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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2022
or
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 001-37389
APPLE HOSPITALITY REIT, INC.
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of incorporation or organization)
814 East Main Street
Richmond, Virginia
(Address of principal executive offices)
26-1379210
(I.R.S. Employer Identification Number)
23219
(Zip Code)
(804) 344-8121
(Registrant’s telephone number, including area code)
Title of each class
Common Shares, no par value
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
APLE
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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
Non-accelerated filer
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Accelerated filer
Smaller reporting company
Emerging growth company
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☐
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the common shares held by non-affiliates of the registrant (based on the closing sale price on the New York Stock
Exchange) was approximately $3,132,940,838 as of June 30, 2022.
The number of common shares outstanding on February 13, 2023 was 228,663,564.
Documents Incorporated by Reference
The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Company’s definitive proxy
statement to be filed with the Securities and Exchange Commission in connection with the Company’s annual meeting of shareholders to be held on May 18,
2023.
APPLE HOSPITALITY REIT, INC.
FORM 10-K
Index
Part I
Part II
Part III
Part IV
Item 1.
Business....................................................................................................................................................
Item 1A. Risk Factors..............................................................................................................................................
Item 1B. Unresolved Staff Comments ....................................................................................................................
Properties..................................................................................................................................................
Item 2.
Legal Proceedings ....................................................................................................................................
Item 3.
Mine Safety Disclosures .........................................................................................................................
Item 4.
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities ......................................................................................................................................
Reserved...................................................................................................................................................
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ..................
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ..................................................................
Item 8.
Financial Statements and Supplementary Data........................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................
Item 9.
Item 9A. Controls and Procedures ..........................................................................................................................
Item 9B. Other Information.....................................................................................................................................
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.....................................................
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance.......................................................................
Executive Compensation..........................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions, and Director Independence .......................................
Principal Accounting Fees and Services ..................................................................................................
Item 15.
Exhibits, Financial Statement Schedules .................................................................................................
Item 16. Form 10-K Summary ...............................................................................................................................
Signatures.....................................................................................................................................................................................
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This Form 10-K includes references to certain trademarks or service marks. The AC Hotels by Marriott®, Aloft Hotels®,
Courtyard by Marriott®, Fairfield by Marriott®, Marriott® Hotels, Residence Inn by Marriott®, SpringHill Suites by Marriott® and
TownePlace Suites by Marriott® trademarks are the property of Marriott International, Inc. or one of its affiliates. The Embassy Suites
by Hilton®, Hampton by Hilton®, Hilton Garden Inn®, Home2 Suites by Hilton® 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.
2
Forward-Looking Statements
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). 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 Apple Hospitality
REIT, Inc. and its wholly-owned subsidiaries (the “Company”) to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company’s forward-
looking statements continues to be the adverse effect of the coronavirus COVID-19 pandemic (“COVID-19”), including resurgences
and variants, on the Company’s business, financial performance and condition, operating results and cash flows, the real estate market
and the hospitality industry specifically, and the global economy and financial markets generally. The significance, extent and
duration of the continued impacts caused by the COVID-19 pandemic on the Company will depend on future developments, which are
highly uncertain and cannot be predicted with confidence at this time, including the extent and effectiveness of the actions taken to
mitigate its impact, the acceptance and availability of vaccines, the duration of associated immunity and efficacy of the vaccines
against variants of COVID-19, the potential for hotel closures/consolidations that may be mandated or advisable, whether based on
increased COVID-19 cases, new variants or other factors, and the direct and indirect economic effects of the pandemic and
containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section
titled “Risk Factors” in this Annual Report on Form 10-K as being heightened as a result of the ongoing and numerous adverse
impacts of COVID-19. Additional factors include, but are not limited to, the ability of the Company to effectively acquire and dispose
of properties and redeploy proceeds; the anticipated timing and frequency of shareholder distributions; the ability of the Company to
fund capital obligations; 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 (including the potential
effects of inflation or a recessionary environment); reduced business and leisure travel due to travel-related health concerns, including
the COVID-19 pandemic or an increase in COVID-19 cases or any other infectious or contagious diseases in the United States
("U.S.") or abroad; adverse changes in the real estate and real estate capital markets; financing risks; changes in interest rates;
litigation risks; regulatory proceedings or inquiries; and changes in laws or regulations or interpretations of current laws and
regulations that impact the Company’s business, assets or classification as a real estate investment trust (“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 Annual Report on Form
10-K 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 of 1986, as
amended (the “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 Item 1A in this
Annual Report on Form 10-K. Any forward-looking statement that the Company makes speaks only as of the date of this Annual
Report on Form 10-K. 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.
3
Item 1.
Business
The Company, formed in November 2007 as a Virginia corporation, is a self-advised REIT that invests in income-producing
real estate, primarily in the lodging sector, in the U.S. The Company has elected to be treated as a REIT for federal income tax
purposes. As of December 31, 2022, the Company owned 220 hotels with an aggregate of 28,983 rooms located in urban, high-end
suburban and developing markets throughout 37 states. As of December 31, 2022, substantially all of the Company’s hotels operate
under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 17 hotel
management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the New York
Stock Exchange (“NYSE”) under the ticker symbol “APLE.” The Company has no foreign operations or assets and its operating
structure includes only one reportable segment. Refer to Part II, Item 8, for the Consolidated Financial Statements and Notes thereto,
appearing elsewhere in this Annual Report on Form 10-K.
Business Objectives
The Company is one of the largest hospitality REITs in the U.S., in both the number of hotels and guest rooms, with significant
geographic and brand diversity. The Company’s primary business objective is to maximize shareholder value by achieving long-term
growth in cash available for distributions to its shareholders. The Company has pursued and will continue to pursue this objective
through the following investment strategies:
•
•
•
•
•
pursuing thoughtful capital allocation with selective acquisitions and dispositions of primarily rooms-focused hotels in the
upscale sector of the lodging industry;
employing broad geographic diversification of its investments;
franchising and collaborating with leading brands in the sector;
utilizing strong experienced operators for its hotels and enhancing their performance with proactive asset management;
reinvesting in the Company’s hotels to maintain their competitive advantage; and
• maintaining low leverage providing the Company with financial flexibility.
The Company has generally acquired fee simple ownership of its properties, with a focus on hotels that have or have the
potential to have diverse demand generators, strong brand recognition, high levels of customer satisfaction and strong operating
margins. Due to their efficient operating model and strong consumer preference, the Company concentrates on the acquisition of
rooms-focused hotels. The Company’s acquisitions have been in broadly diversified markets across the U.S. to limit dependence on
any one geographic area or demand generator. With an emphasis on upscale rooms-focused hotels, the Company utilizes its asset
management experience and expertise to improve the quality and performance of its hotels by working with its property managers to
aggressively manage revenue and expenses by benchmarking with internal and external data, using the Company’s scale to help
negotiate favorable vendor contracts, engaging industry leaders in hotel management, and franchising the hotels with leading brands
and actively participating with the franchisors to strengthen the brands. To maintain its competitive advantage in each market, the
Company continually reinvests in its hotels. With its depth of ownership in many upscale and upper midscale rooms-focused brands
and extensive experience with the Hilton and Marriott rooms-focused brands, the Company has been able to enhance its reinvestment
approach. By maintaining a flexible balance sheet, with a total debt, net of cash, to total capitalization (total debt outstanding, net of
cash, plus equity market capitalization based on the Company’s December 31, 2022 closing share price) ratio at December 31, 2022 of
27.5%, the Company is not only positioned to opportunistically consider investments that further improve shareholder value, but
management believes it is equipped to address developments caused by adverse economic environments.
The Impact of COVID-19 on the Company and the Hospitality Industry
The COVID-19 pandemic has negatively impacted the U.S. and global economies and financial markets. The effect of COVID-
19 on the hotel industry has been unprecedented and has dramatically reduced business and impacted leisure travel, which adversely
impacted the Company’s business, financial performance, operating results and cash flows, beginning in March 2020.
While operations in 2022 returned to 2019 pre-pandemic levels in many markets, some markets, while showing continued
improvement, may take time to recover to 2019 pre-pandemic levels. The Company experienced significant improvement in its
business during 2021 and 2022 driven primarily by increased strength in leisure, small group and local negotiated business demand.
While the Company has seen continued improvement in overall business demand, it anticipates that some larger corporate demand
drivers may take longer to fully recover. See “The Impact of COVID-19 on the Company and the Hospitality Industry” in Part II, Item
7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, appearing elsewhere in this Annual
Report on Form 10-K, for more information about the Company’s response to the effects of COVID-19.
4
Hotel Operating Performance
As of December 31, 2022, the Company owned 220 hotels with a total of 28,983 rooms as compared to 219 hotels with a total
of 28,747 rooms as of December 31, 2021. Operating performance is included only for the period of ownership for hotels acquired or
disposed of during 2022 and 2021. During 2022, the Company acquired two hotels and sold one hotel. During 2021, the Company
acquired eight hotels and sold 23 hotels. The following table reflects certain operating statistics for the Company’s hotels for their
respective periods of ownership by the Company. Average Daily Rate (“ADR”) is calculated as room revenue divided by the number
of rooms sold, and revenue per available room (“RevPAR”) is calculated as occupancy multiplied by ADR.
ADR ...................................................................................... $
Occupancy.............................................................................
RevPAR ................................................................................ $
149.36
72.6%
108.45
$
$
123.78
66.3%
82.03
2022
2021
Percent
Change
20.7%
9.5%
32.2%
Years Ended December 31,
Comparable Hotels Operating Performance
The following table reflects certain operating statistics for the Company’s 220 hotels owned as of December 31, 2022
(“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 220 hotels owned as of the
end of the reporting period. For the hotels acquired during the reporting periods shown, 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.
ADR ...................................................................................... $
Occupancy.............................................................................
RevPAR ................................................................................ $
149.56
72.6%
108.60
$
$
125.52
66.1%
82.99
2022
2021
Percent
Change
19.2%
9.8%
30.9%
Years Ended December 31,
Hotel performance is impacted by many factors, including the economic conditions in the U.S. and in each individual locality.
COVID-19 has been negatively affecting the U.S. hotel industry since March 2020 with the Company experiencing its most
significant decline in operating results (driven by the impact of COVID-19) during 2020 and early 2021. The Company’s revenue and
operating results improved during 2022 as compared to 2021, which is consistent with the overall lodging industry. Although the
Company expects continued recovery in rate and occupancy, it is difficult to project the pace at which the Company will experience a
full recovery to pre-pandemic levels and future revenues and operating results could be negatively impacted by, among other things,
historical seasonal trends, an increase in COVID-19 cases, new COVID-19 variants, state and local governments and businesses
reverting to tighter COVID-19 mitigation restrictions, deterioration of consumer sentiment, labor shortages, supply chain disruptions,
a recessionary macroeconomic environment or inflationary pressures. See Part II, Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, appearing elsewhere in this Annual Report on Form 10-K, for more information on the
Company’s results of operations.
Recent Investing Activities
Acquisitions and Contracts for Potential Acquisitions
The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties
that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in
rooms-focused hotels, in 2022, the Company acquired two existing hotels for an aggregate purchase price of approximately $85.0
million: a 156-room AC Hotel in Louisville, Kentucky and a 134-room AC Hotel in Pittsburgh, Pennsylvania. The Company utilized
its available cash on hand and a $50 million draw on its $575 million term loan facility, which consists of a $275 million term loan
and a $300 million term loan (together, the "$575 million term loan facility") to fund the acquisitions. The Company plans to utilize its
available cash or borrowings under its unsecured credit facilities for any additional acquisitions.
As of December 31, 2022, the Company had an outstanding contract for the potential purchase of a hotel under development in
Madison, Wisconsin for a purchase price of $78.6 million, which is expected to be completed as a 260-room Embassy Suites and
opened for business in early 2024, at which time the Company expects to complete the purchase of this hotel. Although the Company
is working towards acquiring this hotel, there are a number of conditions to closing that have not yet been satisfied and there can be no
assurance that closing on this hotel will occur under the outstanding purchase contract.
5
Dispositions
For its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and
attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided from the sale
of the property. As a result, in 2022, the Company sold one hotel for a gross sales price of approximately $8.5 million. The net
proceeds from the sale were used for general corporate purposes.
See Note 2 titled “Investment in Real Estate” and Note 3 titled “Dispositions” in Part II, Item 8, of the Consolidated Financial
Statements and Notes thereto, appearing elsewhere in this Annual Report on Form 10-K for additional information concerning these
transactions.
Share Repurchases
In addition to continually considering opportunities to invest in rooms-focused hotels, the Company also monitors the trading
price of its common shares and repurchases its common shares when it believes there is an opportunity to increase shareholder value.
In May 2022, the Company’s Board of Directors approved a one-year extension of its existing share repurchase program, authorizing
share repurchases up to an aggregate of $345 million (the "Share Repurchase Program"). The Share Repurchase Program may be
suspended or terminated at any time by the Company and will end in July 2023 if not terminated or extended earlier. During the year
ended December 31, 2022, the Company purchased approximately 0.2 million of its common shares under its Share Repurchase
Program at a weighted-average market purchase price of approximately $14.21 per common share for an aggregate purchase price,
including commissions, of approximately $2.7 million. Repurchases under the Share Repurchase Program have been funded, and the
Company intends to fund future repurchases, with cash on hand or availability under its unsecured credit facilities, subject to
applicable restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of
common shares to be repurchased under the Share Repurchase Program will also depend upon prevailing market conditions,
regulatory requirements and other factors. As of December 31, 2022, approximately $342.3 million remained available for purchase
under the Share Repurchase Program.
Hotel Industry and Competition
The hotel industry is highly competitive. Each of the Company’s hotels competes for guests primarily with other hotels in its
immediate vicinity and secondarily with other hotels or lodging facilities in its geographic market. An increase in the number of
competitive hotels or other lodging facilities in a particular area could have a material adverse effect on the occupancy, ADR and
RevPAR of the Company’s hotels in that area. The Company believes that brand recognition, location, price and quality (of both the
hotel and the services provided) are the principal competitive factors affecting the Company’s hotels. Additionally, general economic
conditions, both in a particular market and nationally, impact the performance of the hotel industry.
Management and Franchise Agreements
Substantially all of the Company’s hotels operate under Marriott or Hilton brands, and as of December 31, 2022, consisted of
the following:
Number of Hotels and Guest Rooms by Brand
Brand
Hilton Garden Inn...................................................................................................................
Hampton .................................................................................................................................
Courtyard................................................................................................................................
Homewood Suites ..................................................................................................................
Residence Inn .........................................................................................................................
Fairfield ..................................................................................................................................
Home2 Suites .........................................................................................................................
SpringHill Suites ....................................................................................................................
TownePlace Suites .................................................................................................................
AC Hotels...............................................................................................................................
Hyatt Place .............................................................................................................................
Marriott...................................................................................................................................
Embassy Suites.......................................................................................................................
Independent ............................................................................................................................
Aloft .......................................................................................................................................
Hyatt House............................................................................................................................
Total ...................................................................................................................................
Number of
Hotels
Number of
Rooms
40
37
33
30
29
10
10
9
9
3
3
2
2
1
1
1
220
5,593
4,953
4,653
3,417
3,548
1,213
1,146
1,245
931
468
411
619
316
208
157
105
28,983
6
Each of the Company’s 220 hotels owned as of December 31, 2022 is operated and managed under separate management
agreements with 17 hotel management companies, none of which are affiliated with the Company. The management agreements
generally provide for initial terms of one to 30 years and are terminable by the Company for either failure to achieve performance
thresholds, sale of the property, or without cause. As of December 31, 2022, approximately 85% of the Company’s hotels operate
under a variable management fee agreement, with an average initial term of approximately one to two years, which the Company
believes better aligns incentives for each hotel manager to maximize each property’s performance than a base-plus-incentive
management fee structure, as described below, which is more common throughout the industry. Under the variable fee structure, the
management fee earned for each hotel is generally within a range of 2.5% to 3.5% of gross revenues. The performance measures are
based on various financial and quality performance metrics. The Company’s remaining hotels operate under a management fee
structure which generally includes the payment of base management fees and an opportunity for incentive management fees. Under
this structure, base management fees are calculated as a percentage of gross revenues and the incentive management fees are
calculated as a percentage of operating profit in excess of a priority return to the Company, as defined in the management agreements.
In addition to the above, management fees for all of the Company’s hotels generally include accounting fees and other fees for
centralized services, which are allocated among all of the hotels that receive the benefit of such services. For the year ended
December 31, 2022, the management fee under all variable management fee agreements was set to 3% of gross revenues in response
to continued uncertainties related to the COVID-19 pandemic and its impact on hotel performance. The Company intends to reinstate
the variable management fee rates in 2023.
Thirteen of the Company’s hotels are managed by affiliates of Marriott. The remainder of the Company’s hotels are managed by
companies that are not affiliated with either Marriott, Hilton or Hyatt, and, as a result, the branded hotels they manage were required
to obtain separate franchise agreements with each respective franchisor. The franchise agreements generally provide for initial terms
of approximately 10 to 30 years and generally provide for renewals subject to franchise requirements at the time of renewal. The
Company pays various fees under these agreements, including the payment of royalty fees, marketing fees, reservation fees, a
communications support fee, brand loyalty program fees and other similar fees based on room revenues.
The franchise and/or management agreements provide a variety of benefits for the Company, which include national advertising,
publicity, and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality
standards, centralized reservation systems and best practices within the industry.
Hotel Maintenance and Renovation
Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it
deems prudent. The Company’s hotels have an ongoing need for renovation and refurbishment. To maintain and enhance each
property’s competitive position in its market, the Company has invested in and plans to continue to reinvest in its hotels. During 2022,
2021 and 2020, the Company’s capital improvements for its hotels were approximately $61.7 million, $25.8 million and $37.6 million,
respectively. Expenditures for 2022 were higher than 2021 and 2020 as the Company reduced non-essential capital improvement
projects in 2021 and 2020 as a result of COVID-19. During 2023, the Company anticipates investing approximately $70 million to
$80 million in capital improvements, which includes comprehensive renovation projects for approximately 20 to 25 properties.
Financing
The Company’s principal short term sources of liquidity are the operating cash flows generated from the Company’s properties
and availability under its $650 million revolving credit facility with an initial maturity date of July 25, 2026 (the "Revolving Credit
Facility"). Depending on market conditions, over the long term, the Company may also receive proceeds from strategic additional
secured and unsecured debt financing, dispositions of its hotel properties or issuance of common shares through equity offerings, such
as the Company’s at-the-market offering program described below. The Company anticipates that funds from these sources will be
adequate to meet its anticipated liquidity requirements, including required distributions to shareholders, share repurchases, capital
improvements, debt service, hotel acquisitions, lease commitments, and cash management activities.
On June 2, 2022, the Company entered into an unsecured $75 million senior notes facility with a maturity date of June 2, 2029.
The Company used the net proceeds from the $75 million senior notes facility for general corporate purposes, including the repayment
of borrowings under the Company’s then-existing $425 million revolving credit facility and repayment of mortgage debt.
On July 25, 2022, the Company entered into an amendment and restatement of its $850 million credit facility, increasing the
borrowing capacity to $1.2 billion. The amendment and restatement extended the maturity date of the facility and changed the
reference rate of the facility from the London Inter-Bank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR")
plus 10 basis points plus a margin ranging from 1.35% to 2.25% depending on the Company’s leverage ratio.
As of December 31, 2022, the Company had approximately $1.4 billion of total outstanding debt with a combined weighted-
average interest rate, including the effect of interest rate swaps, of approximately 3.93%, consisting of approximately $329.2 million
in outstanding mortgage debt secured by 19 properties, with maturity dates ranging from February 2023 to May 2038 and stated
7
interest rates ranging from 3.40% to 4.46%, and approximately $1.0 billion in outstanding debt under its unsecured credit facilities
with maturity dates ranging from August 2023 to March 2030 and effective interest rates, including the effect of interest rate swaps,
ranging from 2.61% to 5.81%.
The Company’s unused borrowing capacity under its Revolving Credit Facility as of December 31, 2022 was $650 million,
which is available for acquisitions, hotel renovations, share repurchases, working capital and other general corporate funding
purposes, including the payment of distributions to shareholders. As discussed above, the Company has historically maintained and
plans in the future to maintain relatively low leverage as compared to the real estate industry as a whole and the lodging sector in
particular. The Company’s ratio of total debt, net of cash, to total capitalization (total debt outstanding, net of cash, plus equity market
capitalization based on the Company's December 31, 2022 closing share price) ratio as of December 31, 2022 was 27.5%. The
Company intends to maintain staggered maturities of its debt, utilize unsecured debt when available and fix the rate on a portion of its
debt. All of these strategies reduce shareholder risk related to the Company’s financing structure.
See Note 4 title “Debt” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, appearing elsewhere in
this Annual Report on Form 10-K, for a description of the Company's debt instruments as of December 31, 2022 and a summary of the
financial and restrictive covenants as defined in the credit agreements.
The Company has a universal shelf registration statement on Form S-3 (No. 333-262915) that was automatically effective upon
filing on February 23, 2022. The Company may offer an indeterminate number or amount, as the case may be, of (1) common shares,
no par value per share; (2) preferred shares, no par value per share; (3) depository shares representing the Company’s preferred shares;
(4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5)
rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to
time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. On August 12, 2020, the Company entered into
an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $300 million of its
common shares under an at-the-market offering program (the “ATM Program”) under the Company’s prior shelf registration
statement and the current shelf registration statement described above. Since inception of the ATM Program in August 2020 through
December 31, 2022, the Company sold approximately 4.7 million common shares under its ATM Program at a weighted-average
market sales price of approximately $16.26 per common share and received aggregate gross proceeds of approximately $76.0 million
and proceeds net of offering costs, which included $0.9 million of commissions, of approximately $75.1 million. The Company used
the net proceeds from the sale of these shares primarily to pay down borrowings under its then-existing $425 million revolving credit
facility and used the corresponding increased availability under the $425 million revolving credit facility for general corporate
purposes, including acquisitions of hotel properties. As of December 31, 2022, approximately $224.0 million remained available for
issuance under the ATM Program. No shares were sold under the Company's ATM Program during the year ended December 31,
2022. The Company plans to use future net proceeds from the sale of shares under the ATM Program for general corporate purposes
which may include, among other things, acquisitions of additional properties, the repayment of outstanding indebtedness, capital
expenditures, improvement of properties in its portfolio and working capital. The Company may also use the net proceeds to acquire
another REIT or other company that invests in income producing properties. Future offerings will depend on a variety of factors to be
determined by the Company, including market conditions, the trading price of the Company’s common shares and opportunities for
uses of any proceeds.
Distribution Policy
The Company has historically paid distributions on a monthly basis, with distributions based on anticipated cash generated from
operations. The Company attempts to set a rate that can be consistent over a period of time as it forecasts its cash available from
operations. As a result of COVID-19 and the impact on its business, the Company suspended its monthly distributions in March 2020,
and beginning in March 2021, the Board of Directors declared distributions of $0.01 per common share in the last month of each
quarter and the distributions were paid out each following month. In February 2022, the Board of Directors of the Company reinstated
its policy of distributions on a monthly basis and declared a monthly cash distribution of $0.05 per common share with the first
monthly distribution paid in March 2022. In August and October 2022, the Board of Directors approved subsequent increases to the
monthly cash distribution to $0.07 and $0.08 per common share, respectively. In addition to the regular monthly cash distribution of
$0.08 per common share approved by the Board of Directors in December 2022, the Board of Directors approved a special cash
distribution of $0.08 per common share for a combined distribution of $0.16 per common share, paid in January 2023, to shareholders
of record as of December 30, 2022. While management expects monthly cash distributions to continue, each distribution is subject to
approval by the Company’s Board of Directors and there can be no assurance of the classification, timing or duration of distributions
at the current distribution rate. The Company’s Board of Directors, in consultation with management, will continue to monitor hotel
operations and the timing and level of distributions in relation to the Company’s other cash requirements or in order to maintain its
REIT status for federal income tax purposes. If cash flows from operations and the Revolving Credit Facility are not adequate to meet
liquidity requirements, the Company may utilize additional financing sources to make distributions. As it has done historically, due to
seasonality, the Company may use its Revolving Credit Facility to maintain consistency of the distribution rate, taking into
consideration any acquisitions, dispositions, capital improvements and economic cycles. Although the Company has relatively low
levels of debt, there can be no assurance it will be successful with this strategy and may need to reduce its distributions to required
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levels to maintain its REIT status. If the Company were unable to extend its maturing debt in future periods or if it were to default on
its debt, it may be unable to make distributions.
Insurance
The Company maintains insurance coverage for general liability, property, business interruption, cyber threats and other risks
with respect to all of its hotels. These policies offer coverage features and insured limits that the Company believes are customary for
similar types of properties in similar locations. However, various types of catastrophic losses, like earthquakes, hurricanes, or certain
types of terrorism, may not be insurable or may not be economically insurable.
Corporate Responsibility
The Company’s environmental, social and governance strategy aims to enhance long-term value for its shareholders through
responsible investment in sustainable and equitable practices at the corporate and property levels that: strengthen the resilience of the
Company and its hotels while minimizing its overall environmental impact and enhancing the value of its assets; encourage
stakeholder engagement and advance human capital; and make positive contributions throughout the Company, the hotel industry, its
local community and the many communities its hotels serve.
The Company’s Corporate Responsibility Report, issued in December 2022, provides further detail of the Company’s
environmental, social and governance progress, and can be found on the Company’s website at www.applehospitalityreit.com. The
contents of the Company’s Corporate Responsibility Report are not incorporated by reference into this Annual Report on Form 10-K
and do not form a part of this Form 10-K.
Environmental Stewardship and Sustainability
The environment is a key consideration in the operations of the Company's hotels. The Company actively monitors key
performance indicators of energy, water and waste at its properties, utilizing historical, market and industry data to identify properties
where improvements can be made, and works with its management companies to address the opportunities. The Company is
committed to enhancing and incorporating sustainability opportunities into its investment and asset management strategies, with a
focus on minimizing its environmental impact.
To enhance its commitment to sustainable operations, the Company established a formal energy management program in 2018
to ensure that energy, water and waste management are a priority not only within the Company, but also with the Company's third-
party management companies and brands. Developed jointly with the Company's third-party energy consultants, this program provides
its hotels and management companies with operating guidelines designed to consistently use energy and water responsibly across the
entire portfolio. The Company seeks to invest in proven sustainability practices when renovating its hotels and in portfolio-wide
capital projects that can enhance asset value while also improving environmental performance. The Company targets specific
environmental efficiency enhancements, including equipment upgrades and replacements, that reduce energy and water consumption
and improve waste management. As part of its acquisition due diligence, the Company performs sustainability assessments to identify
areas of opportunity that will improve the property's environmental performance.
Social Responsibility
The Company is firmly committed to strengthening communities through charitable giving and by volunteering time and talents.
The Company is dedicated to making a positive impact throughout its organization, the hotel industry, its local community and the
many communities its hotels serve. In 2017, the Company formed Apple Gives, an employee-led charitable initiative, to expand its
impact and further advance the achievement of its corporate philanthropic goals. Apple Gives collaborates with organizations that are
important to the Company's employees, its third-party management companies, its hotels and numerous industry organizations,
including the American Hotel & Lodging Association (“AHLA”), and works to make a positive impact across the Company's
community and the communities its hotels serve. More specifically, Apple Gives organizes company-wide community events with
charitable organizations, deploys aid to markets and associates affected by natural disasters, and allocates funds and other resources to
a variety of causes.
Human Capital
The Company believes that each of its 63 team members (as of December 31, 2022) plays a vital role in the success of the
organization. The Company believes the physical and mental health, safety and well-being of its employees, the associates at its hotels
and its hotel guests is critical to the continued success of its business. The Company aims to provide an inspiring, diverse, equitable
and inclusive work environment where employees feel valued, empowered and encouraged to make positive differences within the
Company and throughout their communities, with a belief that the most successful management provides clear leadership while
empowering the team to make timely and responsible decisions and to take actions necessary to achieve exceptional operating results.
The Company is committed to diversity, equity and inclusion and does not tolerate discrimination or harassment in the workplace.
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The Company offers competitive compensation and benefits, a flexible leave policy, fully paid parental leave for up to 12 weeks
for primary caregivers and three weeks for secondary caregivers for the birth or adoption of a new child, financial assistance for
adoption of a new child, an education reimbursement program, and a culture that encourages balance of work and personal life. The
Company provides its employees with two days paid leave each year for volunteer work and donation matching to support non-profit
organizations. The Company emphasizes an open-door policy for communications and conducts regular employee satisfaction surveys
and annual performance reviews, which provide the opportunity for continuous improvement.
The Company is committed to working safely and maintaining a safe workplace in compliance with cleanliness guidelines set
forth by the Centers for Disease Control and Prevention (CDC), and in compliance with applicable Occupational Safety and Health
Act (OSHA) standards.
The Company has implemented various initiatives to ensure the Company remains inclusive, equitable and supportive for all,
including a formal online training program that all employees of the Company are required to complete annually for the prevention of
discrimination and harassment in the workplace, including unconscious bias.
During 2022, all employees involved in the day-to-day operation of the Company’s hotels were employed by one of 17 third-
party management companies engaged pursuant to the hotel management agreements.
Seasonality
The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause
quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues for the Company’s hotels are greater in the
second and third quarters than in the first and fourth quarters. However, due to the effects of COVID-19, these typical seasonal
patterns have been disrupted since the first quarter of 2020, although the Company has experienced some seasonal decrease in demand
in the first and fourth quarters of each year. To the extent that cash flow from operations is insufficient during any quarter due to
temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet
cash requirements.
Related Parties
The Company has engaged in, 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. Certain employees of the Company also provide support services to Apple Realty Group, Inc.
(“ARG”), which is wholly owned by Glade M. Knight, Executive Chairman of the Company. ARG reimburses the Company for the
support services that it receives.
See Note 6 titled “Related Parties” in Part II, Item 8, of the Consolidated Financial Statements and Notes thereto, appearing
elsewhere in this Annual Report on Form 10-K for additional information concerning the Company’s related party transactions.
Website Access
The address of the Company’s website is www.applehospitalityreit.com. The Company makes available free of charge through
its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and
amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act, as soon as reasonably
practicable after the Company electronically files such material with, or furnishes it to, the SEC. Information contained on the
Company’s website is not incorporated by reference into this report. The Company’s website also is a key source of important
information about the Company. The Company routinely posts to the Investor Information section of its website important information
about its business, operating results and financial condition and prospects, including, for example, information about material
acquisitions and dispositions, earnings releases and the Company’s Corporate Responsibility Report. The Company also posts to its
website copies of investor presentations, which contain important information about the Company, and it updates those presentations
periodically. The website has a Corporate Governance page in the Investor Information section that includes, among other things,
copies of the Company’s Code of Business Conduct and Ethics, Corporate Governance Guidelines and the charters for each standing
committee of the Company’s Board of Directors. Please note that the information contained on the Company’s website is not
incorporated by reference in, or considered to be a part of, this report or any other document, unless expressly incorporated by
reference therein.
Item 1A. Risk Factors
The Company has identified the following significant risk factors which may affect, among other things, the Company’s
business, financial position, results of operations, operating cash flows, market value, and ability to service its debt obligations and
make distributions to its shareholders. You should carefully consider the risks described below and the risks disclosed by the
Company in other filings with the SEC, in addition to the other information contained in this Annual Report on Form 10-K.
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Risks Related to the Company’s Business and Operations
The Company is subject to various risks which are common to the hotel industry on a national, regional and local market basis
that are beyond its control and could adversely affect its business.
The success of the Company’s hotels depends largely on the hotel operators’ ability to adapt to dominant trends and risks in the
hotel industry, both nationally and in individual local markets. These risks could adversely affect hotel occupancy and the rates that
can be charged for hotel rooms as well as hotel operating expenses. The following is a summary of risks that may affect the hotel
industry in general and as a result may affect the Company:
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over-building of hotels in the markets in which the Company operates, resulting in an increase in supply of hotel rooms that
exceeds increases in demand;
competition from other hotels and lodging alternatives in the markets in which the Company operates;
a downturn in the hospitality industry;
dependence on business and leisure travel;
increases in energy costs and other travel expenses, which may affect travel patterns and reduce business and leisure travel;
reduced business and leisure travel due to geo-political uncertainty, including terrorism, travel-related health concerns,
including COVID-19 or other widespread outbreaks of infectious or contagious diseases in the U.S., inclement weather
conditions, including natural disasters such as hurricanes, earthquakes and wildfires, and government shutdowns, airline
strikes or other disruptions;
reduced travel due to adverse national, regional or local economic and market conditions;
seasonality of the hotel industry may cause quarterly fluctuations in operating results;
changes in marketing and distribution for the hospitality industry including the cost and the ability of third-party internet
and other travel intermediaries to attract and retain customers;
changes in hotel room demand generators in a local market;
ability of a hotel franchise to fulfill its obligations to franchisees;
brand expansion;
the performance of third-party managers of the Company’s hotels;
increases in operating costs, including ground lease payments, renovation projects, property and casualty insurance, utilities
and real estate and personal property taxes, due to inflation, climate change and other factors that may not be offset by
increased room rates;
inflation due to the possibility of future increases in interest rates which could adversely affect consumer confidence
thereby reducing consumer purchasing power and demand for lodging;
labor shortages and other increases in the cost of labor due to low unemployment rates or to government regulations
surrounding work rules, government-issued vaccination requirements or prohibitions, wage rates, health care coverage and
other benefits;
supply chain disruptions and broader inflationary pressures throughout the overall economy and global tensions driving
shortages and cost increases for materials and supplies such as food and equipment;
changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance
with applicable laws and regulations;
claims, litigation and threatened litigation from guests, visitors to our hotel properties, contractors, sub-contractors and
others;
business interruptions due to cyber-attacks and other technological events;
requirements for periodic capital reinvestment to repair and upgrade hotels;
limited alternative uses for hotel buildings; and
condemnation or uninsured losses.
Any of these factors, among others, may reduce the Company’s operating results, the value of the properties that the Company
owns, and the availability of capital to the Company.
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Economic conditions in the U.S. and individual markets may adversely affect the Company’s business operations and financial
performance.
The performance of the lodging industry has historically been highly cyclical and closely linked to the performance of the
general economy both nationally and within local markets in the U.S. The lodging industry is also sensitive to government, business
and personal discretionary spending levels. Declines in government and corporate budgets and consumer demand due to adverse
general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence or adverse political conditions
have lowered and may continue to lower the revenue and profitability of the Company’s hotels and therefore the net operating profits
of its investments. An economic downturn or prolonged economic recession, including lower GDP growth, corporate earnings,
consumer confidence, employment rates, income levels and personal wealth, may lead to a significant decline in demand for products
and services provided by the lodging industry, lower occupancy levels, significantly reduced room rates, and declines in RevPAR. The
Company cannot predict the pace or duration of an economic recession or cycle or the cycles of the lodging industry. In the event
conditions in the industry deteriorate or do not continue to see sustained improvement, or there is an extended period of economic
weakness, the Company’s revenue and profitability could be adversely affected. Furthermore, even if the economy in the U.S.
improves, the Company cannot provide any assurances that demand for hotels will increase from current levels, nationally or more
specifically, where the Company’s properties are located.
In addition, many of the expenses associated with the Company’s business, including certain personnel costs, interest expense,
ground leases, property taxes, insurance and utilities, are relatively fixed. These hotel operating expenses may not decrease when hotel
revenues decrease, and some expenses, such as wages and insurance, may also increase due to factors unrelated to hotel operating
performance, such as rising inflation rates. During a period of overall economic weakness, if the Company is unable to meaningfully
decrease these costs as demand for its hotels decreases, or increase room rates to account for higher than expected costs, the
Company’s business operations and financial performance may be adversely affected.
The Company is affected by restrictions in, and compliance with, its franchise and license agreements.
