RLJ Lodging Trust Reports Second Quarter 2018 Results
Aug. 07, 2018
BETHESDA, Md.--(BUSINESS WIRE)--Aug 7, 2018--RLJ Lodging Trust (the “Company”) (NYSE: RLJ) today reported results for the three and six months ended June 30, 2018.
HighlightsSold Embassy Suites Napa Valley for $102 million, representing a valuation of nearly 15x trailing EBITDA, subsequent to quarter-end Pro forma RevPAR increased 1.3%, Pro forma ADR increased 1.0%, and Pro forma Occupancy increased 0.3% Pro forma Hotel EBITDA Margin of 35.0% Net income increased 51.6% to $64.4 million Adjusted EBITDA increased 54.1% to $159.8 million Adjusted FFO per diluted common share and unit increased 2.8% to $0.73
“We continued the successful execution of our asset disposition strategy with our recent sale of the Embassy Suites Napa Valley,” commented Ross H. Bierkan, President and Chief Executive Officer. “With an unwavering focus, we have made meaningful progress in accomplishing our strategic objectives. Over the past year, we have generated $400 million from assets sales at an average EBITDA multiple of approximately 15x. With a healthy disposition pipeline, we are on pace to meet our incremental asset sales objective for 2018. Our leverage continues to be at our target and we have nearly realized our G&A synergies. With solid momentum and a talented team in place, I am confident that RLJ is well positioned to unlock meaningful value for shareholders in the years to come.”
Financial and Operating Results
Performance metrics such as Occupancy, Average Daily Rate (“ADR”), Revenue Per Available Room (“RevPAR”), Hotel EBITDA, and Hotel EBITDA Margin are Pro forma. The prefix “Pro forma” as defined by the Company, denotes operating results which include results for periods prior to its ownership and excludes sold hotels. Pro forma RevPAR and Pro forma Hotel EBITDA Margin are reported on a comparable basis and therefore exclude any hotels sold during the period and non-comparable hotels that were not open for operation or were closed for renovation for comparable periods. Explanations of EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel EBITDA Margin, FFO, and Adjusted FFO, as well as reconciliations of those measures to net income or loss, if applicable, are included within this release.
Net income for the three months ended June 30, 2018, increased $21.9 million to $64.4 million, representing a 51.6% increase over the comparable period in 2017. For the six months ended June 30, 2018, net income increased $24.0 million to $88.3 million, representing a 37.4% increase over the comparable period in 2017.
Pro forma RevPAR for the three months ended June 30, 2018, increased 1.3% over the comparable period in 2017, driven by a Pro forma ADR increase of 1.0%, and by a Pro forma Occupancy increase of 0.3%. Excluding Louisville, Austin, and Denver, which experienced softness in the quarter, Pro forma RevPAR growth was 2.6%. For the six months ended June 30, 2018, Pro forma RevPAR increased 0.4% over the comparable period in 2017, driven by a Pro forma ADR increase of 0.1% and by a Pro forma Occupancy increase of 0.2%.
Pro forma Hotel EBITDA Margin for the three months ended June 30, 2018, was 35.0%, a decrease of 79 basis points over the comparable period in 2017. Increases in real estate taxes and insurance expense impacted Pro forma Hotel EBITDA Margin by approximately 45 basis points. For the six months ended June 30, 2018, Pro forma Hotel EBITDA Margin decreased 122 basis points over the comparable period in 2017 to 32.3%.
Pro forma Hotel EBITDA for the three months ended June 30, 2018, was $169.3 million, largely flat with the comparable period in 2017. For the three months ended June 30, 2017, Pro forma Hotel EBITDA includes results from prior ownership of $60.0 million from the hotel properties acquired pursuant to the FelCor merger.
For the six months ended June 30, 2018, Pro forma Hotel EBITDA decreased $9.3 million to $293.3 million, representing a 3.1% decrease over the comparable period in 2017. For the six months ended June 30, 2018, Pro forma Hotel EBITDA includes results from prior ownership of $106.7 million from the hotel properties acquired pursuant to the FelCor merger.
