Justin Knight: There are a number of other markets where we would like to have our presence. It’s interesting. Our strategy has always been to focus on rooms focused hotels, predominantly in the upscale and upper midscale segment and to broadly diversify our portfolio across a variety of markets and market types. In order to achieve that objective, we need to be in both urban, large urban, small urban and as well as high-density suburban markets. Pricing in large urban markets has made it challenging for us to find an appropriate entry point. The cost dynamics in urban markets are different. And historically a market like DC, an asset of this quality would have traded at 150 basis point lower cap rate, which given the dynamics of the market would have put it outside of, kind of, the return threshold that we target.
I think, over and I talked about this a little bit on our last call, but over the past several months with the meaningful increase in interest rates and the pullback from many lenders, we found ourselves in a position to be very competitive around larger assets in some of these urban markets where ordinarily we would have seen very stiff competition, predominantly from private equity, but from a variety of potential buyers. And, given our ready access to capital and our ability to bid on assets without financing contingencies, we’ve been more successful. And, when you look at the DC acquisition or the Vegas acquisition which is another market where we wanted to, where we’ve looked for an appropriate entry point for some periods, and those are great examples of that.
Importantly though, we’re not exclusively focused on large urban markets. That’s a piece of our strategy, but not the entirety of it. And so, we’re equally attracted to high-density suburban markets with the primary criteria that we’re looking for being relative growth trajectory, relative to the national average. And, I think the positioning vis-a-vis demand generators with a view towards having a broad base of demand generators such that we’re not subject to fluctuations within a single source of demand. And I think, if you look at the entirety of the acquisitions that we completed last year, starting with Cleveland and moving through towards Vegas at the end of the year and then DC. Following that, you get a good sense for the range of assets that we’re looking for and the types of markets that we’re looking to buy assets in.
Unidentified Analyst: Okay. That’s excellent color. I appreciate that. Thank you for all the color this morning, Liz and Justin. That’s all for me.
Justin Knight: Thank you.
Operator: Our next question comes from Chris Darling with Green Street. Please proceed with your question.
Chris Darling: Hey, thanks. Good morning. Justin, going back to the last question actually, you mentioned just higher interest rates in the past couple of months and that putting Apple really in a competitive position to have a competitive advantage in terms of acquiring properties. On the flip side, how does that impact your ability or willingness perhaps to bring incremental assets to market for disposition, perhaps as a source of funds in the near-term?
Justin Knight: Actually, a great question. And I think, we have a super example in looking at we’ve done recently as well. Where we have seen meaningful competition and continued strong appetite is around smaller assets, where the total purchase price is lower. And in today’s environment and again the market shifts quickly and we adjust our strategy accordingly to be opportunistic. But in today’s market, we see ourselves in a position to sell quality assets in smaller markets, potentially assets where we have near-term CapEx needs and to redeploy into assets that are larger where we have less competition. Like I said, we continue to monitor markets and we’ll adjust our strategy appropriately as kind of the market dynamics shift. But looking at the two assets we sold recently and the asset we bought, I think you can get a sense for where we feel the opportunities are.
Chris Darling: Got it. And, that’s all helpful comments. And, then just one more, maybe following up with Liz on some of the operating expense comments. How are you thinking about expense growth over a longer term timeframe, maybe the next few years? Is 3% to 4% kind of still a decent betting line to be thinking about or how would you characterize the setup?
Liz Perkins: We were pleased with especially on the payroll side what we saw. Total expenses came in on a comparable basis up 4%. That’s down from 5% that we saw in Q4. So, I think we are starting to see some normalization. I think in part it depends on the broader economy and sort of how inflation evolves. And certainly, we’re starting to see some benefit from lapping the tougher comps. Historically, 3% to 4% has been reasonable. In guidance, we anticipated especially on the payroll side between 4% and 5%, with some continued cost pressures around some of the other line items like insurance and taxes. But I think over the long-term, if we continue to see the trends that we’re seeing now, 3% to 4% over an extended period of time wouldn’t be unreasonable.
Justin Knight: And I would add to that. Over an extended period of time, our expenses tend to track reasonably closely with inflation. The trick is in an environment like the environment we’ve been in recently where inflation numbers move more radically and more significantly, there tends to be a lag around those. But zooming out, I think depending on where we end up from an overall inflation standpoint, we would expect to be in the range that, Liz highlighted or to the extent that that’s successful in reining in inflation and that were to come down more significantly, we could even see expense growth below that.
