RLJ Lodging Trust (RLJ) 2025 Q4 法說會逐字稿

Welcome to the RLJ Lodging Trust fourth quarter 2025 earnings call. (Operator Instructions) And the conference is being recorded. (Operator Instructions) I would now like to turn the call over to John Paul Austin, Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to RLJ Lodging Trust's 2025 fourth quarter and full year 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 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 includes pro forma operating results for our current hotel portfolio for 2025.

I will now turn the call over to Leslie.

Thanks, John Paul. Good morning, everyone, and thank you for joining us today. We were pleased with our solid fourth quarter results, which came in ahead of our expectations despite a choppy operating environment that was further constrained by the protracted government shutdown. Our operating results benefited from the continued outperformance of our urban markets, the ramp of our completed high-occupancy renovations as well as our robust growth in non-rooms revenue.

These factors, combined with disciplined cost management, contributed to our better-than-expected bottom line results. The fourth quarter capped a highly productive year for us during which we delivered our Nashville conversion and continued ramping our completed conversions, which on average achieved RevPAR growth that was nearly 700 basis points ahead of our broader portfolio.

We advance the next phase of our pipeline, including the selection of the brand for our Boston conversion. We completed transformative renovations of several hotels and high-demand markets. We achieved robust non-room revenues well in excess of our RevPAR performance, validating investments in our ROI initiatives. We strengthened our balance sheet by addressing all of our near-term debt maturities. We executed on opportunistic asset sales at accretive multiples, and we returned significant capital to shareholders in the form of dividends and share repurchases.

The execution of these initiatives have strengthened our long-term growth profile and further bolstered confidence in our ability to deliver on our value creation initiatives even in an uncertain environment. With respect to our operating performance, our fourth quarter RevPAR decline of 1.5% came in better than what we had anticipated in the midst of the government shutdown. These improved top line results were driven by the relative outperformance of our urban markets, a stronger-than-expected acceleration of the ramp at our major renovations as a shutdown ended as well as an overall stronger December, which benefited from positive leisure demand despite a difficult year-over-year comparison for the month.

Our urban hotels continue to be a key driver of our performance as they captured positive trend across a broad range of demand sources this quarter. Among our urban markets, San Francisco CBD was once again the top performer, achieving 52% RevPAR growth in the quarter, supported by growth from all demand segments as well as the calendar shift for the Dreamforce conference into the fourth quarter.

We are encouraged by the ongoing momentum in San Francisco's recovery, supported by a thriving tech economy, improving perception of the overall local environment and a strong lineup of events this year, including the recent Super Bowl, which was wildly successful as well as the upcoming World Cup gains. From a segmentation standpoint, our nongovernment-related business transient revenues grew by 5% during the quarter. And with our highest-rated customer demand segment continuing to grow, corporate rates were up a solid 2%. Overall, nongovernment business travel demand continues to benefit from the resiliency of the economy and healthy corporate profits, especially in sectors such as tech, finance and consulting, which continue to see positive momentum in return to office trends.

However, government business demand was further impacted during the quarter by the shutdown, primarily affecting our D.C. and Southern California markets. Relative to group, our revenues were down 3% as in the quarter, for the quarter demand was artificially impacted by the shutdown in October and November. However, group dynamics remain strong as evidenced by the growth in our group ADR of 4% despite the soft demand.

Regarding leisure, trends remained stable, and we were encouraged to see demand increase a healthy 1% during the quarter, although we continue to observe some price sensitivity among consumers. Our urban leisure once again saw stronger relative performance achieving revenue growth ahead of our portfolio, driven by strong demand around the holidays. Our leisure segment also benefited from our recently renovated hotels in Waikiki and Deerfield Beach, which achieved RevPAR growth of 12% and 10%, respectively, in December as they resume their ramp following the end of the government shutdown.

Despite softer occupancy in the quarter, we achieved strong non-room revenue growth of 7.2%, exceeding our RevPAR performance by nearly 900 basis points, allowing us to generate positive total revenue growth. These results validate our strategy to drive high-margin out-of-room spend and underscore the success of our ROI initiatives aimed at growing profitable food and beverage, reconcepting underutilized space and growing other ancillary revenues.

