Apple Hospitality REIT, Inc.

Welcome to the Apple Hospitality REIT second quarter 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a comfort specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Kelly Clark, Vice President, IR. Please go ahead.

Thank you and good morning. Welcome to Apple Hospitality REIT's second quarter 2023 earnings call. Today's call will be based on the earnings released in 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 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 referenced 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 2023 and an operational outlook for the remainder of the year. 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. As we move into the back half of 2023, we are incredibly pleased with our performance here today. And though we have limited visibility into the future, we have reason to be optimistic based on recent trends. Demand across our geographically diversified portfolio of rooms-focused hotels remains strong and drove year-over-year improvements in occupancy, ADR, and REVPAR for the quarter. Comparable hotels ADR increased by 5%. Occupancy was up nearly 1% and RevPAR improved by 5% as compared to the second quarter 2022. With occupancy still down 4% to second quarter 2019, comparable hotels ADR was 11% higher and quarterly RevPAR was up 7%. Our highest quarterly comparable hotels RevPAR growth relative to 2019 since the onset of the pandemic. Continued top line growth enabled us to achieve second quarter comparable hotels adjusted hotel EBITDA of $142 million, a 2% improvement over second quarter 2022. With a fundamental shift in consumer spending, leisure travel continues to be robust, driving strong occupancies during the quarter and allowing for continued growth in rate. Steady improvement in business travel has bolstered midweek occupancy and rates for our hotels, further lifting overall portfolio performance. Based on preliminary results, for the month of July, and despite weaker performance around the 4th of July holiday, occupancy for our portfolio was 77%, and we continue to see growth in ADR. Excluding the first week, preliminary portfolio REVPAR growth for July was comparable to second quarter, driven both by rate and occupancy growth year over year. Though we will have increasingly difficult top line comparisons as we progress through the second half of the year, Forward booking trends remained favorable. Leisure demand continues to be elevated to pre-pandemic levels, and we see steady improvement in business travel demand. We have adjusted our annual guidance to reflect portfolio performance through the first half of the year and recent adjustments to consensus economic forecasts. resulting in a 100 basis point increase in comparable RevPAR growth guidance at the midpoint and a 10 basis point increase in the applied midpoint of comparable hotels adjusted hotel EBITDA margin. Through continued rate growth and disciplined cost controls, we achieved a comparable hotels adjusted hotel EBITDA margin for the quarter of over 39%, despite inflationary pressures and a challenging labor environment. Our corporate team works with industry-leading management companies at our hotels to share best practices, monitor real-time performance, and focus on-site efforts to drive incremental profitability at our hotels without sacrificing cleanliness or overall guest satisfaction. As we move into the back half of the year, we expect both top-line growth and expense growth to moderate with year-over-year comparisons impacted by more stabilized operations in the third and fourth quarter of 2022. In order to ensure that our portfolio remains relevant and that our hotels compete effectively within their markets, we make regular strategic reinvestments, leveraging our scale and experience to maximize the value of dollars spent. During the first six months of the year, we invested approximately $28 million in various capital projects, and we anticipate spending a total of $70 to $80 million during 2023. Planned capital expenditures include comprehensive renovations at 20 to 25 of our hotels. During the quarter, we transitioned hotel operations at our non-core independent hotel in New York City to a third party through a triple net lease. As a result of the lease agreement, this property is excluded from our hotel and room counts effective May 2023 and will be considered a non-hotel property during the lease term. While not material to our overall consolidated performance, The terms of the agreement are financially beneficial to us and transfer responsibility for both day-to-day operations and ongoing capital expenditures to the tenant. We hold a security deposit and additional corporate level guarantee. In addition, we reserve the right to regain operational control should the third party not fulfill obligations under the lease. Overall, the transaction market, while still relatively quiet, seems to be opening up, and we anticipate deal volume will increase as the year progresses. We continue to underwrite numerous potential acquisitions opportunities seeking hotels and business friendly markets with multiple demand generators where we anticipate future growth. We have tremendous transaction experience, which combined with our available balance sheet capacity and deep industry relationships positions us to drive incremental shareholder value by enhancing and growing our portfolio when conditions are optimal. In June, we acquired the previously announced and newly renovated 154-room courtyard Cleveland University Circle for $31 million, or approximately $201,000 per key. The hotel is in the heart of the University Circle District, a premier educational, medical, and social district on the east side of Cleveland. During the quarter, we also entered into a contract for the purchase of a to-be-developed motto by Hilton in downtown Nashville. with an estimated 256 guest rooms for approximately $97 million. The hotel will be located in the heart of downtown Nashville near well-known leisure attractions, including the Country Music Hall of Fame and Bridgestone Arena. This will be our first hotel under the motto flag, and we believe the brand's offerings are ideal for this particular location, providing flexible guest rooms, curated bar and dining experiences, and an overall great landing spot for both business and leisure travelers. We currently anticipate development will be complete in 2025. Construction at the Embassy Suites in Madison, Wisconsin, which we also have under contract, is on track for completion in early 2024. The hotel will be located in the heart of downtown Madison within walking distance of the Monona Terrace Community and Convention Center, the State Capitol, and the University of Wisconsin. As we underwrite potential acquisitions opportunities, we are also mindful of our ability to drive incremental shareholder value through the repurchase of our shares when there are dislocations in the market. During the quarter, we repurchased approximately 226,000 shares at a weighted average purchase price of approximately $14.47 per share for an aggregate purchase price of approximately $3 million. The shares were repurchased in open market transactions under the share repurchase program, including pursuant to written trading plans intended to comply with Rule 10b-5-1. We have approximately $335 million remaining under this program. Supported by our strong operating performance, we have led our peers in post-pandemic dividend payments. During the quarter, we paid distributions totaling 24 cents per share based on Wednesday's closing stock price. Our annualized distribution of 96 cents per share represents an annual yield of approximately 6.4%. Together with our board of directors, we will continue to monitor our distribution rate and timing relative to the performance of our hotels and other potential uses of capital. As we enter the second half of the year, the fundamentals of our business remain favorable with continued strength and demand and limited near-term supply growth. Nearly half of our hotels do not have any new supply under construction within a five-mile radius, providing us with the ability to meaningfully benefit from incremental demand. And our combined acquisitions and dispositions activity has positioned us to produce better portfolio margins and to drive greater profitability over time. Our strategy was designed to create an asymmetrical risk profile, mitigating downside risk while providing significant opportunity for upside. Our portfolio of upscale rooms-focused hotels is broadly diversified across a wide variety of markets and demand generators. Our hotels are franchised with industry-leading brands managed by some of the best management companies in the industry and provide a strong value proposition with broad consumer appeal. Underlying the strength of our portfolio is a balance sheet with low leverage and financial flexibility, a consistent reinvestment in effective portfolio management strategy, and a dedicated corporate team with extensive industry experience. While we have reason to be optimistic about the trajectory of our industry, and our portfolio specifically, I am confident we are well positioned to continue to outperform and maximize shareholder value in any macroeconomic environment. It is now my pleasure to turn the call over to Liz for additional detail on our balance sheet, operations, and financial performance during the quarter.