RLJ Lodging Trust Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 11 speakers on the call.

Operator

Welcome to the RLJ Lodging Trust Third 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. I would now like to turn the call over to Nikhil Bhalla, RLJ's Senior Vice President, Finance and Treasurer. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, and welcome to RLJ Lodging Trust's 2024 Third Quarter 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 Bartnett, our Chief Operating Officer, will be available for Q and 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.

Speaker 1

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. I will now turn the call over to Leslie.

Speaker 2

Thanks, Nikhil. Good afternoon, everyone, and thank you for joining us today. We were pleased with our 3rd quarter results, which came in ahead of our expectations despite the impact of the storms late in the quarter. Our 3rd quarter RevPAR growth once again exceeded the industry, demonstrating the resiliency of our urban centric portfolio, which is allowing us to outperform. Additionally, our effective expense management enabled us to drive EBITDA growth that exceeded our year over year RevPAR growth.

Speaker 2

Along with achieving solid operating results, we made meaningful progress on our key initiatives during the quarter, including executing on several objectives, which will position us well going into 2025, including successfully refinancing all of our near term debt maturities and executing attractive interest rate hedges, completing 2 conversions, accretively recycling proceeds from non core asset sales into share repurchases and increasing our quarterly dividend by 50%. Achievement of these objectives demonstrate our commitment to unlocking value in our portfolio while recycling capital to enhance total shareholder returns. With respect to our Q3 operating performance, our 2% RevPAR growth rate was 2 times the industry and our growth continues to be balanced between both rate and occupancy. Additionally, our hotels gained 100 basis points of market share, which represents the 6th consecutive quarter of outperformance, underscoring the strong positioning of our urban centric portfolio. This quarter, our urban hotels continue to drive our outperformance and achieve 2.5% RevPAR growth.

Speaker 2

Our urban markets are benefiting from positive trends in all demand segments with markets such as Boston, Chicago and Southern California achieving mid to high single digit RevPAR growth. Our deliberate efforts to reposition our urban footprint allowed our urban lifestyle hotels to achieve 3.2% RevPAR growth during the quarter. Our urban lifestyle hotels represent approximately 40% of our portfolio and are well positioned to capture 7 day a week demand. Our portfolio is seeing the lift from the ongoing improvement in business transient demand, which was once again our best performing segment this quarter, achieving nearly 9% revenue growth over the prior year driven by both ADR and occupancy gains. We were especially encouraged to see continuing pricing power which drove 5.3% ADR growth, an acceleration of 105 basis points from the 2nd quarter.

Speaker 2

While SMEs remain the dominant driver of corporate demand, we are seeing positive momentum from large corporations who are increasingly returning to the office. The recent trends and the continuation of company mandates provides us with the confidence that steady growth and business transient revenues will continue. Our group segment also continued to see strong performance during the 3rd quarter, achieving 3.4% revenue growth led by 1.4% increase in demand and a 1.9% increase in ADR. Group revenues benefited from both the increase in corporate meetings as well as strong citywide volume in many of our key markets such as Boston, Chicago, San Diego and New Orleans. As a sign of healthy group demand, our 2024 group revenues pace remains ahead of 2023 by mid single digits inclusive of our pace for the Q4 despite the impact from recent storms, the holiday calendar shift and the election.

Speaker 2

In aggregate, the continued strength in both business transient and group production drove a 3.1% increase in our 3rd quarter weekday revenues. With respect to leisure, we were encouraged to see stable demand trends. Our leisure revenues grew by 2% during the 3rd quarter, primarily driven by a 4% increase in demand, which was offset by a 2% decline in ADR, highlighting continued consumer pricing sensitivity. In addition to achieving solid rooms revenue growth, our out of room spin in areas such as parking and F and B allowed us to grow our non room revenue by 7.3%, which drove total revenue growth of 3%. This top line growth combined with our focused approach to managing costs, which has led to the moderation of operating expense growth, has allowed us to achieve flat margins and a year over year EBITDA increase of 2.6% in the 3rd quarter.

Speaker 2

Now turning to capital allocation. In the Q3, we continue to demonstrate our disciplined approach to balance sheet management and the ability to assertively allocate capital across several fronts. We further strengthened our balance sheet and added incremental flexibility by entering into a new $500,000,000 term loan, which addressed our 2024 2025 maturities. We opportunistically entered into new hedges, allowing us to maintain one of the lowest weighted average cost of debt at 4.5%. We sold a non core hotel in Denver and recycled proceeds from recent dispositions towards the repurchase of 2,200,000 shares for $20,700,000 And we completed the physical conversion of the Wyndham in Houston to a DoubleTree and the Indigo in New Orleans to the Hotel Tonale, a Marriott Tribute Hotel.

