~~Of the total 2018 share-based compensation, approximately $2.4 million was recorded as a liability as of December 31, 2018 and~~ is included in accounts payable and other liabilities in the ~~Company's~~Company’s consolidated balance sheet ~~at December~~as of March 31, ~~2018. The remaining $0.2 million, which is subject to vesting on December 13, 2019~~2020 and ~~excludes~~in general and administrative expenses in the Company’s consolidated statement of operations for the three months ended March 31, 2020. Approximately 25% of awards under the 2020 Incentive Plan, if any, ~~restricted shares forfeited or vested prior to that date,~~ will be ~~recognized as share-based compensation expense proportionately throughout 2019. For~~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 in December 2020 and one-third of which will vest in December 2021. Under the incentive plan for 2019 (the “2019 Incentive Plan”), the Company recorded approximately $2.2 million in general and administrative expenses in its consolidated statement of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019.

During the three months ended March 31, 2020, the Company accrued expense associated with 2 separation agreements of approximately $1.25 million each, totaling approximately $2.5 million, in connection with the retirements of the Company’s former Executive Vice President and Chief Operating Officer and the Company’s former Executive Vice President and Chief Financial Officer which, pursuant to the separation and general release agreements executed and amended in March 2020, will be paid at a mutually agreed-upon date in 2020. The accrued expense was included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of March 31, 2020 and in general and administrative expenses in the Company’s consolidated statement of operations for the three months ended March 31, 2020.

During the three months ended March 31, 2019, the Company ~~recognized approximately $0.04~~incurred a one-time separation payment of $0.5 million in connection with the retirement of the Company’s Executive Vice President and ~~$0.1~~Chief Legal Officer which, pursuant to the separation and general release agreement executed in March 2019, was paid in April 2019 and was included in general and administrative expenses in the Company’s consolidated statement of operations for the three months ended March 31, 2019.

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

The Company is the lessee on certain ground leases, hotel equipment leases and office space leases. As of September 30, 2019, the Company had 13 hotels subject to ground leases and 3 parking lot ground leases with remaining terms ranging from approximately four to 86 years. Certain of its ground leases have options to extend beyond the initial lease term by periods ranging from five to 120 years.

~~The Company adopted ASU No. 2016-02,~~ ~~Leases (Topic 842)~~, as discussed further in Note 1 in the section titled “Accounting Standards Recently Adopted”, effective January 1, 2019, which requires leases with durations greater than twelve months to be recognized on the balance sheet as right-of-use (“ROU”) assets and lease liabilities. Prior year financial statements were not restated under the new standard and, therefore, those amounts are not presented below.

Under the new standard, the Company’s leases are classified as operating or finance leases. For leases with terms greater than 12 months, at inception of the lease the Company recognizes a ROU asset and lease liability at the estimated present value of the minimum lease payments over the leaseone-month LIBOR plus a margin of 2.0% for the first six months of the loan term and 3.0% for the second six months of the loan term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Many of the Company’s leases include rental escalation clauses (including fixed scheduled rent increases) and renewal options that are factored into the determination of lease payments when appropriate and the present value of the remaining lease payments is adjusted accordingly. The Company utilizes interest rates implicit in the lease if determinable or, if not, it estimates its incremental borrowing rate from information available at lease commencement, to determine the present value of the lease payments. At transition to the new standard, the Company used information available at that time to determine the incremental borrowing rates on its existing leases at January 1, 2019 based on estimates of rates the Company would pay for senior collateralized loans with terms similar to each lease.

In May 2020, the contract to purchase the Courtyard hotel in Denver, Colorado was terminated and the refundable deposit of approximately $0.6 million was repaid to the Company.

Index

NaN of the Company’s hotel and parking lot ground leases as well as certain applicable hotel equipment leases and office space leases are classified as operating leases, for which the Company recorded ROU assets and lease liabilities at adoption of the new standard. The ROU assets are included in other assets, net and the lease liabilities are included in accounts payable and other liabilities in the Company’s consolidated balance sheet. In addition, at adoption of the new standard, the Company reclassified its intangible assets for below market ground leases and intangible liabilities for above market ground leases related to these leases from other assets, net and accounts payable and other liabilities in the Company’s consolidated balance sheet, respectively, as well as accrued straight-line lease liabilities related to these leases from accounts payable and other liabilities in the Company’s consolidated balance sheet to the beginning ROU assets. Lease expense is recognized on a straight-line basis over the term of the respective lease and the value of each lease intangible is amortized over the term of the respective lease. Costs related to operating ground leases are included in operating ground lease expense, while costs related to hotel equipment leases are included in hotel operating expense and property taxes, insurance and other expense, and costs related to office space leases are included in general and administrative expense in the Company’s consolidated statements of operations.

NaN of the Company’s hotel ground leases are classified as finance leases, for which the Company recorded ROU assets and lease liabilities at adoption of the new standard. The ROU assets are recorded as finance ground lease assets within investment in real estate, net and the lease liabilities are recorded as finance lease liabilities in the Company’s consolidated balance sheet. In addition, at adoption of the new standard, the Company reclassified its intangible assets for below market ground leases and intangible liabilities for above market ground leases related to these leases from other assets, net and accounts payable and other liabilities in the Company’s consolidated balance sheet, respectively, to the beginning ROU assets. At adoption of the new standard, the Company recorded a cumulative-effect adjustment totaling approximately $5.2 million, which included the derecognition of accrued straight-line lease liabilities related to the finance leases, to distributions greater than net income, a component of shareholders’ equity in the Company’s consolidated balance sheet. The ROU asset and value of each lease intangible is amortized over the term of the respective lease. Costs related to finance ground leases are included in depreciation and amortization expense and interest and other expense, net in the Company’s consolidated statement of operations.

Under the terms of the Company’s ground leases, certain minimum lease payments are subject to change based on criteria specified in the lease. Changes in minimum lease payments that are not fixed scheduled increases are reflected in the ROU asset and lease liability when the payments become fixed and determinable based on the actual criteria defined in the lease. Minimum lease payments may be estimated if the change date occurs and the new minimum lease payments are not yet determinable. During the third quarter of 2019, the Company updated, based on additional information, its estimate of a required increase in lease payments under 1 of its finance ground leases. The estimated increase is reflected in the finance ground lease ROU asset and liability at the anticipated effective date of the change. The increase and effective date are subject to agreement with the lessor and could increase in the future. The total increase in the lease ROU asset and liability was estimated based on information available as of September 30, 2019 and was approximately $53 million.

~~Lease Position as of September 30, 2019~~

~~The following table sets forth the lease-related assets and liabilities included in the Company’s consolidated balance sheet as of September 30, 2019. All dollar amounts are in thousands.~~

Consolidated Balance Sheet Classification

September 30, 2019

Assets

Operating lease assets, net
Other assets, net
$ 28,636
Finance ground lease assets, net ⁽¹⁾
Investment in real estate, net
194,785
Total lease assets
$ 223,421

Liabilities

Operating lease liabilities
Accounts payable and other liabilities
$ 12,310
Finance lease liabilities
Finance lease liabilities
215,816
Total lease liabilities
$ 228,126

Weighted-average remaining lease term

     Operating leases

36 years

     Finance leases

31 years

Weighted-average discount rate

     Operating leases
5.44 %
     Finance leases
5.26 %

⁽¹⁾	~~Finance ground lease assets are net of accumulated amortization of approximately $2.8 million as of September 30, 2019.~~

~~Index~~

~~Lease Costs for the Three and Nine Months Ended September 30, 2019~~

The following table sets forth the lease costs related to the Company’s operating and finance ground leases included in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2019 (in thousands):

Consolidated Statements of Operations Classification

Three Months Ended
September 30, 2019

Nine Months Ended
September 30, 2019

Operating lease costs ⁽¹⁾
Operating ground lease expense
$ 425 $ 1,253
Finance lease costs:

Amortization of lease assets
Depreciation and amortization expense
725 2,915
Interest on lease liabilities
Interest and other expense, net
1,459 5,418
Total lease costs
$ 2,609 $ 9,586

⁽¹⁾

Represents costs related to ground leases, including variable lease costs. Excludes costs related to hotel equipment leases, which are included in hotel operating expense and property taxes, insurance and other expense, and costs related to office space leases, which are included in general and administrative expense in the Company's consolidated statements of operations.

~~Undiscounted Cash Flows~~

The following table reconciles the undiscounted cash flows for each of the next five years and total of the remaining years to the operating lease liabilities and finance lease liabilities included in the Company’s consolidated balance sheet as of September 30, 2019 (in thousands):

Operating leases

Finance leases

2019 (October - December)
$ 343 $ 2,103
2020
1,251 9,450
2021
1,028 9,618
2022
851 9,767
2023
777 10,116
Thereafter
33,187 477,318
Total minimum lease payments
37,437 518,372
Less: amount of lease payments representing interest
25,127 302,556
Present value of lease liabilities
$ 12,310 $ 215,816

~~Other Information~~

~~The following table sets forth supplemental cash flow information related to the Company’s operating and finance leases for the nine months ended September 30, 2019 (in thousands):~~

Nine Months Ended September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases
$ 1,046
Operating cash flows for finance leases
4,886

~~10. Subsequent Events~~

~~In October 2019, the Company paid approximately $22.4 million, or $0.10 per outstanding common share, in distributions to its common shareholders.~~

In October 2019, the Company declared a regular monthly cash distribution of $0.10 per common share for the month of November 2019. The distribution is payable on November 18, 2019 to shareholders of record on November 4, 2019.

~~Index~~

In October 2019, the Company closed on the purchase of an existing 55-room independent boutique hotel located in Richmond, Virginia, for a gross purchase price of approximately $6.9 million. The Company used borrowings under its revolving credit facility to purchase the hotel.

In October 2019, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 109-room Fort Lauderdale, Florida Hampton Inn for a gross sales price of $20.0 million. Although the Company is working towards the sale of this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on this hotel will occur under the outstanding purchase and sale agreement. If the closing occurs, this sale is expected to be completed in December 2019 and the Company expects to recognize a gain upon completion of the sale. The net proceeds from the sale will be used to pay down borrowings on the Company’s revolving credit facility.

In October 2019, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 105-room Sanford, Florida SpringHill Suites for a gross sales price of $13.0 million. Although the Company is working towards the sale of this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on this hotel will occur under the outstanding purchase and sale agreement. If the closing occurs, this sale is expected to be completed in the first quarter of 2020 and the Company expects to recognize a gain upon completion of the sale. The net proceeds from the sale will be used to pay down borrowings on the Company’s revolving credit facility.

~~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.

Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company’s forward-looking statements is the potential increased adverse effect of COVID-19 on the Company’s business, financial performance and condition, operating results and cash flows, the real estate market and the hospitality industry specifically, and the global economy and financial markets. The significance, extent and duration of the impacts caused by the COVID-19 outbreak on the Company will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the scope, severity and duration of the pandemic, the extent and effectiveness of the actions taken to contain the pandemic or mitigate its impact, the Company’s ability to complete the anticipated amendments to its credit facilities on the terms and timing anticipated, or at all, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Such additional factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties; the ability of the Company to successfully integrate pending transactions and implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions; reduced business and leisure travel due to travel-related health concerns, including the widespread outbreak of COVID-19 or any other infectious or contagious diseases in the U.S. or abroad; adverse changes in the real estate and real estate capital markets; financing risks; 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”), including but not limited to those discussed in the section titled “Risk Factors” in the ~~2018~~2019 Form ~~10-K.~~10-K and in Part II, Item 1A of this Form 10-Q. Any forward-looking statement that the Company makes speaks only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events, or otherwise, except as required by law.

The following discussion and analysis should be read in conjunction with the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the information contained in the ~~2018~~2019 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 U.S. As of ~~September 30, 2019,~~March 31, 2020, the Company owned ~~234~~231 hotels with an aggregate of ~~30,046~~29,535 rooms located in urban, high-end suburban and developing markets throughout 34 ~~states, including one hotel with 122 rooms classified as held for sale. As of September 30, 2019,~~states. Substantially all of the Company’s hotels ~~operated~~operate under Marriott ~~Hilton~~ or ~~Hyatt~~Hilton brands. The hotels are operated and managed under separate management agreements with 2320 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.”

~~New Lease Accounting Standard~~

~~On January 1, 2019, the Company adopted ASU No. 2016-02,~~ ~~Leases (Topic 842)~~~~, electing to recognize~~COVID-19 and measure its leases prospectively at the beginning of the period of adoption through a cumulative-effect adjustment to shareholders’ equity, without restating the presentation of periods prior to the effective date (the “new lease accounting standard”). Under the new lease accounting standard, beginning in 2019, four of the Company’s ~~ground leases that were previously accounted for as operating leases are accounted for as finance leases. For these finance leases, effective January 1,~~Actions to Mitigate its Impact

Since first being reported in December 2019, the Company recognizes amortization expense, included in depreciation and amortization expense, and interest expense, included in interest and other expense, net, instead of operating ground lease expense,COVID-19 has spread globally, including to every state in the ~~Company’s consolidated statements of operations. Results prior~~U.S. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to January 1, 2019 have not been restated. As a result, the comparability of operating ground lease expense, depreciation and amortization expense, and interest and other expense, net for the three and nine months ended September 30, 2019 and 2018 as discussed below are affected by the implementation of the new lease accounting standard. See Note 1 titled “Organization and Summary of Significant Accounting Policies” and Note 9 titled “Leases” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information on the adoption of the new lease accounting standard.COVID-19.

