Apple Hospitality REIT, Inc.

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 including in our 2024 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 2024 and an operational outlook for 2025. 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 for our fourth quarter and full year 2024 earnings call. I would like to begin by recognizing the courageous and dedicated teams at our hotels in Southern California and extending our thoughts and prayers to everyone impacted by the recent wildfires. We are fortunate that our hotels did not sustain any material damage and have remained opened and operational. As recovery from the fires moves forward, we will continue to support the ongoing efforts of our operating teams to care for guests, associates, and their surrounding communities. As expected, travel trends across our portfolio remained strong during the quarter. Driven by steady improvement in business transient demand, continued strength in leisure travel, and muted supply growth, we achieved comparable hotels rep part growth of approximately 3% for the fourth quarter and more than 1% for the full year, as compared to the same periods of 2023 respectively, driven by improvements in both ADR and occupancy. While business travel continues to be the primary driver of overall growth for our portfolio, leisure travel demand has been resilient. Contributions from recent acquisitions along with continued strength in ADR and moderating expense growth enabled us to achieve strong bottom line performance for the quarter, lifting full year 2024 results. Fourth quarter adjusted EBITDA RE was up approximately 7% and modified funds from operations was up approximately 6% as compared to the fourth quarter 2023. In January, strong performance from our hotels in the broader LA and DC markets offset weather-related disruption elsewhere. Our LA hotels have continued to perform well in February, and we anticipate that incremental demand from insurance and reconstruction efforts will continue to bolster performance for several of these hotels, at least through the first quarter. Supply-demand dynamics for our business continue to be favorable. At the end of the fourth quarter, approximately 55% of our hotels did not have any new upper upscale, upscale, or upper mid-scale product under construction within a five-mile radius. We continue to believe that limited supply growth in our markets materially improves the overall risk profile of our portfolio by both reducing potential downside and enhancing the upside impact of variability and launching demand relative to past cycles. Supported by our strong operating performance, we continue to pay an attractive dividend. During the fourth quarter, we paid distributions totaling 24 cents per common share, bringing our annual payout to approximately $244 million, or $1.01 per common share. Based on Friday's closing stock price, our annualized regular monthly cash distribution of 96 cents per share represents an annual yield of approximately 6.5%. 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. Our disciplined approach to capital allocation and portfolio management has defined our strategy throughout our history and was especially evident in 2024. During the year, we acquired two hotels for $196 million, sold six hotels for more than $63 million, repurchased approximately $35 million in common shares, and reinvested $78 million in our existing portfolio through capital expenditures. While the transaction market continues to be challenging, with industry deal volume remaining at historical lows and down meaningfully year over year, we have successfully executed on select asset sales in ways that continue to optimize our portfolio concentration in specific markets. Proceeds from these sales were used primarily to fund share repurchases and reduce debt. During 2024, we sold six hotels to five separate buyers, including 122-room Hampton Inn and 126-room Homewood Suites in Rogers, an 82-room Spring Hill Suites in Greensboro, a 90-room Courtyard in Wichita, a 97-room Town Place Suites in Knoxville, and a 117-room Hilton Garden Inn located in Austin North. for a combined sales price of more than $63 million. More recently, in February of this year, we completed the sale of the 76-room Homewood Suites in Chattanooga for approximately $8 million, and we are under contract to sell our Spring Hill Suites in Fishers, Indiana, for nearly $13 million. While pricing for the individual hotels varies, as a group, the eight hotels will trade at a sub-7% cap rate or 12.4 times EBITDA multiple before CapEx and a 5.2% cap rate or 16 times EBITDA multiple after taking into consideration the estimated $24 million in required capital improvements. It is noteworthy that shares repurchased during 2024 were priced at around a one and a half turn spread to recent dispositions and over a five turn EBITDA multiple spread after taking into consideration required capital investments. Recent acquisitions continue to contribute positively to our overall portfolio performance. The seven hotels acquired since June of last year and open for the full year produced an unlevered 9% yield after CapEx on a trailing 12-month basis with continued upside. Our Springfield Suites in Las Vegas yielded 10.5% after CapEx for the full year, and the AC in Washington, D.C. yielded 8% despite a softer fourth quarter, which was anticipated due to the presidential election. The recently opened Embassy Suites in Madison underperformed our expectations in the fourth quarter, weighing on overall portfolio results, as securing group business proved challenging during a period of seasonally low occupancy for the market. We continue to believe in the long-term potential of this asset and the Madison market more broadly. The hotel management team is working hard to optimize near-term performance, and the booking position is looking more favorable beginning in the second quarter. We continue to actively underwrite additional opportunities and are well positioned to act where we can achieve attractive yields relative to other capital allocation opportunities. We have one hotel under contract for purchase, Amado by Hilton, which is under construction in downtown Nashville for approximately $98 million. The asset is being developed under a fixed price contract and we anticipate acquiring this hotel upon the completion of construction late this year. Since the onset of the pandemic, we have completed approximately $325 million in hotel sales, with an additional $13 million under contract and expected to close