Q3 2023 RLJ Lodging Trust Earnings Call
Ladies and gentlemen, thank you for standing by.
Our L. J conference will begin momentarily again, please continue to hold your conference will begin momentarily.
[music].
Welcome to the R. L. J lodging Trust third quarter 2023 earnings call. As a reminder, all participants are in a listen only mode and the conference is being recorded after.
After the presentation, there will be an opportunity to ask questions. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad I would now like to turn the call over to Nikhil Bhalla R. O J Senior Vice President Finance and Treasurer. Please go ahead.
Thank you operator.
Good afternoon, and welcome to argue lodging Trust's 2023 third quarter earnings call.
On today's call Leslie Hale, our president and Chief Executive Officer.
Key highlights for the quarter.
Sean Mahoney, our executive Vice President and Chief Financial Officer will discuss the company's financial results.
Come back now.
<unk> operating officer will be available for Q&A.
While were looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results could 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.
Company undertakes no obligation to update forward looking statements.
Also as we discuss certain non-GAAP measures. It maybe helpful to review the reconciliations to GAAP.
In our press release.
Finally, please refer to the schedule of supplemental information, which was posted to our website last night with.
Which includes our pro forma operating results for our current product portfolio.
Now I'll turn the call over to Leslie.
Thanks, Nikhil good afternoon, everyone and thank you for joining us today.
Our third quarter results reflect the benefits of our urban centric portfolio, which is ideally positioned to capture the emerging trends as evidenced by a revpar growth exceeding the industry for the third straight quarter.
Our above industry results were led by urban markets, which are disproportionately benefiting from positive trends across all segments of demand. We were particularly pleased to see these trends accelerate throughout the quarter, culminating with September achieving new highs overall, we remain constructive on the health of lodging fundamentals, which continue to unfold with paper.
The trends for our portfolio.
With respect to our operating performance.
The impact of several weather related events, our third quarter Revpar grew three 4% year over year.
Which was two times the industry and achieved 98% of 2019, representing a 200 basis point improvement from the prior quarter.
Our revpar growth was balanced between occupancy and ADR, demonstrating additional running room in demand and continued pricing power across our portfolio.
With sequential improvement during the quarter. Our September Revpar grew five 8%, which allowed our portfolio revpar to exceed 2019 levels for the first time.
These encouraging trends carried into October.
Our urban markets grew four 2% over last year.
Benefiting from the consistent improvement in business demand.
Markets also benefited from ongoing robust group demand and healthy urban leisure trends with the return of large scale events and improving inbound international demand.
These positive trends enabled our urban markets, such as Boston D C and New York to achieve low double digit revpar growth over last year.
Our top line also continues to benefit from the expansion of non room revenues as a result of our revenue enhancement initiatives such as space Reconfigurations F. N B re concept ing and other initiatives.
In the third quarter non room revenues grew by 12, 7% and let our total revenues to grow by four 9%.
This momentum accelerated in September with total revenues, increasing by six 9% over last year.
In terms of segmentation our business transient segment continues to have a positive trajectory.
This enabled us to achieve the highest level of revenues post the pandemic at 75% of 2019 levels, a 400 basis point increase over the second quarter.
On a year over year basis. This is transient revenues increased by 11%.
Notably room nights improved by over 400 basis points to achieve 90% of 2019, demonstrating continued improvement B T demand, which was led by Smes and positive momentum in our national corporate accounts from industries, such as industrial Telecom and technology.
Improving business demand trends were also evident in our weekday revenues, which grew by 4% year over year.
Much of our overall portfolio or business transient trends accelerated throughout the quarter with September achieving 21% revenue growth above 2022.
Going forward, we expect the strengthening of these trends to be further bolstered by the progress relative to national return to office mandates.
With regards to group our strong booking dynamics continued in the third quarter as group revenue grew by 4% over last year. Our group pace has broadened to include more corporate and self contained groups. This robust group demand, but our third quarter group revenues to achieve 104% of two.
<unk> thousand 19 levels, driven by ADR, which exceeded 2019 by 15% during the quarter, we remain bullish on our portfolios ability to capture group demand as evidenced by the strength in our in the quarter for the quarter bookings, which represented nearly 20% of group revenues.
As it relates to leisure resorts continue to normalize during the quarter for the industry.
