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Section 1: 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 March 31, 2018

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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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   ¨ (Do not check if a smaller reporting company)  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 1, 2018: 230,339,578 

 
Apple Hospitality REIT, Inc.
Form 10-Q
Index
 

 
Page Number
PART I.  FINANCIAL INFORMATION
   
         
 
Item 1.
   
         
   
3
 
         
   
4
 
         
   
5
 
         
   
6
 
         
 
Item 2.
17  
         
 
Item 3.
31  
         
 
Item 4.
31  
     
PART II.  OTHER INFORMATION
   
     
 
Item 1.
32
 
         
 
Item 1A.
32  
         
 
Item 2.
32
 
       
 
Item 6.
33
 
     
34  
 
This Form 10-Q includes references to certain trademarks or service marks.  The Courtyard by Marriott®, Fairfield Inn by Marriott®, Fairfield Inn & Suites 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.  For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.

PART I.    FINANCIAL INFORMATION
 
Item 1.      Financial Statements

Apple Hospitality REIT, Inc.
Consolidated Balance Sheets
(in thousands, except share data)

             
   
March 31,
   
December 31,
 
   
2018
   
2017
 
   
(unaudited)
       
Assets
           
Investment in real estate, net of accumulated depreciation
of $775,894 and $731,284, respectively
 
$
4,829,776
   
$
4,793,159
 
Restricted cash-furniture, fixtures and other escrows
   
31,438
     
29,791
 
Due from third party managers, net
   
57,240
     
31,457
 
Other assets, net
   
54,917
     
47,931
 
Total Assets
 
$
4,973,371
   
$
4,902,338
 
                 
Liabilities
               
Revolving credit facility
 
$
170,700
   
$
106,900
 
Term loans
   
656,569
     
656,279
 
Mortgage debt
   
500,189
     
459,017
 
Accounts payable and other liabilities
   
89,439
     
109,057
 
Total Liabilities
   
1,416,897
     
1,331,253
 
                 
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 230,339,578 and 229,961,548 shares, respectively
   
4,594,247
     
4,588,188
 
Accumulated other comprehensive income
   
16,070
     
9,778
 
Distributions greater than net income
   
(1,053,843
)
   
(1,026,881
)
Total Shareholders’ Equity
   
3,556,474
     
3,571,085
 
                 
Total Liabilities and Shareholders’ Equity
 
$
4,973,371
   
$
4,902,338
 
 
See notes to consolidated financial statements.
3

 
Apple Hospitality REIT, Inc.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(in thousands, except per share data)

   
Three Months Ended
 
   
March 31,
 
   
2018
   
2017
 
Revenues:
           
    Room
 
$
274,836
   
$
269,393
 
    Other
   
23,553
     
23,532
 
Total revenue
   
298,389
     
292,925
 
                 
Expenses:
               
    Operating
   
75,954
     
75,154
 
    Hotel administrative
   
25,102
     
24,836
 
    Sales and marketing
   
25,332
     
24,109
 
    Utilities
   
10,283
     
9,753
 
    Repair and maintenance
   
12,453
     
11,916
 
    Franchise fees
   
12,733
     
12,474
 
    Management fees
   
10,472
     
10,212
 
    Property taxes, insurance and other
   
17,229
     
16,927
 
    Ground lease
   
2,850
     
2,816
 
    General and administrative
   
6,877
     
6,754
 
    Loss on impairment of depreciable real estate assets
   
-
     
7,875
 
    Depreciation
   
44,840
     
43,767
 
Total expenses
   
244,125
     
246,593
 
                 
Operating income
   
54,264
     
46,332
 
                 
    Interest and other expense, net
   
(11,919
)
   
(11,717
)
                 
Income before income taxes
   
42,345
     
34,615
 
                 
    Income tax expense
   
(163
)
   
(250
)
                 
Net income
 
$
42,182
   
$
34,365
 
                 
Other comprehensive income:
               
    Interest rate derivatives
   
6,292
     
1,545
 
                 
Comprehensive income
 
$
48,474
   
$
35,910
 
                 
Basic and diluted net income per common share
 
$
0.18
   
$
0.15
 
                 
Weighted average common shares outstanding - basic and diluted
   
230,515
     
223,047
 

See notes to consolidated financial statements.

4


Apple Hospitality REIT, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
   
Three Months Ended
 
   
March 31,
 
   
2018
   
2017
 
Cash flows from operating activities:
           
Net income
 
$
42,182
   
$
34,365
 
Adjustments to reconcile net income to cash provided by operating activities:
               
Depreciation
   
44,840
     
43,767
 
Loss on impairment of depreciable real estate assets
   
-
     
7,875
 
Other non-cash expenses, net
   
1,992
     
1,849
 
Changes in operating assets and liabilities:
               
Increase in due from third party managers, net
   
(25,920
)
   
(26,222
)
Decrease (increase) in other assets, net
   
(2,485
)
   
9,345
 
Decrease in accounts payable and other liabilities
   
(7,746
)
   
(34,814
)
Net cash provided by operating activities
   
52,863
     
36,165
 
                 
Cash flows from investing activities:
               
Acquisition of hotel properties, net
   
(61,614
)
   
(18,131
)
Deposits and other disbursements for potential acquisitions
   
(204
)
   
-
 
Capital improvements
   
(24,672
)
   
(17,461
)
Net cash used in investing activities
   
(86,490
)
   
(35,592
)
                 
Cash flows from financing activities:
               
Net proceeds related to issuance of common shares
   
4,731
     
-
 
Repurchases of common shares
   
(4,304
)
   
-
 
Repurchases of common shares to satisfy employee withholding requirements
   
(876
)
   
(432
)
Distributions paid to common shareholders
   
(69,144
)
   
(66,908
)
Net proceeds from revolving credit facility
   
63,800
     
96,600
 
Proceeds from mortgage debt
   
44,000
     
-
 
Payments of mortgage debt
   
(2,933
)
   
(31,949
)
Net cash provided by (used in) financing activities
   
35,274
     
(2,689
)
                 
Net change in cash, cash equivalents and restricted cash
   
1,647
     
(2,116
)
                 
Cash, cash equivalents and restricted cash, beginning of period
   
29,791
     
29,425
 
                 
Cash, cash equivalents and restricted cash, end of period
 
$
31,438
   
$
27,309
 
                 
Supplemental cash flow information:
               
Interest paid
 
$
11,760
   
$
11,855
 
                 
Supplemental disclosure of noncash investing and financing activities:
               
Accrued distribution to common shareholders
 
$
23,020
   
$
22,301
 
                 
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
   
29,791
     
29,425
 
Cash, cash equivalents and restricted cash, beginning of period
 
$
29,791
   
$
29,425
 
                 
Cash and cash equivalents, end of period
 
$
-
   
$
-
 
Restricted cash-furniture, fixtures and other escrows, end of period
   
31,438
     
27,309
 
Cash, cash equivalents and restricted cash, end of period
 
$
31,438
   
$
27,309
 
 
See notes to consolidated financial statements.

5


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.  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, 2018, the Company owned 241 hotels with an aggregate of 30,585 rooms located in 34 states.  The Company’s common shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.”

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q.  Accordingly, they do not include all of the information required by United States 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, 2017 (the “2017 Form 10-K”).  Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2018.

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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606).  The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The standard became effective for annual and interim periods beginning after December 15, 2017.  The Company adopted this standard as of January 1, 2018 using the modified retrospective approach.  The Company evaluated each of its revenue streams under the new standard and concluded that the adoption of this standard did not impact the amount or timing of revenue recognition in the Company’s consolidated financial statements.  The Company also considered and determined that the following disaggregated revenue reflects the nature and timing of its significant revenue streams (in thousands).
6

 
   
Three Months Ended March 31,
 
   
2018
   
2017
 
Revenues:
           
    Room
 
$
274,836
   
$
269,393
 
    Food and beverage
   
15,710
     
16,733
 
    Other
   
7,843
     
6,799
 
Total revenue
 
$
298,389
   
$
292,925
 
 
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows.  The standard was effective for annual and interim periods beginning after December 15, 2017.  The Company adopted this standard as of January 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, which is intended to reduce diversity in practice in the classification and presentation of changes in restricted cash in the statement of cash flows.  The standard was effective for annual and interim periods beginning after December 15, 2017.  Under this standard, restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown in the statements of cash flows.  The Company adopted this standard as of January 1, 2018.  Amounts included in restricted cash on the Company’s consolidated balance sheets are now included with cash and cash equivalents in the Company’s consolidated statements of cash flows for all periods presented.  The adoption of this standard required retrospective revision to the statement of cash flows for the three months ended March 31, 2017.  Other than the reclassification of restricted cash balances and activity in the statements of cash flows, the adoption of the standard did not have an impact on the Company’s consolidated financial statements and related disclosures.

