RLJ - NYSE

Welcome to the RLJ Lodging Trust First Quarter 2025 Earnings Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the call over to Nikhil Bhalla, RLJ's Senior Vice President, Finance and Treasurer. Please go ahead.

Thank you, operator. Good morning, and welcome to RLJ Lodging Trust's 2025 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-Q and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release. Finally, please refer to the schedule of supplemental information, which includes pro forma operating results for our current hotel portfolio. I will now turn the call over to Leslie.

Good morning, everyone, and thank you for joining us today. We are pleased with our first quarter results, which came in better than we had previously anticipated despite a weaker backdrop. The momentum for the quarter started out strong in January and February, but as is widely known, the industry began experiencing headwinds in March. Relative to these trends, we achieved RevPAR growth of 1.6%. This rate driven growth, along with our diligent cost controls, allowed us to deliver EBITDA that exceeded the high end of our outlook range. In addition to achieving solid results, we also accretively recycled capital and further strengthened our balance sheet this quarter. Against a rapidly changing environment, our solid first quarter results demonstrate the benefit of our diversified urban-centric portfolio with multiple demand drivers and a lean operating model, which is allowing us to stay resilient on both our top and bottom line performance. With respect to our operating performance, our 1.6% RevPAR growth was driven by a 2.1% increase in ADR, offset by a 0.5 point decline in occupancy. This solid rate growth during the quarter demonstrates our ability to continue to drive ADR in the current environment. January achieved 3.2% RevPAR growth, benefiting from the inauguration in DC, and a robust city-wide calendar in key markets, and February grew by 3.9%, which benefited from the Super Bowl in New Orleans, while March was down 1.3%, reflecting a lack of compression due to an elongated spring break, driven by the timing of Easter combined with an increasingly uncertain macro backdrop, which put pressure on certain pockets of demand. These dynamics continued into April. The primary driver for our first quarter performance was the strength in our urban hotels, which achieved robust RevPAR growth of 3.6% with a number of our urban markets achieving high-single-digit growth or higher. Despite the macro noise, urban hotels have continued to outperform the broader industry, benefiting from all segments of demand, especially from business travel that is being bolstered by workers returning to offices and large events continue to draw high attendance. This was demonstrated by our weekday urban RevPAR, which grew by 4.9% during the quarter. Additionally, we are encouraged to see the recovery in Northern California gaining momentum, supported by a stronger city-wide calendar and the improving business climate. Our first quarter RevPAR growth also benefited from the strong performance at our six initial conversions, which achieved RevPAR growth of 14%. Turning to segmentation, as expected, group was our best-performing segment during the quarter with revenue growth of 10%, driven by strong city-wide events in many of our key markets such as DC, San Francisco, New Orleans and Louisville. Relative to business travel, trends remained healthy during the first quarter, generating positive revenue growth despite the normal seasonal mix shift and the well-documented headwinds relative to government related demand. In light of demand starting to soften in March, we were encouraged to see our leisure segment revenues increase by 2% in the first quarter, driven by ADR growth. Notably, our urban leisure outperformed, achieving 3% growth. In addition to contributing to our positive RevPAR growth, robust performance across all of our segments drove a 3.8% increase in our out-of-room spend, which contributed to our better than expected first quarter performance. With regards to capital allocation, we have been active on a number of fronts. We further