Q1 2022 Apple Hospitality REIT Inc Earnings Call
April 2019.
Our corporate and onsite management teams have continued to maximize profitability. Despite a challenging labor environment, an increase in input inflationary pressures.
First quarter operations were significantly ahead of the same period last year.
With comparable hotels total revenue up more than 70% relative to the first quarter of 2021, we achieved comparable hotels adjusted hotel EBITDA margin of 34% despite weaker occupancies early in the quarter adjusted EBITDA of.
Of $78 million and modified funds from operations of $63 million or <unk> 28 per share.
The pace of recovery has exceeded our expectations in a rapidly recovering operating environment provides meaningful momentum as we enter the seasonally stronger summer months.
We are encouraged that airlines are opening more business routes in response to rapid increases in demand and see this together with strong group bookings, adding to the robust leisure demand to fuel the recovery over the coming months.
With locations in 86 markets across 36 states, we benefit from broad geographic diversification and significant exposure to a variety of business friendly markets that offer attractive cost of living popular leisure and entertainment venues a wide variety of demand generators and various guest amenities for the quarter 33.
Percent of our hotels achieved revpar at or exceeding 2019 levels, even without a full recovery in business transient which has historically represented more than half of our total revenue mix and despite reduced travel during the quarter related to the omicron Varian.
As the recovery spreads to an increasing number of markets, we see meaningful upside to 2019 for our portfolio.
With fewer hotel projects under construction in our markets, we anticipate the pace of new supply, which represented a meaningful headwind for us in 2019 to be less of a factor over the next several years.
With relatively low supply combined with continued improvement in demand should further accelerate and prolong this recovery.
Almost 50% of our hotels did not have any exposure to new projects currently under construction within a five mile radius.
Consistent strategic reinvestment in our hotels has ensured that remained relevant and well positioned to take advantage of continued rate and occupancy growth opportunities.
We invested approximately $8 million in capital expenditures during the first quarter of 2022, and anticipate spending a total of $55 million to $65 million during the year.
Through our scale ownership of branded rooms focused properties over more than two decades, we have significant experience in determining the most effective scope and timing of our investments to ensure minimal disruption to property operations and maximum impact for dollar spent.
Our ability to maintain our assets with capital spend ranging between 5% and 6% of revenues as a meaningful differentiator for our portfolio and a contributor to total shareholder returns over time.
Our acquisitions and dispositions activity since the onset of the pandemic is further optimized our portfolio for the recovery by lowering the average age of our assets, reducing near term capex and increasing our exposure to markets that we anticipate will outperform over the next cycle, all while maintaining the strength and flexibility of our balance sheet.
We have been and will continue to be intentional and the build out of our portfolio pursuing assets that are additive to those we currently own located in strong revpar markets with attractive cost structures and significant growth potential and at pricing that will allow us to achieve our targeted returns.
Increased interest in the type of assets, we own from both private equity and public buyers continues to push prices higher in our space, increasing the value of our own portfolio, while at the same time, making accretive acquisitions more challenging.
As we seek out opportunities we are leveraging relationships developed over two decades, as well as our unparalleled experience buying selling and owning branded upscale rooms focused product.
We currently have under contract. The previously discussed embassy suites that is under development in Madison, Wisconsin for an anticipated purchase price of approximately $79 million.
And we are actively underwriting and exploring dozens of opportunities both on and off market and anticipate that we will be a net acquirer of assets in 2022.
On our last call, we announced that our board of directors reinstated regular monthly cash dividends beginning with the distribution in March of <unk> per share.
Based on our closing price yesterday, the annualized distribution of <unk> 60 per share represents an annual yield of approximately three 6%.
Moving forward, we will continue to interact with our board on a monthly basis and assess our payout in the context of the current operating environment, our expectations for the future acquisitions and dispositions and other opportunities to ensure that we are allocating capital to drive the strongest total returns for our shareholders.
Our ability to provide investors with a meaningful cash yield on their investment early in the recovery and well ahead of peers is a testament to the merits of our investment strategy and the strength of our team.
Our performance since the onset of the pandemic would not have impossible without the collaborative efforts of our corporate brand and management teams and the hard work and dedication that the associates at our hotels.
I look forward to announcing our 2021 Apple award recipients over the coming weeks for these awards. We once again focused on the associates at our hotels and we look forward to recognizing five individuals nominated by their management companies and peers for their outstanding contributions to the safety and wellbeing and overall satisfaction of our guests.
Yes.
As we look forward to the remainder of 2022, we are confident in our ability to continue to produce industry, leading results that confidence has been bolstered by recent operating trends, which have exceeded our expectations and created meaningful momentum as we enter what have historically been the strongest quarters of the year.
Our strategy of investing in a broadly diversified portfolio of high quality rooms focused hotels with low leverage has been tested and consistently yielded compelling results for our investors.
With operations moving beyond pre pandemic levels and trends pointing to strengthening demand as we move through the second and into the third quarter. We have reason to be optimistic about the future of our business. This.
It's now my pleasure to turn the time over to Liz who will provide additional details on our balance sheet operations and financial performance during the quarter.
Thank you Justin and good morning topline.
