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 Income | 4 | |||
Consolidated Statements of Shareholders’ Equity – three months ended March 31, 2022 and 2021 | 5 | |||
Consolidated Statements of Cash Flows | 6 | |||
7 | ||||
Item 2. | 20 | |||
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 AC Hotels by Marriott®, Aloft Hotels®, Courtyard by Marriott®, Fairfield Inn by Marriott®, Fairfield Inn & Suites by Marriott®, Marriott® Hotels, Renaissance® Hotels, Residence Inn by Marriott®, SpringHill Suites by Marriott® and TownePlace Suites by Marriott® trademarks are the property of Marriott International, Inc. or one of its affiliates. The Embassy Suites by Hilton®, Hampton by Hilton®, Hilton® Hotels & Resorts, 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, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
| (unaudited) |
|
|
|
|
| |
Assets |
|
|
|
|
|
|
|
|
Investment in real estate, net of accumulated depreciation and amortization of $1,356,580 and $1,311,262, respectively |
| $ | 4,640,018 |
|
| $ | 4,677,185 |
|
Cash and cash equivalents |
|
| 636 |
|
|
| 3,282 |
|
Restricted cash-furniture, fixtures and other escrows |
|
| 40,568 |
|
|
| 36,667 |
|
Due from third party managers, net |
|
| 60,560 |
|
|
| 40,052 |
|
Other assets, net |
|
| 49,335 |
|
|
| 33,341 |
|
Total Assets |
| $ | 4,791,117 |
|
| $ | 4,790,527 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Debt, net |
| $ | 1,433,213 |
|
| $ | 1,438,758 |
|
Finance lease liabilities |
|
| 111,848 |
|
|
| 111,776 |
|
Accounts payable and other liabilities |
|
| 66,949 |
|
|
| 92,672 |
|
Total Liabilities |
|
| 1,612,010 |
|
|
| 1,643,206 |
|
|
|
|
|
|
|
|
|
|
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 228,888,561 and 228,255,642 shares, respectively |
|
| 4,578,758 |
|
|
| 4,569,352 |
|
Accumulated other comprehensive income (loss) |
|
| 11,711 |
|
|
| (15,508 | ) |
Distributions greater than net income |
|
| (1,411,362 | ) |
|
| (1,406,523 | ) |
Total Shareholders' Equity |
|
| 3,179,107 |
|
|
| 3,147,321 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity |
| $ | 4,791,117 |
|
| $ | 4,790,527 |
|
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, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenues: |
|
|
|
|
|
|
|
|
Room |
| $ | 237,976 |
|
| $ | 148,481 |
|
Food and beverage |
|
| 8,464 |
|
|
| 2,783 |
|
Other |
|
| 14,038 |
|
|
| 7,449 |
|
Total revenue |
|
| 260,478 |
|
|
| 158,713 |
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Hotel operating expense: |
|
|
|
|
|
|
|
|
Operating |
|
| 64,331 |
|
|
| 38,150 |
|
Hotel administrative |
|
| 23,842 |
|
|
| 17,744 |
|
Sales and marketing |
|
| 22,469 |
|
|
| 14,888 |
|
Utilities |
|
| 10,290 |
|
|
| 10,560 |
|
Repair and maintenance |
|
| 13,028 |
|
|
| 10,225 |
|
Franchise fees |
|
| 11,266 |
|
|
| 6,919 |
|
Management fees |
|
| 8,776 |
|
|
| 5,254 |
|
Total hotel operating expense |
|
| 154,002 |
|
|
| 103,740 |
|
Property taxes, insurance and other |
|
| 18,679 |
|
|
| 19,688 |
|
General and administrative |
|
| 9,638 |
|
|
| 8,119 |
|
Loss on impairment of depreciable real estate assets |
|
| 0 |
|
|
| 10,754 |
|
Depreciation and amortization |
|
| 45,324 |
|
|
| 48,710 |
|
Total expense |
|
| 227,643 |
|
|
| 191,011 |
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate |
|
| 0 |
|
|
| 4,484 |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
| 32,835 |
|
|
| (27,814 | ) |
|
|
|
|
|
|
|
|
|
Interest and other expense, net |
|
| (14,654 | ) |
|
| (18,513 | ) |
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
| 18,181 |
|
|
| (46,327 | ) |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| (179 | ) |
|
| (108 | ) |
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 18,002 |
|
| $ | (46,435 | ) |
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Interest rate derivatives |
|
| 27,219 |
|
|
| 16,082 |
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
| $ | 45,221 |
|
| $ | (30,353 | ) |
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per common share |
| $ | 0.08 |
|
| $ | (0.21 | ) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted |
|
| 228,986 |
|
|
| 223,733 |
|
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, 2022 and 2021
(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, 2021 |
|
| 228,256 |
|
| $ | 4,569,352 |
|
| $ | (15,508 | ) |
| $ | (1,406,523 | ) |
| $ | 3,147,321 |
|
Share based compensation, net |
|
| 633 |
|
|
| 9,592 |
|
|
| - |
|
|
| - |
|
|
| 9,592 |
|
Equity issuance costs |
|
| - |
|
|
| (186 | ) |
|
| - |
|
|
| - |
|
|
| (186 | ) |
Interest rate derivatives |
|
| - |
|
|
| - |
|
|
| 27,219 |
|
|
| - |
|
|
| 27,219 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,002 |
|
|
| 18,002 |
|
Distributions declared to shareholders ($0.10 per share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (22,841 | ) |
|
| (22,841 | ) |
Balance at March 31, 2022 |
|
| 228,889 |
|
| $ | 4,578,758 |
|
| $ | 11,711 |
|
| $ | (1,411,362 | ) |
| $ | 3,179,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 18,002 |
|
| $ | (46,435 | ) |
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 45,324 |
|
|
| 48,710 |
|
Loss on impairment of depreciable real estate assets |
|
| - |
|
|
| 10,754 |
|
Gain on sale of real estate |
|
| - |
|
|
| (4,484 | ) |
Other non-cash expenses, net |
|
| 2,174 |
|
|
| 2,684 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in due from third party managers, net |
|
| (20,508 | ) |
|
| (16,628 | ) |
Decrease (increase) in other assets, net |
|
| (3,308 | ) |
|
| 1,029 |
|
Increase (decrease) in accounts payable and other liabilities |
|
| (2,621 | ) |
|
| 2,256 |
|
Net cash provided by (used in) operating activities |
|
| 39,063 |
|
|
| (2,114 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition of hotel properties, net |
|
| - |
|
|
| (49,369 | ) |
Capital improvements |
|
| (13,586 | ) |
|
| (2,506 | ) |
Net proceeds from sale of real estate |
|
| - |
|
|
| 17,587 |
|
Net cash used in investing activities |
|
| (13,586 | ) |
|
| (34,288 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repurchases of common shares to satisfy employee withholding requirements |
|
| (4,415 | ) |
|
| (1,650 | ) |
Distributions paid to common shareholders |
|
| (13,701 | ) |
|
| - |
|
Equity issuance costs |
|
| (23 | ) |
|
| (1 | ) |
Net proceeds from revolving credit facility |
|
| 500 |
|
|
| 44,100 |
|
Payments of mortgage debt and other loans |
|
| (6,556 | ) |
|
| (3,018 | ) |
Principal payments on finance leases |
|
| (27 | ) |
|
| - |
|
Financing costs |
|
| - |
|
|
| (1,472 | ) |
Net cash provided by (used in) financing activities |
|
| (24,222 | ) |
|
| 37,959 |
|
|
|
|
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash |
|
| 1,255 |
|
|
| 1,557 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
| 39,949 |
|
|
| 34,368 |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 41,204 |
|
| $ | 35,925 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
| $ | 13,849 |
|
| $ | 18,062 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Accrued distribution to common shareholders |
| $ | 11,420 |
|
| $ | 2,232 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
| $ | 3,282 |
|
| $ | 5,556 |
|
Restricted cash-furniture, fixtures and other escrows, beginning of period |
|
| 36,667 |
|
|
| 28,812 |
|
Cash, cash equivalents and restricted cash, beginning of period |
| $ | 39,949 |
|
| $ | 34,368 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
| $ | 636 |
|
| $ | 5,776 |
|
Restricted cash-furniture, fixtures and other escrows, end of period |
|
| 40,568 |
|
|
| 30,149 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 41,204 |
|
| $ | 35,925 |
|
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., formed in November 2007 as a Virginia corporation, together with its wholly-owned subsidiaries (the “Company”), is a Virginia corporation that has elected to be treated as aself-advised 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, 2022, the Company owned 237219 hotels with an aggregate of 30,18828,747 rooms located in 33 states, including one hotel with 316 rooms classified as held for sale, which was sold to an unrelated party in October 2017.36 states. The Company’s common shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.”
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include all of the information required by U.S. generally accepted accounting principles generally accepted in the United States(“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its 2016 Annual Report on Form 10-K.10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). Operating results for the three and nine months ended September 30, 2017March 31, 2022 are not necessarily indicative of the results that may be expected for the twelve monthtwelve-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.
Coronavirus COVID-19 Pandemic
As a result of the 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 have had and may continue to have a negative effect on the Company’s revenue and operating results. While occupancy recovered significantly during 2021 and the first three months of 2022, there remains significant uncertainty as to when operations at the hotels will return to pre-pandemic levels.
Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net income (loss) per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. Basic and diluted net income (loss) per common share were the same for each of the periods presented.
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 addease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. In January 2021, the FASB issued 2021-01, Reference Rate Reform (Topic 848), Scope, which further clarified the scope of the reference rate reform optional practical expedients and exceptions outlined in Topic 848. The amendments in ASU Nos. 2020-04 and 2021-01 apply to contract modifications that replace a reference rate affected by reference rate reform, providing optional expedients regarding the measurement of hedge effectiveness in hedging relationships that have been modified to replace a reference rate. The guidance in ASU Nos. 2020-04 and 2021-01 became effective upon issuance and the provisions of the ASUs have not had a material impact on the Company’s consolidated financial statements and related disclosures as of March 31, 2022.The provisions of these updates will generally affect the Company by allowing, among other things, the following:
7
• | Modifications of the Company’s unsecured credit facilities (as defined below) 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. |
• | 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’s unsecured credit facilities and interest rate swap agreements have provisions in place regarding the selection of replacement reference rates upon the discontinuance of LIBOR, and the Company anticipates that it may enter into amendments to clarify the replacement reference rates in the future.
Accounting for Certain Equity Options
In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (Topics 260, 470, 718 and 815), which provides updated guidance to assist entities with evaluating whether transactions should be accountedclarify and reduce diversity in an issuer’s accounting for as acquisitions (or disposals)modifications or exchanges of assetsfreestanding equity-classified written call options that remain equity classified after modification or businesses.exchange. The standard isprovisions of this update are effective for annual and interim periods beginning after December 15, 2017 with early adoption permitted.2021. The Company adopted this standard effective January 1, 2017 on a prospective basis. Prior to the adoption of this standard,update is not material to the Company’s acquisitions of hotel properties were accountedconsolidated financial statements.
Accounting for Funds Received 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.
In May 2014,November 2021, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers2021-10, Government Assistance (Topic 606), which affects virtually all aspects832) to increase the transparency of government assistance disclosures including the disclosure of (1) the types of assistance, (2) an entity’s revenue recognition. The core principleaccounting for the assistance, and (3) the effect of the new standard is that revenue should be recognized to depict the transferassistance on an entity’s financial statements. The provisions of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchangethis update are effective for those goods or services. In March, April, May and December 2016, the FASB issued ASUs No. 2016-08, 2016-10, 2016-12 and 2016-20, respectively, all related to Revenue from Contracts with Customers (Topic 606), which further clarify the application of the standard. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effectiveness of ASU No. 2014-09 to annual and interim periods beginning after December 15, 2017, and permitted early application for annual reporting periods beginning after December 15, 2016. 2021. The Company plans to adopt this standard on January 1, 2018 using the modified retrospective approach. Although the Company is still evaluating this ASU, based on its assessment to date, the Company does not believe there will be a significant change to the amount or timing of the recording of revenue in its consolidated financial statements.
