Title

Presentation

Operator: Greetings and welcome to the Apple Hospitality REIT’s Fourth Quarter and Full Year 2022 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Clarke. Thank you. You may begin.

Kelly Clarke: Thank you and good morning. Welcome to Apple Hospitality REIT’s fourth quarter and full year 2022 earnings call. Today’s call will be based on the earnings release and Form 10-K, 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. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2021 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. 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 fourth quarter and full year 2022 and an operational outlook for 2023. 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 Knight: Good morning and thank you for joining us today. We are pleased to report another year of strong operating performance and continued growth for Apple Hospitality REIT. Additionally, during 2022, we took steps to ensure that we are well positioned for the year ahead by investing and staff and training, renovating and reinvesting in our hotels, reinstating monthly distributions, further bolstering our balance sheet and optimizing our portfolio through the strategic acquisition of two high quality hotels and the disposition of one noncore asset. 2022 RevPAR for our portfolio was $108, a 32% improvement over 2021 and a 3% improvement over 2019. RevPAR growth was driven by meaningful improvement in rate. ADR for the year was $149, an improvement of 21% as compared to 2021 and 9% as compared to 2019.

Occupancy was 73%, up approximately 10% compared to 2021 and down 6% compared to full year 2019. And total portfolio revenue for the year was up approximately 33% to 2021, down only 2% to 2019. Strong rate growth and effective cost controls enabled us to achieve actual adjusted hotel EBITDA margin for the year of 37%, up 250 basis points to 2021 and 10 basis points to 2019. MFFO was approximately $351 million, or $1.53 per share, up 67% compared to 2021 and down 4% compared to 2019. Emerging from the pandemic related business disruption, we have rebuilt portfolio occupancy and have worked with our management companies to make strategic investments in our hotel level talent to cultivate and retain associates despite a challenging labor environment by providing necessary training and focusing on culture and associated engagement.

These important investments in developing on-property teams position us to maintain the quality of our hotels and provide the service levels necessary to support continued growth in market share, in particular through higher rates, which we believe will be key to our long-term profitability. As our managers stabilize staffing at our hotels and invest in onsite training, we expect to realize efficiencies which should act as a partial offset to higher wages. Additionally, we see benefit to both service levels and profitability as we work to reduce dependence on contract labor, which continues to be elevated to pre-pandemic levels. We were fortunate to have entered the pandemic with a relatively young and well-maintained portfolio and as a result, were able to strategically reduce renovation spend to preserve capital in 2020 and 2021.

During 2022, we invested approximately $62 million in capital expenditures with significant renovations at 24 of our hotels. Our in-house CapEx team has done a tremendous job managing inflationary pressures and supply chain challenges to deliver outstanding and cost-effective results that strengthen our competitive position within our respective markets. We anticipate spending $70 million to $80 million during 2023, which includes comprehensive renovation projects at 20 to 25 of our hotels. Our 2022 and anticipated 2023 CapEx spend more closely approximate our historical investment of between 5% and 6% of revenues, which we believe is appropriate for our portfolio, and a meaningful differentiator for us, contributing to total shareholder returns over time.

Through our scale ownership of branded rooms focused properties over more than two decades, we have significant experience in determining the most effective scope and timing of our investments to ensure minimal disruption to property operations and maximum impact for dollar spent. Supported by our strong operating performance, we have led the industry in post-pandemic dividend payments, reinstating regular monthly cash distributions beginning with the March payment and increasing our monthly distribution in August and again in October. In December, our Board approved a special distribution of $0.08 per share in addition to our regular monthly distribution of $0.08 per share, both of which were paid in January of this year. Based on our closing price on Friday, February 17th, our annualized distribution of $0.96 per share represents an annual yield of approximately 5.6%.

Strong operating fundamentals also positioned us to further bolster our balance sheet. During the year, we produced approximately $200 million in excess of distributions paid to shareholders, which we were able to utilize to fund capital reinvestments and new acquisitions. In July, we amended and restated our existing $850 million credit facility, increasing the borrowing capacity, extending maturities and achieving improved pricing. Our low leverage and attractively structured debt were key contributors to our outperformance over the past years. Faced now with greater macroeconomic uncertainty and volatility in capital markets, our significant liquidity position, staggered maturity dates and conservative secured debt exposure, provide us with flexibilities to be both thoughtful and opportunistic to drive incremental value for our shareholders.

