| Closing Price ($) | Shares Out (MM) | Market Cap ($MM) |
| $16.38 | 224 | $3,670 |
| 10-Q | 2019-06-30 | Quarter: 2019-06-30 |
| 10-Q | 2019-03-31 | Quarter: 2019-03-31 |
| 10-K | 2018-12-31 | Annual: 2018-12-31 |
| 10-Q | 2018-09-30 | Quarter: 2018-09-30 |
| 10-Q | 2018-06-30 | Quarter: 2018-06-30 |
| 10-Q | 2018-03-31 | Quarter: 2018-03-31 |
| 10-K | 2017-12-31 | Annual: 2017-12-31 |
| 10-Q | 2017-09-30 | Quarter: 2017-09-30 |
| 10-Q | 2017-06-30 | Quarter: 2017-06-30 |
| 10-Q | 2017-03-31 | Quarter: 2017-03-31 |
| 10-K | 2016-12-31 | Annual: 2016-12-31 |
| 10-Q | 2016-09-30 | Quarter: 2016-09-30 |
| 10-Q | 2016-06-30 | Quarter: 2016-06-30 |
| 10-Q | 2016-03-31 | Quarter: 2016-03-31 |
| 10-K | 2015-12-31 | Annual: 2015-12-31 |
| 10-Q | 2015-09-30 | Quarter: 2015-09-30 |
| 10-Q | 2015-06-30 | Quarter: 2015-06-30 |
| 10-Q | 2015-03-31 | Quarter: 2015-03-31 |
| 10-K | 2014-12-31 | Annual: 2014-12-31 |
| 10-Q | 2014-09-30 | Quarter: 2014-09-30 |
| 10-Q | 2014-06-30 | Quarter: 2014-06-30 |
| 10-Q | 2014-03-31 | Quarter: 2014-03-31 |
| 10-K | 2013-12-31 | Annual: 2013-12-31 |
| 8-K | 2019-08-05 | Earnings, Exhibits |
| 8-K | 2019-06-24 | Officers, Other Events, Exhibits |
| 8-K | 2019-05-16 | Shareholder Vote, Other Events |
| 8-K | 2019-05-08 | Earnings, Exhibits |
| 8-K | 2019-04-15 | Other Events, Exhibits |
| 8-K | 2019-04-12 | Other Events |
| 8-K | 2019-03-20 | Other Events, Exhibits |
| 8-K | 2019-02-25 | Earnings, Exhibits |
| 8-K | 2019-01-23 | Officers, Other Events, Exhibits |
| 8-K | 2019-01-23 | Officers, Other Events, Exhibits |
| 8-K | 2018-12-10 | Other Events, Exhibits |
| 8-K | 2018-11-05 | Earnings, Exhibits |
| 8-K | 2018-10-24 | Other Events, Exhibits |
| 8-K | 2018-09-19 | Other Events, Exhibits |
| 8-K | 2018-08-06 | Earnings, Exhibits |
| 8-K | 2018-07-27 | Enter Agreement, Off-BS Arrangement, Exhibits |
| 8-K | 2018-06-29 | Other Events, Exhibits |
| 8-K | 2018-06-01 | Regulation FD, Exhibits |
| 8-K | 2018-05-17 | Officers, Shareholder Vote, Other Events, Exhibits |
| 8-K | 2018-05-03 | Other Events, Exhibits |
| 8-K | 2018-03-29 | Other Events, Exhibits |
| 8-K | 2018-03-16 | Regulation FD, Exhibits |
| 8-K | 2018-02-27 | Regulation FD, Exhibits |
| 8-K | 2018-02-23 | Other Events, Exhibits |
| 8-K | 2018-02-06 | Other Events, Exhibits |
| BHGE | Baker Hughes A Ge | 23,450 |
| ENS | Enersys | 2,820 |
| NPK | National Presto Industries | 757 |
| USX | US Xpress Enterprises | 287 |
| GASS | Stealthgas | 130 |
| TSQ | Townsquare Media | 117 |
| USEG | US Energy | 6 |
| DHGC | Desert Hawk Gold | 0 |
| WPS | Wisconsin Public Service | 0 |
| RIVEX | Rivex Technology | 0 |
| Part I. Financial Information |
| Item 1. Financial Statements |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
| Item 4. Controls and Procedures |
| Part II. Other Information |
| Item 1. Legal Proceedings |
| Item 1A. Risk Factors |
| Item 6. Exhibits |
| EX-31.1 | ex_152371.htm |
| EX-31.2 | ex_152372.htm |
| EX-31.3 | ex_152373.htm |
| EX-32.1 | ex_152374.htm |
| Balance Sheet | Income Statement | Cash Flow |
|---|---|---|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | 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)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
|
|
| | |
| (Address of principal executive offices) | (Zip Code) |
(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 |
| | | |
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.
|
| ☒ | 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
Number of registrant’s common shares outstanding as of August 1, 2019:
Apple Hospitality REIT, Inc.
