While travel fundamentals remain strong, the external factors pressing down on the hotel industry continue to create a drag on Apple Hospitality REIT’s hotels.
During the hotel real estate investment trust’s third-quarter earnings call, Apple REIT President and CEO Justin Knight pointed to policy uncertainty, expense pressures and a continued pullback in government travel as ongoing challenges that have weighed on operating performance during the quarter.
All of those factors meant Apple REIT’s management teams have had to focus on growing market share and managing expenses to maximize profitability, he said. The company’s asset managers and revenue managers along with third-party operators have shifted the mix of business at its hotels to strengthen market share and adjust to changing demand trends.
Leisure-transient demand for Apple REIT's portfolio remained resilient during the quarter, and the property teams successfully targeted group business, helping offset slightly softer midweek business-transient demand, he said.
One factor working in the portfolio’s favor is that 63% of Apple REIT’s hotels do not have any new upper-upscale, upscale or upper-midscale hotels under construction within a 5-mile radius, Knight said.
“This historically low rate of supply growth is unique to this cycle and we believe materially improves the overall risk profile of our portfolio by reducing potential downside while enhancing potential upside as lodging demand strengthens,” he said.
Though Apple Hospitality REIT is early in its budgeting process for next year, commentary by airline and hotel brand companies so far this earnings season has pointed to improvements in travel demand, Knight said. The hotel industry will also lap the pullback in demand from government travel. The company also has hotels in each of the U.S. markets that will host 2026 FIFA World Cup matches.
For the full year, Apple REIT expects net income to be between $162 million and $175 million, a comparable hotel revenue per available room decline between 1% and 2%, comparable hotels adjusted hotel earnings before interest, taxes, depreciation and amortization margin to be between 33.9% and 34.5% and adjusted EBITDAre to be between $435 million and $444 million, according to its earnings release.
The company decreased its comparable hotels RevPAR range in its outlook by 100 basis points and increased its comparable hotels adjusted hotel EBITDA margin by 20 basis points and its adjusted EBITDAre by about $300,000.
Portfolio update
In the coming months, Apple REIT will transition its Marriott International-managed hotels to franchised hotels, Knight said. It will consolidate management of these properties with its current third-party management companies. The transition to the franchise model will also help the company with potential sales of these properties.
“We are confident these transitions, together with a select number of additional market-level management consolidations, will help to further drive operating performance at our hotels,” he said.
Since the start of the year, Apple REIT has closed on the sale of three hotels for a total combined sales price of $37 million, including its full-service Marriott Houston Energy Corridor sold during the third quarter for $16 million, Knight said. The company has four hotels under contract for sale for a total combined price of about $36.4 million which should close during the fourth quarter.
“While the overall transaction market continues to be challenging, we have successfully executed on select asset sales and ways to continue to optimize our portfolio concentration, manage [capital expenditures] and free capital, which we have been able to accretively redeploy at a meaningful spread,” he said.
While pricing for the individual hotels varies, as a group the three hotels sold this year along with the four pending deals will trade at a 6.2% blended cap rate, or a 12.8-times EBITDA multiple before CapEx, he said. It’s a 4.7% cap rate or 17.1-times EBITDA multiple after taking into consideration the estimated $24 million in capital improvements.
In June, Apple REIT bought the Homewood Suites Tampa-Brandon for approximately $19 million, he said. The company is on track to acquire the Motto by Hilton Nashville Downtown, for which construction should be complete in December, for $98 million.
The REIT will convert its Residence Inn Seattle Downtown/Lake Union into a Homewood Suites starting in the fourth quarter of 2026, Knight said. Upon completion, it will be one of only two Homewood Suites properties in the downtown Seattle market.
During the quarter, Apple REIT entered into agreements for the development of three hotels, Knight said. It has a fixed-price, forward-purchase contract for a 160-key AC Hotel by Marriott to be developed in Anchorage, Alaska, for $66 million. It’s expected to open in the fourth quarter of 2027.
The company also entered into a fixed-price, forward-purchase contract with a third-party developer for a dual-branded property that will include a 237-key AC Hotel and a 160-key Residence Inn in Las Vegas on owned land adjacent to the company’s SpringHill Suites Las Vegas Convention Center for approximately $144 million. Executives expect the hotels will be completed and open for business in the second quarter of 2028.
Since the start of the pandemic, Apple REIT has closed on $354 million in hotel sales with another $36 million under contract, Knight said. The deals have allowed the company to forego significant renovation costs in markets with limited upside.
In the same time period, it invested more than $1 billion in acquisitions and repurchased 6.9 million of its shares, he said.
“These transactions have further enhanced our already well-positioned portfolio by lowering the average age, lifting overall portfolio performance, helping to manage near-term CapEx needs, increasing exposure to high-growth markets and positioning us to continue to benefit from economic and demographic trends,” Knight said.
Through the first nine months of the year, Apple REIT has invested $50 million back into its hotel portfolio, he said. For the year, company will reinvest a total of $80 million to $90 million with major renovations at 20 hotels.
By the numbers
For the quarter, Apple REIT reported total revenue of $373.9 million, down from $378.8 million in the third quarter of 2024, according to the news release. It reported net income of $50.9 million, a year-over-year decrease of 9.6%.
The company reported adjusted earnings before interest, taxes, depreciation and amortization of $122 million, down 5.3% compared to last year. Comparable hotels adjusted hotel EBITDA amounted to $128.6 million, a decrease of 6.7%, and comparable hotels adjusted hotel EBITDA margin was 35.2%, a drop of 200 basis points.
For its comparable hotels portfolio, Apple REIT reported RevPAR declined 1.8% year over year to $124.01. Average daily rate dipped 0.6% to $162.68, and occupancy fell 1.2% to 76.2%.
As of Sept. 30, Apple REIT had approximately $1.5 billion of total outstanding debt with a current combined weighted-average interest rate of approximately 4.8%. It had cash on hand of approximately $50 million and availability under its revolving credit facility of approximately $648 million. Excluding unamortized debt issuance costs and fair value adjustments, the its total outstanding debt as of Sept. 30 comprised approximately $215 million in property-level debt secured by 12 hotels and approximately $1.3 billion outstanding under its unsecured credit facilities.
After the end of the third quarter, Apple REIT repaid in full one secured mortgage loan associated with two of its hotels for a total of about $29 million. As of Oct. 31, it has 210 unencumbered hotels in its portfolio.
On July 24, Apple REIT entered into a new term loan facility with a principal amount of $385 million and a maturity date of July 31, 2030. At closing, it repaid all amounts outstanding under its $225 million term loan facility with proceeds from the $385 million term loan facility. That resulted in an additional $160 million funded at closing, which it used to repay the balance outstanding under its revolving credit facility.
As of press time, Apple REIT’s stock price was trading at $11.17 per share, down 26.2% year to date. The NYSE Composite Index was up 11.4% for the same period.