In 2022, we sold one hotel, a 55-room independent boutique hotel in Richmond, Virginia for $8.5 million, resulting in a gain on sale of approximately $1.8 million. During the year, we also purchased two hotels, the AC Hotel Louisville Downtown and the AC Hotel Pittsburgh Downtown for a combined total of $85 million, both of which were acquired during the fourth quarter. As we have built and refined our portfolio over time, we have intentionally sought to create exposure to markets that benefit from mix of business and leisure demand, and to concentrate our ownership in markets that have been and will be beneficiaries of macroeconomic and demographic shifts. Since the onset of the pandemic, we have invested approximately $558 million in 14 hotels.

These recent acquisitions have exceeded our original underwriting by more than $12 million in hotel EBITDA during the full year, contributing meaningfully to our operational outperformance. The 12 hotels owned for all of 2022 produced a total unlevered return for our investment after CapEx of over 8%, despite the impact of the Omicron variant on first quarter numbers and with meaningful upside remaining as assets continue to ramp and markets improve. A third of these hotels produced unlevered yields in excess of 10%. Looking forward to 2023, we have reason to be optimistic. January top-line numbers for our portfolio were strong, helped by easy 2022 comps and continued strength in travel demand. While we are mindful of the potential for macroeconomic headwinds later in the year, our property teams have entered the year with high expectations for continued improvement in both business and leisure demand.

The supply picture is favorable, with nearly half of our hotels having no exposure to projects under construction within a 5 mile radius. And many of our markets that were slow to rebound from pandemic lows have shown meaningful improvement in recent months. Our combined acquisitions and dispositions activity has positioned us to produce better portfolio margins and to drive greater profitability over time. And while the transaction market in recent months has been relatively quiet, we expect debt maturities and brand mandated capital investment to increase the number of properties coming to market as the year progresses. With ample liquidity and over 20 years of transaction history, we are optimally positioned to grow our portfolio, when market conditions are right.

We are incredibly proud of our accomplishments this past year and remain confident in the resiliency of travel and our ability to drive strong results and maximize shareholder value in any macroeconomic environment. I’m now pleased to turn the call over to Liz for additional details on our balance sheet, operations and financial performance during the year.

Liz Perkins: Thank you, Justin, and good morning. Top line performance for the fourth quarter continued to be strong with total portfolio revenue up approximately 19% to the fourth quarter 2021 and 3% to the fourth quarter 2019. Continued strength in leisure demand and recovery in business travel during the quarter enabled us to achieve RevPAR of $103, an improvement of 16% over a strong fourth quarter in 2021 and 7% as compared to fourth quarter 2019. ADR for the quarter was $147, approximately 12% ahead of both the fourth quarter 2021 and 2019, and occupancy was up 3% to the same period in 2021 and down only 4% to 2019. Preliminary results for January show continued strength in demand with occupancy of approximately 64%, just 4% shy of January 2019.

With leisure and business demand seasonally lower, ADR growth was 7%, down modestly to what we saw in the fourth quarter. We have begun to see and are confident that rate growth will continue to improve as we progress through the first quarter and reach our seasonally stronger occupancy months. Relative to seasonal expectations, recent performance reflects both continued strength in leisure and a meaningful recovery in business demand. October, November and December weekend occupancies were 85%, 77% and 64%, respectively. As we entered the fourth quarter, October weekday occupancy was 75%, an improvement over September and down only 5% to October 2019. Although typical seasonality impacted weekday occupancy in November and December, December weekday occupancy was up 4% to December 2019.

Weekday ADR for the quarter was $142, up nearly 4% to 2019 rate levels. As we look at demand segments and business transient trends, travel patterns continue to normalize. 61% of our portfolio produced RevPAR above pre-pandemic levels during the quarter with improvement in demand impacting nearly every market. 75 of our hotels had RevPAR improvement of 10% or more relative to the same period in 2019. Top performers included a mix of urban and suburban locations such as Tampa, Phoenix, Anchorage, Syracuse, Huntsville, San Diego, Savannah and Fort Worth. While results improved across the portfolio, we continue to see slower recovery in a number of markets, including our assets in New York, San Jose and Denver. These high quality hotels are well located within their respective markets, and we expect their performance to improve over time, providing additional upside for our portfolio.

