Greetings and welcome to the RLJ Lodging Trust first quarter earnings conference call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. 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 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-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 2015 first quarter earnings call. We are very pleased to report another quarter of solid operating performance. Through a highly disciplined investment strategy, we have built a geographically diverse platform with no one market expected to contribute more than 10% of our hotel EBITDA this year. With a broadening recovery, we have positioned portfolio for strong growth by increasing our exposure in a number of dynamic markets such as South Florida, Northern California and Southern California. The benefits of owning a geographically diverse portfolio is clearly evident through the continuous RevPAR growth that we have we generated over the last four years. Our portfolio's RevPAR growth of 5.3% this quarter was primarily led by several of our markets located on the West Coast, in the Southeast and South Florida. In total, 10 of markets generated double-digit RevPAR growth. Some of our top markets that outperformed this quarter were San Antonio, Portland, Charleston, Atlanta and Dallas, which generated impressive growth of 23.6%, 20.2%, 16.5%, 12.8% and 11.4% respectively. New York, as expected, continues to be the softest market in our portfolio with RevPAR declining 6.6%. Our portfolio RevPAR growth this quarter, excluding New York, was 7%. As we move through the year, we are confident that our diversified portfolio is well positioned for strong performance and is very well-equipped to manage potential volatility from markets such as New York and Houston. In the U.S., economic expansion is gaining traction. The economy appears to be reaccelerating after a soft patch in the first quarter, which stemmed in part from a harsh winter. Unemployment in the U.S. is holding steady and retail and housing sales are gaining momentum. We expect that low oil prices will remain in place throughout the year, increasing disposable…

Thanks, Tom. Our results this quarter demonstrate the benefits of having a well diversified portfolio as well as a proven investment strategy. This quarter, our pro forma consolidated hotel EBITDA increased $8.2 million to $85 million. And we were very pleased with our ability to increase our EBITDA by 10.7% over the prior year in light of margin pressures. For the quarter, our pro forma hotel EBITDA margin increased to 32.6%. We were able to successfully increase our margins by 36 basis points year-over-year despite a double digit increase in our property taxes. Additionally, New York also had a significant impact on our margins. Excluding New York, our margins would have expanded by an additional 53 basis points for a total increase of 89 basis points. Our ability to successfully acquire quality assets in high-growth markets and aggressively manage our portfolio is translating into strong corporate results. Our adjusted EBITDA this quarter increased $13.7 million to $81.1 million, which is a 20% increase over the same period last year despite the fact that we have sold 38 assets since February 2014. For adjusted FFO, this growth translated to a 25.7% increase to $67.3 million or $0.51 on a per share basis. Now relative to our balance sheet. This year, we had approximately $155 million of debt maturities to address. Of that, we have paid off approximately $130 million and unencumbered 13 hotels during the quarter. Once our remaining maturities are paid off this year, we will have a total of 113 unencumbered assets and more than 80% of our hotel EBITDA will be unencumbered. The term loan that we executed in December 2014 was originally earmarked to address our 2015 debt maturities. However, we realize cash on our balance sheet in lieu of our term loan to retire maturities this…

[Operator Instructions]. Our first question comes from the line of Anthony Powell with Barclays. Please proceed with your question.

Hi. Good morning, everybody.

Good morning, Anthony.

Good morning, Tom. Your comments on New York were interesting. There has been a bit of debate amongst the CEOs about the New York through the back half of the year. Are you able to believe that New York will remain in this decline? Means you think it will decline or will it get better and accelerate on a marked light basis over the remainder of the year?

