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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q 

 

 

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

 

For the quarterly period ended March 31, 2022

 

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

 

Commission File Number 001-37389

APPLE HOSPITALITY REIT, INC.

(Exact name of registrant as specified in its charter)

 

Virginia

 

26-1379210

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

814 East Main Street

Richmond, Virginia

 

23219

(Address of principal executive offices)   

 

(Zip Code)

 

(804) 344-8121

(Registrant's telephone number, including area code) 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Shares, no par value

 

APLE

 

New York Stock Exchange

 

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

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

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

 

Large accelerated filer

Accelerated filer                  

 

Non-accelerated filer      

Smaller reporting company

Emerging growth company 

                    

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

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

Number of registrant’s common shares outstanding as of May 2, 2022: 228,888,561

 

 

 


 

 

Apple Hospitality REIT, Inc.

Form 10-Q

Index

 

 

 

 

Page

Number

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

 

 

Consolidated Balance Sheets – March 31, 2022 and December 31, 2021

3

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) – three months ended March 31, 2022 and 2021

4

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity – three months ended March 31, 2022 and 2021

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows – three months ended March 31, 2022 and 2021

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

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

20

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

 

 

 

Item 4.

Controls and Procedures

36

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

37

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

 

 

Item 6.

Exhibits

38

 

 

 

 

Signatures

39

 

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

 


Index

 

PART I. FINANCIAL INFORMATION 

Item 1. Financial Statements

Apple Hospitality REIT, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

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

   $1,356,580 and $1,311,262, respectively

 

$

4,640,018

 

 

$

4,677,185

 

Cash and cash equivalents

 

 

636

 

 

 

3,282

 

Restricted cash-furniture, fixtures and other escrows

 

 

40,568

 

 

 

36,667

 

Due from third party managers, net

 

 

60,560

 

 

 

40,052

 

Other assets, net

 

 

49,335

 

 

 

33,341

 

Total Assets

 

$

4,791,117

 

 

$

4,790,527

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Debt, net

 

$

1,433,213

 

 

$

1,438,758

 

Finance lease liabilities

 

 

111,848

 

 

 

111,776

 

Accounts payable and other liabilities

 

 

66,949

 

 

 

92,672

 

Total Liabilities

 

 

1,612,010

 

 

 

1,643,206

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

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

   228,888,561 and 228,255,642 shares, respectively

 

 

4,578,758

 

 

 

4,569,352

 

Accumulated other comprehensive income (loss)

 

 

11,711

 

 

 

(15,508

)

Distributions greater than net income

 

 

(1,411,362

)

 

 

(1,406,523

)

Total Shareholders' Equity

 

 

3,179,107

 

 

 

3,147,321

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders' Equity

 

$

4,791,117

 

 

$

4,790,527

 

 

See notes to consolidated financial statements.

3


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

Room

 

$

237,976

 

 

$

148,481

 

Food and beverage

 

 

8,464

 

 

 

2,783

 

Other

 

 

14,038

 

 

 

7,449

 

Total revenue

 

 

260,478

 

 

 

158,713

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Hotel operating expense:

 

 

 

 

 

 

 

 

Operating

 

 

64,331

 

 

 

38,150

 

Hotel administrative

 

 

23,842

 

 

 

17,744

 

Sales and marketing

 

 

22,469

 

 

 

14,888

 

Utilities

 

 

10,290

 

 

 

10,560

 

Repair and maintenance

 

 

13,028

 

 

 

10,225

 

Franchise fees

 

 

11,266

 

 

 

6,919

 

Management fees

 

 

8,776

 

 

 

5,254

 

Total hotel operating expense

 

 

154,002

 

 

 

103,740

 

Property taxes, insurance and other

 

 

18,679

 

 

 

19,688

 

General and administrative

 

 

9,638

 

 

 

8,119

 

Loss on impairment of depreciable real estate assets

 

 

-

 

 

 

10,754

 

Depreciation and amortization

 

 

45,324

 

 

 

48,710

 

Total expense

 

 

227,643

 

 

 

191,011

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate

 

 

-

 

 

 

4,484

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

32,835

 

 

 

(27,814

)

 

 

 

 

 

 

 

 

 

Interest and other expense, net

 

 

(14,654

)

 

 

(18,513

)

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

18,181

 

 

 

(46,327

)

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(179

)

 

 

(108

)

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

18,002

 

 

$

(46,435

)

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Interest rate derivatives

 

 

27,219

 

 

 

16,082

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

45,221

 

 

$

(30,353

)

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per common share

 

$

0.08

 

 

$

(0.21

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

228,986

 

 

 

223,733

 

 

See notes to consolidated financial statements.

