RLJ Lodging Trust

Welcome to the RLJ Lodging Trust third quarter 2023 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 afternoon. And welcome to RLJ Lodging Trust 2023 Third 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 Chief Operating Officer, 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. Finally, please refer to the schedule of supplemental information which was posted to our website last night, which includes our performer operating results for our current Patel portfolio. I will now turn the call over to Leslie.

Thanks, Nikhil. Good afternoon, everyone, and thank you for joining us today. Our third quarter results reflect the benefits of our urban-centric portfolio. which is ideally positioned to capture the emerging trends as evidenced by a red part growth exceeding the industry for the third straight quarter. Our above industry results were led by our urban markets, which are disproportionately benefiting from positive trends across all segments of demand. We were particularly pleased to see these trends accelerate throughout the quarter, culminating with September achieving new highs. Overall, we remain constructive on the health of lodging fundamentals, which continue to unfold with favorable trends for our portfolio. With respect to our operating performance, despite the impact of several weather-related events, our third quarter REVPAR grew 3.4% year-over-year, which was two times the industry and achieved 98% of 2019, representing a 200 basis point improvement from the prior quarter. Our REVPAR growth was balanced between occupancy and ADR, demonstrating additional run room and demand and continued pricing power across our portfolio. With sequential improvement during the quarter, our September REVPAR grew 5.8%, which allowed our portfolio REVPAR to exceed 2019 levels for the first time. These encouraging trends carried into October. Our urban markets grew 4.2% over last year, benefiting from the consistent improvement in business demand. These markets also benefited from ongoing robust group demand and healthy urban leisure trends with the return of large-scale events and improving inbound international demand. These positive trends enabled our urban markets, such as Boston, D.C., and New York, to achieve low double-digit REVPAR growth over last year. Our top line also continues to benefit from the expansion of non-room revenues as a result of our revenue enhancement initiatives, such as space reconfigurations, FMV reconcepting, and other initiatives. In the third quarter, Non-room revenues grew by 12.7% and led our total revenues to grow by 4.9%. This momentum accelerated in September, with total revenues increasing by 6.9% over last year. In terms of segmentation, our business transient segment continues to have a positive trajectory. This enabled us to achieve the highest level of revenues post the pandemic at 75% of 2019 levels, a 400 basis point increase over the second quarter. On a year-over-year basis, business transient revenues increased by 11%. Notably, room nights improved by over 400 basis points to achieve 90% of 2019, demonstrating continued improvement in BT demand, which was led by SMEs and positive momentum in our national corporate accounts from industries such as industrials, telecom, and technology. Improving business demand trends were also evident in our weekday revenues, which grew by 4% year-over-year. Similar to our overall portfolio, our business transient trends accelerated throughout the quarter, with September achieving 21% revenue growth above 2022. Going forward, we expect the strengthening of these trends to be further bolstered by the progress relative to national return to office mandates. With regards to group, our strong booking dynamics continued in the third quarter as group revenue grew by 4% over last year. Our group base has broadened to include more corporate and self-contained groups. This robust group demand led our third quarter group revenues to achieve 104% of 2019 levels, driven by ADR, which exceeded 2019 by 15% during the quarter. We remain bullish on our portfolio's ability to capture group demand, as evidenced by the strength in our in-the-quarter, for-the-quarter bookings which represented nearly 20% of group revenues. As it relates to leisure, while resorts continue to normalize during the quarter for the industry, our leisure segment outperformed due to the ongoing strength in urban leisure, which benefited from strong attendance at various concerts as well as sporting events. This allowed our urban weekend rep par to increase by 4% over last year during the third quarter. Turning to the bottom line, Flow-through from our strong revenue growth allowed us to achieve EBITDA margins of 29.3%, which was only 206 basis points below last year. With expense growth continuing to normalize, our lean operating model should allow our margins to benefit more on a relative basis. In addition to reporting strong quarterly results, we also made progress on a number of capital allocation objectives, including the continuing ramp-up of our 2022 conversions which are exceeding 2019 levels and are underwriting on all metrics. These conversions achieved aggregate REVPAR that was over 16% above 2019 in the third quarter. With a multi-year ramp ahead, we expect these conversions to continue to contribute to our future growth. Additionally, we made progress on our recently announced 2023 conversions. These properties are already seeing a positive response to their new brand affiliation. and we expect renovations over the next several months to unlock significant growth. We also continue to allocate capital in a disciplined manner. This quarter, we enhanced total shareholder returns through a 25% increase in our quarterly dividend, and we purchased nearly $15 million of common shares, bringing our total shares we purchased to date to $70 million. The progress we have made on multiple capital allocation opportunities simultaneously continues to underscore the optionality of our strong balance sheet. Looking ahead, while recognizing that the overall macro environment remains uncertain, we believe that the current environment remains constructive for lodging fundamentals. We are encouraged that the strong industry trends that we saw in September carried into October. Against this backdrop, we expect our performance to sequentially improve in the fourth quarter given our urban footprint, which should continue to see above-industry growth driven by improving business transient, healthy leisure demand as we approach the holiday season, as well as emerging international demand. The continuing ramp-up of our 2022 conversions and other initiatives, our strong group pace, which is being led by small and medium-sized groups, and is already significantly ahead of last year by 23%. and strong city-wise in key markets such as Atlanta, Boston, Washington, D.C., and Northern California. These robust group trends are also carrying into 2024, where our group pace is 22% above last year, including being meaningfully ahead in key markets such as Southern California by 82%, Tampa by 37%, and Northern California by 21%. Looking beyond this year, we believe that the positive backdrop for industry fundamentals will continue, giving the shift of consumer preferences towards experiences, steady improvement in business demand, recovering international travel, and citywide events returning to pre-pandemic levels. We expect these trends to continue to disproportionately benefit urban markets, allowing them to outpace the industry, especially with a muted new supply outlook over the next several years. As this new normal unfolds, RLJ is well positioned to capture all segments of demand. In recent years, we have intentionally repositioned our portfolio into prime locations within urban markets that benefit from seven-day-a-week demand. As such, our portfolio is built to capture these emerging trends in addition to the tailwinds from our acquisitions and conversions. We believe that all of these unique factors should enable us to continue to exceed industry growth. Finally, I want to mention that we will be showcasing one of our recent conversions, the Pearside in Santa Monica in November. And we look forward to hosting many of you for a property tour before NAIREAP begins. We believe that experiencing the transformation will help investors to truly understand the value we are creating. I will now turn the call over to Sean. Sean.