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. Please press star zero on your telephone keypad. I would now like to turn the call over to Nikhil Bhalla, RLJ's Senior Vice President, Finance. Please go ahead.

Thank you, Operator. Good morning, and welcome to RLJ Lodging Trust's 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 Bardenett, 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 has been communicated. Factors that may impact the results of the company can be found in the company's 10-Ks 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 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 RevPAR growth that outpaced the industry, also expanding market share. We acquired the Hotel Teatro in Denver and completed three conversions in Houston, New Orleans, and Pittsburgh, bringing our total completed conversions to six. These assets achieved robust RevPAR growth of over 10% in 2024. We also advanced our next wave of conversions within our multiyear pipeline, including our Nashville and Boston assets. Additionally, we addressed all of our 2025 debt maturities. We creatively recycled disposition proceeds into share repurchases, and we enhanced shareholder returns by increasing our quarterly dividend. Our solid performance this year highlights our portfolio's strong positioning relative to our ability to capture the evolving travel dynamic. While our capital allocation demonstrates the optionality that our strong balance sheet provides, to pursue multiple channels of growth and enhanced returns. 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 segments, including corporate travel, robust group demand fueled by citywide as well as other entertainment-related events. Additionally, the evolving travel pattern derived from work flexibility is also driving urban leisure demand, benefiting our urban lifestyle hotels that represent 40% of our portfolio and achieved 4.5% RevPAR growth during the quarter. These positive trends allowed many of our top urban markets to generate double-digit RevPAR growth. Within…

Thanks, Leslie. To start, our comparable numbers include our 95 hotels owned at the end of the fourth quarter. Our reported corporate adjusted EBITDA and FFO include operating results from all sold and acquired hotels during RLJ's ownership period. We are pleased to report solid fourth quarter operating results, demonstrating the strength and resiliency of our high-quality urban-centric portfolio. Our fourth quarter RevPAR growth of 2.2% was driven by a 2.5% increase in ADR, which was slightly offset by a 0.2% decline in occupancy. Fourth quarter occupancy was 69.2%, average daily rate was $198.71, and RevPAR was $137.53. Our business transient and midweek continues to outperform. Fourth quarter business transient RevPAR grew 8% above 2023, including healthy ADR growth of 7% and occupancy growth of 1%. Total revenue growth of 3% continued to outpace RevPAR growth as a result of continued strength in out-of-room spend. RevPAR growth remained healthy in our urban markets, such as New Orleans at 27%, Chicago CBD at 19%, Houston at 18%, New York at 11%, San Diego at 9%, Los Angeles at 8%, and Louisville at 7%. Monthly RevPAR achieved positive growth during each month of the fourth quarter and was 2.2% in October, 0.3% in November, which was constrained by the election, and 4.3% in December. Our preliminary January RevPAR growth is 3.2% above the prior year. Turning to the current operating cost environment, as we expected, our operating cost growth rate continued to moderate during the fourth quarter. Our total hotel operating cost growth was only 3.9%, which underscores the benefits of our portfolio construct and our initiatives to manage our operating cost growth. Drilling down further into hotel operating expenses, as expected, prior outsized growth in fixed costs such as insurance and property taxes benefited from the lapping of difficult comps during…

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. You may press star two if you would like to remove your question from the queue. Thank you. Our first question comes from the line of Michael Bellisario with Baird. Please proceed with your question.

Good morning, everyone. Leslie, for my first question, just on your 1% to 3% RevPAR guidance. Maybe help us unpack the high end and low end. What are the puts and takes at each end? And then you mentioned a handful of tailwinds in 2025, urban, group, Northern California. Maybe where do you see the risks or headwinds potentially playing out throughout the portfolio in 2025?

Sure. You know, Mike, our high end and low end is really a derivative off of our base assumption. So, you know, our base assumption is that the momentum from 2024 continues in 2025. That we continue to see a mix of rate and occupancy and that urban continues to outperform the industry as urban is benefiting from all the different segments, it's got the most room for growth. So when we look at BT, our base assumption is that who's traveling, the frequency of travel, the length of stay, is benefiting midweek trends, and that's going to continue. From a group perspective, as we mentioned in our prepared remarks, our pace is strong with mid-single digits and we have a favorable footprint that you articulated as well. We think that on the group side, it's going to mostly be driven by rate. And that leisure remains stable and that we're benefiting from urban leisure and our conversions. So when we look at the high end, the low end on the high end, we assume that the macro conditions remain steady and that BT performs ahead of our baseline assumption both on rate and demand. And that group has a stronger demand growth in addition to rate growth, which is different from our base assumption. And that there's no real change in leisure on the high end. On the low end, you know, it assumes that the pace of growth for BT is slower and that group has less rate growth on the low end. And, you know, another variation could be if urban leisure softens relative to overall leisure. And then lastly, there's a scenario where we could have a little bit of incremental displacement from some of the renovations. But those are sort of the puts and takes, but it's all a derivative off of our base assumption.