Top line performance for the first quarter improved sequentially by month with the omicron variant negatively impacting the seasonally lower occupancy.
January and February followed by a robust improvement in March.
The impact of the variant first quarter ADR with $137 occupancy was 67% and Revpar was $92 showing growth over a strong fourth quarter revpar.
The March rebound resulted in revpar down less than 2% as compared to 2019 per month with Revpar of $112, our highest monthly revpar since the onset of the pandemic.
We are optimistic about the remainder of the year, especially our seasonally strong second and third quarters at preliminary April results show continued increases in occupancy ADR and revpar, pushing past 2019, revpar level, a meaningful milestone for our portfolio.
Recent performance is both a reflection of the continued strength in leisure and the ongoing recovery in business demand for comparable hotels weekend occupancy and ADR exceeded 2019, each month during the quarter.
January and February weekend, Occupancies were 63% and 78%, respectively and March weekend occupancy was 85%.
Weekday occupancy improved sequentially through the quarter with January weekday occupancy of 54% down 24% to 2019 February weekday occupancy of 65% down 16% to 2019 and March weekday occupancy of 73% down only 10% to 2019.
With improvements in weekday occupancy weekday ADR meaningfully improved moving from $124 in January to $142 in March an increase of 16%.
These weekday ADR levels were down 10% to 2019 for January and improved to down only 4% in March.
As we look at demand segments and business transient trends travel patterns are beginning to normalize with Tuesday, and Wednesday, occupancies around 78% in March and pushing to approximately 80% in April .
Performance across our Sunbelt markets continues to be strong and suburban demand continues to outpace urban. However, we are pleased to see some improvement relative to 2019 at some of our hotels located in markets that have been slower to recover as Justin mentioned, 33% of our hotels had revpar for the quarter exceeding the same period in 2009.
<unk> a decrease from the fourth quarter of 2021 due in part to the impact of the variant in January and February . However, in March 41% of our hotels surpassed 2019, Revpar increase to what we saw in the fourth quarter.
Overall, our portfolio has benefited from continued strength in leisure demand with improvements in business transient and group further bolstering portfolio results and underscoring the value of our significant market and demand diversification.
With the recovery impacting a growing number of markets, we see meaningful upside for our portfolio.
In terms of room night channel mix brand Dot com bookings were up two percentage points to the fourth quarter at approximately 38%.
Bookings continue to be elevated relative to prior years, but declined again quarter over quarter to 13%.
Pretty direct bookings dropped slightly to 29% still up compared to the same period in 2019, a testament to the continued efforts of our property management company sales support team.
Most notably we continue to see improvement in GDS bookings, which were up a percentage point from Q4 GDS.
GDS room night mix increased each month within the first quarter, reaching 13% for the quarter and moving any even higher in April .
Looking at total room nights booked GDS bookings increased 36% in the first quarter over the fourth quarter. Another positive data point as we review business transient trends.
Looking at first quarter same store segmentation far remained elevated to 2019 levels at 34%.
Other discounts moved down from 30% in the fourth quarter to 27% in the first quarter.
Even with the variant impact in January and February negotiated increase a percentage point to 17% showing continued improvement in business travel.
Group was just under 16% in the quarter up almost three percentage points from the same period in 2019.
Turning to expenses total payroll per occupied room for our same store hotels was around $34 for the quarter up 1% to the first quarter of 2019.
Total payroll on a per occupied room basis was impacted by the lower than anticipated occupancy levels as we started the quarter.
Given the current labor environment as we mentioned on our February call, we intentionally maintain staffing levels with the confidence to travel demand in our portfolio occupancy would return quickly.
With improvement in occupancy total payroll per occupied room was approximately $31 for March down slightly to 2019, our managers continue to focus on filling vacant positions as markets recover and adjust wages and a more competitive labor environment.
Our teams remain intently focused on efficient labor models to help offset wage pressures, while balancing service levels morale and turnover all of which can be costly if overlooked for near term financial benefit.
Same store rents expenses, excluding payroll were well controlled down 5% per occupied room compared to 2019 for the quarter.
Our teams' persistent efforts to control costs and maximize profitability resulted in first quarter comparable adjusted hotel EBITDA of approximately $88 million and comparable adjusted hotel EBITDA margin of approximately 34% down 250 basis points to first quarter of 2019.
While lower occupancy in January and February combined with continued supply chain challenges and wage and inflationary pressures.
<unk> impacted margins relative to 2019 early in the quarter Hotel EBITDA margin improved with occupancy sequentially and March finished approximately 190 basis points higher than March of 2019.
We have been successful in managing productivity and expenses in a challenging environment. We continue to believe that growth in rate will be the primary driver of margin expansion as we move through the recovery. We continue to be encouraged and confident in the rate recovery, especially as we approach and exceed peak occupancy levels.
Following similar trends modified funds from operations also improved sequentially each month and was approximately $63 million or 28 per share for the first quarter up slightly as compared to the fourth quarter of 2021.
Looking at our balance sheet as of March 31, 2021, we had $1 4 billion and total outstanding debt approximately five times, our 2021 EBITDA with a weighted average interest rate of three 5% and available availability under our revolving credit facility of approximately $349 million.
