Thank you for standing by, and welcome to Summit Hotel Properties Second Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. I would now like to hand the call over to Mr. Adam Wudel, Senior Vice President of Finance, Capital Markets, and Treasurer. Please go ahead.
Thank you, Latif, and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer, Jonathan Stanner, and Executive Vice President and Chief Financial Officer, Trey Conkling. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our SEC filings. Forward-looking statements that we make today are effective only as of today, August third, 2022, and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call on our website at www.shpreit.com. Please welcome Summit Hotel Properties President and Chief Executive Officer, Jonathan Stanner.
Thanks, Adam, and thank you all for joining us today for our Second Quarter 2022 Earnings Conference Call. Our second quarter results mark new pandemic era highs in nearly every relevant operating metric, driven by continued strength in leisure travel and supplemented with accelerating recoveries in business transient and group demand as growth in our portfolio increasingly shifts midweek into our high quality urban assets. Second quarter pro forma RevPAR increased approximately 54% from the second quarter of last year, driven by a 12.5% increase in occupancy and a 37% increase in ADR.
In our portfolio of 92 hotels with comparable 2019 results, RevPAR recapture reached 93% of 2019 levels, a significant improvement from the 79% recapture we achieved in the first quarter, and highlighted by June's 96% recapture rate, the highest of any month since the onset of the pandemic. Hotel EBITDA recapture in this portfolio was 89% of 2019 second quarter results as the benefits of a lean staffing model have helped offset wage pressures being driven by a tight labor market. We continue to benefit from meaningful pricing power throughout the portfolio as average rates increased in every segment of our business over the first quarter, and now exceed 2019 levels in all but our negotiated segment. For the quarter, comparable portfolio ADR was 2% higher than the second quarter of 2019.
While resort and small town locations continue to achieve rates well in excess of 2019 levels of 16% and 11% respectively, rates in our urban portfolio exceeded 2019 by over 3%, reflecting rapidly improving midweek corporate and group demand. Weekday pro forma RevPAR increased 26% from the first quarter and 67% from the same period last year. Weekday occupancy was more than 71% for the quarter, with June posting a pandemic era high of nearly 74%. Our weekend RevPAR recapture rates continue to meaningfully exceed 2019 levels. Encouragingly, Monday through Wednesday nights are seeing the greatest improvements and now all exceed 80% recapture compared to below 70% in the first quarter. Weekday rates increased in every major segment during the quarter, and in June, weekday rates were within 4% of weekend rates.
The group segment's recovery was particularly notable in the second quarter as group room night contribution reached 15% of our total portfolio mix, essentially flat to pre-pandemic levels, and rates were modestly above 2019. As expected, June was our strongest month since the onset of the pandemic, achieving new highs in absolute RevPAR recapture, and average rates, which were nearly 5% higher than June of 2019. Pro forma gross operating profit margins also reached a new peak of just under 48%, which represented 125 basis points of margin expansion over June of last year. Preliminary July nominal RevPAR is expected to decline modestly from June, consistent with historical seasonal patterns, but result in a comparable 2019 RevPAR recapture rate in line with what was achieved in the second quarter.
August tends to be a slightly weaker seasonal month in our portfolio, which is reflected in our current pace that is down compared to our pace for July a month ago. Though once again, we expect 2019 recapture rates to hold fairly steady month-over-month. However, we are very encouraged by the pace trends in our portfolio in September and October, particularly within the recently acquired NewcrestImage portfolio in our urban properties, which are seeing significant month-over-month pace increases for both weekdays and weekends. September RevPAR is pacing 14% ahead of August in our pro forma portfolio, which positions us to achieve recapture rates to 2019 that are in line or potentially above the highs we experienced in June.
Combined with our healthy recovery in July and expectations for August, we expect third quarter recapture in our comparable portfolio to be generally in line with the second quarter. It's still very early in our booking window. Our optimism for the fall is further supported by our October pace, which is 12% ahead of September and has historically been one of the strongest months in our portfolio. Our strong operating results and the continued progress we've made enhancing our balance sheet have positioned us to reinstate a quarterly common dividend. Yesterday, our board of directors declared a $0.04 per share quarterly common dividend, which equates to $0.16 per share on an annualized basis and roughly a 2% annualized dividend yield.
