RLJ Lodging Trust

Welcome to the RLJ Lodging Trust second 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 John Paul Austin, RLJ's Director of Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to RLJ Lodging Trust's 2025 Second Quarter Earnings Call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Nikhil Bala, our Senior Vice President of Finance and Treasurer, will discuss the company's financial results. Tom Bardinet, our Chief Operating Officer, will also 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 pro forma operating results for our current hotel portfolio. I'll now turn the call over to Leslie.

Good morning, everyone, and thank you for joining us today. We achieved second quarter results that were ahead of our expectations, demonstrating the resiliency and benefits of our diversified portfolio. the continued ramping of our conversions, and our disciplined expense management as we focus on delivering bottom line results. In addition to our operational focus, during the quarter, we executed on several key initiatives, which included making progress on the repositioning of several key assets, further strengthening our balance sheet by addressing all near-term maturities, and opportunistically recycling capital into accretive share repurchases. Against an evolving landscape, we remain focused on driving earnings growth and executing on our capital allocation initiatives to drive long-term shareholder value. With respect to our operating results, our REVPAR decline of 2.1% in the second quarter was consistent with our expectations we had outlined on our last call. Our REVPAR was constrained largely by a reduction in room nights, driven by the ongoing transformational renovations at high-occupancy properties in South Florida, Waikiki, and New York, as well as the planned closure of the Austin Convention Center, which will significantly expand the center and further strengthen the Austin market in the coming years. Excluding these factors, RevPAR growth for our portfolio was slightly positive, outperforming the industry, and we also gained 140 basis points of market share, highlighting the strength of our portfolio. Our urban hotels continue to be the key driver of our portfolio, with RevPAR outperforming our portfolio by 140 basis points. Notably, our hotels in San Francisco, CBD, achieved 20% rep art growth, benefiting from a strong citywide calendar and improving return to office trends. We are encouraged by the ongoing recovery in Northern California, which continues to gain momentum, supported by an improving citywide calendar and a positive local business climate. We believe that the scale and trajectory of AI investment should drive sustained economic expansion in the region and support further improvement in lodging fundamentals over the next several years. We are also encouraged by the continuing positive results in our seven completed conversions, which collectively achieved 10% REVPAR growth during the second quarter, validating our ability to drive operational upside through our conversion pipeline. Relative to segmentation, we saw strong growth in leisure revenues, which were up 5%, aided by the shift of Easter into April and an elongated spring break. Additionally, leisure revenues benefited from several events, such as the U.S. Open in Pittsburgh, Formula One in Miami, the World Cup soccer games in several of our markets, and strong attendance at concerts in several markets, such as Chicago and Houston. These events especially benefited our urban leisure segments, which outperformed, achieving 7% revenue growth. These results also reinforced our conviction around urban leisure as another leg that will continue to drive outperformance in our urban markets. As it relates to business travel, underlying trends remain healthy as large corporate accounts are driving momentum in BT, especially in sectors such as consulting, tech, and defense, with return-to-office trends continuing to create incremental demand. Excluding government-related business, which remains challenged, revenues were up 3%. Our second quarter group revenues were impacted by holiday shifts, the closure of the Austin Convention Center, and the reduced demand from government-related groups. Softer group demand led to a broader lack of compression during the second quarter overall. Despite softer group demand, our non-room revenues grew by a solid 1.5%. Once again, underscoring the success of our ROI initiatives aimed at growing food and beverage and other ancillary revenues. This growth, paired with our tight cost containment initiatives, allowed our portfolio to deliver bottom line results which exceeded our expectations. Our operators were able to preserve EBITDA through the early implementation of aggressive cost mitigation efforts during the quarter, which included optimizing productivity across all hotel departments, managing F&B direct costs, and adjusting hours of operations. These and many other initiatives allowed our portfolio to achieve flat operating expense growth compared to last year, which limited our margin compression to just 90 basis points. Turning to capital allocation, which continues to be an important