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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, 2024

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

Commission File Number 001-37389

APPLE HOSPITALITY REIT, INC.

(Exact name of registrant as specified in its charter)

Virginia

26-1379210

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

814 East Main Street

Richmond, Virginia

23219

(Address of principal executive offices)

(Zip Code)

(804) 344-8121

(Registrant's telephone number, including area code)

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

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Shares, no par value

 

APLE

 

New York Stock Exchange

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

Number of registrant’s common shares outstanding as of April 29, 2024: 242,346,188

 

 


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, 2024 and December 31, 2023

3

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income – three months ended March 31, 2024 and 2023

4

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity – three months ended March 31, 2024 and 2023

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows – three months ended March 31, 2024 and 2023

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

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

18

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

 

 

Item 4.

Controls and Procedures

34

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

 

 

Item 5.

Other Information

35

 

 

 

 

 

Item 6.

Exhibits

36

 

 

 

 

Signatures

37

 

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®, Homewood Suites by Hilton® and Motto by Hilton® trademarks are the property of Hilton Worldwide Holdings Inc. or one of its affiliates. The Hyatt®, Hyatt House® and Hyatt Place® trademarks are the property of Hyatt Hotels Corporation or one of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Apple Hospitality REIT, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Investment in real estate, net of accumulated depreciation and amortization of
   $
1,709,669 and $1,662,942, respectively

 

$

4,871,476

 

 

$

4,777,374

 

Assets held for sale

 

 

-

 

 

 

15,283

 

Cash and cash equivalents

 

 

4,942

 

 

 

10,287

 

Restricted cash-furniture, fixtures and other escrows

 

 

29,638

 

 

 

33,331

 

Due from third-party managers, net

 

 

63,048

 

 

 

36,437

 

Other assets, net

 

 

63,394

 

 

 

64,586

 

Total Assets

 

$

5,032,498

 

 

$

4,937,298

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Debt, net

 

$

1,500,698

 

 

$

1,371,494

 

Finance lease liabilities

 

 

111,837

 

 

 

111,892

 

Accounts payable and other liabilities

 

 

85,661

 

 

 

129,931

 

Total Liabilities

 

 

1,698,196

 

 

 

1,613,317

 

 

 

 

 

 

 

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
  
242,346,188 and 241,515,532 shares, respectively

 

 

4,805,504

 

 

 

4,794,804

 

Accumulated other comprehensive income

 

 

24,112

 

 

 

20,404

 

Distributions greater than net income

 

 

(1,495,314

)

 

 

(1,491,227

)

Total Shareholders’ Equity

 

 

3,334,302

 

 

 

3,323,981

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

5,032,498

 

 

$

4,937,298

 

 

See notes to consolidated financial statements.

3


 

Apple Hospitality REIT, Inc.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Revenues:

 

 

 

 

 

 

Room

 

$

298,746

 

 

$

285,520

 

Food and beverage

 

 

15,062

 

 

 

12,949

 

Other

 

 

15,704

 

 

 

12,985

 

Total revenue

 

 

329,512

 

 

 

311,454

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

Hotel operating expense:

 

 

 

 

 

 

Operating

 

 

83,796

 

 

 

78,663

 

Hotel administrative

 

 

29,752

 

 

 

27,319

 

Sales and marketing

 

 

29,839

 

 

 

27,700

 

Utilities

 

 

11,519

 

 

 

11,698

 

Repair and maintenance

 

 

16,842

 

 

 

15,665

 

Franchise fees

 

 

14,754

 

 

 

13,644

 

Management fees

 

 

10,762

 

 

 

10,476

 

Total hotel operating expense

 

 

197,264

 

 

 

185,165

 

Property taxes, insurance and other

 

 

20,992

 

 

 

19,675

 

General and administrative

 

 

10,584

 

 

 

11,461

 

Depreciation and amortization

 

 

46,823

 

 

 

45,906

 

Total expense

 

 

275,663

 

 

 

262,207

 

 

 

 

 

