It was a tale of leaders and laggards for RLJ Lodging Trust in Q3 2016. Washington, D.C., performed well while Texas markets took a hit.
BETHESDA, Maryland—A slow transactions market and some tough regional metrics led to a third quarter of flat to relatively flat performance for RLJ Lodging Trust.
In Q3 2016, the lodging real estate investment trust recorded a flat pro forma RevPAR, compared to the same period in 2015, driven by a pro forma ADR increase of 0.2% and occupancy decrease of 0.2%, according to a news release.
The company’s net income increased 1.1% (to $41.4 million) in the quarter compared to Q3 2016.
“The lodging industry is at an interesting point in time,” RLJ President and CEO Ross Bierkan said during the company’s quarterly earnings call with analysts. He cited modest corporate profits and supply growth as factors contributing to overall industry fundamentals shifts.
For RLJ, the quarter was a tale of several cities. “We had several markets post solid RevPAR growth, which helped offset declines in markets like Houston and New York City,” Bierkan said, adding that with those two cities left out of the company’s reporting, RevPAR growth would have been 1.9%.
The standouts were Washington, D.C.; Southern California; Denver; and to some extent Chicago, he said. Less-than-stellar? Austin, Texas; and the aforementioned Houston and New York City.
The company’s Washington, D.C.-market hotels (which include the Residence Inn National Harbor DC and the Fairfield Inn & Suites DC Downtown) collectively notched a 12.3% RevPAR growth in the quarter, “significantly outperforming the market,” Bierkan said. Good locations and strong leisure business bolstered these hotels, and Bierkan said he expects 2017 to continue to be strong, with factors like strong growth in citywide events and the administration change.
The company’s hotels in Southern California also performed well in the quarter, with RevPAR growth of 4.4%, largely because of “healthy tourism and robust corporate demand,” Bierkan said. Denver hotels saw 3.2% RevPAR gains and Chicago hotels saw 1%.
Austin, Texas, was a laggard for RLJ in Q3, Bierkan said. “Given the robust growth there, hotel development has increased,” he said. “In addition, during Q3, citywide room nights were down significantly. The lack of compression, coupled with an increase in supply, led to a RevPAR decline of 6.2%.”
The company’s Houston hotels saw a quarterly RevPAR decline of 16.5%, though Bierkan pointed out the hotels significantly increased market share in their comp set, largely because of four hotels that underwent renovations last year.
As a result, the company lowered its 2016 full-year RevPAR growth guidance from 1.5% to 2.5% growth, down to 0% to 1%.
At press time, RLJ Lodging Trust stocks were down 11.4% year to date. The Baird/STR Hotel Stock Index was down 0.8% for the same time period.
Bierkan called 2016’s hotel transactions market “slow but still active.” Buyers remain cautious, he added, and deals are taking longer time to work through. He said interest the company sees is coming from a diverse buyer pool, including institutional investors, overseas investors and smaller regional buyers. He also characterized buyer appetite as a “shift toward single assets and pairs that are strategic to (the buyer) in some way.”
In 2015, the company sold 23 hotels for $252.5 million and acquired three. So far in 2016, the company has sold one hotel.
“We’re under no particular pressure to sell, given our solid balance sheet,” Bierkan said.