Not all hotel REITs are the same. Some focus on large-scale resort properties while others focus on business travel and group meetings. Others, like RLJ Lodging Trust (NYSE: RLJ), focus on upscale but smaller hotels offering a nice combination of leisure and business travel. In this article, we'll take a closer look at RLJ Lodging Trust's portfolio, recent developments, and how the stock has performed for investors.
RLJ Lodging Trust company profile
As its name implies, RLJ Lodging Trust is a real estate investment trust, or REIT, that specializes in hotel properties.
RLJ Lodging Trust owns a portfolio of 101 hotel properties located in 23 states and Washington, D.C., with a total of 22,400 rooms. In addition the company has joint ventures in two other hotel properties, owning 50% of each. RLJ focuses on premium-quality but rooms-focused hotels. In other words, these hotels are upscale in nature but generate the bulk of their revenue from room rentals, as opposed to food and beverage outlets or from renting conference space.
Most of the properties are in or near major urban areas. Just to name a few, the company has several hotels in each of the San Francisco, D.C., Denver, and Chicago markets. And, RLJ's hotels are operated under some of the most recognizable brands in the industry. Embassy Suites (the most prevalent), Courtyard and Residence Inn by Marriott (NASDAQ: MAR), Hilton Garden Inn (NYSE: HLT), and Homewood Suites by Hilton are just a few of the brands you'll find in RLJ Lodging Trust's portfolio.
As far as the types of hotels in the portfolio, RLJ breaks them down into three categories:
- Compact full-service: Hotels with fewer than 300 rooms and less than 12,000 square feet of meeting space or more than 300 rooms where most revenue is generated from room rent.
- Focused-service: Hotels where operations focus on the rooms themselves instead of adjacent operations like food and beverage. As an example, focused-service hotels often don't offer room service, and many don't have any meeting space at all.
- Full-service: This refers to any hotel that isn't in the first two categories -- think larger-scale hotels or those with multiple food and beverage outlets and/or lots of meeting space.
For a little more color, 55% of the portfolio is classified as compact full-service hotels, 42% of the portfolio is classified as focused service, and the other 3% is made up of full-service hotels. 41% are operated under Hilton brands, 36% are Marriott-branded, and the rest of the portfolio uses Hyatt (NYSE: H) and other major lodging brand names. Roughly 50% of the portfolio (by revenue) is made up of suites, which tend to be more resilient during tough times, and about 35% of the portfolio is located in "drive-to" markets.
RLJ Lodging Trust news
By far, the most significant news item that has affected RLJ Lodging Trust (as well as the hotel industry as a whole) has been the COVID-19 pandemic. When the pandemic started, many hotels decided to suspend operations entirely, and many that were open for business saw occupancy rates plunge into the single digits. And RLJ Lodging Trust was no exception. When the pandemic hit, the company suspended operations at 57 of its hotels – more than half of the portfolio.
By March 2021, 97 of the company's 101 hotel properties were open for business, with only a few of its full-service hotels in urban markets remaining closed. The open hotels achieved 37.5% occupancy in the fourth quarter of 2020 -- certainly not what we would expect to see in a normal year, but this was actually quite strong compared to some of RLJ's peers (especially those with convention and business-focused hotels). Plus, by mid-February of 2021, RLJ's open hotels were approaching 50% occupancy, showing the clear benefits of the impressive U.S. vaccine rollout.
While the recent numbers are certainly promising, it's important to realize that RLJ isn't profitable at this time and will likely continue to lose money until travel returns to closer to normal levels. The company ended 2020 with a monthly cash burn rate of $23.6 million -- much better than toward the beginning of the pandemic, but still not in the green. With about $1.1 billion in total liquidity (including $900 million in unrestricted cash), the company should be able to make it through the tough times just fine, so there's no reason for investors to be too worried about the cash burn, as long as it continues to trend in the right direction.
RLJ Lodging Trust stock price
RLJ Lodging Trust went public in May 2011 at a price of $18 per share. With a current share price of about $15, it might not sound like it has been a great investment. After all, this translates to a decline of roughly 14% after nearly a decade, while the S&P 500 has more than tripled during that time.
However, there are a few things to keep in mind. For one thing, it isn't quite as bad as it seems because these performance numbers don't take dividends into account. RLJ Lodging Trust has historically been a very good income stock. Prior to the COVID-19 pandemic, the quarterly payment of $0.33 per share translated to a yield of more than 7% heading into 2020. But even including dividends, the stock's overall return since its IPO is just 36%.
It's also worth noting that the hotel REIT subsector in general hasn't exactly been a great performer over the past decade. Since RLJ Lodging Trust's IPO, the Dow Jones U.S. Hotel & Lodging REIT Index has fallen by about 10%, so it's fair to say that while RLJ Lodging has likely been a disappointing investment for shareholders, its performance has been on par with its peers.
With that in mind, here's a look at RLJ Lodging Trust's performance over certain time intervals and how it compares to the S&P 500: