Q4 2023 Pebblebrook Hotel Trust Earnings Call

Participants

Raymond Martz; Co-President & CFO; Pebblebrook Hotel Trust

Jonathan Bortz; Director; Pebblebrook Hotel Trust

Tom Fisher; Co-President & Chief Investment Officer; Pebblebrook Hotel Trust

Duane Pfennigwerth; Analyst; Evercore ISI

Smedes Rose; Analyst; Citi

Michael Bellisario; Analyst; Baird

Bill Crow; Analyst; Raymond James

Dori Kesten; Analyst; Wells Fargo

Jay Kornreich; Analyst; Wedbush Securities Inc

Dany Asad; Analyst; Bank of America

Gregory Miller; Analyst; Truist Securities

Floris van Dijkum; Analyst; Compass Point

Chris Darling; Analyst; Green Street

Presentation

Operator

Greetings and welcome to the Pebblebrook Hotel Trust fourth quarter earnings call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Raymond Martz, Co-President and Chief Financial Officer. Thank you. Please go ahead.

Raymond Martz

Thank you, Donna, and good morning to everyone. Welcome to our fourth quarter 2023 earnings call and webcast. Joining me today is Jon Bortz, our Chairman and Chief Executive Officer, and Tom Fisher, our Co-President and Chief Investment Officer. But before we start, a reminder that today's comments are effective only February 22nd, 2020 for our comments include forward-looking statements under federal securities laws and actual results could differ materially from our comments. Please refer to our latest SEC filings for a detailed discussion of potential risk factors and our website for reconciliations of non-GAAP financial measures referred to during this call and in 2023, our portfolio continued to recover from the negative impact of the pandemic. This is a testament to the dedication, innovation and resilience of our hotel teams and operating partners. Their exceptional contributions were instrumental in propelling our portfolio's growth and recovery in 2023, and we thank them for their support and hard work. We are delighted to report favorable operating and financial results for 2023, our adjusted EBITDA reached $356.4 million, exceeding the top end of our outlook by $6.5 million in the fourth quarter as adjusted EBITDA increased to $63.3 million. Our adjusted funds from operations per share also surpassed our outlook ending the year at $1.60 per share for the fourth quarter at $0.21, beating the top end of our Q. four outlook by $0.07 per share. Better than expected performance in the fourth quarter was fueled by our urban hotels. We continue to experience a healthy recovery in corporate transient and group demand, including from improving convention calendars and recovering leisure travel in the cities driven by concerts and sporting events. San Francisco, Washington, D.C., Boston and Los Angeles led our urban strength, focusing on our 2023 hotel operating results. Occupancy rates increased 4.6 occupancy points to 67.7%. However, this level is still well below our pre-pandemic occupancy of 81% in 2019, and our peak occupancy of 85% in 2016. This gap highlights our portfolio's significant remaining growth potential, particularly at our urban properties, which are on a promising recovery path in 2023. Our other urban hotels achieved an occupancy rate of 68.4%, marking a 5.5 percentage point increase from the previous year, yet is still 15 percentage points below 2019 levels. Washington DC led the recovery with a significant 15 point rise to 64%, up from 49% in 2022. Services Co. also showed substantial improvement with occupancy climbing 61% from 47% in 2020 to our West Los Angeles portfolio, also managed to achieve significant occupancy growth in 23, increasing from 64% to 73% despite facing challenges from entertainment, industry strikes and adverse weather conditions that significantly affected demand. Our Boston portfolio, our largest urban market by EBITDA achieved 78% occupancy similar to last year, and Boston represents the market with the highest occupancy levels in our urban markets, yet it remains well below the 80% level achieved in 2019 during the fourth quarter. At our urban hotels, weekday occupancy rates rose by four percentage points to 64%, while weekend occupancies increased by more than two percentage points to 69%. This demonstrates that the uptick in demand was powered by both business and leisure travel. These are positive indicators heading into 2024. For 2023, our resorts maintained their strong performance with occupancy rates rising by approximately two percentage points to 65.8% despite the negative impact of significant disruptive redevelopments at Assante Alicja Jekyll Island Club Resort and Southernmost Resort in Key West during the year, like our urban hotels, our resorts have also have substantial opportunity to regain lost occupancy from 2019 because occupancy achieved 74.4% in 2019, 8.5 points above 2023. In the fourth quarter, our resorts benefited from increased business group demand, as evidenced by the one percentage point rise in weekday resort occupancies over the comparable prior year period. And we can reserve rates surged by seven points to 74.6%, highlighting the enduring appeal of leisure travel and attractiveness of our redeveloped and repositioned resorts. Despite a 9.3% decrease in average rates during 2023, there is a trend towards rate stabilization for the more modest 4.9% decline in the fourth quarter. Even with this normalization, our resort room rates in 2023 remain 40% or $108 higher on average that in 2019 across the portfolio, same-property RevPAR for 2023. So our 4.2% increase year over year increase, while same-property total RevPAR grew by 5.9% indicated continued strong non-room revenue growth along substantial occupancy improvements. This progress was achieved despite an approximate 113 basis point negative impact from renovations, showcasing our portfolio's robustness and potential for future growth.
