Apple Hospitality REIT Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 2, 2025
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Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

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 first quarter, we paid distributions totaling approximately $70,000,000 or $0.29 per share, which includes a special cash distribution of $05 per common share that was paid in January. Based on Wednesday's closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 8.2%. 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.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

We are disciplined in our approach to capital allocation, seeking opportunities to refine and enhance our existing portfolio, drive earnings per share and maximize long term value for our shareholders. Since the beginning of this year, we have completed the sale of two hotels for a combined sales price of approximately $21,000,000 entered into an agreement for the sale of our Houston Marriott for $16,000,000 entered into a contract for the purchase of the Homewood Suites Tampa brand for approximately $19,000,000 repurchased approximately $32,000,000 of our common shares and paid distributions of nearly $89,000,000 all while maintaining the strength and flexibility of our balance sheet. 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 to continue to optimize our portfolio concentration in specific markets. In February, we completed the sale of the Homewood Suites in Chattanooga for approximately $8,000,000 In March, we sold the SpringHill Suites in Fishers, Indiana for nearly $13,000,000 And this summer, we expect to complete the sale of our full service Marriott in Houston for $16,000,000 While pricing for the individual hotel Sperry's, as a group, the three hotels will trade at a sub-seven percent cap rate or a 12.1x EBITDA multiple before CapEx and a sub-five percent cap rate or a 16.7 times EBITDA multiple after taking into consideration the estimated $14,000,000 in required capital improvements.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Proceeds from these sales were used primarily to fund share repurchases and reduce debt. Since the beginning of the year through April, we have repurchased approximately 2,400,000.0 of our shares at a weighted average market purchase price of approximately $13.32 per share for an aggregate purchase price of approximately $32,300,000 Shares repurchased year to date have been priced around a two turn spread to recent dispositions and around a six turn EBITDA multiple spread after taking into consideration required capital investments. We currently have two hotels under contract for purchase, including the Moda by Hilton, which is under construction in Downtown Nashville for approximately $98,000,000 This asset is being developed under a fixed price contract, and we anticipate acquiring this hotel upon the completion of construction later this year. During the quarter, we entered into a contract for the purchase of 126 room Home and Suites Tampa, Brandon for approximately $19,000,000 The hotel is located adjacent to our Embassy Suites and represents a unique opportunity to expand our ownership in a submarket that continues to perform well for us with a strong going in yield and operational upside. The purchase price represents a 12% cap rate on trailing twelve month numbers and a high single digit cap rate on in place cash flow after all anticipated capital expenditures without giving consideration for operational synergies and upside post renovation.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Assuming all conditions to closing are met, we anticipate acquiring this hotel later in the second quarter. Since the onset of pandemic, we have completed approximately $338,000,000 in hotel sales, with an additional $16,000,000 under contract and expected to close during the third quarter of this year. These sales have allowed us to forego over $100,000,000 in capital investments and have been completed at a blended 5% cap rate prior to taking into consideration necessary CapEx and a sub-four percent cap rate after CapEx. Over the same period, we have invested $1,000,000,000 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.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Our recent acquisition and disposition activity, along with our share issuance in 2023 and more recent share repurchases, demonstrate 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. Should our stock remain at a meaningful discount to values we can achieve in private market transactions, we will continue to opportunistically sell assets and redeploy proceeds primarily into additional share repurchases. As we have demonstrated over our long history in the lodging industry, we will monitor the market and adjust our focus appropriately as conditions change. We are confident opportunistic transactions like these will further drive long term value for our shareholders. We expect to reinvest between 80,000,000 and $90,000,000 in our hotels during 2025 with major renovations at approximately 20 of our hotels.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Reinvestments in our portfolio are a key component of our overall strategy and ensure that our hotels remain competitive in their respective markets to further drive EBITDA growth. First quarter capital expenditures were approximately $20,000,000 We are closely monitoring the potential impact of tariffs, which may result in increased costs and delays for some of our planned projects, though there are no known delays at this time. Our experienced team is focused on leveraging our scale ownership to control costs, maximize impact of dollars spent and implement projects during periods of seasonally lower demand to minimize revenue displacement. We entered 2025 anticipating the potential for a wide range of possible macroeconomic scenarios, and we're prepared to adjust operational and capital allocation priorities accordingly. This year, we celebrate twenty five years in the hospitality industry and ten years since our listing on the New York Stock Exchange.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Throughout our history, we have worked to refine our strategy, intentionally choosing to invest in high quality hotels that appeal to a broad set of business and leisure customers, diversifying our portfolio across markets and demand generators, maintaining a strong and flexible balance sheet with low leverage, reinvesting in our hotels and championing our corporate team and the associates and management teams who operate our hotels. Our differentiated strategy has been tested and proven With the strength of our broadly diversified portfolio, the overall stability of our business, our low leverage and the depth of our team, we are confident that we are well positioned to drive profitability and maximize long term value for our shareholders in any macroeconomic environment. 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 outlook for the remainder of the year.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Thank you, Justin, and good morning. While the first quarter of this year was impacted by a variety of factors, demand for our hotels remained generally solid, driving strong absolute performance. For the quarter, comparable hotels total revenue was $324,000,000 down 0.4% to the first quarter twenty twenty four. And comparable hotels adjusted hotel EBITDA was $105,000,000 down approximately 5% to the first quarter twenty twenty four. First quarter comparable hotels RevPAR was $111 down 0.5% ADR was $157 up 1% and occupancy was 71%, down 1.5% as compared to the first quarter twenty twenty four.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

