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APLE Apple Hospitality REIT

Filed: 6 May 21, 4:15pm

 

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, 2021

 

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 May 3, 2021: 223,656,264

 

 

 


 

 

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, 2021 and December 31, 2020

3

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss – three months ended March 31, 2021 and 2020

4

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity – three months ended March 31, 2021 and 2020

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows – three months ended March 31, 2021 and 2020

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

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

19

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

 

 

 

Item 4.

Controls and Procedures

36

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

37

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

 

 

Item 6.

Exhibits

38

 

 

 

 

Signatures

39

 

This Form 10-Q includes references to certain trademarks or service marks. The 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®, Hampton Inn by Hilton®, Hampton Inn & Suites 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.

 


Index

 

PART I. FINANCIAL INFORMATION 

Item 1. Financial Statements

Apple Hospitality REIT, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Investment in real estate, net of accumulated depreciation and amortization of

   $1,275,557 and $1,235,698, respectively

 

$

4,712,480

 

 

$

4,732,896

 

Assets held for sale

 

 

5,172

 

 

 

5,316

 

Cash and cash equivalents

 

 

5,776

 

 

 

5,556

 

Restricted cash-furniture, fixtures and other escrows

 

 

30,149

 

 

 

28,812

 

Due from third party managers, net

 

 

38,766

 

 

 

22,137

 

Other assets, net

 

 

33,589

 

 

 

35,042

 

Total Assets

 

$

4,825,932

 

 

$

4,829,759

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Debt, net

 

$

1,523,032

 

 

$

1,482,571

 

Finance lease liabilities

 

 

221,027

 

 

 

219,981

 

Accounts payable and other liabilities

 

 

80,108

 

 

 

97,860

 

Total Liabilities

 

 

1,824,167

 

 

 

1,800,412

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

Preferred stock, authorized 30,000,000 shares; NaN issued and outstanding

 

 

0

 

 

 

0

 

Common stock, no par value, authorized 800,000,000 shares; issued and outstanding

   223,656,264 and 223,212,346 shares, respectively

 

 

4,493,422

 

 

 

4,488,419

 

Accumulated other comprehensive loss

 

 

(26,720

)

 

 

(42,802

)

Distributions greater than net income

 

 

(1,464,937

)

 

 

(1,416,270

)

Total Shareholders' Equity

 

 

3,001,765

 

 

 

3,029,347

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders' Equity

 

$

4,825,932

 

 

$

4,829,759

 

 

See notes to consolidated financial statements.

3


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Room

 

$

148,481

 

 

$

217,979

 

Food and beverage

 

 

2,783

 

 

 

11,312

 

Other

 

 

7,449

 

 

 

8,719

 

Total revenue

 

 

158,713

 

 

 

238,010

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Hotel operating expense:

 

 

 

 

 

 

 

 

Operating

 

 

38,150

 

 

 

68,029

 

Hotel administrative

 

 

17,744

 

 

 

23,643

 

Sales and marketing

 

 

14,888

 

 

 

24,359

 

Utilities

 

 

10,560

 

 

 

9,190

 

Repair and maintenance

 

 

10,225

 

 

 

11,793

 

Franchise fees

 

 

6,919

 

 

 

10,257

 

Management fees

 

 

5,254

 

 

 

7,995

 

Total hotel operating expense

 

 

103,740

 

 

 

155,266

 

Property taxes, insurance and other

 

 

19,688

 

 

 

19,595

 

General and administrative

 

 

8,119

 

 

 

9,523

 

Loss on impairment of depreciable real estate assets

 

 

10,754

 

 

 

0

 

Depreciation and amortization

 

 

48,710

 

 

 

49,522

 

Total expense

 

 

191,011

 

 

 

233,906

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate

 

 

4,484

 

 

 

8,839

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(27,814

)

 

 

12,943

 

 

 

 

 

 

 

 

 

 

Interest and other expense, net

 

 

(18,513

)

 

 

(15,566

)

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(46,327

)

 

 

(2,623

)

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(108

)

 

 

(146

)

 

 

 

 

 

 

 

 

 

Net loss

 

$

(46,435

)

 

$

(2,769

)

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Interest rate derivatives

 

 

16,082

 

 

 

(42,166

)

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(30,353

)

 

$

(44,935

)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.21

)

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

223,733

 

 

 

224,294

 

 

See notes to consolidated financial statements.

4


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Shareholders' Equity

Three Months Ended March 31, 2021 and 2020

(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, 2020

 

 

223,212

 

 

$

4,488,419

 

 

$

(42,802

)

 

$

(1,416,270

)

 

$

3,029,347

 

Share based compensation, net

 

 

444

 

 

 

5,004

 

 

 

-

 

 

 

-

 

 

 

5,004

 

Equity issuance costs

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

(1

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

16,082

 

 

 

-

 

 

 

16,082

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46,435

)

 

 

(46,435

)

Distributions declared to shareholders ($0.01 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,232

)

 

 

(2,232

)

Balance at March 31, 2021

 

 

223,656

 

 

$

4,493,422

 

 

$

(26,720

)

 

$

(1,464,937

)

 

$

3,001,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

223,863

 

 

$

4,493,763

 

 

$

(4,698

)

 

$

(1,198,052

)

 

$

3,291,013

 

Share based compensation, net

 

 

675

 

 

 

8,014

 

 

 

-

 

 

 

-

 

 

 

8,014

 

Common shares repurchased

 

 

(1,521

)

 

 

(14,336

)

 

 

-

 

 

 

-

 

 

 

(14,336

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

(42,166

)

 

 

-

 

 

 

(42,166

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,769

)

 

 

(2,769

)

Distributions declared to shareholders ($0.20 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(44,952

)

 

 

(44,952

)

Balance at March 31, 2020

 

 

223,017

 

 

$

4,487,441

 

 

$

(46,864

)

 

$

(1,245,773

)

 

$

3,194,804

 

 

See notes to consolidated financial statements.

5


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(46,435

)

 

$

(2,769

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

48,710

 

 

 

49,522

 

Loss on impairment of depreciable real estate assets

 

 

10,754

 

 

 

-

 

Gain on sale of real estate

 

 

(4,484

)

 

 

(8,839

)

Other non-cash expenses, net

 

 

2,684

 

 

 

1,773

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Decrease (increase) in due from third party managers, net

 

 

(16,628

)

 

 

4,886

 

Decrease in other assets, net

 

 

1,029

 

 

 

439

 

Increase (decrease) in accounts payable and other liabilities

 

 

2,256

 

 

 

(11,670

)

Net cash provided by (used in) operating activities

 

 

(2,114

)

 

 

33,342

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of hotel properties, net

 

 

(49,369

)

 

 

-

 

Capital improvements

 

 

(2,506

)

 

 

(27,022

)

Net proceeds from sale of real estate

 

 

17,587

 

 

 

44,387

 

Net cash provided by (used in) investing activities

 

 

(34,288

)

 

 

17,365

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repurchases of common shares

 

 

-

 

 

 

(14,336

)

Repurchases of common shares to satisfy employee withholding requirements

 

 

(1,650

)

 

 

(1,748

)

Distributions paid to common shareholders

 

 

-

 

 

 

(67,324

)

Equity issuance costs

 

 

(1

)

 

 

-

 

Net proceeds from revolving credit facility

 

 

44,100

 

 

 

374,100

 

Proceeds from term loans and senior notes

 

 

-

 

 

 

50,000

 

Proceeds from mortgage debt and other loans

 

 

-

 

 

 

63,400

 

Payments of mortgage debt and other loans

 

 

(3,018

)

 

 

(18,354

)

Financing costs

 

 

(1,472

)

 

 

(511

)

Net cash provided by financing activities

 

 

37,959

 

 

 

385,227

 

 

 

 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

1,557

 

 

 

435,934

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

34,368

 

 

 

34,661

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

 

$

35,925

 

 

$

470,595

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

18,062

 

 

$

14,696

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued distribution to common shareholders

 

$

2,232

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

5,556

 

 

$

-

 

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

 

 

28,812

 

 

 

34,661

 

Cash, cash equivalents and restricted cash, beginning of period

 

$

34,368

 

 

$

34,661

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

5,776

 

 

$

437,260

 

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

 

 

30,149

 

 

 

33,335

 

Cash, cash equivalents and restricted cash, end of period

 

$

35,925

 

 

$

470,595

 

 

See notes to consolidated financial statements.

 

6


Index

 

 

Apple Hospitality REIT, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization          

Apple Hospitality REIT, Inc. together with its wholly-owned subsidiaries, the “Company” is a Virginia corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. The Company is a self-advised REIT that invests in income-producing real estate, primarily in the lodging sector, in the United States (“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 1 reportable segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does not have any elements of power in the decision-making process of these entities, and therefore does not consolidate the entities. As of March 31, 2021, the Company owned 233 hotels with an aggregate of 29,855 rooms located in 35 states, including 1 hotel with 102 rooms classified as held for sale, which was sold to an unrelated party in April 2021. 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, 2020 (the “2020 Form 10-K”). Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2021.

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.

Novel Coronavirus COVID-19 Pandemic 

As a result of the current novel coronavirus COVID-19 pandemic (“COVID-19”) and the impact it has had on travel and the broader economy throughout the U.S. since March 2020, the Company’s hotels have experienced significant declines in occupancy, which has had and is expected to continue to have a significant negative effect on the Company’s revenue and operating results. There remains significant uncertainty as to when operations at the hotels will return to normalized levels.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The fair market value of cash and cash equivalents approximates their carrying value. The Company’s cash and cash equivalents are distributed among several major banks, but the balances may at times exceed federal depository insurance limits.

Net Loss Per Common Share

Basic net loss per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net loss 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 loss per common share were the same for each of the periods presented.

Accounting Standards Recently Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance through December 31, 2022 to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. In January 2021, the FASB issued 2021-01, Reference Rate Reform (Topic 848), Scope, which further clarified the scope of the reference rate reform optional practical expedients and exceptions outlined in Topic 848. The amendments in ASU Nos. 2020-04 and 2021-01 apply to contract modifications that replace a reference rate affected by reference rate reform, providing optional expedients regarding the measurement of hedge

7


Index

 

effectiveness in hedging relationships that have been modified to replace a reference rate. The guidance in ASU Nos. 2020-04 and 2021-01 became effective upon issuance and the provisions of the ASUs have not had a material impact on the Company’s consolidated financial statements and related disclosures as of March 31, 2021. The provisions of these updates will generally affect the Company by allowing, among other things, the following:

 

Allowing modifications of the Company’s unsecured credit facilities to replace the London Interbank Offered Rate (LIBOR) with a substitute index to be accounted for as a non-substantial modification and not be considered a debt extinguishment.

 

Allowing changes to the floating interest rate index used in the Company’s interest rate swaps to not be considered a change to the critical terms of the hedge and therefore not requiring a dedesignation of the hedging relationship.

 

The Company has not entered into any contract modifications yet as it directly relates to reference rate reform but anticipates having to undertake such modifications in the future as a majority of the Company’s unsecured credit facilities and interest rate swaps are indexed to LIBOR.

2. Investment in Real Estate

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Land

 

$

725,057

 

 

$

725,512

 

Building and improvements

 

 

4,546,062

 

 

 

4,525,850

 

Furniture, fixtures and equipment

 

 

499,612

 

 

 

499,865

 

Finance ground lease assets

 

 

203,617

 

 

 

203,617

 

Franchise fees

 

 

13,689

 

 

 

13,750

 

 

 

 

5,988,037

 

 

 

5,968,594

 

Less accumulated depreciation and amortization

 

 

(1,275,557

)

 

 

(1,235,698

)

Investment in real estate, net

 

$

4,712,480

 

 

$

4,732,896

 

 

As of March 31, 2021, the Company owned 233 hotels with an aggregate of 29,855 rooms located in 35 states, including 1 hotel with 102 rooms classified as held for sale, which was sold to an unrelated party in April 2021.

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

Hotel Acquisitions

The Company acquired 1 hotel during the three months ended March 31, 2021. The hotel was a newly developed 176-room Hilton Garden Inn in Madison, Wisconsin managed by Raymond and purchased for $49.6 million on February 18, 2021.

 

During the year ended December 31, 2020, the Company acquired 4 hotels, NaN of which were acquired during the three months ended March 31, 2020. 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

 

Cape Canaveral

 

FL

 

Hampton

 

LBA

 

4/30/2020

 

 

116

 

 

$

24,102

 

Cape Canaveral

 

FL

 

Home2 Suites

 

LBA

 

4/30/2020

 

 

108

 

 

 

22,602

 

Tempe

 

AZ

 

Hyatt House

 

Crestline

 

8/13/2020

 

 

105

 

 

 

26,309

 

Tempe

 

AZ

 

Hyatt Place

 

Crestline

 

8/13/2020

 

 

154

 

 

 

38,279

 

 

 

 

 

 

 

 

 

 

 

 

483

 

 

$

111,292

 

8


Index

 

 

 

The Company utilized $25.0 million of its available cash and entered into a one-year note payable with the developer secured by the hotels for $21.7 million to fund the purchase price of the Cape Canaveral, Florida hotels. The note payable bore interest, which was payable monthly, at a floating annual rate equal to the London Inter-Bank Offered Rate for a one-month term (“one-month LIBOR”) plus a margin of 2.0% for the first six months of the loan term and 3.0% for the second six months of the loan term. In July 2020, the principal amount of the note was reduced by approximately $1.1 million representing a credit from the developer for shared construction savings, and the note was repaid in full on April 12, 2021. The Company used borrowings under its revolving credit facility to purchase the Tempe, Arizona and Madison, Wisconsin 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. For the 1 hotel acquired during the three months ended March 31, 2021, the amount of revenue and operating loss included in the Company’s consolidated statement of operations from the date of acquisition through March 31, 2021 was approximately $0.1 million and $(0.5) million, respectively.

