(1)
| Excludes unamortized debt issuance costs related to the revolving credit facility totaling approximately $2.9with an initial maturity date of July 27, 2022 and (ii) a $425 million term loan facility consisting of 2 term loans: a $200 million term loan with a maturity date of July 27, 2023, and a $225 million term loan with a maturity date of January 31, 2024 (the “$425 million term loan facility”). Subject to certain conditions including covenant compliance and additional fees, the $425 million revolving credit facility maturity date may be extended up to one year. The Company may make voluntary prepayments in whole or in part, at any time. Interest payments on the $850 million credit facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.35% to 2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.25% on the unused portion of the $425 million revolving credit facility, based on the amount of borrowings outstanding during the quarter. In response to the disruption to the operations of the Company’s hotels and to the financial markets and broader economy caused by COVID-19, the Company borrowed its entire availability under its revolving credit facility in March 2020 and, at March 31, 2020, had an outstanding balance of $425.0 million and $3.60 remaining availability under its credit facilities.
$225 Million Term Loan Facility The Company has an unsecured $225 million term loan facility that is comprised of (i) a $50 million term loan with a maturity date of August 2, 2023, which was funded on August 2, 2018, and (ii) a $175 million term loan with a maturity date of August 2, 2025, of which $100 million was funded on August 2, 2018 and the remaining $75 million was funded on January 29, 2019. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the $225 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.35% to 2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of September 30,the credit agreement. 2017 $85 Million Term Loan Facility On July 25, 2017, the Company entered into an unsecured $85 million term loan facility with a maturity date of July 25, 2024, consisting of 1 term loan that was funded at closing (the “2017 $85 million term loan facility”). The credit agreement, as amended and restated in August 2018, contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the $85 million term loan are due monthly. In July 2019, the Company entered into an amendment of the $85 million term loan to reduce the interest rate margin from 1.80% - 2.60% to 1.30% - 2.10%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement, for the remainder of the term. 2019 $85 Million Term Loan Facility On December 31, 2019, the Company entered into an unsecured $85 million term loan facility with a maturity date of December 31, 2029, consisting of 1 term loan funded at closing (the “2019 $85 million term loan facility”). Net proceeds from the 2019 $85 million term loan facility were used to pay down borrowings on the Company’s revolving credit facility. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, subject to certain conditions. Interest payments on the 2019 $85 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.70% to 2.55%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. $50 Million Senior Notes Facility On March 16, 2020, the Company entered into an unsecured $50 million senior notes facility with a maturity date of March 31, 2030, consisting of senior notes totaling $50 million funded at closing (the “$50 million senior notes facility” and, collectively with the $850 million credit facility, the $225 million term loan facility, the 2017 $85 million term loan facility and the 2019 $85 million term loan facility, the “credit facilities”). Net proceeds from the $50 million senior notes facility are available to provide funding for general corporate purposes. The note agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions, including make-whole provisions. Interest payments on the $50 million senior notes facility are due quarterly and the interest rate, subject to certain exceptions, ranges from an annual rate of 3.60% to 4.35% depending on the Company’s ratio of Consolidated Total Indebtedness to Consolidated EBITDA as defined in the agreement. As of March 31, 2020, and December 31, 2018,2019, the details of the Company’s credit facilities were as set forth below. All dollar amounts are in thousands. | | | | | | Outstanding Balance | | | | Interest Rate | | Maturity Date | | March 31, 2020 | | | December 31, 2019 | | Revolving credit facility (1) | | LIBOR + 1.40% - 2.25% | | 7/27/2022 | | $ | 425,000 | | | $ | 50,900 | | | | | | | | | | | | | | | Term loans and senior notes | | | | | | | | | | | | | $200 million term loan | | LIBOR + 1.35% - 2.20% | | 7/27/2023 | | | 200,000 | | | | 200,000 | | $225 million term loan | | LIBOR + 1.35% - 2.20% | | 1/31/2024 | | | 225,000 | | | | 225,000 | | $50 million term loan | | LIBOR + 1.35% - 2.20% | | 8/2/2023 | | | 50,000 | | | | 50,000 | | $175 million term loan | | LIBOR + 1.65% - 2.50% | | 8/2/2025 | | | 175,000 | | | | 175,000 | | 2017 $85 million term loan | | LIBOR + 1.30% - 2.10% | | 7/25/2024 | | | 85,000 | | | | 85,000 | | 2019 $85 million term loan | | LIBOR + 1.70% - 2.55% | | 12/31/2029 | | | 85,000 | | | | 85,000 | | $50 million senior notes | | 3.60% - 4.35% | | 3/31/2030 | | | 50,000 | | | | - | | Term loans and senior notes at stated value | | | | | | | 870,000 | | | | 820,000 | | Unamortized debt issuance costs | | | | | | | (5,916 | ) | | | (6,066 | ) | Term loans and senior notes, net | | | | | | | 864,084 | | | | 813,934 | | | | | | | | | | | | | | | Credit facilities, net (1) | | | | | | $ | 1,289,084 | | | $ | 864,834 | | Weighted-average interest rate (2) | | | | | | | 2.97 | % | | | 3.14 | % |
(1) Excludes unamortized debt issuance costs related to the revolving credit facility totaling approximately $2.3 million and $2.6 million as of March 31, 2020 and December 31, 2019, respectively, which are included in other assets, net in the Company's consolidated balance sheets. | (2) Interest rate represents the weighted-average effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps in effect on $867.5 million and $842.5 million of the outstanding variable-rate debt as of March 31, 2020 and December 31, 2019, respectively. See Note 5 for more information on the interest rate swap agreements. The one-month LIBOR at March 31, 2020 and December 31, 2019 was 0.99% and 1.76%, respectively. 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. |
(2)
| The $85 million term loancredit agreements governing the credit facilities contain mandatory prepayment requirements, customary affirmative 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 amended in July 2019compliance with the applicable covenants at March 31, 2020. As a result of COVID-19 and the associated disruption to reducethe 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, 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 that the interest rate margin. Priorunder its credit facilities increase, during the covenant relief period, to the amendment,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. Mortgage Debt As of March 31, 2020, the Company had approximately $500.0 million in outstanding mortgage debt secured by 31 properties, with maturity dates ranging from July 2021 to January 2038, stated interest rates ranging from 3.40% to 6.25% and effective interest rates ranging from 3.40% to 4.97%. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. The following table sets forth the hotel properties securing each loan, the interest rate, was LIBOR + 1.80% - 2.60%. |
(3)
| Interest rate representsloan assumption or origination date, maturity date, the weighted-average effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps in effect on $757.5 millionprincipal amount assumed or originated, and $557.5 million of the outstanding variable-ratebalance prior to any fair value adjustments or debt issuance costs as of September 30, 2019March 31, 2020 and December 31, 2018, respectively. See Note 52019 for more information oneach of the interest rate swap agreements. The one-month LIBOR at September 30, 2019 and December 31, 2018 was 2.02% and 2.50%, respectively.Company’s mortgage debt obligations. All dollar amounts are in thousands.
|
The credit agreements governing the credit facilities contain mandatory prepayment requirements, customary affirmative covenants, negative covenants and events of default. The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios and restrictions on certain investments. The Company was in compliance with the applicable covenants at September 30, 2019.