In February 2017, the FASB issued ASU No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope of Accounting Standards Codification (“ASC”) Subtopic 610-20 and adds guidance for the derecognition of nonfinancial assets, including partial sales.  The provisions of this standard must be applied at the same time as the adoption of ASU No. 2014-09.  The Company adopted this standard as of January 1, 2018 using the modified retrospective approach.  The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting model to enable entities to better portray their risk management activities in their financial statements and enhance the transparency and understandability of hedging activity.  The standard simplifies the application of hedge accounting and reduces the administrative burden of hedge documentation requirements and assessing hedge effectiveness.  The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted.  The Company adopted this standard on January 1, 2018 using the modified retrospective approach.  The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

2.  Investment in Real Estate

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

   
March 31,
   
December 31,
 
   
2018
   
2017
 
             
Land
 
$
730,763
   
$
720,465
 
Building and Improvements
   
4,425,158
     
4,362,929
 
Furniture, Fixtures and Equipment
   
437,084
     
428,734
 
Franchise Fees
   
12,665
     
12,315
 
     
5,605,670
     
5,524,443
 
Less Accumulated Depreciation
   
(775,894
)
   
(731,284
)
Investment in Real Estate, net
 
$
4,829,776
   
$
4,793,159
 

7

As of March 31, 2018, the Company owned 241 hotels with an aggregate of 30,585 rooms located in 34 states.

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

Acquisitions

The Company acquired two hotels during the first three months of 2018.  The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price for each hotel.  All dollar amounts are in thousands.

City
 
State
 
Brand
 
Manager
 
Date Acquired
 
Rooms
   
Gross Purchase
Price (a)
 
Atlanta
 
GA
 
Hampton
 
McKibbon
 
2/5/2018
   
119
   
$
24,000
 
Memphis
 
TN
 
Hampton
 
Crestline
 
2/5/2018
   
144
     
39,000
 
                     
263
   
$
63,000
 

(a)
The gross purchase price excludes transaction costs.

During the year ended December 31, 2017, the Company acquired six hotels including one in the first quarter of 2017.  The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price for each hotel.  All dollar amounts are in thousands.

City
 
State
 
Brand
 
Manager
 
Date Acquired
 
Rooms
   
Gross Purchase
Price (a)
 
Fort Worth
 
TX
 
Courtyard
 
LBA
 
2/2/2017
   
124
   
$
18,034
 
Birmingham (b)
 
AL
 
Hilton Garden Inn
 
LBA
 
9/12/2017
   
104
     
19,162
 
Birmingham (b)
 
AL
 
Home2 Suites
 
LBA
 
9/12/2017
   
106
     
19,276
 
Portland
 
ME
 
Residence Inn
 
Pyramid
 
10/13/2017
   
179
     
55,750
 
Salt Lake City
 
UT
 
Residence Inn
 
Huntington
 
10/20/2017
   
136
     
25,500
 
Anchorage
 
AK
 
Home2 Suites
 
Stonebridge
 
12/1/2017
   
135
     
24,048
 
                     
784
   
$
161,770
 

(a)
The gross purchase price excludes transaction costs.
(b)
The Hilton Garden Inn and Home2 Suites hotels in Birmingham, AL are part of an adjoining two-hotel complex located on the same site.

The Company used borrowings under its $540 million revolving credit facility (the “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 three months ended March 31, 2018, the amount of revenue and operating income included in the Company’s consolidated statement of operations from the date of acquisition through March 31, 2018 was approximately $2.4 million and $0.8 million, respectively.  For the hotel acquired during the three months ended March 31, 2017, the amount of revenue and operating income included in the Company’s consolidated statement of operations from the date of acquisition through March 31, 2017 was approximately $0.7 million and $0.04 million, respectively.

Hotel Contract Commitments

As of March 31, 2018, the Company had outstanding contracts for the potential purchase of two additional hotels, which were under construction, for a total purchase price of approximately $65.0 million.  The Phoenix Hampton Inn & Suites was acquired on May 2, 2018, the same day the hotel opened for business.  It is anticipated that the construction of the Orlando Home2 Suites will be completed and opened for business during the fourth quarter of 2018, at which time a closing on this hotel is expected to occur.  Although the Company is working towards acquiring this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that a closing on this hotel will occur under the outstanding purchase contract.  The following table summarizes the location, brand, date of purchase contract, expected number of rooms, refundable (if the seller does not meet its obligations under the contract) contract deposits paid, and gross purchase price for each of the contracts outstanding at March 31, 2018.  All dollar amounts are in thousands.
8


Location
 
Brand
 
Date of Purchase Contract
 
Rooms
   
Refundable Deposits
   
Gross Purchase
Price
 
Phoenix, AZ (a)
 
Hampton
 
10/25/2016
   
210
   
$
500
   
$
44,300
 
Orlando, FL (b)
 
Home2 Suites
 
1/18/2017
   
128
     
3
     
20,736
 
             
338
   
$
503
   
$
65,036
 

(a)
Newly constructed hotel was acquired on May 2, 2018, the same day the hotel opened for business.
(b)
This hotel is currently under construction.  The table shows the expected number of rooms upon hotel completion and the expected franchise brand.  Assuming all conditions to closing are met, the purchase of this hotel is expected to close during the fourth quarter of 2018.  If the seller meets all of the conditions to closing, the Company is obligated to specifically perform under the contract.  As the property is under construction, at this time, the seller has not met all of the conditions to closing.

The purchase of the Phoenix Hampton Inn & Suites was funded through the Company’s revolving credit facility and it is anticipated that the purchase of the Orlando Home2 Suites will be funded similarly if a closing occurs.

Loss on Impairment of Depreciable Real Estate Assets

During the first quarter of 2017, the Company identified two properties for potential sale and in April 2017, the Company entered into separate contracts with the same unrelated party for the sale of these properties.  Due to the change in the anticipated hold period for each of these hotels, the Company reviewed the estimated undiscounted cash flows generated by each property and determined that, for each hotel, the undiscounted cash flows were less than its carrying value; therefore the Company recognized an impairment loss of approximately $7.9 million in the first quarter of 2017 to adjust the bases of these properties to their estimated fair values, which were based on the then contracted sale price, net of estimated selling costs, a Level 1 input under the fair value hierarchy.  In May 2017, both of these contracts were terminated.

3.  Debt

$965 Million Credit Facility

The Company utilizes an unsecured “$965 million credit facility” comprised of (i) a $540 million revolving credit facility with an initial maturity date of May 18, 2019 and (ii) a $425 million term loan facility with a maturity date of May 18, 2020, consisting of three term loans, all funded during 2015 (the “$425 million term loans”).  Subject to certain conditions including covenant compliance and additional fees, the revolving credit facility maturity date may be extended one year.  The Company may make voluntary prepayments in whole or in part, at any time.  Interest payments on the $965 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 (the London Inter-Bank Offered Rate for a one-month term) plus a margin ranging from 1.50% to 2.30%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.  The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.30% on the unused portion of the revolving credit facility, based on the amount of borrowings outstanding during the quarter.

$150 Million Term Loan Facility
 
On April 8, 2016, the Company entered into an unsecured $150 million term loan facility with a syndicate of commercial banks (the “$150 million term loan facility”), consisting of a $50 million term loan that will mature on April 8, 2021 (the “$50 million term loan”) and a $100 million term loan that will mature on April 8, 2023 (the “$100 million term loan,” and collectively with the $50 million term loan, the “$150 million term loans”).  The credit agreement contains requirements and covenants similar to the Company’s $965 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 $150 million term loan facility are due monthly and the interest rate is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.45% to 2.20% for the $50 million term loan and 1.80% to 2.60% for the $100 million term loan, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.  

9

$85 Million Term Loan

On July 25, 2017, the Company entered into an unsecured $85 million term loan with a syndicate of commercial banks, with a maturity date of July 25, 2024 (the “$85 million term loan” and, together with the $425 million term loans and the $150 million term loans, the “term loans”).  The credit agreement contains requirements and covenants similar to the Company’s $965 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 $85 million term loan are due monthly and the interest rate is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.80% to 2.60%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.

As of March 31, 2018 and December 31, 2017, the details of the Company’s revolving credit facility and term loans were as set forth below.  All dollar amounts are in thousands.

