RLJ Lodging Trust Stock

Greetings and welcome to the RLJ Lodging Trust Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I'll now turn the conference over to John Paul Austin, Director of Investor Relations. You may begin.

Thank you, operator. Good afternoon and welcome to RLJ Lodging Trust's 2026 Second Quarter Earnings Call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Nikhil Bhalla, our Chief Financial Officer, will discuss the company's financial results. Tom Bardenett, our Chief Operating Officer, will also 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 had been communicated. Factors that may impact the results of the company can be found in the company's 10-Q and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release. Finally, please refer to the schedule of supplemental information, which includes pro forma operating results for our current hotel portfolio.

I'll now turn the call over to Leslie.

Thanks, John Paul. Good afternoon, everyone, and thank you for joining us today. We are pleased to report strong second quarter results, which exceeded our expectations. Our operating performance reflects broad-based growth across our entire portfolio, as well as the successful ramp of our renovations and conversions. We continue to benefit from the momentum in lodging fundamentals, which are being led by the acceleration of business travel and robust demand around urban leisure experiences, both of which align with our portfolio's overall positioning. Against this positive backdrop during the quarter, our RevPAR growth outperformed the industry by 110 basis points, with all of our markets delivering results ahead of our expectations.

Our out-of-room spend once again exceeded our RevPAR growth. We delivered high single-digit EBITDA growth with positive margin improvement. And we completed the transformative conversion of our new Autograph Collection asset, further bolstering our lifestyle orientation. The broad-based nature of the growth across markets and demand segments year-to-date is demonstrating that the strength we are seeing is durable and not reliant on any individual market or event. These industry tailwinds continue to disproportionately favor urban markets, which are benefiting from diverse demand drivers and an extended period of muted supply growth.

Our urban-centric portfolio is well positioned to capture these tailwinds, which combined with the upside we are seeing from our capital investments, gives us conviction in our ability to continue delivering strong relative performance.

With respect to our operating performance, during the quarter we achieved RevPAR growth of 6.8%, driven by ADR growth of 4.9%. We also saw a healthy 130 basis point increase in occupancy, which was better than we had expected, reflecting the acceleration in demand we are seeing in the short-term booking window. Each month of the quarter achieved positive RevPAR growth, with June being the strongest month up 12%. We were encouraged to see these positive trends carry into July with preliminary RevPAR growth approaching 11%.

With regard to the World Cup, the performance of our host markets came in line with our expectations as we successfully executed on a revenue management strategy of intentionally building a base of high certainty demand from teams, media, and sponsors while preserving sufficient inventory to capture the transient pickup that materialized closer to the matches. This strategy performed as anticipated by amplifying rate growth. Importantly, beyond the World Cup, we were very encouraged by the broad-based momentum and fundamentals we saw across the entire portfolio, with our non-World Cup markets achieving RevPAR growth of 6.2%, and several of these markets delivering double-digit RevPAR growth during the second quarter. Among these, Austin was a notable outperformer, with RevPAR increasing 17% year-over-year, benefiting from strong in-house group.

Other notable markets included Chicago, which saw RevPAR increase by 15%, driven by a strong city-wide calendar, and Tampa, which grew RevPAR by 11%, benefiting from a healthy event calendar. We also had a number of other markets, such as Orlando, Charleston, and D.C., that produced high single-digit RevPAR growth, all supported by broad-based improvements in segmentation. Additionally, we remain encouraged by the recovery underway in Northern California, with RevPAR growing 9% during the second quarter, while the market benefited from hosting World Cup matches. Its performance continues to be primarily driven by the ongoing expansion of the AI industry, which is fueling corporate investment and business travel against the backdrop of a more constructive local environment, giving us confidence in the positive multi-year trajectory of this market's recovery. As it relates to segmentation, business transient revenues continue to accelerate, increasing by a robust 10%. This increase was led by demand growth of 6% with the rate increasing by 4%, reflecting ongoing pricing power as our highest rated customer continues to increase their travel.

The acceleration in BT is supported by elevated levels of business investment and earnings growth broadly across many industries, including tech, finance, healthcare, and defense. Encouragingly, we continue to observe strong demand among both large corporates as well as small and medium-sized businesses. As expected, the Leisure segment performed well in the second quarter, with revenues increasing by 7%, as pricing improved meaningfully, with a 6% increase in rate, while demand remained healthy with a 1% increase in room nights. Our hotels and live-work-play locations continue to benefit broadly from strong urban Leisure trends, reflecting the ongoing shift in consumer preferences toward urban entertainment, which was aided by the World Cup during the second quarter.

With respect to group, our revenues grew 6% during the quarter, balanced evenly between demand and ADR. While the booking window remains short, near-term demand is continuing to materialize, as demonstrated by our in-the-quarter, for-the-quarter group pace, improving by 300 basis points during the second quarter. We were also pleased to see a meaningful pickup in our booking pace for the third quarter, which is now pacing at 110% of last year. Additionally, we are encouraged by the growing share of corporate demand within our group mix, which is contributing to our high ADR and non-room revenues. The strength we are seeing across each of our demand segments continues to have positive implications for our out-of-room spend, which grew by 7% during the second quarter. These results once again underscore the success of our ROI initiatives as well as our renovations and conversions, aimed at growing food and beverage profitably, reconcepting underutilized space, and growing other ancillary revenues. This strong top-line performance translated into EBITDA growth of 7%. During the quarter, our occupancy growth exceeded our expectations, and as a result, expense growth was higher than anticipated, although we still were able to achieve margin improvement.

Now, with regard to capital allocation, the successful execution of our investments in our portfolio is unlocking value and is clearly evident in our performance. During the second quarter, our 4 high-impact renovations completed last year achieved 22% revenue growth and 50% EBITDA growth, while our 7 previously completed conversions achieved revenue growth of 8% and EBITDA growth of 12%. These results continue to reinforce our conviction around the investments we are making in our assets and contributed to our outperformance. During the quarter, we completed the conversion of a former Renaissance Pittsburgh, relaunching the hotel as The Atterbury under Marriott's Autograph Collection. The name Atterbury pays tribute to the original architect who designed the iconic building that opened in 1906. Our comprehensive renovation reimagined all public spaces and guest rooms and activated revenue-generating spaces to leverage the character of this historic asset. This included the addition of The Drafting Room, which is the hotel's signature restaurant and bar, the addition of The Fulton Room, a new premium function space, and the activation of the hotel's historic rotunda, which now hosts a light show showcasing Pittsburgh's rich history.

We are also excited to announce that we will be adding Margaritaville to our family of brand affiliations by converting our Fairfield Inn & Suites Key West to a Compass by Margaritaville. The Margaritaville lifestyle orientation, strong recognition among leisure travelers, and its origin in Key West make it a natural fit, and it's one of the highest ADR markets in the country. The reimagination of this asset will allow us to capture higher-rated leisure demand, while creating opportunities to drive ancillary revenue growth. Our repositioning will reimagine the property into an island resort with new themed-inspired concepts, including 5 o'Clock Somewhere, a new poolside cabana bar that will tie in the aesthetics and spirit of Key West with live music and immersive F&B. We plan to initiate the conversion later this year and re-launch the hotel in 2027.

And finally, we made progress towards initiating the physical renovation at our Wyndham Boston, which will join Hilton's Tapestry Collection. With each of these conversions, we continue to increase our exposure to the lifestyle segment and evolving consumer trends. These repositionings are also consistent with our broader strategy of creating opportunities to drive high margin out-of-room spend with thoughtful execution that allows us to attract customers beyond our hotel guests. In addition to advancing our internal growth pipeline, we remain an active portfolio manager and opportunistically sold a hotel at a highly accretive basis during the quarter. Overall, our strong balance sheet and liquidity continues to position us to drive growth this year and beyond.

Now turning to our outlook, while there is considerable geopolitical uncertainty and limited visibility, we are raising our outlook for the full year to reflect our strong second quarter performance and the ongoing positive trends. As we enter the second half of the year, we remain optimistic that a resilient economy and consumer preferences that favor urban leisure experiences will continue to drive healthy demand against a backdrop of muted supply growth. As such, our outlook for the remainder of the year assumes the continuation of tailwinds that have supported our performance thus far, including sustained momentum in the recovery of business travel, future demand remaining healthy, especially in urban markets, positive group revenue pace and continued strength of in-the-quarter, for-the-quarter bookings, and additional tailwinds from the continued ramp of our conversions.

As we move into the second half of 2026, we expect the incremental contribution from demand growth to continue, as evidenced by July seeing 300 basis points of occupancy growth, resulting in slightly higher expense growth moving forward than we had anticipated in our prior outlook.

Overall, our first half outperformance is a direct reflection of our positioning in urban markets, which are benefiting from the momentum in BT and a recurring calendar of sports, concerts, festivals, conventions, and other events that draw travelers into urban markets year-over-year. These factors, along with embedded growth from our capital investments and the resiliency of the broader economy, give us confidence in our ability to deliver strong relative performance through the remainder of the year. That said, we remain mindful that visibility is limited given the short booking window and the evolving macro backdrop, and we will continue to monitor for any shifts in demand as the year progresses. As we look to 2027, the setup is favorable, with sustained strength expected from the underlying demand trend, particularly as it relates to BT. A favorable holiday calendar, the rotation of major events within urban markets, such as the Super Bowl, the NCAA Tournament, the NFL Draft, Formula 1, and pre-Olympics activity, and the ongoing recovery in Northern California, all of which will occur against a constrained supply backdrop.

Overall, we are pleased with the setup leading into next year. With that, I will now turn the call over to Nikhil.

Thanks, Leslie. To start, our comparable numbers include our 91 hotels owned at the end of the second quarter. Our reported corporate adjusted EBITDA and AFFO include operating results from all sold hotels during RLJ's ownership period. We were pleased with our second quarter results that came in significantly ahead of our expectations and outperformed relative to the industry. Our second quarter RevPAR of $167 increased by 6.8% versus the prior year, led by average daily rate increasing by 4.9% to $217, and occupancy increasing ahead of our expectations to 77%, an increase of 130 basis points. RevPAR growth in April actualized at 5.8%. May came in at a healthy 2.5%, despite difficult comps. And June achieved an impressive 12.4% RevPAR growth, driven by strong fundamentals and further aided by the World Cup.

Our urban markets once again achieved strong RevPAR growth, benefiting from accelerating business travel, which saw revenues increase by a robust 10% during the second quarter, building on the 9% growth we achieved in the first quarter. A number of our urban markets saw double-digit BT revenue growth, including Chicago and D.C., which grew by 35% each, New York, which was up 17%, Houston, up 13%, Northern California, up 12%, and South Florida, up 10%. In addition to capturing solid BT trends, which was evident in the 6.3% increase in our weekday revenues, our portfolio also benefited from strong urban leisure demand, which led weekend revenues to grow by 8.1%, once again demonstrating our portfolio's ideal positioning to benefit from 7-day-a-week demand. The strength in our urban markets contributed to the outsized growth of our non-room revenues by leveraging the investments we've made in our ROI initiatives. These investments allowed our out-of-room spend to increase by 7.1% or 30 basis points ahead of our RevPAR performance. Our strong top-line growth allowed us to flow results to the bottom line, highlighting the benefits of our lean operating model and allowed us to grow Hotel EBITDA by 7%, despite higher operating costs.

On a per-occupied room basis, expenses increased by 4.9%, largely reflecting variable expense growth associated with a higher transient mix. This drove increased credit card and travel agent commission fees, as well as greater spend in F&B outlets, which carry a higher expense load. Additionally, energy costs remained elevated.

Our fixed costs increased by 6.4%, primarily due to the impact of a tax refund recognized in the prior year. Excluding that prior year tax benefit, fixed costs would have increased just 3.4%. For the second quarter, our portfolio achieved Hotel EBITDA of $119.5 million, representing year-over-year growth of $8 million, or 7.1%, and Hotel EBITDA margins of 31%, which improved by 10 basis points over the prior year or 40 basis points without the prior year tax benefit. These results translated to adjusted EBITDA of $110.4 million and adjusted FFO per diluted share of $0.52.

Turning to our balance sheet, at the end of the second quarter, we drew down proceeds under the delayed draw feature of the term loans executed earlier this year to pay off our senior notes that matured on July 1. Subsequent to this repayment, we have $2.2 billion of debt, and no maturities due until 2029. Overall, our balance sheet remains well positioned with solid liquidity of approximately $1 billion, including $600 million of undrawn capacity on our corporate revolver, 83 of our 91 hotels unencumbered by debt, an attractive weighted-average interest rate of 4.8%, and 72% of our debt either fixed or hedged at the end of the second quarter.

With respect to capital allocation, during the quarter, we opportunistically sold 1 hotel at a highly accretive multiple of 29.2x hotel EBITDA, including required capital expenditures.

Additionally, we are unlocking embedded portfolio value and further enhancing our lifestyle orientation as we execute our high value conversions in Pittsburgh, Boston, and the addition of Margaritaville to our brand portfolio in Key West, while remaining committed to returning capital to shareholders through a well-covered dividend of $0.15 per share. We will continue to make prudent capital allocation decisions to position our portfolio to drive growth while maintaining a strong and flexible balance sheet.

Turning to our full year outlook, our updated guidance reflects the sale of the Hyatt Place Fremont/Silicon Valley, our strong second quarter outperformance and a continuation of the current operating and macroeconomic environment.

For 2026, we now expect comparable RevPAR growth to range between 3.5% and 4.5%, comparable hotel EBITDA to range between $369 million and $389 million, corporate adjusted EBITDA to range between $336 million and $356 million, and adjusted FFO per diluted share to be between $1.37 and $1.50. Our outlook assumes no additional acquisitions, dispositions or balance sheet activity beyond what has been completed to date. We continue to estimate capital expenditures will be in the range of $80 million to $90 million. Cash G&A will be in the range of $33.5 million to $34.5 million, and expect net interest expense will be in the range of $101 million to $103 million. We also expect the relationship between top-line growth and expense growth during the second half to be similar to the first half of this year.

With respect to the cadence for the remainder of the year, we expect our third quarter performance to be stronger than the fourth quarter. As such, we expect the contribution of adjusted EBITDA for the third quarter to be about 100 basis points higher than last year's third quarter.

Finally, please refer to our press release from last evening for additional details on our outlook and to our schedule of supplemental information, which will include comparable 2026 and 2025 quarterly operating results for our 91 hotel portfolio.

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

[Operator Instructions] Our first question comes from the line of Michael Bellisario with Baird.

I want to ask on the BT strength that you referenced. Are you seeing this demand come through the GDS, or is it more local negotiated accounts, and then any specific industries or notable booking patterns to call out would be helpful?

Mike, the strength on BT, I think it's important to point out, I mean, this is the second consecutive quarter that we saw BT revenues increase by 10%, and room nights were up 6% in the second quarter, which I think is an important data point. We also saw midweek trends up 6%, and it's really been broad-based. As Nikhil mentioned, there are a number of markets that saw double-digit growth in BT. And it is coming from our national accounts in GDS and industries like tech, finance, defense. And I'm also -- to remind you, this is our highest-rated customer who's coming back. So this is benefiting us on rate and also benefiting us in F&B as well. So we feel really good about the strength we're seeing in BT and the ability for it to continue.

The only other thing I'd offer, Mike, is it is increasing in the total mix when we think about transient. It moved up another 1% because of the demand that Leslie was talking about in regards to room nights. And we're also getting the average rate increases based on the RFP season was successful from last year. The other thing that I would add too is when you think about where they're booking through and you're spot on the GDS side, that also increased from a percentage standpoint, as Leslie stated, which is encouraging because that's where that channel tends to book the clientele that travels from a BT standpoint.

That's helpful. And then just my follow-up on margins and flow through and sort of asking this ex some of the one-time items that you noted, but how are you thinking about sort of the underlying growth run rate for both fixed and variable expenses on a go-forward basis? And that's all from me.