Our urban properties experienced a significant uplift in 2023 with a 9.3% increase in RevPAR and an 11.3% rise in total RevPAR. Our resort RevPAR declined by 6.5% from 2022, but total RevPAR decreased by just 2.8% as healthy non-room spending and occupancy gains helped mitigate the room rate decline. For Q4, total RevPAR increased by 5.7% with our urban properties realizing 8.8% gain in resorts flattish with a 0.4% decline for 2023. Same-property EBITDA came in at $350.9 million with Q4 at $66.6 million, exceeding the top end of our outlook by $3.6 million. Thanks again to better than expected urban demand recovery in Q4 during 2023, our hotel EBITDA experienced several challenges that impacted our performance, including renovation disruptions, which we estimated had a negative impact of 12.7 million. Additionally, severe adverse weather events in the LA writers and actors strikes contribute to an estimated negative $3.5 million impact. However, these negative effects were significantly offset by approximately $12 million worth of real estate tax credits and general liability insurance savings. Consequently, the net negative impact of these onetime items on hotel EBITDA totaled approximately 5.5 million. We expect significant additional real estate tax credits as we achieve successful tax assessment appeals over the next few years. However, the timing is hard to forecast, so we have not included any in our 2024 outlook. Hotel operating expenses were effectively managed in Q4 with combined departmental and undistributed expenses up just 5.2% versus a 5.8% total revenue increase and on a per occupied room basis decreased by 0.3%. Same property EBITDA margins came in at 21.1%, which were flat to last year. Our Q4 margins would have increased 122 basis points more, if not for the prior year. Real estate tax credits that benefited EBITDA and EBITDA margins overall, year-over-year growth rate in our total hotel operating expenses, excluding property taxes, has declined materially over the year from 27%, 27.8% up in Q1 to 10.2% in Q2, 5.4% in Q. 3% and 5% in Q4. All while growing occupancy can significantly in other revenues like food and beverage even more significantly.
This highlights our success in mitigating cost pressures across the portfolio and our teams are proud to have achieved these positive results year over year. We continue to see an overall reduction in inflationary headwinds. Wage rate pressures have been reduced materially year over year, while our properties remain appropriately staffed. And in 2023, we invested $132 million into our portfolio, which was primarily focused across six major redevelopment projects, including Margaritaville, San Diego Gaslamp, Hilton Gaslamp, a sound sale of REO, Jekyll Island Club Resort, southernmost, Key West and Newport Harbor Harbor Island resorts.
Looking ahead to 2024, we are posting this fleet three pivotal product projects, the comprehensive $49 million transformation and upscaling of Newport Harbor Island Resort, the $26 million luxury reposition of the Santiago via Hotel and Spa, and a 20 million first phase of the additional alternative lodging clamping units, cabins, villas and infrastructure at skin me alive. We anticipate completing all these projects in the second quarter, marking a significant milestone in our comprehensive $540 million multiyear strategic capital reinvestment program it's important to note that the vast majority of these returns on these recent investments have not yet been realized, but we anticipate significant improvements in market share and cash flow as they ramp up and stabilize. And as Dieter was so beautifully saying at our opening some today, our properties are coming out in 2020 for these major redevelopment disruptions are behind us and the benefits of these major investment dollars are to come. Also, our cost CapEx requirements are set to decrease markedly to between 85 and 90 million in 2024, shifting focus to our PI beach resort and club in Naples. We're happy to report that the restoration of the 79 room beach house pool complex is expected to be substantially complete next week or two. This is the last of the rebuilding efforts following the extensive damage from Hurricane in the resort and club was great and it's better than ever for Fortis to ramp up quickly with our restored product. As noted in last night's earnings release, we anticipate recognizing 11 million business interruption proceeds in 2024 from applies loss income for the second half of 2023 in early 2024. This has been incorporated into our 24 outlook that BI. will impact adjusted EBITDA and adjusted FFO per night same-property EBITDA. This compares to the 33 million of BI. recognized in 2023 of our disposition strategy and 2023 was successfully executed with seven property sales generating over 330 million in gross proceeds. The aggregate sales proceeds reflected a 20.2 times EBITDA multiple and a 4.2% NOI cap rate. Proceeds from our property sales were used to pay down over $179 million of debt and for accretive repurchases of common and preferred shares from the start of 2023. Through the end of January 2024, we repurchased approximately 6.8 million common shares at an average price of $14.7 including over 318,000 common shares recently purchased in January at an average price of $15.69. We also purchased the 2 million shares of our Series H preferred equity shares at an average price of $15.90 per share, which is a 36% discount to the par value of the series with 1 million shares repurchased at the end of 2022. At $16, a 30% discount is a discount on par value, and 1 million of these shares were repurchased in Q4 23 at $15.79, a 37% discount following our debt paydowns and the extension of 300 semi 300, 57 million of bank term loans out to 2028.
Our next meaningful debt maturity is the $410 million bank term loan maturing in October 2025. You should anticipate that this maturity will be reduced and address from free cash flow and potentially proceeds from additional property sales, additional debt market activities or from our CAD650 million undrawn unsecured credit facility.
And with that comprehensive update, I'd like to turn the call over to John. Tom?

