SEC Filing – RLJ Lodging Trust

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rlj-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35169

RLJ LODGING TRUST

(Exact Name of Registrant as Specified in Its Charter)


Maryland						27-4706509
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)


3 Bethesda Metro Center, Suite 1000
Bethesda,	Maryland	20814
(Address of Principal Executive Offices)		(Zip Code)

(301) 280-7777

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12 (b) of the Exchange Act:

Title of Each Class

Trading Symbol

Name of Exchange on Which Registered

Common Shares of beneficial interest, par value $0.01 per share

RLJ

New York Stock Exchange

$1.95 Series A Cumulative Convertible Preferred Shares, par value $0.01 per share

RLJ-A

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of April 28, 2022, 166,843,586 common shares of beneficial interest of the Registrant, $0.01 par value per share, were outstanding.

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		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Financial Statements (unaudited)
	Balance Sheets as of March 31, 2022 and December 31, 2021	1
	Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021	2
	Statements of Changes in Equity for the three months ended March 31, 2022 and 2021	4
	Statements of Cash Flows for the three months ended March 31, 2022 and 2021	6
	Notes to the Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	34

Signatures		35

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RLJ Lodging Trust

Consolidated Balance Sheets

(Amounts in thousands, except share and per share data)

(unaudited)


	March 31, 2022		December 31, 2021
Assets
Investment in hotel properties, net	$	4,155,048	$	4,219,116
Investment in unconsolidated joint ventures	6,644		6,522
Cash and cash equivalents	479,047		665,341
Restricted cash reserves	43,254		48,528
Hotel and other receivables, net of allowance of $322 and $274, respectively	37,876		31,091
Lease right-of-use assets	143,606		144,988


Prepaid expense and other assets	56,182		33,390

Total assets	$	4,921,657	$	5,148,976
Liabilities and Equity
Debt, net	$	2,210,725	$	2,409,438
Accounts payable and other liabilities	129,962		155,136

Advance deposits and deferred revenue	21,434		20,047
Lease liabilities	122,326		123,031
Accrued interest	8,210		19,110
Distributions payable	8,208		8,347
Total liabilities	2,500,865		2,735,109
Commitments and Contingencies (Note 10)
Equity
Shareholders’ equity:
Preferred shares of beneficial interest, $0.01 par value, 50,000,000 shares authorized
Series A Cumulative Convertible Preferred Shares, $0.01 par value, 12,950,000 shares authorized; 12,879,475 shares issued and outstanding, liquidation value of $328,266, at March 31, 2022 and December 31, 2021	366,936		366,936
Common shares of beneficial interest, $0.01 par value, 450,000,000 shares authorized; 166,843,586 and 166,503,062 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	1,668		1,665
Additional paid-in capital	3,097,166		3,092,883
Distributions in excess of net earnings	(1,069,769)		(1,046,739)
Accumulated other comprehensive income (loss)	11,214		(17,113)
Total shareholders’ equity	2,407,215		2,397,632
Noncontrolling interests:
Noncontrolling interest in the Operating Partnership	6,209		6,316
Noncontrolling interest in consolidated joint ventures	7,368		9,919
Total noncontrolling interests	13,577		16,235

Total equity	2,420,792		2,413,867
Total liabilities and equity	$	4,921,657	$	5,148,976

The accompanying notes are an integral part of these consolidated financial statements.

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RLJ Lodging Trust

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Amounts in thousands, except share and per share data)

(unaudited)


	For the three months ended March 31,
		2022		2021
Revenues
Operating revenues
Room revenue		$	205,779	$	102,772
Food and beverage revenue		20,901		6,242
Other revenue		16,219		10,538
Total revenues		242,899		119,552
Expenses
Operating expenses
Room expense		53,828		29,427
Food and beverage expense		16,169		4,556
Management and franchise fee expense		20,388		5,361
Other operating expense		68,654		49,120
Total property operating expenses		159,039		88,464
Depreciation and amortization		46,865		46,943
Impairment losses		—		5,946
Property tax, insurance and other		22,513		20,081
General and administrative		14,134		10,800
Transaction costs		62		60
Total operating expenses		242,613		172,294
Other income, net		7,285		465
Interest income		172		384
Interest expense		(24,561)		(27,895)
Gain on sale of hotel properties, net		1,417		1,083

Loss before equity in income (loss) from unconsolidated joint ventures		(15,401)		(78,705)
Equity in income (loss) from unconsolidated joint ventures		122		(298)
Loss before income tax expense		(15,279)		(79,003)
Income tax expense		(190)		(114)
Net loss		(15,469)		(79,117)
Net loss attributable to noncontrolling interests:
Noncontrolling interest in the Operating Partnership		104		396
Noncontrolling interest in consolidated joint ventures		118		736