Our leisure segment outperformed due to the ongoing strength in urban leisure, which benefited from strong attendance at various concerts as well as sporting events. This allowed our urban weaken revpar to increase by 4% over last year during the third quarter.
Turning to the bottom line.
Flow through from our strong revenue growth allowed us to achieve EBITDA margins of 29, 3%, which is only 26 basis points below last year.
With expense growth continuing to normalize our lean operating model should allow our margins have been a bit more on a relative basis.
In addition to reporting strong quarterly results. We also made progress on a number of capital allocation objectives, including the continuing ramp up of our 2022 conversions, which are exceeding 2019 levels and our underwriting on all metrics. These conversions achieved aggregate revpar that was over <unk>.
<unk> per cent above 2019 and third quarter.
With a multiyear ramp ahead, we expect these conversions to continue to contribute to our future growth.
Additionally, we made progress on our recently announced 2023 conversions. These properties are already seeing a positive response to their new brand affiliation and we expect renovations over the next several months to unlock significant growth.
We also continue to allocate capital in a disciplined manner.
This quarter, we enhanced total shareholder returns through a 25% increase in our quarterly dividend and we purchased nearly $15 million of common shares, bringing our total shares repurchased to date to $70 million.
The progress we have made on multiple capital allocation opportunities simultaneously continues to underscore the optionality of our strong balance sheet.
Looking ahead, while recognizing that the overall macro environment remains uncertain, we believe that the current environment remains constructive for lodging fundamentals.
We are encouraged that our strong industry trends that we saw in September carried into October.
Against this backdrop, we expect our performance to sequentially improve in the fourth quarter.
Given our urban footprint, which should continue to see above industry growth driven by improving business transient healthy leisure demand as we approach the holiday season, as well as emerging international demand.
The continuing ramp up of our 2022 conversions and other initiatives, our strong group pace, which is being led by small and medium sized group and is already significantly ahead of last year by 23%.
And strong citywide in key markets, such as Atlanta, Boston, Washington, D C and northern California.
These robust group trends are also carrying into 'twenty 'twenty four or our group pace is 22% above last year, including being meaningfully ahead in key markets, such as southern California by 82% Tampa by 37% and northern California by 21%.
Looking beyond this year, we believe that the positive backdrop for industry fundamentals will continue given the shift of consumer preferences towards experiences steady improvement in business demand recovering international travel and citywide events returning to pre pandemic levels. We expect these.
Trends to continue to disproportionately benefit urban markets, allowing them to outpace the industry, especially with a muted new supply outlook over the next several years.
As this new normal unfolds, our old Jay is well positioned to capture all segments of demand in recent years, we have intentionally reposition our portfolio into prime locations within urban markets that benefit from seven day a week demand.
As such our portfolio was built to capture these emerging trends. In addition to the tailwind from our acquisitions and conversions. We believe that all of these unique factors shouldn't enable us to continue to exceed industry growth.
Finally, I want to mention that we will be showcasing one of our recent conversions the peer side in Santa Monica in November and we look forward to hosting many of you for a property tour before NAREIT begins we believe that experiencing the transformation will help investors to truly understand the value we are creating.
I will now turn the call over to Sean.
Sean.
Yes.
Thanks Leslie.
Start our comparable numbers include our 96 hotels owned throughout the third quarter.
Our reported corporate adjusted EBITDA and F. F. O include operating results from all sold and acquired hotels during our O J the ownership period.
We were pleased to report strong third quarter operating results, which were consistent with our expectations.
Our third quarter Revpar growth of 3.4% was primarily the result of a 1.5% increase in ADR and a one 9% increase in occupancy.
Third quarter portfolio occupancy was 74, 1%, which was 92% of 2019 levels.
Average daily rate was $191, achieving 106% of 2019.
And Revpar was $142, which was 98% of 2019.
Our third quarter results were primarily driven by our urban markets Revpar achieved 99% of 2019 levels.
Most of our urban markets meaningfully exceeded 2019.
Such as New York at 113%.
Louisville at 105% San Diego at 112%.
Washington D C at 111% Tam.
Tampa at 139% and Pittsburgh at 120%.
Monthly revpar growth throughout the third quarter exceeded 20 twenty-two for each month.
Revpar growth above 2022 with 0.7% in July 4% in August and five 8% in September.
And achieved 96%, 94% and 103% of 2019 levels During July August and September respectively.
