Greetings and welcome to the RLJ Lodging Trust third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I would now like to turn the conference over to your host, John Paul Austin, Director of Investor Relations. Thank you, sir. You may begin.

Thank you, operator. Good afternoon and welcome to RLJ Lodging Trust's 2026 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'll now turn the call over to Leslie.

Thanks, John Paul. Good afternoon, everyone, and thank you for joining us. We had a very strong quarter, achieving results that exceeded our expectations across every metric. The strength of the operating momentum we saw was broad-based and accelerated from the second quarter, with business travel leading the way as it continues to benefit from healthy corporate profits and a growing economy. The acceleration we are seeing in business travel reflects a step change in the momentum we have been highlighting since last year, and we are pleased to see this trend persisting into the fourth quarter. Overall, the positive trends across all segments of demand including sustained strength and leisure and group continue to disproportionately benefit urban markets. Our results reflect the favorable positioning of our urban-centric portfolio which has allowed us to outperform the broader industry all year. During the third quarter, we delivered robust rep part growth that outperformed the industry by 260 basis points. We generated another quarter of solid growth in our non-room revenues. We achieved strong bottom line flow through which drove significant margin expansion and our EBITDA to increase at twice the pace of revenues. Our completed conversions and high impact renovations once again delivered robust REVPAR and EBITDA growth. Additionally, we made progress towards our next phase of conversions which will further expand our lifestyle orientation and EBITDA growth and we opportunistically sold a small portfolio of assets at an accretive multiple. Our year-to-date results demonstrates our portfolio's ability to capture the accelerating resurgence in urban markets in addition to the strong lift from our conversions and renovations. The combination of our favorable footprint and our embedded growth catalyst gives us confidence in our ability to continue delivering strong bottom line growth. With respect to our third quarter operating results, our REV part grew by a robust 9.7% driven by increases in both demand and rate. with each month of the quarter exceeding our expectations. Demand grew within every segment, driving occupancy growth of 230 basis points. The strong and consistent demand dynamics we have seen throughout this year are giving our operators further confidence to increase rates, allowing us to achieve ADR growth of 6.4% during the quarter. Several of our markets benefited from hosting World Cup matches, and we continue to estimate approximately 45 basis points of overall contribution from the tournament to our full-year Red Park growth. That said, our outperformance extended well beyond the World Cup, with our non-World Cup markets achieving Red Park growth of nearly 12%. This positive momentum carried into October, which achieved preliminary Red Park growth of 6%, even with the shift of Dreamforce into September. further underscoring the sustainability of the trends we saw during the third quarter. Our urban markets continue to lead our performance, achieving REF PAR growth of 10%, with 11 markets delivering double-digit REF PAR growth. Our largest market, Northern California, grew REF PAR by more than 13%. Year-to-date, REF PAR for our Northern California market is up by more than 16%. More importantly, our EBITDA in this market is up 63% over the last two years, with meaningful upside remaining. Performance in this market continues to be underpinned by the expansion of the AI industry, which is fueling corporate investment, citywide activity, and business travel against the backdrop of an improving local environment that is attracting more leisure activity. We continue to believe in the multi-year growth trajectory for Northern California as an epicenter of the broader AI boom that is driving the next phase of economic growth. Other top performing markets that deliver double digit growth include Washington DC, Pittsburgh, Austin, New York City, Los Angeles, and Tampa. And even with the robust performance of our urban markets year to date, there remains plenty of room to run. As it relates to segmentation, Significantly higher transient revenue drove much of this quarter's improvement, and the mix within transient shifted in a way that allowed us to optimize dynamic pricing. Business transient was once again our strongest segment, with revenues increasing by 15% during the third quarter, driven by a robust 13% increase in ADR along with a 2% increase in demand. We saw double-digit BT revenue growth in each month of the quarter and healthy BT trends across all of our markets. The consistency and the breadth of the growth in business travel is illustrating the sustained momentum we have been seeing build throughout this year, with our 15% revenue growth following the 10% growth we achieved in each of the prior two quarters. This robust business travel demand is being supported by a healthy economy with elevated levels of business investment. The nature of this investment is generating demand with a longer average length of stay, which are portfolios well positioned to capture as reflected in our occupancy gains. We continue to see strong activity across a wide array of industries such as tech, consulting, defense, energy, and healthcare including both large corporations as well as small and medium-sized businesses. This is reflected in our improving midweek demand which drove a 15% increase in compression nights during the quarter creating the backdrop for pricing power. With this dynamic still building, we believe we are in the early phases of a broader BT expansion. Regarding leisure, our leisure revenues grew 10% during the quarter, driven by an 8% increase in ADR and a 2% increase in demand. While our footprint benefited from the World Cup games during the quarter, leisure revenues grew at an equally strong pace in our non-World Cup markets, underscoring the diversified leisure demand drivers within our urban portfolio. The strength and leisure persisted throughout the quarter, in particular in September, with revenues generating 16% as the timing of Labor Day extended the summer travel season. Our hotels and live-work-play locations continue to capture robust urban leisure demand as travelers increasingly prioritize travel around sports, concerts, dining, and other entertainment experiences found in our vibrant city centers. Our group segment also achieved strong results, with revenues increasing 10% during the quarter, led by significant growth in room nights. This demand provided us with a strong base of business, allowing us to drive higher rates in our transient segment. While the booking window remained short, in the quarter for the quarter demand materialized ahead of our expectations, and we were pleased to see our group pace for the fourth quarter improve by 500 basis points during the third quarter. We are also encouraged by the increasing share of corporate group within our overall group mix, which has positive implications for both ADR and auto room spend. The strength across each of our demand segments continues to translate into healthy non-room revenues, which grew nearly 7% during the quarter, reflecting the significant returns generated by our investments through our conversions, renovations, and ROI initiatives. In aggregate, our robust top line growth combined with our lean operating model and our disciplined cost control efforts translated into a nearly 18% increase in our EBITDA and 190 basis points of margin expansion for the quarter. Turning to capital allocation, the investments we have made in our portfolio over the past several years are continuing to drive meaningful incremental growth. During the third quarter, our eight completed conversions, including our most recent conversion in Pittsburgh, achieved red part growth of 12% and EBITDA growth of 18%. And our high-impact renovations that we completed last year achieved red part growth of 26% and more than doubled EBITDA. We also advanced our conversions in Boston and Key West. Subsequent to quarter end, we commenced the physical renovation at the Fairfield Inn in Swedes, Key West. which will join the Margaritaville family. And we are initiating the physical renovations at the Wyndham Boston Beacon Hill which is slated to join Hilton's Tapestry Collection with both projects on track to relaunch in 2027. The relaunch of these two assets next year will further enhance the lifestyle orientation of our portfolio and provide incremental growth. More broadly, the success we have achieved through our conversion strategy to date gives us conviction to pursue additional conversions as we continue to expand our pipeline, targeting two conversions per year. We also remained active on the disposition front, opportunistically divesting assets on an accretive basis. In mid-October, we sold a portfolio of seven assets near the Chicago Midway Airport for $110 million, representing an attractive multiple 14 times 2026 forecasted EBITDA or 16 times including required capital expenditures. This sale allows us to reposition our Chicago exposure to align with our focus on hard of demand locations while increasing the lifestyle orientation of our portfolio, which now represents roughly half of our total EBITDA. Overall, our strong liquidity and flexible balance sheet positions us to pursue a range of options to further drive long-term growth, enhancing shareholder returns. Now turning to our outlook for the balance of the year, Demand continues to be supported by a favorable macro backdrop, including healthy corporate earnings and elevated levels of business investment, which is fueling sustained momentum in business travel. And we believe our urban-centric portfolio is well positioned to remain a beneficiary. As such, we are raising our full year guidance to reflect our third quarter outperformance, the strong operating results seen in October, and our expectations that positive trends should carry into the remainder of the year. That said, we acknowledge that a degree of geopolitical uncertainty persists, and we will continue to monitor demand closely. Looking ahead, we believe we are in the early phases of a multi-year cycle, with 2026 marking the first time in many years that lodging fundamentals converge in a way that drives occupancy higher, creates greater compression, and yields true pricing power. As we look beyond 2026, we believe the positive momentum we are seeing is sustainable, supported by durable demand drivers. All of this is occurring as a backdrop of an extended period of muted supply growth, creating a favorable setup across all demand segments, in particular for business travel, and fueling the continued resurgence in urban markets. While 2026 saw very strong growth, We believe the building blocks are in place for growth to continue in 2027, further supported by a positive holiday calendar. For RLJ, our portfolio will also have strong convention calendars in several of our markets, including DC, Boston, and San Diego, continuing momentum in Northern California, and the ongoing ramp from our completed conversions and renovations, along with the relaunch of our Boston and Key West conversions. Additionally, given our concentration in urban locations, strong entertainment demand drivers, we will continue to benefit from the annual rotation of recurring major events within our footprint in 2027, including the Super Bowl in Los Angeles, the NFL Draft in Washington, D.C., the Major League Baseball All-Star Game in Chicago, the NBA All-Star Game in Phoenix, as well as pre-Olympic activities in Southern California and unique events such as the Star Wars 50th anniversary in L.A. Collectively, this positive setup is reflected in our group pace, which is tracking ahead by mid-single digits for next year. Overall, with our embedded growth catalyst and a strong balance sheet that provides significant optionality, we believe our portfolio is well positioned to continue delivering strong relative performance in 2027 and beyond. With that, I will turn the call over to Nikhil.

