Core Insights - RLJ Lodging Trust has appointed Nikhil Bhalla as CFO, succeeding Sean Mahoney who retired in May [1][2] - Bhalla has been with RLJ since 2015, previously serving in various financial roles including senior vice president of finance and treasurer [2] - The company owns 94 premium-branded urban-centric hotels targeting multiple demand generators [3] Leadership and Experience - Nikhil Bhalla has held multiple roles at RLJ, including vice president and treasurer for corporate strategy and investor relations [2] - Prior to joining RLJ, Bhalla was vice president of equity research at investment bank FBR and director of feasibility and strategic analysis at Host Hotels & Resorts [2] Strategic Vision - RLJ President and CEO Leslie Hale emphasized Bhalla's strategic insight and financial acumen as key to advancing the company's financial strategy and growth initiatives [3] - Bhalla expressed commitment to building on the company's strong financial foundation and delivering value for shareholders [3]

Market Overview - Small cap stocks showed volatile performance in Q2, with the Russell 2000 Index recovering to within 10% of its record highs in just 55 days, primarily driven by growth, momentum, high-beta, and low-quality stocks [2] - The Russell 2000 returned 8.5% for the quarter, underperforming the Russell 1000 Index's 11.1%, marking the widest annual performance gap since 1935 [3] - Growth stocks regained leadership due to strong demand for AI beneficiaries, with the Russell 2000 Growth Index returning 12.0%, significantly outperforming the Russell 2000 Value Index by 700 basis points [3] Retail Investor Activity - Retail trading volumes have more than doubled since 2010, now accounting for nearly 21% of total market volume, while traditional long-only managers and hedge funds are losing market share [4] - Retail investors are focusing on companies with an average market cap about half that of the Russell 3000, with nearly 45% of their purchases being "zombie" companies with no earnings [10] - Notable examples include Regencell Bioscience, which saw a 7,000% increase in market cap despite having no revenue or regulatory approval [10] Portfolio Performance - The ClearBridge Small Cap Strategy underperformed its benchmark in Q2, with detractors in consumer discretionary and communication services sectors outweighing positive contributions from utilities and select healthcare companies [12] - Stock selection in the consumer discretionary sector faced challenges, particularly for Murphy USA and Oxford Industries, due to idiosyncratic headwinds and increased tariff costs [13][14] - Communication services sector detractors included Criteo and Anterix, with concerns over long-term growth and profitability impacting performance [15] Sector Contributions - Utilities sector performance was led by Talen Energy, benefiting from rising demand for power due to AI data centers [16] - Verona Pharma rebounded after receiving favorable FDA designation, leading to its acquisition by Merck at a premium [17] - Overall, the strategy had gains in six of the 11 sectors, with industrials and IT sectors being the leading contributors [21] Portfolio Positioning - The company actively adjusted its financial sector positioning, exiting Home BancShares for UMB Financial to enhance quality exposure [18] - New positions were initiated in AGCO within the industrials sector, expected to benefit from trade and tariff policies [19] - Exited positions included Abacus Global due to declining conviction and performance concerns [18] Outlook - The market shows signs of euphoria reminiscent of previous speculative bubbles, with a focus on low-quality stocks [4][20] - Economic uncertainties, including tariff impacts and potential inflation, suggest a need for a cautious approach [20] - The company continues to prioritize high-quality stocks with strong fundamentals, anticipating that these will be favored when market conditions shift [20]

Core Insights - During market turbulence, investors often seek dividend-yielding stocks, which typically have high free cash flows and offer substantial dividends [1] Group 1: Company Ratings and Analyst Insights - Easterly Government Properties, Inc. (DEA) has a dividend yield of 7.89%. RBC Capital analyst Michael Carroll maintained an Underperform rating and reduced the price target from $27.5 to $22 [7] - RLJ Lodging Trust (RLJ) has a dividend yield of 8.54%. Truist Securities analyst Patrick Scholes downgraded the stock from Buy to Hold and lowered the price target from $16 to $11 [7] - Park Hotels & Resorts Inc. (PK) reported positive quarterly results on July 31, indicating strong performance [7]

