Transactions reshaping Apple REIT portfolio
Transactions reshaping Apple REIT portfolio
26 FEBRUARY 2018 9:40 AM

Officials with Apple Hospitality REIT said they’ve continued to be active in the transactions market and are increasing their focus on select-service hotels going forward.

RICHMOND, Virginia—Apple Hospitality REIT executives continue their efforts to remake the company’s portfolio with a focus on select-service hotels.

The company had seven transactions in 2017, and so far in 2018 it has closed on one deal involving two properties.

President and CEO Justin Knight articulated the company’s ongoing asset strategy during Apple REIT’s fourth-quarter and full-year 2017 earnings call with analysts.

“I think what you will find is that we continue to pursue assets with diverse demand generators,” he said. “The types of assets that we acquire have strong appeal with business travelers, but if you look at the locations where we recently acquired assets, there are a mix of demand generators that include a higher percentage of leisure than we had in the past.”

The company’s growing focus on select-service properties was bolstered by the late-2016 merger with Apple REIT Ten, which added 56 select-service and extended-stay properties to its portfolio.

In 2017, Apple REIT followed that up with:

  • the purchase of a Courtyard by Marriott in Fort Worth, Texas, for $18 million in February;
  • the sale of a Dallas Hilton property for $56 million in April;
  • the purchase of a dual-branded Hilton Garden Inn and Home2 Suites property in Birmingham, Alabama, for $38 million in September;
  • the purchase of a Residence Inn in Portland, Maine, for $56 million, and another one in suburban Salt Lake City, Utah, for $26 million in October;
  • the disposition of a Marriott hotel in Fairfax, Virginia, for $42 million; and
  • the purchase of a Home2 Suites in Anchorage, Alaska, for $24 million.

So far in 2018, the company has closed on the purchases of two Hampton Inn & Suites properties—one in Atlanta and the other in Memphis, Tennessee—for a combined price of $63 million.

Knight said the company is still holding three full-service properties which it is continuing “to look for opportunities to dispose of.” But he said there are some roadblocks to getting deals done.

“There are unique factors in those markets that may cause us to hold them for a little bit longer,” he said. “Houston and New York are both markets that have been significantly depressed, and Richmond (Virginia) may be a market that has seen significantly strong performance recently, but it isn’t necessarily on the radar for a lot of buyers looking for assets.”

He noted Apple could continue to be acquisitive if conditions remain favorable.

“Our acquisitions are opportunistic, and so our appetite for new acquisitions will depend on the opportunities that we see and our cost of capital at the moment,” Knight said.

He said he will continue to feel bullish about his company’s outlook in part because of a relatively low supply growth outlook for the markets Apple REIT competes in.

“Barring significant reacceleration in the economy, which would driver stronger RevPAR growth in the market or nationally, or some kind of reduction in construction costs, I see current (supply trends) continuing,” he said.

Knight said he expects construction starts to stretch “further and further into the future,” avoiding a “spike in terms of new supply in our markets over the next couple of years.”

When asked by analysts if the company would have interest in portfolio deals, as opposed to the single asset transactions it has favored in recent history, Knight said he is open to anything.

“There are pros and cons, obviously,” he said. “In portfolio transactions, we are able to acquire scale in a very short period of time. The con is that we are not able to individually select markets and assets.”

Q4 and full-year 2017 performance
Apple REIT reported RevPAR growth of 1.3% for the full year and 3.5% for the fourth quarter in 2017. Knight noted the company’s Q4 performance was bolstered by recovery efforts related to hurricanes.

All told, the company saw a 16% increase in full-year adjusted earnings before interest, taxes, depreciation and amortization to $438.5 million, and net income was up 26.2% year over year to $182.5 million.

As of press time, Apple REIT’s stock was trading at $17.78 per share, a year-to-date decrease of 9.3%. The Baird/STR Hotel Stock Index was up 2.6% for the same period.

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