Jonathan Bortz

Thanks, Ray, and good morning, everybody. I'm going to focus my comments on two topics. First, what we've seen in the industry most recently and what we expect for this year in terms of the industry performance, and second, how that translates into the assumptions behind our company's outlook for Q1 and for full year 2024.
As to the hotel industry, I believe the has reported performance in the second half of 2023 and so far in 2024, clearly evidences a softening in overall demand, primarily in the mid to lower segments, perhaps indicating financial sensitivities in the middle to lower socio economic demand segments likely resulting from the impacts of inflation, the reduction or elimination of extra savings from pandemic era, government transfer payments and the dramatic increase in consumer credit rates. Perhaps it's just difficult comps for the middle to lower price-point hotels as others have suggested. But total industry demand hasn't exceeded restricted supply growth since March of last year, and it's been negative seven out of the last 10 months as weaker overall industry performance has occurred at the same time that convention group business transient, particularly larger corporations and international inbound travel, all continued to recover. And while leisure travel remains healthy, the top 25 markets have outperformed the other markets by a wide margin and the urban markets, which have previously been slower to recover have performed by far the best. And while this softening demand has been almost completely focused on the mid to lower segments so far, we're not so naive to think that there can't be an impact in the higher segments. At some point, we're humble and we recognize we've never been through a pandemic and recovery before let alone one where the Fed continues to work aggressively to slow down the economy to bring inflation down to its target so far so good as the economy has held up and everyone who wants a job seems to have one yet. We remain wary, though still cautiously optimistic about 2024. It's extremely difficult to forecast how these conflicting economic waves will impact each other as we move forward in 2024, just as it was in 2023. All we can do is plan for different scenarios and monitor all of the macro and micro indicators very closely, and we'll let you know when we see the trends changing. As a result of this ongoing uncertainty, we plan to continue to provide monthly operating updates given the weak overall trends over the last 10 months, including January and also for February. So far this year, we expect industry RevPAR for 2024 to be flat to up 2% This forecast also assumes a so-called soft landing for the economy. We believe the Fed will remain diligent in its inflation lowering mission this year and with expectations for rate cuts recently pushed later into the year with fewer overall cuts now expected, we believe forecasts by the institutional prognosticators in our industry now seem a little optimistic, at least they due to us we do believe that business travel, both group and transient, along with international inbound travel, will continue to recover and these demand segments will continue to benefit the upper upscale segment and the urban markets primarily and thus the top 25 markets versus the weaker other markets.
I also want to point out that overall industry performance in 2023 and so far in 2024 has substantially benefited from the very strong performance of Las Vegas, a large, volatile and influential market affecting the total industry numbers, excluding Las Vegas. The rest of the industry's performance was softer in 2023. And by our calculations, that weaker performance equated to 48 basis points or just shy of 1.5% and remember, the public lodging rates and other institutional lodging investors generally don't own in Las Vegas. We would urge STR. to publish industry numbers on a weekly monthly and annual basis that excludes Las Vegas. So we can all get a clear picture of the overall industry in which we live and invest. Las Vegas until recently was never included in the industry data and reports. So this is a new issue. Given our forecast for the industry's performance for 2024, we expect to do substantially better than the industry given our 60% or so concentration in major urban markets, including slower to recover markets, which have been accelerating. And we expect to do better due to the lack of material disruption from renovations and repositionings in 24, which will soon be complete and from gaining RevPAR share from our from our many completed major repositionings and redevelopments over the last several years, given our industry outlook for RevPAR growth of 0% to 2%. We're forecasting our same-property RevPAR to increase 200 basis points more so in the range of 2% to 4% we expect most or all of it will come in occupancy gain. We're forecasting that our Total same property revenue will increase in the range of 3% to 4.6% and as a reminder, the play is not included in the same-property numbers for 2023 or 2024. However, if we were to include it, the Playa would add about 50 basis points of RevPAR growth to our outlook. Encouragingly, our group pace is looking good for 24 as of the beginning of February, group room night pace for this year was ahead. It was ahead of the same time last year by 12.5% with ADR pacing 2% ahead of last year for a total group revenue pace advantage of 14.7%. Transient room nights are also pacing ahead of 23 by 9.4%, with rate lower by 1.9%. Total group and transient pace for 24 was ahead by 11% in room nights and total revenues with ADR flat year over year as we continue to recover significant occupancy while total pace is strong. We caution that booking trends have lengthened and continued to normalize. So these percentages will naturally decline as more businesses put on the books. Not surprisingly, our urban pace is stronger than our resort pace, but both are significantly ahead of last year. Right now. Q3 has the strongest pace advantage followed by Q4, then Q2 and then Q1, we expect Group will represent roughly 28 or 29% of our overall mix, which is up slightly from last year given a slower Q1 pace. Our forecast for Q1 is for our same property RevPAR to be flat to up 2%, with total same-property revenues higher by 0.8% to 2.8% weather on the West Coast and in South Florida has not been favorable so far this year, particularly in February. So even as we gain ground from not having much comparative negative impact from our major renovations and redevelopments in Q1, our resorts have suffered from softer leisure demand due to the weather. While January RevPAR growth increased a healthy 5.1%. February is on track to be roughly flat. Unfortunately, March's performance will be negatively impacted by the last week of the month due to the earlier arrival of the Easter holiday this year. But April, on the other hand, should benefit from this shift for 2024. We expect same property total revenue growth to exceed same-property RevPAR growth as it did in 23 due to strong food and beverage and other revenue growth, some of which is a result of the continuing recovery in group and some as a result of the significant remerchandising we've done at so many of our properties where we've added more meeting space, event venues and bar outlets improved some of our outdoor event and restaurant venues to increase the length of their outdoor operating seasons and reconfigured and reconcepting restaurants to focus on increasing banquet and catering business and driving higher revenues and profits for the year are forecasting same property expense growth in the range of 4.7% at the low end of our total revenue growth range to 5.3% at the higher end of the range. However, if we exclude the impact of 9 million of real estate tax credits in 2023 to get a better view or the underlying expense growth rate. It's about 100 basis points lower, implying an increase of 3.8% to 4.3%. Keep in mind that all of our RevPAR growth will likely come from occupancy growth and food and beverage growth should outpace RevPAR growth due to increases in group business and total occupancy, both of which come with significant marginal expenses. Our expense growth assumptions are based on an expectation that combined wages and benefits will increase in the 4% range, give or take. Most other expenses will increase at a lower rate. Energy and insurance will grow at a much faster rate and real estate taxes will show a much greater increase due to the 9 million of tax true ups in 2023. We expect the combination of suppliers' operating performance and BI. accruals will likely be roughly equal between 2023 and 2024. So no big headwind as we had previously feared. We're extremely excited about the pending full completion and reopening of LaPlaya Beach Resort and the rebuild property looks fantastic. We'll be having a tour of both La Playa and on fifth in Naples for investors and sell-side analysts on the Wednesday afternoon following cities read Conference in Hollywood, Florida. So feel free to let us know if you'd like to join us will be transporting folks from the Diplomat supplier was on track to deliver the highest EBITDA in our portfolio in 2022 before the hurricane hit. So it's quite important to our future growth. Not only are we excited about appliance operations getting back to normal, but we're also very excited about the significant upside throughout our portfolio following our half $1 billion plus investment program over the last few years, whenever we get over this macro economic Hill related to the Fed's efforts to drive down inflation to its 2% target. We expect to experience a significant upside in our markets over a multiyear period that will be powered by little to no supply growth growth in our markets, while economic growth drives up travel demand.
If we look back to the beginning of the last cycle, and you can see these results in our investor presentation.
Total EBITDA for today's current portfolio doubled between 2010 and 2015. So in this next cycle, we expect urban and resort supply will be more restricted and slower to be added than in the last cycle. We also believe demand will grow in a healthy and profitable way due to strong economic growth, driven by significant technological and medical developments, a massive onshoring effort in various industries growth coming from the green energy transition and positive secular trends related to travel these positive fundamentals in totality, coupled with a moderating inflation outlook and significant benefits from the completion of our strategic redevelopment program should lead to very strong bottom line performance for us over an extended number of years. We just need to get over this macro hump.
That completes our remarks we've been out. We'd now be I be happy to answer your questions.
So Donna, you may proceed with the Q&A.

