Earnings Call Transcript - RLJ Q1 2026

Operator, Operator

Greetings, and welcome to the RLJ Lodging Trust First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Paul Austin, Director of Investor Relations. Thank you, sir. You may begin.

John Paul Austin, Director of Investor Relations

Thank you, operator. Good morning, and welcome to RLJ Lodging Trust 2026 First Quarter Earnings Call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Nikhil Bhalla, our Chief Financial Officer, will discuss the company's financial results. Tom Bardenett, our Chief Operating Officer, will also be available for Q&A. Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what 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. Finally, please refer to our schedule of supplemental information, which includes pro forma operating results for our current hotel portfolio. I'll now turn the call over to Leslie.

Leslie D. Hale, President and Chief Executive Officer

Thanks, John Paul. Good morning, everyone, and thank you for joining us today. We are encouraged to see the lodging industry off to a strong start this year, benefiting from the underlying strength of fundamentals, with the acceleration of business transient demand being a key driver. We are particularly pleased with our first quarter results as our urban-centric portfolio outperformed the industry. Our favorable footprint with exposure to many top-performing markets such as Northern California and South Florida, among others, allowed us to capture the broad-based momentum in all segments of demand along with the ramp from our recent high-impact renovations and conversions, driving solid results ahead of our expectations. During the first quarter, we achieved RevPAR growth of 4.8%, which outperformed the industry by 100 basis points. We delivered robust non-room revenue growth, which exceeded our RevPAR performance by more than 300 basis points, and we drove high single-digit year-over-year EBITDA growth and margin expansion. We also advanced our conversion pipeline and addressed all of our maturities through 2029. Our solid first quarter performance demonstrates the momentum in our urban markets and the growth embedded in our portfolio, while the ongoing execution of our capital allocation and balance sheet initiatives position us to continue to drive out-performance relative to the industry and create long-term shareholder value. Turning to our operating results. Our first quarter RevPAR growth of 4.8% was balanced between occupancy and ADR gains. Trends improved sequentially throughout the quarter, with RevPAR in February and March achieving healthy year-over-year growth of 6% and 9%, respectively, following January's RevPAR decline. Both February and March were aided by a robust calendar of events as well as the favorable timing of holidays, which bolster demand. We were pleased to see this positive momentum carry into April. Our urban markets have been consistently performing well, disproportionately benefiting from positive trends across all demand segments. We were pleased to see our urban footprint outperform the broader industry urban markets, with a number of our markets delivering high single-digit RevPAR growth. Notably, Northern California achieved outstanding RevPAR growth of 27%, benefiting not only from the Super Bowl and the favorable shift of the RSA conference to March this year but also from the continued expansion of the AI industry, which is driving significant corporate investment and business travel demand broadly across this market in addition to a better overall environment. New York City was another noteworthy market during the quarter with our properties achieving over 8% RevPAR growth, driven by healthy corporate and leisure-transient demand, a favorable events lineup and the ramp of our high-occupancy renovations that we completed last year. As it relates to segmentation, business travel saw robust growth during the first quarter, with our business-transient revenues growing by 9%, which was largely demand driven, with room nights increasing by nearly 700 basis points. The momentum in business travel accelerated throughout the quarter, underpinned by strong growth in business investment, driven by AI-related spending as well as record corporate profits. This is specifically fueling the ongoing strength in sectors such as technology, finance, aerospace and life sciences, which is amplifying overall business-transient demand. Leisure trends were strong across our portfolio with revenues growing by 5%. Demand remained resilient, and we were encouraged to see rate growth of 3%. The leisure segment benefited from a compressed spring break as well as elevated demand at a number of our hotels as winter storms across the country drove additional leisure travel during peak season. Our urban leisure once again saw stronger downtown performance as the hotels and live-work-play mix are