Q1 2024 Apple Hospitality REIT Inc Earnings Call

Operator: Greetings and welcome to the Apple Hospitality REIT first quarter 2024 earnings call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Clarke, Vice President of Industrial Relations. Thank you. You may begin. Thank you.

Greetings and welcome to the Apple Hospitality REIT first quarter 2024 earnings call. At this time all participants are in a listen.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Operator: As a reminder, this conference is being recorded it is now my pleasure to introduce your host Kelly Clarke Vice President of Industrial relations. Thank you you may begin. Thank you and good morning, welcome to Apple Hospitality REIT first quarter 2024 earnings call today's call will be based on the earnings release and Form 10-Q, which we.

Kelly Campbell Clarke: Thank you and good morning. Welcome to Apple Hospitality REIT's first quarter 2024 earnings call. Today's call will be based on the earnings release in Form 10-Q, which we distributed and filed yesterday afternoon. Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions and, as a result, are subject to numerous risks, uncertainties, and the outcome of future events that could cause actual results, performance, or achievements to materially differ from those expressed, projected, or implied.

Kelly Campbell Clarke: Distributed and filed yesterday afternoon before we begin. Please note that today's call may include forward looking statements as defined by Federal Securities laws. These forward looking statements are based on current views and assumptions and as a result are subject to numerous risks uncertainties and the outcome of future events that could cause actual.

Kelly Campbell Clarke: Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2023 Annual Report on Form 10-K, and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC.

Kelly Campbell Clarke: Performance or achievements to materially differ from those expressed projected or implied any such forward looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2023 annual report on Form 10-K and speak only as of today.

Kelly Campbell Clarke: The company undertakes no obligation to publicly update or revise any forward looking statements except as required by law. In addition, non-GAAP measures of performance will be discussed during this call reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and <unk>.

Kelly Campbell Clarke: Other filings with the SEC for a copy of the earnings release or additional information about the company. Please visit Apple hospitality REIT Dot com.

Kelly Campbell Clarke: For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com. This morning, Justin Knight, our Chief Executive Officer, and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the first quarter of 2024 and an operational outlook for the remainder of the year. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin.

Kelly Campbell Clarke: This morning, Justin Knight, our Chief Executive Officer, and Liz Perkins, Our Chief Financial Officer will provide an overview of our results for the first quarter 'twenty 'twenty four and an operational outlook for the remainder of the year. Following the overview, we will open the call for Q&A at this time. It is my pleasure to turn the call over to Justin.

Justin G. Knight: Good morning, and thank you for joining us today. Consistent with our expectations, performance for the first quarter remained strong, with adjusted EBITDA RE of approximately $101 million, an increase of 6% year-over-year, and modified funds from operations of $83 million, an increase of 5% year-over-year. Comparable Hotels' ADR of $154, Occupancy of 72%, and REBPAR of $111 were all in line with results for the first quarter of 2023, despite challenging year-over-year comparisons related to the Super Bowl and an unfavorable shift in timing of the Easter holiday, which was consistent with the industry overall and ahead of our blended chain scales for the quarter.

Justin G. Knight: Good morning, and thank you for joining us today.

Justin G. Knight: Consistent with our expectations performance for the first quarter remained strong with adjusted EBITA of approximately $101 million, an increase of 6% year over year and modified funds from operation of $83 million, an increase of 5% year over year.

Justin G. Knight: Comparable hotels ADR of $154 occupancy at 72% and Revpar of $111 were all in line with results for the first quarter 2023, despite challenging year over year comparisons related to the Super Bowl and an unfavorable shift in timing of the Easter holiday, which was consistent with the industry overall.

Justin G. Knight: And ahead of our blended chain scales for the quarter. Our portfolio continues to perform ahead of pre pandemic levels with comparable hotels revpar for the quarter up approximately 8% relative to the first quarter of 2019.

Justin G. Knight: Our portfolio continues to perform ahead of pre-pandemic levels, with Comparable Hotels' REBPAR for the quarter up approximately 8% relative to the first quarter of 2019. And we see continued upside opportunity to rebuild occupancy in many markets, especially midweek. Despite the tough comparison from a top-line perspective, Comparable Hotels Adjusted Hotel EBITDA was $112 million for the quarter, down only 3% as compared to the same period of 2023 but still up approximately 4% from the first quarter of 2019.

Justin G. Knight: We see continued upside opportunity to rebuild occupancy in many markets, especially mid week. Despite the tough comparison from a topline perspective comparable hotels adjusted hotel EBITDA was $112 million for the quarter down only 3% as compared to the same period of 2023.

Justin G. Knight: But still up approximately 4% to the first quarter 2019 bolstered in part by the Easter holiday shift and with growth in both weekday and weekend Occupancies preliminary results for our portfolio show comparable hotels Revpar for the month of April 2024 above the high end of our full year guidance range.

Justin G. Knight: Bolstered in part by the Easter holiday shift and with growth in both weekday and weekend occupancies, preliminary results for our portfolio show Comparable Hotels REVPAR for the month of April 2024 above the high end of our four-year guidance range. We anticipate that we will be in a position to more meaningfully grow REIT as we move into our seasonally stronger occupancy months in the second and third quarters and that continued strength in leisure demand and further recovery in corporate demand, combined with limited near-term supply growth, will position us for stronger year-over-year performance as we progress through the year.

Justin G. Knight: We anticipate that we will be in a position to more meaningfully grow rate as we move into our seasonally stronger occupancy months in the second and third quarters and the continued strength in leisure demand and further recovery in corporate demand combined with limited near term supply growth will position us for stronger year over year performance as we progressed through the year.

Justin G. Knight: Our revenue and asset management teams, together with our third-party operators, continue to work to maximize efficiencies and drive profitability across our hotels, achieving strong margins despite the current inflationary environment and ongoing wage pressure. During the first quarter, we achieved a comparable hotel's adjusted hotel EBITDA margin of 33.7%, with year-over-year margin declines in line with expectations for the first quarter at the midpoint of our previously provided guidance range. Stronger rates during the summer months should help margins by offsetting, in part, continued inflationary pressure on wages and other operating expenses.

Justin G. Knight: Our revenue and asset management teams together with our third party operators continue to work to maximize efficiencies and drive profitability across our hotels.

Justin G. Knight: Achieving strong margins, despite the current inflationary environment and ongoing wage pressures.

Justin G. Knight: During the first quarter, we achieved a comparable hotels adjusted hotel EBITDA margin of 33, 7% with year over year margin declines in line with expectations for the first quarter at the midpoint of our previously provided guidance range.

Justin G. Knight: Stronger rates during the summer months should help margins by offsetting in part continued inflationary pressure on wages and other operating expenses.

Justin G. Knight: Our operators are among the best in the industry and monitor real-time performance to focus on-site efforts on maximizing profitability at our hotels without sacrificing service, cleanliness, maintenance, or overall guest satisfaction. Supported by our strong operating performance, we continue to provide investors with an attractive dividend yield. Modified funds from operations for the first quarter were $0.34 per share, in line with first quarter 2023, and during the quarter, we paid distributions totaling $0.29 per common share, including a special cash distribution of $0.05 per common share that was paid in January. Based on Friday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 6.5%.

Justin G. Knight: Our operators are among the best in the industry and monitor real time performance to focus on site effort on maximizing profitability at our hotels without sacrificing service cleanliness maintenance, our overall guest satisfaction.

Justin G. Knight: Supported by our strong operating performance, we continue to provide investors with an attractive dividend yield.

Justin G. Knight: Modified funds from operations for the first quarter was 34 cents per share in line with first quarter 'twenty three and during the quarter, we paid distributions totaling 29 cents per common share, including the special cash distribution of five cents per common share that was paid in January.

Justin G. Knight: Based on Friday's closing stock price, our annualized regular monthly cash distribution of 96 cents per share represents an annual yield of approximately six 5%.

Justin G. Knight: Together with our board of directors, we will continue to monitor our distribution rate and timing relative to the performance of our hotels and other potential uses of capital. We recently acquired the A.C. Hotel Washington, D.C. Convention Center for $116.8 million, or $499,000 per key. In addition to its ideal location, premium amenities, and modern guest rooms, the asset generates additional revenue through its rooftop bar and restaurant with stunning views of the city and through its ground floor retail space and a large billboard that are leased to third parties.

Justin G. Knight: Together with our board of directors, we will continue to monitor our distribution rates and timing relative to the performance of our hotels and other potential uses of capital.

Justin G. Knight: We recently acquired the AC Hotel, Washington, D C Convention center for $116 $8 million or $499000 per key.

Justin G. Knight: In addition to its ideal location premium amenities and modern guestrooms the asset generates additional revenue through its rooftop bar and restaurant with stunning views of the city and through its ground floor retail space and a large billboard that are leased to third parties.

Justin G. Knight: Our purchase price represents a 7.7% cap rate after an industry-standard 4% FF&E reserve and an EBITDA yield of 8.5% on trailing 12-month numbers through March of this year. The D.C. market is among the lowest supply growth markets in the country, with a robust convention calendar and a broad base of government, business, and leisure demand.