Question and Answer Session

Operator

(Operator Instructions) Duane Pfennigwerth, Evercore ISI.

Duane Pfennigwerth

Thanks for the time for just on them. I'll repeat the question and I know you're maybe you're a little bit less levered to it, but on the group segment, do you do lean on group differently than you did pre pandemic given changes in underlying seasonality? And maybe John, just broadly, how would you characterize the setup on entering 2024 from a visibility perspective? How does this forecasting environment feel versus a quote-unquote, normal time pre-pandemic.

Jonathan Bortz

And so I think the question of do we lean on group differently this year versus last year or or even pre pandemic, I'd say it's really driven by each individual properties situation and what's going on in those particular markets. So give give San Francisco, let's look at that as an example, with a softer convention calendar this year. We're leaning on all the other segments, including in-house group, more so than we would in a year where we have significantly greater convention activity in a market where the convention activity is up strongly like a market in San Diego. We may lean on group a little bit less than we have in prior years and tried to drive those transient customer rates. And so we can take advantage of the compression or the greater number of compression days in that market. So I don't think there's any general philosophy that's different in 24. But but each market and each property will behave a little bit differently.
And then your question about setup. I mean, right now because group paces is so far ahead, I think the setup is pretty good. I mean, we expect to pick up another point in mix of group in the portfolio because of the strength of convention and our in-house group strength that we have compared to last year. And I think as we get into the year, what is the unknowable and the part that's hard to predict is what is short term group going to look like both in the month for the month in the quarter for the quarter, I mean we have probably less group on the books than perhaps other companies. I don't know others, we had about 60%, 62% of our are our forecasted group on the books heading into the beginning of February. And that's a little bit better than last year as evidenced by the pace. So I think the setup is good for the year. It's hard to forecast because as we normalize these trends and how much of this group was compared to last year? Was it because it was put on the books further out. And therefore, as we saw in some months last year, the short-term pickup was softer than the year before. So that's what makes it hard to forecast.

Duane Pfennigwerth

Appreciate the thoughts. Thank you.

Operator

Smedes Rose, Citi.

Smedes Rose

Hi, thank you. And I just wanted to ask a little bit maybe just what you're seeing on the transaction side of the market. It seems like that market's been a little bit challenging. But coming out of Alex, there was a lot of talk about how this year would improve significantly and maybe how you're thinking about potentially moving forward with additional asset sales? Or are you fairly happy with where the portfolio is?

Tom Fisher

No, and on the pacemaker side, Tom Fisher, I would agree with you that I think the sentiment coming out of the analyst conference was pretty positive. I kind of look at it from the perspective that I think 2024 may be entering a transition year where last year there was a lot of interest of lack of lack of conviction this year. I think it's probably transitioning to a lot of interest, but building conviction. And I think part of that is given the fact that I think investors think that the worst is behind them in terms of that cost and that they can actually underwrite assets and underwrite debt cost and hopefully improving debt cost from that perspective. So I think overall, I think it's become the market's getting better, but it's getting better from a financing front for cash flowing yield assets with strong sponsorship. And so I think you'll continue to see a gravitation towards some smaller deals, which was kind of predominant in 2023. And also those deals that come are those assets that are in markets that have recovered as opposed to those markets that are laggard. Markets are still in recovery because I think both from a lender's perspective, an investor's perspective, it's all about cash flow and debt yields today. And then I think as it relates to our portfolio, I think we're happy with what we've done. But we continue to look at and we would engage in opportunities if it makes sense for us for additional dispositions.

