Greetings, and welcome to the RLJ Lodging Trust First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the conference over to your host Hilda Delgado, Vice President of Finance. Thank you. You may begin.

Thank you, operator. Welcome to RLJ’s first quarter earnings call. On today’s call, Tom Baltimore, the company’s President and Chief Executive Officer, will discuss key operational highlights for the quarter. Leslie Hale, Treasurer and Chief Financial Officer, will discuss the company’s financial results. Forward-looking statements made on this call are subject to numerous risks and uncertainties that can 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-K and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release from last night. I will now turn the call over to Tom.

Thank you, Hilda. Good morning, everyone, and welcome to our 2014 first quarter earnings call. I'm very pleased to report that we continue to generate strong operating performance. Through a focused and thoughtful approach, we continue to execute on our 3 guiding principles, which are operational excellence, smart capital allocation and prudent balance sheet management. Our consistent strong results are further validation of our strategy. This quarter our RevPAR grew 6%, and EBITDA margins were 31.8%. Adjusting for disruption at 2 of our hotels this quarter, our RevPAR would have increased by an additional 90 basis points to 6.9%. We are very pleased with this quarter's strong performance given that last year during the same time our portfolio generated an impressive 10.6% RevPAR growth and margin expansion of 150 basis points. Our ability continue to generate such strong growth this quarter is a testament to the quality of our portfolio. I am excited about the platform that we have built to-date and our future outlook. We are building RLJ into a leader in the lodging industry. Not only were we able to generate another quarter of strong growth but this quarter we also successfully completed several significant transactions. We acquired a high quality portfolio of 10 hotels from Hyatt for $313 million and we also disposed of 13 non-strategic assets for $115 million. The combination of the Hyatt portfolio acquisition and the sales of non-strategic assets were immediately accretive. Through these transactions we enhanced our overall RevPAR and broadened our geographic footprint in high growth markets. We are encouraged by the level of interest in our marketed assets as well as the quality of assets in our acquisition pipeline. With a well-capitalized balance sheet and a strong pipeline, we have started yet another year with strong momentum. We are also…

Thanks, Tom. We are very pleased that our disciplined investment strategy and operational excellence continues to drive solid growth for our portfolio. This quarter our strong performance generated increase of $3 million in hotel EBITDA, representing a 4% increase over the prior year. And our EBITDA margin of 31.8% was once again was a highest in the sector. While our margin performance was strong this quarter, it was hampered by the increase in property taxes that we are experiencing across our portfolio. Nationally, property tax collections are exceeding 2009 peak level as property valuations continues to improve. We are aggressively working to appeal increased assessment where possible. Our margins were also impacted by escalating health and welfare expenses and by energy expenses. This quarter, we saw over an 11% increase in energy as a result of extreme weather conditions. Our Chicago hotels in particular experienced a great impact with energy increasing more than 30%. With regards to our corporate results, our adjusted EBITDA increased $6.1 million to $67.4 million, resulting in a 9.9% increase over the same period last year. Adjusted FFO increased $9.5 million to $53.5 million, representing a 21.5% increase. For the quarter, adjusted FFO equates to $0.43 on a per share basis. Adjusted FFO for the quarter increased as a result of strong operating performance and benefited from interest expense savings captured from a proactive balance sheet management. We continue to maintain a strong balance sheet that provides flexibility and a solid foundation for future growth. During the quarter, our capital markets activity was largely focused on a capitalization of the Hyatt transaction. We financed the Hyatt portfolio with $175 million of term loan debt. To accomplish this financing, we exercised the accordion feature on our 2012 and 2013 term loan. At the same time, we leveraged…

[Operator Instructions] Our first question is coming from the line of Bill Crow with Raymond James.

I wanted to use my minute or 2 to ask you a philosophical or strategic question here. As you look out into the cycle where we are, where the supply is coming, I understand it’s not very much right now, but it’s building a little bit. How do you see the divergence or convergence of select service performance, hotel performance versus, say, the broader industry or perhaps upper upscale hotels? And I say that that because it’s a little unique to the cycle, we've got more urban select serves, so that's different and maybe supplies coming a little bit differently this time. But how do you see the next 2, 3, 4 years playing out?