strengthened our balance sheet by addressing our current maturities as well as opportunistically addressing some of our forward maturities. We also took advantage of an inbound opportunity to sell a non-core asset at an attractive 18 times multiple and redeployed proceeds into accretive share repurchases. Additionally, our 2025 conversions remain on track. With the physical renovation for Nashville in its final stages, we are already generating encouraging results with RevPAR growth of 16% during the quarter. Our confidence in our conversions is further supported by the 35% RevPAR growth that our three recent conversions in Houston, New Orleans, and Pittsburgh achieved during the quarter. As we look ahead, we acknowledge that fundamentals have moderated from our outlook earlier this year and uncertainty persists, given the continued elevated macroeconomic risk, together with headline driven volatility. This backdrop has reduced our visibility on the trajectory of near-term lodging operating results and our prior guidance range does not reflect today's environment. As such, we are adjusting our full year guidance to reflect our current outlook with the midpoint of our new range assuming recent trends continue. Thus far, we are seeing our group pace remain 2% above last year. However, we are seeing a shorter booking window, reflecting heightened overall uncertainty. With respect to business transient, we are continuing to see healthy demand from SMEs and large corporate accounts, as demonstrated by our midweek occupancies in the 70s and peak days on Tuesday and Wednesdays running in the 80s. Government demand, which only represents approximately 3% of our revenues and government adjacent travel remains soft. Leisure demand overall has remained generally stable with urban leisure and drive to markets performing better. However, we recognize that consumer confidence will drive forward trends. With respect to international demand, we are seeing softness. However, this segment represents less than 3% of our revenues and is concentrated in markets such as New York, South Florida and California. Additionally, across all segments, our booking windows have shortened meaningfully as travelers digest this unpredictable environment. This is what we are seeing right now and although conditions are currently holding, how the economic landscape evolves will ultimately determine where we end up in our full year range. While the choppy economic backdrop is causing uncertainty, when we look beyond the recent noise, we remain constructive on the longer-term outlook for lodging fundamentals. Our view is supported by the consumer preferences that continue to favor experiences over goods, along with sustained tailwinds for group and the run room for business travel to fully recover, which is well underway. These dynamics are expected to disproportionately benefit urban markets, which are better positioned with respect to the demand supply dynamics relative to prior cycles, given an extended period of constrained new supply. Additionally, the industry-wide improvement to the revenue management mindset over the last several years should allow for continued rate integrity. Furthermore, we believe as a more business-friendly backdrop emerges, it will create a favorable operating environment. As it relates to RLJ, we have curated a portfolio and capital structure, which positions us to navigate this chopping environment and create value in all phases of a lodging cycle. Our urban centric portfolio is geographically diverse and benefits from its harder demand locations with seven-day-a-week demand generators. Additionally, our rooms oriented portfolio and lean operating model should result in less volatile operating results. Our favorable positioning is further supported by our flexible balance sheet with no near-term debt maturities and meaningful liquidity. Our balance sheet is primed to quickly pivot at the appropriate time. In summary, the industry tailwinds and RLJ's positioning will allow us to look through the near-term uncertainty and focus on delivering long-term value to our shareholders. I will now turn the call over to Sean. Sean?