Speaker 2

These hotels are ramping well and achieved strong RevPAR growth of 17% year over year in Q3. Additionally, we remain on track to complete the conversion of the Bankers Alley in Nashville to Hilton's Tapestry collection and are pacing to complete the conversion of the Wyndham in Pittsburgh to a courtyard earlier than expected. Looking ahead, we are continuing to maintain our cadence of completing 2 conversions a year with the transition of the Renaissance Pittsburgh to Marriott's Autograph collection in 2025. We also made progress towards selecting a new brand for the Wyndham Boston, which we expect to convert in 2026. Our ability to execute on multiple fronts simultaneously validates our strong balance sheet and free cash flow profile, which not only drove our growth initiatives this quarter, but also allowed us to return significant capital to shareholders in the form of dividends and share repurchases.

Speaker 2

Looking ahead, in the Q4, there are some unique factors that will impact the final industry results, including the disruption of Hurricane Milton in October and the degree of the slowdown around the elections in November, which we estimate will constrain our 4th quarter RevPAR by approximately 100 basis points. However, despite these unique headwinds, our strong third quarter performance and the resiliency that our urban central portfolio is demonstrating gives us confidence in our outlook. As we look towards 2025, while we expect a comparable industry background to 2024, our portfolio is well positioned and we should benefit from our portfolio's concentration in urban markets, which are expected to continue to outperform the industry the ongoing ramp from our 7 conversions the continued improvement in business transient demand and our favorable footprint in markets with strong citywides such as New Orleans, which will host the Super Bowl Washington DC, which should benefit from the presidential inauguration and favorable citywides in Denver and San Francisco, which is supported by our strong 2025 group pace, currently ahead of 'twenty four by mid single digits. We believe that all of these positive attributes should continue to allow us to be a top performer.

Speaker 2

Longer term, we believe that the industry is positioned for multiple years of demand driven growth given the continuation of the secular trends of consumers prioritizing travel, which should be enhanced by moderating inflation and lower borrowing costs improving business travel demand from the combination of the continued recovery and the return of office trends Group demand remaining healthy due to the increasing citywide events and attendance as well as corporate and social groups and the recovery of international demand, which remains a meaningful growth opportunity. These factors, together with historically low new supply projected over the next several years, should provide multiple years of RevPAR tailwinds and be especially beneficial for urban hotels, which represent over 2 thirds of our portfolio. I will now turn the call over to Sean. Sean?

Speaker 3

Thanks, Leslie. To start, our comparable numbers include our 95 hotels owned at the end of the Q3 and exclude the Fairfield Inn Denver, which was sold during the quarter. Our reported corporate adjusted EBITDA and FFO include operating results from all sold and acquired hotels during RLJ's ownership period. As Leslie said, we are pleased to report solid third quarter operating results, which demonstrated the strength and resiliency of our high quality urban centric portfolio. Our 3rd quarter RevPAR growth of 2% was driven by a 1.4% increase in occupancy and a 0.6% increase in ADR.

Speaker 3

3rd quarter occupancy was 75.1%, average daily rate was $193.39 and RevPAR was $145.23 As was noted, our business transient and midweek outperformed. 3rd quarter business transient RevPAR grew 8.7% above 2023, including ADR growth of 5% and occupancy growth of 3%. RevPAR growth remained healthy in our urban markets such as Louisville at 12%, Chicago CBD at 15%, New Orleans at 21%, Los Angeles at 10%, San Diego at 11%, Miami at 20% and Portland at 33%. Monthly RevPAR growth during the Q3 was 3.8% in July, 3.4% in August and down 1.2% in September, which was constrained by the timing of Labor Day and impact of hurricane activity. Monthly total revenue growth was 5.2% in July, 4.6% in August and contracted 0.7% in September.

