Good morning, and welcome to the American Hotel Income Properties REIT LP's first quarter results conference call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. Following the formal remarks, there will be a question and answer session for analysts only. Instructions will be provided at that time for you to queue up for questions. I will now turn the call over to Kelly Iwata, Director of Finance. You may begin your call.
Thank you, operator. Good morning, everyone, and thank you for joining us for our first quarter 2022 results conference call. Discussing AHIP's performance today are Jonathan Korol, Chief Executive Officer, Bruce Pittet, Chief Operating Officer, and Travis Beatty, Chief Financial Officer. The following discussion will include forward-looking statements as required by securities regulators in Canada. Comments that are not a statement of fact, including projections of future earnings, revenue, income, and FFO, are considered forward-looking and involve risks and uncertainties. The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed in our MD&A for the three months ended March 31st, 2022, or other Canadian securities filings available on SEDAR and on our website at ahipreit.com.
AHIP does not undertake to update or revise any forward-looking statements to reflect new events or circumstances except as required by law. Listeners are urged to review the full discussion of risk factors on AHIP's annual information form dated March 21, 2022, which has been filed on SEDAR at www.sedar.com. Our first quarter results were made available yesterday afternoon. We encourage you to review our earnings release, MD&A, and financial statements, which are available on our website as well as on SEDAR. On this call, we will discuss certain non-IFRS financial measures, including NOI, hotel EBITDA, FFO, and AFFO. For the definition of these non-IFRS financial measures, the most directly comparable IFRS financial measure, and a reconciliation between the two, please refer to our MD&A.
References to prior year operating results are comparisons of AHIP's current portfolio of 77 properties results in that period versus the same properties results today. All figures discussed on today's call are in US dollars, unless otherwise indicated. I'd like to remind everyone that this call is being recorded today, May 11, 2022, and a replay of this call will be available on our website. Jonathan will begin today's call with an overview of operational and financial highlights, followed by Bruce, who will provide an update on hotel operations. Lastly, Travis will highlight key financial results. I will now turn the call over to Jonathan Korol, Chief Executive Officer.
Thank you, Kelly, and thanks everyone for joining us today for our first quarter financial results conference call. When we last spoke in the second week of March, we outlined the positive demand trajectory that we are witnessing following the effects of Omicron on our business in January and the early part of February. Since that time, market demand dynamics have continued to improve, and U.S. hotel customers are showing a healthy desire and ability to travel. The improving consumer backdrop has resulted in rising room rates accompanied by stable occupancies. We finished Q1 1% above Q1 2019 average daily rates. This marks the third consecutive quarter where we have exceeded 2019 rates.
RevPAR for the quarter finished at an 87% recovery rate to Q1 2019, a result that we are pleased with considering the Omicron-induced challenges in January, which led us to finishing that month at 81% of 2019 RevPAR levels. Q1 improvements to the top line were accompanied by inflationary cost pressures. The impact of geopolitical events on commodity prices, as well as the enduring effects of COVID disruptions on the labor markets and supply chain impacted operating margins. Q1 is always a quarter which is our most challenging from a seasonality perspective. In the current environment, our ability to maintain margins at 2019 levels or better will be determined by achieving revenue growth to offset inflationary cost pressures. As the only real estate asset class with the ability to set rates daily, we are well positioned for an inflationary environment.
Subsequent to quarter end, April results continued the positive monthly trends in ADR and occupancy, and will see us continuing the trend of exceeding 2019 ADR levels and narrowing the gap to 2019 occupancy levels. Bruce will discuss the positive trends we are seeing in the market that drive our expectations as we near our busiest demand seasons. Overall, we are very pleased with the performance of our portfolio of premium branded select service hotel properties during the pandemic recovery. Our year-over-year comparison illustrates this improvement in performance. For the three months ended March 31, 2022, total revenues increased by $15.1 million or 32% compared to 2021. Funds from operations or FFO for the quarter increased to $3.6 million versus -$2 million in 2021. This is as a result of higher NOI due to the improvement of operations.
