RICHMOND, VA—On the strength of strong operating results and projected industry growth, as well as frothy valuations for competitive companies, Apple Hospitality REIT, Inc. recently decided that a public offering represented the best way to maximize liquidity for shareholders.
As such, the company—which is part of Apple REIT Companies, based here, and was created in March of 2014 from the merger of Apple REIT Seven, Eight and Nine funds—last month began trading on the New York Stock Exchange.
Justin Knight, president and CEO, Apple Hospitality REIT, Inc., acknowledged that, in addition to the listing, the company considered a sale or merger—as it did with one of its previous funds in 2013—but ultimately decided against it. “As we considered liquidity events, we thought a listing was the optimal way to provide those shareholders who wanted to be in liquidity the opportunity to get that liquidity at an attractive price, while allowing those who wanted to continue to benefit from the upcycle we see in the portfolio to benefit from that for the coming years,” he said.
Apple Hospitality REIT, which is trading under the symbol APLE, intends to buy back up to $200 million in value of its common shares as part of a modified “Dutch Auction.” In accordance with terms of the offer, the company will select the lowest price between $19 and $21 per share. The offer will expire on June 22, unless it is extended or withdrawn. In addition, the company’s board of directors has authorized a share buyback program of up to $500 million of its common shares following the completion of the tender offer.
According to the company, not only does the listing represent a way for current shareholders to receive liquidity at a known price, but the reverse split—which figures to reduce the stockholder’s number of shares by half—would also “provide a trading range more consistent with other publicly traded REITs.” At press time, the company’s stock was trading at just under $19 a share.
In preparation of going public, Apple Hospitality REIT sold 18 hotels to MCR Development for $206 million earlier this year. The company’s portfolio now includes 173 hotels, with four under contract, and is made up of primarily upscale select-service assets. Knight said he sees no reason to deviate from those types of properties going forward. “That’s proven to be a successful strategy for us. It’s our expectation that we’ll continue to invest in that sector,” he said.
The company’s collection of properties falls entirely within the Marriott and Hilton brand families and, while Knight said the company would always consider other brand opportunities, the focus will remain on those two established brand chains for the foreseeable future.
“A core piece of our strategy has been a focus on investing with brands that have the ability to deliver guests within our hotels. An additional benefit that we have as a company as a result of that exclusive focus is that we’ve gained a tremendous amount of deep experience within those brands, which helps us be efficient operators, and the depth of our involvement with those brands allows us to have influence over brand-level decisions,” he said.
Knight noted that company would consider buying or selling properties in the future, depending on what made sense at the time. However, he did note the company remains in an advantageous position.
“We’re fortunate to strategically position ourselves to have a balance sheet that’s best in class at 1.8 times debt to EBITDA. With that balance sheet and the focus that we’ve had in the past, we have a tremendous amount of flexibility to assess and analyze—and to take advantage of—opportunities as they present themselves. The next two to three years will be an interesting time for us as the cycle continues to develop,” he said.
In addition to the flexibility, Knight talked about some of the factors that he believes provide the company with a competitive advantage. “We have a number of attributes that we think uniquely position us to perform within the space: our balance sheet; our focus; we’re broadly geographically diversified. All of those are strong things,” he said.
However, Knight emphasized the importance of the company’s personnel, specifically the addition of executives like EVP and COO Krissy Gathright and EVP and CFO Brian Peery, along with a “myriad of others.”
He elaborated: “I think a core and key strength for us is the talent that we’ve been able to assemble in terms of the people that have joined our team. They’re individuals who have a tremendous amount of respect within the industry and bring with them a tremendous amount of deep experience within the space that we operate in. Ultimately that provides us with an advantage that’s difficult to replicate.”