Mortgage Debt
As of September 30, 2019, the Company had approximately $458.3 million in outstanding mortgage debt secured by 29 properties, with maturity dates ranging from June 2020 to January 2038, stated interest rates ranging from 3.55% to 6.25% and effective interest rates ranging from 3.55% to 4.97%. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. The following table sets forth the hotel properties securing each loan, the interest rate, loan assumption or origination date, maturity date, the principal amount assumed or originated, and the outstanding balance prior to any fair value adjustments or debt issuance costs as of September 30, 2019 and December 31, 2018 for each of the Company’s mortgage debt obligations. All dollar amounts are in thousands.
Location | | Brand | | Interest Rate (1) | | | Loan Assumption or Origination Date | | Maturity Date | | | Principal Assumed or Originated | | | Outstanding balance as of September 30, 2019 | | | Outstanding balance as of December 31, 2018 | | Syracuse, NY | | Courtyard | | | 4.75 | % | | 10/16/2015 | | | (2) | | $ | 11,199 | | | $ | - | | | $ | 10,357 | | Syracuse, NY | | Residence Inn | | | 4.75 | % | | 10/16/2015 | | | (2) | | | 11,199 | | | | - | | | | 10,357 | | San Juan Capistrano, CA | | Residence Inn | | | 4.15 | % | | 9/1/2016 | | 6/1/2020 | | | | 16,210 | | | | 15,164 | | | | 15,431 | | Colorado Springs, CO | | Hampton | | | 6.25 | % | | 9/1/2016 | | 7/6/2021 | | | | 7,923 | | | | 7,509 | | | | 7,617 | | Franklin, TN | | Courtyard | | | 6.25 | % | | 9/1/2016 | | 8/6/2021 | | | | 14,679 | | | | 13,916 | | | | 14,115 | | Franklin, TN | | Residence Inn | | | 6.25 | % | | 9/1/2016 | | 8/6/2021 | | | | 14,679 | | | | 13,916 | | | | 14,115 | | Grapevine, TX | | Hilton Garden Inn | | | 4.89 | % | | 8/29/2012 | | 9/1/2022 | | | | 11,810 | | | | 9,859 | | | | 10,101 | | Collegeville/Philadelphia, PA | | Courtyard | | | 4.89 | % | | 8/30/2012 | | 9/1/2022 | | | | 12,650 | | | | 10,560 | | | | 10,820 | | Hattiesburg, MS | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 5,732 | | | | 4,939 | | | | 5,058 | | Rancho Bernardo/San Diego, CA | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 15,060 | | | | 12,974 | | | | 13,289 | | Kirkland, WA | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 12,145 | | | | 10,463 | | | | 10,717 | | Seattle, WA | | Residence Inn | | | 4.96 | % | | 3/1/2014 | | 9/1/2022 | | | | 28,269 | | | | 24,334 | | | | 24,928 | | Anchorage, AK | | Embassy Suites | | | 4.97 | % | | 9/13/2012 | | 10/1/2022 | | | | 23,230 | | | | 19,486 | | | | 19,957 | | Somerset, NJ | | Courtyard | | | 4.73 | % | | 3/1/2014 | | 10/6/2022 | | | | 8,750 | | | | 7,505 | | | | 7,692 | | Tukwila, WA | | Homewood Suites | | | 4.73 | % | | 3/1/2014 | | 10/6/2022 | | | | 9,431 | | | | 8,089 | | | | 8,291 | | Prattville, AL | | Courtyard | | | 4.12 | % | | 3/1/2014 | | 2/6/2023 | | | | 6,596 | | | | 5,608 | | | | 5,754 | | Huntsville, AL | | Homewood Suites | | | 4.12 | % | | 3/1/2014 | | 2/6/2023 | | | | 8,306 | | | | 7,062 | | | | 7,246 | | San Diego, CA | | Residence Inn | | | 3.97 | % | | 3/1/2014 | | 3/6/2023 | | | | 18,600 | | | | 15,782 | | | | 16,198 | | Miami, FL | | Homewood Suites | | | 4.02 | % | | 3/1/2014 | | 4/1/2023 | | | | 16,677 | | | | 14,177 | | | | 14,547 | | New Orleans, LA | | Homewood Suites | | | 4.36 | % | | 7/17/2014 | | 8/11/2024 | | | | 27,000 | | | | 23,697 | | | | 24,232 | | Westford, MA | | Residence Inn | | | 4.28 | % | | 3/18/2015 | | 4/11/2025 | | | | 10,000 | | | | 8,943 | | | | 9,137 | | Denver, CO | | Hilton Garden Inn | | | 4.46 | % | | 9/1/2016 | | 6/11/2025 | | | | 34,118 | | | | 31,537 | | | | 32,198 | | Oceanside, CA | | Courtyard | | | 4.28 | % | | 9/1/2016 | | 10/1/2025 | | | | 13,655 | | | | 12,879 | | | | 13,077 | | Omaha, NE | | Hilton Garden Inn | | | 4.28 | % | | 9/1/2016 | | 10/1/2025 | | | | 22,682 | | | | 21,392 | | | | 21,722 | | Boise, ID | | Hampton | | | 4.37 | % | | 5/26/2016 | | 6/11/2026 | | | | 24,000 | | | | 22,697 | | | | 23,015 | | Burbank, CA | | Courtyard | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 25,564 | | | | 23,728 | | | | 24,247 | | San Diego, CA | | Courtyard | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 25,473 | | | | 23,644 | | | | 24,161 | | San Diego, CA | | Hampton | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 18,963 | | | | 17,601 | | | | 17,986 | | Burbank, CA | | SpringHill Suites | | | 3.94 | % | | 3/9/2018 | | 4/1/2028 | | | | 28,470 | | | | 27,495 | | | | 28,018 | | Santa Ana, CA | | Courtyard | | | 3.94 | % | | 3/9/2018 | | 4/1/2028 | | | | 15,530 | | | | 14,998 | | | | 15,283 | | San Jose, CA | | Homewood Suites | | | 4.22 | % | | 12/22/2017 | | 1/1/2038 | | | | 30,000 | | | | 28,350 | | | | 29,107 | | | | | | | | | | | | | | | $ | 528,600 | | | | 458,304 | | | | 488,773 | | Unamortized fair value adjustment of assumed debt | | | | | | 2,752 | | | | 3,428 | | Unamortized debt issuance costs | | | | | | (1,860 | ) | | | (2,141 | ) | Total | | | | | | | | | | | | | | | $ | 459,196 | | | $ | 490,060 | |
