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Apple Hospitality REIT, Inc. - Quarter Report: 2023 March (Form 10-Q)

10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______

Commission File Number 001-37389

APPLE HOSPITALITY REIT, INC.

(Exact name of registrant as specified in its charter)

Virginia

26-1379210

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

814 East Main Street

Richmond, Virginia

23219

(Address of principal executive offices)

(Zip Code)

(804) 344-8121

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Shares, no par value

 

APLE

 

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

Number of registrant’s common shares outstanding as of April 25, 2023: 229,013,349

 

 


Index

 

Apple Hospitality REIT, Inc.

Form 10-Q

Index

 

 

 

 

Page

Number

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

 

 

Consolidated Balance Sheets – March 31, 2023 and December 31, 2022

3

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income – three months ended March 31, 2023 and 2022

4

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity – three months ended March 31, 2023 and 2022

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows – three months ended March 31, 2023 and 2022

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

 

 

 

 

 

Item 6.

Exhibits

34

 

 

 

 

Signatures

35

 

This Form 10-Q includes references to certain trademarks or service marks. The AC Hotels by Marriott®, Aloft Hotels®, Courtyard by Marriott®, Fairfield by Marriott®, Marriott® Hotels, Residence Inn by Marriott®, SpringHill Suites by Marriott® and TownePlace Suites by Marriott® trademarks are the property of Marriott International, Inc. or one of its affiliates. The Embassy Suites by Hilton®, Hampton by Hilton®, Hilton Garden Inn®, Home2 Suites by Hilton® and Homewood Suites by Hilton® trademarks are the property of Hilton Worldwide Holdings Inc. or one or more of its affiliates. The Hyatt®, Hyatt House® and Hyatt Place® trademarks are the property of Hyatt Hotels Corporation or one or more of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Apple Hospitality REIT, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Investment in real estate, net of accumulated depreciation and amortization of
   $
1,537,998 and $1,492,097, respectively

 

$

4,583,497

 

 

$

4,610,962

 

Cash and cash equivalents

 

 

6,093

 

 

 

4,077

 

Restricted cash-furniture, fixtures and other escrows

 

 

32,686

 

 

 

39,435

 

Due from third party managers, net

 

 

71,120

 

 

 

43,331

 

Other assets, net

 

 

67,855

 

 

 

74,909

 

Total Assets

 

$

4,761,251

 

 

$

4,772,714

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Debt, net

 

$

1,417,679

 

 

$

1,366,249

 

Finance lease liabilities

 

 

111,994

 

 

 

112,006

 

Accounts payable and other liabilities

 

 

78,716

 

 

 

116,064

 

Total Liabilities

 

 

1,608,389

 

 

 

1,594,319

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

Preferred stock, authorized 30,000,000 shares; none issued and outstanding

 

 

-

 

 

 

-

 

Common stock, no par value, authorized 800,000,000 shares; issued and outstanding
  
229,013,349 and 228,644,861 shares, respectively

 

 

4,581,841

 

 

 

4,577,022

 

Accumulated other comprehensive income

 

 

28,775

 

 

 

36,881

 

Distributions greater than net income

 

 

(1,457,754

)

 

 

(1,435,508

)

Total Shareholders’ Equity

 

 

3,152,862

 

 

 

3,178,395

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

4,761,251

 

 

$

4,772,714

 

 

See notes to consolidated financial statements.

3


 

Apple Hospitality REIT, Inc.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

Room

 

$

285,520

 

 

$

237,976

 

Food and beverage

 

 

12,949

 

 

 

8,464

 

Other

 

 

12,985

 

 

 

14,038

 

Total revenue

 

 

311,454

 

 

 

260,478

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

Hotel operating expense:

 

 

 

 

 

 

Operating

 

 

78,663

 

 

 

64,331

 

Hotel administrative

 

 

27,319

 

 

 

23,842

 

Sales and marketing

 

 

27,700

 

 

 

22,469

 

Utilities

 

 

11,698

 

 

 

10,290

 

Repair and maintenance

 

 

15,665

 

 

 

13,028

 

Franchise fees

 

 

13,644

 

 

 

11,266

 

Management fees

 

 

10,476

 

 

 

8,776

 

Total hotel operating expense

 

 

185,165

 

 

 

154,002

 

Property taxes, insurance and other

 

 

19,675

 

 

 

18,679

 

General and administrative

 

 

11,461

 

 

 

9,638

 

Depreciation and amortization

 

 

45,906

 

 

 

45,324

 

Total expense

 

 

262,207

 

 

 

227,643

 

 

 

 

 

 

 

Operating income

 

 

49,247

 

 

 

32,835

 

 

 

 

 

 

 

Interest and other expense, net

 

 

(16,004

)

 

 

(14,654

)

 

 

 

 

 

 

Income before income taxes

 

 

33,243

 

 

 

18,181

 

 

 

 

 

 

 

Income tax expense

 

 

(320

)

 

 

(179

)

 

 

 

 

 

 

Net income

 

$

32,923

 

 

$

18,002

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

Interest rate derivatives

 

 

(8,106

)

 

 

27,219

 

 

 

 

 

 

 

Comprehensive income

 

$

24,817

 

 

$

45,221

 

 

 

 

 

 

 

Basic and diluted net income per common share

 

$

0.14

 

 

$

0.08

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

229,398

 

 

 

228,986

 

 

See notes to consolidated financial statements.

4


 

Apple Hospitality REIT, Inc.

Consolidated Statements of Shareholders' Equity

(Unaudited)

(in thousands, except per share data)

 

 

 

Common Stock

 

 

Accumulated
Other

 

 

Distributions

 

 

 

 

 

 

Number
of Shares

 

 

Amount

 

 

Comprehensive
Income (Loss)

 

 

Greater Than
Net Income

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2022

 

 

228,645

 

 

$

4,577,022

 

 

$

36,881

 

 

$

(1,435,508

)

 

$

3,178,395

 

Share based compensation, net

 

 

618

 

 

 

8,405

 

 

 

-

 

 

 

-

 

 

 

8,405

 

Equity issuance costs

 

 

-

 

 

 

(29

)

 

 

-

 

 

 

-

 

 

 

(29

)

Common shares repurchased

 

 

(250

)

 

 

(3,557

)

 

 

-

 

 

 

-

 

 

 

(3,557

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

(8,106

)

 

 

-

 

 

 

(8,106

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32,923

 

 

 

32,923

 

Distributions declared to shareholders ($0.24
  per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(55,169

)

 

 

(55,169

)

Balance at March 31, 2023

 

 

229,013

 

 

$

4,581,841

 

 

$

28,775

 

 

$

(1,457,754

)

 

$

3,152,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

 

228,256

 

 

$

4,569,352

 

 

$

(15,508

)

 

$

(1,406,523

)

 

$

3,147,321

 

Share based compensation, net

 

 

633

 

 

 

9,592

 

 

 

-

 

 

 

-

 

 

 

9,592

 

Equity issuance costs

 

 

-

 

 

 

(186

)

 

 

-

 

 

 

-

 

 

 

(186

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

27,219

 

 

 

-

 

 

 

27,219

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,002

 

 

 

18,002

 

Distributions declared to shareholders ($0.10
  per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,841

)

 

 

(22,841

)

Balance at March 31, 2022

 

 

228,889

 

 

$

4,578,758

 

 

$

11,711

 

 

$

(1,411,362

)

 

$

3,179,107

 

 

See notes to consolidated financial statements.

5


 

Apple Hospitality REIT, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

32,923

 

 

$

18,002

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

45,906

 

 

 

45,324

 

Other non-cash expenses, net

 

 

2,013

 

 

 

2,174

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Increase in due from third party managers, net

 

 

(27,789

)

 

 

(20,508

)

Increase in other assets, net

 

 

(745

)

 

 

(3,308

)

Decrease in accounts payable and other liabilities

 

 

(617

)

 

 

(2,621

)

Net cash provided by operating activities

 

 

51,691

 

 

 

39,063

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Disbursements for potential acquisitions, net

 

 

(677

)

 

 

-

 

Capital improvements

 

 

(23,899

)

 

 

(13,586

)

Net cash used in investing activities

 

 

(24,576

)

 

 

(13,586

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Repurchases of common shares

 

 

(3,557

)

 

 

-

 

Repurchases of common shares to satisfy employee withholding requirements

 

 

(5,742

)

 

 

(4,415

)

Distributions paid to common shareholders

 

 

(73,399

)

 

 

(13,701

)

Equity issuance costs

 

 

(15

)

 

 

(23

)

Net proceeds from revolving credit facility

 

 

40,500

 

 

 

500

 

Proceeds from term loans and senior notes

 

 

50,000

 

 

 

-

 

Payments of mortgage debt and other loans

 

 

(39,568

)

 

 

(6,556

)

Principal payments on finance leases

 

 

(67

)

 

 

(27

)

Net cash used in financing activities

 

 

(31,848

)

 

 

(24,222

)

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

(4,733

)

 

 

1,255

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

43,512

 

 

 

39,949

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

 

$

38,779

 

 

$

41,204

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

 

$

15,605

 

 

$

13,849

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

Accrued distribution to common shareholders

 

$

18,296

 

 

$

11,420

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

4,077

 

 

$

3,282

 

Restricted cash-furniture, fixtures and other escrows, beginning of period

 

 

39,435

 

 

 

36,667

 

Cash, cash equivalents and restricted cash, beginning of period

 

$

43,512

 

 

$

39,949

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

6,093

 

 

$

636

 

Restricted cash-furniture, fixtures and other escrows, end of period

 

 

32,686

 

 

 

40,568

 

Cash, cash equivalents and restricted cash, end of period

 

$

38,779

 

 

$

41,204

 

 

See notes to consolidated financial statements.

6


 

Apple Hospitality REIT, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

Apple Hospitality REIT, Inc., formed in November 2007 as a Virginia corporation, together with its wholly-owned subsidiaries (the “Company”), is a self-advised real estate investment trust (“REIT”) that invests in income-producing real estate, primarily in the lodging sector, in the United States (“U.S.”). The Company’s fiscal year end is December 31. The Company has no foreign operations or assets, and its operating structure includes only one reportable segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does not have any elements of power in the decision-making process of these entities; therefore, the Company does not consolidate the entities. As of March 31, 2023, the Company owned 220 hotels with an aggregate of 28,984 rooms located in 37 states. The Company’s common shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.”

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include all of the information required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the twelve-month period ending December 31, 2023.

Use of Estimates

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

Net Income Per Common Share

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

2. Investment in Real Estate

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Land

 

$

802,625

 

 

$

802,625

 

Building and improvements

 

 

4,667,363

 

 

 

4,656,343

 

Furniture, fixtures and equipment

 

 

529,342

 

 

 

522,082

 

Finance ground lease assets

 

 

102,084

 

 

 

102,084

 

Franchise fees

 

 

20,081

 

 

 

19,925

 

 

 

6,121,495

 

 

 

6,103,059

 

Less accumulated depreciation and amortization

 

 

(1,537,998

)

 

 

(1,492,097

)

Investment in real estate, net

 

$

4,583,497

 

 

$

4,610,962

 

 

As of March 31, 2023, the Company owned 220 hotels with an aggregate of 28,984 rooms located in 37 states.

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

7


 

Hotel Acquisitions

There were no acquisitions during the three months ended March 31, 2023. During the year ended December 31, 2022, the Company acquired two hotels. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price, excluding transaction costs, for each hotel. All dollar amounts are in thousands.
 

City

 

State

 

Brand

 

Manager

 

Date
Acquired

 

Rooms

 

 

Gross
Purchase
Price

 

Louisville

 

KY

 

AC Hotels

 

Concord

 

10/25/2022

 

 

156

 

 

$

51,000

 

Pittsburgh

 

PA

 

AC Hotels

 

Concord

 

10/25/2022

 

 

134

 

 

 

34,000

 

 

 

 

 

 

 

 

 

 

 

290

 

 

$

85,000

 

 

In 2022, the Company utilized its available cash on hand and a $50 million draw on its $575 million term loan facility (as defined below) to purchase both hotels. The acquisitions of these hotel properties were accounted for as acquisitions of asset groups, whereby costs incurred to effect the acquisitions (which were not significant) were capitalized as part of the cost of the assets acquired.