Overall, better-than-expected RevPAR performance aided by contributions from the ramp of our completed conversions and renovations, robust nonroom revenue growth and continued disciplined cost containment drove much of the EBITDA upside relative to our expectations. Turning to capital allocation. We made significant progress on a number of fronts during the fourth quarter. We continue to ramp our completed conversion with our four most recently completed conversions achieving 15% RevPAR growth for the full year.

We completed transformative renovations at our high occupancy hotels in Waikiki, Deerfield Beach and are already seeing positive trends with both assets generating RevPAR growth of more than 10% in December. We made further progress towards our conversion of the Renaissance Pittsburgh and expect to relaunch this asset as part of Marriott's Autograph Collection this year. And we advanced the programming of our Wyndham Boston Beacon Hill conversion to Hilton's Tapestry Collection with construction slated commenced later this year.

We remain on pace to deliver an average of two conversions per year and look forward to announcing our next conversion later this year. Additionally, during the quarter, we executed on the opportunistic sale of two hotels at accretive multiples and used the proceeds to pay down debt. Subsequent to the quarter, we completed a series of refinancing transactions, which addressed all of our debt maturities through 2028. Our strong balance sheet and liquidity continue to support the optionality that we have with respect to capital allocation.

This year, we returned $120 million to our shareholders through share repurchases and a well-covered dividend. Now looking ahead, we are cautiously optimistic overall. While we acknowledge the lingering geopolitical uncertainty, we remain constructive on the setup of a broader economy, given the tailwinds expected from moderating interest rates and tax cuts, which have positive implications for travel demand.

Relative to this setup, the lodging industry is expected to achieve slightly positive RevPAR growth this year, driven by the ongoing positive momentum in nongovernment-related business travel, increased leisure demand, especially urban leisure demand, from several unique events, particularly the World Cup games plus the 250th anniversary of America in addition to healthy group dynamics.

We believe that these trends will disproportionately favor urban markets, allowing them to continue to outperform the broader industry. Against this backdrop, we believe we are well positioned given our favorable geographic exposure, urban footprint and high-impact capital investments, which should allow us to benefit from the broad-based growth across all the segments that urban markets are capturing, a favorable footprint with a number of World Cup games across nine of our markets, including prominent games in New York, Los Angeles and Miami.

The 250th anniversary of America with large-scale related events in the Boston, New York, D.C. and Philadelphia markets. The favorable rotation of more major sporting events, including the NFL draft, the Major League Baseball All-Star Game and the NCAA March madness. A healthy group pace and strong group pricing, particularly in the second quarter, supported by these events, continued growth of nonroom revenues driven by our successful ROI initiatives, the ongoing momentum in our Northern California market, supported by the rapid growth of the AI industry that is simulating business travel, events and corporate investment.

And the tailwinds from the ramp of our completed conversion and high occupancy renovation. In aggregate, these tangible catalysts and the resiliency of our urban center portfolio underpin our positioning for this year. Our strong relevant positioning is further supported by our flexible balance sheet, which will allow us to execute on our key investments.

Overall, we remain confident in the long-term outlook for the lodging sector, especially against an elongated period of limited new supply, which will disproportionately benefit urban markets, allowing our urban-centric portfolio combined with our value-creating initiatives to drive shareholder returns long term. With that, I will turn the call over to Nikhil.

Thanks, Leslie. To start, our comparable numbers include our 92 hotels owned at the end of the fourth quarter. Our reported corporate adjusted EBITDA and AFFO include operating results from all sold hotels during RLJ's ownership period.

As Leslie noted, our fourth quarter results came in ahead of our expectations. Fourth quarter occupancy was 68.7%, average daily rate was $199 and RevPAR was $137, which translated to a 1.5% RevPAR contraction versus the prior year, comprised of a 0.9% decline in occupancy and a 0.7% decline in ADR that the government shutdown weighed on our results in both October and November, which are seasonally the highest contributors during the fourth quarter and December faced a uniquely difficult comparison from the prior year.

