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
☐ | 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 | 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
Apple Hospitality REIT, Inc.
Form 10-Q
Index
Page Number | ||||
PART I. FINANCIAL INFORMATION | ||||
Item 1. | 3 | |||
3 | ||||
Consolidated Statements of Operations and Comprehensive | 4 | |||
Consolidated Statements of Shareholders’ Equity – three months ended March 31, 2021 and 2020 | 5 | |||
Consolidated Statements of Cash Flows | 6 | |||
7 | ||||
Item 2. | 19 | |||
Item 3. | 36 | |||
Item 4. | 36 | |||
PART II. OTHER INFORMATION | ||||
Item 1. | 37 | |||
Item | 37 | |||
Item 6. | 38 | |||
39 |
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.
PART I. FINANCIAL INFORMATION
Apple Hospitality REIT, Inc.
(in thousands, except share data)
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| (unaudited) |
|
|
|
|
| |
Assets |
|
|
|
|
|
|
|
|
Investment in real estate, net of accumulated depreciation and amortization of $1,275,557 and $1,235,698, respectively |
| $ | 4,712,480 |
|
| $ | 4,732,896 |
|
Assets held for sale |
|
| 5,172 |
|
|
| 5,316 |
|
Cash and cash equivalents |
|
| 5,776 |
|
|
| 5,556 |
|
Restricted cash-furniture, fixtures and other escrows |
|
| 30,149 |
|
|
| 28,812 |
|
Due from third party managers, net |
|
| 38,766 |
|
|
| 22,137 |
|
Other assets, net |
|
| 33,589 |
|
|
| 35,042 |
|
Total Assets |
| $ | 4,825,932 |
|
| $ | 4,829,759 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Debt, net |
| $ | 1,523,032 |
|
| $ | 1,482,571 |
|
Finance lease liabilities |
|
| 221,027 |
|
|
| 219,981 |
|
Accounts payable and other liabilities |
|
| 80,108 |
|
|
| 97,860 |
|
Total Liabilities |
|
| 1,824,167 |
|
|
| 1,800,412 |
|
|
|
|
|
|
|
|
|
|
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 223,656,264 and 223,212,346 shares, respectively |
|
| 4,493,422 |
|
|
| 4,488,419 |
|
Accumulated other comprehensive loss |
|
| (26,720 | ) |
|
| (42,802 | ) |
Distributions greater than net income |
|
| (1,464,937 | ) |
|
| (1,416,270 | ) |
Total Shareholders' Equity |
|
| 3,001,765 |
|
|
| 3,029,347 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity |
| $ | 4,825,932 |
|
| $ | 4,829,759 |
|
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.
Apple Hospitality REIT, Inc.
(Unaudited)
(in thousands, except per share data)
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Revenues: |
|
|
|
|
|
|
|
|
Room |
| $ | 148,481 |
|
| $ | 217,979 |
|
Food and beverage |
|
| 2,783 |
|
|
| 11,312 |
|
Other |
|
| 7,449 |
|
|
| 8,719 |
|
Total revenue |
|
| 158,713 |
|
|
| 238,010 |
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Hotel operating expense: |
|
|
|
|
|
|
|
|
Operating |
|
| 38,150 |
|
|
| 68,029 |
|
Hotel administrative |
|
| 17,744 |
|
|
| 23,643 |
|
Sales and marketing |
|
| 14,888 |
|
|
| 24,359 |
|
Utilities |
|
| 10,560 |
|
|
| 9,190 |
|
Repair and maintenance |
|
| 10,225 |
|
|
| 11,793 |
|
Franchise fees |
|
| 6,919 |
|
|
| 10,257 |
|
Management fees |
|
| 5,254 |
|
|
| 7,995 |
|
Total hotel operating expense |
|
| 103,740 |
|
|
| 155,266 |
|
Property taxes, insurance and other |
|
| 19,688 |
|
|
| 19,595 |
|
General and administrative |
|
| 8,119 |
|
|
| 9,523 |
|
Loss on impairment of depreciable real estate assets |
|
| 10,754 |
|
|
| 0 |
|
Depreciation and amortization |
|
| 48,710 |
|
|
| 49,522 |
|
Total expense |
|
| 191,011 |
|
|
| 233,906 |
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate |
|
| 4,484 |
|
|
| 8,839 |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
| (27,814 | ) |
|
| 12,943 |
|
|
|
|
|
|
|
|
|
|
Interest and other expense, net |
|
| (18,513 | ) |
|
| (15,566 | ) |
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
| (46,327 | ) |
|
| (2,623 | ) |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| (108 | ) |
|
| (146 | ) |
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (46,435 | ) |
| $ | (2,769 | ) |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Interest rate derivatives |
|
| 16,082 |
|
|
| (42,166 | ) |
|
|
|
|
|
|
|
|
|
Comprehensive loss |
| $ | (30,353 | ) |
| $ | (44,935 | ) |
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share |
| $ | (0.21 | ) |
| $ | (0.01 | ) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted |
|
| 223,733 |
|
|
| 224,294 |
|
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.
Apple Hospitality REIT, Inc.
Three Months Ended March 31, 2021 and 2020
(Unaudited)
(in thousands)thousands, except per share data)
|
| Common Stock |
|
| Accumulated Other |
|
| Distributions |
|
|
|
|
| |||||||
|
| Number of Shares |
|
| Amount |
|
| Comprehensive Income (Loss) |
|
| Greater Than Net Income |
|
| Total |
| |||||
Balance at December 31, 2020 |
|
| 223,212 |
|
| $ | 4,488,419 |
|
| $ | (42,802 | ) |
| $ | (1,416,270 | ) |
| $ | 3,029,347 |
|
Share based compensation, net |
|
| 444 |
|
|
| 5,004 |
|
|
| - |
|
|
| - |
|
|
| 5,004 |
|
Equity issuance costs |
|
| - |
|
|
| (1 | ) |
|
| - |
|
|
| - |
|
|
| (1 | ) |
Interest rate derivatives |
|
| - |
|
|
| - |
|
|
| 16,082 |
|
|
| - |
|
|
| 16,082 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (46,435 | ) |
|
| (46,435 | ) |
Distributions declared to shareholders ($0.01 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,232 | ) |
|
| (2,232 | ) |
Balance at March 31, 2021 |
|
| 223,656 |
|
| $ | 4,493,422 |
|
| $ | (26,720 | ) |
| $ | (1,464,937 | ) |
| $ | 3,001,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
|
| 223,863 |
|
| $ | 4,493,763 |
|
| $ | (4,698 | ) |
| $ | (1,198,052 | ) |
| $ | 3,291,013 |
|
Share based compensation, net |
|
| 675 |
|
|
| 8,014 |
|
|
| - |
|
|
| - |
|
|
| 8,014 |
|
Common shares repurchased |
|
| (1,521 | ) |
|
| (14,336 | ) |
|
| - |
|
|
| - |
|
|
| (14,336 | ) |
Interest rate derivatives |
|
| - |
|
|
| - |
|
|
| (42,166 | ) |
|
| - |
|
|
| (42,166 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,769 | ) |
|
| (2,769 | ) |
Distributions declared to shareholders ($0.20 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (44,952 | ) |
|
| (44,952 | ) |
Balance at March 31, 2020 |
|
| 223,017 |
|
| $ | 4,487,441 |
|
| $ | (46,864 | ) |
| $ | (1,245,773 | ) |
| $ | 3,194,804 |
|
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.
Apple Hospitality REIT, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
| $ | (46,435 | ) |
| $ | (2,769 | ) |
Adjustments to reconcile net loss to cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 48,710 |
|
|
| 49,522 |
|
Loss on impairment of depreciable real estate assets |
|
| 10,754 |
|
|
| - |
|
Gain on sale of real estate |
|
| (4,484 | ) |
|
| (8,839 | ) |
Other non-cash expenses, net |
|
| 2,684 |
|
|
| 1,773 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Decrease (increase) in due from third party managers, net |
|
| (16,628 | ) |
|
| 4,886 |
|
Decrease in other assets, net |
|
| 1,029 |
|
|
| 439 |
|
Increase (decrease) in accounts payable and other liabilities |
|
| 2,256 |
|
|
| (11,670 | ) |
Net cash provided by (used in) operating activities |
|
| (2,114 | ) |
|
| 33,342 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition of hotel properties, net |
|
| (49,369 | ) |
|
| - |
|
Capital improvements |
|
| (2,506 | ) |
|
| (27,022 | ) |
Net proceeds from sale of real estate |
|
| 17,587 |
|
|
| 44,387 |
|
Net cash provided by (used in) investing activities |
|
| (34,288 | ) |
|
| 17,365 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repurchases of common shares |
|
| - |
|
|
| (14,336 | ) |
Repurchases of common shares to satisfy employee withholding requirements |
|
| (1,650 | ) |
|
| (1,748 | ) |
Distributions paid to common shareholders |
|
| - |
|
|
| (67,324 | ) |
Equity issuance costs |
|
| (1 | ) |
|
| - |
|
Net proceeds from revolving credit facility |
|
| 44,100 |
|
|
| 374,100 |
|
Proceeds from term loans and senior notes |
|
| - |
|
|
| 50,000 |
|
Proceeds from mortgage debt and other loans |
|
| - |
|
|
| 63,400 |
|
Payments of mortgage debt and other loans |
|
| (3,018 | ) |
|
| (18,354 | ) |
Financing costs |
|
| (1,472 | ) |
|
| (511 | ) |
Net cash provided by financing activities |
|
| 37,959 |
|
|
| 385,227 |
|
|
|
|
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash |
|
| 1,557 |
|
|
| 435,934 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
| 34,368 |
|
|
| 34,661 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 35,925 |
|
| $ | 470,595 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
| $ | 18,062 |
|
| $ | 14,696 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Accrued distribution to common shareholders |
| $ | 2,232 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
| $ | 5,556 |
|
| $ | - |
|
Restricted cash-furniture, fixtures and other escrows, beginning of period |
|
| 28,812 |
|
|
| 34,661 |
|
Cash, cash equivalents and restricted cash, beginning of period |
| $ | 34,368 |
|
| $ | 34,661 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
| $ | 5,776 |
|
| $ | 437,260 |
|
Restricted cash-furniture, fixtures and other escrows, end of period |
|
| 30,149 |
|
|
| 33,335 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 35,925 |
|
| $ | 470,595 |
|
See notes to consolidated financial statements.
6
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, (thethe “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 one1 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 makingdecision-making process of these entities, and therefore does not consolidate the entities. As of September 30, 2017,March 31, 2021, the Company owned 237233 hotels with an aggregate of 30,18829,855 rooms located in 3335 states, including one1 hotel with 316102 rooms classified as held for sale, which was sold to an unrelated party in October 2017.April 2021. 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, 2020 (the “2020 Form 10-K”). Operating results for the three and nine months ended September 30, 2017March 31, 2021 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2017.
Use of Estimates
The preparation of the financial statements in conformity with United States generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
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. since March 2020, 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.
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.
Net IncomeLoss Per Common Share
Basic net incomeloss per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net incomeloss 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 incomeloss per common share were the same for each of the periods presented.
Accounting Standards Recently Adopted
Reference Rate Reform
In January 2017,March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations2020-04, Reference Rate Reform (Topic 805), Clarifying the Definition of a Business848), which is intendedprovides optional guidance through December 31, 2022 to add guidance to assist entities with evaluating whether transactions should be accountedease the potential burden in accounting for, as acquisitions (or disposals)or recognizing the effects of, assets or businesses. The standard is effective for annual and interim periods beginning after December 15, 2017 with early adoption permitted. The Company adopted this standard effectivereference rate reform on financial reporting. In January 1, 2017 on a prospective basis. Prior to the adoption of this standard, the Company’s acquisitions of hotel properties were accounted for as existing businesses, and therefore all transaction costs associated with the acquisitions, including title, legal, accounting, brokerage commissions and other related costs were expensed as incurred. Under the new standard, effective January 1, 2017, acquisitions of hotel properties (including the acquisition of 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 does not apply to asset acquisitions.
7
effectiveness in hedging relationships that have been modified to replace a reference rate. The guidance forin ASU Nos. 2020-04 and 2021-01 became effective upon issuance and 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. The adoption of this standard isASUs have not expected to havehad a material impact on the Company’s consolidated financial statements.
• | Allowing modifications of the Company’s unsecured credit facilities to replace the London Interbank Offered Rate (LIBOR) with a substitute index to be accounted for as a non-substantial modification and not be considered a debt extinguishment. |
• | Allowing changes to the floating interest rate index used in the Company’s interest rate swaps to not be considered a change to the critical terms of the hedge and therefore not requiring a dedesignation of the hedging relationship. |
The Company has not entered into any contract modifications yet as it directly relates to reference rate reform but anticipates having to undertake such modifications in 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 pricefuture as a majority of the Company’s common shares on August 31, 2016 (the date that the merger was approved),unsecured credit facilities 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) relatedinterest rate swaps are indexed 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.
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 |
2. Investment in Real Estate
The Company’s investment in real estate consisted of the following (in thousands):
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Land |
| $ | 725,057 |
|
| $ | 725,512 |
|
Building and improvements |
|
| 4,546,062 |
|
|
| 4,525,850 |
|
Furniture, fixtures and equipment |
|
| 499,612 |
|
|
| 499,865 |
|
Finance ground lease assets |
|
| 203,617 |
|
|
| 203,617 |
|
Franchise fees |
|
| 13,689 |
|
|
| 13,750 |
|
|
|
| 5,988,037 |
|
|
| 5,968,594 |
|
Less accumulated depreciation and amortization |
|
| (1,275,557 | ) |
|
| (1,235,698 | ) |
Investment in real estate, net |
| $ | 4,712,480 |
|
| $ | 4,732,896 |
|
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,March 31, 2021, the Company owned 237233 hotels with an aggregate of 30,18829,855 rooms located in 3335 states, including one1 hotel with 316102 rooms classified as held for sale, which was sold to an unrelated party in October 2017.
