Earnings Call Transcript - APLE Q4 2023

Operator, Operator

Greetings and welcome to the Apple Hospitality REIT Fourth Quarter and Full Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Kelly Clarke, Vice President, Investor Relations for Apple Hospitality REIT. Thank you, you may begin.

Kelly Clarke, Vice President, Investor Relations

Thank you and good morning. Welcome to the Apple Hospitality REIT’s fourth quarter 2023 earnings call. Today’s call will be based on the earnings release and Form 10-Q, 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 2022 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 2023 and an operational outlook for the remainder of the year. 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, CEO

Good morning, and thank you for joining us today. We're pleased to report another year of strong operating performance, portfolio growth, and total returns for our shareholders. During the year, operating fundamentals continued to strengthen, and we thoughtfully grew our portfolio with the acquisition of six hotels, enhanced the quality of our hotels through capital improvement projects, provided our shareholders with attractive distributions, and positioned our balance sheet for continued growth by raising net proceeds of $216 million through our ATM program. Our accomplishments in 2023 and our outperformance since the onset of the pandemic are a testament to the merits of our strategy of owning a diversified portfolio of rooms-focused hotels with broad consumer appeal while maintaining financial flexibility with low leverage and speak to the strength of the brands and management companies we work with and the diligent efforts of our experienced team. With resilient leisure demand and steady improvements in business travel, we are pleased to report Comparable Hotels' RevPAR growth of more than 2% for the fourth quarter and 7% for the full year 2023 as compared to the same periods of 2022, primarily driven by increases in Comparable Hotels' ADR of nearly 3% and 5% respectively. Comparable Hotels' occupancy for the fourth quarter of 2023 was essentially flat to the fourth quarter of 2022 and for the year was up approximately 2% as compared to 2022. Comparable Hotels' adjusted hotel EBITDA was $104 million for the quarter and $500 million for the year, down 2% and up 5% respectively as compared to the same periods of 2022. Our portfolio continues to perform ahead of pre-pandemic levels with Comparable Hotels' RevPAR up approximately 8% relative to both the fourth quarter and full year 2019, despite continued opportunity to rebuild occupancy, especially mid-week. Comparable Hotels' adjusted hotel EBITDA was up approximately 6% and 7% to the fourth quarter and full year 2019 respectively. Based on preliminary results, January Comparable Hotels' occupancy increased just over 1% year over year and ADR grew over 2%. Overall, travel trends remained favorable with operating results continuing to be bolstered by limited near-term supply growth. We anticipate that we will be in a position to more meaningfully grow rate as we move through the first quarter and into seasonally stronger occupancy months. Our revenue and asset management teams continue to leverage our scale ownership of rooms-focused hotels and our unparalleled access to performance data to benchmark and share best practices across our third-party management companies to drive strong margins despite continued inflationary and wage pressures. We are fortunate to be partnered with some of the best operators in the industry who monitor real-time performance and focus on-site efforts to maximize profitability at our hotels without sacrificing service, cleanliness, maintenance, or overall guest satisfaction. Through disciplined cost controls, we achieved Comparable Hotels' adjusted hotel EBITDA margin of 32.9% for the quarter despite lower REVPAR growth and 36.4% for the full year. Supported by our strong operating performance, we continue to provide investors with strong dividend yield. We paid distributions totaling $0.24 per common share during the fourth quarter and $1.04 per common share during the year for a total of approximately $238 million. Based on Wednesday's closing price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 6%. 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. During the fourth quarter, we sold approximately 12.8 million shares under our ATM program at a weighted average market sales price of approximately $17.05 per common share and received net proceeds of approximately $260 million. The $17.05 per share represents a 12.6x multiple on 2023 EBITDA, just under a turn and a half spread to the combined multiple for the five hotels we acquired in the fourth quarter. The proceeds were used to fund acquisitions and to reset our balance sheet, position us to be active in the market, and to continue to pursue accretive opportunities. In 2023, we acquired a total of six hotels and an associated parking deck for a total of approximately $290 million. As previously announced, in June, we acquired the Courtyard Cleveland University Circle for $31 million. In October, we acquired the Courtyard and Hyatt House Salt Lake City Downtown, together with a corresponding parking garage for a combined total of $91.5 million. We also acquired the Residence Inn Seattle South Renton in October for $55.5 million. In November, we purchased the Embassy Suite South Jordan Salt Lake City for a total of approximately $37 million. And in December, we acquired the Spring Hill Suites Las Vegas Convention Center for $75 million. We are pleased to expand and enhance our presence within these business-friendly markets that have seen significant economic growth and positive demographic trends in