Anthony, it's a good question. I think the honest answer is, I am not sure anybody really has a crystal ball, but no, I certainly think it's going to be better than obviously the first quarter or certainly the trends here in the second quarter. I would say probably flat for the year probably makes the most sense where we sit today. Some may disagree with that. But I am cautiously optimistic and certainly hopeful that the international travel will be better than I think some believe today. And as you step back and look at New York, obviously you got increased supply, but as we study the market, it's really the fact that you got these fewer compression days. If you look back to say 2011, 2012, we were looking at 130 to 140 days a year well north of 95% occupancy and these days where you could push rate. Those days have strong pretty significantly down to, I believe, 87 was our calculation in late 2014. So you are down probably down 38% of that, plus or minus. We still believe long-term New York is one of the great cities of the world. Values are still holding up if not increasing. So we certainly believe in the market long-term. Please keep in mind, it only represents about 10% of our EBITDA on an annualized basis. So again as part of a well diversified portfolio, we think we are well-positioned in the short run and in the long run.

Great. I guess on that topic, on asset sales, you made a progress on your non-core asset sales. Would you consider selling a more core asset in this phase of the cycle?

The answer is yes. As I have said, we are all about creating shareholder value and I think we demonstrated. And if someone made a compelling offer for an individual asset or more or components, we certainly would entertainment it. We don't think there is any reason to panic in New York. And again, just given all of the rising land prices and rising construction costs and given the long-term growth and potential there, we think having a portion of our portfolio in New York makes sense. A little painful right now in certainly the first quarter, but the reality is that long-term New York is a great market.

All right. Thank you.

Our next question comes from the line of Wes Golladay with RBC. Please proceed withy our question.

Good morning, everyone.

Good morning, Wes. How are you?

Doing well. Thanks, Tom. Sticking with New York. I think you mentioned in the last call, you were looking to implement cost controls at some of the hotels. Have you made any progress on that front?

We have made some progress, Wes, but that's an ongoing process as you work with our operators and the unions that are in place. And that will continue and evolve through the year, but rest assured that is a commitment and a strategy and a focus of our asset management team.

Okay. Thanks, Tom. And then looking at the buyback, how do you plan to implement this? Would it be if the stock drops meaningfully, you would be more aggressive? [indiscernible] How should we look at this?

It will certainly be done opportunistic, Wes. And I know someone commented about whether or not we did implement one in 2011 and obviously we didn't really use the tool at the time. I think this is a very different environment. Again, return of capital has been a cornerstone of our performance. If you look again, as I said in the prepared remarks, we paid out dividends $3.31, over $400 million. We believe buybacks are also an important tool to have in your toolkit. As we look today, our shares are significantly undervalued. We would argue, just comparing to consensus NAV, we are down 15%, plus or minus. And that's not even including our own internal analysis. So you can expect that it will be opportunistic and clearly at where it's trading today and the recent levels, we are a buyer of our stock, we are not a seller of our stock. So you will see us as the windows are open, we will look and manage and clearly at today's level and today's pricing where we are, you would expect us to be a buyer of our stock.

Okay. And then on the financing front, you mentioned forward swaps were locked in for the term loan. When were that locked in?

The forward swaps, Wes, no, it wouldn't start until the beginning of the third quarter.

Okay. When do you lock in? Was it before the big rise in interest rates? How should we look at that?

Big rise in interest rates. Wes, they were locking in before the big rise in interest rates.

Okay. Thanks a lot, everyone.

Our next question comes from the line of Ian Wiseman of Credit Suisse. Please proceed with your question.

How are you? It's Ian Wiseman. How are you doing?

Ian, how are you?

Okay. Excuse the voice here. A quick question on just breaking out the RevPAR performance across your portfolio. It looks like you are getting obviously most of your growth is coming on rate side. I think we have all been surprised at how much occupancy has played a part in this deep in the recovery and most markets are way beyond peak occupancy. Should we make the assumption that your core markets have hit their frictional, I will call it, vacancy rate n and from this point forward all of it's going on the rate side?

