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, 2024
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
26-1379210
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
814 East Main Street
Richmond, Virginia
23219
(Address of principal executive offices)
(Zip Code)
(804) 344-8121
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares, no par value
APLE
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant 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 $3,268,935,196 as of June 30, 2024.
The number of common shares outstanding on February 18, 2025 was 239,770,392.
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 19,
2025.
2
APPLE HOSPITALITY REIT, INC.
FORM 10-K
Index
Page
Part I
Item 1.
Business........................................................................................................................................................
4
Item 1A.
Risk Factors..................................................................................................................................................
11
Item 1B.
Unresolved Staff Comments ........................................................................................................................
25
Item 1C.
Cybersecurity ...............................................................................................................................................
25
Item 2.
Properties......................................................................................................................................................
27
Item 3.
Legal Proceedings ........................................................................................................................................
33
Item 4.
Mine Safety Disclosures .............................................................................................................................
33
Part II
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities .................................................................................................................................................
34
Item 6.
Reserved.......................................................................................................................................................
37
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations......................
38
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk......................................................................
50
Item 8.
Financial Statements and Supplementary Data............................................................................................
51
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................
86
Item 9A.
Controls and Procedures ..............................................................................................................................
86
Item 9B.
Other Information.........................................................................................................................................
86
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.........................................................
86
Part III
Item 10.
Directors, Executive Officers and Corporate Governance...........................................................................
87
Item 11.
Executive Compensation..............................................................................................................................
87
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters....
87
Item 13.
Certain Relationships and Related Transactions, and Director Independence ............................................
87
Item 14.
Principal Accounting Fees and Services......................................................................................................
87
Part IV
Item 15.
Exhibits, Financial Statement Schedules .....................................................................................................
88
Item 16.
Form 10-K Summary ...................................................................................................................................
90
Signatures
98
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®, Homewood Suites by Hilton® and Motto by
Hilton® trademarks are the property of Hilton Worldwide Holdings Inc. or one of its affiliates. The Hyatt®, Hyatt House® and Hyatt
Place® trademarks are the property of Hyatt Hotels Corporation or one of its affiliates. For convenience, the applicable trademark or
service mark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.
3
PART I
Forward-Looking Statements
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.
Such 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 geopolitical uncertainty, including terrorism and acts of war;
travel-related health concerns, including widespread outbreaks of infectious or contagious diseases in the U.S.; inclement weather
conditions, including natural disasters such as hurricanes, earthquakes and wildfires; government shutdowns, airline strikes or
equipment failures, or other disruptions; 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 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.
4
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 United States (“U.S.”). The Company has elected to be treated as a REIT for U.S.
federal income tax purposes. As of December 31, 2024, the Company owned 221 hotels with an aggregate of 29,764 guest rooms
located in urban, high-end suburban and developing markets throughout 37 states and the District of Columbia (“D.C.”), including two
hotels with a total of 206 guest rooms classified as held for sale, one of which was sold to an unrelated party in February 2025, while
the other is expected to be sold in the first quarter of 2025. The Company also owns one property leased to third parties. As of
December 31, 2024, substantially all of the Company’s hotels operated under Marriott or Hilton brands. The hotels are operated and
managed under separate management agreements with 16 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, 2024 closing share price) ratio at December 31, 2024 of
28.5%, 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.
5
Hotel Operating Performance
As of December 31, 2024, the Company owned 221 hotels with a total of 29,764 guest rooms, including two hotels with a total
of 206 guest rooms classified as held for sale, as compared to 225 hotels with a total of 29,900 guest rooms as of December 31, 2023.
Operating performance is included only for the period of ownership for hotels acquired or disposed of during 2024 and 2023. During
2024, the Company acquired two hotels and sold six hotels. During 2023, the Company acquired six hotels and did not dispose of any
hotels. In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its
independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 guest rooms (“non-hotel property”).
Lease revenue from this property is recorded in other revenue in the Company’s consolidated statements of operations and
comprehensive income. As a result of the lease and transfer of possession to the operator, this property has been excluded from the
Company’s hotel and guest room counts since May 2023. Results of the hotel operations for this property are included only for the
period prior to the lease agreement becoming effective in May 2023. 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.
Years Ended December 31,
2024
2023
Percent
Change
ADR...........................................................................................................$ 158.01
$ 155.76
1.4%
Occupancy .................................................................................................
75.0%
74.2%
1.1%
RevPAR.....................................................................................................$ 118.54
$ 115.60
2.5%
Comparable Hotels Operating Performance
The following table reflects certain operating statistics for the Company’s 219 hotels owned and held for use as of December 31,
2024 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 219 hotels owned
and held for use 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 and assets held for sale, results have been excluded for the
Company’s period of ownership.
Years Ended December 31,
2024
2023
Percent
Change
ADR...........................................................................................................$ 158.94
$ 158.09
0.5%
Occupancy .................................................................................................
75.1%
74.4%
0.9%
RevPAR.....................................................................................................$ 119.36
$ 117.67
1.4%
Hotel performance is impacted by many factors, including the economic conditions in the U.S. and in each individual
locality. Economic indicators in the U.S. have generally been stable throughout 2024. As a result, the Company’s revenue and
operating results have modestly improved during the year ended December 31, 2024, compared to the year ended December 31, 2023,
which is consistent with the overall lodging industry. The Company expects low single digit RevPAR growth for its Comparable
Hotels for 2025 as compared to 2024, which is comparable to broader industry expectations. 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 2024, the Company acquired two hotels for an aggregate purchase price of $196.3 million: an existing 234-
guest-room AC Hotel in Washington, D.C. and a 262-guest-room Embassy Suites in Madison, Wisconsin that was purchased at the
completion of development. The Company utilized proceeds from the sale of properties and borrowings under its $650 million
revolving credit facility with an initial maturity date of July 25, 2026 (the “Revolving Credit Facility”) to fund these acquisitions. The
Company plans to utilize its available cash, net proceeds from the sale of shares under the ATM program (as defined below), proceeds
from the sales of properties or borrowings under its unsecured credit facilities for any future hotel acquisitions. See Note 4 title “Debt”
6
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 unsecured credit facilities.
As of December 31, 2024, the Company had one outstanding contract, which was entered into during May 2023, for the
potential purchase of a hotel in Nashville, Tennessee for an expected purchase price of approximately $98.2 million. The hotel is
under development and is currently planned to be completed and opened for business in late 2025, as a 260-guest-room Motto. As of
December 31, 2024, a $1.1 million contract deposit (refundable if the seller does not meet its obligations under the contract) had been
paid. If the closing occurs, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured
credit facilities available at closing, to purchase the hotel under contract. 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 the purchase contract and acquire this hotel. As this hotel is under development, at this time, the seller
has not met all of the conditions to closing.
Dispositions and Contracts for Potential 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, during the year ended December 31, 2024, the Company sold six hotels in five separate transactions with
unrelated parties for a combined gross sales price of approximately $63.4 million, resulting in a combined gain on the sales of
approximately $19.7 million, net of transaction costs. The Company used a portion of the net proceeds from the sale of two of the
hotels to complete a like-kind exchange, in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, for the
acquisition of the AC Hotel in Washington, D.C., which was completed in March 2024. The net proceeds from the sale of the other
four hotels were used for share repurchases and general corporate purposes. As of December 31, 2024, the Company had outstanding
contracts to sell two of its hotels, one of which was sold to an unrelated party in February 2025, while the other is expected to be sold
in the first quarter of 2025 to a separate unrelated third party, for a combined gross sales price of approximately $21.0 million. The net
proceeds from the sale of both hotels are expected to be used for general corporate purposes.
New York Independent Boutique Hotel Lease
In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its
independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 guest rooms. Lease revenue from this
property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result
of the lease and transfer of possession to the operator, this property has been excluded from the Company’s hotel and guest room
counts since May 2023. As a result of the operator's failure to make lease payments, the Company has commenced legal proceedings
to remove the operator from possession of the hotel. The Company intends to enforce its rights under the lease and transition
management of the hotel to a third-party manager, however, the removal process is still ongoing and the timing of the resolution of
this matter and the transition of management operations cannot be predicted at this time.
See Note 2 titled “Investment in Real Estate” and Note 3 titled “Assets Held for Sale and 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 2024, 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 $335.4 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 2025 if not terminated or extended earlier. The Company
previously entered into and expects to continue to enter into written trading plans as part of the Share Repurchase Program that
provide for share repurchases in open market transactions that are intended to comply with Rule 10b5-1 under the Exchange Act.
During the year ended December 31, 2024, the Company purchased, under its Share Repurchase Program, approximately 2.4 million
of its common shares at a weighted-average market purchase price of approximately $14.16 per common share for an aggregate
purchase price, including commissions, of approximately $34.7 million. Repurchases under the Share Repurchase Program have been
funded, and the Company intends to fund future repurchases, with cash on hand, proceeds from dispositions 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, 2024, approximately $300.8 million
remained available for purchase under the Share Repurchase Program.
7
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, 2024, consisted of
the following:
Number of Hotels and Guest Rooms by Brand
Number of
Number of
Brand
Hotels
Guest Rooms
Hilton Garden Inn...................................................................................................................
39
5,476
Hampton .................................................................................................................................
36
4,831
Courtyard................................................................................................................................
34
4,892
Residence Inn .........................................................................................................................
30
3,695
Homewood Suites...................................................................................................................
29
3,291
Fairfield ..................................................................................................................................
10
1,213
Home2 Suites..........................................................................................................................
10
1,146
SpringHill Suites.....................................................................................................................
9
1,463
TownePlace Suites..................................................................................................................
8
834
Embassy Suites.......................................................................................................................
4
770
AC Hotels ...............................................................................................................................
4
702
Hyatt Place..............................................................................................................................
3
411
Marriott...................................................................................................................................
2
619
Hyatt House............................................................................................................................
2
264
Aloft Hotels ............................................................................................................................
1
157
Total....................................................................................................................................
221
29,764
Each of the Company’s 221 hotels owned as of December 31, 2024 is operated and managed under separate management
agreements with 16 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, upon sale of the property, or without cause. As of December 31, 2024, approximately 82% of the Company’s hotels
operated 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.
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.
8
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 a periodic 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 2024,
2023 and 2022, the Company’s capital improvements for its hotels were approximately $78.3 million, $76.8 million and $61.7 million,
respectively. During 2025, the Company anticipates investing approximately $80 million to $90 million in capital improvements,
which includes comprehensive renovation projects for approximately 20 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 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 through 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. However, macroeconomic pressures, including inflation, increases in interest rates and general market
uncertainty, could affect the Company’s ability to raise debt or equity capital to fund long-term liquidity requirements in a cost-
effective manner.
On July 17, 2024, the Company amended the 2017 $85 million term loan facility, which increased the amount of the term loan
facility to $130 million, with the additional $45 million funded at closing, and extended the maturity date to July 25, 2026. 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 2.20%, depending on the Company's leverage ratio, as calculated under the terms of the amended
credit agreement. Subject to certain conditions, including covenant compliance and additional fees, the maturity date of the $130
million term loan facility may be extended by the Company to July 25, 2027.
As of December 31, 2024, the Company had approximately $1.5 billion of total outstanding debt with a combined weighted-
average interest rate, including the effect of interest rate swaps, of approximately 4.71%, consisting of approximately $254.3 million
in outstanding mortgage debt secured by 14 properties, with maturity dates ranging from April 2025 to May 2038 and stated interest
rates ranging from 3.40% to 4.46%, and approximately $1.2 billion in outstanding debt under its unsecured credit facilities with
maturity dates ranging from August 2025 to March 2030 and effective interest rates, including the effect of interest rate swaps,
ranging from 2.61% to 6.13%.
The Company’s unused borrowing capacity under its Revolving Credit Facility as of December 31, 2024 was $567.5 million,
which is available for acquisitions, hotel renovations, share repurchases, working capital and other general corporate purposes,
including the payment of distributions to shareholders. 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, 2024 closing share price) ratio as of December 31, 2024 was 28.5%. The Company intends to maintain
staggered maturities of its debt when possible, 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 titled “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, 2024 and a summary of
the financial and restrictive covenants as defined in the credit agreements.
On February 23, 2024, the Company entered into an equity distribution agreement pursuant to which the Company may sell,
from time to time, up to an aggregate of $500 million of its common shares under an at-the-market offering program (the “ATM
Program”) under the Company’s shelf registration statement. During the year ended December 31, 2024, the Company did not sell any
common shares under the ATM Program, and no common shares were sold during the year ended December 31, 2024 under the
previous $300 million at-the-market offering program (the “Prior ATM Program”), which was terminated in February 2024 in
connection with the commencement of the current ATM Program. During the year ended December 31, 2023, the Company sold
approximately 12.8 million shares under the Prior ATM Program at a weighted-average market sales price of approximately $17.05
per common share and received aggregate gross proceeds of approximately $218.6 million and proceeds net of offering costs, which
included $2.6 million of commissions, of approximately $216.0 million. The Company used the net proceeds from the sale of these
shares to pay down borrowings under the Revolving Credit Facility, for acquisitions of hotel properties and for general corporate
purposes. As of December 31, 2024, approximately $500 million remained available for issuance under the ATM Program. The
Company plans to use future net proceeds from the sale of shares under the ATM Program, or under a similar successor program, for
9
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.
Distribution Policy
The Company plans to continue to pay 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. The Company’s annualized distribution rate was $0.96 per common share at December 31, 2024. In addition to the regular
monthly cash distribution of $0.08 per common share approved by the Board of Directors in December 2024, the Board of Directors
approved a special cash distribution of $0.05 per common share for a combined distribution of $0.13 per common share, paid in
January 2025, to shareholders of record as of December 31, 2024. 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 U.S. 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 necessary to maintain its REIT status. 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 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 either under insurance policies obtained by the Company or by its third-party managers. These policies
offer coverage features and insured limits that the Company believes are customary for similar types of properties and risks 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 2024, 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 usage and
10
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 65 team members (as of December 31, 2024) 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 are 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 the health and safety of its employees and does not tolerate violence, discrimination or harassment in
the workplace.
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, a tuition 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
Administration (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.
During 2024, all employees involved in the day-to-day operation of the Company’s hotels were employed by one of 16 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. 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 have been different if these transactions
were conducted with non-related parties. Certain employees of the Company also provide support services to Apple Realty Group,
11
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.
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:
•
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 and acts of war, travel-related
health concerns, including widespread outbreaks of infectious or contagious diseases in the U.S. and the related impacts
such as the Company experienced in connection with the COVID-19 pandemic, inclement weather conditions, including
natural disasters such as hurricanes, earthquakes and wildfires, and government shutdowns, airline strikes or equipment
failures, 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;
12
•
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, supply chain disruptions, tariffs, natural
disasters, regulatory compliance and other factors that may not be offset by increases in room rates or room revenue;
•
inflation 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, wage rates, health care coverage, immigration policies 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;
•
business interruptions, regulatory costs, financial loss and equipment loss 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.
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
may 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 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 generally do not decrease
when hotel revenues decrease, and some expenses, such as wages, utilities and insurance, have increased and may continue to increase
due to factors unrelated to hotel operating performance, such as inflation rates, events impacting insurance markets unrelated to the
Company’s hotels and adverse weather conditions increasing variable utility 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
13
uniformity within the franchisor system. The Company has been and, in the future, 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 or de-flag 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 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.
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, secure its data and systems, timely and accurately report financial results, 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 and have a material adverse effect on the Company.
14
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 income.
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, changes
in laws and regulations, increased labor turnover and increases in a unionized labor force. Significant labor shortages could prohibit
the Company’s hotels from operating 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 Company has experienced, and may in the future experience, increased
costs due to these factors.
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.
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, 2024, 14 of the Company’s properties were subject to ground leases, not including the Company’s three
parking lot ground leases. Accordingly, the Company effectively only owns a long-term leasehold interest in these properties. If the
Company is found to be in breach of a ground lease, it could lose the right to use the property. 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
15
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
property due to a breach or non-renewal of a ground lease, it would be unable to derive income from such property. Finally, the
Company may not be permitted to sell or finance a property 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 impose certain limits on the number of hotels the
Company may sell in a calendar year.
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, and has been, 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
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, and has used, 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.
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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 increased interest rates and 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
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 could negatively impact the Company’s business, financial performance and condition,
operating results and cash flows.
Pandemics, such as COVID-19, 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, have caused and, may in the future cause, a material
disruption to the hotel industry or the economy as a whole. COVID-19 and its variants 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 have negatively impacted or may in the future
negatively impact the Company’s ability to operate successfully as a result of a pandemic, include, among others:
•
sustained negative consumer or business sentiment or corporate travel policy restrictions, which could further adversely
impact demand for lodging;
•
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;
•
increased costs and potential difficulty accessing supplies related to personal protective equipment, increased sanitation,
social distancing and other mitigation measures at hotels; and
•
increased labor costs to attract employees due to perceived risk of exposure to an infectious disease or virus, as well as
potential for increased workers’ compensation claims if hotel employees are exposed to such diseases or viruses in the
workplace.
Moreover, many risk factors set forth in this Annual Report on Form 10-K would be heightened as a result of another potential
pandemic. The full extent of the impact of a future 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 future
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
17
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 employee, operator and customer information, such as
personally identifiable information, including information relating to payroll and financial accounts. The Company’s corporate
information technology systems are not used to process business transactions with its guests and those systems currently have no
connectivity to hotel and/or third-party management and brand technology platforms. 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 cybersecurity incident 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. The safety and security measures taken by the Company and its hotel
managers, third-party vendors and franchisors have not been, and in the future may not be, able to completely prevent damage to the
systems, the systems’ improper functioning, or the improper access or disclosure of personally identifiable information.
Cybersecurity incidents, whether through physical or electronic break-ins, cyber-attacks, cyber intrusions or the deployment of
ransomware over the Internet, malware, computer viruses, attachments to emails, social engineering or phishing schemes, have created
and may in the future create system disruptions, shutdowns, deployment of ransomware, theft of the Company’s data, or unauthorized
disclosure of confidential information. Any failure to maintain proper function, security and availability of information systems could
interrupt operations, interfere with the Company’s ability to comply with financial reporting requirements, 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. The Company has incurred, and will continue to incur, expenses to comply with data protection
standards and protocols imposed by law, regulation, industry standards and contractual obligations. Increased regulation of data
collection, use and retention practices, including self-regulation and industry standards, changes in existing laws and regulations,
enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of laws, could increase the
Company’s cost of compliance and operation, limit its ability to grow its business or otherwise harm its business. In addition,
unauthorized disclosure or loss of personally identifiable information or confidential or proprietary information could result in damage
to the Company or the hotel management company’s reputation, a loss of confidence among hotel guests, reputational harm for the
Company’s hotels, legal liability, potential litigation, and increased regulatory oversight, including governmental investigations,
enforcement actions, and regulatory fines, investigatory costs and costs to comply with notification and monitoring requirements. The
Company has processes in place to deter, detect and report cybersecurity incidents but there can be no guaranty that those processes
will be successful in preventing every attempted intrusion or attack. While the Company is not aware of any cybersecurity incidents
that have materially affected it as of December 31, 2024, there can be no guarantee that the Company will not be the subject of future
attacks, threats or incidents, that may have a material impact on its business strategy, results of operations or financial condition.
While the Company maintains cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any
incurred losses. Moreover, as cyber-attacks increase in frequency and magnitude, the Company may be unable to retain or obtain
cybersecurity insurance in amounts and on terms it views as adequate for its operations.
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, cyber threats
and other risks with respect to all of its hotels either under insurance policies obtained by the Company or by its third-party managers.
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, and the Company has no control over these decisions by insurance carriers. 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. Property insurance premiums in the hotel industry generally
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have increased in recent years, and exposure to certain markets has resulted in increased costs. The Company has experienced, and
may continue to experience, premium increases applicable to its portfolio.
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, including more frequent or severe
storms, extreme temperatures, droughts, wildfires, hurricanes, flooding, and utility outages, any of which could have a material
adverse effect on the Company’s properties, operations and business. The markets in which the Company operates have experienced
and may continue to 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 cleanup 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,
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, state laws such as the California Climate
19
Corporate Data Accountability Act, and 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.
Heightened focus on corporate responsibility, specifically related to ESG practices, may impose additional costs and expose the
Company to new risks.
Companies across industries face increasing scrutiny from various stakeholders on how they address a variety of Environmental,
Social and Governance (“ESG”) matters. Potential and current employees, hotel brands, hotel management companies and vendors
may consider these factors when establishing and extending business relationships and hotel guests may consider these factors when
choosing a hotel. With this increased focus, public reporting regarding ESG practices has become more broadly expected. The
Company summarizes its existing ESG programs in its annual Corporate Responsibility Report, which is available on its website. The
focus on and activism around ESG and related matters may constrain business operations or cause the Company to incur additional
costs. The Company may face reputational damage in the event the Company’s corporate responsibility initiatives do not meet the
standards set by various constituencies, including those of third-party providers of corporate responsibility ratings and reports.
Furthermore, if competitors outperform the Company in such metrics, potential or current investors may elect to invest with the
Company’s competitors, and employees, hotel brands, hotel management companies, vendors and guests may choose not to do
business with the Company, which could have a material and adverse impact on the Company’s financial condition, the market price
of its common shares and ability to raise capital. Moreover, while the Company makes voluntary disclosures in its Corporate
Responsibility Report regarding its ESG practices, certain disclosures are based on assumptions that may differ from actual results. In
addition, the Company also will be required to make certain mandatory disclosures as California has instituted disclosure requirements
that will be applicable to the Company and the SEC is currently evaluating potential new ESG disclosure and other requirements that
would impact the Company. The Company anticipates incurring additional expenses and expending employee resources to comply
with the disclosure mandates.
As the Company continues to invest in and focus on ESG practices that the Company believes are appropriate for its business,
the Company could also be criticized by ESG detractors for the scope or nature of its initiatives or goals. The Company could be
subjected to negative responses of governmental actors (such as anti-ESG legislation or retaliatory legislative treatment), hotel brands,
hotel management companies and hotel guests, that could have a material adverse effect on the Company’s reputation, financial
condition and results of operations.
The nature of the hotel business exposes the Company to litigation and claims that may result in costs and expenses that cannot
be anticipated with any degree of certainty.
The Company is subject to various claims and litigation from guests, tenants, occupants, visitors, contractors and other
individuals as a result of the operation of the Company’s hotels. The Company, as landlord, is also a party to certain lease, license and
other occupancy agreements with third parties that have involved, and in the future may involve, the Company in claims, disputes,
litigation and proceedings arising from, or related to, those agreements, including the failure to pay rent. The Company cannot predict
when and how often these claims will arise nor can it predict the outcome or the cost to prosecute, resolve or defend against the
claims. The nature of litigation is highly uncertain and, regardless of the outcome of any pending or threatened claims, the Company
has and may in the future, incur legal and other costs, including the diversion of employee time and resources in responding to the
claims, settlement expenses and loss of revenue. Although insurance may be available to cover some or all of the costs to defend and
resolve these claims and the resulting litigation, it is possible that certain claims may not be covered by insurance or that the insurance
coverage and policy limits may not be adequate to satisfy the expense, judgment, settlement or other resolution arising from the
claims, which could result in substantial costs to the Company and adversely affect its financial position and results of operations. In
addition, the frequency of claims and the outcome of litigation may affect the future availability or the cost of some of the Company’s
insurance coverage, increasing its costs and exposing it to risks which could materially and adversely affect its financial results and
cash flows.
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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
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.
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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 (including any
applicable corporate minimum tax), 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.
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 and may have a material adverse effect on the
Company.
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.
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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
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.