Hotel Purchase Contract Commitments

As of March 31, 2023, the Company had separate outstanding contracts for the potential purchase of two hotels for a total expected purchase price of approximately $109.6 million. Of these two hotels, one is already in operation, and the Company plans to complete the purchase of this hotel in the second quarter of 2023. The other purchase contract is for a hotel under development that is currently planned to be completed and opened for business in early 2024, at which time the Company expects to complete the purchase of this hotel. Although the Company is working towards acquiring these hotels, there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under these contracts and acquire these hotels. The following table summarizes the location, brand, date of purchase contract, expected number of rooms, refundable (if the seller does not meet its obligations under the contract) deposits paid and gross purchase price for each of the contracts outstanding at March 31, 2023. All dollar amounts are in thousands.

Location

 

Brand

 

Date of
Purchase Contract

 

Rooms

 

 

Refundable
Deposits

 

 

Gross
Purchase
Price

 

Madison, WI (1)

 

Embassy Suites

 

7/27/2021

 

 

260

 

 

$

893

 

 

$

78,598

 

Cleveland, OH

 

Courtyard

 

2/27/2023

 

 

154

 

 

 

500

 

 

 

31,000

 

 

 

 

 

 

 

 

414

 

 

$

1,393

 

 

$

109,598

 

 

(1)
This hotel is currently under development. The table shows the expected number of rooms upon hotel completion and the expected franchise brand. Assuming all conditions to closing are met, the purchase of this hotel is expected to occur in early 2024. If the seller meets all of the conditions to closing, the Company is obligated to specifically perform under the contract. As this property is under development, at this time, the seller has not met all of the conditions to closing.

3. Dispositions

There were no dispositions during the three months ended March 31, 2023. During the year ended December 31, 2022, the Company sold one hotel, a 55-room independent boutique hotel in Richmond, Virginia, to an unrelated party for a gross sales price of approximately $8.5 million, resulting in a gain on sale of approximately $1.8 million, net of transaction costs, which is included in the Company’s consolidated statement of operations for the year ended December 31, 2022. The hotel had a total carrying value of approximately $6.5 million at the time of the sale.

 

Excluding gains on sale of real estate, the Company’s consolidated statements of operations include operating income of less than $0.1 million for the three months ended March 31, 2022, relating to the results of operations of the one hotel sold in 2022 noted above for the period of ownership. The sale of this property does not represent a strategic shift that has, or will have, a major effect on the Company’s operations and financial results; therefore, the operating results for the period of ownership of this property are included in income from continuing operations for the three months ended March 31, 2022. The net proceeds from the sale of the one hotel in 2022 were used for general corporate purposes.

8


 

4. Debt

Summary

As of March 31, 2023 and December 31, 2022, the Company’s debt consisted of the following (in thousands):

 

 

 

March 31,
2023

 

 

December 31,
2022

 

Revolving credit facility

 

$

40,500

 

 

$

-

 

Term loans and senior notes, net

 

 

1,087,866

 

 

 

1,037,384

 

Mortgage debt, net

 

 

289,313

 

 

 

328,865

 

Debt, net

 

$

1,417,679

 

 

$

1,366,249

 

 

The aggregate amounts of principal payable under the Company’s total debt obligations as of March 31, 2023 (including the Revolving Credit Facility (if any) (as defined below), term loans, senior notes and mortgage debt), for the remainder of this fiscal year, each of the next four fiscal years and thereafter are as follows (in thousands):

 

2023 (April - December)

 

$

56,645

 

2024

 

 

113,597

 

2025

 

 

245,140

 

2026

 

 

115,149

 

2027

 

 

278,602

 

Thereafter

 

 

616,014

 

 

 

1,425,147

 

Unamortized fair value adjustment of assumed debt

 

 

776

 

Unamortized debt issuance costs

 

 

(8,244

)

Total

 

$

1,417,679

 

 

The Company uses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the annual Secured Overnight Financing Rate (“SOFR”) for a one-month term (“one-month SOFR”) plus a 0.10% SOFR spread adjustment. The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. See Note 5 for more information on the interest rate swap agreements. The Company’s total fixed-rate and variable-rate debt, after giving effect to its interest rate swaps in effect at March 31, 2023 and December 31, 2022, is set forth below. All dollar amounts are in thousands.

 

 

 

March 31,
2023

 

 

Percentage

 

 

December 31,
2022

 

 

Percentage

 

Fixed-rate debt (1)

 

$

1,109,647

 

 

 

78

%

 

$

1,149,215

 

 

 

84

%

Variable-rate debt

 

 

315,500

 

 

 

22

%

 

 

225,000

 

 

 

16

%

Total

 

$

1,425,147

 

 

 

 

 

$

1,374,215

 

 

 

 

Weighted-average interest rate of debt

 

 

4.30

%

 

 

 

 

 

3.93

%

 

 

 

 

(1)
Fixed-rate debt includes the portion of variable-rate debt where the interest payments have been effectively fixed by interest rate swaps as of the respective balance sheet date. See Note 5 for more information on the interest rate swap agreements.

Credit Facilities

$1.2 Billion Credit Facility

On July 25, 2022, the Company entered into a credit facility (the “$1.2 billion credit facility”) that is comprised of (i) a $650 million revolving credit facility with an initial maturity date of July 25, 2026 (the “Revolving Credit Facility”), (ii) a $275 million term loan with a maturity date of July 25, 2027, funded at closing, and (iii) a $300 million term loan with a maturity date of January 31, 2028 (including a $150 million delayed draw option until 180 days from closing), of which $200 million was funded at closing, $50 million was funded on October 24, 2022 and the remaining $50 million was funded on January 17, 2023 (clauses (ii) and (iii) are referred to together as the $575 million term loan facility”).

Subject to certain conditions, including covenant compliance and additional fees, the Revolving Credit Facility maturity date may be extended up to one year. The credit agreement for the $1.2 billion credit facility contains mandatory prepayment requirements, customary affirmative and negative covenants (as described below), restrictions on certain investments and events of default. The Company may make voluntary prepayments, in whole or in part, at any time. Interest payments on the $1.2 billion credit facility are

9


 

due monthly, and the interest rate, subject to certain exceptions, is equal to the one-month SOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.35% to 2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. As of March 31, 2023, the Company had availability of $609.5 million under the Revolving Credit Facility. The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.25% on the unused portion of the Revolving Credit Facility, based on the amount of borrowings outstanding during the quarter.

$225 Million Term Loan Facility

The Company also has an unsecured $225 million term loan facility that is comprised of (i) a $50 million term loan with a maturity date of August 2, 2023, which was funded on August 2, 2018, and (ii) a $175 million term loan with a maturity date of August 2, 2025, of which $100 million was funded on August 2, 2018, and the remaining $75 million was funded on January 29, 2019 (clauses (i) and (ii) are referred to together as the “$225 million term loan facility”). The Company may make voluntary prepayments, in whole or in part, at any time, subject to certain conditions. Interest payments on the $225 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month SOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.35% to 2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.

2017 $85 Million Term Loan Facility

On July 25, 2017, the Company entered into an unsecured $85 million term loan facility with a maturity date of July 25, 2024, consisting of one term loan (the “2017 $85 million term loan facility”) that was funded at closing. The Company may make voluntary prepayments, in whole or in part, at any time, subject to certain conditions. Interest payments on the 2017 $85 million term loan facility are due monthly, and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month SOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.30% to 2.10%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.

2019 $85 Million Term Loan Facility

On December 31, 2019, the Company entered into an unsecured $85 million term loan facility with a maturity date of December 31, 2029, consisting of one term loan funded at closing (the “2019 $85 million term loan facility”). Net proceeds from the 2019 $85 million term loan facility were used to pay down borrowings under the Company’s then-existing $425 million revolving credit facility. The Company may make voluntary prepayments, in whole or in part, subject to certain conditions. Interest payments on the 2019 $85 million term loan facility are due monthly, and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month SOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.70% to 2.55%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.

$50 Million Senior Notes Facility

On March 16, 2020, the Company entered into an unsecured $50 million senior notes facility with a maturity date of March 31, 2030, consisting of senior notes totaling $50 million funded at closing (the “$50 million senior notes facility”). Net proceeds from the $50 million senior notes facility were available to provide funding for general corporate purposes. The Company may make voluntary prepayments, in whole or in part, at any time, subject to certain conditions, including make-whole provisions. Interest payments on the $50 million senior notes facility are due quarterly, and the interest rate, subject to certain exceptions, ranges from an annual rate of 3.60% to 4.35% depending on the Company’s leverage ratio, as calculated under the terms of the note agreement.

$75 Million Senior Notes Facility

On June 2, 2022, the Company entered into an unsecured $75 million senior notes facility with a maturity date of June 2, 2029, consisting of senior notes totaling $75 million funded at closing (the “$75 million senior notes facility”, and collectively with the $1.2 billion credit facility, the $225 million term loan facility, the 2017 $85 million term loan facility, the 2019 $85 million term loan facility and the $50 million senior notes facility, the “unsecured credit facilities”). Net proceeds from the $75 million senior notes facility were available to provide funding for general corporate purposes, including the repayment of borrowings under the Company’s then-existing $425 million revolving credit facility and repayment of mortgage debt. The Company may make voluntary prepayments, in whole or in part, at any time, subject to certain conditions, including make-whole provisions. Interest payments on the $75 million senior notes facility are due quarterly, and the interest rate, subject to certain exceptions, ranges from an annual rate of 4.88% to 5.63% depending on the Company’s leverage ratio, as calculated under the terms of the note agreement.

10


 

As of March 31, 2023 and December 31, 2022, the details of the Company’s unsecured credit facilities were as set forth in the table below. All dollar amounts are in thousands.

 

 

 

 

 

 

 

Outstanding Balance

 

 

 

Interest Rate

 

Maturity
Date

 

March 31, 2023

 

 

December 31, 2022

 

Revolving credit facility (1)

 

SOFR + 0.10% + 1.40% - 2.25%

 

7/25/2026

 

$

40,500

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

Term loans and senior notes

 

 

 

 

 

 

 

 

 

 

$275 million term loan

 

SOFR + 0.10% + 1.35% - 2.20%

 

7/25/2027

 

 

275,000

 

 

 

275,000

 

$300 million term loan

 

SOFR + 0.10% + 1.35% - 2.20%

 

1/31/2028

 

 

300,000

 

 

 

250,000

 

$50 million term loan

 

SOFR + 0.10% + 1.35% - 2.20%

 

8/2/2023

 

 

50,000

 

 

 

50,000

 

$175 million term loan

 

SOFR + 0.10% + 1.65% - 2.50%

 

8/2/2025

 

 

175,000

 

 

 

175,000

 

2017 $85 million term loan

 

SOFR + 0.10% + 1.30% - 2.10%

 

7/25/2024

 

 

85,000

 

 

 

85,000

 

2019 $85 million term loan

 

SOFR + 0.10% + 1.70% - 2.55%

 

12/31/2029

 

 

85,000

 

 

 

85,000

 

$50 million senior notes

 

3.60% - 4.35%

 

3/31/2030

 

 

50,000

 

 

 

50,000

 

$75 million senior notes

 

4.88% - 5.63%

 

6/2/2029

 

 

75,000

 

 

 

75,000

 

Term loans and senior notes at stated
  value

 

 

 

 

 

 

1,095,000

 

 

 

1,045,000

 

Unamortized debt issuance costs

 

 

 

 

 

 

(7,134

)

 

 

(7,616

)

Term loans and senior notes, net

 

 

 

 

 

 

1,087,866

 

 

 

1,037,384

 

 

 

 

 

 

 

 

 

 

 

Credit facilities, net (1)

 

 

 

 

 

$

1,128,366

 

 

$

1,037,384

 

Weighted-average interest rate (2)

 

 

 

 

 

 

4.39

%

 

 

3.92

%

 

(1)
Excludes unamortized debt issuance costs related to the Revolving Credit Facility totaling approximately $4.4 million and $4.8 million as of March 31, 2023 and December 31, 2022, respectively, which are included in other assets, net in the Company’s consolidated balance sheets.
(2)
Interest rate represents the weighted-average effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps in effect on $695.0 million of the outstanding variable-rate debt as of March 31, 2023 and December 31, 2022. See Note 5 for more information on the interest rate swap agreements. The one-month SOFR on March 31, 2023 and December 31, 2022 was 4.80% and 4.36%, respectively.

