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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol (s) |
Name of each exchange on which registered |
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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.
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).
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.
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Large accelerated filer |
☒ |
Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
Smaller reporting company |
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Emerging growth company |
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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
Number of registrant’s common shares outstanding as of August 1, 2019:
Apple Hospitality REIT, Inc .
Form 10-Q
Index
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Page Number |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
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Consolidated Balance Sheets – June 30, 2019 and December 31, 2018 |
3 |
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4 |
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Consolidated Statements of Shareholders’ Equity – Three and six months ended June 30, 2019 and 2018 |
5 |
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Consolidated Statements of Cash Flows – Six months ended June 30, 2019 and 2018 |
6 |
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7 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
22 |
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Item 3. |
37 |
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Item 4. |
38 |
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PART II. OTHER INFORMATION |
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Item 1. |
39 | ||
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Item 1A. |
39 | ||
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Item 6. |
39 |
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40 |
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This Form 10-Q includes references to certain trademarks or service marks. The Courtyard by Marriott®, Fairfield by Marriott®, Marriott® Hotels, Renaissance® 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 & 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.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Apple Hospitality REIT, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
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June 30, |
December 31, |
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2019 |
2018 |
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(unaudited) |
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Assets |
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Investment in real estate, net of accumulated depreciation and amortization
of $
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$ |
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$ |
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Restricted cash-furniture, fixtures and other escrows |
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Due from third party managers, net |
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Other assets, net |
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Total Assets |
$ |
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$ |
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Liabilities |
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Debt, net |
$ |
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$ |
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Finance lease liabilities |
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Accounts payable and other liabilities |
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Total Liabilities |
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Shareholders' Equity |
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Preferred stock, authorized
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Common stock, no par value, authorized
outstanding
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Accumulated other comprehensive income (loss) |
(
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) |
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Distributions greater than net income |
(
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) |
(
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) | ||||
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Total Shareholders' Equity |
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||||||
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Total Liabilities and Shareholders' Equity |
$ |
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$ |
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||||
See notes to consolidated financial statements.
Apple Hospitality REIT, Inc.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(in thousands, except per share data)
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
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June 30, |
June 30, |
|||||||||||||||
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2019 |
2018 |
2019 |
2018 |
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Revenues: |
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Room |
$ |
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$ |
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$ |
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$ |
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Food and beverage |
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Other |
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Total revenue |
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Expenses: |
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Hotel operating expense: |
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Operating |
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Hotel administrative |
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Sales and marketing |
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Utilities |
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Repair and maintenance |
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Franchise fees |
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Management fees |
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Total hotel operating expense |
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Property taxes, insurance and other |
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Operating ground lease |
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General and administrative |
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Loss on impairment of depreciable real estate assets |
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Depreciation and amortization |
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Total expense |
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Gain (loss) on sale of real estate |
(
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) |
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Operating income |
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Interest and other expense, net |
(
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(
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(
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(
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Income before income taxes |
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Income tax expense |
(
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(
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(
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(
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Net income |
$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss): |
||||||||||||||||
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Interest rate derivatives |
(
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) |
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(
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) |
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Comprehensive income |
$ |
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$ |
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$ |
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$ |
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Basic and diluted net income per common share |
$ |
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$ |
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$ |
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$ |
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Weighted average common shares outstanding - basic and diluted |
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See notes to consolidated financial statements.
Apple Hospitality REIT, Inc.
Consolidated Statements of Shareholders' Equity
(Unaudited)
(in thousands, except per share data)
Three Months Ended June 30, 2019 and 2018
|
Common Stock |
Accumulated Other Comprehensive Income (Loss) |
Distributions Greater Than Net Income |
||||||||||||||||||
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Number of Shares |
Amount |
Total |
||||||||||||||||||
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Balance at March 31, 2019 |
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$ |
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$ |
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$ |
(
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) | $ |
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||||||||||
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Share based compensation, net |
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|
- | - |
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|||||||||||||||
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Interest rate derivatives |
- | - |
(
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) | - |
(
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) | |||||||||||||
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Net income |
- | - | - |
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|||||||||||||||
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Distributions declared to shareholders ($
|
- | - | - |
(
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) |
(
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) | |||||||||||||
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Balance at June 30, 2019 |
|
$ |
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$ |
(
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) | $ |
(
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) | $ |
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|||||||||
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Balance at March 31, 2018 |
|
$ |
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$ |
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$ |
(
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) | $ |
|
||||||||||
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Share based compensation, net |
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|
- | - |
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|||||||||||||||
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Issuance of common shares, net |
- |
(
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) | - | - |
(
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) | |||||||||||||
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Interest rate derivatives |
- | - |
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- |
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|||||||||||||||
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Net income |
- | - | - |
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|||||||||||||||
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Distributions declared to shareholders ($
|
- | - | - |
(
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) |
(
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) | |||||||||||||
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Balance at June 30, 2018 |
|
$ |
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$ |
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$ |
(
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) | $ |
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||||||||||
Six Months Ended June 30, 2019 and 2018
|
Common Stock |
Accumulated Other Comprehensive Income (Loss) |
Distributions Greater Than Net Income |
||||||||||||||||||
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Number of Shares |
Amount |
Total |
||||||||||||||||||
|
Balance at December 31, 2018 |
|
$ |
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$ |
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$ |
(
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) | $ |
|
||||||||||
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Cumulative effect of the adoption of ASU 2016-02 related to leases |
- | - | - |
(
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) |
(
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) | |||||||||||||
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Share based compensation, net |
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|
- | - |
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|||||||||||||||
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Common shares repurchased |
(
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) |
(
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) | - | - |
(
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) | ||||||||||||
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Interest rate derivatives |
- | - |
(
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) | - |
(
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) | |||||||||||||
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Net income |
- | - | - |
|
|
|||||||||||||||
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Distributions declared to shareholders ($
|
- | - | - |
(
|
) |
(
|
) | |||||||||||||
|
Balance at June 30, 2019 |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
|||||||||
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Balance at December 31, 2017 |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
||||||||||
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Share based compensation, net |
|
|
- | - |
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|||||||||||||||
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Issuance of common shares, net |
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|
- | - |
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|||||||||||||||
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Common shares repurchased |
(
|
) |
(
|
) | - | - |
(
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) | ||||||||||||
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Interest rate derivatives |
- | - |
|
- |
|
|||||||||||||||
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Net income |
- | - | - |
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|
|||||||||||||||
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Distributions declared to shareholders ($
|
- | - | - |
(
|
) |
(
|
) | |||||||||||||
|
Balance at June 30, 2018 |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
||||||||||
See notes to consolidated financial statements.
Apple Hospitality REIT, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
( in thousands)
|
Six Months Ended |
||||||||
|
June 30, |
||||||||
|
2019 |
2018 |
|||||||
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Cash flows from operating activities: |
||||||||
|
Net income |
$ |
|
$ |
|
||||
|
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
|
Depreciation and amortization |
|
|
||||||
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Loss on impairment of depreciable real estate assets |
|
|
||||||
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Gain on sale of real estate |
(
|
) |
|
|||||
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Other non-cash expenses, net |
|
|
||||||
|
Changes in operating assets and liabilities: |
||||||||
|
Increase in due from third party managers, net |
(
|
) |
(
|
) | ||||
|
Increase in other assets, net |
(
|
) |
(
|
) | ||||
|
Decrease in accounts payable and other liabilities |
(
|
) |
(
|
) | ||||
|
Net cash provided by operating activities |
|
|
||||||
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Cash flows from investing activities: |
||||||||
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Acquisition of hotel properties, net |
(
|
) |
(
|
) | ||||
|
Deposits and other disbursements for potential acquisitions |
(
|
) |
(
|
) | ||||
|
Capital improvements |
(
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) |
(
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) | ||||
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Net proceeds from sale of real estate |
|
|
||||||
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Net cash provided by (used in) investing activities |
|
(
|
) | |||||
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Cash flows from financing activities: |
||||||||
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Net proceeds related to issuance of common shares |
|
|
||||||
|
Repurchases of common shares |
(
|
) |
(
|
) | ||||
|
Repurchases of common shares to satisfy employee withholding requirements |
(
|
) |
(
|
) | ||||
|
Distributions paid to common shareholders |
(
|
) |
(
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) | ||||
|
Net payments on existing revolving credit facility |
(
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) |
|
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Net proceeds from extinguished revolving credit facility |
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Proceeds from term loans |
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Proceeds from mortgage debt |
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|
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Payments of mortgage debt |
(
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) |
(
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) | ||||
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Net cash (used in) provided by financing activities |
(
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) |
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|||||
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Net change in cash, cash equivalents and restricted cash |
(
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) |
|
|||||
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
||||||
|
Cash, cash equivalents and restricted cash, end of period |
$ |
|
$ |
|
||||
|
Supplemental cash flow information: |
||||||||
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Interest paid |
$ |
|
$ |
|
||||
|
Supplemental disclosure of noncash investing and financing activities: |
||||||||
|
Accrued distribution to common shareholders |
$ |
|
$ |
|
||||
|
Reconciliation of cash, cash equivalents and restricted cash: |
||||||||
|
Cash and cash equivalents, beginning of period |
$ |
|
$ |
|
||||
|
Restricted cash-furniture, fixtures and other escrows, beginning of period |
|
|
||||||
|
Cash, cash equivalents and restricted cash, beginning of period |
$ |
|
$ |
|
||||
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Cash and cash equivalents, end of period |
$ |
|
$ |
|
||||
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Restricted cash-furniture, fixtures and other escrows, end of period |
|
|
||||||
|
Cash, cash equivalents and restricted cash, end of period |
$ |
|
$ |
|
||||
See notes to consolidated financial statements.
Apple H ospitality REIT , I nc .
N otes to Consolidated F inancial S tatements
(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
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, 2018 (the “2018 Form 10-K”). Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2019.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Net Income Per Common Share
Basic net income per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net income per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. Basic and diluted net income per common share were the same for each of the periods presented.
Accounting Standards Recently Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) , which replaces Leases (Topic 840) , and along with subsequent amendments, provides the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). Under the new standard, lessees are required to recognize most leases on their balance sheets as right-of-use assets and lease liabilities. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Leases with a term of 12 months or less are accounted for similarly to the previous accounting guidance under Leases (Topic 840) , for operating leases. Topic 842 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which provides entities another optional transition method, which the Company elected, to apply the new standard using the modified retrospective approach at its effective date, versus restating the prior periods presented, and recognizing a cumulative-effect adjustment to the opening balance of retained earnings for the effect of initially applying Topic 842 in the period of adoption. Consequently, an entity’s reporting for periods presented prior to adoption of the new lease requirements in the consolidated financial statements would continue in accordance with Leases (Topic 840) , including disclosures.
The Company adopted Topic 842 effective January 1, 2019, electing to recognize and measure its leases prospectively at the beginning of the period of adoption through a cumulative-effect adjustment to shareholders’ equity, without restating the presentation of periods prior to the effective date, which continue to be reported in accordance with the Company’s historical accounting policy. At adoption, the Company recorded a cumulative-effect adjustment totaling approximately $
At adoption of the new standard, the Company recorded right-of-use assets and lease liabilities for its ground leases and certain other operating leases (including hotel equipment leases and office space leases) measured at the estimated present value of the remaining minimum lease payments under the leases.