The Company leases all of its hotels to its wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under master hotel lease agreements.
Hotel Acquisitions
The Company acquired three hotels1 hotel during the first ninethree months ended March 31, 2021. The hotel was a newly developed 176-room Hilton Garden Inn in Madison, Wisconsin managed by Raymond and purchased for $49.6 million on February 18, 2021.
During the year ended December 31, 2020, the Company acquired 4 hotels, NaN of 2017.which were acquired during the three months ended March 31, 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 |
| FL |
| Hampton |
| LBA |
| 4/30/2020 |
|
| 116 |
|
| $ | 24,102 |
|
Cape Canaveral |
| FL |
| Home2 Suites |
| LBA |
| 4/30/2020 |
|
| 108 |
|
|
| 22,602 |
|
Tempe |
| AZ |
| Hyatt House |
| Crestline |
| 8/13/2020 |
|
| 105 |
|
|
| 26,309 |
|
Tempe |
| AZ |
| 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 |
8
The Company utilized $25.0 million of its available cash and entered into a one-year note payable with | |
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 |
3. Assets Held for Sale and Dispositions
Assets Held for Sale
In December 2016,February 2021, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 224-room Hilton hotel in Dallas, TexasOverland Park, Kansas SpringHill Suites for a gross sales price of approximately $56.1 million,$5.3 million. Since the buyer under the contract had completed its due diligence and had made a non-refundable deposit, as amended. Theof March 31, 2021, the Company classified the hotel was classified as assets held for sale atin 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. Onits estimated fair value less cost to sell which, as described below, was based on the contracted sales price, resulting in an impairment loss during the first quarter of 2021. In April 20, 2017,2021, the Company completed the sale of the hotel. The net proceeds from the sale were used to pay down borrowings on the Company’s revolving credit facility.
Dispositions
During the three months ended March 31, 2021, the Company sold 2 hotels in 2 transactions with unrelated parties for a total combined gross sales price of approximately $18.3 million, resulting in a combined gain on sale of approximately $16.0$4.5 million, net of transaction costs, which is included in the Company’s consolidated statement of operations for the three months ended March 31, 2021. The two hotels had a total carrying value of approximately $13.0 million at the time of sale. The following table lists the two hotels sold:
City | State | Brand | Date Sold | Rooms | ||||||
Charlotte | NC | Homewood Suites | 2/25/2021 | 118 | ||||||
Memphis | TN | Homewood Suites | 3/16/2021 | 140 | ||||||
Total | 258 |
During the year ended December 31, 2020, the Company sold three hotels in 3 transactions with unrelated parties for a total combined gross sales price of approximately $55.3 million, resulting in a combined gain on sale of approximately $10.9 million, which is included in the Company’s consolidated statement of operations for the nine monthsyear ended September 30, 2017.December 31, 2020. The hotel3 hotels had a total carrying value totalingof approximately $39.0$43.8 million at the datetime of the sale. UnderThe following table lists the contract, at closing, the mortgage loan secured by the Dallas, Texas Hilton hotel was assumed by the buyer with the buyer receiving a credit for the amount assumed, which was approximately $27.1 million at the date of sale.three hotels sold:
City | State | Brand | Date Sold | Rooms | ||||||
Sanford | FL | SpringHill Suites | 1/16/2020 | 105 | ||||||
Boise | ID | SpringHill Suites | 2/27/2020 | 230 | ||||||
Tulare | CA | Hampton | 12/30/2020 | 86 | ||||||
Total | 421 |
Excluding gains on sale of its 316-room Marriott hotel in Fairfax, Virginia, acquired byreal estate, the Company in the merger with Apple Ten in September 2016, for a gross sales price of $41.5 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 as of September 30, 2017.
Hotel Sale Contracts and Loss on Impairment of Depreciable Real Estate Assets
During the first quarter of 2021, the Company identified the Overland Park, Kansas SpringHill Suites for potential sale and, in February 2021, entered into a purchase and sale agreement with an unrelated party for the sale of the hotel for a gross sales price of $5.3 million. As a result, the Company recognized an impairment loss of approximately $1.3 million in the first quarter of 2021, to adjust the carrying value of the hotel to its estimated fair value less cost 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 April 2021.
9
Additionally, during the first quarter of 2021, the Company recognized impairment losses totaling approximately $9.4 million to adjust the carrying values of 4 hotel properties identified for potential sale to their estimated fair values. The fair values of these properties were based on broker opinions of value using multiple methods to determine their value, including but not limited to replacement value, discounted cash flows and the income approach based on historical and forecasted operating results of the specific properties. These valuations are Level 3 inputs under the fair value hierarchy.
4. Debt
Summary
As of March 31, 2021 and December 31, 2020, the Company’s debt consisted of the following (in thousands):
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Revolving credit facility |
| $ | 149,900 |
|
| $ | 105,800 |
|
Term loans and senior notes, net |
|
| 863,737 |
|
|
| 864,225 |
|
Mortgage debt, net |
|
| 509,395 |
|
|
| 512,546 |
|
Debt, net |
| $ | 1,523,032 |
|
| $ | 1,482,571 |
|
The aggregate amounts of principal payable under the Company’s total debt obligations as of March 31, 2021 (including the revolving credit facility, term loans, senior notes and mortgage debt), for each of the next five fiscal years and thereafter are as follows (in thousands):
2021 (April - December) |
| $ | 67,706 |
|
2022 |
|
| 259,731 |
|
2023 |
|
| 296,213 |
|
2024 |
|
| 338,597 |
|
2025 |
|
| 245,140 |
|
Thereafter |
|
| 322,265 |
|
|
|
| 1,529,652 |
|
Unamortized fair value adjustment of assumed debt |
|
| 1,399 |
|
Unamortized debt issuance costs |
|
| (8,019 | ) |
Total |
| $ | 1,523,032 |
|
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 the London Inter-Bank Offered Rate for a one-month term (“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 March 31, 2021 and December 31, 2020, is set forth below. All dollar amounts are in thousands.
|
| March 31, 2021 |
|
| Percentage |
|
| December 31, 2020 |
|
| Percentage |
| ||||
Fixed-rate debt (1) |
| $ | 1,234,201 |
|
|
| 81 | % |
| $ | 1,287,219 |
|
|
| 86 | % |
Variable-rate debt |
|
| 295,451 |
|
|
| 19 | % |
|
| 201,351 |
|
|
| 14 | % |
Total |
| $ | 1,529,652 |
|
|
|
|
|
| $ | 1,488,570 |
|
|
|
|
|
Weighted-average interest rate of debt |
|
| 3.88 | % |
|
|
|
|
|
| 3.86 | % |
|
|
|
|
(1) |
10
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
In early 2021, as a result of the continued disruption from COVID-19 and the related uncertainty with respect to the Company’s operating results, the Company anticipated that it could potentially not be in compliance with certain covenants under each of its unsecured credit facilities, as previously amended, in future periods if the existing Covenant Waiver Period (as defined below) under such facilities was not extended. As a result, on March 1, 2021, the Company entered into amendments to each of the unsecured credit facilities (the “March 2021 amendments”).
The Company previously entered into amendments in June 2020 that suspended 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, 20172021 (unless the Company elects an earlier date) (the “Covenant Waiver Period”), and 2016.imposed certain restrictions that apply during such testing suspension period. The March 2021 amendments extend the testing for all but two 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, 2022 (unless the Company elects an earlier date) (the “Extended Covenant Waiver Period”). The testing for the Minimum Fixed Charge Coverage Ratio and the Minimum Unsecured Interest Coverage Ratio is suspended until the compliance certificate is required to be delivered for the fiscal quarter ending March 31, 2022.
The March 2021 amendments also provide for, among other restrictions, the following during the remainder of the Extended 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, including an allowance of $300 million for acquiring unencumbered assets with proceeds from assets sales and a $300 million allowance for acquiring unencumbered assets funded by common equity so long as outstanding borrowings under the revolving credit facility are less than $275 million. A portion of the mandatory prepayments will be available for future borrowing under the revolving credit facility; |
● | A minimum liquidity covenant of $125 million; |
● | Restrictions on the Company’s and its subsidiaries’ ability to incur additional indebtedness (except for maturities beyond 2026) or prepay certain existing indebtedness, except that the Company is permitted to prepay (prior to maturity) up to $35 million of secured debt maturities in 2021; |
● | Restrictions on the Company’s ability to make cash distributions (except the payment of cash dividends of $0.01 per common share per quarter or to the extent required to maintain REIT status) and share repurchases; |
● | Maximum discretionary capital expenditures of $50 million; |
● | Limitations on additional investments; and |
● | An increase in the applicable interest rate under the unsecured credit facilities until the end of the Extended Covenant Waiver Period to a rate that corresponds to the highest leverage-based applicable interest rate margin plus 0.15% 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 Extended 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 Extended Covenant Waiver Period, and provide for a LIBOR floor under the credit agreements of 25 basis points for Eurodollar Rate Loans and 1.25% for Base Rate Loans on the revolving credit facility, and any term loans under the credit agreements that are not hedged. The March 2021 amendments also modify certain of the existing financial maintenance covenants to less restrictive levels following the Extended Covenant Waiver Period as follows (capitalized terms are defined in the credit agreements):
11
● | Maximum Consolidated Leverage Ratio of 8.50 to 1.00 for the first two fiscal quarters, 8.00 to 1.00 for two fiscal quarters, 7.50 to 1.00 for one fiscal quarter and then a ratio of 6.50 to 1.00 thereafter; |
● | Minimum Fixed Charge Coverage Ratio of 1.05 to 1.00 for the first fiscal quarter, 1.25 to 1.00 for one fiscal quarter and then a ratio of 1.50 to 1.00 thereafter; |
● | Minimum Unsecured Interest Coverage Ratio of no less than 1.25 to 1.00 for one fiscal quarter, 1.50 to 1.00 for one fiscal quarter, 1.75 to 1.00 for one fiscal quarter and a ratio of 2.00 to 1.00 thereafter; and |
● | Maximum Unsecured Leverage Ratio of 65% for two fiscal quarters and 60% thereafter. |
Except as otherwise set forth in the amendments, the terms of the credit agreements remain in effect.As of March 31, 2021, the Company was in compliance with the applicable covenants of the credit agreements as amended.
$965850 Million Credit Facility
The Company utilizes an unsecured “$965850 million credit facility” comprised of (i) a $540$425 million revolving credit facility with an initial maturity date of May 18, 2019July 27, 2022 (the “Revolving Credit Facility”) 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, consistingJuly 27, 2023, and a $225 million term loan with a maturity date of three term loans, all funded during 2015January 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 March 31, 2021, the Company entered into two interest rate swap agreements, which effectively fixhad availability of $275 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.
$150225 Million Term Loan Facility
The Company entered intohas an unsecured $150$225 million term loan facility withthat 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 $150with a maturity date of August 2, 2023, and (ii) a $175 million term loan facility on April 8, 2016 and borrowed the remaining $100 million on September 30, 2016.with a maturity date of August 2, 2025. 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.
2017 $85 Million Term Loan
On July 25, 2017, the Company entered into an unsecured $85 million term loan with a syndicate of commercial banks,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, 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%1.30% to 2.60%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 1.70% to 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 the2019 $85 million term loan facility, the “unsecured credit facilities”). Net proceeds from the $50 million senior notes facility were available to provide
12
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 basedcertain 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.
As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the details of the Company’s revolvingunsecured credit facility and term loansfacilities were as set forth below. All dollar amounts are in thousands.
|
|
|
|
|
| Outstanding Balance |
| |||||
|
| Interest Rate (1) |
| Maturity Date |
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Revolving credit facility (2) |
| LIBOR + 1.40% - 2.25% |
| 7/27/2022 |
| $ | 149,900 |
|
| $ | 105,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
| 50,000 |
|
Term loans and senior notes at stated value |
|
|
|
|
|
| 870,000 |
|
|
| 870,000 |
|
Unamortized debt issuance costs |
|
|
|
|
|
| (6,263 | ) |
|
| (5,775 | ) |
Term loans and senior notes, net |
|
|
|
|
|
| 863,737 |
|
|
| 864,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facilities, net (2) |
|
|
|
|
| $ | 1,013,637 |
|
| $ | 970,025 |
|
Weighted-average interest rate (3) |
|
|
|
|
|
| 3.69 | % |
|
| 3.64 | % |
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) | Interest rates on all of the unsecured credit facilities are increased to 0.15% above the highest rate shown for each loan during the Extended Covenant Waiver Period. |
(2) | Excludes unamortized debt issuance costs related to the revolving credit facility |
(3) | Interest rate |
Mortgage Debt
As of September 30, 2017,March 31, 2021, the Company had approximately $430.1$509.8 million in outstanding property levelmortgage debt secured by 2833 properties with maturity dates ranging from June 2020May 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 Cape Canaveral properties acquired in April 2020 carried a variable interest rate of one-month LIBOR plus 3.00% through April 12, 2021 when the loan was repaid in full. 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 during 2020, however all payments resumed as of December 31, 2020. 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, 2017March 31, 2021 and December 31, 20162020 for each of the Company’s mortgage debt obligations. All dollar amounts are in thousands.
