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~~For the ~~quarterly~~quarterly period ended ~~June~~September 30 ~~2018~~ , 2018

☐	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~~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~~Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of registrant’s common shares outstanding as of ~~August 1,~~October 31, 2018: ~~230,347,462~~228,773,774

Index

Apple Hospitality REIT, Inc.

Form 10-Q

Index

			Page Number
PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)

		Consolidated Balance Sheets – ~~June~~September 30, 2018 and December 31, 2017	3

		Consolidated Statements of Operations and Comprehensive Income – Three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017	4

		Consolidated Statements of Cash Flows - ~~Six~~Nine months ended ~~June~~September 30, 2018 and 2017	5

		Notes to Consolidated Financial Statements	6

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

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

	Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	36

	Item 1A.	Risk Factors	36

	Item 6.	Exhibits	36

Signatures			37

This Form 10-Q includes references to certain trademarks or service marks. The Courtyard by Marriott®, Fairfield Inn by Marriott®, Fairfield Inn & Suites by Marriott®, Marriott® Hotels, Renaissance® Hotels, Residence Inn by Marriott®, SpringHill Suites by Marriott® and TownePlace Suites by Marriott® trademarks are the property of Marriott International, Inc. or one of its affiliates. The Embassy Suites by Hilton®, Hampton by Hilton®, Hampton Inn & Suites 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 House® and Hyatt Place® trademarks are the property of Hyatt Hotels Corporation or one or more of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.

Index

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Apple Hospitality REIT, Inc.

~~Consolidated~~ ~~Balance~~ ~~Sheets~~

Consolidated Balance Sheets

(in thousands, except share data)

	June 30,			December 31,			September 30,			December 31,
	2018			2017			2018			2017
	(unaudited)						(unaudited)
Assets
Investment in real estate, net of accumulated depreciation of $818,794 and $731,284, respectively	$	4,858,216		$	4,793,159
Assets held for sale		9,800			-
Investment in real estate, net of accumulated depreciation of $864,719 and $731,284, respectively							$	4,825,058		$	4,793,159
Restricted cash-furniture, fixtures and other escrows		32,279			29,791			34,488			29,791
Due from third party managers, net		61,660			31,457			47,991			31,457
Other assets, net		56,929			47,931			60,921			47,931
Total Assets	$	5,018,884		$	4,902,338		$	4,968,458		$	4,902,338

Liabilities
Revolving credit facility	$	218,400		$	106,900
Term loans		656,860			656,279
Mortgage debt		496,916			459,017
Debt, net							$	1,320,000		$	1,222,196
Accounts payable and other liabilities		89,471			109,057			95,996			109,057
Total Liabilities		1,461,647			1,331,253			1,415,996			1,331,253

Shareholders' Equity
Preferred stock, authorized 30,000,000 shares; none issued and outstanding		-			-			-			-
Common stock, no par value, authorized 800,000,000 shares; issued and outstanding 230,347,462 and 229,961,548 shares, respectively		4,594,700			4,588,188
Common stock, no par value, authorized 800,000,000 shares; issued and outstanding 230,350,294 and 229,961,548 shares, respectively								4,595,207			4,588,188
Accumulated other comprehensive income		17,810			9,778			19,467			9,778
Distributions greater than net income		(1,055,273	)		(1,026,881	)		(1,062,212	)		(1,026,881	)
Total Shareholders' Equity		3,557,237			3,571,085			3,552,462			3,571,085

Total Liabilities and Shareholders' Equity	$	5,018,884		$	4,902,338		$	4,968,458		$	4,902,338

See notes to consolidated financial statements.

Index

Apple Hospitality REIT, Inc.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

(in thousands, except per share data)

~~Apple Hospitality REIT, Inc.~~

~~Consolidated Statements of~~ ~~Operations~~ ~~and Comprehensive Income~~

~~(Unaudited)~~

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

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Revenues:
Room	$	319,022		$	306,283		$	593,858		$	575,676		$	307,794		$	302,298		$	901,652		$	877,974
Food and beverage		16,518			17,932			32,228			34,665			14,629			15,246			46,857			49,911
Other		9,174			7,489			17,017			14,288			9,774			7,382			26,791			21,670
Total revenue		344,714			331,704			643,103			624,629			332,197			324,926			975,300			949,555

Expenses:
Hotel operating expense:
Operating		81,242			80,345			157,196			155,499			81,318			79,975			238,514			235,474
Hotel administrative		26,558			25,217			51,660			50,053			25,722			24,842			77,382			74,895
Sales and marketing		28,168			26,270			53,500			50,379			27,265			25,488			80,765			75,867
Utilities		10,247			10,193			20,530			19,946			12,163			12,036			32,693			31,982
Repair and maintenance		13,476			12,279			25,929			24,195			13,204			12,199			39,133			36,394
Franchise fees		14,781			14,163			27,514			26,637			14,326			13,974			41,840			40,611
Management fees		12,059			11,545			22,531			21,757			11,250			11,315			33,781			33,072
Total hotel operating expense														185,248			179,829			544,108			528,295
Property taxes, insurance and other		18,681			17,821			35,910			34,748			19,230			17,598			55,140			52,346
Ground lease		2,912			2,839			5,762			5,655			2,818			2,831			8,580			8,486
General and administrative		6,721			6,151			13,598			12,905			3,370			5,350			16,968			18,255
Transaction and litigation costs (reimbursements)		-			(2,586	)		-			(2,586	)		-			-			-			(2,586	)
Loss on impairment of depreciable real estate assets		3,135			-			3,135			7,875			-			-			3,135			7,875
Depreciation		45,743			43,893			90,583			87,660			46,169			44,110			136,752			131,770
Total expenses		263,723			248,130			507,848			494,723			256,835			249,718			764,683			744,441

Gain (loss) on sale of real estate														-			(157	)		-			15,983

Operating income		80,991			83,574			135,255			129,906			75,362			75,051			210,617			221,097

Interest and other expense, net		(13,210	)		(11,849	)		(25,129	)		(23,566	)		(13,140	)		(12,024	)		(38,269	)		(35,590	)
Gain on sale of real estate		-			16,140			-			16,140

Income before income taxes		67,781			87,865			110,126			122,480			62,222			63,027			172,348			185,507

Income tax expense		(151	)		(259	)		(314	)		(509	)		(100	)		(203	)		(414	)		(712	)

Net income	$	67,630		$	87,606		$	109,812		$	121,971		$	62,122		$	62,824		$	171,934		$	184,795

Other comprehensive income (loss):
Other comprehensive income:
Interest rate derivatives		1,740			(1,175	)		8,032			370			1,657			259			9,689			629

Comprehensive income	$	69,370		$	86,431		$	117,844		$	122,341		$	63,779		$	63,083		$	181,623		$	185,424

Basic and diluted net income per common share	$	0.29		$	0.39		$	0.48		$	0.55		$	0.27		$	0.28		$	0.75		$	0.83

Weighted average common shares outstanding - basic and diluted		230,342			223,052			230,428			223,049			230,351			223,057			230,402			223,052

See notes to consolidated financial statements.

Index

Apple Hospitality REIT, Inc.

~~Consolidated Statements of~~ ~~Cash~~ ~~Flows~~

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Six Months Ended						Nine Months Ended
	June 30,						September 30,
	2018			2017			2018			2017
Cash flows from operating activities:
Net income	$	109,812		$	121,971		$	171,934		$	184,795
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		90,583			87,660			136,752			131,770
Loss on impairment of depreciable real estate assets		3,135			7,875			3,135			7,875
Gain on sale of real estate		-			(16,140	)		-			(15,983	)
Other non-cash expenses, net		3,993			3,617			5,990			5,372
Changes in operating assets and liabilities:
Increase in due from third party managers, net		(30,542	)		(26,206	)		(16,873	)		(20,883	)
Decrease (increase) in other assets, net		(3,703	)		7,058
Decrease in accounts payable and other liabilities		(6,910	)		(30,897	)
(Increase) decrease in other assets, net								(4,104	)		8,030
Increase (decrease) in accounts payable and other liabilities								46			(20,944	)
Net cash provided by operating activities		166,368			154,938			296,880			280,032

Cash flows from investing activities:
Acquisition of hotel properties, net		(135,164	)		(18,131	)		(135,189	)		(56,794	)
Deposits and other disbursements for potential acquisitions		(362	)		-			(537	)		(1,810	)
Capital improvements		(39,079	)		(28,866	)		(52,669	)		(41,370	)
Net proceeds from sale of real estate		-			28,531			9,800			28,374
Net cash used in investing activities		(174,605	)		(18,466	)		(178,595	)		(71,600	)

Cash flows from financing activities:
Net proceeds related to issuance of common shares		4,677			-			4,677			-
Repurchases of common shares		(4,304	)		-			(4,304	)		-
Repurchases of common shares to satisfy employee withholding requirements		(876	)		(432	)		(876	)		(432	)
Distributions paid to common shareholders		(138,204	)		(133,811	)		(207,265	)		(200,716	)
Net proceeds from revolving credit facility		111,500			31,300
Net proceeds from existing revolving credit facility								173,400			-
Net payments on extinguished revolving credit facility								(106,900	)		(53,300	)
Proceeds from term loans								575,000			85,000
Repayments of term loans								(575,000	)		-
Proceeds from mortgage debt		44,000			-			44,000			-
Payments of mortgage debt		(6,068	)		(34,590	)		(9,327	)		(37,219	)
Financing costs		-			(120	)		(6,993	)		(891	)
Net cash provided by (used in) financing activities		10,725			(137,653	)
Net cash used in financing activities								(113,588	)		(207,558	)

Net change in cash, cash equivalents and restricted cash		2,488			(1,181	)		4,697			874

Cash, cash equivalents and restricted cash, beginning of period		29,791			29,425			29,791			29,425

Cash, cash equivalents and restricted cash, end of period	$	32,279		$	28,244		$	34,488		$	30,299

Supplemental cash flow information:
Interest paid	$	24,448		$	23,532		$	37,509		$	35,049

Supplemental disclosure of noncash investing and financing activities:
Accrued distribution to common shareholders	$	23,020		$	22,301		$	23,021		$	22,302
Mortgage debt assumed by buyer upon sale of real estate	$	-		$	27,073		$	-		$	27,073

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents, beginning of period	$	-		$	-		$	-		$	-
Restricted cash-furniture, fixtures and other escrows, beginning of period		29,791			29,425			29,791			29,425
Cash, cash equivalents and restricted cash, beginning of period	$	29,791		$	29,425		$	29,791		$	29,425

Cash and cash equivalents, end of period	$	-		$	-		$	-		$	-
Restricted cash-furniture, fixtures and other escrows, end of period		32,279			28,244			34,488			30,299
Cash, cash equivalents and restricted cash, end of period	$	32,279		$	28,244		$	34,488		$	30,299

See notes to consolidated financial statements.

Index

Apple Hospitality REIT, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

Apple Hospitality REIT, Inc., together with its wholly-owned subsidiaries (the “Company”), is a Virginia corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. The Company is a self-advised REIT that invests in income-producing real estate, primarily in the lodging sector, in the United States. The Company’s fiscal year end is December 31. The Company has no foreign operations or assets and its operating structure includes only one reportable segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does not have any elements of power in the decision making process of these entities, and therefore does not consolidate the entities. As of ~~June~~September 30, 2018, the Company owned ~~243~~241 hotels with an aggregate of ~~30,929~~30,754 rooms located in 34 ~~states, including two hotels with an aggregate of 175 rooms classified as held for sale, which were sold to an unrelated party in July 2018.~~states. The Company’s common shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.”

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include all of the information required by United States generally accepted accounting principles (“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 Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”). Operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2018 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2018.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Net Income Per Common Share

Basic net income per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net income per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. Basic and diluted net income per common share were the same for each of the periods presented.

Reclassifications

Certain ~~line items~~prior period amounts in the consolidated financial statements ~~of operations and comprehensive income for the three and six months ended June 30, 2017, and the consolidated statements of cash flows for the six months ended June 30, 2017~~ have been reclassified to conform to the current ~~year presentation. Reclassifications had~~period presentation with no effect on previously reported net income or shareholders’ equity.

Effective November 5, 2018, the Securities and Exchange Commission (“SEC”) eliminated Rule 3-15(a)(1) of Regulation S-X which had required REITs to present gains and losses on the sale of real estate outside of operating income in the consolidated statements of operations. As a result, the Company has included gain (loss) on sale of real estate that is not a discontinued operation as a component of operating income in accordance with Accounting Standards Codification (“ASC”) Topic 360, Property, Plant and Equipment.

Index

Accounting Standards Recently Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard became effective for annual and interim periods beginning after December 15, 2017. The Company adopted this standard as of January 1, 2018 using the modified retrospective approach. The Company evaluated each of its revenue streams under the new standard and concluded that the adoption of this standard did not impact the amount or timing of revenue recognition in the Company’s consolidated financial statements. The Company also considered and determined that presenting revenue disaggregated by rooms, food and beverage, and other in its consolidated statements of operations and comprehensive income reflects the nature and timing of its significant revenue streams and has reclassified prior period amounts to conform to the current period presentation.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The standard was effective for annual and interim periods beginning after December 15, 2017. The Company adopted this standard as of January 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, which is intended to reduce diversity in practice in the classification and presentation of changes in restricted cash in the statement of cash flows. The standard was effective for annual and interim periods beginning after December 15, 2017. Under this standard, restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown in the statements of cash flows. The Company adopted this standard as of January 1, 2018. Amounts included in restricted cash on the Company’s consolidated balance sheets are now included with cash and cash equivalents in the Company’s consolidated statements of cash flows for all periods presented. The adoption of this standard required retrospective revision to the statement of cash flows for the ~~six~~nine months ended ~~June~~September 30, 2017. Other than the reclassification of restricted cash balances and activity in the statements of cash flows, the adoption of the standard did not have an impact on the Company’s consolidated financial statements and related disclosures.

In February 2017, the FASB issued ASU No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope of ~~Accounting Standards Codification (“ASC”)~~ASC Subtopic 610-20 and adds guidance for the derecognition of nonfinancial assets, including partial sales. The provisions of this standard must be applied at the same time as the adoption of ASU No. 2014-09. The Company adopted this standard as of January 1, 2018 using the modified retrospective approach. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting model to enable entities to better portray their risk management activities in their financial statements and enhance the transparency and understandability of hedging activity. The standard simplifies the application of hedge accounting and reduces the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this standard on January 1, 2018 using the modified retrospective approach. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Index

Accounting Standards Recently Issued

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets as right-of-use assets and lease liabilities, as well as making targeted changes to lessor accounting. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Leases with a term of 12 months or less will be accounted for similar to the existing guidance today for operating leases. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842), Land Easement Practical Expedient for Transition to Topic 842, which provides further transition relief by including an option to not evaluate land easements that exist or have expired prior to the date of adoption of Topic 842 and that were not previously accounted for as leases under Topic 840.In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which includes amendments that affect narrow aspects of the guidance issued in ASU No. 2016-02, and ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which gives entities another option for transition and provides lessors with a practical expedient. Under ASU No. 2018-11, entities are provided an additional (and optional) transition method to adopt Topic 842 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings for the effects of initially applying Topic 842 in the period of adoption. Consequently, an entity’s reporting for comparative periods presented in the consolidated financial statements in which the entity adopts the new lease requirements would continue in accordance with current GAAP, Leases (Topic 840), including disclosures. The standard is effective for annual and interim periods beginning after December 15, 2018 with early adoption permitted. The Company expects to adopt this standard as of January 1, 2019. The Company is the lessee on certain ground leases and hotel equipment leases, which represents a majority of the Company’s current operating lease payments, and expects to record right of use assets and lease liabilities for these leases under the new standard. The Company is also a lessor in certain retail lease agreements related to its real estate, however, it does not anticipate any material change to the accounting for these leasing arrangements. The Company is continuing to evaluate the impact this standard will have on its consolidated financial statements and related disclosures.

2. Investment in Real Estate

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

	June 30,			December 31,			September 30,			December 31,
	2018			2017			2018			2017

Land	$	736,137		$	720,465		$	736,139		$	720,465
Building and Improvements		4,479,362			4,362,929			4,483,712			4,362,929
Furniture, Fixtures and Equipment		448,548			428,734			456,964			428,734
Franchise Fees		12,963			12,315			12,962			12,315
		5,677,010			5,524,443			5,689,777			5,524,443
Less Accumulated Depreciation		(818,794	)		(731,284	)		(864,719	)		(731,284	)
Investment in Real Estate, net	$	4,858,216		$	4,793,159		$	4,825,058		$	4,793,159

As of ~~June~~September 30, 2018, the Company owned ~~243~~241 hotels with an aggregate of ~~30,929~~30,754 rooms located in 34 ~~states, including two hotels with an aggregate of 175 rooms classified as held for sale, which were sold to an unrelated party in July 2018.~~states.

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

Acquisitions

The Company acquired four hotels during the first ~~six~~nine months of 2018. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price for each hotel. All dollar amounts are in thousands.

~~Index~~

City

State

Brand

Manager

Date Acquired

Rooms

Gross Purchase Price (1)

Atlanta/Downtown

GA

Hampton

McKibbon

2/5/2018
119 $ 24,000
Memphis

TN

Hampton

Crestline

2/5/2018
144 39,000
Phoenix

AZ

Hampton

North Central

5/2/2018
210 44,300
Atlanta/Perimeter Dunwoody

GA

Hampton

LBA

6/28/2018
132 29,500
605 $ 136,800

City

State

Brand

Manager

Date Acquired

Rooms

Gross Purchase Price (1)

Atlanta/Downtown

GA

Hampton

McKibbon

2/5/2018
119 $ 24,000
Memphis

TN

Hampton

Crestline

2/5/2018
144 39,000
Phoenix

AZ

Hampton

North Central

5/2/2018
210 44,300
Atlanta/Perimeter Dunwoody

GA

Hampton

LBA

6/28/2018
132 29,500
605 $ 136,800
(1) The gross purchase price excludes transaction costs.
8
Index

During the year ended December 31, 2017, the Company acquired six hotels including ~~one~~three hotels in the first ~~six~~nine months of 2017. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price for each hotel. All dollar amounts are in thousands.

City

State

Brand

Manager

Date Acquired

Rooms

Gross Purchase
Price (1)

State

Brand

Manager

Date Acquired

Rooms

Gross Purchase Price (1)

Fort Worth

TX

Courtyard

LBA

2/2/2017
124 $ 18,034
TX

Courtyard

LBA

2/2/2017
124 $ 18,034
Birmingham (2)

AL

Hilton Garden Inn

LBA

9/12/2017
104 19,162
AL

Hilton Garden Inn

LBA

9/12/2017
104 19,162
Birmingham (2)

AL

Home2 Suites

LBA

9/12/2017
106 19,276
AL

Home2 Suites

LBA

9/12/2017
106 19,276
Portland

ME

Residence Inn

Pyramid

10/13/2017
179 55,750
ME

Residence Inn

Pyramid

10/13/2017
179 55,750
Salt Lake City

UT

Residence Inn

Huntington

10/20/2017
136 25,500
UT

Residence Inn

Huntington

10/20/2017
136 25,500
Anchorage

AK

Home2 Suites

Stonebridge

12/1/2017
135 24,048
AK

Home2 Suites

Stonebridge

12/1/2017
135 24,048
784 $ 161,770 784 $ 161,770

(1) The gross purchase price excludes transaction costs.
(2) The hotels in Birmingham, AL are part of an adjoining dual-branded complex located on the same site.