recent years. These markets are home to a wide variety of business, group, and leisure demand generators, from healthcare, universities, technology, and manufacturing, to outdoor recreation, professional sporting events, and world-renowned entertainment. The hotels complement our existing portfolio and reflect our proven investment strategy. The combined purchase price for the recently acquired hotels represents a blended cap rate of just over 8% on 2023 year-end financials after an industry-standard 4% FF&E reserve, and an 11.3 times multiple on 2023 combined hotel EBITDA. We believe each of these assets is well-positioned within its respective market and has embedded upside that will enable it to be a meaningful contributor to our overall portfolio performance. We continue to have two hotels under contract for purchase that are currently under development, an Embassy Suite in downtown Madison, Wisconsin for approximately $79 million, and a Motto in downtown Nashville for approximately $98 million. We anticipate acquiring the Madison Embassy in mid-2024 and the Nashville Motto in late 2025, both following completion of construction. Our patience over the past several years has positioned us to be active in a market with limited competition where we can secure high-quality assets at pricing that meets our internal underwriting criteria. Consistent with the strategy we articulated on past calls, we were able to fund a portion of our recent activity utilizing our ATM with equity issued at a spread to specific targeted acquisitions, positioning us to generate incremental value for our existing shareholders. Having reset our balance sheet, we are exceptionally well-positioned to pursue additional accretive opportunities, and we continue to actively underwrite a number of potential acquisitions that could further enhance our unique and scalable platform and contribute to long-term shareholder returns. As has been the case historically, our acquisitions focus continues to be on high-quality branded, rooms-focused hotels in urban, high-density suburban, and developing markets supported by a broad variety of business and leisure demand drivers. Through our scale ownership of these hotels, broadly diversified across markets and demand generators, we have unparalleled access to performance, market, and brand data, which we believe enhances the underlying strength of our due diligence effort. Combined with our tremendous transaction experience, our available balance sheet capacity, and our deep industry relationships, we believe we continue to be well-positioned relative to competitors in the current market environment and are optimistic that we will continue to be net acquirers in the coming months. We also actively seek opportunities to refine our portfolio and optimize our capital reinvestment program by disposing of older assets in lower-growth markets. Earlier this month, we sold a Hampton Inn and Homewood Suites located in Rogers, Arkansas for a combined total of $33.5 million. We anticipate a portion of the proceeds from the sale of these two hotels will be used to complete a 1031 exchange, which will result in the deferral of taxable gains of approximately $15 million. The sales price represents an all-in 8.6% cap rate on 2023 year-end financials, assuming $5.4 million or approximately $22,000 per key in PIP related capital improvements. Since the onset of the pandemic, we have strategically transacted in ways that have refined and grown our portfolio. We have completed approximately $287 million in hotel sales and have invested approximately $848 million in new acquisitions while maintaining the strength of our balance sheet. These transactions have lowered the average age of our portfolio, increased revenue per available room and margins, helped to manage near-term CapEx needs and positioned us to continue to benefit from near-term economic and demographic trends. We also continue to reinvest in our existing portfolio to ensure our hotels remain competitive in their respective markets and are positioned to demand premium rates. Over the past year, we invested approximately $77 million in capital expenditures. And in 2024, we expect to spend between $75 million and $85 million with major renovations at approximately 20 of our hotels. As we look ahead, the fundamentals of our business remain favorable, with continued strength in demand and limited new supply. As of year-end, over half of our hotels did not have any new upper upscale or upper mid-scale product under construction within a 5-mile radius providing us with the ability to meaningfully benefit from incremental demand and positively impacting the overall risk profile of our portfolio by both reducing potential downside and enhancing the upside impact from variability in launching demand. Over the past several years, we have demonstrated the value of a scaled investment in a broadly diversified portfolio of rooms-focused hotels with low leverage. We are confident that this same strategy will continue to enable us to drive strong performance for shareholders in the coming year and over time. Our hotels are franchised with industry-leading brands managed by some of the best management companies in the industry, and provide a strong value proposition with broad consumer appeal. Underlying the strength of our portfolio is a consistent reinvestment and effective portfolio management strategy and a dedicated corporate team with extensive industry experience. As we move further into 2024, we are optimistic about the trajectory of our industry and our portfolio specifically. It is now my pleasure to turn the call over to Liz for additional detail on our balance sheet, financial performance during the quarter and annual guidance.