capturing robust demand around sports, concerts, dining, festivals and entertainment. Importantly, our geographically diversified portfolio continues to benefit year after year from the rotation of signature events within our footprint. Relative to our group segment, even with difficult comparisons from the inauguration in D.C. and the Austin Convention Center, booking trends remained healthy, evidenced by our end-of-quarter revenue pace for the quarter increasing by 900 basis points and ADR increasing by 3% over last year. We were especially pleased to see a meaningful pickup in group bookings for the second quarter, which saw pace improve by 400 basis points. We are encouraged by the increasing share of corporate bookings within our group mix, which has positive implications for ADR and out-of-room spend. Our portfolio also generated outsized non-room revenue growth of 8.2%, once again underscoring the momentum behind our ROI initiatives and the investments we have made in expanding ancillary revenue channels. These initiatives allowed us to increase our total revenues by 5.4%. This top-line growth, combined with disciplined cost management and a lean operating model, contributed to our significant EBITDA out-performance relative to our initial expectations and our margins expanding by 45 basis points over the prior year. Now turning to capital allocation. Our transformative renovations from last year as well as our completed conversions are delivering tangible results and contributed meaningfully to our outperformance relative to the industry. This is demonstrated by our four major renovations at high-occupancy hotels completed last year, achieving 9% RevPAR and 10% EBITDA growth during the quarter. Conversions continue to deliver solid results, with our seven completed conversions generating EBITDA growth of 16%. Additionally, we made further progress towards our Renaissance Pittsburgh conversion, and we remain on track to relaunch the property under Marriott's Autograph Collection this summer. We advanced preparation of our conversion of the Wyndham Boston Hotel, which will join Hilton's Tapestry Collection, and we are on pace to begin construction later this year, and we look forward to announcing our next conversion in a coming quarter. Collectively, these capital allocation initiatives, supported by our strong balance sheet, position us for multiple years of growth in 2026 and beyond. Looking ahead, we recognize that the macro environment remains uncertain, driven by an evolving geopolitical backdrop, which is giving rise to shorter booking windows and limiting visibility beyond the near term. To date, however, we have not observed a noticeable impact on our results. Our first quarter out-performance on both the top and bottom lines is encouraging, and we believe the setup continues to favor urban markets for the remainder of the year, supported by sustained strength in business transient and robust demand for urban leisure experiences, trends that should disproportionately benefit our portfolio. Overall, we had already anticipated these healthy trends in our original guidance for the remainder of the year. However, given the current uncertainty, we will continue to monitor any shifts in demand. Our outlook assumes the continuing broad-based strength in business transient, supported by healthy corporate profits and growth across a number of industries, reinforcing our view that the recovery in this segment has further room to grow. The resiliency of leisure demand and expectations for continued rate growth as we approach the peak summer travel season, especially in our urban markets, which have an extensive lineup of events, sports, concerts and entertainment, a positive group pace for the remainder of the year, with ADR demonstrating pricing power, and our expectations that even with a shortened booking window, we will continue to see strong in-quarter bookings, a favorable footprint to capture upcoming catalysts including the World Cup and America's 250th anniversary. The ongoing momentum in Northern California across all demand segments further validates the sustainability of this market's recovery, continued growth of non-room revenues from our ROI initiatives as well as tailwinds from the ramp of our four significant renovations completed last year and our recently completed conversions which are well positioned to drive multiple years of growth. Our strong results are a direct outcome of the strategic repositioning of our portfolio over the past several years through asset recycling, targeted acquisition and high-impact conversion. As we look ahead, we remain cautiously optimistic about the long-term durability of the demand trends we are seeing and believe our well-positioned portfolio will support continued strong relative performance and the creation of long-term value for our shareholders. With that, I will turn the call over to Nikhil.