In January and February, many of our markets throughout the Sunbelt region experienced extreme winter weather conditions, which negatively impacted travel demand. Our Southern California hotels, which benefited early in the quarter from wildfire related recovery business lifting overall portfolio results, experienced softer demand than was anticipated in the back half of the quarter. In March, the pullback in government travel became evident in a number of our markets and heightened macroeconomic uncertainty began weighing on travel demand. Despite these challenges, demand remained healthy across our portfolio, and we continue to see strength in absolute occupancy and rate. The pullback in government travel did not impact all markets equally.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

32 of our markets grew government occupancy mix for the first quarter, and overall government as a percent of mix remained relatively consistent with the same period of last year despite increased cancellations as we moved through March. Government demand typically represents between 56% of our overall business mix and has stabilized over the past month closer to the lower end of that range. In many of our more affected markets, our teams have been successful in adjusting the mix of business in our hotels to compensate for the change. While it is often difficult to determine underlying demand trends in the first quarter of the year, this year has been particularly difficult with the added macroeconomic volatility and challenging calendar comparisons, but there are some highlights for the quarter. Our Houston properties grew RevPAR almost 8% during the quarter, benefiting from a strong convention calendar and market wide corporate expansion and job growth, as well as an easier year over year renovation comp at our West Energy Residence Inn.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Our Los Angeles hotels grew RevPAR over 20% with fire recovery business bolstering the performance early in the quarter. The Super Bowl benefited our New Orleans hotel, which also saw over 20% growth during the quarter. Our Richmond hotels saw growth in crew, group and business transient, which enabled our three hotels in market to grow RevPAR almost 8%. Our hotels in Salt Lake City performed incredibly well during the quarter, achieving almost 10% RevPAR growth despite a softer ski season and renovation displacement in one of our hotels. We are especially excited about the Salt Lake City market.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

The city is expected to continue to benefit from a strong convention calendar, professional sporting events and continued growth in business transient. Based on preliminary results for the month of April 2025, comparable hotels RevPAR declined by approximately 3.5% as compared to the month of April 2024, with year over year growth in rate and occupancy following the negative impact of the shift in timing of the Easter holiday. Last weekend, we saw double digit RevPAR growth year over year for both Friday and Saturday nights, with Saturday's portfolio occupancy reaching 90%. Turning back to the first quarter, same store day over day trends showed a pullback in leisure, business and government related travel, which all contributed to the first quarter occupancy declines year over year. Weekend occupancy improved as the quarter progressed and was positive year over year in March at 1.3% after being down 4.2% in January and down 2% in February.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Weekday occupancy declines year over year improved throughout the quarter, down 3.5% in January, down 1.8% in February, and down 1.7% in March. Both weekend and weekday ADR increased by 1% for the quarter, partially offsetting lower occupancy. Same store room night channel mix year over year remained relatively stable with brand.com bookings at 40%, OTA bookings down 80 basis points to 11, property direct improved by 110 basis points to 26%, and GDS bookings were in line representing 18% of our mix. We are pleased to see the improvement in property direct business, which is a direct reflection of the focused sales efforts of our on-site and above property commercial teams. First quarter same store segmentation was largely consistent with the first quarter