I wouldn't say that, Ian. Keep in mind, just given the nature of our portfolio, most of our renovations get done in fourth quarter and in first quarter. So it's sort of a high wire act by the very talented design and construction team that we have. So when you look at the number of renovations, the spillover of those that were, say, started in fourth quarter of last year versus those in first quarter, you clearly have a good portion of that slight occupancies decline really related to those renovations. We also, had in certain situations, a number of tough comps. Take Midway as an example. We had significant one-time business there first quarter of last year. So that certainly impacted. You had the floods in Denver, again significant business there that certainly affected part of the occupancy decline. So I would not read at all that we getting to a natural peak here. We still expect that you are going to continue to see occupancy growth and more importantly you are going to see rate growth. I know you and I have had this discussion many times. I think as you start to see unemployment get to low fives here and hopefully we can begin to start to see ADR growth consistently over 5%. So we re cautiously optimistic. If anything, you have seen really a broadening in our portfolio and I think as I noted in the prepared remarks, having 10 markets up double-digit RevPAR and the great distribution that we have in the country, I think, has really benefited our portfolio.

Thank you. Maybe if you could just give a little bit more color on Austin, since it's one of your largest markets. We saw some weakness there on the occupancy side, but significant rate uplift. What is your long-term view of that market?

It's a great question, Ian. We love Austin long-term and we think that's great storyline, a state capital, a University town, tech hub. If you look historically, I think we are up 11% in 2013 and then 9.4% in 2014. Clearly, there is gong to be new supply. The JW Marriott just opened a 1,000 room property, there is the Western, I think, that's going to be opening shortly and perhaps a few other projects. And the JW like we have seen in Indianapolis and in other markets, it will only improve, I think, the destination as a convention hub in the future. So we are strong believers. First quarter was a little soft, certainly vis-à-vis what we have seen in prior years, but again, SXSW was down about $434,000 of business, about 205 basis points and we also had a few renovations there. So the displacement there accounted for about $475,000 of business and about 223 basis points. So if you add those two back, I think you are back to sort of a more normalized run rate. I don't expect that it's going to be high single digits in the short run, but I certainly think it's low to mid single-digits here as kind of a run rate. But love the market long-term. Please keep in mind, as you know coming from this recovery, really 40% of the jobs really were anchored in Texas, largely coming in Austin and Houston. Obviously, Houston has had a recent pullback given the decline in oil prices. But we are a strong believer in Austin long-term.

Okay. And finally just last question. Last quarter you said that you thought that RLJ would be a net acquirer this year. You were obviously very successful on the dispositions. You talked about $150 million of acquisitions in the pipeline today. How much has your thought, given what the stock has done, about being a net acquirer changed?

It's a great question, Ian. I would say that we are still a net buyer. As we said in the prepared remarks, we have got $150 million under contract or letter of intent at this point. We really work hard to find deals, limited bid, off market, try to avoid the auctions. No doubt, there is a lot of capital. Clearly, as you are chasing assets on the West Coast, it's very, very competitive. So certainly more competition. We are not going to sacrifice our discipline and the focus that we have had on the track record. So you will still see us active in the market. We will be thoughtful about it. We are not going to reach it doesn't make economic sense. We will seek to balance that with buybacks and I don't think they are mutually exclusive. We will continue to watch the stock. And again, as I said, if it's trading at its current level where we it's grossly and significantly undervalued, we will be a buyer of it. But we will still look for deals that are accretive and make sense. Also keep in mind that given our balance sheet and the amount of free cash flow that we are generating and I think I know some the listeners have heard me talk more and more about this, I don't think we get the credit. If you look over the last four years, we have averaged about 22% of AFFO, pretty significant dollars. The last two years about $73 million and the year before that, I think, the $62 million, $63 million. So that's free cash flow that's fully loaded that's after dividends out of pocket CapEx, FF&E contribution, et cetera. So we have lots of tools in the toolkit. We have got a great balance sheet. We have tons of liquidity and we are laser focused on creating shareholder value and we will look to maximize and find that right balance between acquisitions as well as buybacks.

