Earnings Call Transcript - RLJ Q3 2025

John Paul Austin, Director of Investor Relations

Thank you, operator. Good morning, and welcome to RLJ Lodging Trust's 2025 Third Quarter 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-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.

Leslie D. Hale, President and CEO

Good afternoon, everyone, and thank you for joining us today. Overall, our third quarter RevPAR results were in line with our expectations, with trends improving sequentially month-over-month during the quarter. We were pleased to see our urban markets continue their stronger relative performance, and we are particularly encouraged by the momentum building in Northern California, which should continue to benefit our portfolio. Our solid growth in out-of-room spend, combined with our focus on cost containment allowed us to achieve solid bottom line results despite the RevPAR headwinds, demonstrating the strong contributions from our ROI initiatives and the resiliency of our lean operating model. Drilling into our third quarter operating results. Our RevPAR decline of 5.1% was balanced between occupancy and ADR. As we had expected, our performance reflected the broader lodging environment, which faced a layered effect of difficult holiday comps, non-repeat hurricane-related business in Houston and Tampa last year and softer citywide calendars in many markets such as Chicago, which benefited from the DNC last year and San Francisco that saw Dreamforce shift from September to October. These factors were compounded by the impact from our three transformative renovations in Waikiki and South Florida as well as headwinds in Austin, which collectively had a 200-basis point impact on our third quarter RevPAR. Notably, however, against this backdrop, we gained RevPAR index, highlighting the quality of our assets, which is allowing us to take market share. RevPAR at our urban hotels once again outpaced our broader portfolio this quarter by 50 basis points. We believe that urban markets, which benefit from a broad range of demand drivers should continue to outperform the industry. We were especially encouraged by the performance of our San Francisco CBD hotels, which achieved 19.4% RevPAR growth during the quarter, driven by a strong lineup of smaller conferences, concerts and special events, which more than offset the calendar shift of the Dreamforce conference. Regarding segmentation, healthy travel patterns across key sectors such as tech, finance and consulting, along with the sustained momentum and return to office trends led our non-government-related business travel to achieve 2.4% revenue growth. With our highest-rated customer coming back, corporate rates were up a healthy 3%. However, government-related transient demand remained meaningfully below last year. Our group revenues in the third quarter were impacted by the shift of the Jewish holidays into September, leading to a softer citywide calendar across many markets. Our group demand was further impacted by the ongoing transformation of the Austin Convention Center, which will significantly expand the center and further strengthen the Austin market in the coming years. While the demand environment was soft and the booking window remains short, we were encouraged to see pricing strength as demonstrated by the 2% growth in group ADR for the quarter. With respect to leisure, trends remain stable. And although we continue to observe some pricing sensitivity among consumers, we were encouraged to see demand up 1% during the quarter. Our urban leisure once again saw stronger relative performance, achieving flat revenue growth, led by a 3.2% increase in demand. Our urban markets are continuing to benefit from strong demand for concerts, sports and special events. Notably, we were pleased to see positive results from our ongoing strategy to drive out-of-room spend, which grew by 1.3% in the quarter, despite lower occupancy. Our non-room revenues generated strong margins and underscores the success of our ROI initiatives aimed at growing food and beverage revenues, re-concepting underutilized space and growing other ancillary revenues. Growth in our non-room revenues came in over 600 basis points ahead of our RevPAR performance. This growth, paired with our tight cost containment initiatives, allowed our portfolio to deliver bottom line results ahead of our expectations. Turning to capital allocation. We continue to make progress on several fronts during the quarter. We advanced our three transformative renovations in Waikiki, Key West and Fort Lauderdale, which are now substantially complete. We continue to ramp our conversions and see significant success with our four most