Apple Hospitality REIT Inc
NYSE:APLE
Apple Hospitality REIT Inc
Apple Hospitality REIT Inc. is a significant player in the real estate investment trust (REIT) arena, carving its niche by focusing on the upscale, rooms-focused hotel segment. Born from a vision to streamline hotel ownership and capitalize on the thriving hospitality industry, the company has masterfully harnessed the fundamentals of REITs to provide value to its shareholders. Apple Hospitality owns a geographically diversified portfolio of well-placed hotels across the United States, strategically clustered to maximize economies of scale and operational efficiency. These are highly reputable brands primarily under the Marriott, Hilton, and Hyatt franchises, which allow the company to benefit from robust customer loyalty programs, brand recognition, and established distribution channels without bearing the heavy marketing costs associated with brand development from scratch.
Revenue generation for Apple Hospitality flows primarily from the room rentals of its extensive hotel portfolio. Its management style ensures a tactical approach to asset allocation, often employing innovative strategies to maintain high occupancy rates and maximize revenue per available room (RevPAR). The company operates via third-party management agreements, profiting from skilled operators who are incentivized to optimize performance. By continually refining its portfolio—through acquisitions and selective dispositions—Apple Hospitality adapts swiftly to economic cycles and market dynamics. This approach aims to not only sustain but also grow dividend distributions, in line with its commitment to delivering investor value as a conservative, yet forward-thinking REIT in the competitive hospitality landscape.
Earnings Calls
In the fourth quarter of 2024, Apple Hospitality REIT achieved a 3% increase in RevPAR, driven by business and leisure travel, and strong performance in L.A. and D.C. markets. Adjusted EBITDAre rose by 7%, reflecting efficient operations amid rising expenses. For 2025, the company forecasted net income between $173M and $202M, with RevPAR expected to grow 1-3%. Total hotel expenses are anticipated to rise by 4.2%, reflecting cost pressures. The current dividend yield stands at 6.5%, demonstrating a commitment to shareholder returns as occupancy rates recover.
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Greetings, and welcome to Apple Hospitality REIT's Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Kelly Clarke. Thank you. You may begin.
Thank you, and good morning. Welcome to Apple Hospitality REIT's Fourth Quarter and Full Year 2024 Earnings Call. Today's call will be based on the earnings release and Form 10-K 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 in the outcome of future events that could cause actual results, performance or achievements to materially differ from those expressed projected or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including in our 2024 Annual Report on Form 10-K and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.
In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com.
This morning, Justin Knight, our Chief Executive Officer; and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the fourth quarter and full year 2024 and an operational outlook for 2025. 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.
Good morning, and thank you for joining us today for our fourth quarter and full year 2024 earnings call. I would like to begin by recognizing the courageous and dedicated teams at our hotels in Southern California and extending our thoughts and prayers to everyone impacted by the recent wildfires. We are fortunate that our hotels did not sustain any material damage and have remained open and operational. As recovery from the fires moves forward, we will continue to support the ongoing efforts of our operating teams to care for guests, associates and their surrounding communities.
As expected, travel trends across our portfolio remained strong during the quarter. Driven by steady improvement in business transient demand, continued strength in leisure travel and muted supply growth, we achieved comparable hotels RevPAR growth of approximately 3% for the fourth quarter and more than 1% for the full year as compared to the same periods of 2023, respectively, driven by improvements in both ADR and occupancy. While business travel continues to be the primary driver of overall growth for our portfolio, leisure travel demand has been resilient. Contributions from recent acquisitions, along with continued strength in ADR and moderating expense growth, enabled us to achieve strong bottom line performance for the quarter, lifting full year 2024 results.
Fourth quarter adjusted EBITDAre was up approximately 7% and modified funds from operations was up approximately 6% as compared to the fourth quarter of 2023. In January, strong performance from our hotels in the broader L.A. and D.C. markets offset weather-related disruption elsewhere. Our L.A. hotels have continued to perform well in February, and we anticipate that incremental demand from insurance and reconstruction efforts will continue to bolster performance for several of these hotels at least through the first quarter.
Supply-demand dynamics for our business continue to be favorable. At the end of the fourth quarter, approximately 55% of our hotels did not have any new upper upscale, upscale or upper mid-scale product under construction within a 5-mile radius. We continue to believe that limited supply growth in our markets materially improves the overall risk profile of our portfolio by both reducing potential downside and enhancing the upside impact of variability in lodging demand relative to past cycles.
