Ladies and gentlemen, greetings and welcome to the Apple Hospitality REIT Third Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Clarke, Vice President, Investor Relations. Please go ahead.

Thank you and good morning. Welcome to Apple Hospitality REIT’s third quarter 2022 earnings call. Today’s call will be based on the earnings release and Form 10-Q, which we distributed and filed yesterday afternoon. Before we begin, please note that today’s call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks, uncertainties and the outcome of future events that could cause actual results, performance or achievements to materially differ from those expressed, projected or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including our 2021 annual report on Form 10-K and speak only as of today. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday’s earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit applehospitalityreit.com. This morning, Justin Knight, our Chief Executive Officer and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the third quarter 2022. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin.

Good morning and thank you for joining us today. As we approach the end of 2022 and think back over our accomplishments this year and since the onset of the pandemic, we are incredibly grateful for the quality and dedication of our corporate team and for our relationships with best-in-class brands and management companies. We have executed against a straightforward strategy since our inception through multiple economic cycles over two decades. While we are mindful of the potential headwinds ahead of us, we remain confident in the merits of our investment strategy, the strength of our portfolio of hotels and our ability to outperform and maximize shareholder value in any macroeconomic environment. Demand trends for our portfolio remain positive. And with the backdrop of historically low supply growth, the lodging industry and our portfolio specifically are poised for a countercyclical recovery. Top line performance for our portfolio was our strongest since the onset of the pandemic, with third quarter RevPAR of approximately $120, up 19% as compared to the third quarter of 2021 and up 8% as compared to the third quarter of 2019. With the shift in consumer spending towards experiences and more robust business travel boosting midweek demand, we continue to see occupancy rebound. Occupancy for the quarter was strong at 76%, up 6% to 2021 and down only 5% to 2019. Strong occupancy allowed our hotels to mix, manage and push rates. ADR for our portfolio was $158 for the quarter, up 13% to the third quarter of both 2021 and 2019. Positive business and leisure demand trends continued post Labor Day, with September RevPAR, up 12% to 2019 and our October occupancy of approximately 78% at rates that continue to surpass pre-pandemic levels. We are confident there is additional upside for our portfolio as corporate travel…

Thank you, Justin and good morning. Top line performance for the third quarter continued to be strong with total portfolio revenues of approximately 23% to prior year and 3% to the third quarter 2019. RevPAR growth for the quarter was driven primarily by ADR, which improved 13% to the same period in both 2021 and 2019. Occupancy was up meaningfully to 2021, but came in approximately 5% lower than the third quarter of 2019. While the gap to 2019 occupancy widened to approximately 8% in August, September occupancy was down only 2% to 2019. Preliminary results for October show continued strength in demand with occupancy increasing to 78% and RevPAR growth relative to 2019 trending in line with results for the third quarter, bolstered by another month of double-digit ADR growth as compared to October of 2019. We are now consistently producing top line results above pre-pandemic levels with meaningful upside remaining in our portfolio. While we expect occupancy in November and December to be lower than October, consistent with historical seasonality for our portfolio, booking data through the end of the year remains strong and we anticipate we will continue to produce RevPAR ahead of 2019 through the remainder of the year. Recent performance reflects both continued strength in leisure and a meaningful recovery in business demand. July, August and September weekend occupancies were 82%, 79% and 81% respectively. Weekday occupancy remained stable around 74% during the quarter, down less than 9% on average to 2019. As we entered the fourth quarter, October weekday occupancy notably improved over September, surpassing weekday occupancy in July and further shrinking the gap to 2019. Weekday ADR for the quarter was $153, up nearly 6% to 2019 rate levels. As we look at demand segments and business transient trends, travel patterns are beginning…

Thank you. [Operator Instructions] Our first question comes from the line of Austin Wurschmidt from KeyBanc Capital Markets. Please go ahead.

Hey, good morning, everybody. Liz, with respect to expenses, I guess, how much expense do you think you can take out of wages and benefits as you reduce contract labor and look to hire more permanent staff and sort of limit turnover, and I’m just curious, how long do you think that could take? And do you think that you can see hotel EBITDA margins, probability reaccelerate versus the comparable periods in 2019?