The Company used borrowings under its revolving credit facility to purchase each of these hotels. The acquisitions of these hotel properties were accounted for as an acquisition of a group of assets, with costs incurred to effect the acquisition, which were not significant, capitalized as part of the cost of the assets acquired. For the four hotels acquired during the ~~six~~nine months ended ~~June~~September 30, 2018, the amount of revenue and operating income included in the Company’s consolidated statement of operations from the date of acquisition through ~~June~~September 30, 2018 was approximately ~~$7.1~~$13.2 million and ~~$2.1~~$3.5 million, respectively. For the ~~hotel~~three hotels acquired during the ~~six~~nine months ended ~~June~~September 30, 2017, the amount of revenue and operating income included in the Company’s consolidated statement of operations from the date of acquisition through ~~June~~September 30, 2017 was approximately ~~$1.9~~$3.3 million and ~~$0.4~~$0.5 million, respectively.

Hotel Purchase Contract Commitments

As of ~~June~~September 30, 2018, the Company had outstanding contracts for the potential purchase of five hotels for a total purchase price of approximately $130.8 million. All five hotels are under development and are planned to be completed and opened for business over the next ~~nine~~six to 3027 months from ~~June~~September 30, 2018, at which time closings on these hotels are expected to occur. Although the Company is working towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance that closing on these hotels will occur under the outstanding purchase contracts. The following table summarizes the location, brand, date of purchase contract, expected number of rooms, refundable (if the seller does not meet its obligations under the contract) contract deposits paid, and gross purchase price for each of the contracts outstanding at ~~June~~September 30, 2018. All dollar amounts are in thousands.

9
~~Index~~
Location (1)

Brands

Date of Purchase Contract

Rooms

Refundable Deposits

Gross Purchase Price

Orlando, FL

Home2 Suites

1/18/2017
128 $ 3 $ 20,736
Cape Canaveral, FL (2)

Hampton and Home2 Suites

4/11/2018
224 3 46,704
Tempe, AZ (3)

Hyatt House and Hyatt Place

6/13/2018
254 360 63,341
606 $ 366 $ 130,781

Location (1)

Brands

Date of Purchase Contract

Rooms

Refundable Deposits

Gross Purchase Price

Orlando, FL

Home2 Suites

1/18/2017
128 $ 3 $ 20,736
Cape Canaveral, FL (2)

Hampton and Home2 Suites

4/11/2018
224 3 46,704
Tempe, AZ (3)

Hyatt House and Hyatt Place

6/13/2018
254 360 63,341
606 $ 366 $ 130,781
(1) These hotels are currently under development. The table shows the expected number of rooms upon hotel completion and the expected franchise brands. Assuming all conditions to closing are met, the purchases of these hotels are expected to occur over the next nine to 30 months from June
(1) These hotels are currently under development. The table shows the expected number of rooms upon hotel completion and the expected franchise brands. Assuming all conditions to closing are met, the purchases of these hotels are expected to occur over the next six to 27 months from September 30, 2018. If the seller meets all of the conditions to closing, the Company is obligated to specifically perform under the contract. As the properties are under development, at this time, the seller has not met all of the conditions to closing.
(2) These hotels are part of an adjoining combined 224-room, dual-branded complex that will be located on the same site.
(3) These hotels are part of an adjoining combined 254-room, dual-branded complex that will be located on the same site.

The Company intends to use borrowings under its ~~revolving~~ credit ~~facility~~facilities to purchase the hotels under contract if a closing occurs.
9
Index

Loss on Impairment of Depreciable Real Estate Assets

During the second quarter of 2018, the Company identified three properties for potential sale: the Columbus, Georgia SpringHill Suites and TownePlace Suites (the “two Columbus hotels”) and the Springdale, Arkansas Residence Inn. In May 2018, the Company entered into separate contracts with the same unrelated party for the sale of the two Columbus hotels. As ~~further discussed in Note 3, the Company completed the sale of the two Columbus hotels in July 2018 and classified the hotels as assets held for sale as of June 30, 2018. As~~ a result, the Company recognized an impairment loss of approximately $0.5 million in the second quarter of 2018, representing the difference between the carrying values of the two Columbus hotels and the contracted sales prices, net of estimated selling costs, which are Level 1 inputs under the fair value hierarchy. ~~The~~As further discussed in Note 3, the Company ~~has~~completed the sale of the two Columbus hotels in July 2018. As of June 30, 2018, the Company had committed to sell the Springdale, Arkansas Residence Inn and ~~has~~ received offers from unrelated parties that it ~~is pursuing.~~was pursuing at that time. Due to the change in the anticipated hold period for this hotel, the Company reviewed the estimated undiscounted cash flows to be generated by the property and determined that the undiscounted cash flows were less than its carrying ~~value; therefore~~value. As a result, the Company recognized an impairment loss of approximately $2.6 million in the second quarter of 2018 to adjust the basis of this property to its estimated fair value, which was based on the previous offers received, net of estimated selling costs, which is a Level 2 input under the fair value hierarchy. As further discussed in Note 3, during the third quarter of 2018, the Company entered into a contract with an unrelated party for the sale of the Springdale, Arkansas Residence Inn.

The two Columbus hotels were previously identified for potential sale during the first quarter of 2017, at which time the Company recognized an impairment loss of approximately $7.9 million to adjust the bases of these properties to their estimated fair values, which were based on the then contracted sales prices, which were terminated in May 2017, net of estimated selling costs, a Level 1 input under the fair value hierarchy.

3.  ~~Assets Held for Sale~~Dispositions and ~~Dispositions~~Hotel Sale Contracts

~~Assets Held for Sale~~Dispositions

In May 2018, the Company entered into separate purchase and sale agreements with the same unrelated party for the sale of its 89-room SpringHill Suites and its 86-room TownePlace Suites hotels in Columbus, Georgia for a total combined gross sales price of $10.0 million. ~~Since~~As discussed in Note 2, during the ~~buyer under the contracts had completed its due diligence and had made a non-refundable deposit, as~~second quarter of ~~June 30,~~ 2018, the Company ~~classified~~recognized an impairment loss of approximately $0.5 million to adjust the ~~two Columbus hotels as held for sale at~~bases of these properties to their estimated fair values, which ~~as discussed in Note 2,~~ were based on the contracted sales prices, net of estimated selling ~~costs, resulting in an impairment loss during the second quarter of 2018.~~costs. On July 13, 2018, the Company completed the sale of the hotels.
10
~~Index~~
~~2017 Dispositions~~

In December 2016, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 224-room Hilton hotel in Dallas, Texas for a gross sales price of approximately $56.1 million, as amended. On April 20, 2017, the Company completed the sale resulting in a gain of approximately ~~$16.1~~$16.0 million, which is included in the Company’s consolidated ~~statements~~statement of operations for the ~~three and six~~nine months ended ~~June~~September 30, 2017. The hotel had a carrying value totaling approximately $39.0 million at the date of sale. Under the contract, at closing, the mortgage loan secured by the Dallas, Texas Hilton hotel was assumed by the buyer with the buyer receiving a credit for the amount assumed, which was approximately $27.1 million at the date of sale.

The Company’s consolidated statements of operations include operating income (loss), excluding gain (loss) on sale of real estate, of approximately ~~$(0.4)~~$(0.01) million and ~~$0.3~~$0.2 million for the three months ended ~~June~~September 30, 2018 and 2017, respectively, and approximately $(0.4) million and ~~$(6.5)~~$(6.4) million for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively, relating to the results of operations of the three hotels sold as noted above (the two Columbus hotels ~~classified as held for sale as of June 30, 2018 and~~ sold in July 2018, and the Dallas, Texas Hilton sold in April 2017). The sale of these properties does not represent a strategic shift that has, or will have, a major effect on the Company’s operations and financial results, and therefore the operating results for the period of ownership of these properties are included in income from continuing operations for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017. The net proceeds from the sales were used to pay down borrowings on the Company’s revolving credit facility.

10
Index
Hotel Sale Contracts
In August 2018, the Company entered into a purchase and sale agreement with an unrelated party for the sale of 16 properties for a gross sales price of $175 million, which, net of estimated selling costs, exceeds the carrying value of the properties, totaling approximately $162 million, as of September 30, 2018. The following table lists the 16 hotels under the purchase and sale agreement:
City
State
Brand
Rooms
Prattville
AL
Courtyard
84
Rogers
AR
Residence Inn
88
Lakeland
FL
Courtyard
78
Sarasota
FL
Homewood Suites
100
Tampa
FL
TownePlace Suites
94
Albany
GA
Fairfield Inn & Suites
87
Baton Rouge
LA
SpringHill Suites
119
Hattiesburg
MS
Residence Inn
84
Holly Springs
NC
Hampton
124
Jackson
TN
Hampton
85
Johnson City
TN
Courtyard
90
Duncanville
TX
Hilton Garden Inn
142
Texarkana
TX
Courtyard
90
Texarkana
TX
TownePlace Suites
85
Bristol
VA
Courtyard
175
Harrisonburg
VA
Courtyard
125
Total
1,650
In September 2018, the Company entered into a purchase and sale agreement with an unrelated party for the sale of the 72-room Springdale, Arkansas Residence Inn for a gross sales price of approximately $5.8 million, which, net of estimated selling costs, exceeds its carrying value, totaling approximately $5.5 million, as of September 30, 2018. As discussed in Note 2, during the second quarter of 2018, the Company recognized an impairment loss of approximately $2.6 million to adjust the basis of this property to its estimated fair value, which was based on the offers received at that time, net of estimated selling costs.
The sale contracts noted above are subject to a number of conditions to closing and therefore there can be no assurance that a closing on these hotels will occur. If the closings occur, these sales are expected to be completed within the next three to six months from September 30, 2018. Since the due diligence period under these contracts has not passed and the deposits made by the buyers are refundable as of September 30, 2018, the assets and liabilities related to these properties have not been classified as held for sale in the Company’s consolidated balance sheet at September 30, 2018. The Company plans to use the net proceeds from the sales to pay down borrowings on its revolving credit facility.
4. Debt

Summary
As of September 30, 2018 and December 31, 2017, the Company’s debt consisted of the following (in thousands):

September 30,
2018

December 31,
2017

Revolving credit facility
$ 173,400 $ 106,900
Term loans, net
653,072 656,279
Mortgage debt, net
493,528 459,017
Debt, net
$ 1,320,000 $ 1,222,196
11
Index
The aggregate amounts of principal payable under the Company’s total debt obligations as of September 30, 2018 (including the revolving credit facility, term loans and mortgage debt), for the five years subsequent to September 30, 2018 and thereafter are as follows (in thousands):
2018 (October - December)
$ 3,337
2019
33,805
2020
28,349
2021
47,586
2022
282,652
Thereafter
929,780
1,325,509
Unamortized fair value adjustment of assumed debt
3,654
Unamortized debt issuance costs related to term loans and mortgage debt
(9,163 )
Total
$ 1,320,000
The Company uses interest rate swaps to manage its interest rate risks on a portion of its variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the London Inter-Bank Offered Rate for a one-month term (“one-month LIBOR”).  The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. See Note 5 for more information on the interest rate swap agreements. The Company’s total fixed-rate and variable-rate debt, after giving effect to its interest rate swaps, is set forth below. All dollar amounts are in thousands.

September 30, 2018

Percentage

December 31, 2017

Percentage

Fixed-rate debt ⁽¹⁾
$ 1,049,609 79 % $ 1,014,935 83 %
Variable-rate debt
275,900 21 % 209,400 17 %
Total
$ 1,325,509 $ 1,224,335
Weighted-average interest rate of debt
3.68 % 3.64 %
⁽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.
Revolving Credit Facility and Term Loans
$~~965~~850 Million Credit Facility

Prior to the Company’s ~~debt~~ refinancing of the facility in July 2018, ~~as discussed below,~~ the Company utilized an unsecured “$965 million credit facility” comprised of (i) a $540 million revolving credit facility with ~~an initial~~a maturity date of May 18, 2019 and (ii) a $425 million term loan facility with a maturity date of May 18, 2020, consisting of three term loans, all funded during 2015 (the “$425 million term loans”).  Interest payments on the $965 million credit facility were due monthly and the interest rate, subject to certain exceptions, was equal to an annual rate of the one-month LIBOR (the London Inter-Bank Offered Rate for a one-month term) plus a margin ranging from 1.50% to 2.30%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.  The Company was also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.30% on the unused portion of the revolving credit facility, based on the amount of borrowings outstanding during the quarter.
~~$150 Million Term Loan Facility~~
Prior to the Company’s debt refinancing in August 2018 as discussed below, the Company utilized an unsecured $150 million term loan facility (the “$150 million term loan facility”), consisting of a $50 million term loan with a maturity date of April 8, 2021 (the “$50 million term loan”) and a $100 million term loan with a maturity date of April 8, 2023 (the “$100 million term loan,” and collectively with the $50 million term loan, the “$150 million term loans”).  The credit agreement contained requirements and covenants similar to the Company’s $965 million credit facility.  Interest payments on the $150 million term loan facility were due monthly and the interest rate was equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.45% to 2.20% for the $50 million term loan and 1.80% to 2.60% for the $100 million term loan, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.
11
~~Index~~
~~$85~~ M~~illion Term Loan~~
On July 25, 2017, the Company entered into an unsecured $85 million term loan with a syndicate of commercial banks, with a maturity date of July 25, 2024 (the “$85 million term loan” and, together with the $425 million term loans and the $150 million term loans, the “term loans”). The credit agreement contains requirements and covenants similar to the Company’s $965 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the $85 million term loan are due monthly and the interest rate is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.80% to 2.60%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. In conjunction with the Company’s debt refinancing discussed below, the requirements and covenants under the $85 million term loan agreement were amended to be similar to the refinanced facilities’ credit agreements.
~~As of June 30, 2018 and December 31, 2017, the details of the Company’s revolving credit facility and term loans were as set forth below.  All dollar amounts are in thousands.~~

As of June 30, 2018

As of December 31, 2017

Maturity Date

Outstanding Balance

Interest Rate

Outstanding Balance

Interest Rate

Revolving credit facility (1)

5/18/2019
$ 218,400 3.64 % (2) $ 106,900 3.11 % (2)
Term loans

$425 million term loans 5/18/2020 425,000 3.21 % (3) 425,000 3.09 % (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) 85,000 3.76 % (4)
Total term loans at stated value
660,000 660,000
Unamortized debt issuance costs
(3,140 ) (3,721 )
Total term loans
656,860 656,279

Total revolving credit facility and term loans
$ 875,260 $ 763,179
(1) Unamortized debt issuance costs related to the revolving credit facility totaled approximately $1.1 million and $1.7 million as of June 30, 2018 and December 31, 2017, respectively, and are included in other assets, net in the Company's consolidated balance sheets.
~~(2) Annual variable interest rate at the balance sheet date.~~
(3) Effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps on $322.5 million of the outstanding loan balance, resulting in an annual fixed interest rate of approximately 3.10% on this portion of the debt, subject to adjustment based on the Company's leverage ratio. See Note 5 for more information on the interest rate swap agreements. Remaining portion is variable rate debt.
(4) Annual fixed interest rate at the balance sheet date which includes the effect of interest rate swaps on the outstanding loan balance, subject to adjustment based on the Company’s leverage ratio. See Note 5 for more information on the interest rate swap agreements.
At June 30, 2018, the credit agreements governing the $965 million credit facility, the $150 million term loan facility and the $85 million term loan contained mandatory prepayment requirements, customary affirmative covenants, negative covenants and events of default.  The credit agreements required that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios and restrictions on certain investments.  The Company was in compliance with the applicable covenants at June 30, 2018.
12
~~Index~~
~~2018~~ ~~Debt~~ ~~Refinancing~~
On July 27, 2018, the Company entered into an amendment and restatement of its $965 million credit facility, reducing the borrowing capacity to $850 million and extending the maturity dates (the “$850 million credit facility”). The $850 million credit facility is comprised of (i) a $425 million revolving credit facility with an initial maturity date of July 27, 2022 and (ii) a $425 million term loan facility consisting of two term loans: a $200 million term loan with a maturity date of July 27, 2023, and a $225 million term loan with a maturity date of January 31, 2024, both funded at ~~closing.~~closing (the “$425 million term loan facility”).  At closing, the Company repaid the outstanding $425 million term loans under the $965 million credit facility with the proceeds from the $425 million term loan facility under the $850 million credit facility and borrowed approximately $196 million under the $425 million revolving credit facility to repay the outstanding balance on ~~its~~the $540 million revolving credit facility and to pay closing costs. Subject to certain conditions including covenant compliance and additional fees, the $425 million revolving credit facility maturity date may be extended up to one year. ~~The credit agreement for the $850 million credit facility contains requirements and covenants similar to the previous credit agreement for the $965 million credit facility.~~ The Company may make voluntary prepayments in whole or in part, at any time.  Interest payments on the $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 plus a margin ranging from 1.35% to 2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.  The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.25% on the unused portion of the $425 million revolving credit facility, based on the amount of borrowings outstanding during the quarter.

12
Index
~~Also, on~~
$225 Million Term Loan Facility
Prior to the Company’s refinancing of the facility in August 2018, the Company utilized an unsecured $150 million term loan facility (the “$150 million term loan facility”), consisting of a $50 million term loan with a maturity date of April 8, 2021 and a $100 million term loan with a maturity date of April 8, 2023 (the “$150 million term loans”).  On August 2, 2018, the Company entered into an amendment and restatement of its $150 million term loan facility, increasing the borrowing capacity to $225 million and extending the maturity dates (the “$225 million term loan facility”). The $225 million term loan facility is comprised of (i) a $50 million term loan with a maturity date of August 2, 2023, which was funded at closing, and (ii) a $175 million term loan with a maturity date of August 2, 2025, of which $100 million was drawn at closing and the remaining $75 million may be drawn by the Company no later than January 31, 2019. At closing, the Company repaid the $150 million term loans under the $150 million term loan 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, at any time, subject to certain conditions. Interest payments on the $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 1.35% to 2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.

~~A summary~~$85 Million Term Loan
On July 25, 2017, the Company entered into an unsecured $85 million term loan with a syndicate of commercial banks, with a maturity date of July 25, 2024 (the “$85 million term loan” and, together with the $850 million credit facility and the $225 million term loan facility, the “credit facilities”). Although no material terms were changed, the credit agreement was amended and restated in August 2018 as a result of the refinancings noted above. The amended and restated 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, at any time, subject to certain conditions. Interest payments on the $85 million term loan are due monthly and the interest rate is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.80% to 2.60%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.
As of September 30, 2018 ~~debt refinancing is~~and December 31, 2017, the details of the Company’s revolving credit facility and term loans were as set forth below.  All dollar amounts are in thousands.