Okay. That's helpful. And then just switching gears a little bit just on capital allocation priorities, maybe what's the stack ranking for 2025 as you sit here today, and how might that differ from what your priorities were in 2024?

Yep. Mike, what I would say is that I think we have to acknowledge that the current environment is not static. And that the backdrop just continues to evolve. In that regard, it requires us to be nimble as it relates to capital allocation and having a strong balance sheet gives us the optionality. So, you know, we have consistently demonstrated the ability to pick the right windows and use different tools. We've done it for the last couple of years and including 2024 where you saw us buy back stock with recycled proceeds from dispositions. We invested in our conversions that have yielded great results. We mentioned in our prepared remarks, they're up 10% for the full year and 24% in the fourth quarter. We acquired two assets that have expanded our conversion pipeline and we increased our dividend. And so we're going to continue to be nimble. We're going to evaluate the windows looking at the direction of the fundamentals, looking at the macro backdrop, and keeping an eye on our balance sheet. But I think that we've demonstrated the ability to do that. Obviously, as we move into the year, we've been continuing to be active on the buybacks, given where stock is trading today. But you're going to still see us be nimble and look for the right windows as we've done for the last couple of years. Thanks. That's all for me.

Our next question comes from the line of Jonathan Jenkins with Oppenheimer. Please proceed with your question.

Good morning. Thank you for taking my question. Just following up on that capital allocation discussion, the conversions continued to perform very well, and you talked in the past about your cadence of, I think, two a year and around potentially on the ten, potentially on the radar. Does that continued strength change the formula in terms of how aggressive you think about that annual cadence and potentially maybe leaning into and accelerating that pipeline going forward?

Yeah. No. I think, you know, great question. We appreciate that. I think from a cadence standpoint, the way we view it is layering in a couple per year is the right thing from both, you know, how we think about allocating our capex dollars, but also, you know, how our contracts that provide us the optionality line up. And so, you know, from a standpoint of just making sure that we have built a portfolio that is constantly sprinkling in incremental growth catalysts through conversions, we think doing that over a period of time is sort of the right way to think about it without taking too much risk in one particular year.

Okay. Very, very helpful. And then switching gears, can you help us think about the transaction market more recently? You know, how buyers and sellers' expectations have evolved as of late? And then maybe dive into your outlook of an improving market in 2025 and the key drivers of that deal?

Yeah. Look, I would say that if I look at last year, clearly interest rates improved. But the fact of the matter is that the transaction market didn't improve as much as we all thought it would be, and particularly given the fact that interest rates didn't come down as much as we originally expected at the beginning of the year. The transaction market remains choppy and the bid-ask spread remains wide. You know, we still see small deals get done, single assets. But there's really no clear themes through the transactions. You really have to look at things on an asset-by-asset basis, transaction by transaction in terms of what's the catalyst. And so while I think there's some general optimism that the back half of the year will be better than the beginning of this year, you know, I think you have to just remain opportunistic in this climate, which our balance sheet gives us the ability to do. I think that as the headline volatility reduces and we see some improvement and stabilization of margins, I think that's going to help bode well for the transaction market.

Okay. That's very helpful. Thank you for all the color. That's all for me.

Our next question comes from the line of Austin Wurschmidt with KeyBanc. Please proceed with your question.

Great. Thank you, and good morning, everybody. You highlighted in the fourth quarter that ADR was RevPAR was really driven in I guess, was this kinda unique to that quarter or could that continue based on where occupancy levels are tracking today? Maybe said differently, I guess, your operators have the confidence to drive rate and sort of to the extent we stay in a little bit of a slower RevPAR growth environment.

