AHOTF - American Hotel Income Properties REIT LP (AHOTF) Q4 2022 Earnings Call Transcript
American Hotel Income Properties REIT LP (AHOTF)
Q4 2022 Earnings Conference Call
March 1, 2023, 1:00 PM ET
Company Participants
Jonathan Korol - Chief Executive Officer
Bruce Pittet - Chief Operating Officer
Travis Beatty - Chief Financial Officer
Conference Call Participants
Mike Markidis - BMO Capital Markets
Tal Woolley - NBF
Tom Callaghan - RBC Capital Markets
Presentation
Operator
Good morning. And welcome to the American Hotel Income Properties REIT LP’s Fourth Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, there will be a question-and-answer session for analyst only. Instructions will be provided at that time for you to queue up for questions.
Before beginning the call, AHIP would like to remind listeners that the following discussion will include forward-looking information within the meaning of applicable Canadian securities laws, which forward-looking information is qualified by this statement.
Comments that are not a statement of fact, including projections of future earnings, revenue, income and FFO are considered forward-looking and are based on certain assumptions and involve various risks and uncertainties.
The risks and uncertainties that if realized and assumptions that if false could cause AHIP’s actual financial and operating results to differ significantly from forward-looking information discussed today are detailed in AHIP’s public filings, which are available on AHIP’s website at ahipreit.com, as well as on SEDAR.
Participants on this call should not place undue reliance on such information, which is provided based on management’s expectations and assumptions as of the date of this call. AHIP does not undertake any obligation to publicly update such information to reflect subsequent events or circumstances, except as required by law.
On this call, AHIP will discuss certain non-IFRS financial measures. For the definition of these non-IFRS financial measures, the most directly comparable IFRS financial measure and a reconciliation between the two, please refer to the MD&A.
References to prior year operating results are comparisons of AHIP’s portfolio of 31 properties results in the period versus the same period properties results today. All figures discussed on today’s call are in U.S. dollars, unless otherwise indicated. A replay of this call will be available on AHIP’s website.
Discussing AHIP’s performance today are Jonathan Korol, Chief Executive Officer; Bruce Pittet, Chief Operating Officer; and Travis Beatty, Chief Financial Officer.
I will now turn the call over to Jonathan Korol, Chief Executive Officer.
Jonathan Korol
Thank you, Operator. And thank you everyone for joining us today for our fourth quarter and full year financial results conference call. In 2022, AHIP’s portfolio of 71 select service hotels continue to demonstrate strong topline performance.
For the year, same-store revenue grew 19% due to steady demand acceleration across the 22 U.S. states in which we operate. RevPAR for the year finished at $88, a 17% improvement over 2021. On a recovery to 2019 basis, we have seen sequential ADR and RevPAR improvement throughout every quarter in 2022 with Q4 RevPAR matching 2019 levels.
This achievement is attributable to sustained demand from the leader traveler segment, as well as steady improvements in corporate and group guest demand. The ability to control and manage daily rates is a key advantage of the lodging sector, which has enabled AHIP to achieve the strong rate growth.
For the year, rates ended at 113% of 2021 and 105% of 2019. For the fourth quarter, rates ended at 110% of Q4 2021 and 109% of Q4 2019 levels. This marked the sixth consecutive quarter where we have matched or exceeded 2019 rates and we expect this trend to continue.
Our portfolio is seeing improving trends relating to corporate demand as seen by the performance of our Embassy Suites portfolio, which saw a 38% increase in RevPAR in 2022 compared to 2021. Returning corporate demand remains the near-term catalyst to a full occupancy recovery.
Throughout 2022, we have been negatively impacted by labor shortages, supply chain disruptions and general inflationary pressures. The combination of these factors has resulted in a challenging operating environment and applied significant pressure on operating margins.
Net operating income margin decreased by 550 basis points to 32.5% for the year compared to 2021. To address these issues, our asset management team, together with our external hotel manager, have continued their efforts to hire more in-house labor, reduce turnover and improve overall productivity. While we are seeing some benefits from these efforts, cost pressures and labor issues are expected to remain a topic for most of 2023.