23
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
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.
24
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 has made 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;
•
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;
•
public announcement by, and 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
25
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.
Item 1C.
Cybersecurity
To effectively identify, assess and manage risks from cybersecurity threats, the Company maintains a cybersecurity and cyber
risk management program which is comprised of the Company-wide cybersecurity strategy and its supporting policies, processes and
architecture. This program is part of the Company’s enterprise risk management program.
Risk Management Strategy
The Director of Information Technology, who reports to the Chief Financial Officer, has extensive information technology
(“IT”) and cybersecurity knowledge and skills gained from over 15 years of relevant work experience at the Company, and is
responsible for leading the Company’s cybersecurity and cyber risk management program which includes certain cybersecurity
processes covering the Company’s corporate systems. These processes include, among other items, the Company’s information
technology and risk management departments’ use of an internal set of applications and control activities to actively monitor potential
threats to its corporate IT environment and regularly conduct internal testing to identify potential vulnerabilities to the Company’s
corporate information technology infrastructure and systems. These activities include, but are not limited to, continuous monitoring of
network and infrastructure vulnerabilities, automated patching and software updates, redundancy and back-up systems, and incident
response planning and handling. The Company’s employees are required to report cybersecurity events, including suspicious activity
or emails, to the Company’s information technology department. Should a cybersecurity event occur within its corporate systems, the
Company is positioned to coordinate a swift response to mitigate impacts to its information technology infrastructure and systems.
The Company has in place an incident response plan which provides guidance for leadership and employees to swiftly evaluate and
respond to cybersecurity incidents. The Company also carries cybersecurity insurance to further mitigate certain potential losses from
a cybersecurity incident affecting its corporate IT equipment and systems.
The Company’s cybersecurity processes also include self-assessments using industry benchmarks as well as input from external
industry consultants and ongoing communication with third-party business partners to identify cybersecurity incidents and threats that
could potentially impact the Company. The Company has relationships with a number of third-party business partners to assist with
cybersecurity incident containment and recovery efforts and assesses the processes and tools used by its third-party business partners
to manage their cybersecurity risks. The Company uses a risk-based approach with respect to its use and oversight of third-party
service providers, tailoring processes according to the nature and sensitivity of network connectivity or of data accessed, processed, or
stored by such third-party service provider.
The Company’s corporate IT systems are not used to process business transactions with its guests and those systems currently
have no connectivity to hotel and/or third-party management and brand technology platforms. The Company’s information technology
and risk management departments regularly engage with its third-party management companies and brands to understand and
benchmark their execution and alignment with applicable policies and industry practices for data protection and cybersecurity.
Management and Board Oversight
The Company’s Board of Directors administers cybersecurity risk oversight primarily through its Audit Committee. The
Board’s Audit Committee is tasked with oversight responsibility for the Company’s enterprise risk management program, including
those related to cybersecurity and cyber risks. The Audit Committee receives regular reports from the Chief Financial Officer on,
among other things: the Company’s cybersecurity risks and threats; the status of projects to strengthen the Company’s information
security systems; internal and third-party assessments of the Company’s cybersecurity program; and the emerging cyber threat
landscape. The Audit Committee also receives updates on cybersecurity incidents experienced by third-party business partners that
may pose significant risk to the Company. The Audit Committee provides periodic reporting to the Board of Directors on
cybersecurity matters. The Company’s IT and risk management departments report directly to the Chief Financial Officer and are
directed to promptly report incidents to the Chief Financial Officer in accordance with the Company’s incident response plan. The
Chief Financial Officer also apprises the Audit Committee of cybersecurity incidents consistent with the Company’s incident response
procedures for more significant incidents and in the aggregate for less significant incidents.
26
Cybersecurity Risks
The Company faces a number of cybersecurity risks in connection with its business, although such risks have not materially
affected the Company, including its business strategy, results of operations or financial condition, to date. While the Company is not
aware of any cybersecurity incidents that have materially affected its business as of December 31, 2024, there can be no guarantee that
the Company will not be the subject of future attacks, threats or incidents, that may have a material impact on its business strategy,
results of operations or financial condition. Notwithstanding the extensive approach the Company takes to address cybersecurity, it
may not be successful in preventing or mitigating all cybersecurity incidents or threats. For more information about the cybersecurity
risks the Company faces, see the risk factor entitled “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” in Item 1A-
Risk Factors.
27
Item 2.
Properties
As of December 31, 2024, the Company owned 221 hotels with an aggregate of 29,764 guest rooms located in 37 states and the
District of Columbia, including two hotels with a total of 206 guest rooms classified as held for sale, one of which was sold to an
unrelated party in February 2025, while the other is expected to be sold in the first quarter of 2025. Substantially all of the Company’s
hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 16
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 guest
rooms by brand. The following table summarizes the number of hotels and guest rooms by state:
Number of Hotels and Guest Rooms by State
Number of
Number of
State
Hotels
Guest Rooms
Alabama .....................................................................
13
1,246
Alaska.........................................................................
2
304
Arizona.......................................................................
13
1,776
California....................................................................
26
3,722
Colorado.....................................................................
4
567
Florida ........................................................................
22
2,844
Georgia.......................................................................
5
585
Idaho...........................................................................
1
186
Illinois ........................................................................
7
1,255
Indiana........................................................................
4
479
Iowa............................................................................
3
301
Kansas ........................................................................
2
230
Kentucky ....................................................................
1
156
Louisiana....................................................................
3
422
Maine..........................................................................
3
514
Maryland ....................................................................
2
233
Massachusetts.............................................................
3
330
Michigan ....................................................................
1
148
Minnesota...................................................................
3
405
Mississippi..................................................................
2
168
Missouri......................................................................
4
544
Nebraska.....................................................................
4
621
Nevada........................................................................
1
300
New Jersey .................................................................
5
629
New York...................................................................
3
346
North Carolina............................................................
7
799
Ohio............................................................................
3
406
Oklahoma...................................................................
4
545
Oregon........................................................................
1
243
Pennsylvania ..............................................................
4
525
South Carolina............................................................
5
590
Tennessee...................................................................
10
1,240
Texas ..........................................................................
26
3,211
Utah............................................................................
6
919
Virginia ......................................................................
11
1,667
Washington ................................................................
4
636
Wisconsin...................................................................
2
438
Washington D.C.........................................................
1
234
Total
221
29,764
28
The following table summarizes the location, brand, manager, date acquired or completed and number of guest rooms for each
of the 221 hotels and the non-hotel property that the Company owned as of December 31, 2024. As noted below, 14 of the Company’s
properties are subject to ground leases and 14 of its hotels are encumbered by mortgage notes.
City
State
Brand
Manager (1)
Date
Acquired or
Completed
Guest
Rooms
Anchorage ...........................................
AK
Embassy Suites
InnVentures
4/30/2010
169
Anchorage ...........................................
AK
Home2 Suites
InnVentures
12/1/2017
135
Auburn.................................................
AL
Hilton Garden Inn
LBA
3/1/2014
101
Birmingham.........................................
AL
Courtyard
LBA
3/1/2014
84
Birmingham.........................................
AL
Hilton Garden Inn
LBA
9/12/2017
104
Birmingham.........................................
AL
Home2 Suites
LBA
9/12/2017
106
Birmingham.........................................
AL
Homewood Suites
McKibbon
3/1/2014
95
Dothan.................................................
AL
Hilton Garden Inn
LBA
6/1/2009
104
Dothan.................................................
AL
Residence Inn
LBA
3/1/2014
84
Huntsville ............................................
AL
Hampton
LBA
9/1/2016
98
Huntsville ............................................
AL
Hilton Garden Inn
LBA
3/1/2014
101
Huntsville ............................................
AL
Home2 Suites
LBA
9/1/2016
77
Huntsville ............................................
AL
Homewood Suites
LBA
3/1/2014
107
Mobile .................................................
AL
Hampton
McKibbon
9/1/2016
101
(3)
Prattville ..............................................
AL
Courtyard
LBA
3/1/2014
84
Chandler ..............................................
AZ
Courtyard
North Central
11/2/2010
150
Chandler ..............................................
AZ
Fairfield
North Central
11/2/2010
110
Phoenix................................................
AZ
Courtyard
North Central
11/2/2010
164
Phoenix................................................
AZ
Hampton
North Central
9/1/2016
125
(3)
Phoenix................................................
AZ
Hampton
North Central
5/2/2018
210
Phoenix................................................
AZ
Homewood Suites
North Central
9/1/2016
134
(3)
Phoenix................................................
AZ
Residence Inn
North Central
11/2/2010
129
Scottsdale ............................................
AZ
Hilton Garden Inn
North Central
9/1/2016
122
Tempe..................................................
AZ
Hyatt House
Crestline
8/13/2020
105
(3)
Tempe..................................................
AZ
Hyatt Place
Crestline
8/13/2020
154
(3)
Tucson.................................................
AZ
Hilton Garden Inn
Western
7/31/2008
125
Tucson.................................................
AZ
Residence Inn
Western
3/1/2014
124
Tucson.................................................
AZ
TownePlace Suites
Western
10/6/2011
124
Agoura Hills........................................
CA
Homewood Suites
Dimension
3/1/2014
125
Burbank...............................................
CA
Courtyard
Huntington
8/11/2015
190
(2)
Burbank...............................................
CA
Residence Inn
Marriott
3/1/2014
166
Burbank...............................................
CA
SpringHill Suites
Marriott
7/13/2015
170
(2)
Clovis ..................................................
CA
Hampton
Dimension
7/31/2009
86
Clovis ..................................................
CA
Homewood Suites
Dimension
2/2/2010
83
Cypress................................................
CA
Courtyard
Dimension
3/1/2014
180
Cypress................................................
CA
Hampton
Dimension
6/29/2015
110
Oceanside ............................................
CA
Courtyard
Marriott
9/1/2016
142
(2)
Oceanside ............................................
CA
Residence Inn
Marriott
3/1/2014
125
Rancho Bernardo/San Diego...............
CA
Courtyard
InnVentures
3/1/2014
210
Sacramento..........................................
CA
Hilton Garden Inn
Dimension
3/1/2014
153
San Bernardino....................................
CA
Residence Inn
InnVentures
2/16/2011
95
San Diego............................................
CA
Courtyard
Huntington
9/1/2015
245
(2)
San Diego............................................
CA
Hampton
Dimension
3/1/2014
177
(2)
San Diego............................................
CA
Hilton Garden Inn
InnVentures
3/1/2014
200
San Diego............................................
CA
Residence Inn
Dimension
3/1/2014
122
San Jose...............................................
CA
Homewood Suites
Dimension
3/1/2014
140
(2)
29
City
State
Brand
Manager (1)
Date
Acquired or
Completed
Guest
Rooms
San Juan Capistrano ............................
CA
Residence Inn
Marriott
9/1/2016
130
(3)
Santa Ana ............................................
CA
Courtyard
Dimension
5/23/2011
155
(2)
Santa Clarita........................................
CA
Courtyard
Dimension
9/24/2008
140
Santa Clarita........................................
CA
Fairfield
Dimension
10/29/2008
66
Santa Clarita........................................
CA
Hampton
Dimension
10/29/2008
128
Santa Clarita........................................
CA
Residence Inn
Dimension
10/29/2008
90
Tustin...................................................
CA
Fairfield
Marriott
9/1/2016
145
Tustin...................................................
CA
Residence Inn
Marriott
9/1/2016
149
Colorado Springs.................................
CO
Hampton
Chartwell
9/1/2016
101
Denver.................................................
CO
Hilton Garden Inn
InnVentures
9/1/2016
221
(2)
Highlands Ranch .................................
CO
Hilton Garden Inn
Dimension
3/1/2014
128
Highlands Ranch .................................
CO
Residence Inn
Dimension
3/1/2014
117
Boca Raton..........................................
FL
Hilton Garden Inn
Dimension
9/1/2016
149
Cape Canaveral ...................................
FL
Hampton
LBA
4/30/2020
116
Cape Canaveral ...................................
FL
Homewood Suites
LBA
9/1/2016
153
Cape Canaveral ...................................
FL
Home2 Suites
LBA
4/30/2020
108
Fort Lauderdale ...................................
FL
Hampton
Dimension
6/23/2015
156
Fort Lauderdale ...................................
FL
Residence Inn
LBA
9/1/2016
156
Gainesville...........................................
FL
Hilton Garden Inn
McKibbon
9/1/2016
104
Gainesville...........................................
FL
Homewood Suites
McKibbon
9/1/2016
103
Jacksonville.........................................
FL
Homewood Suites
McKibbon
3/1/2014
119
Jacksonville.........................................
FL
Hyatt Place
Crestline
12/7/2018
127
Miami ..................................................
FL
Courtyard
Dimension
3/1/2014
118
(3)
Miami ..................................................
FL
Hampton
HHM
4/9/2010
121
Miami ..................................................
FL
Homewood Suites
Dimension
3/1/2014
162
Orlando................................................
FL
Fairfield
Marriott
7/1/2009
200
Orlando................................................
FL
Home2 Suites
LBA
3/19/2019
128
Orlando................................................
FL
SpringHill Suites
Marriott
7/1/2009
200
Panama City ........................................
FL
Hampton
LBA
3/12/2009
95
Panama City ........................................
FL
TownePlace Suites
LBA
1/19/2010
103
Pensacola.............................................
FL
TownePlace Suites
McKibbon
9/1/2016
97
Tallahassee ..........................................
FL
Fairfield
LBA
9/1/2016
97
Tallahassee ..........................................
FL
Hilton Garden Inn
LBA
3/1/2014
85
(3)
Tampa..................................................
FL
Embassy Suites
HHM
11/2/2010
147
Atlanta/Downtown ..............................
GA
Hampton
McKibbon
2/5/2018
119
Atlanta/Perimeter Dunwoody..............
GA
Hampton
LBA
6/28/2018
132
Atlanta.................................................
GA
Home2 Suites
McKibbon
7/1/2016
128
Macon..................................................
GA
Hilton Garden Inn
LBA
3/1/2014
101
(3)
Savannah .............................................
GA
Hilton Garden Inn
Newport
3/1/2014
105
(3)
Cedar Rapids .......................................
IA
Hampton
Chartwell
9/1/2016
103
Cedar Rapids .......................................
IA
Homewood Suites
Chartwell
9/1/2016
95
Davenport............................................
IA
Hampton
Chartwell
9/1/2016
103
Boise....................................................
ID
Hampton
Raymond
4/30/2010
186
(2)
Des Plaines..........................................
IL
Hilton Garden Inn
Raymond
9/1/2016
253
Hoffman Estates..................................
IL
Hilton Garden Inn
HHM
9/1/2016
184
Mettawa...............................................
IL
Hilton Garden Inn
HHM
11/2/2010
170
Mettawa...............................................
IL
Residence Inn
HHM
11/2/2010
130
Rosemont.............................................
IL
Hampton
Raymond
9/1/2016
158
30
City
State
Brand
Manager (1)
Date
Acquired or
Completed
Guest
Rooms
Skokie..................................................
IL
Hampton
Raymond
9/1/2016
225
Warrenville..........................................
IL
Hilton Garden Inn
HHM
11/2/2010
135
Indianapolis .........................................
IN
SpringHill Suites
HHM
11/2/2010
130
(4)
Merrillville...........................................
IN
Hilton Garden Inn
HHM
9/1/2016
124
Mishawaka...........................................
IN
Residence Inn
HHM
11/2/2010
106
South Bend ..........................................
IN
Fairfield
HHM
9/1/2016
119
Overland Park......................................
KS
Fairfield
Raymond
3/1/2014
110
Overland Park......................................
KS
Residence Inn
Raymond
3/1/2014
120
Louisville.............................................
KY
AC Hotels
Concord
10/25/2022
156
Lafayette..............................................
LA
Hilton Garden Inn
LBA
7/30/2010
153
(3)
Lafayette..............................................
LA
SpringHill Suites
LBA
6/23/2011
103
New Orleans ........................................
LA
Homewood Suites
Dimension
3/1/2014
166
Marlborough........................................
MA
Residence Inn
Crestline
3/1/2014
112
Westford ..............................................
MA
Hampton
Crestline
3/1/2014
110
Westford ..............................................
MA
Residence Inn
Crestline
3/1/2014
108
(2)
Annapolis.............................................
MD
Hilton Garden Inn
Crestline
3/1/2014
126
Silver Spring........................................
MD
Hilton Garden Inn
Crestline
7/30/2010
107
Portland................................................
ME
AC Hotels
Crestline
8/20/2021
178
Portland................................................
ME
Aloft Hotels
Crestline
9/10/2021
157
Portland................................................
ME
Residence Inn
Crestline
10/13/2017
179
(2)
Novi .....................................................
MI
Hilton Garden Inn
HHM
11/2/2010
148
Maple Grove........................................
MN
Hilton Garden Inn
North Central
9/1/2016
121
Rochester .............................................
MN
Hampton
Raymond
8/3/2009
124
St. Paul.................................................
MN
Hampton
Raymond
3/4/2019
160
Kansas City..........................................
MO
Hampton
Raymond
8/31/2010
122
Kansas City..........................................
MO
Residence Inn
Raymond
3/1/2014
106
St. Louis...............................................
MO
Hampton
Raymond
8/31/2010
190
St. Louis...............................................
MO
Hampton
Raymond
4/30/2010
126
Hattiesburg ..........................................
MS
Courtyard
LBA
3/1/2014
84
Hattiesburg ..........................................
MS
Residence Inn
LBA
12/11/2008
84
Carolina Beach ....................................
NC
Courtyard
Crestline
3/1/2014
144
Charlotte ..............................................
NC
Fairfield
Newport
9/1/2016
94
Durham................................................
NC
Homewood Suites
McKibbon
12/4/2008
122
Fayetteville ..........................................
NC
Home2 Suites
LBA
2/3/2011
118
Jacksonville .........................................
NC
Home2 Suites
LBA
9/1/2016
105
Wilmington..........................................
NC
Fairfield
Crestline
3/1/2014
122
Winston-Salem ....................................
NC
Hampton
McKibbon
9/1/2016
94
Omaha..................................................
NE
Courtyard
Marriott
3/1/2014
181
Omaha..................................................
NE
Hampton
HHM
9/1/2016
139
Omaha..................................................
NE
Hilton Garden Inn
HHM
9/1/2016
178
(2)
Omaha..................................................
NE
Homewood Suites
HHM
9/1/2016
123
Cranford...............................................
NJ
Homewood Suites
Dimension
3/1/2014
108
Mahwah ...............................................
NJ
Homewood Suites
Dimension
3/1/2014
110
Mount Laurel.......................................
NJ
Homewood Suites
Newport
1/11/2011
118
Somerset ..............................................
NJ
Courtyard
Newport
3/1/2014
162
(3)
West Orange ........................................
NJ
Courtyard
Newport
1/11/2011
131
Las Vegas ............................................
NV
SpringHill Suites
Highgate
12/27/2023
300
(5)
Islip/Ronkonkoma ...............................
NY
Hilton Garden Inn
Crestline
3/1/2014
166
31
City
State
Brand
Manager (1)
Date
Acquired or
Completed
Guest
Rooms
New York............................................
NY
(non-hotel)
N/A
3/1/2014
-
(3)(6)
Syracuse ..............................................
NY
Courtyard
Crestline
10/16/2015
102
Syracuse ..............................................
NY
Residence Inn
Crestline
10/16/2015
78
Cleveland.............................................
OH
Courtyard
Concord
6/30/2023
154
Mason..................................................
OH
Hilton Garden Inn
Raymond
9/1/2016
110
Twinsburg............................................
OH
Hilton Garden Inn
Concord
10/7/2008
142
Oklahoma City ....................................
OK
Hampton
Raymond
5/28/2010
200
Oklahoma City ....................................
OK
Hilton Garden Inn
Raymond
9/1/2016
155
Oklahoma City ....................................
OK
Homewood Suites
Raymond
9/1/2016
100
Oklahoma City (West) ........................
OK
Homewood Suites
Chartwell
9/1/2016
90
Portland ...............................................
OR
Hampton
Raymond
11/17/2021
243
Collegeville/Philadelphia ....................
PA
Courtyard
Newport
11/15/2010
132
Malvern/Philadelphia ..........................
PA
Courtyard
Newport
11/30/2010
127
Pittsburgh ............................................
PA
AC Hotels
Concord
10/25/2022
134
Pittsburgh ............................................
PA
Hampton
Newport
12/31/2008
132
Charleston............................................
SC
Home2 Suites
LBA
9/1/2016
122
Columbia.............................................
SC
Hilton Garden Inn
Newport
3/1/2014
143
Columbia.............................................
SC
TownePlace Suites
Newport
9/1/2016
91
Greenville............................................
SC
Hyatt Place
Crestline
9/1/2021
130
Hilton Head .........................................
SC
Hilton Garden Inn
McKibbon
3/1/2014
104
Chattanooga.........................................
TN
Homewood Suites
LBA
3/1/2014
76
(7)
Franklin ...............................................
TN
Courtyard
Chartwell
9/1/2016
126
Franklin ...............................................
TN
Residence Inn
Chartwell
9/1/2016
124
Knoxville.............................................
TN
Homewood Suites
McKibbon
9/1/2016
103
Knoxville.............................................
TN
SpringHill Suites
McKibbon
9/1/2016
103
Memphis..............................................
TN
Hampton
Crestline
2/5/2018
144
Memphis..............................................
TN
Hilton Garden Inn
Crestline
10/28/2021
150
Nashville..............................................
TN
Hilton Garden Inn
Dimension
9/30/2010
194
Nashville..............................................
TN
Home2 Suites
Dimension
5/31/2012
119
Nashville..............................................
TN
TownePlace Suites
Chartwell
9/1/2016
101
Addison ...............................................
TX
SpringHill Suites
Marriott
3/1/2014
159
Arlington .............................................
TX
Hampton
Western
12/1/2010
98
Austin ..................................................
TX
Courtyard
HHM
11/2/2010
145
Austin ..................................................
TX
Fairfield
HHM
11/2/2010
150
Austin ..................................................
TX
Hampton
Dimension
4/14/2009
124
Austin ..................................................
TX
Homewood Suites
Dimension
4/14/2009
97
Austin/Round Rock.............................
TX
Hampton
Dimension
3/6/2009
94
Austin/Round Rock.............................
TX
Homewood Suites
Dimension
9/1/2016
115
Dallas...................................................
TX
Homewood Suites
Western
9/1/2016
130
Denton.................................................
TX
Homewood Suites
Chartwell
9/1/2016
107
El Paso.................................................
TX
Homewood Suites
Western
3/1/2014
114
Fort Worth...........................................
TX
Courtyard
LBA
2/2/2017
124
Fort Worth...........................................
TX
Hilton Garden Inn
Raymond
11/17/2021
157
Fort Worth...........................................
TX
Homewood Suites
Raymond
11/17/2021
112
Fort Worth...........................................
TX
TownePlace Suites
Western
7/19/2010
140
Frisco...................................................
TX
Hilton Garden Inn
Western
12/31/2008
102
Grapevine ............................................
TX
Hilton Garden Inn
Western
9/24/2010
110
Houston ...............................................
TX
Courtyard
LBA
9/1/2016
124
32
City
State
Brand
Manager (1)
Date
Acquired or
Completed
Guest
Rooms
Houston ...............................................
TX
Marriott
Western
1/8/2010
206
Houston ...............................................
TX
Residence Inn
Western
3/1/2014
129
Houston ...............................................
TX
Residence Inn
Western
9/1/2016
120
Lewisville............................................
TX
Hilton Garden Inn
Western
10/16/2008
165
San Antonio.........................................