Total outstanding debt, excluding unamortized debt issuance costs and fair value adjustments is comprised of approximately $491 million in property level debt secured by 28 hotels and approximately $947 million outstanding on our unsecured credit facilities.
At quarter end, our weighted average debt maturities for three years with approximately $226 million net of reserves maturing in 2022.
Our 2022 maturities include our revolving credit facility, which we have the option to extend for up to one year and $155 million of property level debt maturing in the second half of the year.
We are in the process of exploring options with our lenders and are confident in our ability to repay refinance or extend our near term maturities.
As for our outlook for the remainder of 2022, we remain confident in the broader industry recovery and the performance of our portfolio specifically, while we are still not in a position to give specific operational guidance first quarter performance exceeded our internal forecast preliminary results for April revpar positive to 2019 and.
Average daily booking trends are ahead of pre pandemic booking levels.
Although external economic and pandemic related factors continue to add a layer of uncertainty with the ongoing strength in leisure demand and increase in business transient demand and a demonstrated ability to achieve meaningful rate growth as occupancies improved we believe our portfolio could continue to reach and potentially exceed 2019 revpar levels. If current trends continue.
<unk>.
As we move into the second quarter, we are optimistic without encumbering, our balance sheet, we have transacted in ways that are optimized our portfolio for the future. We have a proven ability to drive strong operating results throughout economic cycles, and with current trends showing continued strength in leisure and improvement in business transient demand we are confident in our ability to.
A drive shareholder returns.
We would now be happy to answer any questions that you have for us This morning.
Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question comes from Neil Malkin with capital One Securities. Please proceed.
Hey, everyone. Good morning.
Nice quarter, good to be with you.
First one.
For me is about.
About.
Sure.
Covering BT.
Gave some good color in your prepared remarks.
Liz just just kind of.
I'm wondering if you can talk about in terms of the larger national accounts.
What kind of demand are you continuing to see in the second quarter and are you doing that sort of variable.
Pricing model versus the fixed.
Negotiated model and then the other part of that would be do you expect to compete just like some of the more sort of urban quote unquote portfolios.
As as the corporate demand continues to accelerate.
Okay.
Good morning, Neil.
Happy to talk about business transient trends.
In the prepared remarks, I mentioned, how much we've improved mid week.
Pay ADR is already have improved in the quarter from $124 to $142 from.
From January to March throughout the quarter, which was an increase of 15%.
Part of that was driven by occupancy improvement midweek, but peak nights improved as well and that was a reflection of some shift between CNR in LNR that corporate negotiated historically going back to 2019 represented over 60% of our negotiated business.
During the pandemic, it's run more in line with 50 50 between corporate negotiated local negotiated local tipping a little bit higher than corporate over the course of the pandemic in the first quarter, we actually saw corporate negotiated kip over 50% to 53%.
Being more dominant in LNR and starting to see that shift back with corporate negotiated business.
So I think as we move forward and as we think about the trends in the GBS trends, which really is a reflection of that corporate demand continuing to increase month over month and quarter over quarter. Despite the impacts of the variant earlier on in the in the quarter.
We are optimistic we have an ability to mixed manage in a way to drive rate.
With that mix of corporate negotiated layered in.
And as you mentioned.
Did shift some of those corporate negotiated accounts over the course of the pandemic to be a percentage off of bar rates of retail rates, which really will help as we compress those peak nights with increased demand.
To be able to drive corporate negotiated rates in line with retail rates.
Taking that even one step further if you look back pre pandemic.
Our weekday occupancy historically ran premiums.
Over weekday occupancy and while we are shrinking the gap slightly there is still meaningful upside there as corporate negotiated comes back.
Okay, Great I appreciate that.
Although one last one for me is I guess on the acquisition.
It seems like most most asset types have seen.
Big slowing.
In the first quarter from.
From.
The fourth quarter and.
I think obviously interest rates have a fair bit to do with it.
But just curious just how you guys are approaching.
The transaction environment, given the rising rate.
Obviously, your stocks had been pretty weak here.
And how that how that compares to how you think about.
Obviously dispositions as we've seen some pretty high price per key trades on the select service side.
And just curious to get your thoughts on how that all fits as you guys underwrite or think about.
Growth in our sort.
Sort of dynamic and I guess more uncertain environment than we've seen.
And the last several quarters that'd be great. Thanks.
Yes, certainly.
As I highlighted in my prepared remarks, we've continued to see significant interest in the <unk>.
Some assets that we own and certainly I think there's read through to the value of our existing portfolio.
I also highlighted that it's our intent.
Over the course of the year to be net acquirers, we are in the unique position to be opportunistic.
And given the current environment, we will explore both acquisitions and dispositions activity.
And pursue those options, which we feel are most likely to drive returns for our shareholders I think the rising interest rate disproportionately negatively impacts.
Private equity players, who use higher leverage levels.
There are acquisitions modeling.
Certainly.
I think on a relative basis puts us in a better position to acquire assets that would meet our return thresholds.
We continue to be very active underwriting.
A large number of deals.
Having the on and off market conversations talking to both brokers and with groups that we've had relationships with for a long period of time and anticipate we will be active as we continue to move through the year.