Yes, let me sort of frame the second quarter expense growth. As Nikhil mentioned, our fixed expenses were up 6.4%. If you adjust that for taxes, it's 3.5%. From a POR perspective, we were up 4.9%. And there's a couple of things that are sort of driving that. One, we had higher occupancy than we had anticipated, and obviously with higher occupancy growth versus rate growth, there's a higher cost associated with that. Additionally, we had higher transient contribution, and with that, you have higher transaction costs such as TAs and credit card revenue-related costs that Nikhil mentioned. Additionally, we had a shorter length of stay this quarter, which has higher checkouts. And so with a portfolio of 50% suites, that has some level of impact. And I would also say that the transient mix we had this quarter had a higher spend within our F&B outlets as opposed to our banquets, and outlets have a higher expense load relative to the banquet F&B. So that was a little different this quarter as well. And then lastly, there's two other things worth noting. One is that because we had better performance year-to-date, we did have some bonus accruals at the properties for the staff, in addition to the energy costs that Nikhil mentioned as well. So when we look at expense growth for the back half of the year, our guidance implies 3% at the midpoint and 4% at the top end. So there is a deceleration from the second quarter.

Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Leslie, appreciate all the details you gave on July. I guess as you look forward, though, I mean, can you talk a little bit about the booking pace for the months ahead and just how you're thinking about the relative performance between the 3 business segments, given the strength, especially that you're seeing within BT?

Yes, sure. Austin, I would say that our change in guidance reflects two things. One is a change, obviously reflects the better performance in the second quarter, but also assumes an improvement in the back half of the year. And that improvement is being driven by the continuous strength of BT remaining strong in terms of who's traveling, the frequency and the length of stay related to that demand that we just talked about. We expect leisure demand to remain healthy. We expect group to actualize at its current pace. We're looking at pace for about 104% for the full year, 110% in third quarter. And all of those segments are going to benefit urban markets. And keep in mind that we still expect our renovations and our conversions to continue to ramp. When I think about the back half of the year from a cadence perspective, as Nikhil mentioned, we expect third quarter to be better than fourth quarter. But if I were to break that down, third quarter is obviously off to a strong start with July being up 11%. I would say August is expected to be relatively flat, and September is going to benefit from the Salesforce, but we do have Labor Day later in that month. And when we think about the fourth quarter, we see that because Salesforce shifted, our pace for the fourth quarter is actually down year-over-year. And while we do expect to benefit from the lapsing of the government shutdown, it will be offset by the election. The other thing that I would point out for us in the back half of the year is that we are starting our conversion renovations for Boston and Key West. I think it's important to understand that we believe that fundamentals remain healthy and that fundamentals are keeping with the momentum we see today, but there are some puts and takes on the back half that from a timing perspective of how things shifted, and so October being the significant contribution month for the fourth quarter, the pace in that month is down because Salesforce moved from October over to September. And so we still believe that BT is going to continue to show good strength.

I appreciate all the details there. And then just some clarifications on the expense side. Did you say 3% expense for the full year? And is that a total expense or on a per-occupied room basis? And what does the back half assume for expenses on a per-occupied room basis?

Yes, and just to clarify, that implied 3% was for the back half of the year, Austin, from that. And so this implied 3% for the back half of the year at the midpoint and implied 4% for the back half of the year at the high end of our guidance. Does that answer your question?

Is that total expense growth on a year-over-year basis or per-occupied room basis?

That is total expense.

And on a per-occupied room basis, Austin, it's going to be very similar, too.

Our next question comes from the line of Gregory Miller with Truist Securities.

I'd like to start off with the Compass Key West conversion. Interesting news. I personally don't know as much about this, [indiscernible] but perhaps that's the same for some of the listeners. And my knowledge is that many of them compared to the corporate market result...

Greg, we can't hear you. You are very [ fumble ]. I apologize.

I'll try to call back in. Sorry about that.

Our next question comes from the line of [ Sidney Romy ] with Barclays.

You announced a $250 million share repurchase authorization earlier this year. So I was just kind of wondering if you could give some color on how you're currently thinking about share repurchases relative to acquisitions or disposition activity?

Sure. We're always focused on optimizing the tools that we have to drive shareholder value. We're very pleased with where our balance sheet sits today, particularly after we have addressed our maturing bonds most recently and we have ample liquidity. The strong results that we are seeing from our high-impact renovations and our conversions are delivering strong results are demonstrating the effectiveness of the investments we've made. Keep in mind, for our high-impact renovations, we grew EBITDA by 50% this quarter. For our conversions, we grew EBITDA by 11%. We're excited about the next 2 conversions that we have down the pipe, and we're also excited about how The Atterbury is going to ramp up. At the same time, we continue to believe that our stock is undervalued. And we remain constructive on the transaction side, and we expect to continue to be active with dispositions. And so our balance sheet gives us optionality to look at all of these tools and exercise them at the right window and we're going to continue to be disciplined.

Our next question comes from the line of Michael Herring with Green Street Capital.

Just maybe speaking of the transaction market, we've seen pretty strong pricing at the top end of the market. I'm curious if you can discuss how pricing has evolved in the more select service or your segment of the business and if that gives you more opportunity as a seller to effectuate transactions?

Yes, I would say that we're in a market where pricing is an asset-by-asset, case-by-case basis. What I would say about the overall transaction market is that it's more constructive today and that there are more transactions in the pipeline. I would say that the debt market continues to be very competitive, with a number of capital providers. There's better fundamentals, which is allowing potential buyers to underwrite with more conviction. The buyer pool has widened today, particularly as performance continues to improve, and we're seeing owner-operators continue to play a role in the transaction market. We're also starting to see family offices and a little bit of private equity as well. And so it's still focused on single assets as opposed to portfolios, but we do see the overall transaction market improving. But I would generally say that we're starting to sort of see pricing converge, and it's really just a case-by-case basis in this climate. We recently sold, as you mentioned, an asset in Fremont. And that was an asset where the dynamics of that market had moved away from its trajectory from the rest of what's happening in Northern California. And the pending capital didn't make sense for us. And so we ran a small process and we had a regional operator pay a healthy multiple on that existing asset.

Understood. And maybe just a follow-up on the conversion opportunities. I'm just curious to understand where you guys are with the Wyndham in San Diego. Assuming you know that Margaritaville conversion doesn't preclude any conversion of -- at that asset. Is there any advancement with that property or are there other conversion opportunities that you've identified in recent months?

Yes, I mean, look, we have a healthy pipeline of conversions. We have and continue to be on a pace of delivering 2 conversions per year. And with the announcement of Key West, we are continuing down that path. Super excited about the Margaritaville, which I'm going to let Tom talk about. Related to your specific question on San Diego, what I would say is that we're making great progress on that asset and working with the port. We're in the process of executing a -- our extension. Part of that process is around finalizing our design of the transformative repositioning of that asset. And we expect to make meaningful progress to announce for the remainder of the year in San Diego.

And just to give a little bit more color on Key West, because we're excited, obviously, of making that announcement today. This is one of the highest ADR markets in the country and it's the most iconic island destination if you think about South Florida. And the origins of Key West are perfect for Margaritaville because that's where they opened their first store and restaurant a while ago. So we're excited about bringing another asset into that lifestyle consumer that's attracted to that. And as Leslie described in her prepared remarks, when you arrive at this hotel, you're going to have the opportunity to be greeted by the Provisions marketplace and gives everybody really a license to chill. The diverse food and beverage offerings, I think that's where Greg was probably going in regards to just what are the deliverables of this Margaritaville. It's really like a sunny side up, complimentary, made-to-order breakfast in the morning. Then when you get into the afternoon, we're really excited about a featured cabana bar called 5 o'Clock Somewhere with an expanded pool and entertainment concept that really will elevate the experience. And so we're most excited about the fact that it's a family of brands. Margaritaville has done a great job with restaurants, resorts, vacation club, residential real estate, vacation homes, and even the cruise line, that's a protocol call going down to Key West. Not only for our guests who will be coming in to enjoy it, but we think the locals will really enjoy the chance to have an opportunity to experience this hotel in Key West because there's really a lack of supply there, and we're really excited about the opportunity to grow rate and profitability at this asset.

I would just add on that, obviously Tom mentioned a number of thoughtful F&B ideas that we're going to be executing on within Margaritaville, but that's just a continuation of the strategy that we've had across all of our conversions. We've talked about before Mills House, Mandalay Beach and Santa Monica, all of which are contributing to the 7% increase out-of-room spend that we achieved this past quarter. Tom just mentioned what we're doing in Key West in terms of the pool bar. I remind you that in Boston, we're going to be opening The Archive, and in Pittsburgh The Drafting Room, and the Fulton Premium Lounge that we're going to have there as well. All of these executions are aligned with our strategy of being able to have thoughtful F&B that's beverage-centric and that not only attracts guests that are in our hotel, that are outside of our hotel, and that's contributing to the strong out-of-room spend that we've had for consecutive quarters now.

Our next question comes from the line of Floris van Dijkum with Ladenburg Thalmann.

I'm excited to go and test out your Margaritaville offering once it gets completed. I'm just curious, can you quantify the capital that you plan to spend? And I think you've historically averaged something along the lines of north of 20% returns on those conversion projects. Maybe if you can give us a little bit more of the financial impact and how much -- because Margaritaville assets are unique and they're pretty expensive, their alcohol sales are just off the charts. How much are you factoring in there and how will this asset compete with the DiamondRock hotel that's not that far away, it's also in Margaritaville?

I would generally say that the way that we've sort of thought about the returns is a function of the return on the capital that we're putting in that's incremental in order to convert the assets. We generally have achieved returns that are north of 40% relative to the incremental capital. What I would also say is we've also pointed out the EBITDA growth across the assets. We've talked about previously in Boston, we think there's 40% upside in the EBITDA of that asset. I would say in Key West, we think there's about a 50% upside in the EBITDA of that asset, given that Tom mentioned sort of how high-rated that market is and the opportunity to up-brand this particular asset. I would say also in Pittsburgh, we think there's 35% upside in that EBITDA. And keep in mind, the growth rates that we've demonstrated on the 7 assets we've already completed. So we feel very good about the return on the capital that we're investing in these assets.

And Floris, I know we've spent some time in Key West, so you know exactly where the location is. It's on the way to Duval, where a lot of the activity is. And we truly believe, understanding the island experience, and to your point about the other Margaritaville, we think we'll be able to tuck underneath, based on our location compared to the other one. And most importantly, because of the experience we're going to have around the pool, as well as the beverage experience, we think locals are going to be really attracted to this because there's just not a lot of supply, which is why the average rate, if you can believe it, almost mirrors New York City's average rates in regards to what happens down here on an annual basis. So we're pleased to know that this can take us to a different level within the lifestyle consumer. And certainly Margaritaville is what everybody Googles when you go to Key West in regards to the atmosphere and what you're looking for.

No, I'm looking forward to my next trip out there with you, Tom, because I think it'll be fun. To the point about -- and Leslie, I appreciate your returns are -- have been exceptionally high on these redevelopments. Is there any thought from you to do more than 2 projects a year because, frankly, the returns are so attractive?

Yes, I would say we have tried to be thoughtful to make sure that we manage the displacement that's caused by these renovations. We also look at the catalyst behind the franchise expiration, such as the case in Key West. And so we have to time it according to a couple of factors that we're balancing Floris. But we think that, 2 to 3 is the right cadence.

Our next question comes from the line of Chris Woronka with Deutsche Bank.

There's been a lot of focus across the hotel REITs this earnings season about costs. You guys provided kind of some similarly directional commentary, I think, to your peers. And Leslie, I think you mentioned that second half you're going to continue to build occ and maybe be a little bit more slanted toward occ on the RevPAR. So the question is, is the industry maybe falling behind a little bit on rate again? There's been some nice gains, but it seems like expenses are pretty stubborn and when we get more occ, we get more labor. Do you think there's some kind of delayed catch-up in rates coming as you look out, you see in your maybe 2, 3 quarters out what you're booking now? Do you see another jump up in room rates?

Yes. Look, I would say that rate has been relatively healthy, and we've seen meaningful rate growth over the last several quarters. I think from our perspective, we're really focused on growing the bottom line. There's lots of ways to achieve that. Keep in mind we grew the bottom line by 7% this quarter for the second consecutive quarter. Our strategy is sort of broad-based. We've been aligning that against focusing on capturing consumer demand trends in the lifestyle-oriented segment. We've been really thoughtful around our revenue management and balancing between rate and occupancy. And keep in mind that occupancy bring -- means we've seen higher demand, and higher demand helps your out-of-room spend, which again, we've seen strong growth in our out-of-room spend for several consecutive quarters. And so we think that our mix is aligned with the strategy that we've been focused on.

Okay, helpful. And then I think you are now down to 2 Hyatt Place hotels after the sale of Fremont. But I know there's been some changes at Hyatt, and I know they're kind of -- the strategy to have the select brand on top of that or as a solution. So is there going to be any changes in your Hyatt portfolio that you see coming that are maybe related to CapEx or positioning?

Yes, I mean, look, our decision to sell a couple of assets has nothing to do with the Hyatt brand. We believe in the Hyatt brand. It has produced for us for many years. In this particular case, it was just a -- the market had moved away from the demand of that particular hotel relative to what we're seeing across the rest of Northern California. And so when we looked at the capital and the potential return on those capitals, it didn't align with our view on a go-forward basis, and it was the right thing to do for us. But that has nothing to do with the Hyatt brand. We are good partners with Hyatt and believe in the value that their brands bring.

An example of that, Chris. As you know, we have a good footprint in Silicon Valley, and both our Hyatt Houses in Santa Clara and San Jose have had great numbers. Obviously, we're right across from Santa Clara, where they held the Super Bowl, as well as many concerts. We love those locations and the contribution that we get from Hyatt, in addition to the other asset in Palo Alto. And so we really love certain markets within Silicon Valley. This just happened to be a market that we believe was not going to recover to the same degree that our other ones did.

There are no further questions at this time. I'd like to turn the floor back over to Leslie Hale for closing remarks.

Thank you everybody for joining us. We hope that everybody has a great summer and we look forward to seeing you guys in the fall.

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

Greetings, and welcome to the RLJ Lodging Trust First Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Paul Austin, Director of Investor Relations. Thank you, sir. You may begin.

Thank you, operator. Good morning, and welcome to RLJ Lodging Trust 2026 First Quarter Earnings Call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Nikhil Bhalla, our Chief Financial Officer, will discuss the company's financial results. Tom Bardenett, our Chief Operating Officer, will also 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-Q 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 may be helpful to review the reconciliations to GAAP located in our press release. Finally, please refer to our schedule of supplemental information, which includes pro forma operating results for our current hotel portfolio.

I'll now turn the call over to Leslie.

Thanks, John Paul. Good morning, everyone, and thank you for joining us today. We are encouraged to see the lodging industry off to a strong start this year, benefiting from the underlying strength of fundamentals, with the acceleration of business transient demand being a key driver. We are particularly pleased with our first quarter results as our urban-centric portfolio outperformed the industry. Our favorable footprint with exposure to many top-performing markets such as Northern California and South Florida, among others, allowed us to capture the broad-based momentum in all segments of demand along with the ramp from our recent high impact renovations and conversion, driving solid results ahead of our expectations.

During the first quarter, we achieved RevPAR growth of 4.8%. The outperforming the industry by 100 basis points. We delivered robust non-room revenue growth, which exceeded our RevPAR performance by more than 300 basis points, and we drove high single-digit year-over-year EBITDA growth and margin expansion. We also advanced our conversion pipeline and addressed all of our maturities through 2029. Our solid first quarter performance demonstrates the momentum in our urban markets and the growth embedded in our portfolio, while the ongoing execution of our capital allocation and balance sheet initiatives, position us to continue to drive out-performance relative to the industry and create long-term shareholder value.

Turning to our operating results. Our first quarter RevPAR growth of 4.8% was balanced between occupancy and ADR gains. Trends improved sequentially throughout the quarter, with RevPAR, February and March, achieving healthy year-over-year growth of 6% and 9%, respectively, following January's RevPAR decline. Both February and March were aided by a robust calendar of events as well as the favorable timing of holidays, which bolster demand. We were pleased to see this positive momentum carry into April. Our urban markets have been consistently performing well, disproportionately benefiting from positive trends across all demand segments. We were pleased to see our urban footprint outperform the broader industry urban markets, with a number of our markets delivered high single-digit RevPAR growth.