As we enter a rising rate environment, the fixed rate nature of our debt obligations begins to be an advantage for us. Today, 93% of our debt obligations are fixed rate coupons or subject to variable-to-fixed swap arrangements. Our weighted average interest rate for our debt obligations is at or below the market for comparable first mortgage debt were it issued today. We recently refinanced our only remaining loan maturity in 2022, and our next loan maturity will not occur until the end of 2023. In the next few days, we will be releasing our inaugural corporate responsibility and sustainability report. This report is designed to help our stakeholders understand our commitment and efforts regarding environmental stewardship, social responsibility, and governance. We are proud to be able to report on present and future commitments with respect to ESG initiatives.
Underscoring the importance of these commitments, our board of directors nominating governance committee will now expand its scope to include the oversight of our sustainability efforts. I'm excited to see our organization coming together for this shared goal, and I'm grateful for the efforts of our brand partners, hotel managers, vendors, guests, and other stakeholders for their stated commitments to implement programs that have a positive effect on our business, the environment, and our communities. As previously announced, in January, we closed on the sale of the 89-room Fairfield Inn & Suites in Lake City, Florida, in an off-market transaction to a local hotel owner operator. The sale price of $10.3 million translates to roughly $115,000 per key and is a 6%-7.6% yield on 2021 income. This was a non-core asset for AHIP in a location characterized by imminent new supply.
In addition, a pending PIP requirement from Marriott that AHIP estimated would generate a low return on investment made the sale decision consistent with our overall asset management philosophy. In Q1, we reinstated our monthly distribution at an annualized level of $0.18 per unit. Back in November of last year, when we made the announcement that we were reinstating the distribution, we were one of the first North American hotel lodging REITs to do so following the COVID outbreak in 2020. Despite the macro and micro challenges in Q1 that we could not have foreseen, we remain confident in the distribution levels. Moving forward, we will continue to regularly interact with our board to assess opportunities to increase our payout in the context of the current operating environment.
We're proud of our ability to provide our unit holders with a meaningful cash yield on their investment at this point in the recovery. Based on our closing price yesterday, the annualized distribution of $0.18 per unit represents a cash yield of over 6%. The fact that we're able to do this ahead of most of our peers speaks to the strength of our portfolio and of our team. I'll now turn the call over to Bruce to discuss first quarter hotel operations. Travis will then highlight key first quarter financial metrics. Bruce?
Thank you, Jonathan, and good morning, everyone. As we look at Q1 performance, in many ways, we had two distinct operating environments. January, which was impacted by Omicron, muted demand, and the February-March time period, which saw continued revenue recovery comparable to Q4 2021. Overall, consumer demand continues to remain healthy. More specifically, total occupancy for our 77 hotels in the first quarter averaged 63.6%. On a monthly basis through the quarter, January occupancy was 54.7%, February occupancy was 65.7%, and March occupancy was 70.7%. While Q1 is typically a seasonally slower period, Omicron further impacted demand in January and early February across the portfolio. In some instances, we had group business push their dates later into 2022. For the quarter, occupancy was 87% of 2019 levels.
ADR continues to be the catalyst for RevPAR recovery across AHIP's portfolio, exceeding 2019 performance by 1%. This is the third consecutive quarter of ADR matching or exceeding 2019 levels. ADR for the quarter was $109.27 in January, $118.25 in February, and $122.28 in March. We anticipate we will continue to see strong ADR performance going forward. Q1 RevPAR for our 77 hotels was $74.54 or 87% of 2019 levels, with overall Q1 performance being negatively influenced by January's slow start due to pandemic impacts. January's recovery to 2019 RevPAR benchmarks at 81% was below the recovery trend we had seen in Q4 at 90% of 2019 levels.
Once into February and continuing into March, RevPAR recovery rates were more aligned with Q4 2021, with February at 91% and March at 89%. Looking at our portfolio performance, we referenced three distinct segments of our business: extended stay, select service, and our Embassy Suites hotels. The extended stay segment, which contributes to higher overall operating margins typically as a result of longer average length of stay, has outperformed during the pandemic. As the recovery continues, we are seeing more balance among the three segments as demand continues to strengthen and stabilize across the portfolio. For the quarter, the extended stay segment achieved a RevPAR of $82.78 or 88% recovery to 2019.