Net loss attributable to RLJ		(15,247)		(77,985)
Preferred dividends		(6,279)		(6,279)
Net loss attributable to common shareholders		$	(21,526)	$	(84,264)

Basic and diluted per common share data:
Net loss per share attributable to common shareholders		$	(0.13)	$	(0.51)
Weighted-average number of common shares		164,179,661		163,826,009

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Comprehensive income (loss):
Net loss	$	(15,469)	$	(79,117)
Unrealized gain on interest rate derivatives	34,193		16,720
Reclassification of unrealized gains on discontinued cash flow hedges to other income, net	(5,866)		—
Comprehensive income (loss)	12,858		(62,397)
Comprehensive loss attributable to noncontrolling interests:
Noncontrolling interest in the Operating Partnership	104		396
Noncontrolling interest in consolidated joint ventures	118		736


Comprehensive income (loss) attributable to RLJ	$	13,080	$	(61,265)

The accompanying notes are an integral part of these consolidated financial statements.

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RLJ Lodging Trust

Consolidated Statements of Changes in Equity

(Amounts in thousands, except share data)

(unaudited)


	Shareholders’ Equity												Noncontrolling Interest
	Preferred Stock			Common Stock
	Shares	Amount		Shares	Par Value		Additional Paid-in Capital		Distributions in excess of net earnings		Accumulated Other Comprehensive (Loss) Income		Operating Partnership		Consolidated Joint Ventures		Total Equity
Balance at December 31, 2021	12,879,475	$	366,936	166,503,062	$	1,665	$	3,092,883	$	(1,046,739)	$	(17,113)	$	6,316	$	9,919	$	2,413,867
Net loss	—	—		—	—		—		(15,247)		—		(104)		(118)		(15,469)
Unrealized gain on interest rate derivatives	—	—		—	—		—		—		34,193		—		—		34,193
Reclassification of unrealized gains on discontinued cash flow hedges to other income, net	—	—		—	—		—		—		(5,866)		—		—		(5,866)

Contributions from consolidated joint venture partners	—	—		—	—		—		—		—		—		156		156
Distribution to consolidated joint venture partners	—	—		—	—		—		—		—		—		(2,589)		(2,589)





Issuance of restricted stock	—	—		432,779	4		(4)		—		—		—		—		—
Amortization of share-based compensation	—	—		—	—		5,555		—		—		—		—		5,555

Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock	—	—		(87,626)	(1)		(1,268)		—		—		—		—		(1,269)

Forfeiture of restricted stock	—	—		(4,629)	—		—		—		—		—		—		—
Distributions on preferred shares	—	—		—	—		—		(6,279)		—		—		—		(6,279)
Distributions on common shares and units	—	—		—	—		—		(1,504)		—		(3)		—		(1,507)


Balance at March 31, 2022	12,879,475	$	366,936	166,843,586	$	1,668	$	3,097,166	$	(1,069,769)	$	11,214	$	6,209	$	7,368	$	2,420,792

The accompanying notes are an integral part of these consolidated financial statements.

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RLJ Lodging Trust

Consolidated Statements of Changes in Equity

(Amounts in thousands, except share data)

(unaudited)


	Shareholders’ Equity												Noncontrolling Interest
	Preferred Stock			Common Stock
	Shares	Amount		Shares	Par Value		Additional Paid-in Capital		Distributions in excess of net earnings		Accumulated Other Comprehensive Loss		Operating Partnership		Consolidated Joint Ventures		Total Equity
Balance at December 31, 2020	12,879,475	$	366,936	165,002,752	$	1,650	$	3,077,142	$	(710,161)	$	(69,050)	$	7,869	$	13,002	$	2,687,388
Net loss	—	—		—	—		—		(77,985)		—		(396)		(736)		(79,117)
Unrealized gain on interest rate derivatives	—	—		—	—		—		—		16,720		—		—		16,720










Contributions from consolidated joint venture partners	—	—		—	—		—		—		—		—		99		99

Amortization of share-based compensation	—	—		—	—		2,944		—		—		—		—		2,944

Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock	—	—		(83,244)	(1)		(1,262)		—		—		—		—		(1,263)

Forfeiture of restricted stock	—	—		(1,382)	—		—		—		—		—		—		—
Distributions on preferred shares	—	—		—	—		—		(6,279)		—		—		—		(6,279)
Distributions on common shares and units	—	—		—	—		—		(1,281)		—		(3)		—		(1,284)


Balance at March 31, 2021	12,879,475	$	366,936	164,918,126	$	1,649	$	3,078,824	$	(795,706)	$	(52,330)	$	7,470	$	12,365	$	2,619,208

The accompanying notes are an integral part of these consolidated financial statements.