Jonathan Bortz

And I think that the interest in dispositions. And it is really strictly related to being able to generate proceeds that allow us to buy our stock back at such a large discount. So to the extent that the public private arbitrage opportunity goes away. I think our interest in selling assets generally goes away.

Smedes Rose

Okay. Thank you very much.

Operator

Michael Bellisario, Baird.

Michael Bellisario

Morning everyone or morning and John, just with first quick question on CapEx and returns. Are you seeing any change in sort of the ramp up of performance post renovation post repositioning? And then for the projects that have been completed already, is there any updated view on timing or the time line of when you think those projects will reach stabilized returns?

Jonathan Bortz

Well, the biggest impact to the ramp up was the pandemic, not not surprisingly, for projects that were completed right before the pandemic hit there were some completed during quite a number completed during the pandemic and a few that have now been completed sort of if we're in the post pandemic period in this post-pandemic period, in general, it's probably anywhere from three to five years to ramp to full stabilization. And it really depends upon what are the structural changes on repositioned flag properties. So we're not so take the Hilton Gaslamp as a good example. It's one of the best locations, if not the best location in downtown San Diego all around it. It hadn't had capital that was in the single cell portfolio and hadn't had capital invested for almost 15 years. And our and we did an exhaustive repositioning of that property and it has some unique aspects including a I don't know, it's 30 some 20, some of suites and loss in a separate building from the main building that will ramp much quicker. And we're already seeing that here in the first quarter, even that'll ramp much quicker than where we we take a property like at Jekyll Island, and we've repositioned it higher. It's an independent property and it will just take longer. But ultimately, the repositioning should should end up at significantly higher stabilized returns because of the fact that it doesn't have an ADR sort of implied cap by its customer base like a branded property would. So they tend to take longer on the independent side in general and and they're much quicker on the branded side.
The other thing that impacts. It obviously is the strength of the market. It's a lot easier to gain share in San Diego with the sole bars conversion to Margaritaville in a market that's strong where demand is increasing and everybody's not fighting over a sort of stable demand level in a market. So in a market like that, we would expect that to ramp more quickly in the market. So in general, that's that's what I would tell you. I don't obviously some things that were done years one or two years before the pandemic, they may not get to our share gains and those double digit returns, but they should get to mid single digit, if not higher, on a cash-on-cash basis.
So on the newer deals with demand already ramping up should should see higher returns.

Michael Bellisario

Got it. Thanks. And then just one quick housekeeping item. Just on the real estate taxes, I think you mentioned 12 million of real estate credits last year as a one-time item. But then when you were talking about margins, you mentioned $9 million of impact. Can you square those two for us? Thanks.

Raymond Martz

Yes, there was GL and there's GL and the 12 million that that was mentioned in the script, but you might have just missed it was kind of the combining of the two but I didn't really focus on it or the on the royalty tax credit of 9 million.
And that would suggest point that out to trying to get the run rate in your models because that's more of a run rate because the credits tend to be lumpy and could represent multiple years. So by taking that out, which is what we are discussing that and call that that reduces our run rate of operating expenses by about 100 basis points lower than what was provided in the 2024 outlook.

Jonathan Bortz

And Mike, I think to our to the to the other comments we made, and we feel pretty positive about significant future assessment reductions and true ups and primarily on the in the West Coast markets, maybe to a lesser extent on the East Coast in a market like DC, but it just takes time. And part of the reason, sometimes the credits tend to be large is it's a multi-year, true up of an assessment that we over-accrued and overpaid until we achieve the success in the assessment. And clearly, we know values went down dramatically in a number of the markets on the West Coast. And it's just a lengthy process designed to stack the deck in the government's favor. So being persistent, the ultimately pays off.

Michael Bellisario

Understood. Thank you.

Operator

Bill Crow, Raymond James.

Bill Crow

Very good morning or two quick questions from me. John, you talked about your expectation that the inbound outbound travel international travel deficit will narrow. And I'm curious whether that applies to inbound travel from Asia as well seems like it will be much more impactful to the West Coast market?

Jonathan Bortz

Yes, Bill, I actually we do think it does. And if you if you look at the data, I think what it shows is you have a significant increase in Asia inbound. It's coming from Korea. It's coming from India and it's coming from Japan. And those are those are all three markets were later to begin the recovery as compared to the markets in Europe and a market like India. Many are forecasting will ultimately replace China from a size perspective, given the growth in the economic base and the population the large population in India and obviously the better relationship the US has with with the with India versus with China, we have seen significant increase in China. It's just off a very low base right now. So while it used to be clearly in the top five, it's not there right now, but the other markets seem to be are you picking up much of the slack, but not all of the slots.

Bill Crow

That's helpful. Just given all the changes to your portfolio, I know the order of importance for contribution to EBITDA has it's changed pretty dramatically over the last couple of years. Key West is now, I think, a top five market. I think if you looked at Florida, your four assets there and maybe throw Jekyll in Georgia into that, it seems like a lot of exposure to hurricane prone MARKETS. Sorry, are you comfortable with the exposure and that you have seen that reach?