The select-service segment achieved a RevPAR of $67.66 in Q1. This represents a recovery of 89% to the same period in 2019. The Embassy Suites segment achieved a RevPAR of $84.08, or 80% recovery versus 2019. We are seeing evidence that our food and beverage business at the Embassy Suites is improving as the revenue gap to 2019 continues to narrow. Strengthening food and beverage revenues is a signal of recovery in corporate and group business demand. As we look back over the last year, the Embassy Suites segment has seen the biggest improvement in terms of RevPAR recovery, going from 48% of 2019 levels to 80% this past quarter. An additional sign of corporate and group travel returning to our hotels is the improvement in the negotiated segment and GDS channel performance.
GDS or Global Distribution Systems is mostly driven by travel agents booking corporate travel for their clients. Negotiated revenues increased 11% quarter-over-quarter, while GDS revenues increased 13% over that same period. Brand operating standards that have been in effect since Q3 2021 continue to remain in place today. Specifically, housekeeping and complimentary service standards continue to be reduced when compared to 2019 requirements. That said, our margins were challenged in Q1. Throughout the quarter, we saw inflationary cost pressures, labor scarcity, and increasing energy costs impact margin performance. This drove Q1 2022 margins below 2019 levels after 3 consecutive quarters where NOI margins exceeded 2019 levels. After a pandemic impacted January, we saw margins strengthen considerably in February and March.
We continue to work with our hotel manager on revenue management initiatives, particularly maximizing ADR, improving retention, and hiring more in-house staff in an effort to reduce overtime and third-party labor requirements as occupancy and revenue continue to recover. As previously announced, AHIP's 2022 capital plan represents a return to pre-pandemic spending levels. The capital plan is weighted to the second half of 2022, where we are planning significant renovations of seven hotels located in Florida and the U.S. Northeast. Total value of the renovation projects is approximately $20 million. We also anticipate spending $10 million in capital maintenance projects across the portfolio for a total capital commitment of $30 million. $10 million of the capital program will be funded from existing restricted cash accounts. In Q1 2022, the AHIP capital spend was approximately $3 million.
As Jonathan mentioned, initial April results suggest continued improvement in top-line performance.
Thank you, Bruce. Good morning, everyone. AHIP continued to see improved financial results in Q1 2022 compared to the prior year. Funds from operation or FFO was $3.6 million or $0.05 for the quarter, compared to -$2 million or -$0.03 for the same period last year. This is due to operating improvements in 2022, and that 2021 was negatively impacted by a $1.3 million non-recurring financing charge. Reported net loss for the quarter was $3.9 million, which was an improvement over the loss of $14 million for the same period in 2021.
Along with improved operating results, the decreased loss compared to prior year was a result of a gain of $1.7 million in the sale of a hotel in Florida and a $2.4 million increase in the change in fair value of our interest rate swap contracts. Diluted loss per unit was $0.05 in Q1 2022, compared to a loss of $0.18 in the same period of 2021. Total available liquidity at March 31, 2022 was $40 million, plus an additional restricted cash balance of $40.4 million. Debt to gross book value remains stable at 54.1% from the fourth quarter to the first quarter and represents a 460 basis point improvement from mid-2020. Further improvements to leverage are expected through a combination of improved operating results and maintaining a sustainable distribution.
On April 6, AHIP repaid an outstanding loan of $54.5 million with a maturity date of July 6. This loan was repaid with $5 million of cash and the remainder by borrowing under the revolving credit facility. Net of the incremental borrowing, availability under the credit facility increased by $14 million, and an additional $3.3 million was released from restricted cash. In the first quarter of 2022, market expectations for short and long-term interest rates increased substantially. Since 93% of our debt is at fixed interest rates or is effectively fixed due to interest rate swaps, we do not expect a material interest increase in our interest expense in 2022 or 2023. In addition, we have no debt maturities or a maturity of our interest rate swaps until the fourth quarter of 2023.
