Apple Hospitality REIT, Inc.

This call will be based on the earnings release 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 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 applehospitalityreach.com. This morning, Justin Knight, our Chief Executive Officer, and Liz Perkins, our Chief Financial Officer, We'll provide an overview of our results for the first quarter 2025 and an operational outlook for the rest 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 for our first quarter 2025 earnings call. Although a variety of factors weighed on hotel performance during the first quarter of this year, We continue to see solid demand across our portfolio, with growth in rate largely offsetting a slight pullback in occupancy. Our portfolio of rooms-focused hotels is broadly diversified across 85 different markets, with exposure to a wide variety of demand generators. For the first quarter, Comparable Hotels RevPAR was $111, a decline of 0.5% as compared to the first quarter of 2024. Occupancy was 71%, down 1.5% to the first quarter of 2024, and ADR was $157, up 1% as compared to the same period last year. In response to demand shifts in some of our markets, our corporate team, together with our third-party management companies, has been working to further optimize the mix of business at our hotels in order to strengthen market share in the current environment. Our hotels operate efficiently and produce strong cash flow while simultaneously providing guests traveling for both business and leisure with a compelling value proposition. While variable expense growth is moderated, bottom line performance for the quarter was down slightly, driven primarily by higher fixed costs and lower than expected top line growth. Adjusted EBITDA RE was $95 million, down approximately 5% to the first quarter of 2024, And modified funds from operations was approximately $76 million, down 9% as compared to the first quarter of 2024. Looking forward, we have tempered full-year guidance based on our performance during the first quarter and an expectation that current demand and expense trends could continue in the near term, with some improvement in market share relative to the first quarter as we move into the back half of the year. The fundamentals of our business remain strong, and our revised guidance, while lower than initial projections, does not contemplate a near-term recession. Our portfolio has historically outperformed during periods of economic uncertainty, and we believe we are well-positioned to capitalize on potential upside should we see reacceleration and broader economic growth. Supply-demand dynamics for our business continue to be favorable. Supply growth for our industry has generally been muted, and with recent disruption in markets, and uncertainty related to potential impact of tariffs, new construction starts have further slowed. At the end of the first quarter, nearly 60% 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 in launching demand relative to past cycles. Supported by our strong operating performance, we continue to pay an attractive dividend. During the first quarter, we paid distributions totaling approximately $70 million, or 29 cents per share, which includes a special cash distribution of 5 cents per common share that was paid in January. Based on Wednesday's closing stock price, our annualized regular monthly cash distribution of 96 cents per share represents an annual yield of approximately 8.2%. 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. We are disciplined in our approach to capital allocation, seeking opportunities to refine and enhance our existing portfolio, drive earnings per share, and maximize long-term value for our shareholders. Since the beginning of this year, we have completed the sale of two hotels for a combined sales price of approximately $21 million. entered into an agreement for the sale of our Houston Marriott for $16 million, entered into a contract for the purchase of the Homewood Suites Tampa Brandon for approximately $19 million, repurchased approximately $32 million of our common shares, and paid distributions of nearly $89 million, all while maintaining the strength and flexibility of our balance sheet. 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 and ways to continue to optimize our portfolio concentration in specific markets. In February, we completed the sale of the Homewood Suites in Chattanooga for approximately $8 million. In March, we sold the Spring Hill Suites in Fishers, Indiana for nearly $13 million. And this summer, we expect to complete the sale of our full-service Marriott in Houston for $16 million. While pricing for the individual hotels varies, as a group, the three hotels will trade at a sub-7% cap rate, or a 12.1 times EBITDA multiple before CapEx, and a sub-5% cap rate, or a 16.7 times EBITDA multiple after taking into consideration the estimated $14 million in required capital improvements. Proceeds from these sales were used primarily to fund share repurchases and reduce debt. Since the beginning of the year through April, we have repurchased approximately 2.4 million of our shares at a weighted average market purchase price of approximately $13.32 per share for an aggregate purchase price of approximately $32.3 million. Shares repurchased year-to-date have been priced around a two-turn spread to recent dispositions and around a six-turn EBITDA multiple spread after taking into consideration required capital investments. We currently have two hotels under contract for purchase, including the Moda by Hilton, which is under construction in downtown Nashville for approximately $98 million. This asset is being developed under a fixed price contract, and we anticipate acquiring this hotel upon the completion of construction later this year. During the quarter, we entered into a contract for the purchase of 126-room Homewood Suites Tampa Brandon for approximately $19 million. The hotel is located adjacent to our embassy suites and represents a unique opportunity to expand our ownership in a sub market that continues to perform well for us with a strong going in yield and operational upside. The purchase price represents a 12% cap rate on trailing 12 month numbers and a high single digit cap rate on in place cash flow after all anticipated capital expenditures without giving consideration for operational synergies and upside post renovation. Assuming all conditions to closing are met, we anticipate acquiring this hotel later in the second quarter. Since the onset of the pandemic, we have completed approximately $338 million in hotel sales, with an additional $16 million under contract and expected to close during