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Operator
And welcome to the Apple Hospitality Read earnings call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Kelly Clark, Vice President. Investor Relations. Liz, you may begin.
Kelly Clark
Thank you, and good morning. Welcome to Apple Hospitality REIT's first quarter 2023 earnings call. Today's call will be based on the earnings release in 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 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-GATT measures of performance will be discussed during this call. Reconciliations of those measures to GATT 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 first 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
Good morning, and thank you for joining us today. 2023 is off to a strong start with continued strength in leisure demand and increased business travel. While we are mindful of the potential for macroeconomic headwinds later in the year, at this time, the fundamentals of our business remain strong. Improvements in business travel have lifted midweek occupancies in recent weeks, and news supply remains muted across the majority of our markets. First quarter 2023, comparable hotels rep are improved by 19% compared to 2022. and 6% compared to 2019. Comparable Hotels ADR increased by 11% over 2022 and 9% over 2019, and comparable hotels occupancy was up more than 7% over 2022 and down just 2% to 2019. First quarter comparable hotels adjusted hotel EBITDA was $107 million, a 21% improvement over 2022 and a 4% improvement over 2019. Through strong rate growth and effective cost controls, we achieved a comparable hotels adjusted hotel EBITDA margin for the quarter of 34% despite inflation and wage pressures. We have always been prudent with cost controls, leveraging our scale and diversification to operate as efficiently and cost effectively as possible without sacrificing service, cleanliness, or overall guest satisfaction. Our investment in select service hotels, a key element of our ownership strategy, provides us with an incredibly efficient operating model with limited F&B, efficient public spaces, low energy consumption, few departments to manage, and a focus on essential services and amenities. Our hotels were among the first to recover from pandemic disruption, and we were early in working to restaff to meet rapidly increasing demand in most of our markets. With guest services and amenities restored to modified brand standards, average FTEs for our portfolio have generally stabilized 5% to 10% lower relative to the same period pre-pandemic. Despite incremental operational efficiencies, higher wages and inflationary pressures on other expense line items continue to put pressure on margins. While we will continue to look for ways to drive incremental profitability at our hotels, our ability to protect and grow margins in the future will be largely dependent on our ability to grow rates. We continue to work with our management companies to foster work environments at our hotels that focus on culture, associate engagement, and training to develop and retain skilled associates in today's challenging labor environment. Strategic investments in our on-property teams position us to maintain the quality of our hotels, both in terms of product and service levels necessary to support continued growth and market share, in particular through rate premiums, which we believe will be key to our long-term profitability. As our managers reduce turnover at our hotels and invest in onsite training, we expect to realize efficiencies through lower recruiting costs, less reliance on contract labor, and improved productivity, which should act as a partial offset to higher wages. We continue to look for and underwrite potential acquisitions. And during the first quarter, we entered into a contract for the purchase of the newly renovated 154-room courtyard by Marriott Cleveland University Circle for $31 million or approximately $200,000 per key. The hotel opened in April of 2013 and recently underwent a complete renovation of its guest rooms and interior public spaces. It is located in the heart of Cleveland's University Circle District, a premier educational, medical, and social district on the east side of Cleveland. As we have indicated on prior calls, we have intentionally sought acquisitions in markets that benefit from a mix of business and leisure demand and that have been and will be beneficiaries of macroeconomic and demographic shifts. The Cleveland market fits well within this criteria. It is business friendly, with a favorable cost of living, offers a wide variety of demand generators, and is positioned well for future growth. Overall, the transaction market continues to be relatively quiet, but we anticipate deal volume will increase as the year progresses. Our team will continue to actively explore acquisitions opportunities that refine, enhance, and grow our existing portfolio, while further increasing our exposure to markets with strong growth trajectories and attractive cost structures. Since the onset of the pandemic, we have invested approximately $558 million in 14 hotels. On a trailing 12-month basis through the first quarter, these hotels produced a total unlevered return on our investment after CapEx of over 9%. with meaningful upside remaining as assets continue to ramp and markets improve. With more than 20 years of transaction history and ample liquidity, we are optimally positioned to scale our acquisitions activity to take advantage of strategic opportunities as market conditions become more favorable. As we underwrite potential acquisitions opportunities, we are also mindful of our ability to drive incremental shareholder value through the repurchase of our shares. We have a share repurchase program that is intended to comply with Rule 