Q4 2023 RLJ Lodging Trust Earnings Call

Welcome to the R. O J lodging Trust fourth quarter 2023 earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator: Welcome to the RLJ Lodging Trust fourth quarter 2023 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. If anyone should require operator assistance during the conference, 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, and Treasurer. Please go ahead.

After the presentation, there will be an opportunity to ask questions. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad I would now like to turn the call over to Nick Coppola, Our L. G Senior Vice President Finance and Treasurer. Please go ahead.

Nikhil Bhalla: Thank you, operator. Good morning, and welcome to RLJ Lodging Trust's 2023 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 Barnett, 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-K and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements.

Thank you operator, good morning, and welcome to argue lodging Trust's 2023 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 Hartnett.

<unk> 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 could differ materially from what had been communicated.

Factors that may impact the results of the company can be found in the company's 10-K 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 maybe helpful to review the reconciliations to GAAP located.

Nikhil Bhalla: Also, as we discussed 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 was posted to our website last week, which includes the former operating results for our current hotel portfolio for 2023. I will now turn the call over to Leslie. Thanks, Nikhil.

In our press release.

Finally, please refer to the schedule of supplemental information, which are supposed to drive upside last night, which includes the former operating results.

Current hotel portfolio for 2022.

I will now turn the call over to Leslie.

Thanks, Nikhil good morning, everyone and thank you for joining us.

Leslie D. Hale: Good morning everyone, and thank you for joining us. We are very pleased with our fourth-quarter results, which outperformed the industry for the fourth consecutive quarter, demonstrating our strong growth profile and underscoring our ability to capture emerging demand trends. Our results this quarter exceeded our expectations and capped off a very successful year for RLJ, where we achieved top quartile REV PAR growth of 9%, driven by our urban portfolio and strong performance from our conversion. We exceeded our initial projections for our 2022 conversions, revenue enhancement, and margin expansion initiatives. We made significant progress on our second wave of conversions in Nashville, Houston, and New Orleans. We announced two more conversions, which included our two Pittsburgh assets.

We are very pleased with our fourth quarter results, which outperformed the industry for the fourth consecutive quarter, demonstrating our strong growth profile and underscoring our ability to capture emerging demand trends are.

Results this quarter exceeded our expectations and capped off a very successful year for our O J.

We achieved top quartile revpar growth, 9% driven by our urban portfolio and strong performance from our conversions.

We exceeded our initial projections for our 2022 conversions revenue enhancement and margin expansion initiatives.

We made significant progress on our second wave of conversions and Nashville, Houston and New Orleans.

We announced two more conversions, which included our two Pittsburgh assets.

Leslie D. Hale: We further strengthen our balance sheet by returning capital to our shareholders, and we recently acquired the Fee Simple Interest in our Boston Wyndham asset, pulling forward another growth opportunity. Our strong execution and results this year validate our thoughtful efforts to curate a high-quality portfolio with multiple channels of growth, which is giving us the ability to outperform on a relative basis this year and beyond. Now, relative to our operating performance for the quarter, our REVPAR grew by 5.2% over the prior year, outperforming the industry by four times and our competitive set by 290 basis points. Our year-over-year REVPAR growth accelerated from the third quarter by 180 basis points, benefiting from a balance between occupancy and ADR, demonstrating additional run room in demand and continued pricing power across our portfolio.

We further strengthen our balance sheet, while returning capital to our shareholders.

And we recently acquired the fee simple interest in our Boston Wyndham asset pulling forward another growth opportunity.

Our strong execution and results this year validate our thoughtful efforts to curate a high quality portfolio with multiple channels of growth, which is giving us the ability to outperform on a relative basis this year and beyond.

Now relative to our operating performance for the quarter.

Revpar grew by five 2% over the prior year output.

Outperforming the industry by four times, and our competitive set by 290 basis points.

Our year over year Revpar growth accelerated from the third quarter by 180 basis points benefiting from our balance between occupancy and ADR demonstrating additional run room in demand and continued pricing power across our portfolio.

Leslie D. Hale: We are pleased to see this positive momentum carry into January, which achieved close to six percent REDPAR growth. Our urban markets were the underlying driver of our red part growth. These markets continue to benefit from robust group demand, the ongoing improvement in business travel, and emerging international inbound demand. Additionally, urban leisure remained healthy, as large-scale events related to concerts and sports, as well as other leisure activities, drove strong weekend demand.

We are pleased to see this positive momentum carry into January which achieved close to 6% Revpar growth.

Our urban markets, where the underlying driver of our Revpar growth. These markets continue to benefit from robust group demand.

Ongoing improvement in business travel and emerging international inbound demand.

Additionally, urban leisure remained healthy as large scale events related to concerts and sports as well as other leisure activity drove strong weekend demand.

These trends were broad based with a number of our urban markets, such as Boston, Pittsburgh, Southern California, South, Florida, and Denver, achieving double digit revpar growth.

Leslie D. Hale: These trends were broad-based, with a number of our urban markets, such as Boston, Pittsburgh, Southern California, South Florida, and Denver, achieving double-digit revenue increases. The fourth quarter also saw exceptional growth at our three conversions in Charleston, Mandalay Beach, and Santa Monica. In terms of segmentation, the positive momentum in business travel led our BT revenues to increase to 79% of 2019 levels, a new high water mark and a 400 basis point improvement from the third quarter. Our growth in BT revenues was balanced between 7% growth in room nights and 6% growth in ADR.

Fourth quarter also saw exceptional growth in our three conversions in Charleston, Mandalay Beach in Santa Monica.

In terms of segmentation.

The positive momentum in business travel, let our BT revenues to increase to 79% of 2019 levels, a new high watermark and a 400 basis point improvement from the third quarter.

Our growth in BT revenues was balanced between 7% growth in room nights and 6% growth in ADR.

Leslie D. Hale: Contributing to our weekday revenues, achieving 94% of 2019 levels, which was a 100 basis point sequential improvement from the third quarter. In addition to strong demand from SMEs, we are also seeing continued improvement in production from traditional BT sources such as finance, technology, pharma, and aerospace. Relative to the group, demand remains healthy. In addition to strong attendance at CityWides, the growth in small, self-contained groups is driving the improvement in

Contributing to a weekday revenues achieving 94% of 2019 levels, which was 100 basis point sequential improvement from the third quarter.

In addition to strong demand from Smes. We are also seeing continued improvement in production from traditional BT sources, such as finance technology pharma and aerospace.

Relative to group demand remains healthy.

In addition to strong attendance at city Wides the growth in small self contained group is driving the improvement in this segment.

Leslie D. Hale: All of which led our fourth quarter group revenues to increase by mid-single digits over the prior year. We expect small group demand to remain strong, and our hotels are in the sweet spot to cater to this growing segment given the attractiveness of our meeting space configuration to this segment. Finally, we were encouraged to see healthy leisure trends persist throughout the quarter, especially around holidays, benefiting our resorts, which achieved 6.6% red part growth. With many people settling into a hybrid schedule, weekend demand continued to be strong across our portfolio, especially for urban weekends, which outperformed our portfolio.

All of which led our fourth quarter group revenues to increase by mid single digits over the prior year.

We expect small group demand to remain strong and our hotels are in the sweet spot to cater to this growing segment given the attractiveness of our meeting space configuration to the segment.

Finally, we were encouraged to see healthy leisure trends persist throughout the quarter, especially around holidays.

Fitting our resorts, which achieved six 6% revpar growth with many people settling into a hybrid scheduled weekend demand continued to be strong across our portfolio, especially for urban weekends, which outperformed our portfolio.

Leslie D. Hale: The strength across all segments of demand during the fourth quarter, combined with strong growth of 8.1% in our non-room revenues, led our total revenues to increase by 5.7%. This strong growth translated into positive year-over-year EBITDA growth of 2.3%, which speaks to our lean operating model. Turning to Capital Allocation.

The strength across all segments of demand during the fourth quarter combined with strong growth of eight 1% and our non room revenues, let our total revenues to increase by five 7%. This strong growth translated into positive year over year EBITDA growth of two 3%, which speaks to our lean operating model.