the third quarter of this year. These sales have allowed us to forego over $100 million in capital investments and have been completed at a blended 5% cap rate prior to taking into consideration necessary capex, and a sub-4% cap rate after CapEx. Over the same period, 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 positioning us to continue to benefit from near-term economic and demographic trends. Our recent acquisition and disposition activity, along with our share issuance in 2023 and more recent share repurchases, demonstrate 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. Should our stock remain at a meaningful discount to values we can achieve in private market transactions, we will continue to opportunistically sell assets and redeploy proceeds primarily into additional share repurchases. As we have demonstrated over our long history in the lodging industry, we will monitor the market and adjust our focus appropriately as conditions change. We are confident opportunistic transactions like these will further drive long-term value for our shareholders. We expect to reinvest between $80 and $90 million in our hotels during 2025, with major renovations at approximately 20 of our hotels. Reinvestments in our portfolio are a key component of our overall strategy and ensure that our hotels remain competitive in their respective markets to further drive EFTA growth. First quarter capital expenditures were approximately $20 million. We are closely monitoring the potential impact of tariffs, which may result in increased costs and delays for some of our planned projects, though there are no known delays at this time. Our experience team is focused on leveraging our scale ownership to control costs maximize impact of dollars spent, and implement projects during periods of seasonally lower demand to minimize revenue displacement. We entered 2025 anticipating the potential for a wide range of possible macroeconomic scenarios, and we're prepared to adjust operational and capital allocation priorities accordingly. This year, we celebrate 25 years in the hospitality industry and 10 years since our listing on the New York Stock Exchange. Throughout our history, we have worked to refine our strategy intentionally choosing to invest in high-quality hotels that appeal to a broad set of business and leisure customers, diversifying our portfolio across markets and demand generators, maintaining a strong and flexible balance sheet with low leverage, reinvesting in our hotels, and championing our corporate team and the associates and management teams who operate our hotels. Our differentiated strategy has been tested and proven across multiple economic cycles. With the strength of our broadly diversified portfolio, the overall stability of our business, our low leverage, and the depth of our team, we are confident that we are well positioned to drive profitability and maximize long-term value for our shareholders in any macroeconomic environment. 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 outlook for the remainder of the year.

Thank you, Justin, and good morning. While the first quarter of this year was impacted by a variety of factors, demand for our hotels remained generally solid, driving strong absolute performance. For the quarter, comparable hotels' total revenue was $324 million, down 0.4% to the first quarter of 2024, and comparable hotels' adjusted hotel EBITDA was $105 million, down approximately 5% to the first quarter of 2024. First quarter comparable hotels REVPAR was $111, down 0.5%, ADR was $157, up 1%, and occupancy was 71%, down 1.5% as compared to the first quarter of 2024. In January and February, many of our markets throughout the Sunbelt region experienced extreme winter weather conditions, which negatively impacted travel demand. Our Southern California hotels, which benefited early in the quarter from wildfire-related recovery business, lifting overall portfolio results, experienced softer demand than was anticipated in the back half of the quarter. In March, the pullback in government travel became evident in a number of our markets, and heightened macroeconomic uncertainty began weighing on travel demand. Despite these challenges, demand remained healthy across our portfolio. and we continue to see strength in absolute occupancy and rate. The pullback in government travel did not impact all markets equally. 32 of our markets grew government occupancy mix for the first quarter, and overall government as a percent of mix remained relatively consistent with the same period of last year, despite increased cancellations as we moved through March. Government demand typically represents between five and 6% of our overall business mix, and has stabilized over the past month closer to the lower end of that range. And many of our more affected markets, our teams have been successful in adjusting the mix of business in our hotels to compensate for the change. While it is often difficult to determine underlying demand trends in the first quarter of the year, this year has been particularly difficult, with the added macroeconomic volatility and challenging calendar comparisons. But there are some highlights for the quarter. Our Houston properties grew RevPar almost 8% during the quarter, benefiting from a strong convention calendar and market-wide corporate expansion and job growth, as well as an easier year-over-year renovation comp at our West Energy Residence Inn. Our Los Angeles hotels grew RevPar over 20% with fire recovery business bolstering the performance early in the quarter. The Super Bowl benefited our New Orleans hotel, which also saw over 20% growth during the quarter. Our Richmond hotels saw growth in crew, group, and business transient, which enabled our three hotels in market to grow RevPar almost 8%. Our hotels in Salt Lake City performed incredibly well during the quarter, achieving almost 10% RevPar growth despite a softer ski season and renovation displacement in one of our hotels. We are especially excited about the Salt Lake City market. The city is expected to continue to benefit from a strong convention calendar, professional sporting events, and continued growth in business transient. Based on preliminary results for the month of April 2025, Comparable Hotels RevPAR declined by approximately 3.5% as compared to the month of April 2024, with year-over-year growth in rate and occupancy following the negative impact of the shift in timing of the Easter holiday. Last weekend, we saw double-digit RevPAR growth year-over-year for both Friday and Saturday nights, with Saturday's portfolio occupancy reaching 90%. Turning back to the first quarter, same-store