Thank you for standing by. This is conference operator. Welcome to the RLJ Lodging Trust Third Quarter 2018 Earnings Conference 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. [Operator Instructions] I would now like to turn the conference over to Nikhil Bhalla, Vice President of Finance. Please go ahead.

Thank you, Operator. Welcome to RLJ Lodging Trust’s third quarter 2018 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, Chief Financial Officer and Treasurer will discuss the company’s operational and financial results. Tom Bardenett, our Executive Vice President of Asset Management 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 from last night. I will now turn the call over to Leslie.

Thanks, Nikhil. Good morning, everyone, and welcome to our third quarter earnings call. We had a very active and successful third quarter on a number of fronts as we not only solidified our team, but we also exceeded all of our key objectives for the year ahead of the timeline we had expected. Specifically, we sold four assets for approximately $340 million during the third quarter and another asset for $75 million in October. In aggregate, we have sold five assets for approximately $415 million since the end of the first quarter, exceeding our original goal of generating an incremental $200 million to $400 million of proceeds from asset sales by year end. We executed these recent dispositions at a highly accretive multiple of 17.5 times in aggregate. Over the last 12 months, we have sold eight assets at a combined multiple of 16.5 times, well ahead of the 14 times we had initially targeted. The high multiples we have achieved on these asset sales has enabled us to de-lever accretively. In total, we have reduced our debt by $550 million as of the end of the third quarter, once again exceeding our 2018 goal of $500 million. Our current debt-to-EBITDA ratio stands at a very healthy 3.5 times. Additionally, we have realized $22 million in annualized G&A savings as of the end of the third quarter. And we are working diligently to capture the operational synergies that we have previously outlined. And finally, we expect to complete our capital plan for the year on time and on budget, which will further position our portfolio for long-term growth. We are energized by the tremendous progress we have made in executing a thoughtful plan we had laid out to unlock value in our portfolio, strengthen our balance sheet and position our…

Thanks, Leslie. We are pleased that our third quarter results came in ahead of our guidance which we’ve revised in October. As mentioned earlier, the third quarter was fairly noisy due to difficult comps in markets impacted by prior year hurricanes, holiday shifts and Hurricane Florence. Additionally, we had disruption from planned renovations in our portfolio. Our third quarter RevPAR contraction of 0.8% was driven by a 1.6% decline in occupancy, partially offset by a 0.9% increase in ADR. RevPAR grew 0.4% in July, but contracted by 0.4% in August and 2.5% in September, which more than offset July’s growth. For the year-to-date period ended September 30, RevPAR was essentially flat at 0.1% down. I’d like to provide some color on the impact of the transitory items on the quarter. First, we estimate that Hurricane Florence negatively impacted our third quarter and full year RevPAR growth by approximately 40 basis points and 10 basis points respectively. Our hotels in Charleston and Myrtle Beach were subject to mandatory evacuations leading up to enduring the hurricane and access to Myrtle Beach was limited for several weeks following the storm. We were expecting significant RevPar growth in September due to record group bookings in Myrtle Beach and prior year hurricanes hitting Charleston, which magnified the disruption. Second, our portfolio faced top comps tied to hurricane-induced demand in September, most significantly in Houston. Third, the shifting of July 4 and the Jewish holidays impacted our performance. Despite the choppy a top-line environment, our cost control initiatives exceeded our expectations, while portfolio generated a solid EBITDA margin of 32.3% during the third quarter which contracted a 183 basis points from the prior year. Total operating cost increased just 2.4%, a testament to our asset management team and the cost containment initiatives in place across our…

At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Austin Wurschmidt from KeyBanc Capital Markets. Please proceed with your question.

Hi. Good morning, everyone. First, you’ve had some success selling assets, and Leslie you clearly talked about there is still more work to be done on the non-core asset sales. But I’m curious how now capital allocation priorities may have changed now that you’ve exceeded your target for debt repayment as well as leverage and given the move in the stock price as of late?

