Q4 2024 Apple Hospitality REIT Inc Earnings Call
Greetings and welcome to Apple hospitality, REIT fourth quarter and full year 'twenty 'twenty four earnings conference call.
At this time all participants are in a listen only mode. A 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 I would now like to turn the conference over to your host Kelly Clarke. Thank.
Speaker Change: Thank you you may begin.
Speaker Change: Thank you and good morning, welcome to Apple Hospitality, REIT fourth quarter and full year 2024 earnings call today's call will be based on the earnings release and Form 10-K, which we distributed and filed yesterday afternoon.
Speaker Change: 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 assumption 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.
Speaker Change: Adjusted or imply.
Speaker Change: Any such forward looking statements are qualified by the risk factors described in our filings with the SEC.
Speaker Change: Including in our 2024 annual report on Form 10-K, and speak only as of today.
Speaker Change: The company undertakes no obligation to publicly update or revise any forward looking statement, except as required by law.
Speaker Change: In addition, non-GAAP measures our 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.
Speaker Change: For a copy of the earnings release or additional information about the company. Please visit Apple hospitality REIT dotcom.
Speaker Change: This morning, Justin Knight, our Chief Executive Officer, and Liz Perkins, Our Chief Financial Officer will provide an overview of our results for the fourth quarter and full year 2024, and an operational outlook for 2025.
Speaker Change: 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.
Speaker Change: Good morning, and thank you for joining us today for our fourth quarter and full year 2024 earnings call.
Speaker Change: I would like to begin by recognizing the courageous and dedicated teams at our hotels in southern California, and extending our thoughts and prayers to everyone impacted by the recent wildfires we.
Speaker Change: We are fortunate that our hotels did not sustain any material damage and have remained open and operational.
Speaker Change: As the recovery from the fires moves forward, we will continue to support the ongoing efforts of our operating teams to care for gas associates and the surrounding communities as expected travel trends across our portfolio remained strong during the quarter driven by steady improvement in business transient demand continued strength in leisure travel immediate supply.
Speaker Change: We achieved comparable hotels revpar growth of approximately 3% for the fourth quarter and more than 1% for the full year as compared to the same periods of 2023, respectively, driven by improvements in both ADR and occupancy.
Speaker Change: While business travel continues to be the primary driver of overall growth for our portfolio leisure travel demand has been resilient.
Speaker Change: Contributions from recent acquisitions, along with continued strength in ADR and moderating expense growth enabled us to achieve strong bottom line performance for the quarter lifting full year 'twenty 'twenty four results.
Speaker Change: Fourth quarter adjusted EBITA, Ari was up approximately 7% and modified funds from operations was up approximately 6% as compared to the fourth quarter 2023.
Speaker Change: In January strong performance from our hotels and the broader L. A and D C markets offset weather related disruption elsewhere.
Speaker Change: L. A hotels have continued to perform well in February and we anticipate that incremental demand from insurance and reconstruction efforts will continue to bolster performance for several of these hotels at least through the first quarter.
Speaker Change: Supply demand dynamics for our business continue to be favorable at the end of the fourth quarter approximately 55% of our hotels did not have any new upper upscale and upscale or upper mid scale product under construction within a five mile radius.
Speaker Change: We continue to believe that limited supply growth in our markets materially improves the overall risk profile of our portfolio by both reducing potential downside and enhancing the upside impact of variability in lodging demand relative to past cycles.
Speaker Change: Supported by our strong operating performance, we continue to pay an attractive dividend.
Speaker Change: During the fourth quarter, we paid distributions totaling 24 cents per common share, bringing our annual payout to approximately $244 million or dollar one per common share.
Speaker Change: Based on Friday's closing stock price, our annualized regular monthly cash distribution of <unk> 96 per share represents an annual yield of approximately six 5%.
Speaker Change: 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.
Speaker Change: Our disciplined approach to capital allocation and portfolio management has defined our strategy throughout our history and was especially evident in 2020 four.
Speaker Change: During the year, we acquired two hotels for $196 million sold six hotels for more than $63 million repurchased approximately $35 million in common shares and reinvested $78 million in our existing portfolio through capital expenditures.
Speaker Change: While the transaction market continues to be challenging with industry TL volume remaining at historical lows and down meaningfully year over year, we have successfully executed on select asset sales and ways to continue to optimize our portfolio concentration in specific markets.
Speaker Change: Proceeds from these sales were used primarily to fund share repurchases and to reduce that.
Speaker Change: During 2024, we sold six hotels to five separate buyers, including 122 room Hampton Inn, and 126, Homewood suites, and Rogers and the 82 room Springhill suites in Greensboro, and 90 room courtyard in Wichita are 97 room tower place suites in Knoxville and 107.
Speaker Change: 17 room Hilton Garden Inn, located in Austin, North for a combined sales price of more than $63 million.
Speaker Change: More recently in February of this year, we completed the sale of the 76 from Homewood suites in Chattanooga for approximately $8 million and we are under contract to sell our springhill suites in fishers, Indiana for nearly $13 million.
Speaker Change: While pricing for the individual hotels ferries as a group the eight hotels will trade at a sub 7% cap rate or a 12 four times EBITDA multiple before capex and a five 2% cap rate or 16 times EBITDA multiple after taking into consideration the estimated $24 million and required capital improvements.
Speaker Change: It is noteworthy that shares repurchased during 'twenty 'twenty four we're priced at around a one and a half turn spread to recent dispositions and over a five <unk> EBITDA multiple spread after taking into consideration required capital investment.
