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Operator
Greetings. Welcome to Apple Hospitality REIT second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Kelly Clark, President of Investor Relations. Thank you. You may begin.
Kelly Clark
Thank you and good morning. Welcome to Apple Hospitality REIT's second quarter 2022 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 our 2021 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 second quarter of 2022. 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
Good morning, and thank you for joining us. Performance across our portfolio during the second quarter continued to exceed our expectations. Second quarter Red Bar surpassed pre-pandemic highs, coming in at $119, up 40% compared to second quarter 2021, and up 4% compared to second quarter 2019. Red Bar was bolstered by strong rate growth. ADR for our portfolio was $153 for the quarter, up 27% to 2021, and up 8% to 2019. Occupancy for the quarter was strong at 78%, up 10% to 2021, and down only 4% to 2019. Positive business and leisure demand trends have continued into July, with occupancy of approximately 77% for the month and rate continuing to grow and exceed pre-pandemic levels. We are encouraged by growth in weekday occupancies, which reached 75% for the quarter, indicative of the resiliency of business travel across our markets. Consistent with our expectations, leisure travel continues to be incredibly strong despite higher gas prices and an inflationary environment. Weekend occupancy was approximately 85% of the quarter, surpassing 2019 occupancy levels by 160 basis points. With stronger weekday occupancies adding to robust weekends, we are better positioned to more meaningfully move rates throughout the week and adjust our business mix to maximize profitability. For the quarter, weekday ADR was $148 and weekend ADR was $165. Strong recovery in rate helped to offset challenging labor and inflationary pressures. As a result, second quarter operations were significantly ahead of the same period last year. With comparable hotels total revenue up more than 39% relative to the second quarter of 2021, we achieved comparable hotels adjusted hotel EBITDA of $137 million. up 46% to the same period of 2021, and up 4% to the same period of 2019. We achieved comparable hotels adjusted hotel EBITDA margin of 40%, up 180 basis points as compared to the same period of 2021, and up 10 basis points to 2019. Adjusted EBITDA RE was $126 million, and modified funds from operations was $111 million, or 48 cents per share. in line with second quarter 2019 results. These outstanding results further validate our strategy of investing in a diversified portfolio of high-quality branded rooms-focused hotels with low leverage and are a testament to the tremendous efforts of our corporate and on-site management teams. Our portfolio includes 219 hotels and spans 86 different markets across 36 states. And our unparalleled geographic diversification acts to reduce volatility and provides exposure to a wide variety of demand generators and industries. Our hotels are generally located in business-friendly markets that offer attractive cost of living and popular leisure and entertainment venues, which appeal to a variety of small and medium-sized businesses as well as large corporations. Our rooms focus hotels aligned with industry-leading brands and managed by best-in-class operators. offer guests a strong value proposition while providing us the ability to produce robust operating margins and profitability. Fewer outlets to manage and less public space to maintain simplify operations and minimize utility, cleaning, and maintenance costs. The hotels we own appeal to a broad set of business and leisure customers, operate at attractive margins, are resilient during economic downturns, require reasonable ongoing capital reinvestment, produce attractive cash returns, have a small relative environmental footprint, are attractive on resale to both local and institutional investors, and can be effectively optimized in a scaled portfolio utilizing comparative data analytics and operational benchmarking. The strength of our balance sheet further contributes to the long-term stability and optionality of our platform. In July, we refinanced our primary unsecured credit facility, further bolstering our already strong liquidity position. In addition to extended maturities and improved pricing, the refinancing upsized our revolving credit facility and term loans, providing the company with greater access to liquidity for strategic growth and other corporate initiatives. We greatly appreciate the support of our lenders, their conviction in our strategy and their continued confidence in the underlying fundamentals of our business. Faced with the prospect of potentially greater macroeconomic uncertainty and volatility in capital markets over the coming years, the increased liquidity positions us to be opportunistic in ways that will drive incremental value for our shareholders. Rising interest rates and disruption broadly in debt markets have impacted competition for assets in recent months. which we anticipate will result, at least temporarily, in more attractive buying opportunities. Given our outperformance since the onset of the pandemic, the strength and flexibility of our balance sheet, and the additional borrowing capacity under our amended credit facility, we are incredibly well positioned. With just 3.7 times net debt to EBITDA, extended and staggered maturities, a relatively young portfolio and over $700 million in current total liquidity, We are able to be both patient and flexible as we work to capitalize on potential dislocations in the market. We continue to actively underwrite and explore dozens of opportunities both on and off market and anticipate that we will be a net acquirer of assets in 2022 with transactions likely over the coming months. The 12 hotels we have purchased since the onset of the pandemic contributed meaningfully to our year-to-date outperformance. exceeding our original underwriting during the first six months of the year by over $3.2 million in hotel EBITDA. A third of these hotels produced yields in excess of 10% on a trailing 12-month basis. We have been and will continue to be highly selective and intentional in the build-out of our portfolio, pursuing assets that are additive to those that we currently own where we can achieve attractive pricing. Future acquisitions will be consistent with our strategy of investing in high-quality rooms-focused hotels located in strong web farm markets with attractive cost structures and meaningful growth potential. We were fortunate to have entered the pandemic with a relatively