Apple Hospitality REIT(APLE) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Comparable Hotels' total revenue was $365 million for the quarter, down approximately 1% year-over-year, and $1.1 billion year-to-date, also down about 1% [23] - Comparable Hotels' adjusted hotel EBITDA was approximately $129 million for the quarter, down about 7% year-over-year, and $375 million year-to-date, down 6% [23][24] - Comparable Hotels' RevPAR was $124, down 1.8%, with ADR at $163, down 0.6%, and occupancy at 76%, down 1.2% compared to the same quarter in 2023 [24][6] Business Line Data and Key Metrics Changes - Transient leisure demand remained resilient, while group business targeted by property teams helped offset slightly softer midweek business transient [6] - Weekend occupancy was strong at 81%, but weekday occupancy declined, contributing to overall portfolio occupancy declines [28] - Group business mix improved by 50 basis points to 15%, indicating a strategic focus on this segment [30] Market Data and Key Metrics Changes - Comparable Hotels' RevPAR declined approximately 3% in October 2025 compared to October 2024, impacted by the government shutdown [7][28] - The portfolio continues to outperform the industry, with STR reporting RevPAR of $102, ADR of $160, and average occupancy of 63% for the first nine months of the year [24] Company Strategy and Development Direction - The company is focusing on capital allocation by selectively selling assets and redeploying proceeds to buy back stock, while also investing in future developments to ensure portfolio relevance [5][9] - Transitioning Marriott-managed hotels to franchise agreements is expected to unlock operational synergies and enhance cash flow [8][80] - The company aims to maintain a balanced approach between acquisitions and share repurchases, ensuring long-term portfolio relevance while capitalizing on short-term market opportunities [12][62] Management's Comments on Operating Environment and Future Outlook - Management noted that while macroeconomic uncertainty and government travel pullbacks have impacted performance, overall demand remains resilient [5][19] - The company anticipates benefiting from pent-up demand following the government shutdown and is optimistic about future performance [28][72] - The outlook for 2025 has been adjusted to reflect potential negative impacts from prolonged economic uncertainty, with expected net income between $162 million and $175 million [35][36] Other Important Information - The company has completed the sale of three hotels for a total of $37 million and has four more under contract for approximately $36 million [10] - Capital expenditures for the year are expected to be between $80 and $90 million, with major renovations planned for approximately $20 million of hotels [17] - The company continues to pay attractive dividends, with distributions totaling approximately $57 million in the third quarter, representing an annual yield of approximately 8.6% [18] Q&A Session Summary Question: How has the full-time employee count shifted over the quarter and its impact on cost improvements? - Management indicated that labor management adjustments have led to improved efficiency, allowing for flexibility in FTE counts based on occupancy changes [41][42] Question: How much of the guidance change is attributed to the government shutdown? - Approximately two-thirds of the guidance change is related to the government shutdown, with the remainder attributed to underlying fundamentals [50][51] Question: What strategies are in place to fill the gap in government travel demand? - The company is focusing on building additional base business through group segments and maximizing market share [67] Question: What are the updated thoughts on the mix shift with corporate occupancy and leisure? - Recent performance indicates greater strength in leisure demand compared to midweek corporate, with expectations for recovery in corporate demand post-government shutdown [70][72] Question: Can you discuss the expected disruption during the transition of Marriott-managed hotels? - Transitioning to franchise agreements is anticipated to unlock value and improve operational performance, with some disruption expected during the changeover [80]