Nominating and Corporate Governance | | Responsibilities are outlined in its written charter that is available at the Company’s website, www.applehospitalityreit.com, and include oversight of all aspects of the Company’s consolidated financial statements and financial reporting processes and has the other functions and responsibilities set forth in its charter. A report by the Audit Committee appears in a following section of this proxy statement. Compensation Committee. The Compensation Committee operates in accordance with a written charter that is available at the Company’s website, www.applehospitalityreit.com, and administers the Company’s compensation and incentive plans of the Company’s executive officers and oversees the compensation practices of the Company.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee operates in accordance with a written charter that is available at the Company’s website, www.applehospitalityreit.com, and oversees all aspects of the
| | Company’s corporate governance, director compensation, and nominations process for the Board of Directors and its committees. | | Blythe J. McGarvie(1) Jon A. Fosheim Daryl A. Nickel Howard E. Woolley(3) | | 4 |
(1) | Indicates the Committee Chair. |
(2) | Indicates Audit Committee Financial Expert. |
(3) | Mr. Woolley became a member of the Nominating and Corporate Governance committee when he was appointed to the Board of Directors on March 1, 2021. |
Board Leadership. The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide independent oversight of management. The Board understands that there is no single generally accepted approach to providing Board leadership and the right Board leadership structure may vary as circumstances warrant. Consistent with this understanding, the independent directors periodically consider the Board’s leadership structure. Currently, the roles of chairmanChairman and chief executive officerChief Executive Officer are held by different directors. Mr. Glade M. Knight serves as Executive Chairman and Mr. Justin G. Knight serves as President and Chief Executive Officer. The Board believes that this structure provides the appropriate balance between the authority of those who oversee the Company and those who manage it on a day-to-day basis. The Executive Chairman of the Board presides at all meetings of the shareholders and of the Board as a whole. The Executive Chairman performs such other duties, and exercises such powers, as from time to time shall be prescribed in the bylaws or by the Board.Additionally, the Board has appointed Mr. Jon A. Fosheim to serve as Lead Independent Director. The Lead Independent Director’s responsibilities include, among other things, presiding at meetings or executive sessions of the independent directors and non-employee directors, serving as a liaison to facilitate communications between the Chairman, the Chief Executive Officer and other members of the Board, without inhibiting direct communications between and among such persons, and serving as a liaison to shareholders who request direct communications and consultations with the Board. Audit Committee Independence. The Board of Directors has determined that each current member of the Audit Committee is “independent,”“independent” as defined in the listing standards of the NYSE. To be considered independent, a member of the Audit Committee must not (other than in his or her capacity as a director or committee member, and subject to certain other limited exceptions) either (a) accept directly or indirectly any consulting, advisory, or other compensatory fee from the Company or any subsidiary; or (b) be an affiliate of the Company or any subsidiary. The Audit Committee currently has two members, Mr. Jon A. Fosheim and Mr. L. Hugh Redd, who are “financial experts” within the meaning of the regulations issued by the Securities and Exchange Commission. The Company’s management believes that the combined experience and capabilities of the Audit Committee members are sufficient for the current and anticipated operations and needs of the Company.In this regard, the Board has determined that each Audit Committee member is “financially literate” and that at least two members have “accounting or related financial management expertise,” as all such terms are defined by the rules of the NYSE. Board Meetings, Attendance and MembershipRelated Information. The Board held a total of 12six meetings during 20152020 (including regularly scheduled and special meetings). The following table shows both the membership of the Company’s standing committees and the number of meetings held during 2015:
Committee | | Members of Committee | | Number of Committee
Meetings During 2015
| Executive | | Glade M. Knight* | | 0 | | | Glenn W. Bunting | | | | | Justin G. Knight | | | | | Bruce H. Matson | | | | | Daryl A. Nickel | | | | | | | | Audit | | L. Hugh Redd* | | 5 | | | Glenn W. Bunting | | | | | Jon A. Fosheim | | | | | | | | Compensation | | Glenn W. Bunting* | | 2 | | | Daryl A. Nickel | | | | | L. Hugh Redd | | | | | | | | Nominating and Corporate Governance | | Bruce H. Matson* | | 3 | | | Jon A. Fosheim | | | | | Daryl A. Nickel | | |
*Indicates the Chair of each committee.
Attendance and Related Information. It is the policy of the Company that directors should attend each annual meeting of shareholders. All of the directors at the time of the meeting attended the 20152020 Annual Meeting of shareholders.Meeting. The Company also expects directors to attend each regularly scheduled and special meeting of the Board, but recognizes that, from time to time, other commitments may preclude full attendance. In 2015,2020, each director attended at least 75% of the aggregate of (a) the total number of meetings of the Board of Directors that were held during the period in which he or she was a director, and (b) the total number of meetings held by all committees of the Board on which he or she served during the period in which he or she served.
CompensationExecutive Sessions. The independent members of the Board of Directors meet independently of management and the non-independent directors in executive sessions on a regular basis, presided by the Lead Independent Director. During 2020, the independent members of the Board of Directors met four times.18
Table of contents 2020 Compensation of Directors The compensation of the directors is reviewed and approved annually by the Board of Directors. During 2015,2020, the directors of the Company were compensated as follows: Reimbursements to Directors in 2015 .2020. All directors were reimbursed by the Company for travel and other out-of-pocket expenses incurred by them to attend meetings of the directors and committee meetings and in conducting the business of the Company.Compensation of IndependentNon-Employee Directors. In 2015,2020, the independentnon-employee directors (classified by the Company as all directors other than Mrs. Kristian M. Gathright, Mr. Glade M. Knight and Mr. Justin G. Knight) received the following directors’ fees:were scheduled to receive (i) a $140,000$165,000 annual retainer, with $60,000$65,000 paid in cash and $80,000$100,000 paid in vested stock grants, paid in quarterly installments, (with compensation under the plan(ii) an annual retainer for the first five months in 2015 being paid entirely in cash), and (ii) a $1,000 fee for each meeting of the Board of Directors or any committee of the Board of Directors in excess of eight meetings per year for each of the Board or applicable committee (measured from June 1 through May 31 of the following year). Additionally, the Chair of the Audit Committee is entitledof $15,000 (in addition to receivefees for service on the Company’s Disclosure Committee) paid in cash in quarterly installments, and (iii) an additional annual retainer fee of $7,000 andfor the Chair of the Compensation Committee, andthe Chair of the Nominating and Corporate Governance Committee are each entitled to receive an additional annual retainer feeand the Lead Independent Director of $5,000,$10,000 each, paid in cash in quarterly installments. Upon her retirement from all employee and officer positions with the Company and its subsidiaries on March 31, 2020, Mrs. Gathright become a non-employee director of the Company and, as a result, began receiving compensation as a non-employee director effective April 1, 2020. Non-IndependentIn March 2020, as a result of the coronavirus (COVID-19) situation and associated economic impact to the Company, non-employee directors volunteered to take a partial reduction of their annual fee over the remainder of 2020. These partial reductions resulted in an aggregate annual fee reduction of approximately 17%.Non-Employee Director Deferral Program. Effective June 1, 2018, the Board of Directors adopted the Non-Employee Director Deferral Program (the “Director Deferral Program”) under the Apple Hospitality REIT, Inc. 2014 Omnibus Incentive Plan (the “2014 Omnibus Incentive Plan”) for the purpose of providing non-employee members of the Board the opportunity to elect to defer receipt of all or a portion of the annual retainer payable to them for their service on the Board, including the portion of the annual retainer amounts payable in 2015cash (including for service as a Chair of a committee of the Board or Lead Independent Director) and the portion of the annual retainer amounts payable in fully vested Common Shares. As specified by the director, the receipt of payment may be deferred until either (i) the date that his or her service on the Board has ended, (ii) a specified date, or (iii) the earlier of the specified date or the date that his or her service on the Board has ended. The deferred amounts will also be paid if, prior to the time specified by the director, the Company experiences a change in control or upon death of the director. For the portion of the director fees payable in shares, the director may elect to defer his or her fees in the form of deferred stock units, and for the portion of the director fees payable in cash, the director may elect to defer his or her fees either in the form of deferred stock units or as deferred cash fees. Under the Director Deferral Program, the Company has established a notional deferral account (for bookkeeping purposes only) for each non-employee director who has elected to participate and all deferred fees are credited to this account, whether in cash or stock, as of the date the fee otherwise would have been paid to the director (the “Quarterly Deferral Date”). Deferred fees converted into deferred stock units are credited to the deferral account based on the fair market value of the Company’s Common Shares on the Quarterly Deferral Date. On each Quarterly Deferral Date, dividends earned on deferred stock units are credited to the deferral account in the form of additional deferred stock units based on dividends declared by the Company on its outstanding Common Shares during the quarter and the fair market value of the stock on such date. Additionally, on each Quarterly Deferral Date, deferred cash fees are credited with an additional deferred cash amount based on the dividends declared by the Company during the quarter on its outstanding Common Shares and the share equivalent, as defined in the Director Deferral Program, of the deferred cash balance from the preceding quarter. Upon the applicable payment date, as described above in the preceding paragraph, any deferred stock units credited to a director’s deferral account will be settled solely by delivering an amount of the Company’s Common Shares equal to the number of such deferred stock units, and, with respect to any deferred cash fees credited to the director’s deferral account, such fees will be paid solely in the form of cash. Directors have no rights as shareholders of the Company with respect to deferred stock units credited to their deferral accounts. During 2020, three of the non-employee directors elected to participate in the Director Deferral Program by deferring all or a portion of their annual retainer fees in the form of deferred stock units and/or deferred cash fees. Employee Directors. Mr. Glade M. Knight and Mr. Justin G. Knight are employee directors of the Company and accordingly, during 2020, they received no compensation from the Company during their term of employment for their services as directors. Mrs. Gathright was an employee director from January 1, 2020 until her retirement from all 19
Table of contents employee and officer positions with the Company and its subsidiaries on March 31, 2020 and received compensation for her role as a director.
non-employee director beginning April 1, 2020.Director Compensation. The following table shows the amounts earned in 2020 by the Company’s non-employee directors. Mrs. Gathright’s director compensation during her service as a non-employee director is included in the Summary Compensation Table below in the section titled “Executive Compensation—Summary Compensation Table.” Director | | Fees Earned or Paid in Cash (1) | | Share Awards (2) | | All Other Compensation (3) | | Total | | Glenn W. Bunting | | | $ | 63,750 | | | | | $ | 86,689 | | | | | $ | - | | | | | $ | 150,439 | | Jon A. Fosheim | | | | 63,750 | | | | | | 86,689 | | | | | | 6,588 | | | | | | 157,027 | | Blythe J. McGarvie | | | | 75,000 | | | | | | 100,000 | | | | | | - | | | | | | 175,000 | | Daryl A. Nickel | | | | 55,250 | | | | | | 86,689 | | | | | | 6,734 | | | | | | 148,673 | | L. Hugh Redd | | | | 71,400 | | | | | | 86,689 | | | | | | 4,086 | | | | | | 162,175 | |
(1) | The amounts in this column include any cash fees that non-employee directors elected to defer in the form of deferred stock units or deferred cash fees under the Director Deferral Program. |
| Director | | Year | | Fees Earned or Paid in Cash | | | Share Awards(1) | | | Total | | | Glenn W. Bunting | | 2015 | | $ | 105,018 | | | $ | 39,982 | | | $ | 145,000 | | | Jon A. Fosheim | | 2015 | | | 100,018 | | | | 39,982 | | | | 140,000 | | | Glade M. Knight | | 2015 | | | — | | | | — | | | | — | | | Justin G. Knight | | 2015 | | | — | | | | — | | | | — | | | Bruce H. Matson | | 2015 | | | 105,018 | | | | 39,982 | | | | 145,000 | | | Daryl A. Nickel | | 2015 | | | 100,018 | | | | 39,982 | | | | 140,000 | | | L. Hugh Redd | | 2015 | | | 111,018 | | | | 39,982 | | | | 151,000 | |
(2) | The amounts in this column reflect the grant date fair value determined in accordance with FASB ASC Topic 718. Each non-employee director that was a member of the Board of Directors during 2020 was awarded approximately 8,700 (or 7,500 if they volunteered to reduce their award as a result of COVID-19) fully vested Common Shares (or deferred stock units if so elected). No share options were granted in 2020. |
(1) The amounts in this column reflect the grant date fair value determined in accordance with FASB ASC Topic 718. All directors, except Mr. Glade M. Knight and Mr. Justin G. Knight, received 2,154 fully vested Common Shares. No share options were granted in 2015.(3) | This column represents earnings on deferred stock unit and deferred cash fee accounts under the Director Deferral Program. |
Outstanding Stock Option Awards
Awards.In 2008, the Company adopted the Apple REIT Nine, Inc. 2008 Non-Employee Directors Stock Option Plan (the “Directors’ Plan”). The Directors’ Plan provided for automatic grants of options to acquire Common Shares. The Directors’ Plan applied to directors of the Company who were not employees or executive officers of the Company. In May 2015, theThe Directors’ Plan was terminated effective upon the Listing, and nolisting of the Company’s Common Shares on the NYSE on May 18, 2015 (the “Listing”). No further grants can be made under the Directors’ Plan, provided however, the termination did not affect any outstanding director option awards previously issued under the Directors’ Plan. Following the termination of the Directors’ Plan, all awards to directors are made under the Apple Hospitality REIT, Inc. 2014 Omnibus Incentive Plan (the “2014 Omnibus Incentive Plan”).
Since adoptionPlan.See “Ownership of Certain Beneficial Owners and Management” for the Directors’ Plan, nonenumber of the participants have exercised any of their options to acquire Common Shares. The following table shows the outstanding options to acquire Common Shares that were granted to the directorsMr. Glenn W. Bunting under the Directors’ Plan, which are all fully vested. There were novested, as of the Record Date. Since adoption of the Directors’ Plan, Mr. Bunting has not exercised any of his options to acquire Common Shares. The directors did not have any other outstanding option awards granted to directors as of December 31, 2015.
Name | | Number of Shares Underlying Options Outstanding as of December 31, 2015 | | Glenn W. Bunting | | | 154,516 | | Jon A. Fosheim | | | — | | Glade M. Knight | | | — | | Justin G. Knight | | | — | | Bruce H. Matson | | | 178,620 | | Daryl A. Nickel | | | — | | L. Hugh Redd | | | — | |
Executive Officers
In 2015, the Company’s executive officers were: Glade M. Knight, who served as Executive Chairman; Justin G. Knight (Glade M. Knight’s son), who served as President and Chief Executive Officer; Kristian M. Gathright, who served as Executive Vice President and Chief Operating Officer; Bryan F. Peery, who served as Executive Vice President and Chief Financial Officer; David P. Buckley, who served as Executive Vice President and Chief Legal Counsel; and Nelson G. Knight (Glade M. Knight’s son), who served as Executive Vice President and Chief Investment Officer. Each executive officer is appointed annually by the Board of Directors at its meeting prior to the annual meeting of shareholders. The biographies of Glade M. Knight and Justin G. Knight are provided above in the section titled “Proposal 1. Election of Directors.”
David P. Buckley. Mr. Buckley, 48, has served as Executive Vice President and Chief Legal Counsel for the Company since its inception. In addition, Mr. Buckley has served as Executive Vice President and Chief Legal Counsel for Apple Ten since its inception, and also served as Executive Vice President and Chief Legal Counsel for Apple Seven and Apple Eight until the mergers with the Company were completed in March 2014. Mr. Buckley served as Senior Vice President and General Counsel for Apple Two and Apple Five until Apple Two was sold to an affiliate of ING Clarion in May 2007 and Apple Five was sold to Inland American Real Estate Trust, Inc. in October 2007. Mr. Buckley also served as Executive Vice President and General Counsel of Apple Six from 2005 until Apple Six merged with an affiliate of Blackstone Real Estate Partners VII in May 2013. Prior to his service with these companies, from 1999 to 2005, Mr. Buckley served as an Associate, specializing in commercial real estate, with McGuireWoods, a full-service law firm headquartered in Richmond, Virginia. Mr. Buckley holds a Juris Doctor degree Cum Laude from the University of Richmond, Richmond, Virginia, a Master of Urban and Regional Planning degree from Virginia Commonwealth University, Richmond, Virginia, and a Bachelor of Science degree in Industrial Technology from the University of Massachusetts Lowell, Lowell, Massachusetts. Mr. Buckley is a member of the Virginia State Bar and the Richmond Bar Association.
Kristian M. Gathright. Mrs. Gathright, 43, has served as Executive Vice President and Chief Operating Officer for the Company since its inception. In addition, Mrs. Gathright has served as Executive Vice President and Chief Operating Officer for Apple Ten since its inception. She also served as Executive Vice President and Chief Operating Officer for Apple Seven and Apple Eight until the mergers with the Company were completed in March 2014. Mrs. Gathright served as Chief Operating Officer and Senior Vice President of Operations for Apple Two until it was sold to an affiliate of ING Clarion in May 2007. Mrs. Gathright also served as Senior Vice President of Operations for Apple Five until it was sold to Inland American Real Estate Trust, Inc. in October 2007. She served as Executive Vice President and Chief Operating Officer of Apple Six until it merged into an affiliate of Blackstone Real Estate Partners VII in May 2013. Prior to managing these companies, Mrs. Gathright served as Assistant Vice President and Investor Relations Manager for Cornerstone Realty Income Trust, a REIT that owned and operated apartment communities in Virginia, North Carolina, South Carolina, Georgia and Texas. From 1996 to 1998, she was an Asset Manager and Regional Controller of the Northern Region Operations for United Dominion Realty Trust, Inc., a real estate investment trust. From 1994 to 1996, she served as a Senior Staff Accountant at Ernst & Young LLP. Mrs. Gathright serves as President of the Courtyard Franchise Advisory Council and on the Consumer Innovation Forum of the American Hospitality and Lodging Associaton. Mrs. Gathright holds a Bachelor of Science degree, Graduate with Distinction, in Accounting from the McIntire School of Commerce at the University of Virginia, Charlottesville, Virginia. Mrs. Gathright passed the Virginia CPA Exam in 1994.
Nelson G. Knight. Mr. Knight, 34, has served as Executive Vice President and Chief Investment Officer since May 2014. Prior to this position, he served as the Senior Vice President of Development for the Company from 2009. He has served as Senior Vice President of Development for Apple Ten since its inception. He also served in the same capacity for Apple Six (until its sale in 2013), and Apple Seven and Apple Eight (until the mergers with the Company). He served as Vice President of Acquisitions and Capital Markets for the Company (from inception), Apple
Two (until its sale in 2007), Apple Five (until its sale in 2007), Apple Six, Apple Seven and Apple Eight. Mr. Knight serves on the Home2 Suites Owner Advisory Committee, the TownePlace Suites Franchise Advisory Council, as an advisory member of the Hunter Hotels Investment Conference, chairs the TownePlace Suites Marketing Committee and co-leads the TownePlace Suites Design and Construction Committee. Mr. Knight also currently serves on the National Advisory Council for Southern Virginia University in Buena Vista, Virginia and the Alumni Executive Board for the Neeley School of Business at Texas Christian University. Mr. Knight holds a Master of Business Administration from Texas Christian University, as well as a Bachelor of Arts Degree, Cum Laude, in History with a minor in Business from Southern Virginia University in Buena Vista, Virginia.
Nelson G. Knight is the son of Glade M. Knight, the Company’s Executive Chairman, and the brother of Justin G. Knight, the Company’s President and Chief Executive Officer.
Bryan F. Peery. Mr. Peery, 51, has served as Executive Vice President and Chief Financial Officer for the Company since its inception. He also serves as Executive Vice President and Chief Financial Officer for Apple Ten. In addition, Mr. Peery served as Executive Vice President and Chief Financial Officer for Apple Seven and Apple Eight until the mergers with the Company were completed in March 2014. Mr. Peery also served as Senior Vice President, Chief Financial Officer and Treasurer for Apple Two and Apple Five until Apple Two was sold to an affiliate of ING Clarion in May 2007 and Apple Five was sold to Inland American Real Estate Trust, Inc. in October 2007. He also served as Executive Vice President and Chief Financial Officer for Apple Six until it merged with an affiliate of Blackstone Real Estate Partners VII in May 2013. Prior to his service with these companies, Mr. Peery served as President (2000-2003), Vice President-Finance (1998-2000) and Controller (1997-1998) of This End Up Furniture Company. Mr. Peery was with Owens & Minor, Inc., a medical and surgical supplies distributor, from 1991 until 1997, where he last served as Director and Assistant Controller-Financial Reporting. Mr. Peery’s experience also includes five years of service with KPMG LLP. Mr. Peery holds a Bachelor of Business Administration degree in Accounting from the College of William and Mary, Williamsburg, Virginia. Mr. Peery is a Certified Public Accountant. On February 12, 2014, Mr. Peery, Apple Seven, Apple Eight, Apple Nine and their related advisory companies entered into settlement agreements with the SEC. Along with Apple Seven, Apple Eight, Apple Nine and their advisory companies, and without admitting or denying the SEC’s allegations, Mr. Peery consented to the entry of an administrative order, under which Mr. Peery and the noted companies each agreed to cease and desist from committing or causing any violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), 14(a), and 16(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 13a-14, 14a-9, and 16a-3 thereunder.
Record Date.Audit Committee Report The Audit Committee of the Board of Directors is currently composed of three directors. All three directors are independent directors as defined under “Committees of the Board and Board Leadership —Leadership—Audit Committee Independence.Independence.” The Audit Committee operates under a written charter that was adopted by the Board of Directors and is annually reassessed and updated, as needed, in accordance with applicable rules of the Securities and Exchange Commission. The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. In fulfilling its oversight duties, the Audit Committee reviewed and discussed the audited financial statements for fiscal year 20152020 with management and the Company’s independent auditors, Ernst & Young LLP, including the quality and acceptability of the accounting principles, the reasonableness of significant judgments, any critical audit matters identified during the audit and the clarity of disclosure in the financial statements. The Audit Committee also reviewed management’s report on its assessment of the effectiveness of the Company’s internal control over financial reporting and Ernst & Young LLP’s report on the effectiveness of the Company’s internal control over financial reporting. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements, accounting and financial reporting principles, internal controls, and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Ernst & Young LLP is responsible for performing an independent audit of the consolidated financial statements and the notes thereto in accordance with generally accepted auditing standards.20
Table of contents The Audit Committee also has discussed with the independent auditors the matters required to be discussed pursuant to the applicable requirements of the PCAOB Auditing Standard No. AU 380, “Communication with Audit Committees.”and the Securities and Exchange Commission. Additionally, the Audit Committee has received the written disclosures and letter from the independent auditors required by the applicable requirements of the PCAOB Ethics and Independence Rule 3526, “Communicationsregarding the independent auditor’s communications with the Audit Committees Concerning Independence,”Committee concerning independence and has discussed, with the independent auditors, the independent auditors’ independence.
Based on the review and discussions described in this Report, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20152020 for filing with the Securities and Exchange Commission. | L. Hugh Redd, Chair | | Glenn W. Bunting
Jon A. Fosheim
| | (Current Members of the Audit Committee)Committee: | | L. Hugh Redd, Chair | | Glenn W. Bunting | | Jon A. Fosheim |
The Audit Committee Report above does not constitute “soliciting material” and will not be deemed “filed” or incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, that might incorporate SEC filings by reference, in whole or in part, notwithstanding anything to the contrary set forth in those filings. Certain Relationships and Agreements
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. The Company’s independent members of the Board of Directors oversee and annually review the Company’s related party relationships (including the relationships discussed in this section) and are required to approve any significant modifications to the existing relationships, as well as any new significant related party transactions. There were no changes to the contracts and relationships discussed in this section and no new significant related party transactions occurred during 2015. The Board of Directors is not required to approve each individual transaction that falls under the related party relationships. However, under the direction of the Board of Directors, at least one member of the Company’s senior management team approves each related party transaction.
Apple Seven and Apple Eight Mergers
Pursuant to the Agreement and Plan of Merger entered into on August 7, 2013, as amended (the “Merger Agreement”), Apple Seven and Apple Eight merged with and into wholly-owned subsidiaries of the Company effective March 1, 2014 and Apple Seven’s and Apple Eight’s separate corporate existence ceased.
The term the “Apple REIT Entities” means the Company, Apple Seven, Apple Eight and Apple Ten. The term the “Advisors” means Apple Seven Advisors, Inc., Apple Eight Advisors, Inc., Apple Nine Advisors, Inc. (“A9A”), Apple Ten Advisors, Inc. (“A10A”) and Apple Suites Realty Group, Inc. (“ASRG”). The Advisors are wholly-owned byMr. Glade M. Knight, Executive Chairman of the Company. Prior toCompany, owns Apple Realty Group, Inc. (“ARG”), which receives support services from the mergers,Company and reimburses the Company for the cost of these services as discussed below. Also, an entity controlled by Mr. Knight was Chairmanis currently a member of and Mr. Knight is Chief Executive Officer of Apple SevenEnergy 11 GP, LLC and Apple Eight,Energy Resources 12 GP, LLC, which are the respective general partners of Energy 11, L.P. and he is currently Chairman and Chief Executive OfficerEnergy Resources 12, L.P., each of Apple Ten. Prior to the mergers, memberswhich receive support services from ARG. As an executive officer of the Company’s BoardCompany, Mr. Knight’s total annual compensation in 2020, 2019 and 2018 was $849,417, $1,192,975 and $890,996 respectively, calculated in accordance with the determination of Directors were also on the Board of Directors of Apple Seven and/or Apple Eight. Currently, Mr. Glade Knight is the only member of the Company’s Board of Directors that is also on the Board of Directors of Apple Ten.
Prior to the mergers, the Company was externally managed and did not have any employees. Its advisor, A9A, provided the Company with its day-to-day management. ASRG provided the Company with property acquisition and disposition services. The Company paid fees and reimbursed certain costs to A9A and ASRG for these services. A9A provided the management services to the Company through an affiliate, Apple Fund Management, Inc. (“AFM”), a wholly-owned subsidiary of A9A prior to the mergers. Apple Seven and Apple Eight were also externally managed, and had similar arrangements with external advisors and AFM prior to the mergers. As contemplatedcompensation in the Merger Agreement,Summary Compensation Table in connection with the mergers effective March 1, 2014, the Company became self-advised and Apple Seven, Apple Eight and the Company terminated their advisory agreements with their respective Advisors, and AFM became a wholly-owned subsidiary of the Company. As a result, the employees, including management, are now employed by the Company rather than by the Company’s external advisor.