This debt and hedging structure will provide financial stability during uncertain times in the debt financing markets. Our recently reinstated monthly distribution of $0.015 per common unit commenced with an announcement on February fifteenth. We are pleased to be in a financial position to proceed with distributions in 2022. This reflects confidence in our operating model and a positive outlook for the sector for the balance of the year. At our current unit price, the yield of 6.2% represents the highest annualized yield in the Bloomberg Hotel REIT Index. The declaration and payment of each monthly distribution under our revised distribution policy remains subject to board approval. I will now turn the call back over to Jonathan.
Thanks, Travis. I'd like to thank our management team, the hundreds of people on the front lines in guest-facing roles who work diligently to ensure that our guests have a safe and enjoyable experience at our properties. With revenues approaching pre-pandemic levels and trends pointing to strengthening demand as we move through the second and into the third quarter, we have reason to be optimistic about 2022 and beyond. I continue to believe that there are many opportunities to exceed 2019 baseline levels. First of all, as mentioned earlier, the eventual sustained return of business travel will provide further demand compression and rate gains, as well as gains to the limited food and beverage offerings within our portfolio. Secondly, our five Embassy Suites portfolio properties, which represent 15% of our total key count, still lag the rest of the portfolio recovery.
We're seeing signs of this business coming back. Thirdly, the 12 assets that were purchased in late 2019 have benefited from our asset management oversight and dedicated revenue management and should exceed 2019 results. In 2019, AHIP also renovated several properties. The benefits of these investment dollars did not have time to surface prior to the outbreak of the pandemic. Taken together, these items paint an encouraging picture for the short to intermediate term. In closing, our public market valuation continues to be significantly discounted to private market values and replacement costs for our portfolio. In my opinion, as performance continues to accelerate as the recovery takes hold, this gap will close through sustained cash flow production. Besides this, we will continue to evaluate all opportunities to close this public to private market value gap.
Our stated mandate remains to drive attractive yields for our investors while maximizing long-term value. With that overview of our first quarter and recent initiatives, we'll now open the call to questions from analysts. Operator?
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Nicholas Talaga with BMO Capital Markets. Please go ahead.
Hi. Thanks, and good morning. My first question is around corporate travel. With the largest improvement expected from corporate demand at the Embassy Suites portfolio, what trends have you seen in corporate travel recently, and, more particularly in April and May, and does it align with your outlook?
Yeah. Hi, Nicholas. It's Bruce. We are seeing travel and room nights increase into our Embassy Suites hotels. Perhaps one of the best measures we have is looking at food and beverage demand in those hotels. We're back to about 50% of where we were in 2019, which is actually a pretty sharp jump over the last four or five months. In fact, I think in March, we were at 58% for that month of March 2019 levels. That food and beverage business is typically driven by conference attendees or group attendees attending small meetings, as well as corporate travelers. As I mentioned in my remarks, we're seeing growth in kind of two key segments that drive corporate business, negotiated rates and GDS.
We're seeing very favorable growth in both of those, well, in that segment and in that channel.
Great. Thanks for the color. Just shifting gears to the labor front. As per CBRE, the whole hotel industry saw a 15% wage increase year-over-year, which kind of echoes what was mentioned in the disclosure. I'm just wondering what have you seen in terms of wage pressures and job vacancies recently, and what are the implications for the margin moving forward?
Sure. I'll tackle that one, Nicholas. I think, when we talk about labor, we wanna talk specifically about rooms labor, so rooms departmental expenses, and then we'll talk about salaried payroll. On the rooms labor costs, we're having difficulty staffing up hourly workers due to challenges in the labor market that were really magnified by Omicron in January and the early part of February. We were forced to dip into the contract labor pool with more frequency and this led to higher overtime costs, as well.
The hourly wage increase that you're talking about was really magnified by the fact that we had less people and we were in a position where we had to pay overtime and dip into contract labor. The other ripple effect is that productivity suffered. In the contract labor case, we're bringing in folks that with less experience, for example, in housekeeping. And so productivity rates were diminished. What have we done since that impact, which is really felt in January and the early part of February? We ramped up our hiring and specifically dipping into foreign worker programs, so employees on visa programs and that are now working full-time within the property.