Our urban markets outperformed our portfolio by approximately 0.5 point, benefiting from robust growth in markets such as Northern California, Denver CBD and New York City achieving 18.5%, 10.1% and 4.7% RevPAR growth, respectively. We were especially pleased with our non-room revenues growing by 7.2% over the fourth quarter of last year, which led our total revenues to grow by 0.2% and driven by solid growth in F&B, parking and other revenues.

With respect to expenses, total operating costs were up only 0.8% during the quarter and up 1.6% for the full year. Our fixed expenses during the quarter benefited from a favorable insurance renewal as well as $4.7 million in real estate tax benefits as a result of our successful appeals, which were not contemplated in our outlook.

Excluding these tax benefits, our total expenses increased only 2.1% for the full year, reflecting the benefits of our lean operating model as well as relentless focus on enhancing productivity and managing expenses. Our ability to manage costs in a soft RevPAR environment allowed us to achieve fourth quarter comparable hotel EBITDA of $87.8 million and hotel EBITDA margins of 27%, which was only 44 basis points behind last year.

This translated to adjusted EBITDA of $8.4 million and adjusted FFO per diluted share of $0.32 for the fourth quarter. Our team continues to work diligently to execute cost containment initiatives to minimize operating cost growth in response to the current environment. We continue to actively manage our balance sheet to create additional flexibility.

During 2025, we have proactively addressed all of our near-term debt maturities. Subsequent to the year, we executed four financing transactions, which addressed our debt maturities through 2028 and expanded our capacity. These included the recasting of our $600 million revolver to extend maturity to 2031, upsizing and extending our existing $225 million term loan, the addition of a new $150 million term loan and refinancing of our two mortgage loans maturing in April.

The term loans created approximately $500 million of new capacity, which we intend to use under delayed draws to pay off $500 million of senior notes maturity in July this year. The successful execution of these refinancing transactions will result in minimal increase to our annual interest expense despite refinancing our lowest cost debt in a higher interest rate environment.

As a result of these transactions, we have further laddered our debt maturity profile such that we will have no maturities due before 2029. Our balance sheet is well positioned with $600 million currently available under our undrawn corporate revolver, 84 of our 92 hotels unencumbered by debt, an attractive weighted average interest rate of 4.6% and 73% of [debt] either fixed or hedged.

We ended the fourth quarter with over $1 billion of liquidity and $2.2 billion of debt and the company's weighted average debt maturity will be approximately 4.5 years post the payoff of the senior notes. We continue to leverage the flexibility offered by our healthy balance sheet to unlock embedded value across our portfolio through high-value conversions and renovations while remaining committed to returning capital to shareholders.

During 2025, we advanced our Nashville and Pittsburg conversions and executed four transformative renovations. Additionally, we sold three properties for $73.7 million in aggregate at a highly accretive multiple of 17.7x projected 2025 hotel EBITDA, including required CapEx. We recycled substantially all of these proceeds into the repurchase of 3.3 million shares for $28.6 million and our refinancing efforts inclusive of the paydown of a first mortgage.

Finally, we continue to pay an attractive and well-covered quarterly dividend of $0.15 per share. We will continue to make prudent capital allocation decisions to position our portfolio to drive growth through the entire cycle, while maintaining a strong and flexible balance sheet. Turning to our outlook.

Based on our current view, we are providing full year guidance, which at the midpoint assumes a continuation of the current operating environment. For 2026, we expect comparable RevPAR growth to range between 0.5% and 3%, comparable hotel EBITDA between $344 million and $374 million, corporate adjusted EBITDA between $312 million and $342 million and adjusted FFO per diluted share to be between $1.21 and $1.41, which assumes no additional repurchases.

Our outlook assumes no additional acquisitions, dispositions or balance sheet activity beyond what has been completed today. We 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 expect net interest expense will be in the range of $101 million to $103 million.

