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 and $1.1 billion year-to-date, both down approximately 1% compared to the same periods in 2023 [23] - Comparable Hotels adjusted hotel EBITDA was approximately $129 million for the quarter and $375 million year-to-date, down approximately 7% and 6% respectively compared to the same periods in 2023 [23][24] - Comparable Hotels' RevPAR was $124, down 1.8%, ADR was $163, down only 0.6%, and occupancy was 76%, down 1.2% compared to the third quarter of 2023 [24] 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 declined 120 basis points, while weekday occupancy declined 160 basis points [28] - Group business mix improved 50 basis points to 15%, continuing to be a focus area for property teams [30] Market Data and Key Metrics Changes - Comparable Hotels' RevPAR declined by approximately 3% in October 2025 compared to October 2024, impacted by the government shutdown [7][28] - STR reports industry-wide RevPAR of $102, ADR of $160, and average occupancy of 63% for the first nine months of the year, highlighting the relative strength of the company's portfolio [24] Company Strategy and Development Direction - The company is focusing on capital allocation by selectively selling assets and redeploying proceeds to buy back its own stock [5][9] - Transitioning Marriott-managed hotels to franchise agreements to consolidate management and realize operational synergies [8][80] - Entered into agreements for the development of three hotels in key markets, including Anchorage, Alaska, and Las Vegas, Nevada [14][15] Management's Comments on Operating Environment and Future Outlook - Management noted that supply growth is below historical norms, and overall demand remains resilient despite policy uncertainty and expense pressure [5] - The company anticipates benefiting from pent-up demand once the government reopens, following the recent shutdown [28][52] - The outlook for 2025 reflects potential negative impacts from prolonged economic uncertainty and the government shutdown, 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 hotels under contract for sale for approximately $36 million [10] - Total payroll per occupied room was $40 for the quarter, up less than 2%, with reductions in contract labor [31] - The company paid distributions totaling approximately $57 million during the third quarter, representing an annual yield of approximately 8.6% [18] Q&A Session Summary Question: Inquiry on expense reductions and full-time employee count - Management indicated that improvements in wages and payroll were largely driven by adjusting labor to occupancy declines, with flexibility in FTE counts [41][42] Question: Acquisition strategy and portfolio shift - The company clarified that the AC brand is positioned in the upscale segment, and the focus on this brand is driven by operational efficiency and strong margins [44][45] Question: Impact of government shutdown on guidance - Management estimated that two-thirds of the guidance change was related to the government shutdown, with expectations of a rebound in demand post-shutdown [50][52] Question: Strategy for filling gaps in government travel - The team has pivoted to build additional base business through group segments and will continue to explore other demand opportunities [67] Question: Development deals versus acquisitions - The company aims to balance development deals with share repurchases, targeting strong returns while maintaining portfolio relevance [60][62]