 

 

Gain on sale of real estate

 

 

17,766

 

 

 

-

 

 

 

 

 

 

 

Operating income

 

 

71,615

 

 

 

49,247

 

 

 

 

 

 

 

Interest and other expense, net

 

 

(17,309

)

 

 

(16,004

)

 

 

 

 

 

 

Income before income taxes

 

 

54,306

 

 

 

33,243

 

 

 

 

 

 

 

Income tax expense

 

 

(256

)

 

 

(320

)

 

 

 

 

 

 

Net income

 

$

54,050

 

 

$

32,923

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

Interest rate derivatives

 

 

3,708

 

 

 

(8,106

)

 

 

 

 

 

 

Comprehensive income

 

$

57,758

 

 

$

24,817

 

 

 

 

 

 

 

Basic and diluted net income per common share

 

$

0.22

 

 

$

0.14

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

242,408

 

 

 

229,398

 

 

See notes to consolidated financial statements.

4


 

Apple Hospitality REIT, Inc.

Consolidated Statements of Shareholders' Equity

(Unaudited)

(in thousands, except per share data)

 

 

 

Common Stock

 

 

Accumulated
Other

 

 

Distributions

 

 

 

 

 

 

Number
of Shares

 

 

Amount

 

 

Comprehensive
Income (Loss)

 

 

Greater Than
Net Income

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2023

 

 

241,516

 

 

$

4,794,804

 

 

$

20,404

 

 

$

(1,491,227

)

 

$

3,323,981

 

Share based compensation, net of common
  shares surrendered to satisfy employee
  tax withholding requirements

 

 

830

 

 

 

10,971

 

 

 

-

 

 

 

-

 

 

 

10,971

 

Equity issuance costs

 

 

-

 

 

 

(271

)

 

 

-

 

 

 

-

 

 

 

(271

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

3,708

 

 

 

-

 

 

 

3,708

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

54,050

 

 

 

54,050

 

Distributions declared to shareholders ($0.24
  per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(58,137

)

 

 

(58,137

)

Balance at March 31, 2024

 

 

242,346

 

 

$

4,805,504

 

 

$

24,112

 

 

$

(1,495,314

)

 

$

3,334,302

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2022

 

 

228,645

 

 

$

4,577,022

 

 

$

36,881

 

 

$

(1,435,508

)

 

$

3,178,395

 

Share based compensation, net of common
  shares surrendered to satisfy employee
  tax withholding requirements

 

 

618

 

 

 

8,405

 

 

 

-

 

 

 

-

 

 

 

8,405

 

Equity issuance costs

 

 

-

 

 

 

(29

)

 

 

-

 

 

 

-

 

 

 

(29

)

Common shares repurchased

 

 

(250

)

 

 

(3,557

)

 

 

-

 

 

 

-

 

 

 

(3,557

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

(8,106

)

 

 

-

 

 

 

(8,106

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32,923

 

 

 

32,923

 

Distributions declared to shareholders ($0.24
  per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(55,169

)

 

 

(55,169

)

Balance at March 31, 2023

 

 

229,013

 

 

$

4,581,841

 

 

$

28,775

 

 

$

(1,457,754

)

 

$

3,152,862

 

 

See notes to consolidated financial statements.

5


 

Apple Hospitality REIT, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

54,050

 

 

$

32,923

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

46,823

 

 

 

45,906

 

Gain on sale of real estate

 

 

(17,766

)

 

 

-

 

Other non-cash expenses, net

 

 

2,094

 

 

 

2,013

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Increase in due from third-party managers, net

 

 

(27,186

)

 

 

(27,789

)

Decrease (increase) in other assets, net

 

 

2,833

 

 

 

(745

)

Decrease in accounts payable and other liabilities

 

 

(6,196

)

 

 

(617

)

Net cash provided by operating activities

 

 

54,652

 

 

 

51,691

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition of hotel properties, net

 

 

(118,337

)

 

 

-

 

Disbursements for potential acquisitions, net

 

