Performance dipped in the second quarter for RLJ Lodging Trust, but it was expected, said CEO and President Ross Bierkan, and many of the company’s top markets outperformed industry norms.
BETHESDA, Maryland—The second quarter of 2017 might have shown softer performance for real estate investment trust RLJ Lodging Trust, but company executives were optimistic the second half of the year will see an improvement for the company’s largely business-oriented portfolio.
Despite some of the macro trends dragging down performance—like closed convention centers in several major cities and holiday shifts—RLJ’s President and CEO Ross Bierkan pointed out that many of the company’s top markets performed well, and earnings before interest, taxes and depreciation and amortization margins “held strong, despite revenue pressure.”
“Given our portfolio’s greater concentration in urban markets, we didn’t see the same degree of leisure benefits that the industry as a whole did,” Bierkan said on a conference call with analysts Friday.
Muted business travel “plus a few portfolio transitory headwinds” led to a 3.4% revenue per available room decline in the second quarter to $138.47, compared to the same period last year.
The company’s occupancy dipped 2.1% to 80.8% and average daily rate dropped 1.2% to $171.28, according to a news release.
“Heading into 2017, we knew the first half of the year would be challenging,” Bierkan said. “Some of our toughest comps are behind us now though. As a result, we expect our second half to be better than our first, and we expect our fourth quarter to be better than our third.”
The company adjusted its 2017 outlook for RevPAR growth down to -2% to -1% growth from the previous -1% to 1% growth.
One topic absent from the earnings call was a progress report on the company’s pending acquisition of FelCor Lodging Trust or a private equity investor’s attempted bid to acquire RLJ.
“We cannot discuss or take any questions relating to the FelCor merger and our recently filed proxy,” Bierkan reminded listeners.
The company’s vote for its deal with FelCor is expected to take place 15 August.
At press time, RLJ’s stock was trading $20.78 per share, down 15.2% year to date. The Baird/STR Hotel Stock Index is up 24.4% for the same time period.
Bierkan touted RLJ’s diversification strategy as a driver for its strong performance pockets around the country in the second quarter.
“Given the cyclical nature of our industry, we continue to believe in the benefits of diversification,” he said. “Eight of our 10 top markets showed positive demand growth, with the majority of these markets exceeding overall industry demand.”
Some highlights from RLJ’s top markets:
- Southern California: Bierkan called the region the company’s “top performer this quarter, with RevPAR growth of 5.1%.” Strong corporate business drove demand in the quarter, and Bierkan said he expects to see positive momentum here continue.
- Washington, D.C.: “Our portfolio RevPAR growth of 1.9% (in Washington, D.C.) outperformed the market by about 120 basis points and our hotels gained approximately 240 basis points in additional market share against their competitive sets,” Bierkan said.
- South Florida: Hotels in this market saw 3% RevPAR growth, largely benefiting from the Easter shift. Bierkan also noted that “our West Palm Beach properties continue to benefit from the President’s visits.”
- Northern California: Renovations at San Francisco’s Moscone Center convention center led to reduced compression in the market and a RevPAR decline of 5.5% across RLJ’s portfolio. Still, Bierkan pointed out that compared favorably to overall San Francisco market RevPAR declines of 8.2%.
- Louisville: This market saw an 8.2% RevPAR decline in the second quarter, also due to convention center closure, but it was “a significant improvement” over the first quarter’s performance, Bierkan said.