Sean Mahoney

Thanks, Leslie. To start, our comparable numbers include our 95 hotels owned at the end of the third quarter and exclude the Fairfield Inn Denver, which was sold during the quarter. Our reported corporate adjusted EBITDA and FFO include operating results from all sold and acquired hotels during RLJ’s ownership period.
As Leslie said, we are pleased to report solid third quarter operating results, which demonstrated the strength and resiliency of our high-quality urban-centric portfolio. Our third quarter RevPAR growth of 2% was driven by a 1.4% increase in occupancy and a 0.6% increase in ADR. Third quarter occupancy was 75.1%, average daily rate was $193.39, and RevPAR was $145.23.
As was noted, our business transient and midweek outperformed. Third quarter business transient RevPAR grew 8.7% above 2023, including ADR growth of 5% and occupancy growth of 3%. RevPAR growth remained healthy in our urban markets, such as Louisville at 12%, Chicago CBD at 15%, New Orleans at 21%, Los Angeles at 10%, San Diego at 11%, Miami at 20%, and Portland at 33%.
Monthly RevPAR growth during the third quarter was 3.8% in July, 3.4% in August, and down 1.2% in September, which was constrained by the timing of Labor Day and impact of hurricane activity. Monthly total revenue growth was 5.2% in July, 4.6% in August, and contracted 0.7% in September.
Looking ahead, our RevPAR growth rose during October, which is the most significant month of the quarter. Given the holiday and the weather-related headwinds, October RevPAR is forecasted to only increase approximately 1.5% above prior year, predominantly driven by ADR growth.
Turning to the current operating cost environment, as we expected, operating cost growth rates moderated meaningfully during the third quarter. On a per-occupied room basis, total hotel operating cost growth was only 1.7%, moderating over 300 basis points from the second quarter and underscoring the benefits of our portfolio construct and our initiatives to manage our operating cost growth.
Drilling down further into hotel operating expenses, as expected, recent outsized growth in fixed costs, such as insurance and property taxes reversed during the third quarter, with our fixed costs decreasing by 9.4% during the third quarter, which benefited from the expected moderation of fixed expense growth and the success of property tax appeals. We expect fourth quarter fixed cost growth to benefit from the lapping of difficult comps during the first half of the year and the successful renewal of our property insurance program this month.
During the third quarter, our portfolio achieved hotel EBITDA of $100.7 million, representing 2.6% growth above 2023 and hotel EBITDA margins of 29.2%. We were pleased with our operating margin performance, which was essentially flat to 2023, at only 11 basis points behind the third quarter of 2023. Turning to the bottom-line, our third quarter adjusted EBITDA was $91.9 million and adjusted FFO for diluted share was $0.40.
We continue actively managing our balance sheet to create additional flexibility and further lower our cost of capital. So far during 2024, we have addressed all of our 2024 and 2025 debt maturities. As previously announced, during the third quarter, we entered into a new $500 million term loan to refinance a 2025 maturing $400 million term loan and repay $100 million of the outstanding balance on our line of credit.
The new $500 million term loan has an initial term of three years and includes two, one year extension options to 2029. The new term loan also retained the pre-COVID pricing from the $400 million term loan. The execution of this financing is a testament to our strong lender relationships and favorable credit profiles.
We ended the third quarter with a well-positioned balance sheet with $500 million available under our corporate revolver, a current weighted average maturity of approximately 3.7 years, 87 of our 95 hotels unencumbered by debt, an attractive weighted average interest rate of 4.56%, and 74% of debt either fixed or hedged. As it relates to our liquidity, we ended the third quarter with approximately $885 million of liquidity and $2.2 billion of debt.
With respect to capital allocation, consistent with what we have demonstrated in the past, we intend to invest in projects to unlock the embedded value within our portfolio while also remaining committed to returning capital to shareholders through both share repurchases and dividends.
During 2024, we have been active under our $250 million share repurchase program. Year-to-date, we successfully recycled 100% of non-core disposition proceeds towards the repurchase of approximately 2.2 million shares for $20.7 million at an average price of $9.28 per share. During the third quarter, we repurchased approximately 1.6 million shares for $14.7 million at an average price of $9.21 per share. Additionally, our Board recently increased our quarterly dividend to $0.15 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 balance sheet flexibility.
Turning to our outlook, we are reaffirming our prior guidance, which anticipates the continuation of the current operating and macroeconomic environment. For 2024, we continue to expect comparable RevPAR growth to range between 1% and 2.5%, comparable hotel EBITDA between $382.5 million and $402.5 million, corporate adjusted EBITDA between $346.5 million and $366.5 million, and adjusted FFO per diluted share to be between $1.45 and $1.58, which incorporates shares or purchase to date but no additional repurchases.
Our outlook assumes no additional acquisitions, dispositions, or refinancings. We still estimate 2024 RLJ capital expenditures will be in the range of $100 million to $120 million and now expect net interest expense will be in the range of $92 million to $94 million, which reflects a slight decrease in base rates on our variable rate debt compared to our assumptions last quarter.
Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator?

