Q1 2025 RLJ Lodging Trust Earnings Call
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Thank you very much
Speaker Change: Welcome to the RLJ Lodging Trust first quarter 2025 earnings call. As a reminder, all participants are in the synony mode and the conference is being recorded.
Speaker Change: 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 Senior Vice President Finance and Treasurer. Please go ahead.
Nikhil Bhalla: Thank you operator. Good morning and welcome to RLJ Lodging Trust, 2025, plus quarter earnings call.
Speaker Change: 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.
Speaker Change: Tom Bardenett, our Chief Operating Officer will be available for Q&A.
Speaker Change: 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.
Speaker Change: Factors that may impact the results of the company can be found in the company's 10Q and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements.
Speaker Change: Also, as we discussed certain non-gab measures, it may be helpful to review the reconciliations located in our press release.
Speaker Change: Finally, please refer to the Schedule of Supplemental Information, which includes Performer Operating Results for our current hotel portfolio.
I will now turn the call over to Leslie
Good morning, everyone, and thank you for joining us today.
Speaker Change: We are pleased with our first quarter results, which came in better than we had previously anticipated, despite a weaker backdrop. The momentum for the quarter started out strong in January and February , but as is widely known, the industry began experiencing headwinds in March.
Speaker Change: This ray-driven growth, along with our diligent cost controls, allowed us to deliver evidah that exceeded the high end of our outlook range. In addition to achieving solid results, we also accretively recycled capital and further strength of our balance sheet this quarter.
Against a rapidly changing environment, our solid first quarter results.
Speaker Change: Demonstrate the benefit of our diversified urban centric portfolio with multiple demand drivers and a lean operating model, which is allowing us to stay resilient on both our top and bottom line performance.
Speaker Change: With respect to our operating performance, our 1.6% rep-part growth was driven by a 2.1% increase in ADR offset by a half a point decline in occupancy.
Speaker Change: The solid rate growth during the quarter demonstrates our ability to continue to drive ADR in the current environment.
Speaker Change: January achieved 3.2% rep-part growth, benefiting from the inauguration in DC, and a robust city-wide calendar in key markets.
Speaker Change: and February grew by 3.9%, which benefited from the Super Bowl in New Orleans.
Speaker Change: While March was down 1.3%, reflecting a lack of compression due to an elongated spring break driven by the timing of Easter, combined with an increasingly uncertain, macro backdrop, which put pressure on certain pockets of demand. [inaudible]
These Dynamics continued into April .
Speaker Change: The primary driver for our first quarter performance was a strength in our urban hotels, which achieved robust repart growth at 3.6 percent, with the number of our urban markets achieving high single-digit growth or higher.
Speaker Change: Despite the macro noise, urban hotels have continued to outperform the broader industry, benefiting from all segments of demand, especially from business travel, that is being bolstered by workers returning to offices, and large events continue to draw high attendance.
Speaker Change: This was demonstrated by our weekday urban rev car, which grew by 4.9% during the quarter.
Speaker Change: Additionally, we are encouraged to see the recovery in Northern California gaining momentum, supported by a stronger citywide calendar and the improving business climate.
Speaker Change: Our first quarter rep part growth also benefited from the strong performance at our six initial conversions, which achieved rep part growth of 14%
Speaker Change: Turning to segmentation, as expected, Group was our best performing segment during the quarter, with revenue growth of 10 percent, driven by strong citywide events and many of our key markets, such as DC, San Francisco, New Orleans, and Louisville.
Speaker Change: Relative to business travel, trends remained healthy during the first quarter, generating positive revenue growth despite the normal seasonal mix shift and the well-documented headwinds relative to government-related demand.
Speaker Change: In light of demand starting to soften and march, we were encouraged to see our leisure segment revenues increase by 2% in the first quarter, driven by ADR growth. Notably, our urban leisure outperformed achieving 3% growth.
Speaker Change: In addition to contributing to our positive red part growth, robust performance across all of our segments drove a 3.8% increase in our auto room spend, which contribute to our better than expected first quarter performance.
Speaker Change: With regards to capital allocation, we have been active on a number of fronts.
Speaker Change: We further strengthen our balance sheet by addressing our current maturities, as well as opportunistically addressing some of our forward maturities.