10b-5 , and during the first quarter we repurchased 250,000 shares at a weighted average purchase price of approximately $14.22 per share for an aggregate purchase price of $3.6 million. We have approximately $339 million remaining under our share repurchase program. During the quarter, we also invested approximately $18 million in capital expenditures, and we anticipate spending a total of $70 to $80 million during 2023. The planned capital projects include comprehensive renovations at 20 to 25 of our hotels. We have invested over a billion dollars in renovations and capital improvements over our 24-year history in hospitality and 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 dollar spend. Consistent with our historical investment, we anticipate 2023 CapEx spend to be between 5 and 6% of revenues, which we believe is an appropriate long-term average for our portfolio and a meaningful differentiator contributing to total shareholder returns over time. Low leverage and attractively structured debt have been key contributors to our outperformance over the years. and have positioned us to allocate capital efficiently at appropriate points in the cycle to maximize shareholder returns. Our significant liquidity position, staggered maturities, and conservative secured debt exposure provide us with flexibility to be both thoughtful and opportunistic to drive incremental value for our shareholders. As we enter our seasonally stronger months of the year, the fundamentals of our business remain favorable with continued improvement in demand and limited near-term supply growth. Preliminary comparable top line numbers for April are solid with occupancy flat to last year and ADR up 5%. Nearly half of our hotels do not have any new supply under construction within a five mile radius, providing us with the ability to meaningfully benefit from continued increases in demand. And many of our markets that were slow to rebound from pandemic lows have shown improvement in recent months. Our combined acquisitions and dispositions activity has positioned us to produce better portfolio margins and to drive greater profitability over time. While we are mindful of recent headlines pointing to elevated levels of macroeconomic uncertainty, we are optimistic that current trends will continue and position us to drive strong results over the coming months. Consistent execution against our proven investment strategy has enabled us to succeed through economic cycles. Our portfolio of select service hotels is broadly diversified across high-end suburban, urban, and developing markets that are home to a wide variety of 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. a consistent reinvestment and portfolio management strategy, and a corporate team with tremendous experience. Having recovered more quickly than the majority of our peers and stabilized operations with industry-leading margins, we are uniquely positioned to meaningfully benefit from incremental top-line growth. We are confident we are well positioned to continue to outperform and maximize shareholder value in any macroeconomic environment. Before I turn the call over to Liz, I would like to take this opportunity to welcome our newest board member, Carolyn Hanlon. With 35 years of leadership experience with Marriott, Carolyn brings tremendous financial acumen and hotel industry experience, and we look forward to further advancing the company's corporate governance and oversight with her insight and leadership. I will now turn the call over to Liz for additional details on our balance sheet, operations, and financial performance during the quarter.
CapEx
Thank you, Justin, and good morning. Performance across our portfolio steadily improved each month during the quarter, resulting in comparable hotels total revenue of $311 million, up approximately 19% to first quarter 2022 and 10% to first quarter 2019. Seasonally adjusted continued strength and leisure demand and recovery in business travel during the quarter enabled us to achieve comparable hotels rev par of $109, a 19% increase over first quarter 2022 and a 6% increase over first quarter 2019. Comparable hotels ADR for the quarter was $152, 11% ahead of first quarter 2022 and 9% ahead of first quarter 2019. Comparable hotels occupancy was 72%, up over 7% to 2022, and down only 2% to 2019, our strongest occupancy performance relative to 2019 since the onset of the pandemic. April started out with a softer week leading into the Easter holiday, but subsequently rebounded well, with Tuesday occupancies even approaching 90% in the following weeks. For the month, preliminary comparable results for April show continued strength in demand with occupancy of approximately 77% in line with 2022 and 5% shy of April 2019. ADR growth for the month of April was up approximately 5% as compared to 2022 and 9% as compared to 2019. Occupancy and ADR grew sequentially each month during the quarter, reflective of continued strength and leisure demand, a meaningful recovery in business travel, and the transition towards our seasonally stronger months. January, February, and March weekend occupancies were 67%, 78%, and 84% respectively. Weekday occupancies grew significantly from 62% in January to 71% in February and then 77% in March. Midweek occupancies have continued to strengthen in the latter part of April, further bridging the gap to 2019 with continued strength in shoulder nights and weekend leisure demand. In terms of room-night channel mix, brand.com bookings increased from 39% during the fourth quarter to 40% in the first quarter. OTA bookings declined from 12% in the fourth quarter to 11% in the first quarter. Property direct bookings remained strong at 26%, a testament to the continued efforts of our property and management company sales team. And lastly, GDS bookings increased