TX
TownePlace Suites
Western
3/1/2014
106
Shenandoah .........................................
TX
Courtyard
LBA
9/1/2016
124
Stafford................................................
TX
Homewood Suites
Western
3/1/2014
78
Texarkana............................................
TX
Hampton
Western
1/31/2011
81
Provo ...................................................
UT
Residence Inn
Dimension
3/1/2014
114
Salt Lake City......................................
UT
Courtyard
North Central
10/11/2023
175
Salt Lake City......................................
UT
Hyatt House
North Central
10/11/2023
159
Salt Lake City......................................
UT
Residence Inn
Huntington
10/20/2017
136
Salt Lake City......................................
UT
SpringHill Suites
HHM
11/2/2010
143
South Jordan........................................
UT
Embassy Suites
HHM
11/21/2023
192
Alexandria...........................................
VA
Courtyard
Marriott
3/1/2014
178
Alexandria...........................................
VA
SpringHill Suites
Marriott
3/28/2011
155
Charlottesville .....................................
VA
Courtyard
Crestline
3/1/2014
139
Manassas .............................................
VA
Residence Inn
Crestline
2/16/2011
107
Richmond ............................................
VA
Courtyard
White Lodging
12/8/2014
135
(2)
Richmond ............................................
VA
Marriott
White Lodging
3/1/2014
413
(3)
Richmond ............................................
VA
Residence Inn
White Lodging
12/8/2014
75
(2)
Suffolk.................................................
VA
Courtyard
Crestline
3/1/2014
92
Suffolk.................................................
VA
TownePlace Suites
Crestline
3/1/2014
72
Virginia Beach ....................................
VA
Courtyard
Crestline
3/1/2014
141
Virginia Beach ....................................
VA
Courtyard
Crestline
3/1/2014
160
Kirkland...............................................
WA
Courtyard
InnVentures
3/1/2014
150
Renton .................................................
WA
Residence Inn
InnVentures
10/18/2023
146
Seattle..................................................
WA
Residence Inn
InnVentures
3/1/2014
234
Tukwila ...............................................
WA
Homewood Suites
Dimension
3/1/2014
106
Madison...............................................
WI
Hilton Garden Inn
Raymond
2/18/2021
176
Madison...............................................
WI
Embassy Suites
Raymond
6/20/2024
262
Washington, D.C.................................
-
AC Hotels
HHM
3/25/2024
234
Total ....................................................
29,764
(1) 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.
(2) Hotel is encumbered by mortgage.
(3) Property is subject to ground lease.
(4) Hotel was classified as held for sale as of December 31, 2024 and is expected to be sold to an unrelated party in the first quarter of
2025.
(5) In the second quarter of 2024, the property converted a meeting room into a guest room, increasing the number of guest rooms
from 299 at acquisition to 300.
(6) In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its
independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 guest rooms. Lease revenue from
this property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As
a result of the lease and transfer of possession to the operator, this property has been excluded from the Company’s hotel and
guest room counts since May 2023 and is considered a non-hotel property. As a result of the operator's failure to make lease
payments, the Company has commenced legal proceedings to remove the operator from possession of the hotel. The Company
intends to enforce its rights under the lease and transition management of the hotel to a third-party manager, however, the removal
process is still ongoing and the timing of the resolution of this matter and the transition of management operations cannot be
predicted at this time.
(7) Hotel was classified as held for sale as of December 31, 2024 and was sold to an unrelated party in February 2025.
33
The Company’s investment in real estate as of December 31, 2024, consisted of the following (in thousands):
Land....................................................................................................................................................$
839,187
Building and improvements ...............................................................................................................
5,064,866
Furniture, fixtures and equipment......................................................................................................
610,062
Finance ground lease assets ...............................................................................................................
102,084
Franchise fees.....................................................................................................................................
25,893
6,642,092
Less accumulated depreciation and amortization .............................................................................. (1,821,344)
Investment in real estate, net..............................................................................................................$ 4,820,748
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.
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.
34
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, 2024 and
February 18, 2025, the last reported closing price per share for the Company’s common shares as reported on the NYSE was $15.35
and $15.38, 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 $100 in the Company’s common shares and in each of the indices, and also
assumes the reinvestment of dividends.
Value of Initial Investment at
Name
12/31/19
12/31/20
12/31/21
12/31/22
12/31/23
12/31/24
Apple Hospitality REIT, Inc. ............$
100.00 $
81.09 $
101.70 $
104.15 $
116.97 $
115.49
S&P 500 Index..................................$
100.00 $
118.40 $
152.39 $
124.79 $
157.59 $
197.02
Dow Jones U.S. Real Estate
Hotels Index ...................................$
100.00 $
73.69 $
84.40 $
71.42 $
81.91 $
79.75
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.
35
Shareholder Information
As of February 18, 2025, the Company had approximately 99 holders of record of its common shares and there were
approximately 240 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
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. For the years ended December 31, 2024 and 2023, the Company
paid distributions of $1.01 and $1.04 per common share for a total of approximately $243.7 million and $238.3 million, respectively.
The Company’s current annual distribution rate, payable monthly, is $0.96 per common share. In addition to the regular monthly cash
distribution of $0.08 per common share approved by the Board of Directors in December 2024, the Board of Directors approved a
special cash distribution of $0.05 per common share for a combined distribution of $0.13 per common share, paid in January 2025, to
shareholders of record as of December 31, 2024. 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 U.S. 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 2024, 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 $335.4 million. The Share Repurchase Program may be suspended or terminated
at any time by the Company and will end in July 2025 if not terminated or extended earlier. The Company previously entered into and
expects to continue to enter into written trading plans as part of the Share Repurchase Program that provide for share repurchases in
open market transactions that are intended to comply with Rule 10b5-1 under the Exchange Act. During the year ended December 31,
2024, the Company purchased, under its Share Repurchase Program, approximately 2.4 million of its common shares at a weighted-
average market purchase price of approximately $14.16 per common share for an aggregate purchase price, including commissions, of
approximately $34.7 million. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund
future repurchases, with cash on hand, proceeds from dispositions 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, 2024, approximately $300.8 million remained available for purchase
under the Share Repurchase Program.
Additionally, during 2024, 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 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.
36
The following is a summary of all share repurchases during the fourth quarter of 2024:
Issuer Purchases of Equity Securities
(a)
(b)
(c)
(d)
Period
Total Number of
Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs
(in thousands) (1)
October 1 - October 31, 2024.............
-
-
-
$
300,794
November 1 - November 30, 2024.....
-
-
-
$
300,794
December 1 - December 31, 2024 (2)..
170,970
$
16.05
-
$
300,794
Total....................................................
170,970
-
(1) Represents amount outstanding under the Company’s authorized $335.4 million Share Repurchase Program. This program, which
was announced in 2015 and most recently extended in May 2024, may be suspended or terminated at any time by the Company
and will end in July 2025 if not terminated or extended earlier.
(2) Consists of common shares surrendered to the Company to satisfy tax withholding obligations associated with the vesting of
restricted common shares.
Equity Compensation Plans
The Company’s Board of Directors adopted and the Company’s shareholders approved the 2024 Omnibus Incentive Plan (“2024
Omnibus Plan”), which provides for the issuance of up to 7.25 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 2024 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 2014 Omnibus Incentive Plan (“2014 Omnibus
Plan”), which similarly provided for the issuance of common shares. In May 2024, the 2014 Omnibus Plan was terminated effective
upon shareholder approval of the 2024 Omnibus Plan, and no further grants can be made under the 2014 Omnibus Plan, provided
however, that the termination did not affect any outstanding incentive awards previously issued under the 2014 Omnibus Plan.
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. All outstanding option
awards under the Directors’ Plan expired in 2024.
The following is a summary of securities issued under the Company’s equity compensation plans as of December 31, 2024:
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.............................................
80,563
$
-
7,945,177
Equity compensation plans not approved by
security holders.............................................
-
-
-
Total equity compensation plans.....................
80,563
$
-
7,945,177
(1) Consists of 80,563 fully vested deferred stock units, including quarterly distributions earned, under the Non-Employee Director
Deferral Program that are not included in the calculation of the weighted-average exercise price of outstanding options.
(2) As of December 31, 2024, there are no outstanding exercisable securities, therefore, there is no weighted-average exercise price of
outstanding securities.
37
(3) Includes 7,248,900 shares available under the 2024 Omnibus Plan and an estimated 696,277 shares as of December 31, 2024, that
were subject to outstanding awards (which includes an estimated number of common shares based on “target” performance with
respect to February 2024 awards authorized under the 2014 Omnibus Plan in February 2024, which were outstanding but not yet
earned) under the 2014 Omnibus Plan which was terminated in May 2024 upon shareholder approval of the 2024 Omnibus Plan.
Item 6.
Reserved
38
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 U.S. 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,
2024, the Company owned 221 hotels with an aggregate of 29,764 guest rooms located in urban, high-end suburban and developing
markets throughout 37 states and the District of Columbia, including two hotels with a total of 206 guest rooms classified as held for
sale, one of which was sold to an unrelated party in February 2025, while the other is expected to be sold in the first quarter of 2025.
Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under
separate management agreements with 16 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.”
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 2024, the Company acquired two hotels for an aggregate purchase price of $196.3 million: an existing 234-
guest-room AC Hotel in Washington, D.C. and a 262-guest-room Embassy Suites in Madison, Wisconsin that was purchased at the
completion of development. The Company utilized proceeds from the sale of properties and borrowings under its Revolving Credit
Facility to fund these acquisitions. The Company plans to utilize its available cash, net proceeds from the sale of shares under the
ATM program, proceeds from the sales of properties or borrowings under its unsecured credit facilities for any future hotel
acquisitions.
As of December 31, 2024, the Company had one outstanding contract, which was entered into during May 2023, for the
potential purchase of a hotel in Nashville, Tennessee for an expected purchase price of approximately $98.2 million. The hotel is
under development and is currently planned to be completed and opened for business in late 2025, as a 260-guest-room Motto. As of
December 31, 2024, a $1.1 million contract deposit (refundable if the seller does not meet its obligations under the contract) had been
paid. If the closing occurs, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured
credit facilities available at closing, to purchase the hotel under contract. 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 the purchase contract and acquire this hotel. As this hotel is under development, at this time, the seller
has not met all of the conditions to closing.
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, during the year ended December 31, 2024, the Company sold six hotels in five separate transactions with
unrelated parties for a combined gross sales price of approximately $63.4 million, resulting in a combined gain on the sales of
approximately $19.7 million, net of transaction costs. The Company used a portion of the net proceeds from the sale of two of the
hotels to complete a like-kind exchange, in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, for the
acquisition of the AC Hotel in Washington, D.C., which was completed in March 2024. The net proceeds from the sale of the other
four hotels were used for share repurchases and general corporate purposes.
New York Independent Boutique Hotel Lease
In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its
independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 guest rooms. Lease revenue from this
property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result
of the lease and transfer of possession to the operator, this property has been excluded from the Company’s hotel and guest room
counts since May 2023. As a result of the operator's failure to make lease payments, the Company has commenced legal proceedings
to remove the operator from possession of the hotel. The Company intends to enforce its rights under the lease and transition
management of the hotel to a third-party manager, however, the removal process is still ongoing and the timing of the resolution of
this matter and the transition of management operations cannot be predicted at this time.
39
See Note 2 titled “Investment in Real Estate” and Note 3 titled “Assets Held for Sale and 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.
Hotel Operations
As of December 31, 2024, the Company owned 221 hotels with a total of 29,764 guest rooms, including two hotels with a total
of 206 guest rooms classified as held for sale, as compared to 225 hotels with a total of 29,900 guest rooms as of December 31, 2023.
Results of operations are included only for the period of ownership for hotels acquired or disposed of during all periods presented.
During 2024, the Company acquired two hotels and sold six hotels. During 2023, the Company acquired six hotels and did not dispose
of any hotels. Results of the hotel operations for the Company’s independent boutique hotel in New York, New York are included
only for the period prior to the lease agreement becoming effective in May 2023. See further discussion in Note 2 titled “Investments
in Real Estate” and Note 3 titled “Assets Held for Sale and 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, the comparability of results for the years ended December 31, 2024
and 2023, 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.
Year Ended December 31,
(in thousands, except statistical
data)
2024
Percent
of
Revenue
2023
Percent
of
Revenue
Change
2023 to
2024
2022
Percent
of
Revenue
Change
2022 to
2023
Total revenue ........................... $1,431,468
100.0 % $1,343,800
100.0 %
6.5 % $ 1,238,417
100.0 %
8.5 %
Hotel operating expense..............
837,871
58.5 %
780,725
58.1 %
7.3 %
710,481
57.4 %
9.9 %
Property taxes, insurance and
other expense..........................
84,382
5.9 %
79,307
5.9 %
6.4 %
72,907
5.9 %
8.8 %
General and administrative
expense.................................
42,542
3.0 %
47,401
3.5 %
-10.3 %
42,464
3.4 %
11.6 %
Impairment of depreciable
real estate ..............................
3,055
5,644
-45.9 %
26,175
-78.4 %
Depreciation and amortization
expense.................................
190,603
183,242
4.0 %
181,697
0.9 %
Gain on sale of real estate............
19,744
-
n/a
1,785
n/a
Interest and other expense, net......
77,748
68,857
12.9 %
59,733
15.3 %
Income tax expense....................
947
1,135
-16.6 %
1,940
-41.5 %
Net income ..............................
214,064
177,489
20.6 %
144,805
22.6 %
Adjusted Hotel EBITDA (1)..........
509,544
481,892
5.7 %
455,579
5.8 %
Number of hotels owned at end
of period................................
221
225
-1.8 %
220
2.3 %
ADR ......................................
$
158.01
$
155.76
1.4 % $
149.36
4.3 %
Occupancy...............................
75.0 %
74.2 %
1.1 %
72.6 %
2.2 %
RevPAR..................................
$
118.54
$
115.60
2.5 % $
108.45
6.6 %
(1) See reconciliation of Adjusted Hotel EBITDA to net income in “Non-GAAP Financial Measures” below.
40
Comparable Hotels Operating Results
The following table reflects certain operating statistics for the Company’s 219 hotels owned and held for use as of December 31,
2024. The Company defines metrics from Comparable Hotels as results generated by the 219 hotels owned and held for use 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 and assets held for sale, results have been excluded for the Company’s period of
ownership.
Year Ended December 31,
2024
2023
Change
2023 to
2024
2022
Change
2022 to
2023
ADR................................................................................ $
158.94
$
158.09
0.5% $
150.88
4.8%
Occupancy ......................................................................
75.1%
74.4%
0.9%
72.7%
2.3%
RevPAR.......................................................................... $
119.36
$
117.67
1.4% $
109.74
7.2%
Same Store Operating Results
The following table reflects certain operating statistics for the 209 hotels owned and held for use by the Company as of January
1, 2022 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.
Year Ended December 31,
2024
2023
Change
2023 to
2024
2022
Change
2022 to
2023
ADR................................................................................ $
156.49
$
156.18
0.2% $
149.71
4.3%
Occupancy ......................................................................
75.1%
74.4%
0.9%
72.7%
2.3%
RevPAR.......................................................................... $
117.56
$
116.21
1.2% $
108.89
6.7%
As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as
each individual locality. Economic indicators in the U.S. have generally been stable throughout 2024. As a result, the Company’s
Comparable Hotels and Same Store Hotels revenue and operating results have modestly improved during the year ended
December 31, 2024, compared to the year ended December 31, 2023, which is consistent with the overall lodging industry. The
Company expects low single digit RevPAR growth for its Comparable Hotels for 2025 as compared to 2024, which is comparable to
broader industry expectations. For the year ended December 31, 2024, the Company’s hotels in general have shown results that have
been broadly consistent with industry, brand and chain scale averages.
Results of Operations
A discussion regarding the Company’s results of operations for the year ended December 31, 2024 compared to the year ended
December 31, 2023 is presented below. A discussion regarding the results of operations for the year ended December 31, 2023
compared to the year ended December 31, 2022 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, 2023, filed with the SEC on February 22, 2024, 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, 2024 and 2023, the Company had total revenue of $1.4 billion and $1.3 billion, respectively. For
the years ended December 31, 2024 and 2023, respectively, Comparable Hotels achieved combined average occupancy of 75.1% and
74.4%, ADR of $158.94 and $158.09 and RevPAR of $119.36 and $117.67. ADR is calculated as room revenue divided by the
number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.
Compared to 2023, the Company experienced increases in ADR and occupancy in 2024, resulting in an increase of 1.4% in
RevPAR, for Comparable Hotels. Revenue growth in 2024, compared to 2023, was driven by the additional hotels acquired in the
41
fourth quarter of 2023 and the first half of 2024, further supported by increased strength in business transient demand for the portfolio
as well as strong group demand. Markets with significant above average growth in 2024, compared to 2023, for the Company included
Houston, New Orleans, Cape Canaveral and Anchorage. Leisure demand, which has produced the strongest rate growth post
pandemic, showed signs of increased rate sensitivity in some markets during 2024, and midweek rate growth came at lower absolute
rates than those achieved on weekends, with the combined effect weighing on overall ADR growth for 2024. Future revenues could be
negatively impacted by, among other things, historical seasonal trends, deterioration of consumer sentiment, 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, 2024 and
2023, hotel operating expense totaled $837.9 million and $780.7 million, respectively, or 58.5% and 58.1% of total revenue for each
respective year.
The increase in hotel operating expense for the year ended December 31, 2024, as compared to the year ended December 31,
2023, was led by the additional hotels acquired in 2023 and 2024 and amplified by increased labor costs, repairs and maintenance and
sales and marketing costs driven by inflationary pressures throughout the overall economy, as well as revenue growth for certain
variable expenses. The Company continues to feel upward pressure on wage rates given a competitive labor market. However, the rate
of wage growth has slowed and management companies have made progress in reducing their use of contract labor, which costs more
on average than in-house labor. The Company anticipates a slightly more favorable operating expense environment assuming the
impact of inflationary pressures moderates in 2025. The Company continues to monitor its management companies’ efforts to realize
operational efficiencies and mitigate the impact of cost pressures resulting from inflation and a tight labor market. The Company will
continue to support its management companies in implementing adjustments to the hotel operating model in response to continued
changes in the operating environment and guest preferences, including its efforts to maximize operational efficiency.
Property Taxes, Insurance and Other Expense
Property taxes, insurance and other expense for the years ended December 31, 2024 and 2023 totaled $84.4 million and $79.3
million, respectively, or 5.9% of total revenue for each respective year. The increase in property taxes, insurance, and other expense
was primarily due to an increase in casualty insurance premiums and increases in property taxes in certain locations, partially offset by
decreases at other locations due to successful appeals of tax assessments, decreases in property insurance premiums and a state
franchise tax refund received during the third quarter of 2024 resulting from legislative changes. The Company will continue to
proactively pursue tax assessment appeals in certain jurisdictions in an attempt to minimize tax increases, as warranted.
General and Administrative Expense
General and administrative expense for the years ended December 31, 2024 and 2023 was $42.5 million and $47.4 million,
respectively, or 3.0% and 3.5% of total revenue, respectively. 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 decrease
in general and administrative expense in 2024 as compared to 2023 was primarily due to a decrease in the Company’s executive
incentive compensation plan accrual, partially offset by increased payroll and related benefit costs.
Impairment of Depreciable Real Estate
Impairment of depreciable real estate was approximately $3.1 million for the year ended December 31, 2024, consisting of
impairment losses at two hotel properties identified by the Company in the third quarter of 2024, and one property identified in the
fourth quarter of 2024. Impairment of depreciable real estate was $5.6 million for the year ended December 31, 2023, consisting of
impairment losses at two hotel properties identified by the Company in the fourth quarter of 2023. See Note 3, titled “Assets Held for
Sale and 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.
Depreciation and Amortization Expense
Depreciation and amortization expense for the years ended December 31, 2024 and 2023 was $190.6 million and $183.2
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
increase was primarily due to the acquisition of two hotels in the first half of 2024 and six hotels and one free-standing parking garage
in 2023, where five of the six hotels and the free-standing parking garage were acquired in the fourth quarter of 2023, as well as
renovations completed throughout both 2024 and 2023. The increase was partially offset by the sale of six hotels in 2024.
42
Interest and Other Expense, net
Interest and other expense, net for the years ended December 31, 2024 and 2023 was $77.7 million and $68.9 million,
respectively, and is net of approximately $1.4 million and $1.5 million, respectively, of interest capitalized associated with renovation
projects.
Interest expense related to the Company’s debt instruments for the year ended December 31, 2024 increased compared to the
year ended December 31, 2023 as a result of higher average borrowings associated with variable-rate debt and higher average interest
rates on the Company's variable-rate debt due to the current inflationary environment. These higher borrowings financed acquisitions,
share repurchases and repayment of matured secured debt obligations during the year ended December 31, 2024. The proportion of
fixed-rate debt decreased over the year ended December 31, 2024 compared to the same period of 2023, as the Company had six
interest rate swaps in effect on $285.0 million of variable-rate debt that matured during 2024 while the Company entered into four new
swaps in effect on $200.0 million of variable rate debt during 2024, but at a higher fixed rate than the swaps that expired. If the
Company continues to replace expiring interest rate swaps in the current interest rate environment with new agreements, the Company
expects those new agreements to be at higher rates than the expiring swap agreements.
43
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. In addition, MFFO is a component of a key compensation measure of operational performance within the 2024 Incentive
Plan.
The following table reconciles the Company’s GAAP net income to FFO and MFFO for the years ended December 31, 2024,
2023 and 2022 (in thousands).
Year Ended December 31,
2024
2023
2022
Net income ............................................................................................ $
214,064
$
177,489
$
144,805
Depreciation of real estate owned .........................................................
187,555
180,185
178,641
Gain on sale of real estate......................................................................
(19,744)
-
(1,785)
Impairment of depreciable real estate ...................................................
3,055
5,644
26,175
Funds from operations.......................................................................
384,930
363,318
347,836
Amortization of finance ground lease assets.........................................
3,038
3,038
3,038
Amortization of favorable and unfavorable operating
leases, net............................................................................................
408
383
396
Non-cash straight-line operating ground lease expense........................
135
145
154
Modified funds from operations........................................................ $
388,511
$
366,884
$
351,424
44
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 as well as Adjusted
EBITDAre from the non-hotel property 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 it is used by management to measure the
performance of the Company’s hotels and effectiveness of the operators of the hotels. In addition, Adjusted EBITDAre and Adjusted
Hotel EBITDA are both components of key compensation measures of operational performance within the 2024 Incentive Plan.
The following table reconciles the Company’s GAAP net income to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted
Hotel EBITDA for the years ended December 31, 2024, 2023 and 2022 (in thousands).
Year Ended December 31,
2024
2023
2022
Net income ......................................................................................................... $
214,064
$
177,489
$
144,805
Depreciation and amortization...........................................................................
190,603
183,242
181,697
Amortization of favorable and unfavorable operating leases, net......................
408
383
396
Interest and other expense, net...........................................................................
77,748
68,857
59,733
Income tax expense............................................................................................
947
1,135
1,940
EBITDA.........................................................................................................
483,770
431,106
388,571
Gain on sale of real estate ..................................................................................
(19,744)
-
(1,785)
Impairment of depreciable real estate ................................................................
3,055
5,644
26,175
EBITDAre......................................................................................................
467,081
436,750
412,961
Non-cash straight-line operating ground lease expense.....................................
135
145
154
Adjusted EBITDAre ......................................................................................
467,216
436,895
413,115
General and administrative expense...................................................................
42,542
47,401
42,464
Adjusted EBITDAre from non-hotel property (1)...............................................