Adjusted FFO for the three months ended June 30, 2018, increased $39.2 million to $127.9 million, representing a 44.1% increase over the comparable period in 2017. For the six months ended June 30, 2018, Adjusted FFO increased $56.2 million to $209.4 million, representing a 36.7% increase over the comparable period in 2017.
Adjusted FFO per diluted common share and unit for the three months ended June 30, 2018, increased $0.02 to $0.73, representing a 2.8% increase over the comparable period in 2017. For the six months ended June 30, 2018, Adjusted FFO per diluted common share and unit decreased $0.03 to $1.20, representing a 2.4% decrease over the comparable period in 2017.
Adjusted EBITDA for the three months ended June 30, 2018, increased $56.1 million to $159.8 million, representing a 54.1% increase over the comparable period in 2017. For the six months ended June 30, 2018, Adjusted EBITDA increased $93.0 million to $275.6 million, representing a 50.9% increase over the comparable period in 2017.
Non-recurring items and other adjustments which were noteworthy for the three months ended June 30, 2018, include $3.5 million of other expenses outside of the normal course of operations, including certain costs associated with shareholder activism. For the six months ended June 30, 2018, non-recurring items and other adjustments which were noteworthy also include a gain on extinguishment of indebtedness of $7.7 million.
Non-recurring items are included in net income but are excluded from Adjusted EBITDA and Adjusted FFO, as applicable. A complete listing of non-recurring items is provided in the Non-GAAP reconciliation tables located in this press release.
Net cash flow from operating activities totaled $195.8 million for the six months ended June 30, 2018, representing a 38.3% increase over the comparable period in 2017.
As of June 30, 2018, the Company had $382.5 million of unrestricted cash on its balance sheet, $350.0 million available on its revolving credit facility, and $2.5 billion of debt outstanding.
The Company’s ratio of net debt to Adjusted EBITDA for the trailing twelve-month period ended June 30, 2018, was 3.9x.
The Company’s Board of Trustees declared a cash dividend of $0.33 per common share of beneficial interest in the second quarter. The dividend was paid on July 13, 2018, to shareholders of record as of June 29, 2018.
The Company's Board of Trustees declared a preferred dividend of $0.4875 on its Series A cumulative convertible preferred shares. The dividend was paid on July 31, 2018, to shareholders of record as of June 29, 2018.
On July 13, 2018, the Company sold the Embassy Suites Napa Valley for $102.0 million and paid off $25.9 million in outstanding first mortgage associated with the asset.
On July 20, 2018, the Company paid down its revolving credit facility by $75.0 million. Following the payment, the remaining outstanding balance on the revolving credit facility was $175.0 million.
The Company’s outlook includes all hotels owned as of August 7, 2018. Potential future acquisitions or dispositions could result in a material change to the Company’s outlook. The 2018 outlook is also based on a number of other assumptions, many of which are outside the Company’s control and all of which are subject to change.
The Company's 2018 outlook revisions only reflect the sale of the Embassy Suites Napa Valley. No other adjustments have been made.
For the full year 2018, the Company anticipates:
The Company will conduct its quarterly analyst and investor conference call on August 8, 2018, at 9:00 a.m. (Eastern Time). The conference call can be accessed by dialing (877) 407-3982 or (201) 493-6780 for international participants and requesting RLJ Lodging Trust’s second quarter earnings conference call. Additionally, a live webcast of the conference call will be available through the Company’s website at http://www.rljlodgingtrust.com. A replay of the conference call webcast will be archived and available online through the Investor Relations page of the Company’s website.
RLJ Lodging Trust is a self-advised, publicly traded real estate investment trust that owns primarily premium-branded, high-margin, focused-service and compact full-service hotels. The Company's portfolio consists of 154 hotels with approximately 30,000 rooms located in 26 states and the District of Columbia and an ownership interest in one unconsolidated hotel with 171 rooms.