Throughout the year, the fixed rate nature of our debt obligations provided a substantial benefit to us given the high interest rate environment. Overall, 93% of our debt obligations are fixed rate coupons are subject to variable to fixed swap arrangements.
We made steady progress on our leverage reduction goals over the last two years demonstrated by our debt to gross book value of being reduced by 570 basis points to 52.6%. We do not have any meaningful debt maturities until late 2024 and are well positioned to manage potential economic volatilities in the coming quarters.
During 2022, we invested heavily in renovating our portfolio and we expect a similar level of spend in 2023 as we look to continue to strengthen our market position. We base our capital decisions on the basis of returns and given the current headwinds in the transaction market, we believe reinvesting in our portfolio represents the most prudent allocation of capital.
During 2022, we high graded our portfolio by executing on the dispositions of seven non-core assets. These dispositions resulted in improvements to both operational and leverage metrics. In January and June 2022, AHIP completed the strategic dispositions of two hotel properties in Florida and Pennsylvania for gross proceeds of $10.3 million and $5.7 million, respectively.
In the fourth quarter of 2022, AHIP completed the disposition of five underperforming properties, one located in Pennsylvania and four in Oklahoma for gross proceeds of $5.3 million and $26 million, respectively. These dispositions allow AHIP to avoid future capital requirements that will not meet returns available elsewhere in the portfolio.
Following the sales, portfolio RevPAR increased by $3 and debt-to-EBITDA improved by 0.4 times. In addition, the Oklahoma portfolio sale resulted in a return of $3.2 million from restricted cash.
While our plan remains to grow the company, we will always explore opportunities to dispose of assets where the return projections lag the average return expectancy for the remainder of our portfolio.
2022 also saw the reinstatement of our monthly U.S. dollar distribution at an annualized level of $0.18 per unit, which began in Q1. We remain confident in the distribution levels despite the current macroeconomic uncertainties. Our conservative payout ratio means we will have the capacity to increase the distribution as operations improve.
We are proud of our ability to provide our unitholders with a meaningful cash yield on their investment. Based on our closing price yesterday, the annualized U.S. dollar distribution of $0.18 per unit represents a cash yield of approximately 9% with an FFO payout ratio below 50%.
Lastly, we released our inaugural corporate responsibility and sustainability report during the second quarter of 2022. This report is designed to help our stakeholders understand our commitment and efforts regarding environmental stewardship, social responsibility and governance.
We will continue to report on future -- present and future commitments with respect to ESG initiatives, all of which will be overseen by our Board of Directors Nominating and Governance Committee.
I’d like to acknowledge the efforts of our brand partners, hotel managers, vendors, guests and other stakeholders for their stated commitments to implement programs that have a positive effect on our business, the environment and our communities.
I will now turn the call over to Bruce to discuss fourth quarter and full year hotel operations. Travis will then highlight key financial metrics. Bruce?
Bruce Pittet
Thank you, Jonathan, and good morning, everyone. Looking back at 2022, the resilience of the AHIP portfolio continues to be apparent as revenue recovery driven by strong ADR growth and improving corporate and group business drove continued topline performance improvements. Margins were challenged throughout 2022 by labor scarcity, wage growth and widespread impacts of inflation.
For full year 2022, our 71 hotels had an occupancy average of 70% or 104% of 2021 levels and 91% of 2019 performance. For Q4, occupancy was 67% or 101% of the same period in 2021 and 91% of 2019.
ADR continues to be the catalyst for RevPAR recovery across AHIP’s portfolio, finishing at $125 for the year, above 2021 levels by 13% and exceeding 2019 performance by 5%. 79% of hotels posted ADR above 2019 levels in 2022. From a Q4 standpoint, ADR was $126 or 110% above Q4 2021 and 109% above Q4 2019. We continue to anticipate strong ADR performance across the portfolio going forward.