Speaker Change: We also took advantage of an inbound opportunity to sell a non-core asset at an attractive 18 times multiple and redeployed proceeds into accretive share repurchases.
Speaker Change: Additionally, our 2025 conversions remain on track. With the physical renovation for Nashville in its final stages, we are already generating encouraging results with repart growth of 16% during the quarter.
Speaker Change: Our confidence in our conversions is further supported by the 35% repart growth that are three recent conversions with Houston, New Orleans, and Pittsburgh achieved during the quarter.
Speaker Change: As we look ahead, we acknowledge that Fundamentals have moderated from our outlook earlier this year, and uncertainty persist, given the continued elevated macroeconomic risk, together with Headline Driven Volatility
Speaker Change: This backdrop has reduced our visibility on the trajectory of near-term lodging operating results and our prior guidance range does not reflect today's environment.
Speaker Change: As such, we are adjusting our full-year guidance to reflect our current outlook.
Speaker Change: With the midpoint of our new range, assuming recent trends continue.
That's far we are seeing.
Speaker Change: Our group pays for main 2% above last year. However, we are seeing a shorter booking window reflecting heightened overall uncertainty.
Speaker Change: With respect to business transient, we are continuing to see healthy demand from SMEs and large corporate accounts as demonstrated by our mid-week occupancies in the 70s and peak days on Tuesday and Wednesdays, running in the 80s.
Speaker Change: Government demand which only represents approximately 3% of our revenues and government adjacent
Speaker Change: Leisure demand overall has remained generally stable with urban leisure and drive-to markets performing better.
However, we recognize that consumer confidence will drive forward trends
Speaker Change: With respect to international demand, we are seeing softness. However, this segment represents less than 3% of our revenues and is concentrated in markets such as New York, South Florida and California.
Speaker Change: Additionally, across all segments, our booking windows have shortened meaningfully, as travelers digest this unpredictable environment.
This is what we are seeing right now.
Speaker Change: And although conditions are currently holding, how the economic landscape evolves will ultimately determine where we end up in our full-year range.
Speaker Change: While the choppy economic backdrop is causing uncertainty, when we look beyond the recent noise, we remain constructive on the longer-term outlook for lodging fundamentals.
Speaker Change: Our view is supported by the consumer preferences that continue to favor experiences over goods, along with sustained tailwinds for group and the run room for business travel to fully recover, which is well underway.
Speaker Change: These dynamics are expected to disproportionately benefit urban markets, which are better positioned with respect to the demand supply dynamics relative to prior cycles.
given an extended period of constrained new supply.
Speaker Change: Additionally, the industry-wide improvement to the Revenue Management mindset over the last several years should allow for continued rate integrity. Thank you very much for joining us today.
Speaker Change: Furthermore, we believe as a more business-friendly backdrop emerges, it will create a favorable operating environment.
Speaker Change: As it relates to RLJ, we have curated a portfolio and capital structure which positions us to navigate this choppy environment and create value in all phases of a lodging cycle.
Speaker Change: Our Urban Centric Portfolio is geographically diverse and benefits from its heart of demand locations with seven-day a week demand generators. Additionally, our Rooms oriented portfolio and lean operating model should result in less volatile operating results.
Speaker Change: Our favorable positioning is further supportive of our flexible balance sheet with no near-term debt
Speaker Change: Our balance sheet is primed to quickly pivot at the appropriate time
Speaker Change: In summary, the industry tailwind and RLJ's positioning will allow us to look through the near-term uncertainty and focus on delivering long-term value to our shareholders.
I will now turn the call over to Sean
Sean.
Sean Mahoney: Thanks, Leslie. To start, our comparable numbers include our 94 hotels owned at the end of the first quarter and exclude the courtyard Atlanta Buckhead, which was sold during the quarter.
Sean Mahoney: While reported corporate adjusted EBITDA and FFO include operating results from all sold and acquired hotels during RLJ's ownership period.
Sean Mahoney: We are pleased to report solid first quarter operating results, which demonstrated the resiliency of our high quality urban centric portfolio. Our first quarter occupancy was 69.1%.
Average daily rate was $204.31.
Sean Mahoney: and Redpar was $141.23, achieving Redpar growth of 1.6%, which was driven by a 2.1% increase in ADR slightly offset by 0.5% decline in occupancy.