22
20

Index

The outbreak of COVID-19 has not only specifically reduced travel, but also has had a detrimental impact on regional and global economies and financial markets. The global, national and local impact of the outbreak has been rapidly evolving and many countries, including the U.S., as well as state and local governments, have reacted by instituting a wide variety of measures intended to control its spread, including states of emergency, mandatory quarantines, implementation of “stay at home” orders, business closures, border closings, and restrictions on travel and large gatherings, which has resulted in cancellation of events, including sporting events, conferences and meetings. Many experts predict that the outbreak will trigger a period of material global economic slowdown or a global recession and many experts believe that the U.S. is already in a recession. The Company cannot presently determine the extent or duration of the overall operational and financial effects that COVID-19 will have on the Company.

The effects of the pandemic on the hotel industry are unprecedented. COVID-19 has disrupted the industry and its consequences have dramatically reduced business and leisure travel, which has had a significant adverse impact on, and will continue to significantly adversely impact and disrupt, the Company’s business, financial performance and condition, operating results and cash flows. For example, average occupancy for the Company’s Comparable Hotels (as defined below) declined from approximately 76% in February to below 20% by the end of March and for the entire month of April, which has been accompanied by declines in average daily rate (“ADR”) of approximately 30% for the month of April compared to 2019. The Company expects this significant decline in revenue associated with COVID-19 throughout its portfolio and the overall decline in the U.S. economy to negatively impact the Company’s revenue and operating results for an extended period of time. The Company does not expect a material improvement in results until business travel and general consumer confidence related to risks associated with the COVID-19 pandemic improves and government restrictions on travel and “stay at home” orders are lifted.

The following table highlights the impact beginning in March to the Company’s ADR, Occupancy and revenue per available room (“RevPAR”).

Two Months
Ended
February 29,
2020

Three Months
Ended
March 31,
2020

Two Months
Ended
February 28,
2019

Three Months
Ended
March 31,
2019

Percent Change

March 2020

March 2019

Two Months Ended February

March

Three Months Ended March

ADR
$ 132.73 $ 131.93 $ 132.55 $ 133.48 $ 141.16 $ 136.36 -0.6 % -6.5 % -2.8 %
Occupancy
71.0 % 41.0 % 60.9 % 70.5 % 80.2 % 73.9 % 0.7 % -48.9 % -17.6 %
RevPAR
$ 94.28 $ 54.08 $ 80.66 $ 94.12 $ 113.23 $ 100.71 0.2 % -52.2 % -19.9 %
The Company, its management companies and the brands the Company’s hotels are franchised with have all aggressively worked to mitigate the costs and uses of cash associated with operating the hotels in a low-occupancy environment and are thoughtfully working to position the hotels to adapt to the changes that may occur to guest preferences in the future. The impact of the situation has varied and will vary by market and hotel. With the support of its brands and third-party management companies, the Company will continue to evaluate and implement additional measures as the situation evolves.
The following is a brief summary of certain measures the Company, its management companies and its brands have taken to minimize costs and cash outflow to maintain a sound liquidity position.
●
During March 2020, the Company’s brands and third-party management companies implemented cost elimination and efficiency initiatives at each of the Company’s hotels by reducing labor costs, reducing or eliminating certain amenities and reducing or deferring payments under various service contracts. As of March 31, 2020, all but one of the Company’s 231 hotels were open and receiving reservations. The Company has intentionally consolidated operations at 38 hotels in market clusters to maximize operational efficiencies and one hotel was closed (which has since re-opened) due to the impact of a local ordinance prohibiting short-term lodging. The cost structure of the Company’s primarily rooms-focused hotels allows them to operate cost effectively even at very low occupancy levels.
●
Together with its third-party management companies, the Company has enhanced its sales efforts by focusing on COVID-19-specific demand opportunities in certain markets and identifying other sectors that may have needs such as construction, manufacturing, government or maintenance industries. The Company and its third-party management companies are also working with existing customers to move business to later in the year.
21
Index
●
The Company has postponed all non-essential capital improvement projects planned for 2020 and anticipates a reduction of approximately $50 million in originally planned capital improvements for the year.
●
The Company suspended its monthly distributions, with the last distribution being paid March 16, 2020. The Company’s Board of Directors, in consultation with management, will continue to monitor hotel operations and intends to resume monthly distributions at a time and level determined to be prudent in relation to the Company’s other cash requirements.
●
The Company terminated its written trading plan under its Share Repurchase Program in March 2020.
●
The Company’s Executive Chairman voluntarily agreed to forego six months of salary, the Chief Executive Officer volunteered to reduce his target compensation by 60 percent and the non-employee directors on the Board of Directors volunteered as a group to reduce their annual director fees by more than 15 percent.
Despite the cost reduction initiatives discussed above, the Company does not expect to be able to fully, or even materially, offset revenue losses from the COVID-19 pandemic. The significance, extent and duration of COVID-19 effects are not currently known and these uncertainties make it difficult to predict operating results for the Company’s hotels for the remainder of 2020. Therefore, there can be no assurances that the Company will not experience further declines in hotel revenues or earnings at its hotels.
~~2019~~2020 Hotel Portfolio Activities
The following discussion regarding the Company’s approach to acquisitions and dispositions reflects the Company’s historical strategy. While the Company anticipates it will continue to approach the acquisition and disposition of hotels similarly over the long term, the detrimental impact of COVID-19 to the Company and overall lodging industry may limit the Company’s ability to effectively acquire or dispose of hotels until the industry recovers.
The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in rooms-focused hotels, in 2018 the Company ~~acquired two hotels for an aggregate~~entered into a contract to purchase ~~price of approximately $52.4 million during the first nine months of 2019:~~ a ~~160-room~~combined 224-room dual-branded Hampton Inn & Suites ~~in St. Paul, Minnesota~~ and ~~a 128-room~~ Home2 Suites complex to be constructed in ~~Orlando,~~Cape Canaveral, Florida. ~~In October 2019,~~Construction of the hotels was completed in April 2020 and the Company acquired the hotels. The purchase price was approximately $46.7 million, funded by $25.0 million of cash on hand and a ~~55-room existing independent boutique hotel~~one-year note with the developer for $21.7 million payable in Richmond, Virginia for approximately $6.9 million. Although the Company does not intend to associate this hotel with a brand, the Company plans to reposition this hotel to be consistent with its existing rooms-focused hotels.2021. Also, as of ~~October 31, 2019,~~May 15, 2020, the Company had outstanding contracts, all of which were entered into prior to 2020, for the potential purchase of ~~six~~three hotels under development for a total expected purchase price of approximately ~~$208.8~~$113.0 million, which are planned to be completed and opened for business over the next ~~nine~~five to 2115 months from ~~September 30, 2019,~~March 31, 2020, at which time closings on these hotels are expected to occur. ~~There~~In each case, there are ~~many~~a number of conditions to closing that have not yet been satisfied and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under these contracts. The Company ~~utilized its revolving credit facility to fund the completed acquisitions and~~ plans to utilize its ~~credit facilities~~ available cash at closing for any additional acquisitions.

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 from the sale of the property. As a result, ~~in March 2019,~~during the first quarter of 2020, the Company sold ~~nine~~two hotels for a total combined gross sales price of ~~$95.0 million. Additionally, as of October 31, 2019, the Company had outstanding contracts to sell three of its hotels for~~$45.0 million and recognized a ~~combined gross sales price~~gain on sale of approximately $39.7 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$8.8 million in ~~the fourth quarter of 2019 and~~ the first quarter of 2020. The net proceeds from the sales were ~~or will be~~ used to pay down borrowings on the Company’s revolving credit facility.

See Note 2 titled “Investment in Real ~~Estate,”~~Estate”, Note 3 titled ~~“Assets Held for Sale and Dispositions”~~“Dispositions” and Note 109 titled “Subsequent Events” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning these transactions.

~~During the first quarter of~~Effective January 20, 2020, the Company ~~plans to convert~~converted its New York, New York Renaissance hotel to an independent boutique hotel. ~~The Company anticipates that it will incur conversion costs of approximately $1 million over~~As anticipated, the ~~next six months to complete the transition to an independent boutique hotel. The intent~~operating results of the ~~conversion is~~hotel declined in the first quarter of 2020 (prior to ~~provide greater long-term flexibility with~~COVID-19) as compared to the ~~operations~~first quarter of ~~the hotel. Although the Company is not able to fully estimate the near-term impact associated with the transition, it does anticipate operational disruption~~2019 as the management team ~~works~~worked to replace revenue that ~~currently results~~was historically generated from ~~participation in~~ the Renaissance brand ~~system.~~system and have experienced further declines due to COVID-19.
22

Index

Hotel Operations
~~Although~~Beginning in March 2020, COVID-19 caused widespread cancellations of both business and leisure travel throughout the U.S., resulting in significant decreases in RevPAR throughout the Company’s hotel ~~performance can be influenced by many factors including local competition, local~~portfolio and ~~general economic conditions~~the hospitality industry as a whole. With the overall uncertainty of the longevity of COVID-19 in the U.S. and the ~~performance~~resulting economic decline, it is difficult to project the duration of ~~individual managers assigned to each hotel, performance of~~revenue declines for the ~~Company’s hotels~~industry and Company; however, the Company currently expects the decline in revenue and operating results as compared to ~~other hotels within their respective local markets,~~2019 to continue throughout the remainder of 2020 with the second quarter having the largest decline, moderating in ~~general, has met~~the third and fourth quarters of 2020. Although these are the Company’s current expectations, ~~for~~there can be no assurances of the amount or period ~~owned. Over~~of declines due to the ~~past several years, improvements in~~uncertainty regarding the general U.S. economy have been offset by increased lodging supply in many markets, offsetting increases in demand in the lodging sector. With flat to low growth in revenue per available room (“RevPAR”), the Company’s hotels produced stable operating results during the first nine monthsduration and long-term impact of 2019 on a comparable basis (as defined below). 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, government fiscal policies and economic concerns in the U.S. The Company, on a comparable basis, is forecasting slightly negative to slightly positive RevPAR growth for the full year of 2019 as compared to 2018. For the fourth quarter of 2019, the Company, on a comparable basis, expects a decline in RevPAR, which reflects modestly lower expectations for demand growth, consistent with lower expected Gross Domestic Product growth in the U.S., relatively consistent anticipated hotel supply growth and unfavorable comparisons caused by outsized demand in 2018 related to natural disaster recovery efforts.COVID-19.

As of ~~September 30, 2019,~~March 31, 2020, the Company owned 231 hotels with a total of 29,535 rooms as compared to 234 hotels with a total of 30,046 rooms as ~~compared to 241 hotels with a total~~ of ~~30,754 rooms as of September 30, 2018.~~March 31, 2019. Results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and prior year. During the ~~nine~~three months ended ~~September 30,~~March 31, 2020, the Company sold one hotel on January 16, 2020 and one hotel on February 28, 2020. During 2019, the Company acquired one newly developed hotel on March 19, 2019 and two existing ~~hotel~~hotels (one on March 4, 2019 and one ~~newly constructed hotel~~ on ~~March 19, 2019,~~October 9, 2019), and sold ~~nine~~11 hotels (nine on March 28, ~~2019. During 2018, the Company acquired one newly constructed hotel on May 2, 2018 and four existing hotels (two on February 5, 2018,~~2019, one on ~~June 28, 2018~~December 19, 2019 and one on December ~~7, 2018), and sold three hotels (two on July 13, 2018 and one on November 29, 2018)~~30, 2019). As a result, the comparability of results for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ as discussed below is impacted by these ~~transactions.~~transactions in addition to the impact of COVID-19 beginning in March 2020.
23

~~Index~~

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”)~~ADR and RevPAR, and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands, except statistical data)

2019

Percent of
Revenue

2018

Percent of
Revenue

Percent
Change

2019

Percent of
Revenue

2018

Percent of
Revenue

Percent
Change

2020

Percent of Revenue

2019

Percent of Revenue

Percent Change

Total revenue
$ 331,722 100.0 % $ 332,197 100.0 % -0.1 % $ 976,626 100.0 % $ 975,300 100.0 % 0.1 % $ 238,010 100.0 % $ 303,787 100.0 % -21.7 %
Hotel operating expense
187,593 56.6 % 185,248 55.8 % 1.3 % 550,232 56.3 % 544,108 55.8 % 1.1 % 155,266 65.2 % 175,449 57.8 % -11.5 %
Property taxes, insurance and other expense
19,186 5.8 % 19,230 5.8 % -0.2 % 57,217 5.9 % 55,140 5.7 % 3.8 % 19,595 8.2 % 19,613 6.5 % -0.1 %
Operating ground lease expense
425 0.1 % 2,818 0.8 % -84.9 % 1,253 0.1 % 8,580 0.9 % -85.4 %
General and administrative expense
9,039 2.7 % 3,370 1.0 % 168.2 % 25,484 2.6 % 16,968 1.7 % 50.2 % 9,523 4.0 % 8,137 2.7 % 17.0 %