2018 Refinancing

Prior to Refinancing

Maturity

Maturity

Capacity

Date

Interest Rate

Capacity

Date

Interest Rate
Revolving credit facility
$ 425,000
7/27/2022

LIBOR + 1.40% - 2.25%
$ 540,000
5/18/2019

LIBOR + 1.55% - 2.30%
Term loan
200,000
7/27/2023

LIBOR + 1.35% - 2.20%
425,000
5/18/2020

LIBOR + 1.50% - 2.25%
Term loan
225,000
1/31/2024

LIBOR + 1.35% - 2.20%

   Facility total
850,000 965,000
Term loan
50,000
8/2/2023

LIBOR + 1.35% - 2.20%
50,000
4/8/2021

LIBOR + 1.45% - 2.20%
Term loan
175,000
8/2/2025

LIBOR + 1.65% - 2.50%
100,000
4/8/2023

LIBOR + 1.80% - 2.60%
   Facility total
225,000 150,000
Total
$ 1,075,000 $ 1,115,000

September 30, 2018

December 31, 2017

Maturity Date

Outstanding Balance

Interest Rate

Outstanding Balance

Interest Rate

Revolving credit facility ⁽¹⁾
7/27/2022
$ 173,400
LIBOR + 1.40% - 2.25%
$ 106,900
LIBOR + 1.55% - 2.30%

Term loans

$200 million term loan
7/27/2023
200,000
LIBOR + 1.35% - 2.20%
- n/a
$225 million term loan
1/31/2024
225,000
LIBOR + 1.35% - 2.20%
- n/a
$425 million term loans
repaid 7/27/18
- n/a 425,000
LIBOR + 1.50% - 2.25%

$50 million term loan
8/2/2023
50,000
LIBOR + 1.35% - 2.20%
- n/a
$175 million term loan
8/2/2025
100,000
LIBOR + 1.65% - 2.50%
- n/a
$50 million term loan
repaid 8/2/18
- n/a 50,000
LIBOR + 1.45% - 2.20%

$100 million term loan
repaid 8/2/18
- n/a 100,000
LIBOR + 1.80% - 2.60%

$85 million term loan
7/25/2024
85,000
LIBOR + 1.80% - 2.60%
85,000
LIBOR + 1.80% - 2.60%

Term loans at stated value
660,000 660,000
Unamortized debt issuance costs
(6,928 ) (3,721 )
Term loans, net
653,072 656,279

Revolving credit facility and term loans, net⁽¹⁾⁽²⁾
$ 826,472 3.23% $ 763,179 3.14%
⁽¹⁾ Excludes unamortized debt issuance costs related to the revolving credit facility totaling approximately $3.8 million and $1.7 million as of September 30, 2018 and December 31, 2017, respectively, which are included in other assets, net in the Company's consolidated balance sheets.
⁽²⁾ Interest rate represents the weighted-average effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps in effect on $557.5 million of the outstanding variable-rate debt for each respective year. See Note 5 for more information on the interest rate swap agreements. The one-month LIBOR at September 30, 2018 was 2.26%.
13
Index
The credit agreements governing the credit facilities contain mandatory prepayment requirements, customary affirmative covenants, negative covenants and events of default.  The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios and restrictions on certain investments.  The Company was in compliance with the applicable covenants at September 30, 2018.
Mortgage Debt

As of ~~June~~September 30, 2018, the Company had approximately ~~$495.4~~$492.1 million in outstanding mortgage debt secured by 31 properties, with maturity dates ranging from June 2020 to January 2038, stated interest rates ranging from 3.55% to 6.25% and effective interest rates ranging from 3.55% to 4.97%. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. The following table sets forth the hotel properties securing each loan, the interest rate, loan assumption or origination date, maturity date, the principal amount assumed or originated, and the outstanding balance prior to any fair value adjustments or debt issuance costs as of ~~June~~September 30, 2018 and December 31, 2017 for each of the Company’s mortgage debt obligations. All dollar amounts are in thousands.

13
~~Index~~
Location

Brand

Interest Rate (1)

Loan Assumption or Origination Date

Maturity Date

Principal Assumed or Originated

Outstanding balance as of September 30, 2018

Outstanding balance as of December 31, 2017

San Juan Capistrano, CA

Residence Inn
4.15 %
9/1/2016

6/1/2020
$ 16,210 $ 15,519 $ 15,774
Colorado Springs, CO

Hampton
6.25 %
9/1/2016

7/6/2021
7,923 7,652 7,754
Franklin, TN

Courtyard
6.25 %
9/1/2016

8/6/2021
14,679 14,181 14,368
Franklin, TN

Residence Inn
6.25 %
9/1/2016

8/6/2021
14,679 14,181 14,368
Grapevine, TX

Hilton Garden Inn
4.89 %
8/29/2012

9/1/2022
11,810 10,181 10,412
Collegeville/Philadelphia, PA

Courtyard
4.89 %
8/30/2012

9/1/2022
12,650 10,905 11,152
Hattiesburg, MS

Courtyard
5.00 %
3/1/2014

9/1/2022
5,732 5,098 5,212
Rancho Bernardo/San Diego, CA

Courtyard
5.00 %
3/1/2014

9/1/2022
15,060 13,392 13,692
Kirkland, WA

Courtyard
5.00 %
3/1/2014

9/1/2022
12,145 10,800 11,042
Seattle, WA

Residence Inn
4.96 %
3/1/2014

9/1/2022
28,269 25,122 25,687
Anchorage, AK

Embassy Suites
4.97 %
9/13/2012

10/1/2022
23,230 20,111 20,560
Somerset, NJ

Courtyard
4.73 %
3/1/2014

10/6/2022
8,750 7,754 7,932
Tukwila, WA

Homewood Suites
4.73 %
3/1/2014

10/6/2022
9,431 8,357 8,549
Prattville, AL

Courtyard
4.12 %
3/1/2014

2/6/2023
(2) 6,596 5,802 5,943
Huntsville, AL

Homewood Suites
4.12 %
3/1/2014

2/6/2023
8,306 7,306 7,483
San Diego, CA

Residence Inn
3.97 %
3/1/2014

3/6/2023
18,600 16,334 16,733
Miami, FL

Homewood Suites
4.02 %
3/1/2014

4/1/2023
16,677 14,668 15,022
Syracuse, NY

Courtyard
4.75 %
10/16/2015

8/1/2024
(3) 11,199 10,428 10,637
Syracuse, NY

Residence Inn
4.75 %
10/16/2015

8/1/2024
(3) 11,199 10,428 10,637
New Orleans, LA

Homewood Suites
4.36 %
7/17/2014

8/11/2024
27,000 24,407 24,919
Westford, MA

Residence Inn
4.28 %
3/18/2015

4/11/2025
10,000 9,200 9,386
Denver, CO

Hilton Garden Inn
4.46 %
9/1/2016

6/11/2025
34,118 32,415 33,046
Oceanside, CA

Courtyard
4.28 %
9/1/2016

10/1/2025
13,655 13,142 13,332
Omaha, NE

Hilton Garden Inn
4.28 %
9/1/2016

10/1/2025
22,682 21,829 22,145
Boise, ID

Hampton
4.37 %
5/26/2016

6/11/2026
24,000 23,119 23,422
Burbank, CA

Courtyard
3.55 %
11/3/2016

12/1/2026
25,564 24,417 24,917
San Diego, CA

Courtyard
3.55 %
11/3/2016

12/1/2026
25,473 24,330 24,828
San Diego, CA

Hampton
3.55 %
11/3/2016

12/1/2026
18,963 18,112 18,483
Burbank, CA

SpringHill Suites
3.94 %
3/9/2018

4/1/2028
28,470 28,189 -
Santa Ana, CA

Courtyard
3.94 %
3/9/2018

4/1/2028
15,530 15,376 -
San Jose, CA

Homewood Suites
4.22 %
12/22/2017

1/1/2038
30,000 29,354 30,000
$ 528,600 492,109 457,435
Unamortized fair value adjustment of assumed debt
3,654 4,330
Unamortized debt issuance costs
(2,235 ) (2,748 )
Total
$ 493,528 $ 459,017

Location

Brand

Interest
Rate (1)

Loan Assumption or Origination Date

Maturity Date

Principal Assumed
or Originated

Outstanding balance
as of June 30, 2018

Outstanding balance as of December 31, 2017

San Juan Capistrano, CA

Residence Inn
4.15 %
9/1/2016

6/1/2020
$ 16,210 $ 15,604 $ 15,774
Colorado Springs, CO

Hampton
6.25 %
9/1/2016

7/6/2021
7,923 7,686 7,754
Franklin, TN

Courtyard
6.25 %
9/1/2016

8/6/2021
14,679 14,242 14,368
Franklin, TN

Residence Inn
6.25 %
9/1/2016

8/6/2021
14,679 14,242 14,368
Grapevine, TX

Hilton Garden Inn
4.89 %
8/29/2012

9/1/2022
11,810 10,258 10,412
Collegeville/Philadelphia, PA

Courtyard
4.89 %
8/30/2012

9/1/2022
12,650 10,987 11,152
Hattiesburg, MS

Courtyard
5.00 %
3/1/2014

9/1/2022
5,732 5,136 5,212
Rancho Bernardo/San Diego, CA

Courtyard
5.00 %
3/1/2014

9/1/2022
15,060 13,492 13,692
Kirkland, WA

Courtyard
5.00 %
3/1/2014

9/1/2022
12,145 10,881 11,042
Seattle, WA

Residence Inn
4.96 %
3/1/2014

9/1/2022
28,269 25,310 25,687
Anchorage, AK

Embassy Suites
4.97 %
9/13/2012

10/1/2022
23,230 20,261 20,560
Somerset, NJ

Courtyard
4.73 %
3/1/2014

10/6/2022
8,750 7,813 7,932
Tukwila, WA

Homewood Suites
4.73 %
3/1/2014

10/6/2022
9,431 8,421 8,549
Prattville, AL

Courtyard
4.12 %
3/1/2014

2/6/2023
6,596 5,849 5,943
Huntsville, AL

Homewood Suites
4.12 %
3/1/2014

2/6/2023
8,306 7,365 7,483
San Diego, CA

Residence Inn
3.97 %
3/1/2014

3/6/2023
18,600 16,467 16,733
Miami, FL

Homewood Suites
4.02 %
3/1/2014

4/1/2023
16,677 14,786 15,022
Syracuse, NY

Courtyard
4.75 %
10/16/2015

8/1/2024
(2) 11,199 10,498 10,637
Syracuse, NY

Residence Inn
4.75 %
10/16/2015

8/1/2024
(2) 11,199 10,498 10,637
New Orleans, LA

Homewood Suites
4.36 %
7/17/2014

8/11/2024
27,000 24,578 24,919
Westford, MA

Residence Inn
4.28 %
3/18/2015

4/11/2025
10,000 9,263 9,386
Denver, CO

Hilton Garden Inn
4.46 %
9/1/2016

6/11/2025
34,118 32,625 33,046
Oceanside, CA

Courtyard
4.28 %
9/1/2016

10/1/2025
13,655 13,206 13,332
Omaha, NE

Hilton Garden Inn
4.28 %
9/1/2016

10/1/2025
22,682 21,935 22,145
Boise, ID

Hampton
4.37 %
5/26/2016

6/11/2026
24,000 23,220 23,422
Burbank, CA

Courtyard
3.55 %
11/3/2016

12/1/2026
25,564 24,585 24,917
San Diego, CA

Courtyard
3.55 %
11/3/2016

12/1/2026
25,473 24,497 24,828
San Diego, CA

Hampton
3.55 %
11/3/2016

12/1/2026
18,963 18,237 18,483
Burbank, CA

SpringHill Suites
3.94 %
3/9/2018

4/1/2028
28,470 28,358 -
Santa Ana, CA

Courtyard
3.94 %
3/9/2018

4/1/2028
15,530 15,469 -
San Jose, CA

Homewood Suites
4.22 %
12/22/2017

1/1/2038
30,000 29,598 30,000
$ 528,600 495,367 457,435
Unamortized fair value adjustment of assumed debt
3,879 4,330
Unamortized debt issuance costs
(2,330 ) (2,748 )
    Total
$ 496,916 $ 459,017
(1) Interest rates are the rates per the loan agreement. For loans assumed, the Company adjusted the interest rates per the loan agreement to market rates and is amortizing the adjustments to interest expense over the life of the loan.
(2) Assets securing this loan are under contract to be sold as of September 30, 2018. Under the purchase and sale agreement, the purchaser is required to assume the loan at closing.
(3) Outstanding principal balance is callable by lender or prepayable by the Company on August 1, 2019.

14
Index
The aggregate amounts of principal payable under the Company’s total debt obligations as of June 30, 2018 (including mortgage debt, the revolving credit facility and term loans), for the five years subsequent to June 30, 2018 and thereafter are as follows (in thousands):
2018 (July - December)
$ 6,595
2019
252,205
2020
453,349
2021
97,586
2022
109,252
Thereafter
454,780
1,373,767
Unamortized fair value adjustment of assumed debt
3,879
Unamortized debt issuance costs related to term loans and mortgage debt
(5,470 )
Total
$ 1,372,176

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 ~~June~~September 30, 2018, both the carrying value and estimated fair value of the Company’s debt were approximately ~~$1.4~~$1.3 billion. As of December 31, 2017, both the carrying value and estimated fair value of the Company’s debt were approximately $1.2 billion. Both the carrying value and estimated fair value of the Company’s debt (as discussed above) is net of unamortized debt issuance costs related to term loans and mortgage debt for each specific year.

Derivative Instruments

Currently, the Company uses interest rate swaps to manage its interest rate risks on ~~variable rate~~variable-rate debt.  Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR.  The swaps are designed to effectively fix the interest payments on ~~variable rate~~variable-rate debt instruments. These swap instruments are recorded at fair value and ~~if in an asset position,~~ are included in other assets, net ~~and, if in a liability position, are included in accounts payable and other liabilities~~ in the Company’s consolidated balance sheets.  The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which is considered a Level 2 measurement under the fair value hierarchy.  The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.  The following table sets forth information for each of the Company’s interest rate swap agreements outstanding as of ~~June~~September 30, 2018 and December 31, 2017. All dollar amounts are in thousands.

Notional
Fair Value Asset (Liability)
Notional Amount at

Fair Value Asset

Hedge Type

Amount at
June 30, 2018

Origination
Date

Maturity Date

Swap Fixed
Interest Rate

June 30,
2018

December 31,
2017

September 30, 2018

Origination Date

Maturity Date

Swap Fixed Interest Rate

September 30, 2018

December 31, 2017

Cash flow hedge
$ 212,500
5/21/2015

5/18/2020
1.58 % $ 3,915 $ 2,033 $ 212,500
5/21/2015

5/18/2020
1.58 % $ 4,020 $ 2,033
Cash flow hedge
110,000
7/2/2015

5/18/2020
1.62 % 1,946 951 110,000
7/2/2015

5/18/2020
1.62 % 2,011 951
Cash flow hedge
50,000
4/7/2016

3/31/2021
1.09 % 2,119 1,544 50,000
4/7/2016

3/31/2021
1.09 % 2,160 1,544
Cash flow hedge
100,000
4/7/2016

3/31/2023
1.33 % 6,352 4,098 100,000
4/7/2016

3/31/2023
1.33 % 6,732 4,098
Cash flow hedge
75,000
5/31/2017

6/30/2024
1.96 % 3,308 1,043 75,000
5/31/2017

6/30/2024
1.96 % 3,860 1,043
Cash flow hedge
10,000
8/10/2017

6/30/2024
2.01 % 415 109 10,000
8/10/2017

6/30/2024
2.01 % 487 109
Cash flow hedge (1)
50,000
6/1/2018

6/30/2025
2.89 % (245 ) - 50,000
6/1/2018

6/30/2025
2.89 % 197 -
$ 607,500 $ 17,810 $ 9,778 $ 607,500 $ 19,467 $ 9,778

(1) In June 2018 the Company entered into a forward interest rate swap agreement with a commercial bank, which beginning January 31, 2019 will effectively fix the interest rate on $50 million of the Company's variable rate debt.
15
~~Index~~
⁽¹⁾In June 2018 the Company entered into a forward interest rate swap agreement with a commercial bank, which beginning January 31, 2019 will effectively fix the interest rate on $50 million of the Company's variable-rate debt.

The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. The Company elected to early adopt ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, on January 1, 2018, using the modified retrospective approach for all of its hedging relationships that existed as of that date. As a result, effective January 1, 2018, the entire change in the fair value of the Company’s designated cash flow hedges is recorded to accumulated other comprehensive income, a component of shareholders’ equity in the Company’s consolidated balance sheets. Prior to January 1, 2018, changes in fair value on the effective portion of all designated cash flow hedges were recorded to accumulated other comprehensive income, while changes in fair value on the ineffective portion of all designated cash flow hedges were recorded to interest and other expense, net in the Company’s consolidated statements of operations.  Since prior to January 1, 2018 there was no material ineffectiveness related to the Company’s outstanding designated cash flow hedges, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

15
Index
The following tables present the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and comprehensive income for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 (in thousands):

Net Unrealized Gain (Loss)
Recognized in Other
Comprehensive Income (Loss)

Net Unrealized Gain (Loss) Reclassified
from Accumulated Other Comprehensive
Income to Interest and Other Expense, net

Three Months Ended June 30,

Three Months Ended June 30,

2018

2017

2018

2017

Interest rate derivatives in cash flow hedging relationships
$ 2,252 $ (1,733 ) $ 512 $ (558 )

Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income

Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income to Interest and Other Expense, net

Three Months Ended September 30,

Three Months Ended September 30,

2018

2017

2018

2017

Interest rate derivatives in cash flow hedging relationships
$ 2,415 $ (144 ) $ 758 $ (403 )

Net Unrealized Gain (Loss)
Recognized in Other
Comprehensive Income (Loss)

Net Unrealized Gain (Loss) Reclassified
from Accumulated Other Comprehensive
Income to Interest and Other Expense, net

Six Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Interest rate derivatives in cash flow hedging relationships
$ 8,600 $ (1,010 ) $ 568 $ (1,380 )

Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income

Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income to Interest and Other Expense, net

Nine Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

Interest rate derivatives in cash flow hedging relationships
$ 11,015 $ (1,154 ) $ 1,326 $ (1,783 )

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. The Company estimates that approximately ~~$4.5~~$5.8 million of net unrealized gains included in accumulated other comprehensive income at ~~June~~September 30, 2018 will be reclassified as a decrease to interest and other expense, net within the next 12 months.

6. Related Parties

The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. There have been no changes to the contracts and relationships discussed in the 2017 Form 10-K. Below is a summary of the significant related party relationships in effect during the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017.

Glade M. Knight, Executive Chairman of the Company, owns Apple Realty Group, Inc. (“ARG”), 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., each of which receive support services from ARG.

