Earnings Call Transcript - RLJ Q1 2023

Operator, Operator

Welcome to the RLJ Lodging Trust First Quarter 2023 Earnings Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the call over to Nikhil Bhalla, RLJ’s Senior Vice President, Finance and Treasurer. Please, go ahead.

Nikhil Bhalla, Senior Vice President, Finance and Treasurer

Thank you, operator. Good morning, and welcome to RLJ Lodging Trust 2023 first quarter earnings call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter; Sean Mahoney, our Executive Vice President and Chief Financial Officer, will discuss the company's financial results; Tom Bardenett, our Chief Operating Officer, will be available for Q&A. Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what had been communicated. Factors that may impact the results of the company can be found in the company's 10-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. Finally, please refer to the schedule of supplemental information, which was posted to our website last night, which includes pro forma operating results for our current hotel portfolio. I will now turn the call over to Leslie.

Leslie Hale, President and Chief Executive Officer

Thanks, Nikhil. Good morning, everyone, and thank you for joining us today. We are encouraged that the positive momentum in lodging fundamentals continued throughout the first quarter, as RevPAR for the industry sequentially improved each month on both an absolute basis and relative to 2019. As we expected, first quarter RevPAR in urban markets outpaced the industry relative to last year and achieved a significant milestone of reaching 2019 level for the first time post the pandemic. Against this constructive backdrop, we achieved strong first quarter operating results that exceeded our expectations, made tangible progress on our 2023 conversion, continued the ramp of our 2022 conversion, extended maturities for $425 million of debt, opportunistically repurchased $40 million of stock and increased our quarterly dividend by 60%. Our strong performance during the first quarter underscores the overall benefits of our urban-centric portfolio and also demonstrates the optionality that our balance sheet provides to accretively deploy capital to enhance shareholder return. Turning to our operating performance. During the first quarter, the ongoing recovery in our urban markets led our RevPAR to increase by 27% over last year and achieved 95% of 2019, representing an improvement of 100 basis points from the fourth quarter. Notably, our RevPAR growth not only benefited from increased demand, yielding a 12% year-over-year increase in occupancy, but also achieved incremental ADR lift, as continued pricing power led our ADR to grow more than 13% above last year. Demand increased throughout the first quarter, which led our operating results to accelerate each month, with March RevPAR reaching 99% of 2019. We are encouraged to see this momentum continue into April. Our urban hotels, which represent two-thirds of our EBITDA, generated the highest RevPAR growth within our portfolio during the first quarter. These results outperformed our expectations with RevPAR increasing by nearly 37% over last year and achieving 96% of 2019 for the quarter, with March achieving 101%. Demand growth was broad-based across all of our urban markets, including Southern California, despite the impact of severe weather during the quarter. Our urban portfolio benefited from continued improvement in business travel, strong group demand, healthy leisure to rising international travel. This increased demand drove a 17% year-over-year increase in ADR during the first quarter for our urban portfolio, which continues to have significant room for growth. Strong performance in our urban hotels underscores our conviction that our portfolio is set up to outperform on a relative basis, given the outsized growth expectations for urban markets. With respect to segmentation, we remain encouraged by the continued recovery of business transient demand. We are seeing corporate demand broaden to include industries such as aerospace, automotive, finance, insurance, health care, and consulting. This is reflected in our first quarter business transient room night, which improved by 10 points from the fourth quarter to 85% relative to 2019. We saw sequential improvement throughout the quarter, with our special corporate revenues, which achieved 75% of 2019 levels in March, the highest level post-pandemic. Positive momentum in business transient can also be seen in our Weekday RevPAR, which achieved 93% of 2019 during March. Our group segment continues to exceed our expectations. During the first quarter, our group revenues achieved nearly 100% of 2019 levels. Group revenues were driven by ADR growth and strong demand from social groups and improving corporate group, allowing us to achieve an 11% increase in ADR over 2019, the highest premium to date. Current year group bookings were robust during the first quarter, as we booked approximately $48 million in group revenues for 2023, representing more than half of the total group revenues booked during all of last year. This enabled us to drive higher group rates across our portfolio, including at our regional powerhouses such as Louisville and Tampa. Given the appeal of our property type, the small group, our hotels are able to book more self-contained groups rather than rely largely on citywide. This has allowed our end-of-year group revenue pace to increase to 95% of 2019 levels currently, representing a 13% improvement from the beginning of the year. Despite the normalization of demand patterns, leisure demand remained elevated across our portfolio, which further strengthened our leisure ADR to 125% of 2019, representing a new high watermark. The