In terms of room night channel mix, brand.com bookings remained stable at 39% during the quarter. OTA bookings moved from 13% in the third quarter to 12% in the fourth. Property direct bookings increased to 27%, a testament to the continued efforts of our property and management company sales support teams. Lastly, GDS bookings continued to represent 16% for the quarter. And preliminary revenue data shows improvement early in the first quarter, indicating a continuation of the positive business travel trends. Looking at fourth quarter same-store segmentation, bar continued to be elevated to 2019 levels at 34%. Other discounts increased slightly to 29% in the quarter. Group was in line with the third quarter at 14%, still meaningfully higher than the fourth quarter of 2019, which illustrates the resiliency of small group demand.

The negotiated segment remains between 17% and 18%, though the occupancy mix relative to 2019 improved from the third quarter, a positive indicator for business travel demand. And after three years without meaningful changes in corporate negotiated pricing, our hotels have just gone through successful 2023 rate negotiations with corporate and local business accounts. And we are optimistic that not only will production continue to improve, but that we’ll also see an improvement in negotiated rates. Turning to expenses, total payroll per occupied room for our same-store hotels was just under $39 for the quarter, slightly higher than the third quarter and up 12% to the fourth quarter of 2019. With occupancy seasonally lower for the quarter, the increase in a per occupied room cost wasn’t unexpected.

A tight labor market continued to create operational challenges and fourth quarter results were impacted by higher wages for full and part time employees, training costs and higher utilization of contract labor. While we anticipate wages will remain elevated relative to pre-pandemic levels, we believe a portion of the overall increase in labor costs is temporary and that year-over-year growth rates will come down as in-house staffing stabilizes, and we’re able to reduce recruiting and on-boarding costs and the reliance on contract labor. As we’ve always done, we will continue to balance productivity initiatives with our efforts to uphold a positive work environment conducive to attracting and retaining top talent. These efforts better position us to support the high levels of service and cleanliness necessary to sustain rate growth and maximize the long-term profitability of our assets.

Our asset management and onsite teams were able to keep increases in same-store rooms expenses excluding payroll on a per occupied room basis to 3% relative to 2019, despite significant inflationary pressure. Strong rate growth and effective cost controls despite the challenging labor and inflationary environment enabled us to achieve fourth quarter comparable adjusted hotel EBITDA of approximately $102 million and comparable adjusted hotel EBITDA margin of approximately 34%, down only 10 basis points to the fourth quarter of 2019. Actual adjusted hotel EBITDA margin for the fourth quarter was also 34%, but up 70 basis points to 2019, highlighting the positive impact of our transactional activity since the onset of the pandemic. As we have stated on past calls, we believe that long-term margin expansion for the industry and for our portfolio will be largely conditioned on our ability to grow rate.

While we expect a portion of our recent expense growth to be temporary, driven by elevated employee recruiting and on-boarding costs and short-term increases in our use of contract labor, we anticipate continued near-term pressure on wages and other operating expenses. Approximately 85% of our hotels are operated under a proprietary management agreement structure which utilizes, among other things, a variable rate management fee with payments based on performance against a balanced scorecard to better align owners and managers around optimizing performance of our hotels within their markets. Over the past three years, because of the meaningful disruption experienced by your industry, we have fixed payments under these contracts at 3%, the midpoint of the variable range.

Beginning in 2023, we have reintroduced the variable fee structure. Among other things, management fees earned are based on performance against property budget, achievement of target market share and guest satisfaction scores. Fourth quarter adjusted EBITDAre was $90 million, up 22% to the same period in 2021 and up 4% to 2019. MFFO for the quarter was approximately $75 million, up 27% compared to the fourth quarter 2021 and 6% compared to the fourth quarter 2019. Looking at our balance sheet, as of December 31, 2022, we had $1.4 billion in total outstanding debt, approximately 3.3 times our trailing 12-month EBITDAre with a weighted average interest rate of 3.9%. Total outstanding debt excluding unamortized debt issuance costs and fair value adjustments is comprised of approximately $329 million in property level debt secured by 19 hotels and approximately $1 billion outstanding on our unsecured credit facilities.

