RLJ Lodging Trust(RLJ) - 2021 Q4 - Annual Report

PART I Business RLJ Lodging Trust is a REIT specializing in premium-branded, focused-service and compact full-service hotels - As of December 31, 2021, the company owned 98 hotel properties with approximately 21,700 rooms, located in 22 states and the District of Columbia[20] - The business has been, and will likely continue to be, materially adversely impacted by the COVID-19 pandemic, which has affected travel demand, booking patterns, and overall financial results[22][23] - The company's business strategy focuses on owning premium-branded hotels in high-growth markets, proactive asset management, disciplined acquisitions, opportunistic capital recycling, and maintaining a flexible balance sheet[27] - The company emphasizes its commitment to ESG initiatives, highlighting a diverse board (four women, six ethnically diverse, eight independent trustees) and adherence to frameworks like the Global Reporting Initiative (GRI)[54] Hotel Brand Affiliations as of December 31, 2021 | Brand Family | Number of Hotels | Percentage of Total Hotels | Number of Rooms | Percentage of Total Rooms | | :--- | :--- | :--- | :--- | :--- | | Marriott | 39 | 39.9% | 7,992 | 36.8% | | Hilton | 35 | 35.7% | 8,659 | 40.0% | | Hyatt | 12 | 12.2% | 1,920 | 8.9% | | Wyndham | 7 | 7.1% | 2,241 | 10.3% | | Other | 5 | 5.1% | 858 | 4.0% | | Total | 98 | 100.0% | 21,670 | 100.0% | Risk Factors The company faces significant risks from the COVID-19 pandemic, substantial debt, operational dependencies, and its REIT status Risks Related to Our Business and Hotel Properties Operational risks include COVID-19 disruption, significant debt, market concentration, and reliance on third-party managers - The COVID-19 pandemic is expected to continue to significantly impact and disrupt the business, financial performance, operating results, and cash flows[61] - As of December 31, 2021, the company had approximately $2.4 billion of debt outstanding, which could adversely affect operating performance and requires significant cash to service[83] - The company is highly dependent on third-party management companies, with Aimbridge Hospitality managing 30 of its hotels as of December 31, 2021[68] - A substantial portion of the hotel portfolio (86 of 98 properties) operates under Marriott, Hilton, or Hyatt brands, creating a concentration risk tied to the success of these three brand families[76] - Labor shortages are a significant risk, potentially slowing growth and harming the business by impacting hotel operations, guest satisfaction, and increasing wage costs[73] Risks Related to the Lodging Industry The lodging sector presents risks from economic cyclicality, intense competition, ground leases, and climate change - The lodging industry is historically highly cyclical, with performance fluctuations driven by general economic conditions, which affect business and leisure travel[101] - As of December 31, 2021, 14 of the company's hotel properties were on land subject to ground leases, which exposes the company to risks of non-renewal, financing difficulties, or loss of the property upon breach[102] - The company faces risks associated with natural disasters and the physical effects of climate change, which could damage properties, increase insurance and operating costs, and are particularly relevant for its coastal hotels[107] Risks Related to Our Status as a REIT Maintaining REIT status requires significant dividend distributions and imposes operational constraints that could impact financial flexibility - Failure to qualify as a REIT would subject the company to U.S. federal income tax at corporate rates, significantly reducing earnings and cash available for shareholder distributions[129] - The requirement to distribute at least 90% of REIT taxable income annually could adversely affect the company's ability to fund capital expenditures, acquisitions, or other business needs from operating cash flow[131] - To qualify as a REIT, rental income must be from true leases; the company leases its hotels to its TRSs, and if these leases are not respected as true leases for tax purposes, the company would likely fail to qualify as a REIT[132] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[146] Properties The company's 98 hotels are operated by third-party managers and leased to its TRSs to comply with REIT regulations - A comprehensive list of the company's 98 hotel properties as of December 31, 2021 is provided, detailing names, locations, and room counts[147][149] - All hotel properties are operated by one of 15 independent management companies; Aimbridge was the management company for 30 properties as of year-end 2021[152][153] - 68 hotels operate under franchise agreements, which require royalty fees typically between 3.0% and 6.0% of room revenue, plus other marketing and system fees[158][159] - To qualify as a REIT, the company leases its hotels to its TRS lessees, which in turn engage third-party management companies[162] Legal Proceedings The company is not presently subject to any material litigation outside of the ordinary course of business - Other than routine litigation arising out of the ordinary course of business, the company is not presently subject to any material litigation[171] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[172] PART II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, and its shareholder return has underperformed key market indices - The company's common shares are traded on the NYSE under the symbol 'RLJ'; a cash dividend of $0.01 per common share was paid for each quarter during 2021 and 2020[175] - During the quarter ended December 31, 2021, 6,612 shares were repurchased at an average