young and well-maintained portfolio and, as a result, were able to strategically reduce renovation spend to preserve capital in 2020 and 2021. During the first six months of 2022, we invested approximately $17 million in capital expenditures and anticipate spending a total of $55 to $65 million during the year. This year's spend will more closely approximate our historical investment of between 5% and 6% of revenues, which we continue to feel is appropriate for our portfolio and a meaningful differentiator for us, which contributes to total shareholder returns over time. Through our scale ownership of branded, rooms-focused properties over more than two decades, we have significant experience in determining the most effective scope and timing of our investments to ensure minimal disruption to property operations and maximum impact for dollars spent. As of June 30th, 2022, we had approximately $345 million remaining under our share repurchase program. As has been the case historically, we will be opportunistic in using this program where we see market dislocations that create opportunities to buy our portfolio at a meaningful discount. We also intend to continue to return capital to our investors through monthly dividends. During the second quarter, we paid $0.15 per share for a total of approximately $34 million, based on Wednesday's closing price. The annualized distribution of 60 cents per common share represents an annual yield of approximately 3.6%. We interact with our board on a monthly basis and assess our payout in the context of current operating environment, our expectations for the future, and other investment opportunities to ensure that we are allocating capital to drive the strongest total returns for our shareholders. our strategy was designed to create an asymmetrical risk profile, mitigating downside risk while providing meaningful opportunity for upside. We remain confident in the resiliency of travel and our ability to drive strong results and maximize shareholder value in any macroeconomic environment. With nearly every operating metric now exceeding pre-pandemic levels, additional upside remaining in business travel and new supply at historically low levels We are incredibly optimistic about the future of our business. Before I turn the time over to Liz, I just want to take a moment to thank her for her efforts on the successful refinance of our credit facility that I touched on in my earlier remarks. Liz, I'll now turn the time over to you for additional details on our balance sheet, operations, and financial performance during the quarter.
Kelly Clark
Thank you, Justin, and good morning. Top line performance for the second quarter improved sequentially by months with total portfolio revenues for June up approximately 28% to prior year and in line with June of 2019. Rev. par growth for the quarter was driven primarily by ADR, which improved 27% and 8% to the same period in 2021 and 2019, respectively. Occupancy was up meaningfully to 2021, but came in approximately 4% lower in the second quarter of 2019. Preliminary results for July show continued strength in demand with occupancy of 77% and continued growth in rate. While July occupancy was down 6% to 2019, in large part the result of lower business demand around the 4th of July holiday. Occupancy improved sequentially each week during the month and was down only 3% in the final week of July. Our portfolio is now producing top line results above pre-pandemic levels, even without a full recovery in business travel. As we look forward to the remainder of the year, we are optimistic that continued improvement in midweek occupancy, driven by further recovery in business travel, will push our operating performance even higher. Recent performance reflects both continued strength and leisure, and a meaningful recovery in business demand. April, May, and June weekend occupancies were 83%, 86%, and 85% respectively. Weekday occupancy improved significantly over last year and the first quarter of this year, with April and May weekday occupancy at 74% and 73% respectively, both down less than 8% to 2019. Weekday occupancy improved further in June to 78%, only 6% down to June of 2019. With growth in weekday occupancy, weekday ADR meaningfully improved, moving from $142 in April to $155 in June, now exceeding 2019 weekday rate levels. As we look at demand segments and business transient trends, travel patterns are beginning to normalize with Tuesday and Wednesday occupancies over 80% for the quarter. 56% of our portfolio produced RevPar above pre-pandemic levels during the quarter, with improvement in demand impacting nearly every market. Top performers included hotels with ramping operations, like our Hyatt Place in Greenville, which ran RevPar of $134, and our AC in Portland, which ran RevPar of $198 for the quarter. Other top producers included our hotels in Atlanta, Gainesville, San Antonio, Hattiesburg, Texarkana, Phoenix, Birmingham, Miami, and Salt Lake City. While results improved across the portfolio, we continue to see slower recovery at our hotels in Northern Virginia, Chicago, Houston, Philadelphia, and St. Paul. Our portfolio has benefited from continued strength and leisure demand with improvements in business transient and group further lifting overall results and enabling us to produce rev par slightly higher than 2019 for the quarter. Looking forward, we expect business travel to continue to improve, lifting performance in a growing number of markets, and providing us with meaningful upside for our portfolio. In terms of room-night channel mix, brand.com bookings increased to over 38% during the quarter. OTA bookings remained stable at 13%. Property direct bookings declined to 27% but remained elevated to second quarter 2019, a testament to the continued efforts of our property and management company sales support team. And GDS bookings continued to increase showing growth in corporate demand and represented 15% for the quarter, a 200 basis point increase from Q1. Looking at second quarter same-store segmentation, FAR remained elevated to 2019 levels and in line with the first quarter at 34%. Other discounts moved from 27% in the first quarter to 28% in the second quarter. Negotiated ticked up to 18% from 17% in the first quarter, showing continued growth in business demand. And Group was 16% for the quarter, in line with the first quarter and slightly higher than the second quarter of 2019. Turning to expenses, total payroll per occupied room for our same store hotels was around $34 for the quarter, roughly in line with the first quarter, and up 5% to the second quarter of 2019. Low unemployment and rising occupancies have continued to put pressure on