In connection with the Merger Agreement, on August 7, 2013, the Company entered into a subcontract agreement with A10A to subcontract A10A’s obligations under the advisory agreement between A10A and Apple Ten to the Company. From and after the mergers, the Company provides to Apple Ten the advisory services contemplated under the A10A advisory agreement and the Company receives an annual fee that ranges from 0.1% to 0.25% of Apple Ten’s total equity contributions, depending on Apple Ten’s operating results. Total advisory fees earned by the Company from Apple Ten in 2015 totaled approximately $2.5 million.
Apple REIT Entities and Advisors section titled “Executive Compensation—Summary Compensation Table” below.Cost Sharing Structure
After the mergers, thewith Related EntitiesThe Company provides support services, including the use of the Company’s employees and corporate office, to Apple TenARG and its advisors, A10A and ASRG, which have agreed to reimburseis reimbursed by ARG for the Company for its costs in providingcost of these services. AmountsUnder this cost sharing structure, amounts reimbursed to the Company include both compensation for personnel and Office Related Costs (which includesoffice-related costs (including office rent, utilities, office supplies, etc.) used by the companies. In 2015ARG. The amounts reimbursed to the Company received reimbursementare based on the actual costs of itsthe 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 totaling $3.1 million from these entities.
The Company incurs professional fees, such as fees related to accounting, auditing and financial reporting. To be cost effective, these services receivedallocated by the Company were historically shared as applicable acrossto ARG for 2020 totaled approximately $1.2 million.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 Apple REIT Entities,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 will continuereduces the cost for each company. The amounts outstanding at any point in time are not significant to be shared with Apple Ten. The professionals cannot always specifically identify their feeseither of the companies. As of December 31, 2020, total amounts due from ARG for one company; therefore, management allocates these costs acrossreimbursements under the companies that benefit from the services. Apple Air Holding, LLC Membership Interest; Aircraft Usage
cost sharing structure totaled approximately $0.3 million.The Company, through a jointly-ownedits wholly-owned subsidiary, Apple Air Holding, LLC, (“Apple Air”), owns a Learjet used primarily for acquisition, asset management, renovation and renovationpublic relations purposes. Apple Air is jointly owned by the Company (74%) and Apple Ten (26%), with Apple Ten’s ownership interest accounted for as a minority interest, which as of December 31, 2015 totaled approximately $0.7 million. For the year ended December 31, 2015, Apple Ten’s portion of Apple Air’s loss was approximately $0.3 million. The aircraft is also leased to affiliates of the Company based on third party rates. For the year ended December 31, 2015 revenue from affiliatesrates, which leasing activity was approximately $0.1 million.not significant during 2020. The Company also 21
Table of contents utilizes one aircraft, owned through two entities, one ofby an entity 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 renovationpublic relations purposes, and reimburses these entitiesthe entity at third party rates. Total paymentscosts incurred for the use of the aircraft during 2020 were less than $0.1 million. Executive Officers During 2020, in connection with planned retirements and the Company’s broader succession planning, the Company had the following changes in executive officers: On March 31, 2020, Mrs. Kristian M. Gathright retired as Executive Vice President and Chief Operating Officer of the Company and all other officer positions she held with the Company and any of its subsidiaries and Mr. Bryan F. Peery retired as Executive Vice President and Chief Financial Officer and from all other officer positions that he held with the Company and any of its subsidiaries. Mr. Peery continued to eachbe employed by the Company for a portion of these entities during 2015 were approximately $0.1 million.2020 in an advisory role to support the transition of responsibilities. 28
Effective April 1, 2020, the following officer appointments became effective. Each of the appointed officers has previous experience with the Company, including Mr. Nelson G. Knight whose title and role changed from Executive Vice President and Chief Investment Officer to President, Real Estate and Investments. | o | Jeanette A. Clarke – Senior Vice President and Chief Capital Investments Officer |
| o | Karen C. Gallagher – Senior Vice President and Chief Operating Officer |
| o | Nelson G. Knight – President, Real Estate and Investments |
| o | Rachel S. Labrecque – Senior Vice President and Chief Accounting Officer |
| o | Elizabeth S. Perkins – Senior Vice President and Chief Financial Officer |
| o | Matthew P. Rash – Senior Vice President, Chief Legal Officer and Secretary | |
In addition to the appointments described above, the Board approved a change to the title, but not the roles and responsibilities, of Mr. Justin G. Knight. Effective April 1, 2020, Mr. Justin Knight’s title became Chief Executive Officer. Each executive officer is appointed annually by the Board of Directors at its meeting prior to the annual meeting of shareholders. The following table sets forth biographical information regarding the Company’s executive officers, other than Mr. Glade M. Knight, Executive Chairman and Mr. Justin G. Knight, Chief Executive Officer, who also serve as directors and whose information is provided above in the section titled “Proposals to be Voted Upon—Proposal 1. Election of Directors”: Name and Title | | Business Experience (1) | Jeanette A. Clarke Senior Vice President and Chief Capital Investments Officer Age: 39 | | Ms. Clarke was appointed Senior Vice President and Chief Capital Investments Officer effective April 1, 2020. Ms. Clarke previously served as Senior Vice President of Capital Investments for the Company since March 2019, and has held various management and senior management positions with the Apple REIT Companies (as described in Note 1 below) since 2012. Ms. Clarke joined the Apple REIT Companies in 2008. Ms. Clarke has been instrumental in the development of the Company’s capital investments team, fostering valuable relationships with brand, manager and supplier teams, leading strategic capital reinvestment initiatives, and overseeing the Company’s energy efficiency and sustainability programs. Prior to joining the Apple REIT Companies, Ms. Clarke served as a Senior Financial Analyst at Genworth Financial, and from 2003 until 2008, she served in various roles at Circuit City Stores, Inc., including Accounting Manager of Expense, Service and Advertising Payables. Within the industry, Ms. Clarke serves on the Marriott Capital Asset Planning and Execution (CAPE) Board. Ms. Clarke holds a Master of Business Administration degree from Virginia Commonwealth University and a Bachelor of Science degree, Magna Cum Laude, in Business Administration with a concentration in Finance and minor in Economics from Longwood University. | | | |
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Table of contents Name andTitle | | Business Experience (1) | Karen C. Gallagher Senior Vice President and Chief Operating Officer Age: 44 | | Ms. Gallagher was appointed Senior Vice President and Chief Operating Officer effective April 1, 2020. Ms. Gallagher previously served as Senior Vice President of Asset Management for the Company since January 2012, and has held various management and senior management positions with the Apple REIT Companies (as described in Note 1 below) since 2005. Ms. Gallagher joined the Apple REIT Companies in 2003. Ms. Gallagher’s leadership of the asset management team has been instrumental in fostering relationships with brand and management company teams and developing the Company’s analytical and benchmarking of property-level performance methodology, each helping to maximize profitability. Prior to joining the Apple REIT Companies, from 2000 to 2003, Ms. Gallagher served as Senior Assurance Associate with Ernst & Young, LLP, where she specialized in real estate clients. Within the industry, Ms. Gallagher serves as a member of the Hampton by Hilton Ownership Advisory Council, as well as the Global Finance Committee for the lodging industry sponsored by the Hospitality Financial and Technology Professionals and American Hotel & Lodging Association. Ms. Gallagher holds a Master of Science degree in Accounting and a Bachelor of Science degree in Commerce from the McIntire School of Commerce at the University of Virginia, and a second major in Economics from the School of Arts and Sciences at the University of Virginia. Ms. Gallagher is a Certified Public Accountant. | | | | Nelson G. Knight President, Real Estate and Investments Age: 39 | | Mr. Knight was appointed President, Real Estate and Investments effective April 1, 2020. Mr. Knight previously served as Executive Vice President and Chief Investment Officer for the Company since May 2014. Prior to serving in that position, Mr. Knight held various senior management positions with the Apple REIT Companies (as described in Note 1 below). Mr. Knight joined the Apple REIT Companies in 2005. Mr. Knight executes on the Company’s capital deployment strategies, including oversight of the Company’s capital reinvestment team. Mr. Knight serves on Hilton’s Product Advisory Council, on the TownePlace Suites by Marriott Franchise Advisory Council, and as an advisory member of the Hunter Hotels Investment Conference. Mr. Knight also serves on the Board of Trustees for Southern Virginia University in Buena Vista, Virginia. Mr. Knight holds a Master of Business Administration degree from Texas Christian University, as well as a Bachelor of Arts degree, Cum Laude, in History with a minor in Business from Southern Virginia University. Nelson G. Knight is the son of Glade M. Knight, the Company’s Executive Chairman, and the brother of Justin G. Knight, the Company’s Chief Executive Officer. | | | | Rachel S. Labrecque Senior Vice President and Chief Accounting Officer Age: 42 | | Ms. Labrecque was appointed Senior Vice President and Chief Accounting Officer effective April 1, 2020. Ms. Labrecque previously served as Senior Vice President of Accounting for the Company since January 2019, and since joining the Apple REIT Companies (as described in Note 1 below) in 2015, has held various management and senior management positions. Ms. Labrecque oversees accounting, financial reporting, treasury operations and taxation for the Company. Prior to joining the Apple REIT Companies, Ms. Labrecque served as Senior Vice President of Finance and Corporate Controller (2011-2015), Vice President and Corporate Controller (2008-2011) and Director of Financial Reporting (2006-2008) of Bowlero Corporation, formerly BowlmorAMF Corporation. Ms. Labrecque also held various financial reporting, accounting and auditing roles with The Mills Corporation (a publicly traded REIT), AOL Time Warner, and Arthur Andersen, LLP. Ms. Labrecque holds a Bachelor of Science degree in Accounting from the Virginia Tech Pamplin College of Business. Ms. Labrecque is a Certified Public Accountant. | | | | | | | | | | | | | | | | | | | | | | | | |
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Table of contents | | | Name and Title | | Business Experience (1) | Elizabeth S. Perkins Senior Vice President and Chief Financial Officer Age: 38 | | Ms. Perkins was appointed Senior Vice President and Chief Financial Officer effective April 1, 2020. Ms. Perkins previously served as Senior Vice President of Corporate Strategy and Reporting for the Company since April 2015, and has held various management and senior management positions with the Apple REIT Companies (as described in Note 1 below) since 2008. Ms. Perkins joined the Apple REIT Companies in 2006. Ms. Perkins has been a key part of the leadership team at the Company, fostering valuable relationships, aiding in strategic investment decisions, directing corporate strategy and reporting initiatives, and overseeing the Company’s investor relations, risk management and internal audit functions. Prior to joining the Apple REIT Companies, from 2004 to 2006, Ms. Perkins served as Assurance Associate with Ernst & Young, LLP, where she specialized in insurance clients. Within the industry, Ms. Perkins currently serves on the Homewood Suites by Hilton Owners Advisory Council, the Residence Inn by Marriott System Marketing Fund Council, the American Hotel & Lodging Association Consumer Innovation Forum and Consumer Innovation Forum Steering Committee, and the distribution advisory councils for Marriott and Hilton. Ms. Perkins holds a Bachelor of Business Administration degree in Accounting from the J.M. Tull School of Accounting within the Terry College of Business at the University of Georgia. | | | | Matthew P. Rash Senior Vice President, Chief Legal Officer and Secretary Age: 42 | | Mr. Rash was appointed Senior Vice President, Chief Legal Officer and Secretary effective April 1, 2020. Mr. Rash previously served as Senior Vice President and General Counsel since joining the Company in March 2019. Mr. Rash oversees all legal matters for the Company. Prior to joining the Company, Mr. Rash served as a Partner (2016-2019) and Associate (2005-2015) at McGuireWoods LLP, a full-service law firm in Richmond, Virginia, where he specialized in commercial real estate transactions, including acquisitions, dispositions and lending, working on numerous transactions with the Apple REIT Companies. From 2004 to 2005, he was a law clerk with the United States District Court for the Eastern District of Virginia, for the Honorable James R. Spencer. Mr. Rash holds a Juris Doctor degree from the University of Richmond and a Bachelor of Arts degree in Government and Foreign Affairs from the University of Virginia. |
(1) | See Note 1 to the Director Nominees table above in the section titled “Proposals to be Voted Upon—Proposal 1. Election of Directors” for a description of the “Apple REIT Companies.” |
Compensation Discussion and Analysis Introduction
This Compensation Discussion and Analysis describes the Company’s executive compensation arrangements for the Company’s named executive officers for 20152020 and explains the structure and rationale associated with each material element of the 20152020 compensation arrangements. The named executive officers for 20152020 are as follows:
Glade M. Knight | Executive Chairman | | | Justin G. Knight | Chief Executive Officer and Former President | | Elizabeth S. Perkins | Senior Vice President and Chief ExecutiveFinancial Officer | | | Karen C. Gallagher | Senior Vice President and Chief Operating Officer | | Nelson G. Knight | President, Real Estate and Investments and Former Executive Vice President and Chief Investment Officer | | Matthew P. Rash | Senior Vice President, Chief Legal Officer and Secretary | | Kristian M. Gathright | Former Executive Vice President and Chief Operating Officer | | Bryan F. Peery | Former Executive Vice President and Chief Financial Officer |
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Table of contents COVID-19 Response and Pay Actions Taken | | Kristian M. Gathright
| Executive Vice President and Chief Operating Officer | 
| David P. Buckley
| Executive Vice President, Chief Legal Counsel and Secretary
|
2020 proved to be a challenging year on a global scale. The outbreak of COVID-19 not only dramatically reduced travel, but also had a detrimental impact on regional and global economies. The global, national and local impact of the outbreak rapidly evolved and the U.S., as well as state and local governments, 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. These measures resulted in cancellation of events, including sporting events, conferences and meetings. The pandemic triggered a period of material global economic slowdown and the National Bureau of Economic Research declared that the U.S. has been in a recession since February 2020. The Company’s business was significantly affected by the pandemic. While the Company’s hotels remained open, occupancy, revenue per available room (“RevPAR”) and average daily rate (“ADR”) were all significantly impacted in 2020 compared to prior years. Despite the magnitude of the impacts on the Company’s business and operations, the Compensation Committee did not modify the performance metrics for the incentive compensation program for 2020 established prior to the effects of the economic recession precipitated by the COVID-19 global pandemic and the associated economic impact to the Company. As a result of the dramatic decline in operations of the Company’s hotels in late March 2020, each of the following executives agreed to voluntary adjustments to planned 2020 compensation as follows: Mr. Glade M. Knight, the Company’s Executive Chairman, volunteered to forego his base salary for six months. Mr. Justin G. Knight, the Company’s Chief Executive Officer, volunteered to reduce his target compensation for 2020 by 60%. Mrs. Kristian M. Gathright, who retired as Executive Vice President and Chief Operating Officer on March 31, 2020, volunteered to defer receipt of her separation payment until October 2020, as discussed below under “Executive Compensation—Separation Agreements.” Mrs. Gathright continues with the Company as a non-employee director. Mr. Bryan F. Peery, who retired as Executive Vice President and Chief Financial Officer on March 31, 2020, volunteered to defer receipt of his separation payment until October 2020, as discussed below under “Executive Compensation—Separation Agreements.” Mr. Peery also continued with the Company for a portion of 2020 in an advisory role to support the transition of responsibilities. As discussed further below, in February 2021, the Compensation Committee determined incentive compensation payable to the named executive officers under the 2020 incentive compensation plan and also determined that, in light of other significant contributions made by the executive team in 2020, including critical operational initiatives focused on responding to the disruptions caused by the pandemic, each of the named executive officers (other than the Chief 25
Table of contents Executive Officer, who recommended that he not be included) were awarded an additional bonus amount payable entirely in equity. After factoring in the additional payment amounts, none of the named executive officers received annual incentive compensation that exceeded the total target incentive compensation level set for such individual under the original 2020 incentive compensation plan. Key Executive Compensation Practices The following is a summary of the Company’s key practices to align executive compensation with the interests of its shareholders, with target compensation percentages based on the Compensation Committee’s determinations prior to the impact of the voluntary reductions in executive compensation discussed above: | | Nelson G. KnightWhat the Company Does | Executive Vice PresidentWhat the Company Doesn’t Do | • Annual advisory vote on executive compensation; • Approximately 80% of executive target compensation for 2020 is incentive-based; • Approximately 75% of executive target incentive-based compensation for 2020 is payable in Common Shares of the Company; • 50% of target incentive-based compensation for 2020 is based on shareholder return metrics; • 50% of target incentive-based compensation for 2020 is based on operational performance metrics; • Compensation Committee comprised entirely of independent directors; • The Compensation Committee retains FPL Associates L.P. (“FPL”), an independent compensation consultant who advises the committee on a regular basis; • Limited perquisites that are generally on the same terms as other employees and Chief Investment Officerwhich represent only a small portion of total executive officer compensation; • Stock ownership requirements for executive officers; • Maximum amounts payable for executive incentive compensation awards; and • Market-aligned severance policy for executives with a double trigger for any change in control payments. | • No employment contracts with executive officers; • Company Insider Trading Policy prohibits directors and employees from engaging in hedging of Company securities; • No dividends paid on restricted stock awards unless they vest; • No grants of stock options; and • No supplemental retirement plans. |
Advisory Vote on Executive Compensation The Company provides its shareholders annually with the opportunity to cast an advisory vote on executive compensation, and in 2020 approximately 82% of the shares voted were in support of the 2019 compensation of the executive officers. The Compensation Committee viewed this advisory vote as an expression by the shareholders of their general satisfaction with the Company’s executive compensation program. Consistent with the advisory vote of the shareholders at the 2017 annual meeting of shareholders, the Company will hold advisory votes on executive compensation annually until the next say-on-frequency vote is conducted, which will be no later than 2023.
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Table of contents Pay for Performance Philosophy The Company believes that a significant portion of each named executive officer’s total compensation should be incentive-based to best align their interest with those of its shareholders. As a result, for 2020, the Compensation Committee initially approved a target compensation for the named executive officers with the following average compensation mix: Named Executive Officer 2020 Target Pay Mix 
All incentive compensation is performance based: 50% on shareholder return metrics 50% on operational performance metrics The 2020 incentive compensation plan was 100% objective and was based on three key operational performance metrics and six shareholder return metrics. To further align interests with its shareholders, 75% of the target incentive compensation was payable in Common Shares of the Company, of which one-third was restricted and subject to a one-year vesting period and the remaining two-thirds being vested at issuance. Based on FPL’s 2020 peer group report discussed below, at that time the Company had the highest percentage of target executive compensation based on objective share and operating performance targets compared to its peer group. 27
Table of contents Executive CompensationHighlights As discussed above, 2020 proved to be a very difficult year as a result of the COVID-19 pandemic. In recognition of these challenges, Mr. Justin G. Knight voluntarily took a reduction in his target pay for 2020 by 60%. In addition, in connection with the Compensation Committee’s determinations regarding 2020 incentive compensation, Mr. Justin G. Knight recommended that he not receive any additional incentive compensation payments for 2020 over and above what the original 2020 incentive compensation plan would otherwise entitle him to receive (which, for 2020, was based on the total shareholder return metrics in the 2020 incentive compensation plan). As a result, the Chief Executive Officer experienced a 47% decrease in realized compensation, realizing $3,217,626 in 2020 as compared to $6,093,809 in 2019. Additionally, the portion of the incentive program that did achieve above threshold performance was paid out in equity, so no cash compensation under the 2020 incentive program was earned by the Chief Executive Officer. Shareholder Return Despite the COVID-19 pandemic’s adverse impact on the Company and the hospitality industry as a whole, the Company was able to maintain strong performance relative to its peer group. For the one-year, two-year, and three-year periods ended December 31, 2020, the Company outperformed the peer group cumulative total shareholder return average (consisting of Ashford Hospitality Trust, Inc., Chatham Lodging Trust, Hersha Hospitality Trust, RLJ Lodging Trust and Summit Hotel Properties, Inc.) by approximately 2,500 basis points, 5,000 basis points, and 4,900 basis points, respectively. The returns for the one-year, two-year and three-year periods ended December 31, 2020 assume the reinvestment of dividends. 28
Table of contents 
General Philosophy and Objectives
The Company’s executive compensation philosophy continues to focus on attracting, motivating and retaining a superior management team that can maximize shareholder value. The compensation arrangements are designed to reward performance relative to financial and other metrics that the Company believes are key metrics that will enhance shareholder value and to reward executive officers for performance at levels that the Compensation Committee believes to be competitive with other public hospitality REITs. The compensation arrangements consist of both base salary and annual incentive compensation which is intended to incentivize executive officers to manage the Company in a prudent manner without encouraging unnecessary risk-taking. In establishing the compensation arrangements, the Compensation Committee believes the best way to maintain the alliancealignment of management and shareholder objectives wasis to have a larger variable component tied to key metrics. The incentive goals in the incentive compensation program are set at competitive levels which are expected to require stretch performance but are believed to be achievable. As a result, over 75%on average approximately 80% of target compensation is variable.of the named executive officers was intended to be variable in 2020, excluding the effects of the voluntary reductions and additional executive compensation payments discussed above. The 29
Table of contents Compensation Committee also reviews and considers the management team’s overall compensation. The Company has not adopted a formal policy or guideline for allocating compensation between long-term and short-term compensation, between cash and non-cash compensation or among different forms of non-cash compensation. Role of the Compensation Committee
Pursuant to the Compensation Committee’s charter, the Compensation Committee assists the Board of Directors in discharging the Board of Director’sDirectors’ responsibilities relating to compensation of the Company’s officers. The Compensation Committee’s duties and responsibilities include, among other things, the following: annually review and approve corporate goals and objectives relevant to the compensation of the Chief Executive Officer, and after evaluating performance in light of those goals and objectives, approve compensation of the Chief Executive Officer; annually review corporate goals and objectives relevant to the compensation of the executive management officers of the Company, and after evaluating performance in light of those goals and objectives, approve compensation of the executive management officers, other than the Chief Executive Officer; and · | annually review and approve corporate goals and objectives relevant to the compensation of the Chief Executive Officer, and after evaluating performance in light of those goals and objectives, approve compensation of the Chief Executive Officer; |
review and make periodic recommendations to the Board of Directors with respect to the general compensation, benefits and perquisites policies and practices of the Company. · | annually review corporate goals and objectives relevant to the compensation of the executive management officers of the Company, and after evaluating performance in light of those goals and objectives, recommend compensation of executive management officers of the Company, other than the Chief Executive Officer; and |
· | review and make periodic recommendations to the Board of Directors with respect to the general compensation, benefits and perquisites policies and practices of the Company. |
The Compensation Committee’s charter permits it to delegate its functions to one or more subcommittees as permitted by law. In reviewing the Company’s executive compensation structure, the Compensation Committee evaluates data regarding executive compensation paid by and executive compensation plans of other public hospitality REITs and other peer group information which has been provided every two years since 2014 by FPL, most recently in 2020. The Compensation Committee utilizes FPL’s recommendations in conjunction with market data to determine annual executive compensation. Target compensation for 20152020 for each named executive officer was approved by the Compensation Committee after consideration of each individual’s experience in their position and the industry, the risks and deterrents associated with their positions, the anticipated difficulty to replace the individual, and total compensation paid to each named executive officer in prior years. The Company’s current executive compensation structure was developed in 2014 by the Compensation Committee and approved by the Board of Directors. In developing the compensation structure, the Compensation Committee evaluated data regarding executive compensation paid by other public hospitality REITs and other peer group information provided by FPL Associates L.P. (“FPL”) in 2014. The Compensation Committee utilizes FPL’s recommendations in conjunction with market data to determine annual executive compensation.
Role of the Chief Executive Officer In connection with determining compensation of executive officers other than the Chief Executive Officer, the Compensation Committee may seek input from the Company’s Chief Executive Officer. Any recommendations given by the Chief Executive Officer will be based upon the Chief Executive Officer’s assessment of the Company’s overall performance, each executive officer’s individual performance and employee retention considerations. The Compensation Committee reviews the Chief Executive Officer’s recommendations, and in its sole discretion determines all executive officer compensation. The Chief Executive Officer will not provide any recommendations to the Compensation Committee regarding his or her own compensation.
In 2014, theThe Compensation Committee consultedperiodically consults with FPL as its independent executive compensation consultant regarding compensation arrangements for 2014 and 2015.arrangements. The Compensation Committee’s charter authorizes the Compensation Committee to retain or obtain the advice of a compensation consultant to advise it in the evaluation of executive officer compensation. In connection with developing the executive compensation structure and making executive compensation decisions, applicable to 2014 and 2015, the Compensation Committee reliedrelies upon FPL to: · advise the Compensation Committee on the principal aspects of the executive compensation program; · assist in the selection of a group of peer companies (based on, among other things, industry, size and asset type); · provide information on the compensation structures of and the compensation paid to executive officers by peer companies to their executive officers; andcompanies; · advise on appropriate levels of compensation.compensation; and advise on compensation trends in light of unusual circumstances such as the COVID-19 pandemic. The Company paid FPL approximately $60,000 in 2020 to advise the Company regarding executive compensation. Subsequent to FPL’s compensation study in 2018 and in connection with the Company’s search for a 30
Table of contents Chief Financial Officer in 2019, the Company paid Ferguson Partners L.P., an affiliate of FPL, approximately $174,000 in 2019. The engagement of Ferguson Partners L.P. for these additional services was recommended by management and approved by the Compensation Committee. Peer Group Information
In connection with its comprehensive review of the executive compensation arrangements for all of the Company’s executive officers, the Compensation Committee reliedrelies upon FPL to provide, among other things, compensation information and data regarding executive officers in the Company’s peer group. The peer group compensation information and data wasare one factor the Compensation Committee consideredconsiders in establishing the Company’s executive compensation arrangements for 2014 and 2015. Thearrangements. At the time of FPL’s 2020 report, the peer group consisted of the following nine public company REITs in the hospitality industry with asimilar market capitalization to the Company, with an overall median market capitalization of approximately $4 billion. The$2.6 billion at the time of FPL’s 2020 report (the Company’s peer group consistedmarket capitalization at the time of the following nine public hospitality REITs: Ashford Hospitality Trust, Inc.
| | DiamondRock Hospitality Company | FelCor Lodging Trust Incorporated
| | Host Hotels and Resorts, Inc. | LaSalle Hotel Properties
| RLJ Lodging Trust
| Strategic Hotels & Resorts, Inc.
| Park Hotels & Resorts, Inc. | Pebblebrook Hotel Trust | RLJ Lodging Trust | Summit Hotel Properties, Inc. | Sunstone Hotel Investors, Inc. | Xenia Hotels & Resorts, Inc. | |
For the 2020 study, the Company removed LaSalle Hotel Properties, which was used as a peer in prior studies, as it was acquired by Pebblebrook Hotel Trust in 2018. Following discussions with FPL, the Compensation Committee concluded that replacing LaSalle Hotel Properties with another peer company was not necessary at the time. The CompanyCompensation Committee believes the peer group above represents companies with which the Company competes for talent and business. The Compensation Committee used data from this peer group as follows: market data was obtained for the peer group companies to provide the Compensation Committee with a context in which to make base salary determinations and decisions regarding appropriate payout levels for incentive compensation for 2015. For 2015, the Compensation Committee targeted total aggregate compensation for the named executive officers as a group slightly below the average targeted total aggregate compensation for the top five highest paid executives in the peer group companies for the prior year. Advisory Vote on Executive Compensation.
