Justin Knight: Certainly, we watch that closely. We subscribe to a number of lists that provide us with asset level detail on maturing loans. I think it’s important to note before I fully answer. This is a trend that has happened in the past. And I think, it’s, the industry has a tendency to over-anticipate the total number of transactions that are driven by it. That said, the dynamics are slightly different this time with interest rates being meaningfully higher than where most of these assets were originally financed. And we already have experience with maturing loans forcing assets to market in ways that have enabled us to transact at a very attractive purchase prices for us. So I think, as I’ve highlighted for some time now, for the foreseeable future, we believe that refinancings and really, the capital investment required as part of those refinancings with loan coverage and higher interest rates being primary drivers.
And then continued pressure from the brands around capital improvements to be meaningful drivers or motivators for potential sellers to bring assets to market. And when we think about the need to bridge a bid-ask spread that’s existed and suppressed total transaction volume. We think that those two things will increasingly be catalyst pushing increased transaction volume. And certainly, we’re optimistic creating that those two factors will create meaningfully greater opportunities for us as well.
Floris Van Dijkum: And then maybe my thought, so by the way, in your view of the, what’s the total volume of the of the maturities in ’24? And what percentage do you think would be appropriate for you guys? I guess that’s what I was trying to get at.
Justin Knight: Historically, we haven’t given specific targets because the assets coming to market can vary in quality and attractiveness to us based on price. I think when we look at total transaction volume over the past couple of years and correlate that with maturing financing. We’re coming to a point where we should see significant increases in both. They are somewhat correlated, and we see that being a meaningful driver for transactions going forward.
Floris Van Dijkum: And maybe my follow-up is on Vegas. I like that transaction. Maybe if you can talk about the rationale for getting into Vegas? There are not many Hotel REITs anyway that are active in that market. So a lot of obviously Casino REITs. But if you could talk a little bit about why you think this is good for Apple? And also talk about the opportunity set and how you can expand in that market?
Justin Knight: Absolutely. So Vegas is a market that we’ve liked for some time now. Given that the majority of rooms in Vegas are associated with Casinos, there are limited opportunities to invest in rooms-focused hotels that fit our overall investment thesis and are a good fit for the profile of our portfolio. We have historically owned assets in Vegas. We owned a full-service Marriott Hotel and a Residence Inn hotel that we sold before the great financial crisis. And so we have a significant amount of experience in market. And Vegas is unique in that it generates it generates its own demand. And that demand takes many different forms. We found that there is significant demand for hotel rooms that are not associated with Casinos and especially given proximity of this hotel, which is very similar to the hotels that we owned earlier relative to the Convention Center.
We found we can do incredibly well in the market. We’re incredibly excited about the SpringHill Suites specifically. But we highlighted in our press release and haven’t had an opportunity necessarily to discuss it. The hotel came with land, that enables us to potentially develop up to 500 additional rooms. And we are in the process of currently exploring an opportunity to develop on that site. The purchase price for the site is included in the purchase price that we quoted. And so it’s not incremental. And certainly, given the scarcity of land and available opportunities for development, in the heart of Vegas with close proximity to the Convention Center. We think we have something very special there. I think it’s reasonable to expect in the first, in the near future that we’ll have something to, we’ll have more to say on that.
But certainly excited to be there incredibly pleased with how the hotel has performed for us to date. And if you look at projections for the Vegas market, they’re incredibly favorable. And I think interestingly, as we look at leisure specifically and how leisure trends have transitioned. Vegas is on the winning side of those transitions right now and certainly benefited early in the year from the Super Bowl. But even outside of the Super Bowl week has continued to produce incredibly strong numbers for us year-over-year. And I think we feel we’ll be meaningfully additive to the performance of our portfolio overall.
Operator: Our next question comes from the line of Bryan Maher with B. Riley Securities.
Bryan Maher: Just two for me, most of mine have been asked and answered. But, when you’re looking at trading out of properties, and I know you’ve discussed trading out of older properties and creating kind of a newer, younger portfolio. But what considerations do you take with respect to kind of business unfriendly states where taxes or laws might make it increasingly difficult to do business there. Is that working into your consideration as well?
Justin Knight: It’s certainly a factor we consider. And interestingly, when we look at our portfolio, by and large, we’re indexed towards business-friendly states. I’d say certainly, we’re continually looking at our Chicago presence, which is mostly outside of the city. And submarkets have performed differently from each other. But overall, that’s been an area of the country that’s been slower to rebound. Outside of that, we’re generally happy with our concentration and the performance of our assets overall. And really, what we’re looking to optimize around is ability to drive rate relative to potential cost increases. And I think when we underwrite markets, we underwrite them very differently depending on the dynamics there, both as we’re looking to acquire new hotels and as we’re assessing our existing portfolio for potential dispositions.
And I think it’s reasonable to expect that we will continue to explore opportunities and pursue opportunities to shift the mix such that we’re moving the needle from an overall performance standpoint. Liz and I both in our prepared remarks, highlighted challenges with margins. And one of the ways, in addition to the efforts of our management companies and our asset management team to address those concerns. One of the ways that we can more holistically address those concerns is to adjust the mix of our portfolio. And I highlighted in response to one of the earlier questions, we’ve been purposeful in pursuing assets in markets where we can drive higher margins, which lead to greater profitability for our investors.