Forward Looking Statements
The following information contains certain statements, other than purely historical information, including estimates, projections, statements relating to the Company’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally are identified by the use of the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “plan,” “may,” “will,” “will continue,” “intend,” “should,” or similar expressions. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, beliefs, and expectations, such forward-looking statements are not predictions of future events or guarantees of future performance and the Company’s actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: the current global economic uncertainty, increased direct competition, changes in government regulations or accounting rules, changes in local, national, and global real estate conditions, declines in the lodging industry, seasonality of the lodging industry, risks related to natural disasters, such as earthquakes and hurricanes, hostilities, including future terrorist attacks or fear of hostilities that affect travel, the Company’s ability to obtain lines of credit or permanent financing on satisfactory terms, changes in interest rates, access to capital through offerings of the Company’s common and preferred shares of beneficial interest, or debt, the Company’s ability to identify suitable acquisitions, the Company’s ability to close on identified acquisitions and integrate those businesses, and inaccuracies of the Company’s accounting estimates. Given these uncertainties, undue reliance should not be placed on such statements. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. The Company cautions investors not to place undue reliance on these forward-looking statements and urges investors to carefully review the disclosures the Company makes concerning risks and uncertainties in the sections entitled “Risk Factors,” “Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report, as well as risks, uncertainties, and other factors discussed in other documents filed by the Company with the Securities and Exchange Commission.
RLJ Lodging Trust
Non-GAAP and Accounting Commentary
Non-Generally Accepted Accounting Principles (“GAAP”) Financial Measures
The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDA re, (5) Adjusted EBITDA, (6) Hotel EBITDA, and (7) Hotel EBITDA Margin. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss as a measure of its operating performance. FFO, Adjusted FFO, EBITDA, EBITDA re, Adjusted EBITDA, Hotel EBITDA, and Hotel EBITDA Margin as calculated by the Company, may not be comparable to other companies that do not define such terms exactly as the Company.
The Company calculates Funds from Operations (“FFO”) in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income or loss (calculated in accordance with GAAP), excluding gains or losses from sales of real estate, impairment, the cumulative effect of changes in accounting principles, plus depreciation and amortization, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. The Company believes that the presentation of FFO provides useful information to investors regarding the Company’s operating performance and can facilitate comparisons of operating performance between periods and between real estate investment trusts (“REITs”), even though FFO does not represent an amount that accrues directly to common shareholders.
The Company’s calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. Additionally, FFO may not be helpful when comparing the Company to non-REITs. The Company presents FFO attributable to common shareholders, which includes unitholders of limited partnership interest (“OP units”) in RLJ Lodging Trust, L.P., the Company’s operating partnership, because the OP units are redeemable for common shares of the Company. The Company believes it is meaningful for the investor to understand FFO attributable to all common shares and OP units.
EBITDA and EBITDA re
Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA") is defined as net income or loss excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sales of assets; and (3) depreciation and amortization. The Company considers EBITDA useful to an investor in evaluating and facilitating comparisons of its operating performance between periods and between REITs by removing the impact of its capital structure (primarily interest expense) and asset base (primarily depreciation and amortization) from its operating results. In addition, EBITDA is used as one measure in determining the value of hotel acquisitions and dispositions.
In addition to EBITDA, the Company presents EBITDA re in accordance with NAREIT guidelines, which defines EBITDA re as net income or loss (calculated in accordance with GAAP) excluding interest expense, income tax expense, depreciation and amortization expense, gains or losses from sales of real estate, impairment, and adjustments for unconsolidated partnerships and joint ventures. The Company believes that the presentation of EBITDA re provides useful information to investors regarding the Company’s operating performance and can facilitate comparisons of operating performance between periods and between REITs.
