RLJ LODGING TRUST The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report, as well as the information contained in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onFebruary 26, 2020 (the "Annual Report"), which is accessible on theSEC's website at www.sec.gov.
Statement Regarding Forward-Looking Information
The following information contains certain statements, other than purely
historical information, including estimates, projections, statements relating to
our business plans, objectives and expected operating results, and the
assumptions upon which those statements are based, that are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking
statements generally are identified by the use of the words "believe,"
"project," "expect," "anticipate," "estimate," "plan," "may," "will," "will
continue," "intend," "should," or similar expressions. Although we believe that
the expectations reflected in such forward-looking statements are based upon
reasonable assumptions, beliefs and expectations, such forward-looking
statements are not predictions of future events or guarantees of future
performance and our actual results could differ materially from those set forth
in the forward-looking statements.
Currently, one of the most significant factors that could cause actual outcomes
to differ materially from our forward-looking statements is the continued
adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on
the financial condition, results of operations, cash flows and performance of
the Company, the real estate market and the global economy and financial
markets. The extent to which the COVID-19 pandemic impacts us will depend on
future developments, which are highly uncertain and cannot be predicted with
confidence, including the duration of the pandemic and its impact on the demand
for travel and on levels of consumer confidence, the actions governments,
businesses and individuals take in response to the pandemic, including limiting
or banning travel, the impact of the COVID-19 pandemic and actions taken in
response to the pandemic on global and regional economies, travel and economic
activity, and the pace of recovery when the COVID-19 pandemic subsides, among
others. Moreover, investors are cautioned to interpret many of the risks
identified under
27
--------------------------------------------------------------------------------
Table of Contents
the section entitled "Risk Factors" in our Form 10-K for the year ended December
31, 2019 as being heightened as a result of the ongoing and numerous adverse
impacts of the COVID-19 pandemic.
Additional factors that might cause such a difference include the following:
increased direct competition, changes in government regulations or accounting
rules, changes in local, national and global real estate conditions, declines in
the lodging industry, seasonality of the lodging industry, risks related to
natural disasters, such as earthquakes and hurricanes, hostilities, including
future terrorist attacks or fear of hostilities that affect travel and epidemics
and/or pandemics, including COVID-19, third-party operator risk, change in
operational costs, ramp up of the future economic recovery and re-opening of
hotels, our ability to obtain lines of credit or permanent financing on
satisfactory terms, changes in interest rates, duration and access to capital
through offerings of our common and preferred shares of beneficial interest, or
debt, our ability to identify suitable acquisitions, our ability to close on
identified acquisitions and integrate those businesses and inaccuracies of our
accounting estimates. Given these uncertainties, undue reliance should not be
placed on such statements.
Except as required by law, we undertake no obligation to update or revise
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. We caution investors not to place undue reliance on
these forward-looking statements and urge investors to carefully review the
disclosures we make concerning risks and uncertainties in the sections entitled
"Forward-Looking Statements," "Risk Factors," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our Annual Report,
as well as the risks, uncertainties and other factors discussed in this
Quarterly Report on Form 10-Q and identified in other documents filed by us with
the SEC .
Overview
We are a self-advised and self-administered Maryland real estate investment
trust ("REIT") that owns primarily premium-branded, high-margin, focused-service
and compact full-service hotels. Our hotels are concentrated in markets that we
believe exhibit multiple demand generators and attractive long-term growth
prospects. We believe premium-branded, focused-service and compact full-service
hotels with these characteristics generate high levels of Revenue per Available
Room ("RevPAR"), strong operating margins and attractive returns.
Our strategy is to own primarily premium-branded, focused-service and compact
full-service hotels. Focused-service and compact full-service hotels typically
generate most of their revenue from room rentals, have limited food and beverage
outlets and meeting space, and require fewer employees than traditional
full-service hotels. We believe these types of hotels have the potential to
generate attractive returns relative to other types of hotels due to their
ability to achieve RevPAR levels at or close to those achieved by traditional
full-service hotels while achieving higher profit margins due to their more
efficient operating model and less volatile cash flows.