recently completed conversions achieving 6% growth during the third quarter, including our newest conversion in Nashville, which achieved high single-digit RevPAR growth. The solid performance of these assets is testament to the success of our conversion strategy. Consistent with this strategy, during the quarter, we began the physical renovations at the Renaissance Pittsburgh, which will become part of Marriott's Autograph Collection. The timing of this conversion ideally positions the hotel to benefit from the momentum in the Pittsburgh market, including the NFL Draft, which will be hosted in the city next year. Additionally, we are pleased to announce that our Wyndham Boston Beacon Hill hotel will join Hilton's Tapestry Collection with renovations to commence late next year. This hotel sits in an irreplaceable A+ location, adjacent to Mass General's main campus, which is currently undergoing a $2 billion expansion. Our asset is positioned to benefit from the strong growth trends in all segments of demand, supported by a diverse base of demand drivers, including a strong corporate base, a robust life science and biotech ecosystem, a concentration of leading higher education institutions and a compelling set of leisure attractions. We believe the selection of Hilton's Tapestry Collection will allow us to attract robust incremental demand given the limited Hilton flags in the market, and we remain confident that we can unlock significant EBITDA upside of over 40% on a stabilized basis. Our ability to unlock meaningful value within our portfolio is made possible by our lean operating model that allows our portfolio to drive strong free cash flow and maintain a healthy balance sheet that enables us to return significant capital on a sustained basis to our shareholders. Now looking ahead to the remainder of the year. The broader uncertainty and lack of visibility that has persisted since the end of the first quarter has been recently compounded by the government shutdown, which began in October. October is the most important month of the fourth quarter. And despite having had an otherwise strong setup given the holiday shifts and an improved citywide calendar, October saw RevPAR decline year-over-year given the lack of compression created by the shutdown. Additionally, we anticipate that current travel-related headwinds created by the shutdown, including the effect it is having on the air traffic control system, will have an impact on consumers' propensity to travel. Current trends are also impacting the timing of the anticipated contribution from our major renovations in Key West and Waikiki, which were previously expected to begin ramping during the fourth quarter. These factors, combined with the lingering macro uncertainty that is affecting consumer and corporate confidence has moderated our view of the fourth quarter. We are, therefore, adjusting our full year outlook to reflect the impact of these trends with the new range, assuming current trends continue. As we look ahead to 2026, we are encouraged by a number of building blocks that when taken in aggregate, should drive a more positive backdrop for the industry, including: a more constructive economic environment with lower borrowing costs, clarity around taxes and increased investment spending in the U.S.; a lapping of difficult comparisons from 2025, including Liberation Day; and the continuation of historically low levels of new supply. Relative to this backdrop, our portfolio is well positioned for 2026, given our favorable geographic exposure and urban footprint, which should allow us to see outsized benefit in an improved demand environment. We are particularly excited about the World Cup in the U.S. and with 72 matches scheduled to take place in many of our markets, we are well positioned to capture this demand. Additionally, our portfolio will benefit from the 250th anniversary of the U.S. in markets such as D.C., Boston and Philadelphia as well as the rotation of major sporting events in many of our key markets, including the Super Bowl in Northern California. And we are also poised to capture the ongoing recovery in Northern California, which continues to gain momentum, supported by the rapid growth of the AI industry that is stimulating business travel, events and corporate investments against the backdrop of improving safety conditions and increasingly stringent return to office policies. All of these tailwinds for our portfolio will be further bolstered by the ramp of our conversions and the major renovations we completed this year. As we look ahead, we are well positioned to capitalize on what we believe will be an overall improved setup for the industry next year.