4


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Shareholders' Equity

Three Months Ended March 31, 2022 and 2021

(Unaudited)

(in thousands, except per share data)

 

 

 

 

Common Stock

 

 

Accumulated

Other

 

 

Distributions

 

 

 

 

 

 

 

Number

of Shares

 

 

Amount

 

 

Comprehensive

Income (Loss)

 

 

Greater Than

Net Income

 

 

Total

 

Balance at December 31, 2021

 

 

228,256

 

 

$

4,569,352

 

 

$

(15,508

)

 

$

(1,406,523

)

 

$

3,147,321

 

Share based compensation, net

 

 

633

 

 

 

9,592

 

 

 

-

 

 

 

-

 

 

 

9,592

 

Equity issuance costs

 

 

-

 

 

 

(186

)

 

 

-

 

 

 

-

 

 

 

(186

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

27,219

 

 

 

-

 

 

 

27,219

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,002

 

 

 

18,002

 

Distributions declared to shareholders ($0.10 per

   share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,841

)

 

 

(22,841

)

Balance at March 31, 2022

 

 

228,889

 

 

$

4,578,758

 

 

$

11,711

 

 

$

(1,411,362

)

 

$

3,179,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

223,212

 

 

$

4,488,419

 

 

$

(42,802

)

 

$

(1,416,270

)

 

$

3,029,347

 

Share based compensation, net

 

 

444

 

 

 

5,004

 

 

 

-

 

 

 

-

 

 

 

5,004

 

Equity issuance costs

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

(1

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

16,082

 

 

 

-

 

 

 

16,082

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46,435

)

 

 

(46,435

)

Distributions declared to shareholders ($0.01 per

   share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,232

)

 

 

(2,232

)

Balance at March 31, 2021

 

 

223,656

 

 

$

4,493,422

 

 

$

(26,720

)

 

$

(1,464,937

)

 

$

3,001,765

 

 

See notes to consolidated financial statements.

5


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

18,002

 

 

$

(46,435

)

Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

45,324

 

 

 

48,710

 

Loss on impairment of depreciable real estate assets

 

 

-

 

 

 

10,754

 

Gain on sale of real estate

 

 

-

 

 

 

(4,484

)

Other non-cash expenses, net

 

 

2,174

 

 

 

2,684

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Increase in due from third party managers, net

 

 

(20,508

)

 

 

(16,628

)

Decrease (increase) in other assets, net

 

 

(3,308

)

 

 

1,029

 

Increase (decrease) in accounts payable and other liabilities

 

 

(2,621

)

 

 

2,256

 

Net cash provided by (used in) operating activities

 

 

39,063

 

 

 

(2,114

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of hotel properties, net

 

 

-

 

 

 

(49,369

)

Capital improvements

 

 

(13,586

)

 

 

(2,506

)

Net proceeds from sale of real estate

 

 

-

 

 

 

17,587

 

Net cash used in investing activities

 

 

(13,586

)

 

 

(34,288

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repurchases of common shares to satisfy employee withholding requirements

 

 

(4,415

)

 

 

(1,650

)

Distributions paid to common shareholders

 

 

(13,701

)

 

 

-

 

Equity issuance costs

 

 

(23

)

 

 

(1

)

Net proceeds from revolving credit facility

 

 

500

 

 

 

44,100

 

Payments of mortgage debt and other loans

 

 

(6,556

)

 

 

(3,018

)

Principal payments on finance leases

 

 

(27

)

 

 

-

 

Financing costs

 

 

-

 

 

 

(1,472

)

Net cash provided by (used in) financing activities

 

 

(24,222

)

 

 

37,959

 

 

 

 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

1,255

 

 

 

1,557

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

39,949

 

 

 

34,368

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

 

$

41,204

 

 

$

35,925

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

13,849

 

 

$

18,062

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued distribution to common shareholders

 

$

11,420

 

 

$

2,232

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

3,282

 

 

$

5,556

 

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

 

 

36,667

 

 

 

28,812

 

Cash, cash equivalents and restricted cash, beginning of period

 

$

39,949

 

 

$

34,368

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

636

 

 

$

5,776

 

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

 

 

40,568

 

 

 

30,149

 

Cash, cash equivalents and restricted cash, end of period

 

$

41,204

 

 

$

35,925

 

 

See notes to consolidated financial statements.

