RLJ Lodging Trust

Welcome to the RLJ Lodging Trust first quarter 2021 earnings conference call. As a reminder, all participants are in a 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 Thala, 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 2021 First 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 Bartnett, 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 10-Q 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 everyone continues to remain safe and we also hope that you have a vaccination plan in place. It is a meaningful step towards all of us getting back to normal again. The current backdrop today is starkly different than where it was a year ago at this time. Although we have a ways to go, we are encouraged by the acceleration in lodging demand that we saw throughout the first quarter, which has continued into the second quarter. Lodging fundamentals have benefited from the significant increase in vaccination rates and the easing of restrictions that have allowed many markets to reopen, as well as the passing of additional economic stimulus. These positive developments allowed the industry to benefit from significant pent-up demand during the first quarter and drove our results to exceed our expectations. During the first quarter, we continued to execute on a number of fronts, and our portfolio's relative performance unfolded as we thought it would. Our relative performance confirmed our expectations that our portfolio would be an early beneficiary as the recovery starts to take hold. Our continued market share gains illustrate this and highlights the appeal of our brands, product type, and footprint. Additionally, we continue to operate with a minimal cost structure. Our lean operating model enabled our entire portfolio to generate positive hotel EBITDA during the first quarter for the first time since the pandemic unfolded, while our open hotels generated positive hotel EBITDA for the third consecutive quarter. We also materially improved our average monthly cash burn for the quarter relative to our estimates, and we continue to maintain significant liquidity which is providing the capacity to advance our growth initiatives. And finally, we made meaningful progress on each of our three conversions, including finalizing the design and scope of our renovations for the Wyndham Santa Monica, the Mills House Charleston, and the Embassy Suites Mandalay Beach. With respect to our operating performance, our open hotels achieved occupancy of 46.4% during the first quarter and gained over 500 basis points of market share. occupancy improves sequentially each month, achieving 56.1% in March, which represents the highest monthly occupancy level since the start of the pandemic. We were pleased that the occupancy for our open hotels exceeded the overall industry during February and March, demonstrating the benefit of our portfolio construct and geographic footprint. These improving trends enabled our entire portfolio to generate positive hotel EBITDA each month of the quarter. We are pleased to see this positive momentum continue into April, which is expected to be even better than March. From a segmentation standpoint, our leisure markets continue to outperform, with drive-to markets such as South Florida, Charleston, and Orlando benefiting from significant pent-up leisure demand throughout the first quarter, including robust travel trends driven by an extended spring break in March. Additionally, there were several markets that benefited from unique catalysts during the quarter, such as the Super Bowl in Tampa, the biannual legislative year in Austin, and inauguration-related demand in Washington, D.C. With all of our markets benefiting from some incremental leisure demand, our portfolio achieved weekend occupancy of 56.5%, the highest of any quarter since the beginning of the pandemic. In light of the work-from-anywhere flexibility for many, our brands and product type are allowing us to benefit from elongated weekends, which now include Thursdays. This past quarter, we also saw another uptick in both business transient and group demand. Our hotels are capturing increased demand from small groups such as sports teams, educational or training groups, and weddings, allowing our group revenues, which represented 10% of our first quarter room revenues, to nearly double from the fourth quarter, albeit from very low levels. We are also encouraged by the continued improvement in corporate demand, which increased 27% from the fourth quarter and was a contributing factor to the sequential improvement in our weekday demand trends from last quarter. Corporate demand is still largely concentrated in local and regional accounts from such industries as insurance, healthcare, and government. In conjunction with the improving pace of demand, ADR at our open hotels also improved each month, and we are encouraged to see the relationship between demand and pricing hold. For example, The nearly 19-point increase in occupancy at our open hotels from January through March was accompanied by nearly 12% growth in ADR, resulting in REVPAR growing by 69% during this period. Our strong relative performance during the first quarter once again demonstrated the benefit of our portfolio CONSRA, which should continue