As of June 30, 2020 , we owned 104 hotel properties with approximately 22,700
rooms, located in 23 states and the District of Columbia . We owned, through
wholly-owned subsidiaries, a 100% interest in 100 of our hotel properties, a
98.3% controlling interest in the DoubleTree Metropolitan Hotel New York City , a
95% controlling interest in The Knickerbocker, and 50% interests in entities
owning two hotel properties. We consolidate our real estate interests in the 102
hotel properties in which we hold a controlling financial interest, and we
record the real estate interests in the two hotel properties in which we hold an
indirect 50% interest using the equity method of accounting. We lease 103 of the
104 hotel properties to our taxable REIT subsidiaries ("TRS"), of which we own a
controlling financial interest.
For U.S. federal income tax purposes, we elected to be taxed as a REIT
commencing with our taxable year ended December 31, 2011 . Substantially all of
our assets and liabilities are held by, and all of our operations are conducted
through, our operating partnership RLJ Lodging Trust, L.P. (the "Operating
Partnership"). We are the sole general partner of the Operating Partnership . As
of June 30, 2020 , we owned, through a combination of direct and indirect
interests, 99.5% of the units of limited partnership interest in the Operating
Partnership ("OP units").
COVID-19
The global outbreak of a novel strain of coronavirus (COVID-19) and the public
health measures that have been undertaken in response have had, and will likely
continue to have, a material adverse impact on the global economy and all
aspects of our business.
Significant events affecting travel, including the COVID-19 pandemic, typically
have an impact on booking patterns, with the full extent of the impact generally
determined by the duration of the event and its impact on travel decisions. The
effects of the COVID-19 pandemic, including related government restrictions,
border closings, quarantining, "shelter-in-place" orders and "social
distancing," have essentially halted all non-essential travel and also resulted
in a dramatic increase in national
28
--------------------------------------------------------------------------------
Table of Contents
unemployment and possible lasting changes in consumer behavior that will create
headwinds for our hotel properties even after the current government
restrictions are lifted. Since we cannot estimate when the COVID-19 pandemic and
the responsive measures to combat it will end, we cannot estimate the ultimate
operational and financial impact of COVID-19 on our business. The effects of the
COVID-19 pandemic have significantly impacted our operations during the second
quarter of 2020, and combined with macroeconomic trends such as the current
economic recession, reduced consumer spending, including on travel, and
significantly increased unemployment, lead us to believe that the ongoing
effects of the COVID-19 pandemic on our operations continue to have a material
adverse impact on our financial results and liquidity through at least the end
of 2020, and possibly well beyond the containment of such outbreak.
We have taken various actions to mitigate the effects of the COVID-19 pandemic
by strengthening our balance sheet and liquidity position. Operational measures
we have taken include:
•Suspension of Hotel Operations : We previously announced the suspension of
operations at 57 of our hotel properties. The decision to suspend operations was
made in response to the elimination of lodging demand resulting from the
COVID-19 pandemic and the related government and health official mandates in
many markets. As government mandated stay-in-place restrictions were lifted and
lodging demand stabilized and began to recover, we developed a framework to open
hotels in a socially and financially responsible way. As of June 30, 2020 , we
had reopened 21 of our hotel properties, have subsequently reopened 15 hotel
properties and will continue to evaluate reopening additional hotel properties
based on market conditions. In the event stay-in-place restrictions are
reinstated, we would consider temporarily suspending hotel operations where
there is no adequate demand.
•Cost Containment Initiatives: We continue to work in concert with our hotel
management companies to materially reduce operating expenses and preserve
liquidity by putting stringent operational cost containment measures in place.
Such measures include significantly reducing staffing at our hotel properties,
eliminating non-essential amenities and services, and closing several floors and
most food and beverage outlets at our hotel properties that remain open.
•Capital Investment Reduction: We reduced our 2020 capital expenditure program
by deferring all capital investments, other than completing projects that are
substantially underway and are nearing completion. Near-term, we will take
appropriate steps to protect and preserve the hotel properties and re-evaluate
the 2020 capital plan at a time when there is improved economic clarity.
•Return On Investment ("ROI") Project Suspensions: We reviewed all 2020 ROI initiatives and suspended most of these projects.
At the corporate level, we have taken and continue to take aggressive actions to increase liquidity and preserve cash including:
•Common Stock Dividend: Our board of trustees authorized first, second and third quarter common cash dividends of$0.01 per common share. We will continue to monitor our financial performance and the economic outlook to assess whether it is appropriate to resume a regular quarterly common dividend at a level determined to be prudent based on the economic outlook, or, alternatively, to declare and pay any required dividend at the end of 2020.
