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Edited Transcript of RLJ earnings conference call or presentation 1-Mar-19 2:00pm GMT

Q4 2018 RLJ Lodging Trust Earnings Call

BETHESDA Mar 5, 2019 (Thomson StreetEvents) -- Edited Transcript of RLJ Lodging Trust earnings conference call or presentation Friday, March 1, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Leslie D. Hale

RLJ Lodging Trust - President, CEO & Director

* Nikhil Bhalla

RLJ Lodging Trust - VP of Finance

* Sean M. Mahoney

RLJ Lodging Trust - Executive VP, CFO & Treasurer

* Thomas J. Bardenett

RLJ Lodging Trust - EVP of Asset Management

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Conference Call Participants

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* Anthony Franklin Powell

Barclays Bank PLC, Research Division - Research Analyst

* Austin Todd Wurschmidt

KeyBanc Capital Markets Inc., Research Division - VP

* Jeffrey John Donnelly

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Michael Joseph Bellisario

Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst

* Wesley Keith Golladay

RBC Capital Markets, LLC, Research Division - Associate

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Presentation

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Operator [1]

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Welcome to the RLJ Lodging Trust Fourth Quarter and Year-end 2018 Earnings Conference Call. (Operator Instructions)

I would now like to turn the conference over to Nikhil Bhalla, RLJ's Vice President of Finance. Please go ahead.

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Nikhil Bhalla, RLJ Lodging Trust - VP of Finance [2]

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Thank you, operator. Good morning, and welcome to RLJ Lodging Trust's 2018 Fourth Quarter and Year-end Earnings Call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter and the year; Sean Mahoney, our Executive Vice President and Chief Financial Officer, will discuss the company's operational and financial results; Tom Bardenett, our Executive Vice President of Asset Management, will be available for Q&A.

Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what 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 from last night.

I will now turn the call over to Leslie.

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [3]

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Thanks, Nikhil. Good morning, everyone, and thank you for joining us. By all measures, 2018 was a transformational year for RLJ as we executed on the thoughtful plan we had laid out to unlock value in our portfolio, strengthen our balance sheet and position our company for long-term growth.

We successfully achieved all of our key priorities for the year. In fact, we not only met or exceeded our expectations on each of these objectives, but we also completed them ahead of schedule. I am pleased to report that we sold 7 assets for over $530 million at a highly accretive combined multiple of 16.5x, exceeding our goal of $200 million to $400 million of incremental proceeds and our targeted average multiple of 14x.

We redeployed the sales proceeds to accretively repay $635 million of debt and exceeded our target of $500 million. We ended the year with a net debt-to-EBITDA ratio of 3.7x, ahead of our target of 4x. We realized $22 million in G&A synergies from the merger, we successfully completed our 2018 capital program on time and on budget, and finally, we took advantage of a dislocation in our stock price by redeploying the net proceeds from Fisherman's Wharf, which was sold for close to a 19x multiple into RLJ shares at approximately 10x.

In addition to accomplishing these objectives, we rounded out our team this year. I am proud of the tremendous work our team has done to position the combined platform to create value for our shareholders long term. Operationally, 2018 was a transitional year for us, in part due to the renovations we undertook in key markets to position us for growth in 2019 and beyond.

In the fourth quarter, our operating results performed in line with our expectations. While our RevPAR growth was hindered by several known factors, including difficult hurricane comps and renovation disruptions, we, nevertheless, achieved solid margins.

As we entered 2019, we are poised to accelerate the momentum as we execute on our key priorities this year, which are focused in 4 main areas. First, we will drive operating results through aggressive asset management and we expect to achieve our objective of generating 25 to 50 basis points of operational synergies by the end of the year.

Second, we will continue to optimize our portfolio by selling the remaining noncore FelCor assets and opportunistically explore the disposition of $100 million to $200 million of legacy RLJ assets.

Third, we will continue to maintain a flexible and low-levered balance sheet. And finally, we will deploy investment capital accretively, which may include share repurchases, capital investments and ROI opportunities.

We have already made progress on a number of these priorities, including continuing the efforts to realize operating synergies, enhance the balance sheet by redeeming high-cost preferred equity and accretively allocating capital through share repurchases at a significant discount to our NAV.

