In February, Apple Hospitality REIT released its 2015 earnings report. To be brief, last year was a very good year for the company. Comparable revenue per available room (RevPAR) grew 6.5 percent, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 13.7 percent, and bumps in occupancy and average daily rate all played a large role in the company’s strong showing. According to Justin Knight, Apple Hospitality’s president and CEO, the company’s narrow focus on upscale select-service and extended-stay properties with strong brand ties put Apple Hospitality in a very favorable place last year, and has only strengthened its potential for 2016 and beyond. Knight took some time to talk to LODGING about Apple Hospitality’s strategy and what the company has in store for the year to come.
You have a very specific and calculated strategy for the way you do business. Why is sticking to this strategy so important? While we’re always looking for opportunities to improve and enhance our operations and our strategy, our core principals have been consistent for over a decade and a half. These principals have proved themselves repeatedly over multiple cycles, and I think it would be foolish for us to abandon them in an effort to create or to do something better. A key aspect of our strategy is creating stability and mitigating risk. We think that’s particularly important given where we are right now in the hotel cycle and the concerns that some have expressed about the longevity of it. What we’ve seen historically is that in maturing phases of the cycle, our particular strategy proves more valuable and produces better returns as we see market dynamics shift and potentially become more bearish.
So you have no plans to adjust your strategy if we experience a downturn in the next 12 months? Our strategy is built intentionally to provide stability at all phases of the economic cycle. To build on your last question, we have a few other factors working in our favor. First, we have very little debt. We’ve also focused and concentrated on brands with very high recognition among customers—all of our properties are either Hilton or Marriott. As it stands, we see ourselves being exceptionally well positioned to withstand a downturn at sometime in the future. And I should highlight that we don’t see a downturn as being imminent. We anticipate continued strength through the remainder of this year.
Even though Apple Hospitality only has Hiltons and Marriotts in its portfolio, have you ever been tempted by an independent property? Given the space that we operate in and that the majority of our hotels target business travelers as their primary source of revenue, the association with both the Marriott and Hilton families of brands provides a significant value to us and our portfolio. While there are many beautiful hotels that exist outside those specifications, it is inconsistent with our core strategy. I think unbranded properties would be dilutive additions to our portfolio.
I’m sure you’ve noticed the business traveler segment growing larger. Do you think that’s going to continue in the near future? I would say yes. We were very successful negotiating corporate rates coming into this year.
What’s Apple Hospitality’s strongest geographic market right now? Looking across the country, California has been extremely strong. We also have smaller markets that have performed exceptionally well, such as Boise, Idaho. But really California, where we have a large geographic footprint, has been exceptionally strong.
What are some of the weaker ones? For us, and really for the industry at large, energy dependent markets like Houston have been softer, as have some gateway markets like New York City and Miami that are heavily dependent on foreign travel, which was negatively impacted by the strengthening of the dollar. And, interestingly, those markets have been doubly impacted, in addition to demand decline supply has been increasing.
Do these weaker markets concern you at all? Not really. We have representation in all of those markets, but that presence only represents a small percentage of our total portfolio. In turn, this has enabled us to continue to perform exceptionally well on a corporate level despite weakness in an individual market. So considering the scale of our portfolio and our broad geographic distribution, we have an ability to withstand fluctuations and variations in individual markets. We’re fortunate to be operating hotels in this time where we are continuing to see stable economic growth for the country and supply below long term averages.
