RLJ focused on five areas to redeploy capital
RLJ focused on five areas to redeploy capital
27 FEBRUARY 2020 8:08 AM

On a recent earnings call, RLJ Lodging Trust President and CEO Leslie Hale said the company will key in on five areas in 2020 to redeploy capital, which includes a number of ROI initiatives.

BETHESDA, Maryland—RLJ Lodging Trust spent 2019 executing a disposition program, but this year, the real estate investment trust doesn’t expect to sell any hotels.

Instead, the company will focus on five key areas, President and CEO Leslie Hale said on a call to report full-year and fourth-quarter 2019 earnings.

“As we enter 2020 with a strong balance sheet … we’re focused on redeploying capital to activate catalyst,” she said.

The five focus areas include “maximizing operational performance in the current lodging environment … executing (return-on-investment) initiatives … finalizing the plan for the Wyndham commercial programming … redeeming the FelCor bonds, which have a 6% coupon and finally remaining active with our share repurchase program,” she said.

On the ROI front, Hale said she anticipates RLJ will spend up to $50 million on a number of projects, one of which is brand conversions.

In late 2020, the company will begin the process of converting the Embassy Suites Mandalay Beach Resort in Oxnard, California, to Hilton’s Curio Collection, she said. The process is expected to be completed by 2021.

“We’re targeting a minimum of low double digits unleveled return on these investments, and we’re already seeing positive results on our ROI program, which is projected to contribute $3 (million) to $4 million of (earnings before interest, taxes, depreciation and amortization) this year,” she said.

RLJ will continue to reposition Wyndham Hotels & Resorts properties in its portfolio, Hale added.

“We remain excited by the high-quality rebranding opportunities available and are currently in active negotiations with multiple brands,” she said. “We are prioritizing the repositioning of the (Wyndham Santa Monica at the Pier) and the (Mills House Wyndham Grand Hotel) in (Charleston, South Carolina), which we expect to complete by mid-2021.”

Market softness
In the fourth quarter, New York and South Florida saw performance declines related to the Jewish holiday shift, said RLJ EVP and CFO Sean Mahoney.

Houston and Southern California also “experienced incremental weakness from softer citywides,” he said.

Hotels in South Florida should benefit from the 2020 Super Bowl and Southern California from a stronger citywide calendar, but muted trends are expected to continue in New York and Houston, Mahoney said.

Uncertainty around business investment and the coronavirus (COVID-19) “will create an incremental drag to both the global economy and U.S. economic growth,” he said.

“We believe that these factors will result in a continuation of the current low-growth lodging demand environment, especially in the urban and top 25 markets, which also face new supply, lack of pricing power and a tight labor market,” he said. “Taking all of these factors into account, we expect the urban and top 25 markets to once again underperform the broader industry this year.”

An analyst mentioned some hotel owners in New York City have defaulted on their mortgages, which could lead to closings. When asked if those hotels are competitive with RLJ’s New York City portfolio, or if the company is seeing any benefit from hotels closing in terms of market share gains, Mahoney said “we’re not seeing a lot of hotels exit the system, so we’re not seeing a lot of benefit.”

“2020 will continue to be a challenging year within New York,” he said. “When you look at a longer horizon, supply does wane starting next year and the following year. We are cautiously optimistic that if that continues and demand trend continues to be strong, which it has been in New York, then there is a light at the end of the tunnel for New York, but 2020 is going to be a challenge.”

Fourth-quarter and full-year 2019 performance
For the fourth quarter, RLJ saw revenue-per-available-room growth decrease 0.5%, according to the company’s earnings release. Net income reached $34.9 million for the quarter.

RevPAR increased 0.7% for the full year and net income was $129.4 million.

As of press time, RLJ’s stock was trading at $14.13 a share, down 20.3% year to date. The Baird/STR Hotel Stock Index was down 17% for the same period.

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