The Company’s wholly-owned taxable REIT subsidiaries (“TRSs”) (or subsidiaries thereof) operate substantially all of its hotels
pursuant to franchise or license agreements with nationally recognized hotel brands. These franchise and license agreements contain
specific standards for, and restrictions and limitations on, the operation and maintenance of the Company’s hotels in order to maintain
uniformity within the franchisor system. The Company may be required to incur costs to comply with these standards and these
standards could potentially conflict with the Company’s ability to create specific business plans tailored to each property and to each
market. Failure to comply with these brand standards may result in termination of the applicable franchise or license agreement. In
addition, as the Company’s franchise and license agreements expire, the Company may not be able to renew them on favorable terms,
or at all. If the Company were to lose or was unable to renew a franchise or license agreement, the Company would be required to re-
brand the hotel, which could result in a decline in the value of the hotel, the loss of marketing support and participation in guest
loyalty programs, and harm to the Company’s relationship with the franchisor, impeding the Company’s ability to operate other hotels
under the same brand. Additionally, the franchise and license agreements have provisions that could limit the Company’s ability to
sell or finance a hotel which could further affect the Company.
Substantially all of the Company’s hotels operate under Marriott or Hilton brands; therefore, the Company is subject to risks
associated with concentrating its portfolio in these brand families.
Substantially all of the Company’s hotels operate under brands owned by Marriott or Hilton. As a result, the Company’s success
is dependent in part on the continued success of Marriott and Hilton and their respective brands. The Company believes that building
brand value is critical to increase demand and strengthen customer loyalty. Consequently, if market recognition or the positive
perception of any of these brands is reduced or compromised, the goodwill associated with the Marriott or Hilton branded hotels in the
Company’s portfolio may be adversely affected. Also, if Marriott or Hilton alter certain policies, including their respective guest
loyalty programs, this could reduce the Company’s future revenues. Furthermore, if the Company’s relationship with Marriott or
Hilton were to deteriorate or terminate as a result of disputes regarding the Company’s hotels or for other reasons, the franchisors
could, under certain circumstances, terminate the Company’s current franchise licenses with them or decline to provide franchise
licenses for hotels that the Company may acquire in the future. If any of the foregoing were to occur, it could have a material adverse
effect on the Company.
Although substantially all of the Company’s hotels operate under the brands noted above, the Company owns and may from
time to time acquire independent hotels or hotels affiliated with other brands, and/or may choose to operate hotels independently of a
brand if the Company believes that these properties will operate most effectively as independent hotels. However, without the support
and recognition of a large established brand, the capability of these independent or less recognized branded hotels to market the hotel,
maintain guest loyalty, attract new guests, and operate in a cost-effective manner may be difficult, which could adversely affect the
Company’s overall operating results.
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Competition in the markets where the Company owns hotels may adversely affect the Company’s results of operations.
The hotel industry is highly competitive. Each of the Company’s hotels competes for guests primarily with other hotels in its
immediate vicinity and secondarily with other hotels in its geographic market. The Company also competes with numerous owners
and operators of vacation ownership resorts, as well as alternative lodging companies, including third-party providers of short-term
rental properties and serviced apartments that can be rented on a nightly, weekly or monthly basis. An increase in the number of
competitive hotels, vacation ownership resorts and alternative lodging arrangements in a particular area could have a material adverse
effect on the occupancy, ADR and RevPAR of the Company’s hotels in that area and lower the Company’s revenue and profitability.
The Company is dependent on third-party hotel managers to operate its hotels and could be adversely affected if such
management companies do not manage the hotels successfully.
To maintain its status as a REIT, the Company is not permitted to operate any of its hotels. As a result, the Company has entered
into management agreements with third-party managers to operate its hotels. For this reason, the Company’s ability to direct and
control how its hotels are operated is less than if the Company were able to manage its hotels directly. Under the terms of the hotel
management agreements, the Company’s ability to participate in operating decisions regarding its hotels is limited to certain matters,
and it does not have the authority to require any hotel to be operated in a particular manner (for instance, setting room rates). The
Company does not supervise any of the hotel managers or their respective personnel on a day-to-day basis. The Company cannot be
assured that the hotel managers will manage its hotels in a manner that is consistent with their respective obligations under the
applicable management agreement or the Company’s obligations under its hotel franchise agreements. The Company could be
materially and adversely affected if any of its third-party managers fail to effectively manage revenues and expenses, provide quality
services and amenities, or otherwise fail to manage its hotels in its best interest, and may be financially responsible for the actions and
inactions of the managers. In certain situations, based on the terms of the applicable management agreement, the Company or manager
may terminate the agreement. In the event that any of the Company’s management agreements are terminated, the Company can
provide no assurance that it could identify a replacement manager, that the franchisor will consent to the replacement manager in a
timely manner, or at all, or that the replacement manager will manage the hotel successfully. A failure by the Company’s hotel
managers to successfully manage its hotels could lead to an increase in its operating expenses, a decrease in its revenues, or both.
Furthermore, if one of the Company’s third-party managers is financially unable or unwilling to perform its obligations pursuant
to its management agreements with the Company, the Company’s ability to find a replacement manager or managers for those
properties could be costly and time-consuming for the Company and disrupt hotel operations which could materially and adversely
affect the Company. In addition, at any given time, the Company may become engaged in disputes or litigation with one or more of its
third-party managers or franchisors arising from contractual and other disagreements that could make the Company liable to them or
result in litigation costs or other expenses.
Labor shortages and increased labor costs could cause significant increases to the Company’s operating costs and decreases to
the Company’s operating revenues.
The Company’s third-party hotel managers are responsible for hiring and maintaining the labor force at each of the Company’s
hotels. Although the Company does not directly employ or manage employees at its hotels the Company is still subject to many of the
costs and risks generally associated with the hotel labor force. Labor costs can increase due to many factors, including but not limited
to, a shortage of hospitality workers, increased dependence on contract workers, increased wages and employee benefit costs,
increased labor turnover and increases in a unionized labor force. Significant labor shortages could prohibit the Company from
operating its hotels at full capacity which could result in a decrease in operating revenues. An increased exposure to a unionized labor
force could lead to labor disputes, causing higher labor costs, either by increases in wages or benefits or by changes in local labor
regulations that raise hotel operating costs.
The growing use of non-franchisor lodging distribution channels could adversely affect the Company’s business and
profitability.
Although a majority of rooms sold are sold through the hotel franchisors’ distribution channels, many are sold through other
channels or intermediaries. Rooms sold through non-franchisors’ channels are generally less profitable (after associated fees) than
rooms sold through franchisors’ channels. Although the Company’s franchisors may have established agreements with many of these
alternative channels or intermediaries that limit transaction fees for hotels, there can be no assurance that the Company’s franchisors
will be able to renegotiate such agreements upon their expiration with terms as favorable as the provisions that exist today. Moreover,
alternative channels or intermediaries may employ aggressive marketing strategies, including expending significant resources for
online and television advertising campaigns to drive consumers to their websites. As a result, consumers may develop brand loyalties
to the intermediaries’ offered brands, websites and reservations systems rather than to those of the Company’s franchisors. If this
happens, the Company’s business and profitability may be materially and adversely affected.
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Renovations and capital improvements at the Company’s existing hotels or new hotel developments may reduce the Company’s
profitability.
The Company has ongoing needs for hotel renovations and capital improvements, including maintenance requirements and
updates to brand standards under all of its hotel franchise and management agreements and certain loan agreements. In addition, from
time to time the Company will need to make renovations and capital improvements to comply with applicable laws and regulations, to
remain competitive with other hotels and to maintain the economic value of its hotels. As properties increase in age, the frequency and
cost of renovations needed to maintain appealing facilities for hotel guests may increase. The Company may also need to make
significant capital improvements to hotels that it acquires, or may be involved in the development of new hotels. Construction delays
and cost overruns, including increases in the cost of labor, goods and materials and delays and cost increases caused by supply chain
disruptions, have increased and may continue to increase renovation or development costs for the Company and have delayed and may
in the future delay the acquisition or opening of hotels or the length of time that rooms are out of service. Occupancy and ADR are
often affected during periods of renovations and capital improvements at a hotel, especially if the Company encounters delays, or if
the improvements require significant disruption at the hotel. The costs of renovations and capital improvements the Company needs or
chooses to make at the Company’s existing hotels, or the costs related to the development of new hotels, could reduce the funds
available for other purposes and may reduce the Company’s profitability.
Certain hotels are subject to ground leases that may affect the Company’s ability to use the hotel or restrict its ability to sell the
hotel.
As of December 31, 2022, 14 of the Company’s hotels were subject to ground leases. Accordingly, the Company effectively
only owns a long-term leasehold interest in these hotels. If the Company is found to be in breach of a ground lease, it could lose the
right to use the hotel. In addition, unless the Company can purchase a fee interest in the underlying land or renew the terms of these
leases before their expiration, as to which no assurance can be given, the Company will lose its right to operate these properties and its
interest in the property, including any investment that it made in the property. The Company’s ability to exercise any extension
options relating to its ground leases is subject to the condition that the Company is not in default under the terms of the ground lease at
the time that it exercises such options, and the Company can provide no assurances that it will be able to exercise any available
options at such time. If the Company were to lose the right to use a hotel due to a breach or non-renewal of a ground lease, it would be
unable to derive income from such hotel. Finally, the Company may not be permitted to sell or finance a hotel subject to a ground
lease without the consent of the lessor.
The Company may not be able to complete hotel dispositions when and as anticipated.
The Company continually monitors the profitability, market conditions, and capital requirements of its hotels and attempts to
maximize shareholder value by timely disposal of its hotels. Real estate investments are, in general, relatively difficult to sell due to,
among other factors, the size of the required investment and the volatility in availability of adequate financing for a potential buyer.
This illiquidity will tend to limit the Company’s ability to promptly vary its portfolio in response to changes in economic or other
conditions. Additionally, factors specific to an individual property, such as its specific market and operating performance, restrictions
in franchise and management agreements, debt secured by the property, a ground lease, or capital expenditure needs may further
increase the difficulty in selling a property. Therefore, the Company cannot predict whether it will be able to sell any hotels on
acceptable terms, or at all. In addition, provisions of the Code relating to REITs have certain limits on the Company’s ability to sell
hotels.
Real estate impairment losses may adversely affect the Company’s financial condition and results of operations.
As a result of changes in an individual hotel’s operating results or to the Company’s planned hold period for a hotel, the
Company may be required to record an impairment loss for a property. The Company analyzes its hotel properties individually for
indicators of impairment throughout the year. The Company records an impairment loss on a hotel property if indicators of
impairment are present, and the sum of the undiscounted cash flows estimated to be generated by the respective property over its
estimated remaining useful life, based on historical and industry data, is less than the property’s carrying amount. Indicators of
impairment include, but are not limited to, a property with current or potential losses from operations, when it becomes more likely
than not that a property will be sold before the end of its previously estimated useful life or when events, trends, contingencies or
changes in circumstances indicate that a triggering event has occurred and an asset’s carrying value may not be recoverable.
The Company’s failure to identify and complete accretive acquisitions may adversely affect the profitability of the Company.
The Company’s business strategy includes identifying and completing accretive hotel acquisitions. The Company competes with
other investors who are engaged in the acquisition of hotels, and these competitors may affect the supply and demand dynamics and,
accordingly, increase the price the Company must pay for hotels it seeks to acquire, or these competitors may succeed in acquiring
those hotels. Any delay or failure on the Company’s part to identify, negotiate, finance on favorable terms, consummate and integrate
such acquisitions could materially impede the Company’s growth. The Company may also incur costs that it cannot recover if it
abandons a potential acquisition. Also, if the Company does not reinvest proceeds received from hotel dispositions into new properties
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in a timely manner, the Company’s profitability could be negatively impacted. The Company’s profitability may also suffer because
future acquisitions of hotels may not yield the returns the Company expects and the integration of such acquisitions may disrupt the
Company’s business or may take longer than projected. Furthermore, the Company may be subject to unknown or contingent
liabilities related to hotels it acquires.
The Company’s inability to obtain financing on favorable terms or pay amounts due on its financing may adversely affect the
Company’s operating results.
Although the Company anticipates maintaining relatively low levels of debt, it may periodically use financing to acquire
properties, perform renovations to its properties, or make shareholder distributions or share repurchases in periods of fluctuating
income from its properties. The credit markets have historically been volatile and subject to increased regulation, and as a result, the
Company may not be able to obtain debt financing to meet its cash requirements, including refinancing any scheduled debt maturities,
which may adversely affect its ability to execute its business strategy. If the Company refinances debt, such refinancing may not be in
the same amount or on terms as favorable as the terms of the existing debt being refinanced. If the Company is unable to refinance its
debt, it may be forced to dispose of hotels or issue equity at inopportune times or on disadvantageous terms, which could result in
higher costs of capital.
The Company is also subject to risks associated with increases in interest rates with respect to the Company’s variable-rate debt
which could reduce cash from operations and adversely affect its ability to make distributions to shareholders. In addition, the
Company has used interest rate swaps to manage its interest rate risks on a portion of its variable-rate debt, and in the future, it may
use hedging arrangements, such as interest rate swaps to manage its exposure to interest rate volatility. The Company’s actual hedging
decisions are determined in light of the facts and circumstances existing at the time of the hedge. There is no assurance that the
Company’s hedging strategy will achieve its objectives, and the Company may be subject to costs, such as transaction fees or
breakage costs, if it terminates these hedging arrangements.
The replacement of LIBOR with SOFR may adversely affect interest expense related to outstanding debt.
The Company's debt agreements related to its unsecured credit facilities require the applicable interest rate or payment amount
by reference to SOFR. The composition and characteristics of SOFR differ from those of LIBOR in material respects: SOFR is a
secured rate, LIBOR is an unsecured rate, and while SOFR is an overnight rate, LIBOR represents interbank funding for a specified
term. The use of SOFR based rates may result in interest rates and/or payments that are higher or lower than the rates and payments
that the Company previously experienced when referenced to LIBOR. SOFR is a relatively new reference rate, has a very limited
history and is based on short-term repurchase agreements, backed by Treasury securities. Changes in SOFR could be volatile and
difficult to predict, and there can be no assurance that SOFR will perform similarly to the way LIBOR would have performed at any
time, including as a result of, without limitation, changes in interest and yield rates in the market, bank credit risk, market volatility or
global or regional economic, financial, political, regulatory, judicial or other events. As a result, the amount of interest the Company
may pay on its credit facilities is difficult to predict. Prior observed patterns, if any, in the behavior of market variables and their
relation to SOFR, such as correlations, may change in the future, and there can be no assurance that SOFR will be positive. While
some pre-publication historical data for SOFR has been released by the Federal Reserve Bank of New York, production of such
historical indicative SOFR data inherently involves assumptions, estimates and approximations. No future performance of SOFR may
be inferred from any of the historical actual or historical indicative SOFR data. Hypothetical or historical performance data are not
indicative of, and have no bearing on, the potential performance of SOFR. Additionally, there can be no assurance that SOFR will
continue to maintain market acceptance or that the method by which the reference rate is calculated will continue in its current form.
Compliance with financial and other covenants in the Company’s existing or future debt agreements may reduce operational
flexibility and create default risk.
The Company’s existing indebtedness, whether secured by mortgages on certain properties or unsecured, contains, and
indebtedness that the Company may enter into in the future likely will contain, customary covenants that may restrict the Company’s
operations and limit its ability to enter into future indebtedness. In addition, the Company’s ability to borrow under its unsecured
credit facilities is subject to compliance with its financial and other covenants, including, among others, a minimum tangible net
worth, maximum debt limits, minimum interest and fixed charge coverage ratios, and restrictions on certain investments. The
Company’s failure to comply with the covenants in its existing or future indebtedness, or its inability to make required principal and
interest payments, could cause a default under the applicable debt agreement, which could result in the acceleration of the debt,
requiring the Company to repay such debt with capital obtained from other sources, which may not be available to the Company or
may only be available on unfavorable terms.
If the Company defaults on its secured debt, lenders may take possession of the property or properties securing such debt. As a
general policy, the Company seeks to obtain mortgages securing indebtedness which encumber only the particular property to which
the indebtedness relates, but recourse on these loans may include all of its assets. If recourse on any loan incurred by the Company to
acquire or refinance any particular property includes all of its assets, the equity in other properties could be reduced or eliminated
through foreclosure on that loan. If a loan is secured by a mortgage on a single property, the Company could lose that property
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through foreclosure if it defaults on that loan. If the Company defaults under a loan, it is possible that it could become involved in
litigation related to matters concerning the loan, and such litigation could result in significant costs for the Company. Additionally,
defaulting under a loan may damage the Company’s reputation as a borrower and may limit its ability to secure financing in the future.
Pandemics and other health crises, including the ongoing outbreak of COVID-19, could negatively impact the Company's
business, financial performance and condition, operating results and cash flows.
Pandemics, including the ongoing COVID-19 pandemic, as well as both future widespread and localized outbreaks of infectious
diseases and other health concerns, and the measures taken to prevent the spread or lessen the impact, could cause a material
disruption to the hotel industry or the economy as a whole. While operations at many of the Company’s properties have returned to
2019 levels, some of the Company's properties continue to operate at reduced levels as business travel has not fully returned, and the
Company has reduced certain services and amenities. COVID-19 disrupted the industry and dramatically reduced business and
impacted leisure travel from March 2020 into 2022, which disrupted the Company's business and had a significant adverse effect, and
a similar outbreak could, in the future, significantly adversely impact and disrupt its business, financial performance and condition,
operating results and cash flows. Additional factors that may negatively impact the Company's ability to operate successfully as a
result of COVID-19 or another pandemic, include, among others:
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sustained negative consumer or business sentiment or continued corporate travel policy restrictions, which could further
adversely impact demand for lodging;
continued postponement and cancellation of events, including sporting events, conferences and meetings;
hotel closures and the Company’s ability to reopen hotels that are temporarily closed in a timely manner, and its ability to
attract customers to its hotels when they are able to reopen;
a severe disruption or instability in the global financial markets or deterioration in credit and financing conditions;
continued increased costs and potential difficulty accessing supplies related to personal protective equipment, increased
sanitation, social distancing and other mitigation measures at hotels; and
continued increased labor costs to attract employees due to perceived risk of exposure to COVID-19 or other infectious
disease, as well as potential for increased workers’ compensation claims if hotel employees are exposed to COVID-19
through the workplace.
Moreover, many risk factors set forth in this Annual Report on Form 10-K would be heightened as a result of COVID-19 or
another potential pandemic. The full extent of the impact of a pandemic on the Company's business is largely uncertain and dependent
on a number of factors beyond its control, and the Company is not able to estimate with any degree of certainty the effect a pandemic
or measures intended to curb its spread could have on the Company's business, results of operations, financial condition, and cash
flows.
Technology is used in operations, and any material failure, inadequacy, interruption or security failure of that technology from
cyber-attacks or other events could harm the Company’s business.
The Company and its hotel managers and franchisors rely on information technology networks and systems, including the
Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including
financial transactions and records, personally identifiable information, reservations, billing and operating data. The Company and its
hotel managers and franchisors rely on commercially available and internally developed systems, software, tools and monitoring to
provide security for processing, transmission and storage of confidential operator and customer information, such as personally
identifiable information, including information relating to financial accounts. A number of hotels, hotel management companies, and
brands have been subject to successful cyber-attacks, including those seeking guest credit card information. Moreover, the risk of a
security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, nation-state
affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and
intrusions from around the world have increased. It is possible that the safety and security measures taken by the Company and its
hotel managers and franchisors will not be able to prevent damage to the systems, the systems’ improper functioning, or the improper
access or disclosure of personally identifiable information.
Security breaches, whether through physical or electronic break-ins, cyber-attacks or cyber intrusions over the Internet,
malware, computer viruses, attachments to emails, social engineering or phishing schemes, can create system disruptions, shutdowns,
deployment of ransomware, theft of our data, or unauthorized disclosure of confidential information. Any failure to maintain proper
function, security and availability of information systems could interrupt operations, damage the reputations of the Company, the
Company’s hotel managers or franchisors, and subject the Company to liability claims or regulatory penalties that may not be fully
covered by insurance, all of which could have a material adverse effect on the business, financial condition and results of operations of
the Company.
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Potential losses not covered by insurance may adversely affect the Company’s financial condition.
The Company maintains comprehensive insurance coverage for general liability, property, business interruption and other risks
with respect to all of its hotels. These policies offer coverage features and insured limits that the Company believes are customary for
similar types of properties. There are no assurances that coverage will be available or at reasonable rates in the future. Also, various
types of catastrophic losses, like earthquakes, hurricanes and other storms, wildfires, or certain types of terrorism, may not be
insurable or may not be economically insurable for all or certain locations. Even when insurable, these policies may have high
deductibles and/or high premiums. Additionally, although the Company may be insured for a particular loss, the Company is not
insured against the impact a catastrophic event may have on the hospitality industry as a whole. There also can be risks such as certain
environmental hazards that may be deemed to fall outside of the coverage. In the event of a substantial loss, the Company’s insurance
coverage may not be sufficient to cover the full current market value or replacement cost of its lost investment. Should an uninsured
loss or a loss in excess of insured limits occur, the Company could lose all or a portion of the capital it has invested in a hotel, as well
as the anticipated future revenue from the hotel. In that event, the Company might nevertheless remain obligated for any mortgage
debt or other financial obligations related to the hotel. Inflation, changes in building codes and ordinances, environmental
considerations and other factors might also prevent the Company from using insurance proceeds to replace or renovate a hotel after it
has been damaged or destroyed. The Company also may encounter challenges with an insurance provider regarding whether it will
pay a particular claim that the Company believes to be covered under the relevant policy. Under those circumstances, the insurance
proceeds the Company receives might be inadequate to restore its economic position in the damaged or destroyed hotel. Additionally,
as a result of substantial claims, insurance carriers may reduce insured limits and/or increase premiums, if insurance coverage is
provided at all, in the future. Any of these or similar events could have a material adverse effect on the Company’s financial condition
and results of operations.
The Company faces possible risks associated with the physical effects of, and laws and regulations related to, climate change.
The Company is subject to the risks associated with the physical effects of climate change, which could include more frequent
or severe storms, droughts, wildfires, hurricanes, flooding, and utility outages, any of which could have a material adverse effect on
the Company’s properties, operations and business. To the extent climate change causes changes in weather patterns, the markets in
which the Company operates could experience increases in storm intensity and rising sea levels causing damage to the Company’s
properties. Over time, these conditions could result in declining hotel demand or the Company’s inability to operate the affected hotels
at all. Climate change also may have indirect effects on the Company’s business by increasing the cost of (or making unavailable)
property insurance on terms the Company finds acceptable, as well as increasing the cost of renovations, energy and water at its
properties. The federal government and some of the states and localities in which the Company operates have enacted certain climate
change laws and regulations and/or have begun regulating carbon footprints and greenhouse gas emissions and may enact new laws in
the future. Although these laws and regulations have not had any known material adverse effect on the Company to date, they could
impact companies with which the Company does business or result in substantial costs to the Company, including compliance costs,
construction costs, monitoring and reporting costs and capital expenditures for environmental control facilities and other new
equipment. Climate change, and any future laws and regulations, or future interpretations of current laws and regulations, could have a
material adverse effect on the Company.
The Company could incur significant, material costs related to government regulation and litigation with respect to
environmental matters, which could have a material adverse effect on the Company.
The Company’s hotels are subject to various U.S. federal, state and local environmental laws that impose liability for
contamination. Under these laws, governmental entities have the authority to require the Company, as the current owner of a hotel, to
perform or pay for the clean-up of contamination (including hazardous substances, asbestos and asbestos-containing materials, waste,
petroleum products or mold) at, on, under or emanating from the hotel and to pay for natural resource damages arising from such
contamination. Such laws often impose liability without regard to whether the owner or operator or other responsible party knew of, or
caused such contamination, and the liability may be joint and several. Because these laws also impose liability on persons who owned
or operated a property at the time it became contaminated, it is possible the Company could incur cleanup costs or other environmental
liabilities even after it sells or no longer operates hotels. Contamination at, on, under or emanating from the Company’s hotels also
may expose it to liability to private parties for the costs of remediation, personal injury and/or property damage. In addition,
environmental laws may create liens on contaminated sites in favor of the government for damages and costs required to address such
contamination. If contamination is discovered on the Company’s properties, environmental laws also may impose restrictions on the
manner in which the properties may be used or businesses may be operated, and these restrictions may require substantial
expenditures. Moreover, environmental contamination can affect the value of a property and, therefore, an owner's ability to borrow
funds using the property as collateral or to sell the property on favorable terms, or at all. Furthermore, if, as part of the remediation of
a contaminated property, the Company were to dispose of certain waste products at a waste disposal facility, such as a landfill or an
incinerator, the Company may be liable for costs associated with the cleanup of that facility.
In addition, the Company’s hotels are subject to various U.S. federal, state, and local environmental, health and safety laws and
regulations that address a wide variety of issues, including, but not limited to, storage tanks, air emissions from emergency generators,
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storm water and wastewater discharges, lead-based paint, mold and mildew, and waste management. Some of the Company’s hotels
routinely handle and use hazardous or regulated substances and wastes as part of their operations, which are subject to regulation (e.g.,
swimming pool chemicals and cleaning supplies). The Company’s hotels incur costs to comply with these environmental, health and
safety laws and regulations, and could be subject to fines and penalties for non-compliance with applicable requirements.
Liabilities and costs associated with environmental contamination at or emanating from the Company’s hotel properties,
defending against claims related to alleged or actual environmental issues, or complying with environmental, health and safety laws
and regulations could be material and could materially and adversely affect the Company. The Company can make no assurances that
changes in current laws or regulations, or future laws or regulations will not impose additional or new material environmental
liabilities or that the current environmental condition of its hotels will not be affected by its operations, the condition of the properties
in the vicinity of its hotels, or by third parties unrelated to the Company. The discovery of material environmental liabilities at its
properties could subject the Company to unanticipated significant costs, which could significantly reduce or eliminate its profitability.
The Company may incur significant costs complying with various regulatory requirements, which could materially and
adversely affect the Company.
The Company and its hotels are subject to various U.S. federal, state and local regulatory requirements. These requirements are
wide-ranging and include among others, state and local fire and life safety requirements, federal laws such as the Americans with
Disabilities Act of 1990 and the Accessibility Guidelines promulgated thereunder (“ADA”) and the Sarbanes-Oxley Act of 2002.
Liabilities and costs associated with complying with these requirements are and could be material. If the Company fails to comply
with these various requirements, it could incur governmental fines or private damage awards. In addition, existing requirements could
change, and future requirements might require the Company to make significant unanticipated expenditures, which could have
material and adverse effects on the Company.
In addition, as a result of these significant regulations, the Company could become subject to regulatory investigations and
lawsuits. Regulatory investigations and lawsuits could result in significant costs to respond and costs of fines or settlements, or
changes in the Company’s business practices, any of which could have a material adverse effect on the financial condition, results of
operations, liquidity and capital resources, and cash flows of the Company. The ability of the Company to access capital markets,
including commercial debt markets, could also be negatively impacted by unfavorable, or the possibility of unfavorable, outcomes
from adverse regulatory actions or lawsuits.
Risks Related to the Company’s Organization and Structure
The Company’s ownership limitations may restrict or prevent certain acquisitions and transfers of its shares.
In order for the Company to maintain its qualification as a REIT under the Code, not more than 50% in value of its outstanding
shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time
during the last half of each taxable year following the Company’s first year (the “5/50 Test”). Additionally, at least 100 persons must
beneficially own the Company’s shares during at least 335 days of each taxable year (the “100 Shareholder Test”). The Company’s
amended and restated articles of incorporation (the “Charter”), with certain exceptions, authorizes the Company’s Board of Directors
to take the actions that are necessary and desirable to preserve its qualification as a REIT. In addition to the 5/50 Test and the 100
Shareholder Test, the Company’s Charter provides that no person or entity may directly or indirectly, beneficially or constructively,
own more than 9.8% of the aggregate of its outstanding common shares or 9.8% of the aggregate of the outstanding preferred shares
of any class or series (“share ownership limits”). The Company’s Board of Directors may, in its sole discretion, grant an exemption to
the share ownership limits, subject to certain conditions and the receipt by the Board of Directors of certain representations and
undertakings. In addition, the Board of Directors may change the share ownership limits. The share ownership limits contained in the
Charter key off the ownership at any time by any “person,” which term includes entities, and take into account direct and indirect
ownership as determined under various ownership attribution rules in the Code. The share ownership limits might delay or prevent a
transaction or a change in the Company’s control that might involve a premium price for the Company’s common shares or otherwise
be in the best interests of its shareholders.
The Company’s future issuances of preferred shares or debt securities may adversely affect the voting power or ownership
interest of the holders of common shares or may limit the ability of a third party to acquire control of the Company.
The Company’s Charter allows the Board of Directors to issue up to 30 million “blank check” preferred shares, without action
by shareholders. Preferred shares may be issued on terms determined by the Board of Directors, and may have rights, privileges and
preferences superior to those of common shares. Without limiting the foregoing, (i) such preferred shares could have liquidation rights
that are senior to the liquidation preference applicable to common shares, (ii) such preferred shares could have voting or conversion
rights, which could adversely affect the voting power of the holders of common shares, and (iii) the ownership interest of holders of
common shares will be diluted following the issuance of any such preferred shares. In addition, the issuance of blank check preferred
shares could have the effect of discouraging, delaying or preventing a change of control of the Company. Additionally, the Company
may issue debt securities which would have distribution rights that are senior to common shares and liquidation rights that are senior
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to the liquidation preference applicable to common shares. Common shareholders bear the risk that the Company’s future issuances of
preferred shares or debt securities will negatively affect the market price of the Company’s common shares.
Provisions of the Company’s third amended and restated bylaws could inhibit changes in control.
Provisions in the Company’s third amended and restated bylaws may make it difficult for another company to acquire it and for
shareholders to receive any related takeover premium for its common shares. Pursuant to the Company’s third amended and restated
bylaws, directors are elected by the plurality of votes cast and entitled to vote in the election of directors. However, the Company’s
corporate governance guidelines require that if an incumbent director fails to receive at least a majority of the votes cast, such director
will tender his or her resignation from the Board of Directors. The Nominating and Corporate Governance Committee of the Board of
Directors will consider, and determine whether to accept, such resignation. Additionally, the third amended and restated bylaws of the
Company have various advance notice provisions that require shareholders to meet certain requirements and deadlines for proposals at
an annual meeting of shareholders. These provisions may have the effect of delaying, deferring or preventing a transaction or a change
in control of the Company that might involve a premium to the price of the Company’s common shares or otherwise be in the
shareholders’ best interests.
The Company’s Executive Chairman has interests that may conflict with the interests of the Company and that may detract
from the time devoted to the Company.
Glade M. Knight, the Company’s Executive Chairman, is and will be a principal in other real estate investment transactions or
programs that may compete with the Company, and he is and may be a principal in other business ventures. Mr. Knight’s management
and economic interests in these other transactions or programs may conflict with the interests of the Company. Mr. Knight is not
required to devote a fixed amount of time and attention to the Company’s business affairs as opposed to the other companies, which
could detract from time devoted to the Company.
Tax-Related Risks and Risks Related to the Company’s Status as a REIT
Qualifying as a REIT involves highly technical and complex provisions of the Code and failure of the Company to qualify as a
REIT would have adverse consequences to the Company and its shareholders.
The Company’s qualification as a REIT involves the application of highly technical and complex Code provisions for which
only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize the Company’s
REIT qualification. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive
effect, may make it more difficult or impossible for the Company to qualify as a REIT. Maintaining the Company’s qualification as a
REIT depends on the Company’s satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other
requirements on a continuing basis. The Company’s ability to satisfy the REIT income and asset tests depends upon the Company’s
analysis of the characterization and fair market values of the Company’s assets, some of which are not susceptible to a precise
determination and for which the Company will not obtain independent appraisals, and upon the Company’s ability to successfully
manage the composition of its income and assets on an ongoing basis. In addition, the Company’s ability to satisfy the requirements to
maintain its qualification as a REIT depends in part on the actions of third parties over which the Company has no control or only
limited influence.
If the Company does not qualify as a REIT or if the Company fails to remain qualified as a REIT, the Company will be subject
to U.S. federal corporate income tax and potentially state and local taxes, which would reduce the Company’s earnings and the
amount of cash available for distribution to its shareholders.
If the Company failed to qualify as a REIT in any taxable year and any available relief provisions did not apply, the Company
would be subject to U.S. federal and state corporate income tax on its taxable income at the regular corporate rate, and dividends paid
to its shareholders would not be deductible by the Company in computing its taxable income. Unless the Company was entitled to
statutory relief under certain Code provisions, the Company also would be disqualified from taxation as a REIT for the four taxable
years following the year in which it failed to qualify as a REIT.
Any determination that the Company does not qualify as a REIT would have a material adverse effect on the Company’s results
of operations and could materially reduce the market price of its common shares. The Company’s additional tax liability could be
substantial and would reduce its net earnings available for investment, debt service or distributions to shareholders. Furthermore, the
Company would no longer be required to make any distributions to shareholders as a condition to REIT qualification and all of its
distributions to shareholders would be taxable as ordinary C corporation dividends to the extent of its current and accumulated
earnings and profits. The Company’s failure to qualify as a REIT also could cause an event of default under loan documents governing
its debt.
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Even if the Company qualifies as a REIT, it may face other tax liabilities that reduce its cash flow.
Even if the Company qualifies for taxation as a REIT, it may be subject to certain U.S. federal, state and local taxes, including
payroll taxes, taxes on any undistributed income, taxes on income from some activities conducted as a result of a foreclosure, a 100%
excise tax on any transactions with a TRS that are not conducted on an arm’s-length basis, and state or local income, franchise,
property and transfer taxes. Moreover, if the Company has net income from the sale of properties that are “dealer” properties (a
“prohibited transaction” under the Code), that income will be subject to a 100% tax. The Company could, in certain circumstances, be
required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under
the Code to maintain its qualification as a REIT. In addition, the Company’s TRSs will be subject to U.S. federal, state and local
corporate income taxes on their net taxable income, if any. Any of these taxes would decrease cash available for other uses, such as
the payment of the Company’s debt obligations and distributions to shareholders.
REIT distribution requirements could adversely affect the Company’s ability to execute its business plan or cause it to increase
debt levels or issue additional equity during unfavorable market conditions.
The Company generally must distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and
excluding any net capital gain, in order for U.S. federal corporate income tax not to apply to earnings that it distributes. To the extent
that the Company satisfies this distribution requirement but distributes less than 100% of its taxable income, the Company will be
subject to U.S. federal corporate income tax on its undistributed taxable income. In addition, the Company will be subject to a 4%
nondeductible excise tax if the actual amount that the Company pays out to its shareholders in a calendar year is less than a minimum
amount specified under U.S. federal tax laws. If there is an adjustment to any of the Company’s taxable income or dividends-paid
deductions, the Company could elect to use the deficiency dividend procedure in order to maintain the Company’s REIT status. That
deficiency dividend procedure could require the Company to make significant distributions to its shareholders and to pay significant
interest to the IRS.
From time to time, the Company may generate taxable income greater than its income for financial reporting purposes prepared
in accordance with accounting principles generally accepted in the U.S. (“GAAP”). In addition, differences in timing between the
recognition of taxable income and the actual receipt of cash may occur. As a result, the Company may find it difficult or impossible to
meet distribution requirements in certain circumstances. In particular, where the Company experiences differences in timing between
the recognition of taxable income and the actual receipt of cash, the requirement to distribute a substantial portion of its taxable
income could cause it to: (1) sell assets in unfavorable market conditions; (2) incur debt or issue additional equity on disadvantageous
terms; (3) distribute amounts that would otherwise be invested in future acquisitions or capital expenditures or used for the repayment
of debt; or (4) make a taxable distribution of its common shares as part of a distribution in which shareholders may elect to receive the
Company’s common shares or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with
REIT requirements. These alternatives could increase the Company’s costs or dilute its equity. In addition, because the REIT
distribution requirement prevents the Company from retaining earnings, the Company generally will be required to refinance debt at
its maturity with additional debt or equity. Thus, compliance with the REIT requirements may hinder the Company’s ability to grow,
which could adversely affect the market price of its common shares.