Jonathan Bortz

We are comfortable. It's interesting as we as we analyze weather impacts and weather risk on a corporate basis through looking at the individual properties, what we find is there's There just aren't weather risks everywhere. They're just different kinds and some get more media attention than than others. But you know, heavy rains and flooding on the East Coast in the Midwest, I've been a pretty consistent over the last few years compared to where they used to be some fires on the West Coast, although being help last year and this year with the heavy rains, but heavy rains on the West Coast. There's their risk from those. We had a tropical storm morning in Southern California. We haven't had an 85 years, and we have some. We had an earthquake in Washington, D.C. There just seemed to be weather risks everywhere. And so we're comfortable with what we have in Florida. We think we bought the right properties in Florida. I think the rebuilding of LaPlaya will help mitigate any future damage based upon the way it's been rebuilt and the the effort to mitigate through strengthening the real estate. But I'd say today, yes, where we're comfortable with with where we stand in Florida, I'll yield the floor.

Bill Crow

Thanks.

Operator

Dori Castaigne, Wells Fargo.

Dori Kesten

And I think if you wind down your ROI projects midyear, what's a good run rate for CapEx? And how long would you expect to be able to maintain at those lower levels.

Jonathan Bortz

And while we've we've significantly redeveloped and comprehensive comprehensively renovated the vast majority of the portfolio, we think the run rates likely in the 50 to $60 million range on an annual basis from our non-major project capital in our 2024 plan is about 40 million. And and so that's a little lower given the number of projects that have been redone more recently. We also have been deferring some smaller ROI projects to retain capital in order to use some of that capital to buy back our stock at such a big discount because the returns are higher. So we do think those will ramp up a little bit over time from where this year's other capital is being invested and what the total number is. But yes, for the next few years, outside of whenever we decide to we're able to proceed with the conversion of Paradise Point to Margaritaville, we think the capital is going to be should be in that 50, 60 million range.

Dori Kesten

Can any of you have you said what your expectation is for the EBITDA trajectory of oil play over the next several years.

Jonathan Bortz

And we haven't we as it relates to this year, and that's hard enough to forecast a re-ramp from again from being from being closed. We're looking at about $22 million of EBITDA, give or take as our outlook for this year. That would be in excess of where we were in 19. But well behind the 30, what was it?
35 million? We were headed for in in 2022 before the hurricane hit at the end of September.

Dori Kesten

Okay. And I guess by you have an expectation of when you should treat that 35 or higher?

Jonathan Bortz

We well, they'll depend a lot on the market, depends on how other properties, price and perform in that market. And but the good news, we think it's whether it gets back there or in general resorts are our resorts are not at the 22 levels. They've come off a little bit from there. We would expect Naples to reply to probably do the same thing if it were running stabilized today, but maybe in the next two years, there's there's certainly a possibility we can get back to the same level or nearby.

Raymond Martz

Yes, Dori, when you look back to Irma, when that hit South Florida, Naples came back as a market quicker than Key West did just an indication on which is a different demand drivers and customer base in Naples versus Key West.

Jonathan Bortz

So that's another way that a lot more annual return is because of the the base population there.

Dori Kesten

Okay. Thank you.

Operator

Jay Kornreich, Wedbush Securities.

Jay Kornreich

Good morning. In fourth quarter, you generally saw a rebound in the urban markets, and I believe you commented on that occupancy gap 2018 closing to 15%. So I'm just curious if this rebound is coming more from? Is this transit customers or group customers? And how much growth you foresee in urban markets and 24 versus 2022?

Jonathan Bortz

Yes. So actually, the rebound is coming from from of three segments. It's coming from BTC. corporations are getting back to the office and you're seeing obviously significant growth in activity around AI. which is headquartered in San Francisco. The group side is recovering as well. We're going to have a down year on a convention basis in 24 from prior year cancellations when things were maybe viewed a little more challenging from a quality of life perspective, but that's improved dramatically, I'd say, at or or better than pre pandemic levels in terms of quality of life and continuing advances in the politics there. So our group has been improving, including in-house group and leisure is coming back to the market, both from a domestic perspective and from an international inbound perspective. And I'd say the the market segment probably further behind continues to be that international inbound because a lot of it came from China in particular, given the population base in San Francisco and the attractiveness of that city from from an Asian perspective. So it's really all the segments we do expect to continue to continue in 2024 in all segments, except for the drop in convention. And we think these other segments should do well to offset that drop in convention. And hopefully, we continue to have an up year on a RevPAR basis in San Francisco. But we do think urban will lead the pack on a RevPAR basis.

Raymond Martz

Our portfolio again and in 2024 Could you would you as relates to San Francisco, and I know there's a lot of talk about the convention calendar in 24 versus 23, which is down and that's primarily in the fourth quarter. Actually, the first half of 24 is up year over year. But what it is all about, it's not really captured in the numbers are all the self-contained group and which those are groups like JPMorgan that happened in January, that's self-contained group standard convention numbers. So that's up year over year. So that part actually is is I'm coming back as the other BT. group is coming back to the city.

Jonathan Bortz

So when you look at that, you'd look at those two components, not just that Gary mentioned demand and you probably hear that from folks like host to who own those big area marquee in town.

Jay Kornreich

Yes, I'll hold it and thank you very much for that.

Jonathan Bortz

Thanks.

Operator

Dany Asad, Bank of America.

Dany Asad

Hi, good morning, everybody. I'm John or Ray, can you just if we're looking specifically to Boston market. You kind of called that out in your prepared remarks, but can you help us break down those 10 points of occupancy gap relative to 2019 and Boston? What is it that has yet to recover and maybe break it down for us by day of week and then what will drive the incremental, you know, occupancy points in Boston from here I'm just kind of wondering if you're seeing that flatten out or kind of how that trends been going?