Good morning, Austin. So you asked a fully loaded question there. The labor market is very dynamic. There are a lot of moving pieces. Obviously, there are even broader macroeconomic impacts to what may happen in the future related to wage growth, particularly and what may happen with unemployment long-term. But as we look at our results and dig in with our management companies on site as to where we have opportunity, I think the team is doing a really good job balancing labor needs with what’s available in market today. Unfortunately, we are having to use more contract labor. Historically, we have not had to use the levels of contract labor that we are today. And our management companies and our asset management team both believe that we will be able to reduce that over time. But it will take time. How quickly? That’s yet to be seen. I can tell you that everyone is working really, really hard to do that as quickly as possible and to attract and retain top talent in-house. Not only does that help with the overall wage rate levels. Contract labor is more expensive, can be 30% plus more expensive than in-house labor, but also it helps with productivity and it helps keeping morale up and keeping people motivated. And so I think everyone is trying to do that as quickly as possible. As we looked at the quarter, I think you can see, too, when you look at September margins relative to August, September improved. Part of that was we did see, broadly speaking, wage rates moderate, but also some improvement. I think whether – how long it will take to mitigate the overall impact of what we have going on from a labor perspective, we will see. We’re entering slower months…

And maybe putting a finer point on it, what percent of labor expense days contract versus where you’ve been historically at sort of the comparable occupancy, you’re at today?

We are probably over double where we have been historically from a contract labor perspective as a percentage of wages. So low double digits, probably is where we are right now.

Got it. That’s helpful. And then how much do you think weekday occupancy can continue to improve without losing some of the benefits of the leisure demand that you’ve enjoyed heretofore in the recovery? And that will do it for me.

I’m not confident that there is an inverse correlation there. I think our expectations are that we can continue to see improvement in midweek occupancies while maintaining a strong leisure business on weekends. I think certainly, many of our peers have spoken to the fact that business trips have been extended and from time to time, combined with leisure trips, which has helped to bid our shoulder nights, which were traditionally lower occupancy nights. But really, I think our expectation is that we will continue to see improvement in midweek Tuesday, Wednesday night occupancies and that with that improvement, will gain incremental pricing power and an ability to further drive top line. It’s also worth noting not every one of our markets has recovered evenly. Liz highlighted that over half of our markets are performing – of our properties are performing above 2019 levels. But we still have a number of markets that were slower to begin the recovery process, where we continue to see a meaningful pickup in overall occupancy, both weekend and midweek occupancy. And we anticipate that the continued improvement in those markets will further prop up the performance of our overall portfolio.

Great. Thank you.

Thank you. Our next question comes from the line of Neil Malkin from Capital One. Please go ahead.

Hi, everyone. Good morning. Thank for taking the questions.

Good morning.

Good morning.

Hello. So I guess the first one, Liz, maybe similar to Austin’s is, you talked about further upside in the portfolio in terms of occupancy as markets different – have been different cadences of recovery. But I think, obviously, everyone knows that it’s really a corporate issue, and that’s going to probably get you over the hump. It would seem like you would need the least amount of incremental growth in that travel segment to get back to pre-COVID occupancy. But can you maybe just help us understand the difference between what you’re hearing from like the local regional negotiated versus the sort of like coastal national publicly traded segment? Just maybe that will help us understand how you kind of like see it out there and maybe the cadence to get back to pre-COVID occupancy?

I think we have some of the conversations, particularly with our local negotiated accounts more directly than some of the corporate negotiated accounts and businesses that the brands negotiate directly with. I think the brands have spoken to positive rate growth conversations as well as volume and room night contribution conversations with some of the corporate negotiated accounts, with some industries moving forward more quickly than others with their rebound. I think as we approach ‘23, everyone understands the inflationary environment we’re in. So I think from a rate perspective, we’re in good shape from both local negotiated and corporate negotiated standpoint. From the occupancy side of things, we have started to see corporate negotiated accounts grow volume. Again, it depends largely by market and sector. But we have seen technology and financial services start to come back more recently, still not at pre-COVID levels, but we’ve started to see their volumes increase. I think the beauty of what has happened for our portfolio as a silver lining for the past couple of years is, we have broadened the reach of accounts that we work with, appealing to a wide variety of industries and demand generators broadly. And so as our individual hotel teams approach corporate negotiations, they are balancing high transient and bar volume with the benefit of somewhat negotiated rates for base business. And each market in each hotel will be different. But I think as Justin mentioned in his prepared comments, we so far from our management companies as part of the initial budgeting process, I believe we’re going to see future growth in 2023. And when you think about our expectation that we will continue to exceed RevPAR levels relative to 2019 through the end of the year if things continue the way our booking data shows it to be today that bodes well. I think incremental corporate negotiated recovery for our portfolio will only help further accelerate our growth. But I think we’ve shown with our performance relative to 2019 to date, an ability to grow midweek occupancy steadily as some of the corporate negotiated comes back but also filling in with other accounts and incremental bar business as well.