        
As of March 31, 2018
       
As of December 31, 2017
     
 
Maturity Date
 
Outstanding Balance
   
Interest Rate
       
Outstanding Balance
   
Interest Rate
     
Revolving credit facility (1)
 
5/18/2019
 
$
170,700
     
3.43
%
 (2)    
$
106,900
     
3.11
%
 (2)  
                                             
Term loans
                                           
$425 million term loans
 
5/18/2020
   
425,000
     
3.16
%
 (3)      
425,000
     
3.09
%
 (3)  
$50 million term loan
 
4/8/2021
   
50,000
     
2.54
%
 (4)      
50,000
     
2.54
%
 (4)  
$100 million term loan
 
4/8/2023
   
100,000
     
3.13
%
 (4)      
100,000
     
3.13
%
 (4)  
$85 million term loan
 
7/25/2024
   
85,000
     
3.76
%
 (4)      
85,000
     
3.76
%
 (4)  
Total term loans at stated value
       
660,000
                 
660,000
             
Unamortized debt issuance costs
       
(3,431
)
               
(3,721
)
           
Total term loans
       
656,569
                 
656,279
             
                                             
Total revolving credit facility and term loans
     
$
827,269
               
$
763,179
             

(1)
Unamortized debt issuance costs related to the revolving credit facility totaled approximately $1.3 million and $1.7 million as of March 31, 2018 and December 31, 2017, respectively, and are included in other assets, net in the Company’s consolidated balance sheets.
(2)
Annual variable interest rate at the balance sheet date.
(3)
Effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps on $322.5 million of the outstanding loan balance, resulting in an annual fixed interest rate of approximately 3.10% on this portion of the debt, subject to adjustment based on the Company’s leverage ratio, through maturity.  See Note 4 for more information on the interest rate swap agreements.  Remaining portion is variable rate debt.
(4)
Annual fixed interest rate at the balance sheet date which includes the effect of interest rate swaps on the outstanding loan balance, subject to adjustment based on the Company’s leverage ratio, through maturity.  See Note 4 for more information on the interest rate swap agreements.

The credit agreements governing the $965 million credit facility, the $150 million term loan facility and the $85 million term loan contain mandatory prepayment requirements, customary affirmative covenants, negative covenants and events of default.  The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios, limits on dividend payments and share repurchases and restrictions on certain investments.  The Company was in compliance with the applicable covenants at March 31, 2018.

Mortgage Debt

As of March 31, 2018, the Company had approximately $498.5 million in outstanding mortgage debt secured by 31 properties, with maturity dates ranging from June 2020 to January 2038, stated interest rates ranging from 3.55% to 6.25% and effective interest rates ranging from 3.55% to 4.97%.  The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid.  The following table sets forth the hotel properties securing each loan, the interest rate, loan assumption or origination date, maturity date, the principal amount assumed or originated, and the outstanding balance prior to any fair value adjustments or debt issuance costs as of March 31, 2018 and December 31, 2017 for each of the Company’s debt obligations.  All dollar amounts are in thousands.
10

Location
 
Brand
 
Interest Rate (1)
   
Loan Assumption or Origination Date
 
Maturity
Date
   
Principal Assumed or Originated
   
Outstanding balance as of
March 31, 2018
   
Outstanding balance as of December 31, 2017
 
San Juan Capistrano, CA
 
Residence Inn
   
4.15
%
 
9/1/2016
 
6/1/2020
   
$
16,210
   
$
15,687
   
$
15,774
 
Colorado Springs, CO
 
Hampton
   
6.25
%
 
9/1/2016
 
7/6/2021
     
7,923
     
7,719
     
7,754
 
Franklin, TN
 
Courtyard
   
6.25
%
 
9/1/2016
 
8/6/2021
     
14,679
     
14,303
     
14,368
 
Franklin, TN
 
Residence Inn
   
6.25
%
 
9/1/2016
 
8/6/2021
     
14,679
     
14,303
     
14,368
 
Grapevine, TX
 
Hilton Garden Inn
   
4.89
%
 
8/29/2012
 
9/1/2022
     
11,810
     
10,334
     
10,412
 
Collegeville/Philadelphia, PA
 
Courtyard
   
4.89
%
 
8/30/2012
 
9/1/2022
     
12,650
     
11,069
     
11,152
 
Hattiesburg, MS
 
Courtyard
   
5.00
%
 
3/1/2014
 
9/1/2022
     
5,732
     
5,173
     
5,212
 
Rancho Bernardo/San Diego, CA
 
Courtyard
   
5.00
%
 
3/1/2014
 
9/1/2022
     
15,060
     
13,591
     
13,692
 
Kirkland, WA
 
Courtyard
   
5.00
%
 
3/1/2014
 
9/1/2022
     
12,145
     
10,960
     
11,042
 
Seattle, WA
 
Residence Inn
   
4.96
%
 
3/1/2014
 
9/1/2022
     
28,269
     
25,496
     
25,687
 
Anchorage, AK
 
Embassy Suites
   
4.97
%
 
9/13/2012
 
10/1/2022
     
23,230
     
20,408
     
20,560
 
Somerset, NJ
 
Courtyard
   
4.73
%
 
3/1/2014
 
10/6/2022
     
8,750
     
7,872
     
7,932
 
Tukwila, WA
 
Homewood Suites
   
4.73
%
 
3/1/2014
 
10/6/2022
     
9,431
     
8,484
     
8,549
 
Prattville, AL
 
Courtyard
   
4.12
%
 
3/1/2014
 
2/6/2023
     
6,596
     
5,895
     
5,943
 
Huntsville, AL
 
Homewood Suites
   
4.12
%
 
3/1/2014
 
2/6/2023
     
8,306
     
7,424
     
7,483
 
San Diego, CA
 
Residence Inn
   
3.97
%
 
3/1/2014
 
3/6/2023
     
18,600
     
16,599
     
16,733
 
Miami, FL
 
Homewood Suites
   
4.02
%
 
3/1/2014
 
4/1/2023
     
16,677
     
14,903
     
15,022
 
Syracuse, NY
 
Courtyard
   
4.75
%
 
10/16/2015
 
8/1/2024
(2)     
11,199
     
10,567
     
10,637
 
Syracuse, NY
 
Residence Inn
   
4.75
%
 
10/16/2015
 
8/1/2024
(2)     
11,199
     
10,567
     
10,637
 
New Orleans, LA
 
Homewood Suites
   
4.36
%
 
7/17/2014
 
8/11/2024
     
27,000
     
24,747
     
24,919
 
Westford, MA
 
Residence Inn
   
4.28
%
 
3/18/2015
 
4/11/2025
     
10,000
     
9,324
     
9,386
 
Denver, CO
 
Hilton Garden Inn
   
4.46
%
 
9/1/2016
 
6/11/2025
     
34,118
     
32,833
     
33,046
 
Oceanside, CA
 
Courtyard
   
4.28
%
 
9/1/2016
 
10/1/2025
     
13,655
     
13,269
     
13,332
 
Omaha, NE
 
Hilton Garden Inn
   
4.28
%
 
9/1/2016
 
10/1/2025
     
22,682
     
22,040
     
22,145
 
Boise, ID
 
Hampton
   
4.37
%
 
5/26/2016
 
6/11/2026
     
24,000
     
23,319
     
23,422
 
Burbank, CA
 
Courtyard
   
3.55
%
 
11/3/2016
 
12/1/2026
     
25,564
     
24,752
     
24,917
 
San Diego, CA
 
Courtyard
   
3.55
%
 
11/3/2016
 
12/1/2026
     
25,473
     
24,664
     
24,828
 
San Diego, CA
 
Hampton
   
3.55
%
 
11/3/2016
 
12/1/2026
     
18,963
     
18,360
     
18,483
 
Burbank, CA
 
SpringHill Suites
   
3.94
%
 
3/9/2018
 
4/1/2028
     
28,470
     
28,470
     
-
 
Santa Ana, CA
 
Courtyard
   
3.94
%
 
3/9/2018
 
4/1/2028
     
15,530
     
15,530
     
-
 
San Jose, CA
 
Homewood Suites
   
4.22
%
 
12/22/2017
 
1/1/2038
     
30,000
     
29,840
     
30,000
 
                             
$
528,600
     
498,502
     
457,435
 
Unamortized fair value adjustment of assumed debt      
     
4,105
     
4,330
 
Unamortized debt issuance costs         
     
(2,418
)
   
(2,748
)
    Total
                               
$
500,189
   
$
459,017
 

(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)
Outstanding principal balance is callable by lender or prepayable by the Company on August 1, 2019.

11

The aggregate amounts of principal payable under the Company’s total debt obligations (including mortgage debt, the revolving credit facility and term loans), for the five years subsequent to March 31, 2018 and thereafter are as follows (in thousands):

2018 (April - December)
 
$
9,730
 
2019
   
204,505
 
2020
   
453,349
 
2021
   
97,586
 
2022
   
109,252
 
Thereafter
   
454,780
 
     
1,329,202
 
Unamortized fair value adjustment of assumed debt
   
4,105
 
Unamortized debt issuance costs related to term loans and mortgage debt
   
(5,849
)
Total
 
$
1,327,458
 

4.  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 March 31, 2018, both the carrying value and estimated fair value of the Company’s debt were approximately $1.3 billion.  As of December 31, 2017, both the carrying value and estimated fair value of the Company’s debt were approximately $1.2 billion.  Both the carrying value and estimated fair value of the Company’s debt (as discussed above) is net of unamortized debt issuance costs related to term loans and mortgage debt for each specific year.

