Apple Hospitality Reit, Inc. · NYSE:APLE
Apple Hospitality Reit — Q1 2023 Earnings Presentation
45 slides from Apple Hospitality Reit's earnings presentation, May 3, 2023
Slide 1: Investor Presentation May 2023
INVESTOR PRESENTATION M AY 2 0 2 3 • N Y S E : A P L E
Slide 2: Forward-Looking Statements
F O R W A R D - L O O K I N G S TAT E M E N T S Certain statements made in this presentation are forward-looking statements. These forward-looking statements include statements regarding our intent, belief or current expectations and are based on various assumptions. These statements involve substan
Slide 3: Company Profile & Proven Investment Strategy
C O M PA N Y P R O F I L E & P R O V E N I N V E S T M E N T S T R AT E G Y Scale Ownership of Upscale, Rooms-Focused Industry-Leading Brands Broad Geographic Consistent Strong, Flexible Balance Hotels and Operators Diversification Reinvestment(1) Sheet(2) 220 15 37 5 yrs 29% HOTELS BRANDS S TAT E S
Slide 4: Management Team, Mission and Values
MANAGEMENT TEAM WITH DEEP INDUSTRY E X P E R I E N C E O V E R M U LT I P L E H OT E L C YC L E S • Average executive tenure with the Apple REIT MISSION We are a leading real estate investment Companies is 16 years company committed to increasing shareholder value through the distribution of • Estab
Slide 5: Proven Investment Strategy
P R O V E N I N V E S T M E N T S T R AT E G Y • Efficient operating model yields higher margins Concentrate on Upscale, • Resilient group business rooms-focused hotels • Scale ownership minimizes relative G&A load and provides fixed cost efficiencies • Unparalleled access to data and operational ex
Slide 6: Key Takeaways
KEY TAKEAWAYS • Meaningful year-over-year topline growth driven by seasonally strong leisure demand and improving business travel • Q1 2023 Comparable Hotels Occupancy was 72% and ADR was $152, resulting in RevPAR of $109, an improvement of 19% over Q1 2022 • Midweek occupancy strengthening and forw
Slide 7: First Quarter 2023 Performance at a Glance
YEAR-OVER-YEAR PERFORMANCE First Quarter 2023 Performance at a Glance ($ in thousands except statistical data and per share amounts) Three Months Ended March 31, % % CHANGE CHANGE 2023 2022 2019 to 2022 to 2019 Comparable Hotels RevPAR $109.46 $91.80 $103.10 19.2% 6.2% Comparable Hotels Total Revenu
Slide 8: Rooms-focused operating model produces strong margins
E F F I C I E N T O P E R AT I O N S Rooms-focused operating model produces strong margins Q1 2023 Hotel EBITDA Margin and RevPAR Comparison 34% 34% 32% 31% 29% 29% 28% 27% 26% 24% 21% 20% $218 $219 $185 $182 $180 $159 $171 $116 $136 $125 $118 $109 (1) INN APLE HST CLDT RLJ XHR AHT SHO DRH PK HT PEB
Slide 9: Upside to pre-pandemic levels with Q1 2023 RevPAR exceeding Q1 2019
O P E R AT I N G T R E N D S Upside to pre-pandemic levels with Q1 2023 RevPAR exceeding Q1 2019 before full return of occupancy Occ 2019 Occ ADR 2019 ADR RevPAR 100% $160 $162 $160 $155 $157 $157 $155 90% $149 $152 $146 $145 $145 $143 $139 $141 80% $137 $140 $138 $137 $139 $137 $130 $137 $128 $131
Slide 10: Occupancy Trends
O C C U PA N C Y T R E N D S Positive trajectory in occupancy with continued upside opportunity 100% 90% 80% 80% 82% 77% 77% 77% 77% 78% 79% 77% 79% 80% 76% 75% 75% 73% 72% 69% 70% 70% 66% 64% 61% Occupancy 60% 56% 50% 46% 40% 30% 20% 10% 0% Week ended 2019 2020 2021 Jan 2022 Feb 2022 Mar 2022 Apr 2
Slide 11: Weekday vs. Weekend Occupancy
W E E K D AY V S . W E E K E N D O C C U PA N C Y Leisure travel continues to lead recovery Weekday occupancy shows strength of business demand 100% 90% 85% 86% 87% 86% 84% 82% 81% 80% 78% 77% 77% 78% 80% 75% 75% 74% 75% 73% 73% 71% 68% 67% 69% 70% 64% 62% Occupancy 60% 50% 40% 30% 20% 10% 0% Q1 202
Slide 12: Portfolio Positioned for Continued Outperformance
PORTFOLIO POSITIONED FOR CONTINUED OUTPERFORMANCE • Well positioned to benefit from increasing business transient demand • Select-service hotels franchised with industry-leading brands provide strong value proposition and have proven appeal with broadest group of customers • Broad geographic diversi
Slide 13: Why Branded Select-Service Hotels?
