Travelers are finally returning to urban cities for vacations, events and business trips, which RLJ Lodging Trust President and CEO Leslie Hale called the main factor behind the strong second quarter of the real estate investment trust.
City hotels account for two-thirds of the company’s earnings before interest, taxes, depreciation and amortization and saw the strongest growth in the quarter, “reaching a new high of 95% of 2019 revenue per available room in June,” Hale said on the company’s website. earnings conference with analysts.
June’s average daily rate across the portfolio topped 2019 levels, and Hale said the acceleration in urban demand in particular “is an indication of a track that exists to drive the rate” even further. far.
And while transient business demand has been the traditional industry laggard in the U.S. so far this year, Hale said RLJ’s portfolio has seen “rapid improvement” in the segment, not just in terms of rate of return, but also in terms of performance.
“Revenues from transient businesses during the second quarter increased significantly by more than 50% compared to the first quarter, which accelerated each month, June reaching 71% of 2019, a new record,” he said. she declared.
Weekday occupancy, the traditional indicator of business traveler 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 make up the bulk of RLJ’s group and business transition demand, Hale said the company has seen “a return to traditional industries, such as financial services, consulting and technology companies” on the road.
Continuing leisure demand, growing demand from group businesses, and “new sources of demand emerging from the hybrid work environment” have further strengthened RLJ’s urban portfolio, which is focused 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, chief financial officer and executive vice president. Group operations revenue for the entire portfolio reached 90% of 2019 levels, and transitional operations revenue reached 64% of 2019 levels, an improvement of 1,800 basis points compared to the first quarter .
Total portfolio EBITDA of $118.6 million in the quarter was 91% of 2019 levels.
Hale said she doesn’t see that acceleration slowing down any time soon, either.
“We expect leisure to remain healthy, especially as urban markets are fully open,” she said. “Our July business travel revenue improved further compared to June and we expect business travel to continue to strengthen.”
The pace of group bookings in the third quarter is at 90% of 2019 levels, she said, and recent increases in inbound international travel should bring more profits to the company’s city hotels.
RLJ’s most notable transaction took place outside of the second quarter; earlier this week, the company announced its purchase of the 124-room 21c Museum Hotel in Nashville for $59 million, or $476,000 per key.
It’s RLJ’s first hotel in Tennessee, and Hale called Nashville a high-growth market where “demand has doubled supply in the past 10 years,” driven not just by recreation, but also by business expansion and demand from regional groups.
“This hotel should generate a RevPAR twice the average of our portfolio and a[résultat d’exploitation net]stabilized 8% to 8.5%,” she said.[netoperatingincome[yieldof8%to85%”shesaid[netoperatingincome[yieldof8%to85%”shesaid
Year-to-date, the company has sold two hotel assets, including SpringHill Suites by Marriott Denver North/Westminster, which occurred during the quarter, for a combined price of approximately $49.9 million.
And while Hale said RLJ continues to look at opportunistic selling, she expects the REIT to be net neutral this year when it comes to buying and selling.
The company ended the quarter with $1.1 billion in cash, including $511.5 million in unrestricted cash, and Hale credited RLJ’s “strong balance sheet” with its ability to recycle capital into buyouts. shares. The company repurchased 4.2 million common shares for $50 million.
“Tight operational controls” and a full-time employee base still well below 2019 levels led the company “to achieve 91% of 2019 hotel EBITDA and EBITDA margins, which were only 60 basis points below 2019,” Hale said.
Second quarter portfolio-wide occupancy was 74.7%, 90% of 2019 levels. Average daily rate in the quarter of $195.64 was 105% of 2019 levels ; and RevPAR was $146.05 – 92% of 2019 levels and up 36% from the first quarter, according to the company Press release.
At press time, RLJ’s stock price was trading at $12.38, down 11.13% year-to-date. The New York Stock Exchange Composite fell 11.3% for the same period.
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