RLJ Lodging Trust (NYSE:RLJ) reported second-quarter results that exceeded its expectations, supported by broad-based growth across its urban-focused hotel portfolio, accelerating business travel and higher out-of-room spending.
President and Chief Executive Officer Leslie Hale said the company’s comparable revenue per available room, or RevPAR, increased 6.8% from a year earlier, driven by a 4.9% increase in average daily rate to $217 and a 130-basis-point occupancy gain to 77%. The company said its RevPAR growth outperformed the industry by 110 basis points during the quarter.
Business Travel and Urban Demand Drive Results
RLJ said business-transient revenue rose 10% in the second quarter, following 9% growth in the first quarter. Business-transient room demand increased 6%, while rates rose 4%. Hale said demand came from national accounts booked through global distribution systems and was broad-based across industries including technology, finance and defense.
Several markets recorded double-digit business-transient revenue growth, according to Chief Financial Officer Nikhil Bhalla. Chicago and Washington, D.C., each increased 35%, while New York rose 17%, Houston increased 13%, Northern California gained 12% and South Florida rose 10%.
The portfolio also benefited from urban leisure demand. Weekday revenues increased 6.3%, while weekend revenues rose 8.1%. Leisure revenue increased 7%, with a 6% rise in rate and a 1% increase in room nights. Group revenue grew 6%, evenly split between demand and average daily rate growth.
Group booking pace for the third quarter was at 110% of the prior-year level, Hale said, while full-year group pace was about 104%. The company noted that booking windows remain short, but near-term group demand continued to materialize during the quarter.
Among individual markets, Austin posted 17% RevPAR growth, aided by in-house group demand. Chicago’s RevPAR rose 15% on a strong citywide calendar, while Tampa increased 11% on event-driven demand. Orlando, Charleston and Washington, D.C., each generated high-single-digit RevPAR gains. Northern California RevPAR increased 9%, with management citing World Cup matches as well as corporate investment and business travel connected to the expansion of the artificial-intelligence industry.
RLJ said June was its strongest month of the quarter, with RevPAR increasing 12.4%. Preliminary July RevPAR growth approached 11%.
Higher Ancillary Revenue and EBITDA Growth
Out-of-room spending increased 7.1%, exceeding RevPAR growth by 30 basis points. Management attributed the gain to its renovations, conversions and return-on-investment initiatives designed to expand food-and-beverage offerings, activate underused spaces and generate other ancillary revenue.
Hotel EBITDA increased 7.1% to $119.5 million, while hotel EBITDA margins improved 10 basis points to 31.3%. Excluding a prior-year tax benefit, margin improvement would have been 40 basis points, Bhalla said. Corporate adjusted EBITDA was $110.4 million, and adjusted AFFO per diluted share was $0.52.
Expenses per occupied room increased 4.9%, reflecting higher costs associated with a larger transient mix, including credit-card and travel-agent commissions, as well as increased food-and-beverage outlet spending. Energy costs also remained elevated. Fixed costs increased 6.4%, though Bhalla said they would have risen 3.4% excluding a tax refund recognized in the prior year.
For the second half, management’s guidance implies total expense growth of about 3% at the midpoint and 4% at the high end, with similar growth expected on a per-occupied-room basis.
Conversions, Disposition and Balance Sheet
The company highlighted the performance of four high-impact renovations completed last year, which produced 22% revenue growth and 50% EBITDA growth during the second quarter. Seven previously completed conversions generated 8% revenue growth and 12% EBITDA growth.
RLJ completed the conversion of the former Renaissance Pittsburgh into The Atterbury, an Autograph Collection hotel under Marriott. The project included renovations to public spaces and guest rooms, a new restaurant and bar called The Drafting Room, a premium function space called The Fulton Room, and activation of the property’s historic rotunda.
The company also plans to convert its Fairfield Inn & Suites Key West into a Compass by Margaritaville property. The conversion is expected to begin later this year, with a relaunch planned for 2027. Management said it expects about 50% EBITDA upside at the Key West asset. RLJ is also progressing on converting its Wyndham Boston property into a Hilton Tapestry Collection hotel.
During the quarter, RLJ sold the Hyatt Place Fremont/Silicon Valley at a 29.2-times hotel EBITDA multiple including required capital expenditures. Hale said the hotel’s market dynamics had diverged from the company’s broader Northern California portfolio and that the required capital did not meet its expected return threshold.
After repaying senior notes that matured July 1 with proceeds from delayed-draw term loans, RLJ had $2.2 billion of debt and no maturities until 2029. The company reported about $1 billion of liquidity, including $600 million of undrawn revolver capacity. Eighty-three of its 91 hotels were unencumbered, while 72% of debt was fixed or hedged at quarter-end. Its weighted average interest rate was 4.8%.
Full-Year Outlook Raised
RLJ raised its 2026 outlook to reflect second-quarter outperformance, the sale of the Fremont hotel and continued demand trends. The company now expects:
- Comparable RevPAR growth of 3.5% to 4.5%.
- Comparable hotel EBITDA of $369 million to $389 million.
- Corporate adjusted EBITDA of $336 million to $356 million.
- Adjusted FFO per diluted share of $1.37 to $1.50.
- Capital expenditures of $80 million to $90 million.
Management expects third-quarter performance to be stronger than the fourth quarter. Hale cited momentum in business travel, healthy leisure demand, group pace and the continuing ramp of conversions, while also cautioning that visibility remains limited because of short booking windows and geopolitical and macroeconomic uncertainty.
About RLJ Lodging Trust (NYSE:RLJ)
RLJ Lodging Trust is a self-managed, publicly traded real estate investment trust (REIT) that acquires, owns and operates premium-branded, focused-service and compact full-service hotels. The company’s portfolio is concentrated in major U.S. markets, targeting properties that benefit from strong corporate and leisure demand, limited new supply and established brand affiliations.
The trust’s hotels are affiliated with leading global lodging brands across the spectrum of service levels, including lifestyle and upscale segments.