Speaker Change: Yeah.
Speaker Change: Recent acquisitions continuing to contribute positively to our overall portfolio performance.
Speaker Change: The seven hotels acquired since June of last year and open for the full year produced an unlevered, 9% yield after capex on a trailing 12 month basis with continued upside.
Speaker Change: Our springhill suites in Las Vegas, the other 10, 5% after capex for the full year and the AC and Washington D. C yielded 8%, despite a softer fourth quarter, which was anticipated due to the presidential election.
Speaker Change: The recently opened the embassy suites in Madison underperformed, our expectations in the fourth quarter weighing on overall portfolio results at securing group business proved challenging during a period of seasonally low occupancy for the market.
Speaker Change: We continue to believe in the long term potential of this asset and the Madison market more broadly.
Speaker Change: The hotel management team is working hard to optimize near term performance and the booking position is looking more favorable beginning in the second quarter.
Speaker Change: We continue to actively underwrite additional opportunities and are well positioned to act, where we can achieve attractive yields relative to other capital allocation opportunities.
Speaker Change: We have one hotel under contract for purchase of motto by Hilton, which is under construction in downtown Nashville for approximately $98 million.
Speaker Change: Yes, it is being developed under a fixed price contract and we anticipate acquiring this hotel upon the completion of construction late this year.
Speaker Change: Since the onset of the pandemic, we have completed approximately $325 million and hotel sales with an additional 13 million under contract and expected to close during the first quarter of this year.
Speaker Change: And we have invested $1 billion of new acquisitions, while maintaining the strength of our balance sheet. These.
Speaker Change: These transactions have further enhanced our already well positioned portfolio by lowering the average age lifting overall portfolio performance, helping to manage near term capex needs, increasing exposure to high growth markets and position us to continue to benefit from near term economic and demographic trends.
Speaker Change: Our recent acquisition and disposition activity, along with our <unk> three share issuance and recent share repurchases highlight our ability to adjust tactical strategy to account for changing market conditions and underscore our track record of acting on opportunities at optimal times in the cycle to maximize total returns for our shareholders.
Speaker Change: We actively seek opportunities to further optimize our portfolio drive earnings per share and maximize long term value for our shareholders.
Speaker Change: Yeah.
Speaker Change: During 2024.
We invested approximately $78 million in capital expenditures and we expect to spend between 80 and $90 million during 2025 with major renovations at approximately 20 of our hotels.
Speaker Change: These are investments in our portfolio are a key component of our overall strategy and ensure our hotels remain competitive in their respective markets to further drive EBITDA growth.
Speaker Change: 11 of the anticipated projects. This year are part of multi year franchise extension agreements.
Our experienced team utilizes advantages of scale ownership to control costs maximize impact of dollar spent and implement projects during periods of seasonally lower demand to minimize revenue displacement.
Speaker Change: As we begin 2025, we are confident that with our portfolio of high quality rooms focused hotels broadly diversified across markets and demand generators, the strength of our brands and effectiveness of our management companies the stability and flexibility provided by our balance sheet.
Speaker Change: And the depth and experience of our corporate team, we are exceptionally well positioned for the future.
Speaker Change: Current fundamentals for our business are strong.
Speaker Change: Barring unanticipated macro events, we believe that operating performance should continue to improve with the greatest opportunity coming through steady growth in midweek occupancy and rate.
Speaker Change: Leisure travel has proven resilient supported me observe consumers shift towards experiences.
Speaker Change: The past several years have provided opportunities for us to demonstrate both the strength and stability of our business and the capabilities of our team.
I am confident in our ability to produce strong returns for investors over the coming years 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.
Liz Perkins: Thank you Justin and good morning, before I begin I would like to Echo Justin's comments acknowledging the teams at our hotels in southern California for their access service and unwavering hospitality during and following the recent wildfires they have gone above and beyond to care for our guests and their fellow team members and our surrounding communities are.
Liz Perkins: <unk> go out to everyone impacted.
Liz Perkins: We are pleased to report another strong quarter and year for our portfolio of hotel comparable hotels total revenue was $329 million for the fourth quarter and $1 $4 billion for the full year up approximately 4% and two 5% as compared to the same periods of 2023, respectively.
Liz Perkins: <unk>.
Liz Perkins: With continued strength in leisure demand and additional recovery in business demand fourth quarter comparable hotels Revpar was $109 up approximately 3% ADR was $153 up approximately 1% and occupancy was 71% up 2% as compared.
Liz Perkins: For the fourth quarter 2023.
Liz Perkins: For the full year 2024, comparable hotels, Revpar was $119 up more than 1% comparable hotels occupancy was 75% up approximately 1% and comparable hotels ADR was $159 up approximately 1% as compared to <unk>.
Liz Perkins: 2023.
Liz Perkins: As anticipated October was our strongest month during the quarter with year over year comparable hotels revpar growth at 4%.
Liz Perkins: During the quarter, our Seattle properties in Renton and Tech kwela were negatively impacted by temporarily reduced inbound training and consulting business associated with Boeing disruption.
Liz Perkins: Our Nashville, Atlanta, and Denver assets also experienced weaker year over year performance during the quarter due in large part to recent supply growth and less robust group and event calendars.
Liz Perkins: During the quarter, we saw meaningful year over year growth at our recently acquired downtown Salt Lake City Hotel, which benefited from strong event and convention calendars.
Liz Perkins: Our embassy suites in the South Jordan Submarket of Salt Lake City also saw significant year over year growth due to strengthening group and business demand in market.