•Share Repurchase: We suspended further repurchases of our common shares and Series A Preferred Shares, as applicable.
•Increased Liquidity: We enhanced our liquidity position by drawing$400.0 million under our$600.0 million corporate line of credit. As ofJune 30, 2020 , we had approximately$1.1 billion of cash and cash equivalents and restricted cash reserves. By preemptively drawing on our credit facility, we have ensured significant liquidity to meet our obligations over an extended period of time.
In
•Waiver of quarterly financial covenants through the first quarter of 2021, unless we satisfy the requirements for early termination of the covenant waiver period.
•After the end of the covenant waiver period, certain covenant thresholds have been modified through the second quarter of 2022.
29
--------------------------------------------------------------------------------
Table of Contents
•The addition of a requirement to maintain a minimum liquidity of $125.0 million
through the end of the covenant waiver period.
•An increase in pricing until such time that certain requirements are met to revert back to the pre-amendments pricing formulation.
•Imposition of certain restrictions during the covenant relief period including restrictions on share repurchases, dividend and distribution payments (with certain exceptions, including for the payment of a quarterly cash dividend of$0.01 per common share, the payment of a quarterly cash dividend of$0.4875 per share on our Series A Preferred Shares and other payments for purposes of maintaining REIT status). •Addition of limitations on the incurrence of additional indebtedness, asset sales, investments and discretionary capital expenditures, in each case subject to various exceptions and requiring certain mandatory repayments, and a requirement to pledge the equity interests in certain subsidiaries that own unencumbered properties to secure the Revolver and Term Loans until such time that our leverage ratio is no greater than 6.50x for two consecutive quarters.
•We are permitted to make investments during the covenant relief period,
including up to
For more information, see "Part II - Item 1A. Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q.
Our Customers
The majority of our hotels consist of premium-branded, focused-service and compact full-service hotels. As a result of this property profile, the majority of our customers are transient in nature. Transient business typically represents individual business or leisure travelers. The majority of our hotels are located in business districts within major metropolitan areas. Accordingly, business travelers represent the majority of the transient demand at our hotels. As a result, macroeconomic factors impacting business travel have a greater effect on our business than factors impacting leisure travel. Group business is typically defined as a minimum of 10 guestrooms booked together as part of the same piece of business. Group business may or may not use the meeting space at any given hotel. Given the limited meeting space at the majority of our hotels, group business that utilizes meeting space represents a small component of our customer base.
A number of our hotel properties are affiliated with brands marketed toward extended-stay customers. Extended-stay customers are generally defined as those staying five nights or longer.
Our Revenues and Expenses
Our revenues are primarily derived from the operation of hotels, including the
sale of rooms, food and beverage revenue and other revenue, which consists of
parking fees, resort fees, gift shop sales and other guest service fees.
Our operating costs and expenses consist of the costs to provide hotel services,
including room expense, food and beverage expense, management and franchise fees
and other operating expenses. Room expense includes housekeeping and front
office wages and payroll taxes, reservation systems, room supplies, laundry
services and other costs. Food and beverage expense primarily includes the cost
of food, the cost of beverages and the associated labor costs. Other operating
expenses include labor and other costs associated with the other operating
department revenue, as well as labor and other costs associated with
administrative departments, sales and marketing, repairs and maintenance and
utility costs. Our hotels that are subject to franchise agreements are charged a
royalty fee, plus additional fees for marketing, central reservation systems and
other franchisor costs, in order for the hotel properties to operate under the
respective brands. Franchise fees are based on a percentage of room revenue and
for certain hotels additional franchise fees are charged for food and beverage
revenue. Our hotels are managed by independent, third-party management companies
under long-term agreements pursuant to which the management companies typically
earn base and incentive management fees based on the levels of revenues and
profitability of each individual hotel property. We generally receive a cash
distribution from the management companies on a monthly basis, which reflects
hotel-level sales less hotel-level operating expenses.
30
--------------------------------------------------------------------------------
Table of Contents
Key Indicators of Financial Performance
We use a variety of operating, financial and other information to evaluate the
operating performance of our business. These key indicators include financial
information that is prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") as well as other financial
measures that are non-GAAP measures. In addition, we use other information that
may not be financial in nature, including industry standard statistical
information and comparative data. We use this information to measure the
operating performance of our individual hotels, groups of hotels and/or business
as a whole. We also use these metrics to evaluate the hotels in our portfolio
and potential acquisition opportunities to determine each hotel's contribution
to cash flow and its potential to provide attractive long-term total returns.