3. Assets Held for Sale and Dispositions

Assets Held for Sale

In February 2021, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its Overland Park, Kansas SpringHill Suites for a gross sales price of $5.3 million. Since the buyer under the contract had completed its due diligence and had made a non-refundable deposit, as of March 31, 2021, the Company classified the hotel as assets held for sale in its consolidated balance sheet at its estimated fair value less cost to sell which, as described below, was based on the contracted sales price, resulting in an impairment loss during the first quarter of 2021. In April 2021, the Company completed the sale of the hotel. The net proceeds from the sale were used to pay down borrowings on the Company’s revolving credit facility.

Dispositions

During the three months ended March 31, 2021, the Company sold 2 hotels in 2 transactions with unrelated parties for a total combined gross sales price of approximately $18.3 million, resulting in a combined gain on sale of approximately $4.5 million, net of transaction costs, which is included in the Company’s consolidated statement of operations for the three months ended March 31, 2021. The two hotels had a total carrying value of approximately $13.0 million at the time of sale. The following table lists the two hotels sold:

 

City

 

State

 

Brand

 

Date Sold

 

Rooms

 

Charlotte

 

NC

 

Homewood Suites

 

2/25/2021

 

 

118

 

Memphis

 

TN

 

Homewood Suites

 

3/16/2021

 

 

140

 

Total

 

 

 

 

 

 

 

 

258

 

 

During the year ended December 31, 2020, the Company sold three hotels in 3 transactions with unrelated parties for a total combined gross sales price of approximately $55.3 million, resulting in a combined gain on sale of approximately $10.9 million, which is included in the Company’s consolidated statement of operations for the year ended December 31, 2020. The 3 hotels had a total carrying value of approximately $43.8 million at the time of the sale. The following table lists the three hotels sold:

 

City

 

State

 

Brand

 

Date Sold

 

Rooms

 

Sanford

 

FL

 

SpringHill Suites

 

1/16/2020

 

 

105

 

Boise

 

ID

 

SpringHill Suites

 

2/27/2020

 

 

230

 

Tulare

 

CA

 

Hampton

 

12/30/2020

 

 

86

 

Total

 

 

 

 

 

 

 

 

421

 

 

Excluding gains on sale of real estate, the Company’s consolidated statements of operations include operating loss of approximately $(1.8) million and $(0.1) million for the three months ended March 31, 2021 and 2020, respectively, relating to the results of operations of the 6 hotels noted above (the 1 hotel classified as held for sale at March 31, 2021, the 2 hotels sold in the first three months of 2021 and the 3 hotels sold in 2020) for the period of ownership. The sale of these properties does not represent a strategic shift that has, or will have, a major effect on the Company’s operations and financial results, and therefore the operating results for the period of ownership of these properties are included in income from continuing operations for the three months ended March 31, 2021 and 2020. The net proceeds from the sales were used to pay down borrowings on the Company’s revolving credit facility.

Hotel Sale Contracts and Loss on Impairment of Depreciable Real Estate Assets

During the first quarter of 2021, the Company identified the Overland Park, Kansas SpringHill Suites for potential sale and, in February 2021, entered into a purchase and sale agreement with an unrelated party for the sale of the hotel for a gross sales price of $5.3 million. As a result, the Company recognized an impairment loss of approximately $1.3 million in the first quarter of 2021, to adjust the carrying value of the hotel to its estimated fair value less cost to sell, which was based on the contracted sales price, a Level 1 input under the fair value hierarchy. The Company completed the sale of the hotel in April 2021.

9


Index

 

Additionally, during the first quarter of 2021, the Company recognized impairment losses totaling approximately $9.4 million to adjust the carrying values of 4 hotel properties identified for potential sale to their estimated fair values. The fair values of these properties were based on broker opinions of value using multiple methods to determine their value, including but not limited to replacement value, discounted cash flows and the income approach based on historical and forecasted operating results of the specific properties. These valuations are Level 3 inputs under the fair value hierarchy.

4. Debt 

Summary 

As of March 31, 2021 and December 31, 2020, the Company’s debt consisted of the following (in thousands):

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Revolving credit facility

 

$

149,900

 

 

$

105,800

 

Term loans and senior notes, net

 

 

863,737

 

 

 

864,225

 

Mortgage debt, net

 

 

509,395

 

 

 

512,546

 

Debt, net

 

$

1,523,032

 

 

$

1,482,571

 

 

The aggregate amounts of principal payable under the Company’s total debt obligations as of March 31, 2021 (including the revolving credit facility, term loans, senior notes and mortgage debt), for each of the next five fiscal years and thereafter are as follows (in thousands):

 

2021 (April - December)

 

$

67,706

 

2022

 

 

259,731

 

2023

 

 

296,213

 

2024

 

 

338,597

 

2025

 

 

245,140

 

Thereafter

 

 

322,265

 

 

 

 

1,529,652

 

Unamortized fair value adjustment of assumed debt

 

 

1,399

 

Unamortized debt issuance costs

 

 

(8,019

)

Total

 

$

1,523,032

 

 

The Company uses interest rate swaps to manage its interest rate risks on a portion of its variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the London Inter-Bank Offered Rate for a one-month term (“one-month LIBOR”). The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. See Note 5 for more information on the interest rate swap agreements. The Company’s total fixed-rate and variable-rate debt, after giving effect to its interest rate swaps in effect at March 31, 2021 and December 31, 2020, is set forth below. All dollar amounts are in thousands.

 

 

 

March 31,

2021

 

 

Percentage

 

 

December 31,

2020

 

 

Percentage

 

Fixed-rate debt (1)

 

$

1,234,201

 

 

 

81

%

 

$

1,287,219

 

 

 

86

%

Variable-rate debt

 

 

295,451

 

 

 

19

%

 

 

201,351

 

 

 

14

%

Total

 

$

1,529,652

 

 

 

 

 

 

$

1,488,570

 

 

 

 

 

Weighted-average interest rate of debt

 

 

3.88

%

 

 

 

 

 

 

3.86

%

 

 

 

 

 

(1)

10


Index

 

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

Credit Facilities Amendments

In early 2021, as a result of the continued disruption from COVID-19 and the related uncertainty with respect to the Company’s operating results, the Company anticipated that it could potentially not be in compliance with certain covenants under each of its unsecured credit facilities, as previously amended, in future periods if the existing Covenant Waiver Period (as defined below) under such facilities was not extended. As a result, on March 1, 2021, the Company entered into amendments to each of the unsecured credit facilities (the “March 2021 amendments”).

The Company previously entered into amendments in June 2020 that suspended the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities until the date the compliance certificate is required to be delivered for the fiscal quarter ending June 30, 2021 (unless the Company elects an earlier date) (the “Covenant Waiver Period”), and imposed certain restrictions that apply during such testing suspension period. The March 2021 amendments extend the testing for all but two of the Company’s existing financial maintenance covenants under the unsecured credit facilities until the date the compliance certificate is required to be delivered for the fiscal quarter ending June 30, 2022 (unless the Company elects an earlier date) (the “Extended Covenant Waiver Period”). The testing for the Minimum Fixed Charge Coverage Ratio and the Minimum Unsecured Interest Coverage Ratio is suspended until the compliance certificate is required to be delivered for the fiscal quarter ending March 31, 2022.

The March 2021 amendments also provide for, among other restrictions, the following during the remainder of the Extended Covenant Waiver Period:

 

Mandatory prepayments of amounts outstanding under the Company’s unsecured credit facilities of net cash proceeds from certain debt and equity issuances and asset dispositions, subject to various exceptions, including an allowance of $300 million for acquiring unencumbered assets with proceeds from assets sales and a $300 million allowance for acquiring unencumbered assets funded by common equity so long as outstanding borrowings under the revolving credit facility are less than $275 million. A portion of the mandatory prepayments will be available for future borrowing under the revolving credit facility;

 

A minimum liquidity covenant of $125 million;

 

A requirement to pledge the equity interests of each direct or indirect owner of certain unencumbered property in favor of the administrative agents if average liquidity for any month is less than $200 million or the total amount outstanding under the revolving credit facility exceeds $275 million;

 

Restrictions on the Company’s and its subsidiaries’ ability to incur additional indebtedness (except for maturities beyond 2026) or prepay certain existing indebtedness, except that the Company is permitted to prepay (prior to maturity) up to $35 million of secured debt maturities in 2021;

 

Restrictions on the Company’s ability to make cash distributions (except the payment of cash dividends of $0.01 per common share per quarter or to the extent required to maintain REIT status) and share repurchases;

 

Maximum discretionary capital expenditures of $50 million;

 

Limitations on additional investments; and

 

An increase in the applicable interest rate under the unsecured credit facilities until the end of the Extended Covenant Waiver Period to a rate that corresponds to the highest leverage-based applicable interest rate margin plus 0.15% with respect to the unsecured credit facilities.

The amendments also modify the calculation of the existing financial covenants for the four quarters subsequent to the end of the Extended Covenant Waiver Period to annualize calculated amounts to the extent the most recently ended fiscal quarter is not at least four fiscal quarters from the end of the Extended Covenant Waiver Period, and provide for a LIBOR floor under the credit agreements of 25 basis points for Eurodollar Rate Loans and 1.25% for Base Rate Loans on the revolving credit facility, and any term loans under the credit agreements that are not hedged. The March 2021 amendments also modify certain of the existing financial maintenance covenants to less restrictive levels following the Extended Covenant Waiver Period as follows (capitalized terms are defined in the credit agreements):

11


Index

 

 

Maximum Consolidated Leverage Ratio of 8.50 to 1.00 for the first two fiscal quarters, 8.00 to 1.00 for two fiscal quarters, 7.50 to 1.00 for one fiscal quarter and then a ratio of 6.50 to 1.00 thereafter;

 

Minimum Fixed Charge Coverage Ratio of 1.05 to 1.00 for the first fiscal quarter, 1.25 to 1.00 for one fiscal quarter and then a ratio of 1.50 to 1.00 thereafter;

 

Minimum Unsecured Interest Coverage Ratio of no less than 1.25 to 1.00 for one fiscal quarter, 1.50 to 1.00 for one fiscal quarter, 1.75 to 1.00 for one fiscal quarter and a ratio of 2.00 to 1.00 thereafter; and

 

Maximum Unsecured Leverage Ratio of 65% for two fiscal quarters and 60% thereafter.

Except as otherwise set forth in the amendments, the terms of the credit agreements remain in effect. As of March 31, 2021, the Company was in compliance with the applicable covenants of the credit agreements as amended.

$850 Million Credit Facility

The Company utilizes an unsecured “$850 million credit facility” comprised of (i) a $425 million revolving credit facility with an initial maturity date of July 27, 2022 (the “Revolving Credit Facility”) and (ii) a $425 million term loan facility consisting of 2 term loans: a $200 million term loan with a maturity date of July 27, 2023, and a $225 million term loan with a maturity date of January 31, 2024 (the “$425 million term loan facility”). Subject to certain conditions including covenant compliance and additional fees, the $425 million revolving credit facility maturity date may be extended up to one year. The Company may make voluntary prepayments in whole or in part, at any time. Interest payments on the $850 million credit facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.35% to 2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. As of March 31, 2021, the Company had availability of $275 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 $425 million revolving credit facility, based on the amount of borrowings outstanding during the quarter.

$225 Million Term Loan Facility

The Company has an unsecured $225 million term loan facility that is comprised of (i) a $50 million term loan with a maturity date of August 2, 2023, and (ii) a $175 million term loan with a maturity date of August 2, 2025. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the $225 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.35% to 2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.  

2017 $85 Million Term Loan Facility

On July 25, 2017, the Company entered into an unsecured $85 million term loan facility with a maturity date of July 25, 2024, consisting of 1 term loan that was funded at closing (the “2017 $85 million term loan facility”). The credit agreement, as amended and restated in August 2018, contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the 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 LIBOR 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, for the remainder of the term.

2019 $85 Million Term Loan Facility

On December 31, 2019, the Company entered into an unsecured $85 million term loan facility with a maturity date of December 31, 2029, consisting of 1 term loan funded at closing (the “2019 $85 million term loan facility”). Net proceeds from the 2019 $85 million term loan facility were used to pay down borrowings on the Company’s revolving credit facility. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, subject to certain conditions. Interest payments on the 2019 $85 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.70% to 2.55%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.  

$50 Million Senior Notes Facility

On March 16, 2020, the Company entered into an unsecured $50 million senior notes facility with a maturity date of March 31, 2030, consisting of senior notes totaling $50 million funded at closing (the “$50 million senior notes facility” and, collectively with the $850 million credit facility, the $225 million term loan facility, the 2017 $85 million term loan facility and the 2019 $85 million term loan facility, the “unsecured credit facilities”). Net proceeds from the $50 million senior notes facility were available to provide

12


Index

 

funding for general corporate purposes. The note agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions, including make-whole provisions. Interest payments on the $50 million senior notes facility are due quarterly and the interest rate, subject to certain exceptions, ranges from an annual rate of 3.60% to 4.35% depending on the Company’s leverage ratio, as calculated under the terms of the facility. 

As of March 31, 2021 and December 31, 2020, the details of the Company’s unsecured credit facilities were as set forth below. All dollar amounts are in thousands.