labor, and second quarter results were impacted by higher wages for full and part-time employees, training costs, and higher utilization of contract labor to fill short-term needs. While we anticipate that higher wages will be permanent, a large number of new hires and the temporary reliance on contract labor have resulted in lower productivity despite positive adjustments to brand service and amenity models. We anticipate that a portion of the elevated expenses will be temporary and that productivity improvement will help to offset some of the inflationary pressures as operations stabilize. As we have always done, we will continue to balance productivity initiatives with our efforts to uphold service levels and cleanliness and maintenance standards and support strong employee morale and low turnover in order to maximize long term profitability. Excluding payroll, same store rooms expenses continue to be well controlled and we're down 4% per occupied room compared to 2019 for the quarter. Strong rate growth and effective cost controls, despite the challenging labor and inflationary environment, enabled us to achieve second quarter comparable adjusted hotel EBITDA of approximately $137 million and comparable adjusted hotel EBITDA margin of approximately 40%, up 10 basis points to the second quarter of 2019. As we have highlighted on past calls, we continue to believe that growth and rate will be the primary driver of margin expansion as we move through the recovery. Following similar trends, MFFO also improved sequentially each month and was approximately $111 million, or 48 cents per share, for the second quarter, up 75% compared to the first quarter of 2022. up 64% compared to the second quarter of 2021, and in line with the second quarter 2019. Looking at our balance sheet, as of June 30, 2022, we had $1.4 billion in total outstanding debt, approximately 3.7 times our trailing 12-month EBITDA, with a weighted average interest rate of 3.6% and availability under a revolving credit facility of approximately $359 million. Total outstanding debt excluding unamortized debt issuance costs and fair value adjustments is comprised of approximately $366 million in property level debt secured by 22 hotels and approximately $1 billion outstanding on our unsecured credit facilities. At quarter end, our weighted average debt maturities were three years with approximately $96 million net of reserves maturing in 2022, including 66 million outstanding on our revolving credit facility. Within the quarter, we entered into a seven-year unsecured $75 million senior notes facility. We repaid in full the $56 million note payable related to the purchase of the fee interest in the land at our Seattle residence in And we repaid six property level secured mortgages for a total of $67 million. In July, subsequent to quarter end, we amended and restated our existing $850 million credit facility, increasing the borrowing capacity to approximately $1.2 billion, extending maturity dates and achieving improved pricing across the facility. The $1.2 billion credit facility is comprised of a term loan of $275 million maturing in 2027, a term loan of up to $300 million maturing in 2028, including $150 million available with a delayed draw option, and a revolving credit facility of $650 million with an initial maturity date in July 2026, which may be extended up to one year. These updates provide for additional capacity of $150 million under the term loans and $225 million under the revolving credit facility. The agreement includes an accordion feature in which the amount of the total facility may be increased from approximately $1.2 billion to $1.5 billion. At closing, we borrowed $475 million under the term loans and used the proceeds to repay the $425 million outstanding under the term loans of the previous credit facility and $50 million outstanding under the revolving credit facility. On August 1st, we repaid in full an additional three secured mortgage loans for a total of approximately $32 million. Through the refinance of our primary credit facility, the additional seven-year senior notes facility, and the repayment of nine secured mortgages. We achieved our key balance sheet objectives of managing and continuing to stagger our debt maturities, increasing access to liquidity through upsizing our revolving credit facility, and shifting a portion of our secured debt to unsecured, and as a result, increasing the unencumbered pool of assets in our portfolio. These objectives could not have been met without the support of our lenders. We are extremely grateful for their efforts to help us execute these transactions and for their continued confidence in our team, strategy, and performance. As for our outlook for the remainder of 2022, we remain confident in the broader industry recovery and the performance of our portfolio specifically. Second quarter performance exceeded our internal forecast. Preliminary results for July REVPAR are positive to 2019, and average daily booking trends continue to be elevated relative to pre-pandemic levels. Although macroeconomic and pandemic-related factors continue to add a layer of complexity to the current operating environment, leisure demand within our portfolio is strong, and business travel has recovered ahead of our internal forecasts. As we build back mid-week occupancy, we are gaining pricing power, which should enable us to further grow RESPAR for our portfolio. With second quarter bottom line operating results in line with 2019, we expect to move earnings beyond pre-pandemic levels in the near term if these trends continue. As we move through the back half of the year, we are well positioned for any macroeconomic environment. We have weathered the most challenging period in our industry's history and demonstrated the resiliency of our differentiated strategy. With continued strength and leisure demand and increasing business travel, our portfolio is poised to move beyond pre-pandemic operating levels. Our balance sheet is strong and our recent restructuring provides extended maturities and additional liquidity, which we intend to use opportunistically to pursue accretive opportunities. Our assets are in good condition with recent dispositions and planned renovations, ensuring that we maintain a competitive advantage over other products in our market. The supply picture is more favorable than it has been at any point in our over 20-year history in the industry. And our team has used our recent experience to enhance our internal systems and processes in ways that will enable us to further maximize the performance of our current holdings. We will now be happy to answer any questions that you may have for us this morning.