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Bar remained strong, but decreased by 90 basis points to 33%. Other discounts represented 27% of our occupancy mix. Group increased by 140 basis points to 17%. Corporate and local negotiated business represented 17% of our mix, down 40 basis points, and government down only 30 basis points year over year with 5% of our mix. On a comparable basis, we continue to see growth in other revenues, which were up 9% during the quarter driven primarily by parking revenue.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Turning to expenses, comparable hotels total hotel expenses increased by 2.2% for the first quarter as compared to the first quarter of last year or 4% on a CPOR basis. Total payroll per occupied room for our same store hotels was $42 for the quarter, up 4% to the first quarter twenty twenty four driven by food and beverage and overhead salaries and benefits, while rooms wages were well controlled and up only 1% year over year on a per occupied room basis. We continue to achieve reductions in contract labor, which decreased during the quarter to 7.1% of total wages, down 160 basis points or 18% versus the same period in 2024. Comparable hotels variable hotel expenses increased by only 1.6% in the first quarter, benefiting from operating expenses which were up less than 1% and hotel admin costs which were flat compared to the first quarter of twenty twenty four. While our management teams were able to manage most variable expenses in response to lower occupancy, utilities and fixed expenses remained a headwind for the quarter.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Comparable hotels utilities expense was up 9% and same store property taxes grew 8% with increases in select markets and more favorable appeal adjustments in the first quarter of twenty twenty four. Insurance was also a challenge as expected, driven by an increase in general liability insurance premiums upon renewal in the fourth quarter, though we anticipate some relief moving forward from a favorable property insurance renewal this quarter. We achieved comparable hotels adjusted hotel EBITDA of approximately $105,000,000 for the first quarter, down approximately 5% to the first quarter twenty twenty four. We are especially pleased with our comparable hotels adjusted hotel EBITDA margin of 32.3% for the first quarter, down 180 basis points as compared to the first quarter twenty twenty four, a decline which was within our previously provided guidance range despite top line being below that guidance range, highlighting our team's ability to manage costs in a challenging environment. Adjusted EBITDAre was approximately $95,000,000 for the quarter, down approximately 5% as compared to the first quarter twenty twenty four.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

MFFO for the quarter was approximately $76,000,000 and $0.32 per share, down approximately 6% on a per share basis as compared to the first quarter twenty twenty four. Looking at our balance sheet, as of 03/31/2025, we had approximately $1,500,000,000 of total outstanding debt, approximately 3.3 times our trailing twelve months EBITDA, with a weighted average interest rate of 4.8%. At quarter end, our weighted average debt maturities were approximately two years. We had cash on hand of approximately $15,000,000 availability under our revolving credit facility of approximately $500,000,000 and approximately 72% of our total debt outstandings was fixed or hedged. In April, the company repaid in full one secured mortgage loan for a total of approximately $7,000,000 bringing the number of unencumbered hotels in the company's portfolio as of 04/30/2025 to 02/2007.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

We have two mortgage loans totaling $56,000,000 that will mature in the second and fourth quarter and term loans totaling $225,000,000 that 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 updated outlook for 2025 provided in yesterday's press release. For the full year, we expect net income to be between $167,000,000 and $195,000,000 Comparable hotels RevPAR change to be between negative 11%. Comparable hotels adjusted hotel EBITDA margin to be between 33.734.7% and adjusted EBITDAre to be between $433,000,000 and $457,000,000 As compared to the midpoint of previously provided 2025 guidance, we are decreasing comparable hotels RevPAR change by 200 basis points, resulting in a 50 basis point decrease in comparable hotels adjusted hotel EBITDA margin percentage and a decrease in adjusted EBITDAre of $14,000,000 As a reminder, while our asset management and hotel teams are working diligently to mitigate cost pressures, we have assumed for purposes of guidance that total hotel expenses will increase by approximately 3.3% at the midpoint, which is a 3.8% increase on a CPOR basis.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

We continue to assume in guidance that 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 $2,000,000 of incremental expenses related to brand conferences, occur every eighteen to twenty four months. 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 the range reflects a slight pullback in lodging demand, while the high end of the full year range reflects a slight improvement in the macroeconomic environment. As we celebrate and reflect on our twenty five years in the hospitality industry and ten years since listing on the New York Stock Exchange, we are confident our team has the knowledge and experience to successfully navigate market shifts and changing conditions to maximize profitability and drive additional value through opportunistic transactions. The underlying merits of our differentiated strategy have proven resilient across economic cycles, enabling us to preserve equity value in challenging environments and be uniquely positioned to enhance value as opportunities arise.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

While there may be economic headwinds this year, we believe favorable supply demand dynamics remain. 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. We are confident we remain well positioned for outperformance. That concludes our prepared remarks this morning, and we're happy to answer any questions you may have for us.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Operator?