The key indicators include:
•Average Daily Rate ("ADR")
•Occupancy
•RevPAR
ADR, Occupancy and RevPAR are commonly used measures within the lodging industry
to evaluate operating performance. RevPAR is an important statistic for
monitoring operating performance at the individual hotel property level and
across our entire business. We evaluate individual hotel RevPAR performance on
an absolute basis with comparisons to budget and prior periods, as well as on a
regional and company-wide basis. ADR and RevPAR include only room revenue.
We also use non-GAAP measures such as FFO, Adjusted FFO, EBITDA, EBITDAre and
Adjusted EBITDA to evaluate the operating performance of our business. For a
more in depth discussion of the non-GAAP measures, please refer to the "Non-GAAP
Financial Measures" section.
Critical Accounting Policies
The preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities at the date of our financial statements and the reported
amounts of revenues and expenses during the reporting period. It is possible
that the actual amounts may differ significantly from these estimates and
assumptions. We evaluate our estimates, assumptions and judgments on an ongoing
basis, based on information that is available to us, our business and industry
experience, and various other matters that we believe are reasonable and
appropriate for consideration under the circumstances. Our Annual Report on Form
10-K for the year ended December 31, 2019 contains a discussion of our critical
accounting policies. There have been no significant changes to our critical
accounting policies since December 31, 2019 .
Results of Operations
AtJune 30, 2020 and 2019, we owned 104 and 128 hotel properties, respectively. Based on when a hotel property is acquired, sold or closed for renovation, the operating results for certain hotel properties are not comparable for the three and six months endedJune 30, 2020 and 2019. The non-comparable hotel properties include 47 dispositions that were completed in 2019. COVID-19 Beginning inMarch 2020 , we experienced a significant decline in occupancy and RevPAR due to the COVID-19 pandemic, which we expect to continue through at least the end of 2020. The economic downturn resulting from the COVID-19 pandemic has significantly impacted our business and the overall lodging industry. Certain of our hotel properties have temporarily suspended all operations and, while our other hotel properties are operating in a limited capacity, as a result of these operational changes, the results of operations for the three and six months endedJune 30, 2020 will not be comparable to the same periods in 2019. 31 -------------------------------------------------------------------------------- Table of Contents Comparison of the three months endedJune 30, 2020 to the three months endedJune 30, 2019 For the three months ended June 30, 2020 2019 $ Change % Change (amounts in thousands) Revenues Operating revenues Room revenue$ 27,853 $ 378,857 $ (351,004) (92.6) % Food and beverage revenue 1,271 49,458 (48,187) (97.4) % Other revenue 3,467 20,412 (16,945) (83.0) % Total revenues 32,591 448,727 (416,136) (92.7) % Expenses Operating expenses Room expense 12,469 88,898 (76,429) (86.0) % Food and beverage expense 1,801 35,910 (34,109) (95.0) % Management and franchise fees (1,827) 35,825 (37,652) - % Other operating expense 37,933 101,596 (63,663) (62.7) % Total property operating expenses 50,376 262,229 (211,853) (80.8) % Depreciation and amortization 49,229 54,956 (5,727) (10.4) % Property tax, insurance and other 25,348 31,201 (5,853) (18.8) % General and administrative 11,673 11,765 (92) (0.8) % Transaction costs 20 425 (405) (95.3) % Total operating expenses 136,646 360,576 (223,930) (62.1) % Other income 282 349 (67) (19.2) % Interest income 579 1,073 (494) (46.0) % Interest expense (23,794) (25,237) 1,443 (5.7) % Loss on sale of hotel properties, net (8) (24,835) 24,827 (100.0) % (Loss) income before equity in loss from unconsolidated joint ventures (126,996) 39,501 (166,497) - % Equity in loss from unconsolidated joint ventures (975) (2,403) 1,428 (59.4) % (Loss) income before income tax benefit (expense) (127,971) 37,098 (165,069) - % Income tax benefit (expense) 11,805 (3,417) 15,222 - % Net (loss) income (116,166) 33,681 (149,847) - % Net loss (income) attributable to noncontrolling interests: Noncontrolling interest in consolidated joint ventures 524 (96) 620 - % Noncontrolling interest in the Operating Partnership 568 (141) 709 - % Net (loss) income attributable to RLJ (115,074) 33,444 (148,518) - % Preferred dividends (6,279) (6,279) - - % Net (loss) income attributable to common shareholders$ (121,353) $ 27,165 $ (148,518) - % 32
-------------------------------------------------------------------------------- Table of Contents Revenues Total revenues decreased$416.1 million , or 92.7%, to$32.6 million for the three months endedJune 30, 2020 from$448.7 million for the three months endedJune 30, 2019 . The decrease was the result of a$351.0 million decrease in room revenue, a$48.2 million decrease in food and beverage revenue, and a$16.9 million decrease in other revenue.