Thanks, Leslie. To start, our comparable numbers include our 91 hotels owned at the end of the third quarter. Our reported corporate adjusted EBITDA and adjusted FFO include operating results from all sold hotels during RLJ's ownership period. Our third quarter results came in well ahead of our expectations and once again meaningfully outperformed the industry. Comparable REF PAR of $153 grew 9.7% versus the prior year, driven by A increase of 6.4% in average daily rate to $203, along with a 230 basis point increase in occupancy to 75.4%. Each month delivered rough power growth ahead of our expectations, with July up 13%, August, which we expected to be flat, up 4.2%, and September up 11.5%. As Leslie mentioned, our urban markets continue to lead our performance, benefiting especially from widespread BT strength, with a number of these markets achieving double-digit BT revenue growth, including D.C. at 53%, Austin at 24%, Northern California at 22%, and New York at 19%. Strong growth in BT was also evident in our weekday REF PAR growth of 9.9% during the quarter, with Tuesday through Thursday seeing double-digit REF PAR growth. In addition to strong BT, our urban markets also benefited from robust urban leisure, with revenues growing by 10.3%. Strengthening urban leisure growth led our weakened REVPAR in urban markets to achieve nearly 10% growth. Strong demand in both BTE and corporate growth throughout the quarter also drove healthy non-roomed revenues, which were up 6.5%, our fourth consecutive quarter of high single-digit growth. This performance reflects the value created from our investments in ROI initiatives with an emphasis on improving food and beverage margins, maximizing the productivity of underutilized spaces and adding new ancillary revenue streams through our renovation and conversion initiatives. Turning to operating expenses, our strong top line performance combined with our disciplined approach to controlling expenses allowed for strong flow of nearly 50% to the bottom line, demonstrating the benefits of our lean operating model. During the third quarter, Total costs per occupied room increased by approximately 3%, in line with our expectations. Drilling down further into hotel operating expenses, variable costs, such as commissions and fees, increased in line with revenues. And while energy costs remained elevated, they moderated from the second quarter. Partially offsetting these increases, our fixed costs were slightly lower relative to the prior year. benefiting from the successful renewal of our insurance program last year, as well as the success from our property tax appeals. We delivered Hotel EBITDA of $93.9 million during the third quarter, representing an increase of $14 million, or 17.5% over the prior year, which is nearly two times the increase in our revenues. Hotel EBITDA margins were 26.5%, expanding by 190 basis points over the prior year. These results translated to adjusted EBITDA of $85 million and adjusted FFO per diluted share of 34 cents, representing increases of 17.3% and 25.9% respectively over the prior year. Turning to our balance sheet. As of the third quarter, we had $2.2 billion of debt and no maturity is due until 2029. Overall, our balance sheet remains well positioned with strong liquidity of over $1 billion as of quarter's end, including $600 million of undrawn capacity on our corporate revolver, 91% of hotels unencumbered by debt, and approximately 70% of our debt either fixed or hedged at the end of the third quarter. With respect to capital allocation, Subsequent to the end of the quarter, we opportunistically sold our Chicago Midway campus of seven hotels for $110 million to an owner-operator. Our strong liquidity provides us with significant optionality with respect to capital allocation opportunities, including continuing to unlock the embedded growth in our portfolio through our transformative conversions. We remain committed to enhancing shareholder returns through our well-covered quarterly dividend of 15 cents per share and will continue to allocate capital strategically to enhance portfolio growth while maintaining balance sheet strength and financial flexibility. Turning to our full year outlook, our updated guidance reflects our strong third quarter outperformance and our improved outlook for the fourth quarter. which assumes continuation of the positive operating trends we are currently seeing through year-end, as well as the sale of seven Chicago midway hotels. For 2026, we now expect comparable RFR growth to range between 5.75% and 6.25%, an increase of 200 basis points at the midpoint. Comparable Hotel EBITDA to range between $377 million and $383 million. Corporate Adjusted EBITDA to range between $352 million and $358 million, a $9 million increase from our prior outlook at the midpoint, which reflects the $6.5 million third quarter beat relative to our implied guidance and a raise to our fourth quarter outlook by an additional $2.5 million and adjusted FFO per diluted share to be between $1.47 and $1.51. 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 $34.5 million to $35.5 million. And expect net interest expense will be in the range of $101 million to $103 million. 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 2026 and 2025 quarterly operating results for our comparable hotel portfolio. Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Austin Werschmitt with KeyBank. Please proceed with your question.