The Company provides support services, including the use of the Company’s employees and corporate office, to ARG and is reimbursed by ARG for the cost of these services. The amounts reimbursed to the Company are based on the actual costs of the services and a good faith estimate of the proportionate amount of time incurred by the Company’s employees on behalf of ARG. Total reimbursed costs allocated by the Company to ARG for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 totaled approximately ~~$0.5~~$0.7 million and ~~$0.3~~$0.5 million, respectively, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations.
16
~~Index~~

As part of the cost sharing arrangement, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under this cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies. As of ~~June~~September 30, 2018 and December 31, 2017, total amounts due from ARG for reimbursements under the cost sharing structure each totaled approximately $0.3 million, and are included in other assets, net in the Company’s consolidated balance sheets.

The Company, through a wholly-owned subsidiary, Apple Air Holding, LLC, owns a Learjet used primarily for acquisition, asset management, renovation and public relations purposes. The aircraft is also leased to affiliates of the Company based on third party rates. Leasing activity to affiliates was not significant during the reporting periods. The Company also utilizes aircraft, owned through two entities, one of which is owned by the Company’s Executive Chairman, and the other, by its President and Chief Executive Officer, for acquisition, asset management, renovation and public relations purposes, and reimburses these entities at third party rates. Total costs incurred for the use of these aircraft during the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 were approximately ~~$0.05 million and~~ $0.1 million ~~respectively,~~for each respective period, and are included in general and administrative expenses in the Company’s consolidated statements of operations.
16
Index

7. Shareholders’ Equity

Distributions

The Company’s current annual distribution rate, payable monthly, is $1.20 per common share. For the three months ended ~~June~~September 30, 2018 and 2017, the Company paid distributions of $0.30 per common share for a total of $69.1 million and $66.9 million, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, the Company paid distributions of ~~$0.60~~$0.90 per common share for a total of ~~$138.2~~$207.3 million and ~~$133.8~~$200.7 million, respectively. Additionally, in ~~June~~September 2018, the Company declared a monthly distribution of $0.10 per common share, totaling $23.0 million, which was recorded as a payable as of ~~June~~September 30, 2018 and paid in ~~July~~October 2018. As of December 31, 2017, a monthly distribution of $0.10 per common share, totaling $23.0 million, was recorded as a payable and paid in January 2018. These accrued distributions were included in accounts payable and other liabilities in the Company’s consolidated balance sheets.

Issuance of Shares

In February 2017, the Company executed an equity distribution agreement that allows the Company to sell, from time to time, up to an aggregate of $300 million of its common shares through sales agents under an at-the-market offering program (the “ATM Program”). Since inception of the ATM Program in February 2017 through ~~June~~September 30, 2018, the Company has sold approximately 7.2 million common shares at a weighted-average market sales price of approximately $19.56 per common share and received aggregate gross proceeds of approximately $139.8 million before commission and issuance costs, including the sale of approximately 0.2 million common shares during the ~~six months ended June 30,~~first quarter of 2018 at a weighted-average market sales price of approximately $19.73 per common share and receipt of aggregate gross proceeds of approximately $4.8 million. The Company used the proceeds from the sale of these shares to pay down borrowings on its revolving credit facility. No shares were issued under the ATM Program during the ~~six~~nine months ended ~~June~~September 30, 2017. As of ~~June~~September 30, 2018, approximately $160.2 million remained available for issuance under the ATM Program.

Share Repurchases

In May 2018, the Board of Directors approved an extension of the Company’s existing share repurchase program (the “Share Repurchase Program”), authorizing share repurchases up to an aggregate of $464 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2019 if not terminated earlier. In March 2018, the Company established a written trading plan as part of the Share Repurchase Program that provides for share repurchases in open market transactions that is intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. During the first ~~six~~nine months of 2018, the Company purchased, under its Share Repurchase Program, approximately 0.3 million of its common shares at a weighted-average market purchase price of approximately $16.89 per common share for an aggregate purchase price of approximately $4.3 million. The Company did not purchase any common shares under its Share Repurchase Program during the first ~~six~~nine months of 2017. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with availability under its ~~revolving~~ credit ~~facility.~~facilities.
17
~~Index~~

8.  Compensation Plans

The Company annually establishes an incentive plan for its executive management.  Under the incentive plan for 2018 (the “2018 Incentive Plan”), participants are eligible to receive a bonus based on the achievement of certain 2018 performance measures, consisting of operational performance metrics (including targeted Modified Funds from Operations per share, Comparable Hotels revenue per available room growth and Adjusted Hotel EBITDA Margin growth) and shareholder return metrics (including shareholder return relative to a peer group and total shareholder return, over one-year, two-year and three-year periods).  The components of the operational performance metrics and shareholder return metrics are equally weighted and the two metrics each account for 50% of the total target incentive compensation. The range of potential aggregate payouts under the 2018 Incentive Plan is $0 - $20 million.  Based on performance through ~~June~~September 30, 2018, the Company has accrued approximately ~~$3.7~~$2.5 million as a liability for potential executive bonus payments under the 2018 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of ~~June~~September 30, ~~2018. Compensation expense recognized by the Company under the~~ 2018 ~~Incentive Plan is included~~and in general and administrative expense in the Company’s consolidated ~~statements~~statement of operations ~~and totaled approximately $1.8 million and $3.7 million~~ for the ~~three and six~~nine months ended ~~June~~September 30, 2018. As a result of lower anticipated 2018 performance, during the three months ended September 30, 2018, ~~respectively.~~the Company reduced the previously recorded accrual by approximately $1.2 million, resulting in a reduction to general and administrative expense for the period. Approximately 25% of awards under the 2018 Incentive Plan, if any, will be paid in cash, and 75% will be issued in stock under the Company’s 2014 Omnibus Incentive Plan, approximately two-thirds of which will vest at the end of 2018 and one-third of which will vest in December 2019. Under the incentive plan for 2017 (the “2017 Incentive Plan”), the Company recorded approximately ~~$1.4~~$1.2 million and ~~$3.5~~$4.7 million in general and administrative expenses in the Company’s consolidated statements of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively.

17
Index
~~Share~~ Share-Based Compensation Awards

During the first quarters of 2018 and 2017, the Company issued 367,333 and 101,305 common shares earned under the 2017 Incentive Plan and the incentive plan for 2016 (the “2016 Incentive Plan”) (net of 48,533 and 19,667 common shares surrendered to satisfy tax withholding obligations) at $16.92 and $19.10 per share, or approximately $7.0 million and $2.3 million in ~~share based~~share-based compensation, including the surrendered shares, respectively. Of the total shares issued under the 2017 Incentive Plan, 223,421 shares were unrestricted at the time of issuance, and the remaining 143,912 restricted shares will vest on December 14, 2018. Of the total shares issued under the 2016 Incentive Plan, 60,028 shares were unrestricted at the time of issuance, and the remaining 41,277 restricted shares vested on December 15, 2017, of which 13,129 common shares were surrendered to satisfy tax withholding obligations. Of the total 2017 ~~share based~~share-based compensation, approximately $5.8 million was recorded as a liability as of December 31, 2017, which was included in accounts payable and other liabilities in the Company’s consolidated balance sheet and the remaining $1.2 million, which is subject to vesting on December 14, 2018, will be recognized as compensation expense proportionately throughout 2018. Of the total 2016 ~~share based~~share-based compensation, approximately $0.4 million, which vested on December 15, 2017, was recognized as compensation expense proportionately throughout 2017. For the three months ended ~~June~~September 30, 2018 and 2017, the Company recognized approximately $0.3 million and $0.1 million, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, the Company recognized approximately ~~$0.6~~$0.9 million and ~~$0.2~~$0.3 million, respectively, of ~~share based~~share-based compensation expense related to the unvested restricted share awards.

9.  Subsequent Events

In ~~July~~October 2018, the Company paid approximately $23.0 million, or $0.10 per outstanding common share, in distributions to its common shareholders.

In ~~July~~October 2018, the Company declared a regular monthly cash distribution of $0.10 per common share for the month of ~~August~~November 2018. The distribution is payable on ~~August~~November 15, 2018.

~~On July 13,~~In October 2018, the Company ~~completed the sale of its two Columbus hotels~~entered into a contract to purchase an existing 127-room Hyatt Place in Jacksonville, Florida, for a ~~total combined~~ gross ~~sales~~purchase price of ~~$10.0~~$15.5 million. ~~The~~Although the Company ~~used the net proceeds from the sale~~is working towards acquiring this hotel, there are many conditions to ~~pay down borrowings~~closing that have not yet been satisfied, and there can be no assurance that a closing on ~~its revolving credit facility. See Note 3 for additional information.~~this hotel will occur.

~~In July and August~~During the month of October 2018, the Company ~~refinanced~~purchased, under its ~~$965~~Share Repurchase Program, approximately 1.6 million ~~credit facility and~~of its ~~$150 million term loan facility. See Note 4~~common shares, at a weighted-average market purchase price of approximately $16.35 per common share, for ~~additional information on the Company’s debt refinancing.~~an aggregate purchase price of approximately $25.8 million.

18
Index

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by use of statements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “outlook,” “strategy,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties; the ability of the Company to successfully integrate pending transactions and implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions; adverse changes in the real estate and real estate capital markets; financing risks; litigation 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 REIT. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code. Readers should carefully review the risk factors described in the Company’s filings with the ~~Securities and Exchange Commission (“SEC”),~~SEC, including but not limited to those discussed in the section titled “Risk Factors” in the 2017 Form 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 2017 Form 10-K.

Overview

The Company is a Virginia corporation that has elected to be treated as a REIT for federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the United States. As of ~~June~~September 30, 2018, the Company owned ~~243~~241 hotels with an aggregate of ~~30,929~~30,754 rooms located in urban, high-end suburban and developing markets throughout 34 ~~states, including two hotels with an aggregate of 175 rooms classified as held for sale, which were sold to an unrelated party in July 2018.~~states. All of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 23 hotel management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the NYSE under the ticker symbol “APLE.”
201~~201~~8 Hotel Portfolio Activities ~~Activities~~
The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in select-service hotels, the Company acquired four hotels for an aggregate purchase price of approximately $136.8 million during the first ~~six~~nine months of 2018: a 119-room Hampton Inn & Suites in downtown Atlanta, Georgia; a 144-room Hampton Inn & Suites in Memphis, Tennessee; a 210-room Hampton Inn & Suites in downtown Phoenix, Arizona; and a 132-room Hampton Inn & Suites in Atlanta Perimeter Dunwoody, Georgia. ~~The~~Also, as of September 30, 2018, the Company ~~also~~ had outstanding contracts for the potential purchase of five hotels that are under development for a total purchase price of approximately $130.8 million, which are planned to be completed and opened for business over the next ~~nine~~six to 3027 months from ~~June~~September 30, 2018, at which time closings on these hotels are expected to occur. The Company utilized its revolving credit facility to fund the completed acquisitions and plans to utilize ~~the revolving~~its credit ~~facility~~facilities for any additional acquisitions.

19
Index

For its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided by the proceeds from the sale of the property. Accordingly, during the second quarter of 2018, the Company identified three properties for potential sale: the two Columbus hotels and the Springdale, Arkansas Residence Inn. In May 2018, the Company entered into separate contracts with the same unrelated party for the sale of the two Columbus hotels and, asAs a result, ~~recognized an impairment loss of approximately $0.5 million~~ in ~~the second quarter of 2018. In~~ July 2018, the Company ~~completed the sale of~~sold its two Columbus hotels ~~which were classified as held for sale as of June 30, 2018,~~ for a total combined gross sales price of $10.0 million. Additionally, as of September 30, 2018, the Company had outstanding contracts to sell 17 of its hotels for a combined gross sales price of approximately $180.8 million. Although the Company is working towards the sale of these hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on these hotels will occur under the outstanding sale contracts. If the closings occur, these sales are expected to be completed within the next three to six months from September 30, 2018. The net proceeds from the sales ~~of these hotels~~ were or will be used to pay down borrowings on the Company’s revolving credit facility. Additionally, the Company has committed to sell the Springdale, Arkansas Residence Inn and has received offers from unrelated parties that it is pursuing and, as a result, recognized an impairment loss of approximately $2.6 million in the second quarter of 2018 on this hotel.

See Note 2 titled “Investment in Real Estate” and Note 3 titled ~~“Assets Held for~~“Dispositions and Hotel Sale ~~and Dispositions”~~Contracts” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning these transactions.
Hotel Operations
Although hotel performance can be influenced by many factors including local competition, local and general economic conditions in the United States and the performance of individual managers assigned to each hotel, performance of the Company’s hotels as compared to other hotels within their respective local markets, in general, has met the Company’s expectations for the period owned. Over the past several years, the lodging industry and the Company have experienced modest revenue growth. ~~Moderate improvements~~Improvements in the general U.S. economy have been ~~partially~~ offset by increased supply in many ~~markets.~~markets, offsetting increases in demand. With ~~modest~~flat growth in revenue ~~growth,~~per available room (“RevPAR”), the Company has produced stable operating results during the first ~~six~~nine months of 2018 on a comparable basis (as defined below) ~~with expense increases generally offsetting revenue growth.~~.  There is no way to predict future economic conditions, and there continue to be additional factors that could negatively affect the lodging industry and the Company, including but not limited to, increased hotel supply in certain markets, labor uncertainty both for the economy as a whole and the lodging industry in particular, global volatility and government fiscal policies. The Company, on a comparable basis, and industry are forecasting ~~a low single digit percentage increase in revenue~~flat to negative RevPAR growth for the full year of 2018 as compared to 2017. The anticipated ~~low growth~~forecast is primarily due to inconsistent demand in certain markets and increased hotel supply meeting demand growth in others, limiting the Company’s ability to increase ~~rates.~~rates, as well as the nonrecurring impact of restoration and recovery efforts related to hurricanes in Texas and Florida in 2017 that provided increased demand in the second half of 2017.

As of ~~June~~September 30, 2018, the Company owned ~~243~~241 hotels with a total of ~~30,929~~30,754 rooms as compared to ~~235~~237 hotels with a total of ~~29,978~~30,188 rooms as of ~~June~~September 30, 2017, however, results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and prior year. During the ~~six~~nine months ended ~~June~~September 30, 2018, the Company acquired one newly constructed hotel on May 2, 2018 and three existing hotels (two on February 5, 2018 and one on June 28, 2018)., and sold two hotels on July 13, 2018. During 2017, the Company acquired three newly constructed hotels (one on February 2, 2017 and two on September 12, 2017) and three existing hotels (one on October 13, 2017, one on October 20, 2017 and one on December 1, 2017), and sold two hotels (one on April 20, 2017 and one on October 5, 2017). As a result, the comparability of results for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 as discussed below is impacted by these transactions.

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

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Index

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except statistical data)

2018

Percent of
Revenue

2017

Percent of
Revenue

Percent
Change

2018

Percent of
Revenue

2017

Percent of
Revenue

Percent
Change

2018

Percent of Revenue

2017

Percent of Revenue

Percent Change

2018

Percent of Revenue

2017

Percent of Revenue

Percent Change

Total revenue
$ 344,714 100.0 % $ 331,704 100.0 % 3.9 % $ 643,103 100.0 % $ 624,629 100.0 % 3.0 % $ 332,197 100.0 % $ 324,926 100.0 % 2.2 % $ 975,300 100.0 % $ 949,555 100.0 % 2.7 %
Hotel operating expense
186,531 54.1 % 180,012 54.3 % 3.6 % 358,860 55.8 % 348,466 55.8 % 3.0 % 185,248 55.8 % 179,829 55.3 % 3.0 % 544,108 55.8 % 528,295 55.6 % 3.0 %
Property taxes, insurance and other expense
18,681 5.4 % 17,821 5.4 % 4.8 % 35,910 5.6 % 34,748 5.6 % 3.3 % 19,230 5.8 % 17,598 5.4 % 9.3 % 55,140 5.7 % 52,346 5.5 % 5.3 %
Ground lease expense
2,912 0.8 % 2,839 0.9 % 2.6 % 5,762 0.9 % 5,655 0.9 % 1.9 % 2,818 0.8 % 2,831 0.9 % -0.5 % 8,580 0.9 % 8,486 0.9 % 1.1 %
General and administrative expense
6,721 1.9 % 6,151 1.9 % 9.3 % 13,598 2.1 % 12,905 2.1 % 5.4 % 3,370 1.0 % 5,350 1.6 % -37.0 % 16,968 1.7 % 18,255 1.9 % -7.1 %

Transaction and litigation costs (reimbursements)
- (2,586 ) n/a - (2,586 ) n/a - - n/a - (2,586 ) n/a
Loss on impairment of depreciable real estate assets
3,135 - n/a 3,135 7,875 n/a - - n/a 3,135 7,875 n/a
Depreciation expense
45,743 43,893 4.2 % 90,583 87,660 3.3 % 46,169 44,110 4.7 % 136,752 131,770 3.8 %
Gain (loss) on sale of real estate
- (157 ) n/a - 15,983 n/a
Interest and other expense, net
13,210 11,849 11.5 % 25,129 23,566 6.6 % 13,140 12,024 9.3 % 38,269 35,590 7.5 %
Gain on sale of real estate
- 16,140 n/a - 16,140 n/a
Income tax expense
151 259 -41.7 % 314 509 -38.3 % 100 203 -50.7 % 414 712 -41.9 %

Number of hotels owned at end of period
243 235 3.4 % 243 235 3.4 % 241 237 1.7 % 241 237 1.7 %
ADR
$ 139.58 $ 137.56 1.5 % $ 137.09 $ 135.58 1.1 % $ 137.77 $ 136.73 0.8 % $ 137.32 $ 135.97 1.0 %
Occupancy
81.7 % 81.5 % 0.2 % 78.2 % 78.0 % 0.3 % 78.9 % 80.0 % -1.4 % 78.4 % 78.7 % -0.4 %
RevPAR
$ 114.09 $ 112.10 1.8 % $ 107.20 $ 105.70 1.4 % $ 108.70 $ 109.45 -0.7 % $ 107.71 $ 106.96 0.7 %
Comparable Hotels Operating Results

The following table reflects certain operating statistics for the Company’s 241 hotels owned ~~and held for use~~ as of ~~June~~September 30, 2018 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 241 hotels owned ~~and held for use~~ as of the end of the reporting period. ~~These metrics do not include the results generated by the two Columbus hotels, which were held for sale as of June 30, 2018 and sold on July 13, 2018.~~ For the hotels acquired during the current reporting period and prior year, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company. This information has not been audited, either for the periods owned or prior to ownership by the Company. For dispositions, ~~and assets held for sale,~~ results have been excluded for the Company’s period of ownership.