Justin G. Knight: Our purchase price represents a seven 7% cap rate after an industry standard 4%, that's a neat reserve and an EBITDA yield of eight 5% on trailing 12 month numbers through March of this year.

Justin G. Knight: The D C market is among the lowest supply growth markets in the country with a robust convention calendar and a broad base of government business and leisure demand the.

Justin G. Knight: The AC is exceptionally well positioned relative to attractions within the city, and we believe it will be a significant contributor to our long-term performance. Our recent acquisitions have been meaningfully additive, creating increased exposure to high-growth markets, lifting overall portfolio performance, and driving incremental profitability. The hotels complement our existing portfolio and reflect our proven investment strategy. Recent acquisitions, including the seven hotels we acquired since June of last year, together with the parking garage adjacent to our downtown Salt Lake City hotels, are yielding approximately 9% after capital improvements on a trailing 12-month basis through March of this year, with meaningful upside from projected market growth and improvements in operations driven by the transition of management companies at five of the seven assets.

Justin G. Knight: The AC is exceptionally well positioned relative to attractions within the city and we believe it will be a significant contributor to our long term performance.

Justin G. Knight: Our recent acquisitions have been meaningfully additive, creating increased exposure to high growth markets lifting overall portfolio performance and driving incremental profitability.

Justin G. Knight: The hotels complement our existing portfolio and reflect our proven investment strategy.

Justin G. Knight: Recent acquisitions, including the seven hotels, we acquired since June of last year together with the parking garage adjacent to our downtown Salt Lake City hotels are yielding approximately 9% after capital improvements on a trailing 12 month basis through March of this year with meaningful upside from projected market growth and improvements in operating operations driven.

Justin G. Knight: The transition of management companies had five of the seven assets.

Justin G. Knight: We continue to have two additional hotels under contract for purchase. The Embassy Suites in downtown Madison, Wisconsin, for approximately $79 million, and Amato in downtown Nashville, for approximately $98 million, both of which are currently under construction. The Madison Embassy is on track to open this summer, and construction recently began on the Nashville Motto with an anticipated completion and acquisition date in late 2025.

Justin G. Knight: We continue to have two additional hotels under contract for purchase the embassy suites downtown Madison, Wisconsin for approximately $79 million and a motto in downtown Nashville for approximately 98 million.

Justin G. Knight: Both of which are currently under construction.

Justin G. Knight: Madison empathy is on track to open this summer and construction and recently began on the Nashville motto with an anticipated completion and acquisition state and base late 2025.

Justin G. Knight: As has been the case historically our acquisition focus continues to be on high quality branded rooms focused hotels in urban high density suburban and developing markets supported by a broad variety of business and leisure demand drivers.

Justin G. Knight: As has been the case historically, our acquisition focus continues to be on high-quality, branded, rooms-focused hotels in urban, high-density suburban, and developing markets supported by a broad variety of business and leisure demand drivers. Our discipline over the past several years positioned us to be active in a market with limited competition where we were able to secure high-quality assets at prices that met our internal underwriting criteria. Our balance sheet remains strong with ample liquidity to pursue additional acquisitions, and we are actively underwriting deals that would further enhance and add to our unique and scalable platform.

Justin G. Knight: Our discipline over the past several years positioned us to be active in the market with limited competition, where we were able to secure a high quality assets at pricing that met our internal underwriting criteria, our balance sheet remains strong with ample liquidity to pursue additional acquisitions and we are actively underwriting deals that would further enhance and add to our <unk>.

Justin G. Knight: And scalable platform.

Justin G. Knight: We are, of course, mindful of where our stock is trading and will continue to assess these deals relative to the opportunity to repurchase our own shares and allocate capital where we believe we can achieve the most desirable results for our shareholders. We also continually monitor the performance of our existing hotels and work to strategically dispose of select assets in order to optimize our portfolio concentration within markets we believe have higher growth potential, manage our long-term CapEx needs, and maximize returns on individual assets.

Justin G. Knight: We are of course mindful of where our stock is trading and we will continue to assess these deals relative to the opportunity to repurchase our own shares and allocate capital where we believe we can achieve the most desirable results for our shareholders.

Justin G. Knight: We also continually monitor the performance of our existing hotels and worked strategically dispose of select assets in order to optimize our portfolio of concentration within markets, we believe have higher growth potential.

Justin G. Knight: Managed our long term capex needs and maximize returns on individual assets as previously announced during the quarter, we sold our Hampton Inn at our Homewood suites in Rogers, Arkansas for a combined total of $33 $5 million, resulting in a gain on the sale of approximately $18 million.

Justin G. Knight: As previously announced, during the quarter, we sold a Hampton Inn and a Homeless Suites in Rogers, Arkansas, for a combined total of $33.5 million, resulting in a gain on the sale of approximately $18 million. The assets were older, prototypical hotels that had performed well during our period of ownership but were facing significant new competition with 15% supply growth under construction and an additional 14% in final planning, and they had near-term capex needs estimated at approximately $22,000 per key.

Justin G. Knight: The assets were older prototypical hotels that had performed well during our period of ownership, but we're facing significant new competition with 15% supply growth under construction and an additional 14% in final planning and had near term capex needs estimated at approximately $22000 per key.

Justin G. Knight: A portion of the proceeds from the sale of these two assets was used to complete a 1031 exchange with the acquisition of the AC Hotel in Washington, D.C., which resulted in the deferral of taxable gains of $15.1 million.

Justin G. Knight: A portion of the proceeds from the sale of these two assets was used to complete a 10 31 exchange with the acquisition of the AC Hotel in Washington, D C, which resulted in the deferral of taxable gains of $15 $1 million.

Justin G. Knight: Since the onset of the pandemic, we have completed approximately $287 million in hotel sales and have invested nearly $1 billion of new acquisitions, while maintaining the strength of our balance sheet.

Justin G. Knight: Since the onset of the pandemic, we have completed approximately $287 million in hotel sales and invested nearly $1 billion in new acquisitions while maintaining the strength of our balance sheet. These transactions have lowered the average age of our portfolio, increased revenue per available room and margins, helped to manage near-term CapEx needs, grown the size of our platform, and positioned us to continue to benefit from near-term economic and demographic trends. We continue to reinvest in our existing portfolio to ensure our hotels remain competitive in their respective markets and are positioned to command premium rates and further drive EBITDA growth.

Justin G. Knight: These transactions have lowered the average age of our per player increased revenue per available room and margins helped to manage near term capex needs grown the size of our platform and positioned us to continue to benefit from near term economic and demographic trends, we continue to reinvest in our existing portfolio to ensure our hotels remain competitive.

Justin G. Knight: In their respective markets and are positioned to command premium rates and further drive EBITDA growth.

Justin G. Knight: Our experienced team utilizes advantages made possible by our scale ownership to control costs and maximize the impact of dollars spent while implementing projects during periods of seasonally lower demand to minimize revenue displacement. During the quarter, we invested approximately $20 million in capital expenditures, and we expect to spend between $75 and $85 million in 2024, with major renovations at approximately 20 of our hotels. As we look ahead, the fundamentals of our business remain favorable, with continued strength in demand and limited new supply.

Justin G. Knight: Our experienced team utilizes advantages made possible by our scale ownership to control costs and maximize the impact of dollar spent while implementing projects during periods of seasonally lower demand to minimize revenue displacement.

Justin G. Knight: During the quarter, we invested approximately $20 million in capital expenditures and we expect to spend between 75 and $85 million during 2024 with major renovations at approximately 20 of our hotels as we look ahead the fundamentals of our business remain favorable with continued strength in demand and limited new supply.

Justin G. Knight: As of year-end, more than 56% of our hotels did not have any new upper, upscale, or upper mid-scale product under construction within a 5-mile radius, providing us with the ability to meaningfully benefit from incremental demand and improve the overall risk profile of our portfolio by both reducing potential downsides and enhancing the upside impact from variability in lodging demand. Our investment strategy has proven resilient across economic cycles, yielding compelling total returns for our shareholders.

Justin G. Knight: As of year end more than 56% of our hotels did not have any new upper upscale and upscale or upper mid scale product under construction within a five mile radius, providing us with the ability to meaningfully benefit from incremental demand and improve the overall risk profile of our portfolio by both reducing potential downside.

Justin G. Knight: And enhancing the outside impact from variability and much in demand.

Justin G. Knight: Our investment strategy has proven resilient across economic cycles, yielding compelling total returns for our shareholders. We are confident that with our portfolio of high quality rooms focused hotels broadly diversified across markets and demand generators. The effect in net of our brands and management companies, the strength and flexibility of our balance sheet and the depth.

Justin G. Knight: We are confident that with our portfolio of high-quality, rooms-focused hotels, broadly diversified across markets and demand generators, the effectiveness of our brands and management companies, the strength and flexibility of our balance sheet, and the depth of our corporate team, we are well-positioned for continued outperformance. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet financial performance during the quarter and annual guidance.

Liz: Our corporate team, we are well positioned for continued outperformance.

Justin G. Knight: It is now my pleasure to turn the call over to Liz for additional details on our balance sheet financial performance during the quarter and annual guidance. Thank.