Our weighted average debt maturities are almost five years. At the end of the quarter, we had cash on hand of approximately $4 million, availability under our revolving credit facility of approximately $650 million and term loan availability of $50 million. 84% of total debt outstanding was fixed or hedged. Subsequent to year-end, we repaid in full three secured mortgage loans for a total of approximately $24 million, increasing the number of unencumbered hotels in our portfolio to 204. Valuable swap agreements and most importantly, low overall leverage levels, mitigate the impact of the current interest rate environment. As Justin highlighted, in July, we amended and restated our existing $850 million credit facility, increasing the borrowing capacity to approximately $1.2 billion, extending maturity dates and achieving improved pricing across the facility.

These updates provided for additional capacity of $150 million under the term loans and $225 million under the revolving credit facility. The agreement includes an accordion feature in which the amount of the total credit facility may be increased from approximately $1.2 billion to $1.5 billion. Through the refinance of our primary credit facility in July, the additional seven-year senior notes facility closed in June and the repayment of additional secured mortgages, we further strengthened our balance sheet. Also in December, we published our inaugural corporate responsibility report, which details our ESG performance, strategies and initiatives. We have always worked to uphold high environmental, social and governance standards, and we believe these key areas of focus are an integral part of driving long-term value for our shareholders.

We will continue to enhance and expand our ESG related disclosures, as our progress deepens and industry wide standards evolve. Turning to our outlook for 2023 provided in yesterday’s press release. Given limited visibility into future performance, due to short-term booking windows and meaningful macroeconomic uncertainty, our outlook reflects a broader range of comparable hotels RevPAR change and other key metrics for 2023. Although forward booking data for our portfolio does not currently provide evidence of a slowdown, our outlook anticipates that the lodging industry recovery will be impacted by macroeconomic headwinds in the latter portion of the year. For the full year, we expect net income to be between $165 million and $209 million, comparable hotels RevPAR change to be between 3% and 7%, comparable hotels adjusted hotel EBITDA margin to be between 35.3% and 36.9% and adjusted EBITDAre to be between $420 million and $457 million.

While our asset management and hotel teams are working diligently to mitigate cost pressures, margins are anticipated to be impacted relative to 2022 by increased wages and inflationary pressures on utilities, insurance and other operating costs. 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. Based on current trends, results for the first quarter 2023 are expected to benefit significantly from the easier comparison to the first quarter 2022, when the Omicron variant negatively impacted lodging demand. The high end of the full year range reflects relatively steady macroeconomic conditions throughout 2023 with RevPAR growth slowing, but continued strength in leisure demand and improvement in business transient.

The low end of the range reflects a softening and lodging demand beginning in the second quarter with comparable hotels RevPAR change roughly flat compared to 2022 in the second half of the year. Over the last three years, we have demonstrated the resiliency of our differentiated strategy. And as we move into 2023, we believe we remain well positioned for any macroeconomic environment. Our balance sheet is strong, and our recent restructuring provides extended maturities and additional liquidity, which we intend to use opportunistically to pursue accretive opportunities. Our assets are in good condition, with recent dispositions and capital investments, ensuring that we maintain a competitive advantage over other products in our market. Overall, the supply picture continues to be favorable and should help to bolster the performance of our existing portfolio through the coming year.

And our team has used our recent experience to enhance our internal systems and processes in ways that will enable us to further maximize the performance of our hotels. And that concludes our prepared remarks. Justin and I will now be happy to answer any questions that you may have for us.

Operator: Thank you. We will now be conducting a question-and-answer session. Your first question comes from Anthony Powell with Barclays. Please go ahead.

Anthony Powell: A question on I guess the impact of the temp labor and higher trading costs on margins? How many basis points of the sequential margin decline from €˜22 are driven by those two items? And if you’re able to kind of get those under better control, how much of a tailwind could that be as you exit this year?