Jonathan Bortz

So I mean I can give you some general comments. We can follow up with some detail as to this as to the specific segmentation with Boston, we don't happen to have it handy right here. But in general, I'd say it's in it's in two segments, primarily in IBT., particularly on the large corporate side, including consulting and financial, are probably down the most in that market. Those are continuing to recover.
Tom, you hear probably similar comments about that from the major brands, not only for Boston but across the country, but it's a big component in that market. And that's that's what's DOWN along with some group and the convention, the major convention is actually running similar to some of its strongest years in the past where convention is down is at the Hynes Convention Center and that's because if you recall, there was this hubbub about the prior Governor wanting to shut down Heinz and sell it for other uses and that sort of a potential conversion Idea has now passed on the Hynes Convention Center is actively pursuing new business and which will help drive particularly the Back Bay to even higher levels, particularly in our portfolio with a Westin, which is attached the convention center as well as the Revere and the W., which are nearby. So and they're also planning to do needed renovations over the next few years as they rebuild the group base there. So our in-house group at Weston, as an example, is still down a little bit from where we were in 19. And we have that to gain back. And I think that's indicative based upon Mariano's position in the market. It's indicative of other property opportunities as well. So it's really those two segments. I think Leisure's been pretty strong. There's probably still some inbound international to go, but it's not a large component.

Dany Asad

Thank you very much.

Operator

Gregory Miller, Truist Securities.

Gregory Miller

I'm hoping you can provide some context on the NAV revisions, and that is after February relative to November, given estimated value declines from the severe market?

Raymond Martz

Yes. So Greg, we look at the gross enterprise value change on it went down about $200 million from our last update and about half of that $100 million are from property sales. The sale of WD Services go in retail, some retail space in Chicago and another half, a million dollars that's reflective of the asset by asset value estimates that we do internally here based upon what we're seeing in the market, sometimes very close to the transactions. I think another part in each market to understand where that is taking to consideration the debt markets and so forth. So that's how we adjusted the CAD200 million decline. So again, half of it was from asset sales, half of it was the change in value. And then the balance of it is just really a reflection of the debt paydowns and then the buying the preferred at a big discount change in that for the NAV. So overall, the NAV change moved to dollar, but a big portion of that was really just the timing there and some of the adjustments, there were the values.

Jonathan Bortz

And Greg, I think when you when you look at where the values were down, it was primarily markets that were slower to recover where the debt markets are having a bigger impact on values because those markets lagged those markets lacked strong yield and many of the buyers are primarily all equity buyers. So I think as that as the yields as operations continue to recover and yields continue to grow, not only will the values go up because of that, but they'll go up because of sort of the that the lack of yield penalty being imposed on values by the debt side, and that will help transactions in general.

Gregory Miller

Okay. Appreciate it both.

Operator

Floris Van Dijkum of Compass Point.

Floris van Dijkum

Hey, thanks. Thanks for taking my question, guys. You guys still have this big giant gap in profitability, particularly in your urban markets. I calculate something like 96 million shortfall relative to 2019 levels.
I guess maybe Ray, I mean, I know you've invested in your portfolio, you're going to get some return on that capital. But is there a risk this cycle that your urban markets never fully get back to 2019?
Or how do you see that playing out over the next two to three years?

Raymond Martz

Well, it was a couple of factors. One is, as we indicated before, we'll continue to track how we monitor how the changes in business change and business group that both are going in a good direction. So that both sides and that's the growth of RevPAR this year. So that's a positive there. And so that's one of the two is the international inbound component isn't impact. You look at that side, we still have 10 million less international inbound travelers than what we had pre-COVID and international inbound travelers tend to go to a lot of the coastal markets, the gateway markets, which are the markets we own. And so unfortunately, we did a lot of markets that we are the urban markets we're in. We're in those markets that did go down the most from the pandemic, but it does add most of the growth, the biggest growth level is coming back now. So it'll go in different periods. Markets like Boston have rebounded quicker variety just because the nature of the industries in Boston, there have been benefiting from the trends on your European travel there, more than the West Coast urban markets are going to penalize because they rely more in Europe as an example. But also you have a lot of the industries in Boston are more coming back to the office is more travel industries. They're doing there and we don't have the tech side a little bit slower in the West Coast So yes, overall, we are confident over the next several years and some markets will get back to pre COVID-19 levels sooner than others like Boston and San Diego. Some it will take longer. But overall, we've seen how travel does follow GDP over the long term. And we're just right now in a period now for the pandemic, there's a lot of distortions in the market. But as these normalize with all these demand factors, we think it does get out does get better, but it would be like a fairly large number one, but the one.

Jonathan Bortz

The one thing I'd add is, you know, are there are there markets like San Francisco and Portland? Do we think the bottom lines are going to get back to where we were in 19 in the next two or three years, probably not. I think that would be that would be very unrealistic. Will we will we dramatically narrow that $96 million EBITDA difference and over the next two to three years?

Floris van Dijkum

Yes, we think we will from a combination of those kinds of markets recovering with significant operating leverage in them obviously. And the stronger markets like Boston and San Diego, as an example, are exceeding 19 levels with strong operating leverage as well. So and all of them with occupancy opportunities obviously to regain they started.
Actually, that leads me to maybe the connected question here. In terms of occupancy upside, I think you mentioned on your prepared remarks that you have about it 15% gap in your urban markets. I think it's 13% in your overall portfolio where you you clearly expressed some some have some positive sentiment towards Boston and San Diego in particular, I do think that have to get back to your 19 levels. You don't necessarily need to get all the occupancy back because of the ADR growth. But you think you're going to get back in terms of occupancy in Boston and markets like like San Diego as well back to the 2019 levels over there?

