RLJ Lodging Trust

from traditional BT sources such as finance, technology, pharma, and aerospace. Relative to group, demand remains healthy. In addition to strong attendance at Citywide's, the growth in small, self-contained group is driving the improvement in this segment, all of which led our fourth quarter group revenues to increase by mid-single digits over the prior year. We expect small group demand to remain strong, and our hotels are in the sweet spot to cater to this growing segment, given the attractiveness of our meeting space configuration to this segment. Finally, we were encouraged to see healthy leisure trends persist throughout the quarter, especially around holidays, benefiting our resorts, which achieved 6.6% rep part growth, with many people settling into a hybrid schedule Weekend demand continued to be strong across our portfolio, especially for urban weekends, which outperformed our portfolio. The strength across all segments of demand during the fourth quarter, combined with strong growth of 8.1% in our non-room revenues, led our total revenues to increase by 5.7%. This strong growth translated into positive year-over-year EBITDA growth of 2.3%, which speaks to our lean operating model. Turning to capital allocation. Our initial conversions are yielding strong results that are pacing ahead of our expectations. We were pleased to provide updated projections outlining the incremental upside and to showcase the high-quality renovations at the pier site in Santa Monica and Sakari Dunes on Mandalay Beach to many of you recently. The strong results from these assets bolstered our confidence in the next wave of our conversions. During the year, we initiated the physical conversions in New Orleans and Houston. which will position them for a strong ramp. And we are on track to begin Nashville's renovation later this year. We make great strides towards continuing to unlock incremental embedded growth by announcing that the Renaissance Pittsburgh Hotel will join Marriott's autograph collection and that the Wyndham Pittsburgh University Center will be converted to a courtyard by Marriott. Additionally, we executed the optionality that our strong balance sheet provides by returning capital to our shareholders through opportunistically repurchasing $77 million of shares at an attractive price while doubling our dividend during the year. The execution of these initiatives has been made possible by the strength of our balance sheet, which also gives us the capacity for external growth. More recently, we acquired the fee-simple interest in the 304-room Boston Wyndham Beacon Hill from the ground lessor. We took advantage of our unique position to secure full ownership in order to unlock another compelling conversion opportunity. We acquired this irreplaceable real estate for $125 million, representing $411,000 per key. meaningful discount to recent hotel trades in Boston the hotel benefits from an A-plus location in Boston's Beacon Hill neighborhood surrounded by Mass General which is currently undergoing a 1.8 billion dollar expansion the acquisition will allow us to move forward with executing the same conversion playbook that has been successful for RLJ This asset is highly attractive to numerous brands given the demand dynamics of the market. Our deep institutional knowledge of the overall market, the hotel's bullseye location within the sub-market, and the quality of the asset gives us confidence that upon conversion, there is 40 plus percent upside to the hotel's current EBITDA. We look forward to providing additional details around the conversion of the hotel after we finalize the negotiations with the brand. Overall, we are encouraged by the pipeline of off-market external growth opportunities that we are seeing. The current backdrop of constrained lending provides a significant advantage to all cash buyers like RLJ. That said, we will continue to maintain our discipline as we have demonstrated. As we look ahead to 2024, while economic uncertainty persists, we remain optimistic that industry fundamentals will achieve positive growth this year, especially against a backdrop of minimal news supply. We believe that urban markets will continue outperforming the industry as urban is poised to disproportionately benefit from the strong group trends, the recovery in business transient demand, and improving inbound international travel. We also expect more pronounced divergence in individual market performance to emerge given citywide calendars, the location of large leisure-oriented events, and inbound international travel. Given our footprint, which should benefit from these trends, we are positioned to outperform this year. There are several key markets which we expect to be strong this year. Boston should outperform due to a strong citywide calendar. robust business travel from Boston-based industries such as biotech and higher education, and Boston's attractive positioning to inbound international travelers. Southern California should outperform as a result of a strong San Diego citywide calendar, improving business transient from aerospace and a post-rider strike backlog of demand from Hollywood-related industries, and increased inbound international visitation, especially from Asia. New