RLJ Lodging Trust(RLJ) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents unaudited consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with notes, for periods ended June 30, 2024, and December 31, 2023 Consolidated Balance Sheets Total assets and equity slightly decreased, while total liabilities slightly increased from December 31, 2023, to June 30, 2024, with a notable decrease in cash and cash equivalents Consolidated Balance Sheets (in thousands) | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :--------------------------- | :----------------------------- | | Total Assets | $4,918,027 | $4,919,295 | | Total Liabilities | $2,570,256 | $2,568,505 | | Total Equity | $2,347,771 | $2,350,790 | | Cash and cash equivalents | $371,133 | $516,675 | Statements of Operations and Comprehensive Income Total revenues increased, but net income and EPS decreased for both periods ended June 30, 2024, primarily due to higher operating and interest expenses, despite a gain from hotel sales Key Financial Performance (Three Months Ended June 30) | Metric | 2024 (in thousands) | 2023 (in thousands) | Change ($) | Change (%) | | :----------------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Total Revenues | $369,297 | $356,960 | $12,337 | 3.46% | | Total Operating Expenses | $312,069 | $296,094 | $15,975 | 5.40% | | Net Income | $37,291 | $41,720 | $(4,429) | -10.62% | | Net Income Attributable to Common Shareholders | $30,827 | $35,116 | $(4,289) | -12.21% | | Basic EPS | $0.20 | $0.22 | $(0.02) | -9.09% | | Diluted EPS | $0.20 | $0.22 | $(0.02) | -9.09% | Key Financial Performance (Six Months Ended June 30) | Metric | 2024 (in thousands) | 2023 (in thousands) | Change ($) | Change (%) | | :----------------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Total Revenues | $693,707 | $671,463 | $22,244 | 3.31% | | Total Operating Expenses | $613,178 | $580,408 | $32,770 | 5.65% | | Net Income | $42,037 | $52,234 | $(10,197) | -19.52% | | Net Income Attributable to Common Shareholders | $29,486 | $39,483 | $(9,997) | -25.32% | | Basic EPS | $0.19 | $0.25 | $(0.06) | -24.00% | | Diluted EPS | $0.19 | $0.25 | $(0.06) | -24.00% | - Interest expense increased significantly for both periods due to higher interest rates on unhedged variable rate debt[6] - The company recognized a net gain of $3.5 million on the sale of hotel properties for both the three and six months ended June 30, 2024, compared to a net loss in the prior year[6] Statements of Changes in Equity Total equity slightly decreased from December 31, 2023, to June 30, 2024, reflecting net income, unrealized losses, share-based compensation, repurchases, and distributions - Total equity decreased from $2,350,790 thousand at December 31, 2023, to $2,347,771 thousand at June 30, 2024[10][11] - Common shares outstanding decreased from 155,297,829 at December 31, 2023, to 155,240,677 at June 30, 2024[10][11] - Distributions on common shares and units totaled $(31,507) thousand for the six months ended June 30, 2024[11] - The company acquired 407,857 common shares for $(4,192) thousand as part of a share repurchase program during the six months ended June 30, 2024[11] Statements of Cash Flows Operating cash flow slightly decreased, investing activities significantly increased due to acquisitions, and financing activities saw a decrease in net cash used Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2024 (in thousands) | 2023 (in thousands) | | :----------------------------------------- | :------------------ | :------------------ | | Net cash flow provided by operating activities | $134,294 | $137,115 | | Net cash flow used in investing activities | $(225,038) | $(65,815) | | Net cash flow used in financing activities | $(57,369) | $(96,354) | | Net change in cash, cash equivalents, and restricted cash reserves | $(148,113) | $(25,054) | - Investing activities in 2024 included $158,345 thousand for acquisitions and $72,372 thousand for improvements and additions to hotel properties[22] - Financing activities in 2024 included $200,000 thousand in borrowings under the Revolver and $200,000 thousand in repayment of a mortgage loan[22] Notes to the Consolidated Financial Statements These notes provide detailed information supporting the financial statements, covering organization, accounting policies, investments, acquisitions, debt, and equity Note 1. General RLJ Lodging Trust is a Maryland REIT focused on premium-branded hotels, owning 97 properties and a 99.5% interest in its Operating Partnership as of June 30, 2024 - RLJ Lodging Trust is a self-advised and self-administered Maryland real estate investment trust (REIT)[24] - The company owns primarily premium-branded, rooms-oriented, high-margin, focused-service and compact full-service hotels[24] - As of June 30, 2024, the company owned 97 hotel properties with approximately 21,500 rooms, located in 23 states and the District of Columbia[26] - The company owned 99.5% of the outstanding units of limited partnership interest in the Operating Partnership as of June 30, 2024[25] Note 2. Summary of Significant Accounting Policies Accounting