The performance of RLJ’s urban hotel portfolio signals a recovery in business travel

The performance of RLJ’s urban hotel portfolio signals a recovery in business travel

Travelers are finally returning to urban cities for vacations, events and business travel, which Leslie Hale, President and CEO of RLJ Lodging Trust, cited as a key factor in the Real Estate Investment Trust’s strong second quarter.

Urban hotels, which account for two-thirds of the company’s earnings before interest, taxes, depreciation and amortization, posted the strongest growth for the quarter, “and hit a new high of 95% of 2019 revenue per available room in June,” Hale said of the company’s earnings call with analysts.

The June average daily rate across the portfolio exceeded 2019 levels, and Hale said the acceleration in urban demand in particular “is an indication of a runway that exists to push the rate even further.”

And while U.S. transient business demand has been the industry’s traditional laggard so far this year, Hale said RLJ’s portfolio has seen a “rapid improvement” in the segment, not just in terms of yield but also in terms of the performance indicators.

“Business transient revenue increased over 50% in the second quarter versus the first quarter, which accelerated each month, with June reaching 71% of 2019, a new high,” she said.

Weekday occupancy, the traditional indicator of transient business demand, reached 88% of 2019 levels in the second quarter, up 40% from the first quarter of the year.

And while small and medium-sized business events account for the bulk of RLJ’s business and group demand, Hale said the company has seen “a return of traditional industries like financial services, consulting and technology firms” to the streets.

Still-steady leisure demand, growing demand for group businesses, and “new sources of demand arising from the hybrid work environment” further strengthened RLJ’s urban portfolio, which is centered in Washington, DC. Chicago; Atlanta; Miami; Boston; and Houston. RLJ’s current portfolio includes 97 hotels with more than 21,200 rooms in 24 states and the District of Columbia.

The Company’s resorts achieved 110% of 2019 RevPAR in the second quarter, said Sean Mahoney, CFO and executive vice president. Group operating income for the entire portfolio increased to 90% of 2019 levels and transient operating income reached 64% of 2019 levels, an improvement of 1,800 basis points from the first quarter.

Total portfolio EBITDA of $118.6 million for the quarter was 91% of 2019 levels.

Hale said she also doesn’t see that acceleration slowing anytime soon.

“We expect leisure to remain healthy, especially as city markets are fully open,” she said. “Our July business transient revenue continued to improve from June and we expect business travel to continue to grow.”

The group booking pace in the third quarter is 90% of 2019 levels, she said, and the recent surge in international inbound travel should offer more upside potential for the company’s city hotels.

RLJ’s most notable transaction occurred outside of the second quarter; Earlier this week, the company announced the purchase of the 124 room 21c museum hotel in Nashville for $59 million, or $476,000 per key.

This is RLJ’s first hotel in Tennessee, and Hale described Nashville as a top growth market where “demand has more than doubled supply in the last 10 years,” fueled not only by leisure but also by business expansion and regional group demand.

“This hotel is expected to generate a RevPAR of twice our portfolio average and a stabilized one[Nettobetriebsergebnis[Rendite von 8 % bis 8,5 %]achieve,” she said.[netoperatingincome[yieldof8%to85%”shesaid[netoperatingincome[yieldof8%to85%”shesaid

Year to date, the Company sold two hotel properties, including the SpringHill Suites by Marriott Denver North/Westminster, which took place during the quarter, for a total consideration of approximately $49.9 million.

And while Hale said RLJ continues to look for opportunistic selling, she expects the REIT to be net neutral when it comes to buying and selling this year.

The company ended the quarter with $1.1 billion in cash, including $511.5 million in unrestricted cash, and Hale attributed RLJ’s “strong balance sheet” to its ability to allocate capital to share buybacks recycle. The company repurchased 4.2 million common shares for $50 million.

“Tight operational controls” and a full-time employee base that’s still much smaller than 2019 levels meant the company “received 91% of 2019 hotel EBITDA and EBITDA margins that were just 60 basis points below 2019.” said Hale.

Total portfolio utilization in the second quarter was 74.7%, or 90% of 2019 levels. The quarter’s average daily price of $195.64 was 105% of 2019 levels; and RevPAR was $146.05 — 92% of 2019 levels and 36% up from the first quarter, the company said profit release.

At press time, RLJ’s share price was $12.38, down 11.13% year-to-date. The New York Stock Exchange Composite lost 11.3% over the same period.

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