The Company may in the future choose to pay dividends in the form of common shares, in which case shareholders may be
required to pay income taxes in excess of the cash dividends they receive.
The Company may seek in the future to distribute taxable dividends that are payable in cash and common shares, at the election
of each shareholder. Taxable shareholders receiving such dividends will be required to include the full amount of the dividend as
ordinary income to the extent of the Company’s current and accumulated earnings and profits for U.S. federal income tax purposes,
however, generally a shareholder will receive a taxable income deduction for 20% of all ordinary dividends received from a REIT. As
a result, shareholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a
U.S. shareholder sells the common shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the
amount included in income with respect to the dividend, depending on the market price of common shares at the time of the sale. In
addition, in such case, a U.S. shareholder could have a capital loss with respect to the common shares sold that could not be used to
offset such dividend income. Furthermore, with respect to certain non-U.S. shareholders, the Company may be required to withhold
U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in
common shares. In addition, such a taxable share dividend could be viewed as equivalent to a reduction in the Company’s cash
distributions, and that factor, as well as the possibility that a significant number of the Company’s shareholders could determine to sell
the common shares in order to pay taxes owed on dividends, may put downward pressure on the market price of the Company’s
common shares.
If the Company’s leases are not respected as true leases for U.S. federal income tax purposes, the Company would likely fail to
qualify as a REIT.
To qualify as a REIT, the Company must satisfy two gross income tests, pursuant to which specified percentages of the
Company’s gross income must be passive income, such as rent. For the rent paid pursuant to the hotel leases with the Company’s
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TRSs, which the Company currently expects will continue to constitute substantially all of the REIT’s gross income, to qualify for
purposes of the gross income tests, the leases must be respected as true leases for U.S. federal income tax purposes and must not be
treated as service contracts, joint ventures or some other type of arrangement. The Company believes that the leases have been and
will continue to be respected as true leases for U.S. federal income tax purposes. There can be no assurance, however, that the IRS
will agree with this characterization. If the leases were not respected as true leases for U.S. federal income tax purposes, the Company
may not be able to satisfy either of the two gross income tests applicable to REITs and may lose its REIT status. Additionally, the
Company could be subject to a 100% excise tax for any adjustment to its leases.
If any of the hotel management companies that the Company’s TRSs engage do not qualify as “eligible independent
contractors,” or if the Company’s hotels are not “qualified lodging facilities,” the Company would likely fail to qualify as a REIT.
Rent paid by a lessee that is a “related party tenant” of the Company generally will not be qualifying income for purposes of the
two gross income tests applicable to REITs. An exception is provided, however, for leases of “qualified lodging facilities” to a TRS so
long as the hotels are managed by an “eligible independent contractor” and certain other requirements are satisfied. The Company
intends to continue to take advantage of this exception. A “qualified lodging facility” is a hotel, motel, or other establishment more
than one-half of the dwelling units in which are used on a transient basis, including customary amenities and facilities, provided that
no wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting
wagers and who is legally authorized to engage in such business at or in connection with such facility. Although the Company intends
to monitor future acquisitions and improvements of hotels, the REIT provisions of the Code provide only limited guidance for making
determinations under the requirements for “qualified lodging facilities,” and there can be no assurance that these requirements will be
satisfied in all cases.
In addition, the Company’s TRS lessees have engaged hotel management companies that are intended to qualify as “eligible
independent contractors.” Among other requirements, in order to qualify as an “eligible independent contractor,” the hotel
management company must not own, directly or through its shareholders, more than 35% of the Company’s outstanding shares, and
no person or group of persons can own more than 35% of the Company’s outstanding shares and the shares (or ownership interest) of
the hotel management company (taking into account certain ownership attribution rules). The ownership attribution rules that apply
for purposes of these 35% thresholds are complex, and monitoring actual and constructive ownership of the Company’s shares by the
hotel management companies and their owners may not be practical. Accordingly, there can be no assurance that these ownership
levels will not be exceeded. In addition, for a hotel management company to qualify as an “eligible independent contractor,” such
company or a related person must be actively engaged in the trade or business of operating “qualified lodging facilities” (as defined
above) for one or more persons not related to the REIT or its TRSs at each time that such company enters into a hotel management
contract with a TRS. As of the date hereof, the Company believes the hotel management companies operate “qualified lodging
facilities” for certain persons who are not related to the Company or its TRSs. However, no assurances can be provided that this will
continue to be the case or that any other hotel management companies that the Company may engage in the future will in fact comply
with this requirement in the future.
The Company’s ownership of TRSs is limited, and the Company’s transactions with its TRSs will cause it to be subject to a
100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be
qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the
subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the
stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s assets may consist of stock or
securities of one or more TRSs. The rules also impose a 100% excise tax on certain transactions, including the leases, between the
TRS and the REIT that are not conducted on an arm’s-length basis.
The Company’s TRSs will pay U.S. federal, state and local income taxes on their net taxable income, and their after-tax net
income will be available for distribution to the REIT, but is not required to be distributed. The Company has monitored and will
continue to monitor the value of its respective investments in its TRSs for the purpose of ensuring compliance with the ownership
limitations applicable to TRSs. In addition, the Company will continue to scrutinize all of its transactions with its TRSs to ensure that
they are entered into on arm’s-length terms to avoid incurring the 100% excise tax. There can be no assurance, however, that the
Company will be able to comply with the rules regarding TRSs or avoid application of the 100% excise tax. The most significant
transactions between the Company and its TRSs are the hotel leases from the Company to its TRSs. While the Company believes its
leases have customary terms and reflect normal business practices and that the rents paid thereto reflect market terms, there can be no
assurance that the IRS will agree.
Complying with REIT requirements may force the Company to forgo and/or liquidate otherwise attractive investment
opportunities.
To qualify as a REIT, the Company must continually satisfy tests concerning, among other things, the sources of its income, the
nature and diversification of its assets, the amount it distributes to its shareholders and the ownership of its common shares. In order to
21
meet these tests, the Company may be required to liquidate from its portfolio, or contribute to a TRS, otherwise attractive investments
in order to maintain its qualification as a REIT. These actions could have the effect of reducing the Company’s income and amounts
available for distribution to its shareholders. In addition, the Company may be required to make distributions to shareholders at
disadvantageous times or when the Company does not have funds readily available for distribution, and may be unable to pursue
investments that would otherwise be advantageous to it in order to satisfy the source of income or asset diversification requirements
for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder the Company’s ability to make, and, in certain
cases, maintain ownership of, certain attractive investments.
The Company may be subject to adverse legislative or regulatory tax changes.
The IRS, the U.S. Treasury Department and Congress frequently review U.S. federal income tax legislation, regulations and
other guidance. At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws may
be amended or modified. The Company cannot predict whether, when or to what extent new U.S. federal tax laws, regulations,
interpretations or rulings will be adopted or modified. Changes to the tax laws, including the possibility of major tax legislation,
possibly with retroactive application, may adversely affect taxation of the Company or the Company’s shareholders. The Company
urges shareholders and prospective shareholders to consult with their tax advisors with respect to the status of legislative, regulatory or
administrative developments and proposals and their potential effect on an investment in the Company’s shares. Although REITs
generally receive certain tax advantages compared to entities taxed as C corporations, it is possible that future legislation would result
in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be
treated as a C corporation for U.S. federal income tax purposes.
General Risk Factors
The Company may change its distribution policy or may not have funds available to make distributions to shareholders.
The Board of Directors will continue to evaluate the Company’s distribution policy in conjunction with the impact of the
economy on its operations, actual and projected financial condition and results of operations, capital expenditure requirements and
other factors, including those discussed in this Annual Report on Form 10-K. There can be no assurance that the Company will
continue to make distributions at any particular time or rate, or at all. Further, there is no assurance that a distribution rate achieved for
a particular period will be maintained in the future. For example, distributions may be suspended or distribution rates may be adjusted
from time to time to a level determined to be prudent in relation to the Company’s other cash requirements. The Board of Directors
evaluates the distribution rate on an ongoing basis and may make changes at any time if it believes the rate is not appropriate based on
REIT taxable income, limitations under financing arrangements, or other cash needs. A suspension of distributions or a reduction in
the Company’s distribution rate could have a material adverse effect on the market price of the Company’s common shares.
Further, while the Company generally seeks to make distributions from its operating cash flows, distributions may be made
(although there is no obligation to do so) in certain circumstances, in part, from financing proceeds or other sources. While
distributions made from such sources would result in the shareholder receiving cash, the consequences to the shareholders would
differ from a distribution made from the Company’s operating cash flows. For example, if debt financing is the source of a
distribution, that financing would not be available for other opportunities, would have to be repaid and interest would accrue on the
financing.
The market price and trading volume of the Company’s common shares may fluctuate widely and could decline substantially in
the future.
The Company’s common shares are listed on the NYSE under the ticker symbol “APLE.” The market price and trading volume
of the Company’s common shares may fluctuate widely, depending on many factors, some of which may be beyond the Company’s
control, including:
•
•
•
•
•
actual versus anticipated differences in the Company’s operating results, liquidity, or financial condition;
publication of research reports about the Company and the accuracy of information published in these reports, regarding its
hotels or the lodging or overall real estate industry;
changes in and/or failure to meet analysts’ revenue or earnings estimates;
the reputation of REITs and real estate investments generally, and the attractiveness of REIT equity securities in
comparison to other equity securities, including securities issued by other real estate companies, and fixed income
instruments;
changes in accounting principles or other laws and regulations that may adversely affect the Company or its industry;
22
•
•
•
strategic actions by the Company or its competitors, such as acquisitions or dispositions, and announcements by franchisors,
operators or REITs and other owners in the hospitality industry;
fluctuations in the stock price and operating results of the Company’s competitors; and
the realization of any of the other risk factors presented in this Annual Report on Form 10-K.
Stock markets in general have historically experienced volatility that has often been unrelated to the operating performance of a
particular company or industry. Similar broad market fluctuations may adversely affect the trading price and volume of the
Company’s common shares.
Future offerings or the perception that future offerings could occur may adversely affect the market price of the Company’s
common shares and future offerings may be dilutive to existing shareholders.
The Company has in the past issued and may in the future issue additional common shares. Proceeds from any issuance may be
used to finance hotel acquisitions, fund capital expenditures, pay down outstanding debt, or for other corporate purposes. A large
volume of sales of the Company’s common shares could decrease the market price of the Company’s common shares and could
impair the Company’s ability to raise additional capital through the sale of equity securities in the future. Also, a perception of the
possibility of a substantial sale of common shares could depress the market price of the Company’s common shares and have a
negative effect on the Company’s ability to raise capital in the future. In addition, anticipated downward pressure on the price of the
Company’s common shares due to actual or anticipated sales of common shares could cause some institutions or individuals to engage
in short sales of the common shares, which may itself cause the price of the common shares to decline. Because the Company’s
decision to issue equity securities in any future offering will depend on market conditions and other factors beyond its control, the
Company cannot predict or estimate the amount, timing or nature of its future offerings. Therefore, the Company’s shareholders bear
the risk of the Company’s future offerings reducing the market price of its common shares and diluting shareholders equity interests in
the Company.
Item 1B.
Unresolved Staff Comments
None.
23
Item 2.
Properties
As of December 31, 2022, the Company owned 220 hotels with an aggregate of 28,983 rooms located in 37 states. Substantially
all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management
agreements with 17 hotel management companies, none of which are affiliated with the Company. See “Management and Franchise
Agreements” in Part I, Item 1, Business, appearing elsewhere in this Annual Report on Form 10-K, for a table summarizing the
number of hotels and rooms by brand. The following table summarizes the number of hotels and rooms by state:
Number of Hotels and Guest Rooms by State
State
Alabama ......................................................................................
Alaska .........................................................................................
Arizona........................................................................................
Arkansas......................................................................................
California ....................................................................................
Colorado......................................................................................
Florida .........................................................................................
Georgia........................................................................................
Idaho ...........................................................................................
Illinois .........................................................................................
Indiana ........................................................................................
Iowa ............................................................................................
Kansas .........................................................................................
Kentucky .....................................................................................
Louisiana.....................................................................................
Maine ..........................................................................................
Maryland .....................................................................................
Massachusetts .............................................................................
Michigan .....................................................................................
Minnesota....................................................................................
Mississippi ..................................................................................
Missouri ......................................................................................
Nebraska .....................................................................................
New Jersey ..................................................................................
New York....................................................................................
North Carolina ............................................................................
Ohio ............................................................................................
Oklahoma....................................................................................
Oregon ........................................................................................
Pennsylvania ...............................................................................
South Carolina ............................................................................
Tennessee....................................................................................
Texas ...........................................................................................
Utah.............................................................................................
Virginia .......................................................................................
Washington .................................................................................
Wisconsin....................................................................................
Total ........................................................................................
Number of
Hotels
Number of
Rooms
13
2
13
2
26
4
22
5
1
7
4
3
3
1
3
3
2
3
1
3
2
4
4
5
4
8
2
4
1
4
5
11
27
3
11
3
1
220
1,246
304
1,776
248
3,721
567
2,844
585
186
1,255
479
301
320
156
422
514
233
330
148
405
168
544
621
629
554
881
252
545
243
525
590
1,337
3,328
393
1,667
490
176
28,983
24
The following table is a list of the 220 hotels the Company owned as of December 31, 2022. As noted below, 14 of the
Company’s hotels are subject to ground leases and 19 of its hotels are encumbered by mortgage notes.
City
Anchorage............................................
Anchorage............................................
Auburn .................................................
Birmingham .........................................
Birmingham .........................................
Birmingham .........................................
Birmingham .........................................
Dothan..................................................
Dothan..................................................
Huntsville.............................................
Huntsville.............................................
Huntsville.............................................
Huntsville.............................................
Mobile..................................................
Prattville...............................................
Rogers ..................................................
Rogers ..................................................
Chandler...............................................
Chandler...............................................
Phoenix ................................................
Phoenix ................................................
Phoenix ................................................
Phoenix ................................................
Phoenix ................................................
Scottsdale.............................................
Tempe ..................................................
Tempe ..................................................
Tucson..................................................
Tucson..................................................
Tucson..................................................
Agoura Hills.........................................
Burbank................................................
Burbank................................................
Burbank................................................
Clovis...................................................
Clovis...................................................
Cypress ................................................
Cypress ................................................
Oceanside.............................................
Oceanside.............................................
Rancho Bernardo/San Diego ...............
Sacramento ..........................................
San Bernardino ....................................
San Diego.............................................
San Diego.............................................
San Diego.............................................
San Diego.............................................
San Jose ...............................................
State
AK
AK
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AR
AR
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
AZ
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
CA
Brand
Manager (3)
InnVentures
Embassy Suites
InnVentures
Home2 Suites
LBA
Hilton Garden Inn
LBA
Courtyard
LBA
Hilton Garden Inn
LBA
Home2 Suites
McKibbon
Homewood Suites
LBA
Hilton Garden Inn
LBA
Residence Inn
LBA
Hampton
LBA
Hilton Garden Inn
LBA
Home2 Suites
LBA
Homewood Suites
McKibbon
Hampton
LBA
Courtyard
Raymond
Hampton
Raymond
Homewood Suites
North Central
Courtyard
North Central
Fairfield
North Central
Courtyard
North Central
Hampton
North Central
Hampton
North Central
Homewood Suites
North Central
Residence Inn
North Central
Hilton Garden Inn
Crestline
Hyatt House
Crestline
Hyatt Place
Western
Hilton Garden Inn
Residence Inn
Western
TownePlace Suites Western
Homewood Suites
Courtyard
Residence Inn
SpringHill Suites
Hampton
Homewood Suites
Courtyard
Hampton
Courtyard
Residence Inn
Courtyard
Hilton Garden Inn
Residence Inn
Courtyard
Hampton
Hilton Garden Inn
Residence Inn
Homewood Suites
Dimension
Huntington
Marriott
Marriott
Dimension
Dimension
Dimension
Dimension
Marriott
Marriott
InnVentures
Dimension
InnVentures
Huntington
Dimension
InnVentures
Dimension
Dimension
Date
Acquired or
Completed
Rooms
4/30/2010
12/1/2017
3/1/2014
3/1/2014
9/12/2017
9/12/2017
3/1/2014
6/1/2009
3/1/2014
9/1/2016
3/1/2014
9/1/2016
3/1/2014
9/1/2016
3/1/2014
8/31/2010
4/30/2010
11/2/2010
11/2/2010
11/2/2010
9/1/2016
5/2/2018
9/1/2016
11/2/2010
9/1/2016
8/13/2020
8/13/2020
7/31/2008
3/1/2014
10/6/2011
3/1/2014
8/11/2015
3/1/2014
7/13/2015
7/31/2009
2/2/2010
3/1/2014
6/29/2015
9/1/2016
3/1/2014
3/1/2014
3/1/2014
2/16/2011
9/1/2015
3/1/2014
3/1/2014
3/1/2014
3/1/2014
169
135
101
84
104
106
95
104
84
98
101
77
107 (1)
101 (2)
84 (1)
122
126
150
110
164
125 (2)
210
134 (2)
129
122
105 (2)
154 (2)
125
124
124
125
190 (1)
166
170 (1)
86
83
180
110
142 (1)
125
210
153
95
245 (1)
177 (1)
200
121 (1)
140 (1)
25
City
San Juan Capistrano.............................
Santa Ana.............................................
Santa Clarita.........................................
Santa Clarita.........................................
Santa Clarita.........................................
Santa Clarita.........................................
Tustin ...................................................
Tustin ...................................................
Colorado Springs .................................
Denver..................................................
Highlands Ranch..................................
Highlands Ranch..................................
Boca Raton...........................................
Cape Canaveral ....................................
Cape Canaveral ....................................
Cape Canaveral ....................................
Fort Lauderdale....................................
Fort Lauderdale....................................
Gainesville ...........................................
Gainesville ...........................................
Jacksonville..........................................
Jacksonville..........................................
Miami...................................................
Miami...................................................
Miami...................................................
Orlando ................................................
Orlando ................................................
Orlando ................................................
Panama City.........................................
Panama City.........................................
Pensacola .............................................
Tallahassee...........................................
Tallahassee...........................................
Tampa ..................................................
Atlanta/Downtown...............................
Atlanta/Perimeter Dunwoody ..............
Atlanta..................................................
Macon ..................................................
Savannah..............................................
Cedar Rapids........................................
Cedar Rapids........................................
Davenport.............................................
Boise ....................................................
Des Plaines...........................................
Hoffman Estates...................................
Mettawa ...............................................
Mettawa ...............................................
Rosemont .............................................
Skokie ..................................................
Warrenville ..........................................
State
CA
CA
CA
CA
CA
CA
CA
CA
CO
CO
CO
CO
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
GA
GA
GA
GA
GA
IA
IA
IA
ID
IL
IL
IL
IL
IL
IL
IL
Manager (3)
Marriott
Dimension
Dimension
Dimension
Dimension
Dimension
Marriott
Marriott
Chartwell
InnVentures
Dimension
Dimension
Dimension
LBA
LBA
LBA
Dimension
LBA
McKibbon
McKibbon
McKibbon
Crestline
Dimension
HHM
Dimension
Marriott
LBA
Marriott
LBA
LBA
Brand
Residence Inn
Courtyard
Courtyard
Fairfield
Hampton
Residence Inn
Fairfield
Residence Inn
Hampton
Hilton Garden Inn
Hilton Garden Inn
Residence Inn
Hilton Garden Inn
Hampton
Homewood Suites
Home2 Suites
Hampton
Residence Inn
Hilton Garden Inn
Homewood Suites
Homewood Suites
Hyatt Place
Courtyard
Hampton
Homewood Suites
Fairfield
Home2 Suites
SpringHill Suites
Hampton
TownePlace Suites
TownePlace Suites McKibbon
Fairfield
Hilton Garden Inn
Embassy Suites
Hampton
Hampton
Home2 Suites
Hilton Garden Inn
Hilton Garden Inn
Hampton
Homewood Suites
Hampton
Hampton
Hilton Garden Inn
Hilton Garden Inn
Hilton Garden Inn
Residence Inn
Hampton
Hampton
Hilton Garden Inn
LBA
LBA
HHM
McKibbon
LBA
McKibbon
LBA
Newport
Aimbridge
Aimbridge
Aimbridge
Raymond
Raymond
HHM
HHM
HHM
Raymond
Raymond
HHM
Date
Acquired or
Completed
Rooms
9/1/2016
5/23/2011
9/24/2008
10/29/2008
10/29/2008
10/29/2008
9/1/2016
9/1/2016
9/1/2016
9/1/2016
3/1/2014
3/1/2014
9/1/2016
4/30/2020
9/1/2016
4/30/2020
6/23/2015
9/1/2016
9/1/2016
9/1/2016
3/1/2014
12/7/2018
3/1/2014
4/9/2010
3/1/2014
7/1/2009
3/19/2019
7/1/2009
3/12/2009
1/19/2010
9/1/2016
9/1/2016
3/1/2014
11/2/2010
2/5/2018
6/28/2018
7/1/2016
3/1/2014
3/1/2014
9/1/2016
9/1/2016
9/1/2016
4/30/2010
9/1/2016
9/1/2016
11/2/2010
11/2/2010
9/1/2016
9/1/2016
11/2/2010
130 (2)
155 (1)
140
66
128
90
145
149
101
221 (1)
128
117
149
116
153
108
156
156
104
103
119
127
118 (2)
121
162 (1)
200
128
200
95
103
97
97
85 (2)
147
119
132
128
101 (2)
105 (2)
103
95
103
186 (1)
253
184
170
130
158
225
135
26
City
Indianapolis..........................................
Merrillville...........................................
Mishawaka...........................................
South Bend...........................................
Overland Park ......................................
Overland Park ......................................
Wichita.................................................
Louisville .............................................
Lafayette ..............................................
Lafayette ..............................................
New Orleans ........................................
Marlborough ........................................
Westford ..............................................
Westford ..............................................
Annapolis.............................................
Silver Spring ........................................
Portland................................................
Portland................................................
Portland................................................
Novi .....................................................
Maple Grove ........................................
Rochester .............................................
St. Paul.................................................
Kansas City..........................................
Kansas City..........................................
St. Louis...............................................
St. Louis...............................................
Hattiesburg...........................................
Hattiesburg...........................................
Carolina Beach.....................................
Charlotte ..............................................
Durham ................................................
Fayetteville ..........................................
Greensboro...........................................
Jacksonville..........................................
Wilmington ..........................................
Winston-Salem ....................................
Omaha..................................................
Omaha..................................................
Omaha..................................................
Omaha..................................................
Cranford...............................................
Mahwah ...............................................
Mount Laurel .......................................
Somerset ..............................................
West Orange ........................................
Islip/Ronkonkoma................................
New York.............................................
Syracuse...............................................
Syracuse...............................................
State
IN
IN
IN
IN
KS
KS
KS
KY
LA
LA
LA
MA
MA
MA
MD
MD
ME
ME
ME
MI
MN
MN
MN
MO
MO
MO
MO
MS
MS
NC
NC
NC
NC
NC
NC
NC
NC
NE
NE
NE
NE
NJ
NJ
NJ
NJ
NJ
NY
NY
NY
NY
Brand
Manager (3)
Date
Acquired or
Completed
Rooms
11/2/2010
9/1/2016
11/2/2010
9/1/2016
3/1/2014
3/1/2014
3/1/2014
10/25/2022
7/30/2010
6/23/2011
3/1/2014
3/1/2014
3/1/2014
3/1/2014
3/1/2014
7/30/2010
8/20/2021
9/10/2021
10/13/2017
11/2/2010
9/1/2016
8/3/2009
3/4/2019
8/31/2010
3/1/2014
8/31/2010
4/30/2010
3/1/2014
12/11/2008
3/1/2014
9/1/2016
12/4/2008
2/3/2011
3/1/2014
9/1/2016
3/1/2014
9/1/2016
3/1/2014
9/1/2016
9/1/2016
9/1/2016
3/1/2014
3/1/2014
1/11/2011
3/1/2014
1/11/2011
3/1/2014
3/1/2014
10/16/2015
10/16/2015
130
124
106
119
110
120
90
156
153 (2)
103
166 (1)
112
110
108 (1)
126
107
178
157
179 (1)
148
121
124
160
122
106
190
126
84
84
144
94
122
118
82
105
122
94
181
139
178 (1)
123
108
110
118
162 (2)
131
166
208 (2)
102
78
HHM
HHM
HHM
HHM
Raymond
Raymond
Aimbridge
Concord
LBA
LBA
Dimension
Crestline
Crestline
Crestline
Crestline
Crestline
Crestline
Crestline
Crestline
HHM
North Central
Raymond
Raymond
Raymond
Raymond
Raymond
Raymond
LBA
LBA
Crestline
Newport
McKibbon
LBA
Newport
LBA
Crestline
McKibbon
Marriott
HHM
HHM
HHM
Dimension
Dimension
Newport
Newport
Newport
Crestline
Highgate
Crestline
Crestline
SpringHill Suites
Hilton Garden Inn
Residence Inn
Fairfield
Fairfield
Residence Inn
Courtyard
AC Hotels
Hilton Garden Inn
SpringHill Suites
Homewood Suites
Residence Inn
Hampton
Residence Inn
Hilton Garden Inn
Hilton Garden Inn
AC Hotels
Aloft
Residence Inn
Hilton Garden Inn
Hilton Garden Inn
Hampton
Hampton
Hampton
Residence Inn
Hampton
Hampton
Courtyard
Residence Inn
Courtyard
Fairfield
Homewood Suites
Home2 Suites
SpringHill Suites
Home2 Suites
Fairfield
Hampton
Courtyard
Hampton
Hilton Garden Inn
Homewood Suites
Homewood Suites
Homewood Suites
Homewood Suites
Courtyard
Courtyard
Hilton Garden Inn
Independent
Courtyard
Residence Inn
27
City
Mason ..................................................
Twinsburg ............................................
Oklahoma City.....................................
Oklahoma City.....................................
Oklahoma City.....................................
Oklahoma City (West).........................
Portland................................................
Collegeville/Philadelphia.....................
Malvern/Philadelphia...........................
Pittsburgh.............................................
Pittsburgh.............................................
Charleston ............................................
Columbia..............................................
Columbia..............................................
Greenville ............................................
Hilton Head..........................................
Chattanooga .........................................
Franklin................................................
Franklin................................................
Knoxville .............................................
Knoxville .............................................
Knoxville .............................................
Memphis ..............................................
Memphis ..............................................
Nashville ..............................................
Nashville ..............................................
Nashville ..............................................
Addison................................................
Arlington..............................................
Austin...................................................
Austin...................................................
Austin...................................................
Austin...................................................
Austin...................................................
Austin/Round Rock .............................
Austin/Round Rock .............................
Dallas ...................................................
Denton..................................................
El Paso .................................................
Fort Worth ...........................................
Fort Worth ...........................................
Fort Worth ...........................................
Fort Worth ...........................................
Frisco ...................................................
Grapevine.............................................
Houston................................................
Houston................................................
Houston................................................
Houston................................................
Lewisville ............................................
State
OH
OH
OK
OK
OK
OK
OR
PA
PA
PA
PA
SC
SC
SC
SC
SC
TN
TN
TN
TN
TN
TN
TN
TN
TN
TN
TN
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
Brand
Manager (3)
Date
Acquired or
Completed
Rooms
9/1/2016
10/7/2008
5/28/2010
9/1/2016
9/1/2016
9/1/2016
11/17/2021
11/15/2010
11/30/2010
10/25/2022
12/31/2008
9/1/2016
3/1/2014
9/1/2016
9/1/2021
3/1/2014
3/1/2014
9/1/2016
9/1/2016
9/1/2016
9/1/2016
9/1/2016
2/5/2018
10/28/2021
9/30/2010
5/31/2012
9/1/2016
3/1/2014
12/1/2010
11/2/2010
11/2/2010
4/14/2009
11/2/2010
4/14/2009
3/6/2009
9/1/2016
9/1/2016
9/1/2016
3/1/2014
2/2/2017
11/17/2021
11/17/2021
7/19/2010
12/31/2008
9/24/2010
9/1/2016
1/8/2010
3/1/2014
9/1/2016
10/16/2008
110
142
200
155
100
90
243
132
127
134
132
122
143
91
130
104
76
126
124
103
103
97
144
150
194
119
101
159
98
145
150
124
117
97
94
115
130
107
114
124
157
112
140
102
110
124
206
129
120
165
Raymond
Hilton Garden Inn
Aimbridge
Hilton Garden Inn
Raymond
Hampton
Raymond
Hilton Garden Inn
Raymond
Homewood Suites
Chartwell
Homewood Suites
Raymond
Hampton
Newport
Courtyard
Newport
Courtyard
Concord
AC Hotels
Newport
Hampton
LBA
Home2 Suites
Newport
Hilton Garden Inn
Newport
TownePlace Suites
Crestline
Hyatt Place
McKibbon
Hilton Garden Inn
LBA
Homewood Suites
Chartwell
Courtyard
Chartwell
Residence Inn
McKibbon
Homewood Suites
SpringHill Suites
McKibbon
TownePlace Suites McKibbon
Hampton
Hilton Garden Inn
Hilton Garden Inn
Home2 Suites
TownePlace Suites
SpringHill Suites
Hampton
Courtyard
Fairfield
Hampton
Hilton Garden Inn
Homewood Suites
Hampton
Homewood Suites
Homewood Suites
Homewood Suites
Homewood Suites
Courtyard
Hilton Garden Inn
Homewood Suites
TownePlace Suites Western
Western
Hilton Garden Inn
Western
Hilton Garden Inn
LBA
Courtyard
Western
Marriott
Western
Residence Inn
Western
Residence Inn
Aimbridge
Hilton Garden Inn
Crestline
Crestline
Dimension
Dimension
LBA
Marriott
Western
HHM
HHM
Dimension
HHM
Dimension
Dimension
Dimension
Western
Chartwell
Western
LBA
Raymond
Raymond
28
City
San Antonio .........................................
Shenandoah..........................................
Stafford ................................................
Texarkana ............................................
Provo....................................................
Salt Lake City ......................................
Salt Lake City ......................................
Alexandria ...........................................
Alexandria ...........................................
Charlottesville......................................
Manassas..............................................
Richmond.............................................
Richmond.............................................
Richmond.............................................
Suffolk .................................................
Suffolk .................................................
Virginia Beach .....................................
Virginia Beach .....................................
Kirkland ...............................................
Seattle ..................................................
Tukwila ................................................
Madison ...............................................
Total.................................................
State
TX
TX
TX
TX
UT
UT
UT
VA
VA
VA
VA
VA
VA
VA
VA
VA
VA
VA
WA
WA
WA
WI
Brand
Manager (3)
TownePlace Suites Western
Courtyard
Homewood Suites
Hampton
Residence Inn
Residence Inn
SpringHill Suites
Courtyard
SpringHill Suites
Courtyard
Residence Inn
Courtyard
Marriott
Residence Inn
Courtyard
TownePlace Suites
Courtyard
Courtyard
Courtyard
Residence Inn
Homewood Suites
Hilton Garden Inn
LBA
Western
Aimbridge
Dimension
Huntington
HHM
Marriott
Marriott
Crestline
Crestline
White Lodging
White Lodging
White Lodging
Crestline
Crestline
Crestline
Crestline
InnVentures
InnVentures
Dimension
Raymond
Date
Acquired or
Completed
Rooms
3/1/2014
9/1/2016
3/1/2014
1/31/2011
3/1/2014
10/20/2017
11/2/2010
3/1/2014
3/28/2011
3/1/2014
2/16/2011
12/8/2014
3/1/2014
12/8/2014
3/1/2014
3/1/2014
3/1/2014
3/1/2014
3/1/2014
3/1/2014
3/1/2014
2/18/2021
106
124
78
81
114
136
143
178
155
139
107
135 (1)
413 (2)
75 (1)
92
72
141
160
150
234
106
176
28,983
(1) Hotel is encumbered by mortgage.
(2) Hotel is subject to ground lease.
(3) The management companies are defined in Note 9 titled “Management and Franchise Agreements” in Part II, Item 8 in this
Annual Report on Form 10-K.
The Company’s investment in real estate as of December 31, 2022, consisted of the following (in thousands):
Land .........................................................................................
Building and Improvements ....................................................
Furniture, Fixtures and Equipment ..........................................
Finance Ground Lease Assets..................................................
Franchise Fees .........................................................................
$
Less Accumulated Depreciation and Amortization.................
Investment in Real Estate, net .................................................
$
802,625
4,656,343
522,082
102,084
19,925
6,103,059
(1,492,097)
4,610,962
For additional information about the Company’s properties, refer to Schedule III – Real Estate and Accumulated Depreciation
and Amortization included at the end of Part IV, appearing elsewhere in this Annual Report on Form 10-K.
29
Item 3.
Legal Proceedings
The Company is or may be a party to various legal proceedings that arise in the ordinary course of business. The Company is
not currently involved in any litigation nor, to management’s knowledge, is any litigation threatened against the Company where the
outcome would, in management’s judgment based on information currently available to the Company, have a material adverse effect
on the Company’s consolidated financial position or results of operations.
Item 4.
Mine Safety Disclosures
Not Applicable.
30
PART II
Item 5. Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market Information
On May 18, 2015, the Company’s common shares were listed and began trading on the NYSE under the ticker symbol “APLE”
(the “Listing”). Prior to that time, there was no public market for the Company’s common shares. As of December 31, 2022 and
February 13, 2023, the last reported closing price per share for the Company’s common shares as reported on the NYSE was $15.78
and $17.57, respectively.
Share Return Performance
The following graph compares the five-year cumulative total shareholder return of the Company’s common shares to the
cumulative total returns of the Standard and Poor’s 500 Stock Index (“S&P 500 Index”) and the Dow Jones U.S. Real Estate Hotels
Index. The Dow Jones U.S. Real Estate Hotels Index is comprised of publicly traded REITs which focus on investments in hotel
properties. The graph assumes an initial investment of $100 in the Company’s common shares and in each of the indices, and also
assumes the reinvestment of dividends.
Apple Hospitality REIT, Inc.............$
S&P 500 Index..................................$
Dow Jones U.S. Real Estate
Hotels Index...................................$
12/31/17
12/31/18
Value of Initial Investment at
12/31/20
12/31/19
100.00 $
100.00 $
78.36 $
95.62 $
95.57 $
125.72 $
77.50 $
148.85 $
12/31/21
97.20 $
191.58 $
12/31/22
99.54
156.88
100.00 $
86.90 $
100.69 $
74.20 $
84.98 $
71.92
This performance graph shall not be deemed "filed" for the purposes of Section 18 of the Exchange Act, or incorporated by
reference into any filing by the Company under the Securities Act, or the Exchange Act, except as shall be expressly set forth by
specific reference in such filing. The performance graph is not indicative of future investment performance. The Company does not
make or endorse any predictions as to future share price performance.
Shareholder Information
As of February 13, 2023, the Company had approximately 90 holders of record of its common shares and there were
approximately 229 million common shares outstanding. Because many of the Company’s common shares are held by brokers and
other institutions on behalf of shareholders, the Company believes there are substantially more beneficial holders of its common
shares than record holders. In order to comply with certain requirements related to the Company’s qualification as a REIT, the
31
Company’s Charter provides that, subject to certain exceptions, no person or entity (other than a person or entity who has been granted
an exemption) may directly or indirectly, beneficially or constructively, own more than 9.8% of the aggregate of its outstanding
common shares or 9.8% of the aggregate of the outstanding preferred shares of any class or series.
Distribution Information
The Company generally must distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and
excluding any net capital gain, in order to maintain its REIT status. Subsequent to the distribution paid in March 2020, the Company
announced the suspension of its monthly distributions due to the impact of COVID-19 on its operating cash flows. Beginning in
March 2021, the Board of Directors declared distributions of $0.01 per common share in the last month of each quarter and the
distributions were paid out each following month.