Operator
Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Neil Mackin. with Capital One Securities. Please proceed.
Neil Mackin
Thank you. Good morning, everyone. Congrats on getting past 2019. Thank you. First one, sure, yeah. First one, can you, either of you, talk about midweek or BT opportunity? from here. Maybe you could start by, you know, saying or talking about what BT, either pace or demand of revenues were relative to 19 through Q2 and then into July. And then if, you know, I think that there was a sort of sentiment that that group will recover ahead of BT, you know, potentially with some BT impairment, hybrid work environment. So be interested in your comments on how you see that side of the business shaking out, you know, and what the next several quarters looks like in terms of, you know, BT holistically in the portfolio.
Kelly Clark
Good question. I know there's a lot of interest around BT trends for the industry as a whole, but our portfolio specifically, you know, last quarter, we had started to see more sequential and consistent improvement in business transient, looking at a couple different points, GDS as a percentage of our mix from a channel mix perspective, and then a room segmentation perspective, looking at our negotiated, both local and corporate negotiated, so big and sort of medium-sized. corporate business. So we've seen a steady increase, but we're still shy of, you know, stabilized levels. In 2019, we were probably from a room segmentation standpoint for corporate and local negotiated combined, you know, in the low 20% range, 20, 21% range. And, you know, for the quarter, we were, you know, we were short of that. And for GDS, We were about 18% for the quarter, and probably 21%, 22% would have been where we were for the quarter in 2019 for corporate and local negotiated. And then for GDS, we improved to 15% in the quarter, so that's your more traditional corporate negotiated as well from a channel mix perspective. And we're normally around 20% there as well, looking at it kind of a couple different ways. and to still have upside as more markets recover. If you look at our portfolio, Neil, and you think about our comments around the 56% of hotels that are exceeding 2019 levels, that's still a significant amount of our portfolio that still has room to grow, and that's both on the corporate and leisure side. So when we think about how our portfolio is performing, With such disparity across the high and low end, there's significant upside from both a BT and a leisure perspective in some of the recovering markets. And then when you think about our overall occupancy levels and where we still have a little bit of room to grow to reach 2019 levels, it's midweek. It's our midweek occupancy. It's the BT. you know, meaningful upside as we look at some of these markets that are slower to return. But as a portfolio overall, you know, we still see some opportunity on midweek occupancies. The good news is, as we anticipated, you know, the more and more markets midweek that start approaching and exceeding 2019 levels, we've had pricing power. And so there's opportunity on the rate side as that BT comes back. Yeah.
Justin Knight
And importantly, Neil, we've continued to see progressive improvement month over month. on the business transient side of our business. And that's showing up in our midweek occupancies was highlighted in our remarks that, you know, today looking at the quarter as a whole, Tuesday and Wednesday for the entire quarter, those days were up above 80% from an occupancy. And so while we continue to have room, certainly on the business side, we are seeing continual improvement in that area and anticipate that, you know, business travel will continue to improve through the back half of the year.
Kelly Clark
Even if you look at July and what we've seen on Tuesday, Wednesday nights in July, excluding that first week, which was impacted by the 4th of July and certainly impacted business transient on Tuesday and Wednesday, we pushed past that 80% occupancy mark that we saw in second quarter in July. And we're more in the mid-80s for those three weeks following the 4th of July week for Tuesday and Wednesday. So continuing to see good growth.