So I'm gonna Revpar, our monthly total revenue growth above 20 twenty-two accelerated throughout the third quarter.
And was two 9% in July five 1% in August and six 9% at September.
And achieved 99%, 96% and 106% of 2019 levels During July August and September respectively.
The positive momentum from September continued into October the most significant month of the fourth quarter were forecasted revpar is approximately $160, representing a 6% increase from 2022.
101% of 2019.
October Revpar was driven by occupancy of 77% and ADR of approximately $208.
Representing 94% and 107% of 2019 levels, and 104% and 102% of October 2022.
While demand remained strong during the third quarter hotel operating costs continued to normalize.
Underscoring the benefits of our portfolio construct and realization of our initiatives to redefine the operating cost model total third quarter hotel operating costs were only 5% above 2019 levels.
It is meaningfully below the aggregate core CPI growth rate since 2019.
There are many factors that influence these positive results with the most significant contributors being a successful restructuring of many of our third party operating agreements.
Our lean operating model with fewer ftes.
And reductions in property taxes, all of which are expected to continue benefiting our operating costs.
Third quarter wages and benefits, our most significant operating cost at approximately 40% of total costs.
It remained generally in line with 2019 levels.
As a result of our hotels ability to continue operating with 17% fewer ftes than pre COVID-19.
Demonstrating the flexibility of our labor model in this environment.
Our portfolio remains better positioned for the current labor environment due to the need for fewer ftes, given our lean operating model smaller footprints.
F&B operations and longer length of stay.
Our third quarter operating trends, let our portfolio to achieve hotel EBITDA of $98 $1 million.
Hotel EBITDA margins of 29, 3%.
Our margins were 206 basis points lower than the comparable quarter of 2022.
We were generally pleased with our operating margin performance in light of both difficult comps to the third quarter of 2022.
Our margins benefited from pandemic levels of hotel operating costs.
And the inflationary pressure on hotel operating costs, which is improving.
Turning to the bottom line, our third quarter, adjusted EBITDA was $88 $8 million and adjusted <unk> per share was <unk> 40 cents.
Both of which were within our guidance ranges.
We remained active in managing our balance sheet to create additional flexibility and further lower our cost of capital.
This year, we have extended $425 million of debt to 'twenty 'twenty four.
Recast our $600 million corporate revolver.
And entered into a new $225 million term loan.
The execution of these transactions is a testament to our strong lender relationships and favorable credit profile.
We have also taken advantage of continuing interest rate volatility to proactively manage our interest rate risk by entering into a $450 million of new interest rate swaps.
Today, our balance sheet is well positioned with an undrawn corporate revolver.
Our current weighted average maturity is approximately 3.2 years.
81 of our 96 hotels are unencumbered by debt.
Our weighted average interest rate is an attractive 397%.
And 93% of debt is either fixed or hedged.
Turning to liquidity, we ended the quarter with approximately $495 million of unrestricted cash $600 million of availability on our corporate revolver and $2 $2 billion of debt.
With respect to capital allocation as Leslie said, we remain committed to returning capital to shareholders through a combination of both share repurchases and dividends.
During the third quarter, we were active under our $250 million share repurchase program and repurchased approximately one 5 million shares for $14 $4 million at an average price of $9 81 per share.
In total during 2023 we ever purchased approximately $6 9 million shares for $70 million at an average price of $10 12 per share.
Including $2 $7 million repurchased so far during the fourth quarter.
Additionally, last quarter, our board authorized a third increase of our quarterly dividend since last summer to 10 cents per share for the third quarter.
Our dividend remains well covered and supported by our free cash flow.
We will continue making prudent capital allocation decisions to position our portfolio to drive results during the entire lodging cycle, while monitoring the financing markets to identify additional opportunities to improve the ladder out our maturities reduce our weighted average cost of debt and increase our overall balance sheet flexibility.
Turning to our outlook based on our current view, we are providing fourth quarter guidance anticipates, a continuation of the current operating and macroeconomic environment.
For the fourth quarter, we expect comparable revpar between $129 50, and 134 50.
Comparable hotel EBITDA between $82 million and $92 million.
Corporate adjusted EBITDA between $73 million and $83 million.
And adjusted <unk> per diluted share between 30 and 36 cents.
Our outlook assumes no additional acquisitions dispositions refinancings or share repurchases.