Liz Perkins: Other top performing hotels included our two south Bend hotels, which benefited from Notre Dame football games are hotels in Tampa, and Orlando, which saw increased demand from hurricane Milton and Helene related business and our Houston Energy corridor hotels, which saw a meaningful increase in corporate negotiated business.
Liz Perkins: Preliminary results for the month of January 2025 show, a slight improvement in comparable hotels revpar as compared to January 2024, driven by growth in ADR.
Liz Perkins: During the month strong performance from our L. A and D. C hotels offset travel disruptions elsewhere in our portfolio largely related to uncharacteristic extreme winter weather in many of our sunbelt markets and portfolio ADR growth offset modest declines in occupancy.
Liz Perkins: Many of our L. A hotels have continued to see fire related recovery business in February and as Justin mentioned, we believe we will continue to have some related business through at least the first quarter.
Liz Perkins: Looking at the remainder of the quarter day of week shifts should help compensate for one fewer day in February and March will benefit from the Easter holiday shift into April.
Liz Perkins: New Orleans, which benefited from the Super Bowl in February is anticipated to benefit from Mardi Gras in March of this year looking at day over day trend improvements in leisure and business travel contributed roughly equally to fourth quarter improvement in occupancy year over year weekday occupancy was up every month during the quarter with October.
Liz Perkins: Our up one 6% and November and December up four 2% and three 6% respectively.
Liz Perkins: Weekend occupancy buried with October are up just over 1% November essentially flat and December up almost 10% as compared to the same periods in 2023.
Liz Perkins: Weekday rate growth for the quarter was fairly consistent with October and December both up approximately 2% and November up just over 1%.
Liz Perkins: Weekend ADR was down 1% in October and almost 2% in November but up almost 4% in December.
Liz Perkins: Weekday ADR continues to lag weekend, representing meaningful upside as midweek demand continues to strengthen positioning us to move rates higher.
Liz Perkins: Same store room night channel mix quarter over quarter remained relatively stable with brand dot com bookings at 41%, so the ta bookings and property direct at 13% and 23%, respectively, and GDS bookings, representing a 17% of our mix.
Liz Perkins: Fourth quarter same store segmentation was largely consistent with the fourth quarter of 2023.
Liz Perkins: <unk> remained strong at 33% other discounts represented 31% of our occupancy Max Group was 14% government was 5% and the negotiated segment represented 17% of our mix on a comparable basis, we continued to see growth in other revenue which were up 16%.
During the quarter.
Liz Perkins: Food and beverage revenues also improved 5%.
Liz Perkins: Turning to expenses comparable hotels total hotel expenses increased by approximately 5% for the fourth quarter and approximately 4% for the year as compared to the same periods of last year or 2% on a C. P O our basis for both the quarter and the full year.
Total payroll per occupied room for our same store hotels was $41 for the quarter up only 1% to the fourth quarter 2023.
Liz Perkins: Contract labor decreased during the quarter to seven 3% of total wages and was down 250 basis points or 23% versus the same period in 2023.
Liz Perkins: Comparable hotels utilities were up 6% Asbury hotel administrative expenses and sales and marketing expenses.
Liz Perkins: Well more variable expenses were well controlled fixed expenses were particularly challenging with real estate taxes up 11% during the quarter and property insurance cost up largely due to a challenging year over year comparison with losses under our deductible at several properties in the fourth quarter of this year.
Liz Perkins: Okay.
Liz Perkins: For the year comparable hotels variable expenses increased 4% or just over 2% on a C. P O R basis proper.
Liz Perkins: Property taxes insurance and other which was up only one 2% for the year benefited from decreases in property insurance premiums year over year and several one time real estate tax benefits, creating a challenging comparison as we look forward to 2025.
Liz Perkins: We achieved comparable hotels adjusted hotel EBITDA of approximately $108 million for the fourth quarter and $509 million for the full year up approximately 3% to the fourth quarter 2023, and up slightly as compared to the full year 2023.
Liz Perkins: We are especially pleased with our comparable hotels adjusted hotel EBITDA margin of 32, 9% for the fourth quarter and 36% for the full year down only 40 basis points and 70 basis points, respectively as compared to the same periods of 2023, which has consistently exceeded our expectations.
Liz Perkins: Adjusted EBITDA was approximately $97 million for the quarter and $467 million for the full year, both up approximately 7% as compared to the same periods of 2023, respectively.
Liz Perkins: <unk> for the quarter was approximately $77 million and for the full year was $389 million, both up approximately 6% as compared to the same periods of 2023.
Liz Perkins: During the quarter, we paid distributions totaling $58 million or 24 cents per common share, bringing our annual payout, including the special dividend paid in January of 'twenty, 'twenty four to approximately $244 million or one dollar and one cent per common share.
Liz Perkins: Looking at our balance sheet as of December 31, 'twenty 'twenty four we had approximately $1.5 billion of total debt outstanding net of cash approximately three one times, our trailing 12 months EBITDA with a weighted average interest rate of four 7%.
Liz Perkins: At quarter end, our weighted average debt maturities were approximately three years, we had cash on hand of approximately $10 million availability under our revolving credit facility of approximately $568 million.
Liz Perkins: Approximately 75% of our total debt outstanding was fixed or hedged and the number of unencumbered assets in our portfolio with 207.
Liz Perkins: We have four mortgage loans totaling approximately $64 million that will mature this year and term loans totaling $225 million that will mature in the third quarter.