2022 RevPAR for our 71 hotels was $88 or a 17% increase over 2021 and at 95% of 2019 levels. 44% of the portfolio posted RevPAR above 2019 levels. Q4 marked the first quarter since the onset of the pandemic that the portfolio achieved 2019 RevPAR levels, as we finished the quarter at $85 and at 110% of Q4 2021.
We referenced three distinct segments of our business, extended stay, select service and our Embassy Suites hotels. During 2022, the extended stay segment achieved a RevPAR of $94 or 106% of 2021 and 93% of 2019 levels.
The select service segment achieved a RevPAR of $82, which represents 118% of 2021 levels and a recovery of 98% to 2019.
The Embassy Suites achieved a RevPAR of $95 or 92% recovered to 2019 levels and a 38% RevPAR increase over 2021. The Embassies are a good barometer for the portfolio as it pertains to group and corporate segment recovery.
The return of corporate group traveler has been evident throughout 2022. Two measures we often refer to as strong indicators of corporate business demand are the negotiated rate segment, which has seen occupancy recover to 82% of 2019 levels and the GDS channel or global distribution systems, which mostly -- is mostly driven by travel agents booking corporate travel for their clients, where occupancy has recovered to 76% of 2019 levels.
Food and beverage revenues, which is another proxy for corporate demand are continuing to improve against 2019 benchmarks. F&B revenues were 67% of 2019 performance for the year compared to just 35% in 2021.
NOI margins finished at 93% of 2019 for the quarter and 91% of 2019 for the year. The challenging operating environment continues to hold margins below 2019 levels.
In Q4, we started to see some improvement in the operating environment. Supply chain issues have abated somewhat and wage growth pressures, although present, are less severe.
In 2023, we will continue to focus on margin performance initiatives, including the reduction of third-party contract labor, reducing overtime, increasing housekeeping productivity, reducing employee turnover and improved procurement program compliance.
During the final week of December 2022, severe cold weather, particularly in the U.S. Northeast and Texas impacted hotel operations. Four hotels had a significant number of rooms placed out of service and two of those hotels, both in New Jersey, were forced to close.
At the Residence Inn Neptune, all 105 rooms of the hotel have been placed out of service since December 25th. The current timeline to bring the rooms back in service in this hotel is the third quarter of 2023.
At the 113-room Courtyard Wall in New Jersey, all guest rooms were out of service for approximately three weeks. In mid-January, roughly 50% of the rooms were brought back into service. The timeframe to bring those remaining rooms back into service is late Q2.
Based on initial information, estimated damage to buildings and equipment is approximately $4.8 million. All properties are insured and all costs associated with remediation and business interruption are expected to be recovered.
Turning to AHIP’s capital program, in 2022, we returned to pre-pandemic spending levels. The 2022 capital plan included approximately $18 million in PIPs and $11 million in FF&E capital improvements, of which $5.4 million was funded through restricted cash in 2022, with an additional $8.4 million expected to be funded through restricted cash in 2023.
The PIPs included seven hotel renovations and 16 smaller projects. Three of the seven hotel renovations were completed or substantially completed by the end of the year and the remaining four hotel renovations were in progress as of December 31, 2022. Three of the four projects are expected to be completed in Q1 2023. As each PIP completes, we expect to see increases in hotel market share and RevPAR performance.
At the end of December, AHIP had also completed 14 of 16 smaller projects and the cost to complete the projects were in line with our budgets. Initial topline results for seasonally weaker January suggests continued strong revenue performance with occupancy at 57%, ADR at $123 and RevPAR at $70 or 113% of January 2022 RevPAR levels on a same-store basis.
And with that update on our hotel operations, I will now turn the call over to Travis to highlight key financial and capital metrics for the year and for the quarter.
Travis Beatty
Thank you, Bruce. Good morning, everyone. AHIP’s portfolio of premium branded select service hotel properties continued to demonstrate strong demand metrics in 2022. On a same-store basis, revenue increased 19% to $272 million, compared to $230 million in 2021. For the quarter, revenue finished at $66 million, a 12% increase relative to the fourth quarter of the prior year.