Additionally, with respect to asset sales, we have a strong track record of executing dispositions at valuations that have created significant value for our shareholders. We remain confident that we are well positioned to sell the remaining legacy FelCor assets, which include the 2 Myrtle Beach assets and the Knickerbocker, at attractive valuations.

Our confidence in our ability to execute these asset sales is supported by the overall high quality of these assets and their attractive market attributes. The 2 hotels in Myrtle Beach are well-located, premium beach front assets. Investor appetite for resorts remain strong and these hotels squarely fit their profile of high-quality resorts that buyers are looking for.

As it relates to the Knickerbocker, we are encouraged that buyers are attracted to the improving fundamentals in New York, with new supply projected to decelerate starting next year. Combined with the excellent location and the overall quality of this asset, we remain confident that we will execute this sale.

That said, we remain a highly disciplined seller. Given that we are currently actively engaged in discussions, we will defer providing any additional information today. However, we look forward to giving an update at a more appropriate time.

Now turning to our operating performance. Our full year RevPAR decline of 0.8% was in line with our expectations. Our RevPAR was constrained by a combination of renovation disruption, difficult comps from the Super Bowl and presidential inauguration, nonrepeat demand from the 2017 hurricanes and the current year impact from Hurricane Florence.

Adjusting for these items, our RevPAR growth would have been positive for the year. In the fourth quarter, our RevPAR declined by 3% as we faced particularly difficult comps, especially in Houston and South Florida. Our RevPAR growth was constrained by approximately 180 basis points due to the hurricane comps and another 115 basis points from the renovation disruption. Excluding these items, our RevPAR would have been flat during the fourth quarter.

With respect to our key markets during the quarter, RevPAR in our largest market of Northern California was flat, primarily due to a softer citywide calendar and the union strike. This year, we are excited by not only the record citywide calendar in San Francisco, but also by the overall positioning of our assets, which will include the post-renovation ramp-up at 3 hotels.

We were encouraged by the strong start to the year, with January RevPAR growth of over 13% exceeding our expectations. With robust demand for citywides, especially in the first quarter, we expect Northern California to be one of our strongest markets this year.

Our hotels in the New York market achieved solid RevPAR growth of 3.2% in the fourth quarter and benefited from the favorable timing of the Jewish holidays and the continuation of strong leisure and corporate trends.

Looking ahead, we expect the strength and leisure and corporate demand to continue in 2019. In Louisville, we faced a very difficult comp during the fourth quarter, with RevPAR up 11.4% last year. This, combined with the renovation at our largest hotel, the Marriott Louisville, led to an 18.5% decline in our RevPAR.

We are confident that our newly renovated hotel will outperform in 2019 due to a strong group pace and a continuing ramp-up of the recently renovated convention center, which is connected to our hotels.

Moving to Chicago. Our RevPAR increased by 2.3% as we benefited from a combination of robust citywides and a strong base of project business. Additionally, we benefited from the ramp-up of a Courtyard Mag Mile that experienced disruption last year. Looking ahead to 2019, citywides are expected to be soft in Chicago. In Southern California, our RevPAR declined by 1.7%, primarily due to a combination of weaker citywides in L.A. and renovation disruption at 2 of our hotels.

This year, we are taking advantage of the soft citywide calendar to do additional renovations in this market. Our D.C. market experienced a RevPAR decline of 3.5% during the quarter due to a decrease in citywide room nights, weak conventional calendar and lower per diem rate.

In 2019, we expect a similar backdrop, and as a result, we expect D.C. to be one of our softer markets. Lastly, among our top markets, in Denver, RevPAR growth was constrained due to a combination of soft citywides, new supply and some nonrepeat business.

While Houston, South Florida and Austin were impacted by tough hurricane comps. As a result, our RevPAR decline in these markets was consistent with our expectations in the fourth quarter. For 2019, we expect the continued strength in leisure demand to be a positive driver in South Florida, while new supply will constrain growth in Houston, Austin and Denver.

As we look at markets outside of our top 10, which make up approximately 1/3 of our EBITDA, a number of these markets achieved outsized RevPAR growth in the fourth quarter. These include Boston, Charleston, Myrtle Beach and San Antonio, which achieved robust RevPAR growth of 12.2%, 9.9%, 8.5% and 7.8%, respectively, and underscore the benefits of owning a diverse portfolio.