And just real quick are you seeing an impact from rising rates in terms of deals re trades or.
Pricing.
Impacts versus call it.
The beginning of the year.
So we have not experienced that.
Directly anecdotally.
There have been some who've used.
Rising interest rates.
He used to.
Renegotiated.
Pricing on deals tied up but.
That hasnt been the case in deals that we've been working on specifically.
Thank you guys.
Thanks Neil.
Our next question is from Dori Kesten with Wells Fargo. Please proceed.
Oh, Thanks, good morning.
Good morning, David and Nicky.
Okay.
Dividend.
Currently among your lodging REIT peers.
Can we think about that sector of the dividend.
Over the next year I mean is it fair.
To go back and look at historic payout or.
Is it likely to be a little bit while we're just expecting that you'll be a net acquirer over the year.
That's a fair question.
As we began the year and considered.
<unk> stated a dividend with our board of directors.
Ran a variety of.
Scenarios and.
As we've discussed with you and with others in the past given the increased volatility that we're experiencing broadly in the market today.
The range of possibilities was more expensive than what we've looked at and time stops where we were operating in a much more stable a stabilized environment.
That said, we reinstated the dividend.
At a point that we felt incredibly comfortable we could maintain.
Given the broad range of scenarios that we were assessing is reasonable possibilities.
Since that time, we've consistently performed above the high end of our internal projections.
And should we continue to do that we will certainly be in a position to reassess.
Our dividend.
As we look at other opportunities, whether it's acquisitions or share repurchases.
With the intent to again provide our investors with the highest total return.
Okay. Thank you.
Thank you.
Our next question is from Anthony Powell with Barclays. Please proceed.
Hi, Good morning, just another question on the transaction market.
We've heard that we've seen more buyers look at hotels as an inflation hedge that said rising rates are an impact here. So do you think select service assets have risen in value year to date.
Cap rates have trended for the segment year to date.
So absolutely.
We believe that.
<unk> for select service assets have risen year to date.
If you look at.
Publicly available information on recent trades per key pricing for those deals I think thats indicative.
A number of factors playing into that one I think a broader recognition of the value of select service hotels, having having live now through a pandemic.
Viewing the relative performance of the types of assets that we own versus.
Other assets within the hospitality category.
I think there has been.
Increased interest and ownership by.
A number of private equity.
Buyers I think relative pricing looking at other.
Forms of real estate.
Versus multifamily or our industrial or our retail has also attracted groups to the space and then.
You have that combined with strong underlying fundamentals are very rapid recovery in underlying fundamentals and meaningful increases in cost of construction, which are driving replacement value higher all of that.
Has been impacting the value of assets in.
Think driving values over time.
Looking at what's traded so far.
Over the past 12 to 24 months.
The quality of the assets generally has been high.
Yes.
In mind with the types of assets that we own and our sense is that in.
Now is a tricky time to peg cap rates, because a portion of the assets that have traded have.
Not had pre pandemic operating history.
And so they're being priced on forward numbers.
There isn't always transparency related to those but the sense, we get talking to groups in the industry as the cap rates have compressed.
100 to 150 basis points from where we were pre pandemic.
Alright, and Thats, despite the rising rate environment, so that feels positive.
Given that we're in a share buybacks I guess look for capital allocation, obviously stocks were volatile some of your peers have signaled that they are interested in buybacks. What's your kind of view on that I know you have the authorization, but whats kind of the current.
View.
We look at buybacks simultaneously with potential acquisitions and view acquiring our stock in the same way, we view, adding assets to the portfolio.
We have authorization to acquire shares.
A trading plan in place.
That allows us to trade during blackout periods.
Certainly.
At appropriate times would look to buy shares as we have in the past.
Got it maybe more of a quick one looking out the next like 90 bps or so how are your leisure hotels looking at pricing relative to last year in 2019, there's been a lot of back and forth about leisure pricing power.
Over the near term so im curious what youre seeing in your portfolio.
We still see a positive trends on the leisure front I mean, even as our mix shifted in the first quarter and OTA a dropped a little bit as a mix of a mix percentage, okay bookings were actually still up for <unk>.
Q1 relative to Q1 of 2019 absolute.
But as we look forward and we look at what we have on the books for the remainder of the year. The remainder of the year weekend occupancy. Our weekend bookings is strong rates are strong and higher than they have been in 2021. If there were still very optimistic about leisure demand and that coupled with the return.
Turning to corporate negotiated and the continual recut.
Recovery, there, we think puts us in a great position to maximize ADR, both weekday and weekend.
And on that point.
We see much greater potential for upside in ADR for our portfolio with business coming back than we do downside from the potential.
Leisure.
Becoming strong.
And what we're looking at today based on forward bookings, we continue to see very strong leisure numbers rich.
<unk> and our weekend bookings and the rates.
We're talking about.
What we're most excited about.
As the rapid improvement in business transient, which has historically been the leading revenue producing portfolio and has historically been the most meaningful driver of rate for our portfolio.
I think as we look at <unk>.
Markets that have been slow to recover.
Coming on now and beginning to build back occupancy.