Supported by our strong operating performance, we continue to pay an attractive dividend. During the fourth quarter, we paid distributions totaling $0.24 per common share, bringing our annual payout to approximately $244 million or $1.01 per common share. Based on Friday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 6.5%. Together with our Board of Directors, we will continue to monitor our distribution rate and timing relative to the performance of our hotels and other potential uses of capital.
Our disciplined approach to capital allocation and portfolio management has defined our strategy throughout our history and was especially evident in 2024. During the year, we acquired 2 hotels for $196 million, sold 6 hotels for more than $63 million, repurchased approximately $35 million in common shares and reinvested $78 million in our existing portfolio through capital expenditures. While the transaction market continues to be challenging with industry deal volume remaining at historical lows and down meaningfully year-over-year, we have successfully executed on select asset sales in ways that continue to optimize our portfolio concentration in specific markets. Proceeds from these sales were used primarily to fund share repurchases and reduce debt.
During 2024, we sold 6 hotels to 5 separate buyers, including 122-room Hampton Inn and 126-room Homewood Suites in Rogers, an 82-room SpringHill Suites in Greensboro, a 90-room Courtyard in Wichita, a 97-room TownPlace Suites in Knoxville and 117-room Hilton Garden Inn located in Austin North for a combined sales price of more than $63 million. More recently, in February of this year, we completed the sale of the 76-room Homewood Suites in Chattanooga for approximately $8 million, and we are under contract to sell our SpringHill Suites in Fishers, Indiana for nearly $13 million.
While pricing for the individual hotel varies, as a group, the 8 hotels will trade at a sub-7% cap rate or 12.4x EBITDA multiple before CapEx and a 5.2% cap rate or 16x EBITDA multiple after taking into consideration the estimated $24 million in required capital improvements. It is noteworthy that shares repurchased during 2024 were priced at around 1.5x spread to recent dispositions and over a 5x EBITDA multiple spread after taking into consideration required capital investments.
Recent acquisitions continue to contribute positively to our overall portfolio performance. The 7 hotels acquired since June of last year and opened for the full year produced an unlevered 9% yield after CapEx on a trailing 12-month basis with continued upside. Our SpringHill Suites in Las Vegas yielded 10.5% after CapEx for the full year and the AC in Washington, D.C. yielded 8% despite a softer fourth quarter which was anticipated due to the presidential election. The recently opened to Embassy Suites in Madison underperformed our expectations in the fourth quarter, weighing on overall portfolio results, as securing group business proved challenging during a period of seasonally low occupancy for the market. We continue to believe in the long-term potential of this asset and the Madison market more broadly. The hotel management team is working hard to optimize near-term performance and the booking position is looking more favorable beginning in the second quarter.
We continue to actively underwrite additional opportunities and are well positioned to act where we can achieve attractive yields relative to other capital allocation opportunities. We have 1 hotel under contract for purchase, a Motto by Hilton which is under construction in Downtown Nashville for approximately $98 million. The asset is being developed under our fixed price contract, and we anticipate acquiring this hotel upon the completion of construction late this year.
Since the onset of pandemic, we have completed approximately $325 million in hotel sales with an additional $13 million under contract and expected to close during the first quarter of this year. And we have invested $1 billion in new acquisitions while maintaining the strength of our balance sheet. These transactions have further enhanced our already well-positioned portfolio by lowering the average age, lifting overall portfolio performance, helping to manage near-term CapEx needs, increasing exposure to high-growth markets and position us to continue to benefit from near-term economic and demographic trends.
Our recent acquisition and disposition activity, along with our 2023 share issuance and recent share repurchases highlight our ability to adjust tactical strategy to account for changing market conditions and underscore our track record of acting on opportunities at optimal times in the cycle to maximize total returns for our shareholders. We actively seek opportunities to further optimize our portfolio, drive earnings per share and maximize long-term value for our shareholders.
During 2024, we invested approximately $78 million in capital expenditures, and we expect to spend between $80 million and $90 million during 2025 with major renovations of approximately 20 of our hotels. These reinvestments in our portfolio are a key component of our overall strategy and ensure our hotels remain competitive in their respective markets to further drive EBITDA growth. Eleven of the anticipated projects this year are part of multiyear franchise extension agreements. Our experienced team utilizes advantages of scale, ownership to control costs, maximize impact of dollars spent and implement projects during periods of seasonally lower demand to minimize revenue displacement.
As we begin 2025, we are confident that with our portfolio of high-quality rooms-focused hotels, broadly diversified across markets and demand generators, the strength of our brands and effectiveness of our management companies, the stability and flexibility provided by our balance sheet and the depth and experience of our corporate team, we are exceptionally well positioned for the future. Current fundamentals for our business are strong. Barring unanticipated macro events, we believe that operating performance should continue to improve with the greatest opportunity coming through steady growth in midweek occupancy and rate.