(214)
(2,404)
-
Adjusted Hotel EBITDA................................................................................ $
509,544
$
481,892
$
455,579
(1) Non-hotel property only includes the results of one hotel in New York, New York that is leased to a third-party hotel operator.
The Company is in the process of removing the operator from possession of the hotel. This property’s Adjusted EBITDAre results
are not included in Adjusted Hotel EBITDA starting in the second half of 2023.
Hotels Owned
As of December 31, 2024, the Company owned 221 hotels with an aggregate of 29,764 guest rooms located in 37 states and the
District of Columbia, including two hotels with a total of 206 guest rooms classified as held for sale, one of which was sold to an
unrelated party in February 2025, while the other is expected to be sold in the first quarter of 2025. 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 guest 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 guest rooms by state, and summarizing the location, brand, manager, date acquired or completed and number of
guest rooms for each of the 221 hotels the Company owned as of December 31, 2024.
45
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 have been 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.
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 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, 2024, the Company had approximately $1.5 billion of total outstanding debt consisting of $254.3 million of
mortgage debt and $1.2 billion outstanding under its credit facilities, excluding unamortized debt issuance costs and fair value
adjustments. As of December 31, 2024, the Company had available corporate cash on hand of approximately $10.3 million, and
unused borrowing capacity under its Revolving Credit Facility of approximately $567.5 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, 2024.
On July 17, 2024, the Company amended the 2017 $85 million term loan facility, which increased the amount of the term loan
facility to $130 million, with the additional $45 million funded at closing, and extended the maturity date to July 25, 2026. 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 2.20%, depending on the Company's leverage ratio, as calculated under the terms of the amended
credit agreement. Subject to certain conditions, including covenant compliance and additional fees, the maturity date of the $130
million term loan facility may be extended by the Company to July 25, 2027.
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, 2024 and a summary of the financial and
restrictive covenants as defined in the credit agreements.
On February 23, 2024, the Company entered into an equity distribution agreement pursuant to which the Company may sell,
from time to time, up to an aggregate of $500 million of its common shares under the ATM Program under the Company’s shelf
registration statement. During the year ended December 31, 2024, the Company did not sell any common shares under the ATM
Program, and no common shares were sold during the year ended December 31, 2024 under the Prior ATM Program, which was
terminated in February 2024 in connection with the commencement of the current ATM Program. During the year ended December
31, 2023, the Company sold approximately 12.8 million shares under the Prior ATM Program at a weighted-average market sales
price of approximately $17.05 per common share and received aggregate gross proceeds of approximately $218.6 million and
proceeds net of offering costs, which included $2.6 million of commissions, of approximately $216.0 million. The Company used the
net proceeds from the sale of these shares to pay down borrowings under the Revolving Credit Facility, for acquisitions of hotel
properties and for general corporate purposes. As of December 31, 2024, approximately $500 million remained available for issuance
under the ATM Program. The Company plans to use future net proceeds from the sale of shares under the ATM Program, or under a
similar successor 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.
46
As discussed in Note 3, titled “Assets Held for Sale and Dispositions” of the Consolidated Financial Statements and Notes
thereto in Part II, Item 8, in this Annual Report on Form 10-K, as of December 31, 2024, the Company had outstanding contracts with
separate unrelated parties to sell two of its hotels for a combined gross sales price of approximately $21.0 million, one of which was
sold in February 2025, while the other is expected to be sold in the first quarter of 2025. The net proceeds from the sale of both hotels
are expected to be used for general corporate purposes.
Capital Uses
The Company anticipates that cash flow from operations, availability under its Revolving Credit Facility, 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. After a suspension of its monthly distributions due to the impact of
COVID-19 on its operating cash flows, 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. The Company continued a monthly cash distribution of $0.08 per common share in 2023 and 2024. 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. In December 2023, in addition to the regular
monthly cash distribution of $0.08 per common share, the Board of Directors approved a special cash distribution of $0.05 per
common share for a combined distribution of $0.13 per common share, paid in January 2024, to shareholders of record as of
December 29, 2023. In December 2024, in addition to the regular monthly cash distribution of $0.08 per common share, the Board of
Directors approved a special cash distribution of $0.05 per common share for a combined distribution of $0.13 per common share,
paid in January 2025, to shareholders of record as of December 31, 2024. Distributions paid for the years ended December 31, 2024,
2023 and 2022 were $1.01, $1.04 and $0.61 per common share, respectively, for a total of approximately $243.7 million, $238.3
million and $139.5 million, respectively.
The Company's current annual distribution rate, payable monthly, is $0.96 per common share. As it has done historically, due to
seasonality, the Company may use its Revolving Credit Facility to maintain the consistency of the monthly distribution rate, 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 the Company’s 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 2024, 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 $335.4 million. The Share Repurchase Program may be suspended or terminated
at any time by the Company and will end in July 2025 if not terminated or extended earlier. The Company previously entered into and
expects to continue to enter into written trading plans as part of the Share Repurchase Program that provide for share repurchases in
open market transactions that are intended to comply with Rule 10b5-1 under the Exchange Act. During the year ended December 31,
2024, the Company purchased, under its Share Repurchase Program, approximately 2.4 million of its common shares at a weighted-
average market purchase price of approximately $14.16 per common share for an aggregate purchase price, including commissions, of
approximately $34.7 million. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund
future repurchases, with cash on hand, proceeds from dispositions 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, 2024, approximately $300.8 million remained available for purchase
under the Share Repurchase Program.
47
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 at the applicable
hotels, based on a percentage of the hotel’s gross revenues, provided that such amount may be used for the Company’s capital
expenditures with respect to those hotels. As of December 31, 2024, the Company held approximately $31.0 million in reserves
related to these properties. During 2024, the Company invested approximately $78.3 million in capital expenditures. The Company
anticipates spending approximately $80 million to $90 million during 2025, which includes various comprehensive renovation
projects for approximately 20 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, 2024, the Company had approximately $361.0 million of principal and interest payments due on its debt
over the next 12 months. Included in this total are mortgages secured by four properties totaling $63.9 million that mature in the
second and fourth quarters of 2025 and two term loans totaling $225.0 million that mature in the third quarter of 2025. The Company
plans to pay outstanding amounts and service payments due upon the upcoming debt maturity dates using funds from operations,
borrowings under its Revolving Credit Facility, proceeds from new financing, available credit extensions under its unsecured credit
facilities or refinancing the maturing debt. The Company may also pursue amendments with its lenders to extend the maturity date of
any expiring loans. The proportion of variable-rate debt that is fixed by interest rate swaps has decreased during the year ended
December 31, 2024 as the Company had six interest rate swaps in effect on $285.0 million of variable-rate debt that matured while the
Company entered into four new interest rate swaps in effect on $200.0 million but at higher rates than the expiring swap agreements.
If the Company replaces expiring interest rate swaps in the current interest rate environment with new agreements, the Company
anticipates those new agreements to be at higher rates than the expiring swap agreements. 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, 2024.
Hotel Purchase Contract Commitments
As of December 31, 2024, the Company had one outstanding contract, which was entered into during May 2023, for the
potential purchase of a hotel in Nashville, Tennessee for an expected purchase price of approximately $98.2 million. The hotel is
under development and is currently planned to be completed and opened for business in late 2025, as a 260-guest-room Motto. As of
December 31, 2024, a $1.1 million contract deposit (refundable if the seller does not meet its obligations under the contract) had been
paid. If the closing occurs, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured
credit facilities available at closing, to purchase the hotel under contract. 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 the purchase contract and acquire this hotel. As this hotel is under development, at this time, the seller
has not met all of the conditions to closing.
Lease Commitments
The Company is the lessee on certain ground leases, hotel equipment leases and office space leases. As of December 31, 2024,
the Company had 14 properties subject to ground leases and three parking lot ground leases with remaining terms ranging from
approximately 14 to 94 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, 2024, the Company had total remaining minimum lease payments
of $276.2 million, including $7.4 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.
48
Management and Franchise Agreements
Each of the Company’s 221 hotels owned as of December 31, 2024 is operated and managed under separate management
agreements with 16 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.
Impact of Inflation
The Company relies on the performance of its hotels and the ability of its hotel operators to increase revenue to keep pace with
inflation. Hotel operators, in general, possess the ability to adjust room rates daily to reflect the effects of inflation on the Company's
operating expenses. However, competitive pressures and other factors could limit the operators’ ability to raise room rates and, as a
result, the Company may not be able to offset increased operating expenses with increases in revenue.
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. 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 comparable asset sales 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 approximately $196.3 million for the year ended December 31, 2024
and seven properties, including six hotels and one free-standing parking garage, for a combined purchase price of $289.8 million for
the year ended December 31, 2023.
49
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 disposed of 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 quarterly recoverability analyses 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 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 three properties recorded in 2024, two properties recorded in 2023 and two properties recorded in 2022 totaling
approximately $3.1 million, $5.6 million and $26.2 million, respectively, as discussed in Note 3, titled “Assets Held for Sale and
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 15, 2025, the Company paid approximately $31.2 million, or $0.13 per common share, in distributions to
shareholders of record as of December 31, 2024.
On January 17, 2025, the Company declared a monthly cash distribution of $0.08 per common share. The distribution is payable
on February 18, 2025, to shareholders of record as of January 31, 2025.
On February 12, 2025, the Company completed the sale of the 76-guest-room Homewood Suites in Chattanooga, Tennessee, for
a gross sales price of approximately $8.3 million.
On February 18, 2025, the Company declared a monthly cash distribution of $0.08 per common share. The distribution is
payable on March 17, 2025, to shareholders of record as of February 28, 2025.
50
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of December 31, 2024, 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, 2024, after giving effect to interest rate swaps,
as described below, approximately $362.5 million, or approximately 25% 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, 2024, every 100 basis points
change in interest rates will impact the Company’s annual net income by approximately $3.6 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, 2024, the Company’s variable-rate debt consisted of its unsecured credit facilities, including $82.5 million
in borrowings outstanding under its Revolving Credit Facility and $1.0 billion 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, 2024, the Company had 12 interest rate
swap agreements that effectively fix the interest payments on approximately $735.0 million of the Company’s variable-rate debt
outstanding with swap maturity dates ranging from May 2025 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, 2024.
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, 2024. All dollar amounts are in thousands.
2025
2026
2027
2028
2029
Thereafter
Total
Fair
Market
Value
Total debt:
Maturities....................
$ 295,035
$ 287,149
$ 278,602
$ 334,066
$ 162,294
$
119,654
$
1,476,800
$ 1,443,377
Average interest rates (1) ..
4.7 %
4.8 %
4.8 %
4.4 %
3.8 %
3.6 %
Variable-rate debt:
Maturities....................
$ 225,000
$ 212,500
$ 275,000
$ 300,000
$
85,000
$
-
$
1,097,500
$ 1,097,220
Average interest rates (1) ..
5.0 %
5.1 %
5.1 %
4.6 %
3.3 %
n/a
Fixed-rate debt:
Maturities....................
$
70,035
$
74,649
$
3,602
$
34,066
$
77,294
$
119,654
$
379,300
$
346,157
Average interest rates .....
4.0 %
4.0 %
4.1 %
4.1 %
3.9 %
3.6 %
(1) The average interest rate gives effect to interest rate swaps, as applicable.
51
Item 8.
Financial Statements and Supplementary Data
Report of Management
on Internal Control over Financial Reporting
February 24, 2025
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, 2024, 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, 2024, 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.
KPMG 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
/s/ Elizabeth S. Perkins
/s/ Rachel S. Labrecque
Justin G. Knight,
Chief Executive Officer
Elizabeth S. Perkins,
Chief Financial Officer
Rachel S. Labrecque,
Chief Accounting Officer
(Principal Executive Officer)
(Principal Financial
Officer)
(Principal Accounting
Officer)
52
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Apple Hospitality REIT, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Apple Hospitality REIT, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2024, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheet of the Company as of December 31, 2024, the related consolidated statements of operations
and comprehensive income, shareholders’ equity and cash flows for the year ended, and the related notes and the financial statement
Schedule III (collectively, the consolidated financial statements), and our report dated February 24, 2025 expressed an unqualified
opinion on those consolidated financial statements.
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 of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included 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/ KPMG LLP
Richmond, Virginia
February 24, 2025
53
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Apple Hospitality REIT, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Apple Hospitality REIT, Inc. and subsidiaries (the Company)
as of December 31, 2024, the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash
flows for the year then ended, and the related notes and the financial statement Schedule III (collectively, the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended, 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, 2024, based on criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated February 24, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements 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 the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated
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 consolidated financial statements. Our audit also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audit provides 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 consolidated 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 consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a 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.
Evaluation of investments in hotel properties for impairment
As discussed in Notes 1 and 2 to the consolidated financial statements, investment in real estate, net as of December 31, 2024,
was $4,820.7 million, which primarily consists of investments in hotel properties. 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 disposed of 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. 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.
We identified the evaluation of investments in hotel properties for impairment as a critical audit matter. Identifying and
evaluating the Company’s judgments about events or changes in circumstances that indicate the carrying amount of a hotel property
may not be recoverable involved a high degree of auditor judgment. This included judgments regarding the likelihood that a property
54
will be sold significantly before the end of its previously estimated useful life. Changes in these judgments could have a significant
impact on the determination of whether the carrying amount of the investments in hotel properties may not be recoverable.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of certain internal controls over the Company’s process to identify and evaluate events or changes in
circumstances that indicate the carrying amount of investments in hotel properties may not be recoverable. This included a control
over the identification of a potential decrease in expected future cash flows caused by a shortened hold period that may indicate an
investment in a hotel property would not be recoverable. We assessed the Company’s intent and ability to hold each hotel property by
examining documents to assess the Company’s plans, if any, to dispose of individual hotel properties. We inquired of Company
officials and obtained written representations regarding the status of potential plans, if any, to dispose of individual hotel properties
and corroborated the Company’s plans with others in the organization who are responsible for, and have the authority over, potential
disposition activities.
/s/ KPMG LLP
We have served as the Company’s auditor since 2024.
Richmond, Virginia
February 24, 2025
55
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 sheet of Apple Hospitality REIT, Inc. (the Company) as of December
31, 2023, the related consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for each
of the two years in the period ended December 31, 2023, and the related notes and 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, 2023, and the results of its operations
and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S. generally accepted
accounting principles.
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 Public Company
Accounting Oversight Board (United States) (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.
We served as the Company’s auditor from 2007 to 2023.
/s/ Ernst & Young LLP
Richmond, Virginia
February 22, 2024
56
Apple Hospitality REIT , Inc.
Consolidated Balance Sheets
(in thousands, except share data)
As of December 31,
2024
2023
Assets
Investment in real estate, net of accumulated depreciation and amortization of
$1,821,344 and $1,662,942, respectively.........................................................................
$
4,820,748
$
4,777,374
Assets held for sale..............................................................................................................
17,015
15,283
Cash and cash equivalents...................................................................................................
10,253
10,287
Restricted cash-furniture, fixtures and other escrows .........................................................
33,814
33,331
Due from third party managers, net.....................................................................................
34,522
36,437
Other assets, net...................................................................................................................
53,568
64,586
Total Assets ....................................................................................................................
$
4,969,920
$
4,937,298
Liabilities
Debt, net ..............................................................................................................................
$
1,471,452
$
1,371,494
Finance lease liabilities .......................................................................................................
111,585
111,892
Accounts payable and other liabilities.................................................................................
121,024
129,931
Total Liabilities..............................................................................................................
1,704,061
1,613,317
Shareholders’ Equity
Preferred stock, authorized 30,000,000 shares; none issued and outstanding ....................
-
-
Common stock, no par value, authorized 800,000,000 shares; issued and
outstanding 239,765,905 and 241,515,532 shares, respectively ......................................
4,771,005
4,794,804
Accumulated other comprehensive income ........................................................................
15,587
20,404
Accumulated distributions greater than net income............................................................
(1,520,733)
(1,491,227)
Total Shareholders’ Equity ..........................................................................................
3,265,859
3,323,981
Total Liabilities and Shareholders’ Equity.................................................................
$
4,969,920
$
4,937,298
See notes to consolidated financial statements.
57
Apple Hospitality REIT, Inc.
Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share data)
Year Ended December 31,
2024
2023
2022
Revenues:
Room .............................................................................................................. $
1,298,525
$
1,226,159
$
1,139,436
Food and beverage .........................................................................................
65,804
56,968
46,010
Other...............................................................................................................
67,139
60,673
52,971
Total revenue......................................................................................................
1,431,468
1,343,800
1,238,417
Expenses:
Hotel operating expense:
Operating........................................................................................................
357,352
332,714
300,852
Hotel administrative .......................................................................................
123,086
114,071
105,396
Sales and marketing .......................................................................................
126,938
117,538
104,756
Utilities...........................................................................................................
50,065
47,422
45,017
Repair and maintenance .................................................................................
69,697
65,412
58,729
Franchise fees.................................................................................................
64,017
59,315
53,901
Management fees............................................................................................
46,716
44,253
41,830
Total hotel operating expense ............................................................................
837,871
780,725
710,481
Property taxes, insurance and other................................................................
84,382
79,307
72,907
General and administrative.............................................................................
42,542
47,401
42,464
Impairment of depreciable real estate ............................................................
3,055
5,644
26,175
Depreciation and amortization .......................................................................
190,603
183,242
181,697
Total expense......................................................................................................
1,158,453
1,096,319
1,033,724
Gain on sale of real estate ..............................................................................
19,744
-
1,785
Operating income .............................................................................................
292,759
247,481
206,478
Interest and other expense, net .......................................................................
(77,748)
(68,857)
(59,733)
Income before income taxes ............................................................................
215,011
178,624
146,745
Income tax expense ........................................................................................
(947)
(1,135)
(1,940)
Net income......................................................................................................... $
214,064
$
177,489
$
144,805
Other comprehensive income (loss):
Interest rate derivatives ..................................................................................
(4,817)
(16,477)
52,389
Comprehensive income.................................................................................... $
209,247
$
161,012
$
197,194
Basic and diluted net income per common share.......................................... $
0.89
$
0.77
$
0.63
Weighted average common shares outstanding - basic and
diluted..............................................................................................................
241,258
229,329
228,946
See notes to consolidated financial statements.
58
Apple Hospitality REIT, Inc.
Consolidated Statements of Shareholders’ Equity
(in thousands, except per share data)
Accumulated
Accumulated
Common Stock
Other
Distributions
Number
of Shares
Amount
Comprehensive
Income (Loss)
Greater Than
Net Income
Total
Balance at December 31, 2021 ........................................
228,256
$
4,569,352
$
(15,508)
$
(1,406,523)
$
3,147,321
Share based compensation, net of common
shares surrendered to satisfy employee
tax withholding requirements..........................................
577
10,645
-
-
10,645
Equity issuance costs......................................................
-
(300)
-
-
(300)
Common shares repurchased ............................................
(188)
(2,675)
-
-
(2,675)
Interest rate derivatives ...................................................
-
-
52,389
-
52,389
Net income ..................................................................
-
-
-
144,805
144,805
Distributions declared to shareholders ($0.76 per share)..........
-
-
-
(173,790)
(173,790)
Balance at December 31, 2022 ........................................
228,645
4,577,022
36,881
(1,435,508)
3,178,395
Share based compensation, net of common
shares surrendered to satisfy employee
tax withholding requirements..........................................
525
8,772
-
-
8,772
Issuance of common shares, net ........................................
12,826
215,890
-
-
215,890
Common shares repurchased ............................................
(480)
(6,880)
-
-
(6,880)
Interest rate derivatives ...................................................
-
-
(16,477)
-
(16,477)
Net income ..................................................................
-
-
-
177,489
177,489
Distributions declared to shareholders ($1.01 per share)..........
-
-
-
(233,208)
(233,208)
Balance at December 31, 2023 ........................................
241,516
4,794,804
20,404
(1,491,227)
3,323,981
Share based compensation, net of common
shares surrendered to satisfy employee
tax withholding requirements..........................................
695
11,370
-
-
11,370
Equity issuance costs......................................................
-
(517)
-
-
(517)
Common shares repurchased ............................................
(2,445)
(34,652)
-
-
(34,652)
Interest rate derivatives ...................................................
-
-
(4,817)
-
(4,817)
Net income ..................................................................
-
-
-
214,064
214,064
Distributions declared to shareholders ($1.01 per share)..........
-
-
-
(243,570)
(243,570)
Balance at December 31, 2024 ........................................
239,766
$
4,771,005
$
15,587
$
(1,520,733)
$
3,265,859
See notes to consolidated financial statements.
59
Apple Hospitality REIT, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December, 31
2024
2023
2022
Cash flows from operating activities:
Net income.........................................................................................................
$
214,064
$
177,489
$
144,805
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.............................................................................
190,603
183,242
181,697
Impairment of depreciable real estate....................................................................
3,055
5,644
26,175
Gain on sale of real estate ..................................................................................
(19,744 )
-
(1,785 )
Other non-cash expenses, net..............................................................................
8,361
8,708
8,653
Changes in operating assets and liabilities:
Decrease (increase) in due from third party managers, net..........................................
1,351
7,098
(3,436 )
Decrease (increase) in other assets, net..................................................................
1,634
(6,088 )
(1,685 )
Increase in accounts payable and other liabilities .....................................................
6,026
22,951
14,022
Net cash provided by operating activities...........................................................
405,350
399,044
368,446
Cash flows from investing activities:
Acquisition of hotel properties, net...........................................................................
(197,364 )
(291,388 )
(84,827 )
Disbursements for potential acquisitions, net ..............................................................
(349 )
(1,177 )
-
Capital improvements...........................................................................................
(80,340 )
(72,066 )
(59,376 )
Net proceeds from sale of real estate.........................................................................
62,343
-
8,293
Net cash used in investing activities .................................................................
(215,710 )
(364,631 )
(135,910 )
Cash flows from financing activities:
Net proceeds (disbursements) related to issuance of common shares.................................
(483 )
215,923
(265 )
Repurchases of common shares...............................................................................
(34,652 )
(6,880 )
(2,675 )
Common shares surrendered to satisfy employee withholding requirements .......................
(7,794 )
(8,008 )
(6,333 )
Distributions paid to common shareholders ................................................................
(243,722 )
(238,283 )
(139,467 )
Proceeds from revolving credit facility......................................................................
407,900
385,000
170,800
Payments on revolving credit facility........................................................................
(325,400 )
(385,000 )
(246,800 )
Proceeds from term loans and senior notes.................................................................
45,000
50,000
175,000
Payments of mortgage debt and other loans................................................................
(28,702 )
(46,213 )
(168,831 )
Principal payments on finance leases ........................................................................
(515 )
(340 )
(173 )
Financing costs ...................................................................................................
(823 )
(506 )
(10,229 )
Net cash used in financing activities .................................................................
(189,191 )
(34,307 )
(228,973 )
Net change in cash, cash equivalents and restricted cash ...............................................
449
106
3,563
Cash, cash equivalents and restricted cash, beginning of period......................................
43,618
43,512
39,949
Cash, cash equivalents and restricted cash, end of period..............................................
$
44,067
$
43,618
$
43,512
Supplemental cash flow information:
Interest paid........................................................................................................
$
75,559
$
67,835
$
57,721
Income taxes paid ................................................................................................
$
876
$
1,293
$
1,699
Supplemental disclosure of noncash investing and financing activities:
Accrued distribution to common shareholders.............................................................
$
31,170
$
31,397
$
36,551
Accrued capital expenditures ..................................................................................
$
13,738
$
15,816
$
11,050
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents, beginning of period...........................................................