2 . Investment in Real Estate
|
June 30, |
December 31, |
|||||||
|
2019 |
2018 |
|||||||
|
Land |
$ |
|
$ |
|
||||
|
Building and Improvements |
|
|
||||||
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Furniture, Fixtures and Equipment |
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|
||||||
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Finance Ground Lease Assets |
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||||||
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Franchise Fees |
|
|
||||||
|
|
|
|||||||
|
Less Accumulated Depreciation and Amortization |
(
|
) |
(
|
) | ||||
|
Investment in Real Estate, net |
$ |
|
$ |
|
||||
Effective January 1, 2019, the Company adopted ASU No. 2016-02,
Leases (Topic 842
),
as amended and, as a result, recorded finance ground lease assets for
As of June 30, 2019, the Company owned
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
|
City |
State |
Brand |
Manager |
Date Acquired |
Rooms |
Gross Purchase Price |
||||||||||
|
St. Paul |
MN |
Hampton |
|
|
|
$ |
|
|||||||||
|
Orlando |
FL |
Home2 Suites |
|
|
|
|
||||||||||
|
|
$ |
|
||||||||||||||
|
City |
State |
Brand |
Manager |
Date Acquired |
Rooms |
Gross Purchase Price |
||||||||||
|
Atlanta/Downtown |
GA |
Hampton |
|
|
|
$ |
|
|||||||||
|
Memphis |
TN |
Hampton |
|
|
|
|
||||||||||
|
Phoenix |
AZ |
Hampton |
|
|
|
|
||||||||||
|
Atlanta/Perimeter Dunwoody |
GA |
Hampton |
|
|
|
|
||||||||||
|
Jacksonville |
FL |
Hyatt Place |
|
|
|
|
||||||||||
|
|
$ |
|
||||||||||||||
The Company used borrowings under its revolving credit facility to purchase each of these hotels. The acquisitions of these hotel properties were accounted for as an acquisition of a group of assets, with costs incurred to effect the acquisition, which were not significant, capitalized as part of the cost of the assets acquired. For the two hotels acquired during the six months ended June 30, 2019, the amount of revenue and operating income included in the Company’s consolidated statement of operations from the date of acquisition through June 30, 2019 was approximately $
Hotel Purchase Contract Commitments
|
Location (1) |
Brands |
Date of Purchase Contract |
Rooms |
Refundable Deposits |
Gross Purchase Price |
|||||||||||
|
Cape Canaveral, FL (2) |
Hampton and Home2 Suites |
|
|
$ |
|
$ |
|
|||||||||
|
Tempe, AZ (3) |
Hyatt House and Hyatt Place |
|
|
|
|
|||||||||||
|
Denver, CO |
Courtyard |
|
|
|
|
|||||||||||
|
|
$ |
|
$ |
|
||||||||||||
|
(1) |
|
|
(2) |
|
|
(3) |
These hotels are part of an adjoining combined 254-room, dual-branded complex that will be located on the same site. |
The Company intends to use borrowings under its credit facilities available at closing to purchase the hotels under contract if a closing occurs.
3 . Hotel Dispositions
|
City |
State |
Brand |
Rooms |
|||||
|
Sarasota |
FL |
Homewood Suites |
|
|||||
|
Tampa |
FL |
TownePlace Suites |
|
|||||
|
Baton Rouge |
LA |
SpringHill Suites |
|
|||||
|
Holly Springs |
NC |
Hampton |
|
|||||
|
Duncanville |
TX |
Hilton Garden Inn |
|
|||||
|
Texarkana |
TX |
Courtyard |
|
|||||
|
Texarkana |
TX |
TownePlace Suites |
|
|||||
|
Bristol |
VA |
Courtyard |
|
|||||
|
Harrisonburg |
VA |
Courtyard |
|
|||||
|
Total |
|
|||||||
During the year ended December 31, 2018, the Company sold
Excluding gain on sale of real estate, the Company’s consolidated statements of operations include operating income of approximately $
4. Debt
Summary
|
June 30, 2019 |
December 31, 2018 |
|||||||
|
Revolving credit facility |
$ |
|
$ |
|
||||
|
Term loans, net |
|
|
||||||
|
Mortgage debt, net |
|
|
||||||
|
Debt, net |
$ |
|
$ |
|
||||
|
2019 (July - December) |
$ |
|
||
|
2020 |
|
|||
|
2021 |
|
|||
|
2022 |
|
|||
|
2023 |
|
|||
|
Thereafter |
|
|||
|
|
||||
|
Unamortized fair value adjustment of assumed debt |
|
|||
|
Unamortized debt issuance costs related to term loans and mortgage debt |
(
|
) | ||
|
Total |
$ |
|
|
June 30, 2019 |
Percentage |
December 31, 2018 |
Percentage |
||||||||||||||
|
Fixed-rate debt (1) |
$ |
|
|
% | $ |
|
|
% | |||||||||
|
Variable-rate debt (2) |
|
|
% |
|
|
% | |||||||||||
|
Total |
$ |
|
$ |
|
|||||||||||||
|
Weighted-average interest rate of debt |
|
% |
|
% | |||||||||||||
|
(1) |
|
|
(2) |
|
Credit Facilities
$850 Million Credit Facility
On
$225 Million Term Loan Facility
On
$85 Million Term Loan
On July 25, 2017, the Company entered into an unsecured $
|
Outstanding Balance |
||||||||||||
|
Interest Rate |
Maturity Date |
June 30,
|
December 31, 2018 |
|||||||||
|
Revolving credit facility (1) |
|
|
$ |
|
$ |
|
||||||
|
Term loans |
||||||||||||
|
$200 million term loan |
|
|
|
|
||||||||
|
$225 million term loan |
|
|
|
|
||||||||
|
$50 million term loan |
|
|
|
|
||||||||
|
$175 million term loan |
|
|
|
|
||||||||
|
$85 million term loan |
|
|
|
|
||||||||
|
Term loans at stated value |
|
|
||||||||||
|
Unamortized debt issuance costs |
(
|
) |
(
|
) | ||||||||
|
Term loans, net |
|
|
||||||||||
|
Revolving credit facility and term loans, net (1) |
$ |
|
$ |
|
||||||||
|
Weighted-average interest rate (2) |
|
% |
|
% | ||||||||
|
(1) |
|
|
(2) |
Interest rate represents the weighted-average effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps in effect on $
|
Mortgage Debt
|
Location |
Brand |
Interest Rate (1) |
Loan Assumption or Origination Date |
Maturity Date |
Principal Assumed or Originated |
Outstanding balance as of June 30, 2019 |
Outstanding balance as of December 31, 2018 |
||||||||||||||||
|
Syracuse, NY |
Courtyard |
|
% |
|
(2)
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Syracuse, NY |
Residence Inn |
|
% |
|
(2)
|
|
|
|
|||||||||||||||
|
San Juan Capistrano, CA |
Residence Inn |
|
% |
|
|
|
|
|
|||||||||||||||
|
Colorado Springs, CO |
Hampton |
|
% |
|
|
|
|
|
|||||||||||||||
|
Franklin, TN |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
Franklin, TN |
Residence Inn |
|
% |
|
|
|
|
|
|||||||||||||||
|
Grapevine, TX |
Hilton Garden Inn |
|
% |
|
|
|
|
|
|||||||||||||||
|
Collegeville/Philadelphia, PA |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
Hattiesburg, MS |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
Rancho Bernardo/San Diego, CA |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
Kirkland, WA |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
Seattle, WA |
Residence Inn |
|
% |
|
|
|
|
|
|||||||||||||||
|
Anchorage, AK |
Embassy Suites |
|
% |
|
|
|
|
|
|||||||||||||||
|
Somerset, NJ |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
Tukwila, WA |
Homewood Suites |
|
% |
|
|
|
|
|
|||||||||||||||
|
Prattville, AL |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
Huntsville, AL |
Homewood Suites |
|
% |
|
|
|
|
|
|||||||||||||||
|
San Diego, CA |
Residence Inn |
|
% |
|
|
|
|
|
|||||||||||||||
|
Miami, FL |
Homewood Suites |
|
% |
|
|
|
|
|
|||||||||||||||
|
New Orleans, LA |
Homewood Suites |
|
% |
|
|
|
|
|
|||||||||||||||
|
Westford, MA |
Residence Inn |
|
% |
|
|
|
|
|
|||||||||||||||
|
Denver, CO |
Hilton Garden Inn |
|
% |
|
|
|
|
|
|||||||||||||||
|
Oceanside, CA |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
Omaha, NE |
Hilton Garden Inn |
|
% |
|
|
|
|
|
|||||||||||||||
|
Boise, ID |
Hampton |
|
% |
|
|
|
|
|
|||||||||||||||
|
Burbank, CA |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
San Diego, CA |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
San Diego, CA |
Hampton |
|
% |
|
|
|
|
|
|||||||||||||||
|
Burbank, CA |
SpringHill Suites |
|
% |
|
|
|
|
|
|||||||||||||||
|
Santa Ana, CA |
Courtyard |
|
% |
|
|
|
|
|
|||||||||||||||
|
San Jose, CA |
Homewood Suites |
|
% |
|
|
|
|
|
|||||||||||||||
| $ |
|
|
|
||||||||||||||||||||
|
Unamortized fair value adjustment of assumed debt |
|
|
|||||||||||||||||||||
|
Unamortized debt issuance costs |
(
|
) |
(
|
) | |||||||||||||||||||
|
Total |
$ |
|
$ |
|
|||||||||||||||||||
|
(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) |
Loans were repaid in full in May 2019. |
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 June 30, 2019 and December 31, 2018, both the carrying value and estimated fair value of the Company’s debt were approximately $
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
|
Notional |
Fair Value Asset (Liability) |
||||||||||||||||||
|
Hedge Type |
Amount at June 30, 2019 |
Origination Date |
Maturity Date |
Swap Fixed Interest Rate |
June 30,
|
December 31, 2018 |
|||||||||||||
|
Cash flow hedge |
$ |
|
|
|
|
% | $ |
|
$ |
|
|||||||||
|
Cash flow hedge |
|
|
|
|
% |
|
|
||||||||||||
|
Cash flow hedge |
|
|
|
|
% |
|
|
||||||||||||
|
Cash flow hedge |
|
|
|
|
% |
|
|
||||||||||||
|
Cash flow hedge |
|
|
|
|
% |
(
|
) |
|
|||||||||||
|
Cash flow hedge |
|
|
|
|
% |
(
|
) |
|
|||||||||||
|
Cash flow hedge (1) |
|
|
|
|
% |
(
|
) |
(
|
) | ||||||||||
|
Cash flow hedge (2) |
|
|
|
|
% |
(
|
) |
(
|
) | ||||||||||
|
Cash flow hedge (3) |
|
|
|
|
% |
(
|
) |
(
|
) | ||||||||||
| $ |
|
$ |
(
|
) | $ |
|
|||||||||||||
|
(1) |
In June 2018 the Company entered into a forward interest rate swap agreement with a commercial bank, which beginning January 31, 2019 effectively fixes the interest rate on $
|
|
(2) |
In December 2018 the Company entered into a forward interest rate swap agreement with a commercial bank, which beginning January 31, 2020 will effectively fix the interest rate on $
|
|
(3) |
In December 2018 the Company entered into a forward interest rate swap agreement with a commercial bank, which beginning May 18, 2020 will effectively fix the interest rate on $
|
The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. The change in the fair value of the Company’s designated cash flow hedges is recorded to accumulated other comprehensive income (loss), a component of shareholders’ equity in the Company’s consolidated balance sheets. Amounts reported in accumulated other comprehensive income (loss) will be reclassified to interest and other expense, net as interest payments are made or received on the Company’s variable-rate derivatives. The Company estimates that approximately $
|
Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss) |
Net Unrealized Gain Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net |
|||||||||||||||
|
Three Months Ended June 30, |
Three Months Ended June 30, |
|||||||||||||||
|
2019 |
2018 |
2019 |
2018 |
|||||||||||||
|
Interest rate derivatives in cash flow hedging relationships |
$ |
(
|
) | $ |
|
$ |
|
$ |
|
|||||||
|
Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss) |
Net Unrealized Gain Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net |
|||||||||||||||
|
Six Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
|
2019 |
2018 |
2019 |
2018 |
|||||||||||||
|
Interest rate derivatives in cash flow hedging relationships |
$ |
(
|
) | $ |
|
$ |
|
$ |
|
|||||||
6 . Related Parties
The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. There have been no changes to the contracts and relationships discussed in the 2018 Form 10-K. Below is a summary of the significant related party relationships in effect during the six months ended June 30, 2019 and 2018.