Liz Perkins: We have begun conversations with our lenders and believe we are well positioned to address these maturities.
Liz Perkins: Turning to our outlook for 2025 provided in yesterday's press release for the full year, we expect net income to be between $173 billion and $202 million comparable hotels revpar change to be between 1% and 3% comparable hotels adjusted hotel EBITDA margin to be.
Liz Perkins: Between 34, 2% and 35, 2% and adjusted EBITDA, sorry to be between $447 million and $471 million.
Liz Perkins: Our asset management and hotel teams are working diligently to mitigate cost pressures, we have assumed for purposes of guidance that total hotel expenses will increase by approximately 4.2% at the midpoint. These.
Liz Perkins: These increases are driven by higher growth rates for certain fixed expenses, including real estate taxes, and general liability insurance than those experienced last year and have included approximately $2 million of incremental expenses related to brand conferences, which occur every 18 to 24 months.
Liz Perkins: In addition, the low end of our adjusted EBITDA, Our guidance assumes a 2 million dollar loss related to hotel 57.
Liz 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.
Liz Perkins: The low end of our range reflects more modest lodging demand growth and a slight pullback in leisure demand offset by continued improvement in business transient.
Liz Perkins: High end of the full year range reflects relatively steady macroeconomic conditions throughout 2025 with continued strength in leisure demand and improvement in business transient a portion being driven by extended fire related business in our L. A market hotels.
Liz Perkins: As we begin 2025, we are confident we are well positioned for continued strong operating fundamentals and Bottomline performance.
Liz Perkins: The operating environment is relatively stable with favorable supply demand dynamics. Our recent capital allocation activity has enabled us to drive incremental value for shareholders and our balance sheet continues to provide us with meaningful optionality.
Liz Perkins: Our differentiated strategy has proven resilient through economic cycles, enabling us to preserve equity value and challenging environments and to be uniquely positioned to enhance value through opportunistic transactions when market conditions are more conducive.
Liz Perkins: Our team works diligently to maximize the performance of our existing portfolio, while staying ready to take advantage of market chefs and opportunities to further strengthen returns for our shareholders.
That concludes our prepared remarks, we would now be happy to answer any questions you have for us This morning.
Liz Perkins: Yeah.
Speaker Change: Thank you at this time, we'll 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.
Speaker Change: You May press star two if you'd like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Dori Houston with Wells Fargo. Please proceed with your question.
Dori Houston: Hi, Thanks, good morning.
Speaker Change: And you mentioned a challenging comparison for 2025 fixed cost versus 24, if you were to normalize for that what operating expense growth have you assumed in your 25 guidance.
Good morning, Dori, Yeah, so for our guidance for.
Speaker Change: For 2025, we do have a challenging fixed cost expense comparison, and we had several one time tax benefits as well as decreased property insurance premiums throughout 2024.
Speaker Change: If you take the one time benefit of around them.
Speaker Change: Yeah.
Speaker Change: A $2.7 million in 2024, and you assume some benefit but not as much in 2025, plus you have an incremental addition, with Madison, you're around $3 $2 million hurdle year over year and normalizing for that.
It's about a 5% assumed increased to property taxes, and so you know I think as you think about where that would put us overall it would be certainly less than what we have in the fall guide for this year I mentioned in my prepared remarks with the increase baked in for fixed expenses at the mid point you're at.
Speaker Change: Four 2% for total hotel expenses that had variable expenses outside of fixed cost around 3.5%, so certainly you'd be less than 4% without without those fixed fixed cost fixed cost hurdle.
Speaker Change: Okay. Thanks Lynne.
Speaker Change: And then you've been selling relatively small hotels and in tertiary markets, probably outsized capex needs person there upside what percentage of your portfolio would you describe in a similar way today and then just who is the natural buyer for these assets that you've found.
Speaker Change: So.
Speaker Change: So the first part of the question.
Speaker Change: You know between <unk>.
Speaker Change: Seven and 10% likely of our portfolio would fit in a similar category.
Speaker Change: Certainly we have prioritized assets Hum for both strategic and tactical reasons strategic I think you highlighted them in markets, where we see limited upside.
Speaker Change: We have near term capex needs.
Speaker Change: And then tactically we have found that we're able to create a more competitive bidding process around smaller assets within our portfolio, where the total deal size.
Speaker Change: Is reasonable and approachable tour local owner operators, who have been the primary bidders on those as a result, we're able to create a competitive bidding process.
Speaker Change: And as I highlighted in my prepared remarks, we're able to achieve strong a sales price and dispose of assets at low cap rates, which positions us to redeploy proceeds in an accretive fashion and grow overall value for our shareholders.
Speaker Change: I think we've shown over the past several years, a willingness and an ability to pivot and to adjust our acquisitions and disposition strategy. According to.
Speaker Change: <unk> in the market or are you know to take into consideration changes in market conditions that is the portion of the market. That's the most active today, but as we move through the year that could change and we'll adjust from a strategic standpoint and accordingly.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Austin, <unk> with Keybanc capital markets. Please proceed with your question.
Austin: Great Thanks, and good morning, everybody.
Speaker Change: I think I've asked you this in the past, but going to ask you again.
Speaker Change: You would reference that midweek ADR continues to be meaningfully below weekend ADR. How closer are you to reaching an occupancy level you know mid week, where you kind of cross that threshold that gives you the ability to push on rate more meaningfully.
Speaker Change: Yeah.
Speaker Change: Or sounds like getting closer and we've seen some of it I think.