Yeah. Austin, thanks for the question. You know, our general perspective is that the rate momentum will continue and that it's been broad-based across all of our markets. It's largely coming just for, I guess, for context, obviously, BT rate in the fourth quarter was up 7%. For the full year, it was up a little over 5%. It's really a function of, you know, who's traveling. Right? So we've seen the increase in national accounts. They are your least price-sensitive, highest-rated customer that's coming back. We've seen an increase across the GDS. Corporate negotiated rates are up as well. SMEs are continuing to have a high contribution and, you know, given how they book and what channels they book from, that's all contributing to BT being able to continue to drive rate growth. What I would say is that BT revenues overall using special corporate as a proxy were at about 81% of 2019 levels. So there's still room to grow. And I think the other thing is that when you look historically, at where BT rate sits relative to group, right now, today, it's 15% below group. But, historically, it was 15% above. Now what I'll tell you is that this time last year, BT was 20% below group. And so you saw a 500 basis point pickup in the year. We expect that gap will continue to close. We don't know where it's gonna settle or to what degree, but we think there's opportunity and room for rate to grow on the BT side. We also think that, you know, group has shown real strength on the rate side. It was up 2% in the fourth quarter, 3% for the year. And that's really a function of corporate group being strong, small group being strong, and driving rates. And so each incremental amount of demand is gonna help push that rate. So we feel pretty good, you know, about the rate trajectory and pricing power.

And then Austin, one incremental data point, we gave the RevPAR growth for January at 3.2%. That was all driven by rate as well. And so that's carried forward into 2025, which is a good data point from a momentum perspective.

Yeah. That's all really helpful details. So I guess given the assumption and guidance for RevPAR growth to be a mix of rate and occupancy to the extent that, you know, rate growth continues to be a primary driver of RevPAR, you know, how big of an impact could that have on margins versus kind of the initial assumption and guidance?

Yeah. I mean, our margin range is anywhere from, you know, sort of 30 basis points below and down to, you know, high ones at the low end. Of a hundred basis points of the middle, you know, stating the obvious rate-driven RevPAR growth is gonna flow more to the bottom line than occupancy. I think our view is that if rate takes more center stage, that would allow us to get to the lower end of that margin range, which is what I said about 30 basis points down at 24.

Let me just clarify on that last comment. If you hit the midpoint of RevPAR around, call it, 2%, I believe, but it's all rate-driven. Is that enough to get you to the low end without RevPAR outperforming initial expectations?

No. That would likely get us between the low line to the midpoint. And so call it that sort of that 50 to 75 basis points in that scenario.

Understood. Thank you.

Our next question comes from the line of Gregory Miller with Truist. Please proceed with your question.

Thanks. Good morning, all. I'd like to start off with a market-specific question and ask about LA. I'm curious how impactful, if impactful, the LA fires were to your Pierside Hotel and perhaps others in the greater LA area like Zachary Dunes.

Yeah. Look, I would say that in general, we obviously mentioned that of markets. But LA was one of those that benefited from, obviously, some of the fire relief, you know, we saw that in our market from a positive perspective.

Yeah. Greg, we participated in the program, if you recall, when Hilton announced trying primarily trying to, you know, capture some of the folks that were dislocated. And so whether it was the Ikari Dunes up in, you know, Oxnard to avoid the PCH, Pierside as well as LAX, and Hollywood, which we had to evacuate. We did see some demand come from that. And we'll continue to see the additional demand through February a little bit as well. Through that. So unfortunate, but, yes, we did have quite a few of the folks that were displaced.

And maybe sticking with that topic, what are your expectations for the rest of the year in terms of the degree of fall-off you might see from transient leisure or transient corporate, related fires or is the expectation that that concern in the headlines that we're seeing in the news might have a dissipated impact in terms of potential demand loss to those hotels?

Yeah. What I would say, Greg, is that our budgets were not built around, you know, the fire. And so, you know, our performance and our assumptions don't include, you know, any lift from that. It's obviously improving in terms of the conditions for individuals on the ground as they find permanent housing. So it's not baked into our broader numbers.

Okay. Thanks. Appreciate it.

Your next question comes from the line of Dori Kesten with Wells Fargo. Please proceed with your question.

Thanks. Good morning. What are your expectations for urban leisure versus resort leisure on the demand and rate side this year if they're materially different?

We think that urban leisure is going to just continue to outperform broader leisure when we look at our footprint. We have a favorable setup in a number of markets relative to special events. And we're seeing whether it is all of the World Cup soccer games that are gonna be taking place across the various markets. Southern California is gonna benefit from that. DC, for example, you know, we've got Mardi Gras in NOLA, which is the timing of it's slightly different than normal years, so we'll benefit from that. So I think when we look across our markets, there's a lot of benefit on the special event side. That our footprint is it has a favorable disposition towards for.

Okay. And is there any update that you provided regarding the lease negotiation out in San Diego?

You know, we're obviously still in active discussions, but what I would say is that it's moving very in a favorable way and we are pleased with the direction and hope to be able to give an update later this year.

Okay. Great. Thanks so much.

Our next question comes from the line of Floris van Dijkum with Compass Point. Please proceed with your question.

Morning. Leslie, I want a question for you on your conversions. You've got six conversions that you've completed. In terms of stabilized, I don't know how many of those you would you deem as being stabilized today, but what's the range of returns on stabilized projects?