Nikhil Bhalla, CFO

Thanks, Leslie. To start, our comparable numbers include our 94 hotels owned at the end of the third quarter. Our reported corporate adjusted EBITDA and AFFO include operating results from all sold and acquired hotels during RLJ's ownership period. Our third quarter was generally in line with our expectations, even as we faced a low visibility environment. Third quarter occupancy was 73%, average daily rate was $190 and RevPAR was $139, which translates to a 5.1% RevPAR contraction versus the prior year, led by a 3.1% decline in occupancy and 2.1% drop in ADR. With respect to the cadence of RevPAR during the quarter, July experienced RevPAR decline of 6.8% due to greater impact from renovations as well as the lapping of difficult hurricane comparisons in Houston. August and September declined by 4.8% and 3.8%, respectively. Although October sequentially improved month-over-month as RevPAR declined by approximately 2%, it was below our expectations in light of the government shutdown. As Leslie noted, the layered effect of several known industry headwinds impacted the third quarter. However, our urban hotels continue to perform better relative to our overall portfolio, led by solid growth in markets such as San Francisco CBD, Atlanta and New York City, among others, that saw RevPAR increase by 19.4%, 12.1% and 4.7%, respectively. We were especially pleased with our non-room revenues achieving 1.3% growth over last year. Growth in our non-room revenues demonstrate the momentum behind our ROI initiatives, which led our total revenues to perform 110 basis points better than our RevPAR on a relative basis, despite occupancy being lower. With respect to operating costs, during the third quarter, our operating expenses were up just 90 basis points year-over-year after adjusting for non-recurring tax benefits in the prior year. And year-to-date, expenses increased by only 1.7% even against the prior year tax credits, reflecting the benefits of our lean operating model as well as the ongoing normalization of expenses and our relentless focus on enhancing productivity and managing expenses. Our ability to manage costs in a challenging RevPAR environment allowed us to achieve third quarter hotel EBITDA of $80.8 million and hotel EBITDA margins of 24.5%. We achieved adjusted EBITDA of $72.6 million and adjusted FFO per diluted share of $0.27 during the third quarter. Our balance sheet remains well positioned with approximately $1 billion of liquidity, comprising of $375 million of unrestricted cash and $600 million available on our corporate revolver. We ended the quarter with $2.2 billion of debt with a weighted-average maturity of 3 years and an attractive interest rate of 4.7%. 74% of our debt is either fixed or hedged, including $200 million of new interest rate swaps that we entered into during the third quarter. We continue to have significant flexibility with 86 of our 94 hotels unencumbered. Earlier this year, we addressed all of our 2025 debt maturities. And as we turn our attention towards addressing our 2026 maturities, we are encouraged by the improving interest rate and lending environment. We will continue to optimize the laddering of our debt maturities, our weighted average cost of debt and the flexibility of our balance sheet. We are leveraging the flexibility of our healthy balance sheet to unlock embedded value across our portfolio through transformative renovations and high-value conversions, while remaining committed to returning capital to shareholders. During the quarter, in addition to substantially completing the three transformative renovations in Waikiki and South Florida, we initiated the conversion of the Renaissance Pittsburgh to Marriott's Autograph Collection, while also advancing the programming for the Wyndham Boston, which we have selected to convert to Hilton's Tapestry Collection. Additionally, we remain committed to returning capital to shareholders by continuing to pay an attractive quarterly dividend of $0.15 per share that is well covered while increasing our shares repurchased to date to 3.3 million shares for $28.6 million. We will continue making prudent capital allocation decisions to position our portfolio to drive growth through the entire cycle while returning capital to shareholders. Turning to our outlook. Overall, forecasting visibility remains low in light of the uncertainty related to the federal government. As such, our adjusted full year outlook reflects October's performance and the assumption that current operating trends persist through the balance of this year. For 2025, we now expect comparable RevPAR growth to range between negative 1.9% and negative 2.6%; comparable hotel EBITDA between $357.5 million and $365.5 million; corporate adjusted EBITDA between $324 million and $332 million; adjusted FFO per diluted share to be between $1.31 and $1.37, which incorporates shares repurchased to date but no additional repurchases. Our outlook assumes no additional acquisitions, dispositions or refinancings, and we continue to expect capital expenditures in the range of $80 million to $100 million. We also expect total revenue growth will continue to outpace RevPAR growth due to the success of our initiatives to drive out-of-room spend. 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 94-hotel portfolio. Thank you, and this concludes our prepared remarks. We will now open the line for Q&A.

Thomas Bardenett, COO

Yes, I'm happy to address that, Mike. In Q3, we recognized that the group segment was weak both in the industry and in urban areas. Therefore, we focused on diversifying our offerings as we entered that quarter. We aimed to capitalize on the leisure segment since we identified opportunities to offset some group demand. Our leisure demand actually increased, particularly in urban leisure where we were able to secure more bookings due to diminished group activity and a softer citywide calendar, along with some challenging comparisons we faced. Additionally, I want to highlight that many of our hotels operate on a full-service basis, which allows us to tap into contract-based business that helps mitigate our own pressures. We've had success in securing more base business, strengthened by renovations completed in 2023 and planned for 2024. This approach is particularly effective when facing reduced group demand. Regarding your other question on channels, we continue to see strong demand through our brand.com platform, which is our most cost-effective channel. Given the increase in leisure travel, we also noted some growth in OTA bookings during weekends. Our BT segment continues to expand, with a 2.4% growth noted in government accounts for the second consecutive quarter. Additionally, global distribution systems are also on the rise, which is promising as we've seen national corporate accounts returning, representing our highest-rated customers. I know Leslie would like to add a few points too.

