Apple Hospitality REIT(APLE) - 2024 Q3 - Quarterly Results

Results of Operations for Third Quarter 2024 The company reported mixed financial results for Q3 2024, with a slight net income decrease offset by growth in Adjusted EBITDAre and RevPAR, supported by strong operating fundamentals and strategic capital allocation Q3 2024 Key Financial & Operating Metrics For the third quarter of 2024, Apple Hospitality REIT reported a 3.8% decrease in Net Income to $56.3 million, while Adjusted EBITDAre grew by 5.7% to $128.9 million. Total portfolio RevPAR increased by 1.8% to $125.10, driven by a 2.0% rise in ADR, with occupancy remaining nearly flat. MFFO per share was stable at $0.45 Q3 2024 Financial Highlights (vs. Q3 2023) | Metric | Q3 2024 (in thousands) | Q3 2023 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Net Income | $56,266 | $58,512 | (3.8%) | | Net Income per Share | $0.23 | $0.26 | (11.5%) | | Operating Income | $77,726 | $76,295 | 1.9% | | Adjusted EBITDAre | $128,900 | $121,927 | 5.7% | | MFFO | $107,439 | $104,139 | 3.2% | | MFFO per Share | $0.45 | $0.45 | 0.0% | Q3 2024 Operating Metrics (Actual vs. Q3 2023) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | ADR (Actual) | $162.57 | $159.36 | 2.0% | | Occupancy (Actual) | 77.0% | 77.1% | (0.1%) | | RevPAR (Actual) | $125.10 | $122.91 | 1.8% | Management Commentary The CEO highlighted strong operating fundamentals, with a 1% Comparable Hotels RevPAR growth in Q3 2024, driven by steady business transient demand and strong leisure travel. The company emphasized its disciplined capital allocation strategy, including strategic acquisitions, dispositions, and share repurchases, while maintaining a strong balance sheet to maximize long-term shareholder value - Operating fundamentals remained strong during the quarter, with Comparable Hotels RevPAR growth of approximately 1% compared to Q3 2023, driven by slow but steady improvement in business transient demand and ongoing strength in leisure travel[3] - Preliminary results for October 2024 show continued momentum with Comparable Hotels RevPAR growth of approximately 4%, driven by increases in both occupancy and ADR[4] - The company highlighted its disciplined capital allocation strategy, which includes acquiring two hotels for $196 million, selling three for $41 million, and repurchasing $35 million in common shares since the beginning of the year through October[3] Third Quarter 2024 Highlights Key highlights for Q3 2024 include a 1% increase in Comparable Hotels RevPAR to $125, a 6% rise in Adjusted EBITDAre to $129 million, and a 3% increase in MFFO to $107 million. The company repurchased $19.2 million of its common shares, maintained a strong balance sheet with a net debt-to-capitalization ratio of approximately 30%, and paid distributions of $0.24 per share - Comparable Hotels RevPAR was $125, an increase of approximately 1% over Q3 2023[4] - Adjusted EBITDAre increased by approximately 6% to $129 million, and MFFO grew by approximately 3% to $107 million compared to Q3 2023[4] - The company repurchased approximately 1.4 million common shares for an aggregate price of $19.2 million during the third quarter[4] - Maintained a strong balance sheet with total debt to total capitalization, net of cash, at approximately 30% as of September 30, 2024[5] Portfolio Activity & Capital Allocation The company actively managed its portfolio in 2024 through strategic acquisitions and dispositions, while committing significant capital to property improvements to enhance asset value Portfolio Overview As of September 30, 2024, Apple Hospitality's portfolio consisted of 224 hotels with 30,068 guest rooms across 37 states and the District of Columbia. One hotel was classified as held for sale - As of September 30, 2024, the Company owned 224 hotels, with an aggregate of 30,068 guest rooms located in 87 markets throughout 37 states and the District of Columbia[3] Acquisitions & Dispositions In 2024, the company acquired two hotels for a total of $196.3 million and sold three hotels for a combined $40.6 million, resulting in a gain of $18.2 million. Additionally, the company has one hotel under contract for a potential acquisition in late 2025 and four hotels under contract for sale for a combined price of $31.1 million - Acquired two hotels in 2024 for a combined purchase price of approximately $196.3 million: the AC Hotel by Marriott Washington DC Convention Center and the Embassy Suites by Hilton Madison Downtown[8] - Sold three hotels during the first nine months of 2024 for a combined gross sales price of approximately $40.6 million, generating a gain of $18.2 million[10] - The company has one hotel, a Motto by