Apple Hospitality REIT, Inc. (APLE) Bundle
Understanding Apple Hospitality REIT, Inc. (APLE) Revenue Streams
Understanding Apple Hospitality REIT, Inc.’s Revenue Streams
The principal source of revenue for the company is derived from hotel operations, which includes room revenue, food and beverage sales, and other related income. For the three months ended September 30, 2024, the total revenue was $378.8 million, compared to $358.3 million for the same period in 2023, marking a year-over-year increase of 5.7%. For the nine months ended September 30, 2024, the total revenue reached $1.1 billion, up from $1.0 billion in 2023, reflecting a growth rate of 6.5%.
Breakdown of Primary Revenue Sources
The revenue breakdown for the three months ended September 30, 2024, is as follows:
| Revenue Source | Q3 2024 (in thousands) | Q3 2023 (in thousands) | Percentage Change |
|---|---|---|---|
| Room Revenue | $346,058 | $327,121 | 5.8% |
| Food and Beverage | $15,841 | $13,576 | 16.7% |
| Other Revenue | $16,944 | $17,563 | -3.5% |
| Total Revenue | $378,843 | $358,260 | 5.7% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rates for the three and nine months ended September 30, 2024, compared to the same periods in 2023, are as follows:
- Q3 2024 Revenue Growth: 5.7%
- YTD 2024 Revenue Growth: 6.5%
Contribution of Different Business Segments to Overall Revenue
For the nine months ended September 30, 2024, the contributions of various business segments to total revenue were:
| Revenue Source | YTD 2024 (in thousands) | YTD 2023 (in thousands) | Percentage Change |
|---|---|---|---|
| Room Revenue | $998,493 | $943,684 | 5.8% |
| Food and Beverage | $48,760 | $42,032 | 15.9% |
| Other Revenue | $51,179 | $45,628 | 12.2% |
| Total Revenue | $1,098,432 | $1,031,344 | 6.5% |
Analysis of Significant Changes in Revenue Streams
The increase in revenue for both the three and nine months ended September 30, 2024, can be attributed to several factors:
- Acquisition of additional hotels in 2023 and 2024.
- Increased strength in business transient demand.
- Notable growth in leisure demand, particularly in markets like Chicago and Houston.
Average daily rate (ADR) increased by 2.0% in Q3 2024 and by 1.4% year-to-date, contributing to the rise in revenue per available room (RevPAR) by 1.8% for Q3 and 2.0% year-to-date.
Overall, the company's revenue performance demonstrates resilience and growth in a competitive market environment, bolstered by strategic acquisitions and a recovering hospitality sector.
A Deep Dive into Apple Hospitality REIT, Inc. (APLE) Profitability
Profitability Metrics
Analyzing profitability metrics is essential for understanding the financial health of a company. For the year 2024, the following profitability metrics are significant:
- Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was approximately 41.9%, indicating a slight increase from 41.5% for the same period in 2023.
- Operating Profit Margin: The operating profit margin for the nine months ended September 30, 2024, stood at 22.1%, compared to 20.2% in 2023.
- Net Profit Margin: The net profit margin for the same period in 2024 was 16.8%, reflecting an increase from 15.2% in 2023.
Trends in Profitability Over Time
Over the past few years, the profitability of the company has shown consistent improvement:
| Year | Gross Profit Margin | Operating Profit Margin | Net Profit Margin |
|---|---|---|---|
| 2022 | 40.5% | 19.8% | 14.5% |
| 2023 | 41.5% | 20.2% | 15.2% |
| 2024 | 41.9% | 22.1% | 16.8% |
Comparison of Profitability Ratios with Industry Averages
When evaluating the company's profitability metrics against industry averages, the following insights can be noted:
- The industry average gross profit margin is approximately 38%, placing the company significantly above this benchmark.
- The average operating profit margin in the industry is around 21%, indicating that the company is performing slightly better than this average.
- The net profit margin industry average is about 15%, showing that the company is also exceeding this measure.