strength in leisure demand in our portfolio was bolstered by the continued recovery of urban leases, which are benefiting from hybrid work flexibility, and our urban lifestyle, which are located in seven-day-a-week demand submarkets with multiple demand generators are especially well-positioned to benefit from this growth. Additionally, with our recently renovated resort assets, including our Zachari Dunes at Mandalay Beach, our resort properties achieved 120% of 2019 ADR, which improved sequentially from the fourth quarter. We believe that our leisure ADR will be more sustainable on a relative basis going forward, given our concentration in urban lifestyle hotels, which are well positioned to capture urban leisure demand from experiential travelers looking to combine work and play. The positive momentum we achieved during the first quarter led our hotel EBITDA to increase by 44% over last year and achieve 87% of 2019 levels. As we expected, our lean operating model allowed us to achieve efficiency to mitigate some of the inflationary pressures on hotel operating costs, which led our hotel EBITDA margins to increase by more than 280 basis points from the prior year. Our strong operating performance and the overall margin profile of our portfolio enabled us to generate significant free cash flow during a seasonally slower quarter. Moving on to capital allocation. We continue to make progress on our internal growth opportunities. Our 2022 conversions are on pace to meaningfully outperform our overall underwriting. This year, we expect the EBITDA generated by these three conversions to accelerate throughout the year and exceed our 2019 EBITDA by over 25%. We are also making progress on our two new conversions. The comprehensive renovation and repositioning of our Houston Medical Center Hotel is expected to begin during the second quarter, which will position the hotel to capture incremental rate through its affiliation with Hilton as a DoubleTree. And we are pleased to announce that our Garden District Hotel in New Orleans recently joined Marriott's Tipping portfolio as Hotels Pronounced. We expect the hotel to immediately benefit from joining the powerful Marriott Bonvoy system, with additional ADR lift to come after we complete the repositioning and renovation scheduled for later this year. These conversions underscore the significant embedded value in our portfolio and our ability to unlock incremental EBITDA. We expect these conversions to be highly accretive and further enhance our portfolio quality. Additionally, we have one of the strongest balance sheets among our publicly traded peers, which allows us to pursue multiple channels of growth. We have demonstrated the optionality that our balance sheet provides by pulling multiple levers such as deploying capital towards our new conversion and opportunistically repurchasing shares. So far this year, we have redeployed free cash flow to repurchase $40 million of our shares on a leverage-neutral basis at an attractive average price of $10.22 per share. Given our strong balance sheet and free cash flow profile, we will continue to evaluate incremental share repurchases on a disciplined and leverage-neutral basis. This past quarter, we also utilized multiple tools to return capital to our shareholders, which included raising our quarterly dividend by 60%. Looking ahead, while we recognize that the current macro environment is uncertain, there are a number of indicators that allow us to remain constructive for the remainder of the year. We believe that urban markets should continue to outperform the industry during the second quarter, which will benefit our portfolio and reflect in our second quarter outlook. For the full year, we continue to expect year-over-year RevPAR growth to be the strongest during the first half due to easier comps. And we also expect to achieve year-over-year growth each quarter for 2023, given that leisure performance should remain healthy against positive leisure demand dynamics. The recovery of business transient is expected to continue throughout the year with corporate demand broadening as we experienced in the first quarter. Group demand should continue to strengthen, especially small social and corporate group. As previously mentioned, our group segment will benefit from the improving year-over-year booking trends. Our confidence is bolstered by our second quarter group pace, which is nearly at 2019 levels. Additionally, as international travel improves, it should drive incremental demand throughout the year, especially in gateway urban markets. Finally, the ramp of our three recently completed conversions will further bolster our performance. We believe that these positive trends will further amplify the performance of our urban markets, allowing us to achieve RevPAR ahead of the industry. We are already seeing these trends taking shape during the second quarter. Longer term, we believe that the outlook for lodging fundamentals remains very positive, given the secular changes in the nature of travel demand, which will drive strong growth. This dynamic will be especially beneficial for our portfolio, which is uniquely positioned to drive outsized EBITDA growth, given our concentration in urban markets, which have significant room for growth given a multi-year favorable demand/supply imbalance. Our high-quality diversified portfolio benefits from seven-day-a-week demand, the upside from our conversions and recent acquisitions, and the execution of incremental internal growth opportunities, including the completion of our next two conversions and our pipeline of future opportunities supported by our strong balance sheet. Overall, we are encouraged by our relative strong positioning. I will now turn the call over to Sean.

