Apple Hospitality REIT, Inc.

Greetings, ladies and gentlemen, and welcome to Apple Hospitality's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kelly Clark, Vice President of Investor Relations. Thank you. You may begin.

Thank you and good morning. We welcome you to Apple Hospitality REIT's first quarter 2021 earnings call on this, the 7th day of May, 2021. Today's call will be based on the first quarter 2021 earnings release and 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 and the impact of 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 31, 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 first quarter of 2021. 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. During the first quarter, we produced our strongest operating results since the beginning of the pandemic, with our portfolio occupancy exceeding industry averages and our internal expectations. We achieved positive cash flow after all corporate-level expenses, including capital expenditures. Occupancy and rate continued to improve in April, and with strong leisure demand and signs of improvement in business transient, we have reason to be optimistic for the remainder of the year. Last year was the most challenging year on record for the hotel industry. Working together with our on-site management teams, we swiftly adjusted operations and significantly reduced costs to keep our hotels open and capture existing demand within our market. With low leverage, broad market diversification, and efficient asset-level operations, we returned to positive corporate-level cash flow by early summer and were able to produce positive modified funds from operations for the full year. Uniquely positioned to focus on increasing profitability, not minimizing cash burn, We preserved the strength, flexibility, and capacity of our balance sheet without dilutive capital raises. Having now weathered what we hope is the worst of the pandemic, we are incredibly well positioned to grow the value of our company organically as we focus on long-term operational efficiencies to drive higher margins and externally through accretive transactions. Demand for our hotels has been broad-based. Occupancy and ADR steadily improved during the quarter, resulting in REVPAR of over $68 in March. REBPAR increased 25% from January to February and 27% from February to March. And positive trends have continued since the end of the quarter. We estimate full portfolio occupancy was approximately 68% for the month of April with continued improvement in rates. It is important to note that these results include all of our hotels as we were able to remain open and operational even during periods of lower occupancy. Our portfolio of rooms-focused hotels has performed better than the overall industry, as well as our chain scales, as reported by SCR, even without a full return of business travel. With business demand expected to meaningfully increase in the back half of the year, we are confident we are well-positioned for continued outperformance. The scale ownership of upscale rooms-focused Marriott, Hilton, and Hyatt branded hotels diversified across different markets and managers, We benefit from unparalleled access to detailed performance data. We utilize the information to perform extensive benchmarking analysis and work with our managers to implement the most efficient and effective practices across our portfolio. As we face the challenges of the pandemic, we closely evaluated every aspect of our business to find incremental efficiencies and to focus our efforts on what mattered most to our guests. We quickly established standardized staffing and operating models for lower occupancy hotels and meaningfully reduced costs by renegotiating national contracts with vendors and service providers. We maintained efficiencies as we grew occupancy in the first quarter, with total hotel operating expenses reduced by 41% as compared to the same period in 2019. As a result, we achieved adjusted hotel EBITDA of $35 million, adjusted EBITDA RE of $27 million, modified funds from operation of $9 million, and comparable hotels adjusted hotel EBITDA margin of 23% during the quarter. Apart from April of last year, we have been profitable at the hotel level every month since the start of the pandemic. We have a track record of optimizing operations in order to deliver industry-leading margins throughout economic cycles. As we emerge from the current environment, we will work to ensure that a portion of the cost savings and operational efficiencies we have achieved during the pandemic continue, resulting in higher operating margins for our portfolio as we build back rate and occupancy at our hotels. We have always believed in the merits of owning income-producing real estate with low leverage and have, as a result, maintained a conservative, flexible balance sheet. In March, we entered into amendments to our unsecured credit facilities that extend the covenant waiver period, enhance our ability to exit the waiver period, and provide additional flexibility to be acquisitive. Based on our continued outperformance and the terms of the recent amendment, we believe we are positioned to be among the first of our publicly traded peers to exit the covenant waiver period. Transaction volume in the hotel space remains relatively low, but we have seen an increase in deal flow and have been actively underwriting assets both as a potential buyer and seller. As we move through the recovery, we expect opportunities and transaction volume will continue to increase. We intend to be active in the market pursuing accretive transactions that maximize long-term value for our shareholders and that further grow and enhance our existing portfolio. Relatively lower debt obligations and strong property-level performance, which generated positive corporate-level cash flow after G&A and debt service despite a global pandemic, enabled us to acquire five hotels for a combined total of $161 million since the onset of the pandemic, including the Hilton Garden Inn in downtown Madison, Wisconsin, which we acquired during the first quarter for approximately $50 million. Since the beginning of the year, we have sold three hotels. including our Homewood Suites hotels in Charlotte, North Carolina, and Memphis, Tennessee, and our Spring Hill Suites in Overland Park, Kansas, for a combined total of $24 million. With a current average effective age of five years, we entered the pandemic with a young, well-maintained portfolio. During the quarter, we invested approximately $2 million in capital expenditures, and we anticipate investing an additional $23 to $28 million in capital improvements during the remainder of 2021. While we have prudently reduced our capital spend in the current environment, we continue to ensure that our assets are well maintained, that they remain competitive in their markets, and that all systems continue to operate efficiently. As we welcome increasing numbers of guests back, our hotels are ready. Looking back over the last year and how far we have come, we are incredibly grateful for the dedicated associates at our hotels and our amazing management teams. who, in light of unprecedented challenges, have been exceptional in caring for and serving our guests. Last year, associates at our hotels were faced with incredibly challenging circumstances as we worked to adapt to the evolving operating environment, with many taking on additional responsibilities. Next week, we plan to announce the recipients of our 2020 Apple Awards. For these awards, we focus on the associates at our hotels, and we look forward to recognizing five individuals nominated by their management companies and peers for their outstanding contributions to the safety, well-being, and overall satisfaction of our guests. I also want to take a moment to welcome our newest board member, Howard Woolley. Howard brings with him a wealth of experience in technology, public policy, and advocacy, and we look forward to his contributions over the coming years. We have developed and refined a hotel investment strategy unique in its ability to mitigate risk and volatility while producing compelling investor returns through 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. Our outperformance during these unprecedented times is not only a testament to the strength of our underlying strategy, but also to the perseverance of our team. I want to take this opportunity to recognize the efforts of our Apple team members who have continued to work tirelessly to drive outstanding results for our company. 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's now my pleasure to turn the call over to Liz, who will provide additional detail on our financial results and performance across our market.