We've been prudent to size the dividend so that it can be meaningfully increased over time if the current fundamental recovery in our business continues uninterrupted, but also to be sustainable if we experience a reduction in demand from our baseline expectations. Prior to the pandemic, we had a strong track record of paying common dividends, which grew over 60% from the time of the IPO, equating to a 5% dividend CAGR over that 10-year period. We've remained active on the transaction front, and during the second quarter, we closed on two previously announced transactions. In May, we closed on the sale of the 169 guest room Hilton Garden Inn San Francisco Airport North Hotel, previously owned in our joint venture with GIC for $75 million, and we realized a net gain of $20 million in less than three full years of ownership.
The sale price reflects a trailing twelve-month NOI cap rate of approximately 1% as of March 31st. As a reminder, the sale also allowed us to forgo a $7 million renovation that was scheduled to begin later this year. In June, we successfully closed on the equity purchase option to acquire a 90% interest in the newly constructed 264-guestroom AC Hotel & Element dual-branded hotel in downtown Miami's Brickell neighborhood at a valuation of $89 million, or $337,000 per key. The hotel features Rosa Sky, recently named as one of Miami's best rooftop bars, which has generated, on average, nearly $500,000 of revenue in each month since its opening.
The hotels have ramped incredibly quickly since their December 2021 opening, generating year-to-date RevPAR of approximately $170, despite being in the slower summer season in Miami. For the full year 2022, we anticipate the hotels will generate a combined hotel EBITDA yield on our option price between 8% and 9%, effectively in their first 12 months of operation. Our 31 recently acquired hotels continue to perform very well as forecasted EBITDA is trending to finish nearly 10% above 2022 underwriting, despite the delayed opening of the Canopy by Hilton New Orleans Downtown.
We remain particularly bullish on the longer-term outlook for the NewcrestImage portfolio, as we expect to begin to realize the benefits of recently implemented asset and revenue management strategies as early as the second half of this year, and continue to believe the concentration of assets in high-growth Sun Belt markets are poised to outperform over the next several years. Our other recent acquisitions continue to vastly exceed expectations as the Residence Inn by Marriott Steamboat Springs, the Embassy Suites by Hilton Tucson Paloma Village, and the dual-brand AC Hotel & Element Brickell Miami are collectively pacing more than 40% above our underwritten 2022 hotel EBITDA levels. Combined, for the 31 hotels acquired since June thirtieth of last year, we expect our blended 2022 EBITDA yield to be approximately 7%.
As a reminder, nearly half of the hotels we acquired have opened within the past four years, implying there is still considerable upside in many of these assets. With that, I will turn the call over to our CFO, Trey Conkling.
Thanks, Jonathan, and good morning, everyone. On a pro forma basis, we experienced continued RevPAR growth across our portfolio in the second quarter, generating our highest nominal RevPAR of the pandemic era and continuing a trend of sequential quarter-over-quarter improvement. From a segment perspective, Summit's 42 hotel urban portfolio produced a second quarter RevPAR of $125. By far, the highest quarterly RevPAR for our urban portfolio since the onset of the pandemic. This surpassed first quarter 2022 urban RevPAR by approximately $34 or 38%. Sequential quarter-over-quarter urban RevPAR growth was driven by strength in both occupancy and ADR, which increased 22% and 13% respectively. For our urban hotels with comparable 2019 data, second quarter ADR surpassed 2019 levels by approximately 3%.