Leslie D. Hale, President and CEO

Yes. Mike, I would say that, as Tom mentioned, the setup for the third quarter was weak. But I do think it's important to point out the momentum that was coming out of September. As we articulated, September performed better than we initially expected. And just to sort of give you a frame of reference, as Tom mentioned, our portfolio saw non-government BT increased by 2.4%. But in September, it was up 3.7%. And it really happened in the back half of the month, and that was all demand driven, 100% demand driven. The other data point that I would give you is that going into September, our group pace was at 90%. We ended at 97% for the month of September, which is up 700 points. And so, the momentum coming out of September prior to the government shutdown was positive. So, we saw a swing that moved pretty fast in September. And obviously, we've seen a swing the other way in October. Yes. Mike, on the CapEx side, keep in mind that our most of our renovations were front-loaded as we talked about before, and so they're either substantially complete or rounding completion. That was in Waikiki, New York and Key West this year. As we mentioned in our prepared remarks, clearly, given the softened backdrop on transient and on leisure where some of these assets are at, we still expect these assets to ramp up well, but that ramp may be a little bit delayed because of what's going on in the broader market. But we believe these assets will be a tailwind for us in 2026 for sure. And then, I would say on Boston, that is an asset that we feel very good about. As we mentioned, it's going to be moving into the Tapestry Collection. It's got a great flag and a great location and very diverse demand drivers. And so, the significant upside still remains there. That asset won't start until the end of next year. And so, we should be picking up around the demand drivers that we expect to capture within that market. And I'll let Tom add some color on Boston.

Thomas Bardenett, COO

Yes, Mike, as we're looking at not only '26 but '27 in Boston, the great thing about our location is the expansion of Mass General, which is a major hospital and they're putting about $1.8 billion in two different buildings that are literally next door to us. I was on the phone with the management team, and they're going to have an oncology cancer research center, which is going to expand the ability to get MRIs. And we think that's not only going to have a regional draw, but we think that's going to be an international draw of folks coming into Boston based on the expansion of those two buildings with one being oncology and the other one being cardiology. And then next year, as you know, we got FIFA, we have an event that is international that comes in, what's called Tall Ships. And then the USA being celebration in the July period, which will be not only benefiting Boston, but New York and Philadelphia, where we also have demand. So, we're encouraged about going into the Hilton system because we know what happens when we convert and we start to get Hilton Honors members and changes the mix of our hotel in '27 after we're completing the renovation.

Leslie D. Hale, President and CEO

Well, I would say that, as we talked about in the prepared remarks, leisure demand has been relatively stable for us for the last few quarters. And in fact, room nights were up in the third quarter. We are seeing the price sensitivity, and it's showing up in terms of what channels they're booking through. But I think that what we're seeing with the government shutdown is different. It's affecting the propensity and willingness to travel. And so we're seeing our pace soften relative to that, but that's more a function of a desire to be caught in the airport for five hours versus the underlying fundamental of leisure demand that we've seen being stable.

Thomas Bardenett, COO

Yes, great question. When we look at CBD, and you're right, how the market works, and I'll talk a little bit about Silicon Valley differently. But when I look at CBD, Austin, this is back-to-back quarters of 19% growth in our CBD assets. And you know we have our Marriott and our Courtyard there. What we're encouraged in the third quarter is that's in the fact that Salesforce moved from September to October, and we still had that growth. So, we were pleased to see that the convention center is the hub, and that really was the beginning stages of where CBD had its growth year-over-year. In addition to that, though, we're seeing a lot of things happen in the AI space. And even the conventions that are coming in for that are increasing in regards to the amount of attendance that's happening. So back to office, office demand was up about 102%. We were just on the phone with SF Travel. They talked specifically about the leasing and additional space that's coming in under the AI. I guess there's about five million square feet today that's AI, and they're predicting about 30 million square feet by 2030. So, that's encouraging that CBD will continue to grow. And the convention calendar is in good shape next year, not only because of Super Bowl and FIFA, but just they're getting more corporate accounts to come back based on the political environment. It's just a safe and clean place. And I think people are encouraged. Their whole campaign about Believe in San Francisco, I think, is drawing more international travel as well.

Leslie D. Hale, President and CEO

I mean we're seeing positive trends overall. But obviously, CBD is doing well because of the unique demand drivers within that market, Austin. It's not compressing all the way out, but we are seeing different demand drivers that benefit the rest of our footprint. And then on the cost and margin side, I mean, obviously, to your point, costs in San Francisco have moved, particularly on the wage side. But we are encouraged in terms of the mix of rate growth versus overall demand growth in the market and are optimistic long term in terms of the ability to recapture the margin growth.

Gregory Miller, Analyst

I'd like to start with New York City and a repeat of a question I asked same time last year. I'm curious if you could provide your expectations for New Year's Eve for the Knickerbocker? How our RevPAR and food and beverage package pricing compared to 2024?

