Apple Hospitality REIT, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report; the provided filing text does not give clear Q4-only financial results. The company is a U.S. lodging REIT with one reportable segment. At year-end it owned 225 hotels with 29,900 rooms across 38 states, including two hotels classified as held for sale, and leased a New York boutique hotel to a third-party operator.
Financial and operating performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $1,343.8 million | $1,238.4 million | +8.5% |
| Operating income | $247.5 million | $206.5 million | +19.9% |
| Net income | $177.5 million | $144.8 million | +22.6% |
| Diluted earnings per share | $0.77 | $0.63 | Up $0.14 |
| Net cash from operating activities | $399.0 million | $368.4 million | +8.3% |
| FFO / MFFO | $363.3 million / $366.9 million | $347.8 million / $351.4 million | FFO +4.5%; MFFO +4.4% |
Operating income margin was approximately 18.4% of revenue, compared with 16.7% in 2022; net income margin was approximately 13.2%, versus 11.7%. These are calculated from reported figures. Adjusted Hotel EBITDA increased 5.8% to $481.9 million; it is a non-GAAP measure and should not be treated as cash available for distributions.
Comparable-hotel RevPAR rose 7.0% to $116.23, reflecting ADR growth of 4.6% to $156.55 and occupancy improvement to 74.2% from 72.6%. Hotel operating expenses increased 9.9% to $780.7 million, or 58.1% of revenue versus 57.4%, amid higher labor, repairs, maintenance and utility costs. Property taxes, insurance and other expense rose 8.8% to $79.3 million. Net interest and other expense increased 15.3% to $68.9 million.
Operating cash flow was $399.0 million; investing activities used $364.6 million, including $291.4 million for hotel acquisitions and $72.1 million of capital improvements. Financing activities used $34.3 million, including $238.3 million of distributions, partly offset by equity issuance proceeds. Year-end cash and cash equivalents were $10.3 million; restricted cash was $33.3 million.
Balance sheet, capital allocation and material changes
- Debt was approximately $1.38 billion gross ($1.37 billion net on the balance sheet), versus $1.37 billion gross at 2022 year-end. Weighted-average interest rate, including swaps, was 4.26%, up from 3.93%. Approximately 89% of debt was fixed-rate after swaps; $150 million, or 11%, remained variable-rate.
- Unused capacity under the $650 million revolving credit facility was $650 million at year-end. Net debt to total capitalization was 25.4%. The company reported compliance with its debt covenants.
- Principal and interest payments due over the next 12 months were approximately $175.2 million. Notable 2024 maturities included an $85 million term loan and a mortgage of approximately $20.3 million. Management expects to use operating funds, revolver borrowings and/or new financing, refinancing or extensions to meet maturities.
- The company issued approximately 12.8 million shares through its ATM program in 2023 at a weighted-average $17.05, generating approximately $216.0 million net proceeds. Year-end shares outstanding were approximately 241.5 million, up from 228.6 million. It repurchased approximately 0.5 million shares for $6.9 million; $335.4 million remained under the repurchase authorization.
- Six hotels and a parking garage were acquired for approximately $289.8 million. Two hotels were sold in February 2024 for $33.5 million gross proceeds. The New York hotel began a 15-year operating lease in May 2023 and is treated as a non-hotel property thereafter.
- FY2023 capital improvements were approximately $76.8 million. The company expects to spend $75–$85 million in 2024, including comprehensive renovations at approximately 20 properties.
Outlook, risks and unusual items
- Management forecasts low-to-mid-single-digit comparable-hotel RevPAR growth and a slight increase in comparable-hotel operating results in 2024. It expects interest expense to rise, citing variable-rate debt, higher average borrowing and 2024 swap maturities.
- The company expects monthly distributions of $0.08 per share to continue, but distributions require Board approval and may be adjusted. The annualized regular rate at year-end was $0.96 per share. A special $0.05 distribution, in addition to the regular $0.08, was paid in January 2024.
- Impairment losses were $5.6 million in 2023, down from $26.2 million in 2022. The 2023 charge related to two hotels whose forecast cash flows declined and whose expected holding periods shortened.
- Two development-stage hotel purchase contracts total approximately $177.5 million. Closings are conditional; if sellers satisfy the conditions, the company is obligated to acquire the properties. Expected openings and closings are mid-2024 in Madison and late 2025 in Nashville.
- Key risks include a lodging downturn or weaker travel demand, inflation and labor constraints, higher interest rates and refinancing risk, hotel supply and competition, dependence on third-party managers and Marriott/Hilton brands, required renovations, seasonality, natural disasters and insurance availability, cyber incidents, and continued REIT qualification and distribution requirements. A 100-basis-point interest-rate change was estimated to affect annual net income by approximately $1.5 million, all else equal.
- The filing reports no currently known litigation expected by management to materially adversely affect consolidated financial position or results. Auditors issued unqualified opinions on the financial statements and internal controls; management concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether 2024 RevPAR and operating results meet management’s forecast, particularly as 2023 comparisons benefited from recovery from the 2022 Omicron disruption.
- Liquidity and refinancing plans for the 2024 maturities, and the effect of higher rates and swap expirations on interest expense and cash flow.
- Distribution coverage from operating cash flow after debt service, capital spending, acquisitions and other financing needs; distributions are discretionary.
- Share issuance, dilution and capital-allocation decisions, including ATM use, repurchases and funding for planned acquisitions.
- Renovation spending, labor and insurance cost trends, impairment assumptions, and the conditions and funding for the Madison and Nashville purchase commitments.