Room Revenue
Room revenue decreased$351.0 million , or 92.6%, to$27.9 million for the three months endedJune 30, 2020 from$378.9 million for the three months endedJune 30, 2019 . The decrease was the result of a$56.8 million decrease in room revenue attributable to the non-comparable properties and a$294.2 million decrease in room revenue attributable to the comparable properties. The decrease in room revenue from the comparable properties was attributable to a 91.4% decrease in RevPAR due to the impact of the COVID-19 pandemic.
The following are the quarter-to-date key hotel operating statistics for the
comparable properties owned at
For the three months ended June 30,
2020 2019 % Change
Occupancy 11.7 % 83.2 % (85.9) %
ADR $ 115.94 $ 188.41 (38.5) %
RevPAR $ 13.56 $ 156.78 (91.4) %
Food and Beverage Revenue
Food and beverage revenue decreased $48.2 million to $1.3 million for the three
months ended June 30, 2020 from $49.5 million for the three months ended June
30, 2019 . The decrease was the result of a $7.0 million decrease in food and
beverage revenue attributable to the non-comparable properties and a $41.2
million decrease in food and beverage revenue attributable to the comparable
properties due to the impact of the COVID-19 pandemic.
Other Revenue
Other revenue, which includes revenue derived from ancillary sources such as parking fees, resort fees, gift shop sales and other guest service fees, decreased$16.9 million to$3.5 million for the three months endedJune 30, 2020 from$20.4 million for the three months endedJune 30, 2019 . The decrease was due to a$3.7 million decrease in other revenue attributable to the non-comparable properties and a$13.3 million decrease in other revenue attributable to the comparable properties due to the impact of the COVID-19 pandemic.
Property Operating Expenses
Property operating expenses decreased$211.9 million , or 80.8%, to$50.4 million for the three months endedJune 30, 2020 from$262.2 million for the three months endedJune 30, 2019 . The decrease was due to a$39.8 million decrease in property operating expenses attributable to the non-comparable properties and a$172.1 million decrease in property operating expenses attributable to the comparable properties. The components of our property operating expenses for the comparable properties owned atJune 30, 2020 and 2019, respectively, were as follows (in thousands): For the three months ended June 30, 2020 2019 $ Change % Change Room expense$ 12,470 $ 76,832 $ (64,362) (83.8) % Food and beverage expense 1,802 31,648 (29,846) (94.3) % Management and franchise fees (1,828) 28,961 (30,789) - % Other operating expense 37,945 85,019 (47,074) (55.4) % Total property operating expenses$ 50,389 $ 222,460 $ (172,071) (77.3) % 33
-------------------------------------------------------------------------------- Table of Contents The decrease in property operating expenses attributable to the comparable properties was due to the impact of the COVID-19 pandemic. Management and franchise fee expense for the three months endedJune 30, 2020 included a reduction to management and franchise fee expense of$4.2 million related to the recognition of the Wyndham termination payment.
Depreciation and Amortization
Depreciation and amortization expense decreased$5.7 million , or 10.4%, to$49.2 million for the three months endedJune 30, 2020 from$55.0 million for the three months endedJune 30, 2019 . The decrease was a result of a$6.3 million decrease in depreciation and amortization expense attributable to the non-comparable properties, partially offset by a$0.6 million increase in depreciation and amortization expense attributable to the comparable properties.
Property Tax, Insurance and Other
Property tax, insurance and other expense decreased$5.9 million , or 18.8%, to$25.3 million for the three months endedJune 30, 2020 from$31.2 million for the three months endedJune 30, 2019 . The decrease was attributable to a$3.9 million decrease in property tax, insurance and other expense attributable to the non-comparable properties and a$2.0 million decrease in property tax, insurance and other expense attributable to the comparable properties.