 

 

 

 

 

 

 

Outstanding Balance

 

 

 

Interest Rate (1)

 

Maturity

Date

 

March 31,

2021

 

 

December 31,

2020

 

Revolving credit facility (2)

 

LIBOR + 1.40% - 2.25%

 

7/27/2022

 

$

149,900

 

 

$

105,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loans and senior notes

 

 

 

 

 

 

 

 

 

 

 

 

$200 million term loan

 

LIBOR + 1.35% - 2.20%

 

7/27/2023

 

 

200,000

 

 

 

200,000

 

$225 million term loan

 

LIBOR + 1.35% - 2.20%

 

1/31/2024

 

 

225,000

 

 

 

225,000

 

$50 million term loan

 

LIBOR + 1.35% - 2.20%

 

8/2/2023

 

 

50,000

 

 

 

50,000

 

$175 million term loan

 

LIBOR + 1.65% - 2.50%

 

8/2/2025

 

 

175,000

 

 

 

175,000

 

2017 $85 million term loan

 

LIBOR + 1.30% - 2.10%

 

7/25/2024

 

 

85,000

 

 

 

85,000

 

2019 $85 million term loan

 

LIBOR + 1.70% - 2.55%

 

12/31/2029

 

 

85,000

 

 

 

85,000

 

$50 million senior notes

 

3.60% - 4.35%

 

3/31/2030

 

 

50,000

 

 

 

50,000

 

Term loans and senior notes at stated

   value

 

 

 

 

 

 

870,000

 

 

 

870,000

 

Unamortized debt issuance costs

 

 

 

 

 

 

(6,263

)

 

 

(5,775

)

Term loans and senior notes, net

 

 

 

 

 

 

863,737

 

 

 

864,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit facilities, net (2)

 

 

 

 

 

$

1,013,637

 

 

$

970,025

 

Weighted-average interest rate (3)

 

 

 

 

 

 

3.69

%

 

 

3.64

%

 

(1)

Interest rates on all of the unsecured credit facilities are increased to 0.15% above the highest rate shown for each loan during the Extended Covenant Waiver Period.

(2)

Excludes unamortized debt issuance costs related to the revolving credit facility totaling approximately $2.2 million and $2.1 million as of March 31, 2021 and December 31, 2020, respectively, which are included in other assets, net in the Company's consolidated balance sheets.

(3)

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 and $745.0 million of the outstanding variable-rate debt as of March 31, 2021 and December 31, 2020, respectively. See Note 5 for more information on the interest rate swap agreements. The one-month LIBOR at March 31, 2021 and December 31, 2020 was 0.11% and 0.14%, respectively.

Mortgage Debt

As of March 31, 2021, the Company had approximately $509.8 million in outstanding mortgage debt secured by 33 properties with maturity dates ranging from May 2021 to May 2038. Mortgages secured by 31 of the properties carry fixed stated interest rates ranging from 3.40% to 6.25% and effective interest rates ranging from 3.40% to 4.97%. Additionally, 1 loan secured by the 2 Cape Canaveral properties acquired in April 2020 carried a variable interest rate of one-month LIBOR plus 3.00% through April 12, 2021 when the loan was repaid in full. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. As a result of the effects of the COVID-19 pandemic on certain hotels, the associated lenders granted temporary deferrals of principal and interest payments during 2020, however all payments resumed as of December 31, 2020. 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, 2021 and December 31, 2020 for each of the Company’s mortgage debt obligations. All dollar amounts are in thousands.

13


Index

 

 

Location

 

Brand

 

Interest

Rate (1)

 

 

Loan

Assumption

or

Origination

Date

 

Maturity

Date

 

Principal

Assumed

or

Originated

 

 

Outstanding

balance

as of

March 31,

2021

 

 

Outstanding

balance

as of

December 31,

2020

 

Cape Canaveral, FL

 

Hampton

 

 

(2

)

 

4/30/2020

 

(3)

 

$

10,852

 

 

$

10,275

 

 

$

10,275

 

Cape Canaveral, FL

 

Home2 Suites

 

 

(2

)

 

4/30/2020

 

(3)

 

 

10,852

 

 

 

10,275

 

 

 

10,275

 

Colorado Springs, CO

 

Hampton

 

 

6.25

%

 

9/1/2016

 

7/6/2021

 

 

7,923

 

 

 

7,275

 

 

 

7,317

 

Franklin, TN

 

Courtyard

 

 

6.25

%

 

9/1/2016

 

8/6/2021

 

 

14,679

 

 

 

13,486

 

 

 

13,563

 

Franklin, TN

 

Residence Inn

 

 

6.25

%

 

9/1/2016

 

8/6/2021

 

 

14,679

 

 

 

13,486

 

 

 

13,563

 

Grapevine, TX

 

Hilton Garden Inn

 

 

4.89

%

 

8/29/2012

 

9/1/2022

 

 

11,810

 

 

 

9,344

 

 

 

9,434

 

Collegeville/Philadelphia, PA

 

Courtyard

 

 

4.89

%

 

8/30/2012

 

9/1/2022

 

 

12,650

 

 

 

10,009

 

 

 

10,105

 

Hattiesburg, MS

 

Courtyard

 

 

5.00

%

 

3/1/2014

 

9/1/2022

 

 

5,732

 

 

 

4,684

 

 

 

4,729

 

Kirkland, WA

 

Courtyard

 

 

5.00

%

 

3/1/2014

 

9/1/2022

 

 

12,145

 

 

 

9,924

 

 

 

10,018

 

Rancho Bernardo/San Diego, CA

 

Courtyard

 

 

5.00

%

 

3/1/2014

 

9/1/2022

 

 

15,060

 

 

 

12,305

 

 

 

12,422

 

Seattle, WA

 

Residence Inn

 

 

4.96

%

 

3/1/2014

 

9/1/2022

 

 

28,269

 

 

 

23,074

 

 

 

23,294

 

Anchorage, AK

 

Embassy Suites

 

 

4.97

%

 

9/13/2012

 

10/1/2022

 

 

23,230

 

 

 

18,485

 

 

 

18,660

 

Somerset, NJ

 

Courtyard

 

 

4.73

%

 

3/1/2014

 

10/6/2022

 

 

8,750

 

 

 

7,110

 

 

 

7,179

 

Tukwila, WA

 

Homewood Suites

 

 

4.73

%

 

3/1/2014

 

10/6/2022

 

 

9,431

 

 

 

7,663

 

 

 

7,737

 

Huntsville, AL

 

Homewood Suites

 

 

4.12

%

 

3/1/2014

 

2/6/2023

 

 

8,306

 

 

 

6,675

 

 

 

6,742

 

Prattville, AL

 

Courtyard

 

 

4.12

%

 

3/1/2014

 

2/6/2023

 

 

6,596

 

 

 

5,301

 

 

 

5,354

 

San Diego, CA

 

Residence Inn

 

 

3.97

%

 

3/1/2014

 

3/6/2023

 

 

18,600

 

 

 

14,910

 

 

 

15,061

 

Miami, FL

 

Homewood Suites

 

 

4.02

%

 

3/1/2014

 

4/1/2023

 

 

16,677

 

 

 

13,403

 

 

 

13,537

 

New Orleans, LA

 

Homewood Suites

 

 

4.36

%

 

7/17/2014

 

8/11/2024

 

 

27,000

 

 

 

22,569

 

 

 

22,766

 

Westford, MA

 

Residence Inn

 

 

4.28

%

 

3/18/2015

 

4/11/2025

 

 

10,000

 

 

 

8,534

 

 

 

8,605

 

Denver, CO

 

Hilton Garden Inn

 

 

4.46

%

 

9/1/2016

 

6/11/2025

 

 

34,118

 

 

 

30,143

 

 

 

30,387

 

Oceanside, CA

 

Courtyard

 

 

4.28

%

 

9/1/2016

 

10/1/2025

 

 

13,655

 

 

 

12,534

 

 

 

12,605

 

Omaha, NE

 

Hilton Garden Inn

 

 

4.28

%

 

9/1/2016

 

10/1/2025

 

 

22,682

 

 

 

20,819

 

 

 

20,936

 

Boise, ID

 

Hampton

 

 

4.37

%

 

5/26/2016

 

6/11/2026

 

 

24,000

 

 

 

22,028

 

 

 

22,146

 

Burbank, CA

 

Courtyard

 

 

3.55

%

 

11/3/2016

 

12/1/2026

 

 

25,564

 

 

 

23,241

 

 

 

23,315

 

San Diego, CA

 

Courtyard

 

 

3.55

%

 

11/3/2016

 

12/1/2026

 

 

25,473

 

 

 

23,158

 

 

 

23,232

 

San Diego, CA

 

Hampton

 

 

3.55

%

 

11/3/2016

 

12/1/2026

 

 

18,963

 

 

 

17,240

 

 

 

17,295

 

Burbank, CA

 

SpringHill Suites

 

 

3.94

%

 

3/9/2018

 

4/1/2028

 

 

28,470

 

 

 

27,078

 

 

 

27,078

 

Santa Ana, CA

 

Courtyard

 

 

3.94

%

 

3/9/2018

 

4/1/2028

 

 

15,530

 

 

 

14,770

 

 

 

14,770

 

Richmond, VA

 

Courtyard

 

 

3.40

%

 

2/12/2020

 

3/11/2030

 

 

14,950

 

 

 

14,665

 

 

 

14,739

 

Richmond, VA

 

Residence Inn

 

 

3.40

%

 

2/12/2020

 

3/11/2030

 

 

14,950

 

 

 

14,665

 

 

 

14,739

 

Portland, ME

 

Residence Inn

 

 

3.43

%

 

3/2/2020

 

4/1/2030

 

 

33,500

 

 

 

33,500

 

 

 

33,500

 

San Jose, CA

 

Homewood Suites

 

 

4.22

%

 

12/22/2017

 

5/1/2038

 

 

30,000

 

 

 

27,124

 

 

 

27,392

 

 

 

 

 

 

 

 

 

 

 

 

 

$

575,096

 

 

 

509,752

 

 

 

512,770

 

Unamortized fair value adjustment of

   assumed debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,399

 

 

 

1,624

 

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,756

)

 

 

(1,848

)

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

509,395

 

 

$

512,546

 

 

(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)

Interest rate is variable based on one-month LIBOR plus 3.00%. As of March 31, 2021, the interest rate was 3.11%. In July 2020, the principal amount of the note was reduced by approximately $1.1 million representing a credit from the developer for shared construction savings.

(3)

Loan was repaid in full on April 12, 2021.

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, 2021, and December 31, 2020, both the carrying value and estimated fair value of the Company’s debt were approximately $1.5 billion. Both the

14


Index

 

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 risks on variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR. The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. These swap instruments are recorded at fair value and, if in an asset position, are included in other assets, net, and, if in a liability position, are included in accounts payable and other liabilities in the Company’s consolidated balance sheets. The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which is considered a Level 2 measurement under the fair value hierarchy. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The following table sets forth information for each of the Company’s interest rate swap agreements outstanding as of March 31, 2021 and December 31, 2020. All dollar amounts are in thousands.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Asset (Liability)

 

Notional Amount at

March 31, 2021

 

 

Origination

Date

 

Effective

Date

 

Maturity

Date

 

Swap Fixed

Interest

Rate

 

 

March 31,

2021

 

 

December 31,

2020

 

Active interest rate swaps designated as cash flow hedges at March 31, 2021:

 

 

 

 

 

 

 

 

 

 

100,000

 

 

4/7/2016

 

9/30/2016

 

3/31/2023

 

1.33%

 

 

$

(2,240

)

 

$

(2,681

)

 

75,000

 

 

5/31/2017

 

7/31/2017

 

6/30/2024

 

1.96%

 

 

 

(3,632

)

 

 

(4,639

)

 

10,000

 

 

8/10/2017

 

8/10/2017

 

6/30/2024

 

2.01%

 

 

 

(502

)

 

 

(636

)

 

50,000

 

 

6/1/2018

 

1/31/2019

 

6/30/2025

 

2.89%

 

 

 

(4,591

)

 

 

(5,911

)

 

50,000

 

 

7/2/2019

 

7/5/2019

 

7/18/2024

 

1.65%

 

 

 

(1,932

)

 

 

(2,593

)

 

50,000

 

 

8/21/2019

 

8/23/2019

 

8/18/2024

 

1.32%

 

 

 

(1,378

)

 

 

(2,036

)

 

50,000

 

 

8/21/2019

 

8/23/2019

 

8/30/2024

 

1.32%

 

 

 

(1,377

)

 

 

(2,049

)

 

85,000

 

 

12/31/2019

 

12/31/2019

 

12/31/2029

 

1.86%

 

 

 

(2,657

)

 

 

(8,677

)

 

25,000

 

 

12/6/2018

 

1/31/2020

 

6/30/2025

 

2.75%

 

 

 

(2,149

)

 

 

(2,801

)

 

50,000

 

 

12/7/2018

 

5/18/2020

 

1/31/2024

 

2.72%

 

 

 

(3,354

)

 

 

(3,967

)

 

75,000

 

 

8/21/2019

 

5/18/2020

 

5/18/2025

 

1.27%

 

 

 

(1,736

)

 

 

(3,294

)

 

75,000

 

 

7/31/2020

 

8/18/2020

 

8/18/2022

 

0.13%

 

 

 

33

 

 

 

14

 

 

75,000

 

 

8/21/2019

 

5/18/2021

 

5/18/2026

 

1.30%

 

 

 

(1,205

)

 

 

(3,415

)

 

770,000

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,720

)

 

 

(42,685

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Matured interest rate swap at March 31, 2021:

 

 

 

 

 

 

 

 

 

$

50,000

 

 

4/7/2016

 

9/30/2016

 

3/31/2021

 

1.09%

 

 

 

-

 

 

 

(117

)

 

 

 

 

 

 

$

(26,720

)

 

$

(42,802

)

 

The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. As of March 31, 2021, 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 loss, a component of shareholders’ equity in the Company’s consolidated balance sheets. Amounts reported in accumulated other comprehensive loss will be reclassified to interest and other expense, net as interest payments are made or received on the Company’s variable-rate derivatives. The Company estimates that approximately $11.2 million of net unrealized losses included in accumulated other comprehensive loss at March 31, 2021 will be reclassified as an increase to interest and other expense, net within the next 12 months.