 

(422

)

 

 

(677

)

Capital improvements

 

 

(31,299

)

 

 

(23,899

)

Net proceeds from sale of real estate

 

 

33,111

 

 

 

-

 

Net cash used in investing activities

 

 

(116,947

)

 

 

(24,576

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Repurchases of common shares

 

 

-

 

 

 

(3,557

)

Common shares surrendered to satisfy employee withholding requirements

 

 

(5,050

)

 

 

(5,742

)

Distributions paid to common shareholders

 

 

(70,156

)

 

 

(73,399

)

Equity issuance costs

 

 

(159

)

 

 

(15

)

Proceeds from revolving credit facility

 

 

180,400

 

 

 

112,500

 

Payments on revolving credit facility

 

 

(49,400

)

 

 

(72,000

)

Proceeds from term loans and senior notes

 

 

-

 

 

 

50,000

 

Payments of mortgage debt and other loans

 

 

(2,268

)

 

 

(39,568

)

Principal payments on finance leases

 

 

(110

)

 

 

(67

)

Net cash provided by (used in) financing activities

 

 

53,257

 

 

 

(31,848

)

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

(9,038

)

 

 

(4,733

)

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

43,618

 

 

 

43,512

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

 

$

34,580

 

 

$

38,779

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

 

$

16,666

 

 

$

15,605

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

Accrued distribution to common shareholders

 

$

19,355

 

 

$

18,296

 

Accrued capital expenditures

 

$

4,771

 

 

$

5,587

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

10,287

 

 

$

4,077

 

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

 

 

33,331

 

 

 

39,435

 

Cash, cash equivalents and restricted cash, beginning of period

 

$

43,618

 

 

$

43,512

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

4,942

 

 

$

6,093

 

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

 

 

29,638

 

 

 

32,686

 

Cash, cash equivalents and restricted cash, end of period

 

$

34,580

 

 

$

38,779

 

 

See notes to consolidated financial statements.

6


 

Apple Hospitality REIT, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

Apple Hospitality REIT, Inc., formed in November 2007 as a Virginia corporation, together with its wholly-owned subsidiaries (the “Company”), is a self-advised real estate investment trust (“REIT”) that invests in income-producing real estate, primarily in the lodging sector, in the United States (“U.S.”). The Company’s fiscal year end is December 31. The Company has no foreign operations or assets, and its operating structure includes only one reportable segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does not have any elements of power in the decision-making process of these entities; therefore, the Company does not consolidate the entities. As of March 31, 2024, the Company owned 224 hotels with an aggregate of 29,886 guest rooms located in 37 states and the District of Columbia (“D.C.”). 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, 2023 (the “2023 Form 10-K”). Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the twelve-month period ending December 31, 2024.

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 Issued

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of significant segment expenses and other segment items on an annual and interim basis and disclosure in interim periods about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”) and requires a public entity that has a single reportable segment to provide all disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 280. This ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. As of March 31, 2024, the Company has not adopted this ASU. The adoption of this ASU is expected to only impact disclosures with respect to the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on income tax disclosures around effective tax rates and cash income taxes paid. This update requires disclosure, on an annual basis, of a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The amendments in this ASU may be applied prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the

7


 

pre-ASU disclosures for the prior periods, or the amendments may be applied retrospectively by providing the revised disclosures for all periods presented. As of March 31, 2024, the Company has not adopted this ASU. The adoption of this ASU is expected to only impact disclosures with respect 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,

 

 

 

2024

 

 

2023

 

Land

 

$

844,560

 

 

$

828,868

 

Building and improvements

 

 

5,029,149

 

 

 

4,917,105

 

Furniture, fixtures and equipment

 

 

581,787

 

 

 

571,026

 

Finance ground lease assets

 

 

102,084

 

 

 

102,084

 

Franchise fees

 

 

23,565

 

 

 

21,233

 

 

 

6,581,145

 

 

 

6,440,316

 

Less accumulated depreciation and amortization

 

 

(1,709,669

)

 

 

(1,662,942

)

Investment in real estate, net

 

$

4,871,476

 

 

$

4,777,374

 

 

As of March 31, 2024, the Company owned 224 hotels with an aggregate of 29,886 guest rooms located in 37 states and the District of Columbia. In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 hotel guest rooms (“non-hotel property”). Lease revenue from this property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result of the lease agreement, this property has been excluded from the Company’s hotel and guest room counts since May 2023.