Looking ahead from an overall macro perspective, we believe the slow growth environment that we experienced in 2018 is likely to persist this year. While the economy is expected to continue to expand this year, the pace of expansion is projected to moderate from last year.

We are cautiously optimistic that an expanding economy, albeit slower, will continue to elongate the lodging cycle. That said, we expect a moderate RevPAR growth environment in 2019. Finally, the tight labor market is expected to continue to pressure wages, which remains a significant operating headwind for the entire industry.

Notwithstanding the macro environment, with the progress we've already made combined with the continued execution of our key priorities, we are well positioned for 2019. Our leverage now sits comfortably below our target, and we expect to sell the remaining FelCor hotels to be highly accretive, both of which will allow us to expand our capacity to pursue capital allocation opportunities.

We are also encouraged by the tailwinds our portfolio has this year. Our largest market of Northern California is well positioned to benefit from a record citywide year, with the added tailwind in the form of 3 hotels that we renovated in this market last year. Our largest hotel, the Marriott Louisville Downtown, underwent a significant renovation in 2018 and is projecting strong growth, with the current group pace for 2019 tracking well ahead of its prior peak in 2015.

And in South Florida, strong leisure trends continue to look promising given the strength of the U.S. consumer. A number of positive tailwinds also exist in our other markets. In Tampa, we expect to benefit from a strong citywide calendar and the renovation of our Embassy Suites Hotel. In Charleston, we have favorable comps from Hurricane Florence last year. In Atlanta, our hotels recently achieved strong RevPAR growth in January leading up to the Super Bowl. And finally, we also expect to benefit from the ramp-up of several other hotels we renovated last year and lower overall renovation disruption this year. We expect these tailwinds to partially offset the headwinds in some of our other markets, such as Chicago, D.C., Denver and Austin, which will be impacted by softer citywides and new supply. These market dynamics are reflected in our guidance, which Sean will review.

I will now turn the call over to Sean for a more detailed review of our operational and financial highlights. Sean?

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Sean M. Mahoney, RLJ Lodging Trust - Executive VP, CFO & Treasurer [4]

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Thanks, Leslie. We are pleased that our fourth quarter results were in line with our expectations. RevPAR in the quarter contracted by 3%, which was driven by a 3.2% decline in occupancy, partially offset by a 0.2% increase in ADR. For the year, RevPAR declined 0.8%. As a reminder, our fourth quarter results were impacted by several transitory items, including our Houston, South Florida and Austin markets faced difficult prior year Hurricane Harvey and Irma comps that impacted our RevPAR growth by approximately 180 basis points.

We invested significant capital into our portfolio during the fourth quarter, including the renovations of the San Francisco Marriott, Tampa Embassy Suites, Louisville Marriott, Embassy Suites SFO and the Embassy Suites Downey.

In total, renovation disruption impacted our fourth quarter RevPAR growth by approximately 115 basis points, which was consistent with our expectations. And the San Francisco Marriott was negatively impacted by the union strike during the fourth quarter. Additionally, our Austin, Denver and Louisville markets continued to face headwinds from new supply.

From a segmentation standpoint, our fourth quarter transients slightly underperformed group. The transient softness was partly driven by nonrepeating prior year FEMA business in Houston, South Florida and Austin.

Our full year margins of 32.8% exceeded the high end of our guidance range due to the success of aggressive asset management strategies. Hotel EBITDA margins contracted 150 basis points, which was impacted by approximately 60 basis points from increased insurance and property taxes, which was in line with our expectations at the beginning of the year and includes the Prop 13 impact on our California FelCor hotels.

Additionally, our margins were impacted by approximately 55 basis points from renovation disruption. Excluding these transitory items, our full year margin contraction was held to only 34 basis points. Our fourth quarter margins contracted 221 basis points to 31.2%, primarily due to the decline in revenues.

We were pleased that fourth quarter labor and benefits growth was held to only 2.8%, which was a strong result in light of the difficult labor environment. Additionally, we remain focused on controlling hotel operating expenses, which resulted in nonlabor operating expenses actually decreasing by 0.5%.

Our bottom line results were also in line with our expectations, with fourth quarter hotel EBITDA of $123 million.