Okay. I appreciate all that insight. Liz. Justin, the other one I have is for you. You’ve been pretty vocal especially for you guys of the opportunities that you feel like are going to come. You think about a tough debt market, elevated maturities over the next 24 months, lenders aren’t going to keep taking it out, brands are kind of getting pits back or mandating that they do them in short order. And can you just maybe talk about the landscape for the transaction market? It looked like the two assets you acquired are I think, fairly lower cap rates than I would have thought just given the rise in interest rates, maybe those were put under contract earlier. But maybe just talk about generally how you see your opportunity set, again, next, call it, 12 to 18 months, just given the landscape I laid out, particularly with portfolio opportunities? Thanks.

Absolutely. And I’ll start with the second question first related to the cap rates for the new acquisitions. Important to note there is that we were highlighting trailing and 2019 cap rates. These are hotels that opened midway through ‘18. So we’re ramping in ‘19 and our expectations based on incremental ramp for those assets. and the fact that there are markets that have recently performed exceptionally well relative to ‘19 that we will, in the near-term, achieve yields in excess of 8%, which puts the performance of those hotels over time in-line with where we’ve been performing on our other recent acquisitions. Speaking to the acquisition market more broadly, I highlighted in my prepared comments that our expectation is the transaction volume will be down for the industry as a whole between now and the end of the year. That said, we continue to be active in dialogue with potential sellers of assets. And feel that a number of those conversations could yield fruit over coming months. But I think to the point you were making more broadly speaking, our expectation going into 2023, is that we will see a meaningful uptick in industry transaction volume with sellers coming to market as a result of refinancings and increased pressure from the brands around capital improvements. I think acquiring assets in an environment where sellers are motivated to sell assets is always a better place for us to be. And we have been, I think, very disciplined and targeted in our acquisitions throughout the pandemic and maintained our balance sheet capacity to become more aggressive at a point in time when deals were better priced and we could acquire assets in scale in a way that would further drive the performance of our shares over time.

Okay, thank you, guys. Nice quarter. Congrats on the beat.

Thank you.

Thanks, Neil.

Thank you. Our next question comes from the line of Floris Van Dijkum from Compass Point. Please go ahead.

Thanks for taking my question, guys. Your business is not typically known for it’s room driven. It’s not really known for food and beverage revenues, but I noticed your food and beverage revenues almost doubled for the quarter. Maybe if you can just talk a little bit about some of the ancillary revenue opportunities potentially that you see ahead?

Absolutely. So for us, food and beverage for our portfolio is driven in large part by performance of our full-service asset here in Richmond, the Richmond full-serve Marriott. And we did see a pickup at that hotel in food and beverage revenue, both from our restaurant and from increased meetings and catering business. Looking more broadly at our portfolio, I think the select service brands have curated a very efficient food and beverage offering that’s enabled us to grow revenues even at our select service hotels related to food and beverage. And we anticipate continued opportunity, both at the Richmond and Marriott and across our portfolio more broadly in that area. Looking at huge successes, though, we’ve been incredibly productive in generating parking revenues. And I think our efforts there began prior to the pandemic but we’ve seen continued improvement there, and that has helped to bolster other revenues. And then outside of that, we have worked with the brands to modify other on-site offerings to generate incremental revenue. But to the point that you made earlier, our primary revenue source is rooms, and we’re focused incredibly intently on our primary business and continuing to move room rates in ways that drive overall revenues for our portfolio.

