Q4 2023 RLJ Lodging Trust Earnings Call
Participants
Leslie Hale; President, Chief Executive Officer; RLJ Lodging Trust
Sean Mahoney; Chief Financial Officer, Executive Vice President; RLJ Lodging Trust
Anthony Powell; Analyst; Barclays Bank PLC
Gregory Miller; Analyst; Truist Securities, Inc
Michael Bellisario; Analyst; Robert W. Baird & Co. Incorporated
Dori Kesten; Analyst; Wells Fargo Securities, LLC
Tyler Batory; Analyst; Oppenheimer & Co. Inc.
Austin Wurschmidt; Analyst; KeyBanc Capital Markets Inc.
Floris Van Dijkum; Analyst; Compass Point Research & Trading, LLC
William Crow; Analyst; Raymond James & Associates, Inc
Presentation
Operator
Welcome to the RLJ Lodging Trust Fourth Quarter 2023 earnings call. (Operator Instructions)
I would now like to turn the call over to Nikhil Bhalla RLJ, Senior Vice President, Finance and Treasurer. Please go ahead.
Thank you, operator. Good morning, and welcome to RLJ Lodging Trust's 2023 fourth quarter and full-year earnings call on today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Sean Mahoney, our Executive Vice President and Chief Financial Officer, will discuss the Company's financial results. Dan Bodner, our Chief Operating Officer, will be available for Q&A.
Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what had been communicated. Factors that may impact the results of the Company can be found in the Company's 10-K and other reports filed with the SEC. The Company undertakes no obligations 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 pro forma operating results for our current hotel portfolio for 2023.
I will now turn the call over to Leslie.
Leslie Hale
Thanks, Nick, and good morning, everyone, and thank you for joining us. We are very pleased with our fourth quarter results, which outperformed the industry for the fourth consecutive quarter, demonstrating our strong growth profile and underscoring our ability to capture emerging demand trends.
Our results this quarter exceeded our expectations and capped off a very successful year for RLJ, where we achieved top quartile RevPAR growth of 9%, driven by our urban portfolio and strong performance from our conversions. We exceeded our initial projections for our 2022 conversions, revenue enhancement and margin expansion initiatives.
We made significant progress on our second wave of conversions in Nashville, Houston and New Orleans. We announced two more conversions, which included our two Pittsburgh assets. We further strengthen our balance sheet while returning capital to our shareholders. And we recently acquired the fee simple interest in our Boston Wyndham Asset pulling forward another growth opportunity.
Our strong execution and results this year validate our thoughtful efforts to curate a high quality portfolio with multiple channels of growth, which is giving us the ability to outperform on a relative basis this year and beyond.
Now relative to our operating performance for the quarter, our RevPAR grew by 5.2% over the prior year. Outperforming the industry by four times and our competitive set by 290 basis points. Our year-over-year RevPAR growth accelerated from the third quarter by 180 basis points, benefiting from a balance between occupancy and ADR, demonstrating additional run room in demand and continued pricing power across our portfolio.
We are pleased to see this positive momentum carry into January, which achieved close to 6% RevPAR growth, our urban markets, or the underlying driver of our RevPAR growth. These markets continue to benefit from robust group demand. The ongoing improvement in business travel and emerging international inbound demand.
Additionally, urban leisure remained healthy as large-scale events related to concerts and sports, as well as other leisure activity drove strong weekend demand. These trends were broad-based with a number of our urban markets such as Boston, Pittsburgh, Southern California, South Florida and Denver, achieving double digit RevPAR growth. The fourth quarter also saw exceptional growth in our three conversions in Charleston, Mandalay Beach and Santa Monica.
In terms of segmentation, positive momentum in business travel led RBT revenues to increase to 79% of 2019 levels, a new high watermark and a 400 basis point improvement from the third quarter. Our growth in BT revenues was balanced between 7% growth in room nights and 6% growth in ADR contributing to our weekday revenues, achieving 94% of 2019 levels, which was a 100 basis point sequential improvement from the third quarter.
In addition, to strong demand from SMEs. We are also seeing continued improvement in protection from traditional BT. sources, such as finance, technology, pharma and aerospace relative to group demand remains healthy in addition to strong attendance at citywides.
The growth in small self-contained group is driving the improvement in this segment, all of which led our fourth quarter group revenues to increase by mid-single digits over the prior year. We expect small group demand to remain strong, and our hotels are in a sweet spot to cater to this growing segment. Given the attractiveness of our meeting space configuration to the segment.
Finally, we were encouraged to see healthy leisure trends persist throughout the quarter, especially around holidays, benefiting our resorts, which achieved 6.6% RevPAR growth with many people settling into a hybrid schedule weekend demand continued to be strong across our portfolio, especially for urban weekends, which outperformed our portfolio.
