RLJ Lodging Trust President and CEO Ross Bierkan, who will retire at the end of August, said in his final earnings call with the company that RLJ is on track to deliver on its goals following its FelCor acquisition.
BETHESDA, Maryland—On RLJ Lodging Trust’s second-quarter earnings call with analysts Wednesday, President and CEO Ross Bierkan called the earnings period “busy and productive,” and said the company “has excellent momentum and is well-positioned” to move forward under the leadership of current EVP, COO and CFO Leslie Hale, who will take over as president and CEO at the end of this month.
Bierkan, who has been with RLJ and its predecessor company since 2000 and in his current role since 2016, used the company’s second-quarter performance as an example of how the company is executing on the strategic objectives it set post-acquisition of FelCor Lodging Trust to dispose of non-core assets and realize operational synergies.
“As I look back over my tenure, I’m extremely proud of the work we’ve done to create a leading platform in the lodging industry,” he said. He called Hale, a 13-year veteran of the company and its predecessor company, “more than ready to take the reins” when the transition officially takes place on 22 August.
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Bierkan cited recent performance highlights from the company that support its long-term objectives:
- The company grew pro forma revenue per available room 1.3% compared to the second quarter of 2017, average daily rate increased 1.0% and occupancy rose 0.3% in the same period.
- The company completed an opportunistic sale of the Embassy Suites Napa Valley for $102 million in July, contributing to its asset disposition goals.
- The company notched a pro forma hotel earnings before interest, taxes, depreciation and amortization margin of 35% in the quarter.
Bierkan called the 1.3% RevPAR growth “in line with our expectations” and said the company “saw continued strength in corporate and leisure transient business.”
He acknowledged that for the U.S. hotel industry overall, the group segment was a strong driver, though that doesn’t translate as much to RLJ’s performance numbers, since group contribution is less than 20% of the company’s revenues.
While the company did not revise its 2018 full-year RevPAR outlook (it remains in the -0.5% to 1% range), it did revise its outlook for adjusted EBITDA up to reflect the July sale of the Embassy Suites Napa Valley. RLJ executives now forecast that number to range from $524 million to $555 million.
The company has sold four hotels since December, and Bierkan said the company’s recent asset sales represent “a willingness to do some opportunistic sales in addition to the non-core assets we identified at the closing of the merger,” and said the company may very well exceed its target disposition goals.
He and Hale said the company currently has two additional not-yet-named assets under contract to sell for a combined total of nearly $2 million.
That doesn’t include The Knickerbocker in New York City, though Bierkan addressed some analyst questions about the future of that hotel.
“The Knick is a special asset and requires a special approach,” he said. “The Knick is ramping and the market is firming up a bit, so time is on our side to some degree. We feel good about owning the asset at this point in time but we also recognize the arbitrage between the private value and the public value is still very compelling and something we’re working on.”
Hale outlined some regional performance highlights from RLJ’s portfolio:
Houston was the company’s top-performing market this quarter, Hale said. The company has 11 hotels in that market, which overall saw 10.9% RevPAR growth over Q2 2017, driven in large part by a strong citywide calendar, she said.
The company’s 13 hotels in Southern Florida achieved 6.9% RevPAR growth over the same period.
In New York City, RLJ’s five hotels had collective RevPAR growth of 3.4%, “benefitted from a strong group pace and strengthening corporate demand,” Hale said.
The company’s largest market of Northern California, where it has 14 hotels, achieved 2.8% RevPAR growth, driven by “strong corporate demand and … compression created by strong citywide activity,” she said.
On the other end of the spectrum, Hale said Louisville (where the company has five hotels) lost RevPAR in a 13.8% decline, largely due to renovations at the company’s Marriott hotel downtown. She said the reopening of Louisville’s convention center should bolster performance moving forward.
Other weak performers in the quarter were Austin, Texas, where the company has 14 hotels, and Denver, where it has 13.
“Citywides were soft in Austin … and in Denver, performance was hurt by non-repeat (business) and new supply,” Hale said.
At press time, RLJ’s stock was trading at $21.68, down 8.5% year to date. The Baird/STR Hotel Stock Index was down 4.2% for the same time period.