Please refer to the supplemental information, which includes comparable 2019, and 20 twenty-two quarterly and annual operating results for our 96 hotel portfolio.
Finally, we continue to estimate our O J capital expenditures will be in the range of $100 million to $120 million during 2023.
Thank you and this concludes our prepared remarks, we will now open the line for Q&A operator.
Thank you we will now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the darkies one moment. Please while we poll for questions.
Thank you. Our first question comes from the line of Michael Bellisario with Baird. Please proceed with your question.
Thanks, Good afternoon, everyone.
Good afternoon, Mike.
Lastly, Big picture, maybe can't give us your your thoughts on kind of the industry outlook for 'twenty for how you think the various customer segments might perform and then really the follow up here is probably my.
More important question just how you think Donald J portfolio will perform on a relative basis, just overlaying the customer segments, there that'd be helpful.
I'm sure you know, Mike obviously, you know where were sober about the uncertainty that's still sort of lays in the overall macro environment, but but having said all of that you know fundamentals remain stable and there's nothing that we're seeing today that suggested the trends that we're seeing won't carry into 2024.
We expect business transient to continue to gradually improve based on not only current trends, but also what's going on from a you know office. It turned the office trends as well from a group perspective group booking trends continue to be very strong you know our pace is at 122% versus last.
You already are and then we expect urban markets to continue to benefit from all segments of the demand, including urban leisure and the emerging international trends that are doing well in both New York and South Florida.
So when we overlay you know are you know our portfolio. We continue to expect the track with with urban markets, We expect urban to continue to outperform.
As it benefits from all of those different segments and the man when we think about markets that were most positive on for next year, Southern California, Tampa, Boston, San Diego and it and it come to mind.
But you know, but in general we think the setup for next year bodes well for our portfolio as a new normal continues to unfold.
Okay.
That's helpful. Thank you.
Our next question comes from the line of Dori Kesten with Wells Fargo. Please proceed with your question.
Hi, Thanks, good afternoon.
And I know you're regularly receiving inbound interest from your hotel is is there a trend in location or perhaps brand that you've seen of late and that.
In terms of inbound inquiry stories that were you, saying that what you're asking yeah yep.
No I mean, I would say that in general it's sort of broad strokes, you know dori I think that most of the inbound calls candidly are for bottom feeders theyre looking for distressed.
And because of our balance sheet and the strength of liquidity. We have you know we don't have to sell against this negative backdrop, but we can obviously be opportunistic and it can be thoughtful about things from a disposition perspective, we obviously have 97 assets and we'll continue to be an active portfolio manager and evaluate where trends are heading on a market by market basis and adjust the court.
Anyway, but you know inbound calls are generally around bottom feeding you know across a spectrum of different reasons.
You know I.
I mean, I recognize it's difficult, but do you imagine.
Being a net buyer pool as a result next year just given your balance sheet.
Yeah look I think it's unclear, whether it's a net buyer or seller I mean, that's going to unfold based on dynamics, but what I would say to you is is that it.
You know there has been a constructive shifts are in the in the mindset of sellers are today, where sellers are starting to next day you know.
Except the fact that interest rates are going to be higher for longer and the viability of hanging on to assets may not be viable for some and so therefore that will create attractive buying opportunities for all cash buyers like ourselves.
Okay. Thank you.
Our next question comes from line of Bill Crow with Raymond James. Please proceed with your question.
Good morning, Hey, Sean I appreciate the color on the operating expenses.
I'm curious if these attributes that you highlighted.
Set you up.
In 2024 to be able to achieve breakeven EBITDA.
EBITDA margins at maybe a lower level of revenue growth than your full service peers.
Yeah. Thanks, Bill Great question, I think on a relative basis because of the attribute particularly around Ftes you know do our lean operating model, we would expect on balance to be you know a little better position than full service hotels.
Because of that I think.
Industry wide, we think breakeven margins next year are somewhere you know four slightly below 4% you know for the industry and and we expect next year's operating expenses the growth because operating expenses the growth rate has moderated Rob.
A year are we would expect next year's operating expense growth to mirror, what you know what the inflation is going to be next year.
Okay.
Im curious I assume you all are net beneficiaries of the the slightly improved return to office right. But this is also hurting the shoulder night.
Demand.
