News

Apple Hospitality REIT Reports Results of Operations for Third Quarter 2019

RICHMOND, Va.–(BUSINESS WIRE)–Apple Hospitality REIT, Inc. (NYSE: APLE) (the “Company” or “Apple Hospitality”) today announced results of operations for the third quarter ended September 30, 2019.

Selected Statistical and Financial Data

As of and For the Three and Nine Months Ended September 30

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

 

Three Months Ended

 

Nine Months Ended

September 30,

 

September 30,

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

 
Net income(2)

$

46,223

$

62,122

(25.6%)

$

146,464

$

171,934

(14.8%)

Net income per share(2)

$

0.21

$

0.27

(22.2%)

$

0.65

$

0.75

(13.3%)

 

 

Adjusted EBITDAre(2)

$

115,557

$

122,552

(5.7%)

$

342,675

$

353,681

(3.1%)

Comparable Hotels Adjusted Hotel EBITDA(2)

$

124,367

$

124,032

0.3%

$

366,102

$

365,708

0.1%

Comparable Hotels Adjusted Hotel EBITDA Margin %(2)

 

37.6%

 

38.1%

(50 bps)

 

37.8%

 

38.2%

(40 bps)

Modified funds from operations (MFFO)(2)

$

100,403

$

109,068

(7.9%)

$

295,317

$

314,283

(6.0%)

MFFO per share(2)

$

0.45

$

0.47

(4.3%)

$

1.32

$

1.36

(2.9%)

 

 

Average Daily Rate (ADR) (Actual)

$

139.21

$

137.77

1.0%

$

139.13

$

137.32

1.3%

Occupancy (Actual)

 

79.9%

 

78.9%

1.3%

 

78.4%

 

78.4%

Revenue Per Available Room (RevPAR) (Actual)

$

111.17

$

108.70

2.3%

$

109.02

$

107.71

1.2%

 

 

Comparable Hotels ADR

$

139.32

$

139.01

0.2%

$

139.58

$

138.72

0.6%

Comparable Hotels Occupancy

 

79.9%

 

79.2%

0.9%

 

78.6%

 

78.8%

(0.3%)

Comparable Hotels RevPAR

$

111.36

$

110.12

1.1%

$

109.64

$

109.25

0.4%

 

 

Distributions paid

$

67,154

$

69,061

(2.8%)

$

201,497

$

207,265

(2.8%)

Distributions paid per share

$

0.30

$

0.30

$

0.90

$

0.90

 
Total debt outstanding

$

1,344,804

Total debt to total capitalization (3)

 

26.6%

(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. See discussion below for additional information on the adoption of the new lease accounting standard.

(3)

 

Total debt outstanding divided by total debt outstanding plus equity market capitalization based on the Company’s closing share price of $16.58 on September 30, 2019.

Comparable Hotels is defined as the 233 hotels owned and held for use by the Company as of September 30, 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 and assets held for sale, 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, commented, “Performance across our portfolio of hotels during the third quarter was generally consistent with our expectations and was positively impacted by calendar shifts and solid transient demand. We remain diligently focused on maximizing profitability and are pleased to report a strong Comparable Hotels Adjusted Hotel EBITDA Margin of approximately 38 percent for the quarter and year to date, despite ongoing cost and supply pressures. Given the strength of our portfolio of rooms-focused hotels, our geographic diversification and the flexibility of our balance sheet, we believe we are well positioned to maximize shareholder value over the long term.”

Portfolio Activity

Acquisitions and Contracts for Potential Acquisitions

Since the beginning of 2019, Apple Hospitality has completed the acquisition of three hotels, including a 55-room independent boutique hotel in downtown Richmond, Virginia, that was acquired in October of 2019 for a total purchase price of approximately $7 million. Although the Company does not intend to associate this hotel with a brand, the Company does plan to reposition the hotel to be consistent with its existing rooms-focused hotels. The Company continues to have outstanding contracts for the potential purchase of six additional hotels for a combined total expected purchase price of approximately $209 million. The six hotels under contract are currently under development and assuming all conditions to closing are met, will be acquired over the next nine to 21 months from September 30, 2019. There are many conditions to closing under each of the contracts that have not yet been satisfied, including completion of construction, and there can be no assurance that closings on the six hotels will occur.