Operator

(Operator Instructions)
Austin Wurschmidt, KeyBanc Capital Markets.

Austin Wurschmidt

Leslie, you spoke about large corporate account demand improving. I was just hoping you could expand on that comment and maybe provide some additional detail around any specific industries or regions where you’re really seeing the most improvement.

Leslie Hale

Yeah. Austin, obviously, we’re very pleased in terms of how BT continues to improve, and we’ve been looking at who’s traveling, the frequency of travel, length of stay, and our GDS is clearly indicating that national accounts continue to improve, and then when we look at the day of week Monday, Tuesday, Wednesday we’re seeing strength along that because that’s got the most opportunity for growth, and as I mentioned on the call, our midweek revenue has increased by 3.1%.
Tom’s going to give you some color on kind of what industries we’re seeing.

Thomas Bardenett

Sure. Yeah. Austin, the industries that we’re seeing start to travel more on the national corporate side are the consultants, accountants. When you look at — when you think about technology, we’re starting to see more international travel coming from India and China and Silicon Valley. As an example, those are positive steps in areas that we really need that national corporate growth. And the good thing is, as Leslie mentioned, we’re seeing not only demand, but we’re seeing average rate growth, and that’s what’s really left in the tank when you think about the national corporate accounts on that Monday, Tuesday, Wednesday, where we’re benefiting from that midweek demand.

Leslie Hale

Yeah. What Tom’s referring to on the rate side, Austin, is that you have your national accounts coming back, which is your least price sensitive and most attractive from a rate perspective customer, and that’s helping us on the rate side. So rate was — increase in rate was better than expected in third quarter for us. We were up 5% in the third quarter, up 4% in the second quarter.

Austin Wurschmidt

Yeah. That’s actually my follow-up. I mean, you mentioned Monday, Tuesday, Wednesday, I believe, is the most upside opportunity for occupancy. I guess, how much movement do you need to see additional occupancy to kind of sustain or even improve the mid-single rate growth that you achieved this quarter?

Leslie Hale

Yeah, I mean, I don’t know if I can sort of quantify that to say, because we’re seeing it today, right? So room nights — looking at special corporate as a proxy, room nights at this past quarter were about 95% of 2019 levels. Our revenues were up 9% this quarter, they were up 13% last quarter. So we’re seeing it now, Austin at the 95%. And so as it continues to improve and grind forward, for all the points that Tom talked about, we’re seeing it sustain. And again, it’s not a step change. It’s just a grind — continuous grind forward, and we’re very pleased with what we’re seeing. We believe that that’s going to carry into 2025. There’s nothing that we’re seeing that suggests that that won’t happen there.

Operator

Michael Bellisario, Baird.

Michael Bellisario

Just a first question from me. Just want to dig into expenses more. Maybe this is for Tom, but where is labor at in terms of the year-over-year growth rate? And then also just any updates on hiring and retention would be helpful. And then how all of that, just on the labor side, how did that impact the 3Q growth rate versus the higher expense growth rate that you guys experienced in the first half of the year?

Leslie Hale

Mike, let me just sort of frame this in general. I think that when we look across all of our operating labor metrics, things are improving and normalizing. We see that, it’s better — it’s easier to hire today, turnovers down, all of those things are benefiting and starting to normalize. So I just want to frame that before Tom hops — I mean, Sean hops in with some stats.