Notably, Northern California achieved outstanding RevPAR growth of 27%, benefiting not only from the Super Bowl and the favorable shift of the [ RNA ] conference to March this year but also from the continued expansion of the AI industry, which is driving significant corporate investment and business travel demand broadly across this market in addition to a better overall environment.

New York City was another noteworthy market during the quarter with our properties achieving over 8% RevPAR growth, driven by healthy corporate and leisure-transient demand, a favorable events lineup and the ramp of our high occupancy renovations that we completed last year. As it relates to segmentation, business travel saw robust growth during the first quarter, with our business-transient revenues growing by 9%, which was largely demand driven, with room nights increasing by nearly 700 basis points. The momentum in Business Travel accelerated throughout the quarter, underpinned by strong growth in business investment, driven by AI-related spending as well as record corporate profits. This is specifically fueling the ongoing strength in sectors such as technology, finance, aerospace and life sciences, which is amplifying overall BT demand.

Leisure trends were strong across our portfolio with revenues growing by 5%. Demand remained resilient, and we were encouraged to see rate growth of 3%. The Leisure segment benefited from a compressed spring break as well as elevated demand at a number of our hotels as winter storms across the country drove additional leisure travel during peak season. Our Urban Leisure once again saw stronger [indiscernible] performance as the hotels and live-workplace [indiscernible] are capturing robust demand around sports, concerts, dining, festivals and entertainment. Importantly, our geographically diversified portfolio continues to benefit year after year from the rotation of signature events within our footprint.

Relative to our group segment, even with difficult comparisons from the inauguration in D.C. and the Austin Convention Center, booking trends remained healthy, evidenced by our end the quarter, for the quarter revenue pace increasing by 900 basis points and ADR increased by 3% over last year. We were especially pleased to see a meaningful pickup in group bookings for the second quarter, which saw pace improved by 400 basis points. We are encouraged by the increasing share of corporate bookings within our group mix, which has positive implications for ADR and out-of-room spend.

Our portfolio also generated outsized non-room revenue growth of 8.2%. Once again, underscoring the momentum behind our ROI initiatives and the investments we have made in expanding ancillary revenue channels. These initiatives allowed us to increase our total revenues by 5.4%. This top line growth, combined with disciplined cost management and a lean operating model, contributed to our significant EBITDA out-performance relative to our initial expectations and our margins expanding by 45 basis points over the prior year.

Now turning to capital allocation. Our transformative renovations from last year as well as our completed conversion are delivering tangible results and contributed meaningfully to our outperformance relative to the industry. This is demonstrated by our 4 major renovations at high occupancy hotels completed last year, achieving 9% RevPAR and 10% EBITDA growth during the quarter. Conversions continues to deliver solid results, with our 7 complete conversions generating EBITDA growth of 16%. Additionally, we made further progress towards our Renaissance Pittsburgh conversion, and we remain on track to relaunch the property under Marriott's Autograph Collection this summer.

We advanced preparation of our conversion of the Wyndham Boston Hotel, which will join Hilton's Tapestry Collection, and we are on pace to begin construction later this year, and we look forward to announcing our next conversion in coming quarter. Collectively, these capital allocation initiatives supported by our strong balance sheet, position us for multiple years of growth in 2026 and beyond.

Looking ahead, we recognize that the macro environment remains uncertain, driven by an evolving geopolitical backdrop, which is giving rise to shorter booking windows and limiting visibility beyond the near term. To date, however, we have not observed a noticeable impact on our results. Our first quarter out-performance on both the top and bottom line is encouraging, and we believe the setup continues to favor urban markets for the remainder of the year, supported by sustained strength in Business Transient and robust [indiscernible] for urban leisure experiences, trends that should disproportionately benefit our portfolio. Overall, we had already anticipated these healthy trends in our original guidance for the remainder of the year. However, given the current uncertainty, we will continue to monitor any shifts in demand.

Our outlook assumes, the continuing broad-based strength in BT, supported by healthy corporate profits and growth across a number of industries, reinforcing our view that the recovery in this segment has further room to grow. The resiliency of leisure demand and expectations for continued rate growth as we approach the peak summer travel season, especially in our urban markets, which have an extensive lineup of events, sports, concerts and entertainment, a positive group pace for the remainder of the year, with ADR demonstrating pricing power and our expectations that even with a shortened booking window, we will continue to see strong, in the quarter, for the quarter bookings, a favorable footprint to capture upcoming catalysts including the World Cup and America's 250th anniversary.

The ongoing momentum in Northern California across all demand segments, further validating the sustainability of this market's recovery, continued growth of non-room revenues from our ROI initiatives as well as tailwinds from the ramp of our 4 significant renovations completed last year and our recently completed conversions which are well positioned to drive multiple years of growth. Our strong results are a direct outcome of the strategic repositioning of our portfolio over the past several years, through asset recycling, targeted acquisition and high impact conversion.

As we look ahead, we remain cautiously optimistic about the long-term durability of the demand trends we are seeing and believe our well-positioned portfolio will support continued strong relative performance and the creation of long-term value for our shareholders. With that, I will turn the call over to Nikhil.

Thanks, Leslie. To start, our comparable numbers include our 92 hotels owned at the end of the first quarter. Our reported corporate adjusted EBITDA and AFFO include operating results from all sold hotels during RLJ's ownership period.

Our first quarter results came in ahead of our expectations, with occupancy increasing by 2.6% to 70.8%, average daily rate increasing by 2.1% to $210 and our RevPAR of $149, increasing by 4.8% versus the prior year. Fundamentals strengthened throughout the quarter following January's 1.9% RevPAR decline with growth accelerating to a robust 6.1% in February and 8.9% in March. These healthy trends carried into April, which achieved preliminary RevPAR growth of approximately 4%.

During the quarter, we saw meaningful strength within our urban markets, which achieved 4.4% RevPAR growth, outperforming STR's comparable markets by 110 basis points. This growth was broad-based and balanced between approximately a 2-point increase in occupancy and a 2-point increase in ADR. Our strong urban portfolio performance was bolstered by double-digit RevPAR growth in markets such as South Florida, which grew RevPAR by approximately 10% and Houston and Denver which each achieved 14% RevPAR growth. Additionally, demonstrating that our portfolio benefits from 7-days a week demand, both weekdays and weekends saw mid-single-digit RevPAR growth. Our urban markets benefited from improvements in all segments of demand, notably business travel, the acceleration in BT demand that we are seeing has positive implications for the momentum in out-of-room spend which was evident in the robust growth of 8.2% in our non-room revenues that we saw during the first quarter.

We were especially pleased to see the strong revenue growth come on the heels of the robust 7.2% growth we achieved during the prior quarter. Our non-room revenues generate strong margins, which improved by 130 basis points during the quarter, underscoring the success of our ROI initiatives aimed at profitably growing food and beverage, re-concepting underutilized spaces and growing other ancillary revenues. Overall, non-room revenue growth led our first quarter total revenues to grow by 60 basis points ahead of our RevPAR growth.

Turning to bottom line results. Total operating expenses were up 2.1% on a per occupied room basis, underscoring the benefits of our lean operating model and our disciplined approach to managing costs, which allowed for a strong flow to the bottom line. Although energy expenses were elevated due to the winter storms as well as disruption in the energy markets due to the war, these were more than offset by improvements in fixed costs driven by a double-digit decline in property insurance due to a favorable renewal last year and other cost control initiatives. During the first quarter, our portfolio achieved hotel EBITDA of $89.9 million representing year-over-year growth of $6.1 million or 7.2% and hotel EBITDA margins of 26.4%, which expanded by 45 basis points over the prior year. These results translated to adjusted EBITDA of $80.9 million and adjusted FFO per diluted share of $0.33 for the first quarter.

With respect to our balance sheet, as previously announced, during the first quarter, we executed a series of refinancing transactions, which expanded our undrawn capacity by $500 million and created additional flexibility. We intend to use the additional capacity created by these refinancings to pay off our $500 million senior notes that mature on July 1 this year. Following this payoff, we will have no maturity due until 2029 and our weighted average maturity will be over 4 years. Our balance sheet remains well positioned with over $950 million of liquidity, including undrawn capacity of $600 million on our corporate revolver, 84 of our 92 hotels unencumbered by debt, an attractive weighted average interest rate of 4.6% and 75% of debt either fixed or hedged. We ended the first quarter with $2.2 billion of debt.

In addition to proactively addressing our maturities, we continue to demonstrate our steadfast commitment to returning capital to shareholders by paying an attractive and well-covered quarterly dividend of $0.15 per share.

Now turning to our full year outlook. We are pleased with the strong start to the year. At the same time, we remain mindful of the uncertainty in the overall macro environment. We have incorporated our strong first quarter out-performance into our revised guidance while keeping our expectations for the remainder of the year unchanged from our prior outlook. For 2026, we now expect comparable RevPAR growth to range between 1.5% and 3.5%, comparable hotel EBITDA between $356 million and $380 million, corporate adjusted EBITDA between $324 million and $348 million and adjusted FFO per diluted share to be between $1.29 and $1.45. Our outlook assumes no additional acquisitions, dispositions or balance sheet activity beyond what has been completed today.

We continue to estimate capital expenditures will be in the range of $80 million to $90 million. Cash G&A will be in the range of $32.5 million to $33.5 million and expect net interest expense will be in the range of $101 million to $103 million. We also expect total revenue growth will continue to outpace RevPAR growth due to the success of our initiatives to drive out-of-room spend.

With respect to the cadence for the rest of the year, our view of the second quarter has not changed. However, in light of our strong first quarter results, our adjusted EBITDA contribution for the second quarter will be slightly lower than last year, with the balance of the contribution in the back half of the year. Finally, please refer to our press release from this morning for additional details on our outlook and to our schedule of supplemental information which will include comparable 2026 and 2025 quarterly operating results for our 92 hotel portfolio.

Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Michael Bellisario with Baird.

Leslie, can you add a little bit to your commentary on the accelerating business demand you mentioned, but it seems to be offset a little bit by a shorter booking window. Did I hear that correctly? And is that shorter booking window -- is that broad-based or specific to a customer segment?

So I would say on BT, Mike, my comment about the booking window is really more so on on group and on leisure. I think as it relates to BT, the acceleration we saw was broad-based. We're continuing to see national accounts grow, which is our highest rated customers. The sectors in tech and aerospace and life sciences continue to be the sectors that we're seeing the strength at. And that's really a function of strong corporate profits, it's business investment, really sort of driving and aligning with what we're seeing. So our midweek trends remain strong relative there.

On the booking window side, what we've seen is that group is booking shorter. As I mentioned on the call or in the quarter for the quarter pace first quarter was strong. We actually saw 22% of our bookings in the quarter for the quarter. And while it's been short, it's still been materializing. And so that gives us comfort as it relates to group. And then on the leisure side, we've actually seen booking window elongate, and so we've seen the opposite relative to group.

Got it. That's helpful. And then just sort of on the same lines, just on the out-of-room spending. How much of that is you're taking price versus an increase in volume? And does that pick up really being driven by business travel?

It's definitely business travel is playing a key role. And it's not just business transient, its also a business group. Business Group has increased to more than 50% of our overall group mix that bodes well for out-of-room for F&B orders while in their group meetings. And it's in general, as BT continues to increase, they do more in spending in the hotel as well. I'll let Tom add some color.

So Mike, what we're seeing underneath the F&B hood is we have banquets growing what Leslie was stating about group, we're seeing a much more significant amount of corporate group come -- and with that, banquet goes right along with that. And then when we think about our ROI initiatives, we spent quite a bit of money on making sure that we have a beverage-centric thoughtful food and beverage approach so our lounge up around 12%. And then when we think about AV room rental, when we look at our meeting space and our atrium as well as where we've put some capital. Those continue to be enhancing our ability on the F&B, which allows us to increase margin by about 50 basis points.

Below that, because of the drive to market still being healthy in the first quarter, we had parking revenues up. And then lastly, I would say where we've been spending a lot of time is watching the consumer behavior in and around our lobby and where we have been enhancing, we've kind of taken that select service margin expansion -- excuse me, market expansion to our full-service hotels as well. And so that grab-and-go consumer trends, total revenues, enhancing by people looking for something in a hurry on the way to the airport and having an opportunity grab that in addition to what we talked about with F&B and parking has really enhanced our profitability on non-room revenue.

Yes. And Mike, I'll just add what's kind of in our pipeline that kind of bolt on to some of Tom's comments around the thoughtful F&B and how we've approached it. We've talked about on previous calls how we've been really focused on having F&B that attracts guests that are outside the hotel. We did that at Mills House and Mandalay and Nashville, and we still have Pittsburgh and Boston in the pipeline. And just to put some numbers around that, our total revenues for our conversions were up 8% in aggregate. And that's really a function of our ROI investment and demonstrating how thoughtful we've been around the out-of-room spend.

Our next question comes from the line of Austin Wurschmidt with KeyBanc.

Leslie, you highlighted some high-level details about the outlook across various segments. Could you just walk through the cadence of RevPAR growth guidance over the balance of the year and maybe how some of those building blocks between segments are expected to play out at this point?

Yes. Sure. So Austin, what I would say is that clearly, Q1 came in better than we expected. But that our view for second quarter really hasn't changed. The trends that we're seeing right now are coming in line with our expectations. We mentioned in our prepared remarks that April was up around 4%. We know that Easter was going to move up in the month. And so we're seeing strength in business and group filling in that space has been moved up. May within that quarter is going to be a softest month because of the tough comps. And then as you know, June is going to benefit from the World Cup.

And then what I would say is that within that month -- within the second quarter, group pace was already pacing ahead of 2025. And then we really have no change to the -- our perspective on the back half of the year, again, third quarter benefiting from World Cup. We expect third quarter benefit more than [indiscernible] quarter from the World Cup because there's a higher demand for the later-stage games. And then you layer in the 250th anniversary on top of an existing holiday and obviously, sales force, fourth quarter, we'll see a lapping of the shutdown, government shutdown. But that's going to be offset by the election. So this setup was already anticipated in our original guidance. And what we're seeing today is in line with our expectations.

In particular, I would also just sort of say, as it relates to World Cup, it's still early, but we are encouraged by what we're seeing we were very thoughtful in how we approach our perspective around building our blocks and on World Cup. For example, we were really thoughtful about focusing on blocks related to teams, media and sponsors, and we wanted to have really strong revenue management, and focusing on length of stay and making sure that we were disciplined about rate. So today, what we're seeing is that those blocks that we anticipated are actually picking up because we were thoughtful and we're getting deposits around teams and media -- and then as it relates to transient, what we're seeing today is promising. It's early -- but around game day, we are seeing ADR come in line with our expectations. I think that the World Cup and when you look at high occupancy market, it's really a rate game in markets like L.A., New York and Miami. But overall, these trends we're seeing are in line with our expectations and our original assumptions that we had in our guidance.

That's helpful detail on World Cup. Just switching for a comment you had on leisure and the elongated booking window. Just wondering how much of that you think is sort of sensitivity to change in airfare given what's happened with energy costs? And how does that inform your view on sort of pace as you look out within this segment and what that could look like just given the resiliency in the consumer?

I think that the elongated booking window, some of it may be related to airfare, but I actually think it's around the strength of demand that people are recognizing and they may want to not be able to get the the room that they wanted. And so they're recognizing they need to book a little bit earlier. As we mentioned before, a lot of these special events are happening on top of timings that were already -- windows that already had high occupancy. And so I think that's affecting psychology of the consumer today.

I would also say that a lot of our leisure again, urban leisure is seeing urban entertainment ramp up around the lifestyle consumer. And so as a result, i think they're trying to get ahead of what they saw in the first quarter around leisure travel. And so I think that's what's causing it to elongate. Could there be some airline implication in that, for sure. But I think that's part of it.

The other thing I would add, Austin, to what we're seeing is there's a shift going on in regards to the ability to drive rate with leisure. If you recall last year was primarily demand and there was rate sensitivity. Right now, we're seeing growth in both midweek as well as weekend demand. And then we're also seeing growth in rate. And so we're pricing ourselves appropriately based on that 7-day heart of demand. and these events that are taking place that our footprint is pretty diversified, as you know. So when a special event moves from one location to another, whether it was, let's say, the NBA All-Star game that went from San Francisco to L.A., we get the benefit of that because of our diversified portfolio. Same thing with Super Bowl. It was in New Orleans last year, San Francisco this year. So we're able to capture a lot of those instead of anomalies, they're just moving around the country where we're able to capitalize based on our diversification and our footprint.