We also expect total revenue growth will outpace RevPAR growth due to the continuing success of our initiatives to drive out room spend. With respect to the cadence for the year, we expect the first quarter to be the softest quarter as we lap difficult year-over-year comparisons in D.C. from the inauguration and increased demand at our Southern California hotels following the wildfires. January RevPAR was down 1.9%, reflecting these difficult comparisons. Based on our current visibility, we expect the contribution from the first quarter adjusted EBITDA to represent approximately 22% of our full year outlook.

As we move beyond the first quarter, we expect the second quarter contribution to be similar to last year with the balance of the contribution in the back half of the year. As you bridge between 2025 and 2026 adjusted EBITDA, please keep in mind that adjustments for the asset sales as well as the nonrecurring property tax credits of $4.7 million during the fourth quarter. Finally, please refer to our press release from last evening for additional details on our outlook and to our schedule of supplemental information, which will include comparable 2025 and 2024 quarterly and annual 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 Instructions) Austin Wurschmidt, KeyBanc Capital Markets.

It's (inaudible) on for Austin. How much benefit are you guys assuming from the World Cup? And then separately from easier comps due to the government shutdown? And how much of the RevPAR growth this year, are you expecting to come from rate growth versus occupancy?

So let me unpack all of our building blocks for what's embedded at the midpoint of our guidance based on your question. I would say from a balance perspective, we're balancing rate and occupancy we see it equally weighted for at the midpoint. When we think about segmentation, we're assuming that BT is going to continue to improve. On the strength of national accounts that continue to come back in terms of frequency and length of stay, we're also assuming that because our highest rate of customers coming back that we're going to see rate growth on the BT side, and that BT is going to benefit from the holiday calendar shift, which is having seen a lot of holidays on the weekends.

Additionally, we are assuming that leisure demand is expected to increase in 2026 on the strength of the unique events. We think urban leisure is going to continue to outperform. We think that rate is going to be a key driver of growth in 2026 for leisure, which was not in 2025. And then our leisure is going to benefit from the ramp of our high occupancy renovations that we did last year, which were in leisure markets. And group is going to see pace ahead of 2025 in the second, third and fourth quarter.

And that all of those things are going to benefit urban, which is going to continue to outperform the industry, particularly on the strength of San Francisco. And then if I drill down on the special events for World Cup, we've got nine markets that are benefiting from World Cup with 63 games and we have prominent games in Miami, New York and L.A., and that's translating into about 45 basis points of pickup for us.

I would say additionally, as we mentioned last year, we were impacted by our high occupancy renovations. And so this year, we're getting the benefit of that and Waikiki, Deerfield and Key West, and that's going to translate into an incremental 40 basis points for us. And that's on top of the benefits from the special events, the 250th Anniversary in D.C., Boston, New York, in Philly as well as more regional games that we're getting from March Madness, and we also have the final Four in our footprint this year as well, and that's incremental to Super Bowl that benefited San Francisco. In aggregate, those things are reflected in the midpoint of our range.

Okay. That's really helpful. And my second question, how are you prioritizing capital allocation today between asset sales and possible share repurchases, given where your stock is trading and what would need to change either in valuation or transaction markets for external growth to become more attractive?

Yes. I think, clearly, we were active this year. We recycled some capital from asset sales. We bought back shares. We executed on our conversions with our most recent conversions generating 15% RevPAR growth this year.

We also took some actions to strengthen our balance sheet in the back half of the year as the environment softens, and we continue to pay a healthy dividend. Clearly, the balance sheet is what gives us optionality. We want to be thoughtful about balancing between near-term opportunities and long-term resiliency. We are constructive on asset sales. We will look to recycle more proceeds in 2026 and take advantage of the arbitrage and valuation while also maintaining our balance sheet.

And we're going to look to use all the tools that are available to us. These are not mutually exclusive. They have relative benefits based on the market conditions. And we want to drive value for our shareholders and grow earnings, and we think that buybacks are an important tool in our toolkit.

Tyler Batory, Oppenheimer & Company.