Liz Perkins, CFO

Thank you, Justin, and good morning. We are pleased to report another strong quarter for our portfolio of hotels. Comparable Hotels total revenue was $315 million for the quarter and $1.4 billion for the year, up 3% and 7% as compared to the same period of 2022, respectively. Continued strength in leisure demand and recovery in business travel during the quarter enabled us to achieve Comparable Hotels RevPAR of $105 and $116 up 2% and 7% as compared to the same periods of 2022, with ADR of $151 and $157, up 3% and 5% and with occupancy of 70% and 74%, essentially flat and up 2% to fourth quarter and full year 2022, respectively. Looking day over day, leisure travel was resilient during the quarter with weekend occupancy stable compared to the fourth quarter of 2022, with continued improvement in business travel. We anticipate leisure demand will remain stable through 2024 and that most of our growth in occupancy will come from continued improvement in weekday demand which, while elevated relative to the prior year remains meaningfully below pre-pandemic levels. Same-store room night channel mix remains relatively stable in the quarter with brand.com bookings at 40%, OTA bookings at 13%, PropertyDirect at 25% and GDS bookings at 16%. Our channel mix continues to highlight the power of our brands and the strength of our property direct sales efforts that our properties maintained in the field. Fourth quarter same-store segmentation was largely consistent with the third quarter. Bar remained strong at 33%. Other Discounts remained seasonally elevated at 30%. Group continued to make up 14% of our mix, almost 200 basis points higher than the same period in 2019. And the negotiated segment was 17% of our mix, in line with the same period in 2022, but still lower than 2019, which we believe represents opportunity for continued upside. Turning to expenses total payroll per occupied room for our same-store hotels was under $41 for the quarter, up slightly to the third quarter 2023 and up 7% to the fourth quarter 2022. Contract labor remained stable at roughly 10% of wages during the quarter, a 13% improvement compared to the fourth quarter of 2022, while we expect year-over-year growth in total payroll to moderate in 2024, given more stabilized operations in 2023. We anticipate that higher wages for full and part-time employees and higher utilization of contract labor will continue to result in elevated cost per occupied room relative to pre-pandemic levels. We achieved Comparable Hotels Adjusted Hotel EBITDA of approximately $104 million during the quarter and $500 million for the full year, down 2% and up 5% to the same periods of 2022, respectively. Comparable Hotels Adjusted Hotel EBITDA margin was 32.9% for the quarter and 36.4% for the year, down 160 basis points and 90 basis points to the same periods of 2022, respectively. As we have stated on past calls, our ability to maintain and potentially grow margin will be largely conditioned on our ability to grow rate. Though, with more manageable inflation numbers and hotels appropriately staffed, we expect near-term growth in operating expenses to moderate relative to the significant increases we saw over the past year. Adjusted EBITDA for the fourth quarter was $91 million and for the year was $437 million, up 1% and 6% to the same periods of 2022, respectively. MFFO for the quarter was $72 million and for the year was $367 million, down 3% and up 4% as compared to the same period of 2022, respectively. Looking at our balance sheet, as of December 31, 2023, we had approximately $1.4 billion in total outstanding debt net of cash. Approximately 3.1x our trailing 12 months EBITDA with a weighted average interest rate of 4.3%. Total outstanding debt, excluding unamortized debt issuance cost and fair value adjustments, was comprised of approximately $283 million in property-level debt secured by 15 hotels and approximately $1.1 billion outstanding on our unsecured credit facility. At year-end, our weighted average debt maturities were just under four years. We had cash on hand of approximately $10 million and availability under our revolving credit facility of approximately $650 million and approximately 89% of our total debt outstanding was fixed or hedged. As of December 31, we had approximately $105 million of debt maturing in the next 12 months, consisting of one $85 million term loan and a mortgage loan of approximately $20 million. We plan