Sean Mahoney, Executive Vice President and Chief Financial Officer

Thanks, Leslie. To start, our comparable numbers include our 96 hotels owned throughout the first quarter. Our reported corporate adjusted EBITDA and FFO include operating results from all sold and acquired hotels during RLJ's ownership period. We were pleased with our first quarter results, which exceeded our expectations. First quarter portfolio occupancy was 68.5%, which was 90% of 2019 levels. Average daily rate was $199, achieving 105% of 2019, and RevPAR was $136, which was 95% of 2019. The first quarter ADR exceeded 2019 levels by 10% or more in a number of key urban markets, including San Diego, New York, Miami, Tampa, Washington, D.C., Pittsburgh, and New Orleans. Monthly RevPAR accelerated throughout the quarter and achieved 91%, 93%, and 99% of 2019 levels during January, February, and March, respectively. March recovered to 99% of 2019, which was the highest month of the pandemic and was driven by a combination of occupancy at 93% of 2019 levels and ADR of 106% of 2019. Our outstanding March results were primarily driven by RevPAR exceeding 2019 in most of our urban markets, such as New York at 105%, Los Angeles at 110%; San Diego at 108% and Chicago at 111%, Washington, D.C. at 106%, Tampa at 132%, Indianapolis at 133%, and Louisville at 122%. Our first quarter operating trends led our portfolio to achieve hotel EBITDA of $90.9 million, representing 87% of 2019 levels. Hotel EBITDA margin of 28.9% increased 283 basis points above the comparable quarter of 2022. Monthly results accelerated throughout the quarter, with March hotel EBITDA at 94% of 2019 levels. The positive momentum from March continued into April where forecasted RevPAR is approximately $156, representing a 7% increase from 2022. April RevPAR was driven by occupancy of 75% and ADR of approximately $207, representing 91% and 108% of 2019 levels and 100% and 107% of April 2022. Importantly, forecasted April hotel EBITDA is expected to exceed 95% of 2019 levels. Turning to the bottom line, our first quarter adjusted EBITDA was $82.7 million and adjusted FFO per share was $0.35, both of which exceeded the high end of our guidance ranges. While demand remained strong during the first quarter, hotel operating costs continued to normalize. Underscoring the benefits of our portfolio construct and the success of our initiative to redefine the operating cost model, total first quarter hotel operating costs were only 1% above 2019 levels, which is meaningfully below the aggregate core CPI growth rate since 2019 of approximately 16.5%. There are many factors that influence these positive results, with the most significant contributors seeing the successful restructuring of many of our third-party operating agreements and reductions in property taxes, both of which are expected to continue benefiting our operating costs. First quarter wages and benefits, our most significant operating costs at approximately 40% of total costs, remained below 2019 levels. During the first quarter, our hotels continued operating with over 25% fewer FTEs than pre-COVID, which moderated 500 basis points from the fourth quarter, despite higher occupancy during the first quarter, demonstrating the flexibility of our labor model in the post-COVID environment. Our portfolio remains better positioned for the current labor environment due to the need for fewer FTEs, given our lean operating model, smaller footprint, limited F&B operations, and longer lengths of stay. We remain active in managing our balance sheet to create additional flexibility and further lower our cost of capital, including extending $425 million of debt in 2024, and replacing $94 million of maturing term loans with a delayed draw of proceeds from the term loan that we entered into in late 2022. Our balance sheet is well positioned with an undrawn corporate revolver, our current weighted average maturity is approximately 3.5 years, 81 of our 96 hotels are unencumbered by debt. Our weighted average interest rate is at an attractive 3.98%, and 93% of debt is either fixed or hedged. Turning to liquidity, we ended the quarter with approximately $474 million of unrestricted cash, $600 million of availability on our corporate revolver, and $2.2 billion of debt. With respect to capital allocation, as Leslie said, to date in 2023, we remain active under our $250 million share repurchase program and have repurchased approximately 3.9 million shares for $40 million at an average price of $10.22 per share, including repurchases so far during the second quarter. At the end of April, our Board approved a one-year, $250 million share repurchase program, which will provide us with an additional tool to take advantage of future volatility in the capital markets to repurchase shares. Turning to dividends, given the embedded growth in our portfolio, our lean operating model, and the strength of our balance sheet, as previously announced, our board increased our quarterly common dividend to $0.08 per share starting in the first quarter. We continue to view both share repurchases and dividends as important components of the total return we seek to provide investors, and the recent use of both of these capital allocation tools validates our ongoing commitment to enhancing shareholder return. We will continue making prudent capital allocation decisions to position our portfolio to drive results during the entire lodging cycle while monitoring the financing markets to identify additional opportunities to improve the laddering of our maturities, reduce our weighted average cost of debt, and increase our overall balance sheet flexibility. Turning to our outlook. Based on our current view, we are providing second quarter guidance and anticipate a continuation of the current operating and macroeconomic environment. For the second quarter, we expect comparable RevPAR between $155 and $159. Comparable hotel EBITDA between $121 million and $130 million, corporate adjusted EBITDA between $112 million and $121 million, and adjusted FFO per diluted share between $0.51 and $0.57. Our outlook assumes no additional acquisitions, dispositions, refinancings, or share repurchases. Please refer to the supplemental information, which includes comparable 2019 and 2022 quarterly and annual operating results for our 96 hotel portfolio. Finally, we continue to estimate RLJ capital expenditures will be in the range of $100 million to $120 million during 2023. Thank you, and this concludes our prepared remarks. We will now open the line for Q&A.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead with your question.