 

Credit Facilities Covenants

The credit agreements governing the unsecured credit facilities (collectively, the “credit agreements”) contain mandatory prepayment requirements, customary affirmative and negative covenants, restrictions on certain investments and events of default, including the following financial and restrictive covenants (capitalized terms not defined below are defined in the credit agreements):

A ratio of Consolidated Total Indebtedness to Consolidated EBITDA (“Maximum Consolidated Leverage Ratio”) of not more than 7.25 to 1.00;
A ratio of Consolidated Secured Indebtedness to Consolidated Total Assets (“Maximum Secured Leverage Ratio”) of not more than 45%;
A minimum Consolidated Tangible Net Worth of approximately $3.4 billion plus an amount equal to 75% of the Net Cash Proceeds from issuances and sales of Equity Interests occurring after the Closing Date, July 25, 2022, subject to adjustment;
A ratio of Adjusted Consolidated EBITDA to Consolidated Fixed Charges (“Minimum Fixed Charge Coverage Ratio”) of not less than 1.50 to 1.00 for the trailing four full quarters;
A ratio of Unencumbered Adjusted NOI to Consolidated Implied Interest Expense for Consolidated Unsecured Indebtedness (“Minimum Unsecured Interest Coverage Ratio”) of not less than 2.00 to 1.00 for the trailing four full quarters;
A ratio of Consolidated Unsecured Indebtedness to Unencumbered Asset Value (“Maximum Unsecured Leverage Ratio”) of not more than 60% (subject to a higher level in certain circumstances); and
A ratio of Consolidated Secured Recourse Indebtedness to Consolidated Total Assets (“Maximum Secured Recourse Indebtedness”) of not more than 10%.

The Company was in compliance with the applicable covenants at March 31, 2023.

11


 

Mortgage Debt

As of March 31, 2023, the Company had approximately $289.6 million in outstanding mortgage debt secured by 15 properties with maturity dates ranging from August 2024 to May 2038, stated interest rates ranging from 3.40% to 4.46% and effective interest rates ranging from 3.40% to 4.37%. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. The following table sets forth the hotel properties securing each loan, the interest rate, loan assumption or origination date, maturity date, the principal amount assumed or originated, and the outstanding balance prior to any fair value adjustments or debt issuance costs as of March 31, 2023 and December 31, 2022 for each of the Company’s mortgage debt obligations. All dollar amounts are in thousands.

 

Location

 

Brand

 

Interest
Rate
(1)

 

 

Loan
Assumption
or
Origination
Date

 

Maturity
Date

 

Principal
Assumed
or
Originated

 

 

Outstanding
balance
as of
March 31,
2023

 

 

Outstanding
balance
as of
December 31,
2022

 

Miami, FL

 

Homewood Suites

 

 

4.02

%

 

3/1/2014

 

(2)

 

$

16,677

 

 

$

-

 

 

$

12,440

 

Huntsville, AL

 

Homewood Suites

 

 

4.12

%

 

3/1/2014

 

(3)

 

 

8,306

 

 

 

-

 

 

 

6,193

 

Prattville, AL

 

Courtyard

 

 

4.12

%

 

3/1/2014

 

(3)

 

 

6,596

 

 

 

-

 

 

 

4,918

 

San Diego, CA

 

Residence Inn

 

 

3.97

%

 

3/1/2014

 

(4)

 

 

18,600

 

 

 

-

 

 

 

13,827

 

New Orleans, LA

 

Homewood Suites

 

 

4.36

%

 

7/17/2014

 

8/11/2024

 

 

27,000

 

 

 

20,947

 

 

 

21,161

 

Westford, MA

 

Residence Inn

 

 

4.28

%

 

3/18/2015

 

4/11/2025

 

 

10,000

 

 

 

7,946

 

 

 

8,024

 

Denver, CO

 

Hilton Garden Inn

 

 

4.46

%

 

9/1/2016

 

6/11/2025

 

 

34,118

 

 

 

28,134

 

 

 

28,400

 

Oceanside, CA

 

Courtyard

 

 

4.28

%

 

9/1/2016

 

10/1/2025

 

 

13,655

 

 

 

11,942

 

 

 

12,019

 

Omaha, NE

 

Hilton Garden Inn

 

 

4.28

%

 

9/1/2016

 

10/1/2025

 

 

22,681

 

 

 

19,836

 

 

 

19,963

 

Boise, ID

 

Hampton

 

 

4.37

%

 

5/26/2016

 

6/11/2026

 

 

24,000

 

 

 

21,065

 

 

 

21,194

 

Burbank, CA

 

Courtyard

 

 

3.55

%

 

11/3/2016

 

12/1/2026

 

 

25,564

 

 

 

21,129

 

 

 

21,326

 

San Diego, CA

 

Courtyard

 

 

3.55

%

 

11/3/2016

 

12/1/2026

 

 

25,473

 

 

 

21,054

 

 

 

21,250

 

San Diego, CA

 

Hampton

 

 

3.55

%

 

11/3/2016

 

12/1/2026

 

 

18,963

 

 

 

15,673

 

 

 

15,819

 

Burbank, CA

 

SpringHill Suites

 

 

3.94

%

 

3/9/2018

 

4/1/2028

 

 

28,470

 

 

 

24,855

 

 

 

25,057

 

Santa Ana, CA

 

Courtyard

 

 

3.94

%

 

3/9/2018

 

4/1/2028

 

 

15,530

 

 

 

13,558

 

 

 

13,668

 

Richmond, VA

 

Courtyard

 

 

3.40

%

 

2/12/2020

 

3/11/2030

 

 

14,950

 

 

 

14,066

 

 

 

14,144

 

Richmond, VA

 

Residence Inn

 

 

3.40

%

 

2/12/2020

 

3/11/2030

 

 

14,950

 

 

 

14,066

 

 

 

14,144

 

Portland, ME

 

Residence Inn

 

 

3.43

%

 

3/2/2020

 

3/1/2032

 

 

33,500

 

 

 

30,500

 

 

 

30,500

 

San Jose, CA

 

Homewood Suites

 

 

4.22

%

 

12/22/2017

 

5/1/2038

 

 

30,000

 

 

 

24,876

 

 

 

25,168

 

 

 

 

 

 

 

 

 

 

 

$

389,033

 

 

 

289,647

 

 

 

329,215

 

Unamortized fair value adjustment of
   assumed debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

776

 

 

 

819

 

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,110

)

 

 

(1,169

)

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

$

289,313

 

 

$

328,865

 

 

(1)
Interest rates are the rates per the loan agreement. For loans assumed, the Company adjusted the interest rates per the loan agreement to market rates and is amortizing the adjustments to interest expense over the life of the loan.
(2)
Loan was repaid in full on January 3, 2023.
(3)
Loan was repaid in full on February 6, 2023.
(4)
Loan was repaid in full on March 6, 2023.

5. Fair Value of Financial Instruments

Except as described below, the carrying value of the Company’s financial instruments approximates fair value due to the short-term nature of these financial instruments.

Debt

The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy. Market rates take into consideration general market conditions and maturity. As of March 31, 2023, both the carrying value and estimated fair value of the Company’s debt were approximately $1.4 billion. As of December 31, 2022, the carrying value and estimated fair value of the Company’s debt were approximately $1.4 billion and $1.3 billion, respectively. Both the carrying value and estimated fair value of the Company’s debt (as discussed above) are net of unamortized debt issuance costs related to term loans, senior notes and mortgage debt for each specific year.

Derivative Instruments

Currently, the Company uses interest rate swaps to manage its interest rate risk on variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month SOFR plus a 0.10% SOFR spread adjustment. The swaps are designed to effectively fix the interest payments on variable-rate debt

12


 

instruments. These swap instruments are recorded at fair value and, if in an asset position, are included in other assets, net, and, if in a liability position, are included in accounts payable and other liabilities in the Company’s consolidated balance sheets. The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which is considered a Level 2 measurement under the fair value hierarchy. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The following table sets forth information for each of the Company’s interest rate swap agreements outstanding as of March 31, 2023 and December 31, 2022. All dollar amounts are in thousands.

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Asset (Liability)

 

Notional Amount at
March 31, 2023

 

 

Origination
Date

 

Effective
Date

 

Maturity
Date

 

Swap Fixed
Interest
Rate

 

March 31,
2023

 

 

December 31,
2022

 

Active interest rate swaps designated as cash flow hedges at March 31, 2023:

 

 

 

 

 

 

$

75,000

 

 

5/31/2017

 

7/31/2017

 

6/30/2024

 

1.95%

 

$

2,409

 

 

$

3,026

 

 

10,000

 

 

8/10/2017

 

8/10/2017

 

6/30/2024

 

2.02%

 

 

311

 

 

 

386

 

 

50,000

 

 

6/1/2018

 

1/31/2019

 

6/30/2025

 

2.88%

 

 

1,254

 

 

 

1,655

 

 

50,000

 

 

7/2/2019

 

7/5/2019

 

7/18/2024

 

1.64%

 

 

1,844

 

 

 

2,298

 

 

50,000

 

 

8/21/2019

 

8/23/2019

 

8/18/2024

 

1.31%

 

 

2,167

 

 

 

2,675

 

 

50,000

 

 

8/21/2019

 

8/23/2019

 

8/30/2024

 

1.32%

 

 

2,198

 

 

 

2,703

 

 

85,000

 

 

12/31/2019

 

12/31/2019

 

12/31/2029

 

1.87%

 

 

7,435

 

 

 

9,511

 

 

25,000

 

 

12/6/2018

 

1/31/2020

 

6/30/2025

 

2.74%

 

 

701

 

 

 

909

 

 

50,000

 

 

12/7/2018

 

5/18/2020

 

1/31/2024

 

2.71%

 

 

877

 

 

 

1,163

 

 

75,000

 

 

8/21/2019

 

5/18/2020

 

5/18/2025

 

1.26%

 

 

4,365

 

 

 

5,225

 

 

75,000

 

 

8/21/2019

 

5/18/2021

 

5/18/2026

 

1.29%

 

 

5,467

 

 

 

6,506

 

 

50,000

 

 

3/17/2023

 

3/20/2023

 

3/18/2028

 

3.50%

 

 

(126

)

 

 

-

 

 

50,000

 

 

3/17/2023

 

3/20/2023

 

3/20/2028

 

3.49%

 

 

(127

)

 

 

-

 

 

695,000

 

 

 

 

 

 

 

 

 

 

 

28,775

 

 

 

36,057

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Matured interest rate swap at March 31, 2023:

 

 

 

 

 

 

 

$

100,000

 

 

4/7/2016

 

9/30/2016

 

3/31/2023

 

1.30%

 

 

-

 

 

 

824

 

 

 

 

 

 

 

 

 

 

 

 

$

28,775

 

 

$

36,881

 

 

The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. As of March 31, 2023, all of the 13 active interest rate swap agreements listed above were designated as cash flow hedges. The change in the fair value of the Company’s designated cash flow hedges is recorded to accumulated other comprehensive income, a component of shareholders’ equity in the Company’s consolidated balance sheets.

 

Amounts reported in accumulated other comprehensive income will be reclassified to interest and other expense, net as interest payments are made or received on the Company’s variable-rate derivatives. The Company estimates that approximately $16.6 million of net unrealized gains included in accumulated other comprehensive income at March 31, 2023 will be reclassified as a decrease to interest and other expense, net within the next 12 months.

The following table presents the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and comprehensive income for the three months ended March 31, 2023 and 2022 (in thousands):
 

 

 

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

 

 

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

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest rate derivatives in cash flow
   hedging relationships

 

$

(3,091

)

 

$

24,464

 

 

$

5,015

 

 

$

(2,755

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13


 

6. Related Parties

The Company has engaged in, 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 have been different if these transactions were conducted with non-related parties. There have been no changes to the contracts and relationships discussed in the 2022 Form 10-K. Below is a summary of the significant related party relationships in effect during the three months ended March 31, 2023 and 2022.

Glade M. Knight, Executive Chairman of the Company, owns Apple Realty Group, Inc. (“ARG”), which receives support services from the Company and reimburses the Company for the cost of these services as discussed below. Mr. Knight is also currently a partner and Chief Executive Officer of Energy 11 GP, LLC and Energy Resources 12 GP, LLC, which are the respective general partners of Energy 11, L.P. and Energy Resources 12, L.P., each of which receives support services from ARG.

The Company provides support services, including the use of the Company’s employees and corporate office, to ARG and is reimbursed by ARG for the cost of these services. Under this cost sharing structure, amounts reimbursed to the Company include both compensation for personnel and office related costs (including office rent, utilities, office supplies, etc.) used by ARG. The amounts reimbursed to the Company are based on the actual costs of the services and a good faith estimate of the proportionate amount of time incurred by the Company’s employees on behalf of ARG. Total reimbursed costs allocated by the Company to ARG for each of the three month periods ended March 31, 2023 and 2022 totaled approximately $0.2 million, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations.

As part of the cost sharing arrangement, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under this cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies. As of March 31, 2023 and December 31, 2022, total amounts due from ARG for reimbursements under the cost sharing structure totaled approximately $0.2 million and $0.4 million, respectively, and are included in other assets, net in the Company’s consolidated balance sheets.