Yeah, Hey, Bill good good afternoon, it's Tom.
What we're seeing is Monday Tuesday, Wednesday is still where the most amount of grosses weekday when we look at our Sundays and Thursdays, which is what you're referring to on shoulder nights still having growth.
In regards to Sunday coming back at 19 levels and then what you're also saying on Thursday, as we still see that hybrid work environment still is a positive but the most amount of growth that we're seeing 23 versus <unk> 22 is Monday, Tuesday, Wednesday, which is kind of a leading indicator in regards to what Leslie was throwing too on the <unk>.
Business transient side and whats also driving that as your national corporate accounts are now starting to show up at more regular amounts compared to the Smes, which were the driving factor previously so shoulder nights is still good it's still has opportunities to grow compared to 2019 and Thursday being the best because of obviously the <unk>.
Weekend way, we can price that.
Cuz, it's an arrival day versus departure day yeah.
And what I would add just add on to that comment is that when you look at the construct of our portfolio were built to capture seven day a week demand. So when we look at our mid week trends. Tom gave you you know we were up 4%. If we look at our urban weekends were up four 2% four 6% rather year over year and so you know, we're seeing it spread and we're capturing.
And our portfolio.
Perfect. That's it for me thank you.
Our next question comes from the line of Gregory Miller with Truest. Please proceed with your question.
Hi, Thanks, everyone.
On a related question from jewelry in terms of the Nic does that the recovery of New York City change your strategy or hold period on that property.
No I think you know that the Nic is fitting nicely in our portfolio from the standpoint of our urban lifestyle asset how it's performing how new Yorkers performing you know the limited amount of meeting meeting space and F&B that asset fits right into the construct of our portfolio and so no it doesn't change today.
Yeah.
Okay and this is an operating model operating question, if we were to compare operating profit margins.
For Q between your select service hotels, and your full service hotels.
Which group of properties would you expect to have superior hotel margins year over year upscale versus upper upscale.
Yeah, Greg I think you know.
Whether it's <unk> or select service assets perform or operate at a higher margin because of.
The lean operating model and and at a lower Ftes and so I would you know what our trends have been and we expect to continue on an operating margin perspective. As is is it's a select service assets will perform better than the than the full service assets.
I should have specified as more referring to the year over year change.
Between Upskill versus upper upscale.
Yeah, I think that trend would also hold as well for year over year change as well as as as well as you know a whole dollars.
Okay. Thanks, Sean.
Our next question comes from the line of Tyler Battery with Oppenheimer. Please proceed with your question.
Oh. Thank you good afternoon few questions on the group side of things, which I think given the nature of your portfolio, sometimes might get a little bit overlooked are what percentage of your mix right now is group.
<unk> bookings that you're seeing is this a new normal as there's still some sort of a catch up post COVID-19 is just people booking farther in advance maybe all of the above.
And then when you look at some of the conversions that you have planned or are there opportunities to reposition some of those assets to be even more attractive to the group customer or is that something that you're considering.
Okay.
So Kyle I'll take the first question I'll take the second what I would say is that on the on the strong booking dynamics. You know we are from a demand perspective, we're about 10% below our 2019 levels. So there's still room to grow there.
I would say is is that we've seen strong conversion rates, we've seen the booking window, creating an environment where.
Well, we have a strong in the quarter for the quarter production, which is about 20% of our revenues all of that is creating strong pricing power until our total revenues for group where are you at 104% of 2019 levels and up 4% year over year, our rate is 115% in 2019 levels and up 7% year over year and it is.
Really being driven by small group and in House group, which is our bread and butter and so I think the dynamic is is that.
Mall group and in House group is gonna be a greater percentage of group contribution overall, so I think for the industry and our portfolio is built to capture that or group right now from a contribution sits at about 18% historically, it's been at 'twenty. So there's room for incremental contribution there, but what I would say is is that the.
The the nuances.
What is driving group today, and its small group and that fits right in the wheelhouse of our efficient boxes, it's more intimate space to be in when you have a small group and and so I think we're winning on that front.
And I'll take your second question, Tyler and that's about the conversions I'll give you some proof points and some examples that I think have really shown up since our conversions that were already in process. So for instance, as you know in Nashville.
Converted in the late July early August period, and early indications now that we're a tapestry within the Hilton system. We already have about 70 group lays out of Com, we booked significant more business based on the relationship that we have we have some meeting space at that location. So we think we can change the mix with more group and <unk>.