First one for me, just on the EBITDA side of things and EBITDA margin, 1% growth year-over-year at the midpoint when you make some adjustments. Just talk a little bit more what you're seeing on the operating cost side of things and your expectations for 2026.

Yes. I think in aggregate, our assumption is that expenses are going to grow about 3%. We think it's -- variable expenses are going to be about 2%, and that fixed expenses are going to be about 4%, excluding the tax benefit that we have. And I think from a wage perspective, we're assuming kind of 3% to 4% on wage and benefits growth.

Okay. Perfect. And then I wanted to double-click on conversions and renovations. Can you remind us what's plans for 2026. I know there was some renovation disruption that impacted 2025.

So I'm not sure if there's anything that's going to be happening that we should be aware about in terms of 2026. And then talk a little bit about just conversions. I think you mentioned, I think it was 15% RevPAR growth at your recent conversions. Just talk a little bit more about the ramp up and just some of the performance at the hotels that you've converted recently?

Sure, Tyler. And just catch me if I missed part of your question. But I think in terms of on a relative basis, recall that last year, we mentioned that the types of renovations we did last year were high occupancy renovations. And so by nature of the occupancy and how they performed throughout the year, you were going to have some level of disruption. That's not the case for this year.

And you see we have a lower CapEx for this year. That's also a function that these are smaller assets relative to what we did last year. The largest asset that we have this year is really going to be Boston, which is going to be in the latter part of the year after special events. And so we don't expect to indicate disruption as a headwind for us this year.

I think as it relates to the conversion, we've completed seven conversions to date. We have two more that are underway. Obviously, Boston, which I just mentioned. We'll start this later this year. And then our Pittsburgh -- Renesas Pittsburgh, which is going to be converted to an Autograph Collection deliver that later this year.

All of our conversions were up on average about 5% last year with our more for -- foremost recent ones being up 15%. And so they continue to ramp very well. We're very pleased in terms of the returns that we're generating and the overall production from our conversions. We remain on pace and continue to deliver two conversions per year, and we look forward to announcing our second one at the latter part of this year.

Michael Bellisario, Baird.

Just a few transaction questions. Just a couple of transaction questions for you. Just first, what was the motivation and process like to South Dallas and Houston? And was it more market or asset driven to sell those hotels?

Yes, Mike, those two assets, one was a function of where we saw the demand drivers going in that particular market, coupled with the capital -- forward capital needs of the asset. And the other one was opportunistic, an alternative use buyer. I was looking at that asset. And so what we found in today's market is that inbounds are being -- inbound calls are more credible today. And so we took advantage of some opportunistic opportunities.

Got it. That's helpful. And then just looking at Northern California, and sort of how do you balance sort of the expected improvement in that market that you and everyone expect with potentially selling some of the kind of non-CBD hotels. Just is your fundamental view of San Francisco is going to benefit San Francisco? And is the improving demand profile going to make its way out to the outer range?

Yes. I think we were able to balance it by the size of our footprint, Michael. And so I think that there's opportunity for us to continue to benefit from the relative strength that San Francisco is seeing, while at the same token, be opportunistic on asset sales. And just to be thoughtful about how we prioritize what submarkets we look to prune our portfolio then.

Gregory Miller, Truist Securities.

Let's start off on the AI front. A number of your franchise or brand partners have spoken about their consumer-facing AI efforts, including towards the LLMs. Do you expect any material change in how your bookings from the brands will be sourced this year?

That's a good question, Greg. We're actively working with the brands to pass through. When we think about how they're interacting with the consumer And specifically on the front end when they're shopping, researching and looking to book business. The great thing that we're continuing to see is brand.com continues to be the source of business that's the highest return where people are booking through the brand, which the cost is less there than, let's say, the OTA channels.

And so we're very supportive of all the initiatives around centralized services in regards to how they're thinking about rolling out to the consumer to be able to make it easier to get to brand.com, number one. The other thing that I would say is when I think about what the brands are doing, there's an opportunity also to have savings through economies of scale. And whether that's through their AI tools, they're evolving meaningfully over the next few years, and they're doing tremendous amount of beta testing, and we sit on, as you know, owner advisory councils and have a voice as well as our peers.