Glade M. Knight, Executive Chairman of the Company, owns Apple Realty Group, Inc. (“ARG”), which receives support services from the Company and reimburses the Company for the cost of these services as discussed below. Mr. Knight is also currently a partner and Chief Executive Officer of Energy 11 GP, LLC and Energy Resources 12 GP, LLC, which are the respective general partners of Energy 11, L.P. and Energy Resources 12, L.P., each of which receive support services from ARG.
The Company provides support services, including the use of the Company’s employees and corporate office, to ARG and is reimbursed by ARG for the cost of these services. The amounts reimbursed to the Company are based on the actual costs of the services and a good faith estimate of the proportionate amount of time incurred by the Company’s employees on behalf of ARG. Total reimbursed costs allocated by the Company to ARG for the six months ended June 30, 2019 and 2018 totaled approximately $
As part of the cost sharing arrangement, certain day-to-day transactions may result in amounts due to or from the Company and ARG.
The Company, through a wholly-owned subsidiary, Apple Air Holding, LLC, owns a Learjet used primarily for acquisition, asset management, renovation and public relations purposes. The aircraft is also leased to affiliates of the Company based on third party rates, which leasing activity was not significant during the reporting periods. The Company also utilizes aircraft, owned through two entities, one of which is owned by the Company’s Executive Chairman, and the other, by its President and Chief Executive Officer, for acquisition, asset management, renovation and public relations purposes, and reimburses these entities at third party rates. Total costs incurred for the use of these aircraft during the six months ended June 30, 2019 and 2018 were approximately $
7 . Shareholders ’ Equity
Distributions
The Company’s current annual distribution rate, payable monthly, is $
Share Repurchase s
In May 2019, the Company’s Board of Directors approved an extension of its existing share repurchase program (the “Share Repurchase Program”), authorizing share repurchases up to an aggregate of $
8 . Compensation Plan s
The Company annually establishes an incentive plan for its executive management. Under the incentive plan for 2019 (the “2019 Incentive Plan”), participants are eligible to receive a bonus based on the achievement of certain 2019 performance measures, consisting of operational performance metrics (including targeted Modified Funds from Operations per share, Comparable Hotels revenue per available room growth and Adjusted Hotel EBITDA Margin growth) and shareholder return metrics (including shareholder return relative to a peer group and total shareholder return, over one-year, two-year and three-year periods).
During the six months ended June 30, 2019, the Company incurred a one-time separation payment of $
Share- Based Compensation Awards
|
2018 Incentive Plan |
2017 Incentive Plan |
|||||||
|
Period common shares issued |
|
|
||||||
|
Common shares earned under each incentive plan |
|
|
||||||
|
Common shares surrendered on issuance date to satisfy tax withholding obligations |
|
|
||||||
|
Common shares earned and issued under each incentive plan, net of common shares surrendered on issuance date to satisfy tax withholding obligations |
|
|
||||||
|
Closing stock price on issuance date |
$ |
|
$ |
|
||||
|
Total share-based compensation earned, including the surrendered shares (in millions) |
$ |
|
(1) | $ |
|
(2) | ||
|
Of the total common shares earned and issued, total common shares unrestricted at time of issuance |
|
|
||||||
|
Of the total common shares earned and issued, total common shares restricted at time of issuance |
|
|
||||||
|
Restricted common shares vesting date |
|
|
||||||
|
Common shares surrendered on vesting date to satisfy tax withholding requirements resulting from vesting of restricted common shares |
n/a
|
|
||||||
|
(1) |
Of the total 2018 share-based compensation, approximately $
|
|
(2) |
Of the total 2017 share-based compensation, approximately $
|
9 . Leases
The Company is the lessee on certain ground leases, hotel equipment leases and office space leases. As of June 30, 2019, the Company had
The Company adopted ASU No. 2016-02, Leases (Topic 842) , as discussed further in Note 1 in the section titled “Accounting Standards Recently Adopted”, effective January 1, 2019, which requires leases with durations greater than twelve months to be recognized on the balance sheet as right-of-use (“ROU”) assets and lease liabilities. Prior year financial statements were not restated under the new standard and, therefore, those amounts are not presented below.
Under the new standard, the Company’s leases are classified as operating or finance leases. For leases with terms greater than 12 months, the Company recognizes a ROU asset and lease liability at the estimated present value of the minimum lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Many of the Company’s leases include rental escalation clauses (including fixed schedule rent increases) and renewal options that are factored into the determination of lease payments when appropriate and the present value of the remaining lease payments is adjusted accordingly. The Company utilizes interest rates implicit in the lease if determinable or, if not, it estimates its incremental borrowing rate from information available at lease commencement, to determine the present value of the lease payments. At transition to the new standard, the Company used information available at that time to determine the incremental borrowing rates on its existing leases at January 1, 2019 based on estimates of rates the Company would pay for senior collateralized loans with terms similar to each lease.
Lease Position as of June 30 , 2019
|
Consolidated Balance Sheet Classification |
June 30, 2019 |
||||
|
Assets |
|||||
|
Operating lease assets, net |
Other assets, net |
$ |
|
||
|
Finance ground lease assets, net (1) |
Investment in real estate, net |
|
|||
|
Total lease assets |
$ |
|
|||
|
Liabilities |
|||||
|
Operating lease liabilities |
Accounts payable and other liabilities |
$ |
|
||
|
Finance lease liabilities |
Finance lease liabilities |
|
|||
|
Total lease liabilities |
$ |
|
|||
|
Weighted-average remaining lease term |
|||||
|
Operating leases |
|
||||
|
Finance leases |
|
||||
|
Weighted-average discount rate |
|||||
|
Operating leases |
|
% | |||
|
Finance leases |
|
% | |||
|
(1) |
Finance ground lease assets are net of accumulated amortization of approximately $
|
Lease Costs for the Three and Six Months Ended June 30 , 2019
|
Consolidated Statements of Operations Classification |
Three Months Ended June 30, 2019 |
Six Months Ended June 30, 2019 |
|||||||
|
Operating lease costs (1) |
Operating ground lease expense |
$ |
|
$ |
|
||||
|
Finance lease costs: |
|||||||||
|
Amortization of lease assets |
Depreciation and amortization expense |
|
|
||||||
|
Interest on lease liabilities |
Interest and other expense, net |
|
|
||||||
|
Total lease costs |
$ |
|
$ |
|
|||||
|
(1) |
Represents costs related to ground leases, including variable lease costs. Excludes costs related to hotel equipment leases, which are included in hotel operating expense and property taxes, insurance and other expense, and costs related to office space leases, which are included in general and administrative expense in the Company's consolidated statements of operations. |
Undiscounted Cash Flows
|
Operating leases |
Finance leases |
|||||||
|
2019 (July - December) |
$ |
|
$ |
|
||||
|
2020 |
|
|
||||||
|
2021 |
|
|
||||||
|
2022 |
|
|
||||||
|
2023 |
|
|
||||||
|
Thereafter |
|
|
||||||
|
Total minimum lease payments |
|
|
||||||
|
Less: amount of lease payments representing interest |
|
|
||||||
|
Present value of lease liabilities |
$ |
|
$ |
|
||||
Other Information
|
Six Months Ended June 30, 2019 |
||||||||
|
Cash paid for amounts included in the measurement of lease liabilities: |
||||||||
|
Operating cash flows for operating leases |
$ |
|
||||||
|
Operating cash flows for finance leases |
|
|||||||
10 . Subsequent Events
In July 2019, the Company paid approximately $
In July 2019, the Company declared a regular monthly cash distribution of $
In July 2019, the Company entered into
Item 2 . Management’s Discussion and Analysis of Financial Condi tion and Results o f Operation s
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. Such 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 implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions; adverse changes in the real estate and real estate capital markets; financing risks; litigation risks; regulatory proceedings or inquiries; and changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a REIT. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code. Readers should carefully review the risk factors described in the Company’s filings with the Securities and Exchange Commission (“SEC”), including but not limited to those discussed in the section titled “Risk Factors” in the 2018 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 2018 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 June 30, 2019, the Company owned 234 hotels with an aggregate of 30,046 rooms located in urban, high-end suburban and developing markets throughout 34 states. All of the Company’s hotels operate under Marriott, Hilton or Hyatt brands. The hotels are operated and managed under separate management agreements with 23 hotel management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the NYSE under the ticker symbol “APLE.”
New Lease Accounting Standard
On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) , electing to recognize and measure its leases prospectively at the beginning of the period of adoption through a cumulative-effect adjustment to shareholders’ equity, without restating the presentation of periods prior to the effective date (the “new lease accounting standard”). Under the new lease accounting standard, beginning in 2019, four of the Company’s ground leases that were previously accounted for as operating leases are accounted for as finance leases. For these finance leases, effective January 1, 2019, the Company recognizes amortization expense, included in depreciation and amortization expense, and interest expense, included in interest and other expense, net, instead of operating ground lease expense, in the Company’s consolidated statements of operations. Results prior to January 1, 2019 have not been restated. As a result, the comparability of operating ground lease expense, depreciation and amortization expense, and interest and other expense, net are affected by the implementation of the new lease accounting standard. See Note 1 titled “Organization and Summary of Significant Accounting Policies” and Note 9 titled “Leases” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information on the adoption of the new lease accounting standard.