Operator

Thank you. We will now be conducting a question and answer Our first question comes from Ari Klein with BMO Capital Markets. Please proceed with your question.

Ari Klein
Ari Klein
Director - Equity Research at BMO Capital Markets

Thanks and good morning. I was hoping maybe you can provide a little bit more color on the RevPAR guide. It seems to imply that things maybe are flattish or even a little bit better the rest of the year. Can you just talk about what you're seeing from a demand standpoint to the extent you have some visibility over the next couple of months, what that kind of looks like? And any changes in behavior on the consumer side of things?

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Happy to talk through that. So I think when we look at booking position, which really is between that and Q1 driving the changes at the midpoint of guidance. Looking at our booking position in late February, at the time that booking position supported the guidance then and Q1 expectations came down from there about 180 basis points relative to the expectations at that point. As we look at booking position today and we think about the midpoint of our range, it's a 200 basis point drop. And the implied RevPAR expectations for Q2 through Q4 are essentially flat in the back half when you consider the impact of Q2, which will be negatively impacted by April.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

When we look at bookings with April, we now expect Q2 to be our worst quarter with about 1% RevPAR growth implied for the back half of the year. Beyond bookings, as we look at the last eight days or so, we're seeing significantly stronger performance. It's certainly too soon to call that a trend, but it is encouraging. And I think in addition to that, while taking into consideration our booking position today relative to what it was late February, we believe we have additional opportunity to capitalize on some market share as well. So it's a combination of things that gives us the confidence or sort of gives us the midpoint that we provided in the revised guidance.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

But I do feel like based on where we performed expectations in Q1 and what we're seeing today, the 200 basis points represents what we have visibility to.

Ari Klein
Ari Klein
Director - Equity Research at BMO Capital Markets

Thanks for that. And then Justin, maybe just on the transaction market. You got some deals done in the quarter, which is good to see. But curious how conversations what conversations look like moving forward? Are there deals to be had in that market? And how active do you expect to be?

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

I think the transaction market has remained largely unchanged. I think debt continues to be available. Uncertainty has kept a lot of people who might be interested in larger transactions on the sideline. Where we've been effective from a disposition standpoint has been around smaller assets, where we're generally selling to local owner operators at lower per key and lower all in purchase prices, we continue to think that there will be opportunity to do that and to potentially redeploy proceeds into the purchase of our shares. Looking at what we intend to acquire now with the Tampa Homewood Suites that we have under contract, that's a very unique transaction.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

I think as demonstrated by the spread from a cap rate standpoint between where we're buying that asset and where we've been selling assets recently. In that particular instance, we had an opportunity to buy an asset that is in the parking lot for a very successful hotel that we currently own, where we have an opportunity to spread management between the two properties and create incremental synergies and where the hotel had been taken back by a lender who was in control of the property, and we were able to negotiate a strong going in yield. I think there will be less transactions like that available. And certainly, we're hopeful that we will continue to be able to execute on sale transactions as we have been year to date and really looking at our activity last year. In the current environment, we see tremendous value in our shares.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

We've been active buyers of shares. And as I highlighted in my prepared remarks, to the extent we can continue to sell assets at a meaningful spread, we see that as a way to create tremendous value for our shareholders.

Ari Klein
Ari Klein
Director - Equity Research at BMO Capital Markets

Thanks. Appreciate the color.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Absolutely.

Operator

Our next question comes from Michael Bellisario with Baird. Please proceed with your question.

Michael Bellisario
Senior Research Analyst at Robert W. Baird & Co

Thanks. Good morning, everyone.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Good Good morning.

Michael Bellisario
Senior Research Analyst at Robert W. Baird & Co

On the demand front and maybe putting government aside here, where are you seeing those macro uncertainties result in RevPAR to be lower? And is it really just related at this point to booking hesitancy? Or are you seeing transients or group cancellations occur?

