Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Apple Hospitality REIT, Inc.
Form 10-Q
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PART I. FINANCIAL INFORMATION | | |
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| Item 2. | | 1817 | |
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| Item 3. | | 3431 | |
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| Item 4. | | 3431 | |
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PART II. OTHER INFORMATION | | |
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| Item 1A. | | 3532 | |
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| Item 2. | | 32 | |
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| Item 6. | | 3533 | |
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| 3634 | |
This Form 10-Q includes references to certain trademarks or service marks. The Courtyard by Marriott®, Fairfield Inn by Marriott®, Fairfield Inn & Suites by Marriott®, Marriott® Hotels, Renaissance® Hotels, Residence Inn by Marriott®, SpringHill Suites by Marriott® and TownePlace Suites by Marriott® trademarks are the property of Marriott International, Inc. or one of its affiliates. The Embassy Suites by Hilton®, Hampton by Hilton®, Hilton® HotelsHampton Inn & Resorts,Suites by Hilton®, Hilton Garden Inn®, Home2 Suites by Hilton® and Homewood Suites by Hilton® trademarks are the property of Hilton Worldwide Holdings Inc. or one or more of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Apple Hospitality REIT, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
| | | | | | | |
| | June 30, | | | December 31, | | | March 31, | | | December 31, | |
| | 2017 | | | 2016 | | | 2018 | | | 2017 | |
| | (unaudited) | | | | | | (unaudited) | | | | |
Assets | | | | | | | | | | | | |
Investment in real estate, net of accumulated depreciation of $644,718 and $557,597, respectively | | $ | 4,770,883 | | | $ | 4,823,489 | | |
Assets held for sale | | | 0 | | | | 39,000 | | |
Investment in real estate, net of accumulated depreciation of $775,894 and $731,284, respectively | | | $ | 4,829,776 | | | $ | 4,793,159 | |
Restricted cash-furniture, fixtures and other escrows | | | 28,244 | | | | 29,425 | | | | 31,438 | | | | 29,791 | |
Due from third party managers, net | | | 57,676 | | | | 31,460 | | | | 57,240 | | | | 31,457 | |
Other assets, net | | | 47,771 | | | | 56,509 | | | | 54,917 | | | | 47,931 | |
Total Assets | | $ | 4,904,574 | | | $ | 4,979,883 | | | $ | 4,973,371 | | | $ | 4,902,338 | |
| | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Revolving credit facility | | $ | 301,300 | | | $ | 270,000 | | | $ | 170,700 | | | $ | 106,900 | |
Term loans | | | 571,461 | | | | 570,934 | | | | 656,569 | | | | 656,279 | |
Mortgage debt | | | 435,556 | | | | 497,029 | | | | 500,189 | | | | 459,017 | |
Accounts payable and other liabilities | | | 88,685 | | | | 124,856 | | | | 89,439 | | | | 109,057 | |
Total Liabilities | | | 1,397,002 | | | | 1,462,819 | | | | 1,416,897 | | | | 1,331,253 | |
| | | | | | | | | | | | | | | | |
Shareholders' Equity | | | |
Shareholders’ Equity | | | | | | | | | |
Preferred stock, authorized 30,000,000 shares; none issued and outstanding | | | 0 | | | | 0 | | | | - | | | | - | |
Common stock, no par value, authorized 800,000,000 shares; issued and outstanding 223,055,340 and 222,938,648 shares, respectively | | | 4,455,191 | | | | 4,453,205 | | |
Common stock, no par value, authorized 800,000,000 shares; issued and outstanding 230,339,578 and 229,961,548 shares, respectively | | | | 4,594,247 | | | | 4,588,188 | |
Accumulated other comprehensive income | | | 4,959 | | | | 4,589 | | | | 16,070 | | | | 9,778 | |
Distributions greater than net income | | | (952,578 | ) | | | (940,730 | ) | | | (1,053,843 | ) | | | (1,026,881 | ) |
Total Shareholders' Equity | | | 3,507,572 | | | | 3,517,064 | | |
Total Shareholders’ Equity | | | | 3,556,474 | | | | 3,571,085 | |
| | | | | | | | | | | | | | | | |
Total Liabilities and Shareholders' Equity | | $ | 4,904,574 | | | $ | 4,979,883 | | |
Total Liabilities and Shareholders’ Equity | | | $ | 4,973,371 | | | $ | 4,902,338 | |
See notes to consolidated financial statements.
Apple Hospitality REIT, Inc.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(in thousands, except per share data)
| | Three Months Ended | | | Six Months Ended | | | Three Months Ended | |
| | June 30, | | | June 30, | | | March 31, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2018 | | | 2017 | |
Revenues: | | | | | | | | | | | | | | | | | | |
Room | | $ | 306,283 | | | $ | 237,340 | | | $ | 575,676 | | | $ | 443,490 | | | $ | 274,836 | | | $ | 269,393 | |
Other | | | 25,421 | | | | 20,296 | | | | 48,953 | | | | 38,633 | | | | 23,553 | | | | 23,532 | |
Total revenue | | | 331,704 | | | | 257,636 | | | | 624,629 | | | | 482,123 | | | | 298,389 | | | | 292,925 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
Operating | | | 80,345 | | | | 61,459 | | | | 155,499 | | | | 118,288 | | | | 75,954 | | | | 75,154 | |
Hotel administrative | | | 25,217 | | | | 18,857 | | | | 50,053 | | | | 37,055 | | | | 25,102 | | | | 24,836 | |
Sales and marketing | | | 26,270 | | | | 19,896 | | | | 50,379 | | | | 37,915 | | | | 25,332 | | | | 24,109 | |
Utilities | | | 10,193 | | | | 7,719 | | | | 19,946 | | | | 15,319 | | | | 10,283 | | | | 9,753 | |
Repair and maintenance | | | 12,279 | | | | 9,605 | | | | 24,195 | | | | 18,689 | | | | 12,453 | | | | 11,916 | |
Franchise fees | | | 14,163 | | | | 10,933 | | | | 26,637 | | | | 20,378 | | | | 12,733 | | | | 12,474 | |
Management fees | | | 11,545 | | | | 8,947 | | | | 21,757 | | | | 16,984 | | | | 10,472 | | | | 10,212 | |
Property taxes, insurance and other | | | 17,821 | | | | 13,076 | | | | 34,748 | | | | 25,528 | | | | 17,229 | | | | 16,927 | |
Ground lease | | | 2,839 | | | | 2,506 | | | | 5,655 | | | | 4,972 | | | | 2,850 | | | | 2,816 | |
General and administrative | | | 6,151 | | | | 5,060 | | | | 12,905 | | | | 9,888 | | | | 6,877 | | | | 6,754 | |
Transaction and litigation costs (reimbursements) | | | (2,586 | ) | | | 1,116 | | | | (2,586 | ) | | | 1,409 | | |
Loss on impairment of depreciable real estate assets | | | 0 | | | | 0 | | | | 7,875 | | | | 0 | | | | - | | | | 7,875 | |
Depreciation | | | 43,893 | | | | 33,824 | | | | 87,660 | | | | 67,308 | | | | 44,840 | | | | 43,767 | |
Total expenses | | | 248,130 | | | | 192,998 | | | | 494,723 | | | | 373,733 | | | | 244,125 | | | | 246,593 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | 83,574 | | | | 64,638 | | | | 129,906 | | | | 108,390 | | | | 54,264 | | | | 46,332 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest and other expense, net | | | (11,849 | ) | | | (9,560 | ) | | | (23,566 | ) | | | (18,363 | ) | | | (11,919 | ) | | | (11,717 | ) |
Gain on sale of real estate | | | 16,140 | | | | 0 | | | | 16,140 | | | | 0 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | | 87,865 | | | | 55,078 | | | | 122,480 | | | | 90,027 | | | | 42,345 | | | | 34,615 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income tax expense | | | (259 | ) | | | (360 | ) | | | (509 | ) | | | (623 | ) | | | (163 | ) | | | (250 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 87,606 | | | $ | 54,718 | | | $ | 121,971 | | | $ | 89,404 | | | $ | 42,182 | | | $ | 34,365 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | |
Other comprehensive income: | | | | | | | | | |
Interest rate derivatives | | | (1,175 | ) | | | (5,501 | ) | | | 370 | | | | (12,195 | ) | | | 6,292 | | | | 1,545 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | $ | 86,431 | | | $ | 49,217 | | | $ | 122,341 | | | $ | 77,209 | | | $ | 48,474 | | | $ | 35,910 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic and diluted net income per common share | | $ | 0.39 | | | $ | 0.31 | | | $ | 0.55 | | | $ | 0.51 | | | $ | 0.18 | | | $ | 0.15 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding - basic and diluted | | | 223,052 | | | | 174,667 | | | | 223,049 | | | | 174,667 | | | | 230,515 | | | | 223,047 | |
See notes to consolidated financial statements.
Apple Hospitality REIT, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| | Six Months Ended | | | Three Months Ended | |
| | June 30, | | | March 31, | |
| | 2017 | | | 2016 | | | 2018 | | | 2017 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income | | $ | 121,971 | | | $ | 89,404 | | | $ | 42,182 | | | $ | 34,365 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | | | | | |
Depreciation | | | 87,660 | | | | 67,308 | | | | 44,840 | | | | 43,767 | |
Loss on impairment of depreciable real estate assets | | | 7,875 | | | | 0 | | | | - | | | | 7,875 | |
Gain on sale of real estate | | | (16,140 | ) | | | 0 | | |
Other non-cash expenses, net | | | 3,617 | | | | 3,233 | | | | 1,992 | | | | 1,849 | |
Changes in operating assets and liabilities, net of amounts acquired or assumed with acquisitions: | | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | | |
Increase in due from third party managers, net | | | (26,206 | ) | | | (20,350 | ) | | | (25,920 | ) | | | (26,222 | ) |
Decrease (increase) in other assets, net | | | 8,429 | | | | (1,552 | ) | | | (2,485 | ) | | | 9,345 | |
Decrease in accounts payable and other liabilities | | | (30,897 | ) | | | (1,373 | ) | | | (7,746 | ) | | | (34,814 | ) |
Net cash provided by operating activities | | | 156,309 | | | | 136,670 | | | | 52,863 | | | | 36,165 | |
| | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | |
Acquisition of hotel properties, net | | | (18,131 | ) | | | 0 | | | | (61,614 | ) | | | (18,131 | ) |
Deposits and other disbursements for potential acquisitions | | | 0 | | | | (503 | ) | | | (204 | ) | | | - | |
Capital improvements | | | (28,866 | ) | | | (35,488 | ) | | | (24,672 | ) | | | (17,461 | ) |
Decrease (increase) in capital improvement reserves | | | (190 | ) | | | 1,611 | | |
Net proceeds from sale of real estate | | | 28,531 | | | | 0 | | |
Net cash used in investing activities | | | (18,656 | ) | | | (34,380 | ) | | | (86,490 | ) | | | (35,592 | ) |
| | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | |
Net proceeds related to issuance of common shares | | | | 4,731 | | | | - | |
Repurchases of common shares | | | 0 | | | | (361 | ) | | | (4,304 | ) | | | - | |
Repurchases of common shares to satisfy employee withholding requirements | | | (432 | ) | | | (459 | ) | | | (876 | ) | | | (432 | ) |
Distributions paid to common shareholders | | | (133,811 | ) | | | (104,713 | ) | | | (69,144 | ) | | | (66,908 | ) |
Net proceeds from revolving credit facility | | | 31,300 | | | | 40,800 | | | | 63,800 | | | | 96,600 | |
Proceeds from term loans | | | 0 | | | | 50,000 | | |
Proceeds from mortgage debt | | | 0 | | | | 24,000 | | | | 44,000 | | | | - | |
Payments of mortgage debt | | | (34,590 | ) | | | (86,881 | ) | | | (2,933 | ) | | | (31,949 | ) |
Financing costs | | | (120 | ) | | | (3,062 | ) | |
Net cash used in financing activities | | | (137,653 | ) | | | (80,676 | ) | |
Net cash provided by (used in) financing activities | | | | 35,274 | | | | (2,689 | ) |
| | | | | | | | | | | | | | | | |
Net change in cash and cash equivalents | | | 0 | | | | 21,614 | | |
Net change in cash, cash equivalents and restricted cash | | | | 1,647 | | | | (2,116 | ) |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents, beginning of period | | | 0 | | | | 0 | | |
Cash, cash equivalents and restricted cash, beginning of period | | | | 29,791 | | | | 29,425 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 0 | | | $ | 21,614 | | |
Cash, cash equivalents and restricted cash, end of period | | | $ | 31,438 | | | $ | 27,309 | |
| | | | | | | | | | | | | | | | |
Supplemental cash flow information: | | | | | | | | | | | | | | | | |
Interest paid | | $ | 23,532 | | | $ | 19,620 | | | $ | 11,760 | | | $ | 11,855 | |
| | | | | | | | | | | | | | | | |
Supplemental disclosure of noncash investing and financing activities: | | | | | | | | | | | | | | | | |
Accrued distribution to common shareholders | | $ | 22,301 | | | $ | 17,451 | | | $ | 23,020 | | | $ | 22,301 | |
Mortgage debt assumed by buyer upon sale of real estate | | $ | 27,073 | | | $ | 0 | | |
| | | | | | | | | |
Reconciliation of cash, cash equivalents and restricted cash: | | | | | | | | | |
Cash and cash equivalents, beginning of period | | | $ | - | | | $ | - | |
Restricted cash-furniture, fixtures and other escrows, beginning of period | | | | 29,791 | | | | 29,425 | |
Cash, cash equivalents and restricted cash, beginning of period | | | $ | 29,791 | | | $ | 29,425 | |
| | | | | | | | | |
Cash and cash equivalents, end of period | | | $ | - | | | $ | - | |
Restricted cash-furniture, fixtures and other escrows, end of period | | | | 31,438 | | | | 27,309 | |
Cash, cash equivalents and restricted cash, end of period | | | $ | 31,438 | | | $ | 27,309 | |
See notes to consolidated financial statements.
Apple Hospitality REIT, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
Organization
Apple Hospitality REIT, Inc., together with its wholly-owned subsidiaries (the “Company”), is a Virginia corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. The Company is a self-advised REIT that invests in income-producing real estate, primarily in the lodging sector, in the United States. The Company’s fiscal year end is December 31. The Company has no foreign operations or assets and its operating structure includes only one reportable segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does not have any elements of power in the decision making process of these entities, and therefore does not consolidate the entities. As of June 30, 2017,March 31, 2018, the Company owned 235241 hotels with an aggregate of 29,97830,585 rooms located in 3334 states. The Company’s common shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.”
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include all of the information required by United States generally accepted accounting principles generally accepted in the United States(“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its 2016 Annual Report on Form 10-K.10-K for the year ended December 31, 2017 (the “2017 Form 10-K”). Operating results for the three and six months ended June 30, 2017March 31, 2018 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2017.2018.
Use of Estimates
The preparation of the financial statements in conformity with United States generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Net Income Per Common Share
Basic net income per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net income per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. Basic and diluted net income per common share were the same for each of the periods presented.
Accounting Standards Recently Adopted
In January 2017,May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which is intended to add guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is effective for annual and interim periods beginning after December 15, 2017 with early adoption permitted. The Company adopted this standard effective January 1, 2017 on a prospective basis. Prior to the adoption of this standard, the Company’s acquisitions of hotel properties were accounted for as existing businesses, and therefore all transaction costs associated with the acquisitions, including title, legal, accounting, brokerage commissions and other related costs were expensed as incurred. Under the new standard, effective January 1, 2017, acquisitions of hotel properties (including the acquisition of one hotel during the first quarter of 2017, as discussed in Note 3) will generally be accounted for as acquisitions of a group of assets, with costs incurred to effect an acquisition being capitalized as part of the cost of the assets acquired, instead of accounted for separately as expenses in the period that they are incurred. Asset acquisitions now require the Company to complete its allocation of the purchase price at the time of the acquisition as the measurement period applicable to business combinations does not apply to asset acquisitions.
Accounting Standards Recently Issued
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which affects virtually all aspects of an entity’s revenue recognition.. The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March, April, May and December 2016, the FASB issued ASUs No. 2016-08, 2016-10, 2016-12 and 2016-20, respectively, all related to Revenue from Contracts with Customers (Topic 606), which further clarify the application of the standard. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effectiveness of ASU No. 2014-09 toThe standard became effective for annual and interim periods beginning after December 15, 2017, and permitted early application for annual reporting periods beginning after December 15, 2016.2017. The Company plans to adoptadopted this standard onas of January 1, 2018 using the modified retrospective approach. AlthoughThe Company evaluated each of its revenue streams under the Company is still evaluatingnew standard and concluded that the adoption of this ASU, based on its assessment to date, the Company doesstandard did not believe there will be a significant change toimpact the amount or timing of revenue recognition in the recording of revenue in itsCompany’s consolidated financial statements. The Company also considered and determined that the following disaggregated revenue reflects the nature and timing of its significant revenue streams (in thousands).
| | Three Months Ended March 31, | |
| | 2018 | | | 2017 | |
Revenues: | | | | | | |
Room | | $ | 274,836 | | | $ | 269,393 | |
Food and beverage | | | 15,710 | | | | 16,733 | |
Other | | | 7,843 | | | | 6,799 | |
Total revenue | | $ | 298,389 | | | $ | 292,925 | |
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The standard was effective for annual and interim periods beginning after December 15, 2017. The Company adopted this standard as of January 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, which is intended to reduce diversity in practice in the classification and presentation of changes in restricted cash in the statement of cash flows. The standard was effective for annual and interim periods beginning after December 15, 2017. Under this standard, restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown in the statements of cash flows. The Company adopted this standard as of January 1, 2018. Amounts included in restricted cash on the Company’s consolidated balance sheets are now included with cash and cash equivalents in the Company’s consolidated statements of cash flows for all periods presented. The adoption of this standard required retrospective revision to the statement of cash flows for the three months ended March 31, 2017. Other than the reclassification of restricted cash balances and activity in the statements of cash flows, the adoption of the standard did not have an impact on the Company’s consolidated financial statements and related disclosures.
In February 2017, the FASB issued ASU No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope of Accounting Standards Codification (“ASC”) Subtopic 610-20 and adds guidance for the derecognition of nonfinancial assets, including partial sales. The standard is effective in conjunction with ASU No. 2014-09, presented above, which is effective for annual and interim periods beginning after December 15, 2017 with early adoption permitted. The provisions of this updatestandard must be applied at the same time as the adoption of ASU No. 2014-09. The Company plansadopted this standard as of January 1, 2018 using the modified retrospective approach. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to adoptAccounting for Hedging Activities, which amends the hedge accounting model to enable entities to better portray their risk management activities in their financial statements and enhance the transparency and understandability of hedging activity. The standard simplifies the application of hedge accounting and reduces the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this standard on January 1, 2018 using the modified retrospective approach. TThe he adoption of this standard isdid not expected to have a material impact on the Company’s consolidated financial statements.statements and related disclosures.
2. Merger with Apple REIT Ten, Inc.
Effective September 1, 2016, the Company completed its previously announced merger with Apple REIT Ten, Inc. (“Apple Ten”) (the “merger”). Pursuant to the Agreement and Plan of Merger entered into on April 13, 2016, as amended on July 13, 2016 (the “Merger Agreement”), Apple Ten merged with and into a wholly-owned subsidiary of the Company (“Acquisition Sub”), at which time the separate corporate existence of Apple Ten ceased and Acquisition Sub became the surviving corporation in the merger. Acquisition Sub was formed solely for the purpose of engaging in the merger and had not conducted any prior activities. As a result of the merger, the Company acquired the business of Apple Ten, a real estate investment trust, which immediately prior to the effective time of the merger, owned 56 hotels located in 17 states with an aggregate of 7,209 rooms.