At the 2015 annual meeting of shareholders, the Company provided shareholders with the opportunity to cast an advisory vote on 2014 executive compensation, and approximately 83% of the shareholders who voted on the “say-on-pay” proposal supported the compensation of the executive officers. The Compensation Committee viewed this advisory vote as an expression by the shareholders of their general satisfaction with the Company’s executive compensation program. While the Compensation Committee took this result into account by continuing to emphasize the goals and objectives underlying its executive compensation program established in 2014, the Compensation Committee added a fourth performance measure to determine incentive compensation effective following the Listing, relative shareholder return. The Compensation Committee believes this additional performance measure will further align executive interests with those of shareholders. In addition, the Board of Directors adopted share ownership guidelines that require executive officers to maintain a minimum share ownership in the Company. See “Corporate Governance, Risk Oversight and Procedures for Shareholder Communications—Share Ownership Guidelines.”
compensation.Elements of Executive Compensation
The Company’s executive compensation arrangements consist of base salary and incentive compensation. For 2015, the Compensation Committee considered both elements when setting annual base salary. Annual base salary is a fixed level of compensation that reflects each named executive officer’s position and individual performance.performance and is intended to comprise, on average, approximately 20% of each named executive officer’s target compensation, excluding the impact of voluntary reductions in executive compensation. Base salary is designed to serve as a retention tool throughthroughout the executive’s career. In determining base salaries, the Compensation Committee consideredconsiders the salary information and data obtained for the executive officers in the peer group of companies identified above, each executive officer’s role and responsibility, unique skills, future potential with the Company, and internal pay equity considerations. After evaluating these factors, the Compensation Committee approved the following annual base salary of each named executive officer for 2015:officer. | | 2020 Annual Base Salary(1) | Justin G. Knight | | | $ | 557,500 | | | Elizabeth S. Perkins (2) | | | | 375,000 | | | Karen C. Gallagher (2) | | | | 375,000 | | | Nelson G. Knight (2) | | | | 382,500 | | | Matthew P. Rash (2) | | | | 360,000 | | | Kristian M. Gathright (3)(4) | | | | 496,125 | | | Bryan F. Peery (3) | | | | 496,125 | | |
| (1) | Annual base salary represents the annual base salary rate approved by the Compensation Committee. |
| (2) | Annual base salary rate effective April 1, 2020, the date of appointment as an executive officer. |
| | | 2015 Annual
Base Salary | | | Glade M. Knight | | $ | 350,000 | | | Justin G. Knight | | | 500,000 | | | Bryan F. Peery | | | 472,500 | | | Kristian M. Gathright | | | 472,500 | | | David P. Buckley | | | 446,250 | | | Nelson G. Knight | | | 315,000 | |
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Table of contents | (3) | On March 31, 2020, Mrs. Gathright retired as Executive Vice President and Chief Operating Officer of the Company and Mr. Peery retired as Executive Vice President and Chief Financial Officer, and in each case, from all other officer positions held with the Company and its subsidiaries. |
| (4) | While Mrs. Gathright retired from all employee and officer positions with the Company and its subsidiaries on March 31, 2020, she remained on the Board of Directors and, as a result, began receiving compensation as a non-employee director effective April 1, 2020. |
Incentive Compensation The named executive officers are eligible to earn variable incentive compensation awards designed to reward the achievement of annual corporate and operational/financial performance measures and annual/multi-year total shareholder return measures. For 2015, theThe Compensation Committee establishedestablishes target annual incentive award opportunities for each named executive officer, consisting of an annual cash bonus award and an additional equity compensation award opportunity, following an analysis of market information and data for executive officers in the peer group of companies identified above, each executive officer’s role and responsibility, unique skills, future potential with the Company, and other factors considered in determining base salary levels.internal pay equity considerations. The Compensation Committee considers all relevant facts and circumstances when evaluating performance, including changing market conditions and broad corporate strategic initiatives, along with overall responsibilities and contributions, and retains the ability to exercise its judgment and discretion to adjust an incentive compensation award. For 2015, Except where specifically noted below, the Compensation Committee established a target value of restricted shares to be awarded to each named executive officer as partfollowing discussion of the 2015 target2020 incentive compensation award opportunity, consideringprogram does not take into account the same factors as those used for establishingeffects of the target annual cash bonus amounts. Approximately two-thirdsvoluntary reductions and additional executive compensation payments discussed above.For 2020, approximately 75% of the target incentive compensation of the named executive officers except with respect to Mr. Glade M. Knight, one-half, was intended to be provided through equity awards and the remainder as an annual cash bonus. Anybonus, with one-third of the target equity award being restricted and subject to a one-year vesting period and the remaining two-thirds of the target equity award being fully vested. Target incentive compensation awards to be madeearned upon the achievement of the performance goals would consist of (i) for the shareholder return metrics discussed below, one-half of the total award in restricted Common Shares that vest on the second Friday of December 31, 2016in the year issued, i.e., December 10, 2021, and the remaining one-half in fully vested Common Shares and (ii) for the operating metrics discussed below, one-half of the total award in fully vested Common Shares. 2015Shares and the other half of the award as the annual cash bonus.2020 Incentive Compensation Award Opportunity and Actual Award EarnedIn 2015,2020, each named executive officer employed as of the end of the year was eligible to receive incentive compensation awards to be determined pursuant to a weighted average formula based on the achievement of certain performance measures. The amounts actually payable to the named executive officer were to be determined based upon whether Companythe Company’s performance met certain “threshold,” “target” or “maximum” levels for each of the performance measures. With respect to each performance measure, results below the threshold level resultresulted in a payment of 0% of the target value, results between the threshold and the target levels resultresulted in a payment of 50% to 100% of the target value, results between the target and the maximum levels resultresulted in a payment of 100% to 150%200% of the target value, and results above the maximum level resultresulted in a payment of 150%200% of the target value. The Compensation Committee established the following 2015 target values for the named executive officers.
| | | 2015 Target Cash Incentive Compensation Award Opportunity | | | 2015 Target Shares Incentive Compensation Award Opportunity | | | 2015 Total Target Incentive Compensation Award Opportunity | | | Glade M. Knight | | $ | 350,000 | | | $ | 350,000 | | | $ | 700,000 | | | Justin G. Knight | | | 840,000 | | | | 2,020,000 | | | | 2,860,000 | | | Bryan F. Peery | | | 472,500 | | | | 945,000 | | | | 1,417,500 | | | Kristian M. Gathright | | | 472,500 | | | | 945,000 | | | | 1,417,500 | | | David P. Buckley | | | 446,250 | | | | 892,500 | | | | 1,338,750 | | | Nelson G. Knight | | | 315,000 | | | | 630,000 | | | | 945,000 | |
The Compensation Committee adopted performance goals for the 20152020 incentive compensation awards following a review of the Company’s business plan and budget for the year. For 2020, this occurred prior to the onset of the COVID-19 pandemic. At the time that they were set, the incentive goals that the Compensation Committee established were substantially uncertain to be achieved. The “threshold” level can be characterized as “stretch but attainable,” meaning that, although attainment is uncertain, based on historical performance, it can reasonably be anticipated that threshold performance may be achieved. The “target” and “maximum” levels represent increasingly challenging and aggressive levels of performance. 32
Table of contents The Compensation Committee determined that the performance measures for 20152020 should be based on objective goals, and the Compensation Committee did not set separate performance goals for individual executive officers. The incentive compensation awards for 20152020 were based on the following operational and shareholder return performance goals:goals and resulted in the following payouts: | | Annual Incentive Compensation Award | Established Goals for 2020 | | 2020 Actual | | 2020 Actual | | | Weighting | Threshold | | Target | | Maximum | | | Results | | | | Payout | Operational Performance Metrics | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Comparable Hotels Adjusted Hotel EBITDA margin growth | | | | 16.7 | % | | | | -220 bps | | | | | -170 bps | | | | | -120 bps | | | | | -1650 bps | | | | | | 0.0 | % | | Modified FFO per share | | | | 16.7 | % | | | | $ | 1.45 | | | | | $ | 1.50 | | | | | $ | 1.55 | | | | | $ | 0.09 | | | | | | 0.0 | % | | Comparable Hotels RevPAR growth | | | | 16.7 | % | | | | | -2.0 | % | | | | | -1.0 | % | | | | | 0.0 | % | | | | | -51.8 | % | | | | | 0.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shareholder Return Metrics | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total shareholder one-year return | | | | 4.2 | % | | | | | 4.0 | % | | | | | 7.0 | % | | | | | 10.0 | % | | | | | -19.0 | % | | | | | 0.0 | % | | Total shareholder two-year return | | | | 4.2 | % | | | | | 7.0 | % | | | | | 13.0 | % | | | | | 19.0 | % | | | | | 1.1 | % | | | | | 0.0 | % | | Total shareholder three-year return | | | | 4.2 | % | | | | | 11.0 | % | | | | | 18.0 | % | | | | | 27.0 | % | | | | | -24.3 | % | | | | | 0.0 | % | | Total shareholder one-year return relative to peer group | | | | 12.5 | % | | | | 30th percentile | | | | | 55th percentile | | | | | 75th percentile | | | | | 98th percentile | | | | | | 25.0 | % | | Total shareholder two-year return relative to peer group | | | | 12.5 | % | | | | 30th percentile | | | | | 55th percentile | | | | | 75th percentile | | | | | 96th percentile | | | | | | 25.0 | % | | Total shareholder three-year return relative to peer group | | | | 12.5 | % | | | | 30th percentile | | | | | 55th percentile | | | | | 75th percentile | | | | | 100th percentile | | | | | | 25.0 | % | |
The Compensation Committee believes that each of these metrics are key measurements of the Company’s operational, financial and shareholder return performance. The following summarizes how the Company measures each metric: Comparable Hotels Adjusted Hotel EBITDA margin growth – The year-over-year change in the Company’s Comparable Hotels adjusted earnings before interest, income taxes, depreciation and amortization, further adjusted to exclude actual corporate-level general and administrative expense as a percent of total revenue. For this goal, the Company calculates Comparable Hotels Adjusted Hotel EBITDA margin as, with respect to the results of the 233 hotels owned by the Company as of December 31, 2020, (a) net income excluding (i) interest, income taxes and depreciation and amortization, (ii) gains or losses from sales of real estate and the loss on impairment of depreciable real estate assets as these do not represent ongoing operations, (iii) non-cash straight-line ground lease expense as this expense does not reflect the underlying performance of the related hotels and (iv) actual corporate-level general and administrative expense, divided by (b) total revenue. · | Adjusted EBITDA – The Compensation Committee believes adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) is a key metric of the Company’s operational performance. The Compensation Committee |
32Modified FFO per share – The Company used Modified FFO as defined on page 45 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, divided by the Company’s weighted average Common Shares outstanding for the year ended December 31, 2020.
Comparable Hotels RevPAR growth – The Company used Comparable Hotels revenue per available room, as defined in its Annual Report on Form 10-K for the year ended December 31, 2020, compared to the year ended December 31, 2019. | established a goal for 2015 that ranged from $305 million to $350 million, weighted to account for 25.0% of the annual incentive compensation award opportunity. Adjusted EBITDA for 2015 was approximately $315.6 million. For this goal the• | Total shareholder return – The Company used Adjusted EBITDA as defined in its Annual Report on Form 10-K for the year endedshareholder returns over a one-year period (measured from January 1, 2020 to December 31, 2015, excluding adjustments related2020), a two-year period (measured from January 1, 2019 to the Company’s leases in both actual and targeted results. |
· | Modified FFO per share – The Compensation Committee believes that modified funds from operations per share (“Modified FFO per share”) is a key metric in measuring the overall financial performance of the Company. The Compensation Committee established a goal for 2015 that ranged from $1.42 to $1.74 per share, weighted to account for 25.0% of the annual incentive compensation award opportunity. Modified FFO per share for 2015 was $1.56. For this goal the Company used Modified FFO as defined in its Annual Report on Form 10-K for the year ended December 31, 2015, excluding adjustments related2020) and a three-year period (measured from January 1, 2018 to the Company’s leases in both actual and targeted results. |
· | Comparable Hotels RevPAR growth – The Compensation Committee believes that comparable hotels revenue per available room growth (“Comparable Hotels RevPAR growth”) is a key metric in measuring growth of the Company. The Compensation Committee established a goal for 2015 that ranged from 4.5% to 7.5%, weighted to account for 25.0% of the annual incentive compensation award opportunity. Comparable Hotels RevPAR growth for 2015 was 6.5%. For this goal the Company used comparable hotel revenue per available room, as defined in its Annual Report on Form 10-K for the year ended December 31, 2015. |
· | Shareholder return relative to a peer group – The Compensation Committee believes that relative shareholder return compared to the Company’s peers is a key metric in2020), measuring the benefit to shareholders of holding the Company’s shares relative to thatCommon Shares over a period of its peer companies. For this performance goal,time. Shareholder |
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Table of contents | | return includes the Company’s peer group consistedchange in the share price as well as the reinvestment of Chatham Lodging Trust, Hersha Hospitality Trust, RLJ Lodging Trust, Ashford Hospitality Trust, Inc. and Summit Hotel Properties, Inc. The Compensation Committee established a goal for 2015 that ranged from 0% to over 10%, weighted to account for 25.0% ofdividends during the annual incentive compensation award opportunity, measured from July 7 through December 31, 2015. Change in shareholder return relative to the peer group for the measurement period in 2015 was approximately 32%.periods noted. |
2015 Incentive Compensation Award Amounts
For 2015, the Company’s performance was slightly below the target level of Adjusted EBITDA and Modified FFO per share, slightly above the target level of Comparable Hotels RevPAR growth and at the maximum level ofTotal shareholder return relative to a peer group.group – The Company used relative shareholder returns compared to the Company’s peers over a one-year period (measured from January 1, 2020 to December 31, 2020), a two-year period (measured from January 1, 2019 to December 31, 2020) and a three-year period (measured from January 1, 2018 to December 31, 2020), measuring the benefit to shareholders of holding the Company’s Common Shares relative to that of its peer companies. For this performance goal, the Company’s peer group consisted of Ashford Hospitality Trust, Inc., Chatham Lodging Trust, Hersha Hospitality Trust, RLJ Lodging Trust and Summit Hotel Properties, Inc. Shareholder return includes the change in the share price as well as the reinvestment of dividends during the periods noted. Shortly after finalizing the 2020 incentive program, and as states of emergency, mandatory quarantines, “stay at home” orders, business closures, border closings, and restrictions on travel and large gatherings began to occur or be imposed, it became immediately clear that the operational performance metric goals set at the beginning of the year were unlikely to be achieved. However, given the rapidly changing circumstances and general uncertainty around the scope and extent of the pandemic and its impacts on the economy and hospitality industry, it was not feasible to establish revised operational performance metrics. At the same time, the management team immediately turned its attention toward the new challenges generated by the pandemic and made significant efforts to navigate the Company through a challenging economic environment and in ways not measurable by the original incentive program design. These efforts were ultimately factored into the final 2020 incentive compensation decisions for the named executive officers (other than the Company’s CEO) as discussed below. Despite all of the challenges brought on by COVID-19, the Company’s executive team quickly pivoted and achieved a variety of important operational accomplishments and other financial and investment performance achievements, including the accomplishments and achievements summarized below. COVID-19 Related Operational Initiatives and Additional Focus Areas | •Negotiated reduced renovation scopes and delayed timing and helped to modify brand standards with Hilton & Marriott. •Successfully completed amendments to credit facilities in June 2020; maintained sufficient levels of liquidity and working capital in light of the impact of COVID-19 on the Company. •Implemented asset protection plan to ensure low occupancy hotels were maintained and implemented repair and maintenance plans to address deferred maintenance. •Renegotiated vendor and service contracts to produce incremental savings. •Established optimized staffing models for lower occupancy hotels. •Successfully implemented virtual sales training for property management team. •Effectively transitioned to remote work and then hybrid environment. •Worked through modifications to audit and internal audit processes to adjust for remote work environment. •Published enhanced ESG disclosures, including the formal adoption and disclosure of an Environmental Policy, a Health, Safety and Well-Being Policy, a Human Rights Policy and a Vendor Code of Conduct. | Financial PerformanceAchievements | •Achieved positive Adjusted Hotel EBITDA each month from May – December 2020. •First of peer group to achieve positive Modified Funds From Operations (July – October 2020). •Grew occupancy every month from May - October 2020 and maintained year-over-year change through seasonal decline in November and December. | |
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Table of contents Investment Performance Achievements | •Completed disposition of one asset for a $2 million gain. •Successfully completed the acquisition of four development properties contracted for prior to COVID-19. |
In light of the executive team’s efforts and additional achievements described above (which were not contemplated or anticipated at the time the incentive compensation performance goals were set), and the fact that these efforts contributed to the Company’s strong relative shareholder return outperformance (compared to its peer group), and recognizing that the Company’s incentive compensation program did not otherwise contain any individual performance category (unlike that of all of the Company’s peer group), in February 2021, the Compensation Committee approved an additional award with a value equal to 25% of target incentive compensation, payable entirely in equity, to each named executive officer (other than the Company’s CEO, who as noted above, recommended that he not receive any additional incentive compensation in 2020). The Company’s 2020 actual results as compared to the initial established goals are summarized in the table above under “Performance Measures.” As previously discussed, the Compensation Committee did not make any adjustments to the 2020 performance goals under the incentive compensation payableplan originally set in March 2020. For 2020, the Company achieved an average of 75% of the target incentive for each of the initial metrics discussed above, resulting in the compensation awards (including the additional 25% awards made to certain of the named executive officers as noted above) as follows: | | 2020 Target Cash Incentive Compensation Award Opportunity | | 2020 Target Equity Incentive Compensation Award Opportunity | | 2020 Target Total Incentive Compensation Award Opportunity | | 2020 Actual Cash Incentive Compensation Award | | 2020 Actual Equity Incentive Compensation Award | | 2020 Actual Total Incentive Compensation Award | Justin G. Knight (1) | | | $ | 975,625 | | | | | $ | 2,926,875 | | | | | $ | 3,902,500 | | | | | $ | - | | | | | $ | 2,634,188 | | | | | $ | 2,634,188 | | | Elizabeth S. Perkins (2) | | | | 187,500 | | | | | | 562,500 | | | | | | 750,000 | | | | | | - | | | | | | 750,000 | | | | | | 750,000 | | | Karen C. Gallagher (2) | | | | 187,500 | | | | | | 562,500 | | | | | | 750,000 | | | | | | - | | | | | | 750,000 | | | | | | 750,000 | | | Nelson G. Knight (3) | | | | 334,687 | | | | | | 1,004,063 | | | | | | 1,338,750 | | | | | | - | | | | | | 1,338,750 | | | | | | 1,338,750 | | | Matthew P. Rash (4) | | | | 180,000 | | | | | | 540,000 | | | | | | 720,000 | | | | | | - | | | | | | 720,000 | | | | | | 720,000 | | |
(1) | As a result of the dramatic decline in operations of the Company’s hotels in 2020 due to COVID-19, Mr. Justin G. Knight volunteered to reduce his target compensation for 2020 by 60%. The target compensation shown above is not adjusted for this reduction. Actual awards shown above do include the 60% reduction. |
(2) | Ms. Perkins’ and Ms. Gallagher’s 2020 Actual Equity Compensation Awards each include an award of an additional 25% ($187,500) in incentive compensation due to the executive team’s completion of important operational accomplishments and other financial and investment performance achievements in 2020 described above. |
(3) | Mr. Nelson G. Knight’s 2020 Actual Equity Compensation Award includes an additional 25% ($334,687) award due to the executive team’s completion of important operational accomplishments and other financial and investment performance achievements in 2020 described above. |
(4) | Mr. Rash’s 2020 Actual Equity Compensation Award includes an additional 25% ($180,000) award due to the executive team’s completion of important operational accomplishments and other financial and investment performance achievements in 2020 described above. |
These incentive compensation awards were determined by the Compensation Committee in February 2021, and the equity grants were issued in March 2021, with 50% of the awards vested immediately and 50% of the awards to vest in December 2021. Realized Pay The tables below, which supplement the Executive Compensation—Summary Compensation Table, shows the value of the 2020 and 2019 compensation earned by each named executive officer under the compensation program. 35
Table of contents 2020 Realized Pay Table (1) | | | | | Salary | | Share Awards (2) | | Non-Equity Incentive Plan Compensation | | All Other Compensation (3) | | 2020 Total Compensation Realized | Justin G. Knight | | | $ | 493,625 | | | | | $ | 2,634,188 | | | | | $ | - | | | | | $ | 89,813 | | | | | $ | 3,217,626 | | | Elizabeth S. Perkins | | | | 369,563 | | | | | | 1,124,997 | | | | | | - | | | | | | 49,864 | | | | | | 1,544,424 | | | Karen C. Gallagher | | | | 373,250 | | | | | | 1,124,997 | | | | | | - | | | | | | 45,389 | | | | | | 1,543,636 | | | Nelson G. Knight | | | | 358,500 | | | | | | 1,338,750 | | | | | | - | | | | | | 60,584 | | | | | | 1,757,834 | | | Matthew P. Rash | | | | 357,500 | | | | | | 1,079,998 | | | | | | - | | | | | | 40,945 | | | | | | 1,478,443 | | | Kristian M. Gathright (3) | | | | 124,031 | | | | | | 53,263 | | | | | | - | | | | | | 1,283,312 | | | | | | 1,460,606 | | | Bryan F. Peery (3) | | | | 149,031 | | | | | | 349,999 | | | | | | - | | | | | | 1,255,062 | | | | | | 1,754,092 | | |
(1) | Amounts shown for Salary, Non-Equity Incentive Plan Compensation and All Other Compensation equal the amounts reported in the Summary Compensation Table. |
(2) | Amounts shown represent the value of the annual share awards earned for the 2020 performance year, a one-time restricted share award granted upon appointment of each of Ms. Perkins, Ms. Gallagher and Mr. Rash as an executive officer on April 1, 2020 equal to the executive’s annual base salary and vesting March 31, 2023, a one-time share award of 35,070 shares to Mr. Peery for substantive additional assistance to the Company throughout 2020 granted on November 2, 2020 and 4,774 shares awarded to Mrs. Gathright, with a value of $53,263, for service as a non-employee director for a portion of 2020. |
(3) | All Other Compensation includes the one-time lump sum separation payments of $1,225,000 each to Mr. Peery and Mrs. Gathright in connection with their retirements effective March 31, 2020, paid during the fourth quarter of 2020, in accordance with their separation agreements discussed below under “Executive Compensation—Separation Agreements.” Additionally, All Other Compensation includes director fees earned by Mrs. Gathright in cash totaling $39,000 for service as a non-employee director during a portion of 2020. |
2019 Realized Pay Table (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Salary | | Share Awards (2) | | Non-Equity Incentive Plan Compensation | | All Other Compensation | | 2019 Total Compensation Realized | Justin G. Knight | | | $ | 525,000 | | | | | $ | 4,106,733 | | | | | $ | 1,044,233 | | | | | $ | 417,843 | | | | | $ | 6,093,809 | | | Nelson G. Knight | | | | 330,750 | | | | | | 1,293,621 | | | | | | 328,933 | | | | | | 158,449 | | | | | | 2,111,753 | | | Kristian M. Gathright | | | | 496,125 | | | | | | 1,216,916 | | | | | | 493,400 | | | | | | 151,368 | | | | | | 2,357,809 | | | Bryan F. Peery | | | | 496,125 | | | | | | 1,216,916 | | | | | | 493,400 | | | | | | 151,328 | | | | | | 2,357,769 | | |
(1) | Amounts shown for Salary, Non-Equity Incentive Plan Compensation and All Other Compensation equal the amounts reported in the Summary Compensation Table. |
(2) | Amounts shown represent the value of the annual share awards earned for the 2019 performance year. |
The Realized Pay Tables differ from the Summary Compensation Table in that the 2020 and 2019 Realized Pay Tables show the actual value of the compensation earned based on the achievement of the various performance goals. Themetrics for 2020 and 2019 and the additional 25% in incentive compensation in 2020, while the Summary Compensation Table reflects the estimated grant date fair value of such Common Shares that were to be issued subject to achievement of the performance conditions as determined in accordance with FASB ASC Topic 718. For a detailed description of the grant date fair value of the share awards, see Note 1 to the “Executive Compensation—Summary Compensation Table.” These tables are not a substitute for 2015 were as follows: | | | 2015 Cash Incentive Compensation Award | | | 2015 Share Incentive Compensation Award(1) | | | 2015 Incentive Compensation Award | | | Glade M. Knight | | $ | 380,194 | | | $ | 380,194 | | | $ | 760,388 | | | Justin G. Knight | | | 912,466 | | | | 2,194,263 | | | | 3,106,729 | | | Bryan F. Peery | | | 513,262 | | | | 1,026,524 | | | | 1,539,786 | | | Kristian M. Gathright | | | 513,262 | | | | 1,026,524 | | | | 1,539,786 | | | David P. Buckley | | | 484,748 | | | | 969,495 | | | | 1,454,243 | | | Nelson G. Knight | | | 342,174 | | | | 684,349 | | | | 1,026,523 | |
(1) One-halfthe “Executive Compensation—Summary Compensation Table” and are intended to provide additional information that the Company believes is useful in facilitating an understanding of each award will not vest until December 31, 2016.