Justin Knight: It’s a good question. Interestingly, so remembering how last year played out, we ramped occupancy and staffing as the year went on. As part of that we saw elevated use — or that rapid ramp necessitated an increased use of contract labor in a number of our markets, which continued through the latter part of the year. Though it came down slightly in the fourth quarter relative to where we had been based we think in large part on lower occupancy, which is seasonally the case during the fourth quarter. As we start the year, our expectation is that we will continue to have elevated reliance. And remember, contract labor costs on average somewhere around 30% more than our regular employees, and that’s without taking into consideration lower productivity because of more rapid turnover in that group.

We haven’t gone through to quantify the exact impact. As we get towards the latter part of the year, we will have easier comps, obviously, on the contract labor part. But in the beginning of the year, as we’re comping to 2022 numbers, the comps will be more challenging for us and the impact will be more significant, not just on the contract labor front. But if you remember, first and second quarter of last year, we weren’t yet fully staffed to the levels that were necessary to provide services to the increased number of guests that were staying at our hotels. And as a result, we had somewhat inflated productivity in those quarters.

Anthony Powell: Maybe on the current trends, I think you said — you gave January numbers and you said that you’re starting to see some pickup in pricing and just demand trends. Maybe get into what you’re seeing here in February and what you expect to kind of see for the rest of the quarter, and maybe some more detail on that improvement you talked about.

Liz Perkins: We gave January numbers. And as I shared in my prepared remarks, it did illustrate a slight pullback in rate growth relative to 2019 in January. And I think relative to seasonality that’s not unexpected. We begin to ramp back from an occupancy perspective in February and then even more so in March. And as we look, both in February and at, on the books rates, as we would expect with occupancy increasing, we’re beginning to see rate increase as well.

Justin Knight: And it’s important to note that we did have some storm related disruption and increased number of properties under renovation in the first — well in January as well.

Operator: Next question, Tyler Batory with Oppenheimer. Please go ahead.

Tyler Batory: First one for me, Justin, on the acquisition topic. You talked about being opportunistic, sounds like you think maybe some more deals might be coming to market later this year. You’re obviously in a really strong liquidity position right now to take advantage of that. Just kind of walk us through what you’re seeing out there right now. Interested what your pipeline looks like, interested where cap rates and valuations are as well?

Justin Knight: Absolutely. So, we’ve been in market and active since the beginning of the pandemic and have made significant acquisitions. But we’ve been selective in that process and allowed our core portfolio to build back from an operational standpoint such that we have acquired assets that are additive, and been able to maintain the strength of our balance sheet. I highlighted in my prepared remarks that the acquisitions market continues to be relatively quiet. We are underwriting a number of deals today. Many of them are deals that we looked at last year, and that have come back to market. And our expectation continues to be that higher interest rates will – combined with greater pressure from the brands around CapEx will cause more assets to come to market as we move through the year.

That said, we’re not seeing a lot of new deals today. Most of what we’re underwriting are deals that again, we’ve looked at last year and that have continued to be marketed. And to date we haven’t seen a meaningful adjustment in pricing for those assets. We’ll continue to monitor and be active in the market. And as you highlighted in your question, we have significant capacity on our balance sheet to be acquisitive when the market is right, and really anticipate that there will be an opportunity for that as we move into the back half of the year. I think importantly, higher interest rates have made private equity participants in the market meaningfully less competitive. And a number of those players were unable to complete transactions that they had signed up in the latter part of last year.

As a result, looking at the two deals that we closed last year, we were able to acquire those assets without being the high bid, because we did not have a financing contingency. And as we think about our ability to underwrite assets based on our experience in the space and our existing portfolio and our ability to act quickly to close without financing contingencies, as the market opens up, we have a meaningful competitive advantage.

Tyler Batory: Okay, great. I appreciate that. And then, a quick follow-up on wages. In terms of your guidance, what are you expecting for overall wage inflation or overall labor cost increase year-over-year in 2023? And is there a significant difference between some of the more urban resort markets and the suburban locations in terms of what you are expecting with wage increases?