Thanks. And maybe a question for Liz, you did give obviously some guidance in terms of G&A and interest expense for the fourth quarter. Presumably, your – I hope I think the market sort of expects you to resume earnings guidance for next year when you report your fourth quarter. Maybe if you can comment on that? And maybe also talk while the pricing, I love the refinancing of your balance sheet is in great shape. The grid appears the same, but there is another 10 basis points that the bank sort of snuck in there. Maybe that’s an extra just spread that they get or whatever. But maybe if you can comment a little bit on the pricing of debt and what you see happening there over the next 12 months?

Thanks, Floris. I’ll start with the guidance question. I think we have certainly a desire to be in a position to feel comfortable and confident issuing 2023 guidance. We will see what happens over the next few months here. But I think we’ve historically given guidance. Operations do seem to be more stable and booking data continues to be strong. So I think as we approach 2023, we would certainly have the intent to reestablish guidance just as we move forward, we still believe that there is some variability to the potential of outcomes, but certainly appreciate that the market would like some directional guidance. So we will cross that bridge as we enter 2023. Going to the second part of your question around the pricing of debt, yes, as we move from LIBOR to SOFR as part of the amendment, I think an industry-wide approach to making that transition was the 10 basis points so for adjustment. Over time, as bank debt moves away from LIBOR, and as is broadly relying on SOFR, I think we will see some of those spread adjustments dissipate and will get priced into the grid. But today, I think that, that was sort of a blanket approach to adjusting from LIBOR to so far. As far as the cost of debt over the next 12 months, I think the Fed has indicated that they will change how they are looking at their December announcement, maybe a more moderate increase to rates. I think right now, I think consensus is that they may take them up 50 basis points in December. And then should we be in a position to be able to start to moderate rates over time that, that’s what at least is getting signaled today. But we will see. I think the Fed also believed that the actions that they have taken to date would have had more of an impact. I think it’s a very interesting environment and one that’s new to all of us. But at this point, I think we may continue to see a little bit of an increase before we see rates pull back.

Thanks, Liz.

Thank you. Our next question comes from the line of Bryan Maher from B. Riley Securities. Please go ahead.

Good morning. Just two questions for me. On the AC hotels that you purchased, if memory serves me, those are a little bit maybe more upscale in some of the select serve that you own. Can you talk about if there is kind of a concerted effort to move a little bit more upscale or how do you think about the AC hotels going forward? And should we expect more of those in the pipeline?

Sure. So AC fits into Marriott’s lifestyle upscale select service category. And I think because the brand is new and because of certain design elements, we have found the brand plays incredibly well, especially in urban settings with both leisure and business guests. And at those particular hotels, I think you have seen and we have talked about in the past, our experience in Portland with our AC there. But having followed the brand now for many years, we believe that our experience in Portland isn’t unique and that these hotels have an ability to generate meaningful rate premiums within their markets, while maintaining an incredibly efficient operating model. Certainly, an operating model that fits squarely within the select service space with limited food and beverage. I think as is the case with many of the newer lifestyle brands, the food and beverage concepts focused more heavily on the beverage component, which tends to be higher margin. But again, staffing models for our AC hotels are comparable to our courtyards within the same portfolio. And so with higher rate, we are able to generate very strong and attractive margins. The particular design elements further that, as I highlighted earlier. I think in response to the second part of your question, certainly, based on our experience with the AC hotels that we own today, we would be very interested in continuing to expand our ownership in that brand.

Thanks. And then my second question relates to this forum that you talked about that you hosted with some of your managers. How are you as they thinking about pushing rate further? I mean we have seen clearly personally and professionally, people start to push back on rate and not take trips once you layer on crazy airfare prices, rental car prices that are ridiculous, hotel rooms that keep moving up in F&B. I mean how do you think about kind of walking that fine line between trying to get what you think you can versus turning off the consumer, especially if we head into a weaker economy?

