RLJ Lodging Trust officials said they were pleased to see leisure demand extend beyond Labor Day and through October, but they are unsure if that demand will stay with rising COVID-19 cases across the U.S.
BETHESDA, Maryland—RLJ Lodging Trust saw leisure demand extend through October during the third quarter, but company officials said they are not so sure that demand will be sustainable going forward with rising COVID-19 cases.
On a call with analysts to discuss third-quarter earnings, RLJ President and CEO Leslie Hale said results for the quarter exceeded expectations, and the real estate investment trust benefited from location and hotel type.
“We saw continued relative strength in leisure demand and its uptick in various pockets of corporate and small group demand, albeit from a very low base,” she said. “We are pleased to see that these positive trends continued through October.”
Small signs of business-transient demand were seen in the quarter with business from technology, insurance and health care sectors, Hale said, adding that business from small groups and pop-up weddings was also seen during the quarter.
RLJ’s open hotels reported 37.1% occupancy during the quarter and saw nearly 50% occupancy on weekends, which has expanded into Thursdays, she said.
While occupancy levels continued to improve through October, Hale wasn’t sure if that would continue amid uncertainty related to the pandemic.
“With rates of COVID infections accelerating during what has historically been a slower period of travel, as we get deeper into the winter months, we have little visibility into what actions state and local jurisdictions may take regarding additional social distancing and other restrictive measures, which could hamper the demand trends we saw in October,” she said.
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RLJ has finalized plans to convert the Wyndham Santa Monica in Santa Monica, California, and the Wyndham Mills House Grand Hotel in Charleston, South Carolina, at the beginning of 2021, Hale said. The company has eight Wyndham assets it plans to convert.
The REIT is looking to convert the Santa Monica property to an independent hotel and “is in the throes with a global brand” to convert the Charleston property to a lifestyle brand, she said.
Given where the balance sheet is today, Sean Mahoney, EVP and CFO at RLJ, said “we have the optionality to pursue what we think is the most valuable (return on investment) initiative.”
“In respects to the assets within our portfolio that have rebranding opportunities, we’re going to look at them on a one-off basis; on a risk-adjusted basis determine whether the returns there are sufficient to take risks and rebrand,” he said. “When we think about the majority of those assets, we believe that conversions are still going to be compelling. The sequencing might change a little bit, but we still believe in the embedded ROI opportunities within our portfolio.”
One example of a one-off asset the company plans to convert is the Embassy Suites Hilton Mandalay Beach Resort in Oxnard, California, which will be converted to a Curio by Hilton property. That conversion is ongoing, he said.
Pro forma revenue per available room for the third quarter was $34.92, down 76% year over year. Pro forma occupancy was 29.3%, down 64%, and pro forma average daily rate was $119.26, down 33%, according to the company’s earnings release.
The company reported total revenue of $83.9 million for the quarter and a net loss of $173.9 million.
As of press time, RLJ’s stock was trading at $8.59 a share, down 51.1% year to date. The New York Stock Exchange Composite was down 5.7% for the same period.
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