Nikhil Bhalla, Chief Financial Officer

Thanks, Leslie. To start, our comparable numbers include our 92 hotels owned at the end of the first quarter. Our reported corporate adjusted EBITDA and AFFO include operating results from all sold hotels during RLJ's ownership period. Our first quarter results came in ahead of our expectations, with occupancy increasing by 2.6% to 70.8%, average daily rate increasing by 2.1% to $210 and our RevPAR of $149, increasing by 4.8% versus the prior year. Fundamentals strengthened throughout the quarter following January's 1.9% RevPAR decline with growth accelerating to a robust 6.1% in February and 8.9% in March. These healthy trends carried into April, which achieved preliminary RevPAR growth of approximately 4%. During the quarter, we saw meaningful strength within our urban markets, which achieved 4.4% RevPAR growth, outperforming STR's comparable markets by 110 basis points. This growth was broad-based and balanced between approximately a 2-point increase in occupancy and a 2-point increase in ADR. Our strong urban portfolio performance was bolstered by double-digit RevPAR growth in markets such as South Florida, which grew RevPAR by approximately 10% and Houston and Denver which each achieved 14% RevPAR growth. Additionally, demonstrating that our portfolio benefits from seven-day-a-week demand, both weekdays and weekends saw mid-single-digit RevPAR growth. Our urban markets benefited from improvements in all segments of demand, notably business travel. The acceleration in business travel demand that we are seeing has positive implications for the momentum in out-of-room spend which was evident in the robust growth of 8.2% in our non-room revenues that we saw during the first quarter. We were especially pleased to see the strong revenue growth come on the heels of the robust 7.2% growth we achieved during the prior quarter. Our non-room revenues generate strong margins, which improved by 130 basis points during the quarter, underscoring the success of our ROI initiatives aimed at profitably growing food and beverage, re-concepting underutilized spaces and growing other ancillary revenues. Overall, non-room revenue growth led our first quarter total revenues to grow by 60 basis points ahead of our RevPAR growth. Turning to bottom-line results. Total operating expenses were up 2.1% on a per occupied room basis, underscoring the benefits of our lean operating model and our disciplined approach to managing costs, which allowed for a strong flow to the bottom line. Although energy expenses were elevated due to the winter storms as well as disruption in the energy markets due to the war, these were more than offset by improvements in fixed costs driven by a double-digit decline in property insurance due to a favorable renewal last year and other cost control initiatives. During the first quarter, our portfolio achieved hotel EBITDA of $89.9 million representing year-over-year growth of $6.1 million or 7.2% and hotel EBITDA margins of 26.4%, which expanded by 45 basis points over the prior year. These results translated to adjusted EBITDA of $80.9 million and adjusted FFO per diluted share of $0.33 for the first quarter. With respect to our balance sheet, as previously announced, during the first quarter, we executed a series of refinancing transactions, which expanded our undrawn capacity by $500 million and created additional flexibility. We intend to use the additional capacity created by these refinancings to pay off our $500 million senior notes that mature on July 1 this year. Following this payoff, we will have no maturity due until 2029 and our weighted average maturity will be over four years. Our balance sheet remains well positioned with over $950 million of liquidity, including undrawn capacity of $600 million on our corporate revolver, 84 of our 92 hotels unencumbered by debt, an attractive weighted average interest rate of 4.6% and 75% of debt either fixed or hedged. We ended the first quarter with $2.2 billion of debt. In addition to proactively addressing our maturities, we continue to demonstrate our steadfast commitment to returning capital to shareholders by paying an attractive and well-covered quarterly dividend of $0.15 per share. Now turning to our full-year outlook. We are pleased with the strong start to the year. At the same time, we remain mindful of the uncertainty in the overall macro environment. We have incorporated our strong first quarter out-performance into our revised guidance while keeping our expectations for the remainder of the year unchanged from our prior outlook. For 2026, we now expect comparable RevPAR growth to range between 1.5% and 3.5%, comparable hotel EBITDA between $356 million and $380 million, corporate adjusted EBITDA between $324 million and $348 million and adjusted FFO per diluted share to be between $1.29 and $1.45. Our outlook assumes no additional acquisitions, dispositions or balance sheet activity beyond what has been completed today. We continue to estimate capital expenditures will be in the range of $80 million to $90 million. Cash G&A will be in the range of $32.5 million to $33.5 million and we expect net interest expense will be in the range of $101 million to $103 million. We also expect total revenue growth will continue to outpace RevPAR growth due to the success of our initiatives to drive out-of-room spend. With respect to the cadence for the rest of the year, our view of the second quarter has not changed. However, in light of our strong first quarter results, our adjusted EBITDA contribution for the second quarter will be slightly lower than last year, with the balance of the contribution in the back half of the year. Finally, please refer to our press release from this morning for additional details on our outlook and to our schedule of supplemental information which will include comparable 2026 and 2025 quarterly operating results for our 92-hotel portfolio. Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator?

Operator, Operator

Our first question comes from the line of Michael Bellisario with Baird.

Michael Bellisario, Analyst (Baird)

Leslie, can you add a little to your commentary on the accelerating business demand you mentioned? It seems to be offset somewhat by a shorter booking window. Did I hear that correctly? And is that shorter booking window broad-based or specific to a customer segment?

Leslie D. Hale, President and Chief Executive Officer

So I would say on business travel, Mike, my comment about the booking window is really more so on group and on leisure. I think as it relates to business transient, the acceleration we saw was broad-based. We're continuing to see national accounts grow, which are our highest rated customers. The sectors in tech and aerospace and life sciences continue to be the sectors that we're seeing the strength at. And that's really a function of strong corporate profits; it's business investment, really sort of driving and aligning with what we're seeing. So our midweek trends remain strong. On the booking window side, what we've seen is that group is booking shorter. As I mentioned on the call, our quarter-for-the-quarter pace in the first quarter was strong. We actually saw 22% of our bookings in the quarter for the quarter. And while it's been short, it's still been materializing. And so that gives us comfort as it relates to group. And then on the leisure side, we've actually seen booking windows elongate, and so we've seen the opposite relative to group.