2. Merger with Apple REIT Ten, Inc.
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 |
The Company’s investment in real estate consisted of the following (in thousands):
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Land |
| $ | 794,901 |
|
| $ | 794,899 |
|
Building and improvements |
|
| 4,588,934 |
|
|
| 4,584,829 |
|
Furniture, fixtures and equipment |
|
| 492,313 |
|
|
| 488,773 |
|
Finance ground lease assets |
|
| 102,084 |
|
|
| 102,084 |
|
Franchise fees |
|
| 18,366 |
|
|
| 17,862 |
|
|
|
| 5,996,598 |
|
|
| 5,988,447 |
|
Less accumulated depreciation and amortization |
|
| (1,356,580 | ) |
|
| (1,311,262 | ) |
Investment in real estate, net |
| $ | 4,640,018 |
|
| $ | 4,677,185 |
|
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, 2022, the Company owned 237219 hotels with an aggregate of 30,18828,747 rooms located in 33 states, including one hotel with 316 rooms classified as held for sale, which was sold to an unrelated party in October 2017.
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
There were 0 acquisitions during the three months ended March 31, 2022. During the year ended December 31, 2021, the Company acquired three8 hotels, including 1 hotel during the first ninethree months of 2017.ended March 31, 2021. 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 |
| ||
Madison |
| WI |
| Hilton Garden Inn |
| Raymond |
| 2/18/2021 |
|
| 176 |
|
| $ | 49,599 |
|
Portland |
| ME |
| AC Hotels |
| Crestline |
| 8/20/2021 |
|
| 178 |
|
|
| 66,750 |
|
Greenville |
| SC |
| Hyatt Place |
| Crestline |
| 9/1/2021 |
|
| 130 |
|
|
| 30,000 |
|
Portland |
| ME |
| Aloft |
| Crestline |
| 9/10/2021 |
|
| 157 |
|
|
| 51,150 |
|
Memphis |
| TN |
| Hilton Garden Inn |
| Crestline |
| 10/28/2021 |
|
| 150 |
|
|
| 38,000 |
|
Fort Worth |
| TX |
| Hilton Garden Inn |
| Raymond |
| 11/17/2021 |
|
| 157 |
|
|
| 29,500 |
|
Fort Worth |
| TX |
| Homewood Suites |
| Raymond |
| 11/17/2021 |
|
| 112 |
|
|
| 21,500 |
|
Portland |
| OR |
| Hampton |
| Raymond |
| 11/17/2021 |
|
| 243 |
|
|
| 75,000 |
|
|
|
|
|
|
|
|
|
|
|
| 1,303 |
|
| $ | 361,499 |
|
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 |
In 2021, the | |
Seattle Land Acquisition
On August 16, 2021, the Company purchased the fee interest in the land at the Seattle, Washington Residence Inn, previously held under a finance ground lease. The Company utilized $24.0 million of its available cash and entered into a one-year note payable to the seller for $56.0 million to fund the purchase price of $80.0 million. The note payable bears interest, which is payable monthly, at a fixed annual rate of 4.0%. The land purchase was accounted for as a retirement of the finance lease, with the difference of $16.6 million between the carrying amount of the net right-of-use asset of $94.5 million and the finance lease liability of $111.1 million applied as an adjustment to the carrying amount of the acquired land.
Hotel Purchase Contract Commitments
As of September 30, 2017,March 31, 2022, the Company had 1 outstanding contractscontract, which was entered into during 2021, for the potential purchase of four additional hotelsa hotel in Madison, Wisconsin for a totalan expected purchase price of approximately $146.1$78.6 million. Two of the hotels, the Salt Lake City Residence InnThe hotel is currently under development and the Portland Residence Inn, which are already in operation, were acquired in October 2017. The two remaining hotels are under construction and are plannedis expected to be completed and opened for business overin early 2024, as a 260-room Embassy Suites. As of March 31, 2022, a $0.9 million contract deposit (refundable if the next 12 months from September 30, 2017, at which time closing on these hotels is expected to occur.seller does not meet its obligations under the contract) had been paid. Although the Company is working towards acquiring the two hotels under construction,this hotel, there are manya number of conditions to closing that have not yet been satisfied and there can be no assuranceassurances that a closing on these hotelsthis hotel will occur under the outstanding purchase contracts. contract. The following table summarizesCompany plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to purchase the location, brand, date of purchasehotel under contract expected number of rooms, refundable (ifif closing occurs.
9
3. Dispositions
There were no dispositions during the seller does not meet its obligations under the contract) contract deposits paid, and gross purchase price for each of the contracts outstanding at September 30, 2017. All dollar amounts are in thousands.
Location | Brand | Date of Purchase Contract | Rooms | Refundable Deposits | Gross Purchase Price | |||||||||||
Operating (a) | ||||||||||||||||
Salt Lake City, UT | Residence Inn | 8/22/2017 | 136 | $ | 500 | $ | 25,500 | |||||||||
Portland, ME | Residence Inn | 8/30/2017 | 179 | 1,000 | 55,750 | |||||||||||
Under development (b) | ||||||||||||||||
Phoenix, AZ | Hampton | 10/25/2016 | 210 | 500 | 44,100 | |||||||||||
Orlando, FL | Home2 Suites | 1/18/2017 | 128 | 3 | 20,736 | |||||||||||
653 | $ | 2,003 | $ | 146,086 |
City | State | Brand | Date Sold | Rooms | ||||||
Charlotte | NC | Homewood Suites | 2/25/2021 | 118 | ||||||
Memphis | TN | Homewood Suites | 3/16/2021 | 140 | ||||||
Overland Park | KS | SpringHill Suites | 4/30/2021 | 102 | ||||||
Montgomery | AL | Hilton Garden Inn | 7/22/2021 | 97 | ||||||
Montgomery | AL | Homewood Suites | 7/22/2021 | 91 | ||||||
Rogers | AR | Residence Inn | 7/22/2021 | 88 | ||||||
Phoenix | AZ | Courtyard | 7/22/2021 | 127 | ||||||
Lakeland | FL | Courtyard | 7/22/2021 | 78 | ||||||
Albany | GA | Fairfield | 7/22/2021 | 87 | ||||||
Schaumburg | IL | Hilton Garden Inn | 7/22/2021 | 166 | ||||||
Andover | MA | SpringHill Suites | 7/22/2021 | 136 | ||||||
Fayetteville | NC | Residence Inn | 7/22/2021 | 92 | ||||||
Greenville | SC | Residence Inn | 7/22/2021 | 78 | ||||||
Jackson | TN | Hampton | 7/22/2021 | 85 | ||||||
Johnson City | TN | Courtyard | 7/22/2021 | 90 | ||||||
Allen | TX | Hampton | 7/22/2021 | 103 | ||||||
Allen | TX | Hilton Garden Inn | 7/22/2021 | 150 | ||||||
Beaumont | TX | Residence Inn | 7/22/2021 | 133 | ||||||
Burleson/Fort Worth | TX | Hampton | 7/22/2021 | 88 | ||||||
El Paso | TX | Hilton Garden Inn | 7/22/2021 | 145 | ||||||
Irving | TX | Homewood Suites | 7/22/2021 | 77 | ||||||
Richmond | VA | SpringHill Suites | 7/22/2021 | 103 | ||||||
Vancouver | WA | SpringHill Suites | 7/22/2021 | 119 | ||||||
Total | 2,493 |
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.
Loss on Impairment of Depreciable Real Estate Assets
During the first quarter of 2021, the Company identified 20 hotels for potential sale and, in April 2021, entered into a purchase contract with an unrelated party for the sale of the hotels for a gross sales price of $211.0 million. As a result, the Company recognized impairment losses totaling approximately $9.4 million in the first quarter of 2021, to adjust the carrying values of four of these hotels 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. The Company completed the sale of the hotels in July 2021.
Additionally, 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 contract 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 totaling 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.
10
4. Debt
Summary
As of March 31, 2022 and December 31, 2021, the Company’s debt consisted of the following (in thousands):
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Revolving credit facility |
| $ | 76,500 |
|
| $ | 76,000 |
|
Term loans and senior notes, net |
|
| 865,672 |
|
|
| 865,189 |
|
Mortgage debt, net |
|
| 491,041 |
|
|
| 497,569 |
|
Debt, net |
| $ | 1,433,213 |
|
| $ | 1,438,758 |
|
The aggregate amounts of principal payable under the Company’s total debt obligations as of March 31, 2022 (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):
2022 (April - December) |
| $ | 238,774 |
|
2023 |
|
| 296,214 |
|
2024 |
|
| 338,597 |
|
2025 |
|
| 245,140 |
|
2026 |
|
| 74,649 |
|
Thereafter |
|
| 244,616 |
|
|
|
| 1,437,990 |
|
Unamortized fair value adjustment of assumed debt |
|
| 950 |
|
Unamortized debt issuance costs |
|
| (5,727 | ) |
Total |
| $ | 1,433,213 |
|
The Company uses interest rate swaps to manage its interest rate risk 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, 2022 and December 31, 2021, is set forth below. All dollar amounts are in thousands.
|
| March 31, 2022 |
|
| Percentage |
|
| December 31, 2021 |
|
| Percentage |
| ||||
Fixed-rate debt (1) |
| $ | 1,311,490 |
|
|
| 91 | % |
| $ | 1,318,046 |
|
|
| 91 | % |
Variable-rate debt |
|
| 126,500 |
|
|
| 9 | % |
|
| 126,000 |
|
|
| 9 | % |
Total |
| $ | 1,437,990 |
|
|
|
|
|
| $ | 1,444,046 |
|
|
|
|
|
Weighted-average interest rate of debt |
|
| 3.46 | % |
|
|
|
|
|
| 3.38 | % |
|
|
|
|
(1) | Fixed-rate debt includes the portion of variable-rate debt where the interest payments have been effectively fixed by interest rate swaps as of the respective balance sheet date. See Note 5 for more information on the interest rate swap agreements. |
Credit Facilities
$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, consisting of three term loans, all funded during 2015 (the “$425July 27, 2023, and a $225 million term loans”).loan with a maturity date of January 31, 2024, both funded in July 2018. Subject to certain conditions including covenant compliance and additional fees, the revolving credit facilityRevolving Credit Facility maturity date may be extended up to one year andif certain criteria are met at the amounttime of the total credit facility may be increased from $965 million to $1.25 billion.extension. 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, 2022, the Company entered into two interest rate swap agreements, which effectively fixhad availability of $348.5 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 revolving credit facility,Revolving Credit Facility, based on the amount of borrowings outstanding during the quarter.
The Company entered intoalso has 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, which was funded on August 2, 2018, and (ii) a $175 million term loan facilitywith a maturity date of August 2, 2025, of which $100 million was funded on April 8, 2016August 2, 2018 and borrowed the remaining $100$75 million was funded on September 30, 2016.January 29, 2019. The credit agreement contains requirements and covenants similar to the Company’s $965$850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the $150$225 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.45%1.35% to 2.20% for the $50 million term loan and 1.80% to 2.60% for the $100 million term loan,2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. The Company also entered into two interest rate swap agreements which, beginning on September 30, 2016, effectively fix the interest rate on the $50 million term loan and $100 million term loan at 2.54% and 3.13%, respectively, subject to adjustment based on the Company’s leverage ratio, through maturity. See Note 6 for more information on the interest rate swap agreements. Proceeds from the $150 million term loan facility were used to pay down outstanding borrowings on the Company’s revolving credit facility, using the increased availability to repay scheduled mortgage debt maturities through the end of the first quarter of 2017.
