Q3 2026 RLJ Lodging Trust Earnings Conference Call - RLJ LODGING TRUST

Explicit Guidance:

• FY 2026 Comparable RevPAR: Raised to a range of 5.75%–6.25% growth (200 bps midpoint increase from prior guidance).
• FY 2026 Comparable Hotel EBITDA: Increased to $377 million–$383 million.
• FY 2026 Corporate Adjusted EBITDA: Increased to $352 million–$358 million.
• FY 2026 Adjusted FFO per Diluted Share: Projected between $1.47–$1.51.
• FY 2026 Capital Expenditures (CapEx): Expected range of $80 million–$90 million.
• FY 2026 Cash GAAP: Expected range of $34.5 million–$35.5 million.
• FY 2026 Net Interest Expense: Expected range of $101 million–$103 million.
• Dividend: Committed to a well-covered quarterly dividend of $0.15 per share.
• Assumptions: Guidance assumes no additional acquisitions, dispositions, or balance sheet activity beyond the completed Chicago Midway sale; excludes impact from future M&A or strategic dispositions.

Business-Segment Outlook:

• Business Travel (BT): Anticipated to drive a "multi-year cycle" and early phase of broader BT expansion; demand seen as sustainable with elevated business investment and healthy corporate profits.
• Leisure & Group: Leisure expected to remain robust with diverse drivers (sports, concerts, dining); group segment pace tracking ahead by mid-single digits for 2027, with improved booking windows and increasing share of corporate group.
• Non-Room Revenues: High single-digit growth expected to continue driven by F&B optimization, parking, and ancillary revenue streams from conversions and renovations.
• Market Performance: Northern California (AI epicenter) expected to maintain multi-year growth trajectory; 11 markets delivering double-digit RevPAR growth; strong momentum expected to persist in Washington D.C., Austin, New York City, Los Angeles, and Tampa.

Market and Competitive Outlook:

• Supply Dynamics: Favorable setup anticipated due to extended period of muted supply growth, creating compression on midweek nights (Monday–Wednesday) and enabling true pricing power.
• Pricing Power: Management expects "true compression" and the ability to drive ADR growth due to demand-constrained environments; dynamic pricing adoption accelerating (retail segment growth of 13.8% in Q3).
• Urban vs. Suburban: Continued disproportionate benefit to urban markets; portfolio positioned to outperform broader industry through urban-centric footprint.
• Special Events: Strong convention calendars in DC, Boston, and San Diego expected to support 2027; portfolio positioned to capture recurring major events including Super Bowl (LA), NFL Draft (DC), MLB All-Star Game (Chicago), NBA All-Star Game (Phoenix), and pre-Olympic activities (SoCal).

Macro / Industry Outlook:

• Economic Environment: Viewed as supportive with healthy corporate earnings, elevated business investment, and "reasserting" correlation between RevPAR growth and GDP growth in a low-supply environment.
• AI Industry Impact: AI investment driving corporate investment, citywide activity, and business travel, particularly in Northern California; management views AI as a fundamental demand driver rather than a speculative stock market phenomenon.
• Geopolitical/Uncertainty: Acknowledgment that "geopolitical uncertainty persists," though demand trends currently viewed as sustainable.
• Seasonality: 2027 outlook includes a positive holiday calendar and strong convention calendars.

Strategic Initiatives:

• Conversions: Targeting two conversions per year; Boston (Hilton Tapestry) and Key West (Margaritaville) renovations on track to relaunch in 2027, with expected EBITDA stabilization 40% higher than pre-renovation levels.
• Dispositions: Completed sale of seven Chicago Midway Airport assets for $110 million; proceeds to be deployed for shareholder returns (dividends/buybacks) or accretive reinvestment (conversions/acquisitions) based on FFO per share impact.
• Capital Allocation: Significant balance sheet optionality with $1+ billion liquidity; focus on disciplined deployment to enhance free cash flow, potentially including share buybacks or debt paydown in a rising rate environment.
• Brand Mix: Expanding "lifestyle" orientation (now ~50% of total EBITDA); targeting acquisitions and conversions that maximize revenue and operational efficiency.

Risks and Headwinds to Outlook:

• Geopolitical Uncertainty: Potential for shifts in demand due to global instability.
• Cost Pressures: Energy costs remain elevated (though moderating); insurance and real estate tax environments are under active negotiation with potential impacts on fixed costs in 2027.
• Execution Risk: Conversions and renovations carry inherent disruption risks, though management aims to time these during off-peak seasons to minimize RevPAR/EBITDA impact.
• Economic Downturn: While current outlook assumes sustained growth, any significant deterioration in corporate profits or business investment could impact BT demand.

Management Tone on the Future:

• Confidence Level: High confidence in a "multi-year growth trajectory" and "sustainable" momentum; described the current fundamental convergence (supply, demand, compression) as the first such occurrence in many years.
• Trend Consistency: Management emphasizes that Q3 outperformance was broad-based (excluding one-time World Cup benefits), with October momentum carrying into the remainder of the year.
• Strategic Hedges: No change in conversion cadence (targeting two per year); disciplined capital allocation ensuring all uses of cash must raise FFO per share.
• Comparative Outlook: 2026 seen as a strong baseline with significant upside potential for 2027 and beyond driven by embedded growth catalysts and event calendars.

Miscellaneous:

• AI Margin Impact: Management actively pursuing AI implementation for operational efficiency (labor management, scheduling, automation), targeting 300 basis points of margin upside over the next five years through bottom-line productivity.
• Franchise Expirations: Pipeline expansion driven by franchise expirations and renegotiations; two conversions annually aligned with contract timelines to avoid disruption.
• Share Count: Dividend growth and buybacks remain central to capital allocation, with no immediate plans for aggressive share count changes beyond current flexibility.