The strength across all segments of demand during the fourth quarter, combined with strong growth of 8.1% in our non-room revenues, led our total revenues to increase by 5.7%. This strong growth translated into positive year-over-year EBITDA growth of 2.3%, which speaks to our lean operating model.
Turning to capital allocation, our initial conversions are yielding strong results that are pacing ahead of our expectations. We were pleased to provide updated projections outlining the incremental upside and to showcase the high-quality renovations at the pier site in Santa Monica and Sakari Dunes on mentally Beach to many of you recently.
The strong results from these assets bolstered our confidence in the next wave of our conversions. During the year, we initiated the physical conversions in New Orleans and Houston, which will position them for a strong ramp. And we are on track to begin Nashville's renovation later this year.
We made great strides towards continuing to unlock incremental embedded growth by announcing that the renaissance Pittsburgh hotel will join Marriott's Autograph Collection and at the Wyndham Pittsburgh University Center will be converted to a Courtyard by Marriott.
Additionally, we executed the optionality that our strong balance sheet provides by returning capital to our shareholders through opportunistically repurchasing $77 million of shares at an attractive price while doubling our dividend during the year. The execution of these initiatives has been made possible by the strength of our balance sheet, which also gives us the capacity for external growth.
More recently, we acquired the fee simple interest in the 304 room, Boston Wyndham Beacon Hill from the ground lessor. We took advantage of our unique position to secure full ownership in order to unlock another compelling conversion opportunity.
We acquired this irreplaceable real estate for $125 million, representing $411,000 per key, a meaningful discount to recent hotel trades in Boston, the hotel benefits from an A-plus location in Boston's Beacon Hill neighborhood surrounded by Mass General, which is currently undergoing a $1.8 billion expansion the acquisition will allow us to move forward with executing the same conversion playbook that has been successful for RLJ.
This asset is highly attractive to numerous brands given the demand dynamics of the market, our deep institutional knowledge of the overall market, the hotel's bull's eye location within the submarket and the quality of the asset gives us confidence. And upon conversion there is 40 plus percent upside to the hotel's current EBITDA.
We look forward to providing additional details around the conversion of the hotel after we finalize the negotiations with the brand Overall we are encouraged by the pipeline of off-market external growth opportunities that we are seeing. The current backdrop of constrained lending provides a significant advantage to all cash buyers like RLJ That said, we will continue to maintain our discipline as we have demonstrated as we look ahead to 2024.
While economic uncertainty persists, we remain optimistic that industry fundamentals will achieve positive growth this year, especially against the backdrop of minimal new supply. We believe that urban markets will continue outperforming the industry as Urban is poised to disproportionately benefit from the strong group trends, the recovery in business transient demand and improving inbound international travel.
We also expect more pronounced divergence in individual market performance to emerge given citywide calendars. The location of large leisure oriented events in inbound international travel. Given our footprint, we should benefit from these trends, we are positioned to outperform this year. There are several key markets which we expect to be strong this year.
Boston should outperform due to a strong citywide calendar, robust business travel from Boston-based industries such as biotech and higher education and Boston's attractive positioning to inbound international travelers. Southern California should outperform as a result of a strong San Diego citywide calendar, improving business transient from aerospace and a post writer strike backlog of demand from Hollywood related industries and increased inbound international visitation, especially from Asia.
New York is expected to benefit from improving travel related to the financial sector, continued strong leisure and increasing inbound international demand during a period of favorable demand supply dynamics. And while we remain sober to Northern California's slow recovery and fewer citywides this year, there are some encouraging green shoots in the market such as improving perception of San Francisco safety, increasing return to office mandates by tech companies and investors as well as venture capital is returning to San Francisco due to the concentration of tech talent and AI start-ups.
Additionally, we expect that group will continue to benefit from robust self-contained and small group bookings as well as strong citywide calendars in many major U.S. markets supported by our group booking pace being 12% ahead of 2023. And overall leisure travel should remain healthy, led by the strength in urban leisure, which should continue to benefit from hybrid work flexibility and large-scale events, including sports, concerts and other activities.
Longer-term, we are optimistic about the positive trajectory of lodging fundamentals. Our confidence continues to be supported by the ongoing shift of consumer preferences towards experiences, the improvement in business demand, the continuing recovery in inbound international travel and the growth of citywide events and attendance.
All these positive trends will disproportionately benefit urban markets, especially against the backdrop of an elongated period of limited new supply, allowing these markets to outpace the overall industry growth for several years. As this new normal takes hold. Our portfolio is well positioned to capture growth in all segments of demand.
Over the last several years, we have intentionally repositioned our portfolio into prime locations that benefit from seven day a week demand within urban markets allowing us to benefit from these emerging trends. In addition to growth from our acquisitions and conversions, we believe that all of these tailwinds should allow us to continue to exceed the industry.