Overall, our RAPAR growth remained healthy in urban markets.
Sean Mahoney: such as Washington DC and New Orleans, which benefited from special events during the quarter. A number of our urban markets achieved strong red part growth during the first quarter, including San Jose at 14.1%.
Sean Mahoney: Houston CBD at 9.9%, Philadelphia at 26.4%, Pittsburgh at 12.6%, and Louisville at 10.3%.
Sean Mahoney: We saw growth in all of our segments with growth being the strongest, which saw demand increase by 9% leading to 10% revenue growth above the first quarter of 2024
Sean Mahoney: Total revenue growth was 1.2% and benefited from the 3.8% growth in out-of-room spend.
Sean Mahoney: As discussed, operating trends began to soften in March, with red part down 1.3 percent.
Sean Mahoney: Looking ahead, we expect March operating trends to continue throughout the second quarter. And preliminary April webinar is forecasted to decline between 1% and 2% from the prior year.
Sean Mahoney: Turning to the current operating cost environment, as we expected, our operating cost growth rates continued to moderate during the first quarter.
Sean Mahoney: Total hotel operating cost growth was only 2.9%, which underscores the benefits of our portfolio construct and our initiatives to manage our operating expenses.
Sean Mahoney: The first quarter growth represents over a hundred basis point improvement from the fourth quarter growth rate.
Sean Mahoney: Our team is diligently working to identify and execute incremental cost-containment initiatives to minimize operating cost growth in response to current macroeconomic uncertainty.
Sean Mahoney: During the first quarter, our portfolio achieved hotel EBITDA of $85.3 million, representing a $3 million contraction from 2024, and hotel EBITDA margin of 26.1%.
Sean Mahoney: The year-over-year hotel EBITDA Cooperability was impacted by $2.5 million of one-time COVID and other credits recorded last year, and there being one last day in the current quarter due to leap year.
Sean Mahoney: Excluding these items, our portfolio would have achieved hotel eva.growth during the quarter.
Sean Mahoney: Further, we were pleased with our operating margin performance, which was only 124 basis points lower than the first quarter of 2024.
Sean Mahoney: Turning to the bottom line, our first quarter adjusted EBITDA was $77.6 million, and adjusted FFO, Perdiluted Share, was $0.31.
Sean Mahoney: We have maintained a strong balance sheet and liquidity and have continued to actively manage our balance sheet to create additional flexibility and further lower our cost to capital.
Sean Mahoney: Early in the second quarter, we proactively addressed our 2025 and early 2026 debt maturities, including entering into a new $300 million term loan to refinance a $200 million term loan with an initial maturity in early 2026 and use the excess proceeds to fully repay the remaining $100 million outstanding on our line of credit.
Sean Mahoney: The new $300 million term loan matures in 2030, inclusive of extension options.
Sean Mahoney: In addition, early in the second quarter, we exercise the final extensions on two mortgage loans of $96 million and $85 million respectively.
Sean Mahoney: We currently have a well-positioned balance sheet with $600 million available under our undrawn corporate revolver.
A current weighted average maturity of nearly four years.
Sean Mahoney: 86 of our 94 hotels unencumbered by dead and attractive weighted average interest rate of 4.5 percent.
and almost 75% of debt, either fixed or hedged.
Sean Mahoney: As it relates to our liquidity, we ended the first quarter with over $0.8 billion of liquidity and $2.2 billion of debt.
Sean Mahoney: With respect to capital allocation, as 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 of purchases and dividends.
Sean Mahoney: So far, during 2025, we have been active under our $250 million share repurchase program by successfully recycling 100% of the proceeds from a non-court disposition to repurchase approximately $2.7 million shares for $24.3 million and an average price of $8.91 per share.
Sean Mahoney: At the end of April , our board approved a new, one-year, $250 million share of our purchase program, which will provide us with an additional tool to take advantage of future volatility in the capital markets to repurchase shares.
Sean Mahoney: Additionally, our quarterly dividend of $0.15 per share is well covered and supported by our free cash flow.
Sean Mahoney: We will continue making prudent capital allocation decisions to both provide stability and to position our portfolio to drive growth during the entire lodging cycle. While monitoring the financing markets to identify additional opportunities to improve the laddering of our democracies, reduce our weighted average cost of debt and increase balance sheet flexibility.