The Company accounted for the merger in accordance with ASC 805, Business Combinations. The Company was considered the acquirer for financial reporting purposes, which required, among other things, that the assets acquired and liabilities assumed from Apple Ten be recognized at their acquisition date fair values. For purpose of accounting for the transaction, the aggregate value of the merger consideration paid to Apple Ten shareholders was estimated to be approximately $1.0 billion, and was comprised of approximately $956.1 million for the issuance of approximately 48.7 million common shares of the Company valued at $19.62 per share, which was the closing price of the Company’s common shares on August 31, 2016 (the date that the merger was approved), and $93.6 million in cash, which was funded through borrowings on the Company’s $540 million revolving credit facility (the “revolving credit facility”). Transaction and litigation costs (reimbursements) related to the merger were expensed in the period incurred and totaled approximately $1.2 million for the six months ended June 30, 2016. Transaction and litigation costs (reimbursements) for the six months ended June 30, 2017 included $2.6 million of additional proceeds from the Company’s director and officer insurance carriers in connection with the merger litigation. Further discussion of the merger litigation is included in Note 10.
Effective September 1, 2016, upon completion of the merger, the Company assumed approximately $145.7 million in mortgage debt, prior to any fair value adjustments, secured by nine properties. The Company also assumed the outstanding balance on Apple Ten’s credit facility totaling $111.1 million, which was terminated and repaid in full on September 1, 2016 with borrowings on the Company’s revolving credit facility.
As contemplated in the Merger Agreement, in connection with the completion of the merger, the advisory and related party arrangements with respect to Apple Ten and its advisors, as described in more detail in Note 7, were terminated.
The following unaudited pro forma information for the three and six month periods ended June 30, 2017 and 2016, is presented as if the merger, effective September 1, 2016, had occurred on January 1, 2016, and is based on assumptions and estimates considered appropriate by the Company. The pro forma information is provided for illustrative purposes only and does not necessarily reflect what the operating results would have been had the merger been completed on January 1, 2016, nor is it necessarily indicative of future operating results. The pro forma information does not give effect to any cost synergies or other operating efficiencies that could result from the merger. Amounts are in thousands except per share data.
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Total revenue | | $ | 331,704 | | | $ | 333,869 | | | $ | 624,629 | | | $ | 623,836 | |
Net income | | $ | 85,020 | | | $ | 72,179 | | | $ | 119,385 | | | $ | 117,025 | |
Basic and diluted net income per common share | | $ | 0.38 | | | $ | 0.32 | | | $ | 0.54 | | | $ | 0.52 | |
Weighted average common shares outstanding - basic and diluted | | | 223,052 | | | | 223,397 | | | | 223,049 | | | | 223,397 | |
For purposes of calculating these pro forma amounts, merger transaction and litigation costs (reimbursements) totaling approximately ($2.6) million for each of the three and six months ended June 30, 2017, and $1.0 million and $1.2 million for the three and six months ended June 30, 2016, respectively, included in the Company’s consolidated statements of operations, were excluded from the pro forma amounts since these costs and reimbursements are attributable to the merger and related transactions and do not have an ongoing impact to the statements of operations.
3. Investment in Real Estate
The Company’s investment in real estate consisted of the following (in thousands):
| | June 30, | | | December 31, | | | March 31, | | | December 31, | |
| | 2017 | | | 2016 | | | 2018 | | | 2017 | |
| | | | | | | | | | | | |
Land | | $ | 710,191 | | | $ | 707,878 | | | $ | 730,763 | | | $ | 720,465 | |
Building and Improvements | | | 4,288,611 | | | | 4,270,095 | | | | 4,425,158 | | | | 4,362,929 | |
Furniture, Fixtures and Equipment | | | 405,015 | | | | 391,421 | | | | 437,084 | | | | 428,734 | |
Franchise Fees | | | 11,784 | | | | 11,692 | | | | 12,665 | | | | 12,315 | |
| | | 5,415,601 | | | | 5,381,086 | | | | 5,605,670 | | | | 5,524,443 | |
Less Accumulated Depreciation | | | (644,718 | ) | | | (557,597 | ) | | | (775,894 | ) | | | (731,284 | ) |
Investment in Real Estate, net | | $ | 4,770,883 | | | $ | 4,823,489 | | | $ | 4,829,776 | | | $ | 4,793,159 | |
As of June 30, 2017,March 31, 2018, the Company owned 235241 hotels with an aggregate of 29,97830,585 rooms located in 3334 states.
On February 2,The Company leases all of its hotels to its wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under master hotel lease agreements.
Acquisitions
The Company acquired two hotels during the first three months of 2018. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price for each hotel. All dollar amounts are in thousands.
City | | State | | Brand | | Manager | | Date Acquired | | Rooms | | | Gross Purchase Price (a) | |
Atlanta | | GA | | Hampton | | McKibbon | | 2/5/2018 | | | 119 | | | $ | 24,000 | |
Memphis | | TN | | Hampton | | Crestline | | 2/5/2018 | | | 144 | | | | 39,000 | |
| | | | | | | | | | | 263 | | | $ | 63,000 | |
(a) | The gross purchase price excludes transaction costs. |
During the year ended December 31, 2017, the Company closed onacquired six hotels including one in the purchasefirst quarter of a newly constructed 124-room Courtyard by Marriott in Fort Worth, Texas,2017. The following table sets forth the same day the hotel opened for business, for alocation, brand, manager, date acquired, number of rooms and gross purchase price of approximately $18.0 million, excluding capitalized transaction costs. for each hotel. All dollar amounts are in thousands.
City | | State | | Brand | | Manager | | Date Acquired | | Rooms | | | Gross Purchase Price (a) | |
Fort Worth | | TX | | Courtyard | | LBA | | 2/2/2017 | | | 124 | | | $ | 18,034 | |
Birmingham (b) | | AL | | Hilton Garden Inn | | LBA | | 9/12/2017 | | | 104 | | | | 19,162 | |
Birmingham (b) | | AL | | Home2 Suites | | LBA | | 9/12/2017 | | | 106 | | | | 19,276 | |
Portland | | ME | | Residence Inn | | Pyramid | | 10/13/2017 | | | 179 | | | | 55,750 | |
Salt Lake City | | UT | | Residence Inn | | Huntington | | 10/20/2017 | | | 136 | | | | 25,500 | |
Anchorage | | AK | | Home2 Suites | | Stonebridge | | 12/1/2017 | | | 135 | | | | 24,048 | |
| | | | | | | | | | | 784 | | | $ | 161,770 | |
(a) | The gross purchase price excludes transaction costs. |
(b) | The Hilton Garden Inn and Home2 Suites hotels in Birmingham, AL are part of an adjoining two-hotel complex located on the same site. |
The Company used borrowings under its $540 million revolving credit facility (the “revolving credit facility”) to purchase the hotel.each of these hotels. The acquisitionacquisitions of thisthese hotel property wasproperties were accounted for as an acquisition of a group of assets, with costs incurred to effect the acquisition, which were not significant, capitalized as part of the cost of the assets acquired. For the two hotels acquired during the three months ended March 31, 2018, the amount of revenue and operating income included in the Company’s consolidated statement of operations from the date of acquisition through March 31, 2018 was approximately $2.4 million and $0.8 million, respectively. For the hotel acquired during the three months ended March 31, 2017, the amount of revenue and operating income included in the Company’s consolidated statement of operations from the date of acquisition through March 31, 2017 was approximately $0.7 million and $0.04 million, respectively.
There were no acquisitions during the six month period ended June 30, 2016.
The Company leases all of its hotels to its wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under master hotel lease agreements.
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Hotel Contract Commitments
As of June 30, 2017,March 31, 2018, the Company had outstanding contracts for the potential purchase of fourtwo additional hotels, which were under construction, for a total purchase price of approximately $103.3$65.0 million. All four hotels are underThe Phoenix Hampton Inn & Suites was acquired on May 2, 2018, the same day the hotel opened for business. It is anticipated that the construction and are planned toof the Orlando Home2 Suites will be completed and opened for business overduring the next three to 15 months from June 30, 2017,fourth quarter of 2018, at which time a closing on these hotelsthis hotel is expected to occur. Although the Company is working towards acquiring these hotels,this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on these hotelsthis hotel will occur under the outstanding purchase contracts.contract. The following table summarizes the location, brand, date of purchase contract, expected number of rooms, refundable (if the seller does not meet its obligations under the contract) contract deposits paid, and gross purchase price for each of the contracts outstanding at June 30, 2017.March 31, 2018. All dollar amounts are in thousands.
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Location | | Brand | | Date of Purchase Contract | | Rooms | | | Refundable Deposits | | | Gross Purchase Price | |
Birmingham, AL (a)(b) | | Home2 Suites | | 8/28/2015 | | | 105 | | | $ | 3 | | | $ | 19,219 | |
Birmingham, AL (a)(b) | | Hilton Garden Inn | | 8/28/2015 | | | 105 | | | | 2 | | | | 19,219 | |
Phoenix, AZ (a) | | Hampton | | 10/25/2016 | | | 210 | | | | 500 | | | | 44,100 | |
Orlando, FL (a) | | Home2 Suites | | 1/18/2017 | | | 128 | | | | 3 | | | | 20,736 | |
| | | | | | | 548 | | | $ | 508 | | | $ | 103,274 | |
Location | | Brand | | Date of Purchase Contract | | Rooms | | | Refundable Deposits | | | Gross Purchase Price | |
Phoenix, AZ (a) | | Hampton | | 10/25/2016 | | | 210 | | | $ | 500 | | | $ | 44,300 | |
Orlando, FL (b) | | Home2 Suites | | 1/18/2017 | | | 128 | | | | 3 | | | | 20,736 | |
| | | | | | | 338 | | | $ | 503 | | | $ | 65,036 | |
(a) | As of June 30, 2017, these hotels wereNewly constructed hotel was acquired on May 2, 2018, the same day the hotel opened for business. |
(b) | This hotel is currently under construction. The table shows the expected number of rooms upon hotel completion and the expected franchise brands.brand. Assuming all conditions to closing are met, the purchasespurchase of these hotels arethis hotel is expected to close overduring the next three to 15 months from June 30, 2017.fourth quarter of 2018. If the seller meets all of the conditions to closing, the Company is obligated to specifically perform under the contract. As the property is under construction, at this time, the seller has not met all of the conditions to closing. |
(b) | The Home2 Suites and Hilton Garden Inn hotels in Birmingham, AL are part of an adjoining two-hotel complex located on the same site. |
The Company intends to use borrowings under itspurchase of the Phoenix Hampton Inn & Suites was funded through the Company’s revolving credit facility toand it is anticipated that the purchase of the hotels under contractOrlando Home2 Suites will be funded similarly if a closing occurs.
Loss on Impairment of Depreciable Real Estate Assets
During the first quarter of 2017, the Company identified two properties for potential sale (the Columbus, Georgia SpringHill Suites and TownePlace Suites hotels). Inin April 2017, the Company entered into separate contracts with the same unrelated party for the sale of these properties for a total combined gross sales price of approximately $10.0 million.properties. Due to the change in the anticipated hold period for each of these hotels, the Company reviewed the estimated undiscounted cash flows generated by each property (including its sale price, net of estimated selling costs) and determined that, for each hotel, the undiscounted cash flows were less than its carrying value; therefore the Company recognized an impairment loss of approximately $7.9 million in the first quarter of 2017 to adjust the bases of these properties to their estimated fair values, which were based on the then contracted sale price, net of estimated selling costs, a Level 1 input under the fair value hierarchy. In May 2017, both of these contracts were terminated.
In June 2017, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 316-room Marriott hotel in Fairfax, Virginia for a gross sales price of $42.0 million, which exceeds its carrying value as of June 30, 2017, plus costs to sell. The contract is subject to a number of conditions to closing and therefore there can be no assurance that a closing will occur. If the closing occurs, the sale is expected to be completed within six months from June 30, 2017. The Company plans to use the net proceeds from the sale to pay down borrowings on its revolving credit facility. Since the due diligence period under the contract has not passed and the deposit made by the buyer is refundable as of June 30, 2017, the assets and liabilities related to this property have not been classified as held for sale in the Company’s consolidated balance sheet at June 30, 2017.
4. Dispositions
In December 2016, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 224-room Hilton hotel in Dallas, Texas for a gross sales price of approximately $56.1 million, as amended. The hotel was classified as held for sale at its historical cost (which was less than the contract price, net of costs to sell) in the Company’s consolidated balance sheet at December 31, 2016. On April 20, 2017, the Company completed the sale resulting in a gain of approximately $16.1 million, which is included in the Company’s consolidated statements of operations for the three and six months ended June 30, 2017. The hotel had a carrying value totaling approximately $39.0 million at the date of sale. Under the contract, at closing, the mortgage loan secured by the Dallas, Texas Hilton hotel was assumed by the buyer with the buyer receiving a credit for the amount assumed, which was approximately $27.1 million at the date of sale. The net proceeds from the sale were used to pay down borrowings on the Company’s revolving credit facility. The Company’s consolidated statements of operations include operating income of approximately $0.1 million and $0.7 million for the three months ended June 30, 2017 and 2016, respectively, and approximately $1.2 million and $1.3 million for the six months ended June 30, 2017 and 2016, respectively, relating to the results of operations of the Dallas, Texas Hilton hotel. The sale of this property does not represent a strategic shift that has, or will have, a major effect on the Company’s operations and financial results, and therefore the operating results for the period of ownership of this property are included in income from continuing operations for the three and six months ended June 30, 2017 and 2016.
5.3. Debt
$965 Million Credit Facility
The Company utilizes an unsecured “$965 million credit facility” comprised of (i) a $540 million revolving credit facility with an initial maturity date of May 18, 2019 and (ii) a $425 million term loan facility with a maturity date of May 18, 2020, consisting of three term loans, all funded during 2015 (the “$425 million term loans”). Subject to certain conditions including covenant compliance and additional fees, the revolving credit facility maturity date may be extended one year and the amount of the total credit facility may be increased from $965 million to $1.25 billion.year. The Company may make voluntary prepayments in whole or in part, at any time. Interest payments on the $965 million credit facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR (the London Inter-Bank Offered Rate for a one-month term) plus a margin ranging from 1.50% to 2.30%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. In conjunction with the $425 million term loans, the Company entered into two interest rate swap agreements, which effectively fix the interest rate on $322.5 million of the outstanding balance at approximately 3.10%, subject to adjustment based on the Company’s leverage ratio, through maturity. See Note 6 for more information on the interest rate swap agreements. The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.30% on the unused portion of the revolving credit facility, based on the amount of borrowings outstanding during the quarter.
$150 Million Term Loan Facility
On April 8, 2016, the Company entered into an unsecured $150 million term loan facility with a syndicate of commercial banks (the “$150 million term loan facility”), consisting of a $50 million term loan of up to $50 million that will mature on April 8, 2021 (the “$50 million term loan”) and a $100 million term loan of up to $100 million that will mature on April 8, 2023 (the “$100 million term loan,” and collectively with the $50 million term loan, the “$150 million term loans”). The Company initially borrowed $50 million under the $150 million term loan facility on April 8, 2016 and borrowed the remaining $100 million on September 30, 2016. The credit agreement contains requirements and covenants similar to the Company’s $965 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the $150 million term loan facility are due monthly and the interest rate is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.45% to 2.20% for the $50 million term loan and 1.80% to 2.60% for the $100 million term loan, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. The Company also entered into two interest rate swap agreements which, beginning on September 30, 2016, effectively fix the interest rate on the $50 million term loan and $100 million term loan at 2.54% and 3.13%, respectively, subject to adjustment based on the Company’s leverage ratio, through maturity. See Note 6 for more information on the interest rate swap agreements. Proceeds from the $150 million term loan facility were used to pay down outstanding balances under the Company’s revolving credit facility, using the increased availability to repay scheduled mortgage debt maturities through the end of the first quarter of 2017.
$85 Million Term Loan
On July 25, 2017, the Company entered into an unsecured $85 million term loan with a syndicate of commercial banks, with a maturity date of July 25, 2024 (the “$85 million term loan” and, together with the $425 million term loans and the $150 million term loans, the “term loans”). The credit agreement contains requirements and covenants similar to the Company’s $965 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the $85 million term loan are due monthly and the interest rate is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.80% to 2.60%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.
As of June 30, 2017March 31, 2018 and December 31, 2016,2017, the details of the Company’s revolving credit facility $425 million term loans and $150 million term loans were as set forth below. All dollar amounts are in thousands.
| | | | As of June 30, 2017 | | | | As of December 31, 2016 | | | | | | As of March 31, 2018 | | | | | As of December 31, 2017 | | | |
| | Maturity Date | | Outstanding Balance | | | Interest Rate | | | | Outstanding Balance | | | Interest Rate | | | | Maturity Date | | Outstanding Balance | | | Interest Rate | | | Outstanding Balance | | | Interest Rate | | |
Revolving credit facility (1) | | 5/18/2019 | | $ | 301,300 | | | | 2.77 | % | (2) | | $ | 270,000 | | | | 2.32 | % | (2) | | 5/18/2019 | | $ | 170,700 | | | | 3.43 | % | (2) | | | $ | 106,900 | | | | 3.11 | % | (2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Term loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$425 million term loans | | 5/18/2020 | | | 425,000 | | | | 3.01 | % | (3) | | | 425,000 | | | | 2.90 | % | (3) | | 5/18/2020 | | | 425,000 | | | | 3.16 | % | (3) | | | | 425,000 | | | | 3.09 | % | (3) | |
$50 million term loan | | 4/8/2021 | | | 50,000 | | | | 2.54 | % | (4) | | | 50,000 | | | | 2.54 | % | (4) | | 4/8/2021 | | | 50,000 | | | | 2.54 | % | (4) | | | | 50,000 | | | | 2.54 | % | (4) | |
$100 million term loan | | 4/8/2023 | | | 100,000 | | | | 3.13 | % | (4) | | | 100,000 | | | | 3.13 | % | (4) | | 4/8/2023 | | | 100,000 | | | | 3.13 | % | (4) | | | | 100,000 | | | | 3.13 | % | (4) | |
$85 million term loan | | | 7/25/2024 | | | 85,000 | | | | 3.76 | % | (4) | | | | 85,000 | | | | 3.76 | % | (4) | |
Total term loans at stated value | | | | | 575,000 | | | | | | | | | 575,000 | | | | | | | | | | | 660,000 | | | | | | | | | | 660,000 | | | | | | | |
Unamortized debt issuance costs | | | | | (3,539 | ) | | | | | | | | (4,066 | ) | | | | | | | | | | (3,431 | ) | | | | | | | | | (3,721 | ) | | | | | | |
Total term loans | | | | | 571,461 | | | | | | | | | 570,934 | | | | | | | | | | | 656,569 | | | | | | | | | | 656,279 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revolving credit facility and term loans | | | | $ | 872,761 | | | | | | | | $ | 840,934 | | | | | | | | | | $ | 827,269 | | | | | | | | | $ | 763,179 | | | | | | | |
(1) | Unamortized debt issuance costs related to the revolving credit facility totaled approximately $2.3$1.3 million and $2.8$1.7 million as of June 30, 2017March 31, 2018 and December 31, 2016,2017, respectively, and are included in other assets, net in the Company'sCompany’s consolidated balance sheets. |
(2) | Annual variable interest rate at the balance sheet date. |
(3) | Effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps on $322.5 million of the outstanding loan balance, resulting in an annual fixed interest rate of approximately 3.10% on this portion of the debt, subject to adjustment based on the Company'sCompany’s leverage ratio.ratio, through maturity. See Note 64 for more information on the interest rate swap agreements. Remaining portion is variable rate debt. |
(4) | Annual fixed interest rate at the balance sheet date which includes the effect of an interest rate swapswaps on the outstanding loan balance, subject to adjustment based on the Company’s leverage ratio.ratio, through maturity. See Note 64 for more information on the interest rate swap agreements. |
The credit agreements governing the $965 million credit facility, andthe $150 million term loan facility and the $85 million term loan contain mandatory prepayment requirements, customary affirmative covenants, negative covenants and events of default. The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios, limits on dividend payments and share repurchases and restrictions on certain investments. The Company was in compliance with the applicable covenants at June 30, 2017.