Loss on impairment of depreciable real estate assets
6,467 - n/a 6,467 3,135 n/a
Depreciation and amortization expense
47,887 46,169 3.7 % 143,946 136,752 5.3 % 49,522 47,950 3.3 %
Gain on sale of real estate
- - n/a 1,052 - n/a 8,839 1,213 n/a
Interest and other expense, net
14,759 13,140 12.3 % 46,110 38,269 20.5 % 15,566 15,494 0.5 %
Income tax expense
143 100 43.0 % 505 414 22.0 % 146 206 -29.1 %

Number of hotels owned at end of period
234 241 -2.9 % 234 241 -2.9 % 231 234 -1.3 %
ADR
$ 139.21 $ 137.77 1.0 % $ 139.13 $ 137.32 1.3 % $ 132.55 $ 136.36 -2.8 %
Occupancy
79.9 % 78.9 % 1.3 % 78.4 % 78.4 % - 60.9 % 73.9 % -17.6 %
RevPAR
$ 111.17 $ 108.70 2.3 % $ 109.02 $ 107.71 1.2 % $ 80.66 $ 100.71 -19.9 %

23

Index
Comparable Hotels Operating Results

The following table reflects certain operating statistics for the Company’s ~~233~~231 hotels owned ~~and held for use~~ as of ~~September 30, 2019~~March 31, 2020 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the ~~233~~231 hotels owned ~~and held for use~~ as of the end of the reporting period. For the hotels acquired during the current reporting period and prior year, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company. This information has not been audited, either for the periods owned or prior to ownership by the Company. For dispositions, ~~and assets held for sale,~~ results have been excluded for the Company’s period of ownership.

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

2019

2018

Percent Change

2019

2018

Percent Change

2020

2019

Percent Change

ADR
$ 139.32 $ 139.01 0.2 % $ 139.58 $ 138.72 0.6 % $ 132.66 $ 137.51 -3.5 %
Occupancy
79.9 % 79.2 % 0.9 % 78.6 % 78.8 % -0.3 % 60.8 % 74.0 % -17.8 %
RevPAR
$ 111.36 $ 110.12 1.1 % $ 109.64 $ 109.25 0.4 % $ 80.70 $ 101.81 -20.7 %

Same Store Operating Results

The following table reflects certain operating statistics for the ~~226~~228 hotels owned ~~and held for use~~ by the Company as of January 1, ~~2018~~2019 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

Percent Change

2019

2018

Percent Change

ADR
$ 139.55 $ 138.97 0.4 % $ 139.32 $ 138.47 0.6 %
Occupancy
80.1 % 79.5 % 0.8 % 78.8 % 78.9 % -0.1 %
RevPAR
$ 111.74 $ 110.43 1.2 % $ 109.73 $ 109.24 0.4 %
24

~~Index~~

Three Months Ended March 31,

2020

2019

Percent Change

ADR
$ 132.60 $ 137.44 -3.5 %
Occupancy
60.8 % 74.1 % -17.9 %
RevPAR
$ 80.57 $ 101.80 -20.9 %

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. ~~Economic indicators in~~COVID-19 has negatively affected the U.S. ~~have generally been favorable, which has been offset by increased lodging supply~~hotel industry beginning in ~~many of the Company’s markets.~~March 2020. As a result of COVID-19, the Company’s revenue and operating results ~~for its Comparable Hotels and Same Store Hotels were generally unchanged~~declined during the first ~~nine~~three months of ~~2019~~2020 as compared to the first ~~nine~~three months of ~~2018,~~2019, which is consistent with the overall lodging industry. Compared to ~~slightly favorable as compared to industry, brand and chain scale averages. The~~2019, the Company expects ~~its RevPAR growth~~the decline in revenue and operating results ~~for its Comparable Hotels for~~to continue throughout the ~~full year~~remainder of ~~2019~~2020 with the second quarter having the largest decline, moderating in the third and fourth quarters of 2020, but the Company can give no assurances of the amount or period of decline due to ~~be slightly negative to slightly positive compared to its performance in 2018.~~the uncertainty regarding the duration and long term impact of COVID-19.

Revenues

The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company had total revenue of ~~$331.7~~$238.0 million and ~~$332.2 million, respectively. For the nine months ended September 30, 2019 and 2018, the Company had total revenue of $976.6 million and $975.3~~$303.8 million, respectively. For the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, Comparable Hotels achieved combined average occupancy of ~~79.9%~~60.8% and ~~79.2%~~74.0%, ADR of ~~$139.32~~$132.66 and ~~$139.01~~$137.51 and RevPAR of ~~$111.36~~$80.70 and $110.12. For the nine months ended September 30, 2019 and 2018, respectively, Comparable Hotels achieved combined average occupancy of 78.6% and 78.8%, ADR of $139.58 and $138.72 and RevPAR of $109.64 and $109.25.$101.81. 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 ~~2018,~~2019, during the ~~third~~first quarter ~~and first nine months~~ of ~~2019,~~2020, the Company experienced ~~modest increases~~decreases in ADR and occupancy, resulting in ~~increases~~a decrease of ~~1.1% and 0.4%, respectively,~~20.7% in RevPAR for Comparable Hotels. ~~While~~For the first two months of 2020 (before COVID-19 significantly impacted the Company’s performance) and 2019, respectively, Comparable Hotels achieved combined average occupancy of 71.1% and 70.7% (an increase of 0.6%), ADR of $132.88 and $134.62 (a decrease of 1.3%) and RevPAR of $94.45 and $95.18 (a decrease of 0.8%). During March, the hotel industry and the Company began to see a significant decrease in occupancy as both mandated and voluntary restrictions on travel were implemented throughout the U.S. For Comparable Hotels, the Company experienced ~~a 0.9% increase~~occupancy of approximately 41.0% in ~~occupancy for Comparable Hotels during the third quarter of 2019, occupancy~~March and below 20% for the ~~first nine months~~month of ~~2019 decreased slightly as~~April, with ADR declines by April of approximately 30% compared to the same periods in 2018. Markets/areas with above average growth in the third quarter and first nine months of 2019 for the Company and industry included Birmingham, Alabama, Norfolk, Virginia, Phoenix and Tucson, Arizona, and western Texas. Markets that were below average for the Company and industry included Chicago, Illinois, Oklahoma City, Oklahoma, Seattle, Washington, and central and southern Florida. The Company also experienced increased revenue due to demand in the Florida Panhandle, southern Alabama, eastern North Carolina and Anchorage, Alaska related to recovery and restoration efforts related to hurricanes Florence and Michael and the 2018 earthquake in Anchorage, Alaska. The Company anticipates a decline in RevPAR during the fourth quarter of 2019 as compared to the same period of 2018 primarily due to declines in business associated with restoration and recovery efforts in the above-mentioned markets.2019.
24
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. Hotel operating expense for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ totaled ~~$187.6~~$155.3 million and ~~$185.2~~$175.4 million, respectively, or ~~56.6%~~65.2% and ~~55.8%~~57.8% of total revenue for each respective period, and for the nine months ended September 30, 2019 and 2018 totaled $550.2 million and $544.1 million, respectively, or 56.3% and 55.8% of total revenue for each respective period, which are consistent with the increases in Comparable Hotels hotel operating expense as a percentage of revenue for the same periods. Increases in labor costs as a percentage of revenue during the first nine months of 2019 as compared to the same period in 2018 were the primary cause of the increaseperiod. Included in hotel operating expense ~~which~~for the three months ended March 31, 2020 were ~~slightly offset by decreases~~approximately $1.6 million in ~~utility costs.~~separation and furlough costs for hotel employees as a result of the occupancy declines discussed above. The Company ~~anticipates continued increases in labor costs due to government regulations surrounding wages, healthcare~~has worked and ~~other benefits, other wage-related initiatives and lower unemployment rates. The Company~~ will continue to work with its management companies to make reductions in staffing models, consolidate operations in markets with multiple properties, adjust or reduce orfood and beverage offerings and other amenities, among other efficiency initiatives to mitigate ~~costs as a percentage~~the impact of revenue ~~where possible while maintaining quality~~declines on its results of operations. For example, in some markets the Company is “clustering” hotels, whereby multiple properties in a market have consolidated their operations to increase efficiency; certain brand standards have been reduced; and the Company has also successfully reduced or deferred payments under various service ~~levels at each property.~~contracts. Although certain operating costs of a hotel are more fixed in nature, such as base utility and maintenance costs, the Company is working to reduce all non-essential costs including service contracts, utilities in areas not utilized and certain maintenance costs. Additionally, as the Company modifies operations to address concerns related to COVID-19, the Company expects to incur increased operating costs related to the supplying of personal protective equipment for employees as well as increased sanitation, social distancing and other measures.

Property Taxes, Insurance and Other Expense

Property taxes, insurance, and other expense for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ totaled ~~$19.2~~$19.6 million in each respective period, or ~~5.8% of total revenue for each period,~~8.2% and ~~for the nine months ended September 30, 2019 and 2018 totaled $57.2 million and $55.1 million, respectively, or 5.9% and 5.7%~~6.5% of total revenue for each respective ~~period, which are consistent with Comparable Hotels expense as a percentage of revenue for~~period. Although the same periods. For the Company’s Comparable Hotels, real estate taxes increased during the first nine months of 2019 compared to the same period in 2018, 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 2019. The Company will continue to aggressively appeal ~~tax~~ assessments in certain jurisdictions to attempt to minimize tax increases as warranted. Additionally, due to increased losses incurred by property insurance carriers during the past few years, the Company’s property insurance costs increasedand monitor locality guidance as a ~~percentage~~result of ~~revenue for the first nine months of 2019~~COVID-19, it does not currently anticipate significant decreases in property taxes in 2020 as compared to 2019, as many assessments are made at the ~~same period in 2018 and are anticipated to increase for the remainder~~beginning of ~~2019.~~each calendar year.
25

~~Index~~

~~Operating Ground Lease Expense~~
Operating ground lease expense for the three months ended September 30, 2019 and 2018 was $0.4 million and $2.8 million, respectively. Operating ground lease expense for the nine months ended September 30, 2019 and 2018 was $1.3 million and $8.6 million, respectively. Operating ground lease expense in 2019 primarily represents the expense incurred by the Company to lease land for nine of its hotel properties. Operating ground lease expense in 2018 primarily represents the expense incurred by the Company to lease land for 13 of its hotel properties, which, for the three and nine months ended September 30, 2018, included approximately $2.4 million and $7.2 million, respectively, of expense related to four ground leases that were previously classified as operating leases that are classified as finance leases under the new lease accounting standard effective January 1, 2019.
General and Administrative Expense

General and administrative expense for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ was ~~$9.0~~$9.5 million and ~~$3.4~~$8.1 million, respectively, or ~~2.7%~~4.0% and 1.0% of total revenue for each respective period. For the nine months ended September 30, 2019 and 2018, general and administrative expense was $25.5 million and $17.0 million, respectively, or 2.6% and 1.7%2.7% 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 increase in~~General and administrative expense during the three and nine months ended September 30, 2019 was due primarily to costs associated with the Company’s senior management changes and increased accruals for anticipated performance under the Company’s incentive plans. During the third quarter of 2019, the Company increased its incentive compensation expense for potential bonus payments by approximately $4.4 million. In comparison, the incentive compensation expense was reduced during the third quarter of 2018 by approximately $0.8 million, due to lower than previously anticipated 2018 performance. For the first nine months of 2019 the incentive compensation expense increased by approximately $7.4 million compared to the same period in 2018. The increases are due primarily to the favorable performance of the Company’s shareholder return metrics under its incentive plans.
~~Loss on Impairment of Depreciable Real Estate Assets~~
Loss on impairment of depreciable real estate assets was $6.5 million for both the three and nine months ended September 30, 2019, and $3.1 million for the nine months ended September 30, 2018, consisting of an impairment charge for the Winston-Salem, North Carolina Courtyard in 2019 and impairment charges for the two Columbus hotels and the Springdale, Arkansas Residence Inn in 2018. The Company did not recognize any impairment charges for the three months ended ~~September 30, 2018. See~~March 31, 2020 included the accrual of approximately $2.5 million in separation benefits awarded in connection with the previously announced retirements of the Company’s former Chief Operating Officer and former Chief Financial Officer on March 31, 2020. General and administrative expense for the three months ended March 31, 2019 included the accrual of approximately $0.5 million for the separation payment in connection with the retirement of the Company’s former Chief Legal Officer.
As discussed above, in order to minimize costs, the Company’s Executive Chairman voluntarily agreed to forego six months of salary, the Chief Executive Officer volunteered to reduce his target compensation by 60 percent and the non-employee directors on the Board of Directors volunteered as a group to reduce their annual director fees by more than 15 percent. Additionally, in light of the decline in revenue and operating results due to COVID-19 and the associated impact on the current operational and shareholder return metrics in the 2020 Incentive Plan (see Note 28 titled ~~“Investment in Real Estate”~~“Compensation Plans” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for additional ~~information concerning these impairment losses.~~details), the Company anticipates a reduced payout for executive management compared to the originally established performance metrics for target compensation.
Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ was ~~$47.9~~$49.5 million and ~~$46.2 million, respectively. For the nine months ended September 30, 2019 and 2018, depreciation and amortization expense was $143.9 million and $136.8~~$48.0 million, respectively. Depreciation and amortization expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for their respective periods owned. The increase was primarily due to the increase in the number of properties owned as a result of the acquisition of two hotels in the first quarter of 2019 and five hotels in 2018 and renovations completed throughout 2019 and 2018. Additionally, depreciationDepreciation and amortization expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 also includes ~~approximately $0.7~~$1.6 million and ~~$2.9~~$1.0 million, respectively, of ~~expense associated with~~ amortization of the Company’s four finance ground lease ~~assets in accordance with~~assets. The remaining increase of approximately $0.9 million was primarily due to renovations completed throughout 2019 and the ~~new lease accounting standard.~~first quarter of 2020.
25
Index