Thanks, Leslie. To start, our comparable numbers include our 94 hotels owned at the end of the first quarter and exclude the Courtyard Atlanta Buckhead, which was sold during the quarter. Our reported corporate adjusted EBITDA and FFO include operating results from all sold and acquired hotels during RLJ's ownership period. We are pleased to report solid first quarter operating results, which demonstrated the resiliency of our high quality urban centric portfolio. Our first quarter occupancy was 69.1%, average daily rate was $204.31, and RevPAR was $141.23, achieving RevPAR growth of 1.6%, which was driven by a 2.1% increase in ADR, slightly offset by a 0.5% decline in occupancy. Overall, our RevPAR growth remained healthy in urban markets such as Washington DC and New Orleans, which benefited from special events during the quarter. A number of our urban markets achieved strong RevPAR growth during the first quarter, including San Jose at 14.1%, Houston CBD at 9.9%, Philadelphia at 26.4%, Pittsburgh at 12.6%, and Louisville at 10.3%. We saw growth in all of our segments with group being the strongest, which saw demand increase by 9%, leading to 10% revenue growth above the first quarter of 2024. Total revenue growth was 1.2% and benefited from 3.8% growth in out-of-room spend. As discussed, operating trends began to soften in March with RevPAR down 1.3%. Looking ahead, we expect March operating trends to continue throughout the second quarter and preliminary April RevPAR is forecasted to decline between 1% and 2% from the prior year. Turning to the current operating cost environment, as we expected, our operating cost growth rates continued to moderate during the first quarter. Total hotel operating cost growth was only 2.9%, which underscores the benefits of our portfolio construct and our initiatives to manage our operating expenses. The first quarter growth represents over a 100 basis point improvement from the fourth quarter growth rate. Our team is diligently working to identify and execute incremental cost containment initiatives to minimize operating cost growth in response to current macroeconomic uncertainty. During the first quarter, our portfolio achieved hotel EBITDA of $85.3 million, representing a $3 million contraction from 2024 and hotel EBITDA margin of 26.1%. The year-over-year hotel EBITDA comparability was impacted by $2.5 million of one-time COVID and other credits recorded last year and there being one less day in the current quarter due to leap year. Excluding these items, our portfolio would have achieved hotel EBITDA growth during the quarter. Further, we were pleased with our operating margin performance, which was only 124 basis points lower than the first quarter of 2024. Turning to the bottom line, our first quarter adjusted EBITDA was $77.6 million and adjusted FFO per diluted share was $0.31. We have maintained a strong balance sheet and liquidity and have continued to actively manage our balance sheet to create additional flexibility and further lower our cost of capital. Early in the second quarter, we proactively addressed our 2025 and early 2026 debt maturities, including entering into a new $300 million term loan to refinance a $200 million term loan with an initial maturity in early 2026 and use the excess proceeds to fully repay the remaining $100 million outstanding on our line of credit. The new $300 million term loan matures in 2030, inclusive of extension options. In addition, early in the second quarter, we exercised the final extensions on two mortgage loans of $96 million and $85 million respectively. The execution of these transactions is a testament to our strong lender relationships and favorable credit profile. We currently have a well-positioned balance sheet with $600 million available under our undrawn corporate revolver, a current weighted average maturity of nearly four years, 86 of our 94 hotels unencumbered by debt, an attractive weighted average interest rate of 4.5% and almost 75% of debt either fixed or hedged. As it relates to our liquidity, we ended the first quarter with over $0.8 billion of liquidity and $2.2 billion of debt. With respect to capital allocation, as we have demonstrated in the past, we intend to invest in projects to unlock the embedded value within our portfolio, while also remaining committed to returning capital to shareholders through both share repurchases and dividends. So far during 2025, we have been active under our $250 million share repurchase program by successfully recycling 100% of the proceeds from a non-core disposition to repurchase approximately 2.7 million shares for $24.3 million at an average price of $8.91 per share. At the end of April, our Board approved a new 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. Additionally, our quarterly dividend of $0.15 per share is well covered and supported by our free cash flow. We will continue making prudent capital allocation decisions to both provide stability and to position our portfolio to drive growth during the entire lodging cycle, while monitoring the financing markets to identify additional opportunities to improve the laddering of our debt maturities, reduce our weighted average cost of debt, and increase balance sheet flexibility. Turning to our outlook, I would now like to provide additional color on the assumptions underlying our updated outlook. As Leslie mentioned, forecasting visibility remains low. The midpoint of our revised outlook assumes that current operating trends persist throughout the balance of the year. If the economic backdrop changes from our current guidance assumptions, we will update our guidance ranges accordingly. For 2025, we now expect comparable RevPAR growth to range between negative 1% and up 1%, comparable hotel EBITDA between $365.5 million and $395.5 million, corporate adjusted EBITDA between $332.5 million and $362.5 million, and adjusted FFO per diluted share to be between $1.38 and $1.58, which incorporates shares repurchased to-date, but no additional repurchases. Our outlook assumes no additional acquisitions, dispositions or refinancings. We continue to estimate 2025 RLJ capital expenditures will be in the range of $80 million to $100 million, cash G&A will be in the range of $34 million to $35 million, and net interest expense will be in the range of $94 million to $96 million. We also expect total revenue growth will continue to outpace RevPAR growth due to continued success in our initiatives to drive out-of-room spend. Finally, please refer to the supplemental information, which will include comparable 2025 and 2024 quarterly and annual operating results for our 94 hotel portfolio. Thank you. And this concludes our prepared remarks. We will now open the line for Q&A. Operator?