$85 Million Term Loan
On July 25, 2017, the Company entered into an unsecured $85 million term loan with a syndicate of commercial banks, with a maturity date of July 25, 2024 (the “$85 million term loan”). The proceeds, net of closing costs, from the $85 million term loan were used to pay down the borrowings on the Company’s revolving credit facility. Subject to certain conditions including covenant compliance and additional fees, the $85 million term loan may be increased to $125 million. The loan agreement contains requirements and covenants similar to the Company’s $965 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. The interest rate for the term loan is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.80% to 2.60%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. In conjunction with the $85 million term loan, the Company entered into an interest rate swap agreement in May 2017, which was effective on JulyMarch 31, 2017, to effectively fix the interest rate on $75 million of the $85 million term loan at 3.76%, subject to adjustment based on the Company’s leverage ratio, through maturity. See Note 6 for more information on the interest rate swap agreement.
Mortgage Debt
As of June 30, 2017,March 31, 2018, the Company had approximately $432.8$498.5 million in outstanding property levelmortgage debt secured by 2831 properties, with maturity dates ranging from June 2020 to December 2026,January 2038, stated interest rates ranging from 3.55% to 6.25% and effective interest rates ranging from 3.55% to 4.97%. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. The following table sets forth the hotel properties securing each loan, the interest rate, loan assumption or origination date, maturity date, the principal amount assumed or originated, and the outstanding balance prior to any fair value adjustments or debt issuance costs as of June 30, 2017March 31, 2018 and December 31, 20162017 for each of the Company’s debt obligations. All dollar amounts are in thousands.
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Location | | Brand | | Interest Rate (1) | | | Loan Assumption or Origination Date | | Maturity Date | | | Principal Assumed or Originated | | | Outstanding balance as of June 30, 2017 | | | Outstanding balance as of December 31, 2016 | |
Irving, TX | | Homewood Suites | | | 5.83 | % | | 12/29/2010 | | | (2) | | $ | 6,052 | | | $ | 0 | | | $ | 5,072 | |
Gainesville, FL | | Homewood Suites | | | 5.89 | % | | 9/1/2016 | | | (2) | | | 12,051 | | | | 0 | | | | 11,966 | |
Duncanville, TX | | Hilton Garden Inn | | | 5.88 | % | | 10/21/2008 | | | (2) | | | 13,966 | | | | 0 | | | | 12,126 | |
Dallas, TX | | Hilton | | | 3.95 | % | | 5/22/2015 | | | (3) | | | 28,000 | | | | 0 | | | | 27,246 | |
San Juan Capistrano, CA | | Residence Inn | | | 4.15 | % | | 9/1/2016 | | 6/1/2020 | | | | 16,210 | | | | 15,940 | | | | 16,104 | |
Colorado Springs, CO | | Hampton | | | 6.25 | % | | 9/1/2016 | | 7/6/2021 | | | | 7,923 | | | | 7,819 | | | | 7,883 | |
Franklin, TN | | Courtyard | | | 6.25 | % | | 9/1/2016 | | 8/6/2021 | | | | 14,679 | | | | 14,487 | | | | 14,604 | |
Franklin, TN | | Residence Inn | | | 6.25 | % | | 9/1/2016 | | 8/6/2021 | | | | 14,679 | | | | 14,487 | | | | 14,604 | |
Grapevine, TX | | Hilton Garden Inn | | | 4.89 | % | | 8/29/2012 | | 9/1/2022 | | | | 11,810 | | | | 10,560 | | | | 10,707 | |
Collegeville/Philadelphia, PA | | Courtyard | | | 4.89 | % | | 8/30/2012 | | 9/1/2022 | | | | 12,650 | | | | 11,312 | | | | 11,468 | |
Hattiesburg, MS | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 5,732 | | | | 5,285 | | | | 5,357 | |
Rancho Bernardo, CA | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 15,060 | | | | 13,884 | | | | 14,074 | |
Kirkland, WA | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 12,145 | | | | 11,197 | | | | 11,350 | |
Seattle, WA | | Residence Inn | | | 4.96 | % | | 3/1/2014 | | 9/1/2022 | | | | 28,269 | | | | 26,050 | | | | 26,409 | |
Anchorage, AK | | Embassy Suites | | | 4.97 | % | | 9/13/2012 | | 10/1/2022 | | | | 23,230 | | | | 20,848 | | | | 21,133 | |
Somerset, NJ | | Courtyard | | | 4.73 | % | | 3/1/2014 | | 10/6/2022 | | | | 8,750 | | | | 8,047 | | | | 8,160 | |
Tukwila, WA | | Homewood Suites | | | 4.73 | % | | 3/1/2014 | | 10/6/2022 | | | | 9,431 | | | | 8,672 | | | | 8,795 | |
Prattville, AL | | Courtyard | | | 4.12 | % | | 3/1/2014 | | 2/6/2023 | | | | 6,596 | | | | 6,033 | | | | 6,123 | |
Huntsville, AL | | Homewood Suites | | | 4.12 | % | | 3/1/2014 | | 2/6/2023 | | | | 8,306 | | | | 7,598 | | | | 7,711 | |
San Diego, CA | | Residence Inn | | | 3.97 | % | | 3/1/2014 | | 3/6/2023 | | | | 18,600 | | | | 16,992 | | | | 17,248 | |
Miami, FL | | Homewood Suites | | | 4.02 | % | | 3/1/2014 | | 4/1/2023 | | | | 16,677 | | | | 15,252 | | | | 15,479 | |
Syracuse, NY | | Courtyard | | | 4.75 | % | | 10/16/2015 | | 8/1/2024 | (4) | | | 11,199 | | | | 10,772 | | | | 10,905 | |
Syracuse, NY | | Residence Inn | | | 4.75 | % | | 10/16/2015 | | 8/1/2024 | (4) | | | 11,199 | | | | 10,772 | | | | 10,905 | |
New Orleans, LA | | Homewood Suites | | | 4.36 | % | | 7/17/2014 | | 8/11/2024 | | | | 27,000 | | | | 25,251 | | | | 25,577 | |
Westford, MA | | Residence Inn | | | 4.28 | % | | 3/18/2015 | | 4/11/2025 | | | | 10,000 | | | | 9,507 | | | | 9,626 | |
Denver, CO | | Hilton Garden Inn | | | 4.46 | % | | 9/1/2016 | | 6/11/2025 | | | | 34,118 | | | | 33,454 | | | | 33,857 | |
Oceanside, CA | | Courtyard | | | 4.28 | % | | 9/1/2016 | | 10/1/2025 | | | | 13,655 | | | | 13,456 | | | | 13,576 | |
Omaha, NE | | Hilton Garden Inn | | | 4.28 | % | | 9/1/2016 | | 10/1/2025 | | | | 22,682 | | | | 22,350 | | | | 22,550 | |
Boise, ID | | Hampton | | | 4.37 | % | | 5/26/2016 | | 6/11/2026 | | | | 24,000 | | | | 23,618 | | | | 23,813 | |
Burbank, CA | | Courtyard | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 25,564 | | | | 25,243 | | | | 25,564 | |
San Diego, CA | | Courtyard | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 25,473 | | | | 25,153 | | | | 25,473 | |
San Diego, CA | | Hampton | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 18,963 | | | | 18,725 | | | | 18,963 | |
| | | | | | | | | | | | | $ | 514,669 | | | | 432,764 | | | | 494,428 | |
Unamortized fair value adjustment of assumed debt | | | | | | | | | | | | | | | | 4,781 | | | | 5,229 | |
Unamortized debt issuance costs | | | | | | | | | | | | | | | | (1,989 | ) | | | (2,628 | ) |
Total | | | | | | | | | | | | | | | | | $ | 435,556 | | | $ | 497,029 | |
Location | | Brand | | Interest Rate (1) | | | Loan Assumption or Origination Date | | Maturity Date | | | Principal Assumed or Originated | | | Outstanding balance as of March 31, 2018 | | | Outstanding balance as of December 31, 2017 | |
San Juan Capistrano, CA | | Residence Inn | | | 4.15 | % | | 9/1/2016 | | 6/1/2020 | | | $ | 16,210 | | | $ | 15,687 | | | $ | 15,774 | |
Colorado Springs, CO | | Hampton | | | 6.25 | % | | 9/1/2016 | | 7/6/2021 | | | | 7,923 | | | | 7,719 | | | | 7,754 | |
Franklin, TN | | Courtyard | | | 6.25 | % | | 9/1/2016 | | 8/6/2021 | | | | 14,679 | | | | 14,303 | | | | 14,368 | |
Franklin, TN | | Residence Inn | | | 6.25 | % | | 9/1/2016 | | 8/6/2021 | | | | 14,679 | | | | 14,303 | | | | 14,368 | |
Grapevine, TX | | Hilton Garden Inn | | | 4.89 | % | | 8/29/2012 | | 9/1/2022 | | | | 11,810 | | | | 10,334 | | | | 10,412 | |
Collegeville/Philadelphia, PA | | Courtyard | | | 4.89 | % | | 8/30/2012 | | 9/1/2022 | | | | 12,650 | | | | 11,069 | | | | 11,152 | |
Hattiesburg, MS | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 5,732 | | | | 5,173 | | | | 5,212 | |
Rancho Bernardo/San Diego, CA | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 15,060 | | | | 13,591 | | | | 13,692 | |
Kirkland, WA | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 12,145 | | | | 10,960 | | | | 11,042 | |
Seattle, WA | | Residence Inn | | | 4.96 | % | | 3/1/2014 | | 9/1/2022 | | | | 28,269 | | | | 25,496 | | | | 25,687 | |
Anchorage, AK | | Embassy Suites | | | 4.97 | % | | 9/13/2012 | | 10/1/2022 | | | | 23,230 | | | | 20,408 | | | | 20,560 | |
Somerset, NJ | | Courtyard | | | 4.73 | % | | 3/1/2014 | | 10/6/2022 | | | | 8,750 | | | | 7,872 | | | | 7,932 | |
Tukwila, WA | | Homewood Suites | | | 4.73 | % | | 3/1/2014 | | 10/6/2022 | | | | 9,431 | | | | 8,484 | | | | 8,549 | |
Prattville, AL | | Courtyard | | | 4.12 | % | | 3/1/2014 | | 2/6/2023 | | | | 6,596 | | | | 5,895 | | | | 5,943 | |
Huntsville, AL | | Homewood Suites | | | 4.12 | % | | 3/1/2014 | | 2/6/2023 | | | | 8,306 | | | | 7,424 | | | | 7,483 | |
San Diego, CA | | Residence Inn | | | 3.97 | % | | 3/1/2014 | | 3/6/2023 | | | | 18,600 | | | | 16,599 | | | | 16,733 | |
Miami, FL | | Homewood Suites | | | 4.02 | % | | 3/1/2014 | | 4/1/2023 | | | | 16,677 | | | | 14,903 | | | | 15,022 | |
Syracuse, NY | | Courtyard | | | 4.75 | % | | 10/16/2015 | | 8/1/2024 | (2) | | | 11,199 | | | | 10,567 | | | | 10,637 | |
Syracuse, NY | | Residence Inn | | | 4.75 | % | | 10/16/2015 | | 8/1/2024 | (2) | | | 11,199 | | | | 10,567 | | | | 10,637 | |
New Orleans, LA | | Homewood Suites | | | 4.36 | % | | 7/17/2014 | | 8/11/2024 | | | | 27,000 | | | | 24,747 | | | | 24,919 | |
Westford, MA | | Residence Inn | | | 4.28 | % | | 3/18/2015 | | 4/11/2025 | | | | 10,000 | | | | 9,324 | | | | 9,386 | |
Denver, CO | | Hilton Garden Inn | | | 4.46 | % | | 9/1/2016 | | 6/11/2025 | | | | 34,118 | | | | 32,833 | | | | 33,046 | |
Oceanside, CA | | Courtyard | | | 4.28 | % | | 9/1/2016 | | 10/1/2025 | | | | 13,655 | | | | 13,269 | | | | 13,332 | |
Omaha, NE | | Hilton Garden Inn | | | 4.28 | % | | 9/1/2016 | | 10/1/2025 | | | | 22,682 | | | | 22,040 | | | | 22,145 | |
Boise, ID | | Hampton | | | 4.37 | % | | 5/26/2016 | | 6/11/2026 | | | | 24,000 | | | | 23,319 | | | | 23,422 | |
Burbank, CA | | Courtyard | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 25,564 | | | | 24,752 | | | | 24,917 | |
San Diego, CA | | Courtyard | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 25,473 | | | | 24,664 | | | | 24,828 | |
San Diego, CA | | Hampton | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 18,963 | | | | 18,360 | | | | 18,483 | |
Burbank, CA | | SpringHill Suites | | | 3.94 | % | | 3/9/2018 | | 4/1/2028 | | | | 28,470 | | | | 28,470 | | | | - | |
Santa Ana, CA | | Courtyard | | | 3.94 | % | | 3/9/2018 | | 4/1/2028 | | | | 15,530 | | | | 15,530 | | | | - | |
San Jose, CA | | Homewood Suites | | | 4.22 | % | | 12/22/2017 | | 1/1/2038 | | | | 30,000 | | | | 29,840 | | | | 30,000 | |
| | | | | | | | | | | | | $ | 528,600 | | | | 498,502 | | | | 457,435 | |
Unamortized fair value adjustment of assumed debt | | | | 4,105 | | | | 4,330 | |
Unamortized debt issuance costs | | | | (2,418 | ) | | | (2,748 | ) |
Total | | | | | | | | | | | | | | | | | $ | 500,189 | | | $ | 459,017 | |
(1) | Interest rates are the rates per the loan agreement. For loans assumed, the Company adjusted the interest rates per the loan agreement to market rates and is amortizing the adjustments to interest expense over the life of the loan. |
(2) | Loans were repaid in full during the three months ended March 31, 2017. |
(3) | Assets securing this loan were classified as held for sale as of December 31, 2016. In April 2017, the assets securing this loan were sold, and the loan was assumed by the buyer of those assets. |
(4) | Outstanding principal balance is callable by lender or prepayable by the Company on August 1, 2019. |
The aggregate amounts of principal payable under the Company’s total debt obligations (including mortgage debt, the revolving credit facility and term loans), for the five years subsequent to June 30, 2017March 31, 2018 and thereafter are as follows (in thousands):
2017 (July - December) | | $ | 5,329 | | |
2018 | | | 11,071 | | |
2018 (April - December) | | | $ | 9,730 | |
2019 | | | 333,008 | | | | 204,505 | |
2020 | | | 451,164 | | | | 453,349 | |
2021 | | | 95,311 | | | | 97,586 | |
2022 | | | | 109,252 | |
Thereafter | | | 413,181 | | | | 454,780 | |
| | | 1,309,064 | | | | 1,329,202 | |
Unamortized fair value adjustment of assumed debt | | | 4,781 | | | | 4,105 | |
Unamortized debt issuance costs related to term loans and mortgage debt | | | (5,528 | ) | | | (5,849 | ) |
Total | | $ | 1,308,317 | | | $ | 1,327,458 | |
6.4. Fair Value of Financial Instruments
Except as described below, the carrying value of the Company’s financial instruments approximates fair value due to the short-term nature of these financial instruments.
Debt
The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy. Market rates take into consideration general market conditions and maturity. As of June 30, 2017 and DecemberMarch 31, 2016,2018, both the carrying value and estimated fair value of the Company’s debt were approximately $1.3 billion. As of December 31, 2017, both the carrying value and estimated fair value of the Company’s debt were approximately $1.2 billion. Both the carrying value and estimated fair value of the Company’s debt (as discussed above) is net of unamortized debt issuance costs related to term loans and mortgage debt for each specific year.
Derivative Instruments
Currently, the Company uses interest rate swaps to manage its interest rate risks on variable rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one monthone-month LIBOR. The swaps are designed to effectively fix the interest payments on variable rate debt instruments. These swap instruments are recorded at fair value and if in an asset position, are included in other assets, net, and, if in a liability position, are included in accounts payable and other liabilities in the Company’s consolidated balance sheets. The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which is considered a Level 2 measurement under the fair value hierarchy. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The following table sets forth information for each of the Company’s interest rate swap agreements outstanding as of June 30, 2017March 31, 2018 and December 31, 2016.2017. All dollar amounts are in thousands.
Hedge Type | | Notional Amount at June 30, 2017 | | Origination Date | | Maturity Date | | Swap Fixed Interest Rate | | | Fair Value Asset (Liability) | |
| | | | | | June 30, 2017 | | | December 31, 2016 | |
Cash flow hedge | | $ | 212,500 | | 5/21/2015 | | 5/18/2020 | | | 1.58 | % | | $ | 262 | | | $ | (198 | ) |
Cash flow hedge | | | 110,000 | | 7/2/2015 | | 5/18/2020 | | | 1.62 | % | | | 12 | | | | (246 | ) |
Cash flow hedge | | | 50,000 | | 4/7/2016 | | 3/31/2021 | | | 1.09 | % | | | 1,169 | | | | 1,289 | |
Cash flow hedge | | | 100,000 | | 4/7/2016 | | 3/31/2023 | | | 1.33 | % | | | 3,250 | | | | 3,744 | |
Cash flow hedge (1) | | | 75,000 | | 5/31/2017 | | 6/30/2024 | | | 1.96 | % | | | 266 | | | | 0 | |
| | | | | | | | | | | | | $ | 4,959 | | | $ | 4,589 | |
(1) | In May 2017, the Company entered into a forward interest rate swap agreement with a commercial bank, which beginning on July 31, 2017 will effectively fix the interest rate on $75 million of the $85 million term loan. See Note 5 for more information on the term loan. |
| | | | | | | | | | | Fair Value Asset | |
| | Notional Amount at March 31, 2018 | | | | | | | | | | | | | |
Hedge Type | | | Origination Date | | Maturity Date | | Swap Fixed Interest Rate | | | March 31, 2018 | | | December 31, 2017 | |
Cash flow hedge | | $ | 212,500 | | 5/21/2015 | | 5/18/2020 | | | 1.58 | % | | $ | 3,478 | | | $ | 2,033 | |
Cash flow hedge | | | 110,000 | | 7/2/2015 | | 5/18/2020 | | | 1.62 | % | | | 1,709 | | | | 951 | |
Cash flow hedge | | | 50,000 | | 4/7/2016 | | 3/31/2021 | | | 1.09 | % | | | 2,007 | | | | 1,544 | |
Cash flow hedge | | | 100,000 | | 4/7/2016 | | 3/31/2023 | | | 1.33 | % | | | 5,819 | | | | 4,098 | |
Cash flow hedge | | | 75,000 | | 5/31/2017 | | 6/30/2024 | | | 1.96 | % | | | 2,724 | | | | 1,043 | |
Cash flow hedge | | | 10,000 | | 8/10/2017 | | 6/30/2024 | | | 2.01 | % | | | 333 | | | | 109 | |
| | $ | 557,500 | | | | | | | | | | $ | 16,070 | | | $ | 9,778 | |
The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. ChangesThe Company elected to early adopt ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, on January 1, 2018, using the modified retrospective approach for all of its hedging relationships that existed as of that date. As a result, effective January 1, 2018, the entire change in the fair value onof the effective portion of allCompany’s designated cash flow hedges areis recorded to accumulated other comprehensive income, a component of shareholders’ equity in the Company’s consolidated balance sheets. ChangesPrior to January 1, 2018, changes in fair value on the effective portion of all designated cash flow hedges were recorded to accumulated other comprehensive income, while changes in fair value on the ineffective portion of all designated cash flow hedges arewere recorded to interest and other expense, net in the Company’s consolidated statements of operations.