Strengthening corporate and group travel were instrumental to improving urban fundamentals in markets such as New Orleans, Austin, Tampa, Nashville, Charlotte, Boston, and Downtown Chicago. Most notably, urban weekday RevPAR increased sequentially throughout the quarter as each month generated a new pandemic-era high. This culminated with June posting a weekday RevPAR of approximately $125, nearly double that of June 2021, and resulting in an 86% recapture to 2019's urban portfolio weekday results. Second quarter RevPAR for our non-urban hotels was $119, an increase of over 13% relative to first quarter 2022, and a 33% increase to the second quarter of 2021. Strength in our non-urban portfolio was driven heavily by our hotels in airport and suburban locations, while hotels in resort markets such as Fort Lauderdale, Tucson, and Phoenix entered seasonally slower periods.
Despite this seasonality, rate strength among our resort properties with comparable 2019 results continued to accelerate in relation to 2019, with ADR recapture of 116% in the second quarter versus 108% in the first quarter of this year. Furthermore, our airport, suburban, and small town hotels demonstrated exceptional strength with Q2 RevPAR increasing by 33% over the first quarter to $117. Booking windows in the quarter continued to expand. Most notably, same-day bookings declined from 19% to 15% of total bookings, a new pandemic era low and relatively aligned with pre-pandemic norms. Furthermore, bookings in the week for the week declined by 17%, while bookings for stays more than 30 days out increased by nearly 40% during the quarter.
In addition, bookings for stays 15-30 days out, historically the window in which corporate travelers typically book, increased by approximately 10% during the second quarter. From a channel mix perspective, we continue to see strong bookings coming from the less expensive channels, as approximately 70% of our stays in the second quarter came from direct bookings and central reservation systems. OTA contribution declined 90 basis points from the first quarter to comprise approximately 16% of our total bookings as corporate group and business transient demand continued to accelerate. On a same-store basis, operating costs per occupied room in the second quarter declined compared to the first quarter of 2022, resulting in second quarter gross operating profit margin of over 49%, which is approximately 100 basis points below the second quarter of 2019, despite current labor market dynamics.
Same-store hotel EBITDA flow-through remained strong at 54% compared to the second quarter of last year. Pro forma hotel EBITDA for the second quarter was $70.7 million, a 94% increase from the second quarter of 2021, which resulted in a 38% margin. The highest quarterly hotel EBITDA margin during the pandemic era, and more than 600 basis points higher than the second quarter of 2021. Adjusted EBITDA increased to $54.6 million in the second quarter, which was more than double from a year ago. Adjusted FFO in the second quarter was $32.6 million, or $0.27 a share, an increase of $24.2 million from the second quarter of 2021, and $12.5 million from the first quarter of 2022, amid an improving fundamental backdrop.
Included in our adjusted FFO was a higher than normal income tax expense for the second quarter, driven by the $20.5 million gain from the sale of the Hilton Garden Inn San Francisco. When adjusting for the tax related to the gain on sale, adjusted FFO was $36.1 million or $0.30 per share for the second quarter. For the full year, we estimate income tax expense of approximately $3.5 million. During the second quarter, on a consolidated basis, we invested approximately $15 million in our portfolio, bringing our year-to-date total to approximately $25 million. Second quarter spend was primarily driven by transformative renovations at our Hilton Garden Inn Houston Energy Corridor, Hyatt Place across from Universal Orlando Resort, and SpringHill Suites by Marriott Nashville MetroCenter. In addition to typical maintenance, capital, and purchasing for near-term renovation projects.
Including the year-to-date spend, we expect to spend $60 million-$80 million on a consolidated basis or $50 million-$70 million on a pro rata basis in total capital expenditures for 2022. Finally, turning to the balance sheet. Our overall liquidity position remains robust at more than $480 million. We continue to maintain ample liquidity to repay all maturing debt through 2024 when considering available extension options. From an interest rate risk management perspective, our balance sheet is well positioned, including an average pro rata interest rate of 3.8% and nearly 70% of our current outstanding pro rata debt fixed after consideration of interest rate swaps.