And I think Tom's point around rate is another example of the consumer not being price sensitive and which is why I was suggesting that it's more around them seeing the strength of demand.

Our next question comes from the line of Tyler Batory with Oppenheimer.

And congrats on the strong results here and some really good execution. Just a follow-up on Austin's question. Can you put a finer point on how you define leisure travel? I'm not sure if World Cup-related travel -- if that's all leisure. I'm assuming there might be a portion of that, that group and maybe even business travel too?

Yes. I'll give you an example since you asked about World Cup. So when Leslie was speaking about the difference between group and leisure, group would be the team, the media, the sponsors where we've actually locked in blocks and have deposits. What's still to come and what we're finding on the transient pace, specifically in the last 3 to 4 weeks, is around the game days, ticket sales, searches around where do I want to stay. You're going to book your airfare, you're going to make sure that you've got travel and then you're going to look at hotels.

So what we're seeing is the ADR growth around that, that would be leisure around World Cup. Same thing with 250th anniversary. We do have activation. There is marketing programs around the 4 cities, which are New York, Philadelphia, D.C., as well as Boston. And when we see that, you're also seeing now more demand coming in that will all be pretty much leisure-related based on how we code when people are booking from the outside in.

Okay. Switching gears to capital allocation. You rank order your priorities right now. I'm curious if capital recycling is something that might look a little more interesting? Just given your fundamental outlook.

Sure, Tyler. What I would say is that we're constructive on the transaction market. And as we become more active with dispositions, we will be balanced between taking advantage of the dislocation in our stock, maintaining a strong balance sheet and executing on our conversion strategies. We strive to execute buybacks on a leverage-neutral basis. And so when we use disposition proceeds, that allows us to do that. And obviously, we didn't have any dispositions in Q1.

Relative to our conversions, our results are very tangible. As I mentioned before, total revenues for our 7 completed conversions are up 8%, and our EBITDA was up 16% in the quarter. And this is a direct result of the investment we're making in the ROI as we recycle assets, you're going to see us be balanced and that would include activity on the buyback side.

Our next question comes from the line of Gregory Miller with Truist.

I'd like to ask a couple of questions on specific markets. And maybe to start off, could you provide your thoughts about how Louisville is performing this year and expectations for the rest of the year? Particularly on the convention group rent.

Sure, Greg. As you know, we have our Marriott as well as a Residence in Louisville, and the Marriott is connected to the Convention Center. What we're finding at our Marriott is that it's had back-to-back significant growth years. We just came off of Kentucky Derby, which was another major success for us. And what we're finding is agriculture, some of the type of accounts that go to Louisville that are attracted to Louisville are all Midwest based, if you will. It competes with Nashville, competes with other regional locations. And so we get the benefit of that because we're connected to the Convention Center.

And a long time ago, probably about 5, 6 years ago, when they added additional space, they really change the way we can sell our hotel where we can actually have 2 conventions at the same time because of the exhibit space they added right across the street, which is connected. In addition to that, we were looking at the beginning of the year pretty strong results in regards to what we're seeing on the pace side. We're also -- because of the size of the asset, we look out to '27 and '28 in we're very encouraged in regards of what the pace looks like going forward for this asset. And what I would say is the big top accounts that come into Louisville like Healthcare, Humana, the University of Louisville continues to spend and look to add research. And so we're seeing our top accounts come back into the city as well. So feel very strong about where we're positioned. And then the Residence Inn also does very well being just a couple of blocks away from our Marriott with overflow when we have those types of groups.

Thanks, Tom. Shifting gears, I'd like to ask you about another market with some changes to their convention pace, and that's Austin. And now we were past the 1-year mark since the temporary closure of the Austin Convention Center for its renovation. Could you provide an update on how your downtown hotel is performing and sort of expectations for the rest of the year in that market as well?

And again, we're adjacent to the convention center for two of our assets, as you know. And then we have one other asset that's right by the state capital near University of Texas. To your point, the closure occurred in March of 2025 right after the South by Southwest and the new construction is underway in regards to the convention center. I think what we're most excited about with Austin is it's going to double the size on the square footage, and more importantly, it's going to have the ability to host over 1,200 exhibits. And that's really important when you think about association business.

For instance, Austin, which is the 11th largest city in the country, had the 59th largest convention center. So now it's going to be more appropriately aligned with the space and the size of what's needed. As an example, Greg, 50% of the leads in the past couldn't even be accommodated based on the space that we didn't have. In addition to the convention center, we're excited about the fact that Austin continues to grow. People want to live there. The airport expansion is going to have more flights and 20 more gates will be aligned with the convention center opening, that's going to bring 22 million passengers up over 30 million passengers, which is going to be a highlight in regards to the more demand that's going to come in because of that convention center.

But in the interim, to your point, we are focused on self-contained group business at our two assets adjacent to the center. There's been great campaign on marketing and dollars that are allowing us to offer incentives to groups, not only for our hotels, but for the city because of the opening right now that we have for the next few years, then the double trade that we have over by the capital, that was renovated about a year ago, so the property looks great. It's getting really nice ramp from University of Texas as well as being adjacent to the capital. So this year, the first quarter had the legislation. And so every other year, as we did the renovation to make sure that we benefited from that that will happen in 2027.

The only thing I would add is that based on all the good nuggets that Tom laid out, we are expecting Austin to be positive for the remainder of the year.

Our next question comes from the line of Ken Billingsley with Compass Point.

Two quick questions. One, just a follow-up. You said second quarter adjusted EBITDA is expected to be below last year. Is that just primarily on room count being down?

It's a function of Q1 being stronger than our original expectations. And so last quarter, we had guided that Q2 would be in line with last year's contribution, and now it's going to be slightly below because Q1 is stronger.

Okay. And the other question I have is could you just talk about Pittsburgh, the draft occurred? And had record numbers. Can you just talk about how that translated into your expectations and maybe the results of what developed out of Pittsburgh?

Yes. I'm glad you were paying attention. The draft was a great event for us. We have three assets in Pittsburgh, if you, Ken, you're aware that Leslie earlier stated about our opportunity to convert a renaissance to an autograph. And that is downtown looking over Three Rivers in the ball field where the pirates play as well as [ Hinzfield ]. So the draft was closer to the [ Heinz field ] this year, outdoor arena, but the activation was all in and around the convention center and as well as our location there. Not only...

Your conference will resume momentarily. Once again, ladies and gentlemen, please continue to hold. Your conference will resume momentarily.

Can you hear us, operator?

Yes, you are live.

So we were just finishing up Pittsburgh, and I wanted to make sure you heard the last piece, which was -- we're excited about what's happening, but the NFL Draft was very successful this year and our 3 assets saw significant demand due to that. So I'll go back to the operator for future questions.

Mr. Billingsley, does that complete your question?

It does.

And then Ken, I just want to make sure that on your prior question that you were talking about contribution for second quarter. That's what we were referring to in our prepared remarks Its contribution for the year.

Our next question comes from the line of Floris Van Dijkum with Ladenburg Thalman.

Question on the capital allocation, getting back to the capital allocation. Could you maybe just remind us of your -- what you spent on your renovations, what the EBITDA return or yield is on those renovations today as we stand? And also, what -- you mentioned two more projects that you're going to announce later on this year. What's sort of the aggregate amount that we could expect RLJ to invest in repositioning assets and relative to the sort of the maintenance CapEx?

Yes. I would say that, in general, Floris, that we gave an item of $80 million to $90 million of capital spend for 2026, and the vast majority of that is focused on ROI-related renovations from there. We generally target high double-digit returns on general investments and on our ROI conversions originally seeing north of 40% returns on the incremental capital that we're putting in the assets in order to effectuate these -- the conversion.

We mentioned one additional conversion that will be announced. I just want to correct you on that in regards to later this year.

Got it. And so -- but the 40% is what we should be expecting from the Wyndham Boston conversion? Or is that just for the Renaissance in that's going to become the Marriott Autograph in Pittsburgh?

So what we've talked about with Boston is that we think that there is a 40% upside in the EBITDA on that asset. Again, keep in mind that on some of these conversions, in the case of [indiscernible], we doubled the EBITDA on that asset. Boston is in that category of how strong we think the asset will perform in a post-converted state.

And then the -- how -- you did mention the dispositions, obviously, as well. And I suspect if the disposition market were to pick up a little bit later this year. Would that cause you to accelerate some of your re-positionings as well? Or is that still the buybacks, obviously being another potential source? But 40% returns are just tough to beat that anywhere else. I mean why wouldn't you lean into that even more?

Yes. I think what we've said before, Floris, is that we try to strive to have 2 conversions per year. Our conversion cadence is influenced by when franchise agreements expire and other elements that have a back up at about 2 per year. We're on that pace. We're going to be announcing our next conversion on our next earnings call. And so I think that when we look at when the franchises becomes available and when it makes sense from a seasonality perspective, -- for example, we wanted to wait until after World Cup for Boston. So we're trying to be strategic and thoughtful about when we execute the conversion.

And maybe last question, just a follow-on. The actual demand from -- everybody's been talking about the fact that there's going to be last-minute bookings presumably to watch the World Cup. Can you talk maybe about some of the -- you mentioned some of the FIFA bookings that you've already done. Do you have any teams or anything like that, staying in your hotels? Or what tangible information, can you give us on the potential upside it sounds like from the World Cup on your expectations?

Yes. As I mentioned before, Floris is that it's early, but we're encouraged because we were very thoughtful about making sure that the types of blocks we took, we're focused on teams and media. We're starting to see those blocks pick up and we started to receive deposit. I'll let Tom give some color on that. And then as it relates to the transient demand, what I said is that what we're seeing is very promising, but it's really early, and that we expect most of the benefit to really come in rate because these are happening in high occupancy markets for us. And the market I was talking about was L.A., New York and Miami.

And just to give you a little color on the group side, it's interesting, Floris, when groups teams stay with you, they actually encourage fans to stay where the team stay. So that's a positive and we actually have locked-in deposits for teams in 3 of those 9 markets that we have. So we're really encouraged that not only will you have teams, but you'll have fans that will want to stay with the teams.

We're also encouraged, as Leslie talked about, on the transient pace, when you think about the leisure side and where ticket sales as well as how we're doing length of stay, so we're seeing ADR increasing in those time frames when people are going to have the most amount of demand and then making sure that we're providing the opportunity to take other business outside of those games, whether it's group or BT to make sure that we're layering in the process of making sure we take advantage of not only the special event, but other demand as it comes because those are high occupancy locations that Leslie mentioned earlier. So it's a busy time of year. In addition to 250th anniversary will be over that same time frame. So we're really doubling down on strategy.

Our next question comes from the line of Chris Woronka with Deutsche Bank.

I was hoping we could spend a minute talking about kind of the Silicon Valley market. You talked about with growth in AI, I think you guys have probably 4 or 5 hotels in that area, proper. You mentioned you saw nice [indiscernible] in the first quarter. Kind of curious what's embedded in your outlook for the rest of the year? And you -- may sound like a silly question now that you worry at all, are you seeing the froth kind of that area had some extremely high RevPAR growth back in 1999 and 2000 as i recall. So any thoughts on your outlook beyond the current quarter?

Yes. I mean we are very encouraged by what we're seeing in San Francisco area, the Northern California market for us broadly. Clearly, the recovery is well underway. As we mentioned before, all of our assets were up 27%, in the first quarter. Clearly, it was benefiting from Super Bowl and some major conventions in [indiscernible] and JPMorgan. But I would also say more broadly, and this goes to your Silicon Valley comment, BT is very much in full swing, given the fact that you have a better overall environment, you have better local advocacy with good policy. You talked about the AI investment. We're seeing clearly return to office trends and record office leasing. And so the BT momentum is strong, and we're also starting to see pricing power return. Let Tom add some comments.

Yes. The campaign that they're really behind in San Francisco is "Believe in San Francisco". And when you think about what Leslie was talking about, it's happening locally from a community as well politically where Bart Ridership is up, foot traffic is increasing in CBD. When you think about what's happening around [indiscernible], they got a healthy pace for '27, '28 and the type of conventions that are coming, our association, corporate medical and then most importantly, high tech to your point.

Just as an example, to give you an idea on growth, Databricks in 2023 had about 11,000 room nights. And in 2026, they're going to have 25,000 room nights. So you can see there's an evolution happening because venture capital money is all coming to San Francisco. And it's basically when you think about where the city is thriving, it's also spilling out the Silicon Valley and the outlying areas, where we have a bigger footprint, as you know, where we have some airport hotels as well as Silicon Valley and CBD. So we're encouraged with what's happening, and we're trying to make sure that we're capturing all the different types of demand that's now coming there with the last catalyst hopefully being international, we are seeing some growth coming from Mexico, U.K., India, and China will be the last step, hopefully, where we can see that start to come back as it's still a significant amount of spend that comes to San Francisco.

Okay. Super helpful. And then just another question on conversion. When you guys talked about planned conversions, can we generally assume that that refers to the Wyndham that you still have on converted or either a few independents and things affiliated with non-Marriott, Hilton, Hyatt brands? Just hoping to get a little bit of clarification.

Yes. I mean we have -- we've published in our management presentation a list of potential conversions in our portfolio. We're obviously looking at the Wyndhams', but we're also looking at current assets as the franchise agreements expire to see what else -- what other lifestyle brands are available that makes sense for that physical asset. So it's not just all Wyndham assets, it's other assets within our portfolio where the franchise agreement may be expiring.

Our next question comes from the line of Chris Darling with Green Street.

Just a couple of quick follow-ups for me. First, Leslie, you mentioned being constructive on asset sales. Hoping you could just give an update on the broader transaction market, whether you've seen anything change on the margin given a more favorable RevPAR backdrop rather that's pricing, depth of the bidding tent, anything else?

Yes, sure, Chris. For sure, the transaction market has improved. Obviously, it's still not as robust as it was in the past, but it's definitely approved in general. And what I would say the key driver of that is really the debt market. There are so many debt providers today as people have tried to play sort of the credit trade, if you will. It's creating competition and it's helping spreads tighten. So even though the Fed has not cut rates because there's competition among providers, we've seen spreads tightened. And so that's allowing buyers potential buyers to still underwrite lower interest expense.

And then you layer on better fundamentals, which is giving potential buyers confidence in the ability to underwrite. So I think that's just a better overall sentiment relative to the transaction environment. I think owner operators continue to be the primary buyer, but we're seeing the buying pool span, single assets are still more prevalent, but you could see some small portfolios start to emerge later this year. But in general, I would just say that the transaction market has improved.

Okay. I appreciate those thoughts. And then just to put a finer point on the guidance discussion. If I look at the midpoint of the revised hotel EBITDA range, it suggests a modest decline, I think, for the rest of the year. Hoping you could frame this outlook. And in particular, I'm thinking about the third quarter, where, at least in theory, I think you'd be lapping an easier comp. So maybe just a discussion of some of the puts and takes that maybe I'm not totally thinking about.

Well, I would say, in general, don't forget that we had a tax credit in last year. So when you look over -- look year-over-year, we actually have EBITDA growth. And even without that, we still at the midpoint, are having EBITDA growth. What was the second part of your question related to third quarter?

Well, I think last year, you had a particularly tough year-over-year growth percentage in 3Q '25. And so I would think in theory, it might be an easier comp this year. And that's where I wanted to get a little bit of context.

Yes. I would say that in the third quarter, as I mentioned before, that we do expect the third quarter to benefit from World Cup. It is also going to benefit from the 250th Anniversary, which is on top of 4th of July weekend, and then we also have Salesforce that we were benefiting from in the third quarter.

We have no further questions at this time. Ms. Hale, I'd like to turn the floor back over to you for closing comments.

Thank you all for your interest today and joining our call. We look forward to connecting with you at our upcoming conferences. And I hope all of you have some summer travel planned over the next few months. And have a good day. Thanks, everybody.

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.