Thanks. You guys hit on a lot about the flow through this quarter and how it improved significantly versus recent quarters, despite there being a mix of ADR and occupancy growth driving REVPAR. What really changed this quarter, and do you think you can sustain that flow through to the extent that fundamentals do remain strong?

Yeah, I would say, you know, Austin, what changed was really what I talked about in a prepared remarks in terms of This being the first time in a long time where fundamentals have really converged. If you sort of think about the building blocks here, we've had a consistent strength in group demand, which has remained healthy, but it's giving us a base of occupancy. And now we have true compression building, and so we've seen transient demand really accelerate. Now leisure demand has remained relatively stable and growing, but BT is seeing meaningful acceleration sequentially. We've seen the pace of growth in business travel and demand. We've seen it in the form of weekday trends, midweek trends as well. The length of stay has expanded. And all of those things are happening against limited new supply. So it's creating compression on Monday, Tuesday, Wednesday. And we've seen our compression go up 15%. When you have that kind of compression demand, you're able to have true pricing power. And so in a post-COVID world, we had already decoupled rate and occupancy, but what we've been able to do is to have less discounting, less promotion, less OTA channel. and we've seen a remix within transient to more dynamic pricing. All of this is happening while you have your highest rated customer business traveler coming back. And so, you know, that's really allowed us to sort of drive the rate side while still seeing an increase in occupancy, which has clearly helped the flow through to the bottom line. We do believe, as we mentioned in a prepared remarks, this is sustainable. particularly given the economic backdrop that we are seeing from a business investment and corporate profit perspective.

