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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, 2021

 

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

 

Commission File Number 001-37389

APPLE HOSPITALITY REIT, INC.

(Exact name of registrant as specified in its charter)

 

Virginia

 

26-1379210

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

814 East Main Street

Richmond, Virginia

 

23219

(Address of principal executive offices)   

 

(Zip Code)

 

(804) 344-8121

(Registrant's telephone number, including area code) 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Shares, no par value

 

APLE

 

New York Stock Exchange

 

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

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

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

 

Large accelerated filer

Accelerated filer                  

 

Non-accelerated filer      

Smaller reporting company

Emerging growth company 

                    

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

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

Number of registrant’s common shares outstanding as of May 3, 2021: 223,656,264

 

 

 


 

 

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, 2021 and December 31, 2020

3

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss – three months ended March 31, 2021 and 2020

4

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity – three months ended March 31, 2021 and 2020

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows – three months ended March 31, 2021 and 2020

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

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

19

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

 

 

 

Item 4.

Controls and Procedures

36

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

37

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

 

 

Item 6.

Exhibits

38

 

 

 

 

Signatures

39

 

This Form 10-Q includes references to certain trademarks or service marks. The 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®, Hampton Inn 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.

 


Index

 

PART I. FINANCIAL INFORMATION 

Item 1. Financial Statements

Apple Hospitality REIT, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

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

   $1,275,557 and $1,235,698, respectively

 

$

4,712,480

 

 

$

4,732,896

 

Assets held for sale

 

 

5,172

 

 

 

5,316

 

Cash and cash equivalents

 

 

5,776

 

 

 

5,556

 

Restricted cash-furniture, fixtures and other escrows

 

 

30,149

 

 

 

28,812

 

Due from third party managers, net

 

 

38,766

 

 

 

22,137

 

Other assets, net

 

 

33,589

 

 

 

35,042

 

Total Assets

 

$

4,825,932

 

 

$

4,829,759

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Debt, net

 

$

1,523,032

 

 

$

1,482,571

 

Finance lease liabilities

 

 

221,027

 

 

 

219,981

 

Accounts payable and other liabilities

 

 

80,108

 

 

 

97,860

 

Total Liabilities

 

 

1,824,167

 

 

 

1,800,412

 

 

 

 

 

 

 

 

 

 

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

   223,656,264 and 223,212,346 shares, respectively

 

 

4,493,422

 

 

 

4,488,419

 

Accumulated other comprehensive loss

 

 

(26,720

)

 

 

(42,802

)

Distributions greater than net income

 

 

(1,464,937

)

 

 

(1,416,270

)

Total Shareholders' Equity

 

 

3,001,765

 

 

 

3,029,347

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders' Equity

 

$

4,825,932

 

 

$

4,829,759

 

 

See notes to consolidated financial statements.

3


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Room

 

$

148,481

 

 

$

217,979

 

Food and beverage

 

 

2,783

 

 

 

11,312

 

Other

 

 

7,449

 

 

 

8,719

 

Total revenue

 

 

158,713

 

 

 

238,010

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Hotel operating expense:

 

 

 

 

 

 

 

 

Operating

 

 

38,150

 

 

 

68,029

 

Hotel administrative

 

 

17,744

 

 

 

23,643

 

Sales and marketing

 

 

14,888

 

 

 

24,359

 

Utilities

 

 

10,560

 

 

 

9,190

 

Repair and maintenance

 

 

10,225

 

 

 

11,793

 

Franchise fees

 

 

6,919

 

 

 

10,257

 

Management fees

 

 

5,254

 

 

 

7,995

 

Total hotel operating expense

 

 

103,740

 

 

 

155,266

 

Property taxes, insurance and other

 

 

19,688

 

 

 

19,595

 

General and administrative

 

 

8,119

 

 

 

9,523

 

Loss on impairment of depreciable real estate assets

 

 

10,754

 

 

 

-

 

Depreciation and amortization

 

 

48,710

 

 

 

49,522

 

Total expense

 

 