Normalized diluted funds from operations or FFO was $0.38 for the year per unit and $0.07 per unit for the quarter, compared to normalized FFO of $0.32 for fiscal year 2021 and $0.07 in the same quarter of 2021.
In 2022, we saw margins below both 2021 and -- 2021 and 2019 levels throughout the year due to higher operating expenses as a result of inflation, labor shortages and increased hotel operating standards.
General inflation resulted in higher costs of operating supplies and higher utilities expenses. Shortages in the overall U.S. labor market resulted in increased room labor expenses due to overtime, higher wages and the use of contract labor.
At December 31, 2022, AHIP had $24 million of available liquidity, compared to $35.7 million at the end of the third quarter. The availability of $24 million was comprised of an unrestricted cash balance of $18 -- $13 million and a borrowing availability of $11 million under the revolving credit facility.
AHIP has an additional restricted cash balance of $40 million. The decrease in unrestricted cash is primarily due to cash generated by the three Embassy Suites properties located in Ohio and Kentucky in the third quarter and fourth quarter of 2022 being held in a restricted cash account by the lender.
The operating performance of these properties has steadily improved and exceeded the required debt service coverage of 1.25 in the third and fourth quarters of 2022. As a result, these properties are no longer in cash management and we recently received $12 million of restricted cash, which is now unrestricted.
Debt to gross book value at December 31, 2022, decreased by 140 basis points to 52.6%, compared to 54% at December 31, 2021. AHIP is making steady progress on this measure and intends to bring its leverage closer to its peer group over time, which will be in the range of 40% to 50% debt to gross book value. This is expected to be achieved through a combination of improved operating results, a sustainable distribution policy and selective issuance of equity in support of growth transactions.
Our weighted average interest rate for term loans and credit facility was 4.46 at December 31, 2022, a reduction of 6 basis points, compared to 4.52 at the end of the prior year. This is well below the market for comparable first mortgage debt if it were issued today.
In November, AHIP completed an amendment to our revolving credit facility and certain term loans, which among other things, modified the calculation of the borrowing base availability and other financial covenants. These modifications significantly improved the expected borrowing base availability and reduced the required fixed charge coverage ratio.
As Jonathan alluded to short- and long-term interest rates increased significantly during 2022 and short-term rates are expected to continue to increase. AHIP does not expect a material increase in interest expense in 2023 as 93% of our debt is at fixed rate interest or effectively fixed by interest rate swaps until November of 2023. Our financial position allows us to be patient. We have no maturities related to our debt or interest rate swaps until the fourth quarter of 2023.
In terms of upcoming maturity, AHIP has two CMBS loans totaling approximately $15 million coming due in December 2023, two CMBS loans totaling approximately $30 million during the first half of 2024.
On the revolving credit facility, the $125 million term portion matures at the end of 2024 and the revolving portion can be extended at our option to the same date. Based on current yields and coverage ratios, we are confident in our ability to refinance upcoming maturities over the next 24 months.
During the fourth quarter, the company recognized a non-cash impairment charge of $39 million related to 15 hotels. This was a result of declines in the hotel’s current and projected cash flows as determined by our usual year end internal analysis.
Our distribution policy remains intact. We have now paid U.S. dollar monthly distributions each month since March of 2022 and we are pleased to be in a financial position to continue to do so. Based on consensus, our next 12 months FFO payout ratio is conservative at sub-40%.
At our current unit price, the yield supported by distribution is approximately 9%, which is among -- is the highest in the Bloomberg Hotel REIT Index. The declaration and payment of each monthly distribution in the future remains subject to Board approval.
We have been getting questions from a number of non-Canadian resident shareholders about potential withholding tax under U.S. IRS Code 1446. AHIP is not engaged in a trade business in the U.S. for tax purposes. We have issued a qualified notice in this regard and the purpose of this notice is to notify brokers and others that no withholding will apply.