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RLJ Lodging Trust

Consolidated Statements of Cash Flows

(Amounts in thousands)

(unaudited)


	For the three months ended March 31,
	2022		2021
Cash flows from operating activities
Net loss	$	(15,469)	$	(79,117)
Adjustments to reconcile net loss to cash flow provided by (used in) operating activities:
Gain on sale of hotel properties, net	(1,417)		(1,083)


Depreciation and amortization	46,865		46,943
Amortization of deferred financing costs	1,684		1,321
Other amortization	403		(615)
Reclassification of unrealized gains on discontinued cash flow hedges to other income, net	(5,866)		—

Equity in (income) loss from unconsolidated joint ventures	(122)		298


Impairment losses	—		5,946

Amortization of share-based compensation	5,184		2,752

Changes in assets and liabilities:
Hotel and other receivables, net	(6,946)		(5,708)
Prepaid expense and other assets	(4,254)		(4,192)
Accounts payable and other liabilities	(320)		1,331
Advance deposits and deferred revenue	1,449		(3,966)
Accrued interest	(10,900)		7,082
Net cash flow provided by (used in) operating activities	10,291		(29,008)
Cash flows from investing activities

Proceeds from sales of hotel properties, net	34,125		3,990
Improvements and additions to hotel properties	(24,334)		(9,901)


Contributions to unconsolidated joint ventures	—		(165)



Net cash flow provided by (used in) investing activities	9,791		(6,076)
Cash flows from financing activities

Repayment of Revolver	(200,000)		(200,000)




Scheduled mortgage loan principal payments	—		(900)
Repayments of Term Loans	—		(8,475)


Repurchase of common shares to satisfy employee tax withholding requirements	(1,269)		(1,263)
Distributions on preferred shares	(6,279)		(6,279)
Distributions on common shares	(1,666)		(1,650)
Distributions on and redemption of Operating Partnership units	(3)		(3)




Contributions from consolidated joint venture partners	156		99
Distribution to consolidated joint venture partners	(2,589)		—
Net cash flow used in financing activities	(211,650)		(218,471)
Net change in cash, cash equivalents, and restricted cash reserves	(191,568)		(253,555)
Cash, cash equivalents, and restricted cash reserves, beginning of year	713,869		934,790
Cash, cash equivalents, and restricted cash reserves, end of period	$	522,301	$	681,235

The accompanying notes are an integral part of these consolidated financial statements.

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RLJ Lodging Trust

Notes to the Consolidated Financial Statements

(unaudited)

1. General

Organization

RLJ Lodging Trust (the "Company") was formed as a Maryland real estate investment trust ("REIT") on January 31, 2011. The Company is a self-advised and self-administered REIT that owns primarily premium-branded, high-margin, focused-service and compact full-service hotels. The Company elected to be taxed as a REIT, for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2011.

Substantially all of the Company’s assets and liabilities are held by, and all of its operations are conducted through, RLJ Lodging Trust, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership. As of March 31, 2022, there were 167,615,417 units of limited partnership interest in the Operating Partnership ("OP units") outstanding and the Company owned, through a combination of direct and indirect interests, 99.5% of the outstanding OP units.

As of March 31, 2022, the Company owned 97 hotel properties with approximately 21,400 rooms, located in 22 states and the District of Columbia. The Company, through wholly-owned subsidiaries, owned a 100% interest in 95 of its hotel properties, a 95% controlling interest in one hotel property, and a 50% non-controlling interest in an entity owning one hotel property. The Company consolidates its real estate interests in the 96 hotel properties in which it holds a controlling interest, and the Company records the real estate interest in one hotel property in which it holds an indirect 50% non-controlling interest using the equity method of accounting. The Company leases 96 of the 97 hotel properties to its taxable REIT subsidiaries ("TRS"), of which the Company owns a controlling financial interest.

COVID-19

The global outbreak of the novel coronavirus, or COVID-19, and the public health measures that have been undertaken in response have had, and will likely continue to have, a material impact on the Company's financial results and liquidity. Since the extent to which the COVID-19 pandemic will continue to impact the Company's operations will depend on future developments that are highly uncertain, the Company cannot estimate the impact on its business, financial condition or near- or longer-term financial or operational results with reasonable certainty.

2. Summary of Significant Accounting Policies

The Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission ("SEC") on February 24, 2022 (the "Annual Report"), contains a discussion of the Company's significant accounting policies. Other than noted below, there have been no significant changes to the Company's significant accounting policies since December 31, 2021.

Basis of Presentation and Principles of Consolidation

The unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in conformity with the rules and regulations of the SEC applicable to financial information. The unaudited financial statements include all adjustments that are necessary, in the opinion of management, to fairly state the consolidated balance sheets, statements of operations and comprehensive income (loss), statements of changes in equity and statements of cash flows.

The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2021, included in the Annual Report.