Sean Mahoney: Turning to our outlook, I would now like to provide additional color on the assumptions underlying our updated outlook. As Leslie mentioned, forecasting visibility remains low.
Sean Mahoney: The midpoint of our revised outlook assumes that current operating trends persist throughout the balance of the year. If the economic backdrop changes from our current guidance assumptions, we will update our guidance ranges accordingly.
Speaker Change: For 2025, we now expect comparable rep-part growth to range between negative 1% and up 1%.
Comparable hotel EBITDA between $365.5 million and $395.5 million.
Corporate adjusted EBITDA between $332.5 million and $362.5 million.
Speaker Change: and Adjusted FFO, Perdiluted Share, to be between $1.38 and $1.58, which incorporates shares or purchase to date, but no additional repurchases.
Speaker Change: Our outlook assumes no additional acquisitions, dispositions, or refinancings. We continue to estimate 2025 ROJ capital expenditures will be in the range of $80 million to $100 million.
Speaker Change: Cash, GNA, will be in the range of $34 million to $35 million.
Speaker Change: and net interest expense will be in the range of $94 million to $96 million. We also expect total revenue growth will continue to outpace repart growth due to continued success in our initiatives to drive out of room spend.
Speaker Change: Finally, please refer to the supplemental information which will include comparable 2025 and 2024 quarterly and annual operating results for our 94 hotel portfolio.
Speaker Change: Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator?
Speaker Change: Thank you. At this time we'll be conducting a question and an answer session. If you'd like to ask a question, please press star 1 under telephone keypad. A confirmation turn will indicate your line is in the question queue.
Speaker Change: You may press start too if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question comes from the line of Michael Bellisario, with Bard. Please proceed with your question.
Thanks. Good morning, everyone.
Speaker Change: Good morning, Mike. Lovely, just on your fundamental comments, I want to focus there first. I think you mentioned trends are holding. I think that's the word you use. Maybe you can just zoom in on what you saw in April , and then how did April and March actualize relative to your initial expectations.
Thank you. Thank you.
So, I would say-
Speaker Change: Let me start with the latter part of your question and then kind of go to the former part. I would say that April as we said on the last earnings call was going to be slightly positive.
I'm sorry. I'm talking about March. March.
as we mentioned was going to be our weakest quarter. [inaudible]
Speaker Change: I think in terms of the actual trends, we all knew that March was going to see Easter move into April , so therefore...
Speaker Change: in March as well. So right integrity continued as well and we're hopeful that we'll see some of that in April as well.
Speaker Change: and then Sean Frey on the balance sheet, he maybe give us sort of a lay of the land of all the different pockets of capital that are available to you and maybe with the appetite from your bank group. Where's high yield that today? And then what you're seeing in the mortgage market too. Thanks.
Speaker Change: Sure, thanks Mike. I'll start with the bank group, which we just upsized a term loan with the bank group and so I think that market continues to improve there's capacity for the top quality sponsors that we would fall into. So I think that...
Speaker Change: That market continues to be strong and favorable because it tends to be the longest viewed market within the financing markets.
Speaker Change: on the high yield. What we've seen is during some of the more chaotic moments over the last month or so, essentially, issuances stopped within high yield and the implied valuation of those that had high yield bonds are the discounts widened. What we've seen is a lot of that has come back not all the way to earlier in the year, but a lot of that risk has been sort of been priced out as the...
are in
Speaker Change: on the secured financing. You know, I think what we've seen is, is that the strip financing continues to be active, CNBS specifically. I think that tends to be a more fickle market that as underwriting becomes a little more difficult.
Speaker Change: You know, due to uncertainty, you know, that market will react and likely react through higher going in debt yields required maybe even before, but net and net the CNBS market continues to function.
Speaker Change: And I think, Mike, to your question, I think that's also, you know, why the refinancing that we did in this quarter being opportunistic about addressing some of our 2026 maturities, you know, we feel very good about in terms of being proactive and opportunistic there because of the movement and the sources that Sean talked about.
Speaker Change: That's all helpful. Thank you, Sean. Good luck to you on the other side. We'll miss it.