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~~Index~~

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

Percent Change

2018

2017

Percent Change

2018

2017

Percent Change

2018

2017

Percent Change

ADR
$ 139.83 $ 138.22 1.2 % $ 137.39 $ 135.95 1.1 % $ 137.79 $ 138.27 -0.3 % $ 137.53 $ 136.75 0.6 %
Occupancy
81.8 % 81.7 % 0.1 % 78.3 % 78.2 % 0.1 % 78.9 % 80.4 % -1.9 % 78.5 % 78.9 % -0.5 %
RevPAR
$ 114.38 $ 112.88 1.3 % $ 107.52 $ 106.31 1.1 % $ 108.75 $ 111.20 -2.2 % $ 107.93 $ 107.96 -

Same Store Operating Results

The following table reflects certain operating statistics for the ~~Company’s~~ 231 hotels owned ~~and held for use~~ by the Company as of January 1, 2017 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

Percent Change

2018

2017

Percent Change

2018

2017

Percent Change

2018

2017

Percent Change

ADR
$ 139.28 $ 137.60 1.2 % $ 137.01 $ 135.50 1.1 % $ 136.63 $ 137.07 -0.3 % $ 136.88 $ 136.04 0.6 %
Occupancy
82.1 % 81.8 % 0.4 % 78.5 % 78.3 % 0.3 % 79.1 % 80.5 % -1.7 % 78.7 % 79.0 % -0.4 %
RevPAR
$ 114.29 $ 112.53 1.6 % $ 107.51 $ 106.10 1.3 % $ 108.06 $ 110.28 -2.0 % $ 107.69 $ 107.51 0.2 %
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Index

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the United States as well as each individual locality. Economic indicators in the United States have generally been favorable, which has been ~~partially~~ offset by increased supply in many of the Company’s markets. As a result, the Company’s revenue and operating results for its Comparable Hotels and Same Store Hotels ~~experienced modest growth~~were generally unchanged during the first ~~half~~nine months of 2018 as compared to 2017. Due ~~to the increase in revenue and operating income in the second half of 2017 related~~ to the increase in demand from restoration and recovery efforts in Houston, Austin and Florida resulting from hurricanes Harvey and Irma in the second half of 2017, revenue and operating results for Comparable Hotels were lower in the third quarter of 2018 as compared to the same period in 2017, and the Company expects continued flat to ~~modest improvement~~negative growth in ~~both revenue~~RevPAR and operating results for its Comparable Hotels for the ~~second half~~fourth quarter of 2018 as compared to the same period in 2017. The ~~Company’s~~Company had five hotels directly impacted by Hurricane Florence in September 2018. Other than the additional losses from insurance deductibles discussed below, these hotels did not experience a net material impact from the hurricane in the third quarter. In addition to the impact to these five hotels, certain hotels in ~~general have shown~~the originally projected path of Hurricane Florence experienced cancellations and below average revenue in the latter half of September 2018. The Company anticipates a negative impact on operating results ~~consistent with industry and brand averages for~~in the ~~period~~fourth quarter of ~~ownership.~~2018 from Hurricane Michael which caused the closure of its two hotels in Panama City, Florida in October 2018. The hotels are not expected to be fully operational until December of this year. In addition to the remediation costs before deductibles discussed below, the Company will experience a reduction in operating income in the fourth quarter of 2018 as business interruption proceeds will not likely be recognized until 2019.

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 ~~June~~September 30, 2018 and 2017, the Company had total revenue of ~~$344.7~~$332.2 million and ~~$331.7~~$324.9 million, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, the Company had total revenue of ~~$643.1~~$975.3 million and ~~$624.6~~$949.6 million, respectively. For the three months ended ~~June~~September 30, 2018 and 2017, respectively, Comparable Hotels achieved combined average occupancy of ~~81.8%~~78.9% and ~~81.7%~~80.4%, ADR of ~~$139.83~~$137.79 and ~~$138.22~~$138.27 and RevPAR of ~~$114.38~~$108.75 and ~~$112.88.~~$111.20. For the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively, Comparable Hotels achieved combined average occupancy of ~~78.3%~~78.5% and ~~78.2%~~78.9%, ADR of ~~$137.39~~$137.53 and ~~$135.95~~$136.75 and RevPAR of ~~$107.52~~$107.93 and ~~$106.31.~~$107.96. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

Compared to the same ~~periods~~period in 2017, during the ~~second~~third quarter ~~and first half~~ of 2018, the Company experienced ~~a modest increase~~slight declines in ADR and ~~stable~~ occupancy for Comparable Hotels, resulting in a ~~1.3% and 1.1% increase~~2.2% decrease in RevPAR for Comparable Hotels. For the nine months ended September 30, 2018, ADR increased and occupancy decreased slightly, leaving RevPAR for Comparable Hotels ~~respectively.~~virtually unchanged as compared to the same period in 2017. Markets/areas with above average growth in the ~~second~~third quarter of 2018 and first ~~half~~nine months of 2018 for the Company and industry included Fort Worth, Texas, Knoxville, Tennessee, Tucson, Arizona, ~~Southeastern Texas~~Chicago, Illinois and ~~South Florida.~~Atlanta, Georgia. Markets that were below average for the Company and industry included ~~Boston, Massachusetts, Denver, Colorado,~~ Kansas City, Missouri, ~~St. Louis, Missouri~~Dallas, Texas and ~~Seattle, Washington.~~ Washington, D.C. Additionally, as a result of the increase in demand in the third quarter of 2017 from restoration and recovery efforts in Austin, Houston and South Florida related to hurricanes Harvey and Irma, these markets were below average for the third quarter of 2018 as compared to the third quarter of 2017.
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~~Index~~

Hotel Operating Expense

Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees.  For the three months ended ~~June~~September 30, 2018 and 2017, respectively, hotel operating expense totaled ~~$186.5~~$185.2 million and ~~$180.0~~$179.8 million or ~~54.1%~~55.8% and ~~54.3%~~55.3% of total revenue for each respective period.  For the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, respectively, hotel operating expense totaled ~~$358.9~~$544.1 million and ~~$348.5~~$528.3 million or 55.8% and 55.6% of total revenue for each respective period.  For the Company’s Comparable Hotels, hotel operating expense as a percentage of revenue increased approximately 1090 and 3050 basis points, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2018 as compared to the same periods in 2017. Increases in labor costs as a percentage of revenue during the first ~~half~~nine months of 2018 as compared to the same period in 2017 were the primary cause of the increased Comparable Hotels operating expense. 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~~The Company will continue to work with its management companies to reduce costs as a percentage of revenue where possible while maintaining quality and service levels at each property.

22
Index
Property Taxes, Insurance and Other Expense

Property taxes, insurance, and other expense for the three months ended ~~June~~September 30, 2018 and 2017 totaled ~~$18.7~~$19.2 million and ~~$17.8~~$17.6 million, respectively, or 5.8% and 5.4% of total revenue for each respective period, and for Comparable Hotels, ~~5.4%~~5.8% and 5.3% of total revenue for each respective period. For the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, property taxes, insurance, and other expense totaled ~~$35.9~~$55.1 million and ~~$34.7~~$52.3 million, respectively, or ~~5.6%~~5.7% and 5.5% of total revenue for each respective period, and for Comparable Hotels, 5.6% and 5.5% of total revenue for each respective period. For the Company’s Comparable Hotels, real estate taxes increased slightly during the first ~~half~~nine months of 2018 compared to the first ~~half~~nine months of 2017, with tax increases at certain locations due to the reassessment of property values by localities related to the improved economy, partially offset by decreases at other locations due to successful appeals of tax assessments. With the economy continuing to improve, the Company anticipates continued increases in property tax assessments during the remainder of 2018. The Company will continue to appeal tax assessments in certain jurisdictions to attempt to minimize tax increases as warranted. Additionally, due to increased losses in 2017 for property insurance carriers, the Company’s property insurance costs have increased slightly as a percentage of revenue for the first ~~six~~nine months of 2018 as compared to the first ~~six~~nine months of 2017 and are anticipated to increase for the remainder of 2018. The Company incurred approximately $0.6 million in uninsured losses in the third quarter of 2018 related to wind and water damage at certain of its North Carolina properties as a result of Hurricane Florence, and anticipates recording uninsured losses totaling approximately $1 million in the fourth quarter of 2018 related to Hurricane Michael.

Ground Lease Expense

Ground lease expense for the three months ended ~~June~~September 30, 2018 and 2017 was ~~$2.9 million and~~ $2.8 million ~~respectively.~~for each respective period. For the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, ground lease expense was ~~$5.8~~$8.6 million and ~~$5.7~~$8.5 million, respectively. Ground lease expense primarily represents the expense incurred by the Company to lease land for 14 of its hotel properties. One of the ground leases was assumed by the buyer of the Columbus, Georgia TownePlace Suites in July 2018.

General and Administrative Expense

General and administrative expense for the three months ended ~~June~~September 30, 2018 and 2017 was ~~$6.7~~$3.4 million and ~~$6.2~~$5.4 million, respectively, or ~~1.9%~~1.0% and 1.6% of total revenue for each respective period. For the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, general and administrative expense was ~~$13.6~~$17.0 million and ~~$12.9~~$18.3 million, respectively, or ~~2.1%~~1.7% and 1.9% of total revenue for each respective period.  The principal components of general and administrative expense are payroll and related benefit costs, legal fees, accounting fees and reporting expenses. The decrease in general and administrative expense for both the three and nine months ended September 30, 2018 as compared to the prior year was due primarily to a decrease in compensation expense. Based on the Company’s performance through September 30, 2018 in relation to the operational performance and shareholder return metrics of the 2018 Incentive Plan, the accrual for potential executive bonus payments was reduced during the third quarter of 2018 by approximately $1.2 million, resulting in a decrease in executive compensation expense for the three and nine months ended September 30, 2018 of approximately $2.4 million and $2.2 million, respectively, as compared to the same periods in 2017.  The decrease in compensation expense was partially offset by an increase in share-based compensation expense.

Transaction and Litigation Costs (Reimbursements)

During the ~~three and six~~nine months ended ~~June~~September 30, 2017, transaction and litigation costs (reimbursements) ~~each~~ totaled $(2.6) million which primarily related to additional proceeds received in May 2017 from the Company’s directors and officers insurance carriers in connection with a legal settlement that occurred in 2017 related to the Company’s merger with Apple REIT Ten, Inc. in 2016.

Loss on Impairment of Depreciable Real Estate Assets

Loss on impairment of depreciable real estate assets was $3.1 million ~~for both the three and six months ended June 30, 2018,~~ and $7.9 million for the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, ~~which~~respectively, and consisted of impairment charges for the two Columbus, Georgia hotels (in 2018 and 2017) and the Springdale, Arkansas Residence Inn (in 2018). See Note 2 titled “Investment in Real Estate” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning these impairment losses.

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Index

Depreciation Expense

Depreciation expense for the three months ended ~~June~~September 30, 2018 and 2017 was ~~$45.7~~$46.2 million and ~~$43.9~~$44.1 million, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, depreciation expense was ~~$90.6~~$136.8 million and ~~$87.7~~$131.8 million, respectively.  Depreciation expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for their respective periods owned. The increase was primarily due to the increase in the number of properties owned as a result of the acquisition of four hotels in the first ~~half~~nine months of 2018 and six hotels in 2017 and renovations completed throughout 2018 and 2017.

Interest and Other Expense, net
Interest and other expense, net for the three months ended ~~June~~September 30, 2018 and 2017 was ~~$13.2~~$13.1 million and ~~$11.8~~$12.0 million, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, interest and other expense, net was ~~$25.1~~$38.3 million and ~~$23.6~~$35.6 million, respectively, and is net of $0.5 million and ~~$0.6~~$0.7 million, respectively, of interest capitalized associated with renovation ~~projects, for each respective period.~~projects.  Although average outstanding debt was slightly less in the first ~~half~~nine months of 2018 as compared to the first ~~half~~nine months of 2017, interest expense increased as a result of an increase in the Company’s effective interest rate during the first ~~half~~nine months of 2018 as compared to 2017, due to (a) the issuance of longer term fixed-rate debt subsequent to ~~June~~September 30, 2017, which was used to reduce the Company’s revolving credit facility, resulting in a higher average interest rate than the variable-rate borrowings repaid, and (b) an increase in interest rates on the Company’s variable-rate debt, with the one-month LIBOR increasing from ~~1.22%~~1.23% at ~~June~~September 30, 2017 to ~~2.09%~~2.26% at ~~June~~September 30, 2018. While approximately ~~77%~~79% of the Company’s outstanding debt was effectively ~~fixed rate~~fixed-rate debt at ~~June~~September 30, 2018, the Company does expect interest costs for its remaining variable-rate debt to continue to increase for the remainder of 2018 due to expected increased ~~borrowings~~interest rates and increased ~~rates for its remaining variable rate debt. However,~~borrowings as compared to the prior year. The impact from higher interest rates ~~and increased borrowings~~ will be partially mitigated by the Company’s 2018 debt refinancing, resulting in lower spreads charged on outstanding borrowings under its revolving credit facility and $575 million of its outstanding term loans by 10 to 15 basis points, depending on the Company’s leverage ratio. See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning the Company’s debt refinancing.

Non-GAAP Financial Measures
The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations (“FFO”), Modified FFO (“MFFO”), Earnings before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), and Adjusted EBITDA (“Adjusted EBITDA”). These non-GAAP financial measures should be considered along with, but not as alternatives to, net income, cash flow from operations or any other operating GAAP measure. FFO, MFFO, EBITDA and Adjusted EBITDA are not necessarily indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. Although FFO, MFFO, EBITDA and Adjusted EBITDA, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA and Adjusted EBITDA as reported by other companies that do not define such terms exactly as the Company defines such terms, the Company believes these supplemental measures are useful to investors when comparing the Company’s results between periods and with other REITs.

FFO and MFFO

The Company calculates and presents FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), which defines FFO as net income (computed in accordance with GAAP), excluding gains or losses from sales of real estate, extraordinary items as defined by GAAP, and the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the Nareit definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.

24
Index
The Company further adjusts FFO for certain additional items including (i) the exclusion of transaction and litigation costs (reimbursements), as these costs do not represent ongoing operations, and (ii) the exclusion of non-cash straight-line ground lease expense, as this expense does not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.

24
~~Index~~
The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 (in thousands).

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

2018

2017

2018

2017

Net income
$ 67,630 $ 87,606 $ 109,812 $ 121,971 $ 62,122 $ 62,824 $ 171,934 $ 184,795
Depreciation of real estate owned
45,502 43,664 90,112 87,201 45,925 43,880 136,037 131,081
Gain on sale of real estate
- (16,140 ) - (16,140 )
(Gain) loss on sale of real estate
- 157 - (15,983 )
Loss on impairment of depreciable real estate assets
3,135 - 3,135 7,875 - - 3,135 7,875
Amortization of favorable and unfavorable leases, net
148 168 354 333 146 165 500 498
Funds from operations
116,415 115,298 203,413 201,240 108,193 107,026 311,606 308,266
Transaction and litigation costs (reimbursements)
- (2,586 ) - (2,586 ) - - - (2,586 )
Non-cash straight-line ground lease expense
898 938 1,802 1,877 875 917 2,677 2,794
Modified funds from operations
$ 117,313 $ 113,650 $ 205,215 $ 200,531 $ 109,068 $ 107,943 $ 314,283 $ 308,474

EBITDA and Adjusted EBITDA

EBITDA is a commonly used measure of performance in many industries and is defined as net income excluding interest, income taxes, depreciation and amortization. The Company believes EBITDA is useful to investors because it helps the Company and its investors evaluate the ongoing operating performance of the Company by removing the impact of its capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). In addition, certain covenants included in the agreements governing the Company’s indebtedness use EBITDA, as defined in the specific credit agreement, as a measure of financial compliance.

The Company considers the exclusion of certain additional items from EBITDA useful, including (i) the exclusion of transaction and litigation costs (reimbursements), gains or losses from sales of real estate, and the loss on impairment of depreciable real estate assets, as these items do not represent ongoing operations, and (ii) the exclusion of non-cash straight-line ground lease expense, as this expense does not reflect the underlying performance of the related hotels.

The following table reconciles the Company’s GAAP net income to EBITDA and Adjusted EBITDA for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 (in thousands).

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

2018

2017

2018

2017

Net income
$ 67,630 $ 87,606 $ 109,812 $ 121,971 $ 62,122 $ 62,824 $ 171,934 $ 184,795
Depreciation
45,743 43,893 90,583 87,660 46,169 44,110 136,752 131,770
Amortization of favorable and unfavorable leases, net
148 168 354 333 146 165 500 498
Interest and other expense, net
13,210 11,849 25,129 23,566 13,140 12,024 38,269 35,590
Income tax expense
151 259 314 509 100 203 414 712
EBITDA
126,882 143,775 226,192 234,039 121,677 119,326 347,869 353,365
Transaction and litigation costs (reimbursements)
- (2,586 ) - (2,586 ) - - - (2,586 )
Gain on sale of real estate
- (16,140 ) - (16,140 )
(Gain) loss on sale of real estate
- 157 - (15,983 )
Loss on impairment of depreciable real estate assets
3,135 - 3,135 7,875 - - 3,135 7,875
Non-cash straight-line ground lease expense
898 938 1,802 1,877 875 917 2,677 2,794
Adjusted EBITDA
$ 130,915 $ 125,987 $ 231,129 $ 225,065 $ 122,552 $ 120,400 $ 353,681 $ 345,465
25
Index
Hotels Owned

As of ~~June~~September 30, 2018, the Company owned ~~243~~241 hotels with an aggregate of ~~30,929~~30,754 rooms located in 34 ~~states, including two hotels with an aggregate of 175 rooms classified as held for sale, which were sold to an unrelated party in July 2018.~~states. The following tables summarize the number of hotels and rooms by brand and by state:

25
~~Index~~
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
40 5,029
Residence Inn
34 4,011
Homewood Suites
34 3,831
SpringHill Suites
16 2,159
TownePlace Suites
11 1,110
Fairfield Inn
11 1,300
Home2 Suites
8 910
Marriott
2 616
Embassy Suites
2 316
Renaissance
1 205
Total
241 30,754

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
40 5,029
Residence Inn
34 4,011
Homewood Suites
34 3,831
SpringHill Suites
17 2,248
TownePlace Suites
12 1,196
Fairfield Inn
11 1,300
Home2 Suites
8 910
Marriott
2 616
Embassy Suites
2 316
Renaissance
1 205
    Total
243 30,929
Number of Hotels and Guest Rooms by State

Number of

Number of

State

Hotels

Rooms

Alabama
15 1,434
Alaska
2 304
Arizona
12 1,644
Arkansas
4 408
California
27 3,807
Colorado
4 567
Florida
23 2,851
Georgia
8 847
Idaho
2 416
Illinois
8 1,420
Indiana
4 479
Iowa
3 301
Kansas
4 422
Louisiana
4 541
Maine
1 179
Maryland
2 233
Massachusetts
4 466
Michigan
1 148
Minnesota
2 244
Mississippi
2 168
Missouri
4 544
Nebraska
4 621
New Jersey
5 629
New York
4 550
North Carolina
12 1,337
Ohio
2 252
Oklahoma
4 545
Pennsylvania
3 391
South Carolina
5 538
Tennessee
13 1,502
Texas
34 4,072
Utah
3 393
Virginia
14 2,067
Washington
4 609
    Total
243 30,929
Number of Hotels and Guest Rooms by State

Number of

Number of

State

Hotels

Rooms

Alabama
15 1,434
Alaska
2 304
Arizona
12 1,644
Arkansas
4 408
California
27 3,807
Colorado
4 567
Florida
23 2,851
Georgia
6 672
Idaho
2 416
Illinois
8 1,420
Indiana
4 479
Iowa
3 301
Kansas
4 422
Louisiana
4 541
Maine
1 179
Maryland
2 233
Massachusetts
4 466
Michigan
1 148
Minnesota
2 244
Mississippi
2 168
Missouri
4 544
Nebraska
4 621
New Jersey
5 629
New York
4 550
North Carolina
12 1,337
Ohio
2 252
Oklahoma
4 545
Pennsylvania
3 391
South Carolina
5 538
Tennessee
13 1,502
Texas
34 4,072
Utah
3 393
Virginia
14 2,067
Washington
4 609
Total
241 30,754

26
Index

The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the ~~243~~241 hotels the Company owned as of ~~June~~September 30, 2018.