policies remain consistent, with ongoing evaluation of new FASB ASUs on segment reporting and income tax disclosures, and SEC climate-related disclosure rules - The unaudited consolidated financial statements are prepared in accordance with GAAP and SEC rules, with no significant changes to accounting policies since December 31, 2023[27] - The company is evaluating the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures) on its financial statements[31][32] - The company is also evaluating the impact of the SEC's final rule on climate-related disclosures (SEC Release No. 33-11275)[33] Note 3. Investment in Hotel Properties Net investment in hotel properties increased to $4.27 billion as of June 30, 2024, from $4.14 billion at December 31, 2023, with stable depreciation expense Investment in Hotel Properties, Net (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Investment in hotel properties, net | $4,274,669 | $4,136,216 | - Depreciation expense related to hotel properties was approximately $44.4 million for the three months and $89.1 million for the six months ended June 30, 2024[33] Note 4. Acquisitions In the first half of 2024, the company acquired the Wyndham Boston Beacon Hill for $125.0 million and the Hotel Teatro in Denver for $35.5 million - Acquired the fee simple interest in the Wyndham Boston Beacon Hill hotel property for approximately $125.0 million on January 29, 2024[34] - Acquired a 100% interest in the 110-room Hotel Teatro in Denver, CO, for $35.5 million on June 13, 2024[35] Note 5. Sale of Hotel Property The company sold the 78-room Residence Inn Merrillville for approximately $8.1 million, recognizing a net gain of $3.5 million - Sold the 78-room Residence Inn Merrillville hotel property for approximately $8.1 million on May 21, 2024[36] - Recognized a net gain of $3.5 million from the sale for the three and six months ended June 30, 2024[36] Note 6. Revenue Revenue increased across all categories for both periods ended June 30, 2024, with Southern California and South Florida being top-performing geographic markets Total Revenues by Geographic Market (Three Months Ended June 30, in thousands) | Geographic Market | 2024 | 2023 | | :------------------ | :--- | :--- | | Southern California | $44,874 | $40,073 | | Northern California | $40,494 | $41,038 | | South Florida | $35,562 | $35,409 | | New York City | $23,028 | $21,342 | | Chicago | $20,569 | $20,901 | | Louisville | $20,191 | $18,249 | | Washington, DC | $19,365 | $19,145 | | Boston | $17,422 | $15,948 | | Charleston | $16,398 | $14,667 | | Houston | $14,385 | $14,190 | | Other | $117,009 | $115,998 | | Total | $369,297 | $356,960 | Total Revenues by Geographic Market (Six Months Ended June 30, in thousands) | Geographic Market | 2024 | 2023 | | :------------------ | :--- | :--- | | South Florida | $84,895 | $81,695 | | Southern California | $82,781 | $75,792 | | Northern California | $81,447 | $81,301 | | New York City | $36,752 | $34,214 | | Louisville | $33,395 | $30,563 | | Chicago | $32,723 | $33,220 | | Washington DC | $32,442 | $32,393 | | Houston | $28,776 | $27,842 | | Charleston | $28,745 | $25,246 | | Boston | $26,537 | $24,044 | | Other | $225,214 | $225,153 | | Total | $693,707 | $671,463 | Note 7. Debt Total net debt remained stable, but composition shifted with a $200.0 million mortgage loan repayment using the Revolver, and interest expense increased due to higher rates Debt, Net (in thousands) | Debt Type | June 30, 2024 | December 31, 2023 | | :---------------- | :------------ | :---------------- | | Senior Notes, net | $992,854 | $991,672 | | Revolver Outstanding | $200,000 | — | | Term Loans, net | $822,382 | $821,443 | | Mortgage loans, net | $207,406 | $407,663 | | Debt, net | $2,222,642 | $2,220,778 | - In April 2024, the company repaid a $200.0 million maturing mortgage loan using a $200.0 million draw under its Revolver[45] - All Senior Notes and Revolver/Term Loans covenants were met as of June 30, 2024[43][46] - Interest expense increased by $3.5 million for the three months and $5.8 million for the six months ended June 30, 2024, primarily due to higher interest rates on unhedged variable rate debt[49][115][128] Note 8. Derivatives and Hedging Activities The company uses interest rate swaps as cash flow hedges, with aggregate fair value of swap assets at $23.4 million as of June 30, 2024, and $14.7 million in expected reclassified gains Aggregate Fair Value of Interest Rate Swap Assets (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------ | :---------------- | | Aggregate fair value of interest rate swap assets | $23,441 | $25,400 | | Unrealized gains in accumulated other comprehensive income | $22,171 | $22,662 | - Approximately $14.7 million of unrealized gains included in accumulated other comprehensive income at June 30, 2024, is expected to be reclassified into earnings within the next 12 months[53] Note 9. Fair Value The company measures the fair value of financial instruments using a three-level hierarchy, estimating debt at $2.13 billion and interest rate swap assets at $23.4 million as of June 30, 2024 Fair Value of Debt (in thousands) | Debt Type | June 30, 2024 Carrying Value | June 30, 2024 Fair Value | | :--------------------------- | :--------------------------- | :----------------------- | | Senior Notes, net | $992,854 | $917,880 | | Revolver and Term Loans, net | $1,022,382 | $1,018,500 | | Mortgage loans, net | $207,406 | $198,545 | | Debt, net | $2,222,642 | $2,134,925 | - The fair value of interest rate swap assets was $23,441 thousand as of June 30, 2024, classified within Level 2 of the fair value hierarchy[56][58] Note 10. Income Taxes The company uses the asset and liability method for income tax accounting, maintains a full valuation allowance against deferred tax assets, and has no accruals for tax uncertainties - The company accounts for income taxes using the asset and liability method[59] - A full valuation allowance is provided against deferred tax assets related to net operating loss (NOL) carryforwards[59] - There were no accruals for tax uncertainties as of June 30, 2024, and December 31, 2023[60] Note 11. Commitments and Contingencies The company maintains restricted cash reserves for capital expenditures, is not involved in material litigation, and incurs management and franchise fees for its hotel operations - Restricted cash reserves for future capital expenditures, real estate taxes, and insurance totaled approximately $36.1 million as of June 30, 2024[61] - The company is not currently involved in any regulatory or legal proceedings that management believes will have a material adverse effect[62] - 96 consolidated hotel properties are operated under management agreements, and 58 under franchise agreements[64][66] Management and Franchise Fee Expenses (in thousands) | Expense Type | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :--------------------- | :------------------------------- | :----------------------------- | | Management fee expense | $11,300 | $21,200 | | Franchise fee expense | $18,500 | $34,300 | Note 12. Equity The company declared cash dividends for common and preferred shares, and approved a new $250.0 million share repurchase program, under which $4.2 million of common shares were repurchased - Declared a cash dividend of $0.10 per common share for Q1 and Q2 2024, an increase from $0.08 per common share in 2023[68] - Approved a new share repurchase program to acquire up to $250.0 million of common and preferred shares from May 9, 2024, to May 8, 2025[69] - Repurchased and retired approximately 0.4 million common shares for approximately $4.2 million during the six months ended June 30, 2024[69] - As of August 2, 2024, the 2024 Share Repurchase Program had a remaining capacity of $245.0 million[69] - Declared a cash dividend of $0.4875 on each Series A Preferred Share for Q1 and Q2 2024 and 2023[70] Note 13. Equity Incentive Plan The 2021 Equity Incentive Plan allows for various share-based awards. The company recognized compensation expenses for restricted share awards and performance units, with significant unrecognized costs remaining to be expensed over the next two years - The 2021 Equity Incentive Plan provides for a maximum of 6,828,527 common shares to be issued[74] Share-Based Compensation Expense (in thousands) | Award Type | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :----------------------------- | | Restricted share awards | $3,000 | $7,100 | | Performance unit awards | $2,300 | $4,600 | - Total unrecognized compensation costs related to unvested restricted share awards were $16.0 million, expected to be recognized over a weighted-average period of 2.0 years[76] - Total unrecognized compensation costs related to performance unit awards were $16.4 million, expected to be recognized over a weighted-average period of 2.1 years[80] Note 14. Earnings per Common Share Basic and diluted earnings per common share decreased for both the three and six months ended June 30, 2024, reflecting the overall decline in net income attributable to common shareholders Earnings Per Common Share | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.20 | $0.22 | $0.19 | $0.25 | | Diluted EPS | $0.20 | $0.22 | $0.19 | $0.25 | - Weighted-average number of common shares (basic) decreased from 156,424,444 in Q2 2023 to 153,641,065 in Q2 2024[84] Note 15. Supplemental Information to Statements of Cash Flows This note reconciles cash, cash equivalents, and restricted cash reserves, showing a decrease in total cash, and details supplemental non-cash investing and financing transactions Cash, Cash Equivalents, and Restricted Cash Reserves (in thousands) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------------ | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $371,133 | $476,936 | | Restricted cash reserves | $36,081 | $34,396 | | Total cash, cash equivalents, and restricted cash reserves | $407,214 | $511,332 | - Interest paid for the six months ended June 30, 2024, was $50,355 thousand, up from $44,386 thousand in 2023[85] - Supplemental investing transactions for H1 2024 included $158,345 thousand for acquisitions, net, and $7,679 thousand in proceeds from sales of hotel