Apple acquires (again) — this time in Washington D.C.

WASHINGTON, D.C. — Richmond, Virginia-based Apple Hospitality REIT has acquired the 234-key AC Hotel by Marriott Washington DC Convention Center from Douglas Development for approximately $116.8 million (or $499,000 per key). According to R.W. Baird, this is the highest price Apple has ever paid for an asset.

Baird analyst Michael Bellisario wrote on Wednesday that the acquisition of the hotel, which opened in October 2020, was structured as a 1031 exchange along with Apple’s disposition of a Hampton Inn and Homewood Suites in Rogers, Arkansas, that occurred in early February for a combined total of $33.5 million. Baird estimates that pricing on the AC Hotel deal reflects a high 7% NOI cap rate based on 2023A performance.

Bellisario said Apple primarily used borrowings under its revolving credit facility to fund the purchase and expects the REIT to remain active this year as a buyer. “As an all-cash buyer, Apple does not have to be the high bidder in today's environment where sellers are likely to take a slight discount to have certainty of close with Apple on the other side of the trade (versus a levered buyer with a financing contingency)," Bellisario wrote.

Nelson Knight, Apple’s president of real estate and investments, said the REIT has wanted to enter the Washington D.C. market for a long time.

“We are thrilled to establish a presence in downtown Washington, D.C., a market we have tracked and wanted to have a presence in for some time,” Knight said. “With a wide variety of demand generators, including government, corporate, conventions, sporting events and concerts as well as domestic and inbound international leisure, we are confident Washington, D.C. is well positioned for continued growth.”

According to STR data for 2023, RevPAR in the Washington DC CBD submarket improved by approximately 21% year-over-year.

Apple, which is unique in the current REIT space because of its active dealmaking, has two additional hotels under contract for purchase that were previously disclosed: a 262-key Embassy Suites by Hilton under development in Madison, Wisconsin, for approximately $79.3 million, which has an anticipated close in mid-2024 and a 260-key Motto by Hilton to be developed in Nashville, Tennessee, for an anticipated total purchase price of approximately $98.2 million, which Apple is scheduled to acquire in late 2025 following construction.

During its fourth quarter and year-end earnings call in February, Apple reported strong operating performance, with comparable hotels RevPAR up 2% for 4Q23 and 7% year-over-year (both numbers were up approximately 8% over the same periods in 2019), while comparable hotels ADR was up 3% and 5%, respectively, over the same period. It said its adjusted hotel EBITDA of approximately $104 million for Q4 and $500 million for 2023 were down 2% and 5%, respectively, YOY. In 2023, Apple acquired six hotels and a free-standing parking garage over the year for approximately $290 million.

Following the acquisition, Apple’s portfolio includes 224 hotels and almost 30,000 rooms throughout 37 states and the District of Columbia.