$
10,287
$
4,077
$
3,282
Restricted cash-furniture, fixtures and other escrows, beginning of period..........................
33,331
39,435
$
36,667
Cash, cash equivalents and restricted cash, beginning of period.......................................
$
43,618
$
43,512
$
39,949
Cash and cash equivalents, end of period...................................................................
$
10,253
$
10,287
$
4,077
Restricted cash-furniture, fixtures and other escrows, end of period..................................
33,814
33,331
39,435
Cash, cash equivalents and restricted cash, end of period...............................................
$
44,067
$
43,618
$
43,512
See notes to consolidated financial statements.
60
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, 2024, the Company owned 221 hotels with an aggregate of 29,764 guest rooms located in 37 states and the District of
Columbia (“D.C.”), including two hotels with a total of 206 guest rooms classified as held for sale, one of which was sold to an
unrelated party in February 2025, while the other is expected to be sold in the first quarter of 2025. The Company also owns one
property leased to third parties. All information related to the number of guest 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 U.S. 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.
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 comparable asset sales 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
61
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 disposed of 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 quarterly recoverability analyses 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 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 three properties recorded in 2024, two properties recorded in 2023 and two properties recorded in 2022 totaling
approximately $3.1 million, $5.6 million and $26.2 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, 2024, the Company had two hotels classified as held for sale, one of which
was sold to an unrelated party in February 2025, while the other is expected to be sold in the first quarter of 2025, as discussed further
in Note 3. As of December 31, 2023, the Company had two hotels classified as held for sale, which were both sold to an unrelated
party in February 2024.
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 represents
revenue from the occupancy of hotel rooms and is driven by the occupancy and average daily rate charged. Room revenue does not
include ancillary services or fees charged. The contracts for room stays with customers generally are very short-term in duration and
revenue is recognized over the course of the hotel stay. The hotel reservation defines the terms of the agreement including an agreed-
upon rate and length of stay. Food and beverage revenue consists of revenue from group functions such as banquets and conferences
as well as revenue from the restaurants and lounges at the Company’s hotels. Food and beverage revenue is recognized at the time the
products or services are provided to the customer. Other operating revenue consists of ancillary revenues at the hotel, including
attrition and cancelation fees, parking revenue and other guest services and offerings. Other operating revenue is generally 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.
62
Comprehensive Income
Comprehensive income includes net income and other comprehensive income (loss), which is comprised of unrealized gains or
losses resulting from hedging activity.
Net Income Per Common Share
Basic net income per common share is computed based upon the weighted average number of shares outstanding during the
year. Diluted net income 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 per common share were the same for each of the years presented.
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 U.S.
federal income tax on its taxable income at regular corporate income tax rates (including any applicable corporate minimum tax) 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, 2024, the tax years that remain
subject to examination by major tax jurisdictions generally include 2021-2024. 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, 2024 and 2023. 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.
63
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
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No.
2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of significant
segment expenses and other segment items on an annual and interim basis and disclosure in interim periods about a reportable
segment’s profit or loss and assets that are currently required annually. Additionally, it requires disclosure of the title and position of
the Chief Operating Decision Maker (“CODM”) and requires a public entity that has a single reportable segment to provide all
disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 280. This ASU does not change
how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable
segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024, with early adoption permitted. The adoption of this ASU only impacted disclosures with no
impact on the Company’s consolidated financial statements. See Note 12 for the Company’s segment disclosures in accordance with
the adoption of this ASU.
Accounting Standards Recently Issued
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures,
which focuses on income tax disclosures around effective tax rates and cash income taxes paid. This update requires disclosure, on an
annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with
certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In
addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and
foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The new standard is
effective for annual periods beginning after December 15, 2024, with early adoption permitted. The amendments in this ASU may be
applied prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-
ASU disclosures for the prior periods, or the amendments may be applied retrospectively by providing the revised disclosures for all
periods presented. As of December 31, 2024, the Company has not adopted this ASU. The adoption of this ASU is expected to only
impact disclosures with no impact on the Company’s consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense
Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which focuses on improving the
disclosures about a public business entity’s amounts and types of expenses. The update mandates an entity to disclose the amounts of
specific natural expense categories—such as purchases of inventory, employee compensation, depreciation, intangible asset
amortization, and depletion—within relevant expense captions presented on the face of the income statement. Additionally, an entity
must disclose qualitative descriptions of the composition of any remaining expense not separately disaggregated and disclose the total
amount of selling expenses, and in annual reporting periods, the entity’s definition of selling expenses. The new standard is effective
for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027,
with early adoption permitted. The amendments in this ASU may be applied prospectively by providing the revised disclosures for the
period ending December 31, 2027 and continuing to provide the pre-ASU disclosures for the prior periods, or the amendments may be
applied retrospectively by providing the revised disclosures for all periods presented. As of December 31, 2024, the Company has not
64
adopted this ASU and is currently evaluating the impact of this ASU on the Company’s consolidated financial statements and related
disclosures.
Note 2
Investment in Real Estate
The Company’s investment in real estate consisted of the following (in thousands):
December 31,
December 31,
2024
2023
Land................................................................................ $
839,187
$
828,868
Building and improvements ...........................................
5,064,866
4,917,105
Furniture, fixtures and equipment ..................................
610,062
571,026
Finance ground lease assets............................................
102,084
102,084
Franchise fees.................................................................
25,893
21,233
6,642,092
6,440,316
Less accumulated depreciation and amortization...........
(1,821,344)
(1,662,942)
Investment in real estate, net .......................................... $
4,820,748
$
4,777,374
As of December 31, 2024, the Company owned 221 hotels with an aggregate of 29,764 guest rooms located in 37 states and the
District of Columbia, including two hotels with a total of 206 guest rooms classified as held for sale, one of which was sold to an
unrelated party in February 2025, while the other is expected to be sold in the first quarter of 2025. In May 2023, the Company
entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New
York, New York for all hotel operations of the hotel’s 210 guest rooms (“non-hotel property”). Lease revenue from this property is
recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result of the lease
and transfer of possession to the operator, this property has been excluded from the Company’s hotel and guest room counts since
May 2023. As a result of the operator's failure to make lease payments, the Company has commenced legal proceedings to remove the
operator from possession of the hotel. The Company intends to enforce its rights under the lease and transition management of the
hotel to a third-party manager, however, the removal process is still ongoing and the timing of the resolution of this matter and the
transition of management operations cannot be predicted at this time.
The Company leases all of its 221 hotels to a wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under master hotel
lease agreements.
2024 and 2023 Acquisitions
During the year ended December 31, 2024, the Company acquired two hotels. The following table sets forth the location, brand,
manager, date acquired, number of guest rooms and gross purchase price, excluding transaction costs, for each property. All dollar
amounts are in thousands.
City
State
Brand
Manager
Date
Acquired
Guest Rooms
Gross
Purchase
Price
Washington, D.C.......... N/A
AC Hotels
HHM
3/25/2024
234
$
116,804
Madison........................ WI
Embassy Suites
Raymond
6/20/2024
262
79,516
496
$
196,320
65
During the year ended December 31, 2023, the Company acquired six hotels and one free-standing parking garage. The
following table sets forth the location, brand, manager, date acquired, number of guest rooms and gross purchase price, excluding
transaction costs, for each property. All dollar amounts are in thousands.
City
State
Brand
Manager
Date
Acquired
Guest Rooms
Gross
Purchase
Price
Cleveland ..................... OH
Courtyard
Concord
6/30/2023
154
$
31,000
Salt Lake City............... UT
Courtyard
North Central
10/11/2023
175
48,110
Salt Lake City............... UT
Hyatt House
North Central
10/11/2023
159
34,250
Salt Lake City (1)........... UT
N/A
North Central
10/11/2023
N/A
9,140
Renton .......................... WA
Residence Inn
InnVentures
10/18/2023
146
55,500
South Jordan................. UT
Embassy Suites
HHM
11/21/2023
192
36,750
Las Vegas..................... NV
SpringHill Suites
Crescent (2)
12/27/2023
299
75,000
1,125
$
289,750
(1) This property is a free-standing parking garage which serves both the Courtyard and Hyatt House hotels in Salt Lake City, Utah
and the surrounding area, however, it is not affiliated with any brand.
(2) The Manager noted is as of the date the hotel was acquired. Effective October 1, 2024, management responsibility of this property
was transferred from Crescent to Highgate.
In 2024, the Company utilized proceeds from the sale of hotels and borrowings under its Revolving Credit Facility (as defined
below) to purchase the Washington, D.C. and Madison, Wisconsin hotels. In 2023, the Company utilized its available cash on hand,
net proceeds from sale of shares under the ATM program (as defined below) and availability under its Revolving Credit Facility to
purchase the seven properties. The acquisitions of these 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 2024, the amount of revenue and operating income included in the Company’s consolidated statement of
operations from the date of acquisition through December 31, 2024 was approximately $24.7 million and $4.7 million, respectively.
For the six hotels and free-standing parking garage acquired during 2023, the amount of revenue and operating income included in the
Company’s consolidated statement of operations from the date of acquisition through December 31, 2023 was approximately $9.7
million and $1.6 million, respectively.
66
Note 3
Assets Held for Sale and Dispositions
Assets Held for Sale
In the fourth quarter of 2024, the Company entered into two purchase and sale agreements with separate unrelated parties for the
sale of two hotels for a combined gross sales price of approximately $21.0 million. Since the buyers under contract had completed
their due diligence and had both made non-refundable deposits, as of December 31, 2024, the Company classified these two hotels as
assets held for sale in its consolidated balance sheet at their carrying value (which was less than the contract price, net of costs to sell).
The Company completed the sale of one of the hotels in February 2025, while the other is expected to be sold in the first quarter of
2025.
2024 Dispositions
During the year ended December 31, 2024, the Company sold six hotels to five unrelated parties for a combined gross sales
price of approximately $63.4 million, resulting in a combined gain on the sales of approximately $19.7 million, net of transaction
costs, which is included in the Company’s consolidated statement of operations for the year ended December 31, 2024. The six hotels
had a total carrying value of approximately $42.6 million at their respective times of sale. The following table lists the six hotels sold
in 2024:
City
State
Brand
Date Sold
Guest Rooms
Rogers ................................
AR
Hampton
2/9/2024
122
Rogers ................................
AR
Homewood Suites
2/9/2024
126
Greensboro .........................
NC
SpringHill Suites
5/21/2024
82
Wichita ...............................
KS
Courtyard
11/12/2024
90
Knoxville............................
TN
TownePlace Suites
12/3/2024
97
Austin .................................
TX
Hilton Garden Inn
12/31/2024
117
Total ...............................
634
2023 Dispositions
There were no dispositions during the year ended December 31, 2023.
2022 Dispositions
During the year ended December 31, 2022, the Company sold one hotel, a 55-guest-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.
Excluding gains on sale of real estate, the Company’s consolidated statements of operations include operating income (loss) of
approximately $(2.0) million, $(2.5) million and $4.2 million for the years ended December 31, 2024, 2023 and 2022, respectively,
relating to the results of operations of the nine hotels discussed above (the two hotels classified as held for sale at December 31, 2024,
the six hotels sold in 2024 and the one hotel sold in 2022) 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, 2024, as applicable. A portion of the proceeds from the sale of the two hotels in February 2024 was used to complete a
like-kind exchange, in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, for the acquisition of the AC
Hotel in Washington, D.C. as discussed above in Note 2, which resulted in the deferral of taxable gains of $15.1 million. The net
proceeds from the sale of the remaining four hotels in 2024 and the one hotel in 2022 were used for general corporate purposes.
Impairment of Depreciable Real Estate
During the years ended December 31, 2024, 2023 and 2022, the Company recorded impairment losses totaling approximately
$3.1 million, $5.6 million and $26.2 million, respectively.
During the third and fourth quarters of 2024, the Company identified indicators of impairment at three properties, resulting in a
combined loss on impairment for the year ended December 31, 2024 of $3.1 million. The three properties were separately identified
for potential sale in either the third or fourth quarters of 2024, and the Company entered into separate purchase and sale agreements
67
with separate unrelated parties for the sale of the hotels for a combined gross sales price of $21.7 million. As a result, the Company
recognized impairment losses of approximately $2.9 million in the third quarter of 2024 and $0.2 million in the fourth quarter of 2024,
for these properties to adjust the carrying value of these hotels to their estimated fair values less cost to sell, which were based on the
contracted sales prices, Level 2 inputs under the fair value hierarchy. The Company completed the sale of one of these hotels in
November 2024 and another in December 2024. For the third hotel impaired in 2024, the Company completed the sale in February
2025, therefore, the hotel is classified as assets held for sale on the Company’s consolidated balance sheet at December 31, 2024.
During the fourth quarter of 2023, 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 both
hotels, the Company utilized an offer from an unrelated party, 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
$17.4 million as of December 31, 2023) to their estimated fair market value (approximately $11.8 million as of December 31, 2023),
resulting in an impairment loss of $5.6 million.
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 GAAP, 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 to their estimated fair market
value, resulting in an impairment loss of $26.2 million.
Note 4
Debt
Summary
As of December 31, 2024 and 2023, the Company’s debt consisted of the following (in thousands):
December 31,
2024
December 31,
2023
Revolving credit facility................................................... $
82,500
$
-
Term loans and senior notes, net......................................
1,135,175
1,088,904
Mortgage debt, net ...........................................................
253,777
282,590
Debt, net........................................................................... $
1,471,452
$
1,371,494
68
The aggregate amounts of principal payable under the Company’s total debt obligations as of December 31, 2024 (including the
Revolving Credit Facility (if any) (as defined below), term loans, senior notes and mortgage debt), for the five years subsequent to
December 31, 2024 and thereafter are as follows (in thousands):
2025............................................................................................................................................................$ 295,035
2026............................................................................................................................................................
287,149
2027............................................................................................................................................................
278,602
2028............................................................................................................................................................
334,066
2029............................................................................................................................................................
162,294
Thereafter ...................................................................................................................................................
119,654
1,476,800
Unamortized fair value adjustment of assumed debt .................................................................................
192
Unamortized debt issuance costs................................................................................................................
(5,540)
Total ...........................................................................................................................................................$1,471,452
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, 2024 and
2023, is set forth below. All dollar amounts are in thousands.
December 31,
2024
Percentage
December 31,
2023
Percentage
Fixed-rate debt (1)........................................ $
1,114,300
75% $
1,228,002
89%
Variable-rate debt.......................................
362,500
25%
150,000
11%
Total............................................................ $
1,476,800
$
1,378,002
Weighted-average interest rate of debt.......
4.71%
4.26%
(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
On July 25, 2022, the Company entered into a credit facility (the “$1.2 billion credit facility”) that 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 (the term loans described
in clauses (ii) and (iii) are referred to together as the “$575 million term loan 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. 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. As of December 31, 2024, the Company had availability of $567.5 million under the Revolving Credit
Facility. The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.25% on the unused
portion of the Revolving Credit Facility, based on the amount of borrowings outstanding during the quarter.
69
$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 an
initial 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 term loans described in clauses (i) and (ii) are referred to together as the “$225 million term loan facility”). On July 19, 2023, the
Company entered into an amendment of its $225 million term loan facility, which extended the maturity date of the existing $50
million term loan by two years to August 2, 2025. 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.
$130 Million Term Loan Facility
On July 25, 2017, the Company entered into an unsecured $85 million term loan facility with an initial maturity date of July 25,
2024, consisting of one term loan (the “2017 $85 million term loan facility”) that was funded at closing. Interest payments on the 2017
$85 million term loan facility were due monthly, and the interest rate, subject to certain exceptions, was 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. On July 17, 2024, the Company amended the 2017 $85 million
term loan facility, which increased the amount of the term loan facility to $130 million, with the additional $45 million funded at
closing (the "$130 million term loan facility"), and extended the maturity date to July 25, 2026. 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 2.20%, depending on the Company's leverage ratio, as calculated under the terms of the amended credit agreement. Subject
to certain conditions, including covenant compliance and additional fees, the maturity date of the $130 million term loan facility may
be extended by the Company to July 25, 2027. The Company may make voluntary prepayments, in whole or in part, at any time,
subject to certain conditions.
$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 “$85 million term loan facility”). The Company may make voluntary
prepayments, in whole or in part, subject to certain conditions. Interest payments on the $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.
$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”). 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.
$75 Million Senior Notes Facility
On June 2, 2022, the Company entered into an unsecured $75 million 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 $1.2
billion credit facility, the $225 million term loan facility, the $130 million term loan facility, the $85 million term loan facility and the
$50 million senior notes facility, the “unsecured credit facilities”). 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.
70
As of December 31, 2024 and 2023, the details of the Company’s unsecured credit facilities were as set forth in the table below.
All dollar amounts are in thousands.
Outstanding Balance
Interest Rate
Maturity
Date
December 31,
2024
December 31,
2023
Revolving credit facility (1) ........................
SOFR + 0.10% + 1.40% - 2.25%
7/25/2026
$
82,500
$
-
Term loans and senior notes
$275 million term loan ..........................
SOFR + 0.10% + 1.35% - 2.20%
7/25/2027
275,000
275,000
$300 million term loan ..........................
SOFR + 0.10% + 1.35% - 2.20%
1/31/2028
300,000
300,000
$50 million term loan............................
SOFR + 0.10% + 1.35% - 2.20%
8/2/2025
(3)
50,000
50,000
$175 million term loan ..........................
SOFR + 0.10% + 1.65% - 2.50%
8/2/2025
(3)
175,000
175,000
$130 million term loan ..........................
SOFR + 0.10% + 1.35% - 2.20%
7/25/2026
(4)
130,000
85,000
$85 million term loan............................
SOFR + 0.10% + 1.70% - 2.55%
12/31/2029
85,000
85,000
$50 million senior notes ........................
3.60% - 4.35%
3/31/2030
50,000
50,000
$75 million senior notes ........................
4.88% - 5.63%
6/2/2029
75,000
75,000
Term loans and senior notes at stated
value......................................................
1,140,000
1,095,000
Unamortized debt issuance costs ............
(4,825)
(6,096)
Term loans and senior notes, net ................
1,135,175
1,088,904
Credit facilities, net (1)...............................
$
1,217,675
$
1,088,904
Weighted-average interest rate (2) ...............
4.88%
4.35%
(1) Excludes unamortized debt issuance costs related to the Revolving Credit Facility totaling approximately $2.1 million and $3.5
million as of December 31, 2024 and December 31, 2023, respectively, which are included in other assets, net in the Company’s
consolidated balance sheets.
(2) Interest rate represents the weighted-average effective annual interest rate at the balance sheet date which includes the effect of
interest rate swaps in effect on $735.0 million and $820.0 million of the outstanding variable-rate debt as of December 31, 2024
and 2023, respectively. See Note 5 for more information on the interest rate swap agreements. The one-month SOFR at
December 31, 2024 and December 31, 2023 was 4.33% and 5.35%, respectively.
(3) The Company plans to pay outstanding amounts and service payments due upon the upcoming debt maturity date using funds
from operations, borrowings under its Revolving Credit Facility, proceeds from new financing, available credit extensions under
its unsecured credit facilities or refinancing the maturing debt.
(4) On July 17, 2024, the Company amended the 2017 $85 million term loan facility, which increased the amount of the term loan
facility to $130 million, with the additional $45 million funded at closing, and extended the maturity date to July 25, 2026. 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 2.20%, depending on the Company's leverage ratio, as calculated under the terms
of the amended credit agreement. Subject to certain conditions, including covenant compliance and additional fees, the maturity
date of the $130 million term loan facility may be extended by the Company to July 25, 2027.
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,
including 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%;
•
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;
71
•
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, 2024.
Mortgage Debt
As of December 31, 2024, the Company had approximately $254.3 million in outstanding mortgage debt secured by 14
properties with maturity dates ranging from April 2025 to May 2038, stated interest rates ranging from 3.40% to 4.46% and effective
interest rates ranging from 3.40% to 4.37%. 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, 2024 and 2023 for each of the
Company’s mortgage debt obligations. All dollar amounts are in thousands.
Location
Brand
Interest
Rate (1)
Loan
Assumption
or
Origination
Date
Maturity
Date
Principal
Assumed
or
Originated
Outstanding
balance
as of
December 31,
2024
Outstanding
balance
as of
December 31,
2023
New Orleans, LA............................
Homewood Suites
4.36 %
7/17/2014
(2)
27,000
-
20,304
Westford, MA ...............................
Residence Inn
4.28 %
3/18/2015
4/11/2025 (3)
10,000
7,391
7,713
Denver, CO...................................
Hilton Garden Inn
4.46 %
9/1/2016
6/11/2025 (3)
34,118
26,229
27,337
Oceanside, CA...............................
Courtyard
4.28 %
9/1/2016
10/1/2025 (3)
13,655
11,381
11,707
Omaha, NE...................................
Hilton Garden Inn
4.28 %
9/1/2016
10/1/2025 (3)
22,681
18,904
19,445
Boise, ID......................................
Hampton
4.37 %
5/26/2016
6/11/2026
24,000
20,156
20,685
Burbank, CA.................................
Courtyard
3.55 %
11/3/2016
12/1/2026
25,564
19,698
20,526
San Diego, CA...............................
Courtyard
3.55 %
11/3/2016
12/1/2026
25,473
19,628
20,453
San Diego, CA...............................
Hampton
3.55 %
11/3/2016
12/1/2026
18,963
14,611
15,226
Burbank, CA.................................
SpringHill Suites
3.94 %
3/9/2018
4/1/2028
28,470
23,385
24,237
Santa Ana, CA...............................
Courtyard
3.94 %
3/9/2018
4/1/2028
15,530
12,756
13,221
Richmond, VA...............................
Courtyard
3.40 %
2/12/2020
3/11/2030
14,950
13,509
13,832
Richmond, VA...............................
Residence Inn
3.40 %
2/12/2020
3/11/2030
14,950
13,509
13,832
Portland, ME.................................
Residence Inn
3.43 %
3/2/2020
3/1/2032
33,500
30,500
30,500
San Jose, CA.................................
Homewood Suites
4.22 %
12/22/2017
5/1/2038
30,000
22,643
23,984
$
338,854
254,300
283,002
Unamortized fair value adjustment
of assumed debt...........................
192
526
Unamortized debt issuance costs ........
(715 )
(938 )
Total ...........................................
$
253,777
$
282,590
(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) Loan was repaid in full on August 12, 2024.
(3) The Company plans to pay the outstanding amount and service payments due upon the upcoming debt maturity date using funds
from operations, borrowings under its Revolving Credit Facility and/or proceeds from new financing.
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 $0.3 million, $0.3 million and $0.2 million for the years ended December 31, 2024, 2023 and 2022,
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 $3.8 million, $3.6 million and $4.0 million for the three
years ended December 31, 2024, 2023 and 2022, respectively.
72
The Company’s interest expense in 2024, 2023 and 2022 is net of interest capitalized in conjunction with hotel renovations
totaling approximately $1.4 million, $1.5 million and $1.3 million, respectively.
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, 2024,
the carrying value and estimated fair value of the Company’s debt were approximately $1.5 billion and $1.4 billion, respectively. As
of December 31, 2023, the carrying value and estimated fair value of the Company’s debt were approximately $1.4 billion and $1.3
billion, respectively. Both the carrying value and estimated fair value of the Company’s debt (as discussed above) are 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 risk 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. 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, 2024 and 2023. All dollar amounts are in thousands.
