Apple Hospitality REIT, Inc. (NYSE: APLE) (the “Company” or “Apple Hospitality”) today announced results of operations for the second quarter ended June 30, 2023.
Apple Hospitality REIT, Inc. Selected Statistical and Financial Data As of and For the Three and Six Months Ended June 30 (Unaudited) (in thousands, except statistical and per share amounts)(1) | |||||||||||
Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||
Net income | $65,289 | $65,345 | (0.1%) | $98,212 | $83,347 | 17.8% | |||||
Net income per share | $0.29 | $0.29 | 0.0% | $0.43 | $0.36 | 19.4% | |||||
Operating income | $83,029 | $80,745 | 2.8% | $132,276 | $113,580 | 16.5% | |||||
Operating margin % | 23.0% | 23.9% | (90 bps) | 19.7% | 19.0% | 70 bps | |||||
Adjusted EBITDAre | $129,144 | $126,208 | 2.3% | $224,432 | $204,506 | 9.7% | |||||
Comparable Hotels Adjusted Hotel EBITDA | $141,658 | $138,914 | 2.0% | $249,390 | $228,538 | 9.1% | |||||
Comparable Hotels Adjusted Hotel EBITDA Margin % | 39.3% | 40.9% | (160 bps) | 37.2% | 38.0% | (80 bps) | |||||
Modified funds from operations (MFFO) | $111,399 | $110,803 | 0.5% | $190,358 | $174,263 | 9.2% | |||||
MFFO per share | $0.49 | $0.48 | 2.1% | $0.83 | $0.76 | 9.2% | |||||
Average Daily Rate (ADR) (Actual) | $160.98 | $153.35 | 5.0% | $156.70 | $145.84 | 7.4% | |||||
Occupancy (Actual) | 78.2% | 77.9% | 0.4% | 75.1% | 72.5% | 3.6% | |||||
Revenue Per Available Room (RevPAR) (Actual) | $125.96 | $119.41 | 5.5% | $117.74 | $105.77 | 11.3% | |||||
Comparable Hotels ADR | $160.75 | $153.39 | 4.8% | $156.59 | $145.90 | 7.3% | |||||
Comparable Hotels Occupancy | 78.2% | 77.8% | 0.5% | 75.1% | 72.4% | 3.7% | |||||
Comparable Hotels RevPAR | $125.64 | $119.28 | 5.3% | $117.52 | $105.61 | 11.3% | |||||
Distributions paid | $54,883 | $34,261 | 60.2% | $128,282 | $47,962 | 167.5% | |||||
Distributions paid per share | $0.24 | $0.15 | 60.0% | $0.56 | $0.21 | 166.7% | |||||
Cash and cash equivalents | $6,420 | ||||||||||
Total debt outstanding | $1,406,458 | ||||||||||
Total debt outstanding, net of cash and cash equivalents | $1,400,038 | ||||||||||
Total debt outstanding, net of cash and cash equivalents, to total
| 28.8% | ||||||||||
(1) | Explanations of and reconciliations to net income determined in accordance with generally accepted accounting principles (“GAAP”) of non-GAAP financial measures, Adjusted EBITDAre, Comparable Hotels Adjusted Hotel EBITDA and MFFO, are included below. |
(2) | Total debt outstanding, net of cash and cash equivalents ("net total debt outstanding"), divided by net total debt outstanding plus equity market capitalization based on the Company’s closing share price of $15.11 on June 30, 2023. |
Comparable Hotels is defined as the 220 hotels owned by the Company as of June 30, 2023, and excludes one non-hotel property leased to third parties. For hotels acquired during the periods noted, the Company has included, as applicable, results of those hotels for periods prior to the Company's ownership, and for dispositions, results have been excluded for the Company's period of ownership. Results for periods prior to the Company's ownership have not been included in the Company's actual Consolidated Financial Statements and are included only for comparison purposes. Results included for periods prior to the Company's ownership are based on information from the prior owner of each hotel and have not been audited or adjusted. | |
Justin Knight, Chief Executive Officer of Apple Hospitality, commented, “Demand trends across our broadly diversified portfolio of select-service hotels have remained strong, and we are pleased to report solid year-over-year improvements in occupancy, ADR and RevPAR for the quarter. With a fundamental shift in consumer spending, leisure demand continues to be robust, driving strong weekend occupancies and allowing for continued rate growth, while steady improvement in business travel has bolstered mid-week occupancy and rate, further lifting overall portfolio performance. Second quarter 2023 Comparable Hotels RevPAR improved by more than 5%, ADR increased by approximately 5% and Occupancy was up by nearly 1% as compared to second quarter 2022. With portfolio occupancy still below pre-pandemic levels, RevPAR was up 7% relative to second quarter 2019, our highest quarterly Comparable Hotels RevPAR growth relative to 2019 since the onset of the pandemic. Although inflationary challenges and a tough labor environment persist, our continued growth in ADR and our efficient operating model have enabled us to achieve strong margins."