Neil Mackin
Great, yeah, sounds good. I just thought you said something like I think GDS is 15% versus 20% in 2019. That's around what, like 75%? Is that like an accurate way to think about it? You know, like BT was 75% of 19? Again, just trying to understand. Yeah, the 15% or 20%, sure, yes. Yeah, okay. Okay, great. Other thing for me, Justin, I think you touched on it briefly, but one of the things you guys have always talked about, particularly since the pandemic, is the balance sheet and the differentiated nature of it. You were able to get out of waivers early. Now that we have a more dubious financial or lending environment, maybe with some macro uncertainty sprinkled in there, do you feel like you're you want to or you are going on the offense or going being more aggressive um in terms of finding deals or opportunities um you know to acquire you know you i think you alluded to something about being more attractive from a competitive side now but can you just you know shed some light on that uh you know the acquisition environment and everything like that that'd be great
Justin Knight
Yeah, certainly. In my prepared remarks, I highlighted the fact that disruptions in the debt market have, at least temporarily, created more attractive buying opportunities for us. And I think as a result, consistent with what we've been saying from the beginning of the year, we anticipate that we will be net acquirers this year, certainly advantaged by our balance sheet and Liz and our team's work in getting for us additional liquidity. I think we've been actively underwriting deals continuously since the onset of the pandemic and competing for deals largely with private equity players who are now meaningfully disadvantaged by increasing interest rates and lack of availability of debt, specifically in the CMBS market. As a result, we've seen deals that were tied up coming back to market, both individual properties and larger portfolios, deals that we had interest in and participated in processes on. I think the conversations we're having today are productive around those and other assets, We're talking to owners about off-market. You know, certainly from the beginning, we've signaled that we wanted to be opportunistic buying assets that we felt were additive to our portfolio at pricing that we believed would be attractive and yield for our investors long-term. And we see ourselves as being in as good a position as we have been over the past several years and better in many ways.
Neil Mackin
Thank you for the time.
Justin Knight
Absolutely.
Operator
Our next question is from Dory Keston with Wells Fargo. Please proceed.
Keston
Thanks. Good morning. It's kind of a similar question, but Liz, can you just give a little bit more detail on the reasoning behind the increase in the size of the facility? Is it that it's more appropriate given the company today, or is this really a read-through about future growth? And then just a follow-up to Justin's comment. Are there relatively large portfolios being marketed for sale today? that are of interest to you?
Kelly Clark
To answer the first part of your question, Dori, the upsizing the facility was the result of a couple things. Number one, we wanted to transition some of our secured debt that was maturing this year to unsecured. And so a portion of the term loan or the term loan increase was a result of that objective. The revolver upside was strategic, both relative to the size of our company, the size of our average investment today, and our desire to be nimble and be able to act quickly in any environment and grow strategically if the opportunity exists. So kind of two-fold from a strategic standpoint.
Justin Knight
And then in terms of portfolios, there have been actually for some time a number of attractive portfolios that have been marketed. several of which we were active in the bidding process around, which are coming back to market with sellers having some additional flexibility around the makeup of those portfolios. So as we were initially underwriting the portfolios, often contained assets that we thought would be less additive to our portfolio, and that impacted the value for us and our pricing and competitiveness around the portfolio. As the portfolios are coming back to market, sellers are increasingly willing to consider disposition of a subset of the larger portfolio, which puts us in a position to more effectively align the makeup of the portfolio that we're underwriting with our existing strategy and the portfolio we currently have. So I'd say while we believe, while the most likely scenario on a go-forward basis will be continued growth in our portfolio through a series of individual asset transactions, there's greater likelihood now than there was earlier in the year that that could include small portfolios as well.
Keston
Okay. And I guess, how would you describe small? Is that several hundred million?
Justin Knight
It would be several hundred million, yes. Okay.
spk00
Thank you.
Operator
Our next question is from Michael Belsaro with Baird. Please proceed.
Michael Belsaro
Thank you. Good morning, everyone. Good morning. Just one more follow-up there on transactions. Just maybe can you give us some more detail on what you've seen over the last 90-plus days in terms of pricing changes, expectations in pricing changes and cap rates? And then maybe kind of how would you characterize that differential between, to kind of your last point, single assets versus portfolio pricing?