Welcome to the RLJ Lodging Trust Fourth Quarter 2025 Earnings Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the call over to John Paul Austin, Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to RLJ Lodging Trust's 2025 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. Nikhil Bhalla, our Chief Financial Officer, will discuss the company's financial results. Tom Bardenett, our Chief Operating Officer, will also 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 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 may be helpful to review the reconciliations to GAAP located in our press release. Finally, please refer to the schedule of supplemental information which includes pro forma operating results for our current hotel portfolio for 2025.

I will now turn the call over to Leslie.

Thanks, John Paul. Good morning, everyone, and thank you for joining us today. We were pleased with our solid fourth quarter results, which came in ahead of our expectations despite a choppy operating environment that was further constrained by the protracted government shutdown. .

Our operating results benefited from the continued outperformance of our urban markets, the ramp of our completed high-occupancy renovations as well as our robust growth in nonrooms revenue. These factors, combined with disciplined cost management, contributed to our better-than-expected bottom line results. The fourth quarter capped a highly productive year for us during which we delivered our Nashville conversion and continued ramping our completed conversions, which on average achieved RevPAR growth that was nearly 700 basis points ahead of our broader portfolio.

We advance the next phase of our pipeline, including the selection of the brand for our Boston conversion. We completed transformative renovations of several hotels and high-demand markets. We achieved robust non-room revenues well in excess of our RevPAR performance, validating investments in our ROI initiatives. We strengthened our balance sheet by addressing all of our near-term debt maturities. We executed on opportunistic asset sales at accretive multiples, and we returned significant capital to shareholders in the form of dividends and share repurchases.

The execution of these initiatives have strengthened our long-term growth profile and further bolstered confidence in our ability to deliver on our value creation initiatives even in an uncertain environment. With respect to our operating performance, our fourth quarter RevPAR decline of 1.5% came in better than what we had anticipated in the midst of the government shutdown. These improved top line results were driven by the relative outperformance of our urban markets, a stronger-than-expected acceleration of the ramp at our major renovations as a shutdown ended as well as an overall stronger December, which benefited from positive leisure demand despite a difficult year-over-year comparison for the month.

Our urban hotels continue to be a key driver of our performance as they captured positive trend across a broad range of demand sources this quarter. Among our urban markets, San Francisco CBD was once again the top performer, achieving 52% RevPAR growth in the quarter, supported by growth from all demand segments as well as the calendar shift for the Dreamforce conference into the fourth quarter.

We are encouraged by the ongoing momentum in San Francisco's recovery, supported by a thriving tech economy, improving perception of the overall local environment and a strong lineup of events this year, including the recent Super Bowl, which was wildly successful as well as the upcoming World Cup gains. From a segmentation standpoint, our nongovernment-related business transient revenues grew by 5% during the quarter. And with our highest-rated customer demand segment continuing to grow, corporate rates were up a solid 2%. Overall, nongovernment business travel demand continues to benefit from the resiliency of the economy and healthy corporate profits, especially in sectors such as tech, finance and consulting, which continue to see positive momentum in return to office trends.

However, government business demand was further impacted during the quarter by the shutdown, primarily affecting our D.C. and Southern California markets. Relative to group, our revenues were down 3% as in the quarter, for the quarter demand was artificially impacted by the shutdown in October and November. However, group dynamics remain strong as evidenced by the growth in our group ADR of 4% despite the soft demand.

Regarding leisure, trends remained stable, and we were encouraged to see demand increase a healthy 1% during the quarter, although we continue to observe some price sensitivity among consumers. Our urban leisure once again saw stronger relative performance achieving revenue growth ahead of our portfolio, driven by strong demand around the holidays. Our leisure segment also benefited from our recently renovated hotels in Waikiki and Deerfield Beach, which achieved RevPAR growth of 12% and 10%, respectively, in December as they resume their ramp following the end of the government shutdown.

Despite softer occupancy in the quarter, we achieved strong non-room revenue growth of 7.2%, exceeding our RevPAR performance by nearly 900 basis points, allowing us to generate positive total revenue growth. These results validate our strategy to drive high-margin out-of-room spend and underscore the success of our ROI initiatives aimed at growing profitable food and beverage, reconcepting underutilized space and growing other ancillary revenues.

Overall, better-than-expected RevPAR performance aided by contributions from the ramp of our completed conversions and renovations, robust nonroom revenue growth and continued disciplined cost containment drove much of the EBITDA upside relative to our expectations. Turning to capital allocation. We made significant progress on a number of fronts during the fourth quarter. We continue to ramp our completed conversion with our 4 most recently completed conversions achieving 15% RevPAR growth for the full year.

We completed transformative renovations at our high occupancy hotels in Waikiki, Deerfield Beach and are already seeing positive trends with both assets generating RevPAR growth of more than 10% in December. We made further progress towards our conversion of the Renaissance Pittsburgh and expect to relaunch this asset as part of Marriott's Autograph Collection this year. And we advanced the programming of our Wyndham Boston Beacon Hill conversion to Hilton's Tapestry Collection with construction slated commenced later this year.

We remain on pace to deliver an average of 2 conversions per year and look forward to announcing our next conversion later this year. Additionally, during the quarter, we executed on the opportunistic sale of 2 hotels at accretive multiples and used the proceeds to pay down debt. Subsequent to the quarter, we completed a series of refinancing transactions, which addressed all of our debt maturities through 2028. Our strong balance sheet and liquidity continue to support the optionality that we have with respect to capital allocation.

This year, we returned $120 million to our shareholders through share repurchases and a well-covered dividend. Now looking ahead, we are cautiously optimistic overall. While we acknowledge the lingering geopolitical uncertainty, we remain constructive on the setup of a broader economy, given the tailwinds expected from moderating interest rates and tax cuts, which have positive implications for travel demand.

Relative to this setup, the lodging industry is expected to achieve slightly positive RevPAR growth this year, driven by the ongoing positive momentum in nongovernment-related business travel, increased leisure demand, especially urban leisure demand, from several unique events, particularly the World Cup games plus the 250th anniversary of America in addition to healthy group dynamics.

We believe that these trends will disproportionately favor urban markets, allowing them to continue to outperform the broader industry. Against this backdrop, we believe we are well positioned given our favorable geographic exposure, urban footprint and high-impact capital investments, which should allow us to benefit from the broad-based growth across all the segments that urban markets are capturing, a favorable footprint with a number of World Cup games across 9 of our markets, including prominent games in New York, Los Angeles and Miami.

The 250th anniversary of America with large-scale related events in the Boston, New York, D.C. and Philadelphia markets. The favorable rotation of more major sporting events, including the NFL draft, the Major League Baseball All-Star Game and the NCAA March madness. A healthy group pace and strong group pricing, particularly in the second quarter, supported by these events, continued growth of nonroom revenues driven by our successful ROI initiatives, the ongoing momentum in our Northern California market, supported by the rapid growth of the AI industry that is simulating business travel, events and corporate investment.

And the tailwinds from the ramp of our completed conversion and high occupancy renovation. In aggregate, these tangible catalysts and the resiliency of our urban center portfolio underpin our positioning for this year. Our strong relevant positioning is further supported by our flexible balance sheet, which will allow us to execute on our key investments.

Overall, we remain confident in the long-term outlook for the lodging sector, especially against an elongated period of limited new supply, which will disproportionately benefit urban markets, allowing our urban-centric portfolio combined with our value-creating initiatives to drive shareholder returns long term. With that, I will turn the call over to Nikhil.

Thanks, Leslie. To start, our comparable numbers include our 92 hotels owned at the end of the fourth quarter. Our reported corporate adjusted EBITDA and AFFO include operating results from all sold hotels during RLJ's ownership period.

As Leslie noted, our fourth quarter results came in ahead of our expectations. Fourth quarter occupancy was 68.7%, average daily rate was $199 and RevPAR was $137, which translated to a 1.5% RevPAR contraction versus the prior year, comprised of a 0.9% decline in occupancy and a 0.7% decline in ADR that the government shutdown weighed on our results in both October and November, which are seasonally the highest contributors during the fourth quarter and December faced a uniquely difficult comparison from the prior year.

Our urban markets outperformed our portfolio by approximately 0.5 point, benefiting from robust growth in markets such as Northern California, Denver CBD and New York City achieving 18.5%, 10.1% and 4.7% RevPAR growth, respectively. We were especially pleased with our non-room revenues growing by 7.2% over the fourth quarter of last year, which led our total revenues to grow by 0.2% and driven by solid growth in F&B, parking and other revenues.

With respect to expenses, total operating costs were up only 0.8% during the quarter and up 1.6% for the full year. Our fixed expenses during the quarter benefited from a favorable insurance renewal as well as $4.7 million in real estate tax benefits as a result of our successful appeals, which were not contemplated in our outlook.

Excluding these tax benefits, our total expenses increased only 2.1% for the full year, reflecting the benefits of our lean operating model as well as relentless focus on enhancing productivity and managing expenses. Our ability to manage costs in a soft RevPAR environment allowed us to achieve fourth quarter comparable hotel EBITDA of $87.8 million and hotel EBITDA margins of 27%, which was only 44 basis points behind last year.

This translated to adjusted EBITDA of $8.4 million and adjusted FFO per diluted share of $0.32 for the fourth quarter. Our team continues to work diligently to execute cost containment initiatives to minimize operating cost growth in response to the current environment. We continue to actively manage our balance sheet to create additional flexibility.

During 2025, we have proactively addressed all of our near-term debt maturities. Subsequent to the year, we executed 4 financing transactions, which addressed our debt maturities through 2028 and expanded our capacity. These included the recasting of our $600 million revolver to extend maturity to 2031, upsizing and extending our existing $225 million term loan, the addition of a new $150 million term loan and refinancing of our 2 mortgage loans maturing in April.

The term loans created approximately $500 million of new capacity, which we intend to use under delayed draws to pay off $500 million of senior notes maturity in July this year. The successful execution of these refinancing transactions will result in minimal increase to our annual interest expense despite refinancing our lowest cost debt in a higher interest rate environment.

As a result of these transactions, we have further laddered our debt maturity profile such that we will have no maturities due before 2029. Our balance sheet is well positioned with $600 million currently available under our undrawn corporate revolver, 84 of our 92 hotels unencumbered by debt, an attractive weighted average interest rate of 4.6% and 73% of [ debt ]either fixed or hedged.

We ended the fourth quarter with over $1 billion of liquidity and $2.2 billion of debt and the company's weighted average debt maturity will be approximately 4.5 years post the payoff of the senior notes. We continue to leverage the flexibility offered by our healthy balance sheet to unlock embedded value across our portfolio through high-value conversions and renovations while remaining committed to returning capital to shareholders.

During 2025, we advanced our Nashville and Pittsburg conversions and executed 4 transformative renovations. Additionally, we sold 3 properties for $73.7 million in aggregate at a highly accretive multiple of 17.7x projected 2025 hotel EBITDA, including required CapEx. We recycled substantially all of these proceeds into the repurchase of 3.3 million shares for $28.6 million and our refinancing efforts inclusive of the paydown of a first mortgage.

Finally, we continue to pay an attractive and well-covered quarterly dividend of $0.15 per share. We will continue to make prudent capital allocation decisions to position our portfolio to drive growth through the entire cycle, while maintaining a strong and flexible balance sheet. Turning to our outlook.

Based on our current view, we are providing full year guidance, which at the midpoint assumes a continuation of the current operating environment. For 2026, we expect comparable RevPAR growth to range between 0.5% and 3%, comparable hotel EBITDA between $344 million and $374 million, corporate adjusted EBITDA between $312 million and $342 million and adjusted FFO per diluted share to be between $1.21 and $1.41, which assumes no additional repurchases.

Our outlook assumes no additional acquisitions, dispositions or balance sheet activity beyond what has been completed today. We estimate capital expenditures will be in the range of $80 million to $90 million. Cash G&A will be in the range of $32.5 million to $33.5 million and expect net interest expense will be in the range of $101 million to $103 million.

We also expect total revenue growth will outpace RevPAR growth due to the continuing success of our initiatives to drive out room spend. With respect to the cadence for the year, we expect the first quarter to be the softest quarter as we lap difficult year-over-year comparisons in D.C. from the inauguration and increased demand at our Southern California hotels following the wildfires. January RevPAR was down 1.9%, reflecting these difficult comparisons. Based on our current visibility, we expect the contribution from the first quarter adjusted EBITDA to represent approximately 22% of our full year outlook.

As we move beyond the first quarter, we expect the second quarter contribution to be similar to last year with the balance of the contribution in the back half of the year. As you bridge between 2025 and 2026 adjusted EBITDA, please keep in mind that adjustments for the asset sales as well as the nonrecurring property tax credits of $4.7 million during the fourth quarter. Finally, please refer to our press release from last evening for additional details on our outlook and to our schedule of supplemental information, which will include comparable 2025 and 2024 quarterly and annual operating results for our 92-hotel portfolio. Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator?

[Operator Instructions] Our first question is from Austin Wurschmidt with KeyBanc Capital Markets.

It's [indiscernible] on for Austin. How much benefit are you guys assuming from the World Cup? And then separately from easier comps due to the government shutdown? And how much of the RevPAR growth this year, are you expecting to come from rate growth versus occupancy?

So let me unpack all of our building blocks for what's embedded at the midpoint of our guidance based on your question. I would say from a balance perspective, we're balancing rate and occupancy we see it equally weighted for at the midpoint. When we think about segmentation, we're assuming that BT is going to continue to improve. On the strength of national accounts that continue to come back in terms of frequency and length of stay, we're also assuming that because our highest rate of customers coming back that we're going to see rate growth on the BT side, and that BT is going to benefit from the holiday calendar shift, which is having seen a lot of holidays on the weekends.

Additionally, we are assuming that leisure demand is expected to increase in 2026 on the strength of the unique events. We think urban leisure is going to continue to outperform. We think that rate is going to be a key driver of growth in 2026 for leisure, which was not in 2025. And then our leisure is going to benefit from the ramp of our high occupancy renovations that we did last year, which were in leisure markets. And group is going to see pace ahead of 2025 in the second, third and fourth quarter.

And that all of those things are going to benefit urban, which is going to continue to outperform the industry, particularly on the strength of San Francisco. And then if I drill down on the special events for World Cup, we've got 9 markets that are benefiting from World Cup with 63 games and we have prominent games in Miami, New York and L.A., and that's translating into about 45 basis points of pickup for us.

I would say additionally, as we mentioned last year, we were impacted by our high occupancy renovations. And so this year, we're getting the benefit of that and Waikiki, Deerfield and Key West, and that's going to translate into an incremental 40 basis points for us. And that's on top of the benefits from the special events, the 250th Anniversary in D.C., Boston, New York, in Philly as well as more regional games that we're getting from March Madness, and we also have the final Four in our footprint this year as well, and that's incremental to Super Bowl that benefited San Francisco. In aggregate, those things are reflected in the midpoint of our range.

Okay. That's really helpful. And my second question, how are you prioritizing capital allocation today between asset sales and possible share repurchases, given where your stock is trading and what would need to change either in valuation or transaction markets for external growth to become more attractive?

Yes. I think, clearly, we were active this year. We recycled some capital from asset sales. We bought back shares. We executed on our conversions with our most recent conversions generating 15% RevPAR growth this year. We also took some actions to strengthen our balance sheet in the back half of the year as the environment softens, and we continue to pay a healthy dividend. .

Clearly, the balance sheet is what gives us optionality. We want to be thoughtful about balancing between near-term opportunities and long-term resiliency. We are constructive on asset sales. We will look to recycle more proceeds in 2026 and take advantage of the arbitrage and valuation while also maintaining our balance sheet.

And we're going to look to use all the tools that are available to us. These are not mutually exclusive. They have relative benefits based on the market conditions. And we want to drive value for our shareholders and grow earnings, and we think that buybacks are an important tool in our toolkit.

Our next question is from Tyler Batory with Oppenheimer & Company.

First 1 for me, just on the EBITDA side of things and EBITDA margin, 1% growth year-over-year at the midpoint when you make some adjustments. Just talk a little bit more what you're seeing on the operating cost side of things and your expectations for 2026.

Yes. I think in aggregate, our assumption is that expenses are going to grow about 3%. We think it's -- variable expenses are going to be about 2%, and that fixed expenses are going to be about 4%, excluding the tax benefit that we have. And I think from a wage perspective, we're assuming kind of 3% to 4% on wage and benefits growth. .

