UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~

2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______

Commission File Number 001-37389

APPLE HOSPITALITY REIT, INC.

(Exact name of registrant as specified in its charter)

Virginia		26-1379210
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

814 East Main Street Richmond, Virginia		23219
(Address of principal executive offices)		(Zip Code)

(804) 344-8121

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Shares, no par value		APLE		New York Stock Exchange

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”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ¨ ~~(Do not check if a smaller reporting company)~~☐	Smaller reporting company ☐
	Emerging growth company ☐

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 ☒

Number of registrant’s common shares outstanding as of November ~~1, 2017: 223,060,840~~

2, 2020: 223,266,007

Apple Hospitality REIT, Inc.

Form 10-Q

Index

~~Index~~

			Page Number
PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)		3

		Consolidated Balance Sheets – September 30, ~~2017~~2020 and December 31, ~~2016~~2019	3

		Consolidated Statements of Operations and Comprehensive Income ~~- Three~~(Loss) – three and nine months ended September 30, ~~2017~~2020 and ~~2016~~ 2019	4

		Consolidated Statements of Shareholders’ Equity – three and nine months ended September 30, 2020 and 2019	5

		Consolidated Statements of Cash Flows ~~- Nine~~– nine months ended September 30, ~~2017~~2020 and ~~2016~~2019	5	6

		Notes to Consolidated Financial Statements	6	7

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19	22

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34	40

	Item 4.	Controls and Procedures	35	40

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	36	41

	Item 1A.	Risk Factors	36	41

	Item 6.5.	~~Exhibits~~Other Information	36	43

~~Signatures~~	37 Item 6.	Exhibits	43

Signatures			44

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®, Hampton Inn by Hilton® ~~Hotels~~, Hampton 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. The Hyatt®, Hyatt House® and Hyatt Place® trademarks are the property of Hyatt Hotels Corporation 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.

Index

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Apple Hospitality REIT, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

	September 30,			December 31,
	2020			2019
	(unaudited)
Assets
Investment in real estate, net of accumulated depreciation and amortization of $1,196,245 and $1,054,429, respectively	$	4,793,945		$	4,825,738
Assets held for sale		0			12,093
Cash and cash equivalents		27,435			0
Restricted cash-furniture, fixtures and other escrows		28,184			34,661
Due from third party managers, net		29,969			26,926
Other assets, net		36,887			42,993
Total Assets	$	4,916,420		$	4,942,411

Liabilities
Debt, net	$	1,508,939		$	1,320,407
Finance lease liabilities		218,935			216,627
Accounts payable and other liabilities		113,542			114,364
Total Liabilities		1,841,416			1,651,398

Shareholders' Equity
Preferred stock, authorized 30,000,000 shares; NaN issued and outstanding		0			0
Common stock, no par value, authorized 800,000,000 shares; issued and outstanding 223,230,937 and 223,862,913 shares, respectively		4,488,288			4,493,763
Accumulated other comprehensive loss		(48,320	)		(4,698	)
Distributions greater than net income		(1,364,964	)		(1,198,052	)
Total Shareholders' Equity		3,075,004			3,291,013

Total Liabilities and Shareholders' Equity	$	4,916,420		$	4,942,411

September 30, December 31,
2017 2016
(unaudited)
Assets
Investment in real estate, net of accumulated depreciation of $686,787 and $557,597, respectively $ 4,742,590 $ 4,823,489
Assets held for sale 40,626 39,000
Restricted cash-furniture, fixtures and other escrows 30,299 29,425
Due from third party managers, net 52,354 31,460
Other assets, net 48,018 56,509
Total Assets $ 4,913,887 $ 4,979,883

Liabilities
Revolving credit facility $ 216,700 $ 270,000
Term loans 655,988 570,934
Mortgage debt 432,783 497,029
Accounts payable and other liabilities 104,467 124,856
Total Liabilities 1,409,938 1,462,819

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 223,060,840 and 222,938,648 shares, respectively 4,455,390 4,453,205
Accumulated other comprehensive income 5,218 4,589
Distributions greater than net income (956,659 ) (940,730 )
Total Shareholders' Equity 3,503,949 3,517,064

Total Liabilities and Shareholders' Equity $ 4,913,887 $ 4,979,883

See notes to consolidated financial statements.

Index

Apple Hospitality REIT, Inc.

Consolidated Statements of Operations and Comprehensive Income

(Loss)

(Unaudited)

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenues:
Room	$	140,116		$	307,293		$	434,923		$	901,995
Food and beverage		2,235			14,079			14,386			44,786
Other		6,475			10,350			18,605			29,845
Total revenue		148,826			331,722			467,914			976,626

Expenses:
Hotel operating expense:
Operating		33,124			80,717			120,860			236,463
Hotel administrative		16,625			25,991			54,079			78,588
Sales and marketing		13,728			29,764			47,517			88,289
Utilities		9,967			11,635			25,465			31,135
Repair and maintenance		8,842			13,430			26,983			39,337
Franchise fees		6,603			14,508			20,516			42,371
Management fees		4,873			11,548			15,425			34,049
Total hotel operating expense		93,762			187,593			310,845			550,232
Property taxes, insurance and other		20,523			19,611			58,820			58,470
General and administrative		6,726			9,039			22,274			25,484
Loss on impairment of depreciable real estate assets		0			6,467			4,382			6,467
Depreciation and amortization		50,171			47,887			149,590			143,946
Total expense		171,182			270,597			545,911			784,599

Gain on sale of real estate		0			0			8,785			1,052

Operating income (loss)		(22,356	)		61,125			(69,212	)		193,079

Interest and other expense, net		(18,531	)		(14,759	)		(52,483	)		(46,110	)

Income (loss) before income taxes		(40,887	)		46,366			(121,695	)		146,969

Income tax expense		(61	)		(143	)		(265	)		(505	)

Net income (loss)	$	(40,948	)	$	46,223		$	(121,960	)	$	146,464

Other comprehensive income (loss):
Interest rate derivatives		2,739			(4,193	)		(43,622	)		(20,357	)

Comprehensive income (loss)	$	(38,209	)	$	42,030		$	(165,582	)	$	126,107

Basic and diluted net income (loss) per common share	$	(0.18	)	$	0.21		$	(0.55	)	$	0.65

Weighted average common shares outstanding - basic and diluted		223,293			223,901			223,620			223,911

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Revenues:
    Room $ 302,298 $ 255,269 $ 877,974 $ 698,759
    Other 22,628 21,202 71,581 59,835
Total revenue 324,926 276,471 949,555 758,594

Expenses:
    Operating 79,975 69,082 235,474 187,370
    Hotel administrative 24,842 20,866 74,895 57,921
    Sales and marketing 25,488 21,329 75,867 59,244
    Utilities 12,036 10,543 31,982 25,862
    Repair and maintenance 12,199 10,478 36,394 29,167
    Franchise fees 13,974 11,834 40,611 32,212
    Management fees 11,315 9,205 33,072 26,189
    Property taxes, insurance and other 17,598 14,787 52,346 40,315
    Ground lease 2,831 2,615 8,486 7,587
    General and administrative 5,350 2,623 18,255 12,511
    Transaction and litigation costs (reimbursements) 0 36,452 (2,586 ) 37,861
    Loss on impairment of depreciable real estate assets 0 5,471 7,875 5,471
    Depreciation 44,110 37,343 131,770 104,651
Total expenses 249,718 252,628 744,441 626,361

Operating income 75,208 23,843 205,114 132,233

    Interest and other expense, net (12,024 ) (10,156 ) (35,590 ) (28,519 )
    Gain (loss) on sale of real estate (157 ) 0 15,983 0

Income before income taxes 63,027 13,687 185,507 103,714

    Income tax benefit (expense) (203 ) 7 (712 ) (616 )

Net income $ 62,824 $ 13,694 $ 184,795 $ 103,098

Other comprehensive income (loss):
    Interest rate derivatives 259 4,261 629 (7,934 )

Comprehensive income $ 63,083 $ 17,955 $ 185,424 $ 95,164

Basic and diluted net income per common share $ 0.28 $ 0.07 $ 0.83 $ 0.57

Weighted average common shares outstanding - basic and diluted 223,057 190,563 223,052 180,004

See notes to consolidated financial statements.

Index

Apple Hospitality REIT, Inc.

Consolidated Statements of ~~Cash Flows~~

Shareholders' Equity

(Unaudited)

(in ~~thousands)~~thousands, except per share data)

Three Months Ended September 30, 2020 and 2019

	Common Stock						Accumulated Other			Distributions
	Number of Shares			Amount			Comprehensive Income (Loss)			Greater Than Net Income			Total
Balance at June 30, 2020		223,224		$	4,488,034		$	(51,059	)	$	(1,324,016	)	$	3,112,959
Share based compensation, net		7			591			-			-			591
Equity issuance costs		-			(337	)		-			-			(337	)
Interest rate derivatives		-			-			2,739			-			2,739
Net loss		-			-			-			(40,948	)		(40,948	)
Balance at September 30, 2020		223,231		$	4,488,288		$	(48,320	)	$	(1,364,964	)	$	3,075,004

Balance at June 30, 2019		223,869		$	4,493,598		$	(6,158	)	$	(1,135,372	)	$	3,352,068
Share based compensation, net		3			239			-			-			239
Common shares repurchased		(16	)		(239	)		-			-			(239	)
Interest rate derivatives		-			-			(4,193	)		-			(4,193	)
Net income		-			-			-			46,223			46,223
Distributions declared to shareholders ($0.30 per share)		-			-			-			(67,162	)		(67,162	)
Balance at September 30, 2019		223,856		$	4,493,598		$	(10,351	)	$	(1,156,311	)	$	3,326,936

Nine Months Ended September 30, 2020 and 2019

	Common Stock						Accumulated Other			Distributions
	Number of Shares			Amount			Comprehensive Income (Loss)			Greater Than Net Income			Total
Balance at December 31, 2019		223,863		$	4,493,763		$	(4,698	)	$	(1,198,052	)	$	3,291,013
Share based compensation, net		889			9,198			-			-			9,198
Equity issuance costs		-			(337	)		-			-			(337	)
Common shares repurchased		(1,521	)		(14,336	)		-			-			(14,336	)
Interest rate derivatives		-			-			(43,622	)		-			(43,622	)
Net loss		-			-			-			(121,960	)		(121,960	)
Distributions declared to shareholders ($0.20 per share)		-			-			-			(44,952	)		(44,952	)
Balance at September 30, 2020		223,231		$	4,488,288		$	(48,320	)	$	(1,364,964	)	$	3,075,004

Balance at December 31, 2018		223,997		$	4,495,073		$	10,006		$	(1,096,069	)	$	3,409,010
Cumulative effect of the adoption of ASU 2016-02 related to leases		-			-			-			(5,201	)		(5,201	)
Share based compensation, net		149			2,860			-			-			2,860
Common shares repurchased		(290	)		(4,335	)		-			-			(4,335	)
Interest rate derivatives		-			-			(20,357	)		-			(20,357	)
Net income		-			-			-			146,464			146,464
Distributions declared to shareholders ($0.90 per share)		-			-			-			(201,505	)		(201,505	)
Balance at September 30, 2019		223,856		$	4,493,598		$	(10,351	)	$	(1,156,311	)	$	3,326,936

Nine Months Ended
September 30,
2017 2016
Cash flows from operating activities:
Net income $ 184,795 $ 103,098
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 131,770 104,651
Loss on impairment of depreciable real estate assets 7,875 5,471
Gain on sale of real estate (15,983 ) 0
Other non-cash expenses, net 5,372 4,806
Changes in operating assets and liabilities, net of amounts acquired or
assumed with acquisitions:

Increase in due from third party managers, net (20,883 ) (14,350 )
Decrease (increase) in other assets, net 8,507 (1,014 )
Increase (decrease) in accounts payable and other liabilities (20,944 ) 35,309
Net cash provided by operating activities 280,509 237,971

Cash flows from investing activities:
Cash consideration in Apple Ten merger 0 (93,590 )
Acquisition of hotel properties, net (56,794 ) (23,994 )
Deposits and other disbursements for potential acquisitions (1,810 ) 0
Capital improvements (41,370 ) (47,523 )
Decrease (increase) in capital improvement reserves (1,351 ) 2,459
Net proceeds from sale of real estate 28,374 0
Net cash used in investing activities (72,951 ) (162,648 )

Cash flows from financing activities:
Repurchases of common shares 0 (361 )
Repurchases of common shares to satisfy employee withholding requirements (432 ) (459 )
Equity issuance costs 0 (1,176 )
Distributions paid to common shareholders (200,716 ) (161,940 )
Net proceeds from (payments on) revolving credit facility (53,300 ) 187,300
Payments on extinguished credit facility 0 (111,100 )
Proceeds from term loans 85,000 150,000
Proceeds from mortgage debt 0 24,000
Payments of mortgage debt (37,219 ) (157,823 )
Financing costs (891 ) (3,764 )
Net cash used in financing activities (207,558 ) (75,323 )

Net change in cash and cash equivalents 0 0

Cash and cash equivalents, beginning of period 0 0

Cash and cash equivalents, end of period $ 0 $ 0

Supplemental cash flow information:
Interest paid $ 35,049 $ 30,192

Supplemental disclosure of noncash investing and financing activities:
    Stock consideration in Apple Ten merger (see note 2) $ 0 $ 956,086
    Accrued distribution to common shareholders $ 22,302 $ 22,325
    Mortgage debt assumed by buyer upon sale of real estate $ 27,073 $ 0

See notes to consolidated financial statements.

Index

Apple Hospitality REIT, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine Months Ended
	September 30,
	2020			2019
Cash flows from operating activities:
Net income (loss)	$	(121,960	)	$	146,464
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		149,590			143,946
Loss on impairment of depreciable real estate assets		4,382			6,467
Gain on sale of real estate		(8,785	)		(1,052	)
Other non-cash expenses, net		6,055			2,915
Changes in operating assets and liabilities:
Increase in due from third party managers, net		(3,037	)		(11,356	)
Increase in other assets, net		(1,627	)		(4,387	)
Increase in accounts payable and other liabilities		1,581			8,521
Net cash provided by operating activities		26,199			291,518

Cash flows from investing activities:
Acquisition of hotel properties, net		(88,687	)		(52,407	)
Refunds (payments) for potential acquisitions, net		585			(1,529	)
Capital improvements		(44,383	)		(51,608	)
Net proceeds from sale of real estate		44,385			95,029
Net cash used in investing activities		(88,100	)		(10,515	)

Cash flows from financing activities:
Repurchases of common shares		(14,336	)		(4,335	)
Repurchases of common shares to satisfy employee withholding requirements		(1,748	)		(491	)
Distributions paid to common shareholders		(67,324	)		(201,497	)
Equity issuance costs		(247	)		-
Net proceeds from (payments on) revolving credit facility		78,800			(117,300	)
Proceeds from term loans and senior notes		50,000			75,000
Proceeds from mortgage debt and other loans		81,520			-
Payments of mortgage debt and other loans		(41,523	)		(30,468	)
Financing costs		(2,283	)		(257	)
Net cash provided by (used in) financing activities		82,859			(279,348	)

Net change in cash, cash equivalents and restricted cash		20,958			1,655

Cash, cash equivalents and restricted cash, beginning of period		34,661			33,632

Cash, cash equivalents and restricted cash, end of period	$	55,619		$	35,287

Supplemental cash flow information:
Interest paid	$	46,737		$	45,554

Supplemental disclosure of noncash investing and financing activities:
Notes payable originated from acquisitions	$	20,551		$	-
Accrued distribution to common shareholders	$	-		$	22,384

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		34,661			33,632
Cash, cash equivalents and restricted cash, beginning of period	$	34,661		$	33,632

Cash and cash equivalents, end of period	$	27,435		$	-
Restricted cash-furniture, fixtures and other escrows, end of period		28,184			35,287
Cash, cash equivalents and restricted cash, end of period	$	55,619		$	35,287

See notes to consolidated financial statements.

Index

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.~~States (“U.S.”). The Company’s fiscal year end is December 31. The Company has no foreign operations or assets and its operating structure includes only ~~one~~1 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~~decision-making process of these entities, and therefore does not consolidate the entities. As of September 30, ~~2017,~~2020, the Company owned ~~237~~235 hotels with an aggregate of ~~30,188~~30,023 rooms located in ~~33 states, including one hotel with 316 rooms classified as held for sale, which was sold to an unrelated party in October 2017.~~34 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 U.S. 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, 2019 (the “2019 Form 10-K”). Operating results for the three and nine months ended September 30, ~~2017~~2020 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, ~~2017.~~

2020.

Use of Estimates

The preparation of the financial statements in conformity with ~~United States generally accepted accounting principles~~GAAP 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.

Novel Coronavirus COVID-19 Pandemic

As a result of the current novel coronavirus COVID-19 pandemic (“COVID-19”) and the impact it has had on travel and the broader economy throughout the U.S., the Company’s hotels have experienced significant declines in occupancy, which has had and is expected to continue to have a significant negative effect on the Company’s revenue and operating results. There remains significant uncertainty as to when operations at the hotels will return to normalized levels. As of September 30, 2020, although each of the Company’s hotels were open and receiving reservations, the Company continued to intentionally consolidate operations for 8 hotels in market clusters to maximize operational efficiencies.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The fair market value of cash and cash equivalents approximates their carrying value. The Company’s cash and cash equivalents are distributed among several major banks, but the balances may at times exceed federal depository insurance limits.

Investment in Real Estate

The Company monitors its properties on an ongoing basis by analytically reviewing financial performance and considers each property individually for purposes of reviewing for indicators of impairment. The Company considered COVID-19 as a potential indicator of impairment and as a result of the impact on the Company’s operating results for the three and nine months ended September 30, 2020, the Company performed recoverability analyses for each of its properties consistent with its annual process. The analyses compared each property’s net book value to its estimated operating income based on assumptions and estimates about the property’s future revenues, expenses and capital expenditures after recovery from disruption resulting from COVID-19 and other disruptive events such as renovations or newly opened hotels in the same market. If events or circumstances change, such as the Company’s intended hold period for a property or if the operating performance of a property remains at current levels or declines substantially for an extended period of time, the Company’s carrying value for a particular property may not be recoverable, and an impairment loss will be recorded. Impairment losses are measured as the difference between the asset’s fair value and its carrying value. The Company’s recoverability analyses did not identify any impairment losses for the three and nine months ended September 30, 2020 and 2019. However, the Company recorded a loss on impairment of 1 property during the nine months ended September 30, 2020 totaling approximately $4.4 million, as discussed in Note 3.

Index

Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net income (loss) 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 (loss) per common share were the same for each of the periods presented.

Reclassifications

Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period presentation with no effect on previously reported net income or shareholders’ equity.

Accounting Standards Recently Adopted

In ~~January 2017,~~August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2017-01,~~ ~~Business Combinations~~2018-13, Fair Value Measurement (Topic ~~805)~~820), ~~Clarifying~~Disclosure Framework – Changes to the ~~Definition of a Business~~Disclosure Requirements for Fair Value Measurement, which ~~is intended~~removes, modifies and adds fair value disclosure requirements, including a new requirement to ~~add guidance~~disclose the range and weighted average of significant observable inputs used to ~~assist entities with evaluating whether transactions should~~develop Level 3 fair value measurements. Certain disclosures are required to be ~~accounted for as acquisitions (or disposals) of assets or businesses. The standard is effective for annual~~applied retrospectively and ~~interim periods beginning after December 15, 2017 with early adoption permitted.~~others applied prospectively. The Company adopted this standard ~~effective~~as of January 1, ~~2017 on a prospective basis. Prior to~~2020, and 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 three hotels during the first nine months 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 doesdid not ~~apply to asset acquisitions.~~

~~Index~~

~~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 to annual and interim periods beginning after December 15, 2017, and permitted early application for annual reporting periods beginning after December 15, 2016. The Company plans to adopt this standard on January 1, 2018 using the modified retrospective approach. Although the Company is still evaluating this ASU, based on its assessment to date, the Company does not believe there will be a significant change to the amount or timing of the recording of revenue in its consolidated financial statements.

~~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 update must be applied at the same time as the adoption of ASU No. 2014-09. The Company plans to adopt this standard on January 1, 2018 using the modified retrospective approach. T~~he adoption of this standard is not expected to~~ have a material impact on the Company’s consolidated financial ~~statements.~~

statements and related disclosures.

In ~~August 2017,~~March 2020, the FASB issued ASU No. ~~2017-12,~~ ~~Derivatives and Hedging~~2020-04, Reference Rate Reform (Topic ~~815), Targeted Improvements to Accounting for Hedging Activities~~848), which ~~amends~~provides optional guidance through December 31, 2022 to ease the ~~hedge~~potential burden in accounting ~~model~~for, or recognizing the effects of, reference rate reform on financial reporting. The amendments in ASU No. 2020-04 apply to ~~enable entities to better portray their risk management activities in their financial statements and enhance~~contract modifications that replace a reference rate affected by reference rate reform, providing optional expedients regarding the ~~transparency and understandability of hedging activity. The standard simplifies the application~~measurement 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 standard requires a modified retrospective approach for all hedgeeffectiveness in hedging relationships that ~~exist on~~have been modified to replace a reference rate. The guidance in ASU No. 2020-04 became effective upon issuance and the ~~date~~provisions of ~~adoption. The presentation and disclosure guidance is required only prospectively. The Company is currently evaluating when it will adopt~~ the ~~standard. The adoption of this standard is~~ASU did not ~~expected to~~ have a material impact on the Company’s consolidated financial ~~statements.~~

~~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~~statements and ~~Plan~~related disclosures as 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”). All costs (reimbursements) related to the merger were recorded in the period incurred and are included in transaction and litigation costs (reimbursements) in the Company’s consolidated financial statements. In connection with the merger, the Company incurred approximately $37.6 million in merger costs for the nine months ended September 30, 2016, which included $32.0 million funded by the Company in January 2017 to settle the Apple Ten merger lawsuit and approximately $1.8 million in legal costs incurred to defend the lawsuit. During 2017, the Company received $12.6 million in proceeds from its director and officer insurance carriers in connection with the merger lawsuit, of which $10.0 million (received in January 2017) and $2.6 million (received in May 2017) were included as reductions in transaction and litigation costs (reimbursements) for the fourth quarter of 2016 and nine months ended September 30, 2017, respectively. Further discussion of the merger litigation is included in Note 10.

~~Index~~

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 nine month periods ended September 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 September 30, Nine Months Ended September 30,
2017 (Actual) 2016 (Proforma) 2017 (Proforma) 2016 (Proforma)
Total revenue $ 324,926 $ 325,924 $ 949,555 $ 949,760
Net income $ 62,824 $ 59,960 $ 182,209 $ 176,985
Basic and diluted net income per common share $ 0.28 $ 0.27 $ 0.82 $ 0.79
Weighted average common shares outstanding - basic and diluted 223,057 223,403 223,052 223,399

For purposes of calculating these pro forma amounts, merger transaction and litigation costs (reimbursements) totaling approximately ($2.6) million for the nine months ended September 30, 2017, and approximately $36.4 million and $37.6 million for the three and nine months ended September 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.

3.2020.