to allow us to outperform as the recovery unfolds. For example, Our resort properties achieved 70% occupancy. Our all-suite hotels achieved 50.1% occupancy and also gained 11 points of share. And finally, our drive-to markets achieved over 50% occupancy. Our portfolio's ability to gain market share while continuing to operate under aggressive cost containment initiatives enabled us to achieve positive adjusted EBITDA for the first time during this pandemic. Our improving performance enabled us to continue to reduce our average monthly cash burn, which was 30% below the low end of our first quarter guidance. We expect our average monthly cash burn for the year to continue to improve. Now looking ahead, the strong start to the year has increased our confidence in the strength of the recovery of demand. Leisure will remain a dominant demand driver, and we expect the pace of vaccinations, additional loosening of restrictions, and recent stimulus to drive continued significant pent-up travel demand. Additionally, continuing work from anywhere flexibility should allow leisure demand to remain elevated during the summer. With respect to business transient and group demand, we are encouraged by the sequential improvement in trends we are seeing, but our expectations relative to the ramp of these segments have not significantly changed since our last call. We continue to expect employees to begin returning to offices during the summer, with the pace increasing in the fall as schools return to in-person learning. which should lead to a step change in business travel in the latter part of the year. We also expect small group demand, which accounts for the majority of our group business, to continue to ramp up as vaccination rates increase and size restrictions on gatherings loosen during the second half of the year, which should drive incremental demand from sporting and other special events. Although the group booking window remains short, both our leads and conversions are continuing to strengthen, especially for the summer. Our more positive outlook for demand growth is also supported by the recent trends we are already seeing, such as the airline passenger volume rising to the highest level since the start of the pandemic, as well as the pace of employees already returning to offices in some markets, and the number of venues and attractions with high attendance that are already open. The overall momentum from the first quarter bodes well for the underlying strength of the lodging recovery and could result in outperformance relative to our expectations for the balance of 2021. As these improving trends unfold, we could not be more pleased with our overall positioning, which will continue to allow us to outperform. As we have demonstrated thus far, our exposure to drive-to leisure markets and the overall attractiveness of our hotels is allowing us to gain market share. Our transient and urban hotels are positioned to benefit as business travel improves. Our hotels continue to be favored by small groups that have begun traveling. Our less operationally complex hotels with smaller footprints are currently generating positive cash flow, and our more efficient operating cost model should allow us to return to pre-pandemic EBITDA sooner. Additionally, the continued strength of our balance sheet is allowing us to remain well-positioned to outperform long-term, given that, Our strong liquidity of over $1 billion in low burn rate is enabling us to emerge with a healthy balance sheet and allowing us to pursue our growth strategy sooner. As our dispositions demonstrate, we continue to be active portfolio managers and are pursuing opportunistic sales that will create incremental capacity for growth without meaningfully shrinking our EBITDA base. Additionally, we are seeing the benefits of our portfolio's improved growth profile in our relevant performance and expect to thrive as business transient and group segments improve. And finally, we are moving closer to unlocking the embedded value from our conversions that are expected to amplify our EBITDA growth throughout this cycle. In addition to unlocking our growth catalysts, we are continuing to actively underwrite acquisition targets and remain well positioned to deploy growth capital during what we believe will be a multi-year window for acquisitions. We remain confident that our seasoned team will be able to source attractive acquisitions for RLJ this year as our pipeline of opportunities has grown since our last call. That said, we will remain extremely disciplined as we underwrite opportunities. Overall, we are encouraged by the improving backdrop we are seeing and are incrementally more positive about the potential for further improvement in lodging demand for the rest of the year. Moreover, We are pleased to see that our portfolio's recovery and our outperformance is unfolding as we expected. Long-term, we are energized by our strong positioning, which will enable us to unlock our embedded growth opportunities and create significant shareholder value throughout this cycle. Finally, and more importantly, we remain deeply grateful to our frontline associates who are instrumental in helping us navigate the recovery as it unfolds. I will now turn the call over to Shawn, Sean.