Pretty profitable group mid week, because that's what you want in Nashville versus weekends, where everybody benefits from leisure.
Another.
Proof point is when we think about our mills house in Charleston, and we became a curio and in the Hilton system also very powerful group leads the type of banquets and lounge activity, we have with group, it's more of incentive group and a variety of different things that happened with the Hilton system in our proof point is.
It's a higher average rate as well just this quarter alone we were about $100 higher than we were previous quarter. It is a significant movement. Some of that is related to the type of group business and then obviously being at the top of the food chain within Hilton in Charleston drive to market.
It has also proven but I think overall group is a positive move in our portfolio I do believe we will get back to those percentages because of the demand that's still left in the tank and average rate is carrying right now the current structure in regards to why we're over 2019 levels.
Okay. I appreciate that you gave us all for me. Thank you.
Our next question comes from the line of Christopher I'll go with Deutsche Bank. Please proceed with your question.
Hey, good morning, everyone or good afternoon, everyone.
So I think there's a question earlier in the Q&A kind of around shoulder periods and you know what my follow up on that is.
Is that as you go back and kind of scrub. This your historical books I mean is that any kind of indication that.
Early indication I guess of a broader slowdown and secondarily.
Heard your comments about monthly Revpar progression August seems to be.
Every year not as good as the last one is is there something changing there and we have to start looking at August differently and does that impact any other months or there are there shifts that are making certain months stronger than others weaker. Thanks.
Yeah, when we look at our August it performed better than 2022. It was the second best month of the quarter. So it didnt compared to September, but it still had a 4% growth and year over year.
I always think about August is youre not going to have significant growth because it's the back to school months in those last two weeks. So you really have to get that growth in the first couple of weeks as I think about that month just to answer August question, but I also don't forget August had was impacted by Hurricanes. It also was impacted by extreme hot weather.
In Texas, and no new NOLA as well so that's embedded in in August as well and Chris on your question on in terms of the soldiers can you restate that so we can understand like what's the nuance you're focused on.
Yeah just call. It just the question would be is that do you think that's an indication that there's a broader weakness start with shoulder periods right. So everybody everybody. There's gonna still traveled for holidays, but do they.
Is it a is it the weekend trip in early December.
It gets cut first.
Yeah, we're not really sort of seeing a degradation in our weekends as I mentioned before our weekend for our portfolio are up 4% over last year or weakened for our urban is up four 6% keep in mind that we're benefiting from you know whats happening in large events concerts sporting.
Season is here so we're not seeing a degradation of waning Thursday continues to be a check in you know for US we think that with the new backdrop around flexibility that the live work play environment is benefiting our portfolio as Tom mentioned before we're seeing more growth on Monday Tuesday Wednesday.
Because that's where the that's where there's a lot of room left to recover but overall, we wouldn't characterize our soldiers as being weak or slowing down.
And then the other thing to add Chris.
Chris on your question around sort of the relative seasonality of the months et cetera that has not changed.
For the third quarter September as it is has always been an important month volume wise and and and was strong for us in the fourth quarter October is the big volume Mark and that continues to be important it's roughly.
40% of the topline and 50% of the Bottomline for the entire quarter, which is sort of how it how pat so from a relative it seasonality importance to the mine so that has not shifted.
Okay.
Okay, great. Yeah. Thanks, Thanks, Sean and just a follow up I may have missed something earlier, but on insurance I think you might've mentioned, what the with the renewal period looks like and is there any thoughts as to what that looks like next year I think we're all kind of constantly amazed at.
The pressure on the uninsured.
Yes.
Any hope of relief and but more importantly, just where does that hit the year end and.
When would that renew.
Sure I mean.
Property insurance is a it is a headwind for all real estate.
Including hotels are our renewal.
Had relatively favorable renewals over the last couple of years, we're actually in the market today, we renew I'm you know over the next week or so and so I'm really not going to I can't and shouldn't comment about anything on a renewal yeah for this year, but you know I think that I think your your your commentary.
Around there being no pressure on the overall insurance market is you know is it is consistent with us I think.
You know on a relative positioning knows that have you know do not have significant claim history.
And we are in that camp.