Leisure travel has proven resilient, supporting the observed consumer shift towards experiences. The past several years have provided opportunities for us to demonstrate both the strength and stability of our business and the capabilities of our team. I am confident in our ability to produce strong returns for investors over the coming years.
It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and annual guidance.
Thank you, Justin, and good morning. Before I begin, I would like to echo Justin's comments acknowledging the teams at our hotels in Southern California for their active service and unwavering hospitality during and following the recent wildfires. They have gone above and beyond to care for our guests, their fellow team members and their surrounding communities. Our hearts go out to everyone impacted.
We are pleased to report another strong quarter and year for our portfolio of hotels. Comparable hotels total revenue was $329 million for the fourth quarter and $1.4 billion for the full year, up approximately 4% and 2.5% as compared to the same period of 2023, respectively. With continued strength in leisure demand and additional recovery in business demand, fourth quarter comparable hotels RevPAR was $109, up approximately 3%. ADR was $153, up approximately 1%. And occupancy was 71%, up 2% as compared to the fourth quarter of 2023.
For the full year 2024, comparable hotels RevPAR was $119, up more than 1%. Comparable hotels occupancy was 75%, up approximately 1%. And comparable hotels ADR was $159, up approximately 1% as compared to 2023. As anticipated, October was our strongest month during the quarter with year-over-year comparable hotels RevPAR growth of 4%.
During the quarter, our Seattle properties in Renton and Tukwila were negatively impacted by temporarily reduced inbound training and consulting business associated with Boeing disruption. Our Nashville, Atlanta and Denver assets also experienced weaker year-over-year performance during the quarter, due in large part to recent supply growth and less robust group in event calendars.
During the quarter, we saw meaningful year-over-year growth at our recently acquired Downtown Salt Lake City hotels, which benefited from strong event and convention calendars. Our Embassy Suites in the South Jordan submarket of Salt Lake City also saw significant year-over-year growth due to strengthening group and business demand in market. Other top-performing hotels included our 2 South Bend hotels, which benefited from Notre Dame football games, our hotels in Tampa and Orlando, which saw increased demand from Hurricane Milton and Helene-related business and our Houston West Energy Corridor hotels, which saw a meaningful increase in corporate negotiated business.
Preliminary results for the month of January 2025 show a slight improvement in comparable hotels RevPAR as compared to January 2024 driven by growth in ADR. During the month, strong performance from our L.A. and D.C. hotels offset travel disruptions elsewhere in our portfolio, largely related to uncharacteristic extreme winter weather in many of our Sunbelt markets, and portfolio ADR growth offset modest declines in occupancy. Many of our L.A. hotels have continued to see fire-related recovery business in February. And as Justin mentioned, we believe we will continue to have some related business through at least the first quarter.
Looking at the remainder of the quarter, day-of-week shift should help compensate for one fewer day in February and March will benefit from the Easter holiday shift into April. New Orleans, which benefited from the Super Bowl in February, is anticipated to benefit from Mardi Gras in March of this year.
Looking at day-over-day trends, improvements in leisure and business travel contributed roughly equally to fourth quarter improvement in occupancy year-over-year. Weekday occupancy was up every month during the quarter with October up 1.6% and November and December up 4.2% and 3.6%, respectively. Weekend occupancy varied with October up just over 1%, November essentially flat and December up almost 10% as compared to the same periods in 2023. Weekday rate growth for the quarter was fairly consistent with October and December approximately 2% and November up just over 1%.
Weekend ADR was down 1% in October and almost 2% in November, but up almost 4% in December. Weekday ADR continues to lag weekends, representing meaningful upside as midweek demand continues to strengthen, positioning us to move rates higher.
Same-store room night channel mix quarter-over-quarter remained relatively stable with brand.com bookings at 41%, OTA bookings and property direct at 13% and 23%, respectively, and GDS bookings representing 17% of our mix. Fourth quarter same-store segmentation was largely consistent with the fourth quarter of 2023. Bar remained strong at 33%. Other discounts represented 31% of our occupancy mix. Group was 14%, government was 5%, and the negotiated segment represented 17% of our mix. On a comparable basis, we continue to see growth in other revenue, which were up 16% during the quarter. Food and beverage revenues also improved 5%.
