RLJ Lodging Trust (NYSE:RLJ) Q3 2024 Earnings Call Transcript

RLJ Lodging Trust (NYSE:RLJ) Q3 2024 Earnings Call Transcript November 7, 2024

RLJ Lodging Trust beats earnings expectations. Reported EPS is $0.4, expectations were $0.35.

Operator: Welcome to the RLJ Lodging Trust third quarter 2024 earnings call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. If anyone should require operator assistance during the conference, I would now like to turn the call over to Nikhil Bhalla, RLJ’s Senior Vice President, Finance and Treasurer. Please go ahead.

Nikhil Bhalla: Thank you, Operator. Good afternoon, and welcome to RLJ Lodging Trust’s 2024 third quarter earnings call. On today’s call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Sean Mahoney, our Executive Vice President and Chief Financial Officer, will discuss the company’s financial results. Tom Bardenett, our Chief Operating Officer, will be available for Q&A. Forward-looking statements made on this call are subject to numerous risks and uncertainties that may cause the company’s actual results to differ materially from what has been communicated. Factors that may impact the results of the company can be found in the company’s 10-Q and other reports filed with the SEC.

The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release. I will now turn the call over to Leslie.

Leslie Hale: Thanks, Nikhil. Good afternoon, everyone, and thank you for joining us today. We were pleased with our third quarter results, which came in ahead of our expectations despite the impact of the storms late in the quarter. Our third quarter RevPAR growth once again exceeded the industry, demonstrating the resiliency of our urban-centric portfolio, which is allowing us to outperform. Additionally, our effective expense management enabled us to drive EBITDA growth that exceeded our year-over-year RevPAR growth. Along with achieving solid operating results, we made meaningful progress on our key initiatives during the quarter, including executing on several objectives which will position us well going into 2025. This includes successfully refinancing all of our near-term debt maturities and executing attractive interest rate hedges, completing two conversions, accretively recycling proceeds from non-core asset sales into share repurchases, and increasing our quarterly dividend by 50%.

Achievement of these objectives demonstrates our commitment to unlocking value in our portfolio while recycling capital to enhance total shareholder returns.

Q&A Session

With respect to our third quarter operating performance, our 2% RevPAR growth rate was two times the industry, and our growth continues to be balanced between both rate and occupancy. Additionally, our hotels gained 100 basis points of market share, which represents the sixth consecutive quarter of outperformance, underscoring the strong positioning of our urban-centric portfolio. This quarter, our urban hotels continued to drive our outperformance and achieved 2.5% RevPAR growth. Our urban markets are benefiting from positive trends in all demand segments, with markets such as Boston, Chicago, and Southern California achieving mid to high single-digit RevPAR growth.

Our deliberate efforts to reposition our urban footprint allowed our urban lifestyle hotels to achieve 3.2% RevPAR growth during the quarter. Our urban lifestyle hotels represent approximately 40% of our portfolio and are well-positioned to capture seven-day-a-week demand. Our portfolio is seeing the lift from the ongoing improvement in business transient demand, which was once again our best-performing segment this quarter, achieving nearly 9% revenue growth over the prior year driven by both ADR and occupancy gains. We were especially encouraged to see continuing pricing power, which drove 5.3% ADR growth, an acceleration of 105 basis points from the second quarter. While SMEs remain the dominant driver of corporate demand, we are seeing positive momentum from large corporations who are increasingly returning to the office. The recent trends and the continuation of company mandates provide us with the confidence that steady growth in business transient revenues will continue.

Our group segment also continued to see strong performance during the third quarter, achieving 3.4% revenue growth, led by a 1.4% increase in demand and a 1.9% increase in ADR. Group revenues benefited from both the increase in corporate meetings as well as strong citywide volume in many of our key markets such as Boston, Chicago, San Diego, and New Orleans. As a sign of healthy group demand, our 2024 group revenues pace remains ahead of 2023 by mid-single digits, inclusive of our pace for the fourth quarter. Despite the impact from recent storms, the holiday calendar shift, and the election, in aggregate, the continued strength in both business transient and group production drove a 3.1% increase in our third quarter weekday revenues.