191,011

 

 

 

233,906

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate

 

 

4,484

 

 

 

8,839

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(27,814

)

 

 

12,943

 

 

 

 

 

 

 

 

 

 

Interest and other expense, net

 

 

(18,513

)

 

 

(15,566

)

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(46,327

)

 

 

(2,623

)

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(108

)

 

 

(146

)

 

 

 

 

 

 

 

 

 

Net loss

 

$

(46,435

)

 

$

(2,769

)

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Interest rate derivatives

 

 

16,082

 

 

 

(42,166

)

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(30,353

)

 

$

(44,935

)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.21

)

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

223,733

 

 

 

224,294

 

 

See notes to consolidated financial statements.

4


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Shareholders' Equity

Three Months Ended March 31, 2021 and 2020

(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, 2020

 

 

223,212

 

 

$

4,488,419

 

 

$

(42,802

)

 

$

(1,416,270

)

 

$

3,029,347

 

Share based compensation, net

 

 

444

 

 

 

5,004

 

 

 

-

 

 

 

-

 

 

 

5,004

 

Equity issuance costs

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

(1

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

16,082

 

 

 

-

 

 

 

16,082

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46,435

)

 

 

(46,435

)

Distributions declared to shareholders ($0.01 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,232

)

 

 

(2,232

)

Balance at March 31, 2021

 

 

223,656

 

 

$

4,493,422

 

 

$

(26,720

)

 

$

(1,464,937

)

 

$

3,001,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

223,863

 

 

$

4,493,763

 

 

$

(4,698

)

 

$

(1,198,052

)

 

$

3,291,013

 

Share based compensation, net

 

 

675

 

 

 

8,014

 

 

 

-

 

 

 

-

 

 

 

8,014

 

Common shares repurchased

 

 

(1,521

)

 

 

(14,336

)

 

 

-

 

 

 

-

 

 

 

(14,336

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

(42,166

)

 

 

-

 

 

 

(42,166

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,769

)

 

 

(2,769

)

Distributions declared to shareholders ($0.20 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(44,952

)

 

 

(44,952

)

Balance at March 31, 2020

 

 

223,017

 

 

$

4,487,441

 

 

$

(46,864

)

 

$

(1,245,773

)

 

$

3,194,804

 

 

See notes to consolidated financial statements.

5


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(46,435

)

 

$

(2,769

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

48,710

 

 

 

49,522

 

Loss on impairment of depreciable real estate assets

 

 

10,754

 

 

 

-

 

Gain on sale of real estate

 

 

(4,484

)

 

 

(8,839

)

Other non-cash expenses, net

 

 

2,684

 

 

 

1,773

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Decrease (increase) in due from third party managers, net

 

 

(16,628

)

 

 

4,886

 

Decrease in other assets, net

 

 

1,029

 

 

 

439

 

Increase (decrease) in accounts payable and other liabilities

 

 

2,256

 

 

 

(11,670

)

Net cash provided by (used in) operating activities

 

 

(2,114

)

 

 

33,342

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of hotel properties, net

 

 

(49,369

)

 

 

-

 

Capital improvements

 

 

(2,506

)

 

 

(27,022

)

Net proceeds from sale of real estate

 

 

17,587

 

 

 

44,387

 

Net cash provided by (used in) investing activities

 

 

(34,288

)

 

 

17,365

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repurchases of common shares

 

 

-

 

 

 

(14,336

)

Repurchases of common shares to satisfy employee withholding requirements

 

 

(1,650

)

 

 

(1,748

)

Distributions paid to common shareholders

 

 

-

 

 

 

(67,324

)

Equity issuance costs

 

 

(1

)

 

 

-

 

Net proceeds from revolving credit facility

 

 

44,100

 

 

 

374,100

 

Proceeds from term loans and senior notes

 

 

-

 

 

 

50,000

 

Proceeds from mortgage debt and other loans

 

 

-

 

 

 

63,400

 

Payments of mortgage debt and other loans

 

 

(3,018

)

 

 

(18,354

)