Turning to expenses. Comparable hotels total hotel expenses increased by approximately 5% for the fourth quarter and approximately 4% for the year as compared to the same periods of last year or 2% on a CPOR basis for both the quarter and the full year. Total payroll per occupied room for our same-store hotels was $41 for the quarter, up only 1% to the fourth quarter 2023. Contract labor decreased during the quarter to 7.3% of total wages and was down 250 basis points or 23% versus the same period in 2023. Comparable hotels utilities were up 6% as were hotel administrative expenses and sales and marketing expenses.
While more variable expenses were well controlled, fixed expenses were particularly challenging with real estate taxes up 11% during the quarter and property insurance costs up largely due to a challenging year-over-year comparison with losses under our deductible at several properties in the fourth quarter of this year. For the year, comparable hotels variable expenses increased 4% or just over 2% on a CPOR basis. Property taxes, insurance and other, which was up only 1.2% for the year, benefited from decreases in property insurance premiums year-over-year and several onetime real estate tax benefits, creating a challenging comparison as we look forward to 2025.
We achieved comparable hotels adjusted hotel EBITDA of approximately $108 million for the fourth quarter and $509 million for the full year, up approximately 3% to the fourth quarter 2023 and up slightly as compared to the full year 2023. We are especially pleased with our comparable hotels adjusted hotel EBITDA margin of 32.9% for the fourth quarter and 36% for the full year, down only 40 basis points and 70 basis points, respectively, as compared to the same period of 2023, which has consistently exceeded our expectations.
Adjusted EBITDAre was approximately $97 million for the quarter and $467 million for the full year, both up approximately 7% as compared to the same period of 2023, respectively. MFFO for the quarter was approximately $77 million and for the full year was $389 million, both up approximately 6% as compared to the same period of 2023.
During the quarter, we paid distributions totaling $58 million or $0.24 per common share, bringing our annual payout including the special dividend paid in January of 2024 to approximately $244 million or $1.01 per common share.
Looking at our balance sheet. As of December 31, 2024, we had approximately $1.5 billion of total debt outstanding net of cash, approximately 3.1x our trailing 12-month EBITDA with a weighted average interest rate of 4.7%. At quarter end, our weighted average debt maturities were approximately 3 years. We had cash on hand of approximately $10 million, availability under our revolving credit facility of approximately $568 million. Approximately 75% of our total debt outstanding was fixed or hedged and the number of unencumbered hotels in our portfolio was 207. We have 4 mortgage loans totaling approximately $64 million that will mature this year and term loans totaling $225 million that will mature in the third quarter. We have begun conversations with our lenders and believe we are well positioned to address these maturities.
Turning to our outlook for 2025 provided in yesterday's press release. For the full year, we expect net income to be between $173 million and $202 million, comparable hotels RevPAR change to be between 1% and 3%, comparable hotels adjusted EBITDA margin to be between 34.2% and 35.2% and adjusted EBITDAre to be between $447 million and $471 million.
While our asset management and hotels teams are working diligently to mitigate cost pressures, we have assumed for purposes of guidance that total hotel expenses will increase by approximately 4.2% at the midpoint. These increases are driven by higher growth rates for certain fixed expenses including real estate taxes and general liability insurance than those experienced last year and have included approximately $2 million of incremental expenses related to brand conferences, which occur every 18 to 24 months. In addition, the low end of our adjusted EBITDAre guidance assumes a $2 million loss related to Hotel 57.
This outlook is based on our current view and does not take into account any unanticipated developments in our business or changes in the operating environment nor does it take into account any unannounced hotel acquisitions or dispositions. The low end of our range reflects more modest lodging demand growth and a slight pullback in leisure demand, offset by continued improvement in business transient. The high end of the full year range reflects relatively steady macroeconomic conditions throughout 2025 with continued strength in leisure demand and improvement in business transient, a portion being driven by extended fire-related business in our L.A. market hotels.
As we begin 2025, we are confident we are well positioned for continued strong operating fundamentals and bottom line performance. The operating environment is relatively stable with favorable supply-demand dynamics. Our recent capital allocation activity has enabled us to drive incremental value for shareholders, and our balance sheet continues to provide us with meaningful optionality. Our differentiated strategy has proven resilient through economic cycles, enabling us to preserve equity value in challenging environments and to be uniquely positioned to enhance value through opportunistic transactions when market conditions are more conducive.
Our team works diligently to maximize the performance of our existing portfolio while staying ready to take advantage of market shifts and opportunities to further strengthen returns for our shareholders.
That concludes our prepared remarks. We would now be happy to answer any questions you have for us this morning.
[Operator Instructions] Our first question comes from Dori Kesten with Wells Fargo.
You've mentioned a challenging comparison for 2025 fixed cost versus '24. If you were to normalize for that, what operating expense growth have you assumed in your '25 guidance?
