Apple Hospitality REIT, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 2, 2023. Apple Hospitality is a U.S. lodging REIT with 220 hotels and 28,984 rooms across 37 states. Results are unaudited.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $311.5 million | $260.5 million | +19.6% |
| Operating income | $49.2 million | $32.8 million | +50.0% |
| Net income | $32.9 million | $18.0 million | +82.9% |
| Diluted net income per share | $0.14 | $0.08 | Higher |
| Operating cash flow | $51.7 million | $39.1 million | +32.3% |
| Interest and other expense, net | $16.0 million | $14.7 million | +9.2% |
Operating margin was approximately 15.8% versus 12.6%; net margin was approximately 10.6% versus 6.9%. Hotel operating expenses rose 20.2% to $185.2 million, slightly outpacing revenue growth; they were 59.5% of revenue versus 59.1%.
Comparable-hotel RevPAR rose 19.2% to $109.46, as ADR increased 10.9% to $152.01 and occupancy improved to 72.0% from 67.0%. Against Q1 2019, comparable-hotel RevPAR was up 6.2%; same-store RevPAR was up 4.8%.
Cash, debt and capital
- At March 31, 2023, total assets were $4.76 billion and total liabilities $1.61 billion. Debt, net of issuance costs and adjustments, was $1.418 billion, up from $1.366 billion at year-end 2022.
- Cash and cash equivalents were $6.1 million; restricted cash was $32.7 million. The company reported $609.5 million of available capacity on its $650 million revolving credit facility.
- Approximately 78% of debt was fixed-rate, including debt fixed through swaps; the weighted-average interest rate was 4.30%, up from 3.93%. Debt maturities include $56.6 million of principal for April–December 2023 and $113.6 million in 2024.
- Investing cash outflow was $24.6 million, including $23.9 million of capital improvements. Management separately reported $18.4 million invested in capital expenditures during the quarter.
- Distributions paid were $73.4 million, compared with operating cash flow of $51.7 million. Distributions declared for the quarter were $0.24 per share. Share repurchases were also made; see investor checks below.
Changes, outlook and risks
- Revenue and hotel operating results improved year over year, helped by higher rates and occupancy, leisure and small-group demand, and the Omicron-related weakness in Q1 2022 comparisons. Suburban markets generally outperformed urban markets, and the Sun Belt generally outperformed other regions.
- Management expects revenue trends to continue, but anticipates a lower year-over-year growth rate as the favorable comparison with Q1 2022 fades. It expects interest expense for the remainder of 2023 to exceed the comparable 2022 period because of higher borrowings and market rates.
- Management expects approximately $70–$80 million in 2023 capital spending, including renovations at roughly 20–25 properties. Inflation and supply-chain constraints may raise costs or delay work.
- Two hotel purchase contracts totaled approximately $109.6 million: one operating hotel expected to close in Q2 2023 and one hotel under development expected to open and be acquired in early 2024. Closings remain subject to conditions; if sellers satisfy them, the company is obligated to acquire the hotels.
- Management expects monthly distributions of $0.08 per share to continue, subject to Board approval and cash needs. The company may use its revolver to support distributions; it cautions that distributions could be reduced if liquidity or debt-extension needs require it.
- Key risks cited include inflation, higher interest rates, recessionary conditions, reduced travel demand, staffing and operating-cost pressures, seasonal fluctuations, natural disasters, financing and refinancing risks, and REIT qualification requirements. A 100-basis-point interest-rate change would affect annual net income by approximately $3.2 million, all else equal. The company reported compliance with debt covenants and no litigation expected to have a material adverse effect.
Most important facts for investors to verify
- Whether hotel demand and RevPAR growth persist as the Q1 2022 Omicron comparison passes, and whether labor and other cost inflation pressures margins.
- Debt refinancing and repayment plans, especially the $50 million term loan maturing in August 2023, and exposure to variable rates despite swaps.
- Whether operating cash flow and available borrowing capacity support distributions, capital spending, repurchases and the proposed hotel acquisitions without increasing leverage materially.
- Acquisition closing conditions and timing for the Madison and Cleveland properties, and the funding required if both purchases proceed.
- Repurchase figures differ by scope: the filing describes approximately 0.3 million program shares repurchased for about $3.6 million, while the issuer-purchase table reports 599,693 total shares, including employee tax-withholding shares, of which 250,000 were under the public program. Confirm the exact program activity.