Apple Hospitality REIT, Inc. (APLE) is a self-advised real estate investment trust (REIT) that invests in income-producing real estate, primarily in the lodging sector, in the United States. The company has a diversified portfolio of 224 hotels with an aggregate of 29,886 guest rooms located in 37 states and the District of Columbia. Substantially all of the company's hotels operate under Marriott or Hilton brands and are managed by 16 different hotel management companies.

Financials

For the full year 2023, Apple Hospitality REIT reported annual net income of $177,489,000, annual revenue of $1,343,800,000, annual operating cash flow of $399,044,000, and annual free cash flow of $326,978,000. In the first quarter of 2024, the company generated net income of $54,050,000, revenue of $329,512,000, operating cash flow of $54,652,000, and free cash flow of $38,953,000.

Portfolio Composition

The company's portfolio is broadly diversified across markets and demand generators, with no single market accounting for more than 10% of total rooms. The geographic breakdown of the portfolio includes 37 states and the District of Columbia, with the top markets being Texas (27 hotels, 3,328 rooms), California (26 hotels, 3,721 rooms), and Florida (22 hotels, 2,844 rooms).

Revenue Breakdown

From a revenue perspective, the company's hotels generate income from three primary sources: room revenue (90.6% of total revenue in Q1 2024), food and beverage revenue (4.6% of total revenue), and other revenue (4.8% of total revenue). During the first quarter of 2024, the company's room revenue increased by 4.6% compared to the same period in 2023, while food and beverage revenue and other revenue increased by 16.3% and 21.0%, respectively.

The increase in room revenue was driven by a 0.8% increase in average daily rate (ADR) to $153.18, while occupancy remained flat at 72.0%. The improvement in food and beverage and other revenue was primarily attributable to the continued recovery in group and business travel demand, as well as the company's recent acquisition of the AC Hotel in Washington, D.C., which generates additional revenue from its rooftop bar and restaurant, ground-floor retail space, and a large billboard.

Recent Performance

Apple Hospitality REIT's performance during the first quarter of 2024 was impacted by a challenging year-over-year comparison due to the shift in the timing of the Easter holiday and the relocation of the Super Bowl from the Phoenix market, where the company has a significant presence, to the Las Vegas market. Despite these headwinds, the company's Comparable Hotels RevPAR remained flat compared to the first quarter of 2023, with ADR of $154.10 and occupancy of 72.1%.

Outlook

Looking ahead, the company has provided updated guidance for the full year 2024. The company now expects net income to range between $207 million and $233 million, Comparable Hotels RevPAR growth of 2% to 4%, Comparable Hotels Adjusted Hotel EBITDA margin of 34.8% to 35.8%, and Adjusted EBITDAre between $461 million and $483 million. This guidance reflects the company's recent acquisition of the AC Hotel in Washington, D.C., as well as its expectations for continued strength in leisure demand and a gradual recovery in business travel.

Liquidity

Apple Hospitality REIT's balance sheet remains strong, with $1.5 billion in total outstanding debt as of March 31, 2024, representing a debt-to-EBITDA ratio of approximately 3.4x. The company has $519 million in available borrowing capacity under its revolving credit facility and $335 million remaining under its share repurchase program. The company's weighted average debt maturity is 3.4 years, and approximately 78% of its total debt is fixed or hedged, providing stability and flexibility in the current rising interest rate environment.

Investment Strategy

The company's investment strategy has proven resilient across economic cycles, yielding compelling total returns for its shareholders. Apple Hospitality REIT's focus on high-quality, rooms-focused hotels in urban, high-density suburban, and developing markets, supported by a broad variety of business and leisure demand drivers, has positioned the company well for continued outperformance.

Recent Developments

The company's recent acquisitions, including the AC Hotel in Washington, D.C. and the SpringHill Suites in Las Vegas, have been meaningfully accretive, creating increased exposure to high-growth markets and driving incremental profitability. Additionally, the company's strategic dispositions of older, less-competitive assets have helped to optimize its portfolio and manage near-term capital expenditure needs.

Management and Brand Affiliations

Apple Hospitality REIT's experienced management team, strong brand affiliations, and disciplined capital allocation have been key drivers of the company's success. The company's focus on maintaining a healthy balance sheet and prudent financial management has provided the flexibility to pursue strategic growth opportunities while also returning capital to shareholders through regular monthly distributions and share repurchases.

Conclusion

Overall, Apple Hospitality REIT's diversified portfolio, strong operating performance, and sound financial position make it well-positioned to navigate the current economic environment and capitalize on future growth opportunities. The company's commitment to delivering consistent, attractive returns to its shareholders is reflected in its track record of outperformance and its positive outlook for the remainder of 2024 and beyond.