2. Investment in Real Estate

The Company’s investment in real estate consisted of the following (in thousands):

	September 30,			December 31,
	2020			2019
Land	$	726,943		$	724,054
Building and Improvements		4,542,214			4,458,383
Furniture, Fixtures and Equipment		503,643			486,386
Finance Ground Lease Assets		203,617			197,617
Franchise Fees		13,773			13,727
		5,990,190			5,880,167
Less Accumulated Depreciation and Amortization		(1,196,245	)		(1,054,429	)
Investment in Real Estate, net	$	4,793,945		$	4,825,738

September 30, December 31,
2017 2016

Land $ 711,826 $ 707,878
Building and Improvements 4,294,310 4,270,095
Furniture, Fixtures and Equipment 411,376 391,421
Franchise Fees 11,865 11,692
5,429,377 5,381,086
Less Accumulated Depreciation (686,787 ) (557,597 )
Investment in Real Estate, net $ 4,742,590 $ 4,823,489

As of September 30, ~~2017,~~2020, the Company owned ~~237~~235 hotels with an aggregate of ~~30,188~~30,023 rooms located in ~~33 states, including one hotel with 316 rooms classified as held for sale, which was sold to an unrelated party in October 2017.~~

34 states.

The Company leases all of its hotels to its wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under master hotel lease agreements.

~~Index~~

Hotel Acquisitions

The Company acquired ~~three~~4 hotels during the ~~first~~ nine months ~~of 2017.~~ended September 30, 2020. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price, excluding transaction costs, for each hotel. All dollar amounts are in thousands.

City

State

Brand

Manager

Date

Acquired

Rooms

Gross

Purchase

Price

Cape Canaveral

Hampton

LBA

4/30/2020

116

24,102

Cape Canaveral

Home2 Suites

LBA

4/30/2020

108

22,602

Tempe

Hyatt House

Crestline

8/13/2020

105

26,309

Tempe

Hyatt Place

Crestline

8/13/2020

154

38,279

483

111,292

City State Brand Manager Date Acquired Rooms Gross Purchase Price (a)
Fort Worth TX Courtyard LBA 2/2/2017 124 $ 18,000
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
334 $ 56,438

~~(a)~~

The acquisitions of these hotel properties were accounted for as acquisitions of a group of assets, with costs incurred to effect the acquisitions, which were not significant, capitalized as part of the cost of the assets acquired. The gross purchase price excludes capitalized transaction costs. At the date of purchase, the purchase price for each of these properties was funded through the Company’s revolving credit facility.

~~(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.~~

~~On July 1, 2016,~~

Index

During the year ended December 31, 2019, the Company ~~closed on~~acquired 3 hotels, including 2 hotels during the nine months ended September 30, 2019. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price, excluding transaction costs, for each hotel. All dollar amounts are in thousands.

City

State

Brand

Manager

Date

Acquired

Rooms

Gross

Purchase

Price

St. Paul

Hampton

Vista Host

3/4/2019

160

31,680

Orlando

Home2 Suites

LBA

3/19/2019

128

20,736

Richmond

Independent

Crestline

10/9/2019

6,875

343

59,291

The Company utilized $25.0 million of its available cash and entered into a ~~newly constructed 128-room Home2 Suites hotel in Atlanta, Georgia,~~one-year note payable with the ~~same day~~developer secured by the ~~hotel opened~~hotels for ~~business, for a~~$21.7 million to fund the purchase price of the Cape Canaveral, Florida hotels. The note payable bears interest, which is payable monthly, at a floating annual rate equal to the London Inter-Bank Offered Rate for a one-month term (“one-month LIBOR”) plus a margin of 2.0% for the first six months of the loan term and 3.0% for the second six months of the loan term. In July 2020, the principal amount of the note was reduced by approximately ~~$24.6 million.~~$1.1 million representing a credit from the developer for shared construction savings. The Company used borrowings under its revolving credit facility to purchase the ~~hotel. Additionally,~~Tempe, Arizona hotels as described in Note 2, effective September 1, 2016, the Company completed the merger with Apple Ten, which added 56 hotels, located in 17 states, with an aggregate of 7,209 rooms to the Company’s real estate portfolio. The total real estate valuewell as each of the ~~merger was estimated to be approximately $1.3 billion.~~hotels acquired in 2019. The ~~Company~~acquisitions of these hotel properties were accounted for as acquisitions of asset groups, whereby costs incurred to effect the ~~purchase~~acquisitions (which were not significant) were capitalized as part of ~~these hotels in accordance with ASC 805,~~ ~~Business Combinations.~~ ~~No goodwill was recorded in connection with any~~the cost of ~~these acquisitions.~~the assets acquired. For the 574 hotels acquired during the nine months ended September 30, ~~2016,~~2020, the amount of revenue and operating ~~income (excluding merger and other acquisition related transaction costs)~~loss included in the Company’s consolidated ~~statements~~statement of operations from the date of acquisition through September 30, ~~2016~~2020 was approximately ~~$25.0~~$1.5 million and ~~$9.5~~$(0.9) million, respectively.

For the 2 hotels acquired during the nine months ended September 30, 2019, the amount of revenue and operating income included in the Company’s consolidated statement of operations from the date of acquisition through September 30, 2019 was approximately $6.3 million and $1.3 million, respectively.

Hotel Purchase Contract Commitments

As of September 30, ~~2017,~~2020, the Company had 1 outstanding ~~contracts~~contract, which was entered into prior to 2020, for the potential purchase of ~~four additional hotels~~a hotel in Madison, Wisconsin for ~~a total~~an expected purchase price of approximately ~~$146.1~~$49.6 million. ~~Two of~~The hotel is expected to be branded as a Hilton Garden Inn with 176 rooms and a $0.3 million refundable contract deposit (if the ~~hotels,~~seller does not meet its obligations under the ~~Salt Lake City Residence Inn~~contract) has been paid. The hotel is under development and ~~the Portland Residence Inn, which are already in operation, were acquired in October 2017. The two remaining hotels are under construction and are~~is planned to be completed and opened for business ~~over~~within the next 12six months from September 30, ~~2017,~~2020, at which time closing on ~~these hotels~~this hotel is expected to occur. Although the Company is working towards acquiring ~~the two hotels under construction,~~this hotel, there are ~~many~~a number of conditions to closing that have not yet been satisfied and there can be no assurance that a closing on ~~these hotels~~this hotel will occur under the outstanding purchase ~~contracts. The following table summarizes the location, brand, date of purchase contract, expected number of rooms, refundable (if~~contract. If the seller ~~does not meet its obligations under the contract) contract deposits paid, and gross purchase price for each~~meets all of the ~~contracts~~conditions to closing, the Company is obligated to specifically perform under this contract. As the property is under development, at this time, the seller has not met all of the conditions to closing. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to purchase the hotel under contract if closing occurs.

Additionally, as of December 31, 2019, the Company had an outstanding atcontract to purchase a Courtyard hotel in Denver, Colorado, which it terminated in May 2020. The refundable deposit of approximately $0.6 million associated with the contract was repaid to the Company.

3. Dispositions and Hotel Sale Contracts

Dispositions

During the nine months ended September 30, ~~2017. All dollar amounts are in thousands.~~

Location Brand Date of Purchase Contract Rooms Refundable Deposits Gross Purchase Price
Operating (a)

Salt Lake City, UT Residence Inn 8/22/2017 136 $ 500 $ 25,500
Portland, ME Residence Inn 8/30/2017 179 1,000 55,750
Under development (b)

Phoenix, AZ Hampton 10/25/2016 210 500 44,100
Orlando, FL Home2 Suites 1/18/2017 128 3 20,736
653 $ 2,003 $ 146,086

~~(a)~~

~~Closing on these hotels occurred in October 2017.~~

~~(b)~~

As of September 30, 2017, these hotels were under construction. The table shows the expected number of rooms upon hotel completion and the expected franchise brands. Assuming all conditions to closing are met, the purchases of these hotels are expected to close over the next 12 months from September 30, 2017. 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.

~~Index~~

The purchase price for each of the Salt Lake City Residence Inn and Portland Residence Inn was funded through the Company’s revolving credit facility and it is anticipated that the purchase price for the remaining outstanding contracts will be funded similarly.

~~Loss on Impairment of Depreciable Real Estate Assets~~

~~During the first quarter of 2017,~~2020, the Company ~~identified two properties for potential sale: the Columbus, Georgia SpringHill Suites and TownePlace Suites hotels. In April 2017, the Company entered into separate contracts~~sold 2 hotels in 2 transactions with ~~the same~~ unrelated ~~party for the sale of these properties~~parties for a total combined gross sales price of approximately $10.0 million. 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$45.0 million, in the first quarter of 2017 to adjust the bases of these properties to their estimated fair values, which were based on the 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.

During the third quarter of 2016, the Company identified two properties for potential sale: the Dallas, Texas Hilton hotel and the Chesapeake, Virginia Marriott hotel. In October 2016, the Company entered into separate contracts for the sale of these 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 commissions and other selling costs) and determined that the Chesapeake, Virginia Marriott’s estimated undiscounted cash flows were less than its carrying value; therefore the Company recognized an impairment loss of approximately $5.5 million in the third quarter of 2016 to adjust the basis of this property to its estimated fair value, which was based on the original contracted sale price, net of broker commissions and other estimated selling costs, a Level 1 input under the fair value hierarchy. The Chesapeake, Virginia Marriott was sold in December 2016. The Dallas, Texas Hilton contract was terminated in November 2016, and, as discussed in Note 4, a new purchase and sale agreement was entered into by the Company in December 2016, and the hotel was sold in April 2017.

~~4. Assets Held for Sale and 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 combined gain on sale of approximately ~~$16.0~~$8.8 million, net of transaction costs, which is included in the Company’s consolidated statement of operations for the nine months ended September 30, ~~2017.~~2020. The ~~hotel~~2 hotels had a total carrying value ~~totaling~~of approximately ~~$39.0~~$35.7 million at the ~~date~~time of sale. ~~Under~~The following table lists the ~~contract, at closing,~~two hotels sold:

City	State	Brand	Date Sold	Rooms
Sanford	FL	SpringHill Suites	1/16/2020		105
Boise	ID	SpringHill Suites	2/27/2020		230
Total					335

Index

During 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.~~

~~In June 2017,~~year ended December 31, 2019, the Company ~~entered into~~sold 11 hotels in 3 transactions with unrelated parties for a ~~purchase and sale agreement with an unrelated party for the sale of its 316-room Marriott hotel in Fairfax, Virginia, acquired by the Company in the merger with Apple Ten in September 2016, for a~~total combined gross sales price of ~~$41.5~~approximately $121.7 million, ~~as amended. The hotel was classified as held for~~resulting in a combined gain on sale ~~at its historical cost (which was less than the contract price, net~~ of ~~costs to sell)~~approximately $5.6 million, which is included in the Company’s consolidated ~~balance sheet as~~statement of ~~September 30, 2017.~~ ~~On October 5, 2017,~~operations for the ~~Company completed the sale, resulting in an estimated gain~~year ended December 31, 2019. The 11 hotels had a total carrying value of approximately ~~$0.3~~$115.1 million ~~which will be recognized in~~at the ~~fourth quarter~~time of ~~2017.~~the sale. The ~~estimated gain is calculated as~~following table lists the ~~total sales price, net~~11 hotels sold:

City	State	Brand	Date Sold	Rooms
Sarasota	FL	Homewood Suites	3/28/2019		100
Tampa	FL	TownePlace Suites	3/28/2019		94
Baton Rouge	LA	SpringHill Suites	3/28/2019		119
Holly Springs	NC	Hampton	3/28/2019		124
Duncanville	TX	Hilton Garden Inn	3/28/2019		142
Texarkana	TX	Courtyard	3/28/2019		90
Texarkana	TX	TownePlace Suites	3/28/2019		85
Bristol	VA	Courtyard	3/28/2019		175
Harrisonburg	VA	Courtyard	3/28/2019		125
Winston-Salem	NC	Courtyard	12/19/2019		122
Fort Lauderdale	FL	Hampton	12/30/2019		109
Total					1,285

Excluding gains on sale of ~~commissions and selling costs, less~~real estate, the ~~carrying value totaling approximately $40.6 million as of September 30, 2017.~~

~~The net proceeds from the sales were used to pay down borrowings on the Company’s revolving credit facility.~~ ~~The~~ Company’s consolidated statements of operations include operating income (loss) of approximately ~~$0.2~~$0.1 million and ~~$0.8 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $2.4 million and $2.1~~$(2.0) million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, relating to the results of operations of the ~~two~~13 hotels noted above (the 2 hotels sold in the first nine months of 2020 and the 11 hotels sold in 2019) for the period of ownership. The sale of these properties 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 these properties are included in income from continuing operations for the ~~three and~~ nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019. The net proceeds from the sales were used to pay down borrowings on the Company’s revolving credit facility.

Hotel Sale Contracts and Loss on Impairment of Depreciable Real Estate Assets

In June 2020, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 140-room Memphis, Tennessee Homewood Suites for a gross sales price of approximately $9.0 million. As a result, the Company recognized an impairment loss of approximately $4.4 million in the second quarter of 2020, representing the difference between the carrying value of the hotel and the contracted sales price, net of estimated selling costs, which is a Level 1 input under the fair value hierarchy. The contract was terminated in October 2020.

During the third quarter of 2019, the Company identified the Winston-Salem, North Carolina Courtyard for potential sale and, in August 2019, entered into a purchase and sale agreement with an unrelated party (which was subsequently amended) for the sale of the hotel for a gross sales price of approximately $6.7 million. As a result, the Company recognized an impairment loss of approximately $6.5 million in the third quarter of 2019, to adjust the carrying value of the hotel to its estimated fair value less costs to sell, which was based on the contracted sales price, a Level 1 input under the fair value hierarchy. The Company completed the sale of the hotel in December 2019.

4. Debt

Summary

As of September 30, 2020, and December 31, 2019, the Company’s debt consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Revolving credit facility	$	129,700	$	50,900
Term loans and senior notes, net		863,813		813,934
Mortgage debt, net		515,426		455,573
Debt, net	$	1,508,939	$	1,320,407

Index

The aggregate amounts of principal payable under the Company’s total debt obligations as of September 30, 2020 (including the revolving credit facility, term loans, senior notes and mortgage debt), for the five years subsequent to September 30, 2020 and thereafter are as follows (in thousands):

2020 (October - December)	$	2,745
2021		70,724
2022		239,531
2023		296,213
2024		338,597
Thereafter		567,405
		1,515,215
Unamortized fair value adjustment of assumed debt		1,850
Unamortized debt issuance costs		(8,126	)
Total	$	1,508,939

The Company uses interest rate swaps to manage its interest rate risks on a portion of its 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 one-month LIBOR. The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. See Note 5 for more information on the interest rate swap agreements. The Company’s total fixed-rate and variable-rate debt, after giving effect to its interest rate swaps in effect at September 30, 2020 and December 31, 2019, is set forth below. All dollar amounts are in thousands.

	September 30, 2020			Percentage			December 31, 2019			Percentage
Fixed-rate debt (1)	$	1,289,964			85	%	$	1,297,467			98	%
Variable-rate debt		225,251			15	%		28,400			2	%
Total	$	1,515,215					$	1,325,867
Weighted-average interest rate of debt		3.82	%					3.59	%

(1)	Fixed-rate debt includes the portion of variable-rate debt where the interest payments have been effectively fixed by interest rate swaps as of the respective balance sheet date. See Note 5 for more information on the interest rate swap agreements.

Credit Facilities

Credit Facilities Amendments

As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company anticipated that it may not be able to maintain compliance with certain covenants under each of its unsecured credit facilities in future periods. As a result, on June 5, 2020, the Company entered into amendments to each of the unsecured credit facilities.

The amendments suspend the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities until the date the compliance certificate is required to be delivered for the fiscal quarter ending June 30, 2021 (unless the Company elects an earlier date) (the “Covenant Waiver Period”), and provide for, among other restrictions, the following during the Covenant Waiver Period:

●

Mandatory prepayments of amounts outstanding under the Company’s unsecured credit facilities of net cash proceeds from certain debt and equity issuances and asset dispositions, subject to various exceptions. A portion of the mandatory prepayments will be available for future borrowing under the revolving credit facility;

Index

●

A minimum liquidity covenant of $100 million;

●

A requirement to pledge the equity interests of each direct or indirect owner of certain unencumbered property in favor of the administrative agents if average liquidity for any month is less than $275 million or the total amount outstanding under the revolving credit facility exceeds $275 million;

●

Restrictions on the Company’s and its subsidiaries’ ability to incur additional indebtedness or prepay certain existing indebtedness;

●

Restrictions on the Company’s ability to make cash distributions (except to the extent required to maintain REIT status) and share repurchases;

●

Maximum discretionary capital expenditures of $50 million;

~~Index~~

●

Limitations on additional investments; and

●

An increase in the applicable interest rate under the unsecured credit facilities until the end of the Covenant Waiver Period to a rate that corresponds to the highest leverage-based applicable interest rate margin with respect to the unsecured credit facilities.

The amendments also modify the calculation of the existing financial covenants for the four quarters subsequent to the end of the Covenant Waiver Period to annualize calculated amounts to the extent the most recently ended fiscal quarter is not at least four fiscal quarters from the end of the Covenant Waiver Period, and provide for an increase in the LIBOR floor under the credit agreements from 0 to 25 basis points for Eurodollar Rate Loans and establish a Base Rate floor of 1.25% on the revolving credit facility, and any term loans under the credit agreements that are not hedged. Except as otherwise set forth in the amendments, the terms of the credit agreements remain in effect.

The credit agreements governing the unsecured credit facilities contain mandatory prepayment requirements, customary affirmative and negative covenants, restrictions on certain investments and events of default. The credit agreements contain the following financial and restrictive covenants, each of which are suspended during the Covenant Waiver Period (capitalized terms are defined in the credit agreements).

●

A ratio of Consolidated Total Indebtedness to Consolidated EBITDA of not more than 6.50 to 1.00 (subject to a higher amount in certain circumstances);

~~5. Debt~~

●

A ratio of Consolidated Secured Indebtedness to Consolidated Total Assets of not more than 45%;

●

A minimum Consolidated Tangible Net Worth of approximately $3.2 billion (plus an amount equal to 75% of the Net Cash Proceeds from issuances and sales of Equity Interests occurring after the Closing Date, subject to adjustment);

●

A ratio of Adjusted Consolidated EBITDA to Consolidated Fixed Charges of not less than 1.50 to 1.00 for the trailing four full quarters;

●

A ratio of Unencumbered Adjusted NOI to Consolidated Implied Interest Expense for Consolidated Unsecured Indebtedness of not less than 2.00 to 1.00 for the trailing four full quarters;

●

A ratio of Consolidated Unsecured Indebtedness to Unencumbered Asset Value of not more than 60% (subject to a higher level in certain circumstances); and

●

A ratio of Consolidated Secured Recourse Indebtedness to Consolidated Total Assets of not more than 10%.

As of September 30, 2020, the Company was in compliance with the applicable covenants of the credit agreements as amended.

Index

$~~965~~850 Million Credit Facility

The Company utilizes an unsecured “$~~965~~850 million credit facility” comprised of (i) a ~~$540~~$425 million revolving credit facility with an initial maturity date of ~~May 18, 2019~~July 27, 2022 and (ii) a $425 million term loan facility consisting of 2 term loans: a $200 million term loan with a maturity date of ~~May 18, 2020, consisting~~July 27, 2023, and a $225 million term loan with a maturity date of ~~three term loans, all funded during 2015~~January 31, 2024 (the “$425 million term ~~loans”~~loan facility”). Subject to certain conditions including covenant compliance and additional fees, the $425 million revolving credit facility maturity date may be extended up to 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~~$850 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%~~1.35% to ~~2.30%~~2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. ~~In conjunction with the $425 million term loans,~~As of September 30, 2020, the Company ~~entered into two interest rate swap agreements, which effectively fix~~had corporate cash on hand of $27.4 million and availability of $295.3 million under 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.revolving credit facility. The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or ~~0.30%~~0.25% on the unused portion of the $425 million revolving credit facility, based on the amount of borrowings outstanding during the quarter.

$~~150~~225 Million Term Loan Facility

~~On April 8, 2016, the~~

The Company ~~entered into~~has an unsecured ~~$150~~$225 million term loan facility ~~with~~that is comprised of (i) a syndicate of commercial banks (the “$150 million term loan facility”), consisting of a term loan of up to $50 million that will mature on April 8, 2021 (the “$50 million term loan”) and a 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~~with a maturity date of August 2, 2023, which was funded on August 2, 2018, and (ii) a $175 million term loan ~~facility~~with a maturity date of August 2, 2025, of which $100 million was funded on ~~April 8, 2016~~August 2, 2018 and ~~borrowed~~ the remaining ~~$100~~$75 million was funded on ~~September 30, 2016.~~January 29, 2019. The credit agreement contains requirements and covenants similar to the Company’s ~~$965~~$850 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~~$225 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from ~~1.45%~~1.35% to ~~2.20% for the $50 million term loan and 1.80% to 2.60% for the $100 million term loan,~~2.50%, 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 borrowings on 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~~

2017 $85 Million Term Loan

Facility

On July 25, 2017, the Company entered into an unsecured $85 million term loan ~~with a syndicate of commercial banks,~~facility with a maturity date of July 25, 2024, consisting of 1 term loan that was funded at closing (the ~~“$85 million term loan” and, together with the $425 million term loans and the $150 million term loans, the “term loans”). Net proceeds from the~~“2017 $85 million term loan ~~were used to pay down outstanding 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.~~ facility”). The credit agreement, as amended and restated in August 2018, contains requirements and covenants similar to the Company’s ~~$965~~$850 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 2017 $85 million term loan facility are due monthly. In July 2019, the Company entered into an amendment of the 2017 $85 million term loan facility to reduce the interest rate margin from 1.80% - 2.60% to 1.30% - 2.10%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement, for the remainder of the term.

2019 $85 Million Term Loan Facility

On December 31, 2019, the Company entered into an unsecured $85 million term loan facility with a maturity date of December 31, 2029, consisting of 1 term loan funded at closing (the “2019 $85 million term loan facility”). Net proceeds from the 2019 $85 million term loan facility were used to pay down borrowings on the Company’s revolving credit facility. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, subject to certain conditions. Interest payments on the 2019 $85 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from ~~1.80%~~1.70% to ~~2.60%~~2.55%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. ~~In conjunction~~

$50 Million Senior Notes Facility

On March 16, 2020, the Company entered into an unsecured $50 million senior notes facility with a maturity date of March 31, 2030, consisting of senior notes totaling $50 million funded at closing (the “$50 million senior notes facility” and, collectively with the $850 million credit facility, the $225 million term loan facility, the 2017 $85 million term loan ~~the Company entered into two interest rate swap agreements (one in May 2017 with a notional amount of $75 million, effective July 31, 2017,~~facility and the ~~other in August 2017 with a notional amount of $10 million, effective August 10, 2017), which effectively fix the interest rate on the~~2019 $85 million term loan facility, the “unsecured credit facilities”). Net proceeds from the $50 million senior notes facility are available to provide funding for general corporate purposes. The note agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at ~~approximately 3.76%,~~any time, subject to ~~adjustment based~~certain conditions, including make-whole provisions. Interest payments on the $50 million senior notes facility are due quarterly and the interest rate, subject to certain exceptions, ranges from an annual rate of 3.60% to 4.35% depending on the Company’s leverage ratio,~~, through maturity. See Note 6 for more information on~~ as calculated under the ~~interest rate swap agreements~~.

terms of the facility.

Index

As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the details of the Company’s ~~revolving~~unsecured credit ~~facility and term loans~~facilities were as set forth below. All dollar amounts are in thousands.