The more we are able to.
Speaker Change: You know drive that compression mid week, we're able to mix manage and that's preferencing higher rated negotiated business and certainly preferences bar rates.
Speaker Change: That can be pushed higher by by that additional compression where you know this time of year. It is not our strongest from an occupancy perspective, but as we were rounding out last year. We were still you know looking back over more extended period of time, we'd probably still had you know 5% to go overall.
Speaker Change: Relative to pre pandemic levels, where we really got that compression and ability to grow rate.
Speaker Change: So still opportunity, but but have continued to shrink the gap as we moved through last year and certainly believe as we continue to our higher occupancy months, well, we'll continue to see that opportunity.
Speaker Change: No. That's helpful. And then switching gears just in you know you referenced the transaction market remains challenging but.
Speaker Change: Somewhat of a bid ask spread curious what you think narrows it and to the extent that it remains wide I mean, how how aggressive are you willing to get you know cobbling together some of the smaller portfolios and and redeploying those.
Speaker Change: Proceeds into buying back.
Speaker Change: Shares of your stock.
Speaker Change: Thanks.
Speaker Change:
Speaker Change: And interesting questions.
Speaker Change: Certainly our preference with the types of assets, we've been selling recently would be to put them together in a portfolio.
Speaker Change: And to sell them as a group and certainly a much more efficient way to transact with some of the smaller assets and the reality is today.
Speaker Change: We would not be able to maximize value in a transaction a scaled transaction at that time, meaning that there are fewer bidders interested in portfolios and those who are are less aggressive in bidding for those poor players than there are.
Speaker Change: For individual assets and as a result.
Speaker Change: We have customized our strategy our tactical strategy based on the environment as it exists and as you've been able to see we've executed very successfully.
Speaker Change: Our portfolio of assets through individual transactions.
Speaker Change: I think as we move through the year.
Speaker Change: <unk>.
Speaker Change: Our expectations are that things could change I know a number of our peers have highlighted on their calls and we also believe that the debt markets are relatively open.
Speaker Change: Meaning that our debt financing is fairly readily available, albeit more expensive than it has been historically and importantly, a loan to value is meaningfully lower than it was when we saw.
Speaker Change: The last peak from a transaction volume standpoint, and so when we look at cost of capital for.
Speaker Change: For various buyers and specifically.
Speaker Change: The private equity buyers, who tend to pursue portfolios.
Speaker Change:
Speaker Change: Combined with some general uncertainty about the long term direction.
Speaker Change: The space, it's been harder to achieve premium valuations either on larger assets or portfolios.
Speaker Change: I think you asked what might change that I think our continued reductions in overall interest rates would certainly be helpful.
Speaker Change: <unk>, a more meaningful reacceleration in terms of fundamental performance for the industry as a whole and I think.
Speaker Change: The opportunity exists for either or both of those to happen as we move through the year and suddenly we're you.
Speaker Change: You know, we would position ourselves accordingly in that environment.
Speaker Change: I appreciate the thoughts thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from Jay Kornreich with Wedbush Securities. Please proceed with your question.
Speaker Change: Yeah.
Jay Kornreich: Hi, guys good morning.
Speaker Change: What are the thoughts for.
The guidance Revpar growth of 2% in 2025.
Speaker Change: Any opportunity to outperform that do you see that coming more from the midweek business transient demand picking up or the weekend demand will continue to stay elevated.
Are you able to provide any kind of cadence as to how you see quarterly revpar shaping up throughout the year.
Speaker Change: Hi, Good morning, Jay It's a good question you know I think we have continued to articulate our belief that we have opportunity in mid week from a from an occupancy perspective and again its Austin Act you know with that occupancy we believe there's ADR opportunity that's why.
Speaker Change: We have the gap to pre pandemic levels and from a leisure perspective, we're continuing to outperform generally you know and I think while there was some normalization as the industry likes to refer to it with leisure last year, Theres still an opportunity that that could outperform.
Speaker Change: This year, given given that normalization last year and the fact that its remained strong overall, so I think.
Speaker Change: The opportunity to outperform comes on you know from both business and leisure, though as we look at tactically, what we're seeing and what we're anticipating it's more of the mid week growth at the midpoint of our guidance range and then as we think about cadence. It's a slow start to the year, while we do.
Speaker Change: Do have benefit from the L. A properties we've been impacted in January in particular by weather related events. Some of that is spilled over into February as well, but really January with was a tough start for the for the portfolio outside of L. A thankfully we have L. A to help compensate for that some what we believe will continue to bend.
Speaker Change: As we move throughout the year from a revpar growth perspective also as we progress our Madison Embassy, which we acquired in which opened in June of last year will have more time to ramp as we progress through the year.
Speaker Change: Great. Thank you I'll hold it there.
Speaker Change: Our next question comes from Florida spend Dicom with Compass point. Please proceed with your question.
Speaker Change: Hey, good morning, Joe.
Speaker Change: Justin I'd loved it I mean.
Speaker Change: I, sometimes think that you don't get the credits in terms of capital allocation that you perhaps deserve.
Speaker Change: You've clearly been leaning more into the <unk> and some of the urban markets.
Speaker Change: <unk> got another call it 7% to 10% of your hotels that you could look to sell.
Speaker Change: Creatively redeploy those where do you think youre going to be redeploying them.
Speaker Change: Capital is it more urban is it more suburban.
Speaker Change: And how has that mix shifted maybe if you can talk you know how the portfolio looks in 2020 between.
