Pace of Recovery Exceeds Expectations at Apple Hospitality REIT

Despite operating in the most challenging environment the hotel industry has ever experienced, Apple Hospitality REIT’s portfolio achieved sequential improvement in operating results in the first quarter, CEO Justin Knight said.

On the real estate investment trust’s first quarter earnings call with analysts Friday, Knight said Apple Hospitality’s portfolio continued to benefit from its significant market diversification and broad consumer appeal, which has attracted leisure, small group and regional business demand.

In the quarter, its portfolio achieved occupancy of 67.1%, average daily rate of $137.03 and revenue per available room of $91.98. Performance metrics improved as concerns over the omicron variant of COVID-19 eased, with RevPAR in March down less than 2% compared to 2019.

ADR was up 38% in comparison to 2021 and slightly ahead of where it was in the first quarter in 2019, Knight said, while occupancy for the quarter was up 21% compared to 2021 but down 9% against 2019.

“Throughout this recovery, our revenue management teams have done an exceptional job maintaining rate integrity and pushing rates beyond pre-pandemic levels on high occupancy nights,” he said.

The pace of recovery has exceeded executives’ expectations, Knight said, noting they are particularly encouraged by airlines opening more “business routes in response to rapid increases in demand.” Coupling that with robust leisure demand will further fuel recovery over the coming months.

Liz Perkins, chief financial officer for Apple Hospitality, said preliminary April results show continued increases in occupancy, ADR and RevPAR.

As of March 31, Apple Hospitality owned 219 hotels totaling 28,747 rooms across 86 markets throughout 36 states.

For the quarter, 33% of its hotels achieved RevPAR at or exceeding 2019 levels, Knight said.

Apple Hospitality’s acquisitions and dispositions activity since the onset of the COVID-19 pandemic has further optimized its portfolio for recovery, Knight said. The strategy has been to lower the average age of its assets, reduce near-term capital expenditures and increase exposure in markets expected to outperform.

“We have been and continue to be intentional in the build-out of our portfolio, pursuing assets that are additive to those we currently own, located in strong RevPAR markets,” he added.

The REIT continues to leverage longstanding relationships it has built over two decades for off-market deals, he said.

Additionally, the REIT is actively underwriting and exploring “dozens of opportunities both on- and off-market,” Knight said, noting he anticipates his company will be a net acquirer of assets this year.

Apple Hospitality previously announced that it entered into a contract in July 2021 for the purchase of a new-build, 260-room Embassy Suites in Madison, Wisconsin, for an anticipated purchase price of $79 million. The latest updates on this potential deal include an anticipated acquisition timeline of early 2024.

“There are many conditions to closing that have not yet been satisfied, and there can be no assurance that a closing on this hotel will occur under the outstanding purchase contract,” a news release notes.

The company has continued to reinvest in its hotels to boost its competitive position in each market. During the three months ending March 31, Apple Hospitality invested about $8 million in capital expenditures. During 2022, the company expects to invest between $55 million and $65 million in capital improvements for 20 to 25 hotels.

In the quarter, Apple Hospitality achieved comparable hotels adjusted earnings before interest, depreciation and amortization of $88 million, according to its earnings release.

The company reduced operating expenses by approximately 12% during the quarter compared to the same time period in 2019.

Knight said total revenue of comparable hotels was up more than 70% relative to the first quarter of 2021.

Perkins said weekend occupancy and ADR for comparable hotels exceeded 2019 each month during the first quarter.

“January and February weekend occupancies were 63% and 78%, respectively. In March, weekend occupancy was 85%,” she said. “Weekday occupancy improved sequentially through the quarter, with January weekday occupancy of 54%, down 24% to 2019; February weekday occupancy of 65%, down 16% to 2019; and March weekday occupancy of 73%, down only 10% to 2019.”

Performance across the REIT’s Sun Belt markets continued to be strong, and suburban hotel demand still outpaced urban in the quarter. However, Apple Hospitality executives were pleased by improvements in 2019 performance comparisons within markets that have been slower to recover. In March, 41% of Apple Hospitality’s hotels surpassed 2019 RevPAR levels.

As of press time, Apple Hospitality’s stock was trading at $16.84 per share, up 4.3% year to date. The NASDAQ Composite Index was down 22.9% for the same period.

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