13
Location |
| Brand |
| Interest Rate (1) |
|
| Loan Assumption or Origination Date |
| Maturity Date |
| Principal Assumed or Originated |
|
| Outstanding balance as of March 31, 2021 |
|
| Outstanding balance as of December 31, 2020 |
| ||||
Cape Canaveral, FL |
| Hampton |
|
| (2 | ) |
| 4/30/2020 |
| (3) |
| $ | 10,852 |
|
| $ | 10,275 |
|
| $ | 10,275 |
|
Cape Canaveral, FL |
| Home2 Suites |
|
| (2 | ) |
| 4/30/2020 |
| (3) |
|
| 10,852 |
|
|
| 10,275 |
|
|
| 10,275 |
|
Colorado Springs, CO |
| Hampton |
|
| 6.25 | % |
| 9/1/2016 |
| 7/6/2021 |
|
| 7,923 |
|
|
| 7,275 |
|
|
| 7,317 |
|
Franklin, TN |
| Courtyard |
|
| 6.25 | % |
| 9/1/2016 |
| 8/6/2021 |
|
| 14,679 |
|
|
| 13,486 |
|
|
| 13,563 |
|
Franklin, TN |
| Residence Inn |
|
| 6.25 | % |
| 9/1/2016 |
| 8/6/2021 |
|
| 14,679 |
|
|
| 13,486 |
|
|
| 13,563 |
|
Grapevine, TX |
| Hilton Garden Inn |
|
| 4.89 | % |
| 8/29/2012 |
| 9/1/2022 |
|
| 11,810 |
|
|
| 9,344 |
|
|
| 9,434 |
|
Collegeville/Philadelphia, PA |
| Courtyard |
|
| 4.89 | % |
| 8/30/2012 |
| 9/1/2022 |
|
| 12,650 |
|
|
| 10,009 |
|
|
| 10,105 |
|
Hattiesburg, MS |
| Courtyard |
|
| 5.00 | % |
| 3/1/2014 |
| 9/1/2022 |
|
| 5,732 |
|
|
| 4,684 |
|
|
| 4,729 |
|
Kirkland, WA |
| Courtyard |
|
| 5.00 | % |
| 3/1/2014 |
| 9/1/2022 |
|
| 12,145 |
|
|
| 9,924 |
|
|
| 10,018 |
|
Rancho Bernardo/San Diego, CA |
| Courtyard |
|
| 5.00 | % |
| 3/1/2014 |
| 9/1/2022 |
|
| 15,060 |
|
|
| 12,305 |
|
|
| 12,422 |
|
Seattle, WA |
| Residence Inn |
|
| 4.96 | % |
| 3/1/2014 |
| 9/1/2022 |
|
| 28,269 |
|
|
| 23,074 |
|
|
| 23,294 |
|
Anchorage, AK |
| Embassy Suites |
|
| 4.97 | % |
| 9/13/2012 |
| 10/1/2022 |
|
| 23,230 |
|
|
| 18,485 |
|
|
| 18,660 |
|
Somerset, NJ |
| Courtyard |
|
| 4.73 | % |
| 3/1/2014 |
| 10/6/2022 |
|
| 8,750 |
|
|
| 7,110 |
|
|
| 7,179 |
|
Tukwila, WA |
| Homewood Suites |
|
| 4.73 | % |
| 3/1/2014 |
| 10/6/2022 |
|
| 9,431 |
|
|
| 7,663 |
|
|
| 7,737 |
|
Huntsville, AL |
| Homewood Suites |
|
| 4.12 | % |
| 3/1/2014 |
| 2/6/2023 |
|
| 8,306 |
|
|
| 6,675 |
|
|
| 6,742 |
|
Prattville, AL |
| Courtyard |
|
| 4.12 | % |
| 3/1/2014 |
| 2/6/2023 |
|
| 6,596 |
|
|
| 5,301 |
|
|
| 5,354 |
|
San Diego, CA |
| Residence Inn |
|
| 3.97 | % |
| 3/1/2014 |
| 3/6/2023 |
|
| 18,600 |
|
|
| 14,910 |
|
|
| 15,061 |
|
Miami, FL |
| Homewood Suites |
|
| 4.02 | % |
| 3/1/2014 |
| 4/1/2023 |
|
| 16,677 |
|
|
| 13,403 |
|
|
| 13,537 |
|
New Orleans, LA |
| Homewood Suites |
|
| 4.36 | % |
| 7/17/2014 |
| 8/11/2024 |
|
| 27,000 |
|
|
| 22,569 |
|
|
| 22,766 |
|
Westford, MA |
| Residence Inn |
|
| 4.28 | % |
| 3/18/2015 |
| 4/11/2025 |
|
| 10,000 |
|
|
| 8,534 |
|
|
| 8,605 |
|
Denver, CO |
| Hilton Garden Inn |
|
| 4.46 | % |
| 9/1/2016 |
| 6/11/2025 |
|
| 34,118 |
|
|
| 30,143 |
|
|
| 30,387 |
|
Oceanside, CA |
| Courtyard |
|
| 4.28 | % |
| 9/1/2016 |
| 10/1/2025 |
|
| 13,655 |
|
|
| 12,534 |
|
|
| 12,605 |
|
Omaha, NE |
| Hilton Garden Inn |
|
| 4.28 | % |
| 9/1/2016 |
| 10/1/2025 |
|
| 22,682 |
|
|
| 20,819 |
|
|
| 20,936 |
|
Boise, ID |
| Hampton |
|
| 4.37 | % |
| 5/26/2016 |
| 6/11/2026 |
|
| 24,000 |
|
|
| 22,028 |
|
|
| 22,146 |
|
Burbank, CA |
| Courtyard |
|
| 3.55 | % |
| 11/3/2016 |
| 12/1/2026 |
|
| 25,564 |
|
|
| 23,241 |
|
|
| 23,315 |
|
San Diego, CA |
| Courtyard |
|
| 3.55 | % |
| 11/3/2016 |
| 12/1/2026 |
|
| 25,473 |
|
|
| 23,158 |
|
|
| 23,232 |
|
San Diego, CA |
| Hampton |
|
| 3.55 | % |
| 11/3/2016 |
| 12/1/2026 |
|
| 18,963 |
|
|
| 17,240 |
|
|
| 17,295 |
|
Burbank, CA |
| SpringHill Suites |
|
| 3.94 | % |
| 3/9/2018 |
| 4/1/2028 |
|
| 28,470 |
|
|
| 27,078 |
|
|
| 27,078 |
|
Santa Ana, CA |
| Courtyard |
|
| 3.94 | % |
| 3/9/2018 |
| 4/1/2028 |
|
| 15,530 |
|
|
| 14,770 |
|
|
| 14,770 |
|
Richmond, VA |
| Courtyard |
|
| 3.40 | % |
| 2/12/2020 |
| 3/11/2030 |
|
| 14,950 |
|
|
| 14,665 |
|
|
| 14,739 |
|
Richmond, VA |
| Residence Inn |
|
| 3.40 | % |
| 2/12/2020 |
| 3/11/2030 |
|
| 14,950 |
|
|
| 14,665 |
|
|
| 14,739 |
|
Portland, ME |
| Residence Inn |
|
| 3.43 | % |
| 3/2/2020 |
| 4/1/2030 |
|
| 33,500 |
|
|
| 33,500 |
|
|
| 33,500 |
|
San Jose, CA |
| Homewood Suites |
|
| 4.22 | % |
| 12/22/2017 |
| 5/1/2038 |
|
| 30,000 |
|
|
| 27,124 |
|
|
| 27,392 |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 575,096 |
|
|
| 509,752 |
|
|
| 512,770 |
|
Unamortized fair value adjustment of assumed debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,399 |
|
|
| 1,624 |
|
Unamortized debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,756 | ) |
|
| (1,848 | ) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 509,395 |
|
| $ | 512,546 |
|
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) | Interest rate is variable based on one-month LIBOR plus 3.00%. As of March 31, 2021, the interest rate was 3.11%. In July 2020, the principal amount of the note was reduced by approximately $1.1 million representing a credit from the developer for shared construction savings. |
(3) | Loan was repaid in full |
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 |
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, 2017March 31, 2021, and December 31, 2016,2020, both the carrying value and estimated fair value of the Company’s debt were approximately $1.3$1.5 billion. Both the
14
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 ratevariable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one monthone-month LIBOR. The swaps are designed to effectively fix the interest payments on variable ratevariable-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, 2017March 31, 2021 and December 31, 2016.2020. All dollar amounts are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Asset (Liability) |
| |||||
Notional Amount at March 31, 2021 |
|
| Origination Date |
| Effective Date |
| Maturity Date |
| Swap Fixed Interest Rate |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
Active interest rate swaps designated as cash flow hedges at March 31, 2021: |
|
|
|
|
|
|
|
|
| |||||||||||
| 100,000 |
|
| 4/7/2016 |
| 9/30/2016 |
| 3/31/2023 |
| 1.33% |
|
| $ | (2,240 | ) |
| $ | (2,681 | ) | |
| 75,000 |
|
| 5/31/2017 |
| 7/31/2017 |
| 6/30/2024 |
| 1.96% |
|
|
| (3,632 | ) |
|
| (4,639 | ) | |
| 10,000 |
|
| 8/10/2017 |
| 8/10/2017 |
| 6/30/2024 |
| 2.01% |
|
|
| (502 | ) |
|
| (636 | ) | |
| 50,000 |
|
| 6/1/2018 |
| 1/31/2019 |
| 6/30/2025 |
| 2.89% |
|
|
| (4,591 | ) |
|
| (5,911 | ) | |
| 50,000 |
|
| 7/2/2019 |
| 7/5/2019 |
| 7/18/2024 |
| 1.65% |
|
|
| (1,932 | ) |
|
| (2,593 | ) | |
| 50,000 |
|
| 8/21/2019 |
| 8/23/2019 |
| 8/18/2024 |
| 1.32% |
|
|
| (1,378 | ) |
|
| (2,036 | ) | |
| 50,000 |
|
| 8/21/2019 |
| 8/23/2019 |
| 8/30/2024 |
| 1.32% |
|
|
| (1,377 | ) |
|
| (2,049 | ) | |
| 85,000 |
|
| 12/31/2019 |
| 12/31/2019 |
| 12/31/2029 |
| 1.86% |
|
|
| (2,657 | ) |
|
| (8,677 | ) | |
| 25,000 |
|
| 12/6/2018 |
| 1/31/2020 |
| 6/30/2025 |
| 2.75% |
|
|
| (2,149 | ) |
|
| (2,801 | ) | |
| 50,000 |
|
| 12/7/2018 |
| 5/18/2020 |
| 1/31/2024 |
| 2.72% |
|
|
| (3,354 | ) |
|
| (3,967 | ) | |
| 75,000 |
|
| 8/21/2019 |
| 5/18/2020 |
| 5/18/2025 |
| 1.27% |
|
|
| (1,736 | ) |
|
| (3,294 | ) | |
| 75,000 |
|
| 7/31/2020 |
| 8/18/2020 |
| 8/18/2022 |
| 0.13% |
|
|
| 33 |
|
|
| 14 |
| |
| 75,000 |
|
| 8/21/2019 |
| 5/18/2021 |
| 5/18/2026 |
| 1.30% |
|
|
| (1,205 | ) |
|
| (3,415 | ) | |
| 770,000 |
|
|
|
|
|
|
|
|
|
|
|
|
| (26,720 | ) |
|
| (42,685 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matured interest rate swap at March 31, 2021: |
|
|
|
|
|
|
|
|
| |||||||||||
$ | 50,000 |
|
| 4/7/2016 |
| 9/30/2016 |
| 3/31/2021 |
| 1.09% |
|
|
| - |
|
|
| (117 | ) | |
|
|
|
|
|
| $ | (26,720 | ) |
| $ | (42,802 | ) |
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 |
The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. ChangesAs of March 31, 2021, all of the 13 active interest rate swap agreements listed above were designated as cash flow hedges. The change in the fair value onof the effective portion of allCompany’s designated cash flow hedges areis 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.
15
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 months ended March 31, 2021 and 2020 (in thousands):
|
| Net Unrealized Gain (Loss) Recognized in Other Comprehensive Loss |
|
| Net Unrealized (Loss) Reclassified from Accumulated Other Comprehensive Loss to Interest and Other Expense, net |
| ||||||||||
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Interest rate derivatives in cash flow hedging relationships |
| $ | 13,367 |
|
| $ | (42,267 | ) |
| $ | (2,715 | ) |
| $ | (101 | ) |
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 on2020 Form 10-K. Below is a summary of the significant related party relationships in effect during the ninethree months ended September 30, 2017March 31, 2021 and 2016.
Glade M. Knight, Executive Chairman of the Company, was Chairman and Chief Executive Officer of Apple Ten. Apple Ten’s advisors, Apple Ten Advisors, Inc. (“A10A”) andowns Apple Realty Group, Inc. (“ARG”), are wholly owned by Mr. Knight.which receives support services from the Company and reimburses the Company for the cost of these services as discussed below. Mr. Knight is also currently a partner and Chief Executive Officer of Energy 11 GP, LLC and Energy Resources 12 GP, LLC, which are the respective general partners of Energy 11, L.P. and Energy Resources 12, L.P. Justin G. Knight, the Company’s President and Chief Executive Officer, and a member, each of the Company’s Board of Directors, also served as President of Apple Ten prior to the merger.
The Company provided to Apple Ten the advisoryprovides support services, contemplated under the A10A advisory agreement and received an annual advisory fee and was reimbursed by Apple Ten forincluding the use of the Company’s employees and corporate office, to ARG and other costs associated withis reimbursed by ARG for the advisory agreement. Additionally,cost of these services. Under this cost sharing structure, amounts reimbursed to the Company provided support servicesinclude both compensation for personnel and office related costs (including office rent, utilities, office supplies, etc.) used by ARG. The amounts reimbursed to Apple Ten’s advisors, who agreed to reimburse the Company for itsare based on the actual costs in providing these services. Bothof the advisory feesservices and a good faith estimate of the proportionate amount of time incurred by the Company’s employees on behalf of ARG. Total reimbursed costs receivedallocated 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.
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.