Our growth profile will be bolstered by our high-quality portfolio, which is built to capture the growing live work play trends in urban markets continuing in future upside from our announced conversions. We embedded incremental growth from executing on our future pipeline of conversions and ROI opportunities. The tailwinds from our recent renovations in South Florida and Southern California, the significant free cash flow generated by our portfolio to self-fund growth and the continued optionality created by our strong balance sheet, which will allow us to deliver attractive shareholder returns long term.
Overall, I could not be more proud the efforts of our entire team, including our operators, whose many contributions have positioned us to drive significant shareholder value over the next several years.
I will now turn the call over to Sean. Sean?
Sean Mahoney
Thanks, Lesley. To start, our comparable numbers include our 96 hotels owned throughout the fourth quarter our reported corporate adjusted EBITDA and FFO include operating results from all sold and acquired hotels during our L. ownership period. We were pleased to report strong fourth quarter operating results, which once again demonstrated the runway for growth embedded in our urban-centric portfolio.
Our fourth quarter RevPAR growth of 5.2% was driven by a 1.5% increase in ADR and the 3.6% increase in occupancy. Fourth quarter occupancy was 69.3%, which was 92% of 2019 levels. Average daily rate was $193, achieving 107% of 2019, and RevPAR was $134, which achieved 99% of 2019 the highest level since the start of the pandemic.
In particular, our urban markets outperformed with RevPAR exceeding 2019 levels at 101%, including ADR at 111% of 2019. Revpar in most of our urban markets exceeded 2022, including Boston at 121%, Los Angeles at 118%, Pittsburgh at 119%, San Francisco at 113%, Denver at 110%, New York at 104% and Washington D.C. at 105%.
Monthly RevPAR growth throughout the fourth quarter exceeded 2022. For each month, RevPAR growth was 6.4% in October 5.6% in November and 3% in December and achieved 101%, 96% and 99% of 2019 levels. During October, November and December. Respectively, Krimminger RevPAR, our monthly total revenue growth above 2022 benefited from continued out of room spend and was 7.6% in October, 5.3% in November and 3.7% in December and achieved 102%, 96% and 100% of 2019 levels during October, November and December, respectively.
We are encouraged by the start of the year where we saw positive momentum in January, which is always a seasonally slower month with RevPAR growth of 5.8% above January 2023, January RevPAR was driven by occupancy of 62% and ADR of approximately $191, representing 104% and 102% of January 2023.
Turning to the current operating cost environment, recent inflationary pressures continue to normalize during the fourth quarter on a per occupied room basis. Total hotel operating cost growth was limited to 3.4%, which is 260 basis points lower than the third quarter, underscoring the benefits of our portfolio construct and our initiatives to redefine our operating cost model.
Total fourth quarter hotel operating costs were only 4.3% above 2019 levels, meaningfully below the aggregate core CPI growth rates since 2019, drilling down further into hotel operating expenses, fixed costs such as insurance and property taxes, were the most significant driver of the year-over-year increases and hotel operating expenses increasing 16% during the fourth quarter.
Increases in fixed costs are impacting most industries and are not specific to the lodging industry. We are encouraged by the trends on the more controllable bearable hotel operating costs, which grew 6.6% above 2022, our only 2.8% on a per occupied room basis.
Finally, fourth quarter wages and benefits. Our most significant operating cost at approximately 40% of total costs remain generally in line with 2019 levels at 104%. 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 and our lean operating model with 18% fewer FTEs than 2019, our portfolio remains well positioned to maintain fewer FTEs given our lean operating model, smaller footprints, limited F&B operations and longer length of stay. Our fourth quarter operating trends led our portfolio to achieve hotel EBITDA of $89.6 million and hotel EBITDA margins of 28.1%.
We were pleased with our operating margin performance, which was only 93 basis points lower than the comparable quarter of 2022, despite continued cost pressures.
Turning to the bottom line, our fourth quarter adjusted EBITDA was $79.2 million and adjusted FFO per diluted share was $0.34, which came in towards the high end of our guidance during 2023. We were very active in managing our balance sheet to create additional flexibility and further lower our cost of capital, which included extending $425 million of mortgage debt, recasting our $600 million corporate revolver and entered into a $225 million term loan.
The execution of these transaction is a testament to our strong lender relationships and favorable credit profile. We also took advantage of interest rate volatility to proactively manage our interest rate risk by entering into $525 million of new interest rate swaps during the year.
Turning to 2024, we will extend our $181 million of mortgage loans and are in the process of refinancing our $200 million secured loan, which is on track to wrap up during the second quarter. Today, our balance sheet is well positioned with an undrawn corporate revolver. Our current weighted average maturity is approximately 2.9 years, 81 of our 96 hotels are unencumbered by debt. Our weighted average interest rate is an attractive 4.12% and 89% of debt is either fixed or hedged.