To adjust qualifyingSince prior to January 1, 2018 there was no material ineffectiveness related to the Company’s outstanding designated cash flow hedges, to their fair valuethe adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
The following table presents the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and recognize the impact of hedge accounting, the Company recorded net unrealized gains (losses) of approximately $(1.2) million and $(5.5) million duringcomprehensive income for the three months ended June 30,March 31, 2018 and 2017 and 2016, respectively, and approximately $0.4 million and $(12.2) million during the six months ended June 30, 2017 and 2016, respectively, to other comprehensive income (loss). There was no ineffectiveness recorded on designated cash flow hedges during the three and six months ended June 30, 2017 and 2016. (in thousands):
| | Net Unrealized Gain Recognized in Other Comprehensive Income | | | Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income to Interest and Other Expense, net | |
| | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Interest rate derivatives in cash flow hedging relationships | | $ | 6,348 | | | $ | 723 | | | $ | 56 | | | $ | (822 | ) |
Amounts reported in accumulated other comprehensive income will be reclassified to interest and other expense, net as interest payments are made or received on the Company’s variable-rate derivatives. Net unrealized gains (losses) on cash flow hedges recorded to other comprehensive income (loss) during the three months ended June 30, 2017 and 2016, include approximately $(0.6) million and $(0.9) million, respectively, and during the six months ended June 30, 2017 and 2016, include approximately $(1.4) million and $(1.9) million, respectively, reclassified from accumulated other comprehensive income to interest and other expense, net. The Company estimates that approximately $1.0$3.2 million of net unrealized gains (losses) included in accumulated other comprehensive income at June 30, 2017March 31, 2018 will be reclassified as a net increasedecrease to interest and other expense, net within the next 12 months.
7.5. Related Parties
The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. There have been no changes to the contracts and relationships discussed in the Company’s 2016 Annual Report on2017 Form 10-K. Below is a summary of the significant related party relationships in effect during the sixthree months ended June 30, 2017March 31, 2018 and 2016.2017.
Prior to the merger, Glade M. Knight, Executive Chairman of the Company, was Chairman and Chief Executive Officer of Apple Ten. Apple Ten’s advisors, Apple Ten Advisors, Inc. (“A10A”) andowns Apple Realty Group, Inc. (“ARG”), are wholly owned by Mr. Knight.which receives support services from the Company and reimburses the Company for the cost of these services as discussed below. Mr. Knight is also currently a partner and Chief Executive Officer of Energy 11 GP, LLC and Energy Resources 12 GP, LLC, which are the respective general partners of Energy 11, L.P. and Energy Resources 12, L.P. Justin G. Knight, the Company’s President and Chief Executive Officer, and a member, each of the Company’s Board of Directors, also served as President of Apple Ten prior to the merger.which receive support services from ARG.
Support Services to Apple Ten, A10A and ARG Prior to and After the Apple Ten Merger
Effective September 1, 2016, the Company completed its merger with Apple Ten. As contemplated in the Merger Agreement, in connection with the completion of the merger, the advisory and related party arrangements with respect to the Company, Apple Ten and Apple Ten’s advisors, A10A and ARG, were terminated. Prior to the merger, A10A subcontracted its obligations under the advisory agreement between A10A and Apple Ten to the Company. The Company provided to Apple Ten the advisoryprovides support services, contemplated under the A10A advisory agreement and received an annual advisory fee and was reimbursed by Apple Ten forincluding the use of the Company’s employees and corporate office, to ARG and other costs associated withis reimbursed by ARG for the advisory agreement. Additionally,cost of these services. The amounts reimbursed to the Company provided supportare based on the actual costs of the services to Apple Ten’s advisors, who agreed to reimburseand a good faith estimate of the Company for its costs in providing these services. Both the advisory fees and reimbursed costs receivedproportionate amount of time incurred by the Company from Apple Ten were recorded as general and administrative expense by Apple Ten and reductions to general and administrative expense by the Company and, therefore, the terminationCompany’s employees on behalf of the subcontract agreement had no financial impact on the combined company after the effective time of the merger. After the merger, the Company has continued and will continue to provide support services to ARG for activities unrelated to Apple Ten.
Prior to the merger, advisory fees earned by the Company from Apple Ten for the six months ended June 30, 2016 totaled approximately $1.2 million and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statement of operations.ARG. Total reimbursed costs received by the Company from these entitiesARG for the sixthree months ended June 30,March 31, 2018 and 2017 and 2016 (including Apple Ten, A10A and ARG prior to September 1, 2016 and ARG thereafter) totaled approximately $0.3$0.2 million and $1.7 million, respectively,in each period, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations. As of June 30, 2017 and December 31, 2016, total amounts due from ARG for reimbursements under the cost sharing structure totaled approximately $0.1 million and $0.2 million, respectively, and are included in other assets, net in the Company’s consolidated balance sheets.
As part of the cost sharing arrangement, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under this cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies. As of March 31, 2018 and December 31, 2017, total amounts due from ARG for reimbursements under the cost sharing structure each totaled approximately $0.3 million at each date, and are included in other assets, net in the Company’s consolidated balance sheets.
Apple Air Holding, LLC (“Apple Air”)13
The Company, through a wholly-owned subsidiary, Apple Air Holding, LLC, owns a Learjet used primarily for acquisition, asset management, renovation and public relations purposes. Prior to the merger, Apple Air was jointly owned by the Company (74%) and Apple Ten (26%), with Apple Ten’s ownership interest accounted for as a minority interest. Effective September 1, 2016, with the completion of the merger, the Company acquired Apple Ten’s 26% equity interest in Apple Air resulting in a 100% equity ownership interest in Apple Air and the elimination of Apple Ten’s minority interest.
The aircraft is also leased to affiliates of the Company based on third party rates, whichrates. Leasing activity to affiliates was not significant during the reporting periods. The Company also utilizes aircraft, owned through two entities, one of which is owned by the Company’s Executive Chairman, and the other, by its President and Chief Executive Officer, for acquisition, asset management, renovation and public relations purposes, and reimburses these entities at third party rates. Total amountscosts incurred for the use of these aircraft during the sixthree months ended June 30,March 31, 2018 and 2017 and 2016 were approximately $0.1$0.03 million in each period related to aircraft owned through these two entitiesand $0.04 million, respectively, and are included in general and administrative expenses in the Company’s consolidated statements of operations.
8.6. Shareholders’ Equity
Distributions
The Company’s current annual distribution rate, payable monthly, is $1.20 per common share. For the three months ended June 30,March 31, 2018 and 2017, and 2016, the Company paid distributions of $0.30 per common share for a total of $66.9$69.1 million and $52.4 million, respectively. For the six months ended June 30, 2017 and 2016, the Company paid distributions of $0.60 per common share for a total of $133.8 million and $104.7$66.9 million, respectively. Additionally, in June 2017,March 2018, the Company declared a monthly distribution of $0.10 per common share, totaling $22.3$23.0 million, which was recorded as a payable as of June 30, 2017March 31, 2018 and paid in July 2017.April 2018. As of December 31, 2016,2017, a monthly distribution of $0.10 per common share, totaling $22.3$23.0 million, was recorded as a payable and paid in January 2017.2018. These accrued distributions were included in accounts payable and other liabilities in the Company’s consolidated balance sheets.
Equity Distribution AgreementIssuance of Shares
OnIn February 28, 2017, the Company entered intoexecuted an equity distribution agreement with Robert W. Baird & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Canaccord Genuity Inc., FBR Capital Markets & Co., Jefferies LLC, KeyBanc Capital Markets Inc. and Scotia Capital (USA) Inc. (collectively, the “Sales Agents”), pursuant to whichthat allows the Company mayto sell, from time to time, up to an aggregate of $300 million of its common shares through the Sales Agentssales agents under an at-the-market offering program (the “ATM Program”). DuringSince inception of the sixATM Program in February 2017 through March 31, 2018, the Company has sold approximately 7.2 million common shares at a weighted-average market sales price of approximately $19.56 per common share and received aggregate gross proceeds of approximately $139.8 million before commission and issuance costs, including the sale of approximately 0.2 million common shares during the three months ended June 30, 2017,March 31, 2018 at a weighted-average market sales price of approximately $19.73 per common share and receipt of aggregate gross proceeds of approximately $4.8 million. The Company used the Company had no salesproceeds from the sale of these shares to pay down borrowings on its revolving credit facility. No shares were issued under the ATM Program during the three months ended March 31, 2017. As of March 31, 2018, approximately $160.2 million remained available for issuance under the ATM Program.
Share Repurchase ProgramRepurchases
In connection with the implementation of its ATM Program, in February 2017, the Company terminated its existing written trading plan under the Company’s share repurchase program. During the first sixthree months of 2016,2018, the Company purchased, under its $475 million share repurchase program (the “Share Repurchase Program”), approximately 20,0000.3 million of its common shares at a weighted-average market purchase price of approximately $18.10$16.89 per common share for an aggregate purchase price of approximately $0.4$4.3 million. The Company did not repurchasepurchase any common shares under its share repurchase programShare Repurchase Program during the first sixthree months of 2017. TheIn March 2018, the Company plans to continue to consider opportunisticestablished a new written trading plan as part of the Share Repurchase Program that provides for share repurchases in open market transactions that is intended to comply with Rule 10b5-1 under the $467.5Securities Exchange Act of 1934, as amended. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with availability under its revolving credit facility. As of March 31, 2018, approximately $463.2 million remaining portion ofremained available for repurchase under the authorized $475 million share repurchase program, which will depend on prevailing market conditions and other factors.Share Repurchase Program. The programShare Repurchase Program may be suspended or terminated at any time by the Company and as a result of an extension of the program approved by the Board of Directors in May 2017, will end in July 2018 if not terminated earlier.
9.7. Compensation Plans
In February 2017, the Compensation Committee of the Board of Directors (“Compensation Committee”) approvedThe Company annually establishes an executive incentive plan (“2017for its executive management. Under the incentive plan for 2018 (the “2018 Incentive Plan”), effective January 1, 2017, and established incentive goals for 2017. Under the 2017 Incentive Plan, participants are eligible to receive a bonus based on the achievement of certain 20172018 performance measures, consisting of operational performance metrics (including targeted Modified Funds from Operations per share, Comparable Hotels revenue per available room growth and Adjusted Hotel EBITDA Margin growth) and shareholder return metrics (including shareholder return relative to a peer group and total shareholder return, over one-year, two-year and two-yearthree-year periods). The components of the operational performance metrics and shareholder return metrics are equally weighted and the two metrics each account for 50% of the total target incentive compensation. The range of potential aggregate payouts under the 20172018 Incentive Plan is $0 - $18$20 million. Based on performance through June 30, 2017,March 31, 2018, the Company has accrued approximately $3.5$1.9 million as a liability for potential executive bonus payments under the 20172018 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of June 30, 2017. Compensation expense recognized by the Company under the 2017 Incentive Plan is includedMarch 31, 2018 and in general and administrative expenseexpenses in the Company’s consolidated statementsstatement of operations and totaled approximately $1.4 million and $3.5 million for the three and six months ended June 30, 2017, respectively.March 31, 2018. Approximately 25% of awards under the 20172018 Incentive Plan, if any, will be paid in cash, and 75% will be issued in stock under the Company’s 2014 Omnibus Incentive Plan, approximately two-thirds of which wouldwill vest at the end of 20172018 and one-third of which wouldwill vest atin December 2019. Under the end of 2018. During 2016 and 2015, comparable executive incentive plans were approved by the Compensation Committee (“2016 Incentive Plan” and “2015plan for 2017 (the “2017 Incentive Plan”) that were effective January 1, 2016 and January 1, 2015, respectively. The, the Company recorded approximately $1.7 million and $3.6$2.0 million in general and administrative expense related to the 2016 Incentive Planexpenses in the Company’s consolidated statementsstatement of operations for the three and six months ended June 30, 2016, respectively.March 31, 2017.
Share Based Compensation Awards
During the first quarters of 20172018 and 2016,2017, the Company issued 101,305367,333 and 304,345101,305 common shares earned under the 2017 Incentive Plan and the incentive plan for 2016 and 2015(the “2016 Incentive PlansPlan”) (net of 19,66748,533 and 11,78719,667 common shares surrendered to satisfy tax withholding obligations) at $19.10$16.92 and $19.87$19.10 per share, or approximately $2.3$7.0 million and $6.3$2.3 million in share based compensation, including the surrendered shares, respectively. Of the total shares issued under the 2017 Incentive Plan, 223,421 shares were unrestricted at the time of issuance, and the remaining 143,912 restricted shares will vest on December 14, 2018. Of the total shares issued under the 2016 Incentive Plan, 60,028 shares were unrestricted at the time of issuance, and the remaining 41,277 restricted shares will vestvested on December 15, 2017. Of the total shares issued under the 2015 Incentive Plan, 146,279 shares were unrestricted at the time of issuance, and the remaining 158,066 restricted shares vested on December 31, 2016,2017, of which 50,04413,129 common shares were surrendered to satisfy tax withholding obligations. Of the total 20162017 share based compensation, approximately $1.9$5.8 million was recorded as a liability as of December 31, 2016,2017, which was included in accounts payable and other liabilities in the Company’s consolidated balance sheet and the remaining $0.4$1.2 million, which is subject to vesting on December 15, 2017,14, 2018, will be recognized as compensation expense proportionately throughout 2017.2018. Of the total 20152016 share based compensation, approximately $1.6$0.4 million, which vested on December 31, 2016,15, 2017, was recognized as compensation expense proportionately throughout 2016.2017. For the three months ended June 30,March 31, 2018 and 2017, and 2016, the Company recognized approximately $0.1$0.3 million and $0.4 million, respectively, and for the six months ended June 30, 2017 and 2016, the Company recognized approximately $0.2 million and $0.8$0.1 million, respectively, of share based compensation expense related to the unvested restricted share awards.
10.
8. Legal Proceedings
Quinn v. Knight, et al.
As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”), on July 19, 2016, a purported shareholder of Apple Ten, now part of the Company, commenced a derivative action in the United States District Court for the Eastern District of Virginia. On November 2, 2016, the parties reached an agreement in principle to settle the litigation, which the Court approved by order dated March 16, 2017. In January 2017, the Company funded the settlement amount of $32 million, which was included in accounts payable and other liabilities in its consolidated balance sheet as of December 31, 2016, and received $10 million of proceeds from its director and officer insurance carriers, which was included in other assets, net in its consolidated balance sheet as of December 31, 2016 and the net $22 million was included in transaction and litigation costs (reimbursements) in the Company’s consolidated statement of operations for the year then ended. In May 2017, the Company received an additional $2.6 million of proceeds from its director and officer insurance carriers, which was included as a reduction in transaction and litigation costs (reimbursements) in the Company’s consolidated statements of operations for the three and six months ended June 30, 2017. The Company does not anticipate additional costs or reimbursements related to this litigation.
Moses, et al. v. Apple Hospitality REIT, Inc., et al.
As previously disclosed in the 20162017 Form 10-K, on April 22, 2014, Plaintiff Susan Moses, purportedly a purported shareholder of Apple REIT Seven, Inc. (“Apple Seven”) and Apple REIT Eight, Inc. (“Apple Eight”), filed a class action against the Company and several individual directors on behalf of all then-existing shareholders and former shareholders of Apple Seven and Apple Eight, who purchased additional shares under the Dividend Reinvestment Plans (“DRIP”) of Apple Seven, Apple Eight and the Company between July 17, 2007 and February 12, 2014.2014 (the “2014 DRIP litigation”). In January 2017, the parties reached an agreement in principle to settle the litigation forwhich the court approved by order dated March 27, 2018. In January 2018, the Company funded the settlement amount of $5.5 million, which settlement remains subject to final court approval, and was included in accounts payable and other liabilities in the Company’s consolidated balance sheetssheet as of December 31, 2016 and June 30, 2017, and in transaction and litigation costs (reimbursements) in the Company’s consolidated statement of operations for the year ended December 31, 2016. At this time, no assurance can be given that the proposed settlement will be approved, and therefore the actual loss incurred could be in excess of the amount accrued as of June 30, 2017.
Wilchfort, et al. v. Apple Hospitality REIT, Inc., et al.
OnAs previously disclosed in the 2017 Form 10-K, on February 24, 2017, Plaintiff Marsha Wilchfort, purportedly a purported shareholder of Apple REIT Six, Inc. (“Apple Six”), Apple Seven and Apple Eight, filed a class action against, among others, the Company and the former individual directors of Apple Six, Apple Seven and Apple Eight, including Mr. Glade Knight (“the Apple REIT Defendants”), on behalf of all then-existing shareholders and former shareholders of Apple Six, Apple Seven and Apple Eight, who purchased additional shares under Apple Six’s, Apple Seven’s and Apple Eight’s DRIP between July 17, 2007 and December 2012 (in the case of Apple Six shareholders) or June 30, 2013 (in the case of Apple Seven and Apple Eight shareholders). The complaint was filed in the United States District Court for the Eastern District of New York and alleges, among other items, breach of contract under Virginia law, tortious interference and breach of implied duty of good faith and fair dealing. The complaint alleges that the prices at which Plaintiff and the purported class members purchased additional shares through the DRIPs were not indicativeOn May 1, 2018, all of the true value ofApple REIT Defendants were dismissed from the units of Apple Six, Apple Seven and Apple Eight.complaint without prejudice by the plaintiff.
The Company believes that Plaintiff’s claims are without merit and intends to defend this case vigorously. At this time, the Company cannot reasonably predict the outcome of this proceeding or provide a reasonable estimate of the possible loss or range of loss due to this proceeding, if any.
11.9. Subsequent Events
In July 2017,April 2018, the Company paid approximately $22.3$23.0 million, or $0.10 per outstanding common share, in distributions to its common shareholders.
In July 2017,April 2018, the Company declared a regular monthly cash distribution of $0.10 per common share for the month of August 2017.May 2018. The distribution is payable on AugustMay 15, 2017.2018.
In April 2018, the Company, through one of its indirect wholly-owned subsidiaries, entered into a purchase contract for the purchase of all of the ownership interests in a limited liability company which plans to construct a dual-branded Hampton Inn & Suites and Home2 Suites by Hilton property in Cape Canaveral, Florida, with a combined total of 224 guest rooms for a purchase price of approximately $46.7 million. Although the Company is working towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied, and there can be no assurance that a closing on these hotels will occur.
On July 25, 2017,May 2, 2018, the Company entered into the $85 million term loan with a syndicate of commercial banks, with a maturity date of July 25, 2024. The Company used the proceeds, net of closing costs, to pay down the borrowingsclosed on the Company’s revolving credit facility. See Note 5purchase of a newly constructed 210-room Hampton Inn & Suites in Phoenix, Arizona, the same day the hotel opened for additional information related to the $85 million term loan.business. The gross purchase price was approximately $44.3 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by use of termsstatements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “outlook,” “strategy,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Apple Hospitality REIT, Inc. (the “Company”)the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties; the ability of the Company to successfully integrate pending transactions and implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions; adverse changes in the real estate and real estate capital markets; financing risks; the outcome of current and future litigation, including any legal proceedings that have been or may be instituted against the Company or others; regulatory proceedings or inquiries; and changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a real estate investment trust (“REIT”).REIT. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code. Readers should carefully review the risk factors described in the Company’s filings with the Securities and Exchange Commission (“SEC”), including but not limited to those discussed in the section titled “Risk Factors” in the Company’s Annual Report on2017 Form 10-K for the year ended December 31, 2016.10-K. Any forward-looking statement that the Company makes speaks only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events, or otherwise, except as required by law.