Bryan Maher: That kind of segues well into my second question, which is you talked a lot about the expense pressures and inflationary and wages in particular. But can you maybe, or maybe better for Liz kind of address the impact of property tax increases, maybe insurance increases, which we hear about repeatedly and, and how much of a pressure is that? And do you think that, that will mitigate?
Liz Perkins: It’s a good question. So in our guidance, for 2024, we have assumed a higher growth rate around property taxes, insurance and other. So more of your fixed cost than your variable crop cost. And we hope that we’re conservative there. But we’ve had a decent run with property taxes and I think prudent to assume that we could have some increases there. And the property insurance, the market is still tough. Hopefully not as tough as last year. We’re hearing more positive things. I think the market isn’t quite as challenging as last year, but still a harder market than we’d like. And so we’ve anticipated strong double-digit increases on fixed cost expenses in the guidance range across the scenarios. We are from a variable cost standpoint, lapping ourselves, 2023, when you look backwards, should be a more stable comp year for 2024. That said, really being able to overcome continued expense increases even more moderate will require RevPAR growth.
Operator: [Operator Instructions] Our next question comes from the line of Tyler Batory with Oppenheimer & Company.
Jonathan Jenkins: This is Jonathan on for Tyler. And [indiscernible] so far. First one for me, just a clarification question on the guidance probably for Liz. Helpful commentary on the high end of the range, but maybe conversely on the low end, is that assuming flat BT and stable leisure? Or does that low range still assume some level of recovery in BT?
Liz Perkins: I still assume some continued improvement in BT, and that’s what we’re seeing. I mean, really, even as we crossed over into January, we’ve seen, and we gave you an indication of where January ended up, which was an improvement from a RevPAR increase perspective to December. Where that really came from was leisure hanging in there, but recovery in mid-wave occupancies, which we believe are related to business travel recovery. And so I think throughout the range, we anticipate continued improvement midweek. Related to business transient.
Jonathan Jenkins: Okay. Great. And then switching gears I appreciate all the commentary on acquisitions Justin so far. In light of that outlook for this year on picking up acquisition activity, any additional color on how you’re thinking about new development acquisitions? And I guess with the anticipated acquisition dates of those two developments that are under contract due to more of these deals kind of make sense for you going forward?
Justin Knight: Certainly, we continue to underwrite and I highlighted in response to one of the earlier questions, we are currently exploring an opportunity to build on the land adjacent to the Vegas asset that we recently acquired. The same challenges that are keeping supply growth low for the industry overall impact our underwriting. It’s expensive to build hotels. And while we feel we have partnered with developers who have a competitive advantage in that arena and are able to deliver assets at attractive pricing for us. There are very few markets where the underwriting makes sense. We’re incredibly optimistic about the two projects that we have currently under contract. They’re super well located in markets that we think will be very strong for us long term.
And I think it’s reasonable to expect that in the near term, we could add one or two more to that group, but it’s challenging. And I think in the near term, while we will be active in underwriting both new development deals and existing assets, it’s more likely, or it’s likely that the majority of the transactions we complete over the next year or so will be around existing assets.
Operator: Our next question comes from the line of Michael Herring with Green Street.
Michael Herring: Just a quick one on the Las Vegas acquisition again. Can you just talk about whether or not the union labor agreements in the market are impacting that hotel and how that’s impacting your underwriting there in the market?
Justin Knight: Absolutely. So in any market where there’s significant union activity, that impacts pricing for labor within the market. And so I think relative to other market labor is more expensive in that market for us. That said, it’s a market that also is positioned to drive higher rates. And so when we look at the margin profile, we feel very comfortable with that. We look at cost of labor in markets and Union is only Union activity in the market is only one factor that impacts those costs. The bigger factor in most markets is availability. And I think we have effectively underwritten assets looking at all of the assets we have acquired recently in a way that we feel very comfortable with their long-term profitability.
Justin Knight: And just one other on, I know you just updated us a little bit on the purchase contracts. But I’m just curious if the supply dynamics in those markets have changed at all? Or if yes, if that’s changed at all in the last 6 months or so? Or if you’re still feeling pretty good about that?
Justin Knight: In our markets overall or in the markets very recently acquired assets?
Justin Knight: In the, sorry, for the ones that are under contract in Madison and Nashville, if the [indiscernible] have changed at all?
Justin Knight: No, they’ve remained relatively constant. I think Nashville is a market that’s seen significant supply growth. We knew that going in. And I think our selection of a site within Nashville reflected our view of potential exposure. That said, supply has been coming down in most markets. And we spent a lot of time talking about Vegas on this call. Vegas is actually a market that has very little supply coming online near term. And across the board, we feel very good about supply. When we look at the overall trend for our portfolio, again, looking at a 5-mile radius to the assets that we own. The supply picture has become increasingly favorable over time, not less so. And that’s even taking into consideration the new acquisitions which, in some cases, have been in markets that have performed incredibly well. And that, as a result, more attractive for new development.
Operator: That concludes our question-and-answer session. I’ll turn the floor back to Mr. Knight for any final comments.
Justin Knight: Thank you, and thanks for spending time with us this morning. We appreciate your questions and your continued interest in our company. As always, as you have the opportunity to travel, we hope you’ll take the opportunity to stay with us in one of our hotels. And we look forward to meeting with many of you here in the near future at conferences or in individual meetings.
Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