The Company, through its wholly-owned subsidiary, Apple Air Holding, LLC, owns a Learjet used primarily for acquisition, asset management, renovation, investor, corporate and public relations and other business purposes. The aircraft is also leased to affiliates of the Company based on third-party rates. Lease activity was not significant during the reporting periods.

From time to time, the Company utilizes aircraft, owned by an entity which is owned by the Company’s Executive Chairman, for acquisition, asset management, renovation, investor, corporate and public relations and other business purposes, and reimburses this entity at third-party rates. Total costs incurred for the use of the aircraft during the three months ended March 31, 2023 and 2022 were less than $0.1 million and are included in general and administrative expenses in the Company’s consolidated statements of operations.

7. Shareholders’ Equity

Distributions

For the three months ended March 31, 2023, the Company paid distributions of $0.32 per common share for a total of $73.4 million. During the three months ended March 31, 2022, the Company paid distributions of $0.06 per common share for a total of $13.7 million. Additionally, in March 2023, the Company declared a monthly cash distribution of $0.08 per common share, totaling $18.3 million, which was recorded as a payable as of March 31, 2023 and paid on April 17, 2023. In addition to the regular monthly cash distribution of $0.08 per common share for December 2022, the Board of Directors approved a special one-time distribution of $0.08 per common share for a combined distribution of $0.16 per common share, totaling $36.6 million, which was recorded as a payable as of December 31, 2022 and paid in January 2023. These accrued distributions were included in accounts payable and other liabilities in the Company’s consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

 

Issuance of Shares

On August 12, 2020, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $300 million of its common shares under an at-the-market offering program (the “ATM Program”) under the Company’s prior shelf registration statement and the current shelf registration statement. Since inception of the ATM Program in August 2020 through March 31, 2023, the Company sold approximately 4.7 million common shares under its ATM Program at a weighted-average market sales price of approximately $16.26 per common share and received aggregate gross proceeds of approximately $76.0 million and proceeds net of offering costs, which included $0.9 million of commissions, of approximately $75.1 million. The Company used the net proceeds from the sale of these shares primarily to pay down borrowings under its

14


 

then-existing $425 million revolving credit facility and used the corresponding increased availability under the $425 million revolving credit facility for general corporate purposes, including acquisitions of hotel properties. As of March 31, 2023, approximately $224.0 million remained available for issuance under the ATM Program. No shares were sold under the Company’s ATM Program during the quarter ended March 31, 2023. The Company plans to use future net proceeds from the sale of shares under the ATM Program for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the net proceeds to acquire another REIT or other company that invests in income producing properties.

Share Repurchases

In May 2022, the Company’s Board of Directors approved a one-year extension of its existing share repurchase program, authorizing share repurchases up to an aggregate of $345 million (the “Share Repurchase Program”). The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2023 if not terminated or extended earlier. During the three months ended March 31, 2023, the Company purchased, under its Share Repurchase Program, approximately 0.3 million of its common shares at a weighted-average market purchase price of approximately $14.22 per common share for an aggregate purchase price, including commissions, of approximately $3.6 million. The shares were repurchased under a written trading plan as part of the Share Repurchase Program that provides for share repurchases in open market transactions and that is intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash on hand or availability under its unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will also depend upon prevailing market conditions, regulatory requirements and other factors. As of March 31, 2023, approximately $338.8 million remained available for purchase under the Share Repurchase Program.

8. Compensation Plans

The Company annually establishes an incentive plan for its executive management team. Under the incentive plan for 2023 (the “2023 Incentive Plan”), participants are eligible to receive incentive compensation based on the achievement of certain 2023 performance measures, with one-half (50%) of incentive compensation based on operational performance goals and metrics and one-half (50%) of incentive compensation based on shareholder return metrics. With respect to the shareholder return metrics, 75% of the target will be based on shareholder return relative to a peer group and 25% will be based on total shareholder return metrics over one-year, two-year, and three-year periods. With respect to the operational performance goals and metrics, 25% of the target will be based on modified funds from operations per share (as defined within this Quarterly Report on Form 10-Q), 25% of the target will be based on total revenues of the Company and 50% of the target will be based on operational performance goals, including management of capital structure; evaluation and pursuit of accretive transactions; management of labor costs and improvement of employee productivity; enhancement of environmental, social and governance reporting; and enhancement of internal business intelligence tools. At March 31, 2023, the range of potential aggregate payouts under the 2023 Incentive Plan was $0 - $27.1 million. Based on performance through March 31, 2023, the Company has accrued approximately $4.2 million as a liability for potential executive incentive compensation payments under the 2023 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of March 31, 2023 and in general and administrative expenses in the Company’s consolidated statement of operations for the three months ended March 31, 2023. Approximately 25% of target awards under the 2023 Incentive Plan, if any, will be paid in cash, and 75% will be issued in common shares under the Company’s 2014 Omnibus Incentive Plan, approximately two-thirds of which will be unrestricted and one-third of which will vest in December 2024.

Under the incentive plan for 2022 (the “2022 Incentive Plan”), the Company recorded approximately $3.7 million in general and administrative expenses in its consolidated statement of operations for the three months ended March 31, 2022.

15


 

Share-Based Compensation Awards

The following table sets forth information pertaining to the share-based compensation issued under the 2022 Incentive Plan and the incentive plan for 2021 (the “2021 Incentive Plan”).

 

 

 

2022 Incentive
Plan

 

 

 

2021 Incentive
Plan

 

 

Period common shares issued

 

First Quarter 2023

 

 

 

First Quarter 2022

 

 

 

 

 

 

 

 

 

 

Common shares earned under each incentive plan

 

 

935,189

 

 

 

 

868,079

 

 

Common shares surrendered on issuance date to
   satisfy tax withholding obligations

 

 

263,026

 

 

 

 

245,597

 

 

Common shares earned and issued under each
   incentive plan, net of common shares surrendered on
   issuance date to satisfy tax withholding obligations

 

 

672,163

 

 

 

 

622,482

 

 

Average of the high and low stock price on issuance date

 

$

16.70

 

 

 

$

17.79

 

 

Total share-based compensation earned, including the
   surrendered shares (in millions)

 

$

15.6

 

(1)

 

$

15.4

 

(2)

Of the total common shares earned and issued, total
   common shares unrestricted at time of issuance

 

 

360,176

 

 

 

 

338,032

 

 

Of the total common shares earned and issued, total
   common shares restricted at time of issuance

 

 

311,987

 

 

 

 

284,450

 

 

 

 

 

 

 

 

 

 

Restricted common shares vesting date

 

December 8, 2023

 

 

 

December 9, 2022

 

 

Common shares surrendered on vesting date to satisfy
   tax withholding requirements resulting from vesting
   of restricted common shares

 

n/a

 

 

 

 

114,147

 

 

 

(1)
Of the total 2022 share-based compensation, approximately $12.5 million was recorded as a liability as of December 31, 2022 and is included in accounts payable and other liabilities in the Company’s consolidated balance sheet at December 31, 2022. Another $2.6 million, which is subject to vesting on December 8, 2023 and excludes any restricted shares forfeited or vested prior to that date, will be recognized as share-based compensation expense proportionately throughout 2023. For the three months ended March 31, 2023, the Company recognized approximately $0.7 million of share-based compensation expense related to restricted share awards.
(2)
Of the total 2021 share-based compensation, approximately $2.5 million, which vested on December 9, 2022, was recognized as share-based compensation expense proportionately throughout 2022. For the three months ended March 31, 2022, the Company recognized approximately $0.6 million of share-based compensation expense related to restricted share awards.

Additionally, in conjunction with the appointment of five new officers of the Company on April 1, 2020, the Company issued to the new officer group a total of approximately 200,000 restricted common shares with an aggregate grant date fair value of approximately $1.8 million. For each grantee, the restricted shares vested on March 31, 2023. The expense associated with the awards was amortized over the 3-year vesting period. For the three months ended March 31, 2023 and 2022, the Company recognized approximately $0.1 million of share-based compensation expense in each period related to these awards. Upon vesting on March 31, 2023, approximately 83,000 shares were surrendered to satisfy tax withholding obligations.

9. Subsequent Events

On April 17, 2023, the Company paid approximately $18.3 million, or $0.08 per common share, in distributions to shareholders of record as of March 31, 2023.

On April 18, 2023, the Company declared a monthly cash distribution of $0.08 per common share. The distribution is payable on May 15, 2023, to shareholders of record as of April 28, 2023.

16


 

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. Forward-looking statements are typically identified by use of statements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “outlook,” “strategy,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties and redeploy proceeds; the anticipated timing and frequency of shareholder distributions; the ability of the Company to fund capital obligations; the ability of the Company to successfully integrate pending transactions and implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions (including the potential effects of inflation or a recessionary environment); reduced business and leisure travel due to geopolitical uncertainty, including terrorism, travel-related health concerns, including COVID-19 or other widespread outbreaks of infectious or contagious diseases in the U.S.; inclement weather conditions, including natural disasters such as hurricanes, earthquakes and wildfires; government shutdowns, airline strikes or other disruptions; adverse changes in the real estate and real estate capital markets; financing risks; changes in interest rates; litigation risks; regulatory proceedings or inquiries; and changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a REIT. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Readers should carefully review the risk factors described in the Company’s filings with the Securities and Exchange Commission (“SEC”), including but not limited to those discussed in the section titled “Risk Factors” in the 2022 Form 10-K. Any forward-looking statement that the Company makes speaks only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events, or otherwise, except as required by law.

The following discussion and analysis should be read in conjunction with the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the information contained in the 2022 Form 10-K.

Overview

The Company is a Virginia corporation that has elected to be treated as a REIT for federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the U.S. As of March 31, 2023, the Company owned 220 hotels with an aggregate of 28,984 rooms located in urban, high-end suburban and developing markets throughout 37 states. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 17 hotel management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the NYSE under the ticker symbol “APLE.”

2023 Hotel Portfolio Activities

The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in rooms-focused hotels, as of March 31, 2023, the Company had separate outstanding contracts for the potential purchase of two hotels, consisting of one hotel in Madison, Wisconsin and one hotel in Cleveland, Ohio, for a total combined purchase price of approximately $109.6 million. Of these two hotels, one is already in operation, and the Company plans to complete the purchase of this hotel in the second quarter of 2023. The other purchase contract is for a hotel under development that is currently planned to be completed and opened for business in early 2024, at which time the Company expects to complete the purchase of this hotel. Although the Company is working towards acquiring these hotels, there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under these contracts and acquire these hotels. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to purchase the hotels under contract if closings occur.

17


 

 

For its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided from the sale of the property. The Company did not dispose of any properties during the three months ended March 31, 2023.

Hotel Operations

As of March 31, 2023, the Company owned 220 hotels with a total of 28,984 rooms as compared to 219 hotels with a total of 28,747 rooms as of March 31, 2022. Results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and prior year. During the three months ended March 31, 2023 and 2022, the Company did not acquire or dispose of any properties.

In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”), and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below. RevPAR and operating results may be impacted by regional and local economies as well as changes in lodging demand due to macroeconomic factors including inflationary pressures, higher energy prices or a recessionary environment.

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

 

 

Three Months Ended March 31,

 

(in thousands, except statistical data)

 

2023

 

 

Percent
of
Revenue

 

 

2022

 

 

Percent
of
Revenue

 

 

Percent
Change

 

Total revenue

 

$

311,454

 

 

 

100.0

%

 

$

260,478

 

 

 

100.0

%

 

 

19.6

%

Hotel operating expense

 

 

185,165

 

 

 

59.5

%

 

 

154,002

 

 

 

59.1

%

 

 

20.2

%

Property taxes, insurance and other expense

 

 

19,675

 

 

 

6.3

%

 

 

18,679

 

 

 

7.2

%

 

 

5.3

%

General and administrative expense

 

 

11,461

 

 

 

3.7

%

 

 

9,638

 

 

 

3.7

%

 

 

18.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

45,906

 

 

 

 

 

 

45,324

 

 

 

 

 

 

1.3

%

Interest and other expense, net

 

 

16,004

 

 

 

 

 

 

14,654

 

 

 

 

 

 

9.2

%

Income tax expense

 

 

320

 

 

 

 

 

 

179

 

 

 

 

 

 

78.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

32,923

 

 

 

 

 

 

18,002

 

 

 

 

 

 

82.9

%

Adjusted Hotel EBITDA (1)

 

 

106,749

 

 

 

 

 

 

87,936

 

 

 

 

 

 

21.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of hotels owned at end of period

 

 

220

 

 

 

 

 

 

219

 

 

 

 

 

 

0.5

%

ADR

 

$

152.01

 

 

 

 

 

$

137.03

 

 

 

 

 

 

10.9

%

Occupancy

 

 

72.0

%

 

 

 

 

 

67.1

%

 

 

 

 

 

7.3

%

RevPAR

 

$

109.46

 

 

 

 

 

$

91.98

 

 

 

 

 

 

19.0

%

 

(1)
See reconciliation of Adjusted Hotel EBITDA to net income in “Non-GAAP Financial Measures” below.