Hey, good morning, Austin. Just as a reminder, we did lay out a thoughtful plan to strengthen our balance sheet by paying down our debt by $500 million and we just achieved that this quarter. Maintaining our leverage gives us tremendous optionality relative to capital allocation opportunities. As we look forward, Austin, we want to make sure that as we deploy capital we’re doing it in a way that creates durable and recurring benefits. And we want to make sure that we’re driving not only operating metrics, but we’re also driving NAV appreciation over time. We’re going to thoughtful as we look forward about looking at all the options that are available to us including buying back stock, investing in our portfolio and also possibly paying down incremental debt. None of these options are mutually exclusive. When looking at sort of buying back debt, it’s a great tool to return capital to shareholders. We have capacity under our program. We want to do it on a debt neutral basis. And you are right, given the pull back in the stock, it’s more attractive today. Having said that, as we look at our portfolio today and given the recent acquisitions we’ve done, we have tremendous embedded value in our portfolio where we have ROI projects, we have conversion opportunities, we have pure real estate plays as well. Additionally, when we look at our capital stack, we have some prefers and we have some bonds that are trading at high coupons which we could pay down accretively as well. So, we’ll look at all of those options Austin as we get more acquisition proceeds, I’m sorry, disposition proceeds. Our disposition pipeline remained strong and we’re pacing towards selling the remaining assets by the end of the first quarter. But our balance sheet is strong and it gives us optionality relative to all of those options.

Thanks, Leslie. I appreciate the commentary there. And then second one just on Louisville. It’s been a market we spent a good bit of talking about heading into 2019, but you guys flagged some incremental softness this quarter. And I wish -- I was hoping you could give some additional details as to what you’re seeing on the ground and if that’s any way change your outlook into 2019?

Well, it has not changed our outlook into 2019, but I’ll tell you that third quarter was obviously impacted by the renovation of one Marriott Louisville, which is one of our largest assets. We also saw -- we had some really good production from the Ford business last year and some of our non-CBD assets and we weren’t able to replace that business this year because of the incremental supply that we saw in the market, I mean that’s what happened in third quarter. In the fourth quarter, Louisville is going to be comping against a very big 11% that we were up last year and we’re going to continue to have our renovation of the Marriott Louisville. And so -- and citywides are down as well. So, overall, when we look at the combination of comping against up being 11% last year, soft citywides, continued renovation and the incremental supply in the market, we think all of those things are going to make Louisville soft for the fourth quarter. Having said that, we still feel very good about Louisville in 2019 given the renovation tailwind, as well as we’re seeing strong in-house group picking up for us in Louisville, and Tom will give you some more color on it as well.

Yes. Austin, to bolt on to what Leslie said, with the convention center opening up in August, they added 50,000 square feet of additional space which is basically a 6% increase and really enhances the exhibit hall there. What we’re looking at for them is about 112 events that are contracted through 2024 and 84 conventions are going to give us an estimated about $250 million economic impact. And what we’re seeing on the ground is new groups coming to Louisville that have not been there before. We got a variety of different association groups from college admissions, college teacher education and a variety of guests associations as well with utility commissions and Southern Gas. So, we’re encouraged based on our group pace at the hotel as well as the citywide starting to ramp up. We’re indicating that we’re going to be up about 18,000 rooms year-over-year which is pretty significant 2019 to 2018. Now mind you we were under renovation so we should expect those numbers to be significant, but we’re also pacing really nicely to the last two years. We’re seeing that our ADRs are going to be up and we’re encouraged based on what’s going on in Downtown Louisville. So, with our 2019 footprint with Marriott Louisville should give us the positive move that we’re looking for based on our renovations that we’ve set up.

Thanks. That’s helpful. And then just last one. Would you care to provide RevPAR growth for October?

Yes. I mean obviously, Austin our guidance implies that the fourth quarter will be negative and I would say that October is looking at being down low-single digits which is consistent with the implied guidance.

Great. Thank you, guys.

Our next question comes from the line of Michael Bellisario from Baird. Please proceed with your question.

Good morning, everyone. First on the Fisherman’s Wharf sale, can you kind of explain the structure there and the difference between the gross and net proceeds and then what ultimately will hit your cash balance when we see the numbers come out at year end?