			Outstanding Balance
	Interest Rate	Maturity Date	September 30, 2020			December 31, 2019
Revolving credit facility (1)	LIBOR + 1.40% - 2.25%	7/27/2022	$	129,700		$	50,900

Term loans and senior notes
$200 million term loan	LIBOR + 1.35% - 2.20%	7/27/2023		200,000			200,000
$225 million term loan	LIBOR + 1.35% - 2.20%	1/31/2024		225,000			225,000
$50 million term loan	LIBOR + 1.35% - 2.20%	8/2/2023		50,000			50,000
$175 million term loan	LIBOR + 1.65% - 2.50%	8/2/2025		175,000			175,000
2017 $85 million term loan	LIBOR + 1.30% - 2.10%	7/25/2024		85,000			85,000
2019 $85 million term loan	LIBOR + 1.70% - 2.55%	12/31/2029		85,000			85,000
$50 million senior notes	3.60% - 4.35%	3/31/2030		50,000			-
Term loans and senior notes at stated value				870,000			820,000
Unamortized debt issuance costs				(6,187	)		(6,066	)
Term loans and senior notes, net				863,813			813,934

Credit facilities, net (1)			$	993,513		$	864,834
Weighted-average interest rate (2)				3.61	%		3.14	%

As of September 30, 2017 As of December 31, 2016

Maturity Date Outstanding Balance Interest Rate Outstanding Balance Interest Rate
Revolving credit facility (1) 5/18/2019 $ 216,700 2.78 % (2 ) $ 270,000 2.32 % (2 )

Term loans
$425 million term loans 5/18/2020 425,000 3.01 % (3 ) 425,000 2.90 % (3 )
$50 million term loan 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 )
$85 million term loan 7/25/2024 85,000 3.76 % (4 ) 0 n/a
Total term loans at stated value 660,000 575,000
Unamortized debt issuance costs (4,012 ) (4,066 )
Total term loans 655,988 570,934

Total revolving credit facility and term loans $ 872,688 $ 840,934

(1)

~~Unamortized~~

Excludes unamortized debt issuance costs related to the revolving credit facility ~~totaled~~totaling approximately ~~$2.0~~$2.4 million and ~~$2.8~~$2.6 million as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, ~~and~~which are included in other assets, net in the Company's consolidated balance sheets.

(2)	~~Annual variable interest~~ Interest rate atrepresents the ~~balance sheet date.~~
~~(3)~~	~~Effective~~weighted-average effective annual interest rate 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's leverage ratio. See Note 6 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 interest rate swaps in effect on $745.0 million and $842.5 million of the outstanding ~~loan balance, subject to adjustment based on the Company’s leverage ratio.~~variable-rate debt as of September 30, 2020 and December 31, 2019, respectively. See Note 65 for more information on the interest rate swap agreements. The one-month LIBOR at September 30, 2020 and December 31, 2019 was 0.15% and 1.76%, respectively.

The credit agreements governing the $965 million credit facility, the $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 September 30, 2017.

Mortgage Debt

As of September 30, ~~2017,~~2020, the Company had approximately ~~$430.1~~$516 million in outstanding ~~property level~~mortgage debt secured by 2833 properties with maturity dates ranging from ~~June 2020~~April 2021 to ~~December 2026,~~May 2038. Mortgages secured by 31 of the properties carry fixed stated interest rates ranging from ~~3.55%~~3.40% to 6.25% and effective interest rates ranging from ~~3.55%~~3.40% to 4.97%. Additionally, 1 loan secured by the 2 newly acquired Cape Canaveral properties carries a variable interest rate of one-month LIBOR plus 2.00% through October 31, 2020 and one-month LIBOR plus 3.00% from November 1, 2020 through April 30, 2021. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. As a result of the effects of the COVID-19 pandemic on certain hotels, the associated lenders granted temporary deferrals of principal and interest payments. 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 September 30, ~~2017~~2020 and December 31, ~~2016~~2019 for each of the Company’s mortgage debt obligations. All dollar amounts are in thousands.

Index

Location	Brand	Interest Rate (1)			Loan Assumption or Origination Date	Maturity Date			Principal Assumed or Originated		Outstanding balance as of September 30, 2020			Outstanding balance as of December 31, 2019
San Juan Capistrano, CA	Residence Inn		4.15	%	9/1/2016		(2	)	$	16,210	$	-		$	15,073
Cape Canaveral, FL	Hampton		(3	)	4/30/2020	4/30/2021				10,852		10,275			-
Cape Canaveral, FL	Home2 Suites		(3	)	4/30/2020	4/30/2021				10,852		10,275			-
Colorado Springs, CO	Hampton		6.25	%	9/1/2016	7/6/2021				7,923		7,357			7,471
Franklin, TN	Courtyard		6.25	%	9/1/2016	8/6/2021				14,679		13,637			13,847
Franklin, TN	Residence Inn		6.25	%	9/1/2016	8/6/2021				14,679		13,637			13,847
Grapevine, TX	Hilton Garden Inn		4.89	%	8/29/2012	9/1/2022				11,810		9,522			9,775
Collegeville/Philadelphia, PA	Courtyard		4.89	%	8/30/2012	9/1/2022				12,650		10,199			10,471
Hattiesburg, MS	Courtyard		5.00	%	3/1/2014	9/1/2022				5,732		4,772			4,897
Kirkland, WA	Courtyard		5.00	%	3/1/2014	9/1/2022				12,145		10,110			10,376
Rancho Bernardo/San Diego, CA	Courtyard		5.00	%	3/1/2014	9/1/2022				15,060		12,536			12,866
Seattle, WA	Residence Inn		4.96	%	3/1/2014	9/1/2022				28,269		23,509			24,130
Anchorage, AK	Embassy Suites		4.97	%	9/13/2012	10/1/2022				23,230		18,830			19,324
Somerset, NJ	Courtyard		4.73	%	3/1/2014	10/6/2022				8,750		7,246			7,441
Tukwila, WA	Homewood Suites		4.73	%	3/1/2014	10/6/2022				9,431		7,810			8,020
Huntsville, AL	Homewood Suites		4.12	%	3/1/2014	2/6/2023				8,306		6,808			6,999
Prattville, AL	Courtyard		4.12	%	3/1/2014	2/6/2023				6,596		5,406			5,558
San Diego, CA	Residence Inn		3.97	%	3/1/2014	3/6/2023				18,600		15,209			15,640
Miami, FL	Homewood Suites		4.02	%	3/1/2014	4/1/2023				16,677		13,668			14,051
New Orleans, LA	Homewood Suites		4.36	%	7/17/2014	8/11/2024				27,000		22,957			23,513
Westford, MA	Residence Inn		4.28	%	3/18/2015	4/11/2025				10,000		8,674			8,876
Denver, CO	Hilton Garden Inn		4.46	%	9/1/2016	6/11/2025				34,118		30,623			31,311
Oceanside, CA	Courtyard		4.28	%	9/1/2016	10/1/2025				13,655		12,674			12,812
Omaha, NE	Hilton Garden Inn		4.28	%	9/1/2016	10/1/2025				22,682		21,052			21,280
Boise, ID	Hampton		4.37	%	5/26/2016	6/11/2026				24,000		22,260			22,588
Burbank, CA	Courtyard		3.55	%	11/3/2016	12/1/2026				25,564		23,315			23,552
San Diego, CA	Courtyard		3.55	%	11/3/2016	12/1/2026				25,473		23,232			23,468
San Diego, CA	Hampton		3.55	%	11/3/2016	12/1/2026				18,963		17,295			17,471
Burbank, CA	SpringHill Suites		3.94	%	3/9/2018	4/1/2028				28,470		27,078			27,317
Santa Ana, CA	Courtyard		3.94	%	3/9/2018	4/1/2028				15,530		14,770			14,901
Richmond, VA	Courtyard		3.40	%	2/12/2020	3/11/2030				14,950		14,811			-
Richmond, VA	Residence Inn		3.40	%	2/12/2020	3/11/2030				14,950		14,811			-
Portland, ME	Residence Inn		3.43	%	3/2/2020	4/1/2030				33,500		33,500			-
San Jose, CA	Homewood Suites		4.22	%	12/22/2017	5/1/2038				30,000		27,657			28,092
									$	591,306		515,515			454,967
Unamortized fair value adjustment of assumed debt												1,850			2,526
Unamortized debt issuance costs												(1,939	)		(1,920	)
Total											$	515,426		$	455,573

~~Index~~

Location Brand Interest Rate (1) Loan Assumption or Origination Date Maturity Date Principal Assumed or Originated Outstanding balance as of September 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 15,858 16,104
Colorado Springs, CO Hampton 6.25 % 9/1/2016 7/6/2021 7,923 7,787 7,883
Franklin, TN Courtyard 6.25 % 9/1/2016 8/6/2021 14,679 14,429 14,604
Franklin, TN Residence Inn 6.25 % 9/1/2016 8/6/2021 14,679 14,429 14,604
Grapevine, TX Hilton Garden Inn 4.89 % 8/29/2012 9/1/2022 11,810 10,487 10,707
Collegeville/Philadelphia, PA Courtyard 4.89 % 8/30/2012 9/1/2022 12,650 11,233 11,468
Hattiesburg, MS Courtyard 5.00 % 3/1/2014 9/1/2022 5,732 5,249 5,357
Rancho Bernardo, CA Courtyard 5.00 % 3/1/2014 9/1/2022 15,060 13,790 14,074
Kirkland, WA Courtyard 5.00 % 3/1/2014 9/1/2022 12,145 11,121 11,350
Seattle, WA Residence Inn 4.96 % 3/1/2014 9/1/2022 28,269 25,871 26,409
Anchorage, AK Embassy Suites 4.97 % 9/13/2012 10/1/2022 23,230 20,706 21,133
Somerset, NJ Courtyard 4.73 % 3/1/2014 10/6/2022 8,750 7,990 8,160
Tukwila, WA Homewood Suites 4.73 % 3/1/2014 10/6/2022 9,431 8,611 8,795
Prattville, AL Courtyard 4.12 % 3/1/2014 2/6/2023 6,596 5,989 6,123
Huntsville, AL Homewood Suites 4.12 % 3/1/2014 2/6/2023 8,306 7,541 7,711
San Diego, CA Residence Inn 3.97 % 3/1/2014 3/6/2023 18,600 16,865 17,248
Miami, FL Homewood Suites 4.02 % 3/1/2014 4/1/2023 16,677 15,138 15,479
Syracuse, NY Courtyard 4.75 % 10/16/2015 8/1/2024 (4 ) 11,199 10,706 10,905
Syracuse, NY Residence Inn 4.75 % 10/16/2015 8/1/2024 (4 ) 11,199 10,706 10,905
New Orleans, LA Homewood Suites 4.36 % 7/17/2014 8/11/2024 27,000 25,087 25,577
Westford, MA Residence Inn 4.28 % 3/18/2015 4/11/2025 10,000 9,448 9,626
Denver, CO Hilton Garden Inn 4.46 % 9/1/2016 6/11/2025 34,118 33,253 33,857
Oceanside, CA Courtyard 4.28 % 9/1/2016 10/1/2025 13,655 13,394 13,576
Omaha, NE Hilton Garden Inn 4.28 % 9/1/2016 10/1/2025 22,682 22,248 22,550
Boise, ID Hampton 4.37 % 5/26/2016 6/11/2026 24,000 23,522 23,813
Burbank, CA Courtyard 3.55 % 11/3/2016 12/1/2026 25,564 25,081 25,564
San Diego, CA Courtyard 3.55 % 11/3/2016 12/1/2026 25,473 24,992 25,473
San Diego, CA Hampton 3.55 % 11/3/2016 12/1/2026 18,963 18,605 18,963
$ 514,669 430,136 494,428
Unamortized fair value adjustment of assumed debt 4,556 5,229
Unamortized debt issuance costs (1,909 ) (2,628 )
Total $ 432,783 $ 497,029

(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~~ Loan was repaid in full ~~during~~in March 2020.

(3)	Interest rate is variable based on one-month LIBOR plus 2.00% until October 31, 2020 and one-month LIBOR plus 3.00% from November 1, 2020 through April 30, 2021. As of September 30, 2020, the ~~three months ended March 31, 2017.~~
~~(3)~~	~~Assets securing this loan were classified as held~~interest rate was 2.15%. In July 2020, the principal amount of the note was reduced by approximately $1.1 million representing a credit from the developer 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.~~shared construction savings.

Index

~~The aggregate amounts of principal payable~~

During April and May 2020, the Company applied for and received approximately $18 million in loans under the ~~Company’s total debt obligations (including~~CARES Act Paycheck Protection Program. Due to subsequent guidance issued by the Small Business Administration and the Department of Treasury, related to the intended participants in this program, the Company repaid all amounts received. The proceeds from these loans are included in “proceeds from mortgage debt and other loans” and the ~~revolving credit facility~~repayments of these loans are included in “payments of mortgage debt and ~~term loans),~~other loans” in the Company’s consolidated statement of cash flows for the ~~five years subsequent to~~nine months ended September 30, ~~2017~~2020. The Company will continue to evaluate relief initiatives and ~~thereafter are as follows (in thousands):~~

2017 (October - December) $ 2,701
2018 11,071
2019 248,408
2020 451,164
2021 95,311
Thereafter 498,181
1,306,836
Unamortized fair value adjustment of assumed debt 4,556
Unamortized debt issuance costs related to term loans and mortgage debt (5,921 )
Total $ 1,305,471

6.stimulus packages, including any accompanying restrictions on its business that would be imposed by such packages, that may be or become available to the Company under government stimulus programs.

5. 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 September 30, ~~2017~~2020, both the carrying value and estimated fair value of the Company’s debt were approximately $1.5 billion. As of December 31, ~~2016,~~2019, both the carrying value and estimated fair value of the Company’s debt were approximately $1.3 billion. Both the carrying value and estimated fair value of the Company’s debt (as discussed above) isare net of unamortized debt issuance costs related to term loans, senior notes 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~~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 month~~one-month LIBOR. The swaps are designed to effectively fix the interest payments on ~~variable rate~~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 September 30, ~~2017~~2020 and December 31, ~~2016.~~2019. All dollar amounts are in thousands.

Index

Notional						Fair Value Asset (Liability)
Amount at September 30, 2020		Origination Date	Effective Date	Maturity Date	Swap Fixed Interest Rate	September 30, 2020			December 31, 2019
Interest rate swaps designated as cash flow hedges at September 30, 2020:
$	50,000	4/7/2016	9/30/2016	3/31/2021	1.09%	$	(235	)	$	317
	100,000	4/7/2016	9/30/2016	3/31/2023	1.33%		(3,023	)		707
	75,000	5/31/2017	7/31/2017	6/30/2024	1.96%		(5,098	)		(1,286	)
	10,000	8/10/2017	8/10/2017	6/30/2024	2.01%		(699	)		(185	)
	50,000	6/1/2018	1/31/2019	6/30/2025	2.89%		(6,422	)		(3,407	)
	50,000	7/2/2019	7/5/2019	7/18/2024	1.65%		(2,864	)		(193	)
	50,000	8/21/2019	8/23/2019	8/18/2024	1.32%		(2,272	)		595
	50,000	8/21/2019	8/23/2019	8/30/2024	1.32%		(2,287	)		603
	85,000	12/31/2019	12/31/2019	12/31/2029	1.86%		(10,474	)		(842	)
	25,000	12/6/2018	1/31/2020	6/30/2025	2.75%		(3,048	)		(1,501	)
	50,000	12/7/2018	5/18/2020	1/31/2024	2.72%		(4,353	)		(2,139	)
	75,000	8/21/2019	5/18/2020	5/18/2025	1.27%		(3,730	)		1,222
	75,000	7/31/2020	8/18/2020	8/18/2022	0.13%		1			-
	75,000	8/21/2019	5/18/2021	5/18/2026	1.30%		(3,816	)		1,309
	820,000						(48,320	)		(4,800	)

Interest rate swaps matured prior to September 30, 2020:
	212,500	5/19/2015	5/21/2015	5/18/2020	1.58%		-			78
	110,000	7/2/2015	7/2/2015	5/18/2020	1.62%		-			24
	322,500						-			102
$	1,142,500					$	(48,320	)	$	(4,698	)

Fair Value Asset (Liability)
Hedge Type
Notional Amount at
September 30, 2017
Origination Date Maturity Date
Swap Fixed
Interest Rate

September 30,
2017

December 31,
2016

Cash flow hedge $ 212,500 5/21/2015 5/18/2020 1.58 % $ 538 $ (198 )
Cash flow hedge 110,000 7/2/2015 5/18/2020 1.62 % 166 (246 )
Cash flow hedge 50,000 4/7/2016 3/31/2021 1.09 % 1,168 1,289
Cash flow hedge 100,000 4/7/2016 3/31/2023 1.33 % 3,148 3,744
Cash flow hedge 75,000 5/31/2017 6/30/2024 1.96 % 202 0
Cash flow hedge 10,000 8/10/2017 6/30/2024 2.01 % (4 ) 0
$ 557,500 $ 5,218 $ 4,589

~~Index~~

The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. ~~Changes~~As of September 30, 2020, all of the 14 unmatured interest rate swap agreements listed above were designated as cash flow hedges. The change in the fair value onof the ~~effective portion of all~~Company’s designated cash flow hedges ~~are~~is recorded to accumulated other comprehensive income (loss), a component of shareholders’ equity in the Company’s consolidated balance sheets. ~~Changes in fair value on the ineffective portion of all designated cash flow hedges are recorded to interest and other expense, net in the Company’s consolidated statements of operations.~~

To adjust qualifying cash flow hedges to their fair value and recognize the impact of hedge accounting, the Company recorded net unrealized gains (losses) of approximately $0.3 million and $4.3 million during the three months ended September 30, 2017 and 2016, respectively, and approximately $0.6 million and $(7.9) million during the nine months ended September 30, 2017 and 2016, respectively, to other comprehensive income (loss). There was no ineffectiveness recorded on designated cash flow hedges during the three and nine months ended September 30, 2017 and 2016. Amounts reported in accumulated other comprehensive income (loss) 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 previously recorded to other comprehensive income (loss) that were reclassified to interest and other expense, net during the three months ended September 30, 2017 and 2016, include approximately $(0.4) million and $(0.9) million, respectively, and during the nine months ended September 30, 2017 and 2016, include approximately $(1.8) million and $(2.9) million, respectively. The Company estimates that approximately ~~$(0.6)~~$11.0 million of net unrealized ~~gains (losses)~~losses included in accumulated other comprehensive ~~income~~loss at September 30, ~~2017~~2020 will be reclassified as ~~a net~~an increase to interest and other expense, net within the next 12 months.

The following table presents the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019 (in thousands):

	Net Unrealized Loss Recognized in Other Comprehensive Income (Loss)					Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net
	Three Months Ended September 30,					Three Months Ended September 30,
	2020		2019			2020			2019
Interest rate derivatives in cash flow hedging relationships	$	33	$	(3,298	)	$	(2,706	)	$	895

Index

	Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss)						Net Unrealized Gain Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Interest rate derivatives in cash flow hedging relationships	$	(48,628	)	$	(16,966	)	$	(5,006	)	$	3,391

6. 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 on~~2019 Form 10-K. Below is a summary of the significant related party relationships in effect during the nine months ended September 30, ~~2017~~2020 and ~~2016.~~

~~Prior to the merger,~~ 2019.

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”) and~~owns 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.~~

~~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. which receive support services from ARG.

The Company ~~provided to Apple Ten the advisory~~provides support services, ~~contemplated under the A10A advisory agreement and received an annual advisory fee and was reimbursed by Apple Ten for~~including the use of the Company’s employees and corporate office, to ARG and ~~other costs associated with~~is reimbursed by ARG for the ~~advisory agreement. Additionally,~~cost of these services. The amounts reimbursed to the Company ~~provided support~~are based on the actual costs of the services ~~to Apple Ten’s advisors, who agreed to reimburse~~and a good faith estimate of the ~~Company for its costs in providing these services. Both~~proportionate amount of time incurred by the ~~advisory fees and~~Company’s employees on behalf of ARG. Total reimbursed costs ~~received~~allocated 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 termination 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~~both the nine months ended September 30, ~~2016~~2020 and 2019 totaled approximately ~~$1.6~~$0.9 million, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statement of operations. Total reimbursed costs received by the Company from these entities for the nine months ended September 30, 2017 and 2016 (including Apple Ten, A10A and ARG prior to September 1, 2016 and ARG thereafter) totaled approximately $0.5 million and $2.3 million, respectively, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations. As of September 30, 2017 and December 31, 2016, total amounts due from ARG for reimbursements under the cost sharing structure totaled approximately $0.3 million and $0.2 million, respectively, and are included in other assets, net in the Company’s consolidated balance sheets.

~~Index~~

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.

~~Apple Air Holding, LLC (“Apple Air”)~~

As of September 30, 2020, and December 31, 2019, total amounts due from ARG for reimbursements under the cost sharing structure totaled approximately $0.3 million and $0.5 million, respectively, and are included in other assets, net in the Company’s consolidated balance sheets.

The Company, through a wholly-owned subsidiary, Apple Air Holding, LLC, owns a Learjet used primarily for acquisition, asset management, renovation and investor 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, which leasing activity was not significant during the reporting periods. The Company also utilizes one aircraft, owned through ~~two entities,~~ one ofentity, which is owned by the Company’s Executive Chairman, ~~and the other, its President and Chief Executive Officer,~~ for acquisition, asset management, renovation and investor and public relations purposes, and reimburses ~~these entities~~the entity at third party rates. Total ~~amounts~~costs incurred for the use of the aircraft during the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 were ~~approximately~~less than $0.1 million ~~and $0.2 million, respectively, related to aircraft owned through these two entities~~for each respective period and are included in general and administrative expenses in the Company’s consolidated statements of operations.

Index

7. Shareholders’ Equity

Distributions

~~The~~

Subsequent to the distribution paid in March 2020, the Company announced the suspension of its monthly distributions due to the impact of COVID-19 on its operating cash flows. Prior to the suspension of its distributions, the Company’s ~~current~~ annual distribution rate, payable monthly, iswas $1.20 per common share. ~~For the three months ended September 30, 2017 and 2016, the Company paid distributions of $0.30 per common share for a total of $66.9 million and $57.2 million, respectively.~~ For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, the Company paid distributions of $0.30 and $0.90 per common share for a total of ~~$200.7~~$67.3 million and ~~$161.9~~$201.5 million, respectively. ~~Additionally, in September 2017,~~The distributions paid during the ~~Company declared a monthly distribution of $0.10 per common share, totaling $22.3 million, which was recorded as a payable as of~~nine months ended September 30, ~~2017 and paid in October 2017. As of December 31, 2016, a monthly~~2020 include the distribution ~~of $0.10 per common share, totaling $22.3 million, was recorded as a payable and~~ paid in January ~~2017. These accrued distributions were~~2020, totaling $22.4 million, that was declared in December 2019, which was included in accounts payable and other liabilities in the Company’s consolidated balance ~~sheets.~~

~~Equity Distribution Agreement~~

sheet at December 31, 2019. As discussed in Note 4, as a requirement under the June 5, 2020 amendments to its unsecured credit facilities, the Company is restricted in its ability to make distributions during the Covenant Waiver Period, except to the extent required to maintain REIT status.