The Company leases all of its 224 hotels to its wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under master hotel lease agreements.

Acquisitions

The Company acquired one hotel during the three months ended March 31, 2024 for a gross purchase price of $116.8 million. The hotel, which was purchased on March 25, 2024, is an AC Hotel in Washington, D.C. with 234 guest rooms, managed by Hersha Hospitality Management (“HHM”).

During the year ended December 31, 2023, the Company acquired six hotels and one free-standing parking garage, none of which were acquired during the three months ended March 31, 2023. The following table sets forth the location, brand, manager, date acquired, number of guest rooms and gross purchase price, excluding transaction costs, for each property. All dollar amounts are in thousands.
 

City

 

State

 

Brand

 

Manager

 

Date
Acquired

 

Rooms

 

 

Gross
Purchase
Price

 

Cleveland

 

OH

 

Courtyard

 

Concord

 

6/30/2023

 

 

154

 

 

$

31,000

 

Salt Lake City

 

UT

 

Courtyard

 

North Central

 

10/11/2023

 

 

175

 

 

 

48,110

 

Salt Lake City

 

UT

 

Hyatt House

 

North Central

 

10/11/2023

 

 

159

 

 

 

34,250

 

Salt Lake City (1)

 

UT

 

N/A

 

North Central

 

10/11/2023

 

N/A

 

 

 

9,140

 

Renton

 

WA

 

Residence Inn

 

InnVentures

 

10/18/2023

 

 

146

 

 

 

55,500

 

South Jordan

 

UT

 

Embassy Suites

 

HHM

 

11/21/2023

 

 

192

 

 

 

36,750

 

Las Vegas

 

NV

 

SpringHill Suites

 

Crescent

 

12/27/2023

 

 

299

 

 

 

75,000

 

 

 

 

 

 

 

 

 

 

 

1,125

 

 

$

289,750

 

 

(1)
This property is a free-standing parking garage which serves both the Courtyard and Hyatt House hotels in Salt Lake City, Utah and the surrounding area, however, it is not affiliated with any brand.

 

8


 

In the first quarter of 2024, the Company utilized proceeds from the sale of two properties and borrowings under its Revolving Credit Facility (as defined below) to purchase the Washington, D.C. hotel. The Company utilized its available cash on hand, net proceeds from sales of shares under the ATM Program (as defined below) and availability under its Revolving Credit Facility to purchase the properties acquired in 2023. The acquisitions of these hotel properties were accounted for as acquisitions of asset groups, whereby costs incurred to effect the acquisitions (which were not significant) were capitalized as part of the cost of the assets acquired. For the one hotel acquired during the three months ended March 31, 2024, the amount of revenue and operating income included in the Company’s consolidated statement of operations from the date of acquisition through March 31, 2024 was approximately $0.5 million and less than $0.1 million, respectively.

Purchase Contract Commitments

As of March 31, 2024, the Company had separate outstanding contracts for the potential purchase of two hotels, consisting of one hotel in Madison, Wisconsin and one hotel in Nashville, Tennessee, for a total combined purchase price of approximately $177.5 million. Both hotels are under development, with the hotel in Madison, Wisconsin currently planned to be completed and opened for business in mid-2024 and the hotel in Nashville, Tennessee currently planned to be completed and opened for business in late 2025, at which respective times the Company expects to complete the purchases of these hotels. If the closings occur, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured credit facilities available at closing, to purchase the hotels under contract. Although the Company is working towards acquiring these hotels, in each case there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under the applicable purchase contracts and acquire these hotels. As these hotels are under development, at this time, the sellers have not met all of the conditions to closing.