Turning to capital allocation.

Leslie D. Hale: Our initial conversions are yielding strong results that are pacing ahead of our expectations. We were pleased to provide updated projections, outlining the incremental upside, and to showcase the high-quality renovations at the Pearside in Santa Monica and Sicari Dunes on Mandalay Beach to many of you recently. The strong results from these assets bolstered our confidence in the next wave of our conversion. During the year, we initiated physical conversions in New Orleans and Houston, which will position them for a strong ramp. And we are on track to begin Nashville's renovation later this year. We made great strides towards continuing to unlock incremental embedded growth by announcing that the Renaissance Pittsburgh Hotel will join Marriott's autographed collection and that the Wyndham-Pittsburgh University Center will be converted to a courtyard by Marriott.

Our initial conversions are yielding strong results that are pacing ahead of our expectations.

We were pleased to provide updated projections outlining the incremental upside and to showcase the high quality renovations at the peer side in Santa Monica and Sakari dunes on Mandalay Beach to many of you recently.

Wrong results from these assets bolstered our confidence in the next wave of our conversions during the year, we initiated the physical conversions in New Orleans, and Houston, which will position them for a strong ramp and we are on track to begin Nashville's renovation later this year.

We made great strides towards continuing to unlock incremental embedded growth by announcing that the Renaissance of Pittsburgh Hotel will join Marriott's autograph collection and at the Wyndham Pittsburgh University Center will be converted to a courtyard by Marriott.

Additionally, we executed the optionality that our strong balance sheet provide by returning capital to our shareholders through Opportunistically repurchasing $77 million of shares in an attractive price, while doubling our dividend during the year.

Leslie D. Hale: Additionally, we executed the optionality that our strong balance sheet provides by returning capital to our shareholders through opportunistically repurchasing $77 million of shares at an attractive price while doubling our dividend during the year. The execution of these initiatives has been made possible by the strength of our balance sheet, which also gives us the capacity for external growth. More recently, we acquired the fee-simple interest in the 304-room Boston Wyndham Beacon Hill from the Groundless Org.

The execution of these initiatives.

Has been made possible by the strength of our balance sheet, which also gives us the capacity for external growth.

More recently, we acquired the fee simple interest in the 304 room, Boston Wyndham Beacon Hill from the ground lessor.

Leslie D. Hale: We took advantage of our unique position to secure full ownership in order to unlock another compelling conversion opportunity. We acquired this irreplaceable real estate for $125 million, representing $411,000 per key. A meaningful discount to recent hotel trades in Boston. The hotel benefits from an A-plus location in Boston's Beacon Hill neighborhood, surrounded by Mass General, which is currently undergoing a $1.8 billion expansion. The acquisition will allow us to move forward with executing the same conversion playbook that has been successful for RLJ. This asset is highly attractive to numerous brands given the demand dynamics of the market. Our deep institutional knowledge of the overall market, the hotel's bullseye location within the sub-market, and the quality of the asset give us confidence that upon conversion, there is 40 plus percent upside to the hotel's current EBITDA.

We took advantage of our unique position to secure full ownership in order to unlock another compelling conversion opportunity.

We acquired this irreplaceable real estate for $125 million, representing $411000 per key.

A meaningful discount to recent hotel trades in Boston.

The hotel benefits from an a plus location in Boston Beacon Hill neighborhood surrounded by mass General, which is currently undergoing a 1.8 billion dollar expansion.

The acquisition will allow us to move forward with executing the same conversion playbook that has been successful for our O J.

This asset is highly attractive to numerous brands given the demand dynamics of the market.

Our deep institutional knowledge of the overall market the hotels Bull's eye location within the Submarket and the quality of the asset gives us confidence that upon conversion. There is 40 plus percent upside to the hotel's current EBITDA.

Leslie D. Hale: We look forward to providing additional details around the conversion of the hotel after we finalize the negotiations with the brand. Overall, we are encouraged by the pipeline of off-market external growth opportunities that we are seeing. The current backdrop of constrained lending provides a significant advantage to all cash buyers like RLJ. That said, we will continue to maintain our discipline as we have demonstrated.

We look forward to providing additional details around the conversion of the hotel after we finalize the negotiations with the brand.

Overall, we are encouraged by the pipeline of off market external growth opportunities that we are saying.

The current backdrop of constrain lending provides a significant advantage to all cash buyers like Earl Jay.

That said, we will continue to maintain our discipline as we have demonstrated.

As we look ahead to 2024.

Leslie D. Hale: As we look ahead to 2024, while economic uncertainty persists, we remain optimistic that industry fundamentals will achieve positive growth this year, especially against a backdrop of minimal new supply. We believe that urban markets will continue outperforming the industry as urban is poised to disproportionately benefit from the strong group trend. The Recovery and Business Transient Demand and Improving Inbound International Travel. We also expect more pronounced divergence in individual market performance to emerge, given citywide calendars, the location of large leisure-oriented events, and inbound international travel.

While economic uncertainty persists, we remain optimistic that industry fundamentals will achieve positive growth this year, especially against the backdrop of minimal new supply.

We believe in urban markets will continue outperforming the industry as urban is poised to disproportionately benefit from a strong group trends.

The recovery in business transient demand and improving inbound international travel.

We also expect more pronounced divergence in individual market performance to emerge given citywide calendars the location of large leisure oriented events and inbound international travel.

Given our footprint, which should benefit from these trends.

Leslie D. Hale: Given our footprint, we should benefit from these trends. We are positioned to outperform this year. There are several key markets that we expect to be strong this year. Boston should outperform due to a strong citywide calendar, robust business travel from Boston-based industries such as biotech and higher education, and Boston's attractive positioning for inbound international travel. Southern California should outperform as a result of a strong San Diego citywide count.

We are positioned to outperform this year.

There are several key markets, which we expect to be strong this year.

Boston should outperform do a strong citywide calendar robust business travel from Boston based industries, such as biotech and higher education, and Boston's attractive positioning to inbound international travelers.

Southern California should outperform as a result of a strong San Diego city wide calendar, improving business transient from aerospace and a post writer strike backlog of demand from Hollywood related industries, and increased inbound international visitation, especially from Asia.

Leslie D. Hale: Improving business transient from aerospace and a post-writer-strike backlog of demand from Hollywood-related industries and increased inbound international visitation, especially from Asia. New York is expected to benefit from improving travel related to the financial sector, continued strong leisure, and increasing inbound international demand during a period of favorable demand supply dynamics. And while we remain sober about Northern California's slow recovery and fewer citywides this year, there are some encouraging green shoots in the market, such as improving perceptions of San Francisco's safety, increasing return to office mandates by tech companies and investors, as well as venture capitalists returning to San Francisco due to the concentration of tech talent and AI startups. Additionally, we expect that Travel will continue to benefit from robust self-contained and small group bookings, as well as strong citywide calendars in many major U.S. markets, supported by our group booking pace being 12% ahead of 2023. And, overall leisure travel should remain healthy, led by the strength in urban leisure, which should continue to benefit from hybrid work flexibility and large-scale events, including sports, concerts, and other activities.

New York is expected to benefit from improving travel related to the financial sector continued strong leisure and increasing inbound international demand during a period of favorable demand supply dynamics.

And while we remain sober to northern California, slow recovery and fewer city Wides this year.

There are some encouraging green shoots in the market such as improving perception of San Francisco safety, increasing return to office mandates by tech companies and investors as well as venture capitalists, returning the San Francisco due to the concentration of tech talent and AI startups.

Additionally, we expect that group.

Group will continue to benefit from robust self contained and small group bookings as well as strong citywide calendars in many major U S markets.

Supported by our group booking pace being 12% ahead of 2023.

And overall leisure travel should remain healthy led by the strength in urban leisure, which should continue to benefit from hybrid work flexibility and large scale events, including sports concerts and other activities.

Longer term, we are optimistic about the positive trajectory of lodging fundamentals are.