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 under 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 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, 2022 and December 31, 2016,2021, 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, 2022 |
|
| December 31, 2021 |
| ||
Revolving credit facility (2) |
| LIBOR + 1.40% - 2.25% |
| 7/27/2022 (4) |
| $ | 76,500 |
|
| $ | 76,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
| (4,328 | ) |
|
| (4,811 | ) |
Term loans and senior notes, net |
|
|
|
|
|
| 865,672 |
|
|
| 865,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facilities, net (2) |
|
|
|
|
| $ | 942,172 |
|
| $ | 941,189 |
|
Weighted-average interest rate (3) |
|
|
|
|
|
| 3.10 | % |
|
| 2.97 | % |
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 increased to 0.15% above the highest rate shown for each loan during the Extended Covenant Waiver Period (as defined below) from March 1, 2021 through July 28, 2021. |
(2) | Excludes unamortized debt issuance costs related to the |
(3) | Interest rate |
(4) | Subject to certain conditions including covenant compliance and additional fees, the Revolving Credit Facility maturity date may be extended up to one year, to July 27, 2023, if certain criteria are met at the time of extension. |
Credit Facilities Covenants and Amendments
The credit agreements governing the $965 millionunsecured credit facility,facilities (collectively, the $150 million term loan facility and the $85 million term loan“credit agreements”), contain mandatory prepayment requirements, customary affirmative covenants,and negative covenants, restrictions on certain investments and events of default. The credit agreements requirecontain the following financial and restrictive covenants:
● | A ratio of Consolidated Total Indebtedness to Consolidated EBITDA (“Maximum Consolidated Leverage Ratio”) of not more than 6.50 to 1.00 (subject to a higher amount in certain circumstances); |
● | A ratio of Consolidated Secured Indebtedness to Consolidated Total Assets of not more than 45%; |
● | A minimum Consolidated Tangible Net Worth of approximately $3.2 billion plus an amount equal to 75% of the Net Cash Proceeds from issuances and sales of Equity Interests occurring after the Closing Date, July 27, 2018, subject to adjustment; |
● | A ratio of Adjusted Consolidated EBITDA to Consolidated Fixed Charges ("Minimum Fixed Charge Coverage Ratio") of not less than 1.50 to 1.00 for the trailing four full quarters; |
● | A ratio of Unencumbered Adjusted NOI to Consolidated Implied Interest Expense for Consolidated Unsecured Indebtedness ("Minimum Unsecured Interest Coverage Ratio") of not less than 2.00 to 1.00 for the trailing four full quarters; |
● | A ratio of Consolidated Unsecured Indebtedness to Unencumbered Asset Value (“Maximum Unsecured Leverage Ratio”) of not more than 60% (subject to a higher level in certain circumstances); and |
● | A ratio of Consolidated Secured Recourse Indebtedness to Consolidated Total Assets of not more than 10%. |
13
As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company entered into amendments in June 2020 that suspended the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities. These amendments imposed certain restrictions regarding the Company’s investing and financing activities that were applicable during a specified waiver period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders (except to the extent required to maintain REIT status), capital expenditures and use of proceeds from the sale of property or common shares of the Company, that applied during such testing suspension period. On March 1, 2021, as a result of the continued disruption from COVID-19 and the related uncertainty with respect to the Company’s future operating results, the Company entered into further amendments to each of the unsecured credit facilities (the “March 2021 amendments”) to extend the covenant waiver period for all but two of the Company’s existing financial maintenance covenants until the date that the compliance certificate was required to be delivered for the fiscal quarter ending June 30, 2022 (unless the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interestelected an earlier date) (the “Extended Covenant Waiver Period”). The testing for the Minimum Fixed Charge Coverage Ratio and fixed charge coverage ratios, limitsthe Minimum Unsecured Interest Coverage Ratio was suspended until the compliance certificate was required to be delivered for the fiscal quarter ending March 31, 2022 (unless the Company elected an earlier date). The March 2021 amendments provided for continued restrictions on dividend payments andthe Company’s ability to make cash distributions, except for the payment of cash dividends of $0.01 per common share repurchasesper quarter or to the extent required to maintain REIT status.
In addition to the modifications and restrictions imposed during the Extended Covenant Waiver Period, the March 2021 amendments modified the calculation of the existing financial covenants for the first three quarterly calculations subsequent to the end of the Extended Covenant Waiver Period to annualize calculated amounts based on certain investments. The Company was in compliancethe period beginning with the first fiscal quarter upon exiting the Extended Covenant Waiver Period through the most recently ended fiscal quarter, and provided for an increase in the LIBOR floor under the Revolving Credit Facility from 0 to 25 basis points for Eurodollar Rate Loans (as defined in the credit agreements) and established a Base Rate (as defined in the credit agreements) floor of 1.25% on the Revolving Credit Facility.
The March 2021 amendments also modified certain of the existing financial maintenance covenants to less restrictive levels upon exiting the Extended Covenant Waiver Period as follows (capitalized terms are defined in the amended 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 described above, the terms of the credit agreements remain in effect.
In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021 pursuant to the terms of each of its unsecured credit facilities. Upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions described above regarding its investing and financing activities that were applicable covenants at September 30, 2017.
As of September 30, 2017,March 31, 2022, the Company met the applicable financial maintenance covenants based on the results of the twelve months ended March 31, 2022 at the levels required for the fourth fiscal quarter tested upon exiting the Extended Covenant Waiver Period. The unsecured credit facilities do not provide the Company the ability to re-enter the Extended Covenant Waiver Period once it has elected to exit.
Mortgage Debt
As of March 31, 2022, the Company had approximately $430.1$491.5 million in outstanding property levelmortgage debt secured by 28 properties with maturity dates ranging from June 2020August 2022 to December 2026,May 2038, stated interest rates ranging from 3.55%3.40% to 6.25%5.00% and effective interest rates ranging from 3.55%3.40% to 4.97%. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. The following table sets forth the hotel properties securing each loan, the interest rate, loan assumption or origination date, maturity date, the principal amount assumed or originated, and the outstanding balance prior to any fair value adjustments or debt issuance costs as of September 30, 2017March 31, 2022 and December 31, 20162021 for each of the Company’s mortgage debt obligations. All dollar amounts are in thousands.
14
Location |
| Brand |
| Interest Rate (1) |
|
| Loan Assumption or Origination Date |
| Maturity Date |
| Principal Assumed or Originated |
|
| Outstanding balance as of March 31, 2022 |
|
| Outstanding balance as of December 31, 2021 |
| ||||
Seattle, WA |
| (2) |
|
| 4.00 | % |
| 8/16/2021 |
| 8/16/2022 |
| $ | 56,000 |
|
| $ | 56,000 |
|
| $ | 56,000 |
|
Grapevine, TX |
| Hilton Garden Inn |
|
| 4.89 | % |
| 8/29/2012 |
| 9/1/2022 |
|
| 11,810 |
|
|
| 8,980 |
|
|
| 9,075 |
|
Collegeville/Philadelphia, PA |
| Courtyard |
|
| 4.89 | % |
| 8/30/2012 |
| 9/1/2022 |
|
| 12,650 |
|
|
| 9,619 |
|
|
| 9,720 |
|
Hattiesburg, MS |
| Courtyard |
|
| 5.00 | % |
| 3/1/2014 |
| 9/1/2022 |
|
| 5,732 |
|
|
| 4,503 |
|
|
| 4,550 |
|
Kirkland, WA |
| Courtyard |
|
| 5.00 | % |
| 3/1/2014 |
| 9/1/2022 |
|
| 12,145 |
|
|
| 9,541 |
|
|
| 9,640 |
|
Rancho Bernardo/San Diego, CA |
| Courtyard |
|
| 5.00 | % |
| 3/1/2014 |
| 9/1/2022 |
|
| 15,060 |
|
|
| 11,831 |
|
|
| 11,954 |
|
Seattle, WA |
| Residence Inn |
|
| 4.96 | % |
| 3/1/2014 |
| 9/1/2022 |
|
| 28,269 |
|
|
| 22,181 |
|
|
| 22,412 |
|
Anchorage, AK |
| Embassy Suites |
|
| 4.97 | % |
| 9/13/2012 |
| 10/1/2022 |
|
| 23,230 |
|
|
| 17,776 |
|
|
| 17,959 |
|
Somerset, NJ |
| Courtyard |
|
| 4.73 | % |
| 3/1/2014 |
| 10/6/2022 |
|
| 8,750 |
|
|
| 6,830 |
|
|
| 6,903 |
|
Tukwila, WA |
| Homewood Suites |
|
| 4.73 | % |
| 3/1/2014 |
| 10/6/2022 |
|
| 9,431 |
|
|
| 7,362 |
|
|
| 7,440 |
|
Huntsville, AL |
| Homewood Suites |
|
| 4.12 | % |
| 3/1/2014 |
| 2/6/2023 |
|
| 8,306 |
|
|
| 6,403 |
|
|
| 6,473 |
|
Prattville, AL |
| Courtyard |
|
| 4.12 | % |
| 3/1/2014 |
| 2/6/2023 |
|
| 6,596 |
|
|
| 5,085 |
|
|
| 5,141 |
|
San Diego, CA |
| Residence Inn |
|
| 3.97 | % |
| 3/1/2014 |
| 3/6/2023 |
|
| 18,600 |
|
|
| 14,299 |
|
|
| 14,456 |
|
Miami, FL |
| Homewood Suites |
|
| 4.02 | % |
| 3/1/2014 |
| 4/1/2023 |
|
| 16,677 |
|
|
| 12,860 |
|
|
| 13,000 |
|
New Orleans, LA |
| Homewood Suites |
|
| 4.36 | % |
| 7/17/2014 |
| 8/11/2024 |
|
| 27,000 |
|
|
| 21,776 |
|
|
| 21,981 |
|
Westford, MA |
| Residence Inn |
|
| 4.28 | % |
| 3/18/2015 |
| 4/11/2025 |
|
| 10,000 |
|
|
| 8,246 |
|
|
| 8,320 |
|
Denver, CO |
| Hilton Garden Inn |
|
| 4.46 | % |
| 9/1/2016 |
| 6/11/2025 |
|
| 34,118 |
|
|
| 29,161 |
|
|
| 29,415 |
|
Oceanside, CA |
| Courtyard |
|
| 4.28 | % |
| 9/1/2016 |
| 10/1/2025 |
|
| 13,655 |
|
|
| 12,244 |
|
|
| 12,318 |
|
Omaha, NE |
| Hilton Garden Inn |
|
| 4.28 | % |
| 9/1/2016 |
| 10/1/2025 |
|
| 22,681 |
|
|
| 20,338 |
|
|
| 20,460 |
|
Boise, ID |
| Hampton |
|
| 4.37 | % |
| 5/26/2016 |
| 6/11/2026 |
|
| 24,000 |
|
|
| 21,557 |
|
|
| 21,680 |
|
Burbank, CA |
| Courtyard |
|
| 3.55 | % |
| 11/3/2016 |
| 12/1/2026 |
|
| 25,564 |
|
|
| 21,908 |
|
|
| 22,098 |
|
San Diego, CA |
| Courtyard |
|
| 3.55 | % |
| 11/3/2016 |
| 12/1/2026 |
|
| 25,473 |
|
|
| 21,830 |
|
|
| 22,019 |
|
San Diego, CA |
| Hampton |
|
| 3.55 | % |
| 11/3/2016 |
| 12/1/2026 |
|
| 18,963 |
|
|
| 16,251 |
|
|
| 16,392 |
|
Burbank, CA |
| SpringHill Suites |
|
| 3.94 | % |
| 3/9/2018 |
| 4/1/2028 |
|
| 28,470 |
|
|
| 25,651 |
|
|
| 25,845 |
|
Santa Ana, CA |
| Courtyard |
|
| 3.94 | % |
| 3/9/2018 |
| 4/1/2028 |
|
| 15,530 |
|
|
| 13,992 |
|
|
| 14,098 |
|
Richmond, VA |
| Courtyard |
|
| 3.40 | % |
| 2/12/2020 |
| 3/11/2030 |
|
| 14,950 |
|
|
| 14,371 |
|
|
| 14,447 |
|
Richmond, VA |
| Residence Inn |
|
| 3.40 | % |
| 2/12/2020 |
| 3/11/2030 |
|
| 14,950 |
|
|
| 14,371 |
|
|
| 14,447 |
|
Portland, ME (3) |
| Residence Inn |
|
| 3.43 | % |
| 3/2/2020 |
| 3/1/2032 |
|
| 33,500 |
|
|
| 30,500 |
|
|
| 33,500 |
|
San Jose, CA |
| Homewood Suites |
|
| 4.22 | % |
| 12/22/2017 |
| 5/1/2038 |
|
| 30,000 |
|
|
| 26,024 |
|
|
| 26,303 |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 572,110 |
|
|
| 491,490 |
|
|
| 498,046 |
|
Unamortized fair value adjustment of assumed debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 950 |
|
|
| 1,010 |
|
Unamortized debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,399 | ) |
|
| (1,487 | ) |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 491,041 |
|
| $ | 497,569 |
|
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) | On August 16, 2021, the Company acquired the fee interest in |
(3) | Loan was amended effective March |
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, 2022 and December 31, 2016,2021, both the carrying value and estimated fair value of the Company’s debt were approximately $1.3$1.4 billion. Both the carrying value and estimated fair value of the Company’s debt (as discussed above) isare net of unamortized debt issuance costs related to term loans, senior notes and mortgage debt for each specific year.