With respect to leisure, we were encouraged to see stable demand trends. Our leisure revenues grew by 2% during the third quarter, primarily driven by a 4% increase in demand, which was offset by a 2% decline in ADR, highlighting continued consumer pricing sensitivity. In addition to achieving solid rooms revenue growth, our out-of-room spend in areas such as parking and F&B allowed us to grow our non-room revenue by 7.3%, which drove total revenue growth of 3%. This top-line growth, combined with our focused approach to managing costs, which has led to the moderation of operating expense growth, has allowed us to achieve flat margins and a year-over-year EBITDA increase of 2.6% in the third quarter.

Now turning to capital allocation. In the third quarter, we continued to demonstrate our disciplined approach to balance sheet management and the ability to assertively allocate capital across several fronts. We further strengthened our balance sheet and added incremental flexibility by entering into a new $500 million term loan, which addressed our 2024 and 2025 maturities. We opportunistically entered into new hedges, allowing us to maintain one of the lowest weighted average costs of debt at 4.5%. We sold a non-core hotel in Denver and recycled proceeds from recent dispositions towards the repurchase of 2.2 million shares for $20.7 million. And we completed the physical conversion of the Wyndham in Houston to a DoubleTree and the Indigo in New Orleans to the Hotel Tonale, a Marriott Tribute Hotel.

These hotels are ramping well and achieved strong RevPAR growth of 17% year-over-year in the third quarter. Additionally, we remain on track to complete the conversion of the Bankers Alley in Nashville to Hilton’s Tapestry collection and are pacing to complete the conversion of the Wyndham in Pittsburgh to a Courtyard earlier than expected. Looking ahead, we are continuing to maintain our cadence of completing two conversions a year, with the transition of the Renaissance Pittsburgh to Marriott’s autograph collection in 2025. We also made progress towards selecting a new brand for the Wyndham Boston, which we expect to convert in 2026. Our ability to execute on multiple fronts simultaneously validates our strong balance sheet and free cash flow profile, which not only drove our growth initiatives this quarter but also allowed us to return significant capital to shareholders in the form of dividends and share repurchases.

Looking ahead, in the fourth quarter, there are some unique factors that will impact the final industry results, including the disruption of Hurricane Milton in October and the degree of the slowdown around the elections in November, which we estimate will constrain our fourth quarter RevPAR by approximately 100 basis points. However, despite these unique headwinds, our strong third quarter performance and the resiliency that our urban central portfolio is demonstrating give us confidence in our outlook. As we look towards 2025, while we expect a comparable industry background to 2024, our portfolio is well-positioned. We should benefit from our portfolio’s concentration in urban markets, which are expected to continue to outperform the industry, the ongoing ramp from our seven conversions, the continued improvement in business transient demand, and our favorable footprint in markets with strong citywides such as New Orleans, which will host the Super Bowl, Washington DC, which should benefit from the presidential inauguration, and Fayetteville citywides in Denver and San Francisco, which is supported by our strong 2025 group pace, currently ahead of 2024 by mid-single digits.

We believe that all of these positive attributes should continue to allow us to be a top performer. Longer term, we believe that the industry is positioned for multiple years of demand-driven growth, given the continuation of the secular trends of consumers prioritizing travel, which should be enhanced by moderating inflation and lower borrowing costs. Improving business travel demand from the combination of the continued recovery and the return of office trends, group demand remaining healthy due to the increasing citywide events as well as corporate and social groups, and the recovery of international demand, which remains a meaningful growth opportunity. These factors, together with historically low new supply projected over the next several years, should provide multiple years of RevPAR tailwinds and be especially beneficial for urban hotels, which represent over two-thirds of our portfolio.

I will now turn the call over to Sean. Sean.

Sean Mahoney: Thanks, Leslie. To start, our comparable numbers include our 95 hotels owned at the end of the third quarter and exclude the Fairfield. Our reported corporate adjusted EBITDA and FFO include operating results from all sold and acquired hotels during RLJ’s ownership period. As Leslie said, we are pleased to report solid third quarter operating results, which demonstrated the strength and resiliency of our high-quality urban portfolio. Our third quarter RevPAR growth of 2% was driven by a 1.4% increase in occupancy and a 0.6% increase in ADR. Third quarter occupancy was 75.1%, average daily rate was $193.39, and RevPAR was $145.23. As was noted, our business transient and midweek outperformed. Third quarter business transient RevPAR grew 8.7% above 2023, including ADR growth of 5% and occupancy growth of 3%.