So I guess you said I think group pace is up mid-single digit for next year. I mean does that just set the stage for this to continue and how much of a mix shift opportunity is there remaining in that kind of mid-week business transient segment?

I think that the building blocks for 2027 are set. We think that the momentum we've seen and the positive fundamentals in terms of how they're converging, we think that will you know, carry forward and that we can continue to see the compression that we've seen. I'll let Tom talk about what he's seen on a midweek trend perspective.

Yeah, so if you compare to our occupancy, which is where Leslie started the conversation, we're still about six point percentage points off of 2019 on Monday, Tuesday, Wednesday. So even with the growth that we're having in BT, which was 10, 10 and 15, if you look at this past quarter, Lodging Trust, Frederick McKalip, Kate Henriksen, Nikhil Bhalla, Robert Johnson, and even in our largest assets that have leading indicators and Leslie talked about some of the markets, whether these are citywide or self-contained, we're in a good position coming out of the gate for 27 based on those two dynamics. And then the last thing I would say, because of the channel mix, we're seeing more people book through GDS, which is great because you don't have to pay a commission on that. You have more people going to brand.com, again, less commissions, and we're controlling that Tuesday, Wednesday because of that length of stay and compression dates, less OTA channels midweek. So I think we're in a good spot coming out of 26 and I'll let Lizzie recap one more item.

Yeah, I think that just to put a number on Tom's point about GDS, our GDS is up 10%. I think the other note to add on to the numbers that Tom gave is to look at it from a rate perspective as well. I've said this before, that historically, business travel rate was above group. Historically, it was somewhere between 12% to 15% above group. Today it sits, you know, 12 to 15% below group. That's a 30 basis point swing. I'm not suggesting, you know, that, you know, BT will get back to its historical relationship in terms of being ahead. But what I am saying is that there is room to grow there from that relationship perspective. And remember, your group traveler is your BT traveler. You know, our corporate group represents 50% of all of our group, 50% of all of our group. and so they're already paying this rate. It's already in the market and we're just chasing that. And so those are the things that give us confidence in terms of remixing, you know, both from a rate perspective and a demand perspective.

A lot of good stuff in there. Thank you for the time.

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

Thanks. Good morning, everyone. Good afternoon to you. Leslie, big picture for me, just obviously there's some sort of one-time benefits from last year in today's numbers. So maybe could you just give us your sort of best guess of what you think the underlying or go-forward run rate is for the portfolio and where you maybe think some upside or downside might actualize next year? Thanks.

Yeah, you know, Mike, in terms of, you know, one-time events, I think, you know, clearly... Everybody expected World Cup to perform and drive our performance. But when we actually look at our portfolio performance ex-World Cup, our non-World Cup markets were up 12%. And we believe that that demonstrates the broad-based nature of the strength that we're seeing that is beyond world one-time events. And we've seen it in other metrics as well. Keep in mind that the momentum carried into September was and you know our you know our leisure overall September was up 11 percent our leisure in September was up 16 percent and that's post-World Cup and we really think that's a you know function of our footprint a function of the demand we're seeing and a number of factors obviously Labor Day was in there as well but the general point is is that the strength we're seeing across the fundamentals are well beyond one-time special events.

And if you think about our footprint Mike When you think about the special events, because of our size and our scale and the smile of America where many of these events rotate, Leslie kind of referred to a few of the items that are critical in regards to big events, Super Bowl, NFL draft, things that are now really becoming entertainment venues. And then I think because of LA having pre-Olympics and some action even before 2028, it gives us confidence that We've got a good footprint to be able to take advantage of those special events so they don't become anomalies.

That's helpful. And then just one more for me, sort of on the out-of-room spend. Are you seeing the same demand and pricing list that you've been seeing on the room side? And that's all for me. Thank you.

Yeah, on the auto room spend, I would say we're very pleased with the fact that we've seen high single-digit auto room spend for the last four quarters. and it's really a function of not only the demand side but also our strategy around F&B being very thoughtful. We continue to see demand from outside the hotel relative to the F&B outlets that we have created. We're excited about what we're doing in Pittsburgh, Boston and Key West which are going to continue the themes that we think into next year and also just parking continues to be a bright light for us as well.

The only thing I would add to Leslie's comments We've put a lot of time and energy on the renovations on enhancing our markets, really appealing to the grab-and-go consumer trends, and that was up 16%. So we feel like those are great ROI initiatives where people are taking advantage of that before they depart or upon a late arrival. and then as Leslie stated on the corporate group side, we're seeing that benefit the banquets department, right? Whether it's banquets, outlets, lounge, because that corporate customer tends to spend a little bit more on their stay versus let's say a leisure customer. And so corporate really drives that group side and that is healthy when we start to see those type of activities because that typically is your more profitable food and beverage that Leslie referred to.