Michael Bellisario, Analyst (Baird)

Got it. That's helpful. And then just sort of on the same lines, just on the out-of-room spending. How much of that is you're taking price versus an increase in volume? And does that pick up really being driven by business travel?

Leslie D. Hale, President and Chief Executive Officer

It's definitely business travel playing a key role. And it's not just business transient; it's also business group. Business group has increased to more than 50% of our overall group mix, and that bodes well for out-of-room F&B orders while in their group meetings. And in general, as business travel continues to increase, they do more spending in the hotel as well. I'll let Tom add some color.

Thomas Bardenett, Chief Operating Officer

So Mike, what we're seeing underneath the F&B hood is we have banquets growing — what Leslie was stating about group, we're seeing a much more significant amount of corporate group come in — and with that, banquet goes right along with that. And then when we think about our ROI initiatives, we spent quite a bit of money on making sure that we have a beverage-centric, thoughtful food and beverage approach so our lounge revenues are up around 12%. And then when we think about AV room rental, when we look at our meeting space and our atrium as well as where we've put some capital, those continue to be enhancing our ability on the F&B, which allows us to increase margin by about 50 basis points. Below that, because the drive-to-market was still healthy in the first quarter, we had parking revenues up. And then lastly, I would say where we've been spending a lot of time is watching the consumer behavior in and around our lobby and where we have been enhancing it. We've kind of taken that select-service market expansion to our full-service hotels as well. And so that grab-and-go consumer trend, people looking for something in a hurry on the way to the airport and having an opportunity to grab that in addition to what we talked about with F&B and parking has really enhanced our profitability on non-room revenue.

Leslie D. Hale, President and Chief Executive Officer

Yes. And Mike, I'll just add what's kind of in our pipeline that bolsters some of Tom's comments around the thoughtful F&B and how we've approached it. We've talked on previous calls about how we've been really focused on having F&B that attracts guests that are outside the hotel. We did that at Mills House and Mandalay and Nashville, and we still have Pittsburgh and Boston in the pipeline. And just to put some numbers around that, our total revenues for our conversions were up 8% in aggregate. And that's really a function of our ROI investment and demonstrating how thoughtful we've been around the out-of-room spend.

Operator, Operator

Our next question comes from the line of Austin Wurschmidt with KeyBanc.

Austin Wurschmidt, Analyst (KeyBanc)

Leslie, you highlighted some high-level details about the outlook across various segments. Could you just walk through the cadence of RevPAR growth guidance over the balance of the year and maybe how some of those building blocks between segments are expected to play out at this point?

Leslie D. Hale, President and Chief Executive Officer

Yes. Sure. So Austin, what I would say is that clearly Q1 came in better than we expected, but our view for the second quarter really hasn't changed. The trends that we're seeing right now are coming in line with our expectations. We mentioned in our prepared remarks that April was up around 4%. We know that Easter moved into the month. And so we're seeing strength in business and group filling in that space that was moved up. May within that quarter is going to be the softest month because of the tough comps. And then as you know, June is going to benefit from the World Cup. Within the second quarter, group pace was already pacing ahead of 2025. And then we really have no change to our perspective on the back half of the year. Again, third quarter benefits from the World Cup. We expect the third quarter to benefit more than the second quarter from the World Cup because there's a higher demand for the later-stage games. And then you layer in the 250th anniversary on top of an existing holiday and obviously, Salesforce, and in the fourth quarter, we'll see a lapping of the government shutdown, but that's going to be offset by the election. So this setup was already anticipated in our original guidance. And what we're seeing today is in line with our expectations. In particular, as it relates to World Cup, it's still early, but we are encouraged by what we're seeing. We were very thoughtful in how we approached our perspective around building our blocks and the World Cup. For example, we were really thoughtful about focusing on blocks related to teams, media and sponsors, and we wanted to have really strong revenue management, focusing on length of stay and making sure that we were disciplined about rate. So today, what we're seeing is that those blocks that we anticipated are actually picking up because we were thoughtful and we're getting deposits around teams and media. And as it relates to transient, what we're seeing today is promising. It's early, but around game days we are seeing ADR come in line with our expectations. I think that the World Cup — and when you look at high-occupancy markets — it's really a rate game in markets like L.A., New York and Miami. But overall, these trends we're seeing are in line with our expectations and our original assumptions that we had in our guidance.