from 16% for the fourth quarter to 17% in the first quarter, showing continued improvement in business travel demand. Looking at first quarter same store segmentation, FAR continued to be elevated to 2019 levels at 34%. Other discounts decreased slightly to 27% in the quarter, but remained elevated to 2019. Group was up slightly to the fourth quarter at 15%, meaningfully higher than the first quarter of 2019. And the negotiated segment was 18% of our mix. Turning to expenses, Total payroll per occupied room for our same store hotels was just under $39 for the quarter, in line with the fourth quarter, but up 12% and 14% to first quarter 2022 and 2019, respectively. Higher wages for full and part-time employees Training costs and higher utilization of contract labor continue to impact comparisons to prior years and act as an offset to productivity gains resulting from adjustments and brand standards. While we anticipate wages will remain elevated relative to pre-pandemic levels, we have seen the rate of growth moderate and believe we have opportunity to improve efficiency as turnover stabilizes and we are able to reduce recruiting and onboarding costs, as well as reliance on contract labor. We will continue to balance productivity initiatives with our efforts 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. Strong rate growth and a focus on cost controls in a challenging labor and inflationary environment enabled us to achieve first quarter comparable adjusted hotel EBITDA of approximately $107 million, up 21% to 2022 and 4% to 2019. First quarter comparable adjusted hotel EBITDA margin was strong at approximately 34%. up 60 basis points to 2022 and down 190 basis points to the first quarter of 2019. As we have stated on past calls, we believe that long-term margin expansion for the industry and for our portfolio will be largely conditioned on our ability to grow rate. While we expect a portion of our recent expense growth to be temporary, driven by elevated employee recruiting and onboarding costs and short-term increases in our use of contract labor, We anticipate continued near-term pressure on wages and other operating expenses. First quarter adjusted EBITRE was $95 million, up 22% to the same period in 2022, and down 5% to 2019. MSFO for the quarter was approximately $79 million, up 24% compared to the first quarter of 2022, and down 7% compared to the first quarter of 2019. Looking at our balance sheet, as of March 31, 2023, we had $1.4 billion in total outstanding debt, approximately 3.3 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 adjustment, is comprised of approximately $290 million in property-level debt secured by 15 hotels and approximately $1.1 billion outstanding on our unsecured credit facilities, including the remaining $50 million term loan availability, which was drawn down in January 2023. Our weighted average debt maturities are 4.4 years. At the end of the quarter, we had cash on hand of approximately $6 million and availability under our revolving credit facility of approximately $610 million. During the quarter, we repaid in full four secured mortgage loans for a total of approximately $37 million, increasing the number of unencumbered hotels in our portfolio to 205 out of 220. Also during the quarter, a $100 million swap expired and we entered into two new $50 million swaps. At the end of the quarter, 78% of total debt outstanding was fixed or hedged. Valuable swap agreements and, most importantly, low overall leverage levels help mitigate the impact of the current interest rate environment. Shifting to our outlook, given limited visibility into future performance due to short-term booking windows and elevated macroeconomic uncertainty, we have not adjusted guidance, though first quarter performance for our portfolio was at the higher end of our internal projection. Our outlook continues to reflect a broader range of comparable hotels rep part change and other key metrics for 2023 and anticipates that the lodging industry recovery will be impacted by macroeconomic headwinds in the latter portion of the year. Though top line performance for April remains strong and forward bookings continue to be elevated to pre-pandemic levels. While we have limited visibility based on the current booking window, we are encouraged by recent trends and the strength of fundamentals for our business. which, if sustained, would put us in a position to perform at the high end of our guidance range. We will continue to assess guidance in the context of actual performance for our hotels and changing consensus views related to the broader economy. As has been the case in the past, we expect REVPAR growth for our portfolio to generally align with actual growth rates for our brands and chain scales. As a reminder, for the full year, we expect net income to be between $165 and $209 million, comparable hotels rep part change to be between 3 and 7 percent, comparable hotels adjusted hotel EBITDA margin to be between 35.3 and 36.9 percent, and adjusted EBITDA RE to be between $420 and $457 million. Our differentiated strategy has proven resilient through economic cycles. As we move through 2023, we are confident we are well positioned for any macroeconomic environment. Our balance sheet is strong with ample liquidity, which we intend to use opportunistically to pursue accretive opportunities. Our assets are in good condition with recent dispositions and capital investments, ensuring that we maintain a competitive advantage over other product in our market. And the fundamentals of our business continue to be sound with favorable supply dynamics, allowing us to benefit from continued strength and improvement in demand. And that concludes our prepared remarks. Justin and I will now be happy to answer any questions that you may have for us this morning.
