Apple Hospitality REIT, Inc.

Greetings and welcome to the Apple Hospitality REIT fourth quarter and full year 2022 earnings call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Kelly Clark. Thank you. You may begin.

Thank you, and good morning. Welcome to Apple Hospitality REIT's fourth quarter and full year 2022 earnings call. Today's call will be based on the earnings release in Form 10-K, 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 in our 2022 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 fourth quarter and full year 2022 and an operational outlook for 2023. 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. We are pleased to report another year of strong operating performance and continued growth for Apple Hospitality REIT. Additionally, during 2022, we took steps to ensure that we are well positioned for the year ahead by investing in staff and training, renovating and reinvesting in our hotels, reinstating monthly distributions, further bolstering our balance sheet, and optimizing our portfolio through the strategic acquisition of two high-quality hotels and the disposition of one non-core asset. 2022 REVPAR for our portfolio was $108, a 32% improvement over 2021 and a 3% improvement over 2019. REVPAR growth was driven by meaningful improvement in rate. ADR for the year was $149, an improvement of 21% as compared to 2021 and 9% as compared to 2019. Occupancy was 73%. up approximately 10% compared to 2021 and down 6% compared to full year 2019. And total portfolio revenue for the year was up approximately 33% to 2021, down only 2% to 2019. Strong rate growth and effective cost controls enabled us to achieve actual adjusted hotel EBITDA margin for the year of 37%, up 250 basis points to 2021, and 10 basis points to 2019. MFFO was approximately $351 million, or $1.53 per share, up 67% compared to 2021 and down 4% compared to 2019. Emerging from the pandemic-related business disruption, we have rebuilt portfolio occupancy and have worked with our management companies to make strategic investments in our hotel-level talent, to cultivate and retain associates despite a challenging labor environment by providing necessary training and focusing on culture and associate engagement. These important investments in developing on-property teams position us to maintain the quality of our hotels and provide the service levels necessary to support continued growth in market share, in particular through higher rates, which we believe will be key to our long-term profitability. As our managers stabilize staffing at our hotels and invest in onsite training, we expect to realize efficiencies, which should act as a partial offset to higher wages. Additionally, we see benefit to both service levels and profitability as we work to reduce dependence on contract labor, which continues to be elevated to pre-pandemic levels. We were fortunate to have entered the pandemic with a relatively young and well-maintained portfolio. And as a result, we're able to strategically reduce renovation spend to preserve capital in 2020 and 2021. During 2022, we invested approximately $62 million in capital expenditures with significant renovations at 24 of our hotels. Our in-house CapEx team has done a tremendous job managing inflationary pressures and supply chain challenges to deliver outstanding and cost-effective results that strengthen our competitive position within our respective markets. We anticipate spending $70 to $80 million during 2023, which includes comprehensive renovation projects at 20 to 25 of our hotels. Our 2022 and anticipated 2023 CapEx spend more closely approximate our historical investment of between 5% and 6% of revenues, which we believe is appropriate for our portfolio and a meaningful differentiator for us, contributing 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. Supported by our strong operating performance, we have led the industry in post-pandemic dividend payments, reinstating regular monthly cash distributions beginning with the March payment and increase in our monthly distribution in August and again in October. In December, our board approved a special distribution of $0.08 per share in addition to our regular monthly distribution of $0.08 per share, both of which were paid in January of this year. Based on our closing price on Friday, February 17th, our annualized distribution of $0.96 per share represents an annual yield of approximately 5.6%. Strong operating fundamentals also positioned us to further bolster our balance sheet. During the year, we produced approximately $200 million in excess of distributions paid to shareholders, which we were able to utilize to fund capital reinvestments and new acquisitions. In July, we amended and restated our existing $850 million credit facility, increasing the borrowing capacity, extending maturities, and achieving improved pricing. Our low leverage and attractively structured debt were key contributors to our outperformance over the past years. Faced now with greater macroeconomic uncertainty and volatility in capital markets, our significant liquidity position, staggered maturity dates, and conservative secured debt exposure provide us with flexibilities to be both thoughtful and opportunistic to drive incremental value for our shareholders. In 2022, we sold one hotel, a 55-room independent boutique hotel in Richmond, Virginia, for $8.5 million, resulting in a gain on sale of approximately $1.8 million. During the year, we also purchased two hotels, the AC Hotel Louisville Downtown and the AC Hotel Pittsburgh Downtown, for a combined total of $85 million, both of which were acquired during the fourth quarter. As we have built and refined our portfolio over time, We have intentionally sought to create exposure to markets that benefit from a mix of business and leisure demands and to concentrate our ownership in markets that have been and will be beneficiaries of macroeconomic and demographic shifts. Since the onset of the pandemic, we have invested approximately $558 million in 14 hotels. These recent acquisitions have exceeded our original underwriting by more than $12 million in hotel EBITDA during the full year. contributing meaningfully to our operational outperformance. The 12 hotels owned for all of 2022 produced a total unlevered return for our investment after CapEx of over 8%, despite the impact of the Omicron variant on first quarter numbers and with meaningful upside remaining as assets continue to ramp and markets improve. A third of these hotels produced unlevered yields in excess of 10%. Looking forward to 2023, we have reason to be optimistic. January top line numbers for our portfolio were strong, helped by easy 2022 comps and continued strength in travel demand. While we are mindful of the potential for macroeconomic headwinds later in the year, our property teams have entered the year with high expectations for continued improvement in both business and leisure demand. The supply picture is favorable. with nearly half of our hotels having no exposure to projects under construction within a five-mile radius. And many of our markets that were slow to rebound from pandemic lows have shown meaningful improvement in recent months. Our combined acquisitions and dispositions activity has positioned us to produce better portfolio margins and to drive greater profitability over time. And while the transaction market in recent months has been relatively quiet, We expect debt maturities and brand mandated capital investment to increase the number of properties coming to market as the year progresses. With ample liquidity and over 20 years of transaction history, we are optimally positioned to grow our portfolio when market conditions are right. We are incredibly proud of our accomplishments this past year and remain confident in the resiliency of travel and our ability to drive strong results and maximize shareholder value in any macroeconomic environment. I'm now pleased to turn the call over to Liz for additional details on our balance sheet, operations, and financial performance during the year.