These incentivethe 2020 and 2019 compensation awards were approvedamounts earned by its named executive officers.The chart below shows the Compensation Committee in February 2016realized pay and the cash will be paid and the equity grants will be made in March 2016, with one-half of the equity grant vesting on December 31, 2016 and one-half to be fully vested when issued. See “Executive Compensation—2015 Grants of Plan-Based Awards” for information on the cash incentive award. The grants of restricted awards will be presentedtotal compensation reflected in the 2016 Grants of Plan-Based Awards table in the proxy statementSummary Compensation Table for 2019 and 2020 for the 2017 annual meetingChief Executive Officer. 36
Table of shareholders. contents
Perquisites and Other Benefits
The named executive officers participate in other benefits plans on the same terms as other employees. These plans include medical insurance, dental insurance, life insurance, disability insurance and a 401(k) plan. Under the 401(k) plan, employees are eligible to defer a portion of their salary and the Company, at its discretion, may make a matching contribution. In 2015,2020, the Company made a matching contribution of up to $10,600$11,400 of each participant’s annual salary, determined by the individual’s contribution and as restricted by statutory limits. As noted in the Summary Compensation Table below, the Company provided limited perquisites to its named executive officers in 2015,2020, which included parking benefits. The emphasis in the compensation program for named executive officers is on the pay-for-performance elements.
In addition, the named executive officers are also entitled to receive accrued dividends from January 1, 2015 on the share incentive compensation awards, which are payable in cash upon vesting.if the awards vest. Such amounts are included under the column, “All Other Compensation,” in the Summary Compensation Table.
Table below.Ownership Requirements
The Board of Directors adopted share ownership guidelines that require directors and executive officers to maintain a minimum share ownership in the Company. See “Corporate Governance, Risk Oversight and Procedures for Shareholder Communications—Share Ownership Guidelines.” Tax Limits on Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), prohibits publicly traded companiesheld corporations from taking a tax deduction for annual compensation in excess of $1 million paid to any of the corporation’s “covered employees,” which include its chief executive officer, or any ofits chief financial officer and its three other most highly compensated executive officers (other than the chief financial officer)(as well as any person who ever was a covered employee for any fiscalprior taxable year who are referred to as “covered employees” under Section 162(m)beginning after December 31, 2016). Certain “performance-based compensation” is excluded from this $1 million cap. Since the Company qualifies as a REIT under the Internal Revenue Code and is generally not subject to FederalU.S. federal income taxes if compensation did not qualify for deduction under Section 162(m)on income distributed to shareholders (other than income of its taxable REIT subsidiaries), the payment of compensation that fails to satisfy the requirements of Section 162(m) wouldwill increase the Company’s required REIT distributions, but does not have a material adverse consequence to the Company, provided the Company continues to distribute 100% of its taxable income. If the Company makes compensation payments subject to Section 162(m) limitations on deductibility, the Company may be required to make additional distributions to shareholders to comply with REIT distribution requirements and eliminate U.S. federal income tax liability or, alternatively, a larger portion of shareholder distributions that would otherwise have been treated as a return of capital may be subject to federal income tax expense as dividend income. Any such compensation allocated to the Company’s taxable REIT subsidiaries whose income is subject to federal income tax would result in an increase in income taxes due to the inability to deduct such compensation.Company. Although the Company is mindful of the limits on deductibility imposed by Section 162(m), even if it is determined that Section 162(m) applies or may apply to certain compensation packages, the Company nevertheless reserves the right to structure the compensation packages and awards in a manner that may exceed the limitation on deduction imposed by Section 162(m).
20162021 Incentive Compensation
COVID-19 continues to have a significant impact on the hospitality industry contributing to an environment with relatively low visibility into future trends. In light of the uncertainties related to the ongoing COVID-19 pandemic, 37
Table of contents and the lack of visibility into more predictable operating fundamentals and trends, the Company has not issued 2021 operational guidance. However, the Company and the executive team remain focused on a number of critical areas to ensure that the Company effectively and successfully navigates through the pandemic. As a result, in February 2016,2021, the Compensation Committee establishedmodified the annual incentive program to provide that one-half (50%) of 2021 incentive compensation will be based on operational performance metrics and one-half (50%) of the incentive program will continue to measure shareholder return performance, based 75% on relative shareholder return metrics and 25% on total shareholder return metrics over one-year, two-year, and three-year periods. With respect to the operational performance metrics, the first half of the year—for the period of January 1 – June 30, 2021—will be based on operational performance metrics including portfolio occupancy growth, expense management, successful negotiation of waivers of covenants in the Company’s credit facilities and effective allocation of capital to drive incremental returns, with no specific target or weighting assigned to each metric. The Compensation Committee intends to review performance mid-year to determine the feasibility of reverting back to operational performance metrics for the incentive compensationsecond half of the named executive officers for 2016. The incentive compensation structure for 2016 is similar toyear that are more consistent with the structure of 2015 described above, consisting of an annual cash incentive award opportunity and an additional share award opportunity, both of which are based on similarCompany’s historical operational performance metrics usedmetrics. The Compensation Committee will continue to maintain a rigorous framework, one that requires outperformance (55th percentile) to achieve target level payout for 2015 incentive compensation—Modified FFO per share, Comparable Hotels RevPAR growth and Adjusted Hotel EBITDA margin growth, which is the year-over-year change in Adjusted Hotel EBITDA divided by revenues—andrelative total shareholder return metrics—shareholder return relative to a peer group and total shareholder return. The operational performance metrics will be equally weighted and will account for 50% of the total target incentive compensation. The shareholder return metrics will be equally weighted and account for 50% of the total target incentive compensation. It is the Compensation Committee’s intention, on a going forward basis, to pay approximately 75% of the annual incentive awards, if any, in equity under the 2014 Omnibus Incentive Plan and to have approximately 80% of each named executive officer’s total target compensation be incentive compensation.
metrics. Special Note Regarding Non-GAAP Financial Measures
This Compensation Discussion and Analysis contains certain non-GAAP financial measures which are described in more detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 20152020 in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Non-GAAP Financial Measures.” Compensation Committee Report The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. | Current Members of the Compensation Committee: | | Glenn W. Bunting, Chair | | Daryl A. Nickel | | L. Hugh Redd |
Current Members of the Compensation Committee:
Glenn W. Bunting, Chair
Daryl A. Nickel
L. Hugh Redd
The Compensation Committee Report above does not constitute “soliciting material” and will not be deemed “filed” or incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, that might incorporate SEC filings by reference, in whole or in part, notwithstanding anything to the contrary set forth in those filings.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Glenn W. Bunting, Daryl A. Nickel and L. Hugh Redd. No member of the Compensation Committee is or has ever been an officer or employee of the Company, and no member of the Compensation Committee had any relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships and related-party transactions. No executive officer serves or has served as a member of a compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of the Board of Directors or Compensation Committee and no executive officer serves or has served as a director of another entity, one of whose executive officers serves on the Compensation Committee. Accordingly, during 20152020 there were no interlocks with other companies within the meaning of the SEC’s proxy rules.
CompensationThe following table sets forth certain compensation information for each of the Company’s named executive officers for 2015.
2020.Summary Compensation Table
The Summary Compensation Table reflects compensation under the executive compensation arrangements discussed above under “Compensation Discussion and Analysis.” Name | | Principal Position | | Year | | Salary | | Share Awards(1) | | Non-Equity Incentive Plan Compensation(2) | | All Other Compensation(3) | | Total | Justin G. Knight(4) | | Chief Executive Officer | | 2020 | | | $ | 493,625 | | | | | $ | 3,330,589 | | | | | | — | | | | | $ | 89,813 | | | | | $ | 3,914,027 | | | | | | | 2019 | | | | 525,000 | | | | | | 2,601,533 | | | | | $ | 1,044,233 | | | | | | 417,843 | | | | | | 4,588,609 | | | | | | | 2018 | | | | 525,000 | | | | | | 1,921,474 | | | | | | 538,033 | | | | | | 96,892 | | | | | | 3,081,399 | | | Elizabeth S. Perkins | | Senior Vice President and Chief Financial Officer | | 2020 | | | | 369,563 | | | | | | 1,015,085 | | | | | | — | | | | | | 49,864 | | | | | | 1,434,512 | | | Karen C. Gallagher | | Senior Vice President and Chief Operating Officer | | 2020 | | | | 373,250 | | | | | | 1,015,085 | | | | | | — | | | | | | 45,389 | | | | | | 1,433,724 | | | Nelson G. Knight(5) | | President, Real Estate and Investments | | 2020 | | | | 358,500 | | | | | | 1,142,556 | | | | | | — | | | | | | 60,584 | | | | | | 1,561,640 | | | | | | | 2019 | | | | 330,750 | | | | | | 819,483 | | | | | | 328,933 | | | | | | 158,449 | | | | | | 1,637,615 | | | | | | | 2018 | | | | 330,750 | | | | | | 605,264 | | | | | | 169,492 | | | | | | 56,325 | | | | | | 1,161,831 | | | Matthew P. Rash | | Senior Vice President, Chief Legal Officer and Secretary | | 2020 | | | | 357,500 | | | | | | 974,482 | | | | | | — | | | | | | 40,945 | | | | | | 1,372,927 | | | Kristian M. Gathright | | Former Executive | | 2020 | | | | 124,031 | | | | | | 53,263 | | | | | | — | | | | | | 1,283,312 | | | | | | 1,460,606 | | | | | Vice President and | | 2019 | | | | 496,125 | | | | | | 1,229,224 | | | | | | 493,400 | | | | | | 151,368 | | | | | | 2,370,117 | | | | | Chief Operating Officer | | 2018 | | | | 496,125 | | | | | | 907,897 | | | | | | 254,230 | | | | | | 65,714 | | | | | | 1,723,966 | | | Bryan F. Peery(6) | | Former Executive | | 2020 | | | | 149,031 | | | | | | 349,999 | | | | | | — | | | | | | 1,255,062 | | | | | | 1,754,092 | | | | | Vice President and | | 2019 | | | | 496,125 | | | | | | 1,229,224 | | | | | | 493,400 | | | | | | 151,328 | | | | | | 2,370,077 | | | | | Chief Financial Officer | | 2018 | | | | 496,125 | | | | | | 907,897 | | | | | | 254,230 | | | | | | 69,345 | | | | | | 1,727,597 | | |
(1) | The amounts in this column reflect the estimated grant date fair value of the Common Shares to be issued subject to achievement of performance conditions and the grant date fair value of vested and time-based vesting Common Shares that the Company issued as determined in accordance with FASB ASC Topic 718. As discussed above under “Compensation Discussion and Analysis—Elements of Executive Compensation—2020 Incentive Compensation Award Opportunity and Actual Award Earned” and “Compensation Discussion and Analysis—Elements of Executive Compensation—Performance Measures,” each named executive officer who held a position at the end of a given year participated in an incentive plan which included three Company performance-based metrics and six market-based metrics. The table below summarizes the estimated fair value of the share incentive awards as of March 2, 2020, February 14, 2019 and February 15, 2018, the dates the Compensation Committee approved the plans for both the performance-based and market-based incentives. To estimate the fair value of the market-based awards, the Company used a Monte Carlo simulation to estimate the probability of the Company’s total shareholder return and relative return to the peer group for the applicable year as of March 2, 2020, February 14, 2019 and February 15, 2018, the effective dates of the incentive. For the Company’s operational performance-based incentives, the Company used the target as the probable incentive to be earned. See “Grants of Plan-Based Awards” below for the maximum value as of the grant date of the equity incentive plan awards for 2020 assuming the highest market and performance conditions were met. The amounts in this column also include one-time restricted share awards granted upon appointment of each of Ms. Perkins, Ms. Gallagher and Mr. Rash as an executive officer on April 1, 2020 equal to the executive’s annual base salary and vesting March 31, 2023, a one-time share award of 35,070 shares to Mr. Peery for substantive additional assistance to the Company throughout 2020 effective November 2, 2020 and 4,774 shares awarded to Mrs. Gathright with a value of $53,263 for service as a non-employee director during a portion of 2020. |
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Table of contents (note 1, continued) | | | | | | | | | | | | | | | | | | | | Name | | Year | | Market-Based Incentive | | Company Performance- Based Incentive | Other Share Awards | | Total Share Awards | Justin G. Knight | | 2020 | | $ | 2,354,964 | | | $ | 975,625 | | | | — | | | $ | 3,330,589 | | | | | 2019 | | | 1,682,783 | | | | 918,750 | | | | — | | | | 2,601,533 | | | | | 2018 | | | 1,002,724 | | | | 918,750 | | | | — | | | | 1,921,474 | | | Elizabeth S. Perkins | | 2020 | | | 452,588 | | | | 187,500 | | | $ | 374,997 | | | | 1,015,085 | | | Karen C. Gallagher | | 2020 | | | 452,588 | | | | 187,500 | | | | 374,997 | | | | 1,015,085 | | | Nelson G. Knight | | 2020 | | | 807,869 | | | | 334,687 | | | | — | | | | 1,142,556 | | | | | 2019 | | | 530,077 | | | | 289,406 | | | | — | | | | 819,483 | | | | | 2018 | | | 315,858 | | | | 289,406 | | | | — | | | | 605,264 | | | Matthew P. Rash | | 2020 | | | 434,484 | | | | 180,000 | | | | 359,998 | | | | 974,482 | | | Kristian M. Gathright | | 2020 | | | — | | | | — | | | | 53,263 | | | | 53,263 | | | | | 2019 | | | 795,115 | | | | 434,109 | | | | — | | | | 1,229,224 | | | | | 2018 | | | 473,788 | | | | 434,109 | | | | — | | | | 907,897 | | | Bryan F. Peery | | 2020 | | | — | | | | — | | | | 349,999 | | | | 349,999 | | | | | 2019 | | | 795,115 | | | | 434,109 | | | | — | | | | 1,229,224 | | | | | 2018 | | | 473,788 | | | | 434,109 | | | | — | | | | 907,897 | | | | | | | | | | | | | | | | | | | | | | |
(2) | The annual cash incentive compensation with respect to each year is paid in the following year. See “Compensation Discussion and Analysis—Elements of Executive Compensation—2020 Incentive Compensation Award Opportunity and Actual Award Earned” and “Compensation Discussion and Analysis—Elements of Executive Compensation—Performance Measures.” |
| Name | | Principal Position | | Year | | | Salary(1) | | | Share Awards(2) | | | Non-Equity Incentive Plan Compensation(1)(3) | | | All Other Compensation(1)(4) | | | Total (5) | | | Glade M. Knight | | Executive Chairman | | 2015 | | | $ | 350,000 | | | $ | 358,750 | | | $ | 380,194 | | | $ | 42,440 | | | $ | 1,131,384 | | | | | | | 2014 | | | | 262,797 | | | | — | | | | 679,838 | | | | 242,235 | | | | 1,184,870 | | | | | | | 2013 | | | | 12,093 | | | | — | | | | 186 | | | | 1,407,699 | | | | 1,419,978 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Justin G. Knight | | President and | | 2015 | | | | 500,000 | | | | 2,070,500 | | | | 912,466 | | | | 173,756 | | | | 3,656,722 | | | | | Chief Executive Officer | | 2014 | | | | 411,466 | | | | — | | | | 2,806,905 | | | | 89,983 | | | | 3,308,354 | | | | | | | 2013 | | | | 80,581 | | | | — | | | | 46,231 | | | | 400,500 | | | | 527,312 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Bryan F. Peery | | Executive Vice President, | | 2015 | | | | 472,500 | | | | 968,625 | | | | 513,262 | | | | 99,688 | | | | 2,054,075 | | | | | Chief Financial Officer | | 2014 | | | | 373,024 | | | | — | | | | 1,405,019 | | | | 61,307 | | | | 1,839,350 | | | | | | | 2013 | | | | 65,993 | | | | — | | | | 44,635 | | | | 230,972 | | | | 341,600 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Kristian M. Gathright | | Executive Vice President, | | 2015 | | | | 472,500 | | | | 968,625 | | | | 513,262 | | | | 99,688 | | | | 2,054,075 | | | | | Chief Operating Officer | | 2014 | | | | 388,280 | | | | — | | | | 1,376,530 | | | | 90,225 | | | | 1,855,035 | | | | | | | 2013 | | | | 69,767 | | | | — | | | | 46,698 | | | | 400,551 | | | | 517,016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | David P. Buckley | | Executive Vice President, | | 2015 | | | | 446,250 | | | | 914,812 | | | | 484,748 | | | | 96,071 | | | | 1,941,881 | | | | | Chief Legal Counsel (6) | | 2014 | | | | 354,840 | | | | — | | | | 1,334,251 | | | | 24,460 | | | | 1,713,551 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nelson G. Knight | | Executive Vice President, | | 2015 | | | | 315,000 | | | | 645,750 | | | | 342,174 | | | | 77,805 | | | | 1,380,729 | | | | | Chief Investment Officer (7) | | 2014 | | | | 270,702 | | | | — | | | | 917,731 | | | | 25,353 | | | | 1,213,786 | |
(3) | Includes the portion of the health insurance, life and disability insurance, parking, and 401(k) match paid by the Company. Also includes estimated dividends on the share awards in all three years. For 2020, includes the following amounts for estimated dividends (approximately 50% of such amounts will be paid following vesting of the restricted Common Shares, as applicable): Mr. Justin G. Knight—$56,346; Ms. Perkins—$16,042; Ms. Gallagher—$16,042; Mr. Nelson G. Knight—$28,636; and Mr. Rash—$15,401. Amounts for 2020 also include one-time lump sum separation payments of $1,225,000 each to Mr. Peery and Mrs. Gathright in connection with their retirements effective March 31, 2020, paid in October 2020, in accordance with their separation agreements discussed below under “Executive Compensation—Separation Agreements” and fees earned in cash by Mrs. Gathright totaling $39,000 for service as a non-employee director during a portion of 2020. |
(4) | Mr. Justin Knight also served as President for all of the years shown through March 31, 2020. |
(1) For the year ended December 31, 2013, the amounts in the Salary and Non-Equity Incentive Plan Compensation columns and a portion(5) | Prior to serving as President, Real Estate and Investments effective April 1, 2020, Mr. Nelson Knight served as Executive Vice President and Chief Investment Officer through March 31, 2020. |
(6) | Mr. Peery served as Executive Vice President and Chief Financial Officer for all of the years shown until his retirement effective March 31, 2020, except from July 1, 2019 until December 5, 2019, when he served as Executive Vice President and Chief Accounting Officer. |
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Table of the amounts in the All Other Compensation column represent the Company’s allocated share of each named executive officer’s total compensation from AFM. AFM was formed to provide employee personnel for a number of related parties, including the executive officers of the Company and the other Apple REIT Entities (including Apple Six until its sale in May 2013), and all of the costs of AFM were allocated to and reimbursed by the entities that utilized its resources, including the Company. For the year ended December 31, 2014, a portion of the amounts in the Salary, Non-Equity Incentive Plan Compensation and All Other Compensation columns represent the Company’s allocated share of each named executive officer’s total compensation from AFM for the period from January 1, 2014 through February 28, 2014. Effective March 1, 2014, the effective date of the mergers, the Company acquired all of the membership interests of AFM from A9A and assumed all of AFM’s obligations of the predecessor owners of AFM under certain prior agreements. Accordingly, effective March 1, 2014, the named executive officers were compensated directly by the Company, and includes the entire amount of compensation allocated to services provided to Apple Ten, A10A and ASRG.
contents(2) The amounts in this column reflect the estimated grant date fair value of the Common Shares to be issued subject to achievement of performance conditions as determined in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. As discussed above under “Compensation Discussion and Analysis—Elements of Executive Compensation—2015 Incentive Compensation Award Opportunity” and “Compensation Discussion and Analysis—Elements of Executive Compensation—Performance Measures,” each named executive officer participated in an incentive plan with three Company performance-based metrics and one market-based metric.
The below table summarizes the estimated fair value of the share incentive award as of March 2, 2015, the date the Compensation Committee approved the plan for the performance-based incentives and July 7, 2015, which was the date at which the market-based incentive began. The market-based metric approved by the Compensation Committee was subject to the Company’s Listing and completion of its tender offer, which closed on June 24, 2015. To estimate the fair value of the market-based award, the Company used a Monte Carlo simulation to estimate the probability of the Company’s relative return to the peer group disclosed above as of July 7, 2015, the effective date of the incentive. For the Company performance-based incentives, the Company used the target as the probable incentive to be earned.
| Name | | Market-Based Incentive | | | Company Performance-Based Incentive | | | Total Share Awards | | | Glade M. Knight | | $ | 96,250 | | | $ | 262,500 | | | $ | 358,750 | | | Justin G. Knight | | | 555,500 | | | | 1,515,000 | | | | 2,070,500 | | | Bryan F. Peery | | | 259,875 | | | | 708,750 | | | | 968,625 | | | Kristian M. Gathright | | | 259,875 | | | | 708,750 | | | | 968,625 | | | David P. Buckley | | | 245,437 | | | | 669,375 | | | | 914,812 | | | Nelson G. Knight | | | 173,250 | | | | 472,500 | | | | 645,750 | |
Assuming the highest performance conditions were met with respect to the share awards, the grant date fair values of the share awards would be as follows: Mr. Glade M. Knight—$525,000; Mr. Justin G. Knight—$3,030,000; Mr. Peery—$1,417,500; Mrs. Gathright—$1,417,500; Mr. Buckley—$1,338,750; and Mr. Nelson G. Knight—$945,000. The actual value of Common Shares to be issued are set forth above under “Compensation Discussion and Analysis—Elements of Executive Compensation—2015 Incentive Compensation Award Amounts.” For accounting purposes, the amount subject to vesting at the end of 2016 is expensed on a pro rata basis form the date the incentive’s terms were known, March 2, 2015 and July 7, 2015, until December 31, 2016.
(3) Represents the annual cash incentive compensation paid in March 2016. See “Compensation Discussion and Analysis—Elements of Executive Compensation—2015 Incentive Compensation Award Opportunity,” “Compensation Discussion and Analysis—Elements of Executive Compensation—Performance Measures” and “Compensation Discussion and Analysis—Elements of Executive Compensation—2015 Incentive Compensation Award Amounts.”
(4) Includes the portion of the health insurance, life and disability insurance, parking, and 401(k) match paid by the Company. For 2015, also includes estimated dividends on the share awards in the following amounts, of which one-half of such amounts will be paid following vesting of the common shares: Mr. Glade M. Knight—$24,116; Mr. Justin G. Knight—$139,180; Mr. Peery—$65,112; Mrs. Gathright—$65,112; Mr. Buckley—$61,494; and Mr. Nelson G. Knight—$43,407. Also includes consideration provided by A9A to certain executive officers prior to the Company becoming self-advised in March 2014 pursuant to an agreement entered into between such parties. Under this agreement, the following individuals have received (or in the case of Glade M. Knight, who is the owner of A9A, retained) consideration which was calculated based on a percentage of the advisory fees paid to A9A, as follows: (i) for 2014 (for the period from January 1, 2014 through February 28, 2014, prior to completion of the mergers) and 2013 – Glade M. Knight (50%); Justin G. Knight (14%); Bryan F. Peery (8%); and Kristian M. Gathright (14%). The Company would like to emphasize to the reader that these amounts are not to be added to the amount of the advisory fee and the compensation costs reimbursed to AFM on behalf of A9A when considering the total outflows of cash from the Company to A9A and to the executive officers. Doing so would result in duplication of these amounts. Instead, the amounts set forth below were paid directly by A9A, which is wholly-owned by Glade Knight, and are not in addition to the advisory fee paid to A9A. The amounts included in this column that represent consideration to an officer from A9A were:
| Name | | 2014 | | | 2013 | | | Glade M. Knight | | $ | 230,311 | | | $ | 1,403,956 | | | Justin G. Knight | | | 64,487 | | | | 393,108 | | | Bryan F. Peery | | | 36,850 | | | | 224,633 | | | Kristian M. Gathright | | | 64,487 | | | | 393,108 | | | David P. Buckley | | | — | | | | — | | | Nelson G. Knight | | | — | | | | — | |
(5) For the year ended December 31, 2013, the amounts in the Total column represent the Company’s allocated share of each named executive officer’s total compensation from AFM as discussed in Note 1 above, plus the consideration provided by A9A to the officer and the other compensation as discussed in Note 4 above. For the year ended December 31, 2014, the amounts in the Total column represent the Company’s allocated share of each named executive officer’s total compensation from AFM, plus the consideration provided by A9A to the officer, in each case, for the period from January 1, 2014 through February 28, 2014 as discussed in Note 4 above, as well as the salary and bonus amounts subsequent to February 28, 2014 through December 31, 2014, and the other compensation as discussed in Note 4 above.
(6) Mr. Buckley became a named executive officer beginning with the fiscal year ended December 31, 2014.
(7) Mr. Nelson Knight became Executive Vice President and Chief Investment Officer on May 15, 2014 and became a named executive officer beginning with the fiscal year ended December 31, 2014.
Grants of Plan-BasedPlan-Based Awards
The following table sets forth information with respect to grants of awards made to the named executive officers during the fiscal year ended December 31, 2015.