As it relates to our liquidity, we ended the quarter with approximately $517 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 fourth quarter, we were active under our $250 million share repurchase program and repurchased approximately 930,000 shares for $9.9 million at an average price of $10.69 per share.
In total, during 2023, we repurchased approximately 7.6 million shares for $77.2 million at an average price of $10.20 per share. Additionally, we ended the year with a quarterly common dividend of $0.10 per share, which is 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 full year 2024 guidance that anticipates a continuation of the current operating and macroeconomic environment. For the full year 2024, we expect comparable RevPAR growth between 2.5% and 5.5% comparable hotel EBITDA between $395 million to $425 million.
Corporate adjusted EBITDA between $360 million,$390 million dollars and adjusted FFO per diluted share between $1.55 and $1.75. Our outlook assumes no additional acquisitions after the window in Boston and no dispositions, refinancings or share repurchases, we estimate 2024 RLJ capital expenditures will be in the range of $100 million to $120 million and net interest expense will be in the range of $91 million and $93 million. Our net interest expense will be above 2023 due to the impact of expiring swaps that had lower interest rates.
With respect to the cadence for the year, we expect 2024 to follow similar quarterly seasonal patterns as 2023 other than the first quarter, which will be impacted by the timing of Easter and difficult comps to the significant growth rates during the first quarter of 2023. Finally, please refer to the supplemental information, which includes comparable 2023, 2022 and 2019 quarterly and annual operating results for our four 96 hotel portfolio.
Thank you. And this concludes our prepared remarks. We will now open the line for Q&A. Operator?
Question and Answer Session
Operator
(Operator Instructions)
Anthony Powell, Barclays.
Anthony Powell
Hi, good morning. Just a few questions on the the Wyndham Beacon Hill deal. Could you maybe talk about multiples or cap rate or any way you can quantify, I guess the valuation of the transaction?
Leslie Hale
I'll take it. They thanks for the question and good morning. Let let me let me frame the transaction, the more it will answer your question. I think that, you know through our leasehold, we had the right to the cash flows for the next 4.5 years. This transaction gave us the ability to buy the asset fee-simple and have the rights to the castles forever.
And we took advantage of our unique position as leaseholder two to have a competitive advantage. We use that competitive advantage and the current backdrop to give us ability to buy the asset at a very attractive level of most recent transaction that happened at the Whitney was only four blocks away from our asset. It traded for 875,000, a key and we believe the value that we bought this asset, it is at a significant discount to what we would have had to pay at the end of our lease.
I mean, keep in mind that this is bull's eye real real estate. It's got significant FAR, a scarcity of land value in Boston, and we would have had no leverage and we would have been competing against and we would have been competing against not only hoteliers, but we've also been competing against alternative use and clearly Mass General, who has billions of dollars to deploy towards strategic acquisitions.
And so we believe that getting access to the upside of this asset earlier, getting a discount to what we would have had to compete for the end of our lease more than offsets any remaining cash that we would have had in our lease term.
And it allows us to unlock another compelling value-creation opportunity of which we believe has 40 plus percent upside to the current EBITDA. And from our perspective, we underwrote this to stabilize at an 8.5 multiple on a purchase price. And if you add in the CapEx based on the brands that we're looking at. It's another turn to turn point.
Anthony Powell
Okay. So 99.5, they're stabilized after CapEx. Is that the way to think about it?
Leslie Hale
Roughly.
Anthony Powell
Okay. All right. And just maybe one more on that. In terms of leisure trends, I speak about your weekend leisure leisure resort demand. It seems like you guys are doing pretty well. And these are generally so but maybe talk about how leisure as a whole is looking through this year. How does that trend in the back half of last year and you see a stabilization and improvement happening in that part of the business?
Leslie Hale
Yes. I mean, our general perspective is that leisure remains healthy. Our total revenues were up 4.3% year over year in the fourth quarter, and that was room night driven. If we look at our just our weekends or weekends were up 4.4% year over year, and that was driven by two-thirds demand as well. Urban weekends continued to be strong.
We're about 114% of 2019 levels on urban weekends, and that's 200 basis points ahead of where our overall portfolio is. As you mentioned, our results were strong in the fourth quarter of 6.6% and it's benefiting obviously from our conversions, but we saw strength in South Florida, which was up 10% and fourth quarter Southern California was up.
It's also we're clearly benefiting from the continued flexibility and that that work life a live environment provides us. I would also say, as we look forward into the year, we expect leisure to remain strong. And then the balance between rate and an arc and urban lease is going to drive that for us.
Anthony Powell
Okay. Thank you.
Operator
Gregory Miller, Truist.