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Michael Bellisario with Baird. Please proceed with your question.

Thanks. Good morning, everyone.

Good morning, Mike.

Leslie, just on your fundamental comments, I want to focus there first. I think you mentioned trends are holding. I think that's the word you use. Maybe you can just zoom in on what you saw in April and then how did April and March actualize relative to your initial expectations?

So I would say, Mike, let me start with the latter part of your question and then kind of go to the formal part. I would say that April, as we said on the last earnings call, was going to be slightly positive, sorry, I'm talking about March. March, we said that it was going to be slightly positive and it came out negative 1.3% is what we articulated, and then we gave the estimate in Sean's prepared remarks from 1% to 2% down in April. April was originally expected to be positive. It was supposed to be the strongest month within the second quarter, which is, second quarter, as we mentioned, was going to be our weakest quarter. I think in terms of the actual trends, we all knew that March was going to see Easter move into April. So therefore spring break is going to be elongated. So we saw less compression there towards the back end of the month as well known, government, government adjacent demand soften. So we saw that and that's carried into April as well. BT that is outside of government travel did hold, and surprisingly, even though demand was down in March, we saw rate was plus 1% in March as well. So rate integrity continued as well and we're hopeful that we'll see some of that in April as well.

Understood. Helpful. And then just, Sean, for you on the balance sheet, can you maybe give us sort of a lay of the land of all the different pockets of capital that are available to you? Maybe what's the appetite from your bank group? Where is high-yield at today and then what you're seeing in the mortgage market too? Thanks.

Sure. Thanks, Mike. I think on the -- I'll start with the bank group, which we just upsized, our term loan with the bank group. And so I think that market continues to improve. There is capacity for sort of the top quality sponsors that we would fall into. So I think that market continues to be strong and favorable because it tends to be the longest viewed market within the financing markets. On the high-yield, what we've seen is during some of the more chaotic moments over the last month or so, essentially issuances stop within high-yield and the implied valuation of those that had high-yield bonds are there -- the discounts widened. What we've seen is a lot of that is sort of has come back, not all the way to earlier in the year, but a lot of that risk has sort of been priced out as there's been better headlines. And so you would expect net-net, the incremental cost of a high-yield today for a like-to-like is probably somewhere between 50 and 75 basis points wider today than it would have been before some of the noise. And then lastly, on the secured financing, I think what we've seen is that the strip financing continues to be active, CMBS specifically. I think that tends to be a more fickle market that as underwriting becomes a little more difficult due to uncertainty, that market will react and it will likely react through higher going in debt yields required maybe than before, but net-net, the CMBS market continues to function.

And I think, Mike, to your question, I think that's also why the refinancing that we did in this quarter, being opportunistic about addressing some of our 2026 maturities, we feel very good about in terms of being proactive and opportunistic there because of the movement in the sources that Sean talked about.

That's all helpful. Thank you. And Sean good luck to you on the other side. We'll miss you.

Thanks, Mike.

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

Thank you. Good morning. So I wanted to follow up a little bit more on the fundamental outlook and what you're seeing right now. It looks like March, April, both months missed your initial expectations. So can you talk a little bit about what specifically drove that? And then when we look forward this year, the midpoint of the guide assumes that trends hold from where they are right now. I guess unpack this a little bit more in terms of what gives you confidence that that's going to be the case? Is there anything that you're seeing today that makes you think that the trends won't deteriorate further from here?

Yes. So let me sort of talk a little bit about that in sequence. I think in terms of what we saw, look, our change in our own guidance is being driven by what we're seeing, the softness in the government and government related demand and slowing on international. It's also the lack of visibility and the continued uncertainty that persists. And you talked about sort of April and March. I mean given April and March were at the height of the level of uncertainty and so the impact that those two months took, again, March being down 1.3% and April projected to be down between 1% to 2% and so those are the things that sort of drove our perspective in changing our range. As it relates to the range itself, clearly, when I think about key assumptions, we assume that the step down in government and government adjacent demand in international remains and persist throughout the year. And then your question about confidence I think the reality of it is that we can only tell you what we can see now. The booking window is short and so we are projecting based on the current outlook for group to remain BT and leisure outside of government to stay stable relative to what we see today. But the reality of it is, is that where we end up in the range is going to be driven by the economic backdrop, right? And so and that's going to be influenced also by the fact of how much what's the duration and the level of uncertainty that persists. It's very reasonable to assume that if the uncertainty persists that it's going to affect business investment, it's going to invest -- affect consumer confidence and all of those things will have an impact on travel. So that's going to dictate where we end in the range, but we can only give a range based upon what we see today.

And then Tyler, drilling it down a little bit, the back half of the year, our guidance assumes RevPAR growth at the high end of about 1%, at the low end, down 2%, so roughly down 0.5 point at midpoint, but for the back half of the year, we think the RevPAR is flat, right. So that would imply that we expect the second quarter because of the -- what we articulated last quarter on difficult comps and things like that, which Leslie can sort of walk through, but we expect the second quarter to be the weakest quarter of the year and RevPAR to likely be negative in the second quarter as we've shown with the April stats thus far. But our back half of the year, while the cadence is similar to what we expected at the beginning of the year, it's just, we're now expecting flat versus up a couple of hundred basis points of RevPAR.

Okay. Very helpful. And just a follow-up on this commentary. I mean you mentioned the booking window being short a couple of times. Can you kind of quantify where that stands right now? And then have you seen any pickup in cancellations as well the past couple of weeks?