I would answer a couple of ways, Bill, and first keep in mind I think we are still relatively early in the cycle. We would say fourth or fifth inning of a 9-inning game, if you want to use that analogy, and I think you can make a case that this cycle goes into extra innings particularly given how the recovery has been somewhat modest. Select service hotels, again, have been our backbone. We are as passionate about our strategy today as we have ever been, and I'm sort of reminded kind of what happened in 2009. When I look at our own portfolio and we were down 19% of revenues available plus or minus like many of our peers but we were only down about 29% of net operating income. So the phrase I would like to use is that it's an all-weather strategy. So in good times we expect to be a full participant and again we think the fundamentals of the business are very encouraging. We think the economy is going to strengthen in the back half of this year and where we expect that to continue for the next few years. So we expect to continue to outperform and when things slow down and they will slow down, we have all been in this business in the various cycles. We expect we will not going to fall as far. And I think also the diversity of our portfolio, and I think this quarter is a great example of that. If you look last year, we were up 10.6% in the first quarter against the industry I think it was up about 6.4% and then to come back in first quarter this year despite renovations it is still post a 6% number I think, again, it really speaks to the diversity of our portfolio and the quality of our brands, and the fact that it were so well distributed across the country, I think, really helps us.

I appreciate that. That's helpful. One last question for me. Do you think the shift in the Easter Passover holidays into the second quarter helped or hurt your results in each of the first and second quarters?

Yes, it clearly helped us in the first quarter and if you look it kind of I think we were up about 4.2% and in January we were up about 5.6%, I believe, in February in RevPAR and we were up about 7.6% in March. So we clearly got a bump up. We performed above 4% in April, slightly above our plan. So I would say that the impact was -- the Easter and Passover shift was probably 200 basis points plus or minus. But again, we are very bullish on second quarter and third quarter and the balance of the year. We think, again, the economy is going to strengthen.

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

Looking at the management fee expense line item, that looks like it was jumping quite a bit. Is this driven by the base fees or the incentive fees?

It's really incentive fees more than anything else, Wes. And part of it, I’m going to let Leslie jump in here if I don't answer it correctly, we made an adjustment, incentive fees, we typically had booked those at the end of the year and we are now doing that on a quarterly basis. And so I think the impact in the first quarter was about 34 basis points. So I think that skewed the operating result and gave people the impression that we look sort of disappointed and underperformed in the category when in fact that really isn't the case.

That's right. I think just to add to that, Wes, when you looked at if it's a measure to be on a quarterly basis, it’s -- some of that will be given back. And so, at the end of the year, we expect that 34 basis points to really sort of drop down 3 basis points impact.

And you will also know, Wes, that we maintained our guidance on margins and we also start with a much higher base than most of our peers. We are very confident and again our guidance and, as you know, we increased the guidance. So we are still very bullish on the sector and where we are in 2014.

Okay. And then on the -- the other hotels outperformed the overall portfolio by about 3%. Will this outperformance persist throughout the year you think, the other non-top sys [ph] market hotels?

I'm not sure it will persist in the same level. Keep in mind Houston obviously we had 4 of our 9 hotels in Houston are under renovation. Two of those were The Humble office building property that we bought last year that were up, I believe The Courtyard was up 16%, the Residence Inn was up 14%. They obviously were down here in first quarter. We stripped those assets out, our 4 renovated properties and we were up north of 13%. So we definitely see that there is a broadening and we believe that is because of the economy is strengthening. Look at how well we performed in Indianapolis, as we said, up 27%; South Florida, we were up north of 13% in part because of the weather and people wanted to escape but Denver was on fire, Austin continues to be strong. Our conversions, our 5 conversions, our most recent conversions, again, disbursed throughout the country were up 16%. So again, one theme that we would leave listeners with the diversification of our portfolio is a huge advantage relative to many of our peers, most of whom may be isolated in 3, 4, 5 markets or 6 markets, we think makes a lot more strength to have a broader distribution particularly given our asset class.

Okay. One quick development question. Are banks more willing to lend for construction loans when you get first-look service project [ph] when you move outside the top 5 markets? Any increase in that activity that you are seeing?

I would say that clearly there is a fair amount of capital out there. I still think that sponsorship matters, brand matters, and we are seeing an uptick [ph] in supply but again significantly below the long-term average, and we think that remains for at least in the next 3 to 4 years.

Our next question comes from the line of Jeff Donnelly with Wells Fargo.

Actually let me start with you, Leslie. As it pertains to the $27 million increase in the pro forma EBITDA guidance, are you able to separate it out? I apologize if you said it in the remarks I got on a little late, separated out between the incremental EBITDA from the contribution from the acquisitions, asset sales and the improved view for your existing assets?

Jeff, just to clarify, are you asking about the split on the EBITDA or on pickup on the RevPAR?

The EBITDA. I think it was a $27 million increase in the prior guidance.

