Apple Hospitality REIT, Inc.

Greetings. Welcome to Apple Hospitality REIT second quarter 2022 earnings 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. Please note this conference is being recorded. I will now turn the conference over to Kelly Clark, President of Investor Relations. Thank you. You may begin.

Thank you and good morning. Welcome to Apple Hospitality REIT's second quarter 2022 earnings call. Today's call will be based on the earnings release and form 10-Q, which we distributed and filed yesterday afternoon. Before we begin, please note that today's call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions and, as a result, are subject to numerous risks uncertainties, and the outcome of future events that could cause actual results, performance, or achievements to materially differ from those expressed, projected, or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including our 2021 Annual Report on Form 10-K, and speak only as of today. 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 second quarter of 2022. 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. Performance across our portfolio during the second quarter continued to exceed our expectations. Second quarter Red Bar surpassed pre-pandemic highs, coming in at $119, up 40% compared to second quarter 2021, and up 4% compared to second quarter 2019. Red Bar was bolstered by strong rate growth. ADR for our portfolio was $153 for the quarter, up 27% to 2021, and up 8% to 2019. Occupancy for the quarter was strong at 78%, up 10% to 2021, and down only 4% to 2019. Positive business and leisure demand trends have continued into July, with occupancy of approximately 77% for the month and rate continuing to grow and exceed pre-pandemic levels. We are encouraged by growth in weekday occupancies, which reached 75% for the quarter, indicative of the resiliency of business travel across our markets. Consistent with our expectations, leisure travel continues to be incredibly strong despite higher gas prices and an inflationary environment. Weekend occupancy was approximately 85% of the quarter, surpassing 2019 occupancy levels by 160 basis points. With stronger weekday occupancies adding to robust weekends, we are better positioned to more meaningfully move rates throughout the week and adjust our business mix to maximize profitability. For the quarter, weekday ADR was $148 and weekend ADR was $165. Strong recovery in rate helped to offset challenging labor and inflationary pressures. As a result, second quarter operations were significantly ahead of the same period last year. With comparable hotels total revenue up more than 39% relative to the second quarter of 2021, we achieved comparable hotels adjusted hotel EBITDA of $137 million. up 46% to the same period of 2021, and up 4% to the same period of 2019. We achieved comparable hotels adjusted hotel EBITDA margin of 40%, up 180 basis points as compared to the same period of 2021, and up 10 basis points to 2019. Adjusted EBITDA RE was $126 million, and modified funds from operations was $111 million, or 48 cents per share. in line with second quarter 2019 results. These outstanding results further validate our strategy of investing in a diversified portfolio of high-quality branded rooms-focused hotels with low leverage and are a testament to the tremendous efforts of our corporate and on-site management teams. Our portfolio includes 219 hotels and spans 86 different markets across 36 states. And our unparalleled geographic diversification acts to reduce volatility and provides exposure to a wide variety of demand generators and industries. Our hotels are generally located in business-friendly markets that offer attractive cost of living and popular leisure and entertainment venues, which appeal to a variety of small and medium-sized businesses as well as large corporations. Our rooms focus hotels aligned with industry-leading brands and managed by best-in-class operators. offer guests a strong value proposition while providing us the ability to produce robust operating margins and profitability. Fewer outlets to manage and less public space to maintain simplify operations and minimize utility, cleaning, and maintenance costs. The hotels we own appeal to a broad set of business and leisure customers, operate at attractive margins, are resilient during economic downturns, require reasonable ongoing capital reinvestment, produce attractive cash returns, have a small relative environmental footprint, are attractive on resale to both local and institutional investors, and can be effectively optimized in a scaled portfolio utilizing comparative data analytics and operational benchmarking. The strength of our balance sheet further contributes to the long-term stability and optionality of our platform. In July, we refinanced our primary unsecured credit facility, further bolstering our already strong liquidity position. In addition to extended maturities and improved pricing, the refinancing upsized our revolving credit facility and term loans, providing the company with greater access to liquidity for strategic growth and other corporate initiatives. We greatly appreciate the support of our lenders, their conviction in our strategy and their continued confidence in the underlying fundamentals of our business. Faced with the prospect of potentially greater macroeconomic uncertainty and volatility in capital markets over the coming years, the increased liquidity positions us to be opportunistic in ways that will drive incremental value for our shareholders. Rising interest rates and disruption broadly in debt markets have impacted competition for assets in recent months. which we anticipate will result, at least temporarily, in more attractive buying opportunities. Given our outperformance since the onset of the pandemic, the strength and flexibility of our balance sheet, and the additional borrowing capacity under our amended credit facility, we are incredibly well positioned. With just 3.7 times net debt to EBITDA, extended and staggered maturities, a relatively young portfolio and over $700 million in current total liquidity, We are able to be both patient and flexible as we work to capitalize on potential dislocations in the market. We continue to actively underwrite and explore dozens of opportunities both on and off market and anticipate that we will be a net acquirer of assets in 2022 with transactions likely over the coming months. The 12 hotels we have purchased since the onset of the pandemic contributed meaningfully to our year-to-date outperformance. exceeding our original underwriting during the first six months of the year by over $3.2 million in hotel EBITDA. A third of these hotels produced yields in excess of 10% on a trailing 12-month basis. We have been and will continue to be highly selective and intentional in the build-out of our portfolio, pursuing assets that are additive to those that we currently own where we can achieve attractive pricing. Future acquisitions will be consistent with our strategy of investing in high-quality rooms-focused hotels located in strong web farm markets with attractive cost structures and meaningful growth potential. We were fortunate to have entered the pandemic with a relatively young and well-maintained portfolio and, as a result, were able to strategically reduce renovation spend to preserve capital in 2020 and 2021. During the first six months of 2022, we invested approximately $17 million in capital expenditures and anticipate spending a total of $55 to $65 million during the year. This year's spend will more closely approximate our historical investment of between 5% and 6% of revenues, which we continue to feel is appropriate for our portfolio and a meaningful differentiator for us, which contributes to total shareholder returns over time. Through our scale ownership of branded, rooms-focused properties over more than two decades, we have significant experience in determining the most effective scope and timing of our investments to ensure minimal disruption to property operations and maximum impact for dollars spent. As of June 30th, 2022, we had approximately $345 million remaining under our share repurchase program. As has been the case historically, we will be opportunistic in using this program where we see market dislocations that create opportunities to buy our portfolio at a meaningful discount. We also intend to continue to return capital to our investors through monthly dividends. During the second quarter, we paid $0.15 per share for a total of approximately $34 million, based on Wednesday's closing price. The annualized distribution of 60 cents per common share represents an annual yield of approximately 3.6%. We interact with our board on a monthly basis and assess our payout in the context of current operating environment, our expectations for the future, and other investment opportunities to ensure that we are allocating capital to drive the strongest total returns for our shareholders. our strategy was designed to create an asymmetrical risk profile, mitigating downside risk while providing meaningful opportunity for upside. We remain confident in the resiliency of travel and our ability to drive strong results and maximize shareholder value in any macroeconomic environment. With nearly every operating metric now exceeding pre-pandemic levels, additional upside remaining in business travel and new supply at historically low levels We are incredibly optimistic about the future of our business. Before I turn the time over to Liz, I just want to take a moment to thank her for her efforts on the successful refinance of our credit facility that I touched on in my earlier remarks. Liz, I'll now turn the time over to you for additional details on our balance sheet, operations, and financial performance during the quarter.