Speaker 3

Looking ahead, our RevPAR growth rose during October, which is the most significant month of the quarter. Given the holiday and the weather related headwinds, October RevPAR is forecasted to only increase approximately 1.5% above prior year, predominantly driven by ADR growth. Turning to the current operating cost environment, as we expected, operating cost growth rates moderated meaningfully during the Q3. On a per occupied room basis, total hotel operating cost growth was only 1.7%, moderating over 300 basis points from the 2nd quarter and underscoring the benefits of our portfolio construct and our initiatives to manage our operating cost growth. Drilling down further in the hotel operating expenses, as expected recent outsized growth in fixed costs such as insurance and property taxes reversed during the Q3, with our fixed costs decreasing by 9.4% during the Q3, which benefited from the expected moderation of fixed expense growth and the success of property tax appeals.

Speaker 3

We expect 4th quarter fixed cost growth to benefit from the lapping of difficult comps during the first half of the year and the successful renewal of our property insurance program this month. During the Q3, our portfolio achieved hotel EBITDA of $100,700,000 representing 2.6% growth above 2023 and hotel EBITDA margins of 29.2%. We were pleased with our operating margin performance, which was essentially flat to 2023 at only 11 basis points behind the Q3 of 2023. Turning to the bottom line, our 3rd quarter adjusted EBITDA was $91,900,000 and adjusted FFO per diluted share was $0.40 We continue actively managing our balance sheet to create additional flexibility and further lower our cost of capital. So far during 2024, we have addressed all of our 2024 and 2025 debt maturities.

Speaker 3

As previously announced, during the Q3, we entered into a new $500,000,000 term loan to refinance a 2025 maturing $400,000,000 term loan and repay $100,000,000 of the outstanding balance on our line of credit. The new $500,000,000 term loan has an initial term of 3 years and includes 2 1 year extension options to 2029. The new term loan also retained the pre COVID pricing from the $400,000,000 term loan. The execution of this financing is a testament to our strong lender relationships and favorable credit profiles. We ended the Q3 with a well positioned balance sheet with $500,000,000 available under our corporate revolver, a current weighted average maturity of approximately 3.7 years, 87 of our 95 hotels unencumbered by debt, an attractive weighted average interest rate of 4.56% and 74% of debt either fixed or hedged.

Speaker 3

As it relates to our liquidity, we ended the 3rd quarter with approximately $885,000,000 of liquidity and $2,200,000,000 of debt. With respect to capital allocation, consistent with what we have demonstrated in the past, we intend to invest in projects to unlock the embedded value within our portfolio, while also remaining committed to returning capital to shareholders through both share repurchases and dividends. During 2024, we have been active under our $250,000,000 share repurchase program. Year to date, we successfully recycled 100% of non core disposition proceeds towards the repurchase of approximately 2,200,000 shares for $20,700,000 at an average price of $9.28 per share. During the Q3, we repurchased approximately 1,600,000 shares for $14,700,000 at an average price of $9.21 per share.

Speaker 3

Additionally, our board recently increased our quarterly dividend to $0.15 per share, which is well covered and supported by our free cash flow. We will continue making prudent capital allocation decisions to position our portfolio to drive results during the entire lodging cycle, while monitoring the financing markets to identify additional opportunities to improve the laddering of our maturities, reduce our weighted average cost of debt and increase balance sheet flexibility. Turning to our outlook, we are reaffirming our prior guidance, which anticipates the continuation of the current operating and macroeconomic environment. For 2024, we continue to expect comparable RevPAR growth to range between 1% and 2.5 percent, comparable hotel EBITDA between $382,500,000 $402,500,000 dollars corporate adjusted EBITDA between $346,500,000 $366,500,000 and adjusted FFO per diluted share to be between $1.45 1.58 which incorporates shares repurchased to date, but no additional repurchases. Our outlook assumes no additional acquisitions, dispositions or refinancings.

Speaker 3

We still estimate 2024 RLJ capital expenditures will be in the range of $100,000,000 to $120,000,000 and now expect net interest expense will be in the range of $92,000,000 to $94,000,000 which reflects a slight decrease in base rates on our variable rate debt compared to our assumptions last quarter. Thank you. And this concludes our prepared remarks. We will now open the line for Q and A. Operator?

Speaker 4

Thank you. At this time, we'll be conducting a question and answer Our first question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Speaker 5

Great and good afternoon everyone. Leslie, you spoke about large corporate account demand improving. I was just hoping you could expand on that comment and maybe provide some additional detail around any specific industries or regions where you're really seeing the most improvement?