Yeah. Floris, I'll start, and then Leslie can chime in. I think our expectations have been north of 50% unlevered IRRs on the incremental capital. We are slightly ahead of that based on our underwriting. I think these assets are generating, you know, terrific returns for us on the conversions. But what's interesting is that they are continuing to ramp year over year, you know, on the three phase ones, EBITDA in 2023 was up 24%. RevPAR was up about 12% for those three assets. And so we're continuing to ramp on those assets, you know, even the ones that were converted a couple of years ago. And then the phase two conversions, and Tom can provide color as well on the ground, you know, they, you know, Tonela and Orleans was, you know, RevPAR was up 40% year over year. In Houston, RevPAR was up 8%. So even though we're earlier in the ramp, they are all generating returns, you know, in excess of what we initially underwrote. So super excited about them. And I think the common themes that we're seeing, Floris, is when you think about contribution from the brand, you know, we talked about the next three, which is Houston and the Hilton system. NOLA, which is Hotel Tonale, which is a tribute in the Marriott system, and then Pittsburgh, which is most recently, you know, converted to Courtyard. They're all giving much more contribution whether it's through the Marriott or Hilton system. You also see a change in the mix, you know, whether it's group or corporate, leisure higher-end redemptions in locations that are attractive, you know, when there's, you know, reasons to go there for leisure. And then less OTA is paying less percentage. So higher ADRs, higher RevPAR indexes, and then more importantly, what Sean mentioned, higher EBITDA returns, and that's where we're seeing the general same where rates moving to a place where it's already in the market, and now we're taking our rightful place.

Great. That's helpful. By the way, I think that one of the key things is not just higher RevPAR, but higher EBITDA margins. I think it's important. Remind us as well what your current delta is in your particularly in your urban portfolio relative to, I know that you've been talking about how most of the growth in RevPAR right now is driven off of ADR. But what's the occupancy upside or delta still to get back to 2019 levels? Particularly in your urban portfolio?

Yeah. Let me start, Floris, then I'll kick it over to Tom. So within our total portfolio, we're at 94% of 2019 levels of occupancy. Within the segments, special corporate's a little over 90% of 2019 levels of occupancy and groups around 90%. So that's where we see, you know, the terrific ramp in and opportunity as you return to office and groups continue to travel. Urban is not materially different than that. But I'll kick it over to Tom for some more color. But then that's the demand is really where we see a lot of opportunity within the portfolio and why we're so excited about urban outperforming again in 2025 after a strong year in 2024. And just to drill down a little further and that is when you look at day a week, every day this past year had RevPAR growth. Sunday through Saturday. Right? But then when you look at the highest percentage of growth, it was Monday, Tuesday, Wednesday because of BT being the driver of that with both demand and occupancy. And I think when we layer in group depending upon positioning, we also have that opportunity to influence weekends in addition to what Leslie mentioned about corporate group coming back. And when corporate group comes back, Floris, we get banquet, we get room rental, we're seeing F&B profit margin go up a lot of our renovations that were beverage-centric, you know, creating that light meal a bar experience in these new spaces, what's helping us on the profitability side as well.

Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Hey. Good morning, everyone. Thanks for taking the question. Just wanted, for a minute, if we could circle back to the January commentary. Especially with the rate growth. I'm curious if you kind of isolated San Francisco and New Orleans, which I know had some benefits in them. If there's, you know, a different run rate that we'd be looking at. I mean, I know we've seen February has been a little bit different for the industry than January. So just if there's anything you think is a better run rate, markets that had benefits. Thanks.

Yeah. I mean, we had a number of markets that performed well in January, but I appreciate your comment. Obviously, DC outperformed because of the inauguration. But other markets because of, for example, Pittsburgh where we have a conversion ramping up, Atlanta had the NCAA championships. You know, so there was a number of markets that helped us, but to your point, there were some outsized markets on that. What I would say from a, you know, cadence perspective, just more broadly and then zeroing in on the first quarter. I would say when I think about the cadence, we expect every quarter this year to be positive. And we expect the first quarter to be better than the second quarter because of obviously Easter shifting into the second quarter, but also because we had some tough comps in the second quarter. For example, we had the PGA championship in Louisville at the same time. We had the in the same month, that we had the 150th anniversary of the Derby. And then we think the second half is going to be slightly better than the first half. And that's really just a function of sort of where our renovations are falling from a timing perspective. You know, in addition to the fact that a lot of the back half has better special events as well as you're going to be lapsing the election comp, and then you've got, you know, some key markets with citywides and the better in the back half. If we drill down on Q1, obviously, January being the strongest month, I think that we think that February is gonna come in line with the midpoint of our, you know, of our guidance and March is gonna be positive, but the spring break is gonna be spread over March and April.

