RLJ Lodging Trust — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. RLJ owned 102 hotels with approximately 22,600 rooms in 23 states and Washington, D.C. The business was materially affected by COVID-19; four hotels were suspended at quarter-end, and one reopened afterward.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $119.6 million | $265.5 million | Down 55.0% |
| Room revenue | $102.8 million | $218.9 million | Down 53.0% |
| Net loss | $79.1 million | $30.8 million | Loss widened $48.3 million |
| Net loss attributable to common shareholders | $84.3 million; $0.51 per share | $35.6 million; $0.21 per share | Loss per share increased |
| Cash from operating activities | $(29.0) million | $30.1 million | Decreased $59.1 million |
| Adjusted EBITDA | $3.6 million | $41.4 million | Down $37.8 million |
Comparable-hotel occupancy was 43.0% versus 60.5%; ADR was $118.63 versus $176.81; and RevPAR was $50.99 versus $107.04, down 52.4%. Property operating expenses fell 53.0% to $88.5 million, broadly tracking the revenue decline. Property operating margin, calculated as revenue less property operating expenses, was approximately 26.0%, compared with 29.1% a year earlier. Total operating expenses were $172.3 million, resulting in an operating loss before other items of $52.7 million.
Financial position, debt and liquidity
- At March 31, cash and cash equivalents were $647.8 million and restricted cash was $33.4 million, totaling $681.2 million. Combined cash and restricted cash declined $253.6 million during the quarter.
- Debt, net, was $2.378 billion, down from $2.588 billion at year-end 2020. The company repaid $200 million on its revolver and $8.5 million on term loans. Revolver capacity remaining was $400 million.
- Debt maturities include a $150 million term loan due January 2022, mortgage debt due in 2022 and 2024, and term loans due in 2023 and 2025. The filing reports $2.365 billion of principal debt obligations in its maturity table, excluding specified financing costs and fair-value adjustments.
- Interest expense rose 17.1% to $27.9 million, primarily reflecting the revolver balance and higher pricing under amended credit agreements. After swaps, 94.8% of indebtedness was fixed or effectively fixed; a 100-basis-point increase on unhedged variable debt was estimated to reduce annual earnings and cash flow by approximately $2.2 million.
- Six mortgage loans were below their debt-service-coverage thresholds and in cash-trap status; lenders held approximately $4.5 million. The revolving credit and term-loan agreements require minimum liquidity of $125 million, which the company reported meeting.
Material changes, outlook and risks
- COVID-19 drove the sharp declines in hotel revenue and operating results. Management said the pandemic continued to materially adversely affect results and liquidity, with duration and recovery timing uncertain. Open hotels were using reduced staffing, limited amenities and modified food and beverage service.
- Credit amendments suspend financial maintenance covenant testing through the quarter ending December 31, 2021. Restrictions generally continue through delivery of the March 2022 quarter financial statements, including limits on additional debt, distributions, capital expenditures and investments, subject to exceptions. The company may terminate relief early if it can meet applicable covenants.
- RLJ was not in compliance with the Senior Notes interest-coverage ratio at quarter-end; the filing says FelCor LP was consequently prohibited from incurring additional debt. Other Senior Notes maintenance and incurrence covenants were reported in compliance.
- Two hotel properties under sale agreements, with aggregate book value of approximately $18.5 million, were written down by $5.9 million; sales were expected to close in Q2 2021. One hotel sale generated $4.0 million net proceeds and a $1.1 million gain.
- A $5.2 million benefit from reversal of excess accrued California real estate tax liabilities reduced property tax expense. The common dividend was $0.01 per share; the Series A preferred dividend was $0.4875 per share. No numerical earnings or operating guidance was provided.
- Management cited continuing uncertainty around travel demand, pandemic developments and recovery. The filing also identifies interest-rate exposure, hotel operating costs, financing access and property-market conditions as risks. Management reported effective disclosure controls and no material change in internal control over financial reporting; no material litigation was reported.
Most important facts for investors to verify
- Whether hotel demand, occupancy and RevPAR recover enough to restore positive operating cash flow and liquidity.
- Progress and closing terms for the two hotel sales, and whether remaining suspended hotels reopen.
- Compliance with liquidity requirements, covenant relief terms and restrictions, and the 2022 debt maturities and refinancing plan.
- Duration and cash implications of mortgage cash traps, and the effect of hedging and interest-rate changes on debt service.
- Whether recurring cost reductions and reduced common distributions are sufficient to support operations without materially impairing hotel assets or service levels.