during the first quarter of this year. And we have invested $1 billion in new acquisitions while maintaining the strength of our balance sheet. These transactions have further enhanced our already well-positioned portfolio by lowering the average age, lifting overall portfolio performance, helping to manage near-term CapEx needs, increasing exposure to high-growth markets, and position us to continue to benefit from near-term economic and demographic trends. Our recent acquisition and disposition activity, along with our 2023 share issuance and recent share repurchases, highlight our ability to adjust tactical strategy to account for changing market conditions and underscore our track record of acting on opportunities at optimal times in the cycle to maximize total returns for our shareholders. We actively seek opportunities to further optimize our portfolio, drive earnings per share, and maximize long-term value for our shareholders. During 2024, we invested approximately $78 million in capital expenditures, and we expect to spend between $80 and $90 million during 2025, with major renovations of approximately 20 of our hotels. These reinvestments in our portfolio are a key component of our overall strategy. and ensure our hotels remain competitive in their respective markets to prototype EBITDA growth. Eleven of the anticipated projects this year are part of multi-year franchise extension agreements. Our experienced team utilizes advantages of scale ownership to control cost, maximize impact of dollars spent, and implement projects during periods of seasonally lower demand to minimize revenue displacement. As we begin 2025, we are confident that with our portfolio of high quality rooms focused hotels, broadly diversified across markets and demand generators, the strength of our brands and effectiveness of our management companies, the stability and flexibility provided by our balance sheet, and the depth and experience of our corporate team, we are exceptionally well positioned for the future. Current fundamentals for our business are strong. Barring unanticipated macro events, we believe that operating performance should continue to improve. with the greatest opportunity coming through steady growth in midweek occupancy and rate. Leisure travel has proven resilient, supporting the observed consumer shift towards experiences. The past several years have provided opportunities for us to demonstrate both the strength and stability of our business and the capabilities of our team. I am confident in our ability to produce strong returns for investors over the coming years. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter, and annual guidance.

Thank you, Justin, and good morning. Before I begin, I would like to echo Justin's comments, acknowledging the teams at our hotels in Southern California for their acts of service and unwavering hospitality during and following the recent wildfires. They have gone above and beyond to care for our guests, their fellow team members, and their surrounding communities. our hearts go out to everyone impacted. We are pleased to report another strong quarter and year for our portfolio of hotels. Comparable hotels total revenue was $329 million for the fourth quarter and $1.4 billion for the full year, up approximately 4% and 2.5% as compared to the same periods of 2023 respectively. With continued strength and leisure demand and additional recovery and business demand, Fourth quarter comparable hotels rev par was $109, up approximately 3%. ADR was $153, up approximately 1%. And occupancy was 71%, up 2% as compared to the fourth quarter, 2023. For the full year, 2024, comparable hotels rev par was $119, up more than 1%. Comparable hotels occupancy was 75%. approximately 1%, and Comparable Hotels ADR was $159, up approximately 1% as compared to 2023. As anticipated, October was our strongest month during the quarter, with year-over-year Comparable Hotels REVPAR growth of 4%. During the quarter, our Seattle properties in Renton and Tukwila were negatively impacted by temporarily reduced inbound training and consulting business associated with Boeing disruption. Our Nashville, Atlanta, and Denver assets also experienced weaker year-over-year performance during the quarter, due in large part to recent supply growth and less robust group and event calendars. During the quarter, we saw meaningful year-over-year growth at our recently acquired downtown Salt Lake City hotels, which benefited from strong event and convention calendars. Our Embassy Suites in the South Jordan Submarket of Salt Lake City also saw significant year-over-year growth due to strengthening group and business demand in market. Other top performing hotels included our two South Bend hotels, which benefited from Notre Dame football games, our hotels in Tampa and Orlando, which saw increased demand from Hurricane Milton and Helene-related business, and our Houston West Energy Corridor hotels, which saw a meaningful increase in corporate negotiated business. Preliminary results for the month of January 2025 show a slight improvement in comparable hotels RevPar as compared to January 2024, driven by growth in ADR. During the month, strong performance from our LA and DC hotels offset travel disruptions elsewhere in our portfolio, largely related to uncharacteristic extreme winter weather in many of our Sunbelt markets. And portfolio ADR growth offset modest declines in occupancy. Many of our LA hotels have continued to see fire-related recovery business in February, and as Justin mentioned, we believe we will continue to have some related business through at least the first quarter. Looking at the remainder of the quarter, day of week shifts should help compensate for one fewer day in February, and March will benefit from the Easter holiday shift into April. New Orleans, which benefited from the Super Bowl in February, is anticipated to benefit from Mardi Gras in March of this year. Looking at day over day trends, improvements in leisure and business travel contributed roughly equally to fourth quarter improvements in occupancy year over year. Weekday occupancy was up every month during the quarter, with October up 1.6% and November and December up 4.2% and 3.6% respectively. Weekend occupancy varied, with October up just over 1%, November essentially flat, and December up almost 10% as compared to the same periods in 2023. Weekday rate growth for the quarter was fairly consistent with October and December approximately 2% and November up just over 1%. Weekend ADR was down 1% in