Apple Hospitality REIT is in a favorable position after reentering the Las Vegas market for the first time since selling off assets before the 2008 Great Recession.
During the company's fourth-quarter and full-year 2023 earnings call with analysts, CEO Justin Knight said his team continues to double down on acquiring rooms-focused hotels under high-quality brands in markets that have very little new supply and a variety of demand generators.
Las Vegas happened to fit that bill.
In December, the REIT acquired the 299-room SpringHill Suites by Marriott Las Vegas Convention Center for about $75 million, or $251,000 per room. It is located on Paradise Road, next to the newly expanded Las Vegas Convention Center.
The hotel includes more than 10,000 square feet of indoor and outdoor meeting space, a seven-story parking garage and surface lot with a combined total of 244 parking spaces. The hotel also has a rooftop pool that overlooks the Las Vegas Strip.
There are few hotel REITs that are active in the Las Vegas market, Knight said during the conference call Friday.
"Vegas is a market that we have liked for some time now. Given that the majority of rooms in Vegas are associated with casinos, there are limited opportunities to invest in rooms-focused hotels that fit our overall investment thesis. We have historically owned assets in Vegas. We owned a full-service Marriott hotel and a Residence Inn hotel that we sold before the Great Financial Crisis," Knight said.
"We're excited about the SpringHill Suites. The hotel came with land that enables us to potentially develop to provide additional rooms, and we are in the process of exploring an opportunity to develop on that site.
"[We're] incredibly pleased with how the hotel has performed for us to date. If you look at projections for the Vegas market, they're incredibly favorable. As we look at leisure specifically and how leisure trends have transitioned, Vegas is on the winning side of those transitions right now. Even outside of the Super Bowl week, [the hotel has] continued to produce incredibly strong numbers for us."
Knight added that Vegas has very little new hotel supply coming online in the near term.
Additional Transaction, CapEx Activity
The REIT ended 2023 with 225 owned hotels, including two hotels that are being held for sale. The owned portfolio is comprised of 29,900 rooms in 88 markets across 38 states.
In 2023, Apple REIT purchased six hotels. Two more hotels are under contract for purchase for an anticipated combined total price of $177.5 million.
In addition to the 299-room SpringHill Suites by Marriott Las Vegas purchased in December, Apple REIT also purchased the 199-room Embassy Suites by Hilton South Jordan Salt Lake City for $36.8 million, or $191,000 per room; and the 146-room Residence Inn by Marriott Seattle South/Renton for $55.5 million, or $380,000 per room.
In February, the REIT sold two hotels for a total price of $33.5 million. Since the start of the pandemic, the company completed $287 million in hotel sales and invested about $848 million in new acquisitions.
Knight said Apple REIT will be net acquirers in 2024.
The company continues to reinvest in its existing portfolio as well. Over the past year, Apple REIT invested more than $77 million in capital expenditures.
"In 2024, we expect to spend between $75 million and $85 million with major renovations at approximately 20 of our hotels," he added.
Though there's buzz around midscale brands under development across the industry, Knight said the potential impact of that supply on Apple REIT's portfolio "moves the needle very slightly on margin but keeps us right at and around 50% exposure."
"We will continue to monitor that and make adjustments to the extent we begin to see more meaningful impact from midscale development. To date, there's been a lot of talk but very few projects have begun construction at least in the markets we have ownership," he added.
By the Numbers
Comparable hotels revenue per available room for the fourth quarter was $105.01, marking a 2.4% increase against the same quarter in 2022, according to the company's earnings release.
Full-year 2023 RevPAR was $116.23, a 7% increase over 2022.
Comparable hotel occupancy for the quarter was flat compared to 2022 at 70%. Full-year 2023 occupancy increased 2.2% year over year at 74.2%.
Average daily rate for comparable hotels during the quarter was $150.72 and $156.55 for full year, marking increases of 2.5% and 4.6%, respectively.
In bottom-line performance, Apple REIT achieved comparable hotels adjusted earnings before interest, taxes, depreciation and amortization of approximately $104 million for the quarter, which was down 1.9% year over year. For the full year, the company's adjusted EBITDA was approximately $500 million and up 4.6% to 2022.
Preliminary January results show Apple REIT's portfolio has occupancy of roughly 64%, which is a year-over-year increase.
Total revenue for the quarter was $315 million — up 2.7% — and $1.4 billion for the full year, which was up 7.4% against 2022.
"Day over day, leisure travel was resilient in the quarter with weekend occupancy stable compared to the fourth-quarter 2022. We anticipate leisure demand will remain stable through 2024 and that most of our growth in occupancy will come from continued improvement in weekday demand, which while elevated relative to the prior year, [it] remains meaningfully below pre-pandemic levels," Liz Perkins, senior vice president and chief financial officer, said during the call.
As of publication time, Apple REIT's stock was trading at $16.48 a share, down 0.8% year to date. The NASDAQ Composite Index was up 6.9% for the same period.
2024 Outlook
Perkins said Apple Hospitality REIT expects net income for 2024 to be between $191 million and $217 million.
Comparable hotels RevPAR change in 2024 is anticipated to be between 2% and 4%; comparable hotels adjusted EBITDA margins is likely to be between 34.6% and 35.6%; and adjusted EBITDA for real estate could fall between $452 million and $474 million.
"While our asset management and hotel teams are working diligently to mitigate cost pressures, we have assumed for purposes of guidance that hotel operating costs will increase by approximately at 5% at the midpoint," she added.
The high end of Apple REIT's full-year range reflects relatively steady macro-economic conditions through 2024, with continued strength in leisure demand and improvement in business-transient demand. Perkins said the low end reflects more modest lodging demand growth with a slight softening in leisure demand offset by improvement in business transient and group.
"Because of calendar shift with the Easter holiday and more challenging year-over-year comparisons driven by the 2023 Super Bowl in Phoenix where we have meaningful portfolio concentration, we anticipate first-quarter [2024] performance for our portfolio to be at the low end of our range, with performance improving as we move into higher occupancy months in the second and third quarters," Perkins said.