And so we're excited about the opportunity to enhance productivity, not only through the cost side and labor and scheduling initiatives, everything related to how we can make sure that we're maximizing the opportunities that are ahead of us. And I think when we go down the road of our own work and what we're doing, we're really taking a look at data insights in regards to making our decisions from an asset management standpoint with our management companies and enhancing the tools there as well. So we're supportive and excited about the future and look forward to having the brands really lead the way when it comes to our industry.

Thanks, Tom. So for my second question, this is similar to Tyler's question, maybe with a bit more granularity. As we think about modeling labor costs through the year, is there any change in the step up we should assume in terms of cost growth in the third and the fourth quarters, particularly given labor dynamics in New York City.

That's embedded in our overall blended expense growth. If you can look at the fourth quarter, we were up 0.8% in growth. And if you take out the tax benefit, we were slightly over 2%. So I think if we assume that trend line for the first two quarters and then the back half, you blend back to 3% for the full year.

And the thing to beyond what your question was around New York City, when you think about the bigger picture, Greg, contract labor continues to be reduced, productivity continues to improve.

When we think about our portfolio specifically, you dig into the synergies that we continue to make sure that we're maximizing because of our footprint, whether it's operations, sales, food and beverage and repairs and maintenance, making sure that we're building a business model that's sustainable. And so we feel very good about our management companies and how they're interacting with us around scheduling, back to what we talked about in regards to yielding that just as important as (inaudible) revenue to be able to maintain the levels that Leslie referred to.

Chris Woronka, Deutsche Bank.

I wanted to ask, if I could, a longer-term strategic question. If we look at portfolio today, hotels, you probably skew a little bit more full service at this point, particularly from an EBITDA perspective. But is there any thought to as we potentially get more, I guess, traction in the transactional markets going forward. Is there any thought to do anything more significant in terms of reshaping the portfolio to maybe continue to de-emphasize select service, which you've kind of been doing on a measured basis thus far.

So Chris, thanks for the question. I think in general, when it makes sense to be active externally, you're going to continue to see us lean towards like style-oriented assets, which have a mix of thoughtful F&B that are built right from a room count perspective. And you've seen our portfolio shift to the urban lifestyle as we made acquisitions and we do our conversions.

And so you will see our portfolio continue to move in that direction when it makes sense to execute on external growth. We do think that the transaction market will improve this year, particularly kind of given the debt markets and a lot of players out there providing debt and expectations around rate cuts. We are constructive on more asset sales. And so you'll see us be active on that front more so this year.

Last thing I would add too, Chris, and I think you can see it in our non-room revenue spend. When you look at our ROI initiatives and you look at our conversions and our renovations, we're leaning in heavily to trying to grow food and beverage margin with beverage-centric renovations that are driving that. And we continue at our urban properties to be able to enhance the capital initiatives around parking, which is also driving profitability.

And then the last thing, whether it's select service or full service, we're seeing the fact that our margins are growing because of market expansion. So when you're in our lobbies, we're really putting more mines and efforts against how do we make sure that we -- the grab and goes, if you will, which is really a playbook from select service but also expanding into our full-service hotels where that's the need as the consumer looks to buy things when they're individually in a hurry.

Okay. I appreciate all that color. As a follow-up, I think we've heard from some of your peers to varying degrees that there's a little bit more and maybe perhaps increasing flexibility with the brand on things mostly related to CapEx and also sometimes operational efficiencies. Are you guys seeing the same trend? Or there -- are you more encouraged or less encouraged by what you see going forward in terms of, I don't know, pushback is the right word, but working with the brands collectively to kind of give yourselves a little bit more margin and free cash flow conversion.

Look, I think in general, we have very strong relationships with our brand partners and that we have a very healthy relationship. I think the brands are being very thoughtful around their renovation requirements and trying to be market specific as it relates to that. I think they're also looking for ways to be able to give benefits to owners who deploy capital within their portfolios, of which we are one of those. And they're also looking for ways to help reallocate some of the fee dollars.