Screen very well you know from a claim history perspective, or lack thereof, and so on on the on balance we expect to have more favorable renewal terms relative to the market, but still be in that had a headwind for everybody as the industry is seeing.
Yeah.
Okay helpful. Thanks, Thanks, Sean.
Our next question comes from the line of Austin, where Schmidt with Keybanc. Please proceed with your question.
Great. Thanks. Good afternoon, everyone wanted to hit on October you guys highlighted revpar growth was up 6% the largest contributor to the fourth quarter results and I believe that the midpoint of the fourth quarter Revpar guidance ranges in that mid to high 3% range I know, we're late in the year and it's little bit difficult to forecast around the holidays, but carry.
If there's anything you're seeing in the pace figures over the next 30 to 60 days that cautions you.
And what it would take I guess for you to get comfortable or what it would take for you to get to the higher end of that range.
I would say that you know overall you know Austin I think what you're hearing you know what youre alluding to is just normal seasonality right. So.
You know as John mentioned, you know October is generally a significant contributor for <unk> for the quarter. It was relatively strong, but I think what you're seeing in November and December as just normal seasonality.
No I think overall, we expect our portfolio to track with urban as expected. We think that urban is going to continue to outperform and you know from a pace perspective in terms of what you mentioned, we expect urban leisure to do well as we kind of move into the into the holidays, our group pace for the fourth quarter.
Is about 122, and 23% or up two of over last year and we're on par with 2019, So I think what you're seeing in the numbers. It's just simply normal seasonality, but we're not seeing degradation and in what we consider from a from a demand perspective, what I would also say to you is that you know October just as another data.
<unk>.
<unk> hit a new high on occupancy at 94% of 2019 level. So I think this is another proof point around just the general trend line.
Yeah, I understand that there's seasonality was more just thinking comping year over year, if there was something specific.
Yeah, and I'd also just to jump in and we expect.
Year over year growth in every month of the quarter and not in the <unk>.
Variation on a year over year growth is not going to dramatically vary quarter over quarter, maybe a couple of points here and there, but but it'll it'll.
Expect year over year growth every every month for the quarter.
Okay. That's helpful. And then Leslie you you highlighted the strength in your in House group business in Northern California next year. Despite some of the well known challenges around just city wides more broadly in that market, but I guess, how do you expect the northern California region to perform overall relative to your broader portfolio next year just with.
That kind of positive group backdrop that you highlighted.
Well, let you know, let me just sort of frame and I'll, let Tom jump in with some color just to remind you right. Our footprint is diversify within northern California. We only have two assets that are in the C. V. D lesson 600 keys, and 3% of our rooms, and we and as you correctly stated we really rely on in house group, which is what's allowing our pea.
For 2024 to be ahead of last year by 21%.
Yeah, and Austin, what I would tag on is a couple of things.
First and foremost you know as we know our footprint is not just CBD, but I will start with CBD because I think there is some some decent news in regards to what's expected when we think about next year and.
And a jump off point as we were looking at international deployment and we were looking at the forecast for next year and specifically we were we were focused on obviously, China being a number one contributor in the past.
So as an example, when we were looking at deployment in the San Francisco International Most recently in July and August they were at 96, and 92% of 2019 levels, which is encouraging because year to date, they're only at 90% and San Francisco.
When we broke it down to a smaller group and we've looked at categories of where people are traveling from and China, which was only a 29% in 2023 is expected to be at 74% in 2024 and the reason that is is because they've already changed the flights coming in over the last couple of months for future dates which is.
<unk> for instance in the month of August They only had 12 weekly slots and then went up to 18 in September and 24 in October so the pace to be able to book future into San Francisco from China is is there and just as an example in visitor spend what they're projecting from China is only about <unk>.
$406 million this year, they could potentially get to a billion next year and 19 levels were a $1. Two so when we're talking about international that's really important for San Francisco, because we all know the mosconi story and what's happening there and there's you know those will be up and down depending upon what happens, but I think the other thing that we're also.
So I'm excited about is there's an event. This year that we think is going to be critical to be able to set the tone for future years, and it's called APAC in November. So for instance, 21 had the states are coming in from November 5th November 17th So literally just checking on this weekend for about 10 days and we think that's going to help a little bit of activity.
Knowing that it's going to be on the radar in regards to another place to come from Asia Pacific and have events, which we can only help mosconi in 'twenty four 'twenty five as we look at the Tentatives are on the books to set the stage for next year and then lastly, I would say when we think about our airport emeryville in Silicon Valley that back to office and.