Elizabeth S. Perkins: Thank you, Justin, and good morning. We are pleased to report another strong quarter for our portfolio of hotels. Comparable hotels' total revenue was $332 million for the first quarter of 2024, up 1.5 percent as compared to the first quarter of 2023. Continued strength in leisure demand and recovery in business travel during the first quarter enabled us to achieve comparable hotels rep par of $111, flat as compared to the first quarter of 2023, with ADR of $154 and occupancy of 72%, both consistent with the first quarter of 2023.

Liz: Thank you Justin and good morning, we are pleased to report another strong quarter for our portfolio of hotel comparable hotel total revenue was $332 million for the first quarter of 2024.

Elizabeth S. Perkins: One, 5% as compared to the first quarter 2023.

Elizabeth S. Perkins: Continued strength in leisure demand and recovery in business travel during the first quarter enabled us to achieve comparable hotels revpar of $111 flat as compared to the first quarter 2023, with ADR of $154 and occupancy of 72% both consistent with the first quarter of 2023.

Elizabeth S. Perkins: Right.

Elizabeth S. Perkins: As we anticipated because of the calendar shifts with the Easter holiday and more challenging year over year comparison, driven by the 2023 Super Bowl and Phoenix, where we have meaningful portfolio concentration performance for our portfolio for the first quarter was below the low end of our guidance range.

Elizabeth S. Perkins: As we anticipated, because of the calendar shifts with the Easter holiday and more challenging year-over-year comparisons driven by the 2023 Super Bowl in Phoenix, where we have meaningful portfolio concentration, performance for our portfolio for the first quarter was below the low end of our guidance range. Revpar for the 10 hotels that we own in the Phoenix market was down 8.5% for the quarter with a 7% decline in ADR and a 1.7% decline in occupancy.

Elizabeth S. Perkins: Revpar for the 10 hotels that we own in the Phoenix market was down eight 5% for the quarter with a 7% decline in ADR and a one 7% decline in occupancy.

Elizabeth S. Perkins: Given our significant ownership in Phoenix, we estimate that the shift in Super Bowl venues negatively impacted portfolio REVPAR by approximately 40 basis points and revenues by $1.2 million during the quarter, even after taking into consideration the partially offsetting gains realized at our newly acquired Spring Hill Suites in Las Vegas, which grew REVPAR 14.5% during the quarter. We saw similarly strong year-over-year results at our two assets in Anchorage, Alaska, which were up 22% for the quarter, and the five assets we own in the broader D.C. market, which were up 11.5% year-over-year.

Elizabeth S. Perkins: Given our significant ownership in Phoenix, we estimate that the shift in Super Bowl venue negatively impacted portfolio revpar by approximately 40 basis points and revenues by $1 $2 million during the quarter, even after taking into consideration the partially offsetting gains realized at our newly acquired Springhill suites in Las Vegas.

Elizabeth S. Perkins: Yes, which grew Revpar 14, 5% during the quarter.

Elizabeth S. Perkins: We saw similarly strong year over year results at our two assets in Anchorage, Alaska, which were up 22% for the quarter and the five assets we own in the broader D C market, which were up 11, 5% year over year.

Elizabeth S. Perkins: Early results for the month of April show REBPAR for our full portfolio above the high end of our guidance range, and forward bookings show continued strength in both leisure and business demand. We expect operations to continue to strengthen as we move into the peak travel months in the second and third quarters. Looking day-over-day, leisure travel has been relatively resilient year-to-date through April. While weekend occupancies were down over 2% for the first quarter compared to the first quarter of 2023, this was driven mostly by the declines in March related to the unfavorable calendar shift, and we saw a rebound in April with weekend occupancies up over 5%. Weekday occupancies were flat for the first quarter, with a negative drag from the Easter holiday.

Elizabeth S. Perkins: Preliminary results for the month of April show Revpar for our full portfolio above the high end of our guidance range at four at Buffalo show continued strength in both leisure and business demand.

Elizabeth S. Perkins: We expect operations to continue to strengthen as we move into the peak travel months in the second and third quarters.

Elizabeth S. Perkins: Looking day everyday leisure travel has been relatively resilient year to date through April.

Elizabeth S. Perkins: All weekend Occupancies were down over 2% for the first quarter compared to the first quarter 2023. This was driven mostly by the declines in March related to the unfavorable calendar shift and we saw a rebound in April with weekend occupancies up over 5%.

Elizabeth S. Perkins: Weekday occupancies were flat for the first quarter with the negative drag from the Easter holiday the business travel continue to improve steadily in April with weekday occupancy is up over 2% led by improvements on Monday, Tuesday, and Wednesday night.

Elizabeth S. Perkins: But business travel continued to improve steadily in April, with weekday occupancies up over 2 percent, led by improvements on Monday, Tuesday, and Wednesday nights. We have been pleased to see steady improvement in midweek occupancies, an area where we continue to have meaningful upside relative to pre-pandemic levels, and weekend occupancies have remained relatively stable, indicative of continued strength and leisure demand. Forward bookings remain strong, and we are optimistic that increased occupancy in the second and third quarters will better position us to drive incremental rate growth.

Elizabeth S. Perkins: We have been pleased to see steady improvement in midweek occupancy is an area, where we continue to have meaningful upside relative to pre pandemic levels and weekend Occupancies have remained relatively stable indicative of continued strength in leisure demand.

Elizabeth S. Perkins: Forward bookings remained strong and we are optimistic the increased occupancy in the second and third quarters will better position us to drive incremental rate growth.

Elizabeth S. Perkins: Theme store room night channel mix quarter over quarter remains relatively stable, with brand.com bookings at 40%, OTA bookings and property direct down slightly at 12% and 24%, respectively, and GDS bookings up over 100 basis points at 18%. Our overall channel mix continues to highlight the power of our brands and the continued improvement in business transient. First quarter same-source segmentation was largely consistent with the first quarter of 2023.

Elizabeth S. Perkins: Same store room nights channel mix quarter over quarter remained relatively stable with brand dot com bookings at 40% LTA bookings and property direct down slightly at 12, and 24%, respectively, and GDS bookings up over 100 basis points at eight <unk> percent. Our overall channel mix continues to highlight the <unk>.

Elizabeth S. Perkins: Power of our brands and the continued improvement in business transient.

Elizabeth S. Perkins: First quarter same store segmentation with largely consistent with the first quarter of 2023.

Elizabeth S. Perkins: BAR remained strong at 33 percent, other discounts represented 28 percent of our occupancy mix, group was 15 percent, and the negotiated segment represented 18 percent of our mix, in line with the same period in 2023, which implies growth if adjusted for the Easter holiday shift, but it's still nearly 200 basis points lower than 2019, which we believe represents opportunities for continued upside. Turning to expenses, total payroll per occupied room for our same store hotels was $40 for the quarter, up approximately 5% from the first quarter of 2023 but decelerating as compared to the fourth quarter of 2023.

Elizabeth S. Perkins: <unk> remained strong at 33% other discounts represented 28% of our occupancy Nex group was 15% and the negotiated segment represented 18% of our mix in line with the same period in 2023, which implies growth if adjusted for the Easter holiday shift, but it's still nearly two <unk>.

Elizabeth S. Perkins: Basis points lower than 2019, which we believe represents opportunities for continued upside.

Elizabeth S. Perkins: Turning to expenses total payroll per occupied room for our same store hotels with $40 for the quarter up approximately 5% to the first quarter 2023, but decelerating as compared to the fourth quarter of 2023.

Elizabeth S. Perkins: We anticipate that higher wages for full and part-time employees and higher utilization of contract labor will continue to result in elevated costs per occupied room relative to pre-pandemic levels, though year-over-year growth should continue to moderate to levels that are more in line with historical norms. We're pleased to have meaningfully reduced our use of contract labor, which represented roughly 8.5% of wages during the quarter, a 10% reduction compared to the first quarter of 2023. With lower turnover and decreased reliance on contract labor, we are better positioned to drive incremental property-level productivity.

Elizabeth S. Perkins: We anticipate that higher wages for full and part time employees and higher utilization of contract Labor will continue to result in elevated cost per occupied room relative to pre pandemic levels.

Elizabeth S. Perkins: Year over year growth should continue to moderate to levels that are more in line with historical norms. We're pleased to have meaningfully reduced our use of contract labor, which represented roughly eight 5% of wages during the quarter, a 10% reduction compared to the first quarter of 2023.

Elizabeth S. Perkins: With lower turnover and decreased reliance on contract labor, we are better positioned to drive incremental property level productivity. We will continue to work with our management companies to enhance the efficiency of our operations over time.

Elizabeth S. Perkins: We will continue to work with our management companies to enhance the efficiency of our operations over time. We achieved Comparable Hotels Adjusted Hotel EBITDA of approximately $112 million for the first quarter, down 3% compared to the first quarter of 2023. Comparable Hotels' Adjusted Hotel EBITDA margin was 33.7% for the quarter, down 160 basis points to the first quarter of 2023, consistent with what we assumed in the first quarter at the midpoint of our guidance range, despite top line growth below the low end of our full year guidance.