73
Fair Value Asset (Liability)
Notional
Amount at
December 31,
2024
Origination
Date
Effective
Date
Maturity
Date
Swap Fixed
Interest
Rate
December 31,
2024
December 31,
2023
Active interest rate swaps designated as cash flow hedges at December 31, 2024:
$
75,000
8/21/2019
5/18/2020
5/18/2025
1.26%
$
887
$
3,273
50,000
6/1/2018
1/31/2019
6/30/2025
2.88%
361
1,117
25,000
12/6/2018
1/31/2020
6/30/2025
2.74%
197
608
75,000
8/21/2019
5/18/2021
5/18/2026
1.29%
2,924
4,580
125,000
11/3/2023
11/3/2023
11/18/2026
4.51%
(860)
(2,333)
50,000
8/2/2024
8/2/2024
8/18/2027
3.63%
590
-
50,000
8/1/2024
8/5/2024
8/31/2027
3.84%
344
-
50,000
3/17/2023
3/20/2023
3/18/2028
3.50%
910
268
50,000
3/17/2023
3/20/2023
3/20/2028
3.49%
900
242
50,000
8/1/2024
8/5/2024
8/18/2028
3.75%
554
-
50,000
7/18/2024
7/18/2024
7/18/2029
3.96%
270
-
85,000
12/31/2019
12/31/2019
12/31/2029
1.87%
8,510
7,788
735,000
15,587
15,543
Matured interest rate swaps at December 31, 2024:
50,000
12/7/2018
5/18/2020
1/31/2024
2.71%
-
114
75,000
5/31/2017
7/31/2017
6/30/2024
1.95%
-
1,202
10,000
8/10/2017
8/10/2017
6/30/2024
2.02%
-
157
50,000
7/2/2019
7/5/2019
7/18/2024
1.64%
-
956
50,000
8/21/2019
8/23/2019
8/18/2024
1.31%
-
1,193
50,000
8/21/2019
8/23/2019
8/30/2024
1.32%
-
1,239
$
285,000
-
4,861
$
15,587
$
20,404
The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. As of
December 31, 2024, all 12 active interest rate swap agreements listed above were designated as cash flow hedges. The change in the
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 $6.7 million
of net unrealized gains included in accumulated other comprehensive income at December 31, 2024 will be reclassified as a decrease
to interest and other expense, net within the next 12 months.
74
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 for the years ended December 31, 2024, 2023 and 2022 (in
thousands):
Net Unrealized Gain Recognized in Other
Comprehensive Income (Loss)
2024
2023
2022
Interest rate derivatives in cash flow hedging
relationships....................................................................
$
15,200
$
5,870
$
52,714
Net Unrealized Gain Reclassified from Accumulated
Other Comprehensive Income to Interest and Other
Expense, net
2024
2023
2022
Interest rate derivatives in cash flow hedging
relationships....................................................................
$
20,017
$
22,347
$
325
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 have been 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, 2024, 2023 and 2022, 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, 2024, 2023 and 2022 totaled approximately $1.5 million, $1.2 million and $1.0 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, 2024 and
2023, total amounts due from ARG for reimbursements under the cost sharing structure totaled approximately $0.5 million for each
year, and are included in other assets, net in the Company’s consolidated balance sheets.
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.
75
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 2024, 2023 and 2022 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
For the three years ended December 31, 2024, 2023 and 2022, the Company paid distributions of $1.01, $1.04 and $0.61 per
common share, respectively, for a total of approximately $243.7 million, $238.3 million and $139.5 million, respectively. For the year
ended December 31, 2024, in addition to the regular monthly cash distribution of $0.08 per common share for December 2024, the
Board of Directors approved a special one-time distribution of $0.05 per common share for a combined distribution of $0.13 per
common share, totaling $31.2 million, which was recorded as a payable as of December 31, 2024 and paid in January 2025. For the
year ended December 31, 2023, in addition to the regular monthly cash distribution of $0.08 per common share approved by the Board
of Directors in December 2023, the Board of Directors approved a special one-time distribution of $0.05 per common share for a
combined distribution of $0.13 per common share, totaling $31.4 million, which was recorded as a payable as of December 31, 2023
and paid in January 2024. These accrued distributions were included in accounts payable and other liabilities in the Company’s
consolidated balance sheets at December 31, 2024 and December 31, 2023, respectively.
Issuance of Shares
On February 23, 2024, the Company entered into an equity distribution agreement pursuant to which the Company may sell,
from time to time, up to an aggregate of $500 million of its common shares under an at-the-market offering program (the “ATM
Program”) under the Company’s shelf registration statement. During the year ended December 31, 2024, the Company did not sell any
common shares under the ATM Program, and no common shares were sold during the year ended December 31, 2024 under the
previous $300 million at-the-market offering program (the “Prior ATM Program”), which was terminated in February 2024 in
connection with the commencement of the current ATM Program. During the year ended December 31, 2023, the Company sold
approximately 12.8 million shares under the Prior ATM Program at a weighted-average market sales price of approximately $17.05
per common share and received aggregate gross proceeds of approximately $218.6 million and proceeds net of offering costs, which
included $2.6 million of commissions, of approximately $216.0 million. The Company used the net proceeds from the sale of these
shares to pay down borrowings under the Revolving Credit Facility, for acquisitions of hotel properties and for general corporate
purposes. As of December 31, 2024, approximately $500 million remained available for issuance under the ATM Program. The
Company plans to use future net proceeds from the sale of shares under the ATM Program, or under a similar successor 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 2024, 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 $335.4 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 2025 if not terminated or extended earlier.
The Company previously entered into and expects to continue to enter into written trading plans as part of the Share Repurchase
Program that provide for share repurchases in open market transactions that are intended to comply with Rule 10b5-1 under the
Exchange Act. During the year ended December 31, 2024, the Company purchased, under its Share Repurchase Program,
approximately 2.4 million of its common shares at a weighted-average market purchase price of approximately $14.16 per common
share for an aggregate purchase price, including commissions, of approximately $34.7 million. Repurchases under the Share
Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash on hand, proceeds from
dispositions 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, 2024,
approximately $300.8 million remained available for purchase under the Share Repurchase Program.
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.
76
Note 8
Compensation Plans
In March 2024, the Board of Directors adopted the Company’s 2024 Omnibus Incentive Plan (the “2024 Omnibus Plan”), and in
May 2024, the Company’s shareholders approved the 2024 Omnibus Plan, terminating the 2014 Omnibus Incentive Plan (the “2014
Omnibus Plan”) with respect to any common shares that were not subject to any outstanding awards under the plan. Following its
termination, no additional awards can be made under the 2014 Omnibus Plan, but the terms and conditions of any outstanding awards
granted under the 2014 Omnibus Plan were not affected. Upon termination of the 2014 Omnibus Plan on May 23, 2024,
approximately 1.1 million shares were subject to outstanding awards (which included an estimated number of common shares based
on “target” performance with respect to February 2024 awards authorized under the 2014 Omnibus Plan in February 2024, which were
outstanding but not yet earned under the 2014 Omnibus Plan). As of December 31, 2024, approximately 0.7 million shares remained
available for issuance pursuant to outstanding awards under the 2014 Omnibus Plan.
The 2024 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 2024 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 2024 Omnibus Plan is 7.25 million. As of December 31, 2024, there were approximately 7.2 million common
shares available for issuance under the 2024 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 2024 (the “2024 Incentive Plan”), participants are eligible to receive incentive
compensation based on the achievement of certain 2024 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, 75% of the operational performance target was based on the following metrics: Comparable Hotels RevPAR
growth, Comparable Hotels Adjusted Hotel EBITDA margin, Adjusted EBITDAre, Modified Funds from Operations per share and
the Company’s 2024 capital expenditures, equally weighted at 15% (non-GAAP financial measures are defined elsewhere within this
Annual Report on Form 10-K). The remaining 25% of the operational performance target was based on operational performance
goals, including management of capital structure and capital allocation, as well as the build out of proprietary market forecasting
capabilities. As of December 31, 2024, the range of potential aggregate payouts under the 2024 Incentive Plan was $0 - $27.8 million.
Based on performance during 2024, the Company accrued approximately $15.0 million as a liability for executive incentive
compensation payments under the 2024 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s
consolidated balance sheet as of December 31, 2024 and in general and administrative expenses in the Company’s consolidated
statement of operations for the year ended December 31, 2024. Additionally, approximately $1.8 million, which is subject to vesting
on December 12, 2025, will be recognized proportionally throughout 2025. Approximately 25% of target awards under the 2024
Incentive Plan will be paid in cash, and 75% will be issued in common shares under the Company’s 2014 Omnibus Plan. The portion
of awards under the 2024 Incentive Plan payable in common shares will be issued under the Company’s 2014 Omnibus Plan during
the first quarter of 2025, approximately two-thirds of which will be unrestricted and one-third of which will be restricted and is subject
to vesting on December 12, 2025.
Under the incentive plan for 2023 (the “2023 Incentive Plan”), the Company accrued approximately $20.9 million including
$14.8 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, 2023 and in
general and administrative expenses in the Company’s consolidated statement of operations for the year ended December 31, 2023.
Under the incentive plan for 2022 (the “2022 Incentive Plan”), the Company accrued approximately $18.1 million, including $12.5
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, 2022.
77
Share-Based Compensation Awards
The following table sets forth information pertaining to the share-based compensation issued under the 2023 Incentive Plan, the
2022 Incentive Plan and the incentive plan for 2021 (the “2021 Incentive Plan”):
2023 Incentive
Plan
2022 Incentive
Plan
2021 Incentive
Plan
Period common shares issued
First Quarter
2024
First Quarter
2023
First Quarter
2022
Common shares earned under each incentive plan ..................................
1,110,664
935,189
868,079
Common shares surrendered on issuance date to satisfy tax
withholding obligations..........................................................................
306,346
263,026
245,597
Common shares earned and issued under each incentive plan, net of
common shares surrendered on issuance date to satisfy
tax withholding obligations....................................................................
804,318
672,163
622,482
Average of the high and low stock price on issuance date....................... $
16.27
$
16.70
$
17.79
Total share-based compensation earned, including the
surrendered shares (in millions) ............................................................. $
18.1
(1) $
15.6
(2) $
15.4
(3)
Of the total common shares earned and issued, total common shares
unrestricted at time of issuance ..............................................................
399,842
360,176
338,032
Of the total common shares earned and issued, total common shares
restricted at time of issuance ..................................................................
404,476
311,987
284,450
Restricted common shares vesting date
December 13,
2024
December 8,
2023
December 9,
2022
Common shares surrendered on vesting date to satisfy tax
withholding requirements resulting from vesting of restricted
common shares.......................................................................................
170,970
134,085
114,147
(1)
Of the total 2023 share-based compensation, approximately $14.8 million was recognized as share-based compensation expense
during the year ended December 31, 2023, and included in accounts payable and other liabilities in the Company's consolidated
balance sheet at December 31, 2023, and the remaining $3.3 million, which vested on December 13, 2024 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, 2024.
(2)
Of the total 2022 share-based compensation, approximately $12.5 million was recognized as share-based compensation expense
during the year ended December 31, 2022, and included in accounts payable and other liabilities in the Company's consolidated
balance sheet at December 31, 2022, and the remaining $2.6 million, which vested on December 8, 2023 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, 2023.
(3)
Of the total 2021 share-based compensation, approximately $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.
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 vested on March 31, 2023. The expense associated with the awards
was amortized over the 3-year vesting period. For the years ended December 31, 2023 and 2022, the Company recognized
approximately $0.1 million and $0.6 million, respectively, of share-based compensation expense related to these awards. Upon vesting
on March 31, 2023, approximately 83,000 shares were surrendered to satisfy tax withholding obligations.
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 of Directors 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 of Directors, 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
78
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 of Directors, 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 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, 2024, 2023 and 2022, non-employee directors participating in the Director Deferral Program deferred approximately
$0.1 million, $0.2 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 value of the common shares on such date. Outstanding DSUs at December 31, 2024 and 2023 were approximately 81,000 and
76,000, with weighted-average grant date fair value for both years of $15.48, valued at approximately $1.3 million and $1.2 million,
respectively, which is included in common stock, a component of shareholders’ equity in the Company’s consolidated balance sheets
as of December 31, 2024 and 2023.
In 2024, the Director Deferral Program was amended and restated for the purpose of continuing the plan with respect to awards
under the 2024 Omnibus Plan.
79
Note 9
Management and Franchise Agreements
Each of the Company’s 221 hotels owned as of December 31, 2024 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:
Manager
Number of
Hotels
LBAM-Investor Group, LLC (“LBA”) ......................................................................................................
33
Dimension Development Two, LLC (“Dimension”)..................................................................................
31
Crestline Hotels & Resorts, LLC (“Crestline”) ..........................................................................................
25
Raymond Management Company, Inc. (“Raymond”) ...............................................................................
21
Hersha Hospitality Management L.P. (“HHM”) ........................................................................................
19
Texas Western Management Partners, LP (“Western”) .............................................................................
16
Marriott International, Inc. (“Marriott”).....................................................................................................
13
MHH Management, LLC (“McKibbon”)...................................................................................................
13
North Central Hospitality, LLC (“North Central”).....................................................................................
11
Newport Hospitality Group, Inc. (“Newport”)...........................................................................................
10
Chartwell Hospitality, LLC (“Chartwell”) .................................................................................................
9
InnVentures IVI, LP (“InnVentures”)(1) .....................................................................................................
9
Concord Hospitality Enterprises Company, LLC (“Concord”)..................................................................
4
Huntington Hotel Group, LP (“Huntington”).............................................................................................
3
White Lodging Services Corporation (“White Lodging”)..........................................................................
3
Highgate Hotels, L.P. ("Highgate")............................................................................................................
1
Total........................................................................................................................................................
221
(1)
InnVentures is a subsidiary of Highgate.
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, 2024, approximately 82%
of the Company’s hotels operated 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
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 reinstated the variable management
fee rates in 2023. For the years ended December 31, 2024, 2023 and 2022, the Company incurred approximately $46.7 million, $44.3
million and $41.8 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
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, 2024, 2023 and 2022, the Company incurred approximately $64.0 million, $59.3 million and $53.9 million,
respectively, in franchise royalty fees.
80
Note 10
Lease Commitments
The Company is the lessee on certain ground leases, hotel equipment leases and office space leases. As of December 31, 2024,
the Company had 14 properties subject to ground leases and three parking lot ground leases with remaining terms ranging from
approximately 14 to 94 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 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.
81
Lease Position as of December 31, 2024 and 2023
The following table sets forth the lease-related assets and liabilities included in the Company’s consolidated balance sheet as of
December 31, 2024 and 2023. All dollar amounts are in thousands.
December 31,
Consolidated Balance Sheet
Classification
2024
2023
Assets
Operating lease assets, net....................................
Other assets, net
$
24,331
$
25,389
Finance ground lease assets, net (1).......................
Investment in real estate, net
83,954
86,992
Total lease assets ..................................................
$
108,285
$
112,381
Liabilities
Operating lease liabilities.....................................
Accounts payable and other liabilities
$
10,962
$
11,447
Finance lease liabilities ........................................
Finance lease liabilities
111,585
111,892
Total lease liabilities.............................................
$
122,547
$
123,339
Weighted-average remaining lease term
Operating leases
36 years
Finance leases
29 years
Weighted-average discount rate
Operating leases
5.51%
Finance leases
5.31%
(1)
Finance ground lease assets are net of accumulated amortization of approximately $18.1 million and $15.1 million as of
December 31, 2024 and 2023, respectively.
Lease Costs for the Years Ended December 31, 2024, 2023 and 2022
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, 2024, 2023 and 2022 (in thousands):
Year Ended December 31,
Consolidated Statement of
Operations Classification
2024
2023
2022
Operating lease costs (1) ......................... Property taxes, insurance and other
expense
$
1,886
$
1,776
$
1,794
Finance lease costs:
Amortization of lease assets .............. Depreciation and amortization expense
3,038
3,038
3,038
Interest on lease liabilities ................. Interest and other expense, net
5,867
5,877
5,872
Total lease costs.....................................
$
10,791
$
10,691
$
10,704
(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.
82
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, 2024
(in thousands):
Operating LeasesFinance Leases
2025 ................................................................................................................$
1,098$
6,338
2026 ................................................................................................................
893
6,500
2027 ................................................................................................................
728
6,700
2028 ................................................................................................................
715
6,879
2029 ................................................................................................................
741
7,056
Thereafter........................................................................................................
28,893
209,619
Total minimum lease payments......................................................................
33,068
243,092
Less: amount of lease payments representing
interest..........................................................................................................
22,106
131,507
Present value of lease liabilities......................................................................$
10,962$
111,585
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, 2024, 2023 and 2022 (in thousands):
Year Ended December 31,
2024
2023
2022
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows for operating leases ..................$
1,100
$
1,106
$
1,166
Operating cash flows for finance leases......................
5,659
5,651
5,469
Financing cash flows for finance leases......................
515
340
173
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):
Year Ended December 31,
2024
2023
2022
Current:
Federal ......................................................................................
$
-
$
-
$
(34)
State ..........................................................................................
947
1,135
1,974
Deferred:
Federal ......................................................................................
-
-
-
State ..........................................................................................
-
-
-
Income tax expense ................................................................
$
947
$
1,135
$
1,940
83
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,
2024
2023
2022
Statutory federal tax expense..............................................................
$
44,954
$
37,273
$
30,409
Federal tax impact of REIT election ..................................................
(50,456)
(39,865)
(27,261)
Statutory federal tax expense (benefit) at TRS...................................
(5,502)
(2,592)
3,148
State income tax expense (benefit), net of federal tax benefit ...........
748
897
1,559
Change in valuation allowance...........................................................
5,701
2,830
(2,767)
Income tax expense ..........................................................................
$
947
$
1,135
$
1,940
As of December 31, 2024, the Company had deferred tax assets of approximately $31 million consisting primarily of net
operating loss carryforwards. A portion of the federal loss carryforwards expire beginning in 2030; 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 had a net operating loss carryforward for U.S federal income tax purposes of approximately
$110 million as of December 31, 2024, and $87 million as of December 31, 2023. 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, 2024 and 2023 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, 2024 and 2023.
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, 2024, 2023 and 2022, distributions per share were characterized as follows (unaudited):
Year Ended December 31,
2024
2023
2022
Amount of distributions per share................................
$
1.01
$
1.01
$
0.76
Characterized as:
Ordinary income.........................................................
100%
97%
100%
Capital gain distributions............................................
0%
0%
0%
Return of capital .........................................................
0%
3%
0%
Distributions of $0.16 per common share declared in December 2022 and paid in January 2023 were treated as 2022
distributions for tax purposes. Distributions of $0.13 per common share declared in December 2023 and paid in January 2024 were
treated as 2023 distributions for tax purposes. Distributions of $0.13 per common share declared in December 2024 and paid in
January 2025 were treated as 2024 distributions for tax purposes.
The Company utilized portions of its REIT net loss carryforward to reduce its taxable net income for the year ended
December 31, 2022. The total REIT net loss carryforward for U.S. federal income tax purposes was approximately $0 as of
December 31, 2024 and 2023. No provision for U.S. federal income taxes has been included in the Company’s financial statements for
the years ended December 31, 2024, 2023 and 2022 related to its REIT activities.
Note 12
Reportable Segments
The Company owns hotel properties throughout the U.S. that generate guest room rental, food and beverage, and other property-
related income. There are no foreign operations from which the Company derives revenues and no assets are held in a foreign country.
There are no material concentrations of 10% or more of total revenues allocated to a single customer for the reporting periods
presented. The CODM separately evaluates the performance, allocates capital resources and manages the overall operating and
investing strategy of each of its hotel properties individually; therefore, the Company considers each hotel to be an operating segment.
However, because each hotel is not individually significant, serves a similar class and mix of business and leisure customers, has
similar economic characteristics and risks, facilities, and services, utilizes similar methods to distribute their products and services
through third-party management companies, and is subject to similar regulatory environments, the properties have been combined into
a single operating segment for reporting purposes. The CODM, who is the Chief Executive Officer of the Company, assesses the
performance of each operating segment on a monthly basis using adjusted hotel earnings (loss) before interest expense, income taxes
and depreciation and amortization (“Adjusted Hotel EBITDA”), the measure by which the CODM makes day-to-day operating
84
decisions, compares actual results with budgeted and prior year results, invests in capital improvements, and performs competitive
analysis over the Company’s operating performance against industry peers.
Adjusted Hotel EBITDA, presented herein, is calculated as EBITDA from hotel operations with further exclusions as noted
below. 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. The Company further excludes the following items that are not reflective of its ongoing operating performance or
incurred in the normal course of business, and thus not utilized in the CODM’s analysis to allocate resources and assess operating
performance of the Company’s business:
•
gains and losses from the sale of certain real estate assets (including gains and losses from change in control);
•
real estate related impairments;
•
non-cash straight-line operating ground lease expense;
•
actual corporate-level general and administrative expense for the Company; and
•
operating results from the non-hotel property.
The Company believes Adjusted Hotel EBITDA provides useful supplemental information to investors regarding operating
performance and it 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 single reportable segment Adjusted Hotel EBITDA to GAAP net income for the
years ended December 31, 2024, 2023 and 2022 (in thousands):
Year Ended December 31,
2024
2023
2022
Total revenue .......................................................................
$
1,431,468
$
1,343,800
$
1,238,417
Less:
Significant hotel operating expenses
Operating .........................................................................
357,352
332,714
300,852
Hotel administrative.........................................................
123,086
114,071
105,396
Sales and marketing.........................................................
126,938
117,538
104,756
Utilities ............................................................................
50,065
47,422
45,017
Repair and maintenance...................................................
69,697
65,412
58,729
Franchise fees ..................................................................
64,017
59,315
53,901
Management fees.............................................................
46,716
44,253
41,830
Total significant hotel operating expenses.........................
837,871
780,725
710,481
Other expenses
Property taxes, insurance & other....................................
84,382
79,307
72,907
Other (1) ............................................................................
(329)
1,876
(550)
84,053
81,183
72,357
Adjusted Hotel EBITDA ...................................................
509,544
481,892
455,579
General and administrative..................................................
(42,542)
(47,401)
(42,464)
Impairment of depreciable real estate..................................
(3,055)
(5,644)
(26,175)
Depreciation and amortization.............................................
(190,603)
(183,242)
(181,697)
Gain on sale of real estate....................................................
19,744
-
1,785
Other (1) ................................................................................
(329)
1,876
(550)
Interest expense, net.............................................................
(77,748)
(68,857)
(59,733)
Income tax expense..............................................................
(947)
(1,135)
(1,940)
Net income ..........................................................................
$
214,064
$
177,489
$
144,805
85
(1)
Includes operating results from the non-hotel property for the years ended December 31, 2024 and 2023 and the expenses
relating to amortization of favorable and unfavorable operating leases and non-cash straight-line operating ground lease expense
to ensure their exclusion from Adjusted Hotel EBITDA as these items do not reflect the underlying operating performance of
the Company's hotels.
Disclosure of the reportable segment’s revenue and profit or loss is included in the Company’s consolidated statements of
operations and comprehensive income, disclosure of the reportable segment’s assets is presented in the Company’s consolidated
balance sheets, and disclosure of the reportable segment’s significant noncash items is provided in the Company’s consolidated
statements of cash flows, all within this Annual Report on Form 10-K. For the years ended December 31, 2024 and 2023, the
Company invested approximately $78.3 million and $76.8 million in capital expenditures, respectively.
Note 13
Commitments and Contingencies
As of December 31, 2024, the Company had one outstanding contract, which was entered into during May 2023, for the
potential purchase of a hotel in Nashville, Tennessee for an expected purchase price of approximately $98.2 million. The hotel is
under development and is currently planned to be completed and opened for business in late 2025, as a 260-guest-room Motto. As of
December 31, 2024, a $1.1 million contract deposit (refundable if the seller does not meet its obligations under the contract) had been
paid. If the closing occurs, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured
credit facilities available at closing, to purchase the hotel under contract. 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 the purchase contract and acquire this hotel. As this hotel is under development, at this time, the seller
has not met all of the conditions to closing.