Comparable Hotels Operating Results

The following table reflects certain operating statistics for the Company’s 220 hotels owned as of March 31, 2023 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 220 hotels owned as of the end of the reporting period. For the hotels acquired during the reporting periods shown, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company. This information has not been audited, either for the periods owned or prior to ownership by the Company. For dispositions, results have been excluded for the Company’s period of ownership.

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

Percent Change

 

ADR

 

$

152.01

 

 

$

137.02

 

 

 

10.9

%

Occupancy

 

 

72.0

%

 

 

67.0

%

 

 

7.5

%

RevPAR

 

$

109.46

 

 

$

91.80

 

 

 

19.2

%

 

 

 

 

 

 

 

 

 

 

 

18


 

Same Store Operating Results

The following table reflects certain operating statistics for the 204 hotels owned by the Company as of January 1, 2019 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

Percent Change

 

ADR

 

$

150.23

 

 

$

135.71

 

 

 

10.7

%

Occupancy

 

 

72.1

%

 

 

67.5

%

 

 

6.8

%

RevPAR

 

$

108.30

 

 

$

91.67

 

 

 

18.1

%

 

 

 

 

 

 

 

 

 

 

 

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. The Company’s Same Store Hotels revenue and operating results improved during the three months ended March 31, 2023, compared to the three months ended March 31, 2022, which is consistent with the overall lodging industry, as hotel occupancy was negatively impacted in many markets by the Omicron variant of COVID-19 during the three months ended March 31, 2022. The Company’s Same Store Hotels RevPAR increased approximately 18.1% and 4.8% for the three months ended March 31, 2023, compared to the same period in 2022 and 2019 (the last year prior to the COVID-19 pandemic), respectively.

Revenues

The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended March 31, 2023 and 2022, the Company had total revenue of $311.5 million and $260.5 million, respectively. For the three months ended March 31, 2023 and 2022, respectively, Comparable Hotels achieved combined average occupancy of 72.0% and 67.0%, ADR of $152.01 and $137.02 and RevPAR of $109.46 and $91.80. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

Compared to the same period in 2022, during the three months ended March 31, 2023, the Company experienced increases in ADR and occupancy, resulting in an increase of 19.2% in RevPAR for Comparable Hotels. Compared to the same periods of 2019 (pre-COVID-19), Comparable Hotels RevPAR for the first quarter of 2023 increased by 6.2% primarily as a result of increases in ADR, offset by reductions in occupancy. Revenue growth in the three months ended March 31, 2023, as compared to the same period of 2022, was led by leisure transient and small group demand, with increased demand from corporate business. Additionally, occupancy for the first quarter of 2022 was negatively impacted in many markets by the Omicron variant of COVID-19. The Company’s suburban markets continued to see stronger demand than urban markets and the Sun Belt generally outperformed other regions of the U.S. The Company expects revenue trends to continue, however, future year-over-year revenue growth will likely be at a lower rate given the favorable first quarter comparison between 2023 and 2022 due to the Omicron variant of COVID-19 negatively impacting the first quarter of 2022. Furthermore, future revenues could be negatively impacted by, among other things, historical seasonal trends, deterioration of consumer sentiment, a recessionary macroeconomic environment or inflationary pressures.

Hotel Operating Expense

Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. Hotel operating expense for the three months ended March 31, 2023 and 2022 totaled $185.2 million and $154.0 million, respectively, or 59.5% and 59.1% of total revenue for the respective periods. The increase in hotel operating expense for the three months ended March 31, 2023, as compared to the same period in 2022, was due to increased labor, repairs and maintenance and utility costs driven by increased staff and inflationary pressures throughout the overall economy. Occupancy increased for the three months ended March 31, 2023, as compared to the same period of 2022, largely due to negative impacts from the Omicron variant of COVID-19 throughout most markets during the first quarter of 2022. Adding staff to meet increased demand has been challenging, and while the Company’s hotels made progress in filling open positions in the first quarter of 2023, they have often done so at higher wage rates or with more expensive contract labor as compared to 2022. Likewise, broader inflationary pressures throughout the overall economy and global tensions have driven shortages and cost increases for utilities, materials and supplies such as food and equipment. The Company continues to work with its management companies to realize operational efficiencies and mitigate the impact of cost pressures resulting from inflation and staffing challenges. The Company will continue to evaluate and work with its management companies to implement adjustments to the hotel operating model in response to continued changes in the operating environment and guest preferences including evaluating staffing levels at its hotels to maximize efficiency.

Property Taxes, Insurance and Other Expense

Property taxes, insurance, and other expense for the three months ended March 31, 2023 and 2022, totaled $19.7 million and $18.7 million, respectively, or 6.3% and 7.2% of total revenue for the respective periods. The increases were primarily due to

19


 

increases in property taxes in certain locations due to the reassessment of property values by localities related to the improved economy, partially offset by decreases at other locations due to successful appeals of tax assessments. The Company will continue to aggressively appeal tax assessments in certain jurisdictions in an attempt to minimize tax increases, as warranted.

General and Administrative Expense

General and administrative expense for the three months ended March 31, 2023 and 2022, was $11.5 million and $9.6 million, respectively, or 3.7% of total revenue for each period. The principal components of general and administrative expense are payroll and related benefit costs, executive incentive compensation, legal fees, accounting fees and reporting expenses. The increase in general and administrative expense for the three months ended March 31, 2023, over the three months ended March 31, 2022, includes an increased accrual of $0.5 million for executive incentive compensation as well as increased payroll and related benefit costs.

Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended March 31, 2023 and 2022, was $45.9 million and $45.3 million, respectively. Depreciation and amortization expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for the respective periods owned. The increase of approximately $0.6 million for the three months ended March 31, 2023, compared to the same period in 2022, was primarily due to the acquisition of two hotels in the fourth quarter of 2022 and renovations completed throughout 2022 and 2023, partially offset by the sale of one hotel in the third quarter of 2022.

Interest and Other Expense, net

Interest and other expense, net for the three months ended March 31, 2023 and 2022, was $16.0 million and $14.7 million, respectively. Interest and other expense, net for the three months ended March 31, 2023 and 2022, is net of approximately $0.6 million and $0.2 million, respectively, of interest capitalized associated with renovation projects.

Interest expense related to the Company’s debt instruments for the three months ended March 31, 2023 increased compared to the three months ended March 31, 2022 as a result of increased average borrowings and higher average interest rates on the Company's variable-rate debt due to the high inflationary environment within the current economy. The Company anticipates interest expense for the remainder of 2023 will be greater than the interest expense for the same period of 2022 due to higher average borrowings associated with variable-rate debt and higher market interest rates.

Non-GAAP Financial Measures

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

FFO and MFFO

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

The Company calculates MFFO by further adjusting FFO for the exclusion of amortization of finance ground lease assets, amortization of favorable and unfavorable operating leases, net and non-cash straight-line operating ground lease expense, as these

20


 

expenses do not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.

The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three months ended March 31, 2023 and 2022 (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Net income

 

$

32,923

 

 

$

18,002

 

Depreciation of real estate owned

 

 

45,142

 

 

 

44,560

 

Funds from operations

 

 

78,065

 

 

 

62,562

 

Amortization of finance ground lease assets

 

 

759

 

 

 

759

 

Amortization of favorable and unfavorable operating leases, net

 

 

97

 

 

 

99

 

Non-cash straight-line operating ground lease expense

 

 

38

 

 

 

40

 

Modified funds from operations

 

$

78,959

 

 

$

63,460

 

 

 

 

 

 

 

 

 

EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA

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

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

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

The Company further excludes actual corporate-level general and administrative expense for the Company from Adjusted EBITDAre (Adjusted Hotel EBITDA) to isolate property-level operational performance over which the Company’s hotel operators have direct control. The Company believes Adjusted Hotel EBITDA provides useful supplemental information to investors regarding operating performance and is used by management to measure the performance of the Company’s hotels and effectiveness of the operators of the hotels.

The following table reconciles the Company’s GAAP net income to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA for the three months ended March 31, 2023 and 2022 (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Net income

 

$

32,923

 

 

$

18,002

 

Depreciation and amortization

 

 

45,906

 

 

 

45,324

 

Amortization of favorable and unfavorable operating leases, net

 

 

97

 

 

 

99

 

Interest and other expense, net

 

 

16,004

 

 

 

14,654

 

Income tax expense

 

 

320

 

 

 

179

 

EBITDA/EBITDAre

 

 

95,250

 

 

 

78,258

 

Non-cash straight-line operating ground lease expense

 

 

38

 

 

 

40

 

Adjusted EBITDAre

 

 

95,288

 

 

 

78,298

 

General and administrative expense

 

 

11,461

 

 

 

9,638

 

Adjusted Hotel EBITDA

 

$

106,749

 

 

$

87,936

 

 

 

 

 

 

 

 

 

21


 

Hotels Owned

As of March 31, 2023, the Company owned 220 hotels with an aggregate of 28,984 rooms located in 37 states. The following tables summarize the number of hotels and rooms by brand and by state:

 

Number of Hotels and Guest Rooms by Brand

 

 

 

Number of

 

 

Number of

 

Brand

 

Hotels

 

 

Rooms

 

Hilton Garden Inn

 

 

40

 

 

 

5,593

 

Hampton

 

 

37

 

 

 

4,953

 

Courtyard

 

 

33

 

 

 

4,653

 

Homewood Suites

 

 

30

 

 

 

3,417

 

Residence Inn

 

 

29

 

 

 

3,548

 

Fairfield

 

 

10

 

 

 

1,213

 

Home2 Suites

 

 

10

 

 

 

1,146

 

SpringHill Suites

 

 

9

 

 

 

1,245

 

TownePlace Suites

 

 

9

 

 

 

931

 

AC Hotels

 

 

3

 

 

 

468

 

Hyatt Place

 

 

3

 

 

 

411

 

Marriott

 

 

2

 

 

 

619

 

Embassy Suites

 

 

2

 

 

 

316

 

Independent

 

 

1

 

 

 

209

 

Aloft

 

 

1

 

 

 

157

 

Hyatt House

 

 

1

 

 

 

105

 

Total

 

 

220

 

 

 

28,984

 

 

22


 

 

Number of Hotels and Guest Rooms by State

 

 

 

Number of

 

 

Number of

 

State

 

Hotels

 

 

Rooms

 

Alabama

 

 

13

 

 

 

1,246

 

Alaska

 

 

2

 

 

 

304

 

Arizona

 

 

13

 

 

 

1,776

 

Arkansas

 

 

2

 

 

 

248

 

California

 

 

26

 

 

 

3,721

 

Colorado

 

 

4

 

 

 

567

 

Florida

 

 

22

 

 

 

2,844

 

Georgia

 

 

5

 

 

 

585

 

Idaho

 

 

1

 

 

 

186

 

Illinois

 

 

7

 

 

 

1,255

 

Indiana

 

 

4

 

 

 

479

 

Iowa

 

 

3

 

 

 

301

 

Kansas

 

 

3

 

 

 

320

 

Kentucky

 

 

1

 

 

 

156

 

Louisiana

 

 

3

 

 

 

422

 

Maine

 

 

3

 

 

 

514

 

Maryland

 

 

2

 

 

 

233

 

Massachusetts

 

 

3

 

 

 

330

 

Michigan

 

 

1

 

 

 

148

 

Minnesota

 

 

3

 

 

 

405

 

Mississippi

 

 

2

 

 

 

168

 

Missouri

 

 

4

 

 

 

544

 

Nebraska

 

 

4

 

 

 

621

 

New Jersey

 

 

5

 

 

 

629

 

New York

 

 

4

 

 

 

555

 

North Carolina

 

 

8

 

 

 

881

 

Ohio

 

 

2

 

 

 

252

 

Oklahoma

 

 

4

 

 

 

545

 

Oregon

 

 

1

 

 

 

243

 

Pennsylvania

 

 

4

 

 

 

525

 

South Carolina

 

 

5

 

 

 

590

 

Tennessee

 

 

11

 

 

 

1,337

 

Texas

 

 

27

 

 

 

3,328

 