In a limited number of cases where withholding was incorrectly applied, it was quickly reversed. More information on this is available on our website under the Tax section or you can reach out to us directly.
I will now turn the call back over to Jonathan for some closing remarks.
Jonathan Korol
Thanks, Travis. 2022 was a challenging year for the hospitality industry and the broader economy. Despite this, I am encouraged by the progress we were able to make at AHIP on several fronts this year.
In 2022, we successfully divested seven hotels, representing just under 800 keys. Together, these hotels had close to $20 million in brand required capital expenditures coming due in the next few years.
Management calculated the return on investment to be not enough to justify the additional expenditures. As a result of these asset sales, AHIP’s remaining portfolio will have a higher RevPAR and a more reliable cash flow profile.
We continue to see compelling returns available through reinvestment into our remaining properties. The three property improvement plans completed in 2022 in Tampa, Orlando and Amarillo will see double-digit returns on capital investment.
We will soon complete PIPs at four other properties in Maryland and New Jersey. Being able to execute on these projects within budget during a period of labor scarcity and supply chain disruptions is a credit to our asset management team.
In Q4, the tremendous efforts of our finance team, together with our valued lending partners, resulted in a meaningful amendment to our credit facility. This amendment maintains our borrowing availability and flexibility as our business improves. Overall, we are making small but important improvements to our leverage profile.
Finally, I continue to be encouraged by the demand acceleration that is continuing across the country. We are not seeing any evidence of a demand slowdown for our leisure guests and are witnessing steadily improving business traveler demand.
We are focusing our hotel manager’s efforts on employee recruitment and retention, which will benefit our operating margins. I’d like to convey my appreciation to all of our teams at each of our hotel properties for their continued dedication to providing a great guest experience.
So, with that overview of our fourth quarter and recent initiatives, we will now open the call to questions from analysts. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question will come from the line of Mike Markidis from BMO Capital Markets. Your line is open.
Mike Markidis
Hi. Thanks for taking my questions. Just with respect to the last comment there on the demand acceleration, I think, you characterized it that you are seeing. Would that be fair to suggest that we should see more of a J curve on the topline as we progress through this year or is it really just more about a gradual recovery continuing throughout the year?
Jonathan Korol
I think it’s the latter, Mike. I think it’s safe to say that this recovery has been pretty unique in the history of hotel demand recoveries and that the rates have snapped back very, very quickly and occupancy while not right at 100% of 2019 levels, is showing no signs of a slowdown. So due to that unique -- I’d suggest that we are -- anything is possible, but we are witnessing a gradual recovery and expect to do so in the next -- over the next 12 months.
Mike Markidis
Okay. That’s useful. Thank you. And then just in terms of, I mean, obviously, a very relevant benchmark as we are coming out of the depths of the pandemic and specifically 2021 and 2022, but just as we move through 2023, do you still plan to benchmark where you are coming in relative to 2019 or is it really just more of a thinking about the world being a different place going forward and moving on?
Jonathan Korol
I think you will see less to no references to 2019 going forward. I think it’s an interesting data point, but more relevant now is benchmarking versus prior year.
Mike Markidis
Right. Got you. Okay. Do you think it’s possible we will see margin expansion in 2023?
Jonathan Korol
Margin expansion, I think, as Bruce alluded to in Q4, some of the wage pressures that we have witnessed over the last 12 months began to not dramatically improve but certainly not get worse and so we are seeing a plateauing. And certainly signs that the labor market is starting to loosen up a little bit, but we will continue to monitor and report on that.
Travis Beatty
Yeah. Mike, we told you we weren’t going to compare to 2019 and we do intend to do that less. But while we are still doing that, we expect to get closer to 2019 margin levels in 2023, but the full recovery on margins probably isn’t until 2024.
Mike Markidis
Okay. That makes sense. That makes sense. So, I guess, just, yeah, dovetailing that with your remarks about still pressures on costs in 2023 and then moderation. So I guess it’s not that your unit labor cost necessarily come down in 2024, it’s just that we actually get more normal increases year-over-year, is that fair?