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 Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR.  The swaps are designed to effectively fix the interest payments on variable rate debt instruments.  These swap instruments are recorded at fair value and are included in other assets, net, in the Company’s consolidated balance sheets.  The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which is considered a Level 2 measurement under the fair value hierarchy.  The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.  The following table sets forth information for each of the Company’s interest rate swap agreements outstanding as of March 31, 2018 and December 31, 2017.  All dollar amounts are in thousands.

                  Fair Value Asset     
    Notional Amount at
March 31, 2018
                         
Hedge Type
   
Origination Date
 
Maturity Date
 
Swap Fixed Interest Rate
   
March 31, 2018
   
December 31, 2017
 
Cash flow hedge
 
$
212,500
 
5/21/2015
 
5/18/2020
   
1.58
%
 
$
3,478
   
$
2,033
 
Cash flow hedge
   
110,000
 
7/2/2015
 
5/18/2020
   
1.62
%
   
1,709
     
951
 
Cash flow hedge
   
50,000
 
4/7/2016
 
3/31/2021
   
1.09
%
   
2,007
     
1,544
 
Cash flow hedge
   
100,000
 
4/7/2016
 
3/31/2023
   
1.33
%
   
5,819
     
4,098
 
Cash flow hedge
   
75,000
 
5/31/2017
 
6/30/2024
   
1.96
%
   
2,724
     
1,043
 
Cash flow hedge
   
10,000
 
8/10/2017
 
6/30/2024
   
2.01
%
   
333
     
109
 
   
$
557,500
                 
$
16,070
   
$
9,778
 

12

The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges.  The Company elected to early adopt ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, on January 1, 2018, using the modified retrospective approach for all of its hedging relationships that existed as of that date.  As a result, effective January 1, 2018, the entire change in the fair value of the Company’s designated cash flow hedges is recorded to accumulated other comprehensive income, a component of shareholders’ equity in the Company’s consolidated balance sheets.  Prior to January 1, 2018, changes in fair value on the effective portion of all designated cash flow hedges were recorded to accumulated other comprehensive income, while changes in fair value on the ineffective portion of all designated cash flow hedges were recorded to interest and other expense, net in the Company’s consolidated statements of operations.  Since prior to January 1, 2018 there was no material ineffectiveness related to the Company’s outstanding designated cash flow hedges, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

The following table presents the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and comprehensive income for the three months ended March 31, 2018 and 2017 (in thousands):

   
Net Unrealized Gain Recognized in
Other Comprehensive Income
   
Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income to Interest and Other Expense, net
 
   
Three Months Ended March 31,
   
Three Months Ended March 31,
 
   
2018
   
2017
   
2018
   
2017
 
Interest rate derivatives in cash flow hedging relationships
 
$
6,348
   
$
723
   
$
56
   
$
(822
)


Amounts reported in accumulated other comprehensive income 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 $3.2 million of net unrealized gains included in accumulated other comprehensive income at March 31, 2018 will be reclassified as a decrease to interest and other expense, net within the next 12 months.

5.  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 2017 Form 10-K.  Below is a summary of the significant related party relationships in effect during the three months ended March 31, 2018 and 2017.

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 received by the Company from ARG for the three months ended March 31, 2018 and 2017 totaled approximately $0.2 million in each period, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations. 

As part of the cost sharing arrangement, certain day-to-day transactions may result in amounts due to or from the Company and ARG.  To efficiently manage cash disbursements, the Company or ARG may make payments for the other company.  Under this cash management process, each company may advance or defer up to $1 million at any time.  Each quarter, any outstanding amounts are settled between the companies.  This process allows each company to minimize its cash on hand and reduces the cost for each company.  The amounts outstanding at any point in time are not significant to either of the companies.  As of March 31, 2018 and December 31, 2017, total amounts due from ARG for reimbursements under the cost sharing structure each totaled approximately $0.3 million at each date, and are included in other assets, net in the Company’s consolidated balance sheets.

13

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.  Leasing activity to affiliates 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 three months ended March 31, 2018 and 2017 were approximately $0.03 million and $0.04 million, respectively, and are included in general and administrative expenses in the Company’s consolidated statements of operations.

6.  Shareholders’ Equity

Distributions

The Company’s current annual distribution rate, payable monthly, is $1.20 per common share.  For the three months ended March 31, 2018 and 2017, the Company paid distributions of $0.30 per common share for a total of $69.1 million and $66.9 million, respectively.  Additionally, in March 2018, the Company declared a monthly distribution of $0.10 per common share, totaling $23.0 million, which was recorded as a payable as of March 31, 2018 and paid in April 2018.  As of December 31, 2017, a monthly distribution of $0.10 per common share, totaling $23.0 million, was recorded as a payable and paid in January 2018.  These accrued distributions were included in accounts payable and other liabilities in the Company’s consolidated balance sheets.

Issuance of Shares

In February 2017, the Company executed an equity distribution agreement that allows the Company to sell, from time to time, up to an aggregate of $300 million of its common shares through sales agents under an at-the-market offering program (the “ATM Program”).  Since inception of the ATM Program in February 2017 through March 31, 2018, the Company has sold approximately 7.2 million common shares at a weighted-average market sales price of approximately $19.56 per common share and received aggregate gross proceeds of approximately $139.8 million before commission and issuance costs, including the sale of approximately 0.2 million common shares during the three months ended March 31, 2018 at a weighted-average market sales price of approximately $19.73 per common share and receipt of aggregate gross proceeds of approximately $4.8 million.  The Company used the proceeds from the sale of these shares to pay down borrowings on its revolving credit facility.  No shares were issued under the ATM Program during the three months ended March 31, 2017.  As of March 31, 2018, approximately $160.2 million remained available for issuance under the ATM Program.

Share Repurchases

During the first three months of 2018, the Company purchased, under its $475 million share repurchase program (the “Share Repurchase Program”), approximately 0.3 million of its common shares at a weighted-average market purchase price of approximately $16.89 per common share for an aggregate purchase price of approximately $4.3 million.  The Company did not purchase any common shares under its Share Repurchase Program during the first three months of 2017.  In March 2018, the Company established a new written trading plan as part of the Share Repurchase Program that provides for share repurchases in open market transactions that is intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.  Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with availability under its revolving credit facility.  As of March 31, 2018, approximately $463.2 million remained available for repurchase under the Share Repurchase Program.  The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2018 if not terminated earlier.

14

7.  Compensation Plans

The Company annually establishes an incentive plan for its executive management.  Under the incentive plan for 2018 (the “2018 Incentive Plan”), participants are eligible to receive a bonus based on the achievement of certain 2018 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).  The components of the operational performance metrics and shareholder return metrics are equally weighted and the two metrics each account for 50% of the total target incentive compensation.  The range of potential aggregate payouts under the 2018 Incentive Plan is $0 - $20 million.  Based on performance through March 31, 2018, the Company has accrued approximately $1.9 million as a liability for potential executive bonus payments under the 2018 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of March 31, 2018 and in general and administrative expenses in the Company’s consolidated statement of operations for the three months ended March 31, 2018.  Approximately 25% of awards under the 2018 Incentive Plan, if any, will be paid in cash, and 75% will be issued in stock under the Company’s 2014 Omnibus Incentive Plan, approximately two-thirds of which will vest at the end of 2018 and one-third of which will vest in December 2019.  Under the incentive plan for 2017 (the “2017 Incentive Plan”), the Company recorded approximately $2.0 million in general and administrative expenses in the Company’s consolidated statement of operations for the three months ended March 31, 2017. 

Share Based Compensation Awards

During the first quarters of 2018 and 2017, the Company issued 367,333 and 101,305 common shares earned under the 2017 Incentive Plan and the incentive plan for 2016 (the “2016 Incentive Plan”) (net of 48,533 and 19,667 common shares surrendered to satisfy tax withholding obligations) at $16.92 and $19.10 per share, or approximately $7.0 million and $2.3 million in share based compensation, including the surrendered shares, respectively.  Of the total shares issued under the 2017 Incentive Plan, 223,421 shares were unrestricted at the time of issuance, and the remaining 143,912 restricted shares will vest on December 14, 2018.  Of the total shares issued under the 2016 Incentive Plan, 60,028 shares were unrestricted at the time of issuance, and the remaining 41,277 restricted shares vested on December 15, 2017, of which 13,129 common shares were surrendered to satisfy tax withholding obligations.  Of the total 2017 share based compensation, approximately $5.8 million was recorded as a liability as of December 31, 2017, which was included in accounts payable and other liabilities in the Company’s consolidated balance sheet and the remaining $1.2 million, which is subject to vesting on December 14, 2018, will be recognized as compensation expense proportionately throughout 2018.  Of the total 2016 share based compensation, approximately $0.4 million, which vested on December 15, 2017, was recognized as compensation expense proportionately throughout 2017.  For the three months ended March 31, 2018 and 2017, the Company recognized approximately $0.3 million and $0.1 million, respectively, of share based compensation expense related to the unvested restricted share awards.
 