I think that’s a fair question for the industry broadly speaking, looking at our portfolio specifically, our hotels tend to have a fairly even mix of business and leisure demand. And I think pricing for leisure follows market trends. And in the markets where we own assets, we have not to-date seen meaningful pushback on leisure pricing around weekend business. Remembering that we never got to a point at the majority of our hotels where we were doubling and tripling historical rates. But when we think about midweek business, which tends to be more heavily business client or negotiated accounts, we are heavily focused on the mix of business in our hotels and the conversations that we are having are around how much base business we should take at our hotels and how much we should allow to float with the market in order to maximize the total rate opportunity. Base business tends to be consistent and often has longer length of stay, but also tends to come at a lower price point. And so most of the conversations with our managers were not around specific pricing strategies, but around managing the mix of business in our hotels in order to maximize overall profitability. And in part, we are not only focused on driving the top line. We are focused on driving total profitability at our hotels. So, a significant portion of the conversation was also around costs associated with various types of business and ensuring that we were pricing different accounts appropriate to the cost relative to those accounts.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line of Dany Asad from Bank of America. Please go ahead.

Hey. Good morning everybody. My question is just as we wrap up this year and head into next year, can you give us a sense for where you are expecting cost inflation to run in the portfolio, where maybe some of the pain points can be and what can act as offsets? And then I have a follow-up question.

I think in terms of expecting cost to run, as Liz highlighted, I think in our prepared remarks and in response to an earlier question, to-date in part because it’s one of our larger expense line items. A huge amount of focus internally has been around labor and cost increases that we have seen there. Our expectation on a go-forward basis is that, that growth rate slows and that potentially through increased productivity and lower training and recruiting costs, we see those costs come in line. Outside of that, we are watching utility expenses, which are our primary focus. Relative to labor, it’s a smaller line item. But the potential for growth in utility costs is meaningful, I think in today’s environment. And then taxes, another line item that we are watching closely. But in terms of runaway expenses, we feel largely we are at a point in time where operations are normalizing and stabilizing. And we are in a better position based on the staff and leadership that we currently have on site to begin to look for ways to mitigate expenses and improve productivity, which should combined with continued growth and top line performance put us in a position to continue to generate strong margins from our properties.

Got it. And then Justin, we have talked about hotel margins being 100 basis points to 200 basis points better than pre-pandemic in the past. How does this inflationary environment that we are in today, kind of make you feel about that target as we look ahead?

I think there have been a number of our peers that have thrown out various targets for long-term margin improvement. I think from the beginning, we have been clear that while we will continue to focus on managing expenses as we always have, ultimately, margin expansion is at least as heavily dependent on our ability to drive rate at our hotels. And as Liz mentioned in her earlier remarks, we are intently focused on ensuring that we maintain staffing levels such that we can provide a level of service that drives the value proposition such that we are able to maintain and continue to increase rate at our hotels. I think Liz commented earlier and I completely agree that there continues to exist an opportunity for us to move margins higher for our portfolio, but it will be through a combination of cost controls, increased productivity and intent focus on driving top line results.

Got it. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Tyler Batory from Oppenheimer. Please go ahead.

Good morning. This is Jonathan on for Tyler. Thanks for taking our questions and all the commentary so far. Just one from me today, a multipart question on the common dividend and understanding it’s a Board decision, but any additional details you can share in terms of what factors were contributing to the decision to range the monthly dividend twice over the past few months. Is that an increasing sign of the confidence and the sustainability of the recovery? And I am also interested in your thoughts on the perspective or perspective on potential payout ratios going forward?

So, I think to answer your first question first. The increases in dividend are a direct result of continued strength in the operating performance of our hotels and an expectation the current trends would continue into the future. I think to your second question, our payout ratios are lower than they were prior to the pandemic. And we have, in addition to being in a position to increase dividends, been also able to preserve capital to reinvest in our business and to fund share repurchases and partially fund acquisitions and our capital improvement. I think we performed relatively well in the worst of the pandemic and as a result, had lower operating losses to carry forward into this year. And our primary focus to-date has been a payout ratio that puts us in a position to maintain REIT status and minimize tax obligations. I think you have seen our performance year-to-date and Liz commented on our expectations that, that performance would continue into the fourth quarter. Early indications from our management companies are – that their expectations are for continued growth in the coming year. And with all of that as a backdrop, we feel very comfortable with our current payout.

Very helpful. Thank you for all the color. That’s all for me.

