As a hotel owner in the select-service segment, Apple Hospitality REIT has stayed active in the transactions market throughout the pandemic, and that activity continued in the fourth quarter of 2021.
The Richmond, Virginia-based real estate investment trust has acquired 12 hotels for a total combined purchase price of approximately $473 million since March 2020, the beginning of the COVID-19 pandemic, according to its latest earnings release. In 2021, Apple Hospitality REIT acquired eight hotels for a total combined purchase price of approximately $361 million.
During the fourth quarter, Apple Hospitality REIT acquired four hotels, including:
- the 150-room Hilton Garden Inn Memphis Downtown in Memphis, Tennessee, for $38 million.
- the 157-room Hilton Garden Inn Fort Worth Medical Center in Fort Worth, Texas, for approximately $29.5 million.
- the 112-room Homewood Suites by Hilton Fort Worth Medical Center in Fort Worth, Texas, for approximately $21.5 million.
- the 243-room Hampton Inn & Suites by Hilton Portland Pearl District in Portland, Oregon, for a total purchase price of approximately $75 million.
Most of Apple Hospitality REIT's asset disposition activity throughout the pandemic occurred during 2021. Throughout the year, the company sold 23 hotels in four transactions for a combined price of $235 million. The company ended 2021 with 219 owned hotels with a total of 28,747 rooms.
During a conference call with analysts, Apple Hospitality REIT CEO Justin Knight said the company will continue its hotel transactions activity in 2022.
"We have been and will continue to be intentional in the buildout of our portfolio, pursuing assets that are additive to those we currently own located in strong [revenue per available room] markets with attractive cost structures and significant growth potential and a pricing that will allow us to achieve our targeted return," Knight said. "While broker transaction volume has slowed slightly in the first months of this year, we are actively underwriting and exploring dozens of opportunities both on- and off-market and anticipate that we will continue to be active in 2022."
While the company sold more hotels than it bought in 2021, Knight said he expects the opposite to happen in 2022.
"We are exploring opportunities both as buyers and potential sellers of assets, though we expect this year that we will be net acquirers, looking at our transaction activity in total," Knight said.
Pricing negotiations on select-service hotels continue to be "incredibly competitive," Knight said.
"Last year, a significant amount of money came into the space with interest investing in hotels broadly speaking, but specifically in the types of hotels that we've owned — high-quality select-service hotels, typically in markets initially that benefited early from the recovery," he said. "We've seen continued demand for that type of asset, but we've also seen a meaningful uptick as we moved through last year and we believe as we continue into this year in terms of total product available.
"We've had successful conversations, both around brokered transactions and as we interact with groups that we've worked with for 10-plus years in the industry, and anticipate that we will be well-positioned to take advantage of opportunities as we move through the year."
Demand Expectations in 2022
Apple Hospitality REIT executives did not provide a detailed outlook for the company's financials in 2022, but Senior Vice President and Chief Financial Officer Liz Perkins said there's reason to be optimistic business travel demand will return this year.
"While we have not yet recovered to pre-pandemic operating levels, our portfolio has been optimally positioned to benefit early in the recovery from increases in both leisure and business travel," she said.
Apple Hospitality REIT's hotels have performed well on weekends, and Perkins said there's room to grow rate on weekdays to capitalize on business travel demand as the segment recovers.
"In the back half of last year where we were beginning to see occupancies improve and specifically in those markets where we mentioned we have RevPAR above 2019 levels, that's been based on being able to mix shift into higher-rated business and really capitalize on rate growth where we have occupancy compression on weekends," Perkins said. "We've materialized some of that benefit in a subset of our markets and hotels but still have meaningful upside there as we progress into this year and as more traditional corporate business continues to come back in some of the more urban areas."
Corporate bookings are rebounding at the company's hotels, Perkins added.
"Our [global distribution system] bookings are continuing to improve and what we have on the books is up from where we've been materializing for GDS, where your corporate travel agents tend to book," she said. "We're seeing progress on the business transient front, both with local-negotiated and corporate-negotiated. There's still outperformance on the local-negotiated side, but opportunity on the corporate-negotiated side. We have continued to see improvement despite the impact of omicron at the beginning of the year."
Fourth Quarter Performance
During the fourth quarter of 2021, Apple Hospitality REIT reported total revenue of $250 million, up 87% compared to the fourth quarter in 2020. The company's net income during the quarter was $13.2 million, up from a $51.2 million net loss in the fourth quarter of 2020.
Apple Hospitality REIT's adjusted hotel earnings before interest, taxes, depreciation and amortization for real estate was $73.4 million, up 353.1% from the fourth quarter of 2020.
In terms of hotel performance, the company's portfolio comparable occupancy was 67.4% during the fourth quarter. Comparable average daily rate was $131.19, and comparable RevPAR was $88.45.
As of press time, Apple Hospitality's stock was trading at $16.80 per share, up 2.4% year to date. The New York Stock Exchange Composite Index was down 7% for the same period.