Yahoo Finance RLJ Lodging Trust (RLJ) (Q1 2024) Earnings Call Transcript Highlights: Navigating Market ...
RevPAR Growth: 1% increase over the previous year, driven by higher occupancy.
Occupancy Rate: Increased by 1.2% to reach 69.3%.
Average Daily Rate (ADR): Slight decline of 0.1%, averaging $199.
Total Revenue Growth: Rose by 3.1% in the first quarter.
Hotel EBITDA Margin: Reported at 27.4%.
Adjusted EBITDA: $79.6 million for the quarter.
Adjusted FFO Per Diluted Share: $0.33.
Business Transient RevPAR: Grew by 11.6%, with ADR up 5% and occupancy up 7%.
Operating Cost Growth: Limited to 2.9% on a per occupied room basis.
Capital Expenditures: Expected to be between $100 million and $120 million for 2024.
Dividend: Quarterly common dividend maintained at $0.10 per share.
Full Year 2024 Guidance: RevPAR growth projected between 2.5% and 5.5%, with hotel EBITDA between $395 million and $425 million.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
RLJ Lodging Trust reported solid first quarter operating results, with RevPAR growth of 1% primarily driven by a 1.2% increase in occupancy.
The company successfully executed multiple high-return ROI projects, enhancing out-of-room spend by 7.7%, leading to total revenue growth of 3.1%.
RLJ Lodging Trust is seeing strong returns from its investments, particularly in conversions in Charleston, Mandalay Beach, and Santa Monica, which achieved 26.5% RevPAR growth.
The company expanded its pipeline of conversion opportunities with the acquisition of the Wyndham Boston Beacon Hill, expecting over 40% of EBITDA upside following repositioning.
RLJ Lodging Trust's urban-centric portfolio is well-positioned to benefit from robust group activity, improving inbound international demand, and the steady improvement in corporate travel.
Negative Points
The shift of Easter into March muted citywide and other group activity during the most significant month of the quarter, impacting growth.
Cold and rainy weather in California and South Florida negatively impacted these markets during the quarter.
Inflationary pressures, although normalizing, continued to impact operating costs, with total hotel operating cost growth limited to 2.9%.
Fixed costs such as insurance and property taxes were significant drivers of year-over-year increases in hotel operating expenses, increasing by 15% during the first quarter.
The company acknowledged macroeconomic uncertainty and the potential impact of Federal Reserve actions to slow the economy, which could affect travel and lodging demand.
Q & A Highlights
Q: Good morning, everybody. My first question is for Sean. Just on the debt market, why is the line of credit versus something more permanent to repay the CMBS loan that was maturing? Maybe just and high-level, what was your philosophy there? And the economic benefit of doing so? A: Sean Mahoney, RLJ Lodging Trust - Chief Financial Officer, Executive Vice President: Sure. Thanks, Mike. We've come in short. The answer is, is that the line draw was the most efficient source of capital that we had. We ran a process and obtain quotes from multiple data sources from the door during the first quarter. And we concluded while the other markets are open and actually efficient from an overall cost of debt and cost of borrowing perspective, the line which still has three years remaining of initial tenor, it was recast last year was the most efficient use of capital and it would save us on an annual basis, you know, several million dollars of interest rate savings by doing that. I think as we look forward, we acknowledge that the line is it was a vehicle in light of the current financing markets. We will look our department out that financing sometime later this year or early next year is how we're thinking about it, but it's can be based on how that on how the credit markets evolve, but we preserved our optionality to do that.
Q: Understood. That's helpful. And then just switching gears, maybe a bigger picture question on CapEx. Just first on the recurring front four properties and maybe where are costs today, how much have they moved versus either 2019 levels or compared to a year ago, for example, how are you thinking about when and where to renovate? And then similarly, for your conversions or renovation costs being higher impacting your underwriting or return expectations? A: Leslie Hale, RLJ Lodging Trust - President, Chief Executive Officer: And I'll thanks, Mike will tag team on this question. I would say that on the the renovation side, actually, if you find your question interesting, I would say a year ago, we were eating into our contingency on most projects and that, you know, more recently in the last sort of three quarters or so, we've been getting our contingency back, which means that the cost of renovations have stabilized and from a standpoint of inflationary pressures around inputs, labor relative to our renovation pool. So we feel good about the way we've been estimating and how they've been performing.
Q: Well, thank you. Good morning, everyone. I really want to dive into the commentary on April and what you're seeing in Q2 overall. I'm sorry if I missed this, but can you tell us what April RevPAR was? I mean it sounded like from the commentary April, maybe a comp issue, maybe something going on with group business, but there's a lot of concern in the market about just the health of the consumer broadly and what's going on with leisure travel. So if you could just touch on what you're seeing right now and just kind of help us think about a little bit more, what's driving some of the softness in April? A: Leslie Hale, RLJ Lodging Trust - President, Chief Executive Officer: Yes, sure. So there's a lot impacted in your question I had was I'm going to address it all first and let me just say this more broadly, which is that we're not seeing anything today that changes our view of the cadence for the year. And so your question on April, our April, we're still closing the book was going to be sort of flat to slightly down, but you really have to deconstruct April. And if you look the first half of April, April was relatively strong. All the segments performed well when you look at the back half of April, group was clearly impacted by by Passover, and that obviously had an impact on us for for the month of April. But we don't believe based on how the first half of the month performed as any read through and underlining fundamentals. And when we deconstruct the actual performance of April, you may see that our preliminary numbers that demand is actually up, our rate was down. And that makes sense because group is our highest rated segment today and that's what was impacted. But when we look at the cadence for the year based on the current trends we see, we see there's no change in our view. We still expect Q1 to be the slowest quarter of the year, and we expect Q2 to be better than Q1. As we mentioned in our prepared remarks, we do expect Q2 to be below the midpoint of our range because of April, but we are seeing the trends shaping up for May to for reacceleration based on May's normal pattern, but also because of our footprint. And we talked about in the prepared remarks, a number of markets like Louisville, which is going to benefit from the Kentucky Derby, and Tom can give some more color, some other markets. And then we expect June to be healthy as well as we move into the summer when we look at Group third and fourth quarter are expected to be the strongest quarters for us. And so we still expect the same strength in the back half of the year as we as we had at the beginning of the year. And on that, what I would say though, is that we're very sober about your point on the consumer. You know, the fact of the matter is that the Fed is trying to slow the economy. We see that reflected in the lower end of the consumer spectrum, whether it's in the form of their spending, their credit and or what's happening in the economy sector for hotels. And if the Fed is successful in slowing economy travel will not be immune to the impact of that. Having said that, we're not seeing it in our numbers and the trends that we see today. And that's also supported by the fact that the Fed didn't take an action was recently on that. So in terms of what we are seeing, we are seeing BT continue to steadily improve it was up 12 points for us in the first quarter. We're seeing group remains strong. Our paces at 106% with third and fourth quarter being the strongest months on that we're seeing are urban leisure remains strong. Our leisure was up 2% in the first quarter. Urban leisure was up 3% relative to that. And so we're monitoring it this real time. You know perspective, we do have a transit transient portfolio, some but you know, by and large, depending on the success of the Fed, it could have an impact on where we land within our range, but we're not seeing that today. So there's nothing today that we see that changed our cadence nor changes our view on the strength of the back half of the year.
Q: Josh Friedland on for Austin's. I'm just wondering, given the limited visibility in recent trends, how comfortable are you the acceleration implied in RevPAR guidance? A: Leslie
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
