RLJ delays conversions, lost less than expected in Q2
RLJ delays conversions, lost less than expected in Q2
10 AUGUST 2020 8:31 AM

Officials with RLJ Lodging Trust said the company is focused on preserving liquidity to make it through disruptions from the pandemic and has suspended capital allocation initiatives, which include efforts to convert Wyndham properties to other brands. 

BETHESDA, Maryland—RLJ Lodging Trust has an ongoing plan to preserve liquidity to manage through the pandemic and continued to suspend capital allocation initiatives in the second quarter, officials said Friday on an earnings call.

Sean Mahoney, EVP and CFO for RLJ, said the company entered 2020 in a strong position with “approximately $900 million of cash and an undrawn line of credit.”

While the REIT currently has strong liquidity, Mahoney said company efforts “continue to be laser-focused on ensuring RLJ has adequate liquidity to withstand a protracted period of disruption.”

These efforts have resulted in the suspension of capital allocation projects, which include return-on-investment projects and the suspension of Wyndham conversions “until there’s more clarity on the outlook.”

When asked by analysts what the timeline would be for the Wyndham conversions once there’s a clearer outlook, RLJ President and CEO Leslie Hale said the company planned on starting two projects this year and starting two in 2021, which “is still the sequencing, but it’s pushed off by a year.”

There’s expected to be a year to 18-month lag from start to finish on those Wyndham conversions, she said.

Cash burn during the quarter was $10 million lower than anticipated for the quarter because of higher revenues, hotels remaining open and more hotels reopening than initially expected, Hale said.

According to the company’s earnings release, the REIT reopened 21 hotels during the quarter. The company currently has 82 of its 103 hotels open.

In June, Hale said 70% of RLJ’s open hotels saw positive gross operating profit and 40% saw positive earnings before interest, taxes, depreciation and amortization.

Hale added that the company has a few projects that will be turned into university dorms temporarily. One of these properties is the Wyndham Pittsburgh University Center, which will be used as student housing by the University of Pittsburgh for the 2020-2021 school year.

Operating shortfalls
RLJ’s operating shortfalls in the second quarter were 40% better than expected, Mahoney said, which was driven by three factors.

“First, revenue at our open hotels was stronger than expected as leisure demand rebounded sooner and stronger than expected,” he said. “Second, we reopened 21 hotels during the quarter, which was more than expected, and led the revenue that reopened hotels, exceeding expectations. And third, our cost-containment initiatives were more effective than assumed with particular success in managing wages and benefits.”

April was the low watermark for lodging demand, but it improved in May and June, which was led by pent-up leisure demand, officials said. Hale added that the company believes the second quarter will be the worst quarter in 2020.

The REIT reported occupancy of 24% for its open hotels in the second quarter, she said.

As of press time, RLJ’s stock was trading at $9.27 a share, down 47.2% year to date. The New York Stock Exchange Composite was down 9.3% for the same period.

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