City

State

Brand

Manager

Date
Acquired or
Completed

Rooms

Anchorage

AK

Embassy Suites

Stonebridge

4/30/2010
169
Anchorage

AK

Home2 Suites

Stonebridge

12/1/2017
135
Auburn

AL

Hilton Garden Inn

LBA

3/1/2014
101
Birmingham

AL

Courtyard

LBA

3/1/2014
84
Birmingham

AL

Hilton Garden Inn

LBA

9/12/2017
104
Birmingham

AL

Home2 Suites

LBA

9/12/2017
106
Birmingham

AL

Homewood Suites

McKibbon

3/1/2014
95
Dothan

AL

Hilton Garden Inn

LBA

6/1/2009
104
Dothan

AL

Residence Inn

LBA

3/1/2014
84
Huntsville

AL

Hampton

LBA

9/1/2016
98
Huntsville

AL

Hilton Garden Inn

LBA

3/1/2014
101
Huntsville

AL

Home2 Suites

LBA

9/1/2016
77
Huntsville

AL

Homewood Suites

LBA

3/1/2014
107
Mobile

AL

Hampton

McKibbon

9/1/2016
101
Montgomery

AL

Hilton Garden Inn

LBA

3/1/2014
97
Montgomery

AL

Homewood Suites

LBA

3/1/2014
91
Prattville

AL

Courtyard

LBA

3/1/2014
84
Rogers

AR

Hampton

Raymond

8/31/2010
122
Rogers

AR

Homewood Suites

Raymond

4/30/2010
126
Rogers

AR

Residence Inn

Raymond

3/1/2014
88
Springdale

AR

Residence Inn

Aimbridge

3/1/2014
72
Chandler

AZ

Courtyard

North Central

11/2/2010
150
Chandler

AZ

Fairfield Inn & Suites

North Central

11/2/2010
110
Phoenix

AZ

Courtyard

North Central

11/2/2010
164
Phoenix

AZ

Courtyard

North Central

9/1/2016
127
Phoenix

AZ

Hampton

North Central

9/1/2016
125
Phoenix

AZ

Hampton

North Central

5/2/2018
210
Phoenix

AZ

Homewood Suites

North Central

9/1/2016
134
Phoenix

AZ

Residence Inn

North Central

11/2/2010
129
Scottsdale

AZ

Hilton Garden Inn

North Central

9/1/2016
122
Tucson

AZ

Hilton Garden Inn

Western

7/31/2008
125
Tucson

AZ

Residence Inn

Western

3/1/2014
124
Tucson

AZ

TownePlace Suites

Western

10/6/2011
124
Agoura Hills

CA

Homewood Suites

Dimension

3/1/2014
125
Burbank

CA

Courtyard

Huntington

8/11/2015
190
Burbank

CA

Residence Inn

Marriott

3/1/2014
166
Burbank

CA

SpringHill Suites

Marriott

7/13/2015
170
Clovis

CA

Hampton

Dimension

7/31/2009
86
Clovis

CA

Homewood Suites

Dimension

2/2/2010
83
Cypress

CA

Courtyard

Dimension

3/1/2014
180
Cypress

CA

Hampton

Dimension

6/29/2015
110
Oceanside

CA

Courtyard

Marriott

9/1/2016
142
Oceanside

CA

Residence Inn

Marriott

3/1/2014
125
Rancho Bernardo/San Diego

CA

Courtyard

InnVentures

3/1/2014
210
Sacramento

CA

Hilton Garden Inn

Dimension

3/1/2014
153
San Bernardino

CA

Residence Inn

InnVentures

2/16/2011
95
San Diego

CA

Courtyard

Huntington

9/1/2015
245
27
Index
City
State
Brand
Manager
Date Acquired or Completed
Rooms

San Diego

CA

Hampton

Dimension

3/1/2014
177
San Diego

CA

Hilton Garden Inn

InnVentures

3/1/2014
200
San Diego

CA

Residence Inn

Dimension

3/1/2014
121
San Jose
CA
Homewood Suites
Dimension
3/1/2014
140
San Juan Capistrano
CA
Residence Inn
Marriott
9/1/2016
130
Santa Ana
CA
Courtyard
Dimension
5/23/2011
155
Santa Clarita
CA
Courtyard
Dimension
9/24/2008
140
Santa Clarita
CA
Fairfield Inn
Dimension
10/29/2008
66
Santa Clarita
CA
Hampton
Dimension
10/29/2008
128
Santa Clarita
CA
Residence Inn
Dimension
10/29/2008
90
Tulare
CA
Hampton
InnVentures
3/1/2014
86
Tustin
CA
Fairfield Inn & Suites
Marriott
9/1/2016
145
Tustin
CA
Residence Inn
Marriott
9/1/2016
149
Colorado Springs
CO
Hampton
Chartwell
9/1/2016
101
Denver
CO
Hilton Garden Inn
Stonebridge
9/1/2016
221
Highlands Ranch
CO
Hilton Garden Inn
Dimension
3/1/2014
128
Highlands Ranch
CO
Residence Inn
Dimension
3/1/2014
117
Boca Raton
FL
Hilton Garden Inn
White Lodging
9/1/2016
149
Cape Canaveral
FL
Homewood Suites
LBA
9/1/2016
153
Fort Lauderdale
FL
Hampton
Vista Host
12/31/2008
109
Fort Lauderdale
FL
Hampton
LBA
6/23/2015
156
Fort Lauderdale
FL
Residence Inn
LBA
9/1/2016
156
Gainesville
FL
Hilton Garden Inn
McKibbon
9/1/2016
104
Gainesville
FL
Homewood Suites
McKibbon
9/1/2016
103
Jacksonville
FL
Homewood Suites
McKibbon
3/1/2014
119
Lakeland
FL
Courtyard
LBA
3/1/2014
78
Miami
FL
Courtyard
Dimension
3/1/2014
118
Miami
FL
Hampton
White Lodging
4/9/2010
121
Miami
FL
Homewood Suites
Dimension
3/1/2014
162
Orlando
FL
Fairfield Inn & Suites
Marriott
7/1/2009
200
Orlando
FL
SpringHill Suites
Marriott
7/1/2009
200
Panama City
FL
Hampton
LBA
3/12/2009
95
Panama City
FL
TownePlace Suites
LBA
1/19/2010
103
Pensacola
FL
TownePlace Suites
McKibbon
9/1/2016
97
Sanford
FL
SpringHill Suites
LBA
3/1/2014
105
Sarasota
FL
Homewood Suites
Hilton
3/1/2014
100
Tallahassee
FL
Fairfield Inn & Suites
LBA
9/1/2016
97
Tallahassee
FL
Hilton Garden Inn
LBA
3/1/2014
85
Tampa
FL
Embassy Suites
White Lodging
11/2/2010
147
Tampa
FL
TownePlace Suites
McKibbon
3/1/2014
94
Albany
GA
Fairfield Inn & Suites
LBA
1/14/2010
87
Atlanta/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
Schulte
9/1/2016
103
27
~~Index~~
City

State

Brand

Manager

Date
Acquired or
Completed

Rooms

San Jose

CA

Homewood Suites

Dimension

3/1/2014
140
San Juan Capistrano

CA

Residence Inn

Marriott

9/1/2016
130
Santa Ana

CA

Courtyard

Dimension

5/23/2011
155
Santa Clarita

CA

Courtyard

Dimension

9/24/2008
140
Santa Clarita

CA

Fairfield Inn

Dimension

10/29/2008
66
Santa Clarita

CA

Hampton

Dimension

10/29/2008
128
Santa Clarita

CA

Residence Inn

Dimension

10/29/2008
90
Tulare

CA

Hampton

InnVentures

3/1/2014
86
Tustin

CA

Fairfield Inn & Suites

Marriott

9/1/2016
145
Tustin

CA

Residence Inn

Marriott

9/1/2016
149
Colorado Springs

CO

Hampton

Chartwell

9/1/2016
101
Denver

CO

Hilton Garden Inn

Stonebridge

9/1/2016
221
Highlands Ranch

CO

Hilton Garden Inn

Dimension

3/1/2014
128
Highlands Ranch

CO

Residence Inn

Dimension

3/1/2014
117
Boca Raton

FL

Hilton Garden Inn

White Lodging

9/1/2016
149
Cape Canaveral

FL

Homewood Suites

LBA

9/1/2016
153
Fort Lauderdale

FL

Hampton

Vista Host

12/31/2008
109
Fort Lauderdale

FL

Hampton

LBA

6/23/2015
156
Fort Lauderdale

FL

Residence Inn

LBA

9/1/2016
156
Gainesville

FL

Hilton Garden Inn

McKibbon

9/1/2016
104
Gainesville

FL

Homewood Suites

McKibbon

9/1/2016
103
Jacksonville

FL

Homewood Suites

McKibbon

3/1/2014
119
Lakeland

FL

Courtyard

LBA

3/1/2014
78
Miami

FL

Courtyard

Dimension

3/1/2014
118
Miami

FL

Hampton

White Lodging

4/9/2010
121
Miami

FL

Homewood Suites

Dimension

3/1/2014
162
Orlando

FL

Fairfield Inn & Suites

Marriott

7/1/2009
200
Orlando

FL

SpringHill Suites

Marriott

7/1/2009
200
Panama City

FL

Hampton

LBA

3/12/2009
95
Panama City

FL

TownePlace Suites

LBA

1/19/2010
103
Pensacola

FL

TownePlace Suites

McKibbon

9/1/2016
97
Sanford

FL

SpringHill Suites

LBA

3/1/2014
105
Sarasota

FL

Homewood Suites

Hilton

3/1/2014
100
Tallahassee

FL

Fairfield Inn & Suites

LBA

9/1/2016
97
Tallahassee

FL

Hilton Garden Inn

LBA

3/1/2014
85
Tampa

FL

Embassy Suites

White Lodging

11/2/2010
147
Tampa

FL

TownePlace Suites

McKibbon

3/1/2014
94
Albany

GA

Fairfield Inn & Suites

LBA

1/14/2010
87
Atlanta/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
Columbus

GA

SpringHill Suites

LBA

3/1/2014
89 (1)
Columbus

GA

TownePlace Suites

LBA

3/1/2014
86 (1)
Macon

GA

Hilton Garden Inn

LBA

3/1/2014
101
Savannah

GA

Hilton Garden Inn

Newport

3/1/2014
105
Cedar Rapids

IA

Hampton

Schulte

9/1/2016
103
Cedar Rapids

IA

Homewood Suites

Schulte

9/1/2016
95
Davenport

IA

Hampton

Schulte

9/1/2016
103
Boise

ID

Hampton

Raymond

4/30/2010
186
Boise

ID

SpringHill Suites

InnVentures

3/1/2014
230

28
Index

City

State

Brand

Manager

Date
Acquired or
Completed

Rooms
Cedar Rapids
IA
Homewood Suites
Schulte
9/1/2016
95
Davenport
IA
Hampton
Schulte
9/1/2016
103
Boise
ID
Hampton
Raymond
4/30/2010
186
Boise
ID
SpringHill Suites
InnVentures
3/1/2014
230
Des Plaines

IL

Hilton Garden Inn

Raymond

9/1/2016
252
Hoffman Estates

IL

Hilton Garden Inn

White Lodging

9/1/2016
184
Mettawa

IL

Hilton Garden Inn

White Lodging

11/2/2010
170
Mettawa

IL

Residence Inn

White Lodging

11/2/2010
130
Rosemont

IL

Hampton

Raymond

9/1/2016
158
Schaumburg

IL

Hilton Garden Inn

White Lodging

11/2/2010
166
Skokie

IL

Hampton

Raymond

9/1/2016
225
Warrenville

IL

Hilton Garden Inn

White Lodging

11/2/2010
135
Indianapolis

IN

SpringHill Suites

White Lodging

11/2/2010
130
Merrillville

IN

Hilton Garden Inn

White Lodging

9/1/2016
124
Mishawaka

IN

Residence Inn

White Lodging

11/2/2010
106
South Bend

IN

Fairfield Inn & Suites

White Lodging

9/1/2016
119
Overland Park

KS

Fairfield Inn & Suites

True North

3/1/2014
110
Overland Park

KS

Residence Inn

True North

3/1/2014
120
Overland Park

KS

SpringHill Suites

True North

3/1/2014
102
Wichita

KS

Courtyard

Aimbridge

3/1/2014
90
Baton Rouge

LA

SpringHill Suites

Dimension

9/25/2009
119
Lafayette

LA

Hilton Garden Inn

LBA

7/30/2010
153
Lafayette

LA

SpringHill Suites

LBA

6/23/2011
103
New Orleans

LA

Homewood Suites

Dimension

3/1/2014
166
Andover

MA

SpringHill Suites

Marriott

11/5/2010
136
Marlborough

MA

Residence Inn

True North

3/1/2014
112
Westford

MA

Hampton

True North

3/1/2014
110
Westford

MA

Residence Inn

True North

3/1/2014
108
Annapolis

MD

Hilton Garden Inn

White Lodging

3/1/2014
126
Silver Spring

MD

Hilton Garden Inn

White Lodging

7/30/2010
107
Portland

ME

Residence Inn

Pyramid

10/13/2017
179
Novi

MI

Hilton Garden Inn

White Lodging

11/2/2010
148
Maple Grove

MN

Hilton Garden Inn

North Central

9/1/2016
120
Rochester

MN

Hampton

Raymond

8/3/2009
124
Kansas City

MO

Hampton

Raymond

8/31/2010
122
Kansas City

MO

Residence Inn

True North

3/1/2014
106
St. Louis

MO

Hampton

Raymond

8/31/2010
190
St. Louis

MO

Hampton

Raymond

4/30/2010
126
Hattiesburg

MS

Courtyard

LBA

3/1/2014
84
Hattiesburg

MS

Residence Inn

LBA

12/11/2008
84
Carolina Beach

NC

Courtyard

Crestline

3/1/2014
144
Charlotte

NC

Fairfield Inn & Suites

Newport

9/1/2016
94
Charlotte

NC

Homewood Suites

McKibbon

9/24/2008
118
Durham

NC

Homewood Suites

McKibbon

12/4/2008
122
Fayetteville

NC

Home2 Suites

LBA

2/3/2011
118
Fayetteville

NC

Residence Inn

Aimbridge

3/1/2014
92
Greensboro

NC

SpringHill Suites

Newport

3/1/2014
82
Holly Springs

NC

Hampton

LBA

11/30/2010
124
Jacksonville

NC

Home2 Suites

LBA

9/1/2016
105
29
Index
City
State
Brand
Manager
Date Acquired or Completed
Rooms

Wilmington

NC

Fairfield Inn & Suites

Crestline

3/1/2014
122
Winston-Salem

NC

Courtyard

McKibbon

3/1/2014
122
Winston-Salem

NC

Hampton

McKibbon

9/1/2016
94
Omaha

NE

Courtyard

Marriott

3/1/2014
181
Omaha

NE

Hampton

White Lodging

9/1/2016
139
Omaha

NE

Hilton Garden Inn

White Lodging

9/1/2016
178
Omaha

NE

Homewood Suites

White Lodging

9/1/2016
~~123~~
29
~~Index~~
~~City~~
~~State~~
~~Brand~~
~~Manager~~
~~Date~~
~~Acquired or~~
~~Completed~~
~~Rooms~~
123
Cranford

NJ

Homewood Suites

Dimension

3/1/2014
108
Mahwah

NJ

Homewood Suites

Dimension

3/1/2014
110
Mount Laurel

NJ

Homewood Suites

Newport

1/11/2011
118
Somerset

NJ

Courtyard

Newport

3/1/2014
162
West Orange

NJ

Courtyard

Newport

1/11/2011
131
Islip/Ronkonkoma

NY

Hilton Garden Inn

White Lodging

3/1/2014
165
New York

NY

Renaissance

Highgate

3/1/2014
205
Syracuse

NY

Courtyard

New Castle

10/16/2015
102
Syracuse

NY

Residence Inn

New Castle

10/16/2015
78
Mason

OH

Hilton Garden Inn

Schulte

9/1/2016
110
Twinsburg

OH

Hilton Garden Inn

Interstate

10/7/2008
142
Oklahoma City

OK

Hampton

Raymond

5/28/2010
200
Oklahoma City

OK

Hilton Garden Inn

Raymond

9/1/2016
155
Oklahoma City

OK

Homewood Suites

Raymond

9/1/2016
100
Oklahoma City (West)

OK

Homewood Suites

Chartwell

9/1/2016
90
Collegeville/Philadelphia

PA

Courtyard

White Lodging

11/15/2010
132
Malvern/Philadelphia

PA

Courtyard

White Lodging

11/30/2010
127
Pittsburgh

PA

Hampton

Vista Host

12/31/2008
132
Charleston

SC

Home2 Suites

LBA

9/1/2016
122
Columbia

SC

Hilton Garden Inn

Newport

3/1/2014
143
Columbia

SC

TownePlace Suites

Newport

9/1/2016
91
Greenville

SC

Residence Inn

McKibbon

3/1/2014
78
Hilton Head

SC

Hilton Garden Inn

McKibbon

3/1/2014
104
Chattanooga

TN

Homewood Suites

LBA

3/1/2014
76
Franklin

TN

Courtyard

Chartwell

9/1/2016
126
Franklin

TN

Residence Inn

Chartwell

9/1/2016
124
Jackson

TN

Hampton

Vista Host

12/30/2008
85
Johnson City

TN

Courtyard

LBA

9/25/2009
90
Knoxville

TN

Homewood Suites

McKibbon

9/1/2016
103
Knoxville

TN

SpringHill Suites

McKibbon

9/1/2016
103
Knoxville

TN

TownePlace Suites

McKibbon

9/1/2016
97
Memphis

TN

Hampton

Crestline

2/5/2018
144
Memphis

TN

Homewood Suites

Hilton

3/1/2014
140
Nashville

TN

Hilton Garden Inn

Vista Host

9/30/2010
194
Nashville

TN

Home2 Suites

Vista Host

5/31/2012
119
Nashville

TN

TownePlace Suites

LBA

9/1/2016
101
Addison

TX

SpringHill Suites

Marriott

3/1/2014
159
Allen

TX

Hampton

Interstate

9/26/2008
103
Allen

TX

Hilton Garden Inn

Interstate

10/31/2008
150
Arlington

TX

Hampton

Western

12/1/2010
98
Austin

TX

Courtyard

White Lodging

11/2/2010
145
Austin

TX

Fairfield Inn & Suites

White Lodging

11/2/2010
150
Austin

TX

Hampton

Vista Host

4/14/2009
124
30
Index
City
State
Brand
Manager
Date Acquired or Completed
Rooms

Austin

TX

Hilton Garden Inn

White Lodging

11/2/2010
117
Austin

TX

Homewood Suites

Vista Host

4/14/2009
97
Austin/Round Rock

TX

Homewood Suites

Vista Host

9/1/2016
115
Beaumont

TX

Residence Inn

Western

10/29/2008
133
Burleson/Fort Worth

TX

Hampton

LBA

10/7/2014
88
Dallas

TX

Homewood Suites

Western

9/1/2016
130
Denton

TX

Homewood Suites

Chartwell

9/1/2016
107
Duncanville

TX

Hilton Garden Inn

Interstate

10/21/2008
~~142~~
30
~~Index~~
~~City~~
~~State~~
~~Brand~~
~~Manager~~
~~Date~~
~~Acquired or~~
~~Completed~~
~~Rooms~~
142
El Paso

