Sometimes, when opportunity knocks, the right person is standing right at the door.
Such was the case for Ross H. Bierkan, who earlier this year was named president/CEO of Bethesda, MD-based RLJ Lodging Trust, following in the footsteps—and with some big shoes to fill. Thomas J. Baltimore Jr. had departed the company he co-founded with Executive Chairman Robert L. Johnson, to helm Park Hotels & Resorts, one of two hotel REITs planned by Hilton Worldwide.
Bierkan had been filling the role on an interim basis before being officially anointed. And by all accounts, it made perfect sense.
The affable executive had worked with Johnson and Baltimore for almost two decades, beginning with the REIT’s forerunner, RLJ Development Co. (and its two investment funds), where he served as principal/EVP, through to the creation of the REIT and its IPO in 2011, serving as its chief investment officer.
Still, a search chair was established. It quickly became apparent, however, that the person RLJ needed already had been hard at work for more than two months—that temp in the C-suite—and no search was ever conducted.
“The board quickly realized the house wasn’t on fire,” said Bierkan.
So did Johnson, who called Bierkan “exceptionally prepared,” noting his “deep knowledge of the hotel industry and the confidence that the board and management team have in his leadership as CEO of RLJ Lodging Trust. I am convinced Ross will continue to grow the company as Tom did, with an intense focus on maximizing shareholder value.”
Toward that, the REIT’s portfolio now includes 125 owned hotels representing close to 21,000 rooms in 21 states and the District of Columbia.
Its third-quarter fundamentals show adjusted funds from operations (FFO) increased 0.8% to $85.4 million, a 1% increase over Q3 2015 and adjusted FFO per common share and unit diluted was $.69, an increase of 4.5% over the comparable period last year. The company paid a dividend of $.33 per common share for the third-quarter period.
Third-quarter net income increased 0.5% to $41.4 million, a 1.1% increase over Q3 2015. RevPAR came up flat due to a 0.2% increase in ADR and a 0.2% decrease in occupancy.
Commenting on the results, Bierkan noted they reflected “the benefits of a diversified portfolio, as a number of our markets posted solid RevPAR growth, helping to offset those with weaker performance.”
He added having a “cycle-tested team,” an “all-weather” portfolio and a “stellar” balance sheet gives RLJ “confidence in our ability to continue to navigate the changing environment.”
One way of diversifying the portfolio has been taking on “involved” projects.
“We’ve done seven or eight deep turns. In some cases, they were conversions from one brand to another with gut renovations. In other cases, they were full adaptive reuses. An example would be our new SpringHill Suites in Houston, one of three assets in the Humble Oil tower. A third example would be our Indigo hotel in the Garden District of New Orleans, which we converted from a dark, unoccupied building. It is a talent that we have in-house, and we have a large enough platform that we could absorb the immaterial dilution caused by that 12- to 18-month period where there’s no income and we’re bringing that property to life,” said the CEO.
The noted changing environment, which has seen hotel REITs less aggressive than in the past when it comes to transactions, also includes a variety of international investors looking to make inroads within the U.S. lodging scene.
As a potential buyer with deep pockets, Bierkan was asked what his take is on mega-deal investors in the domestic hotel space and whether it is considered a good thing in his circle.
“Yes. It is. For two reasons: First of all, buyers like that provide a nice exit for any domestic investors who have decided that they’d like to get out. Even where financial performance may be softening, those buyers have long-term perspectives and are willing to pay more on a per-key basis and they look through the softness of the next couple of years, which is a perfectly valid way to invest. It helps incumbent owners exit their properties at attractive multiples to the current income,” said Bierkan.
“Second, I think it’s great for the assets. A good example is the Waldorf, because Anbang [Insurance Group, which bought the Waldorf-Astoria from Hilton Worldwide for $1.95 billion last year] is potentially going to put a billion dollars into that asset [for a conversion to condominiums, reportedly of three-fourths of the legendary hotel]and it’s unlikely that a purely financially driven investor could have justified that,” said the CEO. “It’s not right or wrong. It’s that new owner’s perspective. And it’s great for the asset, great for the cit, great for job creation. And I hope more international buyers have the same enthusiasm for some of our
iconic assets that Anbang has shown.”
RLJ, on the other hand, is enthusiastic about acquiring premium-branded, focused-service and “compact” full-service hotels, leaving the big-number boys to have at it.
Although with an eye to the horizon, Bierkan sees the publicly traded REIT far more likely to head in the direction of being net sellers than making opportunistic acquisitions. HB