Perfect, thank you.

Our next question comes from the line of Sydney Rome with Barclays. Please proceed with your question.

Hi, thank you so much for taking the question. Could you walk us through how the $20 million seller note financing came together in its basic terms like rate and maturity? And then with the midway cash proceeds, I think you're at about $500 million of cash on the balance sheet. How are you kind of thinking about the right level of cash for the business and would paying down some of the higher cost term loans or buying back some of your preferred be on the table?

Hi Sydney, this is Nikhil. Thanks for the question. On your first question here on the 20 million seller financing, so it's a three-year payback period and obviously it's structured in a way that there's accelerated payback to us. In terms of rates on the seller financing, you know, It's an attractive rate. It's a high sort of single-digit rate on this financing.

And then I would say on the capital allocation side, Sidney, in terms of the proceeds, we view the capital that we just raised within the context of our broader framework for capital allocation. Our objective, clearly, is to maximize value for shareholders, and we measure that primarily with growing FFO and free cash flow per share. Our liquidity position gives us tremendous flexibility and real optionality. And so as we intend to use these proceeds, we're going to do it in a very disciplined way, and we're going to evaluate optionality with thinking about every dollar that we use, whether it is to convert a hotel that we already own, to acquire a new hotel, to return capital to shareholders through buybacks, or to strengthen our balance sheet, like you said, in terms of paying down potential debt in a higher rising interest rate environment. All of the use of cash flow must raise FFO per share in order to earn our investment. And so, yes, you mentioned we do have ample liquidity. We're going to deploy it in a very disciplined way. We believe that we have tremendous optionality that's provided by our balance sheet and we've demonstrated the ability to unlock embedded value within our portfolio to our transformative conversions while at the same time remaining committed to returning capital to shareholders through dividends and share buybacks. Our conversions have performed exceptionally well. They're up double digit both on the top line and bottom line this quarter and we're going to continue to execute on our pipeline. We'll also consider acquisitions if they meet our underwriting criteria and return requirements while at the same time driving value creation. We'll also look at further strengthening our balance sheet by potentially paying down some debt in a rising interest rate environment. I think the key takeaway here is that all of these tools are available to us and we are going to exercise them under the right conditions. They're not mutually exclusive and on a relative basis they have different benefits under different market conditions. We believe that the market is improving, which is providing some potential interesting opportunities, but we're going to stay disciplined and focus on driving free cash flow for our shareholders this year and next year as we deploy the capital.

Thanks so much, Leslie. Thanks, Nikhil.

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

Thanks.

Good afternoon. I'd like to start asking a question about corporate negotiated rates. And I know we're probably early in the process for 2027, but just curious to get your initial thoughts about whether you think hoteliers may be too aggressive in rate setting or perhaps too timid, just given the improvement in BT this year and ADR growth. Thank you.

Yeah. Hey, Greg. This is Tom. A couple of things. First and foremost, if you think about the last few years, we've really taken the stance, and this is brand as well as management companies, to try to move more and more people to dynamic pricing. Because then when you're in an up cycle, the ability to drive bar in retail is pretty significant. As an example of that, our retail segment grew 13.8% this particular quarter, and that is considerably up from a mixed standpoint that now is in the low 30s versus high 20s. So that's a big shift in regards to how you think about negotiating rates when it comes down to national corporations and even local accounts in your backyard. The second thing that I would say is when you look at rates for year over year, we typically will listen to the tea leaves in regards to are you going to have more demand or not? and that kind of sets the stage in regards to if they're going to have more demand and you have compression nights that is increasing significantly, I think Leslie referred to 15%, that's a great opportunity for you to force that Tuesday, Wednesday into a longer period of time. And that's helping us because if we can pick up a Monday or a Thursday on that or price ourselves appropriately on Tuesday, Wednesday, that helps you on the dynamic pricing as well as your ability to negotiate rates based on demand. so I feel that we're going into 2027 in a great position because we're seeing it happen right now and therefore we're going to continue to push to try to see increasing average rates it is early though I mean this is the beginning of the RFP season but the fact that at GBTA people were talking about more demand and we think that's because of what's happening in AI and many different segments of our corporate business as I mentioned to you earlier whether it's tech Energy, aerospace consultants, all are traveling more. And that's what we need to take advantage of when we go into 2027.

Thanks, Tom. This question may, my follow-up may also go to you. I'm curious if you provide the latest state of the union as it relates to AI impact to hotel operations. And if you could provide an update on your progress at the hotel level. and maybe as a side question, are you more or less encouraged about the opportunities just given that there's a lot of hype today and more recently some third-party hoteliers that suggest that AI can lead to perhaps 300 bps or more of hotel margin upside over the next five years?