15


Index

 

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 (loss) for the three months ended March 31, 2021 and 2020 (in thousands): 

 

 

Net Unrealized Gain (Loss)

Recognized in Other

Comprehensive Loss

 

 

Net Unrealized (Loss) Reclassified

from Accumulated Other Comprehensive

Loss to Interest and Other

Expense, net

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Interest rate derivatives in cash flow

   hedging relationships

 

$

13,367

 

 

$

(42,267

)

 

$

(2,715

)

 

$

(101

)

 

6. Related Parties

The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. There have been no changes to the contracts and relationships discussed in the 2020 Form 10-K. Below is a summary of the significant related party relationships in effect during the three months ended March 31, 2021 and 2020.

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 the three months ended March 31, 2021 and 2020 totaled approximately $0.2 million and $0.3 million, respectively, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations. 

As part of the cost sharing arrangement, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under this cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies. As of March 31, 2021 and December 31, 2020, total amounts due from ARG for reimbursements under the cost sharing structure totaled approximately $0.2 million and $0.3 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 and investor and public relations purposes. The aircraft is also leased to affiliates of the Company based on third party rates, which leasing activity was not significant during the reporting periods. The Company also utilizes one aircraft, owned through an entity owned by the Company’s Executive Chairman, for acquisition, asset management, renovation and investor and public relations purposes, and reimburses the entity at third party rates. Total costs incurred for the use of the aircraft during the three months ended March 31, 2021 and 2020 were less than $0.1 million for each respective period and are included in general and administrative expenses in the Company’s consolidated statements of operations.

7. Shareholders’ Equity

Distributions 

Subsequent to the distribution paid in March 2020, the Company announced the suspension of its monthly distributions due to the impact of COVID-19 on its operating cash flows. Prior to the suspension of its distributions, the Company’s annual distribution rate, payable monthly, was $1.20 per common share. For the three months ended March 31, 2020, the Company paid distributions of $0.30 per common share for a total of $67.3 million. The distributions paid during the three months ended March 31, 2020 included the distribution paid in January 2020, totaling $22.4 million, that was declared in December 2019. As discussed in Note 4, as a requirement under the amendments to its unsecured credit facilities, the Company is restricted in its ability to make distributions during the Extended Covenant Waiver Period, except for the payment of cash distributions of $0.01 per common share per quarter or to the extent required to maintain REIT status. In the first quarter of 2021, the Company resumed the declaration of distributions with the declaration of a quarterly distribution of $0.01 per common share in March 2021, which was paid on April 15, 2021, resulting in

16


Index

 

an accrued distribution of $2.2 million included in accounts payable and other liabilities in the Company’s consolidated balance sheet at March 31, 2021.

 

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”). As of March 31, 2021, the Company had not sold any common shares under the ATM Program. The Company plans to use the net proceeds from the sale of these shares to pay down borrowings on its revolving credit facility and, under certain circumstances, to repay proportionally amounts under each of the Company’s revolving credit facility, term loans and senior notes, subject to certain restrictions during the Extended Covenant Waiver Period pursuant to the Company’s unsecured credit facilities, as discussed further in Note 4, titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q. The Company plans to use the corresponding increased availability under the revolving credit facility for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of other outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital.

Share Repurchases

In May 2020, the Company’s Board of Directors approved an 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 2021 if not terminated earlier. During the first three months of 2020, the Company purchased, under its Share Repurchase Program approximately 1.5 million of its common shares at a weighted-average market purchase price of approximately $9.42 per common share, for an aggregate purchase price, including commissions, of approximately $14.3 million. The shares were repurchased under a written trading plan that provided for share repurchases in open market transactions and was intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. In March 2020 the Company terminated its written trading plan and has not engaged in additional repurchases under the Share Repurchase Program since then. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future purchases, with cash on hand or availability under its unsecured credit facilities subject to any applicable restrictions under the Company’s unsecured credit facilities. The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will depend upon the prevailing market conditions, regulatory requirements and other factors. Share repurchases are subject to certain restrictions during the Extended Covenant Waiver Period pursuant to the amendments to the Company’s unsecured credit facilities, as discussed further in Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q.

8. Compensation Plans

The Company annually establishes an incentive plan for its executive management. Under the incentive plan for 2021 (the “2021 Incentive Plan”), participants are eligible to receive a bonus based on the achievement of certain 2021 performance measures, consisting of operational performance metrics and shareholder return metrics (including shareholder return relative to a peer group and total shareholder return, over one-year, two-year and three-year periods). With respect to the operational performance metrics, the first half of the year, for the period of January 1 – June 30, 2021, will be based on operational performance metrics including portfolio occupancy growth, expense management, successful negotiation of amendments to each of the Company’s unsecured credit facilities and effective allocation of capital to drive incremental returns, with no specific target or weighting assigned to each metric. The Compensation Committee intends to review performance mid-year to determine the feasibility of reverting back to operational performance metrics for the second half of the year that are more consistent with the Company’s historical operational performance metrics. The operational performance metrics account for 50% of the total target incentive compensation. The shareholder return metrics are weighted 75% for relative shareholder return metrics and 25% for total shareholder return metrics, and account for 50% of the total target incentive compensation. At March 31, 2021, the range of potential aggregate payouts under the 2021 Incentive Plan was $0 - $22.4 million. Based on performance through March 31, 2021, the Company has accrued approximately $2.9 million as a liability for potential executive bonus payments under the 2021 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of March 31, 2021 and in general and administrative expenses in the Company’s consolidated statement of operations for the three months ended March 31, 2021. Approximately 25% of target awards under the 2021 Incentive Plan, if any, will be paid in cash, and 75% will be issued in stock under the Company’s 2014 Omnibus Incentive Plan, approximately two-thirds of which will vest in December 2021 and one-third of which will vest in December 2022.

Under the incentive plan for 2020 (the “2020 Incentive Plan”), the Company recorded approximately $1.5 million in general and administrative expenses in its consolidated statement of operations for the three months ended March 31, 2020.

During the three months ended March 31, 2020, the Company accrued expense associated with 2 separation agreements of approximately $1.25 million each, totaling approximately $2.5 million, in connection with the retirements of the Company’s former Executive Vice President and Chief Operating Officer and the Company’s former Executive Vice President and Chief Financial Officer which amounts were paid in October 2020. The accrued expense was included in general and administrative expenses in the Company’s consolidated statement of operations for the three months ended March 31, 2020.

17


Index

 

Share-Based Compensation Awards

The following table sets forth information pertaining to the share-based compensation issued under the 2020 Incentive Plan and the incentive plan for 2019 (the “2019 Incentive Plan”).

 

 

 

2020 Incentive

Plan

 

 

 

2019 Incentive

Plan

 

 

Period common shares issued

 

First Quarter 2021

 

 

 

First Quarter 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares earned under each

   incentive plan

 

 

555,726

 

 

 

 

665,552

 

 

Common shares surrendered on issuance

   date to satisfy tax withholding obligations

 

 

117,647

 

 

 

 

60,616

 

 

Common shares earned and issued under

   each incentive plan, net of common

   shares surrendered on issuance date to

   satisfy tax withholding obligations

 

 

438,079

 

 

 

 

604,936

 

 

Closing stock price on issuance date

 

$

14.03

 

 

 

$

13.01

 

 

Total share-based compensation

   earned, including the surrendered

   shares (in millions)

 

$

7.8

 

(1)

 

$

8.7

 

(2)

Of the total common shares earned and

   issued, total common shares

   unrestricted at time of issuance

 

 

160,216

 

 

 

 

426,553

 

 

Of the total common shares earned and

   issued, total common shares

   restricted at time of issuance

 

 

277,863

 

 

 

 

178,383

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted common shares vesting date

 

December 10, 2021

 

 

 

December 11, 2020

 

 

Common shares surrendered on vesting

   date to satisfy tax withholding

   requirements resulting from vesting of

   restricted common shares

 

n/a

 

 

 

 

60,066

 

 

 

(1)

Of the total 2020 share-based compensation, approximately $5.9 million was recorded as a liability as of December 31, 2020 and is included in accounts payable and other liabilities in the Company’s consolidated balance sheet at December 31, 2020. The remaining $1.9 million, which is subject to vesting on December 10, 2021 and excludes any restricted shares forfeited or vested prior to that date, will be recognized as share-based compensation expense proportionately throughout 2021. For the three months ended March 31, 2021, the Company recognized approximately $0.5 million of share-based compensation expense related to restricted share awards.

(2)

Of the total 2019 share-based compensation, approximately $1.2 million, which vested on December 11, 2020, was recognized as share-based compensation expense proportionately throughout 2020. For the three months ended March 31, 2020, the Company recognized approximately $0.3 million of share-based compensation expense related to restricted share awards.

Additionally, in conjunction with the appointment of 5 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 will vest on March 31, 2023 if the individual remains in service of the Company through the date of vesting. The expense associated with the awards will be amortized over the 3-year restriction period. For the three months ended March 31, 2021, the Company recognized approximately $0.1 million of share-based compensation expense related to these awards.

 

9. Subsequent Events

 

On April 15, 2021, the Company paid approximately $2.2 million, or $0.01 per outstanding common share, in distributions to its common shareholders.

 

In February 2021, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 102-room Overland Park, Kansas SpringHill Suites for a gross sales price of approximately $5.3 million. On April 30, 2021, the Company completed the sale of the hotel. The net proceeds from the sale were used to pay down borrowings on the Company’s revolving credit facility.

18


Index

 

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

Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by use of statements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “outlook,” “strategy,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company’s forward-looking statements continues to be the adverse effect of COVID-19, including resurgences and new variants, on the Company’s business, financial performance and condition, operating results and cash flows, the real estate market and the hospitality industry specifically, and the global economy and financial markets generally. The significance, extent and duration of the continued impacts caused by the COVID-19 outbreak on the Company will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the scope, severity and duration of the pandemic, the extent and effectiveness of the actions taken to contain the pandemic or mitigate its impact, the speed of the vaccine roll-out, the efficacy, acceptance and availability of vaccines, the duration of associated immunity and efficacy of the vaccines against emerging variants of COVID-19, the potential for additional hotel closures/consolidations that may be mandated or advisable, whether based on increased COVID-19 cases, new variants or other factors, the slowing or potential rollback of “reopenings” in certain states, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section titled “Risk Factors” in the Company’s 2020 Form 10-K as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Such additional factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties; the ability of the Company to successfully integrate pending transactions and implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions; reduced business and leisure travel due to travel-related health concerns, including the widespread outbreak of COVID-19 or an increase in COVID-19 cases or any other infectious or contagious diseases in the U.S. or abroad; adverse changes in the real estate and real estate capital markets; financing risks; 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. 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 2020 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 2020 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, 2021, the Company owned 233 hotels with an aggregate of 29,855 rooms located in urban, high-end suburban and developing markets throughout 35 states, including one hotel with 102 rooms classified as held for sale, which was sold to an unrelated party in April 2021. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 16 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.”

The Impact of COVID-19 on the Company and Hospitality Industry

Since first being reported in December 2019, COVID-19 has spread globally, including to every state in the U.S. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to COVID-19.

19


Index

 

The outbreak of COVID-19 has not only specifically reduced travel, but also has had a detrimental impact on regional and global economies and financial markets. The global, national and local impact of the outbreak has rapidly evolved and many countries, including the U.S., as well as state and local governments, have reacted by instituting and reinstituting a wide variety of measures intended to control its spread, including states of emergency, mandatory quarantines, implementation of “stay at home” orders, business closures, border closings, and restrictions on travel and large gatherings, which has resulted in, and may continue to result in, cancellation of events, including sporting events, conferences and meetings. The pandemic triggered a period of material global economic slowdown and the National Bureau of Economic Research declared that the U.S. has been in a recession since February 2020. While the Company’s operating results and the overall economy in the U.S. have shown signs of a gradual recovery, the Company cannot presently determine the extent or duration of the overall operational and financial effects that COVID-19 will have on the Company, its business, the hospitality industry and the economy, or whether the recovery will continue.

The effects of the pandemic on the hotel industry are unprecedented. COVID-19 has disrupted the industry and has dramatically reduced business and leisure travel, which has had a significant adverse impact on, and management expects COVID-19 will continue to significantly adversely impact and disrupt, the Company’s business, financial performance and condition, operating results and cash flows. While the economy has shown signs of recovery as some of the initial restrictions put into place during 2020 have eased, occupancy and average daily rate (“ADR”) are still significantly below 2019 levels. Additionally, while vaccines have been developed and distribution began in December 2020 and these efforts suggest that conditions may continue to gradually improve during 2021, there can be no assurances of how quickly the vaccines will slow the spread of the virus and allow the economy to recover. The Company expects the significant decline in revenue associated with COVID-19 and the overall decline in the U.S. economy to negatively impact the Company’s revenue and operating results for an extended period of time. The Company does not expect a material improvement in results until business travel and general consumer confidence related to risks associated with the economy and COVID-19 improve and government restrictions on travel and business operations are broadly lifted.

Since the beginning of the pandemic, the Company, its management companies and its brands have taken steps to minimize costs and cash outflow to maintain a sound liquidity position. The Company has implemented cost elimination and efficiency initiatives at each of the Company’s hotels by reducing labor costs, reducing or eliminating certain amenities and reducing rates under various service contracts, enhanced its sales efforts by focusing on COVID-19-specific demand opportunities in certain markets and has strategically targeted and maximized performance based on available demand, reduced non-essential capital improvement projects planned for 2021, and entered into amendments to its unsecured credit facilities to temporarily waive the financial covenant testing for the majority of its financial maintenance covenants until June 30, 2022. Despite the cost reduction initiatives discussed above, the Company does not expect to be able to fully, or even materially, offset revenue losses from COVID-19. The extent and duration of COVID-19 effects are not currently known, and these uncertainties continue to make it difficult to predict operating results for the Company’s hotels for the near future. Therefore, while the ongoing vaccination efforts suggest that conditions may continue to gradually improve during 2021, there can be no assurances that the Company will not experience further declines in hotel revenues or earnings at its hotels or how long the effects will continue to impact the Company’s operating results.