2019 Hotel Portfolio Activities
The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in rooms-focused hotels, the Company acquired two hotels for an aggregate purchase price of approximately $52.4 million during the first six months of 2019: a 160-room Hampton Inn & Suites in St. Paul, Minnesota and a 128-room Home2 Suites in Orlando, Florida. Also, as of July 31, 2019, the Company had outstanding contracts for the potential purchase of seven hotels for a total expected purchase price of approximately $216.1 million, six of which are under development and are planned to be completed and opened for business over the next 12 to 24 months from June 30, 2019, at which time closings on these hotels are expected to occur, and one existing hotel that is expected to close before the end of 2019. There are many conditions to closing that have not yet been satisfied and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. The Company utilized its revolving credit facility to fund the completed acquisitions and plans to utilize its credit facilities available at closing for any additional acquisitions.
For its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided from the sale of the property. As a result, in March 2019, the Company sold nine hotels for a total combined gross sales price of $95.0 million. The net proceeds from the sales were used to pay down borrowings on the Company’s revolving credit facility.
See Note 2 titled “Investment in Real Estate” and Note 3 titled “Hotel 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.
Hotel Operations
Although hotel performance can be influenced by many factors including local competition, local and general economic conditions in the U.S. and the performance of individual managers assigned to each hotel, performance of the Company’s hotels as compared to other hotels within their respective local markets, in general, has met the Company’s expectations for the period owned. Over the past several years, improvements in the general U.S. economy have been offset by increased lodging supply in many markets, offsetting increases in demand in the lodging sector. With essentially flat growth in revenue per available room (“RevPAR”), the Company’s hotels produced stable operating results during the first six months of 2019 on a comparable basis (as defined below). There is no way to predict future economic conditions, and there continue to be additional factors that could negatively affect the lodging industry and the Company, including but not limited to, increased hotel supply in certain markets, labor uncertainty both for the economy as a whole and the lodging industry in particular, global volatility, government fiscal policies and economic concerns in the U.S. The Company, on a comparable basis, is forecasting slightly negative to slightly positive RevPAR growth for the full year of 2019 as compared to 2018, which reflects modestly lower expectations for demand growth, consistent with lower expected Gross Domestic Product growth in the U.S., relatively consistent anticipated hotel supply growth and slightly favorable comparisons caused by natural disasters.
As of June 30, 2019, the Company owned 234 hotels with a total of 30,046 rooms as compared to 243 hotels with a total of 30,929 rooms as of June 30, 2018. 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 six months ended June 30, 2019, the Company acquired one existing hotel on March 4, 2019 and one newly constructed hotel on March 19, 2019, and sold nine hotels on March 28, 2019. During 2018, the Company acquired one newly constructed hotel on May 2, 2018 and four existing hotels (two on February 5, 2018, one on June 28, 2018 and one on December 7, 2018), and sold three hotels (two on July 13, 2018 and one on November 29, 2018). As a result, the comparability of results for the three and six months ended June 30, 2019 and 2018 as discussed below is impacted by these transactions.
In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”) and 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 June 30, |
Six Months Ended June 30, |
|||||||||||||||||||||||||||||||||||||||
|
(in thousands, except statistical data) |
2019 |
Percent of Revenue |
2018 |
Percent of Revenue |
Percent Change |
2019 |
Percent of Revenue |
2018 |
Percent of Revenue |
Percent Change |
||||||||||||||||||||||||||||||
|
Total revenue |
$ | 341,117 | 100.0 | % | $ | 344,714 | 100.0 | % | -1.0 | % | $ | 644,904 | 100.0 | % | $ | 643,103 | 100.0 | % | 0.3 | % | ||||||||||||||||||||
|
Hotel operating expense |
187,190 | 54.9 | % | 186,531 | 54.1 | % | 0.4 | % | 362,639 | 56.2 | % | 358,860 | 55.8 | % | 1.1 | % | ||||||||||||||||||||||||
|
Property taxes, insurance and other expense |
18,823 | 5.5 | % | 18,681 | 5.4 | % | 0.8 | % | 38,031 | 5.9 | % | 35,910 | 5.6 | % | 5.9 | % | ||||||||||||||||||||||||
|
Operating ground lease expense |
423 | 0.1 | % | 2,912 | 0.8 | % | -85.5 | % | 828 | 0.1 | % | 5,762 | 0.9 | % | -85.6 | % | ||||||||||||||||||||||||
|
General and administrative expense |
8,308 | 2.4 | % | 6,721 | 1.9 | % | 23.6 | % | 16,445 | 2.5 | % | 13,598 | 2.1 | % | 20.9 | % | ||||||||||||||||||||||||
|
Loss on impairment of depreciable real estate assets |
- | 3,135 | n/a | - | 3,135 | n/a | ||||||||||||||||||||||||||||||||||
|
Depreciation and amortization expense |
48,109 | 45,743 | 5.2 | % | 96,059 | 90,583 | 6.0 | % | ||||||||||||||||||||||||||||||||
|
Gain (loss) on sale of real estate |
(161 | ) | - | n/a | 1,052 | - | n/a | |||||||||||||||||||||||||||||||||
|
Interest and other expense, net |
15,857 | 13,210 | 20.0 | % | 31,351 | 25,129 | 24.8 | % | ||||||||||||||||||||||||||||||||
|
Income tax expense |
156 | 151 | 3.3 | % | 362 | 314 | 15.3 | % | ||||||||||||||||||||||||||||||||
|
Number of hotels owned at end of period |
234 | 243 | -3.7 | % | 234 | 243 | -3.7 | % | ||||||||||||||||||||||||||||||||
|
ADR |
$ | 141.60 | $ | 139.58 | 1.4 | % | $ | 139.09 | $ | 137.09 | 1.5 | % | ||||||||||||||||||||||||||||
|
Occupancy |
81.4 | % | 81.7 | % | -0.4 | % | 77.6 | % | 78.2 | % | -0.8 | % | ||||||||||||||||||||||||||||
|
RevPAR |
$ | 115.30 | $ | 114.09 | 1.1 | % | $ | 107.95 | $ | 107.20 | 0.7 | % | ||||||||||||||||||||||||||||
Comparable Hotels Operating Results
The following table reflects certain operating statistics for the Company’s 234 hotels owned as of June 30, 2019 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 234 hotels owned as of the end of the reporting period. For the hotels acquired during the current reporting period and prior year, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company. This information has not been audited, either for the periods owned or prior to ownership by the Company. For dispositions, results have been excluded for the Company’s period of ownership.
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||||||||||
|
2019 |
2018 |
Percent Change |
2019 |
2018 |
Percent Change |
|||||||||||||||||||
|
ADR |
$ | 141.60 | $ | 140.94 | 0.5 | % | $ | 139.62 | $ | 138.49 | 0.8 | % | ||||||||||||
|
Occupancy |
81.4 | % | 81.9 | % | -0.6 | % | 77.8 | % | 78.4 | % | -0.8 | % | ||||||||||||
|
RevPAR |
$ | 115.30 | $ | 115.44 | -0.1 | % | $ | 108.58 | $ | 108.62 | - | |||||||||||||
Same Store Operating Results
The following table reflects certain operating statistics for the 227 hotels owned by the Company as of January 1, 2018 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||||||||||
|
2019 |
2018 |
Percent Change |
2019 |
2018 |
Percent Change |
|||||||||||||||||||
|
ADR |
$ | 141.52 | $ | 140.72 | 0.6 | % | $ | 139.11 | $ | 138.13 | 0.7 | % | ||||||||||||
|
Occupancy |
81.8 | % | 82.1 | % | -0.4 | % | 78.0 | % | 78.5 | % | -0.6 | % | ||||||||||||
|
RevPAR |
$ | 115.73 | $ | 115.59 | 0.1 | % | $ | 108.52 | $ | 108.45 | 0.1 | % | ||||||||||||
As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. Economic indicators in the U.S. have generally been favorable, which has been offset by increased lodging supply in many of the Company’s markets. As a result, the Company’s revenue and operating results for its Comparable Hotels and Same Store Hotels were generally unchanged during the first six months of 2019 as compared to 2018, which is consistent with industry/brand averages. The Company expects its RevPAR growth and operating results for its Comparable Hotels for the full year of 2019 to be slightly negative to slightly positive compared to its performance in 2018.
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 June 30, 2019 and 2018, the Company had total revenue of $341.1 million and $344.7 million, respectively. For the six months ended June 30, 2019 and 2018, the Company had total revenue of $644.9 million and $643.1 million, respectively. For the three months ended June 30, 2019 and 2018, respectively, Comparable Hotels achieved combined average occupancy of 81.4% and 81.9%, ADR of $141.60 and $140.94 and RevPAR of $115.30 and $115.44. For the six months ended June 30, 2019 and 2018, respectively, Comparable Hotels achieved combined average occupancy of 77.8% and 78.4%, ADR of $139.62 and $138.49 and RevPAR of $108.58 and $108.62. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.
Compared to the same periods in 2018, during the second quarter and first half of 2019, the Company experienced modest increases in ADR offset by modest decreases in occupancy for Comparable Hotels, leaving RevPAR for Comparable Hotels virtually unchanged. Markets/areas with above average growth in the second quarter and first half of 2019 for the Company and industry included Birmingham, Alabama, Sacramento, California, Norfolk, Virginia, and Phoenix and Tucson, Arizona. Markets that were below average for the Company and industry included Houston, Texas, Seattle, Washington and southern Florida. The Company also experienced increased revenue due to demand in the Florida Panhandle, southern Alabama, eastern North Carolina and Anchorage, Alaska related to recovery and restoration efforts related to hurricanes Florence and Michael and the 2018 earthquake in Anchorage, Alaska.
Hotel Operating Expense
Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. Hotel operating expense for the three months ended June 30, 2019 and 2018 totaled $187.2 million and $186.5 million, respectively, or 54.9% and 54.1% of total revenue for each respective period, and for the six months ended June 30, 2019 and 2018 totaled $362.6 million and $358.9 million, respectively, or 56.2% and 55.8% of total revenue for each respective period, which are consistent with the increases in Comparable Hotels hotel operating expense as a percentage of revenue for the same periods. Increases in labor costs as a percentage of revenue during the first six months of 2019 as compared to the same period in 2018 were the primary cause of the increase in hotel operating expense, which were slightly offset by decreases in utility costs. The Company anticipates continued increases in labor costs due to government regulations surrounding wages, healthcare and other benefits, other wage-related initiatives and lower unemployment rates. The Company will continue to work with its management companies to reduce costs as a percentage of revenue where possible while maintaining quality and service levels at each property.
