Earnings Call Transcript - RLJ Q3 2023

Nikhil Bhalla, Senior Vice President, Finance and Treasurer

Thank you, operator. Good afternoon, and welcome to RLJ Lodging Trust's 2023 Third 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 has 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 was posted to our website last night, which includes our pro forma operating results for our current hotel portfolio. I will now turn the call over to Leslie.

Leslie Hale, President and CEO

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 our RevPAR growth exceeding the industry for the third straight quarter. Our above-industry results were led by our 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 favorable trends for our portfolio. With respect to our operating performance, despite the impact of several weather-related events, our third quarter RevPAR grew 3.4% year-over-year, which was double 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 room for demand and continued pricing power across our portfolio. With sequential improvement during the quarter, our September RevPAR grew 5.8%, which allowed our portfolio RevPAR to exceed 2019 levels for the first time. These encouraging trends carried into October. Our urban markets grew 4.2% over last year, benefiting from consistent improvement in business demand. These markets also benefited from ongoing robust group demand and healthy urban leisure trends with a 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, food and beverage re-concepting, and other initiatives. In the third quarter, non-room revenues grew by 12.7% and led our total revenues to grow by 4.9%. This momentum accelerated in September with total revenues increasing by 6.9% 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-pandemic at 75% of 2019 levels, a 400 basis point increase over the second quarter. On a year-over-year basis, business transient revenues increased by 11%. Notably, room nights improved by over 400 basis points to achieve 90% of 2019, demonstrating continued improvement in business transient 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. Similar to our overall portfolio, our 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 concerning national return to office mandates. Regarding group, our strong booking dynamics continued in the third quarter as group revenue grew by 4% over last year. Our group base has broadened to include more corporate and self-contained groups. This robust group demand led our third quarter group revenues to achieve 104% of 2019 levels, driven by ADR, which exceeded 2019 by 15% during the quarter. We remain bullish on our portfolio's ability to capture group demand as evidenced by the strength in our quarterly bookings, which represented nearly 20% of group revenues. As it relates to leisure, while resorts continue to normalize during the quarter for the industry, our leisure segment outperformed due to ongoing strength in urban leisure, which benefited from strong attendance at various concerts as well as sporting events. This allowed our urban weekend 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 206 basis points below last year. With expense growth continuing to normalize, our lean operating model should allow our margins to benefit 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 continued ramp-up of our 2022 conversions, which are exceeding 2019 levels on all metrics. These conversions achieved aggregate RevPAR that was over 16% above 2019 in the 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 repurchased 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 the strong industry trends 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 is being led by small and medium-sized groups and is already significantly ahead of last year by 23%, along with strong citywide events in key markets such as Atlanta, Boston, Washington, D.C., and Northern California. These robust group trends are also carrying into 2024, where 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, RLJ is well positioned to capture all segments of demand. In recent years, we have intentionally repositioned our portfolio into prime locations within urban markets that benefit from 7-day-a-week demand. As such, our portfolio is built to capture these emerging trends in addition to the tailwinds from our acquisitions and conversions. We believe that all of these unique factors should enable us to continue to exceed industry growth. Finally, I want to mention that we will be showcasing one of our recent conversions, the Pierside in Santa Monica in November, and we look forward to hosting many of you for our 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 Mahoney, CFO

Thanks, Leslie. To start, our comparable numbers include our 96 hotels owned throughout the third 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 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 1.9% 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, where 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%, Tampa at 139%, and Pittsburgh at 120%. Monthly RevPAR growth throughout the third quarter exceeded 2022 for each month. RevPAR growth above 2022 was 0.7% in July, 4% in August, and 5.8% in September and achieved 96%, 94%, and 103% of 2019 levels during July, August, and September, respectively. Similar to RevPAR, our monthly total revenue growth above 2022 accelerated throughout the third quarter and was 2.9% in July, 5.1% in August, and 6.9% in September, 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, where forecasted RevPAR is approximately $160, representing a 6% increase from 2022 and 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 the realization of our initiatives to redefine the operating cost model, total third quarter hotel operating costs were only 5% above 2019 levels, which 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 the 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 remained generally in line with 2019 levels as a result of our hotels' ability to continue operating with 17% fewer FTEs than pre-COVID, 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, limited food and beverage operations, and longer length of stay. Our third quarter operating trends led our portfolio to achieve hotel EBITDA of $98.1 million and 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, where 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 FFO per share was $0.40, 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 2024, 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 $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 3.97% 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 1.5 million shares for $14.4 million at an average price of $9.81 per share. In total, during 2023, we have repurchased 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 the third increase of our quarterly dividend since last summer to $0.10 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 laddering of 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 that 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 FFO per diluted share between $0.30 and $0.36. Our outlook assumes no additional acquisitions, dispositions, refinancings, or share repurchases. Please refer to the supplemental information, which includes comparable 2019 and 2022 quarterly and annual operating results for our 96 hotel portfolio. Finally, we continue to estimate RLJ 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, Operator