Wouldn't that be great? I would say We are looking at all avenues. And let me break it down for you to kind of simplify it. There's brands, there's management companies, and there's owners. And everybody has a different role in this process. The brands are really focused on making sure that search continues to go through brand.com. And that's where they're spending a lot of time and energy talking to that consumer. Because you have 295 million members and 275 million members between Merit and Hilton, as you know, we carry a lot of the premium brands. That's where we need to make sure we're protecting distribution and continuing to go to the channels that cost less. So their focus is on that. The management companies and the ownership groups are really focused on the middle of the P&L, to your point about the BIPs and the opportunity there. Those are tactics like labor management efficiency, scheduling, hours of operations, taking all these data insights in regards to how to build a better mousetrap to help the field really operate in an environment that's going to enhance productivity. And when we can do that, we also believe that we can provide better service. When you think about things that happen on a regular basis you know we can automate those low value activities so we can allow the teams to really focus on higher revenues and better service which will ultimately mean you can have a guest that wants to come back and feels good about their stay and so those are the areas that we're seeing that are really actionable intelligence versus artificial and I think we're leaning in heavily on beta tests, opportunities to really go after those 300 basis points that you mentioned, because that's going to be the critical part, because we think the revenue picture is in a good spot. Now we just need to make sure we're bringing it to the bottom line.

Thank you very much, Tom. Appreciate it.

Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.

Hi, thank you. You have Connor on with Jamie here. Maybe returning to the conversions topic, and I think you've spoken to about two to three a year. Maybe beyond Boston and Key West, how are you thinking about the next candidates and our franchise expirations driving that timing again?

Yeah, I mean, we've said that, you know, we are targeting two conversions per year. and when we look at our pipeline we're going to be on that cadence and we think about it to your point that you raised you know ones that are arising as a result of franchise expiration or other opportunities before the franchise expires where we can renegotiate early to make adjustments out of those brands but it's about two per year we're on that cadence and we don't see that you know any need to change that at this point in time.

Thank you, I appreciate the color. And I think last year you mentioned 4Q benefited from a favorable insurance renewal. How's this year's renewal shaping up and how should we think about taxes and insurance as a piece of 2027 fixed costs?

Hi, this is Nikhil, Connor. What I would say is we're in the middle of our negotiations at the moment on the insurance part. So there's not much I can say other than just to say that I think the environment is still very, very positive. will update you when we get to our fourth quarter earnings call. And with respect to the real estate tax environment, again, we'll have more color at the time when we have our call next quarter.

Got it. Makes sense. Thank you very much.

Our next question comes from the line of Logan Epstein with Wolf Research. Please proceed with your question.

Thanks for taking the question. You mentioned in the prepared remarks that you're seeing an increased corporate group in your demand mix. Just curious if you can talk about any specific industries that you're seeing there drive that across the portfolio.

Yeah, happy to. Logan, what we're finding is because of the way our footprint is set up, we deal with a lot of small groups somewhere between 10 and 15 nights peak night. And so the type of corporate groups that are attracted to us are the same type of companies that are traveling on the BT side. It's a lot of regional sales meetings, product launches. With AI, we're actually finding that software is getting implemented in healthcare, universities. There's a variety of reasons why people are traveling on the group side that are project related. And so that gives you an idea why we think length of stay is up because they're going in and they have to be there for a few days. It's your typical groups that we have seen. What we like about those groups on the corporate side is that's where we see the additional F&B spend. AV, room rental is an example of that. We had some nice lift, which goes back to the non-room revenue, where we had AV up about 20%, room rental up about 12%. Those are good signs that it's healthy corporate group because they're not afraid that they have to put some money against those initiatives because they're going to be there for two, three days. So it's a variety of things, but I'm very encouraged that corporate continues to grow in our overall category when it comes to group.

Thanks, Tom. Maybe a follow-up to prior questions and comments in the prepared remarks. As we sit here today and see the recovery in business transient demand, just curious if you can talk about where that midweek occupancy sits today versus prior peak levels and maybe what markets you expect are best positioned to grow from here. That's all from me. Thank you.

Yeah, so a couple things. I'll talk about where it sits, but I think even more importantly as we talked about where we're getting our rev part growth, our Tuesday Wednesdays were in the 12 to 13 and 11 on those two nights. and so the growth is happening midweek in addition to that length of stay that we're getting a nice growth on Sunday, Monday and in addition to that Thursday because of the length of stay. A little bit less growth than we are on Tuesday, Wednesday but that's where the pricing power that Leslie was referring to. When we talk about occupancy, I referred to earlier, we're at around 91% of 19 on Mondays, 92 on Tuesday, Wednesdays. So when you think about pure occupancy for the whole portfolio, we're about six percentage points off, but midweek is where the most room in the tank is. Where weekends, we're closer in the 97, 96% on the occupancy side, and we all know average rate is significantly up when it comes to leisure and weekends based on entertainment and all the events. Leslie, did you want to add something to that?

Yeah, I mean, in addition to just the broader compression we saw across our portfolio, just to support Tom's comments, The compression growth on Monday, Tuesday, and Wednesday was up 20%. So the portfolio was up 15%, but within those three nights, it was up 20%.