price of $13.88 per share to satisfy employee tax obligations, not as part of a publicly announced repurchase plan[185][186] Share Return Performance (Value of $100 Investment) | Name | Dec 31, 2016 | Dec 31, 2019 | Dec 31, 2020 | Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | RLJ Lodging Trust | $100.00 | $88.56 | $71.01 | $70.10 | | S&P 500 Index | $100.00 | $153.18 | $181.36 | $233.43 | | Dow Jones US REIT Hotels Index | $100.00 | $126.18 | $116.63 | $166.85 | Management's Discussion and Analysis of Financial Condition and Results of Operations The company experienced a significant operational recovery in 2021, with strong revenue growth and improved profitability metrics Results of Operations In 2021, revenues increased significantly due to higher occupancy, leading to an improved net loss and positive Adjusted FFO Comparison of Operations (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Total Revenues | $785,664 | $473,087 | $312,577 | | Total Operating Expenses | $980,618 | $730,177 | $250,441 | | Impairment Losses | $144,845 | $0 | $144,845 | | Net Loss | $(311,088) | $(408,802) | $97,714 | | Net Loss Attributable to Common Shareholders | $(330,283) | $(429,556) | $99,273 | Key Hotel Operating Statistics (Comparable Properties) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Occupancy | 57.6% | 34.2% | 78.7% | | ADR | $148.48 | $144.20 | $183.71 | | RevPAR | $85.52 | $49.35 | $144.64 | Non-GAAP Financial Measures Reconciliation (2021 vs. 2020) | Metric (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net Loss | $(311,088) | $(408,802) | | FFO | $1,570 | $(232,124) | | Adjusted FFO | $31,433 | $(161,444) | | EBITDAre | $132,104 | $(60,652) | | Adjusted EBITDA | $162,007 | $(41,082) | Liquidity and Capital Resources The company maintained a strong liquidity position and actively managed its capital structure through debt refinancing and asset sales - As of December 31, 2021, the company had $713.9 million of cash, cash equivalents, and restricted cash reserves, and $400.0 million available on its $600.0 million Revolver[241] - Total outstanding debt as of December 31, 2021, was approximately $2.4 billion with a weighted average interest rate of 3.94%[245] - In 2021, the company amended its Revolver and Term Loans to suspend the testing of all existing financial maintenance covenants through March 31, 2022 (the 'Covenant Relief Period')[248][250] Cash Flow Summary (2021 vs. 2020) | Cash Flow Activity (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Operating Activities | $43.0 | $(168.7) | | Investing Activities | $(24.6) | $(66.7) | | Financing Activities | $(239.3) | $243.0 | Quantitative and Qualitative Disclosures About Market Risk The company mitigates interest rate risk on its variable rate debt through derivative instruments, rendering its debt effectively fixed - The company's primary market risk is exposure to changes in interest rates on its variable rate debt, which was approximately $1.4 billion (57.7% of total) as of December 31, 2021[263] - Through the use of interest rate swaps, 100% of the company's total indebtedness was fixed or effectively fixed as of December 31, 2021, mitigating the impact of interest rate fluctuations[265] Financial Statements and Supplementary Data This item refers the reader to the Index to Financial Statements located on page F-1 of the report - This section directs to the Index to Financial Statements on page F-1[269] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[270] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - The company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2021[271] - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on the criteria set forth by COSO[275] - There were no changes in the company's internal control over financial reporting during the fourth quarter of 2021 that materially affected, or are reasonably likely to materially affect, these controls[277] Other Information The company reports no other information for this item - None[278] PART III This part incorporates information by reference from the company's 2022 definitive Proxy Statement Directors, Executive Officers and Corporate Governance Information is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting - The information required by this item is incorporated by reference from the definitive Proxy Statement for the 2022 Annual Meeting of Shareholders[281] Executive Compensation Information is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting - The information required by this item is incorporated by reference from the definitive Proxy Statement for the 2022 Annual Meeting of Shareholders[282] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting - The information required by this item is incorporated by reference from the definitive Proxy Statement for the 2022 Annual Meeting of Shareholders[283] Certain Relationships and Related Transactions and Director Independence Information is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting - The information required by this item is incorporated by reference from the definitive Proxy Statement for the 2022 Annual Meeting of Shareholders[284] Principal Accountant Fees and Services Information is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting - The information required by this item is incorporated by reference from the definitive Proxy Statement for the 2022 Annual Meeting of Shareholders[285] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K - This section lists all documents filed as part of the report, including financial statements, Schedule III (Real Estate and Accumulated Depreciation), and an index of exhibits[288] Form 10-K Summary This item is not applicable - Not applicable[294]