2020. | | | Estimated Future Payouts Under Non-Equity Incentive Plan- Awards(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Share Awards: | | | Name | | Grant Date | Threshold ($) | | Target ($) | Maximum ($) | | Threshold ($) | Target ($) | | Maximum ($) | Number of Shares (3) | | Grant Date Fair Value of Stock Awards (4) | Justin G. | | March 2, 2020 | | $ | 487,813 | | | $ | 975,625 | | | $ | 1,951,250 | | | | — | | | | — | | | | — | | | | — | | | | — | | | Knight | | March 2, 2020 | | | — | | | | — | | | | — | | | $ | 1,463,438 | | | $ | 2,926,875 | | | $ | 5,853,750 | | | | — | | | $ | 3,330,589 | | | Elizabeth S. | | March 2, 2020 | | | 93,750 | | | | 187,500 | | | | 375,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | Perkins | | March 2, 2020 | | | — | | | | — | | | | — | | | | 281,250 | | | | 562,500 | | | | 1,125,000 | | | | — | | | | 640,088 | | | | | April 1, 2020 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 42,277 | | | | 374,997 | | | Karen C. | | March 2, 2020 | | | 93,750 | | | | 187,500 | | | | 375,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | Gallagher | | March 2, 2020 | | | — | | | | — | | | | — | | | | 281,250 | | | | 562,500 | | | | 1,125,000 | | | | — | | | | 640,088 | | | | | April 1, 2020 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 42,277 | | | | 374,997 | | | Nelson G. | | March 2, 2020 | | | 167,344 | | | | 334,688 | | | | 669,375 | | | | — | | | | — | | | | — | | | | — | | | | — | | | Knight | | March 2, 2020 | | | — | | | | — | | | | — | | | | 502,031 | | | | 1,004,063 | | | | 2,008,125 | | | | — | | | | 1,142,556 | | | Matthew P. | | March 2, 2020 | | | 90,000 | | | | 180,000 | | | | 360,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | Rash | | March 2, 2020 | | | — | | | | — | | | | — | | | | 270,000 | | | | 540,000 | | | | 1,080,000 | | | | — | | | | 614,484 | | | | | April 1, 2020 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 40,586 | | | | 359,998 | | | Kristian M. | | May 29, 2020 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,299 | | | | 13,263 | | | Gathright | | Aug. 31, 2020 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,967 | | | | 20,004 | | | | | Nov. 30, 2020 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,508 | | | | 19,996 | | | Bryan F. Peery | | Nov. 2, 2020 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 35,070 | | | | 349,999 | | |
| | | | Estimated Future Payouts Under Non-Equity Incentive Plan-Awards(1) | | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | Grant Date Fair Value of Stock and | | | Name | | Grant Date | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | Option Awards(3) | | | Glade M. Knight | | March 2, 2015 | | $ | 175,000 | | | $ | 350,000 | | | $ | 525,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | March 2, 2015 | | | — | | | | — | | | | — | | | | 175,000 | | | | 350,000 | | | | 525,000 | | | | 358,750 | | | Justin G. Knight | | March 2, 2015 | | | 420,000 | | | | 840,000 | | | | 1,260,000 | | | | — | | | | — | | | | — | | | | — | | | | | March 2, 2015 | | | — | | | | — | | | | — | | | | 1,010,000 | | | | 2,020,000 | | | | 3,030,000 | | | | 2,070,500 | | | Bryan F. Peery | | March 2, 2015 | | | 236,250 | | | | 472,500 | | | | 708,750 | | | | — | | | | — | | | | — | | | | — | | | | | March 2, 2015 | | | — | | | | — | | | | — | | | | 472,500 | | | | 945,000 | | | | 1,417,500 | | | | 968,625 | | | Kristian M. Gathright | | March 2, 2015 | | | 236,250 | | | | 472,500 | | | | 708,750 | | | | — | | | | — | | | | — | | | | — | | | | | March 2, 2015 | | | — | | | | — | | | | — | | | | 472,500 | | | | 945,000 | | | | 1,417,500 | | | | 968,625 | | | David P. Buckley | | March 2, 2015 | | | 223,125 | | | | 446,250 | | | | 669,375 | | | | — | | | | — | | | | — | | | | — | | | | | March 2, 2015 | | | — | | | | — | | | | — | | | | 446,250 | | | | 892,500 | | | | 1,338,750 | | | | 914,812 | | | Nelson G. Knight | | March 2, 2015 | | | 157,500 | | | | 315,000 | | | | 472,500 | | | | — | | | | — | | | | — | | | | — | | | | | March 2, 2015 | | | — | | | | — | | | | — | | | | 315,000 | | | | 630,000 | | | | 945,000 | | | | 645,750 | |
(1) These columns show the range of potential payouts for 2015(1) | These columns show the range of potential payouts for 2020 performance under the Company’s annual cash incentive compensation for the named executive officers as described in the section titled “Compensation Discussion and Analysis—Elements of Executive Compensation—2020 Incentive Compensation Award Opportunity and Actual Award Earned” and “Compensation Discussion and Analysis—Elements of Executive Compensation—Performance Measures.” |
(2) | These columns show the range of potential payouts for 2020 performance under the Company’s share incentive compensation for the named executive officers as described in the section titled “Compensation Discussion and Analysis—Elements of Executive Compensation—2020 Incentive Compensation Award Opportunity and Actual Award Earned” and “Compensation Discussion and Analysis—Elements of Executive Compensation—Performance Measures.” If the performance conditions are met, the Company pays these awards in Common Shares, with the value of the Common Shares equal to the dollar amount of the payouts as set forth in the table. See “Compensation Discussion and Analysis—Elements of Executive Compensation—Incentive Compensation.” |
(3) | This column includes the one-time restricted share awards granted upon appointment of each of Ms. Perkins, Ms. Gallagher and Mr. Rash as an executive officer on April 1, 2020 equal to the executive’s annual base salary and vesting March 31, 2023, a one-time grant of fully vested Common Shares to Mr. Peery for his unexpected contributions to the Company in response to the COVID-19 pandemic and the grants of Common Shares to Mrs. Gathright for service as a non-employee director for a portion of 2020. |
(4) | The amounts in this column reflect the grant date fair value of the Common Shares to be issued subject to achievement of performance conditions and the grant date fair value of vested and time-based vesting Common Shares that the Company issued as determined in accordance with FASB ASC Topic 718. See Note 1 to the Summary Compensation Table above for additional information on the determination of the fair value of the Common Shares. The actual value of Common Shares issued with respect to 2020 performance is set forth above under “Compensation Discussion and Analysis—Elements of Executive Compensation—2020 Incentive Compensation Award Opportunity and Actual Award Earned.” |
2020 Option Exercises and Stock Vested The following table sets forth the number of restricted Common Shares that vested for each of the Company’s named executive officers during 2020 and the value realized by these officers upon such vesting. The Company has not granted any options to its officers. 41
Table of contents | | Stock Awards | Name | | Number of Shares Acquired on Vesting (1) | | Value Realized on Vesting (2) | Justin G. Knight | | | | 117,744 | | | | | $ | 1,537,737 | | | Elizabeth S. Perkins | | | | — | | | | | | — | | | Karen C. Gallagher | | | | — | | | | | | — | | | Nelson G. Knight | | | | 37,090 | | | | | | 484,395 | | | Matthew P. Rash | | | | — | | | | | | — | | | Kristian M. Gathright | | | | — | | | | | | — | | | Bryan F. Peery | | | | — | | | | | | — | | |
(1) | Consists of restricted Common Shares issued in March 2020 (with respect to 2019 performance) that were earned as of December 31, 2019 and vested December 11, 2020. |
(2) | The value upon vesting is calculated by multiplying the number of Common Shares vested on each vesting date (December 11, 2020) by the closing price of the Common Shares on the NYSE on such date ($13.06). |
Outstanding Equity Awards at Fiscal Year End The following table sets forth all of the equity awards made to the named executive officers that were outstanding as described in the section titled “Compensation Discussion and Analysis—Elements of Executive Compensation—2015 Incentive Compensation Award Opportunity” and “Compensation Discussion and Analysis—Elements of Executive Compensation—Performance Measures.”December 31, 2020. Name | | Grant Date | | | Number of Shares that have not Vested (1) | | | Market Value of Shares that have not Vested (1) | | | Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested (2) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares That Have Not Vested (2) | | Justin G. Knight | | March 2, 2020 | | | | — | | | | — | | | | 226,714 | | | $ | 2,926,875 | | Elizabeth S. Perkins | | March 2, 2020 | | | | — | | | | — | | | | 43,571 | | | | 562,500 | | | | April 1, 2020 | | | | 42,277 | | | $ | 545,796 | | | | — | | | | — | | Karen C. Gallagher | | March 2, 2020 | | | | — | | | | — | | | | 43,571 | | | | 562,500 | | | | April 1, 2020 | | | | 42,277 | | | | 545,796 | | | | — | | | | — | | Nelson G. Knight | | March 2, 2020 | | | | — | | | | — | | | | 77,774 | | | | 1,004,063 | | Matthew P. Rash | | March 2, 2020 | | | | — | | | | — | | | | 41,828 | | | | 540,000 | | | | April 1, 2020 | | | | 40,586 | | | | 523,965 | | | | — | | | | — | | Kristian M. Gathright | | | — | | | | — | | | | — | | | | — | | | | — | | Bryan F. Peery | | | — | | | | — | | | | — | | | | — | | | | — | |
(1) | These columns represent the number and value of time-based restricted Common Shares granted upon appointment of each of Ms. Perkins, Ms. Gallagher and Mr. Rash as an executive officer on April 1, 2020 and vesting March 31, 2023. The value is based on the closing price of the Company's shares on December 31, 2020 of $12.91 multiplied by the number of restricted shares. |
(2) These columns show the range of potential payouts for 2015 performance under the Company’s share incentive compensation for the named executive officers as described in the section titled “Compensation Discussion and Analysis—Elements of Executive Compensation—2015 Incentive Compensation Award Opportunity.” If the performance conditions are met,(2) | The payout value of unearned Common Shares is based on the “Target” payout of equity incentive plan awards for 2020 performance. The number of unearned Common Shares is based on the payout value divided by the closing price of the Company's Common Shares on December 31, 2020 of $12.91. |
Company pays these awards in Common Shares, with the value of the Common Shares equal to the dollar amount of the payouts as set forth in the table. See “Compensation Discussion and Analysis—Elements of Executive Compensation—Incentive Compensation.”
(3) The amounts in this column reflect the grant date fair value of the Common Shares to be issued subject to achievement of performance conditions as determined in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. See Note 2 to the Summary Compensation table above for additional information on the determination of the fair value of the Common Shares. The actual value of Common Shares to be issued are set forth above under “Compensation Discussion and Analysis—Elements of Executive Compensation—2015 Incentive Compensation Award Amounts.”
ExecutiveChange of ControlSeverance Plan On May 29, 2014, the Board of Directors, upon recommendation of the Compensation Committee, approved the Apple Hospitality REIT, Inc. Executive Severance Pay Plan (the “Severance Plan”)., which was amended effective March 22, 2019. The Severance Plan was further amended effective April 1, 2020 to include the executive officers appointed on that date as participants under the plan. Each of the named executive officers of the Company arewere participants in the Severance Plan: Glade M. Knight, Justin G. Knight,Plan at December 31, 2020 except Mr. Bryan F. Peery and Mrs. Kristian M. Gathright, David P. Buckley and Nelson G. Knight.
Gathright.The Severance Plan generally provides severance or income protection benefits to participants in the event of their termination in connection with certain changes in control of the Company, including (subject to certain exceptions)
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Table of contents (i) the acquisition by any person of securities having 20% or more of the combined voting power of the Company’s outstanding securities other than as a result of an issuance of securities initiated by the Company or open market purchases approved by the Board, or (ii) when, as the result of, or in connection with, a cash tender or exchange offer, a merger or other business combination, a sale of assets, a contested election, or any combination of these transactions, the persons who were directors of the Company before such transactions cease to constitute a majority of the Board, or any successor’s board, within two years of the last of such transactions (each such event, a “Change in Control”).
If a participant in the Severance Plan is terminated during the one-year period commencing on the date of a Change in Control by the Company, other than for Cause, (as defined in the Severance Plan) or by a participant for Good Reason, (as defined in the Severance Plan), such participant will be entitled to receive a lump sum cash payment equal to the sum of (i) to the extent not previously paid, his or her salary and any accrued paid time off through the date of termination, (ii) to the extent not previously paid, his or her Annual Bonus, as defined in the Severance Plan, prorated for the number of days he or she worked during the year in which the termination occurred, and (iii) 2.53.0 times the sum of (x) his or her Annual Bonus as defined in the Severance Plan and (y) his or her annualized base salary based on the highest monthly base salary paid or payable in any month of the 12-month period immediately preceding the month in which the Change in Control occurred.Annual Base Salary. Participants will also generally be entitled to receive additional benefits, including the following: (i) accelerated vesting of any and all stock incentive awards, (ii) welfare benefits (including, without limitation, medical, dental, health, disability, individual life and group life insurance benefits) for the participant and his or her family for the one-year period following termination, (iii) payment by the Company of the full premium for continuation of insurance benefits under COBRA for up to 12 months following termination, (iv) payment by the Company of life insurance premiums for 12 months if the participant elects to convert any group term life insurance to an individual policy, and (v) payment by the Company of up to $15,000 in reasonable fees and costs charged by a nationally recognized outplacement firm. Subject to certain exceptions, in the event that, upon or immediately after a Change in Control, a participant is offered a position with a title, responsibilities and compensation reasonably comparable to the title, responsibilities and compensation of such participant with the Company preceding the Change in Control at the successor to the Company, and the participant does not accept such position, the participant will not be entitled to any of the benefits described above. If the participant accepts such position, he or she will conclusively be deemed not to have been terminated. The Company has also adopted change of control severance plans applicable to all other employees of the Company.
For purposes of the Severance Plan, the terms, “Annual Base Salary,” “Annual Bonus,” “Cause” and “Good Reason” are defined as follows: “Annual Base Salary” means an amount equal to 12 times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the executive by the Company in respect of the 12-month period immediately preceding the month in which a Change in Control occurs. “Annual Bonus” means an amount equal to the annual bonus paid to the executive by the Company during the calendar year immediately preceding the year which contains the date on which a Change in Control occurs. “Cause” means (a) the executive’s continued or deliberate neglect of his or her duties, (b) willful misconduct by the executive injurious to the Company, whether monetary or otherwise, (c) the executive’s violation of any code or standard of ethics generally applicable to employees of the Company, (d) the executive’s active disloyalty to the Company, (e) the executive’s conviction of a felony, (f) the executive’s habitual drunkenness or drug abuse or (g) the executive’s excessive absenteeism unrelated to a disability (as defined in the Company’s long-term disability plan). “Good Reason” means any action by the Company without the executive’s consent that results in any of the following: (a) a reduction of the executive’s annual salary to an amount which is materially less than the amount of the executive’s Annual Base Salary; (b) a material reduction in the executive’s duties with the Company, provided that a change in title or position shall not be “Good Reason” absent a material reduction in duties; or (c) a relocation of more than 50 miles from the executive’s workplace of 814 East Main Street, Richmond, Virginia 23219, without the consent of the executive. 43
Table of contents 2014 Omnibus Incentive Plan In May 2014, the Board of Directors approved the Apple Hospitality REIT, Inc. 2014 Omnibus Incentive Plan, and in May 2015, the shareholders approved the 2014 Omnibus Incentive Plan. The 2014 Omnibus Incentive Plan permits the grant of awards of stock options, stock appreciation rights (“SARs”), restricted stock, stock units, unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards, and cash bonus awards to any employee, officer, or director of the Company or an affiliate of the Company, a consultant or adviser currently providing services to the Company or an affiliate of the Company, or any other person whose participation in the 2014 Omnibus Incentive Plan is determined by the Compensation Committee of the Board of Directors to be in the best interests of the Company.
In addition to the payments and benefits provided pursuant to the terms of the Executive Severance Plan described above, the named executive officers also receive additional benefits under the 2014 Omnibus Incentive Plan upon a Change in Control as defined under the 2014 Omnibus Incentive Plan. If the Company experiences a Change in Control in which outstanding awards will not be assumed or continued by the surviving entity: (i) all restricted stock and stock units will vest and the underlying shares will be delivered immediately before the Change in Control, and (ii) at the Compensation Committee’s discretion either (x) all options and SARs will become exercisable 15 days before the Change in Control and terminate upon the consummation of the Change in Control, or (y) all options, SARs, restricted stock and stock units will be canceled and cashed out in connection with the Change in Control for an amount in cash or securities having a value, in the case of restricted stock or stock units, equal to the formula or fixed price per share paid to the shareholders pursuant to such Change in Control and, in the case of options or SARs, equal to the product of the number of shares subject to such options or SARs multiplied by the amount, if any, by which the formula or fixed price per share paid to shareholders pursuant to such Change in Control exceeds the exercise price applicable to such shares. In the event the option exercise price or SAR exercise price of an award exceeds the price per share paid to shareholders in the Change in Control, such options and SARs may be terminated for no consideration. In the case of performance-based awards, if at least half of the performance period has lapsed, the Compensation Committee will determine the actual performance to date as of a date reasonably proximal to the date of the consummation of the Change in Control, and such level of performance will be treated as achieved immediately prior to the occurrence of the Change in Control. If less than half of the performance period has lapsed, or if actual performance is not determinable, the performance-based awards will be treated as though target performance has been achieved.
A Change in Control under the 2014 Omnibus Incentive Plan means the occurrence of any of the following:
(a) | (a) | a “Person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of more than fifty percent (50%) of the total voting power of the voting stock of the Company, on a fully diluted basis; |
| (b) | individuals who, on the date on which the 2014 Omnibus Incentive Plan was adopted, constitute the Board of Directors (together with any new directors whose election or nomination for election was approved by a vote of at least a majority of the members of such Board of Directors who either were members of such Board of Directors on the date on which the 2014 Omnibus Incentive Plan was adopted or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the members of such Board of Directors then in office; |
| (c) | the Company consolidates with, or merges with or into, any person, or any person consolidates with, or merges with or into, the Company, other than any such transaction in which the holders of securities that represented one hundred percent (100%) of the voting stock of the Company immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) own directly or indirectly at least a majority of the voting power of the voting stock of the surviving person in such merger or consolidation transaction immediately after such transaction; |
| (d) | there is consummated any direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one transaction or a series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to any “Person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act); or |
| (e) | the stockholders of the Company adopt a plan or proposal for the liquidation, winding up or dissolution of the Company. |
The Company does not provide, and no named executive officer is entitled to receive, any tax gross-up payments in connection with his or her compensation severance or other benefitsseverance provided by the Company.
Potential Payments upon Termination or Change in Control
The compensation payable to the Company’s named executive officers upon (i) termination of the executive without causeCause or by the executive for good reasonGood Reason within one year of a changeChange in controlControl pursuant to the Severance Plan and (ii) a changeChange in control,Control, regardless of a corresponding termination, pursuant to the 2014 Omnibus Incentive Plan is, in each case, set forth above in the section entitled “ —Compensation“Compensation Plans.” The compensation payable to the named executive officers upon such terminations or changeChange in controlControl will be paid in a single lump sum. All of the benefits payable upon termination pursuant to the Severance Plan are conditioned upon the executive’s execution of a general release of claims.
The following table summarizes the cash payments and estimated equivalent cash value of benefits that would have been provided to the named executive officers under the terms of the 2014 Omnibus Incentive Plan and the Severance Plan upon a termination or changeChange in controlControl as of December 31, 2015, 2020, and thus reflects amounts earned through such time and estimates of the amounts which would be paid to the named executive officer as of December 31, 2015.2020. The actual amounts to be paid can only be determined at the time of the termination or changeChange in control.Control. | | Termination | | No Termination | Name/Payment of Benefit | | Without Cause/ For Good Reason Upon or Within One Year of a Change in Control | | Change in Control | Justin G. Knight | | | | | | | | | | | | | Cash Severance | | | $ | 24,121,744 | | | | | | — | | | Acceleration of Equity Awards | | | | — | | | | | | — | | | Elizabeth S. Perkins | | | | | | | | | | | | | Cash Severance | | | | 2,805,482 | | | | | | — | | | Acceleration of Equity Awards (1) | | | | 545,796 | | | | | | 545,796 | | | Karen C. Gallagher | | | | | | | | | | | | | Cash Severance | | | | 3,117,817 | | | | | | — | | | Acceleration of Equity Awards (1) | | | | 545,796 | | | | | | 545,796 | | | Nelson G. Knight | | | | | | | | | | | | | Cash Severance | | | | 8,239,481 | | | | | | — | | | Acceleration of Equity Awards | | | | — | | | | | | — | | | Matthew P. Rash | | | | | | | | | | | | | Cash Severance | | | | 4,946,204 | | | | | | — | | | Acceleration of Equity Awards (1) | | | | 523,965 | | | | | | 523,965 | | | Kristian M. Gathright (2) | | | | | | | | | | | | | Cash Severance | | | | — | | | | | | — | | | Acceleration of Equity Awards | | | | — | | | | | | — | | | Bryan F. Peery (2) | | | | | | | | | | | | | Cash Severance | | | | — | | | | | | — | | | Acceleration of Equity Awards | | | | — | | | | | | — | | |
| | | Termination | | | No Termination | | | Name/Payment of Benefit | | Without Cause/
For Good
Reason Upon or Within One Year of a Change of Control (1) | | | Change in Control (2) | | | Glade M. Knight | | | | | | | | Cash Severance | | $ | 3,382,709 | | | | — | | | Acceleration of Equity Awards | | | — | | | | — | | | Justin G. Knight | | | | | | | | | | Cash Severance | | | 11,542,434 | | | | — | | | Acceleration of Equity Awards | | | — | | | | — | | | Bryan F. Peery | | | | | | | | | | Cash Severance | | | 6,327,958 | | | | — | | | Acceleration of Equity Awards | | | — | | | | — | | | Kristian M. Gathright | | | | | | | | | | Cash Severance | | | 6,256,735 | | | | — | | | Acceleration of Equity Awards | | | — | | | | — | | | David P. Buckley | | | | | | | | | | Cash Severance | | | 5,996,252 | | | | — | | | Acceleration of Equity Awards | | | — | | | | — | | | Nelson G. Knight | | | | | | | | | | Cash Severance | | | 4,180,843 | | | | — | | | Acceleration of Equity Awards | | | — | | | | — | |
(1) | Consists solely of acceleration of equity awards if the awards are not assumed or continued by the surviving entity. Amounts assume that equity awards under the 2014 Omnibus Incentive Plan are not assumed or continued by the surviving entity in the Change in Control and, therefore, that such awards vest in full upon the Change in Control. |
(2) | Effective March 31, 2020, Mrs. Gathright and Mr. Peery retired from all officer positions held with the Company and its subsidiaries. The actual payments received by each of them in connection with their retirements pursuant to their respective separation agreements are described below under “Separation Agreements.” |
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Table of contents Separation Agreements In connection with Mrs. Kristian M. Gathright’s and Mr. Bryan F. Peery’s retirement from each of their respective officer roles with the Company and any of its subsidiaries effective March 31, 2020, on March 4, 2020, Mrs. Gathright and Mr. Peery each entered into a separation and general release agreement (each a “Separation Agreement”) with the Company, pursuant to which Mrs. Gathright and Mr. Peery each received a one-time lump sum separation payment of $1,225,000, less applicable taxes and withholdings, initially to be paid within sixty days following the separation date. Pursuant to the Separation Agreements, Mrs. Gathright and Mr. Peery each provided the Company with a general release and waiver of claims, Mrs. Gathright agreed not to serve on the board of a competing lodging-oriented company (“competitor”) for the later of two years after her resignation date or one year after she ceases to serve as a director of the Company, and Mr. Peery agreed not to serve on the board of a competitor for two years after he ceases to be an employee. Mr. Peery agreed to remain employed in an advisory role to support the transition of responsibilities and received a salary at an annual rate of $40,000 per year while serving in that capacity. In March 2020, as a result of the COVID-19 situation and associated economic impact to the Company, Mrs. Gathright and Mr. Peery each volunteered to defer receipt of the separation payment provided for under each Separation Agreement until a mutually agreed-upon date in 2020. The separation payments were made in October 2020. Additionally, as a result of the COVID-19 pandemic, Mr. Peery provided substantive additional assistance to the Company as it navigated its response to the COVID-19 pandemic beyond the anticipated transition activities originally contemplated after March 31. In light of these unexpected contributions, on November 2, 2020, the Compensation Committee of the Board of Directors of the Company approved a one-time grant of 35,070 fully vested Common Shares to Mr. Peery. This grant is in addition to amounts otherwise payable under Mr. Peery’s separation agreement. Pay Ratio Disclosure Presented below is the ratio of the annual total compensation of the Company’s Chief Executive Officer to the annual total compensation of the Company’s median employee (excluding the Chief Executive Officer). The ratio presented below is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the 2014 Omnibus Incentive Plan areSecurities Exchange Act of 1934. For the fiscal year ended December 31, 2020, the annual total compensation of the median employee of the Company was $156,862. For the fiscal year ended December 31, 2020, the annual total compensation of the Chief Executive Officer, as reported in the “Total” column of the Summary Compensation Table above in the section titled “Executive Compensation – Summary Compensation Table,” was $3,914,027. For 2020, the annual total compensation of the Chief Executive Officer was 24.9 times that of the annual total compensation of the median employee. The median employee of the Company was determined by finding the employee with the median total compensation for the fiscal year ended December 31, 2020, based on total gross taxable compensation for 2020. The Company did not assumed or continuedapply any cost-of-living adjustments as part of the calculation. The Company selected the median employee based on the 65 full-time, part-time and temporary workers who were employed by the surviving entity in the Change in Control and, therefore, that such awards vest in full upon the change in control. Amounts also include incentive compensation for 2015 that had not been paidCompany at December 31, 2015 (see Summary Compensation Table for further information). (2) Would consist solely of acceleration of equity awards if2020 (excluding the awards are not assumed or continuedChief Executive Officer). This is the same methodology used by the surviving entity. Amounts assume that equity awards under the 2014 Omnibus Incentive Plan are not assumed or continued by the surviving entityCompany in the Change in Control and, therefore, that such awards vest in full upon2020 Proxy Statement for the Change in Control. As offiscal year ended December 31, 2015, no awards were granted under the 2014 Omnibus Incentive Plan to the named executive officers, although 2015 incentive compensation awards were approved in February 2016 and will be granted in March 2016 (see Summary Compensation Table for further information).
Section 16(a) Beneficial Ownership Reporting Compliance
The Company’s directors and executive officers, and any persons holding more than 10% of the outstanding Common Shares, have filed reports with the Securities and Exchange Commission with respect to their initial ownership of Common Shares and any subsequent changes in that ownership. The Company believes that during 2015 each of its officers, directors and holders of more than 10% of the Company’s outstanding Common Shares complied with the applicable filing requirements.
In making this statement, the Company has relied solely on written representations of its directors and executive officers and copies of reports that they have filed with the Securities and Exchange Commission and a review of Statements on Schedule 13G filed with the Securities and Exchange Commission.
2019.Other Matters for the 20162021 Annual Meeting of Shareholders Management knows of no matters, other than those stated above, that are likely to be brought before the Annual Meeting. However, if any matters that are not currently known properly come before the Annual Meeting, the persons named in the enclosed proxy are expected to vote the Common Shares represented by such proxy on such matters in accordance with their best judgment.