Leslie D. Hale: Longer term, we are optimistic about the positive trajectory of lodging fundamentals. Our confidence continues to be supported by the ongoing shift of consumer preferences towards experience. The improvement in business demand, the continuing recovery in inbound international travel, and the growth of citywide events and attendance. All these positive trends will disproportionately benefit urban markets, especially against the backdrop of an elongated period of limited new supply, allowing these markets to outpace the overall industry growth for several years. As this new normal takes hold, our portfolio is well positioned to capture growth in all segments of demand. Over the last several years, we have intentionally repositioned our portfolio into prime locations that benefit from seven-day-a-week demand within urban markets, allowing us to benefit from these emerging trends, in addition to growth from our acquisitions and conversions. We believe that all of these tailwinds should allow us to continue to outperform the industry.

Our confidence continues to be supported by the ongoing shift of consumer preferences towards experiences the improvement in business demand. The continued recovery in inbound international travel and the growth of citywide events in attendance.

All of these positive trends will disproportionately benefit urban markets, especially against the backdrop of an elongated period of limited new supply, allowing these markets to outpace the overall industry growth for several years.

As this new normal takes hold our portfolio is well positioned to capture growth in all segments of the man.

Over the last several years, we have intentionally reposition our portfolio into prime locations and benefit from seven day, a week demand within urban markets, allowing us to benefit from these emerging trends.

In addition to growth from our acquisitions and conversions.

We believe that all of these tailwind should allow us to continue to exceed the industry.

Our growth profile will be bolstered by <unk>.

Leslie D. Hale: Our growth profile will be bolstered by our high-quality portfolio, which is built to capture the growing live-work-play trends in urban markets. The continuing and future upside from our announced conversions. The embedded incremental growth from executing on our future pipeline of conversions and ROI opportunities. The tailwinds from our recent renovations in South Florida and Southern California.

Our high quality portfolio, which is built to capture the growing live work play trends in urban markets.

The continuing in future upside from our announced conversions the embedded incremental growth from executing on our future pipeline of conversions and ROI opportunities.

The tailwind from a recent renovations in south, Florida, and Southern California.

Leslie D. Hale: The significant free cash flow generated by our portfolio to self-fund growth and the continued optionality created by our strong balance sheet will allow us to deliver attractive shareholder returns over the long term. Overall, I could not be more proud of the efforts of our entire team, including our operators, whose many contributions have positioned us to drive significant shareholder value over the next several years. I will now turn the call over to Sean.

The significant free cash flow generated by our portfolio to self fund growth.

And the continued optionality created by our strong balance sheet, which will allow us to deliver attractive shareholder returns long term.

Overall, I could not be more proud of the efforts of our entire team, including our operators, whose many contributions have positioned us to drive significant shareholder value over the next several years.

I will now turn the call over to Sean.

Sean M. Mahoney: Thanks, Leslie. To start, our comparable numbers include our 96 hotels owned throughout 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 were pleased to report strong fourth quarter operating results, which once again demonstrated the runway for growth embedded in our urban-centric portfolio. Our fourth quarter REPAR growth of 5.2% was driven by a 1.5% increase in ADR and a 3.6% increase in occupancy. Fourth quarter occupancy was 69.3%, which was 92% of 2019 levels. The average daily rate was $193, achieving 107% of 2019, and REFR was $134, which achieved 99% of 2019, the highest level since the start of the pandemic. In particular, our urban markets outperformed, with REFBAR exceeding 2019 levels at 101%, including ADR at 111% of 2019.

Sean.

Thanks, largely to start our comparable numbers include our 96 hotels owned throughout the fourth quarter. However.

Our reported corporate adjusted EBITDA and F. F. O include operating results from all sold and acquired hotels during oral Jay's ownership period.

We were pleased to report strong fourth quarter operating results, which once again demonstrated a runway for growth embedded in our urban centric portfolio.

Our fourth quarter Revpar growth of five 2% was driven by a one 5% increase in ADR and a three 6% increase in occupancy.

Fourth quarter occupancy was 69, 3%.

It was 92% of 2019 levels.

<unk> daily rate was $193, achieving a 107% of 2019 and Revpar was $134, which achieved 99% of 2019, the highest level since the start of the pandemic.

In particular, our urban markets outperformed with Revpar exceeding 2019 levels at 101%.

Including ADR at 111% of 2019.

Revpar in most of our urban markets exceeded 2022, including Boston at 121%, Los Angeles at 118% Pittsburgh at 119%.

Sean M. Mahoney: Revpar and most of our urban markets exceeded 2022, including Boston at 121%, Los Angeles at 118%, Pittsburgh at 119%, San Francisco at 113%, Denver at 110%, New York at 104%, and Washington, D.C. at 105%. Monthly REPAR growth throughout the fourth quarter exceeded 2022 for each month. Red part growth was 6.4% in October, 5.6% in November, and 3% in December, and it achieved 101%, 96%, and 99% of 2019 levels during October, November, and December, respectively.

Dan Francisco at 113% Denver at 110%, New York at 104% and Washington D C at 105%.

Monthly revpar growth throughout the fourth quarter exceeded 2022 for each month.

Revpar growth was six 4% in October five 6% in November and.

3% in December.

And achieved 101%, 96% and 99% of 2019 levels During October November and December respectively.

Some of the Revpar our monthly total revenue growth above 2022 benefited from continued out of room spend and was seven 6% in October five 3% in November and three 7% in December.

Sean M. Mahoney: Similar to RevPAR, our monthly total revenue growth above 2022 benefited from continued out-of-room spend and was 7.6% in October, 5.3% in November, and 3.7% in December, and achieved 102%, 96%, and 100% of 2019 levels during October, November, and December, respectively. We are encouraged by the start of the year, where we saw positive momentum in January, which is always a seasonally slower month, with rent per square foot growth of January REPAR was driven by occupancy of 62% and an ADR of approximately $191, representing 104% and 102% of January 2023.

And achieved 102%, 96% and 100% of 2019 levels During October November and December respectively.

We are encouraged by the start of the year, where we saw positive momentum in January which is always a seasonally slower months.

With Revpar growth of five 8% above January 2023.

January Revpar was driven by occupancy up 62% and.

An ADR of approximately $191.

Representing a 104% at 102% of January 2023.

Sean M. Mahoney: Turning to the current operating cost environment, recent inflationary pressures continued to normalize during the fourth quarter. On a per occupied room basis, total hotel operating cost growth was limited to 3.4%, which is 260 basis points lower than the third quarter, underscoring the benefits of our portfolio construct and our initiatives to redefine our operating cost model. Total fourth-quarter hotel operating costs were only 4.3% above 2019 levels, meaningfully below the aggregate core CPI growth rate since 2019. Drilling down further into hotel operating expenses, fixed costs such as insurance and property taxes were the most significant driver of the year-over-year increases in hotel operating expenses, increasing 16% during the fourth quarter. The increases in fixed costs are impacting most industries and are not specific to the lodging industry.

Turning to the current operating cost environment recent inflationary pressures continue to normalize during the fourth quarter.

On a per occupied room basis total hotel operating cost growth was limited to three 4%.

Which is 260 basis points lower than the third quarter.

Underscoring the benefits of our portfolio construct and our initiatives to redefine our operating cost model.

Total fourth quarter hotel operating costs were only four 3% above 2019 levels.

Meaningfully below the aggregate core CPI growth rates since 2019.

Drilling down further into hotel operating expenses fixed cost such as insurance and property taxes were the most significant driver of the year over year increases in hotel operating expenses, increasing 16% during the fourth quarter.

The increases in fixed costs are impacting most industries and are not specific to the lodging industry.

We are encouraged by the trends on the more controllable variable hotel operating costs, which grew six 6% above 2022 are only two 8% on a per occupied room basis.

Sean M. Mahoney: We are encouraged by the trends on the more controllable, bearable hotel operating costs, which grew 6.6% above 2022 or only 2.8% on a per occupied room basis. Finally, fourth quarter wages and benefits, our most significant operating cost at approximately 40% of total costs, remain generally in line with 2019 levels at 104%. There are many factors that influence these positive results.

