RLJ Lodging Trust executives said a strong balance sheet gives the company multiple investment levers to potentially pull this year.
On the Bethesda, Maryland-based real estate investment trust's fourth-quarter and full-year 2022 earnings call, President and CEO Leslie Hale said both RLJ’s internal and external growth in the past year has positioned it among the top REITs.
“Looking forward, we have tremendous optionality with one of the strongest balance sheets among publicly traded peers, which is allowing us to pursue multiple channels of growth, such as brand repositioning,” she said.
RLJ ended 2022 with $1.1 billion of liquidity, including $481.3 million in unrestricted cash and undrawn revolver, according to the company's earnings release.
Hale said RLJ will continue to build its pipeline with off-market acquisitions, in which RLJ is well-positioned due to the lending market preferring all-cash buyers.
“What’s happening is that assets are not being taken out to the market on a broad basis. What’s happening is that sellers and brokers are calling buyers who they believe can actually execute on a transaction. And we’re receiving some of those inbound calls because of our balance-sheet strength and capability of actually closing,” she said.
Just because RLJ is well-positioned to make moves doesn’t mean it will, Hale said. Although the company’s liquidity mitigates some risks in the face of a potential recession, RLJ will be patient until the right opportunity presents itself.
“Our strong balance sheet is a significant advantage,” she said. “That said, we remain highly disciplined given the current uncertain environment.”
A familiar lever RLJ could pull comes in the form of stock buybacks. In 2022, RLJ repurchased 4.9 million common shares for $57.6 million. The company has already repurchased $500,000 in stock for an average price of $10.49 per share in 2023.
Sean Mahoney, executive vice president and chief financial officer for RLJ, said the company could continue this trend in 2023.
“Share repurchases are attractive today. And you would expect us to follow a similar tactic that we did in the last year or so [in] that we will be opportunistic on deploying proceeds into shares,” he said.
Conversions and Acquisitions
In the fourth quarter of 2022, RLJ opened three converted properties: The Mills House Hotel, a Curio Collection Hotel by Hilton in Charleston, South Carolina; Zachari Dunes on Mandalay Beach, a Curio Collection Hotel by Hilton in Oxnard, California; and The Pierside Hotel in Santa Monica, California.
Hale said all three properties are projected to “significantly exceed” 2019 earnings before interest, taxes, depreciation and amortization levels in 2023.
“The relaunch of these three conversions not only validates our ability to unlock the significant value embedded in our portfolio, but also enhances the overall quality of our platform,” she said.
The REIT announced two additional conversions during the earnings call that will also be rebranded in the Wyndham Houston Medical Center, which will be converted into a DoubleTree by Hilton brand, and the Hilton Indigo New Orleans Garden District, which will be converted into a Marriott Tribute Portfolio brand.
In August 2022, RLJ acquired the 21c Hotel Nashville for $59 million. The company also officially acquired the Moxy Denver Cherry Creek for $51.3 million and sold the DoubleTree Hotel Metropolitan New York City for $169 million in January 2022.
Mahoney said the flexibility of RLJ’s balance sheet allows executives to consider all options, whether on the acquisition market or internal conversion projects.
“We have the liquidity to do all of them. We don’t specifically take that cash and allocate it between the two; we look at it more on a long-term basis, because our portfolio is generating free cash-flows and liquidity is increasing over time. You would expect us to pull the right lever at the right time as opposed to [being] more regimented about specific dollars,” he said.
Fourth-Quarter and Full-Year Performance
RLJ reported net income of $6.8 million in the fourth quarter of 2022, according to the company’s earnings release. Comparable hotel revenue was $302.2 million, an increase from $240.2 million in the fourth quarter of 2021.
RLJ's comparable hotel adjusted earnings before interest, taxes, depreciation and amortization was $87.6 million, up from $64.8 million during the same period in 2021. In the fourth quarter, comparable RevPAR was $127.25, comparable average daily rate was $190.24 and comparable occupancy was 66.9%, all increases compared to fourth quarter 2021 levels.
For the full year, RLJ’s net income was $42.2 million, up from a loss of $311.1 million in 2021. Comparable hotel revenue was $1.2 billion, also an increase compared to 2021 levels.
Comparable hotel adjusted EBITDA was $370 million in 2022. Comparable RevPAR was $129.61, comparable ADR was $188.22 and comparable occupancy was 68.9%, all increases from 2021 levels.
As of press time, RLJ’s stock was trading at $11.35, up 7.1% year to date. The New York Stock Exchange Composite was up 1.8% over the same period.