Thomas Bardenett, COO

You still got to go one of these days, Greg. We've got a seat reserved for you. But I would tell you that New York has been a strong story all year. As you know, it's good demand. Average rates continue to move. We're very pleased. international, when you think about international, globally, it's been down, but in New York, it's been up. So, when we think about the Knickerbocker, it really is a special iconic location to see the ball drop. I'm again encouraged to tell you that we're continuing to see growth. As you remember, in the last quarter, we talked about what we did upstairs where we added a sushi bar and a location there, which has already started to create more demand for more folks to come in, not just the guests. And what we're seeing is the package price for New Year's is continuing to exceed our expectations as we go into the holiday. So, I feel very good about the Knickerbocker and New York in general as we go into the fourth quarter just because of the lack of Airbnb and the inventory that's being controlled, the supply that came out of the location as well. And then, leisure continues to be very strong in that market. I believe that when we discuss behavior management, we can compare it to the concept of rewards and penalties. Hilton is really placing the responsibility on the potential for reductions to enhance guest service scores, which is beneficial for everyone. It is essential to satisfy guests so that they will return. The initiative to motivate the team to improve those scores, along with owners investing capital, is what drives them to implement such programs. On the other hand, for those not investing capital, this acts as a penalty. This encourages them to reconsider what opportunities might exist to receive financial incentives if they choose to invest. We are optimistic since a considerable portion of our portfolio is with Hilton, and we believe the incentive is positively impacting our guest service scores. As you know, we have invested capital, and our properties are in excellent condition. We feel that we are well-positioned based on our efforts, and now it is a matter of capitalizing on that incentive. We are confident that the incentive is strategically aligned to encourage investments in the hotels, and now it is about achieving results to secure those returns.

Leslie D. Hale, President and CEO

And I would just simply say that we're in a position to be able to benefit from that incentive because we have put the capital in the assets and partner with Hilton. We have a great relationship. And so it's a function of being a good owner and partner with them, and we would expect to benefit. Yes, Tyler, when we look at the adjustment we made to our guidance and its impact on the fourth quarter, it all stems from government factors. The government effect goes beyond just our direct government business, which accounts for about 3% of our contributions. It also influences market compression and travel sentiment. We anticipated October to be a strong month due to favorable conditions, including a clean BT month and a significant group month. However, it turned out to be about 2% down, which is a notable change for such an important month in the quarter. While our group pace continues to show year-over-year growth, it has fallen short of our expectations due to weaker quarter-over-quarter performance, pick-up trends, and a tough comparison given last year's 4% increase. Although we've been making efforts to fill the gap, it's becoming more challenging due to reduced compression. Our transient pace has also shifted. While leisure remained stable and BT showed strength entering the quarter, the transient pace weakened due to government-related issues. All these factors are affecting key markets where we undertook significant renovations, delaying the ramp-up we had anticipated. Overall, the dynamics in the market are being impacted by the government shutdown and related issues, and everything is connected to that. Yes. Our out-of-room spending exceeded expectations in the third quarter, with a decrease of 5% in occupancy contributing to a 300-point drop. We didn't anticipate out-of-room spending at such a high level, which was a pleasant surprise. This increase reflects our investment in food and beverage services, parking, and market expansion. Even with occupancy down, positive revenue growth has been encouraging. For example, in the second quarter, we saw a 2% decrease yet still achieved 1.5 points of growth. Over recent quarters, we've noted that the contribution from out-of-room spending has risen compared to room revenue. However, based on our expected business mix for the fourth quarter, including group and citywide events, we have adjusted our out-of-room spending expectations downward. I'll hand it over to Tom for more specific examples.

Thomas Bardenett, COO

Yes. So, I know you've heard a little bit about our focus on ROI. I'll just give you a couple of examples as you want us to double-click down. When Leslie talked about our market expansions, as an example of that is we're up about 7.2% in Q3. And what we do while we're doing these renovations, we're expanding these markets to provide a lot more product that's interesting for a lot of the different groups as well as transient guests that are coming into our hotels. And we think that's been a big plus and will continue to be as we do these conversions as well as renovations. And then, we're also attracting what I would say is guests that are not staying with us. The Mills House is a perfect example of that. The Black Door Cafe was probably our number one revenue generator in Q3 because Charleston continues to be a strong market because it's a drive-to market. And 50% of our guests are actually not at the hotel. So, what we're looking at is where we can put a market or an opportunity for people to utilize in a good, strong foot traffic area, we're getting the benefit of that. And then lastly, we did expand in the Phoenix area. During its renovation, we added some meeting space, natural light. You need that ballroom space to drive group business in off-season as well. And that actually started performing really well as that came out of renovation from last year and seeing the benefits of changing meeting space that would kind of much was dead space and it gave us an opportunity to drive more group in addition to banquets. So those are some examples when we think about out-of-room spend.

