8-K: Apple Hospitality REIT Expands Portfolio with Acquisition of AC Hotel in Washington D.C.

Apple Hospitality REIT has acquired the AC Hotel by Marriott Washington DC Convention Center for approximately $116.8 million, marking its entry into the downtown Washington D.C. market.

Summary

• Apple Hospitality REIT has acquired the 234-room AC Hotel by Marriott Washington DC Convention Center for approximately $116.8 million, or $499,000 per key.
• The hotel, which opened in October 2020, is located in downtown Washington D.C. and features premium amenities including a fitness center and rooftop bar.
• The acquisition expands Apple Hospitality's portfolio to 224 hotels with 29,886 guest rooms across 37 states and the District of Columbia.
• The company also has two additional hotels under contract for purchase: an Embassy Suites in Madison, Wisconsin, for approximately $79.3 million and a Motto by Hilton in Nashville, Tennessee, for approximately $98.2 million.
• The Washington D.C. CBD submarket has seen a 21% improvement in revenue per available room (RevPAR) for the trailing twelve months ended December 31, 2023, compared to the same period in 2022.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the strategic acquisition, strong market performance, and expansion plans. The company is making positive moves to grow its portfolio.

Positives

• The acquisition establishes Apple Hospitality's presence in the desirable downtown Washington D.C. market.
• The acquired hotel is a relatively new property with premium amenities.
• The Washington D.C. market has shown strong RevPAR growth.
• The company is expanding its portfolio with additional acquisitions in the pipeline.
• The company's portfolio is geographically diversified across 37 states and the District of Columbia.

Negatives

• There is no guarantee that the two additional hotel acquisitions under contract will close.
• The company is exposed to risks associated with the real estate market and general economic conditions.

Risks

• The company faces risks related to its ability to acquire and dispose of properties effectively.
• There are risks associated with integrating pending transactions and implementing operating strategies.
• Changes in economic conditions, including inflation or recession, could impact the company.
• Geopolitical uncertainty, terrorism, and health concerns could reduce travel.
• Adverse changes in real estate and capital markets, interest rates, and litigation could affect the company.
• Regulatory changes and interpretations of laws could impact the company's business and REIT status.

Future Outlook

The company intends to continue pursuing acquisitions that enhance its portfolio and maximize long-term value for shareholders. They anticipate acquiring two additional hotels in Madison, Wisconsin and Nashville, Tennessee, subject to certain conditions.

Management Comments

• We are pleased to expand our portfolio with the acquisition of the AC Hotel Washington DC Convention Center and are thrilled to establish a presence in downtown Washington, D.C., a market we have tracked and wanted to have a presence in for some time, said Nelson Knight, President, Real Estate and Investments of Apple Hospitality.
• As we look for and continue to underwrite acquisition opportunities, we are dedicated to pursuing transactions that meaningfully enhance our portfolio and maximize long-term value for our shareholders.

Industry Context

This acquisition reflects a broader trend of hotel REITs seeking to expand their portfolios in key urban markets. The focus on upscale, rooms-focused hotels aligns with current demand trends in the hospitality industry. The strong RevPAR growth in the Washington D.C. market indicates a positive outlook for the region.

Comparison to Industry Standards

• The acquisition cost of $499,000 per key is within the range of recent transactions for upscale hotels in major metropolitan areas.
• The 21% RevPAR growth in the Washington D.C. CBD submarket is a strong indicator of market recovery and performance, exceeding the national average for many markets.
• Other REITs such as Host Hotels & Resorts and Park Hotels & Resorts also focus on upscale hotels in major markets, but Apple Hospitality's portfolio is more diversified geographically.
• The company's focus on Marriott, Hilton, and Hyatt brands is consistent with industry trends favoring established brands with strong loyalty programs.

Stakeholder Impact

• Shareholders should benefit from the company's strategic acquisitions and portfolio growth.
• Employees may see opportunities for growth and development within the expanded portfolio.
• Customers will have access to a wider range of hotel options in key markets.
• Suppliers and creditors may see increased business opportunities with the company's expansion.

Next Steps

• The company will continue to evaluate and pursue additional acquisition opportunities.
• The company anticipates closing on the acquisition of the Embassy Suites in Madison, Wisconsin in mid-2024.
• The company anticipates closing on the acquisition of the Motto by Hilton in Nashville, Tennessee in late 2025.

Key Dates

Keywords

Apple Hospitality REIT, Hotel Acquisition, AC Hotel, Washington D.C., Real Estate Investment Trust, RevPAR, Hotel Portfolio, Marriott, Hospitality, Real Estate