Apple Hospitality REIT, Inc. (NYSE:APLE) Q3 2021 Earnings Conference Call November 5, 2021 10:00 AM ET Company Representatives Justin Knight - Chief Executive Officer Liz Perkins - Chief Financial Officer Kelly Clarke - Vice President, Investor Relations Conference Call Participants Neil Malkin - Capital One Securities Kyle Menges - B. Riley Securities Anthony Powell - Barclays Tyler Batory - Janney Michael Bellisario - Baird Chris Darling - Green Street Austin Wurschmidt - KeyBanc Operator Greetings! And w ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited consolidated financial statements detail the company's financial position, operational results, and cash flows for the third quarter and first nine months of 2021 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet shows total assets of $4.70 billion and total liabilities of $1.58 billion as of September 30, 2021, with shareholders' equity increasing to $3.13 billion Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 (unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Investment in real estate, net | $4,541,424 | $4,732,896 | | Cash and cash equivalents | $39,432 | $5,556 | | **Total Assets** | **$4,704,827** | **$4,829,759** | | **Liabilities** | | | | Debt, net | $1,366,621 | $1,482,571 | | Accounts payable and other liabilities | $111,706 | $219,981 | | **Total Liabilities** | **$1,576,713** | **$1,800,412** | | **Total Shareholders' Equity** | **$3,128,114** | **$3,029,347** | [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) The company's profitability significantly improved, reporting a net income of $31.8 million for Q3 2021 compared to a net loss of $40.9 million in Q3 2020 Key Operating Results (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $277,164 | $148,826 | $683,281 | $467,914 | | Operating Income (Loss) | $47,850 | $(22,356) | $59,024 | $(69,212) | | Net Income (Loss) | $31,759 | $(40,948) | $5,607 | $(121,960) | | Basic and Diluted EPS | $0.14 | $(0.18) | $0.02 | $(0.55) | [Consolidated Statements of Shareholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity increased to $3.13 billion, driven by net income and common share issuances, partially offset by shareholder distributions - For the nine months ended September 30, 2021, the company issued 4.68 million common shares, netting **$75.0 million**[16](index=16&type=chunk) - Distributions declared to shareholders totaled **$6.8 million** ($0.03 per share) for the first nine months of 2021, compared to **$45.0 million** ($0.20 per share) in the same period of 2020[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $146.4 million for the nine-month period, with investing activities funded by real estate sales and financing activities used for debt repayment Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $146,362 | $26,199 | | Net cash provided by (used in) investing activities | $21,997 | $(88,100) | | Net cash provided by (used in) financing activities | $(128,849) | $82,859 | | **Net change in cash** | **$39,510** | **$20,958** | [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies and significant financial activities, including the impact of COVID-19, real estate transactions, and debt management - As of September 30, 2021, the Company owned **215 hotels** with **28,085 rooms** in 35 states[20](index=20&type=chunk) - The company notes that while hotel occupancy has recovered significantly during the first nine months of 2021, significant uncertainty remains as to when or if operations will return to pre-pandemic levels due to COVID-19[23](index=23&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant recovery in hotel operations, portfolio changes, financial performance, and liquidity position during 2021 [Overview and COVID-19 Impact](index=21&type=section&id=Overview%20and%20COVID-19%20Impact) The company's operations showed recovery from the COVID-19 pandemic driven by leisure travel, though a full recovery remains uncertain and dependent on business travel - The company expects the decline in revenue associated with COVID-19 to negatively impact operating results for an extended period, with a **full recovery dependent on the return of business travel**[104](index=104&type=chunk) - Cost reduction initiatives, such as adjusting operations, reducing amenities, and renegotiating service contracts, are **not expected to fully offset revenue losses** from the pandemic[105](index=105&type=chunk) [2021 Hotel Portfolio Activities](index=22&type=section&id=2021%20Hotel%20Portfolio%20Activities) The company actively managed its portfolio by acquiring four hotels for $197.5 million and selling 23 hotels for $234.6 million during the first nine months of 2021 - Acquired four hotels in Madison, WI; Portland, ME (two hotels); and Greenville, SC for an aggregate gross purchase price of approximately **$147.9 million**, plus a previously contracted Hilton Garden Inn in Madison, WI for **$49.6 million**[106](index=106&type=chunk) - Sold 