Elizabeth S. Perkins: We achieved comparable hotels adjusted hotel EBITDA of approximately $112 million for the first quarter down 3% compared to the first quarter of 2023 comparable hotels adjusted Hotel EBITDA margin was 33, 7% for the quarter down 160 basis points to the first quarter 2023 consistent.

Elizabeth S. Perkins: With what we assumed in the first quarter at the midpoint of our guidance range. Despite topline growth below the low end of our full year guide.

Elizabeth S. Perkins: Our ability to maintain or potentially grow margin will be largely conditioned on our ability to grow rate, though we have been pleased with our management company's ability to manage operating costs in the current inflationary environment, adjusted EBITDA REIT for the first quarter at $101 million, up 6% to the first quarter 2023, and MSFO for the quarter at $83 million, up 5% as compared to the first quarter 2023. Looking at our balance sheet, as of March 31, 2024, we had approximately $1.5 billion in total outstanding debt, net of cash, approximately 3.4 times our trailing 12-month EBITDA, with a weighted average interest rate of 4.6%.

Elizabeth S. Perkins: Our ability to maintain or potentially grow margin will be largely conditioned on our ability to grow rate that we have been pleased with our management companies ability to manage operating costs and the current inflationary environment.

Elizabeth S. Perkins: Adjusted EBITDA for the first quarter was $101 million up 6% to the first quarter 2023, and <unk> for the quarter was $83 million up 5% as compared to the first quarter 2023.

Elizabeth S. Perkins: Looking at our balance sheet as of March 31, 2024, we had approximately $1 $5 billion and total outstanding debt net of cash approximately three four times, our trailing 12 months EBITDA with a weighted average interest rate of four 6%.

Elizabeth S. Perkins: Total outstanding debt, excluding unamortized debt issuance costs and fair value adjustments, was comprised of approximately $281 million in property-level debt secured by 15 hotels and approximately $1.2 billion outstanding on our unsecured credit facility. At quarter end, our weighted average debt maturities were 3.4 years. We had cash on hand of approximately $5 million, availability under our revolving credit facility of approximately $519 million, and approximately 78 percent of our total debt outstanding was fixed or hedged.

Elizabeth S. Perkins: Total outstanding debt, excluding unamortized debt issuance cost and fair value adjustments was comprised of approximately $281 million in property level debt secured by 15 hotels and approximately $1 $2 billion outstanding on our unsecured credit facilities.

Elizabeth S. Perkins: At quarter end, our weighted average debt maturities for three four years, we had cash on hand of approximately $5 million availability under our revolving credit facility of approximately $519 million and approximately 78% of our total debt outstanding was fixed or hedged we have approximately 105.

Elizabeth S. Perkins: We have approximately $105 million of debt maturing in 2024, consisting of one $85 million term loan and a mortgage loan of approximately $20 million. If we elect not to extend the maturity dates, we plan to pay for these upcoming debt maturities using funds from operations, borrowings under our revolving credit facility, and/or new financing. During the quarter, we entered into an equity distribution agreement, which reauthorized and extended our ATM program, providing us with availability for the issuance of common shares up to $500 million. However, no shares were sold under the current or prior ATM programs during the quarter.

Elizabeth S. Perkins: The debt maturing in 2024, consisting of $185 million term loan and our mortgage line of approximately $20 million. If we elect not to extend the maturity date, we plan to pay for these upcoming debt maturities using funds from operations borrowings under our revolving credit facility and our new financing during the quarter.

Elizabeth S. Perkins: <unk>, we entered into an equity distribution agreement, which reauthorized and extended our ATM program, providing us availability for the issuance of common shares up to $500 million no shares were sold under the current or prior ATM program during the quarter.

Elizabeth S. Perkins: We also have $335 million remaining on our share repurchase program. Turning to our updated full-year outlook for 2024, as compared to previously provided guidance, the company is increasing net income at the midpoint by $16 million, maintaining Comparable Hotels RECPAR change, increasing Comparable Hotels Adjusted Hotel EBITDA margin by 20 basis points at the midpoint, and increasing Adjusted EBITDA RE by $9 million at the midpoint. While our asset management and hotel teams are working diligently to mitigate cost pressures, we have assumed for purposes of guidance that hotel operating costs will increase by approximately 5% at the midpoint.

Elizabeth S. Perkins: We also have $335 million remaining on our share repurchase program.

Elizabeth S. Perkins: Turning to our updated full year outlook for 2024 as compared to previously provided guidance. The company is increasing net income at the midpoint by $16 million, maintaining comparable hotels revpar change increasing comparable hotels adjusted hotel EBITDA margin by 20 basis points at the midpoint.

Elizabeth S. Perkins: Increasing adjusted EBITDA by $9 million at the midpoint.

Elizabeth S. Perkins: Our asset management and hotel teams are working diligently to mitigate cost pressures, we have assumed for purposes of guidance that hotel operating costs will increase by approximately 5% at the midpoint for.

Elizabeth S. Perkins: For the full year 2024, we anticipate the results will be in the following range. Net income of $207 million to $233 million. Comparable hotels' rep par change of 2 to 4 percent. Comparable Hotels Adjusted Hotel EBITDA Margin of 34.8% to 35.8% and Adjusted EBITDA RE between $461 million and $483 million.

Elizabeth S. Perkins: For the full year 2024, we anticipate the results will be in the following range net income of $207 million to $233 million comparable hotels, revpar change of 2% to 4%.

Elizabeth S. Perkins: Terrible hotel adjusted Hotel EBITDA margin of 34, 8% to 35, 8% and adjusted EBITDA, sorry between $461 million and $483 million.

Elizabeth S. Perkins: This outlook is based on our current view and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. Operational results for the first quarter of 2024 were in line with our expectations at the previously provided midpoint, and the increases to guidance are driven by the acquisition of the A.C. Hotel Washington, D.C. Convention Center in March.

Elizabeth S. Perkins: This outlook is based on our current view and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisition or disposition.

Elizabeth S. Perkins: Operational results for the first quarter 2024 were in line with our expectations at the previously provided midpoint and the increases to guidance are driven by the acquisition of the AC Hotel, Washington D. C Convention Center in March the high end of the full year range reflects relatively steady macroeconomic conditions throughout 2000.

Elizabeth S. Perkins: The high end of the full year range reflects relatively steady macroeconomic conditions throughout 2024 with continued strength in leisure demand and improvement in business transient. The low end of the range reflects more modest lodging demand growth with a slight pullback in leisure demand offset by continued improvement in business transient and group.

Elizabeth S. Perkins: 24, with continued strength in leisure demand and improvement in business transient.

Elizabeth S. Perkins: Low end of the range reflects more modest lodging demand growth with a slight pullback in leisure demand offset by continued improvement in business transient and group.

Elizabeth S. Perkins: As we begin 2024, we are pleased with our performance and confident we are well positioned for the remainder of the year. Our recent acquisition activity has enabled us to drive incremental value for shareholders despite challenges in the operating environment, which continue to put pressure on margins. The implied modified funds from operations are up on a per share basis year over year at the midpoint and higher of our guidance range, and our balance sheet provides us with meaningful optionality to drive incremental value.

Elizabeth S. Perkins: As we begin 2024, we are pleased with our performance and confident we are well positioned for the remainder of the year. Our recent acquisition activity has enabled us to drive incremental value for shareholders. Despite challenges in the operating environment, which continued to put pressure on margin.

Elizabeth S. Perkins: Implied modified funds from operations are up on a per share basis year over year at the midpoint and higher of our guidance range and our balance sheet provides us with meaningful optionality to drive incremental value.

Elizabeth S. Perkins: Our differentiated strategy has proven resilient through economic cycles. Our assets are in good condition, with consistent capital investments ensuring that we maintain a competitive advantage over other products in our market. And we believe the fundamentals of our business are sound, with favorable supply dynamics allowing us to benefit from incremental demand. Our team will continue to work to maximize the performance of our existing assets and to allocate capital in ways that further enhance returns for our shareholders. We would now like to open the line for any questions that you may have for us this morning.

Elizabeth S. Perkins: Our differentiated strategy has proven resilient through economic cycle, our assets are in good condition with consistent capital investments, ensuring that we maintain a competitive advantage over other product in our markets.

Elizabeth S. Perkins: And we believe the fundamentals of our business are sound with favorable supply dynamics, allowing us to benefit from incremental demand. Our team will continue to work to maximize the performance of our existing assets and to allocate capital in ways that further enhance returns for our shareholders. We would now like to open the line for any questions that you may have for us This morning.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. Our first question comes from Austin Wurschmidt with KeyBank Capital Markets. Please proceed with your question.

Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.

Austin Todd Wurschmidt: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.

Austin Todd Wurschmidt: One moment, please while we poll for questions.

Austin Todd Wurschmidt: Our first question comes from Austin, Horsemint with Keybanc capital markets. Please proceed with your question.

Austin Todd Wurschmidt: Thanks and good morning everybody. Liz, you highlighted some of the negative impact that the Easter holiday shift had on OneQ, but any sense of how much of a benefit that shift had on April's performance and just how April kind of compared versus budget? And then I recall last year you talking about some really strong midweek strength in late April, and I'm just curious when you remove some of that holiday noise maybe from the April performance, what did you see in the latter half of April on a year-over-year basis? Thank you.