Finally fourth quarter wages and benefits our most significant operating costs at approximately 40% of total costs.

Generally in line with 2019 levels at 104%.

There are many factors that influence these positive results with the most significant contributors being the successful restructuring of many of our third party operating agreements and our lean operating model with 18% fewer ftes in 2019.

Sean M. Mahoney: With the most significant contributors being the successful restructuring of many of our third-party operating agreements and our lean operating model with 18% fewer FTEs than 2019. Our portfolio remains well positioned to maintain fewer FTEs, given our lean operating model, smaller footprint, limited F&B operations, and longer lengths of stay.

Our portfolio remains well positioned to maintain fewer ftes given our lean operating model smaller footprints limited F&B operations and longer lengths of stay.

Our fourth quarter operating trends, let our portfolio to achieve hotel EBITDA of $89 $6 million.

Sean M. Mahoney: Our fourth quarter operating trends led our portfolio to achieve hotel EBITDA of $89.6 million and hotel EBITDA margins of 28.1%. We were pleased with our operating margin performance, which was only 93 basis points lower than the comparable quarter of 2022, despite continued cost pressure. Turning to the bottom line, our fourth-quarter adjusted EBITDA was $79.2 million, and adjusted FFO per diluted share was $0.34, which came in towards the high end of our guide. During 2023, we were very active in managing our balance sheet to create additional flexibility and further lower our cost of capital, which included extending $425 million of mortgage debt. Recasting our $600 million corporate revolver and entered into a $225 million term loan. The execution of these transactions is a testament to our strong lender relationships and favorable credit profile. We also took advantage of interest rate volatility to proactively manage our interest rate risk by entering into $525 million of new interest rate swaps during the year.

Hotel EBITDA margins of 28, 1%.

We were pleased with our operating margin performance, which was only 93 basis points lower than the comparable quarter of 2022, Despite continued cost pressures.

Turning to the bottom line, our fourth quarter, adjusted EBITDA was $79 $2 million and adjusted <unk> per diluted share was 34 cents.

Which came in towards the high end of our guidance.

During 2023, we were very active in managing our balance sheet to create additional flexibility and further lower our cost of capital, which included extending $425 million of mortgage debt.

Recasting, our $600 million corporate revolver.

And entered into a $225 million term loan.

It'd be execution of these transaction is a testament to our strong vendor relationships and favorable credit profile.

We also took advantage of interest rate volatility to proactively manage our interest rate risk by entering into a $525 million of new interest rate swaps during the year.

Sean M. Mahoney: Turning to 2024, we will extend our $181 million in mortgage loans and are in the process of refinancing our $200 million secured loan, which is on track to wrap up during the second quarter. Today, our balance sheet is well positioned with an undrawn corporate revolver, our current weighted average maturity is approximately 2.9 years, and 81 of our 96 hotels are unencumbered by debt. Our weighted average interest rate is an attractive 4.12%, and 89% of debt is either fixed or hedged. As it relates to our liquidity, we ended the quarter with approximately $517 million of unrestricted cash.

Turning to 'twenty 'twenty, four we will extend our $181 million of mortgage loans.

And are in the process of refinancing our $200 million secured loan which is on track to wrap up during the second quarter.

Today, our balance sheet is well positioned with an undrawn corporate revolver. Our current weighted average maturity is approximately 2.9 years 81 of our 96 hotels are unencumbered by debt.

Our weighted average interest rate is an attractive $4, one, 2% and 89% of debt is either fixed or hedged.

As it relates to our liquidity, we ended the quarter with approximately $517 million of unrestricted cash.

Sean M. Mahoney: $600 million of availability on our corporate revolver and $2.2 billion of debt. With respect to capital allocation, as Leslie said, we remain committed to returning capital to shareholders through a combination of both share purchases and dividends. During the fourth quarter, we were active under our $250 million share repurchase program and repurchased approximately 930,000 shares for $9.9 million at an average price of $10.69 per share. In total, during 2023, we repurchased approximately 7.6 million shares for $77.2 million at an average price of $10.20 per share.

$600 million of availability on our corporate revolver and $2 $2 billion of that.

With respect to capital allocation as well as Lee said, we remain committed to returning capital to shareholders through a combination of both share repurchases and dividends.

During the fourth quarter, we were active under our $250 million share repurchase program and repurchased approximately 930000 shares for $9 $9 million at an average price of $10 69 per share.

In total during 2023, we repurchased approximately seven 6 million shares for $77 $2 million at an average price of $10 20 per share.

Additionally, we ended the year with a quarterly common dividend of <unk> 10 per share, which is well covered and supported by our free cash flow.

Sean M. Mahoney: Additionally, we ended the year with a quarterly common dividend of $0.10 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 our overall balance sheet flexibility. Turning to our outlook, based on our current view, we are providing full year 2024 guidance that anticipates a continuation of the current operating and macroeconomic environment. For the full year 2024, we expect comparable REPAR growth between 2.5% and 5.5%, and comparable hotel EBITDA between $395 million and $425 million. Corporate adjusted EBITDA was between $360 million and $390 million, and adjusted FFO per diluted share was between $1.55 and $1.75.

We will continue making prudent capital allocation decisions to position our portfolio to drive results during my entire lodging cycle, while monitoring the financing markets to identify additional opportunities to improve the ladder our maturities.

Reduce our weighted average cost of debt and increase our overall balance sheet flexibility.

Turning to our outlook based on our current view, we are providing full year 2024 guidance that anticipate a continuation of the current operating and macroeconomic environment.

For the full year 2024, we expect comparable revpar growth between two 5% and five 5%.

Comparable hotel EBITDA between $395 million and $425 million.

Corporate adjusted EBITDA between $360 million and $390 million.

And adjusted <unk> per diluted share between $1 55, and $1 75.

Our outlook assumes no additional acquisitions after the Wyndham, Boston and no dispositions refinancings or share repurchases.

Sean M. Mahoney: Our outlook assumes no additional acquisitions after the wind in Boston and no dispositions, refinancings, or share repurchases. We estimate 2024 RLJ capital expenditures will be in the range of $100 million to $120 million, and net interest expense will be in the range of $91 million and $93 million. Our net interest expense will be higher than 2023 due to the impact of expiring swaps that had lower interest rates. With respect to the cadence for the year, we expect 2024 to follow similar quarterly seasonal patterns as 2023, other than the first quarter, which will be impacted by the timing of Easter and difficult comps to the significant growth rates during the first quarter of 2023. Finally, please refer to the supplementary information, which includes comparable 2023, 2022, and 2019 quarterly and annual operating results for our 96 Hotel portfolio. Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator.

We estimate 2024 R O J capital expenditures will be in the range of $100 million to a $120 million and net interest expense will be in the range of $91 million and $93 million.

Our net interest expense will be above 2023, due to the impact of expiring swaps that had lower interest rates.

With respect to the cadence for the year, we expect 2024 to follow similar quarterly seasonal patterns as 2023 other than the first quarter, which will be impacted by the timing of Easter and difficult comps to the significant growth rates during the first quarter of 2023.

Finally, please refer to the supplemental information, which includes comparable 2023, 2022, and 2019 quarterly and annual operating results for our pork 96 hotel portfolio.

Thank you and this concludes our prepared remarks, we will now open the line for Q&A operator.

Thank you we will now be conducting a question and answer session.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Your line confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

I would like to ask a question. Please press star one on your telephone keypad.

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Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Anthony Powell with Barclays. Hi, good morning.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the darkies one moment. Please while we poll for questions.

Thank you. Our first question comes from the line of Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning.

Anthony Powell: I have a few questions on the Wyndham-Beacon Hill deal. Could you maybe talk about Molespore, Caprate, or any way you quantify, I guess, the valuation of the transaction? Anthony, thanks for the question and good morning.

A few questions on the Wyndham Beacon Hill deal could you maybe talk about.

Multiple or cap rate or any way you can quantify I guess the valuation of the transaction.

Hey, Anthony Thanks for the question and good morning, well, let me, let me frame the transaction and will answer to your question I think that.