Interest and Other Expense, net

Interest and other expense, net for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ was ~~$14.8~~$15.6 million and ~~$13.1 million, respectively. For the nine months ended September 30, 2019 and 2018, interest and other expense, net was $46.1 million and $38.3~~$15.5 million, respectively, and is net of approximately $0.7 million and $0.5 million, respectively, of interest capitalized associated with renovation projects. Additionally, interest and other expense, net for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 includes approximately ~~$1.5~~$2.8 million and ~~$5.4~~$1.8 million, respectively, of interest recorded on the Company’s four finance lease ~~liabilities in accordance with the new lease accounting standard.~~liabilities. Interest expense related to the Company’s debt ~~increased~~instruments decreased as a result of ~~increased~~decreased average borrowings in the first ~~nine~~three months of ~~2019~~2020 as compared to the first ~~nine~~three months of ~~2018 resulting from acquisitions and share repurchases, partially offset by the repayment of borrowings with proceeds from dispositions, combined with~~2019 as well as a ~~small increase~~decrease in the Company’s effective interest rate during the first ~~nine~~three months of ~~2019~~2020 as compared to the same period in ~~2018,~~2019, due to ~~higher~~lower average interest ~~rates on the Company’s variable-rate debt.~~rates. However, ~~with the one-month LIBOR decreasing from 2.26% at September 30, 2018 to 2.02% at September 30, 2019,~~ the Company anticipates interest ~~rates~~expense to be higher for the ~~fourth quarter~~remainder of ~~2019 on its variable rate debt to be slightly lower than interest rates for the same period in 2018. Interest expense is anticipated to decrease in the fourth quarter of 2019~~2020 compared to the same period of 2019 due to increased borrowings under its revolving credit facility as compared to the same periods in ~~2018.~~2019 related to declines in operating results. In March 2020, the Company drew the remaining availability under its revolving credit facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in the financial markets resulting from COVID-19. Additionally, as discussed further above in Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, interest rate margins for the Company’s unsecured debt are anticipated to increase for the remainder of the year to the highest margin under each facility as a condition to obtaining waivers on those facilities’ covenants.

26

~~Index~~
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”), Earnings Before Interest, Income Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”), and Adjusted EBITDAre (“Adjusted EBITDAre”). 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, EBITDAre and Adjusted EBITDAre are not necessarily indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. Although FFO, MFFO, EBITDA, EBITDAre and Adjusted EBITDAre, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA, EBITDAre and Adjusted EBITDAre 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 (loss) (computed in accordance with GAAP), excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), extraordinary items as defined by GAAP, and the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated affiliates. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the Nareit definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.

The Company calculates MFFO by further adjusting FFO for the exclusion of amortization of finance ground lease assets, amortization of favorable and unfavorable operating leases, net and non-cash straight-line operating ground lease expense, as these expenses do not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.

26

Index
The following table reconciles the Company’s GAAP net income (loss) to FFO and MFFO for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Net income
$ 46,223 $ 62,122 $ 146,464 $ 171,934
Depreciation of real estate owned
46,910 45,925 140,288 136,037
Gain on sale of real estate
- - (1,052 ) -
Loss on impairment of depreciable real estate assets
6,467 - 6,467 3,135
Funds from operations
99,600 108,047 292,167 311,106
Amortization of finance ground lease assets
725 - 2,915 -
Amortization of favorable and unfavorable operating leases, net
31 146 93 500
Non-cash straight-line operating ground lease expense
47 875 142 2,677
Modified funds from operations
$ 100,403 $ 109,068 $ 295,317 $ 314,283
27

~~Index~~

Three Months Ended March 31,

2020

2019

Net income (loss)
$ (2,769 ) $ 38,151
Depreciation of real estate owned
47,668 46,666
Gain on sale of real estate
(8,839 ) (1,213 )
Funds from operations
36,060 83,604
Amortization of finance ground lease assets
1,602 1,041
Amortization of favorable and unfavorable operating leases, net
101 31
Non-cash straight-line operating ground lease expense
47 48
Modified funds from operations
$ 37,810 $ 84,724

EBITDA, EBITDAre and Adjusted EBITDAre

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

In addition to EBITDA, the Company also calculates and presents EBITDAre in accordance with standards established by Nareit, which defines EBITDAre as EBITDA, excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), plus real estate related impairments, and adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates. The Company presents EBITDAre because it believes that it provides further useful information to investors in comparing its operating performance between periods and between REITs that report EBITDAre using the Nareit definition.

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

The following table reconciles the Company’s GAAP net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2019
2018⁽¹⁾ 2019 2018⁽¹⁾
Net income
$ 46,223 $ 62,122 $ 146,464 $ 171,934
Depreciation and amortization
47,887 46,169 143,946 136,752
Amortization of favorable and unfavorable operating leases, net
31 146 93 500
Interest and other expense, net
14,759 13,140 46,110 38,269
Income tax expense
143 100 505 414
EBITDA
109,043 121,677 337,118 347,869
Gain on sale of real estate
- - (1,052 ) -
Loss on impairment of depreciable real estate assets
6,467 - 6,467 3,135
EBITDAre
115,510 121,677 342,533 351,004
Non-cash straight-line operating ground lease expense
47 875 142 2,677
Adjusted EBITDAre
$ 115,557 $ 122,552 $ 342,675 $ 353,681
⁽¹⁾
EBITDA, EBITDAre and Adjusted EBITDAre for the three and nine months ended September 30, 2018 include approximately $1.4 million and $4.2 million, respectively, of lease payments recorded to operating ground lease expense related to four of the Company's ground leases that were classified as operating leases during 2018. Under the new lease accounting standard, effective January 1, 2019, these four ground leases are classified as finance leases, for which the Company recognizes amortization expense and interest expense in the Company's consolidated statements of operations (which are both excluded from EBITDA, EBITDAre and Adjusted EBITDAre calculations), instead of operating ground lease expense.

Three Months Ended March 31,

2020

2019

Net income (loss)
$ (2,769 ) $ 38,151
Depreciation and amortization
49,522 47,950
Amortization of favorable and unfavorable operating leases, net
101 31
Interest and other expense, net
15,566 15,494
Income tax expense
146 206
EBITDA
62,566 101,832
Gain on sale of real estate
(8,839 ) (1,213 )
EBITDAre
53,727 100,619
Non-cash straight-line operating ground lease expense
47 48
Adjusted EBITDAre
$ 53,774 $ 100,667
28
27
Index
Hotels Owned

As of ~~September 30, 2019,~~March 31, 2020, the Company owned ~~234~~231 hotels with an aggregate of ~~30,046~~29,535 rooms located in 34 ~~states, including one hotel with 122 rooms classified as held for sale.~~states. The following tables summarize the number of hotels and rooms by brand and by state:

Number of Hotels and Guest Rooms by Brand
Number of Hotels and Guest Rooms by Brand

Number of Hotels and Guest Rooms by Brand

Number of

Number of

Number of

Number of

Brand

Hotels

Rooms

Hotels

Rooms

Hilton Garden Inn
41 5,665 41 5,665
Hampton
40 5,065 39 4,956
Courtyard
37 5,070 36 4,948
Residence Inn
33 3,939 33 3,939
Homewood Suites
33 3,731 33 3,731
SpringHill Suites
15 2,040 13 1,705
Fairfield
11 1,300 11 1,300
Home2 Suites
9 1,038 9 1,038
TownePlace Suites
9 931 9 931
Marriott
2 616 2 616
Embassy Suites
2 316 2 316
Renaissance
1 208
Independent
2 263
Hyatt Place
1 127 1 127
Total
234 30,046 231 29,535

Number of Hotels and Guest Rooms by State
Number of Hotels and Guest Rooms by State

Number of Hotels and Guest Rooms by State

Number of

Number of

Number of

Number of

State

Hotels

Rooms

Hotels

Rooms

Alabama
15 1,434 15 1,434
Alaska
2 304 2 304
Arizona
12 1,644 12 1,644
Arkansas
3 336 3 336
California
27 3,807 27 3,807
Colorado
4 567 4 567
Florida
23 2,912 21 2,698
Georgia
6 672 6 672
Idaho
2 416 1 186
Illinois
8 1,420 8 1,420
Indiana
4 479 4 479
Iowa
3 301 3 301
Kansas
4 422 4 422
Louisiana
3 422 3 422
Maine
1 179 1 179
Maryland
2 233 2 233
Massachusetts
4 466 4 466
Michigan
1 148 1 148
Minnesota
3 404 3 404
Mississippi
2 168 2 168
Missouri
4 544 4 544
Nebraska
4 621 4 621
New Jersey
5 629 5 629
New York
4 553 4 553
North Carolina
11 1,213 10 1,091
Ohio
2 252 2 252
Oklahoma
4 545 4 545
Pennsylvania
3 391 3 391
South Carolina
5 538 5 538
Tennessee
13 1,502 13 1,502
Texas
31 3,755 31 3,755
Utah
3 393 3 393
Virginia
12 1,767 13 1,822
Washington
4 609 4 609
Total
234 30,046 231 29,535

29
28
Index

The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the ~~234~~231 hotels the Company owned as of ~~September 30, 2019.~~March 31, 2020.

City

State

Brand

Manager

Date Acquired or Completed

Rooms

Anchorage

AK

Embassy Suites

Stonebridge

4/30/2010
169
Anchorage

AK

Home2 Suites

Stonebridge

12/1/2017
135
Auburn

AL

Hilton Garden Inn

LBA

3/1/2014
101
Birmingham

AL

Courtyard

LBA

3/1/2014
84
Birmingham

AL

Hilton Garden Inn

LBA

9/12/2017
104
Birmingham

AL

Home2 Suites

LBA

9/12/2017
106
Birmingham

AL

Homewood Suites

McKibbon

3/1/2014
95
Dothan

AL

Hilton Garden Inn

LBA

6/1/2009
104
Dothan

AL

Residence Inn

LBA

3/1/2014
84
Huntsville

AL

Hampton

LBA

9/1/2016
98
Huntsville

AL

Hilton Garden Inn

LBA

3/1/2014
101
Huntsville

AL

Home2 Suites

LBA

9/1/2016
77
Huntsville

AL

Homewood Suites

LBA

3/1/2014
107
Mobile

AL

Hampton

McKibbon

9/1/2016
101
Montgomery

AL

Hilton Garden Inn

LBA

3/1/2014
97
Montgomery

AL

Homewood Suites

LBA

3/1/2014
91
Prattville

AL

Courtyard

LBA

3/1/2014
84
Rogers

AR

Hampton

Raymond

8/31/2010
122
Rogers

AR

Homewood Suites

Raymond

4/30/2010
126
Rogers

AR

Residence Inn

Raymond

3/1/2014
88
Chandler

AZ

Courtyard

North Central

11/2/2010
150
Chandler

AZ

Fairfield

North Central

11/2/2010
110
Phoenix

AZ

Courtyard

North Central

11/2/2010
164
Phoenix

AZ

Courtyard

North Central

9/1/2016
127
Phoenix

AZ

Hampton

North Central

9/1/2016
125
Phoenix

AZ

Hampton

North Central

5/2/2018
210
Phoenix

AZ

Homewood Suites

North Central

9/1/2016
134
Phoenix

AZ

Residence Inn

North Central

11/2/2010
129
Scottsdale

AZ

Hilton Garden Inn

North Central

9/1/2016
122
Tucson

AZ

Hilton Garden Inn

Western

7/31/2008
125
Tucson

AZ

Residence Inn

Western

3/1/2014
124
Tucson

AZ

TownePlace Suites

Western

10/6/2011
124
Agoura Hills

CA

Homewood Suites

Dimension

3/1/2014
125
Burbank

CA

Courtyard

Huntington

8/11/2015
190
Burbank

CA

Residence Inn

Marriott

3/1/2014
166
Burbank

CA

SpringHill Suites

Marriott

7/13/2015
170
Clovis

CA

Hampton

Dimension

7/31/2009
86
Clovis

CA

Homewood Suites

Dimension

2/2/2010
83
Cypress

CA

Courtyard

Dimension

3/1/2014
180
Cypress

CA

Hampton

Dimension

6/29/2015
110
Oceanside

CA

Courtyard

Marriott

9/1/2016
142
Oceanside

CA

Residence Inn

Marriott

3/1/2014
125
Rancho Bernardo/San Diego

CA

Courtyard

InnVentures

3/1/2014
210
Sacramento

CA

Hilton Garden Inn

Dimension

3/1/2014
153
San Bernardino

CA

Residence Inn

InnVentures

2/16/2011
95
San Diego

CA

Courtyard

Huntington

9/1/2015
245
San Diego

CA

Hampton

Dimension

3/1/2014
177
San Diego

CA

Hilton Garden Inn

InnVentures

3/1/2014
200
30

~~Index~~
~~City~~
~~State~~
~~Brand~~
~~Manager~~
~~Date Acquired or Completed~~
~~Rooms~~
San Diego

