Justin Knight: I’d say — I’d need to temper that a little bit. We certainly own hotels in or adjacent to markets that benefit from large convention business. And to some extent, we obviously benefit from compression related to those events. In most cases, we’re fortunate. I’d say, in recent years, we’ve become actually less dependent on that type of business, meaning we’ve been able to attract a variety of individuals and smaller groups that are not immediately associated with larger conventions. But certainly, in a market like, San Diego or in Denver where we own assets that are readily accessible or within close proximity to major conference centers, we do benefit to the extent that the convention calendar is strong.
Liz Perkins: Of the seven assets that we own in and around the San Diego area, we have two that are downtown that will certainly benefit from incremental compression around the convention calendar. And then, as you move out beyond the downtown area, depending on the size of the convention, we can see additional compression. But certainly, our downtown assets should see the benefit of the more favorable convention calendar.
Floris van Dijkum: Maybe the 14% group exposure today, how would that compare to pre-COVID? So, you mentioned, it’s a little bit lower now. What was it like prior to 2019?
Liz Perkins: Very, very close to where it is. It’s still slightly elevated to 2019 levels, even though, year-over-year, quarter-over-quarter, it’s slightly down. But it’s still elevated, yes, to pre-COVID levels, just 1 percentage point or 2, depending on the time of the year.
Operator: Our next question comes from Tyler Batory with Oppenheimer & Co. Please go ahead.
Tyler Batory: I’m hoping you can put a finer point on October RevPAR and your expectations for Q4. What was RevPAR growth year-over-year in October? How did trends compare with September? And then, when we look at the guide and what’s implied for Q4 overall. Are you expecting a little bit of a step-down in November and December? How much of that is seasonality versus maybe a change in trends or perspectives in terms of what you’re seeing in terms of demand?
Liz Perkins: Really good questions, Tyler. So October, we don’t have final top line RevPAR numbers in for October, but it looks like it will come in, in line, maybe slightly lower than our month-over-month growth from September. So September was around 3%. It’s probably in and around that range, maybe slightly lower. So we saw ADR growth and occupancy sort of right in line with where it had been prior year. So, still good trends in October, the fact that we’re not seeing a meaningful pullback from an occupancy perspective, especially given October is typically a peak month. And, we certainly had a strong October last year and continuing to see some ADR growth as well. So, taking that and knowing that that’s the strongest month of the quarter leading into the other part of your question, guidance at the midpoint implies flattish RevPAR, for the quarter, which would mean November and December would have to take a step back in order to come in line with our midpoint RevPAR guidance range.
I think we’ve built in or continue to maintain some macro uncertainty. There’s not really a meaningful change in trends that’s pushing us to do that. I think we still remain pleased and optimistic with the trends that we’ve seen in our portfolio. I think the biggest question mark is prior to the pandemic, we didn’t historically benefit from leisure as much in November December as we have in a post-pandemic world. And November and December are lighter from a business transient perspective. And while we continue to see improvement from a BT — on the BT side, it’s kind of just waiting to see what the balance is between leisure and BT travel in just softer occupancy months for us, seasonally.
Operator: Our next question comes from Bryan Maher with B. Riley Securities. Please go ahead.
Bryan Maher: Just a couple for me. You’ve talked a lot today about acquisitions, and I’m curious what the view is from a disposition standpoint, kind of — to some degree, kind of matching up some acquisitions with dispositions such that leverage doesn’t go meaningfully higher. Maybe two parts to the question here. I think you said something along the lines of you’re buying at like an 8 cap with embedded upside. Where can you sell at a cap rate, your older stuff? Let’s just start with that for a second.
Justin Knight: A little bit of a complicated question just based on the depth of the market today and somewhat dependent on the individual asset. I’d say we have seen recent trades of older select service assets in secondary markets at very low cap rates. Those transactions are typically — or transaction pricing for those deals is typically driven by a replacement cost for those assets. And so the per key values would be lower. Generally speaking, in a healthy transaction environment, we would see as much as 100-basis-point, maybe 150-basis-point spread between kind of the more premier assets and secondary assets. But that spread can swing wildly, depending on groups, and their particular interest and activity in the market at any point in time.
I think we’re continually looking at assets within our portfolio. There are a number of older assets where we have very low basis, and even in the market as it is today. We feel we could transact at an attractive pricing that would yield or lock in meaningful profit based on our original investment. And we do have assets where we think we could transact, at a positive spread, even to the investment, where we have assets like those I described, earlier. I think you can anticipate that we will continue to explore opportunities, for disposition as we’re looking at acquisitions in an effort to ensure that our portfolio remains relevant and competitive and that we’re optimized to take advantage of the most recent economic and demographic trends.
Bryan Maher: So, let’s assume for a minute that dispositions remain somewhat muted. And we all know that you’ve carried historically pretty low leverage, 27%, 28%. Currently, if the opportunities on the acquisition side continue to open up, where would you be willing to take that number?
Justin Knight: We’ve highlighted that we are comfortable between 3 and 4 times, opportunistically with a desire to be long-term at the lower end of that range. And so I think, Liz and I both highlighted in our prepared remarks, taking in total the acquisitions we anticipate for this year, which include South Jordan, we’re well below on a pro form a basis, 3.5 times. We continue to have roughly $0.5 billion available on our line of credit, and so ready access to incremental financing to pursue acquisitions. But, to the point that I think was implicit in your question, ultimately, it’s not our intent, regardless of the opportunity set to move the needle, so much from a debt standpoint that we changed the risk profile of our company.
And so, to the extent we were to get more active in a meaningful way or become very active from an acquisition standpoint, we would look to fund a portion of those acquisitions with proceeds from sales, and/or equity raise, to the extent pricing was appropriate.
