Apple Hospitality REIT Reports Results of Operations for First Quarter 2019

RICHMOND, Va.–(BUSINESS WIRE)–Apple Hospitality REIT, Inc. (NYSE: APLE) (the “Company” or “Apple
Hospitality”) today announced results of operations for the first
quarter ended March 31, 2019.


 


Selected Statistical and Financial Data


As of and For the Three Months Ended March 31


(Unaudited) (in thousands, except statistical and per share
amounts)(1)



 




 








Three Months Ended






March 31,






2019


 


2018




% Change














 


Net income(2)



$


38,151




$


42,182




(9.6%)


Net income per share(2)



$


0.17




$


0.18




(5.6%)














 


Adjusted EBITDAre(2)



$


100,667




$


100,214




0.5%


Comparable Hotels Adjusted Hotel EBITDA(2)



$


107,198




$


106,534




0.6%


Comparable Hotels Adjusted Hotel EBITDA Margin %(2)





36.0%






36.1%




(10 bps)


Modified funds from operations (MFFO)(2)



$


84,724




$


87,902




(3.6%)


MFFO per share(2)



$


0.38




$


0.38




–














 


Average Daily Rate (ADR) (Actual)




$


136.36




$


134.32




1.5%


Occupancy (Actual)






73.9%






74.6%




(0.9%)


Revenue Per Available Room (RevPAR) (Actual)




$


100.71




$


100.18




0.5%














 


Comparable Hotels ADR




$


137.41




$


135.76




1.2%


Comparable Hotels Occupancy






74.1%






74.9%




(1.1%)


Comparable Hotels RevPAR




$


101.76




$


101.69




0.1%














 


Distributions paid




$


67,188




$


69,144




(2.8%)


Distributions paid per share




$


0.30




$


0.30




–














 


Total debt outstanding




$


1,410,758










Total debt to total capitalization (3)





27.9%












 




(1)




Explanations of and reconciliations to net income determined in
accordance with generally accepted accounting principles (“GAAP”)
of non-GAAP financial measures, Adjusted EBITDAre, Comparable
Hotels Adjusted Hotel EBITDA and MFFO, are included below.


(2)




On January 1, 2019, the Company adopted the Financial Accounting
Standards Board’s Accounting Standards Update No. 2016-02, Leases
(Topic 842). Under the new lease accounting standard, the
Company classified four ground leases as finance leases that were
previously classified as operating leases in accordance with the
previous accounting standard. During the three months ended March
31, 2019, the Company recognized depreciation and amortization
expense of approximately $1.0 million and interest and other
expense, net of approximately $1.8 million in the Company’s
consolidated statement of operations related to these finance
leases. During the three months ended March 31, 2018, the Company
recognized approximately $2.4 million of operating ground lease
expense (which included $1.4 million of cash lease payments and
$1.0 million of non-cash straight-line lease expense and
amortization of favorable and unfavorable leases, net) for these
leases in the Company’s consolidated statement of operations.


(3)




Total debt outstanding divided by total debt outstanding plus
equity market capitalization based on the Company’s closing share
price of $16.30 on March 31, 2019.






 


Comparable Hotels is defined as the 234 hotels owned by the Company
as of March 31, 2019. For hotels acquired during the periods noted, the
Company has included, as applicable, results of those hotels for periods
prior to the Company’s ownership, and for dispositions, results have
been excluded for the Company’s period of ownership. Results for periods
prior to the Company’s ownership have not been included in the Company’s
actual Consolidated Financial Statements and are included only for
comparison purposes. Results included for periods prior to the Company’s
ownership are based on information from the prior owner of each hotel
and have not been audited or adjusted.


Justin Knight, President and Chief Executive Officer of Apple
Hospitality REIT, commented, “We began the year generally as expected,
operations remained steady and we continued to be successful managing
cost pressures, producing a strong Comparable Hotels Adjusted Hotel
EBITDA Margin of 36 percent for the first quarter. During the quarter,
we completed the sale of the nine hotels that we highlighted at year
end. The transactions were well priced, and combined with our continued
opportunistic acquisitions, adjusted our portfolio in ways that we
believe will enhance the strength and stability of our hospitality
platform for years to come. We are confident we are well positioned to
maximize shareholder value over the long term, and we look forward to
another solid year for the Company.”


