RLJ Lodging Trust

Welcome to the RLJ Lodging Trust second quarter 2024 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 Senior Vice President, Finance and Treasurer. Please go ahead.

Thank you, Operator. Good morning and welcome to RLJ Lodging Trust 2024 Second Quarter Earnings Call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discover 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 TEN-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. Finally, please refer to the schedule of supplemental information, which includes pro forma operating results for our current hotel portfolio. I will now turn the call over to Leslie.

Thanks, Nikhil. Good morning, everyone, and thank you for joining us today. We were encouraged to see the industry's REVPAR growth sequentially improve during the second quarter, despite a choppy backdrop. The urban and top 25 markets once again led the way. which enabled us to achieve solid operating performance. Additionally, during the second quarter, we were active on a number of fronts, including acquiring Hotel Teatro in Denver, progressing on our 2024 conversions, as well as recycling proceeds from the sale of a non-core asset into opportunistic share repurchases, while increasing our quarterly dividend. Overall, we were pleased with our results. Specifically for the quarter, we achieved REF PAR growth of 2.6%, which was driven by gains in both occupancy and ADR. May was the strongest month of the quarter with 6.9% REF PAR growth, while June achieved positive REF PAR growth despite the impact from the Juneteenth holiday and several weather-related events. This quarter, our market share expanded by a robust 170 basis points. underscoring the relative strong performance of our portfolio. Our urban portfolio continues to benefit from all segments of demand, with growth in business and group demand driving robust REVPAR growth in our markets such as Boston, Denver, Los Angeles, San Diego, Miami, and New York, while Atlanta and Austin were held back by a renovation in each market, respectively. Relative to segmentation, BT was once again our top-performing segment during the quarter, generating outsized revenue growth of 13%, balanced with an 8% increase in occupancy and a 4% increase in ADR, as business travelers continue to expand their travel frequency. Corporate demand benefited from the ongoing expansion of travel from large corporations and resilient demand from the SMEs, which resulted in our midweek rev par growing by 4%. Our group segment had another solid quarter, achieving revenue growth of 5%, led primarily by ADR, which grew by 4.7%. Our group performance was driven by favorable city-wise and many of our markets. Several significant events across our portfolio, such as the 150th Kentucky Derby and PGA Championship in Louisville, as well as our strong in-house group base. The attractiveness of our meeting space to small groups allowed our second quarter bookings to exceed last year by 19%, with 27% of our revenue activity booked in the quarter for the quarter. Overall, group booking trends remain healthy, as demonstrated by our current 2024 booking pace of 107%, which increased 100 basis points since the start of the quarter. With respect to leisure, we were pleased with our results this quarter in light of the continuing normalization of leisure rates across the industry and increased consumer price sensitivity. Our leisure room nights were up 2%, with healthy demand coming from markets such as Southern California, New York City, and our drive-to markets such as Charleston and Orlando. Although we are facing ADR headwinds, we believe that our portfolio is ideally positioned to attract demand in this environment. which also allows us to remain constructive on leisure demand. Overall, we were pleased with our total revenue growth of 3.4%, which exceeded our Rev Park growth, driven by a robust 6.5% increase in non-room revenues. The strong growth in our out-of-room spend underscores the contribution from our ROI initiatives undertaken over the last several years which included reconcepting and redesigning of F&B venues, food offerings, and operating models. This has helped offset expense growth pressures and allowed us to generate hotel EBITDA of nearly $119 million. As it relates to capital allocation, we demonstrated the optionality that our strong balance sheet provides in the second quarter. We leveraged our pipeline of external growth opportunities to acquire the 110-room boutique lifestyle hotel, Teatra, in Denver for $35.5 million in an off-market transaction. This acquisition firmly aligns with our strategy of acquiring high-margin, rooms-oriented hotels located in hard-of-demand locations within seven-day-a-week demand submarkets. The hotel sits in a prime location within Denver's CVD, just steps from the Denver Performing Arts Complex and Colorado Convention Center, which recently completed a multi-million dollar expansion. We expect the property to achieve a stabilized yield of over 10% and should benefit from several ROI opportunities which were not included within our underwriting. We also advanced our internal growth initiatives, which are allowing us to unlock meaningful growth that is embedded in our portfolio, including Our conversions in Charleston, Mandalay Beach, and Santa Monica, which collectively achieved 10% red part growth during the second quarter and over 16% during the first half of the year. Our conversions in Houston, Nashville, and New Orleans remain on track for delivering this year. The Hotel Tunnel in New Orleans was recently completed and is already ramping well, achieving nearly 26% red part growth during the quarter. and the conversions of the Wyndham and Renaissance hotels in Pittsburgh to a courtyard and autograph, respectively, remain on schedule for delivery by next year. And we look forward to providing an update on our Boston conversion later in the year. Additionally, this quarter, we accretively recycled proceeds from the sale of a non-core hotel into the repurchase of $5 million of shares. And finally, we increased our dividend for the third quarter to 15 cents per share, while remaining well covered. Turning to our outlook, although the current economic backdrop is showing signs of moderation, we are optimistic that Red Park growth will continue throughout the balance of this year, largely driven by demand, with urban markets expected to continue to outperform the industry. Our current view is rooted in the continued improvement in business travel and strong group demand, as well as muted new supply, particularly in our footprint. That said, we expect price sensitivity for the leisure segment to persist, dampening our growth expectations relative to the beginning of the year. As such, we are adjusting our full-year guidance to reflect our current outlook. Relative to this backdrop, we expect our urban assets to benefit from the continuing improvement in business travel, as well as urban leisure demand, which remains stable. Our second half should benefit from strong city-wides in several markets, such as Boston and Chicago, and our strong booking pace, which is currently tracking double digits ahead of 2023, and the continuing ramp-up from our conversions. We are seeing these dynamics play out in our July performance. Longer term, we remain optimistic about the trajectory of lodging fundamentals. which over time should benefit from growth in all segments of demand, given the ongoing consumer preferences towards experiential travel, especially against the backdrop of an elongated period of limited new supply. I will now turn the call over to Sean.