Utah

 

 

3

 

 

 

393

 

Virginia

 

 

11

 

 

 

1,667

 

Washington

 

 

3

 

 

 

490

 

Wisconsin

 

 

1

 

 

 

176

 

Total

 

 

220

 

 

 

28,984

 

 

 

 

 

 

 

 

 

23


 

The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 220 hotels the Company owned as of March 31, 2023:

 

City

 

State

 

Brand

 

Manager

 

Date
Acquired or
Completed

 

Rooms

 

Anchorage

 

AK

 

Embassy Suites

 

InnVentures

 

4/30/2010

 

 

169

 

Anchorage

 

AK

 

Home2 Suites

 

InnVentures

 

12/1/2017

 

 

135

 

Auburn

 

AL

 

Hilton Garden Inn

 

LBA

 

3/1/2014

 

 

101

 

Birmingham

 

AL

 

Courtyard

 

LBA

 

3/1/2014

 

 

84

 

Birmingham

 

AL

 

Hilton Garden Inn

 

LBA

 

9/12/2017

 

 

104

 

Birmingham

 

AL

 

Home2 Suites

 

LBA

 

9/12/2017

 

 

106

 

Birmingham

 

AL

 

Homewood Suites

 

McKibbon

 

3/1/2014

 

 

95

 

Dothan

 

AL

 

Hilton Garden Inn

 

LBA

 

6/1/2009

 

 

104

 

Dothan

 

AL

 

Residence Inn

 

LBA

 

3/1/2014

 

 

84

 

Huntsville

 

AL

 

Hampton

 

LBA

 

9/1/2016

 

 

98

 

Huntsville

 

AL

 

Hilton Garden Inn

 

LBA

 

3/1/2014

 

 

101

 

Huntsville

 

AL

 

Home2 Suites

 

LBA

 

9/1/2016

 

 

77

 

Huntsville

 

AL

 

Homewood Suites

 

LBA

 

3/1/2014

 

 

107

 

Mobile

 

AL

 

Hampton

 

McKibbon

 

9/1/2016

 

 

101

 

Prattville

 

AL

 

Courtyard

 

LBA

 

3/1/2014

 

 

84

 

Rogers

 

AR

 

Hampton

 

Raymond

 

8/31/2010

 

 

122

 

Rogers

 

AR

 

Homewood Suites

 

Raymond

 

4/30/2010

 

 

126

 

Chandler

 

AZ

 

Courtyard

 

North Central

 

11/2/2010

 

 

150

 

Chandler

 

AZ

 

Fairfield

 

North Central

 

11/2/2010

 

 

110

 

Phoenix

 

AZ

 

Courtyard

 

North Central

 

11/2/2010

 

 

164

 

Phoenix

 

AZ

 

Hampton

 

North Central

 

9/1/2016

 

 

125

 

Phoenix

 

AZ

 

Hampton

 

North Central

 

5/2/2018

 

 

210

 

Phoenix

 

AZ

 

Homewood Suites

 

North Central

 

9/1/2016

 

 

134

 

Phoenix

 

AZ

 

Residence Inn

 

North Central

 

11/2/2010

 

 

129

 

Scottsdale

 

AZ

 

Hilton Garden Inn

 

North Central

 

9/1/2016

 

 

122

 

Tempe

 

AZ

 

Hyatt House

 

Crestline

 

8/13/2020

 

 

105

 

Tempe

 

AZ

 

Hyatt Place

 

Crestline

 

8/13/2020

 

 

154

 

Tucson

 

AZ

 

Hilton Garden Inn

 

Western

 

7/31/2008

 

 

125

 

Tucson

 

AZ

 

Residence Inn

 

Western

 

3/1/2014

 

 

124

 

Tucson

 

AZ

 

TownePlace Suites

 

Western

 

10/6/2011

 

 

124

 

Agoura Hills

 

CA

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

125

 

Burbank

 

CA

 

Courtyard

 

Huntington

 

8/11/2015

 

 

190

 

Burbank

 

CA

 

Residence Inn

 

Marriott

 

3/1/2014

 

 

166

 

Burbank

 

CA

 

SpringHill Suites

 

Marriott

 

7/13/2015

 

 

170

 

Clovis

 

CA

 

Hampton

 

Dimension

 

7/31/2009

 

 

86

 

Clovis

 

CA

 

Homewood Suites

 

Dimension

 

2/2/2010

 

 

83

 

Cypress

 

CA

 

Courtyard

 

Dimension

 

3/1/2014

 

 

180

 

Cypress

 

CA

 

Hampton

 

Dimension

 

6/29/2015

 

 

110

 

Oceanside

 

CA

 

Courtyard

 

Marriott

 

9/1/2016

 

 

142

 

Oceanside

 

CA

 

Residence Inn

 

Marriott

 

3/1/2014

 

 

125

 

Rancho Bernardo/San Diego

 

CA

 

Courtyard

 

InnVentures

 

3/1/2014

 

 

210

 

Sacramento

 

CA

 

Hilton Garden Inn

 

Dimension

 

3/1/2014

 

 

153

 

San Bernardino

 

CA

 

Residence Inn

 

InnVentures

 

2/16/2011

 

 

95

 

San Diego

 

CA

 

Courtyard

 

Huntington

 

9/1/2015

 

 

245

 

San Diego

 

CA

 

Hampton

 

Dimension

 

3/1/2014

 

 

177

 

San Diego

 

CA

 

Hilton Garden Inn

 

InnVentures

 

3/1/2014

 

 

200

 

San Diego

 

CA

 

Residence Inn

 

Dimension

 

3/1/2014

 

 

121

 

San Jose

 

CA

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

140

 

 

24


 

 

City

 

State

 

Brand

 

Manager

 

Date
Acquired or
Completed

 

Rooms

 

San Juan Capistrano

 

CA

 

Residence Inn

 

Marriott

 

9/1/2016

 

 

130

 

Santa Ana

 

CA

 

Courtyard

 

Dimension

 

5/23/2011

 

 

155

 

Santa Clarita

 

CA

 

Courtyard

 

Dimension

 

9/24/2008

 

 

140

 

Santa Clarita

 

CA

 

Fairfield

 

Dimension

 

10/29/2008

 

 

66

 

Santa Clarita

 

CA

 

Hampton

 

Dimension

 

10/29/2008

 

 

128

 

Santa Clarita

 

CA

 

Residence Inn

 

Dimension

 

10/29/2008

 

 

90

 

Tustin

 

CA

 

Fairfield

 

Marriott

 

9/1/2016

 

 

145

 

Tustin

 

CA

 

Residence Inn

 

Marriott

 

9/1/2016

 

 

149

 

Colorado Springs

 

CO

 

Hampton

 

Chartwell

 

9/1/2016

 

 

101

 

Denver

 

CO

 

Hilton Garden Inn

 

InnVentures

 

9/1/2016

 

 

221

 

Highlands Ranch

 

CO

 

Hilton Garden Inn

 

Dimension

 

3/1/2014

 

 

128

 

Highlands Ranch

 

CO

 

Residence Inn

 

Dimension

 

3/1/2014

 

 

117

 

Boca Raton

 

FL

 

Hilton Garden Inn

 

Dimension

 

9/1/2016

 

 

149

 

Cape Canaveral

 

FL

 

Hampton

 

LBA

 

4/30/2020

 

 

116

 

Cape Canaveral

 

FL

 

Homewood Suites

 

LBA

 

9/1/2016

 

 

153

 

Cape Canaveral

 

FL

 

Home2 Suites

 

LBA

 

4/30/2020

 

 

108

 

Fort Lauderdale

 

FL

 

Hampton

 

Dimension

 

6/23/2015

 

 

156

 

Fort Lauderdale

 

FL

 

Residence Inn

 

LBA

 

9/1/2016

 

 

156

 

Gainesville

 

FL

 

Hilton Garden Inn

 

McKibbon

 

9/1/2016

 

 

104

 

Gainesville

 

FL

 

Homewood Suites

 

McKibbon

 

9/1/2016

 

 

103

 

Jacksonville

 

FL

 

Homewood Suites

 

McKibbon

 

3/1/2014

 

 

119

 

Jacksonville

 

FL

 

Hyatt Place

 

Crestline

 

12/7/2018

 

 

127

 

Miami

 

FL

 

Courtyard

 

Dimension

 

3/1/2014

 

 

118

 

Miami

 

FL

 

Hampton

 

HHM

 

4/9/2010

 

 

121

 

Miami

 

FL

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

162

 

Orlando

 

FL

 

Fairfield

 

Marriott

 

7/1/2009

 

 

200

 

Orlando

 

FL

 

Home2 Suites

 

LBA

 

3/19/2019

 

 

128

 

Orlando

 

FL

 

SpringHill Suites

 

Marriott

 

7/1/2009

 

 

200

 

Panama City

 

FL

 

Hampton

 

LBA

 

3/12/2009

 

 

95

 

Panama City

 

FL

 

TownePlace Suites

 

LBA

 

1/19/2010

 

 

103

 

Pensacola

 

FL

 

TownePlace Suites

 

McKibbon

 

9/1/2016

 

 

97

 

Tallahassee

 

FL

 

Fairfield

 

LBA

 

9/1/2016

 

 

97

 

Tallahassee

 

FL

 

Hilton Garden Inn

 

LBA

 

3/1/2014

 

 

85

 

Tampa

 

FL

 

Embassy Suites

 

HHM

 

11/2/2010

 

 

147

 

Atlanta/Downtown

 

GA

 

Hampton

 

McKibbon

 

2/5/2018

 

 

119

 

Atlanta/Perimeter Dunwoody

 

GA

 

Hampton

 

LBA

 

6/28/2018

 

 

132

 

Atlanta

 

GA

 

Home2 Suites

 

McKibbon

 

7/1/2016

 

 

128

 

Macon

 

GA

 

Hilton Garden Inn

 

LBA

 

3/1/2014

 

 

101

 

Savannah

 

GA

 

Hilton Garden Inn

 

Newport

 

3/1/2014

 

 

105

 

Cedar Rapids

 

IA

 

Hampton

 

Aimbridge

 

9/1/2016

 

 

103

 

Cedar Rapids

 

IA

 

Homewood Suites

 

Aimbridge

 

9/1/2016

 

 

95

 

Davenport

 

IA

 

Hampton

 

Aimbridge

 

9/1/2016

 

 

103

 

Boise

 

ID

 

Hampton

 

Raymond

 

4/30/2010

 

 

186

 

Des Plaines

 

IL

 

Hilton Garden Inn

 

Raymond

 

9/1/2016

 

 

253

 

Hoffman Estates

 

IL

 

Hilton Garden Inn

 

HHM

 

9/1/2016

 

 

184

 

Mettawa

 

IL

 

Hilton Garden Inn

 

HHM

 

11/2/2010

 

 

170

 

Mettawa

 

IL

 

Residence Inn

 

HHM

 

11/2/2010

 

 

130

 

Rosemont

 

IL

 

Hampton

 

Raymond

 

9/1/2016

 

 

158

 

Skokie

 

IL

 

Hampton

 

Raymond

 

9/1/2016

 

 

225

 

Warrenville

 

IL

 

Hilton Garden Inn

 

HHM

 

11/2/2010

 

 

135

 

 

25


 

 

City

 

State

 

Brand

 

Manager

 

Date
Acquired or
Completed

 

Rooms

 

Indianapolis

 

IN

 

SpringHill Suites

 

HHM

 

11/2/2010

 

 

130

 

Merrillville

 

IN

 

Hilton Garden Inn

 

HHM

 

9/1/2016

 

 

124

 

Mishawaka

 

IN

 

Residence Inn

 

HHM

 

11/2/2010

 

 

106

 

South Bend

 

IN

 

Fairfield

 

HHM

 

9/1/2016

 

 

119

 

Overland Park

 

KS

 

Fairfield

 

Raymond

 

3/1/2014

 

 

110

 

Overland Park

 

KS

 

Residence Inn

 

Raymond

 

3/1/2014

 

 

120

 

Wichita

 

KS

 

Courtyard

 

Aimbridge

 

3/1/2014

 

 

90

 

Louisville

 

KY

 

AC Hotels

 

Concord

 

10/25/2022

 

 

156

 

Lafayette

 

LA

 

Hilton Garden Inn

 

LBA

 

7/30/2010

 

 

153

 

Lafayette

 

LA

 

SpringHill Suites

 

LBA

 

6/23/2011

 

 

103

 

New Orleans

 

LA

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

166

 

Marlborough

 

MA

 

Residence Inn

 

Crestline

 

3/1/2014

 

 

112

 

Westford

 

MA

 