CA

Residence Inn

Dimension

3/1/2014
121
~~San Jose~~
CA
~~Homewood Suites~~
~~Dimension~~
~~3/1/2014~~
~~140~~
~~San Juan Capistrano~~
CA
~~Residence Inn~~
~~Marriott~~
~~9/1/2016~~
~~130~~
~~Santa Ana~~
CA
~~Courtyard~~
~~Dimension~~
~~5/23/2011~~
~~155~~
~~Santa Clarita~~
CA
~~Courtyard~~
~~Dimension~~
~~9/24/2008~~
~~140~~
~~Santa Clarita~~
CA
~~Fairfield~~
~~Dimension~~
~~10/29/2008~~
66
~~Santa Clarita~~
CA
~~Hampton~~
~~Dimension~~
~~10/29/2008~~
~~128~~
~~Santa Clarita~~
CA
~~Residence Inn~~
~~Dimension~~
~~10/29/2008~~
90
~~Tulare~~
CA
~~Hampton~~
~~InnVentures~~
~~3/1/2014~~
86
~~Tustin~~
CA
~~Fairfield~~
~~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~~
~~Jacksonville~~
FL
~~Hyatt Place~~
~~LBA~~
~~12/7/2018~~
~~127~~
~~Lakeland~~
FL
~~Courtyard~~
~~LBA~~
~~3/1/2014~~
78
~~Miami~~
FL
~~Courtyard~~
~~Dimension~~
~~3/1/2014~~
~~118~~
~~Miami~~
FL
~~Hampton~~
~~White Lodging~~
~~4/9/2010~~
~~121~~
~~Miami~~
FL
~~Homewood Suites~~
~~Dimension~~
~~3/1/2014~~
~~162~~
~~Orlando~~
FL
~~Fairfield~~
~~Marriott~~
~~7/1/2009~~
~~200~~
~~Orlando~~
FL
~~Home2 Suites~~
~~LBA~~
~~3/19/2019~~
~~128~~
~~Orlando~~
FL
~~SpringHill Suites~~
~~Marriott~~
~~7/1/2009~~
~~200~~
~~Panama City~~
FL
~~Hampton~~
~~LBA~~
~~3/12/2009~~
95
~~Panama City~~
FL
~~TownePlace Suites~~
~~LBA~~
~~1/19/2010~~
~~103~~
~~Pensacola~~
FL
~~TownePlace Suites~~
~~McKibbon~~
~~9/1/2016~~
97
~~Sanford~~
FL
~~SpringHill Suites~~
~~LBA~~
~~3/1/2014~~
~~105~~
~~Tallahassee~~
FL
~~Fairfield~~
~~LBA~~
~~9/1/2016~~
97
~~Tallahassee~~
FL
~~Hilton Garden Inn~~
~~LBA~~
~~3/1/2014~~
85
~~Tampa~~
FL
~~Embassy Suites~~
~~White Lodging~~
~~11/2/2010~~
~~147~~
~~Albany~~
GA
~~Fairfield~~
~~LBA~~
~~1/14/2010~~
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~~
~~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~~

31
29
Index

City

State

Brand

Manager

Date Acquired or Completed

Rooms

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

White Lodging

9/1/2016
119
Overland Park

KS

Fairfield

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
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
St. Paul

MN

Hampton

Vista Host

3/4/2019
160
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

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

LBA

3/1/2014
92
Greensboro

NC

SpringHill Suites

Newport

3/1/2014
82
Jacksonville

NC

Home2 Suites

LBA

9/1/2016
105
Wilmington

NC

Fairfield

Crestline

3/1/2014
122
Winston-Salem

NC

Courtyard

McKibbon

3/1/2014
122 (1)
Winston-Salem

NC

Hampton

McKibbon

9/1/2016
94
Omaha

NE

Courtyard

Marriott

3/1/2014
181
Omaha

NE

Hampton

White Lodging

9/1/2016
139
Omaha

NE

Hilton Garden Inn

White Lodging

9/1/2016
178
Omaha

NE

Homewood Suites

White Lodging

9/1/2016
123
Cranford

NJ

Homewood Suites

Dimension

3/1/2014
108
Mahwah

NJ

Homewood Suites

Dimension

3/1/2014
110
Mount Laurel

NJ

Homewood Suites

Newport

1/11/2011
118
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

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

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

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
Jacksonville

FL

Hyatt Place

Crestline

12/7/2018
127 (1)
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

Marriott

7/1/2009
200
Orlando

FL

Home2 Suites

LBA

3/19/2019
128
Orlando

FL

SpringHill Suites

Marriott

7/1/2009
200
Panama City

FL

Hampton

LBA

3/12/2009
95
Panama City

FL

TownePlace Suites

LBA

1/19/2010
103
Pensacola

FL

TownePlace Suites

McKibbon

9/1/2016
97
Tallahassee

FL

Fairfield

LBA

9/1/2016
97
Tallahassee

FL

Hilton Garden Inn

LBA

3/1/2014
85
Tampa

FL

Embassy Suites

White Lodging

11/2/2010
147
Albany

GA

Fairfield

LBA

1/14/2010
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

Aimbridge

9/1/2016
103
Cedar Rapids

IA

Homewood Suites

Aimbridge

9/1/2016
95
Davenport

IA

Hampton

Aimbridge

9/1/2016
103
Boise

ID

Hampton

Raymond

4/30/2010
186
Des Plaines

IL

Hilton Garden Inn

Raymond

9/1/2016
252
Hoffman Estates

IL

Hilton Garden Inn

White Lodging

9/1/2016
184
Mettawa

IL

Hilton Garden Inn

White Lodging

11/2/2010
170
Mettawa

IL

Residence Inn

White Lodging

11/2/2010
130
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

32
30
Index
City State Brand Manager Date Acquired or Completed Rooms
Indianapolis

IN

SpringHill Suites

White Lodging

11/2/2010
130
Merrillville

IN

Hilton Garden Inn

White Lodging

9/1/2016
124
Mishawaka

IN

Residence Inn

White Lodging

11/2/2010
106
South Bend

IN

Fairfield

White Lodging

9/1/2016
119
Overland Park

KS

Fairfield

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
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

Crestline

3/1/2014
126
Silver Spring

MD

Hilton Garden Inn

White Lodging

7/30/2010
107
Portland

ME

Residence Inn

Crestline

10/13/2017
179 (1)
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
St. Paul

MN

Hampton

Vista Host

3/4/2019
160
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

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

LBA

3/1/2014
92
Greensboro

NC

SpringHill Suites

Newport

3/1/2014
82
Jacksonville

NC

Home2 Suites

LBA

9/1/2016
105
Wilmington

NC

Fairfield

Crestline

3/1/2014
122
Winston-Salem

NC

Hampton

McKibbon

9/1/2016
94
Omaha

NE

Courtyard

Marriott

3/1/2014
181
Omaha

NE

Hampton

White Lodging

9/1/2016
139
Omaha

NE

Hilton Garden Inn

White Lodging

9/1/2016
178
Omaha

NE

Homewood Suites

White Lodging

9/1/2016
123
Cranford

NJ

Homewood Suites

Dimension

3/1/2014
108
Mahwah

NJ

Homewood Suites

Dimension

3/1/2014
110
Mount Laurel

NJ

Homewood Suites

Newport

1/11/2011
118
Somerset

NJ

Courtyard

Newport

3/1/2014
162
West Orange

NJ

Courtyard

Newport

1/11/2011
131
Islip/Ronkonkoma

NY

Hilton Garden Inn

Crestline

3/1/2014
165
New York

NY

Independent

Highgate

3/1/2014
208
Syracuse

NY

Courtyard

Crestline

10/16/2015
102
Syracuse

NY

Residence Inn

Crestline

10/16/2015
78
Mason

OH

Hilton Garden Inn

Raymond

9/1/2016
110
Twinsburg

OH

Hilton Garden Inn

Interstate

10/7/2008
142
31
Index

City

State

Brand

Manager

Date Acquired or Completed

Rooms
~~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~~
~~208~~
~~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~~Newport

12/31/2008
132
Charleston

SC

Home2 Suites

LBA

9/1/2016
122
Columbia

SC

Hilton Garden Inn

Newport

3/1/2014
143
Columbia

SC

TownePlace Suites

Newport

9/1/2016
91
Greenville

SC

Residence Inn

McKibbon

3/1/2014
78
Hilton Head

SC

Hilton Garden Inn

McKibbon

3/1/2014
104
Chattanooga

TN

Homewood Suites

LBA

3/1/2014
76
Franklin

TN

Courtyard

Chartwell

9/1/2016
126
Franklin

TN

Residence Inn

Chartwell

9/1/2016
124
Jackson

TN

Hampton

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

White Lodging

11/2/2010
150
Austin

TX

Hampton

Vista Host

4/14/2009
124
Austin

TX

Hilton Garden Inn

White Lodging

11/2/2010
117
Austin

TX

Homewood Suites

Vista Host

4/14/2009
97
Austin/Round Rock

TX

Homewood Suites

Vista Host

9/1/2016
115
Beaumont

TX

Residence Inn

Western

10/29/2008
133
Burleson/Fort Worth

TX

Hampton

LBA

10/7/2014
88
Dallas

TX

Homewood Suites

Western

9/1/2016
130
Denton

TX

Homewood Suites

Chartwell

9/1/2016
107
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
33

~~Index~~
~~City~~
~~State~~
~~Brand~~
~~Manager~~
~~Date Acquired or Completed~~
~~Rooms~~
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
32
Index
City State Brand Manager Date Acquired or Completed Rooms
Shenandoah

TX

Courtyard

LBA

9/1/2016
124
Stafford

TX

Homewood Suites

Western

3/1/2014
78
Texarkana

TX

Hampton

Aimbridge

1/31/2011
81
Provo

UT

Residence Inn

Dimension

3/1/2014
114
Salt Lake City

UT

Residence Inn

Huntington

10/20/2017
136
Salt Lake City

UT

SpringHill Suites

White Lodging

11/2/2010
143
Alexandria

VA

Courtyard

Marriott

3/1/2014
178
Alexandria

VA

SpringHill Suites

Marriott

3/28/2011
155
Charlottesville

VA

Courtyard

Crestline

3/1/2014
139
Manassas

VA

Residence Inn

Crestline

2/16/2011
107
Richmond
VA
Independent
Crestline
10/9/2019
55
Richmond

VA

Courtyard

White Lodging

12/8/2014
135
Richmond

VA

Marriott

White Lodging

3/1/2014
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
~~30,046~~29,535
(1)
~~Hotel is classified as held for sale~~ Manager noted was effective as of ~~September 30, 2019.~~April 1, 2020.

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.

34

~~Index~~
Liquidity and Capital Resources

Capital Resources

~~The~~Prior to the impact of COVID-19, the Company’s principal ~~daily~~short term sources of liquidity ~~are~~were the operating cash ~~flow~~flows generated from the Company’s properties and availability under its revolving credit facility. Periodically, the Company may ~~receive~~have received proceeds from strategic additional secured and unsecured debt financing, dispositions of its hotel properties (such as the sale of two hotels in the first quarter of 2020 for proceeds of approximately $45 million discussed above in “2020 Portfolio Activities”) and offerings of the Company’s common shares. As a result of the deterioration of the Company’s operating cash flows from declines in occupancy caused by COVID-19, the Company anticipates significantly reduced cash from operations until travel increases in the U.S. To increase readily available liquidity, in March 2020, the Company drew down the remaining availability under its $425 million revolving credit facility and had available cash of approximately $437 million as of March 31, 2020. The Company has also taken several steps to preserve capital and increase liquidity, including postponing approximately $50 million of non-essential capital improvements and suspending its monthly distributions. The Company anticipates funding its near-term cash needs with cash on hand.

