BETHESDA, MD—RLJ Lodging Trust in Q2 hit many of its strategic initiatives, including entering into agreements to sell two non-core portfolios of slow-growth, low-RevPAR hotels and unlocking significant embedded real estate value by terminating management and NOI guarantee agreements with Wyndham.
Highlights of Strategic Initiatives
- Sold a 21-hotel portfolio (Portfolio 21) in June and under firm contract to sell an 18-hotel portfolio (Portfolio 18) in August
- Entered into agreement to terminate Wyndham management and NOI guarantee agreements
- Sold Kingston Plantation in Myrtle Beach, SC, for approximately $156 million in June
- Refinanced approximately $0.4 billion of debt
- Pro forma RevPAR increased 0.7%, driven by an increase of 0.4% in ADR and 0.3% in occupancy
- Repurchased approximately 3.1 million common shares for approximately $54.3 million
Pro forma RevPAR growth for the second quarter was 0.7%. Pro forma RevPAR excluding Portfolio 18, increased 1.1% for the second quarter. The company’s top performing markets were Louisville and Northern California with Pro forma RevPAR growth of 12.1% and 6.9%, respectively.
Net Income for the second quarter was $33.7 million, a decrease of $30.7 million from the comparable period in 2018. For the three months ended June 30, 2019, and June 30, 2018, net income included $32.4 million and $12.0 million, respectively, from sold hotels.
Adjusted EBITDA for the second quarter was $148.4 million, a decrease of $11.5 million from the comparable period in 2018. For the three months ended June 30, 2019, and June 30, 2018, Adjusted EBITDA included $14.3 million and $25.0 million, respectively, from sold hotels.
The company entered into a non-binding letter of intent and is finalizing a definitive agreement with Wyndham to terminate the management and NOI guarantee agreements on the Wyndham hotels.
The significant terms of termination agreement will include the following:
- The management agreement and guarantee will terminate effective December 31, 2019.
- Wyndham remains obligated to fund the 2019 guarantee payment estimated to be $10 million.
- RLJ will receive a termination payment of $35 million.
- At RLJ’s option, these hotels may operate under transitional franchise and/or management agreements through December 31, 2020, with an extension option through December 31, 2021. The company is also currently evaluating branding alternatives for the Wyndham hotels and expects rebrandings to occur in stages starting in 2020.
In April 2019, the company refinanced approximately $381 million of secured debt, which reduced borrowing costs, extended maturities (including extensions), and improved non-financial terms. In connection with these transactions, the company entered into a new $200-million mortgage loan maturing in April 2024, a new $96-million mortgage loan maturing in April 2026, and an amended and restated $85-million, seven-year floating rate mortgage loan maturing in April 2026. The cash proceeds received from the two new mortgage loans were used to repay the company’s $150-million secured loan maturing in October 2021 and an approximately $140-million secured loan maturing in March 2022.
During the second quarter, the company repurchased 0.4 million shares of its common stock for $7.8 million at an average price per share of $17.56. Year-to-date, as of August 7, 2019, the company has repurchased approximately 3.1 million shares of its common stock for approximately $54.3 million at an average price per share of $17.29. As of August 7, 2019, the company’s share buyback program had a remaining capacity of approximately $206.0 million.
As of June 30, 2019, the company had $697.6 million of unrestricted cash on its balance sheet, $600 million available on its revolving credit facility, and $2.2 billion of debt outstanding. The company’s ratio of net debt to Adjusted EBITDA for the trailing twelve-month period ended June 30, 2019, was 3.3x.
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 15, 2019, to shareholders of record as of June 28, 2019. 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, 2019, to shareholders of record as of June 28, 2019.
The company is adjusting its outlook for the impact of the dispositions. The company’s full-year outlook includes 109 hotels. Pro forma RevPAR growth, Pro forma Hotel EBITDA Margin and Pro forma Consolidated Hotel EBITDA excludes Portfolio 21, Portfolio 18, and Kingston Plantation for all periods presented. The company’s outlook for Adjusted EBITDA and Adjusted FFO per diluted share and unit includes Portfolio 21, Portfolio 18, and Kingston Plantation for the company’s ownership period. Other than Portfolio 18, future acquisitions, dispositions, financings or share repurchases are not incorporated into the company’s outlook below and could result in a material change to the company’s outlook.
“We had a very successful quarter; in addition to delivering solid operational results, we made significant progress on our strategic initiatives, including entering into agreements to sell two non-core portfolios of slow-growth, low-RevPAR hotels and unlocking significant embedded real estate value by terminating our management and NOI guarantee agreements with Wyndham,” said Leslie D. Hale, president and CEO. “These transformational transactions improved our portfolio quality, elevated our growth profile and positioned our portfolio for long-term growth and NAV appreciation. With a fortress balance sheet and over $1 billion of investment capacity, RLJ has multiple levers to create shareholder value.”