The Company, through its wholly-owned subsidiary, Apple Air Holding, LLC, (“Apple Air”)
7. Shareholders’ Equity
Distributions
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,March 31, 2020, the Company paid distributions of $0.30 per common share for a total of $66.9 million and $57.2 million, respectively. For$67.3 million. The distributions paid during the ninethree months ended September 30, 2017 and 2016,March 31, 2020 included the distribution paid in January 2020, totaling $22.4 million, that was declared in December 2019. As discussed in Note 4, as a requirement under the amendments to its unsecured credit facilities, the Company paidis restricted in its ability to make distributions during the Extended Covenant Waiver Period, except for the payment of cash distributions of $0.90$0.01 per common share for a totalper quarter or to the extent required to maintain REIT status. In the first quarter of $200.7 million and $161.9 million, respectively. Additionally, in September 2017,2021, the Company declaredresumed the declaration of distributions with the declaration of a monthlyquarterly distribution of $0.10$0.01 per common share totaling $22.3 million,in March 2021, which was recorded as a payable as of September 30, 2017 and paid on April 15, 2021, resulting in October 2017. As of December 31, 2016, a monthly
16
an accrued distribution of $0.10 per common share, totaling $22.3$2.2 million was recorded as a payable and paid in January 2017. These accrued distributions were included in accounts payable and other liabilities in the Company’s consolidated balance sheets.
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 Agentsunder an at-the-market offering program (the “ATM Program”). During the nine months ended September 30, 2017,As of March 31, 2021, the Company had no salesnot sold any common shares under the ATM Program.
Share Repurchases
In May 2020, the Company’s Board of Directors approved an extension of its existing share repurchase program, authorizing share repurchases up to an aggregate of $345 million (the “Share Repurchase Program”). The Share Repurchase Program
8. Compensation Plans
The Company annually establishes an executive incentive plan (“2017for its executive management. Under the incentive plan for 2021 (the “2021 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 20172021 performance measures, consisting of operational performance metrics (including targeted Modified Funds from Operations per share, Comparable Hotels revenue per available room growth and Adjusted Hotel EBITDA Margin growth) and shareholder return metrics (including shareholder return relative to a peer group and total shareholder return, over one-year, two-year and two-yearthree-year periods). The components ofWith respect to the operational performance metrics, the first half of the year, for the period of January 1 – June 30, 2021, will be based on operational performance metrics including portfolio occupancy growth, expense management, successful negotiation of amendments to each of the Company’s unsecured credit facilities and shareholder returneffective allocation of capital to drive incremental returns, with no specific target or weighting assigned to each metric. The Compensation Committee intends to review performance mid-year to determine the feasibility of reverting back to operational performance metrics for the second half of the year that are equally weighted andmore consistent with the twoCompany’s historical operational performance metrics. The operational performance 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 March 31, 2021, the range of potential aggregate payouts under the 20172021 Incentive Plan iswas $0 - $18$22.4 million. Based on performance through September 30, 2017,March 31, 2021, the Company has accrued approximately $4.7$2.9 million as a liability for potential executive bonus payments under the 20172021 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of September 30, 2017. Compensation expense recognized by the Company under the 2017 Incentive Plan is includedMarch 31, 2021 and in general and administrative expenseexpenses in the Company’s consolidated statementsstatement of operations and totaled approximately $1.2 million and $4.7 million for the three and nine months ended September 30, 2017, respectively.March 31, 2021. Approximately 25% of target awards under the 20172021 Incentive Plan, if any, will be paid in cash, and 75% will be issued in stock under the Company’s 2014 Omnibus Incentive Plan, approximately two-thirds of which wouldwill vest at the end of 2017in December 2021 and one-third of which wouldwill vest atin December 2022.
Under the end of 2018. During 2016 and 2015, comparable executive incentive plans were approved by the Compensation Committee (“2016 Incentive Plan” and “2015plan for 2020 (the “2020 Incentive Plan”) that were effective January 1, 2016 and January 1, 2015, respectively. The, the Company recorded a (decrease) increase of approximately $(0.8)$1.5 million and $2.8 million toin general and administrative expense related to the 2016 Incentive Planexpenses in the Company’sits consolidated statementsstatement of operations for the three and nine months ended September 30, 2016, respectively, with the decrease resulting from the reduction of the previously recorded executive bonus accrual due to lower anticipated 2016 performance.
During the three months ended September 30, 2017 and 2016,March 31, 2020, the Company recognizedaccrued expense associated with 2 separation agreements of approximately $0.1$1.25 million and $0.4each, totaling approximately $2.5 million, respectively, and forin connection with the nine months ended September 30, 2017 and 2016, the Company recognized approximately $0.3 million and $1.2 million, respectively,retirements of share based compensation expense related to the unvested restricted share awards.
17
Share-Based Compensation Awards
The following table sets forth information pertaining to the share-based compensation issued under the 2020 Incentive Plan and the incentive plan for 2019 (the “2019 Incentive Plan”).
|
| 2020 Incentive Plan |
|
|
| 2019 Incentive Plan |
|
| ||
Period common shares issued |
| First Quarter 2021 |
|
|
| First Quarter 2020 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
Common shares earned under each incentive plan |
|
| 555,726 |
|
|
|
| 665,552 |
|
|
Common shares surrendered on issuance date to satisfy tax withholding obligations |
|
| 117,647 |
|
|
|
| 60,616 |
|
|
Common shares earned and issued under each incentive plan, net of common shares surrendered on issuance date to satisfy tax withholding obligations |
|
| 438,079 |
|
|
|
| 604,936 |
|
|
Closing stock price on issuance date |
| $ | 14.03 |
|
|
| $ | 13.01 |
|
|
Total share-based compensation earned, including the surrendered shares (in millions) |
| $ | 7.8 |
| (1) |
| $ | 8.7 |
| (2) |
Of the total common shares earned and issued, total common shares unrestricted at time of issuance |
|
| 160,216 |
|
|
|
| 426,553 |
|
|
Of the total common shares earned and issued, total common shares restricted at time of issuance |
|
| 277,863 |
|
|
|
| 178,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted common shares vesting date |
| December 10, 2021 |
|
|
| December 11, 2020 |
|
| ||
Common shares surrendered on vesting date to satisfy tax withholding requirements resulting from vesting of restricted common shares |
| n/a |
|
|
|
| 60,066 |
|
|
(1) | Of the total 2020 share-based compensation, approximately $5.9 million was recorded as a liability as of December 31, 2020 and is included in accounts payable and other liabilities in the Company’s consolidated balance sheet at December 31, 2020. The remaining $1.9 million, which is subject to vesting on December 10, 2021 and excludes any restricted shares forfeited or vested prior to that date, will be recognized as share-based compensation expense proportionately throughout 2021. For the three months ended March 31, 2021, the Company recognized approximately $0.5 million of share-based compensation expense related to restricted share awards. |
(2) | Of the total 2019 share-based compensation, approximately $1.2 million, which vested on December 11, 2020, was recognized as share-based compensation expense proportionately throughout 2020. For the three months ended March 31, 2020, the Company recognized approximately $0.3 million of share-based compensation expense related to restricted share awards. |
Additionally, in conjunction with the appointment of 5 new officers of the Company receivedon April 1, 2020, the Company issued to the new officer group a total of approximately 200,000 restricted common shares with an additional $2.6aggregate 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 months ended March 31, 2021, the Company recognized approximately $0.1 million of proceeds from its director and officer insurance carriers, which was included as a reduction in transaction and litigation costs (reimbursements) in the Company’s consolidated statements of operations for the nine months ended September 30, 2017. The Company does not anticipate additional costs or reimbursementsshare-based compensation expense related to this litigation.
9. Subsequent Events
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 against the Company and several individual directors on behalf of all then-existing shareholders and former shareholders of Apple Seven and Apple Eight, who purchased additional shares under the Dividend Reinvestment Plans (“DRIP”) of Apple Seven, Apple Eight and the Company between July 17, 2007 and February 12, 2014. In January 2017, the parties reached an agreement in principle to settle the litigation for $5.5 million. The settlement was preliminarily approved by the court in September 2017 and 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 excess of the amount accrued as of September 30, 2017.
In October 2017,February 2021, the Company declaredentered into a regular monthly cash distribution of $0.10 per common sharepurchase and sale agreement with an unrelated party for the monthsale of November 2017. The distribution is payable on November 15, 2017.
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by use of termsstatements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “outlook,” “strategy,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Apple Hospitality REIT, Inc. (the “Company”)the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company’s forward-looking statements continues to be the adverse effect of COVID-19, including resurgences and new variants, 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 continued 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 speed of the vaccine roll-out, the efficacy, acceptance and availability of vaccines, the duration of associated immunity and efficacy of the vaccines against emerging variants of COVID-19, the potential for additional hotel closures/consolidations that may be mandated or advisable, whether based on increased COVID-19 cases, new variants 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 2020 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 futurechanges in interest rates; 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.Code of 1986, as amended. 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 on2020 Form 10-K for the year ended December 31, 2016.10-K. Any forward-looking statement that the Company makes speaks only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events, or otherwise, except as required by law.
The following discussion and analysis should be read in conjunction with the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the information contained in the Company’s Annual Report on2020 Form 10-K for the year ended December 31, 2016.
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,March 31, 2021, the Company owned 237233 hotels with an aggregate of 30,18829,855 rooms located in urban, high-end suburban and developing markets throughout 3335 states, including one hotel with 316102 rooms classified as held for sale, which was sold to an unrelated party in October 2017. AllApril 2021. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 2216 hotel management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the New York Stock ExchangeNYSE under the ticker symbol “APLE.”
The Impact of COVID-19 on the Company and Hospitality Industry
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.
19
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 and reinstituting 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 has 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 2020 have eased, occupancy and average daily rate (“ADR”) are still significantly below 2019 levels. Additionally, while vaccines have been developed and distribution began in December 2020 and these efforts suggest that conditions may continue to gradually improve during 2021, there can be no assurances of how quickly the vaccines will slow the spread of the virus and allow the economy to recover. The Company expects the 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 the economy and COVID-19 improve and government restrictions on travel and business operations are broadly lifted.
Since the beginning of the pandemic, the Company, its management companies and its brands have taken steps to minimize costs and cash outflow to maintain a sound liquidity position. The Company has 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, enhanced its sales efforts by focusing on COVID-19-specific demand opportunities in certain markets and has strategically targeted and maximized performance based on available demand, reduced non-essential capital improvement projects planned for 2021, and entered into amendments to its unsecured credit facilities to temporarily waive the financial covenant testing for the majority of its financial maintenance covenants until June 30, 2022. 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 extent and duration of COVID-19 effects are not currently known, and these uncertainties continue to make it difficult to predict operating results for the Company’s hotels for the near future. Therefore, while the ongoing vaccination efforts suggest that conditions may continue to gradually improve during 2021, there can be no assurances that the Company will not experience further declines in hotel revenues or earnings at its hotels or how long the effects will continue to impact the Company’s operating results.
2021 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 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-servicerooms-focused hotels, in 2019 the Company entered into a contract to purchase a 176-room Hilton Garden Inn to be constructed in Madison, Wisconsin. Construction of the hotel was completed in February 2021 and the Company acquired three newly constructed hotelsthe hotel on February 18, 2021 for an aggregatea gross purchase price of approximately $56.4$49.6 million, during the first nine months of 2017: a 124-room Courtyard by Marriott hotel in Fort Worth, Texas and a 104-room Hilton Garden Inn and 106-room Home2 Suites dual-branded hotel in Birmingham, Alabama. The purchase price for each of these properties was funded throughutilizing borrowings on the Company’s $540 million revolving credit facility (the “revolving credit facility”). In October 2017, 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 an aggregate purchase price of approximately $81.3 million. The Company also has outstanding contracts for the potential purchase of two additional hotels that are under construction for a total purchase price of approximately $64.8 million, which are planned to be completed and opened for business over the next 12 months from September 30, 2017, at which time closing on these hotels is expected to occur.
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,
See Note 32 titled “Investment in Real Estate” and Note 43 titled “Assets Held for Sale and Dispositions” 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.
As of September 30, 2017,March 31, 2021, the Company owned 237233 hotels with a total of 30,18829,855 rooms as compared to 236231 hotels with a total of 30,29929,535 rooms as of September 30, 2016, however, resultsMarch 31, 2020. 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 ninethree months ended September 30, 2017,March 31, 2021, the Company acquired threeone newly constructed hotels (onehotel on February 2, 2017, and two on September 12, 2017)18, 2021 and sold one hotel on April 20, 2017.February 25, 2021 and one hotel on March 16, 2021. During 2016,2020, the Company acquired 56 hotels in the Apple REIT Ten, Inc. (“Apple Ten”) merger effective September 1, 2016 (the “Apple Ten merger”), acquired one additionaltwo newly constructed hotelhotels on July 1, 2016April 30, 2020 and two newly constructed hotels on August 13, 2020, and sold three hotels (one on January 16, 2020, one hotelon February 27, 2020 and one on December 6, 2016.30, 2020). As a result, the comparability of results for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 as discussed below is significantly impacted by these transactions.
In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, ADR and revenue per available room (“RevPAR”), and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below.