Dori, yes, so for guidance for 2025, we do have a challenging fixed cost expense comparison. We had several onetime tax benefits as well as decreased property insurance premiums throughout 2024. If you take the onetime benefit of around $2.7 million in 2024 and you assume some benefit but not as much in 2025, plus you have an incremental addition with Madison, you're around a $3.2 million hurdle year-over-year. Normalizing for that, it's about a 5% assumed increase to property taxes.
And so I think as you think about where that would put us overall, it would be certainly less than what we have in the full guide for this year. I mentioned in my prepared remarks, with the increase baked in for fixed expenses at the midpoint, you're at 4.2% for total hotel expenses. That had variable expenses outside of fixed cost around 3.5%. So certainly, you'd be less than 4% without those fixed cost hurdles.
Okay. And then you've been selling relatively small hotels in tertiary markets with probably outsized CapEx versus their upside. What percentage of your portfolio would you describe in that similar way today? And then just who is the natural buyer for these assets that you found?
So to answer the first part of the question, between 7% and 10% likely of our portfolio would fit in a similar category. Certainly, we have prioritized assets for both strategic and tactical reasons. Strategic, I think you highlighted in markets where we see limited upside and we have near-term CapEx needs. And then tactically, we have found that we're able to create a more competitive bidding process around smaller assets within our portfolio, where the total deal size is reasonable and approachable for local owner-operators who have been the primary bidders on those. As a result, we're able to create a competitive bidding process.
And as I highlighted in my prepared remarks, we're able to achieve strong sales price and dispose of assets at low cap rates, which positions us to redeploy proceeds in an accretive fashion and grow overall value for our shareholders. I think we've shown over the past several years a willingness and an ability to pivot and to adjust our acquisitions and disposition strategy according to changes in the market or to take into consideration changes in market conditions. That is the portion of the market that's the most active today. But as we move through the year, that could change, and we'll adjust from a strategic standpoint accordingly.
Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets.
Liz, I think I've asked you this in the past, but going to ask you again. You'd referenced that midweek ADR continues to be meaningfully below weekend ADR. How close are you to reaching an occupancy level midweek where you kind of cross that threshold that gives you the ability to push on rate more meaningfully?
We're certainly getting closer and we've seen some of it. I think the more we are able to drive that compression midweek, we're able to mix manage, and that's preferencing higher-rated negotiated business and certainly preferencing bar rates that can be pushed higher by that additional compression. We're -- this time of year is not our strongest from an occupancy perspective.
But as we were rounding out last year, we were still looking back over a more extended period of time. We probably still had 5% to go overall relative to prepandemic levels where we really got that compression and ability to grow rate. So still an opportunity but have continued to shrink the gap as we move through last year, and certainly believe as we continue to our higher occupancy months, we'll continue to see that opportunity.
That's helpful. And then switching gears. Justin, you referenced the transaction market remains challenging but somewhat of a bit spread. Curious what you think narrows it. And to the extent that it remains wide, I mean, how aggressive are you willing to get cobbling together some of the smaller portfolios and redeploying those proceeds into buying back shares of your stock?
An interesting question, certainly. Our preference with the types of assets we've been selling recently would be to put them together in a portfolio and to sell them as a group, certainly a much more efficient way to transact with some of the smaller assets. The reality is today, we would not be able to maximize value in a transaction -- a scale transaction of that kind, meaning that there are fewer bidders interested in portfolios. And those who are less aggressive in bidding for those portfolios than there are for individual assets.
And as a result, we've customized our strategy, our tactical strategy based on the environment as it exists. And as you've been able to see, we've executed very successfully on a portfolio of assets through individual transactions. I think as we move through the year, our expectations are that things could change. I know a number of our peers have highlighted on their calls, and we also believe that the debt markets are relatively open, meaning that debt financing is fairly readily available, albeit more expensive than it has been historically. And importantly, loan-to-value is meaningfully lower than it was when we saw the last peak from a transaction volume standpoint.
And so when we look at cost of capital for various buyers, and specifically, the private equity buyers who tend to pursue portfolios, combined with some general uncertainty about the long-term direction of the space, it's been harder to achieve premium valuations either on larger assets or on portfolios. I think -- you asked what might change that. I think continued reductions in overall interest rates would certainly be helpful and/or a more meaningful reacceleration in terms of fundamental performance for the industry as a whole. And I think the opportunity exists for either or both of those to happen as we move through the year. And certainly, we're -- we would position ourselves accordingly in that environment.
Our next question is from Jay Kornreich with Wedbush Securities.
