8-K: Apple Hospitality REIT Reports Strong Second Quarter Results, Updates 2024 Outlook

Apple Hospitality REIT announced positive second quarter 2024 results, highlighted by increased occupancy and revenue per available room, while also updating its full-year 2024 guidance.

Summary

• Apple Hospitality REIT reported its financial results for the second quarter of 2024, showing a net income of $73.9 million, a 13.2% increase compared to the same period last year.
• Net income per share rose to $0.31, a 6.9% increase year-over-year.
• The company's operating income was $93.5 million, a 12.6% increase from the second quarter of 2023.
• Adjusted EBITDAre reached $140.9 million, a 9.1% increase compared to the prior year.
• Comparable Hotels Adjusted Hotel EBITDA was $151.5 million, a 1.5% increase year-over-year.
• The company's Modified Funds From Operations (MFFO) was $121.3 million, an 8.9% increase compared to the second quarter of 2023.
• Comparable Hotels RevPAR increased by 2.5% to $130.09, driven by a 2.2% increase in occupancy to 79.8% and a marginal increase in ADR to $163.01.
• The company acquired the Embassy Suites by Hilton Madison Downtown for approximately $79.5 million and sold the SpringHill Suites by Marriott Greensboro for approximately $7.1 million during the quarter.
• Apple Hospitality repurchased 1.1 million of its common shares for approximately $15.5 million during the second quarter and an additional 0.5 million shares for approximately $7.6 million after the quarter ended.
• The company updated its 2024 outlook, decreasing net income guidance by $6 million, decreasing Comparable Hotels RevPAR Change by 150 bps, increasing Comparable Hotels Adjusted Hotel EBITDA Margin % by 10 bps, and decreasing Adjusted EBITDAre by $7 million.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong Q2 results, but tempered by a reduced full-year outlook and some margin compression. The company's strategic acquisitions and share repurchases are positive signals, but the revised guidance introduces some uncertainty.

Positives

• The company experienced strong operating performance with increases in occupancy, ADR, and RevPAR.
• The company's bottom-line performance was strong, with increases in Adjusted EBITDAre and MFFO.
• The company successfully acquired a new hotel at an attractive price due to a fixed-price contract.
• The company actively repurchased shares, indicating confidence in its value.
• The company maintains a strong and flexible balance sheet with a manageable debt-to-capitalization ratio.
• The company's monthly distributions provide a solid yield for shareholders.
• The company's comparable hotels occupancy, ADR and RevPAR exceeded industry averages as reported by STR for the second quarter 2024.

Negatives

• Comparable Hotels Adjusted Hotel EBITDA Margin decreased by 50 bps to approximately 39% for the second quarter of 2024.
• The company's updated 2024 outlook includes a decrease in net income and Comparable Hotels RevPAR Change guidance.
• Preliminary results for July 2024 show flat occupancy and a slight decrease in ADR compared to July 2023.
• The company's distributions paid per share decreased by 5.4% for the six months ended June 30, 2024.

Risks

• The company's updated 2024 outlook reflects a decrease in net income and Comparable Hotels RevPAR Change guidance, indicating potential challenges in the near term.
• The company's performance is subject to changes in general political, economic, and competitive conditions.
• The company faces risks related to reduced business and leisure travel due to geopolitical uncertainty and health concerns.
• The company's operations are susceptible to adverse changes in the real estate and real estate capital markets.
• The company's performance is subject to financing risks and changes in interest rates.
• The company is involved in legal proceedings to remove a third-party operator from possession of a non-hotel property.
• There is no assurance that the company will close on the purchase of the Motto by Hilton in Nashville.

Future Outlook

The company updated its 2024 outlook, decreasing net income guidance by $6 million, decreasing Comparable Hotels RevPAR Change by 150 bps, increasing Comparable Hotels Adjusted Hotel EBITDA Margin % by 10 bps, and decreasing Adjusted EBITDAre by $7 million. The company anticipates its 2024 results will be in the following range: Net income between $202 million and $225 million, Comparable Hotels RevPAR Change between 0.5% and 2.5%, Comparable Hotels Adjusted Hotel EBITDA Margin % between 35.0% and 35.8%, Adjusted EBITDAre between $456 million and $474 million, and capital expenditures between $75 million and $85 million.

Management Comments

• Justin Knight, Chief Executive Officer of Apple Hospitality, commented, 'The fundamentals of our business remain strong, bolstered by the muted rate of new supply growth relative to historical levels.'
• Mr. Knight also stated, 'While we believe our greatest opportunity for continued growth will come from the steady improvement we are seeing in midweek business travel demand, we were able to grow occupancy on both weekdays and weekends during the quarter, demonstrating the resilience of leisure travel demand and the upside we continue to realize as business travel patterns normalize.'
• Mr. Knight further added, 'Our revenue and asset management teams, together with our third-party operators, are intently focused on maximizing the profitability of our assets and optimizing their performance within their respective markets.'
• Mr. Knight also noted, 'Our recent activity highlights the strength and flexibility provided by our balance sheet and our ability to opportunistically allocate capital in the current environment. We remain focused on maximizing long-term value for our shareholders.'

Industry Context

The report indicates that Apple Hospitality is performing well in the current environment, with occupancy and RevPAR exceeding industry averages. The company's focus on maximizing profitability and optimizing asset performance aligns with broader industry trends. The muted rate of new supply growth is a positive factor for the company's performance.

Comparison to Industry Standards

• Apple Hospitality's Comparable Hotels Occupancy, ADR, and RevPAR exceeded industry averages as reported by STR for the second quarter of 2024, indicating a strong competitive position.
• The company's performance is being compared to industry benchmarks provided by STR, a leading provider of data and analytics for the hospitality industry.
• The company's focus on upscale, rooms-focused hotels positions it well within its specific market segment.
• The company's ability to acquire assets at attractive prices, such as the Embassy Suites by Hilton Madison Downtown, demonstrates effective capital allocation strategies compared to industry peers.

Legal Proceedings

• The company has commenced legal proceedings to remove a third-party operator from possession of a non-hotel property due to failure to make lease payments timely.

Stakeholder Impact

• Shareholders will be impacted by the updated 2024 outlook and the share repurchase program.
• Employees will be impacted by the company's overall performance and strategic decisions.
• Customers will be impacted by the company's focus on maintaining and enhancing hotel properties.
• Suppliers will be impacted by the company's capital expenditure plans.
• Creditors will be impacted by the company's debt management and financial performance.

Next Steps

• The company will host a quarterly conference call for investors on August 6, 2024.
• The company will continue to monitor its distribution rate and timing relative to the performance of its hotels, capital improvement needs, varying economic cycles, acquisitions, dispositions, other cash requirements and the company's REIT status for federal income tax purposes.
• The company will continue to execute its Share Repurchase Program.
• The company will continue to evaluate potential acquisitions and dispositions.

Key Dates

Keywords

REIT, Hospitality, Hotels, Real Estate, Occupancy, RevPAR, EBITDA, MFFO, Acquisition, Disposition, Share Repurchase, Distributions