8.  Legal Proceedings

Moses, et al. v. Apple Hospitality REIT, Inc., et al.

As previously disclosed in the 2017 Form 10-K, on April 22, 2014, a purported shareholder of Apple REIT Seven, Inc. (“Apple Seven”) and Apple REIT Eight, Inc. (“Apple Eight”), filed a class action against the Company and several individual directors on behalf of all then-existing shareholders and former shareholders of Apple Seven and Apple Eight, who purchased additional shares under the Dividend Reinvestment Plans (“DRIP”) of Apple Seven, Apple Eight and the Company between July 17, 2007 and February 12, 2014 (the “2014 DRIP litigation”).  In January 2017, the parties reached an agreement in principle to settle the litigation which the court approved by order dated March 27, 2018.  In January 2018, the Company funded the settlement amount of $5.5 million, which was included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of December 31, 2017, and in transaction and litigation costs (reimbursements) in the Company’s consolidated statement of operations for the year ended December 31, 2016.

15

Wilchfort, et al. v. Apple Hospitality REIT, Inc., et al.

As previously disclosed in the 2017 Form 10-K, on February 24, 2017, a purported shareholder of Apple REIT Six, Inc. (“Apple Six”), Apple Seven and Apple Eight, filed a class action against, among others, the Company and the former individual directors of Apple Six, Apple Seven and Apple Eight, including Mr. Glade Knight (“the Apple REIT Defendants”), on behalf of all then-existing shareholders and former shareholders of Apple Six, Apple Seven and Apple Eight, who purchased additional shares under Apple Six’s, Apple Seven’s and Apple Eight’s DRIP between July 17, 2007 and December 2012 (in the case of Apple Six shareholders) or June 30, 2013 (in the case of Apple Seven and Apple Eight shareholders).  On May 1, 2018, all of the Apple REIT Defendants were dismissed from the complaint without prejudice by the plaintiff.

9.  Subsequent Events

In April 2018, the Company paid approximately $23.0 million, or $0.10 per outstanding common share, in distributions to its common shareholders.

In April 2018, the Company declared a regular monthly cash distribution of $0.10 per common share for the month of May 2018.  The distribution is payable on May 15, 2018.

In April 2018, the Company, through one of its indirect wholly-owned subsidiaries, entered into a purchase contract for the purchase of all of the ownership interests in a limited liability company which plans to construct a dual-branded Hampton Inn & Suites and Home2 Suites by Hilton property in Cape Canaveral, Florida, with a combined total of 224 guest rooms for a purchase price of approximately $46.7 million.  Although the Company is working towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied, and there can be no assurance that a closing on these hotels will occur.

On May 2, 2018, the Company closed on the purchase of a newly constructed 210-room Hampton Inn & Suites in Phoenix, Arizona, the same day the hotel opened for business.  The gross purchase price was approximately $44.3 million.
16

 
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 successfully integrate pending transactions and 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; the outcome of current and future litigation, including any legal proceedings that have been or may be instituted against the Company or others; 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 2017 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 2017 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 United States.  As of March 31, 2018, the Company owned 241 hotels with an aggregate of 30,585 rooms located in urban, high-end suburban and developing markets throughout 34 states.  All of the Company’s hotels operate under Marriott or Hilton 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.”

2018 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 select-service hotels, the Company acquired two hotels for an aggregate purchase price of approximately $63.0 million during the first three months of 2018: a 119-room Hampton Inn & Suites in Atlanta, Georgia and a 144-room Hampton Inn & Suites in Memphis, Tennessee.  On May 2, 2018, the same day the hotel opened for business, the Company acquired a 210-room Hampton Inn & Suites in Phoenix, Arizona for approximately $44.3 million.  As of May 2, 2018, the Company also had outstanding contracts for the potential purchase of three hotels that were under construction for a total purchase price of approximately $67.4 million, including  a 128-room Home2 Suites in Orlando, Florida which is planned to be completed and opened for business in the fourth quarter of 2018, and a combined 224-room dual-branded Hampton Inn & Suites and Home2 Suites by Hilton property in Cape Canaveral, Florida which is planned to be completed and opened for business in 2020.  The Company utilized its revolving credit facility to fund the completed acquisitions and plans to utilize the revolving credit facility for any additional acquisitions.

17

See Note 2 titled “Investment in Real Estate” and Note 9 titled “Subsequent Events” 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 United States 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, the lodging industry and the Company have experienced modest revenue growth.  Moderate improvements in the general U.S. economy have been partially offset by increased supply in many markets.  With modest revenue growth, the Company has produced stable operating results during the first three months of 2018 on a comparable basis (as defined below) with expense increases generally offsetting revenue growth.  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 and government fiscal policies.  The Company, on a comparable basis, and industry are forecasting a low single digit percentage increase in revenue for the full year of 2018 as compared to 2017.  The anticipated low growth is primarily due to inconsistent demand in certain markets and increased hotel supply meeting demand growth in others, limiting the Company’s ability to increase rates.

As of March 31, 2018, the Company owned 241 hotels with a total of 30,585 rooms as compared to 236 hotels with a total of 30,203 rooms as of March 31, 2017, however, 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 three months ended March 31, 2018, the Company acquired two existing hotels (both on February 5, 2018).  During 2017, the Company acquired three newly constructed hotels (one on February 2, 2017 and two on September 12, 2017) and three existing hotels (one on October 13, 2017, one on October 20, 2017 and one on December 1, 2017), and sold two hotels (one on April 20, 2017 and one on October 5, 2017).  As a result, the comparability of results for the three months ended March 31, 2018 and 2017 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 revenue per available room (“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.

   
Three Months Ended March 31,
 
(in thousands, except statistical data)
 
2018
   
Percent of Revenue
   
2017
   
Percent of Revenue
   
Percent Change
 
                               
Total revenue
 
$
298,389
     
100.0
%
 
$
292,925
     
100.0
%
   
1.9
%
Hotel operating expense
   
172,329
     
57.8
%
   
168,454
     
57.5
%
   
2.3
%
Property taxes, insurance and other expense
   
17,229
     
5.8
%
   
16,927
     
5.8
%
   
1.8
%
Ground lease expense
   
2,850
     
1.0
%
   
2,816
     
1.0
%
   
1.2
%
General and administrative expense
   
6,877
     
2.3
%
   
6,754
     
2.3
%
   
1.8
%
                                         
Loss on impairment of depreciable real estate assets
   
-
             
7,875
             
n/a
 
Depreciation expense
   
44,840
             
43,767
             
2.5
%
Interest and other expense, net
   
11,919
             
11,717
             
1.7
%
Income tax expense
   
163
             
250
             
-34.8
%
                                         
Number of hotels owned at end of period
   
241
             
236
             
2.1
%
ADR
 
$
134.32
           
$
133.39
             
0.7
%
Occupancy
   
74.6
%
           
74.4
%
           
0.3
%
RevPAR
 
$
100.18
           
$
99.27
             
0.9
%
 
18

Comparable Hotels Operating Results

The following table reflects certain operating statistics for the Company’s 241 hotels owned as of March 31, 2018 (“Comparable Hotels”).  The Company defines metrics from Comparable Hotels as results generated by the 241 hotels owned as of the end of the reporting period.  For the hotels acquired during the current reporting period and prior year, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company.  This information has not been audited, either for the periods owned or prior to ownership by the Company.  For dispositions, results have been excluded for the Company’s period of ownership.

   
Three Months Ended March 31,
 
   
2018
   
2017
   
Percent Change
 
                   
ADR
 
$
134.43
   
$
133.25
     
0.9
%
Occupancy
   
74.6
%
   
74.5
%
   
0.1
%
RevPAR
 
$
100.23
   
$
99.31
     
0.9
%

Same Store Operating Results

The following table reflects certain operating statistics for the Company’s 233 hotels owned by the Company as of January 1, 2017 and during the entirety of the reporting periods being compared (“Same Store Hotels”).  This information has not been audited.