Thank you.

Thank you. Our next question comes from the line of Chris Darling from Green Street. Please go ahead.

Thanks. Good morning.

Good morning.

Going back to the labor environment – good morning guys. Going back to the labor environment, is there any appreciable difference in either the availability or cost of labor between, say, larger, smaller markets, urban, suburban, any other kind of similar trends that maybe you can tease out of the portfolio?

I wish it was that simple. I think certainly, we have seen more pressure on wages in markets that have seen the most robust growth. And that includes a mix of both urban and suburban markets. I think we felt the pressure first in markets that were earliest in the recovery and that pressure has spread as incremental markets have begun the recovery. But it tends to be a function of availability of labor in individual markets and the pressure is most acute in markets that have seen meaningful growth over the past several years.

Okay. Yes. I understand that it’s not so simple, but that’s helpful in any case. And then maybe switching gears quickly, last one for me. You gave some helpful thoughts around the AC brands in response to an earlier question. But just curious, are there any other brands out there that you might like to gain exposure to over time?

We have been active in dialogue with Marriott, Hilton and Hyatt about new brands that they are proposing, and some of the brands that they have launched over the past several years. And I would say within those families of brands, we continue to be interested in the legacy brand assets to include brands like Hampton Inn and Residence Inn that have been around for decades and in some of the newer brands. I think our experience with AC has been incredibly positive, and we have seen strong performance from another – a number of other brands within those brand families. At this point, while we have explored opportunities outside of those three brand families, we continue to feel that there is adequate opportunity for us to continue to expand our ownership and relationships with those three brands. Within the select service space, they continue to have the strongest brand reputation, and that, combined with loyalty programs that drive top line performance for the assets, we feel is the best recipe for our success in our space.

Alright. Fair enough. Thank you for the time.

Thank you.

Thank you. Our next question comes from the line of Anthony Powell from Barclays. Please go ahead.

Hi. Good morning. Just a follow-up to that comment. You did sell the independent hotel in Richmond. If I remember correctly, you took that independent to maybe learn something about independent hotels. Maybe can you talk about some conclusions you drew from that experience?

Yes. We did sell that hotel. And looking at the operating environment that we are in now, we felt our time and attention was better spent on focusing on our core business. But to the point you made earlier, we did acquire that hotel with a hope that we would or with a plan and intention of learning about operations outside of the brand families where we have a tremendous amount of experience. And I think high level and would be happy to engage in a more extensive conversation offline at some point. But high level, what we have found is that cost of customer acquisition varies. And did the non-branded hotels have significantly higher reliance on intermediated business through OTAs, which has a price associated with it. But I think beyond that, what we discovered is that in addition to incremental spend on sales and marketing, there is a need to maintain and to position the hotels from a capital investment standpoint, that’s greater than what we would, on average, spend or need to spend in our branded select service hotels to maintain the same level of quality and to drive the same level of demand. I think it’s an opportunity we may come back to at some point in the future, but based on the current operating environment, and I think specifically what we are looking at in terms of near-term supply and the potential impact of supply on the hotels that we own, we see greater opportunity to drive returns for our investors by focusing on our core business and ensuring that we are yielding the best possible results from our existing portfolio.

Got it. And maybe one more. I guess in your talks to your development partners, what are they looking for in order for them to get a bit more confident in starting or identifying new projects? I know it’s been a source of deals for you, but also I guess supply broadly. So, I am curious what they are thinking about and what they are saying as you discussed with them?

I think certainty is the primary impediment to new construction today. And it’s in part around future performance of individual markets, but less that and more certainty around the actual final cost of construction. Certainly, interest rates and availability of debt are impacting new supply. But as we talk to development partners that we have worked with and that have the bigger deterrence are availability of labor, supply chain disruption and really uncertainty around total cost with an unwillingness for most subs in market to sign fixed price contracts that really is keeping people from building at a faster pace than they are today. Over time, I think to the extent we are able to stabilize the environment that we are operating in, we could see an increase in construction sites. And certainly, there is no lack of interest. And I think the brands have highlighted that they continue to sign a significant number of new deals. But in terms of those deals actually getting in the ground, the biggest impediment today is the lack of certainty around construction costs driven by the factors that I highlighted.