Speaker 2

Yes, Austin, obviously we're very pleased in terms of how BT continues to improve. And we've been looking at who's traveling, the frequency of travel, length of stay. And our GDS is clearly indicating that national accounts continue to improve. And then when we look at the day of week, Monday, Tuesday, Wednesday, we're seeing strength along that because that's got the most opportunity for growth. And as I mentioned on the call, our midweek revenues increased by 3.1%.

Speaker 2

Tom is going to give you some color on kind of what industries we're seeing.

Speaker 3

Sure. Yes. Good morning, Austin. The industries that we're seeing start to travel more on the national corporate side are the consultants, accountants. When you look at when you think about technology, we're starting to see more international travel coming from India and China and Silicon Valley.

Speaker 3

As an example, those are positive steps in areas that we really need that national corporate growth. And the good thing is, as Leslie mentioned, we're seeing not only demand, but we're seeing average rate growth. And that's what's really left in the tank when you think about the national corporate accounts on that Monday, Tuesday, Wednesday, where we're benefiting from that mid week demand.

Speaker 2

Yes. What Tom's referring to on the rate side Austin is that you have your national accounts coming back, which is your least price sensitive and most attractive from a rate perspective customer and that's helping us on the rate side. So rate was increase in rate was better than expected in Q3 for us. We were up 5% and then 3rd quarter up 4% in the 2nd quarter.

Speaker 5

That's actually my follow-up. I mean, you mentioned Monday, Tuesday, Wednesday, I believe is the most upside opportunity for occupancy. I guess, how much movement do you need to see additional occupancy to kind of sustain or even improve the mid single rate growth that you achieved this quarter?

Speaker 2

Yes. I mean, I don't know if I can sort of quantify that to say because we're seeing it today, right? So room nights looking at special corporate as a proxy, room nights at this past quarter about 95% of 2019 levels. Our revenues were up 9% this quarter, they were up 13% last quarter. So we're seeing it now, Austin, at the 95%.

Speaker 2

And so as it continues to improve and grind forward, for all the points that Tom talked about, we're seeing it sustain. And again, it's not a step change. It's just a continuous grind forward and we're very pleased with what we're seeing. We believe that that's going to carry into 2025. There's nothing that we're seeing that suggests that that won't happen there.

Speaker 5

That's great. Thanks for all the detail.

Speaker 4

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

Speaker 6

Thanks. Good afternoon, everyone.

Speaker 2

Good afternoon, Mike.

Speaker 6

Thanks. Just first question for me, just want to dig into expenses more. Maybe this is for Tom, but where is labor at in terms of the year over year growth rate? And then also just any updates on hiring and retention would be helpful. And then how all of that just on the labor side, how did that impact the 3Q growth rate versus the higher expense growth rate that you guys experienced in the first half of the year?

Speaker 2

Hey, Mike, let me just sort of frame this in general. I think that when we look across all of our operating labor metrics, things are improving and normalizing. We see that it's better it's easier to hire today, turnover is down. All of those things are benefiting and starting to normalize. So I just want to frame that before Tom hops I mean Sean hops in with some stats.

Speaker 3

Yes. Great question, Michael. So I think for wages and benefits, what we're seeing is sort of that 4% to 5 percent year over year increase in wages and benefits. We've seen that be pretty stable over the last few quarters and get sort of successively a little better each quarter. We expect that to continue into the 4th quarter.

Speaker 3

I think when you look at the so that's wages and benefits in a vacuum. When you look at across the other operating expenses, what we've seen, as I mentioned in my prepared remarks, the fixed costs, which have been a headwind really in the first half of the year have moderated significantly. We expect that to continue at an inflationary level in the Q4 and into next year as well. And so really, I think we've seen the headwinds that we've seen in the first half of the year as we expected have moderated and we would expect them to continue to moderate and sort of be normal inflationary levels in 2025. The last thing to add, Mike, I think you asked a question about the workforce.

Speaker 3

We are continuing to see momentum in regards to the reduction of contract labor. And we think those wage increases, the tools and resources, the retention of the management company employees is a positive step and continue to see each quarter that there's a reduction around that topic.

Speaker 6

Helpful, thanks. And then second question for me on conversions. You obviously have some ramping up, some disruption now from ongoing projects and then you got a few more that I think you're going to start next year. When you roll that all up, what's the year over year lift that you guys expect this year and next year? And then how does that compare to the bridge that you've previously provided?