Austin Wurschmidt, Analyst (KeyBanc)

That's helpful detail on World Cup. Just switching for a comment you had on leisure and the elongated booking window. Just wondering how much of that you think is sort of sensitivity to change in airfare given what's happened with energy costs? And how does that inform your view on sort of pace as you look out within this segment and what that could look like just given the resiliency in the consumer?

Leslie D. Hale, President and Chief Executive Officer

I think that the elongated booking window, some of it may be related to airfare, but I actually think it's around the strength of demand — that people are recognizing demand is strong and they may want to lock in their preferred room earlier. A lot of these special events are happening on top of timings that already had high occupancy. And so I think that's affecting consumer psychology. I would also say that a lot of our leisure, again urban leisure, is seeing urban entertainment ramp up around the lifestyle consumer. As a result, I think they're trying to get ahead of what they saw in the first quarter around leisure travel. Could there be some airline implication in that? For sure. But I think that's part of it.

Thomas Bardenett, Chief Operating Officer

The other thing I would add, Austin, is we're seeing a shift in the ability to drive rate with leisure. If you recall, last year was primarily demand and there was rate sensitivity. Right now, we're seeing growth in both midweek as well as weekend demand, and then we're also seeing growth in rate. We're pricing ourselves appropriately based on that seven-day nature of demand and these events that are taking place where our footprint is pretty diversified. So when a special event moves from one location to another, whether it was the NBA All-Star game that went from San Francisco to L.A., we get the benefit of that because of our diversified portfolio. Same thing with the Super Bowl. It was in New Orleans last year, San Francisco this year. So we're able to capture a lot of those instead of them being anomalies; they're just moving around the country where we're able to capitalize based on our diversification and our footprint.

Leslie D. Hale, President and Chief Executive Officer

And I think Tom's point around rate is another example of the consumer not being price sensitive, which is why I was suggesting that it's more about them seeing the strength of demand.

Operator, Operator

Our next question comes from the line of Tyler Batory with Oppenheimer.

Tyler Batory, Analyst (Oppenheimer)

And congrats on the strong results here and some really good execution. Just a follow-up on Austin's question. Can you put a finer point on how you define leisure travel? I'm not sure if World Cup-related travel — if that's all leisure. I'm assuming there might be a portion of that that is group and maybe even business travel too?

Thomas Bardenett, Chief Operating Officer

Yes. I'll give you an example since you asked about World Cup. When Leslie was speaking about the difference between group and leisure, group would be the team, the media, the sponsors where we've actually locked in blocks and have deposits. What's still to come and what we're finding on the transient pace, specifically in the last three to four weeks, is around the game days — ticket sales, searches around where do I want to stay. You're going to book your airfare, you're going to make sure that you've got travel and then you're going to look at hotels. So what we're seeing is ADR growth around that, which would be leisure around World Cup. Same thing with the 250th anniversary. We do have activation and marketing programs around the four cities, which are New York, Philadelphia, D.C., as well as Boston. And when we see that, you're also seeing more demand coming in that will be leisure-related based on how we code when people are booking from the outside in.

Tyler Batory, Analyst (Oppenheimer)

Okay. Switching gears to capital allocation. You rank order your priorities right now. I'm curious if capital recycling is something that might look a little more interesting given your fundamental outlook.

Leslie D. Hale, President and Chief Executive Officer

Sure, Tyler. What I would say is that we're constructive on the transaction market. As we become more active with dispositions, we will be balanced between taking advantage of the dislocation in our stock, maintaining a strong balance sheet and executing on our conversion strategies. We strive to execute buybacks on a leverage-neutral basis. So when we use disposition proceeds, that allows us to do that. And obviously, we didn't have any dispositions in Q1. Relative to our conversions, our results are very tangible. As I mentioned before, total revenues for our seven completed conversions are up 8%, and our EBITDA was up 16% in the quarter. This is a direct result of the investment we're making in the ROI. As we recycle assets, you're going to see us be balanced and that would include activity on the buyback side.

Operator, Operator

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

Gregory Miller, Analyst (Truist)

I'd like to ask a couple of questions on specific markets. Maybe to start off, could you provide your thoughts about how Louisville is performing this year and expectations for the rest of the year? Particularly on the convention group rent.