The following discussion and analysis should be read in conjunction with the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the information contained in the Company’s Annual Report on2017 Form 10-K for the year ended December 31, 2016.10-K.
Overview
The Company is a Virginia corporation that has elected to be treated as a REIT for federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the United States. As of June 30, 2017,March 31, 2018, the Company owned 235241 hotels with an aggregate of 29,97830,585 rooms located in urban, high-end suburban and developing markets throughout 3334 states. All of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 2223 hotel management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the New York Stock ExchangeNYSE under the ticker symbol “APLE.”
Investing2018 Hotel Portfolio Activities
The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value inover the long term. Consistent with this strategy and the Company’s focus on investing in select-service hotels, the Company acquired two hotels for an aggregate purchase price of approximately $63.0 million during the first three months of 2018: a newly constructed 124-room Courtyard by Marriott hotel119-room Hampton Inn & Suites in Fort Worth, Texas on FebruaryAtlanta, Georgia and a 144-room Hampton Inn & Suites in Memphis, Tennessee. On May 2, 2017,2018, the same day the hotel opened for business, the Company acquired a 210-room Hampton Inn & Suites in Phoenix, Arizona for a purchase price of approximately $18.0$44.3 million. The purchase price for this property was funded through borrowings on the Company’s $540 million revolving credit facility (the “revolving credit facility”). As of June 30, 2017,May 2, 2018, the Company also had outstanding contracts for the potential purchase of four additionalthree hotels that were under construction for a total purchase price of approximately $103.3 million. These hotels are under construction and are$67.4 million, including a 128-room Home2 Suites in Orlando, Florida which is planned to be completed and opened for business overin the next threefourth quarter of 2018, and a combined 224-room dual-branded Hampton Inn & Suites and Home2 Suites by Hilton property in Cape Canaveral, Florida which is planned to 15 months from June 30, 2017, at which time closing on these hotels is expectedbe completed and opened for business in 2020. The Company utilized its revolving credit facility to occur.fund the completed acquisitions and plans to utilize the revolving credit facility for any additional acquisitions.
Additionally, for its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided by the proceeds from the sale of the property. As a result, on April 20, 2017, the Company completed the sale of its 224-room Hilton hotel in Dallas, Texas, which was classified as held for sale as of December 31, 2016, for approximately $56.1 million, resulting in a gain of approximately $16.1 million, which is included in the Company’s consolidated statements of operations for the three and six months ended June 30, 2017. The net proceeds from the sale of the Dallas, Texas Hilton were used to pay down borrowings on the Company’s revolving credit facility. Also, in June 2017, the Company entered into a purchase and sale agreement for the sale of its 316-room Marriott hotel in Fairfax, Virginia for a gross sales price of $42.0 million. The contract is subject to a number of conditions to closing and therefore there can be no assurance that a closing will occur. If the closing occurs, the sale is expected to be completed within six months from June 30, 2017. See Note 32 titled “Investment in Real Estate” and Note 49 titled “Dispositions”“Subsequent Events” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning these transactions.
Hotel Operations
Although hotel performance can be influenced by many factors including local competition, local and general economic conditions in the United States and the performance of individual managers assigned to each hotel, performance of the Company’s hotels as compared to other hotels within their respective local markets, in general, has met the Company’s expectations for the period owned. Over the most recent quarters,past several years, the lodging industry and the Company have experienced no to low single-digitmodest revenue growth. Moderate improvements in the general U. S.U.S. economy have been partially offset by increased supply in many markets. With modest revenue growth, the Company has produced stable operating results during the first halfthree months of 20172018 on a comparable basis (as defined below) with expense increases generally offsetting revenue growth. There is no way to predict future economic conditions, and there are certaincontinue to be additional factors that could negatively affect the lodging industry and the Company, including but not limited to, increased hotel supply in certain markets, labor uncertainty both for the economy as a whole and the lodging industry in particular, global volatility and government fiscal policies. The Company, on a comparable basis, and industry are forecasting a low single-digitsingle digit percentage increase in revenue for the full year of 20172018 as compared to 2016.2017. The Company’s revenueanticipated low growth rate for comparable hotels in 2017 is anticipated to be lower than the growth achieved in 2016, primarily due to inconsistent demand in certain markets and increased hotel supply meeting demand growth in others, limiting the Company’s ability to increase rates.
As of March 31, 2018, the Company owned 241 hotels with a total of 30,585 rooms as compared to 236 hotels with a total of 30,203 rooms as of March 31, 2017, however, results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and prior year. During the three months ended March 31, 2018, the Company acquired two existing hotels (both on February 5, 2018). During 2017, the Company acquired three newly constructed hotels (one on February 2, 2017 and two on September 12, 2017) and three existing hotels (one on October 13, 2017, one on October 20, 2017 and one on December 1, 2017), and sold two hotels (one on April 20, 2017 and one on October 5, 2017). As a result, the comparability of results for the three months ended March 31, 2018 and 2017 as discussed below is impacted by these transactions.
In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”), and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below.
As of June 30, 2017, the Company owned 235 hotels with 29,978 rooms as compared to 179 hotels with a total of 22,961 rooms as of June 30, 2016. Results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and prior year. During the six months ended June 30, 2017, the Company acquired one newly constructed hotel on February 2, 2017, and sold one hotel on April 20, 2017. During 2016, the Company acquired 56 hotels in the Apple REIT Ten, Inc. (“Apple Ten”) merger effective September 1, 2016 (the “Apple Ten merger”), acquired one additional newly constructed hotel on July 1, 2016 and sold one hotel on December 6, 2016. As a result, the comparability of results for the three and six months ended June 30, 2017 and 2016 as discussed below is significantly impacted by these transactions.
The following is a summary of the results from operations of the Company’s hotels for their respective periods of ownership by the Company.
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | Three Months Ended March 31, | |
(in thousands, except statistical data) | | 2017 | | | Percent of Revenue | | | 2016 | | | Percent of Revenue | | | Percent Change | | | 2017 | | | Percent of Revenue | | | 2016 | | | Percent of Revenue | | | Percent Change | | | 2018 | | | Percent of Revenue | | | 2017 | | | Percent of Revenue | | | Percent Change | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenue | | $ | 331,704 | | | | 100.0 | % | | $ | 257,636 | | | | 100.0 | % | | | 28.7 | % | | $ | 624,629 | | | | 100.0 | % | | $ | 482,123 | | | | 100.0 | % | | | 29.6 | % | | $ | 298,389 | | | | 100.0 | % | | $ | 292,925 | | | | 100.0 | % | | | 1.9 | % |
Hotel operating expense | | | 180,012 | | | | 54.3 | % | | | 137,416 | | | | 53.3 | % | | | 31.0 | % | | | 348,466 | | | | 55.8 | % | | | 264,628 | | | | 54.9 | % | | | 31.7 | % | | | 172,329 | | | | 57.8 | % | | | 168,454 | | | | 57.5 | % | | | 2.3 | % |
Property taxes, insurance and other expense | | | 17,821 | | | | 5.4 | % | | | 13,076 | | | | 5.1 | % | | | 36.3 | % | | | 34,748 | | | | 5.6 | % | | | 25,528 | | | | 5.3 | % | | | 36.1 | % | | | 17,229 | | | | 5.8 | % | | | 16,927 | | | | 5.8 | % | | | 1.8 | % |
Ground lease expense | | | 2,839 | | | | 0.9 | % | | | 2,506 | | | | 1.0 | % | | | 13.3 | % | | | 5,655 | | | | 0.9 | % | | | 4,972 | | | | 1.0 | % | | | 13.7 | % | | | 2,850 | | | | 1.0 | % | | | 2,816 | | | | 1.0 | % | | | 1.2 | % |
General and administrative expense | | | 6,151 | | | | 1.9 | % | | | 5,060 | | | | 2.0 | % | | | 21.6 | % | | | 12,905 | | | | 2.1 | % | | | 9,888 | | | | 2.1 | % | | | 30.5 | % | | | 6,877 | | | | 2.3 | % | | | 6,754 | | | | 2.3 | % | | | 1.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transaction and litigation costs (reimbursements) | | | (2,586 | ) | | | | | | | 1,116 | | | | | | | | n/a | | | | (2,586 | ) | | | | | | | 1,409 | | | | | | | | n/a | | |
Loss on impairment of depreciable real estate assets | | | - | | | | | | | | - | | | | | | | | n/a | | | | 7,875 | | | | | | | | - | | | | | | | | n/a | | | | - | | | | | | | | 7,875 | | | | | | | | n/a | |
Depreciation expense | | | 43,893 | | | | | | | | 33,824 | | | | | | | | 29.8 | % | | | 87,660 | | | | | | | | 67,308 | | | | | �� | | | 30.2 | % | | | 44,840 | | | | | | | | 43,767 | | | | | | | | 2.5 | % |
Interest and other expense, net | | | 11,849 | | | | | | | | 9,560 | | | | | | | | 23.9 | % | | | 23,566 | | | | | | | | 18,363 | | | | | | | | 28.3 | % | | | 11,919 | | | | | | | | 11,717 | | | | | | | | 1.7 | % |
Gain on sale of real estate | | | 16,140 | | | | | | | | - | | | | | | | | n/a | | | | 16,140 | | | | | | | | - | | | | | | | | n/a | | |
Income tax expense | | | 259 | | | | | | | | 360 | | | | | | | | -28.1 | % | | | 509 | | | | | | | | 623 | | | | | | | | -18.3 | % | | | 163 | | | | | | | | 250 | | | | | | | | -34.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Number of hotels owned at end of period | | | 235 | | | | | | | | 179 | | | | | | | | 31.3 | % | | | 235 | | | | | | | | 179 | | | | | | | | 31.3 | % | | | 241 | | | | | | | | 236 | | | | | | | | 2.1 | % |
ADR | | $ | 137.56 | | | | | | | $ | 138.16 | | | | | | | | -0.4 | % | | $ | 135.58 | | | | | | | $ | 135.79 | | | | | | | | -0.2 | % | | $ | 134.32 | | | | | | | $ | 133.39 | | | | | | | | 0.7 | % |
Occupancy | | | 81.5 | % | | | | | | | 82.2 | % | | | | | | | -0.9 | % | | | 78.0 | % | | | | | | | 78.2 | % | | | | | | | -0.3 | % | | | 74.6 | % | | | | | | | 74.4 | % | | | | | | | 0.3 | % |
RevPAR | | $ | 112.10 | | | | | | | $ | 113.59 | | | | | | | | -1.3 | % | | $ | 105.70 | | | | | | | $ | 106.13 | | | | | | | | -0.4 | % | | $ | 100.18 | | | | | | | $ | 99.27 | | | | | | | | 0.9 | % |
Comparable Hotels Operating Results
The following table reflects certain operating statistics for the Company’s 235241 hotels owned as of June 30, 2017March 31, 2018 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 235241 hotels owned as of the end of the reporting period. For the hotels acquired during the current reporting period and prior year, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company. This information has not been audited, either for the periods owned or prior to ownership by the Company. For dispositions, results have been excluded for the Company’s period of ownership.
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | Three Months Ended March 31, | |
| | 2017 | | | 2016 | | | Percent Change | | | 2017 | | | 2016 | | | Percent Change | | | 2018 | | | 2017 | | | Percent Change | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
ADR | | $ | 137.53 | | | $ | 137.08 | | | | 0.3 | % | | $ | 135.42 | | | $ | 134.99 | | | | 0.3 | % | | $ | 134.43 | | | $ | 133.25 | | | | 0.9 | % |
Occupancy | | | 81.5 | % | | | 81.9 | % | | | -0.5 | % | | | 78.0 | % | | | 77.8 | % | | | 0.3 | % | | | 74.6 | % | | | 74.5 | % | | | 0.1 | % |
RevPAR | | $ | 112.08 | | | $ | 112.27 | | | | -0.2 | % | | $ | 105.59 | | | $ | 104.97 | | | | 0.6 | % | | $ | 100.23 | | | $ | 99.31 | | | | 0.9 | % |
Same Store Operating Results
The following table reflects certain operating statistics for the Company’s 233 hotels owned by the Company as of January 1, 2017 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.
| | Three Months Ended March 31, | |
| | 2018 | | | 2017 | | | Percent Change | |
| | | | | | | | | |
ADR | | $ | 134.26 | | | $ | 132.98 | | | | 1.0 | % |
Occupancy | | | 74.8 | % | | | 74.7 | % | | | 0.1 | % |
RevPAR | | $ | 100.37 | | | $ | 99.31 | | | | 1.1 | % |
As discussed above, hotel performance is impacted by many factors, including the economic conditions in the United States as well as each individual locality. Economic indicators in the United States have generally been favorable, which has been partially offset by increased supply in many of the Company’s markets. As a result, the Company’s revenue and operating results for its Comparable Hotels and Same Store Hotels experienced modest growth during the first quarter of 2018 as compared to 2017. The Company expects continued modest improvement in both revenue and operating results for its Comparable Hotels in 2018 as compared to 2017. The Company’s hotels in general have shown results consistent with industry and brand averages for the period of ownership. During the first quarter of 2018, revenue growth from the leisure travel sector of the industry was estimated to be stronger than from the business travel sector as a result of the shift of the Easter holiday to March and April in 2018. With a greater proportion of its revenue generated from business travel as compared to leisure travel, the Company’s growth was slightly below industry averages.
Revenues
The Company’s principal source of revenue is hotel revenue consisting of room and other related revenue. For the three months ended June 30,March 31, 2018 and 2017, and 2016, the Company had total revenue of $331.7$298.4 million and $257.6 million, respectively. For the six months ended June 30, 2017 and 2016, the Company had total revenue of $624.6 million and $482.1$292.9 million, respectively. For the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively, Comparable Hotels achieved combined average occupancy of 81.5%74.6% and 81.9%74.5%, ADR of $137.53$134.43 and $137.08$133.25 and RevPAR of $112.08$100.23 and $112.27. For the six months ended June 30, 2017 and 2016, respectively, Comparable Hotels achieved combined average occupancy of 78.0% and 77.8%, ADR of $135.42 and $134.99 and RevPAR of $105.59 and $104.97.$99.31. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.
Compared to the same periods in 2016, duringDuring the first halfquarter of 2017,2018, the Company experienced a modest increasesincrease in occupancyADR and ADR,stable occupancy, resulting in a 0.6%0.9% increase in RevPAR for Comparable Hotels and, duecompared to a slight decrease in occupancy in the second quarter of 2017, the Company experienced a 0.2% decline in RevPAR for the second quarter. Both periods’ RevPAR growth was slightly below industry averages. The Company’s growth was impacted in both the second quarter and first six months of 2017 by a decline in the Los Angeles market due to outsized growth in 2016 from the Porter Ranch gas leak. The second quarter was also impacted by the shifting of the Easter holiday to the second quarter of 2017 versus the first quarter of 2016. The Company anticipates that with its geographically diverse portfolio of upscale and upper midscale select-service hotels, on a comparable basis, overall RevPAR growth for the remainder of the year will approximate industry averages. Although certain markets will vary based on local supply/demand dynamics and local market economic conditions, with continued overall room rate improvement combined with expected stable overall demand growth compared to supply growth, the Company, on a comparable basis, and industry are forecasting a low single-digit percentage increase in revenue for the full year of 2017 as compared to 2016.2017. Markets with above average growth in the secondfirst quarter and first half of 20172018 for the Company and industry included Richmond, Orlando, Seattle, Kansas City, San DiegoFort Worth, Texas, Knoxville, Tennessee, Norfolk/Virginia Beach, Virginia and Norfolk/Virginia Beach.South Florida. Markets that were below average for the Company and industry included Dallas,Austin, Texas, Kansas City, Missouri, Omaha, HoustonNebraska and Miami.Washington, D.C.
Hotel Operating Expense
Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. For the three months ended June 30,March 31, 2018 and 2017, and 2016, respectively, hotel operating expense totaled $180.0$172.3 million and $137.4$168.5 million or 54.3%57.8% and 53.3%57.5% of total revenue for each respective period. For the six months ended June 30, 2017 and 2016, respectively, hotel operating expense totaled $348.5 million and $264.6 million or 55.8% and 54.9% of total revenue for each respective period. Overall hotel operational expenses for the first six months of 2017 include the results of the 57 hotels acquired during 2016, including one hotel acquired on July 1, 2016 and 56 hotels acquired with the Apple Ten merger effective September 1, 2016, for the full period and one hotel acquired on February 2, 2017 from the date of acquisition. Expenses for 2017 also include the results of one hotel sold on April 20, 2017 until the date of sale. Expenses for the first six months of 2016 include the results of one hotel sold on December 6, 2016 and the hotel sold on April 20, 2017 for the full period. For the Company’s Comparable Hotels, hotel operating expense as a percentage of revenue increased approximately 140 and 13050 basis points respectively, for the three and six months ended June 30, 2017March 31, 2018 as compared to the same periodsperiod in 2016. During the first half of 2017, the Company experienced increases2017. Increases in labor costs as a percentage of revenue whichduring the first quarter of 2018 as compared to the same period in 2017 was the primary cause of the increase inincreased hotel operating expense. The Company anticipates continued increases in labor costs are likely to continue to grow at increased rates due to government regulations surrounding wages, healthcare and other benefits, and other wage-related initiatives which could negatively impact operating expenses in certain markets moving forward. Additionally, labor costs have been and could be impacted in certain markets due to lower unemployment rates. With less qualified available labor, costs have increased. Although operating expenses will increase as revenue increases, the Company will continue to work with its management companies to reduce costs as a percentage of revenue where possible while maintaining quality and service levels at each property.
Property Taxes, Insurance and Other Expense
Property taxes, insurance, and other expense for the three months ended June 30,March 31, 2018 and 2017 and 2016 totaled $17.8$17.2 million and $13.1$16.9 million, respectively, or 5.4% and 5.1% of total revenue, respectively, and for Comparable Hotels, 5.4% and 5.2%5.8% of total revenue for each respective period. For the six months ended June 30, 2017 and 2016, property taxes, insurance and other expense totaled $34.7 million and $25.5 million, respectively, or 5.6% and 5.3% of total revenue, respectively,period, and for Comparable Hotels, 5.6% and 5.5%5.8% of total revenue for each respective period. For the Company’s Comparable Hotels, real estate taxes increased slightly during the first halfthree months of 20172018 compared to the first halfthree months of 2016,2017, with tax increases at certain locations due to the reassessment of property values by localities related to the improved economy, partially offset by decreases at other locations due to successful appeals of tax assessments. With the economy continuing to improve, the Company anticipates continued increases in property tax assessments during the remainder of 2017.2018. The Company will continue to appeal tax assessments in certain jurisdictions to attempt to minimize tax increases as warranted.
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Additionally, due to increased losses in 2017 for property insurance carriers, the Company’s property insurance costs are anticipated to increase slightly as a percentage of revenue for the full year of 2018 as compared to 2017.
Ground Lease Expense
Ground lease expense for the three months ended June 30,March 31, 2018 and 2017 and 2016 was $2.8$2.9 million and $2.5 million, respectively. For the six months ended June 30, 2017 and 2016, ground lease expense was $5.7 million and $5.0$2.8 million, respectively. Ground lease expense primarily represents the expense incurred by the Company to lease land for 14 of its hotel properties, including four acquired in the Apple Ten merger effective September 1, 2016.properties.