Equity Compensation Plan Information
The Company’s Board of Directors adopted and the Company’s shareholders approved the 2014 Omnibus Incentive Plan, which provides for the issuance of up to 10 million Common Shares, subject to adjustments, to employees, officers, and directors of the Company or affiliates of the Company, consultants or advisers currently providing services to the Company or affiliates of the Company, and any other person whose participation in the 2014 Omnibus Incentive Plan is determined by the Compensation Committee to be in the best interests of the Company.Company. The Company’s Board of Directors previously adopted and the Company’s shareholders approved the Directors’ Plan to provide incentives to attract and retain directors. In May 2015, the Directors’ Plan was terminated effective upon the 46
Table of contents Listing, and no further grants can be made under the Directors’ Plan, provided however, that the termination did not affect any outstanding director option awards previously issued under the Directors’ Plan. The following is a summary of securities issued under the Company’s equity compensation plans as of December 31, 2015:2020: | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1) | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights(2) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column)(3) | Equity compensation plans approved by security holders | | | | 288,420 | | | | | $ | 21.63 | | | | | | 8,091,987 | | | Equity compensation plans not approved by security holders | | | | — | | | | | | — | | | | | | — | | | Total equity compensation plans | | | | 288,420 | | | | | $ | 21.63 | | | | | | 8,091,987 | | |
| | | Number of Securities
to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights(1) | | | Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights | | | Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in First Column)(2) | | | Equity compensation plans approved by security holders | | | 974,097 | | | $ | 22.24 | | | | 10,983,033 | | | Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | | | Total equity compensation plans | | | 974,097 | | | $ | 22.24 | | | | 10,983,033 | |
(1) (1) | Represents 210,532 stock options granted to the Company’s current and former directors under the Directors’ Plan. Also includes 77,888 fully vested deferred stock units, including quarterly dividends earned, under the Director Deferral Program that are not included in the calculation of the weighted-average exercise price of outstanding options. |
(2) | The weighted-average exercise price of outstanding options relates solely to stock options, which are the only currently outstanding exercisable security. |
(3) | Does not include remaining Common Shares registered under the Directors’ Plan, as no further grants can be made under the Plan. |
Ownership of Certain Beneficial Owners and Management As discussed in “Corporate Governance, Risk Oversight and Procedures for Shareholder Communications—Share Ownership Guidelines,” the Company has adopted share ownership guidelines for its Board of Directors and executive officers. The determination of “beneficial ownership” for purposes of this proxy statement has been based on information reported to the Company and the rules and regulations of the Securities and Exchange Commission. References below to “beneficial ownership” by a particular person, and similar references, should not be construed as an admission or determination by the Company that Common Shares in fact are beneficially owned by such person. The following table sets forth information regarding the beneficial ownership of the Company’s Common Shares as of March 19, 2021 with respect to (a) each current director and director nominee, (b) each named executive officer, (c) all of the Company’s directors underand executive officers as a group and (d) each person known by the Directors’ Plan. (2) Excludes 42,870Company to be the beneficial owner of greater than a 5% interest in the Company’s Common Shares. Unless otherwise indicated, all Common Shares issuedare owned directly and the indicated person has sole voting and investment power, and the address of each named person is c/o Apple Hospitality REIT, Inc., 814 East Main Street, Richmond, Virginia 23219.47
Table of contents Title of Class | | Name of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | Percent of Class (1) | Common Shares | | | | | | | | | | | | | | | | | Directors and Executive Officers | | | | | | | | | | | | | | | Glenn W. Bunting | | | | 132,689 | | (2) | | | * | | | | | Jon A. Fosheim | | | | 51,106 | | (3) | | | * | | | | | Karen C. Gallagher | | | | 135,054 | | (4) | | | * | | | | | Kristian M. Gathright | | | | 1,078,238 | | (5) | | | * | | | | | Glade M. Knight | | | | 10,515,878 | | (4)(6)(7) | | | | 4.7 | % | | | | Justin G. Knight | | | | 1,769,430 | | (4)(8) | | | * | | | | | Nelson G. Knight | | | | 1,053,038 | | (4)(9) | | | * | | | | | Blythe J. McGarvie | | | | 32,638 | | (10) | | | * | | | | | Daryl A. Nickel | | | | 74,257 | | (11) | | | * | | | | | Bryan F. Peery | | | | 489,148 | | (12) | | | * | | | | | Elizabeth S. Perkins | | | | 115,715 | | (4) | | | * | | | | | Matthew P. Rash | | | | 98,745 | | (4) | | | * | | | | | L. Hugh Redd | | | | 121,809 | | (13) | | | * | | | | | Howard E. Woolley | | | | 1,915 | | | | | * | | | | | All directors and executive officers as a group (16 persons) | | | | 15,547,183 | | (14) | | | | 7.0 | % | | | | | | | | | | | | | | | | | | | More than Five Percent Beneficial Owners | | | | | | | | | | | | | | | The Vanguard Group, Inc. | | | | 29,027,828 | | (15) | | | | 13.0 | % | | | | BlackRock, Inc. | | | | 15,449,503 | | (16) | | | | 6.9 | % | |
| * | Less than one percent of class. |
| (1) | Based on 223,656,264 Common Shares outstanding as of the Record Date. |
| (2) | Includes 91,154 Common Shares that may be acquired upon the exercise of options, although no options have been exercised to date, and 10,000 shares held by the spouse of Glenn W. Bunting. |
| (3) | Includes 24,724 deferred stock units held under the Non-Employee Director Deferral Program. |
| (4) | Includes restricted Common Shares subject to time vesting. |
| (5) | Includes 1,076,604 shares held through a revocable trust. |
| (6) | Includes 9,837,031 shares held in a limited liability company which is 99% owned by an irrevocable trust (the “Estate Planning Trust”) for the benefit of Glade M. Knight’s children and other descendants. Glade M. Knight is the manager and sole voting member of the limited liability company and continues to have the sole power to vote and the sole power to transfer the shares held by the limited liability company. Justin G. Knight and Nelson G. Knight are trustees of the Estate Planning Trust. Each of Justin G. Knight and Nelson G. Knight disclaims beneficial ownership of the reported shares held in the limited liability company to the extent the shares reported exceed the reporting person’s pecuniary interest in such shares. |
| (7) | Includes 268,858 shares held by the spouse of Glade M. Knight. |
| (8) | Includes 304,504 shares held in a family limited partnership and 32,807 shares held in irrevocable trusts for the benefit of his children. Justin G. Knight disclaims beneficial ownership of the 304,504 shares held in a family limited partnership, except to the extent of his pecuniary interest therein; Justin G. Knight shares voting and dispositive control over such shares with Nelson G. Knight. |
| (9) | Includes 304,504 shares held in a family limited partnership and 37,601 shares held in irrevocable trusts for the benefit of his children. Nelson G. Knight disclaims beneficial ownership of the 304,504 shares held in a family limited partnership, except to the extent of his pecuniary interest therein; Nelson G. Knight shares voting and dispositive control over such shares with Justin G. Knight. |
| (10) | Includes 16,703 shares held in a trust. |
| (11) | Includes 31,603 deferred stock units held under the Non-Employee Director Deferral Program. |
| (12) | Beneficial ownership information for Mr. Peery is based on the last Form 4 filed by or on behalf of Mr. Peery during his employment as an executive officer through March 31, 2020 plus 35,070 shares granted to Mr. Peery on November 2, 2020 for his assistance in an advisory capacity. Includes 2,000 shares held by his children. |
| (13) | Includes 19,155 deferred stock units held under the Non-Employee Director Deferral Program. |
| (14) | Includes the Common Shares beneficially owned as of March 19, 2021 of all persons serving as directors and executive officers as of the date of this proxy statement. |
48
Table of contents | (15) | Based upon a Statement on Schedule 13G/A filed on February 10, 2021 with the SEC that indicated that The Vanguard Group, Inc. has sole voting power with respect to 0 Common Shares, shared voting power with respect to 593,187 Common Shares, sole dispositive power with respect to 28,270,113 Common Shares and shared dispositive power with respect to 757,715 Common Shares. The address of The Vanguard Group, Inc., as reported by it in the Schedule 13G/A, is 100 Vanguard Blvd., Malvern, PA 19355. |
| (16) | Based upon a Statement on Schedule 13G/A filed on January 29, 2021 with the SEC that indicated that BlackRock, Inc. has sole voting power with respect to 14,288,707 Common Shares and sole dispositive power with respect to 15,449,503 Common Shares. Blackrock, Inc. further reported that it is the parent holding company for certain persons or entities that have acquired the Company’s Common Shares and that are listed in that Schedule 13G/A. The address of BlackRock, Inc., as reported by it in the Schedule 13G/A, is 55 East 52nd Street, New York, NY 10055. |
Delinquent Section 16(a) Reports The Company’s directors and executive officers, and any persons holding more than 10% of the outstanding Common Shares, have filed reports with the Securities and Exchange Commission with respect to their initial ownership of Common Shares and any subsequent changes in that ownership. The Company believes that during 2015 under2020 each of its officers, directors and holders of more than 10% of the 2014 Omnibus Incentive Plan. Company’s outstanding Common Shares complied with the applicable filing requirements, except for one late filing covering the sale of 1,250 shares in November 2020 by Ms. Karen C. Gallagher which was corrected promptly upon discovery by a filing in February 2021.49
Table of contents Matters to be Presented at the 2017 2022Annual Meeting of Shareholders Any qualified shareholder who wishes to make a proposal to be acted upon next year at the 20172022 Annual Meeting of Shareholders must submit such proposal for inclusion in the proxy statement and proxy card to the Company at its principal office in Richmond, Virginia, by no later than November 29, 2016. December 1, 2021.In addition, the Company’s bylaws establish an advance notice procedure with regard to certain matters, including shareholder proposals not included in the Company’s proxy statement or nominees to the Board, to be brought before an annual meeting of shareholders. In general, notice must be received by the Secretary of the Company (i) on or after February 1st and before March 1st of the year in which the meeting will be held, or (ii) not less than 60 days before the date of the meeting if the date of such meeting is earlier than May 11st or later than May 3131st in such year. The notice must contain specified information concerning the matters to be brought before such meeting and concerning the shareholder proposing such matters. Therefore, assuming the Company’s 20172022 Annual Meeting is held in May 2017,2022, to be presented at such Annual Meeting, a shareholder proposal must be received by the Company on or after February 1, 20172022 but no later than February 28, 2017.
2022.Householding of Proxy Materials
Some banks, brokers and other record holders of Common Shares may participate in the practice of “householding” proxy statements, annual reports and Notices of Internet Availability of those documents. This means that, unless shareholders give contrary instructions, only one copy of the Company’s proxy statement, annual report or Notice of Internet Availability may be sent to multiple shareholders in each household. The Company will promptly deliver a separate copy of any of those documents to you if you write to the Company at Apple Hospitality REIT, Inc., 814 East Main Street, Richmond, Virginia 23219, Attn: Ms. Kelly Clarke, Investor ServicesRelations Department or call (804) 344-8121. If you want to receive separate copies of the Company’s proxy statement, annual report or Notice of Internet Availability in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should send your name, the name of your brokerage firm and your account number to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717 (telephone number: 1-800-542-1061)1-866-540-7095) or you may contact the Company at the above address or telephone number.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 12, 2016 13, 2021This proxy statement and the Annual Report are available at http://materials.proxyvote.com/03784Y.03784Y. In addition, shareholders may access this information, as well as transmit their voting instructions, at www.proxyvote.com by having their proxy card and related instructions in hand. | By Order of the Board of Directors | | | | David Buckley | | Secretary |
By Order of the Board of Directors 
Matthew P. Rash Secretary March 29, 2016 31, 2021THE COMPANY DEPENDS UPON ALL SHAREHOLDERS PROMPTLY VOTING TO AVOID COSTLY SOLICITATION. YOU CAN SAVE THE COMPANY CONSIDERABLE EXPENSE BY PROMPTLY TRANSMITTING YOUR VOTING INSTRUCTIONS ONLINE OR BY PHONE OR BY SIGNING AND RETURNING YOUR PROXY CARD IMMEDIATELY. 50
Table of contents Exhibit A
Proposed Amended and Restated Charter
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
APPLE HOSPITALITY REIT, INC. 814 EAST MAIN STREET RICHMOND,VA 23219
VOTE BY INTERNET - , AS AMENDED
ARTICLE I
NAME
The nameUse the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 p.m. Eastern Time on May 12, 2021. Have your proxy card in hand when you access the corporation (the “Corporation”) is Apple Hospitality REIT, Inc. ARTICLE II
PURPOSE
The Corporation is organizedweb site and follow the instructions to obtain your records and to create an electronic voting instruction form.ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the purpose of operating as a “real estate investment trust,” as definedinstructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 p.m. Eastern Time on May 12, 2021. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the Internal Revenue Code of 1986, as the same may be amended from timepostage-paid envelope we have provided or return it to time (the “Code”), and to acquire, own, operate, manage, lease, finance, refinance, dispose of and otherwise deal with real property (and personal property incidental thereto), and shall have the power to conduct all lawful activities incidental or related thereto, and to engage in any lawful business.Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: ARTICLE III
AUTHORIZED SHARES
KEEP THIS PORTION FOR YOUR RECORDS 3.1Number and Designation. The number and designation of shares that the Corporation shall have authority to issue are as follows:
ClassNumber of Shares
Common 800,000,000
Preferred430,480,00030,000,000
The Common Shares and the Preferred Shares shall have no par value per share. The Preferred Shares may be issued from time to time in one or more series. Notwithstanding anything to the contrary in these Articles of Incorporation, the Board of Directors, by adoption of an amendment of these Articles of Incorporation (“Articles of Amendment”), may fix in whole or in part the preferences, limitations, and relative rights, within the limits set forth in the Virginia Stock Corporation Act, of any series within the Preferred Shares prior to the issuance of any shares of that series.
3.2Preemptive Rights. No holder of outstanding shares shall have any preemptive right with respect to (i) any shares of the Corporation of any class, whether now or hereafter authorized, (ii) any warrants, rights or options to purchase any such shares, or (iii) any obligations convertible into any such shares or into warrants, rights or options to purchase any such shares.
3.3Debt Securities. The Board of Directors may, in its discretion, authorize and issue any notes, bonds, debentures or other obligations of the Corporation, including any obligations maturing more than one year after the date of issuance thereof, whether or not secured by assignment, pledge or mortgage of any property of the Corporation, on such terms and at such prices as the Board of Directors in its sole discretion determines.
ARTICLE IV
COMMON SHARES
4.1Voting Rights. The holders of the outstanding Common Shares shall, to the exclusion of the holders of any other class of shares of the Corporation, have the sole power to vote
for the election of directors and for all other purposes without limitation, except (i) as otherwise provided in the Articles of Amendment establishing any series of preferred shares, or (ii) as may be required by law.
4.2Distributions. The Board of Directors shall have the authority to declare dividends from funds available for such purposes under the Virginia Stock Corporation Act and shall declare such dividends to the extent necessary to ensure the Corporation’s qualification as a real estate investment trust under the Code. Subject to the rights of the holders of shares, if any, ranking senior to the Common Shares as to dividends or rights in liquidation, dissolution or winding up of the affairs of the Corporation, the holders of outstanding Common Shares shall be entitled to receive, if, when and as declared by the Board of Directors, dividends and distributions of the net assets of the Corporation upon the liquidation, dissolution or winding up of the affairs of the Corporation.
ARTICLE IVA
RECLASSIFICATION OF COMMON SHARES UPON LISTING
Immediately prior to, but subject to the effectiveness of, the initial listing of Common Shares on a national securities exchange (the “Listing”), all Common Shares issued and outstanding immediately prior to the date of the Listing (the “Listing Date”) shall be reclassified into a smaller number of such shares on the Listing Date in accordance with the following provisions of this Article IVA:
4.1AReclassification to Reduce Outstanding Common Shares. Each Common Share issued and outstanding immediately prior to the Listing Date shall, on the Listing Date, automatically and without any action on the part of the holder thereof, be reclassified into one-half (½) of such Common Share. Such reclassified Common Shares shall have the same respective voting rights, preferences and relative, participating, optional or other rights, and qualifications, limitations or restrictions set forth in these Articles of Incorporation immediately prior to the Listing Date with respect to Common Shares issued and outstanding immediately prior to the Listing Date. Such reclassified Common Shares shall be issued in fractions of one-thousandth of a share (rounded to integral multiples thereof). For the avoidance of doubt, the reclassification of Common Shares under this Section 4.1A shall not affect the total number of Common Shares the Corporation is authorized to issue under Section 3.1 of these Articles of Incorporation.
4.2ASurrender of Certificates. From and after the Listing Date, a holder of Common Shares in certificated form that were issued and outstanding immediately prior to the Listing Date shall not be entitled to receive distributions or to vote or to exercise any other rights as a shareholder until the holder’s certificate(s) representing such Common Shares are surrendered in exchange for one or more certificates representing the new number of Common Shares into which such Common Shares were reclassified. Upon such surrender, all distributions not paid because of this provision shall be paid without interest.
ARTICLE V
PREFERRED SHARES
5.1 Series A Preferred Shares. There are hereby designated Four Hundred Million (400,000,000) Series A Preferred Shares, no par value (the “Series A Preferred Shares”). The Series A Preferred Shares shall have the following preferences, limitations and relative rights:
(a) Relationship to Common Shares. For each Common Share issued (except upon conversion of the Series B Convertible Preferred Shares into Common Shares pursuant to Section 5.2(e)), each recipient will, in addition, receive one of the Series A Preferred Shares. No additional amount is due for each Series A Preferred Share that accompanies each Common Share. If the Corporation shall (i) pay a dividend on its outstanding Common Shares in Common Shares or subdivide or otherwise split its outstanding Common Shares, or (ii) combine its outstanding Common Shares into a smaller number of shares, the Series A Preferred Shares will be adjusted accordingly
so that the ratio of Common Shares to Series A Preferred Shares will always remain one to one so long as the Series A Preferred Shares remain outstanding. A Series A Preferred Share shall not be separately tradable from each Common Share to which it relates.
(b) Liquidation. In the event of liquidation, dissolution or winding up of the affairs of the Corporation, the holders of the outstanding Series A Preferred Shares shall be entitled to be paid in cash out of the net assets of the Corporation, including its capital, a liquidation payment of $11.00 per Series A Preferred Share as reduced by the amount of any Special Dividend, as such amount may be adjusted to reflect any and all adjustments made to the Common Shares, including but not limited to, any combinations, consolidations, recapitalizations, stock splits, stock dividends and the like,and no more, before any distribution or payment shall be made to the holders of any other shares of the Corporation. The balance of such assets, if any, shall be paid to the holders of the shares of the Corporation ranking junior to the Series A Preferred Shares as to rights in liquidation, according to their respective rights.
In the event the Corporation declares and pays one or more Special Dividends, the liquidation payment of $11.00 per Series A Preferred Share shall be reduced by the aggregate amount of such Special Dividends. For the purposes set forth in the preceding language of this Section 5.1(b), neither the consolidation of the Corporation with, nor the merger of the Corporation into, any other corporation, nor the lease of all, or substantially all, of the Corporation’s properties and assets shall, without further corporate action, be deemed a liquidation, dissolution or winding up of the affairs of the Corporation. If the net assets of the Corporation are insufficient to pay to the holders of the Series A Preferred Shares the full amounts to which they are respectively entitled, the entire net assets of the Corporation remaining shall be distributed ratably to the holders of the Series A Preferred Shares.
(c) Distributions. Other than the distribution to the holders of the Series A Preferred Shares pursuant to Section 5.1(b), the holders of the Series A Preferred Shares shall have no other distribution rights associated with such shares.
(d) Voting Rights.
(i) Except for the voting rights expressly conferred by this Section 5.1(d), and except to the extent provided by law, the holders of the outstanding Series A Preferred Shares shall not be entitled (x) to vote on any matter, or (y) to receive notice of, or to participate in, any meeting of shareholders of the Corporation at which they are not entitled to vote.
(ii) The affirmative vote of the holders of more than two-thirds of the outstanding Series A Preferred Shares shall be required for (x) the adoption of any amendment, alteration or repeal of any provision of the Articles of Incorporation of the Corporation that adversely changes the preferences, limitations or relative rights of the Series A Preferred Shares or the holders thereof (it being understood that an increase in the number of directors of the Corporation is not such an adverse change), or (y) the authorization of, or the increase in the authorized number of shares of, any class of shares ranking senior to or on a parity with the Series A Preferred Shares as to rights in liquidation.
(iii) Whenever the holders of Series A Preferred Shares are entitled to vote as a separate voting group on any matter pursuant to the provisions of paragraph (ii) of this Section 5.1(d), the vote required to approve such matter shall be the affirmative vote of more than two-thirds of all the votes entitled to be cast by that voting group, with each share having one vote.
(iv) Notwithstanding anything to the contrary in paragraph (ii) or (iii) of this Section 5.1(d), the only vote of the Series A Preferred Shares required to approve any
matter described in Section 8.2 (including any amendment, alteration or repeal of any provision of the Articles of Incorporation in connection therewith) as to which the Series A Preferred Shares are required by law to vote as a separate voting group shall be the affirmative vote of a majority of all the votes entitled to be cast by that voting group, with each share having one vote.
(e) Conversion. The Series A Preferred Shares shall have no conversion rights.
(f) Termination. The Series A Preferred Shares shall terminate and have no liquidation preference or any other rights (and no further Series A Preferred Shares shall be issued) (i) upon the conversion of all the Series B Convertible Preferred Shares into Common Shares in accordance with Section 5.2(e) or (ii) in the event the Corporation pays one or more Special Dividends in an aggregate amount which causes the liquidation payment of a Series A Preferred Share to be zero in accordance with Section 5.1(b).
5.2 Series B Convertible Preferred Shares. There are hereby designated Four Hundred Eighty Thousand (480,000) Series B Convertible Preferred Shares, no par value (the “Series B Convertible Preferred Shares”). The Series B Convertible Preferred Shares shall have the following preferences, limitations and relative rights:
(a) Dividends.
(i) The holders of the outstanding Series B Convertible Preferred Shares shall not be entitled to receive dividends on such Series B Convertible Preferred Shares.
(b) Voting Rights.
(i) Except for the voting rights expressly conferred by this Section 5.2(b), and except to the extent provided by law, the holders of the outstanding Series B Convertible Preferred Shares shall not be entitled (x) to vote on any matter, or (y) to receive notice of, or to participate in, any meeting of shareholders of the Corporation at which they are not entitled to vote.
(ii) The affirmative vote of the holders of more than two-thirds of the outstanding Series B Convertible Preferred Shares shall be required for (x) the adoption of any amendment, alteration or repeal of any provision of the Articles of Incorporation of the Corporation that adversely changes the preferences, limitations or relative rights of the Series B Convertible Preferred Shares or the holders thereof (it being understood that an increase in the number of directors of the Corporation is not such an adverse change), or (y) the authorization of, or the increase in the authorized number of shares of, any class of shares ranking senior to or on a parity with the Series B Convertible Preferred Shares as to rights in liquidation.
(iii) Whenever the holders of Series B Convertible Preferred Shares are entitled to vote as a separate voting group on any matter pursuant to the provisions of paragraph (ii) of this Section 5.2(b), the vote required to approve such matter shall be the affirmative vote of more than two-thirds of all the votes entitled to be cast by that voting group, with each share having one vote.
(iv) Notwithstanding anything to the contrary in paragraph (ii) or (iii) of this Section 5.2(b), the only vote of the Series B Convertible Preferred Shares required to approve any matter described in Section 8.2 (including any amendment, alteration or repeal of any provision of the Articles of Incorporation in connection therewith) as to which the Series B Convertible Preferred Shares are required by law to vote as a separate voting group shall be the affirmative vote of a majority of all the votes entitled to be cast by that voting group, with each share having one vote.
(c) Redemption. The Corporation may not redeem all or any portion of the outstanding Series B Convertible Preferred Shares.
(d) Liquidation. In the event of the liquidation, dissolution or winding up of the affairs of the Corporation, subject to the rights of the holders of the Series A Preferred Shares, the holders of the outstanding Series B Convertible Preferred Shares shall be entitled to be paid in cash out of the net assets of the Corporation, including its capital, a liquidation payment of $11.00 per number of Common Shares each Series B Convertible Preferred Share would be convertible into according to the formula contained in Section 5.2(e)(i) (as such amount may be adjusted to reflect any and all adjustments made to the Common Shares, including but not limited to, any combinations, consolidations, recapitalizations, stock splits, stock dividends and the like), and no more, before any distribution or payment shall be made to the holders of any shares of the Corporation ranking junior to the Series B Convertible Preferred Shares. For the purposes of the preceding sentence, neither the consolidation of the Corporation with nor the merger of the Corporation into any other corporation, nor the lease of all, or substantially all, of the Corporation’s properties and assets shall, without further corporate action, be deemed a liquidation, dissolution or winding up of the affairs of the Corporation. The cash payment conferred by this Section 5.2(d) to the holders of the Series B Convertible Shares will be made only to the extent the Series B Convertible Preferred Shares have not been previously converted. If the net assets of the Corporation are insufficient to pay to the holders of the Series B Convertible Preferred Shares the full amounts to which they are respectively entitled, the entire net assets of the Corporation remaining shall be distributed ratably to the holders of the Series B Convertible Preferred Shares and the holders of other preferred shares, if any, ranking on a parity with the Series B Convertible Preferred Shares as to rights in liquidation in proportion to the full amounts to which they are respectively entitled. After the payment of (i) the full liquidation preference of the Series A Preferred Shares set forth in Section 5.1(b) above and (ii) the full liquidation preference of the Series B Convertible Preferred Shares set forth in this section 5.2(d), the remaining net assets of the Corporation, if any, shall be distributed ratably to the holders of Common Shares and Series B Convertible Preferred Shares on an as-if-converted to Common Shares basis.
(e) Conversion.
(i) Each holder of outstanding Series B Convertible Preferred Shares shall have the right to convert any of such shares into Common Shares of the Corporation upon and for 180 days following the occurrence of either of the following events (each a “Triggering Event”): (x) the sale or transfer of substantially all of the Corporation’s assets, shares or business, whether through exchange, merger, consolidation, lease, share exchange or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the affairs of the Corporation, (y) the termination or expiration without renewal of the Advisory Agreement with the Advisor, or if the Corporation ceases to use the Property Broker to provide property acquisition and disposition services, or (z) the listing of the Common Shares on a national exchange or quotation system or in any established market.