Group 1 - The article focuses on the Real Estate Investment Trusts (REITs) segment of the investment market, highlighting the author's intent to expand knowledge and portfolio in this area [1] - The author emphasizes a long-term investment horizon and a strategy centered around contrarian and deep-value opportunities, particularly in identifying REITs that are currently out-of-favor [1] - The author utilizes fundamental economic insights to assess the intrinsic value of stocks, indicating a methodical approach to investment analysis [1] Group 2 - There is no current position held in RLJ, and the author plans to adjust positions in other REITs before considering an investment in RLJ, requiring at least one more quarter of analysis [3] - The article does not provide any recommendations or advice regarding the suitability of investments for particular investors, emphasizing that past performance is not indicative of future results [3]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls for the reporting period [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the period ended June 30, 2025, reflect a slight decrease in total assets and equity, with net income and operating cash flow declining year-over-year due to lower room revenue and a prior-year gain on asset sales [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet shows a slight decrease in total assets and equity as of June 30, 2025, compared to December 31, 2024 Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$4,822,810** | **$4,883,879** | | Cash and cash equivalents | $373,896 | $409,809 | | Investment in hotel properties, net | $4,214,058 | $4,250,524 | | **Total Liabilities** | **$2,582,575** | **$2,585,602** | | Debt, net | $2,220,768 | $2,220,081 | | **Total Equity** | **$2,240,235** | **$2,298,277** | [Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) The income statement indicates a year-over-year decline in total revenues and net income for both Q2 and H1 2025 Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $363,103 | $369,297 | $691,222 | $693,707 | | Net Income | $28,631 | $37,291 | $31,803 | $42,037 | | Net Income Attributable to Common Shareholders | $22,174 | $30,827 | $19,258 | $29,486 | | Diluted EPS | $0.15 | $0.20 | $0.12 | $0.19 | [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operating activities decreased for the first half of 2025 compared to the prior year Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $117,620 | $134,294 | | Net cash used in investing activities | ($58,186) | ($225,038) | | Net cash used in financing activities | ($91,597) | ($57,369) | | **Net change in cash** | **($32,163)** | **($148,113)** | [Notes to the Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Key notes detail the company's hotel portfolio, recent asset sales, debt refinancing, and capital allocation strategies - As of June 30, 2025, the Company owned a portfolio of **95 hotel properties** with approximately **21,200 rooms** across 23 states and the District of Columbia[36](index=36&type=chunk) - On March 6, 2025, the Company sold the 181-room Courtyard Atlanta Buckhead hotel for a sales price of **$24.3 million**[48](index=48&type=chunk) - In April 2025, the Company refinanced a term loan, increasing it to **$300.0 million** and extending the maturity to April 2028. The incremental **$100.0 million** in proceeds were used to pay off the outstanding balance on the Revolver[57](index=57&type=chunk)[58](index=58&type=chunk) - The company declared cash dividends of **$0.15 per common share** in each of the first and second quarters of 2025, an increase from **$0.10 per share** in the same periods of 2024[82](index=82&type=chunk) - During the first six months of 2025, the Company repurchased approximately **3.1 million common shares** for **$27.2 million**. A new **$250.0 million** share repurchase program was authorized in April 2025[83](index=83&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the year-over-year decline in Q2 2025 revenue and net income to decreased room revenue, while focusing on portfolio enhancement, capital recycling, and maintaining a prudent capital structure through asset sales, debt refinancing, and share repurchases - The company's strategy is to own primarily