Leslie D. Hale: Let me frame the transaction and we'll answer your question. I think that through our leasehold, we had the right to the cash flows for the next four and a half years. This transaction gave us the ability to buy the asset fee simply and have the right to the cash flows forever.

Through our leasehold, we had the right to the cash flows for the next four and a half years. This transaction gave us the ability to buy the asset fee simple and have the rights to the castles forever.

Leslie D. Hale: We took advantage of our unique position as leaseholder to have a competitive advantage. We used that competitive advantage and the current backdrop to give us the ability to buy the asset at a very attractive level. The most recent transaction that happened at the Whitney was only four blocks away from our asset. It traded for $875,000 a key.

We took advantage of our unique position as leasehold or to them to have a competitive advantage, we use that competitive advantage.

And the current backdrop to give us the ability to buy the asset at a very attractive level. Most recent transaction that happened at.

At the Whitney was only four blocks away from our asset at trade. It for 875000, a key Oh, yeah. We believe the value that we bought this at at is at a significant discount to what we would've had to pay at the end of our lease I mean keep in mind that this is bullseye real real estate, it's got significant F. A R. It's scarcity of land.

Leslie D. Hale: We believe the value that we bought it at is at a significant discount to what we would have had to pay at the end of our lease. Keep in mind that this is bullseye real estate, it's got significant FAR, it's the scarcity of land value in Boston, and we would have had no leverage. We would have been competing against not only hoteliers, but also against alternative uses and clearly Mass General, who has billions of dollars to deploy towards strategic acquisitions. We believe that getting access to the upside of this asset earlier, getting a discount on what we would have had to compete for at the end of our lease, more than offsets any remaining cash flow that we would have had in our lease term.

Are you in Boston, and we would've had no leverage than we would've been competing against we would've been competing against not only hotel errors, but we've also been competing against alternative use and it clearly mass general who has billions of dollars to deploy through towards strategic acquisitions.

And so we believe that getting access to the upside of this asset earlier getting a discount to what we would've had to compete for and you know at the end of our lease more than offsets any remaining castle that we would've had a you know in our lease term and it allows us to unlock a another compelling value creation.

Leslie D. Hale: It allows us to unlock another compelling value creation opportunity, which we believe has 40 plus percent upside to the current EBITDA. From our perspective, we underwrote this to stabilize at an $8.00 and $8.50 a multiple on the purchase price. If you add in the CapEx based on the brands that we're looking at, it's another turn and a half. Okay, so nine to nine and a half, it gets stabilized after tap X. Is that the way you think about it? Yeah, it's rough.

It's an opportunity.

And which we believe has 40 plus percent upside to the current EBITDA and from our perspective, we underwrote this to stabilize at an eight and eight and a half a multiple on our purchase price and if you add in the Capex based on the brands that we're looking at it as another turn to turn and a half.

Okay. So march nine and a half ago stabilized after capex.

When you think about it.

Yeah roughly.

Leslie D. Hale: Okay, all right. And this may be one more in terms of leisure trends. When you combine your weekend leisure plus your resort demand, it seems like you guys are doing pretty well in leisure generally, so maybe talk about how leisure as a whole is looking this year, what the trend of the back cap was last year, and do you see that stabilization and improvement happening in that part of the business? Our general perspective is that leisure activity remains healthy.

Okay, Alright, and just maybe one more on that in terms of our leisure trends.

By your weekend leisure plus a resort.

Man.

It seems like you guys are doing pretty well and things are generally so maybe talk about how user as a whole is looking like a C or how does it extend to the back half of last year and you've got stabilization, that's really been happening in that part of the business.

Yeah, I mean, our general perspective is that Lisa remains healthy our total revenues were up four 3% year over year in the fourth quarter and that was room night, driven if we look at our just our weekends or weekends were up four 4% year over year and that was driven by two thirds demand as well urban weekends continued to be a straw.

Leslie D. Hale: Our total revenues were up 4.3% year-over-year in the fourth quarter, and that was room-night driven. If we look at just our weekends, our weekends were up 4.4% year-over-year, and that was driven by two-thirds demand as well. Urban weekends continued to be strong.

Ron we're allowed 114% of 2019 levels on urban weekends, and that's 200 basis points ahead of where our overall portfolio was at.

Leslie D. Hale: We're about 114% of 2019 levels on urban weekends, and that's 200 basis points ahead of where our overall portfolio is at. As you mentioned, our results were strong in the fourth quarter, up 6.6%, and it's benefiting, obviously, from our conversions, but we saw strength in South Florida, which was up 10% in the fourth quarter. Southern California was up, too.

You mentioned our results were strong in the fourth quarter up six 6% and it's benefiting obviously from our convergence, but we saw strength in South, Florida, which was up 10% in the fourth quarter Southern California was up. Its also you know we're clearly benefiting from the continued flexibility that that you know the work life a live environment provides us.

Leslie D. Hale: We're clearly benefiting from the continued flexibility that the work-life-live environment provides us. I would also say that as we look forward into the year, we expect leisure to remain strong and to be balanced between rate and OCK, and urban leisure is going to drive that for us. Okay, thank you. Our next question comes from the line of Gregory Miller with Truist. Please proceed with your question. Thanks. Good morning, everybody.

I would also say that as we look forward into the year, we expect leisure to remain strong and to be balanced between rate and an ark and urban leaf is going to drive that for us.

Yes.

Okay. Thank you.

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

Thanks, Good morning, everybody.

Gregory Miller: I'd like to start off with Marriott in Louisville. Share your thoughts about properties, the expectations for you all for 24 on that property, maybe about group pace or overall growth, which is relevant to the full portfolio. Yeah, good morning, Greg.

I want to start off with the Marriott Louisville could you share your thoughts about that properties.

Such statements for you all for 'twenty four in that property, maybe about group pace or overall growth desperate.

Relative to the full portfolio guidance.

Thanks.

Yeah, Good morning, Greg.

Tom Barnett: What I would say is Marriott Louisville is not only coming off of a good year this year, but in 2023, it had about 22% Rev Park growth. And the great thing about that Rev Park growth, almost all of it came in ADR compared to 2019. And when we look into 2024, we're also very encouraged. Your question about group pace: we're at 107%. And as you know, our location is connected to the Convention Center. So we're in position A. And a couple things that I would also add. This year, we got a couple special events. It's the 150th year of the Kentucky Derby, and it will be celebrated. And one of the four major golf tournaments, the PGA Tour, will be in Valhalla this year.

What I would say is our Marriott Louisville, not only is coming off a good year. This year because in 2023, it had about a 22% revpar growth.

And the great thing about that Revpar growth almost all of it came in ADR compared to 2019, and when we look into 2020. Four. We're also very encouraged your question about group group pace, we're at 107% and as you know our location is connected to the convention center. So we're in position a N a.

A couple of things that I would also add this year, we got a couple of special events. It's 150 S ear of Kentucky Derby will be celebrated and one of the four major golf tournaments are the PGA tournament will be in Valhalla. This year. So we get some benefits from that and lastly, as Leslie mentioned urban leisure the Bourbon.

Tom Barnett: So we get some benefits from that. And lastly, as Leslie mentioned, urban leisure, the Bourbon Trail is just another example of enjoying the venues that are driving that type of demand in an urban environment like that. And I would just sort of add, just in general, that our portfolio diversification is going to be really strong this year. We mentioned in our prepared remarks that Boston, New York, and Southern California are going to be strong, but we also see strength in Atlanta, Louisville, in terms of what Tom talked about, Denver, Pittsburgh, and Orlando as well. So diversification is obviously benefiting our portfolio. All right, thanks.

Trial is just another type of example of enjoying the venues that are driving that type of demand in an urban environment like that.

And I would just sort of add just in general that you know our portfolio diversification is going to be really strong this year and we mentioned in our prepared remarks at Boston, New York and Southern California are going to be strong, but we also see strength in Atlanta Louisville in terms of what Tom talked about Denver, Pittsburgh in Orlando as well. So diversification has obviously benefited our portfolio.

Alright. Thanks.