We ramped up our hiring of these individuals during the quarter. Now we have about 160 folks on the payroll from this program, which represents about 10% of our total employee count at this time. It's helping us reduce the overtime and increase the productivity, and it's gonna lead to a normalization of our rooms expense. The industry data that you spoke about is something that we've been seeing really for the last 2 to 3 quarters, and doesn't come to us as a surprise at all. We've been adjusting labor rates over the last year. Well, let me talk about salaried payroll, though, first, or lastly before ending this answer.
I'd say that salaried payroll increases that we incurred in Q1 were budgeted. We were intent on ramping up our hiring for more managerial positions in sales, repairs and maintenance, and even general managers in anticipation of higher volumes in Q2 and the rest of the year. Thankfully, that's what we're seeing, as we look forward to demand for the rest of 2022.
Great. Appreciate the color on that one. Just lastly for me, in light of the current rising rate environment, how should we think about the REIT's capital recycling initiatives? Do you still see solid investment demand for some of the assets you have earmarked for sale?
We don't have anything earmarked for sale.
Sorry, not earmarked for sale, just thinking about, you know, any potential sales. Apologies.
Potential sales. I mean, there's tremendous demand in the private markets for hotels, specifically select service hotels, because people have seen how select service hotels have performed during the pandemic, and it's attracted a lot of capital sources that there is still tremendous demand for these property types in the market right now.
Perfect. That's all for me. I'll turn it back.
Thanks.
We'll take our next question from Mark Rothschild with Canaccord. Please go ahead.
Thanks, and good morning, guys.
Morning.
You spoke about improving demand. Can you maybe just give us some numbers for what you think, whether it's on occupancy or ADR, what we could see through the summer months and maybe where you see the longer term trend over the next year?
Yeah, I'll answer this, that one, Mark. I think, you know, it's in our business right now, it's difficult to point to, you know, rooms on the books because the booking window is so short and compressed. Every indication that we have right now is suggesting that this dynamic around ability to push rate above 2019 levels is continuing. Bruce mentioned that, you know, we mentioned in our April results, we're exceeding 2019 ADR levels, and we're starting to narrow that gap substantially to RevPAR levels.
What we really like about this environment is that it's rate driven, and that's gonna benefit our business and our margins as we hit our seasonally higher quarters over the next 3-6 months. That's what you're gonna see. I think when we look at the Embassy Suites, which have traditionally been the drag on the revenue during this recovery, we're hearing some tremendous statements from our sales managers at these five properties that are very bullish on the return of corporate and business transient demand.
Can I push you for some actual numbers on occupancy or ADR?
I think it's reasonable to assume that we're going to be above 2019 levels on the ADR side. I think occupancy will continue to be in that 90%-95% range of 2019.
Okay. You made another comment about valuation gap, and you're looking at different options. Can you maybe expand on what type of options you're considering? And then also, to what extent is this something that you and/or the board feel is something really important to deal with this year? Or is it something that you're looking at, but you'd rather just let the recovery take hold and play out over the next year or so?
Well, you know, the board and I are always in discussions about valuation and, you know, we're not alone in the REIT universe right now saying that we're trading at a substantial discount to net asset value. I think what's probably changed over the last 90 days is that some of the fixed rate debt that accompanies our assets right now, where a year ago the defeasance costs or the in-place coupon was probably not marketable to a potential buyer, I think is and now that the reverse is true.
We would, you know, I think the biggest or the most convenient lever right now is to entertain the idea of selling certain assets in order to show the market where per keys are on a trade versus what our unit value per key is. I think that's something that we're going to explore with the board over the next quarter. I don't have any specific assets right now that I can say that we're gonna take to market imminently.
Okay. Thank you.
Thank you.
We'll take our next question from Lorne Kalmar with TD Securities. Please go ahead.
Thanks. Good morning, everybody. Maybe just switching back to the operating cost side of things, obviously, a little bit down, especially after the great numbers you guys were posting in the last few quarters. Jonathan, I think you mentioned that, you know, obviously Omicron had an impact on January. Can you maybe give us some color as to what the actual NOI margins were by month?
I think ex January, our numbers are actually close to what is it? Just over 30%. It's not quite at 2019 levels, but certainly closer to. We can circle back with you on if you wanna get into more specifics on that, Lorne.