premium-branded, rooms-oriented, high-margin, focused-service and compact full-service hotels in high-growth urban markets[112](index=112&type=chunk)[113](index=113&type=chunk) - Significant activities in 2025 include selling one hotel for **$24.3 million**, refinancing a term loan to **$300 million**, paying off the **$100 million** Revolver balance, and repurchasing **3.3 million common shares** for **$28.2 million**[116](index=116&type=chunk) Comparable Properties Key Operating Statistics (Q2) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Occupancy | 75.5 % | 76.8 % | | ADR | $205.03 | $206.10 | | RevPAR | $154.90 | $158.27 | Comparable Properties Key Operating Statistics (H1) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Occupancy | 72.4 % | 73.2 % | | ADR | $204.72 | $203.28 | | RevPAR | $148.18 | $148.70 | Reconciliation to Adjusted FFO (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $28,631 | $37,291 | $31,803 | $42,037 | | FFO | $69,216 | $72,105 | $110,945 | $115,625 | | Adjusted FFO | $72,658 | $78,619 | $119,579 | $130,473 | Reconciliation to Adjusted EBITDA (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $28,631 | $37,291 | $31,803 | $42,037 | | EBITDA | $100,332 | $106,421 | $174,199 | $178,161 | | EBITDAre | $100,710 | $102,875 | $173,256 | $174,615 | | Adjusted EBITDA | $104,008 | $108,971 | $181,602 | $188,563 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on variable-rate debt, though 72.8% of total indebtedness is fixed or effectively fixed, with a 100 basis point increase potentially decreasing earnings by $6.1 million annually - As of June 30, 2025, **72.8%** of the company's total indebtedness was fixed or effectively fixed after taking into account interest rate swaps[178](index=178&type=chunk) - A **1.00% (100 basis points)** increase in market interest rates on variable rate debt not subject to swaps would decrease future earnings and cash flows by approximately **$6.1 million annually**[178](index=178&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were deemed effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were **effective** as of June 30, 2025[183](index=183&type=chunk) - There were **no changes in internal control over financial reporting** during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[184](index=184&type=chunk) [PART II. OTHER INFORMATION](index=40&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, updated risk factors, equity security sales, and other significant corporate information [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material litigation beyond routine claims arising in the ordinary course of business - Other than routine litigation arising out of the ordinary course of business, the Company is **not presently subject to any material litigation**[185](index=185&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report - There have been **no material changes** to the risk factors previously disclosed in the Company's Annual Report[186](index=186&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not sell unregistered securities but repurchased **947,262 shares** during Q2 2025, primarily under publicly announced programs Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | April 2025 | 556,869 | $7.06 | 496,021 | | May 2025 | 209,646 | $7.39 | 209,646 | | June 2025 | 180,747 | $7.31 | 180,747 | | **Total** | **947,262** | | **886,414** | [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) On August 4, 2025, the President and CEO, Leslie D. Hale, was appointed interim principal financial officer - On August 4, 2025, the Board of Trustees appointed Leslie D. Hale, the President and CEO, to serve as the Company's **interim principal financial officer**[192](index=192&type=chunk)

Financial Data and Key Metrics Changes - The company reported a RevPAR decline of 2.1% in Q2 2025, with occupancy at 75.5% and an average daily rate (ADR) of $205, translating to a 1.6% decline in occupancy and a 0.5% drop in ADR [18][19][21] - Adjusted EBITDA for the quarter was $104 million, with adjusted FFO per diluted share at $0.48 [21][24] - The company achieved hotel EBITDA of $113 million and hotel EBITDA margins of 31.1% [21] Business Line Data and Key Metrics Changes - Urban hotels outperformed the overall portfolio, with RevPAR growth of 20% in San Francisco and 10% growth in completed conversions [6][11][19] - Non-room revenues grew by 1.5%, indicating success in ROI initiatives despite lower occupancy [10][19] - Leisure