Location | | Brand | | Interest Rate (1) | | | Loan Assumption or Origination Date | | Maturity Date | | | Principal Assumed or Originated | | | Outstanding balance as of March 31, 2020 | | | Outstanding balance as of December 31, 2019 | | San Juan Capistrano, CA | | Residence Inn | | | 4.15 | % | | 9/1/2016 | | | | (2) | | $ | 16,210 | | | $ | - | | | $ | 15,073 | | Colorado Springs, CO | | Hampton | | | 6.25 | % | | 9/1/2016 | | 7/6/2021 | | | | 7,923 | | | | 7,433 | | | | 7,471 | | Franklin, TN | | Courtyard | | | 6.25 | % | | 9/1/2016 | | 8/6/2021 | | | | 14,679 | | | | 13,776 | | | | 13,847 | | Franklin, TN | | Residence Inn | | | 6.25 | % | | 9/1/2016 | | 8/6/2021 | | | | 14,679 | | | | 13,776 | | | | 13,847 | | Grapevine, TX | | Hilton Garden Inn | | | 4.89 | % | | 8/29/2012 | | 9/1/2022 | | | | 11,810 | | | | 9,691 | | | | 9,775 | | Collegeville/Philadelphia, PA | | Courtyard | | | 4.89 | % | | 8/30/2012 | | 9/1/2022 | | | | 12,650 | | | | 10,381 | | | | 10,471 | | Hattiesburg, MS | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 5,732 | | | | 4,856 | | | | 4,897 | | Rancho Bernardo/San Diego, CA | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 15,060 | | | | 12,756 | | | | 12,866 | | Kirkland, WA | | Courtyard | | | 5.00 | % | | 3/1/2014 | | 9/1/2022 | | | | 12,145 | | | | 10,287 | | | | 10,376 | | Seattle, WA | | Residence Inn | | | 4.96 | % | | 3/1/2014 | | 9/1/2022 | | | | 28,269 | | | | 23,923 | | | | 24,130 | | Anchorage, AK | | Embassy Suites | | | 4.97 | % | | 9/13/2012 | | 10/1/2022 | | | | 23,230 | | | | 19,160 | | | | 19,324 | | Somerset, NJ | | Courtyard | | | 4.73 | % | | 3/1/2014 | | 10/6/2022 | | | | 8,750 | | | | 7,376 | | | | 7,441 | | Tukwila, WA | | Homewood Suites | | | 4.73 | % | | 3/1/2014 | | 10/6/2022 | | | | 9,431 | | | | 7,950 | | | | 8,020 | | Prattville, AL | | Courtyard | | | 4.12 | % | | 3/1/2014 | | 2/6/2023 | | | | 6,596 | | | | 5,507 | | | | 5,558 | | Huntsville, AL | | Homewood Suites | | | 4.12 | % | | 3/1/2014 | | 2/6/2023 | | | | 8,306 | | | | 6,935 | | | | 6,999 | | San Diego, CA | | Residence Inn | | | 3.97 | % | | 3/1/2014 | | 3/6/2023 | | | | 18,600 | | | | 15,496 | | | | 15,640 | | Miami, FL | | Homewood Suites | | | 4.02 | % | | 3/1/2014 | | 4/1/2023 | | | | 16,677 | | | | 13,924 | | | | 14,051 | | New Orleans, LA | | Homewood Suites | | | 4.36 | % | | 7/17/2014 | | 8/11/2024 | | | | 27,000 | | | | 23,328 | | | | 23,513 | | Westford, MA | | Residence Inn | | | 4.28 | % | | 3/18/2015 | | 4/11/2025 | | | | 10,000 | | | | 8,809 | | | | 8,876 | | Denver, CO | | Hilton Garden Inn | | | 4.46 | % | | 9/1/2016 | | 6/11/2025 | | | | 34,118 | | | | 31,082 | | | | 31,311 | | Oceanside, CA | | Courtyard | | | 4.28 | % | | 9/1/2016 | | 10/1/2025 | | | | 13,655 | | | | 12,743 | | | | 12,812 | | Omaha, NE | | Hilton Garden Inn | | | 4.28 | % | | 9/1/2016 | | 10/1/2025 | | | | 22,682 | | | | 21,167 | | | | 21,280 | | Boise, ID | | Hampton | | | 4.37 | % | | 5/26/2016 | | 6/11/2026 | | | | 24,000 | | | | 22,478 | | | | 22,588 | | Burbank, CA | | Courtyard | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 25,564 | | | | 23,375 | | | | 23,552 | | San Diego, CA | | Courtyard | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 25,473 | | | | 23,292 | | | | 23,468 | | San Diego, CA | | Hampton | | | 3.55 | % | | 11/3/2016 | | 12/1/2026 | | | | 18,963 | | | | 17,339 | | | | 17,471 | | Burbank, CA | | SpringHill Suites | | | 3.94 | % | | 3/9/2018 | | 4/1/2028 | | | | 28,470 | | | | 27,138 | | | | 27,317 | | Santa Ana, CA | | Courtyard | | | 3.94 | % | | 3/9/2018 | | 4/1/2028 | | | | 15,530 | | | | 14,803 | | | | 14,901 | | Richmond, VA | | Courtyard | | | 3.40 | % | | 2/12/2020 | | 3/11/2030 | | | | 14,950 | | | | 14,950 | | | | - | | Richmond, VA | | Residence Inn | | | 3.40 | % | | 2/12/2020 | | 3/11/2030 | | | | 14,950 | | | | 14,950 | | | | - | | Portland, ME | | Residence Inn | | | 3.43 | % | | 3/2/2020 | | 4/1/2030 | | | | 33,500 | | | | 33,500 | | | | - | | San Jose, CA | | Homewood Suites | | | 4.22 | % | | 12/22/2017 | | 1/1/2038 | | | | 30,000 | | | | 27,832 | | | | 28,092 | | | | | | | | | | | | | | | | $ | 569,602 | | | | 500,013 | | | | 454,967 | | Unamortized fair value adjustment of assumed debt | | | | | | | | | | | | | | | | | 2,300 | | | | 2,526 | | Unamortized debt issuance costs | | | | | | | | | | | | | | | | | (2,116 | ) | | | (1,920 | ) | Total | | | | | | | | | | | | | | | | $ | 500,197 | | | $ | 455,573 | |
(1)
| (1) Interest rates are the rates per the loan agreement. For loans assumed, the Company adjusted the interest rates per the loan agreement to market rates and is amortizing the adjustments to interest expense over the life of the loan. | (2) Loan was repaid in full in March 2020. |
(2)
| Loans
5. Fair Value of Financial Instruments Except as described below, the carrying value of the Company’s financial instruments approximates fair value due to the short-term nature of these financial instruments.
