Apple Hospitality REIT(APLE) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Comparable Hotels total revenue for Q2 2024 was $387 million, up 3% year-over-year, and $718 million year-to-date, up 2% compared to the same period in 2023 [20] - Comparable Hotels RevPAR for the quarter was $130, up 2.5%, with ADR at $163, also up slightly, and occupancy at 80%, an increase of 2% year-over-year [20][21] - Adjusted EBITDAre for the quarter was $141 million, up 9% year-over-year, and modified funds from operations (MFFO) was $121 million, also up 9% compared to the same period in 2023 [28] Business Line Data and Key Metrics Changes - Comparable Hotels adjusted hotel EBITDA margin was 39.1% for the quarter, down 50 basis points year-over-year [27] - Total hotel expenses increased by 3.5% year-over-year, decelerating from 4.2% in Q1 2024 [24] - Payroll per-occupied room was $38, up 3.4% year-over-year, but growth rate decelerated compared to Q1 [25][26] Market Data and Key Metrics Changes - Approximately 55% of hotels had no new upper upscale or upper midscale products under construction within a five-mile radius, indicating limited new supply [18] - Weekend occupancy increased by 2.3% year-over-year during Q2, while weekday occupancy also saw a similar increase [22] - The strongest rate growth was observed on Monday nights, with occupancy reaching 86% during the quarter [23] Company Strategy and Development Direction - The company continues to focus on maximizing long-term value for shareholders through disciplined capital allocation, including acquisitions and share repurchases [15][14] - Recent acquisitions have enhanced the portfolio, with seven hotels acquired since June of the previous year yielding approximately 9% after capital improvements [11] - The company is actively evaluating acquisition opportunities while monitoring the performance of existing hotels for potential disposals [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of the portfolio and the ability to benefit from incremental demand due to limited new supply [18][19] - The updated guidance for 2024 reflects a decrease in net income expectations and a modest decline in RevPAR growth, primarily due to increased price sensitivity in leisure demand [31][34] - Despite challenges, management remains optimistic about the operating fundamentals and the potential for continued strong performance [35] Other Important Information - The company repurchased approximately 1.6 million shares at an average price of $14.29 per share, totaling around $23 million [14][31] - The company anticipates spending between $75 million and $85 million on capital expenditures in 2024, focusing on renovations at approximately 20 hotels [17] Q&A Session Summary Question: What is the current expectation for the spread between business transient and leisure rates? - Management noted that the spread is still behind 2019 levels, with a reversal in trends observed post-pandemic, but there is potential for improvement [39] Question: Will there be changes to the current dividend level? - Management confirmed that there is adequate coverage for the current dividend level and no changes are anticipated [42] Question: Are there potential acquisitions on hold due to stock price? - Management indicated that they are underwriting many deals but are cautious due to the current trading environment, with sellers generally holding assets rather than adjusting prices [44] Question: What needs to happen for additional rate upside? - Management expressed confidence in the booking pace and noted that negotiations for corporate accounts will soon begin, which could lead to favorable pricing [49] Question: Can you provide insights on the performance of the New York property? - Management discussed ongoing legal issues with LuxUrban and the conservative accounting approach taken regarding potential payments [87][90]