Apple Hospitality REIT, Inc.

Greetings and welcome to Apple Hospitality fourth quarter and full year 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kelly Clark, Vice President, Investor Relations. Please proceed.

Thank you and good morning. Welcome to Apple Hospitality REIT's fourth quarter and full year 2021 earnings call. Today's call will be based on the earnings release in Form 10-K, which we 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 our 2021 Annual Report on Form 10-K and other filings with the SEC. Any forward-looking statement that Apple Hospitality makes speaks only as of today, February 23, 2022, and the company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are 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 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. I'm excited to be able to share our operating results for the fourth quarter and full year 2021 and to provide some insights into what we're seeing as we begin 2022. We ended 2021 with the strongest quarterly performance we have achieved since the onset of the pandemic, despite the emergence of a new variant in November, seasonal travel trends, a challenging labor environment, and increasing inflationary pressures. ADR was essentially flat as compared to the same period in 2019, with occupancy down 7%, REVPAR down 8%, and adjusted hotel EBITDA down only 13%. December results exceeded our expectations and were the strongest during the quarter, with Red Park down only 1% as compared to December 2019. While the gap to 2019 widened in January, impacted by leisure seasonality and the spread of the Omicron variant following the holidays, Red Park for the month was up meaningfully to the prior year, and occupancy and rate have continued to improve in February. With COVID cases declining and cities easing restrictions as we move into the spring, we continue to expect strong leisure demand and increasing business travel as we move through the remainder of the year. Full-year operating results showed significant recovery relative to 2020 and continue to bridge the gap to pre-pandemic levels. Comparable total revenue was up more than 62% relative to 2020, and comparable hotels adjusted hotel EBITDA margin was 35%, down only three percentage points to 2019. 2021 adjusted EBITDA was $279 million, and modified funds from operations was $211 million, or 93 cents per share. Our recent acquisitions and dispositions have further optimized our portfolio by lowering the average age of our assets and increasing our exposure to markets that we anticipate will outperform over the next cycle. The combined acquisitions and dispositions activity lowers our near-term CapEx needs and positions us to drive stronger portfolio rep part and margins. Since the beginning of the COVID-19 pandemic, we have acquired a total of 12 hotels for approximately $473 million. and sold a total of 24 hotels for approximately $245 million. We acquired four of these hotels during the fourth quarter for a combined total purchase price of approximately $164 million, including the Hilton Garden Inn Memphis Downtown, the Hilton Garden Inn and Homeland Suites Fort Worth Medical Center, and the Hampton Inn and Suites Portland Pearl District. We currently have one hotel under contract for purchase, an Embassy Suites that is under development in Madison, Wisconsin, for an anticipated purchase price of approximately $79 million. We have been and will continue to be intentional in the build-out of our portfolio, pursuing assets that are additive to those we currently own, located in strong web part markets with attractive cost structures and significant growth potential, and at pricing that will allow us to achieve our targeted returns. While broker transaction volume has slowed slightly in the first two months of this year, We are actively underwriting and exploring dozens of opportunities, both on and off market, and anticipate that we will continue to be active in 2022. We have also continued to strategically reinvest in our existing portfolio. During 2021, we invested approximately $26 million in capital improvements, including the full renovation of eight hotels. We intend to invest an additional $55 to $65 million in 2022, which includes major renovations at between 20 and 25 hotels. These reinvestments ensure that our hotels remain relevant and competitive in their markets. Our scaled ownership of branded select service properties allows us to perform these renovations efficiently, and our experience renovating hundreds of hotels over more than two decades informs our decision-making related to the scope and timing of investment to ensure minimal disruption to the property operations and maximum impact for dollars spent. Historically, capital spend has ranged between 5% and 6% of sales, a meaningful differentiator for our portfolio and a contributor to total shareholder returns. With a relatively young and well-maintained portfolio, we anticipate future spending will continue in this range. Looking back over the past two years, we are proud of all that we have accomplished. During the most challenging operating environment our industry has ever experienced, we were able to achieve industry-leading operating results. enhance the growth profile and long-term value of our portfolio through strategic acquisitions and dispositions, and maintain the strength and flexibility of our balance sheet. Our outperformance is a tribute to the collaborative efforts of our corporate, brand, and management teams, and a testament to the merits of our strategy of investing in a broadly diversified portfolio of high-quality, rooms-focused hotels with low leverage. We were first among our publicly traded peers to produce positive cash flow at both the property and corporate level. and first to exit our covenant waivers. With continued confidence in our portfolio and the broader industry recovery, we are reinstating monthly dividends for our shareholders with a March payment of 5 cents per share. The annualized distribution of 60 cents per share represents a 3.4% yield on our February 18th closing share price of $17.49. As we enter 2022, we are incredibly well-positioned. Operationally, our hotels are closing the gap to pre-pandemic 2019 performance, even without a full recovery in business transient, which has historically represented more than half of our total bookings. As offices reopen and companies implement more flexible travel policies throughout the year, we expect to see an increase in business demand, which combined with continued strength and leisure travel should push total demand for our portfolio beyond pre-pandemic levels. New supply, which represented a meaningful headwind for us in 2019, has declined significantly, with projects under construction within a five-mile radius of our hotels near all-time lows. We have unparalleled exposure to markets that have benefited from individual and business relocations during the pandemic, with business-friendly governments, attractive cost of living, popular leisure and entertainment venues, and a variety of corporate and small business demand generators. Our strategic acquisitions and dispositions over the past two years have enhanced the growth profile of our portfolio without dilutive capital raises or over-encumbering our balance sheet. Our strategy has been tested for more than 20 years and consistently yielded compelling results for our investors. We remain intently focused on maximizing long-term value for our shareholders and are confident we are well positioned for additional upside as leisure travel continues to show strength and business travel steadily recovers. It is now my pleasure to turn the time over to Liz, who will provide additional detail on our balance sheet, operations, and financial performance during the quarter and the full year.