So, yes, I mean, I would say that historically, just giving you one data point is that our zero to seven day booking window was about 51% prior to the increase in uncertainty. Since that time, it's roughly about 58% from zero to seven days. So that's one data point in terms of defining the booking window. What I would say though is we kind of look across all the segments. The booking window has shortened. When you talked about group, we mentioned that our pace is holding, but the things that we're going to be watching in addition to our cancellations upticking, we're going to be looking at attendance, we're going to be looking at lead volume and conversions. I think on the BT side, we talked about how strong our midweek trends were. So we're going to be watching midweek to see who's still traveling of SMEs and national accounts are still producing for us. And then on the leisure side, where we're going to be watching consumer confidence because that's going to play a major role as we kind of think about on forward. And as it relates to government demand, we'll be watching the headlines in terms of what's incremental or not of -- relative to on the government demand.

Okay. All right. That's great detail. Also I want to wish Sean all the best too. Go birds.

Go birds.

Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Great. Thanks. Good morning, everyone. You had referenced the recovery in Northern California is gaining momentum. I'm just hoping you could expand on that comment and whether it's been sort of a step change in performance more recently or just more of the gradual move higher and just kind of the -- if the increased confidence, I guess, on that continuation is really around kind of the city-wide calendar for this year. Thanks.

Yes. Thanks, Austin. There's been a -- it's a number of things that we're seeing as net positive on the momentum side. You mentioned the city-wides, for sure, are playing a key role, but also just the headline positive headlines that are coming out of Northern California related to the good press that's gotten around -- it got around the NBA All Stars. The new mayor has been focused on safety and cleanliness, the office absorption as well as sort of tech demand. Surprisingly for us, the Valley -- our assets that are in Silicon Valley were up 11% in the first quarter. So that's another data point that, from a momentum perspective, that we've been looking at.

And I'll add a little bit of color around Moscone. So when you think about the year-over-year increase, the largest increases will be in Q2 and Q4. Q4 is primarily because sales force moves into Q4, but more importantly, when we look at the calendar, it's where the pattern is. Austin, you got Friday, Saturday, Sunday. That's exactly where you want conventions to happen in CBD because you typically have a little bit more BT demand and that's about 70% to 100% up on those three nights. And then speaking to BT, the back-to-office is real. You got Google, Salesforce, Amazon, all having people ride, shares up when you look at BART. And then when we look at the type of conventions that are coming in, it's encouraging that we've seen corporate now rebook, and then an example of AI, everybody is always trying to understand what's happening. If you look at the last three years, there was a conference called Databricks, and in 2023, it had like 1,400 on peak night. In '24, it had 4,500, and now in '25, another 6,000 peak nights. So what's happening in AI, there's more and more people wanting to participate in those events and be around it, and you're seeing the actual offices and companies put platforms together, which is stirring travel significantly in Silicon Valley like we talked about with Nvidia and some of the companies out there that are really exploring new platforms around AI. So hopefully that helps you with a little bit of the character of what's happening in San Francisco.

Yes. A lot of great detail in there. Appreciate it, Tom. And just wanted to pivot then a little bit on the disposition and curious sort of when you started exploring the sale and when under contract for that deal and what sort of the appetite is for additional sales. You highlighted that you put the proceeds from the sale and the share buybacks and just what the thought process is on continuing to move down that path? Thanks.

Sure. I would say, to answer your question, this is a transaction that we had under Sean track before the elevated uncertainty started to take place. Austin, I would say that in general, what we're seeing today on the transaction side is that the uncertainty has cast a shadow on the transaction markets and deals that are under contract seem to be moving towards closing, but that anything is not under contract is really sort of in a pause, wait-and-see environment. It's really hard, I think, for buyers to be constructive in this environment. So while we're open, I don't think that the market is really -- there's a lot of activity to be had relative to incremental transactions at this moment in time. We obviously expect that as clarity improves, the transaction market would improve as well. In terms of capital allocation, clearly, given this backdrop that buybacks remain very attractive. As you mentioned this quarter, we recycled the disposition proceeds into buybacks and this allowed us to do it on a leverage neutral-basis and we continue to see buybacks as a priority. We also were -- advanced our conversions this quarter and as we mentioned in our prepared remarks, our three most recent conversions generated RevPAR growth of 34%. Our national asset, which is in the final stages of conversion, was plus 16% this quarter. And so we've been advancing those as well. And additionally we obviously further strengthened our balance sheet. And our balance sheet is what's going to give us the optionality to be able to pivot as the economic backdrop unfolds, and so we'll continue to monitor that. But as we sit here today with this backdrop, buybacks remain attractive.