to pay for these upcoming debt maturities using funds from operations, borrowings under our revolving credit facility and/or new financing. Acquisitions completed during the fourth quarter were funded using cash on hand, availability under our revolving credit facility and net proceeds from the sale of shares under our ATM program. As Justin highlighted in his remarks, during the quarter, we sold approximately 12.8 million shares under our ATM program at a weighted average sales price of approximately $17.05 per share and received aggregate gross proceeds of approximately $219 million and proceeds net of offering costs of approximately $216 million. As of year-end, we had approximately $5 million remaining under our ATM program and are in process with our Board and agents to reauthorize and extend our ATM program. We anticipate public filings related to the program to be filed later today. With this successful capital raise during the quarter, we were able to grow our portfolio with the acquisition of 5 attractive high-quality hotels while maintaining full availability on our revolving credit facility to pursue additional accretive opportunities. Turning to our outlook for 2024 provided in yesterday's press release. For the full year, we expect net income to be between $191 million and $217 million. Comparable Hotels RevPAR change to be between 2% and 4%. Comparable Hotels Adjusted Hotel EBITDA margin to be between 34.6% and 35.6% and Adjusted EBITDAre to be between $452 million and $474 million. While our asset management and hotel teams are working diligently to mitigate cost pressures, we have assumed for purposes of guidance that hotel operating costs will increase by approximately 5% at the midpoint. 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. The high end of our full year range reflects relatively steady macroeconomic conditions through 2024 with continued strength in leisure demand and improvement in business transient. The low end of our range reflects more modest lodging demand growth with a slight pullback in leisure demand, offset by continued improvement in business transient and group. It should be noted that because of calendar shifts with the Easter holiday and more challenging year-over-year comparisons driven by the 2023 Super Bowl in Phoenix, where we have meaningful portfolio concentration we anticipate first quarter performance for our portfolio to be below the low end of our range with performance improving as we move into higher occupancy months in the second and third quarters. As we begin 2024, we are pleased with our performance and confident we are well positioned for the year. Our recent acquisition activity has enabled us to drive incremental value for shareholders despite challenges in the operating environment, which continue to put pressure on margin. Implied modified funds from operations are up on a per share basis year-over-year at the midpoint and higher of our guidance range. Our differentiated strategy has proven resilient through economic cycles. Our balance sheet is strong with ample liquidity, which we will continue to use opportunistically to pursue accretive transactions. Our assets are in good condition with consistent capital investments, ensuring that we maintain a competitive advantage over other products in our markets. And we believe the fundamentals of our business are sound, with favorable supply dynamics, allowing us to benefit from incremental demand. Our team will continue to work to maximize the performance of our existing assets and pursue external growth where we can achieve favorable pricing. That concludes our prepared remarks. Justin and I will now be happy to answer any questions that you have for us this morning. Coordinator?

Operator, Operator

Our first question comes from Michael Bellisario with Baird. Please go ahead with your question.

Michael Bellisario, Analyst

Thanks. Good morning, everyone. Two questions for you. But first on capital allocation. I know you mentioned it briefly in your prepared remarks, but can you maybe big picture remind us of your math on kind of how and when you think about equity issuance? And then also your targeted returns when underwriting acquisitions? And then sort of separately on the same topic, just regarding the disposition, should we view those as one-off sales? Or do you have more older in need of CapEx hotels in the portfolio that you might look to sell at least over the near term? Thanks.

