Welcome to the RLJ Lodging Trust Third Quarter 2017 Earnings Call. [Operator Instructions] The conference is being recorded. I would now like to turn the conference over to Hilda Delgado, Treasurer and Corporate Vice President of Finance. Please go ahead.

Thank you, operator. Welcome to RLJ Lodging Trust third quarter earnings call. On today's call, Ross Bierkan, our President and Chief Executive Officer, will discuss key highlights for the quarter. Leslie Hale, our Chief Operating Officer and Chief Financial Officer, will discuss the Company's operational and financial results. 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 has 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 from last night. I will now turn the call over to Ross.

Thank you, Hilda. Good morning, and welcome to our third quarter 2017 earnings call. This quarter was transformative for RLJ, as we completed our merger with FelCor. I want to thank all of our shareholders, for their support of this transaction. I also want to thank our employees, who worked tirelessly to make this merger possible. And who continue to work to ensure a smooth integration. We are truly excited by what lies ahead. Over the years, we’ve remained committed to our investment strategy of owning high-quality premium-branded, focused-service and compact full-service hotels. That have high margins and are located in attractive markets with multiple demand generators. Historically this segment, which is primarily rooms revenue focused has maintain strong topline growth coupled with robust margins. As one of the weak, volatile segments in the industry, we expect to continue to benefit from this model, regardless of where we are in the lodging cycle. Overtime, we've consistently enhanced our portfolio, quality and cash flow growth profile through a mix of strategic acquisitions and dispositions. Our merger with FelCor, is a continuation of our disciplined approach. We're excited that the merger not only adds brand and market diversification but also compliments our differentiated investment strategy. We believe, that the diversification, scale, the value creation opportunities and strong free cash flow profile should continue to drive superior long-term risk adjusted returns. Now with respect to our merger update, our integration efforts are well underway. Our team is working diligently through an extensive integration across all functional areas, including accounting, finance, asset management and design and construction. Within each function, we are well along in combining systems, processes and staffing. Our team also remains laser focused on our larger strategic initiatives, that will drive long-term shareholder value. While these initiatives will naturally take time…

Thanks Ron. First, I’d like to reiterate that we are excited about the direction of the company and the platform we are building to drive continuous growth. I am proud of the team we have in place as well as the new team members who are joining us. One of our recent key additions includes Tom Bardenett, who joined us as Executive Vice President of Asset Management. Tom is a respected industry veteran who brings broad industry and operational experience well suited for our portfolio. We're excited to have Tom as part of our senior team. Now turning to our financial performance for the quarter. Before discussing our operating results, I would like to highlight for listeners that our pro forma operating results for the quarter include the addition of the FelCor assets for the fourth quarter. However, corporate results such as FFO and EBITDA include only one month of FelCor results. In the third quarter, RevPAR for our combined 158 hotels declined 1.9%. July was a softest month with RevPAR declining by 2.9% as of 4th of July holiday fell on a Tuesday this year impacting both group and corporate transient demand. August was relatively flat, while September experienced a 2.4% RevPAR decline, largely due to the shift of the Jewish holidays and the two hurricanes. Adjusting for the hurricane disruption RevPAR in September would have been flat. In light of all the moving pieces this quarter, we are highlighting results of both respected portfolio. On a standalone basis third quarter RevPAR for the legacy RLJ assets declined by 2.3% and RevPAR for the FelCor hotels declined by 1.4%. We were pleased with the lift from our newly acquired hotel, which further affirms the benefit of portfolio diversification both geographically and from a brand and business mix standpoint. From…

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question today comes from Tyler Batory of Janney Capital Markets. Please go ahead.

Thank you, good morning, and congratulations for the team on closing the merger. So I wanted to ask first just on asset sales. Ross, if you could just comment on what you're seeing out there generally and also comments on interest from foreign investors in some of our properties as well?

