Apple Hospitality REIT, Inc.

Greetings. Welcome to Apple Hospitality REIT third quarter 2019 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Kelly Clark, Vice President, Investor Relations. Thank you. You may begin.

Thank you, and good morning. We welcome you to Apple Hospitality REIT's third quarter 2019 earnings call on this, the fifth day of November 2019. Today's call will be based on the third quarter 2019 earnings release in Form 10-Q, which were distributed and filed yesterday afternoon. As a reminder, today's call will contain forward-looking statements as defined by federal securities laws, including statements regarding future operating results. These statements involve known and unknown risks and other factors which may cause actual results, performance, or achievements of Apple Hospitality to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. Participants should carefully review our financial statements and the notes thereto, as well as the risk factors described in Apple Hospitality's 2018 Form 10-K and other filings with the SEC. Any forward-looking statement that Apple Hospitality makes speaks only as of today, and the company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. In addition, certain non-GAAP measures of performance, such as EBITDA, EBITDA RE, Adjusted EBITDA RE, Adjusted Hotel EBITDA, FFO, and Modified FFO, will be discussed during this call. We encourage participants to review reconciliations of those measures to GAAP measures, as included in yesterday's earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the company, please visit AppleHospitalityReit.com. This morning, Justin Knight, our Chief Executive Officer, Chrissy Gathright, our Chief Operating Officer, And Rachel Rothman, our Chief Financial Officer, will provide an overview of our results for the third quarter 2019, as well as an outlook for the sector and for the company. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to our CEO, Justin Knight.