Financing costs

 

 

(1,472

)

 

 

(511

)

Net cash provided by financing activities

 

 

37,959

 

 

 

385,227

 

 

 

 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

1,557

 

 

 

435,934

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

34,368

 

 

 

34,661

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

 

$

35,925

 

 

$

470,595

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

18,062

 

 

$

14,696

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued distribution to common shareholders

 

$

2,232

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

5,556

 

 

$

-

 

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

 

 

28,812

 

 

 

34,661

 

Cash, cash equivalents and restricted cash, beginning of period

 

$

34,368

 

 

$

34,661

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

5,776

 

 

$

437,260

 

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

 

 

30,149

 

 

 

33,335

 

Cash, cash equivalents and restricted cash, end of period

 

$

35,925

 

 

$

470,595

 

 

See notes to consolidated financial statements.

 

6


Index

 

 

Apple Hospitality REIT, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization          

Apple Hospitality REIT, Inc. 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 one reportable segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does not have any elements of power in the decision-making process of these entities, and therefore does not consolidate the entities. As of March 31, 2021, the Company owned 233 hotels with an aggregate of 29,855 rooms located in 35 states, including one hotel with 102 rooms classified as held for sale, which was sold to an unrelated party in April 2021. 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, 2020 (the “2020 Form 10-K”). Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2021.

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.

Novel Coronavirus COVID-19 Pandemic 

As a result of the current novel coronavirus COVID-19 pandemic (“COVID-19”) and the impact it has had on travel and the broader economy throughout the U.S. since March 2020, the Company’s hotels have experienced significant declines in occupancy, which has had and is expected to continue to have a significant negative effect on the Company’s revenue and operating results. There remains significant uncertainty as to when operations at the hotels will return to normalized levels.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The fair market value of cash and cash equivalents approximates their carrying value. The Company’s cash and cash equivalents are distributed among several major banks, but the balances may at times exceed federal depository insurance limits.

Net Loss Per Common Share

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

Accounting Standards Recently Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance through December 31, 2022 to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. In January 2021, the FASB issued 2021-01, Reference Rate Reform (Topic 848), Scope, which further clarified the scope of the reference rate reform optional practical expedients and exceptions outlined in Topic 848. The amendments in ASU Nos. 2020-04 and 2021-01 apply to contract modifications that replace a reference rate affected by reference rate reform, providing optional expedients regarding the measurement of hedge

7


Index

 

effectiveness in hedging relationships that have been modified to replace a reference rate. The guidance in ASU Nos. 2020-04 and 2021-01 became effective upon issuance and the provisions of the ASUs have not had a material impact on the Company’s consolidated financial statements and related disclosures as of March 31, 2021. The provisions of these updates will generally affect the Company by allowing, among other things, the following:

 

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

 

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

 

The Company has not entered into any contract modifications yet as it directly relates to reference rate reform but anticipates having to undertake such modifications in the future as a majority of the Company’s unsecured credit facilities and interest rate swaps are indexed to LIBOR.

2. Investment in Real Estate

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Land

 

$

725,057

 

 

$

725,512

 

Building and improvements

 

 

4,546,062

 

 

 

4,525,850

 

Furniture, fixtures and equipment

 

 

499,612

 

 

 

499,865

 

Finance ground lease assets

 

 

203,617

 

 

 

203,617

 

Franchise fees

 

 

13,689

 

 

 

13,750

 

 

 

 

5,988,037

 

 

 

5,968,594

 

Less accumulated depreciation and amortization

 

 

(1,275,557

)

 

 

(1,235,698

)

Investment in real estate, net

 

$

4,712,480

 

 

$

4,732,896

 

 

As of March 31, 2021, the Company owned 233 hotels with an aggregate of 29,855 rooms located in 35 states, including one hotel with 102 rooms classified as held for sale, which was sold to an unrelated party in April 2021.

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

The Company acquired one hotel during the three months ended March 31, 2021. The hotel was a newly developed 176-room Hilton Garden Inn in Madison, Wisconsin managed by Raymond and purchased for $49.6 million on February 18, 2021.