Operator
Thank you. We will now be conducting a question and answer session. 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 Start to if you would like to remove your question from the queue. For participants using the speaker equipment, it may be necessary to pick up your headset before pressing the Start key. One moment, please, while we pull for questions. And our first question comes from Austin Wolfnitz. with KeyBank Capital Markets.
Austin Wolfnitz
Hey, good morning, everybody. I guess Liz or Justin, how important is the recovery in midweek demand to sustain the ADR growth you're achieving? It feels like we've been pretty stable kind of on that relative to 19 comp the last couple of quarters, and I'm just wondering if it could even accelerate as well if leisure holds and you do see BT demand continue to improve.
Justin Knight
It's a great question. Coming into the year, certainly the greatest opportunity we had for continued growth was midweek. And we're incredibly pleased with what we've seen, especially as we rounded out March and moved into April in terms of midweek occupancy growth. With that growth, we're better positioned to manage the mix of business in our hotels and to move rates. We've continued as well to see strength on the weekends and shoulder nights. demonstrating the resiliency of the travel demand in the markets where we have hotels. And I think as Liz commented in her prepared remarks, that puts us in a position where we're incredibly optimistic about our ability to continue to drive performance for our portfolio as we move into the coming months.
Austin Wolfnitz
Are you seeing any signs that leisure guests or weekend demand is beginning to be priced out or starting to trade down at all?
CapEx
We are not. And I mentioned in our prepared remarks that April's performance while on the face of it may look like it took a step back relative to March, it was really around the Easter holiday week and business travel even the week following Easter. But leisure bounced back quickly and dramatically and overcame the deficit that we saw that Easter weekend. And so we continue to see strength on the weekends, both from an occupancy perspective and rate growth perspective.
Justin Knight
And then midweek, as we got closer to the end of the month, You know, Tuesday, Wednesdays pre-pandemic were some of our strongest occupancy nights. And in terms of growth, we saw meaningful growth on Tuesdays and Wednesdays in the final weeks of April, which put us, you know, somewhere close to 90% for those nights from an occupancy standpoint. It was only slightly down to pre-pandemic levels. So it really... April ended up being a very good month for us outside of that first week.
Austin Wolfnitz
Was that pickup in midweek demand more prevalent in any regions, or do you have a sense if it was more of the SMB business traveler, or are you seeing some also improvement in the larger corporate accounts?
CapEx
No notable impact to one segment versus the other, or even regionally. We have seen urban growth. which had lagged some relative to suburban. We have seen that tick up for our portfolio in some of our urban markets. But, you know, small business versus corporate are still seeing similar trends, a slow recovery in corporate with continued strength from local negotiated and small business accounts.
Justin Knight
And really to get to the 90% occupancy portfolio wide, the trend has to be widespread.
Austin Wolfnitz
Yeah, that's fair. That makes sense. Thanks for taking the questions.
Operator
Absolutely. Thanks, Austin. Our next question comes from Brian Maher with the Riley Securities.
Austin
Good morning. Maybe to ask one of Austin's questions a different way. You know, we're seeing some ADR softening among the higher-end leisure, luxury, you know, hotels. Are you seeing any trade-down or any evidence of trade-down from that class of hotels to your class within the leisure segment?
Justin Knight
I don't know that we could attribute the continued strength we're seeing to trade down. I don't know that we have perfect visibility in that, but I can say that we've continued to see strength both from an occupancy and rate standpoint around weekends and leisure events like spring break and things of the sort. Indicative, I think, of the resiliency of the particular demand for our hotels What we've seen in past cycles is that as consumers become more price sensitive, our hotels benefit based on the better value proposition that they provide guests.
Austin
Okay. And kind of shifting gears to the acquisition side, and I ask this because clearly Apple is probably one of the best positioned lodging REITs to make acquisitions. later this year, but are you starting to see any portfolios being marketed? That's question one. And question two is, you know, how real is the owner refinancing issue in your segment of the market as opposed to, say, you know, full service gateway hotels, you know, New York, San Fran, et cetera, that might have, you know, real problems getting refinancing later this year?
