RLJ Lodging Trust(RLJ) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for the period ended September 30, 2021 Consolidated Balance Sheets As of September 30, 2021, total assets decreased to $5.12 billion, driven by a reduction in hotel property investments and net debt Balance Sheet Highlights | Balance Sheet Highlights | September 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total Assets | $5,124,244 | $5,617,172 | | Cash and cash equivalents | $624,551 | $899,813 | | Investment in hotel properties, net | $4,258,703 | $4,486,416 | | Total Liabilities | $2,694,080 | $2,929,784 | | Debt, net | $2,381,274 | $2,587,731 | | Total Equity | $2,430,164 | $2,687,388 | Consolidated Statements of Operations and Comprehensive Loss Q3 2021 revenues grew significantly to $233.8 million, but a $138.9 million impairment loss resulted in a net loss of $151.8 million Income Statement Highlights (in thousands) | Income Statement Highlights (in thousands) | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $233,769 | $83,932 | $547,575 | $382,005 | | Total Operating Expenses | $368,081 | $160,450 | $744,787 | $574,974 | | Impairment Losses | $138,899 | $— | $144,845 | $— | | Net Loss | ($151,818) | ($173,919) | ($283,157) | ($320,914) | | Net Loss per Share (Basic & Diluted) | ($0.94) | ($1.10) | ($1.81) | ($2.04) | Consolidated Statements of Cash Flows For the first nine months of 2021, operating activities provided $20.2 million in cash, a significant improvement from the prior year's cash use Cash Flow Highlights (in thousands) | Cash Flow Highlights (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $20,247 | ($86,791) | | Net cash used in investing activities | ($63,886) | ($55,684) | | Net cash (used in) provided by financing activities | ($230,837) | $253,964 | | Net change in cash, cash equivalents, and restricted cash | ($274,476) | $111,489 | Notes to the Consolidated Financial Statements Key disclosures include the COVID-19 impact, property transactions, a significant impairment loss, and extensive debt refinancing activities - As of September 30, 2021, the company owned 98 hotel properties with approximately 22,300 rooms, with 96 of the 98 hotels open[38][39] - During the nine months ended September 30, 2021, the company acquired the Hampton Inn and Suites Atlanta Midtown for $58.0 million and sold six hotel properties for a combined price of approximately $39.5 million[54][55] - An impairment loss of $138.9 million was recorded to write down the DoubleTree Metropolitan Hotel New York City to its estimated fair value of $153.0 million[53] - The company undertook significant debt restructuring, including issuing $500.0 million of 4.00% senior secured notes due 2029 and $500.0 million of 3.75% senior secured notes due 2026[64][69][75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial recovery from the COVID-19 pandemic, key strategic activities, operating results, and liquidity position Overview and COVID-19 Impact The company, a REIT specializing in premium-branded hotels, continues to see financial results materially impacted by the COVID-19 pandemic despite a recovery in demand - The company's strategy is to own primarily premium-branded, focused-service and compact full-service hotels, which are believed to generate high RevPAR and strong margins[140] - As of September 30, 2021, the company owned 98 hotels, of which 96 were open, representing 98% of the portfolio[141][142] - The ongoing effects of the COVID-19 pandemic are expected to continue to have a material impact on the company's financial results and liquidity[145] 2021 Significant Activities Key activities in 2021 included debt refinancing, credit facility amendments, and capital recycling through hotel sales and acquisitions - Issued 2029 and 2026 Senior Notes at 4.00% and 3.75% respectively, using proceeds to redeem 2025 Senior Notes and repay other loans[146] - Amended its Revolver and Term Loans to waive financial covenants through Q1 2022 and extend maturities[146] - Sold six hotels for a combined price of $39.5 million and acquired two hotels in Atlanta and Boston for a combined price of $147.0 million[146] Results of Operations Operating results show a strong rebound driven by increased travel demand, though a significant impairment loss impacted net income Comparable Hotel Operating Statistics | Comparable Hotel Operating Statistics | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Occupancy | 61.4% | 28.8% | +32.6 ppts | | ADR | $159.68 | $120.15 | +32.9% | | RevPAR | $98.11 | $34.59 | +183.6% | Comparable Hotel Operating Statistics | Comparable Hotel Operating Statistics | Nine Months 2021 | Nine Months 2020 | Change | | :--- | :--- | :--- | :--- | | Occupancy | 53.9% | 33.5% | +20.4 ppts | | ADR | $143.07 | $154.71 | -7.5% | | RevPAR | $77.15 | $51.90 | +48.6% | - A significant impairment loss of $138.9 million was recorded in Q3 2021 related to the DoubleTree Metropolitan New York City[166] - Property tax, insurance and other expenses decreased by $13.9 million for the nine-month period, primarily due to a decrease in real estate tax assessments[187] Liquidity and Capital Resources The company maintained strong liquidity with $660.3 million in cash reserves, enhanced by positive operating cash flow and covenant relief - The company had $660.3 million of cash and cash equivalents and restricted cash reserves as of September 30, 2021[215] - An amendment to the Revolver and Term Loans suspends the testing of financial maintenance covenants through the fiscal quarter ending March 31, 2022[214] - Net cash flow provided by operating activities was $20.2 million for the nine months ended September 30, 2021, compared to a use of $86.8 million in the prior-year period[216] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk from variable-rate debt is fully mitigated through the use of interest rate swaps - As of September 30, 2021, the company had approximately $1.4 billion of total variable rate debt, representing 58.3% of total indebtedness[225] - After accounting for interest rate swaps, 100.0% of the company's total indebtedness was fixed or effectively fixed, insulating future earnings from interest rate increases[225] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2021[230] - No material changes were made to the company's internal control over financial reporting during the period ended September 30, 2021[231] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not subject to any material litigation outside of routine claims from ordinary business operations - Other than routine litigation arising out of the ordinary course of business, the Company is not presently subject to any material litigation[232] Item 1A. Risk Factors No material changes have been made to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K - No material changes to the risk factors previously disclosed in the Annual Report have occurred[233] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered securities were sold; share repurchases were limited to shares surrendered by employees for tax obligations - During the three months ended September 30, 2021, 26,543 shares were repurchased at an average price of $14.23 per share for employee tax obligations[235]