Sure, Michael. This is Sean. So, the $75 million was the gross sales price for the Annex building which was 243 rooms. The other building on Columbus, the ground lease expired and we are -- and that got transferred back to the ground lessor. The $75 million it was the gross proceeds, the net was a little over $30 million. The difference between those two was a portion of the proceeds was used to buy the ground lessor out under the Annex building. So, the 2018 multiple that we quoted and three tenant room is based on the allocated portion of the EBITDA related to the 243 rooms and adjusted for the ground lease.

Okay. That’s helpful. And then just back to the capital allocation conversation. What are you seeing on the pricing side for potential acquisitions and maybe put that on its head based on also what you’ve seen as you’ve been selling hotels too. What are the signals that you are looking for specifically on the macro front to help you determine whether you should be buying hotels, buying your stock back deleveraging further? What are you keying up over the next three to six months as you complete your remaining asset sales and decide what to do next on the capital allocation front?

Yes. Michael thanks for the question. I would say, just I want to remind you that we just did a major acquisition. We acquired 37 assets and we’ve obviously been talking about the assets that we have sold, but we’re most excited about the assets that we’re keeping. And so, I would say rather than kind of focusing on buying incremental assets, which is obviously always an option for us really focus on harvesting the value that’s in our portfolio. As I mentioned before we have ROI projects that are embedded in the portfolio associated with the reimaging of the Embassy Suites. We have conversion opportunities to up ran a few of the hotels. We also have some real estate place. So, I would say that’s really sort of the alternative for us as we focus where our focus is today. Clearly, when you’re looking buying back stock like we’re looking at making sure that there is a meaningful discount, making sure that we understand what the next -- is there next leg to drop in the sector relative to where the stock is trading at. And so, there is a variety of factors that are associated with that. But again, what I would say to you is that it’s not mutually exclusive. Given the strength of our balance sheet, given the strength of our pipeline, there is nothing that says we can’t do both.

Thank you. That’s all for me.

[Operator Instructions] Our question comes from line of Chris Woronka from Deutsche Bank. Please proceed with your question.

Hey, good morning, everyone. Wanted to ask if maybe we can get your outlook on supply growth and your market for 2019 and if you maybe have a forecast for 2020?

Yes. What I would say is that we are looking at about 3% supply growth for 2018. And given the sort of delays in starts and finishes is really a blur between 2018 and 2019 and beyond. What I would say is that we expect 2019 to be of a similar trajectory as 2018 in terms of overall, for overall portfolio. Clearly there are some headwinds that are building up relative to supply relative to material cost and labor cost which is helpful in terms of bringing down new supply. But the reality of it is given the delays in starts and finishes being able to kind of look out on a market by market basis becomes challenging. What I would say to you is that there are five markets that are going to be generally in line with the overall market; DC, Northern California, Southern California, Chicago and South Florida. Where we’re having the most supply impact is Louisville and Austin and where those markets are elevated this year and they’ll continue to be elevated next year. They are on a downward trajectory.

Okay. That’s helpful. And then just kind of a follow up on that, agree that some of the materials cost pressures in labor are probably going to help constrain supply going out. Does that also -- does that impact you when you think about the renovation and some of the repositioning you’re talking about is that a major impact or do you think you can mitigate through that?

Yes. Clearly, the incremental cost around materials and labors is affecting us as well. What we’ve tried to do is lock-in our labor as early as possible as we know what our renovation program is. And clearly, given the sort of trade wars we’re also seeing incremental increase in materials around FF&A in particular. And we are trying to manage around that as best as we can in light of the current circumstances.

And Chris, to add on to Leslie’s commentary, one of the key attributes of the FelCor acquisition was a lot of the embedded growth within that portfolio and that was critical to how we thought about the deal. And so, when we look at allocating capital towards internal growth, we clearly factor in the incremental cost and the risks of tariffs and labor shortages et cetera. But we still feel there is compelling internal growth opportunities within that portfolio, as well as within our legacy portfolio as well. So, we’re pretty bullish on our ability to create value.

Okay, very helpful. Thanks.

Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the call back to management for closing remarks.

Thank you everybody for joining us on the call today. We hope to see many of you at NAREIT to the extent that you have availability on Friday, we are conducting property tours. Please reach out to us if you’re interested in joining us. Thank you everybody.

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