Sean Mahoney

Yeah. Great question, Michael. So I think for wages and benefits, what we’re seeing is sort of that 4% to 5% year-over-year increase in wages and benefits. We’ve seen that be pretty stable over the last few quarters and get sort of successively a little better each quarter. We expect that to continue into the fourth quarter. I think when you look at the — so that’s wages and benefits in a vacuum.
When you look at across the other operating expenses, what we’ve seen, as I mentioned in my prepared remarks, the fixed costs, which have been a headwind really in the first half of the year, moderated significantly. We expect that to continue at an inflationary level in the fourth quarter and into next year as well. And so really, I think, we’ve seen — the headwinds that we’ve seen in the first half of the year, as we expected, have moderated and we would expect them to continue to moderate and sort of be normal inflationary levels in 2025.

Thomas Bardenett

The last thing to add, Mike, I think you asked a question about the workforce. We are continuing to see momentum in regards to the reduction of contract labor and we think those wage increases, the tools and resources, the retention of the management company employees is a positive step and continue to see each quarter that there’s a reduction around that topic.

Michael Bellisario

Helpful. And then a second question from me on conversions. You obviously have some ramping up, some disruption now from ongoing projects, and then you got a few more that I think you’re going to start next year. When you roll that all up, what’s the year-over-year lifts that you guys expect this year and next year? And then how does that compare to the bridge that you’ve previously provided? I think that was earlier this year. And that’s all from me.

Sean Mahoney

Yeah, Mike, we continue to be ahead of where we expected and are underwriting for the conversions. When you include all of the conversions, inclusive of conversions under the knife, even this year, et cetera, we’ve seen top-line growth around 10% and bottom-line growth year-over-year in that sort of 20% to 25%. So we’re seeing the big lift even with some obviously headwinds in hotels that were actually under the knife. And so net-net, it’s been a great lift for us and really validates the value that we create through these conversions.

Operator

Jonathan Jenkins, Oppenheimer & Company.

Jonathan Jenkins

Congrats on the quarter. First from me, you highlighted the urban strength. I’m curious if you’ve seen kind of a shift in inflection higher in corporate demand post-Labor Day, or is it more just a continuation of the steady improvement that you saw earlier in the year?

Leslie Hale

I would characterize it as a steady improvement, not a step change. I think the urban thesis is intact, right? Urban continues to outperform the industry. It’s benefiting from all segments. This quarter, third quarter, was really driven by BT and group. And leisure remained stable. But in general, I would say that BT was a steady improvement and urban’s benefiting from all of those — all of the demand segments.

Jonathan Jenkins

Okay. Very helpful. And then switching gears to the guidance, with the third quarter exceeding expectations and the fourth quarter or full year guidance unchanged, that maybe implies a softer fourth quarter relative to your prior expectations. Can you help us think about what’s baked in there and how that’s changed?

Leslie Hale

Yeah. I mean, I think in general, you’ve got to look at our second half. When you look at our second half, it’s generally intact. You are right. I think third quarter was slightly stronger and fourth quarter slightly softer. But even with the storms, as you mentioned, we’re maintaining our guidance.
And the way I would sort of think about it is that it’s more segmentation driven than it is markets or anything like that. As we mentioned in third quarter, BT was stronger on the rate side. Leisure was stronger in the third quarter as well from a demand perspective. And we were pleased with the overall positive report in third quarter — positive rate in third quarter.
From a fourth quarter perspective, October was obviously impacted by the storms. And as we mentioned in our prepared remarks, we think that there’s more softness around the election in November. And so I think those are the big drivers of the incremental softness that we saw in November. I sort of think about the cadence. Sean mentioned October is coming in at about 1.5%. That’s going to be the most significant contributing month of the quarter. November is going to be the weakest. And we currently expect December to be in line with October.
As we sort of think about the midpoint of our guidance, which we think is the most likely outcome, it assumes that BT maintains the current trends that the group pace actualizes where it’s at today. Leisure demand remains stable. Urban markets continue to outperform, as I mentioned before, November being the weakest month. That’s kind of what’s built up around the midpoint of our guidance.