The levels, where we should have similar pricing power midweek to what we've seen on the weekends.
I think we're much more optimistic about where rates could go for our portfolio over the next.
Several quarters.
Alright, thank you.
Thank you.
Our next question is from Floris Van <unk> with Compass point. Please proceed.
Hey, guys. Thanks for taking my question.
Obviously, you mentioned that you think there is a possibility that you could achieve 19 levels of rent.
Or.
And in 'twenty, two and maybe if you can comment on.
On margin and I know in the past.
You've said that it's possible but.
Because of the various initiatives with the hotels et cetera.
Margin.
Could be 100 to 200 basis points higher obviously the margin in the first quarter was lower than what it was in 19, but maybe as you look out.
Sure.
Is it possible that you would improve margins later on in 'twenty two relative to 2019.
We're looking at each other to see who wants to take the question first.
Okay.
First <unk>.
Been reluctant to provide specific guidance around what we anticipate for margin growth and really.
That's less reflective of our optimism related to the potential for margin growth and more.
Collection on the complexity of the calculation.
I think as we've highlighted in her prepared remarks.
We continue to believe that the primary driver of margin expansion for us and really for the industry at large will be rate growth.
Certainly, we and others have done I think.
Very good job managing expenses in our business.
<unk> have enabled us to flow more of the topline growth, we have seen especially at higher occupancy hotels running strong right to the bottom line.
We believe we will maintain the efficiencies that we've achieved.
In terms of productivity.
How those translate to actual margin.
Will depend on.
What we see in terms of continued inflationary pressures related to cost of goods.
And to wages and at this point, we continue to operate.
Low unemployment environment wage.
Wage pressure is real and certainly a factor that we're dealing with across our entire portfolio that said.
Our first quarter remarks, our first quarter.
Margins were negatively impacted by lower occupancy in January and February .
Which.
Due to the omicron.
<unk>.
And when you look at March numbers in isolation.
We did very well from a margin standpoint growing margins.
2019.
Had signaled coming into the first quarter.
Because labor was challenging.
Even with the temporary downturn in occupancy, we would retain employees and would not make drastic cuts as we did at the onset of the pandemic and that that would potentially negatively impacted margins given the strength of March.
The negative impact to margins was not nearly as meaningful as it might have otherwise been.
In April .
We're beginning to push <unk>.
2019 top line numbers.
We feel good, especially in the near term about our ability to.
Direct margins.
To that point specifically.
The fact that we've gotten back to top line numbers consistent with where we were at 19 faster than many will benefit us because inflation compounds.
So.
And at a point, where we can begin to drive rate beyond where we were in 2019 on a consistent basis puts us ahead of the curve.
From an inflationary standpoint.
Better positions us to achieve.
Long term margin expansion.
Thanks, Justin.
In another way I guess.
The answer I was trying to get at is would it be feasible for you to achieve the $423 million of adjusted EBITDA and it sounds like it's in the realm of possibilities, but you don't want to go out there because there are a lot of things going on but.
I hear you.
Maybe if I could ask a question or my follow up is on markets I noticed something.
Dallas, Oklahoma City, Orange County, San Diego, Seattle appeared to be lagging and that <unk> got Phoenix.
For Fort worth.
Fort Lauderdale.
Our leading markets in Miami.
Maybe.
What's.
Don't know enough about your Dallas Fort worth I mean, I, usually think of them as one market. One is doing well one is not doing well, maybe just walk through some of the.
The reasoning behind that and why you think la.
And while obviously L. A is doing well Orange county is not.
What's going to change there in your view or what's going to drive the profitability in some of those lagging markets.
So.
Some of the market.
In fact.
As it relates to the fact that we're looking a long way back.
When we're comparing to 2019.
Specific markets had events or.
Special circumstances that inflated.
2019 numbers, so looking at Atlanta for example for the quarter.
37% and certainly in.
In the downtown area of Atlanta that that.
Potentially.
That.
Part of Atlanta has been slower to recover but we're comparing to Super Bowl comps in that market, which artificially inflated in 2019.
Denver.
Our Denver numbers, where we were down.
Just under 30% for the market overall.
A portion of that is market driven and certainly with our downtown asset we're somewhat dependent on convention business.
Was soft in the quarter, but we also had rooms out of service at that particular hotel.
For renovation so.
I think it's difficult given that our ownership is a subset of the total market to draw large conclusions on a single quarter performance for individual assets.
The overarching trend.
As we highlighted earlier.
Leisure across all of our markets continues to be very strong and increasingly we're seeing business transient come back.
Individual markets.
When we look at.
Syracuse for example, which is one of the markets.
That was meaningfully up.
Quarter.
A combination of drivers in that market medical University, and a significant amount of film related business.
Property in that market, but really we're seeing it expand beyond that and so.
Looking at our tidewater assets or Savannah, or some of the other markets where we're a.
Really strong leisure, combining with improving business transient and with with markets opening at different paces. Our expectation is that we'll begin to see the strong trends across an increasing number of markets moving into the summer.
For us if you look at that sort of how those markets that you mentioned performed throughout the quarter. They improved actually moved from January to March really the variant impacted some of those larger market and at the beginning of the quarter and if I look at April for example for Dallas that's it.
