Earnings Call Transcript - APLE Q3 2023

Operator, Operator

Greetings and welcome to the Apple Hospitality REIT Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Kelly Clarke. Please go ahead.

Kelly Clarke, Host

Thank you and good morning. Welcome to the Apple Hospitality REIT’s third 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 third 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 are incredibly pleased with our performance year-to-date. A steady recovery in business transient and continued strength in leisure demand drove comparable hotels third quarter RevPAR growth of more than 7% as compared to the third quarter of 2019, our highest quarterly comparable hotels RevPAR growth since the onset of the pandemic. Despite more challenging year-over-year comparisons, during the third quarter, we achieved improvements in occupancy, ADR, and RevPAR. Third quarter 2023 comparable hotels ADR increased by 1%. Occupancy was up 2%, and RevPAR improved by 3% as compared to the third quarter of 2022. Continued top line growth enabled us to achieve third quarter comparable hotels adjusted hotel EBITDA of $132 million, a 1% improvement over third quarter 2022. Positive trends have continued, and based on preliminary results, comparable hotels occupancy for the month of October was 78% with continued growth in ADR. Given the strength of our performance as we approach the end of last year, top line comparisons will become increasingly difficult as we continue through the fourth quarter. Still, overall travel trends are favorable. Leisure demand remains elevated to pre-pandemic levels, and steady improvement in business travel demand continues to bolster midweek occupancies. We have adjusted our annual guidance to reflect portfolio performance through the first nine months of the year, top line performance through October, and the recently completed and announced acquisitions. Expense growth, which was elevated as a result of general inflationary pressures and a competitive labor environment, moderated somewhat in the latter portion of the quarter as we lapped periods where we saw significant growth last year. Through continued rate growth and disciplined cost controls, we achieved a comparable hotels adjusted hotel EBITDA margin for the quarter of 37%, down 110 basis points to third quarter 2022. We are fortunate to be partnered with some of the best operators in the industry who, together with our experienced asset management team, work to share best practices, monitor real-time performance and focus on-site efforts to maximize profitability at our hotels without sacrificing service, cleanliness, or overall guest satisfaction. Our outperformance since the onset of the pandemic is a tribute to the combined efforts of our corporate team and our managers, and it’s a testament to our strategy of investing in a broadly diversified portfolio of high-quality, rooms-focused hotels with low leverage, which has enabled us to maintain the strength and flexibility of our balance sheet, positioning us to be acquisitive within the current transaction environment. We have acquired four hotels since the beginning of the year, with three additional hotels under contract for purchase and are actively underwriting additional opportunities. In October, we acquired a Courtyard, a recently renovated Hyatt House, and a corresponding parking garage in downtown Salt Lake City for a combined total of $91.5 million. We are pleased to expand our presence within the business-friendly downtown Salt Lake City area, which has seen significant economic growth and positive demographic trends in recent years and is poised for continued expansion. These hotels sit adjacent to one another and are located directly across the street from the Delta Center within walking distance of the Salt Palace Convention Center, and convenient to Temple Square, the Utah State Capitol, the University of Utah, Salt Lake City International Airport, numerous performing arts venues, and multiple key areas. Salt Lake City’s diversified economy offers a wide variety of business and leisure demand generators and includes software development, hardware manufacturing, and information technology firms, as well as defense, oil and gas, transportation, tourism, healthcare, and financial services industries among others. In October, we acquired the recently built Residence Inn Seattle South, Renton for $55.5 million. Renton is well known for its proximity to downtown Seattle and Bellevue as well as its strong business environment that spans aviation, aerospace, manufacturing, technology, life science, and healthcare. The hotel is less than 1 mile from Boeing’s Renton production facility, known for its assembly of the Boeing 737 family of commercial airplanes. And from a leisure perspective, the hotel is located across from the southeastern shore of Lake Washington and convenient to the Seattle Seahawks’ headquarters and training facility, Tukwila Station, and the Seattle-Tacoma International Airport. We continue to have one existing hotel under contract for purchase for a total of approximately $37 million, the Embassy Suites, South Jordan Salt Lake City, which we anticipate acquiring by year-end. This hotel is part of a transit-oriented mixed-use development with two Class A office buildings located just off Interstate 15 in the Silicon Slopes region of the Salt Lake City metropolitan area, just 20 minutes south of downtown Salt Lake City, with a variety of amenities nearby, including Utah Transit’s SoJo Station North and South serving an 83 mile corridor with connections to downtown Salt Lake City and the Salt Lake City International Airport, South Jordan Towne Center, and South Valley Regional Airport. South Jordan is home to a diverse range of businesses, including technology, biotech, healthcare, education and retail, in its near several key areas. The 192-room hotel opened in 2018 and has market-leading meeting space at over 8,000 square feet. The combined purchase price for the recently acquired Salt Lake City and Renton assets together with the Embassy Suites in