Issuance of Shares

On ~~February 28, 2017,~~August 12, 2020, the Company entered into 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 which the Company may sell, from time to time, up to an aggregate of $300 million of its common shares ~~through the Sales Agents~~under an at-the-market offering program (the “ATM Program”). ~~During the nine months ended~~As of September 30, ~~2017,~~2020, the Company had ~~no sales under the ATM Program.~~

~~Share Repurchase Program~~

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 nine months of 2016, the Company purchased, under its share repurchase program, approximately 20,000 of its common shares at a weighted-average market purchase price of approximately $18.10 per common share for an aggregate purchase price of approximately $0.4 million. The Company did not ~~repurchase~~sold any common shares under ~~its share repurchase program during~~ the ~~first nine months of 2017.~~ATM Program. The Company plans to ~~continue~~use the net proceeds from the sale of these shares to ~~consider opportunistic share repurchases~~pay down borrowings on its revolving credit facility and, under certain circumstances, to repay proportionally amounts under each of the Company’s revolving credit facility, term loans and senior notes. The Company plans to use the corresponding increased availability under the ~~$467.5 million remaining portion~~revolving credit facility for general corporate purposes which may include, among other things, acquisitions of additional properties, the ~~authorized $475 million~~repayment of other outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital.

Share Repurchases

In May 2020, the Company’s Board of Directors approved an extension of its existing share repurchase program ~~which will depend on prevailing market conditions and other factors.~~(the “Share Repurchase Program”), authorizing share repurchases up to an aggregate of $345 million. The ~~program~~Share 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~~2021 if not terminated earlier.

~~Index~~

9. During the first nine months of 2020 and 2019, the Company purchased, under its Share Repurchase Program, approximately 1.5 million and 0.3 million of its common shares, respectively, at a weighted-average market purchase price of approximately $9.42 and $14.92 per common share, respectively, for an aggregate purchase price, including commissions, of approximately $14.3 million and $4.3 million, respectively. NaN shares were repurchased during the second and third quarters of 2020. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future purchases, with cash on hand or availability under its unsecured credit facilities. The shares were repurchased under a written trading plan that provided for share repurchases in open market transactions and was intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. In March 2020 the Company terminated its written trading plan. As discussed in Note 4, share repurchases are subject to certain restrictions during the Covenant Waiver Period as a condition to the June 5, 2020 amendments to the Company’s unsecured credit facilities.

8. Compensation Plans

~~In February 2017, the Compensation Committee of the Board of Directors (“Compensation Committee”) approved~~

The Company annually establishes an ~~executive~~ incentive plan ~~(“2017~~for its executive management. Under the incentive plan for 2020 (the “2020 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 ~~2017~~2020 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-year~~three-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 shareholder return metrics are weighted 75% for relative shareholder return metrics and 25% for total shareholder return metrics, and account for 50% of the total target incentive compensation. At September 30, 2020, the range of potential aggregate payouts under the ~~2017~~2020 Incentive Plan iswas $0 - ~~$18~~$13.9 million. The range of payout under the 2020 Incentive Plan reflects a voluntary reduction of $0 - $5.2 million of the potential payout to the Company’s Chief Executive Officer in response to the decline in the Company’s operating results due to COVID-19. Based on performance through September 30, ~~2017,~~2020, the Company has accrued approximately ~~$4.7~~$4.0 million as a liability for potential executive bonus payments under the ~~2017~~2020 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of September 30, ~~2017.~~2020. Compensation expense recognized by the Company under the ~~2017~~2020 Incentive Plan is included in general and administrative ~~expense~~expenses in the Company’s consolidated ~~statements~~statement of operations and totaled approximately ~~$1.2~~$1.5 million and ~~$4.7~~$4.0 million for the three and nine months ended September 30, ~~2017, respectively.~~2020. Approximately 25% of target awards under the ~~2017~~2020 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 ~~would~~will vest ~~at the end of 2017~~in December 2020 and one-third of which will vest in December 2021. Based on the Company’s operating and share performance as of September 30, 2020, substantially all of the accrued liability associated with the 2020 Incentive Plan is based on relative shareholder return. If any awards are earned, 100% would be paid in stock, of which 50% would vest atin December 2020 and 50% in December 2021. Under the ~~end of 2018. During 2016 and 2015, comparable executive~~ incentive ~~plans were approved by~~ plan for 2019

Index

(the ~~Compensation Committee (“2016 Incentive Plan” and “2015~~“2019 Incentive Plan”) ~~that were effective January 1, 2016 and January 1, 2015, respectively. The~~, the Company recorded ~~a (decrease) increase of~~ approximately ~~$(0.8)~~$3.1 million and ~~$2.8~~$7.8 million toin general and administrative ~~expense related to the 2016 Incentive Plan~~expenses in ~~the Company’s~~its consolidated ~~statements~~statement of operations for the three and nine months ended September 30, ~~2016, respectively,~~2019.

During the nine months ended September 30, 2020, the Company accrued expense associated with 2 separation agreements of approximately $1.25 million each, totaling approximately $2.5 million, in connection with the ~~decrease resulting from the reduction~~retirements of the ~~previously recorded executive bonus accrual due to lower anticipated 2016 performance.~~

~~Share Based Compensation Awards~~

~~During the first quarters of 2017~~Company’s former Executive Vice President and 2016, the Company issued 101,305 and 304,345 common shares earned under the 2016 and 2015 Incentive Plans (net of 19,667 and 11,787 common shares surrendered to satisfy tax withholding obligations) at $19.10 and $19.87 per share, or approximately $2.3 million and $6.3 million in share based compensation, including the surrendered shares, respectively. Of the total shares issued under the 2016 Incentive Plan, 60,028 shares were unrestricted at the time of issuance,Chief Operating Officer and the ~~remaining 41,277 restricted shares will vest on December 15, 2017. Of the total shares issued under the 2015 Incentive Plan, 146,279 shares~~Company’s former Executive Vice President and Chief Financial Officer which amounts were unrestricted at the time of issuance, and the remaining 158,066 restricted shares vested on December 31, 2016, of which 50,044 common shares were surrendered to satisfy tax withholding obligations. Of the total 2016 share based compensation, approximately $1.9 million was recorded as a liability as of December 31, 2016, whichpaid in October 2020. The accrued expense was included in accounts payable and other liabilities in the Company’s consolidated balance sheet ~~and the remaining $0.4 million, which is subject to vesting on December 15, 2017, will be recognized~~ as compensation expense proportionately throughout 2017. Of the total 2015 share based compensation, approximately $1.6 million, which vested on December 31, 2016, was recognized as compensation expense proportionately throughout 2016. For the three months endedof September 30, ~~2017~~2020 and ~~2016, the Company recognized approximately $0.1 million~~in general and $0.4 million, respectively, and for the nine months ended September 30, 2017 and 2016, the Company recognized approximately $0.3 million and $1.2 million, respectively, of share based compensation expense related to the unvested restricted share awards.

~~10. 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”), o~~n 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)administrative expenses in the Company’s consolidated statement of operations for the ~~year then ended. In May 2017,~~nine months ended September 30, 2020.

During the nine months ended September 30, 2019, the Company ~~received an additional $2.6~~incurred a one-time separation payment of $0.5 million in connection with the retirement of ~~proceeds from its director~~the Company’s Executive Vice President and ~~officer insurance carriers,~~Chief Legal Officer which, pursuant to the separation and general release agreement executed in March 2019, was paid in April 2019 and was included ~~as a reduction~~ in ~~transaction~~general and ~~litigation costs (reimbursements)~~administrative expenses in the Company’s consolidated ~~statements~~statement of operations for the nine months ended September 30, ~~2017.~~ 2019.

Share-Based Compensation Awards

The following table sets forth information pertaining to the share-based compensation issued under the 2019 Incentive Plan and the incentive plan for 2018 (the “2018 Incentive Plan”).

	2019 Incentive Plan			2018 Incentive Plan
Period common shares issued	First Quarter 2020			First Quarter 2019

Common shares earned under each incentive plan		665,552			156,926
Common shares surrendered on issuance date to satisfy tax withholding obligations		60,616			24,999
Common shares earned and issued under each incentive plan, net of common shares surrendered on issuance date to satisfy tax withholding obligations		604,936			131,927
Closing stock price on issuance date	$	13.01		$	16.49
Total share-based compensation earned, including the surrendered shares (in millions)	$	8.7	(1)	$	2.6	(2)
Of the total common shares earned and issued, total common shares unrestricted at time of issuance		426,553			105,345
Of the total common shares earned and issued, total common shares restricted at time of issuance		178,383			26,582

Restricted common shares vesting date	December 11, 2020			December 13, 2019
Common shares surrendered on vesting date to satisfy tax withholding requirements resulting from vesting of restricted common shares	n/a				5,502

(1)

Of the total 2019 share-based compensation, approximately $7.5 million was recorded as a liability as of December 31, 2019 and is included in accounts payable and other liabilities in the Company’s consolidated balance sheet at December 31, 2019. The remaining $1.2 million, which is subject to vesting on December 11, 2020 and excludes any restricted shares forfeited or vested prior to that date, will be recognized as share-based compensation expense proportionately throughout 2020. For the three and nine months ended September 30, 2020, the Company recognized approximately $0.3 million and $0.9 million, respectively, of share-based compensation expense related to restricted share awards.

(2)

Of the total 2018 share-based compensation, approximately $0.2 million, which vested on December 13, 2019, was recognized as share-based compensation expense proportionately throughout 2019. For the three and nine months ended September 30, 2019, the Company recognized approximately $0.04 million and $0.1 million, respectively, of share-based compensation expense related to restricted share awards.

Index

Additionally, in conjunction with the appointment of 5 new officers of the Company ~~does not anticipate additional costs or reimbursements~~on April 1, 2020, the Company issued to the new officer group a total of approximately 200,000 restricted common shares with an aggregate grant date fair value of approximately $1.8 million. For each grantee, the restricted shares will vest on March 31, 2023 if the individual remains in service of the Company through the date of vesting. The expense associated with the awards will be amortized over the 3-year restriction period. For the three and nine months ended September 30, 2020, the Company recognized approximately $0.1 million and $0.3 million, respectively, of share-based compensation expense related to ~~this litigation.~~

~~Index~~

~~Moses, et al. v. Apple Hospitality REIT, Inc., et al.~~

As previously disclosed in the 2016 Form 10-K, on April 22, 2014, Plaintiff Susan Moses, purportedly a shareholder of Apple REIT Seven, Inc. (“Apple Seven”) and Apple REIT Eight, Inc. (“Apple Eight”), filed a class action againstthese awards.

9. Subsequent Events

In October 2020, the Company entered into a purchase and ~~several individual directors~~sale agreement with an unrelated party for the sale of its 118-room Charlotte, North Carolina Homewood Suites for a gross sales price of approximately $10.3 million. Although the Company is working towards the sale of this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on ~~behalf of all then-existing shareholders and former shareholders of Apple Seven and Apple Eight, who purchased additional shares~~this hotel will occur under the ~~Dividend Reinvestment Plans (“DRIP”)~~outstanding purchase and sale agreement. If the closing occurs, this sale is expected to be completed within three to six months of ~~Apple Seven, Apple Eight~~September 30, 2020 and the Company ~~between July 17, 2007 and February 12, 2014. In January 2017, the parties reached an agreement in principle~~expects to ~~settle the litigation for $5.5 million. The settlement was preliminarily approved by the court in September 2017 and~~recognize a settlement hearing has been scheduled in January 2018. The settlement amount has been included in accounts payable and other liabilities in the Company’s consolidated balance sheets as of December 31, 2016 and September 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 excessgain upon completion of the ~~amount accrued as of September 30, 2017.~~

~~Wilchfort, et al. v. Apple Hospitality REIT, Inc., et al.~~

On February 24, 2017, Plaintiff Marsha Wilchfort, purportedly a 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, 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 indicative of the true value of the units of Apple Six, Apple Seven and Apple Eight.

sale. 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. Subsequent Events~~

~~In October 2017, the Company paid approximately $22.3 million, or $0.10 per outstanding common share, in distributions to its common shareholders.~~

~~In October 2017, the Company declared a regular monthly cash distribution of $0.10 per common share for the month of November 2017. The distribution is payable on November 15, 2017.~~

~~On October 5, 2017, the Company completed the sale of the Fairfax, Virginia Marriott for a sale price of approximately $41.5 million. The Company used~~expects the net proceeds from the sale to be used to pay down borrowings on ~~its~~the Company’s revolving credit facility. ~~See Note 4 for additional information.~~

~~On October 13, 2017, the Company closed on the purchase of an existing 179-room Residence Inn in Portland, Maine for a gross purchase price of approximately $55.8 million.~~

~~On October 20, 2017, the Company closed on the purchase of an existing 136-room Residence Inn in Salt Lake City, Utah for a gross purchase price of $25.5 million.~~

Index

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 ~~terms~~statements 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.

Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company’s forward-looking statements is the adverse effect of COVID-19, including possible resurgences, on the Company’s business, financial performance and condition, operating results and cash flows, the real estate market and the hospitality industry specifically, and the global economy and financial markets generally. The significance, extent and duration of the impacts caused by the COVID-19 outbreak on the Company will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the scope, severity and duration of the pandemic, the extent and effectiveness of the actions taken to contain the pandemic or mitigate its impact, the potential for additional hotel closures/consolidations that may be mandated or advisable, whether based on increased COVID-19 cases or other factors, the slowing or potential rollback of “reopenings” in certain states, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section titled “Risk Factors” in the Company’s 2019 Form 10-K as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Such additional 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; reduced business and leisure travel due to travel-related health concerns, including the widespread outbreak of COVID-19 or an increase in COVID-19 cases or any other infectious or contagious diseases in the U.S. or abroad; 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;~~risks; 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 on~~2019 Form 10-K ~~for the year ended December 31, 2016.~~and in Part II, Item 1A of this Form 10-Q. 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 on~~2019 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.~~U.S. As of September 30, ~~2017,~~2020, the Company owned ~~237~~235 hotels with an aggregate of ~~30,188~~30,023 rooms located in urban, high-end suburban and developing markets throughout ~~33 states, including one hotel with 316 rooms classified as held for sale, which was sold to an unrelated party in October 2017. All~~34 states. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 2218 hotel management companies (as of November 1, 2020), none of which are affiliated with the Company. The Company’s common shares are listed on the ~~New York Stock Exchange~~NYSE under the ticker symbol “APLE.”

COVID-19 and the Company’s Actions to Mitigate its Impact

Since first being reported in December 2019, COVID-19 has spread globally, including to every state in the U.S. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to COVID-19.

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The outbreak of COVID-19 has not only specifically reduced travel, but also has had a detrimental impact on regional and global economies and financial markets. The global, national and local impact of the outbreak has rapidly evolved and many countries, including the U.S., as well as state and local governments, have reacted by instituting a wide variety of measures intended to control its spread, including states of emergency, mandatory quarantines, implementation of “stay at home” orders, business closures, border closings, and restrictions on travel and large gatherings, which has resulted in, and may continue to result in, cancellation of events, including sporting events, conferences and meetings. The pandemic triggered a period of material global economic slowdown and the National Bureau of Economic Research declared that the U.S. has been in a recession since February 2020. While the Company’s operating results and the overall economy in the U.S. have shown signs of a gradual recovery, the Company cannot presently determine the extent or duration of the overall operational and financial effects that COVID-19 will have on the Company, its business, the hospitality industry and the economy, or whether the recovery will continue.

The effects of the pandemic on the hotel industry are unprecedented. COVID-19 has disrupted the industry and its consequences have dramatically reduced business and leisure travel, which has had a significant adverse impact on, and management expects COVID-19 will continue to significantly adversely impact and disrupt, the Company’s business, financial performance and condition, operating results and cash flows. While the economy has shown signs of recovery as some of the initial restrictions put into place during the first half of 2020 have eased, occupancy and average daily rate (“ADR”) are still significantly below 2019 levels. The Company expects this significant decline in revenue associated with COVID-19 and the overall decline in the U.S. economy to negatively impact the Company’s revenue and operating results for an extended period of time. The Company does not expect a material improvement in results until business travel and general consumer confidence related to risks associated with COVID-19 and the economy improve and government restrictions on travel and business operations are broadly lifted.

The following is a brief summary of certain measures the Company, its management companies and its brands have taken to minimize costs and cash outflow to maintain a sound liquidity position:

●

Beginning in March 2020, the Company’s brands and third-party management companies implemented cost elimination and efficiency initiatives at each of the Company’s hotels by reducing labor costs, reducing or eliminating certain amenities and reducing rates under various service contracts. As of September 30, 2020, the Company continued to intentionally consolidate operations at eight hotels, down from 38 hotels as of May 2020, in market clusters to maximize operational efficiencies. The cost structure of the Company’s primarily rooms-focused hotels allows them to operate cost effectively even at very low occupancy levels.

●

Together with its third-party management companies, the Company has enhanced its sales efforts by focusing on COVID-19-specific demand opportunities in certain markets and strategically targeting and maximizing performance based on available demand, such as leisure, government, construction, manufacturing and maintenance-focused business.

~~2017 Investing~~

●

The Company has postponed all non-essential capital improvement projects planned for 2020 and anticipates a reduction of approximately $50 million in originally planned capital improvements for the year.

●

The Company suspended its monthly distributions, with the last distribution being paid March 16, 2020. The Company’s Board of Directors, in consultation with management, will continue to monitor hotel operations and intends to resume monthly distributions at a time and level determined to be prudent in relation to the Company’s other cash requirements and as allowed under the Company’s amended unsecured credit facilities, as discussed below.

●

The Company terminated its written trading plan under its Share Repurchase Program in March 2020.

●

The Company’s Executive Chairman voluntarily agreed to forego six months of salary, the Chief Executive Officer volunteered to reduce his target compensation by 60 percent and the non-employee directors on the Board of Directors volunteered as a group to reduce their annual director fees by more than 15 percent.

●

The Company entered into amendments to its unsecured credit facilities to temporarily waive the financial covenant testing until June 30, 2021. See further discussion in Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q.

Despite the cost reduction initiatives discussed above, the Company does not expect to be able to fully, or even materially, offset revenue losses from COVID-19. The significance, extent and duration of COVID-19 effects are not currently known and these uncertainties make it difficult to predict operating results for the Company’s hotels for the remainder of 2020 and into 2021. Therefore, there can be no assurances that the Company will not experience further declines in hotel revenues or earnings at its hotels.

2020 Hotel Portfolio Activities

The following discussion regarding the Company’s approach to acquisitions and dispositions reflects the Company’s historical strategy. While the Company anticipates it will continue to approach the acquisition and disposition of hotels similarly over the long

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term, the detrimental impact of COVID-19 to the Company and overall lodging industry has and may continue to limit the Company’s ability to effectively acquire or dispose of hotels until the industry recovers.

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~~rooms-focused hotels, in 2018 the Company entered into contracts to purchase a combined 224-room dual-branded Hampton Inn & Suites and Home2 Suites complex to be constructed in Cape Canaveral, Florida and a combined 259-room dual-branded Hyatt House and Hyatt Place complex to be constructed in Tempe, Arizona. Construction of the hotels was completed in 2020 and the Company acquired ~~three newly constructed hotels for an~~the hotels. The aggregate purchase price of these hotels was approximately ~~$56.4~~$111.3 million, ~~during the first nine months~~funded by $89.6 million of ~~2017: a 124-room Courtyard by Marriott hotel in Fort Worth, Texas~~cash on hand and a ~~104-room Hilton Garden Inn and 106-room Home2 Suites dual-branded hotel~~one-year secured note for $21.7 million payable in ~~Birmingham, Alabama. The purchase price~~April 2021, which principal amount was reduced by $1.1 million in July 2020, representing a credit from the developer for ~~each~~shared construction savings. Also, as of ~~these properties was funded through borrowings on the Company’s $540 million revolving credit facility (the “revolving credit facility”). In October 2017,~~September 30, 2020, the Company ~~completed the purchase of two additional hotels (a 136-room Residence Inn hotel in Salt Lake City, Utah and a 179-room Residence Inn hotel in Portland, Maine) for~~has an ~~aggregate purchase price of approximately $81.3 million. The Company also has~~ outstanding ~~contracts~~contract that was entered into prior to 2020 for the potential purchase of ~~two additional hotels that are~~a hotel under ~~construction~~development for a total expected purchase price of approximately ~~$64.8~~$49.6 million, which ~~are~~is planned to be completed and opened for business over the next 12six months from September 30, ~~2017,~~2020, at which time the closing on ~~these hotels~~this hotel is expected to occur.

~~Index~~

~~Additionally,~~ There are a number of conditions to closing that have not yet been satisfied and there can be no assurance that closing on this hotel will occur under the outstanding purchase contract. If the seller meets all of the conditions to closing, the Company is obligated to specifically perform under this contract. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing for this additional acquisition.

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,~~during the first quarter of 2020, the Company ~~completed the~~sold two hotels for a total combined gross sales price of $45.0 million and recognized a gain on sale of ~~its 224-room Hilton hotel~~approximately $8.8 million in ~~Dallas, Texas, which was classified as held for sale~~the first quarter of 2020. Additionally, as of ~~December~~October 31, ~~2016, for approximately $56.1 million~~. ~~Also, on October 5, 2017,~~2020, the Company ~~completed~~ ~~the sale~~had an outstanding contract to sell one of its ~~316-room Marriott hotel in Fairfax, Virginia, which was classified as held for sale as of September 30. 2017,~~hotels for a gross sales price of ~~$41.5 million~~.approximately $10.3 million. Although the Company is working towards the sale of this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on this hotel will occur under the outstanding purchase and sale agreement. If the closing occurs, this sale is expected to be completed within three to six months of September 30, 2020. The Company ~~used~~expects the net proceeds from the ~~sales~~sale to be used to pay down borrowings on ~~its~~the Company’s revolving credit facility.

See Note 32 titled “Investment in Real Estate” and Note 43 titled ~~“Assets Held for~~“Dispositions and Hotel Sale ~~and Dispositions”~~Contracts” 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~~

Effective January 20, 2020, the Company converted its New York, New York Renaissance hotel ~~performance can be influenced by many factors including local competition, local and general economic conditions~~to an independent boutique hotel. As anticipated, the operating results of the hotel declined in the ~~United States and the performance~~first quarter of ~~individual managers assigned~~2020 (prior to ~~each hotel, performance of the Company’s hotels~~COVID-19) as compared to ~~other hotels within their respective local markets, in general, has met~~ the ~~Company’s expectations for~~first quarter of 2019 as the ~~period owned. Over~~management team worked to replace revenue that was historically generated from the ~~past several quarters, the lodging industry~~Renaissance brand system and ~~the Company~~ have experienced low single-digit revenue growth. Moderate improvements in the general 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 nine months of 2017 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 certain 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-digit percentage increase in revenue for the full year of 2017 as compared to 2016, with this trend expected to continue into 2018. The Company’s revenue growth rate for comparable hotels in 2017 is anticipated to be lower than the growth achieved in 2016, primarilyfurther declines due to ~~inconsistent demand in certain markets and increased hotel supply meeting demand growth in others, limiting the Company’s ability to increase rates.~~

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.

COVID-19.

Hotel Operations

As of September 30, ~~2017,~~2020, the Company owned ~~237~~235 hotels with a total of ~~30,188~~30,023 rooms as compared to ~~236~~234 hotels with a total of ~~30,299~~30,046 rooms as of September 30, ~~2016, however, results~~2019. 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 nine months ended September 30, ~~2017,~~2020, the Company acquired ~~three~~two newly constructed hotels ~~(one~~ on ~~February 2, 2017,~~April 30, 2020 and two newly constructed hotels on ~~September 12, 2017)~~August 13, 2020, and sold one hotel on ~~April 20, 2017.~~January 16, 2020 and one hotel on February 28, 2020. During ~~2016,~~2019, 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~~developed hotel on ~~July 1, 2016~~March 19, 2019 and two existing hotels (one on March 4, 2019 and one on October 9, 2019), and sold 11 hotels (nine on March 28, 2019, one ~~hotel~~ on December ~~6, 2016.~~19, 2019 and one on December 30, 2019). As a result, the comparability of results for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 as discussed below is ~~significantly~~ impacted by these ~~transactions.~~

transactions in addition to the impact of COVID-19 beginning in March 2020.