TX

Hilton Garden Inn

Western

12/19/2011
145
El Paso

TX

Homewood Suites

Western

3/1/2014
114
Fort Worth

TX

Courtyard

LBA

2/2/2017
124
Fort Worth

TX

TownePlace Suites

Western

7/19/2010
140
Frisco

TX

Hilton Garden Inn

Western

12/31/2008
102
Grapevine

TX

Hilton Garden Inn

Western

9/24/2010
110
Houston

TX

Courtyard

LBA

9/1/2016
124
Houston

TX

Marriott

Western

1/8/2010
206
Houston

TX

Residence Inn

Western

3/1/2014
129
Houston

TX

Residence Inn

Western

9/1/2016
120
Irving

TX

Homewood Suites

Western

12/29/2010
77
Lewisville

TX

Hilton Garden Inn

Interstate

10/16/2008
165
Round Rock

TX

Hampton

Vista Host

3/6/2009
94
San Antonio

TX

TownePlace Suites

Western

3/1/2014
106
Shenandoah

TX

Courtyard

LBA

9/1/2016
124
Stafford

TX

Homewood Suites

Western

3/1/2014
78
Texarkana

TX

Courtyard

Aimbridge

3/1/2014
90
Texarkana

TX

Hampton

Aimbridge

1/31/2011
81
Texarkana

TX

TownePlace Suites

Aimbridge

3/1/2014
85
Provo

UT

Residence Inn

Dimension

3/1/2014
114
Salt Lake City

UT

Residence Inn

Huntington

10/20/2017
136
Salt Lake City

UT

SpringHill Suites

White Lodging

11/2/2010
143
Alexandria

VA

Courtyard

Marriott

3/1/2014
178
Alexandria

VA

SpringHill Suites

Marriott

3/28/2011
155
Bristol

VA

Courtyard

LBA

11/7/2008
175
Charlottesville

VA

Courtyard

Crestline

3/1/2014
139
Harrisonburg

VA

Courtyard

Newport

3/1/2014
125
Manassas

VA

Residence Inn

Crestline

2/16/2011
107
Richmond

VA

Courtyard

White Lodging

12/8/2014
135
Richmond

VA

Marriott

White Lodging

3/1/2014
410
Richmond

VA

Residence Inn

White Lodging

12/8/2014
75
Richmond

VA

SpringHill Suites

McKibbon

9/1/2016
103
Suffolk

VA

Courtyard

Crestline

3/1/2014
92
Suffolk

VA

TownePlace Suites

Crestline

3/1/2014
72
Virginia Beach

VA

Courtyard

Crestline

3/1/2014
141
Virginia Beach

VA

Courtyard

Crestline

3/1/2014
160
Kirkland

WA

Courtyard

InnVentures

3/1/2014
150
Seattle

WA

Residence Inn

InnVentures

3/1/2014
234
Tukwila

WA

Homewood Suites

Dimension

3/1/2014
106
Vancouver

WA

SpringHill Suites

InnVentures

3/1/2014
119
Total
~~30,929~~ 30,754
~~(1) Hotel is classified as held for sale as of June 30, 2018 and was subsequently sold in July 2018.~~

31
Index

Related Parties
The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. See Note 6 titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning the Company’s related party transactions.
Liquidity and Capital Resources

Capital Resources

The Company’s principal daily sources of liquidity are the operating cash flow generated from the Company’s properties and availability under its revolving credit facility. Periodically the Company may receive proceeds from strategic additional secured and unsecured debt financing, dispositions of its hotel properties and offerings of the Company’s common shares.

On July 27, 2018, the Company entered into an amendment and restatement of its $965 million credit facility, reducing the borrowing capacity to $850 million and, on August 2, 2018, the Company entered into an amendment and restatement of its $150 million term loan facility, increasing the borrowing capacity to $225 million, thereby reducing the overall total borrowing capacity of the facilities by $40 million. The amendments and restatements effectively extended the maturity dates of both facilities, reduced the annual interest rates and improved certain covenants as compared to the prior agreements for the Company.
As of September 30, 2018, the Company had $1.3 billion of total outstanding debt consisting of $492.1 million of mortgage debt and $833.4 million outstanding under its credit facilities (excluding unamortized debt issuance costs and fair value adjustments). The Company’s unused borrowing capacity under its credit facilities as of September 30, 2018 was $326.6 million, consisting of $251.6 million available under its $425 million revolving credit facility and $75.0 million (which may be drawn by the Company no later than January 31, 2019) under its $225 million term loan facility, which ~~as of June 30, 2018 had unused borrowing capacity of $321.6 million,~~ is available for acquisitions, hotel renovations and development, share repurchases, working capital and other general corporate funding purposes, including the payment of distributions to shareholders. ~~As of June 30, 2018, the Company’s revolving credit facility had an outstanding principal balance of approximately $218.4 million with an annual variable interest rate of approximately 3.64%.~~
In July 2018, the Company amended and restated its $965 million credit facility and, in August 2018, its $150 million term loan facility, slightly reducing the annual interest rates and extending the maturity dates of both facilities, and reducing the overall total borrowing capacity of the facilities by $40 million.

See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for a description of the Company’s debt instruments as of ~~June~~September 30, ~~2018 and the 2018 debt refinancing.~~2018.

The credit agreements governing the ~~revolving~~ credit ~~facility and term loans~~facilities contain mandatory prepayment requirements, customary affirmative covenants, negative covenants and events of default.  The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios and restrictions on certain investments.  The Company was in compliance with the applicable covenants at ~~June~~September 30, 2018.

The Company’s ATM Program allows it to sell, from time to time, up to an aggregate of $300 million of its common shares through sales agents. Since inception of the ATM Program in February 2017 through ~~June~~September 30, 2018, the Company has sold approximately 7.2 million common shares at a weighted-average market sales price of approximately $19.56 per common share and received aggregate gross proceeds of approximately $139.8 million and proceeds net of offering costs of approximately $137.5 million. During the six months ended June 30, 2018, the Company sold approximately 0.2 million common shares under its ATM Program at a weighted-average market sales price of approximately $19.73 per common share and aggregate gross proceeds of approximately $4.8 million. The Company used the proceeds from the sale of these shares to pay down borrowings on its revolving credit facility. No shares were issued under the ATM Program during the ~~six~~nine months ended ~~June~~September 30, 2017. As of ~~June~~September 30, 2018, approximately $160.2 million remained available for issuance under the ATM Program. Future sales will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company's common shares and opportunities for uses of any proceeds.

As discussed ~~below~~ in ~~“Subsequent Events,”~~Note 3, “Dispositions and Hotel Sale Contracts” in ~~July~~the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as of September 30, 2018 the Company ~~sold two~~had outstanding contracts to sell 17 of its hotels for a combined gross sales price of approximately $180.8 million. Although the Company is working towards the sale of these hotels, there are many conditions to closing that have not yet been satisfied and ~~used~~there can be no assurance that a closing on these hotels will occur under the outstanding sale contracts. If the closings occur, these sales are expected to be completed within the next three to six months from September 30, 2018. The Company plans to use the net proceeds from the ~~sale~~sales to pay down borrowings on its revolving credit facility.
32
Index

Capital Uses

The Company anticipates that cash flow from operations, availability under its revolving credit facility, availability under its $225 million term loan facility, additional borrowings and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including debt service, hotel acquisitions, hotel renovations, share repurchases, and required distributions to shareholders (the Company is not required to make distributions at its current rate for REIT purposes).

32
~~Index~~
Distributions

To maintain its REIT status, the Company is required to distribute at least 90% of its ordinary income.  Distributions paid during the ~~six~~nine months ended ~~June~~September 30, 2018 totaled approximately ~~$138.2~~$207.3 million or ~~$0.60~~$0.90 per common share and were paid at a monthly rate of $0.10 per common share.  For the same period, the Company’s net cash generated from operations was approximately ~~$166.4~~$296.9 million.

The Company’s current annual distribution rate, payable monthly, is $1.20 per common share. As it has done historically, due to seasonality, the Company may use its revolving credit facility to maintain the consistency of the monthly distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles.  Any distribution will be subject to approval of the Company’s Board of Directors and there can be no assurance of the classification or duration of distributions at the current annual distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of its hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company. If cash flow from operations and the revolving credit facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurances it will be successful with this strategy and may need to reduce its distributions to required levels. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.

Share Repurchases

In May 2018, the Board of Directors approved an extension of the Company’s existing Share Repurchase Program, authorizing share repurchases up to an aggregate of $464 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2019 if not terminated earlier. During the first ~~six~~nine months of 2018, the Company purchased, under its Share Repurchase Program, approximately 0.3 million of its common shares at a weighted-average market purchase price of approximately $16.89 per common share for an aggregate purchase price of approximately $4.3 million. The Company did not purchase any common shares under its Share Repurchase Program during the first ~~six~~nine months of 2017. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with availability under its ~~revolving~~ credit ~~facility.~~facilities. The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will depend upon prevailing market conditions, regulatory requirements and other factors.

Capital Improvements

The Company has ongoing capital commitments to fund its capital improvements.  To maintain and enhance each property’s competitive position in its market, the Company has invested in and plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to the hotels.  As of ~~June~~September 30, 2018, the Company held ~~$29.5~~$30.8 million in reserve related to these properties. During the ~~six~~nine months ended ~~June~~September 30, 2018, the Company invested approximately ~~$30.6~~$43.3 million in capital expenditures and anticipates spending an additional ~~$35~~$25 million to ~~$45~~$30 million during the remainder of 2018, which includes various scheduled renovation projects for approximately 20 to 25 properties. The Company does not currently have any existing or planned projects for development.
33
Index

Hotel Contract Commitments

As of ~~June~~September 30, 2018, the Company had outstanding contracts for the potential purchase of five hotels for a total purchase price of approximately $130.8 million. All five hotels are under development and are planned to be completed and opened for business over the next ~~nine~~six to 3027 months from ~~June~~September 30, 2018, at which time closings on these hotels are expected to occur. Although the Company is working towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on these hotels will occur under the outstanding purchase contracts. The Company intends to use borrowings under its ~~revolving~~ credit ~~facility~~facilities to purchase hotels under contract if a closing occurs.
33
~~Index~~

Cash Management Activities

As part of the cost sharing arrangements discussed in Note 6 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 ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under the cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies.

~~Impact of Inflation~~
Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, limit the operators’ ability to raise room rates. Currently the Company is not experiencing any material impact from inflation.
Business Interruption

Being in the real estate industry, the Company is exposed to natural disasters on both a local and national scale. Although management believes there is adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Company’s financial position or results of operations.

Seasonality

The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements.

New Accounting Standards

See Note 1 titled “Organization and Summary of Significant Accounting Policies” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for information on the adoption of accounting standards in the first ~~six~~nine months of 2018 and the anticipated adoption of recently issued accounting standards.

Subsequent Events
In ~~July~~October 2018, the Company paid approximately $23.0 million, or $0.10 per outstanding common share, in distributions to its common shareholders.

In ~~July~~October 2018, the Company declared a regular monthly cash distribution of $0.10 per common share for the month of ~~August~~November 2018. The distribution is payable on ~~August~~November 15, 2018.

~~On July 13,~~In October 2018, the Company ~~completed the sale of its two Columbus hotels~~entered into a contract to purchase an existing 127-room Hyatt Place in Jacksonville, Florida, for a ~~total combined~~ gross ~~sales~~purchase price of ~~$10.0~~$15.5 million. ~~The~~Although the Company ~~used the net proceeds from the sale~~is working towards acquiring this hotel, there are many conditions to ~~pay down borrowings~~closing that have not yet been satisfied, and there can be no assurance that a closing on ~~its revolving credit facility. See Note 3 titled “Assets Held for Sale and Dispositions” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in~~ this ~~Quarterly Report on Form 10-Q, for additional information.~~hotel will occur.

~~In July and August~~During the month of October 2018, the Company ~~refinanced~~purchased, under its ~~$965~~Share Repurchase Program, approximately 1.6 million ~~credit facility and~~of its $150 million term loan facility. 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,common shares, at a weighted-average market purchase price of approximately $16.35 per common share, for ~~additional information on the Company’s debt refinancing.~~an aggregate purchase price of approximately $25.8 million.

34
Index

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

As of ~~June~~September 30, 2018, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk.  However, the Company is exposed to interest rate risk due to possible changes in short term interest rates as it invests its cash or borrows on its revolving credit facility and due to the portion of its ~~variable rate~~variable-rate term debt that is not fixed by interest rate swaps.  As of ~~June~~September 30, 2018, after giving effect to interest rate swaps, as described below, approximately ~~$320.9~~$275.9 million, or approximately ~~23%~~21% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s ~~variable rate~~variable-rate debt outstanding as of ~~June~~September 30, 2018, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately ~~$3.2~~$2.8 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 and cash equivalents at ~~June~~September 30, 2018 were $0.

As of ~~June~~September 30, 2018, the Company’s ~~variable rate~~variable-rate debt consisted of its ~~$540~~credit facilities, including borrowings outstanding under its $425 million revolving credit facility and $735 million of term ~~loans totaling~~loan capacity, of which $660 ~~million.~~million was outstanding and the remaining $75 million is available to be drawn no later than January 31, 2019.  Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its ~~variable rate~~variable-rate debt. As of ~~June~~September 30, 2018, the Company had six interest rate swap agreements that effectively fix the interest payments on approximately $557.5 million of the Company’s ~~variable rate~~variable-rate debt outstanding. In addition, in June 2018, the Company entered into an interest rate swap agreement, which beginning January 31, 2019 will effectively fix the interest rate on $50 million of its ~~variable rate~~variable-rate debt. Under the terms of all of the Company’s interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR.

In addition to its ~~variable rate~~variable-rate debt and interest rate swaps discussed above, the Company has assumed or originated fixed interest rate mortgages payable to lenders under permanent financing arrangements.  The following table summarizes the annual maturities and average interest rates of the Company’s mortgage debt ~~the six term loans~~ and borrowings outstanding under ~~the $540 million revolving~~its credit ~~facility~~facilities at ~~June~~September 30, 2018.  All dollar amounts are in thousands.

July 1 -
December 31, 2018

2019

2020

2021

2022

Thereafter

Total

Fair Market
Value

October 1 -
December 31, 2018

2019

2020

2021

2022

Thereafter

Total

Fair Market Value

Total debt:

Maturities ~~(1)~~
$ 6,595 $ 252,205 $ 453,349 $ 97,586 $ 109,252 $ 454,780 $ 1,373,767 $ 1,363,907 $ 3,337 $ 33,805 $ 28,349 $ 47,586 $ 282,652 $ 929,780 $ 1,325,509 $ 1,311,594
Average interest rates (2)
3.7 % 3.7 % 3.8 % 4.0 % 3.9 % 3.8 %
Average interest rates⁽¹⁾
3.7 % 3.7 % 3.8 % 3.8 % 3.8 % 3.7 %

Variable rate debt:

Maturities (1)
$ - $ 218,400 $ 425,000 $ 50,000 $ - $ 185,000 $ 878,400 $ 880,352
Average interest rates (2)
3.3 % 3.3 % 3.2 % 3.3 % 3.4 % 3.4 %
Maturities
$ - $ - $ - $ - $ 173,400 $ 660,000 $ 833,400 $ 834,065
Average interest rates⁽¹⁾
3.2 % 3.3 % 3.4 % 3.6 % 3.6 % 3.6 %

Fixed rate debt:

Maturities
$ 6,595 $ 33,805 $ 28,349 $ 47,586 $ 109,252 $ 269,780 $ 495,367 $ 483,555 $ 3,337 $ 33,805 $ 28,349 $ 47,586 $ 109,252 $ 269,780 $ 492,109 $ 477,529
Average interest rates
4.5 % 4.4 % 4.4 % 4.4 % 4.2 % 4.1 % 4.5 % 4.4 % 4.4 % 4.4 % 4.2 % 4.1 %
(1) In July and August 2018, the Company amended and restated two of its credit facilities, extending the maturity dates of the variable rate debt reflected in 2019, 2020 and 2021, to 2022 and beyond and reducing the average interest rates on those facilities by approximately 15 basis points as of the respective closing dates.
~~(2)~~
⁽¹⁾The average interest rate gives effect to interest rate swaps, as applicable.

Item 4.  Controls and Procedures

Senior management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of ~~June~~September 30, 2018. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

35
Index

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes to the legal proceedings previously disclosed in the 2017 Form 10-K and the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2018, which information is incorporated by reference herein.

Item 1A. Risk Factors

For a discussion of the Company’s potential risks and uncertainties, see the section titled “Risk Factors” in the 2017 Form 10-K. There have been no material changes to the risk factors previously disclosed in the 2017 Form 10-K.

Item 6.  Exhibits

Exhibit
~~Exhibit~~Number N~~umber~~
Description of Documents

3.1
Amended and Restated Articles of Incorporation of the Company, as amended (~~FILED HEREWITH~~)(Incorporated by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed August 6, 2018)

3.2
Second Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed February 18, 2016)

10.1*
Non-Employee Director Deferral Program Under the Company’s 2014 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed August 6, 2018~~FILED HEREWITH)~~)

10.2
Second Amended and Restated Credit Agreement dated as of July 27, 2018, among the Company, as borrower, certain subsidiaries of the Company, as guarantors, Bank of America, N.A., as Administrative Agent, KeyBank National Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, U.S. Bank National Association, as Documentation Agent, Regions Bank as Managing Agent, the Lenders and Letter of Credit Issuers party thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, KeyBanc Capital Markets, Wells Fargo Securities, LLC and U.S. Bank National Association, as Joint Lead Arrangers, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, KeyBanc Capital Markets and Wells Fargo Securities, LLC, as Joint Bookrunners (Incorporated by reference to Exhibit 10.1 to the ~~Company~~’sCompany’s current report on Form 8-K (SEC File No. 001-37389) filed August 1, 2018)

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

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

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

101
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH)
________________
* Denotes Compensation Plan

36
Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.