The following table summarizes the location, expected franchise brand, date of purchase contract, expected number of guest rooms upon completion, refundable (if the seller does not meet its obligations under the contract) deposits paid and gross purchase price for each of the contracts outstanding as of March 31, 2024. All dollar amounts are in thousands.

Location

 

Brand

 

Date of
Purchase Contract

 

Rooms

 

 

Refundable
Deposits

 

 

Gross
Purchase
Price

 

Madison, WI

 

Embassy Suites

 

7/27/2021

 

 

262

 

 

$

893

 

 

$

79,306

 

Nashville, TN

 

Motto

 

5/16/2023

 

 

260

 

 

 

1,058

 

 

 

98,183

 

 

 

 

 

 

 

 

522

 

 

$

1,951

 

 

$

177,489

 

 

3. Dispositions

During the three months ended March 31, 2024, the Company sold two hotels to an unrelated party for a combined gross sales price of approximately $33.5 million, resulting in a combined gain on the sale of approximately $17.8 million, net of transaction costs, which is included in the Company’s consolidated statement of operations for the three months ended March 31, 2024. The two hotels had a total carrying value of approximately $15.3 million at the time of sale. There were no dispositions during the year ended December 31, 2023. The following table lists the two hotels sold:

City

 

State

 

Brand

 

Date Sold

 

Rooms

 

Rogers

 

AR

 

Hampton

 

2/9/2024

 

 

122

 

Rogers

 

AR

 

Homewood Suites

 

2/9/2024

 

 

126

 

 

 

 

 

 

 

 

 

248

 

Excluding gains on sale of real estate, the Company’s consolidated statements of operations include operating income of less than $0.1 million and approximately $0.2 million for the three months ended March 31, 2024 and 2023, respectively, relating to the results of operations of the two hotels sold in 2024 noted above for the period of ownership. The sale of these properties does not represent a strategic shift that has, or will have, a major effect on the Company’s operations and financial results; therefore, the operating results for the period of ownership of this property are included in income from continuing operations for the three months ended March 31, 2024 and 2023. A portion of the proceeds from the sale of the two hotels was used to complete a like-kind exchange, in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, for the acquisition of the AC Hotel in Washington, D.C. as discussed above in Note 2, which resulted in the deferral of taxable gains of $15.1 million.

9


 

4. Debt

Summary

As of March 31, 2024 and December 31, 2023, the Company’s debt consisted of the following (in thousands):

 

 

 

March 31,
2024

 

 

December 31,
2023

 

Revolving credit facility

 

$

131,000

 

 

$

-

 

Term loans and senior notes, net

 

 

1,089,402

 

 

 

1,088,904

 

Mortgage debt, net

 

 

280,296

 

 

 

282,590

 

Debt, net

 

$

1,500,698

 

 

$

1,371,494

 

 

The aggregate amounts of principal payable under the Company’s total debt obligations as of March 31, 2024 (including the Revolving Credit Facility (if any) (as defined below), term loans, senior notes and mortgage debt), for the remainder of this fiscal year, each of the next four fiscal years and thereafter are as follows (in thousands):

 

2024 (April - December)

 

$

111,329

 

2025

 

 

295,140

 

2026

 

 

205,649

 

2027

 

 

278,602

 

2028

 

 

334,066

 

Thereafter

 

 

281,948

 

 

 

1,506,734

 

Unamortized fair value adjustment of assumed debt

 

 

442

 

Unamortized debt issuance costs

 

 

(6,478

)

Total

 

$

1,500,698

 

 

The Company uses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the annual Secured Overnight Financing Rate (“SOFR”) for a one-month term (“one-month SOFR”) plus a 0.10% SOFR spread adjustment. The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. See Note 5 for more information on the interest rate swap agreements. The Company’s total fixed-rate and variable-rate debt, after giving effect to its interest rate swaps in effect as of March 31, 2024 and December 31, 2023, is set forth below. All dollar amounts are in thousands.