And finally, corporate adjusted EBITDA was $113.8 million and adjusted FFO per share was $0.49.

Turning to capital allocation. We took advantage of recent stock market dislocation and redeployed the net proceeds from the sale of the Holiday Inn Fisherman's Wharf into repurchasing our shares at a significant discount to NAV.

Since our last call, we have repurchased 1.8 million common shares at an average price of $18.35, which represents a 2018 EBITDA multiple of just under 10.5x.

As a reminder, the Holiday Inn Fisherman's Wharf was sold at an 18.8 trailing EBITDA multiple. We took advantage of the valuation arbitrage between the buybacks and the asset sale to create value for our shareholders.

We will continue to evaluate future opportunistic share repurchases to take advantage of stock price volatility. Our board recently authorized a new $250 million share repurchase program with a 1-year term, subject to extension.

Moving on to our balance sheet. We ended the year with $2.2 billion of debt over a $320 million in unrestricted cash and net debt to EBITDA of 3.7x, which is below our target of 4x. Subsequent to quarter end, the company redeemed all $45 million of preferred equity associated with the Knickerbocker hotel, which had an interest rate that was about to increase to 8%.

Our balance sheet is well positioned, with no debt maturities until 2021, approximately 92% of fixed or hedged debt, a weighted average interest rate of 4.1% and a weighted average maturity of 4 years.

Additionally, we have a 132 unencumbered assets representing over 85% of our hotel EBITDA, affording us a very flexible balance sheet that will support long-term growth.

Our liquidity position remains strong and we have ample capacity to support our capital deployment priorities and cover our dividend, which we view as an important component of a total return we seek to provide our shareholders.

During 2019, we will continue to monitor the financing markets to identify opportunities to improve the laddering of our maturities, reduce our weighted average cost of debt and increase our overall balance sheet flexibility.

Our capital program is set up to position the portfolio for sustained growth. Our 2018 renovation plan concluded on schedule and on budget. In total, our 2018 capital plan resulted in approximately 100 basis points of renovation disruption. As we look to 2019, we expect to spend between $90 million and $110 million on renovations and anticipate less disruption.

Our guidance incorporates 40 to 50 basis points in 2019 renovation disruption.

Before turning the call back over to Leslie for closing remarks, I want to provide some color on our 2019 outlook.

While we remain cautious on the overall macro environment, we continue to feel good about our relative 2019 positioning. In particular, we expect to see strength in San Francisco, Louisville and Tampa, which will be partially offset by continued softness in Chicago; Washington, D.C.; Denver; and Austin, that are facing headwinds from a combination of weak citywides and new supply. We also expect to benefit from the ramp-up of assets we renovated in 2018 and easier comps related to Hurricane Florence.

Finally, despite grouping less than 20% of our mix, we are encouraged that our 2019 group pace is currently up close to 5%, driven by our hotels in Northern California and Louisville. I would also like to provide additional color on our cost assumptions.

We expect the combination of the economy being at full employment and continued economic growth to pressure 2019 labor costs. Our 2019 guidance assumes wages and benefits to increase between 4% and 5%, which will continue to pressure margins in this low-growth environment.

Additionally, property taxes and insurance are expected to increase between 5% and 7% in 2019. Our 2019 outlook takes all of these factors into account but assumes no incremental acquisitions, dispositions or share repurchases.

For 2019, we expect RevPAR growth to range between flat and up 2%, which incorporates 40 to 50 basis points of renovation disruption; hotel EBITDA margins in the range of 31.6% to 32.6%, which is a decrease of approximately 25 basis points to 125 basis points from 2018; consolidated hotel EBITDA to be between $522 million and $552 million; adjusted EBITDA to be between $487 million and $517 million; and adjusted FFO per diluted share to be between $2.15 and $2.30.

To assist in modeling our seasonality, please note that in the first quarter we expect hotel EBITDA to be between $110 million and $115 million and corporate adjusted EBITDA to be between $101.5 million and $106.5 million.

Please refer to the schedule of supplemental information that was posted on our website last evening, which includes the pro forma operating results for our portfolio over the past 4 quarters.