In February 2022, the Board of Directors of the Company reinstated its policy of distributions on a monthly basis and declared a
monthly cash distribution of $0.05 per common share with the first monthly distribution paid in March 2022. In August and October
2022, the Board of Directors approved subsequent increases to the monthly cash distribution to $0.07 and $0.08 per common share,
respectively. In addition to the regular monthly cash distribution of $0.08 per common share approved by the Board of Directors in
December 2022, the Board of Directors approved a special cash distribution of $0.08 per common share for a combined distribution of
$0.16 per common share, paid in January 2023, to shareholders of record as of December 30, 2022. While management currently
expects monthly cash distributions to continue at $0.08 per common share, the amount and timing of distributions to shareholders are
within the discretion of the Company’s Board of Directors. The amount and frequency of future distributions will depend on certain
items, including but not limited to, the Company’s results of operations, cash flow from operations, economic conditions, working
capital requirements, cash requirements to fund investing and financing activities, and capital expenditure requirements, including
improvements to and expansions of properties, as well as the distribution requirements under federal income tax provisions for
qualification as a REIT. As it has done historically, due to seasonality, the Company may use its Revolving Credit Facility to maintain
the consistency of the distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic
cycles.
Share Repurchases
In May 2022, the Company’s Board of Directors approved a one-year extension of its existing Share Repurchase Program,
authorizing share repurchases up to an aggregate of $345 million. The Share Repurchase Program may be suspended or terminated at
any time by the Company and will end in July 2023 if not terminated or extended earlier. During the year ended December 31, 2022,
the Company purchased approximately 0.2 million of its common shares under its Share Repurchase Program at a weighted-average
market purchase price of approximately $14.21 per common share for an aggregate purchase price, including commissions, of
approximately $2.7 million. The shares were repurchased under a written trading plan as part of the Share Repurchase Program that
provides for share repurchases in open market transactions and that is intended to comply with Rule 10b5-1 under the Exchange Act.
Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash
on hand or availability under its unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit
facilities (if any). The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase
Program will also depend upon prevailing market conditions, regulatory requirements and other factors.
Additionally, during 2022, certain of the Company’s employees surrendered common shares to satisfy their tax withholding
obligations associated with the vesting of common shares issued under the 2014 Omnibus Incentive Plan (the “Omnibus Plan”) as
described in Note 8 titled “Compensation Plans” in Part II, Item 8, of the Consolidated Financial Statements and Notes thereto,
appearing elsewhere in this Annual Report on Form 10-K.
32
The following is a summary of all share repurchases during the fourth quarter of 2022:
Issuer Purchases of Equity Securities
(a)
(b)
(c)
Period
October 1 - October 31, 2022 .......................
November 1 - November 30, 2022 ...............
December 1 - December 31, 2022 (2) ............
Total ..............................................................
Total Number
of Shares
Purchased
Average Price
Paid per Share
$
81,100
-
114,147
195,247
14.21
-
16.81
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
81,100
-
-
81,100
(d)
Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
(in thousands) (1)
342,325
$
342,325
$
342,325
$
(1) Represents amount outstanding under the Company's authorized $345 million Share Repurchase Program. This program may be
suspended or terminated at any time by the Company. If not terminated or extended earlier, the program will end in July 2023.
(2) Consists of common shares surrendered to the Company to satisfy tax withholding obligations associated with the vesting of
restricted common shares.
33
Equity Compensation Plans
The Company’s Board of Directors adopted and the Company’s shareholders approved the Omnibus Plan, which provides for
the issuance of up to 10 million common shares, subject to adjustments, to employees, officers, and directors of the Company or
affiliates of the Company, consultants or advisers currently providing services to the Company or affiliates of the Company, and any
other person whose participation in the Omnibus Plan is determined by the Compensation Committee of the Board of Directors (the
"Compensation Committee") to be in the best interests of the Company. The Company’s Board of Directors previously adopted, and
the Company’s shareholders approved, the non-employee directors’ stock option plan (the “Directors’ Plan”) to provide incentives to
attract and retain directors. In May 2015, the Directors’ Plan was terminated effective upon the Listing, and no further grants can be
made under the Directors’ Plan, provided however, that the termination did not affect any outstanding director option awards
previously issued under the Directors’ Plan. The following is a summary of securities issued under the Company’s equity
compensation plans as of December 31, 2022:
Number of
Securities to
be Issued Upon
Exercise of
Outstanding
Options,
Warrants
and Rights (1)
Weighted-
Average Exercise
Price of
Outstanding
Options,
Warrants
and Rights (2)
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in
First Column) (3)
Equity compensation plans approved by
security holders...............................................................
Equity compensation plans not approved by
security holders...............................................................
Total equity compensation plans .......................................
142,019
-
142,019
$
$
21.48
-
21.48
7,141,024
-
7,141,024
(1) Includes 57,011 stock options granted to the Company’s current and former directors under the Directors’ Plan. Also includes
85,008 fully vested deferred stock units, including quarterly distributions earned, under the Non-Employee Director Deferral
Program under the Omnibus Plan, adopted by the Board of Directors in 2018, effective June 1, 2018, that are not included in the
calculation of the weighted-average exercise price of outstanding options.
(2) The weighted-average exercise price of outstanding options relates solely to stock options, which are the only currently
outstanding exercisable security.
(3) Does not include remaining shares registered under the Directors' Plan, as no further grants can be made under the Directors' Plan.
Item 6.
Reserved
34
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with Item 8, the Consolidated Financial Statements and
Notes thereto, the introduction of Part I regarding “Forward-Looking Statements,” and Item 1A, “Risk Factors” appearing elsewhere
in this Annual Report on Form 10-K.
Overview
The Company is a Virginia corporation that has elected to be treated as a REIT for federal income tax purposes. The Company
is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the U.S. As of December 31, 2022, the
Company owned 220 hotels with an aggregate of 28,983 rooms located in urban, high-end suburban and developing markets
throughout 37 states. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and
managed under separate management agreements with 17 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.”
The Impact of COVID-19 on the Company and the Hospitality Industry
The COVID-19 pandemic has negatively impacted the U.S. and global economies and financial markets. The effect of COVID-
19 on the hotel industry has been unprecedented and has dramatically reduced business and impacted leisure travel, which adversely
impacted the Company’s business, financial performance, operating results and cash flows, beginning in March 2020.
From the outset of the pandemic, the Company, with the support of its management companies and brands, has taken steps to
minimize costs and cash outflow to operate efficiently and maximize performance in light of the impacts to business resulting from
COVID-19. These activities included implementing cost elimination and efficiency initiatives at each of its hotels by adjusting
operations to manage total labor costs, reducing or eliminating certain amenities and reducing rates under various service contracts;
enhancing sales efforts by strategically targeting available demand; reducing capital improvement projects, particularly in 2020 and
2021; and entering into various amendments to its unsecured credit facilities to provide for the temporary waiver of financial covenant
testing for the majority of its financial maintenance covenants (the Company exited this waiver period early in July 2021 due to
improved financial performance). Cost reduction initiatives, including those discussed above have not, and are not expected to,
materially offset revenue losses from COVID-19.
While operations in 2022 returned to 2019 pre-pandemic levels in many markets, some markets, while showing continued
improvement, may take time to recover to 2019 pre-pandemic levels. The Company experienced significant improvement in its
business during 2021 and 2022 driven primarily by increased strength in leisure, small group and local negotiated business demand.
While the Company has seen continued improvement in overall business demand, it anticipates that some larger corporate demand
drivers may take longer to fully recover.
Recent Hotel Portfolio Activities
The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties
that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in
rooms-focused hotels, in 2022, the Company acquired two existing hotels for an aggregate purchase price of approximately $85.0
million: a 156-room AC Hotel in Louisville, Kentucky and a 134-room AC Hotel in Pittsburgh, Pennsylvania. The Company utilized
its available cash on hand and a $50 million draw on its $575 million term loan facility to fund the acquisitions and plans to utilize its
available cash or borrowings under its unsecured credit facilities for any additional acquisitions.
As of December 31, 2022, the Company had an outstanding contract for the potential purchase of a hotel under development in
Madison, Wisconsin for a purchase price of $78.6 million, which is expected to be completed as a 260-room Embassy Suites and
opened for business in early 2024, at which time the Company expects to complete the purchase of this hotel. Although the Company
is working towards acquiring this hotel, there are a number of conditions to closing that have not yet been satisfied and there can be no
assurance that closing on this hotel will occur under the outstanding purchase contract.
For its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and
attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided from the sale
of the property. As a result, in 2022, the Company sold one hotel for a gross sales price of approximately $8.5 million and recognized
a net gain on sale of approximately $1.8 million. The Company used the net proceeds from the sale for general corporate purposes.
See Note 2 titled “Investment in Real Estate” and Note 3 titled “Dispositions” of the Consolidated Financial Statements and
Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for additional information concerning these transactions.
35
Hotel Operations
As of December 31, 2022, the Company owned 220 hotels with a total of 28,983 rooms as compared to 219 hotels with a total
of 28,747 rooms as of December 31, 2021. Results of operations are included only for the period of ownership for hotels acquired or
disposed of during all periods presented. During 2022, the Company acquired two hotels and sold one hotel. During 2021, the
Company acquired eight hotels and sold 23 hotels. See further discussion in Note 2 titled “Investments in Real Estate” and Note 3
titled “Dispositions” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-
K. As a result, in addition to the impacts of COVID-19, the comparability of results for the years ended December 31, 2022 and 2021,
as discussed below, is also 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, ADR and RevPAR, and expenses, such as hotel operating expenses, general and
administrative expenses and other expenses described below. RevPAR and operating results may be impacted by regional and local
economies and local regulations as well as changes in lodging demand due to macroeconomic factors including inflationary pressures,
higher energy prices or a recessionary environment.
The following is a summary of the results from operations of the Company’s hotels for their respective periods of ownership by
the Company. Comparisons to 2019 are included to provide a better understanding of the Company’s recovery from the impact of
COVID-19 on hotel operations.
(in thousands, except
statistical
data)
Total revenue ..................... $ 1,238,417
Hotel operating expense .........
710,481
Property taxes, insurance and
other expense....................
General and administrative
expense ..........................
72,907
42,464
2022
Percent
of
Revenue
Percent
of
Revenue
Change
2021 to
2022
2021
2020
Percent
of
Revenue
Percent
of
Revenue
Change
2019 to
2022
2019
Year Ended December 31,
100.0% $ 933,869
57.4%
542,178
100.0%
58.1%
32.6% $ 601,879
402,278
31.0%
100.0% $ 1,266,597
724,416
66.8%
5.9%
71,980
3.4%
41,038
7.7%
4.4%
1.3%
78,238
13.0%
77,498
3.5%
29,374
4.9%
36,210
100.0%
57.2%
6.1%
2.9%
Loss on impairment of
depreciable real estate assets ...
Depreciation and amortization
expense ..........................
Gain on sale of real estate........
Interest and other expense, net ..
Income tax expense ..............
Net income (loss).................
Adjusted hotel EBITDA (1) ......
26,175
181,697
1,785
59,733
1,940
144,805
455,579
Number of hotels owned at end
of period .........................
ADR............................... $
Occupancy ........................
RevPAR........................... $
220
149.36
72.6%
108.45
10,754
184,471
3,596
67,748
468
18,828
320,273
219
123.78
66.3%
82.03
$
$
143.4%
5,097
-1.5%
-50.4%
-11.8%
314.5%
199,786
10,854
70,835
332
669.1% (173,207)
121,985
42.2%
0.5%
20.7% $
9.5%
32.2% $
234
111.49
46.1%
51.34
6,467
193,240
5,021
61,191
679
171,917
464,995
233
137.30
77.0%
105.72
$
$
-2.2%
-1.9%
-5.9%
17.3%
304.7%
-6.0%
-64.4%
-2.4%
185.7%
-15.8%
-2.0%
-5.6%
8.8%
-5.7%
2.6%
(1) See reconciliation of Adjusted Hotel EBITDA to net income (loss) in "Non-GAAP Financial Measures" below.
The following table highlights the Company’s full year ADR, Occupancy, RevPAR, net income (loss) and adjusted hotel
earnings before interest, income taxes, depreciation and amortization for real estate (“Adjusted Hotel EBITDA”) for the last four
years. As COVID-19 has affected results since 2020, 2019 results are included to provide a better understanding of the Company’s
recovery from the impact of COVID-19 on hotel operations (in thousands except statistical data).
ADR ............................................................
Occupancy ...................................................
RevPAR.......................................................
Net income (loss) ..........................................
Adjusted Hotel EBITDA (1)............................
$
$
$
$
Year Ended December 31,
2022
2021
2020
2019
149.36
72.6%
108.45
144,805
455,579
$
$
$
$
123.78
66.3%
82.03
18,828
320,273
$
$
$
$
111.49
46.1%
51.34
(173,207)
121,985
$
$
$
$
137.30
77.0%
105.72
171,917
464,995
(1) See reconciliation of Adjusted Hotel EBITDA to net income (loss) in "Non-GAAP Financial Measures" below.
While the Company experienced its most significant decline in operating results (driven by the impact of COVID-19) during
2020 through early 2021, occupancy and RevPAR have since shown improvement with a RevPAR increase of 32.2% for the year
ended December 31, 2022, compared to the same period in 2021. Although the Company expects continued recovery in rate and
occupancy, it is difficult to project the pace at which the Company will experience a full recovery to pre-pandemic levels and future
revenues and operating results could be negatively impacted by, among other things, historical seasonal trends, an increase in COVID-
36
19 cases, new COVID-19 variants, state and local governments and businesses reverting to tighter COVID-19 mitigation restrictions,
deterioration of consumer sentiment, labor shortages, supply chain disruptions, a recessionary macroeconomic environment or
inflationary pressures.
Comparable Hotels Operating Results
The following table reflects certain operating statistics for the Company’s 220 hotels owned as of December 31, 2022. The
Company defines metrics from Comparable Hotels as results generated by the 220 hotels owned as of the end of the reporting period.
For the hotels acquired during the reporting periods shown, 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. Comparisons to 2019 operating
results are included to provide a better understanding of the Company’s recovery from the impact of COVID-19 on hotel operations.
ADR .................................................................. $
Occupancy.........................................................
RevPAR ............................................................ $
2022
149.56
72.6%
108.60
$
$
2021
125.52
66.1%
82.99
Same Store Operating Results
Year Ended December 31,
Change
2021 to
2022
19.2% $
9.8%
30.9% $
2020
112.73
45.7%
51.48
2019
141.22
77.1%
108.90
$
$
Change
2019 to
2022
5.9%
-5.8%
-0.3%
The following table reflects certain operating statistics for the 204 hotels owned by the Company as of January 1, 2019 and
during the entirety of the reporting periods being compared (“Same Store Hotels”). Comparisons to 2019 operating results are
included to provide a better understanding of the Company’s recovery from the impact of COVID-19 on hotel operations. This
information has not been audited.
ADR .................................................................. $
Occupancy.........................................................
RevPAR ............................................................ $
2022
147.55
72.7%
107.26
$
$
2021
124.27
66.8%
83.04
Year Ended December 31,
Change
2021 to
2022
18.7% $
8.8%
29.2% $
2020
112.68
46.1%
51.99
2019
140.04
77.3%
108.20
$
$
Change
2019 to
2022
5.4%
-6.0%
-0.9%
As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as
each individual locality. COVID-19 has been negatively affecting the U.S. hotel industry since March 2020. The Company’s Same
Store Hotels revenue and operating results improved during the year ended December 31, 2022 compared to the year ended
December 31, 2021, which is consistent with the overall lodging industry. The Company's Same Store Hotels RevPAR was down
approximately 0.9% for the year ended December 31, 2022 compared to the year ended December 31, 2019 (the last year prior to the
COVID-19 pandemic). Though the Company anticipates further improvement to RevPAR in 2023, the Company can give no
assurances as to the amount or period of improvement due to uncertainties resulting from, among other things, the impact of COVID-
19, a recessionary macroeconomic environment or inflationary pressures.
Results of Operations
A discussion regarding the Company’s results of operations for the year ended December 31, 2022 compared to the year ended
December 31, 2021 is presented below. A discussion regarding the results of operations for the year ended December 31, 2021
compared to the year ended December 31, 2020 can be found under the section titled “Results of Operations” in Part II, Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form
10-K for the year ended December 31, 2021, filed with the SEC on February 22, 2022, which is incorporated herein by reference and
which is available free of charge on the SEC’s website at www.sec.gov and in the Investor Information section of the Company’s
website at www.applehospitalityreit.com.
Revenues
The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue.
For the years ended December 31, 2022 and 2021, the Company had total revenue of $1.2 billion and $933.9 million, respectively. For
the years ended December 31, 2022 and 2021, respectively, Comparable Hotels achieved combined average occupancy of 72.6% and
37
66.1%, ADR of $149.56 and $125.52 and RevPAR of $108.60 and $82.99. ADR is calculated as room revenue divided by the number
of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.
Compared to 2021, the Company experienced increases in ADR and occupancy in 2022, resulting in an increase of 30.9% in
RevPAR, for Comparable Hotels. As compared to 2019 (pre-COVID-19), Comparable Hotels RevPAR for 2022 decreased by 0.3% as
a result of a 5.8% reduction in occupancy, offset by a 5.9% increase in ADR. Revenue recovery in 2022 compared to 2021 was led by
leisure transient and small group demand, with increased demand from corporate business. Suburban markets continued to see
stronger demand than urban markets and the Sun Belt generally outperformed other regions of the U.S. throughout the hospitality
industry. The Company expects improvement to continue, however, future revenues could be negatively impacted by, among other
things, historical seasonal trends, an increase in COVID-19 cases, new COVID-19 variants, state and local governments and
businesses reverting to tighter COVID-19 mitigation restrictions, deterioration of consumer sentiment, labor shortages, supply chain
disruptions, a recessionary macroeconomic environment or inflationary pressures.
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 years ended December 31, 2022 and
2021, hotel operating expense totaled $710.5 million and $542.2 million, respectively, or 57.4% and 58.1% of total revenue for each
respective year. Comparatively, prior to COVID-19, hotel operating expense was 57.2% of total revenue for the year ended December
31, 2019.
The impact of the pandemic has varied and will continue to vary by market and hotel. With the support of its brands and third-
party management companies, the Company worked to reduce costs associated with operating hotels in a lower occupancy
environment than that experienced prior to COVID-19. As occupancy has increased, adding staff to meet increased demand has been
challenging, and while the Company’s hotels made progress in filling open positions in 2022, they have often done so at higher wage
rates or with more expensive contract labor as compared to 2021 and 2019. Likewise, supply chain disruptions, broader inflationary
pressures throughout the overall economy and global tensions have driven shortages and cost increases for materials and supplies such
as food and equipment. The Company continues to work with its management companies to realize operational efficiencies and
mitigate the impact of cost pressures resulting from supply chain shortages, inflation and staffing challenges. The Company will
continue to evaluate and work with its management companies to implement adjustments to the hotel operating model in response to
continued changes in the operating environment and guest preferences, including evaluating staffing levels at its hotels to maximize
efficiency.
Property Taxes, Insurance and Other Expense
Property taxes, insurance and other expense for the years ended December 31, 2022 and 2021 totaled $72.9 million and $72.0
million, respectively, or 5.9% and 7.7% of total revenue for each respective year. Property taxes in certain locations increased due to
the reassessment of property values by localities related to the improved economy but were partially offset by decreases at other
locations due to successful appeals of tax assessments. Although the Company will continue to aggressively appeal tax assessments in
certain jurisdictions in an attempt to minimize tax increases, as warranted, it does not currently anticipate significant decreases in
property taxes in 2023 as compared to 2022.
General and Administrative Expense
General and administrative expense for the years ended December 31, 2022 and 2021 was $42.5 million and $41.0 million,
respectively, or 3.4% and 4.4% of total revenue for each respective year. The principal components of general and administrative
expense are payroll and related benefit costs, executive incentive compensation, legal fees, accounting fees and reporting expenses.
The increase in general and administrative expense in 2022 as compared to 2021 was primarily due to increased salaries and payroll
taxes in 2022 compared to 2021.
Loss on Impairment of Depreciable Real Estate Assets
Loss on impairment of depreciable real estate assets was $26.2 million for the year ended December 31, 2022, consisting of
impairment losses at two hotel properties identified by the Company in the fourth quarter of 2022. Loss on impairment of depreciable
real estate assets was $10.8 million for the year ended December 31, 2021, consisting of impairment losses at five hotel properties
identified by the Company in the first quarter of 2021 for potential sale. See Note 3, titled “Dispositions” of the Consolidated
Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for additional information concerning
these impairment losses.
38
Depreciation and Amortization Expense
Depreciation and amortization expense for the years ended December 31, 2022 and 2021 was $181.7 million and $184.5
million, respectively. Depreciation and amortization 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
decrease was primarily due to the sale of one hotel in 2022 and 23 hotels in 2021, partially offset by the acquisition of two hotels in
2022 and eight hotels in 2021 and renovations completed throughout 2022 and 2021. Additionally, depreciation and amortization
expense for the years ended December 31, 2022 and 2021 includes approximately $3.0 million and $5.2 million, respectively, of
expense associated with amortization of the Company’s finance ground leases.
Interest and Other Expense, net
Interest and other expense, net for the years ended December 31, 2022 and 2021 was $59.7 million and $67.7 million,
respectively, and is net of approximately $1.3 million and $0.3 million, respectively, of interest capitalized associated with renovation
projects. Additionally, interest and other expense, net for the years ended December 31, 2022 and 2021 includes approximately $5.9
million and $9.4 million, respectively, of interest recorded on the Company’s finance lease liabilities. The decrease of approximately
$3.5 million in finance lease interest is due to the August 16, 2021 purchase of the fee interest in the land at the Company’s Seattle,
Washington Residence Inn that was previously under a ground lease.
Interest expense related to the Company’s debt instruments decreased as a result of lower average borrowings due to the
repayment of loans maturing in 2022 and slightly lower average interest rates as the Company paid higher rates due to its covenant
waiver status during the first half of 2021. See Note 4 titled “Debt” of the Consolidated Financial Statements and Notes thereto in Part
II, Item 8, in this Annual Report on Form 10-K, for additional discussion of the Company’s amended unsecured credit facilities.
Interest expense is expected to increase in 2023 as a result of increases in market interest rates on the Company’s variable-rate debt.
Income tax expense
Income tax expense for the years ended December 31, 2022 and 2021 was $1.9 million and $0.5 million, respectively. The
increase was primarily due to increases in state income taxes as a result of significant improvement in operating results in 2022 as well
as limitations placed by certain states on the application of prior net operating losses.
39
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 Funds from Operations (“MFFO”), Earnings Before Interest,
Income Taxes, Depreciation and Amortization (“EBITDA”), Earnings Before Interest, Income Taxes, Depreciation and Amortization
for Real Estate (“EBITDAre”), Adjusted EBITDAre (“Adjusted EBITDAre”) and Adjusted Hotel EBITDA. These non-GAAP
financial measures should be considered along with, but not as alternatives to, net income (loss), cash flow from operations or any
other operating GAAP measure. FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel 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, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA, as calculated by the Company, may not be
comparable to FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel 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 (loss) (computed in accordance with GAAP), excluding gains and
losses from the sale of certain real estate assets (including gains and losses from change in control), 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 affiliates. 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 calculates MFFO by further adjusting FFO for the exclusion of amortization of finance ground lease assets,
amortization of favorable and unfavorable operating leases, net and non-cash straight-line operating ground lease expense, as these
expenses do 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 (loss) to FFO and MFFO for the years ended December 31,
2022, 2021, 2020 and 2019 (in thousands).
Year Ended December 31,
2021
2020
18,828
179,275
(3,596)
10,754
205,261
5,178
$ (173,207) $
192,346
(10,854)
5,097
13,382
6,433
2019
171,917
187,729
(5,021)
6,467
361,092
4,517
393
169
211,001
$
442
180
20,437
$
124
188
365,921
$
$
Net income (loss)..................................................................... $
Depreciation of real estate owned ...........................................
Gain on sale of real estate........................................................
Loss on impairment of depreciable real estate assets ..............
Funds from operations.........................................................
Amortization of finance ground lease assets ...........................
Amortization of favorable and unfavorable operating
leases, net..............................................................................
Non-cash straight-line operating ground lease expense ..........
Modified funds from operations.......................................... $
2022
144,805
178,641
(1,785)
26,175
347,836
3,038
396
154
351,424
40
EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA
EBITDA is a commonly used measure of performance in many industries and is defined as net income (loss) 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.
In addition to EBITDA, the Company also calculates and presents EBITDAre in accordance with standards established by
Nareit, which defines EBITDAre as EBITDA, excluding gains and losses from the sale of certain real estate assets (including gains
and losses from change in control), plus real estate related impairments, and adjustments to reflect the entity’s share of EBITDAre of
unconsolidated affiliates. The Company presents EBITDAre because it believes that it provides further useful information to investors
in comparing its operating performance between periods and between REITs that report EBITDAre using the Nareit definition.
The Company also considers the exclusion of non-cash straight-line operating ground lease expense from EBITDAre useful, as
this expense does not reflect the underlying performance of the related hotels (Adjusted EBITDAre).
The Company further excludes actual corporate-level general and administrative expense for the Company from Adjusted
EBITDAre (Adjusted Hotel EBITDA) to isolate property-level operational performance over which the Company’s hotel operators
have direct control. The Company believes Adjusted Hotel EBITDA provides useful supplemental information to investors regarding
operating performance and is used by management to measure the performance of the Company’s hotels and effectiveness of the
operators of the hotels.
The following table reconciles the Company’s GAAP net income (loss) to EBITDA, EBITDAre, Adjusted EBITDAre and
Adjusted Hotel EBITDA for the years ended December 31, 2022, 2021, 2020 and 2019 (in thousands).
Net income (loss)................................................................................ $
Depreciation and amortization ...........................................................
Amortization of favorable and unfavorable operating leases, net ......
Interest and other expense, net ...........................................................
Income tax expense ............................................................................
EBITDA .........................................................................................
Gain on sale of real estate...................................................................
Loss on impairment of depreciable real estate assets .........................
EBITDAre ......................................................................................
Non-cash straight-line operating ground lease expense .....................
Adjusted EBITDAre .......................................................................
General and administrative expense ...................................................
Adjusted Hotel EBITDA ................................................................ $
Hotels Owned
Year Ended December 31,
2022
144,805
181,697
396
59,733
1,940
388,571
(1,785)
26,175
412,961
154
413,115
42,464
455,579
$
$
2021
18,828
184,471
393
67,748
468
271,908
(3,596)
10,754
279,066
169
279,235
41,038
320,273
$
$
2020
(173,207) $
199,786
442
70,835
332
98,188
(10,854)
5,097
92,431
180
92,611
29,374
121,985
$
2019
171,917
193,240
124
61,191
679
427,151
(5,021)
6,467
428,597
188
428,785
36,210
464,995
As of December 31, 2022, the Company owned 220 hotels with an aggregate of 28,983 rooms located in 37 states. See
“Management and Franchise Agreements” in Part I, Item 1, Business, appearing elsewhere in this Annual Report on Form 10-K, for a
table summarizing the number of hotels and rooms by brand. Refer to Part I, Item 2, of this Annual Report on Form 10-K for tables
summarizing the number of hotels and rooms by state, and summarizing the location, brand, manager, date acquired or completed and
number of rooms for each of the 220 hotels the Company owned as of December 31, 2022.
Related Parties
The Company has engaged in, 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. See Note 6, titled “Related Parties” of the Consolidated Financial Statements and Notes thereto in
Part II, Item 8, in this Annual Report on Form 10-K, for additional information concerning the Company’s related party transactions.
41
Liquidity and Capital Resources
Capital Resources
The Company’s principal short term sources of liquidity are the operating cash flows generated from the Company’s properties
and availability under its Revolving Credit Facility. Over the long term, the Company may receive proceeds from strategic additional
secured and unsecured debt financing, dispositions of its hotel properties (such as the sale of one hotel in 2022 for proceeds of
approximately $8.5 million discussed above in “Recent Hotel Portfolio Activities”) and offerings of the Company’s common shares,
including pursuant to the ATM Program. Macroeconomic pressures, including inflation, increases in interest rates and general market
uncertainty, could impact the Company’s ability to raise debt or equity capital to fund long-term liquidity requirements in a cost-
effective manner.
As of December 31, 2022, the Company had approximately $1.4 billion of total outstanding debt consisting of $329.2 million of
mortgage debt and $1.0 billion outstanding under its credit facilities, excluding unamortized debt issuance costs and fair value
adjustments. As of December 31, 2022, the Company had available corporate cash on hand of approximately $4.1 million, $50 million
of available funds under the $575 million term loan facility and unused borrowing capacity under its Revolving Credit Facility of
approximately $650 million.
The credit agreements governing the unsecured credit facilities contain mandatory prepayment requirements, customary
affirmative and 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, and restrictions on certain investments. The Company was in compliance with the applicable covenants as of
December 31, 2022.
As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company first entered into
amendments in June 2020 that suspended the testing of the Company’s financial maintenance covenants under the unsecured credit
facilities and imposed certain restrictions regarding the Company's investing and financing activities. Further amendments were
entered into in March 2021 (the “March 2021 amendments”), extending the majority of the covenant waivers until the date that the
compliance certificate was required to be delivered for the fiscal quarter ended June 30, 2022 (unless the Company elected an earlier
date) (the “Extended Covenant Waiver Period”). The March 2021 amendments imposed several modifications and restrictions during
the Extended Covenant Waiver Period, including continued cash distribution restrictions, except for the payment of cash dividends of
$0.01 per common share per quarter or to the extent required to maintain REIT status, modification of the previous operating
restrictions to less restrictive levels, changes to the calculation of the financial maintenance covenants upon exiting the Extended
Covenant Waiver Period, and an increase in the LIBOR floor and establishment of a Base Rate (as defined in the credit agreements)
floor under the $425 million revolving credit facility.
In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended
Covenant Waiver Period early, effective on July 29, 2021, pursuant to the terms of each of its unsecured credit facilities. The
unsecured credit facilities did not provide the Company the ability to re-enter the Extended Covenant Waiver Period once it elected to
exit. Upon exiting the Extended Covenant Waiver Period, the Company was no longer subject to the restrictions regarding its
investing and financing activities that were applicable during the Extended Covenant Waiver Period, including, but not limited to,
limitations on the acquisition of property, payment of distributions to shareholders (except for the payment of cash dividends of $0.01
per common share per quarter or to the extent required to maintain REIT status), capital expenditures and use of proceeds from the
sale of property or common shares of the Company. Those restrictions, including the restriction on payment of distributions to
shareholders, were in place throughout the second quarter of 2021.
On June 2, 2022, the Company entered into an unsecured $75 million senior notes facility with a maturity date of June 2, 2029.
The Company used the net proceeds from the $75 million senior notes facility for general corporate purposes, including the repayment
of borrowings under the Company’s then-existing $425 million revolving credit facility and repayment of mortgage debt.
On July 25, 2022, the Company entered into an amendment and restatement of its $850 million credit facility, increasing the
borrowing capacity to approximately $1.2 billion. The amendment and restatement extended the maturity date of the facility and
changed the reference rate of the facility from LIBOR to SOFR plus 10 basis points plus a margin ranging from 1.35% to 2.25%
depending on the Company’s leverage ratio.
See Note 4 titled “Debt” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on
Form 10-K, for a description of the Company’s debt instruments as of December 31, 2022 and a summary of the financial and
restrictive covenants as defined in the credit agreements.
The Company has a universal shelf registration statement on Form S-3 (No. 333-262915) that was automatically effective upon
filing on February 23, 2022. The Company may offer an indeterminate number or amount, as the case may be, of (1) common shares,
no par value per share; (2) preferred shares, no par value per share; (3) depository shares representing the Company’s preferred shares;
42
(4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5)
rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to
time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.
On August 12, 2020, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from
time to time, up to an aggregate of $300 million of its common shares under the ATM Program under the Company’s prior shelf
registration statement and the current shelf registration statement described above. Since inception of the ATM Program in August
2020 through December 31, 2022, the Company sold approximately 4.7 million common shares under its ATM Program at a
weighted-average market sales price of approximately $16.26 per common share and received aggregate gross proceeds of
approximately $76.0 million and proceeds net of offering costs, which included $0.9 million of commissions, of approximately $75.1
million. The Company used the net proceeds from the sale of these shares primarily to pay down borrowings under its then-existing
$425 million revolving credit facility and used the corresponding increased availability under the $425 million revolving credit facility
for general corporate purposes, including acquisitions of hotel properties. As of December 31, 2022, approximately $224.0 million
remained available for issuance under the ATM Program. No shares were sold under the Company's ATM Program during the year
ended December 31, 2022. The Company plans to use future net proceeds from the sale of shares under the ATM Program for general
corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of outstanding
indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the net
proceeds to acquire another REIT or other company that invests in income producing properties. Future offerings will depend on a
variety of factors to be determined by the Company, including market conditions, the trading price of the Company’s common shares
and opportunities for uses of any proceeds.
Capital Uses
The Company anticipates that cash flow from operations, availability under its unsecured credit facilities, additional borrowings,
and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including
required distributions to shareholders, share repurchases, capital improvements, debt service, hotel acquisitions, lease commitments,
and cash management activities.
Distributions
The Company generally must distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and
excluding any net capital gain, in order to maintain its REIT status. During the Extended Covenant Waiver Period, as a requirement
under the amendments to its unsecured credit facilities, the Company was restricted in its ability to make distributions except for the
payment of cash distributions of $0.01 per common share per quarter or to the extent required to maintain REIT status. The Company
exited the Extended Covenant Waiver Period under its unsecured credit facilities in July 2021 and, as a result, is no longer subject to
the above-described restriction on distributions. In February 2022, the Board of Directors of the Company reinstated its policy of
distributions on a monthly basis and declared a monthly cash distribution of $0.05 per common share with the first monthly
distribution paid in March 2022. In August and October 2022, the Board of Directors approved subsequent increases to the monthly
cash distribution to $0.07 and $0.08 per common share, respectively. In addition to the regular monthly cash distribution of $0.08 per
common share approved by the Board of Directors in December 2022, the Board of Directors approved a special cash distribution of
$0.08 per common share for a combined distribution of $0.16 per common share, paid in January 2023, to shareholders of record as of
December 30, 2022. Distributions paid for the years ended December 31, 2022, 2021 and 2020 were $0.61, $0.03 and $0.30 per
common share, respectively, for a total of approximately $139.5 million, $6.8 million and $67.4 million, respectively.
The Company, as it has done historically due to seasonality, may use its Revolving Credit Facility to maintain the consistency of
distributions, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. While management
currently expects monthly cash distributions to continue at $0.08 per common share, any distribution will be subject to approval of the
Company’s Board of Directors and there can be no assurance of the classification, timing or duration of distributions at any particular
distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of its hotels on an
ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of
the Company or to the extent required to maintain REIT status. If cash flows from operations and the Revolving Credit Facility are not
adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the
Company has relatively low levels of debt, there can be no assurance it will be successful with this strategy, and it may need to reduce
its distributions to minimum levels required to maintain its qualification as a real estate investment trust. If the Company were unable
to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.
Share Repurchases
In May 2022, the Company’s Board of Directors approved a one-year extension of its existing Share Repurchase Program,
authorizing share repurchases up to an aggregate of $345 million. The Share Repurchase Program may be suspended or terminated at
any time by the Company and will end in July 2023 if not terminated or extended earlier. During the year ended December 31, 2022,
43
the Company purchased approximately 0.2 million of its common shares under its Share Repurchase Program at a weighted-average
market purchase price of approximately $14.21 per common share for an aggregate purchase price, including commissions, of
approximately $2.7 million. The shares were repurchased under a written trading plan as part of the Share Repurchase Program that
provides for share repurchases in open market transactions and that is intended to comply with Rule 10b5-1 under the Exchange Act.
Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash
on hand or availability under its unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit
facilities (if any). The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase
Program will also depend upon prevailing market conditions, regulatory requirements and other factors.
Capital Improvements
Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it
deems prudent. The Company is committed to maintaining and enhancing each property’s competitive position in its market. The
Company has invested in and plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company
is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a
percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to the
hotels. As of December 31, 2022, the Company held approximately $32.5 million in reserve related to these properties. During 2022,
the Company invested approximately $61.7 million in capital expenditures. The Company anticipates spending approximately $70
million to $80 million during 2023, which includes various comprehensive renovation projects for approximately 20 to 25 properties,
however, inflationary pressures or supply chain shortages, among other issues, may result in increased costs and delays for anticipated
projects. The Company does not currently have any existing or planned projects for new property development.
Upcoming Debt Maturities and Debt Service Payments
As of December 31, 2022, the Company had approximately $150.5 million of principal and interest payments due on its debt
over the next 12 months. Included in this total is approximately $37.4 million of mortgage loans maturing in 2023, of which the
Company paid off $23.5 million in January and February of 2023 for the mortgage loans on three properties using cash flow from
operations. See Note 14 titled “Subsequent Events” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in
this Annual Report on Form 10-K, for more detail regarding the repayment in full of these three mortgage loans in January and
February 2023. The Company plans to pay off the remainder of mortgage loans maturing in 2023 using cash flow from operations or
borrowings under its Revolving Credit Facility. Interest expense related to the Company's unsecured credit facilities is expected to
increase in 2023 as a result of increases in market interest rates on its variable-rate debt. See Note 4 titled “Debt” of the Consolidated
Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for more detail regarding future
maturities of the Company’s debt instruments as of December 31, 2022.
Hotel Purchase Contract Commitments
As of December 31, 2022, the Company had one outstanding contract, which was entered into during 2021, for the potential
purchase of a hotel currently under development for a total expected purchase price of approximately $78.6 million. The hotel is
expected to be completed as a 260-room Embassy Suites and opened for business in early 2024, at which time the Company expects
to complete the purchase of this hotel. 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 closing on this hotel will occur under the outstanding
purchase contract. If closing occurs, the Company plans to utilize its available cash or borrowings under its unsecured credit facilities
available at closing to purchase the hotel.
Lease Commitments
The Company is the lessee on certain ground leases, hotel equipment leases and office space leases. As of December 31, 2022,
the Company had 14 hotels subject to ground leases and three parking lot ground leases with remaining terms ranging from
approximately 16 to 96 years, excluding renewal options. Certain of its ground leases have options to extend beyond the initial lease
term by periods ranging from five to 120 years. As of December 31, 2022, the Company had total remaining minimum lease payments
of $290.4 million, including $7.1 million due in the next year. Refer to Note 10, titled “Lease Commitments” of the Consolidated
Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K for additional details.
Cash Management Activities
As part of the cost sharing arrangements discussed in Note 6, titled “Related Parties” of the Consolidated Financial Statements
and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, 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 the 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.
44
Management and Franchise Agreements
Each of the Company’s 220 hotels owned as of December 31, 2022 is operated and managed under separate management
agreements with 17 hotel management companies, none of which are affiliated with the Company. Thirteen of the Company’s hotels
are managed by affiliates of Marriott. The remainder of the Company’s hotels are managed by companies that are not affiliated with
either Marriott, Hilton or Hyatt, and, as a result, the branded hotels they manage were required to obtain separate franchise agreements
with each respective franchisor. See Note 9, titled “Management and Franchise Agreements” of the Consolidated Financial Statements
and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for additional information pertaining to the management and
franchise agreements, including a listing of the Company’s hotel management companies.
Business Interruption
Being in the real estate industry, the Company is exposed to natural disasters on both a local and national scale. Although
management believes the Company has adequate insurance to cover this exposure, there can be no assurance that such events will not
have a material adverse effect on the Company’s financial position or results of operations.
Seasonality
The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause
quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues for the Company’s hotels are greater in the
second and third quarters than in the first and fourth quarters. However, due to the effects of COVID-19, these typical seasonal
patterns have been disrupted since the first quarter of 2020, although the Company has experienced some seasonal decrease in demand
in the first and fourth quarters of each year. To the extent that cash flow from operations is insufficient during any quarter due to
temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet
cash requirements.
Critical Accounting Policies and Estimates
The following contains a discussion of what the Company believes to be its critical accounting policies and estimates. These
items should be read to gain a further understanding of the principles and estimates used to prepare the Company’s financial
statements. These principles and estimates include application of judgment; therefore, changes in judgments may have a material
impact on the Company’s reported results of operations and financial condition.
Investment Policy
Upon acquisition of real estate properties, the Company estimates the fair value of acquired tangible assets (consisting of land,
buildings and improvements, and furniture, fixtures and equipment) and identified intangible assets and liabilities, including in-place
leases, and assumed debt based on the evaluation of information and estimates available at that date. Fair values for these assets are
not directly observable and estimates are based on comparables and other information which is subjective in nature, including
comparable land sales as well as industry and Company data regarding building and furniture, fixture and equipment costs, including
adjustments for estimated depreciation based on the age of the property acquired and time since its most recent renovation. The
Company has not assigned any value to management contracts and franchise agreements as such contracts are generally at current
market rates based on the remaining terms of the contracts and any other value attributable to these contracts is not considered
material. Acquisitions of hotel properties are generally accounted for as acquisitions of a group of assets, with costs incurred to effect
an acquisition, including title, legal, accounting, brokerage commissions and other related costs, being capitalized as part of the cost of
the assets acquired, instead of accounted for separately as expenses in the period that they are incurred. The underlying assumptions
are subject to uncertainty and thus any changes to the allocation of fair value to each of the various line items within the Company’s
consolidated balance sheets could have an impact on the Company’s financial condition as well as results of operations due to
resulting changes in depreciation and amortization as a result of the fair value allocation. The acquisitions of real estate subject to this
estimate totaled two properties for a combined purchase price of $85.0 million for the year ended December 31, 2022 and eight
properties for a combined purchase price of $361.5 million for the year ended December 31, 2021.
Capitalization Policy
The Company considers expenditures to be capital in nature based on the following criteria: (1) for a single asset, the cost must
be at least $500, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; (2)
for group purchases of 10 or more identical assets, the unit cost for each asset must be at least $50, including all normal and necessary
costs to place the asset in service, and the useful life must be at least one year; and (3) for major repairs to a single asset, the repair
must be at least $2,500 and the useful life of the asset must be substantially extended.
45
Impairment Losses Policy
The Company records impairment losses on hotel properties used in operations if indicators of impairment are present, and the
sum of the undiscounted cash flows estimated to be generated by the respective properties over their estimated remaining useful life,
based on historical and industry data, is less than the properties’ carrying amount. Indicators of impairment include a property with
current or potential losses from operations, when it becomes more likely than not that a property will be sold before the end of its
previously estimated useful life or when events, trends, contingencies or changes in circumstances indicate that a triggering event has
occurred and an asset’s carrying value may not be recoverable. The Company monitors its properties on an ongoing basis by
analytically reviewing financial performance and considers each property individually for purposes of reviewing for indicators of
impairment. As many indicators of impairment are subjective, such as general economic and market declines, the Company also
prepares an annual recoverability analysis for each of its properties to assist with its evaluation of impairment indicators. The
Company performs an annual recoverability analysis by comparing each property's net book value to its estimated operating income
based on assumptions and estimates about the property's future revenues, expenses and capital expenditures after recovery from
disruption resulting from COVID-19 and other disruptive events such as renovations or newly opened hotels in the same market. The
Company’s planned initial hold period for each property is generally 39 years. If events or circumstances change, such as the
Company’s intended hold period for a property or if the operating performance of a property declines substantially for an extended
period of time, the Company’s carrying value for a particular property may not be recoverable, and an impairment loss will be
recorded. Impairment losses are measured as the difference between the asset’s fair value and its carrying value. The Company’s
ongoing analyses and annual recoverability analyses have identified impairment losses on two properties recorded in 2022, five
properties recorded in 2021 and one property recorded in 2020 totaling approximately $26.2 million, $10.8 million and $5.1 million,
respectively, as discussed in Note 3, titled “Dispositions” of the Consolidated Financial Statements and Notes thereto in Part II, Item
8, in this Annual Report on Form 10-K.
New Accounting Standards
See Note 1, titled “Organization and Summary of Significant Accounting Policies” of the Consolidated Financial Statements
and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for information on the anticipated adoption of recently
issued accounting standards.
Subsequent Events
On January 3, 2023, the Company repaid in full one secured mortgage loan for a total of $12.4 million. On February 6, 2023, the
Company repaid in full two secured mortgage loans for a total of $11.1 million. See Note 4 titled “Debt” of the Consolidated Financial
Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for additional information concerning these
transactions.
On January 17, 2023, the Company completed a $50 million draw on its $575 million term loan facility. After this draw, the
$575 million term loan facility was fully funded with no remaining capacity on its delayed draw option.
On January 17, 2023, the Company paid approximately $36.6 million in aggregate, or $0.16 per common share, in distributions
to shareholders of record as of December 30, 2022.
On January 20, 2023, the Company declared a monthly cash distribution of $0.08 per common share. The distribution of
approximately $18.3 million was paid on February 15, 2023, to shareholders of record as of January 31, 2023.
On February 17, 2023, the Company declared a monthly cash distribution of $0.08 per common share. The distribution is
payable on March 15, 2023, to shareholders of record as of February 28, 2023.
46
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of December 31, 2022, the Company’s financial instruments were not exposed to significant market risk due to foreign
currency exchange risk, commodity price risk or equity price risk. However, the Company is exposed to interest rate risk due to
possible changes in short term interest rates as it invests its cash or borrows on its Revolving Credit Facility and due to the portion of
its variable-rate term debt that is not fixed by interest rate swaps. As of December 31, 2022, after giving effect to interest rate swaps,
as described below, approximately $225.0 million, or approximately 16% of the Company’s total debt outstanding, was subject to
variable interest rates. Based on the Company’s variable-rate debt outstanding as of December 31, 2022, every 100 basis points
change in interest rates will impact the Company’s annual net income by approximately $2.3 million, all other factors remaining the
same. With the exception of interest rate swap transactions, the Company has not engaged in transactions in derivative financial
instruments or derivative commodity instruments.
As of December 31, 2022, the Company’s variable-rate debt consisted of its unsecured credit facilities, including $920 million
of term loans. Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. As
of December 31, 2022, the Company had 12 interest rate swap agreements that effectively fix the interest payments on approximately
$695.0 million of the Company’s variable-rate debt outstanding with swap maturity dates ranging from March 2023 to December
2029. Under the terms of all of the Company’s interest rate swaps, the Company pays a fixed rate of interest and receives a floating
rate of interest equal to the annual rate of the one-month SOFR plus a 0.10% SOFR spread adjustment. See Note 5 titled “Fair Value
of Financial Instruments” in Part II, Item 8, of the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this
Annual Report on Form 10-K, for a description of the Company’s interest rate swaps as of December 31, 2022.
In addition to its variable-rate debt and interest rate swaps discussed above, the Company has assumed or originated fixed
interest rate mortgages payable to lenders under permanent financing arrangements as well as two fixed-rate senior notes facilities
totaling $125 million. The following table summarizes the annual maturities and average interest rates of the Company’s mortgage
debt and borrowings outstanding under its unsecured credit facilities at December 31, 2022. All dollar amounts are in thousands.
Total debt:
Maturities .................. $
Average interest rates (1)
Variable-rate debt:
Maturities .................. $
Average interest rates (1)
Fixed-rate debt:
Maturities .................. $
Average interest rates....
2023
2024
2025
2026
2027
Thereafter
Total
Fair
Market
Value
96,214
$
113,597
$
245,140
$
74,649
$
278,602
$
566,013
$ 1,374,215
$ 1,322,540
4.0%
4.3%
4.7%
4.9%
5.0%
4.8%
50,000
$
85,000
$
175,000
$
4.0%
4.5%
5.0%
-
5.3%
$
275,000
$
335,000
$
920,000
$
916,375
5.4%
5.3%
46,214
$
28,597
$
70,140
$
74,649
$
3,602
$
231,013
$
454,215
$
406,165
4.1%
4.1%
4.0%
4.0%
4.1%
4.1%
(1) The average interest rate gives effect to interest rate swaps, as applicable.
47
Item 8.
Financial Statements and Supplementary Data
Report of Management
on Internal Control over Financial Reporting
February 21, 2023
To the Shareholders
Apple Hospitality REIT, Inc.
Management of Apple Hospitality REIT, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by
the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision
of the Company’s principal executive, principal financial and principal accounting officers and effected by the Company’s Board of
Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting
principles.
The Company’s internal control over financial reporting is supported by written policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the
Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the
consolidated financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of
the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets
that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Company’s annual consolidated financial statements, management has undertaken an
assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework). Management’s assessment included an evaluation of the design of the Company’s internal control
over financial reporting and testing of the operational effectiveness of those controls.
Based on this assessment, management has concluded that as of December 31, 2022, the Company’s internal control over
financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial
statements included in this report, has issued an attestation report on the Company’s internal control over financial reporting, a copy of
which appears on the next page of this annual report.
/s/ Justin G. Knight
Justin G. Knight,
Chief Executive Officer
(Principal Executive Officer)
/s/ Elizabeth S. Perkins
/s/ Rachel S. Labrecque
Elizabeth S. Perkins,
Chief Financial Officer
(Principal Financial
Officer)
Rachel S. Labrecque,
Chief Accounting Officer
(Principal Accounting
Officer)
48
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Hospitality REIT, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Apple Hospitality REIT, Inc.’s internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Apple Hospitality REIT, Inc. (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of
operations and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended
December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(2) and our report dated
February 21, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Richmond, Virginia
February 21, 2023
49
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Apple Hospitality REIT, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Apple Hospitality REIT, Inc. (the Company) as of
December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income, shareholders’ equity and
cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement
schedule listed in the Index at Item 15(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022
and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated February 21, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication
of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are
not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
50
Description of the
Matter
Investments in Real Estate – Impairment Analysis
As of December 31, 2022, the Company had investments in real estate, net of accumulated depreciation and
amortization of $4.6 billion. As more fully described in Notes 1 and 3 to the consolidated financial statements,
the Company analyzes its hotel properties individually for indicators of impairment throughout the year. For
properties with impairment indicators, the Company determines whether projected undiscounted future cash
flows from operations are sufficient to recover their carrying value. Impairment charges may result when the
carrying value of the properties’ assets exceeds the estimated undiscounted future cash flows over the
estimated holding period. The Company’s impairment analysis consists of (1) identifying properties with
indicators of impairment, (2) testing the identified property assets for recoverability and (3) measuring the
impairment loss. As a result of the annual test performed, the Company recorded $26.2 million of impairment
losses in the fourth quarter of 2022.
Auditing management’s analysis is complex due to the highly judgmental nature of identifying indicators of
impairment as well as a change in a property’s intended hold period. Many indicators of impairment, such as a
change in the intended holding period of the property, are subjective. The determination of the estimated
growth rates used to project future sales and net operating income for properties requiring a recoverability
analysis and the determination of discount rate and capitalization rate used in the fair value estimates require
significant management judgment.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the
Company’s review for indicators of impairment, including changes in the intended hold period. For example,
we tested controls over management’s review of the recoverability analysis and measurement of the impairment
loss, including the significant assumptions described above.
To test whether any indicators of impairment were present, our audit procedures included evaluating
management’s analysis, including testing the completeness and accuracy of the underlying data. In addition,
we performed an independent assessment using both internally and externally available information to identify
evidence that was either corroborative or contrary to management’s analysis. For example, we considered
historical trends in dispositions and renovations as well as current year property level performance such as net
operating income and challenged management’s hold period assumptions. For the Company’s investment in
real estate that was assessed by management using an undiscounted cash flow model, we inspected relevant
industry and market outlook data to consider market conditions. Further, we also involved our valuation
specialists to assist in testing that the significant assumptions utilized in estimating property level fair value,
such as capitalization rate and discount rate, were within an observable market range, as well as performed
sensitivity analyses on such assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2007.
Richmond, Virginia
February 21, 2023
51
Apple Hospitality REIT , Inc.
Consolidated Balance Sheets
(in thousands, except share data)
Assets
Investment in real estate, net of accumulated depreciation and amortization of
$1,492,097 and $1,311,262, respectively......................................................................... $
Cash and cash equivalents...................................................................................................
Restricted cash-furniture, fixtures and other escrows .........................................................
Due from third party managers, net ....................................................................................
Other assets, net ..................................................................................................................
Total Assets .................................................................................................................... $
Liabilities
Debt, net .............................................................................................................................. $
Finance lease liabilities .......................................................................................................
Accounts payable and other liabilities ................................................................................
Total Liabilities .............................................................................................................
As of December 31,
2022
2021
$
$
$
4,610,962
4,077
39,435
43,331
74,909
4,772,714
1,366,249
112,006
116,064
1,594,319
4,677,185
3,282
36,667
40,052
33,341
4,790,527
1,438,758
111,776
92,672
1,643,206
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 228,644,861 and 228,255,642 shares, respectively ......................................
Accumulated other comprehensive income (loss) ..............................................................
Distributions greater than net income .................................................................................
Total Shareholders' Equity ..........................................................................................
-
-
4,577,022
36,881
(1,435,508)
3,178,395
4,569,352
(15,508)
(1,406,523)
3,147,321
Total Liabilities and Shareholders' Equity................................................................. $
4,772,714
$
4,790,527
See notes to consolidated financial statements.
52
Apple Hospitality REIT, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except per share data)
Revenues:
Room .............................................................................................................. $
Food and beverage .........................................................................................
Other...............................................................................................................
Total revenue......................................................................................................
$
1,139,436
46,010
52,971
1,238,417
$
871,436
22,018
40,415
933,869
560,485
16,719
24,675
601,879
Year Ended December 31,
2021
2020
2022
Expenses:
Hotel operating expense:
Operating........................................................................................................
Hotel administrative .......................................................................................
Sales and marketing .......................................................................................
Utilities...........................................................................................................
Repair and maintenance .................................................................................
Franchise fees.................................................................................................
Management fees ...........................................................................................
Total hotel operating expense ............................................................................
Property taxes, insurance and other ...............................................................
General and administrative ............................................................................
Loss on impairment of depreciable real estate assets.....................................
Depreciation and amortization .......................................................................
Total expense .....................................................................................................
300,852
105,396
104,756
45,017
58,729
53,901
41,830
710,481
72,907
42,464
26,175
181,697
1,033,724
Gain on sale of real estate ..............................................................................
1,785
216,644
85,066
79,834
40,635
47,660
40,949
31,390
542,178
71,980
41,038
10,754
184,471
850,421
3,596
156,099
68,473
61,003
33,412
37,087
26,387
19,817
402,278
78,238
29,374
5,097
199,786
714,773
10,854
Operating income (loss) ...................................................................................
206,478
87,044
(102,040)
Interest and other expense, net .......................................................................
(59,733)
(67,748)
(70,835)
Income (loss) before income taxes ..................................................................
146,745
19,296
(172,875)
Income tax expense ........................................................................................
(1,940)
(468)
(332)
Net income (loss)............................................................................................... $
144,805
$
18,828
$
(173,207)
Other comprehensive income (loss):
Interest rate derivatives ..................................................................................
52,389
Comprehensive income (loss) .......................................................................... $
197,194
Basic and diluted net income (loss) per common share ................................ $
0.63
27,294
46,122
0.08
$
$
(38,104)
(211,311)
(0.77)
$
$
Weighted average common shares outstanding - basic and
diluted..............................................................................................................
228,946
226,361
223,544
See notes to consolidated financial statements.
53
Apple Hospitality REIT, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands, except per share data)
Balance at December 31, 2019 ........................................
Share based compensation, net .........................................
Equity issuance costs......................................................
Common shares repurchased ............................................
Interest rate derivatives...................................................
Net loss.......................................................................
Distributions declared to shareholders ($0.20 per share)..........
Balance at December 31, 2020 ........................................
Share based compensation, net .........................................
Issuance of common shares, net ........................................
Interest rate derivatives...................................................
Net income ..................................................................
Distributions declared to shareholders ($0.04 per share)..........
Balance at December 31, 2021 ........................................
Share based compensation, net .........................................
Equity issuance costs......................................................
Common shares repurchased ............................................
Interest rate derivatives...................................................
Net income ..................................................................
Distributions declared to shareholders ($0.76 per share)..........
Balance at December 31, 2022 ........................................
Common Stock
Number
of Shares
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Distributions
Greater Than
Net Income
223,863
870
-
(1,521)
-
-
-
223,212
367
4,677
-
-
-
228,256
577
-
(188)
-
-
-
228,645
$
$
4,493,763
9,368
(376)
(14,336)
-
-
-
4,488,419
5,933
75,000
-
-
-
4,569,352
10,645
(300)
(2,675)
-
-
-
4,577,022
$
$
(4,698)
-
-
-
(38,104)
-
-
(42,802)
-
-
27,294
-
-
(15,508)
-
-
-
52,389
-
-
36,881
$
$
(1,198,052)
-
-
-
-
(173,207)
(45,011)
(1,416,270)
-
-
-
18,828
(9,081)
(1,406,523)
-
-
-
-
144,805
(173,790)
(1,435,508)
$
$
Total
3,291,013
9,368
(376)
(14,336)
(38,104)
(173,207)
(45,011)
3,029,347
5,933
75,000
27,294
18,828
(9,081)
3,147,321
10,645
(300)
(2,675)
52,389
144,805
(173,790)
3,178,395
See notes to consolidated financial statements.
54
Apple Hospitality REIT, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income (loss) ................................................................................................. $
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization.............................................................................
Loss on impairment of depreciable real estate assets .................................................
Gain on sale of real estate...................................................................................
Other non-cash expenses, net ..............................................................................
Changes in operating assets and liabilities:
Decrease (increase) in due from third party managers, net ..........................................
Decrease (increase) in other assets, net ..................................................................
Increase (decrease) in accounts payable and other liabilities........................................
Net cash provided by operating activities ...........................................................
Cash flows from investing activities:
Acquisition of hotel properties, net ...........................................................................
Refunds (disbursements) for potential acquisitions, net..................................................
Capital improvements ...........................................................................................
Net proceeds from sale of real estate .........................................................................
Net cash used in investing activities..................................................................
Cash flows from financing activities:
Net proceeds (disbursements) related to issuance of common shares .................................
Repurchases of common shares ...............................................................................
Repurchases of common shares to satisfy employee withholding requirements....................
Distributions paid to common shareholders ................................................................
Net proceeds from (payments on) revolving credit facility..............................................
Proceeds from term loans and senior notes .................................................................
Proceeds from mortgage debt and other loans..............................................................
Payments of mortgage debt and other loans ................................................................
Principal payments on finance leases ........................................................................
Financing costs....................................................................................................
Net cash provided by (used in) financing activities ...............................................
Net change in cash, cash equivalents and restricted cash................................................
Cash, cash equivalents and restricted cash, beginning of period......................................
Cash, cash equivalents and restricted cash, end of period .............................................. $
Supplemental cash flow information:
Interest paid........................................................................................................ $
Income taxes paid ................................................................................................ $
Supplemental disclosure of noncash investing and financing activities:
Notes payable originated from acquisitions................................................................. $
Accrued distribution to common shareholders ............................................................. $
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents, beginning of period ........................................................... $
Restricted cash-furniture, fixtures and other escrows, beginning of period ..........................
Cash, cash equivalents and restricted cash, beginning of period ....................................... $
Cash and cash equivalents, end of period ................................................................... $
Restricted cash-furniture, fixtures and other escrows, end of period ..................................
Cash, cash equivalents and restricted cash, end of period ............................................... $
2022
Years Ended December, 31
2021
2020
144,805
$
18,828
$
(173,207)
181,697
26,175
(1,785)
8,653
(3,436)
(1,685)
14,022
368,446
(84,827)
-
(59,376)
8,293
(135,910)
(265)
(2,675)
(6,333)
(139,467)
(76,000)
175,000
-
(168,831)
(173)
(10,229)
(228,973)
3,563
39,949
43,512
57,721
1,699
-
36,551
3,282
36,667
39,949
4,077
39,435
43,512
$
$
$
$
$
$
$
$
$
$
184,471
10,754
(3,596)
10,284
(18,113)
846
14,088
217,562
(362,486)
(893)
(18,312)
231,008
(150,683)
75,000
-
(3,345)
(6,797)
(29,800)
-
-
(70,724)
(24,045)
(1,587)
(61,298)
5,581
34,368
39,949
63,149
637
56,000
2,281
5,556
28,812
34,368
3,282
36,667
39,949
$
$
$
$
$
$
$
$
$
199,786
5,097
(10,854)
8,859
4,795
(580)
(7,168)
26,728
(88,677)
476
(48,559)
54,499
(82,261)
(377)
(14,336)
(2,532)
(67,378)
54,900
50,000
81,520
(44,268)
-
(2,289)
55,240
(293)
34,661
34,368
63,531
980
20,551
-
-
34,661
34,661
5,556
28,812
34,368
See notes to consolidated financial statements.
55
Apple Hospitality REIT, Inc.
Notes to Consolidated Financial Statements
Note 1
Organization and Summary of Significant Accounting Policies
Organization
Apple Hospitality REIT, Inc., formed in November 2007 as a Virginia corporation, together with its wholly-owned subsidiaries
(the “Company”), is a self-advised real estate investment trust (“REIT”) that invests in income-producing real estate, primarily in the
lodging sector, in the United States (“U.S.”). The Company’s fiscal year end is December 31. The Company has no foreign operations
or assets and its operating structure includes only one reportable segment. The consolidated financial statements include the accounts
of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has
interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does
not have any elements of power in the decision making process of these entities, and therefore does not consolidate the entities. As of
December 31, 2022, the Company owned 220 hotels with an aggregate of 28,983 rooms located in 37 states. All information related to
the number of rooms included in these notes to the consolidated financial statements and Schedule III - Real Estate and Accumulated
Depreciation and Amortization listed in the Index at Item 15 has not been audited. The Company’s common shares are listed on the
New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.”
The Company has elected to be treated as a REIT for federal income tax purposes. The Company has a wholly-owned taxable
REIT subsidiary (or subsidiaries thereof) (collectively, the “Lessee” or “TRS”), which leases all of the Company’s hotels.
Coronavirus COVID-19 Pandemic
As a result of the coronavirus COVID-19 pandemic (“COVID-19”) and subsequent variants and the impact it has had on travel
and the broader economy throughout the U.S. since March 2020, the Company’s hotels experienced significant declines in occupancy
in 2020 and 2021 relative to 2019 levels. While occupancy has largely recovered to 2019 pre-pandemic levels, due to the continued
impacts from the COVID-19 variants on the hotel industry and the general economy, there remains uncertainty as to when operations
at the hotels will fully return to pre-pandemic levels on a sustained basis.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. The fair market
value of cash and cash equivalents approximates their carrying value. Cash balances may at times exceed federal depository insurance
limits.
Restricted Cash
Restricted cash includes reserves for debt service, real estate taxes, and insurance, and reserves for furniture, fixtures, and
equipment replacements of up to 5% of property revenue for certain hotels, as required by certain management or mortgage debt
agreement restrictions and provisions. The fair market value of restricted cash approximates its carrying value.
Investment in Real Estate and Related Depreciation and Amortization
Real estate is stated at cost, net of depreciation and amortization. Repair and maintenance costs are expensed as incurred while
significant improvements, renovations, and replacements are capitalized. As further discussed in Note 10, finance ground lease assets
are capitalized at the estimated present value of the remaining minimum lease payments under the leases. Depreciation and
amortization are computed using the straight-line method over the average estimated useful lives of the assets, which are generally 39
years for buildings, the remaining life of the lease for finance ground leases (which in some instances may include renewal options),
10 to 20 years for franchise fees, 10 years for major improvements and three to seven years for furniture and equipment.
The Company considers expenditures to be capital in nature based on the following criteria: (1) for a single asset, the cost must
be at least $500, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; (2)
for group purchases of 10 or more identical assets, the unit cost for each asset must be at least $50, including all normal and necessary
costs to place the asset in service, and the useful life must be at least one year; and (3) for major repairs to a single asset, the repair
must be at least $2,500 and the useful life of the asset must be substantially extended.
Upon acquisition of real estate properties, the Company estimates the fair value of acquired tangible assets (consisting of land,
buildings and improvements, and furniture, fixtures and equipment) and identified intangible assets and liabilities, including in-place
leases, and assumed debt based on the evaluation of information and estimates available at that date. Fair values for these assets are
not directly observable and estimates are based on comparables and other information which is subjective in nature, including
56
comparable land sales as well as industry and Company data regarding building and furniture, fixture and equipment costs, including
adjustments for estimated depreciation based on the age of the property acquired and time since its most recent renovation. The
Company has not assigned any value to management contracts and franchise agreements as such contracts are generally at current
market rates based on the remaining terms of the contracts and any other value attributable to these contracts is not considered
material. Acquisitions of hotel properties are generally accounted for as acquisitions of a group of assets, with costs incurred to effect
an acquisition, including title, legal, accounting, brokerage commissions and other related costs, being capitalized as part of the cost of
the assets acquired, instead of accounted for separately as expenses in the period that they are incurred.
The Company records impairment losses on hotel properties used in operations if indicators of impairment are present, and the
sum of the undiscounted cash flows estimated to be generated by the respective properties over their estimated remaining useful life,
based on historical and industry data, is less than the properties’ carrying amount. Indicators of impairment include a property with
current or potential losses from operations, when it becomes more likely than not that a property will be sold before the end of its
previously estimated useful life or when events, trends, contingencies or changes in circumstances indicate that a triggering event has
occurred and an asset’s carrying value may not be recoverable. The Company monitors its properties on an ongoing basis by
analytically reviewing financial performance and considers each property individually for purposes of reviewing for indicators of
impairment. As many indicators of impairment are subjective, such as general economic and market declines, the Company also
prepares an annual recoverability analysis for each of its properties to assist with its evaluation of impairment indicators. The
Company performs an annual recoverability analysis by comparing each property's net book value to its estimated operating income
based on assumptions and estimates about the property's future revenues, expenses and capital expenditures after recovery from
disruption resulting from COVID-19 and other disruptive events such as renovations or newly opened hotels in the same market. The
Company’s planned initial hold period for each property is generally 39 years. If events or circumstances change, such as the
Company’s intended hold period for a property or if the operating performance of a property declines substantially for an extended
period of time, the Company’s carrying value for a particular property may not be recoverable, and an impairment loss will be
recorded. Impairment losses are measured as the difference between the asset’s fair value and its carrying value. The Company’s
ongoing analyses and annual recoverability analyses have identified impairment losses on two properties recorded in 2022, five
properties recorded in 2021 and one property recorded in 2020 totaling approximately $26.2 million, $10.8 million and $5.1 million,
respectively, as discussed in Note 3.
Assets Held for Sale
The Company classifies assets as held for sale when a binding agreement to sell the property has been signed under which the
buyer has committed a significant amount of nonrefundable cash, no significant contingencies exist which could prevent the
transaction from being completed in a timely manner, and the sale is expected to close within one year. If these criteria are met, the
Company will cease recording depreciation and amortization and will record an impairment charge if the fair value less costs to sell is
less than the carrying amount of the disposal group. The Company will generally classify the impairment charge, together with the
related operating results, as continuing operations in the Company’s consolidated statements of operations and classify the assets and
related liabilities as held for sale in the Company’s consolidated balance sheets. If the Company’s plan of sale changes and the
Company subsequently decides not to sell a property that is classified as held for sale, the property will be reclassified as held and
used in the period the change occurs. As of December 31, 2022 and 2021, the Company did not have any assets classified as held for
sale.
Revenue Recognition
Revenues consist of amounts derived from hotel operations, including room sales, food and beverage sales, and other hotel
revenues, and are presented on a disaggregated basis in the Company’s consolidated statements of operations. The Company
recognizes hotel operating revenue when guest rooms are occupied, services have been provided or fees have been earned. Revenues
are recorded net of any sales, occupancy or other taxes collected from customers on behalf of third parties. Room revenue is
recognized when the Company’s hotels satisfy their performance obligation of providing a hotel room. The hotel reservation defines
the terms of the agreement including an agreed-upon rate and length of stay. Food and beverage revenue is recognized at the time the
food or beverage is purchased by and provided to the customer. Other operating revenue is recognized at the time when the goods or
services are provided to the customer or when the performance obligation is satisfied. Payment is due at the time that goods or
services are rendered or billed. For room revenue, payment is typically due and paid in full at the end of the stay with some customers
prepaying for their rooms prior to the stay. Payments received from a customer prior to arrival are recorded as an advance deposit and
are recognized as revenue at the time of occupancy.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss), which is comprised of
unrealized gains or losses resulting from hedging activity.
57
Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed based upon the weighted average number of shares outstanding during
the year. Diluted net income (loss) per common share is calculated after giving effect to all potential common shares that were dilutive
and outstanding for the year. Basic and dilutive net income (loss) per common share were the same for each of the years presented.
Reclassifications
Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period
presentation with no effect on previously reported net income or shareholders’ equity.
Income Taxes
The Company is operated as, and has elected to be taxed as, a REIT under Sections 856 to 860 of the Internal Revenue Code of
1986, as amended (the “Code”). To qualify as a REIT, the Company must meet a number of organizational and operational
requirements, including a requirement that it distribute at least 90% of its REIT taxable income, subject to certain adjustments and
excluding any net capital gain, to shareholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax on its taxable income at regular corporate income tax rates and generally will be unable to re-elect REIT status
until the fifth calendar year after the year in which it failed to qualify as a REIT, unless it satisfies certain relief provisions. The
Company intends to adhere to the REIT qualification requirements and to maintain its qualification for taxation as a REIT.
As a REIT, the Company is generally not subject to U.S. federal corporate income tax on the portion of taxable income that is
distributed to shareholders. The Lessee, as a taxable REIT subsidiary of the Company, is subject to federal and state income taxes. The
Company’s income tax expense as shown in the consolidated statements of operations primarily consists of income taxes on the
operations of the Lessee and franchise taxes on both the REIT and the Lessee at the state jurisdiction level.
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective income tax bases, and for net operating loss, capital loss and tax
credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in
which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a
change in tax rates is recognized in earnings in the period in which the new rate is enacted. However, deferred tax assets are
recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence,
including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies.
Valuation allowances are provided if, based on the weight of the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
The Company performs an annual review for any uncertain tax positions and, if necessary, will record the expected future tax
consequences of uncertain tax positions in the consolidated financial statements. As of December 31, 2022, the tax years that remain
subject to examination by major tax jurisdictions generally include 2019-2022. The Company evaluates whether a tax position of the
Company is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes,
based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized
in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon
ultimate settlement with the relevant taxing authority. The Company has reviewed its tax positions for open tax years and has
concluded no provision for income taxes for uncertain tax positions is required in the Company's consolidated financial statements as
of December 31, 2022, and 2021. Interest and penalties related to uncertain tax benefits, if any, in the future will be recognized as
operating expense.
The Company has and may in the future enter into purchase and sale transactions in accordance with Section 1031 of the
Internal Revenue Code of 1986, as amended, for the exchange of like-kind property to defer taxable gains on the sale of real estate
properties (“1031 Exchange”).
Sales and Marketing Costs
Sales and marketing costs are expensed when incurred. These costs represent the expense for franchise advertising and
reservation systems under the terms of the hotel management and franchise agreements and general and administrative expenses that
are directly attributable to advertising and promotion.
58
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. ("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.
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
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 December 31, 2022. The provisions of these updates have generally
affected the Company by allowing, among other things, the following:
•
•
Modifications of the Company’s unsecured credit facilities (as defined below) 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.
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.