Speaker Change: Between urban and suburban and how do you see that trending over the next three to four years.
Speaker Change: Absolutely. So in terms of immediate opportunity for redeployment I think we've demonstrated that the most attractive opportunity for US recently has been share repurchases certainly we monitor that and as we underwrite.
Speaker Change: Any type of acquisition, whether it's our existing or new development, we consider that opportunity relative to an opportunity to redeploy them into.
Speaker Change: Into our own shares, which we see as being tremendously valuable.
Speaker Change: I think when you think about the overall makeup of our portfolio.
From an EBITDA contribution.
Speaker Change: Some of this has shifted as we have seen continued improvement in the performance of our urban markets, where roughly 40% just under 40% urban today and you know when you look at number of hotels, roughly 30% remembering that a number of our urban hotels are larger so I have more.
Speaker Change: And certainly when we think about our overall EBITDA contribution per hotel, they're larger individual contributors.
Speaker Change: That is a mix that continues to grow comfortable for us and while we have recently seen.
Speaker Change: And some of our urban markets strong relative performance, we continue to see strong performance in a number of our suburban markets as well and I.
Speaker Change: I think it has been our long term strategy to be broadly diversified with exposure to markets, where we see the potential for outsized growth. The reality is that over an extended cycle.
Speaker Change: You know that that requires us to be present in a mix of markets and we have found.
Speaker Change: That over several decades in the industry, having a healthy mix of strong.
Speaker Change: Urban markets combined with urban markets has created both at the best opportunity for stability in our portfolio and the.
Speaker Change: The best potential for long term growth.
Speaker Change: Thanks, maybe if I have a follow up for for Liz Liz.
Speaker Change: The $295 million of debt that matures. This year I think the 10 year's dropped almost 50 basis points over the last month.
Speaker Change: Would you where would you borrow at today for for for five or 10 year.
Speaker Change: Money and would you consider.
Speaker Change: Pre funding some of those are maturing loans today.
Speaker Change: And and use the cash to.
Speaker Change: To get some nice interest.
Speaker Change: You know that term loans in particular that come due are at favorable pricing I do think there could be an opportunity as we recast that that's the majority of what you mentioned, it's a 225 is that the total that you mentioned and you know where are we.
Speaker Change: We're beginning those conversations now so I think your question is reasonable you know, we'll look at you know timing and.
Speaker Change: Your savings as as we move forward towards that maturity. The secured debt is a little is a little trickier of those certainly have you know where longer term.
Speaker Change: That place since then and they had very attractive interest rates those will be trickier to replace them you know at certainly a lower interest rate than where they where we also have a few swaps maturing debt will manage as well and you have some of that interest savings is not currently baked into what is provided in the <unk>.
Speaker Change: <unk> Guy that says there could be some upside there.
Speaker Change: And in terms of the term of that that you would look to put on is it five.
Speaker Change: Extend the maturities are.
Speaker Change: Five years or something like that.
Speaker Change: One way to think about that.
Speaker Change: Certainly I would love five years I think you know the market the term loan in particular that we'll explore all options. The term loan market in particular has been a little bit tighter than five years.
Speaker Change: As of late I think things are starting to improve and so again in conversations there, but but certainly wed love to approach five years.
Speaker Change: Well, we will see as we continue to progress in our conversations with the lenders.
Speaker Change: Thanks Louis.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Michael Bellisario with Baird. Please proceed with your question.
Michael Bellisario: Good morning, everyone.
Speaker Change: Good morning, Mike.
Michael Bellisario: Got a few questions for you, but just first on operating expenses and sort of looking ahead.
Speaker Change: Help us understand like what are you what are your operators doing differently or maybe better in 2025 to offset some of the above inflationary growth that you referenced and then sort of when you step back how much of the P&L was actually kind of quote controllable versus non controllable.
Speaker Change: When I'm, giving broad ranges you know when I say variable I'm really speaking about everything outside of property taxes insurance and other and as you're alluding to not all of that is perfectly variable because we certainly have you know salaries and overheads and things like that that are included so it's not it's not perfectly variable what I will say with.
Speaker Change: That is that as we improve occupancy our cost on a per occupied basis improves and so that's really how we're looking at our guide for 2025, if you look at where we finished the.
Speaker Change: The year on a cost per occupied room basis for variable expenses, we were at two 3% growth from a comparable standpoint, and at the midpoint or slightly higher than that so that would account for some general inflationary pressures, but reasonable as we think about what we're guiding them relative to the topline.
Speaker Change: But where we're seeing the big meaningful increase on a per occupied room basis Israeli those fixed expenses.
Speaker Change: Okay.
Speaker Change: <unk> different but you're all players are doing are targeting.
Speaker Change: You know I think we continue to leverage our extensive benchmarking that we have and are constantly looking for opportunities I think.
Speaker Change: You know we have seen decelerating.
Speaker Change: <unk> pressure as we move throughout last year, I think that that has stabilized, but I think productivity as we're reducing contract labor is something our managers continue to focus on them and then beyond that you know all all controllable expenses I think.
Speaker Change: The team has done a really good job there. So it's always hard to anticipate more that's really where I think some of our while we did outperform last year from a fixed expense perspective. The variable expense management was was very strong as well and I think we continue to look for outliers from a performance standpoint in our portfolio.
Speaker Change: And learn best practices.
Speaker Change: Our speakers disconnected. Please stay on the line, we will we will be back momentarily.
Speaker Change: Please remain on the line our speakers will be calling back in thank you.