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Good question. You know, I think we can spend a little time on segmentation broadly to help, you know, frame a full picture. You know, a portion of it does relate to government and and the pullback in government. Though I think, you know, we are seeing strong group, small group business. Our team is really focused on group and property direct business and and mixing shift away from government, which, you know, we had leaned more into than we had historically.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

If if you remember, going into March, we actually were over indexed to government at 7% of our business mix. So I think, when we think overall, we're not seeing a pullback in group. While we did see some one time group cancellations with government specifically, when you look at group as a whole, both with current performance and looking outward, we've got strong group position on the books. Beyond that, I mentioned Q1 segmentation in my prepared remarks, but it might be helpful to focus on March and then prelim April. In March, government room nights had declined about 15% to 5% of our occupancy mix, remembering that full year 2024, our room night mix for government is 5.5.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

So 5% still relatively good. The decline in room nights for March represented 80 basis points of occupancy mix decline. It's worth noting that going into March, our government bookings were above 7% as I mentioned before. And negotiated as we think about other segments, negotiated was around 17% of our mix, which is healthy in March, down just 10 basis points. So again, seeing some solid performance from the negotiated segment.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

In a month that was negatively impacted by longer spring break season, some macro uncertainty, all of those things negotiated held up relatively well. Shifting to April, which is certainly prelim and I don't have the last few days of the month, but which would only improve it because we ended April much more solidly than we started it. The month was noisy with Easter in the month, eclipse comparisons year over year again, and spring breaks pushing into early April. But government room nights had improved to be down less than they were in March, down around 11% for the month, and cancellations appeared to have leveled out. Government was still 5.3% of our occupancy mix, down only 50 basis points in April.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

And negotiated business was almost 18% of our mix. So in general, it's a little bit of everything, but everything is still fairly solid as well. And we're able to fill in some gaps with group, as I mentioned, which is really strong as we look ahead.

Michael Bellisario
Senior Research Analyst at Robert W. Baird & Co

Got it. That's very helpful. And then just my follow-up, maybe for Justin, just on CapEx. Can you remind us sort of your philosophy there? How much you want to spend?

Michael Bellisario
Senior Research Analyst at Robert W. Baird & Co

Where you want to spend it? And then any thoughts around maybe deferring projects and saving a little extra cash given the uncertainty that's out there? I know some of your peers have pulled back on CapEx, but maybe just more broadly remind us of your philosophy around CapEx spending and return expectations.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

So historically, we've spent between 56% of revenues fairly consistently on CapEx. The 80,000,000 to $90,000,000 is roughly in that range that we anticipate spending this year and covers 20 full renovations, a portion of which are end of franchise, PIPs, and then all of the other CapEx needs for our hotels, which include equipment and parking lots and exterior facade roofs. When we look at that and we look at our exposure to tariffs, it's a fraction of the total amount that we intend to spend. And in today's environment, Liz has highlighted, there is a tremendous amount of noise. It's important to reemphasize the fact that we're continuing to run really strong occupancies with the potential to potentially grow rate.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

I think relative to our peers, we have a meaningfully stronger balance sheet and feel absent a massive pullback, which we do not currently anticipate in the broader macroeconomic environment, it's prudent for us to proceed and to perform the renovations as we currently intend. We're certainly mindful of and watching tariffs and the potential impact on both the timing of delivery of goods and the overall cost and have an ability and flexibility to make adjustments to our total spend by pushing projects or pulling projects forward. But as of today, where we sit, we feel very comfortable with our expected spend for this year.

Michael Bellisario
Senior Research Analyst at Robert W. Baird & Co

Understood. Thank you.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

And I should highlight also that to the extent we're renovating and our peers are not, we see that as putting us in a competitive advantage where we own assets in the same market.

Operator

Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

Great. Thanks. Good morning, everyone. First off, Liz, I just wanted to clarify a comment earlier about implied RevPAR Did you say you expect second quarter to be the worst quarter of the year and then the second half RevPAR growth trends to be up 1%?

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Yes.

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

All right. Thank you. And then I guess when we think about the midpoint of the revised RevPAR growth guidance, is that more reflective of what we saw in March or more of what you're seeing in sort of this late April and into May where things have stabilized a little bit. Not sure if that's more on the March trajectory or kind of a new normal somewhere between we started the year and March. Just any commentary you can provide around that would be helpful.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Well, I think that we certainly were looking very closely at actuals as they've been coming in, demand trends looking forward, and have been pleased with the last week, but we're contemplating, the revised guidance in advance of this week. I'd say we're encouraged by the last week trend, but it or I shouldn't say trend, the last week, but it's too soon for us to call it a trend and necessarily work it into our revised guidance range. I believe that it helps to reinforce that we believe performance year to date is not necessarily indicative of what we'll see later in the year because of all the noise, whether it be calendar shifts or some of the macro commentary, some of the policy uncertainty. We believe underlying all of that, there are still some positive trends. And again, our absolute occupancy and rate are strong.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

So this last week is encouraging, but I'd say quarter first quarter performance and just general demand trends and what we've seen in segmentation is what got us to the midpoint of the guidance range.

