Justin Knight on Apple Hospitality REIT’s Low-Risk Strategy

KnightOn May 18, Apple Hospitality REIT became the lodging industry’s newest publicly traded company. Apple isn’t new to the hotel investment scene, however, having been in the non-traded REIT space for the past 15 years. In that time, the Richmond, Va.-based company launched eight hospitality funds—the publicly traded REIT is composed of three funds (REITs 7, 8, and 9) that merged last year—and invested in $9 billion of asset transactions. Apple has little debt—currently 1.8 times EBITDA—because of its low-risk strategy, which is just how CEO Justin Knight likes do business.

What distinguishes Apple from other hospitality REITs out there? We’ve been in the industry since 1999, and we’ve built a variety of portfolios. The first four were ultimately sold, providing our shareholders liquidity. Over that entire time period, our investment criteria has remained focused on upscale select service and extended stay with all of our hotels carrying either a Hilton or Marriott flag. We’ve followed a strategy of broad diversification, including investing in the top 25 markets, but not exclusively. We look for markets where there are multiple demand generators, and for sites within those markets where our guests have easy access to the amenities that they find attractive. In that way, we create a competitive advantage for our assets.

How diversified is your property portfolio? We have hotels in 83 MSAs across 32 states—from California to northern Virginia—and all of them play off different interests. A good example is a property we have in Boise, Idaho. That market doesn’t necessarily hit everybody’s radar, but our hotel benefits from government business, tourism, and a growing tech sector.

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What’s your presence like in NYC? We have one hotel in Manhattan and other assets that are outside of the downtown area. It’s an interesting market because there’s unlimited demand for rooms but pricing tends to be volatile. The level of upscale select-service development in the city we think is interesting to watch and somewhat consistent with what we’re seeing outside of the city, albeit not at the same scale.

The rooms-focused product is becoming more and more relevant to travelers, especially when it’s positioned in a city like New York and is adjacent to so many wonderful restaurants and other venues. Guests don’t want to feel separated from the city. And as you look at our portfolio and the way we’re developing it over time, we own and we’re looking to buy assets that fit this mold—rooms-focused but adjacent to amenities that guests find attractive. This type of product has become more and more relevant.

Can you tell me about the dual-brand project you recently opened in Richmond? It’s a Courtyard and Residence Inn combination product in the downtown historic district. We’re very high on the concept. It operates extremely efficiently, and we’re able to market to a broad group of potential travelers. The hotel is located on the historic site where Thomas Jefferson and James Madison signed the Virginia statute for religious freedom. So, we integrated an education center into the design of the hotel that’s dedicated to that concept.

In front of a portion of the hotel we have text from the statute, stating that individuals have a right to express and believe as they would like. The education center itself has various exhibits on the history of the area and the concept of religious freedom, and that theme has been incorporated through the rest of the hotel, in a meaningful way fitting within this particular market. Altogether the hotel presents a compelling offering to a variety of guests and is uniquely positioned to be relevant into the future.