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Despite falling revenue, RLJ Lodging optimistic on FelCor deal

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Capital Markets View – January 2021


Despite falling revenue, RLJ Lodging optimistic on FelCor deal

RLJ Lodging Trust remains optimistic about its plan to acquire FelCor Lodging Trust Inc., despite weak performance across its portfolio in the second quarter and a "muted" outlook for the rest of the year, the company's CEO said.

Revenue per available room in RLJ's hotels declined 3.4% year over year in the quarter, compared to a RevPAR gain of 2.7% industry-wide, CEO Ross Bierkan said in an earnings conference call. RLJ suffered from its relatively high concentration in urban markets, since much of the industry-wide gain was driven by leisure properties in resort markets, he said.

RevPAR fell by 14.6% year over year in the real estate investment trust's Houston properties, by 8.2% in Louisville, by 4.8% in New York, and by 5.5% in Northern California, with a decline of 8.2% in San Francisco. The metric was down 3.5% across the company's non-top-10 markets.

Bierkan said the portfolio's year-over-year performance should improve in the second half of 2017, since some of the toughest year-over-year comparisons have now passed.

Still, he said, "absent any meaningful acceleration in the economy, we expect performance gained in the second half to remain muted."

While corporate profits and business investment are contributing to a healthy economy, the positive trends have not filtered through to the hotel industry, Bierkan said, in part because the viability of various Trump administration policies remains unclear.

Executives declined to comment on the FelCor acquisition specifically, and did not take questions on a series of buyout bids that RLJ reportedly received from Blackstone Group LP.

Asked about the acquisition environment in general, though, Bierkan replied: "We still believe that this is a good time for any organization to enter into a strategic opportunity. We are long-term investors. We don't look at one quarter or two quarters. We look at the long view, whether we are buying a single asset or a portfolio or, conversely, looking at the disposition or buying back stock."

While the company is prohibited at the moment from buying back its own stock, as a result of the FelCor deal, "we do not disagree that we are inexpensive right now," Bierkan said.