In addition, to address the pending maturity of $200 million in notional swaps, we recently entered into two $100 million interest rate swap agreements that will fix one-month SOFR and carry fixed rates of 2.6% and 2.56%. These new swaps will mature in January 2027 and January 2029. This extends the average duration of our swap portfolio from less than two years to over four years. The swaps will become effective in January 2023 after the $200 million of existing interest rate swaps expire. The new swap transactions will result in the company maintaining approximately 70% fixed rate debt.
In the second quarter of 2022, we exited the waivers on certain financial covenants related to our primary corporate credit facility and amended the credit agreements for our $400 million senior revolving credit facility and two senior term loans totaling $425 million to extend the available loan term and enhance overall flexibility. The amendments to the $600 million senior credit facility include additional extension options that allow us to extend the maturity date to March 2025 for the $400 million revolving credit facility and to April 2025 for the $200 million term loan facility. Pricing remains unchanged for both loans. Additionally, the company has retained complete capital allocation flexibility regarding future potential acquisitions, dispositions, capital expenditures, and dividends.
Included in our press release last evening, we provided 2022 guidance on certain non-operational items, including cash corporate G&A, interest expense, preferred dividends, and capital expenditures, both on a consolidated and pro rata basis.
We expect the midpoint of consolidated cash corporate G&A to be $21.5 million. Interest expense, excluding the amortization of deferred financing costs, to be $59 million. Series Z and Series F preferred dividends to be $15.9 million. Series Z preferred distributions to be $2.3 million, and pro rata capital expenditures to be $60 million. With that, we will open the call to your questions.
Thank you. As a reminder to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Neil Malkin with Capital One.
Good morning, guys.
Morning, Neil.
Congrats on the dividend and getting out of waivers and everything. I'm sure that's you know a weight off your shoulders. First one is on just the ADRs of business traveler. You mentioned that you know the pickup in midweek urban hotels you know being indicative of an accelerating you know corporate environment and travel cadence. You know just so we can understand how the dynamics would work in terms of ADR overall, can you talk about what a typical premium in ADR that a business or corporate you know business would you know get or would achieve versus a typical leisure guest?
I think it's important that, you know, a lot of the luxury peers, you know, as business comes back, those people are paying, you know, below what the leisure ADRs are. I think for your portfolio, it's actually flipped. Can you just, you know, help quantify that and, you know, talk about how that would help the portfolio in terms of ADR lift as we go, you know, through the rest of the year and into 2023?
Yeah, sure. Thanks, Neil, and good morning. Look, I think you've, you know, highlighted it correctly. I think if you look back historically at our portfolio, particularly pre-pandemic, you know, we've certainly run higher rates in our negotiated channel than we have in some of our leisure channel. That has flipped today, and we're certainly running a much higher percentage of our room night mix through the retail segment than we would on a normalized basis. I still think as you start to see, and again, you saw a lot of that as you alluded to in the quarter, particularly in the month of June, as we started to see some of this BT business come back. It's still at rates lower than it was in 2019.
Negotiated is still our only channel where rates are lower than they were pre-pandemic. We do think that there's an enormous amount of upside as that business starts to come back. We do think that the remixing of our business overall is gonna be positive from a rate perspective as we start to see, one, BT come back, and two, just better demand broadly in urban markets.
Okay. Thanks. Then the other one for me is bigger picture on the stock. You know, kind of been an underperformer, you know, kind of lagging the group and having a sort of disparate multiple. So I'm just wondering if you could, or hoping you could maybe give a couple, you know, points or catalysts that you think would help, you know, bridge that discount, and kind of, you know, get the stock moving in the right direction so you can really turn on the external growth engine. I mean, if there's a couple of things that you could talk about, that'd be great.
Sure. You know, look, Neil, I think you know, the way the stock's traded has been you know, frustrating. It's been disappointing. I'm sure it has been for you know, most of our peers as well. I don't think the stock you know, today reflects the quality of the portfolio, the quality of the platform, the nature of the transactions that we've been able to complete through the balance of the year and really since the onset of the pandemic. You know, some of it, I think, is attributable to the operating performance, just the nature of the portfolio. This is a select service portfolio that's recovered sooner, but we have less suburban exposure, we have less small town exposure, which recovered faster, and we just have a higher concentration in urban markets.