Got it. Thank you so much.

Our next question comes from the line of Flores Van Dykem with Ladenburg-Thalman. Please proceed with your question.

Hey, thanks. Leslie, you made a comment in the beginning which I found fascinating, and maybe I wanted to see if you could expand on that a little bit. You talked about the relationship historically between REVPAR growth and GDP growth and how you see that now it's starting to reassert itself. Maybe if you could touch on what the historical, particularly in low supply environments, I suppose, this is an environment we're in right now and it doesn't look like that's going to change anytime soon. Maybe talk about what the historical – or maybe touch on the historical ROJ REVPAR growth relative to GDP growth in two prior low-supply environments. Yeah, I would say – Sorry, Dawn.

No problem. So the comment I made was the convergence of fundamentals in terms of having – Group demand be as strong as it is while also transient demand was accelerating with leisure travel continuing to be stable growth and with BT accelerating. Those are the fundamentals that are helping us drive overall pricing power and the overall fundamentals that we've seen this year which we think can continue. We are starting to see that, you know, REVPAR growth and GDP growth continue to converge back to historical trends. And I'll let our historian give you some data points.

Thanks for the question. It's a good one because when we go back in history and you kind of look at, you know, GDP and REVPAR correlation, obviously it's been very tight. I think what you saw from 2015 or 2017 through 2019 was that supply growth was so great that it kind of masked the real growth in REF PAR growth that would have taken place along with GDP growth. And so the current environment is actually a really good one where now you're starting to see, as Leslie pointed out, sort of demand converge with GDP growth but no supply. So, you know, clearly that's a good outcome and that's a good positive environment to be in and augurs wealth for our part of growth going forward.

And I think it's that relationship between all the convergence of the fundamentals, pricing power, low supply that give us comfort and confidence about the trends carrying forward.

Thanks. Maybe my follow-up question. I like the sale of the Midway portfolio at a, you know, call it a 7.2% EBITDA yield. That gives you presumably significantly more capital that you can reinvest into conversions that are doing 15% plus. I think historically you said in the past it was 40% on some of those conversion returns. Maybe if you... talk about one of the things, could you consider accelerating your conversions? And I guess it depends a little bit on the timing of some of these brand agreements or franchise agreements as well. But because it would map significantly, it would appear to be deleveraging to do more of these kinds of investments at north of 15% IRR, particularly when you're funding it with 7% sales. If you can talk about that a little bit.

Yeah, first of all, thank you for recognizing, you know, the value that we've been able to unlock in our transformative conversions. And I would say that, for us, what we are doing, what we have done is increase our pipeline. I think that we'll still stick with the cadence of probably two per year, just given the The limitations around the franchise explorations, but also just making sure that we don't become a disruption story. We've been very thoughtful about managing that. You've seen the compound growth. We're now up to eight conversions. We're going to be adding two more next year. We think that's the right cadence, and you've seen the quarter-over-quarter growth that the pool of assets have generated. but what we have done is expanded our pipeline and looking at our own portfolio, there are other optionality that we have that we've increased the number of assets that we see going forward that are candidates for conversion.

And the one last thing I would add is when you talk about non-room revenue, all those conversions and even the renovations that we have, we find We have, and we've given a stat before

We've said that we expect our EBITDA on a stabilized basis to be 40% higher than pre-renovation levels.

Does that complete your question?

Yeah, it actually, but the total conversion cost is that you haven't given that presumably, right? We can back into that assuming a 20% return on investment.

The return is actually far greater than that overall, Floris. And we've given the CapEx number to you and all the investments actually included in that number.

So we expect high double-digit returns similar on the incremental capital that we've done before, north of 40% returns on this deal as we've done before, which is what's driving the EBITDA number that Nikhil gave you.

Thanks. Thanks, guys.

Our next question comes from the line of Chris Rewanka with Deutsche Bank. Please proceed with your question.

Hey, good afternoon, everyone. Thanks for taking the questions. So a lot of folks on AI in different ways, and my question kind of relates to if there's a way to kind of isolate maybe the upside you've seen Thank you for having me. Big enough to offset if a little bit of the AI demand comes out, do you worry that there's enough backup to not see a meaningful drop-off? And then I have a follow-up. Thanks.

Yeah, on the demand front, I would say there's a lot of ores in the water outside of just AI. But I do appreciate your question because I think there's a significant amount of demand that's related to AI as well. And it really is market by market when you start to get into those conversations, Chris. I feel that when we looked at that broad-based demand where you see a lot of markets going double digits in Q3, that's a lot more than AI travel, number one. You're going to see a lot of different reasons why people are traveling. And it's around those industries that are thriving around corporate profits, not just AI. so I understand your comment about data centers but data centers typically don't produce a lot of demand when I have a data center next to my hotel but what I would say is what people are investing around corporations there's a race out there to continue because if you don't invest you're behind and what we're finding is the opportunities for platforms to really try to drive that productivity and efficiencies everybody's using A different form to be able to try to become more efficient as an individual, as an employee. And what we're finding is if we can do that for our employees at the property level, that's where the real magic will pay off.