General and Administrative Expense
General and administrative expense for the three months ended June 30,March 31, 2018 and 2017 and 2016 was $6.2$6.9 million and $5.1$6.8 million, respectively, or 1.9% and 2.0%2.3% of total revenue respectively. For the six months ended June 30, 2017 and 2016, general and administrative expense was $12.9 million and $9.9 million, respectively, or 2.1% of total revenue infor each respective period. The principal components of general and administrative expense are payroll and related benefit costs, legal fees, accounting fees and reporting expenses. In addition, during the first six months of 2016, the Company provided to Apple Ten the advisory services contemplated under their advisory agreement, and the Company received fees and reimbursement of expenses payable under the advisory agreement from Apple Ten totaling approximately $2.7 million, which were recorded as reductions to general and administrative expenses. Effective September 1, 2016, in connection with the completion of the Apple Ten merger, the advisory agreement was terminated and the Company no longer receives the fees and reimbursement of expenses payable under the advisory agreement from Apple Ten, which resulted in an increase in the Company’s general and administrative expenses from the prior period. Although expense for the Company in total dollars increased from the prior period, since both the advisory fees and reimbursed costs received by the Company from Apple Ten were recorded as general and administrative expense by Apple Ten and as reductions to general and administrative expense by the Company, the termination of the advisory agreement had no financial impact on the combined company after the effective time of the Apple Ten merger.
Transaction and Litigation Costs (Reimbursements)
During the three and six months ended June 30, 2017, transaction and litigation costs (reimbursements) each totaled approximately $(2.6) million which primarily related to the additional proceeds received from the Company’s directors and officers insurance carriers in connection with the Apple Ten merger litigation, as discussed herein. During the three and six months ended June 30, 2016, transaction and litigation costs (reimbursements) were approximately $1.1 million and $1.4 million, respectively, and consisted primarily of costs related to the Apple Ten merger discussed herein totaling approximately $1.0 million and $1.2 million, respectively, and other acquisition related costs totaling approximately $0.2 million and $0.3 million, respectively. On January 1, 2017, the Company adopted the newly issued accounting standard on business combinations that modifies the definition of a business. Under the new guidance, acquisition of hotel properties will generally be accounted for as an acquisition of a group of assets with transaction costs associated with the acquisition capitalized as part of the cost of the asset acquired instead of expensed in the period they are incurred. In accordance with this standard, the Company capitalized approximately $0.1 million in transaction costs related to the acquisition of the Fort Worth, Texas hotel during the six months ended June 30, 2017.
Loss on Impairment of Depreciable Real Estate Assets
The Company did not experience any loss on impairment of depreciable real estate assets for the three months ended March 31, 2018. Loss on impairment of depreciable real estate assets was approximately $7.9 million for the sixthree months ended June 30,March 31, 2017, and related to the Columbus, Georgia SpringHill Suites and TownePlace Suites hotelstwo properties that the Company identified for potential sale during the first quarter of 2017. See Note 32 titled “Investment in Real Estate” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning this impairment loss.
Depreciation Expense
Depreciation expense for the three months ended June 30,March 31, 2018 and 2017 and 2016 was $43.9$44.8 million and $33.8 million, respectively. For the six months ended June 30, 2017 and 2016, depreciation expense was $87.7 million and $67.3$43.8 million, respectively. Depreciation expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for their respective periods owned. The increase was primarily due to the increase in the number of properties owned as a result of the Apple Ten merger effective September 1, 2016, the acquisition of one hotel eachtwo hotels in February 20172018 and July 2016six hotels in 2017 and renovations completed throughout 20172018 and 2016.2017.
Interest and Other Expense, net
Interest and other expense, net for the three months ended June 30,March 31, 2018 and 2017 and 2016 was $11.8$11.9 million and $9.6$11.7 million, respectively, and is net of approximately $0.1$0.5 million in each respective period, of interest capitalized associated with renovation projects. ForAlthough average outstanding debt was less in the six months ended June 30,first quarter of 2018 as compared to the first quarter of 2017, and 2016, interest and other expense, net was $23.6 million and $18.4 million, respectively, and is net of approximately $0.6 million and $1.0 million of interest capitalized associated with renovation projects, respectively. The increase in interest expense was primarily due toincreased slightly as a result of an increase in the Company’s average outstanding borrowingseffective interest rate during the first halfquarter of 20172018 as compared to 2016 which is primarily attributable2017, due to (a) mortgagethe issuance of longer term fixed-rate debt assumed insubsequent to March 31, 2017, which was used to reduce the Apple Ten merger effective September 1, 2016 and (b) borrowings to fund (i) the cash payment portion of the Apple Ten merger, (ii) the repayment of Apple Ten’s outstanding balance on its extinguishedCompany’s revolving credit facility, assumedresulting in the Apple Ten merger and (iii) the acquisition of two hotels (one in July 2016 and one in February 2017); which increases were partially offset by the sale of two hotels (one in December 2016 and one in April 2017). The impact ofa higher debt balances and the increasing cost of variable rate debt was partially offset by a reduction in the average interest rate incurredthan the variable-rate borrowings repaid, and (b) an increase in interest rates on the Company’s totalvariable-rate debt, with the one-month LIBOR increasing from 0.98% at March 31, 2017 to 1.88% at March 31, 2018. While approximately 79% of the Company’s outstanding debt resulting fromwas effectively fixed rate at March 31, 2018, the repaymentCompany does expect interest costs to continue to increase for the remainder of maturing fixed-rate mortgage debt with lower2018 due to increased rates for its remaining variable rate borrowings primarily from its $150 million term loan facility and new mortgage debt originations.debt.
Non-GAAP Financial Measures
The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations (“FFO”), Modified FFO (“MFFO”), Earnings before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), and Adjusted EBITDA (“Adjusted EBITDA”). These non-GAAP financial measures should be considered along with, but not as alternatives to, net income, cash flow from operations or any other operating GAAP measure. FFO, MFFO, EBITDA and Adjusted EBITDA are not necessarily indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. Although FFO, MFFO, EBITDA and Adjusted EBITDA, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA and Adjusted EBITDA as reported by other companies that do not define such terms exactly as the Company defines such terms, the Company believes these supplemental measures are useful to investors when comparing the Company’s results between periods and with other REITs.
FFO and MFFO
The Company calculates and presents FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”Nareit”), which defines FFO as net income (computed in accordance with generally accepted accounting principles (“GAAP”))GAAP), excluding gains or losses from sales of real estate, extraordinary items as defined by GAAP, and the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the NAREITNareit definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.
The Company further adjusts FFO for certain additional items that are not in NAREIT’s definition of FFO, including: (i) the exclusion of transaction and litigation costs (reimbursements) as these costs do not represent ongoing operations and (ii) the exclusion of non-cash straight-line ground lease expense as this expense does not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.
The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three and six months ended June 30,March 31, 2018 and 2017 and 2016 (in thousands).
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | Three Months Ended March 31, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2018 | | | 2017 | |
Net income | | $ | 87,606 | | | $ | 54,718 | | | $ | 121,971 | | | $ | 89,404 | | | $ | 42,182 | | | $ | 34,365 | |
Depreciation of real estate owned | | | 43,664 | | | | 33,594 | | | | 87,201 | | | | 66,848 | | | | 44,610 | | | | 43,537 | |
Gain on sale of real estate | | | (16,140 | ) | | | - | | | | (16,140 | ) | | | - | | |
Loss on impairment of depreciable real estate assets | | | - | | | | - | | | | 7,875 | | | | - | | | | - | | | | 7,875 | |
Amortization of favorable and unfavorable leases, net | | | 168 | | | | 119 | | | | 333 | | | | 381 | | | | 206 | | | | 165 | |
Funds from operations | | | 115,298 | | | | 88,431 | | | | 201,240 | | | | 156,633 | | | | 86,998 | | | | 85,942 | |
Transaction and litigation costs (reimbursements) | | | (2,586 | ) | | | 1,116 | | | | (2,586 | ) | | | 1,409 | | |
Non-cash straight-line ground lease expense | | | 938 | | | | 817 | | | | 1,877 | | | | 1,636 | | | | 904 | | | | 939 | |
Modified funds from operations | | $ | 113,650 | | | $ | 90,364 | | | $ | 200,531 | | | $ | 159,678 | | | $ | 87,902 | | | $ | 86,881 | |
EBITDA and Adjusted EBITDA
EBITDA is a commonly used measure of performance in many industries and is defined as net income excluding interest, income taxes, and depreciation and amortization. The Company believes EBITDA is useful to investors because it helps the Company and its investors evaluate the ongoing operating performance of the Company by removing the impact of its capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). In addition, certain covenants included in the agreements governing the Company’s indebtedness use EBITDA, as defined in the specific credit agreement, as a measure of financial compliance.
The Company considers the exclusion of certain additional items from EBITDA useful, including: (i) the exclusion of transaction and litigation costs (reimbursements), gains or losses from sales of real estate and the loss on impairment of depreciable real estate assets as these items dothis item does not represent ongoing operations and (ii) the exclusion of non-cash straight-line ground lease expense as this expense does not reflect the underlying performance of the related hotels.
The following table reconciles the Company’s GAAP net income to EBITDA and Adjusted EBITDA for the three and six months ended June 30,March 31, 2018 and 2017 and 2016 (in thousands).
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Net income | | $ | 87,606 | | | $ | 54,718 | | | $ | 121,971 | | | $ | 89,404 | |
Depreciation | | | 43,893 | | | | 33,824 | | | | 87,660 | | | | 67,308 | |
Amortization of favorable and unfavorable leases, net | | | 168 | | | | 119 | | | | 333 | | | | 381 | |
Interest and other expense, net | | | 11,849 | | | | 9,560 | | | | 23,566 | | | | 18,363 | |
Income tax expense | | | 259 | | | | 360 | | | | 509 | | | | 623 | |
EBITDA | | | 143,775 | | | | 98,581 | | | | 234,039 | | | | 176,079 | |
Transaction and litigation costs (reimbursements) | | | (2,586 | ) | | | 1,116 | | | | (2,586 | ) | | | 1,409 | |
Gain on sale of real estate | | | (16,140 | ) | | | - | | | | (16,140 | ) | | | - | |
Loss on impairment of depreciable real estate assets | | | - | | | | - | | | | 7,875 | | | | - | |
Non-cash straight-line ground lease expense | | | 938 | | | | 817 | | | | 1,877 | | | | 1,636 | |
Adjusted EBITDA | | $ | 125,987 | | | $ | 100,514 | | | $ | 225,065 | | | $ | 179,124 | |
| | Three Months Ended March 31, | |
| | 2018 | | | 2017 | |
Net income | | $ | 42,182 | | | $ | 34,365 | |
Depreciation | | | 44,840 | | | | 43,767 | |
Amortization of favorable and unfavorable leases, net | | | 206 | | | | 165 | |
Interest and other expense, net | | | 11,919 | | | | 11,717 | |
Income tax expense | | | 163 | | | | 250 | |
EBITDA | | | 99,310 | | | | 90,264 | |
Loss on impairment of depreciable real estate assets | | | - | | | | 7,875 | |
Non-cash straight-line ground lease expense | | | 904 | | | | 939 | |
Adjusted EBITDA | | $ | 100,214 | | | $ | 99,078 | |
Hotels Owned
As of June 30, 2017,March 31, 2018, the Company owned 235241 hotels with an aggregate of 29,97830,585 rooms located in 3334 states. The following tables summarize the number of hotels and rooms by brand and by state:
Number of Hotels and Guest Rooms by Brand | |
| | Number of | | | Number of | |
Brand | | Hotels | | | Rooms | |
Hilton Garden Inn | | | 41 | | | | 5,703 | |
Courtyard | | | 40 | | | | 5,460 | |
Hampton | | | 36 | | | | 4,422 | |
Homewood Suites | | | 34 | | | | 3,831 | |
Residence Inn | | | 32 | | | | 3,696 | |
SpringHill Suites | | | 17 | | | | 2,248 | |
TownePlace Suites | | | 12 | | | | 1,196 | |
Fairfield Inn | | | 11 | | | | 1,300 | |
Home2 Suites | | | 6 | | | | 669 | |
Marriott | | | 3 | | | | 932 | |
Embassy Suites | | | 2 | | | | 316 | |
Renaissance | | | 1 | | | | 205 | |
Total | | | 235 | | | | 29,978 | |
Number of Hotels and Guest Rooms by State | |
| | Number of | | | Number of | |
State | | Hotels | | | Rooms | |
Alabama | | | 13 | | | | 1,224 | |
Alaska | | | 1 | | | | 169 | |
Arizona | | | 11 | | | | 1,434 | |
Arkansas | | | 4 | | | | 408 | |
California | | | 27 | | | | 3,807 | |
Colorado | | | 4 | | | | 567 | |
Florida | | | 23 | | | | 2,851 | |
Georgia | | | 6 | | | | 596 | |
Idaho | | | 2 | | | | 416 | |
Illinois | | | 8 | | | | 1,420 | |
Indiana | | | 4 | | | | 479 | |
Iowa | | | 3 | | | | 301 | |
Kansas | | | 4 | | | | 422 | |
Louisiana | | | 4 | | | | 541 | |
Maryland | | | 2 | | | | 233 | |
Massachusetts | | | 4 | | | | 466 | |
Michigan | | | 1 | | | | 148 | |
Minnesota | | | 2 | | | | 244 | |
Mississippi | | | 2 | | | | 168 | |
Missouri | | | 4 | | | | 544 | |
Nebraska | | | 4 | | | | 621 | |
New Jersey | | | 5 | | | | 629 | |
New York | | | 4 | | | | 550 | |
North Carolina | | | 12 | | | | 1,337 | |
Ohio | | | 2 | | | | 252 | |
Oklahoma | | | 4 | | | | 545 | |
Pennsylvania | | | 3 | | | | 391 | |
South Carolina | | | 5 | | | | 538 | |
Tennessee | | | 12 | | | | 1,356 | |
Texas | | | 34 | | | | 4,072 | |
Utah | | | 2 | | | | 257 | |
Virginia | | | 15 | | | | 2,383 | |
Washington | | | 4 | | | | 609 | |
Total | | | 235 | | | | 29,978 | |
Number of Hotels and Guest Rooms by Brand | |
| | Number of | | | Number of | |
Brand | | Hotels | | | Rooms | |
Hilton Garden Inn | | | 42 | | | | 5,807 | |
Courtyard | | | 40 | | | | 5,460 | |
Hampton | | | 38 | | | | 4,685 | |
Residence Inn | | | 34 | | | | 4,011 | |
Homewood Suites | | | 34 | | | | 3,831 | |
SpringHill Suites | | | 17 | | | | 2,248 | |
TownePlace Suites | | | 12 | | | | 1,196 | |
Fairfield Inn | | | 11 | | | | 1,300 | |
Home2 Suites | | | 8 | | | | 910 | |
Marriott | | | 2 | | | | 616 | |
Embassy Suites | | | 2 | | | | 316 | |
Renaissance | | | 1 | | | | 205 | |
Total | | | 241 | | | | 30,585 | |
Number of Hotels and Guest Rooms by State | |
| | Number of | | | Number of | |
State | | Hotels | | | Rooms | |
Alabama | | | 15 | | | | 1,434 | |
Alaska | | | 2 | | | | 304 | |
Arizona | | | 11 | | | | 1,434 | |
Arkansas | | | 4 | | | | 408 | |
California | | | 27 | | | | 3,807 | |
Colorado | | | 4 | | | | 567 | |
Florida | | | 23 | | | | 2,851 | |
Georgia | | | 7 | | | | 715 | |
Idaho | | | 2 | | | | 416 | |
Illinois | | | 8 | | | | 1,420 | |
Indiana | | | 4 | | | | 479 | |
Iowa | | | 3 | | | | 301 | |
Kansas | | | 4 | | | | 422 | |
Louisiana | | | 4 | | | | 541 | |
Maine | | | 1 | | | | 179 | |
Maryland | | | 2 | | | | 233 | |
Massachusetts | | | 4 | | | | 466 | |
Michigan | | | 1 | | | | 148 | |
Minnesota | | | 2 | | | | 244 | |
Mississippi | | | 2 | | | | 168 | |
Missouri | | | 4 | | | | 544 | |
Nebraska | | | 4 | | | | 621 | |
New Jersey | | | 5 | | | | 629 | |
New York | | | 4 | | | | 550 | |
North Carolina | | | 12 | | | | 1,337 | |
Ohio | | | 2 | | | | 252 | |
Oklahoma | | | 4 | | | | 545 | |
Pennsylvania | | | 3 | | | | 391 | |
South Carolina | | | 5 | | | | 538 | |
Tennessee | | | 13 | | | | 1,500 | |
Texas | | | 34 | | | | 4,072 | |
Utah | | | 3 | | | | 393 | |
Virginia | | | 14 | | | | 2,067 | |
Washington | | | 4 | | | | 609 | |
Total | | | 241 | | | | 30,585 | |
The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 235241 hotels the Company owned as of June 30, 2017.March 31, 2018.