source of value creation for RLJ. Our four most recent conversions in Nashville, New Orleans, Houston Medical Center, and University of Pittsburgh achieved a combined REVPAR growth of 26% during the second quarter. Underscoring the significant growth embedded in our conversions, we continue to expect our conversions to generate robust double-digit returns, which should enhance our operating performance. We are on track to deliver our conversion of the Renaissance Pittsburgh to an autograph by Marriott by year end. Additionally, we are making meaningful progress on our Boston conversion and look forward to sharing an update on the brand selection during the third quarter. In the second quarter, we advanced our transformational renovations at four high occupancy properties in South Florida, Hawaii, and New York. We expect these assets to start ramping in the fourth quarter as they are delivered. Additionally, we took advantage of the dislocation in our share price to execute $6 million of share repurchases, recycling the remaining proceeds from our last disposition. And finally, we further strengthened our balance sheet by addressing our near-term maturities and paying down the remaining balance on our revolver. Our ability to successfully execute on multiple capital allocation opportunities simultaneously continues to highlight the optionality of our strong balance sheet. With respect to fundamentals for the back half of the year, our outlook is mixed as a broader macro environment remains uncertain, which is contributing to shorter booking windows and limited visibility. These dynamics will weigh heavily on the third quarter, while favorable calendar shifts, easier comps, and improved group travel will help support better lodging fundamental trends during the fourth quarter. Relative to the third quarter, we are facing tough citywide comps in markets such as Chicago, which hosted the DNC last year, as well as Boston, San Diego, and New Orleans, which is compounded by the softer-than-expected overall group demand. Additionally, Tampa and Houston will face difficult year-over-year comparisons against last year's hurricanes, which drove outside FEMA business. We expect leisure demand to remain stable, although with continued rate sensitivity, while government-related and international travel are expected to remain soft for the duration of the year. And we will also be impacted by the continuing renovations in South Florida and Hawaii and the closure of the Austin Convention Center. Against this backdrop, our preliminary July REVPAR is tracking down by mid-single digits year over year. Relative to the fourth quarter, we anticipate tailwinds from a more favorable holiday calendar, the lapping of the presidential election, strong city-wise in a number of our markets, including Northern California, and the ramp from our renovations, including Waikiki, as they are delivered. Looking at 2026 and beyond, We see an improving setup for the industry, which should benefit from a positive economic backdrop driven by less regulation, extension of lower tax rates, tariff clarity, and the expectation of lower borrowing costs to allow for business leaders to make decisions around capital planning and investment. This will occur against an extended period of constrained new supply. With this improving backdrop, our portfolio is especially well positioned for 2026 given our favorable geographic exposure and our urban footprint, which should allow us to see outside benefit in an improving demand environment. In particular, we should benefit from an improved citywide calendar and a number of our markets. A favorable footprint positioned to capture demand from a strong calendar of special events such as the 250th anniversary celebration of the United States in Boston, D.C., and Philadelphia, NBA and NLB All-Star Games in Los Angeles and Philadelphia, the NFL Draft in Pittsburgh, the Super Bowl in San Francisco, as well as the World Cup matches across several of our markets. The ramp from our eight completed conversions, including the autograph in Pittsburgh, which should drive incremental growth in our portfolio. and the ramp from our high-occupancy renovations in South Florida, Hawaii, and New York that will be completed in 2025. Additionally, we remain constructive on Austin's long-term outlook as the city continues to benefit from economic expansion, including a thriving tech sector. While the Convention Center renovation will continue to weigh on near-term results, The facility will double its current size and is expected to reinforce Austin's position as a regional economic engine and generate meaningful future demand, particularly across our footprint. Moreover, our portfolio's lean operating model and our relentless focus on cost containment will enable us to drive much of this expected improvement to our bottom line and generate significant free cash flow. We remain confident that our portfolio construct, operational discipline, and embedded growth drivers will allow us to look through any near-term volatility and continue to create long-term value for our shareholders. With that, I will now turn the call over to Nikhil. Nikhil.