South Jordan represent a blended 8% cap rate on trailing 12-month financials through September of this year after an industry standard 4% FF&E Reserve. We believe each of these assets has embedded upside and will be a meaningful contributor to our overall portfolio performance. We also have two hotels under contract for purchase that are currently under development, the Embassy Suites in downtown Madison, Wisconsin for a purchase price of $79 million and the Motto in downtown Nashville for $97 million. We anticipate acquiring the Madison Embassy in mid-2024 and the Nashville Motto in 2025, both following completion of construction. Since the onset of the pandemic, we have strategically transacted in ways that have refined and grown our portfolio. We have completed approximately $253 million in hotel sales and have invested approximately $736 million in new acquisitions. On a trailing 12-month basis, the 14 hotels acquired since the pandemic and owned for at least a full year have produced an unlevered yield of approximately 9% after capital expenditures. Importantly, we have completed these acquisitions while maintaining the strength of our balance sheet with estimated post acquisitions debt levels still below 3.5 times trailing 12-month EBITDA. We continue to underwrite numerous potential opportunities and remain intently focused on maximizing total returns for our shareholders through strong operating fundamentals and portfolio growth when conditions are optimal. With our tremendous transaction experience, our available balance sheet capacity and our deep industry relationships, we are well positioned within the current marketplace. Supported by our strong operating performance, we continue to lead our peers in post-pandemic dividend payments. During the quarter, we paid distributions totaling $0.24 per share. Based on Monday’s closing stock price, our annualized distribution of $0.96 per share represents an annual yield of approximately 5.7%. 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. As we approach year-end, the fundamentals of our business remain favorable with continued strength in demand and limited near-term supply growth. As has been the case for several quarters, nearly half of our hotels do not have any new supply under construction within a 5-mile radius, providing us with the ability to meaningfully benefit from incremental demand. And we believe our recent acquisitions further enhance our portfolio and position us for continued outperformance. Our strategy was designed to create an asymmetrical risk profile, mitigating downside risk while providing significant opportunity for upside. Our portfolio of upscale rooms-focused hotels is broadly diversified across a wide variety of markets and demand generators. 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 balance sheet with low leverage and financial flexibility, consistent reinvestment, an effective portfolio management strategy, and a dedicated corporate team with extensive industry experience. While we have reason to be optimistic about the trajectory of our industry and our portfolio specifically, I’m confident we are well positioned to continue to outperform and maximize shareholder value in any macroeconomic environment. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and updated 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 $356 million for the quarter and over $1 billion for the first nine months of the year, up 4% and 9% as compared to the same periods of 2022, respectively. Continued strength in leisure demand and recovery in business travel during the quarter enabled us to achieve comparable hotels RevPAR of $123, a 3% increase over third quarter 2022, with ADR of $159, up 1%, and occupancy of 77%, up 2% to third quarter 2022. Year-to-date through September, comparable hotels ADR was up 5% and occupancy was up 3% with RevPAR up 8% compared to the same period of 2022. Leisure travel continued to be strong during the quarter, with weekend occupancies of 82%, up 1% compared to the third quarter of 2022. In addition, we continue to see improvement in business demand, supporting average weekday occupancies of 75%, an increase of 2% year-over-year. While weekday occupancies are ahead of 2022 for the quarter, there still remains upside opportunity relative to pre-pandemic weekday occupancy levels. Midweek occupancies have continued to strengthen over the last three weeks in October, while shoulder night and weekend occupancies remain strong, supporting the resiliency of leisure demand. In terms of same-store room night channel mix, brand.com bookings remained constant at 40% quarter-over-quarter. OTA bookings increased slightly to 13%. Property direct bookings were steady at 25% for the quarter. And while GDS bookings decreased seasonally from 17% during the second quarter to 16% in the third quarter, GDS room night volume was up 2% quarter-over-quarter. This channel mix speaks to the powerful direct bookings our brands command, the strong property direct sales efforts our properties maintain in the field, our ability to leverage OTAs when beneficial, and the continued recovery of business demand. Looking at third quarter same-store segmentation as compared to the second quarter, VAR remained strong at 33%. Driven by seasonality, other discounts increased from 28% to 30%. Group decreased slightly from 15% to 14%, which is still slightly elevated to the same period in 2019. And the negotiated segment was 17% of our mix, up slightly compared to the same period in 2022 but remains lower than in 2019, which we believe represents continued upside. Turning to expenses, total payroll per occupied room for our same-store hotels was under $38 for the quarter, up slightly to the second quarter of this year. Year-over-year comparisons eased as we moved through the quarter with September same-store total payroll up just 4% compared to September 2022. Contributing to the improvement was an 18% reduction in same-store contract labor as a percentage of wages as compared to the third quarter of 2022. While we expect fourth quarter