City | | State | | Brand | | Manager | | Date Acquired or Completed | | Rooms | |
Anchorage | | AK | | Embassy Suites | | Stonebridge | | 4/30/2010 | | | 169 | |
Anchorage | | AK | | Home2 Suites | | Stonebridge | | 12/1/2017 | | | 135 | |
Auburn | | AL | | Hilton Garden Inn | | LBA | | 3/1/2014 | | | 101 | |
Birmingham | | AL | | Courtyard | | LBA | | 3/1/2014 | | | 84 | |
Birmingham | | AL | | Hilton Garden Inn | | LBA | | 9/12/2017 | | | 104 | |
Birmingham | | AL | | Home2 Suites | | LBA | | 9/12/2017 | | | 106 | |
Birmingham | | AL | | Homewood Suites | | McKibbon | | 3/1/2014 | | | 95 | |
Dothan | | AL | | Hilton Garden Inn | | LBA | | 6/1/2009 | | | 104 | |
Dothan | | AL | | Residence Inn | | LBA | | 3/1/2014 | | | 84 | |
Huntsville | | AL | | Hampton | | LBA | | 9/1/2016 | | | 98 | |
Huntsville | | AL | | Hilton Garden Inn | | LBA | | 3/1/2014 | | | 101 | |
Huntsville | | AL | | Home2 Suites | | LBA | | 9/1/2016 | | | 77 | |
Huntsville | | AL | | Homewood Suites | | LBA | | 3/1/2014 | | | 107 | |
City | | State | | Brand | | Manager | | Date Acquired or Completed | | | Rooms | |
Mobile | | AL | | Hampton | | McKibbon | | 9/1/2016 | | | 101 | |
Montgomery | | AL | | Hilton Garden Inn | | LBA | | 3/1/2014 | | | 97 | |
Montgomery | | AL | | Homewood Suites | | LBA | | 3/1/2014 | | | 91 | |
Prattville | | AL | | Courtyard | | LBA | | 3/1/2014 | | | 84 | |
Rogers | | AR | | Hampton | | Raymond | | 8/31/2010 | | | 122 | |
Rogers | | AR | | Homewood Suites | | Raymond | | 4/30/2010 | | | 126 | |
Rogers | | AR | | Residence Inn | | Raymond | | 3/1/2014 | | | 88 | |
Springdale | | AR | | Residence Inn | | Aimbridge | | 3/1/2014 | | | 72 | |
Chandler | | AZ | | Courtyard | | North Central | | 11/2/2010 | | | 150 | |
Chandler | | AZ | | Fairfield Inn & Suites | | North Central | | 11/2/2010 | | | 110 | |
Phoenix | | AZ | | Courtyard | | North Central | | 11/2/2010 | | | 164 | |
Phoenix | | AZ | | Courtyard | | North Central | | 9/1/2016 | | | 127 | |
Phoenix | | AZ | | Hampton | | North Central | | 9/1/2016 | | | 125 | |
Phoenix | | AZ | | Homewood Suites | | North Central | | 9/1/2016 | | | 134 | |
Phoenix | | AZ | | Residence Inn | | North Central | | 11/2/2010 | | | 129 | |
Scottsdale | | AZ | | Hilton Garden Inn | | North Central | | 9/1/2016 | | | 122 | |
Tucson | | AZ | | Hilton Garden Inn | | Western | | 7/31/2008 | | | 125 | |
Tucson | | AZ | | Residence Inn | | Western | | 3/1/2014 | | | 124 | |
Tucson | | AZ | | TownePlace Suites | | Western | | 10/6/2011 | | | 124 | |
Agoura Hills | | CA | | Homewood Suites | | Dimension | | 3/1/2014 | | | 125 | |
Burbank | | CA | | Courtyard | | Huntington | | 8/11/2015 | | | 190 | |
Burbank | | CA | | Residence Inn | | Marriott | | 3/1/2014 | | | 166 | |
Burbank | | CA | | SpringHill Suites | | Marriott | | 7/13/2015 | | | 170 | |
Clovis | | CA | | Hampton | | Dimension | | 7/31/2009 | | | 86 | |
Clovis | | CA | | Homewood Suites | | Dimension | | 2/2/2010 | | | 83 | |
Cypress | | CA | | Courtyard | | Dimension | | 3/1/2014 | | | 180 | |
Cypress | | CA | | Hampton | | Dimension | | 6/29/2015 | | | 110 | |
Oceanside | | CA | | Courtyard | | Marriott | | 9/1/2016 | | | 142 | |
Oceanside | | CA | | Residence Inn | | Marriott | | 3/1/2014 | | | 125 | |
Rancho Bernardo/San Diego | | CA | | Courtyard | | InnVentures | | 3/1/2014 | | | 210 | |
Sacramento | | CA | | Hilton Garden Inn | | Dimension | | 3/1/2014 | | | 153 | |
San Bernardino | | CA | | Residence Inn | | InnVentures | | 2/16/2011 | | | 95 | |
San Diego | | CA | | Courtyard | | Huntington | | 9/1/2015 | | | 245 | |
San Diego | | CA | | Hampton | | Dimension | | 3/1/2014 | | | 177 | |
San Diego | | CA | | Hilton Garden Inn | | InnVentures | | 3/1/2014 | | | 200 | |
San Diego | | CA | | Residence Inn | | Dimension | | 3/1/2014 | | | 121 | |
San Jose | | CA | | Homewood Suites | | Dimension | | 3/1/2014 | | | 140 | |
San Juan Capistrano | | CA | | Residence Inn | | Marriott | | 9/1/2016 | | | 130 | |
City | | State | | Brand | | Manager | | Date Acquired or Completed | | Rooms | |
Santa Ana | | CA | | Courtyard | | Dimension | | 5/23/2011 | | | 155 | |
Santa Clarita | | CA | | Courtyard | | Dimension | | 9/24/2008 | | | 140 | |
Santa Clarita | | CA | | Fairfield Inn | | Dimension | | 10/29/2008 | | | 66 | |
Santa Clarita | | CA | | Hampton | | Dimension | | 10/29/2008 | | | 128 | |
Santa Clarita | | CA | | Residence Inn | | Dimension | | 10/29/2008 | | | 90 | |
Tulare | | CA | | Hampton | | InnVentures | | 3/1/2014 | | | 86 | |
Tustin | | CA | | Fairfield Inn & Suites | | Marriott | | 9/1/2016 | | | 145 | |
Tustin | | CA | | Residence Inn | | Marriott | | 9/1/2016 | | | 149 | |
Colorado Springs | | CO | | Hampton | | Chartwell | | 9/1/2016 | | | 101 | |
Denver | | CO | | Hilton Garden Inn | | Stonebridge | | 9/1/2016 | | | 221 | |
Highlands Ranch | | CO | | Hilton Garden Inn | | Dimension | | 3/1/2014 | | | 128 | |
Highlands Ranch | | CO | | Residence Inn | | Dimension | | 3/1/2014 | | | 117 | |
Boca Raton | | FL | | Hilton Garden Inn | | White Lodging | | 9/1/2016 | | | 149 | |
Cape Canaveral | | FL | | Homewood Suites | | LBA | | 9/1/2016 | | | 153 | |
Fort Lauderdale | | FL | | Hampton | | Vista Host | | 12/31/2008 | | | 109 | |
Fort Lauderdale | | FL | | Hampton | | LBA | | 6/23/2015 | | | 156 | |
Fort Lauderdale | | FL | | Residence Inn | | LBA | | 9/1/2016 | | | 156 | |
City | | State | | Brand | | Manager | | Date Acquired or Completed | | | Rooms | |
Gainesville | | FL | | Hilton Garden Inn | | McKibbon | | 9/1/2016 | | | 104 | |
Gainesville | | FL | | Homewood Suites | | McKibbon | | 9/1/2016 | | | 103 | |
Jacksonville | | FL | | Homewood Suites | | McKibbon | | 3/1/2014 | | | 119 | |
Lakeland | | FL | | Courtyard | | LBA | | 3/1/2014 | | | 78 | |
Miami | | FL | | Courtyard | | Dimension | | 3/1/2014 | | | 118 | |
Miami | | FL | | Hampton | | White Lodging | | 4/9/2010 | | | 121 | |
Miami | | FL | | Homewood Suites | | Dimension | | 3/1/2014 | | | 162 | |
Orlando | | FL | | Fairfield Inn & Suites | | Marriott | | 7/1/2009 | | | 200 | |
Orlando | | FL | | SpringHill Suites | | Marriott | | 7/1/2009 | | | 200 | |
Panama City | | FL | | Hampton | | LBA | | 3/12/2009 | | | 95 | |
Panama City | | FL | | TownePlace Suites | | LBA | | 1/19/2010 | | | 103 | |
Pensacola | | FL | | TownePlace Suites | | McKibbon | | 9/1/2016 | | | 97 | |
Sanford | | FL | | SpringHill Suites | | LBA | | 3/1/2014 | | | 105 | |
Sarasota | | FL | | Homewood Suites | | Hilton | | 3/1/2014 | | | 100 | |
Tallahassee | | FL | | Fairfield Inn & Suites | | LBA | | 9/1/2016 | | | 97 | |
Tallahassee | | FL | | Hilton Garden Inn | | LBA | | 3/1/2014 | | | 85 | |
Tampa | | FL | | Embassy Suites | | White Lodging | | 11/2/2010 | | | 147 | |
Tampa | | FL | | TownePlace Suites | | McKibbon | | 3/1/2014 | | | 94 | |
Albany | | GA | | Fairfield Inn & Suites | | LBA | | 1/14/2010 | | | 87 | |
Atlanta | | GA | | Hampton | | McKibbon | | 2/5/2018 | | | 119 | |
Atlanta | | GA | | Home2 Suites | | McKibbon | | 7/1/2016 | | | 128 | |
Columbus | | GA | | SpringHill Suites | | LBA | | 3/1/2014 | | | 89 | |
Columbus | | GA | | TownePlace Suites | | LBA | | 3/1/2014 | | | 86 | |
Macon | | GA | | Hilton Garden Inn | | LBA | | 3/1/2014 | | | 101 | |
Savannah | | GA | | Hilton Garden Inn | | Newport | | 3/1/2014 | | | 105 | |
Cedar Rapids | | IA | | Hampton | | Schulte | | 9/1/2016 | | | 103 | |
Cedar Rapids | | IA | | Homewood Suites | | Schulte | | 9/1/2016 | | | 95 | |
Davenport | | IA | | Hampton | | Schulte | | 9/1/2016 | | | 103 | |
Boise | | ID | | Hampton | | Raymond | | 4/30/2010 | | | 186 | |
Boise | | ID | | SpringHill Suites | | InnVentures | | 3/1/2014 | | | 230 | |
Des Plaines | | IL | | Hilton Garden Inn | | Raymond | | 9/1/2016 | | | 252 | |
Hoffman Estates | | IL | | Hilton Garden Inn | | White Lodging | | 9/1/2016 | | | 184 | |
Mettawa | | IL | | Hilton Garden Inn | | White Lodging | | 11/2/2010 | | | 170 | |
Mettawa | | IL | | Residence Inn | | White Lodging | | 11/2/2010 | | | 130 | |
Rosemont | | IL | | Hampton | | Raymond | | 9/1/2016 | | | 158 | |
Schaumburg | | IL | | Hilton Garden Inn | | White Lodging | | 11/2/2010 | | | 166 | |
City | | State | | Brand | | Manager | | Date Acquired or Completed | | Rooms | |
Skokie | | IL | | Hampton | | Raymond | | 9/1/2016 | | | 225 | |
Warrenville | | IL | | Hilton Garden Inn | | White Lodging | | 11/2/2010 | | | 135 | |
Indianapolis | | IN | | SpringHill Suites | | White Lodging | | 11/2/2010 | | | 130 | |
Merrillville | | IN | | Hilton Garden Inn | | White Lodging | | 9/1/2016 | | | 124 | |
Mishawaka | | IN | | Residence Inn | | White Lodging | | 11/2/2010 | | | 106 | |
South Bend | | IN | | Fairfield Inn & Suites | | White Lodging | | 9/1/2016 | | | 119 | |
Overland Park | | KS | | Fairfield Inn & Suites | | True North | | 3/1/2014 | | | 110 | |
Overland Park | | KS | | Residence Inn | | True North | | 3/1/2014 | | | 120 | |
Overland Park | | KS | | SpringHill Suites | | True North | | 3/1/2014 | | | 102 | |
Wichita | | KS | | Courtyard | | Aimbridge | | 3/1/2014 | | | 90 | |
Baton Rouge | | LA | | SpringHill Suites | | Dimension | | 9/25/2009 | | | 119 | |
Lafayette | | LA | | Hilton Garden Inn | | LBA | | 7/30/2010 | | | 153 | |
Lafayette | | LA | | SpringHill Suites | | LBA | | 6/23/2011 | | | 103 | |
New Orleans | | LA | | Homewood Suites | | Dimension | | 3/1/2014 | | | 166 | |
Andover | | MA | | SpringHill Suites | | Marriott | | 11/5/2010 | | | 136 | |
Marlborough | | MA | | Residence Inn | | True North | | 3/1/2014 | | | 112 | |
Westford | | MA | | Hampton | | True North | | 3/1/2014 | | | 110 | |
Westford | | MA | | Residence Inn | | True North | | 3/1/2014 | | | 108 | |
Annapolis | | MD | | Hilton Garden Inn | | White Lodging | | 3/1/2014 | | | 126 | |
Silver Spring | | MD | | Hilton Garden Inn | | White Lodging | | 7/30/2010 | | | 107 | |
Portland | | ME | | Residence Inn | | Pyramid | | 10/13/2017 | | | 179 | |
City | | State | | Brand | | Manager | | Date Acquired or Completed | | | Rooms | |
Novi | | MI | | Hilton Garden Inn | | White Lodging | | 11/2/2010 | | | 148 | |
Maple Grove | | MN | | Hilton Garden Inn | | North Central | | 9/1/2016 | | | 120 | |
Rochester | | MN | | Hampton | | Raymond | | 8/3/2009 | | | 124 | |
Kansas City | | MO | | Hampton | | Raymond | | 8/31/2010 | | | 122 | |
Kansas City | | MO | | Residence Inn | | True North | | 3/1/2014 | | | 106 | |
St. Louis | | MO | | Hampton | | Raymond | | 8/31/2010 | | | 190 | |
St. Louis | | MO | | Hampton | | Raymond | | 4/30/2010 | | | 126 | |
Hattiesburg | | MS | | Courtyard | | LBA | | 3/1/2014 | | | 84 | |
Hattiesburg | | MS | | Residence Inn | | LBA | | 12/11/2008 | | | 84 | |
Carolina Beach | | NC | | Courtyard | | Crestline | | 3/1/2014 | | | 144 | |
Charlotte | | NC | | Fairfield Inn & Suites | | Newport | | 9/1/2016 | | | 94 | |
Charlotte | | NC | | Homewood Suites | | McKibbon | | 9/24/2008 | | | 118 | |
Durham | | NC | | Homewood Suites | | McKibbon | | 12/4/2008 | | | 122 | |
Fayetteville | | NC | | Home2 Suites | | LBA | | 2/3/2011 | | | 118 | |
Fayetteville | | NC | | Residence Inn | | Aimbridge | | 3/1/2014 | | | 92 | |
Greensboro | | NC | | SpringHill Suites | | Newport | | 3/1/2014 | | | 82 | |
Holly Springs | | NC | | Hampton | | LBA | | 11/30/2010 | | | 124 | |
Jacksonville | | NC | | Home2 Suites | | LBA | | 9/1/2016 | | | 105 | |
Wilmington | | NC | | Fairfield Inn & Suites | | Crestline | | 3/1/2014 | | | 122 | |
Winston-Salem | | NC | | Courtyard | | McKibbon | | 3/1/2014 | | | 122 | |
Winston-Salem | | NC | | Hampton | | McKibbon | | 9/1/2016 | | | 94 | |
Omaha | | NE | | Courtyard | | Marriott | | 3/1/2014 | | | 181 | |
Omaha | | NE | | Hampton | | White Lodging | | 9/1/2016 | | | 139 | |
Omaha | | NE | | Hilton Garden Inn | | White Lodging | | 9/1/2016 | | | 178 | |
Omaha | | NE | | Homewood Suites | | White Lodging | | 9/1/2016 | | | 123 | |
Cranford | | NJ | | Homewood Suites | | Dimension | | 3/1/2014 | | | 108 | |
Mahwah | | NJ | | Homewood Suites | | Dimension | | 3/1/2014 | | | 110 | |
Mount Laurel | | NJ | | Homewood Suites | | Newport | | 1/11/2011 | | | 118 | |
Somerset | | NJ | | Courtyard | | Newport | | 3/1/2014 | | | 162 | |
West Orange | | NJ | | Courtyard | | Newport | | 1/11/2011 | | | 131 | |
Islip/Ronkonkoma | | NY | | Hilton Garden Inn | | White Lodging | | 3/1/2014 | | | 165 | |
New York | | NY | | Renaissance | | Highgate | | 3/1/2014 | | | 205 | |
City | | State | | Brand | | Manager | | Date Acquired or Completed | | Rooms | |
Syracuse | | NY | | Courtyard | | New Castle | | 10/16/2015 | | | 102 | |
Syracuse | | NY | | Residence Inn | | New Castle | | 10/16/2015 | | | 78 | |
Mason | | OH | | Hilton Garden Inn | | Schulte | | 9/1/2016 | | | 110 | |
Twinsburg | | OH | | Hilton Garden Inn | | GatewayInterstate | | 10/7/2008 | | | 142 | |
Oklahoma City | | OK | | Hampton | | Raymond | | 5/28/2010 | | | 200 | |
Oklahoma City | | OK | | Hilton Garden Inn | | Raymond | | 9/1/2016 | | | 155 | |
Oklahoma City | | OK | | Homewood Suites | | Raymond | | 9/1/2016 | | | 100 | |
Oklahoma City (West) | | OK | | Homewood Suites | | Chartwell | | 9/1/2016 | | | 90 | |
Collegeville/Philadelphia | | PA | | Courtyard | | White Lodging | | 11/15/2010 | | | 132 | |
Malvern/Philadelphia | | PA | | Courtyard | | White Lodging | | 11/30/2010 | | | 127 | |
Pittsburgh | | PA | | Hampton | | Vista Host | | 12/31/2008 | | | 132 | |
Charleston | | SC | | Home2 Suites | | LBA | | 9/1/2016 | | | 122 | |
Columbia | | SC | | Hilton Garden Inn | | Newport | | 3/1/2014 | | | 143 | |
Columbia | | SC | | TownePlace Suites | | Newport | | 9/1/2016 | | | 91 | |
Greenville | | SC | | Residence Inn | | McKibbon | | 3/1/2014 | | | 78 | |
Hilton Head | | SC | | Hilton Garden Inn | | McKibbon | | 3/1/2014 | | | 104 | |
Chattanooga | | TN | | Homewood Suites | | LBA | | 3/1/2014 | | | 76 | |
Franklin | | TN | | Courtyard | | Chartwell | | 9/1/2016 | | | 126 | |
Franklin | | TN | | Residence Inn | | Chartwell | | 9/1/2016 | | | 124 | |
Jackson | | TN | | Hampton | | Vista Host | | 12/30/2008 | | | 83 | |
Johnson City | | TN | | Courtyard | | LBA | | 9/25/2009 | | | 90 | |
Knoxville | | TN | | Homewood Suites | | McKibbon | | 9/1/2016 | | | 103 | |
Knoxville | | TN | | SpringHill Suites | | McKibbon | | 9/1/2016 | | | 103 | |
Knoxville | | TN | | TownePlace Suites | | McKibbon | | 9/1/2016 | | | 97 | |
Memphis | | TN | | Hampton | | Crestline | | 2/5/2018 | | | 144 | |
Memphis | | TN | | Homewood Suites | | Hilton | | 3/1/2014 | | | 140 | |
City | | State | | Brand | | Manager | | Date Acquired or Completed | | | Rooms | |
Nashville | | TN | | Hilton Garden Inn | | Vista Host | | 9/30/2010 | | | 194 | |
Nashville | | TN | | Home2 Suites | | Vista Host | | 5/31/2012 | | | 119 | |
Nashville | | TN | | TownePlace Suites | | LBA | | 9/1/2016 | | | 101 | |
Addison | | TX | | SpringHill Suites | | Marriott | | 3/1/2014 | | | 159 | |
Allen | | TX | | Hampton | | GatewayInterstate | | 9/26/2008 | | | 103 | |
Allen | | TX | | Hilton Garden Inn | | GatewayInterstate | | 10/31/2008 | | | 150 | |
Arlington | | TX | | Hampton | | Western | | 12/1/2010 | | | 98 | |
Austin | | TX | | Courtyard | | White Lodging | | 11/2/2010 | | | 145 | |
Austin | | TX | | Fairfield Inn & Suites | | White Lodging | | 11/2/2010 | | | 150 | |
Austin | | TX | | Hampton | | Vista Host | | 4/14/2009 | | | 124 | |
Austin | | TX | | Hilton Garden Inn | | White Lodging | | 11/2/2010 | | | 117 | |
Austin | | TX | | Homewood Suites | | Vista Host | | 4/14/2009 | | | 97 | |
Austin/Round Rock | | TX | | Homewood Suites | | Vista Host | | 9/1/2016 | | | 115 | |
Beaumont | | TX | | Residence Inn | | Western | | 10/29/2008 | | | 133 | |
Burleson/Fort Worth | | TX | | Hampton | | LBA | | 10/7/2014 | | | 88 | |
Dallas | | TX | | Homewood Suites | | Western | | 9/1/2016 | | | 130 | |
Denton | | TX | | Homewood Suites | | Chartwell | | 9/1/2016 | | | 107 | |
Duncanville | | TX | | Hilton Garden Inn | | GatewayInterstate | | 10/21/2008 | | | 142 | |
El Paso | | TX | | Hilton Garden Inn | | Western | | 12/19/2011 | | | 145 | |
El Paso | | TX | | Homewood Suites | | Western | | 3/1/2014 | | | 114 | |
Fort Worth | | TX | | Courtyard | | LBA | | 2/2/2017 | | | 124 | |
Fort Worth | | TX | | TownePlace Suites | | Western | | 7/19/2010 | | | 140 | |
Frisco | | TX | | Hilton Garden Inn | | Western | | 12/31/2008 | | | 102 | |
Grapevine | | TX | | Hilton Garden Inn | | Western | | 9/24/2010 | | | 110 | |
Houston | | TX | | Courtyard | | LBA | | 9/1/2016 | | | 124 | |
Houston | | TX | | Marriott | | Western | | 1/8/2010 | | | 206 | |
Houston | | TX | | Residence Inn | | Western | | 3/1/2014 | | | 129 | |
Houston | | TX | | Residence Inn | | Western | | 9/1/2016 | | | 120 | |
Irving | | TX | | Homewood Suites | | Western | | 12/29/2010 | | | 77 | |
City | | State | | Brand | | Manager | | Date Acquired or Completed | | Rooms | |
Lewisville | | TX | | Hilton Garden Inn | | GatewayInterstate | | 10/16/2008 | | | 165 | |
Round Rock | | TX | | Hampton | | Vista Host | | 3/6/2009 | | | 94 | |
San Antonio | | TX | | TownePlace Suites | | Western | | 3/1/2014 | | | 106 | |
Shenandoah | | TX | | Courtyard | | LBA | | 9/1/2016 | | | 124 | |
Stafford | | TX | | Homewood Suites | | Western | | 3/1/2014 | | | 78 | |
Texarkana | | TX | | Courtyard | | Aimbridge | | 3/1/2014 | | | 90 | |
Texarkana | | TX | | Hampton | | Aimbridge | | 1/31/2011 | | | 81 | |
Texarkana | | TX | | TownePlace Suites | | Aimbridge | | 3/1/2014 | | | 85 | |
Provo | | UT | | Residence Inn | | Dimension | | 3/1/2014 | | | 114 | |
Salt Lake City | | UT | | Residence Inn | | Huntington | | 10/20/2017 | | | 136 | |
Salt Lake City | | UT | | SpringHill Suites | | White Lodging | | 11/2/2010 | | | 143 | |
Alexandria | | VA | | Courtyard | | Marriott | | 3/1/2014 | | | 178 | |
Alexandria | | VA | | SpringHill Suites | | Marriott | | 3/28/2011 | | | 155 | |
Bristol | | VA | | Courtyard | | LBA | | 11/7/2008 | | | 175 | |
Charlottesville | | VA | | Courtyard | | Crestline | | 3/1/2014 | | | 139 | |
Fairfax | | VA | | Marriott | | White Lodging | | 9/1/2016 | | | 316 | |
Harrisonburg | | VA | | Courtyard | | Newport | | 3/1/2014 | | | 125 | |
Manassas | | VA | | Residence Inn | | Crestline | | 2/16/2011 | | | 107 | |
Richmond | | VA | | Courtyard | | White Lodging | | 12/8/2014 | | | 135 | |
Richmond | | VA | | Marriott | | White Lodging | | 3/1/2014 | | | 410 | |
Richmond | | VA | | Residence Inn | | White Lodging | | 12/8/2014 | | | 75 | |
Richmond | | VA | | SpringHill Suites | | McKibbon | | 9/1/2016 | | | 103 | |
Suffolk | | VA | | Courtyard | | Crestline | | 3/1/2014 | | | 92 | |
Suffolk | | VA | | TownePlace Suites | | Crestline | | 3/1/2014 | | | 72 | |
Virginia Beach | | VA | | Courtyard | | Crestline | | 3/1/2014 | | | 141 | |
Virginia Beach | | VA | | Courtyard | | Crestline | | 3/1/2014 | | | 160 | |
Kirkland | | WA | | Courtyard | | InnVentures | | 3/1/2014 | | | 150 | |
Seattle | | WA | | Residence Inn | | InnVentures | | 3/1/2014 | | | 234 | |
Tukwila | | WA | | Homewood Suites | | Dimension | | 3/1/2014 | | | 106 | |
Vancouver | | WA | | SpringHill Suites | | InnVentures | | 3/1/2014 | | | 119 | |
Total | | | | | | | | | | | 29,97830,585 | |
Related Parties
The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. See Note 75 titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning the Company’s related party transactions.