Right. Thanks, Tyler. In general, the market is very active. There is significant capital out there and it's chasing a few different types of investments. I guess, the first would be value add. There's a lot of investors that are a little bit reluctant to simply make a market bet, but they're looking for value add as a catalyst, something that they can effect in the outcome of the hotel that would drive value. And fortunately, we have a few assets like that in our pool of disposition candidates. Next is there's other investors that are looking for yield, truncheons of yield. And out of our legacy portfolio of RLJ assets, some of our select-service fit that bill and we feel good that they'll attract attention over the next 12 months. There's always an appetite of course for luxury assets and that's where [Audio Dip] in capital of course. And The Fairmont Copley in Boston fits the bill and it has attracted a lot of attention. What we did see though in the last quarter was that some of the foreign capital activity was a little more subdued. I think China was on the sideline as they gathered for their most recent Congress and Jinping ascended to Mao-like status. And everything was on hold until they convened, and it will be interesting to see over the next month or so what kind of direction he provides to the active investors that we're all familiar with now, and whether or not he basically unleashes them to continue with their international activities. But indications are favorable in that direction, but yet to be seen. Middle Eastern buyers quieted down a little bit. There was quite a bit of conflict in the gulf between the Saudis and the Qataris. The Korean and Japanese investors quieted down over the unrest. It's easy to forget weeks later how tense things were getting in North Korea, but that had a chilling effect as well. So the foreign capital quieted down, but we expect it to come back in pretty robust fashion at the turn of the year. But in general, in general, the capital markets activity is good despite that. Lot of equity out there, debts affordable and buyers are active, a lot of private equity, a lot of high net worth, and even some of our peers in the REIT world are still active in the external growth business.

Okay, great, that’s very helpful. And then just as a follow-up on, I want to ask about Houston, a little bit curious. What you’re seeing into October in that market? And then also curious your thoughts on potentially how long the demand left could last there? Just comment about hurricane there.

Yes, you bet. October was great of course. We were up frankly, call it, 30%-ish area, and congratulations to the Astros too on their first World Series. But it’s interesting, the booking window on the recovery business is actually pretty short. When you look at what’s literally on the books there’s quite a bit of fade towards the back end of the quarter. But based on our experience with FEMA and some of the other recovery agencies, we are expecting the tail to last through the quarter, after that it’s hard to gauge. But we think it would be a big boost to the fourth quarter for sure, and we’re hoping of course that it – that its spreads into the first quarter of next year. But we don’t have the business on the books to prove it. It seems to be booking at this point week to week.

Okay, great. That’s all for me. Thank you.

The next question is from Wes Golladay of RBC Capital Markets. Please go ahead.

Hi, good morning, everyone. So sticking with that Houston question, it looks like that could add about just the October month alone about 60 to 70 basis points to your quarter. And to be clear you’re not guiding for Houston to be strong in the November-December based on the booking patterns?

That’s right. We’re actually tempering pretty considerably our expectations there until we’ve got hard evidence, Wes, until it actually materializes. So our projection for the fourth quarter for Houston is low double digits, but that’s about as aggressive as we want to get.

Yes, fantastic. And then looking at that commentary about the 14 multiples of the non-core assets; is that on the in-place cash flow or a normalized post CapEx cash flow? And then on the balance sheet, can you remind us of your leverage goals because you’re – looks like you’re buying stock now – not now, but you were willing to buy in the quarter.

Right, right, I’ll take the first part of that. It’s on in-place, in place. The 14 assets – in-place cash flow and then Leslie you want to talk about leverage?

Yes. So, Wes, we did in the quarter at 4.1 times on net debt to EBITDA basis. So that’s generally a timing issue as we deploy capital into the portfolio as we expect to do. That will move up a bit, but as we pay off the bonds, which we anticipate doing next year that will bring us back down. So there’s a little bit of timing in that number. Yes, we did buy back shares this quarter. We obviously felt that we were severely significantly undervalued. And as long as our debt metrics stay within acceptable level, you may see us to be active to the extent that we continue to see our shares trade at these depressed level.