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 March 31, |
| |||||||||||||||||
(in thousands, except statistical data) |
| 2021 |
|
| Percent of Revenue |
|
| 2020 |
|
| Percent of Revenue |
|
| Percent Change |
| |||||
Total revenue |
| $ | 158,713 |
|
|
| 100.0 | % |
| $ | 238,010 |
|
|
| 100.0 | % |
|
| -33.3 | % |
Hotel operating expense |
|
| 103,740 |
|
|
| 65.4 | % |
|
| 155,266 |
|
|
| 65.2 | % |
|
| -33.2 | % |
Property taxes, insurance and other expense |
|
| 19,688 |
|
|
| 12.4 | % |
|
| 19,595 |
|
|
| 8.2 | % |
|
| 0.5 | % |
General and administrative expense |
|
| 8,119 |
|
|
| 5.1 | % |
|
| 9,523 |
|
|
| 4.0 | % |
|
| -14.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on impairment of depreciable real estate assets |
|
| 10,754 |
|
|
|
|
|
|
| - |
|
|
|
|
|
| n/a |
| |
Depreciation and amortization expense |
|
| 48,710 |
|
|
|
|
|
|
| 49,522 |
|
|
|
|
|
|
| -1.6 | % |
Gain on sale of real estate |
|
| 4,484 |
|
|
|
|
|
|
| 8,839 |
|
|
|
|
|
| n/a |
| |
Interest and other expense, net |
|
| 18,513 |
|
|
|
|
|
|
| 15,566 |
|
|
|
|
|
|
| 18.9 | % |
Income tax expense |
|
| 108 |
|
|
|
|
|
|
| 146 |
|
|
|
|
|
|
| -26.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| (46,435 | ) |
|
|
|
|
|
| (2,769 | ) |
|
|
|
|
|
| n/a |
|
Adjusted hotel EBITDA (1) |
|
| 35,427 |
|
|
|
|
|
|
| 63,297 |
|
|
|
|
|
|
| -44.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hotels owned at end of period |
|
| 233 |
|
|
|
|
|
|
| 231 |
|
|
|
|
|
|
| 0.9 | % |
ADR |
| $ | 99.19 |
|
|
|
|
|
| $ | 132.55 |
|
|
|
|
|
|
| -25.2 | % |
Occupancy |
|
| 55.5 | % |
|
|
|
|
|
| 60.9 | % |
|
|
|
|
|
| -8.9 | % |
RevPAR |
| $ | 55.09 |
|
|
|
|
|
| $ | 80.66 |
|
|
|
|
|
|
| -31.7 | % |
(1) | See reconciliation of Adjusted Hotel EBITDA to net 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 quarterly impact of COVID-19 on the Company’s ADR, Occupancy, RevPAR, net loss and adjusted hotel earnings before interest, income taxes, depreciation and amortization for real estate (“Adjusted Hotel EBITDA”) during the last five quarters (in thousands except statistical data):
|
| 1st Quarter |
|
| 2nd Quarter |
|
| 3rd Quarter |
|
| 4th Quarter |
|
| 1st Quarter |
| |||||
|
| 2020 |
|
| 2020 |
|
| 2020 |
|
| 2020 |
|
| 2021 |
| |||||
ADR |
| $ | 132.55 |
|
| $ | 100.76 |
|
| $ | 104.78 |
|
| $ | 97.87 |
|
| $ | 99.19 |
|
Occupancy |
|
| 60.9 | % |
|
| 28.2 | % |
|
| 48.6 | % |
|
| 46.5 | % |
|
| 55.5 | % |
RevPAR |
| $ | 80.66 |
|
| $ | 28.44 |
|
| $ | 50.94 |
|
| $ | 45.46 |
|
| $ | 55.09 |
|
Net loss |
| $ | (2,769 | ) |
| $ | (78,243 | ) |
| $ | (40,948 | ) |
| $ | (51,247 | ) |
| $ | (46,435 | ) |
Adjusted Hotel EBITDA (1) |
| $ | 63,297 |
|
| $ | 704 |
|
| $ | 34,688 |
|
| $ | 23,296 |
|
| $ | 35,427 |
|
(1) | See reconciliation of Adjusted Hotel EBITDA to net 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 declines in revenue and operating results as compared to 2019 to continue throughout the remainder of 2021 and potentially into future years. While the
21
Company experienced its most significant decline in operating results during the second quarter of 2020 as compared to previous quarters, occupancy and RevPAR have since shown improvement, with average occupancy reaching 55.5% by the first quarter of 2021, resulting in the strongest operating results since the onset of the pandemic. 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 increase and state and local governments and businesses revert back to tighter mitigation restrictions or consumer sentiment deteriorates.
Comparable Hotels Operating Results
The following table reflects certain operating statistics for the Company’s 236232 hotels owned and held for use as of September 30, 2017March 31, 2021 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 236232 hotels owned and held for use as of the end of the reporting period. These metrics do not includeperiod, and excludes 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.sale. 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 and assets held for sale, results have been excluded for the Company’s period of ownership.
|
| Three Months Ended March 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| Percent Change |
| |||
ADR |
| $ | 99.29 |
|
| $ | 133.05 |
|
|
| -25.4 | % |
Occupancy |
|
| 55.8 | % |
|
| 60.9 | % |
|
| -8.4 | % |
RevPAR |
| $ | 55.39 |
|
| $ | 81.01 |
|
|
| -31.6 | % |
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 | % |
Same Store Operating Results
The following table reflects certain operating statistics for the Company’s 177227 hotels owned and held for use by the Company as of January 1, 20162020 and during the entirety of the reporting periods being compared.compared (“Same Store Hotels”). This information has not been audited.
|
| Three Months Ended March 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| Percent Change |
| |||
ADR |
| $ | 99.12 |
|
| $ | 133.05 |
|
|
| -25.5 | % |
Occupancy |
|
| 56.1 | % |
|
| 60.9 | % |
|
| -7.9 | % |
RevPAR |
| $ | 55.61 |
|
| $ | 81.01 |
|
|
| -31.4 | % |
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 months ended March 31, 2021 compared to the three months ended March 31, 2020, which is consistent with the overall lodging industry. Compared to 2019, the Company expects declines in revenue and operating results to continue throughout the remainder of 2021, 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, 2017March 31, 2021 and 2016,2020, the Company had total revenue of $324.9$158.7 million and $276.5 million, respectively. For the nine months ended September 30, 2017 and 2016, the Company had total revenue of $949.6 million and $758.6$238.0 million, respectively. For the three months ended September 30, 2017March 31, 2021 and 2016,2020, respectively, Comparable Hotels achieved combined average occupancy of 80.2%55.8% and 80.4%60.9%, ADR of $136.83$99.29 and $134.79$133.05 and RevPAR of $109.77$55.39 and $108.32. For the nine months ended September 30, 2017 and 2016, respectively, Comparable Hotels achieved combined average occupancy of 78.8% and 78.7%, ADR of $135.84 and $134.88 and RevPAR of $107.10 and $106.20.$81.01. 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 periodsperiod in 2016,2020, during the three and nine months ended September 30, 2017,March 31, 2021, the Company experienced increasesdecreases in ADR and occupancy, resulting in increasesa decrease of 1.3% and 0.8%31.6% in RevPAR for Comparable Hotels, respectively. The Company’s growth duringHotels. As compared to the first nine monthsquarter of 2017 was impacted2019 (pre-COVID-19), Comparable Hotels RevPAR for the first quarter of 2021 decreased by 45.8% as a declineresult of reductions in rate and occupancy. 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, average occupancy declined to 28.2% for the second quarter 2020 before improving over subsequent quarters to 55.8% in the Los Angeles market due to outsized growthfirst quarter of 2021 driven predominately by increased leisure demand over the summer months as a result of improved consumer confidence in 2016travel and the lifting of some COVID-19 mitigation restrictions, but also from a wide variety of demand generators such as government, healthcare, construction, disaster recovery, insurance, athletics, education and local and regional business-related travel. Revenue recovery in the
22
first quarter of 2021 was led by leisure demand and small corporate, government and leisure based group business, with more favorable results in suburban markets. Throughout the Porter Ranch gas leak. The Company anticipates that with its geographically diverse portfolio ofhospitality industry, upscale and upper midscale select-service hotels, on a comparable basis, overall RevPAR growthmid-scale chain scales have outperformed luxury and upper upscale and suburban locations have outperformed urban locations. Occupancy increased throughout the first quarter of 2021 and the trend continued into April, with estimated occupancy of approximately 68% for the remainder of the year will approximate industry averages. Although certain markets will vary based on local supply/demand dynamicsmonth. The Company expects this trend to gradually continue, however, future revenues could be negatively impacted if COVID-19 cases increase and state 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.
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 windare franchised with have all aggressively worked to mitigate the costs and water related damage fromuses of cash associated with operating the hurricanes,hotels in a low-occupancy environment and are thoughtfully working to position the overallhotels to adapt to the changes that may occur to guest preferences in the future. The impact was not material.
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. ForHotel operating expense for the three months ended September 30, 2017March 31, 2021 and 2016, respectively, hotel operating expense2020 totaled $179.8$103.7 million and $153.3$155.3 million, respectively, or 55.3%65.4% and 55.5%65.2% of total revenue for eachthe respective period. For the nine months ended September 30, 2017 and 2016, respectively,periods. Comparatively, prior to COVID-19, hotel operating expense totaled $528.3 million and $418.0 million or 55.6% and 55.1%was 57.8% of total revenue for each respective period. Overall hotel operational expenses for the first ninethree 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 acquiredended March 31, 2019. 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, 2017March 31, 2021 are an additional $1.8 million of utility costs resulting from extraordinary rate increases and fees assessed at some of the Company’s hotels in Texas as compared to the same periodsa result of winter and ice storms in 2016. During the first nine months of 2017, the Company experienced increases in labor costs as a percentage of revenue, which was the primary cause 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 2016.2021. The Company anticipates continued increases in labor costs due to government regulations surrounding wages, healthcarehas 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 reduce costs as a percentageoptimize 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 where possible while maintaining qualitydeclines on its results of operations. For example, in some markets the Company “clustered” hotels in 2020, whereby multiple properties in a market consolidated their operations to increase efficiency; the Company has reduced service and amenity offerings as allowed by the relaxation of certain brand standards; and the Company also successfully reduced rates under various service levels at each property.
Property Taxes, Insurance and Other Expense
Property taxes, insurance, and other expense for the three months ended September 30, 2017March 31, 2021 and 20162020 totaled $17.6$19.7 million and $14.8$19.6 million, respectively, or 5.4%12.4% and 5.3% of total revenue, respectively, and for Comparable Hotels, 5.4% and 5.5%8.2% of total revenue for eachthe respective period. For the nine months ended September 30, 2017 and 2016,periods. Prior to COVID-19, property taxes, insurance and other expense totaled $52.3$19.6 million, and $40.3 million, respectively, or 5.5% and 5.3% of total revenue, respectively, and for Comparable Hotels, 5.5%6.5% of total revenue, for each period. For the Company’s Comparable Hotels, real estate taxes increased slightly duringperiod ended March 31, 2019. 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 jurisdictionsproperty taxes in 2021 as compared to attempt to minimize tax increases as warranted.
General and Administrative Expense
General and administrative expense for the three months ended September 30, 2017March 31, 2021 and 20162020 was $5.4$8.1 million and $2.6$9.5 million, respectively, or 1.6%5.1% and 0.9%4.0% of total revenue respectively. Forfor the nine months ended September 30, 2017 and 2016, general and administrative expense was $18.3 million and $12.5 million, respectively, or 1.9% and 1.6% of total revenue, respectively.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 generalGeneral and administrative expenses. Effective September 1, 2016,expense for the three months ended March 31, 2020 included the accrual of approximately $2.5 million in separation benefits awarded in connection with the completionretirements of the Apple Ten merger,Company’s former Chief Operating Officer and former Chief Financial Officer on March 31, 2020. Excluding 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 asseparation benefit accrual, general and administrative expense increased by Apple Ten and as reductionsapproximately $1.1 million for the three months ended March 31, 2021 compared 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 alsothree months ended March 31, 2020 primarily due to increased accruals for both the third quarter and first nine months of 2017incentive compensation related to anticipated higher operating performance in 2021 as compared to the prior year due to an increased accrual as of September 30, 2017 for the Company’s executive incentive plan related 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.
Loss on Impairment of Depreciable Real Estate Assets
Loss on impairment of depreciable real estate assets was approximately $7.9$10.8 million for the ninethree months ended September 30, 2017, and related toMarch 31, 2021, consisting of impairment losses of $1.3 million for the Columbus, GeorgiaOverland Park, Kansas SpringHill Suites and TownePlace Suites hotels that$9.4 million for four hotel properties identified by the Company identified for potential sale duringin the first quarter of 2017. For each of the three and nine months ended September 30, 2016, loss on impairment of depreciable real estate assets was approximately $5.5 million, and related to the Chesapeake, Virginia Marriott hotel that the Company identified2021 for potential sale during the period.
Depreciation and amortization expense for the three months ended September 30, 2017March 31, 2021 and 20162020, expense was $44.1$48.7 million and $37.3$49.5 million, respectively. For the nine months ended September 30, 2017Depreciation and 2016, depreciation expense was $131.8 million and $104.7 million, respectively. Depreciationamortization expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for theirthe respective periods owned. The increasedecrease of approximately $0.8 million was primarily due to the increase in the number of properties owned as a result of the Apple Ten merger effective September 1, 2016, the acquisition of three hotels in 2017 and one hotel in July 2016 and renovationsdispositions completed throughout 20172020 and 2016.
Interest and Other Expense, net
Interest and other expense, net for the three months ended September 30, 2017March 31, 2021 and 20162020 was $12.0$18.5 million and $10.2$15.6 million, respectively,respectively. Interest and other expense, net for the three months ended March 31, 2020 is net of approximately $0.1$0.7 million and $0.2 million, respectively, of interest capitalized associated with renovation projects. For the nine months ended September 30, 2017 and 2016,Additionally, interest and other expense, net was $35.6for the three months ended March 31, 2021 and 2020 includes approximately $2.9 million and $28.5$2.8 million, respectively, and is net of approximately $0.7 million and $1.2 million of interest capitalizedrecorded on the Company’s finance lease liabilities.
Interest expense related to the Company’s debt instruments increased as a result of increased average borrowings in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 combined with increased interest rates on the Company’s unsecured credit facilities associated with renovation projects, respectively.the amendments to obtain covenant waivers. The increase inCompany anticipates interest expense was primarilyto be higher for the remainder of 2021 compared to the same period of 2020 due to an increasethese increased interest rates. See Note 4 titled “Debt” in the Company’s average outstanding borrowings during the first nine months of 2017 as compared to 2016 which is primarily attributable to (a) mortgage debt assumedUnaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in the Apple Ten merger effective September 1, 2016 and (b) borrowings to fund (i) the cash payment portionthis Quarterly Report on Form 10-Q, for additional discussion of the Apple Ten merger, (ii) the repayment of Apple Ten’s outstanding balance on its extinguishedCompany’s amended unsecured 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 was partially offset by a reduction in the average interest rate incurred on the Company’s total outstanding debt, resulting from the repayment of maturing fixed-rate mortgage debt with lower rate borrowings primarily from its $150 million term loan facility and new mortgage debt originations.