Portfolio Activity


Acquisitions and Contracts for Potential Acquisitions


As previously announced, during the three-month period ended March 31,
2019, Apple Hospitality acquired two hotels for an aggregate purchase
price of approximately $52 million, including the existing 160-room
Hampton Inn & Suites by Hilton in St. Paul, Minnesota, and the newly
constructed 128-room Home2 Suites by Hilton in Orlando, Florida.


The Company has outstanding contracts for the potential acquisition of
five hotels for a combined total expected purchase price of
approximately $159 million, including a purchase contract the Company
entered into in April 2019 for a Courtyard by Marriott hotel to be
constructed in Denver, Colorado, for an anticipated purchase price of
approximately $49 million with an expected completion date in 2021. As
previously announced, the other four hotels under contract are currently
under development and the Company anticipates acquiring the four hotels
in 2020 if all conditions to closing are met. There are many conditions
to closing, including completion of construction, under each of the
contracts that have not yet been satisfied, and there can be no
assurance that closings on the five hotels will occur.


Dispositions


As previously announced, in March 2019, the Company completed the sale
of nine hotels for a combined gross sales price of $95 million,
resulting in a gain of approximately $1.8 million, which is included in
the Company’s consolidated statement of operations for the three months
ended March 31, 2019.


Capital Improvements


Apple Hospitality consistently reinvests in its hotels to maintain and
enhance each property’s relevance and competitive position within its
respective market. During the three months ended March 31, 2019, the
Company invested approximately $19 million in capital expenditures. The
Company plans to continue to reinvest in its hotels and anticipates
investing an additional $60 million to $70 million in capital
improvements during the remainder of 2019, which includes various
scheduled renovation projects for approximately 20 to 25 properties.


Adoption of New Lease Accounting Standard


On January 1, 2019, the Company adopted Accounting Standards Update No.
2016-02, Leases (Topic 842). Under this standard, lessees are
required to recognize most leases on their balance sheets as
right-of-use assets and lease liabilities. Leases are classified as
either finance or operating, with classification affecting the pattern
of expense recognition in the income statement. The Company elected to
recognize and measure its leases prospectively at the beginning of the
period of adoption through a cumulative-effect adjustment to
shareholders’ equity, without restating the presentation of periods
prior to the effective date, which continue to be reported in accordance
with the Company’s historical accounting policy. At adoption, the
Company recorded a cumulative-effect adjustment totaling approximately
$5.2 million to distributions greater than net income, a component of
shareholders’ equity in the Company’s consolidated balance sheet. Under
the new standard, four of the Company’s ground leases that were
previously classified as operating leases under the previous accounting
standard are classified as financing leases under Topic 842. For these
finance leases, effective January 1, 2019, the Company recognizes
depreciation and amortization expense and interest and other expense,
net in the Company’s consolidated statements of operations, instead of
operating ground lease expense. While the total expense recognized over
the life of a lease is unchanged, the timing of expense recognition for
these finance leases results in higher expense during the earlier years
of the lease and lower expense during the later years of the lease.
During the first quarter of 2019, the Company recognized approximately
$1.8 million of interest expense and $1.0 million of amortization
expense associated with these four finance leases. Under the previous
accounting standard, the Company would have recognized approximately
$1.6 million of cash operating ground lease expense and $1.0 million of
non-cash straight-line ground lease expense and amortization of
intangible lease expense. As a result of the new lease standard, at
March 31, 2019, the Company’s balance sheet reflects finance ground
lease assets, net of approximately $143.8 million, operating lease right
of use assets of approximately $29.3 million and associated combined
lease liabilities of approximately $175.5 million.