Yeah. And I think you have to decouple what's happening in the stock market from the reality of using it on the ground. You can't afford to get behind your AI investment as your competitors move forward. So the use of the tool versus the valuation side is different, and I would decouple that.

Okay, yeah, fair enough, Leslie and Tom. Thanks. The follow-up is, you know, you guys have done a lot of conversions now, and you have more on the pipeline. You have a lot of soft brands. And so as you convert, and this is more maybe converting from straight brand to soft brand, which you've done a few of, is there, are we at a place yet where you have material cumulative savings on things like brand fee? Because I know that the cost, the fee structure is a little bit different, right? Even if you're just franchising. Soft versus hard brand. So is there any way to kind of quantify like what you've seen cumulatively or how much opportunity is left if you do more, if that makes sense?

Yeah, it's a great question because a lot of times when you're going from a hard brand to a lifestyle brand, I'll give you a perfect example, Chris. As you know, we just converted our Renaissance to an autograph in Pittsburgh. We just were up there last week. because we held our board meeting there, and it was a great opportunity to show what we can do with square footage when you're trying to attract yourself to a higher-rated customer. First and foremost, we definitely feel like we know that you're chasing the rate that's in the market when you're moving up and that consumer is looking for still maybe a collection or a bespoke experience versus maybe a hard brand experience. So that's the goal number one is we're trying to change the mix, go after a higher rated customer and provide an environment within the hotel to add revenues. When you think about the cost, there's not that much difference in regards to a hard brand versus a lifestyle brand. The difference is how much revenue you're generating to bring that down and the ROI initiatives that ultimately can make you more profitable. So when you think about Marriott and Hilton and Hyatt within those hard brands and other brands, There is on the way in, as you guys know, there's key money in the ramp because the brands believe that when there's conversions and they're growing their nug, that's going to allow them to continue to grow their pipeline. So that's where the real savings is in the early stages. But the revenue is what you're chasing to try to drive more profitability, Chris.

Yeah, I mean, what we've always talked about as we talk about these conversions is that we're always chasing a rate that's already in the market. We're remixing the customer. as a result of where we're taking the brand conversion. So that's the primary driver of that. Such as the case in our Mandalay Beach, we're chasing a rate that was already in the market, but we also changed the cost structure of the hotel by moving away from the Embassy Suites brand, which had the F&B where we had to give it away for free, and now we charge for the F&B. So it's restructuring both the standpoint of top line, but also looking at the operations and offerings that the hotels have as well.

Okay, super helpful. Thanks, everyone.

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

Hi, thanks. A couple quick ones for me. First, as it relates to the conversions that are underway in Boston and Key West, it sounded like you don't expect much in the way of REVPAR or EBITDA disruption in 2027. Am I correct in thinking about it that way?

Well, our timing is everything, right, Chris? When we think about these two per year, we try to line it up for the least disruptive. For instance, we really want to make sure that we're launching in season for Margaritaville because that's where you get the highest rates in Key West. So we feel good that we are on path to be able to take advantage of that, number one. Number two, Boston in the wintertime is your best time to do the renovation. And when Leslie talked about the city-wide, We feel good because Q3 and Q4 is where the citywide calendar is the most beneficial. So when we have the disruption before we launch into the tapestry by Hilton brand, that is going to be minimized based on the timing of when we're doing the renovation. So you're accurate in regards to how we think about trying to minimize that so we take full advantage of the market that's really going to be solid in the back half of the year.

The thing I would add to that, the benefit of having a house design and construction group, our ability to be laser focused on minimizing the disruption is much easier for us because our design and construction group sits right next to our asset management group. We're able to look at the optimal windows, look at if there's any demand drivers that are coming in that we need to start and stop for. We've gotten really proficient at managing that.

Okay, understood. And then going back to the portfolio sale, obviously an attractive multiple for RLJ. Can you unpack the transaction just a little bit further? I'm really trying to understand some of the rationale and underwriting from the buyer's perspective and the extent to which they may see upside to sort of in-place EBITDA.

First of all, we're very pleased with the execution of this transaction. I think the midway market was a steady sub-market for us, but based on the direction of the sub-market's demand drivers and the overall general dynamics of the cost pressures in Chicago, we didn't believe that this was a portfolio of assets that we should put incremental capital in or hold for much longer. We were very strategic and thoughtful about when we brought this to market and sold against a strong convention calendar for Chicago. So we're thoughtful about the timing. We were also thoughtful about our approach of identifying a buyer. We used a sharpshooter approach and identified a regional buyer who was looking to expand and so brought some strategic perspective to Chicago because he was already in that market. And that allowed us to optimize the pricing both from a standpoint of timing we brought it to the market as well as our approach to identifying the right buyer.

Okay, I appreciate that color. That's it for me. Thank you.

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

Well, thank you everybody for joining the call. We look forward to seeing many of you at Mayree.

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.