York is expected to benefit from improving travel related to the financial sector, continued strong leisure, and increasing inbound international demand during a period of favorable demand-supply dynamics. And while we remain sober to Northern California's slow recovery and fewer city-wides this year, there are some encouraging green shoots in the market, such as improving perception of San Francisco's safety, increasing return to office mandates by tech companies and investors, as well as venture capitalists returning to San Francisco due to the concentration of tech talent and AI startups. Additionally, we expect that Group will continue to benefit from robust self-contained and small group bookings, as well as strong citywide calendars in many major U.S. markets, supported by our group booking pace being 12% ahead of 2023. And Overall leisure travel should remain healthy, led by the strength in urban leisure, which should continue to benefit from hybrid work flexibility and large-scale events, including sports, concerts, and other activities. Longer term, we are optimistic about the positive trajectory of lodging fundamentals. Our confidence continues to be supported by the ongoing shift of consumer preferences towards experiences, the improvement in business demand, the continued recovery in inbound international travel, and the growth of citywide events and attendance. All these positive trends will disproportionately benefit urban markets, especially against the backdrop of an elongated period of limited new supply, allowing these markets to outpace the overall industry growth for several years. As this new normal takes hold, our portfolio is well positioned to capture growth in all segments of demand, Over the last several years, we have intentionally repositioned our portfolio into prime locations that benefit from seven day a week demand within urban markets, allowing us to benefit from these emerging trends, in addition to growth from our acquisitions and conversions. We believe that all of these tailwinds should allow us to continue to exceed the industry. Our growth profile will be bolstered by our high-quality portfolio, which is built to capture the growing live-work-play trends in urban markets, the continuing and future upside from our announced conversions, the embedded incremental growth from executing on our future pipeline of conversions and ROI opportunities, the tailwinds from our recent renovations in South Florida and Southern California, the significant free cash flow generated by our portfolio to self-fund growth, and the continued optionality created by our strong balance sheet which will allow us to deliver attractive shareholder returns long term overall i could not be more proud of the efforts of our entire team including our operators whose many contributions have positioned us to drive significant shareholder value over the next several years i will now turn the call over sean sean thanks leslie

To start, our comparable numbers include our 96 hotels owned throughout the fourth quarter. Our reported corporate adjusted EBITDA and FFO include operating results from all sold and acquired hotels during RLJ's ownership period. We were pleased to report strong fourth quarter operating results, which once again demonstrated the runway for growth embedded in our urban-centric portfolio. Our fourth quarter rep part growth of 5.2%, was driven by a 1.5% increase in ADR and a 3.6% increase in occupancy. Fourth quarter occupancy was 69.3%, which was 92% of 2019 levels. Average daily rate was $193, achieving 107% of 2019, and REVPAR was $134. which achieved 99% of 2019, the highest level since the start of the pandemic. In particular, our urban markets outperformed, with REVPAR exceeding 2019 levels at 101%, including ADR at 111% of 2019. REVPAR and most of our urban markets exceeded 2022, including Boston at 121%, Los Angeles at 118%, Pittsburgh at 119%, San Francisco at 113%, Denver at 110%, New York at 104%, and Washington, D.C. at 105%. Monthly Red Park growth throughout the fourth quarter exceeded 2022 for each month. Red Park growth was 6.4% in October, 5.6% in November, and 3% in December, and achieved 101%, 96%, and 99% of 2019 levels during October, November, and December, respectively. Similar to RevPAR, our monthly total revenue growth above 2022 benefited from continued out-of-room spend and was 7.6% in October, 5.3% in November, and 3.7% in December, and achieved 102%, 96%, and 100% of 2019 levels during October, November, and December, respectively. We were encouraged by the start of the year, where we saw a positive momentum in January, which is always a seasonally slower month, with REVPAR growth of 5.8% above January 2023. January REPAR was driven by occupancy of 62% and ADR of approximately $191, representing 104% and 102% of January 2023. Turning to the current operating cost environment, recent inflationary pressures continued to normalize during the fourth quarter. On a per-occupied room basis, total hotel operating cost growth was limited to 3.4%. which is 260 basis points lower than the third quarter. Underscoring the benefits of our portfolio construct and our initiatives to redefine our operating cost model, total fourth quarter hotel operating costs were only 