Hilton in Nashville, under contract for a potential acquisition for approximately $98.2 million, expected in late 2025[9] - Four hotels are currently under contract for sale for a combined gross sales price of approximately $31.1 million, with closings expected in late 2024 or early 2025[11] Capital Improvements The company is committed to reinvesting in its properties to maintain competitiveness. Approximately $48 million was invested in capital expenditures in the first nine months of 2024, with a full-year forecast of $75 million to $85 million, including comprehensive renovations for about 20 hotels - Invested approximately $48 million in capital expenditures during the nine months ended September 30, 2024[13] - Anticipates investing a total of $75 million to $85 million in capital improvements for the full year 2024, which includes renovations for approximately 20 hotels[13] Financial Condition & Capital Markets The company maintained a strong financial position with manageable debt and ample liquidity, actively engaging in share repurchases and consistent shareholder distributions Balance Sheet and Liquidity As of September 30, 2024, the company had approximately $1.5 billion in total debt with a weighted-average interest rate of 4.9%. Liquidity remained strong with $6 million in cash and $540 million available under its revolving credit facility. The company's net debt to total capitalization was approximately 30%, and it increased its unencumbered hotel count to 210 after repaying a $20 million mortgage Debt and Liquidity as of September 30, 2024 | Metric | Value | | :--- | :--- | | Total Outstanding Debt | ~$1.5 billion | | Weighted-Average Interest Rate | ~4.9% | | Cash on Hand | ~$6 million | | Revolving Credit Facility Availability | ~$540 million | | Net Debt to Total Capitalization | ~30% | - In August 2024, the company repaid a $20 million secured mortgage loan, increasing the number of unencumbered hotels in its portfolio to 210[14] - In July 2024, the company amended its unsecured term loan facility, increasing the amount from $85 million to $130 million and extending the maturity date to July 2026[15] Capital Markets Activity During Q3 2024, the company repurchased 1.4 million common shares for $19.2 million under its Share Repurchase Program, leaving $301 million of authorization. No shares were issued under its $500 million At-The-Market (ATM) Program during the quarter - In Q3 2024, the Company repurchased approximately 1.4 million common shares for $19.2 million at a weighted-average price of $14.02 per share[16] - As of September 30, 2024, approximately $301 million remained available for repurchases under the Share Repurchase Program[16] - No shares were sold under the At-The-Market (ATM) offering program during the three and nine months ended September 30, 2024[17] Shareholder Distributions The company paid distributions totaling $0.24 per common share during the third quarter of 2024. The current annualized distribution of $0.96 per share represents an annual yield of approximately 6.5% based on the stock price on November 1, 2024. All distributions are subject to Board of Directors' approval - Paid distributions of $0.24 per common share during the three months ended September 30, 2024[18] - The current annualized regular monthly cash distribution of $0.96 per common share represents an annual yield of 6.5% as of November 1, 2024[18] Updated 2024 Outlook The company updated its full-year 2024 financial outlook, adjusting forecasts for Net Income, Adjusted EBITDAre, and Comparable Hotels RevPAR Change Full Year 2024 Guidance The company has updated its full-year 2024 outlook, adjusting its forecast for Net Income to a range of $204 million to $221 million and Adjusted EBITDAre to between $458 million and $469 million. The guidance for Comparable Hotels RevPAR Change is now 0.75% to 2.00%, while capital expenditures are projected to be between $75 million and $85 million - The company updated its 2024 guidance, decreasing the midpoint for Net Income by $1 million, decreasing Comparable Hotels RevPAR Change by 12.5 bps, and decreasing Adjusted EBITDAre by $1.5 million compared to previous guidance[19] Updated Full-Year 2024 Guidance | Metric | Low-End | High-End | | :--- | :--- | :--- | | Net income | $204 Million | $221 Million | | Comparable Hotels RevPAR Change | 0.75% | 2.00% | | Comparable Hotels Adjusted Hotel EBITDA Margin % | 35.3% | 35.9% | | Adjusted EBITDAre | $458 Million | $469 Million | | Capital expenditures | $75 Million | $85 Million | Financial Statements & Reconciliations The report provides comprehensive consolidated financial statements and detailed reconciliations of GAAP net