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RLJ looking at deals, expects soft first half

Column: industry Tag: RLJ Published: 2017-05-10 11:05 Source: Author:

RLJ Lodging Trust is mum for now about an all-stock deal announced 24 April to acquire FelCor Lodging Trust in a “definitive merger agreement,” which is expected to close by the end of 2017.

On a call with investors to discuss the company’s first-quarter earnings results, RLJ President and CEO Ross Bierkan declined to take any questions about the deal, which resulted in Ashford Hospitality Trust abandoning its own takeover bid for FelCor.

On an earnings call last week, Ashford Hospitality Trust President and CEO Douglas Kessler said there wasn’t much to take away from the company’s failed attempt to buy FelCor.

“I don’t think there’s anything we would’ve done different,” Kessler said. “We’re disappointed. We put a deal on the table that we felt was a better offer, and they decided to go in a different direction. I don’t know what you can take away when your deal is a better deal.”

While the FelCor deal is still in process, Bierkan told analysts that RLJ is continuing to look for opportunities.

“We are sitting on more cash than we normally do. Now, obviously, we’ve got good use for that cash, but we continue to look,” he said. “I will say, as we’ve been underwriting, we have found things to be a little pricey out there. It’s a seller’s market right now. While there are a lot of buyers out there … I’d say more than half of the (real estate investment trusts) are looking, and there’s the nontraded REITs … the animal spirits are stirring within private equity because debt rates are down, especially CMBS is readily available, and then there’s the international buyers.”

Bierkan added that the company is having a hard time with individual deals, “which makes a deal of scale perhaps more attractive.” He said RLJ is looking for disposition opportunities within its own portfolio.

“I don’t have anything to announce,” he said. “We don’t have anything under contract, but we haven’t necessarily simply put the brakes on all other activity; we continue to look.”

RLJ’s Q1 performance
During the first quarter, RLJ saw revenue per available room drop 0.6%, while average daily rate decreased 0.1% and occupancy declined 0.8%, according to a company news release.

While the company saw slight performance declines, Bierkan said first-quarter results were a little better than what they were expecting. He added that Washington, D.C., was RLJ’s strongest-performing market with a 14.3% increase in RevPAR for the quarter, which was aided by strong demand as a result of President Donald Trump’s inauguration and the Women’s March.

The company is expecting a soft first half of the year and a better second half.

“We obviously think that the first half is going to be soft and the second half will offset that to keep us in line with our guidance,” COO and CFO Leslie Hale said. “There’s no particular market that we’re depending on given our diversification. … Our non-top 10 markets were up 4.6% this quarter; we expect them to continue to perform relatively well on the back half of this year.

“Washington, D.C., will continue to be solid for us as well as we benefit from the Hyatt Place DC still ramping up,” she added. “Also, we (had) renovations at the Residence Inn Bethesda last year in the fourth quarter, and we’re seeing some benefits from our group up strategies and some key assets in the D.C. market.”

As of press time, RLJ’s stocks were down 14.7% year to date. At the same time, the Baird/STR Hotel Stock Index was up 23.3%.

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