General and Administrative
General and administrative expense decreased
Interest Expense
The components of our interest expense for the three months ended
For the three months ended June 30,
2020 2019 $ Change % Change
Senior Notes $ 5,940 $ 5,944 $ (4) (0.1) %
Revolver and Term Loans 12,705 10,838 1,867 17.2 %
Mortgage loans 4,475 5,150 (675) (13.1) %
Amortization of deferred financing costs 1,045 1,110 (65) (5.9) %
Undesignated interest rate swaps (371) 2,195 (2,566) - %
Total interest expense $ 23,794 $ 25,237 $ (1,443) (5.7) %
Interest expense decreased $1.4 million , or 5.7%, to $23.8 million for the three
months ended June 30, 2020 from $25.2 million for the three months ended June
30, 2019 . The decrease was primarily due to unrealized gains on certain
discontinued cash flow hedges, partially offset by an increase related to the
Company's outstanding balance of $400.0 million under its Revolver.
Equity in Loss from
Equity in loss from unconsolidated joint ventures decreased$1.4 million to a loss of$1.0 million for the three months endedJune 30, 2020 from a loss of$2.4 million for the three months endedJune 30, 2019 . The decrease is primarily attributable to a loss on the sale of certain assets inJune 2019 by unconsolidated joint ventures associated with two resort hotel properties owned by the Company inMyrtle Beach, SC , partially offset by the impact of the COVID-19 pandemic during the three months endedJune 30, 2020 .
Income Taxes
As part of our structure, we own TRSs that are subject to federal and state income taxes. The Company's effective tax rate was 9.2% for both the three months endedJune 30, 2020 and 2019. Income tax expense decreased$15.2 million to a benefit of$11.8 million for the three months endedJune 30, 2020 , compared to a$3.4 million expense for the three months endedJune 30, 2019 . 34 -------------------------------------------------------------------------------- Table of Contents Comparison of the six months endedJune 30, 2020 to the six months endedJune 30, 2019 For the six months ended June 30, 2020 2019 $ Change % Change (amounts in thousands) Revenues Operating revenues Room revenue$ 246,745 $ 716,527 $ (469,782) (65.6) % Food and beverage revenue 32,039 93,704 (61,665) (65.8) % Other revenue 19,289 37,763 (18,474) (48.9) % Total revenues 298,073 847,994 (549,921) (64.8) % Expenses Operating expenses Room expense 76,222 173,086 (96,864) (56.0) % Food and beverage expense 28,181 70,119 (41,938) (59.8) % Management and franchise fees 15,317 69,944 (54,627) (78.1) % Other operating expense 118,890 198,713 (79,823) (40.2) % Total property operating expenses 238,610 511,862 (273,252) (53.4) % Depreciation and amortization 98,402 113,359 (14,957) (13.2) % Property tax, insurance and other 54,041 61,797 (7,756) (12.6) % General and administrative 23,441 22,925 516 2.3 % Transaction costs 30 984 (954) (97.0) % Total operating expenses 414,524 710,927 (296,403) (41.7) % Other income 859 622 237 38.1 % Interest income 3,545 2,245 1,300 57.9 % Interest expense (47,607) (45,299) (2,308) 5.1 % Gain (loss) on sale of hotel properties, net 94 (24,835) 24,929 - % (Loss) income before equity in loss from unconsolidated joint ventures (159,560) 69,800 (229,360) - % Equity in loss from unconsolidated joint ventures (390) (2,784) 2,394 (86.0) % (Loss) income before income tax benefit (expense) (159,950) 67,016 (226,966) - % Income tax benefit (expense) 12,955 (5,003) 17,958 - % Net (loss) income (146,995) 62,013 (209,008) - % Net loss (income) attributable to noncontrolling interests: Noncontrolling interest in consolidated joint ventures 1,837 256 1,581 - % Noncontrolling interest in the Operating Partnership 760 (233) 993 - % Preferred distributions - consolidated joint venture - (186) 186 (100.0) % Redemption of preferred equity - consolidated joint venture - (1,153) 1,153 (100.0) % Net (loss) income attributable to RLJ (144,398) 60,697 (205,095) - % Preferred dividends (12,557) (12,557) - - % Net (loss) income attributable to common shareholders$ (156,955) $ 48,140 $ (205,095) - % 35
-------------------------------------------------------------------------------- Table of Contents Revenues Total revenues decreased$549.9 million , or 64.8%, to$298.1 million for the six months endedJune 30, 2020 from$848.0 million for the six months endedJune 30, 2019 . The decrease was the result of a$469.8 million decrease in room revenue, a$61.7 million decrease in food and beverage revenue, and a$18.5 million decrease in other revenue.