Jonathan Bortz

Year two, I think I don't know if we'll get there in the next year or two, but I think we'll narrow that difference pretty substantially in those kinds of markets. And in fact, we may not want to get there, and we may want to press more on the rate button in those markets and change mix within the house, we're running 88% in a market like Boston, it's doable, but we'd rather run 85, frankly. And sometimes you have to take the occupancy, you can't get it in rate. But I.
Yes, I think we'll narrow them dramatically, but do we do we think we're going to get there? I mean, tell me what the economic world is going to be also over the next two or three years because I think if we get past the sale this year, I think we're in really good condition to drive both occupancy and rate.

Floris van Dijkum

Thanks, John. That's it for me.

Operator

Chris Darling, Green Street.

Jonathan Bortz

Chris, it better be a good one year that clean up here as well. Things are hopefully so.

Chris Darling

And what I want and I want to go back to the discussion around your NAV estimate. I'm just wondering if lower values in some of these urban markets are they does that make you more likely to hold some of these assets rather than to sell at depressed values, especially as you're expecting some fundamental upside in the near term? So just wondering how you're thinking about that.

Jonathan Bortz

I think I think selling in those markets would would likely bring our growth rate down a little bit on a marginal basis. But the investment of the proceeds from them into the rest of our portfolio through buying back our stock. As long as that ring remains exceedingly attractive. I think it does still make sense from, as you know, I mean, the public markets tend to not look three or four years out as it relates to lodging rates or frankly, most companies eValues not is not the popular form of investing, it's really growth. And while that would impact our growth rate a little bit, I don't I don't think the margin is as attractive to hold as it is to sell and buy our stock back. I mean, where we've been selling has generally been slower to recover markets and the lower quality assets in those markets. So we've been improving the overall quality of the portfolio. At the same time, we've been buying the remaining part of the portfolio back at a big discount. So I don't think it would change our view of where we've been focused.

Chris Darling

And that's helpful to hear. And then just one more for me on skinnier. I'm just hoping you can elaborate on what exactly is being done with the initial $20 million investment. And then as you densify that property over time with these alternative lodging units, I'm just curious to understand if there's upside in terms of operational efficiencies that you can realize?

Jonathan Bortz

Sure. So we have we have Skandia sits on 200 acres. We had a golf course that took up about 100 acres and we closed it from several years ago, and we rebuilt on a nine hole part three in a sustainable way and an 18 hole putting cores our adjacent to it and then we freed up, I think about 70 acres of it along with the additional land we had for future development of this. This 20 million investment went for. I'm a CAD2.5 million Pavilion that we build adjacent to the 18 hole, putting course for events and some for weddings, we added three more tree houses to the six we already had. So we now have nine and we're experimenting with some additional new alternative products where we're completing five luxury lapping units on a portion of the property. We're adding a three bedroom villa and we're adding to two-bedroom cabins. And those will have longer length of stay, perhaps weekly, in some cases, perhaps monthly, whereas the three houses are much more nightly like the rest of the Lodge. And then in order at this point to really do it right, we've we brought through the property or at least through a portion of the property, which would we've brought through utilities road and infrastructure, so gas, electricity, water, sewer and roads for access and two, about a third of the of the excess acres. So we can build a significantly greater number of alternative lodging units. We're looking at things like have a luxury RV park. We're looking at Farmhouse inn with vineyards and food fields. I mean, there's a bunch of different things we're looking at right now. We're just experimenting with what does the customer have an interest in in this market and what are they willing? And what are they willing to pay for that? And so it is similar to what we did with the original couple of three houses that we built.
Will there are there operating efficiencies?
Yes, there is significant. I mean, we're not adding anything other than hourlies at this point in time as we add these additional units. If we add a different concept like a farm house in or something we may or may not use the same team at the property, but ultimately a lot of the expansion of the units and these units run two times or more of what the average large rate is. So they're significantly more profitable on a per key basis on a per bedroom basis.
As it relates to the cabins and the Villa. So there's a lot of operating leverage for these additional units. But right now, it's not a huge number of units. It's really sort of attached sort of a test case.

Raymond Martz

And Chris, just to give you some sense of the development of that at Cananea and we love it because all the additional amenities we can add. So it's some it's more than just a lodge is a lot of things to do there. When we acquired that hotel that had about $4.4 million of EBITDA. It ended 23 and almost $13 million of EBITDA and the occupancies are still below where we were pre-pandemic. So just to show you that the by adding all these additional services do we think it's maxed out. No, there's plenty of growth opportunities there. And with additional units we can have between the clamping and other alternative for this, we think there's a lot more growth in there. So it's been a great investment for us and we look forward to that.

Chris Darling

Well, thanks. Sounds like a lot of interesting things over time there. So I appreciate it.

Jonathan Bortz

Yes. Thank you, Chris.

Operator

Thank you. At this time, I'd like to turn the floor back over to Mr. Bortz for closing comments.

Jonathan Bortz

Thanks, everybody, for participating, and we'll see you many of you down in Florida. We hope you can join us for our Naples tour. And otherwise, we'll will be in touch with you in April again to report first quarter results. Thank you very much.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.