RLJ Lodging Trust quarterly report, Q2 FY2023

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RLJ Lodging Trust — Q2 2023 Form 10-Q

Reporting period: Three and six months ended June 30, 2023; unaudited. RLJ is a hotel REIT with 97 properties and approximately 21,400 rooms across 23 states and Washington, D.C.

Financial results and liquidity

  • Q2 revenue: $357.0 million, up 8.0% from $330.5 million. Room revenue was $295.5 million, food and beverage revenue $38.1 million, and other revenue $23.3 million.
  • Q2 earnings: Net income was $41.7 million versus $33.2 million; net income attributable to common shareholders was $35.1 million versus $26.7 million. Diluted EPS was $0.22 versus $0.16.
  • Q2 margins: GAAP net margin was approximately 11.7% versus 10.0%. Adjusted EBITDA was $113.8 million versus $111.0 million, or approximately 31.9% versus 33.6% of revenue.
  • First-half results: Revenue was $671.5 million, up 17.1%; net income was $52.2 million versus $17.7 million; common-shareholder income was $39.5 million versus $5.2 million; diluted EPS was $0.25 versus $0.03. Adjusted EBITDA was $196.5 million versus $165.6 million.
  • Cash flow, first half: Operating cash flow was $137.1 million versus $116.3 million. Investing cash outflow was $65.8 million versus $4.8 million, primarily reflecting $65.8 million of hotel improvements and additions and no hotel-sale proceeds. Financing cash outflow was $96.4 million versus $269.6 million.
  • Liquidity and debt: June 30 cash and cash equivalents were $476.9 million; restricted cash reserves were $34.4 million. Net debt carrying value was $2.219 billion, broadly unchanged from year-end 2022. The $600 million revolver was undrawn. The company reported covenant compliance.
  • Interest-rate exposure: Approximately $1.206 billion, or 54.1% of total indebtedness, was variable-rate debt; after swaps, 93.0% of debt was fixed or effectively fixed. A 100-basis-point increase on unhedged variable-rate debt was estimated to reduce annual earnings and cash flow by approximately $1.6 million.

Changes and operating trends

  • Comparable-property Q2 occupancy was 75.1% versus 74.7%; ADR was $203.03 versus $195.64; RevPAR was $152.55 versus $146.05. Management attributed room-revenue growth to stronger leisure demand and recovery in business and group bookings.
  • First-half comparable-property occupancy rose to 71.9% from 67.9%, ADR to $201.05 from $186.66, and RevPAR to $144.51 from $126.83. Management cited improved travel demand versus the prior-year period, which was affected by Omicron.
  • Property operating expenses rose alongside revenue, including higher wages and benefits, sales and marketing, and revenue-based fees. Property taxes, insurance, and ground rent also increased. Q2 interest expense rose modestly, as lower revolver and term-loan expense was more than offset by higher mortgage interest.
  • First-half common-share repurchases totaled approximately $52.0 million, covering about 5.1 million shares. The company declared common dividends of $0.08 per share in each of Q1 and Q2, versus $0.01 per share in each comparable 2022 quarter.

Outlook, risks, and notable items

  • The filing provides no specific revenue, earnings, or operating-metric guidance. Management cautions that forward-looking statements are not guarantees and that results may differ materially.
  • Debt refinancing and maturity management are important: $381 million of variable-rate debt was scheduled to mature in 2024, including mortgage loans; the filing describes extension options on certain loans. In May 2023, RLJ amended its $600 million revolver, refinanced term loans, and extended maturities. It paid approximately $7.4 million in related lender, arrangement, and legal costs.
  • The company authorized a share-repurchase program of up to $250 million through May 8, 2024. As of August 4, 2023, approximately $235.7 million remained available. It also reported approximately $54.2 million of repurchases through June 30 and additional post-quarter repurchases of about $2.3 million.
  • Interest-rate swaps had a fair value asset of $44.9 million; approximately $26.5 million of unrealized gains were expected to be reclassified into earnings within 12 months. These are hedge-related accounting amounts, not operating revenue.
  • Management reported no material litigation or material change in previously disclosed risk factors. Disclosure controls were deemed effective, with no material change in internal control over financial reporting.

Key facts for investors to verify

  • Upcoming 2024 mortgage and other debt maturities, extension conditions, refinancing costs, and covenant headroom.
  • Whether hotel demand, especially business and group travel, sustains the reported RevPAR improvement as labor, insurance, property-tax, and ground-rent costs rise.
  • Capital needs for renovations and brand conversions, and the effect of repurchases and dividends on available liquidity.
  • Reconciliation of GAAP earnings with FFO, Adjusted FFO, and Adjusted EBITDA; these non-GAAP measures are supplemental and may not be comparable across companies.