In July 2022, the Company amended each of its unsecured credit facilities and interest rate swap agreements to replace LIBOR
with the Secured Overnight Financing Rate (“SOFR”) as the reference rate. In accordance with ASU 2020-04, as amended, these
amendments were accounted for as non-substantial modifications. See Notes 4 and 5 for more information regarding amendments
made to the Company’s unsecured credit facilities and interest rate swap agreements.
Accounting for Certain Equity Options
In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of
Freestanding Equity-Classified Written Call Options (Topics 260, 470, 718 and 815), which provides updated guidance to clarify and
reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that
remain equity classified after modification or exchange. The provisions of this update are effective for annual and interim periods
beginning after December 15, 2021. The adoption of this update is not material to the Company’s consolidated financial statements.
Accounting for Funds Received as Government Assistance
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) to increase the transparency of
government assistance disclosures including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance,
and (3) the effect of the assistance on an entity’s financial statements. The provisions of this update are effective for annual and
interim periods beginning after December 15, 2021. The adoption of this update is not material to the Company's consolidated
financial statements.
59
Note 2
Investment in Real Estate
The Company’s investment in real estate consisted of the following (in thousands):
December 31,
2022
December 31,
2021
Land................................................................................. $
Building and Improvements ............................................
Furniture, Fixtures and Equipment..................................
Finance Ground Lease Assets .........................................
Franchise Fees .................................................................
Less Accumulated Depreciation and Amortization.........
Investment in Real Estate, net ......................................... $
802,625 $
4,656,343
522,082
102,084
19,925
6,103,059
(1,492,097)
4,610,962 $
794,899
4,584,829
488,773
102,084
17,862
5,988,447
(1,311,262)
4,677,185
As of December 31, 2022, the Company owned 220 hotels with an aggregate of 28,983 rooms located in 37 states.
The Company leases all of its hotels to a wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under master hotel
lease agreements.
2022 and 2021 Acquisitions
During 2022, the Company acquired two hotels. 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
Louisville ..................... KY
Pittsburgh ..................... PA
AC Hotels
AC Hotels
Concord
Concord
Date
Acquired
10/25/2022
10/25/2022
Rooms
Gross
Purchase
Price
156
134
290
$
$
51,000
34,000
85,000
During 2021, the Company acquired eight hotels. 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
Madison........................ WI
Portland ........................ ME
Greenville..................... SC
Portland ........................ ME
Memphis ...................... TN
Fort Worth.................... TX
Fort Worth.................... TX
Portland ........................ OR
Hilton Garden Inn Raymond
Crestline
AC Hotels
Crestline
Hyatt Place
Crestline
Aloft
Crestline
Hilton Garden Inn
Raymond
Hilton Garden Inn
Raymond
Homewood Suites
Raymond
Hampton
Date
Acquired
2/18/2021
8/20/2021
9/1/2021
9/10/2021
10/28/2021
11/17/2021
11/17/2021
11/17/2021
Rooms
Gross
Purchase
Price
176
178
130
157
150
157
112
243
1,303
$
$
49,599
66,750
30,000
51,150
38,000
29,500
21,500
75,000
361,499
In 2022, the Company utilized its available cash on hand and a $50 million draw on its $575 million term loan facility (as
defined below) to purchase both hotels. In 2021, the Company used borrowings under its then-existing $425 million revolving credit
facility (as defined below) to purchase the Madison, Wisconsin and Memphis, Tennessee hotels, used available cash to purchase the
Portland, Maine and Greenville, South Carolina hotels and used a mix of available cash and borrowings under its $425 million
revolving credit facility to purchase the Fort Worth, Texas and Portland, Oregon 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 two hotels acquired during 2022, the amount of revenue and operating
income included in the Company’s consolidated statement of operations from the date of acquisition through December 31, 2022 was
approximately $2.4 million and $0.6 million, respectively. For the eight hotels acquired during 2021, the amount of revenue and
operating income included in the Company’s consolidated statement of operations from the date of acquisition through December 31,
2021 was approximately $16.0 million and $2.1 million, respectively.
60
Seattle Land Acquisition
On August 16, 2021, the Company purchased the fee interest in the land at the Seattle, Washington Residence Inn, previously
held under a finance ground lease. The Company utilized $24.0 million of its available cash and entered into a one-year note payable
to the seller for $56.0 million to fund the purchase price of $80.0 million. The note payable bore interest, which was payable monthly,
at a fixed annual rate of 4.0%. On June 16, 2022, the note was repaid in full. The land purchase was accounted for as a retirement of
the finance lease, with the difference of $16.6 million between the carrying amount of the net right-of-use asset of $94.5 million and
the finance lease liability of $111.1 million applied as an adjustment to the carrying amount of the acquired land.
Note 3
Dispositions
2022 Dispositions
During the year ended December 31, 2022, the Company sold one hotel, a 55-room independent boutique hotel in Richmond,
Virginia, to an unrelated party for a gross sales price of approximately $8.5 million, resulting in a gain on sale of approximately $1.8
million, net of transaction costs, which is included in the Company's consolidated statement of operations for the year ended
December 31, 2022. The hotel had a total carrying value of approximately $6.5 million at the time of the sale.
2021 Dispositions
During the year ended December 31, 2021, the Company sold 23 hotels in four separate transactions with unrelated parties for a
total combined gross sales price of approximately $234.6 million, resulting in a combined net gain on sale, after giving effect to
impairment charges of approximately $3.6 million, net of transaction costs, which is included in the Company’s consolidated
statement of operations for the year ended December 31, 2021. The 23 hotels had a total carrying value of approximately $227.2
million at the time of the sale. The following table lists the 23 hotels sold:
City
Charlotte .............................
Memphis .............................
Overland Park .....................
Montgomery .......................
Montgomery .......................
Rogers .................................
Phoenix ...............................
Lakeland .............................
Albany.................................
Schaumburg ........................
Andover ..............................
Fayetteville .........................
Greenville ...........................
Jackson................................
Johnson City .......................
Allen ...................................
Allen ...................................
Beaumont............................
Burleson/Fort Worth...........
El Paso ................................
Irving...................................
Richmond............................
Vancouver...........................
Total................................
State
NC
TN
KS
AL
AL
AR
AZ
FL
GA
IL
MA
NC
SC
TN
TN
TX
TX
TX
TX
TX
TX
VA
WA
Brand
Homewood Suites
Homewood Suites
SpringHill Suites
Hilton Garden Inn
Homewood Suites
Residence Inn
Courtyard
Courtyard
Fairfield
Hilton Garden Inn
SpringHill Suites
Residence Inn
Residence Inn
Hampton
Courtyard
Hampton
Hilton Garden Inn
Residence Inn
Hampton
Hilton Garden Inn
Homewood Suites
SpringHill Suites
SpringHill Suites
Date Sold
2/25/2021
3/16/2021
4/30/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
7/22/2021
Rooms
118
140
102
97
91
88
127
78
87
166
136
92
78
85
90
103
150
133
88
145
77
103
119
2,493
A portion of the proceeds from the sale of 20 hotels on July 22, 2021 were used to complete a 1031 Exchange, which resulted in
the deferral of taxable gains of approximately $23.6 million. The properties acquired for the 1031 Exchange were the fee interest in
the land at the Seattle, Washington Residence Inn and the AC Hotel in Portland, Maine previously discussed in Note 2 titled
“Investment in Real Estate.”
61
2020 Dispositions
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
Sanford................................
Boise ...................................
Tulare..................................
Total................................
State
FL
ID
CA
Brand
SpringHill Suites
SpringHill Suites
Hampton
Date Sold
1/16/2020
2/27/2020
12/30/2020
Rooms
105
230
86
421
Excluding gains on sale of real estate, the Company’s consolidated statements of operations include operating income (loss) of
approximately $0.5 million, $(6.4) million and $(8.3) million for the years ended December 31, 2022, 2021 and 2020, respectively,
relating to the results of operations of the 27 hotels noted above (the one hotel sold in 2022, the 23 hotels sold in 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 years ended December 31, 2022, as applicable. The
net proceeds from the sale of the one hotel in 2022 were used for general corporate purposes, while the net proceeds from the sales of
the 23 hotels in 2021 and three hotels in 2020 were used to pay down borrowings under the Company’s then-existing $425 million
revolving credit facility and for general corporate purposes, including acquisitions of hotel properties.
Loss on Impairment of Depreciable Real Estate Assets
During the years ended December 31, 2022, 2021 and 2020, the Company recorded impairment losses totaling approximately
$26.2 million, $10.8 million and $5.1 million, respectively.
During the fourth quarter of 2022, the Company identified indicators of impairment at two properties, due to declines in the
current and forecasted cash flows and a shortened hold period. The Company performed a test of recoverability and determined that
the carrying value for each property exceeded the estimated undiscounted future cash flows. The shortfalls in estimated cash flows
were triggered by declines in existing and forecasted hotel market conditions and new supply in each respective market. For one hotel,
the Company engaged a third party to assist with the analysis of the fair market value. The fair market value of the hotel was estimated
by using the income and market approaches, as applicable, as outlined under ASC 820, using both observable market data (categorized
as Level 2 inputs under the fair value hierarchy) and unobservable inputs that reflect the Company's own internal assumptions and
calculations (categorized as Level 3 inputs under the fair value hierarchy). Under the income approach, the fair value estimate was
calculated from a discounted cash flow analysis, using expected future cash flows based on stabilized room revenue growth rates of
2.4% to 4.8%, estimated discount rates of approximately 7.5% to 9.0% and other market considerations. For the second hotel, the
Company utilized offers from unrelated parties, net of estimated selling costs (categorized as Level 2 inputs under the fair value
hierarchy) to adjust the basis of the property to its estimated fair market value. Upon concluding that the carrying cost exceeded the
estimated undiscounted future cash flows, the Company adjusted the carrying value of the two hotels (approximately $47.2 million as
of December 31, 2022) to their estimated fair market value (approximately $21.0 million as of December 31, 2022), resulting in an
impairment loss of $26.2 million.
During the first quarter of 2021, the Company identified 20 hotels for potential sale and, in April 2021, entered into a purchase
contract with an unrelated party for the sale of the hotels for a gross sales price of $211.0 million. As a result, the Company
recognized impairment losses totaling approximately $9.4 million in the first quarter of 2021, to adjust the carrying values of four of
these hotels 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. The Company completed the sale of the hotels in July 2021.
Additionally, 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 contract 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 totaling 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.
In 2020, the Company entered into two purchase contracts with unrelated parties for the sale of its 140-room Memphis,
Tennessee Homewood Suites, the first of which was terminated October 2020 and the second of which was signed in November 2020.
As a result, the Company recognized impairment losses totaling approximately $5.1 million in 2020, representing the difference
62
between the carrying values of the hotel and the contracted sales prices, net of estimated selling costs, which are Level 1 inputs under
the fair value hierarchy. The Company completed the sale of the hotel in March 2021.
Note 4
Debt
Summary
As of December 31, 2022 and 2021, the Company’s debt consisted of the following (in thousands):
Revolving credit facility (1) ............................................... $
Term loans and senior notes, net (1)...................................
Mortgage debt, net ............................................................
Debt, net ............................................................................ $
- $
1,037,384
328,865
1,366,249 $
76,000
865,189
497,569
1,438,758
December 31,
2022
December 31,
2021
(1) On July 25, 2022, the Company entered into an amendment and restatement of its $850 million credit facility (defined below),
which among other things increased the borrowing capacity to $1.2 billion and extended the maturity dates. See the $1.2 Billion
Credit Facility section below for details.
The aggregate amounts of principal payable under the Company’s total debt obligations as of December 31, 2022 (including the
Revolving Credit Facility (as defined below) (if any), term loans, senior notes and mortgage debt), for the five years subsequent to
December 31, 2022 and thereafter are as follows (in thousands):
2023 .............................................................................................. $
2024 ..............................................................................................
2025 ..............................................................................................
2026 ..............................................................................................
2027 ..............................................................................................
Thereafter .....................................................................................
Unamortized fair value adjustment of assumed debt ...................
Unamortized debt issuance costs..................................................
Total ............................................................................................. $
96,214
113,597
245,140
74,649
278,602
566,013
1,374,215
819
(8,785)
1,366,249
The Company uses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. Throughout the terms
of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the annual SOFR
for a one-month term (“one-month SOFR”) plus a 0.10% SOFR spread adjustment. The swaps are designed to effectively fix the
interest payments on variable-rate debt instruments. See Note 5 for more information on the interest rate swap agreements. The
Company’s total fixed-rate and variable-rate debt, after giving effect to its interest rate swaps in effect at December 31, 2022 and
2021, is set forth below. All dollar amounts are in thousands.
December 31,
2022
Percentage
December 31,
2021
Percentage
Fixed-rate debt (1)..................................... $
Variable-rate debt....................................
Total ........................................................ $
Weighted-average interest rate of debt ...
1,149,215
225,000
1,374,215
3.93%
84% $
16%
$
1,318,046
126,000
1,444,046
3.38%
91%
9%
(1) Fixed-rate debt includes the portion of variable-rate debt where the interest payments have been effectively fixed by interest rate
swaps as of the respective balance sheet date. See Note 5 for more information on the interest rate swap agreements.
Credit Facilities
$1.2 Billion Credit Facility
Prior to the Company’s refinancing of the facility in July 2022, the Company utilized an unsecured credit facility comprised of
(i) a $425 million revolving credit facility with an initial maturity date of July 27, 2022 (the "$425 million 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,
63
and a $225 million term loan with a maturity date of January 31, 2024, both funded in July 2018 (collectively, the “$850 million credit
facility”). On July 25, 2022, the Company entered into an amendment and restatement of its $850 million credit facility, which among
other things, increased the borrowing capacity to $1.2 billion, extended the maturity dates, transitioned the reference rate from LIBOR
to SOFR, reduced the margin rate for calculating interest rates and modified certain of the financial maintenance covenants (the “$1.2
billion credit facility”). The $1.2 billion credit facility is comprised of (i) a $650 million revolving credit facility with an initial
maturity date of July 25, 2026 (the "Revolving Credit Facility"), (ii) a $275 million term loan with a maturity date of July 25, 2027,
funded at closing, and (iii) a $300 million term loan with a maturity date of January 31, 2028 (including a $150 million delayed draw
option until 180 days from closing), of which $200 million was funded at closing, $50 million was funded on October 24, 2022 and
the remaining $50 million was funded on January 17, 2023 ("$575 million term loan facility"). At closing, the Company repaid the
outstanding $425 million term loans and $50 million outstanding under the $425 million revolving credit facility under the $850
million credit facility with proceeds from the $1.2 billion credit facility.
Subject to certain conditions, including covenant compliance and additional fees, the Revolving Credit Facility maturity date
may be extended up to one year. The credit agreement for the $1.2 billion credit facility contains mandatory prepayment requirements,
customary affirmative and negative covenants (as described below), restrictions on certain investments and events of default, which
are similar to the terms of the previous credit agreement for the $850 million credit facility. The Company may make voluntary
prepayments, in whole or in part, at any time. Interest payments on the $1.2 billion credit facility are due monthly, and the interest
rate, subject to certain exceptions, is equal to the one-month SOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from
1.35% to 2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. The Company
is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.25% on the unused portion of the Revolving
Credit Facility, based on the amount of borrowings outstanding during the quarter.
A summary of the 2022 debt refinancing is set forth below. All dollar amounts are in thousands.
2022 Refinancing
Capacity
Maturity Date
Revolving credit facility ...$
650,000
7/25/2026
Term loan........................
275,000
7/25/2027
Term loan........................
300,000
Total...............................$ 1,225,000
1/31/2028
Interest Rate
SOFR + 0.10% + 1.40% -
2.25%
SOFR + 0.10% + 1.35% -
2.20%
SOFR + 0.10% + 1.35% -
2.20%
Capacity
Maturity Date
Interest Rate (1)
Prior to Refinancing
$
425,000
7/27/2022 LIBOR + 1.40% - 2.25%
200,000
7/27/2023 LIBOR + 1.35% - 2.20%
225,000
850,000
$
1/31/2024 LIBOR + 1.35% - 2.20%
(1) Interest rates on all of the unsecured credit facilities increased to 0.15% above the highest rate shown for each loan during the
Extended Covenant Waiver Period (as defined below) from March 1, 2021 through July 28, 2021.
$225 Million Term Loan Facility
The Company also has an unsecured $225 million term loan facility that is comprised of (i) a $50 million term loan with a
maturity date of August 2, 2023, which was funded on August 2, 2018, and (ii) a $175 million term loan with a maturity date of
August 2, 2025, of which $100 million was funded on August 2, 2018, and the remaining $75 million was funded on January 29, 2019
(the “$225 million term loan 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 SOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from
1.35% to 2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. In July 2022,
this term loan was amended to align the financial covenants with the $1.2 billion credit facility and to replace the reference rate with
SOFR.
2017 $85 Million Term Loan Facility
On July 25, 2017, the Company entered into an unsecured $85 million term loan facility with a maturity date of July 25, 2024,
consisting of one term loan (the “2017 $85 million term loan facility”) that was funded at closing. The Company may make voluntary
prepayments, in whole or in part, at any time, subject to certain conditions. Interest payments on the 2017 $85 million term loan
facility are due monthly, and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month SOFR plus a
0.10% SOFR spread adjustment plus a margin ranging from 1.30% to 2.10%, depending upon the Company’s leverage ratio, as
calculated under the terms of the credit agreement. In July 2022, this term loan was amended to align the financial covenants with the
$1.2 billion credit facility and to replace the reference rate with SOFR.
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
64
million term loan facility were used to pay down borrowings under the Company’s then-existing $425 million revolving credit facility.
The Company may make voluntary prepayments, in whole or in part, subject to certain conditions. Interest payments on the 2019 $85
million term loan facility are due monthly, and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-
month SOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.70% to 2.55%, depending upon the Company’s
leverage ratio, as calculated under the terms of the credit agreement. In July 2022, this term loan was amended to align the financial
covenants with the $1.2 billion credit facility and to replace the reference rate with SOFR.
$50 Million Senior Notes Facility
On March 16, 2020, the Company entered into an unsecured $50 million senior notes facility with a maturity date of March 31,
2030, consisting of senior notes totaling $50 million funded at closing (the “$50 million senior notes facility”). Net proceeds from the
$50 million senior notes facility were available to provide funding for general corporate purposes. The Company may make voluntary
prepayments, in whole or in part, at any time, subject to certain conditions, including make-whole provisions. Interest payments on the
$50 million senior notes facility are due quarterly, and the interest rate, subject to certain exceptions, ranges from an annual rate of
3.60% to 4.35% depending on the Company’s leverage ratio, as calculated under the terms of the note agreement. In July 2022, this
notes facility was amended to align the financial covenants with the $1.2 billion credit facility.
$75 Million Senior Notes Facility
On June 2, 2022, the Company entered into an unsecured senior notes facility with a maturity date of June 2, 2029, consisting of
senior notes totaling $75 million funded at closing (the “$75 million senior notes facility”, and collectively with the $850 million
credit facility and, after the amendments in July 2022, the $1.2 billion credit facility, the $225 million term loan facility, the 2017 $85
million term loan facility, the 2019 $85 million term loan facility and the $50 million senior notes facility, the “unsecured credit
facilities”). Net proceeds from the $75 million senior notes facility were available to provide funding for general corporate purposes,
including the repayment of borrowings under the Company’s then-existing $425 million revolving credit facility and repayment of
mortgage debt. The Company may make voluntary prepayments, in whole or in part, at any time, subject to certain conditions,
including make-whole provisions. Interest payments on the $75 million senior notes facility are due quarterly, and the interest rate,
subject to certain exceptions, ranges from an annual rate of 4.88% to 5.63% depending on the Company’s leverage ratio, as calculated
under the terms of the note agreement. In July 2022, this notes facility was amended to align the financial covenants with the $1.2
billion credit facility.
65
As of December 31, 2022 and 2021, the details of the Company’s credit facilities were as set forth below. All dollar amounts are
in thousands.
December 31, 2022
December 31, 2021
Origination
Date
Maturity
Date
Outstanding
Balance
Interest Rate (1)
SOFR + 0.10% +
1.40% - 2.25%
-
Outstanding
Balance
$
76,000
Interest Rate (2)
LIBOR + 1.40% -
2.25%
Revolving credit facility (3) (4) ...........
7/25/2022
7/25/2026
$
Term loans and senior notes
$275 million term loan (4) .............
7/25/2022
$200 million term loan (4) .............
7/27/2018
$300 million term loan (4) .............
7/25/2022
$225 million term loan (4) .............
7/27/2018
7/25/2027
repaid
7/25/22
1/31/2028
repaid
7/25/22
$50 million term loan ..................
8/2/2018
8/2/2023
$175 million term loan.................
8/2/2018
8/2/2025
2017 $85 million term loan ..........
7/25/2017
7/25/2024
12/31/2019
3/16/2020
6/2/2022
12/31/2029
3/31/2030
6/2/2029
2019 $85 million term loan ..........
$50 million senior notes...............
$75 million senior notes...............
Term loans and senior notes at stated
value ............................................
Unamortized debt issuance costs...
Term loans and senior notes, net .......
Credit facilities, net (3)......................
Weighted-average interest rate (5)......
1,045,000
(7,616)
1,037,384
$
1,037,384
3.92%
275,000
SOFR + 0.10% +
1.35% - 2.20%
-
250,000
n/a
SOFR + 0.10% +
1.35% - 2.20%
-
50,000
175,000
85,000
85,000
50,000
75,000
n/a
SOFR + 0.10% +
1.35% - 2.20%
SOFR + 0.10% +
1.65% - 2.50%
SOFR + 0.10% +
1.30% - 2.10%
SOFR + 0.10% +
1.70% - 2.55%
3.60% - 4.35%
4.88% - 5.63%
-
200,000
n/a
LIBOR + 1.35% -
2.20%
n/a
LIBOR + 1.35% -
2.20%
LIBOR + 1.35% -
2.20%
LIBOR + 1.65% -
2.50%
LIBOR + 1.30% -
2.10%
LIBOR + 1.70% -
2.55%
3.60% - 4.35%
n/a
-
225,000
50,000
175,000
85,000
85,000
50,000
-
870,000
(4,811)
865,189
$
941,189
2.97%
(1) In July 2022, the Company amended each of its unsecured credit facilities to replace LIBOR with SOFR as the reference rate plus
a 0.10% SOFR spread adjustment.
(2) Interest rates on all of the unsecured credit facilities increased to 0.15% above the highest rate shown for each loan during the
Extended Covenant Waiver Period (defined below) from March 1, 2021 through July 28, 2021.
(3) Excludes unamortized debt issuance costs related to the Revolving Credit Facility totaling approximately $4.8 million as of
December 31, 2022 and related to the $425 million revolving credit facility totaling approximately $1.0 million as of
December 31, 2021, which are included in other assets, net in the Company’s consolidated balance sheets.
(4) On July 25, 2022, the Company entered into an amendment and restatement of its $850 million credit facility, increasing the
borrowing capacity to $1.2 billion and extending the maturity dates. See the $1.2 Billion Credit Facility section above for details.
(5) Interest rate represents the weighted-average effective annual interest rate at the balance sheet date which includes the effect of
interest rate swaps in effect on $695.0 million and $770.0 million of the outstanding variable-rate debt as of December 31, 2022
and 2021, respectively. See Note 5 for more information on the interest rate swap agreements. The one-month SOFR at
December 31, 2022 was 4.36%. As of December 31, 2021, the Company's interest rate swap agreements were based on the one-
month LIBOR of 0.10%.
Credit Facilities Covenants
The credit agreements governing the unsecured credit facilities (collectively, the “credit agreements”) contain mandatory
prepayment requirements, customary affirmative and negative covenants, restrictions on certain investments and events of default.
After giving effect to the July 2022 amendments, the credit agreements contain the following financial and restrictive covenants
(capitalized terms not defined below are defined in the credit agreements):
•
•
A ratio of Consolidated Total Indebtedness to Consolidated EBITDA (“Maximum Consolidated Leverage Ratio”) of not
more than 7.25 to 1.00;
A ratio of Consolidated Secured Indebtedness to Consolidated Total Assets (“Maximum Secured Leverage Ratio”) of not
more than 45%;
66
•
•
•
•
•
A minimum Consolidated Tangible Net Worth of approximately $3.4 billion plus an amount equal to 75% of the Net Cash
Proceeds from issuances and sales of Equity Interests occurring after the Closing Date, July 25, 2022, subject to
adjustment;
A ratio of Adjusted Consolidated EBITDA to Consolidated Fixed Charges ("Minimum Fixed Charge Coverage Ratio") of
not less than 1.50 to 1.00 for the trailing four full quarters;
A ratio of Unencumbered Adjusted NOI to Consolidated Implied Interest Expense for Consolidated Unsecured
Indebtedness ("Minimum Unsecured Interest Coverage Ratio") of not less than 2.00 to 1.00 for the trailing four full
quarters;
A ratio of Consolidated Unsecured Indebtedness to Unencumbered Asset Value (“Maximum Unsecured Leverage Ratio”)
of not more than 60% (subject to a higher level in certain circumstances); and
A ratio of Consolidated Secured Recourse Indebtedness to Consolidated Total Assets (“Maximum Secured Recourse
Indebtedness”) of not more than 10%.
The Company was in compliance with the applicable covenants at December 31, 2022.
Prior Amendments to Credit Agreements
As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company first entered into
amendments in June 2020 that suspended the testing of the Company’s financial maintenance covenants under the unsecured credit
facilities and imposed certain restrictions regarding the Company's investing and financing activities. Further amendments were
entered into in March 2021 (the “March 2021 amendments”), extending the majority of the covenant waivers until the date that the
compliance certificate was required to be delivered for the fiscal quarter ended June 30, 2022 (unless the Company elected an earlier
date) (the “Extended Covenant Waiver Period”). The March 2021 amendments imposed several modifications and restrictions during
the Extended Covenant Waiver Period, including continued cash distribution restrictions, except for the payment of cash dividends of
$0.01 per common share per quarter or to the extent required to maintain REIT status, modification of the previous operating
restrictions to less restrictive levels, changes to the calculation of the financial maintenance covenants upon exiting the Extended
Covenant Waiver Period, and an increase in the LIBOR floor and establishment of a Base Rate (as defined in the credit agreements)
floor under the $425 million revolving credit facility.
In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended
Covenant Waiver Period early, effective on July 29, 2021, pursuant to the terms of each of its unsecured credit facilities. The
unsecured credit facilities did not provide the Company the ability to re-enter the Extended Covenant Waiver Period once it elected to
exit. Upon exiting the Extended Covenant Waiver Period, the Company was no longer subject to the restrictions regarding its
investing and financing activities that were applicable during the Extended Covenant Waiver Period, including, but not limited to,
limitations on the acquisition of property, payment of distributions to shareholders (except for the payment of cash dividends of $0.01
per common share per quarter or to the extent required to maintain REIT status), capital expenditures and use of proceeds from the
sale of property or common shares of the Company. Those restrictions, including the restriction on payment of distributions to
shareholders, were in place throughout the second quarter of 2021.
Mortgage Debt
As of December 31, 2022, the Company had approximately $329.2 million in outstanding mortgage debt secured by 19
properties with maturity dates ranging from February 2023 to May 2038, stated interest rates ranging from 3.40% to 4.46% and
effective interest rates ranging from 3.40% to 4.68%. 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 December 31, 2022 and 2021 for each of the
Company’s mortgage debt obligations. All dollar amounts are in thousands.
67
Loan
Assumption
or
Origination
Date
8/16/2021
8/29/2012
8/30/2012
3/1/2014
3/1/2014
3/1/2014
3/1/2014
9/13/2012
3/1/2014
3/1/2014
3/1/2014
3/1/2014
3/1/2014
3/1/2014
7/17/2014
3/18/2015
9/1/2016
9/1/2016
9/1/2016
5/26/2016
11/3/2016
11/3/2016
11/3/2016
3/9/2018
3/9/2018
2/12/2020
2/12/2020
3/2/2020
12/22/2017
Interest
Rate (1)
4.00%
4.89%
4.89%
5.00%
5.00%
5.00%
4.96%
4.97%
4.73%
4.73%
4.02%
4.12%
4.12%
3.97%
4.36%
4.28%
4.46%
4.28%
4.28%
4.37%
3.55%
3.55%
3.55%
3.94%
3.94%
3.40%
3.40%
3.43%
4.22%
Brand
(2)
Location
Seattle, WA ...................................
Grapevine, TX................................ Hilton Garden Inn
Collegeville/Philadelphia, PA............. Courtyard
Hattiesburg, MS .............................. Courtyard
Kirkland, WA................................. Courtyard
Rancho Bernardo/San Diego, CA ........ Courtyard
Seattle, WA ................................... Residence Inn
Anchorage, AK............................... Embassy Suites
Somerset, NJ .................................. Courtyard
Tukwila, WA ................................. Homewood Suites
Miami, FL ..................................... Homewood Suites
Huntsville, AL................................ Homewood Suites
Prattville, AL ................................. Courtyard
San Diego, CA................................ Residence Inn
New Orleans, LA ............................ Homewood Suites
Westford, MA ................................ Residence Inn
Denver, CO.................................... Hilton Garden Inn
Oceanside, CA................................ Courtyard
Omaha, NE .................................... Hilton Garden Inn
Boise, ID....................................... Hampton
Burbank, CA .................................. Courtyard
San Diego, CA................................ Courtyard
San Diego, CA................................ Hampton
Burbank, CA .................................. SpringHill Suites
Santa Ana, CA................................ Courtyard
Richmond, VA................................ Courtyard
Richmond, VA................................ Residence Inn
Portland, ME (3)............................... Residence Inn
San Jose, CA .................................. Homewood Suites
Unamortized fair value adjustment
of assumed debt............................
Unamortized debt issuance costs .........
Total ............................................
Maturity
Date
(4) $
(5)
(5)
(5)
(5)
(5)
(5)
(6)
(6)
(6)
(7)
(8)
(8)
3/6/2023
8/11/2024
4/11/2025
6/11/2025
10/1/2025
10/1/2025
6/11/2026
12/1/2026
12/1/2026
12/1/2026
4/1/2028
4/1/2028
3/11/2030
3/11/2030
3/1/2032
5/1/2038
Principal
Assumed
or
Originated
56,000
11,810
12,650
5,732
12,145
15,060
28,269
23,230
8,750
9,431
16,677
8,306
6,596
18,600
27,000
10,000
34,118
13,655
22,681
24,000
25,564
25,473
18,963
28,470
15,530
14,950
14,950
33,500
30,000
572,110
$
Outstanding
balance
as of
December 31,
2022
Outstanding
balance
as of
December 31,
2021
$
-
-
-
-
-
-
-
-
-
-
12,440
6,193
4,918
13,827
21,161
8,024
28,400
12,019
19,963
21,194
21,326
21,250
15,819
25,057
13,668
14,144
14,144
30,500
25,168
329,215
819
(1,169)
328,865
$
$
$
$
56,000
9,075
9,720
4,550
9,640
11,954
22,412
17,959
6,903
7,440
13,000
6,473
5,141
14,456
21,981
8,320
29,415
12,318
20,460
21,680
22,098
22,019
16,392
25,845
14,098
14,447
14,447
33,500
26,303
498,046
1,010
(1,487)
497,569
(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) On August 16, 2021, the Company acquired the fee interest in the land at the Seattle, Washington Residence Inn, previously held
under a finance ground lease, for a purchase price of $80.0 million, consisting of a $24.0 million cash payment and a one-year
note payable to the seller for $56.0 million.
(3) Loan was amended effective March 1, 2022, in conjunction with a $3.0 million prepayment of loan principal. In addition, the
maturity date of the loan was extended by two years to March 1, 2032.
(4) Loan was repaid in full on June 16, 2022.
(5) Loan was repaid in full on June 30, 2022.
(6) Loan was repaid in full on August 1, 2022.
(7) Loan was repaid in full on January 3, 2023.
(8) Loan was repaid in full on February 6, 2023.
The total fair value, net premium adjustment for all of the Company’s debt assumptions is being amortized as a reduction to
interest expense over the remaining term of the respective mortgages using a method approximating the effective interest rate method,
and totaled approximately $0.2 million, $0.6 million and $0.9 million for the years ended December 31, 2022, 2021 and 2020,
respectively.
Debt issuance costs related to the assumption or origination of debt are amortized over the period to maturity of the applicable
debt instrument, as an addition to interest expense, and totaled approximately $4.0 million, $4.2 million and $3.8 million for the three
years ended December 31, 2022, 2021 and 2020.
The Company’s interest expense in 2022, 2021 and 2020 is net of interest capitalized in conjunction with hotel renovations
totaling approximately $1.3 million, $0.3 million and $0.9 million, respectively.
68
Note 5
Fair Value of Financial Instruments
Except as described below, the carrying value of the Company’s financial instruments approximates fair value due to the short-
term nature of these financial instruments.
Debt
The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market
rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs
under the fair value hierarchy. Market rates take into consideration general market conditions and maturity. As of December 31, 2022,
the carrying value and estimated fair value of the Company's debt was approximately $1.4 billion and $1.3 billion, respectively. As of
December 31, 2021, both the carrying value and estimated fair value of the Company’s debt were approximately $1.4 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
SOFR plus a 0.10% SOFR spread adjustment. The swaps are designed to effectively fix the interest payments on variable-rate debt
instruments. As discussed in Note 1, the Company entered into amendments of its swap agreements during July 2022, to replace
LIBOR with SOFR. These swap instruments are recorded at fair value and, if in an asset position, are included in other assets, net,
and, if in a liability position, are included in accounts payable and other liabilities 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 December 31, 2022 and 2021. All dollar amounts are in thousands.
Swap Fixed
Interest
Rate as of
December 31,
2022(1)
Notional
Amount at
December 31,
2022
Maturity
Date
Origination
Date
Effective
Date
Active interest rate swaps designated as cash flow hedges at December 31,2022:
9/30/2016
$
7/31/2017
8/10/2017
1/31/2019
7/5/2019
8/23/2019
8/23/2019
12/31/2019
1/31/2020
5/18/2020
5/18/2020
5/18/2021
3/31/2023
6/30/2024
6/30/2024
6/30/2025
7/18/2024
8/18/2024
8/30/2024
12/31/2029
6/30/2025
1/31/2024
5/18/2025
5/18/2026
4/7/2016
5/31/2017
8/10/2017
6/1/2018
7/2/2019
8/21/2019
8/21/2019
12/31/2019
12/6/2018
12/7/2018
8/21/2019
8/21/2019
1.30%
1.95%
2.02%
2.88%
1.64%
1.31%
1.32%
1.87%
2.74%
2.71%
1.26%
1.29%
100,000
75,000
10,000
50,000
50,000
50,000
50,000
85,000
25,000
50,000
75,000
75,000
695,000
Fair Value Asset (Liability)
Swap Fixed
Interest
Rate as of
December 31,
2021(1)
December 31,
2022
December 31,
2021
$
1.33%
1.96%
2.01%
2.89%
1.65%
1.32%
1.32%
1.86%
2.75%
2.72%
1.27%
1.30%
$
824
3,026
386
1,655
2,298
2,675
2,703
9,511
909
1,163
5,225
6,506
36,881
(955)
(1,902)
(268)
(3,123)
(894)
(457)
(455)
(3,277)
(1,442)
(1,965)
(458)
(391)
(15,587)
Matured interest rate swap at December 31, 2022:
7/31/2020
$
8/18/2020
75,000
8/18/2022
0.13%
-
36,881
$
79
(15,508)
$
(1) The fixed interest rate associated with each interest rate swap was amended in July 2022 as part of the swap amendments to
replace LIBOR with SOFR as the reference rate.
The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. As of
December 31, 2022, all 12 active interest rate swap agreements listed above were designated as cash flow hedges. The change in the
69
fair value of the Company’s designated cash flow hedges is recorded to accumulated other comprehensive income, a component of
shareholder’s equity in the Company’s consolidated balance sheets.