Mr. Knight continued, “We are pleased to have acquired the Courtyard Cleveland University Circle during the quarter and continue to underwrite numerous potential opportunities. The transaction market, while still relatively quiet, seems to be opening up, and we anticipate deal volume will increase as the year progresses. We have tremendous transaction experience which, combined with our liquidity position and deep industry relationships, positions us to drive incremental shareholder value by enhancing and growing our portfolio when conditions are optimal. We continue to execute against our proven investment strategy and are confident we are well positioned for continued outperformance."
Hotel Portfolio Overview
As of June 30, 2023, Apple Hospitality owned 220 hotels with an aggregate of 28,929 guest rooms located in 87 markets throughout 37 states.
Second Quarter 2023 Highlights
- Strong operating performance: For the second quarter 2023, Comparable Hotels RevPAR was $126, a 5% increase over second quarter 2022; Comparable Hotels ADR was $161, a 5% increase over second quarter 2022; and Comparable Hotels Occupancy was 78%, a nearly 1% increase over second quarter 2022. Comparable Hotels Occupancy, ADR and RevPAR exceeded industry averages as reported by STR. Based on preliminary results for the Company's portfolio for the month of July 2023, Comparable Hotels Occupancy was approximately 77%, in line with July 2022, with growth in Comparable Hotels ADR as compared to July 2022.
- Strong bottom-line performance: The Company achieved Comparable Hotels Adjusted Hotel EBITDA of approximately $142 million, a 2% improvement over second quarter 2022. The Company achieved Comparable Hotels Adjusted Hotel EBITDA Margin of approximately 39%, down 160 bps to second quarter 2022.
- Acquisition activity: On June 30, 2023, the Company acquired the Courtyard by Marriott Cleveland University Circle in Cleveland, Ohio, for a gross purchase price of $31 million. The Company currently has two additional hotels under contract for purchase for an anticipated combined gross purchase price of approximately $175 million.
- Share repurchases: The Company purchased, under its Share Repurchase Program, approximately 0.2 million of its common shares at a weighted-average market purchase price of approximately $14.47 per common share, for an aggregate purchase price of approximately $3 million.
- Balance sheet: The Company has maintained the strength and flexibility of its balance sheet. At June 30, 2023, the Company’s total debt to total capitalization, net of cash and cash equivalents, was approximately 29%.
- Monthly distributions: During the three months ended June 30, 2023, the Company paid distributions totaling $0.24 per common share. Based on the Company’s common stock closing price of $15.01 on August 2, 2023, the current annualized monthly cash distribution of $0.96 per common share represents an annual yield of approximately 6.4%.
Beginning this quarter, the Company is providing monthly performance detail for its Comparable Hotels with comparisons to the respective periods of 2022. In prior quarters, the Company provided full portfolio actual results with comparisons to the respective periods in the prior year as well as 2019. As a result of the industry's general recovery from the impact of COVID-19 on hotel operations, the Company believes timing is appropriate to generally transition away from comparisons to 2019. The following table highlights the Company’s Comparable Hotels monthly performance during the second quarter of 2023 as compared to the second quarter of 2022 (in thousands, except statistical data):
% Change | |||||||||||||||||||||||
April | May | June | April | May | June | April | May | June | |||||||||||||||
2023 | 2023 | 2023 | Q2 2023 | 2022 | 2022 | 2022 | Q2 2022 | 2022 | 2022 | 2022 | Q2 2022 | ||||||||||||
ADR (Comparable Hotels) | $156.06 | $160.40 | $165.58 | $160.75 | $148.48 | $152.02 | $159.48 | $153.39 | 5.1% | 5.5% | 3.8% | 4.8% | |||||||||||
Occupancy (Comparable Hotels) | 77.0% | 76.9% | 80.6% | 78.2% | 77.1% | 76.4% | 79.8% | 77.8% | (0.1%) | 0.7% | 1.0% | 0.5% | |||||||||||
RevPAR (Comparable Hotels) | $120.25 | $123.29 | $133.47 | $125.64 | $114.48 | $116.21 | $127.26 | $119.28 | 5.0% | 6.1% | 4.9% | 5.3% | |||||||||||
Operating income (Actual) | $24,392 | $26,644 | $31,993 | $83,029 | $23,442 | $26,489 | $30,814 | $80,745 | 4.1% | 0.6% | 3.8% | 2.8% | |||||||||||
Adjusted Hotel EBITDA (Actual) (1) | $43,294 | $46,588 | $51,362 | $141,244 | $42,376 | $45,012 | $49,127 | $136,515 | 2.2% | 3.5% | 4.5% | 3.5% | |||||||||||
Comparable Hotels Adjusted Hotel EBITDA (2) | $43,129 | $46,746 | $51,783 | $141,658 | $42,976 | $45,924 | $50,014 | $138,914 | 0.4% | 1.8% | 3.5% | 2.0% | |||||||||||
(1) | See explanation and reconciliation of Adjusted Hotel EBITDA to net income included below. |
(2) | See explanation and reconciliation of Comparable Hotels Adjusted Hotel EBITDA to Adjusted Hotel EBITDA included below. |
Comparable Hotels is defined as the 220 hotels owned by the Company as of June 30, 2023, and excludes one non-hotel property leased to third parties. For hotels acquired during the periods noted, the Company has included, as applicable, results of those hotels for periods prior to the Company's ownership, and for dispositions, results have been excluded for the Company's period of ownership. Results for periods prior to the Company's ownership have not been included in the Company's actual Consolidated Financial Statements and are included only for comparison purposes. Results included for periods prior to the Company's ownership are based on information from the prior owner of each hotel and have not been audited or adjusted. | |
Portfolio Activity
Acquisition
As previously announced, on June 30, 2023, the Company acquired the newly renovated, 154-room Courtyard by Marriott Cleveland University Circle in Cleveland, Ohio, for a gross purchase price of $31 million.