W H Y B R A N D E D S E L E C T - S E R V I C E H OT E L S ? Efficient Operating Model Broad Consumer Appeal Maximize Shareholder Value • Total revenue primarily derived • High-quality hotels with strong • Ability to optimize mix of business from rooms sold value proposition for guests to drive RevP
Slide 14: Broad Consumer Appeal
BROAD CONSUMER APPEAL Rooms-focused hotels with industry-leading brands have broad consumer appeal SPRINGHILL SUITES LAFAYETTE SOUTH AT RIVER RANCH HAMPTON INN & SUITES ATLANTA- DOWNTOWN Independent HILTON GARDEN INN DOWNTOWN BIRMINGHAM Note: Hotel portfolio statistics as of May 2, 2023. Based on nu
Slide 15: Broad Geographic Diversification
B R O A D G E O G R A P H I C D I V E R S I F I C AT I O N Diversification across 87 markets helps drive strong, consistent performance ✓ Broad geographic diversification provides exposure to wide variety of demand generators ✓ Markets benefit from a mix of business and leisure demand ✓ Portfolio be
Slide 16: Strong Operating Margins
S T R O N G O P E R AT I N G M A R G I N S APLE is well positioned to maximize efficiencies and drive profitability: • Operations of rooms-focused hotels are inherently efficient APLE has a proven record of • Ability to cross-utilize managers and associates maximizing and improving • Optimizing labo
Slide 17: Limited Near-Term Impact from New Supply
L I M I T E D N E A R - T E R M I M PA C T F R O M N E W S U P P L Y Supply growth well below historical average for our portfolio Portfolio Exposure to New Supply 80% New construction starts have meaningfully decreased since onset 70% of pandemic with anticipated delays in completion 60% Nearly 50%
Slide 18: Industry-Leading Asset Management
INDUSTRY-LEADING ASSET MANAGEMENT Best-in-Class Operators Strategic Asset Management Approach • 100% of Apple Hospitality’s portfolio operated by third-party property managers • Analytical, data-driven asset management to maximize property-level performance • 94% of hotels independent of brand manag
Slide 19: Proprietary Management Agreement Structure
P R O P R I E TA R Y M A N A G E M E N T A G R E E M E N T S T R U C T U R E With steady recovery in our business and more stabilized operations, we returned to a variable rate management fee structure for 2023 with payments based on a balanced scorecard to optimize performance HAMPTON INN AUSTIN NO
Slide 20: Balance Sheet Poised for Future Growth
BALANCE SHEET POISED FOR FUTURE GROWTH • Positive corporate cash flow early in the recovery preserved strength of balance sheet and equity value • Conservative capital structure with staggered maturities lowers capital costs • Amended and restated existing $850 million credit facility, increasing bo
Slide 21: Strong Balance Sheet & Liquidity Position
STRONG BALANCE SHEET & LIQUIDITY POSITION Low debt and staggered maturities facilitate agile balance sheet strategy Strong liquidity position for opportunistic growth Debt Composition(1) Debt Maturity Schedule (1) ($ in millions) Total Liquidity (1) ($ in millions) Hotels: 2 Keys: 325 Rate: 3.9% Hot
Slide 22: Effective Portfolio Management & Strategic Growth
EFFECTIVE PORTFOLIO MANAGEMENT & S T R AT E G I C G R O W T H Our objective is to maximize long-term shareholder value through opportunistic dispositions and accretive acquisitions that improve the overall age, diversification and growth trajectory of our portfolio Opportunistic Dispositions Accreti
Slide 23: Recent Acquisition & Disposition Activity
R E C E N T ACQ U I S I T I O N & D I S P O S I T I O N AC T I V I T Y Since the start of the pandemic, the Company has been a net acquirer, purchasing 14 hotels for approximately $558 million, while opportunistically disposing of 25 hotels for a total combined sales price of approximately $253 mill