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 FFOFunds from Operations (“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.
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 salesthe 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 NAREITNareit definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.
The Company calculates MFFO by further adjustsadjusting FFO for certain additional items that are not in NAREIT’s definition of FFO, including: (i) the exclusion of transactionamortization of finance ground lease assets, amortization of favorable and litigation costs (reimbursements) as these costs do not represent ongoing operationsunfavorable operating leases, net and (ii) the exclusion of non-cash straight-line operating ground lease expense, as this expense doesthese 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.
24
The following table reconciles the Company’s GAAP net incomeloss to FFO and MFFO for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 (in thousands).:
|
| Three Months Ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net loss |
| $ | (46,435 | ) |
| $ | (2,769 | ) |
Depreciation of real estate owned |
|
| 47,088 |
|
|
| 47,668 |
|
Gain on sale of real estate |
|
| (4,484 | ) |
|
| (8,839 | ) |
Loss on impairment of depreciable real estate assets |
|
| 10,754 |
|
|
| - |
|
Funds from operations |
|
| 6,923 |
|
|
| 36,060 |
|
Amortization of finance ground lease assets |
|
| 1,617 |
|
|
| 1,602 |
|
Amortization of favorable and unfavorable operating leases, net |
|
| 98 |
|
|
| 101 |
|
Non-cash straight-line operating ground lease expense |
|
| 44 |
|
|
| 47 |
|
Modified funds from operations |
| $ | 8,682 |
|
| $ | 37,810 |
|
|
|
|
|
|
|
|
|
|
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.
In addition to EBITDA, the Company considers the exclusion of
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.
25
The following table reconciles the Company’s GAAP net incomeloss to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA by quarter for the three and nine months ended September 30, 2017 and 2016last five quarters (in thousands).:
|
| 1st Quarter |
|
| 2nd Quarter |
|
| 3rd Quarter |
|
| 4th Quarter |
|
| 1st Quarter |
| |||||
|
| 2020 |
|
| 2020 |
|
| 2020 |
|
| 2020 |
|
| 2021 |
| |||||
Net loss |
| $ | (2,769 | ) |
| $ | (78,243 | ) |
| $ | (40,948 | ) |
| $ | (51,247 | ) |
| $ | (46,435 | ) |
Depreciation and amortization |
|
| 49,522 |
|
|
| 49,897 |
|
|
| 50,171 |
|
|
| 50,196 |
|
|
| 48,710 |
|
Amortization of favorable and unfavorable operating leases, net |
|
| 101 |
|
|
| 101 |
|
|
| 103 |
|
|
| 137 |
|
|
| 98 |
|
Interest and other expense, net |
|
| 15,566 |
|
|
| 18,386 |
|
|
| 18,531 |
|
|
| 18,352 |
|
|
| 18,513 |
|
Income tax expense |
|
| 146 |
|
|
| 58 |
|
|
| 61 |
|
|
| 67 |
|
|
| 108 |
|
EBITDA |
|
| 62,566 |
|
|
| (9,801 | ) |
|
| 27,918 |
|
|
| 17,505 |
|
|
| 20,994 |
|
(Gain) loss on sale of real estate |
|
| (8,839 | ) |
|
| 54 |
|
|
| - |
|
|
| (2,069 | ) |
|
| (4,484 | ) |
Loss on impairment of depreciable real estate assets |
|
| - |
|
|
| 4,382 |
|
|
| - |
|
|
| 715 |
|
|
| 10,754 |
|
EBITDAre |
|
| 53,727 |
|
|
| (5,365 | ) |
|
| 27,918 |
|
|
| 16,151 |
|
|
| 27,264 |
|
Non-cash straight-line operating ground lease expense |
|
| 47 |
|
|
| 44 |
|
|
| 44 |
|
|
| 45 |
|
|
| 44 |
|
Adjusted EBITDAre |
|
| 53,774 |
|
|
| (5,321 | ) |
|
| 27,962 |
|
|
| 16,196 |
|
|
| 27,308 |
|
General and administrative expense |
|
| 9,523 |
|
|
| 6,025 |
|
|
| 6,726 |
|
|
| 7,100 |
|
|
| 8,119 |
|
Adjusted Hotel EBITDA |
| $ | 63,297 |
|
| $ | 704 |
|
| $ | 34,688 |
|
| $ | 23,296 |
|
| $ | 35,427 |
|
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 |
Hotels Owned
As of September 30, 2017,March 31, 2021, the Company owned 237233 hotels with an aggregate of 30,18829,855 rooms located in 33 states.35 states, including one hotel with 102 rooms classified as held for sale, which was sold to an unrelated party in April 2021. 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 |
| 42 |
|
| 5,843 |
|
Hampton |
| 39 |
|
| 4,986 |
|
Courtyard |
| 36 |
|
| 4,948 |
|
Residence Inn |
| 33 |
|
| 3,939 |
|
Homewood Suites |
| 31 |
|
| 3,473 |
|
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 |
|
Hyatt Place |
| 2 |
|
| 281 |
|
Independent |
| 2 |
|
| 263 |
|
Hyatt House |
| 1 |
|
| 105 |
|
Total |
| 233 |
|
| 29,855 |
|
26
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 |
|
| 26 |
|
|
| 3,721 |
|
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 |
|
| 9 |
|
|
| 973 |
|
Ohio |
|
| 2 |
|
|
| 252 |
|
Oklahoma |
|
| 4 |
|
|
| 545 |
|
Pennsylvania |
|
| 3 |
|
|
| 391 |
|
South Carolina |
|
| 5 |
|
|
| 538 |
|
Tennessee |
|
| 12 |
|
|
| 1,362 |
|
Texas |
|
| 31 |
|
|
| 3,755 |
|
Utah |
|
| 3 |
|
|
| 393 |
|
Virginia |
|
| 13 |
|
|
| 1,825 |
|
Washington |
|
| 4 |
|
|
| 609 |
|
Wisconsin |
|
| 1 |
|
|
| 176 |
|
Total |
|
| 233 |
|
|
| 29,855 |
|
|
|
|
|
|
|
|
|
|
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 |
The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 237233 hotels the Company owned as of September 30, 2017.
City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
Anchorage | AK | Embassy Suites | Stonebridge | 4/30/2010 | 169 | |||||||
Anchorage | AK | Home2 Suites | Stonebridge | 12/1/2017 | 135 | |||||||
Auburn | AL | Hilton Garden Inn | LBA | 3/1/2014 | 101 | |||||||
Birmingham | AL | Courtyard | LBA | 3/1/2014 | 84 | |||||||
Birmingham | AL | Hilton Garden Inn | LBA | 9/12/2017 | 104 | |||||||
Birmingham | AL | Home2 Suites | LBA | 9/12/2017 | 106 | |||||||
Birmingham | AL | Homewood Suites | McKibbon | 3/1/2014 | 95 | |||||||
Dothan | AL | Hilton Garden Inn | LBA | 6/1/2009 | 104 | |||||||
Dothan | AL | Residence Inn | LBA | 3/1/2014 | 84 | |||||||
Huntsville | AL | Hampton | LBA | 9/1/2016 | 98 | |||||||
Huntsville | AL | Hilton Garden Inn | LBA | 3/1/2014 | 101 | |||||||
Huntsville | AL | Home2 Suites | LBA | 9/1/2016 | 77 | |||||||
Huntsville | AL | Homewood Suites | LBA | 3/1/2014 | 107 | |||||||
Mobile | AL | Hampton | McKibbon | 9/1/2016 | 101 | |||||||
Montgomery | AL | Hilton Garden Inn | LBA | 3/1/2014 | 97 | |||||||
Montgomery | AL | Homewood Suites | LBA | 3/1/2014 | 91 | |||||||
Prattville | AL | Courtyard | LBA | 3/1/2014 | 84 | |||||||
Rogers | AR | Hampton | Raymond | 8/31/2010 | 122 | |||||||
Rogers | AR | Homewood Suites | Raymond | 4/30/2010 | 126 | |||||||
Rogers | AR | Residence Inn | Raymond | 3/1/2014 | 88 | |||||||
Chandler | AZ | Courtyard | North Central | 11/2/2010 | 150 | |||||||
Chandler | AZ | Fairfield | North Central | 11/2/2010 | 110 | |||||||
Phoenix | AZ | Courtyard | North Central | 11/2/2010 | 164 | |||||||
Phoenix | AZ | Courtyard | North Central | 9/1/2016 | 127 | |||||||
Phoenix | AZ | Hampton | North Central | 9/1/2016 | 125 | |||||||
Phoenix | AZ | Hampton | North Central | 5/2/2018 | 210 | |||||||
Phoenix | AZ | Homewood Suites | North Central | 9/1/2016 | 134 | |||||||
Phoenix | AZ | Residence Inn | North Central | 11/2/2010 | 129 | |||||||
Scottsdale | AZ | Hilton Garden Inn | North Central | 9/1/2016 | 122 | |||||||
Tempe | AZ | Hyatt House | Crestline | 8/13/2020 | 105 | |||||||
Tempe | AZ | Hyatt Place | Crestline | 8/13/2020 | 154 | |||||||
Tucson | AZ | Hilton Garden Inn | Western | 7/31/2008 | 125 | |||||||
Tucson | AZ | Residence Inn | Western | 3/1/2014 | 124 | |||||||
Tucson | AZ | TownePlace Suites | Western | 10/6/2011 | 124 | |||||||
Agoura Hills | CA | Homewood Suites | Dimension | 3/1/2014 | 125 | |||||||
Burbank | CA | Courtyard | Huntington | 8/11/2015 | 190 | |||||||
Burbank | CA | Residence Inn | Marriott | 3/1/2014 | 166 | |||||||
Burbank | CA | SpringHill Suites | Marriott | 7/13/2015 | 170 | |||||||
Clovis | CA | Hampton | Dimension | 7/31/2009 | 86 | |||||||
Clovis | CA | Homewood Suites | Dimension | 2/2/2010 | 83 | |||||||
Cypress | CA | Courtyard | Dimension | 3/1/2014 | 180 | |||||||
Cypress | CA | Hampton | Dimension | 6/29/2015 | 110 | |||||||
Oceanside | CA | Courtyard | Marriott | 9/1/2016 | 142 | |||||||
Oceanside | CA | Residence Inn | Marriott | 3/1/2014 | 125 | |||||||
Rancho Bernardo/San Diego | CA | Courtyard | InnVentures | 3/1/2014 | 210 | |||||||
Sacramento | CA | Hilton Garden Inn | Dimension | 3/1/2014 | 153 | |||||||
San Bernardino | CA | Residence Inn | InnVentures | 2/16/2011 | 95 | |||||||
San Diego | CA | Courtyard | Huntington | 9/1/2015 | 245 | |||||||
San Diego | CA | Hampton | Dimension | 3/1/2014 | 177 |
San Diego | CA | Hilton Garden Inn | InnVentures | 3/1/2014 | 200 |
28
City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
San Diego | CA | Residence Inn | Dimension | 3/1/2014 | 121 | |||||||
San Jose | CA | Homewood Suites | Dimension | 3/1/2014 | 140 | |||||||
San Juan Capistrano | CA | Residence Inn | Marriott | 9/1/2016 | 130 | |||||||
Santa Ana | CA | Courtyard | Dimension | 5/23/2011 | 155 | |||||||
Santa Clarita | CA | Courtyard | Dimension | 9/24/2008 | 140 | |||||||
Santa Clarita | CA | Fairfield | Dimension | 10/29/2008 | 66 | |||||||
Santa Clarita | CA | Hampton | Dimension | 10/29/2008 | 128 | |||||||
Santa Clarita | CA | Residence Inn | Dimension | 10/29/2008 | 90 | |||||||
Tustin | CA | Fairfield | Marriott | 9/1/ | 145 | |||||||
Tustin | CA | Residence Inn | Marriott | 9/1/2016 | 149 | |||||||
Colorado Springs | CO | Hampton | Chartwell | 9/1/2016 | 101 | |||||||
Denver | CO | |||||||||||
Hilton Garden Inn | Stonebridge | 9/1/2016 | 221 | |||||||||
Highlands Ranch | CO | Hilton Garden Inn | Dimension | 3/1/2014 | 128 | |||||||
Highlands Ranch | CO | Residence Inn | Dimension | 3/1/2014 | 117 | |||||||
Boca Raton | FL | Hilton Garden Inn | Dimension | 9/1/2016 | 149 | |||||||
Cape Canaveral | FL | Hampton | LBA | 4/30/2020 | 116 | |||||||
Cape Canaveral | FL | Homewood Suites | LBA | 9/1/2016 | 153 | |||||||
Cape Canaveral | FL | Home2 Suites | LBA | 4/30/2020 | 108 | |||||||
Fort Lauderdale | FL | Hampton | Dimension | 6/23/2015 | 156 | |||||||
Fort Lauderdale | FL | Residence Inn | LBA | 9/1/2016 | 156 | |||||||
Gainesville | FL | Hilton Garden Inn | McKibbon | 9/1/2016 | 104 | |||||||
Gainesville | FL | Homewood Suites | McKibbon | 9/1/2016 | 103 | |||||||
Jacksonville | FL | Homewood Suites | McKibbon | 3/1/2014 | 119 | |||||||
Jacksonville | FL | Hyatt Place | Crestline | 12/7/2018 | 127 | |||||||
Lakeland | FL | Courtyard | LBA | 3/1/2014 | 78 | |||||||
Miami | FL | Courtyard | Dimension | 3/1/2014 | 118 | |||||||
Miami | FL | Hampton | White Lodging | 4/9/2010 | 121 | |||||||
Miami | FL | Homewood Suites | Dimension | 3/1/ | 162 | |||||||
Orlando | FL | Fairfield | Marriott | 7/1/2009 | 200 | |||||||
Orlando | FL | Home2 Suites | LBA | 3/ | 128 | |||||||
Orlando | FL | SpringHill Suites | Marriott | 7/1/ | 200 | |||||||
Panama City | FL | Hampton | LBA | 3/12/2009 | 95 | |||||||
Panama City | FL | TownePlace Suites | LBA | 1/ | 103 | |||||||
Pensacola | FL | TownePlace Suites | McKibbon | 9/1/ | 97 | |||||||
Tallahassee | FL | Fairfield | LBA | 9/1/2016 | 97 | |||||||
Tallahassee | FL | Hilton Garden Inn | LBA | 3/1/2014 | 85 | |||||||
Tampa | FL | Embassy Suites | White Lodging | 11/2/2010 | 147 | |||||||
Albany | GA | Fairfield | LBA | 1/ | 87 | |||||||