revenues increased by 5%, driven by events and holiday shifts, while urban leisure segments achieved 7% revenue growth [7][9] Market Data and Key Metrics Changes - The company gained 140 basis points of market share, outperforming the industry despite RevPAR constraints [6] - Northern California showed ongoing recovery, supported by a positive local business climate and citywide events [6][15] - The company anticipates challenges in the third quarter due to tough comparisons and ongoing renovations, with preliminary July RevPAR tracking down by mid-single digits year-over-year [14][25] Company Strategy and Development Direction - The company is focused on driving earnings growth through disciplined expense management and capital allocation initiatives [5][12] - Key initiatives include repositioning assets, addressing near-term maturities, and opportunistically recycling capital into share repurchases [5][12] - The company expects to benefit from an improving economic backdrop in 2026, with a favorable geographic exposure and urban footprint [15][17] Management's Comments on Operating Environment and Future Outlook - Management expressed mixed outlook for the second half of the year, citing uncertainty in the macro environment and shorter booking windows [13][25] - The company anticipates a soft third quarter but expects tailwinds in the fourth quarter from favorable holiday shifts and improved group travel [14][25] - Management remains confident in the portfolio's ability to create long-term value despite near-term volatility [18] Other Important Information - The company executed $6 million in share repurchases during the quarter, maintaining a disciplined approach to capital allocation [12][24] - The balance sheet remains strong, with $600 million available under the undrawn corporate revolver and nearly $1 billion in total liquidity [22][23] Q&A Session Summary Question: Booking pace tracking into August and September - Management noted that the third quarter is expected to be the weakest due to a layering effect of demand and holiday shifts impacting bookings [28][30] Question: Differences between urban leisure and resort leisure - Urban leisure outperformed with a 7% increase, while international leisure showed softness [34][35] Question: Share repurchases strategy - Management indicated a programmatic approach to share repurchases, influenced by fundamentals and leverage considerations [37][38] Question: Update on Nashville asset performance - Nashville asset reported a 14% increase in Q2, benefiting from its location and recent conversion [42][45] Question: Transactions environment outlook - Management observed low transaction volume but noted improved sentiment and potential for more deals in the coming months [46][48] Question: Leisure discounting trends - Demand remains stable, but rate sensitivity is leading to increased use of discount booking channels [52] Question: Expense outlook for the second half of the year - Management expects about 2% growth in expenses, with ongoing cost control measures in place [57][60] Question: Expectations for flat margins from RevPAR perspective - Management indicated a normalized relationship between revenue and expenses, with a focus on maintaining margins [64] Question: Changes in booking channels - Direct bookings through brand.com are growing, while OTAs are slightly up due to leisure softness [66][68]

Company Overview - As of June 30, 2025, the company owns 94 properties with 20,982 hotel rooms[3] - The company's market capitalization is $1.1 billion, with a total enterprise value (TEV) of $3.3 billion and total capitalization of $3.7 billion[3] - The share price is $7.28 with 151.2 million total shares and units outstanding[3] - The company has $0.3 billion in preferred equity and $1.9 billion in net debt outstanding[3] Debt Maturity - 31% of the company's debt, amounting to $181 million, is maturing in 2025[6] - 10% of the company's debt, amounting to $25 million, is maturing in 2026[6] - 46% of the company's debt, amounting to $225 million, is maturing in 2027[6] - Total debt outstanding is $2.2 billion[6] Financial Performance (Q2 2025) - Total revenue for comparable hotels is $363.085 million[8] - Comparable Hotel EBITDA is $113.023 million with a 31.1% margin[8] - Occupancy is 75.5% with an Average Daily Rate (ADR) of $205.27 and Room Revenue per Available Room (RevPAR) of $155.08[8] Financial Performance (Q2 2025 TTM) - Comparable Hotel EBITDA is $389.3 million[10, 15] - Net income is $58.0 million[15] - EBITDA is $340.7 million[15] - Adjusted EBITDA is $354.7 million[15]