   
Three Months Ended March 31,
 
   
2018
   
2017
   
Percent Change
 
                   
ADR
 
$
134.26
   
$
132.98
     
1.0
%
Occupancy
   
74.8
%
   
74.7
%
   
0.1
%
RevPAR
 
$
100.37
   
$
99.31
     
1.1
%

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the United States as well as each individual locality.  Economic indicators in the United States have generally been favorable, which has been partially offset by increased supply in many of the Company’s markets.  As a result, the Company’s revenue and operating results for its Comparable Hotels and Same Store Hotels experienced modest growth during the first quarter of 2018 as compared to 2017.  The Company expects continued modest improvement in both revenue and operating results for its Comparable Hotels in 2018 as compared to 2017.  The Company’s hotels in general have shown results consistent with industry and brand averages for the period of ownership.  During the first quarter of 2018, revenue growth from the leisure travel sector of the industry was estimated to be stronger than from the business travel sector as a result of the shift of the Easter holiday to March and April in 2018.  With a greater proportion of its revenue generated from business travel as compared to leisure travel, the Company’s growth was slightly below industry averages.

Revenues

The Company’s principal source of revenue is hotel revenue consisting of room and other related revenue.  For the three months ended March 31, 2018 and 2017, the Company had total revenue of $298.4 million and $292.9 million, respectively.  For the three months ended March 31, 2018 and 2017, respectively, Comparable Hotels achieved combined average occupancy of 74.6% and 74.5%, ADR of $134.43 and $133.25 and RevPAR of $100.23 and $99.31.  ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

During the first quarter of 2018, the Company experienced a modest increase in ADR and stable occupancy, resulting in a 0.9% increase in RevPAR for Comparable Hotels compared to the first quarter of 2017.  Markets with above average growth in the first quarter of 2018 for the Company and industry included Fort Worth, Texas, Knoxville, Tennessee, Norfolk/Virginia Beach, Virginia and South Florida.  Markets that were below average for the Company and industry included Austin, Texas, Kansas City, Missouri, Omaha, Nebraska and Washington, D.C.   

19

Hotel Operating Expense

Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees.  For the three months ended March 31, 2018 and 2017, respectively, hotel operating expense totaled $172.3 million and $168.5 million or 57.8% and 57.5% of total revenue for each respective period.  For the Company’s Comparable Hotels, hotel operating expense as a percentage of revenue increased approximately 50 basis points for the three months ended March 31, 2018 as compared to the same period in 2017.  Increases in labor costs as a percentage of revenue during the first quarter of 2018 as compared to the same period in 2017 was the primary cause of the increased hotel operating expense.  The Company anticipates continued increases in labor costs due to government regulations surrounding wages, healthcare and other benefits, other wage-related initiatives and lower unemployment rates.  Although operating expenses will increase as revenue increases, the Company will continue to work with its management companies to reduce costs as a percentage of revenue where possible while maintaining quality and service levels at each property.

Property Taxes, Insurance and Other Expense

Property taxes, insurance, and other expense for the three months ended March 31, 2018 and 2017 totaled $17.2 million and $16.9 million, respectively, or 5.8% of total revenue for each respective period, and for Comparable Hotels, 5.8% of total revenue for each respective period.  For the Company’s Comparable Hotels, real estate taxes increased slightly during the first three months of 2018 compared to the first three months of 2017, with tax increases at certain locations due to the reassessment of property values by localities related to the improved economy, partially offset by decreases at other locations due to successful appeals of tax assessments.  With the economy continuing to improve, the Company anticipates continued increases in property tax assessments during the remainder of 2018.  The Company will continue to appeal tax assessments in certain jurisdictions to attempt to minimize tax increases as warranted.  Additionally, due to increased losses in 2017 for property insurance carriers, the Company’s property insurance costs are anticipated to increase slightly as a percentage of revenue for the full year of 2018 as compared to 2017.

Ground Lease Expense

Ground lease expense for the three months ended March 31, 2018 and 2017 was $2.9 million and $2.8 million, respectively.  Ground lease expense primarily represents the expense incurred by the Company to lease land for 14 of its hotel properties.

General and Administrative Expense

General and administrative expense for the three months ended March 31, 2018 and 2017 was $6.9 million and $6.8 million, respectively, or 2.3% of total revenue for each respective period.  The principal components of general and administrative expense are payroll and related benefit costs, legal fees, accounting fees and reporting expenses.

Loss on Impairment of Depreciable Real Estate Assets

The Company did not experience any loss on impairment of depreciable real estate assets for the three months ended March 31, 2018.  Loss on impairment of depreciable real estate assets was approximately $7.9 million for the three months ended March 31, 2017, and related to two properties that the Company identified for potential sale during the first quarter of 2017.  See Note 2 titled “Investment in Real Estate” 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 this impairment loss.

Depreciation Expense

Depreciation expense for the three months ended March 31, 2018 and 2017 was $44.8 million and $43.8 million, respectively.  Depreciation expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for their respective periods owned.  The increase was primarily due to the increase in the number of properties owned as a result of the acquisition of two hotels in February 2018 and six hotels in 2017 and renovations completed throughout 2018 and 2017.

20

Interest and Other Expense, net

Interest and other expense, net for the three months ended March 31, 2018 and 2017 was $11.9 million and $11.7 million, respectively, and is net of approximately $0.5 million in each respective period, of interest capitalized associated with renovation projects.  Although average outstanding debt was less in the first quarter of 2018 as compared to the first quarter of 2017, interest expense increased slightly as a result of an increase in the Company’s effective interest rate during the first quarter of 2018 as compared to 2017, due to (a) the issuance of longer term fixed-rate debt subsequent to March 31, 2017, which was used to reduce the Company’s revolving credit facility, resulting in a higher average interest rate than the variable-rate borrowings repaid, and (b) an increase in interest rates on the Company’s variable-rate debt, with the one-month LIBOR increasing from 0.98% at March 31, 2017 to 1.88% at March 31, 2018.  While approximately 79% of the Company’s outstanding debt was effectively fixed rate at March 31, 2018, the Company does expect interest costs to continue to increase for the remainder of 2018 due to increased rates for its remaining variable rate debt.

Non-GAAP Financial Measures

The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations (“FFO”), Modified FFO (“MFFO”), Earnings before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), and Adjusted EBITDA (“Adjusted EBITDA”).  These non-GAAP financial measures should be considered along with, but not as alternatives to, net income, cash flow from operations or any other operating GAAP measure.  FFO, MFFO, EBITDA and Adjusted EBITDA are not necessarily indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions.  Although FFO, MFFO, EBITDA and Adjusted EBITDA, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA and Adjusted EBITDA as reported by other companies that do not define such terms exactly as the Company defines such terms, the Company believes these supplemental measures are useful to investors when comparing the Company’s results between periods and with other REITs.

FFO and MFFO

The Company calculates and presents FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), which defines FFO as net income (computed in accordance with GAAP), excluding gains or losses from sales of real estate, extraordinary items as defined by GAAP, and the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated partnerships and joint ventures.  Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time.  Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations.  The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the Nareit definition.  FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.

The Company further adjusts FFO for the exclusion of non-cash straight-line ground lease expense as this expense does not reflect the underlying performance of the related hotels.  The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.

The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three months ended March 31, 2018 and 2017 (in thousands).

   
Three Months Ended March 31,
 
   
2018
   
2017
 
Net income
 
$
42,182
   
$
34,365
 
Depreciation of real estate owned
   
44,610
     
43,537
 
Loss on impairment of depreciable real estate assets
   
-
     
7,875
 
Amortization of favorable and unfavorable leases, net
   
206
     
165
 
Funds from operations
   
86,998
     
85,942
 
Non-cash straight-line ground lease expense
   
904
     
939
 
Modified funds from operations
 
$
87,902
   
$
86,881
 

21

EBITDA and Adjusted EBITDA

EBITDA is a commonly used measure of performance in many industries and is defined as net income excluding interest, income taxes, depreciation and amortization.  The Company believes EBITDA is useful to investors because it helps the Company and its investors evaluate the ongoing operating performance of the Company by removing the impact of its capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization).  In addition, certain covenants included in the agreements governing the Company’s indebtedness use EBITDA, as defined in the specific credit agreement, as a measure of financial compliance.

The Company considers the exclusion of certain additional items from EBITDA useful, including: (i) the loss on impairment of depreciable real estate assets as this item does not represent ongoing operations and (ii) the exclusion of non-cash straight-line ground lease expense as this expense does not reflect the underlying performance of the related hotels.

The following table reconciles the Company’s GAAP net income to EBITDA and Adjusted EBITDA for the three months ended March 31, 2018 and 2017 (in thousands).