Justin Knight
So to respond to the first question, we have actually for some time seen a mix of portfolio and individual assets. And while transaction volume has been muted for the industry overall, we have been continually underwriting deals, you know, looking at deal flow and what we've worked on to date. You know, we've underwritten almost 100 hotels since the beginning of the year. and really continue to be very active pursuing and underwriting both deals that are being broadly and narrowly marketed and off-market potential transactions. And the makeup of that mix has been both individual assets and smaller portfolios. The challenge that we have, and I think why we're not seeing industry-wide more transactions is that there continues to be a fairly significant bid-ask spread, somewhere in the 5% to 10% range on average. And with the greater uncertainty that exists in the market today, there's been an unwillingness on both sides to meaningfully work to bridge that gap, at least broad scale. we're advantaged in addition to having the liquidity that you highlighted by our track record of performing against commitments that we've made in the space. And as a result, have in a number of cases secured assets below, you know, that the high bid or, you know, where we are not the most competitively priced bid in a transaction just because of surety that we will close. You know, The second part of your question, remind me, Brian.
Austin
Refinancing stress among sellers. Do you think that that's, you know, how is that in your class of product versus gateway full-service assets?
Justin Knight
You know, it's interesting. For some time now, I've been speaking on the call to sources of future transactions and highlighted the fact that we believed that that refinancings and brand-mandated renovations would both drive sellers to become more motivated for transactions, which would help to bridge the bid-ask gap. We have not yet, interestingly, seen, at least in scale, a large number of deals come to market because of brand pressure related to CapEx, though we continue to anticipate that that will become more pronounced as we move towards the end of the year. We have, though, on the other hand, begun to see a number of deals where ownership groups are looking at challenging refinancings at some point in the not too distant future. And those challenges are a combination of things. One, a significant movement in rate beyond kind of where they are currently. And related to those rate increases, there are concerns that the lenders have related to coverage, which impacts value. And in the cases where we have recently underwritten deals, the ownership groups are looking at a refinancing scenario where they would need to come up with additional capital in order to retain the asset. We're still in the early stages of that, and I'd say the deals that we've seen have come to us largely over the past four to six weeks. But that is a trend that we anticipate will continue in our space. Yeah, thank you. Absolutely.
Operator
Thanks, Brad. Our next question comes from Dory Kissing with Wells Fargo.
Brad
Thanks. Good morning. With respect to the difference in your view on the remainder of the year versus what Hilton and Marriott have provided over the last two weeks, is it your sense the difference is just a difference in opinion on the trajectory of the economy? Is it a shorter booking window in your portfolio, or is there something else you'd want to point out?
Justin Knight
I mean, we don't have perfect insight into how they structure their guidance, though as Liz highlighted in her prepared remarks, we have historically tracked roughly in line with our brands, at least the U.S. performance of our brands and our chain scale. So I think, as was highlighted, we continue to have limited visibility into the future. Our assumption is that the brands have greater visibility based on a broader portfolio. And within that portfolio, a broader concentration of hotels that have large groups that book in advance. And so as we think about the delta, it's much more likely to be driven by macro assumption differences rather than anything that would be portfolio specific. And as we highlighted in our prepared remarks, we continue to see incredibly strong performance in our portfolio with April again, continue to show strength in business and leisure demand. And if those trends were to continue, our expectation would be that that would meaningfully benefit our portfolio.
Brad
Okay, thanks. Have you seen any improvement in reducing contract labor in, I guess, in any of your markets?
CapEx
You know, we remain focused on reducing contract labor. We have not seen any notable decrease in the usage of contract labor relative to how we were, you know, towards the end of the year.
Brad
Okay. And I guess some of the brands have announced new brands bordering kind of economy and mid-scale. Do you have any interest in these or would you expect to maintain your current swim lanes?
Justin Knight
I think at this point, given and remembering that two of the brands were soft announced so that there are limited details related to those brands publicly available. But given what we know about the extended state brands likely to be started by Hyatt, Hilton, and Marriott, they would not be of interest to us in the short term. We have for some time focused our efforts around upscale and upper mid-scale assets and continue to feel like that is the area where we can generate the strongest and most stable returns for our investors. That said, we do love extended state product, and we will be watching these brands and how they evolve over time.
Operator
Okay, thank you.
Liz
Thank you.
Operator
Our next question comes from Tyler Vattori with Oppenheimer.