Debt The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy. Market rates take into consideration general market conditions and maturity. As of March 31, 2020, the carrying value and estimated fair value of the Company’s debt were repaidapproximately $1.8 billion and $1.6 billion, respectively. As of December 31, 2019, both the carrying value and estimated fair value of the Company’s debt were approximately $1.3 billion. Both the carrying value and estimated fair value of the Company’s debt (as discussed above) is net of unamortized debt issuance costs related to term loans, senior notes and mortgage debt for each specific year.
Derivative Instruments Currently, the Company uses interest rate swaps to manage its interest rate risks on variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR. The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. These swap instruments are recorded at fair value and, if in fullan asset position, are included in Mayother assets, net, and, if in a liability position, are included in accounts payable and other liabilities in the Company’s consolidated balance sheets. The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which is considered a Level 2 measurement under the fair value hierarchy. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The following table sets forth information for each of the Company’s interest rate swap agreements outstanding as of March 31, 2020 and December 31, 2019. All dollar amounts are in thousands. |
5. Fair Value of Financial Instruments
Except as described below, the carrying value of the Company’s financial instruments approximates fair value due to the short-term nature of these financial instruments.
Debt
The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy. Market rates take into consideration general market conditions and maturity. As of September 30, 2019, both the carrying value and estimated fair value of the Company’s debt were approximately $1.3 billion. As of December 31, 2018, both the carrying value and estimated fair value of the Company’s debt were approximately $1.4 billion. Both the carrying value and estimated fair value of the Company’s debt (as discussed above) is net of unamortized debt issuance costs related to term loans and mortgage debt for each specific year.
Derivative Instruments
Currently, the Company uses interest rate swaps to manage its interest rate risks on variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR. The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. These swap instruments are recorded at fair value and, if in an asset position, are included in other assets, net, and, if in a liability position, are included in accounts payable and other liabilities in the Company’s consolidated balance sheets. The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which is considered a Level 2 measurement under the fair value hierarchy. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The following table sets forth information for each of the Company’s interest rate swap agreements outstanding as of September 30, 2019 and December 31, 2018. All dollar amounts are in thousands.
| | Notional Amount at | | | | | | | | | | | | Fair Value Asset (Liability) | | Hedge Type | | September 30, 2019 | | Origination Date | | Effective Date | | Maturity Date | | Swap Fixed Interest Rate | | | September 30, 2019 | | | December 31, 2018 | | Cash flow hedge | | $ | 212,500 | | 5/19/2015 | | 5/21/2015 | | 5/18/2020 | | | 1.58 | % | | $ | 217 | | | $ | 2,744 | | Cash flow hedge | | | 110,000 | | 7/2/2015 | | 7/2/2015 | | 5/18/2020 | | | 1.62 | % | | | 85 | | | | 1,361 | | Cash flow hedge | | | 50,000 | | 4/7/2016 | | 9/30/2016 | | 3/31/2021 | | | 1.09 | % | | | 344 | | | | 1,519 | | Cash flow hedge | | | 100,000 | | 4/7/2016 | | 9/30/2016 | | 3/31/2023 | | | 1.33 | % | | | 217 | | | | 4,477 | | Cash flow hedge | | | 75,000 | | 5/31/2017 | | 7/31/2017 | | 6/30/2024 | | | 1.96 | % | | | (2,055 | ) | | | 1,905 | | Cash flow hedge | | | 10,000 | | 8/10/2017 | | 8/10/2017 | | 6/30/2024 | | | 2.01 | % | | | (295 | ) | | | 226 | | Cash flow hedge | | | 50,000 | | 6/1/2018 | | 1/31/2019 | | 6/30/2025 | | | 2.89 | % | | | (4,258 | ) | | | (1,276 | ) | Cash flow hedge | | | 50,000 | | 7/2/2019 | | 7/5/2019 | | 7/18/2024 | | | 1.65 | % | | | (685 | ) | | | - | | Cash flow hedge | | | 50,000 | | 8/21/2019 | | 8/23/2019 | | 8/18/2024 | | | 1.32 | % | | | 111 | | | | - | | Cash flow hedge | | | 50,000 | | 8/21/2019 | | 8/23/2019 | | 8/30/2024 | | | 1.32 | % | | | 112 | | | | - | | Cash flow hedge | | | 25,000 | | 12/6/2018 | | 1/31/2020 | | 6/30/2025 | | | 2.75 | % | | | (1,865 | ) | | | (379 | ) | Cash flow hedge | | | 50,000 | | 12/7/2018 | | 5/18/2020 | | 1/31/2024 | | | 2.72 | % | | | (2,572 | ) | | | (571 | ) | Cash flow hedge | | | 75,000 | | 8/21/2019 | | 5/18/2020 | | 5/18/2025 | | | 1.27 | % | | | 189 | | | | - | | Cash flow hedge | | | 75,000 | | 8/21/2019 | | 5/18/2021 | | 5/18/2026 | | | 1.30 | % | | | 104 | | | | - | | | | $ | 982,500 | | | | | | | | | | | | $ | (10,351 | ) | | $ | 10,006 | |
The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. The change in the fair value of the Company’s designated cash flow hedges is recorded to accumulated other comprehensive income (loss), a component of shareholders’ equity in the Company’s consolidated balance sheets. Amounts reported in accumulated other comprehensive income (loss) will be reclassified to interest and other expense, net as interest payments are made or received on the Company’s variable-rate derivatives. The amount of net unrealized gains and losses included in accumulated other comprehensive loss at September 30, 2019 that is expected to be reclassified into interest and other expense, net within the next 12 months is approximately 0.