Balance Sheet


As of March 31, 2019, Apple Hospitality had approximately $1.4 billion
of total outstanding indebtedness with a current combined
weighted-average interest rate of approximately 3.8 percent for the
remainder of 2019. Excluding unamortized debt issuance costs and fair
value adjustments, the Company’s total outstanding indebtedness is
comprised of approximately $485 million in property-level debt secured
by 31 hotels and $925 million outstanding on its unsecured credit
facilities. Apple Hospitality’s undrawn capacity on its unsecured credit
facilities at March 31, 2019 was approximately $235 million. The
Company’s total debt to total capitalization at March 31, 2019 was
approximately 28 percent, which provides Apple Hospitality with
financial flexibility to fund capital requirements and pursue
opportunities in the marketplace. The Company’s weighted-average debt
maturities are 5.1 years, and the weighted-average maturity of its
effectively fixed-rate debt is 4.1 years at a weighted-average interest
rate of 4.0 percent.


Shareholder Distributions


Apple Hospitality paid distributions of $0.30 per common share during
the three-month period ended March 31, 2019. Based on the Company’s
common share closing price of $16.55 on May 6, 2019, the annualized
distribution rate of $1.20 per common share represents an annual yield
of approximately 7.3 percent. The Company’s Board of Directors, in
consultation with management, will continue to regularly monitor the
Company’s distribution rate relative to the performance of its hotels,
capital improvement needs, varying economic cycles, acquisitions and
dispositions. At its discretion, the Company’s Board of Directors may
make adjustments as determined to be prudent in relation to other cash
requirements of the Company.


2019 Outlook


Apple Hospitality is providing its operational and financial outlook for
2019. This outlook, which is based on management’s current view of both
operating and economic fundamentals of the Company’s existing portfolio
of hotels, does not take into account any unanticipated developments in
its business or changes in its operating environment, nor does it take
into account any unannounced hotel acquisitions or dispositions. As
compared to previously provided 2019 guidance, the Company has
maintained its guidance for Comparable Hotels RevPAR Change, increased
its guidance for Comparable Hotels Adjusted Hotel EBITDA Margin % 80 bps
at both ends of the range (reflecting 60 bps from the lease accounting
standard change and 20 bps from increased expectations from operations),
and increased its guidance for Adjusted EBITDAre $9 million at both ends
of the range (reflecting $7 million from the lease accounting standard
change and $2 million from increased expectations from operations).
Comparable Hotels RevPAR Change and Comparable Hotels Adjusted Hotel
EBITDA Margin % guidance include properties acquired, as if the hotels
were owned as of January 1, 2018, and exclude completed dispositions
since January 1, 2018. For the full year 2019, the Company anticipates:




 




 


 








2019 Guidance(1)





Low-End






High-End












 


Net Income




$167 Million






$192 Million












 


Comparable Hotels RevPAR Change




(1.0%)






1.0%












 


Comparable Hotels Adjusted Hotel EBITDA Margin %




36.2%






37.2%












 


Adjusted EBITDAre




$425 Million






$445 Million












 


(1)


 


Explanations of and reconciliations to net income guidance of
Adjusted EBITDAre guidance are included below.






 


First Quarter 2019 Earnings Conference Call


The Company will host a quarterly conference call for investors and
interested parties on Thursday, May 9, 2019, at 9:00 a.m. Eastern Time.
The conference call will be accessible by telephone and the internet. To
access the call, participants from within the U.S. should dial (877)
407-9039, and participants from outside the U.S. should dial (201)
689-8470. Participants may also access the call via live webcast by
visiting the Investor Information section of the Company’s website at ir.applehospitalityreit.com.
A replay of the call will be available from approximately 12:00 p.m.
Eastern Time on May 9, 2019, through 11:59 p.m. Eastern Time on May 30,
2019. To access the replay, the domestic dial-in number is (844)
512-2921, the international dial-in number is (412) 317-6671, and the
passcode is 13689113. The archive of the webcast will be available on
the Company’s website for a limited time.


About Apple Hospitality REIT, Inc.


Apple Hospitality REIT, Inc. (NYSE: APLE) is a publicly traded real
estate investment trust (REIT) that owns one of the largest and most
diverse portfolios of upscale, rooms-focused hotels in the United
States. Apple Hospitality’s portfolio consists of 234 hotels with more
than 30,000 guest rooms located in 87 markets throughout 34 states.
Franchised with industry-leading brands, the Company’s portfolio
comprises 108 Marriott-branded hotels, 125 Hilton-branded hotels and one
Hyatt-branded hotel. For more information, please visit www.applehospitalityreit.com.