Tyler Vattori
Hey, good morning. Thanks for taking my question. Given the commentary, Justin, you made on the acquisition landscape, do share repurchases make more sense here? I know you bought back a little bit in Q1, but would you like to maybe lean into that a little bit more or perhaps conserve some capital for potential opportunities that might be coming later this year?
Justin Knight
You know, as demonstrated by the fact that we were buying shares under our written trading plan, we see tremendous value in our shares at current valuation. And really, the volume of our purchases has been governed by an assumption that we've had internally that pricing would change for attractive acquisitions in the near term. If we were not to see that as we move through the year and we were to continue to see pricing at or around levels where we've been trading recently, it's certainly reasonable to assume that we would become much more aggressive in purchasing our shares.
Tyler Vattori
Okay. And then just to follow up, you know, the Marriott Cleveland assets, you know, apologies if I missed this. Can you provide a little more background on how you came about that opportunity? Perhaps what you're expecting in terms of, you know, in terms of yield there as well?
Justin Knight
Absolutely. The general partner in the deal and management company is the same as the two assets that we closed at the end of last year. So in part, this is an expansion on that relationship, which we've worked to foster for well over a decade now and are beginning to grow now. We were not the high bidder on that particular asset. In fact, It had gone under LOI at a much higher price and had fallen out and was brought back to a small group of which we were a part. We see tremendous value in the asset. Its high quality was recently renovated. A full-scale renovation of public spaces and guest rooms completed at the end of last year. And part of that renovation included expansion of the fitness center, improvement in the bar area and the addition of one key, so moving from 153 to 154 keys. We have a tremendous amount of confidence in the management company and feel really good about our entrance into the Cleveland market, which has, as I mentioned in my prepared remarks, the potential for outsize growth relative to the national average with a cost structure that would position us to continue to drive strong operating margins and profitability.
Tyler Vattori
Okay, great. That's all from me. Thank you. Thank you.
Operator
Our next question comes from Anthony Powell with Barclays.
Anthony Powell
Hi, good morning. Question on the transaction environment. How has price evolved the past several quarters? Have you seen cap rates increase? Are sellers or buyers moving more?
Justin Knight
You know, interestingly, as I highlighted earlier, there continues to be a bid-ask spread. And, you know, it ranges by asset. But I'd say on average, it tends to be between 5% and 10%. And that's fairly universal, I think, demonstrated by the fact that we've seen very little transactions occurring, despite the fact that there continues to be a meaningful amount of inventory that's either being marketed or being considered by a small number of potential buyers. I think Our expectation is that as we move through the year, that bid-ask spread will shrink. And with that, there exists the potential for greater transaction volume. And certainly, we see ourselves in an optimal position to take advantage of that. I should highlight that outside of that, and we've spoken to this on some of our past calls, we are beginning to get incremental traction around potential development deals, which had not been a possibility for us for some period of time based on the significant run-up in construction costs and uncertainty related to those costs and supply chain issues. With some stability coming back, albeit at higher prices than what we saw pre-pandemic, the pricing related to some potential development deals has become more rational and potentially attractive to us, and in an environment where construction financing continues to be restrained and limited, our takeout is more valuable to developers than it would be in periods of time when construction financing is readily available. in addition to having an anticipation that we will see incremental deal flow for existing assets as we move through the rest of the year, we do expect to be in a position to make forward commitments for developments, which would be delivered in future years.
Anthony Powell
That was my next question, actually, because I would have assumed, given all the regional bank worries, that lending for development deals will be drying up very quickly here and that there will be fewer opportunities. But it sounds like you're saying that because of your ability to take out deals that, at least for you, you expect to see more of those opportunities?
Justin Knight
Absolutely. I think particularly because of the challenge that you highlight, we anticipate that we will see more deals. And really, when you think about the risk profile for a typical construction lender. That includes refinancing risk at the completion of construction or within a year or two following construction. Our takeout at a price point above raw construction that is not contingent on financing and is backed by our balance sheet provides significant value to that equation and puts developers in a position where they can more readily obtain the financing that they need to complete deals. So while we expect industry supply to continue to be muted, we do see ourselves in a unique window where we could be much more active on signing up new development deals than we have been over the past couple of years.
Anthony Powell
Thanks. And maybe one more in terms of the contract labor. What do you think has to happen for that to improve, just in general, you know, softening the labor market? I mean, we're still seeing a lot of easier jobs being created. Or is there anything else you can do now to get that contract labor situation under control?