Atlanta/Downtown | GA | Hampton | McKibbon | 2/5/2018 | 119 | |||||||
Atlanta/Perimeter Dunwoody | GA | Hampton | LBA | 6/28/2018 | 132 | |||||||
Atlanta | GA | Home2 Suites | McKibbon | 7/1/ | 128 | |||||||
Macon | GA | |||||||||||
Hilton Garden Inn | LBA | 3/1/2014 | 101 | |||||||||
Savannah | GA | Hilton Garden Inn | Newport | 3/1/2014 | 105 | |||||||
Cedar Rapids | IA | Hampton | Aimbridge | 9/1/2016 | 103 | |||||||
Cedar Rapids | IA | Homewood Suites | Aimbridge | 9/1/2016 | 95 | |||||||
Davenport | IA | Hampton | Aimbridge | 9/1/2016 | 103 |
Boise | ID | Hampton | Raymond | 4/30/2010 | 186 | |||||||
Des Plaines | IL | Hilton Garden Inn | Raymond | 9/1/2016 | 252 | |||||||
Hoffman Estates | IL | Hilton Garden Inn | White Lodging | 9/1/2016 | 184 | |||||||
Mettawa | IL | Hilton Garden Inn | White Lodging | 11/2/2010 | 170 | |||||||
Mettawa | IL | Residence Inn | White Lodging | 11/2/2010 | 130 |
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City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
Rosemont | IL | Hampton | Raymond | 9/1/2016 | 158 | |||||||
Schaumburg | IL | Hilton Garden Inn | White Lodging | 11/2/2010 | 166 | |||||||
Skokie | IL | Hampton | Raymond | 9/1/2016 | 225 | |||||||
Warrenville | IL | Hilton Garden Inn | White Lodging | 11/2/2010 | 135 | |||||||
Indianapolis | IN | SpringHill Suites | White Lodging | 11/2/2010 | 130 | |||||||
Merrillville | IN | Hilton Garden Inn | White Lodging | 9/1/2016 | 124 | |||||||
Mishawaka | IN | Residence Inn | White Lodging | 11/2/2010 | 106 | |||||||
South Bend | IN | Fairfield | White Lodging | 9/1/2016 | 119 | |||||||
Overland Park | KS | Fairfield | Raymond | 3/1/2014 | 110 | |||||||
Overland Park | KS | Residence Inn | Raymond | 3/1/2014 | 120 | |||||||
Overland Park | KS | SpringHill Suites | Raymond | 3/1/2014 | 102 | |||||||
Wichita | KS | Courtyard | Aimbridge | 3/1/2014 | 90 | |||||||
Lafayette | LA | |||||||||||
Hilton Garden Inn | LBA | 7/30/2010 | 153 | |||||||||
Lafayette | LA | SpringHill Suites | LBA | 6/23/2011 | 103 | |||||||
New Orleans | LA | Homewood Suites | Dimension | 3/1/2014 | 166 | |||||||
Andover | MA | SpringHill Suites | Marriott | 11/5/2010 | 136 | |||||||
Marlborough | MA | Residence Inn | Crestline | 3/1/2014 | 112 | |||||||
Westford | MA | Hampton | Crestline | 3/1/2014 | 110 | |||||||
Westford | MA | Residence Inn | Crestline | 3/1/2014 | 108 | |||||||
Annapolis | MD | Hilton Garden Inn | Crestline | 3/1/2014 | 126 | |||||||
Silver Spring | MD | Hilton Garden Inn | Crestline | 7/30/2010 | 107 | |||||||
Portland | ME | Residence Inn | Crestline | 10/13/2017 | 179 | |||||||
Novi | MI | Hilton Garden Inn | White Lodging | 11/2/2010 | 148 | |||||||
Maple Grove | MN | Hilton Garden Inn | North Central | 9/1/2016 | 121 | |||||||
Rochester | MN | Hampton | Raymond | 8/3/2009 | 124 | |||||||
St. Paul | MN | Hampton | Raymond | 3/4/2019 | 160 | |||||||
Kansas City | MO | Hampton | Raymond | 8/31/2010 | 122 | |||||||
Kansas City | MO | Residence Inn | Raymond | 3/1/2014 | 106 | |||||||
St. Louis | MO | Hampton | Raymond | 8/31/2010 | 190 | |||||||
St. Louis | MO | Hampton | Raymond | 4/30/2010 | 126 | |||||||
Hattiesburg | MS | Courtyard | LBA | 3/1/2014 | 84 | |||||||
Hattiesburg | MS | Residence Inn | LBA | 12/11/2008 | 84 | |||||||
Carolina Beach | NC | Courtyard | Crestline | 3/1/ | 144 | |||||||
Charlotte | NC | Fairfield | Newport | 9/ | 94 | |||||||
Durham | NC | Homewood Suites | McKibbon | 12/4/2008 | 122 | |||||||
Fayetteville | NC | Home2 Suites | LBA | 2/3/2011 | 118 | |||||||
Fayetteville | NC | Residence Inn | LBA | 3/1/2014 | 92 | |||||||
Greensboro | NC | SpringHill Suites | Newport | 3/1/2014 | 82 | |||||||
Jacksonville | NC | Home2 Suites | LBA | 9/1/2016 | 105 | |||||||
Wilmington | NC | Fairfield | Crestline | 3/1/ | 122 | |||||||
Winston-Salem | NC | Hampton | McKibbon | 9/1/ | 94 | |||||||
Omaha | NE | Courtyard | Marriott | 3/1/2014 | 181 |
Omaha | NE | Hampton | White Lodging | 9/1/2016 | 139 | |||||||
Omaha | NE | |||||||||||
Hilton Garden Inn | White Lodging | 9/1/2016 | 178 | |||||||||
Omaha | NE | Homewood Suites | White Lodging | 9/1/2016 | 123 | |||||||
Cranford | NJ | Homewood Suites | Dimension | 3/1/2014 | 108 | |||||||
Mahwah | NJ | Homewood Suites | Dimension | 3/1/2014 | 110 | |||||||
Mount Laurel | NJ | Homewood Suites | Newport | 1/11/2011 | 118 | |||||||
Somerset | NJ | Courtyard | Newport | 3/1/2014 | 162 | |||||||
West Orange | NJ | Courtyard | Newport | 1/11/2011 | 131 | |||||||
Islip/Ronkonkoma | NY | Hilton Garden Inn | Crestline | 3/1/2014 | 166 | |||||||
New York | NY | Independent | Highgate | 3/1/2014 | 208 |
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City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
Syracuse | NY | Courtyard | Crestline | 10/16/2015 | 102 | |||||||
Syracuse | NY | Residence Inn | Crestline | 10/16/2015 | 78 | |||||||
Mason | OH | Hilton Garden Inn | Raymond | 9/1/2016 | 110 | |||||||
Twinsburg | OH | Hilton Garden Inn | Aimbridge | 10/7/2008 | 142 | |||||||
Oklahoma City | OK | Hampton | Raymond | 5/28/2010 | 200 | |||||||
Oklahoma City | OK | Hilton Garden Inn | Raymond | 9/1/2016 | 155 | |||||||
Oklahoma City | OK | Homewood Suites | Raymond | 9/1/2016 | 100 | |||||||
Oklahoma City (West) | OK | Homewood Suites | Chartwell | 9/1/2016 | 90 | |||||||
Collegeville/Philadelphia | PA | Courtyard | Newport | 11/15/2010 | 132 | |||||||
Malvern/Philadelphia | PA | Courtyard | Newport | 11/30/2010 | 127 | |||||||
Pittsburgh | PA | Hampton | Newport | 12/31/2008 | 132 | |||||||
Charleston | SC | Home2 Suites | LBA | 9/1/2016 | 122 | |||||||
Columbia | SC | Hilton Garden Inn | Newport | 3/1/2014 | 143 | |||||||
Columbia | SC | TownePlace Suites | Newport | 9/1/2016 | 91 | |||||||
Greenville | SC | Residence Inn | McKibbon | 3/1/2014 | 78 | |||||||
Hilton Head | SC | Hilton Garden Inn | McKibbon | 3/1/2014 | 104 | |||||||
Chattanooga | TN | Homewood Suites | LBA | 3/1/2014 | 76 | |||||||
Franklin | TN | Courtyard | Chartwell | 9/1/2016 | 126 | |||||||
Franklin | TN | Residence Inn | Chartwell | 9/1/2016 | 124 | |||||||
Jackson | TN | Hampton | Newport | 12/30/2008 | 85 | |||||||
Johnson City | TN | Courtyard | LBA | 9/25/2009 | 90 | |||||||
Knoxville | TN | Homewood Suites | McKibbon | 9/1/2016 | 103 | |||||||
Knoxville | TN | SpringHill Suites | McKibbon | 9/1/2016 | 103 | |||||||
Knoxville | TN | TownePlace Suites | McKibbon | 9/1/2016 | 97 | |||||||
Memphis | TN | Hampton | Crestline | 2/5/2018 | 144 | |||||||
Nashville | TN | Hilton Garden Inn | Dimension | 9/30/2010 | 194 | |||||||
Nashville | TN | Home2 Suites | Dimension | 5/31/2012 | 119 | |||||||
Nashville | TN | TownePlace Suites | LBA | 9/1/2016 | 101 | |||||||
Addison | TX | SpringHill Suites | Marriott | 3/1/2014 | 159 | |||||||
Allen | TX | Hampton | Aimbridge | 9/26/2008 | 103 | |||||||
Allen | TX | Hilton Garden Inn | Aimbridge | 10/31/2008 | 150 | |||||||
Arlington | TX | Hampton | Western | 12/1/2010 | 98 | |||||||
Austin | TX | Courtyard | White Lodging | 11/2/2010 | 145 | |||||||
Austin | TX | Fairfield | White Lodging | 11/2/2010 | 150 | |||||||
Austin | TX | Hampton | Dimension | 4/14/2009 | 124 | |||||||
Austin | TX | Hilton Garden Inn | White Lodging | 11/2/2010 | 117 |
Austin | TX | Homewood Suites | Dimension | 4/14/2009 | 97 | |||||||
Austin/Round Rock | TX | Hampton | Dimension | 3/6/2009 | 94 | |||||||
Austin/Round Rock | TX | Homewood Suites | Dimension | 9/1/2016 | 115 | |||||||
Beaumont | TX | Residence Inn | Western | 10/29/2008 | 133 | |||||||
Burleson/Fort Worth | TX | Hampton | LBA | 10/7/2014 | 88 | |||||||
Dallas | TX | Homewood Suites | Western | 9/1/2016 | 130 | |||||||
Denton | TX | Homewood Suites | Chartwell | 9/1/2016 | 107 | |||||||
El Paso | TX | Hilton Garden Inn | Western | 12/19/2011 | 145 | |||||||
El Paso | TX | Homewood Suites | Western | 3/1/2014 | 114 | |||||||
Fort Worth | TX | Courtyard | LBA | 2/2/2017 | 124 | |||||||
Fort Worth | TX | TownePlace Suites | Western | 7/19/2010 | 140 | |||||||
Frisco | TX | Hilton Garden Inn | Western | 12/ | 102 | |||||||
Grapevine | TX | |||||||||||
Hilton Garden Inn | Western | 9/24/2010 | 110 | |||||||||
Houston | TX | Courtyard | LBA | 9/1/2016 | 124 | |||||||
Houston | TX | Marriott | Western | 1/8/2010 | 206 | |||||||
Houston | TX | Residence Inn | Western | 3/1/2014 | 129 | |||||||
Houston | TX | Residence Inn | Western | 9/1/2016 | 120 |
31
City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
Irving | TX | Homewood Suites | Western | 12/29/2010 | 77 | |||||||
Lewisville | TX | Hilton Garden Inn | Aimbridge | 10/16/2008 | 165 | |||||||
San Antonio | TX | TownePlace Suites | Western | 3/1/ | 106 | |||||||
Shenandoah | TX | Courtyard | LBA | 9/1/ | 124 | |||||||
Stafford | TX | Homewood Suites | Western | 3/1/2014 | 78 | |||||||
Texarkana | TX | Hampton | Aimbridge | 1/ | 81 | |||||||
Provo | UT | Residence Inn | Dimension | 3/1/2014 | 114 | |||||||
Salt Lake City | UT | Residence Inn | Huntington | 10/20/2017 | 136 | |||||||
Salt Lake City | UT | SpringHill Suites | White Lodging | 11/2/2010 | 143 | |||||||
Alexandria | VA | Courtyard | Marriott | 3/1/2014 | 178 | |||||||
Alexandria | VA | SpringHill Suites | Marriott | 3/28/2011 | 155 | |||||||
Charlottesville | VA | Courtyard | Crestline | 3/1/2014 | 139 | |||||||
Manassas | VA | Residence Inn | Crestline | 2/16/2011 | 107 | |||||||
Richmond | VA | Independent | Crestline | 10/9/2019 | 55 | |||||||
Richmond | VA | Courtyard | White Lodging | 12/8/2014 | 135 | |||||||
Richmond | VA | Marriott | White Lodging | 3/1/2014 | 413 | |||||||
Richmond | VA | Residence Inn | White Lodging | 12/8/2014 | 75 | |||||||
Richmond | VA | SpringHill Suites | McKibbon | 9/1/2016 | 103 | |||||||
Suffolk | VA | Courtyard | Crestline | 3/1/2014 | 92 | |||||||
Suffolk | VA | TownePlace Suites | Crestline | 3/1/2014 | 72 | |||||||
Virginia Beach | VA | Courtyard | Crestline | 3/1/2014 | 141 | |||||||
Virginia Beach | VA | Courtyard | Crestline | 3/1/2014 | 160 | |||||||
Kirkland | WA | Courtyard | InnVentures | 3/1/2014 | 150 | |||||||
Seattle | WA | Residence Inn | InnVentures | 3/1/2014 | 234 | |||||||
Tukwila | WA | Homewood Suites | Dimension | 3/1/2014 | 106 | |||||||
Vancouver | WA | SpringHill Suites | InnVentures | 3/1/2014 | 119 | |||||||
Madison | WI | Hilton Garden Inn | Raymond | 2/18/2021 | 176 | |||||||
Total | 29,855 | |||||||||||
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 flowflows generated from the Company��s properties and availability under its revolving credit facility. Periodically, the Company may receive proceeds from strategic additional secured and unsecured debt financing, dispositions of its hotel properties (such as the sale of two hotels in the first quarter of 2021 for proceeds of approximately $18 million discussed above in “2021 Hotel Portfolio Activities”) and offerings of the Company’s common shares, including pursuant to the ATM Program (as defined below). 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. and therefore anticipates funding its near-term cash needs with operating cash flows generated from the Company’s properties and availability under its $540revolving credit facility.