Jeff, I would say probably 80% to 90% of that is the Hyatt transaction consistent with what we said when we bought it. We expected an 8.5 cap in first year. We have seen increased performance based on the rest of the portfolio but largely coming on the Hyatt transaction. Keep in mind, the onboarding of Hyatt and also keep in mind that we also sold some additional assets. So the updated guided to reflect also those dispositions.

Okay. And for you, Tom, I guess I'm curious how you are thinking about the supply picture in New York City and its impact on your hotels this year. Do you think you need to be more or less exposed than the market experienced and do you think that supply overhang that people are talking about could persist beyond 2014 or, Tom, maybe you think that the discussion is overblown and is market really that bad?

I would answer a couple of ways, Jeff. I think first we have a wonderful portfolio of assets in Manhattan. We have got 4 assets that have been renovated, that are well located. We think we have got the premier operator Highgate that submarket. I mean, keep in mind we had very tough comps first quarter, we were up 43% last year. We also outperformed as it related to Sandy business. I think we had about $1.2 million business but 450 basis points in incremental RevPAR last year. So we had a huge advantage there. And if you look at first quarter, we also renovated our Courtyard Upper East Side. So that skewed the results as well. I would remind listeners too, I don't think we had this in the materials but I will share this. Our Doubletree Met, first quarter, had 96% occupancy, Hilton Fashion District was almost 99%. Our Hilton Garden Inn Herald Square was 99.7% occupancy. So the supply in New York is an issue; certainly don't want to deny that. Clearly, when you add about 5.6% in first quarter, I think we all believe it's going to be about 7% for the year, it's going to have an impact. And I think where it's having an impact is twofold. You are having fewer compression days and that is important in New York as that allows you to really push rate. And the second, I think is more psychological, and that is that I think operators are losing some courage to push rates in a face of that new competition. So long-term, we are bullish on New York. I would say that it's probably not a high priority for us to add assets today until some of the supply gets absorbed, but long-term, we are bullish. And when you look at the tailwind coming on international and I think if you look the next 4 years nationally into the gateway markets, the top 4 or 5, I think the forecast is to increase that from $70 million over $80 million of a CAGR of almost 4%. We think a disproportionate amount of that is going to go into New York. So long-term, we are bullish. I do think it underperforms, particularly on the West Coast but we are thrilled with the assets that we own today. And we continue to look but we are not likely to strike and to acquire something in New York unless it's priced accordingly.

And let me -- just one last question is, there has been some discussions out of Hilton that they might ultimately explore fairly substantial I guess I'll say conversions of some portion of the Waldorf, maybe to residential. I know you are close to Hilton and perhaps the next closest Hilton products to that property. Have they given you any update on the possibility that the Met could see some overflow demand to the Waldorf in order to reposition some of its rooms and down the road or is that just not on drawing board yet?

It would be inappropriate for me to respond. The honest answer is I have no knowledge other than what I've heard anecdotally like you and many others. And knowing Chris Nassetta and his very talented team there, they'll evaluate and will do what is in the best interest for shareholders. We love our -- we love being, obviously, a strong and certainly well represented Hilton franchisee, as well as we are with Marriott and our friends also at Hyatt. So we will stand down and watch that. We do know that the Doubletree Met is bull’s-eye real estate. We are thrilled. We think long-term it's a great asset and there is a considerable upside there.

Our next question comes from line of Jordan Sadler with KeyBanc.

It's Austin Wurschmidt here with Jordan. Just wanted to know if you could bridge the gap between your comments about the expectations that the economic conditions would accelerate through the year. And considering you guys did 6% RevPAR growth in 1Q versus in the midpoint of your guidance to 5.5%, could you just kind of bridge the gap between the disparity there?

Yes. I would say a couple things, Austin. I think you know that we pride ourselves on being conservative. Clearly, the first quarter was impacted by weather. I think GDP was certainly flat to slightly negative. I think we, like many of our peers, are cautiously optimistic. We do as we look out and see transient booking for the next 90 days, it's encouraging. We think mid- to high-singe-digits. And we see group. While we don't have a lot of group, we also see group is beginning to firm and strength. So we are cautiously optimistic. There are variables in the macro and geopolitical that, I think, concern us all. Housing was improving but certainly stalled a little bit. I think we hope that that begins to reaccelerate. Clearly, what's happening in Europe and other parts of the world are alarming. But we think the fundamentals of the business are still strong. We have been an outperformer. We were up, 3 years ago, 7.7% and 7.4% in RevPAR and 7.2% last year. We see that is just stepping down slightly. And we are very comfortable with the guidance that we've given. We expect it to be pretty consistent for the next 2 quarters, fourth quarter because we will have a fair number of our renovations during that period of time. And also, we had a huge fourth quarter in Denver. And so, we got tough comps coming out of Denver in the fourth quarter. But we are pretty conservative by nature and will continue to increase guidance as appropriate. Yes, I think you saw this quarter we are raising guidance in part because Hyatt but not only because of Hyatt, we also see strengthening in our own portfolio.