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 $18.9 million
of net unrealized gains included in accumulated other comprehensive income at December 31, 2022 will be reclassified as a decrease
to interest and other expense, net within the next 12 months.
The following tables present the effect of derivative instruments in cash flow hedging relationships in the Company’s
consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2022, 2021 and 2020 (in
thousands):
Interest rate derivatives in cash flow hedging
relationships ....................................................................
$
52,714
$
15,904
$
(45,850)
Net Unrealized Gain (Loss) Recognized in Other
Comprehensive Income (Loss)
2021
2020
2022
Net Unrealized Gain (Loss) Reclassified from
Accumulated Other Comprehensive Income (Loss) to
Interest and Other Expense, net
2021
2020
2022
Interest rate derivatives in cash flow hedging
relationships ....................................................................
$
325
$
(11,390)
$
(7,746)
Note 6
Related Parties
The Company has engaged in, 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. The Company’s independent members of the Board of Directors oversee and annually review the
Company’s related party relationships (including the relationships discussed in this section) and are required to approve any
significant modifications to the existing relationships, as well as any new significant related party transactions. The Board of Directors
is not required to approve each individual transaction that falls under the related party relationships. However, under the direction of
the Board of Directors, at least one member of the Company’s senior management team approves each related party transaction.
Below is a summary of the significant related party relationships in effect and transactions that occurred during each of the three years
ended December 31, 2022, 2021 and 2020, respectively.
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 receives 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. Under this cost sharing structure, amounts reimbursed to the Company include both
compensation for personnel and office related costs (including office rent, utilities, office supplies, etc.) used by ARG. The amounts
reimbursed to the Company are based on the actual costs of the services and a good faith estimate of the proportionate amount of time
incurred by the Company’s employees on behalf of ARG. Total reimbursed costs allocated by the Company to ARG for the years
ended December 31, 2022, 2021 and 2020 totaled approximately $1.0 million, $0.8 million and $1.2 million, respectively, 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 December 31, 2022 and
2021, total amounts due from ARG for reimbursements under the cost sharing structure totaled approximately $0.4 million and $0.3
million, respectively, and are included in other assets, net in the Company’s consolidated balance sheets.
70
The Company, through its wholly-owned subsidiary, Apple Air Holding, LLC, owns a Learjet used primarily for acquisition,
asset management, renovation, investor, corporate and public relations and other business purposes. The aircraft is also leased to
affiliates of the Company based on third-party rates. Lease activity was not significant during the reporting periods.
From time to time, the Company utilizes aircraft, owned by an entity which is owned by the Company’s Executive Chairman,
for acquisition, asset management, renovation, investor, corporate and public relations and other business purposes, and reimburses
this entity at third-party rates. Total costs incurred for the use of the aircraft during 2022, 2021 and 2020 were less than $0.1 million in
each respective year and are included in general and administrative expenses in the Company’s consolidated statements of operations.
Note 7
Shareholders’ Equity
Distributions
Subsequent to the distribution paid in March 2020, the Company announced the suspension of its monthly distributions due to
the impact of COVID-19 on its operating cash flows. Prior to the suspension of its distributions, the Company’s annual distribution
rate, payable monthly, was $1.20 per common share. Beginning in March 2021, the Board of Directors declared distributions of $0.01
per common share in the last month of each quarter and the distributions were paid out each following month. In February 2022, the
Board of Directors of the Company reinstated its policy of distributions on a monthly basis beginning with a $0.05 per common share
dividend paid in March 2022. In August and October 2022, the Board of Directors approved subsequent increases to the monthly cash
distribution to $0.07 and $0.08 per common share, respectively. For the three years ended December 31, 2022, 2021 and 2020, the
Company paid distributions of $0.61, $0.03 and $0.30 per common share for a total of approximately $139.5 million, $6.8 million and
$67.4 million, respectively. In addition to the regular monthly cash distribution of $0.08 per common share for December 2022, the
Board of Directors approved a special one-time distribution of $0.08 per common share for a combined distribution of $0.16 per
common share, totaling $36.6 million, which was recorded as a payable as of December 31, 2022 and paid in January 2023. As of
December 31, 2021, a quarterly distribution of $0.01 per common share, totaling $2.3 million, was recorded as a payable and paid in
January 2022. These accrued distributions were included in accounts payable and other liabilities in the Company’s consolidated
balance sheets at December 31, 2022 and December 31, 2021, respectively.
Issuance of Shares
On August 12, 2020, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from
time to time, up to an aggregate of $300 million of its common shares under an at-the-market offering program (the “ATM Program”)
under the Company’s prior shelf registration statement and the current shelf registration statement. Since inception of the ATM
Program in August 2020 through December 31, 2022, the Company sold approximately 4.7 million common shares under its ATM
Program at a weighted-average market sales price of approximately $16.26 per common share and received aggregate gross proceeds
of approximately $76.0 million and proceeds net of offering costs, which included $0.9 million of commissions, of approximately
$75.1 million. The Company used the net proceeds from the sale of these shares primarily to pay down borrowings under its then-
existing $425 million revolving credit facility and used the corresponding increased availability under the $425 million revolving
credit facility for general corporate purposes, including acquisitions of hotel properties. As of December 31, 2022, approximately
$224.0 million remained available for issuance under the ATM Program. No shares were sold under the Company's ATM Program
during the year ended December 31, 2022. The Company plans to use future net proceeds from the sale of shares under the ATM
Program for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment
of outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may
also use the net proceeds to acquire another REIT or other company that invests in income producing properties.
Share Repurchases
In May 2022, the Company’s Board of Directors approved a one-year extension of its existing share repurchase program,
authorizing share repurchases up to an aggregate of $345 million (the "Share Repurchase Program"). The Share Repurchase Program
may be suspended or terminated at any time by the Company and will end in July 2023 if not terminated or extended earlier. During
the year ended December 31, 2022, the Company purchased approximately 0.2 million of its common shares under its Share
Repurchase Program at a weighted-average market purchase price of approximately $14.21 per common share for an aggregate
purchase price, including commissions, of approximately $2.7 million. The shares were repurchased under a written trading plan as
part of the Share Repurchase Program that provides for share repurchases in open market transactions and that is intended to comply
with Rule 10b5-1 under the Exchange Act. Repurchases under the Share Repurchase Program have been funded, and the Company
intends to fund future repurchases, with cash on hand or availability under its unsecured credit facilities, subject to applicable
restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of common
shares to be repurchased under the Share Repurchase Program will also depend upon prevailing market conditions, regulatory
requirements and other factors. As of December 31, 2022, approximately $342.3 million remained available for purchase under the
Share Repurchase Program.
71
Preferred Shares
No preferred shares of the Company are issued and outstanding. The Company’s amended and restated articles of incorporation
authorize issuance of up to 30 million preferred shares.
Note 8
Compensation Plans
In May 2014, the Board of Directors adopted the Company’s 2014 Omnibus Incentive Plan (the “Omnibus Plan”), and in May
2015, the Company’s shareholders approved the Omnibus Plan. The Omnibus Plan permits the grant of awards of stock options, stock
appreciation rights, restricted stock, stock units, deferred stock units, unrestricted stock, dividend equivalent rights, performance
shares and other performance-based awards, other equity-based awards, and cash bonus awards to any employee, officer, or director of
the Company or an affiliate of the Company, a consultant or adviser currently providing services to the Company or an affiliate of the
Company, or any other person whose participation in the Omnibus Plan is determined by the Compensation Committee of the Board
of Directors (the “Compensation Committee”) to be in the best interests of the Company. The maximum number of the Company’s
common shares available for issuance under the Omnibus Plan is 10 million. As of December 31, 2022, there were approximately 7.1
million common shares available for issuance under the Omnibus Plan.
The Company annually establishes an incentive plan for its executive management team, which is approved by the
Compensation Committee. Under the incentive plan for 2022 (the “2022 Incentive Plan”), participants are eligible to receive incentive
compensation based on the achievement of certain 2022 performance measures, with one-half (50%) of incentive compensation based
on operational performance goals and metrics and one-half (50%) of incentive compensation based on shareholder return metrics.
With respect to the shareholder return metrics, 75% of the target was based on shareholder return relative to a peer group and 25% was
based on total shareholder return metrics over one-year, two-year, and three-year periods. With respect to the operational performance
goals and metrics, 25% of the target was based on modified funds from operations per share (as defined within this Annual Report on
Form 10-K) and 75% of the target was based on operational performance goals including: management of capital structure;
environmental, social and governance goals; evaluation and pursuit of accretive transactions; effective execution of capital renovation
plans; and management of operating expenses. As of December 31, 2022, the range of potential aggregate payouts under the 2022
Incentive Plan was $0 - $25 million. Based on performance during 2022, the Company has accrued approximately $18.1 million as a
liability for executive incentive compensation payments under the 2022 Incentive Plan, which is included in accounts payable and
other liabilities in the Company’s consolidated balance sheet as of December 31, 2022 and in general and administrative expenses in
the Company’s consolidated statement of operations for the year ended December 31, 2022. Additionally, approximately $2.6 million,
which is subject to vesting on December 8, 2023, will be recognized proportionally throughout 2023. Approximately 25% of target
awards under the 2022 Incentive Plan will be paid in cash, and 75% will be issued in common shares under the Company’s Omnibus
Plan. The portion of awards under the 2022 Incentive Plan payable in common shares will be issued under the Company’s Omnibus
Plan during the first quarter of 2023, approximately two-thirds of which will be unrestricted and one-third of which will be restricted
and is subject to vesting on December 8, 2023.
Under the incentive plan for 2021 (the “2021 Incentive Plan”), the Company accrued approximately $18.5 million including
$12.9 million in share-based compensation as noted below, as a liability for executive incentive compensation payments, which was
included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of December 31, 2021 and in
general and administrative expenses in the Company’s consolidated statement of operations for the year ended December 31, 2021.
Under the incentive plan for 2020 (the “2020 Incentive Plan”), the Company accrued approximately $6.1 million, including $5.9
million in share-based compensation as noted below, as a liability for executive incentive compensation payments, which was
included in general and administrative expenses in the Company’s consolidated statement of operations for the year ended
December 31, 2020.
In 2020, the Company incurred expense associated with two separation agreements of approximately $1.25 million each,
totaling approximately $2.5 million, in connection with the retirements of the Company’s former Executive Vice President and Chief
Operating Officer and the Company’s former Executive Vice President and Chief Financial Officer, effective March 31, 2020, which
amounts were paid in October 2020. The expense was included in general and administrative expenses in the Company’s consolidated
statement of operations for the year ended December 31, 2020. Pursuant to the terms of the separation agreement between Mr. Bryan
F. Peery, the retiring Chief Financial Officer (“Mr. Peery”) and the Company dated as of March 4, 2020 and amended on March 30,
2020, among other things, Mr. Peery agreed to remain employed by the Company in an advisory role to support the transition of his
responsibilities. As a result of the COVID-19 pandemic, Mr. Peery provided substantive additional assistance to the Company as it
navigated its response to the COVID-19 pandemic beyond the anticipated transition activities originally contemplated after March 31,
2020. In light of these unexpected contributions, on November 2, 2020, the Compensation Committee approved a one-time grant of
35,070 fully vested common shares to Mr. Peery, with a grant date value of $0.35 million, which was included in general and
administrative expenses in the Company’s consolidated statement of operations for the year ended December 31, 2020. This grant is in
addition to amounts otherwise payable under Mr. Peery’s separation agreement.
72
Share-Based Compensation Awards
The following table sets forth information pertaining to the share-based compensation issued under the 2021 Incentive Plan, the
2020 Incentive Plan and the incentive plan for 2019 (the “2019 Incentive Plan”):
Period common shares issued
2021 Incentive
Plan
First Quarter
2022
2020 Incentive
Plan
First Quarter
2021
2019 Incentive
Plan
First Quarter
2020
Common shares earned under each incentive plan ..................................
Common shares surrendered on issuance date to satisfy tax
withholding obligations..........................................................................
Common shares earned and issued under each incentive plan, net of
common shares surrendered on issuance date to satisfy
tax withholding obligations....................................................................
Closing stock price on issuance date........................................................ $
Total share-based compensation earned, including the
surrendered shares (in millions)............................................................. $
Of the total common shares earned and issued, total common shares
unrestricted at time of issuance..............................................................
Of the total common shares earned and issued, total common shares
restricted at time of issuance..................................................................
868,079
245,597
555,726
117,647
665,552
60,616
622,482
17.79
$
438,079
14.03
$
604,936
13.01
15.4 (1) $
7.8 (2) $
8.7 (3)
338,032
284,450
160,216
277,863
426,553
178,383
Restricted common shares vesting date
December 9,
2022
December 10,
2021
December 11,
2020
Common shares surrendered on vesting date to satisfy tax
withholding requirements resulting from vesting of restricted
common shares.......................................................................................
114,147
108,292
60,066
(1) Of the total 2021 share-based compensation, approximately $12.9 million was recognized as share-based compensation expense during
the year ended December 31, 2021, and included in accounts payable and other liabilities in the Company's consolidated balance sheet
at December 31, 2021, and the remaining $2.5 million, which vested on December 9, 2022 and excludes any restricted shares forfeited
or vested prior to that date, was recognized as share-based compensation expense during the year ended December 31, 2022.
(2) Of the total 2020 share-based compensation, approximately $5.9 million was recognized as share-based compensation expense during
the year ended December 31, 2020, and included in accounts payable and other liabilities in the Company's consolidated balance sheet
at December 31, 2020, and the remaining $1.9 million, which vested on December 10, 2021 and excludes any restricted shares
forfeited or vested prior to that date, was recognized as share-based compensation expense during the year ended December 31, 2021.
(3) Of the total 2019 share-based compensation, approximately $1.2 million, which vested on December 11, 2020 and excludes any
restricted shares forfeited or vested prior to that date, was recognized as share-based compensation expense during the year ended
December 31, 2020.
Additionally, in conjunction with the appointment of five new officers of the Company on April 1, 2020, the Company issued to
the new officer group a total of approximately 200,000 restricted common shares with an aggregate grant date fair value of
approximately $1.8 million. For each grantee, the restricted shares will vest on March 31, 2023 if the individual remains in service of
the Company through the date of vesting. The expense associated with the awards will be amortized over the 3-year restriction period.
For the years ended December 31, 2022, 2021 and 2020, the Company recognized approximately $0.6 million, $0.6 million and $0.4
million, respectively, of share-based compensation expense related to these awards.
Non-Employee Director Deferral Program
In 2018, the Board of Directors adopted the Non-Employee Director Deferral Program (the “Director Deferral Program”) under
the Omnibus Plan for the purpose of providing non-employee members of the Board the opportunity to elect to defer receipt of all or a
portion of the annual retainer payable to them for their service on the Board, including amounts payable in both cash and fully vested
shares of the Company’s common shares, in the form of deferred cash fees (“DCFs”) and/or deferred stock units (“DSUs”). DCFs and
DSUs that are issued to the Company’s non-employee directors are fully vested and non-forfeitable on the grant date. The grant date
fair values of DCFs are equal to the dollar value of the deferred fee on the grant date, while the grant date fair values of DSUs are
equal to the fair market value of the Company’s common shares on the grant date. DCFs are settled for cash and DSUs are settled for
shares of the Company's common stock, which are deliverable upon either: i) termination of the director’s service from the Board, ii) a
date previously elected by the director, or iii) the earlier of the two dates, as determined by the director at the time he or she makes the
73
election. The deferred amounts will also be paid if prior to the date specified by the director, the Company experiences a change in
control or upon death of the director. During the years ended December 31, 2022, 2021 and 2020, non-employee directors
participating in the Director Deferral Program deferred approximately $0.3 million, $0.4 million and $0.3 million, respectively, which
is recorded as deferred compensation expense in general and administrative expenses in the Company’s consolidated statements of
operations for the years then ended. On each quarterly deferral date (the date that a portion of the annual retainer would be paid),
dividends earned on DSUs are credited to the deferral account in the form of additional DSUs based on dividends declared by the
Company on its outstanding common shares during the quarter and the fair market value of the common shares on such date.
Outstanding DSUs at December 31, 2022 and 2021 were approximately 85,000 and 101,000, with weighted-average grant date fair
values of $15.20 and $14.57, valued at $1.3 million and $1.5 million, respectively, which is included in common stock, a component
of shareholders’ equity in the Company’s consolidated balance sheets as of December 31, 2022 and 2021.
Note 9
Management and Franchise Agreements
Each of the Company’s 220 hotels owned as of December 31, 2022 is operated and managed under a separate management
agreement with one of the following management companies or one of their affiliates, none of which are affiliated with the Company
(number of hotels by manager are as of January 1, 2023):
Manager
LBAM-Investor Group, LLC ("LBA") .........................................
Dimension Development Two, LLC ("Dimension").....................
Crestline Hotels & Resorts, LLC ("Crestline") .............................
Raymond Management Company, Inc. ("Raymond")...................
Hersha Hospitality Management L.P. ("HHM") ...........................
MHH Management, LLC ("McKibbon") ......................................
Texas Western Management Partners, LP ("Western") ................
Marriott International, Inc. ("Marriott") ........................................
Newport Hospitality Group, Inc. ("Newport") ..............................
North Central Hospitality, LLC ("North Central")........................
InnVentures IVI, LP ("InnVentures") ...........................................
Aimbridge Hospitality, LLC ("Aimbridge") .................................
Chartwell Hospitality, LLC ("Chartwell") ....................................
Huntington Hotel Group, LP ("Huntington") ................................
White Lodging Services Corporation ("White Lodging").............
Concord Hospitality Enterprises Company, LLC ("Concord").....
Highgate Hotels, L.P. ("Highgate")...............................................
Total...........................................................................................
Number of
Hotels
34
31
25
22
18
14
14
13
11
9
8
7
5
3
3
2
1
220
The management agreements generally provide for initial terms of one to 30 years and are terminable by the Company for either
failure to achieve performance thresholds, upon sale of the property, or without cause. As of December 31, 2022, approximately 85%
of the Company’s hotels operate under a variable management fee agreement, with an average initial term of approximately one to
two years, which the Company believes better aligns incentives for each hotel manager to maximize each property’s performance than
a base-plus-incentive management fee structure, as described below, which is more common throughout the industry. Under the
variable fee structure, the management fee earned for each hotel is generally within a range of 2.5% to 3.5% of gross revenues. The
performance measures are based on various financial and quality performance metrics. The Company’s remaining hotels operate
under a management fee structure which generally includes the payment of base management fees and an opportunity for incentive
management fees. Under this structure, base management fees are calculated as a percentage of gross revenues and the incentive
management fees are calculated as a percentage of operating profit in excess of a priority return to the Company, as defined in the
management agreements. In addition to the above, management fees for all of the Company’s hotels generally include accounting fees
and other fees for centralized services, which are allocated among all of the hotels that receive the benefit of such services. During
2020, 2021 and 2022, in response to continued uncertainties related to the COVID-19 pandemic and its impact on hotel performance,
the management fee under all variable management fee agreements was set to 3% of gross revenues. The Company intends to reinstate
the variable management fee rates in 2023. For the years ended December 31, 2022, 2021 and 2020, the Company incurred
approximately $41.8 million, $31.4 million and $19.8 million, respectively, in management fees.
Thirteen of the Company’s hotels are managed by affiliates of Marriott. The remainder of the Company’s hotels are managed by
companies that are not affiliated with either Marriott, Hilton or Hyatt, and as a result, the branded hotels they manage were required to
obtain separate franchise agreements with each respective franchisor. The franchise agreements generally provide for initial terms of
approximately 10 to 30 years and generally provide for renewals subject to franchise requirements at the time of renewal. The
74
Company pays various fees under these agreements, including the payment of royalty fees, marketing fees, reservation fees, a
communications support fee, brand loyalty program fees and other similar fees based on room revenues. For the years ended
December 31, 2022, 2021 and 2020, the Company incurred approximately $53.9 million, $40.9 million and $26.4 million,
respectively, in franchise royalty fees.
Note 10
Lease Commitments
The Company is the lessee on certain ground leases, hotel equipment leases and office space leases. As of December 31, 2022,
the Company had 14 hotels subject to ground leases and three parking lot ground leases with remaining terms ranging from
approximately 16 to 96 years, excluding renewal options. Certain of its ground leases have options to extend beyond the initial lease
term by periods ranging from five to 120 years.
Leases with durations greater than 12 months are recognized on the balance sheet as right-of-use (“ROU”) assets and lease
liabilities. The Company’s leases are classified as operating or finance leases. For leases with terms greater than 12 months, at
inception of the lease the Company recognizes a ROU asset and lease liability at the estimated present value of the minimum lease
payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease
liabilities represent the Company’s obligation to make lease payments arising from the lease. Many of the Company’s leases include
rental escalation clauses (including fixed scheduled rent increases) and renewal options that are factored into the determination of
lease payments, when appropriate, which adjusts the present value of the remaining lease payments. The Company determines the
present value of the lease payments utilizing interest rates implicit in the lease if determinable or, if not, it estimates its incremental
borrowing rate from information available at lease commencement, such as estimates of rates the Company would pay for senior
collateralized loans with terms similar to each lease.
Operating Leases
Twelve of the Company’s hotel and parking lot ground leases as well as certain applicable hotel equipment leases and office
space leases are classified as operating leases, for which the Company has recorded ROU assets and lease liabilities. The ROU assets
are included in other assets, net and the lease liabilities are included in accounts payable and other liabilities in the Company’s
consolidated balance sheet. In addition, the Company's ROU asset balance includes intangible assets for below market ground leases
and intangible liabilities for above market ground leases, as well as accrued straight-line lease liabilities related to these operating
leases. Lease expense is recognized on a straight-line basis over the term of the respective lease and the value of each lease intangible
is amortized over the term of the respective lease. Costs related to operating ground leases and hotel equipment leases are included in
hotel operating expense and property taxes, insurance and other expense, and costs related to office space leases are included in
general and administrative expense in the Company’s consolidated statements of operations.
Finance Leases
Five of the Company’s hotel ground leases are classified as finance leases, for which the Company recorded ROU assets and
lease liabilities. The ROU assets are recorded as finance ground lease assets within investment in real estate, net and the lease
liabilities are recorded as finance lease liabilities in the Company’s consolidated balance sheet. In addition, the Company's ROU asset
balance includes intangible assets for below market ground leases and intangible liabilities for above market ground leases related to
these finance leases. The ROU asset and value of each lease intangible is amortized over the term of the respective lease. Costs related
to finance ground leases are included in depreciation and amortization expense and interest and other expense, net in the Company’s
consolidated statement of operations.
Under the terms of the Company’s ground leases, certain minimum lease payments are subject to change based on criteria
specified in the lease. Changes in minimum lease payments that are not fixed scheduled increases are reflected in the ROU asset and
lease liability when the payments become fixed and determinable based on the actual criteria defined in the lease. Minimum lease
payments may be estimated if the change date occurs and the new minimum lease payments are not yet determinable.
75
Lease Position as of December 31, 2022 and 2021
The following table sets forth the lease-related assets and liabilities included in the Company’s consolidated balance sheet as of
December 31, 2022 and 2021. All dollar amounts are in thousands.
Consolidated Balance Sheet
Classification
December 31,
2022
2021
Assets
Operating lease assets, net.................................... Other assets, net
Finance ground lease assets, net (1).......................
Total lease assets ..................................................
Investment in real estate, net
Liabilities
Operating lease liabilities ..................................... Accounts payable and other liabilities
Finance lease liabilities ........................................ Finance lease liabilities
Total lease liabilities ............................................
$
$
$
$
26,348
90,030
116,378
11,849
112,006
123,855
$
$
$
$
27,061
93,068
120,129
12,015
111,776
123,791
Weighted-average remaining lease term
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
36 years
31 years
5.47%
5.31%
(1)
Finance ground lease assets are net of accumulated amortization of approximately $12.1 million and $9.0 million as of
December 31, 2022 and 2021, respectively.
Lease Costs for the Years Ended December 31, 2022, 2021 and 2020
The following table sets forth the lease costs related to the Company’s operating and finance ground leases included in the
Company’s consolidated statement of operations for the years ended December 31, 2022 2021 and 2020 (in thousands):
Consolidated Statement of
Operations Classification
Operating lease costs (1) ......................... Property taxes, insurance and other
expense
Finance lease costs:
Amortization of lease assets .............. Depreciation and amortization expense
Interest on lease liabilities .................
Total lease costs.....................................
Interest and other expense, net
Year Ended December 31,
2022
2021
2020
$
$
1,794
$
1,585
$
1,509
3,038
5,872
10,704
$
5,178
9,415
16,178
$
6,433
11,402
19,344
(1) Represents costs related to ground leases, including variable lease costs. Excludes costs related to hotel equipment leases, which
are included in hotel operating expense and property taxes, insurance and other expense, and costs related to office space leases,
which are included in general and administrative expense in the Company's consolidated statement of operations. These costs
are not significant for disclosure.
76
Undiscounted Cash Flows
The following table reconciles the undiscounted cash flows for each of the next five years and total of the remaining years to the
operating lease liabilities and finance lease liabilities included in the Company’s consolidated balance sheet as of December 31, 2022
(in thousands):
2023 ................................................................................ $
2024 ................................................................................
2025 ................................................................................
2026 ................................................................................
2027 ................................................................................
Thereafter........................................................................
Total minimum lease payments ......................................
Less: amount of lease payments representing
interest..........................................................................
Present value of lease liabilities...................................... $
Operating leases Finance leases
5,991
1,093 $
6,174
1,056
6,338
1,063
6,500
872
6,700
715
223,554
30,344
255,257
35,143
23,294
11,849 $
143,251
112,006
Supplemental Cash Flow Information
The following table sets forth supplemental cash flow information related to the Company’s operating and finance leases for the
years ended December 31, 2022, 2021 and 2020 (in thousands):
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows for operating leases ..................$
Operating cash flows for finance leases......................
Financing cash flows for finance leases......................
$
1,166
5,469
173
$
1,109
6,568
24,045
1,295
8,048
-
Year Ended December 31,
2021
2020
2022
Note 11
Income Taxes
The Company is operated as, and has elected to be taxed as, a REIT under Sections 856 to 860 of the Code. As a REIT, the
Company is generally not subject to corporate level income taxes on REIT taxable income that is distributed to its shareholders.
Income related to the Lessee, as a taxable REIT subsidiary (“TRS”) of the Company, is subject to federal and state income taxes.
The components of income tax expense (benefit) are as follows (in thousands):
Current:
Federal........................................................................
State............................................................................
Deferred:
Federal........................................................................
State............................................................................
Income tax expense ..................................................
$
$
Year Ended December 31,
2022
2021
2020
(34)
1,974
-
-
1,940
$
$
(15)
483
-
-
468
$
$
-
332
-
-
332
Income tax expense for the years ended December 31, 2022 and 2021 was $1.9 million and $0.5 million, respectively. The
increase was primarily due to increases in state income taxes as a result of significant improvement in operating results in 2022 as well
as limitations placed by certain states on the application of prior net operating losses.
77
Below is a reconciliation between the provision for income taxes and the amounts computed by applying the federal statutory
income tax rate to the income or loss before taxes (in thousands):
Year Ended December 31,
2022
2021
Statutory federal tax expense (benefit)....................................
Federal tax impact of REIT election .......................................
Statutory federal tax expense (benefit) at TRS .......................
State income tax expense (benefit), net of federal tax benefit
Change in valuation allowance................................................
Income tax expense ...............................................................
$
$
30,409
(27,261)
3,148
1,559
(2,767)
1,940
$
$
3,954
4,934
8,888
382
(8,802)
468
2020
(36,373)
27,933
(8,440)
262
8,510
332
$
$
As of December 31, 2022, the Company had deferred tax assets of approximately $22 million consisting primarily of net
operating loss carryforwards. A portion of the federal loss carryforwards expire beginning in 2029; however, a portion of the federal
loss carryforwards do not expire. The state loss carryforwards have various expiration dates; however, for certain states some loss
carryforwards do not expire. The TRS has a net operating loss carryforward for federal income tax purposes of approximately $78
million as of December 31, 2022, and $95 million as of December 31, 2021. The TRS has historical cumulative operating losses and is
expected to be in a cumulative loss for the foreseeable future. As a result, the realizability of the Company’s deferred tax assets as of
December 31, 2022 and 2021 is not reasonably assured. Therefore, the Company has recorded a valuation allowance equal to the full
100% of the net deferred tax assets as of December 31, 2022, and 2021.
Characterization of Distributions
For income tax purposes, distributions paid consist of ordinary income, capital gains, return of capital or a combination thereof.
For the years ended December 31, 2022, 2021 and 2020, distributions per share were characterized as follows (unaudited):
Amount of distributions per share .............................
Characterized as:
Ordinary income ......................................................
Capital gain distributions.........................................
Return of capital ......................................................
Year Ended December 31,
2022
2021
2020
$
0.76
$
0.04
$
0.30
100%
0%
0%
100%
0%
0%
0%
0%
100%
The Company utilized portions of its REIT net loss carryforward to reduce its taxable net income for the years ended
December 31, 2022 and 2021. The total REIT net loss carryforward for federal income tax purposes was $0 as of December 31, 2022
and approximately $35.8 million as of December 31, 2021. No provision for U.S. Federal income taxes has been included in the
Company’s financial statements for the years ended December 31, 2022, 2021 and 2020 related to its REIT activities.
Note 12
Industry Segments
The Company owns hotel properties throughout the U.S. that generate rental, food and beverage, and other property-related
income. The Company separately evaluates the performance of each of its hotel properties. However, because each of the hotels has
similar economic characteristics, facilities, and services, and each hotel is not individually significant, the properties have been
aggregated into a single reportable segment. All segment disclosures are included in or can be derived from the Company’s
consolidated financial statements.
78
Note 13
Hotel Purchase Contract Commitments
As of December 31, 2022, the Company had one outstanding contract, which was entered into during 2021, for the potential
purchase of a hotel in Madison, Wisconsin for an expected purchase price of approximately $78.6 million. The hotel is under
development and is currently planned to be completed and opened for business in early 2024, as a 260-room Embassy Suites. As of
December 31, 2022, a $0.9 million contract deposit (refundable if the seller does not meet its obligations under the contract) had been
paid. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to
purchase the hotel under contract if closing occurs. Although the Company is working towards acquiring this hotel, there are a number
of conditions to closing that have not yet been satisfied and there can be no assurance that closing on this hotel will occur under the
outstanding purchase contract. If the seller meets all of the conditions to closing, the Company is obligated to specifically perform
under this contract and acquire the hotel. As this property is under development, at this time, the seller has not met all of the
conditions to closing.
Note 14
Subsequent Events
On January 3, 2023, the Company repaid in full one secured mortgage loan for a total of $12.4 million. On February 6, 2023, the
Company repaid in full two secured mortgage loans for a total of $11.1 million. See Note 4 for additional information concerning
these transactions.
On January 17, 2023, the Company completed a $50 million draw on its $575 million term loan facility. After this draw, the
$575 million term loan facility was fully funded with no remaining capacity on its delayed draw option.
On January 17, 2023, the Company paid approximately $36.6 million in aggregate, or $0.16 per common share, in distributions
to shareholders of record as of December 30, 2022.
On January 20, 2023, the Company declared a monthly cash distribution of $0.08 per common share. The distribution of
approximately $18.3 million was paid on February 15, 2023, to shareholders of record as of January 31, 2023.
On February 17, 2023, the Company declared a monthly cash distribution of $0.08 per common share. The distribution is
payable on March 15, 2023, to shareholders of record as of February 28, 2023.
79
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Senior management, including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this
evaluation process, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have concluded that the
Company’s disclosure controls and procedures were effective as of December 31, 2022. There have been no changes in the
Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
See Item 8 for the Report of Management on Internal Control over Financial Reporting and the Company’s Independent
Registered Public Accounting Firm’s attestation report regarding internal control over financial reporting, which are incorporated
herein by reference.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
80
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be set forth in the
Company’s definitive proxy statement for its 2023 Annual Meeting of Shareholders (the “2023 Proxy Statement”). For the limited
purpose of providing the information necessary to comply with this Item 10, the 2023 Proxy Statement is incorporated herein by this
reference.
Item 11. Executive Compensation
The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K will be set forth in the Company’s 2023
Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 11, the 2023 Proxy
Statement is incorporated herein by this reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by Items 201(d) and 403 of Regulation S-K will be set forth in the Company’s 2023 Proxy Statement.
For the limited purpose of providing the information necessary to comply with this Item 12, the 2023 Proxy Statement is incorporated
herein by this reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Items 404 and 407(a) of Regulation S-K will be set forth in the Company’s 2023 Proxy Statement.
For the limited purpose of providing the information necessary to comply with this Item 13, the 2023 Proxy Statement is incorporated
herein by this reference.
Item 14. Principal Accounting Fees and Services
The information required by Item 9(e) of Schedule 14A will be set forth in the Company’s 2023 Proxy Statement. For the
limited purpose of providing the information necessary to comply with this Item 14, the 2023 Proxy Statement is incorporated herein
by this reference.
81
Item 15. Exhibits, Financial Statement Schedules
1. Financial Statements of Apple Hospitality REIT, Inc.
PART IV
Report of Management on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm—Ernst & Young LLP (PCAOB ID: 42)
Report of Independent Registered Public Accounting Firm—Ernst & Young LLP (PCAOB ID: 42)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2022, 2021 and
2020
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
These financial statements are set forth in Item 8 of this report and are hereby incorporated by reference.
2. Financial Statement Schedules
Schedule III—Real Estate and Accumulated Depreciation and Amortization (Included at the end of this Part IV of this
report.)
Financial statement schedules not listed are either omitted because they are not applicable, or the required information is
shown in the consolidated financial statements or notes thereto.
3. Exhibit Listing
Exhibit
Number
3.1
3.2
Description of Documents
Amended and Restated Articles of Incorporation of the Company, as amended (Incorporated by reference to Exhibit 3.1
to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed August 6, 2018)
Third Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the Company’s
quarterly report on Form 10-Q (SEC File No. 001-37389) filed May 18, 2020)
4.1
Description of Securities Registered Under Section 12 of the Exchange Act (FILED HEREWITH)
10.1*
10.2*
10.3*
10.4*
The Company’s 2008 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.4 to the
Company’s quarterly report on Form 10-Q (SEC File No. 333-147414) filed May 8, 2008)
The Company’s 2014 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Company’s current report
on Form 8-K (SEC File No. 000-53603) filed June 4, 2014)
The Company’s Executive Severance Pay Plan (Incorporated by reference to Exhibit 10.1 to the Company’s current
report on Form 8-K (SEC File No. 000-53603) filed June 4, 2014)
First Amendment to the Company’s Executive Severance Pay Plan (Incorporated by reference to Exhibit 10.1 to the
Company’s current report on Form 8-K (SEC File No. 001-37389) filed March 27, 2019)
82
10.5*
10.6
10.7*
10.8
Second Amendment to the Company’s Executive Severance Pay Plan (Incorporated by reference to Exhibit 10.3 to the
Company’s current report on Form 8-K (SEC File No. 001-37389) filed March 5, 2020
Form of Restricted Stock Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form
8-K (SEC File No. 001-37389) filed February 18, 2016)
Non-Employee Director Deferral Program Under the Company’s 2014 Omnibus Incentive Plan (Incorporated by
reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed August 6,
2018)
Third Amended and Restated Credit Agreement dated as of July 25, 2022, among the Company, as borrower, certain
subsidiaries of the Company, as guarantors, Bank of America, N.A., as Administrative Agent, KeyBank National
Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, U.S. Bank National Association, as
Documentation Agent, Regions Bank as Managing Agent, the Lenders and Letter of Credit Issuers party thereto, and
BofA Securities, Inc., KeyBanc Capital Markets, Wells Fargo Securities, LLC and U.S. Bank National Association, as
Joint Lead Arrangers and Joint Bookrunners (Incorporated by reference to Exhibit 10.1 to the Company’s current report
on Form 8-K (SEC File No. 001-37389) filed July 27, 2022)
21.1
Subsidiaries of the Company (FILED HEREWITH)
23.1
Consent of Ernst & Young LLP (FILED HEREWITH)
31.1
31.2
31.3
32.1
101
Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(FILED HEREWITH)
Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(FILED HEREWITH)
Certification of the Company’s Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(FILED HEREWITH)
Certification of the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FURNISHED
HEREWITH)
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022
formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the
Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated Statements of Shareholders’
Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statements, tagged as
blocks of text and in detail (FILED HEREWITH)
104
The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in
iXBRL and contained in Exhibit 101.
