RLJ Lodging Trust

Welcome to the RLJ Lodging Trust first quarter 2025 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's 2025 First 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 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-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 performer operating results for our current hotel portfolio. I will now turn the call over to Leslie.

Good morning, everyone, and thank you for joining us today. We are pleased with our first quarter results, which came in better than we had previously anticipated, despite a weaker backdrop. The momentum for the quarter started out strong in January and February, but as is widely known, the industry began experiencing headwinds in March. Relative to these trends, we achieved rep part growth of 1.6%. This rate-driven growth, along with our diligent cost controls, allowed us to deliver EBITDA that exceeded the high end of our outlook range. In addition to achieving solid results, we also accretively recycled capital and further strengthened our balance sheet this quarter. Against a rapidly changing environment, our solid first quarter results demonstrate the benefit of our diversified urban-centric portfolio with multiple demand drivers and a lean operating model, which is allowing us to stay resilient on both our top and bottom line performance. With respect to our operating performance, our 1.6% REF PAR growth was driven by a 2.1% increase in ADR, offset by a half a point decline in occupancy. The solid rate growth during the quarter demonstrates our ability to continue to drive ADR in the current environment. January achieved 3.2% REF PAR growth, benefiting from the inauguration in D.C. and a robust citywide calendar in key markets. And February grew by 3.9%, which benefited from the Super Bowl in New Orleans. while March was down 1.3%, reflecting a lack of compression due to an elongated spring break driven by the timing of Easter, combined with an increasingly uncertain macro backdrop, which put pressure on certain pockets of demand. These dynamics continued into April. The primary driver for our first quarter performance was a strength in our urban hotels, which achieved robust rep part growth at 3.6%, with a number of our urban markets achieving high single-digit growth or higher. Despite the macro noise, urban hotels have continued to outperform the broader industry, benefiting from all segments of demand, especially from business travel, that is being bolstered by workers returning to offices, and large events continue to draw high attendance. This was demonstrated by our weekday urban RevPar, which grew by 4.9% during the quarter. Additionally, we are encouraged to see the recovery in Northern California gaining momentum, supported by a stronger citywide calendar and the improving business climate. Our first quarter RevPar growth also benefited from the strong performance at our six initial conversions, which achieved RevPar growth of 14%. Turning to segmentation, As expected, group was our best performing segment during the quarter, with revenue growth of 10%, driven by strong citywide events in many of our key markets, such as D.C., San Francisco, New Orleans, and Louisville. Relative to business travel, trends remained healthy during the first quarter, generating positive revenue growth despite the normal seasonal mix shift and the well-documented headwinds relative to government-related demand. In light of demand starting to soften in March, we were encouraged to see our leisure segment revenues increase by 2% in the first quarter, driven by ADR growth. Notably, our urban leisure outperformed, achieving 3% growth. In addition to contributing to our positive rep part growth, robust performance across all of our segments drove a 3.8% increase in our auto room spend, which contributed to our better than expected first quarter performance. With regards to capital allocation, we have been active on a number of fronts. We further strengthened our balance sheet by addressing our current maturities as well as opportunistically addressing some of our forward maturities. We also took advantage of an inbound opportunity to sell a non-core asset at an attractive 18 times multiple and redeployed proceeds into accretive share repurchases. Additionally, our 2025 conversions remain on track. With the physical renovation for Nashville in its final stages, we are already generating encouraging results with REVPAR growth of 16% during the quarter. Our confidence in our conversions is further supported by the 35% REVPAR growth that our three recent conversions in Houston, New Orleans, and Pittsburgh achieved during the quarter. As we look ahead, we acknowledge that fundamentals have moderated from our outlook earlier this year, and uncertainty persists, given the continued elevated macroeconomic risk, together with headline-driven volatility. This backdrop has reduced our visibility on the trajectory of near-term lodging operating results, and our prior guidance range does not reflect today's environment. As such, we are adjusting our full-year guidance to reflect our current outlook. With the midpoint of our new range assuming recent trends continue, thus far we are seeing our group pace remain 2% above last year. However, we are seeing a shorter booking window reflecting heightened overall uncertainty. With respect to business transients, We are continuing to see healthy demand from SMEs and large corporate accounts, as demonstrated by our midweek occupancies in the 70s and peak days on Tuesdays and Wednesdays running in the 80s. Government demand, which only represents approximately 3% of our revenues, and government-adjacent travel remain soft. Leisure demand overall has remained generally stable with urban leisure and drive-to markets performing better. However, we recognize that consumer confidence will drive forward trends. With respect to international demand, we are seeing softness. However, this segment represents less than 3% of our revenues and is concentrated in markets such as New York, South Florida, and California. Additionally, across all segments, our booking windows have shortened meaningfully as travelers digest this unpredictable environment. This is what we are seeing right now, and although conditions are currently holding, how the economic landscape evolves will ultimately determine where we end up in our full year range. While the choppy economic backdrop is causing uncertainty, when we look beyond the recent noise, we remain constructive on the longer-term outlook for lodging fundamentals. Our view is supported by the consumer preferences that continue to favor experiences over goods, along with sustained tailwinds for group and the run room for business travel to fully recover, which is well underway. These dynamics are expected to disproportionately benefit urban markets, which are better positioned with respect to the demand-supply dynamics relative to prior cycles, given an extended period of constrained new supply. Additionally, the industry-wide improvements to the revenue management mindset over the last several years should allow for continued rate integrity. Furthermore, we believe as a more business-friendly backdrop emerges, it will create a favorable operating environment. As it relates to RLJ, we have curated a portfolio and capital structure which positions us to navigate this choppy environment and create value in all phases of a lodging cycle. Our urban-centric portfolio is geographically diverse and benefits from its hard-to-demand locations with seven-day-a-week demand generators. Additionally our rooms oriented portfolio and lean operating model should result in less volatile operating results Our favorable positioning is further supported our flexible balance sheet with no near-term debt maturities and meaningful liquidity our balance sheet is primed to quickly pivot at the appropriate time in summary The industry tailwinds and RLJ's positioning will allow us to look through the near-term uncertainty and focus on delivering long-term value to our shareholders. I will now turn the call over to Sean.