year-over-year growth to also moderate given the meaningful increases in the back half of 2022, 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. Hotel margins during the quarter were also impacted by travel and registration costs associated with brand conferences. We will continue to balance productivity and efficiency initiatives with our efforts to train and celebrate associates and 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, cleanliness and maintenance necessary to sustain rate growth and maximize the long-term profitability of our assets. A focus on property level cost controls amid a challenging labor and inflationary environment enabled us to achieve comparable hotels adjusted hotel EBITDA of approximately $132 million for the quarter and $382 million for the nine months ended September 30th, up 1% and 6% compared to the same periods of 2022, respectively. Comparable hotels adjusted hotel EBITDA margin was strong at 37.1% for the quarter and 37.2% year-to-date through September, down 110 basis points and 90 basis points compared to the same periods of 2022, respectively. With expense comparisons having eased somewhat as we moved into the back half of the year as anticipated, this reflects a 50 basis-point improvement quarter-over-quarter and quarterly margin comparisons to 2022. As we have stated on past calls, we believe that long-term margin expansion for the industry and for our portfolio will largely be conditioned on our ability to grow rates. So, with inflation figures coming down and hotels more appropriately staffed, we expect near-term growth in operating expenses to moderate relative to the significant increases we have seen in past quarters. Despite the continued inflationary environment, adjusted EBITDAre for the third quarter was $122 million and year-to-date was $346 million, up 3% and 7% compared to the same periods of 2022, respectively. MFFO for the quarter was $104 million and year-to-date was $294 million, up 1.5% and 6% as compared to the same periods of 2022, respectively. Looking at our balance sheet, as of September 30, 2023, we had $1.3 billion in total outstanding debt net of cash, approximately 3.1 times our trailing 12-month EBITDA with a weighted average interest rate of 4.3%. Total outstanding debt, excluding unamortized debt issuance costs and fair value adjustments is comprised of approximately $285 million in property-level debt secured by 15 hotels, and approximately $1.1 billion outstanding on our unsecured credit facilities. At the end of the quarter, our weighted average debt maturities were four years. We had cash on hand of approximately $35 million, availability under our revolving credit facility of approximately $650 million and approximately 80% of our total debt outstanding was fixed or hedged. As previously discussed, in July, we entered into an amendment of our $225 million term loan facility, which extended the maturity of the existing $50 million term loan by two years to August 2025 and aligned the maturity date with the other term loan in the broader $225 million facility. We continue to be grateful for our supportive and longstanding lender relationships, as further demonstrated by this recent amendment. As of September 30th, we have approximately $106 million of debt maturing in the next 12 months, consisting of one $85 million term loan and a mortgage loan of approximately $21 million. We plan to pay for these coming debt maturities using funds from operations, borrowings under our revolving credit facility and/or new financing. Acquisitions completed subsequent to the third quarter were funded using cash on hand and availability on our revolving credit facility. As Justin highlighted in his remarks, we continue to be well positioned with pro forma debt to trailing 12-month EBITDA of less than 3.5 times, including the recently acquired acquisitions and closing on the South Jordan Embassy, and we have ample liquidity on our line of credit to pursue accretive opportunities. Shifting to our outlook. With top line performance exceeding our expectations through the third quarter and with continued strength in preliminary numbers for October, we have narrowed our RevPAR guidance range and increased the midpoint by 50 basis points. We now anticipate comparable hotels RevPAR growth to be between 5.5% and 7.5% for the year. We have made similar adjustments to our EBITDAre guidance, narrowing the range by increasing the lower end to $423 million and decreasing the high end to $440 million. Given continued inflationary pressures on expenses, we have adjusted our comparable hotels adjusted hotel EBITDA margin guidance by holding the low end at 35.4% and reducing the high end by 70 basis points to 36.3%. We expect net income to be between $167 million and $189 million. We continue to expect capital expenditures to be between $70 million and $80 million for the year. Our updated comparable guidance includes properties acquired and announced for acquisition before year-end as if the hotels were owned as of January 1, 2022, excludes dispositions since January 1, 2022, and excludes one non-hotel property, our New York asset, where hotel operations have been leased to a third-party. We are encouraged by recent trends and the strength of fundamentals for our business. And while our updated guidance reflects some ongoing macroeconomic uncertainty, October top line performance for our portfolio showed continued strength in both business and leisure demand for our hotels, and expense growth has moderated in recent months. A continuation of current trends would position us to perform above the midpoint of our guidance. As we approach the end of 2023, we are pleased with our performance and confident we are well positioned for the coming year. 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 market. And we believe the fundamentals of our business are sound, with favorable supply dynamics allowing us to benefit from incremental demand. That concludes our prepared remarks. Justin and I will now be happy to answer any questions that you have for us this morning.