Liz Perkins: I’ll start with the latter part of your question. It really depends on what suburban and urban location. It’s very market specific. It’s not necessarily location specific. We certainly have urban locations that are very business friendly that have ramped really well, that don’t have sort of more onerous challenges around them that would allow for their wage rates to be more in line with the average and then their urban locations where the wage rates may be more challenging, and on the suburban side. I think in general, we have markets, whether it’s a suburban or urban location, even within that same broader market where we’ve had to rely on contract labor more and wages have been more challenged. So, it’s really market specific.

As we look at guidance and as we think about wage rates, we really took into account how we ramped through last year and how we finished the year relative especially to 2019, but also year-over-year, anticipating that we would continue to have that pressure into this year. Justin mentioned in response to Anthony’s question just that we have easier comps in the first half of this year due to the fact that we ramped very quickly and well but did not ramp staffing at that same level. And through the first half of last year, we’re indicating that we weren’t at stabilized labor model levels. That said, I think we’ve significantly increased wages over the past few years. And we think on a year-over-year basis, we’re hopeful and have to some extent modeled some stabilization to more normalized or inflationary wage rates year-over-year as opposed to last year feeling more of a compound from 2019 — compound increase from 2019.

Tyler Batory: Okay. Very helpful. That’s all for me. Thanks for the detail.

Justin Knight: Thank you.

Operator: Next question, Dany Asad with Bank of America. Please go ahead.

Dany Asad: Hi. Good morning, everybody. Question is, how much RevPAR growth would you need in 2023 to get operating leverage or margins to improve from here when you’re underwriting your cost base?

Liz Perkins: Increase relative to what? At the high end of our range, at 7% on a comparable basis, we’re in line with margin, slightly up. So, I think the more rate that we get and the more RevPAR growth that comes through rate from that point forward, the more growth we would have on the bottom-line.

Dany Asad: Got it. Okay. And then for — when we think about — since we are largely recovered here, when we think of the EBITDA contribution by quarter for 2023, is there any reason why the seasonality would be any different than what we’ve seen kind of in 2019?

Liz Perkins: No. Generally, our seasonality has really performed the way that it did on a stabilized basis back in 2019, even with the portfolio mix changes that we’ve had with acquisitions. We bought more leisure based properties. And Portland, Maine is coming to mind specifically. That season is sort of anti-seasonal to our historical portfolio. But still, overall the — overall portfolio will perform strongest in the second and third quarter; and first and fourth, will be slightly behind the second and third.

Justin Knight: Dany, it’s important to note too that when you look — we’ve provided comp guidance. When you look at actual performance year-over-year and especially as you’re looking at actual performance for our portfolio relative to 2019, our transaction activity will have meaningful impact on actual margins and overall productivity for the portfolio.

Operator: Next question, Michael Bellisario with Baird. Please go ahead.

Michael Bellisario: Liz, just first clarification question, just on the renovation disruption, is there a net year-over-your impact that you could provide or that’s embedded in the €˜23 guidance that you provided?

Liz Perkins: We have not — I think, year-over-year, we were renovating throughout 2022. And so, when you look at the comp guidance relative to 2022, I think we — overall, it should be fairly similar, though the distribution of renovations will be a little bit different. Last year, as we entered the year, we were slower to release our capital budget. We had more summer projects than we will have this year. And we had more Q4 projects that spilled over into January of this year. And we did not have that at the beginning of 2022, given how we were managing CapEx coming out of COVID. So, I think from an overall rooms out of service perspective, the distribution throughout the year might look a little bit different, but overall should be fairly similar. We had some significant renovations last year.

Michael Bellisario: Got it. But starters, rooms out of service are similar, but occupancies up, there might be some incremental earnings and back though in €˜23, right, thinking about that conceptually?

Liz Perkins: Yes.

Justin Knight: Yes. Predominantly in the first quarter?

Michael Bellisario: Got it. Okay. And just also on the topic of kind of renovations and supplies, kind of understand the backdrop there and how it impacts your capital allocation decision with low supply growth in a lot of your markets. Does that maybe make you more willing to renovate a hotel instead of selling it today or maybe push out a renovation a year or two, because the supply growth outlook there is better? Any insight into kind of how the supply growth outlook is impacting your capital decisions would be helpful.

