Growing travel demand paired with a low level of new supply pushed Apple Hospitality REIT's performance through the last quarter of 2024.
Speaking during the hotel-focused real estate investment trust's fourth-quarter and full-year 2024 earnings call, Apple REIT Director and CEO Justin Knight said the portfolio's comparable hotels achieved revenue per available room growth of about 3% for the fourth quarter and more than 1% for the year compared to 2023.
“While business travel continues to be the primary driver of overall growth for our portfolio, leisure travel demand has been resilient,” he said.
Supply and demand dynamics continue to be favorable, he said. At the end of the quarter, roughly 55% of its hotels did not have any new upper-midscale, upscale or upper-upscale hotels under construction within a 5-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 lodging demand relative to past cycles,” he said.
Day-over-day trends show improvements in leisure and business travel contributed roughly equally to fourth-quarter occupancy improvement, said Liz Perkins, senior vice president and chief financial officer. Weekday occupancy was up every month during the quarter, with October up 1.6%, November 4.2% and December 3.6%. Weekend occupancy varied, however, with October up just over 1%, November essentially flat and December up nearly 10% compared to 2023.
Weekday average daily rate was up about 2% for October and December and over 1% in November, she said. Weekend ADR was down 1% in October and almost 2% in November, but it was up almost 4% in December.
“Weekday ADR continues to lag weekend, representing meaningful upside as midweek demand continues to strengthen, positioning us to move rates higher,” she said.
Apple REIT’s hotels are getting closer to being able to push rate more, the more it can drive midweek compression, Perkins said. It can mix manage, giving preference to higher-rated negotiated business and preferencing best available rates that can be pushed higher by additional compression.
Deals environment
The transaction market continues to be a challenge, as evidenced by industry deal volume remaining at historical lows, Knight said. Even so, the company was able to move forward on several deals during the year. In 2024, Apple REIT bought two hotels for a combined $196 million, the 234-key AC Hotel by Marriott Washington DC Convention Center and the 262-key Embassy Suites by Hilton Madison Downtown.
It also sold six hotels for more than $63 million: the 122-room Hampton Inn by Hilton Bentonville/Rogers and the 126-room Homewood Suites by Hilton Bentonville-Rogers; the 82-room SpringHill Suites by Marriott Greensboro; the 90-room Courtyard by Marriott Wichita East; the 97-room TownePlace Suites by Marriott Knoxville Cedar Bluff; and the 117-room Hilton Garden Inn Austin North.
Earlier this month, it also sold the 76-key Homewood Suites by Hilton Chattanooga-Hamilton Place. It is under contract to sell its 130-key SpringHill Suites by Marriott Indianapolis Fishers for about $12.7 million.
As a group, the eight hotels will trade at a sub-7% capitalization rate, or 12.4 times earnings before interest, taxes, depreciation and amortization multiple before capital expenditures or 16 times EBITDA multiple when factoring in the estimated $24 million in required capital improvements, Knight said.
The seven hotels Apple REIT has purchased since June 2023 and have been open for a full year produced an unlevered 9% yield after capital expenditures on a trailing 12-month basis with continued upside, he said.
The company continues to actively underwrite additional opportunities and is positioned to act when it can achieve attractive yields relative to other capital allocation opportunities, he said. It currently has a Motto by Hilton under contract for $98 million that is under construction in downtown Nashville.
Since the start of the pandemic, Apple REIT has sold about $325 million of hotels from its portfolio, Knight said. It has an additional $13 million under contract that should close during the first quarter.
Apple REIT’s preference is to sell hotels as a portfolio deal as a more efficient way to transact with some of its smaller hotels, he said. The reality, however, is that approach doesn’t maximize their value as there are fewer bidders interested in portfolio deals, making them less aggressive in their offers.
Moving through 2025, he said he expects that may change as the debt markets are relatively open, making capital more available though more expensive than it has been.
“And, importantly, loan to value is meaningfully lower than it was when we saw the last peak from a transaction volume standpoint,” he said.
Looking at the cost of capital for various buyers, and specifically the private equity buyers who tend to pursue portfolios, combined with general uncertainty over the long-term direction of the space, it’s been harder to achieve premium valuations on large hotels or portfolios, he said. What may change that is the continued reductions in overall interest rates as well as a more meaningful re-acceleration of fundamental performance in the industry as a whole.
“I think the opportunity exists for either or both of those to happen as we move through the year, and certainly we would position ourselves accordingly in that environment,” he said.
In the meantime, in markets where the REIT sees limited upside and has near-term capital expenditure needs, it has been able to create a more competitive bidding process with smaller assets by attracting local owner-operators, Knight said.
“We’re able to achieve a strong sales price and dispose of asset at low cap rates, which positions us to redeploy proceeds in an accretive fashion and grow overall value for our shareholders,” he said.
During the year, Apple REIT invested about $78 million into its portfolio, he said. In 2025, the team expects to spend $80 million to $90 million on approximately 20 hotels. Eleven of those projects are part of multi-year franchise extension agreements.
“These reinvestments in our portfolio are a key component of our overall strategy, and ensure our hotels remain competitive in their respective markets to further drive EBITDA growth,” he said.
By the numbers
For the fourth quarter, Apple REIT reported revenue of $333 million, up from $312 million the year before, according to the company’s earnings release. For full-year 2024, it reported $1.4 billion in revenue, up from $1.3 billion at year-end 2023.
The company reported net income of $29.8 million for the quarter, a 43.6% year-over-year increase. For the full year, it reported net income of $214.1 million, an 20.6% year-over-year increase.
Adjusted earnings before interest, taxes, depreciation, amortization and real estate costs reached nearly $96.6 million during the quarter, a 6.7% increase. For full-year 2024, it was $467.2 million, a 6.9% year-on-year increase.
Comparable hotels adjusted hotel EBITDA was $108.4 million, a 3% year-on-year increase, for the quarter, while full-year comparable hotels adjusted hotel EBITDA grew 0.4% year over year to $508.6 million. Comparable hotels adjusted hotel EBITDA margin percentage dropped 40 basis points during the quarter to 32.9% and 70 basis points for the full year to 36%.
Comparable hotels revenue per available room grew 2.7% during the quarter to $109.14, driven by 2% growth in comparable hotels occupancy to 71.3%. For the full year, comparable hotels RevPAR grew 1.4% to $119.36, with comparable occupancy growing 0.9% to 75.1% and comparable average daily rate increasing 0.5% to $158.94.
As of Dec. 31, 2024, Apple REIT reported cash and cash equivalents of $10.2 million under its revolving credit facility of about $568 million. It had $1.47 billion in outstanding debt, with about $254 million in property-level debt secured by 14 hotels and about $1.2 billion under its unsecured credit facilities.
In July 2024, it amended its unsecured term loan facility from $85 million to $130 million with an additional $45 million funded at closing, extending its maturity date to July 25, 2026. It may extend that, under certain conditions, to July 25, 2027.
In August 2024, the REIT repaid in full one secured mortgage loan of about $20 million. The number of unencumbered hotels in its portfolio at year end was 207.
Through the end of the year, Apple REIT repurchased about $2.4 million common shares of its stock at a weighted-average market price of about $14.16 per share for a total of $34.7 million. As of Dec. 31, 2024, it had about $301 million remaining under its share repurchase program.
As of press time, Apple REIT's stock was trading at $14.50 a share, down 9.3% year over year. The NYSE Composite Index was up 13.5% for the same period.