Jonathan Korol
Yeah. I think we spent a lot of time in our remarks talking about recruitment and retention. Recruitment will allow us to have more in-house labor versus third-party contract labor and retention will allow us to reduce the frictional costs that come with people coming and going.
Mike Markidis
Okay. I don’t want to [inaudible] and turn back and if there is anything I will go over after -- I will chime back in. Thank you.
Jonathan Korol
Thank you.
Travis Beatty
Thank you.
Operator
One moment for our next question. Our next question will come from the line of Tal Woolley from NBF. Your line is open.
Tal Woolley
Hey. Good morning or Good afternoon. Pardon me. I just wanted to start out with the outlook. I am wondering if you can just talk to forward bookings at all and how you are feeling about how your book of business is shaping up this year, maybe you can give us some context versus last year?
Bruce Pittet
Hey, Tal. It’s Bruce. I would tell you a couple of things. First of all, the booking window is still fairly short. Like we haven’t seen booking windows kind of going back to where we were pre-pandemic. So it makes kind of any kind of forward look difficult.
With that said, I would tell you that, we continue to see more corporate and group business coming through the pipe. So I think that that’s certainly a very positive sign. It’s actually been quite robust over the last month or so. So that gives us some confidence in that segment, but ultimately, it’s difficult to provide any kind of true forward look for you.
Tal Woolley
Okay. And then just thinking in your earlier comments about waiting to see a full margin recovery until 2024 and looking at what some of the U.S. hotel REITs and C-Corps have reported, it sort of looks like RevPAR expectations for this year are kind of in that 5% to 8% kind of range. Does that seem like a doable number for AHIP this year in the ballpark if possible?
Jonathan Korol
You are referring to the some of our select service peers reporting guidance that would suggest 5% to 8% 2023 RevPAR growth over 2022?
Tal Woolley
Yeah. In that range if I am doing my math correctly.
Jonathan Korol
Yeah. I think that’s reasonable. I think depending on the quarter, you may see a little above or a little bit below that range, but that’s a reasonable range.
Tal Woolley
Okay. Fair enough. And then maybe if we can just speak to borrowing costs as well, where are you finding the most attractive capital right now and can you just give us some insight on pricing and LTV ratios? Thanks.
Travis Beatty
Sure. Sure. So we are not in the market of course. Right now, our maturity profile allows us to be patient. The market is definitely getting better. It was good in the first half of the year in 2022. In the second half of the year, it was kind of by appointment only, not a lot of CMBS deals were getting done. So the main two maturities that we faced are the revolving credit facility.
So we just did an amendment on that. So we are relatively current on that, the spread relative to SOFR on our credit facility is 200 basis points. That’s what’s in our current credit agreement and with the extension features we are going to be basically at that spread until late 2024.
On the CMBS market, that’s priced off of U.S. treasuries and those were in the low 200s earlier in 2022. Those gapped out to the low 300s mid last year and they are about halfway between those two numbers right now.
I think the credit spreads that we are hearing right now are kind of in the 250 over treasuries right now. So that’s the status of the current market and in terms of availability of CMBS debt. I would say it’s definitely getting better right now, but we are not back to where we were in early 2022.
So I think as interest rate expectations, they are becoming a little bit more of a consensus. There’s not that many rate hikes left to go unless there’s a surprise in some way. I think we are going to be in a good spot to address the relatively small maturities we have mid-2023.
Tal Woolley
Okay. And the swap that or the swaps that expired this year, can you just talk a little bit about what that is currently hedging exactly and how that would change if you had to sort of re-strike it today?
Travis Beatty
Yeah. So we have -- the total amount of swaps is $130 million. So most of that is basically a hedge against the term portion of the revolving credit facility, which is $125 million and so those swaps are -- they are around 1.45% blending the two of them together and those expire at the end of this year. So then we will be on a variable rate SOFR by December of 2023.