23 hotels for a total gross sales price of approximately **$234.6 million**, resulting in a net gain of **$3.7 million**[110](index=110&type=chunk) - As of September 30, 2021, the company had outstanding contracts to purchase five hotels for a total expected price of **$242.6 million**, with four expected to close in Q4 2021 and one in 2023[107](index=107&type=chunk) [Hotel Operations](index=23&type=section&id=Hotel%20Operations) Hotel operations demonstrated a strong recovery in Q3 2021, with RevPAR for the total portfolio increasing 96.6% year-over-year, though still below pre-pandemic levels Total Portfolio Operating Metrics | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | ADR | $140.02 | $104.78 | 33.6% | | Occupancy | 71.5% | 48.6% | 47.1% | | RevPAR | $100.14 | $50.94 | 96.6% | Comparable Hotels (215 properties) Operating Metrics | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | ADR | $141.56 | $106.13 | 33.4% | | Occupancy | 71.6% | 48.7% | 47.0% | | RevPAR | $101.32 | $51.64 | 96.2% | - Occupancy for the company's portfolio reached approximately **76% in July 2021**, the highest monthly level since the pandemic began, and was approximately **73% in October 2021**[124](index=124&type=chunk) [Non-GAAP Financial Measures](index=26&type=section&id=Non-GAAP%20Financial%20Measures) Key non-GAAP metrics like MFFO and Adjusted Hotel EBITDA showed substantial year-over-year growth, reflecting the operational recovery in Q3 2021 Reconciliation of Net Income (Loss) to FFO and MFFO (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $31,759 | $(40,948) | $5,607 | $(121,960) | | Funds from operations | $74,743 | $7,359 | $147,577 | $17,656 | | Modified funds from operations | $76,065 | $9,118 | $152,417 | $22,912 | Reconciliation of Net Income (Loss) to Adjusted Hotel EBITDA (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $31,759 | $(40,948) | $5,607 | $(121,960) | | EBITDA | $92,165 | $27,918 | $198,631 | $80,683 | | Adjusted Hotel EBITDA | $105,423 | $34,688 | $235,664 | $98,689 | [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with $1.4 billion in debt and $464.4 million in available capital, exiting its debt covenant waiver period in July 2021 - Total liquidity as of September 30, 2021, included approximately **$39.4 million in cash** and **$425 million of unused capacity** on the revolving credit facility[164](index=164&type=chunk) - The company **exited its Extended Covenant Waiver Period** on July 29, 2021, and is no longer subject to prior restrictions on acquisitions, distributions, and capital expenditures[169](index=169&type=chunk) - In Q2 2021, the company sold 4.7 million shares under its ATM Program, raising approximately **$75.1 million in net proceeds**[171](index=171&type=chunk) - The company anticipates spending an additional **$15-20 million on capital expenditures** for the remainder of 2021, including renovations for approximately eight properties[178](index=178&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate exposure, which is significantly mitigated through interest rate swaps covering most of its variable-rate debt - The company uses 13 interest rate swap agreements to effectively fix the interest payments on **$770.0 million** of its variable-rate debt[188](index=188&type=chunk) - Approximately **4% ($50.0 million)** of the company's total debt outstanding was subject to variable interest rates as of September 30, 2021[187](index=187&type=chunk) - A **100 basis point change** in interest rates is estimated to impact annual net income by approximately **$0.5 million**[187](index=187&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any litigation expected to have a material adverse effect on its financial condition or operations - The Company is not currently a party to any legal proceedings that would have a **material adverse effect** on its financial condition or operations[194](index=194&type=chunk) [Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period - The Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer concluded that the Company's disclosure controls and procedures were **effective as of September 30, 2021**[191](index=191&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including corporate governance documents and required certifications [Signatures](index=41&type=section&id=Signatures) The report is duly signed and authorized by the company's executive officers as of November 4, 2021

Apple Hospitality REIT, Inc. (NYSE:APLE) Q2 2021 Results Conference Call August 6, 2021 10:00 AM ET Company Participants Kelly Clarke - Vice President of Investor Relations Justin Knight - Chief Executive Officer Liz Perkins - Senior Vice President and Chief Financial Officer Conference Call Participants Neil Malkin - Capital One Securities Austin Wurschmidt - KeyBanc Anthony Powell - Barclays Tyler Batory - Janney Dany Asad - Bank of America Dori Kesten - Wells Fargo Michael Bellisario - Baird Chris Darlin ...