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

Got it. And then if I heard you correctly, believe you said that some of the ADR in the first quarter offset some occupancy softness, I assume particularly in March. But after you kind of remix your business you know, from the weakness in certain

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Are you there?

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

Revised guidance. Can you hear me?

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Austin, you broke out for a period of time. Can you repeat that?

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

Yeah. So I was just kinda referencing, you know, that you had said earlier that, ADR offset some occupancy softness early in the year, but after remixing the business now and some weakness in certain the weakness in certain segments, how do we think about that ADR occupancy?

Operator

We're experiencing some technical difficulties right now.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Operator, can you still hear us?

Operator

Now you're coming in loud and clear. Let's try one more time.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Is Austin still there? Can you guys hear me?

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

I can hear you now. We'll see if we can I think you're asking how to think about well, it broke out at the exact same point, but I think I have the gist of your question, which is as we think about ADR performance year to date and as we think about the mix shift going forward, how should we be thinking about rate?

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

That correct?

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

You know, I would say that we are leveraging more property direct business. We are working actively working, to continue to ensure that we have great base business. I'd say based on what we see today, it's coming on at great rates. It's good healthy rates. And where we are from an occupancy perspective, that shouldn't be generally too surprising.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

So I think we still anticipate that as we're able to grow occupancy, we should be able to gain rate. And we are encouraged that as some segments have pulled back, we have been able to maintain rate. So we don't have any significant change to how we view ADR optionality or ADR potential growth as we move forward and even with some mix shifts in our business.

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

That's helpful. Thank you.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Thank you.

Operator

Our next question comes from Jay Kornreich with Wedbush Securities.

Jay Kornreich
VP - Equity Research at Wedbush Securities

You mentioned that group is overall looking strong, and I recognize it's a smaller overall segment of your portfolio, roughly 14% of demand. But I'm just curious if you've seen any changes to booking trends there or any increased hesitancy from group counterparties to get contracts signed for travel later this year or into next year? Or is everything kind of remaining strong as you referenced before?

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Remaining strong for the type of group we have in our hotels. As a reminder, it is a smaller percentage of our overall mix, but it is a consistent contributor to our mix. And it generally represents smaller corporate and smaller leisure groups that book near term. And so I think the fact that we are able to secure near term group bookings is an indication that that segment is not hesitating. And to the extent we're able to continue to see that as we progress through the year, we'd be confident as we continue forward.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

No signs at least at this point other than some group cancellations in March, specific group cancellations in March around government, have we really seen any pushback on the group side.

Jay Kornreich
VP - Equity Research at Wedbush Securities

Okay. Thanks for that. And then just for one follow-up, I wanted to go back to being willing to opportunistically sell assets and redeploy proceeds into additional share repurchases. If you decided to do that, how quickly do you think you could sell assets to do so? And at what total size do you perceive being able to or wanting to?

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

We're continuously in market so exploring potential options. So I think it's possible that we could complete transactions in a reasonable number of transactions within a three to six month period. The challenge we'll have in terms of total scale will not be desired, but the lack of a portfolio bidder, meaning that in today's environment, the most likely scenario will continue to be the sale of individual assets at lower total purchase prices. That's where we've seen the greatest transact the greatest traction with potential buyers, and as a result, the greatest opportunity to drive pricing, that's attractive to us, which means, you know, in in order to scale, we would need to do a large number of individual transactions, which we are up for, and ready to perform. And I think, you know, I I think given that backdrop, should we continue to trade at or around current levels and have the ability to continue to execute, there there's not not a real limit on our overall appetite to to do transactions like that.

Jay Kornreich
VP - Equity Research at Wedbush Securities

Okay. Appreciate the information. Thank you.

Operator

Our next question comes from Floris van Dijkum with Compass Point. Please proceed with your question.

Floris van Dijkum
Managing Director at Compass Point Research & Trading

Hey. Following up on the capital allocation side, just maybe can you talk about how many assets do you have in the market today? Presumably this and this has forced you to look at your the bottom 10% of your portfolio in greater detail. Maybe talk a little bit about how many assets currently you're looking to sell and obviously with the share price being where it is, repurchasing that, that which is not in your essence, would also boost your FFO per share presumably going forward as well.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Absolutely. And to clarify, we're opportunistic sellers, so we're not limited to a certain type of assets within our portfolio. Certainly, to the extent we're looking to trade in this way, we're looking to sell assets where we can optimize value relative to alternative use of capital. And we are intentionally selecting assets that we feel are marketable in today's environment. That said, we have not historically nor do we intend to speak to total volume that we're exploring opportunities around today.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

But only to say that, you know, I I think repeating what I said, in response to the the last question that I got, you know, we are, we have an appetite to pursue transactions that make sense, and that that's not not limited. It's limited only by our ability to execute in a way that creates value for our shareholders.