Austin Todd Wurschmidt: Thanks, and good morning, everybody.

Austin Todd Wurschmidt: Lucia highlighted some of the negative impact of the Easter holiday shift had on <unk>.

Austin Todd Wurschmidt: Any sense, how much of a benefit that shift had on on April's performance and just how april's kind of compared versus budget and then I recall last year, you're talking about some really strong midweek strength in late April and I'm. Just curious when you remove some of that holiday noise, maybe from the April performance, where did you.

Austin Todd Wurschmidt: See towards the latter half of April on a year over year basis. Thank you.

Liz: Good morning, Austin, It's a good question I'm trying to isolate trends between March and April given the calendar shift.

Elizabeth S. Perkins: Good morning, Austin. It's a good question, trying to isolate trends between, you know, March and April given the calendar shift. We were pleased with April overall when we looked at the day of week trends for the full month, seeing growth in both weekday and weekend occupancies and REVPAR. You know, it was heavily weighted, particularly from a growth rate perspective, on the first two weeks of the month, but as we rounded out towards the end and potentially had cleaner weeks to look at, we saw continued strength in midweek demand.

Elizabeth S. Perkins: We were pleased with April overall, when we look at the day of week trends for the four months.

Elizabeth S. Perkins: <unk> growth in both weekday and weekend occupancy and Revpar.

Elizabeth S. Perkins: It was heavily weighted particularly from a growth rate perspective on the first two weeks of the months.

Elizabeth S. Perkins: But as we rounded out towards the end and potentially had cleaner weeks to look at them. We saw continued strength in midweek.

Elizabeth S. Perkins: Demand and you know one of the.

Elizabeth S. Perkins: And, you know, one of the trends that I think we may see and may be experiencing is some normalization between a pickup in midweek, potentially offsetting some leisure on the weekend. You know, when we look year to date, we're slightly positive, driven by that midweek demand and some, you know, some weekday softening on the leisure side. But overall, you know, the midweek growth is resulting in a positive result.

Elizabeth S. Perkins: Trends I think that we may see and may be experiencing is some normalization between a pickup in midweek potentially offsetting some leisure on the weekends.

Elizabeth S. Perkins: When we look year to date were slightly positive.

Elizabeth S. Perkins: Driven by that midweek demand in some some week softening on the leisure side, but overall the midweek the mid <unk>.

Elizabeth S. Perkins: <unk> growth is is resulting in a positive result.

Justin G. Knight: And then I wanted to hit one on the transaction landscape, Justin. Given kind of the evolving interest rate environment or interest rate expectations, maybe, have you seen any changes in seller expectations and sort of the volume of opportunities that are coming to the transaction market?

Speaker Change: That's helpful. And then wanted to hit one on the transaction landscape, just given kind of the evolving interest rate environment or interest rate expectations. Maybe have you seen any changes in seller expectations in sort of the volume of opportunities that are coming to the transaction market.

Justin G. Knight:

Justin G. Knight: Really, from a total transaction volume standpoint, we've seen very little change in that area. The bulk of the deals that we're underwriting today are with groups who are exploring a potential sale either because of pending financing, either specific to the asset or their larger portfolio, or in some cases, upcoming renovations. So that has been less of a driver to date than we had anticipated it would be. However, we continue to feel that it will bring additional assets to market in the near term. But total transaction volume continues to be low across the industry.

Justin: From a total transaction volume, we've seen very little change in that area.

Justin G. Knight: We continue.

Justin G. Knight: The bulk of the deals that we're underwriting today.

Justin G. Knight: Our with groups who are.

Justin G. Knight: Are exploring a potential sale either because of pending financing either specific to the asset or you know, they're a larger portfolio or in some cases upcoming renovations. So that has been less of a driver today than we had anticipated. It would be we continue to feel that that will bring additional assets to me.

Justin G. Knight: <unk> in the near term.

Justin G. Knight: But you know total.

Justin G. Knight: Transaction volume continues to be lower across the industry I think if you look at our performance over the past 12 months.

Justin G. Knight: I think if you look at our performance over the past 12 months, we've taken more than our fair share of total transactions and certainly continue to view ourselves as well positioned relative to potential competition. Those I highlighted in my prepared remarks, I think with the pullback in our share price and the relative valuations that we're doing, we also see value there. I think looking forward, I highlighted that we continue to underwrite a number of potential transactions, assets I think that we feel would be meaningfully additive to our portfolio.

Justin G. Knight: We've taken more than our fair share of total transactions and certainly.

Justin G. Knight: Continue to view ourselves as.

Justin G. Knight: Has well positioned relative to potential competition, though as I highlighted in my prepared remarks.

Justin G. Knight: I think with the pullback in our share price.

Justin G. Knight: And the relative valuations that were doing we also see value there I think.

Justin G. Knight: Looking forward I highlighted we continue to underwrite a number of potential transactions assets I think that we feel would be meaningfully additive to our portfolio.

Justin G. Knight: And.

Justin G. Knight: I think we'll continue to see how that plays out as the year progresses. We're fortunate, I think, given our strategy, to have a broad palette to paint with. I think there are a lot of markets where we have an interest and a lot of assets that would fit our investment criteria. So given the appropriate cost of capital, I think we could continue to be meaningfully acquisitive in the current environment.

Justin G. Knight: I think.

Justin G. Knight: We will continue to see how that plays out as the year progresses.

Justin G. Knight: We're fortunate I think given our strategy to have a broad.

Justin G. Knight: A pallet to paint with and you know I think there are a lot of markets, where we have interest in.

Justin G. Knight: A lot of assets that would fit our investment criteria. So given.

Justin G. Knight: The appropriate cost of capital I think we could continue to be meaningfully.

Justin G. Knight: Meaningfully acquisitive in the current environment.

Speaker Change: That's helpful. And then just last one for me on the AC D. C. Can you remind us given when that was completed where that stands relative to kind of stabilization versus our comp set of hotels in the D C market.

Justin G. Knight: That's helpful. And just last one for me. On the ACDC, can you remind us, given when that was completed, where that stands relative to the Compset of hotels? Um, so the hotel...

Justin G. Knight: Um, so the hotel stabilized when we acquired it. The bulk of the growth, and I say that hesitantly only because, as you know, the D.C. market was slower to recover, and so a significant portion of the growth that we have seen year to date and that we expect to continue to see will come from continued growth in the market. That said, this is one of the assets where we transition management, and the new management team has done an exceptional job, both in driving top-line performance for the asset and transferring the top-line performance to the bottom line.

Justin G. Knight: So the hotel.

Justin G. Knight: Was stabilized when we acquired it.

Justin G. Knight: The bulk of the growth and I say that hesitantly only because as you know the D. C market was slower to recover.

Justin G. Knight: So a significant portion of the growth that we have seen year to date and that we expect to continue to see.

Justin G. Knight: Will come from continued growth in the market that said this is one of the assets, where we transition management.

Justin G. Knight: And then new management team has done an exceptional job both in driving topline performance for the asset and.

Justin G. Knight: Slowing.

Justin G. Knight: Top line performance to the bottom line so.

Justin G. Knight: So I think, despite the hotel having been open for a period of time and ramping within the market, we see incremental opportunity, both as the market continues to grow, bolstered by a strong convention calendar and increasingly a return of government workers to the city, and improvement in our share and the efficiency of our property-level operations with the management transition. Our next question comes from Anthony Powell with Barclays. Please proceed with your question.

Justin G. Knight: I think despite the hotel haven't been open for a period of time and ramping with in the market.

Anthony Franklin Powell: See incremental opportunity both as the market continues to grow bolstered by a strong convention calendar.

Anthony Franklin Powell: And increasingly a return of government workers to the city.

Justin G. Knight: And.

Anthony Franklin Powell: Improvement in our share and the efficiency of our property level operations with the management transition.

Anthony Franklin Powell: Great. Thanks for the time.

Justin G. Knight: Absolutely.

Justin G. Knight: Our next question comes from Anthony Powell with Barclays. Please proceed with your question.

Justin G. Knight: Okay.

Anthony Franklin Powell: Hi, good morning.

Justin G. Knight: Right.

Anthony Franklin Powell: Question on the overall I guess of the consumer in your eyes, you know we've heard a lot about kind of lesion or I guess hesitant Peter softness from other calls you seem to be.

Anthony Franklin Powell: Pretty optimistic there. So what are you seeing from your leisure customers are small.

Anthony Franklin Powell: And social groups that maybe are Smes on their willingness to travel right now.

Anthony Franklin Powell: Good morning, Anthony. Generally, I would say that what the industry has seen, and what we've seen, doesn't immediately point to a weaker consumer, specifically around leisure. Broadly, you know, whether traveling domestically or internationally, the consumer still appears to be preferring travel, which is a positive for the industry overall. We've said on past calls, and I mentioned in response to one of Austin's questions, that, you know, as people begin picking up mid-week corporate travel and normal travel patterns materialize, there could be a potential or partial offset to leisure on the weekends.