Gregory Miller
Thanks. Good morning, everybody. I'd like to start with the Marriott Louisville. Could you share your thoughts about that, property's the expirations for you all for '24 and our properties maybe about through pace or overall growth expectations relative to the full portfolio guidance? Thanks.
Sean Mahoney
Good morning, Greg. What I would say is a Marriott Louisville, not only is coming off of a good year this year because in 2023, it had about a 22% RevPAR growth. And the great thing about that RevPAR growth, almost all of it came in ADR compared to 2019. And when we look into 2024, we're also very encouraged.
Your question about group group pace. We're at 107%. And as you know, our location is connected to the convention center. So we're in position A. and a couple of things that I would also add this year. We got a couple of special events. It's the 150th year of Kentucky Derby will be celebrated. And one of the four major golf tournaments or the PJ. permits will be in Valhalla this year. So we get some benefits from that.
And lastly, as Leslie mentioned, urban leisure, the Bourbon trail is just another type of example of enjoying the venues that are driving that type of demand in an urban environment like that.
Leslie Hale
And I would just sort of add, just in general that our portfolio diversification is going to be really strong this year. And we mentioned in our prepared remarks that Boston, New York and Southern California going to be strong, but we also see strength in Atlanta, Louisville in terms of what Tom talked about, Denver, Pittsburgh and Orlando as well. So diversification is obviously benefit our portfolio.
Gregory Miller
Ari, thanks for the follow-up question. I'd like to ask about the transactions environment today and your current expectations for upscale chain scale transactions this year, perhaps coming out of the analyst conference, do you anticipate that there's going to be a pickup in activity in the back half of this year or at this stage, do you think some of the hype is likely to be unrealized?
Leslie Hale
No, I look, I think as we sit here today, transaction volume continues to be constrained, but we do have an expectation that the broader market that transactions will improve, the volume will improve in the back half of the year, given the expectations around interest rates coming down and that optimism has sort of flushed itself out through include increased conversations in general, more previews of assets at out which you just mentioned BOPs are being done.
And I think in general, because the concept of a recession is generally off the table, sellers have been able to and people have been able to sort of underwrite a little bit more clarity. And so as a result, what the bid ask hasn't closed, it's gotten a little bit closer and that makes things more more actionable and we also think that creates a very attractive environment for all cash buyers, at least for the next couple of quarters until interest rates come down and longer it takes when come down that window for all cash buyers is elongated from that perspective.
And what we're seeing from our perspective is that our team is actively underwriting. Our pipeline is largely focused on unique situations that benefit all cash buyers that could be related to the fact that a seller has a maturity could be related to fatigue by an equity partner or incremental capital that needs to be put in if the buyer doesn't want to put in. And so we see things that are better materializing today as a result of the current backdrop.
Gregory Miller
Thanks I appreciate it.
Operator
Michael Bellisario, Baird.
Michael Bellisario
Thanks. Good morning, everyone. So first question on guidance and maybe big picture, how are you thinking about the split between rate and occupancy growth in 2024? And then if my math is correct, it looks like expenses are maybe up 5.5% at the midpoint. Maybe help us understand what the building blocks are to get to that 5.5 number.
Leslie Hale
And yes, Mike, our perspective is, is that our growth is going to be split two thirds demand and one-third rate. And if you sort of think about how our portfolio is indexed, you know, we're indexed to or to urban urban index to BTMBT. is still our BRBT. revenues were only at 73% of 2019 levels. And so there's room for growth both from a demand and occupancy perspective. And so that's how we've sort of thought about it.
Sean Mahoney
And Mike, on the operating expenses, you're correct that the midpoint of guidance assumes sort of mid mid 5% increases year over year on the cadence of that or the split of that, rather is we expect the pressures around fixed costs to continue on.
Yes, throughout 2024. And so that's really primarily driven by insurance and property taxes. And so we would expect those fixed costs to be up in the low double digits again, next year on operating costs, I think on the variable costs, we'd expect them to be roughly 100 basis points lower growth rate than um, than the overall operating costs.
And driven by on a per occupied room basis. We expect our cost to only be up about 2% year over year. And so we think net-net, the operating cost environment improved throughout 2023. And we expect that improvement to continue into 2024 as the inflationary pressures are in the rearview mirror.
Michael Bellisario
And that's helpful. And then just one follow-up just on Boston, could you provide what the hotel level EBITDA was '23? And how much was the ground rent expense, i.e., what's going away in '24? And then any initial thoughts on San Diego given that that lease expires in 2019? Thanks.
Sean Mahoney
So I'll start with some of the stats and then I'll pass it over to Leslie to talk about San Diego. I the hotel bid roughly $10.5 million of EBITDA in 2023. And the ground lease expense 2023 was roughly three-quarters of a million dollars.