Currently, the Company uses interest rate swaps to manage its interest rate risksrisk 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, 2022 and December 31, 2016.2021. All dollar amounts are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Asset (Liability) |
| |||||
Notional Amount at March 31, 2022 |
|
| Origination Date |
| Effective Date |
| Maturity Date |
| Swap Fixed Interest Rate |
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||||
Active interest rate swaps designated as cash flow hedges at March 31, 2022: |
|
|
|
|
|
|
|
|
| |||||||||||
$ | 100,000 |
|
| 4/7/2016 |
| 9/30/2016 |
| 3/31/2023 |
| 1.33% |
|
| $ | 445 |
|
| $ | (955 | ) | |
| 75,000 |
|
| 5/31/2017 |
| 7/31/2017 |
| 6/30/2024 |
| 1.96% |
|
|
| 725 |
|
|
| (1,902 | ) | |
| 10,000 |
|
| 8/10/2017 |
| 8/10/2017 |
| 6/30/2024 |
| 2.01% |
|
|
| 83 |
|
|
| (268 | ) | |
| 50,000 |
|
| 6/1/2018 |
| 1/31/2019 |
| 6/30/2025 |
| 2.89% |
|
|
| (742 | ) |
|
| (3,123 | ) | |
| 50,000 |
|
| 7/2/2019 |
| 7/5/2019 |
| 7/18/2024 |
| 1.65% |
|
|
| 846 |
|
|
| (894 | ) | |
| 50,000 |
|
| 8/21/2019 |
| 8/23/2019 |
| 8/18/2024 |
| 1.32% |
|
|
| 1,264 |
|
|
| (457 | ) | |
| 50,000 |
|
| 8/21/2019 |
| 8/23/2019 |
| 8/30/2024 |
| 1.32% |
|
|
| 1,283 |
|
|
| (455 | ) | |
| 85,000 |
|
| 12/31/2019 |
| 12/31/2019 |
| 12/31/2029 |
| 1.86% |
|
|
| 2,361 |
|
|
| (3,277 | ) | |
| 25,000 |
|
| 12/6/2018 |
| 1/31/2020 |
| 6/30/2025 |
| 2.75% |
|
|
| (263 | ) |
|
| (1,442 | ) | |
| 50,000 |
|
| 12/7/2018 |
| 5/18/2020 |
| 1/31/2024 |
| 2.72% |
|
|
| (401 | ) |
|
| (1,965 | ) | |
| 75,000 |
|
| 8/21/2019 |
| 5/18/2020 |
| 5/18/2025 |
| 1.27% |
|
|
| 2,663 |
|
|
| (458 | ) | |
| 75,000 |
|
| 7/31/2020 |
| 8/18/2020 |
| 8/18/2022 |
| 0.13% |
|
|
| 251 |
|
|
| 79 |
| |
| 75,000 |
|
| 8/21/2019 |
| 5/18/2021 |
| 5/18/2026 |
| 1.30% |
|
|
| 3,196 |
|
|
| (391 | ) | |
$ | 770,000 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 11,711 |
|
| $ | (15,508 | ) |
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, 2022, 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, 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.
Amounts reported in accumulated other comprehensive income will be reclassified to interest and other expense, net as interest payments are made or received on the Company’s variable-rate derivatives. Net unrealized gains (losses) on cash flow hedges previously recorded to other comprehensive income (loss) that were reclassified to interest and other expense, net during the three months ended September 30, 2017 and 2016, include approximately $(0.4) million and $(0.9) million, respectively, and during the nine months ended September 30, 2017 and 2016, include approximately $(1.8) million and $(2.9) million, respectively. The Company estimates that approximately $(0.6)$0.2 million of net unrealized gains (losses) included in accumulated other comprehensive income at September 30, 2017March 31, 2022 will be reclassified as a net increasedecrease to interest and other expense, net within the next 12 months.
The following table presents the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2022 and 2021 (in thousands):
|
| Net Unrealized Gain Recognized in Other Comprehensive Income |
|
| Net Unrealized Loss Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net |
| ||||||||||
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Interest rate derivatives in cash flow hedging relationships |
| $ | 24,464 |
|
| $ | 13,367 |
|
| $ | (2,755 | ) |
| $ | (2,715 | ) |
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 on2021 Form 10-K. Below is a summary of the significant related party relationships in effect during the ninethree months ended September 30, 2017March 31, 2022 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
For the three months ended September 30, 2017 and 2016,March 31, 2022, the Company paid distributions of $0.30$0.06 per common share for a total of $66.9 million and $57.2 million, respectively. For$13.7 million. NaN distributions were paid during the ninethree months ended September 30, 2017 and 2016, the Company paid distributions of $0.90 per common share for a total of $200.7 million and $161.9 million, respectively.March 31, 2021. Additionally, in September 2017,March 2022, the Company declared a monthly cash distribution of $0.10$0.05 per common share, totaling $22.3$11.4 million, which was recorded as a payable as of September 30, 2017March 31, 2022 and paid in October 2017.on April 18, 2022. As of December 31, 2016,2021, a monthlyquarterly distribution of $0.10$0.01 per common share totaling $22.3declared in December 2021 totaled $2.3 million and was recorded as a payable and paid inon January 2017.18, 2022. These accrued distributions were included in accounts payable and other liabilities in the Company’s consolidated balance sheets.
Issuance of Shares
The Company has 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”). DuringSince inception of the nine months ended September 30, 2017, the Company had no sales under the ATM Program.
17
the authorized $475 millionrepayment of other outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the net proceeds to acquire another REIT or other company that invests in income producing properties.
Share Repurchases
In May 2021, the Company’s Board of Directors approved a one-year extension of its existing share repurchase program, which will depend on prevailing market conditions and other factors.authorizing share repurchases up to an aggregate of $345 million (the “Share Repurchase Program”). The programShare Repurchase Program may be suspended or terminated at any time by the Company and as a result of an extension of the program approved by the Board of Directors in May 2017, will end in July 20182022 if not terminated earlier.
8. Compensation Plans
The Company annually establishes an executive incentive plan (“2017for its executive management team. Under the incentive plan for 2022 (the “2022 Incentive Plan”), effective January 1, 2017, and established incentive goals for 2017. Under the 2017 Incentive Plan, participants are eligible to receive a bonusincentive compensation based on the achievement of certain 20172022 performance measures, consistingwith one-half (50%) of incentive compensation based on operational performance goals and metrics (including targeted Modified Funds from Operations per share, Comparable Hotels revenue per available room growth and Adjusted Hotel EBITDA Margin growth) andone-half (50%) of incentive compensation based on shareholder return metrics. With respect to the shareholder return metrics, (including75% of the target will be based on shareholder return relative to a peer group and 25% will be based on total shareholder return metrics over one-year, two-year, and two-year periods). The components ofthree-year periods. With respect to the operational performance metrics and shareholder return metrics are equally weighted and the two metrics each account for 50%measures, 25% of the total target incentive compensation. Thewill be based on modified funds from operations per share (as defined within this Quarterly Report on Form 10-Q) and 75% of the target will be based on operational performance goals including: management of capital structure; environmental, social and governance goals; evaluation and pursuit of accretive transactions; effective execution of capital renovation plans; and management of operating expenses to maximize Adjusted Hotel EBITDA (as defined within this Quarterly Report on Form 10-Q). At March 31, 2022, the range of potential aggregate payouts under the 20172022 Incentive Plan iswas $0 - $18$25.0 million. Based on performance through September 30, 2017,March 31, 2022, the Company has accrued approximately $4.7$3.7 million as a liability for potential executive bonusincentive compensation payments under the 20172022 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, 2022 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, 2022. Approximately 25% of target awards under the 20172022 Incentive Plan, if any, will be paid in cash, and 75% will be issued in stockcommon shares under the Company’s 2014 Omnibus Incentive Plan, approximately two-thirds of which would vest at the end of 2017will be unrestricted and one-third of which wouldwill vest atin December 2023.
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 2021 (the “2021 Incentive Plan”) that were effective January 1, 2016 and January 1, 2015, respectively. The, the Company recorded a (decrease) increase of approximately $(0.8)$2.9 million and $2.8 million toin general and administrative expense related to the 2016 Incentive Planexpenses in the Company’s consolidated statements 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.
18
Share-Based Compensation Awards
The Company does not anticipate additional costs or reimbursements relatedfollowing table sets forth information pertaining to this litigation.
|
| 2021 Incentive Plan |
|
|
| 2020 Incentive Plan |
|
| ||
Period common shares issued |
| First Quarter 2022 |
|
|
| First Quarter 2021 |
|
| ||
|
|
|
|
|
|
|
|
|
|
|
Common shares earned under each incentive plan |
|
| 868,079 |
|
|
|
| 555,726 |
|
|
Common shares surrendered on issuance date to satisfy tax withholding obligations |
|
| 245,597 |
|
|
|
| 117,647 |
|
|
Common shares earned and issued under each incentive plan, net of common shares surrendered on issuance date to satisfy tax withholding obligations |
|
| 622,482 |
|
|
|
| 438,079 |
|
|
Closing stock price on issuance date |
| $ | 17.79 |
|
|
| $ | 14.03 |
|
|
Total share-based compensation earned, including the surrendered shares (in millions) |
| $ | 15.4 |
| (1) |
| $ | 7.8 |
| (2) |
Of the total common shares earned and issued, total common shares unrestricted at time of issuance |
|
| 338,032 |
|
|
|
| 160,216 |
|
|
Of the total common shares earned and issued, total common shares restricted at time of issuance |
|
| 284,450 |
|
|
|
| 277,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted common shares vesting date |
| December 9, 2022 |
|
|
| December 10, 2021 |
|
| ||
Common shares surrendered on vesting date to satisfy tax withholding requirements resulting from vesting of restricted common shares |
| n/a |
|
|
|
| 108,292 |
|
|
(1) | Of the total 2021 share-based compensation, approximately $12.9 million was recorded as a liability as of December 31, 2021 and is included in accounts payable and other liabilities in the Company’s consolidated balance sheet at December 31, 2021. The remaining $2.5 million, which is subject to vesting on December 9, 2022 and excludes any restricted shares forfeited or vested prior to that date, will be recognized as share-based compensation expense proportionately throughout 2022. For the three months ended March 31, 2022, the Company recognized approximately $0.6 million of share-based compensation expense related to restricted share awards. |
(2) | Of the total 2020 share-based compensation, approximately $1.9 million, which vested on December 10, 2021, was 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. |
9. Subsequent Events
On April 18, 2022, the Company paid approximately $22.3$11.4 million, or $0.10$0.05 per outstanding common share, in distributions to its common shareholders.