RevPAR growth remained healthy in our urban markets such as Louisville at 12%, Chicago CBD at 15%, New Orleans at 21%, Los Angeles at 10%, San Diego at 11%, Miami at 20%, and Portland at 33%. Monthly RevPAR growth during the third quarter was 3.8% in July, 3.4% in August, and down 1.2% in September, which was constrained by the timing of Labor Day and the impact of hurricane activity. Monthly total revenue growth was 5.2% in July, 4.6% in August, and contracted 0.7% in September.

Looking ahead, our RevPAR growth rose during October, which is the most significant month of the quarter. Given the holiday and the weather-related headwinds, October RevPAR is forecasted to only increase approximately 1.5% above the prior year, predominantly driven by ADR growth. Turning to the current operating cost environment, as we expected, operating cost growth rates moderated meaningfully during the third quarter. On a per occupied room basis, total hotel operating cost growth was only 1.7%, moderating over 300 basis points from the second quarter, and underscoring the benefits of our portfolio construct and our initiatives to manage our operating cost growth. Drilling down further into the hotel operating expenses, as expected, recent outsized growth in fixed costs such as insurance and property with our fixed cost decreasing by 9.4% during the third quarter, which benefited from the expected moderation of fixed expense growth and the success of property tax appeals.

We expect fourth quarter fixed cost growth to benefit from the lapping of difficult comps during the first half of the year and the successful renewal of our property insurance program this month. During the third quarter, our portfolio achieved hotel EBITDA of $100.7 million, representing 2.6% growth above 2023, and hotel EBITDA margins of 29.2%. We were pleased with our operating margin performance, which was essentially flat to 2023 at only 11 basis points behind the third quarter of 2023.

Turning to the bottom line, our third quarter adjusted EBITDA was $91.9 million, and adjusted FFO per diluted share was $0.40. We continue actively managing our balance sheet to create additional flexibility and further lower our cost of capital. So far during 2024, we have addressed all of our 2024 and 2025 debt maturities. As previously announced, during the third quarter, we entered into a new $500 million term loan to refinance a 2025 maturing $400 million term loan and repay $100 million of the outstanding balance on our line of credit. The new $500 million term loan has an initial term of three years and includes two one-year extension options to 2029. The new term loan also retained the pre-COVID price from the $400 million term loan.

The execution of this financing is a testament to our strong lender relationships and favorable credit profile. We ended the third quarter with a well-positioned balance sheet with $500 million available under our corporate revolver, a current weighted average maturity of approximately 3.7 years, 87 of our 95 hotels unencumbered by debt, an attractive weighted average interest rate of 4.56%, and 74% of debt either fixed or hedged. As it relates to our liquidity, we ended the third quarter with approximately $885 million of liquidity and $2.2 billion of debt.

With respect to capital allocation, consistent with what we have demonstrated in the past, we intend to invest in projects to unlock the embedded value within our portfolio while also remaining committed to returning capital to shareholders through both share repurchases and dividends. During 2024, we have been active under our $50 million share repurchase program. Year to date, we successfully recycled 100% of non-core disposition proceeds towards the repurchase of approximately 2.2 million shares for $20.7 million at an average price of $9.28 per share. During the third quarter, we repurchased approximately 1.6 million shares for $14.7 million at an average price of $9.21 per share. Additionally, our board recently increased our quarterly dividend to $0.15 per share, which is well covered and supported by our free cash flow.

We will continue making prudent capital allocation decisions to position our portfolio to drive results during the entire lodging cycle while monitoring the financing markets to identify additional opportunities to improve the laddering of our maturities, reduce our weighted average cost of debt, and increase balance sheet flexibility.

Turning to our outlook, we are reaffirming our prior guidance, which anticipates the continuation of the current operating and economic environment. For 2024, we continue to expect comparable RevPAR growth to range between 1% and 2.5%, comparable hotel EBITDA between $382.5 million and $402.5 million, corporate adjusted EBITDA between $346.5 million and $366.5 million, and adjusted FFO per diluted share to be between $1.45 and $1.58, which incorporates shares repurchased to date but no additional repurchases. Our outlook assumes no additional acquisitions, dispositions, or refinancings. We still estimate 2024 RLJ capital expenditures will be in the range of $100 million to $220 million and now expect net interest expense will be in the range of $92 million to $94 million, which reflects a slight decrease in base rates on our variable rate debt compared to our assumptions last quarter. Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator?