We have fewer, you know, pure play resort, leisure-oriented assets, which have been the outperformers year to date. What we do have is a really, really high quality, urban-focused, portfolio, which I think positions us very well where we see kind of the next leg of growth. Again, we talked a lot about that in our prepared remarks, where we're seeing better growth midweek and better growth in urban markets. We do think we're really, really well positioned again as we continue to see growth in that mix in particular, and specifically as we start to focus more on this business on year-over-year growth and less on an index relative to 2019.
I'm really proud of the transaction activity that we've completed since the onset of the pandemic, and I don't think that value that has been created and will be created is reflected in the stock price. If you look at the acquisitions, again, we mentioned this in our prepared remarks, you know, we're 10% ahead of our underwriting year one in everything that we've acquired, about $1 billion worth of assets that we've acquired since the beginning of the pandemic. The Brickell trade has been a home run. We're probably $25 million-$30 million in the money on that trade from our option price day one, and it's yielding 8% or 9%. The San Francisco trade, I think, was a home run.
We're already ahead of our underwriting in the NewcrestImage portfolio, and I think most of that upside is yet to be realized. A lot of the heavy lifting that has been done has been done over the last six months, whether it's getting sales clusters organized, the right resources in place. We think a lot of it, particularly as we get into the stronger seasons in some of these Sun Belt markets, we think a lot of the upside in that portfolio will be realized in the back half of this year and into the coming years, given the growth profile of those assets.
We reinstated our dividend, which we think reflects, you know, our conviction, one, the strong cash flow profile of the business, and two, the confidence that we have in our business going forward. I'm proud of the work that we've done on the balance sheet. I think the business is really well-positioned on a go-forward basis. I think if we continue to do thoughtful transactions and continue to execute on our operating plan, ultimately, that's gonna show up in earnings, and will be realized in the share price over time.
Yeah, that was great. Thank you, Jonathan. Thanks, everyone.
Thanks, Neil.
Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank.
Hey, good morning, guys. Appreciate all the color on the segments in the markets. Question is, you know, as you're seeing this nice urban rebound, do you think resort markets and suburban markets are still, you know, kind of winning, too? Or do you think this is just more of a transfer from strength in resort and small-town markets to urban? In other words, same traveler just going to a different place for, perhaps for business instead of pleasure.
I think there's a little bit of that, Chris. I think leisure is still really strong. You know, our resort markets, again, we don't have a ton of pure resorts. We do have a number of leisure-oriented markets. They're still leading the pack, you know. They're still the furthest ahead of 2019. We have a couple of markets that were actually down slightly year-over-year in June, but still way up to 2019. I think some of that is reflective of what you've seen. Travelers have other preferences. I think over the summer, you saw some leisure travel get reallocated to urban markets. We saw, you know, the greatest strength in urban markets in markets that have great leisure attractions, markets like Austin, New Orleans, Miami, even Tampa.
Even if you go, you know, and look at the performance through June, more and more of this performance is driven by what I would call more BT-oriented markets, at least in our portfolio. Markets like Charlotte. We were up almost 6% over 2019 in a market like Charlotte. We were up 13% in June. That's really BT-driven. Pittsburgh's another market that was up 8% or 9%, both for the quarter and for the month of June. We were up in the Loop in Chicago over 3% for the quarter in June over 2019 levels. Some of this is just being driven by more BT. There's no question that I think we've seen some urban shift out of pure play leisure resort destinations to more urban markets, though.
Thanks, John. Then, you know, it was interesting yesterday. I think we heard from Marriott that they're starting to see more conversions on the select-service side into their brands, which was a little surprising to hear. Are you guys seeing any of that in your markets? Or is there any concern that, you know, as new units become a little bit maybe tougher to get done on a timely schedule that you get any pressure from some of these Marriott's new Marriott select-service conversion products?