Okay Thank you.

The next question comes from Bill Crow of Raymond James. Please go ahead.

Hey, good morning, folks. I got in late, so if you've addressed this, I apologize, but I had two questions for you. One was in your prepared remarks you talked about the completion of the Convention Center work I think it was Miami, Louisville and San Francisco. And if you could just talk about the group dynamics as you look into 2018, how much impact does that have on your assets in those markets? That will be the first question.

Yes, I appreciate it, Bill. I guess I will start with San Francisco, that’s a market of interest for a lot of folks. And we’re real pleased to have increased our footprint in the Northern California area as a result of the merger. It’s interesting that the pace in San Fran is actually picking up prior to the reopening of Moscone. Second and third quarters next year look pretty good and we expect to participate in that. Although we did as part of the merger pick up at 400 key Marriott Union Square. And to their credit FelCor had initiated renovation there which we’re continuing and we are going to be under renovation through the second quarter of next year, so we’ll have a little bit of displacement in Q2. But the business picking up earlier than expected in San Fran. Fourth quarter ironically might underwhelm because, it’s benefiting this year from sales force, which is a huge conference that moved from the third quarter to the fourth to accommodate just shipping venue availability this year and it will move back to the third quarter next year, so it will be a tough comp in the fourth quarter. But then of course 2019 is off the charts. So that’s sort of the trend. Strong Q2 and Q3 in San Fran next year to be determined in Q4 then just an amazing 2019. In Louisville, the Convention Center does reopen in the second half, but the booking phase so far in the second half of Louisville is not great. There seems to be sort of a show me attitude among meeting planners about getting that work done. And so it's not going to be lights out. But we are currently renovating extensively our Marriott Louisville both public spaces and guest rooms that connect – that is connected to the Convention Center. And the hotels done an amazing job, even while under renovation, while the Convention Center is dark of booking in-house group business and they're planning to do that more in the second half of next year. Miami, still on schedule to reopen in the second half of next year, we're definitely looking forward to it. I confess; I don't have good city-wide group numbers yet for Miami as it relates to the pace on that market. So we'll have to get back to you on that.

All right thanks. The second question and you kind of led me there a little bit in your answer on the first one when you’re talking about inheriting a redevelopment repositioning project in San Francisco. And so I wanted to ask about the Vinoy here in St. Pete. And I’m sure you know two days ago voters approved to referendum will allow you to add a parking deck, a bunch of tennis courts on top of it, and really is part of a much larger repositioning there at least that's how it was sold to the voters. So I'm just curious that was one that the seemed to be kind of a poster trail for assets sales from the required portfolio and I’m just curious how committed you are to undertaking that investment in repositioning that assets even further.

So I guess this is where I announce that we're becoming a tennis resort REIT.

Yes, exactly.

Exactly. No. We're very pleased with the outcome of the referendum because it'll be great, not only for the resort but for the city of St. Pete, which has just flourished over the last five years to ten years and is under parked as a community. And so it was sorely needed. I think it's a big reason the referendum got passed is because it was widely recognized throughout the city that would be a great amenity. And of course it's going to benefit the resort in a big way. But, no. RLJ recognized right up front that there were, let's call it, seven assets that were not compliant with our strategy either from a positioning or because of the margins that they run, and that were candidates for sale. And the Vinoy as much as it's a beautiful historic resort, in a great location in a market that's trending in the right direction. It is a sale candidate for us. And what – we are finishing up some work that was surely needed, a tower of guest rooms, the renovation is coming to completion. We’re upgrading the fitness center and the spa. A restaurant, under FelCor’s leadership a restaurant was designed and is close to completion. And quite a bit of out door exhibition space. And are operated their Marriott, very excited about the improvements but we'll be looking over the course of 2018 to sell the upside, sell the vision, sell the opportunity to someone who is in the resort business. When we look at our asset disposition, targets it's about a 12 to 18 month horizon. The resorts have a little bit more complexity to them both the Vinoy and Kingston Plantation in Myrtle Beach. And the queue of disposition activity, we see the resorts being towards the later part of the queue in order to for the CapEx projects to be seasoned, in order for us to get our hands wrapped around the upside opportunities in the assets. So that we could bake them into the proposal and the offering memorandum that we're going to put out when we list the assets.