Justin Knight: I think that — for the most part, it’s putting us in a position to have greater discretion around allocating capital towards those projects where we anticipate, getting a better return on our investment. I think certainly in an environment where we have less in the way of new hotels opening, we can remain competitive by maintaining our assets, in many of those markets. And as we’ve prioritized CapEx spend coming out of the pandemic, we’ve been able to direct the vast majority of that spend towards markets where we anticipate we’ll be able to more meaningfully move rates, and increase profitability. I think, as we move through our portfolio or as we move through the next several years, we’ll continue to be mindful of the upside potential for individual markets based on renovations and continue to look at dispositions as an important piece of our overall capital strategy.

Michael Bellisario: Got it. And then, just one more for me on expenses. Maybe can you help us understand, what’s sort of baked at this point and included in your guidance, and what’s still an estimate or a placeholder that could maybe surprise to the upside or downside throughout the full year? Any commentary would be helpful, maybe, aside from the contract labor topic that you’ve already touched on. Thanks.

Liz Perkins: So, we have not gone through our property insurance renewal yet, but do have significant increase modeled into the guidance. So that could go better or worse than what we have modeled, but feel like we’ve been — feel like we have conservatively budgeted there. Property taxes have been fairly favorable the past couple of years. I think in our guidance, we have assumed an increase, whether — to what degree that materializes, we’ll see. So that’s a portion that could go either way as well. We have utilities continuing to go up. And we modeled that off of what we were seeing in the fourth quarter in particular, and the back half of the year, and same with labor. And I think, as we looked at modeling hotel expenses, generally, we modeled consistency, where we’ve seen consistency in performance.

So our team has done an exceptional job, maintaining sort of outside of payroll costs, controllable costs that 3% or lower for a majority of the year. I think there’s continued anticipation that we will manage those well. And on the labor side, we really took a look at how we ramped in the back half of the year. We are hopeful and certainly at the higher end of the range. There’s maybe more — there’s more assumption that we may be able to wean off of contract labor a little bit more and gain some productivity efficiencies. But at the midpoint, I think we’ve tried to model labor expenses the way we were experiencing them in the back half of the year, recognizing the first half, as Justin mentioned, we have a tough comp.

Michael Bellisario: That’s it for me. Thank you.

Operator: Your next question comes from Bryan Maher with B. Riley Securities. Please go ahead.

Bryan Maher: Thanks. And Liz, I hope your insurers and tax assessors aren’t listening to this call.

Liz Perkins: We budgeted plenty of increase.

Bryan Maher: Yes, but don’t tell them that. Anyway, a couple of questions, on the acquisition front, kind of following on some earlier questioning. But I know you said it seems a little quiet out there now. But you got off to a fast start in 2021 with some acquisitions, slowed in 2022. I get a sense that you’re willing to ramp in 2023. Does that look more like onesie-twosie, does that look like portfolio acquisitions? And kind of how long do you wait to see if there is real refinance stress out there, which could create better opportunities than kind of a steady pace early or throughout the year?

Justin Knight: I think we’ve been very purposeful and strategic in pursuing acquisitions, I really could say for the past 20 years, but specifically since the onset of the pandemic. And as I highlighted earlier, as a result, we have a balance sheet that’s intact with significant capacity to acquire hotels, when pricing is appropriate for those hotels. We are constantly in market underwriting, individual assets and larger portfolios. Then, we will transact when we are able to pencil. And that primary driver for us is, per share earnings accretion. And I think looking at the deals we have done since the onset of the pandemic, I highlighted the fact that they are yielding in excess of 8% unlevered after CapEx. And that’s even utilizing a year where there was massive disruption in the first quarter, as a result of Omicron.

So, anticipate meaningful upside in those. We want to make sure on a go forward basis that we do good deals. And while we have the capacity to do a significant number of deals, we want to make sure that, every deal we do is additive to the portfolio that we currently have. I think as we think about the opportunities that may materialize, as we move into the latter part of the year, we certainly anticipate that there will be a meaningful increase in individual assets coming to market. But there will likely be smaller portfolios that will come to market as well. And as has been the case in the past we’ll be active in underwriting those and we will transact when they meet our underwriting criteria.