The Company, or one or more of its subsidiaries or hotel managers, is involved in various claims or litigation that arise in the
ordinary course of business, including but not limited to, negligence and other personal injury claims, employee claims or contract
disputes. The Company believes that such pending or threatened claims or proceedings are not material to the financial statements.
LuxUrban Re Holdings LLC vs. Apple Eight Hospitality Ownership, Inc., et al
On or about February 19, 2025, the Company was notified of a complaint purportedly filed by LuxUrban Re Holdings LLC
against Apple Eight Hospitality Ownership, Inc. and a former hotel operator in the Supreme Court of New York alleging breach of
contract and conspiracy to commit fraud. The Company believes the allegations are without merit and intends to defend this case
vigorously. At this time, the Company cannot reasonably predict the outcome or provide a reasonable estimate of the possible loss or
range of loss due to this complaint, if any.
Note 14
Subsequent Events
On January 15, 2025, the Company paid approximately $31.2 million, or $0.13 per common share, in distributions to
shareholders of record as of December 31, 2024.
On January 17, 2025, the Company declared a monthly cash distribution of $0.08 per common share. The distribution is payable
on February 18, 2025, to shareholders of record as of January 31, 2025.
On February 12, 2025, the Company completed the sale of the 76-guest-room Homewood Suites in Chattanooga, Tennessee, for
a gross sales price of approximately $8.3 million.
On February 18, 2025, the Company declared a monthly cash distribution of $0.08 per common share. The distribution is
payable on March 17, 2025, to shareholders of record as of February 28, 2025.
86
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, 2024. 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
During the three months ended December 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1
trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
87
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by Items 401, 405, 406, 407(c)(3), (d)(4) and (d)(5), and 408(b) of Regulation S-K will be set forth in
the Company’s definitive proxy statement for its 2025 Annual Meeting of Shareholders (the “2025 Proxy Statement”). For the limited
purpose of providing the information necessary to comply with this Item 10, the 2025 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 2025
Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 11, the 2025 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 2025 Proxy Statement.
For the limited purpose of providing the information necessary to comply with this Item 12, the 2025 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 2025 Proxy Statement.
For the limited purpose of providing the information necessary to comply with this Item 13, the 2025 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 2025 Proxy Statement. For the
limited purpose of providing the information necessary to comply with this Item 14, the 2025 Proxy Statement is incorporated herein
by this reference.
88
PART IV
Item 15.
Exhibits and Financial Statement Schedules
1. Financial Statements of Apple Hospitality REIT, Inc.
Report of Management on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm—KPMG LLP (PCAOB ID: 185)
Report of Independent Registered Public Accounting Firm—KPMG LLP (PCAOB ID: 185)
Report of Independent Registered Public Accounting Firm—Ernst & Young LLP (PCAOB ID: 42)
Consolidated Balance Sheets as of December 31, 2024 and 2023
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2024, 2023 and
2022
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2024, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022
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
Description of Documents
3.1
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)
3.2
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 (Incorporated by reference to Exhibit 4.1 to
the Company’s annual report on Form 10-K (SEC File No. 001-37389) filed February 22, 2024)
10.1*
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)
10.2*
The Company’s 2024 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s current report
on Form 8-K (SEC File No. 001-37389) filed May 28, 2024)
10.3*
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)
10.4*
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)
89
10.5*
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)
10.6*
Form of Restricted Stock Agreement (2014 Omnibus Incentive Plan) (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)
10.7*
Form of Restricted Stock Agreement (2024 Omnibus Incentive Plan) (Incorporated by reference to Exhibit 10.2 to the
Company’s current report on Form 8-K (SEC File No. 001-37389) filed May 28, 2024)
10.8*
Amended and Restated Non-Employee Director Deferral Program (FILED HEREWITH)
10.9
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)
10.10*
Apple Hospitality REIT, Inc. Grant and Performance Award Agreement (Incorporated by reference to Exhibit 10.3 to the
Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed November 4, 2024)
19
The Company’s Policy on Inside Information and Insider Trading (FILED HEREWITH)
21.1
Subsidiaries of the Company (FILED HEREWITH)
23.1
Consent of KPMG LLP (FILED HEREWITH)
23.2
Consent of Ernst & Young LLP (FILED HEREWITH)
31.1
Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(FILED HEREWITH)
31.2
Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(FILED HEREWITH)
31.3
Certification of the Company’s Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(FILED HEREWITH)
32.1
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)
97*
The Company’s Compensation Recovery Policy (Incorporated by reference to Exhibit 97 to the Company’s annual report
on Form 10-K (SEC File No. 001-37389) filed February 22, 2024)
101
The following materials from the Company’s annual report on Form 10-K for the year ended December 31, 2024
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, 2024, formatted in
iXBRL and contained in Exhibit 101.
*
Denotes Management Contract or Compensation Plan.
90
Item 16.
Form 10-K Summary
None.
91
SCHEDULE III
Real Estate and Accumulated Depreciation and Amortization
As of December 31, 2024
(dollars in thousands)
Subsequently
Initial Cost
Capitalized
Bldg./
FF&E
Bldg.
Imp. &
Total
Gross
Acc.
Date of
Date
Depreciable
# of
Guest
City
State
Description
Encumbrances
Land (1)
/Other
FF&E
Cost (2)
Deprec.
Construction
Acquired
Life
Rooms
Anchorage.......
AK
Embassy Suites
$
-
$
2,955
$
39,053
$
4,672
$
46,680
$
(20,400)
2008
Apr-10
3 - 39 yrs.
169
Anchorage.......
AK
Home2 Suites
-
2,683
21,606
314
24,603
(5,581)
2015
Dec-17
3 - 39 yrs.
135
Auburn ..........
AL
Hilton Garden
Inn
-
1,580
9,659
2,946
14,185
(4,301)
2001
Mar-14
3 - 39 yrs.
101
Birmingham .....
AL
Courtyard
-
2,310
6,425
1,813
10,548
(3,372)
2007
Mar-14
3 - 39 yrs.
84
Birmingham .....
AL
Hilton Garden
Inn
-
3,425
15,555
89
19,069
(4,393)
2017
Sep-17
3 - 39 yrs.
104
Birmingham .....
AL
Home2 Suites
-
3,491
15,603
84
19,178
(4,226)
2017
Sep-17
3 - 39 yrs.
106
Birmingham .....
AL
Homewood
Suites
-
1,010
12,981
4,650
18,641
(5,891)
2005
Mar-14
3 - 39 yrs.
95
Dothan...........
AL
Hilton Garden
Inn
-
1,037
10,581
1,918
13,536
(6,348)
2009
Jun-09
3 - 39 yrs.
104
Dothan...........
AL
Residence Inn
-
970
13,185
1,625
15,780
(5,088)
2008
Mar-14
3 - 39 yrs.
84
Huntsville .......
AL
Hampton
-
550
11,962
1,459
13,971
(3,562)
2013
Sep-16
3 - 39 yrs.
98
Huntsville .......
AL
Hilton Garden
Inn
-
890
11,227
2,729
14,846
(4,594)
2005
Mar-14
3 - 39 yrs.
101
Huntsville .......
AL
Home2 Suites
-
490
10,840
1,316
12,646
(3,234)
2013
Sep-16
3 - 39 yrs.
77
Huntsville .......
AL
Homewood
Suites
-
210
15,654
2,756
18,620
(6,695)
2006
Mar-14
3 - 39 yrs.
107
Mobile...........
AL
Hampton
-
-
11,452
2,033
13,485
(3,803)
2006
Sep-16
3 - 39 yrs.
101
Prattville.........
AL
Courtyard
-
2,050
9,101
1,838
12,989
(3,959)
2007
Mar-14
3 - 39 yrs.
84
Chandler.........
AZ
Courtyard
-
1,061
16,008
2,049
19,118
(8,238)
2009
Nov-10
3 - 39 yrs.
150
Chandler.........
AZ
Fairfield
-
778
11,272
1,213
13,263
(5,625)
2009
Nov-10
3 - 39 yrs.
110
Phoenix..........
AZ
Courtyard
-
1,413
14,669
3,157
19,239
(8,518)
2007
Nov-10
3 - 39 yrs.
164
Phoenix..........
AZ
Hampton
-
-
15,209
2,357
17,566
(5,024)
2008
Sep-16
3 - 39 yrs.
125
Phoenix..........
AZ
Hampton
-
3,406
41,174
156
44,736
(9,736)
2018
May-18
3 - 39 yrs.
210
Phoenix..........
AZ
Homewood
Suites
-
-
18,907
2,536
21,443
(6,231)
2008
Sep-16
3 - 39 yrs.
134
Phoenix..........
AZ
Residence Inn
-
1,111
12,953
3,748
17,812
(7,309)
2008
Nov-10
3 - 39 yrs.
129
Scottsdale........
AZ
Hilton Garden
Inn
-
6,000
26,811
3,059
35,870
(7,545)
2005
Sep-16
3 - 39 yrs.
122
Tempe...........
AZ
Hyatt House
-
-
24,001
7
24,008
(3,972)
2020
Aug-20
3 - 39 yrs.
105
Tempe...........
AZ
Hyatt Place
-
-
34,893
47
34,940
(5,647)
2020
Aug-20
3 - 39 yrs.
154
Tucson...........
AZ
Hilton Garden
Inn
-
1,005
17,925
2,494
21,424
(10,444)
2008
Jul-08
3 - 39 yrs.
125
Tucson...........
AZ
Residence Inn
-
2,080
12,424
2,547
17,051
(5,680)
2008
Mar-14
3 - 39 yrs.
124
Tucson...........
AZ
TownePlace
Suites
-
992
14,543
1,508
17,043
(6,309)
2011
Oct-11
3 - 39 yrs.
124
Agoura Hills.....
CA
Homewood
Suites
-
3,430
21,290
2,911
27,631
(8,822)
2007
Mar-14
3 - 39 yrs.
125
Burbank .........
CA
Courtyard
19,698
12,916
41,218
5,910
60,044
(13,731)
2002
Aug-15
3 - 39 yrs.
190
Burbank .........
CA
Residence Inn
-
32,270
41,559
6,577
80,406
(15,755)
2007
Mar-14
3 - 39 yrs.
166
92
Initial Cost
Capitalized
Bldg./
FF&E
Bldg.
Imp. &
Total
Gross
Acc.
Date of
Date
Depreciable
# of
Guest
City
State
Description
Encumbrances
Land (1)
/Other
FF&E
Cost (2)
Deprec.
Construction
Acquired
Life
Rooms
Burbank .........
CA
SpringHill
Suites
23,385
10,734
49,181
588
60,503
(13,936)
2015
Jul-15
3 - 39 yrs.
170
Clovis............
CA
Hampton
-
1,287
9,888
1,399
12,574
(5,587)
2009
Jul-09
3 - 39 yrs.
86
Clovis............
CA
Homewood
Suites
-
1,500
10,970
1,941
14,411
(6,299)
2010
Feb-10
3 - 39 yrs.
83
Cypress..........
CA
Courtyard
-
4,410
35,033
6,529
45,972
(13,938)
1988
Mar-14
3 - 39 yrs.
180
Cypress..........
CA
Hampton
-
3,209
16,749
2,515
22,473
(6,651)
2006
Jun-15
3 - 39 yrs.
110
Oceanside .......
CA
Courtyard
11,381
3,080
25,769
2,688
31,537
(7,863)
2011
Sep-16
3 - 39 yrs.
142
Oceanside .......
CA
Residence Inn
-
7,790
24,048
2,672
34,510
(9,292)
2007
Mar-14
3 - 39 yrs.
125
Rancho
Bernardo/San
Diego............
CA
Courtyard
-
16,380
28,952
3,711
49,043
(11,497)
1987
Mar-14
3 - 39 yrs.
210
Sacramento......
CA
Hilton Garden
Inn
-
5,920
21,515
4,116
31,551
(10,183)
1999
Mar-14
3 - 39 yrs.
153
San Bernardino..
CA
Residence Inn
-
1,490
13,662
3,993
19,145
(7,369)
2006
Feb-11
3 - 39 yrs.
95
San Diego .......
CA
Courtyard
19,628
11,268
44,851
5,267
61,386
(14,611)
2002
Sep-15
3 - 39 yrs.
245
San Diego .......
CA
Hampton
14,611
13,570
36,644
4,675
54,889
(13,855)
2001
Mar-14
3 - 39 yrs.
177
San Diego .......
CA
Hilton Garden
Inn
-
8,020
29,151
5,687
42,858
(12,220)
2004
Mar-14
3 - 39 yrs.
200
San Diego .......
CA
Residence Inn
-
22,400
20,640
3,291
46,331
(8,630)
1999
Mar-14
3 - 39 yrs.
122
San Jose .........
CA
Homewood
Suites
22,643
12,860
28,084
6,810
47,754
(14,096)
1991
Mar-14
3 - 39 yrs.
140
San Juan
Capistrano.......
CA
Residence Inn
-
-
32,292
2,153
34,445
(9,182)
2012
Sep-16
3 - 39 yrs.
130
Santa Ana........
CA
Courtyard
12,756
3,082
21,051
2,558
26,691
(10,138)
2011
May-11
3 - 39 yrs.
155
Santa Clarita.....
CA
Courtyard
-
4,568
18,721
4,427
27,716
(11,554)
2007
Sep-08
3 - 39 yrs.
140
Santa Clarita.....
CA
Fairfield
-
1,864
7,753
2,778
12,395
(5,318)
1997
Oct-08
3 - 39 yrs.
66
Santa Clarita.....
CA
Hampton
-
1,812
15,761
6,553
24,126
(12,160)
1988
Oct-08
3 - 39 yrs.
128
Santa Clarita.....
CA
Residence Inn
-
2,539
14,493
6,616
23,648
(10,844)
1997
Oct-08
3 - 39 yrs.
90
Tustin............
CA
Fairfield
-
7,700
26,580
1,893
36,173
(7,170)
2013
Sep-16
3 - 39 yrs.
145
Tustin............
CA
Residence Inn
-
11,680
33,645
2,161
47,486
(9,446)
2013
Sep-16
3 - 39 yrs.
149
Colorado Springs
CO
Hampton
-
1,780
15,860
933
18,573
(4,798)
2008
Sep-16
3 - 39 yrs.
101
Denver...........
CO
Hilton Garden
Inn
26,229
9,940
57,536
4,838
72,314
(16,851)
2007
Sep-16
3 - 39 yrs.
221
Highlands Ranch
CO
Hilton Garden
Inn
-
5,480
20,465
2,153
28,098
(7,149)
2006
Mar-14
3 - 39 yrs.
128
Highlands Ranch
CO
Residence Inn
-
5,350
19,167
3,970
28,487
(9,632)
1996
Mar-14
3 - 39 yrs.
117
Boca Raton ......
FL
Hilton Garden
Inn
-
7,220
22,177
2,990
32,387
(7,038)
2002
Sep-16
3 - 39 yrs.
149
Cape Canaveral..
FL
Hampton
-
2,594
20,951
38
23,583
(3,662)
2020
Apr-20
3 - 39 yrs.
116
Cape Canaveral..
FL
Home2 Suites
-
2,415
19,668
45
22,128
(3,520)
2020
Apr-20
3 - 39 yrs.
108
Cape Canaveral..
FL
Homewood
Suites
-
2,780
23,967
436
27,183
(7,266)
2016
Sep-16
3 - 39 yrs.
153
Fort Lauderdale..
FL
Hampton
-
1,793
21,357
5,955
29,105
(10,410)
2002
Jun-15
3 - 39 yrs.
156
Fort Lauderdale..
FL
Residence Inn
-
5,760
26,727
2,609
35,096
(7,628)
2014
Sep-16
3 - 39 yrs.
156
Gainesville ......
FL
Hilton Garden
Inn
-
1,300
17,322
2,334
20,956
(5,239)
2007
Sep-16
3 - 39 yrs.
104
Gainesville ......
FL
Homewood
Suites
-
1,740
16,329
2,926
20,995
(5,526)
2005
Sep-16
3 - 39 yrs.
103
Jacksonville .....
FL
Homewood
Suites
-
9,480
21,247
4,709
35,436
(10,220)
2005
Mar-14
3 - 39 yrs.
119
Jacksonville .....
FL
Hyatt Place
-
2,013
13,533
1,256
16,802
(3,678)
2009
Dec-18
3 - 39 yrs.
127
Miami ...........
FL
Courtyard
-
-
31,488
2,310
33,798
(11,237)
2008
Mar-14
3 - 39 yrs.
118
Miami ...........
FL
Hampton
-
1,972
9,987
6,654
18,613
(9,553)
2000
Apr-10
3 - 39 yrs.
121
Miami ...........
FL
Homewood
Suites
-
18,820
25,375
9,574
53,769
(13,552)
2000
Mar-14
3 - 39 yrs.
162
93
Subsequently
Initial Cost
Capitalized
Bldg./
FF&E
Bldg.
Imp. &
Total
Gross
Acc.
Date of
Date
Depreciable
# of
Guest
City
State
Description
Encumbrances
Land (1)
/Other
FF&E
Cost (2)
Deprec.
Construction
Acquired
Life
Rooms
Orlando .........
FL
Fairfield
-
3,140
22,580
3,347
29,067
(12,563 )
2009
Jul-09
3 - 39 yrs.
200
Orlando .........
FL
Home2 Suites
-
2,731
18,063
153
20,947
(4,335 )
2019
Mar-19
3 - 39 yrs.
128
Orlando .........
FL
SpringHill
Suites
-
3,141
25,779
3,538
32,458
(14,161 )
2009
Jul-09
3 - 39 yrs.
200
Panama City.....
FL
Hampton
-
1,605
9,995
1,573
13,173
(5,828 )
2009
Mar-09
3 - 39 yrs.
95
Panama City.....
FL
TownePlace
Suites
-
908
9,549
778
11,235
(4,672 )
2010
Jan-10
3 - 39 yrs.
103
Pensacola........
FL
TownePlace
Suites
-
1,770
12,562
1,538
15,870
(3,710 )
2008
Sep-16
3 - 39 yrs.
97
Tallahassee......
FL
Fairfield
-
960
11,734
964
13,658
(3,421 )
2011
Sep-16
3 - 39 yrs.
97
Tallahassee......
FL
Hilton Garden
Inn
-
-
10,938
883
11,821
(4,184 )
2006
Mar-14
3 - 39 yrs.
85
Tampa...........
FL
Embassy
Suites
-
1,824
20,034
4,231
26,089
(11,334 )
2007
Nov-10
3 - 39 yrs.
147
Atlanta ..........
GA
Home2 Suites
-
740
23,122
1,406
25,268
(7,094 )
2016
Jul-16
3 - 39 yrs.
128
Atlanta /
Downtown ......
GA
Hampton
-
7,861
16,374
4,138
28,373
(5,986 )
1999
Feb-18
3 - 39 yrs.
119
Atlanta /
Perimeter
Dunwoody ......
GA
Hampton
-
3,228
26,498
230
29,956
(5,884 )
2016
Jun-18
3 - 39 yrs.
132
Macon...........
GA
Hilton Garden
Inn
-
-
15,043
1,022
16,065
(5,571 )
2007
Mar-14
3 - 39 yrs.
101
Savannah........
GA
Hilton Garden
Inn
-
-
14,716
2,710
17,426
(6,584 )
2004
Mar-14
3 - 39 yrs.
105
Cedar Rapids....
IA
Hampton
-
1,590
11,364
445
13,399
(3,656 )
2009
Sep-16
3 - 39 yrs.
103
Cedar Rapids....
IA
Homewood
Suites
-
1,770
13,116
2,410
17,296
(4,874 )
2010
Sep-16
3 - 39 yrs.
95
Davenport.......
IA
Hampton
-
400
16,915
987
18,302
(5,202 )
2007
Sep-16
3 - 39 yrs.
103
Boise............
ID
Hampton
20,156
1,335
21,114
3,734
26,183
(11,980 )
2007
Apr-10
3 - 39 yrs.
186
Des Plaines......
IL
Hilton Garden
Inn
-
10,000
38,116
4,308
52,424
(11,352 )
2005
Sep-16
3 - 39 yrs.
253
Hoffman Estates.
IL
Hilton Garden
Inn
-
1,770
14,371
(280 )
(3)
15,861
(4,894 )
2000
Sep-16
3 - 39 yrs.
184
Mettawa.........
IL
Hilton Garden
Inn
-
2,246
28,328
2,969
33,543
(13,635 )
2008
Nov-10
3 - 39 yrs.
170
Mettawa.........
IL
Residence Inn
-
1,722
21,843
2,306
25,871
(10,369 )
2008
Nov-10
3 - 39 yrs.
130
Rosemont .......
IL
Hampton
-
3,410
23,594
369
27,373
(6,865 )
2015
Sep-16
3 - 39 yrs.
158
Skokie...........
IL
Hampton
-
2,593
31,284
4,516
38,393
(10,108 )
2000
Sep-16
3 - 39 yrs.
225
Warrenville......
IL
Hilton Garden
Inn
-
1,171
20,894
2,955
25,020
(10,692 )
2008
Nov-10
3 - 39 yrs.
135
Merrillville......
IN
Hilton Garden
Inn
-
1,860
17,755
2,448
22,063
(5,715 )
2008
Sep-16
3 - 39 yrs.
124
Mishawaka......
IN
Residence Inn
-
898
12,862
1,929
15,689
(6,595 )
2007
Nov-10
3 - 39 yrs.
106
South Bend......
IN
Fairfield
-
2,090
23,361
1,792
27,243
(6,724 )
2010
Sep-16
3 - 39 yrs.
119
Overland Park...
KS
Fairfield
-
1,230
11,713
2,050
14,993
(4,985 )
2008
Mar-14
3 - 39 yrs.
110
Overland Park...
KS
Residence Inn
-
1,790
20,633
5,402
27,825
(10,196 )
2000
Mar-14
3 - 39 yrs.
120
Louisville .......
KY
AC Hotel
-
5,004
46,548
11
51,563
(3,193 )
2018
Oct-22
3 - 39 yrs.
156
Lafayette ........
LA
Hilton Garden
Inn
-
-
17,898
6,773
24,671
(11,380 )
2006
Jul-10
3 - 39 yrs.
153
Lafayette ........
LA
SpringHill
Suites
-
709
9,400
1,108
11,217
(4,422 )
2011
Jun-11
3 - 39 yrs.
103
New Orleans ....
LA
Homewood
Suites
-
4,150
52,258
14,718
71,126
(22,214 )
2002
Mar-14
3 - 39 yrs.
166
Marlborough ....
MA
Residence Inn
-
3,480
17,341
2,485
23,306
(7,392 )
2006
Mar-14
3 - 39 yrs.
112
94
Subsequently
Initial Cost
Capitalized
Bldg./
FF&E
Bldg.
Imp. &
Total
Gross
Acc.
Date of
Date
Depreciable
# of
Guest
City
State
Description
Encumbrances
Land (1)
/Other
FF&E
Cost (2)
Deprec.
Construction
Acquired
Life
Rooms
Westford.........
MA
Hampton
-
3,410
16,320
1,893
21,623
(6,459)
2007
Mar-14
3 - 39 yrs.
110
Westford.........
MA
Residence Inn
7,391
1,760
20,791
4,634
27,185
(9,778)
2001
Mar-14
3 - 39 yrs.
108
Annapolis........