In October 2017,April 2022, the Company declared a regular monthly cash distributiondistributions of $0.10$0.05 per common share for the month of November 2017.May 2022. The distribution is payable on November 15, 2017.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended.Act. Forward-looking statements are typically identified by use of termsstatements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “outlook,” “strategy,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Apple Hospitality REIT, Inc. (the “Company”)the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such
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 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 pandemic 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 efficacy, acceptance and availability of vaccines, the duration of associated immunity and efficacy of the vaccines against 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 2021 Form 10-K as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Additional factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties;properties and redeploy proceeds; the anticipated timing and frequency of shareholder distributions; the ability of the Company to fund capital obligations; 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 COVID-19 pandemic 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 (the “Code”). Readers should carefully review the risk factors described in the Company’s filings with the Securities and Exchange Commission (“SEC”), including but not limited to those discussed in the section titled “Risk Factors” in the Company’s Annual Report on2021 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 on2021 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, 2022, the Company owned 237219 hotels with an aggregate of 30,18828,747 rooms located in urban, high-end suburban and developing markets throughout 33 states, including one hotel with 316 rooms classified as held for sale, which was sold to an unrelated party in October 2017. All36 states. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 2217 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.”
20
The Impact of COVID-19 on the Company and Hospitality Industry
The COVID-19 pandemic has negatively impacted the U.S. and global economies and financial markets. The effect of COVID-19 on the hotel industry has been unprecedented and has dramatically reduced business and impacted leisure travel, which adversely impacted the Company’s business, financial performance, operating results and cash flows, beginning in March 2020.
Since the beginning of the pandemic and through the first quarter of 2022, the Company, with the support of its management companies and brands, has taken steps to minimize costs and cash outflow to operate efficiently and maximize performance. The Company continually monitors market conditionshas implemented cost elimination and attemptsefficiency initiatives at each of its hotels by adjusting operations to maximize shareholder valuemanage total labor costs, reducing or eliminating certain amenities and reducing rates under various service contracts; enhanced its sales efforts by investingstrategically targeting available demand and maximizing performance; reduced capital improvement projects in properties2020 and 2021; and entered into amendments to its unsecured credit facilities that provided for the temporary waiver of financial covenant testing for the majority of its financial maintenance covenants until June 30, 2022 (the Company exited the waiver period in July 2021 due to improved financial performance). Cost reduction initiatives, including those discussed above have not, and are not expected to, materially offset revenue losses from COVID-19.
The extent and duration of the COVID-19 effects continue to remain unknown, and these uncertainties continue to make it believes provide superior value indifficult to project the long term. Consistent with this strategydepth and the Company’s focus on investingduration of revenue declines compared to pre-pandemic levels for the industry and the Company. The Company has experienced significant improvement in select-serviceits business during the twelve months ended December 31, 2021 and through the first quarter of 2022 driven by strength in leisure and small group demand. While the Company has seen continued improvement in business demand, it does not expect a full recovery in results to pre-pandemic levels until business travel improves.
Hotel Operations
As of March 31, 2022, the Company owned 219 hotels with a total of 28,747 rooms as compared to 233 hotels with a total of 29,855 rooms as of March 31, 2021. Results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and prior year. During the three months ended March 31, 2022, the Company did not acquire or dispose of any properties. During the three months ended March 31, 2021, the Company acquired threeone newly constructed hotels for an aggregate purchase price of approximately $56.4 million during the first nine months of 2017: a 124-room Courtyard by Marriott hotel in Fort Worth, Texason February 18, 2021 and a 104-room Hilton Garden Innsold one hotel on February 25, 2021 and 106-room Home2 Suites dual-brandedone hotel in Birmingham, Alabama. The purchase price for each of these properties was funded through borrowings on the Company’s $540 million revolving credit facility (the “revolving credit facility”)March 16, 2021. 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.
In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”), and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below.
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) |
| 2022 |
|
| Percent of Revenue |
|
| 2021 |
|
| Percent of Revenue |
|
| Percent Change |
| |||||
Total revenue |
| $ | 260,478 |
|
|
| 100.0 | % |
| $ | 158,713 |
|
|
| 100.0 | % |
|
| 64.1 | % |
Hotel operating expense |
|
| 154,002 |
|
|
| 59.1 | % |
|
| 103,740 |
|
|
| 65.4 | % |
|
| 48.4 | % |
Property taxes, insurance and other expense |
|
| 18,679 |
|
|
| 7.2 | % |
|
| 19,688 |
|
|
| 12.4 | % |
|
| -5.1 | % |
General and administrative expense |
|
| 9,638 |
|
|
| 3.7 | % |
|
| 8,119 |
|
|
| 5.1 | % |
|
| 18.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on impairment of depreciable real estate assets |
|
| - |
|
|
|
|
|
|
| 10,754 |
|
|
|
|
|
| n/a |
| |
Depreciation and amortization expense |
|
| 45,324 |
|
|
|
|
|
|
| 48,710 |
|
|
|
|
|
|
| -7.0 | % |
Gain on sale of real estate |
|
| - |
|
|
|
|
|
|
| 4,484 |
|
|
|
|
|
| n/a |
| |
Interest and other expense, net |
|
| 14,654 |
|
|
|
|
|
|
| 18,513 |
|
|
|
|
|
|
| -20.8 | % |
Income tax expense |
|
| 179 |
|
|
|
|
|
|
| 108 |
|
|
|
|
|
|
| 65.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| 18,002 |
|
|
|
|
|
|
| (46,435 | ) |
|
|
|
|
| n/a |
| |
Adjusted Hotel EBITDA (1) |
|
| 87,936 |
|
|
|
|
|
|
| 35,427 |
|
|
|
|
|
|
| 148.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hotels owned at end of period |
|
| 219 |
|
|
|
|
|
|
| 233 |
|
|
|
|
|
|
| -6.0 | % |
ADR |
| $ | 137.03 |
|
|
|
|
|
| $ | 99.19 |
|
|
|
|
|
|
| 38.1 | % |
Occupancy |
|
| 67.1 | % |
|
|
|
|
|
| 55.5 | % |
|
|
|
|
|
| 20.9 | % |
RevPAR |
| $ | 91.98 |
|
|
|
|
|
| $ | 55.09 |
|
|
|
|
|
|
| 67.0 | % |
(1) | See reconciliation of Adjusted Hotel EBITDA to net income (loss) in “Non-GAAP Financial Measures” below. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
(in thousands, except statistical data) | 2017 | Percent of Revenue | 2016 | Percent of Revenue | Percent Change | 2017 | Percent of Revenue | 2016 | Percent of Revenue | Percent Change | ||||||||||||||||||||||||||||||
Total revenue | $ | 324,926 | 100.0 | % | $ | 276,471 | 100.0 | % | 17.5 | % | $ | 949,555 | 100.0 | % | $ | 758,594 | 100.0 | % | 25.2 | % | ||||||||||||||||||||
Hotel operating expense | 179,829 | 55.3 | % | 153,337 | 55.5 | % | 17.3 | % | 528,295 | 55.6 | % | 417,965 | 55.1 | % | 26.4 | % | ||||||||||||||||||||||||
Property taxes, insurance and other expense | 17,598 | 5.4 | % | 14,787 | 5.3 | % | 19.0 | % | 52,346 | 5.5 | % | 40,315 | 5.3 | % | 29.8 | % | ||||||||||||||||||||||||
Ground lease expense | 2,831 | 0.9 | % | 2,615 | 0.9 | % | 8.3 | % | 8,486 | 0.9 | % | 7,587 | 1.0 | % | 11.8 | % | ||||||||||||||||||||||||
General and administrative expense | 5,350 | 1.6 | % | 2,623 | 0.9 | % | 104.0 | % | 18,255 | 1.9 | % | 12,511 | 1.6 | % | 45.9 | % | ||||||||||||||||||||||||
Transaction and litigation costs (reimbursements) | - | 36,452 | n/a | (2,586 | ) | 37,861 | n/a | |||||||||||||||||||||||||||||||||
Loss on impairment of depreciable real estate assets | - | 5,471 | n/a | 7,875 | 5,471 | 43.9 | % | |||||||||||||||||||||||||||||||||
Depreciation expense | 44,110 | 37,343 | 18.1 | % | 131,770 | 104,651 | 25.9 | % | ||||||||||||||||||||||||||||||||
Interest and other expense, net | 12,024 | 10,156 | 18.4 | % | 35,590 | 28,519 | 24.8 | % | ||||||||||||||||||||||||||||||||
Gain (loss) on sale of real estate | (157 | ) | - | n/a | 15,983 | - | n/a | |||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 203 | (7 | ) | n/a | 712 | 616 | 15.6 | % | ||||||||||||||||||||||||||||||||
Number of hotels owned at end of period | 237 | 236 | 0.4 | % | 237 | 236 | 0.4 | % | ||||||||||||||||||||||||||||||||
ADR | $ | 136.73 | $ | 136.04 | 0.5 | % | $ | 135.97 | $ | 135.88 | 0.1 | % | ||||||||||||||||||||||||||||
Occupancy | 80.0 | % | 80.2 | % | -0.2 | % | 78.7 | % | 78.9 | % | -0.3 | % | ||||||||||||||||||||||||||||
RevPAR | $ | 109.45 | $ | 109.07 | 0.3 | % | $ | 106.96 | $ | 107.18 | -0.2 | % |
21
The following table highlights the Company’s quarterly ADR, Occupancy, RevPAR, net income (loss) and adjusted hotel earnings before interest, income taxes, depreciation and amortization for real estate (“Adjusted Hotel EBITDA”), which has been impacted by COVID-19, during the last five quarters (in thousands except statistical data):
|
| 1st Quarter |
|
| 2nd Quarter |
|
| 3rd Quarter |
|
| 4th Quarter |
|
| 1st Quarter |
| |||||
|
| 2021 |
|
| 2021 |
|
| 2021 |
|
| 2021 |
|
| 2022 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADR |
| $ | 99.19 |
|
| $ | 120.56 |
|
| $ | 140.02 |
|
| $ | 131.04 |
|
| $ | 137.03 |
|
Occupancy |
|
| 55.5 | % |
|
| 70.7 | % |
|
| 71.5 | % |
|
| 67.5 | % |
|
| 67.1 | % |
RevPAR |
| $ | 55.09 |
|
| $ | 85.28 |
|
| $ | 100.14 |
|
| $ | 88.43 |
|
| $ | 91.98 |
|
Net income (loss) |
| $ | (46,435 | ) |
| $ | 20,283 |
|
| $ | 31,759 |
|
| $ | 13,221 |
|
| $ | 18,002 |
|
Adjusted Hotel EBITDA (1) |
| $ | 35,427 |
|
| $ | 94,814 |
|
| $ | 105,423 |
|
| $ | 84,609 |
|
| $ | 87,936 |
|
(1) | See reconciliation of Adjusted Hotel EBITDA to net income (loss) in “Non-GAAP Financial Measures” below. |
While the Company experienced its most significant decline in operating results (driven by the impact of COVID-19) during 2020 and the first quarter of 2021, occupancy and RevPAR have since shown improvement with a RevPAR increase of 67.0% for the three months ended March 31, 2022, compared to the same period in 2021. Although the Company expects continued recovery in rate and occupancy, it is difficult to project the depth and duration of revenue declines compared to pre-pandemic levels and future revenues and operating results could be negatively impacted by, among other things, historical seasonal trends, new COVID-19 variants, state and local governments and businesses reverting to tighter mitigation restrictions, deterioration of consumer sentiment, labor shortages, supply chain disruptions or inflationary pressures.
Comparable Hotels Operating Results
The following table reflects certain operating statistics for the Company’s 236219 hotels owned and held for use as of September 30, 2017March 31, 2022 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 236219 hotels owned and held for use as of the end of the reporting period. These metrics do not include the results generated by the Fairfax, Virginia Marriott hotel which was held for sale as of September 30, 2017 and sold on October 5, 2017. For the hotels acquired during the current reporting period and prior year,periods shown, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company. This information has not been audited, either for the periods owned or prior to ownership by the Company. For dispositions, results have been excluded for the Company’s period of ownership.
|
| Three Months Ended March 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| Percent Change |
| |||
ADR |
| $ | 137.03 |
|
| $ | 99.98 |
|
|
| 37.1 | % |
Occupancy |
|
| 67.1 | % |
|
| 55.4 | % |
|
| 21.1 | % |
RevPAR |
| $ | 91.98 |
|
| $ | 55.34 |
|
|
| 66.2 | % |
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 177211 hotels owned and held for use by the Company as of January 1, 20162021 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, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| Percent Change |
| |||
ADR |
| $ | 136.62 |
|
| $ | 99.80 |
|
|
| 36.9 | % |
Occupancy |
|
| 67.7 | % |
|
| 55.8 | % |
|
| 21.3 | % |
RevPAR |
| $ | 92.49 |
|
| $ | 55.64 |
|
|
| 66.2 | % |
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. The Company’s revenue and operating results improved during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, which is consistent with the overall lodging industry. However, as a result of COVID-19, the Company’s revenue and operating results have declined as compared to 2019. While the Company anticipates further improvement to RevPAR compared to 2021, the Company can give no assurances as to the amount or period of improvement due to the uncertainty regarding the duration and long-term impact of COVID-19.