Operator, Operator

Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt, Analyst

So Liz, can you just help us understand what the revised guidance assumes for hotel EBITDA margin change on the comparable 220 hotels or when you kind of adjust out that the impact that the new acquisitions had to the revised range for adjusted hotel EBITDA margin?

Liz Perkins, CFO

At the midpoint, the revised guidance, if you’re just looking at the existing comp and not the new acquisitions subsequent to quarter-end, the difference is about 50 basis points. So, we get a 30 basis-point benefit on an absolute basis from the new acquisitions.

Austin Wurschmidt, Analyst

So, that gets you down in the 150 basis-point range at the midpoint on that revised range for that comparable pool, just to be clear?

Liz Perkins, CFO

140.

Austin Wurschmidt, Analyst

Margins have decreased by 90 basis points year-to-date through the first three quarters. There was some improvement in the year-over-year margin change in the third quarter. You anticipate a slight decline in the fourth quarter, but it seems that you do not expect some of that growth to carry over into 2024, as you mentioned that expense growth should continue to moderate in the upcoming quarters. Is that correct?

Liz Perkins, CFO

That is what we believe will happen, and we are hopeful about it. Based on what we observed, especially in September, if year-over-year comparisons continue as they were in September, we could exceed the midpoint of our range. We analyzed the full quarter, which included a challenging comparison in July, some improvement in August, and then more significant improvement in September from both a margin and expense growth perspective. If the trends we observed in the latter part of the quarter continue throughout the fourth quarter and into next year, they would be more favorable than the midpoint of our guidance. However, since one month does not establish a trend with September, we chose to adopt a more cautious and conservative approach. We are pleased with the recent improvements made by our team in collaboration with the management companies, particularly regarding contract labor and productivity. I noted in my prepared remarks that we have seen some improvement there, and we are hopeful that it will persist. The team is doing an excellent job and has managed to maintain higher productivity levels despite ongoing challenges, with wages beginning to moderate year-over-year as we expected. One challenge we faced in the third quarter was the absence of favorable real estate tax impacts that we had in prior quarters, which helped offset the rise in insurance premiums. Additionally, we encountered some uninsured loss deductibles in the third quarter that we had not previously experienced. Hence, we didn't have that advantage to counterbalance insurance premium increases, which we carried as a negative factor into the fourth quarter guidance. That effect may or may not occur.

Austin Wurschmidt, Analyst

And then just last one on the guidance, just to clarify. I mean, how much hotel EBITDA contribution do you expect from the acquisitions that are set to close this year?

Liz Perkins, CFO

If you look at, I think it’s page 16 on our earnings release, you can see the add back for pre-ownership EBITDA for the new properties. That would include Cleveland, which we closed on at the end of second quarter. If you annualize that, it’s probably around $16 million.

Operator, Operator

Our next question comes from Floris van Dijkum with Compass Point.

Floris van Dijkum, Analyst

Thank you for the information on the cap rates. Justin, it's clear that you have been active, and I appreciate the update on your acquisitions and their attractive yield. Looking ahead, do you anticipate that your investment activities will be isolated instances, or how does the market appear for larger transactions? Additionally, do you see any opportunities arising from the refinancing challenges of portfolios, and would you look to engage in those types of investments?

