Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RLJ Lodging Trust (RLJ, Financial) achieved RevPAR growth of 2.6% for the second quarter, driven by gains in both occupancy and ADR.
- The company successfully acquired Hotel Teatro in Denver for $35.5 million, aligning with their strategy of acquiring high-margin, rooms-oriented hotels.
- RLJ Lodging Trust (RLJ) increased their quarterly dividend to $0.15 per share, demonstrating confidence in their financial stability.
- The company reported a robust 6.5% increase in non-room revenues, contributing to a total revenue growth of 3.4%.
- RLJ Lodging Trust (RLJ) executed opportunistic share repurchases, recycling proceeds from the sale of a non-core asset into the repurchase of $5 million of shares.
Negative Points
- The company adjusted its full-year guidance downward due to price sensitivity in the leisure segment, dampening growth expectations.
- Fixed costs such as insurance and property taxes increased by 16% during the second quarter, impacting overall expenses.
- The leisure segment faced ADR headwinds, indicating increased consumer price sensitivity and normalization of leisure rates.
- Renovations in key markets like Atlanta and Austin held back performance in those areas.
- The company noted that the economic backdrop is showing signs of moderation, which could impact future demand and growth.
Q & A Highlights
Q: What’s the macro backdrop that you’re assuming at the low end versus the high end of your guidance, and what are the risks that you’re baking in that range?
A: Leslie Hale, President and CEO: The low end assumes a slowing economy, impacting largely on the leisure side, driven by rate adjustments. The high end assumes better performance in business travel (BT) and group segments, with urban leisure outperforming overall leisure.
Q: On the reduced weekend and leisure rate outlook, is that broad-based across the portfolio?
A: Thomas Bardenett, COO: The price sensitivity is more pronounced in leisure markets like South Florida and Orlando. We are adjusting revenue management strategies to group up more on weekends and focus on profitability.
Q: When did you start seeing the degree of leisure softness that led to the guidance cut?
A: Sean Mahoney, CFO: The softness became more apparent in June and July, particularly on weekends. We are reacting quickly with revenue management strategies and cost monitoring.
Q: Do you anticipate an increase in demand from OTAs due to leisure softness?
A: Thomas Bardenett, COO: We are not seeing an increase in OTA share but are ensuring proper pricing and leveraging digital marketing to maintain demand.
Q: Can you explain the rate gap between business transient (BT) and group segments?
A: Leslie Hale, President and CEO: Historically, BT had higher rates than group, but the new normal has shifted due to strong leisure and group demand. We expect some convergence but not a complete return to historical relationships.
Q: What percentage of your overall mix is leisure, and how do you define it?
A: Leslie Hale, President and CEO: Historically, transient mix was 55% BT and 45% leisure. Today, it’s closer to 50:50. Leisure is defined by weekend bookings and discount rates like AAA and AARP.
Q: Has your acquisition pipeline been growing or stable?
A: Leslie Hale, President and CEO: The pipeline has been stable, focusing on off-market transactions that align with our strategy.
Q: Is getting to the 10% stabilized yield for Hotel Teatro more top-line driven or efficiency-driven?
A: Leslie Hale, President and CEO: It’s driven by both top-line and bottom-line improvements through aggressive asset management and operational efficiencies.
Q: How do you balance new investments, share repurchases, and dividends in light of your current share price?
A: Leslie Hale, President and CEO: Our balance sheet allows us to pull multiple levers. This quarter, we recycled assets, bought back shares, invested in conversions, and increased our dividend, maintaining a balanced capital allocation.
Q: Are you prepared to go back to the brands for flexibility if further weakness develops?
A: Leslie Hale, President and CEO: We have learned to navigate in a zero-revenue environment and have many strategies to manage costs and revenue without needing to go back to the brands.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
