RLJ Lodging Trust President and CEO Leslie Hale said the company has entered an agreement to end its annual NOI guarantee with Wyndham Hotels & Resorts for its eight hotels under the brand and is considering rebranding the properties.
BETHESDA, Maryland—RLJ Lodging Trust had a “successful and active second quarter,” according to President and CEO Leslie Hale, which included entering an agreement to end its annual NOI guarantee with Wyndham Hotels & Resorts three years before it expires.
On RLJ’s second-quarter conference call to discuss earnings with analysts, Hale said that company has plans to terminate the NOI guarantee at the end of 2019 for its eight hotels under the brand, and is considering other branding opportunities for those properties, which will start in phases at the beginning of 2020.
“The termination allows us to unlock substantial value embedded in these hotels to brand repositioning,” she said. “These eight hotels represent over 13% of our (earnings before interest, taxes, depreciation and amortization) and are located in prime locations within top markets such as Boston, San Diego, Charleston and Santa Monica.”
Wyndham will be responsible for funding this year’s NOI guarantee payment of approximately $10 million, and “RLJ will also receive a $35 million lump sum termination payment, which we believe represents the fair value of the remaining terms under the guarantee,” Hale said.
During the quarter, the company also completed the sale of its Kingston Plantation hotels—the Embassy Suites Myrtle Beach Oceanfront Resort and the Hilton Myrtle Beach Resort—for $156 million. The real estate investment trust also entered agreements to sell 39 non-core assets for $490 million, 21 of which were sold as a portfolio of hotels that closed in June and a portfolio of 18 that is expected to close in August, she said.
“In aggregate, these sales defeated our initial target of $120 million of disposition proceeds,” Hale said. “These 39 hotels, which represent 10% of our EBITDA, are primarily located in slow growth, low RevPAR submarkets and generate RevPAR that is $50 below our remaining portfolio.”
RLJ saw solid revenue-per-available-room growth in northern California and Louisville, Kentucky, Hale said.
“In Louisville, our RevPAR increased by a robust 12.1% driven by the continued ramp up of the recently renovated Marriott Louisville Downtown,” she said. “The hotel benefited from a strong group base, which also drove a 13% increase in food and beverage during the quarter, a trend that we expect to continue in the second half of the year.”
Sean Mahoney, CFO at RLJ, said group revenue in the quarter increased 2.2%, which was driven by these markets.
Group revenue was up 20% in northern California and up 27% in Louisville, he said.
“Louisville will also continue to outperform driven by the continuation of post-renovation ramp up and strong group production at the Louisville Marriott,” he added.
Second-quarter performance was in line with RLJ’s expectations, but the company did see some softening in July and “acknowledge that forward-looking data points indicate that there is incremental risks to lodging fundamentals in the second half of the year,” Mahoney said, which has been incorporated into the company’s 2019 outlook.
“Recent trends in business sentiment will continue through the end of the year, (and) northern California will continue to outperform,” he said. “Third-quarter growth is expected to moderate, but pick up again in the fourth quarter, which is a function of the timing of citywides and a favorable comp due to last year’s strike in San Francisco.”
The company maintained its pro forma RevPAR guidance for the full year at a range of 0% to 2%, according to an earnings release. Pro forma hotel EBITDA margin is now expected to range between 31.6% to 32.2% rather than the previous guidance of 31.8% to 32.6%.
As of press time, RLJ stock was trading at $16.98 a share, up 3.5% year to date. The Baird/STR Hotel Stock Index was up 13.6% for the same period.