Okay. Perfect. And then I wanted to double-click on conversions and renovations. Can you remind us what's plans for 2026. I know there was some renovation disruption that impacted 2025. So I'm not sure if there's anything that's going to be happening that we should be aware about in terms of 2026. And then talk a little bit about just conversions. I think you mentioned, I think it was 15% RevPAR growth at your recent conversions. Just talk a little bit more about the ramp up and just some of the performance at the hotels that you've converted recently?

Sure, Tyler. And just catch me if I missed part of your question. But I think in terms of on a relative basis, recall that last year, we mentioned that the types of renovations we did last year were high occupancy renovations. And so by nature of the occupancy and how they performed throughout the year, you were going to have some level of disruption. That's not the case for this year.

And you see we have a lower CapEx for this year. That's also a function that these are smaller assets relative to what we did last year. The largest asset that we have this year is really going to be Boston, which is going to be in the latter part of the year after special events. And so we don't expect to indicate disruption as a headwind for us this year.

I think as it relates to the conversion, we've completed 7 conversions to date. We have 2 more that are underway. Obviously, Boston, which I just mentioned. We'll start this later this year. And then our Pittsburgh -- Renesas Pittsburgh, which is going to be converted to an Autograph Collection deliver that later this year. All of our conversions were up on average about 5% last year with our more for -- [ foremost ] recent ones being up 15%. And so they continue to ramp very well. We're very pleased in terms of the returns that we're generating and the overall production from our conversions. We remain on pace and continue to deliver 2 conversions per year, and we look forward to announcing our second one at the latter part of this year.

Our next question is from Michael Bellisario with Baird.

Just a few transaction questions. Just a couple of transaction questions for you. Just first, what was the motivation and process like to South Dallas and Houston? And was it more market or asset driven to sell those hotels?

Yes, Mike, those 2 assets, one was a function of where we saw the demand drivers going in that particular market, coupled with the capital -- forward capital needs of the asset. And the other one was opportunistic, an alternative use buyer. I was looking at that asset. And so what we found in today's market is that inbounds are being -- inbound calls are more credible today. And so we took advantage of some opportunistic opportunities.

Got it. That's helpful. And then just looking at Northern California, and sort of how do you balance sort of the expected improvement in that market that you and everyone expect with potentially selling some of the kind of non-CBD hotels. Just is your fundamental view of San Francisco is going to benefit San Francisco? And is the improving demand profile going to make its way out to the [ outer range ]?

Yes. I think we were able to balance it by the size of our footprint, Michael. And so I think that there's opportunity for us to continue to benefit from the relative strength that San Francisco is seeing, while at the same token, be opportunistic on asset sales. And just to be thoughtful about how we prioritize what submarkets we look to prune our portfolio then. .

Our next question is from Gregory Miller with Truist Securities.

Let's start off on the AI front. A number of your franchise or brand partners have spoken about their consumer-facing AI efforts, including towards the LLMs. Do you expect any material change in how your bookings from the brands will be sourced this year?

That's a good question, Greg. We're actively working with the brands to pass through. When we think about how they're interacting with the consumer And specifically on the front end when they're shopping, researching and looking to book business. The great thing that we're continuing to see is brand.com continues to be the source of business that's the highest return where people are booking through the brand, which the cost is less there than, let's say, the OTA channels. .

And so we're very supportive of all the initiatives around centralized services in regards to how they're thinking about rolling out to the consumer to be able to make it easier to get to brand.com, number one. The other thing that I would say is when I think about what the brands are doing, there's an opportunity also to have savings through economies of scale. And whether that's through their AI tools, they're evolving meaningfully over the next few years, and they're doing tremendous amount of beta testing, and we sit on, as you know, owner advisory councils and have a voice as well as our peers.

And so we're excited about the opportunity to enhance productivity, not only through the cost side and labor and scheduling initiatives, everything related to how we can make sure that we're maximizing the opportunities that are ahead of us. And I think when we go down the road of our own work and what we're doing, we're really taking a look at data insights in regards to making our decisions from an asset management standpoint with our management companies and enhancing the tools there as well. So we're supportive and excited about the future and look forward to having the brands really lead the way when it comes to our industry.

Thanks, Tom. So for my second question, this is similar to Tyler's question, maybe with a bit more granularity. As we think about modeling labor costs through the year, is there any change in the step up we should assume in terms of cost growth in the third and the fourth quarters, particularly given labor dynamics in New York City.

That's embedded in our overall blended expense growth. If you can look at the fourth quarter, we were up 0.8% in growth. And if you take out the tax benefit, we were slightly over 2%. So I think if we assume that trend line for the first 2 quarters and then the back half, you blend back to 3% for the full year.

And the thing to beyond what your question was around New York City, when you think about the bigger picture, Greg, contract labor continues to be reduced, productivity continues to improve.

When we think about our portfolio specifically, you dig into the synergies that we continue to make sure that we're maximizing because of our footprint, whether it's operations, sales, food and beverage and repairs and maintenance, making sure that we're building a business model that's sustainable. And so we feel very good about our management companies and how they're interacting with us around scheduling, back to what we talked about in regards to yielding that just as important as [indiscernible] revenue to be able to maintain the levels that Leslie referred to.

Our next question is from Chris Woronka with Deutsche Bank.

I wanted to ask, if I could, a longer-term strategic question. If we look at portfolio today, hotels, you probably skew a little bit more full service at this point, particularly from an EBITDA perspective. But is there any thought to as we potentially get more, I guess, traction in the transactional markets going forward. Is there any thought to do anything more significant in terms of reshaping the portfolio to maybe continue to de-emphasize select service, which you've kind of been doing on a measured basis thus far.

So Chris, thanks for the question. I think in general, when it makes sense to be active externally, you're going to continue to see us lean towards like style-oriented assets, which have a mix of thoughtful F&B that are built right from a room count perspective. And you've seen our portfolio shift to the urban lifestyle as we made acquisitions and we do our conversions.

And so you will see our portfolio continue to move in that direction when it makes sense to execute on external growth. We do think that the transaction market will improve this year, particularly kind of given the debt markets and a lot of players out there providing debt and expectations around rate cuts. We are constructive on more asset sales. And so you'll see us be active on that front more so this year.

Last thing I would add too, Chris, and I think you can see it in our non-room revenue spend. When you look at our ROI initiatives and you look at our conversions and our renovations, we're leaning in heavily to trying to grow food and beverage margin with beverage-centric renovations that are driving that. And we continue at our urban properties to be able to enhance the capital initiatives around parking, which is also driving profitability.

And then the last thing, whether it's select service or full service, we're seeing the fact that our margins are growing because of market expansion. So when you're in our lobbies, we're really putting more mines and efforts against how do we make sure that we -- the grab and goes, if you will, which is really a playbook from select service but also expanding into our full-service hotels where that's the need as the consumer looks to buy things when they're individually in a hurry.

Okay. I appreciate all that color. As a follow-up, I think we've heard from some of your peers to varying degrees that there's a little bit more and maybe perhaps increasing flexibility with the brand on things mostly related to CapEx and also sometimes operational efficiencies. Are you guys seeing the same trend? Or there -- are you more encouraged or less encouraged by what you see going forward in terms of, I don't know, pushback is the right word, but working with the brands collectively to kind of give yourselves a little bit more margin and free cash flow conversion.

Look, I think in general, we have very strong relationships with our brand partners and that we have a very healthy relationship. I think the brands are being very thoughtful around their renovation requirements and trying to be market specific as it relates to that. .

I think they're also looking for ways to be able to give benefits to owners who deploy capital within their portfolios, of which we are one of those. And they're also looking for ways to help reallocate some of the fee dollars. So I think in general, I think the brands are being good partners and we have very strong relationships that we've been able to benefit from.

Our next question is from Rich Hightower with Barclays.

A couple of questions. Leslie, if I go back, I think it was your answer to the first question. It's sort of strength upon strength upon strength in terms of the building blocks for 2026. And I think just out of curiosity, when you add all of it up, and again, assuming that the world we think we know and understand today kind of plays out as expected, I mean, what is the likelihood of coming anywhere near the low end of guidance as we just think about the plausibility of the range.

Yes. Rich, I think that you have to remember that our portfolio is 80% transient, we have a short-term booking window. So when you think about our range, our range is really just a reflection of either the strength or weaker production in some combination of the factors that we laid out relative to our baseline. So at the high end of the range, you could have stronger production in World Cup or stronger production of the special events or in the year for the year pickup, our urban markets may outperform better or the ramp may be stronger. We think that if those things happen, it's going to translate into rate growth. primarily. But the flip side is opposite for the lower end of the range. If we have weaker production from World Cup or any of the other combination of things from urban markets or special events or in the year for the year pick up or slower ramp on our on our conversions.

Those types of things would lead you to the bottom end of the range, that would take in the form of demand. So I think it's about relative strength. I mean what we've built at the midpoint is based upon what we can see today. But we're in an 80% transient business with short-term booking window.

That makes sense. That's helpful. My second question, I'd like to dive a little bit deeper on the one of Boston conversion to Tapestry in particular. So I know that asset reasonably well. It really kind of it's a demand category killer given its location kind of on the campus of MGH and obviously in the Beacon Hill neighborhood.

So I would assume it does pretty well on its own as a Wyndham. And so just help us understand the economics behind the Tapestry conversion, what that brand will do for the hotel what the all-in basis per key, et cetera, might look like at the end of all that.

Yes, I'll talk about the decision to move into that arena a little bit, Rich, and some of the things that we're doing that we think are going to be transformative. But you hit the nail on the head. We love the location. And in real estate, it's all about location, location, location. So just to add to your color, with $1.8 billion going into mass general with 2 buildings, literally adjacent to the hotel.

Those are going to be future demand generators above and beyond the location, as you mentioned, Beacon Hill, which is high-end residential great community, where you have universities, health care, education as well as the attractions and walking distance to the TD Garden and things that we benefit from.

So what we feel is by going into the Hilton system, specifically on the lifestyle side, we can make it that community-centric feel when people are walking into the hotel. And what's happened in our other conversions, Rich, as you know because you visited some of them, the mix changes. When that happens, you get more corporate base. You also get more Hilton contribution because of the lack of supply that Hilton has in that marketplace, we feel we enter into a place where we can really compete on the lifestyle and upper-end threshold of that clientele that's looking for locations as well as accommodations.

We also have the meeting space on the highest floor that really has beautiful views over Boston. And having that mix of business will help us on the group corporate and base of what we find in our other conversions like Mills House when we went to Accuro or Nashville, where we went to a Tapestry where we automatically see that shift in business.

So we're pretty excited about, yes, it's a great hotel today because Wyndham does a super job for us in that location with the value by, but we're going to be playing in a different level when we move into the Tapestry Hilton collection, and then I'll kick it over to Leslie for returns.

Yes. I think, Rich, I think we've been pretty bolt on this asset. We believe that there's 40% upside in EBITDA from converting it to a tapestry for all the reasons that you articulated in the market demand there. This is an asset that's going to benefit from all of the demand drivers segmentation. And we know that the rate is in the market because there are other assets already achieving the rate that we've underwritten for this asset and feel very good about what it can what it can produce.

And the overall renovation dollars are actually not that much more than what we would have to do in a normal renovation. And so the returns for the asset relative to the incremental capital is well north of 50%.

[Operator Instructions] Our next question is from Jack Armstrong with Wells Fargo.

How do you expect RevPAR growth to outperform RevPAR in 2026? And how much of that is being driven by some of the F&B improvements you made across the portfolio?

Jack, this is Nikhil. Just to give some frame of reference, right? So there are a number of things that are going into our non-room revenues. And one of them is the markets that Tom described earlier. If you look at sort of the fourth quarter, our revenues were actually up in the high single digits and consistently, we've had very strong growth in that.

So we're continuing to see very, very strong production across that, and we expect that to continue. If you look at our -- if you see our prepared remarks, we did say that our total revenues will outperform room revenues, we expect somewhere around 50 basis points.

And then on F&B, Jack, just to give you a little color there. We had about 120 basis point improvement in margin in F&B full year in this year. And we continue to see the reason that's happening is because not only a group is now having more corporate group, but they spend more money on banquets, beverage and then many of our renovations as well as ROI initiatives have really been what I talked about earlier, more beverage-centric having more seats at the bar, having our meeting space, have reception areas where that's more an opportunity, to have comradery in an outdoor area, whether it's an atrium or locations that are highly desirable together. .

And so we're seeing outlets grow. And lastly, on the community side, as Leslie stated earlier, we're trying to be attractive to folks that [indiscernible] staying in the hotel. An example of that with Mills House where we did the Black door cafe. We're getting 50-50 from our guests and 50% from the outside, just foot traffic taking advantage of our locations. I think Boston is going to be a perfect example of that. People who are going to be in those locations are going to want a place to eat, and there's a significant crowd now literally next door who's going to be going back to office in those locations. So those are examples of that, and I'll kick it to Leslie for 1 more.

Yes. And I would just bolt on to Tom's comments in a sense that every time we do this, we get smarter. And so the last comment that Tom made about being able to track not just hotel guests to our F&B outlets, we're seeing that in all of our conversions.

He mentioned Mills House. We've also done it in Santa Monica. We're doing it in Nashville. We also did at [ Enola ] as well, and he mentioned that we're going to be doing it in Boston, but we're also doing that in the Renaissance pit that we're converting to an Autograph. And then the other asset that we'll announce later in the year, this year, we'll have the same concept as well. So we're really leaning in to this thoughtful F&B with the beverage-centric mindset, and that's going to help us sustain that 50 basis points that Nikhil mentioned.

Helpful color there. And then can you remind us what percentage of your business was government related in 2025? And then maybe contrast that with a more stabilized year without the impact of Liberation day and the shutdown and that what you expect in 2026?

Yes. I mean what I would say is that in a normalized year, government was 3%. And we think about like how it performed last year, it was down about 20%. And we think that we saw a step-down in Liberation Day. And as I mentioned previously, our range assumes no change in government [indiscernible]

Our next question is from Chris Darling with Green Street.

Going back to the capital allocation discussion. Leslie, you mentioned inbound interest from potential buyers being more credible these days, just a more constructive transaction market in general. As you think through potential dispositions, what are some of the main factors you consider when making that decision? Is it market-driven asset level considerations, something else? Just sort of curious how you internally think about these things.

Yes. I mean I think it's a combination of our view of a market and where the puck is going from a demand perspective. It's also whether or not we think we can get any return on the capital that we have to put in to sustain the asset. And then it's our perspective on any opportunistic calls that we get in to determine whether or not we think that, that value is appropriate for a relative assets. But I think that we are active portfolio managers, and we'll consider looking at all aspects of our portfolio relative to a constructive disposition environment.

Okay. And related to this, in your mind, do you think there's appetite for larger-scale portfolio deals today? And if not, what do you think might change that story as we move through this year?

Yes. I mean I think it's a great question. I think that as I kind of look at the market today, the most active buyers are owner operators because they're able to consistently underwrite growth. And so that lends itself to more single assets. Having said that, we do think that there has been an increase in volume for larger single assets, which could then translate into liquidity for smaller pools of assets. I think a key ingredient of that is for the interest rate cuts to actually materialize and for buyers to be able to underwrite bottom line growth with conviction.

That will conclude our question-and-answer session. I would like to turn the conference back over to Leslie Hale for closing remarks.

Well, thank you, everybody, for joining us today. We look forward to meeting with many of you over the next couple of months. Have a good day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Welcome to the RLJ Lodging Trust Third Quarter 2025 Earnings Call. [Operator Instructions] The conference is being recorded.

[Operator Instructions] I would now like to turn the call over to John Paul Austin, Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to RLJ Lodging Trust's 2025 Third Quarter Earnings Call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Nikhil Bhalla, our Chief Financial Officer, will discuss the company's financial results. Tom Bardenett, our Chief Operating Officer, will also 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 had been communicated. Factors that may impact the results of the company can be found in the company's 10-Q and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements.

Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release. Finally, please refer to the schedule of supplemental information, which includes pro forma operating results for our current hotel portfolio.

I will now turn the call over to Leslie.