Hampton

 

Crestline

 

3/1/2014

 

 

110

 

Westford

 

MA

 

Residence Inn

 

Crestline

 

3/1/2014

 

 

108

 

Annapolis

 

MD

 

Hilton Garden Inn

 

Crestline

 

3/1/2014

 

 

126

 

Silver Spring

 

MD

 

Hilton Garden Inn

 

Crestline

 

7/30/2010

 

 

107

 

Portland

 

ME

 

AC Hotels

 

Crestline

 

8/20/2021

 

 

178

 

Portland

 

ME

 

Aloft

 

Crestline

 

9/10/2021

 

 

157

 

Portland

 

ME

 

Residence Inn

 

Crestline

 

10/13/2017

 

 

179

 

Novi

 

MI

 

Hilton Garden Inn

 

HHM

 

11/2/2010

 

 

148

 

Maple Grove

 

MN

 

Hilton Garden Inn

 

North Central

 

9/1/2016

 

 

121

 

Rochester

 

MN

 

Hampton

 

Raymond

 

8/3/2009

 

 

124

 

St. Paul

 

MN

 

Hampton

 

Raymond

 

3/4/2019

 

 

160

 

Kansas City

 

MO

 

Hampton

 

Raymond

 

8/31/2010

 

 

122

 

Kansas City

 

MO

 

Residence Inn

 

Raymond

 

3/1/2014

 

 

106

 

St. Louis

 

MO

 

Hampton

 

Raymond

 

8/31/2010

 

 

190

 

St. Louis

 

MO

 

Hampton

 

Raymond

 

4/30/2010

 

 

126

 

Hattiesburg

 

MS

 

Courtyard

 

LBA

 

3/1/2014

 

 

84

 

Hattiesburg

 

MS

 

Residence Inn

 

LBA

 

12/11/2008

 

 

84

 

Carolina Beach

 

NC

 

Courtyard

 

Crestline

 

3/1/2014

 

 

144

 

Charlotte

 

NC

 

Fairfield

 

Newport

 

9/1/2016

 

 

94

 

Durham

 

NC

 

Homewood Suites

 

McKibbon

 

12/4/2008

 

 

122

 

Fayetteville

 

NC

 

Home2 Suites

 

LBA

 

2/3/2011

 

 

118

 

Greensboro

 

NC

 

SpringHill Suites

 

Newport

 

3/1/2014

 

 

82

 

Jacksonville

 

NC

 

Home2 Suites

 

LBA

 

9/1/2016

 

 

105

 

Wilmington

 

NC

 

Fairfield

 

Crestline

 

3/1/2014

 

 

122

 

Winston-Salem

 

NC

 

Hampton

 

McKibbon

 

9/1/2016

 

 

94

 

Omaha

 

NE

 

Courtyard

 

Marriott

 

3/1/2014

 

 

181

 

Omaha

 

NE

 

Hampton

 

HHM

 

9/1/2016

 

 

139

 

Omaha

 

NE

 

Hilton Garden Inn

 

HHM

 

9/1/2016

 

 

178

 

Omaha

 

NE

 

Homewood Suites

 

HHM

 

9/1/2016

 

 

123

 

Cranford

 

NJ

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

108

 

Mahwah

 

NJ

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

110

 

Mount Laurel

 

NJ

 

Homewood Suites

 

Newport

 

1/11/2011

 

 

118

 

Somerset

 

NJ

 

Courtyard

 

Newport

 

3/1/2014

 

 

162

 

West Orange

 

NJ

 

Courtyard

 

Newport

 

1/11/2011

 

 

131

 

Islip/Ronkonkoma

 

NY

 

Hilton Garden Inn

 

Crestline

 

3/1/2014

 

 

166

 

New York

 

NY

 

Independent

 

Highgate

 

3/1/2014

 

 

209

 

Syracuse

 

NY

 

Courtyard

 

Crestline

 

10/16/2015

 

 

102

 

Syracuse

 

NY

 

Residence Inn

 

Crestline

 

10/16/2015

 

 

78

 

Mason

 

OH

 

Hilton Garden Inn

 

Raymond

 

9/1/2016

 

 

110

 

 

26


 

 

City

 

State

 

Brand

 

Manager

 

Date
Acquired or
Completed

 

Rooms

 

Twinsburg

 

OH

 

Hilton Garden Inn

 

Aimbridge

 

10/7/2008

 

 

142

 

Oklahoma City

 

OK

 

Hampton

 

Raymond

 

5/28/2010

 

 

200

 

Oklahoma City

 

OK

 

Hilton Garden Inn

 

Raymond

 

9/1/2016

 

 

155

 

Oklahoma City

 

OK

 

Homewood Suites

 

Raymond

 

9/1/2016

 

 

100

 

Oklahoma City (West)

 

OK

 

Homewood Suites

 

Chartwell

 

9/1/2016

 

 

90

 

Portland

 

OR

 

Hampton

 

Raymond

 

11/17/2021

 

 

243

 

Collegeville/Philadelphia

 

PA

 

Courtyard

 

Newport

 

11/15/2010

 

 

132

 

Malvern/Philadelphia

 

PA

 

Courtyard

 

Newport

 

11/30/2010

 

 

127

 

Pittsburgh

 

PA

 

AC Hotels

 

Concord

 

10/25/2022

 

 

134

 

Pittsburgh

 

PA

 

Hampton

 

Newport

 

12/31/2008

 

 

132

 

Charleston

 

SC

 

Home2 Suites

 

LBA

 

9/1/2016

 

 

122

 

Columbia

 

SC

 

Hilton Garden Inn

 

Newport

 

3/1/2014

 

 

143

 

Columbia

 

SC

 

TownePlace Suites

 

Newport

 

9/1/2016

 

 

91

 

Greenville

 

SC

 

Hyatt Place

 

Crestline

 

9/1/2021

 

 

130

 

Hilton Head

 

SC

 

Hilton Garden Inn

 

McKibbon

 

3/1/2014

 

 

104

 

Chattanooga

 

TN

 

Homewood Suites

 

LBA

 

3/1/2014

 

 

76

 

Franklin

 

TN

 

Courtyard

 

Chartwell

 

9/1/2016

 

 

126

 

Franklin

 

TN

 

Residence Inn

 

Chartwell

 

9/1/2016

 

 

124

 

Knoxville

 

TN

 

Homewood Suites

 

McKibbon

 

9/1/2016

 

 

103

 

Knoxville

 

TN

 

SpringHill Suites

 

McKibbon

 

9/1/2016

 

 

103

 

Knoxville

 

TN

 

TownePlace Suites

 

McKibbon

 

9/1/2016

 

 

97

 

Memphis

 

TN

 

Hampton

 

Crestline

 

2/5/2018

 

 

144

 

Memphis

 

TN

 

Hilton Garden Inn

 

Crestline

 

10/28/2021

 

 

150

 

Nashville

 

TN

 

Hilton Garden Inn

 

Dimension

 

9/30/2010

 

 

194

 

Nashville

 

TN

 

Home2 Suites

 

Dimension

 

5/31/2012

 

 

119

 

Nashville

 

TN

 

TownePlace Suites

 

LBA

 

9/1/2016

 

 

101

 

Addison

 

TX

 

SpringHill Suites

 

Marriott

 

3/1/2014

 

 

159

 

Arlington

 

TX

 

Hampton

 

Western

 

12/1/2010

 

 

98

 

Austin

 

TX

 

Courtyard

 

HHM

 

11/2/2010

 

 

145

 

Austin

 

TX

 

Fairfield

 

HHM

 

11/2/2010

 

 

150

 

Austin

 

TX

 

Hampton

 

Dimension

 

4/14/2009

 

 

124

 

Austin

 

TX

 

Hilton Garden Inn

 

HHM

 

11/2/2010

 

 

117

 

Austin

 

TX

 

Homewood Suites

 

Dimension

 

4/14/2009

 

 

97

 

Austin/Round Rock

 

TX

 

Hampton

 

Dimension

 

3/6/2009

 

 

94

 

Austin/Round Rock

 

TX

 

Homewood Suites

 

Dimension

 

9/1/2016

 

 

115

 

Dallas

 

TX

 

Homewood Suites

 

Western

 

9/1/2016

 

 

130

 

Denton

 

TX

 

Homewood Suites

 

Chartwell

 

9/1/2016

 

 

107

 

El Paso

 

TX

 

Homewood Suites

 

Western

 

3/1/2014

 

 

114

 

Fort Worth

 

TX

 

Courtyard

 

LBA

 

2/2/2017

 

 

124

 

Fort Worth

 

TX

 

Hilton Garden Inn

 

Raymond

 

11/17/2021

 

 

157

 

Fort Worth

 

TX

 

Homewood Suites

 

Raymond

 

11/17/2021

 

 

112

 

Fort Worth

 

TX

 

TownePlace Suites

 

Western

 

7/19/2010

 

 

140

 

Frisco

 

TX

 

Hilton Garden Inn

 

Western

 

12/31/2008

 

 

102

 

Grapevine

 

TX

 

Hilton Garden Inn

 

Western

 

9/24/2010

 

 

110

 

Houston

 

TX

 

Courtyard

 

LBA

 

9/1/2016

 

 

124

 

Houston

 

TX

 

Marriott

 

Western

 

1/8/2010

 

 

206

 

Houston

 

TX

 

Residence Inn

 

Western

 

3/1/2014

 

 

129

 

Houston

 

TX

 

Residence Inn

 

Western

 

9/1/2016

 

 

120

 

Lewisville

 

TX

 

Hilton Garden Inn

 

Aimbridge

 

10/16/2008

 

 

165

 

San Antonio

 

TX

 

TownePlace Suites

 

Western

 

3/1/2014

 

 

106

 

Shenandoah

 

TX

 

Courtyard

 

LBA

 

9/1/2016

 

 

124

 

 

27


 

City

 

State

 

Brand

 

Manager

 

Date
Acquired or
Completed

 

Rooms

 

Stafford

 

TX

 

Homewood Suites

 

Western

 

3/1/2014

 

 

78

 

Texarkana

 

TX

 

Hampton

 

Aimbridge

 

1/31/2011

 

 

81

 

Provo

 

UT

 

Residence Inn

 

Dimension

 

3/1/2014

 

 

114

 

Salt Lake City

 

UT

 

Residence Inn

 

Huntington

 

10/20/2017

 

 

136

 

Salt Lake City

 

UT

 

SpringHill Suites

 

HHM

 

11/2/2010

 

 

143

 

Alexandria

 

VA

 

Courtyard

 

Marriott

 

3/1/2014

 

 

178

 

Alexandria

 

VA

 

SpringHill Suites

 

Marriott

 

3/28/2011

 

 

155

 

Charlottesville

 

VA

 

Courtyard

 

Crestline

 

3/1/2014

 

 

139

 

Manassas

 

VA

 

Residence Inn

 

Crestline

 

2/16/2011

 

 

107

 

Richmond

 

VA

 

Courtyard

 

White Lodging

 

12/8/2014

 

 

135

 

Richmond

 

VA

 

Marriott

 

White Lodging

 

3/1/2014

 

 

413

 

Richmond

 

VA

 

Residence Inn

 

White Lodging

 

12/8/2014

 

 

75

 

Suffolk

 

VA

 

Courtyard

 

Crestline

 

3/1/2014

 

 

92

 

Suffolk

 

VA

 

TownePlace Suites

 

Crestline

 

3/1/2014

 

 

72

 

Virginia Beach

 

VA

 

Courtyard

 

Crestline

 

3/1/2014

 

 

141

 

Virginia Beach

 

VA

 

Courtyard

 

Crestline

 

3/1/2014

 

 

160

 

Kirkland

 

WA

 

Courtyard

 

InnVentures

 

3/1/2014

 

 

150

 

Seattle

 

WA

 

Residence Inn

 

InnVentures

 

3/1/2014

 

 

234

 

Tukwila

 

WA

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

106

 

Madison

 

WI

 

Hilton Garden Inn

 

Raymond

 

2/18/2021

 

 

176

 

Total

 

 

 

 

 

 

 

 

 

 

28,984

 

 

Related Parties

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

Liquidity and Capital Resources

Capital Resources

The Company’s principal short term sources of liquidity are the operating cash flows generated from the Company’s properties and availability under its Revolving Credit Facility. Over the long term, the Company may receive proceeds from strategic additional secured and unsecured debt financing, dispositions of its hotel properties and offerings of the Company’s common shares, including pursuant to the ATM Program. Macroeconomic pressures, including inflation, increases in interest rates and general market uncertainty, could impact the Company’s ability to raise debt or equity capital to fund long-term liquidity requirements in a cost-effective manner.