2021 Hotel Portfolio Activities

The following discussion regarding the Company’s approach to acquisitions and dispositions reflects the Company’s historical strategy. While the Company anticipates it will continue to approach the acquisition and disposition of hotels similarly over the long term, the detrimental impact of COVID-19 to the Company and overall lodging industry has and may continue to limit the Company’s ability to effectively acquire or dispose of hotels until the industry recovers.

The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in rooms-focused hotels, in 2019 the Company entered into a contract to purchase a 176-room Hilton Garden Inn to be constructed in Madison, Wisconsin. Construction of the hotel was completed in February 2021 and the Company acquired the hotel on February 18, 2021 for a gross purchase price of $49.6 million, utilizing borrowings on the Company’s revolving credit facility.

 

For its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided from the sale of the property. As a result, during the first quarter of 2021, the Company sold two hotels for a total combined gross sales price of $18.3 million and recognized a gain on sale of approximately $4.5 million in the first quarter of 2021. Additionally, as of March 31, 2021, the Company had an outstanding contract to sell one of its hotels for a gross sales price of approximately $5.3 million, which was completed in April 2021. The Company used the net proceeds from the sales to pay down borrowings on the Company’s revolving credit facility.

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

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Index

 

Hotel Operations      

As of March 31, 2021, the Company owned 233 hotels with a total of 29,855 rooms as compared to 231 hotels with a total of 29,535 rooms as of March 31, 2020. 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, 2021, the Company acquired one newly constructed hotel on February 18, 2021 and sold one hotel on February 25, 2021 and one hotel on March 16, 2021. During 2020, the Company acquired two newly constructed hotels on April 30, 2020 and two newly constructed hotels on August 13, 2020, and sold three hotels (one on January 16, 2020, one on February 27, 2020 and one on December 30, 2020). As a result, the comparability of results for the three months ended March 31, 2021 and 2020 as discussed below is impacted by these transactions in addition to the impact of COVID-19 beginning in March 2020.

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

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

 

 

 

Three Months Ended March 31,

 

(in thousands, except statistical data)

 

2021

 

 

Percent

of

Revenue

 

 

2020

 

 

Percent

of

Revenue

 

 

Percent

Change

 

Total revenue

 

$

158,713

 

 

 

100.0

%

 

$

238,010

 

 

 

100.0

%

 

 

-33.3

%

Hotel operating expense

 

 

103,740

 

 

 

65.4

%

 

 

155,266

 

 

 

65.2

%

 

 

-33.2

%

Property taxes, insurance and other

   expense

 

 

19,688

 

 

 

12.4

%

 

 

19,595

 

 

 

8.2

%

 

 

0.5

%

General and administrative expense

 

 

8,119

 

 

 

5.1

%

 

 

9,523

 

 

 

4.0

%

 

 

-14.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on impairment of depreciable

   real estate assets

 

 

10,754

 

 

 

 

 

 

 

-

 

 

 

 

 

 

n/a

 

Depreciation and amortization

   expense

 

 

48,710

 

 

 

 

 

 

 

49,522

 

 

 

 

 

 

 

-1.6

%

Gain on sale of real estate

 

 

4,484

 

 

 

 

 

 

 

8,839

 

 

 

 

 

 

n/a

 

Interest and other expense, net

 

 

18,513

 

 

 

 

 

 

 

15,566

 

 

 

 

 

 

 

18.9

%

Income tax expense

 

 

108

 

 

 

 

 

 

 

146

 

 

 

 

 

 

 

-26.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(46,435

)

 

 

 

 

 

 

(2,769

)

 

 

 

 

 

 

n/a

 

Adjusted hotel EBITDA (1)

 

 

35,427

 

 

 

 

 

 

 

63,297

 

 

 

 

 

 

 

-44.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of hotels owned at end

   of period

 

 

233

 

 

 

 

 

 

 

231

 

 

 

 

 

 

 

0.9

%

ADR

 

$

99.19

 

 

 

 

 

 

$

132.55

 

 

 

 

 

 

 

-25.2

%

Occupancy

 

 

55.5

%

 

 

 

 

 

 

60.9

%

 

 

 

 

 

 

-8.9

%

RevPAR

 

$

55.09

 

 

 

 

 

 

$

80.66

 

 

 

 

 

 

 

-31.7

%

 

(1)

See reconciliation of Adjusted Hotel EBITDA to net loss in “Non-GAAP Financial Measures” below. 

The following table highlights the quarterly impact of COVID-19 on the Company’s ADR, Occupancy, RevPAR, net loss and adjusted hotel earnings before interest, income taxes, depreciation and amortization for real estate (“Adjusted Hotel EBITDA”) during the last five quarters (in thousands except statistical data):

 

 

 

1st Quarter

 

 

2nd Quarter

 

 

3rd Quarter

 

 

4th Quarter

 

 

1st Quarter

 

 

 

2020

 

 

2020

 

 

2020

 

 

2020

 

 

2021

 

ADR

 

$

132.55

 

 

$

100.76

 

 

$

104.78

 

 

$

97.87

 

 

$

99.19

 

Occupancy

 

 

60.9

%

 

 

28.2

%

 

 

48.6

%

 

 

46.5

%

 

 

55.5

%

RevPAR

 

$

80.66

 

 

$

28.44

 

 

$

50.94

 

 

$

45.46

 

 

$

55.09

 

Net loss

 

$

(2,769

)

 

$

(78,243

)

 

$

(40,948

)

 

$

(51,247

)

 

$

(46,435

)

Adjusted Hotel EBITDA (1)

 

$

63,297

 

 

$

704

 

 

$

34,688

 

 

$

23,296

 

 

$

35,427

 

 

(1)

See reconciliation of Adjusted Hotel EBITDA to net loss in “Non-GAAP Financial Measures” below.

Beginning in March 2020, COVID-19 caused widespread cancellations of both business and leisure travel throughout the U.S., resulting in significant decreases in RevPAR throughout the Company’s hotel portfolio and the hospitality industry as a whole. With the overall uncertainty of the longevity of COVID-19 in the U.S. and the resulting economic decline, it is difficult to project the duration of revenue declines for the industry and Company; however, the Company currently expects declines in revenue and operating results as compared to 2019 to continue throughout the remainder of 2021 and potentially into future years. While the

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Company experienced its most significant decline in operating results during the second quarter of 2020 as compared to previous quarters, occupancy and RevPAR have since shown improvement, with average occupancy reaching 55.5% by the first quarter of 2021, resulting in the strongest operating results since the onset of the pandemic. Although the Company expects this trend to gradually continue, future revenues and operating results could be negatively impacted if, among other things, COVID-19 cases increase and state and local governments and businesses revert back to tighter mitigation restrictions or consumer sentiment deteriorates.

Comparable Hotels Operating Results

The following table reflects certain operating statistics for the Company’s 232 hotels owned and held for use as of March 31, 2021 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 232 hotels owned and held for use as of the end of the reporting period, and excludes the hotel held for sale. For the hotels acquired during the current reporting period and prior year, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company. This information has not been audited, either for the periods owned or prior to ownership by the Company. For dispositions and assets held for sale, results have been excluded for the Company’s period of ownership.

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

Percent

Change

 

ADR

 

$

99.29

 

 

$

133.05

 

 

 

-25.4

%

Occupancy

 

 

55.8

%

 

 

60.9

%

 

 

-8.4

%

RevPAR

 

$

55.39

 

 

$

81.01

 

 

 

-31.6

%

 

Same Store Operating Results

The following table reflects certain operating statistics for the 227 hotels owned and held for use by the Company as of January 1, 2020 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

Percent

Change

 

ADR

 

$

99.12

 

 

$

133.05

 

 

 

-25.5

%

Occupancy

 

 

56.1

%

 

 

60.9

%

 

 

-7.9

%

RevPAR

 

$

55.61

 

 

$

81.01

 

 

 

-31.4

%

 

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. COVID-19 has been negatively affecting the U.S. hotel industry since March 2020. As a result of COVID-19, the Company’s revenue and operating results declined during the three months ended March 31, 2021 compared to the three months ended March 31, 2020, which is consistent with the overall lodging industry. Compared to 2019, the Company expects declines in revenue and operating results to continue throughout the remainder of 2021, but the Company can give no assurances of the amount or period of decline due to the uncertainty regarding the duration and long-term impact of and governmental and consumer response to COVID-19.

Revenues

The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended March 31, 2021 and 2020, the Company had total revenue of $158.7 million and $238.0 million, respectively. For the three months ended March 31, 2021 and 2020, respectively, Comparable Hotels achieved combined average occupancy of 55.8% and 60.9%, ADR of $99.29 and $133.05 and RevPAR of $55.39 and $81.01. 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 2020, during the three months ended March 31, 2021, the Company experienced decreases in ADR and occupancy, resulting in a decrease of 31.6% in RevPAR for Comparable Hotels. As compared to the first quarter of 2019 (pre-COVID-19), Comparable Hotels RevPAR for the first quarter of 2021 decreased by 45.8% as a result of reductions in rate and occupancy. During March 2020, the hotel industry and the Company began to see a significant decrease in occupancy as both mandated and voluntary restrictions on travel were implemented throughout the U.S. For Comparable Hotels, average occupancy declined to 28.2% for the second quarter 2020 before improving over subsequent quarters to 55.8% in the first quarter of 2021 driven predominately by increased leisure demand over the summer months as a result of improved consumer confidence in travel and the lifting of some COVID-19 mitigation restrictions, but also from a wide variety of demand generators such as government, healthcare, construction, disaster recovery, insurance, athletics, education and local and regional business-related travel. Revenue recovery in the

22


Index

 

first quarter of 2021 was led by leisure demand and small corporate, government and leisure based group business, with more favorable results in suburban markets. Throughout the hospitality industry, upscale and upper mid-scale chain scales have outperformed luxury and upper upscale and suburban locations have outperformed urban locations. Occupancy increased throughout the first quarter of 2021 and the trend continued into April, with estimated occupancy of approximately 68% for the month. The Company expects this trend to gradually continue, however, future revenues could be negatively impacted if COVID-19 cases increase and state and local governments tighten or implement new mitigation restrictions or consumer sentiment deteriorates.

Hotel Operating Expense 

The Company, its management companies and the brands the Company’s hotels are franchised with have all aggressively worked to mitigate the costs and uses of cash associated with operating the hotels in a low-occupancy environment and are thoughtfully working to position the hotels to adapt to the changes that may occur to guest preferences in the future. The impact has varied and will continue to vary by market and hotel. With the support of its brands and third-party management companies, the Company will continue to evaluate and implement additional measures as the situation evolves.

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, 2021 and 2020 totaled $103.7 million and $155.3 million, respectively, or 65.4% and 65.2% of total revenue for the respective periods. Comparatively, prior to COVID-19, hotel operating expense was 57.8% of total revenue for the three months ended March 31, 2019. Included in hotel operating expense for the three months ended March 31, 2021 are an additional $1.8 million of utility costs resulting from extraordinary rate increases and fees assessed at some of the Company’s hotels in Texas as a result of winter and ice storms in the first quarter of 2021. The Company has worked and will continue to work with its management companies to optimize staffing models, consolidate operations in markets with multiple properties, and adjust food and beverage offerings and other amenities, among other efficiency initiatives to mitigate the impact of revenue declines on its results of operations. For example, in some markets the Company “clustered” hotels in 2020, whereby multiple properties in a market consolidated their operations to increase efficiency; the Company has reduced service and amenity offerings as allowed by the relaxation of certain brand standards; and the Company also successfully reduced rates under various service contracts. Although certain operating costs of a hotel are more fixed in nature, such as base utility and maintenance costs, the Company has worked and will continue to work to reduce all non-essential costs including service contracts, utilities in areas not utilized and certain maintenance costs. However, the Company may continue to see ongoing cost increases related to the supplying of personal protective equipment for employees and guests as well as increased sanitation and other measures. Additionally, as is typical in an economic recovery, the Company has begun to experience increases in the cost of labor, and expects to continue to do so, as it competes with other employers for hourly wage labor as unemployment rates decrease.

Property Taxes, Insurance and Other Expense 

Property taxes, insurance, and other expense for the three months ended March 31, 2021 and 2020 totaled $19.7 million and $19.6 million, respectively, or 12.4% and 8.2% of total revenue for the respective periods. Prior to COVID-19, property taxes, insurance and other expense totaled $19.6 million, or 6.5% of total revenue, for the period ended March 31, 2019. Although the Company will continue to aggressively appeal assessments and monitor locality guidance as a result of COVID-19, it does not currently anticipate significant decreases in property taxes in 2021 as compared to 2020. Additionally, the Company has faced increases in premiums on its property insurance coverage.

General and Administrative Expense 

General and administrative expense for the three months ended March 31, 2021 and 2020 was $8.1 million and $9.5 million, respectively, or 5.1% and 4.0% of total revenue for the respective periods. The principal components of general and administrative expense are payroll and related benefit costs, legal fees, accounting fees and reporting expenses. General and administrative expense for the three months ended March 31, 2020 included the accrual of approximately $2.5 million in separation benefits awarded in connection with the retirements of the Company’s former Chief Operating Officer and former Chief Financial Officer on March 31, 2020. Excluding the separation benefit accrual, general and administrative expense increased by approximately $1.1 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to increased accruals for incentive compensation related to anticipated higher operating performance in 2021 as compared to 2020.