Leslie D. Hale: And then for the follow-up question, I'd like to ask about the transactions environment today. Your current expectations for upscale, chain-scale transactions this year, perhaps coming out of the ALICE conference, do you anticipate that there's going to be a pickup in activity in the back half of this year? Or, at this stage, do you think some of the hype is likely to be unrealized?

A follow up question I'd like to ask about the transactions environment today.

Your current expectations for upscale chain scale transactions this year, perhaps coming out of the analyst conference.

Do you anticipate that there's going to be a pickup in activity in the back half of this year or at this stage do you think some of the hype is likely to be unrealized.

Leslie D. Hale: No, look, I think as we sit here today, transaction volume continues to be constrained, but we do have an expectation, like the broader market, that transactions will improve, and volume will improve in the back half of the year, given the expectations around interest rates coming down. And that optimism has sort of flushed itself out through increased conversations in general, more previews of assets at Alice's, which you just mentioned, and BOBs are being done. And I think in general, because the concept of a recession is generally off the table, sellers have been able to, and people have been able to sort of underwrite a little bit more clarity, and so as a result, while the bid-ask hasn't closed, it's gotten a little bit closer, and that makes things more actionable.

No look I think as we sit here today, you know transaction volume continues to be constrained, but we do have an expectation like the broader market that transactions will improve the volume will improve in the back half of the year given the expectations around interest rates coming down and that optimism has sort of flushed itself out through incurred increased.

Our stations in general are more previews of assets at Al <unk>, which you just mentioned D. O vs are being done.

And I think in general because the concept of a recession is generally off the table you know sellers have been able to when people have been able to sort of underwrite a little bit more clarity and so as a result, while the bid ask hasn't close it's gotten a little bit closer and that makes things more more actionable and we also think that creates a very attractive.

Leslie D. Hale: And we also think that creates a very attractive environment for all cash buyers, at least for the next couple of quarters, until interest rates come down. And the longer it takes for interest rates to come down, that window for all cash buyers is elongated from that perspective. And what we're seeing, you know, from our perspective is that, you know, our team is actively underwriting. Our pipeline is largely focused on unique situations that benefit all cash buyers.

Environment for all cash buyers at least for the next couple of quarters until interest rates come down and the longer it takes for interface to come down that window for all cash buyers has elongated from that perspective, and what we're seeing you know from our perspective is that.

Our team is actively underwriting our pipeline is largely focused on unique situations that benefit all cash buyers it could be related to the.

Leslie D. Hale: It could be related to the fact that a seller has a maturity date. It could be related to, you know, fatigue by an equity partner or incremental capital that needs to be put in if the buyer doesn't want to put in. And so, you know, we see things that are materializing today as a result of the current backdrop. Thanks. I appreciate it.

The fact that a seller has a maturity it could be related to you know fatigue by an equity partner or incremental capital that needs to be put in at the buyer doesn't want to put in and so yeah. We see things that are that are materializing today as a result of the current backdrop.

Thanks, I appreciate it wisely.

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

Michael J. Bellisario: Our next question comes from the line of Michael Bellisario with Baird. Please proceed with your question. Good morning, everyone.

Thanks, and good morning, everyone.

Uh huh.

Sean M. Mahoney: First question on guidance, maybe big picture: how are you thinking about the split between rate and occupancy growth in 2024? And then, if my math is correct, it looks like expenses are maybe up 5.5% at the midpoint. Maybe help us understand what the building blocks are to get to that 5%.

First question on guidance.

Picture, how are you thinking about the split between rate and occupancy growth in 2024, and then if my math is correct. It looks like expenses are maybe up five 5% at the midpoint, maybe help us understand what the building blocks are to get to that five five.

Yeah.

Yeah, Mike our perspective is is that our growth is going to be split two.

Sean M. Mahoney: Yeah, Mike, our perspective is that our growth is going to be split between two-thirds demand and one-third rate. And if you sort of think about how our portfolio is indexed, you know, we're indexed to urban, urban's indexed to BT, and BT is still, you know, our BT revenues were only 73 percent of 2019 levels, and so there's room for growth both from a demand and occupancy perspective, and so that's how we sort of thought about it. And Mike, on operating expenses, you're correct that the midpoint guidance assumes sort of mid 5% increases year over year. The cadence of that, or the split of that, rather, is that we expect the pressures around fixed costs to continue throughout 2024. And so that's really primarily driven by insurance and property taxes.

Two thirds demand and one third rate and if you sort of think about how our portfolio is indexed you know were indexed to urban Urban's index to be T. A and B T is still you know our be our RPT revenues were only at 73% of 2019 levels are and so there's room.

<unk> for growth both from a demand and occupancy perspective, and so that's how we sort of thought about it.

Yeah, and Michael on the operating expenses you are correct that our the midpoint of guidance assume sort of mid 5% increases year over year, the cadence of that or are the split of that rather is we expect that the pressures around fixed costs to continue throughout.

Throughout 2024.

And so that's really primarily driven by insurance and property taxes.

Sean M. Mahoney: So we would expect those fixed costs to be up in the low double digits again next year on operating costs. I think on the variable costs, we'd expect them to be, you know, roughly 100 basis points lower growth rate than the overall operating costs, driven by on a preoccupied room basis. We expect our cost to only be up, you know, about 2% year over year. And so we think, net net, the operating cost environment will improve throughout 2023. And we expect that improvement to continue into 2024 as inflationary pressures are in the rearview mirror. That's helpful. And then just one follow-up.

So we would expect those fixed costs to be up in the low double digits again next year on the operating cost I think on the variable costs, we'd expect them to be roughly.

Roughly 100 basis points lower growth.

Growth rate then.

And then they'd be overall operating costs.

Given by <unk> on a per occupied room basis, we expect our cost to only be up about 2% year over year and so we think net net the operating cost environment. It improved throughout 2023, and we expect that improvement to continue into 2024 is being placed higher pressures are in the rearview mirror.

Okay. That's helpful. And then just one follow ups on Boston could you provide what the hotel level EBITDA was up 23.

Sean M. Mahoney: On Boston, could you provide what the hotel level EBITDA was on 23? And how much was the ground rent expense, i.e., what's going away in 2024, and then any initial thoughts on San Diego, given that that lease expires in 2024. Thank you. I'll start with some of the stats and then pass it over to the ladies to talk about San Diego.

How much was the ground rent expense, what's going away in 'twenty four and then any initial thoughts on San Diego given that that lease expires in 'twenty nine.

Yeah.

So I'll start with with some of the stats and then and then pass it over the life. They talk about San Diego I, you know the hotel did you.

Sean M. Mahoney: The hotel did roughly $10.5 million in EBITDA in 2023, and the ground lease expense for 2023 was roughly three-quarters of a million dollars. And then, Mike, as it relates to San Diego, we're in active negotiations with the Port of San Diego to extend the lease. We feel very good about where we are in our discussions, and, you know, we are a tenant that's in good standing. And so, you know, we see a path forward in terms of extending the lease. Thank you. Our next question comes from the line of Dory Keston with Wells Fargo. Please proceed with your... Thanks, good morning.

Roughly $10 $5 million of EBITDA in 2023.

And the ground lease expense of 2023 was roughly three quarters of a million dollars.

Yep.

And then Mike as it relates to San Diego, we're in active negotiations with the port of San Diego to extend the lease and we feel very good about where we are in our discussions.

And you know we are a tenant that's in good standing and so and we see a path forward in terms of extending and extending the lease.

Helpful. Thank you.

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

Thanks, Good morning, as you think through the phasing of your conversions renovations over the next few years should we assume that the upside is completed work fully offsets.

Dory Keston: As you think through the phasing of your conversions and renovations over the next few years, should we assume that the upside is completed work fully off? I guess ongoing renovation headwinds, or are there certain projects that stick out as being particularly disruptive? Yeah, Dory, so from a renovation displacement standpoint, because conversions are just a subset of our renovation dollars, we don't expect either a headwind or tailwind over the next several years related to renovations. And that's really a byproduct of us having an in-house design and construction team that's able to sequence the rooms out of service on the conversions and renovations to minimize the time out of service, and also have And so, renovation disruption for us is not going to be either a headwind or a tailwind for this year or for the next several years.