The following table presents the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2019 and 2018 (in thousands):
| | Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss) | | | Net Unrealized Gain Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net | | | | Three Months Ended September 30, | | | Three Months Ended September 30, | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Interest rate derivatives in cash flow hedging relationships | | $ | (3,298 | ) | | $ | 2,415 | | | $ | 895 | | | $ | 758 | |
| | Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss) | | | Net Unrealized Gain Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net | | | | Nine Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Interest rate derivatives in cash flow hedging relationships | | $ | (16,966 | ) | | $ | 11,015 | | | $ | 3,391 | | | $ | 1,326 | |
Notional Amount at March 31, 2020 | | | | | | | | | | | | Fair Value Asset (Liability) | | | Origination Date | | Effective Date | | Maturity Date | | Swap Fixed Interest Rate | | | March 31, 2020 | | | December 31, 2019 | | | | | | | | | | | | | | | Interest rate swaps designated as cash flow hedges at March 31, 2020: | | | | | | | | | | | | | $ | 212,500 | | 5/19/2015 | | 5/21/2015 | | 5/18/2020 | | | 1.58 | % | | $ | (240 | ) | | $ | 78 | | | 50,000 | | 4/7/2016 | | 9/30/2016 | | 3/31/2021 | | | 1.09 | % | | | (370 | ) | | | 317 | | | 100,000 | | 4/7/2016 | | 9/30/2016 | | 3/31/2023 | | | 1.33 | % | | | (3,077 | ) | | | 707 | | | 75,000 | | 5/31/2017 | | 7/31/2017 | | 6/30/2024 | | | 1.96 | % | | | (5,085 | ) | | | (1,286 | ) | | 10,000 | | 8/10/2017 | | 8/10/2017 | | 6/30/2024 | | | 2.01 | % | | | (697 | ) | | | (185 | ) | | 50,000 | | 6/1/2018 | | 1/31/2019 | | 6/30/2025 | | | 2.89 | % | | | (6,506 | ) | | | (3,407 | ) | | 50,000 | | 7/2/2019 | | 7/5/2019 | | 7/18/2024 | | | 1.65 | % | | | (2,777 | ) | | | (193 | ) | | 50,000 | | 8/21/2019 | | 8/23/2019 | | 8/18/2024 | | | 1.32 | % | | | (2,092 | ) | | | 595 | | | 50,000 | | 8/21/2019 | | 8/23/2019 | | 8/30/2024 | | | 1.32 | % | | | (2,094 | ) | | | 603 | | | 85,000 | | 12/31/2019 | | 12/31/2019 | | 12/31/2029 | | | 1.86 | % | | | (10,170 | ) | | | (842 | ) | | 25,000 | | 12/6/2018 | | 1/31/2020 | | 6/30/2025 | | | 2.75 | % | | | (3,072 | ) | | | (1,501 | ) | | 50,000 | | 12/7/2018 | | 5/18/2020 | | 1/31/2024 | | | 2.72 | % | | | (4,481 | ) | | | (2,139 | ) | | 75,000 | | 8/21/2019 | | 5/18/2020 | | 5/18/2025 | | | 1.27 | % | | | (3,242 | ) | | | 1,222 | | | 75,000 | | 8/21/2019 | | 5/18/2021 | | 5/18/2026 | | | 1.30 | % | | | (2,961 | ) | | | 1,309 | | | 957,500 | | | | | | | | | | | | | (46,864 | ) | | | (4,722 | ) | | | | | | | | | | | | | | Interest rate swaps not designated as hedges at March 31, 2020: | | | | | | | | | | | | | | 110,000 | | 7/2/2015 | | 7/2/2015 | | 5/18/2020 | | | 1.62 | % | | | (130 | ) | | | 24 | | $ | 1,067,500 | | | | | | | | | | | | $ | (46,994 | ) | | $ | (4,698 | ) |
The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. For the three months ended March 31, 2020, all of the interest rate swap agreements listed above, with the exception of the $110 million agreement, were designated as cash flow hedges. The Company discontinued hedge accounting on the $110 million interest rate swap agreement during the three months ended March 31, 2020 due to a change in the forecasted interest payments being hedged. As a result, the unrealized loss incurred during the three months ended March 31, 2020 of $0.2 million was recorded to interest and other expense, net in the Company’s statement of operations. The change in the fair value of the Company’s designated cash flow hedges is recorded to accumulated other comprehensive income (loss), a component of shareholders’ equity in the Company’s consolidated balance sheets. Amounts reported in accumulated other comprehensive income (loss) will be reclassified to interest and other expense, net as interest payments are made or received on the Company’s variable-rate derivatives. The Company estimates that approximately $9.5 million of net unrealized losses included in accumulated other comprehensive loss at March 31, 2020 will be reclassified as an increase to interest and other expense, net within the next 12 months. The following table presents the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and comprehensive income for the three months ended March 31, 2020 and 2019 (in thousands): | | Net Unrealized Loss Recognized in Other Comprehensive Income (Loss) | | | Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net | | | | Three Months Ended March 31, | | | Three Months Ended March 31, | | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | Interest rate derivatives in cash flow hedging relationships | | $ | (42,267 | ) | | $ | (4,770 | ) | | $ | (101 | ) | | $ | 1,274 | |
6. Related Parties The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. There have been no changes to the contracts and relationships discussed in the 2018 Form 10-K. Below is a summary of the significant related party relationships in effect during the nine months ended September 30, 2019 and 2018. Glade M. Knight, Executive Chairman of the Company, owns Apple Realty Group, Inc. (“ARG”), which receives support services from the Company and reimburses the Company for the cost of these services as discussed below. Mr. Knight is also currently a partner and Chief Executive Officer of Energy 11 GP, LLC and Energy Resources 12 GP, LLC, which are the respective general partners of Energy 11, L.P. and Energy Resources 12, L.P., each of which receive support services from ARG.
The Company provides support services, including the use of the Company’s employees and corporate office, to ARG and is reimbursed by ARG for the cost of these services. The amounts reimbursed to the Company are based on the actual costs of the services and a good faith estimate of the proportionate amount of time incurred by the Company’s employees on behalf of ARG. Total reimbursed costs allocated by the Company to ARG for the nine months ended September 30, 2019 and 2018 totaled approximately $0.9 million and $0.7 million, respectively, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations.
As part of the cost sharing arrangement, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under this cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies. As of September 30, 2019 and December 31, 2018, total amounts due from ARG for reimbursements under the cost sharing structure each totaled approximately $0.4 million and are included in other assets, net in the Company’s consolidated balance sheets.
The Company, through a wholly-owned subsidiary, Apple Air Holding, LLC, owns a Learjet used primarily for acquisition, asset management, renovation and public relations purposes. The aircraft is also leased to affiliates of the Company based on third party rates, which leasing activity was not significant during the reporting periods. The Company also utilizes aircraft, owned through two entities, one of which is owned by the Company’s Executive Chairman, and the other, by its President and Chief Executive Officer, for acquisition, asset management, renovation and public relations purposes, and reimburses these entities at third party rates. Total costs incurred for the use of these aircraft during the nine months ended September 30, 2019 and 2018 were approximately $0.1 million for each respective period, and are included in general and administrative expenses in the Company’s consolidated statements of operations.
7. Shareholders’ Equity
Distributions
The Company’s current annual distribution rate, payable monthly, is $1.20 per common share. For the three months ended September 30, 2019 and 2018, the Company paid distributions of $0.30 per common share for a total of $67.2 million and $69.1 million, respectively. For the nine months ended September 30, 2019 and 2018, the Company paid distributions of $0.90 per common share for a total of $201.5 million and $207.3 million, respectively. Additionally, in September 2019, the Company declared a monthly distribution of $0.10 per common share, totaling $22.4 million, which was recorded as a payable as of September 30, 2019 and paid in October 2019. As of December 31, 2018, a monthly distribution of $0.10 per common share, totaling $22.4 million, was recorded as a payable and paid in January 2019. These accrued distributions were included in accounts payable and other liabilities in the Company’s consolidated balance sheets.