Justin Knight, CEO

To answer your first question, when considering equity issuance or funding acquisitions, we are careful about the spread and aim to issue equity only when we believe we can create additional value for our current shareholders. I mentioned in my remarks the specific investment spread related to all the assets we acquired in the fourth quarter, including details on the Vegas asset, which was acquired at a 10.7 multiple on trailing EBITDA through November of last year. That hotel has performed exceptionally well, and like most of the assets we purchased, we expect them to continue growing at rates higher than our portfolio average. Since the start of the pandemic, our focus on acquisitions has been to strategically position the portfolio for strong performance while making marginal adjustments. This ties into your second question. On average, all the hotels we've acquired since the pandemic began were about 10 years younger, generated $21 more in RevPAR, and achieved 5% higher margins. As we evolve our portfolio over time, we are continuously refreshing it through acquisitions, supplemented by asset dispositions. The two hotels we sold were each over 20 years old and required significant renovations, which led to the higher renovation costs I mentioned earlier. We believe there is a manageable number of assets in our portfolio that fit this category, and we expect to remain opportunistic. We are always analyzing market conditions, which currently show reasonable competition for some of the smaller, lower-priced assets in our portfolio where we see fit to transact. For the two assets we sold, we experienced substantial gains during our hold period, as the hotels performed extremely well. However, given the market dynamics and the new supply coming online, we determined it was in our best interest to divest and reinvest those resources elsewhere. We will continue to take proactive steps to seize opportunities within our portfolio.

Michael Bellisario, Analyst

Got it. That's very helpful. And then just one quick follow-up just on the guidance, thinking about the high end of RevPAR 4%. Maybe what needs to happen? What do you need to see in terms of pickup? Is it really just midweek business travel? Trying to understand what needs to happen to achieve that high end?

Liz Perkins, CFO

To achieve the high end, we'll need to see and really throughout the guidance range, we're assuming continued recovery in BT. But I guess, more strength and continued opportunity maybe on the leisure side. I think in general, our assumption is BT will grow and Leisure will remain stable on the high end. I think you would not have as much potential pullback in leisure making up continued strength there and some BT recovery.

Operator, Operator

Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Austin Wurschmidt, Analyst

Thanks and good morning, everyone. Justin, you mentioned the ability to increase rates significantly during the stronger seasonal months. I'm curious about how much pricing power you believe you currently have and which segment will be the main driver. It seems like midweek might be a possibility, perhaps BT, but I'd appreciate your confirmation on that. Additionally, how does occupancy factor into your strategy for managing the balance between rate and occupancy as conditions improve into early to mid-year?

Justin Knight, CEO

Starting with the last part of your question, we observe that rate is closely linked to occupancy. As we fill the hotel, we can price additional rooms more aggressively. Our teams strategically work to populate hotels with base business to significantly drive rate as we continue to expand our properties. Regarding areas of opportunity, we definitely see potential midweek. Although we are pleased with our occupancy improvement over the past year relative to pre-pandemic levels, we still believe there are further opportunities for growth in both occupancy and rate, especially with business transient groups and midweek segments such as government. We're satisfied with our progress in the fourth quarter, a typically weaker occupancy period, where we managed to increase rates. Similarly, in January, another weaker month for occupancy, we managed to raise rates. Moving into February, we anticipate more challenging comparisons due to our concentration in Phoenix and the Super Bowl being held there last year. While we're happy with the performance in Vegas, we have only one property there, so there will be trade-offs as we look at February. However, as we approach March, aside from the calendar shift due to the Easter holiday and looking ahead to the second and third quarters, we remain optimistic about the business outlook. Negotiated rates have improved, and as we continue to build occupancy, we expect to phase out some lower-rated negotiated accounts. Additionally, we've seen positive movement in Government Per Diem and within our group segment. We believe that as we advance through the year, we will be able to enhance performance in these areas to drive rates more substantially.

Austin Wurschmidt, Analyst

So is it fair to say that guidance assumes a 50-50 split between ADR growth and Occupancy?

Liz Perkins, CFO

A little, at the midpoint, probably weighted more heavily to ADR, but some Occupancy growth. It's really, as Justin mentioned, it's that incremental occupancy and compression midweek that should help us drive rate.