MD
Hilton Garden
Inn
-
4,350
13,974
2,308
20,632
(6,411)
2007
Mar-14
3 - 39 yrs.
126
Silver Spring.....
MD
Hilton Garden
Inn
-
1,361
16,094
1,796
19,251
(8,058)
2010
Jul-10
3 - 39 yrs.
107
Portland..........
ME
AC Hotel
-
6,767
61,602
64
68,433
(6,415)
2018
Aug-21
3 - 39 yrs.
178
Portland..........
ME
Aloft Hotel
-
6,002
47,177
29
53,208
(5,441)
2021
Sep-21
3 - 39 yrs.
157
Portland..........
ME
Residence Inn
30,500
4,440
51,534
1,147
57,121
(11,830)
2009
Oct-17
3 - 39 yrs.
179
Novi .............
MI
Hilton Garden
Inn
-
1,213
15,052
2,839
19,104
(8,393)
2008
Nov-10
3 - 39 yrs.
148
Maple Grove.....
MN
Hilton Garden
Inn
-
1,560
13,717
3,509
18,786
(5,859)
2003
Sep-16
3 - 39 yrs.
121
Rochester ........
MN
Hampton
-
916
13,225
2,871
17,012
(8,116)
2009
Aug-09
3 - 39 yrs.
124
St. Paul...........
MN
Hampton
-
2,523
29,365
464
32,352
(5,932)
2016
Mar-19
3 - 39 yrs.
160
Kansas City......
MO
Hampton
-
727
9,363
2,848
12,938
(5,723)
1999
Aug-10
3 - 39 yrs.
122
Kansas City......
MO
Residence Inn
-
2,000
20,818
4,179
26,997
(9,625)
2002
Mar-14
3 - 39 yrs.
106
St. Louis .........
MO
Hampton
-
1,758
20,954
11,235
33,947
(16,662)
2003
Aug-10
3 - 39 yrs.
190
St. Louis .........
MO
Hampton
-
758
15,287
4,161
20,206
(8,801)
2006
Apr-10
3 - 39 yrs.
126
Hattiesburg ......
MS
Courtyard
-
1,390
11,324
1,944
14,658
(4,727)
2006
Mar-14
3 - 39 yrs.
84
Hattiesburg ......
MS
Residence Inn
-
906
9,151
1,500
11,557
(5,416)
2008
Dec-08
3 - 39 yrs.
84
Carolina Beach...
NC
Courtyard
-
7,490
31,588
5,257
44,335
(13,160)
2003
Mar-14
3 - 39 yrs.
144
Charlotte.........
NC
Fairfield
-
1,030
11,111
1,488
13,629
(3,851)
2010
Sep-16
3 - 39 yrs.
94
Durham..........
NC
Homewood
Suites
-
1,232
18,343
9,053
28,628
(13,214)
1999
Dec-08
3 - 39 yrs.
122
Fayetteville ......
NC
Home2 Suites
-
746
10,563
1,749
13,058
(5,690)
2011
Feb-11
3 - 39 yrs.
118
Jacksonville......
NC
Home2 Suites
-
910
12,527
1,413
14,850
(3,911)
2012
Sep-16
3 - 39 yrs.
105
Wilmington......
NC
Fairfield
-
1,310
13,034
1,868
16,212
(5,311)
2008
Mar-14
3 - 39 yrs.
122
Winston-Salem ..
NC
Hampton
-
2,170
14,268
1,317
17,755
(4,121)
2010
Sep-16
3 - 39 yrs.
94
Omaha...........
NE
Courtyard
-
6,700
36,829
6,690
50,219
(16,136)
1999
Mar-14
3 - 39 yrs.
181
Omaha...........
NE
Hampton
-
1,710
22,636
1,934
26,280
(6,392)
2007
Sep-16
3 - 39 yrs.
139
Omaha...........
NE
Hilton Garden
Inn
18,904
1,620
35,962
3,039
40,621
(10,494)
2001
Sep-16
3 - 39 yrs.
178
Omaha...........
NE
Homewood
Suites
-
1,890
22,014
2,632
26,536
(6,807)
2008
Sep-16
3 - 39 yrs.
123
Cranford .........
NJ
Homewood
Suites
-
4,550
23,828
5,255
33,633
(10,970)
2000
Mar-14
3 - 39 yrs.
108
Mahwah..........
NJ
Homewood
Suites
-
3,220
22,742
5,064
31,026
(10,921)
2001
Mar-14
3 - 39 yrs.
110
Mount Laurel ....
NJ
Homewood
Suites
-
1,589
13,476
6,777
21,842
(9,886)
2006
Jan-11
3 - 39 yrs.
118
Somerset.........
NJ
Courtyard
-
-
27,133
4,279
31,412
(15,591)
2002
Mar-14
3 - 25 yrs.
162
West Orange.....
NJ
Courtyard
-
2,054
19,513
4,301
25,868
(10,630)
2005
Jan-11
3 - 39 yrs.
131
Las Vegas........
NV
SpringHill
Suites
-
10,097
65,179
36
75,312
(2,394)
2009
Dec-23
3 - 39 yrs.
300
Islip/Ronkonkoma
...................
NY
Hilton Garden
Inn
-
6,510
28,718
6,892
42,120
(13,403)
2003
Mar-14
3 - 39 yrs.
166
New York........
NY
Independent
-
-
102,832
(71,642)
(3),
(5)
31,190
(21,553)
1916
Mar-14
3 - 32 yrs.
Syracuse .........
NY
Courtyard
-
812
23,278
1,528
25,618
(6,823)
2013
Oct-15
3 - 39 yrs.
102
Syracuse .........
NY
Residence Inn
-
621
17,589
1,402
19,612
(5,373)
2013
Oct-15
3 - 39 yrs.
78
Cleveland........
OH
Courtyard
-
3,212
30,118
106
33,436
(1,910)
2023
Jun-23
3 - 39 yrs.
154
Mason............
OH
Hilton Garden
Inn
-
1,120
16,770
1,383
19,273
(5,160)
2010
Sep-16
3 - 39 yrs.
110
95
Subsequently
Initial Cost
Capitalized
Bldg./
FF&E
Bldg.
Imp. &
Total
Gross
Acc.
Date of
Date
Depreciable
# of
Guest
City
State
Description
Encumbrances
Land (1)
/Other
FF&E
Cost (2)
Deprec.
Construction
Acquired
Life
Rooms
Twinsburg .......
OH
Hilton Garden
Inn
-
1,419
16,614
4,647
22,680
(11,269 )
1999
Oct-08
3 - 39 yrs.
142
Oklahoma City...
OK
Hampton
-
1,430
31,327
3,053
35,810
(15,113 )
2009
May-10
3 - 39 yrs.
200
Oklahoma City...
OK
Hilton Garden
Inn
-
1,270
32,700
2,487
36,457
(8,725 )
2014
Sep-16
3 - 39 yrs.
155
Oklahoma City...
OK
Homewood
Suites
-
760
20,056
1,307
22,123
(5,440 )
2014
Sep-16
3 - 39 yrs.
100
Oklahoma City (West)
...................
OK
Homewood
Suites
-
1,280
13,340
800
15,420
(4,624 )
2008
Sep-16
3 - 39 yrs.
90
Portland..........
OR
Hampton
-
10,813
64,433
227
75,473
(6,091 )
2017
Nov-21
3 - 39 yrs.
243
Collegeville/Philadelphia
...................
PA
Courtyard
-
2,115
17,953
5,251
25,319
(10,742 )
2005
Nov-10
3 - 39 yrs.
132
Malvern/Philadelphia
...................
PA
Courtyard
-
996
20,374
3,403
24,773
(10,031 )
2007
Nov-10
3 - 39 yrs.
127
Pittsburgh........
PA
AC Hotel
-
3,305
31,605
77
34,987
(2,347 )
2018
Oct-22
3 - 39 yrs.
134
Pittsburgh........
PA
Hampton
-
2,503
18,537
5,127
26,167
(12,393 )
1991
Dec-08
3 - 39 yrs.
132
Charleston .......
SC
Home2 Suites
-
3,250
16,778
2,194
22,222
(5,458 )
2011
Sep-16
3 - 39 yrs.
122
Columbia ........
SC
Hilton Garden
Inn
-
3,540
16,399
2,920
22,859
(7,130 )
2006
Mar-14
3 - 39 yrs.
143
Columbia ........
SC
TownePlace
Suites
-
1,330
10,839
1,475
13,644
(3,798 )
2009
Sep-16
3 - 39 yrs.
91
Greenville........
SC
Hyatt Place
-
2,802
27,700
145
30,647
(3,060 )
2018
Sep-21
3 - 39 yrs.
130
Hilton Head......
SC
Hilton Garden
Inn
-
3,600
11,386
2,924
17,910
(5,838 )
2001
Mar-14
3 - 39 yrs.
104
Franklin..........
TN
Courtyard
-
2,510
31,341
897
34,748
(8,448 )
2008
Sep-16
3 - 39 yrs.
126
Franklin..........
TN
Residence Inn
-
2,970
29,208
1,749
33,927
(8,344 )
2009
Sep-16
3 - 39 yrs.
124
Knoxville ........
TN
Homewood
Suites
-
2,160
14,704
2,712
19,576
(4,973 )
2005
Sep-16
3 - 39 yrs.
103
Knoxville ........
TN
SpringHill
Suites
-
1,840
12,441
1,843
16,124
(4,130 )
2006
Sep-16
3 - 39 yrs.
103
Memphis.........
TN
Hampton
-
2,449
37,097
4,950
44,496
(10,757 )
2000
Feb-18
3 - 39 yrs.
144
Memphis.........
TN
Hilton Garden
Inn
-
4,501
33,688
149
38,338
(3,590 )
2019
Oct-21
3 - 39 yrs.
150
Nashville.........
TN
Hilton Garden
Inn
-
2,754
39,997
4,431
47,182
(19,872 )
2009
Sep-10
3 - 39 yrs.
194
Nashville.........
TN
Home2 Suites
-
1,153
15,206
1,866
18,225
(7,003 )
2012
May-12
3 - 39 yrs.
119
Nashville.........
TN
TownePlace
Suites
-
7,390
13,929
1,509
22,828
(4,525 )
2012
Sep-16
3 - 39 yrs.
101
Addison..........
TX
SpringHill
Suites
-
1,210
19,700
3,363
24,273
(9,303 )
2003
Mar-14
3 - 39 yrs.
159
Arlington ........
TX
Hampton
-
1,217
8,738
2,127
12,082
(5,139 )
2007
Dec-10
3 - 39 yrs.
98
Austin............
TX
Courtyard
-
1,579
18,487
2,497
22,563
(9,157 )
2009
Nov-10
3 - 39 yrs.
145
Austin............
TX
Fairfield
-
1,306
16,504
2,316
20,126
(8,371 )
2009
Nov-10
3 - 39 yrs.
150
Austin............
TX
Hampton
-
1,459
17,184
5,874
24,517
(11,690 )
1996
Apr-09
3 - 39 yrs.
124
Austin............
TX
Homewood
Suites
-
1,898
16,462
6,737
25,097
(11,936 )
1997
Apr-09
3 - 39 yrs.
97
Austin/Round Rock
...................
TX
Hampton
-
865
10,999
4,720
16,584
(8,170 )
2001
Mar-09
3 - 39 yrs.
94
Austin/Round Rock
...................
TX
Homewood
Suites
-
2,180
25,644
2,525
30,349
(7,150 )
2010
Sep-16
3 - 39 yrs.
115
Dallas............
TX
Homewood
Suites
-
4,920
29,427
4,790
39,137
(8,543 )
2013
Sep-16
3 - 39 yrs.
130
Denton...........
TX
Homewood
Suites
-
990
14,895
608
16,493
(4,892 )
2009
Sep-16
3 - 39 yrs.
107
El Paso...........
TX
Homewood
Suites
-
2,800
16,657
2,335
21,792
(7,037 )
2008
Mar-14
3 - 39 yrs.
114
96
Subsequently
Initial Cost
Capitalized
Bldg./
FF&E
Bldg.
Imp. &
Total
Gross
Acc.
Date of
Date
Depreciable
# of
Guest
City
State
Description
Encumbrances
Land (1)
/Other
FF&E
Cost (2)
Deprec.
Construction
Acquired
Life
Rooms
Fort Worth ......
TX
Courtyard
-
2,313
15,825
306
18,444
(4,718 )
2017
Feb-17
3 - 39 yrs.
124
Fort Worth ......
TX
Hilton Garden
Inn
-
4,637
25,073
2,661
32,371
(2,746 )
2012
Nov-21
3 - 39 yrs.
157
Fort Worth ......
TX
Homewood
Suites
-
3,309
18,397
649
22,355
(1,862 )
2013
Nov-21
3 - 39 yrs.
112
Fort Worth ......
TX
TownePlace
Suites
-
2,104
16,311
2,047
20,462
(8,157 )
2010
Jul-10
3 - 39 yrs.
140
Frisco............
TX
Hilton Garden
Inn
-
2,507
12,981
1,811
17,299
(7,619 )
2008
Dec-08
3 - 39 yrs.
102
Grapevine .......
TX
Hilton Garden
Inn
-
1,522
15,543
2,230
19,295
(8,142 )
2009
Sep-10
3 - 39 yrs.
110
Houston .........
TX
Courtyard
-
2,080
21,836
1,476
25,392
(6,414 )
2012
Sep-16
3 - 39 yrs.
124
Houston .........
TX
Marriott
-
4,143
46,623
(19,694 )
(3)
31,072
(19,794 )
2010
Jan-10
3 - 39 yrs.
206
Houston .........
TX
Residence Inn
-
12,070
19,769
3,616
35,455
(8,492 )
2006
Mar-14
3 - 39 yrs.
129
Houston .........
TX
Residence Inn
-
2,070
11,186
1,739
14,995
(3,973 )
2012
Sep-16
3 - 39 yrs.
120
Lewisville.......
TX
Hilton Garden
Inn
-
3,361
23,919
4,053
31,333
(14,394 )
2007
Oct-08
3 - 39 yrs.
165
San Antonio.....
TX
TownePlace
Suites
-
2,220
9,610
1,690
13,520
(4,447 )
2007
Mar-14
3 - 39 yrs.
106
Shenandoah .....
TX
Courtyard
-
3,350
17,256
188
20,794
(4,913 )
2014
Sep-16
3 - 39 yrs.
124
Stafford .........
TX
Homewood
Suites
-
1,880
10,969
625
13,474
(4,664 )
2006
Mar-14
3 - 39 yrs.
78
Texarkana.......
TX
Hampton
-
636
8,723
2,585
11,944
(4,976 )
2004
Jan-11
3 - 39 yrs.
81
Provo............
UT
Residence Inn
-
1,150
18,277
3,809
23,236
(8,607 )
1996
Mar-14
3 - 39 yrs.
114
Salt Lake City...
UT
Courtyard
-
2,635
45,851
70
48,556
(1,654 )
2015
Oct-23
3 - 39 yrs.
175
Salt Lake City...
UT
Hyatt House
-
4,312
39,534
164
44,010
(1,759 )
2015
Oct-23
3 - 39 yrs.
159
Salt Lake City...
UT
Residence Inn
-
1,515
24,214
1,653
27,382
(5,982 )
2014
Oct-17
3 - 39 yrs.
136
Salt Lake City...
UT
SpringHill
Suites
-
1,092
16,465
2,237
19,794
(8,379 )
2009
Nov-10
3 - 39 yrs.
143
South Jordan ....
UT
Embassy Suites
-
1,533
35,490
39
37,062
(1,253 )
2017
Nov-23
3 - 39 yrs.
192
Alexandria ......
VA
Courtyard
-
6,860
19,681
4,808
31,349
(10,050 )
1987
Mar-14
3 - 39 yrs.
178
Alexandria ......
VA
SpringHill
Suites
-
5,968
-
21,120
27,088
(9,729 )
2011
Mar-09
3 - 39 yrs.
155
Charlottesville...
VA
Courtyard
-
21,130
27,737
3,850
52,717
(11,103 )
2000
Mar-14
3 - 39 yrs.
139
Manassas........
VA
Residence Inn
-
1,395
14,962
3,885
20,242
(8,023 )
2006
Feb-11
3 - 39 yrs.
107
Richmond .......
VA
Courtyard
13,509
2,003
-
23,618
25,621
(8,108 )
2014
Jul-12
3 - 39 yrs.
135
Richmond .......
VA
Marriott
-
-
83,698
26,699
110,397
(44,037 )
1984
Mar-14
3 - 39 yrs.
413
Richmond .......
VA
Residence Inn
13,509
1,113
-
12,883
13,996
(4,405 )
2014
Jul-12
3 - 39 yrs.
75
Suffolk ..........
VA
Courtyard
-
940
5,186
1,835
7,961
(3,206 )
2007
Mar-14
3 - 39 yrs.
92
Suffolk ..........
VA
TownePlace
Suites
-
710
5,241
1,837
7,788
(2,657 )
2007
Mar-14
3 - 39 yrs.
72
Virginia Beach ..
VA
Courtyard
-
10,580
29,140
6,304
46,024
(12,272 )
1999
Mar-14
3 - 39 yrs.
141
Virginia Beach ..
VA
Courtyard
-
12,000
40,556
8,171
60,727
(16,320 )
2002
Mar-14
3 - 39 yrs.
160
Kirkland.........
WA
Courtyard
-
18,950
25,028
2,822
46,800
(10,014 )
2006
Mar-14
3 - 39 yrs.
150
Renton ..........
WA
Residence Inn
-
6,746
49,185
78
56,009
(2,013 )
2019
Oct-23
3 - 39 yrs.
146
Seattle...........
WA
Residence Inn
-
63,484
92,786
6,014
162,284
(36,666 )
1991
Mar-14
3 - 39 yrs.
234
Tukwila .........
WA
Homewood
Suites
-
8,130
16,659
5,097
29,886
(9,703 )
1992
Mar-14
3 - 39 yrs.
106
Madison.........
WI
Embassy Suites
-
3,946
78,399
132
82,477
(1,771 )
2024
Jun-24
3 - 39 yrs.
262
Madison.........
WI
Hilton Garden
Inn
-
2,593
47,152
39
49,784
(6,446 )
2021
Feb-21
3 - 39 yrs.
176
Washington D.C.
-
AC Hotel
-
15,681
104,953
106
120,740
(2,805 )
2020
Mar-24
3 - 39 yrs.
234
Richmond .......
VA
Corporate
Office
-
682
3,723
2,967
7,372
(3,904 )
1893
May-13
3 - 39 yrs.
N/A
$
254,300
$
839,187
$
5,112,110
$
588,711
$
6,540,008
$
(1,803,214 )
29,558
97
Investment in Real Estate:
2024
2023
2022
Balance as of January 1 ..............................................................
$
6,338,232
$
6,000,975
$
5,886,363
Acquisitions................................................................................
203,074
293,802
86,467
Improvements .............................................................................
78,262
76,832
61,745
Dispositions ................................................................................
(74,684)
(227)
(7,425)
Assets held for sale (4).................................................................
(1,821)
(27,506)
-
Impairment of depreciable real estate.........................................
(3,055)
(5,644)
(26,175)
Total gross cost as of December 31............................................
6,540,008
6,338,232
6,000,975
Finance ground lease assets as of
December 31............................................................................
102,084
102,084
102,084
Total investment in real estate....................................................
$
6,642,092
$
6,440,316
$
6,103,059
Accumulated Depreciation and Amortization:
2024
2023
2022
Accumulated depreciation as of January 1 ............................
$
(1,647,850)
$
(1,480,043)
$
(1,302,246)
Depreciation expense.............................................................
(187,555)
(180,185)
(178,641)
Accumulated depreciation on dispositions ............................
32,102
155
844
Assets held for sale (4) ............................................................
89
12,223
-
Accumulated depreciation as of December 31 ......................
(1,803,214)
(1,647,850)
(1,480,043)
Accumulated amortization of finance leases
as of December 31 ..............................................................
(18,130)
(15,092)
(12,054)
Accumulated depreciation and amortization
as of December 31 ..............................................................
$
(1,821,344)
$
(1,662,942)
$
(1,492,097)
(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 U.S. federal income tax purposes is approximately $6.2 billion at December 31, 2024 (unaudited).
(3) Amount includes a reduction in cost due to recognition of an impairment loss.
(4) As of December 31, 2024, the Company had two hotels classified as held for sale, which are not included in this schedule. One was sold to an unrelated party in
February 2025, while the other is expected to be sold in the first quarter of 2025.
(5) In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York,
New York for all hotel operations of the hotel’s 210 guest rooms.
(6) As part of the acquisition of the Courtyard and Hyatt House hotels in Salt Lake City, Utah, a corresponding free-standing parking garage that serves both hotels and
the surrounding area was also acquired. All costs for the parking garage are presented with the Salt Lake City Hyatt House.
98
SIGNATURES
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.
Apple Hospitality REIT, Inc.
By:
/s/ Justin G. Knight
Date: February 24, 2025
Justin G. Knight,
Chief Executive Officer (Principal Executive Officer)
By:
/s/ Elizabeth S. Perkins
Date: February 24, 2025
Elizabeth S. Perkins,
Chief Financial Officer (Principal Financial Officer)
By:
/s/ Rachel S. Labrecque
Date: February 24, 2025
Rachel S. Labrecque,
Chief Accounting Officer (Principal Accounting Officer)
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:
/s/ Glade M. Knight
Date: February 24, 2025
Glade M. Knight, Executive Chairman and Director
By:
/s/ Justin G. Knight
Date: February 24, 2025
Justin G. Knight,
Chief Executive Officer and Director (Principal Executive Officer)
By:
/s/ Elizabeth S. Perkins
Date: February 24, 2025
Elizabeth S. Perkins,
Chief Financial Officer (Principal Financial Officer)
By:
/s/ Rachel S. Labrecque
Date: February 24, 2025
Rachel S. Labrecque,
Chief Accounting Officer (Principal Accounting Officer)
By:
/s/ Glenn W. Bunting, Jr.
Date: February 24, 2025
Glenn W. Bunting, Jr., Director
By:
/s/ Jon A. Fosheim
Date: February 24, 2025
Jon A. Fosheim, Director
By:
/s/ Kristian M. Gathright
Date: February 24, 2025
Kristian M. Gathright, Director
By:
/s/ Carolyn B. Handlon
Date: February 24, 2025
Carolyn B. Handlon, Director
By:
/s/ Blythe J. McGarvie
Date: February 24, 2025
Blythe J. McGarvie, Director
By:
/s/ L. Hugh Redd
Date: February 24, 2025
L. Hugh Redd, Director
By:
/s/ Howard E. Woolley
Date: February 24, 2025
Howard E. Woolley, Director
91
As of April 3, 2025, the Board of Directors of the Company were as follows:
Justin G. Knight
Chief Executive Officer,
Apple Hospitality REIT, Inc.
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.
L. Hugh Redd
Former Senior Vice President and Chief Financial Officer,
General Dynamics
Glade M. Knight
Executive Chairman and Founder,
Apple Hospitality REIT, Inc.
Glenn W. Bunting
President,
GB Corporation
Jon A. Fosheim
Co-founder,
Green Street
Kristian M. Gathright
Former Executive Vice President and Chief Operating
Officer, Apple Hospitality REIT, Inc.
Howard E. Woolley
President and Chief Executive Officer, Howard Woolley
Group, LLC
As of April 3, 2025, the Executive Officers of the Company were as follows:
Glade M. Knight
Executive Chairman
Karen C. Gallagher
Senior Vice President and Chief Operating Officer
Justin G. Knight
Chief Executive 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