Following a strong year in California and Washington, D.C.—plus two major asset sales in New York City—RLJ Lodging Trust executives said the company is prepared to weather 2017.
BETHESDA, Maryland—RLJ Lodging Trust President and CEO Ross Bierkan said the company notched many positives in 2016, particularly thanks to the “quality and diversity” of its portfolio.
Several of the company’s top-performing U.S. markets saw near or exceeding double-digit revenue-per-available-room growth in 2016, which were big contributors to the company’s overall positive RevPAR growth of 1.1% and earnings before interest, taxes, depreciation and amortization growth of 4.1%, Bierkan said.
On a conference call with analysts to present the company’s fourth-quarter and full-year 2016 earnings, Bierkan called out the company’s three biggest highlights for the year.
“We successfully grew RevPAR and EBITDA despite multiple headwinds,” he said. “We took advantage of strong interest from international investors looking to acquire in New York by selling two hotels at attractive valuation. … and we refinanced over $1 billion in debt, leading us to have one of the strongest balance sheets among the public (real estate investment trusts).”
During the year, RLJ sold four hotels: Two noncore assets for a combined total of $15.7 million, and two of its New York City portfolio—the 298-room Hilton Garden Inn New York 35th Street and the 280-room Hilton New York Fashion District. Both sold in the fourth quarter for a combined total of $285.8 million.
In his response to an analyst’s question about RLJ’s purchasing strategies at this point, Bierkan said the company’s balance sheet is “in great shape” and that the company is “looking for acquisitions that could be accretive.”
He said the company is opportunistic when it comes to deploying capital for hotel purchases, though it would look for properties in high-barrier-to-entry markets, or situations where RLJ could add value.
“Similar to our peers, we’re interested in finding opportunities that work for our portfolio,” Bierkan said. “We will also be opportunistic … in buying back shares.”
For the year, RLJ repurchased 600,000 common shares for $13.3 million. The RLJ Board of Trustees also declared a $0.33 cash dividend per share in the fourth quarter, which was paid in January.
At press time, RLJ’s stock was down 6% year to date. The Baird/STR Hotel Stock Index was up 18.6% for the same period.
Leslie Hale, COO and CFO, said the company’s 2017 RevPAR outlook of between -1% decline and 1% growth is conservative. The range “reflects uncertainty in the economic outlook and trends we’re currently seeing in lodging fundamentals,” she said.
Bierkan echoed that uncertainty, adding that while some proposals coming out of the new U.S. presidential administration are encouraging, the company remains cautious about whether regulatory changes may ultimately benefit corporate profits and lodging demand.
Strong market performance
Several markets where RLJ has a strong presence notched above-average performance for the company in 2016.
Northern California, where the company has eight hotels, reported a 4.4% RevPAR increase in the fourth quarter and a 9.8% increase for the full year, contributing 11% to total EBITDA.
“Our hotels are well-located here and they benefit from broad economic growth and robust corporate demand,” Bierkan said.
Southern California also performed well for the company, gaining 8.8% RevPAR growth in the quarter and 8% for the full year.
The company’s eight Washington, D.C., hotels benefited from strong demand, particularly in the quarter. The company’s D.C. hotels reported 12.4% RevPAR growth in the quarter and 6.3% for the full year. Bierkan said the company already expects D.C. to be a top market in 2017 thanks to a strong convention calendar and corporate demand from the administration change. January alone saw a 56% RevPAR increase over last year, he said.
Chicago, Denver and Austin showed growth in 2016 for the company as well, Bierkan said.
New York City, where the company now has three hotels post-sale, is where weaker fundamentals will be visible in 2017. However, Bierkan said the company’s existing New York hotels will benefit from the closure of the Waldorf-Astoria, and overall the market will contribute less than 4% of overall EBITDA for the year.
Overall, Bierkan said supply across the U.S. hotel industry will continue to be a challenge in 2017.
“It’s going to be a year for the entire industry of absorbing new supply, which is why we’re seeing such cautious guidance,” he said. “In almost every case, demand is not the problem. We just need to absorb the supply.”
Still, relief is in sight down the road by 2018, he said.
“Across our portfolio, we’re looking at about half of what 2017 will be (in terms of supply growth),” Bierkan said.