Speaker 6

I think that was earlier this year. And that's all for me. Thank you.

Speaker 3

Yes. Mike, we continue to be ahead of where we expected in our underwriting for the conversions. When you include all of the conversions inclusive of conversions under the knife, even this year, etcetera, we've seen top line growth around 10% and bottom line growth year over year in that sort of 20% to 25%. So we're seeing the big lift even with some obviously headwinds in hotels that were actually under the knife. And so net net, it's been a great lift for us and really validates the value that we create through these conversions.

Speaker 4

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

Speaker 7

Good afternoon. Thanks for taking my questions and congrats on the quarter. First one from me, you highlighted the urban strength. I'm curious if you've seen kind of a shift in inflection higher in corporate demand post Labor Day or is it more just a continuation of the steady improvement that you saw earlier in the year?

Speaker 2

I would characterize it as a steady improvement. It's not a step change. I think the urban thesis is intact, right? Urban continues to outperform the industry. It's benefiting from all segments.

Speaker 2

This quarter, Q3 was really driven by BT and Group. And leisure remained stable. But in general, I would say that BT was a steady improvement and urban is benefiting from all of those all of the demand segments.

Speaker 7

Okay, very helpful. And then switching gears to the guidance. With the Q3 exceeding expectations and the Q4 or full year guidance unchanged and maybe implies a softer Q4 relative to your prior expectations. Can you help us think about what's baked in there and how that's changed?

Speaker 2

Yes. I mean, I think in general, you got to look at our second half. When we look at our second half, it's generally intact. You are right. I think Q3 was slightly stronger and Q4 slightly softer.

Speaker 2

But even with the storms, as you mentioned, we're maintaining our guidance. And the way I would sort of think about it is that it's more segmentation driven than it is markets or anything like that. As we mentioned in Q3, BT was stronger on the rate side. Leisure was stronger in the Q3 as well from a demand perspective, and we were pleased with the overall positive RevPAR in 3rd quarter positive rate in Q3. From a 4th quarter perspective, October was obviously impacted by the storms.

Speaker 2

And as we mentioned in our prepared remarks, we think that there's more softness around the election in November. And so I think those are the big drivers of the incremental softness that we saw in November. I sort of think about the cadence. Sean mentioned October is coming in at about 1.5%. That's going to be the most significant contributing month of the quarter.

Speaker 2

November is going to be the weakest and we currently expect December to be in line with October. As we sort of think about the midpoint of our guidance, which we think is the most likely outcome, it assumes that BT maintains the current trends that the group pace actualizes where it's at today. Leisure demand remains stable. Urban markets continue to outperform. As I mentioned before, November being the weakest month.

Speaker 2

That's kind of what's built up around the midpoint of our guidance.

Speaker 7

Okay. That's really great color there. And then last one for me if I could. Could you talk about the transaction pipeline, what it looked like in terms of volume and pricing out there and the bid ask spread between buyers and sellers? Any compression there given the recent move in interest rates?

Speaker 2

Yes, well, the overall set up for transactions has improved acknowledging your point about lower interest rates, although we'll see whether or not how much more they are able to come down. The debt markets are open, but still expensive. And so despite all this, the transaction volume remains muted or constrained. Even with this environment of a slightly better setup, transaction are still choppy. They're taking longer to get done.

Speaker 2

And so the transaction market is not fully functional right now is the way I would sort of describe it. While we expect that to improve in 2025, given the fact that hopefully rates continue to improve, We're behind the elections behind us rather. Supply remains muted and fundamentals remain stable. That should improve the environment. But right now, it remains constrained and choppy.

Speaker 7

Okay, excellent. Very helpful, Leslie. Thank you for all the color. That's all for me.

Speaker 4

Thank you. Our next question comes from the line of Dorey Kestin with Wells Fargo. Please proceed with your question.

Operator

Thanks. Good morning. So just sorry, good afternoon. So just tying into the last question, would you expect as of right now, would you expect external growth prospects in 2025 to look pretty comparable to 2024?

Speaker 8

Yes.

Speaker 2

I mean, Dorey, what I would say is that where we sit today, it's really early in our budget process. But the building blocks for us are urban continuing to outperform, BT continuing to improve, group strong pace, actualizing. We've got markets like Denver, Tampa, San Francisco, Orlando that have strong citywides. We have a favorable footprint to special events like Super Bowl in NOLA that I mentioned before, inauguration in DC and the U. S.