In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, ADR and revenue per available room (“RevPAR”), and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below.

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The following is a summary of the results from operations of the Company’s hotels for their respective periods of ownership by the ~~Company.~~Company:

	Three Months Ended September 30,															Nine Months Ended September 30,
(in thousands, except statistical data)	2020			Percent of Revenue			2019			Percent of Revenue			Percent Change			2020			Percent of Revenue			2019			Percent of Revenue			Percent Change
Total revenue	$	148,826			100.0	%	$	331,722			100.0	%		-55.1	%	$	467,914			100.0	%	$	976,626			100.0	%		-52.1	%
Hotel operating expense		93,762			63.0	%		187,593			56.6	%		-50.0	%		310,845			66.4	%		550,232			56.3	%		-43.5	%
Property taxes, insurance and other expense		20,523			13.8	%		19,611			5.9	%		4.7	%		58,820			12.6	%		58,470			6.0	%		0.6	%
General and administrative expense		6,726			4.5	%		9,039			2.7	%		-25.6	%		22,274			4.8	%		25,484			2.6	%		-12.6	%

Loss on impairment of depreciable real estate assets		-						6,467					n/a				4,382						6,467					n/a
Depreciation and amortization expense		50,171						47,887						4.8	%		149,590						143,946						3.9	%
Gain on sale of real estate		-						-					n/a				8,785						1,052					n/a
Interest and other expense, net		18,531						14,759						25.6	%		52,483						46,110						13.8	%
Income tax expense		61						143						-57.3	%		265						505						-47.5	%

Net income (loss)		(40,948	)					46,223						-188.6	%		(121,960	)					146,464						-183.3	%
Adjusted hotel EBITDA ⁽¹⁾		34,688						124,596						-72.2	%		98,689						368,159						-73.2	%

Number of hotels owned at end of period		235						234						0.4	%		235						234						0.4	%
ADR	$	104.78					$	139.21						-24.7	%	$	116.16					$	139.13						-16.5	%
Occupancy		48.6	%					79.9	%					-39.2	%		45.9	%					78.4	%					-41.5	%
RevPAR	$	50.94					$	111.17						-54.2	%	$	53.33					$	109.02						-51.1	%

(1)	See reconciliation of Adjusted Hotel EBITDA to net income (loss) in “Non-GAAP Financial Measures” below.

Three Months Ended September 30, Nine Months Ended September 30,
(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

Total revenue $ 324,926 100.0 % $ 276,471 100.0 % 17.5 % $ 949,555 100.0 % $ 758,594 100.0 % 25.2 %
Hotel operating expense 179,829 55.3 % 153,337 55.5 % 17.3 % 528,295 55.6 % 417,965 55.1 % 26.4 %
Property taxes, insurance and other expense 17,598 5.4 % 14,787 5.3 % 19.0 % 52,346 5.5 % 40,315 5.3 % 29.8 %
Ground lease expense 2,831 0.9 % 2,615 0.9 % 8.3 % 8,486 0.9 % 7,587 1.0 % 11.8 %
General and administrative expense 5,350 1.6 % 2,623 0.9 % 104.0 % 18,255 1.9 % 12,511 1.6 % 45.9 %

Transaction and litigation costs (reimbursements) - 36,452 n/a (2,586 ) 37,861 n/a
Loss on impairment of depreciable real estate assets - 5,471 n/a 7,875 5,471 43.9 %
Depreciation expense 44,110 37,343 18.1 % 131,770 104,651 25.9 %
Interest and other expense, net 12,024 10,156 18.4 % 35,590 28,519 24.8 %
Gain (loss) on sale of real estate (157 ) - n/a 15,983 - n/a
Income tax expense (benefit) 203 (7 ) n/a 712 616 15.6 %

Number of hotels owned at end of period 237 236 0.4 % 237 236 0.4 %
ADR $ 136.73 $ 136.04 0.5 % $ 135.97 $ 135.88 0.1 %
Occupancy 80.0 % 80.2 % -0.2 % 78.7 % 78.9 % -0.3 %
RevPAR $ 109.45 $ 109.07 0.3 % $ 106.96 $ 107.18 -0.2 %

The following table highlights the monthly impact of COVID-19 on the Company’s ADR, Occupancy, RevPAR and adjusted hotel earnings before interest, income taxes, depreciation and amortization for real estate (“Adjusted Hotel EBITDA”) during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 (in thousands except statistical data):

										Three												Three
	July			August			September			Months Ended			July			August			September			Months Ended
	2020			2020			2020			September 30, 2020			2019			2019			2019			September 30, 2019
ADR	$	107.40		$	104.58		$	102.63		$	104.78		$	143.05		$	137.65		$	136.69		$	139.21
Occupancy		45.0	%		49.3	%		51.7	%		48.6	%		81.7	%		80.7	%		77.1	%		79.9	%
RevPAR	$	48.32		$	51.51		$	53.02		$	50.94		$	116.82		$	111.12		$	105.37		$	111.17
Adjusted Hotel EBITDA ⁽¹⁾	$	10,676		$	12,796		$	11,216		$	34,688		$	45,699		$	41,818		$	37,079		$	124,596

(1)	See reconciliation of Adjusted Hotel EBITDA to net income (loss) in “Non-GAAP Financial Measures” below.

Beginning in March 2020, COVID-19 caused widespread cancellations of both business and leisure travel throughout the U.S., resulting in significant decreases in RevPAR throughout the Company’s hotel portfolio and the hospitality industry as a whole. With the overall uncertainty of the longevity of COVID-19 in the U.S. and the resulting economic decline, it is difficult to project the duration of revenue declines for the industry and Company; however, the Company currently expects the decline in revenue and operating results as compared to 2019 to continue throughout the remainder of 2020 and into 2021. While the Company experienced its most significant decline in operating results during April 2020 as compared to April 2019, occupancy and RevPAR have since shown sequential improvement, with average occupancy reaching 50% by September and resulting in positive monthly Adjusted Hotel EBITDA by June 2020 and positive modified funds from operations (“MFFO”) by July 2020. Although the Company expects this trend to gradually continue, future revenues and operating results could be negatively impacted if, among other things, COVID-19 cases continue to increase and state and local governments and businesses revert back to tighter mitigation restrictions or consumer sentiment deteriorates.

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Comparable Hotels Operating Results

The following table reflects certain operating statistics for the Company’s ~~236~~235 hotels owned ~~and held for use~~ as of September 30, ~~2017~~2020 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the ~~236~~235 hotels owned ~~and held for use~~ as of the end of the reporting period. ~~These metrics do not include the results generated by the Fairfax, Virginia Marriott hotel which was held for sale as of September 30, 2017 and sold on October 5, 2017.~~ 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 September 30,									Nine Months Ended September 30,
	2020			2019			Percent Change			2020			2019			Percent Change
ADR	$	104.78		$	139.78			-25.0	%	$	116.17		$	139.85			-16.9	%
Occupancy		48.6	%		79.9	%		-39.2	%		45.9	%		78.5	%		-41.5	%
RevPAR	$	50.94		$	111.66			-54.4	%	$	53.30		$	109.78			-51.4	%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 Percent Change 2017 2016 Percent Change

ADR $ 136.83 $ 134.79 1.5 % $ 135.84 $ 134.88 0.7 %
Occupancy 80.2 % 80.4 % -0.2 % 78.8 % 78.7 % 0.1 %
RevPAR $ 109.77 $ 108.32 1.3 % $ 107.10 $ 106.20 0.8 %

~~Index~~

Same Store Operating Results

The following table reflects certain operating statistics for the ~~Company’s 177~~228 hotels owned ~~and held for use~~ by the Company as of January 1, ~~2016~~2019 and during the entirety of the reporting periods being ~~compared.~~compared (“Same Store Hotels”). This information has not been audited.

	Three Months Ended September 30,									Nine Months Ended September 30,
	2020			2019			Percent Change			2020			2019			Percent Change
ADR	$	104.86		$	139.92			-25.1	%	$	116.19		$	139.90			-16.9	%
Occupancy		49.0	%		79.9	%		-38.7	%		46.1	%		78.5	%		-41.3	%
RevPAR	$	51.41		$	111.79			-54.0	%	$	53.51		$	109.87			-51.3	%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 Percent Change 2017 2016 Percent Change

ADR $ 138.86 $ 136.60 1.7 % $ 137.09 $ 136.09 0.7 %
Occupancy 80.2 % 80.5 % -0.4 % 79.0 % 79.0 % 0.0 %
RevPAR $ 111.42 $ 110.02 1.3 % $ 108.23 $ 107.49 0.7 %

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. COVID-19 has been negatively affecting the U.S. hotel industry since March 2020. As a result of COVID-19, the Company’s revenue and operating results declined during the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, which is consistent with the overall lodging industry. Compared to 2019, the Company expects the declines in revenue and operating results to continue throughout the remainder of 2020, but the Company can give no assurances of the amount or period of decline due to the uncertainty regarding the duration and long-term impact of and governmental and consumer response to COVID-19.

Revenues

The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, the Company had total revenue of ~~$324.9~~$148.8 million and ~~$276.5~~$331.7 million, respectively. For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, the Company had total revenue of ~~$949.6~~$467.9 million and ~~$758.6~~$976.6 million, respectively. For the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, Comparable Hotels achieved combined average occupancy of ~~80.2%~~48.6% and ~~80.4%~~79.9%, ADR of ~~$136.83~~$104.78 and ~~$134.79~~$139.78 and RevPAR of ~~$109.77~~$50.94 and ~~$108.32.~~$111.66. For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, Comparable Hotels achieved combined average occupancy of ~~78.8%~~45.9% and ~~78.7%~~78.5%, ADR of ~~$135.84~~$116.17 and ~~$134.88~~$139.85 and RevPAR of ~~$107.10~~$53.30 and ~~$106.20.~~$109.78. 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,~~2019, during the three and nine months ended September 30, ~~2017,~~2020, the Company experienced ~~increases~~decreases in ADR and occupancy, resulting in ~~increases~~decreases of ~~1.3%~~54.4% and ~~0.8%~~51.4% in RevPAR, respectively, for Comparable Hotels. During March 2020, the hotel industry and the Company began to see a significant decrease in occupancy as both mandated and voluntary restrictions on travel were implemented throughout the U.S. For Comparable Hotels, ~~respectively. The Company’s growth during~~average occupancy declined to 17.7% in April before improving to 38.2% in June, 51.7% in September and approximately 53% in October driven predominately by increased leisure demand over the ~~first nine~~summer months as a result of ~~2017 was impacted by~~improved consumer confidence in travel and the lifting of some COVID-19 mitigation restrictions, but also from a ~~decline in the Los Angeles market due to outsized growth in 2016 from the Porter Ranch gas leak.~~wide variety of demand generators such as government, healthcare, construction, disaster recovery, insurance, athletics, education and local and regional business-related travel. The Company ~~anticipates that with its geographically diverse portfolio of upscale~~expects this trend to gradually continue, however, future revenues could be negatively impacted if COVID-19 cases continue to increase 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 dynamicsstate and local ~~market economic conditions, with continued overall room rate improvement combined with expected stable overall demand growth compared to supply growth,~~governments tighten or implement new mitigation restrictions or consumer sentiment deteriorates.

Index

Hotel Operating Expense

The Company, its management companies and 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, with this trend expected to continue into 2018. Markets with above average growth in the third quarter and first nine months of 2017 for the Company and industry included Richmond, Knoxville, Kansas City, St. Louis and San Diego. Markets that were below average for the Company and industry included Dallas, Austin and Philadelphia. Additionally, in the third quarter of 2017, Houston and certain Florida markets experienced an increase in demand due to evacuation and restoration efforts related to hurricanes Harvey and Irma, which led to increased RevPAR for the Company and industry in those markets. While certain ofbrands the Company’s hotels ~~incurred minor wind~~are franchised with have all aggressively worked to mitigate the costs and ~~water related damage from~~uses of cash associated with operating the ~~hurricanes,~~hotels in a low-occupancy environment and are thoughtfully working to position the ~~overall~~hotels to adapt to the changes that may occur to guest preferences in the future. The impact ~~was not material.~~

~~Hotel Operating Expense~~

of the situation has varied and will vary by market and hotel. With the support of its brands and third-party management companies, the Company will continue to evaluate and implement additional measures as the situation evolves.

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~~Hotel operating expense for the three months ended September 30, ~~2017~~2020 and ~~2016, respectively, hotel operating expense~~2019 totaled ~~$179.8~~$93.8 million and ~~$153.3~~$187.6 million, respectively, or ~~55.3%~~63.0% and ~~55.5%~~56.6% of total revenue for ~~each~~the respective ~~period. For~~periods, and for the nine months ended September 30, ~~2017~~2020 and ~~2016, respectively, hotel operating expense~~2019 totaled ~~$528.3~~$310.8 million and ~~$418.0~~$550.2 million, respectively, or ~~55.6%~~66.4% and ~~55.1%~~56.3% of total revenue for ~~each~~the respective period. Overall hotel operational expenses for the first nine 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 three hotels acquiredperiods. Included in 2017 from their respective dates 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 nine 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, and the results of one hotel acquired on July 1, 2016 from the date of acquisition and the 56 hotels acquired in the Apple Ten merger for the month of September 2016. For the Company’s Comparable Hotels, hotel operating expense ~~as a percentage of revenue increased approximately 20 and 90 basis points, respectively,~~ for the three and nine months ended September 30, ~~2017 as compared to the same periods~~2020 were approximately $1.0 million and $2.8 million, respectively, in ~~2016. During the first nine months of 2017, the Company experienced increases in labor~~separation and furlough costs for hotel employees as a ~~percentage of revenue, which was the primary cause~~result of the increase in hotel operating expense. Although labor costs were the primary cause of the increase in hotel operating expenses in the third quarter of 2017, these increases did moderate as compared to the same period in 2016.occupancy declines discussed above. The Company ~~anticipates continued increases in labor costs due to government regulations surrounding wages, healthcare~~has worked and ~~other benefits, other wage-related initiatives and lower unemployment rates. Although operating expenses will increase as revenue increases, the Company~~ will continue to work with its management companies to optimize staffing models, consolidate operations in markets with multiple properties, and adjust food and beverage offerings and other amenities, among other efficiency initiatives to mitigate the impact of revenue declines on its results of operations. For example, in some markets the Company is “clustering” hotels, whereby multiple properties in a market have consolidated their operations to increase efficiency; certain brand standards have been reduced; and the Company has also successfully reduced rates under various service contracts. Although certain operating costs of a hotel are more fixed in nature, such as base utility and maintenance costs, the Company has worked and will continue to work to reduce all non-essential costs including service contracts, utilities in areas not utilized and certain maintenance costs. However, as the Company modifies operations as a ~~percentage~~result of ~~revenue where possible while maintaining quality~~ and ~~service levels at each property.~~

~~Index~~

to address concerns related to COVID-19, the Company expects to incur increased operating costs related to the supplying of personal protective equipment for employees and guests as well as increased sanitation, social distancing and other measures.

Property Taxes, Insurance and Other Expense

Property taxes, insurance, and other expense for the three months ended September 30, ~~2017~~2020 and ~~2016~~2019 totaled ~~$17.6~~$20.5 million and ~~$14.8~~$19.6 million, respectively, or ~~5.4%~~13.8% and ~~5.3% of total revenue, respectively, and for Comparable Hotels, 5.4% and 5.5%~~5.9% of total revenue for ~~each~~the respective ~~period. For~~periods, and for the nine months ended September 30, ~~2017~~2020 and ~~2016, property taxes, insurance and other expense~~2019 totaled ~~$52.3~~$58.8 million and ~~$40.3~~$58.5 million, respectively, or ~~5.5%~~12.6% and ~~5.3% of total revenue, respectively, and for Comparable Hotels, 5.5%~~6.0% of total revenue for ~~each period. For~~ the ~~Company’s Comparable Hotels, real estate taxes increased slightly during~~respective periods. Although the first nine months of 2017 compared to the first nine months of 2016, 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. The Company will continue to aggressively appeal ~~tax~~ assessments and monitor locality guidance as a result of COVID-19, it does not currently anticipate significant decreases in ~~certain jurisdictions~~property taxes in 2020 as compared to ~~attempt to minimize tax increases~~2019, as ~~warranted.~~

~~Ground Lease Expense~~

~~Ground lease expense for~~many assessments are made at the three months ended September 30, 2017 and 2016 was $2.8 million and $2.6 million, respectively. For the nine months ended September 30, 2017 and 2016, ground lease expense was $8.5 million and $7.6 million, respectively. Ground lease expense primarily represents the expense incurred by the Company to lease land for 14beginning of ~~its hotel properties, including four acquired in the Apple Ten merger effective September 1, 2016.~~

each calendar year.

General and Administrative Expense

General and administrative expense for the three months ended September 30, ~~2017~~2020 and ~~2016~~2019 was ~~$5.4~~$6.7 million and ~~$2.6~~$9.0 million, respectively, or ~~1.6%~~4.5% and ~~0.9%~~2.7% of total revenue ~~respectively.~~for the respective periods. For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, general and administrative expense was ~~$18.3~~$22.3 million and ~~$12.5~~$25.5 million, respectively, or ~~1.9%~~4.8% and ~~1.6%~~2.6% of total revenue ~~respectively.~~for the respective periods. 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 eight 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 $3.5 million, which were recorded as reductions to general and administrative expenses. Effective September 1, 2016,The decrease 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. ~~General and administrative expense also increased for both the third quarter and first nine~~three months ~~of 2017~~ended September 30, 2020 as compared to the ~~prior year~~same period in 2019 is primarily due to ~~an increased accrual as of September 30, 2017~~decreased accruals for ~~the Company’s executive~~potential incentive plan ~~related~~payments associated with the decline in operating results as compared to better projected performance under the plan. In comparison, the accrual for potential executive bonus payments was reduced during the third quarter of 2016 by approximately $0.8 million, due to lower than previously anticipated 2016 performance, resulting in a decrease in executive compensation expense for the period. The increases in the third quarter and the first nine months of 2017 over the same periods of 2016 were $1.7 million and $1.0 million, respectively.

~~Transaction and Litigation Costs (Reimbursements)~~

~~During~~2019. For the nine months ended September 30, ~~2017, transaction and litigation costs (reimbursements)~~ ~~totaled~~2020, these decreases were partially offset by the accrual of approximately ~~$(2.6)~~$2.5 million ~~which primarily related to the additional proceeds received~~ in ~~May 2017 from the Company’s directors and officers insurance carriers~~separation benefits awarded in connection with the ~~Apple Ten merger litigation, as discussed herein. Combined with the $10.0 million received in January 2017 and recorded to transaction and litigation costs (reimbursements) in the fourth quarter~~previously announced retirements of ~~2016, total proceeds from~~ the Company’s ~~director~~former Chief Operating Officer and ~~officer coverage related to the Apple Ten merger litigation were $12.6 million.~~ ~~During the three~~former Chief Financial Officer on March 31, 2020. General and ~~nine months ended September 30, 2016, transaction and litigation costs~~ ~~(reimbursements) were approximately $36.5 million and $37.9 million, respectively. Transaction and litigation costs (reimbursements)~~administrative expense for the nine months ended September 30, ~~2016 consisted primarily~~2019 included approximately $0.5 million for the separation payment in connection with the retirement of the Company’s former Chief Legal Officer.

As discussed above, in order to minimize costs ~~related~~in 2020, the Company’s Executive Chairman voluntarily agreed to forego six months of salary, the ~~Apple Ten merger totaling approximately $37.6 million (including $32 million funded~~Chief Executive Officer volunteered to reduce his target compensation by 60 percent and the non-employee directors on the Board of Directors volunteered as a group to reduce their annual director fees by more than 15 percent. Additionally, in light of the decline in revenue and operating results due to COVID-19 and the associated impact on the current operational and shareholder return metrics in the 2020 Incentive Plan (see Note 8 titled “Compensation Plans” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for additional details), the Company in January 2017 to settle the Apple Ten merger litigation and approximately $1.8 million in legal costs incurred to defend the litigation) and other acquisition related costs totaling approximately $0.3 million. 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 $0.2 million in transaction costs related to the acquisition of three hotels during the nine months ended September 30, 2017.

anticipates not meeting certain originally established performance metrics.

Index

Loss on Impairment of Depreciable Real Estate Assets

Loss on impairment of depreciable real estate assets was ~~approximately $7.9~~$4.4 million for the nine months ended September 30, ~~2017, and related to~~2020, consisting of an impairment loss of $4.4 million for the ~~Columbus, Georgia SpringHill~~Memphis, Tennessee Homewood Suites ~~and TownePlace Suites hotels that~~in the ~~Company identified for potential sale during the first~~second quarter of ~~2017. For each~~2020. Loss on impairment of depreciable real estate assets was $6.5 million for both the three and nine months ended September 30, ~~2016, loss on~~2019, consisting of an impairment charge for the Winston-Salem, North Carolina Courtyard in the third quarter of ~~depreciable real estate assets was approximately $5.5 million, and related to the Chesapeake, Virginia Marriott hotel that the Company identified for potential sale during the period.~~ 2019. See Note 3 titled ~~“Investment in Real Estate”~~“Dispositions and Hotel Sale Contracts” 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~~this impairment ~~losses.~~

loss.

Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended September 30, ~~2017~~2020 and ~~2016~~2019 was ~~$44.1~~$50.2 million and ~~$37.3~~$47.9 million, respectively. For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, depreciation and amortization expense was ~~$131.8~~$149.6 million and ~~$104.7~~$143.9 million, respectively. Depreciation and amortization 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~~Depreciation and amortization expense for the three months ended September 30, 2020 and 2019 also includes $1.6 million and $0.7 million, respectively, of amortization of the Company’s finance ground lease assets. For the nine months ended September 30, 2020 and 2019, depreciation and amortization also includes $4.8 million and $2.9 million, respectively, of amortization of the Company’s finance ground lease assets. Aside from the increases in finance ground lease amortization, the remaining increases of approximately $1.4 million and $3.8 million, respectively, for the three and nine months ended September 30, 2020 and 2019, were 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 three hotels in 2017 and one~~ hotel ~~in July 2016~~acquisitions and renovations completed throughout ~~2017~~2019 and ~~2016.~~

the first nine months of 2020.

Interest and Other Expense, net

Interest and other expense, net for the three months ended September 30, ~~2017~~2020 and ~~2016~~2019 was ~~$12.0~~$18.5 million and ~~$10.2~~$14.8 million, respectively. For the nine months ended September 30, 2020 and 2019, interest and other expense, net was $52.5 million and $46.1 million, respectively, and is net of approximately ~~$0.1~~$0.9 million and ~~$0.2~~$0.7 million, respectively, of interest capitalized associated with renovation projects. Additionally, interest and other expense, net for the three months ended September 30, 2020 and 2019 includes approximately $2.8 million and $1.5 million, respectively, of interest recorded on the Company’s finance lease liabilities. For the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, interest and other expense, net ~~was $35.6~~includes approximately $8.5 million and ~~$28.5~~$5.4 million, respectively, ~~and is net of approximately $0.7 million and $1.2 million~~ of interest ~~capitalized associated with renovation projects, respectively. The increase in interest~~recorded on the Company’s finance lease liabilities.

