Travelers are finally returning to urban cities for vacations, events and business trips, which RLJ Lodging Trust President and CEO Leslie Hale credited as a key factor in the real estate investment trust’s strong second quarter.
City hotels account for two-thirds of the company’s earnings before interest, taxes, depreciation and amortization and had the fastest growth in the quarter, “reaching a new high in June at 95% of 2019 revenue per available room,” Hale said. earnings call with analysts.
June’s average daily rate across the portfolio exceeded 2019 levels, and Hale said rising demand in cities, in particular, “points to a runway for further acceleration.”
And while business transient demand has been a traditional industry laggard in the U.S. so far this year, Hale said the RLJ portfolio has seen the segment “rapidly improve” not only in rate of return, but also in performance metrics.
“The business’s pass-through revenue increased significantly in the second quarter by more than 50% compared to the first quarter, which increased month-on-month, reaching 71% of 2019 in June, a new high watermark,” she said.
Weekday occupancy, a traditional measure of transient business demand, reached 88% of 2019 levels in the second quarter, up 40% from the first quarter of the year.
And while events from small and medium-sized businesses make up the bulk of RLJ’s business transient and group demand, Hale said the company has seen “traditional industries like financial services, consulting and technology companies come back on the road.”
Continued demand for leisure, growing demand from group companies and “new sources of demand arising from the mixed work environment” further strengthened RLJ’s urban portfolio, which is concentrated 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 business revenue from the entire portfolio increased to 90% of the 2019 level, and business pass-through revenue reached 64% of the 2019 level, or 1,800 basis points higher than in the first quarter.
Total portfolio EBITDA of $118.6 million for the quarter was 91% of 2019 levels.
Hale said she doesn’t see that acceleration slowing anytime soon, either.
“We expect recreation to remain healthy, especially as urban markets are fully open,” she said. “Our July business transient revenue continued to improve compared to June, and we expect corporate travel volumes to continue to strengthen.”
Third-quarter group bookings are at 90% of 2019 levels, she said, and recent increases in international inbound travel should further benefit the company’s city-based hotels.
RLJ’s most notable transaction occurred outside of the second quarter; The company announced the purchase earlier this week 124 room 21c museum hotel in Nashville for $59 million, or $476,000 a turnkey.
This is RLJ’s first hotel in Tennessee, and Hale called Nashville the biggest growth market, where “demand has grown twice as much as supply over the last 10 years,” fueled not only by leisure, but also by corporate expansion and demand from regional groups.
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So far, the company has sold two hotel properties, including the SpringHill Suites by Marriott Denver North/Westminster, which took place during the quarter, for a total price of about $49.9 million.
And while Hale said RLJ continues to look at opportunistic sales, she expects the REIT to be neutral when it comes to buying and selling this year.
The company ended the quarter with $1.1 billion in liquidity, including $511.5 million in unrestricted cash, and Hale credited RLJ’s “strong balance sheet” with its ability to recycle capital into share buybacks. The company repurchased 4.2 million shares of common stock for $50 million.
“Strong operational controls” and a full-time employee base that remains well below 2019 levels led the company to “achieve 91% of 2019 hotel EBITDA and EBITDA margin, which was only 60 basis points below 2019, ” said Hale.
Portfolio utilization in the second quarter was 74.7%, or 90% of the 2019 level. The average daily rate for the quarter at $195.64 was 105% of the 2019 level; and RevPAR was $146.05, up 92% from 2019 levels and up 36% from the first quarter, the company said. profit release.
At press time, RLJ shares were trading at $12.38, down 11.13% year to date. The New York Stock Exchange composite fell 11.3% over the same period.
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