Thanks for all the detail.

Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Hey, good morning, everyone. And Sean, congratulations on the, yes, really impressive career. Appreciate all the interactions and guidance over the years. Thanks for that and good luck.

Thanks.

Sure. So question is, I was hoping to kind of zoom in a little bit on your, I guess, what we call select service assets, we used to call limited service. Are you seeing any irrational behavior there yet in any isolated pockets of markets in terms of rate cutting? And secondarily to that, do you have any supply concerns, mostly again on that select service? We continue to kind of hear about the brands doing more conversions, which I know is not supply, but in some markets, it's more competitive supply. So just any thoughts on those. Thanks.

Yes. I mean, so I mean, just to sort of frame for you, our portfolio is urban centric, and we are brick and mortar, not stick built assets across our portfolio. So I would sort of characterize it from a relative basis, but we are not seeing rate degradation in any meaningful way. As we've mentioned, our first quarter results that were driven by rate and even in March where we saw softness, rate was pushing forward on that side. And some of the other limited service stuff that's being built doesn't really sort of compete with where we're at and it's not being built in the markets where we're at as well. And so from our perspective, as we mentioned before, urban markets are going to benefit from the supply imbalance and particularly in this particular cycle and so we're not really sort of seeing that supply that you made reference to really compete against the assets that we have today.

Okay. Thanks, Leslie. Very clear. And then just as a follow-up, you guys, obviously, the repositioning has been a big part of the story and they've, I think, done really well relative to expectations. Looking forward, is there any thought just given the uncertainty with tariffs? And we don't know how long it's going to last. Is there any less appetite to look at things that are more of a deep-dive renovation right now? Is that something you kind of have to pay more or are you still willing to look at those as they come up?

Yes, Chris. Great question. No I think the -- our balance sheet provides us with the ability to look at all things and liquidity we have. And so I don't think that that's really going to impact it. I mean, obviously, the returns have been unbelievable on the conversions and the repositionings. And so that's a form of capital that we're happy to allocate too. On tariffs specifically, listen, we've got a great in-house design and construction team that's been actively managing through the impact. It's worth noting the tariffs situation is dynamic, right, because we haven't had final resolution announced by any countries, but that being said, our team does -- has done a line-by-line assessment of what the impact would be, assuming that whatever was announced comes into place. And so we have a team that really drills down. Drilling down a little further, FF&E is the only part of the CapEx that is related. They will be impacted rather by the tariffs. That's roughly historically 40% of renovation costs. As part of COVID, we diversified away from countries that were -- that would be impacted by the tariffs, not because of tariffs, but because we wanted to diversify our distribution channels. And so today only about 10% of our FF&E comes from China. That's down from 40% pre-COVID. And so I think we've done a good job through our in-house design and construction team of diversifying away from the risks.

Okay. Great. Thanks. Appreciate all that color.

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

Thanks. Good morning. I'd like to dive a little bit deeper on the group segment. Curious what you're seeing in terms of new bookings both for future years and in the year for the year. And then maybe if you could dive a little bit deeper in terms of the experience in March and April specifically.

Good morning, Chris. So let me start by helicoptering up in regards to the -- for the full year first and then I'll dive into the more current trends. So right now we're still at about 102% when we look at our group pace for the full year, which we have about 77% on the books in regards to what our expectations are for the year. So that's a healthy amount. And we're also seeing, as Leslie mentioned, rate integrity in the group market. If you think about RLJ, compact full service, urban select service, the bulk of our business is usually anywhere from 10 to 30 rooms where it's about 65% to 70% of our business. And so when Leslie refers to small group, we think about SMERF groups, corporate groups, groups that are meeting in a shorter period of time and that's where we've seen the booking window even get shorter when you think about that. And then if we look at city-wides, we do get compression in the urban markets where we have that, but we don't typically participate in the bulk of our hotels in those blocks. What we saw most recently though is the cancellations that occurred were primarily in the months of March and April, a little bit into Q2, and that was primarily around the government segment. And when you think about some of those cancellations that occurred, it was either research-related that maybe was not going to have funding. When you had some of the government cancellations that occurred, it was related to either NIH or things that were on the books that were a little concerned based on the volatility and those have kind of subsided. So we're seeing that kind of stabilize in that arena on the group side and then same thing on the government transient when you think about adjacency companies that might have travel or group related to that. So the other thing I would mention about group though is we're seeing in the first quarter, the F&B spend has been very healthy. What we found was banquets, room rental, AV, all were increasing. We even unfortunately had to benefit from cancellations where our attrition we collected on a lot of the group cancellations, but we did see that actually improve our F&B margin by about 250 basis points and then out-of-room spend when you have group come in, typically also benefits in regards to those other areas that are on the P&L. So that gives you a little bit of temperature of what's happening in the group segment.