Slide 24: Net Acquirers Since Onset of Pandemic
N E T A C Q U I R E R S I N C E O N S E T O F PA N D E M I C 14 Hotels Acquired in 2020, 2021 and 2022 Brand Location Rooms Date Opened Date Acquired Purchase Price Hampton Inn & Suites(1)(2) Cape Canaveral, FL 116 April 2020 April 2020 $46.7 million Home2 Suites(1)(2) Cape Canaveral, FL 108 April 2
Slide 25: Accretive Acquisitions: AC Hotel Louisville Downtown
ACC R E T I V E ACQ U I S I T I O N S • Purchased in October 2022 • 156-room AC Hotel by Marriott® Louisville Downtown • Total price: $51 million or approximately $327,000 per key • Primary demand generators: • Leisure • Sporting Events • Health Care • Insurance • Automobile Manufacturing • Shipping
Slide 26: Accretive Acquisitions: AC Hotel Pittsburgh Downtown
ACC R E T I V E ACQ U I S I T I O N S • Purchased in October 2022 • 134-room AC Hotel by Marriott® Pittsburgh Downtown • Total price: $34 million or approximately $254,000 per key • Primary demand generators: • Professional Sporting Events • Leisure • Technology • Robotics • Financial Services • Hea
Slide 27: Acquisitions Under Contract: Courtyard Cleveland
ACQ U I S I T I O N S U N D E R CO N T R AC T • Anticipate acquiring in Q2 2023 • 154-room Courtyard by Marriott® Cleveland University Circle • Hotel opened in April 2013 and recently underwent a complete renovation of guest rooms and interior public spaces • Total price: $31 million or approximatel
Slide 28: Acquisitions Under Contract: Embassy Suites Madison
ACQ U I S I T I O N S U N D E R CO N T R AC T rendering • Hotel under development with anticipated completion of construction in early 2024 • 260 rooms(2) • Anticipated gross purchase price: $78.6 million or approximately $302,000 per key • Forward commitment with trusted developer • Primary demand
Slide 29: Over 20-Year Track Record of Hotel Transactions
OVER 20-YEAR TRACK RECORD OF H OT E L T R A N S A C T I O N S Apple REIT Companies Transaction History 1999 – May 2, 2023 448 Having purchased as many as TOTA L H OT E L S A CQ U I R E D 74 hotels 228 in a single year through TOTA L H OT E L S S O L D individual hotel and small portfolio transaction
Slide 30: Well-Maintained Portfolio
W E L L - M A I N TA I N E D P O R T F O L I O Consistent reinvestment enhances long-term value and leads to traveler satisfaction outperformance 4.3 out of 5.00 weighted average Tripadvisor® rating(1) Upscale and Upper Midscale Reinvestment Statistics(3) 5 Years Average Annual Spend as % of Revenue
Slide 31: U.S. Hotel Forecast
U . S . H OT E L F O R E C A S T U.S. Hotel Forecast 2022 2023 2024 Actual Forecast Forecast Occupancy 62.7% 63.6% 65.3% ADR Change 19.1% 2.1% 3.8% RevPAR Change 29.8% 3.7% 6.6% 2019 Real RevPAR Index(1) -5.7% -6.2% -2.5% Source: STR 2023 CoStar Group January 2023 HAMPTON INN & SUITES MEMPHIS- (1) R
Slide 32: ESG Initiatives
ESG INITIATIVES We own one of the largest and most geographically diverse portfolios of rooms-focused hotels in the United States and are dedicated to making a positive impact on the many communities our hotels serve. We are mindful of our environmental footprint and committed to reducing our impact
Slide 33: Environmental Stewardship
E N V I R O N M E N TA L S T E W A R D S H I P Apple Hospitality is committed to enhancing and incorporating sustainability opportunities into our investment and asset management strategies, with a focus on minimizing our environmental impact through reductions in energy and water consumption and th
Slide 34: Social Responsibility