Okay. And finally since you always gave great color on consolidation, with the REITs, the hotel REITs now 15% to 20% discount to NAV, are you seen more private equity sniffing around in the public markets?

We have not seen it yet. I would imagine you would think intuitively that they would, right, based on the discounts today. But I am not hearing or seeing any activity at this point and my position on it has always been the same. I guess there is another two or three lodging REITs that are being talked about and they obviously have the right. We are focused on quarter-to-quarter operational excellence looking to be a prudent capital allocator and then again managing our balance sheet appropriately. We would love to be a participant either as a buyer or a seller, but again, we are focus on the day-to-day and if that happens over time, it happens.

Okay. Thank you very much for the color.

Our next question comes from the line of Jordan Sadler with KeyBanc. Please proceed with your question.

Hi, guys. It's Austin Wurschmidt here with Jordan. I just had a question.

Hello, Austin.

Hi, Tom. Good morning. Just curious on your thoughts in terms of runway and supply. It seems like people continue to push that a little bit. how long do you think we have got until we hit that 2% long-term average?

I would say, Austin, we are midcycle, fifth to sixth inning. As I have said before, I think we have got a strong case here for this cycle to run into extra innings. As you look today, I would say, supply picture is probably 1.2% to 1.3% here as we look in 2015. It's probably in the 1.7%, I think in 2016 and I think you can make a case perhaps we begin to eclipse the 2% threshold in 2017. Again, I don't think that that signals the end of the cycle. You might see the rate of growth begin to moderate or slow, but I think this cycle is going to run longer, in part because of nature of its recovery and how things have unfolded. It is still difficult to get projects complete, to get projects financed. In some areas, it's relaxing a little, as we are seeing just getting renovations done and again the port delays and the rising land prices. These things are going to affect it and I think the reasons why the cycle gets extended. We feel good about our positioning today. I think there is still plenty of pricing power here and still plenty of occupancy growth across our portfolio and across the industry.

Thanks for the detail there. And then back to the rate growth that you guys saw this quarter. It's really been the highest rate growth you have seen since early in 2013, I believe. Was that a function of you guys being strategically more aggressive on rate? Any shift there in terms of strategy or opportunity?

Absolutely. Our asset management team, the many talented men and women that we have there, we have been really working with our management companies and our partners to push rate and to better yield and yield out as much of the discounted business as we can and we know if we can get better rate, we will get better flow-through. So it's a real focus. That sometimes has impact or delayed obviously depending on renovations and the like. There was a little bit of renovation activities, we said, particularly as you think about California where we had six of the 12 assets out there in some form renovation in the first quarter. But again we believe that's going to provide a tailwind and be able to push again more rate and better flow-through. So it really is a focus of our asset management team and we are going continue to push that as we move forward.

And then how much of the disruption that you guys saw, how much about 50 basis points to 70 basis points, I guess, was recognized in the first quarter?

If you think about it, probably incremental, it would probably be about 27 basis points, thinking about that right now.

Great. Thanks for taking the questions.

[Operator Instructions]. Our next question comes from the line of Lukas Hartwich with Green Street Advisors. Please proceed with your question.

Thank you. Good morning.

Good morning, Lukas. How are you?

Good. How are you doing?

Good.

Great. Tom, most of my questions have been unanswered. I just really have one question and it's centered on expense growth. You talked a little bit about it in your comments that real estate taxes were higher, but can you provide a little more color on what line items you are seeing growth at? Is it broad-based? Or there are just a couple items? Are you starting to see pressure with labor cost? Any color there would be helpful.

