UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant Filed by a Party other than the Registrant

 

Check the appropriate box:

 

Preliminary Proxy Statement

 

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

 

Definitive Proxy Statement

 

 

Definitive Additional Materials

 

 

Soliciting Material under §240.14a-12

 

Apple Hospitality REIT, Inc.

 

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check all boxes that apply):

 

No fee required.

 

 

Fee paid previously with preliminary materials.

 

 

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a6(i)(1) and 0-11.

 

 

 

 

 


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Notice of the 2022 Annual Meeting of Shareholders

to be Held on Friday, May 13, 2022

The Annual Meeting of Shareholders (the “Annual Meeting”) of Apple Hospitality REIT, Inc. (the “Company”) will be held at the Courtyard and Residence Inn Richmond Downtown, located at 1320 East Cary Street, Richmond, Virginia 23219, on Friday, May 13, 2022 at 9:00 a.m., Eastern Daylight Time, for the following purposes:  

 

1.

To elect nine (9) directors named in the attached proxy statement to the Board of Directors (the “Board”);

 

2.

To consider and act on an advisory vote regarding the approval of compensation paid to certain executive officers by the Company;

 

3.

To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm to serve for 2022; and

 

4.

To transact such other business as may properly come before the meeting.

If you were a holder of record of any common shares of the Company at the close of business on the record date of March 18, 2022, you are entitled to vote at the Annual Meeting. If you are present at the Annual Meeting, you may vote in person even if you have previously returned a proxy card.

While we currently intend to hold the Annual Meeting in person, we may announce alternative arrangements (including safety protocols for in person meeting attendance) if federal, state or local governments impose restrictions regarding the COVID-19 pandemic that impact our ability to hold an in-person meeting. We encourage you to monitor the Investor Information section of our website at ir.applehospitalityreit.com for any updates regarding the Annual Meeting.

The Company is furnishing its proxy statement, proxy and 2021 Annual Report on Form 10-K (the “Annual Report”) to you electronically via the Internet, instead of mailing printed copies of those materials to each shareholder. The Company has sent to its shareholders a Notice of Internet Availability of Proxy Materials that provides instructions on how to access its proxy materials on the Internet, how to request and receive a paper copy of the proxy statement, Annual Report and proxy for the Annual Meeting and future meetings of shareholders, and how to vote online at www.proxyvote.com. Shareholders can also call 1-800-579-1639 to request proxy materials or 1-800-690-6903 to vote by telephone. Additionally, this proxy statement and the Annual Report are available at http://materials.proxyvote.com/03784Y. Please read the enclosed information carefully before submitting your proxy.

If you have any questions or need assistance in voting your shares, please call Ms. Kelly Clarke in the Company’s Investor Relations Department, at (804) 344-8121.

By Order of the Board of Directors

 

Matthew P. Rash

Secretary

March 31, 2022

REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, AS A SHAREHOLDER YOUR ROLE IS VERY IMPORTANT, AND THE BOARD STRONGLY ENCOURAGES YOU TO EXERCISE YOUR RIGHT TO VOTE.

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE VOTE ONLINE, BY PHONE OR BY SIGNING, DATING AND RETURNING THE PROXY CARD. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. 

 


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TABLE OF CONTENTS

 

 

Page

 

 

General

1

Solicitation of Proxies

1

Company Information

2

Proposals to be Voted Upon

3

Proposal 1. Election of Directors

3

Proposal 2. Advisory Vote On Executive Compensation Paid by the Company

10

Proposal 3. Ratification of the Appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm

11

Corporate Responsibility Overview

12

Corporate Governance, Risk Oversight and Procedures for Shareholder Communications

16

Board of Directors

16

Code of Ethics

16

Corporate Governance Guidelines

16

Risk Oversight

16

Shareholder Communications

17

Share Ownership Guidelines

17

Hedging and Pledging of Company Securities

17

Board Self-Evaluation

17

Consideration of Director Nominees

18

Director Qualifications

18

Nomination Procedures

18

Committees of the Board and Board Leadership

19

Summary

19

Board Leadership

19

Audit Committee Independence

20

Board Meetings, Attendance and Related Information

20

Executive Sessions

20

2021 Compensation of Directors

20

Reimbursements to Directors in 2021

20

Compensation of Non-Employee Directors

20

Non-Employee Director Deferral Program

21

Employee Directors

21

Director Compensation

22

Outstanding Stock Option Awards

22

Audit Committee Report

22

Certain Relationships and Agreements

23

Cost Sharing with Related Entities

23

Executive Officers

24

Compensation Discussion and Analysis

26

Key Executive Compensation Practices

27

Advisory Vote on Executive Compensation

27

Pay for Performance Philosophy

28

General Philosophy and Objectives

28

Role of the Compensation Committee

29

Role of the Chief Executive Officer

29

Compensation Consultant

29

Peer Group Information

29

Elements of Executive Compensation

30

Perquisites and Other Benefits

37

Ownership Requirements

37

Limits on Tax Deductibility of Executive Compensation

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APPLE HOSPITALITY REIT, INC.