Adjustments to FFO and EBITDA re
The Company adjusts FFO and EBITDA re for certain items that the Company considers outside the normal course of operations or extraordinary. The Company believes that Adjusted FFO and Adjusted EBITDA provide useful supplemental information to investors regarding its ongoing operating performance that, when considered with net income or loss, FFO, EBITDA, and EBITDA re, are beneficial to an investor’s understanding of its operating performance. The Company adjusts FFO and EBITDA re for the following items:Transaction Costs: The Company excludes transaction costs expensed during the period. Non-Cash Expenses: The Company excludes the effect of certain non-cash items such as the amortization of share-based compensation and non-cash income taxes. Other Non-Operational Expenses: The Company excludes the effect of certain non-operational expenses representing income and expenses outside of the normal course of operations, including debt modification costs, hurricane-related costs that are not reimbursed by insurance, executive transition costs, and activist shareholder costs.
The Company previously presented Adjusted EBITDA in a similar manner, with the exception of the adjustments for noncontrolling interests in consolidated joint ventures. The rationale for including 100% of Adjusted EBITDA for consolidated joint ventures with noncontrolling interests is that the full amount of any debt of these consolidated joint ventures is reported in our consolidated balance sheet and metrics using debt to EBITDA provide a better understanding of the Company’s leverage. This is also consistent with NAREIT’s definition of EBITDA re.
Hotel EBITDA and Hotel EBITDA Margin
With respect to Consolidated Hotel EBITDA, the Company believes that excluding the effect of corporate-level expenses and certain non-cash items provides a more complete understanding of the operating results over which individual hotels and operators have direct control. The Company believes property-level results provide investors with supplemental information about the ongoing operational performance of the Company’s hotels and the effectiveness of its third-party management companies.
Pro forma Consolidated Hotel EBITDA includes prior ownership information provided by the sellers of the hotels for periods prior to our acquisition of the hotels, which has not been audited and excludes results from sold hotels as applicable. Pro forma Hotel EBITDA and Pro forma Hotel EBITDA Margin exclude the results of any non-comparable hotels that were under renovation or not open for the entirety of the comparable periods. The following is a summary of pro forma hotel adjustments:
Pro forma adjustments: Acquired hotels
For the six months ended June 30, 2018, no hotels were acquired.
The Company acquired the following hotels in August 2017 in conjunction with the FelCor merger:DoubleTree Suites by Hilton Austin DoubleTree Suites by Hilton Orlando - Lake Buena Vista Embassy Suites Atlanta - Buckhead Embassy Suites Birmingham Embassy Suites Boston - Marlborough Embassy Suites Dallas - Love Field Embassy Suites Deerfield Beach - Resort & Spa Embassy Suites Fort Lauderdale 17th Street Embassy Suites Los Angeles - International Airport/South Embassy Suites Mandalay Beach - Hotel & Resort Embassy Suites Miami - International Airport Embassy Suites Milpitas Silicon Valley Embassy Suites Minneapolis - Airport Embassy Suites Myrtle Beach - Oceanfront Resort Embassy Suites Napa Valley Embassy Suites Orlando - International Drive South/Convention Center Embassy Suites Phoenix - Biltmore Embassy Suites San Francisco Airport - South San Francisco Embassy Suites San Francisco Airport - Waterfront Embassy Suites Secaucus - Meadowlands Hilton Myrtle Beach Resort Holiday Inn San Francisco - Fisherman's Wharf San Francisco Marriott Union Square DoubleTree by Hilton Burlington Vermont, formerly the Sheraton Burlington Hotel & Conference Center Sheraton Philadelphia Society Hill Hotel The Fairmont Copley Plaza The Knickerbocker, New York The Mills House Wyndham Grand Hotel, Charleston The Vinoy Renaissance St. Petersburg Resort & Golf Club Wyndham Boston Beacon Hill Wyndham Houston - Medical Center Hotel & Suites Wyndham New Orleans - French Quarter Wyndham Philadelphia Historic District Wyndham Pittsburgh University Center Wyndham San Diego Bayside Wyndham Santa Monica At the Pier
Pro forma adjustments: Sold hotels
For the six months ended June 30, 2018, the following hotels were sold:Embassy Suites Boston - Marlborough was sold in February 2018 Sheraton Philadelphia Society Hill Hotel was sold in March 2018
For the year ended December 31, 2017, the following hotel was sold:The Fairmont Copley Plaza was sold in December 2017
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