Speaker Change: Okay. Our speakers are back.
Speaker Change: Apologies.
Speaker Change: Mike can you hear us now.
Speaker Change: I got you on here.
Speaker Change: Okay, Okay, where did you lose us.
Speaker Change: Uh huh.
Speaker Change: I think we're good on the operating expense I can move to my next question.
Speaker Change: For Justin I mean, when you guys do your analysis of sort of buy versus sell in Youre triangulating values, maybe give us the lay of Atlanta, how have real estate values, maybe changed over the last 90 120 days, both on the buy and sell side from your perspective.
Speaker Change: Yeah, it's interesting to try to identify.
Speaker Change: Broad reaching trends in an environment, where there are so few.
Speaker Change: Transactions happen.
Speaker Change: As I highlighted in response to one of the earlier questions.
Speaker Change: Where we have seen the greatest activity around smaller hotel asset.
Speaker Change: And the most interested buyers of those assets are local owner operators and part of that I think is an ability to create stories around those I highlighted in my prepared remarks that we've been able to dispose of assets at very low cap rates.
Speaker Change: Applying those cap rates to our entire portfolio would produce a very strong value of the challenges that in today's market as I highlighted in <unk>.
Speaker Change: An earlier question is that there isn't really a large portfolio of bid today and sort of extrapolating from individual transactions to large scale value is a little bit tricky and in fact.
When we've been trading and higher values and had been more aggressive on the acquisition side.
Speaker Change: I've highlighted that we've been able to acquire larger assets at discounts to where we feel their long term value is.
Speaker Change: Our expectation is that as we move through the year the market is likely to open.
Speaker Change: Sure.
Speaker Change: In that type of environment in a better position to peg an industry clearing price for assets, but absent that.
Speaker Change: My sense is that values for real estate.
Speaker Change: Have remained stable in the hospitality space.
Speaker Change: And for particular assets.
Speaker Change: Whether driven by a lack of desire on the seller's part to sell those assets or.
Speaker Change: Recent strong performance from those assets.
Speaker Change: Assets in many markets have grown in value.
Speaker Change: Now.
Speaker Change: I think that is.
Speaker Change: Yes.
Speaker Change: Our belief currently unsupported by transaction volume that would be sufficient.
Speaker Change: To assure that that would always in every instance would be the case.
Speaker Change: But certainly I think evidenced by the fact that those with assets.
Speaker Change: Better performing well are unwilling to sell for generally for prices.
Speaker Change: That are below.
Speaker Change: Where they would have anticipated trading on those assets.
Speaker Change: Several years ago and in most cases.
Speaker Change: Seller expectations have increased.
Speaker Change: Okay Fair enough and then just one follow up there it looks like age and Capex are sort of the main drivers of what you're selling any other major factors that youre considering and then maybe also when does the more broadly challenging fundamental outlook become a bigger driver of of an asset sales plan.
Speaker Change: I think.
Speaker Change: There are strategic and tactical elements to our disposition strategy and from a strategic standpoint.
Speaker Change: As we look at our portfolio the primary driver really is.
Speaker Change: Trajectory of the individual market with a secondary driver being our positioning within that market either in a location or asset within that market.
Speaker Change: I think from a tactical standpoint, what you've seen recently is us focus on smaller assets and more tertiary markets.
Speaker Change: That's because we can transact those assets and achieve what we see as favorable pricing in todays environment.
Speaker Change: To the extent that the market broadens you'll see.
Speaker Change: More colors of that same strategy as we look more broadly at the portfolio.
Speaker Change: And potentially to take chips off the table and some markets that have performed well, but may have lower expected growth trajectories on a go forward basis.
Speaker Change: And as I highlighted earlier.
Speaker Change: I think.
Speaker Change: While we will always pursue transactions in a way that we feel optimizes the value.
Speaker Change: Of those transactions.
Speaker Change: Ideally.
Speaker Change: Long term, we're in a position.
Speaker Change: To pool assets and to maximize value through portfolio trades.
Speaker Change: That is where we have.
Speaker Change: See the greatest success, historically, and certainly opens us up to move the portfolio more meaningfully.
Speaker Change: Meaning are.
Speaker Change: One portfolio more meaningfully through scale transactions.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Ari Klein with BMO capital markets. Please proceed with your question.
Ari Klein: Thanks, and good morning.
Speaker Change: Maybe just following up on the transaction discussion.
Speaker Change: You learn perhaps constrained by by deal sizes for change the actions what percentage of the portfolio will be considered.
Speaker Change: Not noncore versus that 7% to 10% you highlighted earlier or is that 7% includes 7% inclusive of <unk>.
All the assets you might view as noncore.
Speaker Change: I would say that is inclusive of the assets that we would consider non core today.
Speaker Change: Okay got it and then maybe Jeff just on the Revpar guidance curious yes.
Speaker Change: As it relates to the mix of occupancy and ADR growth that is embedded in that guidance. Thank you.
Speaker Change: Sorry could you repeat the question.
Speaker Change: Just as it relates to the Revpar guidance.
Speaker Change: Curious on the mix of occupancy growth versus ADR growth.
Speaker Change: Got it.
Speaker Change: And that rep.
Speaker Change: Our revpar guidance for 25.
Speaker Change: It is a mix between the two I mean it is.
Speaker Change: Some occupancy growth, where we're able to capitalize and drive additional ADR. So its truly a mix between the two.
Speaker Change: Alright, great. Thank you.