Austin Wurschmidt, Analyst

Great. Thanks and good morning, everybody. I appreciate your comments regarding the business transient broadening across sectors, but I'm curious if you're seeing any slowdown in the velocity of the recovery in business transient and then specific to your urban portfolio, how did it perform in the context of your April results?

Frank Bozich, CRO

So, first of all, good morning, Austin. As it relates to business transient, we're not seeing a slowdown. We're seeing a grind forward, if you will. We talked about in our prepared remarks that our room nights are up 10 points quarter-over-quarter. We saw sequential improvement during the quarter where we ended the quarter at 85% of 2019 room nights, March actually ended at 92% room nights. What I would also say is that we saw sequential improvement in revenues and ended with market 75% of total revenues for 2019. If I drill down even further on midweek numbers, we ended the quarter with RevPAR at 89%, which is a 100 basis point quarter-over-quarter improvement, but margin did at 93%. As I think about that moving into April, we're seeing that momentum carry forward. In fact, the quarter is off to a good start. April, we expect overall to be in line with March, but we saw ADR overall pick up 200 basis points relative to 2019 month-over-month relative to March. Additionally, you didn't ask about group, but group pace is at 2019 levels for the second quarter. What I would say about business transient in the second quarter is that typically May and June are the stronger business transient months in the second quarter. And so we would expect to build on the momentum we saw in the second half of April relative to business transient, and so we're seeing it grow forward. We're not seeing it soften off.

Austin Wurschmidt, Analyst

And then, I'm curious with the latest trends in the pace update across your Northern California submarkets for various demand segments. Do you continue to see a recovery in any specific submarkets that are outperforming?

Tom Bardenett, Chief Operating Officer

Yes. Good morning, Austin. It's Tom. In Northern California, in our footprint, we have a couple in CBD, a couple out in Emeryville over at the airport SFO and Burlingame, and then out in Silicon Valley. What we're finding is we are seeing significant project business and new hires that are coming into our Silicon Valley hotels, accounts like Tesla, and Apple. The accounts that Leslie referred to in her business transient are also still hiring some folks that are on the intern side, and we're seeing that type of business come in. We just booked some short-term group business with Micron. What's happened out in Silicon Valley is encouraging, and we're starting to see that ramp more in Q2 and Q3 than Q1. Regarding Northern California CBD, JPMorgan really kind of led the charge out of the gate in January. It was one of the best events we were going to see great attendance there. In the back half of Northern California, it's better comps for Q3 and Q4, where we know that the citywides are double the amount of 2022, even though they're still chasing 2019, we feel like there's going to be compression because of the amount of attendance that's expected in, let's say, 16 out of the 33 citywides. There are going to be significant attendance in the back half of this year, which should be encouraging, because that type of compression helps Emeryville and South San Francisco when citywides come into San Francisco.

Austin Wurschmidt, Analyst

No, that's helpful. Thanks, Tom. Thanks, Leslie.