Justin Knight, CEO

So, I’ll start and work my way backwards. I think, to your last point, would we consider, or participate in some of the various types of investment that you highlighted? I think, certainly, we are active in the marketplace. I highlighted in my prepared remarks that we continue to be active in underwriting additional potential acquisitions, and that includes the mix of individual one-off assets and small and medium-sized portfolios. Because of where the debt markets are right now, we’ve seen less activity at the large portfolio level, meaning fewer large portfolios being brought to market, but that could change. And, I think we have consistently underwrote those as well. From a preference standpoint, generally, our preference is to pursue individual assets. And we’ve found that we can be incredibly competitive in that space. Certainly, the landscape has changed slightly. And when we look at total transaction volume, that has not meaningfully increased, but our share of the total transaction volume has. And I think that’s a firm indication of our ability to transact in a market that has become more challenging for some of our groups that we are competing with when we look back 12 months or so. I think on a go-forward basis, we anticipate a continued steady stream of potential deals that we will have an opportunity to underwrite. I think you highlighted in your question a portion of those are likely to be brought to market, because of financing issues or overall liquidity issues with the sponsor. That is an area that we’ve been very successful recently. And as we continue to move into next year, we do anticipate the continued pressure from the brands around capital investments, should bring incremental assets to market as well. But I think we’re incredibly pleased with the opportunity set that we’re seeing now with pricing for those assets and with our ability, based on the flexibility that we have because of the strength of our balance sheet, to be active in a market that’s become more challenging for many of the other groups that would be interested in acquiring assets.

Floris van Dijkum, Analyst

If I can add one more follow-up or another. I know that your business is typically not viewed as being group dependent, you mentioned, I think, in your remarks or Liz did, 14% of your demand is group, it’s certainly a lot lower than some of your full-service peers. But how do you think about the convention calendar? I note that your largest exposure to a market is San Diego. San Diego’s convention calendar, I believe, looks very good. How much of a benefit will flow through to your properties in your view? Maybe give a little bit of a backdrop in terms of how your exposure to group might be bigger than what people think it is.

Justin Knight, CEO

I need to clarify that while we do own hotels in or near markets that benefit from significant convention business, we have become less reliant on that segment in recent years. We have been successful in drawing a diverse range of guests and smaller groups that aren't necessarily linked to larger conventions. However, in markets like San Diego or Denver, where we have properties close to major conference centers, we do see a positive impact when the convention calendar is strong.

Liz Perkins, CFO

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, Analyst

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, CFO

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, Operator

Our next question comes from Tyler Batory with Oppenheimer & Co. Please go ahead.

Tyler Batory, Analyst

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, CFO

Thank you for your questions, Tyler. We don't have the final RevPAR numbers for October yet, but it appears they will align closely with or be slightly lower than our month-over-month growth in September, which was around 3%. We anticipate numbers to be in that range, possibly a bit lower. Both ADR growth and occupancy rates seem to follow the trends from the previous year. Overall, October has shown positive trends, maintaining occupancy levels, especially since it typically represents a peak month. Last year, we experienced a strong October, and we are also seeing some ADR growth. Given that October is the strongest month of the quarter, I want to address your second question. The guidance at the midpoint suggests a flat RevPAR for the quarter, implying that November and December would need to show a decrease to align with our midpoint guidance. We have taken into account ongoing macroeconomic uncertainty, but there haven’t been any significant trend changes prompting us to adjust. We're still pleased and optimistic about the trends we observe in our portfolio. The primary unknown is that historically, pre-pandemic, we did not benefit significantly from leisure travel during November and December as we do now. These months are typically weaker for business travel. While we are noticing improvements in business travel, we are still awaiting clarity on the balance between leisure and business travel during these traditionally softer months.

Operator, Operator

Our next question comes from Bryan Maher with B. Riley Securities. Please go ahead.

Bryan Maher, Analyst

I have a couple of questions. You've discussed acquisitions extensively today, and I'm interested in your perspective on dispositions. Specifically, how do you plan to align some acquisitions with dispositions to ensure that leverage doesn't significantly increase? My first question relates to your buying strategy, which you mentioned involves acquiring properties at around an 8 cap with potential for upside. What cap rate are you anticipating for selling your older properties? Let's start with that.