Share Repurchases
In May 2019, the Company’s Board of Directors approved an extension of its existing share repurchase program (the “Share Repurchase Program”), authorizing share repurchases up to an aggregate of $360 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2020 if not terminated earlier. The Company has a written trading plan as part of the Share Repurchase Program that provides for share repurchases in open market transactions that is intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. During the first nine months of 2019 and 2018, the Company purchased, under its Share Repurchase Program, approximately 0.3 million of its common shares in each respective period, at a weighted-average market purchase price of approximately $14.92 and $16.89 per common share, respectively, for an aggregate purchase price, including commissions, of approximately $4.3 million in each respective period. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with availability under its credit facilities. As of September 30, 2019, approximately $359.8 million remained available for purchase under the Share Repurchase Program.
8. Compensation Plans
The Company annually establishes an incentive plan for its executive management. Under the incentive plan for 2019 (the “2019 Incentive Plan”), participants are eligible to receive a bonus based on the achievement of certain 2019 performance measures, consisting of operational performance metrics (including targeted Modified Funds from Operations per share, Comparable Hotels revenue per available room growth and Adjusted Hotel EBITDA Margin growth) and shareholder return metrics (including shareholder return relative to a peer group and total shareholder return, over one-year, two-year and three-year periods). The operational performance metrics are equally weighted and account for 50% of the total target incentive compensation. The shareholder return metrics are weighted 75% for relative shareholder return metrics and 25% for total shareholder return metrics, and account for 50% of the total target incentive compensation. At September 30, 2019, the range of potential aggregate payouts under the 2019 Incentive Plan was $0 - $19 million. Based on performance through September 30, 2019, the Company has accrued approximately $7.8 million as a liability for potential executive bonus payments under the 2019 Form 10-K. Below is a summary of the significant related party relationships in effect during the three months ended March 31, 2020 and 2019.
Glade M. Knight, Executive Chairman of the Company, owns Apple Realty Group, Inc. (“ARG”), which receives support services from the Company and reimburses the Company for the cost of these services as discussed below. Mr. Knight is also currently a partner and Chief Executive Officer of Energy 11 GP, LLC and Energy Resources 12 GP, LLC, which are the respective general partners of Energy 11, L.P. and Energy Resources 12, L.P., each of which receive support services from ARG. The Company provides support services, including the use of the Company’s employees and corporate office, to ARG and is reimbursed by ARG for the cost of these services. The amounts reimbursed to the Company are based on the actual costs of the services and a good faith estimate of the proportionate amount of time incurred by the Company’s employees on behalf of ARG. Total reimbursed costs allocated by the Company to ARG for the three months ended March 31, 2020 and 2019 totaled approximately $0.3 million for each respective period, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations. As part of the cost sharing arrangement, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under this cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies. As of March 31, 2020, and December 31, 2019, total amounts due from ARG for reimbursements under the cost sharing structure totaled approximately $0.3 million and $0.5 million, respectively, and are included in other assets, net in the Company’s consolidated balance sheets. The Company, through a wholly-owned subsidiary, Apple Air Holding, LLC, owns a Learjet used primarily for acquisition, asset management, renovation and investor and public relations purposes. The aircraft is also leased to affiliates of the Company based on third party rates, which leasing activity was not significant during the reporting periods. The Company also utilizes aircraft, owned through two entities, one of which is owned by the Company’s Executive Chairman, and the other, by its Chief Executive Officer, for acquisition, asset management, renovation and investor and public relations purposes, and reimburses these entities at third party rates. Total costs incurred for the use of these aircraft during the three months ended March 31, 2020 and 2019 were less than $0.1 million for each respective period and are included in general and administrative expenses in the Company’s consolidated statements of operations. 7. Shareholders’ Equity
Distributions Subsequent to the distribution paid in March 2020, the Company announced the suspension of its monthly distributions due to the impact of COVID-19 on its operating cash flows. Prior to the suspension of its distributions, the Company’s annual distribution rate, payable monthly, was $1.20 per common share. For the three months ended March 31, 2020 and 2019, the Company paid distributions of $0.30 per common share for a total of $67.3 million and $67.2 million, respectively. The distributions paid during the three months ended March 31, 2020 include the distribution paid in January 2020, totaling $22.4 million, that was declared in December 2019, which was included in accounts payable and other liabilities in the Company’s consolidated balance sheet at December 31, 2019. Share Repurchases In May 2020, the Company’s Board of Directors approved an extension of its existing share repurchase program (the “Share Repurchase Program”), authorizing share repurchases up to an aggregate of $345 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2021 if not terminated earlier. During the first three months of 2020 and 2019, the Company purchased, under its Share Repurchase Program, approximately 1.5 million and 0.3 million of its common shares, respectively, at a weighted-average market purchase price of approximately $9.42 and $14.93 per common share, respectively, for an aggregate purchase price, including commissions, of approximately $14.3 million and $4.1 million, respectively. 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. 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. As of March 31, 2020, approximately $345.4 million remained available for purchase under the Share Repurchase Program. In March 2020 the Company terminated its written trading plan. 8. Compensation Plans The Company annually establishes an incentive plan for its executive management. Under the incentive plan for 2020 (the “2020 Incentive Plan”), participants are eligible to receive a bonus based on the achievement of certain 2020 performance measures, consisting of operational performance metrics (including targeted Modified Funds from Operations per share, Comparable Hotels revenue per available room growth and Adjusted Hotel EBITDA Margin growth) and shareholder return metrics (including shareholder return relative to a peer group and total shareholder return, over one-year, two-year and three-year periods). The operational performance metrics are equally weighted and account for 50% of the total target incentive compensation. The shareholder return metrics are weighted 75% for relative shareholder return metrics and 25% for total shareholder return metrics, and account for 50% of the total target incentive compensation. At March 31, 2020, the range of potential aggregate payouts under the 2020 Incentive Plan was $0 - $13.9 million. The range of payout under the 2020 Incentive Plan reflects a voluntary reduction of $0 - $5.2 million of the potential payout to the Company’s Chief Executive Officer in response to the expected decline in the Company’s operating results due to COVID-19. Based on performance through March 31, 2020, the Company has accrued approximately $1.5 million as a liability for potential executive bonus payments under the 2020 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of September 30, 2019. Compensation expense recognized by the Company under the 2019 Incentive Plan is included in general and administrative expenses in the Company’s consolidated statements of operations and totaled approximately $3.1 million and $7.8 million for the three and nine months ended September 30, 2019, respectively. Approximately 25% of awards under the 2019 Incentive Plan, if any, will be paid in cash, and 75% will be issued in stock under the Company’s 2014 Omnibus Incentive Plan, approximately two-thirds of which will vest in December 2019 and one-third of which will vest in December 2020. Under the incentive plan for 2018 (the “2018 Incentive Plan”), the Company recorded approximately ($1.2) million and $2.5 million in general and administrative expenses in its consolidated statements of operations for the three and nine months ended September 30, 2018, respectively. The reduction to general and administrative expense for the three months ended September 30, 2018 was due to lower anticipated 2018 performance resulting in a reduction during the period of the Company’s previously recorded compensation accrual by this amount. During the nine months ended September 30, 2019, the Company incurred a one-time separation payment of $0.5 million in connection with the retirement of the Company’s Executive Vice President and 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 nine months ended September 30, 2019.