Company Profile & Investment Strategy - Apple Hospitality REIT owns 232 hotels [6] with 29,753 guest rooms [6], primarily rooms-focused [6] - The company has a portfolio of hotels associated with 13 brands [6] and managed by 16 management companies [6] - The portfolio is geographically diversified across 35 states [6] and 88 markets [6] - The average effective age of the hotels is 5 years [6], while the average TripAdvisor rating is 4.3 [6] - The company's net total debt to total capitalization is 32% [6], and it has 200 unencumbered hotels [6] Portfolio & Performance - Extended Stay represents 32% of APLE's portfolio [23], Suite Product 23% [23], Other Select Service 43% [23], and Full Service 2% [23] - The company achieved cost savings by reducing total hotel expense by 45% in Q2 2020 [44], 43% in Q3 2020 [44], 37% in Q4 2020 [44], and Q1 2021 [44] compared to the same quarters in 2019 [44] - The company's expense reduction ratio was 0.77 in Q1 2021 [44], meaning that for every 1% decline in total revenue, total hotel expense decreased by 0.77% [44] Financial Position & Strategy - The company aims for an expense reduction ratio target of 0.70 – 0.75 in 2021 [45] - In 2020, the company completed acquisitions of hotels for a total of $111.3 million [57] and dispositions for $55.3 million [57] - In Q1 2021, RevPAR was $55.09 [89], Total Revenue was $158.713 million [89], and Adjusted Hotel EBITDA was $35.427 million [89]

Financial Data and Key Metrics Changes - The company achieved positive cash flow after all corporate level expenses, including capital expenditures, during Q1 2021, marking the strongest operating results since the pandemic began [7][11] - Adjusted hotel EBITDA was $35 million, adjusted EBITDAre was $27 million, and modified funds from operations (MFFO) were $9 million for the quarter [11][25] - Total hotel operating expenses were reduced by 41% compared to the same period in 2019 [10][28] Business Line Data and Key Metrics Changes - RevPAR (Revenue per Available Room) increased to over $68 in March, with a 25% increase from January to February and a 27% increase from February to March [9][11] - The company reported a comparable adjusted hotel EBITDA margin of 23% during the quarter, down only 410 basis points from Q1 2020 but up 530 basis points from Q4 2020 [25][11] - The portfolio occupancy reached approximately 68% in April, with continued improvement in average daily rate (ADR) [9][20] Market Data and Key Metrics Changes - The company’s suburban hotels outperformed urban hotels with occupancy rates of 57% compared to 49% [23] - Strong performance was noted in warmer markets such as California, Texas, and Florida, with 27 hotels achieving occupancies over 80% for the full quarter [22] - The company expects continued outperformance in markets with fewer travel restrictions and less dependence on conventions and large corporate business [24] Company Strategy and Development Direction - The company aims to focus on increasing profitability and operational efficiencies while pursuing accretive transactions to maximize long-term shareholder value [8][13] - The strategy includes maintaining a flexible capital structure with low leverage and investing in geographically diversified select-service hotels [16][29] - The company plans to continue optimizing operations to ensure that cost savings and operational efficiencies achieved during the pandemic persist [11][28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for the remainder of the year due to strong leisure demand and signs of improvement in business transient travel [7][9] - The company anticipates that as business travel increases, it will be able to better manage the mix of business in hotels to drive rate increases [21][42] - Management highlighted the importance of maintaining a conservative balance sheet and the ability to navigate the current environment effectively [31][30] Other Important Information - The company has entered into amendments to its unsecured credit facilities, extending the covenant waiver period and enhancing flexibility for acquisitions [12][29] - The company has sold three hotels for a combined total of $24 million and acquired five hotels for $161 million since the onset of the pandemic [14][13] - The company plans to invest an additional $23 million to $28 million in capital improvements during the remainder of 2021 [14] Q&A Session Summary Question: Congratulations on achieving positive cash flow - Management expressed gratitude for the acknowledgment [34] Question: Thoughts on acquisitions and market conditions - Management noted increased transaction volume and ongoing discussions for potential acquisitions, emphasizing a selective approach [36][38] Question: Update on occupancy and pricing trends - Management reported continued improvement in both weekday and weekend occupancy, with positive ADR trends [40][41] Question: Labor market conditions and hiring - Management acknowledged challenges in the labor market but noted a strategic decision to retain workers during seasonal declines [66][69] Question: CapEx guidance and potential adjustments - Management confirmed comfort with current CapEx plans but indicated flexibility to adjust if operating performance exceeds expectations [71] Question: Investor demand and valuations for hotel assets - Management observed strong demand for assets, keeping pricing stable relative to pre-pandemic levels [76] Question: Supply growth outlook for limited service properties - Management expects lower supply growth in the coming years due to high construction costs and labor shortages [78]