Speaker Change: Thank you.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Chris Thailand: Our next question comes from Chris Thailand, with Green Street. Please proceed with your question.
Chris Thailand: Hey, Thank you good morning.
Speaker Change: Louis just a quick one I may have missed it earlier, but what's your outlook for wage and benefit growth this year.
Chris Thailand: Okay.
Speaker Change: We're somewhere between three and a half and 4%.
Speaker Change: Specifically around wages understanding that when we look at total variable costs and we look at what we're implying there at the mid point from a growth rate perspective, we're assuming some additional benefit from reduction in contract labor as well.
Speaker Change: Okay helpful.
Speaker Change: And then just going back to maybe the supply backdrop across your markets just digging a little bit deeper understand there's really little in the way that's under construction broadly, but what about projects in the planning process anything that might come out of the ground in the near term just wondering if youre seeing any changes sort of holistically, one way or the other.
Speaker Change: We have not seen any indicators that there would be near term shifts certainly as we look at Pi.
Speaker Change: Pipelines and we're in continuous communication with the brands about potential.
Speaker Change: <unk> in markets, where we have ownership.
Speaker Change: The fact that pure deals are beginning construction.
Speaker Change: Means that even with fewer new deals being signed up.
Speaker Change: The pipeline has the potential to grow relative to what would naturally occur.
Speaker Change: Or would have occurred in past cycles, where we saw more natural flow from planning to construction starts.
Speaker Change: Obviously that varies by market.
Speaker Change: And we have seen outsized new construction in some markets.
Speaker Change: Being broadly diversified.
Speaker Change: The majority of our markets still don't have any.
Speaker Change: New projects under construction within a five mile radius and given time from construction start to completion.
Speaker Change: At a minimum 18 months, but very often two to three years that gives us a lot of runway in most of our markets without any exposure to.
Speaker Change: New supply.
Speaker Change: It'll be interesting to see how those numbers develop overtime certainly as the brands have announced new brand offerings, we see.
Speaker Change: A flurry of signings and you'll see a number of deals enter the pipeline in early planning or.
Speaker Change: Planning stages.
Speaker Change: But we have not seen a material increase in construction starts as a result.
Speaker Change: I think the primary impediments.
Speaker Change: We continue to be.
Speaker Change: Costs relative to.
Speaker Change: Income potential from the targeted developments I think green.
Speaker Change: Green Street.
Speaker Change: Maybe over a decade ago put out a piece that argued there were no such thing as high barrier to entry markets only high cost markets.
Speaker Change: And I think what we see today is that in many markets that had historically been viewed as low barrier to entry.
Speaker Change: The fact that construction costs have universally increased.
Speaker Change: And very often at a pace faster than the potential profitability of the developments has increased it has created a natural impediment to supply growth that I think gives us room in many markets to continue to benefit from incremental demand growth.
Speaker Change: In ways that we would not have in past cycles and for that reason really in my prepared remarks.
Speaker Change: I highlighted that we feel the risk profile, especially for the types of assets that we own has shifted dramatically meaning that as we continue to see improvement in demand, we will see outsized benefit from that relative to what we would've seen in past cycles.
Speaker Change: And on the flip side to the extent there were to be a pullback.
Speaker Change: In demand the negative impact would be muted relative to what we've seen in past cycles, where historically, we saw a glut of new supply come online at the least opportune time in the cycle.
Speaker Change: Okay makes sense, I guess transitioning to a market, where maybe that income relative or potential income relative to cost formula might actually make sense Las Vegas.
Speaker Change: No you can share in regards to the development parcel there and I think maybe more importantly.
Speaker Change: Given where your cost of capital is today, how would you think about potentially starting on balance sheet a project like that in today's environment.
Speaker Change: So two things one we continue to to work with.
Speaker Change: Potential developer for.
Speaker Change: We have the asset development there.
Speaker Change: We are working through various plans and cost structures and.
Speaker Change: <unk> continued to underwrite I think.
Speaker Change: As has been the case historically it would not be our intention to build on balance sheet.
Speaker Change: And so as we're thinking about cost of capital.
Speaker Change: Relative to our biggest development.
Speaker Change: We're forecasting essentially cost of capital at the time of acquisition, which would be two to three years in the future.
Speaker Change: We're still a ways from starting.
Speaker Change: But I think advantaged in that case from an overall cost structure by the fact that we own the land and so.
Speaker Change: And.
Speaker Change: The 10, 5% return that I highlighted earlier includes.
Speaker Change: The value that we paid for the land and so as we think about.
Speaker Change: Total development costs, we're advantaged relative to those who might be getting into the market crash.
Speaker Change: Fresh and even with that.
Speaker Change: It's not.
Speaker Change: And even with the overall strength of that market. It is not an easy decision and were.
Speaker Change: Getting into a lot of detail with the developer on ways, we can.
Speaker Change: Make sure we maximize on the opportunity.
Speaker Change: While.
Speaker Change: Doing so at a price point that insurers will achieve the strongest returns during our hold.
Speaker Change: Okay. Thank you that's all from me.
Speaker Change: I appreciate it Chris.
Speaker Change: We have reached the end of the question and answer session I'd now like to turn the call back over to Justin Knight for closing comments.
Justin Knight: We appreciate you joining us today and thanks for your patience, while we dealt with some technical difficulties on our end.
Justin Knight: As is always the case, we hope that as you travel you will take the opportunity to stay with us at one of our hotels.
Justin Knight: We look forward to meeting with many of you here in the not too distant future.
Justin Knight: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.