properties, net[85] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition and results for the three and six months ended June 30, 2024, covering business overview, performance drivers, and liquidity Statement Regarding Forward-Looking Information This standard disclaimer indicates the report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially, with no obligation to update - The report contains forward-looking statements, which are not predictions of future events or guarantees of future performance[86][87] - Actual results could differ materially from those set forth in the forward-looking statements[87] - The company undertakes no obligation to update or revise publicly any forward-looking statements[88] Overview The company is a self-advised REIT focused on premium-branded, rooms-oriented hotels in high-demand urban markets, aiming for high RevPAR, strong operating margins, and attractive returns - RLJ Lodging Trust is a self-advised and self-administered Maryland REIT[89] - The strategy is to own primarily premium-branded, rooms-oriented, high-margin, focused-service and compact full-service hotels in heart of demand locations[89][90] - As of June 30, 2024, the company owned 97 hotel properties with approximately 21,500 rooms[91] 2024 Significant Activities In 2024, the company acquired two hotels, repaid a mortgage loan using its Revolver, approved a new $250.0 million share repurchase program, and sold one hotel property - Acquired a fee simple interest in the Wyndham Boston Beacon Hill hotel property for approximately $125.0 million[93] - Acquired the 110-room Hotel Teatro in Denver, Colorado for $35.5 million[93] - Fully repaid a $200.0 million maturing mortgage loan with a $200.0 million draw on the Revolver[93] - Approved a new share repurchase program to acquire up to $250.0 million of common and preferred shares[93] - Sold a hotel property for approximately $8.1 million[93] - Repurchased and retired approximately 0.6 million common shares for approximately $6.2 million[94] Our Customers The majority of customers are transient business or leisure travelers, with business travelers forming the largest segment due to hotel locations in major metropolitan areas, and some hotels catering to extended-stay guests - The majority of customers are transient in nature, including individual business or leisure travelers[95] - Business travelers represent the majority of transient demand at the hotels, which are primarily located in business districts[95] - A number of hotel properties are affiliated with brands marketed toward extended-stay customers (staying five nights or longer)[96] Our Revenues and Expenses Revenues are primarily from room rentals, food and beverage, and other guest services, while operating expenses include costs for room, food and beverage, and management and franchise fees - Revenues are primarily derived from room rentals, food and beverage revenue, and other revenue (parking fees, resort fees, gift shop sales, etc)[97] - Operating costs include room expense, food and beverage expense, management and franchise fee expense, and other operating expenses[98] - Franchise fees are typically a royalty fee (2.0% to 6.0%) of room revenue, plus additional fees for marketing and central reservation systems (1.0% to 4.3% of room revenue), and sometimes food and beverage revenue (1.5% to 3.0%)[98] Key Indicators of Financial Performance The company uses GAAP and non-GAAP measures, including ADR, Occupancy, RevPAR, FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA, to evaluate performance - Key operating performance indicators include Average Daily Rate (ADR), Occupancy, and Revenue per Available Room (RevPAR)[99] - Non-GAAP measures used are Funds From Operations (FFO), Adjusted FFO, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), EBITDA for Real Estate (EBITDAre), and Adjusted EBITDA[100] Critical Accounting Policies and Estimates There have been no significant changes to the company's critical accounting policies and estimates since December 31, 2023, as detailed in its Annual Report - There have been no significant changes to the company's critical accounting policies and estimates since December 31, 2023[101] Results of Operations This section analyzes financial performance for the three and six months ended June 30, 2024, compared to 2023, highlighting revenue growth, increased expenses, and property transactions Overall Performance The company maintained 97 hotel properties in both periods, but operating results are not fully comparable due to one hotel sale and one acquisition in 2024 - The company owned 97 hotel properties at both June 30, 2024, and June 30, 2023[102] - Operating results for certain hotel properties are not comparable due to one hotel sale and one hotel acquisition in 2024[102] Comparison of the three months ended June 30, 2024 to the three months ended June 30, 2023 Total revenues increased by $12.3 million (3.5%) to $369.3 million, but net income decreased by $4.4 million (10.6%) due to higher operating and interest expenses, partially offset by a property sale gain - Total revenues increased $12.3 million (3.5%) to $369.3 million