RLJ Lodging Trust ((RLJ)) has held its Q4 earnings call. Read on for the main highlights of the call.
Claim 55% Off TipRanks
- Unlock hedge fund-level data and powerful investing tools for smarter, sharper decisions
- Discover top-performing stock ideas and upgrade to a portfolio of market leaders with Smart Investor Picks
RLJ Lodging Trust’s latest earnings call struck a cautiously optimistic tone, as management highlighted multiple operational wins and a stronger balance sheet against a backdrop of modest RevPAR declines and demand noise. Executives sounded confident that recent conversions, renovations, and urban market exposure will drive better performance as 2026 unfolds, even as macro and cost pressures linger.
Quarterly Results Beat Guidance in Choppy Environment
RLJ reported Q4 comparable hotel EBITDA of $87.8 million, corporate adjusted EBITDA of $80.4 million, and adjusted FFO per diluted share of $0.32. These figures landed ahead of guidance, showing the portfolio’s ability to outperform expectations despite uneven demand and pockets of softness.
Top-Line Metrics Show Mild RevPAR Contraction
Fourth‑quarter occupancy reached 68.7% with an average daily rate of $199, driving RevPAR of $137. RevPAR declined 1.5% year over year, reflecting a 0.9% dip in occupancy and a 0.7% reduction in rate, underscoring that while fundamentals are stable, growth remains constrained.
Non-Room Revenue Outpaces Room Performance
Non-room revenues were a standout, rising 7.2% in Q4 and beating RevPAR by nearly 900 basis points, which helped total revenue grow 0.2% despite room softness. Management expects this trend to continue, guiding for total revenue to outpace RevPAR by roughly 50 basis points in 2026 as ancillary spend grows.
Urban Markets Drive Relative Outperformance
Urban exposure proved to be a key advantage, with San Francisco’s central business district posting an eye‑catching 52% RevPAR gain in Q4 and Northern California up 18.5%. Denver CBD and New York also contributed, delivering RevPAR growth of 10.1% and 4.7%, respectively, positioning RLJ to benefit from continued urban recovery.
Conversions and Renovations Deliver Strong Returns
The company’s most recent four conversions achieved 15% RevPAR growth for the full year and outperformed the broader portfolio by nearly 700 basis points, highlighting strong return on investment. High‑impact renovations in Waikiki and Deerfield Beach are already paying off, with December RevPAR up 12% and 10%, respectively, as upgraded assets ramp.
Balance Sheet Reinforced With Ample Liquidity
RLJ used the year to de‑risk its capital structure, addressing near‑term maturities and extending its revolver to 2031 while upsizing and adding term loans and refinancing mortgages. After these moves, the company has no debt maturities before 2029, more than $1.0 billion of liquidity, an undrawn $600 million revolver, and 84 of 92 hotels unencumbered.
Capital Allocation Focused on Returns to Shareholders
Management leaned into shareholder-friendly actions, returning $120 million in 2025 through buybacks and dividends, including the repurchase of 300,000 shares for $28.6 million. RLJ continues to pay a quarterly dividend of $0.15 per share, signaling confidence in cash flow sustainability while preserving flexibility for future opportunities.
Asset Recycling Supports Portfolio Quality and Returns
The company sold three properties for total proceeds of $73.7 million at an attractive multiple of 17.7 times projected 2025 hotel EBITDA, including required capital expenditures. Proceeds were recycled into debt paydown, refinancing actions, and share repurchases, improving portfolio quality and capital efficiency.
Food & Beverage and Margin Initiatives Gain Traction
Full‑year food and beverage margins improved by about 120 basis points, helped by beverage‑centric ROI projects, renovated outlets, and stronger group spending in upgraded spaces. These initiatives support the strategy of boosting profitability beyond guest rooms, helping offset broader cost and wage pressures.
Government Shutdown Weighed on Key Markets
A prolonged government shutdown materially hurt demand in October and November, particularly in Washington, D.C. and Southern California, where government-related business is normally meaningful. While this segment represents around 3% in a normalized year, it was down roughly 20% in the prior year, creating a notable temporary drag.
RevPAR Softness and Weak Start to the Year
Beyond Q4’s 1.5% RevPAR decline, early 2026 trends were soft, with January RevPAR down 1.9%, prompting management to flag the first quarter as the weakest period. RLJ expects Q1 adjusted EBITDA to represent about 22% of its full‑year outlook, setting a low bar for sequential improvement as the year progresses.
Group Demand Pressured but Pricing Holds Firm
Group revenues fell 3% in Q4 as in‑quarter‑for‑quarter booking activity was hampered by the government shutdown and uncertainty, curbing volume. However, group ADR still rose 4%, indicating RLJ’s ability to preserve rate even as some business slipped, which bodes well for future mix and margin as demand stabilizes.
Managing Operating Costs and Wage Inflation
Total operating costs increased just 0.8% in Q4 and 1.6% for the full year, or 2.1% excluding a $4.7 million tax benefit, reflecting disciplined cost control. For 2026, RLJ assumes roughly 3% overall expense growth, with variable expenses rising about 2%, fixed costs about 4%, and wages and benefits up 3% to 4% amid ongoing labor tightness.
Refinancing in a Higher-Rate World
While the company successfully extended maturities, it had to refinance some lower‑cost debt at higher current rates, leaving RLJ with $2.2 billion of debt outstanding. Still, management expects only a minimal increase in annual interest expense, aided by a weighted average rate of 4.673% and about 73% of debt either fixed or hedged.
Renovation Disruption Sets Stage for Cleaner Comparisons
High‑occupancy renovations in 2025 created meaningful operating disruptions that weighed on near‑term performance, particularly at upgraded flagship assets. With most of that work now complete, management anticipates fewer renovation-related headwinds in 2026, allowing the income benefits of recent investments to show through more clearly.
Guidance Points to Gradual Improvement in 2026
For 2026, RLJ expects comparable RevPAR growth of 0.5% to 3%, with the midpoint assuming balanced contributions from rate and occupancy, and sees comparable hotel EBITDA between $344 million and $374 million and corporate adjusted EBITDA of $312 million to $342 million. Adjusted FFO per diluted share is projected at $1.21 to $1.41, with $80 million to $90 million of capital expenditures, net interest expense of $101 million to $103 million, and total revenue growth running about 50 basis points ahead of RevPAR.
Overall, RLJ Lodging Trust’s earnings call painted a picture of a company leaning on strong asset quality, urban exposure, and a fortified balance sheet to navigate a still‑mixed demand backdrop. While near‑term RevPAR and group trends are soft, management’s disciplined capital allocation, successful conversions, and modest but positive guidance suggest patient investors could see improving cash flows as renovations ramp and macro headwinds ease.