Jonathan Jenkins

Okay, that’s a really great color there. And the last one from me, if I could you talk about the transaction pipeline, what it looked like in terms of volume and pricing out there and the bid-ask spread between buyers and sellers, any compression there given the recent move in interest rates?

Leslie Hale

Yeah. Well, the overall set up for transactions has improved, acknowledging your point about lower interest rates, although we’ll see whether or not how much more they are able to come down. The debt markets are open but still expensive, and so despite all of this, the transaction volume remains muted or constrained. Even with this environment of a slightly better set up, transactions are still choppy. They’re taking longer to get done. And so the transaction market is not fully functional right now is the way I would sort of describe it. While we expect that to improve in 2025, given the fact that hopefully rates continue to improve, we’re behind — the elections behind us, rather, supply remains muted and fundamentals remain stable, that should improve the environment, but right now it remains constrained and choppy.

Operator

Dori Kesten, Wells Fargo.

Dori Kesten

So just tying into the last question, would you expect — as of right now, would you expect external growth prospects in ’25 to look pretty comparable to ’24?

Leslie Hale

Yeah. I mean, Dori, what I would say is that, where we sit today, it’s really early in our budget process, but the building blocks for us are urban continuing to outperform, BT continuing to improve, group strong pace actualizing. We’ve got markets like Denver, Tampa, San Francisco, Orlando, that have strong citywide. We have a favorable footprint to special events like Super Bowl NOLA that I mentioned before, inauguration in D.C., and the US Open in Pittsburgh where we have a number of assets in each of those markets.
We still expect leisure to demand and remain stable. And then, as was talked about before, we expect our conversions to continue to ramp. That’s against the backdrop where you have low supply, consumers still favoring travel, and then being in a post-rate cut environment and expenses moving in the right direction. So I mean, those are the general building blocks that I would say, but it’s really early in our budget process.

Sean Mahoney

Yeah. And then, Dori, on capital allocation specifically for next year, right, we have the balance sheet where we could do really any growth opportunities next year. Leslie mentioned the organic growth opportunities in the portfolio. But our stock continue to remain attractively value from a share repurchase. We’ve got the balance sheet that, if external growth — if the markets improve, we have the flexibility and the capacity to do that through the balance sheet as well. And so I think this setup is going to be really predicated on the fundamental setup as well as how the capital markets play out.

Operator

Chris Woronka, Deutsche Bank.

Chris Woronka

So on the renovations, the three, I guess, that you, I guess, started last year in ’23 understanding you’re about to start two more, is there a way to think about whether it’s a two to four year, the lift you’re going to get, is there a year where that levels off? And I guess the question follow-up to that is, do you have more conversions beyond the next two? Because I think you’ve talked about a pacing of about two per year. And so does that imply that there are more to be identified in out years beyond ’25?

Leslie Hale

Yeah. We’ve talked about the fact that we have a number of conversions that are remaining with somewhere between, call it, plus or minus 10 assets. Not all of those will get done. But we’re still on the cadence for two per year. We’ve mentioned the fact that we have our renaissance next year, which is going to join the autograph collection. The following year, we have the Boston Wyndham, which we expect to deliver in 2026. And so the cadence for that goes out several years as it relates to our conversions.

Sean Mahoney

And then, Chris, with respect to sort of how we think about the ramp, I mean, generally speaking on the conversions, we underwrite a two to three year ramp from the conversion sort of post-completion. I think what we’ve found and the reason we’re tracking so far ahead is that because our thesis around these conversions is a lot of capturing rate that’s already in the market, that we’ve been able to ramp on the shorter end of that range relative to our initial expectations. And so — but net-net, it’s a two to three-year ramp is sort of what we generally underwrite. And we’ve been delivering on the shorter end of that range on the conversions to date.

Chris Woronka

Okay. Appreciate that. And then as a follow-up, I know Marriott talked, I guess, earlier this week about some cost cuts they were targeting and that those would flow — some of those would flow through to franchisees. I guess from your perspective, are you — are there things that you would like to see your operators or brand companies doing? It’s been a tough couple of years with a lot of expense creep. So are there things that are realistically going to come to fruition that can help you next year or the year after? Or do you think that’s just kind of a really high-level thing that doesn’t flow through maybe to the — to all the franchisees?