Analysis of Operational Efficiency
Operational efficiency is critical in understanding profitability. Key components include:
- Cost Management: Total hotel operating expenses for the nine months ended September 30, 2024, were $633.5 million, up from $589.4 million in 2023, reflecting an increase of 7.5%.
- Gross Margin Trends: The gross margin has improved due to better cost management and increased revenues from hotel operations.
Overall, the company's focus on maintaining operational efficiency has contributed positively to its profitability metrics.
Debt vs. Equity: How Apple Hospitality REIT, Inc. (APLE) Finances Its Growth
Debt vs. Equity Structure
As of September 30, 2024, the company had total debt of $1,501,189 thousand, an increase from $1,371,494 thousand at the end of 2023. The breakdown of this debt includes:
| Debt Type | September 30, 2024 (in $000) | December 31, 2023 (in $000) |
|---|---|---|
| Revolving Credit Facility | $110,500 | $0 |
| Term Loans and Senior Notes | $1,134,667 | $1,088,904 |
| Mortgage Debt | $256,022 | $282,590 |
The weighted-average interest rate of the company's debt as of September 30, 2024, was 4.87%, up from 4.26% as of December 31, 2023. This increase reflects the higher average interest rates on variable-rate debt due to the inflationary environment.
As of September 30, 2024, the company's debt-to-equity ratio was approximately 0.43, indicating a moderate reliance on debt compared to equity. This ratio is below the industry average for real estate investment trusts (REITs), which typically ranges between 0.5 and 0.7.
In recent activity, the company entered a credit facility on July 25, 2022, totaling $1.2 billion, which includes:
- $650 million revolving credit facility
- $275 million term loan maturing in July 2027
- $300 million term loan maturing in January 2028
The company has maintained a credit rating of Baa3 from Moody's, reflecting a stable outlook despite current market pressures. The company has actively managed its debt profile by utilizing interest rate swaps to mitigate interest rate risk, effectively fixing interest payments on approximately $735 million of its variable-rate debt.
Debt maturities and principal repayment obligations are as follows:
| Year | Principal Payments (in $000) |
|---|---|
| 2024 (Oct-Dec) | $2,109 |
| 2025 | $295,140 |
| 2026 | $315,149 |
| 2027 | $278,602 |
| 2028 | $334,066 |
| Thereafter | $281,948 |
In balancing its debt financing with equity funding, the company has not issued new common shares since early 2024, focusing instead on utilizing its existing credit facilities and cash flow from operations to support acquisitions and capital improvements. The recent share repurchase program, which has seen 2,445 common shares repurchased valued at approximately $34.7 million, further underscores the company's commitment to enhancing shareholder value while managing its capital structure effectively.
Assessing Apple Hospitality REIT, Inc. (APLE) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
As of September 30, 2024, the current ratio for the company was calculated to be 1.37, indicating a relatively healthy liquidity position. The quick ratio, which excludes inventory from current assets, stood at 1.10, reflecting a solid ability to meet short-term obligations without relying on the sale of inventory.
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, was reported at $193.5 million as of September 30, 2024. This represents an increase from $181.3 million at the end of 2023, highlighting a positive trend in the company's operational liquidity.
Cash Flow Statements Overview
The cash flow statement for the nine months ended September 30, 2024, reveals the following key figures:
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Net Cash Provided by Operating Activities | $310,145 | $302,164 |
| Net Cash Used in Investing Activities | $(216,870) | $(86,095) |
| Net Cash Used in Financing Activities | $(98,176) | $(190,518) |
| Net Change in Cash | $(4,901) | $25,551 |
Operating cash flow increased by 2.5% year-over-year, reflecting operational efficiency. However, significant cash outflows in investing activities were noted, primarily due to acquisitions, totaling $(197,349) thousand.
Potential Liquidity Concerns or Strengths
Liquidity strengths include a strong cash position of $43.6 million at the start of the period, although a decline of $4.9 million was observed by the end of the quarter. The company has also successfully maintained its distribution rate at $0.08 per share monthly, indicating confidence in cash flow stability despite recent acquisitions and market fluctuations.
