RLJ Lodging Trust

Welcome to the RLJ Lodging Trust fourth quarter 2021 earnings 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 Bala, 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 Fourth Quarter and Year-End 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 Barnett, 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-K 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 reconciliation 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 today. We are pleased that Lodging Fundamentals continued their recovery relative to 2019 throughout the fourth quarter, with the industry's faster-than-expected recovery being the most significant event of 2021. Against this accelerating recovery, our portfolio achieved strong operating performance throughout the year. Additionally, our team successfully executed on all of our strategic priorities, which included acquiring three high-quality hotels during the year, which were accretively match-funded with proceeds from non-core dispositions, generating strong operating results, which allowed us to achieve positive corporate cash flow for the full year, advancing our value creation initiatives, which are expected to deliver an incremental $23 to $28 million of hotel EBITDA, and actively managing our balance sheet to increase flexibility, extend covenant waivers, further ladder debt maturities, and lower our cost of debt through the refinancing of over $1 billion of debt. Our confidence in our strategic initiatives was bolstered by the industry's recovery throughout the year, with REVPAR sequentially improving each quarter culminating with the fourth quarter ending at nearly 97% of 2019 levels. The recovery during the year was driven by the continuation of robust leisure demand, which is well documented and at levels exceeding 2019 in many resort markets. Just as important, there was clear evidence of an acceleration in recovery in both group and business transit demand as business travel volume increased, and in many cases, in advance of returning to corporate offices. This trend was particularly noticeable with respect to small and medium-sized companies. Finally, we were encouraged that international travel picked up in gateway markets after the borders reopened in early November. Although short-lived due to the emergence of Omicron, the quick ramp-up provided us with a strong indication of significant pent-up demand to visit the US. With respect to our operating performance, Our portfolio outperformed our expectations during the fourth quarter and also gained 340 basis points of market share. Our portfolio REF part achieved 75% of 2019 levels, representing an improvement of approximately 400 basis points from the third quarter. We were encouraged by our ability to drive ADR with almost a third of our portfolio exceeding 2019 levels and our overall portfolio achieving 91% of 2019 levels. representing the strongest quarter since the start of the pandemic. Our portfolio ended 2021 having significantly closed the gap to 2019, with our December red part achieving 87% of 2019 levels. Importantly, our ADR was 99% of 2019, with particular strength in our leisure markets such as Charleston, Key West, Miami, Mandalay Beach, and New Orleans, as well as many of our urban markets including Atlanta, San Diego, Pittsburgh, and Los Angeles, despite the slower recovery in our Northern California market. The ability to drive ADR underscores our capability to continue to push rates, which will allow us to capture the meaningful rate upside in our segments. In particular, there was positive momentum in the recovery of our urban hotels, which represent two-thirds of our portfolio. Our urban portfolio achieved 83% of 2019 REVPAR in December, We believe that the continued momentum in the recovery of our urban hotels will be the driving force for our portfolio's growth going forward, and we expect outsized growth in business transient and group demand throughout the year. We saw evidence of the recovery of these segments throughout the fourth quarter as improved business transient demand drove our weekday occupancy to 78% of 2019, a 400 basis point increase from the third quarter. while our group revenues improved significantly, up 20% quarter over quarter, as we benefited from the travel of small, social, and sports-oriented groups. These trends have further bolstered our confidence in the positive trajectory of these segments. Now turning to capital allocation, we advanced our internal and external growth objectives, which improved our growth profile and key operating metrics, such as REVPAR, EBITDA per key, and margins, while enhancing our overall positioning for this cycle. Our capital recycling initiatives this year alone led to a 150 basis point improvement in our pro forma margins over 2019. Specifically, during the fourth quarter, we closed on the acquisition of the AC Hotel Boston Downtown, which opened in 2018 and boasts an A-plus location within the ink block development of Boston's highly desirable South End neighborhood. We also closed on the acquisition of the Moxie Cherry Creek in Denver, which opened in late 2017 and is located in the heart of the highly desirable Cherry Creek submarkets in Denver. And we completed the disposition of a Doubletree Metropolitan in