Leslie Hale

Yeah. Chris, we don’t have any color on what Marriott’s framing or thinking behind that. But what I would say, any time that they can lower costs for franchisees, it’s always a plus. And so we welcome and look forward to the benefits of their actions. I think that we’re going to continue to collaborate with the brands. And they’re trying to be thoughtful in this moment. And we’re looking forward to receiving it.

Operator

(Operator Instructions)
Gregory Miller, Truist Securities.

Gregory Miller

I have a couple of leisure-related questions for you. Starting in New York, I’m curious about your current expectations for the Knickerbocker demand or packaging into New Year’s and how do bookings and overall spend compare to prior years. And I’m asking in part if there’s any read-through to changing leisure discretionary spend habits on either rooms or F&B.

Leslie Hale

Yeah. I mean, Greg, what I would say, as I mentioned before, that demand on the leisure side remains stable. And that we’re — when we sit here today relative to New Year’s, the Knick is pacing fine. And we’re very encouraged by the overall demand trends that we’re seeing. The reality of it is, is that the psychology around traveling remains. The consumer wants to travel. They’re just being price-sensitive about it. And so there are — looking more at discount channels, they’re booking out a little bit further because they’re shopping.
But overall, we feel very good about leisure demand trends. And what I would say is that our urban leisure rate remains very close to our peak levels. And so we haven’t seen a meaningful drop-off from that, which would obviously benefit the Knick in that discussion, both from a demand and from a rate perspective. So we feel good about how it’s pacing.

Gregory Miller

Okay. And shifting down to Florida, I am — my understanding is that there may be ad campaigns from some of the Florida markets to draw demand in post-hurricane. And I’m curious if you have any concerns about any leisure travel demand impact even months after the hurricanes as we start thinking about the holidays and then to 1Q next year.

Thomas Bardenett

As you know, we have a footprint on both the southwest side as well as south Florida side going down towards Key West. And you’re right, there are some ads that really attract continuation in regards to leisure. And I think the great thing about our footprint is we have a variety of diversity down there in various locations.
When you think about the West Coast, I think Tampa is getting the benefit, unfortunately, after the hurricane in regards to the remnants of folks trying to get back into their houses and everything. We have a renovation underway right now prior to season down in Estero. So we feel very good about setup for next year in 2025.
And then most importantly in South Florida, when one coast struggles a little bit, typically the other coast benefits. And so what we find, Greg, is the leisure demand shifts a little bit because people still want to chase the sun and want to get to the beaches and that’s a common approach in regards to what’s happening. And many of those hotels down in South Florida have finished their renovations, so we’re getting the benefit of that as well because the product is in great shape.

Operator

Floris Van Dijkum, Compass Point.

Floris van Dijkum

More on the capital allocation front, you still have a lot of cash on the balance sheet. You do have some renovations. But maybe — you sold a couple of assets, are you — how many more potential assets do you think you could sell in your portfolio over the next 12 months? And is that dependent on where the financing market if that really loosens up? And also, how much more — do you see interesting opportunities to acquire assets out there? And what kind of bid-ask spread is there today relative to about six to 12 months ago?

Leslie Hale

Floris, so a lot [vet] in that question. Let me see if I can hit it. Look, I think, at the end of the day we are — have to be back-to-portfolio managers. We have 95 assets. And so as the transaction market improves, we will continue to be opportunistic when it makes sense to sell assets based on our view of where markets are headed and how they’re performing, et cetera, on that front. I would generally say that the bid-ask spread remains wide today in the face of interest rates coming down. As a seller, there’s no need to come down on your view of value when you expect interest rates to come down. And so that remains wide.
And that goes back to my point about the transaction market continuing to be constrained over in the near-term. We do expect transaction markets to improve in 2025. It’s probably the back half 2025 as we get past the election, as we see where interest rates sort of settle out. But that’s all TBD in general. But you should expect us to continue to be active portfolio managers who are being opportunistic based on how we assess and monitor the markets.

Operator

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

Leslie Hale

Thank you all for joining us today. We look forward to seeing many of you all in NAREIT. And thank you again for joining us.

Operator

Thank you. This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.