 

6


Index

 

 

Apple Hospitality REIT, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization          

Apple Hospitality REIT, Inc., formed in November 2007 as a Virginia corporation, together with its wholly-owned subsidiaries (the “Company”), is a self-advised real estate investment trust (“REIT”) that invests in income-producing real estate, primarily in the lodging sector, in the United States (“U.S.”). The Company’s fiscal year end is December 31. The Company has no foreign operations or assets, and its operating structure includes only one reportable segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does not have any elements of power in the decision-making process of these entities, and therefore does not consolidate the entities. As of March 31, 2022, the Company owned 219 hotels with an aggregate of 28,747 rooms located in 36 states. The Company’s common shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.”

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include all of the information required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the twelve-month period ending December 31, 2022.

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.

Coronavirus COVID-19 Pandemic 

As a result of the coronavirus COVID-19 pandemic (“COVID-19”) and the impact it has had on travel and the broader economy throughout the U.S. since March 2020, the Company’s hotels have experienced significant declines in occupancy, which have had and may continue to have a negative effect on the Company’s revenue and operating results. While occupancy recovered significantly during 2021 and the first three months of 2022, there remains significant uncertainty as to when operations at the hotels will return to pre-pandemic levels.

Net Income (Loss) Per Common Share

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

Accounting Standards Recently Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance through December 31, 2022 to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. In January 2021, the FASB issued 2021-01, Reference Rate Reform (Topic 848), Scope, which further clarified the scope of the reference rate reform optional practical expedients and exceptions outlined in Topic 848. The amendments in ASU Nos. 2020-04 and 2021-01 apply to contract modifications that replace a reference rate affected by reference rate reform, providing optional expedients regarding the measurement of hedge effectiveness in hedging relationships that have been modified to replace a reference rate. The guidance in ASU Nos. 2020-04 and 2021-01 became effective upon issuance and the provisions of the ASUs have not had a material impact on the Company’s consolidated financial statements and related disclosures as of March 31, 2022. The provisions of these updates will generally affect the Company by allowing, among other things, the following:

7


Index

 

 

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

 

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

 

The Company’s unsecured credit facilities and interest rate swap agreements have provisions in place regarding the selection of replacement reference rates upon the discontinuance of LIBOR, and the Company anticipates that it may enter into amendments to clarify the replacement reference rates in the future.

 

Accounting for Certain Equity Options

In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (Topics 260, 470, 718 and 815), which provides updated guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The provisions of this update are effective for annual and interim periods beginning after December 15, 2021. The adoption of this update is not material to the Company’s consolidated financial statements.

 

Accounting for Funds Received as Government Assistance

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) to increase the transparency of government assistance disclosures including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. The provisions of this update are effective for annual periods beginning after December 15, 2021. The adoption of this update is not expected to be material to the Company’s consolidated financial statements.

2. Investment in Real Estate

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Land

 

$

794,901

 

 

$

794,899

 

Building and improvements

 

 

4,588,934

 

 

 

4,584,829

 

Furniture, fixtures and equipment

 

 

492,313

 

 

 

488,773

 

Finance ground lease assets

 

 

102,084

 

 

 

102,084

 

Franchise fees

 

 

18,366

 

 

 

17,862

 

 

 

 

5,996,598

 

 

 

5,988,447

 

Less accumulated depreciation and amortization

 

 

(1,356,580

)

 

 

(1,311,262

)

Investment in real estate, net

 

$

4,640,018

 

 

$

4,677,185

 

 

As of March 31, 2022, the Company owned 219 hotels with an aggregate of 28,747 rooms located in 36 states.

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

8


Index

 

Hotel Acquisitions

There were no acquisitions during the three months ended March 31, 2022. During the year ended December 31, 2021, the Company acquired eight hotels, including one hotel during the three months ended March 31, 2021. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price, excluding transaction costs, for each hotel. All dollar amounts are in thousands.

City

 

State

 

Brand

 

Manager

 

Date

Acquired

 

Rooms

 

 

Gross

Purchase

Price

 

Madison

 

WI

 

Hilton Garden Inn

 

Raymond

 

2/18/2021

 

 

176

 

 

$

49,599

 

Portland

 

ME

 

AC Hotels

 

Crestline

 

8/20/2021

 

 

178

 

 

 

66,750

 

Greenville

 

SC