for the three months ended June 30, 2024[106] - Room revenue increased $8.2 million to $303.7 million, primarily due to an increase in corporate and group travel[107] Key Hotel Operating Statistics (Comparable Properties, Three Months Ended June 30) | Metric | 2024 | 2023 | | :-------- | :----- | :----- | | Occupancy | 76.7% | 75.1% | | ADR | $204.96 | $203.79 | | RevPAR | $157.13 | $153.03 | - Property operating expenses increased $13.0 million to $224.8 million, primarily due to increases in wages and benefits, sales and marketing, and utilities[110] - Interest expense increased $3.5 million to $28.0 million, attributable to higher interest rates on unhedged variable rate debt[115] - A net gain of $3.5 million was recorded on the sale of one hotel property during the three months ended June 30, 2024[116] Comparison of the six months ended June 30, 2024 to the six months ended June 30, 2023 Total revenues increased by $22.2 million (3.3%) to $693.7 million, but net income decreased by $10.2 million (19.5%) due to higher operating and interest expenses, partially offset by other income and a property sale gain - Total revenues increased $22.2 million (3.3%) to $693.7 million for the six months ended June 30, 2024[119] - Room revenue increased $14.0 million to $570.3 million, primarily due to an increase in corporate and group travel[120] Key Hotel Operating Statistics (Comparable Properties, Six Months Ended June 30) | Metric | 2024 | 2023 | | :-------- | :----- | :----- | | Occupancy | 73.0% | 71.8% | | ADR | $202.18 | $201.67 | | RevPAR | $147.60 | $144.88 | - Property operating expenses increased $25.5 million to $438.3 million, primarily due to increases in wages and benefits, sales and marketing, and utilities[123] - Other income, net increased $2.3 million to $3.9 million, primarily attributable to the receipt of certain COVID-19 relief awards[126] - Interest expense increased $5.8 million to $54.5 million, attributable to higher interest rates on unhedged variable rate debt[128] - A net gain of $3.5 million was recorded on the sale of one hotel property during the six months ended June 30, 2024[129] Non-GAAP Financial Measures The company uses non-GAAP measures like FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA to provide supplemental insights, which generally decreased for both periods ended June 30, 2024 Funds From Operations (FFO) and Adjusted FFO FFO and Adjusted FFO, calculated in accordance with NAREIT standards and further adjusted, decreased for both the three and six months ended June 30, 2024, reflecting overall profitability decline - FFO is calculated in accordance with NAREIT standards, excluding gains/losses from real estate sales, impairment, and including depreciation/amortization[131] - Adjusted FFO further adjusts FFO for items like transaction costs, pre-opening costs, and amortization of share-based compensation[133] FFO and Adjusted FFO (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | FFO | $72,105 | $80,448 | $115,625 | $130,022 | | Adjusted FFO | $78,619 | $87,836 | $130,473 | $143,916 | EBITDA, EBITDAre and Adjusted EBITDA EBITDA, EBITDAre (NAREIT-compliant), and Adjusted EBITDA are presented for performance comparison, all showing a decrease for both the three and six months ended June 30, 2024 - EBITDA is defined as net income excluding interest expense, income tax expense, and depreciation and amortization expense[135] - EBITDAre further excludes gains/losses from real estate sales, impairment, and adjustments for unconsolidated joint ventures[135] - Adjusted EBITDA includes additional adjustments for transaction costs, pre-opening costs, and amortization of share-based compensation[136] EBITDA, EBITDAre, and Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | EBITDA | $106,421 | $106,879 | $178,161 | $183,539 | | EBITDAre | $102,875 | $106,923 | $174,615 | $183,583 | | Adjusted EBITDA | $108,971 | $113,829 | $188,563 | $196,513 | Liquidity and Capital Resources Liquidity requirements include operating expenses, capital expenditures, debt service, and shareholder distributions; cash and equivalents decreased, investing activities increased, and financing activities saw less net cash used Overview The company's liquidity needs cover operating expenses, capital expenditures, debt payments, and distributions; cash, cash equivalents, and restricted cash reserves decreased to $407.2 million as of June 30, 2024 - Liquidity requirements include operating expenses, capital expenditures, interest and principal payments on debt, distributions, share repurchases, and general and administrative expenses[138][139] - Cash, cash equivalents, and restricted cash reserves were $407.2 million as of June 30, 2024, down from $555.3 million at December 31, 2023[138] Sources and Uses of Cash Net cash from operating activities slightly decreased, investing activities significantly increased due to acquisitions, and financing activities saw less net cash used due to debt repayment and Revolver borrowings - Net cash flow provided by operating activities totaled $134.3 million for the six months ended June 30, 2024, a slight decrease from $137.1 million in 2023[140] - Net cash flow used in investing activities significantly increased to $225.0 million in H1 2024, primarily due to $158.3 million in acquisitions and $72.4 million in capital improvements[141] - Net cash flow used in financing activities totaled $57.4 million in H1 2024, primarily due to $200.0 million mortgage loan repayment, $4.2 million in common share repurchases, and $43.9 million in distributions, partially offset by $200.0 million in Revolver borrowings[142] Capital Expenditures and Reserve Funds Routine capital expenditures are funded by FF&E reserves (3.0% to 5.0% of gross revenues), while major renovations use reserves, cash, the Revolver, or other liquidity sources, with $36.1 million in reserves as of June 30, 2024 - Routine improvements and alterations are paid out of FF&E reserves, funded by 3.0% to 5.0% of each hotel property's gross revenues[144][146] - Renovations are funded by FF&E reserves, cash and cash equivalents, the Revolver, and/or other sources of available liquidity[145] - As of June 30, 2024, approximately $36.1 million was held in FF&E reserve accounts for future capital expenditures[146] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate changes on variable rate debt, mitigated by swaps, with 70.6% of total indebtedness effectively fixed; a 1.00% rate increase would decrease annual earnings by $6.6 million - The primary market risk exposure is to changes in interest rates on variable rate debt[147] - As of June 30, 2024, approximately $1.2 billion (54.1% of total indebtedness) was variable rate debt[147] - After considering interest rate swaps, 70.6% of total indebtedness was fixed or effectively fixed[147] - A 1.00% increase in market interest rates on unhedged variable rate debt would decrease future earnings and cash flows by approximately $6.6 million annually[147] - The company uses derivative financial instruments, such as interest rate swaps, to mitigate interest rate risk[148] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes in internal control over financial reporting during the period - The company's disclosure controls and procedures were effective as of June 30, 2024[151] - There have been no material changes in the company's internal control over financial reporting during the period ended June 30, 2024[152] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material regulatory or legal proceedings that management believes would have a material adverse effect on its financial position or results - The company is not presently subject to any material litigation nor is any material litigation threatened against it[154] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report - There have been no material changes to the risk factors previously disclosed in the company's Annual Report[155] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any unregistered sales of equity securities during the quarter ended June 30, 2024, and provides a summary of common share repurchases under publicly announced programs - The company did not sell any securities during the quarter ended June 30, 2024, that were not registered under the Securities Act[156] Summary of Share Repurchases (Three Months Ended June 30, 2024) | Period | Total Shares Purchased (1) | Average Price Per Share | Purchased Under Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (2) | | :---------------------------------- | :------------------------- | :---------------------- | :--------------------------------------------------- | :--------------------------------------------------------------------------------- | | April 1, 2024 through April 30, 2024 | 65,349 | $11.11 | — | 19,334,375 | | May 1, 2024 through May 31, 2024 | 447,589 | $10.63 | 50,891 | 24,999,949 | | June 1, 2024 through June 30, 2024 | 251,455 | $9.71 | 251,455 | 25,655,077 | | Total | 764,393 | | 302,346 | | - The 2024 Share Repurchase Program, approved in April 2024, has a remaining capacity of $245.0 million as of August 2, 2024[155] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - Not applicable[159] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - Not applicable[159] Item 5. Other Information No other information is required to be disclosed under this item for the reporting period - No other information to disclose[159] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications from the CEO and CFO, and various Inline XBRL documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer (31.1*, 31.2*, 32.1*)[161] - Various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104) are submitted electronically with the report[161] Signatures The report is duly signed on behalf of RLJ Lodging Trust by its President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, and Senior Vice President and Chief Accounting Officer, dated August 2, 2024 - The report is signed by Leslie D. Hale (President and Chief Executive Officer), Sean M. Mahoney (Executive Vice President and Chief Financial Officer), and Christopher A. Gormsen (Senior Vice President and Chief Accounting Officer)[163] - The report is dated August 2, 2024[163]