Got it. Maybe one more. And I guess in terms of brands requiring, I guess new costs being reintroduced into the model, like more kind of housekeeping and breakfast. Are we done with that, or is there anything else that needs to be added that could be headwind for costs next year?

Based on the conversations that we have had to-date with the brands, our expectation is that their current operating model will be the operating model going forward. And it is a more efficient operating model in terms of services and amenities than the model that we came into the pandemic with. So, I think to the point Liz made earlier related to labor, our expectation is that as we stabilize the employee base at our hotels, there is opportunity to gain incremental efficiency from an operations standpoint based on current standards.

Alright. Thank you.

Thank you.

[Operator Instructions] Our next question comes from the line of Michael Bellisario from Robert W. Baird. Please go ahead.

Thanks. Good morning everyone.

Good morning.

Thanks for squeezing me in. Actually a couple of questions. Just first on the RevPAR in the comments around October that’s all referring to actual growth versus the actual portfolio at the time 3 years ago, right, not same-store or comparable? Just want to clarify that.

Yes.

Got it. So, assuming the trend holds the last couple of quarters comparable same-store has been several hundred basis points lower than actual. I just wanted to confirm that. Justin, back to your comment just on the maybe having less base business when you look out to 2023, conceptually, does that make revenues and profits may be more volatile or harder to predict next year if you are taking less base business?

I think theoretically, there would be a potential for that. But when you look practically at how our hotels tend to operate, we only reduce base business in an environment where we anticipate and have strong confidence in our ability to replace that with various forms of transient. And I think more often, we will be replacing the existing base business with multiple accounts at higher price points. So, I think there is not a view that we would radically change the way we are doing business at individual properties. But an assessment of the accounts that we currently had in house and our need for lower-rated accounts moving into the future.

Got it. Understood. And then you mentioned seller motivations in one of the earlier questions. Can you just talk about the seller motivation for the AC deals that you just did? And then just broadly the acquisition process and timeline for those deals and how they came about?

So, the two AC deals were motivated by a desire for liquidity by the partners and the deals. They were marketed as part of a broader package that was broken up ultimately, and we selected from the broader package of the assets that were the best fit for us in our portfolio. The deals were brokered, but we were able to secure the assets below the highest bid with the primary determining factor being surely around closing. We unlike the higher bidders do not have financing contingencies in our offer. And in today’s environment, that’s proven to be a competitive advantage for us. I think looking more broadly at conversations we are having, we continue to explore opportunities through broker transactions, but are also having conversations with individuals and groups outside of the brokered environment around potential transactions. I think most will decide to hold and go slow between now and the end of the year. But as I highlighted in my earlier remarks, our expectation is that we will see a meaningful pickup in transaction volume moving into next year. I think importantly, we feel incredibly good about the transactions that we have completed to-date. We still have a tremendous amount of capacity, and we have preserved that capacity for an environment where we can acquire attractively priced assets in scale.

Got it. That’s helpful there. And then just one more on those two deals. Could you maybe talk about the supply outlook in both Pittsburgh and Louisville? And what’s on the horizon there in terms of new hotels potentially opening up?

Yes. Relative to other markets that we have explored or even where we own assets, the supply picture is favorable in both markets. And certainly, I highlighted in my prepared remarks, recent performance of the assets has been incredibly strong with the ACM Pittsburgh, up 36% to 2019 numbers in September and the Louisville AC up 8%. Our expectation is that in addition to individual asset level ramp that remains in these assets that opened shortly before the beginning of the pandemic, those markets will continue to improve over time. Both have a mix of demand generators and on both the business and leisure side. And we feel really good about the potential over time.

Thank you. That’s all for me.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And now I would like to turn the conference over to Mr. Justin Knight, President and CEO, for closing comments. End of Q&A:

We appreciate you joining us today, recognizing its election day. I would encourage you to get up and vote. And as always, to the extent you are traveling, we hope you will take an opportunity to stay with us at one of our hotels. Have a great day. We look forward to talking to you soon.

Thank you. The conference of Apple Hospitality REIT has now concluded. Thank you for your participation. You may now disconnect your lines.