day-over-day trends showed a pullback in leisure, business, and government-related travel, which all contributed to the first quarter occupancy decline year-over-year. Weekend occupancy improved as the quarter progressed and was positive year-over-year in March at 1.3%, after being down 4.2% in January and down 2% in February. Weekday occupancy declines year over year improved throughout the quarter, down 3.5% in January, down 1.8% in February, and down 1.7% in March. Both weekend and weekday ADR increased by 1% for the quarter, partially offsetting lower occupancy. Same store room night channel mix year over year remained relatively stable with brand.com bookings at 40%, OTA bookings down 80 basis points to 11%, property direct improved by 110 basis points to 26%, and GDS bookings were in line representing 18% of our mix. We are pleased to see the improvement in property direct business, which is a direct reflection of the focused sales efforts of our onsite and above-property commercial teams. First quarter same-store segmentation was largely consistent with the first quarter of 2024. BAR remained strong but decreased by 90 basis points to 33%. Other discounts represented 27% of our occupancy mix. Group increased by 140 basis points to 17%. Corporate and local negotiated business represented 17% of our mix, down 40 basis points, and government down only 30 basis points year over year, with 5% of our mix. On a comparable basis, we continue to see growth in other revenues, which were up 9% during the quarter, driven primarily by parking revenue. Turning to expenses, comparable hotels' total hotel expenses increased by 2.2% for the first quarter as compared to the first quarter of last year, or 4% on a CPOR basis. Total payroll per occupied room for our same store hotels was $42 for the quarter, up 4% to the first quarter 2024, driven by food and beverage and overhead salaries and benefits, while rooms wages were well controlled and up only 1% year over year on a per occupied room basis. We continue to achieve reductions in contract labor, which decreased during the quarter to 7.1% of total wages down 160 basis points or 18% versus the same period in 2024. Comparable hotels, variable hotel expenses increased by only 1.6% in the first quarter, benefiting from operating expenses which were up less than 1% and hotel admin costs which were flat compared to the first quarter of 2024. While our management teams were able to manage most variable expenses in response to lower occupancy, utilities and fixed expenses remained a headwind for the quarter. Comparable hotels utilities expense was up 9% and same store property taxes grew 8% with increases in select markets and more favorable appeal adjustments in the first quarter of 2024. Insurance was also a challenge as expected, driven by an increase in general liability insurance premiums upon renewal in the fourth quarter, though we anticipate some relief moving forward from a favorable property insurance renewal this quarter. We achieved comparable hotels adjusted hotel EBITDA of approximately $105 million for the first quarter, down approximately 5% to the first quarter 2024. We are especially pleased with our comparable hotels adjusted hotel EBITDA margin of 32.3% for the first quarter, down 180 basis points as compared to the first quarter 2024, a decline which was within our previously provided guidance range, despite top line being below that guidance range, highlighting our team's ability to manage costs in a challenging environment. Adjusted EBIT IRA was approximately $95 million for the quarter, down approximately 5% as compared to the first quarter of 2024. MFFO for the quarter was approximately $76 million and 32 cents per share, down approximately 6% on a per share basis as compared to the first quarter of 2024. Looking at our balance sheet, as of March 31st, 2025, we had approximately $1.5 billion of total outstanding debt, approximately 3.3 times our trailing 12 months EBITDA, with a weighted average interest rate of 4.8%. At quarter end, our weighted average debt maturities were approximately two years. We had cash on hand of approximately $15 million, availability under our revolving credit facility of approximately $500 million, and approximately 72% of our total debt outstanding was fixed or hedged. In April, the company repaid in full one secured mortgage loan for a total of approximately $7 million, bringing the number of unencumbered hotels in the company's portfolio as of April 30, 2025 to 207. We have two mortgage loans totaling $56 million that will mature in the second and fourth quarter, and term loans totaling $225 million that 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 updated outlook for 2025 provided in yesterday's press release, for the full year, we expect net income to be between $167 million and $195 million. Comparable hotels rev par change to be between negative 1% and 1%. Comparable hotels adjusted hotel EBITDA margin to be between 33.7 and 34.7%. and adjusted EBITDA RE to be between $433 million and $457 million. As compared to the midpoint of previously provided 2025 guidance, we are decreasing comparable hotels REVPAR change by 200 basis points, resulting in a 50 basis points decrease in comparable hotels adjusted hotel EBITDA margin percentage and a decrease in adjusted EBITDA RE of $14 million. As a reminder, 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 3.3% at the midpoint, which is a 3.8% increase on a CPOR basis. We continue to assume in guidance that 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. 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 the range reflects a slight pullback in lodging demand, while the high end of the full year range reflects a slight improvement in the macroeconomic environment. As we celebrate and reflect on our 25 years in the hospitality industry and 10 years since listing on the New York Stock Exchange, we are confident our team has the knowledge and experience to successfully navigate market shifts and changing conditions to maximize profitability and drive additional value through opportunistic transactions. The underlying merits of our differentiated strategy have proven resilient across economic cycles, enabling us to preserve equity value in challenging environments and be uniquely positioned to enhance value as opportunities arise. While there may be economic headwinds this year, we believe favorable supply-demand dynamics remain. 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. We are confident we remain well positioned for outperformance. That concludes our prepared remarks this morning, and we're happy to answer any questions you may have for us.