Apple Hospitality REIT Non-GAAP Financial
Measures


The Company considers the following non-GAAP financial measures useful
to investors as key supplemental measures of its operating performance:
Funds from Operations (“FFO”); Modified FFO (“MFFO”); Earnings Before
Interest, Income Taxes, Depreciation and Amortization (“EBITDA”);
Earnings Before Interest, Income Taxes, Depreciation and Amortization
for Real Estate (“EBITDAre”); Adjusted EBITDAre (“Adjusted EBITDAre”);
and Adjusted Hotel EBITDA (“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. Reconciliations of these non-GAAP financial measures to net
income (loss) are provided in the following pages.


Forward-Looking Statements Disclaimer


Certain statements contained in this press release, other than
historical facts, may be considered forward-looking statements. These
forward-looking statements are predictions and generally can be
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 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 Apple Hospitality to
effectively acquire and dispose of properties; the ability of Apple
Hospitality to successfully integrate pending transactions and implement
its operating strategy; changes in general political, economic and
competitive conditions and specific market conditions; adverse changes
in the real estate and real estate capital markets; financing risks;
litigation risks; regulatory proceedings or inquiries; and changes in
laws or regulations or interpretations of current laws and regulations
that impact Apple Hospitality’s business, assets or classification as a
real estate investment trust. Although Apple Hospitality 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 press release 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 Apple Hospitality or any other person
that the results or conditions described in such statements or the
objectives and plans of Apple Hospitality will be achieved. In addition,
Apple Hospitality’s qualification as a real estate investment trust
involves the application of highly technical and complex provisions of
the Internal Revenue Code. Readers should carefully review Apple
Hospitality’s financial statements and the notes thereto, as well as the
risk factors described in Apple Hospitality’s filings with the
Securities and Exchange Commission, including, but not limited to, in
the section titled “Risk Factors” in the Company’s Annual Report on Form
10-K for the year ended December 31, 2018. Any forward-looking statement
that Apple Hospitality makes speaks only as of the date of such
statement. Apple Hospitality 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.


For additional information or to receive press releases by email,
visit www.applehospitalityreit.com.


 


Apple Hospitality REIT, Inc.


Consolidated Balance Sheets


(in thousands, except share data)




 




 












 






March 31,2019




December 31,2018






(unaudited)






Assets










Investment in real estate, net of accumulated depreciation and
amortization of $923,877 and $909,893, respectively




$


4,891,503






$


4,816,410




Restricted cash-furniture, fixtures and other escrows






32,269








33,632




Due from third party managers, net






51,358








29,091




Other assets, net




 


49,257


 




 


49,539


 


Total Assets




$


5,024,387


 




$


4,928,672


 










 


Liabilities










Debt, net




$


1,405,616






$


1,412,242




Finance lease liabilities






162,818








–




Accounts payable and other liabilities




 


88,926


 




 


107,420


 


Total Liabilities






1,657,360








1,519,662












 


Shareholders’ Equity










Preferred stock, authorized 30,000,000 shares; none issued and
outstanding






–








–




Common stock, no par value, authorized 800,000,000 shares; issued
and outstanding 223,868,180 and 223,997,348 shares, respectively






4,493,362








4,495,073




Accumulated other comprehensive income






3,962








10,006




Distributions greater than net income




 


(1,130,297


)




 


(1,096,069


)


Total Shareholders’ Equity




 


3,367,027


 




 


3,409,010


 










 


Total Liabilities and Shareholders’ Equity




$


5,024,387


 




$


4,928,672


 


















 


 


Note:


The Consolidated Balance Sheets and corresponding footnotes can
be found in the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2019.


 


 


Apple Hospitality REIT, Inc.