Anthony Franklin Powell: Good morning, Anthony.

Anthony Franklin Powell: Generally I would say that what the industry has seen.

Anthony Franklin Powell: And what we've seen it doesn't immediately point to a weaker consumer.

Anthony Franklin Powell: Specifically around leisure broadly whether travelling domestically or internationally the consumer still appears to be preferencing travel, which is a positive for the industry overall.

Anthony Franklin Powell: He said on past calls and I mentioned in response to one of Austin's question that you know as people began picking up midweek corporate travel and normal travel patterns materialize, there could be a potential partial offset to leisure on the weekends. No again were looking year to date through April.

Anthony Franklin Powell: You know, again, when looking year-to-date through April at our trends, you know, that's what we're seeing broadly. We also said on past calls that Q1 is a really tough time to draw broad conclusions about how the strongest travel quarters for our portfolio and the industry may play out, especially with our Super Bowl comp and the Easter shift. It just makes drawing broad conclusions a little tricky. We did assume in guidance at the beginning of the year and still feel that we'll have the most opportunity to drive incremental REF PAR in our strongest occupancy quarters here in the second and third. And Anthony, it's important to recognize, too, that while we can zoom out and generalize over our...

Anthony Franklin Powell: Our trends that's what we're seeing broadly yeah. We've also said on past calls that Q1 is a really tough time to draw broad conclusions about how the strongest travel quarters for our portfolio and the industry may play out, especially with our Super Bowl comp and the Easter shift.

Anthony Franklin Powell: It just makes it makes drawing broad conclusions a little tricky, we did assume in guidance at the beginning of the year and still feel that we'll have the most opportunity to drive incremental revpar and our strongest occupancy quarters here in the second and third.

Anthony Franklin Powell: And Anthony it's important to recognize too that while we can zoom out and generalized overarching trends the trends vary pretty significantly from market to market and so.

Justin G. Knight: Anthony, it's important to recognize, too, that while we can zoom out and generalize overarching trends, the trends vary pretty significantly from market to market. And so, I think even with weekend occupancies for several weeks being flat to slightly down, we have a number of markets where we continue to see very strong weekend performance and year-over-year growth. And the same is true midweek, meaning meaningful variance from market to market. And I think, adding to what Liz said earlier, for that reason and given the overall strength in demand that we've continued to see through April, we think it's early to peg a specific trend in that area. Okay, so I'm following up on that.

Justin G. Knight: Pink.

Justin G. Knight: Even with weekend Occupancies for several weeks being flat to slightly down we have a number of markets, where we continue to see very strong weekend performance and year over year growth.

Justin G. Knight: The same is true midweek.

Justin G. Knight: Meaningful variance market to market and I think.

Justin G. Knight: Adding to what was said earlier Paul for that reason.

Justin G. Knight: And given the overall strength and demand that we continue to see through April.

Justin G. Knight: It's early to.

Justin G. Knight: To peg a specific trend in that area.

Anthony: Okay. So following up on that most of your other peers have talked about may and June being a lot better than April.

Anthony: Your April was better than most of your peers I'm curious what you view for the rest of the team for the rest of the quarter here.

Justin G. Knight: Yeah.

Elizabeth S. Perkins: You know, as we look at average daily bookings and as we look at, you know, manager forecasts and speak to the field, I think that they remain encouraged for the quarter overall. April was promising and strong. I think, you know, we believe that, you know, there's, you know, incremental, you know, there's, there's growth that we'll see both in May and June as well, hopefully, similarly to what we saw in April.

Justin G. Knight: And you know as we look at average daily bookings and as we look at you know manager forecast will speak to the field you know I think that they remain encouraged for the quarter overall.

Elizabeth S. Perkins: April was.

Elizabeth S. Perkins: Was promising and strong I think you know.

Elizabeth S. Perkins: We believe that there is there.

Elizabeth S. Perkins: Incremental.

Elizabeth S. Perkins: This growth that we'll see both in May and June as well.

Elizabeth S. Perkins: You know.

Elizabeth S. Perkins: Hopefully similarly to what we saw in April.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Michael Joseph Bellisario: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Michael Bellisario in Witberg. Please proceed with your question.

Elizabeth S. Perkins: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Michael Joseph Bellisario: Our next question comes from Michael Massaro with Baird. Please proceed with your question.

Justin G. Knight: Thanks. Good morning, everyone. Morning. And just one more on the leisure commentary, the softer trend, did that come on the demand side, or was it really related to some pricing sensitivity, and then I know Justin you said there were big variances across markets, but any particular market that you can point to that was surprisingly weak?

Michael Joseph Bellisario: Thanks, Good morning, everyone.

Speaker Change: Good morning.

Justin G. Knight: Just one more on the leisure commentary.

Justin G. Knight: The softer trends did that come on the demand side or was it really related to some pricing sensitivity and then I know just you said bill.

Justin G. Knight: Variances across markets, but any.

Justin G. Knight: Particular markets that you can point to that were surprisingly weak.

Justin G. Knight: I don't think the variances are within a fairly narrow band, and I would say the occupancy and rate dynamic is somewhat related. You know, I think we've commented for some time that pre-pandemic leisure was our most rate-sensitive segment, and we've been incredibly pleased, and I think the entire industry has benefited from that segment being less price-sensitive. It has always been our thought that, over time, we would revert to more normal behavior with a greater ability to drive rates with our corporate customers as we achieved stronger occupancies midweek and, you know, an ability to drive rates with leisure customers around compression nights in markets where demand was strong. I think... You know, we are assessing what we're seeing right now.

Justin: I don't think that the variances are within a fairly narrow band and I would say.

Justin G. Knight: Is it the occupancy and rate dynamic is somewhat related.

Justin G. Knight: I think we've commented for some time that pre pandemic.

Justin G. Knight: There was our most rate sensitive segment.

Justin G. Knight: And we've been incredibly pleased and I think the entire industry has benefited from that segment being less.

Justin G. Knight: Less price sensitive.

Justin G. Knight: It has always been our thought that over time, we would revert towards more normal behavior with a greater ability to drive rate with our corporate customers as we achieved.

Justin G. Knight: Stronger Occupancies midweek.

Justin G. Knight: And.

Justin G. Knight: And our ability to drive rate with leisure customers around compression nights.

Justin G. Knight: In markets, where demand was strong.

Speaker Change: Thank you.

Justin G. Knight: And as I highlighted, there is some variance from market to market. But what we've seen overall is the extent there has been a pullback in some markets on weekends from an occupancy standpoint. It's been largely offset or more than wholly offset by a pickup in midweek business, and that's a trend we feel very comfortable with. But when we look at the overall profitability of our business and how we historically split business between business travelers and leisure, reversion to more normal behavior with stronger performance midweek would, from an overall profitability standpoint, be a favorable shift.

Justin G. Knight: No.

Justin G. Knight: We are we're assessing what we're seeing right now and as I highlighted.

Justin G. Knight: There is some variance from market to market.

Justin G. Knight: We've seen overall is the extent there has been a pullback in some markets on weekends from an occupancy standpoint, it's been largely offset or more than wholly offset by a pickup in mid week business and that's a trend we feel very comfortable with when we look at overall profitability of our business.

Justin G. Knight: And how we historically split business between business travelers and be sure.

Justin G. Knight: Version two.

Justin G. Knight: To more normal behaviour with stronger performance midweek.

Justin G. Knight: From an overall profitability standpoint be a favorable shift for us.

Justin G. Knight: Now, Mike, as Justin mentioned, when we look here today at sort of the split between occupancy and rate, it's, it's, they're, they're closely aligned directionally.

Speaker Change: Yeah, Mike as Justin mentioned, when we look year to date at sort of the split between occupancy and rate it they're closely aligned directionally.

Justin G. Knight: And then just switching gears on the DC transaction, could you quantify how much of the $10 million of trailing EBITDA comes from that rooftop retail space on the billboard? And then also, any more color on the transaction process, the background, other bidders, and so that motivation would be helpful.

Mike: That's helpful. And then just switching gears on the D. C transaction could you quantify how much of the $10 million trailing EBITDA comes from that rooftop retail space in the Billboard and then also just any more color on the transaction process. The background other bidders and seller motivation would be helpful. Thank you.

Justin G. Knight: Yeah.

Justin G. Knight: When we look at ACDC on a trailing basis, the rooftop and retail income is significantly higher than our average portfolio. It's, you know, closer to 20% of total revenue, with close to 80% coming from rooms.

Justin G. Knight: Well, we look at a C D C on a trailing basis, the rooftop and retail.

Justin G. Knight: Income is significantly more than our average portfolio. It's.

Justin G. Knight: You know closer closer to 20% of total revenue.

Justin G. Knight: With close to 80% coming from rooms.

Justin G. Knight: And then from a background standpoint, this was a group, a strong developer, a multi-market developer that had investments across segments of real estate and, I think, was struggling a bit in an unrelated office portfolio and I think saw an opportunity to gain some incremental This is an asset that was built by the group to be held long term, and I think if you have an opportunity to visit it, you'll recognize that in the quality of construction and the And I think we were fortunate, as we have been in several instances, to be the right group at the right time and purchase the asset at a price that we believe we already feel very good about but we feel will look even better as we move into the future.