Tom, just on the weather impact, any guess in terms of what that impact might have been on RevPAR?

Yes. I would -- I'll isolate Chicago because I think -- I think Chicago is interesting. We were up 2.9%. I think the market was up 1% plus or minus. We benefited; we got hurt. Obviously, our Courtyard Mag Mile downtown was down probably 25% in RevPAR but our Midway complex, as Leslie said in her prepared remarks, was up 23%. The incremental business that we got, this is Midway alone, was about $870,000, about 500 basis of sort of RevPAR boost in that market. So no doubt that it -- we were hurt in CBD and helped, obviously, having, again, a diversified portfolio. And I would think again in -- think about South Florida. We obviously were hurt in the Northeast and in the Midwest like many of our peers. But again, South Florida picked up about 13%. I got to believe anecdotally that a good portion of that were men and women looking to escape the atrocious weather in the Northeast and Midwest to warmer weather down South.

Makes sense. And then, just one other question on the investment side. You mentioned that dispositions are picking up and that you are marketing additional hotels. Is this to relative a demand that you are seeing in the market or more reflective of the fact that acquisition pipeline is picking up and you are looking to recycle capital?

As we said before, Jordan (sic) [Austin] , it's a high priority for us to continue to improve the quality of the portfolio. I'm pleased to report since we have been in a public company we've moved RevPAR in absolute basis north of 30%. We've improved the EBITDA by about 48% to 50%. I think what you saw on the latest transaction is part of the long-term strategy. And we want to accelerate to continue to recycle capital out of slower growth markets and to lighten our exposure in other markets and continue to recycle those proceeds into higher growth markets like we did in Hyatt transaction, of course, where 7 of those assets are located in California. So you will see more of that. We are going to continue to market single assets, small portfolios, continue to improve the portfolio and we have got an active deal pipeline. We are cautiously optimistic that hopefully some of the deals that we are chasing will come to fruition and that we will roll it out those at the appropriate time. But we are active in the marketplace. We've had a history under Ross Bierkan and our great deal team of finding deals off market and buy limited bid. And we will continue to work hard to identify assets that are complying with our investment thesis.

[Operator Instructions] Our next question comes from line of Anthony Powell with Barclays.

Austin has been a great market past 2 years but there are some supply coming down the line in that market. What's your outlook for the supply group there in the couple of years and how would you expect to combat that?

Anthony, I would say that Austin's demise has been greatly exaggerated over the last few years and I was reminded in the fourth quarter of '12, it was Formula 1, I think we were up 30% for the quarter and an incremental $2 million and everyone thought that was the end of the run and then we were up 11% in 2013; we were up again of course 8.6% here in the first quarter. Austin it's just a dynamic city that continues to grow, one, as state capital, a university town, a tech hub of both the leisure as well as the number of one-time events that occur we expect that to continue. Clearly, double digit increase in supply and probably beginning '16, '17 clearly will impact the market. We, like others, will continue to monitory that. We are well represented in white lodging and our management team there has done a great job and the market continues to exceed expectation. So we clearly believe that in '13 and '14 and '15 and it will continue to be a strong market. The other example that I would give is on the group side. There's a gaming conference that I think had 500 attendees in 2011. This year in 2014 we are expecting 30,000 attendees. It's just had this sort of parabolic growth and you have got a lot of momentum of pro-business state, a lot of job growth and look at all those sectors and what's happening on the residential side there too. So clearly supply is going to have an impact, don't want to deny that but long-term we think it's going to end up being a very special and unique city and market.

And for a follow up. The comments on the energy costs are pretty interesting. A lot of your peers have talked about their energy efficiency initiatives recently. Are you looking at any portfolio-wise ways to reduce energy cost?

It is a high priority for us like many of our peers and we have got a number of initiatives underway and Carl Mayfield and his team on the design and construction side are working tirelessly to find ways to reduce our energy cost. Obviously, it’s a bit skewed in first quarter. As Leslie said, we were up in the north with 11% and obviously the highest in Chicago. Quite a lot of that's driven by just we had a brutal winter as we all know. So that clearly had a significant impact on it.