Liquidity and Capital Resources
Capital Resources
The Company’s principal daily sources of liquidity are the operating cash flow generated from the Company’s properties and availability under its $540 million unsecured revolving credit facility,facility. Periodically the Company may receive proceeds from the strategic dispositionadditional secured and unsecured debt financing, dispositions of its hotel properties and proceeds from potential offerings of the Company’s common shares.
The revolving credit facility has an initial maturity of May 18, 2019 and, subject to certain conditions and fees, may be extended one year. The revolving credit facility, which as of June 30, 2017March 31, 2018 had unused borrowing capacity of approximately $238.7$369.3 million, is available for share repurchases, acquisitions, hotel renovations and development, share repurchases, working capital and other general corporate funding purposes, including the payment of distributions to shareholders. As of June 30, 2017,March 31, 2018, the Company’s revolving credit facility had an outstanding principal balance of approximately $301.3$170.7 million with an annual variable interest rate of approximately 2.77%3.43%.
The credit agreement governing the revolving credit facility contains mandatory prepayment requirements, customary affirmative covenants, negative covenants and events of default. The credit agreement requires that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios, limits on dividend payments and share repurchases and restrictions on certain investments. The Company was in compliance with the applicable covenants at June 30, 2017.March 31, 2018.
In February 2017,See Note 3 titled “Debt” in the Company executed an equity distribution agreement thatCompany’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for a description of the Company’s other debt instruments.
The Company’s ATM Program allows the Companyit to sell, from time to time, up to an aggregate of $300 million of its common shares through sales agents (the “ATM Program”). Actualagents. Since inception of the ATM Program in February 2017 through March 31, 2018, the Company has sold approximately 7.2 million common shares at a weighted-average market sales price of approximately $19.56 per common share and received aggregate gross proceeds of approximately $139.8 million and proceeds net of offering costs of approximately $137.5 million. During the three months ended March 31, 2018, the Company sold approximately 0.2 million common shares under its ATM Program at a weighted-average market sales price of approximately $19.73 per common share and aggregate gross proceeds of approximately $4.8 million. The Company used the proceeds from the sale of these shares to pay down borrowings on its revolving credit facility. No shares were issued under the ATM Program during the three months ended March 31, 2017. As of March 31, 2018, approximately $160.2 million remained available for issuance under the ATM program. Future sales will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company'sCompany’s common shares and determinations by the Company of the appropriateopportunities for uses of any proceeds. As of June 30, 2017, the Company had not sold any shares under the ATM Program.
On July 25, 2017, the Company entered into an unsecured $85 million term loan with a syndicate of commercial banks (the “$85 million term loan”). In conjunction with the $85 million term loan, the Company entered into an interest rate swap agreement in May 2017, which was effective on July 31, 2017, to effectively fix the interest payments on $75 million of the $85 million term loan through the debt’s maturity on July 25, 2024. The loan agreement has requirements and covenants similar to the Company’s unsecured $965 million credit facility. See “Subsequent Events” section below as well as Note 5 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for additional information regarding the $85 million term loan. Proceeds from the $85 million term loan were used to pay down borrowings on the Company’s revolving credit facility.
Capital Uses
The Company anticipates that cash flow from operations, availability under its revolving credit facility, additional borrowings and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including debt service, hotel acquisitions, hotel renovations, share repurchases, and required distributions to shareholders (the Company is not required to make distributions at its current rate for REIT purposes) and share repurchases..
Distributions
To maintain its REIT status, the Company is required to distribute at least 90% of its ordinary income. Distributions paid during the sixthree months ended June 30, 2017March 31, 2018 totaled approximately $133.8$69.1 million or $0.60$0.30 per common share and were paid at a monthly rate of $0.10 per common share. For the same period, the Company’s net cash generated from operations was approximately $156.3$52.9 million, which included a payment of approximately $19.4$5.5 million net of reimbursements received from the Company’s directors and officers insurance carriers, during the first half of 2017 to settle the Apple Ten merger lawsuit2014 DRIP litigation which is discussed in Note 108 titled “Legal Proceedings” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q.This shortfall includes a return of capital and was funded primarily by borrowings on the Company’s revolving credit facility. At this time, the Company does not anticipate distributions for the full year of 2018 to exceed net cash generated from operations.
The Company’s current annual distribution rate, payable monthly, is $1.20 per common share. As it has done historically, due to seasonality, the Company may use its revolving credit facility to maintain the consistency of the monthly distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. Any distribution will be subject to approval of the Company’s Board of Directors and there can be no assurance of the classification or duration of distributions at the current annual distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of the hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company. If cash flow from operations and the revolving credit facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurances it will be successful with this strategy and may need to reduce its distributions to required levels. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.
Share Repurchases
In connection withDuring the implementationfirst three months of the ATM Program, in February 2017 the Company terminated its existing written trading plan under the Company’s share repurchase program. In January 2016,2018, the Company purchased, under its $475 million share repurchase program, approximately 20,0000.3 million of its common shares at a weighted-average market purchase price of approximately $18.10$16.89 per common share for an aggregate purchase price of approximately $0.4$4.3 million. The Company did not repurchasepurchase any common shares under its share repurchase programShare Repurchase Program during the first sixthree months of 2017. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with availability under its revolving credit facility. The Company plans to continue to consider opportunistictiming of share repurchases and the number of common shares to be repurchased under the $467.5 million remaining portion of the authorized $475 million share repurchase program, whichShare Repurchase Program will depend onupon prevailing market conditions, regulatory requirements and other factors. As of March 31, 2018, approximately $463.2 million remained available for repurchase under the Share Repurchase Program. The programShare Repurchase Program may be suspended or terminated at any time by the Company and as a result of an extension of the program approved by the Board of Directors in May 2017, will end in July 2018 if not terminated earlier.
Capital Improvements
The Company has ongoing capital commitments to fund its capital improvements. To maintain and enhance each property’s competitive position in its market, the Company has invested in and plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. As of June 30, 2017,March 31, 2018, the Company held $25.6$28.4 million in reserve related to these properties. During the sixthree months ended June 30, 2017,March 31, 2018, the Company invested approximately $24.4$18.1 million in capital expenditures and anticipates spending an additional $35$50 million to $45$60 million during the remainder of 2017,2018, which includes various scheduled renovation projects for approximately 15-2025 to 30 properties. The Company does not currently have any existing or planned projects for development.
Hotel Contract Commitments
AsOn May 2, 2018, the same day the hotel opened for business, the Company completed the purchase of June 30, 2017,a 210-room Hampton Inn & Suites in Phoenix, Arizona for approximately $44.3 million, using borrowings under its revolving credit facility. After this purchase, the Company had outstanding contracts for the potential purchase of four additionalthree hotels that were under construction for a total purchase price of approximately $103.3 million. All four hotels are under construction and are$67.4 million, including a 128-room Home2 Suites in Orlando, Florida which is planned to be completed and opened for business overin the next threefourth quarter of 2018, and a combined 224-room dual-branded Hampton Inn & Suites and Home2 Suites by Hilton property in Cape Canaveral, Florida which is planned to 15 months from June 30, 2017, at which time closingbe completed and opened for business in 2020. Closing on thesethe remaining hotels is expected to occur.occur upon completion of construction. Although the Company is working towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on these hotels will occur under the outstanding purchase contracts. The Company intends to use borrowings under its revolving credit facility to purchase the hotels under contract if a closing occurs.
Cash Management Activities
As part of the cost sharing arrangements discussed in Note 75 titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, certain day-to-day transactions may result in amounts due to or from the Company and Apple Realty Group, Inc. (“ARG”).ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under the cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies.
Impact of Inflation
Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, limit the operators’ ability to raise room rates. Currently the Company is not experiencing any material impact from inflation.
Business Interruption
Being in the real estate industry, the Company is exposed to natural disasters on both a local and national scale. Although management believes there is adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Company’s financial position or results of operations.
Seasonality
The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements.
New Accounting Standards
See Note 1 titled “Organization and Summary of Significant Accounting Policies” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for information on the adoption of accounting standards in the first sixthree months of 20172018 and the anticipated adoption of recently issued accounting standards.
Subsequent Events
In July 2017,April 2018, the Company paid approximately $22.3$23.0 million, or $0.10 per outstanding common share, in distributions to its common shareholders.
In July 2017,April 2018, the Company declared a regular monthly cash distribution of $0.10 per common share for the month of August 2017.May 2018. The distribution is payable on AugustMay 15, 2017.2018.
In April 2018, the Company, through one of its indirect wholly-owned subsidiaries, entered into a purchase contract for the purchase of all of the ownership interests in a limited liability company which plans to construct a dual-branded Hampton Inn & Suites and Home2 Suites by Hilton property in Cape Canaveral, Florida, with a combined total of 224 guest rooms for a purchase price of approximately $46.7 million. Although the Company is working towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied, and there can be no assurance that a closing on these hotels will occur.
On July 25, 2017,May 2, 2018, the Company entered into the $85 million term loan with a syndicate of commercial banks, with a maturity date of July 25, 2024. The Company used the proceeds, net of closing costs, to pay down the borrowingsclosed on the Company’s revolving credit facility. See Note 5 titled “Debt”purchase of a newly constructed 210-room Hampton Inn & Suites in Phoenix, Arizona, the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Qsame day the hotel opened for additional information related to the $85 million term loan.business. The gross purchase price was approximately $44.3 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 2017,March 31, 2018, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk. However, the Company is exposed to interest rate risk due to possible changes in short term interest rates as it invests its cash or borrows on its revolving credit facility and due to its variable interest rate term loan. As of June 30, 2017,March 31, 2018, after giving effect to interest rate swaps, as described below, approximately $403.8$273.2 million, or approximately 31%21% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s variable rate debt outstanding as of June 30, 2017,March 31, 2018, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately $4.0$2.7 million, all other factors remaining the same. With the exception of interest rate swap transactions, the Company has not engaged in transactions in derivative financial instruments or derivative commodity instruments. The Company’s cash balanceand cash equivalents at June 30, 2017 wasMarch 31, 2018 were $0.
As of June 30, 2017,March 31, 2018, the Company’s variable rate debt consisted of its $965$540 million revolving credit facility and its $150 millionsix term loan facility.loans totaling $660 million. Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its variable rate debt. As of June 30, 2017,March 31, 2018, the Company had foursix interest rate swap agreements that effectively fix the interest payments on approximately $472.5$557.5 million of the Company’s variable rate debt outstanding as of June 30, 2017 (consisting of fourfive term loans) through maturity. In addition, in May 2017, the Company entered into a forward interest rate swap agreement with a commercial bank, which effectively fixes the interest rate on $75 million of the $85 million term loan beginning on July 31, 2017. Under the terms of all of the Company’s interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one monthone-month LIBOR.
In addition to its variable rate debt and interest rate swaps discussed above, the Company has assumed or originated fixed interest rate mortgages payable to lenders under permanent financing arrangements. The following table summarizes the annual maturities and average interest rates of the Company’s mortgage debt, $965the six term loans and borrowings outstanding under the $540 million revolving credit facility and $150 million term loan facility outstanding at June 30, 2017.March 31, 2018. All dollar amounts are in thousands.
| | July 1 - December 31, 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | Thereafter | | | Total | | | Fair Market Value | | | April 1 - December 31, 2018 | | | 2019 | | | 2020 | | | 2021 | | | 2022 | | | Thereafter | | | Total | | | Fair Market Value | |
Total debt: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Maturities | | $ | 5,329 | | | $ | 11,071 | | | $ | 333,008 | | | $ | 451,164 | | | $ | 95,311 | | | $ | 413,181 | | | $ | 1,309,064 | | | $ | 1,306,559 | | | $ | 9,730 | | | $ | 204,505 | | | $ | 453,349 | | | $ | 97,586 | | | $ | 109,252 | | | $ | 454,780 | | | $ | 1,329,202 | | | $ | 1,326,386 | |
Average interest rates | | | 3.4 | % | | | 3.4 | % | | | 3.5 | % | | | 3.8 | % | | | 4.1 | % | | | 4.0 | % | | | | | | | | | | | 3.7 | % | | | 3.7 | % | | | 3.8 | % | | | 4.0 | % | | | 3.9 | % | | | 3.8 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable rate debt: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Maturities | | $ | - | | | $ | - | | | $ | 301,300 | | | $ | 425,000 | | | $ | 50,000 | | | $ | 100,000 | | | $ | 876,300 | | | $ | 877,317 | | | $ | - | | | $ | 170,700 | | | $ | 425,000 | | | $ | 50,000 | | | $ | - | | | $ | 185,000 | | | $ | 830,700 | | | $ | 832,515 | |
Average interest rates (1) | | | 2.9 | % | | | 2.9 | % | | | 2.9 | % | | | 3.0 | % | | | 3.0 | % | | | 3.1 | % | | | | | | | | | | | 3.2 | % | | | 3.2 | % | | | 3.2 | % | | | 3.3 | % | | | 3.4 | % | | | 3.4 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate debt: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Maturities | | $ | 5,329 | | | $ | 11,071 | | | $ | 31,708 | | | $ | 26,164 | | | $ | 45,311 | | | $ | 313,181 | | | $ | 432,764 | | | $ | 429,242 | | | $ | 9,730 | | | $ | 33,805 | | | $ | 28,349 | | | $ | 47,586 | | | $ | 109,252 | | | $ | 269,780 | | | $ | 498,502 | | | $ | 493,871 | |
Average interest rates | | | 4.5 | % | | | 4.5 | % | | | 4.5 | % | | | 4.5 | % | | | 4.4 | % | | | 4.3 | % | | | | | | | | | | | 4.5 | % | | | 4.4 | % | | | 4.4 | % | | | 4.4 | % | | | 4.2 | % | | | 4.1 | % | | | | | | | | |
(1) | The average interest rate gives effect to interest rate swaps, as applicable. |
Item 4. Controls and Procedures
Senior management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2017.March 31, 2018. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes to the legal proceedings previously disclosed in the Company’s Annual Report on2017 Form 10-K for the year ended December 31, 2016 except as described in Note 108 titled “Legal Proceedings” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, which information is incorporated by reference herein.
For a discussion of the Company’s potential risks and uncertainties, see the section titled “Risk Factors” in the 20162017 Form 10-K.10-K. There have been no material changes to the risk factors previously disclosed in the 20162017 Form 10-K.10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following is a summary of all share repurchases during the first quarter of 2018.
Issuer Purchases of Equity Securities | |
| | (a) | | | (b) | | | (c) | | | (d) | |
Period | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (1) | |
January 1 - January 31, 2018 | | | - | | | | - | | | | - | | | $ | 467,500 | |
February 1 - February 28, 2018 | | | - | | | | - | | | | - | | | $ | 467,500 | |
March 1 - March 31, 2018 (2) | | | 306,413 | | | $ | 16.90 | | | | 254,653 | | | $ | 463,200 | |
Total | | | 306,413 | | | | | | | | 254,653 | | | | | |
(1) | Represents amount outstanding under the Company’s authorized $475 million share repurchase program. This program may be suspended or terminated at any time by the Company. If not terminated earlier, the program will end in July 2018. Refer to Note 6 titled “Shareholders’ Equity” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for more information on the Company’s share repurchase program. |
(2) | Includes 51,760 common shares surrendered to the Company to satisfy tax withholding obligations associated with the issuance of common shares awarded to employees. |
Exhibit Number |
Description of Documents |
| |
3.1 | | |
| | |
3.2 | | |
| |
31.1 | |
| |
31.2 | |
| |
32.1 | |
| |
101 | The following materials from Apple Hospitality REIT, Inc.’sthe Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017March 31, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | |
Apple Hospitality REIT, Inc. | | |
| | | | |
By: | /s/ Justin G. Knight | | | Date: AugustMay 7, 20172018 |
| Justin G. Knight, | | | |
| President and Chief Executive Officer (Principal Executive Officer) | | | |
| | | | |
By: | /s/ Bryan Peery | | | Date: AugustMay 7, 20172018 |
| Bryan Peery, | | | |
| Chief Financial Officer (Principal Financial and Principal Accounting Officer) | | | |
34