 

During the year ended December 31, 2020, the Company acquired four hotels, none of which were acquired during the three months ended March 31, 2020. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price, excluding transaction costs, for each hotel. All dollar amounts are in thousands.

 

City

 

State

 

Brand

 

Manager

 

Date

Acquired

 

Rooms

 

 

Gross

Purchase

Price

 

Cape Canaveral

 

FL

 

Hampton

 

LBA

 

4/30/2020

 

 

116

 

 

$

24,102

 

Cape Canaveral

 

FL

 

Home2 Suites

 

LBA

 

4/30/2020

 

 

108

 

 

 

22,602

 

Tempe

 

AZ

 

Hyatt House

 

Crestline

 

8/13/2020

 

 

105

 

 

 

26,309

 

Tempe

 

AZ

 

Hyatt Place

 

Crestline

 

8/13/2020

 

 

154

 

 

 

38,279

 

 

 

 

 

 

 

 

 

 

 

 

483

 

 

$

111,292

 

8


Index

 

 

 

The Company utilized $25.0 million of its available cash and entered into a one-year note payable with the developer secured by the hotels for $21.7 million to fund the purchase price of the Cape Canaveral, Florida hotels. The note payable bore interest, which was payable monthly, at a floating annual rate equal to the London Inter-Bank Offered Rate for a one-month term (“one-month LIBOR”) plus a margin of 2.0% for the first six months of the loan term and 3.0% for the second six months of the loan term. In July 2020, the principal amount of the note was reduced by approximately $1.1 million representing a credit from the developer for shared construction savings, and the note was repaid in full on April 12, 2021. The Company used borrowings under its revolving credit facility to purchase the Tempe, Arizona and Madison, Wisconsin hotels. 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, 2021, the amount of revenue and operating loss included in the Company’s consolidated statement of operations from the date of acquisition through March 31, 2021 was approximately $0.1 million and $(0.5) million, respectively.

3. Assets Held for Sale and Dispositions

Assets Held for Sale

In February 2021, the Company entered into a purchase and sale agreement with an unrelated party for the sale of its Overland Park, Kansas SpringHill Suites for a gross sales price of $5.3 million. Since the buyer under the contract had completed its due diligence and had made a non-refundable deposit, as of March 31, 2021, the Company classified the hotel as assets held for sale in its consolidated balance sheet at its estimated fair value less cost to sell which, as described below, was based on the contracted sales price, resulting in an impairment loss during the first quarter of 2021. In April 2021, the Company completed the sale of the hotel. The net proceeds from the sale were used to pay down borrowings on the Company’s revolving credit facility.

Dispositions

During the three months ended March 31, 2021, the Company sold two hotels in two transactions with unrelated parties for a total combined gross sales price of approximately $18.3 million, resulting in a combined gain on sale of approximately $4.5 million, net of transaction costs, which is included in the Company’s consolidated statement of operations for the three months ended March 31, 2021. The two hotels had a total carrying value of approximately $13.0 million at the time of sale. The following table lists the two hotels sold:

 

City

 

State

 

Brand

 

Date Sold

 

Rooms

 

Charlotte

 

NC

 

Homewood Suites

 

2/25/2021

 

 

118

 

Memphis

 

TN

 

Homewood Suites

 

3/16/2021

 

 

140

 

Total

 

 

 

 

 

 

 

 

258

 

 

During the year ended December 31, 2020, the Company sold three hotels in three transactions with unrelated parties for a total combined gross sales price of approximately $55.3 million, resulting in a combined gain on sale of approximately $10.9 million, which is included in the Company’s consolidated statement of operations for the year ended December 31, 2020. The three hotels had a total carrying value of approximately $43.8 million at the time of the sale. The following table lists the three hotels sold:

 

City

 

State

 

Brand

 

Date Sold

 

Rooms

 

Sanford

 

FL

 

SpringHill Suites

 

1/16/2020

 

 

105

 

Boise

 

ID

 