Leslie Hale
And then Mike, as it relates to San Diego, we're in active negotiations with the Port of San Diego to extend the lease, and we feel very good about where we are in our discussions and you know, we are a tenant that's in good standing and so and we see a path forward in terms of extending and extending the lease.
Michael Bellisario
Helpful. Thank you.
Operator
Dori Kesten, Wells Fargo.
Dori Kesten
Thanks. Good morning. And if you think through the phasing of your conversions renovations over the next few years, should we assume that the upside is completed or fully offset? And I guess the ongoing renovation headwinds, are there certain projects that stick out as being particularly disruptive?
Sean Mahoney
Yes, sorry. So from our renovation displacement, both convert because conversions are just a subset of our renovation dollars. We don't we don't expect either a headwind or tailwind over the next several years related to renovations. And that's really a byproduct of us having an in-house design and construction team that's able to come to sequence the rooms out of service on the on the conversions and renovations to minimize the time out of service.
And it also have a scope that gets hotels back back up and running as quick as possible. And so renovation disruption for us is not going to be on either a headwind or tailwind for this year or for the next several years from a ramp-up perspective, you're correct. But we've what we've said is that we're going to launch a couple of conversions per year, and we're sequencing that in a way that would allow us to have some outsized growth in each one of those years.
Generally speaking on our conversions, we underwrite a on a ramp of two to three years. If it's more leisure centric, we generally believe that that ramp can be in the two year versus the three year our perspective, but that's our general assumptions. And then all of that, when you put it all together is was baked into the bridges that we provided as part of our Santa Monica deck, and we provided how we expect to be EBITDA for the conversions to ramp over the next three years.
Dori Kesten
And Sean, while I have you, you said that the expiration of swaps was the headwind from your 24 FFO guide. Can you provide us with your view on your fixed versus floating. So here as we look out to the next year.
Sean Mahoney
Sure. So we ended the year with a little under 90% of our debt from that was either fixed or hedged. Our long term strategy is to have anywhere from 20% to 30% of our debt as floating on as a hedge against a downturn, a base. If we did nothing else, we would end 2024 with a little under 30% of our debt of floating. Now we were active in 2023. You can expect us to be active in managing it again in 2024. But we entered into $525 million of swaps in 2023 at an average rate of roughly 3.5%. And so you'd expect us to continue to actively managing it. But generally speaking, that 20% to 30% floating is what we target for a long term.
Dori Kesten
Okay. And then just last, should we expect your dividend payout as a percentage of FFO per share to look more like 2019 by 2025. Just trying to get a sense of where your NOLs are and how you might use those over the medium term?
Sean Mahoney
Yes. So we have several years of NOLs remaining And so really our dividend policy is going to be based on what we think an appropriate payout ratio is. I think the way we're thinking about the payout ratio sort of I'll call it normalize in this environment is going to be less than it was in 2019 for broader lodging reasons. So while our payout ratio today as FFO is in the mid 30s.
We think in our our current payout ratio has room for increases over the over both this year and over the next couple of years. We think a normalized payout ratio somewhere in the 60% to 65% of FFO. At that sort of the peak of this of this cycle, we would you would expect us to to be measured in how we increase that throughout the cycle. But the NOLs provide us the flexibility to do that based on what we think is appropriate for the market.
Dori Kesten
Thank you.
Operator
Tyler Batory, Oppenheimer.
Tyler Batory
Thank you. Can you please talk through your industry RevPAR assumption that's implied in your guidance this year. I'm just trying to get a sense of what sort of outperformance you expect from your portfolio versus the broader I-Logix.
Leslie Hale
So I mean, look, we are on the baseline for our assumption is that our portfolio should perform in line with Urban, which is projected to be 3.8. And so clearly our midpoint of our guidance lines up with that, we expect urban to outperform the industry. If you look at fourth quarter, urban outperformed the industry by four times. If you look at the full year urban outperformed industry by two times.
Tyler Batory
Okay, perfect. And then market-specific, can you talk through a little bit more just some more color on what you're seeing in San Francisco CBD and also talk about Silicon Valley as well, please?
Leslie Hale
Yes, I would say you know that, you know, overall, we know Keep in mind we have a diversified footprint and we only have a few assets in the CBD. In the fourth quarter, our CBD benefited from the citywides and also some self-contained, our Silicon Valley in the fourth quarter. So just weak transient and I think that was reflected in the numbers that we put on our supplement.
As we look as we look forward know, San Francisco, we acknowledge, as we've said in our prepared remarks is going to have a soft citywide, but we are seeing improvement in BT. and coming this year, particularly as the return to office increases and as the activity around AI. continues to increase as well. But I would say that generally, Tyler, that if you looked at the headline risks that San Francisco had, it's continuing to subside.
The headlines recently have been very positive around the amount of leasing that's going on in the market as well as what's happening from an AI perspective, the city has done a great job from a standpoint of addressing safety. They had some successes with APAC. last on last quarter.