Loss on Impairment of Depreciable Real Estate Assets 

Loss on impairment of depreciable real estate assets was $10.8 million for the three months ended March 31, 2021, consisting of impairment losses of $1.3 million for the Overland Park, Kansas SpringHill Suites and $9.4 million for four hotel properties identified by the Company in the first quarter of 2021 for potential sale. See Note 3 titled “Assets Held for Sale and Dispositions” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning these impairment losses.

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Index

 

Depreciation and Amortization Expense 

Depreciation and amortization expense for the three months ended March 31, 2021 and 2020, expense was $48.7 million and $49.5 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 decrease of approximately $0.8 million was primarily due to the hotel dispositions completed throughout 2020 and the first three months of 2021, partially offset by acquisitions and limited renovation activity.

Interest and Other Expense, net 

Interest and other expense, net for the three months ended March 31, 2021 and 2020 was $18.5 million and $15.6 million, respectively. Interest and other expense, net for the three months ended March 31, 2020 is net of approximately $0.7 million of interest capitalized associated with renovation projects. Additionally, interest and other expense, net for the three months ended March 31, 2021 and 2020 includes approximately $2.9 million and $2.8 million, respectively, of interest recorded on the Company’s finance lease liabilities.

Interest expense related to the Company’s debt instruments increased as a result of increased average borrowings in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 combined with increased interest rates on the Company’s unsecured credit facilities associated with the amendments to obtain covenant waivers. The Company anticipates interest expense to be higher for the remainder of 2021 compared to the same period of 2020 due to these increased interest rates. See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional discussion of the Company’s amended unsecured credit facilities.

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 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 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.

24


Index

 

The following table reconciles the Company’s GAAP net loss to FFO and MFFO for the three months ended March 31, 2021 and 2020 (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(46,435

)

 

$

(2,769

)

Depreciation of real estate owned

 

 

47,088

 

 

 

47,668

 

Gain on sale of real estate

 

 

(4,484

)

 

 

(8,839

)

Loss on impairment of depreciable real estate assets

 

 

10,754

 

 

 

-

 

Funds from operations

 

 

6,923

 

 

 

36,060

 

Amortization of finance ground lease assets

 

 

1,617

 

 

 

1,602

 

Amortization of favorable and unfavorable operating

   leases, net

 

 

98

 

 

 

101

 

Non-cash straight-line operating ground lease expense

 

 

44

 

 

 

47

 

Modified funds from operations

 

$

8,682

 

 

$

37,810

 

 

 

 

 

 

 

 

 

 

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.

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. 

25


Index

 

The following table reconciles the Company’s GAAP net loss to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA by quarter for the last five quarters (in thousands):

 

 

 

1st Quarter

 

 

2nd Quarter

 

 

3rd Quarter

 

 

4th Quarter

 

 

1st Quarter

 

 

 

2020

 

 

2020

 

 

2020

 

 

2020

 

 

2021

 

Net loss

 

$

(2,769

)

 

$

(78,243

)

 

$

(40,948

)

 

$

(51,247

)

 

$

(46,435

)

Depreciation and amortization

 

 

49,522

 

 

 

49,897

 

 

 

50,171

 

 

 

50,196

 

 

 

48,710

 

Amortization of favorable and unfavorable operating leases, net

 

 

101

 

 

 

101

 

 

 

103

 

 

 

137

 

 

 

98

 

Interest and other expense, net

 

 

15,566

 

 

 

18,386

 

 

 

18,531

 

 

 

18,352

 

 

 

18,513

 

Income tax expense

 

 

146

 

 

 

58

 

 

 

61

 

 

 

67

 

 

 

108

 

EBITDA

 

 

62,566

 

 

 

(9,801

)

 

 

27,918

 

 

 

17,505

 

 

 

20,994

 

(Gain) loss on sale of real estate

 

 

(8,839

)

 

 

54

 

 

 

-

 

 

 

(2,069

)

 

 

(4,484

)

Loss on impairment of depreciable real estate assets

 

 

-

 

 

 

4,382

 

 

 

-

 

 

 

715

 

 

 

10,754

 

EBITDAre

 

 

53,727

 

 

 

(5,365

)

 

 

27,918

 

 

 

16,151

 

 

 

27,264

 

Non-cash straight-line operating ground lease expense

 

 

47

 

 

 

44

 

 

 

44

 

 

 

45

 

 

 

44

 

Adjusted EBITDAre

 

 

53,774

 

 

 

(5,321

)

 

 

27,962

 

 

 

16,196

 

 

 

27,308

 

General and administrative expense

 

 

9,523

 

 

 

6,025

 

 

 

6,726

 

 

 

7,100

 

 

 

8,119

 

Adjusted Hotel EBITDA

 

$

63,297

 

 

$

704

 

 

$

34,688

 

 

$

23,296

 

 

$

35,427

 

 

Hotels Owned

As of March 31, 2021, the Company owned 233 hotels with an aggregate of 29,855 rooms located in 35 states, including one hotel with 102 rooms classified as held for sale, which was sold to an unrelated party in April 2021. 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

 

42

 

 

5,843

 

Hampton

 

39

 

 

4,986

 

Courtyard

 

36

 

 

4,948

 

Residence Inn

 

33

 

 

3,939

 

Homewood Suites

 

31

 

 

3,473

 

SpringHill Suites

 

13

 

 

1,705

 

Fairfield

 

11

 

 

1,300

 

Home2 Suites

 

10

 

 

1,146

 

TownePlace Suites

 

9

 

 

931

 

Marriott

 

2

 

 

619

 

Embassy Suites

 

2

 

 

316

 

Hyatt Place

 

2

 

 

281

 

Independent

 

2

 

 

263

 

Hyatt House

 

1

 

 

105

 

Total

 

233

 

 

29,855

 

26


Index

 

 

 

Number of Hotels and Guest Rooms by State

 

 

 

Number of

 

 

Number of

 

State

 

Hotels

 

 

Rooms

 

Alabama

 

 

15

 

 

 

1,434

 

Alaska

 

 

2

 

 

 

304

 

Arizona

 

 

14

 

 

 

1,903

 

Arkansas

 

 

3

 

 

 

336

 

California

 

 

26

 

 

 

3,721

 

Colorado

 

 

4

 

 

 

567

 

Florida

 

 

23

 

 

 

2,922

 

Georgia

 

 

6

 

 

 

672

 

Idaho

 

 

1

 

 

 

186

 

Illinois

 

 

8

 

 

 

1,420

 

Indiana

 

 

4

 

 

 

479

 

Iowa

 

 

3

 

 

 

301

 

Kansas

 

 

4

 

 

 

422

 

Louisiana

 

 

3

 

 

 

422

 

Maine

 

 

1

 

 

 

179

 

Maryland

 

 

2

 

 

 

233

 

Massachusetts

 

 

4

 

 

 

466

 

Michigan

 

 

1

 

 

 

148

 

Minnesota

 

 

3

 

 

 

405

 

Mississippi

 

 

2

 

 

 

168

 

Missouri

 

 

4

 

 

 

544

 

Nebraska

 

 

4

 

 

 

621

 

New Jersey

 

 

5

 

 

 

629

 

New York

 

 

4

 

 

 

554

 

North Carolina

 

 

9

 

 

 

973

 

Ohio

 

 

2

 

 

 

252

 

Oklahoma

 

 

4

 

 

 

545

 

Pennsylvania

 

 

3

 

 

 

391

 

South Carolina

 

 

5

 

 

 

538

 

Tennessee

 

 

12

 

 

 

1,362

 

Texas

 

 

31

 

 

 

3,755

 

Utah

 

 

3

 

 

 

393

 

Virginia

 

 

13

 

 

 

1,825

 

Washington

 

 

4

 

 

 

609

 

Wisconsin

 

 

1

 

 

 

176

 

Total

 

 

233

 

 

 

29,855

 

 

 

 

 

 

 

 

 

 

 

27


Index

 

 

The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 233 hotels the Company owned as of March 31, 2021.

 

City

 

State

 

Brand

 

Manager

 

Date

Acquired or

Completed

 

Rooms

 

Anchorage

 

AK

 

Embassy Suites

 

Stonebridge

 

4/30/2010

 

 

169

 

Anchorage

 

AK

 

Home2 Suites

 

Stonebridge

 

12/1/2017

 

 

135

 

Auburn

 

AL

 

Hilton Garden Inn

 

LBA

 

3/1/2014

 

 

101

 

Birmingham

 

AL

 

Courtyard

 

LBA

 

3/1/2014

 

 

84

 

Birmingham

 

AL

 

Hilton Garden Inn

 

LBA

 

9/12/2017

 

 

104

 

Birmingham

 

AL

 

Home2 Suites

 

LBA

 

9/12/2017

 

 

106

 

Birmingham

 

AL

 

Homewood Suites

 

McKibbon

 

3/1/2014

 

 

95

 

Dothan

 

AL

 

Hilton Garden Inn

 

LBA

 

6/1/2009

 

 

104

 

Dothan

 

AL

 

Residence Inn

 

LBA

 

3/1/2014

 

 

84

 

Huntsville

 

AL

 

Hampton

 

LBA

 

9/1/2016

 

 

98

 

Huntsville

 

AL

 

Hilton Garden Inn

 

LBA

 

3/1/2014

 

 

101

 

Huntsville

 

AL

 

Home2 Suites

 

LBA

 

9/1/2016

 

 

77

 

Huntsville

 

AL

 

Homewood Suites

 

LBA

 

3/1/2014

 

 

107

 

Mobile

 

AL

 

Hampton

 

McKibbon

 

9/1/2016

 

 

101

 

Montgomery

 

AL

 

Hilton Garden Inn

 

LBA

 

3/1/2014

 

 

97

 

Montgomery

 

AL

 

Homewood Suites

 

LBA

 

3/1/2014

 

 

91

 

Prattville

 

AL

 

Courtyard

 

LBA

 

3/1/2014

 

 

84

 

Rogers

 

AR

 

Hampton

 

Raymond

 

8/31/2010

 

 

122

 

Rogers

 

AR

 

Homewood Suites

 

Raymond

 

4/30/2010

 

 

126

 

Rogers

 

AR

 

Residence Inn

 

Raymond

 

3/1/2014

 

 

88

 

Chandler

 

AZ

 

Courtyard

 

North Central

 

11/2/2010

 

 

150

 

Chandler

 

AZ

 

Fairfield

 

North Central

 

11/2/2010

 

 

110

 

Phoenix

 

AZ

 

Courtyard

 

North Central

 

11/2/2010

 

 

164

 

Phoenix

 

AZ

 

Courtyard

 

North Central

 

9/1/2016

 

 

127

 

Phoenix

 

AZ

 

Hampton

 

North Central

 

9/1/2016

 

 

125

 

Phoenix

 

AZ

 

Hampton

 

North Central

 

5/2/2018

 

 

210

 

Phoenix

 

AZ

 

Homewood Suites

 

North Central

 

9/1/2016

 

 

134

 

Phoenix

 

AZ

 

Residence Inn

 

North Central

 

11/2/2010

 

 

129

 

Scottsdale

 

AZ

 

Hilton Garden Inn

 

North Central

 

9/1/2016

 

 

122

 

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

 

28


Index

 

 

 

City

 

State

 

Brand

 

Manager

 

Date

Acquired or

Completed

 

Rooms

 

San Diego

 

CA

 

Residence Inn

 

Dimension

 

3/1/2014

 

 

121

 

San Jose

 

CA

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

140

 

San Juan Capistrano

 

CA

 

Residence Inn

 

Marriott

 

9/1/2016

 

 

130

 

Santa Ana

 

CA

 

Courtyard

 

Dimension

 

5/23/2011

 

 

155

 

Santa Clarita

 

CA

 

Courtyard

 

Dimension

 

9/24/2008

 

 

140

 

Santa Clarita

 

CA

 

Fairfield

 

Dimension

 

10/29/2008

 

 

66

 

Santa Clarita

 

CA

 

Hampton

 

Dimension

 

10/29/2008

 

 

128

 

Santa Clarita

 

CA

 

Residence Inn

 

Dimension

 

10/29/2008

 

 

90

 

Tustin

 

CA

 

Fairfield

 

Marriott

 

9/1/2016

 

 

145

 

Tustin

 

CA

 

Residence Inn

 

Marriott

 

9/1/2016

 

 

149

 

Colorado Springs

 

CO

 

Hampton

 

Chartwell

 

9/1/2016

 

 

101

 

Denver

 

CO

 

Hilton Garden Inn

 

Stonebridge

 

9/1/2016

 

 

221

 

Highlands Ranch

 

CO

 

Hilton Garden Inn

 

Dimension

 

3/1/2014

 

 

128

 

Highlands Ranch

 

CO

 

Residence Inn

 

Dimension

 

3/1/2014

 

 

117

 

Boca Raton

 

FL

 

Hilton Garden Inn

 

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

 

Lakeland

 

FL

 

Courtyard

 

LBA

 

3/1/2014

 

 

78

 

Miami

 

FL

 

Courtyard

 

Dimension

 

3/1/2014

 

 

118

 

Miami

 

FL

 

Hampton

 

White Lodging

 

4/9/2010

 

 

121

 

Miami

 

FL

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

162

 

Orlando

 

FL

 

Fairfield

 

Marriott

 

7/1/2009

 

 

200

 

Orlando

 

FL

 

Home2 Suites

 

LBA

 

3/19/2019

 

 

128

 

Orlando

 

FL

 

SpringHill Suites

 

Marriott

 

7/1/2009

 

 

200

 

Panama City

 

FL

 

Hampton

 

LBA

 

3/12/2009

 

 

95

 

Panama City

 

FL

 

TownePlace Suites

 

LBA

 

1/19/2010

 

 