Thanks, Mike.
Speaker Change: Thank you. Our next question comes from the line of Tyler Batory with Oppenheimer Company. Please receive it with your question.
Tyler Batore: Thank you, good morning. I want to follow up a little bit more on the fundamental outlook.
Speaker Change: I'm what you're seeing right now, and it looks like March April
Tyler Batore: both months missed your initial expectation. So, can you talk a little bit about, you know, what specifically...
Throw that and then...
Tyler Batore: We look forward this year to the midpoint of the guide assumes that trends hold from where they are right now. I guess I'm going to impact this a little bit more in terms of what gives you confidence that that's going to be the case. Is there anything that you're seeing today? That makes you think that that trends won't deteriorate further from here.
Tyler Batore: Yeah, so let me sort of talk a little bit about that in sequence. I think in terms of what we saw, you know, our change in our guidance is being driven by what we're seeing, the softness in the government and government-related demand and slowing on international. It's also the lack of visibility and the continued uncertainty that persists.
Tyler Batore: and you talked about April and March, given April and March were at the height of the level of uncertainty and so the impact.
Tyler Batore: that those two months took, again, March being down 1.3 and able to project it to be down between 1 to 2%.
Tyler Batore: and so those are the things that sort of drove our perspective in changing our range. As it relates to the range itself, clearly I think about key assumptions, we assume that the step down in government and government adjacent to man and international remains and persist throughout the year. And then your question about confidence, I think the reality of it is that we can only tell you what we can see now. The booking window is short. Thank you very much. Thank you.
Tyler Batore: and so we are projecting based on the current outlook for a group to remain BT and leisure outside of government to stay stable relative to what we see today.
Tyler Batore: But the reality of it is, is that, you know, where we end up in the range is going to be driven by the economic backdrop, right? And so, and that's going to be influenced also by the fact of how much puts the duration and the level of uncertainty that persists.
Tyler Batore: It's very reasonable to assume that if the uncertainty persists, that it's going to affect business investment, it's going to affect consumer confidence and all of those things will have an impact on travel. So that's going to dictate where we end in the range.
Tyler Batore: But we can only give a range based upon what we see today.
Tyler Batore: And then kind of drilling it down a little bit, the back half of the year are guidance assumes repart growth at the high end of about 1% at the low end down 2%, so roughly down a half a point at midpoint, but for the back half of the year we think the repart is flat, right? So that would imply that we expect the second quarter because of the, you know, what we articulated last quarter on difficult comps and things like that, which Leslie can sort of walk through, but we expect the second quarter to be the weakest quarter of the year and repart, it likely be...
Tyler Batore: in the second quarter as we've shown, you know, with the April stats thus far. But our back half of the year, wow, you know, with the cadences similar to what we expect to be in the year, it's just, you know, works now expecting flat versus up a couple of our basis points of rap bar.
Speaker Change: Okay, very helpful. And just to follow up on this commentary, you mentioned the booking window being short a couple of times. Can you quantify where that stands right now? And then if you see any pickup in cancellations as well, the past couple of weeks.
Speaker Change: Prior to the increase in uncertainty since that time it's roughly about 58% from zero to seven days so that's one data point in terms of defining the booking window.
Speaker Change: You know, the booking window is shortened. When you talked about, you know, group...
Speaker Change: We've mentioned that our pace is holding, but the things that we're going to be watching in addition to our cancellations of ticking, we're going to be looking at attendance, we're going to be looking at lead volume and conversions.
Speaker Change: I think on the BT side, we talked about how strong our midweek trends were, so we're going to be watching midweek to see who's still traveling in the SMEs and national count are still producing for us.
Speaker Change: and then on the leisure side where we're going to be watching consumer confidence because that's going to play your major role as we kind of think about on Ford and as it relates to government demand, we'll be watching the headlines in terms of what's incremental or not relative to the government demand.
Speaker Change: Okay, all right, that's great detail. I also want to wish Sean all the best to go birds.
Go Birds!
Speaker Change: Thank you. Our next question comes from the line of Austin Wurschmidt with Cuban capital markets. Please proceed with your question.