Tyler Batory
And so we continue to see the groundwork being laid for San Francisco to to recover and then also Silicon Valley and commentary very it's probably similar to what you just articulated in terms of San Francisco.
Sean Mahoney
Sure. I'll add a little color on that. Too. So in Silicon Valley, it's important that we have international deployment when we think about what's happening and forward booking from China as well as project business that comes there, it was encouraging to see in September, October, November that we're starting to get closer to about 95% of deployment from an international standpoint and forward booking for China. It's supposed to be three times more than it was in 2023.
So that's encouraging. What I would say is we have a lot of extended stay hotels in Silicon Valley and we have one that's under renovation. There were no we're prepared for the summer time of 2024, and we're encouraged based on some of the back office that we were talking about for tech and some of the businesses are kind of congregating and moving towards having more demand. We saw already in Q1 a little bit more demand than we did in Q4. So that was encouraging as we come out of the gate in 2024.
Tyler Batory
Okay, great. That's all for me. Thank you for the detail.
Operator
Chris Darling, Green Street Advisors.
Thank you. Good morning. And Leslie, going back to your comments around the transaction market, how are you thinking about incremental asset sales in light of the implied EBITDA multiple at which you trade relative to private hotel pricing?
Leslie Hale
And I would say that, look, I think you should expect us to be active portfolio managers as the industry and market dynamics unfold. We're evaluating the impact on our portfolio as a new normal takes hold. We'll look at our views on current market and how they evolve. We don't have to sell assets because given our balance sheet, but we can be opportunistic.
And so as we think about the growth rates and in certain markets and how that profile it compares our overall portfolio for the capital needs in an asset needs relative to the returns we can generate. We'll look to recycle assets along the way along that way. But I think, yes, from our perspective, it's an asset-by-asset kind of perspective.
I appreciate those thoughts. And then maybe just following up on the comments you just provided around the Bay Area. If I look at the overall portfolio, I see that 2023 EBITDA margins finished about 300 basis points below comparable 2019 levels. I'm curious what that would look like if you excluded the Bay Area, just trying to get a sense of what the upside might be. Is that and region continues to ramp?
Sean Mahoney
Yes, Chris. So some without the Bay Area, that is the primary driver of our sort of where our EBITDA is relative to 19. From a margin perspective, they have the lion's share of it comes from from Northern California. So if you exclude Northern California come from our portfolio, the margins are much closer, if not right, on top of 2019. But we as we mentioned, our view around the green shoots in Northern California gives us some encouragement going forward. But when you look at the delta to 19, Northern California is driving that gap.
That's helpful. It's all for me. Thank you.
Operator
Austin Wurschmidt, KeyBanc.
Austin Wurschmidt
Just going back to the transaction team, Leslie, I think you discussed looking for unique opportunities that benefit all cash buyers. I guess how much traditional what dry powder do you have before you need to match fund any capital outlays with either dispositions or some other capital?
Leslie Hale
Yes, Jonathan, I don't have a good number for you, but what I would say is that we feel good about what's Well, what's in our pipeline relative to where current balance sheet sits.
Sean Mahoney
Yes, I'll just add on, right. We're sitting at at year end with a little over $500 million of corporate cash. We used $125 million of that for Boston. And so pro forma, that's $375 million. Our cash our portfolio generates roughly 25% of our EBITDA in the U.S. turns in net free cash flow on an annual basis, right? So on average, it's north of $100 million of incremental free cash flow generated by our portfolio, which obviously creates incremental capacity as well.
But I think we've got I think big takeaway is that with our existing balance sheet and our free cash flow, we have the flexibility for for incremental deals without having to go anywhere near the markets unless that's favorable to do so.
Austin Wurschmidt
And then of that free cash flow that you just highlighted, I guess, how much of that goes towards some of the renovation spend that you're doing and how much is sort of freed up to, you know, share buybacks, acquisitions and other sort of capital allocation opportunities?
Sean Mahoney
That t Fhen that percentage and those numbers are after everything, including the assumption on dividends as well as CapEx.
Austin Wurschmidt
That's helpful. And then on the renovation side, I guess, how soon could you commence the renovation at the Boston win? And do you have a sense today of the capital spend necessary to achieve that 40% upside on the hotel EBITDA that you highlighted.
Sean Mahoney
I mean, we're still negotiating with the brands from Lawson. So that number is sort of a range that we're working through. I would say in terms of timing, our objective is to have the ESK completed before World Cup, which was mid 2026.
Austin Wurschmidt
Very helpful. Thank you.
Operator
Floris Van Dijkum, Compass Point.