Climbed to 2019 looks like for preliminary numbers looks like half of what it was in the first quarter in Atlanta actually turned positive.
Oral.
I think youre seeing a lot of shifts you are seeing corporate rebound quickly youre seeing demand pick up and I think we're going to see different market performance as we move into the second quarter. Some of these markets and I mentioned in my prepared remarks, we're really encouraged by what we're seeing in some of the markets that had been lagging Chicago being one of them as well and that we want.
It's down almost 30% Revpar of 2019 in the fourth quarter.
And that decline is almost <unk>.
Half of that now and in March It was March and San Diego to think good rebound there. So really encouraged by recent trends demand broadly it's coming back strongly.
Okay.
Thanks, guys that's it for me.
Thank you.
Our next question is from Tyler battery with Oppenheimer. Please proceed.
Good morning, Thanks for taking my question.
Just one from me multi part question here just to put a finer point on the acquisition discussion can you just talk a little bit more about the pipeline. How many assets you are looking at today versus a few months ago.
What are you seeing in terms of the volume or number of assets that are on the market more broadly and then as you look through the year.
Are you expecting just given the dynamics.
<unk> be doing more off market transactions.
The normal rule utilizing some of your industry relationships to source future acquisitions.
So.
The first point.
Question part of your question, we're definitely seeing more assets to date.
12 months ago.
As we had anticipated theres been a gradual increase of assets coming to market and certainly the pricing that sellers have achieved on trades early in the pandemic has helped to fuel that.
But those trades are also being fuelled by.
We're supported by increased optimism and a growing number of markets and strengthening numbers, which may financing transactions significantly easier.
In terms of how we might transact on a go forward basis I think our expectation is that we will transact similar to the way we have in the past continue to underwrite.
And compete for broadly marketed deals, but but.
Certainly tapping into our long term relationships as well.
<unk>.
Looking to do transactions directly with sellers with whom we've had long standing relationships and I think.
Having been in the business for an extended period of time and having purchased hundreds of hotels.
Similar to those that we own now and those that we're looking to buy in the future. We have a very good reputation that enables us to be incredibly competitive in both areas.
Okay, Great I appreciate that detail that's all for me. Thank you.
Thanks.
Our next question is from Austin, <unk> with Keybanc capital markets. Please proceed.
Hey, good morning, it's Daniel <unk> on for Austin.
In the release yesterday, you reported ADR at your urban classify hotels had reached within 2% roughly a comparable 2019 levels in the first quarter do you have what that figure is in March and April and then I'm curious.
Even though urban rate is already above portfolio average.
Do you expect this segment to be the primary driver of continued ADR growth going forward.
So I'll answer the second part.
Describing the first part but.
I think we did not see.
<unk> been the exclusive driver.
Recover recovery for the industry going forward.
We have.
At quarter to a third of our portfolio that is urban.
Certainly that.
A portion of our portfolio has probably been slower to recover given increased restrictions.
It's a higher density areas and.
The specifics related to the markets, where we own.
Perfect exposure.
But our.
Our belief is that the improvement will be broad base.
It is our policy to believe that.
Business travel only.
And that goes to large cities.
Historically over half of our business has been.
Business oriented.
And as I highlighted in response to one of the earlier questions.
That portion of our business has been higher rated.
<unk> been more consistent over time with the recent.
Yes.
Yes.
Covid pandemic being unique instance, where we saw it.
When we saw these are meaningfully outperforming Kirk.
Period of time in business transient.
Expectation, though is that.
When you look at.
Across the country and specifically across our portfolio, we will see a lift.
In our urban markets, but outside of our markets and high density suburban as well.
Yes, if I look at and then I caveat that with it being preliminary.
No.
For April .
He did pushed past.
2019, ADR level and our urban locations, we pushed past across tight.
That makes sense it was really in that context.
The size of <unk>.
Urban within your portfolio and just growing off maybe a lower base.
Being the primary driver going forward.
And then I guess, a follow up question a little bit separate you mentioned maintaining staffing levels through the short downturn in demand in January .
But in terms of continuing to add back labor, where do you stand today on an FTE or hotel and maybe how that compares to pre Covid and then maybe where you see that reaching on a stabilized basis versus pre COVID-19.
Tom.
I think in the fourth quarter I shared we were probably around 75%.
19 FTE.
We would continue to look to fill positions in anticipation of a strong.
In summer season.
Season, and so we're probably around 8% now.
And adding labor as Occupancies and markets warrant.
I think when we think about long term.
Relative to 2019, it's really going to depend on a few things the mix between occupancy and rate what what levels of occupancy we get back to you know how much.
Hourly labor do we need an <unk>.
A salaried position perspective.
What do we need that each individual hotel, whereas our business coming from do we need incremental sales associates or not so I think we're going to be opportunistic and really focus on each individual market and what's needed. The teams were really proud and I mentioned in my prepared remarks margin for March was up 190 basis points.
It was over 42%.
In March.
So it was up 190 basis points to 2019.
Teams have done an exceptional job and so to the extent, we continue to see pricing power and more of our premium to 2019 coming through rate I believe we will have efficiencies from an FTE count standpoint, but as Occupancies increase will staff as appropriate and to make sure that we provide the best experience for gas.