Our first question comes from the line of Michael Bellisario with Baird.

Michael Bellisario, Analyst

Leslie, big picture. Maybe can you give us your thoughts on the industry outlook for '24, 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 the RLJ portfolio will perform on a relative basis, just overlaying the customer segments there, that would be helpful.

Leslie Hale, President and CEO

Sure. Mike, obviously, we're sober about the uncertainty that still lays in the overall macro environment. But having said all of that, fundamentals remain stable. And there's nothing that we're seeing today that suggests that 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 an office, return to office trends as well. From a group perspective, group booking trends continue to be very strong. Our pace is at 122% versus last year already. 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 our portfolio, we continue to expect to track with urban markets. We expect urban to continue to outperform as it benefits from all those different segments in demand. When we think about markets that we're most positive on for next year, Southern California, Tampa, Boston, San Diego, and Atlanta come to mind. But in general, we think the setup for next year bodes well for our portfolio as the new normal continues to unfold.

Operator, Operator

Our next question comes from the line of Dori Kesten with Wells Fargo.

Dori Kesten, Analyst

I know you're regularly receiving inbound interest for your hotels. Is there a trend in location or perhaps brand that you've seen of late in that?

Leslie Hale, President and CEO

In terms of inbound inquiry, Dori, is that what you're saying? Is that what you're asking?

Dori Kesten, Analyst

Yes.

Leslie Hale, President and CEO

No. I mean I would say that in general, it's sort of broad strokes, Dori. I think that most of the inbound calls candidly are for bottom feeders who are looking for distress. And because of our balance sheet and the strength of liquidity we have, 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 accordingly. But inbound calls are generally around bottom feeding across the spectrum for different reasons.

Dori Kesten, Analyst

Do you think you might be a net buyer next year considering your balance sheet?

Leslie Hale, President and CEO

Look, I think it's unclear whether it's a net buyer or a seller. I mean that's going to unfold based on dynamics. But what I would say to you is that there has been a constructive shift in the mindset of sellers today where sellers are starting to accept 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.

Operator, Operator

Our next question comes from the line of Bill Crow with Raymond James.

William Crow, Analyst

Sean, I appreciate the color on the operating expenses. And I'm curious of these attributes that you highlighted, set you up in 2024 to be able to achieve breakeven EBITDA margins and maybe a lower level of revenue growth than your full-service peers.

Sean Mahoney, CFO

Yes. Thanks, Bill. Great question. I think on a relative basis, because of the attributes, particularly around FTEs to our lean operating model, we would expect on balance to be a little better positioned than full-service hotels because of that. I think industry-wide, we think breakeven margins next year are somewhere slightly below 4% for the industry. And we expect next year's operating expenses, the growth because the operating expenses, the growth rate has moderated throughout the year, we would expect next year's operating expense growth to mirror what the inflation is going to be next year.

William Crow, Analyst

Okay. I'm curious, I assume you all are net beneficiaries of the slightly improved return to office rate, is this also hurting the shoulder night demand?

Tom Bardenett, COO

Yes. Bill, it's Tom. What we're seeing is Monday, Tuesday, Wednesday is still where the most amount of growth is 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 2019 levels. And then what you're also seeing on Thursday is we still see that hybrid work environment still is a positive. But the most amount of growth that we're seeing 23 versus '22 is Monday, Tuesday, Wednesday, which is kind of a leading indicator in regards to what Leslie was referring to on the business transient side. And what's also driving that is 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 are still good, it still has opportunities to grow compared to 2019 and Thursday being the best because of, obviously, the weekend way we can price that because it's an arrival day versus a departure date.