Good afternoon, everyone, and thank you for joining us today. Overall, our third quarter RevPAR results were in line with our expectations, with trends improving sequentially month-over-month during the quarter. We were pleased to see our urban markets continue their stronger relative performance, and we are particularly encouraged by the momentum building in Northern California, which should continue to benefit our portfolio.

Our solid growth in out-of-room spend, combined with our focus on cost containment allowed us to achieve solid bottom line results despite the RevPAR headwinds, demonstrating the strong contributions from our ROI initiatives and the resiliency of our lean operating model.

Drilling into our third quarter operating results. Our RevPAR decline of 5.1% was balanced between occupancy and ADR. As we had expected, our performance reflected the broader lodging environment, which faced a layered effect of difficult holiday comps, non-repeat hurricane-related business in Houston and Tampa last year and softer citywide calendars in many markets such as Chicago, which benefited from the DNC last year and San Francisco that saw Dreamforce shift from September to October.

These factors were compounded by the impact from our 3 transformative renovations in Waikiki and South Florida as well as headwinds in Austin, which collectively had a 200-basis point impact on our third quarter RevPAR. Notably, however, against this backdrop, we gained RevPAR index, highlighting the quality of our assets, which is allowing us to take market share.

RevPAR at our urban hotels once again outpaced our broader portfolio this quarter by 50 basis points. We believe that urban markets, which benefit from a broad range of demand drivers should continue to outperform the industry. We were especially encouraged by the performance of our San Francisco CBD hotels, which achieved 19.4% RevPAR growth during the quarter, driven by a strong lineup of smaller conferences, concerts and special events, which more than offset the calendar shift of the Dreamforce conference.

Regarding segmentation, healthy travel patterns across key sectors such as tech, finance and consulting, along with the sustained momentum and return to office trends led our non-government-related business travel to achieve 2.4% revenue growth. With our highest-rated customer coming back, corporate rates were up a healthy 3%. However, government-related transient demand remained meaningfully below last year.

Our group revenues in the third quarter were impacted by the shift of the Jewish holidays into September, leading to a softer citywide calendar across many markets. Our group demand was further impacted by the ongoing transformation of the Austin Convention Center, which will significantly expand the center and further strengthen the Austin market in the coming years.

While the demand environment was soft and the booking window remains short, we were encouraged to see pricing strength as demonstrated by the 2% growth in group ADR for the quarter. With respect to leisure, trends remain stable. And although we continue to observe some pricing sensitivity among consumers, we were encouraged to see demand up 1% during the quarter.

Our urban leisure once again saw stronger relative performance, achieving flat revenue growth, led by a 3.2% increase in demand. Our urban markets are continuing to benefit from strong demand for concerts, sports and special events. Notably, we were pleased to see positive results from our ongoing strategy to drive out-of-room spend, which grew by 1.3% in the quarter, despite lower occupancy.

Our non-room revenues generated strong margins and underscores the success of our ROI initiatives aimed at growing food and beverage revenues, re-concepting underutilized space and growing other ancillary revenues. Growth in our non-room revenues came in over 600 basis points ahead of our RevPAR performance. This growth, paired with our tight cost containment initiatives, allowed our portfolio to deliver bottom line results ahead of our expectations.

Turning to capital allocation. We continue to make progress on several fronts during the quarter. We advanced our 3 transformative renovations in Waikiki, Key West and Fort Lauderdale, which are now substantially complete. We continue to ramp our conversions and see significant success with our 4 most recently completed conversions achieving 6% growth during the third quarter, including our newest conversion in Nashville, which achieved high single-digit RevPAR growth.

The solid performance of these assets is testament to the success of our conversion strategy. Consistent with this strategy, during the quarter, we began the physical renovations at the Renaissance Pittsburgh, which will become part of Marriott's Autograph Collection. The timing of this conversion ideally positions the hotel to benefit from the momentum in the Pittsburgh market, including the NFL Draft, which will be hosted in the city next year.

Additionally, we are pleased to announce that our Wyndham Boston Beacon Hill hotel will join Hilton's Tapestry Collection with renovations to commence late next year. This hotel sits in an irreplaceable A+ location, adjacent to Mass General's main campus, which is currently undergoing a $2 billion expansion.

Our asset is positioned to benefit from the strong growth trends in all segments of demand, supported by a diverse base of demand drivers, including a strong corporate base, a robust life science and biotech ecosystem, a concentration of leading higher education institutions and a compelling set of leisure attractions. We believe the selection of Hilton's Tapestry Collection will allow us to attract robust incremental demand given the limited Hilton flags in the market, and we remain confident that we can unlock significant EBITDA upside of over 40% on a stabilized basis.

Our ability to unlock meaningful value within our portfolio is made possible by our lean operating model that allows our portfolio to drive strong free cash flow and maintain a healthy balance sheet that enables us to return significant capital on a sustained basis to our shareholders.

Now looking ahead to the remainder of the year. The broader uncertainty and lack of visibility that has persisted since the end of the first quarter has been recently compounded by the government shutdown, which began in October. October is the most important month of the fourth quarter. And despite having had an otherwise strong setup given the holiday shifts and an improved citywide calendar, October saw RevPAR decline year-over-year given the lack of compression created by the shutdown.

Additionally, we anticipate that current travel-related headwinds created by the shutdown, including the effect it is having on the air traffic control system, will have an impact on consumers' propensity to travel. Current trends are also impacting the timing of the anticipated contribution from our major renovations in Key West and Waikiki, which were previously expected to begin ramping during the fourth quarter.

These factors, combined with the lingering macro uncertainty that is affecting consumer and corporate confidence has moderated our view of the fourth quarter. We are, therefore, adjusting our full year outlook to reflect the impact of these trends with the new range, assuming current trends continue.

As we look ahead to 2026, we are encouraged by a number of building blocks that when taken in aggregate, should drive a more positive backdrop for the industry, including: a more constructive economic environment with lower borrowing costs, clarity around taxes and increased investment spending in the U.S.; a lapping of difficult comparisons from 2025, including Liberation Day; and the continuation of historically low levels of new supply.

Relative to this backdrop, our portfolio is well positioned for 2026, given our favorable geographic exposure and urban footprint, which should allow us to see outsized benefit in an improved demand environment. We are particularly excited about the World Cup in the U.S. and with 72 matches scheduled to take place in many of our markets, we are well positioned to capture this demand.

Additionally, our portfolio will benefit from the 250th anniversary of the U.S. in markets such as D.C., Boston and Philadelphia as well as the rotation of major sporting events in many of our key markets, including the Super Bowl in Northern California. And we are also poised to capture the ongoing recovery in Northern California, which continues to gain momentum, supported by the rapid growth of the AI industry that is stimulating business travel, events and corporate investments against the backdrop of improving safety conditions and increasingly stringent return to office policies.

All of these tailwinds for our portfolio will be further bolstered by the ramp of our conversions and the major renovations we completed this year. As we look ahead, we are well positioned to capitalize on what we believe will be an overall improved setup for the industry next year.

With that, I will turn the call over to Nikhil.

Thanks, Leslie. To start, our comparable numbers include our 94 hotels owned at the end of the third quarter. Our reported corporate adjusted EBITDA and AFFO include operating results from all sold and acquired hotels during RLJ's ownership period.

Our third quarter was generally in line with our expectations, even as we faced a low visibility environment. Third quarter occupancy was 73%, average daily rate was $190 and RevPAR was $139, which translates to a 5.1% RevPAR contraction versus the prior year, led by a 3.1% decline in occupancy and 2.1% drop in ADR.

With respect to the cadence of RevPAR during the quarter, July experienced RevPAR decline of 6.8% due to greater impact from renovations as well as the lapping of difficult hurricane comparisons in Houston. August and September declined by 4.8% and 3.8%, respectively. Although October sequentially improved month-over-month as RevPAR declined by approximately 2%, it was below our expectations in light of the government shutdown.

As Leslie noted, the layered effect of several known industry headwinds impacted the third quarter. However, our urban hotels continue to perform better relative to our overall portfolio, led by solid growth in markets such as San Francisco CBD, Atlanta and New York City, among others, that saw RevPAR increase by 19.4%, 12.1% and 4.7%, respectively.

We were especially pleased with our non-room revenues achieving 1.3% growth over last year. Growth in our non-room revenues demonstrate the momentum behind our ROI initiatives, which led our total revenues to perform 110 basis points better than our RevPAR on a relative basis, despite occupancy being lower.

With respect to operating costs, during the third quarter, our operating expenses were up just 90 basis points year-over-year after adjusting for non-recurring tax benefits in the prior year. And year-to-date, expenses increased by only 1.7% even against the prior year tax credits, reflecting the benefits of our lean operating model as well as the ongoing normalization of expenses and our relentless focus on enhancing productivity and managing expenses.

Our ability to manage costs in a challenging RevPAR environment allowed us to achieve third quarter hotel EBITDA of $80.8 million and hotel EBITDA margins of 24.5%. We achieved adjusted EBITDA of $72.6 million and adjusted FFO per diluted share of $0.27 during the third quarter.

Our balance sheet remains well positioned with approximately $1 billion of liquidity, comprising of $375 million of unrestricted cash and $600 million available on our corporate revolver. We ended the quarter with $2.2 billion of debt with a weighted-average maturity of 3 years and an attractive interest rate of 4.7%. 74% of our debt is either fixed or hedged, including $200 million of new interest rate swaps that we entered into during the third quarter. We continue to have significant flexibility with 86 of our 94 hotels unencumbered.

Earlier this year, we addressed all of our 2025 debt maturities. And as we turn our attention towards addressing our 2026 maturities, we are encouraged by the improving interest rate and lending environment. We will continue to optimize the laddering of our debt maturities, our weighted average cost of debt and the flexibility of our balance sheet. We are leveraging the flexibility of our healthy balance sheet to unlock embedded value across our portfolio through transformative renovations and high-value conversions, while remaining committed to returning capital to shareholders.

During the quarter, in addition to substantially completing the 3 transformative renovations in Waikiki and South Florida, we initiated the conversion of the Renaissance Pittsburgh to Marriott's Autograph Collection, while also advancing the programming for the Wyndham Boston, which we have selected to convert to Hilton's Tapestry Collection.

Additionally, we remain committed to returning capital to shareholders by continuing to pay an attractive quarterly dividend of $0.15 per share that is well covered while increasing our shares repurchased to-date to 3.3 million shares for $28.6 million. We will continue making prudent capital allocation decisions to position our portfolio to drive growth through the entire cycle while returning capital to shareholders.

Turning to our outlook. Overall, forecasting visibility remains low in light of the uncertainty related to the federal government. As such, our adjusted full year outlook reflects October's performance and the assumption that current operating trends persist through the balance of this year.

For 2025, we now expect comparable RevPAR growth to range between negative 1.9% and negative 2.6%; comparable hotel EBITDA between $357.5 million and $365.5 million; corporate adjusted EBITDA between $324 million and $332 million; adjusted FFO per diluted share to be between $1.31 and $1.37, which incorporates shares repurchased to-date but no additional repurchases.

Our outlook assumes no additional acquisitions, dispositions or refinancings, and we continue to expect capital expenditures in the range of $80 million to $100 million. We also expect total revenue growth will continue to outpace RevPAR growth due to the success of our initiatives to drive out-of-room spend.

Finally, please refer to our press release from last evening for additional details on our outlook and to our schedule of supplemental information, which will include comparable 2025 and 2024 quarterly and annual operating results for our 94-hotel portfolio.

Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Michael Bellisario with Baird.

First one is probably for Tom here. Could you dive into the revenue management strategies? Maybe just how you changed your approach in the quarter, given that performance was weaker? And then also, what are you seeing in terms of booking channels and booking window that guide your near-term outlook? Any extra color there would be helpful.

Yes, happy to do that, Mike. So, if you think about quarter 3, we knew that the industry setup was weak on the group side, not only in industry but in urban. So, we really thought about how do we diversify the mix going into that quarter. And some of the things that we were doing were focusing more on the leisure side, where we knew there was opportunity to replace some of that group.

And you'll see that our demand was actually up on the leisure side in addition to urban leisure, where we had that opportunity to book more business because of the lack of group with a softer citywide calendar and some of the comps that we were up against.

In addition to that, and I'll remind you that we have a lot of -- more opportunities because we have -- a significant amount of our hotels are on the full-service side where we can grab some of that contract base business that we need to be able to offer our own compression. And we were successful because of the renovations that we have had in '23, '24, we've been able to secure more base business, knowing that if you're in a situation where you have a lack of group going into the quarter, you can do that as well.

Your other question that you were talking about was the channel. We continue to see great demand coming through brand.com., which is our least costly channel. Because leisure was an element of where we had additional demand, we did see some OTA growth on weekends. We are continuing to see BT grow on the -- even when out government, we had BT grow 2.4%, and that was a second consecutive quarter.

So, what is happening on the channels is you're noticing that global distribution systems continue to grow as well. And so that's encouraging as we continue to see the national corporate accounts come back because that's our highest rated customer.

I know Leslie wants to add a few things as well.

Yes. Mike, I would say that, as Tom mentioned, the setup for -- as everybody knows, for the third quarter was weak. But I do think it's important to point out the momentum that was coming out of September. As we articulated, September performed better than we initially expected.

And just to sort of give you a frame of reference, as Tom mentioned, our portfolio saw non-government BT increased by 2.4%. But in September, it was up 3.7%. And it really happened in the back half of the month, and that was all demand driven, 100% demand driven. The other data point that I would give you is that going into September, our group pace was at 90%. We ended at 97% for the month of September, which is up 700 points.

And so, the momentum coming out of September prior to the government shutdown was positive. So, we saw a swing that moved pretty fast in September. And obviously, we've seen a swing the other way in October.

Got it. That's helpful color. And then just on renovations, just given that the top line outlook is weaker, I mean, how does that change your view of just CapEx broadly, your underwriting and then just expected returns for your bigger conversion projects, thinking about Boston in particular? Or anything else that you might have in the queue for '26 or '27? That's all for me.

Yes. Mike, on the CapEx side, keep in mind that our -- most of our renovations were front-loaded as we talked about before, and so they're either substantially complete or rounding completion. That was in Waikiki, New York and Key West this year. As we mentioned in our prepared remarks, clearly, given the softened backdrop on transient and on leisure where some of these asserts are at, we still expect these assets to ramp up well, but that ramp may be a little bit delayed because of what's going on in the broader market from that. But we believe these assets will be a tailwind for us in 2026 for sure.

And then, I would say on Boston, that is an asset that we feel very good about. As we mentioned, it's going to be moving into the Tapestry Collection. It's got a great flag and a great location and very diverse demand drivers. And so, the significant upside still remains there. That asset won't start until the end of next year. And so, we should be picking up around the demand drivers that we expect to capture within that market.

And I'll let Tom add some color on Boston.

Yes, Mike, as we're looking at not only '26 but '27 in Boston, the great thing about our location is the expansion of Mass General, which is a major hospital and they're putting about $1.8 billion in 2 different buildings that are literally next door to us. I was on the phone with the management team, and they're going to have an oncology cancer research center, which is going to expand the ability to get MRIs. And we think that's not only going to have a regional draw, but we think that's going to be an international draw of folks coming into Boston based on the expansion of those 2 buildings with one being oncology and the other one being cardiology.

And then in next year, as you know, we got FIFA, we have an event that is international that comes in, what's called Tall Ships. And then the USA being celebration in the July period, which will be not only benefiting Boston, but New York and Philadelphia, where we also have demand. So, we're encouraged about going into the Hilton system because we know what happens when we convert and we start to get Hilton Honors members and changes the mix of our hotel in '27 after we're completing the renovation.

Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

I wanted to go back to the leisure segment for a moment. And just wondering if you're seeing more price sensitivity from that customer or is it more that you're just targeting more bookings through discount channels and other leisure channels, and that's driving maybe some of the softness around pricing?

Well, I would say, Austin, that as we talked about in the prepared remarks, leisure demand has been relatively stable for us for the last few quarters. And in fact, room nights were up in the third quarter. We are seeing the price sensitivity, and it's showing up in terms of what channels they're booking through. But I think that what we're seeing with the government shutdown is different. It's affecting the propensity and willingness to travel. And so we're seeing our pace soften relative to that, but that's more a function of a desire to be caught in the airport for 5 hours versus the underlying fundamental of leisure demand that we've seen being stable.