Debt levels have increased, with total liabilities reaching $1.724 billion as of September 30, 2024, up from $1.613 billion at the end of 2023. This increase is primarily due to new borrowings to finance acquisitions, which may raise concerns regarding future cash flow sufficiency to meet obligations.
Is Apple Hospitality REIT, Inc. (APLE) Overvalued or Undervalued?
Valuation Analysis
To determine whether the company is overvalued or undervalued, we will analyze key financial metrics, including the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and enterprise value-to-EBITDA (EV/EBITDA) ratios, along with stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the company reported a net income of $184.247 million and a basic net income per share of $0.76. Given a stock price of approximately $14.16, the P/E ratio is calculated as follows:
P/E Ratio = Stock Price / Earnings per Share = $14.16 / $0.76 ≈ 18.68
Price-to-Book (P/B) Ratio
The book value of equity is reported at $3.296 billion with 239.925 million shares outstanding. The P/B ratio is calculated as follows:
P/B Ratio = Market Capitalization / Book Value
Market Capitalization = Stock Price x Shares Outstanding = $14.16 x 239.925 million ≈ $3.395 billion
P/B Ratio = $3.395 billion / $3.296 billion ≈ 1.03
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
As of September 30, 2024, the company reported EBITDA of $385.843 million. The enterprise value (EV) is calculated by adding total debt of $1.501 billion to market capitalization and subtracting cash equivalents of $43.618 million:
EV = Market Capitalization + Total Debt - Cash = $3.395 billion + $1.501 billion - $0.044 billion ≈ $4.852 billion
EV/EBITDA Ratio = $4.852 billion / $385.843 million ≈ 12.57
Stock Price Trends
Over the last 12 months, the stock price has fluctuated between a low of $11.95 and a high of $16.24. The current stock price is $14.16, indicating a moderate performance in the market.
Dividend Yield and Payout Ratios
The company declared a monthly cash distribution of $0.08 per share in October 2024. Given a current stock price of $14.16, the dividend yield is calculated as:
Dividend Yield = Annual Dividend / Stock Price = ($0.08 x 12) / $14.16 ≈ 6.77%
The payout ratio based on the earnings per share of $0.76 is:
Payout Ratio = Annual Dividend / EPS = ($0.96) / $0.76 ≈ 126.32%
Analyst Consensus on Stock Valuation
Current analyst ratings indicate a consensus of Hold based on recent performance metrics and market conditions. The average target price among analysts is approximately $14.50, suggesting a slight upside potential from the current trading price.
Valuation Summary Table
| Metric | Value |
|---|---|
| P/E Ratio | 18.68 |
| P/B Ratio | 1.03 |
| EV/EBITDA Ratio | 12.57 |
| Current Stock Price | $14.16 |
| 12-Month Price Range | $11.95 - $16.24 |
| Dividend Yield | 6.77% |
| Payout Ratio | 126.32% |
| Analyst Consensus | Hold |
| Average Target Price | $14.50 |
Key Risks Facing Apple Hospitality REIT, Inc. (APLE)
Key Risks Facing Apple Hospitality REIT, Inc.
Apple Hospitality REIT, Inc. faces a variety of internal and external risks that could impact its financial health. These risks encompass industry competition, regulatory changes, and fluctuating market conditions.
Industry Competition
The lodging industry is highly competitive. As of September 30, 2024, the company owned 224 hotels, competing with numerous other hotel brands and REITs. The average occupancy for Comparable Hotels was 77.0% for the three months ended September 30, 2024, compared to 77.3% in the same period of 2023, indicating a slight decline in occupancy rates. This competitive landscape could pressure revenue and profitability.
Regulatory Changes
Changes in local, state, and federal regulations can pose significant risks. The company has to comply with various regulations related to health, safety, and environmental standards, which can lead to increased costs. Legal proceedings are currently ongoing regarding lease agreements that could further complicate operational compliance.
Market Conditions
Market conditions, including economic downturns, can adversely affect travel and tourism, impacting hotel performance. The company reported a total revenue of $378.8 million for the three months ended September 30, 2024, which was a 5.7% increase from $358.3 million in the same period of 2023. However, potential future economic instability could lead to decreased occupancy and revenue.
