RLJ President and CEO Leslie Hale detailed the steps her company is taking to make it through the current low-occupancy operating environment on the company’s first-quarter earnings call.
BETHESDA, Maryland—RLJ Lodging Trust is making changes to push through the current pandemic environment and is well-positioned to start reopening hotels when the time comes, executives said on the company’s first-quarter earnings call.
- For more Q1 earnings coverage, click here.
The real estate investment trust ended 2019 with $900 million of unrestricted cash and low leverage, said RLJ President and CEO Leslie Hale.
“As a result, we are well-positioned to navigate in (an) extended period of uncertainty and pivot to reopening our hotels, even in a low-occupancy environment,” she said.
RLJ took several key steps operationally to respond at the onset of the crisis, which started in early March, Hale said. The REIT worked with operators to implement “aggressive cost-containment initiatives, including reducing staffing levels, closing (food-and-beverage) outlets, eliminating all nonessential services, freezing nonessential purchases and closing floors to reduce room inventory,” she said.
Hale said as the operating environment became more challenging, the company came up with a framework to assess whether hotels could operate in an extremely low occupancy environment.
“We then made the prudent decision to suspend operations at hotels with a lack of demand or high carrying costs that would result in the operating shortfall exceeding the cost of the spending operations,” she said. “We currently have suspended operations at 57 hotels, with the remaining 46 hotels, operating at low occupancy with minimal staffing, no F&B and only essential operations, all of which is intended to minimize operating shortfalls.”
In addition to the steps mentioned above, RLJ also took steps to “preserve and bolster our liquidity,” Hale said.
“We reduced our 2020 capital expenditures by over 80%,” she said. “We have limited capital spending to … (projects) nearing completion or emergency life safety projects. While we continue to believe that many of our projects represent an attractive embedded opportunity in our portfolio, we will revisit these projects when we have improved clarity.”
The company has also paused efforts to convert its Wyndham Hotels & Resorts properties to other brands, she added.
The 24.5% decrease in revenue per available room in the first quarter was “driven by the combination of a 15 and a half percentage-point decrease in occupancy and a 5.1% decrease in average daily rate,” said Sean Mahoney, CFO for RLJ.
“RevPAR performance was uneven throughout the quarter with 0.4% growth in January, followed by RevPAR contraction of 2.8% and 61.8% in February and March, respectively,” he said. “Second-quarter RevPAR is expected to significantly decline as more than half of our portfolio is likely to remain suspended with a balance operating in an extremely low demand environment.”
April RevPAR decreased by 95%, occupancy was 16.4% and average daily rate was $108 for the REIT’s 46 open hotels, he said.
As of press time, RLJ’s stock was trading at $7.49 per share, down 57.8% year to date. The Baird/STR Hotel Stock Index was down 46.6% for the same period.