Justin Knight, CEO

The question is a bit complicated due to the current market conditions and varies by asset. We’ve observed recent trades of older select service assets in secondary markets at very low cap rates. The pricing for these transactions is generally influenced by the replacement cost of the assets, which results in lower per-key values. In a robust transaction environment, we would typically see a spread of around 100 to 150 basis points between premier and secondary assets. However, this spread can fluctuate significantly based on market interest and activity levels. We are consistently evaluating the assets in our portfolio, including several older assets with very low basis. Even in the current market, we believe we could sell these assets at favorable pricing that would secure a meaningful profit from our original investment. We also have assets that we anticipate could sell at a positive spread. Moving forward, we will continue to seek out disposition opportunities while considering acquisitions to maintain a relevant and competitive portfolio, enabling us to leverage current economic and demographic trends effectively.

Bryan Maher, Analyst

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, CEO

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 forma 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.

Bryan Maher, Analyst

And just staying on that for one last question. Your property tax and insurance was fairly meaningfully higher than we were expecting. You talked a little bit about acquiring assets in business-friendly Salt Lake City, but you own a lot of assets in business-unfriendly California and Illinois. Would you consider selling some of those assets to lessen your exposure to those two states? And that’s all for me.

Justin Knight, CEO

Absolutely, without singling those states out as the only states where we’re seeing increased cost pressure. Certainly, we’re mindful of our exposure and interestingly, looking at California specifically, we’ve benefited from being concentrated in Southern California versus Northern, where we have to date seen revenue increases that have more than offset expense growth in those markets, such that the profitability for the assets has continued to be beneficial for our portfolio overall. That has not necessarily been the case, widely speaking, in and around Chicago, where the market dynamics are slightly different. I think, to the point I made earlier, we are constantly looking at the makeup of our portfolio, which now is over 220 assets, and looking to adjust in ways that ensure continued outperformance, which takes into consideration the likely trajectory of cost relative to the potential upside from a rate standpoint.

Operator, Operator

And our next question comes from Michael Bellisario with Baird.

Michael Bellisario, Analyst

Justin, thank you for being diplomatic with your commentary on Chicago. Much appreciated.

Justin Knight, CEO

You’re welcome, Mike.

Michael Bellisario, Analyst

I have two questions. First, this one is probably for Liz. It's a guidance-related question focused on revenue management and bookings. How much is currently on the books today, or as we move from October to November for the next month, and also looking 60 days out? I'm trying to understand how much you rely on bookings made within the month for the last two months of the year, and whether that differs from the higher-demand months, such as June, July, and August, for your portfolio.

Liz Perkins, CFO

Good question, Mike. Typically, we enter the month with about 50% of our occupancy on the books. And then in the month for the month, we realize the other 50%. And that stays pretty consistent month-by-month throughout the year. So 30 days out, 50% of our occupancy on the books, 60 days out, about half of that. And so really, you only have a small portion of your bookings overview towards occupancy, as you enter 30 days out, but certainly 60 days out, it’s not very clear where we may end up, especially if there’s a change in trends. If trends continue, we can project how we may materialize for the month, and trends seem to be consistent and still remain strong. And so we’re optimistic there. But really, as you progress through the months, especially in months where you have large holidays like Thanksgiving or Christmas and New Year’s, your view as you move throughout the month can change just depending on how business and leisure perform relative to those holidays. And so, I think that’s where some of our caution comes in. At the midpoint around November, December, it’s not indicative of a change in trends in bookings that we’re seeing today. We entered the month of November very similar with average daily bookings above prior year and 2019 levels as we have been seeing. So I think overall, we’re still encouraged, but just have low visibility.

Michael Bellisario, Analyst

I understand. That clarifies things for me. I was trying to determine whether the changes were simply seasonal or if they were related to the mix of business and leisure travel at the end of the year. It seems to be the latter. That's helpful. Now, shifting gears to Justin, could you provide an overview of your underwriting criteria with a focus on the quantitative aspects rather than the qualitative points you've already discussed? Specifically, where do cap rates and IRRs need to be, and how do those figures compare to your current stock performance? This will help us grasp the factors at play and what results from your analysis.