The consolidated financial statements include the accounts of the Company, the Operating Partnership and its wholly-owned subsidiaries, and joint ventures in which the Company has a majority voting interest and control. For the controlled subsidiaries that are not wholly-owned, the third-party ownership interest represents a noncontrolling interest, which is presented separately in the consolidated financial statements. The Company also records the real estate interest in one hotel property in which it holds a 50% non-controlling interest using the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.

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Reclassifications

Certain prior year amounts in these financial statements have been reclassified to conform to the current year presentation with no impact to net loss and comprehensive income (loss), shareholders’ equity or cash flows.

Use of Estimates

The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Given the additional and unforeseen effects from the COVID-19 pandemic, these estimates have become more challenging, and actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance provides optional expedients for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate that was discontinued at the end of 2021 because of reference rate reform. The guidance was effective upon issuance and expires on December 31, 2022. Based on the Company's assessment, there was no material impact arising from this guidance and the Company did not elect to apply any of the optional expedients.

3. Investment in Hotel Properties

Investment in hotel properties consisted of the following (in thousands):


	March 31, 2022		December 31, 2021
Land and improvements	$	972,633	$	975,688
Buildings and improvements	3,964,442		4,001,875
Furniture, fixtures and equipment	689,967		691,057
	5,627,042		5,668,620
Accumulated depreciation	(1,471,994)		(1,449,504)
Investment in hotel properties, net	$	4,155,048	$	4,219,116

For the three months ended March 31, 2022 and 2021, the Company recognized depreciation expense related to its investment in hotel properties of approximately $46.7 million and $46.8 million, respectively.

Impairments

During the three months ended March 31, 2021, the Company evaluated the recoverability of two hotel properties and recorded impairment losses of $5.9 million to adjust the hotels' carrying amounts to their estimated fair values. The fair values were determined based on the contractual sales price pursuant to an executed purchase and sale agreement (a Level 2 measurement in the fair value hierarchy). The sales of these hotel properties closed in May 2021. There was no impairment recorded during the three months ended March 31, 2022.

4. Sale of Hotel Properties

In connection with the sale of hotel properties for the three months ended March 31, 2022 and 2021, the Company recorded a net gain of $1.4 million and $1.1 million, respectively.

During the three months ended March 31, 2022, the Company sold the following hotel property for a sales price of approximately $35.5 million:

Hotel Property Name

Location

Sale Date

Rooms

Marriott Denver Airport @ Gateway Park

Aurora, CO

March 8, 2022

238

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During the three months ended March 31, 2021, the Company sold the following hotel property for a sales price of approximately $4.4 million:

Hotel Property Name

Location

Sale Date

Rooms

Courtyard Houston Sugarland

Stafford, TX

January 21, 2021

112

5. Revenue


	For the three months ended March 31, 2022								For the three months ended March 31, 2021
	Room Revenue		Food and Beverage Revenue		Other Revenue		Total Revenue		Room Revenue		Food and Beverage Revenue		Other Revenue		Total Revenue
South Florida	$	37,411	$	4,739	$	2,222	$	44,372	$	20,827	$	2,364	$	1,756	$	24,947
Southern California	23,591		1,661		2,158		27,410		11,905		339		1,407		13,651
Northern California	20,207		1,613		1,037		22,857		8,844		218		700		9,762
Chicago	8,960		1,622		460		11,042		6,392		683		358		7,433
Houston	8,528		569		867		9,964		5,323		98		668		6,089
Austin	8,382		671		740		9,793		3,607		223		478		4,308
Washington DC	8,326		117		590		9,033		4,135		29		284		4,448
New York City	7,662		789		473		8,924		3,238		17		129		3,384
Atlanta	7,685		385		825		8,895		3,148		68		493		3,709
New Orleans	7,856		164		697		8,717		2,350		—		383		2,733
Denver	6,552		1,727		321		8,600		2,202		398		330		2,930
Charleston	6,738		1,196		502		8,436		3,177		300		402		3,879
Orlando	6,507		595		1,045		8,147		2,847		133		825		3,805
Tampa	6,492		766		606		7,864		2,847		384		313		3,544
Louisville	4,845		1,993		879		7,717		1,781		368		355		2,504
Other	36,037		2,294		2,797		41,128		20,149		620		1,657		22,426
Total	$	205,779	$	20,901	$	16,219	$	242,899	$	102,772	$	6,242	$	10,538	$	119,552

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6. Debt

The Company's debt consisted of the following (in thousands):


	March 31, 2022		December 31, 2021
Senior Notes, net	$	987,534	$	986,942
Revolver	—		200,000
Term Loans, net	815,439		815,004
Mortgage loans, net	407,752		407,492
Debt, net	$	2,210,725	$	2,409,438

Senior Notes