Leslie Hale, President and CEO

Yes. And what I would add, just to add on to that comment is that when you look at the construct of our portfolio, we're built to capture 7-day week demand. So when we look at our midweek trends Tom gave you, we were up 4%. If we look at our urban weekends, we're up 4.6% year-over-year. And so we're seeing it spread and we're capturing in our portfolio.

Operator, Operator

Our next question comes from the line of Gregory Miller with Truist.

Gregory Miller, Analyst

I'll start off on a related question from Dori. In terms of the mix, does the recovery of New York City change your strategy or hold period on that property?

Leslie Hale, President and CEO

No. I think the NIC is fitting nicely in our portfolio from a standpoint of urban lifestyle asset, how it's performing, how New York is performing, the limited amount of meeting space and food and beverage, that asset fits right into the contract of our portfolio. And so no, it doesn't change today.

Gregory Miller, Analyst

Okay. And this is on operating question. If we were to compare operating profit margins in 4Q 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.

Sean Mahoney, CFO

Yes, Greg, whether in the third quarter or fourth quarter, our select service assets operate at a higher margin due to their lean operating model and fewer full-time employees. Based on our trends, we expect the select service assets to continue outperforming the full-service assets in terms of operating margins.

Gregory Miller, Analyst

I should have specified as more referring to the year-over-year change between upscale versus upper upscale.

Sean Mahoney, CFO

Yes, I think that trend would also hold as well for year-over-year change as well as whole dollars.

Operator, Operator

Our next question comes from the line of Tyler Batory with Oppenheimer.

Tyler Batory, Analyst

I have a few questions regarding the group side, which may sometimes be overlooked given your portfolio. What percentage of your current mix is from the group segment? Are the strong bookings you're experiencing a new normal, a post-COVID catch-up, or possibly a result of people booking further in advance, or maybe a combination of these factors? Additionally, as you look at your planned conversions, are there opportunities to reposition some of those assets to make them more appealing to group customers? Is that something you're actively considering?

Leslie Hale, President and CEO

So Tyler, I'll start with the first question, and Tom will handle the second. Regarding the strong booking dynamics, from a demand perspective, we're currently about 10% below the levels we saw in 2019, which indicates there’s still potential for growth. We've experienced strong conversion rates, and the booking window is creating an environment conducive to solid production for the quarter, which accounts for about 20% of our revenues. All of this is contributing to our strong pricing power. Our total revenues for the group reached 104% of 2019 levels, showing a 4% year-over-year increase. Our rates are at 115% of 2019 levels, reflecting a 7% year-over-year rise. This growth is primarily driven by small groups and in-house groups, which are central to our business. I believe that small and in-house groups will represent a larger percentage of overall group contributions within the industry, and our portfolio is structured to take advantage of that trend. Currently, our group contribution is about 18%, down from our historical average of 20%, suggesting there is room for additional contributions. The key factor driving group bookings now is the small group segment, which aligns well with our efficient offerings. Smaller groups provide a more intimate experience, and we are seeing success in that area.

Tom Bardenett, COO

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, we just converted in the late July, early August period. And early indications now that we're at Tapestry within the Hilton system, we already have about 70 group leads that have come. We booked significantly 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 pretty profitable group midweek 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 an incentive group and a variety of different things that happen with the Hilton system in a 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. That's 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 and the Charleston drive market, has also proven. But I think overall, group is a positive move in our portfolio. I do believe we'll 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.

Operator, Operator

Our next question comes from the line of Chris Woronka with Deutsche Bank.

Chris Woronka, Analyst

Good afternoon, everyone. Earlier in the Q&A, there was a question about shoulder periods. My follow-up is whether, as you review your historical data, there are any early signs of a broader slowdown. Additionally, I noted your comments regarding monthly RevPAR trends, especially that August tends to underperform compared to previous years. Is there a shift occurring that we need to recognize, and does this affect other months as well? Are specific months becoming stronger while others are weakening?

Tom Bardenett, COO

Yes. When we look at our August, it performed better than 2022. It was the second best month of the quarter. So it didn't compare to September, but it still had a 4% growth in year-over-year. I always think about August is you're not going to have significant growth because it's the back-to-school month in those last 2 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.

Leslie Hale, President and CEO

Well, also don't forget that August was impacted by hurricanes and extreme hot weather in Texas and New Orleans. That's relevant for August as well. Chris, can you restate your question regarding the shoulders so we can understand the nuance you're focused on?