PROXY STATEMENT

DATED

March 31, 2022

ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON

May 13, 2022

General

The enclosed proxy is solicited by the Board of Directors (the “Board” or “Board of Directors”) of Apple Hospitality REIT, Inc. (the “Company” or “Apple Hospitality”) for the Annual Meeting of Shareholders to be held at the Courtyard and Residence Inn Richmond Downtown, located at 1320 East Cary Street, Richmond, Virginia 23219, on Friday, May 13, 2022 at 9:00 a.m., Eastern Daylight Time (the “Annual Meeting”). Your proxy may be revoked at any time before being voted at the Annual Meeting, either by a written notice of revocation that is received by the Company before the Annual Meeting or by conduct that is inconsistent with the continued effectiveness of the proxy, such as delivering another proxy with a later date or attending the Annual Meeting and voting in person.

Unless your proxy indicates otherwise, all shares represented by a proxy that you sign and return will be voted FOR the nominees listed in proposal 1, FOR proposals 2 and 3, and in accordance with the best judgment of the proxy holders for any other matters properly brought before the Annual Meeting.

Record holders of the Company’s common shares (the “Common Shares”) at the close of business on March 18, 2022 (the “Record Date”) are entitled to notice of, and to vote at, the Annual Meeting. This proxy statement, the Company’s 2021 Annual Report on Form 10-K, which includes the Company’s audited consolidated financial statements for the year ended December 31, 2021 (the “Annual Report”), and the proxy card are first being made available, and a notice and electronic delivery of the proxy materials (the “Notice of Internet Availability”) is first being mailed, to shareholders on or about March 31, 2022.

As permitted by the rules of the U.S. Securities and Exchange Commission (the “SEC” or “Securities and Exchange Commission”), the Company is making this proxy statement and its Annual Report available to its shareholders electronically via the Internet. The Company believes that this process expedites receipt of its proxy materials by shareholders, while lowering the costs and reducing the environmental impact of the Annual Meeting. If you received the Notice of Internet Availability by mail, you will not receive a printed copy of the proxy materials in the mail. Instead, the Notice of Internet Availability instructs you on how to access and review all of the important information contained in the proxy statement and Annual Report. The Notice of Internet Availability also instructs you on how you may submit your proxy over the Internet. If you received a Notice of Internet Availability by mail and would like to receive a printed copy of the proxy materials, please follow the instructions for requesting printed materials contained in the Notice of Internet Availability. 

At the close of business on the Record Date, a total of 228,888,561 Common Shares were issued and outstanding and entitled to vote on all matters, including those to be acted upon at the Annual Meeting. Each Common Share is entitled to one vote. The presence in person or by proxy of a majority of the Common Shares entitled to vote at the Annual Meeting will constitute a quorum for the transaction of business.

In the event that a quorum is not present at the Annual Meeting, it is expected the meeting will be adjourned or postponed in order to solicit additional proxies.

Solicitation of Proxies

The Company will be responsible for the costs of the solicitation set forth in this proxy statement. Brokerage houses, fiduciaries, nominees and others will be reimbursed for their out-of-pocket expenses in forwarding proxy materials to beneficial owners of Common Shares. In addition to soliciting proxies by mail, certain of the Company’s directors, officers and employees may solicit proxies by telephone, personal contact, or other means of communication. No additional compensation, except for reimbursement of reasonable out-of-pocket expenses, will be paid to directors, officers and employees of the Company in connection with the solicitation. Any questions or requests for assistance regarding this proxy solicitation may be directed to the Company by telephone at (804) 344-8121, Attention: Investor Relations, or your bank, broker or other custodian that holds your shares. You may revoke a

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previously delivered proxy by delivering written notice of revocation to the Secretary of the Company, or by submitting a later dated proxy by Internet, telephone or a duly executed paper ballot at any time before the proxy is voted at the Annual Meeting. We will honor the latest vote received. Proxy holders will vote shares represented by written proxies, if properly signed and returned to the Secretary, in accordance with instructions of the shareholders. If you are a beneficial owner of shares, you may revoke or change your voting instructions by contacting your broker, bank or other nominee and following their instructions.