You know, not particularly, Chris. I mean, I think that, you know, the brands are clearly gonna need to focus on conversion activity. Look, I think the math to pencil out a new development remains incredibly challenging. I think, you know, one of the silver linings of the pandemic and some of the uncertainty that exists today in the broader macroeconomic environment is just, it's really hard to pencil new developments. We think we're gonna be in for an extended period of time where there's very low, you know, below historical norm supply growth. Certainly understand that that's gonna be a push on their side. But generally, I think the supply dynamic is very favorable for us going forward.
Okay, very good. Appreciate it. Thanks, Jonathan.
Thanks, Chris.
Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.
Hey, good morning, everybody. Jonathan, you mentioned, you know, the pace gains for September and October, and I'm just curious if you have any breakdown or detail between sort of, you know, occupancy versus ADR. Then, you know, also if you specifically have any of the, you know, pace trends for sort of that urban midweek piece of business that you're able to share.
Yeah. We can follow up with specifics. What I would say is that, you know, the pace gains are both in rate and occupancy. We're seeing good traction there. I would say we're seeing much more significant growth in the urban portfolio, and the pace gains are largely attributable to the urban portfolio, particularly the NewcrestImage portfolio. As we get into these Sun Belt markets, Dallas in particular, you're getting out of, you know, the peak summer slow season here, where, you know, it's been pretty hot for most of the summer in Texas. We get into the fall, we get into much better convention and citywide activities, in some of these markets.
I would say that our pace is definitely skewed higher in some of these markets, and again, particularly in the NewcrestImage portfolio.
That's helpful. You discussed recent investments are trending ahead of underwriting, and I'm curious if you roll up, you know, all the new investment activities you've completed, over the last few years, kinda taking the stabilized, you know, yields on those and then marry that with the legacy assets. You know, where do you think, you know, stabilized hotel EBITDA could shake out? Certainly won't hold you to a timeframe, but just curious if you have sort of a range in mind.
Yeah, you know, what we said publicly about the acquisition portfolio has been, you know, roughly a 7% EBITDA yield in 2022. We are ahead of our underwriting. You know, we're about 10% ahead. You know, our expectation was that these would all stabilize, you know, north of 8%. I think, frankly, we're probably ahead of expectations. I think the point that we've continued to reinforce is a lot of the upside, particularly in the NewcrestImage portfolio, is still to be realized. I think that's a 2023 and 2024, where we really feel like it's gonna take for those to stabilize. A number of those properties are brand new. A lot of them have never been through a traditional RFP season.
Again, many of them we're just now implementing a lot of the asset and revenue management tactics that we think are gonna drive a lot of value on a go-forward basis. The non-NewcrestImage portfolio acquisitions are way ahead when you look at Steamboat, and you look at Tucson and Silverthorne. You look at some of those acquisitions, they're far ahead of our initial underwriting. But I do think a lot of the upside of the portfolio, particularly in some of these urban markets, are to come in the next, you know, beginning in the back half of this year, but particularly as we get into next year.
Okay, thanks for the thoughts.
Thanks, Austin.
Thank you. Our next question comes from the line of Michael Bellisario with Baird.
Thanks. Good morning, everyone.
Good morning, Mike.
Jonathan Stanner, just a follow-up on NewcrestImage there. Can you maybe dig in a little deeper just on all the heavy lifting that you guys have done kind of behind the scenes in the portfolio during the first six months of your ownership? Then kind of I know you mentioned 2022 and 2023, but like, when might we start to see the top line and bottom line start to pick up, and when will all that heavy lifting start to show up in the numbers?
Yeah. You know, I think you've highlighted, you know, something we've spent a lot of time working through internally. You know, it's a heavy lift to get a deal closed. You know, the real work started when we closed the deal. Our team, and I'm incredibly proud of the work that the team has done, has been very, very focused, particularly on getting some sales clusters organized in markets like Dallas and Frisco and Oklahoma City. We're in slow season in a lot of those markets today. We're, again, as I alluded to on the last question, just now getting the right resources in place. We'll go through our, you know, the first RFP season for many of these assets.