I will now turn the call back over to Leslie for her closing remarks. Leslie?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [5]

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Thanks, Sean. Now before we turn the call over for Q&A, I want to take a moment to talk about our long-term aspiration for RLJ. By achieving our priorities in 2018, we made meaningful progress towards our long-term objective of owning a portfolio that will generate significant NAV appreciation over time.

We believe that achieving this appreciation comes through owning premium-branded rooms-oriented hotels with high margins that are located in the heart of demand. These hotels have absolute RevPARs that approach that of full-service hotels and have an attractive margin profile that is typical of select-service hotels. We believe that these types of hotels will achieve stronger long-term growth, generate significant free cash flow and are resilient.

The majority of our current portfolio is aligned with our portfolio vision, and our expanded platform provides us with the optionality to further pursue this vision. We will continue to evaluate opportunities to curate and refine our portfolio over time, which may include repositioning of assets, ROI opportunities and selling assets that do not conform to our vision in order to further unlock the embedded value within our portfolio.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

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Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [2]

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Just curious after accounting for the FelCor sales in the $100 million to $200 million of opportunistic sales from legacy RLJ assets, how much investment capacity does that give you guys versus your leverage target to be opportunistic with new investments? And then could you just rank the near-term capital allocation opportunities as we sit here today?

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Sean M. Mahoney, RLJ Lodging Trust - Executive VP, CFO & Treasurer [3]

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Austin, this is Sean. From an investment capacity standpoint, we believe that those transactions, and assuming we're at the high end of that range, takes our net debt to EBITDA down to close to 3x from where it is today at 3.7x, which obviously provides us significant investment capacity. From a capital allocation standpoint, we're obviously going to evaluate all of our options from capital allocation from anything from share repurchases to ROI initiatives to investing in the portfolio, et cetera. And so we believe from a capital allocation perspective, we're going to make the right decision that creates the most NAV value at that time based on how we view our alternatives. But we think that executing our strategy and continuing the dispositions will afford us that optionality.

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Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [4]

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I appreciate the detail there, Sean. And we have a good sense of timing on the sales of the remaining FelCor assets based on the targets you've put out there. But can you give us a sense on the timing around the sale of the $100 million to $200 million, how we should think about valuation and are these going to be more one-offs or are you considering smaller portfolios?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [5]

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So Austin, that target is for the year. And we believe that the markets today supports single asset and small portfolios. And so we would sort of see the execution in that small chops there. And I would say from a pricing perspective, obviously, these assets that we're looking to sell from legacy RLJ portfolio are very different profile than the assets we sold last year. Our goal here is to maximize the value of these relative assets. When we sell them, and keep in mind that the strategic benefit of selling these assets is going to improve our operating metrics as well as allow us to recycle the capital.

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Austin Todd Wurschmidt, KeyBanc Capital Markets Inc., Research Division - VP [6]

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And then just last one for me. You've talked a lot about long-term ROI opportunities you've identified within the FelCor portfolio. Within that $90 million to $110 million of capital expenditures on renovations this year, how much of that is just the typical renovation, soft goods renovation, versus maybe something that's a little more transformational?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [7]

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Yes, I would say that our split this year is not that dissimilar to last year, Austin. We have about 60% of our capital this year that is in, what we call, the reimaging of the Embassy Suites, which we view as in ROI projects and also some specific ROI projects as well.

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Operator [8]

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Our next question comes from the line of Michael Bellisario with Robert W. Baird.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst [9]

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Following up on the CapEx comment, that range you gave is just for renovations, is that correct? And how should we think about the incremental dollars for maintenance CapEx or total spend in '19?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [10]

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So Mike, our maintenance CapEx is generally covered by our reserve, which is about 4%, and that generally covers it and that's the way we think about it.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst [11]

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Just to be clear, the total CapEx spend in '19 will be higher than your renovation range, right? That's not the total spend that you've provided?

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Sean M. Mahoney, RLJ Lodging Trust - Executive VP, CFO & Treasurer [12]

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That's right, Mike. The $90 million to $110 million is our renovation capital for 2019. And that's concentrated, as Leslie mentioned, in assets such as Hilton Garden Inn in Emeryville, our Embassy Suites in Milpitas as well as Buckhead and a couple of our hotels. But we feel good about the prospects for those assets coming out of renovation and so we're allocating our capital dollars to where we believe we're going to get the returns.