Leslie D. Hale, President and CEO

So, I think that the benefit to our bottom line here has been that we've taken non-revenue-generating space and turned it into revenue by either adding a market or converting, as Tom mentioned, into some ballroom space. And so that's been additive from a flow perspective. Yes. I mean, I would say that in general, that the transaction environment continues to be overshadowed by the uncertainty and the sentiment around transactions is a little bit volatile. So, the market is not necessarily fully functioning because of a lack of conviction in terms of underwriting and PIP costs given the tariff situation. But the debt market is opening, and so that will help volume increase. Deals are taking a little bit longer. And most of the deals that are getting done are deals that are better suited for owner operators. And so, overall, we're constructive. And as things sort of settle down, you should see us being more active and it would be active on transactions that we think can actually get done.

Thomas Bardenett, COO

As we evaluate our budgets, it's still a bit early since we're just getting into it. Regarding urban areas, we think they will continue to perform well for two reasons. First, this trend has been evident since we emerged from COVID, and the limited supply in urban areas sets us up nicely. Additionally, the special events we mentioned earlier, like the World Cup and other significant events in cities where we have hotels, will boost our performance. We anticipate hosting 72 games in various markets, which is promising. Furthermore, events like the NFL draft in Pittsburgh, the NBA All-Star games in Philadelphia, and the Super Bowl in San Francisco are also beneficial for us, especially since we have more assets in San Francisco this year. We strongly believe that urban areas will be a solid market for us, and urban leisure is a significant reason we expect these events to continue attracting customers as businesses stabilize post-government shutdown.

Leslie D. Hale, President and CEO

Yes. I would just add to that. In general, we believe that we've got the right footprint, the right portfolio. What we haven't had is a consistent economic backdrop because of the volatility and things like a shutdown that are happening. And so, I would say that as the economic backdrop continues to settle down and we have clarity around regulation, lower taxes and tariffs, those things should benefit our portfolio because that's the one ingredient that we've been missing, which is a stable economic backdrop.

Ken Billingsley, Analyst

One thing, I missed the number, if we could clarify. Did you mention what was the October RevPAR?

Leslie D. Hale, President and CEO

We said that October is currently estimated to be down about 2%.

Ken Billingsley, Analyst

About 2%. Given the way the calendar looks with Thanksgiving and other holidays for November and December, year-to-date RevPAR of negative 1.9% is at the top end of guidance. Are you expecting it to be flat? Or now that we are 7 days into November, should we assume that it might be shifting towards the middle of guidance?

Leslie D. Hale, President and CEO

Yes. I mean our expectation is that the midpoint of our guidance is the most likely outcome. And that implies with October down 2%, it implies November, December being down 4%. Keep in mind that November was an important month for the quarter relative to citywides. We were expecting strong citywides in Boston, Denver, Houston, Orlando. You also had the lapping of the election comp and other positive things that were happening in the month. And now you are overshadowing that with the shutdown. And so, the most important contribution period and event are being hampered by the shutdown. And if you sort of think about it from a pace perspective, while pace is still positive, it's down. And in the quarter for the quarter pick-up is being hampered and not allowing us to achieve the original pace that we set. So, the most likely outcome today where we sit is the midpoint of our guidance. Our guidance, at the midpoint assumes that the current trends continue through the end of the year. If the impact gets worse and in the year for the year continues to slow and transient pace continues to slow, that would put us at the bottom end of our range. I think that from a capital allocation perspective, it's very clear that buybacks are even more attractive today. And absent something that's sort of transformative, we're going to continue to be programmatic and deploy disposition proceeds into buying back our shares. We want to maintain a healthy balance sheet, and so we're going to strive to do that on a leverage-neutral basis and maintain our optionality. So, we're going to continue to be balanced between investing in our portfolio, buying back shares and maintaining our balance sheet. We appreciate you guys taking the time to join us today. We're available for any additional questions if you have them, and we look forward to seeing many of you over the coming months at various conferences. Thank you all.