Yeah. And the one additional color is that February will have one less day, and so that won't impact RevPAR, but will impact profitability compared to last year.

Gotcha. Thanks for all the color. And just as a follow-up, is a question about the Nick, know, I don't know if we've reached peak yet of brand companies, you know, writing checks for big conversions. But, you know, it feels like we're a little closer. Any updated thoughts as either towards a branding or just an unencumbered sale given, you know, how strongly the New York market has recovered?

Yep. I mean, while the New York market is strong, definitely from an operating perspective, the fact of the matter is the transaction market, as I mentioned before, remains choppy. It's not the right backdrop to sell an asset of that irreplaceable real estate location. But, you know, point taken in terms of how the market is performing. You know, I would say in terms of brands, you know, there is an opportunity to always, you know, have conversations with brands and we have those from time to time. But it just hasn't made sense to put a brand on that hotel as we sit today. We've had tremendous success as the team walked through on our brands. We are very good at identifying how what brands should sit on a hotel, how that brand will perform, and what the blocks can be. And at this junction, we haven't found a brand that we think makes sense for the next.

Okay. Fair enough. Thanks, Leslie.

Our next question comes from the line of Chris Darling with Green Street Advisors. Please proceed with your question.

Hi. Thanks. Good morning. I just want to circle back to the comment you made earlier about BT rates still being about 15% below group. I was curious, is that pretty consistent across the portfolio, or do you see noticeable differences by market? And to the extent you do, I'd be curious to know what's driving that, whether it's return to office or something else.

Yeah. I think it's generally, you know, broad-based, and I think it's just a function of, you know, who came back first, Chris. Right? Group came back major was first, then group, and now BT. And now you have the return to office, which is adding octane on there. You also have to look at who came back first within the BT segment itself. Right? We all know those SMEs and now you have the national accounts, which I mentioned before, the least price-sensitive and your highest rate customer. I think it's a matter of just sequencing and timing. Is what's, you know, what's driven that. But also, you know, keep in mind that people are working differently today. Right? And so you have, you know, the infamous word of leisure and how that's sort of planning out today. I think at the end of the day, we've always thought that aggregate demand would exceed the prior peak. We always knew that the puts and takes would be slightly different. So I think the point isn't so much that we're projecting that BT is gonna get back to its historical relationship. What we're saying is that there's room to grow, and we don't know exactly where it's gonna land, but we think it's gonna improve from where it's at today.

The last thing I would add to Leslie's comments, if you think about dynamic pricing, Chris, the one shift that's taken place significantly for the SMEs is they're buying it what's called bar or retail. And that's our highest percentage of our mix within the transient category. And so that's where you have your highest rate. So that's replaced some of the BT that used to go to corporate under fixed where that customer's coming back at that level. The other thing we're noticing and monitoring is how they book. And so when Leslie was talking about corporate coming back, we're seeing global distribution systems starting to rise up and that's because of the national corporate accounts that go through that category. And then lastly, brand dot com. We're seeing more and more people going direct. The membership, you know, is helping on Hilton Honors, Marriott, Highest profitability side, because you're not having to pay commission on brand dot com rates. So those are the, you know, factors that we kinda see as room in the tank and how they're booking and the channels of how they, you know, see us.

Okay. Understood. It's all helpful to hear. And then just one more quick one for me. What's embedded in your outlook for the Bay Area this year? Fair to say that, you know, we should be expecting RevPAR sort of above the midpoint of your overall guidance range?

Yeah. I would say, you know, Chris, in general, yes. You know, obviously, with the citywide, you know, coming back on a relative basis strong to last year, you know, plus 60% and we think it's gonna benefit mostly second quarter and the fourth quarter. Based on how the citywides are shaping up, in particular, sales force move in third quarter to fourth quarter. We are encouraged by the green shoots that we're seeing. There's been a few corporate conferences that have rotated back from Las Vegas to San Francisco, most notably Microsoft and Workday. You know, additionally, you know, the return to office mandate from some major tech companies like Google, Amazon, and Salesforce. And so we're thinking collectively, you know, those things will help San Francisco. But, yes, you're right. You would look at San Francisco being above the midpoint.

Alright. Appreciate the time. Thank you.

Miss Hale, we have no further questions at this time. I would like to turn the floor back over to you for closing comments.

Well, we want to thank everybody for joining us today, and we look forward to seeing many of you in the coming weeks at various conferences, where we will be able to provide further updates. Thank you, guys.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.