Room Revenue
Room revenue decreased$469.8 million , or 65.6%, to$246.7 million for the six months endedJune 30, 2020 from$716.5 million for the six months endedJune 30, 2019 . The decrease was the result of a$107.8 million decrease in room revenue attributable to the non-comparable properties and a$362.0 million decrease in room revenue attributable to the comparable properties. The decrease in room revenue from the comparable properties was attributable to a 59.7% decrease in RevPAR primarily due to the impact of the COVID-19 pandemic.
The following are the year-to-date key hotel operating statistics for the
comparable properties owned at
For the six months ended June 30,
2020 2019 % Change
Occupancy 36.1 % 79.6 % (54.7) %
ADR $ 166.46 $ 187.09 (11.0) %
RevPAR $ 60.04 $ 148.97 (59.7) %
Food and Beverage Revenue
Food and beverage revenue decreased $61.7 million , or 65.8%, to $32.0 million
for the six months ended June 30, 2020 from $93.7 million for the six months
ended June 30, 2019 . The decrease was the result of a $12.3 million decrease in
food and beverage revenue attributable to the non-comparable properties and a
$49.4 million decrease in food and beverage revenue attributable to the
comparable properties. The decrease in food and beverage revenue attributable to
the comparable properties was primarily due to the impact of the COVID-19
pandemic.
Other Revenue
Other revenue, which includes revenue derived from ancillary sources such as parking fees, resort fees, gift shop sales and other guest service fees, decreased$18.5 million , or 48.9%, to$19.3 million for the six months endedJune 30, 2020 from$37.8 million for the six months endedJune 30, 2019 . The decrease was due to a$6.2 million decrease in other revenue attributable to the non-comparable properties and a$12.3 million decrease in other revenue attributable to the comparable properties due to the impact of the COVID-19 pandemic.
Property Operating Expenses
Property operating expenses decreased$273.3 million , or 53.4%, to$238.6 million for the six months endedJune 30, 2020 from$511.9 million for the six months endedJune 30, 2019 . The decrease was due to a$76.7 million decrease in property operating expenses attributable to the non-comparable properties and a$196.6 million decrease in property operating expenses attributable to the comparable properties. The components of our property operating expenses for the comparable properties owned atJune 30, 2020 and 2019, respectively, were as follows (in thousands): For the six months ended June 30, 2020 2019 $ Change % Change Room expense $ 76,206$ 149,649 $ (73,443) (49.1) % Food and beverage expense 28,180 62,262 (34,082) (54.7) % Management and franchise fees 15,350 56,695 (41,345) (72.9) % Other operating expense 118,625 166,313 (47,688) (28.7) % Total property operating expenses$ 238,361 $ 434,919 $ (196,558) (45.2) % 36
-------------------------------------------------------------------------------- Table of Contents The decrease in property operating expenses attributable to the comparable properties was due to the impact of the COVID-19 pandemic. Management and franchise fee expense for the six months endedJune 30, 2020 included a reduction in management and franchise fee expense of$8.8 million related to the recognition of the Wyndham termination payment.
Depreciation and Amortization
Depreciation and amortization expense decreased$15.0 million , or 13.2%, to$98.4 million for the six months endedJune 30, 2020 from$113.4 million for the six months endedJune 30, 2019 . The decrease was a primarily related to a$15.3 million decrease in depreciation and amortization expense attributable to the non-comparable properties.
Property Tax, Insurance and Other
Property tax, insurance and other expense decreased$7.8 million , or 12.6%, to$54.0 million for the six months endedJune 30, 2020 from$61.8 million for the six months endedJune 30, 2019 . The decrease was attributable to a$7.8 million decrease in property tax, insurance and other expense attributable to the non-comparable properties.