Core Viewpoint - RLJ Lodging Trust reported strong adjusted FFO results for Q2 2025, significantly exceeding analyst expectations, despite a slight decline in revenue and hotel operating metrics compared to the previous year [1][4]. Financial Performance - Adjusted FFO per diluted share was $0.48, surpassing the estimate of $0.11, but down 5.9% from $0.51 in Q2 2024 [2]. - Revenue for Q2 2025 was $363.1 million, slightly below the expected $365.3 million and down 1.7% from $369.3 million in Q2 2024 [2]. - Net income decreased to $28.6 million, a 23.2% decline from $37.3 million in the same quarter last year [2]. - Adjusted EBITDA was $104.0 million, down 4.6% from $109.0 million in Q2 2024 [2]. Operational Context - Comparable RevPAR fell 2.1% to $155.08, with comparable occupancy dropping to 75.5% and comparable ADR decreasing by 0.5% [2][5]. - Management cited citywide event schedules and property renovations as factors impacting performance, with expectations of continued effects in the next quarter [5]. Strategic Focus - The company targets high-growth urban markets and emphasizes proactive asset management, property improvements, and maintaining a strong balance sheet [3]. - RLJ is focusing on premium-brand conversions, which have shown double-digit RevPAR growth, with 14% growth for initial conversions and 35% for recent ones [6][10]. Capital Management - RLJ has managed its capital structure effectively, refinancing a $200 million term loan to $300 million and eliminating all 2025 debt maturities [7][8]. - The company maintained a corporate liquidity of $974 million, including $374 million in cash [6]. Future Outlook - Management provided cautious guidance for FY2025, expecting comparable RevPAR growth between -1.0% and 1.0%, with adjusted EBITDA projected at $332.5 million to $362.5 million [13]. - The company anticipates stabilization in group bookings and a more favorable event calendar in Q4 [12][14].

Core Insights - RLJ Lodging reported revenue of $363.1 million for the quarter ended June 2025, reflecting a year-over-year decline of 1.7% and a surprise of -0.64% compared to the Zacks Consensus Estimate of $365.45 million [1] - The company achieved an EPS of $0.48, which is an increase from $0.20 a year ago, resulting in an EPS surprise of +4.35% against the consensus estimate of $0.46 [1] - Over the past month, RLJ Lodging shares returned -3.8%, underperforming the Zacks S&P 500 composite's +1.2% change, and currently holds a Zacks Rank 4 (Sell) [3] Revenue Breakdown - Other revenue was reported at $25.07 million, slightly below the estimated $25.14 million, showing a year-over-year increase of +1.1% [4] - Food and beverage revenue reached $41.93 million, exceeding the average estimate of $40.88 million, with a year-over-year change of +2.7% [4] - Room revenue was $296.1 million, slightly below the average estimate of $297.35 million, representing a year-over-year decline of -2.5% [4] - Net Earnings Per Share (Diluted) was reported at $0.15, surpassing the average estimate of $0.12 [4]

Group 1 - RLJ Lodging reported quarterly funds from operations (FFO) of $0.48 per share, exceeding the Zacks Consensus Estimate of $0.46 per share, but down from $0.51 per share a year ago, representing an FFO surprise of +4.35% [1] - The company posted revenues of $363.1 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 0.64%, compared to year-ago revenues of $369.3 million [2] - RLJ Lodging has surpassed consensus FFO estimates four times over the last four quarters and topped consensus revenue estimates two times during the same period [2] Group 2 - The stock has underperformed, losing about 28.2% since the beginning of the year, while the S&P 500 has gained 7.9% [3] - The company's FFO outlook is crucial for investors, as it includes current consensus FFO expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus FFO estimate for the coming quarter is $0.36 on revenues of $343.97 million, and for the current fiscal year, it is $1.45 on revenues of $1.37 billion [7] Group 3 - The Zacks Industry Rank indicates that the REIT and Equity Trust - Other industry is currently in the top 40% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8] - The estimate revisions trend for RLJ Lodging was unfavorable ahead of the earnings release, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6]