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Michael Joseph Bellisario, Robert W. Baird & Co. Incorporated, Research Division - VP and Senior Research Analyst [13]

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Got it. And then just back to the ROI projects. Could you give us a sense of kind of how you're thinking about unlevered returns on those investments versus maybe potential acquisition opportunities? I know you had mentioned acquisitions as a capital allocation priority, but kind of what's the delta that you see today versus where things are trading versus where you can invest in your portfolio?

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Sean M. Mahoney, RLJ Lodging Trust - Executive VP, CFO & Treasurer [14]

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Mike, I think -- as we think about ROI opportunities, we tend to underwrite to a low double-digit unlevered IRR based on the opportunities. Obviously, we assess that IRR will fluctuate depending on the risk of the project. But relative to where we're seeing assets price today, we think that internal returns are going to be higher than we could get based on buying the hotel in the public market today.

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [15]

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One example of that, Mike, is that we are looking at adding rooms in our Hilton Garden Inn in Emeryville on the top floor. It used to be meeting space that was underutilized. We are adding 23 keys. As you can imagine in a high-occupancy market, adding those as the keys is pretty accretive. And immediately some per-key value adds value. So those are the types of ROI projects that we're seeing in our portfolio.

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Operator [16]

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Our next question comes from the line of Anthony Powell with Barclays.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [17]

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Just a question on Austin, Denver and Houston. You always talk about those markets as headwinds for a while now, for years. When do you think those markets will be less of a headwind? I know the supply pipeline and the view is still pretty high, so when will they be less of a drag, you think?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [18]

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Yes, I think that -- look, we still believe in Denver and Austin long term. Both of those markets are 2 of the top 5 fastest growing metro markets. And if you look at the demand pattern, and demand is predicted to be up 7% in Denver this year and up about 5.5% in Austin, the challenge is that where there's demand there's supply, Anthony, and so the market needs to absorb that. I think what we offer at the due is we look at, combing our portfolio, we have to look at where we are relative to that demand. And so I think it's also a function of some of the submarkets specifically relative to the overall market. We believe in Austin and Denver long term. Denver is going through a Rocky migration and seeing tremendous influx in business, and Austin is expanding its tech community. So that's why the demand is there and that's why the supply is there. So we believe that ultimately it will be able to absorb that, but we also have to look at our positioning relative to that demand.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [19]

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Got it. That leads to my second question. I guess you imply that you will be closer to demand generators in your markets. Does that imply more urban or more in town or suburban or is that a market-by-market exercise? Talk about maybe areas that you may want to lighten your exposure within some of these markets.

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [20]

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Yes, and I would say that you're spot on, it would imply that we want to be urban centric. We want to be in the top 25 markets. And I would say that there is no market that we want to exit, but there are markets where we want to reposition ourselves. And I think Austin and Denver would be examples of that.

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Anthony Franklin Powell, Barclays Bank PLC, Research Division - Research Analyst [21]

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Got it. And I know you're not focusing on acquisitions right now, but are there markets where you're not in that you would like to be in long term?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [22]

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We like to expand our footprint in Boston and San Diego, for example.

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Operator [23]

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Our next question comes from the line of Wes Golladay with RBC Capital Markets.

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Wesley Keith Golladay, RBC Capital Markets, LLC, Research Division - Associate [24]

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When you look at the portfolio, how many conversion opportunities do you see? And can you start any this year?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [25]

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Wes, you got cut off at the end. What was the last part of your question?

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Wesley Keith Golladay, RBC Capital Markets, LLC, Research Division - Associate [26]

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For the conversion opportunities in the portfolio, could you start any this year? And how many do you see in the entire portfolio?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [27]

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We are in the early stages of outlining the conversions. We have the green light for the brand on a few of them. We have right now identified at least 3 in terms of what we know we're going to do; 2 of those are Curios. There's another 5 to 7 assets that we're working on the conversion strategy with.