Just curious of your thoughts for -- on the guidance RevPAR growth of 2% in 2025. If there's any opportunity to outperform that, do you see that coming more from the midweek business transient demand picking up or weekend demand continue to stay elevated? And are you able to provide any kind of cadence as to how you see quarterly RevPAR shaping up throughout the year?
Jay, it's a good question. I think we have continued to articulate our belief that we have opportunity midweek from an occupancy perspective. And again, as Austin asked, with that occupancy we believe there's ADR opportunity. That's where we have the gap to prepandemic levels. And from a leisure perspective, we're continuing to outperform generally. And I think while there was some normalization, as the industry liked to refer it to, with leisure last year, there's still an opportunity that, that could outperform this year given that normalization last year and the fact that it's remained strong overall.
So I think the opportunity to outperform comes from both business and leisure, though as we look at tactically what we're seeing and what we're anticipating, it's more of the midweek growth at the midpoint of our guidance range. And then as we think about cadence, it's a slow start to the year. While we do have benefit from the L.A. properties, we've been impacted in January, in particular, by weather-related events. Some of that has spilled over into February as well, but really January was a tough start for the portfolio outside of L.A. Thankfully, we have L.A. to help compensate for that some.
But we believe we'll continue to benefit as we move throughout the year from a RevPAR growth perspective. Also, as we progress our Madison Embassy, which we acquired and which opened in June of last year, we'll have more time to ramp as we progress through the year.
Our next question comes from Floris Van Dijkum with Compass Point.
Justin, I'd love to -- I mean, I sometimes think that you don't get the credits in terms of capital allocation that you perhaps deserve. You've clearly been leaning more into the -- in some of your urban markets. You've got another, call it, is it 7% to 10% of your hotels that you could look to sell, accretively redeploy those. Where do you think you're going to be redeploying them -- capital? Is it more urban? Is it more suburban? And how is that mix shifted? Maybe if you can talk how the portfolio looked in 2020 between urban and suburban and how do you see that trending over the next 3 to 4 years.
Absolutely. So in terms of immediate opportunity for redeployment, I think we've demonstrated that the most attractive opportunity for us recently has been share repurchases. Certainly, we monitor that. And as we underwrite any type of acquisition, whether it's existing or new development, we consider that opportunity relative to an opportunity to redeploy into our own shares, which we see as being tremendously valuable.
I think when you think about the overall makeup of our portfolio from an EBITDA contribution, and some of this has shifted as we've seen continued improvement in the performance of urban markets, we're roughly 40%, just under 40% urban today, and when you look at number of hotels, roughly 30%. Remembering that a number of our urban hotels are larger, so have more keys. And certainly, when we think about overall EBITDA contribution per hotel, they're larger individual contributors. That is a mix that continues to feel comfortable for us.
And while we have recently seen in some of our urban markets strong relative performance, we continue to see strong performance in a number of our suburban markets as well. And I think it has been our long-term strategy to be broadly diversified with exposure to markets where we see the potential for outsized growth. The reality is that over an extended cycle, that requires us to be present in a mix of markets. And we have found that over several decades in the industry, having a healthy mix of strong suburban markets combined with urban markets has created both the best opportunity for stability in our portfolio and the best potential for long-term growth.
Maybe if I have a follow-up for Liz, Liz, the $295 million of debt that matures this year, I think the 10-year has dropped almost 50 basis points over the last month. Would you -- where would you borrow at today for 5- or 10-year money? And would you consider prefunding some of those maturing loans today and use the cash to get some nice interest?
The term loans in particular that come due are at favorable pricing. I do think there could be an opportunity as we recast that. That's the majority of what you mentioned, the $225 million of the total that you mentioned. We're beginning those conversations now. So I think your question is reasonable. We'll look at timing and interest savings as we move forward towards that maturity.
The secured debt is a little trickier. Those certainly were longer-term debt placements and they had very attractive interest rates. Those will be trickier to replace at certainly a lower interest rate than where they were. We also have a few swaps maturing that we'll manage as well. And some of that interest savings is not currently baked into what is provided in the implied guidance. There could be some upside there.
And in terms of the term of debt that you would look to put on, is it 5 -- extend the maturities or 5 years or something like that? Is that the right way to think about it?
Certainly, I would love 5 years. I think the market -- the term loan market in particular, there, we'll explore all options. The term loan market in particular has been a little bit tighter than 5 years as of late. I think things are starting to improve. And so again, in conversations there, but certainly would love to approach 5 years. But we'll see as we continue to progress in our conversations with the lenders.
Our next question comes from Michael Bellisario with Baird.