Ongoing renovation headwinds or are there certain projects that stick out as being particularly disruptive.

Yeah, so from a renovation displacement both convert because conversions or just a subset of our renovation dollars. We don't we don't expect either a headwind or tailwind over the next several years related to renovations and that's really a byproduct of us having an in house design and construction team.

Able to.

Sequence the rooms out of service on the on the conversions and renovations to minimize the time out of service and also have a scope that gets hotels back back up and running as quick as possible and so you know renovation disruption for us is not going to be you know what.

You guys have either a headwind or tailwind for this year or for the next several years from a ramp up perspective, Youre correct, but we what we said is that we're going to launch a couple of conversions per year, and we're sequencing that in a way that would allow us to have outsized.

Sean M. Mahoney: From a ramp-up perspective, you're correct; what we've said is that we're going to launch a couple conversions per year, and we're sequencing that in a way that would allow us to have outsized growth in each one of those years. Generally speaking, on our conversions, we underwrite a ramp of two to three years. If it's more leaser-centric, we generally believe that that ramp can be in the two-year versus the three-year perspective, but that's just our general assumptions. And then all of that, when you put it all together, was baked into the bridges that we provided as part of our Santa Monica deck, and we provided how we expected the EBITDA for the conversions to ramp over the next three years. But Sean, while I have you, you said that the expiration of swaps with the headwind is in your 24 FFO guide.

Outsize growth in each one of those years generally speaking on our conversions, we underwrite a a ramp up two to three years. If it's more leisure centric. We generally believe that that ramp can be in the two year versus the three year.

Perspective, but that's our general assumptions and then all of that when you put it all together is what's baked into the bridges that we provided as part of our Santa Monica deck, and we provided how we expect to be EBITDA for the conversions to ramp over the next three years.

But and sound while I have you you said that the expiration of the swaps with the headwind you're twenty-four SFO guide them.

Sean M. Mahoney: Can you provide us with your view on your fixed versus floating exposure as we look out for the next year? Sure. We ended the year with a little under 90% of our debt that was either fixed or hedged. Our long-term strategy is to have anywhere from 20 to 30% of our debt floating as a hedge against a downturn. If we did nothing else, we would end 2024 with a little under 30% of our debt floating.

Can you provide us on your view on your fixed versus floating exposure as we look out over the next year.

Sure. So we ended the year with a little under 90% of our debt.

That was either fixed or hedged our long term strategy.

Is to have anywhere from 20% to 30% of our debt is floating.

As a hedge against a downturn.

If we did nothing else, we would end 2024 with a little under 30% of our debt.

Floating now we were active in 2023 and you can expect us to be active in managing it again in 2024, but we entered into a $525 million of swaps in 2023 at an average rate of roughly three 5% and so you'd expect us to continue to actively managing it but generally speaking.

Sean M. Mahoney: Now, we were active in 2023, and you'd expect us to be active in managing it again in 2024, but we entered into $525 million of swaps in 2023 at an average rate of roughly 3.5%. And so you'd expect us to continue to actively manage it, but generally speaking, that 20 to 30% floating is what we target for the long term. Okay, and then just last, should we expect your dividend payout as a percentage of FFO per share to look more like 2019 by 2025? I'm just trying to get a sense of where your NOLs are and how you might use those over the medium term. Yeah, so we have several years of NLLs remaining, and so really, our dividend policy is going to be based on what we think an appropriate payout ratio is.

In that 20%, 30% floating is is what we target for a long term.

Okay, and then just lastly should we expect your dividend payout as a percentage of that sort that would prefer to look more like 2019 by 2025, I'm just trying to get a sense of where your NOL.

N O L R.

But you said it was up in the medium term.

Yes, so we have several years of Nols remaining and so really our dividend policy is going to be based on what we think an appropriate payout ratio is I think the way we're thinking about the payout ratio sort of I'll call. It normalize in this environment is going to be less.

Sean M. Mahoney: I think the way we're thinking about the payout ratio, sort of I'll call it normalized in this environment, is going to be less than it was in 2019 for all lodging REITs. And so our payout ratio today as FFO is in the mid-30s. We think our current payout ratio has room for increases over both this year and over the next couple of years. We think a normalized payout ratio is somewhere in the 60 to 65 percent of FFO at sort of the peak of this cycle, and you would expect us to be measured in how we increase that throughout the cycle. The NLLs provide us with the flexibility to do that based on what we think is appropriate for the market. Okay, thank you. Our next question comes from Tyler Battery on behalf of Oppenheimer. Please proceed with your question. Good morning. Thank you. Can you please talk through your industry REBPAR assumption that's implied in your guidance this year? I'm just trying to get a sense of what sort of outperformance you expect from your portfolio versus the broader lodging market.

And it was in 2019 for you know for all lodging Reits and so now our payout ratio today is F. I always in the mid thirties. We think you know our our current payout ratio has room for increases over that over this year and over the next couple of years, we think a normalized payout ratio somewhere in the 60% to 65%.

<unk> of <unk>.

You know that's sort of the peak of this cycle.

You would expect us.

To be measured in how we increase that throughout the cycle, but.

But the Nols provide us.

The flexibility to you know to do that based on what we think is appropriate for the market.

Okay. Thank you.

Our next question comes from the line of Tyler Battery with Oppenheimer. Please proceed with your question.

Good morning. Thank you can you please talk through your industry Revpar or something that's implied in your guidance. This year I'm just trying to get a sense of what sort of outperformance you expect from your portfolio versus.

Versus the broader lodging space.

So I mean look you know our the baseline for our assumption is that our our portfolio should perform in line with urban which is projected to be 3.8, and so you know clearly our mid point of our guidance lines up with that you know we expect urban to out.

Perform the industry. If you look at fourth quarter urban outperform the industry by four times. If you look at the full year urban outperform the industry by two X.

Okay, perfect and then market specific can you talk through a little bit more just some more color on what you're seeing in San Francisco CBD and also talk about Silicon Valley as well please.

Yeah, I would say you know that you know overall [laughter] you know keep in mind that we have a diversified footprint and we only have a few assets in the CBD in.

In the fourth quarter, our CBD has benefitted from the city Wides in article some self contain or Silicon valley in the fourth quarter. So just wheat, trans and and I think that was reflected in the numbers that we put out in our supplement.

As we look as we look forward.

You know San Francisco, we acknowledged as we said in our prepared remarks is going to have a soft citywide.

But we are seeing improvement in B team.

You know coming in this year, particularly as the return to office increases and as the activity around AI continues to increase as well, but I would say that generally Tyler that if you looked at the headline risk that San Francisco had its continuing to subside. The headlines recently have been very positive around the amount of our.

Leasing that's going on in the market as well as what's happening from an AI perspective. The city has done a great job from a standpoint of addressing safety. They had some successes with APAC last last quarter and so we continue to see the groundwork being laid for San Francisco to to recover.

Okay, and then how about Silicon Valley, I mean, any commentary there and it's probably similar to what you can start to come in in terms of San Francisco.

Sure I'll add a little color on that too so in Silicon Valley, it's important that we have international deployment when.

When we think about what's happening and forward booking from China as well as project business that comes there. It was encouraging to see in September October November that we're starting to get closer to about 95% of deployment from an international standpoint.

And forward booking for China, it's supposed to be three times more than it was in 2023, so that's encouraging.

What I would say is we have a lot of extended stay hotels in Silicon Valley and we have one that's under renovation there were no. We're prepared for the summer time of 2024, and we're encouraged based on some of the back to office that we were talking about for tech and some of the businesses are kind of Congregating and moving.

Towards having more demand we saw already in Q1, a little bit more demand than we did in Q4. So that was encouraging as we come out of the gate in 2024.

Okay, Great. That's all for me thank you for the detail.

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

Well, thank you and good morning.

Lastly, going back to your comments around the transaction market. How are you thinking about incremental asset sales in light of the implied EBITDA multiple at which you trade relative to private hotel pricing.

Hum.

