Apple Hospitality REIT, Inc. [APLE] Filings

10-Q 1 aple-20240930.htm 10-Q 10-Q

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 September 30, 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 October 28, 2024: 239,925,065

Index

Apple Hospitality REIT, Inc.

Form 10-Q

Index


			Page Number
PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements	3

		Consolidated Balance Sheets – September 30, 2024 and December 31, 2023	3

		Consolidated Statements of Operations and Comprehensive Income – three and nine months ended September 30, 2024 and 2023	4

		Consolidated Statements of Shareholders’ Equity – three and nine months ended September 30, 2024 and 2023	5

		Consolidated Statements of Cash Flows – nine months ended September 30, 2024 and 2023	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	38

	Item 4.	Controls and Procedures	38

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	39

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

	Item 5.	Other Information	39

	Item 6.	Exhibits	40

Signatures			41

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)


	September 30,			December 31,
	2024			2023
	(unaudited)
Assets
Investment in real estate, net of accumulated depreciation and amortization of $1,797,006 and $1,662,942, respectively	$	4,873,083		$	4,777,374
Assets held for sale		2,950			15,283
Cash and cash equivalents		6,147			10,287
Restricted cash-furniture, fixtures and other escrows		32,570			33,331
Due from third-party managers, net		57,394			36,437
Other assets, net		49,659			64,586
Total Assets	$	5,021,803		$	4,937,298

Liabilities
Debt, net	$	1,501,189		$	1,371,494
Finance lease liabilities		111,687			111,892
Accounts payable and other liabilities		112,058			129,931
Total Liabilities		1,724,934			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 239,925,065 and 241,515,532 shares, respectively		4,772,759			4,794,804
Accumulated other comprehensive income		4,792			20,404
Distributions greater than net income		(1,480,682	)		(1,491,227	)
Total Shareholders’ Equity		3,296,869			3,323,981

Total Liabilities and Shareholders’ Equity	$	5,021,803		$	4,937,298

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						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023
Revenues:
Room	$	346,058		$	327,121		$	998,493		$	943,684
Food and beverage		15,841			13,576			48,760			42,032
Other		16,944			17,563			51,179			45,628
Total revenue		378,843			358,260			1,098,432			1,031,344

Expenses:
Hotel operating expense:
Operating		93,350			85,829			268,669			249,403
Hotel administrative		31,433			29,172			92,638			85,933
Sales and marketing		33,000			30,770			96,488			89,406
Utilities		14,787			13,797			37,971			36,271
Repair and maintenance		17,863			16,336			52,331			48,452
Franchise fees		16,963			15,895			49,244			45,407
Management fees		12,546			11,911			36,156			34,516
Total hotel operating expense		219,942			203,710			633,497			589,388
Property taxes, insurance and other		20,946			21,678			63,878			61,347
General and administrative		9,190			11,079			30,839			34,640
Loss on impairment of depreciable real estate assets		2,896			-			2,896			-
Depreciation and amortization		48,143			45,498			142,681			137,398
Total expense		301,117			281,965			873,791			822,773

Gain on sale of real estate		-			-			18,215			-

Operating income		77,726			76,295			242,856			208,571

Interest and other expense, net		(21,217	)		(17,470	)		(57,896	)		(50,973	)

Income before income taxes		56,509			58,825			184,960			157,598

Income tax expense		(243	)		(313	)		(713	)		(874	)

Net income	$	56,266		$	58,512		$	184,247		$	156,724

Other comprehensive income (loss):
Interest rate derivatives		(16,588	)		1,412			(15,612	)		530

Comprehensive income	$	39,678		$	59,924		$	168,635		$	157,254

Basic and diluted net income per common share	$	0.23		$	0.26		$	0.76		$	0.68

Weighted average common shares outstanding - basic and diluted		240,500			228,877			241,690			229,103

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 September 30, 2024 and 2023
	Common Stock						Accumulated Other			Distributions
	Number of Shares			Amount			Comprehensive Income (Loss)			Greater Than Net Income			Total

Balance at June 30, 2024		241,280		$	4,790,949		$	21,380		$	(1,479,359	)	$	3,332,970
Share based compensation, net of common shares surrendered to satisfy employee tax withholding requirements		12			1,042			-			-			1,042
Equity issuance costs		-			(56	)		-			-			(56	)
Common shares repurchased		(1,367	)		(19,176	)		-			-			(19,176	)
Interest rate derivatives		-			-			(16,588	)		-			(16,588	)
Net income		-			-			-			56,266			56,266
Distributions declared to shareholders ($0.24 per share)		-			-			-			(57,589	)		(57,589	)
Balance at September 30, 2024		239,925		$	4,772,759		$	4,792		$	(1,480,682	)	$	3,296,869

Balance at June 30, 2023		228,799		$	4,579,405		$	35,999		$	(1,447,349	)	$	3,168,055
Share based compensation, net of common shares surrendered to satisfy employee tax withholding requirements		12			870			-			-			870
Equity issuance costs		-			(33	)		-			-			(33	)
Common shares repurchased		(4	)		(49	)		-			-			(49	)
Interest rate derivatives		-			-			1,412			-			1,412
Net income		-			-			-			58,512			58,512
Distributions declared to shareholders ($0.24 per share)		-			-			-			(54,856	)		(54,856	)
Balance at September 30, 2023		228,807		$	4,580,193		$	37,411		$	(1,443,693	)	$	3,173,911