103

 

Pensacola

 

FL

 

TownePlace Suites

 

McKibbon

 

9/1/2016

 

 

97

 

Tallahassee

 

FL

 

Fairfield

 

LBA

 

9/1/2016

 

 

97

 

Tallahassee

 

FL

 

Hilton Garden Inn

 

LBA

 

3/1/2014

 

 

85

 

Tampa

 

FL

 

Embassy Suites

 

White Lodging

 

11/2/2010

 

 

147

 

Albany

 

GA

 

Fairfield

 

LBA

 

1/14/2010

 

 

87

 

Atlanta/Downtown

 

GA

 

Hampton

 

McKibbon

 

2/5/2018

 

 

119

 

Atlanta/Perimeter Dunwoody

 

GA

 

Hampton

 

LBA

 

6/28/2018

 

 

132

 

Atlanta

 

GA

 

Home2 Suites

 

McKibbon

 

7/1/2016

 

 

128

 

Macon

 

GA

 

Hilton Garden Inn

 

LBA

 

3/1/2014

 

 

101

 

Savannah

 

GA

 

Hilton Garden Inn

 

Newport

 

3/1/2014

 

 

105

 

Cedar Rapids

 

IA

 

Hampton

 

Aimbridge

 

9/1/2016

 

 

103

 

Cedar Rapids

 

IA

 

Homewood Suites

 

Aimbridge

 

9/1/2016

 

 

95

 

Davenport

 

IA

 

Hampton

 

Aimbridge

 

9/1/2016

 

 

103

 

Boise

 

ID

 

Hampton

 

Raymond

 

4/30/2010

 

 

186

 

Des Plaines

 

IL

 

Hilton Garden Inn

 

Raymond

 

9/1/2016

 

 

252

 

Hoffman Estates

 

IL

 

Hilton Garden Inn

 

White Lodging

 

9/1/2016

 

 

184

 

Mettawa

 

IL

 

Hilton Garden Inn

 

White Lodging

 

11/2/2010

 

 

170

 

Mettawa

 

IL

 

Residence Inn

 

White Lodging

 

11/2/2010

 

 

130

 

29


Index

 

 

 

City

 

State

 

Brand

 

Manager

 

Date

Acquired or

Completed

 

Rooms

 

Rosemont

 

IL

 

Hampton

 

Raymond

 

9/1/2016

 

 

158

 

Schaumburg

 

IL

 

Hilton Garden Inn

 

White Lodging

 

11/2/2010

 

 

166

 

Skokie

 

IL

 

Hampton

 

Raymond

 

9/1/2016

 

 

225

 

Warrenville

 

IL

 

Hilton Garden Inn

 

White Lodging

 

11/2/2010

 

 

135

 

Indianapolis

 

IN

 

SpringHill Suites

 

White Lodging

 

11/2/2010

 

 

130

 

Merrillville

 

IN

 

Hilton Garden Inn

 

White Lodging

 

9/1/2016

 

 

124

 

Mishawaka

 

IN

 

Residence Inn

 

White Lodging

 

11/2/2010

 

 

106

 

South Bend

 

IN

 

Fairfield

 

White Lodging

 

9/1/2016

 

 

119

 

Overland Park

 

KS

 

Fairfield

 

Raymond

 

3/1/2014

 

 

110

 

Overland Park

 

KS

 

Residence Inn

 

Raymond

 

3/1/2014

 

 

120

 

Overland Park

 

KS

 

SpringHill Suites

 

Raymond

 

3/1/2014

 

 

102

 

Wichita

 

KS

 

Courtyard

 

Aimbridge

 

3/1/2014

 

 

90

 

Lafayette

 

LA

 

Hilton Garden Inn

 

LBA

 

7/30/2010

 

 

153

 

Lafayette

 

LA

 

SpringHill Suites

 

LBA

 

6/23/2011

 

 

103

 

New Orleans

 

LA

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

166

 

Andover

 

MA

 

SpringHill Suites

 

Marriott

 

11/5/2010

 

 

136

 

Marlborough

 

MA

 

Residence Inn

 

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

 

Residence Inn

 

Crestline

 

10/13/2017

 

 

179

 

Novi

 

MI

 

Hilton Garden Inn

 

White Lodging

 

11/2/2010

 

 

148

 

Maple Grove

 

MN

 

Hilton Garden Inn

 

North Central

 

9/1/2016

 

 

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

 

Fayetteville

 

NC

 

Residence Inn

 

LBA

 

3/1/2014

 

 

92

 

Greensboro

 

NC

 

SpringHill Suites

 

Newport

 

3/1/2014

 

 

82

 

Jacksonville

 

NC

 

Home2 Suites

 

LBA

 

9/1/2016

 

 

105

 

Wilmington

 

NC

 

Fairfield

 

Crestline

 

3/1/2014

 

 

122

 

Winston-Salem

 

NC

 

Hampton

 

McKibbon

 

9/1/2016

 

 

94

 

Omaha

 

NE

 

Courtyard

 

Marriott

 

3/1/2014

 

 

181

 

Omaha

 

NE

 

Hampton

 

White Lodging

 

9/1/2016

 

 

139

 

Omaha

 

NE

 

Hilton Garden Inn

 

White Lodging

 

9/1/2016

 

 

178

 

Omaha

 

NE

 

Homewood Suites

 

White Lodging

 

9/1/2016

 

 

123

 

Cranford

 

NJ

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

108

 

Mahwah

 

NJ

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

110

 

Mount Laurel

 

NJ

 

Homewood Suites

 

Newport

 

1/11/2011

 

 

118

 

Somerset

 

NJ

 

Courtyard

 

Newport

 

3/1/2014

 

 

162

 

West Orange

 

NJ

 

Courtyard

 

Newport

 

1/11/2011

 

 

131

 

Islip/Ronkonkoma

 

NY

 

Hilton Garden Inn

 

Crestline

 

3/1/2014

 

 

166

 

New York

 

NY

 

Independent

 

Highgate

 

3/1/2014

 

 

208

 

 

30


Index

 

 

 

City

 

State

 

Brand

 

Manager

 

Date

Acquired or

Completed

 

Rooms

 

Syracuse

 

NY

 

Courtyard

 

Crestline

 

10/16/2015

 

 

102

 

Syracuse

 

NY

 

Residence Inn

 

Crestline

 

10/16/2015

 

 

78

 

Mason

 

OH

 

Hilton Garden Inn

 

Raymond

 

9/1/2016

 

 

110

 

Twinsburg

 

OH

 

Hilton Garden Inn

 

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

 

Collegeville/Philadelphia

 

PA

 

Courtyard

 

Newport

 

11/15/2010

 

 

132

 

Malvern/Philadelphia

 

PA

 

Courtyard

 

Newport

 

11/30/2010

 

 

127

 

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

 

Residence Inn

 

McKibbon

 

3/1/2014

 

 

78

 

Hilton Head

 

SC

 

Hilton Garden Inn

 

McKibbon

 

3/1/2014

 

 

104

 

Chattanooga

 

TN

 

Homewood Suites

 

LBA

 

3/1/2014

 

 

76

 

Franklin

 

TN

 

Courtyard

 

Chartwell

 

9/1/2016

 

 

126

 

Franklin

 

TN

 

Residence Inn

 

Chartwell

 

9/1/2016

 

 

124

 

Jackson

 

TN

 

Hampton

 

Newport

 

12/30/2008

 

 

85

 

Johnson City

 

TN

 

Courtyard

 

LBA

 

9/25/2009

 

 

90

 

Knoxville

 

TN

 

Homewood Suites

 

McKibbon

 

9/1/2016

 

 

103

 

Knoxville

 

TN

 

SpringHill Suites

 

McKibbon

 

9/1/2016

 

 

103

 

Knoxville

 

TN

 

TownePlace Suites

 

McKibbon

 

9/1/2016

 

 

97

 

Memphis

 

TN

 

Hampton

 

Crestline

 

2/5/2018

 

 

144

 

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

 

Allen

 

TX

 

Hampton

 

Aimbridge

 

9/26/2008

 

 

103

 

Allen

 

TX

 

Hilton Garden Inn

 

Aimbridge

 

10/31/2008

 

 

150

 

Arlington

 

TX

 

Hampton

 

Western

 

12/1/2010

 

 

98

 

Austin

 

TX

 

Courtyard

 

White Lodging

 

11/2/2010

 

 

145

 

Austin

 

TX

 

Fairfield

 

White Lodging

 

11/2/2010

 

 

150

 

Austin

 

TX

 

Hampton

 

Dimension

 

4/14/2009

 

 

124

 

Austin

 

TX

 

Hilton Garden Inn

 

White Lodging

 

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

 

Beaumont

 

TX

 

Residence Inn

 

Western

 

10/29/2008

 

 

133

 

Burleson/Fort Worth

 

TX

 

Hampton

 

LBA

 

10/7/2014

 

 

88

 

Dallas

 

TX

 

Homewood Suites

 

Western

 

9/1/2016

 

 

130

 

Denton

 

TX

 

Homewood Suites

 

Chartwell

 

9/1/2016

 

 

107

 

El Paso

 

TX

 

Hilton Garden Inn

 

Western

 

12/19/2011

 

 

145

 

El Paso

 

TX

 

Homewood Suites

 

Western

 

3/1/2014

 

 

114

 

Fort Worth

 

TX

 

Courtyard

 

LBA

 

2/2/2017

 

 

124

 

Fort Worth

 

TX

 

TownePlace Suites

 

Western

 

7/19/2010

 

 

140

 

Frisco

 

TX

 

Hilton Garden Inn

 

Western

 

12/31/2008

 

 

102

 

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

 

 

31


Index

 

 

City

 

State

 

Brand

 

Manager

 

Date

Acquired or

Completed

 

Rooms

 

Irving

 

TX

 

Homewood Suites

 

Western

 

12/29/2010

 

 

77

 

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

 

Stafford

 

TX

 

Homewood Suites

 

Western

 

3/1/2014

 

 

78

 

Texarkana

 

TX

 

Hampton

 

Aimbridge

 

1/31/2011

 

 

81

 

Provo

 

UT

 

Residence Inn

 

Dimension

 

3/1/2014

 

 

114

 

Salt Lake City

 

UT

 

Residence Inn

 

Huntington

 

10/20/2017

 

 

136

 

Salt Lake City

 

UT

 

SpringHill Suites

 

White Lodging

 

11/2/2010

 

 

143

 

Alexandria

 

VA

 

Courtyard

 

Marriott

 

3/1/2014

 

 

178

 

Alexandria

 

VA

 

SpringHill Suites

 

Marriott

 

3/28/2011

 

 

155

 

Charlottesville

 

VA

 

Courtyard

 

Crestline

 

3/1/2014

 

 

139

 

Manassas

 

VA

 

Residence Inn

 

Crestline

 

2/16/2011

 

 

107

 

Richmond

 

VA

 

Independent

 

Crestline

 

10/9/2019

 

 

55

 

Richmond

 

VA

 

Courtyard

 

White Lodging

 

12/8/2014

 

 

135

 

Richmond

 

VA

 

Marriott

 

White Lodging

 

3/1/2014

 

 

413

 

Richmond

 

VA

 

Residence Inn

 

White Lodging

 

12/8/2014

 

 

75

 

Richmond

 

VA

 

SpringHill Suites

 

McKibbon

 

9/1/2016

 

 

103

 

Suffolk

 

VA

 

Courtyard

 

Crestline

 

3/1/2014

 

 

92

 

Suffolk

 

VA

 

TownePlace Suites

 

Crestline

 

3/1/2014

 

 

72

 

Virginia Beach

 

VA

 

Courtyard

 

Crestline

 

3/1/2014

 

 

141

 

Virginia Beach

 

VA

 

Courtyard

 

Crestline

 

3/1/2014

 

 

160

 

Kirkland

 

WA

 

Courtyard

 

InnVentures

 

3/1/2014

 

 

150

 

Seattle

 

WA

 

Residence Inn

 

InnVentures

 

3/1/2014

 

 

234

 

Tukwila

 

WA

 

Homewood Suites

 

Dimension

 

3/1/2014

 

 

106

 

Vancouver

 

WA

 

SpringHill Suites

 

InnVentures

 

3/1/2014

 

 

119

 

Madison

 

WI

 

Hilton Garden Inn

 

Raymond

 

2/18/2021

 

 

176

 

Total

 

 

 

 

 

 

 

 

 

 

29,855

 

 

Related Parties 

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

Liquidity and Capital Resources

Capital Resources

The Company’s principal short term sources of liquidity are the operating cash flows generated from the Company��s properties and availability under its revolving credit facility. Periodically, the Company may receive proceeds from strategic additional secured and unsecured debt financing, dispositions of its hotel properties (such as the sale of two hotels in the first quarter of 2021 for proceeds of approximately $18 million discussed above in “2021 Hotel Portfolio Activities”) and offerings of the Company’s common shares, including pursuant to the ATM Program (as defined below). As a result of declines in occupancy caused by COVID-19, the Company anticipates significantly reduced cash from operations until travel increases in the U.S. and therefore anticipates funding its near-term cash needs with operating cash flows generated from the Company’s properties and availability under its revolving credit facility.

As of March 31, 2021, the Company had $1.5 billion of total outstanding debt consisting of $509.8 million of mortgage debt and $1.0 billion outstanding under its unsecured credit facilities, excluding unamortized debt issuance costs and fair value adjustments. As of March 31, 2021, the Company had available corporate cash on hand of approximately $5.8 million as well as unused borrowing capacity under its revolving credit facility of approximately $275.1 million. In the near term, the impact of COVID-19 on the global economy, including any sustained decline in the Company’s performance, may make it more difficult or costly for the Company to raise debt or equity capital to fund long-term liquidity requirements. The credit agreements governing the unsecured credit facilities contain mandatory prepayment requirements, customary affirmative and negative covenants and events of default. The credit

32


Index

 

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. 