Austin Wurschmidt, Analyst

Understood. And then just maybe one on expenses. What's really holding back from driving agency utilization in lower? It seems like job growth has been pretty strong. I know this is an overall industry phenomenon. But what do you think you need to see to really see that next leg down in agency utilization?

Liz Perkins, CFO

That's a really good question. We're, I think the teams are working really, really hard to continue to leverage in-house labor where markets allow for. I think that while there has been some improvement sort of nationally. I think it's really market dependent. And there are some markets where we have higher occupancies that have always relied on contract labor. And in today's environment, you will unfortunately, have to rely on even more. So I think the efforts that the teams have made to bring more labor in-house and to really put themselves in a position where we have flexibility, and we're maximizing the use of contract labor, where if occupancies are seasonally lower, we can use less contract labor and we're not having to flex or restrict in-house labor hours. I think we're benefiting from it from that standpoint on the culture side. But I think it's going to be slow and steady. I mean, we'd like to see more immigration reform. I don't know if we'll see that in the near term, but that would certainly be more helpful. And I do think that anecdotally, although it's been slower than we like. We continue to hear that availability is easier and easier, but it's just at a slower pace to normalcy than we might like.

Operator, Operator

Our next question comes from the line of Dori Kesten with Wells Fargo. Please proceed with your question. Thanks. Good morning.

Dori Kesten, Analyst

For the assets that you acquired in '23, what was the difference between the trailing 12 EBITDA multiple and what you underwrote for the full 12?

Justin Knight, CEO

We haven't provided that yet. We have provided guidance for the entire portfolio. And on average, our expectations for the newly acquired assets are at the high end or exceeding the high end of the range that we provided. As I highlighted in response to one of the earlier questions, we're intentional in targeting hotels that we think will lift the portfolio from a growth standpoint and have been, on average, leaning into markets that have benefited from recent economic and demographic shifts. I think if you look at our activity over the past year, we're pleased with how the hotels have done subsequent to our acquisition and certainly optimistic about how that performed near term and over the long term for us.

Dori Kesten, Analyst

Okay. And then you noted a 1.5 turn spread to where you issued equity versus where you acquired in Q4 based on the assets you noted you're underwriting today and where you're trading today, is that 1.5 turn around the same? Or has it come in?

Justin Knight, CEO

So based on where we're trading today, I mean, certainly, that impacts the multiple for the company overall. And the assets have, on average, performed better than they did on a trailing basis. So you have kind of some shifts that would impact the math on that. But again, when we look at where we issued, we were able to lock in pricing at that higher multiple, which puts us in a position to drive incremental value through the acquisitions and the fact that they continue to perform incredibly well, we think it's advantageous to us.

Dori Kesten, Analyst

No, sorry. I meant the assets that you're underwriting today, if there's...

Justin Knight, CEO

When we assess our recent acquisitions, especially during the fourth quarter, we took advantage of the limited financing availability, which gave us a significant competitive edge for larger assets. We believe this advantage will persist, and we are optimistic about acquiring assets in that price range. Pricing naturally varies by asset, and currently, there are not enough transactions to establish a steady market price. Each asset is being individually priced, and we will focus on those that offer the highest potential value. Moving forward, we plan to target assets of similar quality. If financing remains a challenge for our competitors, we will seek out the assets that are most difficult for them to acquire, adjusting our strategy as the market becomes more fluid throughout the year. Overall, we expect to see more transactions in 2024 compared to 2023, especially as we face upcoming refinancings and increased pressure from brands regarding capital improvements, which should motivate more sellers to enter the market. We also continue to see strong interest from buyers.

Dori Kesten, Analyst

Okay. And then one last one. There's a pretty large difference between consensus G&A and what you're guiding for the year. Liz, can you give us a little teach-in on how G&A is set at the beginning of the year? And then, I guess, just how like relative share price performance versus guidance changes can shift that as the year goes on?