Floris van Dijkum
Managing Director at Compass Point Research & Trading

And and maybe the the follow-up in in terms of forward contracts, obviously, you have a a big one in Nashville. Your appetite to do those kinds of things in this environment presumably is almost nonexistent. Would that be correct?

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Our appetite continues to be strong for that type of transaction. Our ability execute on it is limited. And I highlighted in my prepared remarks, 60% roughly 60% of our portfolio has no exposure to projects under construction within a five mile radius. And it's important to let that sink in. That's unprecedented for our portfolio and certainly speaks to the fact that new construction starts, at least in our markets, with the types of hotels that we own, have pulled back dramatically.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

And I think, as I highlighted in my prepared remarks, added uncertainty around overall pricing because of the uncertainty around tariffs has further put new construction starts on hold. That's also impacting discussions that we're having with potential sellers of newly developed deals. And I think until there's greater clarity around where overall pricing is likely to land, we'll continue to see fewer construction, new construction sites, and our ability to make forward commitments for those will be limited as well.

Operator

Our next question comes from Michael Herring with Green Street Advisors. Please proceed with your question.

Michael Herring
Senior Associate - Equity Research at Green Street Advisors, LLC

Hi. Thank you. You guys have talked a little bit about the change in mix shift of demand as you guys go through the year. I was wondering if you could talk a little bit about how your operators are thinking about some, cost mitigation at certain properties or various markets and if that's been prioritized, as as of yet?

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

I'd say we're always focused on, you know, cost savings and operating as efficiently as we can. You know, reiterating that our occupancy is still really strong and the delta that we have seen in occupancy is not while we want it to be better, it is not material in a in a way that we can, you know, meaningfully adjust, the labor structure of our hotels or the cost structure overall. I think again, I don't want to underestimate that the team has done an exceptional job and continues to focus on it. But within the range of occupancies that we have provided with the updated guidance range, we're really focused on what we have been focused on, which is focused working on productivity, reducing contract labor, which we've been extremely successful with, reducing turnover, strengthening the teams. And the longer that the teams that we have in house with lower turnover, the longer that we have them, the better culture that we have and the better productivity we yield.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

And so we're focused on many things all the time, but I wouldn't say we're in deep cost mitigation territory yet. And again, that's not contemplated within the guidance range. To the extent things worsened, we have proven over multiple cycles that for any top line degradation, we lose less on the bottom line. So I am confident that if we have to pivot, we'll be able to do so competitively.

Michael Herring
Senior Associate - Equity Research at Green Street Advisors, LLC

All makes sense. Thank you. And, I guess, kind of thinking about that that last point there, do you think that the hotel industry in general is better set up to, to do better in a recession type of scenario and as well as Apple's port portfolio in particular? Or, do you think that there's still some risk there in in case there is any broader drawback in in demand?

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

As I highlighted in my in my prepared remarks, we are convicted around the fact that the adjustment or the the lack of new supply in the majority of our markets, we believe firmly that that meaningfully shifts the risk profile, limiting downside and meaningfully increasing upside potential for our assets. When you look at historical critiques of our strategy, they have largely been around exposure to supply. And what we have found is that in today's environment, the types of markets where we own assets and the types of assets that we own are enjoying a level of protection that is unprecedented. And I think that will position them for meaningfully stronger performance on a go forward basis. I think that's already manifest as we have weathered these small blips from a disrupted demand standpoint, March specifically, in that the negative impact on our portfolio of that plus year over year comps plus challenging weather was relatively minor.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

And I think in a more dramatic pullback, we would be meaningfully better positioned than we have been in times past. And if you go back and look at historical cycles, and I've had the opportunity to live through a number of them, the exacerbator for the negative impact on the hotel industry and on portfolios like ours, specifically, which, in spite of that, performed relatively incredibly well, was driven by the fact that there was outside supply growth at the worst potential time or worst possible time in the economic cycle. That's very unlikely to happen the way we're set up today. And in fact, to the extent we continue to see a pullback in new construction starts, our expectation is that near term, well over half of our portfolio won't have any exposure to new supply for several years to come.