   
Three Months Ended March 31,
 
   
2018
   
2017
 
Net income
 
$
42,182
   
$
34,365
 
Depreciation
   
44,840
     
43,767
 
Amortization of favorable and unfavorable leases, net
   
206
     
165
 
Interest and other expense, net
   
11,919
     
11,717
 
Income tax expense
   
163
     
250
 
EBITDA
   
99,310
     
90,264
 
Loss on impairment of depreciable real estate assets
   
-
     
7,875
 
Non-cash straight-line ground lease expense
   
904
     
939
 
Adjusted EBITDA
 
$
100,214
   
$
99,078
 

Hotels Owned
 
As of March 31, 2018, the Company owned 241 hotels with an aggregate of 30,585 rooms located in 34 states.  The following tables summarize the number of hotels and rooms by brand and by state:

Number of Hotels and Guest Rooms by Brand
 
   
Number of
   
Number of
 
Brand
 
Hotels
   
Rooms
 
Hilton Garden Inn
   
42
     
5,807
 
Courtyard
   
40
     
5,460
 
Hampton
   
38
     
4,685
 
Residence Inn
   
34
     
4,011
 
Homewood Suites
   
34
     
3,831
 
SpringHill Suites
   
17
     
2,248
 
TownePlace Suites
   
12
     
1,196
 
Fairfield Inn
   
11
     
1,300
 
Home2 Suites
   
8
     
910
 
Marriott
   
2
     
616
 
Embassy Suites
   
2
     
316
 
Renaissance
   
1
     
205
 
    Total
   
241
     
30,585
 

22


Number of Hotels and Guest Rooms by State
 
   
Number of
   
Number of
 
State
 
Hotels
   
Rooms
 
Alabama
   
15
     
1,434
 
Alaska
   
2
     
304
 
Arizona
   
11
     
1,434
 
Arkansas
   
4
     
408
 
California
   
27
     
3,807
 
Colorado
   
4
     
567
 
Florida
   
23
     
2,851
 
Georgia
   
7
     
715
 
Idaho
   
2
     
416
 
Illinois
   
8
     
1,420
 
Indiana
   
4
     
479
 
Iowa
   
3
     
301
 
Kansas
   
4
     
422
 
Louisiana
   
4
     
541
 
Maine
   
1
     
179
 
Maryland
   
2
     
233
 
Massachusetts
   
4
     
466
 
Michigan
   
1
     
148
 
Minnesota
   
2
     
244
 
Mississippi
   
2
     
168
 
Missouri
   
4
     
544
 
Nebraska
   
4
     
621
 
New Jersey
   
5
     
629
 
New York
   
4
     
550
 
North Carolina
   
12
     
1,337
 
Ohio
   
2
     
252
 
Oklahoma
   
4
     
545
 
Pennsylvania
   
3
     
391
 
South Carolina
   
5
     
538
 
Tennessee
   
13
     
1,500
 
Texas
   
34
     
4,072
 
Utah
   
3
     
393
 
Virginia
   
14
     
2,067
 
Washington
   
4
     
609
 
    Total
   
241
     
30,585
 
 
The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 241 hotels the Company owned as of March 31, 2018.