As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company anticipated that it may not be able to maintain compliance with certain of these covenants in future periods. On June 5, 2020, the Company entered into amendments to each of the unsecured credit facilities, which the Company again amended on March 1, 2021. The combined amendments suspend the testing for all but two of the Company’s existing financial maintenance covenants under the unsecured credit facilities until the date the compliance certificate is required to be delivered for the fiscal quarter ending June 30, 2022 (unless the Company elects an earlier date) (the “Extended Covenant Waiver Period”), suspend the testing for the Minimum Fixed Charge Coverage Ratio and the Minimum Unsecured Interest Coverage Ratio until the compliance certificate is required to be delivered for the fiscal quarter ending March 31, 2022 and provide for, among other restrictions, the following during the Extended Covenant Waiver Period:

 

Mandatory prepayments of amounts outstanding under the Company’s unsecured credit facilities, of net cash proceeds from certain debt and equity issuances, and asset dispositions, subject to various exceptions, including an allowance of $300 million for acquiring unencumbered assets with proceeds from assets sales and a $300 million allowance for acquiring unencumbered assets funded by common equity so long as outstanding borrowings under the revolving credit facility are less than $275 million. A portion of the mandatory prepayments will be available for future borrowing under the revolving credit facility;

 

A minimum liquidity covenant of $125 million;

 

A requirement to pledge the equity interests of each direct or indirect owner of certain unencumbered property in favor of the administrative agents if average liquidity for any month is less than $200 million or the total amount outstanding under the revolving credit facility exceeds $275 million;

 

Restrictions on the Company’s and its subsidiaries’ ability to incur additional indebtedness (except for maturities beyond 2026) or prepay certain existing indebtedness, except that the Company is permitted to prepay (prior to maturity) up to $35 million of secured debt maturities in 2021;

 

Restrictions on the Company’s ability to make cash distributions (except the payment of cash dividends of $0.01 per common share per quarter or to the extent required to maintain REIT status) and share repurchases;

 

Maximum discretionary capital expenditures of $50 million;

 

Limitations on additional investments; and

 

An increase in the applicable interest rate under the unsecured credit facilities until the end of the Extended Covenant Waiver Period to a rate that corresponds to the highest leverage-based applicable interest rate margin plus 0.15% with respect to the unsecured credit facilities.

The amendments also modify the calculation of the existing financial covenants for the four quarters subsequent to the end of the Extended Covenant Waiver Period to annualize calculated amounts to the extent the most recently ended fiscal quarter is not at least four fiscal quarters from the end of the Extended Covenant Waiver Period, and provide for a LIBOR floor under the credit agreements of 25 basis points for Eurodollar Rate Loans and 1.25% for Base Rate Loans on the revolving credit facility, and any term loans under the credit agreements that are not hedged. The March 2021 amendments also modify certain of the existing financial maintenance covenants to less restrictive levels following the Extended Covenant Waiver Period as follows (capitalized terms are defined in the credit agreements):

 

Maximum Consolidated Leverage Ratio of 8.50 to 1.00 for the first two fiscal quarters, 8.00 to 1.00 for two fiscal quarters, 7.50 to 1.00 for one fiscal quarter and then a ratio of 6.50 to 1.00 thereafter;

 

Minimum Fixed Charge Coverage Ratio of 1.05 to 1.00 for the first fiscal quarter, 1.25 to 1.00 for one fiscal quarter and then a ratio of 1.50 to 1.00 thereafter;

 

Minimum Unsecured Interest Coverage Ratio of no less than 1.25 to 1.00 for one fiscal quarter, 1.50 to 1.00 for one fiscal quarter, 1.75 to 1.00 for one fiscal quarter and a ratio of 2.00 to 1.00 thereafter; and

 

Maximum Unsecured Leverage Ratio of 65% for two fiscal quarters and 60% thereafter.

Except as otherwise set forth in the amendments, the terms of the credit agreements remain in effect. The Company anticipates meeting the applicable covenants after the conclusion of the Extended Covenant Waiver Period, although there can be no assurances.

33


Index

 

See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for a description of the Company’s debt instruments as of March 31, 2021.

 

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”). As of March 31, 2021, the Company had not sold any common shares under the ATM Program. The Company plans to use the net proceeds from the sale of these shares to pay down borrowings on its revolving credit facility and, under certain circumstances, to repay proportionally amounts under each of the Company’s revolving credit facility, term loans and senior notes, subject to certain restrictions during the Extended Covenant Waiver Period pursuant to the Company’s unsecured credit facilities, as discussed further in Note 4, titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q. The Company plans to use the corresponding increased availability under the revolving credit facility for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of other 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.

Capital Uses

Although there can be no assurances, the Company anticipates that available cash and availability under its revolving credit facility as of March 31, 2021 will be adequate to meet its near-term potential operating cash flow deficits that may result from the effect of COVID-19, debt service and capital expenditures. Though not expected, if the Company is unable to meet its near-term anticipated capital uses as currently planned, it may raise capital through disposition of assets, issuance of equity or issuance of debt, which may be more costly to the Company in the current environment.

Distributions

To maintain its REIT status, the Company is required to distribute at least 90% of its ordinary income. No distributions were paid during the three months ended March 31, 2021. For the same period, the Company’s net cash used by operations was approximately $2.1 million. As a result of COVID-19 and the impact on its business, the Company suspended its monthly distributions in March 2020. As discussed in Note 4, titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as a requirement under the amendments to its unsecured credit facilities, the Company is restricted in its ability to make distributions during the Extended Covenant Waiver Period, except for the payment of cash distributions of $0.01 per common share per quarter or to the extent required to maintain REIT status. Subject to these distribution restrictions, the Company’s Board of Directors, in consultation with management, will continue to monitor hotel operations and intends to adjust distributions at a time and level determined to be prudent in relation to the Company’s other cash requirements or in order to maintain its REIT status for federal income tax purposes, subject to any applicable distribution restrictions under the Company’s unsecured credit facilities. In the first quarter of 2021, the Company resumed the declaration of distributions with the declaration of a quarterly distribution of $0.01 per common share in March 2021, totaling approximately $2.2 million, which was paid on April 15, 2021.

Share Repurchases

In May 2020, the Company’s Board of Directors approved an 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 2021 if not terminated earlier. During the first three months of 2020, the Company purchased, under its Share Repurchase Program approximately 1.5 million of its common shares at a weighted-average market purchase price of approximately $9.42 per common share, for an aggregate purchase price, including commissions, of approximately $14.3 million. The shares were repurchased under a written trading plan that provided for share repurchases in open market transactions and was intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. In March 2020 the Company terminated its written trading plan under the Share Repurchase Program and has not repurchased any shares since that time. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund any future purchases, with cash on hand or availability under its unsecured credit facilities subject to any applicable restrictions under the Company’s unsecured credit facilities. The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will depend upon prevailing market conditions, regulatory requirements and other factors. As discussed above, share repurchases are subject to certain restrictions during the Extended Covenant Waiver Period as a condition to the amendments to the Company’s unsecured credit facilities, as discussed above.

Capital Improvements

The Company is committed to maintaining and enhancing each property’s competitive position in its market. The Company has invested in and, subject to improved operating results, plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures

34


Index

 

with respect to the hotels. As of March 31, 2021, the Company held approximately $26.4 million in reserve related to these properties. During the three months ended March 31, 2021, the Company invested approximately $2.2 million in capital expenditures, and anticipates spending an additional $23-28 million during the remainder of 2021. The Company does not currently have any existing or planned projects for new property development.

Cash Management Activities

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

Business Interruption

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

Seasonality

The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. However, due to the effects of COVID-19, these typical seasonal patterns were disrupted in 2020 and may also be disrupted in the remainder of 2021. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements.

New Accounting Standards

See Note 1 titled “Organization and Summary of Significant Accounting Policies” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for information on the adoption of the guidance in the reference rate reform accounting standards effective in March 2020 and January 2021.

Subsequent Events

On April 15, 2021, the Company paid approximately $2.2 million, or $0.01 per outstanding common share, in distributions to its common shareholders.

In February 2021, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its 102-room Overland Park, Kansas SpringHill Suites for a gross sales price of approximately $5.3 million. On April 30, 2021, the Company completed the sale of the hotel. The net proceeds from the sale were used to pay down borrowings on the Company’s revolving credit facility.

 

35


Index

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2021, 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 debt that is not fixed by interest rate swaps. As of March 31, 2021, after giving effect to interest rate swaps, as described below, approximately $295.5 million, or approximately 19% 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, 2021, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately $3.0 million (subject to the LIBOR floor as discussed in Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q), 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, 2021, the Company’s variable-rate debt consisted of its unsecured credit facilities, including borrowings outstanding under its $425 million revolving credit facility and $870 million of term loans, and a $20.6 million loan secured by two of its properties (the $20.6 million loan was repaid on April 12, 2021). 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, 2021, 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 August 2022 to December 2029. In addition, the Company has entered into an interest rate swap agreement which, beginning May 18, 2021, will effectively fix the interest rate on an additional $75 million of its variable-rate debt. Under the terms of all of the Company’s interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR. See Note 5 titled “Fair Value of Financial Instruments” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for a description of the Company’s interest rate swaps as of March 31, 2021.

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 one $50 million fixed-rate senior notes facility. The following table summarizes the annual maturities and average interest rates of the Company’s mortgage debt and borrowings outstanding under its unsecured credit facilities at March 31, 2021. All dollar amounts are in thousands.

 

 

 

April 1 - December 31, 2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

 

Total

 

 

Fair

Market

Value

 

Total debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturities

 

$

67,706

 

 

$

259,731

 

 

$

296,213

 

 

$

338,597

 

 

$

245,140

 

 

$

322,265

 

 

$

1,529,652

 

 

$

1,488,025

 

Average interest rates (1)

 

 

3.9

%

 

 

3.9

%

 

 

4.1

%

 

 

4.3

%

 

 

4.4

%

 

 

4.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable-rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturities

 

$

20,551

 

 

$

149,900

 

 

$

250,000

 

 

$

310,000

 

 

$

175,000

 

 

$

85,000

 

 

$

990,451

 

 

$

965,647

 

Average interest rates (1)

 

 

3.7

%

 

 

3.8

%

 

 

4.1

%

 

 

4.5

%

 

 

5.0

%

 

 

5.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturities

 

$

47,155

 

 

$

109,831

 

 

$

46,213

 

 

$

28,597

 

 

$

70,140

 

 

$

237,265

 

 

$

539,201

 

 

$

522,378

 

Average interest rates

 

 

4.3

%

 

 

4.1

%

 

 

4.0

%

 

 

4.0

%

 

 

4.0

%

 

 

3.9

%

 

 

 

 

 

 

 

 

 

(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, 2021. 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.

36


Index

 

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 2021.

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)

 

Janaury 1 - Janaury 31, 2021

 

 

-

 

 

-

 

 

 

-

 

 

$

345,000

 

February 1 - February 28, 2021

 

 

-

 

 

-

 

 

 

-

 

 

$

345,000

 

March 1 - March 31, 2021 (2)

 

 

117,647

 

 

$

14.03

 

 

 

-

 

 

$

345,000

 

Total

 

 

117,647

 

 

 

 

 

 

 

-

 

 

 

 

 

 

(1)

Represents amount outstanding under the Company's authorized $345 million share repurchase program. This program may be suspended or terminated at any time by the Company and will end in July 2021 if not terminated earlier.

(2)

Represents common shares surrendered to the Company to satisfy tax withholding obligations associated with the issuance of common shares awarded to employees.

 

Dividends

 

During the Extended Covenant Waiver Period (as defined in the Company’s amended unsecured credit facilities), the Company is subject to more restrictive limits on its ability to pay distributions on its common shares. See “Liquidity and Capital Resources” in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, appearing in Part I this Quarterly Report on Form 10-Q.


37


Index

 

 

 

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)

 

 

 

10.1

 

Third Amendment to the Credit Agreement, dated March 1, 2021, to Second Amended and Restated Credit Agreement dated as of July 27, 2018, among Apple Hospitality REIT, Inc., as borrower, certain subsidiaries of Apple Hospitality REIT, Inc., as guarantors, Bank of America, N.A., as Administrative Agent, KeyBank National Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, U.S. Bank National Association, as Documentation Agent, Regions Bank as Managing Agent, the Lenders and Letter of Credit Issuers party thereto, and BofA Securities, Inc., KeyBanc Capital Markets, Wells Fargo Securities, LLC and U.S. Bank National Association, as Joint Lead Arrangers, and BofA Securities, Inc., KeyBanc Capital Markets and Wells Fargo Securities, LLC, as Joint Bookrunners (Incorporated by reference to exhibit 10.1 to the Company’s current report on From 8-K/A (SEC File No. 001-37389) filed March 2, 2021)

 

 

 

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, 2021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH)

 

104

 

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted as Inline XBRL and contained in Exhibit 101.

 

 

38


Index

 

 

SIGNATURES

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

 

Apple Hospitality REIT, Inc.

  

  

  

  

  

By:

  /s/    Justin G. Knight        

  

Date:  May 6, 2021

  

Justin G. Knight,

  

  

  

Chief Executive Officer

(Principal Executive Officer)

  

  

  

  

  

  

By:

/s/    Elizabeth S. Perkins      

  

Date:  May 6, 2021

  

Elizabeth S. Perkins,

  

  

  

Chief Financial Officer

(Principal Financial Officer)

  

  

 

 

 

 

By:

/s/    Rachel S. Labrecque      

  

Date:  May 6, 2021

  

Rachel S. Labrecque,

  

  

  

Chief Accounting Officer

(Principal Accounting Officer)

  

  

 

39