Company Information

The Company operates as a real estate investment trust (“REIT”) for federal income tax purposes. The mailing address of the Company is 814 East Main Street, Richmond, Virginia 23219. The Company can be contacted, and public information about the Company can be obtained, by sending a written notice to Ms. Kelly Clarke, Investor Relations Department, at the Company’s address as provided above or through its website, www.applehospitalityreit.com.

The Company’s Annual Report and its other public federal securities filings also may be obtained electronically through the EDGAR system of the Securities and Exchange Commission at www.sec.gov. The proxy materials are available at http://materials.proxyvote.com/03784Y.

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Proposals to be Voted Upon

Proposal 1. Election of Directors

The Company’s Board of Directors currently consists of nine directors, all of whom are standing for re-election at the Annual Meeting. The Board of Directors recommends the re-election of the current directors to the Board of Directors to serve as directors until the 2023 annual meeting of shareholders or until their successors are duly elected and qualified, except in the event of prior resignation, death or removal.  

Unless otherwise specified, all Common Shares represented by proxies will be voted FOR the election of the nominees listed below. If a nominee ceases to be available for election as a director, discretionary authority may be exercised by each of the proxies named on the attached proxy card to vote for a substitute. No circumstances are presently known that would cause any nominee to be unavailable for election as a director. The nominees are now members of the Board of Directors, have been nominated by action of the Board of Directors, and have indicated their willingness to serve if elected. If a quorum is present at the Annual Meeting, the positions on the Board of Directors will be filled by the election of the properly nominated candidates who receive the greatest number of votes at the Annual Meeting, even if a nominee does not receive a majority of all votes represented and entitled to be cast. Under the Company’s Corporate Governance Guidelines, 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 will consider, and determine whether to accept, such resignation and make a recommendation to the Board of Directors. Within 90 days of the certification of the election results, the Board of Directors must act on the resignation, taking into consideration any recommendation by the Nominating and Corporate Governance Committee and any additional relevant factors. A director who tenders his or her resignation does not participate in the decisions of the Nominating and Corporate Governance Committee or the Board relating to the resignation.

A shareholder who wishes to abstain from voting on the election of a director may do so by specifying, as provided on the proxy, that authority to vote for any or all of the nominees is to be withheld. Withheld votes and broker non-votes will have no effect on the election of a director. A broker non-vote occurs when the entity holding shares in street name has not received voting instructions from the beneficial owner and either chooses not to vote those shares on a routine matter at the shareholders meeting or is not permitted to vote those shares on a non-routine matter.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES.

The following is a snapshot of the Company’s Board composition:

 

Average Tenure of 6 Years

Diversity

Independent Directors

 

 

  NOMINEE QUALIFICATIONS AND EXPERIENCE

 

 

Bunting

 

Fosheim

 

Gathright

 

G. Knight

 

J. Knight

 

McGarvie

 

Nickel

 

Redd

Woolley

Leadership

 

 

 

 

 

 

 

Financial

 

 

 

 

 

 

 

 

 

Investment

 

 

 

 

 

 

 

 

 

 

 

 

Business Knowledge/Strategy

 

 

 

 

 

 

 

 

Hospitality Experience

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Experience

 

 

 

 

 

 

 

 

 

 

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BOARD COMPOSITION

100%

 

78%

 

44%

 

100%

 

44%

 

67%

Leadership

 

Financial

 

Investment

 

Business
Knowledge/Strategy

 

Hospitality
Experience

 

Real Estate
Experience

 

The table below provides information about each of the Company’s director nominees, including their principal occupations and employment during at least the past five years and their directorships, if any, in public companies other than the Company.

 

Director Nominees

 

 

 

 

 

 

 

 

Glenn W. Bunting

 

Director Since: 2014

 

 

Age: 77

 

 

 

Committees:

 

     Audit

     Compensation (Chair)

     Executive

 

 

 

 

 

 

Business Experience (1)

 

 

 

Mr. Bunting has served as President of GB Corporation since January 2011. From 1985 until 2010, Mr. Bunting served as President and Chief Executive Officer of American KB Properties, Inc., which developed and managed shopping centers. Mr. Bunting was a director of Cornerstone Realty Income Trust, Inc., of which Glade M. Knight was Chairman and Chief Executive Officer, from 1993 until its merger with Colonial Properties Trust in 2005. He also served as a member of the Board of Directors of Landmark Apartment Trust of America until 2016 when it merged with and into an affiliate of Starwood Capital Group. Mr. Bunting served as a director of Apple Two, Apple Five, Apple Seven and Apple Eight until the companies were sold to a third party or merged with the Company, as described in Note 1 below. Mr. Bunting received a Bachelor of Business Administration degree from Campbell University. The Board of Directors believes his extensive management and REIT experience and strong background in commercial real estate, investment, strategic planning and finance provide him with the skills and qualifications to serve as a director.