City
 
State
 
Brand
 
Manager
 
Date Acquired or
Completed
 
Rooms
 
Anchorage
 
AK
 
Embassy Suites
 
Stonebridge
 
4/30/2010
   
169
 
Anchorage
 
AK
 
Home2 Suites
 
Stonebridge
 
12/1/2017
   
135
 
Auburn
 
AL
 
Hilton Garden Inn
 
LBA
 
3/1/2014
   
101
 
Birmingham
 
AL
 
Courtyard
 
LBA
 
3/1/2014
   
84
 
Birmingham
 
AL
 
Hilton Garden Inn
 
LBA
 
9/12/2017
   
104
 
Birmingham
 
AL
 
Home2 Suites
 
LBA
 
9/12/2017
   
106
 
Birmingham
 
AL
 
Homewood Suites
 
McKibbon
 
3/1/2014
   
95
 
Dothan
 
AL
 
Hilton Garden Inn
 
LBA
 
6/1/2009
   
104
 
Dothan
 
AL
 
Residence Inn
 
LBA
 
3/1/2014
   
84
 
Huntsville
 
AL
 
Hampton
 
LBA
 
9/1/2016
   
98
 
Huntsville
 
AL
 
Hilton Garden Inn
 
LBA
 
3/1/2014
   
101
 
Huntsville
 
AL
 
Home2 Suites
 
LBA
 
9/1/2016
   
77
 
Huntsville
 
AL
 
Homewood Suites
 
LBA
 
3/1/2014
   
107
 
 
23

City
 
State
 
Brand
 
Manager
 
Date Acquired or
Completed
   
Rooms
 
Mobile
 
AL
 
Hampton
 
McKibbon
 
9/1/2016
   
101
 
Montgomery
 
AL
 
Hilton Garden Inn
 
LBA
 
3/1/2014
   
97
 
Montgomery
 
AL
 
Homewood Suites
 
LBA
 
3/1/2014
   
91
 
Prattville
 
AL
 
Courtyard
 
LBA
 
3/1/2014
   
84
 
Rogers
 
AR
 
Hampton
 
Raymond
 
8/31/2010
   
122
 
Rogers
 
AR
 
Homewood Suites
 
Raymond
 
4/30/2010
   
126
 
Rogers
 
AR
 
Residence Inn
 
Raymond
 
3/1/2014
   
88
 
Springdale
 
AR
 
Residence Inn
 
Aimbridge
 
3/1/2014
   
72
 
Chandler
 
AZ
 
Courtyard
 
North Central
 
11/2/2010
   
150
 
Chandler
 
AZ
 
Fairfield Inn & Suites
 
North Central
 
11/2/2010
   
110
 
Phoenix
 
AZ
 
Courtyard
 
North Central
 
11/2/2010
   
164
 
Phoenix
 
AZ
 
Courtyard
 
North Central
 
9/1/2016
   
127
 
Phoenix
 
AZ
 
Hampton
 
North Central
 
9/1/2016
   
125
 
Phoenix
 
AZ
 
Homewood Suites
 
North Central
 
9/1/2016
   
134
 
Phoenix
 
AZ
 
Residence Inn
 
North Central
 
11/2/2010
   
129
 
Scottsdale
 
AZ
 
Hilton Garden Inn
 
North Central
 
9/1/2016
   
122
 
Tucson
 
AZ
 
Hilton Garden Inn
 
Western
 
7/31/2008
   
125
 
Tucson
 
AZ
 
Residence Inn
 
Western
 
3/1/2014
   
124
 
Tucson
 
AZ
 
TownePlace Suites
 
Western
 
10/6/2011
   
124
 
Agoura Hills
 
CA
 
Homewood Suites
 
Dimension
 
3/1/2014
   
125
 
Burbank
 
CA
 
Courtyard
 
Huntington
 
8/11/2015
   
190
 
Burbank
 
CA
 
Residence Inn
 
Marriott
 
3/1/2014
   
166
 
Burbank
 
CA
 
SpringHill Suites
 
Marriott
 
7/13/2015
   
170
 
Clovis
 
CA
 
Hampton
 
Dimension
 
7/31/2009
   
86
 
Clovis
 
CA
 
Homewood Suites
 
Dimension
 
2/2/2010
   
83
 
Cypress
 
CA
 
Courtyard
 
Dimension
 
3/1/2014
   
180
 
Cypress
 
CA
 
Hampton
 
Dimension
 
6/29/2015
   
110
 
Oceanside
 
CA
 
Courtyard
 
Marriott
 
9/1/2016
   
142
 
Oceanside
 
CA
 
Residence Inn
 
Marriott
 
3/1/2014
   
125
 
Rancho Bernardo/San Diego
 
CA
 
Courtyard
 
InnVentures
 
3/1/2014
   
210
 
Sacramento
 
CA
 
Hilton Garden Inn
 
Dimension
 
3/1/2014
   
153
 
San Bernardino
 
CA
 
Residence Inn
 
InnVentures
 
2/16/2011
   
95
 
San Diego
 
CA
 
Courtyard
 
Huntington
 
9/1/2015
   
245
 
San Diego
 
CA
 
Hampton
 
Dimension
 
3/1/2014
   
177
 
San Diego
 
CA
 
Hilton Garden Inn
 
InnVentures
 
3/1/2014
   
200
 
San Diego
 
CA
 
Residence Inn
 
Dimension
 
3/1/2014
   
121
 
San Jose
 
CA
 
Homewood Suites
 
Dimension
 
3/1/2014
   
140
 
San Juan Capistrano
 
CA
 
Residence Inn
 
Marriott
 
9/1/2016
   
130
 
Santa Ana
 
CA
 
Courtyard
 
Dimension
 
5/23/2011
   
155
 
Santa Clarita
 
CA
 
Courtyard
 
Dimension
 
9/24/2008
   
140
 
Santa Clarita
 
CA
 
Fairfield Inn
 
Dimension
 
10/29/2008
   
66
 
Santa Clarita
 
CA
 
Hampton
 
Dimension
 
10/29/2008
   
128
 
Santa Clarita
 
CA
 
Residence Inn
 
Dimension
 
10/29/2008
   
90
 
Tulare
 
CA
 
Hampton
 
InnVentures
 
3/1/2014
   
86
 
Tustin
 
CA
 
Fairfield Inn & Suites
 
Marriott
 
9/1/2016
   
145
 
Tustin
 
CA
 
Residence Inn
 
Marriott
 
9/1/2016
   
149
 
Colorado Springs
 
CO
 
Hampton
 
Chartwell
 
9/1/2016
   
101
 
Denver
 
CO
 
Hilton Garden Inn
 
Stonebridge
 
9/1/2016
   
221
 
Highlands Ranch
 
CO
 
Hilton Garden Inn
 
Dimension
 
3/1/2014
   
128
 
Highlands Ranch
 
CO
 
Residence Inn
 
Dimension
 
3/1/2014
   
117
 
Boca Raton
 
FL
 
Hilton Garden Inn
 
White Lodging
 
9/1/2016
   
149
 
Cape Canaveral
 
FL
 
Homewood Suites
 
LBA
 
9/1/2016
   
153
 
Fort Lauderdale
 
FL
 
Hampton
 
Vista Host
 
12/31/2008
   
109
 
Fort Lauderdale
 
FL
 
Hampton
 
LBA
 
6/23/2015
   
156
 
Fort Lauderdale
 
FL
 
Residence Inn
 
LBA
 
9/1/2016
   
156
 
 
24

City
 
State
 
Brand
 
Manager
 
Date Acquired or
Completed
   
Rooms
 
Gainesville
 
FL
 
Hilton Garden Inn
 
McKibbon
 
9/1/2016
   
104
 
Gainesville
 
FL
 
Homewood Suites
 
McKibbon
 
9/1/2016
   
103
 
Jacksonville
 
FL
 
Homewood Suites
 
McKibbon
 
3/1/2014
   
119
 
Lakeland
 
FL
 
Courtyard
 
LBA
 
3/1/2014
   
78
 
Miami
 
FL
 
Courtyard
 
Dimension
 
3/1/2014
   
118
 
Miami
 
FL
 
Hampton
 
White Lodging
 
4/9/2010
   
121
 
Miami
 
FL
 
Homewood Suites
 
Dimension
 
3/1/2014
   
162
 
Orlando
 
FL
 
Fairfield Inn & Suites
 
Marriott
 
7/1/2009
   
200
 
Orlando
 
FL
 
SpringHill Suites
 
Marriott
 
7/1/2009
   
200
 
Panama City
 
FL
 
Hampton
 
LBA
 
3/12/2009
   
95
 
Panama City
 
FL
 
TownePlace Suites
 
LBA
 
1/19/2010
   
103
 
Pensacola
 
FL
 
TownePlace Suites
 
McKibbon
 
9/1/2016
   
97
 
Sanford
 
FL
 
SpringHill Suites
 
LBA
 
3/1/2014
   
105
 
Sarasota
 
FL
 
Homewood Suites
 
Hilton
 
3/1/2014
   
100
 
Tallahassee
 
FL
 
Fairfield Inn & Suites
 
LBA
 
9/1/2016
   
97
 
Tallahassee
 
FL
 
Hilton Garden Inn
 
LBA
 
3/1/2014
   
85
 
Tampa
 
FL
 
Embassy Suites
 
White Lodging
 
11/2/2010
   
147
 
Tampa
 
FL
 
TownePlace Suites
 
McKibbon
 
3/1/2014
   
94
 
Albany
 
GA
 
Fairfield Inn & Suites
 
LBA
 
1/14/2010
   
87
 
Atlanta
 
GA
 
Hampton
 
McKibbon
 
2/5/2018
   
119
 
Atlanta
 
GA
 
Home2 Suites
 
McKibbon
 
7/1/2016
   
128
 
Columbus
 
GA
 
SpringHill Suites
 
LBA
 
3/1/2014
   
89
 
Columbus
 
GA
 
TownePlace Suites
 
LBA
 
3/1/2014
   
86
 
Macon
 
GA
 
Hilton Garden Inn
 
LBA
 
3/1/2014
   
101
 
Savannah
 
GA
 
Hilton Garden Inn
 
Newport
 
3/1/2014
   
105
 
Cedar Rapids
 
IA
 
Hampton
 
Schulte
 
9/1/2016
   
103
 
Cedar Rapids
 
IA
 
Homewood Suites
 
Schulte
 
9/1/2016
   
95
 
Davenport
 
IA
 
Hampton
 
Schulte
 
9/1/2016
   
103
 
Boise
 
ID
 
Hampton
 
Raymond
 
4/30/2010
   
186
 
Boise
 
ID
 
SpringHill Suites
 
InnVentures
 
3/1/2014
   
230
 
Des Plaines
 
IL
 
Hilton Garden Inn
 
Raymond
 
9/1/2016
   
252
 
Hoffman Estates
 
IL
 
Hilton Garden Inn
 
White Lodging
 
9/1/2016
   
184
 
Mettawa
 
IL
 
Hilton Garden Inn
 
White Lodging
 
11/2/2010
   
170
 
Mettawa
 
IL
 
Residence Inn
 
White Lodging
 
11/2/2010
   
130
 
Rosemont
 
IL
 
Hampton
 
Raymond
 
9/1/2016
   
158
 
Schaumburg
 
IL
 
Hilton Garden Inn
 
White Lodging
 
11/2/2010
   
166
 
Skokie
 
IL
 
Hampton
 
Raymond
 
9/1/2016
   
225
 
Warrenville
 
IL
 
Hilton Garden Inn
 
White Lodging
 
11/2/2010
   
135
 
Indianapolis
 
IN
 
SpringHill Suites
 
White Lodging
 
11/2/2010
   
130
 
Merrillville
 
IN
 
Hilton Garden Inn
 
White Lodging
 
9/1/2016
   
124
 
Mishawaka
 
IN
 
Residence Inn
 
White Lodging
 
11/2/2010
   
106
 
South Bend
 
IN
 
Fairfield Inn & Suites
 
White Lodging
 
9/1/2016
   
119
 
Overland Park
 
KS
 
Fairfield Inn & Suites
 
True North
 
3/1/2014
   
110
 
Overland Park
 
KS
 
Residence Inn
 
True North
 
3/1/2014
   
120
 
Overland Park
 
KS
 
SpringHill Suites
 
True North
 
3/1/2014
   
102
 
Wichita
 
KS
 
Courtyard
 
Aimbridge
 
3/1/2014
   
90
 
Baton Rouge
 
LA
 
SpringHill Suites
 
Dimension
 
9/25/2009
   
119
 
Lafayette
 
LA
 
Hilton Garden Inn
 
LBA
 
7/30/2010
   
153
 
Lafayette
 
LA
 
SpringHill Suites
 
LBA
 
6/23/2011
   
103
 
New Orleans
 
LA
 
Homewood Suites
 
Dimension
 
3/1/2014
   
166
 
Andover
 
MA
 
SpringHill Suites
 
Marriott
 
11/5/2010
   
136
 
Marlborough
 
MA
 
Residence Inn
 
True North
 
3/1/2014
   
112
 
Westford
 
MA
 
Hampton
 
True North
 
3/1/2014
   
110
 
Westford
 
MA
 
Residence Inn
 
True North
 
3/1/2014
   
108
 
Annapolis
 
MD
 
Hilton Garden Inn
 
White Lodging
 
3/1/2014
   
126
 
Silver Spring
 
MD
 
Hilton Garden Inn
 
White Lodging
 
7/30/2010
   
107
 
Portland
 
ME
 
Residence Inn
 
Pyramid
 
10/13/2017
   
179
 
 
25

City
 
State
 
Brand
 
Manager
 
Date Acquired or
Completed
   
Rooms
 
Novi
 
MI
 
Hilton Garden Inn
 
White Lodging
 
11/2/2010
   
148
 
Maple Grove
 
MN
 
Hilton Garden Inn
 
North Central
 
9/1/2016
   
120
 
Rochester
 
MN
 
Hampton
 
Raymond
 
8/3/2009
   
124
 
Kansas City
 
MO
 
Hampton
 
Raymond
 
8/31/2010
   
122
 
Kansas City
 
MO
 
Residence Inn
 
True North
 
3/1/2014
   
106
 
St. Louis
 
MO
 
Hampton
 
Raymond
 
8/31/2010
   
190
 
St. Louis
 
MO
 
Hampton
 
Raymond
 
4/30/2010
   
126
 
Hattiesburg
 
MS
 
Courtyard
 
LBA
 
3/1/2014
   
84
 
Hattiesburg
 
MS
 
Residence Inn
 
LBA
 
12/11/2008
   
84
 
Carolina Beach
 
NC
 
Courtyard
 
Crestline