So I think in general, I think the brands are being good partners and we have very strong relationships that we've been able to benefit from.

Rich Hightower, Barclays.

A couple of questions. Leslie, if I go back, I think it was your answer to the first question. It's sort of strength upon strength upon strength in terms of the building blocks for 2026. And I think just out of curiosity, when you add all of it up, and again, assuming that the world we think we know and understand today kind of plays out as expected, I mean, what is the likelihood of coming anywhere near the low end of guidance as we just think about the plausibility of the range.

Yes. Rich, I think that you have to remember that our portfolio is 80% transient, we have a short-term booking window. So when you think about our range, our range is really just a reflection of either the strength or weaker production in some combination of the factors that we laid out relative to our baseline.

So at the high end of the range, you could have stronger production in World Cup or stronger production of the special events or in the year for the year pickup, our urban markets may outperform better, or the ramp may be stronger. We think that if those things happen, it's going to translate into rate growth primarily. But the flip side is opposite for the lower end of the range. If we have weaker production from World Cup or any of the other combination of things from urban markets or special events or in the year for the year pick up or slower ramp on our on our conversions.

Those types of things would lead you to the bottom end of the range, that would take in the form of demand. So I think it's about relative strength. I mean what we've built at the midpoint is based upon what we can see today. But we're in an 80% transient business with short-term booking window.

That makes sense. That's helpful. My second question, I'd like to dive a little bit deeper on the one of Boston conversion to Tapestry in particular. So I know that asset reasonably well. It really kind of it's a demand category killer given its location kind of on the campus of MGH and obviously in the Beacon Hill neighborhood.

So I would assume it does pretty well on its own as a Wyndham. And so just help us understand the economics behind the Tapestry conversion, what that brand will do for the hotel what the all-in basis per key, et cetera, might look like at the end of all that.

Yes, I'll talk about the decision to move into that arena a little bit, Rich, and some of the things that we're doing that we think are going to be transformative. But you hit the nail on the head. We love the location. And in real estate, it's all about location, location, location. So just to add to your color, with $1.8 billion going into mass general with two buildings, literally adjacent to the hotel.

Those are going to be future demand generators above and beyond the location, as you mentioned, Beacon Hill, which is high-end residential great community, where you have universities, health care, education as well as the attractions and walking distance to the TD Garden and things that we benefit from.

So what we feel is by going into the Hilton system, specifically on the lifestyle side, we can make it that community-centric feel when people are walking into the hotel. And what's happened in our other conversions, Rich, as you know because you visited some of them, the mix changes. When that happens, you get more corporate base. You also get more Hilton contribution because of the lack of supply that Hilton has in that marketplace, we feel we enter into a place where we can really compete on the lifestyle and upper-end threshold of that clientele that's looking for locations as well as accommodations.

We also have the meeting space on the highest floor that really has beautiful views over Boston. And having that mix of business will help us on the group corporate and base of what we find in our other conversions like Mills House when we went to Accuro or Nashville, where we went to a Tapestry where we automatically see that shift in business.

So we're pretty excited about, yes, it's a great hotel today because Wyndham does a super job for us in that location with the value by, but we're going to be playing in a different level when we move into the Tapestry Hilton collection, and then I'll kick it over to Leslie for returns.

Yes. I think, Rich, I think we've been pretty bolt on this asset. We believe that there's 40% upside in EBITDA from converting it to a tapestry for all the reasons that you articulated in the market demand there. This is an asset that's going to benefit from all of the demand drivers segmentation. And we know that the rate is in the market because there are other assets already achieving the rate that we've underwritten for this asset and feel very good about what it can what it can produce.

And the overall renovation dollars are actually not that much more than what we would have to do in a normal renovation. And so the returns for the asset relative to the incremental capital is well north of 50%.

(Operator Instructions) Jack Armstrong, Wells Fargo.

How do you expect RevPAR growth to outperform RevPAR in 2026? And how much of that is being driven by some of the F&B improvements you made across the portfolio?