As of ~~September 30, 2019,~~March 31, 2020, the Company had ~~$1.3~~$1.8 billion of total outstanding debt consisting of ~~$458.3~~$500.0 million of mortgage debt and ~~$886.5 million~~$1.3 billion outstanding under its credit facilities, excluding unamortized debt issuance costs and fair value adjustments. The ~~Company’s unused~~Company, as discussed above, has drawn all of its borrowing capacity under its $425 million revolving credit facility as of ~~September 30, 2019 was $273.5 million, which is available~~March 31, 2020. In the near term, the impact of COVID-19 on the global economy, including any sustained decline in the Company’s performance, may make it more difficult or costly for ~~acquisitions, hotel renovations, share repurchases, working~~the Company to raise debt or equity capital ~~and other general corporate funding purposes, including the payment of distributions~~ to ~~shareholders.~~fund long-term liquidity requirements.
33

Index

The credit agreements governing the credit facilities contain mandatory prepayment requirements, customary affirmative ~~covenants,~~and 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~~March 31, 2020. As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company anticipates that it may not be in compliance with certain of these covenants in future periods. In April 2020, the Company notified the lenders under its credit facilities of the anticipated non-compliance with certain covenants and anticipates entering into amendments to each of the credit facilities that will provide for waivers of each of the covenants for four quarters beginning with the quarter ending June 30, ~~2019.~~2020. The terms of the amendments are expected to include minimum liquidity requirements and restrictions on the amount of the Company’s distributions, capital expenditures, share repurchases and acquisitions among other items during the covenant relief period. Additionally, the Company anticipates the amendments to require the interest rate under its credit facilities to increase, during the covenant relief period, to the highest interest rate margin under each of the credit agreements which would range from 75-80 basis points of an increase above current margins depending on the agreement. Although the Company anticipates completing these amendments, there are many conditions to closing, including but not limited to finalizing the terms of the amendments and completing the amendments themselves, and there can be no assurances that the Company will be able to complete the amendments with the noted terms or at all. If the amendments are not entered into, as currently anticipated, and the Company does not meet the covenant requirements in future periods, the Company will be in default under each credit facility, which may result in a potential acceleration of amounts due under each credit facility, which would have a material adverse effect on the Company if it is unable to obtain alternative sources of capital to repay such amounts.

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 ~~September 30, 2019.~~March 31, 2020.

The Company has a universal shelf registration statement on Form S-3 (No. 333-231021) that was automatically effective upon filing on April 25, 2019. The Company may offer an indeterminate number or amount, as the case may be, of (1) common shares, no par value per share; (2) preferred shares, no par value per share; (3) depository shares representing ~~its~~the Company’s preferred shares; (4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5) rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities ~~Act.~~Act of 1933, as amended. Future offerings 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.
During April and May 2020, the Company applied for and received approximately $18 million in loans under the CARES Act Paycheck Protection Program. Due to subsequent guidance issued by the Small Business Administration and the Department of Treasury, related to the intended participants in this program, the Company repaid all amounts received. The Company will continue to evaluate relief initiatives and stimulus packages, including any accompanying restrictions on its business that would be imposed by such packages, that may be or become available to the Company under government stimulus programs.
Capital Uses

~~The~~Although there can be no assurances, the Company anticipates that available cash ~~flow from operations, availability under its credit facilities, additional borrowings and proceeds from hotel dispositions and equity offerings~~of $437.3 million as of March 31, 2020, will be adequate to meet ~~its~~near-term anticipated ~~liquidity requirements, including~~operating cash flow deficits resulting from the effect of COVID-19, debt service, hotel acquisitions ~~hotel renovations, share repurchases,~~ and ~~required distributions to shareholders (the~~capital expenditures. However, if the Company is ~~not required~~unable to ~~make distributions at its~~meet these near term anticipated capital uses, it is unable to obtain the covenant waivers noted above and the lenders accelerate the amounts due under the credit facilities or if the Company is unable to refinance maturing debt in the future, it may need to raise capital through disposition of assets, issuance of equity or issuance of debt, which may be more costly to the Company in the current ~~rate for REIT purposes).~~environment.

Distributions

To maintain its REIT status, the Company is required to distribute at least 90% of its ordinary income. Distributions paid during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 totaled approximately ~~$201.5~~$67.3 million or ~~$0.90~~$0.30 per common share and were paid at a monthly rate of $0.10 per common share. For the same period, the Company’s net cash generated from operations was approximately ~~$291.5~~$33.3 million.
~~The~~ This shortfall includes a return of capital and was funded primarily by borrowings on the Company’s ~~current annual distribution rate, payable monthly, is $1.20 per common share. As it has done historically, due to seasonality,~~revolving credit facility. In March 2020, the Company ~~may use~~announced the suspension of its ~~revolving~~monthly distributions as a result of COVID-19 and the impact on its business. Subject to the distribution restrictions discussed above anticipated to be a condition to the proposed amendments to the Company’s unsecured credit ~~facility to maintain~~facilities during 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~~covenant relief period, the Company’s Board of Directors, in consultation with management, will continue to monitor hotel operations and ~~there can be no assurance of the classification or duration of~~intends to resume monthly 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~~a time and ~~may make adjustments to the distribution rate as~~level determined to be prudent in relation to the Company’s other cash requirements 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.requirements.
35
34
Index

Share Repurchases

In May ~~2019,~~2020, the Company’s Board of Directors approved an extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of ~~$360~~$345 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July ~~2020~~2021 if not terminated earlier. During the first ~~nine~~three months of ~~2019~~2020 and ~~2018,~~2019, the Company purchased, under its Share Repurchase Program, approximately 1.5 million and 0.3 million of its common shares, ~~in each respective period,~~respectively, at a weighted-average market purchase price of approximately ~~$14.92~~$9.42 and ~~$16.89~~$14.93 per common share, respectively, for an aggregate purchase price, including commissions, of approximately ~~$4.3~~$14.3 million ~~in each respective period.~~and $4.1 million, respectively. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash on hand or availability under its credit facilities. The shares were repurchased under a written trading plan that provided for share repurchases in open market transactions, and was intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. In March 2020 the Company terminated its written trading plan under the Share Repurchase Program. The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will depend upon prevailing market conditions, regulatory requirements and other factors. As of ~~September 30, 2019,~~March 31, 2020, approximately ~~$359.8~~$345.4 million remained available for purchase under the Share Repurchase Program. As discussed above, the Company anticipates a restriction on share repurchases during the covenant relief period to be a condition to the proposed amendments to the Company’s unsecured credit facilities.

Capital Improvements

The Company has ongoing capital commitments to fund its capital improvements. To maintain and enhance each property’s competitive position in its market, the Company has invested in and, subject to improved operating results, plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. As of ~~September 30, 2019,~~March 31, 2020, the Company held ~~$31.5~~$30.3 million in reserve related to these properties. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company invested approximately ~~$47.0~~$23.9 million in capital expenditures, and anticipates spending an additional ~~$30~~$10 million to ~~$40~~$15 million during the remainder of ~~2019, which includes various scheduled renovation projects~~2020. This estimate is approximately $50 million less than originally planned for ~~approximately 15~~the entire year of 2020 as the Company has postponed all planned non-essential capital improvements in order to ~~20 properties.~~maintain a sound liquidity position as a result of COVID-19. The Company does not currently have any existing or planned projects for new property development.

Hotel Contract Commitments

As of ~~September 30, 2019,~~March 31, 2020, the Company had outstanding contracts, all of which were entered into prior to 2020, for the potential purchase of ~~seven~~six newly developed hotels for a total expected purchase price of approximately ~~$215.7~~$208.8 million. ~~One~~Two of the hotels, ~~an independent boutique~~the newly developed Hampton Inn & Suites and Home2 Suites in Cape Canaveral, Florida, a combined 224-room dual-branded complex, were acquired in April 2020 for a gross purchase price of approximately $46.7 million. Additionally, in May 2020, the contract to purchase the Courtyard hotel in ~~Richmond, Virginia, which~~Denver, Colorado for $49.1 million was ~~already in operation, was acquired in October 2019.~~terminated. The ~~six~~three remaining hotels (with a total expected purchase price of approximately $113.0 million) are under development and are planned to be completed and opened for business over the next ~~nine~~five to 2115 months from ~~September 30, 2019,~~March 31, 2020, 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 closings on these hotels will occur under the outstanding purchase contracts. ~~The~~If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under these contracts. As the properties are under development, at this time, the sellers have not met all of the conditions to closing. As discussed above, the Company utilized ~~its revolving credit facility~~$25.0 million of available cash and entered into a $21.7 million one-year note payable with the developer to fund the purchase of the ~~Richmond, Virginia hotel~~Cape Canaveral, Florida hotels and plans to utilize its ~~credit facilities~~ available cash at closing to purchase the remaining hotels under contract if closings occur.
~~Lease Contract Commitments~~
As discussed further in Note 9 titled “Leases” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, during the third quarter of 2019, the Company increased its lease liability for estimated future minimum lease payments by approximately $53 million based on reset provisions included in certain of its ground lease agreements.

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.

36
35
Index
Business Interruption

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

Seasonality

The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth ~~quarters.~~quarters, however, due to the effects of COVID-19, these typical seasonal patterns may not occur in 2020. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements.

New Accounting Standards

See Note 1 titled “Organization and Summary of Significant Accounting Policies” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for information on the adoption of the new ~~lease~~fair value measurement accounting standard on January 1, ~~2019.~~2020 and the guidance in the reference rate reform accounting standard effective in March 2020.

Subsequent Events
~~In October 2019, the Company paid approximately $22.4 million, or $0.10 per outstanding common share, in distributions to its common shareholders.~~
In October 2019, the Company declared a regular monthly cash distribution of $0.10 per common share for the month of November 2019. The distribution is payable on November 18, 2019 to shareholders of record on November 4, 2019.
~~In October 2019,~~On April 30, 2020, the Company closed on the purchase of ~~an existing 55-room independent boutique hotel located~~the newly developed Hampton Inn & Suites and Home2 Suites in ~~Richmond, Virginia,~~Cape Canaveral, Florida, a combined 224-room dual-branded complex, for a gross purchase price of approximately ~~$6.9~~$46.7 million. The Company ~~used borrowings under~~utilized $25.0 million of its ~~revolving credit facility~~available cash and entered into a one-year note payable with the developer secured by the hotels for $21.7 million to fund the purchase price of the Cape Canaveral, Florida hotels. The note payable bears interest, which is payable monthly, at a floating annual rate equal to one-month LIBOR plus a margin of 2.0% for the first six months of the loan term and 3.0% for the second six months of the loan term.
In May 2020, the contract to purchase the ~~hotel.~~
In October 2019, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 109-room Fort Lauderdale, Florida Hampton Inn for a gross sales price of $20.0 million. Although the Company is working towards the sale of thisCourtyard hotel there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on this hotel will occur under the outstanding purchase and sale agreement. If the closing occurs, this sale is expected to be completed in ~~December 2019~~Denver, Colorado was terminated and the ~~Company expects~~refundable deposit of approximately $0.6 million was repaid to ~~recognize a gain upon completion of~~ the ~~sale. The net proceeds from the sale will be used to pay down borrowings on the Company’s revolving credit facility.~~
In October 2019, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 105-room Sanford, Florida SpringHill Suites for a gross sales price of $13.0 million. Although the Company is working towards the sale of this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on this hotel will occur under the outstanding purchase and sale agreement. If the closing occurs, this sale is expected to be completed in the first quarter of 2020 and the Company expects to recognize a gain upon completion of the sale. The net proceeds from the sale will be used to pay down borrowings on the Company’s revolving credit facility.Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of ~~September 30, 2019,~~March 31, 2020, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk. However, the Company is exposed to interest rate risk due to possible changes in short term interest rates as it invests its cash or borrows on its revolving credit facility and due to the portion of its variable-rate term debt that is not fixed by interest rate swaps. As of ~~September 30, 2019,~~March 31, 2020, after giving effect to interest rate swaps, as described below, approximately ~~$129.0~~$377.5 million, or approximately ~~10%~~21% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s variable-rate debt outstanding as of ~~September 30, 2019,~~March 31, 2020, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately ~~$1.3~~$3.8 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~~As of March 31, 2020, the Company had two interest rate swaps due to mature on May 18, 2020 and two interest rate swaps that will become effective on the same date, resulting in a net decrease in the notional amount of $197.5 million, which will result in a corresponding increase in the amount of the Company’s ~~cash and cash equivalents at September 30, 2019 were $0.~~variable-rate debt that is not fixed by interest rate swaps.
37

~~Index~~

As of ~~September 30, 2019,~~March 31, 2020, the Company’s variable-rate debt consisted of its credit facilities, including borrowings outstanding under its $425 million revolving credit facility and ~~$735~~$820 million of term loans. Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. As of ~~September 30, 2019,~~March 31, 2020, the Company had 1012 interest rate swap agreements that effectively fix the interest payments on approximately ~~$757.5~~$867.5 million of the Company’s variable-rate debt outstanding with swap maturity dates ranging from May 2020 (representing two swaps with a total notional amount of $322.5 million) to ~~June 2025.~~December 2029. In addition, the Company has entered into a total of ~~four~~three interest rate swap agreements which, beginning ~~January 31, 2020,~~ May 18, 2020 and May 18, 2021, will effectively fix the interest rate on ~~$25 million,~~ $125 million and $75 million, respectively, of its variable-rate debt. Under the terms of all of the Company’s interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR. See Note 5 titled “Fair Value of Financial Instruments” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for a description of the Company’s interest rate swaps as of ~~September 30, 2019.~~March 31, 2020.
36

Index

In addition to its variable-rate debt and interest rate swaps discussed above, the Company has assumed or originated fixed interest rate mortgages payable to lenders under permanent financing ~~arrangements.~~arrangements as well as one $50 million fixed-rate senior notes facility. The following table summarizes the annual maturities and average interest rates of the Company’s mortgage debt and borrowings outstanding under its credit facilities at ~~September 30, 2019.~~March 31, 2020. All dollar amounts are in thousands.

