RLJ Lodging Trust Q2 FY2026 earnings call

Overall Quarterly Performance

• Reported strong second quarter results that exceeded internal expectations, with RevPAR growth outperforming the broader hotel industry by 110 basis points
• Achieved 6.8% overall RevPAR growth, consisting of 4.9% ADR growth to $217 and a 130 basis point increase in occupancy to 77% (higher than expected); June was the strongest month at 12.4% RevPAR growth, with early July 2026 preliminary RevPAR growth near 11%
• Grew hotel EBITDA by 7.1% to $119.5 million, with hotel EBITDA margin improving 10 basis points year-over-year (40 basis points excluding a prior-year one-time tax benefit)
• Adjusted FFO per diluted share was $0.52 for the quarter, with a well-covered quarterly dividend of $0.15 per share

Market and Segment Demand Trends

• Broad-based growth across all markets, with non-World Cup host markets delivering 6.2% RevPAR growth; top outperforming markets included Austin (17%), Chicago (15%), Tampa (11%), and Northern California (9%, driven in large part by AI industry expansion accelerating business travel)
• Business transient growth is broad-based across large corporations and small/medium businesses, with strength across tech, finance, health care, and defense industries
• Urban market positioning aligns with current industry tailwinds from diverse demand drivers and muted new supply growth, producing durable growth not reliant on single events or markets

Capital Allocation and Portfolio Transformation

• Completed conversions/renovations continue to deliver strong outperformance: 4 high-impact renovations completed in 2025 achieved 22% revenue growth and 50% EBITDA growth, while 7 prior conversions achieved 8% revenue growth and 12% EBITDA growth
• Completed the conversion of the former Renaissance Pittsburgh to The Arrott, an Autograph Collection property, reimagining all guest and public space to add new F&B and premium function space, further increasing the portfolio's lifestyle orientation
• Announced the upcoming conversion of the existing Fairfield Inn and Suites Key West to Compass by Margaritaville, scheduled to start construction late 2026 and relaunch in 2027, with new themed F&B and pool amenities designed to capture higher leisure rates and grow ancillary revenue
• Progressing on the upcoming renovation and conversion of Wyndham Boston to join Hilton's Tapestry Collection; the company maintains a target cadence of 2-3 conversion projects per year
• Opportunistically sold one hotel (Hyatt Place Fremont Silicon Valley) during the quarter at a 29.2x EBITDA multiple, a highly accretive price for the firm

Balance Sheet Position

• After paying off maturing senior notes in July 2026, RLJ has $2.2 billion in total debt with no maturities due until 2029
• Total liquidity is ~$1 billion, including $600 million in undrawn corporate revolver capacity; 83 of 91 hotels are unencumbered by debt, with a weighted average interest rate of 4.8% and 72% of debt fixed or hedged

RLJ Lodging Trust operates a single segment of hotel ownership, with performance broken out by demand segmentation and market type: 1. Business Transient: Revenues grew 10% year-over-year, driven by 6% room night demand growth and 4% ADR growth. Business Transient contributes 1% additional share of the total transient mix, and grew 10% for the second consecutive quarter. 2. Leisure: Revenues grew 7% year-over-year, with 6% ADR growth and 1% room night demand growth. This segment benefited from strong urban leisure trends and World Cup tailwinds. 3. Group: Revenues grew 6% year-over-year, split evenly between demand and ADR growth. Third quarter group booking pace is currently 110% of 2025 levels, with corporate group bookings growing as a share of the overall group mix. 4. Non-Room (out-of-room) Revenue: Grew 7.1% year-over-year, 30 basis points faster than overall RevPAR growth, driven by ROI initiatives and capital investments in F&B and activated public space. 5. Urban Markets: Delivered stronger RevPAR growth than non-urban markets, with weekday revenues growing 6.3% and weekend revenues growing 8.1%, demonstrating 7-day-a-week demand strength.