I got a few questions for you. Just first on operating expenses and sort of looking ahead, maybe help us understand like what are your operators doing differently or maybe better in 2025 to offset some of the above inflationary growth that you referenced. And then sort of when you step back, how much of the P&L is actually kind of "controllable" versus noncontrollable?
When I'm giving broad ranges, when I say variable, I'm really speaking about everything outside of property taxes, insurance and other. And as you're alluding to, not all of that is perfectly variable because we certainly have salaries and overheads and things like that, that are included. So it's not perfectly variable. What I will say with that is that as we improve occupancy, our cost on per occupied basis improves. And so that's really how we're looking at our guide for 2025.
If you look at where we finished the year, on a cost per occupied room basis for variable expenses, we were at 2.3% growth from a comparable standpoint. And at the midpoint, we're slightly higher than that. So that would account for some general inflationary pressures, but reasonable as we think about what we're guiding relative to the top line. But where we're seeing the big meaningful increase on a per occupied room basis is really this fixed expenses.
Anything different that your operators are doing or targeting for 2025?
I think we continue to leverage our extensive benchmarking that we have and are constantly looking for opportunities. I think we have seen decelerating wage pressure as we move throughout last year. I think that, that has stabilized. But I think productivity as we're reducing contract labor is something our managers continue to focus on, and then beyond that, all controllable expenses. I think the team has done a really good job there so it's always hard to anticipate more. That's really where, I think, some of our -- while we did outperform last year from a fixed expense perspective, the variable expense management was very strong as well. And I think we continue to look for outliers from a performance standpoint in our portfolio and learn best practices...
[Technical Difficulty]
Our speakers disconnected. Please stay on the line. We'll be back momentarily. Please remain on the line. Our speakers will be calling back in. Thank you.
Okay. Our speakers are back.
Apologies.
Mike, can you hear us now?
I got here.
Okay. Where did you lose us?
I think we're good on the operating expense. I can move to my next question. Just for Justin. When you guys do your analysis of sort of buy versus sell and you're triangulating values, maybe give us the lay of land. How have real estate values maybe changed over the last 90, 120 days both from the buy and sell side, from your perspective?
It's interesting to try to identify broad-reaching trends in an environment where there are so few transactions happening. As I highlighted in response to one of the earlier questions, where we have seen the greatest activity are around smaller hotel assets, and the most interested buyers of those assets are local owner-operators. And part of that, I think, is an ability to create stories around those. I highlighted in my prepared remarks that we've been able to dispose those assets at very low cap rates. Applying those cap rates to our entire portfolio would produce a very strong value.
The challenges that in today's market, as I highlighted to an earlier question, is that there isn't really a large portfolio bid today. And so extrapolating from individual transactions to large-scale value is a little bit tricky. And in fact, when we've been trading at higher values and have been more aggressive on the acquisition side, I've highlighted that we've been able to acquire larger assets at discounts to where we feel their long-term value is. Our expectation is that as we move through the year, the market is likely to open, and we're in that type of environment in a better position to peg an industry clearing price for assets.
But absent that, my sense is that values for real estate have remained stable in the hospitality space. And for particular assets, whether driven by a lack of desire on the seller's part to sell those assets or recent strong performance from those assets, assets in many markets have grown in value. Now I think that is a belief currently unsupported by transaction volume that would be sufficient to assure that, that would always and, in every instance, be the case. But certainly, I think, evidenced by the fact that those with assets that are performing well are unwilling to sell for -- generally for prices that are below where they would have anticipated trading on those assets several years ago and, in most cases, so our expectations have increased.
Fair enough. And then just throwing one follow-up there. It looks like aging CapEx as sort of the main drivers of what you're selling. Any other major factors that you're considering? And then maybe also, when does the more broadly challenging fundamental outlook become a bigger driver of an asset sales plan?
I think there are strategic and tactical elements to our disposition strategy. And from a strategic standpoint, as we look at our portfolio, the primary driver really is trajectory of the individual market, with the secondary driver being our positioning within that market, either location or asset within that market. I think from a tactical standpoint, what you've seen recently is us focused on smaller assets in more tertiary markets. That's because we can transact those assets and achieve what we see as favorable pricing in today's environment.
To the extent the market broadens, you'll see more colors of that same strategy as we look more broadly at the portfolio and potentially take chips off the table in some markets that have performed well but may have lower expected growth trajectories on a go-forward basis. And as I highlighted earlier, I think while we will always pursue transactions in a way that we feel optimizes the value of those transactions, ideally, long term, we're in a position to pool assets and to maximize value through portfolio trades. That is where we have seen the greatest success historically and certainly opens us up to move the portfolio more meaningfully, meaning our owned portfolio more meaningfully through scale transactions.