Austin Warschmidt: Great. Thanks. Good morning, everyone. You had referenced the recovery in Northern California is gaining momentum. Just hoping you could expand on that comment and whether it's been sort of a step change in performance more recently, or just more of the gradual move higher and just
Austin Warschmidt: kind of the, you know, if the increased confidence, I guess, on that continuation is really around kind of a city wide calendar for this year. Thanks.
Austin Warschmidt: Yeah, thanks also. There's been a number of things that we're seeing as net positive on the momentum side. You mentioned the city lights for sure are playing a key role, but also just the headlines, positive headlines that are coming out of Northern California related to the good press that's gotten around and got around the NBA all-stars, the new mayor's been focused on safety and cleanliness, the office absorption as well as sort of tech demand. Surprisingly for us, the valley, our assets that are in Silicon Valley.
Austin Warschmidt: Sally, we're up 11% in the first quarter. Such another data point that from a momentum perspective that we've been looking at. [inaudible]
And I'll add a little bit of color around Moscone.
So when you think about the year-over-year increase,
Austin Warschmidt: The largest increases will be in Q2 and Q4. Q4 is primarily because Salesforce moves into Q4. But more importantly, when we look at the calendar, it's where the pattern is. Austin, you've got Friday, Saturday, Sunday. That's exactly where you want conventions to happen in CBD because you typically have a little bit more BT demand.
Austin Warschmidt: and that's about 70 to 100% up on those three nights.
Austin Warschmidt: and then speaking to BT, the back-to-office is real. You know, you've got Google sales for the Amazon all, having people write shares up when you look at BART.
Austin Warschmidt: and then when we look at the type of conventions that are coming in it's encouraging that we've seen corporate now rebook and then an example of AI you know everybody's always trying to you know understand what's happening if you look at the last three years there was a conference called Databricks
Austin Warschmidt: and in 2023 it had like 1.4 thousand on peak night and 24 had four and a half and now in 25 another 6 thousand peak night so what's happening in AI there's more and more people wanting to participate in those events and be around it and you're seeing the actual offices
Austin Warschmidt: and companies put platforms together which is stirring travels significantly in Silicon Valley like we talked about in the video some of the companies out there that are really exploring new platforms around AI. So hopefully that helps you with a little bit of the character of what's happening in San Francisco.
Speaker Change: Yeah, a lot a lot of great detail in there. Appreciate it, Tom.
Austin Warschmidt: and just wanted to pivot then a little bit on the disposition and curious sort of when you started exploring the sale and and went under contract for that deal and
Austin Warschmidt: and what sort of the appetite is for additional sales. You know, you highlighted that you put the proceeds from the sale and the share of buybacks and just what the thought processes on continuing to move down that path.
Thank you very much.
Sure.
Austin Warschmidt: Sure, I would say to answer your question, this is a transaction that we had under Sean track before the
Austin Warschmidt: that the elevated uncertainty started to take place. Austin, I would say that in general, what we're seeing today on the transaction side is that the uncertainty is cast a shadow on the transaction markets and deals that are under contract seem to be moving towards closing, but that anything is not under contract is really sort of in a pause, wait and see environment. It's really hard, I think, for buyers to be constructive in this environment. So, while we're open, I don't think that the market is really...
Austin Warschmidt: There's a lot of activity to be had relative to incremental transactions at this moment of time.
Austin Warschmidt: We obviously expect that as clarity improves that the transaction market would improve, you know, as well. In terms of, you know, capital allocation, clearly given this backdrop that buybacks remain, you know, very attractive, as you mentioned in this quarter, we recycle the disposition proceeds into, you know, into buybacks, and this will allow us to do it on a...
Austin Warschmidt: on a leveraged neutral basis, and we continue to see buybacks as a priority. We also were advanced our conversions this quarter, and as we mentioned in our prepare remarks, our three most recent conversions, generated Rep-PAR growth of 34% our national assets, which is in the final stages of conversion was plus 16 this quarter, and so we've been advancing those as well. And additionally, you know, we are-
Leslie Hale, Nikhil Bhalla
Thanks for all the details.
Speaker Change: Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.
Chris Woronko: Hey, good morning everyone and Sean, congratulations on really impressive career and appreciate all the interactions and the guidance over the years. So thanks for that and good luck.