income to key non-GAAP measures, alongside a summary of the company's debt structure Consolidated Financial Statements The Consolidated Balance Sheet as of September 30, 2024, shows Total Assets of $5.02 billion and Total Liabilities of $1.72 billion. The Consolidated Statement of Operations for Q3 2024 reported Total Revenue of $378.8 million and Net Income of $56.3 million Consolidated Balance Sheet Highlights (as of Sep 30, 2024) | Account | Amount (in thousands) | | :--- | :--- | | Total Assets | $5,021,803 | | Debt, net | $1,501,189 | | Total Liabilities | $1,724,934 | | Total Shareholders' Equity | $3,296,869 | Consolidated Statement of Operations (Q3 2024) | Account | Amount (in thousands) | | :--- | :--- | | Total Revenue | $378,843 | | Total Expense | $301,117 | | Operating Income | $77,726 | | Net Income | $56,266 | Non-GAAP Reconciliations The report provides detailed reconciliations of GAAP Net Income to key non-GAAP measures. For Q3 2024, Net Income of $56.3 million was reconciled to Adjusted EBITDAre of $128.9 million and Modified Funds From Operations (MFFO) of $107.4 million. These adjustments primarily account for depreciation, amortization, interest, and taxes Reconciliation of Net Income to Adjusted EBITDAre (Q3 2024) | Item | Amount (in thousands) | | :--- | :--- | | Net income | $56,266 | | Depreciation and amortization | $48,143 | | Interest and other expense, net | $21,217 | | Income tax expense | $243 | | Loss on impairment | $2,896 | | Adjusted EBITDAre | $128,900 | Reconciliation of Net Income to MFFO (Q3 2024) | Item | Amount (in thousands) | | :--- | :--- | | Net income | $56,266 | | Depreciation of real estate owned | $47,383 | | Loss on impairment | $2,896 | | Funds from operations (FFO) | $106,545 | | Other adjustments | $894 | | Modified funds from operations (MFFO) | $107,439 | Debt Summary As of September 30, 2024, the company's total debt was $1.507 billion with a weighted-average interest rate of 4.9%. The debt is laddered, with maturities extending beyond 2028. Variable-rate debt constituted approximately $1.126 billion of the total - Total debt outstanding was $1.507 billion with an average interest rate of 4.9%[45] - The debt portfolio consists of $1.126 billion in variable-rate debt and $381.5 million in fixed-rate debt[45] Detailed Operating Metrics Detailed operating metrics reveal varied performance across comparable and same-store hotels, with insights into regional, market, location, and chain scale segment contributions Comparable vs. Same Store Hotels Performance For Q3 2024, Comparable Hotels (223 properties) saw RevPAR grow by 0.8% to $125.30, while Same Store Hotels (215 properties) saw a smaller 0.6% RevPAR growth to $123.90. The Comparable Hotels portfolio showed slightly stronger revenue growth, benefiting from recent acquisitions, whereas the Same Store portfolio provides a more stabilized view of underlying performance Q3 2024 Performance: Comparable vs. Same Store Hotels | Metric | Comparable Hotels | Same Store Hotels | | :--- | :--- | :--- | | RevPAR | $125.30 (+0.8% YoY) | $123.90 (+0.6% YoY) | | Adjusted Hotel EBITDA | $139.2 million (+0.3% YoY) | $129.0 million (-0.8% YoY) | | Adj. Hotel EBITDA Margin | 36.8% (-60 bps) | 36.6% (-50 bps) | Performance by Market, Region, and Location In Q3 2024, performance varied significantly by market. Strong RevPAR growth was seen in markets like Chicago (+10.7%) and Melbourne, FL (+17.1%), while Nashville (-13.9%) and Denver (-7.5%) experienced declines. Regionally, the East North Central area showed strong RevPAR growth of 7.8%, whereas the East South Central region declined by 6.2%. Urban and Suburban locations, which constitute the bulk of the portfolio, showed modest RevPAR changes - Top 20 markets, representing 62.7% of Q3 Adjusted Hotel EBITDA, saw an aggregate RevPAR increase of 1.1% YoY[46] - By region, the Pacific region was the largest contributor to Q3 Adjusted Hotel EBITDA (26.1%), with RevPAR growth of 0.9%. The East North Central region had the highest RevPAR growth at 7.8%[48] - By location type, Suburban hotels (45.1% of EBITDA) saw RevPAR grow 1.7%, while Urban hotels (38.0% of EBITDA) saw RevPAR grow 0.2% in Q3 2024[52] Performance by Chain Scale In Q3 2024, the Upper Upscale segment demonstrated the strongest performance with a 7.1% increase in RevPAR. The large Upscale segment, which accounts for nearly 74% of EBITDA, had flat RevPAR growth. The Upper Midscale segment saw a 1.6% increase in RevPAR Q3 2024 RevPAR Growth by Chain Scale | Chain Scale | RevPAR Growth (YoY) | % of Adj. Hotel EBITDA | | :--- | :--- | :--- | | Upscale | 0.0% | 73.6% | | Upper Midscale | 1.6% | 21.5% | | Upper Upscale | 7.1% | 4.9% |