Contracts for Potential Acquisitions
During the second quarter 2023, the Company entered into a contract for the purchase of a Motto by Hilton to be developed in Nashville, Tennessee, for an anticipated total purchase price of approximately $97 million with an expected 256 rooms upon completion of construction. Assuming all conditions to closing are met, the Company anticipates acquiring the Motto in Nashville following completion of construction, which is expected to occur in 2025.
As previously announced, the Company has an outstanding contract for the purchase of an Embassy Suites by Hilton in Madison, Wisconsin, for an anticipated total purchase price of approximately $79 million. The Embassy Suites in Madison is currently under development and expected to include 260 rooms upon completion of construction. Assuming all conditions to closing are met, the Company anticipates acquiring the Embassy Suites in Madison following completion of construction, which is expected to occur in early 2024.
There are many conditions to closing on each of these hotels that have not yet been satisfied, and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts.
New York Independent Boutique Hotel Lease
During the second quarter 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York, for all hotel operations of the hotel's 210 hotel rooms. Lease revenue from this property is recorded in other revenue in the Company's consolidated statements of operations and comprehensive income. As a result of the lease agreement, this property is excluded from the Company's hotel and room counts effective May 2023 and is considered a non-hotel property through the end of the lease term.
Capital Improvements
Apple Hospitality consistently reinvests in its hotels to maintain and enhance each property’s relevance and competitive position within its respective market. During the six months ended June 30, 2023, the Company invested approximately $28 million in capital expenditures. The Company anticipates investing approximately $70 million to $80 million in capital improvements during 2023, which includes comprehensive renovation projects for approximately 20 to 25 hotels.
Balance Sheet and Liquidity
Summary
As of June 30, 2023, the Company had approximately $1.4 billion of total outstanding debt with a current combined weighted-average interest rate of approximately 4.3%, cash on hand of approximately $6 million and availability under its revolving credit facility of approximately $626 million. Excluding unamortized debt issuance costs and fair value adjustments, the Company’s total outstanding debt as of June 30, 2023, was comprised of approximately $287 million in property-level debt secured by 15 hotels and approximately $1.1 billion outstanding under its unsecured credit facilities. The number of unencumbered hotels in the Company’s portfolio as of June 30, 2023, was 205. The Company’s total debt to total capitalization, net of cash and cash equivalents at June 30, 2023, was approximately 29%, which provides Apple Hospitality with financial flexibility to fund capital requirements and pursue opportunities in the marketplace. As of June 30, 2023, the Company’s weighted-average debt maturities were 4.1 years.
On July 19, 2023, the Company entered into an amendment of its $225 million term loan facility, which extended the maturity date of the existing $50 million term loan by two years to August 2, 2025.
Capital Markets
Share Repurchase Program
The Company has in place a Share Repurchase Program that provides for share repurchases in open market transactions. During the six months ended June 30, 2023, the Company purchased, under its Share Repurchase Program, approximately 0.5 million of its common shares at a weighted-average market purchase price of approximately $14.34 per common share, for an aggregate purchase price of approximately $7 million. As of June 30, 2023, the Company had approximately $335 million remaining under its Share Repurchase Program for the repurchase of shares. Shares were repurchased in open market transactions under the Share Repurchase Program, including pursuant to written trading plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
ATM Program
The Company also has in place an at-the-market offering program (the “ATM Program”). As of June 30, 2023, the Company had approximately $224 million remaining under its ATM Program for the issuance of shares. No shares were sold under the ATM program during the six months ended June 30, 2023.
Shareholder Distributions
During the three months ended June 30, 2023, the Company paid distributions totaling $0.24 per common share. Based on the Company’s common stock closing price of $15.01 on August 2, 2023, the current annualized monthly cash distribution of $0.96 per common share represents an annual yield of approximately 6.4%. While the Company currently expects monthly distributions to continue, each distribution is subject to approval by the Company’s Board of Directors. The Company’s Board of Directors, in consultation with management, will continue to monitor the Company’s distribution rate and timing relative to the performance of its hotels, capital improvement needs, varying economic cycles, acquisitions, dispositions, other cash requirements and the Company’s REIT status for federal income tax purposes, and may make adjustments as it deems appropriate.
Updated 2023 Outlook
The Company is updating its operational and financial outlook for 2023. This