SpringHill Suites

 

2/27/2020

 

 

230

 

Tulare

 

CA

 

Hampton

 

12/30/2020

 

 

86

 

Total

 

 

 

 

 

 

 

 

421

 

 

Excluding gains on sale of real estate, the Company’s consolidated statements of operations include operating loss of approximately $(1.8) million and $(0.1) million for the three months ended March 31, 2021 and 2020, respectively, relating to the results of operations of the six hotels noted above (the one hotel classified as held for sale at March 31, 2021, the two hotels sold in the first three months of 2021 and the three hotels sold in 2020) 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, and therefore the operating results for the period of ownership of these properties are included in income from continuing operations for the three months ended March 31, 2021 and 2020. The net proceeds from the sales were used to pay down borrowings on the Company’s revolving credit facility.

Hotel Sale Contracts and Loss on Impairment of Depreciable Real Estate Assets

During the first quarter of 2021, the Company identified the Overland Park, Kansas SpringHill Suites for potential sale and, in February 2021, entered into a purchase and sale agreement with an unrelated party for the sale of the hotel for a gross sales price of $5.3 million. As a result, the Company recognized an impairment loss of approximately $1.3 million in the first quarter of 2021, to adjust the carrying value of the hotel to its estimated fair value less cost to sell, which was based on the contracted sales price, a Level 1 input under the fair value hierarchy. The Company completed the sale of the hotel in April 2021.

9


Index

 

Additionally, during the first quarter of 2021, the Company recognized impairment losses totaling approximately $9.4 million to adjust the carrying values of four hotel properties identified for potential sale to their estimated fair values. The fair values of these properties were based on broker opinions of value using multiple methods to determine their value, including but not limited to replacement value, discounted cash flows and the income approach based on historical and forecasted operating results of the specific properties. These valuations are Level 3 inputs under the fair value hierarchy.

4. Debt 

Summary 

As of March 31, 2021 and December 31, 2020, the Company’s debt consisted of the following (in thousands):

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Revolving credit facility

 

$

149,900

 

 

$

105,800

 

Term loans and senior notes, net

 

 

863,737

 

 

 

864,225

 

Mortgage debt, net

 

 

509,395

 

 

 

512,546

 

Debt, net

 

$

1,523,032

 

 

$

1,482,571

 

 

The aggregate amounts of principal payable under the Company’s total debt obligations as of March 31, 2021 (including the revolving credit facility, term loans, senior notes and mortgage debt), for each of the next five fiscal years and thereafter are as follows (in thousands):

 

2021 (April - December)

 

$

67,706

 

2022

 

 

259,731

 

2023

 

 

296,213

 

2024

 

 

338,597

 

2025

 

 

245,140

 

Thereafter

 

 

322,265

 

 

 

 

1,529,652

 

Unamortized fair value adjustment of assumed debt

 

 

1,399

 

Unamortized debt issuance costs

 

 

(8,019

)

Total

 

$

1,523,032

 

 

The Company uses interest rate swaps to manage its interest rate risks 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 London Inter-Bank Offered Rate for a one-month term (“one-month LIBOR”). 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 at March 31, 2021 and December 31, 2020, is set forth below. All dollar amounts are in thousands.

 

 

 

March 31,

2021

 

 

Percentage

 

 

December 31,

2020

 

 

Percentage

 

Fixed-rate debt (1)

 

$

1,234,201

 

 

 

81

%

 

$

1,287,219

 

 

 

86

%

Variable-rate debt

 

 

295,451

 

 

 

19

%

 

 

201,351

 

 

 

14

%

Total

 

$

1,529,652

 

 

 

 

 

 

$

1,488,570

 

 

 

 

 

Weighted-average interest rate of debt

 

 

3.88

%

 

 

 

 

 

 

3.86

%

 

 

 

 

 

(1)

10


Index

 

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

Credit Facilities Amendments

In early 2021, as a result of the continued disruption from COVID-19 and the related uncertainty with respect to the Company’s operating results, the Company anticipated that it could potentially not be in compliance with certain covenants under each of its unsecured credit facilities, as previously amended, in future periods if the existing Covenant Waiver Period (as defined below) under such facilities was not extended. As a result, on March 1, 2021, the Company entered into amendments to each of the unsecured credit facilities (the “March 2021 amendments”).