* Denotes Management Contract or Compensation Plan.
Item 16. Form 10-K Summary
None.
83
SCHEDULE III
Real Estate and Accumulated Depreciation and Amortization
As of December 31, 2022
(dollars in thousands)
City
State
Anchorage .......... AK
Anchorage .......... AK
Auburn.............. AL
Birmingham ........ AL
Birmingham ........ AL
Birmingham ........ AL
Birmingham ........ AL
Dothan.............. AL
Dothan.............. AL
Huntsville........... AL
Huntsville........... AL
Huntsville........... AL
Huntsville........... AL
Mobile .............. AL
Prattville ............ AL
Rogers .............. AR
Rogers .............. AR
Chandler ............ AZ
Chandler ............ AZ
Phoenix ............. AZ
Phoenix ............. AZ
Phoenix ............. AZ
Phoenix ............. AZ
Phoenix ............. AZ
Scottsdale........... AZ
Tempe .............. AZ
Tempe .............. AZ
Tucson.............. AZ
Tucson.............. AZ
Tucson.............. AZ
Agoura Hills ........ CA
Description
Embassy Suites
Home2 Suites
Hilton Garden
Inn
Courtyard
Hilton Garden
Inn
Home2 Suites
Homewood
Suites
Hilton Garden
Inn
Residence Inn
Hampton
Hilton Garden
Inn
Home2 Suites
Homewood
Suites
Hampton
Courtyard
Hampton
Homewood
Suites
Courtyard
Fairfield
Courtyard
Hampton
Hampton
Homewood
Suites
Residence Inn
Hilton Garden
Inn
Hyatt House
Hyatt Place
Hilton Garden
Inn
Residence Inn
TownePlace
Suites
Homewood
Suites
Encumbrances
-
$
-
$
-
-
-
-
-
-
-
-
-
-
6,193
-
4,918
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Initial Cost
Bldg./
FF&E
/Other
Land (1)
Subsequently
Capitalized
Bldg.
Imp. &
FF&E
Total
Gross
Cost (2)
2,955
2,683
1,580
2,310
3,425
3,491
1,010
1,037
970
550
890
490
210
-
2,050
911
1,375
1,061
778
1,413
-
3,406
-
1,111
6,000
-
-
1,005
2,080
992
3,430
$
$
39,053
21,606
9,659
6,425
15,555
15,603
12,981
10,581
13,185
11,962
11,227
10,840
15,654
11,452
9,101
8,483
9,514
16,008
11,272
14,669
15,209
41,174
18,907
12,953
26,861
24,001
34,893
17,925
12,424
14,543
21,290
$
46,376
24,389
12,155
10,377
18,994
19,130
16,162
13,403
15,376
12,639
13,230
11,517
18,039
12,753
12,299
13,612
13,418
18,868
13,154
18,838
15,735
44,630
19,253
16,008
35,281
24,005
34,920
21,171
16,392
16,816
27,261
4,368
99
916
1,642
15
36
2,171
1,785
1,221
127
1,113
187
2,175
1,301
1,148
4,217
2,529
1,801
1,104
2,756
526
51
346
1,943
2,420
4
27
2,241
1,888
1,281
2,541
84
Acc.
Deprec.
$
(18,055)
(3,983)
Date of
Construction
2008
2015
Date
Acquired
Apr-10
Dec-17
Depreciable
Life
3 - 39 yrs.
3 - 39 yrs.
# of
Rooms
(3,629)
(2,781)
(3,243)
(3,112)
(4,901)
(5,507)
(4,172)
(2,702)
(3,795)
(2,433)
(5,596)
(2,734)
(3,279)
(5,188)
(6,027)
(7,155)
(4,901)
(7,486)
(3,717)
(6,793)
(4,673)
(6,355)
(5,487)
(2,172)
(3,085)
(9,195)
(4,741)
(5,298)
(7,440)
2001
2007
2017
2017
2005
2009
2008
2013
2005
2013
2006
2006
2007
1998
2006
2009
2009
2007
2008
2018
2008
2008
2005
2020
2020
2008
2008
2011
2007
Mar-14
Mar-14
Sep-17
Sep-17
Mar-14
Jun-09
Mar-14
Sep-16
Mar-14
Sep-16
Mar-14
Sep-16
Mar-14
Aug-10
Apr-10
Nov-10
Nov-10
Nov-10
Sep-16
May-18
Sep-16
Nov-10
Sep-16
Aug-20
Aug-20
Jul-08
Mar-14
Oct-11
Mar-14
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
169
135
101
84
104
106
95
104
84
98
101
77
107
101
84
122
126
150
110
164
125
210
134
129
122
105
154
125
124
124
125
State
City
Burbank ............ CA
Burbank ............ CA
Burbank ............ CA
Clovis............... CA
Clovis............... CA
Cypress ............. CA
Cypress ............. CA
Oceanside........... CA
Oceanside........... CA
Rancho
Bernardo/San Diego CA
Sacramento ......... CA
San Bernardino ..... CA
San Diego........... CA
San Diego........... CA
San Diego........... CA
San Diego........... CA
San Jose ............ CA
San Juan Capistrano CA
Santa Ana........... CA
Santa Clarita ........ CA
Santa Clarita ........ CA
Santa Clarita ........ CA
Santa Clarita ........ CA
Tustin............... CA
Tustin............... CA
Colorado Springs ... CO
Denver.............. CO
Highlands Ranch ... CO
Highlands Ranch ... CO
Boca Raton ......... FL
Cape Canaveral..... FL
Cape Canaveral..... FL
Cape Canaveral..... FL
Fort Lauderdale..... FL
Fort Lauderdale..... FL
Gainesville.......... FL
Gainesville.......... FL
Jacksonville......... FL
Jacksonville......... FL
Miami .............. FL
Description
Courtyard
Residence Inn
SpringHill
Suites
Hampton
Homewood
Suites
Courtyard
Hampton
Courtyard
Residence Inn
Courtyard
Hilton Garden
Inn
Residence Inn
Courtyard
Hampton
Hilton Garden
Inn
Residence Inn
Homewood
Suites
Residence Inn
Courtyard
Courtyard
Fairfield
Hampton
Residence Inn
Fairfield
Residence Inn
Hampton
Hilton Garden
Inn
Hilton Garden
Inn
Residence Inn
Hilton Garden
Inn
Homewood
Suites
Hampton
Home2 Suites
Hampton
Residence Inn
Hilton Garden
Inn
Homewood
Suites
Homewood
Suites
Hyatt Place
Courtyard
Encumbrances
21,326
-
25,057
-
-
-
-
12,019
-
-
-
-
21,250
15,819
-
13,827
25,168
-
13,668
-
-
-
-
-
-
-
28,400
-
-
-
-
-
-
-
-
-
-
-
-
-
Initial Cost
Bldg./
FF&E
/Other
Capitalized
Bldg.
Imp. &
FF&E
Land (1)
Total
Gross
Cost (2)
Acc.
Deprec.
57,171
77,034
60,149
12,522
14,317
42,919
22,283
31,146
34,137
48,449
31,372
17,199
57,276
53,643
41,975
44,594
46,480
34,113
26,428
26,276
11,642
23,929
21,357
34,542
46,438
18,303
69,853
26,551
28,017
31,862
26,938
23,551
22,097
28,488
32,785
19,323
19,658
34,411
16,423
33,532
(10,427)
(12,833)
(11,448)
(4,874)
(5,390)
(11,144)
(5,413)
(5,941)
(7,761)
(9,300)
(8,656)
(6,226)
(11,680)
(11,532)
(9,512)
(7,047)
(12,118)
(6,909)
(8,567)
(10,199)
(4,779)
(10,385)
(9,557)
(5,470)
(7,131)
(3,716)
(13,067)
(6,001)
(8,197)
(5,149)
(5,816)
(2,114)
(2,032)
(8,446)
(5,938)
(3,874)
(3,964)
(8,405)
(2,341)
(9,365)
12,916
32,270
10,734
1,287
1,500
4,410
3,209
3,080
7,790
16,380
5,920
1,490
11,268
13,570
8,020
22,400
12,860
-
3,082
4,568
1,864
1,812
2,539
7,700
11,680
1,780
9,940
5,480
5,350
7,220
2,780
2,594
2,415
1,793
5,760
1,300
1,740
9,480
2,013
-
41,218
41,559
49,181
9,888
10,970
35,033
16,749
25,769
24,048
28,952
21,515
13,662
44,851
36,644
29,151
20,640
28,084
32,292
21,051
18,721
7,753
15,761
14,493
26,580
33,645
15,860
57,595
20,465
19,167
22,177
23,967
20,951
19,668
21,357
26,727
17,322
16,329
21,247
13,533
31,488
3,037
3,205
234
1,347
1,847
3,476
2,325
2,298
2,299
3,117
3,937
2,047
1,157
3,429
4,804
1,554
5,536
1,821
2,295
2,986
2,025
6,355
4,325
263
1,113
663
2,318
606
3,501
2,466
191
6
15
5,338
298
701
1,589
3,684
878
2,045
85
Date of
Construction
2002
2007
Date
Acquired
Aug-15
Mar-14
Depreciable
Life
3 - 39 yrs.
3 - 39 yrs.
# of
Rooms
2015
2009
2010
1988
2006
2011
2007
1987
1999
2006
2002
2001
2004
1999
1991
2012
2011
2007
1997
1988
1997
2013
2013
2008
2007
2006
1996
2002
2016
2020
2020
2002
2014
2007
2005
2005
2009
2008
Jul-15
Jul-09
Feb-10
Mar-14
Jun-15
Sep-16
Mar-14
Mar-14
Mar-14
Feb-11
Sep-15
Mar-14
Mar-14
Mar-14
Mar-14
Sep-16
May-11
Sep-08
Oct-08
Oct-08
Oct-08
Sep-16
Sep-16
Sep-16
Sep-16
Mar-14
Mar-14
Sep-16
Sep-16
Apr-20
Apr-20
Jun-15
Sep-16
Sep-16
Sep-16
Mar-14
Dec-18
Mar-14
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
190
166
170
86
83
180
110
142
125
210
153
95
245
177
200
121
140
130
155
140
66
128
90
145
149
101
221
128
117
149
153
116
108
156
156
104
103
119
127
118
State
City
Miami .............. FL
Miami .............. FL
Orlando............. FL
Orlando............. FL
Orlando............. FL
Panama City ........ FL
Panama City ........ FL
Pensacola........... FL
Tallahassee ......... FL
Tallahassee ......... FL
Tampa .............. FL
Atlanta / Downtown GA
Atlanta / Perimeter
Dunwoody.......... GA
Atlanta.............. GA
Macon .............. GA
Savannah ........... GA
Cedar Rapids .......
IA
Cedar Rapids .......
Davenport ..........
Boise ...............
Des Plaines .........
Hoffman Estates....
Mettawa ............
Mettawa ............
Rosemont...........
Skokie ..............
Warrenville.........
Indianapolis ........
Merrillville .........
IN
Mishawaka .........
IN
South Bend .........
IN
Overland Park ...... KS
Overland Park ...... KS
Wichita ............. KS
Louisville........... KY
Lafayette ........... LA
Lafayette ........... LA
IL
IL
IL
IL
IA
IA
ID
IN
IL
IL
IL
Description
Hampton
Homewood
Suites
Fairfield
Home2 Suites
SpringHill
Suites
Hampton
TownePlace
Suites
TownePlace
Suites
Fairfield
Hilton Garden
Inn
Embassy Suites
Hampton
Hampton
Home2 Suites
Hilton Garden
Inn
Hilton Garden
Inn
Hampton
Homewood
Suites
Hampton
Hampton
Hilton Garden
Inn
Hilton Garden
Inn
Hilton Garden
Inn
Residence Inn
Hampton
Hampton
Hilton Garden
Inn
SpringHill
Suites
Hilton Garden
Inn
Residence Inn
Fairfield
Fairfield
Residence Inn
Courtyard
AC Hotel
Hilton Garden
Inn
SpringHill
Suites
Initial Cost
Bldg./
FF&E
/Other
Subsequently
Capitalized
Bldg.
Imp. &
FF&E
Total
Gross
Cost (2)
Acc.
Deprec.
Encumbrances
Land (1)
-
12,440
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,194
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,972
18,820
3,140
2,731
3,141
1,605
908
1,770
960
-
1,824
7,861
3,228
740
-
-
1,590
1,770
400
1,335
10,000
1,770
2,246
1,722
3,410
2,593
1,171
1,310
1,860
898
2,090
1,230
1,790
1,940
5,004
-
709
9,987
25,375
22,580
18,063
25,779
9,995
9,549
12,562
11,734
10,938
20,034
16,374
26,498
23,122
15,043
14,716
11,364
13,116
16,915
21,114
38,116
14,371
28,328
21,843
23,594
31,284
20,894
11,542
17,755
12,862
23,361
11,713
20,633
9,739
46,546
17,898
9,400
18,489
52,879
28,854
20,907
32,176
12,941
10,929
14,650
13,552
11,415
25,716
28,076
29,808
24,994
15,743
17,024
13,198
16,984
18,132
25,708
51,650
12,730
33,402
25,685
27,197
37,421
24,839
15,166
20,759
15,406
26,898
14,541
25,631
12,978
51,550
23,779
11,063
(8,194)
(10,525)
(10,961)
(2,838)
(12,348)
(5,120)
(4,117)
(2,880)
(2,541)
(3,534)
(9,879)
(4,136)
(4,067)
(5,612)
(4,694)
(5,341)
(2,927)
(3,695)
(4,066)
(10,513)
(8,269)
(3,731)
(11,836)
(8,993)
(5,475)
(7,564)
(9,229)
(5,762)
(4,169)
(5,723)
(5,114)
(4,016)
(8,461)
(4,250)
(354)
(9,484)
(3,728)
6,530
8,684
3,133
113
3,256
1,341
473
318
858
477
3,858
3,841
82
1,133
701
2,308
244
2,099
817
3,260
3,534
(3,411)
(3)
2,828
2,120
193
3,544
2,774
2,314
1,144
1,646
1,447
1,598
3,208
1,299
-
5,881
955
86
Date of
Construction
2000
Date
Acquired
Apr-10
Depreciable
Life
3 - 39 yrs.
# of
Rooms
2000
2009
2019
2009
2009
2010
2008
2011
2006
2007
1999
2016
2016
2007
2004
2009
2010
2007
2007
2005
2000
2008
2008
2015
2000
2008
2007
2008
2007
2010
2008
2000
2000
2018
2006
2011
Mar-14
Jul-09
Mar-19
Jul-09
Mar-09
Jan-10
Sep-16
Sep-16
Mar-14
Nov-10
Feb-18
Jun-18
Jul-16
Mar-14
Mar-14
Sep-16
Sep-16
Sep-16
Apr-10
Sep-16
Sep-16
Nov-10
Nov-10
Sep-16
Sep-16
Nov-10
Nov-10
Sep-16
Nov-10
Sep-16
Mar-14
Mar-14
Mar-14
Oct-22
Jul-10
Jun-11
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
121
162
200
128
200
95
103
97
97
85
147
119
132
128
101
105
103
95
103
186
253
184
170
130
158
225
135
130
124
106
119
110
120
90
156
153
103
City
State
New Orleans........ LA
Marlborough........ MA
Westford............ MA
Westford............ MA
Annapolis........... MD
Silver Spring........ MD
Portland............. ME
Portland............. ME
Portland............. ME
Novi ................ MI
Maple Grove........ MN
Rochester ........... MN
St. Paul ............. MN
Kansas City......... MO
Kansas City......... MO
St. Louis ............ MO
St. Louis ............ MO
Hattiesburg ......... MS
Hattiesburg ......... MS
Carolina Beach ..... NC
Charlotte............ NC
Durham ............. NC
Fayetteville ......... NC
Greensboro ......... NC
Jacksonville......... NC
Wilmington ......... NC
Winston-Salem ..... NC
Omaha .............. NE
Omaha .............. NE
Omaha .............. NE
Omaha .............. NE
Cranford ............ NJ
Mahwah ............ NJ
Mount Laurel ....... NJ
Somerset............ NJ
West Orange........ NJ
Islip/Ronkonkoma .. NY
New York........... NY
Syracuse ............ NY
Syracuse ............ NY
Description
Homewood
Suites
Residence Inn
Hampton
Residence Inn
Hilton Garden
Inn
Hilton Garden
Inn
AC Hotel
Aloft Hotel
Residence Inn
Hilton Garden
Inn
Hilton Garden
Inn
Hampton
Hampton
Hampton
Residence Inn
Hampton
Hampton
Courtyard
Residence Inn
Courtyard
Fairfield
Homewood
Suites
Home2 Suites
SpringHill
Suites
Home2 Suites
Fairfield
Hampton
Courtyard
Hampton
Hilton Garden
Inn
Homewood
Suites
Homewood
Suites
Homewood
Suites
Homewood
Suites
Courtyard
Courtyard
Hilton Garden
Inn
Independent
Courtyard
Residence Inn
Initial Cost
Bldg./
FF&E
/Other
Subsequently
Capitalized
Bldg.
Imp. &
FF&E
Total
Gross
Cost (2)
Encumbrances
Land (1)
Acc.
Deprec.
Date of
Construction
Date
Acquired
Depreciable
Life
# of
Rooms
67,105
23,016
21,415
27,100
20,302
19,215
68,381
53,193
56,942
18,853
18,654
16,851
31,968
12,001
26,597
33,372
19,181
14,481
11,258
43,501
13,421
24,992
12,858
12,600
14,643
15,786
17,579
49,941
24,695
40,341
24,287
32,435
30,412
21,515
31,114
25,607
41,537
30,877
24,218
18,335
(16,963)
(6,213)
(5,373)
(7,774)
(5,461)
(6,937)
(2,655)
(2,176)
(8,581)
(7,298)
(4,330)
(6,976)
(3,837)
(4,930)
(7,810)
(13,856)
(7,416)
(3,868)
(4,755)
(10,687)
(2,951)
(11,485)
(4,870)
(3,427)
(2,863)
(4,329)
(3,081)
(13,036)
(5,011)
(7,886)
(5,224)
(9,252)
(9,169)
(8,135)
(12,674)
(9,110)
(10,556)
(19,017)
(5,480)
(4,315)
2002
2006
2007
2001
2007
2010
2018
2021
2009
2008
2003
2009
2016
1999
2002
2003
2006
2006
2008
2003
2010
1999
2011
2004
2012
2008
2010
1999
2007
2001
2008
2000
2001
2006
2002
2005
2003
1916
2013
2013
Mar-14
Mar-14
Mar-14
Mar-14
Mar-14
Jul-10
Aug-21
Sep-21
Oct-17
Nov-10
Sep-16
Aug-09
Mar-19
Aug-10
Mar-14
Aug-10
Apr-10
Mar-14
Dec-08
Mar-14
Sep-16
Dec-08
Feb-11
Mar-14
Sep-16
Mar-14
Sep-16
Mar-14
Sep-16
Sep-16
Sep-16
Mar-14
Mar-14
Jan-11
Mar-14
Jan-11
Mar-14
Mar-14
Oct-15
Oct-15
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 25 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 32 yrs.
3 - 39 yrs.
3 - 39 yrs.
166
112
110
108
126
107
178
157
179
148
121
124
160
122
106
190
126
84
84
144
94
122
118
82
105
122
94
181
139
178
123
108
110
118
162
131
166
208
102
78
21,161
-
-
8,024
-
-
-
-
30,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,963
-
-
-
-
-
-
-
-
-
-
4,150
3,480
3,410
1,760
4,350
1,361
6,767
6,002
4,440
1,213
1,560
916
2,523
727
2,000
1,758
758
1,390
906
7,490
1,030
1,232
746
1,850
910
1,310
2,170
6,700
1,710
1,620
1,890
4,550
3,220
1,589
-
2,054
6,510
-
812
621
52,258
17,341
16,320
20,791
13,974
16,094
61,602
47,177
51,534
15,052
13,717
13,225
29,365
9,363
20,818
20,954
15,287
11,324
9,151
31,588
11,111
18,343
10,563
10,157
12,527
13,034
14,268
36,829
22,636
35,962
22,014
23,828
22,742
13,476
27,133
19,513
10,697
2,194
1,686
4,550
1,978
1,760
12
14
968
2,588
3,378
2,710
81
1,911
3,779
10,660
3,136
1,767
1,202
4,423
1,280
5,418
1,551
593
1,206
1,443
1,141
6,412
348
2,758
383
4,057
4,450
6,450
3,981
4,039
28,718
102,832
23,278
17,589
(3)
6,309
(71,955)
127
125
87
City
State
Mason ..............
Twinsburg ..........
Oklahoma City .....
Oklahoma City .....
Oklahoma City .....
Oklahoma City (West)
.....................
Portland.............
Collegeville/Philadelphi
a ....................
Malvern/Philadelphia
.....................
Pittsburgh...........
Pittsburgh...........
Charleston ..........
Columbia ...........
Columbia ...........
Greenville ..........
Hilton Head.........
Chattanooga ........
Franklin.............
Franklin.............
Knoxville ...........
Knoxville ...........
Knoxville ...........
Memphis............
Memphis............
Nashville ...........
Nashville ...........
Nashville ...........
Addison.............
Arlington ...........
Austin ..............
Austin ..............
Austin ..............
Austin ..............
Austin ..............
Austin/Round Rock.
Austin/Round Rock.
Dallas...............
OH
OH
OK
OK
OK
OK
OR
PA
PA
PA
PA
SC
SC
SC
SC
SC
TN
TN
TN
TN
TN
TN
TN
TN
TN
TN
TN
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
Description
Hilton Garden
Inn
Hilton Garden
Inn
Hampton
Hilton Garden
Inn
Homewood
Suites
Homewood
Suites
Hampton
Courtyard
Courtyard
AC Hotel
Hampton
Home2 Suites
Hilton Garden
Inn
TownePlace
Suites
Hyatt Place
Hilton Garden
Inn
Homewood
Suites
Courtyard
Residence Inn
Homewood
Suites
SpringHill
Suites
TownePlace
Suites
Hampton
Hilton Garden
Inn
Hilton Garden
Inn
Home2 Suites
TownePlace
Suites
SpringHill
Suites
Hampton
Courtyard
Fairfield
Hampton
Hilton Garden
Inn
Homewood
Suites
Hampton
Homewood
Suites
Homewood
Suites
Initial Cost
Bldg./
FF&E
/Other
Subsequently
Capitalized
Bldg.
Imp. &
FF&E
Total
Gross
Cost (2)
Encumbrances
Land (1)
Acc.
Deprec.
Date of
Construction
Date
Acquired
Depreciable
Life
# of
Rooms
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,120
1,419
1,430
1,270
760
1,280
10,813
2,115
996
3,305
2,503
3,250
3,540
1,330
2,802
3,600
1,410
2,510
2,970
2,160
1,840
1,190
2,449
4,501
2,754
1,153
7,390
1,210
1,217
1,579
1,306
1,459
1,614
1,898
865
2,180
4,920
16,770
16,614
31,327
32,700
20,056
13,340
64,433
17,953
20,374
31,603
18,537
16,778
16,399
10,839
27,700
11,386
9,361
31,341
29,208
14,704
12,441
7,920
37,097
33,688
39,997
15,206
13,929
19,700
8,738
18,487
16,504
17,184
14,451
16,462
10,999
25,644
29,427
1,201
4,270
2,474
270
17
481
43
4,814
2,263
-
4,947
1,768
1,028
1,367
17
2,727
2,891
724
1,572
1,085
1,156
1,492
4,528
52
4,218
1,789
1,313
3,171
1,750
2,188
2,068
5,544
2,346
6,451
4,423
2,215
786
88
19,091
22,304
35,231
34,239
20,833
15,101
75,289
24,882
23,633
34,908
25,987
21,796
20,968
13,536
30,519
17,712
13,662
34,575
33,750
17,950
15,437
10,601
44,074
38,241
46,970
18,149
22,632
24,081
11,705
22,257
19,878
24,188
18,411
24,811
16,287
30,039
35,133
(4,059)
(9,989)
(13,095)
(6,758)
(4,280)
(3,693)
(2,221)
(9,097)
(8,734)
(259)
(10,903)
(4,091)
(5,898)
(2,947)
(1,217)
(4,733)
(4,885)
(6,567)
(6,503)
(3,573)
(3,022)
(2,749)
(7,511)
(1,368)
(17,379)
(5,939)
(3,407)
(7,701)
(4,446)
(7,805)
(7,136)
(10,057)
(6,897)
(10,166)
(6,940)
(5,170)
(6,219)
2010
1999
2009
2014
2014
2008
2017
2005
2007
2018
1991
2011
2006
2009
2018
2001
1997
2008
2009
2005
2006
2003
2000
2019
2009
2012
2012
2003
2007
2009
2009
1996
2008
1997
2001
2010
2013
Sep-16
3 - 39 yrs.
Oct-08
May-10
Sep-16
Sep-16
Sep-16
Nov-21
Nov-10
Nov-10
Oct-22
Dec-08
Sep-16
Mar-14
Sep-16
Sep-21
Mar-14
Mar-14
Sep-16
Sep-16
Sep-16
Sep-16
Sep-16
Feb-18
Oct-21
Sep-10
May-12
Sep-16
Mar-14
Dec-10
Nov-10
Nov-10
Apr-09
Nov-10
Apr-09
Mar-09
Sep-16
Sep-16
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
110
142
200
155
100
90
243
132
127
134
132
122
143
91
130
104
76
126
124
103
103
97
144
150
194
119
101
159
98
145
150
124
117
97
94
115
130
City
State
Denton.............. TX
El Paso.............. TX
Fort Worth.......... TX
Fort Worth.......... TX
Fort Worth.......... TX
Fort Worth.......... TX
Frisco ............... TX
Grapevine........... TX
Houston............. TX
Houston............. TX
Houston............. TX
Houston............. TX
Lewisville........... TX
San Antonio ........ TX
Shenandoah......... TX
Stafford ............. TX
Texarkana........... TX
Provo ............... UT
Salt Lake City ...... UT
Salt Lake City ...... UT
Alexandria .......... VA
Alexandria .......... VA
Charlottesville ...... VA
Manassas ........... VA
Richmond........... VA
Richmond........... VA
Richmond........... VA
Suffolk.............. VA
Suffolk.............. VA
Virginia Beach...... VA
Virginia Beach...... VA
Kirkland ............ WA
Seattle .............. WA
Tukwila............. WA
Madison ............ WI
Richmond........... VA
Description
Homewood
Suites
Homewood
Suites
Courtyard
Hilton Garden
Inn
Homewood
Suites
TownePlace
Suites
Hilton Garden
Inn
Hilton Garden
Inn
Courtyard
Marriott
Residence Inn
Residence Inn
Hilton Garden
Inn
TownePlace
Suites
Courtyard
Homewood
Suites
Hampton
Residence Inn
Residence Inn
SpringHill
Suites
Courtyard
SpringHill
Suites
Courtyard
Residence Inn
Courtyard
Marriott
Residence Inn
Courtyard
TownePlace
Suites
Courtyard
Courtyard
Courtyard
Residence Inn
Homewood
Suites
Hilton Garden
Inn
Corporate
Office
Initial Cost
Bldg./
FF&E
/Other
Subsequently
Capitalized
Bldg.
Imp. &
FF&E
Total
Gross
Cost (2)
Encumbrances
Land (1)
Acc.
Deprec.
Date of
Construction
Date
Acquired
Depreciable
Life
# of
Rooms
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,144
-
14,144
-
-
-
-
-
-
-
-
990
2,800
2,313
4,637
3,309
2,104
2,507
1,522
2,080
4,143
12,070
2,070
3,361
2,220
3,350
1,880
636
1,150
1,515
1,092
6,860
5,968
21,130
1,395
2,003
-
1,113
940
710
10,580
12,000
18,950
63,484
8,130
2,593
14,895
16,657
15,825
25,073
18,397
16,311
12,981
15,543
21,836
46,623
19,769
11,186
23,919
9,610
17,256
10,969
8,723
18,277
24,214
16,465
19,681
-
27,737
14,962
-
83,698
-
5,186
5,241
29,140
40,556
25,028
92,786
16,659
47,152
440
2,049
166
109
248
1,805
1,689
2,058
1,000
(19,893)
981
1,379
(3)
3,200
1,381
128
467
2,102
3,531
382
1,952
4,363
21,019
3,243
3,078
23,262
26,235
12,805
1,470
792
3,987
4,645
1,878
5,504
4,613
2
16,325
21,505
18,304
29,819
21,954
20,220
17,177
19,123
24,916
30,873
32,820
14,635
30,480
13,211
20,735
13,316
11,461
22,958
26,111
19,509
30,904
26,987
52,110
19,435
25,264
109,933
13,918
7,596
6,743
43,708
57,200
45,856
161,774
29,402
49,747
(3,919)
(5,892)
(3,684)
(854)
(644)
(6,974)
(6,782)
(6,981)
(4,876)
(18,873)
(7,051)
(2,921)
(12,844)
(3,753)
(3,914)
(4,081)
(4,163)
(7,167)
(4,288)
(7,200)
(8,453)
(8,375)
(8,950)
(6,652)
(6,915)
(34,811)
(3,795)
(2,710)
(2,248)
(9,964)
(13,135)
(8,206)
(30,840)
(8,171)
(3,148)
-
329,215
$
682
802,625
$
3,723
4,744,673
$
$
2,848
453,687
7,253
6,000,975
$
(3,123)
(1,480,043)
$
2009
2008
2017
2012
2013
2010
2008
2009
2012
2010
2006
2012
2007
2007
2014
2006
2004
1996
2014
2009
1987
2011
2000
2006
2014
1984
2014
2007
2007
1999
2002
2006
1991
1992
2021
1893
Sep-16
Mar-14
Feb-17
Nov-21
Nov-21
Jul-10
Dec-08
Sep-10
Sep-16
Jan-10
Mar-14
Sep-16
Oct-08
Mar-14
Sep-16
Mar-14
Jan-11
Mar-14
Oct-17
Nov-10
Mar-14
Mar-09
Mar-14
Feb-11
Jul-12
Mar-14
Jul-12
Mar-14
Mar-14
Mar-14
Mar-14
Mar-14
Mar-14
Mar-14
Feb-21
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
3 - 39 yrs.
107
114
124
157
112
140
102
110
124
206
129
120
165
106
124
78
81
114
136
143
178
155
139
107
135
413
75
92
72
141
160
150
234
106
176
May-13
3 - 39 yrs.
N/A
28,983
89
Investment in Real Estate:
Balance as of January 1 ..........................................................
Acquisitions............................................................................
Improvements.........................................................................
Dispositions............................................................................
Assets Held for Sale (4) ...........................................................
Impairment of Depreciable Assets .........................................
Total Gross Cost as of December 31......................................
Finance Ground Lease Assets as of
December 31 .......................................................................
Total Investment in Real Estate .............................................
Accumulated Depreciation and Amortization:
Accumulated Depreciation as of January 1............................
Depreciation Expense.............................................................
Accumulated Depreciation on Dispositions ...........................
Assets Held for Sale (4) ...........................................................
Accumulated Depreciation as of December 31......................
Accumulated Amortization of Finance Leases
as of December 31...............................................................
Accumulated Depreciation and Amortization
as of December 31...............................................................
$
$
$
2022
2021
2020
$
$
$
5,886,363
86,467
61,745
(7,425)
-
(26,175)
6,000,975
102,084
6,103,059
2022
(1,302,246)
(178,641)
844
-
(1,480,043)
$
$
$
5,764,977
430,155
25,824
(336,905)
13,066
(10,754)
5,886,363
102,084
5,988,447
2021
(1,224,832)
(179,275)
109,610
(7,750)
(1,302,246)
5,682,550
104,496
37,579
(57,417)
2,866
(5,097)
5,764,977
203,617
5,968,594
2020
(1,049,996)
(192,346)
13,599
3,911
(1,224,832)
(12,054)
(9,016)
(10,866)
$
(1,492,097)
$
(1,311,262)
$
(1,235,698)
(1) Land is owned fee simple unless cost is $0, which means the property is subject to a ground lease.
(2) The aggregate cost for federal income tax purposes is approximately $5.6 billion at December 31, 2022 (unaudited).
(3) Amount includes a reduction in cost due to recognition of an impairment loss.
(4) As of December 31, 2022, the Company did not have any hotels classified as Held for Sale.
90
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Apple Hospitality REIT, Inc.
By:
/s/ Justin G. Knight
Justin G. Knight,
Chief Executive Officer (Principal Executive Officer)
By:
By:
/s/ Elizabeth S. Perkins
Elizabeth S. Perkins,
Chief Financial Officer (Principal Financial Officer)
/s/ Rachel S. Labrecque
Rachel S. Labrecque,
Chief Accounting Officer (Principal Accounting Officer)
Date: February 21, 2023
Date: February 21, 2023
Date: February 21, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the date indicated.
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
/s/ Glade M. Knight
Glade M. Knight, Executive Chairman and Director
/s/ Justin G. Knight
Justin G. Knight,
Chief Executive Officer and Director (Principal Executive Officer)
/s/ Elizabeth S. Perkins
Elizabeth S. Perkins,
Chief Financial Officer (Principal Financial Officer)
/s/ Rachel S. Labrecque
Rachel S. Labrecque,
Chief Accounting Officer (Principal Accounting Officer)
/s/ Glenn W. Bunting, Jr.
Glenn W. Bunting, Jr., Director
/s/ Jon A. Fosheim
Jon A. Fosheim, Director
/s/ Kristian M. Gathright
Kristian M. Gathright, Director
/s/ Blythe J. McGarvie
Blythe J. McGarvie, Director
/s/ L. Hugh Redd
L. Hugh Redd, Director
/s/ Howard E. Woolley
Howard E. Woolley, Director
91
Date: February 21, 2023
Date: February 21, 2023
Date: February 21, 2023
Date: February 21, 2023
Date: February 21, 2023
Date: February 21, 2023
Date: February 21, 2023
Date: February 21, 2023
Date: February 21, 2023
Date: February 21, 2023
As of March 1, 2023, the Board of Directors of the Company were as follows:
Glade M. Knight
Executive Chairman and Founder,
Apple Hospitality REIT, Inc.
Justin G. Knight
Chief Executive Officer,
Apple Hospitality REIT, Inc.
Glenn W. Bunting
President,
GB Corporation
Jon A. Fosheim
Co-founder,
Green Street Advisors
Blythe J. McGarvie
Founder and Former Chief Executive Officer,
Leadership for International Finance
Carolyn B. Handlon
Former Executive Vice President Finance and Global
Treasurer, Marriott International, Inc.
Kristian M. Gathright
Former Executive Vice President and Chief Operating
Officer, Apple Hospitality REIT, Inc.
L. Hugh Redd
Former Senior Vice President and Chief Financial Officer,
General Dynamics
Howard E. Woolley
Former Senior Vice President Wireless Policy and Strategic
Alliances, Verizon Communications, Inc.
As of March 1, 2023, the Executive Officers of the Company were as follows:
Glade M. Knight
Executive Chairman
Justin G. Knight
Chief Executive Officer
Karen C. Gallagher
Senior Vice President and Chief Operating Officer
Rachel S. Labrecque
Senior Vice President and Chief Accounting Officer
Nelson G. Knight
President, Real Estate and Investments
Elizabeth S. Perkins
Senior Vice President and Chief Financial Officer
Jeanette A. Clarke
Senior Vice President and Chief Capital Investments Officer
Matthew P. Rash
Senior Vice President, Chief Legal Officer and Secretary
92