The demand environment in 2025 will be driven primarily by growth in business transient and urban leisure travel, according to executives with RLJ Lodging Trust.
During the hotel-focused real estate investment trust's fourth quarter and full-year 2024 earnings call, RLJ President and CEO Leslie Hale said her company is poised to benefit from fewer price-sensitive business travelers.
Business-transient "rate was up 7% in the fourth quarter, and for the full year it was up a little over 5%," she said. "That's a function of really who's traveling. We've seen the increase in national accounts. They are our least price-sensitive, highest-rated customers that are coming back."
For several quarters in a row, RLJ executives have touted a gradual return in business travel, and Hale said the company is now seeing 81% of the business-transient demand level seen before the COVID-19 pandemic. But she also doesn't expect things to look the same as they did in 2019 once the rebound is fully materialized.
"We expect that gap will continue to close," she said. "We don't know where it's going to settle or to what degree, but we think there's opportunity and room for rate to grow."
She said how companies operate and how businesspeople travel have changed, and in some ways that works to the benefit of the broader travel industry.
"Keep in mind that people are working different today," Hale said. "So you have that infamous word 'bleisure' and how that's sort of playing out today. I think at the end of the day, we've always thought that aggregate demand would exceed the prior peak, but we always knew that the puts and takes would be slightly different. The point isn't so much that we're projecting [business transient] is going to get back to its historical relationship. What we're saying is there's room to grow, and we don't know exactly where it's going to land, but we think it's going to improve from where it's at today."
Another strong segment of demand for RLJ continues to be urban leisure travel, which is outpacing other forms of leisure travel. The REIT is poised to benefit from that, Hale added.
"When we look at our footprint, we have a favorable setup in a number of markets relative to special events," she said. "Whether it is all of the World Cup soccer games that are going to be taking place across various markets — Southern California is going to benefit from that and D.C. for example — and we've got Mardi Gras in" New Orleans.
Urban hotel markets were the leaders for revenue growth at the company in the fourth quarter — with revenue per available room up 8% year over year — and represent roughly two-thirds of RLJ's portfolio.
"Urban continues to outperform the industry, and as it is benefiting from all the different segments, it's got the most room for growth," she said.
Difficult transactions market
While many hotel investors have expressed a hopefulness that the deals market will normalize and open up in 2025, Hale said RLJ continues to see the same headwinds that have slowed down transactions volume in recent years.
"When you look at last year, clearly interest rates improved and access to debt improved, as well, but the fact of the matter is the transactions market didn't improve as much as we all thought it would, particularly given the fact that interest rates didn't come down as much as we originally expected at the beginning of" 2024, she said. "So the transactions market remains choppy, and the bid-ask spread remains wide. We're still seeing small deals get done. Single assets. But there's really no clear themes through the transactions."
Asked whether the company has any plans to sell The Knickerbocker Hotel in New York City in the near future, Hale said the current environment wouldn't be favorable to make that kind of move.
"While the New York market is strong, definitely from an operating perspective, the fact of the matter is the transaction market, as I mentioned before, remains choppy," she said. "It's not the right backdrop to sell an asset of that irreplaceable real estate and location."
For the full year, RLJ sold just two hotels for a combined price of $20.8 million and made two acquisitions — the 110-room Hotel Teatro in Denver for $35.5 million and land underlying the 304-room Wyndham Boston Beacon Hill for $125 million after that property was previously on a ground lease.
Earnings performance
For the full year, RLJ reported in its earnings release RevPAR growth of 2% year over year in 2024, with a 2.2% increase in the fourth quarter.
Total revenues in 2024 increase 3.3% to $1.4 billion with net income of $42.9 million and adjusted earnings before interest, taxes, depreciation and amortization of $361.6 million.
Company officials also touted moving all of their upcoming debt maturities out of 2025, now with no debt coming due until April 2026.
As of press time, RLJ's stock was trading at $9.23 a share, down 20.4% year over year. The NYSE composite was up 13.2% for the same period.