The Company previously entered into amendments in June 2020 that suspended the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities until the date the compliance certificate is required to be delivered for the fiscal quarter ending June 30, 2021 (unless the Company elects an earlier date) (the “Covenant Waiver Period”), and imposed certain restrictions that apply during such testing suspension period. The March 2021 amendments extend the testing for all but two of the Company’s existing financial maintenance covenants under the unsecured credit facilities until the date the compliance certificate is required to be delivered for the fiscal quarter ending June 30, 2022 (unless the Company elects an earlier date) (the “Extended Covenant Waiver Period”). The testing for the Minimum Fixed Charge Coverage Ratio and the Minimum Unsecured Interest Coverage Ratio is suspended until the compliance certificate is required to be delivered for the fiscal quarter ending March 31, 2022.

The March 2021 amendments also provide for, among other restrictions, the following during the remainder of the Extended Covenant Waiver Period:

 

Mandatory prepayments of amounts outstanding under the Company’s unsecured credit facilities of net cash proceeds from certain debt and equity issuances and asset dispositions, subject to various exceptions, including an allowance of $300 million for acquiring unencumbered assets with proceeds from assets sales and a $300 million allowance for acquiring unencumbered assets funded by common equity so long as outstanding borrowings under the revolving credit facility are less than $275 million. A portion of the mandatory prepayments will be available for future borrowing under the revolving credit facility;

 

A minimum liquidity covenant of $125 million;

 

A requirement to pledge the equity interests of each direct or indirect owner of certain unencumbered property in favor of the administrative agents if average liquidity for any month is less than $200 million or the total amount outstanding under the revolving credit facility exceeds $275 million;

 

Restrictions on the Company’s and its subsidiaries’ ability to incur additional indebtedness (except for maturities beyond 2026) or prepay certain existing indebtedness, except that the Company is permitted to prepay (prior to maturity) up to $35 million of secured debt maturities in 2021;

 

Restrictions on the Company’s ability to make cash distributions (except the payment of cash dividends of $0.01 per common share per quarter or to the extent required to maintain REIT status) and share repurchases;

 

Maximum discretionary capital expenditures of $50 million;

 

Limitations on additional investments; and

 

An increase in the applicable interest rate under the unsecured credit facilities until the end of the Extended Covenant Waiver Period to a rate that corresponds to the highest leverage-based applicable interest rate margin plus 0.15% with respect to the unsecured credit facilities.

The amendments also modify the calculation of the existing financial covenants for the four quarters subsequent to the end of the Extended Covenant Waiver Period to annualize calculated amounts to the extent the most recently ended fiscal quarter is not at least four fiscal quarters from the end of the Extended Covenant Waiver Period, and provide for a LIBOR floor under the credit agreements of 25 basis points for Eurodollar Rate Loans and 1.25% for Base Rate Loans on the revolving credit facility, and any term loans under the credit agreements that are not hedged. The March 2021 amendments also modify certain of the existing financial maintenance covenants to less restrictive levels following the Extended Covenant Waiver Period as follows (capitalized terms are defined in the credit agreements):

11


Index

 

 

Maximum Consolidated Leverage Ratio of 8.50 to 1.00 for the first two fiscal quarters, 8.00 to 1.00 for two fiscal quarters, 7.50 to 1.00 for one fiscal quarter and then a ratio of 6.50 to 1.00 thereafter;

 

Minimum Fixed Charge Coverage Ratio of 1.05 to 1.00 for the first fiscal quarter, 1.25 to 1.00 for one fiscal quarter and then a ratio of 1.50 to 1.00 thereafter;

 

Minimum Unsecured Interest Coverage Ratio of no less than 1.25 to 1.00 for one fiscal quarter, 1.50 to 1.00 for one fiscal quarter, 1.75 to 1.00 for one fiscal quarter and a ratio of 2.00 to 1.00 thereafter; and

 

Maximum Unsecured Leverage Ratio of 65% for two fiscal quarters and 60% thereafter.