Michael Herring
Senior Associate - Equity Research at Green Street Advisors, LLC

Understood. Thank you.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Thank you.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Thank you.

Operator

Our next question comes from Jack Armstrong with Wells Fargo. Please proceed with your question.

Jack Armstrong
Jack Armstrong
Equity Research Associate at Wells Fargo

Hey, good morning. Thanks for taking the question. Quarter to date, we've seen some weaker RevPAR for hotels kind of at the upscale level and down the chain scale. Would you say that across your portfolio, you're seeing pressure on all of the middle income consumer and maybe less of a trade down effect than we would have expected in a normal macro slowdown environment?

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

I can't say that I see that as we look at the data. I believe that what we have seen, at least for our portfolio year to date, has more to do with specific market concentration relative to the broader industry or peers or again just the number of disruptors that particularly influenced our market locations. I think between the weather, the eclipse comp, the Easter shift and the fact that Q1 is always our softest quarter because we are both a leisure but also heavy business transient portfolio to the extent you're in a slower business transient season, you have an extended spring break season and certainly the macro noise, think broadly it's more that than chain scale driven.

Jack Armstrong
Jack Armstrong
Equity Research Associate at Wells Fargo

Okay, great. And just a quick follow-up. Can you compare your level of full time employees to pre pandemic and your composition of contract labor? Do you have more flexibility or less flexibility now than you did heading into the pandemic if we get to a scenario where you need to cook?

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

I'd say that our full time FTEs are maybe just shy of pre pandemic levels when you look at it. I mean, we have been able to benefit from some of the housekeeping modifications. But our average length of stay is such that that materially changes our full time associate headcount materially. From a contract labor perspective, I mentioned in my prepared remarks, we're around 7% for the quarter. That's still slightly elevated to what we tracked pre pandemic.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

But I will say that our tracking is better post pandemic than it was pre pandemic. So we're probably still 200 basis points higher than what we were tracking in 2019. So still some opportunity on the contract labor side as we move more to in house. But generally speaking, I think our staffing level is stable and in line with what we would expect. From a flexibility standpoint, going into some sort of other period of disruption, I'd say we have always been in a position given the types of assets that we own that when there are pullbacks in demand, we can efficiently operate with fewer FTEs.

Liz Perkins
Liz Perkins
Senior VP & CFO at Apple Hospitality REIT

Given the fact that we have been through a more significant demand shock than we ever would have anticipated with COVID, and we were able to quickly adapt, You know, I do feel confident that our teams, and in partnership with the brands that we could make adjustments quickly, you know, as, you know, you know, as the environment changed. So I do think on a relative basis, we're we're in a slightly better position. But generally, the types of business that the types of assets that we invest in, it's strategic. It's they're efficiently operated and can be more efficiently operated than other hotel types.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Justin Knight for closing comments.

Justin Knight
Justin Knight
CEO & Director at Apple Hospitality REIT

Thank you, and we appreciate you joining us today. As always, we hope that as you travel, you'll take the opportunity to stay with us at one of our hotels, and we look forward to seeing a number of you in the coming weeks.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Executives
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Key Takeaways

  • Paid Q1 distributions of approximately $70 million (including a $0.05 special cash distribution), equating to a 8.2% annualized yield, with the Board ready to adjust rates based on hotel performance and capital priorities.
  • Maintaining a disciplined capital allocation approach—selling over $37 million in hotels, contracting roughly $117 million in new acquisitions (Homewood Suites Tampa and Moda by Hilton Nashville), and repurchasing $32 million of shares to strengthen the portfolio and enhance shareholder value.
  • First-quarter comparable RevPAR of $111 (down 0.5%), adjusted hotel EBITDA of $105 million (down 5%) and a 32.3% EBITDA margin—within guidance despite extreme winter weather and government travel pullbacks, highlighting effective cost management.
  • Strong market performance saw Houston RevPAR grow ~8%, Los Angeles and New Orleans each up over 20%, Richmond up ~8% and Salt Lake City near 10%, driven by conventions, corporate expansion and event demand.
  • Updated 2025 guidance: net income of $167 million–$195 million, RevPAR change of –1% to +4%, and adjusted EBITDAre of $433 million–$457 million, reflecting a 200 bp RevPAR downgrade and a modest margin impact amid macro uncertainty.
AI Generated. May Contain Errors.
Earnings Conference Call
Apple Hospitality REIT Q1 2025
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