And then they'll come back and pay the rates that we're charging.
Yes, no that makes sense. Thank you I appreciate the time.
Yeah.
Our next question is from Michael Bellisario with Baird. Please proceed.
Thank you good morning, everyone.
Good morning, Anthony.
Okay.
Sort of one follow up related.
Related question versus what's the split today between fixed and variable hotel expenses, and then as urban markets recover.
Take the wages there are higher in absolute dollar terms. So would you maybe expect that as Bergen occupancy recoveries or would that impact the cadence of margin recovery at all in your view.
I think we're seeing pressure on wages.
Cross market tight.
Secondary urban location.
Or similar to high density suburban its really even broad more broadly market specific for example.
The next we've had we've.
We've had labor.
Challenges and wage pressure there I mean, it's really universal.
Hey.
Maybe on the margin.
Wages would be higher but they've always been hiring urban locations I think I think we'll see similar trends to what we've seen in <unk>.
Other location types.
And between variable and fixed.
We've proven that that that can shift where the occupancy levels.
Yes, I think.
<unk>.
We continue to.
Optimized.
Our operational models, both on the labor front and service and amenity front.
And we will continue to do that.
But there are fixed expenses in the business then and.
Utilities, even though that will fluctuate some with occupancy levels utilities.
Have increased as though there are some puts and takes I think where we're most encouraged is that the teams have done such a great job our hotel managers have really worked hard.
Consistently and Havent led up to try to drive profitability.
Coupled with the ability to.
<unk>.
Increased rate as we shift business and our shift mix in our hotels and increase occupancy levels as we have in the past peak nights midweek.
Got it helpful. And then just back to your comment on March I think I heard you say 190 basis points.
Anything odd in March that maybe caused that number to be higher than it otherwise would have been perhaps demand coming back faster than expected and you were fully staffed yet our expenses were still held up just trying to think about it.
Yeah.
Is April May June also going to be somewhere in the 190 basis point range.
Yes, I would I would hedge there a little bit only to say that looking at one month in any quarter, regardless of that dynamics there can be.
Nuances based on accrual and timing of invoices and things like that.
In March like you mentioned demand came back very quickly and surpassed our expectations. So that's one.
And we continue to try to sell vacant positions in markets, where occupancy is increasing so I think we continue to be optimistic about our teams ability to maximize but I would not.
I don't know that I would extrapolate the full 190 basis points again, some of it will depend on mix of rate and occupancy.
What we continue to experience on all of the cost pressure side.
Got it and then just switching gears going back to the transaction market.
Are you getting outbid on deals or is it that seller expectations broadly might be too high so youre seeing.
A wider bid ask spread today.
Let's say combination, where we're actively bidding and not been successful.
A portion of those.
A portion of those are going to other buyers I think it's safe to assume.
We are bidding on everything.
Its quality.
Would be a fit within our portfolio and certainly you've seen.
Some of the trades that have happened recently.
We would likely active but not not the high bidder.
I think.
There are also instances where sellers expectations are higher than the market is willing to support at this point in time.
But.
I think as I highlighted in my prepared remarks.
We're incredibly tactical in our pursuit of transactions.
What we have in terms of an existing portfolio is incredibly good and what we want.
As we transact either through dispositions or acquisitions.
Just to make it better on the margin.
I think.
Right.
Hats off to our team who is very active.
In that space.
By that specific our acquisitions team.
Really our assessment of transactions.
Involving.
Experts from all departments within our company.
For assessing and ensuring that we pay is appropriate for the asset and that the assets we pursue in earnest our assets.
We will add to the portfolio that we currently own.
And then just last one for me.
You mentioned some deals that are getting priced on forward numbers any.
Maybe anecdotal examples or ranges that you can provide on maybe what those.
The cap rate or EBITDA multiples are on the forward basis.
Yeah peers, our pricing deal done that are getting done.
Well the trick there is that.
Forward projections aren't aren't fixed and so there's not always a tremendous amount of transparency and specifically with that comment.
As highlighted in a number of deals that have traded.
<unk>.
That didn't exist.
2018 in 2019, so if you look at transactions.
Early in the recovery.
Greater percentage of them that we anticipate will be the case as we move through the recovery have been newly constructed assets without historical performance and so.
As a result their pricing on futures.
Or or cap rates that are quoted are based on future projections I think.
The market the public disclosure generally puts them somewhere in the six to eight.
<unk> stabilized.
Value.
To the extent, where we haven't been successful or underwriting.
Which show lower cap rate.
And.
As we continue to progress through the recovery you will see an increasing number of transactions.
Related to assets that have trailing history.
And cap rates will be.
More of a valuable comparative metric.
They happen I think recently.
Got it thanks for clarifying.
Absolutely.
Yes.
Our next question is from Bryan Maher with B Riley Securities. Please proceed.
Good morning, Justin.
I don't want to be a Debbie downer, but it seems like as we kind of wrap up lodging earnings here everyone's hanging their hats on higher ADR to drive profitability et cetera, but.