Tal Woolley
Okay. Perfect. Thanks very much and I appreciate that.
Operator
Thank you.
Travis Beatty
You are welcome.
Operator
[Operator Instructions] And we do have a follow-up from the line of Mike Markidis from BMO Capital Markets. Your line is open.
Mike Markidis
Thanks again. Just following up on Tal’s question with respect to the swaps and the credit facility, I appreciate that you guys have the one year option to extend it for one year, but presumably hedging the floating rate wouldn’t be ideal on a one year basis. So how are you guys thinking about that as you kind of -- as we progress throughout towards that first, I guess, November date?
Travis Beatty
Yeah. I would say we are not currently contemplating revising that swap or extending it. So at the moment we are just going to be faced with market rate of interest on that portion of our debt. So, that will -- we will still have a relatively high percentage of fixed rate debt, but it won’t be the 93% that we have today. I think it goes down to around 70% post the maturity of those swaps, Mike. So I think we are just going to be a 70% fixed rate company by the fourth quarter unless we see something different in the rate curve and we think there’s an opportunity to do a hedge.
Mike Markidis
Okay. I guess like if you were to refinance that facility, could you refinance it today and like would it be -- how long would you be able to get on a term, like, would that be a three-year renewal?
Travis Beatty
On the credit facility?
Mike Markidis
Yeah. No. So just like -- I am just trying to weigh the options of extending it per year or actually just re-cutting a new deal and revising curve ...
Travis Beatty
Oh! Yeah. Yeah. We are -- we will be evaluating both of those, Mike. We are not going to wait till late 2024 to address that maturity of the credit facility. So I think the extension options are more likely than not, but we will be looking to either amend or replace the entire facility well in advance of Q4 of 2024. So when that will be will depend on market conditions, interest rate environment, appetite from lenders, et cetera, but certainly well in advance of Q4 2024.
The current middle of the road market for that, Mike, is a three plus one plus one deal. So we would be looking for something like that when we look to replace that facility. But we have got a relatively long window to address that, call it, in the next 18 months, I think, is a pretty safe execution window for that maturity.
Mike Markidis
Yeah. No. I hear you, I just thought rather than rolling it per year extending, it would make sense to perhaps consider extending it for three years so you could lock in the rate. But I guess it all depends on where we are at, as you said. So, okay, with the CapEx, it looks like there’s some spillover of the 2022 plan into this year, but it wasn’t entirely clear how much of that we should be adding to your 2023 plan in terms of to get to a total. So if you look at your spillover plus 23, what’s the total combined amount you have planned for this year and what would be funded by restricted cash?
Bruce Pittet
Yeah. So it’s -- there’s about $3 million that should roll into this year from a project perspective. And in broad numbers, I think, for -- including this $3 million, we are thinking about spending around $30 million or so from capital…
Mike Markidis
Okay. So the spillover is quite minimal then, it’s quite minimal, okay.
Bruce Pittet
That’s right.
Mike Markidis
Got it.
Bruce Pittet
That’s right.
Mike Markidis
Thank you. Thank you.
Bruce Pittet
Yeah.
Mike Markidis
Thank you for that.
Travis Beatty
And Mike…
Mike Markidis
And then...
Travis Beatty
…like we -- Mike, just one thing. We continue to have a lot of flexibility on the timing of that CapEx spend. So that’s the target for 2023, but we can manage that number as needed depending on the environment. So that’s a good planning number to include…
Mike Markidis
Of course.
Travis Beatty
… for the modeling purposes, but we do have flexibility on that.
Mike Markidis
Noted. Thanks for reminder. And then just last one here, just with respect to the, it sounds like you have got fully insured and you have got some insurance in place not just on the cost, but the downtime on those portfolios. So is that a full revenue replacement, like how does that work? I am just trying to get a sense of if there’s going to be a negative impact on your performance this year because of that item either from an actual full year perspective and if there’s any time impacts that we need to be aware of?