Jack, this is Nikhil. Just to give some frame of reference, right? So there are a number of things that are going into our non-room revenues. And one of them is the markets that Tom described earlier. If you look at sort of the fourth quarter, our revenues were actually up in the high single digits and consistently, we've had very strong growth in that.

So we're continuing to see very, very strong production across that, and we expect that to continue. If you look at our -- if you see our prepared remarks, we did say that our total revenues will outperform room revenues, we expect somewhere around 50 basis points.

And then on F&B, Jack, just to give you a little color there. We had about 120 basis point improvement in margin in F&B full year in this year. And we continue to see the reason that's happening is because not only a group is now having more corporate group, but they spend more money on banquets, beverage and then many of our renovations as well as ROI initiatives have really been what I talked about earlier, more beverage-centric having more seats at the bar, having our meeting space, have reception areas where that's more an opportunity, to have comradery in an outdoor area, whether it's an atrium or locations that are highly desirable together. And so we're seeing outlets grow.

And lastly, on the community side, as Leslie stated earlier, we're trying to be attractive to folks that (inaudible) staying in the hotel. An example of that with Mills House where we did the Black door cafe. We're getting 50-50 from our guests and 50% from the outside, just foot traffic taking advantage of our locations. I think Boston is going to be a perfect example of that. People who are going to be in those locations are going to want a place to eat, and there's a significant crowd now literally next door who's going to be going back to office in those locations.

So those are examples of that, and I'll kick it to Leslie for one more.

Yes. And I would just bolt on to Tom's comments in a sense that every time we do this, we get smarter. And so the last comment that Tom made about being able to track not just hotel guests to our F&B outlets, we're seeing that in all of our conversions.

He mentioned Mills House. We've also done it in Santa Monica. We're doing it in Nashville. We also did at [Enola] as well, and he mentioned that we're going to be doing it in Boston, but we're also doing that in the Renaissance pit that we're converting to an Autograph. And then the other asset that we'll announce later in the year, this year, we'll have the same concept as well.

So we're really leaning in to this thoughtful F&B with the beverage-centric mindset, and that's going to help us sustain that 50 basis points that Nikhil mentioned.

Helpful color there. And then can you remind us what percentage of your business was government related in 2025? And then maybe contrast that with a more stabilized year without the impact of Liberation day and the shutdown and that what you expect in 2026?

Yes. I mean what I would say is that in a normalized year, government was 3%. And we think about like how it performed last year, it was down about 20%. And we think that we saw a step-down in Liberation Day. And as I mentioned previously, our range assumes no change in government (inaudible)

Chris Darling, Green Street.

Going back to the capital allocation discussion. Leslie, you mentioned inbound interest from potential buyers being more credible these days, just a more constructive transaction market in general. As you think through potential dispositions, what are some of the main factors you consider when making that decision? Is it market-driven asset level considerations, something else? Just sort of curious how you internally think about these things.

Yes. I mean I think it's a combination of our view of a market and where the puck is going from a demand perspective. It's also whether or not we think we can get any return on the capital that we have to put in to sustain the asset. And then it's our perspective on any opportunistic calls that we get in to determine whether or not we think that, that value is appropriate for a relative assets. But I think that we are active portfolio managers, and we'll consider looking at all aspects of our portfolio relative to a constructive disposition environment.

Okay. And related to this, in your mind, do you think there's appetite for larger-scale portfolio deals today? And if not, what do you think might change that story as we move through this year?

Yes. I mean I think it's a great question. I think that as I kind of look at the market today, the most active buyers are owner operators because they're able to consistently underwrite growth. And so that lends itself to more single assets. Having said that, we do think that there has been an increase in volume for larger single assets, which could then translate into liquidity for smaller pools of assets.

I think a key ingredient of that is for the interest rate cuts to actually materialize and for buyers to be able to underwrite bottom line growth with conviction.

That will conclude our question-and-answer session. I would like to turn the conference back over to Leslie Hale for closing remarks.

Well, thank you, everybody, for joining us today. We look forward to meeting with many of you over the next couple of months. Have a good day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.