Apple Hospitality REIT, Inc.

Greetings. Welcome to the Apple Hospitality REIT fourth quarter and full year 2020 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow a formal 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 of Investor Relations. You may begin.

Thank you and good morning. We welcome you to Apple Hospitality REIT's fourth quarter and full year 2020 earnings call on this, the 24th day of February, 2021. Today's call will be based on the fourth quarter and full year 2020 earnings release in form 10-K, 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 and the impact to the company's business and financial condition from, and measures being taken in response to COVID-19. 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 annual report on Form 10-K for the year ended December 31st, 2020, 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, and Liz Perkins, our Chief Financial Officer, will provide an overview of our results for the fourth quarter and full year 2020. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin.

Good morning, and thank you for joining us today. Before I begin, I want to take a moment to acknowledge the recent passing of Arne Sorensen. Arne was one of the most intelligent and insightful individuals in our business and a truly good person. He aspired to make the world a better place and cared deeply for friends, family, and business associates. Merritt is fortunate to have attracted many great people over the years, and I have every confidence that the company will be in good hands, but I personally will miss him, and I know others will as well. Challenges brought by the COVID-19 pandemic meaningfully impacted travel beginning in March of last year, making 2020 the most difficult year on record for the hotel industry. We are incredibly grateful to work with the best management teams in the industry who, in light of unprecedented challenges, effectively adjusted to the new environment and continue to serve guests with care. In 2020, we were unrivaled in our ability to keep our hotels open, and that would not have been possible without their dedication and hospitality. I also want to recognize the efforts of our team members at Apple, who have worked tirelessly over the past year. Our success is in large part a direct result of their work. We have developed and refined a hotel investment strategy unique in its ability to mitigate risk and volatility while producing compelling investor returns throughout economic cycles. Our strategy is straightforward. Own a portfolio of geographically diversified select service hotels affiliated with the best brands. Work with the best management teams in the industry. Consistently reinvest in our hotels to ensure they remain relevant and competitive. and maintain a flexible capital structure with low leverage. While the current environment has created more significant operating challenges than we experienced in prior cycles, this highlighted the merits of our underlying strategy. At the onset of the pandemic, we shared our expectation that we were in a position to navigate the downturn more profitably than most and would be among the first to benefit from our recovery and travel. With meaningfully lower leverage, greater market diversification, and more efficient asset-level operations, we were first among publicly traded lodging REITs to return to positive cash flow in 2020 and are pleased to report adjusted hotel EBITDA of $122 million, adjusted EBITDA of $93 million, and modified FFO of $20 million for the full year. While the booking window is short and we have less visibility into future operating performance than we have in years past, we're building off a relatively strong base. All of our hotels are open, and portfolio occupancy was approximately 45% in January and continued to improve in February. The demand for our hotels is broad-based, including a mix of leisure and business, transient and small group. We expect occupancy to continue to improve throughout 2021 with domestic leisure demand driving performance early in the year and business demand, led initially by local and regional accounts, strengthening as the year progresses. The increase in travel will be facilitated by rollout of vaccines and loosening of travel restrictions, and the pace of recovery will vary by market. Our broad geographic diversification has provided us with relative stability through multiple economic cycles. The distribution of our assets across a variety of market types and geographic regions minimizes the impact of regional demographic shifts and provides broad exposure to a myriad of industries and demand drivers. Over the past year, our limited exposure to large gateway markets and urban city centers proved a significant advantage as these markets were disproportionately impacted by travel restrictions, including limitations on large group events. Our portfolio also provided unparalleled exposure to convenient drive-to destinations and government, regional, business, and leisure demand drivers. We believe that our geographic distribution will continue to be an advantage for us in the coming year. and are seeing increased bookings from existing demand generators and encouraging increases in small group and regional business transient. The assets we own are perfectly suited to accommodate guests in the current environment. Our rooms-focused portfolio has broad appeal and is efficient by design, enabling us to operate profitably at low occupancy levels. With smaller public areas and larger, more comfortable rooms, often offering kitchens and or suite amenities, we are able to more effectively effectively implement enhanced cleaning and sanitation protocols and provide guests with the private functional space they are looking for. The value proposition for guests is further enhanced by affiliation with brands that help to create consistency in guest experience, ensure that important standards are implemented, and provide incremental benefit through powerful loyalty programs. For all of these reasons, our hotels have continued to be attractive during the past year, just as they have been during prior downturns. and we feel confident in their ability to continue to have appeal throughout the recovery. Our management companies, many of whom have been partnered with us through multiple economic cycles, have performed admirably this past year. From the onset of the pandemic, we were able to leverage their experience to effectively adjust property-level operating models and minimize losses while continuing to serve guests with warmth and hospitality. With all of our hotels open, we have retained key managerial and sales staff to continue both current and forward-looking sales efforts. Management company above property revenue support teams work closely with our internal revenue management resources to identify areas of opportunity in the current environment and to ensure we were setting ourselves up optimally for the future. Our relationship with our management companies has been built over decades, and we have worked to ensure that our efforts are complementary and additive. Averaging our scale and sophisticated data analytics, we worked from the onset to establish standardized operating models for low-occupancy hotels and to identify and share best practices, which could then be implemented across our portfolio. We drove costs down by renegotiating national contracts with vendors and service providers, while our managers ensured that we were meeting guests' needs. Our combined efforts over 2020 have allowed us to begin this year in a position of strength with momentum to build on. We entered the pandemic with a young, well-maintained portfolio and during the year invested approximately $38 million in capital expenditures. Despite prudent reductions of approximately $50 million to our originally planned 2020 capital spend, we have continued to ensure our assets remain competitive within their markets and protected during periods of lower occupancy. Our in-house project management team coordinated with regional and property-level staff to put important processes in place to ensure all systems continue to operate efficiently and our assets were well maintained. As we welcome increasing numbers of guests back, our hotels are ready. Finally, we have always maintained a flexible balance sheet with low leverage. Similar to the other elements of our strategy, this has helped to mitigate volatility in our performance and enabled us to successfully weather multiple economic downturns and act when the timing is right on accretive opportunities. Strength of our balance sheet has enabled us to avoid issuing dilutive equity and to benefit from lower capital costs. In 2020, lower debt obligations contributed to our ability to reach corporate-level break-even earlier than our peers, preserving capacity and enabling us to acquire five hotels since the onset of the pandemic. Most recently, we acquired the Hilton Garden Inn in downtown Madison, Wisconsin. The newly constructed 176-room hotel is located immediately adjacent to the university's sporting facilities, and in close proximity to government, business, and leisure demand generators. In 2020, we sold three hotels for a combined sales price of approximately $55 million, including the Hampton Inn in Tulare, California, which was sold during the fourth quarter for approximately $10 million. The company's 2020 dispositions resulted in a combined gain on sale of approximately $11 million. As we announced last quarter, our Homewood Suites in Charlotte, North Carolina, remains under contract for sale for approximately $10 million. If a closing occurs, the sale is expected to be completed in the first quarter of 2021, and we expect to recognize a gain upon completion of the sale. While transaction volume in our industry continues to be low, we expect an increasing number of opportunities as we move through the recovery and are well positioned to act in ways that will further grow and enhance our existing portfolio. Our outperformance during these unprecedented times is a testament to the strength of our underlying strategy and low-levered balance sheet, and has preserved our capacity to pursue accretive opportunities in the early stages of a recovery. We remain intently focused on maximizing long-term value for our shareholders and are confident we are well-positioned as travel continues to recover. It is now my pleasure to turn the call over to Liz, who will provide additional detail on our financial results and performance across our markets.