Floris Van Dijkum
Hey, thanks for taking my questions. On the let me flip it on its head. And I know there are a couple of questions here on on in Northern California, but I still see a $46 million delta relative to 19 levels. Can you maybe comment on the market that are the highest in terms of exceeding 2019 levels of EBITDA? And how much more can you push you think you're urban markets are in in '24. Is that growth going to that you're expecting? Is that coming from from other markets besides Northern California, you see us steady progress in all of your markets in '24?
Leslie Hale
Of course, as I mentioned before, our performance this year has been driven broad base we talked about in our prepared remarks at Boston's strong given its city-wide basis self-contained. It also has a strong base of BT. York. We talked about leisure being remaining strong and ramping as well as limited new supply. Atlanta is going to benefit from the backlog in the writers' strike.
Southern California is going to benefit from San Diego citywides as long as well as there's a strong economic base. And given the industry that it caters to reveal. We talked about being strong as well. Denver, which has got good corporate base, Pittsburgh as well. Orlando, the diversification in our portfolio is more than enough to offset you know, the slower ramp in that we're seeing in San Francisco.
Sean Mahoney
And what I'll add to that ours is we put out an EBITDA bridge as part of our materials in Santa Monica and Boston, right that that EBITDA bridge was for the next several years and got us to north of $500 million of EBITDA relative to the museum round numbers. But roughly $450 million in 2019. And so we wouldn't have put that data point out. Had we not had confidence in the ability of the portfolio to get ahead of that.
And what's driving that is obviously Urban has been driving it to date. We believe the conversions and the incremental EBITDA associated with those ROI initiatives are driving that but you have a portfolio for reason to Leslie's point. I mean, there's going to be some markets that outperformance on markets that underperform. But in total, we have confidence that we will go through 2019 over the next several years.
Floris Van Dijkum
Thanks. And maybe maybe a follow-up question on San Diego. Presumably you will not be able to buy the freehold and San Diego is just an extension of the of the lease. So per e-mail it, can we assume some sort of similar type of deal cost going forward on that? Or is there going to be a greater profit share that you're going to have to give away to the to the city or the the, I guess, whatever local municipality that owns the the freehold on that on that property and for us?
Leslie Hale
I appreciate the question, but weren't in confidential negotiations, so I can't comment on your question.
Floris Van Dijkum
Fair enough. Maybe maybe one one additional follow-up, then the. Yes, it is for Sean. Your your weighted average term of your debt is relatively short at 2.9 years today. And are you waiting for rates to come down and will you be looking to extend the maturity on the on your debts when when when that does occur? Or how are you thinking about the balance sheet and the in the term of your debt going forward?
Sean Mahoney
Yes. Listen, as a general rule, we always wanted to get ahead of our of our debt maturities and we have some a little under $40 million of maturities in the next quarter. We are in the process of extending 181 of that, which is which represent by two loans and so we have we have extension rights under under under those loan agreements just for for it's probably those the combined debt yield of those of those two loans is 14.5 times, right?
So it's a these are low levered, well covered loans. We have the contractual, right? And so we're just working with the lender right now to extend that. We will get that done shortly. And then the other is a is a $200 million loan that we are in the process of refinancing and we've got multiple options on that loan, which will which will add tenor as well on. So we've got great lender relationships. We've shown the ability to extend that debt. But those will then when you when we take care of that in very short order and obviously will have an impact of roughly half a year on the on the weighted average maturity.
Floris Van Dijkum
That's it for me.
Operator
William Crow, Raymond James.
William Crow
Really more than just curious, was the young hours, one of the main discussion points was of the deferred CapEx out there, and it's not really a big issue for the rights except for the fact that it kind of damages brand reputation. I wanted to get your perspective on whether the brands are doing enough, have enough discipline on the owners, non-rate owners or whether we should really be concerned about the destruction of brand value.
Leslie Hale
Bill, thanks for the question. I think the brands have been good partners for owners through COVID, creating opportunities for people to come to manage through that. And they have been consistently up stair stepping back into capital programs and adjusting those in ways. And they now have pushed back to more traditional levels of of requiring PIPs to be executed.
In addition, to putting programs in place. I hesitate to say penalty, but programs in place to ensure that those get executed. But I would also say is that owning hotels is the ecosystem and to the extent that an owner has pressure from that, that will create a catalyst for trading the asset and that capital get put in.
So the brands are as transactions occur being very rigid around ensuring that those capital plans get executed. So I would say that, yes, there's somewhat of a backlog. I don't believe it's damaging the brand. And I believe that what the brands are doing to ensure that the plants get done will cleanse the entire ecosystem.
William Crow
That's it for me. Thank you.
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
And thank you, everybody, for joining us. The strong results that we've shown and we expect to continue are the direct result of what we've been executing around curating a portfolio that benefits from seven day week demand in key urban markets. We look forward to providing you additional updates as we progress throughout the year. Thank you again for joining us.
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.