As of March 31, 2023, the Company had $1.4 billion of total outstanding debt consisting of $289.6 million of mortgage debt and $1.1 billion outstanding under its unsecured credit facilities, excluding unamortized debt issuance costs and fair value adjustments. As of March 31, 2023, the Company had available corporate cash on hand of approximately $6.1 million, and unused borrowing capacity under its Revolving Credit Facility of approximately $609.5 million.

The credit agreements governing the unsecured credit facilities contain mandatory prepayment requirements, customary affirmative and negative covenants and events of default. The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios, and restrictions on certain investments. The Company was in compliance with the applicable covenants as of March 31, 2023.

See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for a description of the Company’s debt agreements as of March 31, 2023.

The Company has a universal shelf registration statement on Form S-3 (No. 333-262915) that was automatically effective upon filing on February 23, 2022. The Company may offer an indeterminate number or amount, as the case may be, of (1) common shares,

28


 

no par value per share; (2) preferred shares, no par value per share; (3) depository shares representing the Company’s preferred shares; (4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5) rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. Future offerings will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company’s common shares and opportunities for uses of any proceeds.

On August 12, 2020, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $300 million of its common shares under the ATM Program under the Company’s prior shelf registration statement and the current shelf registration statement described above. Since inception of the ATM Program in August 2020 through March 31, 2023, the Company sold approximately 4.7 million common shares under its ATM Program at a weighted-average market sales price of approximately $16.26 per common share and received aggregate gross proceeds of approximately $76.0 million and proceeds net of offering costs, which included $0.9 million of commissions, of approximately $75.1 million. The Company used the net proceeds from the sale of these shares primarily to pay down borrowings under its then-existing $425 million revolving credit facility and used the corresponding increased availability under the $425 million revolving credit facility for general corporate purposes, including acquisitions of hotel properties. As of March 31, 2023, approximately $224.0 million remained available for issuance under the ATM Program. No shares were sold under the Company’s ATM Program during the quarter ended March 31, 2023. The Company plans to use future net proceeds from the sale of shares under the ATM Program for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the net proceeds to acquire another REIT or other company that invests in income producing properties. Future offerings will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company’s common shares and opportunities for uses of any proceeds.

Capital Uses

The Company anticipates that cash flow from operations, availability under its unsecured credit facilities, additional borrowings, and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including required distributions to shareholders, share repurchases, capital improvements, debt service, hotel acquisitions, lease commitments, and cash management activities.

Distributions

The Company generally must distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order to maintain its REIT status. On March 20, 2023, the Company declared a monthly cash distribution of $0.08 per common share, paid on April 17, 2023, to shareholders of record as of March 31, 2023. For the three months ended March 31, 2023, the Company paid distributions of $0.32 per common share for a total of $73.4 million. Subsequent to quarter end, on April 18, 2023, the Company declared a monthly cash distribution of $0.08 per common share, payable on May 15, 2023 to shareholders of record as of April 28, 2023.

The Company, as it has done historically due to seasonality, may use its Revolving Credit Facility to maintain the consistency of distributions, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. While management currently expects monthly cash distributions to continue at $0.08 per common share, any distribution will be subject to approval of the Company’s Board of Directors and there can be no assurance of the classification, timing or duration of distributions at any particular distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of its hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company or to the extent required to maintain REIT status. If cash flows from operations and the Revolving Credit Facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurance it will be successful with this strategy, and it may need to reduce its distributions to minimum levels required to maintain its qualification as a real estate investment trust. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.

Share Repurchases

In May 2022, the Company’s Board of Directors approved a one-year extension of its existing share repurchase program, authorizing share repurchases up to an aggregate of $345 million (the “Share Repurchase Program”). The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2023 if not terminated or extended earlier. During the three months ended March 31, 2023, the Company purchased, under its Share Repurchase Program, approximately 0.3 million of its common shares at a weighted-average market purchase price of approximately $14.22 per common share for an aggregate purchase price, including commissions, of approximately $3.6 million. The shares were repurchased under a written trading plan as part of the Share Repurchase Program that provides for share repurchases in open market transactions and that is intended to comply with Rule

29


 

10b5-1 under the Exchange Act. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash on hand or availability under its unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will also depend upon prevailing market conditions, regulatory requirements and other factors. As of March 31, 2023, approximately $338.8 million remained available for purchase under the Share Repurchase Program.

Capital Improvements

Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it deems prudent. The Company is committed to maintaining and enhancing each property’s competitive position in its market. The Company has invested in and plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. As of March 31, 2023, the Company held approximately $29.6 million in reserve related to these properties. During the three months ended March 31, 2023, the Company invested approximately $18.4 million in capital expenditures. The Company anticipates spending approximately $70 million to $80 million during 2023, which includes various renovation projects for approximately 20 to 25 properties, however, inflationary pressures or supply chain shortages, among other issues, may result in increased costs and delays for anticipated projects. The Company does not currently have any existing or planned projects for new property development.

Upcoming Debt Maturities and Debt Service Payments

The Company has approximately $118.6 million of principal and interest payments due on its debt over the next 12 months, which the Company plans to pay using borrowings under its Revolving Credit Facility and/or new financing. The Company has paid off $37.4 million of loans that matured in 2023, using borrowings under its unsecured credit facilities. Interest expense related to the Company’s unsecured credit facilities is expected to be higher over the next 12 months than the previous 12 months as a result of increases in market interest rates on its variable-rate debt. See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for more detail regarding future maturities of the Company’s debt instruments as of March 31, 2023.

Hotel Purchase Contract Commitments

As of March 31, 2023, the Company had separate outstanding contracts for the potential purchase of two hotels, consisting of one hotel in Madison, Wisconsin and one hotel in Cleveland, Ohio, for a total combined purchase price of approximately $109.6 million. Of these two hotels, one is already in operation, and the Company plans to complete the purchase of this hotel in the second quarter of 2023. The other purchase contract is for a hotel under development that is currently planned to be completed and opened for business in early 2024, at which time the Company expects to complete the purchase of this hotel. Although the Company is working towards acquiring these hotels, there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under these contracts and acquire these hotels. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to purchase the hotels under contract if closings occur.

Cash Management Activities

As part of the cost sharing arrangements discussed in Note 6, titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under the cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies.

Business Interruption

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

30


 

Seasonality

The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues for the Company’s hotels are greater in the second and third quarters than in the first and fourth quarters. However, due to the effects of COVID-19, these typical seasonal patterns have been disrupted in recent years. In the first quarter of 2022, the Company experienced lower than expected operating results due to the Omicron variant of COVID-19 along with the typical seasonal decrease of the first quarter. Since that time, the seasonal variability has recovered to its pre-COVID-19 trend. To the extent that cash flow from operations is insufficient during any quarter due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements.

Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements in accordance with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Company’s financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the Company’s Unaudited Consolidated Financial Statements and Notes thereto. The Company has discussed those policies and estimates that it believes are critical and require the use of complex judgment in their application in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 21, 2023. There have been no material changes to the Company’s critical accounting policies or the methods or assumptions applied.

Subsequent Events

On April 17, 2023, the Company paid approximately $18.3 million, or $0.08 per common share, in distributions to shareholders of record as of March 31, 2023.

On April 18, 2023, the Company declared a monthly cash distribution of $0.08 per common share. The distribution is payable on May 15, 2023, to shareholders of record as of April 28, 2023.

31


 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2023, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk. However, the Company is exposed to interest rate risk due to possible changes in short term interest rates as it invests its cash or borrows on its Revolving Credit Facility and due to the portion of its variable-rate term debt that is not fixed by interest rate swaps. As of March 31, 2023, after giving effect to interest rate swaps, as described below, approximately $315.5 million, or approximately 22% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s variable-rate debt outstanding as of March 31, 2023, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately $3.2 million, all other factors remaining the same. With the exception of interest rate swap transactions, the Company has not engaged in transactions in derivative financial instruments or derivative commodity instruments.

As of March 31, 2023, the Company’s variable-rate debt consisted of its unsecured credit facilities, including borrowings outstanding under its Revolving Credit Facility and $1.0 billion of term loans. Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. As of March 31, 2023, the Company had 13 interest rate swap agreements that effectively fix the interest payments on approximately $695.0 million of the Company’s variable-rate debt outstanding with swap maturity dates ranging from January 2024 to December 2029. Under the terms of all of the Company’s interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the annual rate of the one-month SOFR plus a 0.10% SOFR spread adjustment. See Note 5 titled “Fair Value of Financial Instruments” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for a description of the Company’s interest rate swaps as of March 31, 2023.

In addition to its variable-rate debt and interest rate swaps discussed above, the Company has assumed or originated fixed interest rate mortgages payable to lenders under permanent financing arrangements as well as two fixed-rate senior notes facilities totaling $125 million. The following table summarizes the annual maturities and average interest rates of the Company’s mortgage debt and borrowings outstanding under its unsecured credit facilities at March 31, 2023. All dollar amounts are in thousands.

 

 

 

April 1 - December 31, 2023

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

Thereafter

 

 

Total

 

 

Fair
Market
Value

 

Total debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturities

 

$

56,645

 

 

$

113,597

 

 

$

245,140

 

 

$

115,149

 

 

$

278,602

 

 

$

616,014

 

 

$

1,425,147

 

 

$

1,372,379

 

Average interest rates (1)

 

 

4.3

%

 

 

4.5

%

 

 

4.9

%

 

 

5.1

%

 

 

5.1

%

 

 

4.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable-rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturities

 

$

50,000

 

 

$

85,000

 

 

$

175,000

 

 

$

40,500

 

 

$

275,000

 

 

$

385,000

 

 

$

1,010,500

 

 

$

1,007,586

 

Average interest rates (1)

 

 

4.3

%

 

 

4.7

%

 

 

5.2

%

 

 

5.5

%

 

 

5.6

%

 

 

5.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturities

 

$

6,645

 

 

$

28,597

 

 

$

70,140

 

 

$

74,649

 

 

$

3,602

 

 

$

231,014

 

 

$

414,647

 

 

$

364,793

 

Average interest rates

 

 

4.1

%

 

 

4.1

%

 

 

4.0

%

 

 

4.0

%

 

 

4.1

%

 

 

4.1

%

 

 

 

 

 

 

 

(1)
The average interest rate gives effect to interest rate swaps, as applicable.

Item 4. Controls and Procedures

Senior management, including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2023. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

32


 

PART II. OTHER INFORMATION

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

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

The following is a summary of all share repurchases during the first quarter of 2023.

Issuer Purchases of Equity Securities

 

 

 

(a)

 

 

(b)

 

 

(c)

 

 

(d)

 

Period

 

Total Number of Shares Purchased

 

 

Average Price Paid per Share

 

 

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

 

 

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

 

January 1 - January 31, 2023

 

 

-

 

 

-

 

 

 

-

 

 

$

342,325

 

February 1 - February 28, 2023

 

 

-

 

 

-

 

 

 

-

 

 

$

342,325

 

March 1 - March 31, 2023 (2)

 

 

599,693

 

 

$

15.50

 

 

 

250,000

 

 

$

338,768

 

Total

 

 

599,693

 

 

 

 

 

 

250,000

 

 

 

 

 

(1)
Represents amount outstanding under the Company’s authorized $345 million Share Repurchase Program. This program, which was announced in 2015 and most recently extended in May 2022, may be suspended or terminated at any time by the Company and will end in July 2023 if not terminated earlier or further extended.
(2)
Includes common shares surrendered to the Company to satisfy tax withholding obligations associated with the issuance of common shares awarded to employees and the vesting of restricted common shares.

 

33


 

Item 6. Exhibits

 

Exhibit

Number

 

Description of Documents

3.1

 

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

 

3.2

 

Third Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed May 18, 2020)

 

 

 

31.1

 

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

 

31.2

 

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

 

 

 

31.3

 

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

 

 

 

32.1

 

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

 

 

 

101

 

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH)

 

104

 

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted as Inline XBRL and contained in Exhibit 101.

 

 

34


 

SIGNATURES

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

Apple Hospitality REIT, Inc.

By:

  /s/ Justin G. Knight

Date: May 2, 2023

Justin G. Knight,

Chief Executive Officer

(Principal Executive Officer)

By:

/s/ Elizabeth S. Perkins

Date: May 2, 2023

Elizabeth S. Perkins,

Chief Financial Officer

(Principal Financial Officer)

By:

/s/ Rachel S. Labrecque

Date: May 2, 2023

Rachel S. Labrecque,

Chief Accounting Officer

(Principal Accounting Officer)

 

35