22
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, 2022 and 2016,2021, the Company had total revenue of $324.9$260.5 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$158.7 million, respectively. For the three months ended September 30, 2017March 31, 2022 and 2016,2021, respectively, Comparable Hotels achieved combined average occupancy of 80.2%67.1% and 80.4%55.4%, ADR of $136.83$137.03 and $134.79$99.98 and RevPAR of $109.77$91.98 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.$55.34. 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 2016,2021, during the three and nine months ended September 30, 2017,March 31, 2022, the Company experienced increases in ADR and occupancy, resulting in increasesan increase of 1.3% and 0.8%66.2% 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 2022 decreased by 10.9% primarily as a declineresult of a 9.1% reduction in occupancy (due in part to cancellations in January and February attributed to the Omicron COVID-19 variant), as Comparable Hotels ADR decreased by only 2.0%. Revenue recovery in the Los Angeles market duefirst quarter of 2022 as compared to outsized growth in 2016the first quarter of 2021 was led by leisure transient and group demand, with increased demand from small corporate business. Suburban markets continued to see stronger demand than urban markets and the Porter Ranch gas leak. The Company anticipates that with its geographically diverse portfolioSun Belt generally outperformed other regions of the U.S. Throughout the hospitality industry, demand for upscale and upper midscale select-service hotels, on a comparable basis, overall RevPAR growth for the remainder of the year will approximate industry averages. Although certain markets will vary based on local supply/demand dynamicsmid-scale chain scales have outperformed luxury and local market economic conditions, with continued overall room rateupper upscale chain scales and suburban locations have outperformed urban locations. The Company expects improvement combined with expected stable overall demand growth compared to supply growth, the Company, on a comparable basis, and industry are forecasting a low single-digit percentage increase in revenue for the full year of 2017 as compared to 2016, 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 experiencedhowever, future revenues could be negatively impacted by, among other things, historical seasonal trends, an increase in demand dueCOVID-19 cases, new COVID-19 variants, state and local governments and businesses reverting 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 certaintighter mitigation restrictions, or deterioration of the Company’s hotels incurred minor wind and water related damage from the hurricanes, the overall impact was not material.
Hotel Operating Expense
Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. ForHotel operating expense for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, hotel operating expense2021 totaled $179.8$154.0 million and $153.3$103.7 million, respectively, or 55.3%59.1% and 55.5%65.4% 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 forthe three months ended March 31, 2019.
The impact of the pandemic has varied and will continue to vary by market and hotel. With the support of its brands and third-party management companies, the Company has worked to reduce costs associated with operating hotels in a lower occupancy environment than that experienced prior to COVID-19. As occupancy has increased, adding staff to meet increased demand has been challenging, and while the Company’s hotels made progress in filling open positions through the first nine monthsquarter 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 acquired 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, 20172022, they have often done so at higher wage rates as compared to 2021. Likewise, supply chain disruptions and broader inflationary pressures throughout the same periods in 2016. During the first nine months of 2017, the Company experiencedoverall economy and global tensions have driven shortages and cost increases in labor costsfor materials and supplies such 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.food and equipment. The Company anticipates continued increases in labor costs due to government regulations surrounding wages, healthcare and other benefits, other wage-related initiatives and lower unemployment rates. Although operating expenses will increase as revenue increases, the Company will continuecontinues to work with its management companies to reduce costs as a percentagerealize operational efficiencies and mitigate the impact of revenue where possible while maintaining qualitycost pressures resulting from supply chain shortages, inflation and servicestaffing challenges. The Company will continue to evaluate and work with its management companies to implement adjustments to the hotel operating model in response to continued changes in the operating environment and guest preferences including evaluating staffing 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, 2022 and 2016 totaled $17.62021 was $18.7 million and $14.8$19.7 million, respectively, or 5.4%7.2% and 5.3% of total revenue, respectively, and for Comparable Hotels, 5.4% and 5.5%12.4% of total revenue for eachthe respective periods, which is consistent with Comparable Hotels expense as a percentage of revenue for the same period. For the nine months ended September 30, 2017 and 2016,The decrease in expenses from 2021 to 2022 was primarily due to decreases in property taxes insurance and other expense totaled $52.3 million and $40.3 million, respectively, or 5.5% and 5.3%in certain localities as well as the net reduction of total revenue, respectively, and for Comparable Hotels, 5.5% of total revenue for each period. For the Company’s Comparable Hotels, real estate taxes increased slightlyhotel portfolio by 15 properties during 2021. 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 in certain jurisdictions toin an attempt to minimize tax increases, as warranted.
General and Administrative Expense
General and administrative expense for the three months ended September 30, 2017March 31, 2022 and 20162021 was $5.4$9.6 million and $2.6$8.1 million, respectively, or 1.6%3.7% and 0.9%5.1% 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 general and administrative expenses. Effective September 1, 2016, in connection with the completion of the Apple Ten merger, the advisory agreement was terminated and the Company no longer receives the fees and reimbursement of expenses payable under the advisory agreement from Apple Ten, which resulted in anThe increase in the Company’s general and administrative expenses from the prior period. Although expense for the Company in total dollars increased from the prior period, since both the advisory fees and reimbursed costs received by the Company from Apple Ten were recorded as general and administrative expense by Apple Ten and as reductionsfor the three months ended March 31, 2022 over the three months ended March 31, 2021 includes increased accruals of $0.8 million for executive incentive compensation related to general and administrative expense by the Company, the termination of the advisory agreement had no financial impact on the combined company after the effective time of the Apple Ten merger. General and administrative expense also increased for both the third quarter and first nine months of 2017anticipated higher shareholder return in 2022 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
The Company did not recognize any loss on the impairment of depreciable real estate assets for the three months ended March 31, 2022. 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,
23
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
Depreciation and amortization expense for the three months ended September 30, 2017March 31, 2022 and 20162021 was $44.1$45.3 million and $37.3$48.7 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 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 2017 and 2016.
Interest and Other Expense, net
Interest and other expense, net for the three months ended September 30, 2017March 31, 2022 and 20162021 was $12.0$14.7 million and $10.2$18.5 million, respectively,respectively. Interest and other expense, net for the three months ended March 31, 2022 is net of approximately $0.1 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, 2022 and 2021 includes approximately $1.5 million and $28.5$2.9 million, respectively, and is net of approximately $0.7 million and $1.2 million of interest capitalized associated with renovation projects, respectively.recorded on the Company’s finance lease liabilities.
Interest expense related to the Company’s debt instruments for the three months ended March 31, 2022 decreased compared to the three months ended March 31, 2021 as a result of both lower average borrowings and lower average interest rates as the Company exited the Extended Covenant Waiver Period in July 2021. The increase inCompany anticipates interest expense was primarilyto be lower for the remainder of 2022 compared to the same period of 2021 due to an increasereduced average borrowings and lower interest rates compared to the same period of 2021 as a result of exiting the Extended Covenant Waiver Period (as discussed below under “Liquidity and Capital Resources”). 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 averagefacilities. In addition, interest rate incurred on the Company’s total outstanding debt, resulting fromfinance leases decreased $1.4 million for the repaymentthree months ended March 31, 2022 compared to the same period in 2021 due to the August 16, 2021 purchase 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 beforeBefore Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), Earnings Before Interest, Income Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”), Adjusted 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
24
performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.
The following table reconciles the Company’s GAAP net income (loss) to FFO and MFFO for the three and nine months ended September 30, 2017March 31, 2022 and 20162021 (in thousands).:
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net income (loss) |
| $ | 18,002 |
|
| $ | (46,435 | ) |
Depreciation of real estate owned |
|
| 44,560 |
|
|
| 47,088 |
|
Gain on sale of real estate |
|
| - |
|
|
| (4,484 | ) |
Loss on impairment of depreciable real estate assets |
|
| - |
|
|
| 10,754 |
|
Funds from operations |
|
| 62,562 |
|
|
| 6,923 |
|
Amortization of finance ground lease assets |
|
| 759 |
|
|
| 1,617 |
|
Amortization of favorable and unfavorable operating leases, net |
|
| 99 |
|
|
| 98 |
|
Non-cash straight-line operating ground lease expense |
|
| 40 |
|
|
| 44 |
|
Modified funds from operations |
| $ | 63,460 |
|
| $ | 8,682 |
|
|
|
|
|
|
|
|
|
|
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 (Adjusted EBITDAre).
