APLE Q3 2024: 300-750bp Midweek Occupancy Boosts RevPAR Outlook
- Significant Midweek Occupancy Upside: Executives highlighted that there remains 300 to 750 basis points of opportunity for midweek occupancy improvement relative to 2019 levels, which can drive higher ADR and ultimately boost RevPAR growth.
- Disciplined Capital Allocation: Management is actively executing strategic asset sales and share repurchases to redeploy capital, reduce debt, and enhance shareholder returns—all of which support a robust long‐term growth profile.
- Attractive Asset Transaction Environment: Despite market volatility, the company is identifying opportunities to dispose of underperforming or non-core assets at attractive pricing spreads, allowing for effective reallocation toward higher growth assets in strong markets such as Vegas and Nashville.
- Asset Liquidity Concerns: The Q&A highlighted a challenging transaction market where sellers are reluctant to adjust pricing, leading to fewer asset sales and limited opportunity for portfolio repositioning, which could impact liquidity and limit returns.
- Dependence on Mixed Booking Trends: There are risks related to a reliance on short-term and midweek bookings. The discussion on booking windows and mix management indicates that if business transient demand stalls or does not improve as expected, RevPAR and overall revenue growth could suffer.
- Operational and Execution Uncertainties: Issues such as the limited forward visibility in group bookings and the need for dynamic scheduling adjustments to manage shifting demand patterns could lead to operational inefficiencies and cost pressures (e.g., higher payroll per occupied room), potentially compressing margins.
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Rate Differential
Q: What’s the current rate spread?
A: Management noted the rate gap is narrowing, with weekday ADR up about 6% and weekend ADR up approximately 18% compared to 2019, which highlights opportunities to capitalize on shifting demand. -
RevPAR Outlook
Q: What are November/December RevPAR expectations?
A: Management expects a softer early November due to the election, but positive booking trends later in the month should sustain the momentum seen with 4% RevPAR growth in October. -
Mix Management
Q: How close are you to optimal midweek occupancy?
A: They are working on mix management, noting that during non-holiday weeks there remains an opportunity from 300 to 750 basis points, positioning the portfolio to improve midweek rates and overall returns. -
Buyback Strategy
Q: Why not sell more non-core assets instead?
A: The team balances asset sales with share repurchases to protect the balance sheet and capitalize on attractive share pricing, ensuring capital is efficiently redeployed. -
CapEx Guidance
Q: What’s the outlook for Q4 CapEx and next year?
A: Renovations largely begin in Q4 with some work spilling into early 2025, while maintaining their typical run rate and no significant uptick in future CapEx is expected. -
Vegas Development
Q: What’s the plan for the Las Vegas land?
A: They are exploring opportunities there and favor fixed price contracts with third-party developers rather than in-house construction, aiming to keep the capital allocation disciplined. -
Insurance Costs
Q: How did insurance costs drop by 20%?
A: A program restructuring in April, along with favorable loss experiences, led to a significant reduction in insurance premiums by 20%. -
Nashville Outlook
Q: How is the Nashville market performing?
A: Management remains positive on Nashville, anticipating robust performance from the upcoming Motto asset and expecting improved market dynamics as the new development comes online. -
Group Bookings
Q: Are group booking patterns changing?
A: Group bookings continue to operate on a shorter, month-for-month window with steady performance and no material shifts in cancellation or rebooking trends.
Research analysts covering Apple Hospitality REIT.