RLJ Lodging Trust's urban-centric portfolio will help the real estate investment trust navigate the rocky waters of macroeconomic uncertainty, executives said on the company's first quarter earnings call on Monday.
Leslie Hale, president and CEO of RLJ, said first-quarter results were "better than expected." The company's hotel portfolio saw revenue per available room growth in January and February of 3.2% and 3.9%, respectively. Meanwhile, March saw a 1.3% decline in RevPAR — a trend that continued into April, she said.
"The primary driver for our first-quarter performance was a strength in our urban hotels, which achieved robust RevPAR growth at 3.6% with the number of our urban markets achieving high single-digit growth or higher," Hale said. "Despite the macro noise, urban hotels have continued to outperform the broader industry, benefiting from all segments of demand, especially from business travel that is being bolstered by workers returning to offices and large events continue to draw high attendance."
Adjusted outlook
In step with other hotel companies' executives this earnings season, Hale and Sean Mahoney, chief financial officer for RLJ, took another look at the REIT's full-year guidance to reflect the industry's softening.
"As we look ahead, we acknowledge that fundamentals have moderated from our outlook earlier this year, and uncertainty persists given the continued elevated macro economic risk, together with headline-driven volatility, this backdrop has reduced our visibility on the trajectory of near-term lodging operating results and our prior guidance range does not reflect today's environment," Hale said.
One of the trends RLJ is keeping an eye on is softening in international inbound demand for the United States, which Hale said only accounts for less than 3% of the company's hotel business. There's also been a decrease in government demand, which represents around 3% of RLJ's revenues.
With booking windows shortening, she said forecasting remains difficult, so the company adjusted its outlook accordingly.
"This is what we are seeing right now, and although conditions are currently holding, how the economic landscape evolves will ultimately determine where we end up in our full-year range," she said. "While the choppy economic backdrop is causing uncertainty, when we look beyond the recent noise, we remain constructive on the longer term outlook for lodging fundamentals."
Consumers are still preferring experiences over goods, Hale said. Business and group travel remain strong, she added.
"These dynamics are expected to disproportionately benefit urban markets, which are better-positioned with respect to the demand-supply dynamics relative to prior cycles given an extended period of constrained new supply," she said. "Additionally, the industrywide improvement to the revenue management mindset over the last several years should allow for continued rate integrity."
RLJ is now anticipating comparable RevPAR to range between down 1% to up 1%, compared to its previously forecasted 1% to 3% growth. Comparable hotel earnings before interest, taxes, depreciation and amortization is now expected to be between $365.5 million to $395.5 million.
What RLJ is focused on
In the first quarter, RLJ closed the sale of the 181-room Courtyard by Marriott Atlanta Buckhead to Partners Capital, the investment platform of Partners Real Estate, in a $24.25 million deal.
In step with the transaction, RLJ repurchased 2.3 million common shares for approximately $21.3 million at an average price of $9.28. So far this year, the company has repurchased 2.7 million common shares for approximately $24.3 million. In April, the RLJ's board approved the 2025 share repurchase program to acquire up to an aggregate of $250 million of common and preferred shares.
"We continue to see buybacks as a priority," Hale said, adding that the company's conversions are going according to plan.
RLJ's renovation for The Bankers Alley Hotel, a Tapestry Collection by Hilton, is in its final stages, and is already generating 16% RevPAR growth during the first quarter. Three other recent conversions — in Houston, New Orleans and Pittsburgh — helped buoy RevPAR growth during the quarter.
The second quarter started out with strategic moves regarding debt maturities, Mahoney said.
"We proactively addressed our 2025 and early 2026 debt maturities, including entering into a new $300 million term loan to refinance a $200 million term loan with an initial maturity in early 2026 and use the excess proceeds to fully repay the remaining $100 million dollars outstanding on our line of credit," Mahoney said on the call. "The new $300 million term loan matures in 2030 inclusive of extension options."
He also mentioned the final extensions on two mortgage loans of $96 million and $85 million, respectively.
Despite a successful close on the sale of the Courtyard by Marriott Atlanta Buckhead, Hale said the rest of the year likely won't result in many transactions, describing the market as being in a "wait and see" environment.
"I don’t think we have a programmatic approach to selling. We’ve been more opportunistic in this climate. I think you have to be," Hale said, citing the Atlanta deal as an example. "The types of assets that are capable of getting done are ones where they’re smaller that they have an owner-operator or the asset has some level of strategic benefit."
When asked about the potential impact of tariffs on RLJ's hotels, Mahoney said the company underwent changes to its supply chain for furniture, fixtures and equipment during the pandemic, so it's better off now than it would have been otherwise.
"Today only about 10% of our FF&E comes from China. That’s down from 40% pre-COVID," he said. "So I think we’ve done a good job through our in-house design and construction team of diversifying away from the risks."
On the call, Hale thanked Mahoney for his years of service ahead of his retirement this month. His replacement has not been named.
Earnings performance
For the first quarter, RLJ reported in its earnings release a comparable RevPAR of $141.23, which is a 1.6% increase year over year compared to the first quarter of 2024. The REIT also reported a first quarter net income of $3.2 million, a 33.2% decline year over year.
Total revenues in the first quarter increased 1.1% to $328.1 million. Adjusted EBITDA fell 2.5% to $77.6 million.
RLJ's standout urban markets included Washington, D.C., and New Orleans, which Mahoney said benefited from special events during the quarter. San Jose, California, saw a 14.1% increase in RevPAR, Houston had 9.9% RevPAR growth, Philadelphia RevPAR rose 26.4%, Pittsburgh's RevPAR grew at 12.6% and Louisville RevPAR increased by 10.3%.
As of press time, RLJ's stock was trading at $7.13 a share, down 30.3% year over year. The NYSE Composite was up 1.5% for the same period.