So I would say that look I think you should expect us to be active portfolio managers as the industry and market dynamics unfold, we're evaluating the impact on our portfolio as a new normal takes hold we'll we'll look at our views on current markets and how they evolve we don't have to sell assets because given our balance sheet, but we can be opportunistic and so.

As we think about the growth rates in certain markets and how that profile it compares or over a portfolio or the capital needs in an asset needs relative to the returns you can generate you know, we'll look to recycle assets along the way along that way, but I think you know from our perspective, it's an asset by asset kind of perspective.

Alright, I appreciate those thoughts and then maybe just following up on the comments you just provided around the Bay area. If I look at the overall portfolio I see that 2023 EBITDA margins finished about 300 basis points below comparable 2019 levels I'm curious what that would look like if you.

Excluded the Bay area, just trying to get a sense of what the upside might be as that region continues to ramp.

Yeah, Chris So without the Bay area that is the primary driver of our sort of where our EBITDA is relative to 19 from a margin perspective, you know they have.

The lion's share of it comes from from Northern California, So if you exclude northern California.

You know from our portfolio the margins are much closer if not right on top of 2019.

But we as we mentioned you know our view around the green shoots in northern California. It gives us some encouragement going forward, but when you look at the Delta to 19, northern California's driving that gap.

Alright, that's helpful. That's all for me. Thank you.

Our next question comes from the line of Austin, where Smith with Keybanc. Please proceed with your question.

Great. Thanks, Good morning, everybody I'm, just going back to the transaction team.

Leslie I think you discussed looking for unique opportunities that benefit all cash buyers I guess, how much additional dry powder do you have before you would need to match fund any capital outlays with either dispositions or some other capital raise.

Yeah.

Yeah, well said I don't have a good number for you, but what I would say is is that we feel good about whats well, what's in our pipeline relative to where our current balance she said.

Yeah, and I'll just add on right. We're sitting at year end with a little over $500 million of corporate cash we used 125 of that for Boston.

And so pro forma that's $3 75.

Of cash our portfolio generates roughly 25% of our EBITDA.

Turns into free cash flow on an annual basis right. So you know on average that's north of a $100 million of incremental free cash flow generated by our portfolio, which obviously creates incremental capacity as well, but I think we've got.

I think the takeaway is that with our existing balance sheet and our free cash flow, we have the flexibility for for incremental deals without having to go anywhere near.

The markets unless it's favorable to do so.

And then of that free cash flow that you just highlighted I guess, how much of that goes towards some of the renovation spend that you're doing and how much is sort of freed up to you know share buybacks acquisitions, and other sort of capital allocation opportunities.

That that percentage and those numbers are after everything including you know an assumption on dividends as well as capex.

That's helpful and then on the renovation side I guess, how soon could you commence the renovation at the Boston Wyndham and do you have a sense today of the capital spend necessary to achieve that 40% upside to hotel EBITDA that you highlighted.

Yeah, I mean, we're still negotiating with the brand's I'm Austin. So you know that that number is sort of a range that we're working through I would say in terms of timing. Our objective is to have the asset completed before World Cup, which was mid 'twenty 'twenty six.

Very helpful. Thank you.

Our next question comes from the line of Floris Van Dyke and one with Compass point. Please proceed with your question.

Okay.

Hey, Thanks for taking my question.

So let me flip it on its head.

No there are a couple of questions here on on northern.

Northern California.

But I still see a 46 million delta relative to 19 levels can you maybe comment on the markets.

That are the highest in terms of exceeding 2019 levels of EBITDA and and how much more can you push you think your urban markets.

In in 'twenty, four is that growth going to that you're expecting is that coming from from other markets. Besides northern California or do you see you know a steady progress.

Progress in all of your markets in 'twenty four.

Yes of course as I've mentioned before our performance. This year has been driven broad base, we talked about in our prepared remarks at Boston strong given a citywide basis self contained it also has a strong base of a B T. New York, We talked about leisure you know are being made.

<unk> strong and ramping as well as limited new supply Atlanta is going to benefit from the backlog in the writer's strike southern California's going to benefit from San Diego City, Wides as long as as well as strong.

Economic basins, given the industries that it caters to Louisville, we talked about being strong as well Denver, which has got good corporate base Pittsburgh as well Orlando the diversification of our portfolio is more than enough to offset you know you know the the slower ramp in that were seeing and in San Francisco.

Yeah, and what I'll add to that as far as as we put out.

And EBITA bridge as part of our materials and are in Santa Monica and Boston right that that EBITDA Bridge was for the next several years and got us to north of $500 million of EBITDA relative to the to the you know I'm using round numbers, but roughly $450 million in 2019, and so we wouldn't have put that data.

Point out had we not had confidence in the ability of the portfolio.

To get ahead of that and what's driving that is obviously urban has been driving it to date, we believe the conversions in the incremental EBITDA associated with those ROI initiatives are driving that but you have a portfolio for a reason to leverage point I mean, theres going to be some markets that outperformance on markets that underperformed, but in total we have confidence that we will go through too.

And in 19 over the next several years.

Thanks, maybe maybe a follow up question on San Diego, presumably you will not be able to buy the freehold in San Diego. It's just an extension of the of the lease. So you know yeah can we assume some sort of similar type of your costs going forward on that or is there going to be.

Greater profit share that youre going to have to give away to the <unk> to the city or the.

I guess it whatever local municipality that owns the the freehold on that on that property.

Hey, Floris I appreciate the question, but we're in confidential negotiations so I can't comment on your question.

Fair enough.

Maybe maybe one one additional follow up then D.

For Sean your your weighted average term of your debt is relatively short at 2.9 years today.

Are you waiting for rates to come down and will you be looking to extend the maturity on the on your debts are when when when that does occur or how how are you thinking about the the balance sheet and be in the term of your debt going forward.

Yeah listen as a general rule, we always want to get ahead of our of our debt maturities and we have you know a little under $400 million of of maturities in the next quarter.

Quarter, we are in the process of extending 181 of that which is which represent by two loans and so we have we have expansion rights under under under those loan agreements. They just for for.

Probably those the combined debt yield of those of those two loans is is 14 five times right. So it's a these are low levered well covered loans, we have the contractual right and so we're just working with the lender right now to extend that we will get that done shortly and then the other is a is a $200 million alone.

That we are in the process of refinancing or we've got multiple options.

On that loan, which will which will add 10 or as well. So you know we've got great lender relationships.

We've shown the ability to extend the debt, but you know those well then you know when you when we take care of that in very short order and obviously will have an impact of roughly a half a year on the on a weighted average maturity.

Thank you that's it for me.

Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

Hey, good morning.

Just curious, especially and I was one of the main discussion points was all the deferred capex out there and it's.

It's not really a big issue for the rights, except for the fact that it kind of damages brand reputation I wanted to get your perspective on whether the brands are doing enough.

Have enough discipline them owners not read owners.

Or whether we should really be concerned about the destruction of brand value.

Bill. Thanks for the question I think the brands have been good partners for owners through Covid, creating opportunities for people to.

To manage through that and they have been consistently stair stepping back into capital programs and are adjusting knows in waves and they now have.

You know pushed back to more traditional levels of of requiring pips to be executed. In addition to putting programs in place I hesitate to say penalties, but programs in place to ensure that those get executed but I would also say is that you know owning hotels as the ecosystem and to the extent that an owner as a you know pressure from that.

That that will create a catalyst for trading the asset and that capital will get put in so the brands are as transactions occur being very rigid around ensuring that those are that's a capital pants get executed. So I would say that yes, there's somewhat of a backlog I don't believe it's damaging the brand and.

And I believe that what the brands are doing to ensure that the plants get done will cleanse the the entire ecosystem.

Okay. That's it for me thank you.

Thank you Michelle we have no further questions at this time I would now like to turn the floor back over to you for closing comments.

Thank you everybody for joining us the strong results that we've shown and we expect to continue are the direct result of what we've been executing.

Around curating, our portfolio that benefits from seven day, a week demand in key urban markets. We look forward to providing you additional updates as we progress throughout the year. Thank you again for joining us.

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.