10-K: Apple Hospitality REIT Reports Modest RevPAR Growth in 2024, Eyes Low Single-Digit Increase for 2025

Apple Hospitality REIT's 2024 performance saw modest improvements in revenue and operating results, with expectations for continued low single-digit RevPAR growth in 2025.

Summary

• Apple Hospitality REIT, a self-advised REIT investing primarily in the lodging sector, reported its Form 10-K for the fiscal year ended December 31, 2024.
• As of December 31, 2024, the company owned 221 hotels with 29,764 guest rooms across 37 states and D.C.
• The company acquired two hotels in 2024 for $196.3 million and sold six hotels for $63.4 million, resulting in a $19.7 million gain.
• Comparable Hotels experienced a 1.4% increase in RevPAR, driven by increases in ADR and occupancy.
• The company expects low single-digit RevPAR growth for its Comparable Hotels in 2025.
• The company's debt stood at approximately $1.5 billion with a weighted-average interest rate of 4.71%.
• The Board of Directors approved a special cash distribution of $0.05 per common share for a combined distribution of $0.13 per common share, paid in January 2025.
• The company's environmental, social, and governance strategy aims to enhance long-term value for its shareholders through responsible investment in sustainable and equitable practices.

Sentiment

Score: 7

Explanation: The document presents a balanced view with modest growth and strategic initiatives, but also acknowledges risks and challenges. The outlook is cautiously optimistic.

Positives

• Modest improvements in revenue and operating results were reported for 2024.
• The company expects low single-digit RevPAR growth for its Comparable Hotels in 2025.
• The company completed the sale of six hotels in 2024 for a combined gross sales price of approximately $63.4 million, resulting in a combined gain on the sales of approximately $19.7 million, net of transaction costs.
• The company has an unused borrowing capacity of $567.5 million under its Revolving Credit Facility as of December 31, 2024.
• The company maintains a relatively low leverage ratio of 28.5%.

Negatives

• The company has commenced legal proceedings to remove the operator from possession of the New York Independent Boutique Hotel due to the operator's failure to make lease payments.
• The company experienced impairment losses of $3.1 million on three hotel properties in 2024.
• The company is subject to risks associated with increases in interest rates with respect to the company's variable-rate debt which could reduce cash from operations and adversely affect its ability to make distributions to shareholders.

Risks

• The company is subject to various risks common to the hotel industry, including over-building, competition, and economic downturns.
• The company is dependent on third-party hotel managers and could be adversely affected if they do not manage the hotels successfully.
• Labor shortages and increased labor costs could cause significant increases to the company's operating costs.
• The company may not be able to complete hotel dispositions when and as anticipated.
• The company's inability to obtain financing on favorable terms or pay amounts due on its financing may adversely affect the company's operating results.
• Pandemics and other health crises could negatively impact the company's business, financial performance and condition, operating results and cash flows.
• Technology is used in operations, and any material failure, inadequacy, interruption or security failure of that technology from cyber-attacks or other events could harm the company's business.
• The company faces possible risks associated with the physical effects of, and laws and regulations related to, climate change.
• The company could incur significant, material costs related to government regulation and litigation with respect to environmental matters, which could have a material adverse effect on the company.
• Heightened focus on corporate responsibility, specifically related to ESG practices, may impose additional costs and expose the company to new risks.
• Qualifying as a REIT involves highly technical and complex provisions of the Code and failure of the company to qualify as a REIT would have adverse consequences to the company and its shareholders.

Future Outlook

The company expects low single-digit RevPAR growth for its Comparable Hotels for 2025 as compared to 2024, which is comparable to broader industry expectations.

Management Comments

• Economic indicators in the U.S. have generally been stable throughout 2024.
• The Company expects low single digit RevPAR growth for its Comparable Hotels for 2025 as compared to 2024, which is comparable to broader industry expectations.

Industry Context

The company's performance is consistent with the overall lodging industry, which has seen modest improvements in revenue and operating results due to generally stable economic conditions in the U.S.

Comparison to Industry Standards

• The document does not provide specific comparisons to comparable companies.
• The document does not provide specific comparisons to global benchmarks.
• The document does not provide specific comparisons to comparable projects.
• The document does not provide specific comparisons to comparable results.

Legal Proceedings

• The Company has commenced legal proceedings to remove the operator from possession of the New York Independent Boutique Hotel due to the operator's failure to make lease payments.
• On or about February 19, 2025, the Company was notified of a complaint purportedly filed by LuxUrban Re Holdings LLC against Apple Eight Hospitality Ownership, Inc. and a former hotel operator in the Supreme Court of New York alleging breach of contract and conspiracy to commit fraud.

Related Party Transactions

• The Company provides support services to Apple Realty Group, Inc. (ARG), which is wholly owned by Glade M. Knight, Executive Chairman of the Company, and is reimbursed by ARG for the cost of these services.
• The Company utilizes aircraft, owned by an entity which is owned by the Company's Executive Chairman, for business purposes, and reimburses this entity at third-party rates.

Stakeholder Impact

• The company's performance and distribution policy directly impact shareholders.
• The company's ESG initiatives and community involvement affect employees, customers, and the communities it serves.

Next Steps

• The company plans to utilize its available cash, net proceeds from the sale of shares under the ATM program, proceeds from the sales of properties or borrowings under its unsecured credit facilities for any future hotel acquisitions.
• The company plans to pay outstanding amounts and service payments due upon the upcoming debt maturity dates using funds from operations, borrowings under its Revolving Credit Facility, proceeds from new financing, available credit extensions under its unsecured credit facilities or refinancing the maturing debt.
• The company anticipates spending approximately $80 million to $90 million during 2025, which includes various comprehensive renovation projects for approximately 20 properties.

Key Dates

Keywords

REIT, hospitality, hotels, RevPAR, ADR, occupancy, acquisitions, dispositions, debt, distributions, share repurchases, capital improvements