Apple Hospitality REIT, Inc. Q2 FY2025 earnings call

• Fundamentals for the portfolio improved sequentially with RevPAR declines moderating each month and preliminary results for July showing RevPAR growth year-over-year. April was the most challenging month due to economic uncertainty, government travel pullback, Easter holiday timing shift, and elongated spring break.
• Worked with management companies to optimize business mix at hotels, strengthening market share across the portfolio, especially in markets impacted by government travel shifts.
• Variable expense growth moderated, but higher fixed costs and lower-than-expected top line growth impacted bottom-line performance. Comparable hotels' EBITDA margin was 37.4% for the quarter.
• Travel demand for the portfolio remained resilient. Supply-demand dynamics favorable with nearly 60% of hotels having no new upper upscale, upscale, or upper mid-scale product under construction within 5-mile radius.
• Paid distributions totaling approximately $57 million or $0.24 per common share in the second quarter. Annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 8.2%.
• Completed sale of 2 hotels for $21 million, entered into agreements for sale of Houston Marriott ($16 million) and Clovis, California hotels ($20 million), acquired Homewood Suites Tampa Brandon ($19 million), repurchased ~$43 million of common shares, and paid distributions of nearly $146 million.
• Completed acquisition of 126-room Homewood Suites Tampa Brandon in June, located adjacent to Embassy Suites, with a 12% cap rate on trailing 12-month results through June 2025 and high single-digit cap rate after anticipated capital expenditures.
• Since the beginning of 2025, completed ~$338 million of hotel sales with an additional $36 million under contract, invested over $1 billion in acquisitions and purchased 6.5 million shares of own stock, maintaining strong balance sheet.

Comparable hotels total revenue was $380 million for the second quarter and $706 million year-to-date through June 2025, both down slightly to the same periods of 2024. Comparable hotels adjusted hotel EBITDA was $142 million for the quarter and $248 million year-to-date through June 2025, both down approximately 5% to the same period of 2024. Second quarter comparable hotels RevPAR was $129, down 1.7% as compared to the second quarter 2024. ADR was $164, down only 10 basis points, and occupancy was 79%, down 1.6% as compared to the second quarter 2024. For the 6 months ended June 30, 2025, comparable hotels RevPAR was $120, down 1.1%. ADR was $160, up 0.4% and occupancy was 75%, down 1.6% to the same period of 2024, respectively. Our portfolio continues to outperform the industry, with STAR reports showing RevPAR to be $100 and average occupancy for the industry to be 62% for the first 6 months of 2025.

• Full year 2025 net income expected to be between $161 million and $187 million.
• Comparable hotels RevPAR change expected to be between negative 1.5% to positive 0.5%.
• Comparable hotels adjusted hotel EBITDA margin expected to be between 33.5% and 34.5%.
• Adjusted EBITDAre expected to be between $428 million and $450 million.
• Adjusted guidance based on current booking trends, could be conservative if macro environment improves.

• Macro economic uncertainty.
• Policy changes and reductions in government spending.
• Calendar shifts impacting performance, e.g., Easter holiday timing shift heavily impacted April results.
• Short booking window.

Q: Justin, going back to the Nashville purchase contract factor into that thinking? And how would you intend to finance that acquisition?

A: A portion of acquisitions activity includes forward commitments on new development assets. Intent is to use balance sheet capacity to fund acquisition and proceeds from sale to fund asset or stock repurchases. Utilizing 1031 exchange opportunity for tax purposes. See those as separate phenomena, taking advantage of relative value between asset transactions and share repurchases.

Q: Sticking with Nashville, can you speak to the performance maybe in the downtown submarket relative to some of the suburban areas in which you already own? And what's your latest perspective on sort of current market trends relative to your underwriting for the Motto and your ultimate cost basis there?

A: From cost basis standpoint, have cushion beyond recent trades. Anticipated market would stabilize and potentially temporarily pull back, feel good about long-term value. Downtown area expected to perform relatively better in near term (6-12 months) than suburban areas like Franklin, but long-term prospects good for Nashville as it continues to grow with new businesses and leisure demand.

Q: First question is quickly on buybacks. It didn't look like there was anything in July. Do you feel like those buybacks start to track asset sales in your mind? Or is there room to sort of be opportunistic and incrementally use the balance sheet there?

A: Intend to primarily fund share repurchases utilizing proceeds from sale. Pullback in July had more to do with timing of earnings than appetite for shares. Continue to see significant value in shares at current pricing.

Q: Is there still a large appetite for buyers out there looking to take on assets with larger portions of required renovations or CapEx needs? Or would you still consider dispositions of assets regardless of CapEx needs or not if there's a buyer out there?

A: CapEx is a driver but not the only driver. Willing to sell assets to maximize value and improve portfolio trajectory, even where near-term CapEx is not an issue. May renovate assets in advance of sale to maximize value on sale.

Q: When you talked about the group business contributing to the bottom line. I would imagine it has a little bit of a lead time. So what was different that allowed you to accelerate adding more group business? Is that something you are going to continue to replicate? And why not continue to maintain that?

A: There will be a continued focus on group where it makes sense. Group business is shorter term in nature (e.g., family reunions, sports teams, smaller corporate events). Have been able to layer it in quickly at attractive rates, which has been additive. Will continue to focus there where it makes sense from mix perspective.

Q: When you say attractive rates, I would imagine if it's short turnaround for like a family reunion, is it attractive for them to get them in? Or is it attractive to you?

A: To us. Talk about group rates year-over-year. Have been able to grow group ADR year-over-year, which has been additive. It's a win-win for both the group and us.

Q: You said something about market share opportunity in November. What is it that you think you're going to be able to grab market share? And why specifically November or why it's not something that persists in general? Can you just kind of explain what you mean by grabbing market share that I'm assuming you would always be looking to get anyways. So what's different here?

A: For November specifically, due to portfolio composition being business transient oriented, calendar didn't play in favor. Broadly, overall portfolio has strong market yield and has historically gained market share. In first quarter, had market share opportunity due to abrupt market shifts. By end of second quarter and overall for second quarter, regained market share within respective markets and outperformed broader industry in June. Corporate, management, and property teams adjusted strategy quickly. Maintained market share growth in running 28 days.