Justin G. Knight: And then from a from a background standpoint.

Speaker Change: This was a group Ah.

Justin G. Knight: A strong developer.

Justin G. Knight: Multi market developer.

Justin G. Knight: That has investments across segments.

Justin G. Knight: Segments of real estate.

Justin G. Knight: And.

Justin G. Knight: Inc.

Justin G. Knight: We're struggling a bit in an unrelated office portfolio.

Justin G. Knight: And I think.

Justin G. Knight: You would have saw an opportunity.

Justin G. Knight: To gain some incremental liquidity.

Justin G. Knight: Through the sale of this asset. This is an asset that was built by the group to be held long term and I think if you have an opportunity to visit it youll recognize that.

Justin G. Knight: And the quality of construction.

Justin G. Knight: And the Premier location.

Justin G. Knight: And you know I think we were fortunate as we have been in several instances.

Justin G. Knight: B the right group at the right time.

Justin G. Knight: And purchase the asset at a price that we believe.

Justin G. Knight: We will feel.

Justin G. Knight: We already feel very good about.

Justin G. Knight: We feel it will look even better as we move into the future.

Speaker Change: Got it and then just one clarification was just 20% of total revenues, presumably that's 100% margin. So a much higher percentage of of EBITDA is that a correct assumption.

Justin G. Knight: Got it. And just one clarification: just 20% of total revenues, presumably, that's 100% margin, so a much higher percentage of EBITDA. Is that a correct assumption? It's not a 100% margin.

Justin G. Knight: It's not 100% margin. The restaurant is managed, so it would be near 100% margin for the other outlets, but the restaurant is managed by a third party, and so there are expenses associated with that.

Justin G. Knight:

Justin G. Knight: Not 100% margin, but the restaurant is managed.

Justin G. Knight: It would be near 100% margin for the other outlets, but but the restaurant is managed by a third party and so there are expenses associated with that.

Speaker Change: Helpful. Thanks.

Justin G. Knight: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Tyler Batory, who's on the timer. Please proceed with your question.

Justin G. Knight: As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Tyler Batory: Our next question comes from Tyler a battery with Oppenheimer. Please proceed with your question.

Justin G. Knight: Good morning. This is Jonathan on for Tyler Thanks for taking my questions.

Tyler Batory: Good morning. This is Jonathan on behalf of Tyler.

Jonathan David Jenkins: Thanks for taking my questions. First one for me, just a follow-up on that leisure demand discussion. More clarification questions. Can you remind us how you define leisure demand? Is that commentary interchangeable with weekend occupancy?

Jonathan David Jenkins: First one for me just a follow up on that leisure demand discussion.

Jonathan: More of a clarification question can you remind us how you define leisure demand is that commentary interchangeable with reach and occupancy.

Justin G. Knight: There is close alignment, when we look at it, to weekend occupancy, but not exclusively. We also look at negotiated accounts, separate and apart from that, but when you look at our hotels, outside of a few markets where the majority of our business, regardless of when it occurs during the week, tends to be leisure, most of our hotels skew heavily toward that.

Jonathan: There theres closer alignment when we look at it to weekend occupancy not exclusively we also look at a negotiated accounts separate and apart from that but when you look at at our hotels outside of a few markets.

Justin G. Knight: Where the majority of our business regardless of when it occurs during the week tends to be leisure.

Justin G. Knight: Most of our hotels are skewed towards halfway towards leisure on the weekends and towards business travel midweek.

Speaker Change: Okay. That's helpful. Thank you for that and then what is helpful commentary on the labor side.

Justin G. Knight: Okay, helpful. Thank you for that. And then, Liz, helpful commentary on the labor side. Can you talk about the other cost inflation in the business and what areas of the expenses are seeing the greatest year-over-year growth outside of labor?

Justin G. Knight: Can you talk about the other cost inflation in the business and what areas of the expenses are seeing kind of the greatest year over year growth outside of labor.

Justin G. Knight: Yeah.

Justin G. Knight:

Elizabeth S. Perkins: You know, we were pleased with the first quarter overall. If you look at comparable results, you know, the team did a reasonably good job with costs, outside of labor and including labor. We saw a deceleration in labor expenses or total cost per occupied room from a payroll perspective in Q1 relative to Q4. And really, you know, as we looked at guidance at the midpoint, we were right in line on the top line, slightly ahead on the bottom line, and took that into account to some extent, about a million dollars with the change in the guidance range.

Justin G. Knight: We were pleased with the first quarter overall, if you look at comparable results.

Elizabeth S. Perkins: The team did a reasonably good job.

Elizabeth S. Perkins: With costs, you know outside of labor and including Labor we saw deceleration.

Elizabeth S. Perkins: And labor expenses, our total cost per occupied room from a payroll perspective in Q1 relative to Q4 and really you know as we looked at guidance at the midpoint. We were right in line on the top line slightly ahead on the bottom line.

Elizabeth S. Perkins: And it took that into account to some extent about $1 million with the change in the guidance range. It was really broad based where we saw some deceleration utilities were down.

Elizabeth S. Perkins: It was really broad-based where we saw some deceleration. Utilities were down. You know, a lot of the overhead departments, you know, decelerated their increases relative to Q4. And so it was really broad-based. We were pleased to see, overall, the impact of the efforts that our teams put in place and some stabilization in the cost environment.

Elizabeth S. Perkins: A lot of the overhead departments.

Elizabeth S. Perkins: As you know decelerate decelerated, there and increases relative to Q4 and so it was really broad based we were pleased to see overall the impact of the effort that our teams have put in place and some stabilization in the cost environment.

Speaker Change: Okay, Great I appreciate the color there and then last one from me if I could just on the acquisition in D. C. You talked about the favorable market dynamics and how you wanted to have a presence in that market for some time I think the release said are there any other markets that you still like to expand to and maybe can you rank order. The criteria you look for that would be markets.

Jonathan David Jenkins: Okay, great, appreciate the color there, Liz. And then last one for me, if I could.

Justin G. Knight: Justin, on the acquisition in D.C., you talked about the favorable market dynamics and how you wanted to have a presence in that market for some time, I think the release said. Are there any other markets that you'd still like to expand to? And maybe, can you rank the criteria you look for in new markets?

Justin G. Knight: There are a number of other markets where we would like to have a presence. It's interesting, you know; our strategy has always been to focus on rooms-focused hotels, predominantly in the upscale and upper mid-scale segments, and to broadly diversify our portfolio across a variety of markets and market types.

Justin G. Knight: There are a number of other markets, where we are.

Justin G. Knight: I'd like to have a presence it's interesting.

Justin G. Knight: You know our strategy has always been to focus on on rooms focused hotels.

Justin G. Knight: Predominantly in the upscale and upper mid scale segment.

Justin G. Knight: Enter broadly diversify our portfolio across a variety of markets and market types.

Justin G. Knight: In order to achieve that objective, you know, we need to be in both urban, large urban, small urban, as well as, you know, high-density suburban markets. However, pricing in large urban markets has made it challenging for us to find an appropriate entry point. The cost dynamics in urban markets are different, and historically, in a market like D.C., an asset of this quality would have traded at a 150 basis point lower cap rate, which given the dynamics of the market would have put it outside of the return threshold of the REIT target. I think over, and I talked about this a little bit on our last call, but over the past several months.

Justin G. Knight: In order to achieve that objective.

Justin G. Knight: You know what.

Justin G. Knight: We need to be in both urban larger than smaller than them and as well as high density suburban markets.

Justin G. Knight: Pricing in large urban markets.

Justin G. Knight: Has made it challenging.

Justin G. Knight: For for us to find an appropriate entry point and that the cost dynamics in urban markets are.

Justin G. Knight: Different.

Justin G. Knight: And historically our market like D C.

Justin G. Knight: You know an asset of this quality would have traded.

Justin G. Knight:

Justin G. Knight: 150 basis points lower.

Justin G. Knight: Right, which given the dynamics of the market would've put it outside of kind of the return threshold at the REIT targets.

Justin G. Knight: I think over and I've talked about this a little bit on our last call.

Justin G. Knight: But over the past several months with a meaningful increase in interest rates and the pullback.

Justin G. Knight: With the meaningful increase in interest rates and the pullback from many lenders, we found ourselves in a position to be very competitive around larger assets in some of these urban markets where, ordinarily, we would have seen very stiff competition, predominantly from private equity, but from a variety of potential buyers. And given our ready access to capital and our ability to bid on assets without financing contingencies, we've been more successful. And when you look at the D.C. acquisition or the Vegas acquisition, which was another market where we've wanted to, where we've looked for an appropriate entry point for some period of time, you know, those are great examples of that.

Justin G. Knight: For many lenders we found ourselves in.

Justin G. Knight: In a position to be very competitive around larger assets.

Justin G. Knight: In some of these urban markets where ordinarily.

Justin G. Knight: We would have seen them very.

Justin G. Knight: Very stiff competition predominantly from private equity, but from a variety of potential buyers.