I think generally, when you look at the quality of these assets, these are the highest quality select service assets in their given markets. They just haven't had a chance to ramp up and stabilize. I think we're very bullish on the dynamics in the market, particularly starting in the fall. I think we'll start to see some of the benefits in the fall. We've always felt like stabilization in this portfolio was a 2023 or 2024 event. We're ahead of where we thought we'd be at this time, but I do think it's gonna take some quarters for us to really get fully stabilized in that portfolio.
Got it. That's helpful. Just switching gears just on the transaction front, could you maybe talk about what you've seen over the last 90 days in terms of, changes in pricing or buyer-seller expectations? If you have any interest in providing seller financing to prospective buyers to get deals across the finish line today?
You know, we haven't seen a lot of trades, Mike. I think that was, you know, kind of what we talked about on the last call, that the environment that we are in and, you know, particularly that we've been in over the last, you know, 60 or 90 days, hasn't been conducive to transactions. Operating performance is better. The outlook, all of the hard data that you can point to from an outlook perspective, whether it's pace trends or group trends or convention trends, they all still are very positive. That's clearly offset by being in a higher interest rate environment. The credit markets are tighter than they were. There's some recession fear that are clearly looming and an overhang, you know, particularly in the public markets.
You know, I think generally asset prices have trended lower, not meaningfully lower, but probably marginally lower, probably 5%-10% lower than we were at the beginning of the year. I still think there's a pretty deep buyer pool for assets, and I think particularly for the type of assets that we own. You know, any decline in value is probably at the lower end of that range, again, just given how much capital is still chasing these type of high-quality deals. From a seller financing perspective, you know, we'd look at it. We've done it in the past. It's not our preferred method of execution, but if it facilitates a trade and the economics make sense, it's certainly something we would evaluate.
Got it. Helpful. Thank you.
Thanks, Mike.
Thank you. Our next question comes from the line of William Crow with Raymond James.
Hey, good morning, guys. Trey, appreciate your comments on the margins. I think we're all trying to grapple with stabilized margins and kind of the lag between, you know, what we're seeing in an occupancy and rate recovery and what we're seeing in a FTE sort of recovery. Where are you if you look at a per occupied room or per available room basis for Q2 2022 versus Q2 2019 on an FTE basis?
Hey, Bill, how are you? Good morning.
Good morning.
I would say if you look on a cost for occupied room in Q2 relative to Q2 2022 relative to Q2 2019, we're probably up about 3.8% from that perspective. A lot of that is driven by the mix of labor. Our FTEs today stand at about 24 FTEs. If you remember pre-pandemic, that was probably 35. We don't think that we're gonna get back to 35 as we move forward here, but it certainly needs to be something higher than 24. Part of what's impacting that kind of delta in terms of an increase in cost for occupied room is the contract labor, which frankly is a little bit less productive than what we would like it to be.
There continues to be an evolution as we kind of navigate this labor market of bringing back additional FTEs and offsetting that contract labor, which I think is what will close the remainder of the gap from a margin perspective.
You think margins?
One thing.
Yes, go ahead.
No, I will just jump in and say, add one thing in that, you know, I still think we've talked a lot about, you know, stabilized margins being 100-200 basis points higher than they were on the same revenue mix pre-pandemic. I still think we feel good about that number. I think where we've shifted the narrative slightly has been more of that's just gonna be driven by your mix is skewed higher from a rate perspective than it is occupancy. You know, as Trey alluded to, we're still running about 70% of our pre-pandemic FTE count. The reliance on contract labor has made up for some of that, which is more expensive and less productive. But I still feel...
I think we're still confident in that 100 or 200 basis points of margin expansion longer term.
We should expect margins to continue to rise next. Can we see margins grow next year even if RevPAR growth slows and as labor staffing levels kind of normalize?
Yeah, I think so long as your RevPAR mix has continued to skew towards rate growth.