Except as otherwise set forth in the amendments, the terms of the credit agreements remain in effect. As of March 31, 2021, the Company was in compliance with the applicable covenants of the credit agreements as amended.

$850 Million Credit Facility

The Company utilizes an unsecured “$850 million credit facility” comprised of (i) a $425 million revolving credit facility with an initial maturity date of July 27, 2022 (the “Revolving Credit Facility”) and (ii) a $425 million term loan facility consisting of two term loans: a $200 million term loan with a maturity date of July 27, 2023, and a $225 million term loan with a maturity date of January 31, 2024 (the “$425 million term loan facility”). Subject to certain conditions including covenant compliance and additional fees, the $425 million revolving credit facility maturity date may be extended up to one year. The Company may make voluntary prepayments in whole or in part, at any time. Interest payments on the $850 million credit facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR 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, 2021, the Company had availability of $275 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 $425 million revolving credit facility, based on the amount of borrowings outstanding during the quarter.

$225 Million Term Loan Facility

The Company has an unsecured $225 million term loan facility that is comprised of (i) a $50 million term loan with a maturity date of August 2, 2023, and (ii) a $175 million term loan with a maturity date of August 2, 2025. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. 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 LIBOR 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 that was funded at closing (the “2017 $85 million term loan facility”). The credit agreement, as amended and restated in August 2018, contains requirements and covenants similar to the Company’s $850 million credit facility. 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 LIBOR 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, for the remainder of the term.

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 on the Company’s revolving credit facility. The credit agreement contains requirements and covenants similar to the Company’s $850 million 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 LIBOR 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” and, collectively with the $850 million credit facility, the $225 million term loan facility, the 2017 $85 million term loan facility and the 2019 $85 million term loan facility, the “unsecured credit facilities”). Net proceeds from the $50 million senior notes facility were available to provide

12


Index

 

funding for general corporate purposes. The note agreement contains requirements and covenants similar to the Company’s $850 million credit facility. 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 facility. 

As of March 31, 2021 and December 31, 2020, the details of the Company’s unsecured credit facilities were as set forth below. All dollar amounts are in thousands.

 

 

 

 

 

 

 

Outstanding Balance

 

 

 

Interest Rate (1)

 

Maturity

Date

 

March 31,

2021

 

 

December 31,

2020

 

Revolving credit facility (2)

 

LIBOR + 1.40% - 2.25%

 

7/27/2022

 

$

149,900

 

 

$

105,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loans and senior notes

 

 

 

 

 

 

 

 

 

 

 

 

$200 million term loan

 

LIBOR + 1.35% - 2.20%

 

7/27/2023

 

 

200,000

 

 

 

200,000

 

$225 million term loan

 

LIBOR + 1.35% - 2.20%

 

1/31/2024

 

 

225,000

 

 

 

225,000

 

$50 million term loan

 

LIBOR + 1.35% - 2.20%

 

8/2/2023

 

 

50,000

 

 

 

50,000

 

$175 million term loan

 

LIBOR + 1.65% - 2.50%

 

8/2/2025

 

 

175,000

 

 

 

175,000

 

2017 $85 million term loan

 

LIBOR + 1.30% - 2.10%

 

7/25/2024

 

 

85,000

 

 

 

85,000

 

2019 $85 million term loan

 

LIBOR + 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

 

Term loans and senior notes at stated

   value

 

 

 

 

 

 

870,000

 

 

 

870,000

 

Unamortized debt issuance costs

 

 

 

 

 

 

(6,263

)

 

 

(5,775

)

Term loans and senior notes, net

 

 

 

 

 

 

863,737

 

 

 

864,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit facilities, net (2)

 

 

 

 

 

$

1,013,637

 

 

$

970,025

 

Weighted-average interest rate (3)