Property Taxes, Insurance and Other Expense
Property taxes, insurance, and other expense for the three months ended June 30, 2019 and 2018 totaled $18.8 million and $18.7 million, respectively, or 5.5% and 5.4% of total revenue for each respective period, and for the six months ended June 30, 2019 and 2018 totaled $38.0 million and $35.9 million, respectively, or 5.9% and 5.6% of total revenue for each respective period, which are consistent with the increases in Comparable Hotels expense as a percentage of revenue for the same periods. For the Company’s Comparable Hotels, real estate taxes increased during the first half of 2019 compared to the same period in 2018, with tax increases at certain locations due to the reassessment of property values by localities related to the improved economy, partially offset by decreases at other locations due to successful appeals of tax assessments. With the economy continuing to improve, the Company anticipates continued increases in property tax assessments during the remainder of 2019. The Company will continue to appeal tax assessments in certain jurisdictions to attempt to minimize tax increases as warranted. Additionally, due to increased losses incurred by property insurance carriers during the past few years, the Company’s property insurance costs increased as a percentage of revenue for the first half of 2019 as compared to the same period in 2018 and are anticipated to increase for the remainder of 2019.
Operating Ground Lease Expense
Operating ground lease expense for the three months ended June 30, 2019 and 2018 was $0.4 million and $2.9 million, respectively. Operating ground lease expense for the six months ended June 30, 2019 and 2018 was $0.8 million and $5.8 million, respectively. Operating ground lease expense in 2019 primarily represents the expense incurred by the Company to lease land for nine of its hotel properties. Operating ground lease expense in 2018 primarily represents the expense incurred by the Company to lease land for 13 of its hotel properties, which, for the three and six months ended June 30, 2018, included approximately $2.4 million and $4.8 million, respectively, of expense related to four ground leases that were previously classified as operating leases that are classified as finance leases under the new lease accounting standard effective January 1, 2019.
General and Administrative Expense
General and administrative expense for the three months ended June 30, 2019 and 2018 was $8.3 million and $6.7 million, respectively, or 2.4% and 1.9% of total revenue for each respective period. For the six months ended June 30, 2019 and 2018, general and administrative expense was $16.4 million and $13.6 million, respectively, or 2.5% and 2.1% of total revenue for each respective period. The principal components of general and administrative expense are payroll and related benefit costs, legal fees, accounting fees and reporting expenses. The increase in expense during the three and six months ended June 30, 2019 was due primarily to increased accruals for anticipated performance under the Company’s incentive plans and costs associated with the Company’s senior management changes.
Loss on Impairment of Depreciable Real Estate Assets
Loss on impairment of depreciable real estate assets was $3.1 million for both the three and six months ended June 30, 2018, which consisted of impairment charges for the two Columbus hotels and the Springdale, Arkansas Residence Inn. See Note 3 titled “Hotel 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.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended June 30, 2019 and 2018 was $48.1 million and $45.7 million, respectively. For the six months ended June 30, 2019 and 2018, depreciation and amortization expense was $96.1 million and $90.6 million, respectively. Depreciation and amortization expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for their respective periods owned. The increase was primarily due to the increase in the number of properties owned as a result of the acquisition of two hotels in the first quarter of 2019 and five hotels in 2018 and renovations completed throughout 2019 and 2018. Additionally, depreciation and amortization expense for the three and six months ended June 30, 2019 includes approximately $1.1 million and $2.2 million, respectively, of expense associated with amortization of the Company’s four finance ground lease assets in accordance with the new lease accounting standard.
Interest and Other Expense, net
Interest and other expense, net for the three months ended June 30, 2019 and 2018 was $15.9 million and $13.2 million, respectively. For the six months ended June 30, 2019 and 2018, interest and other expense, net was $31.4 million and $25.1 million, respectively, and is net of approximately $0.7 million and $0.5 million, respectively, of interest capitalized associated with renovation projects. Additionally, interest and other expense, net for the three and six months ended June 30, 2019 includes approximately $2.1 million and $4.0 million, respectively, of interest recorded on the Company’s four finance lease liabilities in accordance with the new lease accounting standard. Interest expense related to the Company’s debt increased as a result of increased average borrowings in the first half of 2019 as compared to the first half of 2018 resulting from acquisitions and share repurchases, partially offset by the repayment of borrowings with proceeds from dispositions, combined with an increase in the Company’s effective interest rate during the first half of 2019 as compared to the first half of 2018, due to an increase in interest rates on the Company’s variable-rate debt, with the one-month LIBOR increasing from 2.09% at June 30, 2018 to 2.40% at June 30, 2019. The Company anticipates interest rates for the second half of 2019 on its variable rate debt to be consistent with interest rates for the same period in 2018. Interest expense is anticipated to increase in the second half of 2019 compared to the same period in 2018, due to the increase in average borrowings.
Non-GAAP Financial Measures
The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations (“FFO”), Modified FFO (“MFFO”), Earnings before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), Earnings Before Interest, Income Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”), and Adjusted EBITDAre (“Adjusted EBITDAre”). These non-GAAP financial measures should be considered along with, but not as alternatives to, net income, cash flow from operations or any other operating GAAP measure. FFO, MFFO, EBITDA, EBITDAre and Adjusted EBITDAre are not necessarily indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. Although FFO, MFFO, EBITDA, EBITDAre and Adjusted EBITDAre, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA, EBITDAre and Adjusted EBITDAre as reported by other companies that do not define such terms exactly as the Company defines such terms, the Company believes these supplemental measures are useful to investors when comparing the Company’s results between periods and with other REITs.
FFO and MFFO
The Company calculates and presents FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), which defines FFO as net income (computed in accordance with GAAP), excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), extraordinary items as defined by GAAP, and the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated affiliates. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the Nareit definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.
The Company calculates MFFO by further adjusting FFO for the exclusion of amortization of finance ground lease assets, amortization of favorable and unfavorable operating leases, net and non-cash straight-line operating ground lease expense, as these expenses do not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.
The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three and six months ended June 30, 2019 and 2018 (in thousands):
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
|
2019 |
2018 |
2019 |
2018 |
|||||||||||||
|
Net income |
$ | 62,090 | $ | 67,630 | $ | 100,241 | $ | 109,812 | ||||||||
|
Depreciation of real estate owned |
46,712 | 45,502 | 93,378 | 90,112 | ||||||||||||
|
(Gain) loss on sale of real estate |
161 | - | (1,052 | ) | - | |||||||||||
|
Loss on impairment of depreciable real estate assets |
- | 3,135 | - | 3,135 | ||||||||||||
|
Funds from operations |
108,963 | 116,267 | 192,567 | 203,059 | ||||||||||||
|
Amortization of finance ground lease assets |
1,149 | - | 2,190 | - | ||||||||||||
|
Amortization of favorable and unfavorable operating leases, net |
31 | 148 | 62 | 354 | ||||||||||||
|
Non-cash straight-line operating ground lease expense |
47 | 898 | 95 | 1,802 | ||||||||||||
|
Modified funds from operations |
$ | 110,190 | $ | 117,313 | $ | 194,914 | $ | 205,215 | ||||||||
EBITDA , EBITDAre and Adjusted EBITDA re
EBITDA is a commonly used measure of performance in many industries and is defined as net income excluding interest, income taxes, depreciation and amortization. The Company believes EBITDA is useful to investors because it helps the Company and its investors evaluate the ongoing operating performance of the Company by removing the impact of its capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). In addition, certain covenants included in the agreements governing the Company’s indebtedness use EBITDA, as defined in the specific credit agreement, as a measure of financial compliance.
In addition to EBITDA, the Company also calculates and presents EBITDAre in accordance with standards established by Nareit, which defines EBITDAre as EBITDA, excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), plus real estate related impairments, and adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates. The Company presents EBITDAre because it believes that it provides further useful information to investors in comparing its operating performance between periods and between REITs that report EBITDAre using the Nareit definition.
The Company also considers the exclusion of non-cash straight-line operating ground lease expense from EBITDAre useful, as this expense does not reflect the underlying performance of the related hotels.
The following table reconciles the Company’s GAAP net income to EBITDA, EBITDAre and Adjusted EBITDAre for the three and six months ended June 30, 2019 and 2018 (in thousands):
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
|
2019 |
2018 (1) | 2019 | 2018 (1) | |||||||||||||
|
Net income |
$ | 62,090 | $ | 67,630 | $ | 100,241 | $ | 109,812 | ||||||||
|
Depreciation and amortization |
48,109 | 45,743 | 96,059 | 90,583 | ||||||||||||
|
Amortization of favorable and unfavorable operating leases, net |
31 | 148 | 62 | 354 | ||||||||||||
|
Interest and other expense, net |
15,857 | 13,210 | 31,351 | 25,129 | ||||||||||||
|
Income tax expense |
156 | 151 | 362 | 314 | ||||||||||||
|
EBITDA |
126,243 | 126,882 | 228,075 | 226,192 | ||||||||||||
|
(Gain) loss on sale of real estate |
161 | - | (1,052 | ) | - | |||||||||||
|
Loss on impairment of depreciable real estate assets |
- | 3,135 | - | 3,135 | ||||||||||||
|
EBITDAre |
126,404 | 130,017 | 227,023 | 229,327 | ||||||||||||
|
Non-cash straight-line operating ground lease expense |
47 | 898 | 95 | 1,802 | ||||||||||||
|
Adjusted EBITDAre |
$ | 126,451 | $ | 130,915 | $ | 227,118 | $ | 231,129 | ||||||||
|
(1) |
EBITDA, EBITDAre and Adjusted EBITDAre for the three and six months ended June 30, 2018 include approximately $1.4 million and $2.8 million, respectively, of lease payments recorded to operating ground lease expense related to four of the Company's ground leases that were classified as operating leases during 2018. Under the new lease accounting standard, effective January 1, 2019, these four ground leases are classified as finance leases, for which the Company recognizes amortization expense and interest expense in the Company's consolidated statements of operations (which are both excluded from EBITDA, EBITDAre and Adjusted EBITDAre calculations), instead of operating ground lease expense. |
Hotels Owned
As of June 30, 2019, the Company owned 234 hotels with an aggregate of 30,046 rooms located in 34 states. The following tables summarize the number of hotels and rooms by brand and by state:
|
Number of Hotels and Guest Rooms by Brand |
||||||||
|
Number of |
Number of |
|||||||
|
Brand |
Hotels |
Rooms |
||||||
|
Hilton Garden Inn |
41 | 5,665 | ||||||
|
Hampton |
40 | 5,065 | ||||||
|
Courtyard |
37 | 5,070 | ||||||
|
Residence Inn |
33 | 3,939 | ||||||
|
Homewood Suites |
33 | 3,731 | ||||||
|
SpringHill Suites |
15 | 2,040 | ||||||
|
Fairfield |
11 | 1,300 | ||||||
|
Home2 Suites |
9 | 1,038 | ||||||
|
TownePlace Suites |
9 | 931 | ||||||
|
Marriott |
2 | 616 | ||||||
|
Embassy Suites |
2 | 316 | ||||||
|
Renaissance |
1 | 208 | ||||||
|
Hyatt Place |
1 | 127 | ||||||
|
Total |
234 | 30,046 | ||||||
|
Number of Hotels and Guest Rooms by State |
||||||||
|
Number of |
Number of |
|||||||
|
State |
Hotels |
Rooms |
||||||
|
Alabama |
15 | 1,434 | ||||||
|
Alaska |
2 | 304 | ||||||
|
Arizona |
12 | 1,644 | ||||||
|
Arkansas |
3 | 336 | ||||||
|
California |
27 | 3,807 | ||||||
|
Colorado |
4 | 567 | ||||||
|
Florida |
23 | 2,912 | ||||||
|
Georgia |
6 | 672 | ||||||
|
Idaho |
2 | 416 | ||||||
|
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 | 404 | ||||||
|
Mississippi |
2 | 168 | ||||||
|
Missouri |
4 | 544 | ||||||
|
Nebraska |
4 | 621 | ||||||
|
New Jersey |
5 | 629 | ||||||
|
New York |
4 | 553 | ||||||
|
North Carolina |
11 | 1,213 | ||||||
|
Ohio |
2 | 252 | ||||||
|
Oklahoma |
4 | 545 | ||||||
|
Pennsylvania |
3 | 391 | ||||||
|
South Carolina |
5 | 538 | ||||||
|
Tennessee |
13 | 1,502 | ||||||
|
Texas |
31 | 3,755 | ||||||
|
Utah |
3 | 393 | ||||||
|
Virginia |
12 | 1,767 | ||||||
|
Washington |
4 | 609 | ||||||
|
Total |
234 | 30,046 | ||||||
The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 234 hotels the Company owned as of June 30, 2019.