New York City. This disposition was highly accretive and reduced our concentration in New York City to less than 3.5%. In total, we have deployed nearly $200 million to acquire three high-quality hotels located in top-growth markets at an aggregate stabilized EBITDA multiple of approximately 12 times. These acquisitions were accretively match-funded with proceeds from non-core dispositions during the year, which were sold at an aggregate multiple of approximately 30 times 2019 Hotel EBITDA. The net impact of match funding will result in an incremental $8 million of stabilized Hotel EBITDA. We are pleased to report that all three of our recent acquisitions are already outperforming our underwriting. with the aggregate 2022 hotel EBITDA expected to exceed our underwriting by approximately 35%. By fully matched funding our recent acquisitions, we were able to retain our acquisition capacity, which will prove valuable given our robust acquisition pipeline. We expect to be an net acquirer this year and are encouraged by the quality of our assets within our pipeline, which includes several off-market opportunities. On the internal growth front, We are continuing to make progress towards generating an incremental $23 to $28 million in stabilized EBITDA from our embedded value creation opportunities. These include $7 to $10 million from our three conversions, which remain on track, $9 to $11 million from our revenue enhancement opportunities that are being completed as part of our normal cycle renovations, and $7 million, representing 50 basis points of margin expansion from management agreement amendments that we are finalizing. which will be incremental to any industry-wide margin efficiencies from post-COVID operating synergies. Our efficient capital recycling and the unlocking of our internal growth catalyst have created multiple channels of growth to drive EBITDA expansion throughout this cycle, and our balance sheet provides us with the capacity to fund the opportunities to drive internal and external growth initiatives. Looking ahead, We are seeing a resurgence of demand in February as the industry moves past Omicron. This reinforces our confidence in the expectation for strong, accelerating growth in lodging fundamentals this year, especially in urban markets, which we believe will drive the next leg of the lodging recovery. This improving backdrop is being driven by the release of pent-up demand across all segments. We believe that, in addition to the continued strength and leisure that is expected throughout the year, Business travel should see meaningful improvement, especially in the back half of this year. This will be driven by the continuation of strong demand from SMEs and the reemergence of travel from global companies such as Wells Fargo, Bank of America, and Microsoft, who have pulled forward office reopenings and eased travel restrictions. The return of the traditional corporate traveler represents an outsized runway for growth in urban markets. Group demand should accelerate throughout the year as well, with the mix of corporate groups increasing. Our confidence in the momentum of the group recovery has increased with our definites currently representing 68% of 2019 levels. Within the first 30 days of this year, we saw an impressive in-the-year, for-the-year booking pace, which is already at 25% of last year's in-the-year pickup. Finally, an uptick in international volume while the borders were open late 2021 provides us with a cautious optimism that international travel could provide a surprise to the upside if travel restrictions are eased, which would benefit gateway markets such as New York City, San Francisco, Boston, and Miami. As we think about the cadence of the recovery, we expect trends to improve sequentially each quarter, with growth accelerating in the third and fourth quarter as recovery broadens to urban and key gateway markets. Our portfolio is well positioned in 2022, given our geographic footprint, with two-thirds of our EBITDA generated in urban markets. As we look at the overall cycle, our outsized EBITDA growth will come from the recovery of both business transient and group, which will significantly benefit urban portfolios like ours, the ramp-up of our recent acquisitions, as well as future acquisitions funded with existing capacity. Our lean operating model, which will allow us to operate with fewer FTEs compared to full-service portfolios and be less impacted by the current inflationary wage environment. The realization of incremental EBITDA from our embedded growth catalyst and our strong balance sheet, which provides a competitive advantage as well as the flexibility to pursue both internal and external growth opportunities. Over the last three years, we have significantly enhanced the overall quality of our portfolio which is evidenced by an 8% increase in absolute red bar, a 12% increase in hotel EBITDA per key, and a 50 basis point improvement in hotel EBITDA margins, we believe we are well positioned to achieve outsized growth this year and beyond. Finally, I would like to thank all of our hotel associates, our management companies, and our entire corporate team for their hard work, commitment, and support during this recovery. I will now turn the call over to Shawn. Shawn.