Operator, Operator

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

Tyler Batory, Analyst

Hey. Good morning. Thank you. Questions on the guidance. I'm just interested when you look at the range you provided for RevPAR in Q2, are you thinking that's more occupancy driven, maybe more rate driven, or maybe more 50-50? It certainly sounds like the rate growth in Q1 was very strong. It sounds like April was strong as well. So just interested in what you're expecting for the balance of Q2?

Leslie Hale, President and Chief Executive Officer

Sure. Tyler, as you mentioned, our split between rates and occupancy was about 50-50 for the first quarter. I would say that, in general, for the second quarter, we're looking at about two-thirds rate versus occupancy, but in April, it was largely rate. We still believe that there's ability to push overall pricing power.

Tyler Batory, Analyst

Okay. Perfect. And in terms of capital allocation, nice to see the repurchase. I mean, how do you view that option versus some of the other opportunities that might be out there? You bought back stock on a leverage-neutral basis. Is that perhaps a governor as you think about applying more capital towards buybacks in the future? And the average price was kind of about where the stock is right now. So should we expect you to continue to be active in the market at current levels?

Leslie Hale, President and Chief Executive Officer

Overall, I would say that you saw that we were very active across a number of fronts. Tyler, we’ve consistently demonstrated a thoughtful and disciplined approach to leveraging the optionality that our balance sheet provides. Given the liquidity we have, we can pull more than one trigger. We've done that for the last several quarters. As mentioned, we were active on the buyback side. We utilized free cash flow to buy the shares on a leverage-neutral basis, which is something important to us. If you look at our margin profile and our free cash flow generation, that's something we will continue to leverage as we go forward. We continue to invest in our portfolio. We've launched the two new conversions, which are already performing ahead of our expectations even without the capital we're going to put in later this year. We increased our dividend as well and continue to cultivate a pipeline of potential acquisitions. However, recognizing that buybacks today remain the most attractive and accretive deployment of capital, we'll continue to monitor that. Our general approach considers our perspective on where we think fundamentals are heading as well as macro perspectives because those also impact our view on volume and complexity around buybacks. We've been thoughtful and will continue to be so, but do acknowledge that buybacks remain attractive.

Tyler Batory, Analyst

Okay. Great. I appreciate that detail. That's all for me. Thank you.

Operator, Operator

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

Michael Bellisario, Analyst

Thank you. Good morning, everyone.

Leslie Hale, President and Chief Executive Officer

Good morning.

Michael Bellisario, Analyst

First question for you mentioned an improvement in head count, lower FTEs. How much of a driver of the first quarter's outperformance on the EBITDA line was that? How sustainable do you think that better run rate is for the remainder of the year? And does that change your earnings outlook at all, or at least your internal earnings outlook for the remainder of 2023?

Sean Mahoney, Executive Vice President and Chief Financial Officer

Yes, Mike, this is Sean. I think on the FTEs, what we saw for the benefit of our footprint is that despite occupancy going up quarter-on-quarter, we were able to flex in light of the demand we had this quarter. Our long-term approach to where we think FTEs are going to land has not changed. We think that's in the low to mid-80% of 2019 levels, and we think that the ramp back to that is going to be influenced by occupancy rebuilding. As occupancy rebuilds, we would expect FTEs to normalize, but we believe the opportunity there is still at the 80% to 85% of 2019 levels. Our view has not changed for the year. From a margin perspective, our labor is 40% of total operating costs and is a big driver of our margins. What we said at the beginning of the year about full-year expectations was for margins to grow year-over-year, which they did in the first quarter by over 280 basis points, and our expectations are to continue that for the full year.

Leslie Hale, President and Chief Executive Officer

I would just add to Sean's comments that our guidance reflects a ramp back to what we believe is a normalized FTE level.

Michael Bellisario, Analyst

Got it. So it sounds like the improvement in Q1 is either a little bit more temporary, or the improvement that you might see is more of a 2023 impact because the long run, whether that's 24 or 25 is unchanged. Is that a fair takeaway?

Leslie Hale, President and Chief Executive Officer

Yeah, I would say that we are very aggressive on the asset management side. We spend a lot of time ensuring that our management companies do not let costs get ahead of the top-line. Coming into the year, clearly, everybody had a perspective around possible macro headwinds. We were pretty cautious on the FTE side. What you're seeing is we didn't fill some of those spots, resulting in a temporary transitory pickup in the first quarter for FTEs. What I would emphasize is that it demonstrates our model and ability to flex on the FTE side. It goes back to the lean operating model regarding our ability to cluster and have efficiencies based on the size of our box and the average length of stay. This should provide you confidence that we can flex when needed, given the type of model that we have.