Dispositions and Contracts for Potential Dispositions

In addition to the nine hotels sold in March of 2019, Apple Hospitality has entered into separate contracts for the potential sale of three hotels. Details related to the sale contracts are as follows:

  • In August 2019, the Company entered into a contract for the potential sale of its 122-room Courtyard by Marriott in Winston-Salem, North Carolina, for a gross sales price of approximately $7 million. The Company classified the Winston-Salem Courtyard as assets held for sale in its consolidated balance sheet and recognized an impairment loss of approximately $6 million in the third quarter of 2019. If the closing occurs, the sale is expected to be completed in the fourth quarter of 2019.
  • In October 2019, the Company entered into a contract for the potential sale of its 109-room Hampton Inn by Hilton in Fort Lauderdale, Florida, for a gross sales price of $20 million. If the closing occurs, the sale is expected to be completed in December 2019, and the Company anticipates recognizing a gain on completion of the sale.
  • In October 2019, the Company entered into a contract for the potential sale of its 105-room SpringHill Suites by Marriott in Sanford, Florida, for a gross sales price of $13 million. If the closing occurs, the sale is expected to be completed in the first quarter of 2020, and the Company anticipates recognizing a gain on completion of the sale.

Although the Company is working towards the sale of the three hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance that closings on the three hotels will occur.

Renaissance New York Hotel 57 to Become an Independent Boutique Hotel

The Company plans to convert its 208-room Renaissance hotel in New York, New York, to an independent boutique hotel during the first quarter of 2020. The Company anticipates it will incur conversion costs of approximately $1 million over the next six months to complete the transition to an independent boutique hotel. The intent of the conversion is to provide greater long-term flexibility with the operations of the hotel. Although the Company is not able to fully estimate the near-term impact associated with the transition, it does anticipate operational disruption as the management team works to replace revenue that currently results from participation in the Renaissance brand system.

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 nine months ended September 30, 2019, the Company invested approximately $47 million in capital expenditures. The Company plans to continue to reinvest in its hotels and anticipates investing an additional $30 million to $40 million in capital improvements during the remainder of 2019, which includes various scheduled renovation projects at approximately 20 properties, including the Company’s full-service Marriott in Richmond, Virginia.

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. 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. For the three and nine months ended September 30, 2019, the Company recognized approximately $1.5 million and $5.4 million of interest expense, respectively, and approximately $0.7 million and $2.9 million of amortization expense, respectively, associated with these four finance leases. Under the previous accounting standard, the Company would have recognized approximately $1.3 million and $4.6 million of cash operating ground lease expense and $0.6 million and $2.8 million of non-cash straight-line ground lease expense and amortization of intangible lease expense during the three and nine months ended September 30, 2019, respectively, for these four ground leases. As a result of the new lease standard, at September 30, 2019, the Company’s balance sheet reflects finance ground lease assets, net, of approximately $194.8 million, operating lease assets, net, of approximately $28.6 million and associated combined lease liabilities of approximately $228.1 million.

Balance Sheet

As of September 30, 2019, Apple Hospitality had approximately $1.3 billion of total outstanding indebtedness with a current combined weighted-average interest rate of approximately 3.6 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 $458 million in property-level debt secured by 29 hotels and $887 million outstanding on its unsecured credit facilities. Apple Hospitality’s undrawn capacity on its unsecured credit facilities at September 30, 2019 was approximately $274 million. The Company’s total debt to total capitalization at September 30, 2019 was approximately 27 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 years, and the weighted-average maturity of its effectively fixed-rate debt is 4 years at a weighted-average interest rate of 3.7 percent.

Shareholder Distributions

Apple Hospitality paid distributions of $0.30 per common share during the three-month period ended September 30, 2019. Based on the Company’s common share closing price of $16.48 on October 31, 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 is adjusting: Net Income by increasing the low end of the range by $1 million and decreasing the high end of the range by $6 million; Comparable Hotels RevPAR Change by narrowing the low and high ends of the range by 25 bps and 50 bps, respectively; Comparable Hotels Adjusted Hotel EBITDA Margin % by narrowing the high end of the range by 10 bps while maintaining the low end of the range; and Adjusted EBITDAre by decreasing the high end of the range by $6 million while maintaining the low end of the range. The reduction in the midpoint of the Company’s guidance for Net Income and Adjusted EBITDAre is primarily a result of higher anticipated general and administrative expenses associated with outperformance of the Company’s relative shareholder return metrics, which are components of the Company’s incentive plans. 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 dispositions and assets held for sale since January 1, 2018. For the full year 2019, the Company anticipates:

2019 Guidance(1)

Low-End

 

High-End

Net income

$168 Million

 

$182 Million

 

 

 

Comparable Hotels RevPAR Change

(0.50%)

 

0.25%

 

 

 

Comparable Hotels Adjusted Hotel EBITDA Margin %

36.4%

 

36.9%

 

 

 

Adjusted EBITDAre

$425 Million

 

$435 Million

(1)

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

Third Quarter 2019 Earnings Conference Call

The Company will host a quarterly conference call for investors and interested parties on Tuesday, November 5, 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 November 5, 2019, through 11:59 p.m. Eastern Time on November 26, 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 13694964. 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 235 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, one Hyatt-branded hotel and one independent 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)
 