Perfect. I appreciate your time, thanks.

The next question is from Michael Bellisario of Robert W. Baird. Please go ahead.

Good morning, everyone. Just on the margin front in your updated guidance kind of a housekeeping item first, I know the addition of the FelCor portfolio is bringing the numbers down but maybe how did your margin outlook change on a comparable basis quarter-over-quarter.

Michael, are you asking if we exclude the seven assets that we are selling, how did it compare.

No, just I mean you brought down the pro forma hotel EBITDA margin range by 250 bps. If you're just looking maybe at the legacy RLJ assets, how did that, how did your expectations for those margins maybe come in the third quarter and then any change in your outlook for the fourth quarter.

Yes. I mean for our third quarter, our portfolio all the legacy would have been down 127 basis points year-over-year. Part of your question Michael you said was on the full-year side.

Yes, I just how did that 127 basis points compare to your expectation and has your outlook for the fourth quarter in the margin front changed at all specifically for RLJ assets, just trying to bridge the 250 basis points – headline reduction there. I know that's not comparable, but just trying to get our arms around, how your view changed on a comparable basis would be helpful?

Yes, I would say that for the third quarter it was inline with our expectations and for the full year was still in target. As you may, recall for fourth quarter though within our legacy portfolio, we obviously had a hurdle because of the tax true up, but by and large our margins are holding.

Got it. And then the seven non-core FelCor assets that you’ve mentioned, how should we thinking about those seven relative to the $300 million to $500 million range that you provided, are all seven of those in there or there only the couple those seven in that range?

No, I would say there's a few. There is a few in there I want to remind listeners that we are not hard on this transaction, until August 15, and closed on September 1. And we're really, pleased with the progress that we've made, since then. We're actually working on various contracts on a number of assets but that $300 million to $500 million Michael is – a few of the FelCor assets and possibly even a couple of RLJ legacy assets mixed in that are going to be earlier in the queue than say the resorts, which I mentioned in my last comments.

That’s helpful. And then just on the RLJ legacy assets sales, how big do you think that bucket could be and then how much brand and more so management flexibility is there on those assets from buyers perspectives. As we try to kind of handicap values and how that might impact sale prices?

Right-right, we've identified a segment of our legacy portfolio that is non-core and it won't be sold all at once of course. We’ll optimize the timing. We’ll roll them out in bunches and but it will keep you posted, as we bring them to market but in the short-term there are just a few that have drawn particular interest, they are a mix, they are a mix of brands, and they are a mix of both unencumbered and encumbered assets.

Got it. It’s a kind of correct to think that these proceedings would be the incremental funds for additional buybacks is that the right way to kind of think about it. I know cash is fungible but in terms of timing and kind of scope?

No, I think fungible is the right word. I think the goal for RLJ is to get to that $300 million to $500 million level. Take a hard look at those high yield bonds that are callable in March of 2018, as a way to get and keep our debt ratios well. And, so really it will be once we get to that point and we know we have a clear line of sight to retiring those bonds, will we start to think a little harder about share buybacks.

That’s helpful, thank you.

The next question is from Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead sir.

Hi, good morning. Ross just sort of wrapping up all the comments that you provided as far as the synergies you expect the timing on some of the non-core asset sales as well as the lift in some of the market fundamentals, you’re expecting. Is it fair to say that you really expect the second half of 2018 is really when the lift from some of these efforts start to take place?