Operator: Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Austin Wurschmidt: Great. And good afternoon, everyone. Leslie, you spoke about large corporate account demand improving. I was just hoping you could expand on that comment and maybe provide some additional detail around any specific industries or regions where you are really seeing the most improvement?

Leslie Hale: Yeah, Austin. Obviously, we are very pleased in terms of how BT continues to improve. And, you know, we have been looking at who is traveling, the frequency of travel, length of stay, and, you know, our GDS is clearly indicating that, you know, now national accounts continue to improve. When we look at the day a week, you know, Monday, Tuesday, Wednesday, you know, we are seeing strength along that because that has got the most opportunity for growth. And as I mentioned on the call, you know, our midweek revenues increased by 3.1%. Tom is going to give you some color on kind of what industries we are seeing.

Tom Bardenett: Sure. Good morning, Austin. The industries that we are seeing start to travel more on the national corporate side are the consultants, accountants. When you think about technology, we are starting to see more international travel coming from India and China in Silicon Valley. As an example, those are positive steps in areas that we really need that national corporate growth. And the good thing is, as Leslie mentioned, we are seeing not only demand but we are seeing average rate growth. And that is what is really left in the tank when you think about the national corporate accounts on that Monday, Tuesday, Wednesday where we are benefiting from that midweek demand.

Leslie Hale: Yeah. What Tom is referring to on the rate side, Austin, is that you have your national accounts coming back, which is your least price-sensitive and most attractive from a rate perspective. And that is helping us on the rate side. So the rate increase was better than expected in the third quarter for us. We were up 5%, and then third quarter, 4% in the second quarter.

Austin Wurschmidt: Yeah. That is actually my follow-up. I mean, you mentioned Monday, Tuesday, Wednesday, I believe, is the most upside opportunity for occupancy. I guess, how much movement do you need to see additional occupancy to kind of sustain or even improve the mid-single rate growth that you achieved this quarter?

Leslie Hale: Yeah. I mean, I do not know if I can sort of quantify that to say, because we are seeing it today. Right? So room nights looking at special corporate as a proxy room nights are at this past quarter about 95% of 2019 levels. Our revenues were up 9% this quarter, they were up 13% last quarter. So we are seeing it now, Austin. You know, at the 95. And so as it continues to improve and grind forward, for all the points that Tom talked about, you know, we are seeing it sustain. And, you know, again, it is not a step change. It is just a grind, a continuous grind forward, and we are very pleased with what we are seeing. We believe that that is going to carry into 2025, nothing that we are seeing that suggests that that will not happen there.

Austin Wurschmidt: That is great. Thanks for all the detail.

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

Michael Bellisario: Thanks. Good afternoon, everyone. Cathy, you might. It is just the first question for me. I just want to dig into expenses more. Maybe this is for Tom, but where is labor at in terms of the year-over-year growth rate? And then also just any updates on hiring and retention would be helpful. And then how all of that, just on the labor side, how did that impact the 3Q growth rate versus the higher expense growth rate that you guys experienced in the first half of the year?

Leslie Hale: Hey, Mike. Let me just sort of frame just in general. I think that when we look across all of our operating labor metrics, things are improving and normalizing. We see that it is better, it is easier to hire today, turnover is down. All of those things are benefiting and starting to normalize. So I just want to frame that before Tom hops in with some stats.

Sean Mahoney: Yeah. No. Good question, Michael. So I think for wages and benefits, what we are seeing is sort of that, you know, 4 to 5% year-over-year increase in wages and benefits. We have seen that be pretty stable, you know, over the last few quarters and get successively a little better each quarter. And we expect that to continue into the fourth quarter. I think when you look at the, you know, so that is wages and benefits in a vacuum. When you look across the other operating expenses, what we have seen, you know, as I mentioned in my prepared remarks, the fixed cost, which have been a headwind really in the first half of the year, have moderated significantly. We expect that to continue at an inflationary level. And so really, I think, you know, we have seen the headwinds that we have seen, you know, in the first half of the year as we expected have moderated, and we would expect them to continue to moderate and sort of be normal inflationary levels in 2025.