Certainly, Lukas. I think the biggest is, as Leslie pointed out in her remarks, property taxes were up about $1.8 million, about 73 basis points and that was probably up about 13% over the prior year. Incentive management fees were up slightly, about $322,000, so up about 13 basis points. Now that's up 36% over the prior year, but keep in mind as you get later in the cycle, obviously the operators are more likely to be able to participate in the IMF and the incentive management calculation. There have been a franchise fee increase that some the brands recently implemented. So that had a modest impact of about 10 basis points. Health and welfare, if anything, came down about $272,000 or about 11 basis points. So I would say, the biggest component is really property taxes and not dissimilar to what I am sure that what many of our peers are seeing. We are seeing the municipalities really push to have their deficits and have their issues funded on the backs of the commercial property owners.

Great. Thank you.

Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

Good morning, Tom and Leslie.

Good morning, Bill. How are you?

I am fine. Thank you. Tom. as you look at the acquisition environment, as well as supply pressures that you are seeing in some the larger markets, are you tempted at all to go into more, let's call it, secondary markets, outside the top 20, where yields might be a little bit juicier and there may not be as much supply just all around compared to, say, the prior cycle?

An interesting question, Bill. I would answer it this way. There are some of our peers that earmarked five markets or eight or 10 markets and I think, we have always said top 25 to top 30. Again, more of a coastal bias. You are clearly getting a higher RevPAR and higher growth on the West Coast and parts of the Southeast and certainly in South Florida. So I think you will continue to see us really focus our energy there. We are not opposed to occasionally, as part of the Hyatt deal, as an example. We got an asset in Madison, Wisconsin, again a University town, a state capital, significant RevPAR. It's doing incredibly well for us. We bought a Courtyard in Charleston, South Carolina, again one of the great hotel market, high RevPAR. I think it was up 16%, pretty significantly in first quarter. So you will see us look opportunistically. We do want to continue to improve the overall portfolio metrics. So we are very sensitive of that. There is a high correlation, as you know, between RevPAR and multiple, not lost on us and we also think in those markets, generally you got more barriers to entry for supply. So we will look opportunistically if there was something really priced right with a particularly attractive cap rate and it an create value for shareholders. We look, but I think you will see us again, focused more and more towards those dense urban and those dense suburban markets with a story. Multiple sources of demand.

So is it somewhat of a trade-off between, I mean, you are obviously focused on growing absolute RevPAR level. But at the same time that may be shortchanged you a little bit on growth prospects in some of the other markets. Is that possible where you could buy lower RevPAR but more growth out of it? Talking about that trade-off, maybe.

Yes. It's a very fair point. My experiences has been and one that we have been public now for ending our fourth year, beginning of our fifth year here and I not sure you always get the credit for investing in some of those secondary or tertiary markets and have over the long run you do have supply risk there. And I would argue perhaps more over the long-term than I think you do in some of the more urban or dense suburban markets. So you will see us work the edges and there are situations, I think the two that I just outlined are great examples of that, where we can still get the kind of metrics we are looking but also get an attractive yield and generate a an attractive IRR for shareholders. But rest assured, we are still a net buyer. We are still active in the market. But we are not willing to sacrifice our discipline and I think we have demonstrated over the last four years, both in total shareholder returns and in the construct and the changes that we have made to the portfolio. We are very, very pleased with where we are today on our growth path.

All right. Thanks for the color.

Our next question come from the line of Shaun Kelly with Bank Of America Merrill Lynch. Please proceed with your question.

Hi. Good morning. And thank you for taking my question.

Shaun, good to hear from you.

Tom, earlier you gave really good color on Austin and I was curious, could you give us a little bit similar detail on Houston? So specifically it is a market that pops up with some new supply. So how do you see that being a part of the weakness relative to your comments in your prepared remarks on oil and gas, which I found really interesting and helpful?