Liz Perkins, CFO

Absolutely. So at the beginning of the year, the way that we've historically approached it though, because I keep getting this question, we definitely reevaluate each time we give that guidance. But we typically set guidance at the target compensation. So at the midpoint of compensation, and that aligns with the midpoint of guidance. Now because so much of both the executive team and the internal team here is compensation is tied to how our stock performs on a relative and total return basis, that can fluctuate throughout the year. And so depending on how we perform, we will begin accruing based on how we're performing from a total and relative shareholder return perspective. And as we rounded out last year and even updated guidance for, with the Q3 release, we had a run-up at the end of the year, which impacted actual for 2023 and resetting it for this year, we're at the midpoint. And it could increase if we perform well and it should align generally speaking, with how we're performing operationally as well.

Operator, Operator

Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.

Anthony Powell, Analyst

Hi, good morning. I guess in terms of fly growth, have you started to track, I guess, the mid-scale properties under construction in the new markets? I'm asking because there's a lot of energy around a lot of the mid-scale brands that the larger brands have introduced. And so I'm curious if you believe those properties may eventually creep up in price and start to compete with your properties?

Justin Knight, CEO

We have. So our internal modeling allows us to add or subtract different segments. And to look at the potential impact of supply in a number of different ways. While there has been a significant amount of talk about the potential for mid-scale development, when we add midscale and look at the potential impact on our portfolio, it moves the needle very slightly on the margin but keeps us right at and around 50% exposure. So slightly higher, but still not meaningfully higher than the larger the way we've historically looked at it. We will continue to monitor that, and make adjustments to the extent we begin to see more meaningful impact from mid-scale development. But to date, there's been a lot of talk, but very few projects have begun construction at least in the markets where we have ownership.

Anthony Powell, Analyst

Got it. Okay. And maybe on acquisitions in terms of where you want to buy. I mean, you bought a lot of kind of western states with high population growth, business-friendly areas. You also did some deals in markets like Portland, Oregon that were a bit more slow to recover. Looking forward, would you do more of those more urban property deals that markets that are a bit more challenged to get pricing? Or are you going to focus mainly on kind of the high-growth Sunbelt kind of Western States that you've been doing so well in recently?

Justin Knight, CEO

I think you can expect us to look at all markets. And to invest where we think pricing is appropriate to the potential upside. Importantly, the Portland, Oregon asset was acquired as part of our portfolio with two Fort Worth assets. And on a combined basis, we got comfortable with the growth profile and have done incredibly well on that portfolio transaction overall. Certainly, Portland, Oregon has been slower to rebound, and returns that we've gotten to date on that asset are slightly lower than what we've gotten on average. But combined with the two Fort Worth assets, which have performed at or near the high end of returns that we've gotten for all of our acquisitions together, we feel really good about that transaction and about our price of entry into that market. As we begin to see more of the urban markets that have been slower to recovery begin to turn a corner, I think we will look opportunistically to invest where pricing is appropriate. And I think part of the beauty of our model is its design and intention to be broadly diversified. And so we are taking a broad view underwriting assets in all markets and looking for opportunities where pricing we're able to achieve matches the upside potential for the assets within those markets.

Operator, Operator

Our next question comes from the line of Floris Van Dijkum with Compass Point.

Floris Van Dijkum, Analyst

Justin, maybe can you talk a little bit about the amount of CMBS maturities in the Select Service segment this year? And what kind of opportunity set that could provide to your company?

Justin Knight, CEO

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, Analyst

And then maybe my thought, so by the way, in your view of the, what's the total volume 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, CEO

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, Analyst

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, CEO

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 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, Operator

Our next question comes from the line of Bryan Maher with B. Riley Securities.

Bryan Maher, Analyst

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, CEO

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, Analyst

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, CFO

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

Our next question comes from Tyler Batory with Oppenheimer & Company.

Jonathan Jenkins, Analyst

This is Jonathan filling in for Tyler. I have a clarification question regarding the guidance, specifically for Liz. The commentary on the high end of the range was helpful, but could you clarify the low end? Does it assume flat business travel and stable leisure, or is there an expectation of some recovery in business travel for that low range?

Liz Perkins, CFO

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.

Justin Knight, CEO

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, Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.