Form 10-Q
Index
|
Page Number | |||
| PART I. FINANCIAL INFORMATION | |||
| Item 1. | |||
| Consolidated Balance Sheets – June 30, 2019 and December 31, 2018 | 3 | ||
| 4 | |||
| Consolidated Statements of Shareholders’ Equity – Three and six months ended June 30, 2019 and 2018 | 5 | ||
| Consolidated Statements of Cash Flows – Six months ended June 30, 2019 and 2018 | 6 | ||
| 7 | |||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 22 | |
| Item 3. | 37 | ||
| Item 4. | 38 | ||
| PART II. OTHER INFORMATION | |||
| Item 1. | 39 | ||
| Item 1A. | 39 | ||
| Item 6. | 39 | ||
| 40 | |||
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)
| June 30, | December 31, | |||||||
| 2019 | 2018 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment in real estate, net of accumulated depreciation and amortization of $ | $ | $ | ||||||
| Restricted cash-furniture, fixtures and other escrows | ||||||||
| Due from third party managers, net | ||||||||
| Other assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities | ||||||||
| Debt, net | $ | $ | ||||||
| Finance lease liabilities | ||||||||
| Accounts payable and other liabilities | ||||||||
| Total Liabilities | ||||||||
| Shareholders' Equity | ||||||||
| Preferred stock, authorized | ||||||||
| Common stock, no par value, authorized outstanding | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Distributions greater than net income | ( | ) | ( | ) | ||||
| Total Shareholders' Equity | ||||||||
| Total Liabilities and Shareholders' Equity | $ | $ | ||||||
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 | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenues: | ||||||||||||||||
| Room | $ | $ | $ | $ | ||||||||||||
| Food and beverage | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Expenses: | ||||||||||||||||
| Hotel operating expense: | ||||||||||||||||
| Operating | ||||||||||||||||
| Hotel administrative | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Utilities | ||||||||||||||||
| Repair and maintenance | ||||||||||||||||
| Franchise fees | ||||||||||||||||
| Management fees | ||||||||||||||||
| Total hotel operating expense | ||||||||||||||||
| Property taxes, insurance and other | ||||||||||||||||
| Operating ground lease | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Loss on impairment of depreciable real estate assets | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total expense | ||||||||||||||||
| Gain (loss) on sale of real estate | ( | ) | ||||||||||||||
| Operating income | ||||||||||||||||
| Interest and other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income before income taxes | ||||||||||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Interest rate derivatives | ( | ) | ( | ) | ||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||
| Basic and diluted net income per common share | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
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 | ||||||||||||||||||
| Number of Shares | Amount | Total | ||||||||||||||||||
| Balance at March 31, 2019 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Share based compensation, net | - | - | ||||||||||||||||||
| Interest rate derivatives | - | - | ( | ) | - | ( | ) | |||||||||||||
| Net income | - | - | - | |||||||||||||||||
| Distributions declared to shareholders ($ | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance at June 30, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Balance at March 31, 2018 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Share based compensation, net | - | - | ||||||||||||||||||
| Issuance of common shares, net | - | ( | ) | - | - | ( | ) | |||||||||||||
| Interest rate derivatives | - | - | - | |||||||||||||||||
| Net income | - | - | - | |||||||||||||||||
| Distributions declared to shareholders ($ | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance at June 30, 2018 | $ | $ | $ | ( | ) | $ | ||||||||||||||
Six Months Ended June 30, 2019 and 2018
|
Common Stock | Accumulated Other Comprehensive Income (Loss) | Distributions Greater Than Net Income | ||||||||||||||||||
| Number of Shares | Amount | Total | ||||||||||||||||||
| Balance at December 31, 2018 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Cumulative effect of the adoption of ASU 2016-02 related to leases | - | - | - | ( | ) | ( | ) | |||||||||||||
| Share based compensation, net | - | - | ||||||||||||||||||
| Common shares repurchased | ( | ) | ( | ) | - | - | ( | ) | ||||||||||||
| Interest rate derivatives | - | - | ( | ) | - | ( | ) | |||||||||||||
| Net income | - | - | - | |||||||||||||||||
| Distributions declared to shareholders ($ | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance at June 30, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
| Balance at December 31, 2017 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Share based compensation, net | - | - | ||||||||||||||||||
| Issuance of common shares, net | - | - | ||||||||||||||||||
| Common shares repurchased | ( | ) | ( | ) | - | - | ( | ) | ||||||||||||
| Interest rate derivatives | - | - | - | |||||||||||||||||
| Net income | - | - | - | |||||||||||||||||
| 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 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss on impairment of depreciable real estate assets | ||||||||
| Gain on sale of real estate | ( | ) | ||||||
| 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 | ||||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of hotel properties, net | ( | ) | ( | ) | ||||
| Deposits and other disbursements for potential acquisitions | ( | ) | ( | ) | ||||
| Capital improvements | ( | ) | ( | ) | ||||
| Net proceeds from sale of real estate | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| 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 | ( | ) | ( | ) | ||||
| Net payments on existing revolving credit facility | ( | ) | ||||||
| Net proceeds from extinguished revolving credit facility | ||||||||
| Proceeds from term loans | ||||||||
| Proceeds from mortgage debt | ||||||||
| Payments of mortgage debt | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net change in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| 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 | $ | $ | ||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| 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 Hospitality REIT, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
Organization
Apple Hospitality REIT, Inc., together with its wholly-owned subsidiaries (the “Company”), is a Virginia corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. The Company is a self-advised REIT that invests in income-producing real estate, primarily in the lodging sector, in the United States (“U.S.”). The Company’s fiscal year end is December 31. The Company has no foreign operations or assets and its operating structure includes only
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 | ||||||||
| Furniture, Fixtures and Equipment | ||||||||
| Finance Ground Lease Assets | ||||||||
| 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 | % | | $ | $ | $ | |||||||||||||||||
| Syracuse, NY | Residence Inn | % | | ||||||||||||||||||||
| 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 Repurchases
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 Plans
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 | ||||||||
| (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 Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by use of statements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “outlook,” “strategy,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. 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: