RLJ Lodging Trust Q2 FY2025 earnings call

• Achieved second-quarter results ahead of expectations, benefiting from a diversified portfolio, ramping conversions, and disciplined expense management.
• Executed key initiatives including repositioning key assets, strengthening the balance sheet, and opportunistically recycling capital into share repurchases.
• Urban hotels were a key driver, with San Francisco CBD seeing a 20% RevPAR growth.
• 7 completed conversions achieved a 10% RevPAR growth in the second quarter, and 4 recent conversions had a combined 26% RevPAR growth.
• Effective cost management led to flat operating expense growth compared to last year, limiting margin compression to 90 basis points.

In the second quarter, RevPAR declined by 2.1%. The decline was mainly due to a reduction in room nights from transformational renovations at high occupancy properties in South Florida, Waikiki, and New York, as well as the closure of the Austin Convention Center. Excluding these factors, the portfolio's RevPAR was slightly positive. Urban hotels were the key driver, with RevPAR outperforming the portfolio, and San Francisco CBD achieved a 20% RevPAR growth. Leisure revenues were up 5%, with urban leisure up 7%. Non-room revenues grew by 1.5%. The portfolio achieved hotel EBITDA of $113 million with margins of 31.1%, adjusted EBITDA of $104 million, and adjusted FFO per diluted share of $0.48.

• The outlook for the second half is mixed. The third quarter will be the softest quarter due to multiple factors like holiday shift, tough comps, and soft government/international travel. The fourth quarter will benefit from favorable holiday calendar, easier comps, strong citywides, and ramping renovations.
• Looking ahead to 2026 and beyond, the industry is expected to improve with economic expansion, special events, ramping conversions, and renovations, supported by a strong balance sheet.

• Uncertain macro environment leading to short booking windows and low visibility.
• Softness in government and international travel.
• Tough year-over-year comparisons in markets like Chicago, Boston, New Orleans, and San Diego due to various factors.

Q: Please talk about the booking pace tracking into August and September and the factors contributing to it.

A: The third quarter is affected by a layering effect of multiple factors including holiday shift, tough comps in certain markets, and soft government/international travel. Booking pace in the third quarter is down, with July at mid-single digits, August similar, and September slightly better.

Q: Which segments or markets are underperforming more than expected when revising guidance last quarter?

A: It's a compound effect of multiple pieces including softer group business and short booking windows.

Q: Talk about the differences between urban leisure and resort leisure in the leisure side.

A: Urban leisure outperformed with 7% growth due to strong special events, while international leisure was softer in summer.

Q: Thoughts on share repurchases?

A: Share repurchases are attractive, done programmatically, using disposition proceeds to remain leverage neutral while advancing conversions.

Q: Update on Nashville's Bankers Alley hotel?

A: The asset is performing well, situated in demand drivers area, 60% of business from Hilton Honors members, and future bright with upcoming developments.

Q: Transaction environment and pricing?

A: Volume is low with small deals, bid-ask varies, but the company's assets are trading meaningfully below underlying value.

Q: Leisure discounting and booking channels?

A: Demand stable, urban performs well, discounting via booking channels, Q4 to benefit from holidays and better setups.

Q: Expense outlook for the second half?

A: Expense growth expected to be about 2% in the second half, with strong cost control.

Q: 2026 margin expectations?

A: Second quarter's 2:1 revenue to expense relationship signals moving towards more normalized margin relationship.

Q: Booking channels and changes?

A: Short booking window, brand.com business growing, OTA占比小, local negotiated rates increasing.

Q: Why not increase pace of investments?

A: Conversions are on cadence, Boston conversion brand selection to be updated in Q3, ROIs are incorporated into normal renovation programs.

Q: F&B performance and urban differences?

A: F&B up due to reimagined spaces attracting non-hotel guests, urban F&B performs well due to activity in urban locations.