Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Apple Hospitality REIT Inc (APLE, Financial) achieved a portfolio occupancy of 80% in the second quarter, with a 2% year-over-year increase in Comparable Hotels occupancy.
- The company reported a 2.5% growth in Comparable Hotels RevPAR for the quarter, with ADR slightly up year over year.
- Adjusted EBITDAre for the second quarter was $141 million, up 9% compared to the same period in 2023.
- Apple Hospitality REIT Inc (APLE) continues to provide an attractive dividend yield, with a $0.24 per common share distribution during the quarter.
- The company successfully repurchased approximately 1.6 million shares at an average price of $14.29 per share, indicating confidence in its stock value.
Negative Points
- Comparable Hotels adjusted hotel EBITDA margin declined by 50 basis points year over year to 39%.
- There is increased price sensitivity among leisure consumers, impacting ADR growth.
- The company revised its full-year 2024 guidance, decreasing net income and adjusted EBITDAre expectations.
- Midweek business travel demand is recovering slower than anticipated, affecting overall rate growth.
- The ongoing legal dispute with LuxUrban regarding a New York property could impact future financial performance.
Q & A Highlights
Q: In June, you mentioned the expectation that business transient versus leisure rates should eventually return to a more normalized spread. Where are you now versus 2019, and what's your expectation for that spread in the second half of the year?
A: We are still meaningfully behind that spread relative to 2019. We had seen a complete reversal in trends where we had been maybe 800 basis points higher midweek than we were on weekends post-pandemic. That switched and flip-flopped. We're shrinking the gap, but not as quickly as we'd like. As leisure price sensitivity continues, that gap can shrink that way too, which obviously would not be preferable. But we still have upside relative to the pre-pandemic spread between midweek and weekend occupancy rates.
Q: Based on your new guidance, would you need to or potentially choose to change your dividends on the current $0.08 monthly level?
A: No. We have more than adequate coverage given what we've anticipated for the remainder of the year.
Q: Are there potential acquisitions you may be close on but have paused progress on just given where your stock is trading?
A: We are underwriting as many deals as we ever have. A significant number of those deals meet our investment criteria in terms of strategic fit. We take into consideration where we're trading as we price those assets. Most sellers are choosing to hold assets rather than adjust pricing. Unless we see a meaningful shift in our overall cost of capital, it's unlikely that you would see us become more aggressive on the acquisitions front.
Q: What do you think needs to happen for you to see some additional rate upside or shift in the mix of corporate accounts to drive that midweek ADR?
A: We continue to feel reasonably good about booking pace. Assuming we are able to continue to grow occupancy, we would anticipate being in a better position to move rate, especially mid-week. A portion of our corporate accounts are on fixed price contracts, which tend to renew on an annual basis. With higher occupancy, we see ourselves in a better position to negotiate favorable pricing.
Q: Can you talk about the weakness you're seeing on the lower end customer at the lower scale and if it's working up the chain scale?
A: Most of what you're seeing in our portfolio is more market driven than asset category driven. While we've heard of weakness with lower end customers, we have not generally seen that trend absent pairing it with performance of individual markets. When we look at weaker markets in our portfolio, there's a reasonable mix of assets at both ends.
Q: How does the monthly performance compare to your initial expectations for the quarter, and what are your thoughts going forward in terms of holding RevPAR flat for the second half of the year?
A: We assumed consistent performance month to month throughout the quarter. We started to see an unanticipated pullback from a leisure rate perspective. Occupancy held in, but we continued to see degradation from a rate perspective. The price sensitivity from the leisure consumer wasn't originally banked into our guidance.
Q: Can you drill down a little more on the weekday mix of business? Are any business groups swapping out for the other?
A: We saw meaningful improvement in small and medium-sized business travel, which has continued. We've seen improvement in corporate travel as well. The growth midweek was a mix of small, medium-sized business and larger corporate accounts. The trend has stayed relatively consistent.
Q: Are you still seeing opportunities for takeouts of new construction at fixed pricing, and are developers jacking up the price?
A: Construction costs increased meaningfully during the pandemic, further exacerbated by increases in borrowing costs. We're challenged to find deals that work for us and developers. We'll be selective in signing up future development deals. A significant portion of our focus has been on acquiring existing assets where we've achieved strong yields.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