As of March 31, 2021, the Company had $1.5 billion of total outstanding debt consisting of $509.8 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 March 31, 2021, the Company had available corporate cash on hand of approximately $5.8 million as well as unused borrowing capacity under its revolving credit facility proceeds fromof approximately $275.1 million. In the strategic dispositionnear term, the impact of its hotel properties and proceeds from potential offerings ofCOVID-19 on the global economy, including any sustained decline in the Company’s common shares.
32
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 inanticipated that it may not be able to maintain compliance with the applicablecertain of these covenants at September 30, 2017.
● | 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, including an allowance of $300 million for acquiring unencumbered assets with proceeds from assets sales and a $300 million allowance for acquiring unencumbered assets funded by common equity so long as outstanding borrowings under the revolving credit facility are less than $275 million. A portion of the mandatory prepayments will be available for future borrowing under the revolving credit facility; |
● | A minimum liquidity covenant of $125 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 $200 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 (except for maturities beyond 2026) or prepay certain existing indebtedness, except that the Company is permitted to prepay (prior to maturity) up to $35 million of secured debt maturities in 2021; |
● | Restrictions on the Company’s ability to make cash distributions (except the payment of cash dividends of $0.01 per common share per quarter or to the extent required to maintain REIT status) and share repurchases; |
● | Maximum discretionary capital expenditures of $50 million; |
● | Limitations on additional investments; and |
● | An increase in the applicable interest rate under the unsecured credit facilities until the end of the Extended Covenant Waiver Period to a rate that corresponds to the highest leverage-based applicable interest rate margin plus 0.15% 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 Extended 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 Extended Covenant Waiver Period, and provide for a LIBOR floor under the credit agreements of 25 basis points for Eurodollar Rate Loans and 1.25% for Base Rate Loans on the revolving credit facility, and any term loan with a syndicateloans under the credit agreements that are not hedged. The March 2021 amendments also modify certain of commercial banks, with a maturity datethe existing financial maintenance covenants to less restrictive levels following the Extended Covenant Waiver Period as follows (capitalized terms are defined in the credit agreements):
● | Maximum Consolidated Leverage Ratio of 8.50 to 1.00 for the first two fiscal quarters, 8.00 to 1.00 for two fiscal quarters, 7.50 to 1.00 for one fiscal quarter and then a ratio of 6.50 to 1.00 thereafter; |
● | Minimum Fixed Charge Coverage Ratio of 1.05 to 1.00 for the first fiscal quarter, 1.25 to 1.00 for one fiscal quarter and then a ratio of 1.50 to 1.00 thereafter; |
● | Minimum Unsecured Interest Coverage Ratio of no less than 1.25 to 1.00 for one fiscal quarter, 1.50 to 1.00 for one fiscal quarter, 1.75 to 1.00 for one fiscal quarter and a ratio of 2.00 to 1.00 thereafter; and |
● | Maximum Unsecured Leverage Ratio of 65% for two fiscal quarters and 60% thereafter. |
Except as otherwise set forth in the amendments, the terms of July 25, 2024.the credit agreements remain in effect. The Company usedanticipates meeting the net proceeds fromapplicable covenants after the $85 million term loan to pay downconclusion of the borrowings on the Company’s revolving credit facility. Extended Covenant Waiver Period, although there can be no assurances.
33
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 toa description of the $85 million term loan.
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 March 31, 2021, the Company had not sold any common shares under the Fairfax, Virginia Marriott for a sale price of approximately $41.5 million.ATM Program. The Company usedplans to use the net proceeds from the sale of these shares to pay down borrowings on its revolving credit facility.
Capital Uses
Although there can be no assurances, the Company may useanticipates that available cash and availability under its revolving credit facility as of March 31, 2021 will be adequate to meet its near-term potential operating cash flow deficits that may result from the effect of COVID-19, debt service and capital expenditures. Though not expected, if the Company is unable to 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 environment.
Distributions
To maintain its REIT status, the Company is required to distribute at least 90% of its ordinary income. No distributions were paid during the three months ended March 31, 2021. For the same period, the Company’s net cash used by operations was approximately $2.1 million. As a result of COVID-19 and the impact on its business, the Company suspended its monthly distributions in March 2020. 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, as a requirement under the amendments to its unsecured credit facilities, the Company is restricted in its ability to make distributions during the Extended Covenant Waiver Period, except for the payment of cash distributions of $0.01 per common share per quarter or to the extent required to maintain the consistency of the monthlyREIT status. Subject to these distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. Any distribution will be subject to approval ofrestrictions, 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 ofintends to adjust 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 basisa time and may make adjustments to the distribution rate aslevel determined to be prudent in relation to the Company’s other cash requirements of the Company. If cash flow from operations and the revolving credit facility are not adequateor in order to meet liquidity requirements, the Company may utilize additional financing sourcesmaintain its REIT status for federal income tax purposes, subject to make distributions. Although the Company has relatively low levels of debt, there can be no assurances it will be successful with this strategy and may need to reduce its distributions to required levels. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.
Share Repurchases
In May 2020, the Company’s Board of Directors approved an extension of its existing share repurchase program. In January 2016,program, authorizing share repurchases up to an aggregate of $345 million (the “Share Repurchase Program”). The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2021 if not terminated earlier. During the first three months of 2020, the Company purchased, under its share repurchase program,Share Repurchase Program approximately 20,0001.5 million of its common shares at a weighted-average market purchase price of approximately $18.10$9.42 per common share, for an aggregate purchase price, including commissions, of approximately $0.4$14.3 million. 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 didterminated its written trading plan under the Share Repurchase Program and has not repurchaserepurchased any shares since that time. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund any future purchases, with cash on hand or availability under its unsecured credit facilities subject to any applicable restrictions under the Company’s unsecured credit facilities. The timing of share repurchases and the number of common shares under its share repurchase program during the first nine months of 2017.
Capital Improvements
The Company has ongoing capital commitmentsis committed to fund its capital improvements. To maintainmaintaining and enhanceenhancing each property’s competitive position in its market, themarket. 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
34
with respect to the hotels. As of September 30, 2017,March 31, 2021, the Company held $26.8approximately $26.4 million in reserve related to these properties. During the ninethree months ended September 30, 2017,March 31, 2021, the Company invested approximately $41.9$2.2 million in capital expenditures, and anticipates spending an additional $25$23-28 million during the remainder of 2017, which includes various scheduled renovation projects for approximately 15 properties.2021. The Company does not currently have any existing or planned projects for new property development.
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.
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. However, due to the effects of COVID-19, these typical seasonal patterns were disrupted in 2020 and may also be disrupted in the remainder of 2021. 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 guidance in the reference rate reform accounting standards effective in the first nine months of 2017March 2020 and the anticipated adoption of recently issued accounting standards.
Subsequent Events
On April 15, 2021, the Company paid approximately $22.3$2.2 million, or $0.10$0.01 per outstanding common share, in distributions to its common shareholders.
In October 2017,February 2021, the Company declaredentered into a regular monthly cash distribution of $0.10 per common sharepurchase and sale agreement with an unrelated party for the monthsale of November 2017. The distribution is payable on November 15, 2017.
35
As of September 30, 2017,March 31, 2021, 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 variablevariable-rate debt that is not fixed by interest rate term loan.swaps. As of September 30, 2017,March 31, 2021, after giving effect to interest rate swaps, as described below, approximately $319.2$295.5 million, or approximately 24%19% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s variable ratevariable-rate debt outstanding as of September 30, 2017,March 31, 2021, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately $3.2$3.0 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.
As of September 30, 2017,March 31, 2021, the Company’s variable ratevariable-rate debt consisted of its $540unsecured credit facilities, including borrowings outstanding under its $425 million revolving credit facility and six$870 million of term loans, totaling $660 million.and a $20.6 million loan secured by two of its properties (the $20.6 million loan was repaid on April 12, 2021). Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its variable ratevariable-rate debt. As of September 30, 2017,March 31, 2021, the Company had six13 interest rate swap agreements that effectively fix the interest payments on approximately $557.5$695.0 million of the Company’s variable ratevariable-rate debt outstanding (consistingwith swap maturity dates ranging from August 2022 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 monthone-month LIBOR.
In addition to its variable ratevariable-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 revolvingits unsecured credit facilityfacilities at September 30, 2017.March 31, 2021. All dollar amounts are in thousands.
|
| April 1 - December 31, 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
|
| Total |
|
| Fair Market Value |
| ||||||||
Total debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities |
| $ | 67,706 |
|
| $ | 259,731 |
|
| $ | 296,213 |
|
| $ | 338,597 |
|
| $ | 245,140 |
|
| $ | 322,265 |
|
| $ | 1,529,652 |
|
| $ | 1,488,025 |
|
Average interest rates (1) |
|
| 3.9 | % |
|
| 3.9 | % |
|
| 4.1 | % |
|
| 4.3 | % |
|
| 4.4 | % |
|
| 4.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities |
| $ | 20,551 |
|
| $ | 149,900 |
|
| $ | 250,000 |
|
| $ | 310,000 |
|
| $ | 175,000 |
|
| $ | 85,000 |
|
| $ | 990,451 |
|
| $ | 965,647 |
|
Average interest rates (1) |
|
| 3.7 | % |
|
| 3.8 | % |
|
| 4.1 | % |
|
| 4.5 | % |
|
| 5.0 | % |
|
| 5.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities |
| $ | 47,155 |
|
| $ | 109,831 |
|
| $ | 46,213 |
|
| $ | 28,597 |
|
| $ | 70,140 |
|
| $ | 237,265 |
|
| $ | 539,201 |
|
| $ | 522,378 |
|
Average interest rates |
|
| 4.3 | % |
|
| 4.1 | % |
|
| 4.0 | % |
|
| 4.0 | % |
|
| 4.0 | % |
|
| 3.9 | % |
|
|
|
|
|
|
|
|
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. |
Senior management, including the Chief Executive Officer, Chief Financial Officer and Chief FinancialAccounting 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 FinancialAccounting Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2017.March 31, 2021. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
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 disclosedCompany, have a material adverse effect on the Company’s consolidated financial position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following is a summary of all share repurchases during the first quarter of 2021. |
Issuer Purchases of Equity Securities |
| |||||||||||||||
|
| (a) |
|
| (b) |
|
| (c) |
|
| (d) |
| ||||
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (1) |
| ||||
Janaury 1 - Janaury 31, 2021 |
|
| - |
|
| - |
|
|
| - |
|
| $ | 345,000 |
| |
February 1 - February 28, 2021 |
|
| - |
|
| - |
|
|
| - |
|
| $ | 345,000 |
| |
March 1 - March 31, 2021 (2) |
|
| 117,647 |
|
| $ | 14.03 |
|
|
| - |
|
| $ | 345,000 |
|
Total |
|
| 117,647 |
|
|
|
|
|
|
| - |
|
|
|
|
|
(1) | Represents amount outstanding under the Company's authorized $345 million share repurchase program. This program may be suspended or terminated at any time by the Company and will end in July 2021 if not terminated earlier. |
(2) | Represents common shares surrendered to the Company to satisfy tax withholding obligations associated with the issuance of common shares awarded to employees. |
Dividends
During the Extended Covenant Waiver Period (as defined in the Company’s Annual Reportamended unsecured credit facilities), the Company is subject to more restrictive limits on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”) except as describedits ability to pay distributions on its common shares. See “Liquidity and Capital Resources” in Note 10 titled “Legal Proceedings”Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, appearing in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere inPart I this Quarterly Report on Form 10-Q which information is incorporated by reference herein.
Exhibit Number | Description of Documents | |
3.1 | ||
3.2 | ||
10.1 | ||
31.1 | ||
31.2 | ||
31.3 | ||
32.1 | ||
101 | The following materials from | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted as Inline XBRL and contained in Exhibit 101. |
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: | |||
Justin G. Knight, | |||||
Chief Executive Officer (Principal Executive Officer) | |||||
By: | /s/ | Date: | |||
Elizabeth S. Perkins, | |||||
Chief Financial Officer (Principal Financial | |||||
By: | /s/ Rachel S. Labrecque | Date: May 6, 2021 | |||
Rachel S. Labrecque, | |||||
Chief Accounting Officer (Principal Accounting Officer) |
39