SOCIAL RESPONSIBILITY Key Metrics for Apple Hospitality since 2017 The Company has in place a Health, Safety We are thoughtful in our interactions with and Well-Being Policy, a Human Rights others and know that strong, caring relationships are the core of our industry. 625+ Policy and a Vendor Code
Slide 35: Governance
GOVERNANCE Corporate Governance Aligns with Shareholders • Audit, Compensation and Corporate Governance Committees are independent • Regular executive sessions of independent directors • De-staggered Board allows for annual elections of directors • Required resignation of an incumbent director not r
Slide 36: Appendix
APPENDIX HOMEWOOD SUITES MIAMI-AIRPORT/BLUE LAGOON
Slide 37: Recent Dispositions
RECENT DISPOSITIONS Hotels Sold in 2020, 2021 and 2022 Brand Location Rooms Age at Time of Sale Date Sold Sales Price SpringHill Suites Sanford, FL 105 20 yrs January 2020 $13.0 million SpringHill Suites Boise, ID 230 25 yrs February 2020 $32.0 million Hampton Inn & Suites Tulare, CA 86 12 yrs Decem
Slide 38: Comparable Hotels Quarterly Operating Metrics
C O M PA R A B L E H O T E L S Q U A R T E R L Y O P E R AT I N G M E T R I C S COMPARABLE HOTELS QUARTERLY OPERATING METRICS AND STATISTICAL DATA (Unaudited) (in thousands, except statistical data) 2019 2022 2023 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Operating income (Actual) $53,851 $78,103 $61,125 $40,708 $
Slide 39: Same Store Hotels Quarterly Operating Metrics
S A M E S T O R E H O T E L S Q U A R T E R L Y O P E R AT I N G M E T R I C S SAME STORE HOTELS QUARTERLY OPERATING METRICS AND STATISTICAL DATA (Unaudited) (in thousands, except statistical data) 2019 2022 2023 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Operating income (Actual) $53,851 $78,103 $61,125 $40,708 $3
Slide 40: Reconciliation of Net Income to EBITDA and Adjusted Hotel EBITDA
R E C O N C I L I AT I O N O F N E T I N C O M E T O E B I T D A , E B I T D A r e , A D J U S T E D E B I T DA re A N D A D J U S T E D H OT E L E B I T DA THE FOLLOWING TABLE RECONCILES THE COMPANY’S GAAP NET INCOME TO EBITDA, EBITDAre, ADJUSTED EBITDAre AND ADJUSTED HOTEL EBITDA ON A QUARTERLY BA
Slide 41: Reconciliation of Net Income to FFO and MFFO
R E C O N C I L I AT I O N O F N E T I N C O M E TO F F O A N D M F F O THE FOLLOWING TABLE RECONCILES THE COMPANY’S GAAP NET INCOME TO FFO and MFFO ON A QUARTERLY BASIS FOR 2019, 2022 AND 2023 (Unaudited) (in thousands, except per share amounts) 2019 2022 2023 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Net income
Slide 42: Definitions
DEFINITIONS Non-GAAP Financial Measures The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations (“FFO”); Modified FFO (“MFFO”); Earnings Before Interest, Income Taxes, Depreciation and Amorti
Slide 43: Definitions Continued
DEFINITIONS CONTINUED FFO and MFFO The Company calculates and presents FFO in accordance with standards established by Nareit, which defines FFO as net income (loss) (computed in accordance with generally accepted accounting principles (“GAAP”)), excluding gains and losses from the sale of certain r
Slide 44: Trademark Information
T R A D E M A R K I N F O R M AT I O N “AC Hotels by Marriott®,” “Aloft Hotels®,” “Courtyard by Marriott®,” “Fairfield by Marriott®,” “Fairfield Inn by Marriott®,” “Fairfield Inn & Suites by Marriott®,” “Marriott® Hotels,” “Residence Inn by Marriott®,” “SpringHill Suites by Marriott®,” and “TownePla
Slide 45: Contact Information
C O N TA C T I N F O R M AT I O N 814 East Main Street Richmond, VA 23219 (804) 344-8121 info@applehospitalityreit.com www.applehospitalityreit.com 45 COURTYARD RICHMOND DOWNTOWN
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