Apple Hospitality REIT, Inc.







By:
/s/    Justin G. Knight


Date:  ~~August 6,~~November 5, 2018

Justin G. Knight,




President and
Chief Executive Officer
(Principal Executive Officer)








By:
/s/    Bryan Peery


Date:  ~~August 6,~~November 5, 2018

Bryan Peery,




Chief Financial Officer
(Principal Financial and Principal Accounting Officer)

Location (1)	Brands	Date of Purchase Contract	Rooms		Refundable Deposits		Gross Purchase Price
Orlando, FL	Home2 Suites	1/18/2017		128	$	3	$	20,736
Cape Canaveral, FL (2)	Hampton and Home2 Suites	4/11/2018		224		3		46,704
Tempe, AZ (3)	Hyatt House and Hyatt Place	6/13/2018		254		360		63,341
				606	$	366	$	130,781

City	State	Brand	Rooms
Prattville	AL	Courtyard		84
Rogers	AR	Residence Inn		88
Lakeland	FL	Courtyard		78
Sarasota	FL	Homewood Suites		100
Tampa	FL	TownePlace Suites		94
Albany	GA	Fairfield Inn & Suites		87
Baton Rouge	LA	SpringHill Suites		119
Hattiesburg	MS	Residence Inn		84
Holly Springs	NC	Hampton		124
Jackson	TN	Hampton		85
Johnson City	TN	Courtyard		90
Duncanville	TX	Hilton Garden Inn		142
Texarkana	TX	Courtyard		90
Texarkana	TX	TownePlace Suites		85
Bristol	VA	Courtyard		175
Harrisonburg	VA	Courtyard		125
Total				1,650

	September 30, 2018		December 31, 2017
Revolving credit facility	$	173,400	$	106,900
Term loans, net		653,072		656,279
Mortgage debt, net		493,528		459,017
Debt, net	$	1,320,000	$	1,222,196

2018 (October - December)	$	3,337
2019		33,805
2020		28,349
2021		47,586
2022		282,652
Thereafter		929,780
		1,325,509
Unamortized fair value adjustment of assumed debt		3,654
Unamortized debt issuance costs related to term loans and mortgage debt		(9,163	)
Total	$	1,320,000

	September 30, 2018			Percentage			December 31, 2017			Percentage
Fixed-rate debt ⁽¹⁾	$	1,049,609			79	%	$	1,014,935			83	%
Variable-rate debt		275,900			21	%		209,400			17	%
Total	$	1,325,509					$	1,224,335
Weighted-average interest rate of debt		3.68	%					3.64	%

		As of June 30, 2018							As of December 31, 2017
	Maturity Date	Outstanding Balance			Interest Rate				Outstanding Balance			Interest Rate
Revolving credit facility (1)	5/18/2019	$	218,400			3.64	%	(2)	$	106,900			3.11	%	(2)
Term loans
$425 million term loans	5/18/2020		425,000			3.21	%	(3)		425,000			3.09	%	(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)		85,000			3.76	%	(4)
Total term loans at stated value			660,000							660,000
Unamortized debt issuance costs			(3,140	)						(3,721	)
Total term loans			656,860							656,279

Total revolving credit facility and term loans		$	875,260						$	763,179

Location	Brand	Interest Rate (1)			Loan Assumption or Origination Date	Maturity Date		Principal Assumed or Originated		Outstanding balance as of September 30, 2018			Outstanding balance as of December 31, 2017
San Juan Capistrano, CA	Residence Inn		4.15	%	9/1/2016	6/1/2020		$	16,210	$	15,519		$	15,774
Colorado Springs, CO	Hampton		6.25	%	9/1/2016	7/6/2021			7,923		7,652			7,754
Franklin, TN	Courtyard		6.25	%	9/1/2016	8/6/2021			14,679		14,181			14,368
Franklin, TN	Residence Inn		6.25	%	9/1/2016	8/6/2021			14,679		14,181			14,368
Grapevine, TX	Hilton Garden Inn		4.89	%	8/29/2012	9/1/2022			11,810		10,181			10,412
Collegeville/Philadelphia, PA	Courtyard		4.89	%	8/30/2012	9/1/2022			12,650		10,905			11,152
Hattiesburg, MS	Courtyard		5.00	%	3/1/2014	9/1/2022			5,732		5,098			5,212
Rancho Bernardo/San Diego, CA	Courtyard		5.00	%	3/1/2014	9/1/2022			15,060		13,392			13,692
Kirkland, WA	Courtyard		5.00	%	3/1/2014	9/1/2022			12,145		10,800			11,042
Seattle, WA	Residence Inn		4.96	%	3/1/2014	9/1/2022			28,269		25,122			25,687
Anchorage, AK	Embassy Suites		4.97	%	9/13/2012	10/1/2022			23,230		20,111			20,560
Somerset, NJ	Courtyard		4.73	%	3/1/2014	10/6/2022			8,750		7,754			7,932
Tukwila, WA	Homewood Suites		4.73	%	3/1/2014	10/6/2022			9,431		8,357			8,549
Prattville, AL	Courtyard		4.12	%	3/1/2014	2/6/2023	(2)		6,596		5,802			5,943
Huntsville, AL	Homewood Suites		4.12	%	3/1/2014	2/6/2023			8,306		7,306			7,483
San Diego, CA	Residence Inn		3.97	%	3/1/2014	3/6/2023			18,600		16,334			16,733
Miami, FL	Homewood Suites		4.02	%	3/1/2014	4/1/2023			16,677		14,668			15,022
Syracuse, NY	Courtyard		4.75	%	10/16/2015	8/1/2024	(3)		11,199		10,428			10,637
Syracuse, NY	Residence Inn		4.75	%	10/16/2015	8/1/2024	(3)		11,199		10,428			10,637
New Orleans, LA	Homewood Suites		4.36	%	7/17/2014	8/11/2024			27,000		24,407			24,919
Westford, MA	Residence Inn		4.28	%	3/18/2015	4/11/2025			10,000		9,200			9,386
Denver, CO	Hilton Garden Inn		4.46	%	9/1/2016	6/11/2025			34,118		32,415			33,046
Oceanside, CA	Courtyard		4.28	%	9/1/2016	10/1/2025			13,655		13,142			13,332
Omaha, NE	Hilton Garden Inn		4.28	%	9/1/2016	10/1/2025			22,682		21,829			22,145
Boise, ID	Hampton		4.37	%	5/26/2016	6/11/2026			24,000		23,119			23,422
Burbank, CA	Courtyard		3.55	%	11/3/2016	12/1/2026			25,564		24,417			24,917
San Diego, CA	Courtyard		3.55	%	11/3/2016	12/1/2026			25,473		24,330			24,828
San Diego, CA	Hampton		3.55	%	11/3/2016	12/1/2026			18,963		18,112			18,483
Burbank, CA	SpringHill Suites		3.94	%	3/9/2018	4/1/2028			28,470		28,189			-
Santa Ana, CA	Courtyard		3.94	%	3/9/2018	4/1/2028			15,530		15,376			-
San Jose, CA	Homewood Suites		4.22	%	12/22/2017	1/1/2038			30,000		29,354			30,000
								$	528,600		492,109			457,435
Unamortized fair value adjustment of assumed debt											3,654			4,330
Unamortized debt issuance costs											(2,235	)		(2,748	)
Total										$	493,528		$	459,017

Location	Brand	Interest Rate (1)			Loan Assumption or Origination Date	Maturity Date		Principal Assumed or Originated		Outstanding balance as of June 30, 2018			Outstanding balance as of December 31, 2017
San Juan Capistrano, CA	Residence Inn		4.15	%	9/1/2016	6/1/2020		$	16,210	$	15,604		$	15,774
Colorado Springs, CO	Hampton		6.25	%	9/1/2016	7/6/2021			7,923		7,686			7,754
Franklin, TN	Courtyard		6.25	%	9/1/2016	8/6/2021			14,679		14,242			14,368
Franklin, TN	Residence Inn		6.25	%	9/1/2016	8/6/2021			14,679		14,242			14,368
Grapevine, TX	Hilton Garden Inn		4.89	%	8/29/2012	9/1/2022			11,810		10,258			10,412
Collegeville/Philadelphia, PA	Courtyard		4.89	%	8/30/2012	9/1/2022			12,650		10,987			11,152
Hattiesburg, MS	Courtyard		5.00	%	3/1/2014	9/1/2022			5,732		5,136			5,212
Rancho Bernardo/San Diego, CA	Courtyard		5.00	%	3/1/2014	9/1/2022			15,060		13,492			13,692
Kirkland, WA	Courtyard		5.00	%	3/1/2014	9/1/2022			12,145		10,881			11,042
Seattle, WA	Residence Inn		4.96	%	3/1/2014	9/1/2022			28,269		25,310			25,687
Anchorage, AK	Embassy Suites		4.97	%	9/13/2012	10/1/2022			23,230		20,261			20,560
Somerset, NJ	Courtyard		4.73	%	3/1/2014	10/6/2022			8,750		7,813			7,932
Tukwila, WA	Homewood Suites		4.73	%	3/1/2014	10/6/2022			9,431		8,421			8,549
Prattville, AL	Courtyard		4.12	%	3/1/2014	2/6/2023			6,596		5,849			5,943
Huntsville, AL	Homewood Suites		4.12	%	3/1/2014	2/6/2023			8,306		7,365			7,483
San Diego, CA	Residence Inn		3.97	%	3/1/2014	3/6/2023			18,600		16,467			16,733
Miami, FL	Homewood Suites		4.02	%	3/1/2014	4/1/2023			16,677		14,786			15,022
Syracuse, NY	Courtyard		4.75	%	10/16/2015	8/1/2024	(2)		11,199		10,498			10,637
Syracuse, NY	Residence Inn		4.75	%	10/16/2015	8/1/2024	(2)		11,199		10,498			10,637
New Orleans, LA	Homewood Suites		4.36	%	7/17/2014	8/11/2024			27,000		24,578			24,919
Westford, MA	Residence Inn		4.28	%	3/18/2015	4/11/2025			10,000		9,263			9,386
Denver, CO	Hilton Garden Inn		4.46	%	9/1/2016	6/11/2025			34,118		32,625			33,046
Oceanside, CA	Courtyard		4.28	%	9/1/2016	10/1/2025			13,655		13,206			13,332
Omaha, NE	Hilton Garden Inn		4.28	%	9/1/2016	10/1/2025			22,682		21,935			22,145
Boise, ID	Hampton		4.37	%	5/26/2016	6/11/2026			24,000		23,220			23,422
Burbank, CA	Courtyard		3.55	%	11/3/2016	12/1/2026			25,564		24,585			24,917
San Diego, CA	Courtyard		3.55	%	11/3/2016	12/1/2026			25,473		24,497			24,828
San Diego, CA	Hampton		3.55	%	11/3/2016	12/1/2026			18,963		18,237			18,483
Burbank, CA	SpringHill Suites		3.94	%	3/9/2018	4/1/2028			28,470		28,358			-
Santa Ana, CA	Courtyard		3.94	%	3/9/2018	4/1/2028			15,530		15,469			-
San Jose, CA	Homewood Suites		4.22	%	12/22/2017	1/1/2038			30,000		29,598			30,000
								$	528,600		495,367			457,435
Unamortized fair value adjustment of assumed debt											3,879			4,330
Unamortized debt issuance costs											(2,330	)		(2,748	)
Total										$	496,916		$	459,017

2018 (July - December)	$	6,595
2019		252,205
2020		453,349
2021		97,586
2022		109,252
Thereafter		454,780
		1,373,767
Unamortized fair value adjustment of assumed debt		3,879
Unamortized debt issuance costs related to term loans and mortgage debt		(5,470	)
Total	$	1,372,176

	Notional							Fair Value Asset (Liability)					Notional Amount at							Fair Value Asset
Hedge Type	Amount at June 30, 2018		Origination Date	Maturity Date	Swap Fixed Interest Rate			June 30, 2018			December 31, 2017		September 30, 2018		Origination Date	Maturity Date	Swap Fixed Interest Rate			September 30, 2018		December 31, 2017
Cash flow hedge	$	212,500	5/21/2015	5/18/2020		1.58	%	$	3,915		$	2,033	$	212,500	5/21/2015	5/18/2020		1.58	%	$	4,020	$	2,033
Cash flow hedge		110,000	7/2/2015	5/18/2020		1.62	%		1,946			951		110,000	7/2/2015	5/18/2020		1.62	%		2,011		951
Cash flow hedge		50,000	4/7/2016	3/31/2021		1.09	%		2,119			1,544		50,000	4/7/2016	3/31/2021		1.09	%		2,160		1,544
Cash flow hedge		100,000	4/7/2016	3/31/2023		1.33	%		6,352			4,098		100,000	4/7/2016	3/31/2023		1.33	%		6,732		4,098
Cash flow hedge		75,000	5/31/2017	6/30/2024		1.96	%		3,308			1,043		75,000	5/31/2017	6/30/2024		1.96	%		3,860		1,043
Cash flow hedge		10,000	8/10/2017	6/30/2024		2.01	%		415			109		10,000	8/10/2017	6/30/2024		2.01	%		487		109
Cash flow hedge (1)		50,000	6/1/2018	6/30/2025		2.89	%		(245	)		-		50,000	6/1/2018	6/30/2025		2.89	%		197		-
	$	607,500						$	17,810		$	9,778	$	607,500						$	19,467	$	9,778

	Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss)					Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income to Interest and Other Expense, net
	Three Months Ended June 30,					Three Months Ended June 30,
	2018		2017			2018		2017
Interest rate derivatives in cash flow hedging relationships	$	2,252	$	(1,733	)	$	512	$	(558	)

	Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income					Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income to Interest and Other Expense, net
	Three Months Ended September 30,					Three Months Ended September 30,
	2018		2017			2018		2017
Interest rate derivatives in cash flow hedging relationships	$	2,415	$	(144	)	$	758	$	(403	)

	Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss)					Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income to Interest and Other Expense, net
	Six Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Interest rate derivatives in cash flow hedging relationships	$	8,600	$	(1,010	)	$	568	$	(1,380	)

	Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income					Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income to Interest and Other Expense, net
	Nine Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018		2017
Interest rate derivatives in cash flow hedging relationships	$	11,015	$	(1,154	)	$	1,326	$	(1,783	)

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		40		5,029
Residence Inn		34		4,011
Homewood Suites		34		3,831
SpringHill Suites		16		2,159
TownePlace Suites		11		1,110
Fairfield Inn		11		1,300
Home2 Suites		8		910
Marriott		2		616
Embassy Suites		2		316
Renaissance		1		205
Total		241		30,754

Number of Hotels and Guest Rooms by State
	Number of		Number of
State	Hotels		Rooms
Alabama		15		1,434
Alaska		2		304
Arizona		12		1,644
Arkansas		4		408
California		27		3,807
Colorado		4		567
Florida		23		2,851
Georgia		8		847
Idaho		2		416
Illinois		8		1,420
Indiana		4		479
Iowa		3		301
Kansas		4		422
Louisiana		4		541
Maine		1		179
Maryland		2		233
Massachusetts		4		466
Michigan		1		148
Minnesota		2		244
Mississippi		2		168
Missouri		4		544
Nebraska		4		621
New Jersey		5		629
New York		4		550
North Carolina		12		1,337
Ohio		2		252
Oklahoma		4		545
Pennsylvania		3		391
South Carolina		5		538
Tennessee		13		1,502
Texas		34		4,072
Utah		3		393
Virginia		14		2,067
Washington		4		609
Total		243		30,929

	July 1 - December 31, 2018			2019			2020			2021			2022			Thereafter			Total		Fair Market Value		October 1 - December 31, 2018			2019			2020			2021			2022			Thereafter			Total		Fair Market Value
Total debt:
Maturities ~~(1)~~	$	6,595		$	252,205		$	453,349		$	97,586		$	109,252		$	454,780		$	1,373,767	$	1,363,907	$	3,337		$	33,805		$	28,349		$	47,586		$	282,652		$	929,780		$	1,325,509	$	1,311,594
Average interest rates (2)		3.7	%		3.7	%		3.8	%		4.0	%		3.9	%		3.8	%
Average interest rates⁽¹⁾																								3.7	%		3.7	%		3.8	%		3.8	%		3.8	%		3.7	%

Variable rate debt:
Maturities (1)	$	-		$	218,400		$	425,000		$	50,000		$	-		$	185,000		$	878,400	$	880,352
Average interest rates (2)		3.3	%		3.3	%		3.2	%		3.3	%		3.4	%		3.4	%
Maturities																							$	-		$	-		$	-		$	-		$	173,400		$	660,000		$	833,400	$	834,065
Average interest rates⁽¹⁾																								3.2	%		3.3	%		3.4	%		3.6	%		3.6	%		3.6	%

Fixed rate debt:
Maturities	$	6,595		$	33,805		$	28,349		$	47,586		$	109,252		$	269,780		$	495,367	$	483,555	$	3,337		$	33,805		$	28,349		$	47,586		$	109,252		$	269,780		$	492,109	$	477,529
Average interest rates		4.5	%		4.4	%		4.4	%		4.4	%		4.2	%		4.1	%						4.5	%		4.4	%		4.4	%		4.4	%		4.2	%		4.1	%

Exhibit ~~Exhibit~~Number N~~umber~~	Description of Documents

3.1	Amended and Restated Articles of Incorporation of the Company, as amended (~~FILED HEREWITH~~)(Incorporated by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed August 6, 2018)

3.2	Second Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed February 18, 2016)

10.1*	Non-Employee Director Deferral Program Under the Company’s 2014 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed August 6, 2018~~FILED HEREWITH)~~)

10.2	Second Amended and Restated Credit Agreement dated as of July 27, 2018, among the Company, as borrower, certain subsidiaries of the Company, as guarantors, Bank of America, N.A., as Administrative Agent, KeyBank National Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, U.S. Bank National Association, as Documentation Agent, Regions Bank as Managing Agent, the Lenders and Letter of Credit Issuers party thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, KeyBanc Capital Markets, Wells Fargo Securities, LLC and U.S. Bank National Association, as Joint Lead Arrangers, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, KeyBanc Capital Markets and Wells Fargo Securities, LLC, as Joint Bookrunners (Incorporated by reference to Exhibit 10.1 to the ~~Company~~’sCompany’s current report on Form 8-K (SEC File No. 001-37389) filed August 1, 2018)

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

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

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

101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH)


Apple Hospitality REIT, Inc.

By:	/s/ Justin G. Knight	Date: ~~August 6,~~November 5, 2018
	Justin G. Knight,
	President and Chief Executive Officer (Principal Executive Officer)

By:	/s/ Bryan Peery	Date: ~~August 6,~~November 5, 2018
	Bryan Peery,
	Chief Financial Officer (Principal Financial and Principal Accounting Officer)