 

 

 

March 31,
2024

 

 

Percentage

 

 

December 31,
2023

 

 

Percentage

 

Fixed-rate debt (1)

 

$

1,175,734

 

 

 

78

%

 

$

1,228,002

 

 

 

89

%

Variable-rate debt

 

 

331,000

 

 

 

22

%

 

 

150,000

 

 

 

11

%

Total

 

$

1,506,734

 

 

 

 

 

$

1,378,002

 

 

 

 

Weighted-average interest rate of debt

 

 

4.56

%

 

 

 

 

 

4.26

%

 

 

 

 

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

Credit Facilities

$1.2 Billion Credit Facility

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

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

10


 

due monthly, and the interest rate, subject to certain exceptions, is equal to the one-month SOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.35% to 2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. As of March 31, 2024, the Company had availability of $519 million under the Revolving Credit Facility. The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.25% on the unused portion of the Revolving Credit Facility, based on the amount of borrowings outstanding during the quarter.

$225 Million Term Loan Facility

The Company also has an unsecured $225 million term loan facility that is comprised of (i) a $50 million term loan with an initial maturity date of August 2, 2023, which was funded on August 2, 2018, and (ii) a $175 million term loan with a maturity date of August 2, 2025, of which $100 million was funded on August 2, 2018, and the remaining $75 million was funded on January 29, 2019 (the term loans described in clauses (i) and (ii) are referred to together as the “$225 million term loan facility”). On July 19, 2023, the Company entered into an amendment of its $225 million term loan facility, which extended the maturity date of the existing $50 million term loan by two years to August 2, 2025. The Company may make voluntary prepayments, in whole or in part, at any time, subject to certain conditions. Interest payments on the $225 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month SOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.35% to 2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.

2017 $85 Million Term Loan Facility

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

2019 $85 Million Term Loan Facility

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

$50 Million Senior Notes Facility

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

$75 Million Senior Notes Facility

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

11


 

As of March 31, 2024 and December 31, 2023, the details of the Company’s unsecured credit facilities were as set forth in the table below. All dollar amounts are in thousands.

 

 

 

 

 

 

 

 

Outstanding Balance

 

 

 

Interest Rate

 

Maturity
Date

 

March 31, 2024

 

 

December 31, 2023

 

Revolving credit facility (1)

 

SOFR + 0.10% + 1.40% - 2.25%

 

7/25/2026

 

 

$

131,000

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

Term loans and senior notes

 

 

 

 

 

 

 

 

 

 

 

$275 million term loan

 

SOFR + 0.10% + 1.35% - 2.20%

 

7/25/2027

 

 

 

275,000

 

 

 

275,000

 

$300 million term loan

 

SOFR + 0.10% + 1.35% - 2.20%

 

1/31/2028

 

 

 

300,000

 

 

 

300,000

 

$50 million term loan

 

SOFR + 0.10% + 1.35% - 2.20%

 

8/2/2025

 

 

 

50,000

 

 

 

50,000

 

$175 million term loan

 

SOFR + 0.10% + 1.65% - 2.50%

 

8/2/2025

 

 

 

175,000

 

 

 

175,000

 

2017 $85 million term loan

 

SOFR + 0.10% + 1.30% - 2.10%

 

7/25/2024

(3)

 

 

85,000

 

 

 

85,000

 

2019 $85 million term loan

 

SOFR + 0.10% + 1.70% - 2.55%

 

12/31/2029

 

 

 

85,000

 

 

 

85,000

 

$50 million senior notes

 

3.60% - 4.35%

 

3/31/2030

 

 

 

50,000

 

 

 

50,000

 

$75 million senior notes

 

4.88% - 5.63%

 

6/2/2029

 

 

 

75,000

 

 

 

75,000

 

Term loans and senior notes at stated value

 

 

 

 

 

1,095,000

 

 

 

1,095,000

 

Unamortized debt issuance costs

 

 

 

 

 

 

 

(5,598

)

 

 

(