Michael Bellisario, Analyst

Got it. That's helpful. And then just one more for Sean. Where does net leverage stand today, and what's the comfort level or the comfortable range that you want to operate at for the remainder of the year based on your outlook?

Sean Mahoney, Executive Vice President and Chief Financial Officer

Sure. Today, we're in the high-4s on a trailing four-quarter basis on leverage. We would expect that to go down this year, roughly half a turn, as our EBITDA continues to grow over 2022. We continue to believe that below four times net debt to EBITDA is the appropriate level. As a reminder, we entered COVID with leverage in the low-2s. I think we were 3.2% or 3.3%, and we expect to get back below four times sometime in either the first or second quarter next year, depending on the trajectory based on our internal models.

Operator, Operator

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

Chris Darling, Analyst

Thanks. Good morning. Leslie, you discussed the desire to maintain some level of leverage neutrality in terms of share repurchases. I wonder how you're thinking about selective dispositions in that context. I understand it's not a great environment to maximize value, but in theory, that provides incremental capital to take advantage of that option. Any thoughts on any of those competing ideas?

Leslie Hale, President and Chief Executive Officer

Thanks for the question. In general, given the backdrop we face today in the debt capital markets, it is not an optimal market to be selling assets into. Given the significant liquidity on our balance sheet, we can project forward what we think our free cash flow will be and offset that with cash utilization today. I think about it from a timing perspective rather than needing to sell assets to stay leverage neutral.

Chris Darling, Analyst

All right. Fair enough. That's helpful. And maybe one more, it might be for Tom. If I look at your recent presentation, you lay out the pipeline of future conversion opportunities along with about 5 to 7 of what you're calling special situations. Just hoping you could speak to those special situations and the types of ROI projects that you're envisioning over time there?

Leslie Hale, President and Chief Executive Officer

Sure. I think that what those unique opportunities are is where you have an asset with a lot size that allows you to look at not only a hospitality asset but maybe also developing a multi-use site. These are situations where you can look at developing multifamily alongside a hotel. It's not necessarily something we would execute on our own, but it's an opportunity where we think there's incremental value for RLJ embedded in an asset given where it's located.

Operator, Operator

Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.

Anthony Powell, Analyst

Hi, good morning. Just one for me on the balance sheet. I know you extended the mortgage loans and the term loan into next year. But as you think about refinancing those, most of your peers seem to be paying off mortgages. Is that something that you would consider, or what do you think you get on the mortgage loan currently, what rate?

Sean Mahoney, Executive Vice President and Chief Financial Officer

Yeah. Thanks, Anthony. We have mortgage debt on 15 of our 96 hotels, which represents less than 10% of our total asset value. We're very comfortable from a standpoint of having diverse debt sources, with 15% of our total debt being secured. We think that’s appropriate. For the loans we have secured today, they are loans that are anywhere in 2023 numbers with a mid-teens debt yield and north of two times coverage on each of those loans. They have relatively low loan-to-value ratios, which is why they're priced attractively. When we think about our secured debt, as we refinance, we plan to maintain a conservative leverage stance on those loans while ensuring they remain efficient from a pricing perspective. The market today continues to be variable with lending choppy. As we talk to secured lenders, we are in a very good position due to our balance sheet and relationships, which indubitably places us in a good position to obtain secured debt efficiently, though it will be more expensive than the expiring debt. I'm not yet able to give a precise rate, but I expect we would have to contend with higher spreads than previously. However, we would be compensated by lower loan-to-value ratios.

Operator, Operator

Our next question comes from the line of Floris van Dijkum with Compass Point. Please proceed with your questions.

Floris van Dijkum, Analyst

Hey, good morning. Just a follow-up question. I think, Leslie, you mentioned the business transient recovery and I’m somewhat encouraged by that. Business transient was at 85% of 2019 levels, I think you said April is actually even higher. Where will business transient get to, or can it get to 100% of 2019 levels this year in your view? What would it take? Obviously, we've got some economic uncertainty still weighing over us, but maybe you can give a little comment on how this views your perspective on the company and on the market as well?

Leslie Hale, President and Chief Executive Officer

So, look, I would generally say that business transient is grinding forward. We don't necessarily see it getting back to 2019 levels by the end of this year. We think it's a possibility for 2024. The million-dollar question is whether business transient will get back to 100% or not. What I would say is that we have confidence in the dynamics between all segments, and given the elevated rate growth that we're seeing across the portfolio in all segments, we should achieve our 2019 revenues across the board. As an industry, we are evolving to capture the new breakdown of segmentation, and we think our portfolio is built for that. When you consider our urban-centric portfolio, our urban lifestyle assets are located in the heart of seven-day-a-week demand. The nature and types of assets we have allow us to capture the changing mix between business transient and leisure, so we are net-positive regarding how business transient is evolving. However, as the new normal continues to take shape, our portfolio is uniquely positioned to capitalize on the evolving mix.

Sean Mahoney, Executive Vice President and Chief Financial Officer

Just to add onto that, regarding our guidance relative to first quarter and the fourth quarter, our RevPAR improved from 90 to 100 basis points from fourth quarter to first quarter. Our guidance implies at midpoint that we're at 99% of 2019 levels of RevPAR, reflecting another 400 basis points of recovery quarter-over-quarter. This indicates how we believe the recovery is going to continue to unfold. We believe that because of our urban-centric portfolio and business transient being a driver of that, we have confidence in the guidance we've provided.

Floris van Dijkum, Analyst

Thanks. That’s it for me.

Operator, Operator

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

Gregory Miller, Analyst

Hi. Thanks. Good morning, all. I'd like to discuss the business transient again. Could you provide an update on negotiated corporate ADR trends now that we are past the winter months? How does the negotiated ADR today compare to the mid-single-digit growth that had been previously articulated?

Tom Bardenett, Chief Operating Officer

Good morning, Greg. It's Tom. Yes, we're pleased with how it shook out during the negotiation process, which starts in the August, September timeframe. It was a pretty lengthy negotiation going into the fourth quarter as well as the first quarter. We had a strong ask on the table with a walkaway price. Where we ended up globally was somewhere between 5% on the minimum and high single digits on the top end. We are seeing significant volume year-over-year, particularly easy to compare when looking at 2022, Q1 versus 2023. More importantly, we're seeing movement, as Sean mentioned, from Q4 to Q1. The increasing mix in accounts consists of larger corporations as opposed to small-to-medium enterprises. We’re beginning to see growth from the tech companies, even though they went through a correction regarding hiring. We are seeing volume gain traction from sectors like aerospace, automotive, consulting—where we have companies like Deloitte, Accenture, and Ernst & Young staying at our hotels. A leading indicator of this progress can be seen in the source of business, which currently sits at double digits versus the mid-single-digit percentage of business coming through Amex travels and other organizations that typically book these types of business transient events. We’re encouraged by our growth in rate and the corresponding increase in volume relative to 2022.

Gregory Miller, Analyst

Great. Thanks so much for that. I have another question. I believe an HLA survey is in progress. I find that pretty interesting, and I’m curious how franchise staffing and labor costs are pending for the portfolio today. Is it harder to fill the hourly roles?

Sean Mahoney, Executive Vice President and Chief Financial Officer

Yes, I would say that the front desk and the staffing requirements for that versus housekeeping and food and beverage have persisted. It's been manageable to maintain consistent levels because we have to have a certain number of people on shifts as occupancy rises. It's not an area that has experienced significant challenges in finding staff compared to housekeeping and food and beverage, particularly considering the restaurant sector and the brief period when group events took a while to recover. However, we have maintained staffing levels at the desk and have systems in place for retention. One interesting aspect we’ve implemented is an up-selling program. This program incentivizes staff at the front desk to drive average rates. We offer incentives based on upselling efforts, which has proven attractive for those positions and helped us hire more individuals at the desk.

Gregory Miller, Analyst

Terrific. Thanks so much for all the information.

Operator, Operator

We have reached the end of the question-and-answer session. I'll now turn the call back over to Leslie Hale for closing remarks.

Leslie Hale, President and Chief Executive Officer

Thank you all for joining us today. I would like to reiterate that the positive momentum we've seen in our portfolio and our urban concentration positions us for continued growth. We discussed a number of catalysts unique to RLJ and that provide us confidence that we can continue to outperform. I'm looking forward to seeing many of you at NAREIT. I hope all of you have great summer plans, and I wish you all well for the summer. Thank you, everybody.

Operator, Operator

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