 

September 30,

 

December 31,

2019

 

2018

(unaudited)
Assets
Investment in real estate, net of accumulated depreciation and amortization of $1,016,532 and $909,893, respectively

$

4,863,873

$

4,816,410

Assets held for sale

 

6,574

 

 

 

Restricted cash-furniture, fixtures and other escrows

 

35,287

 

 

33,632

 

Due from third party managers, net

 

40,473

 

 

29,091

 

Other assets, net

 

44,220

 

 

49,539

 

Total Assets

$

4,990,427

 

$

4,928,672

 

 
Liabilities
Debt, net

$

1,339,912

 

$

1,412,242

 

Finance lease liabilities

 

215,816

 

 

 

Accounts payable and other liabilities

 

107,763

 

 

107,420

 

Total Liabilities

 

1,663,491

 

 

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 223,856,228 and 223,997,348 shares, respectively

 

4,493,598

 

4,495,073

Accumulated other comprehensive income (loss)

 

(10,351

)

 

10,006

 

Distributions greater than net income

 

(1,156,311

)

 

(1,096,069

)

Total Shareholders’ Equity

 

3,326,936

 

 

3,409,010

 

 
Total Liabilities and Shareholders’ Equity

$

4,990,427

 

$

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 September 30, 2019.

Apple Hospitality REIT, Inc.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

(in thousands, except per share data)

 

Three Months Ended

 

Nine Months Ended

September 30,

 

September 30,

2019

 

2018

 

2019

 

2018

Revenues:
Room

$

307,293

 

$

307,794

 

$

901,995

 

$

901,652

 

Food and beverage

 

14,079

 

 

14,629

 

 

44,786

 

 

46,857

 

Other

 

10,350

 

 

9,774

 

 

29,845

 

 

26,791

 

Total revenue

 

331,722

 

 

332,197

 

 

976,626

 

 

975,300

 

 
Expenses:
Hotel operating expense:
Operating

 

80,717

 

 

81,318

 

 

236,463

 

 

238,514

 

Hotel administrative

 

25,991

 

 

25,722

 

 

78,588

 

 

77,382

 

Sales and marketing

 

29,764

 

 

27,265

 

 

88,289

 

 

80,765

 

Utilities

 

11,635

 

 

12,163

 

 

31,135

 

 

32,693

 

Repair and maintenance

 

13,430

 

 

13,204

 

 

39,337

 

 

39,133

 

Franchise fees

 

14,508

 

 

14,326

 

 

42,371

 

 

41,840

 

Management fees

 

11,548

 

 

11,250

 

 

34,049

 

 

33,781

 

Total hotel operating expense

 

187,593

 

 

185,248

 

 

550,232

 

 

544,108

 

Property taxes, insurance and other

 

19,186

 

 

19,230

 

 

57,217

 

 

55,140

 

Operating ground lease

 

425

 

 

2,818

 

 

1,253

 

 

8,580

 

General and administrative

 

9,039

 

 

3,370

 

 

25,484

 

 

16,968

 

Loss on impairment of depreciable real estate assets

 

6,467

 

 

 

 

6,467

 

 

3,135

 

Depreciation and amortization

 

47,887

 

 

46,169

 

 

143,946

 

 

136,752

 

Total expense

 

270,597

 

 

256,835

 

 

784,599

 

 

764,683

 

 
Gain on sale of real estate

 

 

 

 

 

1,052

 

 

 

 
Operating income

 

61,125

 

 

75,362

 

 

193,079

 

 

210,617

 

 
Interest and other expense, net

 

(14,759

)

 

(13,140

)

 

(46,110

)

 

(38,269

)

 
Income before income taxes

 

46,366

 

 

62,222

 

 

146,969

 

 

172,348

 

 
Income tax expense

 

(143

)

 

(100

)

 

(505

)

 

(414

)

 
Net income

$

46,223

 

$

62,122

 

$

146,464

 

$

171,934

 

 
Other comprehensive income (loss):
Interest rate derivatives

 

(4,193

)

 

1,657

 

 

(20,357

)

 

9,689

 

 
Comprehensive income

$

42,030

 

$

63,779

 

$

126,107

 

$

181,623

 

 
Basic and diluted net income per common share

$

0.21

 

$

0.27

 

$

0.65

 

$

0.75

 

 
Weighted average common shares outstanding – basic and diluted

 

223,901

 

 

230,351

 

 

223,911

 

 

230,402

 

Contacts

Apple Hospitality REIT, Inc.

Kelly Clarke, Vice President, Investor Relations

804-727-6321

kclarke@applereit.com

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