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 income (loss) 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 |
| |||||
|
| 2021 |
|
| 2021 |
|
| 2021 |
|
| 2021 |
|
| 2022 |
| |||||
Net income (loss) |
| $ | (46,435 | ) |
| $ | 20,283 |
|
| $ | 31,759 |
|
| $ | 13,221 |
|
| $ | 18,002 |
|
Depreciation and amortization |
|
| 48,710 |
|
|
| 46,386 |
|
|
| 44,217 |
|
|
| 45,158 |
|
|
| 45,324 |
|
Amortization of favorable and unfavorable operating leases, net |
|
| 98 |
|
|
| 98 |
|
|
| 98 |
|
|
| 99 |
|
|
| 99 |
|
Interest and other expense, net |
|
| 18,513 |
|
|
| 18,618 |
|
|
| 15,977 |
|
|
| 14,640 |
|
|
| 14,654 |
|
Income tax expense |
|
| 108 |
|
|
| 87 |
|
|
| 114 |
|
|
| 159 |
|
|
| 179 |
|
EBITDA |
|
| 20,994 |
|
|
| 85,472 |
|
|
| 92,165 |
|
|
| 73,277 |
|
|
| 78,258 |
|
(Gain) loss on sale of real estate |
|
| (4,484 | ) |
|
| 864 |
|
|
| (44 | ) |
|
| 68 |
|
|
| - |
|
Loss on impairment of depreciable real estate assets |
|
| 10,754 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
EBITDAre |
|
| 27,264 |
|
|
| 86,336 |
|
|
| 92,121 |
|
|
| 73,345 |
|
|
| 78,258 |
|
Non-cash straight-line operating ground lease expense |
|
| 44 |
|
|
| 43 |
|
|
| 41 |
|
|
| 41 |
|
|
| 40 |
|
Adjusted EBITDAre |
|
| 27,308 |
|
|
| 86,379 |
|
|
| 92,162 |
|
|
| 73,386 |
|
|
| 78,298 |
|
General and administrative expense |
|
| 8,119 |
|
|
| 8,435 |
|
|
| 13,261 |
|
|
| 11,223 |
|
|
| 9,638 |
|
Adjusted Hotel EBITDA |
| $ | 35,427 |
|
| $ | 94,814 |
|
| $ | 105,423 |
|
| $ | 84,609 |
|
| $ | 87,936 |
|
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, 2022, the Company owned 237219 hotels with an aggregate of 30,18828,747 rooms located in 3336 states. The following tables summarize the number of hotels and rooms by brand and by state:
Number of Hotels and Guest Rooms by Brand |
| |||||
|
| Number of |
| Number of |
| |
Brand |
| Hotels |
| Rooms |
| |
Hilton Garden Inn |
| 40 |
|
| 5,592 |
|
Hampton |
| 37 |
|
| 4,953 |
|
Courtyard |
| 33 |
|
| 4,653 |
|
Homewood Suites |
| 30 |
|
| 3,417 |
|
Residence Inn |
| 29 |
|
| 3,548 |
|
Fairfield |
| 10 |
|
| 1,213 |
|
Home2 Suites |
| 10 |
|
| 1,146 |
|
SpringHill Suites |
| 9 |
|
| 1,245 |
|
TownePlace Suites |
| 9 |
|
| 931 |
|
Hyatt Place |
| 3 |
|
| 411 |
|
Marriott |
| 2 |
|
| 619 |
|
Embassy Suites |
| 2 |
|
| 316 |
|
Independent |
| 2 |
|
| 263 |
|
AC Hotels |
| 1 |
|
| 178 |
|
Aloft |
| 1 |
|
| 157 |
|
Hyatt House |
| 1 |
|
| 105 |
|
Total |
| 219 |
|
| 28,747 |
|
26
Number of Hotels and Guest Rooms by State |
| |||||||
|
| Number of |
|
| Number of |
| ||
State |
| Hotels |
|
| Rooms |
| ||
Alabama |
|
| 13 |
|
|
| 1,246 |
|
Alaska |
|
| 2 |
|
|
| 304 |
|
Arizona |
|
| 13 |
|
|
| 1,776 |
|
Arkansas |
|
| 2 |
|
|
| 248 |
|
California |
|
| 26 |
|
|
| 3,721 |
|
Colorado |
|
| 4 |
|
|
| 567 |
|
Florida |
|
| 22 |
|
|
| 2,844 |
|
Georgia |
|
| 5 |
|
|
| 585 |
|
Idaho |
|
| 1 |
|
|
| 186 |
|
Illinois |
|
| 7 |
|
|
| 1,254 |
|
Indiana |
|
| 4 |
|
|
| 479 |
|
Iowa |
|
| 3 |
|
|
| 301 |
|
Kansas |
|
| 3 |
|
|
| 320 |
|
Louisiana |
|
| 3 |
|
|
| 422 |
|
Maine |
|
| 3 |
|
|
| 514 |
|
Maryland |
|
| 2 |
|
|
| 233 |
|
Massachusetts |
|
| 3 |
|
|
| 330 |
|
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 |
|
| 8 |
|
|
| 881 |
|
Ohio |
|
| 2 |
|
|
| 252 |
|
Oklahoma |
|
| 4 |
|
|
| 545 |
|
Oregon |
|
| 1 |
|
|
| 243 |
|
Pennsylvania |
|
| 3 |
|
|
| 391 |
|
South Carolina |
|
| 5 |
|
|
| 590 |
|
Tennessee |
|
| 11 |
|
|
| 1,337 |
|
Texas |
|
| 27 |
|
|
| 3,328 |
|
Utah |
|
| 3 |
|
|
| 393 |
|
Virginia |
|
| 12 |
|
|
| 1,722 |
|
Washington |
|
| 3 |
|
|
| 490 |
|
Wisconsin |
|
| 1 |
|
|
| 176 |
|
Total |
|
| 219 |
|
|
| 28,747 |
|
|
|
|
|
|
|
|
|
|
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 237219 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 | |||||||
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 | |||||||
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 | 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/ | 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/ | 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/ | 125 | |||||||
Rancho Bernardo/San Diego | CA | Courtyard | InnVentures | 3/1/2014 | 210 | |||||||
Sacramento | CA | Hilton Garden Inn | Dimension | 3/1/2014 | 153 | |||||||
San Bernardino | CA | Residence Inn | InnVentures | 2/16/2011 | 95 | |||||||
San Diego | CA | Courtyard | Huntington | 9/1/2015 | 245 | |||||||
San Diego | CA | Hampton | Dimension | 3/1/2014 | 177 |
San Diego | CA | Hilton Garden Inn | InnVentures | 3/1/2014 | 200 | |||||||
San Diego | CA | Residence Inn | Dimension | 3/1/2014 | 121 | |||||||
San Jose | CA | Homewood Suites | Dimension | 3/1/2014 | 140 |
28
City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
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 | |||||||
Miami | FL | Courtyard | Dimension | 3/1/2014 | 118 | |||||||
Miami | FL | Hampton | HHM | 4/9/2010 | 121 | |||||||
Miami | FL | Homewood Suites | Dimension | 3/1/2014 | 162 | |||||||
Orlando | FL | Fairfield | Marriott | 7/1/2009 | 200 | |||||||
Orlando | FL | Home2 Suites | LBA | 3/19/2019 | 128 | |||||||
Orlando | FL | SpringHill Suites | Marriott | 7/1/2009 | 200 | |||||||
Panama City | FL | Hampton | LBA | 3/12/2009 | 95 | |||||||
Panama City | FL | TownePlace Suites | LBA | 1/ | 103 | |||||||
Pensacola | FL | TownePlace Suites | McKibbon | 9/1/ | 97 | |||||||
Tallahassee | FL | Fairfield | LBA | 9/1/ | 97 | |||||||
Tallahassee | FL | |||||||||||
Hilton Garden Inn | LBA | 3/1/2014 | 85 | |||||||||
Tampa | FL | Embassy Suites | HHM | 11/2/2010 | 147 | |||||||
Atlanta/Downtown | GA | Hampton | McKibbon | 2/5/2018 | 119 | |||||||
Atlanta/Perimeter Dunwoody | GA | Hampton | LBA | 6/28/2018 | 132 | |||||||
Atlanta | GA | Home2 Suites | McKibbon | 7/1/2016 | 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 | HHM | 9/1/2016 | 184 | |||||||
Mettawa | IL | Hilton Garden Inn | HHM | 11/2/2010 | 170 | |||||||
Mettawa | IL | Residence Inn | HHM | 11/2/2010 | 130 | |||||||
Rosemont | IL | Hampton | Raymond | 9/1/2016 | 158 | |||||||
Skokie | IL | Hampton | Raymond | 9/1/2016 | 225 | |||||||
Warrenville | IL | Hilton Garden Inn | HHM | 11/2/2010 | 135 |
29
City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
Indianapolis | IN | SpringHill Suites | HHM | 11/2/2010 | 130 | |||||||
Merrillville | IN | Hilton Garden Inn | HHM | 9/1/2016 | 124 | |||||||
Mishawaka | IN | Residence Inn | HHM | 11/2/2010 | 106 | |||||||
South Bend | IN | Fairfield | HHM | 9/1/2016 | 119 | |||||||
Overland Park | KS | Fairfield | Raymond | 3/1/2014 | 110 | |||||||
Overland Park | KS | Residence Inn | Raymond | 3/1/2014 | 120 | |||||||
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/ | 166 | |||||||
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 | AC Hotels | Crestline | 8/20/2021 | 178 | |||||||
Portland | ME | Aloft | Crestline | 9/10/2021 | 157 | |||||||
Portland | ME | Residence Inn | Crestline | 10/13/2017 | 179 | |||||||
Novi | MI | Hilton Garden Inn | HHM | 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 | 3/1/2014 | 144 | |||||||
Charlotte | NC | Fairfield | Newport | 9/1/2016 | 94 | |||||||
Durham | NC | Homewood Suites | McKibbon | 12/4/2008 | 122 | |||||||
Fayetteville | NC | Home2 Suites | LBA | 2/3/2011 | 118 | |||||||
Greensboro | NC | SpringHill Suites | Newport | 3/1/2014 | 82 | |||||||
Jacksonville | NC | Home2 Suites | LBA | 9/1/2016 | 105 | |||||||
Wilmington | NC | Fairfield | Crestline | 3/1/2014 | 122 | |||||||
Winston-Salem | NC | Hampton | McKibbon | 9/1/2016 | 94 | |||||||
Omaha | NE | Courtyard | Marriott | 3/1/2014 | 181 | |||||||
Omaha | NE | Hampton | HHM | 9/1/2016 | 139 | |||||||
Omaha | NE | Hilton Garden Inn | HHM | 9/1/2016 | 178 | |||||||
Omaha | NE | Homewood Suites | HHM | 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/ | 131 | |||||||
Islip/Ronkonkoma | NY | |||||||||||
Hilton Garden Inn | Crestline | 3/1/ | 166 | |||||||||
New York | NY | Independent | Highgate | 3/1/ | 208 | |||||||
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/ | 110 |
30
City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
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 | |||||||
Portland | OR | Hampton | Raymond | 11/17/2021 | 243 | |||||||
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/ | 143 | |||||||
Columbia | SC | TownePlace Suites | Newport | 9/1/2016 | 91 | |||||||
Greenville | SC | Hyatt Place | Crestline | 9/1/ | 130 | |||||||
Hilton Head | SC | |||||||||||
Hilton Garden Inn | McKibbon | 3/1/2014 | 104 | |||||||||
Chattanooga | TN | Homewood Suites | LBA | 3/1/ | 76 | |||||||
Franklin | TN | Courtyard | Chartwell | 9/1/ | 126 | |||||||
Franklin | TN | Residence Inn | Chartwell | 9/1/2016 | 124 | |||||||
Knoxville | TN | Homewood Suites | McKibbon | 9/1/2016 | 103 | |||||||
Knoxville | TN | SpringHill Suites | McKibbon | 9/1/2016 | 103 | |||||||
Knoxville | TN | TownePlace Suites | McKibbon | 9/1/2016 | 97 | |||||||
Memphis | TN | Hampton | Crestline | 2/5/2018 | 144 | |||||||
Memphis | TN | Hilton Garden Inn | Crestline | 10/28/2021 | 150 | |||||||
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 | |||||||
Arlington | TX | Hampton | Western | 12/1/2010 | 98 | |||||||
Austin | TX | Courtyard | HHM | 11/2/2010 | 145 | |||||||
Austin | TX | Fairfield | HHM | 11/2/2010 | 150 | |||||||
Austin | TX | Hampton | Dimension | 4/14/2009 | 124 | |||||||
Austin | TX | Hilton Garden Inn | HHM | 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 | |||||||
Dallas | TX | Homewood Suites | Western | 9/1/2016 | 130 | |||||||
Denton | TX | Homewood Suites | Chartwell | 9/1/2016 | 107 | |||||||
El Paso | TX | Homewood Suites | Western | 3/1/2014 | 114 | |||||||
Fort Worth | TX | Courtyard | LBA | 2/2/2017 | 124 | |||||||
Fort Worth | TX | Hilton Garden Inn | Raymond | 11/ | 157 |
Fort Worth | TX | Homewood Suites | Raymond | 11/17/2021 | 112 | |||||||
Fort Worth | TX | TownePlace Suites | Western | 7/19/2010 | 140 | |||||||
Frisco | TX | |||||||||||
Hilton Garden Inn | Western | 12/31/2008 | 102 | |||||||||
Grapevine | TX | Hilton Garden Inn | Western | 9/24/2010 | 110 | |||||||
Houston | TX | Courtyard | LBA | 9/1/ | 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 | |||||||
Lewisville | TX | Hilton Garden Inn | Aimbridge | 10/16/2008 | 165 | |||||||
San Antonio | TX | TownePlace Suites | Western | 3/1/2014 | 106 | |||||||
Shenandoah | TX | Courtyard | LBA | 9/1/2016 | 124 |
31
City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
Stafford | TX | Homewood Suites | Western | 3/1/2014 | 78 | |||||||
Texarkana | TX | Hampton | Aimbridge | 1/31/2011 | 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 | HHM | 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 | |||||||
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 | |||||||
Madison | WI | Hilton Garden Inn | Raymond | 2/18/2021 | 176 | |||||||
Total | 28,747 | |||||||||||
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 $540 million unsecured revolving credit facility,Revolving Credit Facility. Over the long term, the Company may receive proceeds from the strategic dispositionadditional secured and unsecured debt financing, dispositions of its hotel properties and proceeds from potential offerings of the Company’s common shares.