Justin Knight, CEO

We continuously monitor market trends and evaluate them in relation to our stock's pricing and implied multiples. Share prices in our sector have been generally more volatile since the beginning of the pandemic compared to previous periods. Therefore, we consider moving averages and daily pricing when assessing our share price. From a property perspective, we have observed some changes in cap rates concerning our transaction capabilities, which has been beneficial for us. These shifts, mainly driven by significant changes in the cost of capital for active private equity groups, allow us to pursue high-quality institutional assets in difficult markets at pricing that meets our investment criteria. Additionally, acquiring harder-to-replace assets enhances our ability to transact and develop our portfolios, ultimately improving our overall returns from acquisition activities. We aim to acquire assets that offer higher implied returns compared to our existing portfolio or similar implied multiples but with distinctly different profiles to address our growth and capital requirements moving forward. I'm open to adding assets that align with either of these criteria. I also want to emphasize that we consistently evaluate our existing portfolio, seeking ways to enhance its overall value, which may involve removing certain assets. As we expand our portfolio, we aim to complement our current holdings and broaden our market exposure beyond existing demand generators.

Operator, Operator

Our next question comes from Anthony Powell with Barclays. Please go ahead.

Anthony Powell, Analyst

So I guess on the acquisitions and financing the acquisitions, I think you used the line, which is pricing at about 7% I think currently. What’s your view on permanent financing, fixed versus floating, and how you’re looking at, and where could you finance assets like this in the market right now?

Justin Knight, CEO

Generally speaking, we’ve looked to balance fixed versus floating rate. Historically, when rates were extremely low and the risk to higher rates in the future was higher. We were near 100% fixed. As we progress through the changing rate environment and seeing the potential for future rate decreases, we pulled back slightly, but still predominantly fixed rate, largely through hedges on our unsecured line and/or a term loan.

Liz Perkins, CFO

Yea. We’re about 20% variable as of quarter end. I think as we look forward and certainly have some swaps that are maturing over the next couple of years, we’ll look at the curve closely and be in close contact with the banks and sort of evaluate our overall structure from a swap versus fixed or variable versus fixed perspective and try to manage that effectively given the current environment and the way the forward curve looks. But I think at one point, we felt like we were over-hedged, and I think 80-20 isn’t a bad place to be, but certainly, as these incremental hedges, mature over the next year, we’ll continue to look at it.

Justin Knight, CEO

And in terms of permanent financing for individual assets, and the pricing of that, some of it depends, and it was unclear from your question whether you’re talking about what we might be able to do versus what others in the marketplace might be able to do. But important to note that on the margin, our borrowing costs are lower on average than those we’re competing with, which is part of what that and the ready access to the capital has put us in an advantageous position from an acquisition standpoint. Then actual pricing will depend largely on the borrower at this point and the assets specifically, and the amount of leverage relative to value. But relative to our incremental borrowing costs, that would put others probably 100 to 200 basis points higher.

Anthony Powell, Analyst

And maybe one more on some of your leisure focused market, maybe Virginia Beach and maybe Melbourne, Florida, those are down in the quarter like other leisure markets across the industry. Do you see that stabilizing as we get into 2024, or is there a bit more, I guess, normalization there assumed?

Justin Knight, CEO

When we look at overall leisure trends, they vary by market. And certainly, you’ve highlighted a couple of markets where we saw meaningful increases in performance relative to where those markets that performed pre-pandemic. As they pulled back from a portfolio standpoint, they’ve largely been offset by improvement in leisure and/or business travel elsewhere, such that we’ve been able to maintain growth in our overall portfolio numbers. Having been in markets like Virginia Beach for an extended period of time, that market has and we anticipate will continue to vary from an absolute performance standpoint year-over-year, based on things that are as unpredictable as weather on weekends. And I think, overall, based on what we’re seeing from a new supply standpoint, we continue to be bullish about the long-term prospects for those markets and I think see them, nearly without exception, stabilizing and growing from a starting point well above where they were prior to the pandemic. But the actual level will vary a little bit from market to market.

Liz Perkins, CFO

And for context, we dropped the 2019 comparisons in the release, but they’re still up meaningfully to 2019. For the quarter, Virginia Beach was up over 12%, it was 13% and Melbourne was up 7% to 2019 for the quarter.

Operator, Operator

There are no further questions at this time. I would like to turn the floor back over to Justin Knight for closing comments. Please go ahead.

Justin Knight, CEO

I’d like to thank you for joining us today. It’s always a pleasure having the opportunity to speak with you. We hope that as you travel, you’ll take an opportunity to stay with us at one of our hotels, and we look forward to talking to many of you next week, out in California.

Operator, Operator

This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation, and have a great day.