RLJ Lodging Trust has its sights set on acquiring more hotels in urban markets after a strong 2021.
During the company’s fourth quarter and full-year 2021 earnings call Wednesday, RLJ President and CEO Leslie D. Hale said a robust close to last year has positioned the real estate investment trust to be buyers this year.
“We expect to be a net acquirer this year and are encouraged by the quality of our assets within our pipeline, which includes several off-market opportunities,” Hale said.
RLJ had its strongest quarter since before the pandemic in the fourth quarter, closing in on 2019 figures in average daily rate, revenue per available room and earnings before interest, taxes, depreciation and amortization.
Hale said the recovery of hotels in urban markets such as Charleston, South Carolina; Miami; and New Orleans attributed to the strong fourth quarter numbers, and she expects that trend to continue.
“We believe that the continued momentum and recovery of our urban hotels will be the driving force for our portfolio’s growth going forward, and we expect outsize growth in business transient and group demand throughout the year,” she said.
Dispositions and Acquisitions
RLJ sold twice as many hotels as the company bought in 2021, although the dollar volume of those deals was closer to even.
The company sold seven properties in 2021 for a total of $208.5 million. Most of the money comes from a single deal made during the fourth quarter, when RLJ sold the 764-room DoubleTree Hotel Metropolitan New York City to Hawkins Way Capital for $169 million in December.
Hale said the company will consider disposing properties in 2022 if trends in particular markets dictate it, but it will mostly shift toward acquisitions.
“As we look forward, we’ll continue to be active portfolio managers, but it’s going to be more opportunistic,” she said. “We still may have some (dispositions), but I wouldn’t expect it to be a similar volume to what we did last year.”
In 2021, the company acquired three hotels in Atlanta, Boston and Denver for $198.3 million. It completed two of its three acquisitions in the fourth quarter — closing on the AC Hotel Boston Downtown for $89 million in October and the Moxy Denver Cherry Creek for $51.3 million in December.
Hale said the new acquisitions have already surpassed the company’s underwriting, and RLJ’s expected EBITDA is projected to eclipse projections by 35%.
Sean Mahoney, RLJ executive vice president and chief financial officer, said the success of the new additions is due to their markets — Boston, in particular — recovering faster than anticipated.
“As we’ve gotten into these assets and implemented what would be institutional quality asset management initiatives, we found more synergies on the cost side to do things more efficiently but also more revenue opportunities within each one of these hotels to drive the top line,” Mahoney said.
Hotel Pricing and Demand
Hale said RLJ feels “very good” about the prices on its two acquisitions in the fourth quarter given the fluctuation of pricing and high demand in urban markets.
“We focus on off-market transactions; we leverage unique relationships and situations to allow us to get the asset that we might not otherwise,” she said.
The company’s faith in urban markets performing well in 2022 is rooted in the expectation that business and group travel will accelerate as the year goes on, Hale said. Numbers on corporate group booking have increased to 50% so far in 2022 compared to a 5% to 10% increase last year.
The company also switched its approach to identifying properties to pursue.
“We moved from motivated sellers to opportunistic sellers, who are seeing the amount of capital, volume and demand for hotels,” Hale said.
Fourth Quarter Performance
According to RLJ’s fourth quarter earnings release, the company’s portfolio achieved RevPAR of $101.33 in the fourth quarter, along with ADR of $162.86 and occupancy of 62.2%.
The company’s fourth quarter RevPAR was roughly 75% of the same period of 2019, with December rates hitting 87% of the 2019 level. RLJ’s fourth quarter ADR outperformed 2019 in leisure markets such as Key West, Charleston and Miami. Occupancy was 83% of 2019 levels.
As of press time, RLJ's stock price was trading at $14.33 per share, up 1.7% year to date. The New York Stock Exchange composite was down 7.1% for the same period.