Our next question comes from Aryeh Klein with BMO Capital Markets.
Maybe just following up on the transaction discussion. If you weren't perhaps constrained by deal sizes for transactions, what percentage of the portfolio will you consider noncore versus that 7% to 10% you highlighted earlier? Or does that 7% -- 7% to 10% inclusive of all the assets you might do as non-core?
I'd say that is inclusive of the assets that we would consider noncore today.
Okay. Got it. And then maybe just on the RevPAR guide. Just curious, as it relates to the mix of occupancy and ADR growth that is embedded in that guidance.
Could you repeat the question?
Just as it relates to the RevPAR guidance, curious on the mix of occupancy growth versus ADR growth that's embedded in that RevPAR guidance for '25.
It is a mix between the two. I mean, it is some occupancy growth where we're able to capitalize and drive additional ADR. So it's truly a mix between the two.
[Operator Instructions] Our next question comes from Chris Darling with Green Street.
Liz, just a quick one. I may have missed it earlier, but what's your outlook for wage and benefit growth this year?
Somewhere between 3.5% and 4% specifically around wages, understanding that when we look at total variable costs and we look at what we're implying there at the midpoint from a growth rate perspective, we're assuming some additional benefit from reduction in contract labor as well.
Okay. Helpful. And then, Justin, going back to maybe the supply backdrop across your markets, just digging a little bit deeper. I understand there's little in the way that's under construction broadly. But what about projects in the planning process, anything that might come out of the ground in the near term? Just wondering if you're seeing any changes sort of holistically one way or the other.
We have not seen any indicators that there would be near-term shifts. Certainly as we look at pipelines, and we're in continual communication with the brands about potential deals in markets where we have ownership, the fact that fewer deals are beginning construction means that even with fewer new deals being signed up, the pipeline has the potential to grow relative to what would naturally occur or would have occurred in past cycles where we saw more natural flow from planning to construction starts. Obviously, that varies by market. And we have seen outsized new construction in some markets being broadly diversified. The majority of our markets still don't have any new projects under construction within a 5-mile radius.
And given time from construction start to completion being at a minimum 18 months but very often 2 to 3 years, that gives us a lot of runway in most of our markets without any exposure to new supply. It will be interesting to see how those numbers develop over time. Certainly, as the brands have announced new brand offerings, we see a flurry of signings. And you'll see a number of deals enter the pipeline in early planning or planning stages. But we have not seen a material increase in construction starts as a result. And I think the primary impediments continue to be cost relative to income potential from the targeted developments. I think Green Street maybe over a decade ago put out a piece that argued there were no such thing as high barrier to entry markets, only high-cost markets.
And I think what we see today is that in many markets that would historically have been viewed as low barrier to entry, the fact that construction costs have universally increased and very often at a pace faster than the potential profitability of the developments has increased, has created a natural impediment to supply growth. That I think gives us room in many markets to continue to benefit from incremental demand growth in ways that we would not have in past cycles. And for that reason, really, in my prepared remarks, I highlighted that we feel the risk profile especially for the types of assets that we own has shifted dramatically, meaning that as we continue to see improvement in demand, we will see outsized benefit from that relative to what we would have seen in past cycles.
And on the flip side, to the extent there were to be a pullback in demand, the negative impact would be muted relative to what we've seen in past cycles where historically we saw a lot of new supply come online at the least opportune time in the cycle.
Okay. Makes sense. I guess transitioning to a market where maybe that income relative or potential income relative to cost formula might actually make sense, Las Vegas, anything new you can share in regards to the development parcel there? And I think maybe more importantly, given where your cost of capital is today, how would you think about potentially starting on balance sheet a project like that in today's environment?
So two things. One, we continue to work with a potential developer for the asset development there. We are working through various plans and cost structures and continue to underwrite. I think, as has been the case historically, it would not be our intention to build on balance sheet. And so as we're thinking about cost of capital relative to a Vegas development, we're forecasting essentially cost of capital at the time of acquisition, which would be 2 to 3 years in the future. We're still a ways from starting but I think advantaged in that case from an overall cost structure by the fact that we own the land.
And so -- and the 10.5% return that I highlighted earlier includes the value that we paid for the land. And so as we think about total development costs, we're advantaged relative to those who might be getting into the market fresh. And even with that, it's not -- and even with the overall strength of that market, it's not an easy decision. And we're getting into a lot of detail with the developer on ways we can make sure we maximize on the opportunity while doing so at a price point that ensures we'll achieve the strongest returns during our hold.
We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Justin Knight for closing comments.
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