I'm not so sure that that's going to be the case and when you talked about three months out six months 12 months out I don't know too. Many college educated millennials, who are feeling really flush these days with how much they have to spend on housing.
<unk> on fixed income.
You look at companies get squeamish about their profitability travel is one of the first things that gets cut net employees. So it just seems like everybody is trying to drive rates so hard.
And I don't know how sustainable that is and to the extent that you end up recognizing that how quickly can you maybe pivot and kind of change course, there and.
Hoping that thats, what drives your margins higher.
Well I mean.
Couple of things one.
<unk>.
Unlike some of our peers.
The rate lift that we're seeing is broad based across our.
The entirety of our portfolio.
We don't have a small subset of our assets.
That are charging $50, 60% higher rates.
Lifting the entirety of the portfolio and to your second point.
Our.
Our experience over the past several.
Decades has highlighted the fact that the business ordinarily tends to be less business travel tends to be less volatile for the types of assets or business demand for the types of assets that we own tends to be less volatile than leisure.
In ordinary cycles and part of the reasoning for that is that the.
It's that we own fit in our sweet spot looking at the full spectrum.
<unk>.
Our hotel assets.
During periods of economic prosperity, corporate travel or business travelers tend to trade up into the types of assets that we own.
And during periods.
The economy is more challenged.
Business travelers tend to trade down into the assets.
We own.
That over past cycles has helped us to maintain a level of stability and consistency.
Meat to the types of assets.
We own.
I think looking broadly at our portfolio and where we have outperformed over the past several months and where we.
Underperformed.
And the likely trajectory.
Those markets.
Bind with what we anticipate will be.
Continued evolution and the recovery of business travel.
I think we're meaningfully less concerned that we're going to lose ground from where we are now now.
I think certainly.
As we look at.
A potential margin expansion over time to the extent we saw.
A flattening.
<unk>.
Revpar for our portfolio at some point.
In the future and continued growth in expenses.
Could find ourselves as an industry.
Similar position to where we were prior to the pandemic, where we had seen slower growth in the top line.
Combined with continued and consistent increases in bottom line expenses.
There are a number of factors that are different this time.
One I highlighted in my prepared remarks, we have significantly.
Less supply currently under construction.
Yes.
So potential deliveries in our market over the next several years than we did coming into the pandemic.
Demand is only half of the supply demand.
Uh huh.
Equation.
I think I.
I think what we see in terms of dynamics on a go forward basis.
<unk>.
Is positive in that area and.
What we're doing in terms of performance today, having reached.
Now on several occasions topline performance in line with where we were in 2019.
<unk> is still without meaningful recovery in business transient and even <unk>.
Business travel were to stabilize nationally at lower levels than where it was before the pandemic.
I think.
Broad.
We held belief is that it will stabilize above where it has been in the recent past and all of those factors.
Our reasons.
Or are the reasons.
That support our optimism on a go forward basis.
Yes, Brian .
Sure Brian .
<unk>.
I'm, sorry, even if we don't drive incremental rate the mix shift on corporate.
From a local negotiated rate will provide a premium in ADR.
Historically looking back at 2019 corporate negotiated accounts typically we're.
Anywhere between 15, and 20% higher than rate relative to local negotiated so some of this is as demand comes back we'll be obtaining rate through mix shift and some will be through driving incremental retail rates.
Look for sure you guys are better positioned than most I think everyone would agree to that that people and companies are getting we're at a very fast pace right now between inflation and loss of stock market wealth et cetera. So I just think that.
Everybody kind of hanging their head on Adi is a growing to the sky is kind of a mistaken maybe I think people should be ready to pivot because not so sure. It's there in 456 months just saying.
Thank you for your thoughts on that.
Absolutely.
As a reminder, if you'd like to ask a question. Please press star one telephone keypad.
And our next question comes from Daniel <unk> with Bank of America. Please proceed.
Hi, good morning, everybody.
I have a follow up question on one of the earlier ones, but just help.
Let me walk through this.
Revpar trends.
Or at least at 2019 levels and if we're thinking about.
To lose your prior comments about March being 200 basis points ahead of 19 level on margins.
Any reason why we Shouldnt have April or Q2, EBITDA had a 19 reasons or is there something that you.
We should be thinking about.
I would go back to the comments, we made earlier in that.
Yes.
Demand came back quickly we did not reduce staffing.
Anticipating that demand would return for this spring and summer.
Had opened positions, we're continuing to fill open positions and we're still in an inflationary environment, where cost and supply chain issues inflation.
Inflationary pressures and wage pressures.
Our are evolving and so.
We're optimistic again looking at the topline preliminary topline for April were optimistic and the team has shown.
We will maximize in any environment. So.
Regardless of what May happen.
On the top line our team has done an exceptional job maximizing margin.
Got it thank you.
Thank you.
Thank you ladies and gentlemen.
This concludes the question and answer session I would like to hand, the call back to Justin Knight for any closing remarks.
We really want to thank you for joining us today.
Appreciate the questions and the continued interest in our company as always to the extent you're traveling we hope you'll take the opportunity to stay with us in one of our hotels and we look forward to meeting with many of you here in the near future.
Thank you. This concludes today's conference you may now disconnect.