And then, I would add that urban leisure, as we also said, it's really about the concerts, the special events, the location where the attractions are. We feel that, that 7-day harder demand, that's still active. That's why the demand continues for those events, and those still have had strong attendance even in the summer as we go into the fourth quarter.

Got it. And then switching over market specific, you'd referenced the significant RevPAR growth in San Francisco CBD and just positive outlook for the region. I guess, first, is it translating to your hotels across Northern California? Or do you need to see additional recovery before it really broadens out? And then second, wondering how that top line growth, again, that you referenced is translating to the bottom line just given some of the expansion pressures in the region.

Yes, great question. When we look at CBD, and you're right, how the market works, and I'll talk a little bit about Silicon Valley differently. But when I look at CBD, Austin, this is back-to-back quarters of 19% growth in our CBD assets. And you know we have our Marriott and our Courtyard there.

What we're encouraged in third quarter is that's in the fact that Salesforce moved from September to October, and we still had that growth. So, we were pleased to see that the convention center is the hub, and that really was the beginning stages of where CBD had its growth year-over-year. In addition to that, though, we're seeing a lot of things happen in the AI space. And even the conventions that are coming in for that are increasing in regards to the amount of attendance that's happening.

So back to office, office demand was up about 102%. We were just on the phone with SF Travel. They talked specifically about the leasing and additional space that's coming in under the AI. I guess there's about 5 million square feet today that's AI, and they're predicting about 30 million square feet by 2030. So that's encouraging that CBD will continue to grow.

And the convention calendar is in good shape next year, not only because of Super Bowl and FIFA, but just they're getting more corporate accounts to come back based on the political environment. It's just a safe and clean place. And I think people are encouraged. Their whole campaign about Believe in San Francisco, I think, is drawing more international travel as well.

And then when I think about Silicon Valley, it's about back-to-office tech companies. You see the demand coming from NVIDIA, Tesla, all the different companies that are out in that section. We continue to see BT grow Santa Clara, San Jose, Palo Alto, which is where most of our assets are. And so, we're encouraged that San Francisco is not just CBD, but it's also happening in Silicon Valley.

I mean we're seeing positive trends overall. But obviously, CBD is doing well because of the unique demand drivers within that market, Austin. It's not compressing all the way out, but we are seeing different demand drivers that benefit the rest of our footprint. And then on the cost and margin side, I mean, obviously, to your point, costs in San Francisco have moved, particularly on the wage side. But we are encouraged in terms of the mix of rate growth versus overall demand growth in the market and are optimistic long term in terms of the ability to recapture the margin growth.

Our next question comes from the line of Gregory Miller with Truist Securities.

I'd like to start with New York City and a repeat of a question I asked same time last year. I'm curious if you could provide your expectations for New Year's Eve for the Knickerbocker? How our RevPAR and food and beverage package pricing compared to 2024?

You still got to go one of these days, Greg. We've got a seat reserved for you. But I would tell you that New York has been a strong story all year. As you know, it's good demand. Average rates continue to move. We're very pleased. international, when you think about international, globally, it's been down, but in New York, it's been up.

So, when we think about the Knickerbocker, it really is a special iconic location to see the ball drop. I'm again encouraged to tell you that we're continuing to see growth. As you remember, in the last quarter, we talked about what we did upstairs where we added a sushi bar and a location there, which has already started to create more demand for more folks to come in, not just the guests. And what we're seeing is the package price for New Year's is continuing to exceed our expectations as we go into the holiday.

So, I feel very good about the Knickerbocker and New York in general as we go into the fourth quarter just because of the lack of Airbnb and the inventory that's being controlled, the supply that came out of the location as well. And then, leisure continues to be very strong in that market.

Appreciate that. For my follow-up, I'd like to ask about a new initiative by Hilton that they discussed on their earnings call, especially given you have many Hilton properties. As you know, Hilton spoke to offering owner system fee reductions that are tied to hotel-specific product and service quality scores. I'm curious how you anticipate the strategy impacting your properties, if at all, even if the effort may be towards competitive franchised hotels?

Well, I think if we start with behavior management and you think about the carrot and the stick, I think what Hilton is doing is they're really putting the onus on the opportunity to be able to get reductions on the -- to be able to drive guest service scores, which helps everybody, right? You have to please the guests that have them want to come back. And I think the opportunity to incent the field to really drive those scores in addition to ownership to put capital in is really what is encouraging them to put out a program like this.

Number two, for folks that aren't spending capital, that's the stick. This is encouraging them to think differently about what are the opportunities to potentially get money back if I do put capital in? And that's your second question where others may follow. We're encouraged because we do have a significant amount of our portfolio with Hilton. We think that the incentive is drawing our guest service scores in the right direction.

And we certainly, as you know, have put the capital in. Our properties are in good shape. We feel like we're in a good position based on what we've done. And now it's a matter of going and collecting on that incentive that's out there. But we do believe that the incentive is in the right place for people to put the money into the hotels and then now it's about delivering results to get those returns.

And I would just simply say that we're in a position to be able to benefit from that incentive because we have put the capital in the assets and partner with Hilton. We have a great relationship. And so it's a function of being a good owner and partner with them, and we would expect to benefit.

Our next question comes from the line of Tyler Batory with Oppenheimer & Company.

Follow-up on the government shutdown. Any help quantifying the impact of that on either the Q4 guide or October in particular? And then, connected to that, the FAA flight reductions, I know we're still waiting on some details in terms of how that's going to play out. But just any high-level thoughts on what that could mean.

Yes, Tyler, I think that when you look at the adjustment we made to our guide and the implied impact on the fourth quarter, all of that is related to government. Government impact isn't just related to direct government business, which only represents about 3% of our contribution, but it's also the impact that it's having on compression in the broader market and then just sort of the sentiment and propensity to travel.

And so, from our perspective, we had expected October to be a strong month because it was a great setup, set up from a clean BT month. It was going to be a strong group month. And it's the most significant month within the quarter. We had expected it to be positive. And as Nikhil mentioned, it was down approximately 2%. And so that's a meaningful swing for the most significant month in the quarter.

When we think about what we're seeing is that -- for the balance of the year is that while our group pace remains positive year-over-year, it is down versus our expectations because it's weaker in the quarter for the quarter, pick-up trends, the effect of the overall compression and D.C. was already a tough comp for us because we were up 4% last year. And while we were doing a good job of backfilling that, that's going to be harder as a result of the lack of compression that's happening.

Additionally, our position relative to our transient pace has shifted. Even though coming into the quarter, leisure had remained stable, and BT has shown strength, that transient pace is now weakened because of the -- what's happening on the government side. And all of these dynamics are affecting the key markets where we did our transformative renovations. So that's going to delay our -- the ramp-up that we were expecting across those businesses. So, when we look at the overall dynamics of what's happening in the market, government is impacting -- the government shutdown is impacting a number of things across the space from our perspective. And so, all of it is related to that.

Okay. Very helpful. And my follow-up, the out-of-room revenue or the out-of-room spend, I think, has been a bright spot for you. So just double-click on that a little bit more, perhaps give some more examples of what's driving that? And is your expectation that the non-room revenue can grow faster than room revenue going forward?

Yes. We've seen -- first of all, let me just say that our out-of-room spend surprised to the upside in the third quarter because we were down 5% and 300 points of that was occupancy. We would not have expected to see out-of-room spend at the level that we saw. And so it was a good pleasant surprise to the upside. But it's also a reflection of where we've been investing our dollars on the F&B side on parking and expanding our markets. And so, despite occupancy being down, to see positive revenues in that, it's been good.

Just as a proxy, in the second quarter, we were down 2% and still had 1.5 points growth. And so what we've seen over the last couple of quarters is that the contribution from out-of-room spend has increased relative to rooms. What I would say is that, given the mix of business that we were expecting in the fourth quarter, the level of group in citywide and BT, that's another driver impacting our outlook for the balance of the year. What we were expecting from out-of-room spend, our expectations have come down relative to that.

And I'll pass it to Tom to give some more examples.

Yes. So, I know you've heard a little bit about our focus on ROI. I'll just give you a couple of examples as you want us to double-click down. When Leslie talked about our market expansions, as an example of that is we're up about 7.2% in quarter 3. And what we do while we're doing these renovations, we're expanding these markets to provide a lot more product that's interesting for a lot of the different groups as well as transient guests that are coming into our hotels. And we think that's been a big plus and will continue to be as we do these conversions as well as renovations.

And then, we're also attracting what I would say is, guests that are not staying with us. The Mills House is a perfect example of that. The Black Door Cafe was probably our #1 revenue generator in Q3 because Charleston continues to be a strong market because it's a drive-to market. And 50% of our guests are actually not at the hotel. So, what we're looking at is where we can put a market or an opportunity for people to utilize in a good, strong foot traffic area, we're getting the benefit of that.

And then lastly, we did expand in the Phoenix area. During its renovation, we added some meeting space, natural light. You need that ballroom space to drive group business in off-season as well. And that actually started performing really well as that came out of renovation from last year and seeing the benefits of changing meeting space that would kind of much was dead space and it gave us an opportunity to drive more group in addition to banquets. So those are some examples when we think about out-of-room spend.

So, I think that the benefit to our bottom line here has been that we've taken non-revenue-generating space and turned it into revenue by either adding a market or converting, as Tom mentioned, into some ballroom space. And so that's been additive from a flow perspective.

[Operator Instructions] Our next question comes from the line of Cooper Clark with Wells Fargo.

Can you talk about the potential for dispositions as we think about what should be a healthier transaction market in 2026? And if there are any markets or types of assets you would like to reduce your exposure to in a meaningful way?

Yes. I mean, I would say that in general, that the transaction environment continues to be overshadowed by the uncertainty and the sentiment around transactions is a little bit volatile. So, the market is not necessarily fully functioning because of a lack of conviction in terms of underwriting and PIP costs given the tariff situation.

But the debt market is opening, and so that will help volume increase. Deals are taking a little bit longer. And most of the deals that are getting done are deals that are better suited for owner operator. And so, overall, we're constructive. And as things sort of settle down, you should see us being more active and it would be active on transactions that we think can actually get done.

Okay. And then I guess on a higher level, how should we be thinking about the positioning of RLJ's portfolio relative to the sector into '26 as luxury chain scale continues to outperform, but you have some momentum in urban market recoveries that you spoke to earlier on the call? I guess, said differently, in what type of macro environment should we expect RLJ to drive outsized results relative to your peer set in the broader hospitality industry?

It's a -- as we're looking at our budgets, first and foremost, it's a little early because we're just in the throes of it. But what I would say is your comment about urban, we believe, from an industry standpoint, will continue to outperform for 2 reasons when I think about that, Cooper.

One, it's been the trend line ever since we've come out of COVID and the fact that there's a lack of supply in urban is a good setup. What I would also tell you that is these special events, when we talk about urban leisure and you think about the footprint and where we have locations in 2026, it's going to help us with not only World Cup, which is still to be seen when the teams are drawn in December. But the fact that we have 72 games in markets where we have hotels is a good sign.

In addition to that, we think about the special events that we talked about earlier, whether it was the NFL draft as we're doing our Autograph conversion in Pittsburgh. In Philly, you got both NBA All-Star games. And then you also have the Super Bowl in San Francisco. So, even though it was in New Orleans last year, having it in San Francisco is a plus because we got more assets in San Francisco that we think will benefit from that.

So, urban footprint, we truly believe will continue to be a good place to play. And then urban leisure is the reason that we feel these special events are a draw that will continue to help us, when BT goes back to office and we have a better footprint coming out of, hopefully, what's happening right now in the government shutdown.

Yes. I would just add to that. In general, we believe that we've got the right footprint, the right portfolio. What we haven't had is a consistent economic backdrop because of the volatility and things like a shutdown that are happening. And so, I would say that as the economic backdrop continues to settle down and we have clarity around regulation, lower taxes and tariffs, those things should benefit our portfolio because that's the one ingredient that we've been missing, which is a stable economic backdrop.

Our next question comes from the line of Ken Billingsley with Compass Point.

One thing, I missed the number, if we could clarify. Did you mention what was the October RevPAR?

We said that October came in -- is currently estimated to be down about 2%.

About 2%. And do you have -- with just the way the calendar looks with Thanksgiving and other holidays for November and December, year-to-date RevPAR of negative 1.9% is at the top end of guidance. Are you expecting it to be flat? Or already 7 days into November, should we assume that that might be shifting towards the middle of guidance?

Yes. I mean our expectation is that the midpoint of our guidance is the most likely outcome. And that implies with October down 2%, it implies November, December being down 4%. Keep in mind that November was an important month for the quarter relative to citywides. We were expecting strong citywides in Boston, Denver, Houston, Orlando. You also had the lapping of the election comp and another positive things that were happening in the month. And now you are overshadowing that with the shutdown.

And so, the most important contribution period and event are being hampered by the shutdown. And if you sort of think about it from a pace perspective, while pace is still positive, it's down. And in the quarter for the quarter pickup is being hampered and not allowing us to achieve the original pace that we set.

So, the most likely outcome today where we sit is the midpoint of our guidance. Our guidance, at the midpoint assumes that the current trends continue through the end of the year. If the impact gets worse and in the year for the year continues to slow and transient pace continues to slow, that would put us at the bottom end of our range.

Okay. And then lastly, just with '26 shaping up to potentially be strong by comparison, how does that impact your decision on share repurchases?

I think that from a capital allocation perspective, it's very clear that buybacks are even more attractive today. And absent something that's sort of transformative, we're going to continue to be programmatic and deploy disposition proceeds into buying back our shares. We want to maintain a healthy balance sheet, and so we're going to strive to do that on a leverage-neutral basis and maintain our optionality. So, we're going to continue to be balanced between investing in our portfolio, buying back shares and maintaining our balance sheet.

Our next question comes from the line of Chris Darling with Green Street.

Leslie, I'm hoping you can comment on how your RevPAR index share has evolved over the course of the year. Obviously, 2025 is shaping up to be somewhat difficult fundamentally. And I'm just trying to understand to what degree this is a market mix issue versus an RLJ-specific issue at all?

Yes. As we talked about in the prepared remarks, our RevPAR index is up. And so, it reflects our positioning within the market. It reflects the quality of our assets. And so, we feel good about how we're positioned and how we're performing on a relative basis in the markets relative to our comp sets.

Okay. Understood. I missed the early part. So, thanks for the reminder on that one. Second question is a follow-up. Just thinking about the labor market. Obviously, there's broad-based concern around immigration policy, the effect this might have ultimately on the labor force. It doesn't sound like there's any concerning signs to-date. But as you look out 2, 3, 4 years down the road, what risks do you see to the hotel operating model, if any?

Chris, I think we really focus on the trends right in front of us. And what I would say is, the continuation of reducing contract labor exists. We were down another 9.5% in third quarter. I would also tell you, when we invest in labor management systems and we have our own employees that the management companies are hiring, we feel like that helps from a productivity standpoint and we see it in our numbers when you look at retention and reducing turnover.

The other thing I think on the labor force is people who are attracted to our industry, we know stay in our industry. When you think about the synergies and the opportunities and career enhancement in hotels, it really is available without having to move now. You can stay in a market and enjoy your job and your career. And if you're with a company that we pretty much work with management companies that have a fair amount of size, they can grow their career all in staying in one market versus having to move in the past.

So, I understand your question and what that might look like 2 to 3 years from now. But I would say the current trends are positive, and we kind of lean into that, knowing that the workforce efficiencies that we have, specifically with the proximity with RLJ, we provide a lot of opportunities for managers to have additional responsibilities in a marketplace where they can grow their career and have regional responsibilities in addition to 1 property per se.

And what I would add to that is that you can look at the success of what we've been able to do by the fact that contract labor has continued to come down, and it really speaks to the increase in applicants in our space. And so, we feel good about the trend line. I think the other thing that bolts-on to Tom's comments in terms of what he was describing, this is an industry where seniority matters. And so that's a sticking and retention tool. And so, people have to think really hard about giving up their seniority and moving to another industry and/or space.

Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Ms. Hill for any final comments.

We appreciate you guys taking the time to join us today. We're available for any additional questions if you have them, and we look forward to seeing many of you over the coming months at various conferences. Thank you all.

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