I appreciate the question, Shaun. Houston is interesting. As we have said in the prepared remarks, we ended up 5.4% for the quarter. We thought we would be 7% to 8%, if you remember the last call. We strong growth in January, up nearly 11%, softened a little bit in February, but nothing to really be concerned about. We saw more soft patches. Early March, really the same thing. The second half of March was like a light switch and it was pretty dramatic. We didn't see the pickup in the NCAA Tournament and then we saw a lot of the traditional demand dry up. So we saw a pretty dramatic drop-off there to end of the quarter, again at 5.4%, again, nearly 400 basis points more the market. So all things considered, I think we had a strong quarter. When you compare it and oil and gas, historically about 14% to 15% for the RLJ business and we have got nine hotels in Houston, it's only about 6% of our rooms and about 7% of our EBITDA. So again we have got a very diverse portfolio and I think again that's the reason we had strong first quarter and a real benefit of our platform. We did see Q1 2015 versus 2014 and we were down about $317,000 room revenue, to about 1,854 room nights. And so the decline was 15.2% and it ended up being about 12% of revenue in 2015 versus about 15% in 2014. So year-over-year, down about 300 basis points to bracket it for you. We remain bullish on Houston long-term. Keep in mind, during the post great recession period, Houston added two jobs for every one job loss during the recession. The state of Texas, again, I believe had about 40% of jobs early on in the recovery. So long-term believe in it. I do think the city-wides will be down in 2015 and I do think as we sit here today, based on the trends we are seeing, Houston is probably likely flat to negative RevPAR in the second quarter and that's baked into our continued guidance. So having a little bit of continued softening, but we are optimistic that you will see a lot of the group business and the business trends improve in the second half of the year.

Thank you for the color. Just the same question about Houston bit, when you see or how do you like to see the supply curve in that market? Is 2015 going to be higher than 2015 and to the peak in 2016, assuming the current market environment sort of remains where it is? Is that your outlook? Or how are you guys underwriting supply growth?

Well, you clearly have got more supply, I think, probably peaking in 2016. You have got the new JW Marriott. Obviously you have got the convention hotel that's coming and our experience with some of the big convention center hotels that happen, take Indianapolis when the JW Marriott, it took about a year or so for it to get absorbed. But again the market came back because it benefited from being a more competitive location. Think about the Marriott Marquis in DC. Everybody thought that was going to be the end of DC. In fact exactly the opposite has happened. We were up 4.3% and our DC hotels were up high single digits, I think 9.4%. I think for Houston, again, it will improve the destination and their positioning. Obviously oil and gas is a good, solid component there. So that situation has to neutralize but long-term, again, we think Houston is going to be one of the great cities of the country and it's going to come back and our project that we have there in downtown, the humble office building which is a three pack, an existing Courtyard and a Residence Inn and the Springhill suites is an apartment building that we are converting and again that will open probably third quarter. But we at a significant discount to replacement cost, well south of $200,000 a key. And so long term, we like the destination, we like that project, we like our positioning there and we are not overweight, again at 6% of our EBITDA and about 7% of our rooms.

Thanks, again, for taking the questions.

Our next question is a follow-up question from Anthony Powell with Barclays. Please proceed with your question.

Hi. Just one more on Airbnb. I was wondering if you have seen any impact of Airbnb on any of your market? I thinking in particular of Austin and Denver, two markets that attract younger millennial travelers, especially in leisure time periods, are you seeing more and more competition from Airbnb? Thanks.

Anthony, a good question. I think still Airbnb is probably a greater threat right now in New York, based on the trends we are seeing there than I think in Denver. Clearly given the tech oriented traveler in Austin and the youth stay in millennial, it's an issue, but I don't a major issue today in Austin. But New York is one that I think as an industry we have got to watch and my sense is that Airbnb is here to stay. I think they have got a play on a level playing field and be subjected to the same regulatory ADA requirements, Fire Life Safety Act requirements. And I think those issues are terribly important and we as an industry got to make sure that the playing field is really level.

All right. Thanks a lot.

Mr. Baltimore, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thanks. Appreciate everybody taking time today. Look forward to our next call in late July or early August and the RLJ team is committed, focused and creating shareholder value for all of our stakeholders. Have a great day.

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.