General and Administrative
General and administrative expense increased$0.5 million , or 2.3%, to$23.4 million for the six months endedJune 30, 2020 from$22.9 million for the six months endedJune 30, 2019 . Interest Expense
The components of our interest expense for the six months ended
For the six months ended June 30,
2020 2019 $ Change % Change
Senior Notes $ 11,883 $ 11,888 $ (5) - %
Revolver and Term Loans 23,356 20,991 2,365 11.3 %
Mortgage loans 9,115 10,573 (1,458) (13.8) %
Amortization of deferred financing costs 2,067 1,902 165 8.7 %
Undesignated interest rate swaps 1,186 (55) 1,241 - %
Total interest expense $ 47,607 $ 45,299 $ 2,308 5.1 %
Interest expense increased $2.3 million , or 5.1%, to $47.6 million for the six
months ended June 30, 2020 from $45.3 million for the six months ended June 30,
2019 . The increase in interest expense was primarily due to an increase related
to the Company's outstanding balance of $400.0 million under its Revolver, and
unrealized losses on certain discontinued cash flow hedges. The increase was
partially offset by a decrease related to refinancing transactions that occurred
during the year ended December 31, 2019 .
Equity in Loss from
Equity in loss from unconsolidated joint ventures decreased$2.4 million to a loss of$0.4 million for the six months endedJune 30, 2020 from a loss of$2.8 million for the six months endedJune 30, 2019 . The decrease is primarily attributable to a loss on the sale of certain assets inJune 2019 by unconsolidated joint ventures associated with two resort hotel properties owned by the Company inMyrtle Beach, SC .
Income Taxes
As part of our structure, we own TRSs that are subject to federal and state income taxes. The Company's effective tax rates were 8.1% and 7.5% for the six months endedJune 30, 2020 and 2019, respectively. Income tax expense decreased$18.0 million to a benefit of$13.0 million for the six months endedJune 30, 2020 from expense of$5.0 million for the six months endedJune 30, 2019 . 37 -------------------------------------------------------------------------------- Table of Contents Non-GAAP Financial Measures We consider the following non-GAAP financial measures useful to investors as key supplemental measures of our performance: (1) FFO, (2) Adjusted FFO, (3) EBITDA, (4) EBITDAre and (5) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss as a measure of our operating performance. FFO, Adjusted FFO, EBITDA, EBITDAre, and Adjusted EBITDA, as calculated by us, may not be comparable to FFO, Adjusted FFO, EBITDA, EBITDAre and Adjusted EBITDA as reported by other companies that do not define such terms exactly as we define such terms.
Funds From Operations
We calculate funds from operations ("FFO") in accordance with standards
established by the National Association of Real Estate Investment Trusts
("NAREIT"), which defines FFO as net income or loss, excluding gains or losses
from sales of real estate, impairment, the cumulative effect of changes in
accounting principles, plus depreciation and amortization, and adjustments for
unconsolidated partnerships and joint ventures. Historical cost accounting for
real estate assets implicitly assumes that the value of real estate assets
diminishes predictably over time. Since real estate values instead have
historically risen or fallen with market conditions, most real estate industry
investors consider FFO to be helpful in evaluating a real estate company's
operations. We believe that the presentation of FFO provides useful information
to investors regarding our operating performance and can facilitate comparisons
of operating performance between periods and between REITs, even though FFO does
not represent an amount that accrues directly to common shareholders. Our
calculation of FFO may not be comparable to measures calculated by other
companies who do not use the NAREIT definition of FFO or do not calculate FFO
per diluted share in accordance with NAREIT guidance. Additionally, FFO may not
be helpful when comparing us to non-REITs. We present FFO attributable to common
shareholders, which includes our OP units, because our OP units may be redeemed
for common shares. We believe it is meaningful for the investor to understand
FFO attributable to all common shares and OP units.
We further adjust FFO for certain additional items that are not in NAREIT's
definition of FFO, such as hotel transaction costs, non-cash income tax expense
or benefit, the amortization of share-based compensation, and certain other
expenses that we consider outside the normal course of operations. We believe
that Adjusted FFO provides useful supplemental information to investors
regarding our ongoing operating performance that, when considered with net
income and FFO, is beneficial to an investor's understanding of our operating
performance.
The following table is a reconciliation of our GAAP net (loss) income to FFO
attributable to common shareholders and unitholders and Adjusted FFO
attributable to common shareholders and unitholders for the three and six months
ended June 30, 2020 and 2019 (in thousands):
© Edgar Online, source
