RLJ Lodging Trust

Welcome to the RLJ Lodging Trust's second quarter 2022 earnings 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 Bala, RLJ's Senior Vice President, Finance, and Treasurer. Please go ahead.

Thank you, Operator. Good morning and welcome to RLJ Lodging Trust 2022 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 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 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 today. I hope everyone is having a great summer so far. Our portfolio's second quarter performance exceeded our expectations as fundamentals saw a robust acceleration with lodging demand benefiting from summer travel ramping business demand, stronger citywide attendance, and urban markets being fully open. These tailwinds drove Lodging Fundamentals to strengthen throughout the second quarter, with this strong momentum continuing into July. In addition to delivering strong operating results, we successfully completed a number of strategic initiatives whose execution was made possible by our strong balance sheet. Most notably, we accretively recycled capital into share repurchases. We recently acquired a high quality boutique lifestyle hotel in the high growth market of Nashville. We successfully exited our financial covenant waivers. We materially advanced our three conversions and our board of directors recently authorized a meaningful increase to our quarterly dividend, which demonstrates confidence in our portfolio's ability to generate sustainable free cash flow. The execution of these initiatives has further strengthened our relative positioning and demonstrates our ability to create tangible value for our shareholders. Against an overall positive industry backdrop, our portfolio's recovery to 2019 was significantly better than expected throughout the quarter, with June REF PAR achieving 94% of 2019 levels. Accelerating demand across all of our markets led to strong pricing power as our second quarter ADR surpassed 2019 levels, sequentially improving each month. with June ADR achieving 105% of 2019. Our outperformance this quarter was driven by stronger than expected business travel, greater citywide attendance, and robust leisure demand, particularly in our urban markets. Our urban hotels, which represent two-thirds of our EBITDA, had the strongest growth this quarter, achieving a new high of 95% of 2019 REVPAR in June. The significant step up in urban demand allowed us to drive rate with June ADR achieving 106% of 2019 levels. This robust momentum carried into July, which improved to 107%. Our ability to achieve new highs in ADR ahead of the full recovery of our urban markets is an indication of the run room that exists to drive rate. Our urban markets were a major beneficiary of the rapid improvement of business transient demand, robust short-term corporate and social bookings, and returning city-wide, which materialized in many of our markets such as Boston, Washington, D.C., Orlando, and Miami, as well as the return of leisure demand as many venues that were not open last year were fully open this year. The pace of the recovery from business transient improved significantly this quarter as demand broadened beyond SMEs with the return of traditional industries such as financial services, consulting and technology companies and new sources of demand emerged from the hybrid work environment. This allowed our business transient revenues during the second quarter to increase significantly by over 50% from the first quarter, which accelerated each month with June achieving 71% of 2019, a new high watermark. Further evidence of the strength and the recovery of business travel is a positive momentum in weekday results. which achieved 88% of 2019 REVPAR during the second quarter, a substantial improvement of 40% from the first quarter. These weekday trends are driving the underlying recovery in urban markets. Group demand also accelerated during the second quarter, with group revenues increasing materially by 50% from the first quarter. Driven by ADR, which exceeded 2019 levels, group demand benefited from increasing city-wise with greater attendance. but continues to be driven primarily by the growth in small and medium-sized groups, which is our core segment. Finally, as expected, our leisure revenues exceeded 2019 during the second quarter, driven by ADR that was 20% above 2019. ADRs in our key leisure markets of Key West, Charleston, and Miami exceeded 2019 by an average of 40%. Notably, our robust leisure demand in the second quarter was bolstered by the strengthening of urban leisure and emerging leisure demand. As demand improved materially throughout the second quarter, we maintained tight operational controls despite current inflationary headwinds, which enabled our portfolio to achieve 91% of 2019 hotel EBITDA and EBITDA margins, which were only 60 basis points below 2019. Now, with respect to capital allocation, We remained very active and executed on multiple internal and external objectives that are expected to enhance our overall growth profile throughout the cycle. In particular, we entered the final stages of the conversions for Mandalay Beach, Charleston, and Santa Monica, which are on track to debut during the second half of this year. We took advantage of the dislocation in our stock price and accretively redeployed $50 million of disposition proceeds into share repurchases at a meaningful discount to our underlying value. We also expanded our footprint into Nashville, a top growth market with the acquisition of a unique boutique lifestyle hotel. The hotel sits in a bullseye location within downtown Nashville, a seven-day-a-week demand submarket. This hotel is projected to generate REVPAR that is two times our portfolio average and a stabilized NOI yield of 8% to 8.5%. With significant development underway, we believe both Nashville and our hotel are positioned to outperform throughout the cycle. Additionally, we successfully exited our financial covenant waivers, which will further enhance our capital allocation flexibility. And lastly, our Board recently authorized the increase of our quarterly dividend to $0.05 per share, which reflects our confidence that our portfolio can generate sustainable free cash flow throughout all phases of this economic cycle. We continue to view dividends as an important component of the total return we seek to provide investors. Our capital deployment not only underscores our highly disciplined approach to capital allocation, but also demonstrates the tremendous optionality our strong balance sheet provides. Furthermore, we believe the recent increases in dividends validates our commitment to returning capital to shareholders. Looking ahead, we believe that lodging fundamentals should remain strong during the second half of the year, which will be driven by the recovery of urban markets. We expect demand in urban markets to continue to ramp, benefiting from further improvements in business transient and group demand. The current trends in urban markets gives us confidence that their recovery is taking hold, despite the uncertainty in the macro environment. In fact, we are seeing evidence of strong trends from the second quarter continue thus far into the third quarter, as seasonality normalizes. Specifically, our REVPAR and leisure-oriented markets remained elevated in July. We expect leisure to remain healthy, especially since urban markets are fully open and should continue to benefit from the emergence of leisure travel. Our July business transient revenues improved further from June. We expect corporate travel to continue to strengthen throughout the remainder of the year. Our third quarter group booking pace is currently tracking at 90% of 2019 levels, with recent in-the-quarter, for-the-quarter booking trends, providing us with confidence that their recovery in groups should continue to improve for the remainder of the year. And finally, we believe that the recent uptick in international demand could provide further upside in urban markets. Overall, our portfolio remains extremely well positioned with several unique catalysts to drive incremental growth, including the post-conversion ramp of our conversion hotels, the continuing ramp of our recent acquisitions, Our urban-centric footprint, which is ideally positioned to benefit during this current phase of the recovery as growth shifts to urban markets. Our portfolio's efficient footprint with fewer FTEs is well-positioned in this inflationary environment. And finally, our strong balance sheet, which continues to provide significant optionality with respect to capital allocations. We believe that our overall positioning will allow us to drive significant value throughout this cycle. I will now turn the call over to Shawn. Sean?