AI, we're starting to see a little bit more growth with companies coming back and spending more time in those offices, which means more visitors can come in and not just from domestic but international as well.
Thanks, Tom that's that's great detail do you know off hand, what percent of overall room night demand is from international tourism in that market or broader region.
Up 20% Austin, if Youre asking me the question of total international demand for all of San Francisco and San Jose.
The Austin just a follow up for Tom I think it's important that that citywide 10 nights that Tom mentioned APAC was actually booked this year and so that's a function of some of the initiatives that the city has done to try to sell themselves and so.
Obviously, that's a big citywide and so we continue to encourage San Francisco to it to aggressively market themselves and book those but that is something that obviously the more success. They have all will help the outlook for the market.
Understand thanks, everybody.
Our next question comes from the line of floors and I can with Compass point. Please proceed with your question.
Hey, Thanks for taking my question guys Leslie.
Leslie or or Sean maybe if you can comment a little bit more I know you bought back.
You know a small amount of shares during the past quarter give.
Given your current you know the balance sheet, you know our strength.
Given the improving our operations how do you think about.
And how do you weigh additional share buybacks I know you've got some some other ROI projects as well but.
Yeah, Yeah, how how I think.
I'm trying to get at it so I think the market, which probably would you. If you were to increase your buyback activity. How do you think about that and how do you think about how you allocate capital going forward.
Sure and.
So first look we we acknowledge that share buy backs remain attractive use of capital and you've seen us be active every quarter. Yeah. We've demonstrated the ability to be thoughtful with our approach towards capital allocation and our balance sheet gives us optionality and.
We can pull multiple levers at the same time right and so we've been evaluating the right window to do that.
We have repurchased $70 million worth of shares this year, we've executed on our internal growth initiatives with great success, we've increased our dividend twice this year and as I mentioned before you know as we look at the external growth that the backdrop has had some constructive shifts.
With seller seller mentality. So I think the takeaway is is that we're going to continue to be thoughtful and continue to leverage the optionality of our balance sheet as we look at the various capital allocation options available to us, but we acknowledge that buybacks remain very attractive.
Thanks, a lot.
Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Hi, Good afternoon, I guess, a question on the impact of events and concerts and whatnot on the quarter and the year. You know it's been talked about a lot. The past few earnings calls do you have any way to quantify the impact either in terms of EBITDAR compression nights and look into next year.
Is there a risk that this unit was a heavy year channel switches that overseas next year. For example, so any way we can kind of like quantify this impact and look at the risk of them can be slow down next year.
Yeah, Anthony you know, while we appreciate the benefit of those special events I think our locations are such that it that it didn't move the needle portfolio wide you know for US. It allowed you know when you look at it sort of both have our how our weekday and weekend performed.
Year over year growth rates were strong in both of those are where whereas we appreciate obviously the compression created by those markets. It it's not a move the needle for us. So we don't think it creates a headwind for next year and we don't want to suggest that it was just those I mean, there was multiple concerts or sporting events, where we sit relative to various arts and entertainment.
Came in as what's driving at those venues. If you. If you recall, we're a year behind the rest of the recovery and so you know I think it's a function of being situated to capture that demand less than it is sort of a spike in one particular concert.
Got it thanks, and then maybe one on via the mortgage maturities next year in April and it makes sense. So let's talk about that has there been a few kind of secure deals and work as you know that happened in the space. So what are your thoughts on addressing those maturities next year.
Sure Anthony it's one maturity next year, it's a it's a C N b S, allowing that matures in the second quarter.
We're confident that we'll be able to take care of that for some there were some numbers that that loan is has over a 14 debt yield and you know all close to two and a half times.
Coverage. So it is a very financeable loan in this admire because it's a very low low LTV and so you would expect us to have multiple options with which to refinance it in and it's something that we're going to take care of.
Early next year.
Okay. Thank you.
Thank you Michelle we have no further questions at this time I would now like to turn the floor back over to you for closing comments.
Alright, Thank you everybody for joining us and we do look forward to seeing many of you at NAREIT. We do hope that you will join us at our tour in Santa Monica to to see the peer side, we think that it's gonna be representative of the value that we're creating within our portfolio.
Good afternoon.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.