The last thing to add, Mike, I think you asked a question about the workforce. We are continuing to see momentum in regards to the reduction of contract labor, and we think because those wage increases, the tools and resources, the retention of the management company employees is a positive step in continuing to see each quarter that there is a reduction around that topic.

Michael Bellisario: Helpful. Thanks. And then the second question for me on conversions. You obviously have some ramping up, some disruption now from ongoing projects, and then you have a few more that I think you are going to start next year. When you roll that all up, what is the year-over-year lift that you guys expect this year and next year? And then how does that compare to the bridge that you have previously provided? I think that was earlier this year. That is all for me. Thank you.

Sean Mahoney: Yeah. Mike, we continue to be ahead of where we expected in our underwriting for the conversions. When you include all of the conversions inclusive of conversions under the knife even this year, etcetera, we have seen, you know, top-line growth around 10% and bottom-line growth year-over-year in that sort of 20 to 25%. So we are seeing the big lift even with, you know, some obviously headwinds in hotels that were actually under the knife. And so net-net, it has been a great lift for us and really validates, you know, the value that we create through these conversions.

Operator: Thank you. Our next question comes from the line of Jonathan Jenkins with Oppenheimer and Company. Please proceed with your question.

Jonathan Jenkins: Good afternoon. Thanks for taking my questions and congrats on the quarter. First one for me. You highlighted the urban strength. I am curious if you have seen kind of a shift in inflection higher in corporate then post-Labor Day, or is it more just a continuation of the steady improvement that you saw earlier in the year?

Leslie Hale: I would characterize it as a steady improvement. It is not a step change. I think the urban thesis is intact. Right? Urban continues to outperform the industry. It is benefiting from all segments. This quarter, the third quarter was really driven by BT and Group. And, you know, leisure remained stable. But in general, I would say that BT was a steady improvement, and Urban is benefiting from all of those demand segments.

Jonathan Jenkins: Okay. Very helpful. And then switching gears to the guidance. You know, with the third quarter exceeding expectations, and the fourth quarter or full-year guidance unchanged, maybe implies a softer fourth quarter relative to your prior expectations. Can you help us think about what is baked in there and how that has changed?

Leslie Hale: Yeah. I mean, I think in general, you have to look at our second half. When we look at our second half, it is generally intact. You are right. I think the third quarter was slightly stronger and the fourth quarter slightly softer. But even with the storms, as you mentioned, we are maintaining, you know, our guidance. And the way I would sort of think about it is that it is more segmentation-driven than it is, you know, markets or anything like that. As we mentioned in the third quarter, BT was stronger on the rate side. Leisure was stronger in the third quarter as well from a demand perspective, and we were pleased with the overall positive RevPAR in the third quarter. Positive rate in the third quarter. From a fourth-quarter perspective, October was obviously impacted by the storms.

And as we mentioned in our prepared remarks, you know, we think that there is more softness around the election in November. And so I think those are the big drivers of the incremental softness that we saw in November. But I sort of think about the cadence. Sean mentioned that October is coming in at about 1.5%. That is going to be the most significant contributing month of the quarter. We currently expect December to be in line with October. As we sort of think about the midpoint of our guidance, which we think is the most likely outcome, it assumes that BT maintains the current trends, that the group pace actualizes where it is at today, leisure demand remains stable, urban markets continue to outperform. As I mentioned before, November being the weakest month.

That is kind of what is built up around the midpoint of our guidance.

Jonathan Jenkins: Yeah. That is really great color there. And then last one for me if I could, you talk about the transaction pipeline, what it looked like in terms of volume and pricing out there and the bid-ask spread between buyers and sellers? Any compression there, you know, given the recent move in interest rates?

Leslie Hale: Yeah. Well, the overall setup for transactions has improved, acknowledging your point about lower interest rates, although we will see whether or not how much more they are able to come down. The debt markets are open, but still expensive. And so despite all of this, the transaction volume remains muted or constrained. You know, even with this environment, of a slightly better setup, transactions are still choppy. They are taking longer to get done. And so the transaction market is not fully functional right now is the way I would sort of describe it. While we expect that to improve in 2025, given the fact that hopefully rates continue to improve, we are behind the election’s behind us, rather. Supply remains muted and fundamentals remain stable. That should improve the environment. But right now, it remains constrained and choppy.