Yeah. Okay. Just, you know, anytime you have this dislocation, it brings opportunities and your balance sheet may-
Yeah, I think so long as your RevPAR mix has continued to skew towards rate growth.
Yeah. Okay. Just, you know, anytime you have this dislocation, it brings opportunities and your balance sheet may not be in a position to exploit any of these right now. I'm wondering what your thoughts are on three kinda growth areas. Number one, whether you've received any inquiries from leveraged owners who might be, you know, in trouble or whether you're seeing any sort of opportunities on the acquisition side. Second of all, on the mezzanine lending side, which obviously got you a pretty good asset down in Brickell. Whether there's any thoughts to resuming that process. You've talked, I think before, about broken development deals, which just haven't seemed to
Maybe the recovery is too good for them to come up, but it seems like there's gotta be some debt-laden developers that are looking for an exit. I'm just wondering what you're seeing out there broadly on those areas.
Yeah, we haven't seen a lot yet, Bill, in terms of what I'll say your first and your third buckets, you know, broken development deals or kinda levered owners. I would say we're still fairly early in this higher interest rate environment, in an environment where the credit markets are open, but certainly dislocated and tighter than they were 60 or 90 days ago. I think if you're gonna see opportunities there, we probably haven't seen them yet, but they potentially will come. Again, I think we'd always love to be opportunistic around finding a deal that's broken or distressed, in a way that we can get a really compelling basis. We would like to do more in the mezz lending program.
You know, you highlighted something that, you know, we're incredibly proud of in the deal that we did in Brickell. I think it highlights the value of the program where you can earn. You know, we earned 9% on our money all through COVID, and then stepped into a, you know, 8%-9% yield in an asset that we're well in the money on. We'd obviously love to do more of those. It is a difficult time to get development to pencil right now, and this isn't. We've always looked at the mezz program as something that we wanted to do for assets that we wanna own longer term. This asset, we never designed this just merely to be kind of a lender.
The type of assets that we own, again, I think you're gonna see just less supply for a period of time. I do think there will be some opportunities. We'll continue to be very selective in what we do. For the time being, I think we're just in a lower supply growth environment generally.
Thanks for the time this morning.
Thanks, Bill.
Thank you. Our next question comes from the line of Neil Malkin with Capital One.
Hey, thanks, guys. Just a quick follow-up. You know, in terms of leisure demand, are you seeing you know, just from the confluence of you know, factors stock market sentiment you know, inflation everywhere, not just with gas prices, but with food everything travel. I know like typically or empirically, people reference that you know, high gas prices don't affect demand at properties you know, that you guys have seen. I think it's a little bit different environment now with you know, 40-plus year highs in inflation.
Just wondering, you know, given the, you know, maybe, I don't know, call it lower budget orientation of this, of the leisure traveler, you know, compared to some of the, you know, like sort of high-end resorts, you know, are you seeing any impact, any chinks in the armor, any issues in terms of, slowing drive to demand or, you know, a pushback on rate or potentially booking trends not, you know, coming to fruition, because of some of those things?
No, we really haven't, Neal. I know there's a lot of concern out there, you know, broadly about the trajectory of consumer health. I think where we sit today, the consumer is still really healthy. Whether you look at how much savings have been accumulated since the start of the pandemic. If you look at the labor market, you know, people have jobs, wages are growing. Inflation, admittedly, is growing faster. You know, for the vast majority of people, they still have disposable income, and it hasn't shown up in any signs of cracks in leisure travel. We're monitoring it very closely. Again, I think that we think that if there is any softness there, it's gonna be more than offset by strength in BT, which we're seeing come back more rapidly.
You know, the simple answer is we certainly haven't seen anything yet. There are no real signs, at least in the data, that point to it happening in the near term.
Okay. Thank you.
Thank you. I'm showing no further questions. With that, I'll hand the call back over to President and CEO, Jonathan Stanner, for any closing remarks.
Well, thank you all for joining today. We'll look forward to catching up with you on leisure travel. Have a nice day.
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