Thomas Bardenett, Chief Operating Officer

Sure, Greg. As you know, we have our Marriott as well as a Residence Inn in Louisville, and the Marriott is connected to the Convention Center. What we're finding at our Marriott is that it's had back-to-back significant growth years. We just came off of Kentucky Derby, which was another major success for us. What we're finding is agriculture and some of the types of accounts that go to Louisville that are attracted to Louisville are all Midwest-based. It competes with Nashville and other regional locations. We get the benefit of that because we're connected to the Convention Center. About five or six years ago when they added additional space, it really changed the way we can sell our hotel where we can actually have two conventions at the same time because of the exhibit space they added right across the street, which is connected. In addition to that, we were looking at the beginning of the year at pretty strong results in regards to what we're seeing on the pace side. We're also — because of the size of the asset — looking out to '27 and '28, and we're very encouraged about what the pace looks like going forward for this asset. The big top accounts that come into Louisville, like healthcare, Humana, the University of Louisville, continue to spend and look to add research. So we're seeing our top accounts come back into the city as well. The Residence Inn also does very well being just a couple of blocks away from our Marriott with overflow when we have those types of groups.

Gregory Miller, Analyst (Truist)

Thanks, Tom. Shifting gears, I'd like to ask you about another market with some changes to their convention pace, and that's Austin. Now that we're past the one-year mark since the temporary closure of the Austin Convention Center for its renovation, could you provide an update on how your downtown hotel is performing and sort of expectations for the rest of the year in that market as well?

Thomas Bardenett, Chief Operating Officer

We're adjacent to the convention center for two of our assets, and we have one other asset that's right by the state capital near the University of Texas. To your point, the closure occurred in March of 2025 right after South by Southwest and the new construction is underway in regards to the convention center. I'm excited about Austin because it's going to double the square footage, and more importantly, it's going to have the ability to host over 1,200 exhibits. That's really important when you think about association business. For instance, Austin, which is the 11th largest city in the country, had the 59th largest convention center. Now it's going to be more appropriately aligned with the space needed. As an example, 50% of the leads in the past couldn't even be accommodated based on the space that we didn't have. In addition to the convention center, Austin continues to grow. People want to live there. The airport expansion is going to have more flights and 20 more gates will be aligned with the convention center opening; that's going to bring passenger volume from about 22 million up toward 30 million, which will drive more demand because of that convention center. But in the interim, to your point, we are focused on self-contained group business at our two assets adjacent to the center. There has been a great marketing campaign and dollars that are allowing us to offer incentives to groups, not only for our hotels but for the city because of the opening. For the next few years, the double trade that we have over by the capital, that was renovated about a year ago, so the property looks great. It's getting a nice ramp from the University of Texas as well as being adjacent to the capital. This year, the first quarter had the legislative session, and that happens every other year. We'll make sure we benefit from that; that will happen in 2027.

Leslie D. Hale, President and Chief Executive Officer

The only thing I would add is that based on all the good points Tom laid out, we are expecting Austin to be positive for the remainder of the year.

Operator, Operator

Our next question comes from the line of Ken Billingsley with Compass Point.

Kenneth Billingsley, Analyst (Compass Point)

Two quick questions. One, just a follow-up. You said second quarter adjusted EBITDA is expected to be below last year. Is that just primarily on room count being down?

Leslie D. Hale, President and Chief Executive Officer

It's a function of Q1 being stronger than our original expectations. Last quarter we had guided that Q2 would be in line with last year's contribution, and now it's going to be slightly below because Q1 is stronger.

Kenneth Billingsley, Analyst (Compass Point)

Okay. And the other question I have is could you just talk about Pittsburgh, the draft occurred and had record numbers. Can you just talk about how that translated into your expectations and maybe the results of what developed out of Pittsburgh?

Thomas Bardenett, Chief Operating Officer

Yes. The draft was a great event for us. We have three assets in Pittsburgh; one downtown that overlooks the Three Rivers and PNC Park where the Pirates play, as well as other assets nearby. The draft was closer to Heinz Field this year and activations were all in and around the convention center as well as our locations. Our three assets saw significant demand due to that event. Not only did we capture transient demand, but there was also a lot of activation and spillover that benefited our portfolio. We're excited about what's happening there.

Operator, Operator

Your conference will resume momentarily. Once again, ladies and gentlemen, please continue to hold. Your conference will resume momentarily.

Thomas Bardenett, Chief Operating Officer

Can you hear us, operator? The NFL Draft was very successful this year and our three assets in Pittsburgh saw significant demand due to that. I'll go back to the operator for future questions.

