RLJ CEO reflects on FelCor buy, looming retirement
 
RLJ CEO reflects on FelCor buy, looming retirement
29 JUNE 2018 7:37 AM

Ross Bierkan plans to “ride his bike” and find other opportunities after his August retirement from RLJ Lodging Trust.

NEW YORK—Ross Bierkan likes the way RLJ Lodging Trust looks as he heads into the final two months of his tenure as the company’s president and CEO.

Bierkan—who has been with the real estate investment trust and its predecessor RLJ Development since its inception in 2000—is retiring on 22 August after serving two years in the RLJ captain’s seat and a few months in the same roles on an interim basis. He reflected on his career during an interview at the recent 40th annual NYU International Hospitality Industry Investment Conference.

“It’s been almost 20 years at RLJ and quite a few years in the industry prior to that, and I must say that the company is in the best shape that it’s ever been and poised for growth going forward,” said Bierkan, who spent the first 18 years of his career at various positions with The Plasencia Group, Grubb & Ellis and Guest Quarters Hotels. “Now’s a good time for me personally and for the company for me to pass the baton to Leslie Hale, my successor.”

RLJ’s acquisition of FelCor Lodging Trust, which was completed in November 2017, was a watershed moment of Bierkan’s tenure at the top as it added 36 hotels to its portfolio to bring it the present count of 155 hotels comprising approximately 30,200 guestrooms.

Bierkan said RLJ has been a vocal advocate for REIT consolidation since it went public in May 2011 under former chief executive Tom Baltimore. That belief ultimately led to the acquisition of FelCor.

“There were too many REITs that were too similar and didn’t quite have the skill, the critical mass to be liquid trading instruments for the institutional investors out there that want to trade around large positions,” Bierkan said.

The situation surrounding FelCor—it was also being heavily courted by Ashford Hospitality Trust—made it an ideal acquisition candidate, according to Bierkan.

“In November of (20)16, FelCor was in a pickle—they were without a CEO; they had activist investors,” he said. “We were approached to see if we would be interested, and in fact, we had looked at the FelCor portfolio over the years more than once.”

Outside of six or seven assets—notably resorts and luxury products—that didn’t fit RLJ’s strategy, FelCor offered a natural complement to RLJ’s strategy, Bierkan said.

“We had been pioneers in (the) upscale select-service space but also in the lean, compact, rooms-driven, full-service space under the major brand families in urban or dense commercial environments, and we saw in the FelCor portfolio just that kind of asset,” Bierkan said. “We were happy to be able to take advantage of a little bit of dislocation in their share price to pick it up at a good value.”

The deal is 100% complete, and the integration was seamless, according to Bierkan.

“We’re well on our way with our disposition plans of the assets that are not compliant,” Bierkan said. “So far the trades have been at very accretive prices, and we feel good about the remaining assets. We’ve already paid down the first tranche of debt that we’ve targeting in order to restore the balance sheet to RLJ condition.

“The company is on time and on budget for the first round of properties receiving renovations, which are primarily located in the path of progress, in the path of growth,” Bierkan said, noting that Northern California; Southern Florida; and Louisville, Kentucky, fall into that group.

The growth path for RLJ has been consistent since it was founded in 2000 as RLJ Development by Robert L. Johnson, Jr., he said.

“The smartest thing we did from the very get-go was—even when we were just a vehicle of Robert L. Johnson and his high net worth—we checked the egos and we didn’t chase sexy hotels,” Bierkan said. “We focused on upscale select-service hotels in an urban environment at a time when they were a fairly new critter.”

Johnson, Baltimore and other company executives saw the merits of a select-service asset that could tuck itself under full-service hotels in the same brand family in urban markets, Bierkan said.

“They can go along for the ADR ride in good times and then in downturns sometimes outperform the full-service cousins because they were the value trade—the business traveler would trade from the JW to a Marriott or even a Courtyard, and the leisure traveler within the Marriott point system or the Hilton point system would seek out these hotels on the weekends when they were traveling with families,” Bierkan said. “Given their limited room inventories, they weren’t as compelled to fill a quarter or a third or half the house with cheap-based business and compromise their (revenue per available room), so they ended up running similar or equal RevPARs as the full-service cousins with much leaner operating models and ended up being a much better mousetrap.”

The result was a higher return on invested capital, he said.

“By being early adopters, it’s what launched RLJ from just being a humble startup … into a $7-billion enterprise,” Bierkan said.

Because laws prevent REITs from managing the properties they own, that enterprise utilizes 15 management companies, including brands and third-party entities, to operate the assets.

“We’d be described by any of them as very active asset managers, we’ve only ever actually changed operators about three times over the years and over the course of about 230 properties,” Bierkan said. “The reason we’re as involved as we are (is) we recognize that the best way to get results isn’t necessarily to just switch horses, it’s to work with the operator, roll up our sleeves, find solutions—personnel solutions, strategic solutions, revenue-management opportunities. Our relationships with all of our operators is actually very sound.”

The operational aspect of its properties appears to have smooth sailing for the near term because there’s no big economic dip or recession on the horizon, according to Bierkan.

“Part of the reason is it’s been so tepid on a year-to-year basis; it hasn’t gotten overheated,” he said. “In some ways, individual markets have already been through their cycle or seem to be coming out of the worst of it.”

As for his future, Bierkan said he doesn’t plan to sit still. Riding his motorcycle and dusting off his golf clubs are part of the plan.

“I intend to stay involved in the space on a much more balanced level,” Bierkan said. “It’s been quite a rigorous time at RLJ. This is a chance for me to step up, invest in a space with people I know and trust and get a little bit of work/life balance. I’m looking forward to that.”

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