4.3% above 2019 levels, meaningfully below the aggregate core CPI growth rate since 2019. Drilling down further into hotel operating expenses, Fixed costs, such as insurance and property taxes, were the most significant driver of the year-over-year increases in hotel operating expenses, increasing 16% during the fourth quarter. The increases in fixed costs are impacting most industries and are not specific to the lodging industry. We are encouraged by the trends on the more controllable, variable hotel operating costs, which grew 6.6% above 2022. are only 2.8% on a per occupied room basis. Finally, fourth quarter wages and benefits, our most significant operating costs at approximately 40% of total costs, remain generally in line with 2019 levels at 104%. There are many factors that influence these positive results, with the most significant contributors being the successful restructuring of many of our third party operating agreements and our lean operating model with 18% fewer FTEs than 2019. Our portfolio remains well positioned to maintain fewer FTEs given our lean operating model, smaller footprints, limited F&B operations, and longer lengths of stay. Our fourth quarter operating trends led our portfolio to achieve hotel EBITDA of $89.6 million and hotel EBITDA margins of 28.1%. We were pleased with our operating margin performance, which was only 93 basis points lower than the comparable quarter of 2022, despite continued cost pressures. Turning to the bottom line, our fourth quarter adjusted EBITDA was $79.2 million, and adjusted FFO per diluted share was 34 cents, which came in towards the high end of our guidance. During 2023, we were very active in managing our balance sheet to create additional flexibility and further lower our cost of capital, which included extending $425 million of mortgage debt, recasting our $600 million corporate revolver, and entered into a $225 million term loan. The execution of these transactions is a testament to our strong lender relationships and favorable credit profile. We also took advantage of interest rate volatility to proactively manage our interest rate risk by entering into $525 million of new interest rate swaps during the year. Turning to 2024, we will extend our $181 million of mortgage loans and are in the process of refinancing our $200 million secured loan, which is on track to wrap up during the second quarter. Today, our balance sheet is well positioned with an undrawn corporate revolver Our current weighted average maturity is approximately 2.9 years. 81 of our 96 hotels are unencumbered by debt. Our weighted average interest rate is an attractive 4.12%, and 89% of debt is either fixed or hedged. As it relates to our liquidity, we ended the quarter with approximately $517 million of unrestricted cash, $600 million of availability on our corporate revolver, and $2.2 billion of debt. With respect to capital allocation, as Leslie said, we remain committed to returning capital to shareholders through a combination of both share repurchases and dividends. During the fourth quarter, we were active under our $250 million share repurchase program and repurchased approximately 930,000 shares for $9.9 million at an average price of $10.69 per share. In total during 2023, we repurchased approximately 7.6 million shares for $77.2 million at an average price of $10.20 per share. Additionally, we ended the year with a quarterly common dividend of 10 cents per share, which is well covered and supported by our free cash flow. We will continue making prudent capital allocation decisions to position our portfolio to drive results during the entire lodging cycle while monitoring the financing markets to identify additional opportunities to improve the laddering of our maturities, reduce our weighted average cost of debt, and increase our overall balance sheet flexibility. Turning to our outlook, based on our current view, we are providing full-year 2024 guidance that anticipates a continuation of the current operating and macroeconomic environment. For the full year 2024, We expect comparable REVPAR growth between 2.5% and 5.5%, comparable hotel EBITDA between $395 million and $425 million, corporate adjusted EBITDA between $360 million and $390 million, and adjusted FFO per diluted share between $1.55 and $1.75. Our outlook assumes no additional acquisitions after the Wyndham-Boston and no dispositions, refinancings, or share purchases. We estimate 2024 ROJ capital expenditures will be in the range of $100 million to $120 million, and net interest expense will be in the range of $91 million and $93 million. Our net interest expense will be above 2023 due to the impact of expiring swaps that had lower interest rates. With respect to the cadence for the year, we expect 2024 to follow similar quarterly seasonal patterns as 2023, other than the first quarter, which will be impacted by the timing of Easter and difficult comps to the significant growth rates during the first quarter of 2023. Finally, please refer to the supplemental information, which includes comparable 2023, 2022, and 2019 quarterly and annual operating results for our 96 hotel portfolio. Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator?

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