Apple Hospitality REIT(APLE) - 2021 Q1 - Earnings Call Transcript

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]