I think that's fair, I think you can grade us based on how asset sales proceed over the next six months and our approach towards those high yield bonds but yes when it comes to the G&A savings it's going to take a little bit of time to burn off the contracts that are in place. From a staffing standpoint, we do have transitional associates that are helping us through this process, that whose contracts will burn off between now and the second half of 2018. And from an operational standpoint absolutely we're digging in currently I mean as we said before when we underwrote this deal, we excluded from our model the operational synergies, because we knew that – that would take time and it would be a bit of a mining expedition. We're digging in now we're digging into the 2018 budgets and I mentioned the IT hard cost and run rate savings on the procurement side. We're going to save over 500,000 on televisions in 2018. We're looking at energy procurement contracts and so all of these incremental wins are going to add up and really kick-in in the second half of 2018. And we draw comfort from that if we are in a low growth environment here for a while where expense pressures versus RevPAR growth are going to be an issue all of these wins are going to add up aggregate and help mitigate the cost creep that we might otherwise see.

Now I appreciate the thoughts there and then when you think about the savings you’ve identified at this point the IT hard costs, taken together with the sale of these non-core assets, which I assume are lower margins. What's a good longer-term margin for the combined portfolios as we sit here today?

I don't have a hard answer for you, there is too many moving parts because we recognize that we're going to make some gains there. We're also going to gain margin as we sell-off the seven non-core FelCor assets, we expect that net – while I think we quoted in the prepared remarks net of those assets, our margins would have been in the 34% range. So that's all good news. On the other hand, we recognize that if we stay in a low growth environment for the next year to 18 months, we're going to have margin pressure from the other side from expense creep. And so it's really hard to pin down, I feel we'd be hanging out there a little bit if we tried to pinpoint a number.

Fair enough. And then on the $300 million to $500 million I think you were previously targeting by year-end, is that still a timetable that you expect you can achieve or if things gotten pushed out a little bit at this point?

No, I wouldn't say necessarily year-end, these things take time we're definitely making good progress but I wouldn't want to confine ourselves to a hard year-end deadline.

Great, thanks for the time.

The next question comes from Gregory Miller of SunTrust Robinson Humphrey. Please go ahead.

Thanks very much. Good evening, everyone. I’m on line for Patrick Scholes. Just one question from our end, we are curious how much your renovation and ROI plans, are being impacted by shortages in skilled construction labor either in terms of timing and costs?

I think it's a great question. I think the example of how our renovation plan – projects are being impacted is in Chicago, as Ross mentioned in Chicago we had a sprinkler leak and we had about 50 plus rooms that are offline. Part of the reason it taking us a little bit longer to get that back online, because we actually lost our general contractor, who found a more lucrative to go down to Houston and Florida area in order to get multiples and what you can make on a project up north. So we are seeing, its harder to move forward with some of the GCs, make sure we hold the labor. And Chicago is another example in the sense that getting some of supplies materials to rebuild some of the rooms is taking longer as well as the glut of material requests are building. So there's definitely an impact that is one example but our current 2017 plan is well underway and we're on target. But I think Chicago is sort of the best example of a project being impacted.

I guess it’s a silver lining Greg, we're watching the situation pretty carefully. And we do wonder how much it's going to impact new supply around the country, hotels anecdotally we know a lot of developers and they're providing sort of examples of where they're being rebid by 10% to 20% on projects that where they thought they had hard numbers. So it'll be interesting to see. I'm not sure that projects get canceled but they may get delayed and so this may sort of stretch out the new supply cycle but it may buffer it in the near-term.

Great, thanks very much. Very helpful.

The next question comes from Shaun Kelley of Bank of America. Please go ahead.

Hey, guys this is [indiscernible] on for Shaun. Thanks for taking my question. Just looking at the asset sales and trying to line up some of the commentary earlier about selling for 14 times on average for the portfolio versus this $300 million to $500 million instead of total proceed that you are expecting so wanted to see is that net proceeds, is there some sort of tax leakage, we should be sort of expecting there or I guess given all the considerations is there a potential to actually go above that sort of high-end of your range the $500 million to target range? Thanks.