Thank you, Kelly. Good morning, and thank you for joining us today. During the third quarter of this year, performance across our portfolio of hotels was generally in line with our expectations, positively impacted by favorable calendar shifts and solid transient demand. We are pleased to report that our diversified portfolio of high-quality rooms-focused hotels outperformed the industry overall, as well as our chain scales during the quarter, based on star data. For our portfolio, comparable hotels rep par increased by 1.1% for the quarter, and 0.4% year-to-date. Comparable Hotels ADR increased by 0.2% for the quarter and 0.6% year-to-date, and occupancy improved by 70 basis points for the quarter and declined by 20 basis points year-to-date. We remain diligently focused on maximizing profitability and are pleased to report a Comparable Hotels adjusted hotel EBITDA margin of approximately 38% for the quarter and year-to-date, despite ongoing cost and supply pressures. Adjusted EBITDA RE was down 5.7 percent for the quarter and 3.1 percent year-to-date, due primarily to corporate incentive plan outperformance. Total adjusted hotel EBITDA was down approximately 1 percent for the quarter and year-to-date. As we highlighted in our second quarter call, we anticipate a decline in REVPAR during the fourth quarter as compared to the same period in 2018, primarily as a result of more challenging year-over-year comparisons. and the potential for some softening in demand tied to macroeconomic and geopolitical factors. We are tightening the ranges of our full year 2019 REBPAR guidance, slightly lowering the midpoint. In addition, we are reducing the midpoint of the company's guidance for net income and adjusted EBITRE to match top line guidance and to reflect higher anticipated general and administrative expenses associated with the outperformance of the company's relative shareholder return metrics which are components of the company's incentive plans. At the end of the third quarter, approximately 65% of our properties had one or more upper mid-scale, upscale, or upper upscale new construction projects underway within a five-mile radius, which represents a decrease of 340 basis points from what we reported at the end of the second quarter. Although new supply presents challenges in some of our markets, our consistent reinvestment, the strength of our brands, our locations within markets, and the quality of our onsite management teams position us to remain competitive over the long term. With the intent to provide our investors with attractive dividends and appreciation in the value of their underlying investment over time, we developed a strategy of hotel ownership to mitigate volatility and provide consistency in operations. Over our 20-year history in the lodging industry, The Apple Reit companies have owned more than 400 hotels, and our team has underwritten hundreds more. Today, Apple Hospitality owns 235 rooms-focused hotels that are aligned with industry-leading brands and located across 34 states and 87 markets. Our broad diversification reduces volatility and provides the portfolio exposure to a wide variety of industries and demand generators. Our highest EBITDA-producing market, Los Angeles, is under 7% of our total comparable hotels adjusted hotel EBITDA. More than 50% of our EBITDA comes from high density suburban assets, just over 25% from urban assets, and less than 15% from the top US global gateway markets, which overlap both categories. From a guest standpoint, the value proposition for our hotels is strong. We typically offer loyalty members free Wi-Fi, free or reasonably priced breakfast, free or low cost parking, loyalty points, and access to fitness facilities and other amenities without incremental resort, destination, or amenity fees. While this value proposition is consistently recognized by our guests, it becomes increasingly relevant during periods where business and leisure travelers are focused on expense control. With unemployment low and average wages increasing, The propensity to travel is high, and our well-located, relatively young portfolio of branded, rooms-focused hotels has broad appeal. We place a tremendous amount of focus on acquisitions, dispositions, and capital reinvestments, and continue to pursue transactions that will enhance the market concentration and overall performance of our portfolio, all of which play a key role in driving shareholder value. As highlighted by the nine hotels we sold earlier this year, current market dynamics make potential sales attractive to us. We are pleased to report that we have three additional hotels under contract for sale, and we continue to explore additional disposition opportunities both through broker transactions and a response to reverse inquiries. Through opportunities like these, we are able to strategically reduce our concentration in certain markets, optimize our capex spend, and improve the overall quality and relevance of our portfolio. We were purposeful as we assembled and structured our portfolios so that we could maximize flexibility and value over time. We have intentionally avoided encumbrances, whether long-term management contracts, land leases, or cross-collateralized financing, which might limit our ability to dispose of individual properties or negatively impact valuation on sale. Over 80% of our management contracts are readily termable on sale, and only 6% of our properties are encumbered with land leases. The size of our assets and alignment with industry-leading brands makes them attractive to a wide range of potential investors, including large private equity groups, regional owner-operators, and even small local investors. These characteristics enable us to be both flexible and opportunistic in pursuing transactions. two key determinants of long-term value creation. In October, we completed the acquisition of an independent boutique hotel in downtown Richmond for approximately $7 million. It is our intention that the hotel will remain independent, and we are currently developing plans for its full renovation and repositioning. During the first quarter of 2020, we plan to convert our 208-room Renaissance Hotel in Midtown New York to an independent hotel. While our intent with the Richmond Hotel is to use it as a test property for new technologies, services, amenities, and customer acquisition methodologies, our conversion of the Renaissance in New York to an independent will allow us greater flexibility to manage our capital reinvestment and operating model to mitigate losses on an asset that has been particularly challenging for us. This is our only asset in the New York market, our only union hotel, and one of only three remaining full-service hotels in our portfolio. We will work with the existing management team to limit disruption during the transition. However, given the hotel's current brand contribution and market forecast for next year, we expect it to be challenged as the team works to establish a new customer base. We continue to have six hotels under contract for acquisition that are currently under development. for a total expected purchase price of $209 million. From a timing perspective, the projects remain on track for expected completion in 2020 and 2021. Our balance sheet allows us to be opportunistic in our approach to capital allocation, with just 3.1 times net debt to EBITDA, no significant maturities over the next three years, and a relatively young portfolio We are in a position to be both patient and flexible as we work to capitalize on dislocations in the market from time to time. Over the 12 months ending in September, we have repurchased over $100 million in our shares, paid over $270 million in total dividends, and optimized our portfolio through both asset sales and acquisitions. As business conditions and pricing warrant, we will continue to be both responsible and nimble in our approach to capital allocation. With expectations the GDP growth will continue to slow as we enter 2020, the added volatility and uncertainty that typically accompany election years and ongoing property-level cost and supply pressures, we are cautious in our expectations for the coming year. However, we are confident in our ability to drive strong results during periods of growth as well as to outperform during periods of economic uncertainty. SAR data across the last two cycles clearly shows that chain-affiliated hotels outperform in times of contraction, and with Apple Hospitality's strategy of combining premier brands in locations with above-average demand drivers, together with best-in-class third-party managers, and our 20 years of asset management and business analytics experience, we believe we will continue to drive above-peer average results for our company. It's now my pleasure to turn the call over to Chrissy to give more detail on operations.