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Wesley Keith Golladay, RBC Capital Markets, LLC, Research Division - Associate [28]

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Okay. And then when we look at the dispositions of the noncore RLJ legacy assets, will this year be the high watermark for the disposition program there, then maybe going forward does have fine tuning of the portfolio?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [29]

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Wes, that is a great question. Last year, we were focused on selling noncore FelCor assets. The sale of the legacy RLJ assets are consistent with our portfolio evolution. As I mentioned in my prepared remarks, the vast majority of our portfolio is aligned with a long-term vision. And the sales of $100 million to $200 million of assets is just consistent with the execution of that and our ability to recycle out of assets that don't fit. When we think about our portfolio long term, we're going to continue to curate and refine our portfolio and look at assets that don't fit, but also look at assets kind of skating to where the puck is going. In the sense of identifying what asset may not fit us 2 years down the road, so we can get ahead of that as well. So I think that's what you do from a portfolio management perspective, is to kind of comb your portfolio on an ongoing basis.

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Wesley Keith Golladay, RBC Capital Markets, LLC, Research Division - Associate [30]

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Okay. And then last one from me. When we look at your non-top 10 markets this year, do you think those will outperform the top 10 markets?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [31]

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I think that they're going to perform well, towards the high end of our range, Wes. I think they're going to perform well.

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Operator [32]

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(Operator Instructions) Our next question comes from the line of Jeff Donnelly with Wells Fargo.

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [33]

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I'm just curious in Louisville, can you talk about the inflection that you see there? Is that the situation where you think that the market's flipping positive? Or do you see yourself taking share in the market that ultimately remains a little soft because of the benefit you have from renovation comps?

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Thomas J. Bardenett, RLJ Lodging Trust - EVP of Asset Management [34]

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It's a good question. We spend a lot of time in Louisville, and hotel looks great after the renovation. In fact, what Leslie had hinted to in her remarks was we're at a great position from a group standpoint with our pace almost 89% on the books. It's a significant increase over last year, but it should be because of the renovation. And from a normalized standpoint, we are up about 7% to 10% and ADR is double digits compared to what it used to be previously. So we think we're in a great spot. Couple of things happening in Louisville is with our location next to the convention center and with them expanding by about 50,000 square feet, they really changed the dynamics of how we can sell our hotel because of its Convention Center relationship next door. For instance, the exhibit hall is the immediate thing that when you crossover from our hotel and that allows us to sell both of our ballrooms and do 2 groups versus maybe one in the past compared to what we had. So we're in a great position from the citywide standpoint. In addition to that, when we renovate our meeting space, there was a significant amount of galas that take place on the catering side. So we are going to be increasing the amount of business that we're doing because of the way our meeting space looks and the lobby. Some of the things that are important to Louisville is what type of bourbon do you like to drink. So we actually expanded our lobby bar. We actually have an opportunity to have a speakeasy, to have memberships. So we think we're positioned perfectly in regards to the local marketplace with what people are looking for when they go to Louisville.

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Sean M. Mahoney, RLJ Lodging Trust - Executive VP, CFO & Treasurer [35]

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And then, Jeff, just to add on to Tom's remarks, I mean, we think about our '19 expectations for Louisville, we're -- we incorporated low double-digit RevPAR growth for that total market within our portfolio. We expect our CBD assets to outperform our suburban assets. But when it all rolls up, it's in low double digits. So we feel we're pretty bullish for that market as a catalyst for us in '19.

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [36]

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And maybe just a follow-up on dispositions. You guys gave a lot of disclosure there, that was helpful. I just want to clarify, assuming no unforeseen outcomes, do you think you will be able to complete and close all the dispositions you referenced in the RLJ and FelCor portfolios in 2019? Or is there something about how you're maybe laddering, bringing them to market, that you think closings could actually extend into early next year?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [37]

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No. As it relates to the FelCor assets, we absolutely expect it to close out this year, to your question. On the RLJ assets, I would expect to close a number of assets within the range that we gave.

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Jeffrey John Donnelly, Wells Fargo Securities, LLC, Research Division - Senior Analyst [38]

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Okay. And maybe on the FelCor assets, those 3, are you able to share with us may be just collectively what those 3 contributed to EBITDA in 2018, just to help folks with modeling?

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [39]

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Yes. So it's about $25 million.

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Operator [40]

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Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Leslie Hale for closing remarks.

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Leslie D. Hale, RLJ Lodging Trust - President, CEO & Director [41]

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Thank you for your time today, everyone. We're excited about the opportunities in front of us, and we look forward to continuing to report on our progress throughout the year as we execute on our key priorities. Thank you, and have a good weekend.

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Operator [42]

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