Chris Woronko: Recutting, and secondarily to that, do you have any supply concerns mostly again on that select serve as we continue to kind of hear about the brands doing more conversions, which I know is not supply, but in some markets, more competitive supply. So, there's any thoughts on that on those
Chris Woronko: Yeah, I mean, just a sort of frame for you. Our portfolio is urban centric, and we are brick-and-mortar nod to stick-built assets across our portfolio, so I sort of characterize it.
Chris Woronko: from a relative basis. But we are not seeing, you know, rate degradation in any meaningful way. As we've mentioned, you know, our first quarter, you know, results that were driven by rate and even in March where we saw softness rate was pushing forward on that side.
Chris Woronko: and some of the other limited service stuff that's being built doesn't really sort of compete where we're at and it's not being built in the markets where we're at as well. And so from our perspectives as we've mentioned before, urban markets are going to benefit from the supply imbalance in this particular cycle. And so we're not really sort of seeing that supply that you made reference to really compete against the assets that we have today.
For more information visit www.FEMA.gov
Speaker Change: Okay, thanks, Leslie, very, very clear. And then just as a follow-up, you know, you guys obviously that the repositioning has been a big part of the story.
Speaker Change: I think you've done really well relative expectations. Looking forward, is there any thought just given the uncertainty with Tarris and we don't know how long to last?
Speaker Change: Is there any less appetite to look at things that are more of a deep dive renovation right now? Is that something you kind of have to table or are you still willing to look at those as they come up?
Yeah, Chris.
Speaker Change: Great question. Now I think our balance sheet provides us with the ability to look at all things and liquidity we have and so I don't think...
You know, it's worth noting the tariffs.
Speaker Change: Situation is dynamic, right? Because we haven't had a final resolution now, spending countries.
Speaker Change: and so we have a team that really drills down. Drilling down a little further, FF&E is the only part of the CAPEX that is related. It would be impacted by the tire if that's roughly historically 40% of renovation costs.
Speaker Change: As part of COVID, we diversified away from countries that would be impacted by the tariffs, not because the tariffs, but because we wanted to diversify our distribution channels and so today, only about 10% of our FF&E comes from China, that's down from 40% pre-COVID and so I think we've done a good job through our in-house design and construction team of diversifying away from the risks.
Okay, great. Thanks. Appreciate all that color.
Speaker Change: Thank you. Our next question comes from the line of Chris Darling with Green Street. Please proceed with your question.
Chris Darling: Thanks, good morning. I'd like to dive a little bit deeper on the group segment. Curious what you're seeing in terms of new bookings both for future years and in the year for the year? And then maybe if you could dive a little bit deeper in terms of the experience in March and April specifically.
Yeah, good morning, Chris.
Chris Darling: So let me start by helicoptering up in regards to the for the for the full year first and it'll dive into the more current trends.
Chris Darling: So right now, we're still at about 102% when we look at our group pace for the full year, which we have about 77% on the books in regards to what our expectations are for the year. So that's a healthy amount. And we're also seeing, as Leslie mentioned, raid integrity in the group market. And we're still at the end of the year.
Speaker Change: If you think about RLJ Compactful Service, Urban Select Service, the bulk of our business is usually anywhere from 10 to 30 rooms where it's about 65 to 70% of our business.
Speaker Change: And so when Leslie refers to small group, we think about smart groups, corporate groups.
Speaker Change: You know, groups that are meeting in a, you know, a shorter period of time and that's where we've seen the booking window, you know, even get shorter when you think about that. And then if we look at city-wise we do get compression in the urban markets where we have that, but we don't typically participate in the bulk of our hotels in those blocks.
Speaker Change: What we saw most recently though, is the cancellations that occurred were primarily in the months of March and April a little bit in the Q2 and that was primarily around the government segment [inaudible]
Proudler, Group Related to That
Speaker Change: So, the other thing I would mention about group, though, is we're seeing in the first quarter, the F&B spend has been very healthy, you know, what we found was bankwoods, room rental, AV, all were increasing, we even, you know, unfortunately had to, you know, benefit from cancellations where our tradition, we collected on a lot of the group cancellations, but we did see that, actually improve our F&B margin by about 250 basis points, and then out of room span when you have group come in, you know, typically
Speaker Change: We also benefit some regards to those other areas that are on the P&L. So that gives you a little bit of temperature, what's happening in the group segment.