Yeah, I may take you up on that. I guess, yeah, so you mentioned you're obviously taking some initiatives here to try and limit the contract labor and the overtime. You know, how is that going and how long do you think it is until you're able to kinda normalize the labor side of things, I guess, in the context of everything else going on?
Yeah. I think it's a combination of normalization through these initiatives that we spoke about with respect to hiring and bringing more people on the payroll, in combination with just continuing to drive rate, so we're able to offset some of these challenges on the expense side. You know, like I spoke about this foreign worker program, which we've dipped into successfully. We've ramped up. I think at the end of Q4, we had 30 people that we had on the payroll from this program to now 160. So this is our way of combating an issue which really the industry as a whole is encountering.
In fact, you might argue the entire service industry in the United States and North America is encountering. You know, we feel like this is gonna be a way for us to normalize this particular line item over the next quarter or two.
I guess, maybe by Q3, you think you can kinda get back to that 100% recovery versus 2019 on the margin side? Would that be fair to say?
I think it's probably dependent as well on some externalities regarding commodity prices, right? The three main drivers on the operating side were utility costs, salaried payroll and hourly payroll or room expenses. I think you know, salaried payroll is a great story because we're essentially ramping up as per our budget to handle more business over the next two quarters. Utility costs, I mean, we spiked. I don't know how to tell you. We you know, utility costs spiked in Q1 to levels that we really hadn't seen for many years. Then thirdly, on the hourly labor side, we have a plan in place to combat this.
I think, you know, we feel pretty confident that. Let me back up a second. You can't really talk about margins without talking about revenue, and that's an advantage that we have in this business, is that we can adjust revenue accordingly and pass some of these increased costs on. We feel pretty confident that as average daily rates continue to improve, we're gonna anticipate our margin performance to be in and around 2019 levels in the coming quarters.
Okay. That's good to hear. Maybe one last one for Bruce. Any chance you can give us the May occupancy and ADR numbers, thus far?
Yeah. I actually don't have the specifics, but we're forecasting May to be above April from a RevPAR perspective.
All right. Well, that's good to hear. Okay, thank you guys so much for the call. I'll turn it back.
Thanks, Lorne.
Our next question comes from Tom Callaghan with RBC Capital Markets. Please go ahead.
Thanks. Morning, guys.
Morning, Tom.
Just want to touch on capital expenditures quickly. I know the PIP and maintenance spending there is more weighted to the second half of the year. Just curious, like, how much flexibility could you guys have should kind of these kind of inflation or supply chain issues persist. I know you guys kind of mentioned some of the spending could extend into early 2023. Are there certain thresholds, costs or otherwise, that would provide you a bit more flexibility? Or is this something more that maybe you'll work with in conjunction with your partners there as the year unfolds?
Definitely, flexibility, Tom. We see this money as you know, we're eager to get it out because it's good news money that's gonna enhance the cash flow of our portfolio. We don't see it as an obligation, more as an opportunity. If it was an obligation, we'd probably entertain selling certain assets. If it means that we need to delay in order to combat certain cost escalations on the supply side, that's what we'll do.
Yeah, makes sense. Just a quick one for me. Just in terms of the business interruption proceeds, was that kind of a one-off this quarter or could there potentially be more coming in into the future quarters?
Yeah, that's just a one-off, Tom.
Okay, thanks. I'll turn it back.
As a reminder, it's star one to ask a question. Our next question comes from Tal Woolley with National Bank Financial. Please go ahead.
Hi. Good morning.
Morning, Tal.
You know, you've made reference to the debt capital markets for hotels right now. Can you just talk about capital availability and what sort of pricing you would see if you were looking at, you know, financing a new asset at this point or financing an existing asset at this point?
Sure, Tal. It's Travis. We're not super active in today's market, but we are monitoring it. You know, when we decided to refinance that maturity that we had for July of this year, we decided the revolver was the best place for it. We basically already paid for that capacity, and it was the most cost-effective place to put that debt. It's certainly lower cost at the time relative to the CMBS market. That benefit has eroded somewhat with rising short-term rates, but it's still the cheapest place for that capital. Our weighted average interest rate is around the 4.6%-4.7% mark.