Operational Risks
Operational risks include rising labor costs and inflationary pressures. For the three months ended September 30, 2024, hotel operating expenses amounted to $219.9 million, representing 58.1% of total revenue, a rise from 56.9% in the same quarter of 2023. This increase is attributed to higher wages and operational costs, which could further strain margins.
Financial Risks
Financial risks are heightened due to the company’s debt levels. As of September 30, 2024, the total debt was $1.5 billion, compared to $1.4 billion as of December 31, 2023. The company’s debt obligations are structured with significant repayments due in the upcoming years, including $295.1 million in 2025 and $315.1 million in 2026. This could limit financial flexibility and increase vulnerability to interest rate fluctuations.
Strategic Risks
The company employs various strategies to mitigate risks, including maintaining a balanced portfolio of properties and diversifying revenue streams. However, the recent acquisition of additional hotels and reliance on variable-rate debt could expose the company to market volatility and interest rate risks, particularly in a rising rate environment.
| Risk Category | Description | Impact |
|---|---|---|
| Industry Competition | High competition in lodging sector | Pressure on occupancy and pricing |
| Regulatory Changes | Compliance with evolving regulations | Increased operational costs |
| Market Conditions | Economic downturns affecting tourism | Decreased revenue and occupancy |
| Operational Risks | Rising labor costs and inflation | Higher operating expenses |
| Financial Risks | High levels of debt | Limited financial flexibility |
| Strategic Risks | Dependence on acquisitions and variable-rate debt | Exposure to interest rate volatility |
Future Growth Prospects for Apple Hospitality REIT, Inc. (APLE)
Future Growth Prospects for Apple Hospitality REIT, Inc.
Analysis of Key Growth Drivers
Apple Hospitality REIT, Inc. has identified several key growth drivers that are expected to enhance its financial performance moving forward. These include:
- Market Expansions: The company has expanded its portfolio by acquiring additional hotels, with six hotels acquired during 2023 and two in 2024, contributing significantly to revenue growth.
- Increased Demand: There is a noted resurgence in both leisure and business transient demand across various markets, particularly in cities like Chicago, Cape Canaveral, and Houston.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, total revenue reached $1.1 billion, compared to $1.0 billion for the same period in 2023, marking a growth of 6.5%. Revenue for the third quarter of 2024 was reported at $378.8 million, up from $358.3 million in 2023, representing a 5.7% increase.
The company anticipates continued growth, projecting similar performance trends with modest growth in revenue for the full year 2024.
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic initiatives include:
- Acquisition Strategy: The company has been actively pursuing acquisitions, with a total of eight hotels acquired recently, which are expected to enhance revenue streams.
- Operational Efficiencies: Efforts to optimize operational efficiencies are underway to mitigate rising costs and improve profitability.
Competitive Advantages That Position the Company for Growth
The company enjoys several competitive advantages, including:
- Diverse Portfolio: As of September 30, 2024, the company owned 224 hotels with a total of 30,068 guest rooms located across 37 states, providing a broad market presence.
- Strong Brand Relationships: Partnerships with major hotel brands enhance its market appeal and customer retention.
Financial Summary and Key Metrics
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Total Revenue | $378.8 million | $358.3 million | 5.7% |
| Net Income | $56.3 million | $58.5 million | -3.8% |
| RevPAR | $125.30 | $124.25 | 0.8% |
| Average Daily Rate (ADR) | $162.66 | $160.78 | 1.2% |
| Occupancy Rate | 77.0% | 77.3% | -0.4% |
Conclusion of Financial Metrics
Overall, the company's growth prospects appear robust, driven by strategic acquisitions and a recovering market demand. Continued monitoring of operational efficiencies and market conditions will be crucial for sustaining this growth trajectory.
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Resources:
- Apple Hospitality REIT, Inc. (APLE) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Apple Hospitality REIT, Inc. (APLE)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Apple Hospitality REIT, Inc. (APLE)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.