|
City |
State |
Brand |
Manager |
Date Acquired or Completed |
Rooms |
|||||||
|
Anchorage |
AK |
Embassy Suites |
Stonebridge |
4/30/2010 |
169 | |||||||
|
Anchorage |
AK |
Home2 Suites |
Stonebridge |
12/1/2017 |
135 | |||||||
|
Auburn |
AL |
Hilton Garden Inn |
LBA |
3/1/2014 |
101 | |||||||
|
Birmingham |
AL |
Courtyard |
LBA |
3/1/2014 |
84 | |||||||
|
Birmingham |
AL |
Hilton Garden Inn |
LBA |
9/12/2017 |
104 | |||||||
|
Birmingham |
AL |
Home2 Suites |
LBA |
9/12/2017 |
106 | |||||||
|
Birmingham |
AL |
Homewood Suites |
McKibbon |
3/1/2014 |
95 | |||||||
|
Dothan |
AL |
Hilton Garden Inn |
LBA |
6/1/2009 |
104 | |||||||
|
Dothan |
AL |
Residence Inn |
LBA |
3/1/2014 |
84 | |||||||
|
Huntsville |
AL |
Hampton |
LBA |
9/1/2016 |
98 | |||||||
|
Huntsville |
AL |
Hilton Garden Inn |
LBA |
3/1/2014 |
101 | |||||||
|
Huntsville |
AL |
Home2 Suites |
LBA |
9/1/2016 |
77 | |||||||
|
Huntsville |
AL |
Homewood Suites |
LBA |
3/1/2014 |
107 | |||||||
|
Mobile |
AL |
Hampton |
McKibbon |
9/1/2016 |
101 | |||||||
|
Montgomery |
AL |
Hilton Garden Inn |
LBA |
3/1/2014 |
97 | |||||||
|
Montgomery |
AL |
Homewood Suites |
LBA |
3/1/2014 |
91 | |||||||
|
Prattville |
AL |
Courtyard |
LBA |
3/1/2014 |
84 | |||||||
|
Rogers |
AR |
Hampton |
Raymond |
8/31/2010 |
122 | |||||||
|
Rogers |
AR |
Homewood Suites |
Raymond |
4/30/2010 |
126 | |||||||
|
Rogers |
AR |
Residence Inn |
Raymond |
3/1/2014 |
88 | |||||||
|
Chandler |
AZ |
Courtyard |
North Central |
11/2/2010 |
150 | |||||||
|
Chandler |
AZ |
Fairfield |
North Central |
11/2/2010 |
110 | |||||||
|
Phoenix |
AZ |
Courtyard |
North Central |
11/2/2010 |
164 | |||||||
|
Phoenix |
AZ |
Courtyard |
North Central |
9/1/2016 |
127 | |||||||
|
Phoenix |
AZ |
Hampton |
North Central |
9/1/2016 |
125 | |||||||
|
Phoenix |
AZ |
Hampton |
North Central |
5/2/2018 |
210 | |||||||
|
Phoenix |
AZ |
Homewood Suites |
North Central |
9/1/2016 |
134 | |||||||
|
Phoenix |
AZ |
Residence Inn |
North Central |
11/2/2010 |
129 | |||||||
|
Scottsdale |
AZ |
Hilton Garden Inn |
North Central |
9/1/2016 |
122 | |||||||
|
Tucson |
AZ |
Hilton Garden Inn |
Western |
7/31/2008 |
125 | |||||||
|
Tucson |
AZ |
Residence Inn |
Western |
3/1/2014 |
124 | |||||||
|
Tucson |
AZ |
TownePlace Suites |
Western |
10/6/2011 |
124 | |||||||
|
Agoura Hills |
CA |
Homewood Suites |
Dimension |
3/1/2014 |
125 | |||||||
|
Burbank |
CA |
Courtyard |
Huntington |
8/11/2015 |
190 | |||||||
|
Burbank |
CA |
Residence Inn |
Marriott |
3/1/2014 |
166 | |||||||
|
Burbank |
CA |
SpringHill Suites |
Marriott |
7/13/2015 |
170 | |||||||
|
Clovis |
CA |
Hampton |
Dimension |
7/31/2009 |
86 | |||||||
|
Clovis |
CA |
Homewood Suites |
Dimension |
2/2/2010 |
83 | |||||||
|
Cypress |
CA |
Courtyard |
Dimension |
3/1/2014 |
180 | |||||||
|
Cypress |
CA |
Hampton |
Dimension |
6/29/2015 |
110 | |||||||
|
Oceanside |
CA |
Courtyard |
Marriott |
9/1/2016 |
142 | |||||||
|
Oceanside |
CA |
Residence Inn |
Marriott |
3/1/2014 |
125 | |||||||
|
Rancho Bernardo/San Diego |
CA |
Courtyard |
InnVentures |
3/1/2014 |
210 | |||||||
|
Sacramento |
CA |
Hilton Garden Inn |
Dimension |
3/1/2014 |
153 | |||||||
|
San Bernardino |
CA |
Residence Inn |
InnVentures |
2/16/2011 |
95 | |||||||
|
San Diego |
CA |
Courtyard |
Huntington |
9/1/2015 |
245 | |||||||
|
San Diego |
CA |
Hampton |
Dimension |
3/1/2014 |
177 | |||||||
|
San Diego |
CA |
Hilton Garden Inn |
InnVentures |
3/1/2014 |
200 | |||||||
|
San Diego |
CA |
Residence Inn |
Dimension |
3/1/2014 |
121 | |||||||
| City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
|
San Jose |
CA |
Homewood Suites |
Dimension |
3/1/2014 |
140 | |||||||
|
San Juan Capistrano |
CA |
Residence Inn |
Marriott |
9/1/2016 |
130 | |||||||
|
Santa Ana |
CA |
Courtyard |
Dimension |
5/23/2011 |
155 | |||||||
|
Santa Clarita |
CA |
Courtyard |
Dimension |
9/24/2008 |
140 | |||||||
|
Santa Clarita |
CA |
Fairfield |
Dimension |
10/29/2008 |
66 | |||||||
|
Santa Clarita |
CA |
Hampton |
Dimension |
10/29/2008 |
128 | |||||||
|
Santa Clarita |
CA |
Residence Inn |
Dimension |
10/29/2008 |
90 | |||||||
|
Tulare |
CA |
Hampton |
InnVentures |
3/1/2014 |
86 | |||||||
|
Tustin |
CA |
Fairfield |
Marriott |
9/1/2016 |
145 | |||||||
|
Tustin |
CA |
Residence Inn |
Marriott |
9/1/2016 |
149 | |||||||
|
Colorado Springs |
CO |
Hampton |
Chartwell |
9/1/2016 |
101 | |||||||
|
Denver |
CO |
Hilton Garden Inn |
Stonebridge |
9/1/2016 |
221 | |||||||
|
Highlands Ranch |
CO |
Hilton Garden Inn |
Dimension |
3/1/2014 |
128 | |||||||
|
Highlands Ranch |
CO |
Residence Inn |
Dimension |
3/1/2014 |
117 | |||||||
|
Boca Raton |
FL |
Hilton Garden Inn |
White Lodging |
9/1/2016 |
149 | |||||||
|
Cape Canaveral |
FL |
Homewood Suites |
LBA |
9/1/2016 |
153 | |||||||
|
Fort Lauderdale |
FL |
Hampton |
Vista Host |
12/31/2008 |
109 | |||||||
|
Fort Lauderdale |
FL |
Hampton |
LBA |
6/23/2015 |
156 | |||||||
|
Fort Lauderdale |
FL |
Residence Inn |
LBA |
9/1/2016 |
156 | |||||||
|
Gainesville |
FL |
Hilton Garden Inn |
McKibbon |
9/1/2016 |
104 | |||||||
|
Gainesville |
FL |
Homewood Suites |
McKibbon |
9/1/2016 |
103 | |||||||
|
Jacksonville |
FL |
Homewood Suites |
McKibbon |
3/1/2014 |
119 | |||||||
|
Jacksonville |
FL |
Hyatt Place |
LBA |
12/7/2018 |
127 | |||||||
|
Lakeland |
FL |
Courtyard |
LBA |
3/1/2014 |
78 | |||||||
|
Miami |
FL |
Courtyard |
Dimension |
3/1/2014 |
118 | |||||||
|
Miami |
FL |
Hampton |
White Lodging |
4/9/2010 |
121 | |||||||
|
Miami |
FL |
Homewood Suites |
Dimension |
3/1/2014 |
162 | |||||||
|
Orlando |
FL |
Fairfield |
Marriott |
7/1/2009 |
200 | |||||||
|
Orlando |
FL |
Home2 Suites |
LBA |
3/19/2019 |
128 | |||||||
|
Orlando |
FL |
SpringHill Suites |
Marriott |
7/1/2009 |
200 | |||||||
|
Panama City |
FL |
Hampton |
LBA |
3/12/2009 |
95 | |||||||
|
Panama City |
FL |
TownePlace Suites |
LBA |
1/19/2010 |
103 | |||||||
|
Pensacola |
FL |
TownePlace Suites |
McKibbon |
9/1/2016 |
97 | |||||||
|
Sanford |
FL |
SpringHill Suites |
LBA |
3/1/2014 |
105 | |||||||
|
Tallahassee |
FL |
Fairfield |
LBA |
9/1/2016 |
97 | |||||||
|
Tallahassee |
FL |
Hilton Garden Inn |
LBA |
3/1/2014 |
85 | |||||||
|
Tampa |
FL |
Embassy Suites |
White Lodging |
11/2/2010 |
147 | |||||||
|
Albany |
GA |
Fairfield |
LBA |
1/14/2010 |
87 | |||||||
|
Atlanta/Downtown |
GA |
Hampton |
McKibbon |
2/5/2018 |
119 | |||||||
|
Atlanta/Perimeter Dunwoody |
GA |
Hampton |
LBA |
6/28/2018 |
132 | |||||||
|
Atlanta |
GA |
Home2 Suites |
McKibbon |
7/1/2016 |
128 | |||||||
|
Macon |
GA |
Hilton Garden Inn |
LBA |
3/1/2014 |
101 | |||||||
|
Savannah |
GA |
Hilton Garden Inn |
Newport |
3/1/2014 |
105 | |||||||
|
Cedar Rapids |
IA |
Hampton |
Schulte |
9/1/2016 |
103 | |||||||
|
Cedar Rapids |
IA |
Homewood Suites |
Schulte |
9/1/2016 |
95 | |||||||
|
Davenport |
IA |
Hampton |
Schulte |
9/1/2016 |
103 | |||||||
|
Boise |
ID |
Hampton |
Raymond |
4/30/2010 |
186 | |||||||
|
Boise |
ID |
SpringHill Suites |
InnVentures |
3/1/2014 |
230 | |||||||
|
Des Plaines |
IL |
Hilton Garden Inn |
Raymond |
9/1/2016 |
252 | |||||||
|
Hoffman Estates |
IL |
Hilton Garden Inn |
White Lodging |
9/1/2016 |
184 | |||||||
|
Mettawa |
IL |
Hilton Garden Inn |
White Lodging |
11/2/2010 |
170 | |||||||
|
Mettawa |
IL |
Residence Inn |
White Lodging |
11/2/2010 |
130 | |||||||
| 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 |
True North |
3/1/2014 |
110 | |||||||
|
Overland Park |
KS |
Residence Inn |
True North |
3/1/2014 |
120 | |||||||
|
Overland Park |
KS |
SpringHill Suites |
True North |
3/1/2014 |
102 | |||||||
|
Wichita |
KS |
Courtyard |
Aimbridge |
3/1/2014 |