Justin Knight
So it's certainly with a lack of available financing, portfolios are impacted more significantly from a pricing standpoint. Because the portfolios haven't traded today, I can give you some directional commentary, but until they trade, you know, it will be difficult to establish exactly where the variance ends up. Today, I'd say brokers are guiding to, you know, somewhere around a 10% discount to where values were, you know, prior to the disruption of the debt markets. You know, for a portion of the potential sellers, That's a non-starter and they'll pull assets from market. For other assets, the more rapid recovery in operating performance puts them in a position where they can achieve their objectives even at a higher potential cap rate, meaning that for us as a buyer, we could potentially achieve higher yields even while having the seller achieve a price point that would be attractive for the asset. And we're in ongoing dialogue with a number of potential sellers around individual assets at larger portfolio trades. As I highlighted in response to the earlier question, I think there's greater flexibility based on the number of potential buyers in the market for us to customize portfolios, eliminate some of the assets that would be less additive to our portfolio and really fine-tuning our focus around assets that add to our geographic diversification and that are a quality level that is meaningfully additive to our overall portfolio. You know, we're excited about where we are now, and as I highlighted, anticipate that we will be acquisitive as we move through the back half of the year.
Michael Belsaro
Got it. So just to make sure I heard that correctly, just for higher quality properties that you might be interested in, prices have kind of come back to you, and maybe the price is the same from your perspective, but the cap rate's higher because six months of fundamentals have been better. Is that fair? That's correct.
Justin Knight
More or less. And again, remembering that until the deals trade, we're giving directional commentary.
Michael Belsaro
Speaking of directional commentary, for Liz, just on July, I know you said it's up versus 2019, but maybe can you provide some context or any added detail just around the magnitude of that increase, particularly relative to June, and then just kind of all else equal as you look out to August, September, What's kind of the normal seasonality for the portfolio for those months in terms of the cadence of absolute rev par and absolute margin, just as we think about modeling on a go-forward basis?
Kelly Clark
Good question. So for July specifically, we mentioned and had in our release, so we mentioned that July was 77% from an occupancy perspective. which compared to 2019 was down about 6%. So relative to where we were in June was a little bit of a step back given the impact of the 4th of July week. If you look at the weeks following 4th of July, we actually were shrinking that gap relative to 2019 through the month and ended that last week at down only 3% from an occupancy perspective relative to 2019. which sort of normalizes for the fact that June is or was in 2019 a peak month from a RevPAR perspective and was higher from an occupancy perspective in July of 2019. Looking at rate, we actually saw rate grow over where we came in in June for July. We haven't given specifics around how much, Typically July ADR actually takes a step back again from June being that June is a peak month or historically has been a peak month. And so that rate growth into July will help offset the incremental impact of the 4th of July week on occupancy and help overall rep par levels relative to June. So, you know, a positive from a rate perspective and even outside of the 4th of July week, a positive from an occupancy standpoint relative to 2019. That said, Q2 and Q3 are typically fairly similar from an overall Sort of EBITDA contribution standpoint and REVPAR contribution standpoint. It depends some on how weekends fall and holidays fall. But in 2019, you know, June was a peak month. July takes a slight step back, but is, again, one of our strongest months in the year. It was in 2019. And then August more typically has mirrored May, which is a little bit shy of where June was. And then September's impacted by Labor Day and VT picks up as leisure historically has pulled back some over the fourth quarter. So first and fourth quarters more similar, and second and third quarters more similar to each other, if that's helpful.
Austin Werschmidt
Yep, very helpful. Thank you.
Operator
Our next question is from Chris Darling with Green Street. Please proceed.
Chris Darling
Thanks. Good morning. Justin, thinking about future acquisitions again, now that a larger swath of your markets are either above or close to pre-COVID performance, does that at all change where you look to allocate capital going forward? And specifically, I'm thinking whether the value play of kind of putting capital to work in slower to recover markets might make more sense now than maybe a couple of quarters ago.
Justin Knight
We have certainly been looking in markets that have been slower to recover. And our appetite for those markets really depends on, you know, our long-term view of how the markets will perform. You know, I think we've highlighted in past calls and continue to believe that to some extent there has been a shift, you know, demographic and economic shift in our country over the past five to ten years away from higher cost markets. and into more business-friendly markets with lower operating costs. And we've seen that with some of the larger corporate announcements that have happened over the past several years. That will have a long-term impact on some markets that have historically been top performers. And that colors our expectation and the pricing that we would offer for assets in those markets. But I think as I highlighted in my prepared remarks, diversification is an important component of our overarching strategy. And we look to add assets to our portfolio that create exposure to demand generators where we have lower exposure today and in markets and at price points that over time will enable us to achieve the best yields for our investors. I think we have the broadest vision from an acquisition standpoint of what might fit for our portfolio based on that strategic pillar for us and continue to look at opportunities in a broad variety of different markets.
Chris Darling
Okay, I appreciate those thoughts. Shifting gears, just curious, have higher gas prices at all impacted the performance of the portfolio? Whatever the recent experience has been, I'm curious how that compares maybe with similar historical periods.