Consolidated Statements of Operations and Comprehensive Income


(Unaudited) (in thousands, except per share data)




 




 








Three Months Ended






March 31,






2019




2018


Revenues:










Room




$


279,470






$


274,836




Food and beverage






15,015








15,710




Other




 


9,302


 




 


7,843


 


Total revenue






303,787








298,389












 


Expenses:










Hotel operating expense:










Operating






75,580








75,954




Hotel administrative






25,630








25,102




Sales and marketing






27,694








25,332




Utilities






9,939








10,283




Repair and maintenance






12,866








12,453




Franchise fees






13,111








12,733




Management fees




 


10,629


 




 


10,472


 


Total hotel operating expense






175,449








172,329




Property taxes, insurance and other






19,208








17,229




Operating ground lease






405








2,850




General and administrative






8,137








6,877




Depreciation and amortization




 


47,950


 




 


44,840


 


Total expense






251,149








244,125












 


Gain on sale of real estate




 


1,213


 




 


–


 










 


Operating income






53,851








54,264












 


Interest and other expense, net




 


(15,494


)




 


(11,919


)










 


Income before income taxes






38,357








42,345












 


Income tax expense




 


(206


)




 


(163


)










 


Net income




$


38,151


 




$


42,182


 










 


Other comprehensive income (loss):










Interest rate derivatives




 


(6,044


)




 


6,292


 










 


Comprehensive income




$


32,107


 




$


48,474


 










 


Basic and diluted net income per common share




$


0.17


 




$


0.18


 










 


Weighted average common shares outstanding – basic and diluted






223,932








230,515












 


 


Note:


The Consolidated Statements of Operations and Comprehensive
Income and corresponding footnotes can be found in the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.


 


 


Apple Hospitality REIT, Inc.


Comparable Hotels Operating Metrics and Statistical Data


(Unaudited)


(in thousands except statistical data)




 




 




 








Three Months Ended






March 31,






2019




2018




% Change














 


Total revenue




$


298,009






$


295,076






1.0%














 


Total operating expenses




 


190,811


 




 


188,542


 




1.2%














 


Adjusted Hotel EBITDA




$


107,198


 




$


106,534


 




0.6%


Adjusted Hotel EBITDA Margin %






36.0


%






36.1


%




(10 bps)














 














 


ADR (Comparable Hotels)




$


137.41






$


135.76






1.2%


Occupancy (Comparable Hotels)






74.1


%






74.9


%




(1.1%)


RevPAR (Comparable Hotels)




$


101.76






$


101.69






0.1%














 


ADR (Actual)




$


136.36






$


134.32






1.5%


Occupancy (Actual)






73.9


%






74.6


%




(0.9%)


RevPAR (Actual)




$


100.71






$


100.18






0.5%














 


Reconciliation to Actual Results


























 


Total Revenue (Actual)




$


303,787






$


298,389








Revenue from acquisitions prior to ownership






1,149








5,603








Revenue from dispositions






(6,861


)






(8,850


)






Lease revenue intangible amortization




 


(66


)




 


(66


)






Comparable Hotels Total Revenue




$


298,009


 




$


295,076


 


















 


Adjusted Hotel EBITDA (AHEBITDA) (Actual)




$


108,804






$


107,091








AHEBITDA from acquisitions prior to ownership






310








2,149








AHEBITDA from dispositions




 


(1,916


)




 


(2,706


)






Comparable Hotels AHEBITDA




$


107,198


 




$


106,534


 


























 


 


Note:


Comparable Hotels is defined as the 234 hotels owned by the
Company as of March 31, 2019. For hotels acquired during the periods
noted, the Company has included, as applicable, results of those
hotels for periods prior to the Company’s ownership, and for
dispositions, results have been excluded for the Company’s period of
ownership. Results for periods prior to the Company’s ownership have
not been included in the Company’s actual Consolidated Financial
Statements and are included only for comparison purposes. Results
included for periods prior to the Company’s ownership are based on
information from the prior owner of each hotel and have not been
audited or adjusted.


 


Reconciliation of net income to non-GAAP financial measures and a
discussion of the Company’s adoption of Accounting Standards Update
No. 2016-02, Leases, on January 1, 2019 are included in the
following pages.


 


 


Apple Hospitality REIT, Inc.


Comparable Hotels Quarterly Operating Metrics and Statistical Data


(Unaudited)


(in thousands except statistical data)




 




 




 




 




 




 




 




 








Three Months Ended






6/30/2017




9/30/2017




12/31/2017




3/31/2018




6/30/2018




9/30/2018




12/31/2018




3/31/2019