Interest expense ~~was primarily due~~related to ~~an increase~~the Company’s debt instruments increased as a result of increased average borrowings in the ~~Company’s average outstanding borrowings during the first~~ nine months ~~of 2017~~ended September 30, 2020 as compared to ~~2016 which is primarily attributable to (a) mortgage debt assumed in~~ the ~~Apple Ten merger effective~~nine months ended 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 extinguished credit facility assumed in the Apple Ten merger and (iii) the acquisition of four hotels (one in July 2016, one in February 2017 and two in September 2017); which increases were partially offset by the sale of two hotels (one in December 2016 and one in April 2017). The impact of higher debt balances and the increasing cost of variable rate debt was30, 2019 partially offset by a ~~reduction~~decrease in the Company’s effective interest rate during the nine months ended September 30, 2020 as compared to the same period in 2019, due to lower average interest ~~rate incurred~~rates. However, the Company anticipates interest expense to be higher for the remainder of 2020 compared to the same period of 2019 due to increased average interest rates and increased borrowings under its revolving credit facility as compared to the same periods in 2019. In March 2020, the Company drew the remaining availability under its revolving credit facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in the financial markets resulting from COVID-19. As of September 30, 2020, the Company had repaid approximately $295.3 million in connection with the amendments of its unsecured credit facilities (discussed below) and as a result of improved operating cash flow in the third quarter of 2020. See Note 4 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 discussion of the Company’s amended unsecured credit facilities. In addition to increases in interest due to the Company’s unsecured credit facilities, interest on the Company’s ~~total outstanding debt, resulting from~~finance leases increased approximately $3.1 million during the ~~repayment~~nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 due to a required increase under one of ~~maturing fixed-rate mortgage debt with lower rate borrowings primarily from~~ its ~~$150 million term loan facility and new mortgage debt originations.~~

leases.

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”),~~MFFO, Earnings before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), Earnings Before Interest, Income Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”), Adjusted EBITDAre and Adjusted ~~EBITDA (“Adjusted EBITDA”).~~Hotel EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss), cash flow from operations or any other operating GAAP measure. FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel 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, EBITDAre, Adjusted EBITDAre, and Adjusted Hotel EBITDA as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel 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.

Index

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 (loss) (computed in accordance with ~~generally accepted accounting principles (“GAAP”))~~GAAP), excluding gains orand losses from ~~sales~~the sale of certain real estate assets (including gains and losses from change in control), 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.~~affiliates. 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 ~~NAREIT~~Nareit 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.

~~Index~~

The Company calculates MFFO by further ~~adjusts~~adjusting FFO for ~~certain additional items that are not in NAREIT’s definition of FFO, including:~~ ~~(i)~~ the exclusion of ~~transaction~~amortization of finance ground lease assets, amortization of favorable and ~~litigation costs (reimbursements) as these costs do not represent ongoing operations~~unfavorable operating leases, net and ~~(ii) the exclusion of~~ non-cash straight-line operating ground lease expense, as ~~this~~ ~~expense does~~these expenses do 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 (loss) to FFO and MFFO for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (in thousands).:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
Net income (loss)	$	(40,948	)	$	46,223	$	(121,960	)	$	146,464
Depreciation of real estate owned		48,307			46,910		144,019			140,288
Gain on sale of real estate		-			-		(8,785	)		(1,052	)
Loss on impairment of depreciable real estate assets		-			6,467		4,382			6,467
Funds from operations		7,359			99,600		17,656			292,167
Amortization of finance ground lease assets		1,612			725		4,816			2,915
Amortization of favorable and unfavorable operating leases, net		103			31		305			93
Non-cash straight-line operating ground lease expense		44			47		135			142
Modified funds from operations	$	9,118		$	100,403	$	22,912		$	295,317

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income $ 62,824 $ 13,694 $ 184,795 $ 103,098
Depreciation of real estate owned 43,880 37,114 131,081 103,962
(Gain) loss on sale of real estate 157 - (15,983 ) -
Loss on impairment of depreciable real estate assets - 5,471 7,875 5,471
Amortization of favorable and unfavorable leases, net 165 132 498 513
Funds from operations 107,026 56,411 308,266 213,044
Transaction and litigation costs (reimbursements) - 36,452 (2,586 ) 37,861
Non-cash straight-line ground lease expense 917 843 2,794 2,479
Modified funds from operations $ 107,943 $ 93,706 $ 308,474 $ 253,384

EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA

EBITDA is a commonly used measure of performance in many industries and is defined as net income (loss) 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~~

In addition to EBITDA, the Company ~~considers the exclusion of~~ ~~certain additional items from~~also calculates and presents EBITDAre in accordance with standards established by Nareit, which defines EBITDAre as EBITDA, ~~useful, including:~~ ~~(i) the exclusion of~~ ~~transaction~~excluding gains and ~~litigation costs (reimbursements), gains or~~ losses from ~~sales~~the sale of ~~real estate and the loss on impairment of depreciable~~certain real estate assets ~~as these items do not represent ongoing operations~~(including gains and ~~(ii)~~losses from change in control), plus real estate related impairments, and adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates. The Company presents EBITDAre because it believes that it provides further useful information to investors in comparing its operating performance between periods and between REITs that report EBITDAre using the Nareit definition.

The Company also considers the exclusion of non-cash straight-line operating ground lease expense from EBITDAre useful, as this expense does not reflect the underlying performance of the related hotels.

The Company further excludes actual corporate-level general and administrative expense for the Company from Adjusted EBITDAre (Adjusted Hotel EBITDA) to isolate property-level operational performance over which the Company’s hotel operators have direct control. The Company believes Adjusted Hotel EBITDA provides useful supplemental information to investors regarding operating performance and is used by management to measure the performance of the Company’s hotels and effectiveness of the operators of the hotels.

Index

The following table reconciles the Company’s GAAP net income (loss) to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA for ~~the~~ three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (in thousands).:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
Net income (loss)	$	(40,948	)	$	46,223	$	(121,960	)	$	146,464
Depreciation and amortization		50,171			47,887		149,590			143,946
Amortization of favorable and unfavorable operating leases, net		103			31		305			93
Interest and other expense, net		18,531			14,759		52,483			46,110
Income tax expense		61			143		265			505
EBITDA		27,918			109,043		80,683			337,118
Gain on sale of real estate		-			-		(8,785	)		(1,052	)
Loss on impairment of depreciable real estate assets		-			6,467		4,382			6,467
EBITDAre		27,918			115,510		76,280			342,533
Non-cash straight-line operating ground lease expense		44			47		135			142
Adjusted EBITDAre		27,962			115,557		76,415			342,675
General and administrative expense		6,726			9,039		22,274			25,484
Adjusted Hotel EBITDA	$	34,688		$	124,596	$	98,689		$	368,159

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income $ 62,824 $ 13,694 $ 184,795 $ 103,098
Depreciation 44,110 37,343 131,770 104,651
Amortization of favorable and unfavorable leases, net 165 132 498 513
Interest and other expense, net 12,024 10,156 35,590 28,519
Income tax expense (benefit) 203 (7 ) 712 616
EBITDA 119,326 61,318 353,365 237,397
Transaction and litigation costs (reimbursements) - 36,452 (2,586 ) 37,861
(Gain) loss on sale of real estate 157 - (15,983 ) -
Loss on impairment of depreciable real estate assets - 5,471 7,875 5,471
Non-cash straight-line ground lease expense 917 843 2,794 2,479
Adjusted EBITDA $ 120,400 $ 104,084 $ 345,465 $ 283,208

~~Index~~

Hotels Owned

As of September 30, ~~2017,~~2020, the Company owned ~~237~~235 hotels with an aggregate of ~~30,188~~30,023 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		5,667
Hampton	40		5,072
Courtyard	36		4,948
Residence Inn	33		3,939
Homewood Suites	33		3,731
SpringHill Suites	13		1,705
Fairfield	11		1,300
Home2 Suites	10		1,146
TownePlace Suites	9		931
Marriott	2		619
Embassy Suites	2		316
Independent	2		263
Hyatt Place	2		281
Hyatt House	1		105
Total	235		30,023

Index

Number of Hotels and Guest Rooms by State
	Number of		Number of
State	Hotels		Rooms
Alabama		15		1,434
Alaska		2		304
Arizona		14		1,903
Arkansas		3		336
California		27		3,807
Colorado		4		567
Florida		23		2,922
Georgia		6		672
Idaho		1		186
Illinois		8		1,420
Indiana		4		479
Iowa		3		301
Kansas		4		422
Louisiana		3		422
Maine		1		179
Maryland		2		233
Massachusetts		4		466
Michigan		1		148
Minnesota		3		405
Mississippi		2		168
Missouri		4		544
Nebraska		4		621
New Jersey		5		629
New York		4		554
North Carolina		10		1,091
Ohio		2		252
Oklahoma		4		545
Pennsylvania		3		391
South Carolina		5		538
Tennessee		13		1,502
Texas		31		3,755
Utah		3		393
Virginia		13		1,825
Washington		4		609
Total		235		30,023

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 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 7 775
Marriott 3 932
Embassy Suites 2 316
Renaissance 1 205
Total 237 30,188

Number of Hotels and Guest Rooms by State
Number of Number of
State Hotels Rooms
Alabama 15 1,434
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 237 30,188

Index

The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the ~~237~~235 hotels the Company owned as of September 30, ~~2017.~~

2020.

City

State

Brand

Manager

Date

Acquired or

Completed

Rooms

Anchorage

Embassy Suites

Stonebridge

4/30/2010

169

~~Auburn~~

Anchorage

Home2 Suites

Stonebridge

12/1/2017

135

Auburn

Hilton Garden Inn

LBA

3/1/2014

101

Birmingham

Courtyard

LBA

3/1/2014

Birmingham

Hilton Garden Inn

LBA

9/12/2017

104

Birmingham

~~Homewood~~

Home2 Suites

~~McKibbon~~

LBA

~~3/1/2014~~

9/12/2017

106

Birmingham

~~Home2~~

Homewood Suites

~~LBA~~

McKibbon

~~9/12/2017~~

3/1/2014

~~106~~

Dothan

Hilton Garden Inn

LBA

6/1/2009

104

Dothan

Residence Inn

LBA

3/1/2014

Huntsville

Hampton

LBA

9/1/2016

Huntsville

Hilton Garden Inn

LBA

3/1/2014

101

Huntsville

Home2 Suites

LBA

9/1/2016

Huntsville

Homewood Suites

LBA

3/1/2014

107

Mobile

Hampton

McKibbon

9/1/2016

101

Montgomery

Hilton Garden Inn

LBA

3/1/2014

Montgomery

Homewood Suites

LBA

3/1/2014

Prattville

Courtyard

LBA

3/1/2014

Rogers

Hampton

Raymond

8/31/2010

122

Rogers

Homewood Suites

Raymond

4/30/2010

126

Rogers

Residence Inn

Raymond

3/1/2014

~~Springdale~~

Chandler

~~Residence Inn~~

Courtyard

~~Aimbridge~~

North Central

~~3/1/2014~~

11/2/2010

150

Chandler

~~Courtyard~~

Fairfield

North Central

11/2/2010

~~150~~

110

~~Chandler~~

Phoenix

~~Fairfield Inn & Suites~~

Courtyard

North Central

11/2/2010

~~110~~

164

Phoenix

Courtyard

North Central

~~11/2/2010~~

9/1/2016

~~164~~

127

Phoenix

~~Courtyard~~

Hampton

North Central

9/1/2016

~~127~~

125

Phoenix

Hampton

North Central

~~9/1/2016~~

5/2/2018

~~125~~

210

Phoenix

Homewood Suites

North Central

9/1/2016

134

Phoenix

Residence Inn

North Central

11/2/2010

129

Scottsdale

Hilton Garden Inn

North Central

9/1/2016

122

~~Tucson~~

Tempe

Hyatt House

Crestline

8/13/2020

105

Tempe

Hyatt Place

Crestline

8/13/2020

154

Tucson

Hilton Garden Inn

Western

7/31/2008

125

Tucson

Residence Inn

Western

3/1/2014

124

Tucson

TownePlace Suites

Western

10/6/2011

124

Agoura Hills

Homewood Suites

Dimension

3/1/2014

125

Burbank

Courtyard

Huntington

8/11/2015

190

Burbank

Residence Inn

Marriott

3/1/2014

166

Burbank

SpringHill Suites

Marriott

7/13/2015

170

Clovis

Hampton

Dimension

7/31/2009

Clovis

Homewood Suites

Dimension

2/2/2010

Cypress

Courtyard

Dimension

3/1/2014

180

Cypress

Hampton

Dimension

6/29/2015

110

Oceanside

Courtyard

Marriott

9/1/2016

142

Oceanside

Residence Inn

Marriott

3/1/2014

125

Rancho Bernardo/San Diego

Courtyard

InnVentures

3/1/2014

210

Sacramento

Hilton Garden Inn

Dimension

3/1/2014

153

San Bernardino

Residence Inn

InnVentures

2/16/2011

San Diego

Courtyard

Huntington

9/1/2015

245

San Diego

Hampton

Dimension

3/1/2014

177

~~Index~~

~~City~~

~~State~~

~~Brand~~

~~Manager~~

~~Date Acquired or Completed~~

~~Rooms~~

San Diego

Hilton Garden Inn

InnVentures

3/1/2014

200

Index

City

State

Brand

Manager

Date

Acquired or

Completed

Rooms

San Diego

Residence Inn

Dimension

3/1/2014

121

San Jose

Homewood Suites

Dimension

3/1/2014

140

San Juan Capistrano

Residence Inn

Marriott

9/1/2016

130

Santa Ana

Courtyard

Dimension

5/23/2011

155

Santa Clarita

Courtyard

Dimension

9/24/2008

140

Santa Clarita

Fairfield ~~Inn~~

Dimension

10/29/2008

Santa Clarita

Hampton

Dimension

10/29/2008

128

Santa Clarita

Residence Inn

Dimension

10/29/2008

Tulare

Hampton

InnVentures

3/1/2014

Tustin

Fairfield ~~Inn & Suites~~

Marriott

9/1/2016

145

Tustin

Residence Inn

Marriott

9/1/2016

149

Colorado Springs

Hampton

Chartwell

9/1/2016

101

Denver

Hilton Garden Inn

Stonebridge

9/1/2016

221

Highlands Ranch

Hilton Garden Inn

Dimension

3/1/2014

128

Highlands Ranch

Residence Inn

Dimension

3/1/2014

117

Boca Raton

Hilton Garden Inn

~~White Lodging~~

Dimension (1)

9/1/2016

149

Cape Canaveral

~~Homewood Suites~~

Hampton

LBA

~~9/1/2016~~

4/30/2020

~~153~~

116

~~Fort Lauderdale~~

Cape Canaveral

~~Hampton~~

Homewood Suites

~~Vista Host~~

LBA

~~12/31/2008~~

9/1/2016

~~109~~

153

~~Fort Lauderdale~~

Cape Canaveral

~~Hampton~~

Home2 Suites

LBA

~~6/23/2015~~

4/30/2020

~~156~~

108

Fort Lauderdale

~~Residence Inn~~

Hampton

LBA

~~9/1/2016~~

6/23/2015

156

~~Gainesville~~

Fort Lauderdale

Residence Inn

LBA

9/1/2016

156

Gainesville

Hilton Garden Inn

McKibbon

9/1/2016

104

Gainesville

Homewood Suites

McKibbon

9/1/2016

103

Jacksonville

Homewood Suites

McKibbon

3/1/2014

119

~~Lakeland~~

Jacksonville

~~Courtyard~~

Hyatt Place

~~LBA~~

Crestline

~~3/1/2014~~

12/7/2018

127

~~Miami~~

Lakeland

Courtyard

~~Dimension~~

LBA

3/1/2014

~~118~~

Miami

~~Hampton~~

Courtyard

~~White Lodging~~

Dimension

~~4/9/2010~~

3/1/2014

~~121~~

118

Miami

~~Homewood Suites~~

Hampton

~~Dimension~~

White Lodging

~~3/1/2014~~

4/9/2010

~~162~~

121

~~Orlando~~

Miami

~~Fairfield Inn &~~

Homewood Suites

~~Marriott~~

Dimension

3/1/~~2009~~2014

~~200~~

162

Orlando

~~SpringHill Suites~~

Fairfield

Marriott

7/1/2009

200

~~Panama City~~

Orlando

~~Hampton~~

Home2 Suites

LBA

3/~~12/2009~~19/2019

128

~~Panama City~~

Orlando

~~TownePlace~~

SpringHill Suites

~~LBA~~

Marriott

7/1/~~19/2010~~2009

~~103~~

200

~~Pensacola~~

Panama City

~~TownePlace Suites~~

Hampton

~~McKibbon~~

LBA

~~9/1/2016~~

3/12/2009

~~Sanford~~

Panama City

~~SpringHill~~

TownePlace Suites

LBA

1/~~2014~~19/2010

~~105~~

103

~~Sarasota~~

Pensacola

~~Homewood~~

TownePlace Suites

~~Hilton~~

McKibbon

9/1/~~2014~~2016

~~100~~

Tallahassee

Fairfield ~~Inn & Suites~~

LBA

9/1/2016

Tallahassee

Hilton Garden Inn

LBA

3/1/2014

Tampa

Embassy Suites

White Lodging

11/2/2010

147

~~Tampa~~

Albany

~~TownePlace Suites~~

Fairfield

~~McKibbon~~

LBA

1/~~2014~~14/2010

~~Albany~~

Atlanta/Downtown

~~Fairfield Inn & Suites~~

Hampton

~~LBA~~

McKibbon

~~1/14/2010~~

2/5/2018

119

~~Atlanta~~

Atlanta/Perimeter Dunwoody

~~Home2 Suites~~

Hampton

~~McKibbon~~

LBA

~~7/1/2016~~

6/28/2018

~~128~~

132

~~Columbus~~

Atlanta

~~SpringHill~~

Home2 Suites

~~LBA~~

McKibbon

7/1/~~2014~~2016

128

~~Columbus~~

Macon

~~TownePlace Suites~~

~~LBA~~

~~3/1/2014~~

~~Macon~~

Hilton Garden Inn

LBA

3/1/2014

101

Savannah

Hilton Garden Inn

Newport

3/1/2014

105

Cedar Rapids

Hampton

~~Schulte~~

Aimbridge

9/1/2016

103

Cedar Rapids

Homewood Suites

~~Schulte~~

Aimbridge

9/1/2016

Davenport

Hampton

~~Schulte~~

Aimbridge

9/1/2016

103

~~Index~~

~~City~~

~~State~~

~~Brand~~

~~Manager~~

~~Date Acquired or Completed~~

~~Rooms~~

Boise

Hampton

Raymond

4/30/2010

186

~~Boise~~

~~SpringHill Suites~~

~~InnVentures~~

~~3/1/2014~~

~~230~~

Des Plaines

Hilton Garden Inn

Raymond

9/1/2016

252

Hoffman Estates

Hilton Garden Inn

White Lodging

9/1/2016

184

Mettawa

Hilton Garden Inn

White Lodging

11/2/2010

170

Mettawa

Residence Inn

White Lodging

11/2/2010

130

Index

City

State

Brand

Manager

Date

Acquired or

Completed

Rooms

Rosemont

Hampton

Raymond

9/1/2016

158

Schaumburg

Hilton Garden Inn

White Lodging

11/2/2010

166

Skokie

Hampton

Raymond

9/1/2016

225

Warrenville

Hilton Garden Inn

White Lodging

11/2/2010

135

Indianapolis

SpringHill Suites

White Lodging

11/2/2010

130

Merrillville

Hilton Garden Inn

White Lodging

9/1/2016

124

Mishawaka

Residence Inn

White Lodging

11/2/2010

106

South Bend

Fairfield ~~Inn & Suites~~

White Lodging

9/1/2016

119

Overland Park

Fairfield ~~Inn & Suites~~

~~True North~~

Raymond (2)

3/1/2014

110

Overland Park

Residence Inn

~~True North~~

Raymond (2)

3/1/2014

120

Overland Park

SpringHill Suites

~~True North~~

Raymond (2)

3/1/2014

102

Wichita

Courtyard

Aimbridge

3/1/2014

~~Baton Rouge~~

Lafayette

~~SpringHill Suites~~

~~Dimension~~

~~9/25/2009~~

~~119~~

~~Lafayette~~

Hilton Garden Inn

LBA

7/30/2010

153

Lafayette

SpringHill Suites

LBA

6/23/2011

103

New Orleans

Homewood Suites

Dimension

3/1/2014

166

Andover

SpringHill Suites

Marriott

11/5/2010

136

Marlborough

Residence Inn

~~True North~~

Crestline (2)

3/1/2014

112

Westford

Hampton

~~True North~~

Crestline (2)

3/1/2014

110

Westford

Residence Inn

~~True North~~

Crestline (2)

3/1/2014

108

Annapolis

Hilton Garden Inn

~~White Lodging~~

Crestline

3/1/2014

126

Silver Spring

Hilton Garden Inn

~~White Lodging~~

Crestline (1)

7/30/2010

107

~~Novi~~

Portland

Residence Inn

Crestline

10/13/2017

179

Novi

Hilton Garden Inn

White Lodging

11/2/2010

148

Maple Grove

Hilton Garden Inn

North Central

9/1/2016

~~120~~

121

Rochester

Hampton

Raymond

8/3/2009

124

~~Kansas City~~

St. Paul

Hampton

Raymond (1)

~~8/31/2010~~

3/4/2019

~~122~~

160

Kansas City

~~Residence Inn~~

Hampton

~~True North~~

Raymond

~~3/1/2014~~

8/31/2010

~~106~~

122

~~St. Louis~~

Kansas City

~~Hampton~~

Residence Inn

Raymond (2)

~~8/31/2010~~

3/1/2014

~~190~~

106

St. Louis

Hampton

Raymond

~~4/30/~~

8/31/2010

~~126~~

190

~~Hattiesburg~~

St. Louis

~~Courtyard~~

Hampton

~~LBA~~

Raymond

~~3/1/2014~~

4/30/2010

126

Hattiesburg

~~Residence Inn~~

Courtyard

LBA

~~12/11/2008~~

3/1/2014

~~Carolina Beach~~

Hattiesburg

~~Courtyard~~

Residence Inn

~~Crestline~~

LBA

~~3/1/2014~~

12/11/2008

~~144~~

~~Charlotte~~

Carolina Beach

~~Fairfield Inn & Suites~~

Courtyard

~~Newport~~

Crestline

3/1/~~2016~~2014

144

Charlotte

~~Homewood Suites~~

Fairfield

~~McKibbon~~

Newport

9/~~24/2008~~1/2016

~~118~~

~~Durham~~

Charlotte

Homewood Suites

McKibbon

~~12/4/~~

9/24/2008

~~122~~

118

~~Fayetteville~~

Durham

~~Home2~~

Homewood Suites

~~LBA~~

McKibbon

~~2/3/2011~~

12/4/2008

~~118~~

122

Fayetteville

~~Residence Inn~~

Home2 Suites

~~Aimbridge~~

LBA

2/3/~~1/2014~~2011

118

~~Greensboro~~

Fayetteville

~~SpringHill Suites~~

Residence Inn

~~Newport~~

LBA

3/1/2014

~~Holly Springs~~

Greensboro

~~Hampton~~

SpringHill Suites

~~LBA~~

Newport

~~11/30/2010~~

3/1/2014

~~124~~

Jacksonville

Home2 Suites

LBA

9/1/2016

105

Wilmington

Fairfield ~~Inn & Suites~~

Crestline

3/1/2014

122

Winston-Salem

~~Courtyard~~

Hampton

McKibbon

9/1/~~2014~~2016

~~122~~

~~Index~~

~~City~~

~~State~~

~~Brand~~

~~Manager~~

~~Date Acquired or Completed~~

~~Rooms~~

~~Winston-Salem~~

Omaha

~~Hampton~~

Courtyard

~~McKibbon~~

Marriott

3/1/~~2016~~2014

181

Omaha

~~Courtyard~~

Hampton

~~Marriott~~

White Lodging

9/1/~~2014~~2016

~~181~~

139

Omaha

~~Hampton~~

~~White Lodging~~

~~9/1/2016~~

~~139~~

~~Omaha~~

Hilton Garden Inn

White Lodging

9/1/2016

178

Omaha

Homewood Suites

White Lodging

9/1/2016

123

Cranford

Homewood Suites

Dimension

3/1/2014

108

Mahwah

Homewood Suites

Dimension

3/1/2014

110

Mount Laurel

Homewood Suites

Newport

1/11/2011

118

Somerset

Courtyard

Newport

3/1/2014

162

West Orange

Courtyard

Newport

1/11/2011

131

Islip/Ronkonkoma

Hilton Garden Inn

~~White Lodging~~

Crestline

3/1/2014

~~165~~

166

New York

~~Renaissance~~

Independent

Highgate

3/1/2014

~~205~~

208

Index

City

State

Brand

Manager

Date

Acquired or

Completed

Rooms

Syracuse

Courtyard

~~New Castle~~

Crestline

10/16/2015

102

Syracuse

Residence Inn

~~New Castle~~

Crestline

10/16/2015

Mason

Hilton Garden Inn

~~Schulte~~

Raymond

9/1/2016

110

Twinsburg

Hilton Garden Inn

~~Gateway~~

Interstate

10/7/2008

142

Oklahoma City

Hampton

Raymond

5/28/2010

200

Oklahoma City

Hilton Garden Inn

Raymond

9/1/2016

155

Oklahoma City

Homewood Suites

Raymond

9/1/2016

100

Oklahoma City (West)

