RLJ Lodging Trust

Welcome to the RLJ Lodging Trust second quarter 2020 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I would now like to turn the call over to Nikhil Bhalla, RLJ's Vice President and Treasurer of Corporate Strategy and Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to RLJ Lodging Trust 2020 Second Quarter Earnings Call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Sean Mahoney, our Executive Vice President and Chief Financial Officer, will discuss the company's financial results. Tom Bardenett, our Executive Vice President of Asset Management, will be available for Q&A. Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what had been communicated. Factors that may impact the results of the company can be found in the company's 10Q and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures It may be helpful to review the reconciliations to GAAP located in our press release from last night. I will now turn the call over to Leslie.

Thanks, Nikhil. Good morning, everyone, and thank you for joining us. We hope that you and your loved ones are remaining healthy during these unprecedented times. We would also like to express a great deal of gratitude to our frontline associates who continue to prioritize the health and safety of our guests and our corporate associates who are working tirelessly with our operators to help us navigate these uncertain times. As we anticipated, the second quarter for our industry was dramatically impacted by COVID-19 as much of the country shut down. The lodging industry bottomed in April with the lowest monthly demand in the history of our industry. Demand improved in May and June, which was primarily driven by pent-up leisure demand as corporate and group demand was virtually non-existent. Although we continue to lack clarity on future fundamentals, we believe that the second quarter will be the worst quarter of this year. With respect to our portfolio, occupancy at our open hotels was 24% during the second quarter. Occupancy troughed in April at 15.4% and improved to 24.8% in May and 31.4% in June, mirroring the cadence of the broader industry trends while highlighting our ability to capture local demand. Although a number of our hotels benefited from the lift in leisure demand in markets such as South Florida, Southern California, and Charleston, many of our hotels remained suspended for a significant portion of the quarter due to state mandated closures and restrictions. Our urban hotels were particularly impacted by the lack of demand, which limited our second quarter total portfolio occupancy to 11.7%. In light of this challenging background, we executed on a number of critical priorities. First, we remained focused on managing our liquidity and minimizing hotel operating shortfalls to reduce our burn rate. We successfully reopened hotels in a socially and financially responsible manner, including 21 hotels during the second quarter and 15 hotels so far in the third quarter. And finally, we successfully amended our unsecured debt facilities. As we continue to navigate this crisis, preserving liquidity remains our number one priority. At the outset of COVID-19, we had implemented a number of aggressive cost containment initiatives. including reducing staffing levels, closing F&B outlets, eliminating all non-essential services, and closing floors to reduce room inventory. All of these cost containment efforts remain in place and have limited our burn rate. Our second quarter cash burn was approximately $10 million lower than our expectations due to a combination of higher revenues at hotels that remained open the reopening of more hotels than we initially expected and the success of our aggressive cost containment initiatives. Our burn rate improved throughout the quarter as more hotels in our portfolio achieved profitability as demand materialized. During June, approximately 70% of our open hotels achieved positive gross operating profit and over 40% of our open hotels achieved positive EBITDA. Our success in reducing our burn rate combined with the steps we took previously to preserve and enhance liquidity such as limiting our capital expenditures and optimizing our corporate G&A have strengthened our liquidity position. With over $1 billion in cash, our strong liquidity position gives us the confidence in our ability to navigate through this period of uncertainty. As we outlined last quarter, we developed a thoughtful framework to reopen the 57 hotels that we previously suspended. in a socially and financially responsible manner. Our approach is focused on minimizing our operating shortfalls by reopening those hotels that are best positioned to control costs and capture available demand while maintaining guest safety in this low occupancy environment. The hotels that best fit this criterion were our select service assets, all suite hotels, and hotels located in resort or drive-to markets. As many states began lifting restrictions in May, we began to execute on our plan, which led to the reopening of 36 hotels with 18 of these assets opening in June and 15 opening in July, yielding positive results. Our select service hotels achieved 35% occupancy in June and nearly 40% in July. Our all-suite hotels, including most of our embassy suites, achieved 32% occupancy in June and mid-30% occupancy in July. And our resort hotels achieved occupancy of 55% in June and approximately 45% in July, while hotels in our drive-to markets achieved occupancy in the low 30s over these same two months. We are pleased that 80% of our portfolio is now open. The number of properties and the pace at which we were able to reopen and the level of occupancy that we are seeing underscores the benefits of our portfolio construct. Specifically, we were able to reopen significantly more hotels due to our portfolio's operating cost structure, which allows us to minimize our operating shortfalls even at low occupancy levels. Our all suite hotels, which represent approximately 50% of our total rooms, are proving to be attractive to guests, especially in a social distancing environment. And our geographically diverse transient oriented portfolio is ideally positioned to benefit from the lift in early demand in all segments. These portfolio attributes were crucial in allowing us to drive occupancy to our hotels early, as we quickly pivoted to take advantage of all demand that was available. This included near-term leisure demand, pockets of existing project-based and extended-state corporate demand from essential workers, and small social groups such as youth sports teams. Ultimately, The construct of our portfolio and our geographic diversification will not only enable us to navigate this crisis, but will also position us to benefit early once a sustainable recovery unfolds. Looking ahead, while no one knows the timing of when we will return to pre-COVID-19 lodging fundamentals, we continue to believe that any form of recovery will likely be slow to build. In order to fully recover to pre-COVID demand levels, The industry needs all three segments to be healthy. For the remainder of the year, given the current resurgence in COVID-19 cases across a number of states, including Florida, Texas, and California, we remain sober as it relates to the sustainability of leisure demand, particularly after Labor Day, and any recovery in corporate or group demand which we expect to remain anemic. While we, along with the rest of the industry, are facing extreme challenges, we continue to believe our relative positioning will allow us to rebound sooner and take advantage of opportunities at the appropriate time. Our confidence continues to draw from our lean operating model, the construct and geographic diversification of our portfolio, our strong liquidity position, and the embedded value creation opportunities in our portfolio. In particular, Our portfolio of select service and compact full service hotels which have a smaller footprint and lower operational complexity allows our hotels to break even at low occupancy levels. Our lean operating model allows our hotels to achieve profitability earlier. Our transient concentration and the nature of our hotels positions us to ramp up early during a recovery and our all suite products will further bolster this ramp as a new normal unfolds. And finally, we continue to believe in the embedded opportunities within our portfolio, which have the potential to unlock significant shareholder value long-term. We are already seeing the benefits of the relative advantage that our portfolio offers, as evident in our second quarter performance, given the number of open hotels, the pace of occupancy ramp-up, and the number of assets that achieve positive EBITDA. all of which continued into July. Whether or not current demand levels are sustainable in the near term is unknown. Nevertheless, our recent performance illustrates that when a sustained recovery does unfold, our portfolios should benefit early. Overall, we believe that these differentiating attributes combined with our sizable liquidity of over a billion dollars and flexible balance sheet continues to position us exceptionally well Not only to navigate an extended period of uncertainty, but to emerge in a relative position of strength early in a recovery. I will now turn the call over to Sean for a more detailed review of financial results and liquidity. Sean.