Bryan Maher: Thanks. And then you mentioned in your prepared comments something about brand standards and we always know that there is the risk that Marriott, Hilton and others, raise those or put out PIPs. Is there something that compelled you to talk about that sense that we should be thinking in 2023, 2024 could be years in which brand standards are raised? How might that impact cost? And do you think that that could just be one other lever that could push existing owners into the marketplace to sell?

Justin Knight: Really I was speaking specifically to capital requirements. When we look at overall brand standards, we’re still — and as our peers and other owners in the hospitality space in a more favorable position than we were coming into the pandemic, meaning the brands have made meaningful adjustments to brand standards, which have acted as an offset to inflationary pressures at the operating level. What we’re seeing and anticipated we would see is more significant emphasis around needed capital improvements. And generally, hotels follow a regular cycle of improvement. Many ownership groups put on hold major renovations in order to reallocate capital towards funding operating deficits through the pandemic and have been in the process of rebuilding reserves to fund future renovations.

But what we’ve found historically is that motivated sellers bring assets to market, either on refinancings where there’s a need to make capital calls to fund shortfalls, or around major renovations, where that they’re required to go back to investors, and ask for capital, to reinvest in the hotels. And I think as we think about how things will play out in the current environment, where lenders have adjusted LTVs and where interest rates are significantly higher. And as we think about pressure that the brands will increasingly put on ownership groups to move forward with deferred renovations, we see both of those factors driving groups to explore potential sale opportunities for their assets. And that would be consistent with what we’ve seen in the past.

As we look at our own portfolio, we’re meaningfully advantaged by having a relatively young portfolio that we have continued to invest in. And as I highlighted in my prepared remarks, our expectation is that we will continue to be able to fund our capital needs, utilizing between 5% and 6% of revenues, which is consistent with our historical average. And our portfolio continues to generate significant cash. Importantly, this past year, even after distributions, we had more than enough capital, from operations to fund all of our CapEx and our acquisitions activity. And we anticipate having an ability to continue to do that on a go forward basis.

Operator: Next question, Chris Darling with Green Street.

Chris Darling: Thank you. Justin, going back to some of your earlier comments, you mentioned some deals that have come back to the market, but with limited pricing adjustments. So, I take that to mean that there’s still a sizable bid-ask spread at play. Wondering if you could comment on that dynamic and maybe even quantify it, if possible.

Justin Knight: Absolutely. So highlighted earlier, I think in my prepared remarks and response to questions that that we are anticipating greater deal flow as we move through the back half of the year. A portion of that will be deals that were marketed I think openly this past year and some of those deals were, at some point, tied up either under contract or LOI and then fell out as a result of the buyer’s inability to obtain financing and/or obtain financing at pricing consistent with their underwriting. I think because buyers, in many cases, had firm contracts at elevated prices, they’ve been reluctant to meaningfully adjust pricing to take into consideration the variances or meaningful increases in financing costs, which ordinarily would impact the market.

But the other factor that continued to support the bid-ask spread is the fact that operating fundamentals continue to be strong and improve year-over-year. And I think sellers in today’s environment anticipate that, should things go well this year, even with adjustments in cap rates, they might be in a position to get similar pricing for the assets, if they hold. Now, that said, going back to the responses I gave to Bryan’s question, we do feel that there will be increased pressure on a number of sellers, as we move through the year. Many of them have floating rate debt, which will increase their costs, and then some will have refinancings. And the brands will put additional pressure on groups to reinvest in their assets. And I think, with that incremental pressure and without a change in the debt markets, we could see some pricing adjustment, as we move into the back half of the year.

Chris Darling: Okay. That’s helpful. And then, last one for me. I might have missed it in the prepared comments, but just hoping you could discuss the impairment charges that were taken this quarter?

Liz Perkins: Sure. The impairment charges were on two assets. It was just a result of our normal analysis that we do throughout and at the end of the year. And really the bulk of it was one asset, and it was market and performance driven.

Operator: Thank you. I will now turn the call over to Justin Knight for closing remarks.

Justin Knight: Thank you. We appreciate you taking time to participate in our call today. And hope as always, that as you travel, you’ll take the opportunity to stay with us at one of our hotels. Have a great day. And we look forward to meeting with a number of you very shortly.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time, and thank you for your participation.