Homewood Suites

Chartwell

9/1/2016

Collegeville/Philadelphia

Courtyard

~~White Lodging~~

Newport (1)

11/15/2010

132

Malvern/Philadelphia

Courtyard

~~White Lodging~~

Newport (1)

11/30/2010

127

Pittsburgh

Hampton

~~Vista Host~~

Newport

12/31/2008

132

Charleston

Home2 Suites

LBA

9/1/2016

122

Columbia

Hilton Garden Inn

Newport

3/1/2014

143

Columbia

TownePlace Suites

Newport

9/1/2016

Greenville

Residence Inn

McKibbon

3/1/2014

Hilton Head

Hilton Garden Inn

McKibbon

3/1/2014

104

Chattanooga

Homewood Suites

LBA

3/1/2014

Franklin

Courtyard

Chartwell

9/1/2016

126

Franklin

Residence Inn

Chartwell

9/1/2016

124

Jackson

Hampton

~~Vista Host~~

Newport (1)

12/30/2008

Johnson City

Courtyard

LBA

9/25/2009

Knoxville

Homewood Suites

McKibbon

9/1/2016

103

Knoxville

SpringHill Suites

McKibbon

9/1/2016

103

Knoxville

TownePlace Suites

McKibbon

9/1/2016

Memphis

~~Homewood Suites~~

Hampton

~~Hilton~~

Crestline

~~3/1/2014~~

2/5/2018

~~140~~

144

~~Nashville~~

Memphis

Homewood Suites

Hilton

3/1/2014

140

Nashville

Hilton Garden Inn

~~Vista Host~~

Dimension (1)

9/30/2010

194

Nashville

Home2 Suites

~~Vista Host~~

Dimension (1)

5/31/2012

119

Nashville

TownePlace Suites

LBA

9/1/2016

101

Addison

SpringHill Suites

Marriott

3/1/2014

159

Allen

Hampton

~~Gateway~~

Interstate

9/26/2008

103

Allen

Hilton Garden Inn

~~Gateway~~

Interstate

10/31/2008

150

Arlington

Hampton

Western

12/1/2010

Austin

Courtyard

White Lodging

11/2/2010

145

Austin

Fairfield ~~Inn & Suites~~

White Lodging

11/2/2010

150

Austin

Hampton

~~Vista Host~~

Dimension (1)

4/14/2009

124

Austin

Hilton Garden Inn

White Lodging

11/2/2010

117

~~Index~~

~~City~~

~~State~~

~~Brand~~

~~Manager~~

~~Date Acquired or Completed~~

~~Rooms~~

Austin

Homewood Suites

~~Vista Host~~

Dimension (1)

4/14/2009

Austin/Round Rock

~~Homewood Suites~~

Hampton

~~Vista Host~~

Dimension (1)

~~9/1/2016~~

3/6/2009

~~115~~

~~Beaumont~~

Austin/Round Rock

~~Residence Inn~~

Homewood Suites

~~Western~~

Dimension (1)

~~10/29/2008~~

9/1/2016

~~133~~

115

Beaumont

Residence Inn

Western

10/29/2008

133

Burleson/Fort Worth

Hampton

LBA

10/7/2014

Dallas

Homewood Suites

Western

9/1/2016

130

Denton

Homewood Suites

Chartwell

9/1/2016

107

~~Duncanville~~

El Paso

Hilton Garden Inn

~~Gateway~~

Western

~~10/21/2008~~

12/19/2011

~~142~~

145

El Paso

Homewood Suites

Western

3/1/2014

114

Fort Worth

Courtyard

LBA

2/2/2017

124

Fort Worth

TownePlace Suites

Western

7/19/2010

140

Frisco

Hilton Garden Inn

Western

12/~~19/2011~~31/2008

~~145~~

102

~~El Paso~~

Grapevine

~~Homewood Suites~~

~~Western~~

~~3/1/2014~~

~~114~~

~~Fort Worth~~

~~Courtyard~~

~~LBA~~

~~2/2/2017~~

~~124~~

~~Fort Worth~~

~~TownePlace Suites~~

~~Western~~

~~7/19/2010~~

~~140~~

~~Frisco~~

Hilton Garden Inn

Western

~~12/31/2008~~

9/24/2010

~~102~~

110

~~Grapevine~~

Houston

Courtyard

LBA

9/1/2016

124

Houston

Marriott

Western

1/8/2010

206

Houston

Residence Inn

Western

3/1/2014

129

Houston

Residence Inn

Western

9/1/2016

120

Index

City

State

Brand

Manager

Date

Acquired or

Completed

Rooms

Irving

Homewood Suites

Western

12/29/2010

Lewisville

Hilton Garden Inn

~~Western~~

Interstate

~~9/24/2010~~

10/16/2008

~~110~~

165

~~Houston~~

San Antonio

~~Courtyard~~

TownePlace Suites

~~LBA~~

Western

3/1/~~2016~~2014

~~124~~

106

~~Houston~~

Shenandoah

~~Marriott~~

Courtyard

~~Western~~

LBA

9/1/~~8/2010~~2016

~~206~~

124

~~Houston~~

Stafford

~~Residence Inn~~

Homewood Suites

Western

3/1/2014

~~129~~

~~Houston~~

Texarkana

~~Residence Inn~~

Hampton

~~Western~~

Aimbridge

1/~~2016~~31/2011

~~120~~

~~Irving~~

Provo

~~Homewood Suites~~

Residence Inn

~~Western~~

Dimension

~~12/29/2010~~

3/1/2014

114

~~Lewisville~~

~~Hilton Garden Inn~~

~~Gateway~~

~~10/16/2008~~

~~165~~

~~Round Rock~~

~~Hampton~~

~~Vista Host~~

~~3/6/2009~~

~~San Antonio~~

~~TownePlace Suites~~

~~Western~~

~~3/1/2014~~

~~106~~

~~Shenandoah~~

~~Courtyard~~

~~LBA~~

~~9/1/2016~~

~~124~~

~~Stafford~~

~~Homewood Suites~~

~~Western~~

~~3/1/2014~~

~~Texarkana~~

~~Courtyard~~

~~Aimbridge~~

~~3/1/2014~~

~~Texarkana~~

~~Hampton~~

~~Aimbridge~~

~~1/31/2011~~

~~Texarkana~~

~~TownePlace Suites~~

~~Aimbridge~~

~~3/1/2014~~

~~Provo~~

~~Residence Inn~~

~~Dimension~~

~~3/1/2014~~

~~114~~

Salt Lake City

~~SpringHill Suites~~

Residence Inn

~~White Lodging~~

Huntington

~~11/2/2010~~

10/20/2017

~~143~~

136

~~Alexandria~~

Salt Lake City

~~Courtyard~~

SpringHill Suites

~~Marriott~~

White Lodging

~~3/1/2014~~

11/2/2010

~~178~~

143

Alexandria

~~SpringHill Suites~~

Courtyard

Marriott

3/~~28/2011~~1/2014

~~155~~

178

~~Bristol~~

Alexandria

~~Courtyard~~

SpringHill Suites

~~LBA~~

Marriott

~~11/7/2008~~

3/28/2011

~~175~~

155

Charlottesville

Courtyard

Crestline

3/1/2014

139

~~Fairfax~~

Manassas

~~Marriott~~

Residence Inn

~~White Lodging~~

Crestline

~~9/1/2016~~

2/16/2011

~~316~~

107

~~Harrisonburg~~

Richmond

~~Courtyard~~

Independent

~~Newport~~

Crestline

~~3/1/2014~~

10/9/2019

~~125~~

~~Manassas~~

Richmond

~~Residence Inn~~

Courtyard

��

~~Crestline~~

White Lodging

~~2/16/2011~~

12/8/2014

~~107~~

135

Richmond

~~Courtyard~~

Marriott

White Lodging

~~12/8/~~

3/1/2014

~~135~~

413

Richmond

~~Marriott~~

Residence Inn

White Lodging

~~3/1/~~

12/8/2014

~~410~~

Richmond

~~Residence Inn~~

SpringHill Suites

~~White Lodging~~

McKibbon

~~12/8/2014~~

9/1/2016

103

~~Richmond~~

Suffolk

~~SpringHill Suites~~

Courtyard

~~McKibbon~~

Crestline

3/1/~~2016~~2014

~~103~~

Suffolk

~~Courtyard~~

TownePlace Suites

Crestline

3/1/2014

~~Suffolk~~

Virginia Beach

~~TownePlace Suites~~

Courtyard

Crestline

3/1/2014

141

Virginia Beach

Courtyard

Crestline

3/1/2014

~~141~~

160

~~Virginia Beach~~

Kirkland

Courtyard

~~Crestline~~

InnVentures

3/1/2014

~~160~~

150

~~Kirkland~~

Seattle

~~Courtyard~~

Residence Inn

InnVentures

3/1/2014

~~150~~

234

~~Seattle~~

Tukwila

~~Residence Inn~~

Homewood Suites

~~InnVentures~~

Dimension

3/1/2014

~~234~~

106

~~Tukwila~~

Vancouver

~~Homewood~~

SpringHill Suites

~~Dimension~~

InnVentures

3/1/2014

~~106~~

119

~~Vancouver~~

Total

~~SpringHill Suites~~

~~InnVentures~~

~~3/1/2014~~

~~119~~

30,023

~~Total~~

________

~~30,188~~

(1) Manager noted was effective as of October 1, 2020.

(2) Manager noted was effective as of November 1, 2020.

~~Index~~

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 76 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 short term sources of liquidity are the operating cash ~~flow~~flows 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 ~~disposition~~additional secured and unsecured debt financing, dispositions of its hotel properties ~~and~~(such as the sale of two hotels in the first quarter of 2020 for proceeds ~~from potential~~of approximately $45 million discussed above in “2020 Hotel Portfolio Activities”) and offerings of the Company’s common shares.

~~The~~ As a result of declines in occupancy caused by COVID-19, the Company anticipates significantly reduced cash from operations until travel increases in the U.S. To increase readily available liquidity, in March 2020, the Company drew the remaining availability under its $425 million revolving credit facility. In connection with entering into amendments for each of its unsecured credit facilities (discussed below) and as a result of improved operating cash flows during the third quarter of 2020, the Company has repaid approximately $295.3 million of borrowings under its revolving credit facility ~~which~~ as of September 30, ~~2017 had unused borrowing capacity of approximately $323.3 million, is available for share repurchases, acquisitions, hotel renovations and development, working~~2020. The Company has taken additional steps to preserve capital and ~~other general corporate~~increase liquidity, including postponing approximately $50 million of non-essential

Index

capital improvements, suspending its monthly distributions and entering into contracts for potential dispositions. Additionally, as a result of the effects of COVID-19 on the economic environment, for certain hotels, the lenders for the associated mortgage loans have granted the Company’s request for temporary deferrals of principal and interest payments. The Company anticipates funding ~~purposes, including~~its near-term cash needs with operating cash flows generated from the ~~payment of distributions to shareholders.~~ Company’s properties, cash on hand and availability under its revolving credit facility.

As of September 30, ~~2017,~~2020, the ~~Company’s~~Company had $1.5 billion of total outstanding debt consisting of $515.5 million of mortgage debt and $1.0 billion outstanding under its unsecured credit facilities, excluding unamortized debt issuance costs and fair value adjustments. As of September 30, 2020, the Company had available corporate cash on hand of approximately $27.4 million as well as unused borrowing capacity under its revolving credit facility ~~had an outstanding principal balance~~ of approximately ~~$216.7 million with an annual variable interest rate~~$295.3 million. In the near term, the impact of ~~approximately 2.78%.~~

COVID-19 on the global economy, including any sustained decline in the Company’s performance, may make it more difficult or costly for the Company to raise debt or equity capital to fund long-term liquidity requirements. The credit ~~agreement~~agreements governing the ~~revolving~~unsecured credit ~~facility contains~~facilities contain mandatory prepayment requirements, customary affirmative ~~covenants,~~and negative covenants and events of default. The credit ~~agreement requires~~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~~As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company ~~was in~~anticipated that it may not be able to maintain compliance with ~~the applicable~~certain of these covenants ~~at September 30, 2017.~~

In February 2017, the Company executed an equity distribution agreement that allows the Company to sell, from time to time, up to an aggregate of $300 million of its common shares through sales agents (the “ATM Program”). Actual sales will dependin future periods. As a result, on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company's common shares and determinations by the Company of the appropriate uses of any proceeds. As of September 30, 2017, the Company had not sold any shares under the ATM Program.

~~On July 25, 2017,~~June 5, 2020, the Company entered into amendments to each of the unsecured credit facilities. The amendments suspend the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities until the date the compliance certificate is required to be delivered for the fiscal quarter ending June 30, 2021 (unless the Company elects an ~~unsecured $85~~earlier date) (the “Covenant Waiver Period”), and provide for, among other restrictions, the following during the Covenant Waiver Period:

●

Mandatory prepayments of amounts outstanding under the Company’s unsecured credit facilities, of net cash proceeds from certain debt and equity issuances, and asset dispositions, subject to various exceptions. A portion of the mandatory prepayments will be available for future borrowing under the revolving credit facility;

●

A minimum liquidity covenant of $100 million;

●

Restrictions on the Company’s and its subsidiaries’ ability to incur additional indebtedness or prepay certain existing indebtedness;

●

Restrictions on the Company’s ability to make cash distributions (except to the extent required to maintain REIT status) and share repurchases;

●

Maximum discretionary capital expenditures of $50 million;

●

Limitations on additional investments; and

●

The amendments also modify the calculation of the existing financial covenants for the four quarters subsequent to the end of the Covenant Waiver Period to annualize calculated amounts to the extent the most recently ended fiscal quarter is not at least four fiscal quarters from the end of the Covenant Waiver Period, and provide for an increase in the LIBOR floor under the credit agreements from 0 to 25 basis points for Eurodollar Rate Loans and establish a Base Rate floor of 1.25% on the revolving credit facility, and any term ~~loan with a syndicate~~loans under the credit agreements that are not hedged. Except as otherwise set forth in the amendments, the terms of ~~commercial banks, with a maturity date of July 25, 2024.~~ the credit agreements remain in effect.

The Company ~~used~~anticipates meeting the ~~net proceeds from~~applicable covenants after the ~~$85 million term loan to pay down~~conclusion of the ~~borrowings on the Company’s revolving credit facility.~~ Covenant Waiver Period, although there can be no assurances.

See Note 54 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 related to~~a description of the ~~$85 million term loan.~~

~~As discussed below in “Subsequent Events,” in October 2017,~~Company’s debt instruments as of September 30, 2020.

On August 12, 2020, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $300 million of its common shares under an at-the-market offering program (the “ATM Program”). As of September 30, 2020, the Company has not sold any common shares under the ~~Fairfax, Virginia Marriott for a sale price of approximately $41.5 million.~~ATM Program. The Company ~~used~~plans to use the net proceeds from the sale of these shares to pay down borrowings on its revolving credit ~~facility.~~

facility and, under certain circumstances, to

Index

repay proportionally amounts under each of the Company’s revolving credit facility, term loans and senior notes. The Company plans to use the corresponding increased availability under the revolving credit facility for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of other outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the net proceeds to acquire another REIT or other company that invests in income producing properties.

During April and May 2020, the Company applied for and received approximately $18 million in loans under the CARES Act Paycheck Protection Program. Due to subsequent guidance issued by the Small Business Administration and the Department of Treasury, related to the intended participants in this program, the Company repaid all amounts received. The Company will continue to evaluate relief initiatives and stimulus packages, including any accompanying restrictions on its business that would be imposed by such packages, that may be or become available to the Company under government stimulus programs.

Capital Uses

~~The~~

Although there can be no assurances, the Company anticipates that available cash ~~flow from operations,~~and availability under its revolving credit facility ~~additional borrowings and proceeds from hotel dispositions and equity offerings~~as of September 30, 2020, will be adequate to meet its ~~anticipated liquidity requirements, including~~near-term potential operating cash flow deficits that may result from the effect of COVID-19, debt service, hotel acquisitions ~~hotel renovations, required distributions to shareholders (the~~and capital expenditures. Though not expected, if the Company is ~~not required~~unable to ~~make distributions at~~meet its near-term anticipated capital uses as currently planned, it may raise capital through disposition of assets, issuance of equity or issuance of debt, which may be more costly to the Company in the current ~~rate for REIT purposes) and share repurchases.~~

environment.

Distributions

To maintain its REIT status, the Company is required to distribute at least 90% of its ordinary income. Distributions paid during the nine months ended September 30, ~~2017~~2020 totaled approximately ~~$200.7~~$67.3 million or ~~$0.90 per common share and were paid at a monthly rate of $0.10~~$0.30 per common share. For the same period, the Company’s net cash generated from operations was approximately ~~$280.5 million, which included~~$26.2 million. This shortfall includes a ~~payment~~return of ~~approximately $19.4 million, net of reimbursements received from~~capital and was funded primarily by borrowings on the Company’s ~~directors~~revolving credit facility. As a result of COVID-19 and ~~officers insurance carriers,~~the impact on its business, the Company suspended its monthly distributions in March 2020 and anticipates not paying distributions for the remainder of 2020 unless it is determined that an additional distribution is required in order for the Company to maintain its REIT status for federal income tax purposes. Subject to the distribution restrictions discussed above as a condition to the June 5, 2020 amendments to the Company’s unsecured credit facilities during the first nine months of 2017 to settle the Apple Ten merger lawsuit which is discussed in Note 10 titled “Legal Proceedings” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q.

~~Index~~

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 ofCovenant Waiver Period, the Company’s Board of Directors, in consultation with management, will continue to monitor hotel operations and ~~there can be no assurance of the classification or duration of~~intends to resume 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~~a time and ~~may make adjustments to the distribution rate as~~level determined to be prudent in relation to the Company’s other cash ~~requirements~~requirements.

Share Repurchases

In May 2020, the Company’s Board 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 levelsDirectors approved an extension 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 with the implementation of the ATM Program, in February 2017 the Company terminated~~ its existing ~~written trading plan under the Company’s~~Share Repurchase Program, authorizing share repurchase program. In January 2016, the Company purchased, under its share repurchase program, approximately 20,000 of its common shares at a weighted-average market purchase price of approximately $18.10 per common share forrepurchases up to an aggregate ~~purchase price~~ of ~~approximately $0.4~~$345 million. The ~~Company did not repurchase any common shares under its share repurchase program during the first nine months of 2017.~~ The Company plans to continue to consider opportunistic share repurchases under the $467.5 million remaining portion of the authorized $475 million share repurchase program, which will depend on prevailing market conditions and other factors. 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~~2021 if not terminated earlier.

During the first nine months of 2020 and 2019, the Company purchased, under its Share Repurchase Program, approximately 1.5 million and 0.3 million of its common shares, respectively, at a weighted-average market purchase price of approximately $9.42 and $14.92 per common share, respectively, for an aggregate purchase price, including commissions, of approximately $14.3 million and $4.3 million, respectively. No shares were repurchased during the second and third quarters of 2020. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash on hand or availability under its unsecured credit facilities. The shares were repurchased under a written trading plan that provided for share repurchases in open market transactions and was intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. In March 2020 the Company terminated its written trading plan under the Share Repurchase Program. The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will depend upon prevailing market conditions, regulatory requirements and other factors. As discussed above, share repurchases are subject to certain restrictions during the Covenant Waiver Period as a condition to the June 5, 2020 amendments to the Company’s unsecured credit facilities.

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, subject to improved operating results, 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 September 30, ~~2017,~~2020, the Company held ~~$26.8~~$24.6 million in reserve related to these properties. During the nine months ended September 30, ~~2017,~~2020, the Company invested approximately ~~$41.9~~$34.6 million in capital expenditures, and anticipates spending an additional ~~$25~~$5 million during the remainder of ~~2017, which includes various scheduled renovation projects~~2020. This estimate is approximately $50 million less than originally planned for ~~approximately 15 properties.~~the entire year of 2020 as the Company has postponed all planned non-essential capital improvements in order to maintain a sound liquidity position as a result of COVID-19. The Company does not currently have any existing or planned projects for new property development.

Index

Hotel Contract Commitments

As of September 30, ~~2017,~~2020, the Company had one outstanding ~~contracts~~contract, which was entered into prior to 2020, for the potential purchase of ~~four additional hotels~~a newly developed hotel for a total expected purchase price of approximately ~~$146.1~~$49.6 million. ~~Two of the hotels, the Salt Lake City Residence Inn~~The hotel is under development and ~~the Portland Residence Inn, which are already in operation, were acquired in October 2017. The two remaining hotels are under construction and are~~is planned to be completed and opened for business ~~over~~within the next 12six months from September 30, ~~2017,~~2020, at which time closing on ~~these hotels~~this 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 hotels~~this hotel will occur under the outstanding purchase ~~contracts. The purchase price for each~~contract. If the seller meets all of the ~~Salt Lake City Residence Inn and Portland Residence Inn was funded through~~conditions to closing, the ~~Company’s revolving~~Company is obligated to specifically perform under this contract. As the property is under development, at this time, the seller has not met all of the conditions to closing. The Company plans to utilize its available cash or borrowings under its unsecured credit ~~facility and it is anticipated that~~facilities available at closing to purchase the ~~purchase price for the remaining outstanding contracts will be funded similarly.~~

hotel under contract if closing occurs.

Cash Management Activities

As part of the cost sharing arrangements discussed in Note 76 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.

~~Index~~

~~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.~~quarters, however, due to the effects of COVID-19, these typical seasonal patterns have not occurred and may not occur in the remainder of 2020. 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 the new fair value measurement accounting ~~standards~~standard on January 1, 2020 and the guidance in the ~~first nine months of 2017 and the anticipated adoption of recently issued~~reference rate reform accounting ~~standards.~~

standard effective in March 2020.