October 1 - December 31, 2019

2020

2021

2022

2023

Thereafter

Total

Fair Market Value

April 1 - December 31, 2020

2021

2022

2023

2024

Thereafter

Total

Fair Market Value

Total debt:

Maturities
$ 3,337 $ 28,349 $ 47,586 $ 260,752 $ 295,615 $ 709,165 $ 1,344,804 $ 1,353,155 $ 10,431 $ 48,185 $ 534,872 $ 296,256 $ 338,643 $ 566,626 $ 1,795,013 $ 1,601,781
Average interest rates⁽¹⁾
3.6 % 3.6 % 3.6 % 3.5 % 3.5 % 3.5 %
Average interest rates⁽¹⁾⁽²⁾
3.3 % 3.3 % 3.3 % 3.5 % 3.7 % 3.8 %

Variable-rate debt:

Maturities
$ - $ - $ - $ 151,500 $ 250,000 $ 485,000 $ 886,500 $ 887,609 $ - $ - $ 425,000 $ 250,000 $ 310,000 $ 260,000 $ 1,245,000 $ 1,103,142
Average interest rates⁽¹⁾
3.1 % 3.2 % 3.3 % 3.3 % 3.3 % 3.3 %
Average interest rates⁽¹⁾⁽²⁾
2.9 % 2.9 % 3.0 % 3.2 % 3.5 % 3.7 %

Fixed-rate debt:

Maturities
$ 3,337 $ 28,349 $ 47,586 $ 109,252 $ 45,615 $ 224,165 $ 458,304 $ 465,546 $ 10,431 $ 48,185 $ 109,872 $ 46,256 $ 28,643 $ 306,626 $ 550,013 $ 498,639
Average interest rates(2)
4.4 % 4.4 % 4.4 % 4.2 % 4.1 % 4.1 % 4.3 % 4.2 % 4.0 % 3.9 % 3.9 % 3.8 %
⁽¹⁾
The average interest rate gives effect to interest rate swaps, as applicable.
⁽²⁾ The Company anticipates entering into an amendment to each of its unsecured credit facilities to waive certain covenants under the agreements. The amendments are expected to require that the interest rates on each of its unsecured credit facilities increase to the highest interest rate margin under each facility (75-80 basis points above the current margin) during the covenant relief period.

Item 4. Controls and Procedures

Senior management, including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2019.~~March 31, 2020. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

38
37
Index

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is or may be a party to various legal proceedings that arise in the ordinary course of business. The Company is not currently involved in any ~~material~~ litigation nor, to management’s knowledge, is any litigation threatened against the Company where the outcome would, in management’s judgment based on information currently available to the Company, have a material adverse effect on the Company’s consolidated financial position or results of operations.

Item 1A. Risk Factors

~~For~~“Item 1A. Risk Factors” of the Company’s 2019 Form 10-K includes a discussion of the Company’s potential risks and ~~uncertainties, see~~uncertainties. The information below updates, and should be read in conjunction with, the ~~section titled “Risk Factors”~~risk factors and information disclosed in the ~~2018~~Company’s 2019 Form 10-K. ~~There~~Except as presented below, there have been no material changes tofrom the risk factors ~~previously disclosed~~described in the ~~2018~~Company’s 2019 Form 10-K.

The current widespread outbreak of COVID-19 has significantly adversely impacted and disrupted, and is expected to continue to significantly adversely impact and disrupt, the Company’s business, financial performance and condition, operating results and cash flows, as could any future outbreak of another highly infectious or contagious disease.
Since first being reported in December 2019, COVID-19 has spread globally, including to every state in the U.S. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to COVID-19.
The outbreak of COVID-19 has had a detrimental impact, and another pandemic in the future could similarly impact, regional and global economies and financial markets. The global, national and local impact of the outbreak has been rapidly evolving and many countries, including the U.S., and state and local governments have reacted by instituting a wide variety of measures intended to control its spread, including states of emergency, mandatory quarantines, implementing “stay at home” orders, business closures, border closings, and restricting travel and large gatherings, which has resulted in cancellation of events, including sporting events, conferences and meetings. Many experts predict that the outbreak will trigger a period of material global economic slowdown or a global recession and many experts believe that the U.S. is already in a recession.
The effects of the pandemic on the hotel industry are unprecedented. COVID-19 has disrupted the industry and its consequences have dramatically reduced business and leisure travel, which has had a significant adverse impact, and will continue to significantly adversely impact and disrupt the Company’s business, financial performance and condition, operating results and cash flows. Since March 2020, the Company has experienced a significant decline in revenue throughout its portfolio which the Company expects to continue for an extended period of time. Substantially all of the Company’s properties are currently operating at significantly reduced levels and the Company has reduced certain services and amenities. Although currently all of the Company’s hotels are open, the Company may need or elect to temporarily suspend operations at properties in the future depending on the length and severity of COVID-19 and related effects. If operations at the Company’s hotel properties are suspended, the Company cannot give any assurance as to when they will resume operations at a full or reduced level.
Additional factors that would negatively impact the Company’s ability to successfully operate during or following COVID-19 or another pandemic, or that could otherwise significantly adversely impact and disrupt its business, financial performance and condition, operating results and cash flows, include:
●
sustained negative consumer, or business sentiment or continued corporate travel policy restrictions, including beyond the end of COVID-19, which could further adversely impact demand for lodging;
●
an expansion of the number of postponed and cancelled events, including sporting events, conferences and meetings;
●
the Company’s ability to reopen hotels that are temporarily closed in a timely manner, and its ability to attract customers to its hotels when they are able to reopen;
●
a severe disruption or instability in the global financial markets or deterioration in credit and financing conditions;
●
increased costs and potential difficulty accessing supplies to maintain hotels, including hotels that are no longer in operation and increased sanitation, social distancing and other mitigation measures, such as personal protective equipment at hotels; and
●
increased labor costs to attract employees due to perceived risk of exposure to COVID-19, as well as potential for increased workers’ compensation claims if hotel employees are exposed to COVID-19 through the workplace.
38

Index
The results of these factors could include:
●
decreased demand resulting in hotel properties not generating revenue sufficient to meet its operating expenses, which may adversely affect the value of the Company’s hotel properties, potentially requiring the Company to recognize significant non-cash impairment charges or other significant unanticipated cash or non-cash costs;
●
the scaling back or delay of a significant amount of planned capital expenditures, including planned renovation projects, which could adversely affect the value of the Company’s properties;
●
a material adverse effect on the Company’s ability to consummate acquisitions and dispositions of hotel properties;
●
continued suspension of the Company’s monthly distributions or a change in the amount or frequency of distributions when the Company resumes paying distributions;
●
increased indebtedness and decreased operating results, which could increase the Company’s risk of default under its loan agreements or other long-term contracts;
●
increased volatility of the Company’s stock price;
●
disruptions in the Company’s supply chains, which may increase costs for essential capital improvements or may impact hotels that are under development and that the Company expects to acquire following completion;
●
declines in regional and local economies, reducing travel to and from the localities;
●
increased risk that the Company could be required to close on the purchase under its existing contracts for newly developed hotels, where the hotel is not legally allowed to open due to temporary regulations resulting from COVID-19 mitigation;
●
increased risk in the Company’s ability to retain and the continued service and availability of personnel, including the Company’s senior leadership team and key field personnel, such as general managers, and the Company’s ability to recruit, attract and retain skilled personnel to the extent its management or personnel are impacted by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work;
●
disruptions as a result of corporate employees working remotely, including risk of cybersecurity incidents and disruptions to internal control procedures; and
●
difficulty accessing debt and equity capital on attractive terms, or at all, including covenant deferral, under its secured and unsecured indebtedness, or capital necessary to fund business operations or address maturing liabilities.
Moreover, many risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 should be interpreted as heightened risks as a result of the ongoing and numerous adverse impacts of COVID-19.
The significance, extent and duration of the impacts caused by COVID-19 on the Company’s business, financial condition, operating results and cash flows, remains largely uncertain and dependent on future developments that are highly uncertain and cannot be accurately predicted at this time, such as the continued severity, duration, transmission rate and geographic spread of COVID-19 in the U.S., the extent and effectiveness of actions taken to contain the pandemic or mitigate its impact, the timing of and manner in which containment efforts are reduced or lifted, and the response of the overall economy, the financial markets and the population, particularly in areas in which the Company operates, once the current containment measures are reduced or lifted. As a result, the Company cannot provide an estimate of the overall impact of COVID-19 on its business or when, or if, the Company will be able to resume pre-COVID-19 levels of operations. COVID-19 presents material uncertainty and risk with respect to the Company’s business, financial performance and condition, operating results and cash flows.
The spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.
COVID-19 has caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. The Company cannot predict whether conditions in the bank lending, capital and other financial markets will continue to deteriorate as a result of the pandemic, or whether the Company’s access to capital and other sources of funding will become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.
Additionally, a prolonged economic recession, including lower GDP growth, corporate earnings, consumer confidence, employment rates, income levels and personal wealth, could result in significantly below-average lodging demand by both group and transient travelers that continues beyond the lifting of travel and other government restrictions and after COVID-19 has largely subsided. There can also be no guarantee that the demand for lodging, and consumer confidence in travel generally, will recover as quickly as other industries. All of the above factors could materially negatively impact the Company’s business, financial performance and condition, operating results and cash flows.
39

Index
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following is a summary of all share repurchases during the ~~third~~first quarter of ~~2019.~~2020.

Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities

(a)

(b)

(c)

(d)

(a)

(b)

(c)

(d)

Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) ⁽¹⁾

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) ⁽¹⁾

July 1 - July 31, 2019
- - - $ 360,000
August 1 - August 31, 2019
16,100 $ 14.83 16,100 $ 359,800
September 1 - September 30, 2019
- - - $ 359,800
January 1 - January 31, 2020
- - - $ 359,800
February 1 - February 29, 2020
20,000 $ 13.88 20,000 $ 359,500
March 1 - March 31, 2020 ⁽²⁾
1,635,159 $ 9.66 1,500,783 $ 345,400
Total
16,100 16,100 1,655,159 1,520,783
⁽¹⁾
Represents amount outstanding under the Company's ~~authorized $360 million~~ share repurchase program. This program may be suspended or terminated at any time by the Company. ~~If not terminated earlier,~~This program was suspended in March 2020. In May 2020, the Company's Board of Directors approved an extension of the program ~~will end in~~authorizing share repurchases up to an aggregate of $345 million through July ~~2020. Refer~~2021.
⁽²⁾ Includes 134,376 common shares surrendered to ~~Note 7 titled “Shareholders’ Equity” in~~ the ~~Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for more information on~~Company to satisfy tax withholding obligations associated with the ~~Company’s Share Repurchase Program.~~issuance of common shares awarded to employees.