Similarly, priced debt or structured debt would be 75-100 basis points north of that today if we were to.
Okay
... go to that market right now. As we mentioned before, we don't have any such needs to go to that market till the end of next year.
Yeah. No, I just wanted to get a feel for where things were today, you know, just, 'cause everything's been so crazy of late. Sorry, the weighted average term on your debt right now, so that plus 100 over 4.6 would be for how much term? Like 5, 7 years?
Our term is in the high threes. I don't have the exact number in front of me, like 3.6%-3.7%.
Okay. You know, your reference to the sort of 100 BPs higher, that'd be for like 5-7 year debt, I'm assuming?
Yeah, that'd be for five-year money. The curve's pretty flat once you get-
Yeah
It actually doesn't matter a whole lot between 5 and 10. You know, within that range, the 75-100 basis points, you could probably do 5 or 10.
Okay. You know, I appreciate you guys are saying that you think you can kind of get close to, you know, be at or near, 2019 operating margins, in the next couple quarters. What sort of RevPAR do you think you need to kind of match or exceed that level of margin performance?
It's more about trying to combat percentage increases on the expense side with percentage increases on the revenue side. Given the type of business that we're seeing on the revenue side, specifically the fact that it's rate driven, we feel pretty confident that we can offset, maybe not fully offset in the next few months, but we can offset the expense side with the revenue increases.
Okay. Just my last question. You know, obviously, the select-service segment was kind of the darling of the hotel space during the COVID period, given how they performed. I'm just wondering now that, like, a lot of facts have changed economically on the ground, do you think the investment market will still remain as keyed in on select-service, or will people start to shift more, you know, shift their attention, you know, if they believe in a cyclical recovery with higher inflation? Like, Does the investment market maybe start to move on from select-service hotels to other types of hotels at this point in the cycle? How are you sort of reading that?
They're not. The capital markets have noticed the performance of select-service during the pandemic. I think they've also noticed that the structural changes that maybe we didn't talk about as much in this quarter, but that we've talked about over the last four quarters plus, with respect to brand standards are now structural and codified for over the long term. You know, on the flip side, the full-service segment is generating tremendous rates, you know, like for example, from resorts and getting a lot of headlines right now.
The steady nature of our business and our ability to have less headcount in the hotels themselves is quite a benefit in this labor environment. I expect that the capital markets, they have and they're gonna continue to reward that.
Okay. Obviously, your visibility on bookings and stuff like that is still lower, but I'm just wondering like how you think more leisure travel will sort of evolve over time, because obviously, you know, destination markets were far less appealing because international travel was pretty limited. Do you think like? Do you have any sort of, you know, idea about where you think volumes for like non-corporate travel will go given that the world is, you know, sort of continuing to open up a little bit more each day?
Yeah. I think the dynamics that would suggest that leisure travel would reduce are the same dynamics that would suggest that the business travel would increase. In other words, a broad opening up. That's a good thing for us because we have more rate strength on the corporate side and the business side than the leisure side. The leisure traveler has been very good to us over the last couple years, but we're still anticipating that business traveler to come back, and you know, reshuffle our mix back to what it was prior to the pandemic, which is two-thirds business and one-third leisure.
Okay. Just lastly, you know, in prior quarters you had discussed, you know, maybe starting to get more active on the acquisition front. You know, does the changes in the financing market and stuff like that, or in the debt markets, like maybe make you rethink that approach, or do you still think there are good opportunities out there that are worth moving on?
Yeah. I think right now, us issuing equity to purchase properties, given our trading, our unit value, would not be in the cards. We continue to market acquisition opportunities or monitor acquisition opportunities. If you know, if we talked a little earlier in the call about potentially, you know, selling off certain assets, we would look to recycle that capital into other markets and other areas that maybe we feel have a higher growth trajectory.
Okay. That's great. Thanks very much, everyone.
Thanks, Tom.
That concludes today's question and answer session. Jonathan Korol, I'll turn the conference back to you for any additional or closing remarks.
Thanks again, everyone, for joining us on our call today. Look forward to speaking with you in August when we will report our second quarter 2022 results. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.