 

 

Jon A. Fosheim

 

Director Since: 2015

Lead Independent Director 

 

Age: 71

 

 

 

Committees:

 

     Audit

     Executive

     Nominating and Corporate Governance

 

 

 

 

 

 

Business Experience

 

 

 

Mr. Fosheim was the Chief Executive Officer of Oak Hill REIT Management, LLC from 2005 until his retirement in 2011. Oak Hill REIT Management, LLC is a hedge fund specializing in REIT investments. From 1985 until 2005, Mr. Fosheim was a Principal and Co-founder of Green Street Advisors, a REIT advisory and consulting firm. Prior to that, Mr. Fosheim worked in institutional sales at Bear Stearns & Co., a global investment bank, and worked in the tax department at Touche Ross and Co. (now Deloitte LLP), an international accounting firm. Mr. Fosheim currently serves on the Board of Directors of DigitalBridge Group, Inc., formerly Colony Capital, Inc., and serves on the Audit Committee and as chair of the Compensation Committee of such board. Mr. Fosheim attended the University of South Dakota, earning Bachelor of Arts, Master of Business Administration, and Juris Doctor degrees. The Board of Directors believes his extensive investment management, finance, strategic planning and REIT experience and his leadership and management background provide him with the skills and qualifications to serve as a director.

 

 

 

 

 

 

 

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Kristian M. Gathright

 

Director Since: 2019

 

 

Age: 49

 

 

 

 

 

 

 

 

 

Business Experience (1)

 

 

 

Mrs. Gathright served as Executive Vice President and Chief Operating Officer for the Company from its inception until her retirement on March 31, 2020. In addition, Mrs. Gathright held various senior management positions with each of the Apple REIT Companies from inception until they were sold to a third party or merged with the Company, as described in Note 1 below. Prior to her service with these companies, Mrs. Gathright served as Assistant Vice President and Investor Relations Manager for Cornerstone Realty Income Trust, Inc., a REIT that owned and operated apartment communities in Virginia, North Carolina, South Carolina, Georgia and Texas. She also worked as an Asset Manager and Regional Controller of the Northern Region Operations for United Dominion Realty Trust, Inc., a REIT, and began her career with Ernst & Young LLP. Mrs. Gathright currently serves on the Board of Directors of Spirit Realty Capital, Inc. and serves on the Nominating and Corporate Governance Committee of such board. Mrs. Gathright joined Derive Ventures as an advisor in 2022. Mrs. Gathright previously served on the Board of Directors of the American Hotel & Lodging Association and as President of the Courtyard Franchise Advisory Council. Mrs. Gathright serves on the Advisory Board of the McIntire School of Commerce at the University of Virginia. Mrs. Gathright holds a Bachelor of Science degree, Graduate with Distinction, in Accounting from the McIntire School of Commerce at the University of Virginia, Charlottesville, Virginia. The Board of Directors believes her extensive hotel industry and real estate experience and her background in strategic planning, leadership and management provide her with the skills and qualifications to serve as a director.

 

 

 

 

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Glade M. Knight

 

Director Since: 2007

Executive Chairman

 

Age: 78

 

 

 

Committees:

 

     Executive (Chair)

 

 

 

 

 

 

 

Business Experience (1)

 

 

 

Mr. Knight is the founder of the Company and has served as Executive Chairman since May 2014, and previously served as Chairman and Chief Executive Officer of the Company since its inception. Mr. Knight was also the founder of each of the Apple REIT Companies and served as their Chairman and Chief Executive Officer from their inception until the companies were sold to a third party or merged with the Company, as described in Note 1 below. In addition, Mr. Knight served as Chairman and Chief Executive Officer of Cornerstone Realty Income Trust, Inc., a REIT, from 1993 until it merged with Colonial Properties Trust, a REIT, in 2005. Following the merger in 2005 until April 2011, Mr. Knight served as a trustee of Colonial Properties Trust. Cornerstone Realty Income Trust, Inc. owned and operated apartment communities in Virginia, North Carolina, South Carolina, Georgia and Texas. Mr. Knight is a partner and Chief Executive Officer of Energy 11 GP, LLC, the general partner of Energy 11, L.P., and Energy Resources 12 GP, LLC, the general partner of Energy Resources 12, L.P., partnerships focused on investments in the oil and gas industry. Mr. Knight is the founding Chairman of Southern Virginia University in Buena Vista, Virginia. Additionally, he is a founding member of Brigham Young University’s Entrepreneurial Department of the Graduate School of Business Management. The Board of Directors believes his extensive REIT executive experience and extensive background in real estate, the hotel industry, investment, corporate finance and strategic planning, as well as his entrepreneurial background, provide him with the skills and qualifications to serve as a director. On February 12, 2014, Mr. Knight, Apple Seven, Apple Eight, Apple Nine and their related advisory companies entered into settlement agreements with the SEC. Along with Apple Seven, Apple Eight, Apple Nine and their advisory companies, and without admitting or denying the SEC’s allegations, Mr. Knight consented to the entry of an administrative order, under which Mr. Knight and the noted companies each agreed to cease and desist from committing or causing any violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), 14(a), and 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rules 12b-20, 13a-1, 13a-13, 13a-14, 14a-9, and 16a-3 thereunder.