Share-Based Compensation Awards
The following table sets forth information pertaining to the share-based compensation issued under the 2018 Incentive Plan and the incentive plan for 2017 (the “2017 Incentive Plan”).
| | 2018 Incentive Plan | | | 2017 Incentive Plan | | | | | | | | | | | Period common shares issued | | First Quarter 2019 | | | First Quarter 2018 | | | | | | | | | | | Common shares earned under each incentive plan | | | 156,926 | | | | 415,866 | | Common shares surrendered on issuance date to satisfy tax withholding obligations | | | 24,999 | | | | 48,533 | | Common shares earned and issued under each incentive plan, net of common shares surrendered on issuance date to satisfy tax withholding obligations | | | 131,927 | | | | 367,333 | | Closing stock price on issuance date | | $ | 16.49 | | | $ | 16.92 | | Total share-based compensation earned, including the surrendered shares (in millions) | | $ | 2.6 | (1) | | $ | 7.0 | (2) | Of the total common shares earned and issued, total common shares unrestricted at time of issuance | | | 105,345 | | | | 223,421 | | Of the total common shares earned and issued, total common shares restricted at time of issuance | | | 26,582 | | | | 143,912 | | | | | | | | | | | Restricted common shares vesting date | | December 13, 2019 | | | December 14, 2018 | | Common shares surrendered on vesting date to satisfy tax withholding requirements resulting from vesting of restricted common shares | | | n/a | | | | 41,389 | |
(1)
| 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'sCompany’s consolidated balance sheet at Decemberas of March 31, 2018. The remaining $0.2 million, which is subject to vesting on December 13, 20192020 and excludesin 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. Forpaid 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 $0.04incurred a one-time separation payment of $0.5 million in connection with the retirement of the Company’s Executive Vice President and $0.1Chief 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.
Share-Based Compensation Awards
The following table sets forth information pertaining to the share-based compensation issued under the 2019 Incentive Plan and the incentive plan for 2018 (the “2018 Incentive Plan”). | | 2019 Incentive Plan | | | | 2018 Incentive Plan | | | | | | | | | | | | | | Period common shares issued | | First Quarter 2020 | | | | First Quarter 2019 | | | | | | | | | | | | | | Common shares earned under each incentive plan | | | 665,552 | | | | | 156,926 | | | Common shares surrendered on issuance date to satisfy tax withholding obligations | | | 60,616 | | | | | 24,999 | | | Common shares earned and issued under each incentive plan, net of common shares surrendered on issuance date to satisfy tax withholding obligations | | | 604,936 | | | | | 131,927 | | | Closing stock price on issuance date | | $ | 13.01 | | | | $ | 16.49 | | | Total share-based compensation earned, including the surrendered shares (in millions) | | $ | 8.7 | | (1) | | $ | 2.6 | | (2) | Of the total common shares earned and issued, total common shares unrestricted at time of issuance | | | 426,553 | | | | | 105,345 | | | Of the total common shares earned and issued, total common shares restricted at time of issuance | | | 178,383 | | | | | 26,582 | | | | | | | | | | | | | | Restricted common shares vesting date | | December 11, 2020 | | | | December 13, 2019 | | | Common shares surrendered on vesting date to satisfy tax withholding requirements resulting from vesting of restricted common shares | | | n/a | | | | | 5,502 | | |
(1) Of the total 2019 share-based compensation, approximately $7.5 million was recorded as a liability as of December 31, 2019 and is included in accounts payable and other liabilities in the Company's consolidated balance sheet at December 31, 2019. The remaining $1.2 million, which is subject to vesting on December 11, 2020 and excludes any restricted shares forfeited or vested prior to that date, will be recognized as share-based compensation expense proportionately throughout 2020. For the three months ended March 31, 2020, the Company recognized approximately $0.3 million respectively, of share-based compensation expense related to restricted share awards. | (2) Of the total 2018 share-based compensation, approximately $0.2 million, which vested on December 13, 2019, was recognized as share-based compensation expense proportionately throughout 2019. For the three months ended March 31, 2019, the Company recognized approximately $0.05 million of share-based compensation expense related to restricted share awards. |
(2)
| Of the total 2017 share-based compensation, approximately $1.2 million, which vested on December 14, 2018, was recognized as share-based compensation expense proportionately throughout 2018. For the three and nine months ended September9. Subsequent Events
On April 30, 2018,2020, the Company recognizedclosed on the purchase of the newly developed Hampton Inn & Suites and Home2 Suites in Cape Canaveral, Florida, a combined 224-room dual-branded complex, for a gross purchase price of approximately $0.3$46.7 million. The Company utilized $25.0 million of its available cash and $0.9entered into a one-year note payable with the developer secured by the hotels for $21.7 million respectively,to fund the purchase price of share-based compensation expense relatedthe Cape Canaveral, Florida hotels. The note payable bears interest, which is payable monthly, at a floating annual rate equal to restricted share awards. |
9. Leases
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.
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.
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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.
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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.
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.
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 20182019 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 20182019 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 234231 hotels with an aggregate of 30,04629,535 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 operatedoperate under Marriott Hilton or HyattHilton 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 recognizeCOVID-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 priorU.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.
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. |
| ● | 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. 20192020 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 aggregateentered into a contract to purchase price of approximately $52.4 million during the first nine months of 2019: a 160-roomcombined 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 hotelone-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 sixthree 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 ninefive to 2115 months from September 30, 2019,March 31, 2020, at which time closings on these hotels are expected to occur. ThereIn each case, there are manya 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 ninetwo 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 pricegain 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 ofEffective January 20, 2020, the Company plans to convertconverted 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 overAs anticipated, the next six months to complete the transition to an independent boutique hotel. The intentoperating results of the conversion ishotel declined in the first quarter of 2020 (prior to provide greater long-term flexibility withCOVID-19) as compared to the operationsfirst 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 disruption2019 as the management team worksworked to replace revenue that currently resultswas historically generated from participation in the Renaissance brand system.system and have experienced further declines due to COVID-19.