39
40
Index

Item 6. Exhibits

Exhibit
~~Exhibit~~ Number
Description of Documents
3.1
Amended and Restated Articles of Incorporation of the Company, as amended (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~~Third 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)~~(FILED HEREWITH)

10.1*
~~First Amendment to~~Separation Agreement and General Release, dated as of March 4, 2020, by and between the ~~Company’s Executive Severance Pay Plan~~ (~~Incorporated~~Company and Kristian Gathright (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed March ~~27, 2019~~)5, 2020)

10.2*
Separation Agreement and General Release, dated as of March ~~22, 2019,~~4, 2020, by and between the Company and ~~David P. Buckley~~Bryan Peery (Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed March 5, 2020)
10.3*
Second Amendment to the Apple REIT, Inc. Executive Severance Pay Plan (Incorporated by reference to Exhibit 10.3 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed March 5, 2020)
10.4*
Amendment, dated March 30, 2020, to Separation Agreement and General Release, dated as of March 4, 2020, by and between the Company and Kristian Gathright (FILED HEREWITH)
10.5*
Amendment, dated March 30, 2020, to Separation Agreement and General Release, dated as of March 4, 2020, by and between the Company and Bryan Peery (FILED HEREWITH)
10.6
First Amendment, dated February 14, 2020, to Second Amended and Restated Credit Agreement dated as of July 27, ~~2019)~~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 (FILED HEREWITH)

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)

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

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

101
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2019,~~March 31, 2020 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH)

104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2019,~~March 31, 2020, formatted ~~in iXBRL~~as Inline XBRL and contained in Exhibit 101.

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

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

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

Large accelerated filer ☒	Accelerated filer ☐		~~Accelerated filer☐~~
Non-accelerated filer ☐		Smaller reporting company ☐
		Emerging growth company ☐

	March 31,			December 31,
	2020			2019
	(unaudited)
Assets
Investment in real estate, net of accumulated depreciation and amortization of $1,096,718 and $1,054,429, respectively	$	4,776,695		$	4,825,738
Assets held for sale		-			12,093
Cash and cash equivalents		437,260			-
Restricted cash-furniture, fixtures and other escrows		33,335			34,661
Due from third party managers, net		22,040			26,926
Other assets, net		37,040			42,993
Total Assets	$	5,306,370		$	4,942,411

Liabilities
Debt, net	$	1,789,281		$	1,320,407
Finance lease liabilities		217,180			216,627
Accounts payable and other liabilities		105,105			114,364
Total Liabilities		2,111,566			1,651,398

Shareholders' Equity
Preferred stock, authorized 30,000,000 shares; NaN issued and outstanding		-			-
Common stock, no par value, authorized 800,000,000 shares; issued and outstanding 223,017,081 and 223,862,913 shares, respectively		4,487,441			4,493,763
Accumulated other comprehensive loss		(46,864	)		(4,698	)
Distributions greater than net income		(1,245,773	)		(1,198,052	)
Total Shareholders' Equity		3,194,804			3,291,013

Total Liabilities and Shareholders' Equity	$	5,306,370		$	4,942,411

	September 30,			December 31,
	2019			2018
	(unaudited)
Assets
Investment in real estate, net of accumulated depreciation and amortization of $1,016,532 and $909,893, respectively	$	4,863,873		$	4,816,410
Assets held for sale		6,574			-
Restricted cash-furniture, fixtures and other escrows		35,287			33,632
Due from third party managers, net		40,473			29,091
Other assets, net		44,220			49,539
Total Assets	$	4,990,427		$	4,928,672

Liabilities
Debt, net	$	1,339,912		$	1,412,242
Finance lease liabilities		215,816			-
Accounts payable and other liabilities		107,763			107,420
Total Liabilities		1,663,491			1,519,662

Shareholders' Equity
Preferred stock, authorized 30,000,000 shares; NaN issued and outstanding		-			-
Common stock, no par value, authorized 800,000,000 shares; issued and outstanding 223,856,228 and 223,997,348 shares, respectively		4,493,598			4,495,073
Accumulated other comprehensive income (loss)		(10,351	)		10,006
Distributions greater than net income		(1,156,311	)		(1,096,069	)
Total Shareholders' Equity		3,326,936			3,409,010

Total Liabilities and Shareholders' Equity	$	4,990,427		$	4,928,672

			Page ~~Page~~ Number
PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)

		Consolidated Balance Sheets – ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	34

		Consolidated Statements of Operations and Comprehensive Income (Loss) – Three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	45

		Consolidated Statements of Shareholders’ Equity – Three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	56

		Consolidated Statements of Cash Flows – ~~Nine~~Three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	67

		Notes to Consolidated Financial Statements	78

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2220

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3736

	Item 4.	Controls and Procedures	3837

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	3938

	Item 1A.	Risk Factors	39 38

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3940

	Item 6.	Exhibits	4041

Signatures			4142

	Three Months Ended
	March 31,
	2020			2019
Revenues:
Room	$	217,979		$	279,470
Food and beverage		11,312			15,015
Other		8,719			9,302
Total revenue		238,010			303,787

Expenses:
Hotel operating expense:
Operating		68,029			75,580
Hotel administrative		23,643			25,630
Sales and marketing		24,359			27,694
Utilities		9,190			9,939
Repair and maintenance		11,793			12,866
Franchise fees		10,257			13,111
Management fees		7,995			10,629
Total hotel operating expense		155,266			175,449
Property taxes, insurance and other		19,595			19,613
General and administrative		9,523			8,137
Depreciation and amortization		49,522			47,950
Total expense		233,906			251,149

Gain on sale of real estate		8,839			1,213

Operating income		12,943			53,851

Interest and other expense, net		(15,566	)		(15,494	)

Income (loss) before income taxes		(2,623	)		38,357

Income tax expense		(146	)		(206	)

Net income (loss)	$	(2,769	)	$	38,151

Other comprehensive loss:
Interest rate derivatives		(42,166	)		(6,044	)

Comprehensive income (loss)	$	(44,935	)	$	32,107

Basic and diluted net income (loss) per common share	$	(0.01	)	$	0.17

Weighted average common shares outstanding - basic and diluted		224,294			223,932

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues:
Room	$	307,293		$	307,794		$	901,995		$	901,652
Food and beverage		14,079			14,629			44,786			46,857
Other		10,350			9,774			29,845			26,791
Total revenue		331,722			332,197			976,626			975,300

Expenses:
Hotel operating expense:
Operating		80,717			81,318			236,463			238,514
Hotel administrative		25,991			25,722			78,588			77,382
Sales and marketing		29,764			27,265			88,289			80,765
Utilities		11,635			12,163			31,135			32,693
Repair and maintenance		13,430			13,204			39,337			39,133
Franchise fees		14,508			14,326			42,371			41,840
Management fees		11,548			11,250			34,049			33,781
Total hotel operating expense		187,593			185,248			550,232			544,108
Property taxes, insurance and other		19,186			19,230			57,217			55,140
Operating ground lease		425			2,818			1,253			8,580
General and administrative		9,039			3,370			25,484			16,968
Loss on impairment of depreciable real estate assets		6,467			-			6,467			3,135
Depreciation and amortization		47,887			46,169			143,946			136,752
Total expense		270,597			256,835			784,599			764,683

Gain on sale of real estate		-			-			1,052			-

Operating income		61,125			75,362			193,079			210,617

Interest and other expense, net		(14,759	)		(13,140	)		(46,110	)		(38,269	)

Income before income taxes		46,366			62,222			146,969			172,348

Income tax expense		(143	)		(100	)		(505	)		(414	)

Net income	$	46,223		$	62,122		$	146,464		$	171,934

Other comprehensive income (loss):
Interest rate derivatives		(4,193	)		1,657			(20,357	)		9,689

Comprehensive income	$	42,030		$	63,779		$	126,107		$	181,623

Basic and diluted net income per common share	$	0.21		$	0.27		$	0.65		$	0.75

Weighted average common shares outstanding - basic and diluted		223,901			230,351			223,911			230,402

	Common Stock						Accumulated Other Comprehensive Income (Loss)			Distributions Greater Than Net Income
	Number of Shares			Amount			Accumulated Other Comprehensive Income (Loss)			Distributions Greater Than Net Income			Total

Balance at December 31, 2019		223,863		$	4,493,763		$	(4,698	)	$	(1,198,052	)	$	3,291,013
Share based compensation, net		675			8,014			-			-			8,014
Common shares repurchased		(1,521	)		(14,336	)		-			-			(14,336	)
Interest rate derivatives		-			-			(42,166	)		-			(42,166	)
Net loss		-			-			-			(2,769	)		(2,769	)
Distributions declared to shareholders ($0.20 per share)		-			-			-			(44,952	)		(44,952	)
Balance at March 31, 2020		223,017		$	4,487,441		$	(46,864	)	$	(1,245,773	)	$	3,194,804

Balance at December 31, 2018		223,997		$	4,495,073		$	10,006		$	(1,096,069	)	$	3,409,010
Cumulative effect of the adoption of ASU 2016-02 related to leases		-			-			-			(5,201	)		(5,201	)
Share based compensation, net		145			2,385			-			-			2,385
Common shares repurchased		(274	)		(4,096	)		-			-			(4,096	)
Interest rate derivatives		-			-			(6,044	)		-			(6,044	)
Net income		-			-			-			38,151			38,151
Distributions declared to shareholders ($0.30 per share)		-			-			-			(67,178	)		(67,178	)
Balance at March 31, 2019		223,868		$	4,493,362		$	3,962		$	(1,130,297	)	$	3,367,027

Three Months Ended September 30, 2019 and 2018
	Common Stock						Accumulated Other			Distributions Greater
	Number of Shares			Amount			Comprehensive Income (Loss)			Than Net Income			Total

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

Balance at June 30, 2018		230,347		$	4,594,700		$	17,810		$	(1,055,273	)	$	3,557,237
Share based compensation, net		3			507			-			-			507
Interest rate derivatives		-			-			1,657			-			1,657
Net income		-			-			-			62,122			62,122
Distributions declared to shareholders ($0.30 per share)		-			-			-			(69,061	)		(69,061	)
Balance at September 30, 2018		230,350		$	4,595,207		$	19,467		$	(1,062,212	)	$	3,552,462

Nine Months Ended September 30, 2019 and 2018
	Common Stock						Accumulated Other			Distributions Greater
	Number of Shares			Amount			Comprehensive Income (Loss)			Than Net Income			Total

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

Balance at December 31, 2017		229,962		$	4,588,188		$	9,778		$	(1,026,881	)	$	3,571,085
Share based compensation, net		400			6,646			-			-			6,646
Issuance of common shares, net		243			4,677			-			-			4,677
Common shares repurchased		(255	)		(4,304	)		-			-			(4,304	)
Interest rate derivatives		-			-			9,689			-			9,689
Net income		-			-			-			171,934			171,934
Distributions declared to shareholders ($0.90 per share)		-			-			-			(207,265	)		(207,265	)
Balance at September 30, 2018		230,350		$	4,595,207		$	19,467		$	(1,062,212	)	$	3,552,462

Location	Brands	Date of Purchase Contract	Rooms		Refundable Deposits		Gross Purchase Price
Operating (1)
Richmond, VA	Independent	7/22/2019		55	$	300	$	6,875
Under development (2)
Cape Canaveral, FL (3)	Hampton and Home2 Suites	4/11/2018		224		3		46,704
Tempe, AZ (4)	Hyatt House and Hyatt Place	6/13/2018		254		720		63,341
Denver, CO	Courtyard	4/5/2019		182		586		49,140
Madison, WI	Hilton Garden Inn	7/9/2019		176		283		49,632
				891	$	1,892	$	215,692

			Outstanding Balance
	Interest Rate	Maturity Date	September 30, 2019			December 31, 2018
Revolving credit facility ⁽¹⁾	LIBOR + 1.40% - 2.25%	7/27/2022	$	151,500		$	268,800

Term loans
$200 million term loan	LIBOR + 1.35% - 2.20%	7/27/2023		200,000			200,000
$225 million term loan	LIBOR + 1.35% - 2.20%	1/31/2024		225,000			225,000
$50 million term loan	LIBOR + 1.35% - 2.20%	8/2/2023		50,000			50,000
$175 million term loan	LIBOR + 1.65% - 2.50%	8/2/2025		175,000			100,000
$85 million term loan	LIBOR + 1.30% - 2.10% ⁽²⁾	7/25/2024		85,000			85,000
Term loans at stated value				735,000			660,000
Unamortized debt issuance costs				(5,784	)		(6,618	)
Term loans, net				729,216			653,382

Revolving credit facility and term loans, net⁽¹⁾			$	880,716		$	922,182
Weighted-average interest rate⁽³⁾				3.14	%		3.37	%

	September 30,			December 31,
	2019			2018

Land	$	726,754		$	737,822
Building and Improvements		4,465,510			4,503,728
Furniture, Fixtures and Equipment		476,877			471,399
Finance Ground Lease Assets		197,617			-
Franchise Fees		13,647			13,354
		5,880,405			5,726,303
Less Accumulated Depreciation and Amortization		(1,016,532	)		(909,893	)
Investment in Real Estate, net	$	4,863,873		$	4,816,410

	March 31,			December 31,
	2020			2019

Land	$	721,934		$	724,054
Building and Improvements		4,450,646			4,458,383
Furniture, Fixtures and Equipment		489,465			486,386
Finance Ground Lease Assets		197,617			197,617
Franchise Fees		13,751			13,727
		5,873,413			5,880,167
Less Accumulated Depreciation and Amortization		(1,096,718	)		(1,054,429	)
Investment in Real Estate, net	$	4,776,695		$	4,825,738