Speaker Change: All right, thanks Tom, that's helpful. And actually, maybe sticking with you for my second question. I'm just going back to NorCal. Curious if you could tell us, you know, how full your 24 EBITDA finished relative to pre-COVID as well as what the margin profile looks like. And the reason I ask is I'm just trying to get a sense of what the upside potential is.
Speaker Change: For that region, should some of the positive momentum continue over the next quarters and years here?
Speaker Change: Chris Altnop in there, so the EBITDA in 24 relative to 19 was in the high 30s percentage of 2019 levels, and so that incremental 60 plus percent really represents the potential upside there. While Tom can talk about where we think San Francisco is going to end up, we're not polyannish on it, but clearly there is tremendous upside from that portion of our portfolio as the recent results have shown.
Speaker Change: Yeah, so we spent a lot of time, as you can imagine, Chris and San Francisco, we just most recently had an opportunity to meet with SF Travel
Speaker Change: So when you think about the future, a couple of things are encouraging. Number one, when you look at the booking window and pace for 26 and 27, they are similar to what I would say when you add
Speaker Change: Some of the events that we're talking about that new leadership at SF Travels, starting to look at more regional meetings versus the big events and so that's kind of helping on the self-contained, which has a shorter booking window as well. So we're encouraged that it's moving in the right direction.
Speaker Change: Then we talked about back to office AI, we're seeing more leases and sub leases around companies that are investing venture capital money, so we're encouraged at the type of companies that are moving into San Francisco, want to have a footprint there because that's where all the tech jobs are and the talent to be able to produce opportunities for future platforms.
Speaker Change: I think it's also important on your question of reference to 24 to recognize that the city white calendar last year was really weak and the city white calendar this year is up 70% on all of the basis so I think it's important from a metric perspective.
For more information, visit www.FEMA.gov
Speaker Change: You've got to appreciate the comments all really helpful and Sean, congratulations and best of luck.
Thank you.
Speaker Change: Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad.
Speaker Change: Our next question comes in line, a Floris van Dijkum, with Compass Point Reasters. Please proceed with your question.
[inaudible]
Thanks for taking my question.
Um...
Sean Mahoney: Leslie, I know you said that transaction market is going to be a little spotty with this kind of environment.
Baby, can you talk up? [inaudible]
Speaker Change: How many other assets do you have in the market right now, currently, or would you be willing to look to sell before your end?
Speaker Change: Yeah, I don't think we have a programmatic approach to selling. We've been more opportunistic in this climate. I think you have to be the types of assets that are capable of getting done are ones where they're smaller that they have an owner operator or the asset has some level strategic benefit. So in the case of the asset that we recently sold, the buyer had a strong presence in Atlanta and that asset was really important to them. And so when there's opportunities to
Speaker Change: Transactage really has some qualitative cadence around that, of course, is what I would say, and I would say we have one other asset that we're looking at today and we'll see whether or not that Transact, but as I mentioned before, assets that are not under contract today are generally less likely to close, just given the backdrop and buyers ability to be constructive in today's climate.
Speaker Change: Thanks, and I'd like to wish Sean had the best and his future endeavors as well, Sean, it's been a pleasure to draw the last of the years talking with you.
Thanks Lars.
Speaker Change: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Miss Hale for any final comments.
Speaker Change: Thank you everybody for joining us today. We look forward to seeing many of you over the next coming conferences of the next few months. Before I close out the call, I want to take the opportunity on behalf of the entire RLJ team to recognize Sean who was going to be retiring after spending almost seven years here at RLJ but more importantly 20 years in the industry. This is the final call and he and I were counting this morning somewhere near 100. But I want to sincerely thank him for joining us today.
Speaker Change: for his partnership and significant contributions to our company over his tenure here. He's been a great colleague and we're going to wish him well and a very best and happiness as he's been more time with his family in the next chapter of his life.
Sean: Thanks, Leslie. I just want to take a moment to express my gratitude to both Leslie, the RLJ team, as well as the board for the last seven years.
Speaker Change: Thank would have worked along such a great team and partners and as well as the shareholders over my 30-plus year career and thanks for the trust and support and I'm confident that the team is set up for great and future success.
Speaker Change: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.