Hotel Operations
AlthoughBeginning 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, localportfolio and general economic conditionsthe hospitality industry as a whole. With the overall uncertainty of the longevity of COVID-19 in the U.S. and the performanceresulting economic decline, it is difficult to project the duration of individual managers assigned to each hotel, performance ofrevenue declines for the Company’s hotelsindustry 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 metthe third and fourth quarters of 2020. Although these are the Company’s current expectations, forthere can be no assurances of the amount or period owned. Overof declines due to the past several years, improvements inuncertainty 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 ninethree 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 hotelhotels (one on March 4, 2019 and one newly constructed hotel on March 19, 2019,October 9, 2019), and sold nine11 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, 2018December 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. 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 | % |
Comparable Hotels Operating Results The following table reflects certain operating statistics for the Company’s 233231 hotels owned and held for use as of September 30, 2019March 31, 2020 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 233231 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 226228 hotels owned and held for use by the Company as of January 1, 20182019 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 | % |
| | 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 inCOVID-19 has negatively affected the U.S. have generally been favorable, which has been offset by increased lodging supplyhotel 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 unchangeddeclined during the first ninethree months of 20192020 as compared to the first ninethree 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. The2019, the Company expects its RevPAR growththe decline in revenue and operating results for its Comparable Hotels forto continue throughout the full yearremainder of 20192020 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 periodsperiod in 2018,2019, during the thirdfirst quarter and first nine months of 2019,2020, the Company experienced modest increasesdecreases in ADR and occupancy, resulting in increasesa decrease of 1.1% and 0.4%, respectively,20.7% in RevPAR for Comparable Hotels. WhileFor 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% increaseoccupancy of approximately 41.0% in occupancy for Comparable Hotels during the third quarter of 2019, occupancyMarch and below 20% for the first nine monthsmonth of 2019 decreased slightly asApril, 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. 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 whichfor the three months ended March 31, 2020 were slightly offset by decreasesapproximately $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, healthcarehas 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 percentagethe impact of revenue where possible while maintaining qualitydeclines 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 forperiod. 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 percentageresult of revenue for the first nine months of 2019COVID-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 remainderbeginning of 2019.each calendar year. 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 inGeneral 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. SeeMarch 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 withassets. 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. 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 increasedinstruments decreased as a result of increaseddecreased average borrowings in the first ninethree months of 20192020 as compared to the first ninethree months of 2018 resulting from acquisitions and share repurchases, partially offset by the repayment of borrowings with proceeds from dispositions, combined with2019 as well as a small increasedecrease in the Company’s effective interest rate during the first ninethree months of 20192020 as compared to the same period in 2018,2019, due to higherlower 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 ratesexpense to be higher for the fourth quarterremainder 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 20192020 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.
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. 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 | |
| | 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 | |
Hotels Owned As of September 30, 2019,March 31, 2020, the Company owned 234231 hotels with an aggregate of 30,04629,535 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 | |
The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 234231 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 | |
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 | |
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 | |
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 | |
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 HostNewport
| | 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 | |
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 | |
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 | | | 30,04629,535 | |
(1) | Hotel is classified as held for sale Manager noted was effective as of September 30, 2019.April 1, 2020.
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Related Parties
The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. See Note 6 titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning the Company’s related party transactions.
Liquidity and Capital Resources Capital Resources ThePrior to the impact of COVID-19, the Company’s principal dailyshort term sources of liquidity arewere the operating cash flowflows generated from the Company’s properties and availability under its revolving credit facility. Periodically, the Company may receivehave 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 unusedCompany, 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 availableMarch 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, workingthe 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. 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 SeptemberMarch 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 itsthe 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 TheAlthough 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 offeringsof $437.3 million as of March 31, 2020, will be adequate to meet itsnear-term anticipated liquidity requirements, includingoperating cash flow deficits resulting from the effect of COVID-19, debt service, hotel acquisitions hotel renovations, share repurchases, and required distributions to shareholders (thecapital expenditures. However, if the Company is not requiredunable to make distributions at itsmeet 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 ninethree months ended September 30, 2019March 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 useannounced the suspension of its revolvingmonthly 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 maintainfacilities 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 ofcovenant 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 ofintends 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 basisa time and may make adjustments to the distribution rate aslevel determined to be prudent in relation to the Company’s other cash requirements of the Company. If cash flow from operations and the revolving credit facility are not 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.
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 20202021 if not terminated earlier. During the first ninethree months of 20192020 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 ninethree 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 projects2020. This estimate is approximately $50 million less than originally planned for approximately 15the 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 sevensix newly developed hotels for a total expected purchase price of approximately $215.7$208.8 million. OneTwo of the hotels, an independent boutiquethe 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, whichDenver, Colorado for $49.1 million was already in operation, was acquired in October 2019.terminated. The sixthree 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 ninefive 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. TheIf 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 hotelCape 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.
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 leasefair 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 locatedthe 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 underutilized $25.0 million of its revolving credit facilityavailable 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 2019Denver, Colorado was terminated and the Company expectsrefundable 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. TheAs 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. 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 fourthree 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. 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. 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, seeuncertainties. The information below updates, and should be read in conjunction with, the section titled “Risk Factors”risk factors and information disclosed in the 2018Company’s 2019 Form 10-K. ThereExcept as presented below, there have been no material changes tofrom the risk factors previously discloseddescribed in the 2018Company’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. |
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. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The following is a summary of all share repurchases during the thirdfirst 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 inauthorizing share repurchases up to an aggregate of $345 million through July 2020. Refer2021. | (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 onCompany to satisfy tax withholding obligations associated with the Company’s Share Repurchase Program.issuance of common shares awarded to employees. |
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 | SecondThird 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 toSeparation Agreement and General Release, dated as of March 4, 2020, by and between the Company’s Executive Severance Pay Plan (IncorporatedCompany 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. BuckleyBryan 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 iXBRLas Inline XBRL and contained in Exhibit 101. | | | |
| * Denotes Management Contract or Compensation Plan |
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | | Apple Hospitality REIT, Inc. | | | | | | | | By: | /s/ /s/ Justin G. Knight
| | | Date: November 4, 2019May 18, 2020 | | Justin G. Knight, | | | | | President and
Chief Executive Officer (Principal Executive Officer) | | | | | | | | | By: | /s/ RachaelElizabeth S. RothmanPerkins | | | Date: November 4, 2019May 18, 2020 | | RachaelElizabeth S. Rothman,Perkins,
| | | | | Chief Financial Officer (Principal Financial Officer) | | | | | | | | | By: | /s/ Bryan PeeryRachel S. Labrecque | | | Date: November 4, 2019May 18, 2020 | | Bryan Peery,Rachel S. Labrecque,
| | | | | Chief Accounting Officer (Principal Accounting Officer) | | | | | | | | | | | | | | | | | | | | | | | |
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