October and almost 2% in November, but up almost 4% in December. Weekday ADR continues to lag weekends representing meaningful upsides as midweek demand continues to strengthen, positioning us to move rates higher. Same store room-night channel mix quarter over quarter remained relatively stable, with brand.com bookings at 41%, OTA bookings and property direct at 13% and 23% respectively, and GDS bookings representing 17% of our mix. Fourth quarter same-store segmentation was largely consistent with the fourth quarter of 2023. BAR remained strong at 33%. Other discounts represented 31% of our occupancy mix. Group was 14%, government was 5%, and the negotiated segment represented 17% of our mix. On a comparable basis, we continued to see growth in other revenue, which were up 16% during the quarter Food and beverage revenues also improved 5%. Turning to expenses, comparable hotels' total hotel expenses increased by approximately 5% for the fourth quarter and approximately 4% for the year, as compared to the same periods of last year, or 2% on a CPOR basis for both the quarter and the full year. Total payroll per occupied room for our same-store hotels was $41 for the quarter, up only 1% to the fourth quarter 2023. Contract labor decreased during the quarter to 7.3% of total wages and was down 250 basis points or 23% versus the same period in 2023. Comparable hotels utilities were up 6% as were hotel administrative expenses and sales and marketing expenses. While more variable expenses were well controlled, fixed expenses were particularly challenging with real estate taxes up 11% during the quarter and property insurance costs up largely due to a challenging year-over-year comparison with losses under our deductible at several properties in the fourth quarter of this year. For the year, comparable hotels variable expenses increased 4% or just over 2% on a CPOR basis. Property taxes, insurance, and other, which was up only 1.2% for the year, benefited from decreases in property insurance premiums year-over-year and several one-time real estate tax benefits, creating a challenging comparison as we look forward to 2025. We achieved comparable hotels adjusted hotel EBITDA of approximately $108 million for the fourth quarter and $509 million for the full year, up approximately 3% to the fourth quarter 2023 and up slightly as compared to the full year 2023. We are especially pleased with our comparable hotels adjusted hotel EBITDA margin of 32.9% for the fourth quarter and 36% for the full year, down only 40 basis points and 70 basis points, respectively, as compared to the same periods of 2023, which has consistently exceeded our expectations. Adjusted EBITDA RE was approximately $97 million for the quarter and $467 million for the full year. both up approximately 7% as compared to the same periods of 2023, respectively. MSFO for the quarter was approximately $77 million, and for the full year was $389 million, both up approximately 6% as compared to the same periods of 2023. During the quarter, we paid distributions totaling $58 million, or $0.24 per common share, bringing our annual payout, including the special dividend paid in January of 2024, to approximately $244 million, or $1.01 per common share. Looking at our balance sheet, as of December 31, 2024, we had approximately $1.5 billion of total debt outstanding net of cash. approximately 3.1 times our trailing 12-month EBITDA, with a weighted average interest rate of 4.7%. At quarter end, our weighted average debt maturities were approximately three years. We had cash on hand of approximately $10 million, availability under a revolving credit facility of approximately $568 million, approximately 75% of our total debt outstanding was fixed or hedged, and the number of unencumbered totals in our portfolio was 207. We have four mortgage loans totaling approximately $64 million that will mature this year and term loans totaling $225 million that will mature in the third quarter. We have begun conversations with our lenders and believe we are well positioned to address these maturities. Turning to our outlook for 2025 provided in yesterday's press release, For the full year, we expect net income to be between $173 billion and $202 million, comparable hotels rep part change to be between 1% and 3%, comparable hotel adjusted hotel EBITDA margin to be between 34.2% and 35.2%, and adjusted EBITDA RE to be between $447 million and $471 million. While our asset management and hotel teams are working diligently to mitigate cost pressures, we have assumed for purposes of guidance that total hotel expenses will increase by approximately 4.2% at the midpoint. These increases are driven by higher growth rates for certain fixed expenses, including real estate taxes and general liability insurance, than those experienced last year and have included approximately $2 million of incremental expenses related to brand conferences, which occur every 18 to 24 months. In addition, the low end of our adjusted EBITDA RE guidance assumes a $2 million loss related to Hotel 57. This outlook is based on our current view and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. The low end of our range reflects more modest lodging demand growth and a slight pullback in leisure demand offset by continued improvement in business transient. The high end of the full year range reflects relatively steady macroeconomic conditions throughout 2025 with continued strength in leisure demand and improvement in business transient, a portion being driven by extended fire-related business in our L.A. market hotels. As we begin 2025, we are confident we are well positioned for continued strong operating fundamentals and bottom line performance. The operating environment is relatively stable with favorable supply-demand dynamics. Our recent capital allocation activity has enabled us to drive incremental value for shareholders, and our balance sheet continues to provide us with meaningful optionality. Our differentiated strategy has proven resilient through economic cycles, enabling us to preserve equity value in challenging environments and to be uniquely positioned to enhance value through opportunistic transactions when market conditions are more conducive. Our team works diligently to maximize the performance of our existing portfolio while staying ready to take advantage of market shifts and opportunities to further strengthen returns for our shareholders. That concludes our prepared remarks. We would now be happy to answer any questions you have for us this morning.