As of March 31, 2022, the Company had $1.4 billion of total outstanding debt consisting of $491.5 million of mortgage debt and $946.5 million outstanding under its unsecured credit facility, whichfacilities, excluding unamortized debt issuance costs and fair value adjustments. As of March 31, 2022, the Company had available corporate cash on hand of approximately $0.6 million as of September 30, 2017 hadwell as unused borrowing capacity under its Revolving Credit Facility of approximately $323.3 million, is available for share repurchases, acquisitions, hotel renovations and development, working capital and other general corporate funding purposes, including the payment of distributions to shareholders. As of September 30, 2017, the Company’s revolving credit facility had an outstanding principal balance of approximately $216.7 million with an annual variable interest rate of approximately 2.78%.
As a result of COVID-19 and the applicable covenants at September 30, 2017.
32
financial maintenance covenants until the date that the compliance certificate was required to be delivered for the fiscal quarter ending June 30, 2022 (unless the Company elected an earlier date) (the “Extended Covenant Waiver Period”). The testing for the Minimum Fixed Charge Coverage Ratio and the Minimum Unsecured Interest Coverage Ratio was suspended until the compliance certificate was required to be delivered for the fiscal quarter ending March 31, 2022 (unless the Company elected an earlier date). The March 2021 amendments provided for continued restrictions on the Company’s revolvingability to make cash distributions, except for the payment of cash dividends of $0.01 per common share per quarter or to the extent required to maintain REIT status.
The March 2021 amendments also modified certain of the existing financial maintenance covenants to less restrictive levels upon exiting the Extended Covenant Waiver Period as follows (capitalized terms are defined in the amended credit facility. 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 described above, the terms of the credit agreements remain in effect.
In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021. Upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions described above regarding its investing and financing activities that were applicable during the Extended Covenant Waiver Period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders (except to the extent required to maintain REIT status), capital expenditures and use of proceeds from the sale of property or common shares of the Company. Those restrictions, including the restriction on payment of distributions to shareholders, were still in place throughout the second quarter of 2021.
As of March 31, 2022, the Company met the applicable financial maintenance covenants based on the results of the twelve months ended March 31, 2022 at the levels required for the fourth fiscal quarter tested upon exiting the Extended Covenant Waiver Period as described 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. The unsecured credit facilities do not provide the Company the ability to re-enter the Extended Covenant Waiver Period once it has elected to exit.
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 relateda description of the Company’s debt instruments as of March 31, 2022.
The Company has a universal shelf registration statement on Form S-3 (No. 333-262915) that was automatically effective upon filing on February 23, 2022. The Company may offer an indeterminate number or amount, as the case may be, of (1) common shares, no par value per share; (2) preferred shares, no par value per share; (3) depository shares representing the Company’s preferred shares; (4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5) rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to time on a delayed or continuous basis pursuant to Rule 415 under the $85 million term loan.
The Company has 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 the ATM Program under the Company’s prior shelf registration statement and the current shelf registration statement described above. Since inception of the ATM Program in August 2020 through March 31, 2022, the Company has sold the Fairfax, Virginia Marriott forapproximately 4.7 million common shares at a saleweighted-average market sales price of approximately $41.5$16.26 per common share and received aggregate gross proceeds of approximately $76.0 million and proceeds net of offering costs, which included $0.9 million of commissions, of approximately $75.1 million. The Company used the net proceeds from the sale of these shares primarily to pay down borrowings onunder its revolving credit facility.
33
Capital Uses
The Company anticipates that cash flow from operations, availability under its revolving credit facility,facilities, additional borrowings and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including required distributions to shareholders, share repurchases, capital improvements, debt service, hotel acquisitions, hotel renovations, required distributions to shareholders (thelease commitments, and cash management activities.
Distributions
The Company is not required to make distributions at its current rate for REIT purposes) and share repurchases.
The Company, as it has done historically due to seasonality, the Company may use its revolving credit facilityRevolving Credit Facility to maintain the consistency of the monthly distribution rate,distributions, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. Any distribution will be subject to approval of the Company’s Board of Directors and there can be no assurance of the classification or duration of distributions at the current annualany particular distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of theits hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company. If cash flow from operations and the revolving credit facilityRevolving Credit Facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurancesassurance it will be successful with this strategy, and it may need to reduce its distributions to minimum levels required levels.to maintain its qualification as a real estate investment trust. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.
Share Repurchases
In connection with the implementation of the ATM Program, in February 2017 the Company terminated its existing written trading plan underMay 2021, the Company’s share repurchase program. In January 2016, the Company purchased, underBoard of Directors approved a one-year extension of its existing share repurchase program, approximately 20,000 of its common shares at a weighted-average market purchase price of approximately $18.10 per commonauthorizing share forrepurchases up to an aggregate purchase price of approximately $0.4 million.$345 million (the “Share Repurchase Program”). The Company did not repurchase any common shares under its share repurchase program during the first nine months of 2017.
Capital Improvements
Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it deems prudent. The Company is committed to maintaining and enhancing each property’s competitive position in its market, themarket. The Company has invested in and plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. As of September 30, 2017,March 31, 2022, the Company held $26.8approximately $30.9 million in reserve related to these properties. During the ninethree months ended September 30, 2017,March 31, 2022, the Company invested approximately $41.9$8.1 million in capital expenditures andexpenditures. The Company anticipates spending an additional $25approximately $55 to $65 million during the remainder of 2017,2022, which includes various scheduled renovation projects for approximately 15 properties.20 to 25 properties, however, inflationary pressures or supply chain shortages, among other issues, may result in increased costs and delays for anticipated projects. The Company does not currently have any existing or planned projects for new property development.
Upcoming Debt Maturities and Debt Service Payments
The Company has approximately $311.9 million of principal and interest payments due on its debt over the next 12 months. Included in this total is $76.5 million due under the Company’s Revolving Credit Facility, which matures on July 27, 2022, but the facility can be extended up to one year, subject to certain conditions including covenant compliance and additional fees. The Company presently has the ability to exercise this extension. Also included in the total above is approximately $180.4 million of mortgage loans
34
maturing in the second half of 2022 and first quarter of 2023, which the Company plans to pay off using borrowings under its Revolving Credit Facility and/or new financing. See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q.
Hotel Purchase Contract Commitments
As of September 30, 2017,March 31, 2022, the Company had one outstanding contractscontract, which was entered into during 2021, for the potential purchase of four additional hotelsa hotel in Madison, Wisconsin for a totalan expected purchase price of approximately $146.1$78.6 million. Two of the hotels, the Salt Lake City Residence InnThe hotel is currently under development and the Portland Residence Inn, which are already in operation, were acquired in October 2017. The two remaining hotels are under construction and are plannedis expected 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.in early 2024,as a 260-room Embassy Suites. Although the Company is working towards acquiring these hotels,this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on these hotelsthis hotel will occur under the outstanding purchase contracts. contract. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to purchase price for each of the Salt Lake City Residence Inn and Portland Residence Inn was funded through the Company’s revolving credit facility and it is anticipated that the purchase price for the remaining outstanding contracts will be funded similarly.
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 isthe Company has 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 for the Company’s hotels 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 have been disrupted since the first quarter of 2020, although the Company experienced some seasonal decrease in demand in the first and fourth quarters of each year. 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.
Critical Accounting Policies and Estimates
The preparation of the Company’s financial statements in accordance with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Company’s financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the Company’s Unaudited Consolidated Financial Statements and Notes thereto. The Company has discussed those policies and estimates that it believes are critical and require the use of complex judgment in their application in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 22, 2022. There have been no material changes to the Company’s critical accounting policies or the methods or assumptions we apply.
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 recently issued accounting standards in the first nine monthsquarter of 2017 and the anticipated adoption of recently issued accounting standards.
Subsequent Events
On April 18, 2022, the Company paid approximately $22.3$11.4 million, or $0.10$0.05 per outstanding common share, in distributions to its common shareholders.
In October 2017,April 2022, the Company declared a regular monthly cash distribution of $0.10$0.05 per common share for the month of November 2017.May 2022. The distribution is payable on November 15, 2017.
35
As of September 30, 2017,March 31, 2022, 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 facilityRevolving Credit Facility and due to the portion of its variablevariable-rate term debt that is not fixed by interest rate term loan.swaps. As of September 30, 2017,March 31, 2022, after giving effect to interest rate swaps, as described below, approximately $319.2$126.5 million, or approximately 24%9% 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, 2022, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately $3.2$1.3 million, all other factors remaining the same. With the exception of interest rate swap transactions, the Company has not engaged in transactions in derivative financial instruments or derivative commodity instruments. The Company’s cash balance at September 30, 2017 was $0.
As of September 30, 2017,March 31, 2022, the Company’s variable ratevariable-rate debt consisted of its $540unsecured credit facilities, including borrowings outstanding under its Revolving Credit Facility and $820 million revolving credit facility and sixof term loans totaling $660 million.loans. 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, 2022, the Company had six13 interest rate swap agreements that effectively fix the interest payments on approximately $557.5$770.0 million of the Company’s variable ratevariable-rate debt outstanding (consisting of five term loans) through maturity.with swap maturity dates ranging from August 2022 to December 2029. 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, 2022. All dollar amounts are in thousands.
|
| April 1 - December 31, 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| Thereafter |
|
| Total |
|
| Fair Market Value |
| ||||||||
Total debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities |
| $ | 238,774 |
|
| $ | 296,214 |
|
| $ | 338,597 |
|
| $ | 245,140 |
|
| $ | 74,649 |
|
| $ | 244,616 |
|
| $ | 1,437,990 |
|
| $ | 1,390,985 |
|
Average interest rates (1) |
|
| 3.4 | % |
|
| 3.5 | % |
|
| 3.8 | % |
|
| 3.9 | % |
|
| 3.8 | % |
|
| 3.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities |
| $ | 76,500 |
|
| $ | 250,000 |
|
| $ | 310,000 |
|
| $ | 175,000 |
|
| $ | - |
|
| $ | 85,000 |
|
| $ | 896,500 |
|
| $ | 877,671 |
|
Average interest rates (1) |
|
| 3.1 | % |
|
| 3.3 | % |
|
| 3.7 | % |
|
| 4.1 | % |
|
| 4.1 | % |
|
| 3.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities |
| $ | 162,274 |
|
| $ | 46,214 |
|
| $ | 28,597 |
|
| $ | 70,140 |
|
| $ | 74,649 |
|
| $ | 159,616 |
|
| $ | 541,490 |
|
| $ | 513,314 |
|
Average interest rates |
|
| 4.0 | % |
|
| 3.9 | % |
|
| 3.9 | % |
|
| 3.8 | % |
|
| 3.7 | % |
|
| 3.7 | % |
|
|
|
|
|
|
|
|
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, 2022. 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 disclosed inCompany, have a material adverse effect on the Company’s Annual Report on Form 10-K forconsolidated 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 year ended December 31, 2016 (the “2016 Form 10-K”) except as described in Note 10 titled “Legal Proceedings” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, which information is incorporated by reference herein.first quarter of 2022.
Issuer Purchases of Equity Securities |
| |||||||||||||||
|
| (a) |
|
| (b) |
|
| (c) |
|
| (d) |
| ||||
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (1) |
| ||||
January 1 - January 31, 2022 |
|
| - |
|
| - |
|
|
| - |
|
| $ | 345,000 |
| |
February 1 - February 28, 2022 |
|
| - |
|
| - |
|
|
| - |
|
| $ | 345,000 |
| |
March 1 - March 31, 2022 (2) |
|
| 248,151 |
|
| $ | 17.79 |
|
|
| - |
|
| $ | 345,000 |
|
Total |
|
| 248,151 |
|
|
|
|
|
|
| - |
|
|
|
|
|
(1) | Represents amount outstanding under the Company's authorized $345 million Share Repurchase Program. This program, which was announced in 2015 and most recently extended in May 2021, may be suspended or terminated at any time by the Company and will end in July 2022 if not terminated earlier or further extended. |
(2) | Represents common shares surrendered to the Company to satisfy tax withholding obligations associated with the issuance of common shares awarded to employees. |
Exhibit Number | Description of Documents | |
3.1 | ||
3.2 | ||
31.1 | ||
31.2 | ||
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, 2022, 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 5, 2022 | |||
Rachel S. Labrecque, | |||||
Chief Accounting Officer (Principal Accounting Officer) |
39