Washington, D.C. Results remained affected by COVID-19; two New York City hotels were still suspended at quarter-end.
Financial and operating results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $194.3 million | $32.6 million | $313.8 million | $298.1 million |
| Net loss | $52.2 million | $116.2 million | $131.3 million | $147.0 million |
| Net loss attributable to common shareholders | $57.7 million; $0.35/share | $121.4 million; $0.74/share | $142.0 million; $0.87/share | $157.0 million; $0.95/share |
| Adjusted EBITDA (non-GAAP) | $43.6 million | $(50.5) million | $47.2 million | $(9.1) million |
| Operating cash flow | Not separately reported for quarter | Not separately reported for quarter | $(24.0) million | $(54.4) million |
Q2 comparable-hotel occupancy was 57.9%, ADR was $142.11 and RevPAR was $82.22, versus 11.4%, $117.14 and $13.34, respectively, in Q2 2020. Q2 RevPAR remained below Q2 2019’s $158.30. For the first half, occupancy was 50.4% and RevPAR $66.71, compared with 36.0% and $60.47 in 2020; first-half ADR fell to $132.37 from $167.87.
At June 30, cash and cash equivalents were $657.9 million and restricted cash reserves were $38.8 million. Net debt on the balance sheet was $2.407 billion, down from $2.588 billion at December 31, 2020. Total assets were $5.297 billion and total liabilities $2.717 billion. Interest expense was $26.4 million for Q2 and $54.3 million for the first half.
Material changes and financing
- Revenue rose sharply in Q2 as hotels reopened and travel demand improved from the pandemic-depressed 2020 comparison. Management cited vaccine distribution, eased restrictions and pent-up leisure demand. First-half revenue increased 5.3%, but the periods are not directly comparable due to pandemic disruption and hotel dispositions.
- In June, RLJ issued $500 million of 3.75% senior secured notes due 2026 and used proceeds, along with disposition proceeds, to repay term and mortgage debt. It amended its credit facilities, extended $100 million of a term loan maturity to June 2023 with a one-year extension option, and obtained suspension of financial maintenance covenant testing through Q1 2022.
- First-half financing cash outflow was $203.4 million, including repayments of $200 million on the revolver, $356.3 million of term loans and $120.5 million of mortgage loans; issuance proceeds partly offset these repayments.
- RLJ sold three hotels during the first half for approximately $17.7 million, recording a $1.2 million net gain and a $5.9 million impairment on two of the properties. After quarter-end, it sold three more hotels for approximately $21.8 million and acquired a 186-room Atlanta hotel for $58 million in cash.
Outlook, risks and unusual items
- Management said the pandemic’s impact on operations, results and liquidity remained material and could not be estimated with reasonable certainty. Outcomes depend on travel demand, consumer confidence, public-health measures, vaccine uptake and effectiveness, and virus variants, among other factors. No quantified earnings guidance was provided.
- Open hotels continued cost-containment measures, including reduced staffing and amenities and modified food and beverage service. Business travel is a key demand driver for the portfolio, leaving results exposed to a slower recovery in business travel.
- At June 30, the company reported that the interest coverage covenant was not met under the 2026 notes and 2025 notes. The filing says failure to meet the notes’ incurrence covenant is not, by itself, an event of default; under the 2025 notes, FelCor LP was prohibited from incurring additional debt. Credit-facility maintenance covenant testing was suspended through Q1 2022. The amendments also impose financing, distribution, capital-spending and other restrictions, and require minimum liquidity of $150 million until specified leverage thresholds are met.
- All four mortgage loans subject to DSCR thresholds were in cash-trap status at quarter-end, with approximately $9.4 million held by lenders in restricted cash. The company reported compliance with the credit facilities’ minimum-liquidity requirement.
- Unusual Q2 charges included a $6.2 million loss on extinguishment of indebtedness, primarily early mortgage termination costs, and $10.7 million of previously accumulated hedge losses reclassified to earnings. First-half results also included the $5.9 million impairment and a $5.4 million benefit from reversal of excess accrued California real estate tax liabilities.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material litigation and no material changes to previously disclosed risk factors.
Investor verification points
- Track hotel occupancy, ADR and RevPAR against 2019 levels, especially as business-travel demand recovers, and monitor reopening of the two suspended New York City hotels.
- Review cash generation, unrestricted liquidity versus the $150 million minimum, restricted cash availability, and the status of mortgage cash traps.
- Confirm covenant relief duration, post-relief covenant compliance, financing restrictions and debt maturities; distinguish covenant failures from events of default as described in the filing.
- Assess the effect of the 2026 notes issuance and debt repayments on interest expense, leverage and refinancing needs.
- Evaluate the comparability and adjustments underlying non-GAAP Adjusted EBITDA, including hedge-loss reclassifications and other excluded items.