Speaker 2

Open in Pittsburgh where we have a number of assets in each of those markets. We still expect leisure to demand and remain stable. And then as was talked about before, we expect our conversions to continue to ramp. That's against the backdrop where you have low supply, consumers still favoring travel and then being in a post rate cut environment and expenses moving in the right direction. So I mean those are the general building blocks that I would say, but it's really early in our budget process.

Speaker 3

Yes. And then Dory on capital allocation specifically for next year, right. We have the balance sheet where we could do really any growth opportunities next year. Leslie mentioned the organic growth opportunities in the portfolio, but our stock continue to remain attractively value from a share repurchase. We've got the balance sheet that if external growth, if the markets improve, we have the flexibility and the capacity to do that through the balance sheet as well.

Speaker 3

And so I think the setup is going to be really predicated on the fundamental setup as well as how the capital markets play out.

Operator

Okay. Thank you.

Speaker 4

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

Speaker 9

question. Yes.

Speaker 8

Hey, good afternoon, everyone. Thanks for taking our questions. So on the renovations, the 3, I guess, that you, I guess, started last year in 'twenty three, and understanding you're about to start 2 more. Is there a way to think about whether it's a 2 to 4 year, the lift you're going to get, is there a year where that levels off? And I guess the question follow-up to that is, do you have more conversions beyond the next 2?

Speaker 8

Because I think you've talked about a pacing of about 2 per year. And so does that imply that there are more to be identified in out years beyond 2025? Thanks.

Speaker 2

Yes. We've talked about the fact that we have a number of conversions that are remaining with somewhere between, call it, plus or minus 10 assets, not all of those will get done. But we're still on the cadence for 2 per year. We've mentioned the fact that we have our Renaissance next year, which is going to join the Autograph collection. The following year, we have the Boston Wyndham, which we expect to deliver in 2026.

Speaker 2

And so the cadence for that goes out several years as it relates to our conversions.

Speaker 3

And then Chris, with respect to sort of how we think about the ramp, I mean, generally speaking on the conversions, we underwrite a 2 to 3 year ramp from the conversion sort of post completion. I think what we've found and the reason we were tracking so far ahead is that because our thesis around these conversions is a lot of capturing rate that's already in the market that we've been able to ramp on the shorter end of that range relative to our initial expectations. And so but net net, it's a 2 to 3 year ramp is sort of what we generally underwrite and we've been delivering on the shorter end of that range on the conversions today.

Speaker 8

Okay. Appreciate that. Thanks, Sean. And then as a follow-up, I know Marriott talked, I guess earlier this week about some cost cuts they were targeting and that those would flow that some of those would flow through to franchisees. I guess from your perspective, are there things that you would like to see your operators or brand companies doing?

Speaker 8

It's been a tough couple of years with a lot of expense creep. So are there things that are realistically going to come to fruition that can help you next year and year after? Or do you think that's just kind of a very high level thing that doesn't flow through maybe to all the franchisees?

Speaker 2

Yes. Chris, I mean, we don't have any color on what Marriott's framing or thinking behind that. But what I would say, any that they can lower cost for franchisees, it's always a plus. And so we welcome and look forward to the benefits of their actions. I think that we're going to continue to collaborate with the brands and they're trying to be thoughtful in this moment and we're looking forward to receiving it.

Speaker 8

Okay, fair enough. Thanks, Leslie.

Speaker 4

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

Speaker 9

Thanks. Good afternoon all. I have a couple of leisure related questions for you. Starting in New York, I'm curious about your current expectations for the Knickerbocker demand or packaging into New Year's and how do bookings and overall spend compared to prior years? And I'm asking in part if there's any read through to changing leisure discretionary spend habits on either rooms or F and V?

Speaker 9

Thanks.

Speaker 2

Yes. I mean, Greg, what I would say, as I've mentioned before, that demand on the leisure side remains stable. And that we're when we sit here today relative to New Year's, the NIC is pacing fine and we're very encouraged by the overall demand trends that we're seeing. The reality of it is that the psychology around traveling remains. The consumer wants to travel.

Speaker 2

They're just being price sensitive about it. And so they are looking more at discount channels, they're booking out a little bit further because they're shopping. But overall, we feel very good about leisure demand trends. And what I would say is that our urban leisure rate remains very close to our peak levels. And so we haven't seen a meaningful drop off from that, which would obviously benefit the NIC in that discussion, both from a demand and from a rate perspective.