90 | |||||||
|
Lafayette |
LA |
Hilton Garden Inn |
LBA |
7/30/2010 |
153 | |||||||
|
Lafayette |
LA |
SpringHill Suites |
LBA |
6/23/2011 |
103 | |||||||
|
New Orleans |
LA |
Homewood Suites |
Dimension |
3/1/2014 |
166 | |||||||
|
Andover |
MA |
SpringHill Suites |
Marriott |
11/5/2010 |
136 | |||||||
|
Marlborough |
MA |
Residence Inn |
True North |
3/1/2014 |
112 | |||||||
|
Westford |
MA |
Hampton |
True North |
3/1/2014 |
110 | |||||||
|
Westford |
MA |
Residence Inn |
True North |
3/1/2014 |
108 | |||||||
|
Annapolis |
MD |
Hilton Garden Inn |
White Lodging |
3/1/2014 |
126 | |||||||
|
Silver Spring |
MD |
Hilton Garden Inn |
White Lodging |
7/30/2010 |
107 | |||||||
|
Portland |
ME |
Residence Inn |
Pyramid |
10/13/2017 |
179 | |||||||
|
Novi |
MI |
Hilton Garden Inn |
White Lodging |
11/2/2010 |
148 | |||||||
|
Maple Grove |
MN |
Hilton Garden Inn |
North Central |
9/1/2016 |
120 | |||||||
|
Rochester |
MN |
Hampton |
Raymond |
8/3/2009 |
124 | |||||||
|
St. Paul |
MN |
Hampton |
Vista Host |
3/4/2019 |
160 | |||||||
|
Kansas City |
MO |
Hampton |
Raymond |
8/31/2010 |
122 | |||||||
|
Kansas City |
MO |
Residence Inn |
True North |
3/1/2014 |
106 | |||||||
|
St. Louis |
MO |
Hampton |
Raymond |
8/31/2010 |
190 | |||||||
|
St. Louis |
MO |
Hampton |
Raymond |
4/30/2010 |
126 | |||||||
|
Hattiesburg |
MS |
Courtyard |
LBA |
3/1/2014 |
84 | |||||||
|
Hattiesburg |
MS |
Residence Inn |
LBA |
12/11/2008 |
84 | |||||||
|
Carolina Beach |
NC |
Courtyard |
Crestline |
3/1/2014 |
144 | |||||||
|
Charlotte |
NC |
Fairfield |
Newport |
9/1/2016 |
94 | |||||||
|
Charlotte |
NC |
Homewood Suites |
McKibbon |
9/24/2008 |
118 | |||||||
|
Durham |
NC |
Homewood Suites |
McKibbon |
12/4/2008 |
122 | |||||||
|
Fayetteville |
NC |
Home2 Suites |
LBA |
2/3/2011 |
118 | |||||||
|
Fayetteville |
NC |
Residence Inn |
Aimbridge |
3/1/2014 |
92 | |||||||
|
Greensboro |
NC |
SpringHill Suites |
Newport |
3/1/2014 |
82 | |||||||
|
Jacksonville |
NC |
Home2 Suites |
LBA |
9/1/2016 |
105 | |||||||
|
Wilmington |
NC |
Fairfield |
Crestline |
3/1/2014 |
122 | |||||||
|
Winston-Salem |
NC |
Courtyard |
McKibbon |
3/1/2014 |
122 | |||||||
|
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 |
White Lodging |
3/1/2014 |
165 | |||||||
| City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
|
New York |
NY |
Renaissance |
Highgate |
3/1/2014 |
208 | |||||||
|
Syracuse |
NY |
Courtyard |
New Castle |
10/16/2015 |
102 | |||||||
|
Syracuse |
NY |
Residence Inn |
New Castle |
10/16/2015 |
78 | |||||||
|
Mason |
OH |
Hilton Garden Inn |
Schulte |
9/1/2016 |
110 | |||||||
|
Twinsburg |
OH |
Hilton Garden Inn |
Interstate |
10/7/2008 |
142 | |||||||
|
Oklahoma City |
OK |
Hampton |
Raymond |
5/28/2010 |
200 | |||||||
|
Oklahoma City |
OK |
Hilton Garden Inn |
Raymond |
9/1/2016 |
155 | |||||||
|
Oklahoma City |
OK |
Homewood Suites |
Raymond |
9/1/2016 |
100 | |||||||
|
Oklahoma City (West) |
OK |
Homewood Suites |
Chartwell |
9/1/2016 |
90 | |||||||
|
Collegeville/Philadelphia |
PA |
Courtyard |
White Lodging |
11/15/2010 |
132 | |||||||
|
Malvern/Philadelphia |
PA |
Courtyard |
White Lodging |
11/30/2010 |
127 | |||||||
|
Pittsburgh |
PA |
Hampton |
Vista Host |
12/31/2008 |
132 | |||||||
|
Charleston |
SC |
Home2 Suites |
LBA |
9/1/2016 |
122 | |||||||
|
Columbia |
SC |
Hilton Garden Inn |
Newport |
3/1/2014 |
143 | |||||||
|
Columbia |
SC |
TownePlace Suites |
Newport |
9/1/2016 |
91 | |||||||
|
Greenville |
SC |
Residence Inn |
McKibbon |
3/1/2014 |
78 | |||||||
|
Hilton Head |
SC |
Hilton Garden Inn |
McKibbon |
3/1/2014 |
104 | |||||||
|
Chattanooga |
TN |
Homewood Suites |
LBA |
3/1/2014 |
76 | |||||||
|
Franklin |
TN |
Courtyard |
Chartwell |
9/1/2016 |
126 | |||||||
|
Franklin |
TN |
Residence Inn |
Chartwell |
9/1/2016 |
124 | |||||||
|
Jackson |
TN |
Hampton |
Vista Host |
12/30/2008 |
85 | |||||||
|
Johnson City |
TN |
Courtyard |
LBA |
9/25/2009 |
90 | |||||||
|
Knoxville |
TN |
Homewood Suites |
McKibbon |
9/1/2016 |
103 | |||||||
|
Knoxville |
TN |
SpringHill Suites |
McKibbon |
9/1/2016 |
103 | |||||||
|
Knoxville |
TN |
TownePlace Suites |
McKibbon |
9/1/2016 |
97 | |||||||
|
Memphis |
TN |
Hampton |
Crestline |
2/5/2018 |
144 | |||||||
|
Memphis |
TN |
Homewood Suites |
Hilton |
3/1/2014 |
140 | |||||||
|
Nashville |
TN |
Hilton Garden Inn |
Vista Host |
9/30/2010 |
194 | |||||||
|
Nashville |
TN |
Home2 Suites |
Vista Host |
5/31/2012 |
119 | |||||||
|
Nashville |
TN |
TownePlace Suites |
LBA |
9/1/2016 |
101 | |||||||
|
Addison |
TX |
SpringHill Suites |
Marriott |
3/1/2014 |
159 | |||||||
|
Allen |
TX |
Hampton |
Interstate |
9/26/2008 |
103 | |||||||
|
Allen |
TX |
Hilton Garden Inn |
Interstate |
10/31/2008 |
150 | |||||||
|
Arlington |
TX |
Hampton |
Western |
12/1/2010 |
98 | |||||||
|
Austin |
TX |
Courtyard |
White Lodging |
11/2/2010 |
145 | |||||||
|
Austin |
TX |
Fairfield |
White Lodging |
11/2/2010 |
150 | |||||||
|
Austin |
TX |
Hampton |
Vista Host |
4/14/2009 |
124 | |||||||
|
Austin |
TX |
Hilton Garden Inn |
White Lodging |
11/2/2010 |
117 | |||||||
|
Austin |
TX |
Homewood Suites |
Vista Host |
4/14/2009 |
97 | |||||||
|
Austin/Round Rock |
TX |
Homewood Suites |
Vista Host |
9/1/2016 |
115 | |||||||
|
Beaumont |
TX |
Residence Inn |
Western |
10/29/2008 |
133 | |||||||
|
Burleson/Fort Worth |
TX |
Hampton |
LBA |
10/7/2014 |
88 | |||||||
|
Dallas |
TX |
Homewood Suites |
Western |
9/1/2016 |
130 | |||||||
|
Denton |
TX |
Homewood Suites |
Chartwell |
9/1/2016 |
107 | |||||||
|
El Paso |
TX |
Hilton Garden Inn |
Western |
12/19/2011 |
145 | |||||||
|
El Paso |
TX |
Homewood Suites |
Western |
3/1/2014 |
114 | |||||||
|
Fort Worth |
TX |
Courtyard |
LBA |
2/2/2017 |
124 | |||||||
|
Fort Worth |
TX |
TownePlace Suites |
Western |
7/19/2010 |
140 | |||||||
|
Frisco |
TX |
Hilton Garden Inn |
Western |
12/31/2008 |
102 | |||||||
|
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 | |||||||
| City | State | Brand | Manager | Date Acquired or Completed | Rooms | |||||||
|
Houston |
TX |
Residence Inn |
Western |
3/1/2014 |
129 | |||||||
|
Houston |
TX |
Residence Inn |
Western |
9/1/2016 |
120 | |||||||
|
Irving |
TX |
Homewood Suites |
Western |
12/29/2010 |
77 | |||||||
|
Lewisville |
TX |
Hilton Garden Inn |
Interstate |
10/16/2008 |
165 | |||||||
|
Round Rock |
TX |
Hampton |
Vista Host |
3/6/2009 |
94 | |||||||
|
San Antonio |
TX |
TownePlace Suites |
Western |
3/1/2014 |
106 | |||||||
|
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 |
Courtyard |
White Lodging |
12/8/2014 |
135 | |||||||
|
Richmond |
VA |
Marriott |
White Lodging |
3/1/2014 |
410 | |||||||
|
Richmond |
VA |
Residence Inn |
White Lodging |
12/8/2014 |
75 | |||||||
|
Richmond |
VA |
SpringHill Suites |
McKibbon |
9/1/2016 |
103 | |||||||
|
Suffolk |
VA |
Courtyard |
Crestline |
3/1/2014 |
92 | |||||||
|
Suffolk |
VA |
TownePlace Suites |
Crestline |
3/1/2014 |
72 | |||||||
|
Virginia Beach |
VA |
Courtyard |
Crestline |
3/1/2014 |
141 | |||||||
|
Virginia Beach |
VA |
Courtyard |
Crestline |
3/1/2014 |
160 | |||||||
|
Kirkland |
WA |
Courtyard |
InnVentures |
3/1/2014 |
150 | |||||||
|
Seattle |
WA |
Residence Inn |
InnVentures |
3/1/2014 |
234 | |||||||
|
Tukwila |
WA |
Homewood Suites |
Dimension |
3/1/2014 |
106 | |||||||
|
Vancouver |
WA |
SpringHill Suites |
InnVentures |
3/1/2014 |
119 | |||||||
|
Total |
30,046 | |||||||||||
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 daily sources of liquidity are the operating cash flow 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 and offerings of the Company’s common shares.