All right. Thanks, Tom. That's helpful. And actually maybe sticking with you for my second question, just going back to NorCal, curious if you could tell us how full-year '24 EBITDA finished relative to pre-COVID as well as what the margin profile looks like. And the reason I ask is, I'm just trying to get a sense of what the upside potential is for that region should some of the positive momentum sort of continue over the next quarters and years here.

Yes, Chris, I'll hop in there. So the EBITDA in '24 relative to '19 was in the high '30s percentage of 2019 levels. And so that incremental 60% plus really represents the potential upside there. While Tom can talk about where we think San Francisco is going to end up, we're not Pollyannaish on it, but clearly, there is tremendous upside from that portion of our portfolio as the recent results have shown.

Yes. So we spend a lot of time, as you can imagine, Chris, in San Francisco. We just most recently had an opportunity to meet with SF Travel. So when you think about the future, a couple of things are encouraging. Number one, when you look at the booking window and pace for '26 and '27, they are similar to what I would say when you add definites and tentatives to what you're seeing in '25 and those are main events that are happening are going to be Super Bowl, World Cup, some of the events that we're talking about that, new leadership at SF Travel is starting to look at more regional meetings versus the big events. And so that's kind of helping on the self-contained, which has a shorter booking window as well. So we're encouraged that it's moving in the right direction. Then we talked about back-to-office, AI. We're seeing more leases and subleases around companies that are investing venture capital money. So we're encouraged that the type of companies that are moving into San Francisco want to have a footprint there because that's where all the tech jobs are and the talent to be able to produce opportunities for future platforms.

I think it's also important on your question in reference to '24 to recognize that the city-wide calendar last year was really weak and the city-wide calendar this year is up 70% on a relative basis. So I think it's important from a metric perspective.

Got it. Appreciate the comments. All really helpful. And Sean congratulations and best of luck.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Floris van Dijkum with Compass Point Research. Please proceed with your question.

Thanks for taking my question. Leslie, I know you said the transaction market is going to be a little spotty with this kind of environment. Maybe can you talk how many other assets do you have in the market right now currently or would you be willing to look to sell before year-end?

Yes. I don't think we have a programmatic approach to selling. We've been more opportunistic. In this climate, I think you have to be. The types of assets that are capable of getting done are ones where they're smaller that they have an owner-operator or the asset has some level of strategic benefit. So in the case of the asset that we recently sold, the buyer had a strong presence in Atlanta and that asset was really important to them. And so when there's opportunities to transact, it really has some qualitative cadence around that, Floris, is what I would say. And I would say we have one other asset that we're looking at today and we'll see whether or not that transacts, but as I mentioned before, assets that are not under contract today are generally less likely to close just given the backdrop and seller's -- buyer's ability to be constructive in today's climate.

Thanks. And I'd like to wish Sean his -- the best in his future endeavors as well. Sean, it's been a pleasure over the last years talking with you.

Thanks, Floris.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Ms. Hale for any final comments.

Thank you, everybody, for joining us today. We look forward to seeing many of you over the next coming conferences over the next few months. Before I close out the call, I want to take the opportunity, on behalf of the entire RLJ team, to recognize Sean who is going to be retiring after spending almost seven years here at RLJ, but more importantly, 20 years in the industry. This is his final call and he and I were counting this morning somewhere near 100. But I want to sincerely thank him for his partnership and significant contributions to our company over his tenure here. He's been a great colleague and we're going to wish him well and the very best and happiness as he spends more time with his family in the next chapter of his life.

Thanks, Leslie. I just want to take a moment to express my gratitude to both Leslie, the RLJ team as well as the Board for the last seven years. Thanks for the -- worked along such a great team and partners and as well as the shareholders over my 30 plus year career and thanks for the trust and support, and I'm confident that the team is set up for great and future success.