CapEx
I think a general softening in the labor market would be helpful and certainly would be – more helpful broadly to the industry as it relates to contract labor. I think for us, the longer that we go with stable operations and stable management and training and lowering turnover, I think the more likelihood we have to bring new associates in-house as we rebuild teams internally. Turnover has been higher generally, too, for in-house labor. And so I think as things continue to stabilize for our portfolio, that should improve. But I think more meaningfully will be when the labor market stabilizes. But that does not prohibit us from gaining some traction you know, beforehand. I think we're really focused on it. We see value, especially from a service cleanliness and cultural standpoint to get, you know, get associates in-house.
Justin Knight
It's worth noting as well that a number of our management companies have added additional HR and recruiting resources in market to begin to more aggressively recruit employees to our hotels. And, you know, I think with operations stabilizing, more of their day-to-day focus has been on transitioning to captive labor such that they can begin to, as Liz highlighted, focus on building culture and really focus on enhancing service for our guests in a way that we were able to achieve prior to the pandemic.
Liz
All right. Thank you. Thank you.
Operator
And our next question comes from Benny Haddad with Bank of America.
Benny Haddad
Hi. Good morning, everybody. Justin and Liz, you both called out, you know, the ability to drive rates as the primary way to offset higher operating costs. And we saw kind of rates slipping to up 9% versus 19% this quarter, down from up 12% last quarter. And it sounds like April directionally is in a similar spot. So I guess my question is, can rate accelerate from here? And what would be some of the segments or markets that would drive, could be the drivers behind that?
CapEx
I would go back to what we said generally about April trends and that really the rate step back is in part attributable to that first week in April. As we look at the back half of the month where occupancies were in line from a comparison to 2019 perspective with March are actually slightly better those weeks. rate rebounded as well and was in lockstep with that. And so, you know, I think we remain optimistic that we can continue to drive rate at least relative to where we've been with continued trends. Now, to the extent we see more consistent and continued more consistent and continuous growth in midweek occupancies, approaching 90%, the more we'll be able to shift mix, drive rate, and the revenue management systems will be able to really maximize midweek rates as well. We've started to see an improvement, but not to the extent we've seen on the weekends, and we certainly hope that if there's consistent midweek occupancy gains that we can grow right there as well. Also, where we had seen, speaking to your regional question, where we have seen urban start to recover more as well, as those occupancies continue to improve, we should see subsequent rate opportunity there as well.
Justin Knight
And it's also worth noting that first and fourth quarter are our lowest overall occupancy quarters for our portfolio based on seasonality. And so we're just now moving into the stronger occupancy months where we should have a meaningfully better ability to drive rate than we would in the early phases of the year. Got it. Okay. That makes a lot of sense.
Liz
Thank you very much.
Justin Knight
Thanks.
Operator
Excuse me, ladies and gentlemen. As a reminder, if you would like to pose a question, please press star 1. And our next question comes from Michael Belisario Whitford.
Michael Belisario Whitford
Thank you. Good morning, everyone. Good morning. Liz, I just want to go back to April one more time, because why not? I mean, Easter was in April in 2019 and in 2022. So maybe just take a step back. Is the Easter performance maybe more indicative of the new normal travel pattern of of leisure strong and business weaker, and that's what we should expect around major holiday periods going forward?
CapEx
I think as we look at our portfolio in the past, depending on the holiday, we have historically seen business travel leading up to and the week following, depending on where the holiday landed, impacted. And then performance rebounds I think what's interesting is just how dramatically leisure rebounded post-Easter holiday. It was quick and certainly when we looked at the calendar shift relative to 2019, it was meaningful, those holiday weekends. So I think more, you know, more upside from a leisure perspective when you look at those calendar shifts, but some impact to business travel. I think the fact that those trends are normalizing is a positive sign around business travel that, you know, we rebound from those weeks and business travel comes back, but that some of those historical patterns remain relevant. Now, I will say we continue to see, and this is a little bit outside of holiday weekends or holidays as they fall or what the new normal may be, but shoulder nights continue to be strong despite the fact that midweek occupancies are normalizing and travel patterns are normalizing. We are continuing to see Monday and Thursday strength, which is really encouraging as we look at sort of total occupancy gains and continued improvements.
Michael Belisario Whitford
Got it. That's helpful. And then you made a comment on group. I think meaningfully improved, I think, is what you said about 1Q performance versus 2019. I know it's a small part of your business, but what's the driver there? And then if group is at a slightly higher go-forward rate, does that have any impact on overall rev power margins for your portfolio that we should consider?