Operator, Operator

Mr. Billingsley, does that complete your question?

Kenneth Billingsley, Analyst (Compass Point)

It does.

Leslie D. Hale, President and Chief Executive Officer

And then Ken, I just want to make sure that on your prior question you were talking about contribution for second quarter. That's what we were referring to in our prepared remarks — its contribution for the year.

Operator, Operator

Our next question comes from the line of Floris Van Dijkum with Ladenburg Thalman.

Floris Gerbrand Van Dijkum, Analyst (Ladenburg Thalman)

Question on the capital allocation, getting back to the capital allocation. Could you maybe just remind us of what you spent on your renovations, what the EBITDA return or yield is on those renovations today as we stand? And also, you mentioned two more projects that you're going to announce later on this year. What's sort of the aggregate amount that we could expect RLJ to invest in repositioning assets and relative to the sort of the maintenance CapEx?

Leslie D. Hale, President and Chief Executive Officer

Yes. I would say that, in general, Floris, we gave a range of $80 million to $90 million of capital spend for 2026, and the vast majority of that is focused on ROI-related renovations. We generally target high double-digit returns on general investments and on our ROI conversions we originally saw north of 40% returns on the incremental capital that we're putting into the assets to effectuate these conversions.

Thomas Bardenett, Chief Operating Officer

We mentioned one additional conversion that will be announced — I just want to confirm that will be announced later this year.

Floris Gerbrand Van Dijkum, Analyst (Ladenburg Thalman)

Got it. And so the 40% is what we should be expecting from the Wyndham Boston conversion? Or is that just for the Renaissance in Pittsburgh?

Leslie D. Hale, President and Chief Executive Officer

So what we've talked about with Boston is that we think there is a 40% upside in EBITDA on that asset. Again, keep in mind that on some of these conversions, in certain cases, we doubled the EBITDA on that asset. Boston is in that category of how strong we think the asset will perform in a post-converted state.

Floris Gerbrand Van Dijkum, Analyst (Ladenburg Thalman)

And then the dispositions — obviously as well. I suspect if the disposition market were to pick up a little bit later this year, would that cause you to accelerate some of your repositionings as well? Or is that still the buybacks being another potential source? But 40% returns are tough to beat anywhere else. Why wouldn't you lean into that even more?

Leslie D. Hale, President and Chief Executive Officer

I think what we've said before, Floris, is that we try to strive to have two conversions per year. Our conversion cadence is influenced by when franchise agreements expire and other elements. We are on that pace and we'll be announcing our next conversion on our next earnings call. When we look at when the franchise becomes available and when it makes sense from a seasonality perspective — for example, we wanted to wait until after World Cup for Boston — we're trying to be strategic and thoughtful about when we execute the conversion.

Floris Gerbrand Van Dijkum, Analyst (Ladenburg Thalman)

Maybe last question, just a follow-up. The actual demand from the World Cup — there's been talk about last-minute bookings. Can you talk about some of the tangible information you have on FIFA bookings? Do you have any teams staying in your hotels? Or what tangible information can you give us on the potential upside from the World Cup relative to your expectations?

Leslie D. Hale, President and Chief Executive Officer

Yes. As I mentioned before, Floris, it's early, but we're encouraged because we were very thoughtful about making sure that the types of blocks we took were focused on teams and media. We're starting to see those blocks pick up and we've started to receive deposits. As it relates to transient demand, what we're seeing is promising, but it's really early. We expect most of the benefit to come in rate because these are happening in high-occupancy markets for us, such as L.A., New York and Miami.

Thomas Bardenett, Chief Operating Officer

To give you a little color on the group side, Floris, when teams stay with you, they actually encourage fans to stay where the team stays. That's a positive and we have locked-in deposits for teams in three of the nine markets where we have hotels. So we're really encouraged that not only will teams be present, but fans will want to stay with the teams. We're also encouraged on the transient pace given ticket sales and the length-of-stay patterns we're seeing. We're seeing ADR increase in those time frames when people have the most demand and we're providing opportunities to capture other business outside of those games, whether it's group or business travel, to layer in demand. These are high-occupancy locations, and the 250th anniversary overlaps in timing, so we're doubling down on strategy.

Operator, Operator

Our next question comes from the line of Chris Woronka with Deutsche Bank.