[Remainder of this page intentionally left blankRESERVED]
Upon the occurrence of any Triggering Event, each Series B Convertible Preferred Share may be converted into a number of Common Shares based upon the gross proceeds raised through the date of conversion in the public offering or offerings of the Corporation’s Common Shares made by a Prospectus according to the following table:
Gross Proceeds Raised from Sales
of Units through Date of Conversion
| | Number of Common Shares
through Conversion of
One Series B Convertible
Preferred Share
| $ 50 million
| | | 0.46160
| | $100 million
| | | 0.92321
| | $200 million
| | | 1.83239
| | $300 million
| | | 3.19885
| | $400 million
| | | 4.83721
| | $500 million
| | | 6.11068
| | $600 million
| | | 7.29150
| | $700 million
| | | 8.49719
| | $800 million
| | | 9.70287
| | $900 million
| | | 10.90855
| | $1 billion
| | | 12.11423
| | $1.1 billion
| | | 13.31991
| | $1.2 billion
| | | 14.52559
| | $1.3 billion
| | | 15.73128
| | $1.4 billion
| | | 16.93696
| | $1.5 billion
| | | 18.14264
| | $1.6 billion
| | | 19.34832
| | $1.7 billion
| | | 20.55400
| | $1.8 billion
| | | 21.75968
| | $1.9 billion
| | | 22.96537
| | $2 billion
| | | 24.17104
| |
In the event that after raising gross proceeds of $2 billion in the public offering or offerings of the Corporation’s Common Shares by a Prospectus, the Corporation engages in additional public offerings or offering of the Corporation’s Common Shares made by a Prospectus, then upon the occurrence of any Triggering Event, each Series B Convertible Preferred Share may be converted into an additional number of Common Shares based upon the gross proceeds raised through the date of conversion (the “Additional Gross Proceeds”) in that additional public offering or offerings according to the following formula:
(X/100 million) x 1.20568, where X is the Additional Gross Proceeds rounded down to the nearest 100 million.
(ii) Each holder of outstanding Series B Convertible Preferred Shares may exercise the conversion right provided in paragraph (e)(i) above as to all or any portion of the shares he holds by delivering to the Corporation during regular business hours, at the principal office of the Corporation or at such other place as may be designated in writing by the Corporation, the certificate or certificates for the shares to be converted, duly endorsed or assigned in blank or endorsed or assigned to the Corporation (if so required), or if such shares are not evidenced by a certificate or certificates, a written notice of election, accompanied in either such case by written notice stating that the holder elects to convert such shares and stating the name or names (with address and applicable social security or other tax identification number) in which the Common Shares are to be issued. Conversion shall be deemed to have been effected on the date (the “Conversion Date”) when such delivery is made. As promptly as practicable thereafter, the Corporation shall issue and deliver to or upon the written order of such holder, at such office or other place designated by the Corporation, a certificate or certificates for the number of Common Shares to which he is entitled (or shall cause such Common Shares to be duly issued as required herein, if the Common Shares are uncertificated). The person in whose name the Common Shares are to be issued shall be deemed to have become a shareholder of record on the Conversion Date, unless
the transfer books of the Corporation are closed on that date, in which event he shall be deemed to have become a shareholder of record on the next succeeding date on which the transfer books are open; but the Conversion Ratio shall be that in effect on the Conversion Date. The Corporation may issue fractional Common Shares upon conversion of Series B Convertible Preferred Shares.
(iii) The issuance of Common Shares on conversion of outstanding Series B Convertible Preferred Shares shall be made by the Corporation without charge for expenses or for any tax in respect of the issuance of such Common Shares, but the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of Common Shares in any name other than that of the holder of record on the books of the Corporation of the outstanding Series B Convertible Preferred Shares converted, and the Corporation shall not be required to issue or deliver any certificate for Common Shares unless and until the person requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.
(iv) The term “Fair Market Value” of one Common Share, as used in this Section 5.2(e) shall, if the Common Shares are traded in the over-the-counter market, be deemed to be the mean between the bid and asked prices on the date the value is required to be determined, as reported by NASDAQ or any similar service, and if the Common Shares are listed and traded on a national stock exchange, be deemed to be the closing price of the Common Shares for such day derived from the New York Stock Exchange Composite Tape or any similar service; provided, however, that if the Common Shares are not traded on that date, then the Fair Market Value shall be determined, in the manner set forth above, on the most recent preceding business day on which the Common Shares were traded; provided further, however, that if the Fair Market Value of the Common Shares cannot be determined in accordance with the foregoing provisions (for example, if the Common Shares are not traded), the Fair Market Value of the Common Shares shall be determined in good faith by the Corporation’s Board of Directors. The term “Conversion Ratio,” as used herein, shall mean, as of any date, the number of Common Shares into which each Series B Convertible Preferred Share is convertible on that date. The initial Conversion Ratio shall be as set forth in Section 5.2(e)(i), but shall be adjusted as described below.
(v) The Conversion Ratio shall be subject to the following adjustments:
(A) If the Corporation shall (y) pay a dividend on its outstanding Common Shares in Common Shares or subdivide or otherwise split its outstanding Common Shares, or (z) combine its outstanding Common Shares into a smaller number of shares, the Conversion Ratio shall be adjusted so that the holder of any Series B Convertible Preferred Shares surrendered for conversion after such event shall be entitled to receive the same aggregate number of Common Shares that he would have been entitled to receive had such shares been converted immediately prior to any such event and such event had then occurred.
(B) If the Corporation shall issue rights, warrants or options to all holders of its Common Shares entitling them to subscribe for or purchase Common Shares at a price per share which is less than the Current Market Value per share (as hereinafter defined) on the record date mentioned below, the Conversion Ratio shall be adjusted to an amount determined by multiplying the Conversion Ratio in effect immediately prior to the issuance of such rights, warrants or options by a fraction, (y) the numerator of which shall be the number of Common Shares outstanding at the close of business on
the date of issuance of such rights, warrants or options plus the number of additional Common Shares offered for subscription pursuant to such rights, warrants or options and (z) the denominator of which shall be the number of Common Shares outstanding at the close of business on the date of issuance of such rights, warrants or options plus the number of Common Shares which the aggregate exercise price of all such rights, warrants or options would purchase at such Current Market Value. Such adjustment shall be retroactively effective to the time immediately after the record date for the determination of the shareholders entitled to receive such rights, warrants or options. For the purposes of this Section 5.2(e)(v), the “Current Market Value” per Common Share on any date shall be deemed to be the average of the Fair Market Value of one Common Share (as defined in Section 5.2(e)(iv)) on each of the 20 consecutive trading days commencing 40 trading days before such date (a trading day being a day on which securities are traded in the over-the-counter market or, if the Common Shares are then listed on any national stock exchange, on such exchange), and if the Common Shares are not then traded, the Fair Market Value of one Common Share (as determined under Section 5.2(e)(iv)) as of the date in question.
(C) If the Corporation shall make a distribution to all holders of its Common Shares of evidences of its indebtedness or assets (excluding dividends paid in cash out of funds available for dividends in accordance with applicable law), or rights, warrants or options to subscribe for or purchase securities of the Corporation (other than those referred to in subparagraph (B) of this Section 5.2(e)(v)), the Conversion Ratio immediately prior to such distribution shall be adjusted to an amount determined by multiplying such Conversion Ratio by a fraction, (y) the numerator of which shall be the Current Market Value of one Common Share (as defined in subparagraph (B) of this Section 5.2(e)(v)), and (z) the denominator of which shall be the Current Market Value of one Common Share on the next full business day after the record date fixed for the determination of the shareholders entitled to such distribution less the fair value (as conclusively determined in good faith by the Board of Directors of the Corporation) at the time of such distribution of that portion of the evidences of indebtedness, assets, or the rights, warrants or options, distributed which is applicable to one Common Share. Such adjustment shall be retroactively effective to a time immediately after such record date.
(vi) Notwithstanding any of the foregoing provisions of this Section 5.2(e), no adjustment of the Conversion Ratio shall be made (i) if the Corporation shall issue Common Shares or rights, warrants or options to purchase Common Shares pursuant to one or more stock purchase plans, stock option plans, stock purchase contracts, incentive compensation plans, or other remuneration plans for employees (including officers) or directors of the Corporation or its Subsidiaries adopted or approved as required by law at any time or, (ii) in respect of any right granted by the Corporation to all holders of its Common Shares to purchase Common Shares at a discount from their Current Market Value by the reinvestment of dividends paid on its Common Shares.
(vii) If any Series B Convertible Preferred Shares are converted into Common Shares after the record date for the occurrence of any of the events described in subparagraphs (A), (B) or (C) of Section 5.2(e)(v) but before the occurrence of such event, the Corporation may defer, until the occurrence of such event, issuing to the holder of Series B Convertible Preferred Shares so converted the Common Shares which he is entitled to receive because of the adjustments required pursuant to any such subparagraph.
(viii) Whenever there is a required adjustment to the Conversion Ratio, such adjustment shall be made to the Conversion Ratio applicable to each step in the formula set forth in Section 5.2(e)(i) so that the adjustment given effect at the time of conversion is applied to the Conversion Ratio applicable to the amount of gross proceeds raised through the date of conversion. Anything in this Section 5.2(e) to the contrary notwithstanding, no adjustment to the Conversion Ratio shall be required unless such adjustment would require an increase or decrease of at least 0.00001 in such ratio; provided, however, that any adjustments which by reason of this Section 5.2(e) are not required to be made shall be carried forward and taken into account in making subsequent adjustments. All calculations under this Section 5.2(e) shall be made to the nearest 0.000001.
(ix) Whenever the Conversion Ratio is adjusted pursuant to this Section 5.2(e), the Corporation shall (i) promptly place on file at its principal office and at the office of each transfer agent, if any, for the Series B Convertible Preferred Shares, a statement, signed by the Chairman or President of the Corporation showing in detail the facts requiring such adjustment and a computation of the adjusted Conversion Ratio, and shall make such statement available for inspection by shareholders of the Corporation, and (ii) cause a notice to be mailed to each holder of record of outstanding Series B Convertible Preferred Shares stating that such adjustment has been made and setting forth the adjusted Conversion Ratio.
(x) In the event of any reclassification or recapitalization of the outstanding Common Shares (except a change in par value, or from no par value to par value, or subdivision or other split or combination of shares), or in case of any consolidation or merger to which the Corporation is a party, except a merger in which the Corporation is the surviving corporation and which does not result in any such reclassification or recapitalization, the Corporation or the successor or purchasing business entity shall provide (i) that the holder of each Series B Convertible Preferred Share then outstanding shall thereafter have the right to convert such share into the kind and amount of stock and other securities and property receivable, upon such reclassification, recapitalization, consolidation or merger by a holder of the number of Common Shares of the Corporation into which such Series B Convertible Preferred Shares might have been converted, and (ii) that there shall be subsequent adjustments of the Conversion Ratio which shall be equivalent, as nearly as practicable, to the adjustments provided for in this Section 5.2(e). The provisions of this paragraph (x) of this Section 5.2(e) shall similarly apply to successive reclassifications, recapitalizations, consolidations or mergers.
(xi) Common Shares issued on conversion of Series B Convertible Preferred Shares shall be issued as fully paid shares and shall be nonassessable by the Corporation. The Corporation shall, at all times, reserve and keep available, for the purpose of effecting the conversion of the outstanding Series B Convertible Preferred Shares, such number of its duly authorized Common Shares as shall be sufficient to effect the conversion of all of the outstanding Series B Convertible Preferred Shares.
(xii) Series B Convertible Preferred Shares converted as provided herein shall not again become available for issuance.
ARTICLE VI
LIMIT ON LIABILITY AND INDEMNIFICATION
6.1Limit on Liability. In every instance in which the Virginia Stock Corporation Act, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of liability of directors or officers of a corporation to the corporation or its shareholders, the directors and officers of the Corporation shall not be liable to the Corporation or its shareholders.
6.2Mandatory Indemnification. The Corporation shall indemnify any individual who is, was or is threatened to be made a party to a civil, criminal, administrative, investigative or other proceeding (including a proceeding by or in the right of the Corporation or by or on behalf of its shareholders) because such individual is or was a director or officer of the Corporation or of any legal entity controlled by the Corporation, or is or was a fiduciary of any employee benefit plan established at the direction of the Corporation, against all liabilities and reasonable expenses incurred by him on account of the proceeding, provided that the directors of the Corporation (excluding the indemnified party) determine in good faith that his course of conduct which caused the loss or liability was in the best interests of the Corporation, and provided further that such liabilities and expenses were not incurred because of his willful misconduct, bad faith, reckless disregard of duties or knowing violation of the criminal law. Before any indemnification is paid, a determination shall be made that indemnification is permissible in the circumstances because the person seeking indemnification is eligible for indemnification and has met the standard of conduct set forth above. Such determination shall be made in the manner provided by Virginia law for determining that indemnification of a director is permissible, provided, however, that if a majority of the directors of the Corporation has changed after the date of the alleged conduct giving rise to a claim for indemnification, the determination that indemnification is permissible shall, at the option of the person claiming indemnification, be made by special legal counsel agreed upon by the Board of Directors and such person. Unless a determination has been made that indemnification is not permissible, the Corporation shall make advances and reimbursement for expenses incurred by any person named above upon receipt of an undertaking from him to repay the same if it is ultimately determined that such individual is not entitled to indemnification. The Corporation is authorized to contract in advance to indemnify any of the persons named above to the extent it is required to indemnify them pursuant to the provisions of this Section 6.2.
Notwithstanding the above, indemnification will not be allowed for any liability imposed by judgment, and costs associated therewith, including attorneys’ fees, arising from or out of an alleged violation of federal or state securities laws associated with the public offering of the Common Shares unless (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee, or (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities of the Corporation were offered or sold as to indemnification for violations of securities laws.
6.3Miscellaneous. The rights of each person or entity entitled to indemnification under this Article shall inure to the benefit of such person’s or entity’s heirs, executors, administrators, successors or assigns. Indemnification pursuant to this Article shall not be exclusive of any other right of indemnification to which any person or entity may be entitled, including indemnification pursuant to a valid contract, indemnification by legal entities other than the Corporation, and indemnification under policies of insurance purchased and maintained by the Corporation or others. However, no person or entity shall be entitled to indemnification by the Corporation to the extent such person or entity is indemnified by another, including an insurer.
6.4Amendments. No amendment, modification or repeal of this Article shall diminish the rights provided hereunder to any person or entity arising from conduct or events occurring before the adoption of such amendment, modification or repeal.
ARTICLE VII
BOARD OF DIRECTORS
The number of directors of the Corporation shall be fixed in the bylaws. The number of directors shall be divided into three groups with each group containing one third of the total, as
nearly equal in number as possible. The terms of the directors in the first group shall expire at the first annual meeting of shareholders. The terms of the directors in the second group shall expire at the second annual meeting of shareholders and the terms of directors in the third group shall expire at the third annual meeting of shareholders. At each annual meeting of shareholders, one group of directors shall be elected for a term of three years to succeed those whose terms expire.
7.1Terms of Directors.The number of directors of the Corporation shallbe determined in accordance with the Bylaws. Until the 2018 annual meeting of shareholders, the directors of the Corporation shall be divided into three classes, each consisting of approximately one-third of the total number of directors. At the 2016 annual meeting of shareholders, the directors who shall be elected at the 2016 annual meeting to fill the directorships held by directors whose terms expire at the 2016 annual meeting shall be elected for one-year terms expiring at the 2017 annual meeting of shareholders; at the 2017 annual meeting of shareholders, the directors who shall be elected at the 2017 annual meeting to fill the directorships held by directors whose terms expire at the 2017 annual meeting shall be elected for one-year terms expiring at the 2018 annual meeting of shareholders; at the 2018 annual meeting of shareholders, the terms of all directors shall expire and at such annual meeting and at each annual meeting thereafter, all directors shall be elected for one-year terms expiring at the next annual meeting. From and after the 2018 annual meeting of shareholders, the directors shall no longer be divided into classes. Each director elected at the 2016 annual meeting of shareholders shall serve a one-year term as provided in this Article VII notwithstanding that the Articles effecting these amendments to declassify the Board of Directors as provided herein may be filed with the Virginia State Corporation Commission after the 2016 annual meeting of shareholders at which such director was elected and these amendments were adopted by the shareholders.
ARTICLE VIII
AMENDMENT OF ARTICLES
SHAREHOLDER VOTE ON CERTAIN MATTERS
8.1Amendment of Articles. Except as may be otherwise required by law or these Articles with respect to any outstanding series of Preferred Shares, these Articles (other than Article VII) may be amended at any time, and from time to time, upon the vote of the holders of a majority of the issued and outstanding Common Shares of the Corporation. Article VII of these Articles may be amended at any time, and from time to time, upon the vote of the holders of more than two-thirds of the issued and outstanding Common Shares of the Corporation.
8.2Votes on Certain Matters. The Corporation’s shareholders, by vote of the holders of a majority of the issued and outstanding Common Shares of the Corporation and a majority of the votes entitled to be voted by any other voting group required by law to vote thereon as a separate voting group, may vote to approve a plan of merger, share exchange or dissolution, or to sell, lease, exchange, or otherwise dispose of all, or substantially all, of the Corporation’s property otherwise than in the usual and regular course of business.
8.3Amendment of Bylaws. From and after the effectiveness of the initial listing of Common Shares on a national securities exchange, the Bylaws of the Corporation may be amended or repealed, or new bylaws adopted, at any time, and from time to time, (i) by the Board of Directors or (ii) upon the vote of the holders of a majority of the issued and outstanding Common Shares of the Corporation, and the shareholders in amending, repealing or adopting a bylaw may, except as prohibited by applicable law, expressly provide that the Board of Directors may not amend, repeal or reinstate that bylaw.
ARTICLE IX
DEFINITIONS AND INTERPRETATIONS
9.1 Definitions. As used in these Articles, unless the context otherwise requires, the following terms shall have the following meanings:
“Advisor” means the company with which the Corporation first enters into an advisory agreement (and any successor in interest to such company, which is an affiliate of such company).
“Advisory Agreement” means the Advisory Agreement between the Corporation and the Advisor, as it may be in effect from time to time.
“Property Broker” means the company with which the Corporation first enters into a property acquisition/disposition agreement (and any successor in interest to such company, which is an affiliate of such company).
“Prospectus” means the final version of the prospectus of the Corporation in connection with the registration of the Corporation’s Common Shares under one or more registration statements filed with the United States Securities and Exchange Commission on Form S-11 or Form S-3, as amended and supplemented, or any successor or similar forms.
“Special Dividend” means any dividend payable to the holders of the Corporation’s Common Shares which the Board of Directors in its sole discretion (i) finds to be other than an ordinary dividend and (ii) declares by resolution to be a Special Dividend.
“Subsidiary” means any corporation a majority of the outstanding voting shares of which is owned, directly or indirectly, by the Corporation, by one or more Subsidiaries of the Corporation or by the Corporation and one or more Subsidiaries of the Corporation.
9.19.2 Interpretations. For the purpose of these Articles, the shares of any class of the Corporation shall be deemed to rank as follows:
(a)senior to a series of preferred shares, either as to dividends or as to rights in liquidation, if the holders of such shares shall be entitled to the receipt of dividends or of amounts distributable upon the liquidation, dissolution or winding up of the affairs of the Corporation, as the case may be, in preference or priority to the holders of that series of preferred shares;
(b)on a parity with a series of preferred shares, either as to dividends or as to rights in liquidation, whether or not the dividend rates, dividend payment dates, or redemption or liquidation prices per share thereof be different from those of that series of preferred shares, if the holders of such shares shall be entitled to the same rights of that series of preferred shares as to the receipt of dividends or of amounts distributable upon the liquidation, dissolution or winding up of the affairs of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority of one over the other as between the holders of such shares; and
(c)junior to a series of preferred shares, either as to dividends or as to rights in liquidation, if such shares shall be Common Shares or if the holders of the series of preferred shares shall be entitled to the receipt of dividends or of amounts distributable upon the liquidation, dissolution or winding up of the affairs of the Corporation, as the case may be, in preference or priority to the holders of such shares.
ARTICLE X
RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES
10.1Definitions. For the purpose of this Article X, the following terms shall have the following meanings:
“Beneficial Ownership” The term “Beneficial Ownership” shall mean ownership of Shares (as defined below) by a Person, whether the interest in the Shares is held directly or indirectly (including by a nominee) by such Person, and shall include interests that would be treated as owned by any Person through the application of Section 544 of the Code, as modified by Sections 856(h)(1)(B) and
856(h)(3) of the Code. The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.
“Business Day” The term “Business Day” shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York, New York are authorized or required by law, regulation or executive order to close.
“Charitable Beneficiary” The term “Charitable Beneficiary” shall mean one or more beneficiaries of the Charitable Trust as determined pursuant to Section 10.3.(g), provided that each such organization must be described in Sections 501(c)(3), 170(b)(1)(A) and 170(c)(2) of the Code.
“Charitable Trust” The term “Charitable Trust” shall mean any trust provided for in Section 10.2.(b)(i) and Section 10.3.
“Charitable Trustee” The term ���Charitable Trustee” shall mean the Person unaffiliated with both the Corporation and the relevant Prohibited Owner that is appointed by the Corporation to serve as trustee of the Charitable Trust.
“Common Share Ownership Limit” The term “Common Share Ownership Limit” shall mean not more than 9.8% (or such lower amount designated by the Board of Directors pursuant to Section 10.2.(j)) (in value or in number of Shares, whichever is more restrictive) of the aggregate of the outstanding Common Shares.
“Constructive Ownership” The term “Constructive Ownership” shall mean ownership of Shares by a Person who is or would be treated as an owner of such Shares either actually or constructively through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Own,” “Constructively Owns” and “Constructively Owned” shall have the correlative meanings.
“Initial Date” The term “Initial Date” shall mean the date of the consummation of the initial public offering of the Corporation (but only, with respect to such date, from and after such consummation).
“Market Price” The term “Market Price” on any date shall mean, with respect to any class or series of outstanding Shares, the Closing Price for such Shares on such date. The “Closing Price” on any date shall mean the last sale price for such Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Shares, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trade on the NYSE or, if such Shares are not listed or admitted to trade on the NYSE, as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such Shares are listed or admitted to trading or, if such Shares are not listed or admitted to trade on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the principal automated quotation system that may then be in use or, if such Shares are not quoted by any such system, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such Shares selected by the Board of Directors or, in the event that no trading price is available for such Shares, the fair market value of Shares, as determined in good faith by the Board of Directors.
“Non-Transfer Event” The term “Non-Transfer Event” shall mean any event or other changes in circumstances other than a purported Transfer, including, without limitation, any change in the value of any Shares and any redemption of any Shares.
“NYSE” The term “NYSE” shall mean the New York Stock Exchange.
“Person” The term “Person” shall mean an individual, corporation, partnership, limited liability company, estate, trust (including, without limitation, a trust qualified under Sections 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
“Preferred Share Ownership Limit” The term “Preferred Share Ownership Limit” shall mean, with respect to any class or series of Preferred Shares, not more than 9.8% (in value or in number of Shares, whichever is more restrictive) of the aggregate of the outstanding Shares of such class or series of Preferred Shares.
“Prohibited Owner” The term “Prohibited Owner” shall mean, with respect to any purported Transfer or Non-Transfer Event, any Person who, but for the provisions of Section 10.2., would Beneficially Own or Constructively Own Shares, and if appropriate in the context, shall also mean any Person who would have been the record owner of Shares that the Prohibited Owner would have so owned.
“REIT” The term “REIT” shall mean a real estate investment trust within the meaning of Sections 856 through 859 of the Code.
“Shares” The term “Shares” shall mean all shares of capital stock that the Corporation is authorized to issue under these Articles.
“Transfer” The term “Transfer” shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event that causes any Person to acquire or have Beneficial Ownership or Constructive Ownership, or any agreement to take any such actions or cause any such events, of Shares or the right to vote or receive dividends or distributions on Shares, including (a) a change in the capital structure of the Corporation, (b) a change in the relationship between two or more Persons which causes a change in ownership of Shares by application of Section 544 of the Code, as modified by Section 856(h) of the Code, (c) the granting or exercise of any option or warrant (or any acquisition or disposition of any option or warrant), pledge, security interest, or similar right to acquire Shares, (d) any acquisition or disposition of any securities or rights convertible into or exchangeable for Shares or any interest in Shares or any exercise of any such conversion or exchange right and (e) Transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Shares; in each case, whether voluntary or involuntary, whether owned of record, Constructively Owned or Beneficially Owned and whether by operation of law or otherwise. The terms “Transferring” and “Transferred” shall have the correlative meanings.
10.2 Share Ownership Limitations.
(a)Basic Restrictions.
(i) No Person shall Beneficially Own or Constructively Own Common Shares in excess of the Common Share Ownership Limit unless, as provided in Section 10.2(i), the Board of Directors, in its sole and absolute discretion, increases the Common Share Ownership Limit, in which case no Person shall Beneficially Own or Constructively Own Common Shares in excess of such modified Common Share Ownership Limit.
(ii) No Person shall Beneficially Own or Constructively Own Preferred Shares in excess of the Preferred Share Ownership Limit unless, as provided in Section 10.2(i), the Board of Directors, in its sole and absolute discretion, increases the Preferred Share Ownership Limit, in which case no Person shall Beneficially Own or Constructively Own Preferred Shares in excess of such modified Preferred Share Ownership Limit.
(iii) No Person shall Beneficially Own or Constructively Own Shares to the extent that:
(1) such Beneficial Ownership or Constructive Ownership of Shares would result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year);
(2) such Beneficial Ownership or Constructive Ownership of Shares would result in (a) the Corporation owning (directly or indirectly) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Corporation (either directly or indirectly through one or more partnerships or limited liability companies) from such tenant for the taxable year of the Corporation during which such determination is being made would reasonably be expected to equal or exceed the lesser of (I) one percent (1%) of the Corporation’s gross income (as determined for purposes of Section 856(c) of the Code), or (II) an amount that would cause the Corporation to fail to satisfy any of the gross income requirements of Section 856(c) of the Code or (b) any manager or operator of a “qualified lodging facility,” within the meaning of Section 856(d)(9)(D) of the Code, leased by the Corporation (or any subsidiary of the Corporation) to one of its taxable REIT subsidiaries with respect to the Corporation failing to qualify as an “eligible independent contractor,” within the meaning of Section 856(d)(9)(A) of the Code, in either case if the income derived by the Corporation from such tenant or such taxable REIT subsidiary, taking into account any other income of the Corporation that would not qualify under the gross income requirements of Section 856(c) of the Code, would (or in the sole judgment of the Board of Directors, could) cause the Corporation to fail to satisfy any of such gross income requirements; or
(3) such Beneficial Ownership or Constructive Ownership of Shares would result in the Corporation otherwise failing to qualify as a REIT.
(iv) No Person shall Transfer any Shares if, as a result of the Transfer, the Shares would be Beneficially Owned by fewer than 100 Persons (determined without reference to the rules of attribution under the Code). Subject to Section 10.4 and notwithstanding any other provisions contained herein, any Transfer of Shares (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system) that, if effective, would result in Shares being Beneficially Owned by fewer than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void ab initio, and the intended transferee shall acquire no rights in such Shares.
(b) Transfer in Trust.