• The company raised its full year 2026 guidance to reflect stronger than expected second quarter performance and continued positive demand trends. The new guidance ranges are: 3.5% to 4.5% comparable RevPAR growth, $369 million to $389 million comparable hotel EBITDA, $336 million to $356 million corporate adjusted EBITDA, and $1.37 to $1.50 adjusted FFO per diluted share.
• Full year 2026 capital expenditures are projected to remain in the $80 million to $90 million range, cash G&A is expected between $33.5 million and $34.5 million, and net interest expense is projected between $101 million and $103 million.
• Total expense growth for the second half of 2026 is expected to decelerate from the second quarter, with a range of 3% (midpoint of guidance) to 4% (top of guidance), with similar growth rates for total and per-occupied-room expenses.
• Management expects third quarter 2026 adjusted EBITDA to be approximately 100 basis points higher than the third quarter of 2025, and projects third quarter performance will be stronger than fourth quarter 2026, due to timing of major events and calendar shifts.
• Management's 2027 outlook is favorable, with expected sustained demand strength (particularly for business transient), a favorable holiday calendar, major events (Super Bowl, NCAA tournament, NFL Draft, Formula 1, pre-Olympic activity), continued Northern California recovery, and ongoing constrained supply growth.

• There is considerable geopolitical uncertainty and limited forward visibility, due to the industry's reliance on short-term (in-the-quarter-for-the-quarter) booking windows and the evolving macroeconomic backdrop.
• Higher than expected occupancy growth in the second quarter led to higher than expected expense growth, driven by variable costs tied to occupancy, higher transaction costs for transient demand, and higher F&B costs for walk-in outlet sales compared to banquet F&B.
• Energy costs remain elevated, putting upward pressure on operating expenses.
• Calendar and event timing shifts (such as the movement of Salesforce Dreamforce from October to September 2026) create puts and takes for fourth quarter 2026 performance that offset some of the broader demand strength.
• Conversion/renovation projects require temporary room supply displacement that impacts near-term performance, requiring disciplined cadence management.

Q: What sources are driving current business transient (BT) demand growth, and which industries are most notable? / A: BT demand growth is broad-based and comes from both national corporate accounts and GDS channels. Growth is seen across tech, finance, defense, and healthcare, from both large corporates and small/medium businesses. BT has grown 10% for two consecutive quarters, increasing its share of the transient mix by 1%, and delivers higher ADR and higher out-of-room F&B spend. BT bookings through GDS have also grown as a percentage of total bookings, a positive trend.

Q: What is RLJ's balance sheet optionality for share repurchases versus acquisitions and dispositions? / A: After addressing 2026 debt maturities, RLJ has a strong balance sheet with ample liquidity. High-impact renovations and conversions are delivering very strong EBITDA growth, so the company will continue to execute on its planned 2-3 conversion projects per year. Management believes RLJ stock is undervalued, remains active on dispositions, and has optionality to use all available capital allocation tools while maintaining discipline.

Q: How has hotel transaction pricing evolved for RLJ's segment, and are there more selling opportunities now? / A: The transaction market is more constructive today, with more deals in the pipeline and a more competitive debt market with more capital providers. Improving fundamentals have increased buyer conviction, and the buyer pool has widened to include owner-operators, family capital, and growing private equity interest. Activity remains focused on single assets rather than large portfolios, and pricing is largely asset-specific; RLJ recently sold the Fremont Hyatt Place at an attractive accretive multiple when the asset's market trajectory no longer matched RLJ's return targets.

Q: Why is the Key West Margaritaville conversion attractive, what EBITDA upside is expected, and would RLJ ever do more than 2 conversions per year? / A: Key West is one of the highest ADR markets in the U.S., and Margaritaville is a natural brand fit as its origin is in Key West, with strong recognition among leisure travelers. RLJ expects approximately 50% EBITDA upside from the conversion, driven by higher ADR and increased ancillary F&B revenue from both hotel guests and local visitors. The project capital delivers incremental returns north of 40% on invested capital. RLJ will consider increasing the pace to 3 conversions per year, but currently balances the cadence to manage construction-related displacement and align with franchise expiration timelines.