Go ahead.

So just on the tax component, our transaction was a taxable transaction which allowed us to sep up the bases in the assets. And so we don’t expect much tax – there could be a little but nothing material from that standpoint.

Correct. its a net number and as far as exceeding it, obviously that’s the goal. And we are pleased with the activity that we have we are negotiating a number of contracts right now. But we are trying to stay tempered in the expectations but we are feeling good about the activity.

Great, thanks and just to confirm the $300 million to $500 million is also increased with the $92 million of sales you’re previously had had for the margin growth, right?

No, no, it's incremental to the 92.

Okay, thanks. And then just a couple other quick questions on sort of the portfolio. What sort of RevPAR level do you feel like you need to get to for 2018 to sort of get to margin neutral? Yeah…

Yeah, I mean, we've always historically said that you need at least 2% RevPAR growth in order for the whole margins, and I think that’s still consistent in our current thinking.

Great, thanks. And then sort of last one for me. Just wondering what you know what your sort of weighted average supply grid in your markets are for next year?

Yeah for next year it’s – we're looking at about 3.7, 3.8 and then fortunately it begins to taper from there. Of course it's interesting whether you use PKF numbers for the MSAs or you use your Smith Travel market tracks effects those results. So I'm quoting PKF numbers for what it's worth.

Great, thanks a lot. That’s it for me.

The next question is from Jeff Donnelly of Wells Fargo. Please go ahead.

Good morning folks. Leslie just I was curious if you guys have been actively repurchasing shares subsequent to quarter end or if you guys not really had a window to do so?

So, Jeff, the way our blackout window works is we’re blacked out certainly before the quarter ends and we're not allowed – our window doesn't open up until after earnings. We’d not bought shares after quarter ends.

Okay, I suspected. I’m just curious. And I guess – Ross, I mean, just to be more specific, can you talk about the number of assets that you guys actively have for sale on the market today and maybe the timing of assets you expect to bring to market? I'm just curious is it three more assets you expect to list this quarter or five more by [indiscernible] I'm just trying to think about how we should think about which you sort of proactively selling versus just sort of merely having a list that doesn’t sort of intended for disposition?

I appreciate that Jeff and you know I know it would be helpful to provide a very you know sort of detailed list just not in a position to do that. I can tell you that we are working on – we're working on a handful of contracts right now. We do anticipate in the first quarter of 2018 that we’ll bring other assets to market, but I'm just not prepared to be specific. I don't think it's in the best interest of the transactions to set ourselves up that way.

You know I understood. I guess that wasn't naming assets. I guess I wasn't sure how many assets you had in the market. When you say working under contract, do you mean like brokerage contracts or do you mean purchase and sale contracts?

Purchase and sale contract.

Okay. And maybe if I can ask one specific asset question as have you guys had much feedback from the market on the Knickerbocker and anything you can kind of share there with us?

I’m happy to answer that. I recognize it's a high profile asset. To be fair to the process that preceded us, there was a lot of noise around the Knicker – or you know that was affected by the merger. We think it affected the process and maybe even the pricing. And we’re experienced sellers including two New York assets last December and we were looking for a better approach. So we felt that it was better to put and select the optimal time to bring it back out probably early in 2018, fresh capital, international buyers potentially back in the market, a lot of reasons contributing to that. So it's still definitely targeted for sale for RLJ. It's a good asset. It's not so far from compliant with what we do that we couldn't justify holding it. But when you look at the arbitrage, when you look between the private value and what we're carrying it on the books here, I mean it could be a multiple north of 20 and it's definitely something that we think we should look at and there's a higher and better use for those funds.

That's helpful. Thank you.

That's all the time we have for questions today. I would now like to turn the call back over to management for closing remarks.

I want to thank you everyone for joining us today. We know it's been a long earnings season and we appreciate to having you with us and we look forward to speaking with you again at our fourth quarter earnings call and we’ll see you at NAREIT.

This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.