Our next question comes from the line of Ryan Meliker with MLV.

Just a couple of things. First of all and I apologize if I missed this. Obviously, renovation has had an impact on the first quarter. You talked a little about renovations in 4Q having an impact, I know you said that there would be some work going on in the Hyatt portfolio. Any material renovation disruption in 2Q and 3Q, and any idea what you think you'll see in 4Q?

Yes, Ryan, I think as Leslie said, we expect sort of 40 basis points to 50 basis points on an annualized basis. We have a lot of experience; if you look back 2 years ago, 3 years ago, we renovated, I believe, 48 hotels and followed that up the next year with 45 hotels. Howard Isaacson and his team on the asset management side work closely with our design and construction team which are separate teams to really minimize the impact. We find that the 2 best windows to renovate in our portfolio our first quarter and fourth quarter. We plan with great detail. You are still going to get some disruption. You're going to have issues sometimes with labor, materials, but it's a core competency. We think 26 hotels this year is not terribly difficult and we'll work hard to minimize that. We think 40 basis points to 50 basis points on an annualized basis is reasonable and we are comfortable with that at this time. Also keep in mind that really the lion's share out of those proceeds, about 35% to 40%, are really tied up in our 3 big conversions of the apartment building in CBD at Houston, obviously Atlanta and bringing that property back online, again all 3 of these are closed, and then of course the Vantaggio Suites in San Francisco, 3 blocks from Union Square which we think is just going to be a fabulous project that all 3 of those should convert late '14 early '15. So we are pretty excited about all of 3 of those and they account for above $42 million to $45 million of that $120 million. So we are confident that we can handle the renovations and minimize the disruption.

And then from a seasonality standpoint, just based on the comments you said, it sounds like you probably won't do much and want as much disruption in 2Q and 3Q and then maybe 4Q on the blink [ph] comparable to 1Q to get to that 40 to 50 bps level for the year?

I think that’s reasonable. Clearly, in those we'll have some renovations. Again, it's asset by asset trying to find the right windows to renovate, but most of the renovations for us typically occurred in first quarter and fourth quarter.

That's great. And then another question I was hoping you guys to answer was obviously there is a lot of large select service portfolios in the market today. What's your appetite to take down one of these large portfolios? Obviously, these private equity chasing these deals is going to be more widely marketed and part of the off market deals that you go after. Any likelihood that we might see you guys buying one of these several hundred million or billion-dollar portfolios?

I would answer this way, Ryan. I have no secret. I think the industry should consolidate and public-to-public and public-to-private, if that's necessary. And we certainly want to be part of that discussion either as a buyer or as a seller. As it relates to some of the large portfolios, we're familiar with them. We've looked at some of those portfolios from time to time. My guess is that they are better suited for private equity players because I think they are driven by the cash on cash and their ability to really lever them up into the said 80% range. We really are at a disadvantage at that kind of leverage point. Our desire is to continue to delever and to get to investment grade as we said before. I do think it's going to be interesting, the fact that some of the pricing that we are hearing, we think that price discovery only strengthens our own portfolio because many of these portfolios are vastly inferior to our portfolio. And at some of the price points I think they are going to go, should only continue to boost our underlying value. And again, I think illustrate how undervalued we are.

Our next question comes from line of Lukas Hartwich with Green Street Advisors.

Just dollar-wise, I am curious how big the disposition for the year, dollar size that's going to be?

Great question, Lukas. I know what we would like it to be. As you know, these dispositions take time. Clearly, we have already got on the books of $115 million, as Leslie said, actually a little more than that when you include the 14th asset. And I think we would like to be in that range either by the latter part of this year, additionally latter part of this year, early next year. Some of these assets will be single assets, some will be small portfolios. It's sort of hard to predict. But we would hope to -- we would like to be in a $100 million range additionally above the $115 million that we have already disposed it so far this year.

Great. And then, just one other kind of nitpicky question. I noticed the JV partner interest in the Doubletree Met declined to 2% from 5%. I am just curious what is going on there?

It had to do with the repayment of the financing associated with that and what our partner's contribution was related to that.

Okay. So going forward, you guys own basically 98% of that asset now?

That is correct.

We have no further question in queue at this time. I'd like to turn the floor back over to management for any closing comments.

Thank you. We appreciate everybody listening to our call today. And we look forward to seeing many of you at NAREIT here in next several weeks. We'll talk soon.

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