Speaker 2

So we feel good about how it's pacing.

Speaker 9

Okay, great. And shifting down to Florida, my understanding is that there may be ad campaigns from some of the Florida markets to draw demand in post hurricanes. And I'm curious if you have any concerns about any leisure travel demand impact even months after the hurricanes as we start thinking about the holidays and then to 1Q next year?

Speaker 3

As you know, we have a footprint on both the Southwest side as well as South Florida side going down towards Key West. And you're right, there are some adds that really attract continuation in regards to lesion. I think the great thing about our footprint is we have a variety of diversity down there in various locations. When you think about the West Coast, I think Tampa is getting the benefit unfortunately after the hurricane in regards to the remnants of folks trying to get back into their houses and everything. We have a renovation underway right now prior to season down in Estero.

Speaker 3

So we feel very good about set up for next year in 2025. And then most importantly in South Florida, when one coast struggles a little bit, typically the other coast benefits. And so what we find, Greg, is the leisure demand shifts a little bit because people still want to chase the sun and want to get to the beaches and that's a common approach in regards to what's happening. And many of those hotels down in South Florida have finished their renovations. So we're getting the benefit of that as well because the product is in great shape.

Speaker 9

Okay. Thanks, Tom. Appreciate it.

Speaker 4

Thank you. Ladies and gentlemen, our final question comes from the line of florist van Duijk with Compass Point. Please proceed with your question.

Speaker 10

Hey, thanks for taking my question. More on the capital allocation front, you still have a lot of cash on the balance sheet. You do have some renovations. But you sold a couple of assets. Are you how many more potential assets do you think you could sell in your portfolio over the next 12 months?

Speaker 10

And is that dependent on where the financing market, if that really loosens up? And also, how much do you see interesting opportunities to acquire assets, out there? And what kind of bid ask spread is there today relative to about 6 to 12 months ago?

Speaker 2

Hey, Floris, a lot backing that question. Let me see if I can hit it. Look, I think at the end of the day, we have to be back to portfolio managers. We have 95 assets. And so as the transaction market improves, we will continue to be opportunistic when it makes sense to sell assets based on our view of where markets are headed and how they're performing, etcetera, on that front.

Speaker 2

I would generally say that the bid ask spread remains wide today in the face of interest rates coming down as a seller. There's no need to come down in your view of value when you expect interest rates to come down. And so that remains wide and that goes back to my point about the transaction market continuing to be constrained over in the near term. We do expect transaction market to improve in 2025. It's probably the back half of twenty twenty five as we get past the election, as we see where interest rates sort of settle out.

Speaker 2

But that's all TBD in general. But you should expect us to continue to be active portfolio managers who are being opportunistic based on how we assess and monitor the markets.

Speaker 10

Thanks, Leslie.

Speaker 4

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Ms. Hale for any final comments.

Speaker 2

Thank you all for joining us today. We look forward to seeing many of you all in NAREIT. And thank you again for joining us.

Speaker 4

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

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Key Takeaways

  • RevPAR growth of 2% in Q3 doubled the industry rate and drove a 100 bp market‐share gain, supporting 3% total revenue growth, a 2.6% increase in EBITDA, and flat year-over-year margins.
  • Business transient RevPAR rose 8.7% (5.3% ADR, 3.4% occupancy) and group revenues grew 3.4%, keeping the full-year group pace mid-single digits ahead despite storms, while leisure demand remained stable.
  • Debt refinanced with a new $500 million term loan at pre-COVID pricing to cover 2024–25 maturities and hedges locking in a 4.5% weighted-average cost of debt, leaving $885 million of liquidity.
  • Recycled capital from a non-core hotel sale into repurchasing 2.2 million shares for $20.7 million and raised the quarterly dividend by 50% to $0.15 per share.
  • Completed two conversions (Wyndham Houston to DoubleTree and Indigo New Orleans to Hotel Tonale) with 17% RevPAR growth and maintains a cadence of two conversions per year through 2026.
  • Despite a ~100 bp Q4 RevPAR drag from Hurricane Milton and the election, full-year guidance is unchanged, and 2025 is expected to outperform via urban concentration, conversion ramps, improving business travel, and major citywide events.
AI Generated. May Contain Errors.
Earnings Conference Call
RLJ Lodging Trust Q3 2024
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