Justin G. Knight: And given our ready access to capital and our ability to bid on assets without financing contingencies.

Justin G. Knight: We've been more successful in and when you look at the D C acquisition or the Vegas acquisition, which was another market, where we've wanted to what we've looked for an appropriate entry point for some period of time.

Justin G. Knight: Importantly, though, we're not exclusively focused on large urban markets. That's a piece of our strategy, but not the entirety of it. And so we're equally attracted to high-density urban markets with the primary criteria that we're looking for being, you know, relative growth trajectory relative to the national average. And, you know, I think the positioning. These are the demand generators with a view to having a broad base of demand generators such that we're not subject to fluctuations within a single source of demand.

Justin G. Knight: Those are great examples of that importantly, though we're not exclusively focused on large urban markets. That's a piece of our strategy, but not the entirety of it.

Justin G. Knight: So we're equally attracted him to.

Justin G. Knight: The high density urban markets with the primary criteria that we're looking for being.

Justin G. Knight: Relative growth trajectory.

Justin G. Knight: Relative to the National average.

Justin G. Knight: And.

Justin G. Knight: I think that positioning.

Justin G. Knight: Vis vis demand generators with a view towards having a broad base of demand generators such that we're not.

Justin G. Knight: Subject to fluctuations within a single source of demand.

Justin G. Knight: And you know, I think if you look at the entirety of the acquisitions that we completed last year, starting with Cleveland and moving through towards Vegas at the end of the year and then maybe following that, you get a good sense for the range of assets that we're looking for and the types of markets that we're looking to buy assets in.

Justin G. Knight: I think if you look at the.

Justin G. Knight: The entirety of the acquisitions that we completed last year, starting with Cleveland and moving through.

Justin G. Knight: Towards Vegas at the end of the year and then D. C. Following that you get a good sense for the range of assets that we're looking for and the types of markets that we're looking to buy assets.

Speaker Change: Okay. That's excellent color I appreciate it. Thanks. Thank you for all the color. This morning isn't just muscle perfect.

Jonathan David Jenkins: Okay, that's excellent color. I appreciate that. Thank you for all the color this morning, Liz and Justin. That's all for me.

Speaker Change: Thank you.

Chris Darling: Our next question comes from Chris Darling of Green Street. Please proceed with your question.

Chris Darling: Our next question comes from Chris styling with Green Street. Please proceed with your question.

Chris Darling: Hey, thanks. Good morning. Justin, going back to that last question, actually, you mentioned just higher interest rates in the past couple of months and that it puts Apple really in a competitive position to have a competitive advantage in terms of acquiring properties.

Chris Darling: Hey, Thanks, good morning.

Chris Darling: Justin.

Chris Darling: Back to the last question actually you mentioned you know just higher interest rates in the past couple of months and that putting apple really in our competitors.

Chris Darling: <unk> has a competitive advantage in terms of acquiring properties on the flip side, how does that impact your ability or willingness perhaps to bring incremental assets to market for disposition, perhaps as a source of funds in the near term.

Justin G. Knight: Actually, a great question. And I think we have a super example in looking at what we've done recently as well, where we have seen meaningful competition and continued strong appetite around smaller assets, where the total purchase price is lower. And in today's environment, and again, the market shifts quickly, and we adjust our strategy accordingly to be opportunistic. But in today's market, we see ourselves in a position to sell quality assets in smaller markets, potentially assets where we have near-term CapEx needs and redeploy them into assets that are larger, where we have less competition.

Justin: That's actually a great question and I think we have a Super example, and I'm looking at what we've done recently as well, where we have seen meaningful competition and continued strong appetite is around smaller assets where.

Justin G. Knight: The total purchase prices is lower.

Justin G. Knight: And in today's environment and against the market shifts quickly and we adjust our strategy accordingly to be opportunistic.

Justin G. Knight: But in today's market.

Justin G. Knight: We see ourselves in a position to sell quality assets in smaller markets potentially assets, where we have near term capex needs and to redeploy them into assets.

Justin G. Knight: Like I said, we continue to monitor markets, and we'll adjust our strategy appropriately as market dynamics shift. But looking at the two assets we sold recently and the asset we bought, you know, I think you can get a sense for where we feel the opportunities are.

Justin G. Knight: There are larger where we have less competition.

Justin G. Knight: Like I said, we continue to monitor markets and we'll adjust our strategy appropriately as kind of the market dynamics shift.

Justin G. Knight: But looking at the two assets, we sold recently and the asset we bought them.

Justin G. Knight: I think you can get a sense for where we feel the opportunities are.

Chris Darling: Yeah, I don't know. That's all helpful comments. And then just one more, maybe following up with Liz on some of the operating expense comments. How are you thinking about expense growth, you know, over a longer term timeframe, maybe the next few years? Is 3 to 4% still a decent betting line to be thinking about? Or how would you characterize the setup?

Speaker Change: Got it no. That's all helpful comments, and then just one more maybe following up with Liz on some of the operating expense comments. How are you thinking about expense growth you know over a longer term timeframe over the next few years is 3% to 4% and it's still a decent betting line to be thinking about or how would you care.

Speaker Change: Richter is under setup.

Chris Darling: Hum.

Chris Darling: We were pleased with especially on the payroll side, what we saw.

Elizabeth S. Perkins: You know, we were pleased with, especially on the payroll side, what we saw. Total, you know, total expenses came in on a comparable basis of 4%. You know, that's down from the 5% that we saw in Q4. So I think we are starting to see some normalization. You know, I think in part it depends on the broader economy and sort of, you know, how inflation evolves. And certainly, we're starting to see some benefit from lapping the tougher comps.

Elizabeth S. Perkins: Total the total expenses came in on a comparable basis up 4%.

Elizabeth S. Perkins: That's down from 5% that we saw in Q4. So I think we are starting to see some normalization I.

Elizabeth S. Perkins: I think in part it depends on the broader economy in and sort of.

Elizabeth S. Perkins: How inflation.

Elizabeth S. Perkins: Balls, and and certainly we're starting to see some benefit from lapping the tougher comps.

Justin G. Knight: You know, historically 3% to 4% has been reasonable. In guidance, we anticipated, especially on the payroll side, between 4% and 5%, with some continued cost pressures around some of the other line items like insurance and taxes. But I think over the long term, you know, if we continue to see the trends that we're seeing now, 3% to 4% over an extended period of time wouldn't be unreasonable.

Elizabeth S. Perkins: Historically, 3% to 4% has been reasonable and guidance, we anticipated, especially on the payroll side between four and five you know with some continued cost pressures around some of the other.

Justin G. Knight: <unk> line items like insurance and taxes, but I think over the long term. If we continue to see the trends that we're seeing now three years to 4% over an extended period of time wouldn't be unreasonable.

Justin G. Knight: And I would add that, over an extended period of time, our expenses tend to track reasonably closely with inflation. The trick is in an environment like the environment we've been in recently, where inflation numbers move more erratically and more significantly. There tends to be a lag around those. But zooming out, you know, I think depending on where we end up from an overall inflation standpoint, we would expect to be in the range that Liz highlighted, or to the extent the Fed's successful in reining in inflation and that were to come down more significantly, we could even see expense growth below that.

Justin G. Knight: I would add to that over an extended period of time, our expenses tend to track reasonably closely with inflation.

Justin G. Knight: The trick is in an environment like the environment, we've been in recently, where.

Justin G. Knight: Inflation numbers move more radically and more significantly on.

Justin G. Knight: There tends to be a lag around those.

Justin G. Knight: But zooming out.

Justin G. Knight: I think.

Justin G. Knight: Depending on where we end up from an overall inflation standpoint, we would expect to be in the range.

Justin G. Knight: This highlighted or to the extent that that's successful and rainy than inflation and that were to come down more significantly we could even see expense growth below that.

Chris Darling: All right. I appreciate the thoughts. Thank you.

Speaker Change: Alright, I appreciate the thoughts thank you.

Justin G. Knight: There are no further questions at this time. I would now like to turn the floor back over to Justin Knight for closing comments.

Chris Darling: There are no further questions at this time I would now like to turn the floor back over to Justin Knight for closing comments.

Justin G. Knight: We appreciate your continued interest and for you taking the time to spend with us this morning. As I always say, you know, as you have an opportunity to travel, we hope you'll take the opportunity to visit and to stay with us in some of our hotels. We're incredibly pleased with the quality of our portfolio and the recent additions to it through new acquisitions, and we look forward to meeting with many of you here in the coming weeks as we get out on the road. You may disconnect your lines at this time. Thank you for your participation. The Bulletproof Executive 2013

Justin G. Knight: We appreciate your continued interest and for you taking the time to spend.

Justin G. Knight: Spend with us this morning.

Justin G. Knight: As I always say.

Justin G. Knight: You have an opportunity to travel we hope you'll take the opportunity to visit.

Justin G. Knight: And to stay with us and some of our hotels, we're incredibly pleased with the quality of our portfolio.

Justin G. Knight: And the recent additions to it through new acquisitions.

Justin G. Knight: And we look forward to meeting with many of you here in the coming weeks as we get out on the road.

Operator: This concludes.

Justin G. Knight: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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