With four newly announced deals, the Richmond, Virginia-based REIT's ability to be an all-cash
buyer gives them deal flexibility and high certainty of close.
With a just-announced acquisition of two hotels in downtown
Salt Lake City, two more under contract expected to be completed by year’s end
and two others in its pipeline, Apple Hospitality is one the few REITs
deploying capital in a relatively quiet market.
On Thursday, the Richmond, Virginia-based REIT said it purchased two hotels in Salt Lake City — a 175-key Courtyard by Marriott
Salt Lake City Downtown for approximately $48.1 million and a 159-key Hyatt
House Salt Lake City Downtown for $34.3 million. The deals also includes for $9.1 million a parking garage
the two hotels both use. Blackstone Real Estate Income Trust
(BREIT), a 60% majority owner, was the seller.
R.W. Baird Senior Research Analyst Michael Bellisario said
Apple’s strong balance sheet gives the REIT much flexibility in dealmaking. “Apple’s strong balance sheet affords management the ability
to ‘lean in’ when attractive acquisition opportunities arise, and we have a
positive view toward the announced capital deployment (the company had been
indicating that acquisitions were on the front burner,” Bellisario said. “We
expect Apple to remain an active acquirer, and earnings estimates are biased
higher, which is unique among hotel REIT peers.”
On Thursday, Apple Hospitality also announced it has two
other properties under contract that it anticipates acquiring by the end of the
year: a 146-key Residence Inn by Marriott Seattle South/Renton for
approximately $55.5 million and a 192-key Embassy Suites by Hilton South Jordan
Salt Lake City for approximately $36.8 million.
Hyatt House Salt Lake City Downtown
All told, the transactions would equal $183.8 million in
deals.
“While overall industry transaction volume remains muted,
the strength of our operating performance and our relative liquidity position
have provided us with unique opportunities to pursue accretive acquisitions and
to grow our portfolio,” Nelson Knight, president of real estate and
investments at Apple Hospitality, said in a news release. “We are actively
underwriting additional opportunities and are well positioned to further add to
our portfolio in the coming months.”
During its second-quarter earnings call, Apple boosted its
2023 revenue expectations. It also said it has two other deals in the
development pipeline under contract: a 256-key Motto by Hilton in Nashville,
Tennessee, for an anticipated price of approximately $97 million (it is
currently under construction and is expected to be completed in 2025), and a
260-key Embassy Suites by Hilton in Madison, Wisconsin, for an anticipated
price of approximately $79 million (it expects to complete the transaction once
construction is done, currently scheduled for early 2024).
In today’s environment, sellers are likely to take a slight discount to have a higher certainty of close with Apple on the other side of the trade (versus a levered buyer with a financing contingency), in our opinion.
Michael Bellisario
Bellisario expects more transactions by Apple Hospitality REIT to continue.
“We expect Apple to remain active on the transaction front,”
he said. “Broadly speaking, newer-vintage, cash-flowing select-service hotels –
like the ones Apple has acquired or is acquiring – are trading at 8%+ cap rates
and ~11x EBITDA multiples and that math pencils for Apple.”
Bellisario said that because Apple is an all-cash buyer, it
doesn’t necessarily have to be the higher bidder for properties. He said Baird anticipates Apple to use its existing credit facilities to fund the deals.
“In today’s environment, sellers are likely to take a slight
discount to have a higher certainty of close with Apple on the other side of
the trade (versus a levered buyer with a financing contingency), in our
opinion,” he said.
Following the acquisition of the Salt Lake hotels, Apple
Hospitality’s portfolio now includes 222 hotels and 29,263 keys in 37 states
across the U.S.