Chris Woronka, Analyst

Yes, the question is whether the broader weakness begins with shoulder periods. While people will still travel for the holidays, is it the early December weekend trips that get canceled first?

Leslie Hale, President and CEO

Yes. We're not really sort of seeing a degradation in our weekends. As I mentioned before, our weekends for our portfolio are up 4% over last year. Our weekends for our urban are up 4.6%. Keep in mind that we're benefiting from what’s happening in large events, the concert and sporting season is here, so we're not seeing a degradation or waning. Thursday continues to be a check-in 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 there's a lot of room left to recover. But overall, we wouldn't characterize shoulders as being weak or slowing down.

Sean Mahoney, CFO

Additionally, regarding your question about the relative seasonality of the months, that has remained consistent for the third quarter. September has always been a significant month in terms of volume and performed well for us. In the fourth quarter, October is the peak month for volume, maintaining its importance. It accounts for approximately 40% of the top line and 50% of the bottom line for the entire quarter, indicating that the significance of the month in terms of seasonality has not changed.

Chris Woronka, Analyst

Sean, and just a follow-up. I may have missed something earlier, but on insurance, I think you might have mentioned what 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 insurance. And I guess, is there any hope of relief but more importantly, just where does that hit the year and when would that renew?

Sean Mahoney, CFO

Certainly. Property insurance poses a challenge for all real estate sectors, including hotels. We have enjoyed relatively favorable renewals in recent years and are currently in the market as we approach our renewal period in the next week. Therefore, I cannot comment on this year's renewal yet. However, your observation about the pressure in the overall insurance market aligns with our experience. In terms of our position, we do not have a significant claims history, which works in our favor. Overall, we anticipate more favorable renewal terms compared to the market, although it will still represent a challenge for everyone in the industry.

Operator, Operator

Our next question comes from the line of Austin Wurschmidt with KeyBanc.

Austin Wurschmidt, Analyst

I wanted to hit on October. You guys highlighted RevPAR growth was up 6%. The largest contributor to the fourth quarter results. And I believe the midpoint of the fourth quarter RevPAR guidance range is in that mid to high 3% range. I know we're late in the year and it's a little bit difficult to forecast around the holidays, but curious 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?

Leslie Hale, President and CEO

I would say that overall, Austin, I think what you're alluding to is just normal seasonality, right? So as Sean mentioned, October is generally a significant contributor for the quarter. It was relatively strong, but what you're seeing in November and December is just normal seasonality. I think overall, we expect our portfolio to track with urban as expected. We think that urban is going to continue to outperform. And from a pace perspective in terms of what you mentioned, we expect urban leisure to do well as we kind of move into the holidays. Our group pace for the fourth quarter is about 122%, 123% over last year, and we're on par with 2019. So I think what you're seeing in the numbers is just simply normal seasonality, but we're not seeing degradation in what we consider from a demand perspective. What I would also say to you is that October just as another data point, hit a new high on occupancy at 94% of 2019 levels. So I think it's just another proof point around just the general trend line.

Austin Wurschmidt, Analyst

Yes. And I understand that the seasonality was more just thinking comping year-over-year if there was something specific.

Sean Mahoney, CFO

Yes. We expect to see year-over-year growth in every month of the quarter, and the variation in year-over-year growth is not going to change significantly from one quarter to the next, maybe a couple of points here and there, but we anticipate year-over-year growth every month of the quarter.

Austin Wurschmidt, Analyst

Okay. That's helpful. And then, Leslie, you highlighted the strength in your in-house group business in Northern California next year despite some of the well-known challenges around just citywide 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?

Leslie Hale, President and CEO

Well, let me set the stage and then Tom can provide more details. Just to remind you, our presence in Northern California is well-diversified. We only have two assets in the CBD, totaling fewer than 600 keys, which accounts for 3% of our total rooms. As you noted, we heavily depend on our in-house group business, which is allowing us to have a pace for 2024 that is 21% ahead of last year.