Chris Woronka, Analyst (Deutsche Bank)

I was hoping we could spend a minute talking about the Silicon Valley market. You talked about growth in AI. I think you guys have probably four or five hotels in that area. You mentioned you saw nice results in the first quarter. Kind of curious what's embedded in your outlook for the rest of the year? And do you worry at all about any froth in that area given the extremely high RevPAR growth in the late 1990s and 2000?

Leslie D. Hale, President and Chief Executive Officer

Yes. We are very encouraged by what we're seeing in the San Francisco/Northern California market broadly. Clearly, the recovery is well underway. As we mentioned, our assets in that market were up 27% in the first quarter. Clearly that benefited from the Super Bowl and some major conventions including RSA and JPMorgan. More broadly, and this goes to your Silicon Valley comment, business travel is very much in full swing given the better overall environment, better local advocacy with improved policy, the AI investment and return-to-office trends with record office leasing. So business-travel momentum is strong and we're starting to see pricing power return. I'll let Tom add some comments.

Thomas Bardenett, Chief Operating Officer

The campaign in San Francisco is 'Believe in San Francisco.' When you think about what's happening, it's happening locally — BART ridership is up, foot traffic is increasing in the CBD. Regarding conventions, they have a healthy pace for '27 and '28 and the types of conventions coming are association, corporate, medical and importantly, high tech. To give you an example on growth, Databricks in 2023 had about 11,000 room nights and in 2026 they're going to have 25,000 room nights. So you can see the evolution happening because venture dollars and enterprise investment are coming to San Francisco. This growth is also spilling into Silicon Valley and outlying areas where we have airport hotels and other footprint. We're encouraged and we're capturing different types of demand, and international demand — Mexico, U.K., India — is already returning, with China being the last step of recovery.

Chris Woronka, Analyst (Deutsche Bank)

Okay. Super helpful. And then just another question on conversion. When you guys talked about planned conversions, can we generally assume that refers to the Wyndham that you still have unconverted or either a few independents and things affiliated with non-Marriott, Hilton, Hyatt brands? Just hoping to get a little bit of clarification.

Leslie D. Hale, President and Chief Executive Officer

Yes. We have published in our management presentation a list of potential conversions in our portfolio. We're obviously looking at the Wyndhams, but we're also looking at current assets as the franchise agreements expire to see what other lifestyle brands are available that make sense for that physical asset. So it's not just all Wyndham assets; it's other assets within our portfolio where the franchise agreement may be expiring.

Operator, Operator

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

Chris Darling, Analyst (Green Street)

Just a couple of quick follow-ups for me. First, Leslie, you mentioned being constructive on asset sales. Hoping you could just give an update on the broader transaction market, whether you've seen anything change on the margin given a more favorable RevPAR backdrop — whether that's pricing, depth of the bidding tent, anything else?

Leslie D. Hale, President and Chief Executive Officer

Yes, Chris. The transaction market has improved. It's still not as robust as in prior cycles, but it's definitely improved in general. The key driver of that is really the debt market — there are more debt providers today and competition among them is creating tighter spreads. Even though the Fed has not cut rates, competition among providers has tightened spreads. Layer on better fundamentals and potential buyers have more confidence in underwriting. Owner-operators continue to be the primary buyers, but we're seeing the buyer pool widen. Single-asset transactions are still more prevalent, but you could see small portfolios emerging later this year. Overall, sentiment in the transaction environment is better.

Chris Darling, Analyst (Green Street)

Okay. I appreciate those thoughts. Then just to put a finer point on the guidance discussion. If I look at the midpoint of the revised hotel EBITDA range, it suggests a modest decline, I think, for the rest of the year. Hoping you could frame this outlook. In particular, I'm thinking about the third quarter, where, in theory, I think you'd be lapping an easier comp. Maybe just a discussion of some of the puts and takes that I'm not totally thinking about.

Leslie D. Hale, President and Chief Executive Officer

Well, I would say, in general, don't forget that we had a tax credit last year. So when you look year-over-year, we actually have EBITDA growth. Even without that, at the midpoint we are having EBITDA growth. Regarding the third quarter, we do expect the third quarter to benefit from the World Cup. It is also going to benefit from the 250th anniversary, which is on top of the Fourth of July weekend, and then we also have Salesforce which we benefit from in the third quarter.

Operator, Operator

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

Leslie D. Hale, President and Chief Executive Officer

Thank you all for your interest today and for joining our call. We look forward to connecting with you at our upcoming conferences. I hope all of you have some summer travel planned over the next few months. Have a good day. Thanks, everybody.

Operator, Operator

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.