As of June 30, 2019, the Company had $1.4 billion of total outstanding debt consisting of $461.6 million of mortgage debt and $927.7 million outstanding under its credit facilities, excluding unamortized debt issuance costs and fair value adjustments. The Company’s unused borrowing capacity under its $425 million revolving credit facility as of June 30, 2019 was $232.3 million, which is available for acquisitions, hotel renovations, share repurchases, working capital and other general corporate funding purposes, including the payment of distributions to shareholders.
The credit agreements governing the credit facilities contain mandatory prepayment requirements, customary affirmative covenants, negative covenants and events of default. The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios and restrictions on certain investments. The Company was in compliance with the applicable covenants at June 30, 2019.
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 June 30, 2019.
The Company has a universal shelf registration statement on Form S-3 (No. 333-231021) that was automatically effective upon filing on April 25, 2019. The Company may offer an indeterminate number or amount, as the case may be, of (1) common shares, no par value per share; (2) preferred shares, no par value per share; (3) depository shares representing its preferred shares; (4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5) rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.
Capital Uses
The Company anticipates that cash flow from operations, availability under its credit facilities, additional borrowings and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including debt service, hotel acquisitions, hotel renovations, share repurchases, and required distributions to shareholders (the Company is not required to make distributions at its current rate for REIT purposes).
Distributions
To maintain its REIT status, the Company is required to distribute at least 90% of its ordinary income. Distributions paid during the six months ended June 30, 2019 totaled approximately $134.3 million or $0.60 per common share and were paid at a monthly rate of $0.10 per common share. For the same period, the Company’s net cash generated from operations was approximately $164.1 million.
The Company’s current annual distribution rate, payable monthly, is $1.20 per common share. As it has done historically, due to seasonality, the Company may use its revolving credit facility to maintain the consistency of the monthly distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. Any distribution will be subject to approval of the Company’s Board of Directors and there can be no assurance of the classification or duration of distributions at the current annual distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of its hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company. If cash flow from operations and the revolving credit facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurances it will be successful with this strategy and may need to reduce its distributions to required levels. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.
Share Repurchases
In May 2019, the Company’s Board of Directors approved an extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of $360 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2020 if not terminated earlier. During the first quarter of 2019 and 2018, the Company purchased, under its Share Repurchase Program, approximately 0.3 million of its common shares in each respective period, at a weighted-average market purchase price of approximately $14.93 and $16.89 per common share for an aggregate purchase price, including commissions, of approximately $4.1 million and $4.3 million, respectively. No shares were repurchased during the second quarter of 2019 and 2018. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with availability under its 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.
Capital Improvements
The Company has ongoing capital commitments to fund its capital improvements. To maintain and enhance each property’s competitive position in its market, the Company has invested in and plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. As of June 30, 2019, the Company held $30.4 million in reserve related to these properties. During the six months ended June 30, 2019, the Company invested approximately $33.2 million in capital expenditures and anticipates spending an additional $45 million to $55 million during the remainder of 2019, which includes various scheduled renovation projects for approximately 15 to 20 properties. The Company does not currently have any existing or planned projects for development.
Hotel Contract Commitments
As of July 31, 2019, the Company had outstanding contracts for the potential purchase of seven hotels for a total expected purchase price of approximately $216.1 million, six of which are under development and are planned to be completed and opened for business over the next 12 to 24 months from June 30, 2019, at which time closings on these hotels are expected to occur, and one existing hotel that is expected to close before the end of 2019. Although the Company is working towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. It is anticipated that the purchase price for these hotels will be funded through the Company’s credit facilities available at closing.
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. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements.
New Accounting Standards
See Note 1 titled “Organization and Summary of Significant Accounting Policies” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for information on the adoption of the new lease accounting standard on January 1, 2019.
Subsequent Events
In July 2019, the Company paid approximately $22.4 million, or $0.10 per outstanding common share, in distributions to its common shareholders.
In July 2019, the Company declared a regular monthly cash distribution of $0.10 per common share for the month of August 2019. The distribution is payable on August 15, 2019.
In July 2019, the Company entered into two unrelated purchase contracts for the purchase of two hotels. The first purchase contract is for a hotel that will be constructed in Madison, Wisconsin, for an anticipated gross purchase price of approximately $49.6 million. This hotel is planned to be a Hilton Garden Inn which is expected to contain 176 guest rooms. The second purchase contract is for an existing hotel located in Richmond, Virginia, for an anticipated gross purchase price of approximately $7.3 million. This is an independent boutique hotel containing 55 guest rooms. Although the Company is working towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied, and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts.
Item 3 . Quantitative and Qualitative Disclosure s About Market Risk
As of June 30, 2019, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk. However, the Company is exposed to interest rate risk due to possible changes in short term interest rates as it invests its cash or borrows on its revolving credit facility and due to the portion of its variable-rate term debt that is not fixed by interest rate swaps. As of June 30, 2019, after giving effect to interest rate swaps, as described below, approximately $320.2 million, or approximately 23% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s variable-rate debt outstanding as of June 30, 2019, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately $3.2 million, all other factors remaining the same. With the exception of interest rate swap transactions, the Company has not engaged in transactions in derivative financial instruments or derivative commodity instruments. The Company’s cash and cash equivalents at June 30, 2019 were $0.
As of June 30, 2019, the Company’s variable-rate debt consisted of its credit facilities, including borrowings outstanding under its $425 million revolving credit facility and $735 million of term loans. Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. As of June 30, 2019, the Company had seven interest rate swap agreements that effectively fix the interest payments on approximately $607.5 million of the Company’s variable-rate debt outstanding. In addition, in December 2018, the Company entered into two interest rate swap agreements which, beginning January 31, 2020 and May 18, 2020, will effectively fix the interest rate on $25 million and $50 million, respectively, of its variable-rate debt. Under the terms of all of the Company’s interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR.
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. The following table summarizes the annual maturities and average interest rates of the Company’s mortgage debt and borrowings outstanding under its credit facilities at June 30, 2019. All dollar amounts are in thousands.
|
July 1 - December 31, 2019 |
2020 |
2021 |
2022 |
2023 |
Thereafter |
Total |
Fair Market Value |
|||||||||||||||||||||||||
|
Total debt: |
||||||||||||||||||||||||||||||||
|
Maturities |
$ | 6,600 | $ | 28,349 | $ | 47,586 | $ | 301,952 | $ | 295,615 | $ | 709,165 | $ | 1,389,267 | $ | 1,394,440 | ||||||||||||||||
|
Average interest rates (1) |
3.8 | % | 3.9 | % | 3.9 | % | 3.9 | % | 3.9 | % | 4.0 | % | ||||||||||||||||||||
|
Variable rate debt: |
||||||||||||||||||||||||||||||||
|
Maturities |
$ | - | $ | - | $ | - | $ | 192,700 | $ | 250,000 | $ | 485,000 | $ | 927,700 | $ | 929,318 | ||||||||||||||||
|
Average interest rates (1) |
3.4 | % | 3.6 | % | 3.8 | % | 3.8 | % | 3.9 | % | 4.0 | % | ||||||||||||||||||||
|
Fixed rate debt: |
||||||||||||||||||||||||||||||||
|
Maturities |
$ | 6,600 | $ | 28,349 | $ | 47,586 | $ | 109,252 | $ | 45,615 | $ | 224,165 | $ | 461,567 | $ | 465,122 | ||||||||||||||||
|
Average interest rates |
4.4 | % | 4.4 | % | 4.4 | % | 4.2 | % | 4.1 | % | 4.1 | % | ||||||||||||||||||||
|
(1) |
The average interest rate gives effect to interest rate swaps, as applicable. |
Item 4 . Controls and Procedures
Senior management, including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2019. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is or may be a party to various legal proceedings that arise in the ordinary course of business. The Company is not currently involved in any material litigation nor, to management’s knowledge, is any litigation threatened against the Company where the outcome would, in management’s judgment based on information currently available to the Company, have a material adverse effect on the Company’s consolidated financial position or results of operations.
Item 1A. Risk Factors
For a discussion of the Company’s potential risks and uncertainties, see the section titled “Risk Factors” in the 2018 Form 10-K. There have been no material changes to the risk factors previously disclosed in the 2018 Form 10-K.
Item 6 . Exhibits
|
Exhibit Number |
Description of Documents |
|
|
3.1 |
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|
3.2 |
||
|
10.1* |
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|
10.2* |
||
|
31.1 |
||
|
31.2 |
||
|
31.3 |
||
|
32.1 |
||
|
101 |
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Cover Page, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Operations and Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements, tagged as blocks of text and in detail ( FILED HEREWITH ) |
|
|
________________ |
||
|
* Denotes Management Contract or Compensation Plan |
||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Apple Hospitality REIT, Inc. |
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|
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|
|
By: |
/s/ Justin G. Knight |
|
|
Date: August 5, 2019 |
|
|
Justin G. Knight, |
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|
|
President and Chief Executive Officer (Principal Executive Officer) |
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|
|
By: |
/s/ Rachael S. Rothman |
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|
Date: August 5, 2019 |
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|
Rachael S. Rothman, |
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|
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Chief Financial Officer (Principal Financial Officer) |
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|
|
By: |
/s/ Bryan Peery |
|
|
Date: August 5, 2019 |
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|
Bryan Peery, |
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|
|
Chief Accounting Officer (Principal Accounting Officer) |
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|
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|