RLJ Lodging Trust(RLJ) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial statements for H1 2022 reflect a significant recovery, with increased revenues, positive net income, and improved cash flow from operations Consolidated Balance Sheets Total assets decreased to $4.93 billion by June 30, 2022, primarily due to lower cash, while total liabilities and net debt also decreased Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $4,933,226 | $5,148,976 | | Cash and cash equivalents | $511,481 | $665,341 | | Investment in hotel properties, net | $4,127,290 | $4,219,116 | | Total Liabilities | $2,517,654 | $2,735,109 | | Debt, net | $2,211,735 | $2,409,438 | | Total Equity | $2,415,572 | $2,413,867 | Consolidated Statements of Operations and Comprehensive Income (Loss) Q2 2022 saw a significant turnaround with total revenues up 70% to $330.5 million, resulting in a net income of $33.2 million compared to a prior-year loss Q2 and H1 2022 vs 2021 Performance (in thousands, except EPS) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $330,501 | $194,254 | $573,400 | $313,806 | | Total Operating Expenses | $273,873 | $204,411 | $516,487 | $376,706 | | Net Income (Loss) | $33,202 | $(52,221) | $17,732 | $(131,339) | | Net Income (Loss) Attributable to Common Shareholders | $26,687 | $(57,726) | $5,161 | $(141,990) | | Basic EPS | $0.16 | $(0.35) | $0.03 | $(0.87) | Consolidated Statements of Changes in Equity Total equity slightly increased to $2.416 billion by June 30, 2022, influenced by net income, derivative gains, and share repurchases - Key equity changes in H1 2022 include a share repurchase program of $47.4 million and distributions on common and preferred shares totaling $15.7 million[16] Consolidated Statements of Cash Flows Operating activities generated $116.3 million in cash for H1 2022, a significant improvement, while financing activities used $269.6 million for debt repayment and share repurchases Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash flow provided by (used in) operating activities | $116,304 | $(24,019) | | Net cash flow used in investing activities | $(4,833) | $(10,650) | | Net cash flow used in financing activities | $(269,578) | $(203,387) | | Net change in cash, cash equivalents, and restricted cash reserves | $(158,107) | $(238,056) | Notes to the Consolidated Financial Statements Notes detail accounting policies, property portfolio, debt structure, derivative use, a $250 million share repurchase program, and subsequent events including a hotel acquisition - As of June 30, 2022, the Company owned 96 hotel properties with approximately 21,300 rooms, located in 22 states and the District of Columbia[33] - During H1 2022, the company sold two hotel properties for a combined price of approximately $49.9 million, resulting in a net gain of $1.1 million[43] - In May 2022, the board approved a new share repurchase program for up to $250.0 million. Through June 30, 2022, approximately 4.0 million common shares were repurchased for $47.4 million[82] - Subsequent to the quarter end, in July 2022, the company acquired the 21c Museum Hotel in Nashville for $59.0 million and increased its quarterly common dividend to $0.05 per share[100] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Strong Q2 2022 performance, driven by increased travel demand and higher RevPAR, led to a shift to net income, supported by strategic debt repayment and share repurchases Overview and Strategy The company's strategy focuses on owning premium-branded, high-margin, focused-service hotels in urban markets to achieve high RevPAR and strong operating margins - The company's strategy is to own primarily premium-branded, focused-service and compact full-service hotels, which are believed to generate attractive returns due to high RevPAR potential and an efficient operating model[106] Results of Operations Q2 2022 total revenues increased by $136.2 million to $330.5 million, driven by a surge in RevPAR, leading to net income for the quarter and half-year Q2 Key Hotel Operating Statistics (Comparable Properties) | Metric | Q2 2022 | Q2 2021 | Q2 2019 | | :--- | :--- | :--- | :--- | | Occupancy | 74.7% | 59.8% | 83.0% | | ADR | $195.64 | $143.39 | $189.69 | | RevPAR | $146.05 | $85.78 | $157.45 | H1 Key Hotel Operating Statistics (Comparable Properties) | Metric | H1 2022 | H1 2021 | H1 2019 | | :--- | :--- | :--- | :--- | | Occupancy | 67.9% | 52.3% | 79.7% | | ADR | $186.66 | $133.49 | $189.78 | | RevPAR | $126.83 | $69.76 | $151.26 | - The increase in revenues was primarily driven by a significant increase in demand, leading to higher RevPAR. ADR for comparable properties in Q2 2022 surpassed pre-pandemic levels of Q2 2019[121][122] Non-GAAP Financial Measures Non-GAAP metrics show strong operational recovery, with Q2 2022 Adjusted FFO at $81.0 million and Adjusted EBITDA at $111.0 million, significantly up year-over-year Reconciliation of Net Income to Adjusted FFO (in thousands) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $33,202 | $(52,221) | $17,732 | $(131,339) | | FFO | $74,344 | $(10,966) | $98,408 | $(43,601) | | Adjusted FFO | $80,999 | $11,295 | $104,892 | $(18,472) | Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $33,202 | $(52,221) | $17,732 | $(131,339) | | EBITDA | $104,598 | $21,402 | $160,979 | $17,262 | | EBITDAre | $104,962 | $21,299 | $159,926 | $22,022 | | Adjusted EBITDA | $110,978 | $43,560 | $165,570 | $47,151 | Liquidity and Capital Resources The company maintained strong liquidity with $555.8 million in cash, generating $116.3 million from operations, while repaying $200.0 million of the Revolver - The company had $555.8 million of cash and cash equivalents and restricted cash reserves as of June 30, 2022[161] - Key financing activities in H1 2022 included a $200.0 million repayment of the Revolver and $47.4 million in common share repurchases[166] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company mitigates interest rate risk on its $1.2 billion variable rate debt through interest rate swaps, effectively fixing 100% of its total indebtedness - As of June 30, 2022, the company had approximately $1.2 billion of variable rate debt, representing 53.9% of total indebtedness[171] - Through the use of interest rate swaps, 100% of the company's total debt was fixed or effectively fixed, insulating future earnings and cash flows from a 100 basis point increase in market interest rates[171][172] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[176] - No changes in internal control over financial reporting occurred during the period that have materially affected, or are reasonably likely to materially affect, the company's internal controls[177] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not subject to any material litigation beyond routine claims arising in 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[178] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the company's Annual Report[179] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 4,130,544 shares at an average price of approximately $12.00 per share during Q2 2022, including shares under a public program Share Repurchases for Q2 2022 | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | April 2022 | 20,928 | $14.02 | — | | May 2022 | 1,489,915 | $12.77 | 1,367,043 | | June 2022 | 2,619,701 | $11.62 | 2,590,940 | | Total | 4,130,544 | | 3,957,983 | Other Items The report confirms no defaults on senior securities, no mine safety disclosures, and no other material information to report under Item 5 - The report indicates no defaults upon senior securities, no applicable mine safety disclosures, and no other information to report under Item 5[183][184][185]