CapEx
Well, a couple things. You know, Group is strategic. I mean, you know, we had more group on the books related to a couple things, just an effort on our part, knowing that Q1 is typically softer from an occupancy perspective, you know, ensuring that we layered on some groups are really a benefit. and a testament to our on-site sales teams. You know, group rate was favorable. And so I think, you know, as we continue to see strength and have the opportunity since group is short-term and book short-term, to the extent we layer that on in higher demand times, we'll be able to charge higher rates. So I think that that should be helpful. And to the extent we're able to layer on group The compression in hotels and high-demand times will give us the benefit of driving being higher bar rates as well, theoretically should. So I think all in all, it would be viewed as a positive if we can continue to maintain, you know, some of this small corporate and SMRF-related group business, you know, especially at competitive group rates. So I think we're encouraged by the activity on our – by our hotel teams. We're encouraged by the group that we had on the books in the first quarter. And, you know, I think as we progress through the year, as we carefully monitor travel patterns and occupancy on the books, you know, we'll layer and group where we can.
Michael Belisario Whitford
Understood. And then just last one for me, for Justin, just back to your comments on the 5% to 10% bid-ask spread. your best guess at this point, what breaks? Is it seller expectations come down or do you think buyers get more aggressive?
Justin Knight
You know, my best guess is that seller expectations break first and then, you know, buyers bridge whatever of the gap remains at that point. You know, I think certainly internally our expectation is that The two factors that I highlighted earlier, CapEx needs and refinancing risk, will create greater motivation for sellers to transact. And with that motivation, our expectation is that we would begin to see greater flexibility around pricing. And some of that, when we think about total transaction volume, To the extent we were to see a meaningful disruption in the macro, that could set transaction volume back again. To the extent we continue to see performance similar to what we're seeing today, so relative stability in the macro, and we begin to see increased pressure from the two factors that I've highlighted, my expectation would be that we would see a fairly dramatic increase in transaction volume as we move to the end of the year.
CapEx
Thanks for that.
Liz
Thank you.
Operator
Our next question comes from Chris Darling with Green Street.
Liz
Thanks. Good morning. Justin, I know you're focused on growing opportunistically, but given how your equity cost of capital has trended in recent months, what are your current thoughts around selectively monetizing a portion of the portfolio, potentially as a source of capital? Is that a consideration today, or would you say that's pretty unlikely just given the state of the transaction market?
Justin Knight
I think our, you know, when we look at our portfolio, broadly speaking, we like the assets that we own. And so for strategic reasons, don't have a need to sell assets to purify the portfolio or to right-size it with our existing strategy. That said, we are constantly in market having discussions with potential buyers around potential dispositions on an individual asset basis and on a portfolio basis. And to the extent we were to see incremental strength on the buy side, we would certainly be open to selling assets and redeploying capital into share repurchases, development deals, and using capital that we got from those transactions to fund CapEx. Because of the cash that our portfolio is currently generating, Our expectation is that we will produce cash in excess of our dividend, which is and has been for some time industry leading. And I think current yield is somewhere around 6.5% for us. And so we will have cash to deploy either into new assets or share repurchases just from operations as well. So I think a tremendous amount of flexibility. Given debt markets today and what I've highlighted from a bid-ask spread, that bid-ask spread impacts us as potential sellers as well. And I think based on an expectation that we will see greater and more attractively priced deal flow as we move through the year, we've been patient in pursuing other uses of capital. To the extent we do not see changes in the environment, as I highlighted in my earlier response to one of the questions, we would pivot and become more aggressive in purchasing shares and potentially selling assets to fund those purchases. We believe there's a tremendous amount of value in our shares where they are currently priced. And, really, our patience and pacing related to share buybacks has been largely related to what we anticipate will be incremental opportunities to drive even greater shareholder value through acquisitions in the near term.
Liz
Got it. Thank you. That's all for me. Thank you.
Operator
We are closing our question and answer session. I would like to turn the floor back over to Justin Knight for closing comments. Please go ahead.
Justin Knight
We appreciate you taking time to join us for our first quarter earnings call. And as always, we hope that as you travel, you'll take the opportunity to stay with us at one of our hotels. And we look forward to seeing many of you in the not-too-distant future as we travel and meet with you on the road.
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.
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