Jonathan Jenkins: Okay. Excellent. Very helpful, Leslie. Thank you for all the color. All for me.

Operator: Thank you. Our next question comes from the line of Dori Kesten with Wells Fargo. Please proceed with your question.

Dori Kesten: Thanks. Good morning. So just sorry. Good afternoon. So just tying into the last question, would you expect, as of right now, would you expect external growth prospects in 2025 to look pretty comparable to 2024?

Leslie Hale: Yeah. I mean, Dori, what I would say is that, you know, where we sit today, it is really early in, you know, our budget process. But the building blocks for us, you know, are urban continuing to outperform, BT continuing to improve, group strong pace, you know, actualizing. We have got markets like Denver, Tampa, San Francisco, Orlando that have strong citywides. We have a favorable footprint to special events like Super Bowl NOLA that I mentioned before, inauguration in DC. And the U.S. Open in Pittsburgh where we have a number of assets in each of those markets. We still expect leisure to demand and remain stable. And then, as was talked about before, we expect our conversions to continue to ramp. That is against the backdrop where you have low supply, consumers still favoring travel, and then being in a post-rate cut environment, and, you know, expenses moving in the right direction.

I mean, those are the general building blocks that I would say, but it is really early in our budget process.

Sean Mahoney: Yeah. And then, Dori, on capital allocation specifically for next year. Right? We have the balance sheet where, you know, we could do really any growth opportunities next year. Leslie, you know, mentioned the, you know, their organic growth opportunities in the portfolio. But our stock continues to remain attractively valued from a share repurchase. We have got the balance sheet, a bit of external growth, you know, if the markets improve, you know, we have the, you know, flexibility and the capacity to do that, you know, through the balance sheet as well. And so I think the setup is going to be really predicated on the fundamental setup as well as how the capital markets play out.

Operator: Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Chris Woronka: Hey. Good afternoon, everyone. Thanks for taking our questions. So on the renovations, the three, I guess, you started last year in 2023. I understand that you are about to start two more. Is there a way to think about whether it is a two to four year, what the lift you are going to get is very, you know, is there a year where that levels off and, I guess, the question follow-up to that is do you have more conversions beyond the next two because I think you have talked about pacing about two per year. And so does that imply that there are more to be identified in out years beyond 2025? Thanks.

Leslie Hale: Yeah. We have talked about the fact that we have a number of conversions that are remaining with, you know, somewhere between call it plus or minus ten assets. Not all of those will get done. But, you know, we are still on the cadence for per year. We have mentioned the fact that we have our next year, which is going to join the autograph collection. The following year, we have the Boston Wyndham, which we expect to deliver in 2026. And so the cadence for that goes out several years as it relates to our conversions.

Sean Mahoney: And then, Chris, with respect to sort of how we think about the ramp, I mean, generally speaking on the conversions, we underwrite a two to three-year ramp, you know, from the conversion sort of post-completion. I think what we found, and the reason we are tracking so far ahead is that because our thesis around these conversions, a lot of capturing rate that is already in the market, that we have been able to ramp on the shorter end of expectations. And so but net-net, it is a two to three-year is sort of what we generally underwrite, and we have been delivering on the shorter end of that range on the conversions today.

Chris Woronka: Okay. Appreciate that. Thanks, Sean. Then as a follow-up, you know, I know Marriott talked, I guess, earlier this week about some cost cuts they were targeting and that those would flow that some of those would flow through to franchisees. I guess from your perspective, are there things that you would like to see your operators or brand companies doing? Instead of it has been a tough couple of years with a lot of expense creep. So are, yeah, are there things that are realistically going to come to fruition that can help you next year and the year after, or do you think this is just kind of a very high-level thing that does not flow through maybe to all the franchisees?

Leslie Hale: Yeah. Chris, we do not have any color on, you know, what Marriott is framing or thinking behind that. But what I would say, anytime that they can lower costs for franchisees, it is always a plus. And so we welcome and look forward to the benefits of their actions. You know, I think that we are going to continue to collaborate, you know, with the brand. And they are trying to be thoughtful in this moment, and we are looking forward to receiving it.