Subsequent Events

In October ~~2017,~~2020, the Company ~~paid approximately $22.3 million, or $0.10 per outstanding common share, in distributions to its common shareholders.~~

~~In October 2017, the Company declared~~entered into a ~~regular monthly cash distribution of $0.10 per common share~~purchase and sale agreement with an unrelated party for ~~the month of November 2017. The distribution is payable on November 15, 2017.~~

~~On October 5, 2017, the Company completed~~ the sale of ~~the Fairfax, Virginia Marriott~~its 118-room Charlotte, North Carolina Homewood Suites for a ~~sale~~gross sales price of approximately ~~$41.5~~$10.3 million. Although the Company is working towards the sale of this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on this hotel will occur under the outstanding purchase and sale agreement. If the closing occurs, this sale is expected to be completed within three to six months of September 30, 2020 and the Company expects to recognize a gain upon completion of the sale. The Company ~~used~~expects the net proceeds from the sale to be used to pay down borrowings on ~~its~~the Company’s revolving credit facility. ~~See Note 4 for additional information.~~

~~On October 13, 2017, the Company closed on the purchase of an existing 179-room Residence Inn in Portland, Maine for a gross purchase price of approximately $55.8 million.~~

~~On October 20, 2017, the Company closed on the purchase of an existing 136-room Residence Inn in Salt Lake City, Utah for a gross purchase price of $25.5 million.~~

Index

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of September 30, ~~2017,~~2020, 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 the portion of its ~~variable~~variable-rate debt that is not fixed by interest rate ~~term loan.~~swaps. As of September 30, ~~2017,~~2020, after giving effect to interest rate swaps, as described below, approximately ~~$319.2~~$225.3 million, or approximately ~~24%~~15% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s ~~variable rate~~variable-rate debt outstanding as of September 30, ~~2017,~~2020, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately ~~$3.2~~$2.3 million (subject to the LIBOR floor as discussed in Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q), 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 balance at September 30, 2017 was $0.~~

~~Index~~

As of September 30, ~~2017,~~2020, the Company’s ~~variable rate~~variable-rate debt consisted of its ~~$540~~unsecured credit facilities, including borrowings outstanding under its $425 million revolving credit facility and ~~six~~$820 million of term loans, ~~totaling $660 million.~~and a $20.6 million loan secured by two of its properties. Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its ~~variable rate~~variable-rate debt. As of September 30, ~~2017,~~2020, the Company had ~~six~~14 interest rate swap agreements that effectively fix the interest payments on approximately ~~$557.5~~$745.0 million of the Company’s ~~variable rate~~variable-rate debt outstanding ~~(consisting~~with swap maturity dates ranging from March 2021 to December 2029. In addition, the Company has entered into an interest rate swap agreement which, beginning May 18, 2021, will effectively fix the interest rate on an additional $75 million of ~~five term loans) through maturity.~~its variable-rate debt. 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 month~~one-month LIBOR.

See Note 5 titled “Fair Value of Financial Instruments” in the Company’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 interest rate swaps as of September 30, 2020.

In addition to its ~~variable rate~~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.~~arrangements as well as one $50 million fixed-rate senior notes facility. The following table summarizes the annual maturities and average interest rates of the Company’s mortgage debt ~~the six term loans~~ and borrowings outstanding under ~~the $540 million revolving~~its unsecured credit ~~facility~~facilities at September 30, ~~2017.~~2020. All dollar amounts are in thousands.

	October 1 - December 31, 2020			2021			2022			2023			2024			Thereafter			Total		Fair Market Value
Total debt:
Maturities	$	2,745		$	70,724		$	239,531		$	296,213		$	338,597		$	567,405		$	1,515,215	$	1,468,165
Average interest rates⁽¹⁾		3.8	%		3.8	%		3.8	%		4.0	%		4.2	%		4.3	%

Variable-rate debt:
Maturities	$	-		$	20,551		$	129,700		$	250,000		$	310,000		$	260,000		$	970,251	$	923,215
Average interest rates ⁽¹⁾		3.6	%		3.6	%		3.7	%		4.0	%		4.4	%		4.7	%

Fixed-rate debt:
Maturities	$	2,745		$	50,173		$	109,831		$	46,213		$	28,597		$	307,405		$	544,964	$	544,950
Average interest rates		4.3	%		4.3	%		4.1	%		4.0	%		4.0	%		4.0	%

October 1 -
December 31, 2017
2018 2019 2020 2021 Thereafter Total Fair Market Value
Total debt:
Maturities $ 2,701 $ 11,071 $ 248,408 $ 451,164 $ 95,311 $ 498,181 $ 1,306,836 $ 1,307,025
Average interest rates 3.5 % 3.5 % 3.5 % 3.8 % 4.0 % 4.0 %

Variable rate debt:
Maturities $ - $ - $ 216,700 $ 425,000 $ 50,000 $ 185,000 $ 876,700 $ 877,783
Average interest rates (1) 3.0 % 3.0 % 3.0 % 3.1 % 3.3 % 3.4 %

Fixed rate debt:
Maturities $ 2,701 $ 11,071 $ 31,708 $ 26,164 $ 45,311 $ 313,181 $ 430,136 $ 429,242
Average interest rates 4.5 % 4.5 % 4.5 % 4.5 % 4.4 % 4.3 %

(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, Chief Financial Officer and Chief ~~Financial~~Accounting 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, Chief Financial Officer and Chief ~~Financial~~Accounting Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, ~~2017.~~2020. 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.

Index

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~There have been no material changes~~

The Company is or may be a party to various legal proceedings that arise in the ordinary course of business. The Company is not currently involved in any litigation nor, to management’s knowledge, is any litigation threatened against the Company where the outcome would, in management’s judgment based on information currently available to the ~~legal proceedings previously disclosed in~~Company, have a material adverse effect on the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”) except as described in Note 10 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.

consolidated financial position or results of operations.

Item 1A. Risk Factors

~~For~~

“Item 1A. Risk Factors” of the Company’s 2019 Form 10-K includes a discussion of the Company’s potential risks and ~~uncertainties, see~~uncertainties. The information below updates, and should be read in conjunction with, the ~~section titled “Risk Factors”~~risk factors and information disclosed in the ~~2016~~Company’s 2019 Form ~~10-K. There~~10-K. Except as presented below, there have been no material changes tofrom the risk factors described in the Company’s 2019 Form 10-K.

The current widespread outbreak of COVID-19 has significantly adversely impacted and disrupted, and is expected to continue to significantly adversely impact and disrupt, the Company’s business, financial performance and condition, operating results and cash flows, as could any future outbreak of another highly infectious or contagious disease.

The outbreak of COVID-19 has had a detrimental impact on, and another pandemic in the future could similarly impact, regional and global economies and financial markets. The global, national and local impact of the outbreak has been rapidly evolving and many countries, including the U.S., and state and local governments have reacted by instituting a wide variety of measures intended to control its spread, including any increase in number of COVID-19 cases, which measures include states of emergency, mandatory quarantines, implementing “stay at home” orders, business closures, border closings, and restricting travel and large gatherings, which has resulted in cancellation of events, including sporting events, conferences and meetings. The pandemic has triggered a period of material global economic slowdown and the National Bureau of Economic Research declared that the U.S. has been in a recession since February 2020.

The effects of the pandemic on the hotel industry are unprecedented. COVID-19 has disrupted the industry and its consequences have dramatically reduced travel, which has had a significant adverse impact, and management expects COVID-19 will continue to significantly adversely impact and disrupt the Company’s business, financial performance and condition, operating results and cash flows. Since March 2020, the Company has experienced a significant decline in revenue throughout its portfolio which the Company expects to continue for an extended period of time. Substantially all of the Company’s properties are currently operating at significantly reduced levels and the Company has reduced certain services and amenities. Although currently all of the Company’s hotels are open, the Company may need or elect to temporarily suspend operations at properties in the future depending on the length and severity of COVID-19 and related effects, including any increase in number of COVID-19 cases. If operations at the Company’s hotel properties are suspended, the Company cannot give any assurance as to when they will resume operations at a full or reduced level.

Additional factors that would negatively impact the Company’s ability to successfully operate during or following COVID-19 or another pandemic, or that could otherwise significantly adversely impact and disrupt its business, financial performance and condition, operating results and cash flows, include:

●

sustained negative consumer, or business sentiment or continued corporate travel policy restrictions, including beyond the end of COVID-19, which could further adversely impact demand for lodging;

●

an expansion of the number of postponed and cancelled events, including sporting events, conferences and meetings;

●

the Company’s ability to reopen hotels that are temporarily closed in a timely manner, and its ability to attract customers to its hotels when they are able to reopen;

●

a severe disruption or instability in the global financial markets or deterioration in credit and financing conditions;

●

continued increased costs and potential difficulty accessing supplies to maintain hotels, including hotels that are no longer in operation and increased sanitation, social distancing and other mitigation measures, such as personal protective equipment at hotels;

Index

●

continued increased labor costs to attract employees due to perceived risk of exposure to COVID-19, as well as potential for increased workers’ compensation claims if hotel employees are exposed to COVID-19 through the workplace; and

●

increased susceptibility to litigation related to, among other things, the financial impacts of COVID-19 on the Company’s business or litigation related to individuals contracting COVID-19 as a result of alleged exposures on the Company’s premises.

The results of these factors could include:

●

continued decreased demand resulting in hotel properties not generating revenue sufficient to meet operating expenses, which may adversely affect the value of the Company’s hotel properties, potentially requiring the Company to recognize significant non-cash impairment charges or other significant unanticipated cash or non-cash costs;

●

the further scaling back and delay of a significant amount of the Company’s planned capital expenditures, including planned renovation projects, which could adversely affect the value of the Company’s properties;

●

a material adverse effect on the Company’s ability to consummate acquisitions and dispositions of hotel properties;

●

continued suspension of the Company’s monthly distributions or a change in the amount or frequency of distributions when the Company resumes paying distributions;

●

increased indebtedness and sustained or further decreases in operating results, which could increase the Company’s risk of default under its loan agreements or other long-term contracts;

●

increased volatility of the Company’s stock price;

●

disruptions in the Company’s supply chains, which may increase costs for essential capital improvements or may impact hotels that are under development and that the Company expects to acquire following completion;

●

declines in regional and local economies, reducing travel to and from the localities;

●

increased risk that the Company could be required to close on the purchase under its existing contracts for newly developed hotels, where the hotel is not legally allowed to open due to temporary regulations resulting from COVID-19 mitigation;

●

increased risk in the Company’s ability to retain and the continued service and availability of personnel, including the Company’s senior leadership team and key field personnel, such as general managers, and the Company’s ability to recruit, attract and retain skilled personnel to the extent its management or personnel are impacted by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work;

●

disruptions as a result of corporate employees working remotely, including risk of cybersecurity incidents and disruptions to internal control procedures; and

●

difficulty accessing debt and equity capital on attractive terms, or at all, under the Company’s secured and unsecured indebtedness, or capital necessary to fund business operations or address maturing liabilities.

Moreover, many risk factors set forth in the Company’s 2019 Form 10-K should be interpreted as heightened risks as a result of the ongoing and numerous adverse impacts of COVID-19.

The significance, extent and duration of the impacts caused by COVID-19 on the Company’s business, including financial condition, operating results and cash flows, remains largely uncertain and dependent on future developments that are highly uncertain and cannot be accurately predicted at this time, such as the continued severity, duration, transmission rate and geographic spread of COVID-19 in the U.S., the extent and effectiveness of actions taken to contain the pandemic or mitigate its impact, the timing of and manner in which containment efforts are reduced or lifted, and the response of the overall economy, the financial markets and the population, particularly in areas in which the Company operates, as containment measures are reduced or lifted. As a result, the Company cannot provide an estimate of the overall impact of COVID-19 on its business or when, or if, the Company will be able to resume pre-COVID-19 levels of operations. COVID-19 presents material uncertainty and risk with respect to the Company’s business, financial performance and condition, operating results and cash flows.

Index

The spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.

COVID-19 has caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. The Company cannot predict whether conditions in the bank lending, capital and other financial markets will continue to deteriorate as a result of the pandemic, or whether the Company’s access to capital and other sources of funding will become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.

Additionally, a prolonged economic recession, including lower GDP growth, corporate earnings, consumer confidence, employment rates, income levels and personal wealth, could result in significantly below-average lodging demand by both group and transient travelers that continues beyond the lifting of travel and other government restrictions and after COVID-19 has largely subsided. There can also be no guarantee that the demand for lodging, and consumer confidence in travel generally, will recover as quickly as other industries. All of the above factors could materially negatively impact the Company’s business, financial performance and condition, operating results and cash flows.

Item 5. Other Information

As previously disclosed, Bryan F. Peery, the former Executive Vice President and Chief Financial Officer of the Company, retired from his officer roles with the Company effective as of March 31, 2020. Pursuant to the terms of the separation agreement between Mr. Peery and the Company dated as of March 4, 2020 and amended on March 30, 2020, among other things, Mr. Peery agreed to remain employed by the Company in an advisory role to support the ~~2016 Form 10-K~~.

transition of his responsibilities. As a result of the COVID-19 pandemic, Mr. Peery provided substantive additional assistance to the Company as it navigated its response to the COVID-19 pandemic beyond the anticipated transition activities originally contemplated after March 31. In light of these unexpected contributions, on November 2, 2020, the Compensation Committee of the Board of Directors of the Company approved a one-time grant of 35,070 fully vested common shares to Mr. Peery. This grant is in addition to amounts otherwise payable under Mr. Peery’s separation agreement.

Item 6. Exhibits

Exhibit Number		Description of Documents
3.1
~~3.1~~	Amended and Restated Articles of Incorporation of the Company, as amended (Incorporated by reference to Exhibit 3.1 to the Company’s ~~current~~quarterly report on Form ~~8-K~~10-Q (SEC File No. 001-37389) filed ~~May 23, 2017)~~August 6, 2018)
~~3.2~~
3.2		~~Second~~Third Amended and Restated Bylaws of the Company ~~(Incorporated~~(Incorporated by reference to Exhibit ~~3.1~~3.2 to the Company’s ~~current~~quarterly report on Form ~~8-K~~10-Q (SEC File No. 001-37389) filed ~~February~~May 18, ~~2016)~~2020)

31.1		Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)

31.2		Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)

~~32.1~~ 31.3		Certification of the Company’s Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)

32.1		Certification of the Company’s Chief Executive Officer, Chief Financial Officer and Chief ~~Financial~~Accounting Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FURNISHED HEREWITH)

101		The following materials from ~~Apple Hospitality REIT, Inc.’s~~the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017~~2020 formatted in ~~XBRL (eXtensible~~iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and ~~(iv)~~(v) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH)
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted as Inline XBRL and contained in Exhibit 101.

*	Denotes Management Contract or Compensation Plan

Index

SIGNATURES

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: November ~~6, 2017~~5, 2020
	Justin G. Knight,
	~~President and~~ Chief Executive Officer (Principal Executive Officer)

By:	/s/ ~~Bryan Peery~~ Elizabeth S. Perkins		Date: November ~~6, 2017~~5, 2020
	~~Bryan Peery,~~ Elizabeth S. Perkins,
	Chief Financial Officer (Principal Financial ~~and~~ Officer)

By:	/s/ Rachel S. Labrecque	Date: November 5, 2020
	Rachel S. Labrecque,
	Chief Accounting Officer (Principal Accounting Officer)

	September 30,			December 31,
	2017			2016
	(unaudited)
Assets
Investment in real estate, net of accumulated depreciation of $686,787 and $557,597, respectively	$	4,742,590		$	4,823,489
Assets held for sale		40,626			39,000
Restricted cash-furniture, fixtures and other escrows		30,299			29,425
Due from third party managers, net		52,354			31,460
Other assets, net		48,018			56,509
Total Assets	$	4,913,887		$	4,979,883

Liabilities
Revolving credit facility	$	216,700		$	270,000
Term loans		655,988			570,934
Mortgage debt		432,783			497,029
Accounts payable and other liabilities		104,467			124,856
Total Liabilities		1,409,938			1,462,819

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 223,060,840 and 222,938,648 shares, respectively		4,455,390			4,453,205
Accumulated other comprehensive income		5,218			4,589
Distributions greater than net income		(956,659	)		(940,730	)
Total Shareholders' Equity		3,503,949			3,517,064

Total Liabilities and Shareholders' Equity	$	4,913,887		$	4,979,883

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017 (Actual)		2016 (Proforma)		2017 (Proforma)		2016 (Proforma)
Total revenue	$	324,926	$	325,924	$	949,555	$	949,760
Net income	$	62,824	$	59,960	$	182,209	$	176,985
Basic and diluted net income per common share	$	0.28	$	0.27	$	0.82	$	0.79
Weighted average common shares outstanding - basic and diluted		223,057		223,403		223,052		223,399

Location	Brand	Date of Purchase Contract	Rooms		Refundable Deposits		Gross Purchase Price
Operating (a)
Salt Lake City, UT	Residence Inn	8/22/2017		136	$	500	$	25,500
Portland, ME	Residence Inn	8/30/2017		179		1,000		55,750
Under development (b)
Phoenix, AZ	Hampton	10/25/2016		210		500		44,100
Orlando, FL	Home2 Suites	1/18/2017		128		3		20,736
				653	$	2,003	$	146,086

		As of September 30, 2017								As of December 31, 2016
	Maturity Date	Outstanding Balance			Interest Rate					Outstanding Balance			Interest Rate
Revolving credit facility (1)	5/18/2019	$	216,700			2.78	%	(2	)	$	270,000			2.32	%	(2	)

Term loans
$425 million term loans	5/18/2020		425,000			3.01	%	(3	)		425,000			2.90	%	(3	)
$50 million term loan	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	)
$85 million term loan	7/25/2024		85,000			3.76	%	(4	)		0			n/a
Total term loans at stated value			660,000								575,000
Unamortized debt issuance costs			(4,012	)							(4,066	)
Total term loans			655,988								570,934

Total revolving credit facility and term loans		$	872,688							$	840,934

Location	Brand	Interest Rate (1)			Loan Assumption or Origination Date	Maturity Date			Principal Assumed or Originated		Outstanding balance as of September 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		15,858			16,104
Colorado Springs, CO	Hampton		6.25	%	9/1/2016	7/6/2021				7,923		7,787			7,883
Franklin, TN	Courtyard		6.25	%	9/1/2016	8/6/2021				14,679		14,429			14,604
Franklin, TN	Residence Inn		6.25	%	9/1/2016	8/6/2021				14,679		14,429			14,604
Grapevine, TX	Hilton Garden Inn		4.89	%	8/29/2012	9/1/2022				11,810		10,487			10,707
Collegeville/Philadelphia, PA	Courtyard		4.89	%	8/30/2012	9/1/2022				12,650		11,233			11,468
Hattiesburg, MS	Courtyard		5.00	%	3/1/2014	9/1/2022				5,732		5,249			5,357
Rancho Bernardo, CA	Courtyard		5.00	%	3/1/2014	9/1/2022				15,060		13,790			14,074
Kirkland, WA	Courtyard		5.00	%	3/1/2014	9/1/2022				12,145		11,121			11,350
Seattle, WA	Residence Inn		4.96	%	3/1/2014	9/1/2022				28,269		25,871			26,409
Anchorage, AK	Embassy Suites		4.97	%	9/13/2012	10/1/2022				23,230		20,706			21,133
Somerset, NJ	Courtyard		4.73	%	3/1/2014	10/6/2022				8,750		7,990			8,160
Tukwila, WA	Homewood Suites		4.73	%	3/1/2014	10/6/2022				9,431		8,611			8,795
Prattville, AL	Courtyard		4.12	%	3/1/2014	2/6/2023				6,596		5,989			6,123
Huntsville, AL	Homewood Suites		4.12	%	3/1/2014	2/6/2023				8,306		7,541			7,711
San Diego, CA	Residence Inn		3.97	%	3/1/2014	3/6/2023				18,600		16,865			17,248
Miami, FL	Homewood Suites		4.02	%	3/1/2014	4/1/2023				16,677		15,138			15,479
Syracuse, NY	Courtyard		4.75	%	10/16/2015	8/1/2024	(4	)		11,199		10,706			10,905
Syracuse, NY	Residence Inn		4.75	%	10/16/2015	8/1/2024	(4	)		11,199		10,706			10,905
New Orleans, LA	Homewood Suites		4.36	%	7/17/2014	8/11/2024				27,000		25,087			25,577
Westford, MA	Residence Inn		4.28	%	3/18/2015	4/11/2025				10,000		9,448			9,626
Denver, CO	Hilton Garden Inn		4.46	%	9/1/2016	6/11/2025				34,118		33,253			33,857
Oceanside, CA	Courtyard		4.28	%	9/1/2016	10/1/2025				13,655		13,394			13,576
Omaha, NE	Hilton Garden Inn		4.28	%	9/1/2016	10/1/2025				22,682		22,248			22,550
Boise, ID	Hampton		4.37	%	5/26/2016	6/11/2026				24,000		23,522			23,813
Burbank, CA	Courtyard		3.55	%	11/3/2016	12/1/2026				25,564		25,081			25,564
San Diego, CA	Courtyard		3.55	%	11/3/2016	12/1/2026				25,473		24,992			25,473
San Diego, CA	Hampton		3.55	%	11/3/2016	12/1/2026				18,963		18,605			18,963
									$	514,669		430,136			494,428
Unamortized fair value adjustment of assumed debt												4,556			5,229
Unamortized debt issuance costs												(1,909	)		(2,628	)
Total											$	432,783		$	497,029

2017 (October - December)	$	2,701
2018		11,071
2019		248,408
2020		451,164
2021		95,311
Thereafter		498,181
		1,306,836
Unamortized fair value adjustment of assumed debt		4,556
Unamortized debt issuance costs related to term loans and mortgage debt		(5,921	)
Total	$	1,305,471

								Fair Value Asset (Liability)
Hedge Type	Notional Amount at September 30, 2017		Origination Date	Maturity Date	Swap Fixed Interest Rate			September 30, 2017			December 31, 2016
Cash flow hedge	$	212,500	5/21/2015	5/18/2020		1.58	%	$	538		$	(198	)
Cash flow hedge		110,000	7/2/2015	5/18/2020		1.62	%		166			(246	)
Cash flow hedge		50,000	4/7/2016	3/31/2021		1.09	%		1,168			1,289
Cash flow hedge		100,000	4/7/2016	3/31/2023		1.33	%		3,148			3,744
Cash flow hedge		75,000	5/31/2017	6/30/2024		1.96	%		202			0
Cash flow hedge		10,000	8/10/2017	6/30/2024		2.01	%		(4	)		0
	$	557,500						$	5,218		$	4,589

	October 1 - December 31, 2017			2018			2019			2020			2021			Thereafter			Total		Fair Market Value
Total debt:
Maturities	$	2,701		$	11,071		$	248,408		$	451,164		$	95,311		$	498,181		$	1,306,836	$	1,307,025
Average interest rates		3.5	%		3.5	%		3.5	%		3.8	%		4.0	%		4.0	%

Variable rate debt:
Maturities	$	-		$	-		$	216,700		$	425,000		$	50,000		$	185,000		$	876,700	$	877,783
Average interest rates (1)		3.0	%		3.0	%		3.0	%		3.1	%		3.3	%		3.4	%

Fixed rate debt:
Maturities	$	2,701		$	11,071		$	31,708		$	26,164		$	45,311		$	313,181		$	430,136	$	429,242
Average interest rates		4.5	%		4.5	%		4.5	%		4.5	%		4.4	%		4.3	%