RLJ Lodging Trust

Welcome to the RLJ Lodging Trust fourth 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's Senior Vice President, Finance and Treasurer. Please go ahead.

Thank you, Operator. Good morning and welcome to RLJ Lodging Trust 2024, fourth quarter and full year 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 Bardnett, 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 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 reconciliations to GAAP located in our press links. Finally, please refer to the schedule of supplemental information, which includes performer operating results for our current hotel portfolio for 2024. I will now turn the call over to Leslie.

Thanks, Nikhil. Good morning, everyone, and thank you for joining us. We are very pleased with our fourth quarter results, which once again demonstrate the consistent and positive momentum in our urban-centric portfolio. Our overall performance in the quarter culminated a year where we accomplished a number of key objectives. This year, we achieved top quartile repart growth that outpaced the industry while also expanding market share. We acquired the Hotel Teatro in Denver. We completed three conversions in Houston, New Orleans, and Pittsburgh, bringing our total completed conversions to six. These assets achieved robust repart growth of over 10% in 2024. We also advanced our next wave of conversions within our multi-year pipeline, including our Nashville and Boston assets. Additionally, we addressed all of our 2025 debt maturity. We creatively recycled disposition proceeds into share repurchases, and we enhanced shareholder returns by increasing our quarterly dividends. Our solid performance this year highlights our portfolio's strong positioning relative to our ability to capture the evolving travel dynamics. while our capital allocation demonstrates the optionality that our strong balance sheet provides to pursue multiple channels of growth and enhance shareholder return. Now, turning to our operating performance, our REVPAR grew by 2.2% over the prior year, led by our urban markets, which represent two-thirds of our portfolio, and achieved 3.7% REVPAR growth during the fourth quarter. Urban markets continue to benefit from improving trends across all demand sectors, including corporate travel, robust group demand fueled by city-wide, as well as other entertainment-related events. Additionally, the evolving travel patterns derived from work flexibility are also driving urban leisure demand, benefiting our urban lifestyle hotels that represent 40% of our portfolio and achieve 4.5% rep part growth during the quarter. These positive trends allowed many of our top urban markets to generate double-digit repart growth. Within the quarter, November achieved positive repart, enabled by better-than-expected performance against a muted outlook for group and business travel around the election. December was especially strong, and we were pleased to see this momentum carry into January, which achieved 3.2% repart growth over last year. From a segmentation standpoint, BT was once again our best-performing segment, achieving 8% revenue growth over the prior year, driven by both improving demand and continued pricing power, resulting in a 7% ADR increase. Our midweek urban rev park growth of 4.1% is further evidence of improving BT. Robust demand from SMEs, the broadening of corporate travel among large national accounts, and the increasing return to office mandates continues to be a tailwind for this segment. Relative to group, despite the timing of the Jewish holidays in October and the muted demand around the election in November, our group segment performed well during the fourth quarter. Group revenues grew by 3%, led by a 1% improvement in demand and a 2% increase in ADR. Our group segment benefited from the continuing growth in small groups, as well as increases in corporate meetings and strong city-wide volume in many of our key markets, such as Houston, New Orleans, South Florida, and Southern California. Our group segment also benefited from incremental demand created by the remixing of our customer base from several transformational conversions and renovations in key markets, such as Southern California. Additionally, we were pleased with the recent performance in leisure that we saw during the quarter as our leisure revenues grew by a strong 6%, balanced between rate and demand growth. Our urban leisure revenues had a stronger pace of growth at 8%, disproportionately benefiting from special events in a number of markets. We were encouraged to see strong leisure demand, particularly around the holidays, demonstrating the continuing desire to travel by consumers. Collectively, these trends enabled our out-of-room spend to achieve robust growth of 6.3%, leading total revenues to grow by 3%, which once again outpaced our Red Park growth. This top-line growth, combined with our focused approach to managing operating expenses, allowed our EBITDA to increase over the prior year for the second consecutive quarter. With respect to capital allocations, During the fourth quarter, we officially relaunched the former Wyndham-Pittsburgh as the Courtyard-Pittsburgh University Center. We completed this conversion ahead of schedule and are already seeing early success, with its fourth quarter rep part increasing by 14% year-over-year, which is 24% ahead of 2019 levels. We expect this hotel to generate outsized growth as it benefits from its prime location on the university's campus and by joining the Marriott system. During the fourth quarter, we also advanced our Nashville and downtown Pittsburgh conversions, keeping us on pace with our cadence of completing two conversions per year. And finally, we continued to ramp our conversions in Charleston, Mandalay Beach, Santa Monica, Houston, and New Orleans, which collectively achieved robust REF PAR growth of 21% in the fourth quarter. Additionally, during the year, we utilized the flexibility of our strong balance sheets, to acquire the Wyndham Boston Beacon Hill and the Hotel Teatro using existing liquidity, to redeploy disposition proceeds, to accretively repurchase $22 million of stock, to raise our quarterly dividend by 50%, and to improve our debt maturity ladder by addressing our 2025 maturity. Our balance sheet will continue to provide us with optionality in 2025 and beyond. As it relates to external growth, we expect the transaction market to improve throughout the year. That said, as we have demonstrated, we will remain disciplined and thoughtful with respect to capital allocation. Now, looking ahead, while we expect headline volatility to persist, we are encouraged by the potential for lodging fundamentals to accelerate in a more business-friendly economic environment, assuming less regulation, lower taxes, and positive momentum in return to office mandates. However, under our baseline assumptions, We expect the lodging industry to achieve low single-digit REFAR growth with moderating operating expense growth. We believe that urban markets will remain especially well-positioned and should continue to outperform the industry in light of broad-based growth across multiple segments of demand. This year, we expect group demand to remain healthy, most notably small groups, which represents the majority of our bookings. We are encouraged that our 2025 group pace is mid-single digits ahead of 2024, with our first quarter pace up low double digits. Business transients should continue to have positive momentum and improve as return-to-office mandates increase, and leisure is expected to remain stable in light of low unemployment and a general healthy consumer. Against this backdrop, we believe that we have a favorable footprint, which positions us well for the year given markets such as Northern California for citywide room nights are up over 60% above prior year. Southern California should benefit from a strong San Diego citywide calendar and improving aerospace demand. Boston should benefit from a robust citywide calendar and improving business travel with incremental lift from industries such as biotech and higher education. And Washington, D.C. and New Orleans having benefited from the presidential inauguration, and the Super Bowl so far this year. Overall, the resiliency that our urban-centric portfolio demonstrated against a choppy backdrop throughout last year gives us confidence that RLJ is well-positioned for 2025. As we look beyond the current year, we remain positive on the outlook for lodging fundamentals, given the broader consumer trends that continue to favor experiences over goods and secular trends in BT as well as . These trends will disproportionately favor urban markets, especially against a prolonged period of limited new supply. With respect to this backdrop, we are especially well-positioned, given that our high-quality urban portfolio is built to capture outsized growth relative to the industry, the continued ramp of our completed conversion, our future pipeline of conversions, and are strong free cash flow and balance sheets, which will continue to drive both internal and external growth in addition to enhancing shareholder return. I am incredibly proud of our entire team, including our dedicated operators, whose contributions have set us up to create shareholder value in the coming year ahead. With that, I'll turn the call over to Sean. Sean.