Chris Woronka: Okay. Fair enough. Thanks, Leslie.

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

Gregory Miller: Thanks. Good afternoon, all. I have a couple of leisure-related questions for you. Starting in New York, I am curious about your current expectations for the Knickerbocker demand or packaging into New Year’s. How do bookings and overall spends compare to prior years, and I am asking in part if there is any read-through to changing leisure discretionary spend habits on either rooms or F&B. Thanks.

Leslie Hale: Yeah. I mean, Greg, what I would say is I have mentioned before that demand on the leisure side remains stable. And that when we sit here today, the New Year’s Nick is pacing fine. And we are very encouraged by the overall demand trends that we are seeing. The reality of it is the psychology around traveling remains. The consumer wants to travel; it is just being price-sensitive about it. And so they are looking more at discount channels. They are booking out a little bit further because they are shopping. But overall, we feel very good about, you know, leisure demand trends and what I would say is that our urban leisure rate remains very close to our peak levels. And so we have not seen, you know, meaningful drop-off from that, which would obviously benefit the Nick, you know, in that discussion, both from a demand and from a rate perspective. So we feel good about how it is pacing.

Gregory Miller: Okay. Great. And shifting down to Florida, I understand that there may be ad campaigns from some of the Florida markets to draw demand in post-hurricanes. And I am curious if you have any concerns about any leisure travel demand impact even months after the hurricanes as we start thinking about the holidays and then to 1Q next year.

Tom Bardenett: You know, we have a footprint on both the southwest side as well as the South Florida side, going down towards Key West. And you are right. There are some ads to really attract attention in regards to leisure. I think the great thing about our footprint is we have a variety of diversity down there in various locations. When you think about the West Coast, I think Tampa is getting the benefit, unfortunately, after the hurricane in regards to remnants of folks, you know, trying to get back into their houses and everything. We have a renovation underway right now prior to season down in Estero. We feel very good about, you know, the setup for next year in 2025, and then most importantly, in South Florida when one coast struggles a little bit, typically the other coast benefits.

And so what we find, Greg, is the leisure demand shifts a little bit because people still want to chase the sun and want to get to the beaches, and that is a common approach in regards to what is happening. And many of those hotels down in South Florida have finished their renovations, so we are getting the benefit of that as well because the product is in great shape.

Gregory Miller: Okay. Thanks, Tom. Appreciate it.

Operator: Thank you. Ladies and gentlemen, our final question comes from the line of Floris van Dijkum with Compass Point. Please proceed with your question.

Floris van Dijkum: Hey. Thanks for taking my question. More on the capital allocation front. You still have a lot of cash on the balance sheet. You do have some renovations. But maybe you sold a couple of assets. Are you, you know, how many more potential assets do you think you could sell in your portfolio over the next twelve months? And is that dependent on where the financing market is if that really loosens up? And also, much more, you know, do you see interesting opportunities to acquire assets out there? And what kind of bid-ask spread is there today relative to about, you know, six to twelve months ago?

Leslie Hale: Hey, Floris. A lot there in that question. Let me see if I can hit it. Look, I think, you know, at the end of the day, you know, we have to be active portfolio managers. We have 95 assets. And so as the transaction market improves, we will continue to be opportunistic when it makes sense, you know, to sell assets based on our view of where markets are headed and how they are performing, etcetera, you know, on that front. I would generally say that the bid-ask spread remains wide today in the face of interest rates coming down as a seller. There is no need to come down in your view of value when you expect rates to come down. And so that remains wide, and that goes back to my point about the transaction market continuing to be constrained.

You know, over, you know, in the near term, you know, we do expect the transaction market to improve in 2025. It is probably the back half of 2025, you know, as we get past the election, as we see where interest rates sort of settle out. But that is all, you know, TBD, you know, in general. But you should expect us to continue to be, you know, active portfolio managers who are being opportunistic based on how we assess and monitor the market. Thank you.

Operator: Ladies and gentlemen, that concludes our question and answer session. I will turn the floor back to Ms. Hale for any final comments.

Leslie Hale: Thank you all for joining us today. We look forward to seeing many of you all at NAREIT. And thank you again for joining us.

Operator: Thank you. This concludes today’s conference call. You may disconnect your line at this time. Thank you for your participation.