Travis Beatty
Yeah. I think timing is the key impact there, Mike. So you are speaking to, of course, the storm damage that we suffered right at the end of 2022. So there was no income displacement in the 2022 numbers that would be noticeable. Those are call it clean numbers. In Q1 and Q2, we are going to face income disruption. But timing is the operative word there.
It’s an income replacement test, not a revenue replacement test. So we will work with the underwriters around lost income and that will be the basis of our claims. So unless something unexpected happens, excluding the timing difference, we are kind of situation normal on the hotels that were damaged from the storm.
Mike Markidis
Got it. You will just get a onetime payment when it’s the claims settled as opposed to throughout that time period you are guiding…
Travis Beatty
No. No. We will actually be pursuing an initial claim and then the final claim will just be the true-up amount to -- with all the final adjustments. So we will get some of the money as we go. We are just working out how many claims we will do, whether it will be on a recurring basis or a one and then a final.
But no, we are -- we should be submitting our initial claim for business interruption in the next two weeks to four weeks, I would say, and then there’s a process that follows, but we will definitely be pursuing an initial claim before we get to a final.
Mike Markidis
Okay. That’s helpful. Thank you. And just last one for me, I guess, it looks like you had some pretty severe weather specifically in Neptune and we were doing a Google search here and found out that there was another storm that knocked out another hotel, not one of yours, I think, back in 2021. So is there something about that location that is becoming climate stressed, I guess, would be the question and then just curious if you guys have started giving any more thought to doing a climate impact assessment on your portfolio?
Bruce Pittet
Yeah. Hey, Mike. It’s Bruce. So I don’t think there’s anything about that particular area that’s of a concern. Those -- the hotels if you have been looking online are just off the Jersey Shore and I’d say any -- anything that’s happened previously in that area would just be coincidental. But it’s not like in a wind zone or that sort of thing that you would see in maybe the Midwest or down in the Florida coast that sort of thing.
Mike Markidis
Okay. Thanks. Thanks very much for your time today.
Jonathan Korol
Thanks, Mike.
Operator
One moment for our next question. And our next question will come from the line of Tom Callaghan from RBC Capital Markets. Your line is open.
Tom Callaghan
Hey. Good afternoon, guys. Just want to circle back on the margin discussion there. In terms of brand standards, can you just talk a little bit about kind of what you guys expect here going forward over the course of 2023?
Bruce Pittet
Yeah. Yeah. Tom, it’s Bruce. We actually still expect that brand standards when we compare them to 2019 are below what was being provided at that time. So depending on the brand’s family, meaning Hilton or Marriott or IHG, there are currently different standards.
But with both Marriott and Hilton, say, from a housekeeping perspective, those standards are below what we were obligated to provide from a service perspective in 2019. And that’s also true from a food and beverage perspective, evening receptions, even some breakfast offerings are reduced compared to pre-pandemic time frames and we anticipate that staying in place through 2023.
Tom Callaghan
Got it. Thanks. And then just switching gears a bit, but private market-wise still kind of pencils down from that perspective or have you seen any more little movement there recently?
Jonathan Korol
Certainly, nothing meaningful from a transaction activity standpoint, which I think is what you are asking. We were -- members of our team were in the -- at the Lodging Summit in LA in January and it’s safe to say that there aren’t a lot of broker deals being discussed.
If there is some activity, it’s in a highly structured fashion or in the $20 million and below bracket that we have been operating in with our dispositions for the most part. So there isn’t a lot of brokered activity of meaningful size.
Tom Callaghan
Thanks, Jonathan. I will turn it back.
Jonathan Korol
Thanks, Tom.
Operator
Thank you. [Operator Instructions] And I am not showing any further questions in the queue. I’d like to turn the call back over to Jonathan for any closing remarks.
Jonathan Korol
Great. Thanks everybody for joining us on our call today. Look forward to speaking with you in early May when we will report our first quarter 2023 results.
Operator
And this concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
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American Hotel Income Properties REIT LP (AHOTF) Q4 2022 Earnings Call Transcript