(i) If any Transfer of Shares (whether or not such Transfer is the result of a transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system) or Non-Transfer Event occurs which, if effective, would result in any Person Beneficially Owning or Constructively Owning Shares in violation of Section 10.2(a)(i), (ii), or (iii), then that number of Shares the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate Section 10.2(a)(i), (ii), or (iii) (rounded up to the nearest whole Share) shall be automatically transferred to a Charitable Trust for the benefit of a Charitable Beneficiary, as described in Section 10.3, effective as of the close of business on the Business Day prior to the date of such Transfer or Non-Transfer Event, and such Person shall acquire no rights in such Shares.
(ii) If the transfer to the Charitable Trust described in clause (i) of this subparagraph would not be effective for any reason to prevent the violation of Section 10.2(a)(i), (ii) or (iii), or would not prevent the Corporation from failing to qualify as a REIT, then the Transfer of that number of Shares that otherwise would cause any Person to violate Section 10.2(a)(i), (ii) or (iii) shall be void ab initio, and the intended transferee shall acquire no rights in such Shares.
(iii) In determining which Shares are to be transferred to a Charitable Trust in accordance with this Section 10.2.(b) and Section 10.3 hereof, Shares shall be so transferred to a Charitable Trust in such manner as minimizes the aggregate value of the Shares that are transferred to the Charitable Trust (except as provided in Section 10.2.(g)) and, to the extent not inconsistent therewith, on a pro rata basis.
(iv) To the extent that, upon a transfer of Shares pursuant to this Section 10.2.(b), a violation of any provision of Section 10.2.(a) would nonetheless be continuing (as, for example, where the ownership of Shares by a single Charitable Trust would result in the Shares being Beneficially Owned (determined under the principles of Section 856(a)(5) of the Code) by fewer than 100 persons), then Shares shall be transferred to that number of Charitable Trusts, each having a Charitable Trustee and a Charitable Beneficiary or Charitable Beneficiaries that are distinct from those of each other Charitable Trust, such that there is no violation of any provision of Section 10.2.(a) hereof.
(c)Remedies for Breach. If the Board of Directors or any duly authorized committee thereof shall at any time determine in good faith that a Transfer or Non-Transfer Event has taken place that results in a violation of Section 10.2(a) or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Shares in violation of Section 10.2(a) (whether or not such violation is intended), the Board of Directors or a committee thereof shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or Non-Transfer Event, including, without limitation, causing the Corporation to redeem Shares, refusing to give effect to such Transfer or Non-Transfer Event on the books of the Corporation or instituting proceedings to enjoin such Transfer or Non-Transfer Event; provided, however, that any Transfer or attempted Transfer or Non-Transfer Event in violation of Section 10.2(a) shall automatically result in the Transfer to the Charitable Trust described above, and, where applicable, such Transfer (or other event) shall be void ab initio as provided above irrespective of any action (or non-action) by the Board of Directors or a committee thereof.
(d)Notice of Restricted Transfer. Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of Shares that will or may violate Section 10.2.(a), or any Person who would have owned Shares that resulted in a transfer to the Charitable Trust pursuant to the provisions of Section 10.2.(b), shall immediately give written notice to the Corporation of such event or, in the case of such a proposed or attempted transaction, shall give at least fifteen (15) days prior written notice, and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such acquisition or ownership on the Corporation’s status as a REIT.
(e)Holders Required To Provide Information.
(i) Every holder of more than five percent (5%) (or such lower percentage as required by the Code or the Treasury Regulations promulgated thereunder) of the outstanding Shares, within thirty (30) days after the end of each taxable year, shall give written notice to the Corporation stating the name and address of such owner, the number of Shares Beneficially Owned and a description of the manner in which such Shares are held; provided, that a holder of record who holds outstanding Shares as nominee for another Person, which other Person is required to include in gross income
the dividends or distributions received on such Shares (an “Actual Owner”), shall give written notice to the Corporation stating the name and address of such Actual Owner and the number of Shares of such Actual Owner with respect to which the holder of record is nominee. Each holder shall provide to the Corporation such additional information as the Corporation may request in order to determine the effect, if any, of such Beneficial Ownership on the Corporation’s status as a REIT and to ensure compliance with the Common Share Ownership Limit or the Preferred Share Ownership Limit.
(ii) Each Person who is a Beneficial Owner or Constructive Owner of Shares and each Person (including the holder of record) who is holding Shares for a Beneficial Owner or Constructive Owner shall provide to the Corporation such information as the Corporation may request, in good faith, in order to determine the Corporation’s status as a REIT and to comply with requirements of any taxing authority or governmental authority or to determine such compliance and to ensure compliance with the Common Share Ownership Limit and the Preferred Share Ownership Limit.
(f)Remedies Not Limited. Subject to 10.4 of these Articles, nothing contained in this Section 10.2 shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its holders in preserving the Corporation’s status as a REIT.
(g)Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Section 10.2, Section 10.3 or any definition contained in Section 10.1, the Board of Directors shall have the power to determine the application of the provisions of this Section 10.2 or Section 10.3 with respect to any situation based on the facts known to it. If Section 10.2 or 10.3 requires an action by the Board of Directors and these Articles fail to provide specific guidance with respect to such action, the Board of Directors shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Sections 10.1, 10.2 or 10.3.
(h)Exemptions.
(i) Subject to Section 10.2.(a)(iii), the Board of Directors may exempt, prospectively or retroactively, a Person from the Common Share Ownership Limit or the Preferred Share Ownership Limit for purposes of the application of Section 10.2.(a)(i) or (ii), as applicable, if:
(1) the Board of Directors determines, in its sole discretion, based on representations and undertakings provided by such Person to the Board of Directors and/or other information submitted by such Person to the Board of Directors, that such Person is not an individual for purposes of Section 542(a)(2) of the Code (determined taking into account Section 856(h)(3)(A) of the Code);
(2) such Person submits to the Board of Directors information satisfactory to the Board of Directors, in its reasonable discretion, demonstrating that no Person who is an individual for purposes of Section 542(a)(2) of the Code (determined taking into account Section 856(h)(3)(A) of the Code) would be considered to Beneficially Own Common Shares in excess of the Common Share Ownership Limit or, Preferred Shares in excess of the Preferred Share Ownership Limit by reason of such Person’s ownership of Common Shares in excess of the Common Share Ownership Limit or Preferred Shares in excess of the Preferred Share Ownership Limit pursuant to the exemption granted under this subparagraph (h)(i);
(3) such Person submits to the Board of Directors information satisfactory to the Board of Directors, in its reasonable discretion,
demonstrating that clauses (2) and (3) of subparagraph (a)(iii) of this Section 10.2. will not be violated by reason of such Person’s ownership of Common Shares in excess of the Common Share Ownership Limit or Preferred Shares in excess of the Preferred Share Ownership Limit pursuant to the exemption granted under this subparagraph (h)(i); and
(4) such Person provides to the Board of Directors such representations and undertakings, if any, as the Board of Directors may, in its reasonable discretion, require to ensure that the conditions in clauses (1), (2) and (3) hereof are satisfied and will continue to be satisfied throughout the period during which such Person owns Common Shares in excess of the Common Share Ownership Limit or Preferred Shares in excess of the Preferred Share Ownership Limit pursuant to any exemption thereto granted under this subparagraph (h), and such Person agrees that any violation of such representations and undertakings or any attempted violation thereof will result in the application of the remedies set forth in this Section 10.2 (including, without limitation, Section 10.2.(f) with respect to Common Shares in excess of the Common Share Ownership Limit or Preferred Shares in excess of the Preferred Share Ownership Limit with respect to such Person (determined without regard to the exemption granted such Person under this subparagraph (h)(i).
(ii) Prior to granting any exemption pursuant to subparagraph (h)(i), the Board of Directors, in its sole and absolute discretion, may require a ruling from the Internal Revenue Service or an opinion of counsel, in either case in form and substance satisfactory to the Board of Directors, in its sole and absolute discretion as it may deem necessary or advisable in order to determine or ensure the Corporation’s status as a REIT; provided, however, that the Board of Directors shall not be obligated to require obtaining a favorable ruling or opinion in order to grant an exception hereunder. In addition, notwithstanding the receipt of any ruling or opinion, the Board of Directors may impose such conditions or restrictions as it deems appropriate in connection with granting such exception.
(iii) Subject to Section 10.2.(a)(iii), an underwriter that participates in a public offering or a private placement of Shares (or securities convertible into or exchangeable for Shares, if any) may Beneficially Own or Constructively Own Shares (or securities convertible into or exchangeable for Shares) in excess of the Common Share Ownership Limit or the Preferred Share Ownership Limit, but only to the extent necessary to facilitate such public offering or private placement.
(i) Increase in Common Share Ownership Limit or the Preferred Share Ownership Limit.
(i) Subject to the limitations provided in Section 10.2.(a)(iii) and this Section 10.2.(i), the Board of Directors may, in its sole and absolute discretion, from time to time increase the Common Share Ownership Limit or the Preferred Share Ownership Limit for any one or more Persons; provided, however, that:
(1) The Common Share Ownership Limit or the Preferred Share Ownership Limit may not be increased if, after giving effect to such change, either (x) five Persons who are considered individuals pursuant to Section 542 of the Code, as modified by Section 856(h)(3) of the Code, could Beneficially Own, in the aggregate, more than 49.9% of the value of the outstanding Shares (determined taking into account any reduction in the Common Share Ownership Limit or the Preferred Share Ownership Limit for other Persons being made contemporaneously pursuant to Section 10.2.(j)), or (y) either clause (2) or clause (3) of subparagraph (a)(iii) of Section 10.2.could be violated by any
Person for whom the Common Share Ownership Limit or the Preferred Share Ownership Limit is increased by reason of such Person’s ownership of Common Shares in accordance with the increased Common Share Ownership Limit or ownership of Preferred Shares in accordance with the increased Preferred Share Ownership Limit.
(2) Prior to the modification of the Common Share Ownership Limit or the Preferred Share Ownership Limit pursuant to this Section 10.2.(i), the Board of Directors, in its sole and absolute discretion, may require such opinions of counsel, affidavits, undertakings or agreements as it may deem necessary or advisable in order to determine or ensure the Corporation’s status as a REIT if the modification of the Common Share Ownership Limit or the Preferred Share Ownership Limit were to be made.
(j)Decrease in Common Share Ownership Limit or the Preferred Share Ownership Limit. The Board of Directors may from time to time decrease the Common Share Ownership Limit or the Preferred Share Ownership Limit for some or all Persons (including in connection with an increase of the Common Share Ownership Limit or the Preferred Share Ownership Limit pursuant to Section 10.2.(i) for some Persons); provided, however, that any such decreased Ownership Limit will not be effective for any Person whose percentage ownership in Common Shares or Preferred Shares, as the case may be, is in excess of the decreased Ownership Limit until such time as such Person’s percentage ownership of Common Shares or Preferred Shares, as the case may be, equals or falls below the decreased Ownership Limit, but any further acquisition of Common Shares or Preferred Shares, as the case may be, in excess of such percentage ownership of Common Shares or Preferred Shares, as the case may be, as decreased, will be in violation of the Ownership Limits.
(k)Legend. Each certificate for Shares shall bear substantially the following legend:
The Shares represented by this certificate are subject to restrictions on Beneficial Ownership, Constructive Ownership and Transfer. Subject to certain further restrictions and except as expressly provided in the Corporation’s Articles of Incorporation, (i) no Person may Beneficially Own or Constructively Own Common Shares of the Corporation in excess of 9.8% (in value or number of Shares, whichever is more restrictive) of the outstanding Common Shares of the Corporation; (ii) no Person may Beneficially Own or Constructively Own Preferred Shares of the Corporation in excess of 9.8% (in value or number of Shares, whichever is more restrictive) of the total outstanding Preferred Shares of the Corporation of such class or series; (iii) no Person may Beneficially Own or Constructively Own Shares of the Corporation that would result in the Corporation being “closely held” under Section 856(h) of the Code or otherwise cause the Corporation to fail to qualify as a REIT; (iv) no Person may Beneficially Own or Constructively Own Shares of the Corporation that would result in (a) the Corporation owning (directly or indirectly) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Corporation (either directly or indirectly through one or more partnerships or limited liability companies) from such tenant for the taxable year of the Corporation during which such determination is being made would reasonably be expected to equal or exceed the lesser of (I) one percent (1%) of the Corporation’s gross income (as determined for purposes of Section 856(c) of the Code), or (II) an amount that would cause the Corporation to fail to satisfy any of the gross income requirements of Section 856(c) of the Code or (b) any manager or operator of a “qualified lodging facility,” within the meaning of Section 856(d)(9)(D) of the Code, leased by the Corporation (or any subsidiary of the Corporation) to one of its taxable REIT subsidiaries with respect to the Corporation failing to qualify as an “eligible independent contractor,” within the meaning of Section 856(d)(9)(A) of the Code, in either case if the income derived by the Corporation from such tenant or such taxable REIT subsidiary, taking into account any other income of the Corporation that would not qualify under the gross income
requirements of Section 856(c) of the Code, would cause the Corporation to fail to satisfy any of such gross income requirements; and (v) no Person may Transfer Shares of the Corporation if such Transfer would result in Shares of the Corporation being owned by fewer than 100 Persons (as determined under the principles of Section 856(a)(5) of the Code). Any Person who Beneficially Owns or Constructively Owns, Transfers or attempts to Beneficially Own or Constructively Own Shares of the Corporation which causes or will cause a Person to Beneficially Own or Constructively Own Shares of the Corporation in excess or in violation of the above limitations must immediately notify the Corporation. If certain of the restrictions on Transfer or ownership above are violated, the Shares of the Corporation represented hereby will be automatically Transferred to a Charitable Trustee of a Charitable Trust for the benefit of one or more Charitable Beneficiaries. In addition, the Corporation may take other actions, including redeeming Shares upon the terms and conditions specified by the Board of Directors in its sole and absolute discretion if the Board of Directors determines that ownership or a Transfer or other event may violate the restrictions described above. Furthermore, upon the occurrence of certain events, attempted Transfers in violation of the restrictions described above may be void ab initio. A Person who attempts to Beneficially Own or Constructively Own Shares in violation of the ownership limitations described above shall have no claim, cause of action or any recourse whatsoever against a transferor of such Shares. All capitalized terms in this legend have the meanings defined in the Articles of Incorporation of the Corporation, as the same may be amended from time to time, a copy of which, including the restrictions on Transfer and ownership, will be furnished to each holder of Shares of the Corporation on request and without charge. Requests for such a copy may be directed to the Secretary of the Corporation.
Instead of the foregoing legend, the certificate may state that the Corporation will furnish a full statement about certain restrictions on transferability to a holder on request and without charge.
10.3 Transfer of Shares in Trust.
(a)Ownership in Trust. Upon any purported Transfer or other event described in Section 10.2.(b) that would result in a transfer of Shares to a Charitable Trust, such Shares shall be deemed to have been transferred to the Charitable Trustee as trustee of a Charitable Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the Charitable Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the Transfer to the Charitable Trust pursuant to Section 10.2.(b). The Charitable Trustee shall be appointed by the Corporation and shall be a Person unaffiliated with the Corporation and any Prohibited Owner. Each Charitable Beneficiary shall be designated by the Corporation as provided in Section 10.3.(g).
(b)Status of Shares Held by the Charitable Trustee. Shares held by the Charitable Trustee shall be issued and outstanding Shares of the Corporation. The Prohibited Owner shall have no rights in the Shares held by the Charitable Trustee. The Prohibited Owner shall not benefit economically from ownership of any Shares held in trust by the Charitable Trustee, shall have no rights to dividends or other distributions and shall not possess any rights to vote or other rights attributable to the Shares held in the Charitable Trust. The Prohibited Owner shall have no claim, cause of action, or any other recourse whatsoever against the purported transferor of such Shares.
(c)Dividend and Voting Rights. The Charitable Trustee shall have all voting rights and rights to dividends or other distributions with respect to Shares held in the Charitable Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or other distribution paid prior to the discovery by the Corporation that Shares have been transferred to the Charitable Trustee shall be paid with respect to such Shares to the Charitable Trustee by the Prohibited Owner upon demand and any dividend or other distribution authorized but unpaid shall be paid when due to the Charitable Trustee. Any dividends or distributions so paid over to the Charitable Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall
have no voting rights with respect to Shares held in the Charitable Trust and, subject to Virginia law, effective as of the date that Shares have been transferred to the Charitable Trustee, the Charitable Trustee shall have the authority (at the Charitable Trustee’s sole discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Corporation that Shares have been transferred to the Charitable Trustee and (ii) to recast such vote in accordance with the desires of the Charitable Trustee acting for the benefit of the Charitable Beneficiary; provided, however, that if the Corporation has already taken irreversible action, then the Charitable Trustee shall not have the authority to rescind and recast such vote. Notwithstanding the provisions of this Article X, until the Corporation has received notification that Shares have been transferred into a Charitable Trust, the Corporation shall be entitled to rely on its share transfer and other holder records for purposes of preparing lists of holders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes of holders.
(d)Rights Upon Liquidation. Upon any voluntary or involuntary liquidation, dissolution or winding up of or any distribution of the assets of the Corporation, the Charitable Trustee shall be entitled to receive, ratably with each other holder of Shares of the class or series of Shares that is held in the Charitable Trust, that portion of the assets of the Corporation available for distribution to the holders of such class or series (determined based upon the ratio that the number of Shares of such class or series of Shares held by the Charitable Trustee bears to the total number of Shares of such class or series of Shares then outstanding). The Charitable Trustee shall distribute any such assets received in respect of the Shares held in the Charitable Trust in any liquidation, dissolution or winding up of, or distribution of the assets of the Corporation, in accordance with Section 10.3.(e).
(e)Sale of Shares by Charitable Trustee. Within twenty (20) days of receiving notice from the Corporation that Shares have been transferred to the Charitable Trust, the Charitable Trustee shall sell the Shares held in the Charitable Trust to a person, designated by the Charitable Trustee, whose ownership of the Shares will not violate the ownership limitations set forth in Section 10.2.(a). In connection with any such sale, the Charitable Trustee shall use good faith efforts to sell such Shares at a fair market price. Upon such sale, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 10.3.(e). The Prohibited Owner shall receive the lesser of (1) the price paid by the Prohibited Owner for the Shares or, if the Prohibited Owner did not give value for the Shares in connection with the event causing the Shares to be held in the Charitable Trust (e.g., in the case of a gift, devise or other such transaction), the Market Price of the Shares on the day of the event causing the Shares to be held in the Charitable Trust and (2) the price per share received by the Charitable Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the Shares held in the Charitable Trust. The Charitable Trustee may reduce the amount payable to the Prohibited Owner by the amount of dividends and distributions which have been paid to the Prohibited Owner and are owed by the Prohibited Owner to the Charitable Trustee pursuant to Section 10.3.(c) of this Article X. Any net sales proceeds in excess of the amount payable to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary. If, prior to the discovery by the Corporation that Shares have been transferred to the Charitable Trustee, such Shares are sold by a Prohibited Owner, then (i) such Shares shall be deemed to have been sold on behalf of the Charitable Trust and (ii) to the extent that the Prohibited Owner received an amount for such Shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 10.3.(e), such excess shall be paid to the Charitable Trustee by the Prohibited Owner upon demand. The Charitable Trustee shall have the right and power (but not the obligation) to offer any Shares held in trust for sale to the Corporation on such terms and conditions as the Charitable Trustee shall deem appropriate.
(f)Purchase Right in Shares Transferred to the Charitable Trustee. Shares transferred to the Charitable Trustee shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in such transfer to the Charitable Trust (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) and (ii) the Market Price on the date the Corporation,
or its designee, accepts such offer. If the Corporation, or its designee, accepts such offer, the Corporation may reduce the amount payable to the Prohibited Owner by the amount of dividends and distributions which have been paid to the Prohibited Owner and are owed by the Prohibited Owner to the Charitable Trustee pursuant to Section 10.3.(c) of this Article X and, if the Corporation, or its designee, elects to do so, the Corporation shall pay the amount of such reduction to the Charitable Trustee for the benefit of the Charitable Beneficiary. The Corporation shall have the right to accept such offer until the Charitable Trustee has sold the Shares held in the Charitable Trust pursuant to Section 10.3.(e). Upon such a sale to the Corporation, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and any dividends or other distributions held by the Charitable Trustee will be paid to the Charitable Beneficiary, each as provided in Section 10.3.(e).
(g)Designation of Charitable Beneficiaries. By written notice to the Charitable Trustee, the Corporation shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Charitable Trust such that (i) Shares held in the Charitable Trust would not violate the restrictions set forth in Section 10.2.(a) in the hands of such Charitable Beneficiary and (ii) each such organization must be described in Sections 501(c)(3), 170(b)(1)(A) or 170(c)(2) of the Code.
10.4NYSE Transactions. Nothing in this Article X shall preclude the settlement of any transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system. The fact that the settlement of any transaction takes place shall not negate the effect of any other provision of this Article X and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article X.
10.5Enforcement. The Corporation is specifically authorized to seek equitable relief, including injunctive relief, to enforce the provisions of this Article X.
10.6Non-Waiver. No delay or failure on the part of the Corporation or the Board of Directors in exercising any right hereunder shall operate as a waiver of any right of the Corporation or the Board of Directors, as the case may be, except to the extent specifically waived in writing.
ARTICLE XI
CONTROL SHARE ACQUISITION
11.1Affiliated Transactions.The Corporation shall not be governed by Article 14 (Affiliated Transactions) of the Virginia Stock Corporation Act.
A-22
APPLE HOSPITALITY REIT INC
814 EAST MAIN STREET
RICHMOND,VA 23219
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
| KEEP THIS PORTION FOR YOUR RECORDS | | | DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | | | | | | APPLE HOSPITALITY REIT, INC. | | | | | | | For | Withhold | For All | | To withhold authority to vote for any individual | | All | All | Except | | nominee(s), mark "For All Except" and write the | | | | | | number(s) of the nominee(s) on the line below. | The Board of Directors recommends you vote FOR | For
All
☐ | Withhold
All
☐ | For All
Except
☐ | | ________________ |
DETACH AND RETURN THIS PORTION ONLY 1. Election of Directors
Nominees: 01) Glenn W. Bunting 02) Jon A. Fosheim 03) Kristian M. Gathright 04) Glade M. Knight 05) Justin G. Knight
06) Blythe J. McGarvie 07) Daryl A. Nickel 08) L. Hugh Redd 09) Howard E. Woolley The Board of Directors recommends you vote FOR proposals 2 and 3: 2. Approval on an advisory basis of executive compensation paid by the Company. 3. Ratification of the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm to serve for 2021.
For Against Abstain ☐ ☐ ☐ ☐ ☐ ☐ NOTE: In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the Annual Meeting. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. To withhold authority to vote for any
individual nominee(s), mark “For All
Except” and write the number(s) of the
nominee(s) on the line below.
| | | | | | 1. Election of directors
Nominees
| | | | | | | | | | 01 Jon A. Fosheim | 02 Justin G. Knight | ☐ | ☐ | ☐ | | | | | | | | | | | | | | | | | | | | | | | | | | | The Board of Directors recommends you vote FOR
proposals 2, 3, 4.1, 4.2, 4.3 and 4.4
| | | | | | | | | | For | Against | Abstain | | | For | Against | Abstain | | | | | | | | | | | | 2Approval on an advisory basis of executive compensation paid by the Company.
| ☐ | ☐ | ☐ | | 4.2 Approve an amendment to the Company's Charter to require a majority vote for all Charter amendments.
| ☐ | ☐ | ☐ | | | | | | | | | | | | 3Ratification of the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm to serve for 2016.
| ☐ | ☐ | ☐ | | 4.3 Approve an amendment to the Company's Charter to eliminate the supermajority voting requirement for affiliated transactions.
| ☐ | ☐ | ☐ | | | | | | | | | | | | 4.1 Approve an amendment to the Company's Charter to declassify the Board of Directors and provide for annual elections of directors.
| ☐ | ☐ | ☐ | | 4.4 Approve an amendment to the Company's Charter to eliminate provisions that are no longer applicable.
| ☐ | ☐ | ☐ | | | | | | | | | | | | | | | | | NOTE: In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the Annual Meeting.
| | | | | | | | | | | | | | | For address change/comments, mark here.
(see reverse for instructions)
| | | ☐ | | | | | | | | | | | | | | | | | | Yes | No | | | | | | | | Please indicate if you plan to attend this meeting | ☐ | ☐ | | | | | | | | | | | | | | | | | | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, | | | | please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or | | | | partnership, please sign in full corporate or partnership name by authorized officer. | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | Date | | | Signature (Joint Owners) | Date | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Table of contents
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement and Annual Report are available at www.proxyvote.comwww.proxyvote.com.D44372-P48171 Apple Hospitality REIT, Inc. Annual Meeting of Shareholders May 13, 2021 9:00 AM EDT This proxy is solicited by the Board of Directors This proxy is solicited by the Board of Directors. The undersigned hereby appoints Justin Knight and Matthew Rash as Proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated below, all common shares of Apple Hospitality REIT, Inc. held by the undersigned on March 19, 2021, at the Annual Meeting of Shareholders at the Courtyard and Residence Inn Richmond Downtown, located at 1320 East Cary Street, Richmond, Virginia 23219, on Thursday, May 13, 2021 at 9:00 AM Eastern Daylight Time, or any adjournment thereof. If one of the director nominees specified on the reverse side ceases to be available for election as a director, discretionary authority may be exercised by the Proxies named herein to vote for a substitute. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” THE NOMINEES IN PROPOSAL 1, “FOR” PROPOSALS 2 AND 3, AND ACCORDING TO THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OF SHAREHOLDERS. Continued and to be signed on reverse side APPLE HOSPITALITY REIT, INC.
Annual Meeting of Shareholders
May 12, 2016 11:00 AM EDT
This proxy is solicited by the Board of Directors
The undersigned hereby appoints Bryan Peery and David Buckley as Proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated below, all common shares of Apple Hospitality REIT, Inc. held by the undersigned on March 18, 2016, at the Annual Meeting of Shareholders at the Marriott in downtown Richmond, Virginia located at 500 East Broad Street, Richmond, Virginia 23219, on Thursday, May 12, 2016 at 11:00 a.m., eastern daylight time, or any adjournment thereof. If one of the director nominees specified below ceases to be available for election as a director, discretionary authority may be exercised by each of the Proxies named herein to vote for a substitute.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE NOMINEES IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4.1, 4.2, 4.3 and 4.4, AND ACCORDING TO THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OF SHAREHOLDERS.
| Address change/comments: |
| (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) | | Continued and to be signed on reverse side | |
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