Nine Months Ended September 30, 2024 and 2023
	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		854			13,054			-			-			13,054
Equity issuance costs		-			(447	)		-			-			(447	)
Common shares repurchased		(2,445	)		(34,652	)		-			-			(34,652	)
Interest rate derivatives		-			-			(15,612	)		-			(15,612	)
Net income		-			-			-			184,247			184,247
Distributions declared to shareholders ($0.72 per share)		-			-			-			(173,702	)		(173,702	)
Balance at September 30, 2024		239,925		$	4,772,759		$	4,792		$	(1,480,682	)	$	3,296,869

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		642			10,145			-			-			10,145
Equity issuance costs		-			(94	)		-			-			(94	)
Common shares repurchased		(480	)		(6,880	)		-			-			(6,880	)
Interest rate derivatives		-			-			530			-			530
Net income		-			-			-			156,724			156,724
Distributions declared to shareholders ($0.72 per share)		-			-			-			(164,909	)		(164,909	)
Balance at September 30, 2023		228,807		$	4,580,193		$	37,411		$	(1,443,693	)	$	3,173,911

See notes to consolidated financial statements.

Apple Hospitality REIT, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Nine Months Ended
	September 30,
	2024			2023
Cash flows from operating activities:
Net income	$	184,247		$	156,724
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		142,681			137,398
Loss on impairment of depreciable real estate assets		2,896			-
Gain on sale of real estate		(18,215	)		-
Other non-cash expenses, net		6,290			6,611
Changes in operating assets and liabilities:
Increase in due from third-party managers, net		(21,521	)		(17,514	)
Decrease (increase) in other assets, net		320			(6,862	)
Increase in accounts payable and other liabilities		13,447			25,807
Net cash provided by operating activities		310,145			302,164

Cash flows from investing activities:
Acquisition of hotel properties, net		(197,349	)		(30,980	)
Disbursements for potential acquisitions, net		-			(5,779	)
Capital improvements		(59,577	)		(49,336	)
Net proceeds from sale of real estate		40,056			-
Net cash used in investing activities		(216,870	)		(86,095	)

Cash flows from financing activities:
Repurchases of common shares		(34,652	)		(6,880	)
Common shares surrendered to satisfy employee withholding requirements		(5,050	)		(5,742	)
Distributions paid to common shareholders		(185,881	)		(183,119	)
Equity issuance costs		(422	)		(72	)
Proceeds from revolving credit facility		360,900			166,500
Payments on revolving credit facility		(250,400	)		(166,500	)
Proceeds from term loans and senior notes		45,000			50,000
Payments of mortgage debt and other loans		(26,488	)		(43,968	)
Principal payments on finance leases		(360	)		(231	)
Financing costs		(823	)		(506	)
Net cash used in financing activities		(98,176	)		(190,518	)

Net change in cash, cash equivalents and restricted cash		(4,901	)		25,551

Cash, cash equivalents and restricted cash, beginning of period		43,618			43,512

Cash, cash equivalents and restricted cash, end of period	$	38,717		$	69,063

Supplemental cash flow information:
Interest paid	$	56,233		$	49,583
Income taxes paid	$	780		$	1,010

Supplemental disclosure of noncash investing and financing activities:
Accrued distribution to common shareholders	$	19,162		$	18,280
Accrued capital expenditures	$	3,954		$	3,684

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	$	6,147		$	35,366
Restricted cash-furniture, fixtures and other escrows, end of period		32,570			33,697
Cash, cash equivalents and restricted cash, end of period	$	38,717		$	69,063

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., 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 September 30, 2024, the Company owned 224 hotels with an aggregate of 30,068 guest rooms located in 37 states and the District of Columbia (“D.C.”), including one hotel with 90 guest rooms classified as held for sale, which is expected to be sold to an unrelated party in November 2024. 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 and nine months ended September 30, 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 September 30, 2024, the Company has not adopted this ASU. The adoption of this ASU is expected to only impact the notes to the Company’s consolidated financial statements by requiring additional disclosure but will have no impact on 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 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 September 30, 2024, the Company has not adopted this ASU. The adoption of this ASU is expected to only impact the notes to the Company’s consolidated financial statements by requiring additional disclosure but will have no impact on the Company’s consolidated financial statements.

2. Investment in Real Estate

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


	September 30,			December 31,
	2024			2023
Land	$	844,711		$	828,868
Building and improvements		5,095,351			4,917,105
Furniture, fixtures and equipment		602,212			571,026
Finance ground lease assets		102,084			102,084
Franchise fees		25,731			21,233
		6,670,089			6,440,316
Less accumulated depreciation and amortization		(1,797,006	)		(1,662,942	)
Investment in real estate, net	$	4,873,083		$	4,777,374

As of September 30, 2024, the Company owned 224 hotels with an aggregate of 30,068 guest rooms located in 37 states and the District of Columbia, including one hotel with 90 guest rooms classified as held for sale, which is expected to be sold to an unrelated party in November 2024. 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 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 and transfer of possession to the operator, this property has been excluded from the Company’s hotel and guest room counts since May 2023. As a result of the operator's failure to make lease payments, the Company has commenced legal proceedings to remove the operator from possession of the hotel. The Company intends to enforce its rights under the lease and transition management of the hotel to a third-party manager, however, the removal process is still ongoing and the timing of the resolution of this matter and the transition of management operations cannot be predicted at this time.

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

Acquisitions

The Company acquired two hotels during the nine months ended September 30, 2024. The following table sets forth the location, brand, manager, date acquired, number of guest rooms and gross purchase price, excluding transaction costs, for each hotel. All dollar amounts are in thousands.

        City

        State

        Brand

        Manager

        Date
Acquired

        Guest Rooms

        Gross
Purchase
Price

Washington, D.C.

N/A

AC Hotels

HHM

3/25/2024