Justin Knight
So to date, we have not seen an impact specifically from higher gas prices. And looking back historically, gas prices alone have rarely negatively impacted hotel performance in the ways that you might anticipate they would. To the extent gas prices are part of a broader inflationary environment, and to the extent the inflationary environment negatively impacts discretionary income for individuals, over time that can have impact on the performance of hotels as people make choices around how they allocate the limited funds that they have available. To date, as we mentioned in our prepared remarks, We continue to see stronger bookings than we did pre-pandemic. Looking out our expectations through the back half of the year, that translates into performance at or above where we were in 2019, assuming current trends continue as they currently are. And so I'd say for the time being, we feel good about where we are. And in fact, to some extent, the inflationary environment has created a backdrop, enabling us to make adjustments to rate, which have more than offset increasing expenses in our portfolio, enabling us to achieve higher margins.
Chris Darling
Okay. Thank you. That's all for me. Thanks.
Operator
Our next question is from Tyler Batori with Oppenheimer and Company. Please proceed.
Tyler Batori
Hi, good morning. This is Jonathan on for Tyler. Thanks for taking our questions. First one for me is on the business travel discussion. And broadly speaking, can you provide some color on what kind of business travel customers are leading the way, which are still lagging, and any expectations when the lagging segments comes up to the group?
Kelly Clark
Sure. I think we continue to see strong performance from small and medium-sized accounts. We continue to see those regional accounts perform. They've been performing sort of throughout and started coming back really in 2021 meaningfully. From a sector perspective, as we think about both small and large corporate accounts, Technology companies have been slower, although in Q2 we did see them move sort of ahead from a mix of where our sectors were coming from, move ahead slightly. So we're starting to see them improve some. But, you know, we've done well with university business, healthcare business, manufacturing. strong performance there. They've certainly outperformed technology, but technology has improved some. It continues to probably be relative to pre-pandemic levels for our portfolio with what continues to lack the most, but we have seen some recent positive trends.
Tyler Batori
Okay, great. Thank you for the detail. And then switching gears to margin, you gave some helpful commentary on the cost side and the prepared marks, but Can you provide some maybe high-level color on the sustainability of these higher margin levels, given, if I understand it correctly, the assumption that rates and costs will remain elevated in the back half of the year?
Kelly Clark
Yes. I mean, going in, just a reminder that we do think that margin expansion will predominantly be driven by a continued ability to drive rates. relative to 2019, given the overall inflationary environment and the labor environment that we're in. We continue to manage costs as effectively as we can. The labor environment continues to be challenging with increases in occupancy and leisure demand in particular, having more occupants per room. As we peaked occupancy since the onset of the pandemic in June, the incremental the incremental labor was filled in part by either new associates that needed to be trained or contract labor and so our contract labor as a percentage of our total wages has increased over the past quarter which impacted margins particularly in June but throughout the quarter. I think we see that as opportunity long term as the environment stabilizes and we retain associates that have been trained and transitioned more from contract labor to full-time associates. That said, there continues to be some wage pressures. So there's some puts and takes. Outside of labor, rooms controllables, as I mentioned, are continuing to perform on a CPOR basis below pre-pandemic levels, which is a testament to the team and some of the brands adjustments that were made. Given the inflationary environment, we're certainly focused on continuing with that as long as we can, balancing again that costs have been increasing. But we've been managing what we can well. We're hopeful in that. Utilities will continue to probably be what you've seen. They're higher year over year. And repairs and maintenance in the quarter were up slightly. I think we're mindful of maintaining our portfolio. I think you don't want to be short-sighted there. And so while particularly in June that was higher for the quarter, on a long-term basis, I think we'll continue to see that slightly elevated to prior levels over the past year or two, and maybe slightly elevated to 2019. But we'll make every effort to keep that well controlled. So I think we're still optimistic as we look at margins through the back half of the year, just with the caveat that in the current labor environment, there may be some temporary increases as we train new associates and transition contract labor to full-time associates. And just hope that we're able to offset some of the wage increases that are real and throughout the industry.
spk06
very helpful thank you for all the color that's all for me our our next question is from anthony powell with barclays please proceed hi uh good morning stud one more question on july so uh given what you said about occupancy improving the downing roughly three percent uh versus 19 by the end of july and your rate comments is it safe to assume that by the end of july you're seeing Rev Park growth versus 19. That was the highest, uh, the COVID era for you.
Kelly Clark
Uh, we have, I think directionally you're, I think directionally we continue to see improvement relative to 2019, particularly if you're not looking at the 4th of July week.
spk06
Okay. Got it. Thanks. And, uh, maybe I'm a dividend. I know it's a board decision, but, uh, Pre-COVID, you were paying, I think, a very healthy dividend, about twice of what you're paying now. Now you're FFO and EBITDA is trending to above 19 levels. I'm just curious, as you look at your dividend outlook going forward, is there anything that would prevent you from getting back to that level of payout? Was your taxable income maybe a bit lower than implied pre-COVID? I'm just curious how we should think about the trajectory of the dividend over the next several quarters.
Justin Knight
Certainly taxable income is one consideration as we think about dividend payout. When we reinstated the monthly dividend earlier this year, we established a payout that first we were confident we could maintain given the range of potential scenarios that we were anticipating. And two, we established it at a level that would allow us to grow it over time. We're currently paying out below pre-pandemic levels. It's important to note that we're still paying the highest dividend in the industry. And certainly, as the year has played out, we performed above the high end of the scenarios we were considering at the beginning of the year. I think we're incredibly encouraged by the performance of our portfolio and anticipate that assuming current trends continue, we would be in a position to increase the dividend in the future. I think for us and for our shareholders, dividend has always represented a meaningful component of total shareholder return. And as we think about how we allocate You know, we look at dividend payout as a meaningful way for us to drive value for our shareholders.
spk06
That makes a follow-up. So it sounds like for you, dividends and then buying hotels rank meaningfully higher than buybacks at this point. Is that fair?
Justin Knight
Certainly, we're not ruling out buybacks given the volatility in the stock market that always represents an opportunity for us. But I think Looking at what we see today, I think those two represent higher priorities for us, at least given the environment we're looking at at the moment.
spk06
Thank you.
Operator
Thanks. As a reminder, there's star one on your telephone keypad if you would like to ask a question. Our next question comes from Austin Werschmidt with KeyBank Capital Markets. Please proceed.
Austin Werschmidt
Great, thanks, and good morning, guys. Justin, just going back to a prior question a bit on acquisitions, diversification certainly has been a pillar of your strategy for a long time. And when you're looking at acquisitions, I'm just curious if, you know, I know you mentioned you're looking broadly, but are there still any markets you're specifically focused on adding to further that diversification? And even just more specific to locations within markets, to further balance the urban and suburban exposure as the recovery in urban, you know, picks up a bit of momentum?
Justin Knight
You know, I think because it takes time to move portfolios, we have never been a group to chase short-term trends. And so, you know, I think... given the recent strength of leisure, we've benefited in markets where we have exposure to leisure. And given the expectations for stronger improvement in urban markets, our expectation is that we will benefit in those markets as well. I think you've seen in our recent acquisitions us investing in smaller urban markets where we anticipate growth will be strong over an extended period of time. Markets like Portland, Maine and Greenville have been great examples of the types of markets, urban markets, that would be most attractive to us. But we continue to look at potential acquisitions in larger gateway markets and see potential opportunity to enter those markets at attractive price points. and expect that high density suburban will continue to represent a meaningful component of our overall acquisition activity as well. As I highlighted in response to the earlier question, as we look at acquisitions, we're looking to balance the exposure of our portfolio to create the asymmetric risk profile that I highlighted in my prepared remarks where, you know, looking at the portfolio as a whole, we've effectively limited the downside risk, which we, I think, have demonstrated over the past several years, while creating exposure that enables us to outperform during periods of economic prosperity. And, you know, I think that requires us to look forward at trends and ensure that we're investing ahead of those trends to ensure that we're achieving the highest returns possible for our shareholders.
Austin Werschmidt
Thanks for the thoughts there. And then you've also historically looked to the pre-purchase type deals on development. I'm just curious, you know, while I know construction has certainly slowed, but if you've got any opportunities, you're evaluating on that front as well.
Justin Knight
We have been active in discussions with groups around potential developments and typically at this point in the cycle we would be signing up a large number of those deals foreclosing at later points in the recovery. The same challenges that are negatively impacting the supply numbers for the industry as a whole are creating challenges for us as we underwrite development deals for addition to our portfolio. And really, as we underwrite today, we're looking at meaningfully higher construction costs because we have historically developed through forward commitments or forward commitments for turnkey development. Rising interest rates impact costs for those developers as well. And then uncertainty around supply chain and availability of labor all contribute to higher costs for projects, making it more difficult really at this point to underwrite new development deals than it ever has been for us in our over two decades experience within the industry. Over time, we continue to anticipate that new development deals will represent roughly a quarter of our total acquisitions. But in the near term, we're much more likely to be active on existing deals, especially in an environment where there are fewer buyers competing with us for those assets.
Austin Werschmidt
Yeah, that's helpful. Thanks for the time. Absolutely.
Operator
Thank you, Austin. We have reached the end of our question and answer session. I would like to turn the conference back over to Justin for closing comments.
Justin Knight
Thank you for joining us today. We are incredibly pleased with the performance of our portfolio over the past quarter and super optimistic about how things are likely to shape up through the back half of the year. As always, as you travel, we encourage you to stay with us at one of our hotels, and we look forward to speaking with you in the near term as we get out on the road.
Operator
Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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