Tom Bardenett, COO

Yes. Austin, I want to add a few points. First, while our footprint extends beyond CBD, I'll focus on CBD because there are some encouraging developments for the upcoming year. We're examining international payments and the forecast for next year, particularly looking at China, which has been a significant contributor in the past. For instance, in San Francisco International, payments in July and August were at 96% and 92% of 2019 levels, which is promising, especially since year-to-date figures are only at 90%. We analyzed a smaller group and found that China's contribution, which was only 29% in 2023, is expected to rise to 74% in 2024. This increase is due to recent changes in flight schedules, which has been promising. For example, weekly flight slots from China increased from 12 in August to 24 in October. Regarding visitor spending, projections suggest China will generate around $406 million this year, with the potential to reach $1 billion next year, compared to 2019 levels of $1.2 billion. This is crucial for San Francisco, particularly concerning the Moscone Convention Center. Additionally, we see an important event this year that could shape future years, called APAC, running from November 5 to November 17, with 21 heads of state attending. This event will likely bring more attention to the area and boost future activities at Moscone in 2024 and 2025, as we have tentative bookings laid out for next year. Finally, we're starting to see growth in our airport areas, like Emeryville and Silicon Valley, as companies return to the office and increase their spending, which means more visitors from both domestic and international markets.

Austin Wurschmidt, Analyst

That's great detail. Do you know offhand what percent of overall room night demand is from international tourism in that market or broader region?

Tom Bardenett, COO

About 20%, Austin, if you're asking the question of total international demand for all of San Francisco and San Jose.

Sean Mahoney, CFO

And then Austin, just a follow-up for Tom. I think it's important that, that citywide, the 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 aggressively market themselves and book toes, but that is something that, obviously, the more success they have will help the outlook for the market.

Operator, Operator

Our next question comes from the line of Floris Van Dijkum with Compass Point.

Floris Van Dijkum, Analyst

Leslie or Sean, could you provide some insight on your recent share buybacks in the last quarter? Given your strong balance sheet and improving operations, how do you view the possibility of further share buybacks? I'm also aware you have other ROI projects in mind. However, I believe the market would respond positively if you were to increase your buyback activity. How do you approach this and how do you plan on allocating capital moving forward?

Leslie Hale, President and CEO

We recognize that share buybacks continue to be an appealing use of capital, and we have been active in this area every quarter. Our approach to capital allocation has been deliberate, and our balance sheet offers us flexibility. We are capable of pursuing multiple strategies simultaneously and have been assessing the right timing for action. This year, we have repurchased $70 million in shares and successfully advanced our internal growth initiatives. Additionally, we have increased our dividend twice this year. As we consider options for external growth, the market dynamics have shown some positive changes in seller attitudes. Moving forward, we will remain thoughtful and take advantage of our balance sheet's flexibility as we evaluate various capital allocation alternatives. We understand that buybacks are still a very attractive option.

Operator, Operator

Our next question comes from the line of Anthony Powell with Barclays.

Anthony Powell, Analyst

I have a question about the impact of events and concerts on the quarter and the year. We've discussed this in previous earnings calls. Can you provide any way to quantify the impact in terms of EBITDA or compression nights? Looking ahead to next year, is there a possibility that this year was particularly strong? I know there are overseas factors to consider for next year. Can we assess this impact and the risk of a slowdown next year?

Sean Mahoney, CFO

While we value the impact of special events, I believe our locations didn't significantly affect the overall portfolio. When examining both our weekday and weekend performance year-over-year, we saw strong growth rates in both, despite the challenges posed by those markets. Therefore, we don't anticipate it being a disadvantage for us next year.

Leslie Hale, President and CEO

And we don't want to suggest that it was just those. I mean there were multiple concerts, sporting events, where we sit relative to various arts and entertainment is what's driving it. Those venues, if you recall, were a year behind the rest of the recovery. And so 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.

Sean Mahoney, CFO

Got it. And then maybe one on the mortgage maturities next year in April, I think in terms of, we last talked about this, there have been a few kind of secured deals and work deals going to happen 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 CMBS loan that matures in the second quarter. We're confident that we'll be able to take care of that just for some numbers. That loan has over 14 debt yield and close to 2.5x coverage. So it is a very financeable loan in this environment because it's a very low LTV. And so you would expect us to have multiple options with which to refinance it, and it's something that we're going to take care of early next year.

Operator, Operator

Thank you. Ms. Hale, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Leslie Hale, President and CEO

All right. Thank you, everybody, for joining us. 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 see the Pierside. We think that it's going to be representative of the value that we're creating within our portfolio. Good afternoon.

Operator, Operator

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.