 

Glade M. Knight is the father of Justin G. Knight, the Company’s Chief Executive Officer, and Nelson G. Knight, the Company’s President, Real Estate and Investments.

 

 

 

 

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Justin G. Knight

 

Director Since: 2015

Chief Executive Officer 

 

Age: 48

 

 

 

Committees:

 

     Executive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Experience (1)

 

 

 

Mr. Knight has served as Chief Executive Officer of the Company since May 2014 and served as President of the Company from its inception through March 2020. Mr. Knight also served as President of each of the Apple REIT Companies, except Apple Suites, until they were sold to a third party or merged with the Company, as described in Note 1 below. Mr. Knight joined the Apple REIT Companies in 2000 and held various senior management positions prior to his appointment as President. Mr. Knight currently serves on the Marriott Owners Advisory Council, as President of the Residence Inn Association Board, and as Chair of the Board of Directors of the American Hotel & Lodging Association and a member of its Executive Committee. Mr. Knight is also a member of the National Advisory Council of the Marriott School at Brigham Young University, Provo, Utah. Mr. Knight holds a Master of Business Administration degree with an emphasis in Corporate Strategy and Finance from the Marriott School at Brigham Young University. He also holds a Bachelor of Arts degree, Cum Laude, in Political Science from Brigham Young University. The Board of Directors believes his extensive executive experience and REIT industry, hotel industry, strategic planning, investment, finance and management experience provide him with the skills and qualifications to serve as a director.

 

Justin G. Knight is the son of Glade M. Knight, the Company’s Executive Chairman, and the brother of Nelson G. Knight, the Company’s President, Real Estate and Investments.

 

 

 

 

 

 

 

 

 

 

 

Blythe J. McGarvie

 

Director Since: 2018

 

 

Age: 65

 

 

 

Committees:

 

     Nominating and Corporate Governance (Chair)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Experience

 

 

 

Ms. McGarvie was a member of the faculty of Harvard Business School, teaching in the accounting and management department from July 2012 to June 2014. Ms. McGarvie served as Chief Executive Officer and Founder of Leadership for International Finance, LLC, an advisory firm offering consulting services and providing leadership seminars, from 2003 to 2012, where she offered strategic reviews and leadership seminars for improved decision-making for corporate and academic groups. From 1999 to 2002, Ms. McGarvie was the Executive Vice President and Chief Financial Officer of BIC Group, a publicly traded consumer goods company with operations in 36 countries. Prior to that, Ms. McGarvie served as Senior Vice President and Chief Financial Officer of Hannaford Bros. Co., a Fortune 500 retailer. Ms. McGarvie currently serves on the boards of directors of LKQ Corporation (“LKQ”), Sonoco Products Company (“Sonoco”) and Wawa, Inc., and previously served on the boards of directors of Accenture plc, Viacom Inc., Pepsi Bottling Group, Inc., The Travelers Companies, Inc. and Lafarge North America. She serves as chair of the LKQ Audit Committee and a member of its Governance/ Nominating Committee and as chair of the Financial Policy Committee and a member of the Audit Committee and Employee and Public Responsibility Committee for Sonoco. Ms. McGarvie is a Certified Public Accountant and holds a Bachelor of Arts degree in Economics from Northwestern University, Evanston, Illinois, and a Master of Business Administration from Northwestern University’s J.L. Kellogg Graduate School of Management. The Board of Directors believes her extensive experience serving on a wide range of boards, as well as her strong finance and accounting background and entrepreneurial success provide her with the skills and qualifications to serve as a director.

 

 

 

 

 


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Daryl A. Nickel

 

Director Since: 2015

 

 

Age: 77

 

 

Committees:

 

     Compensation

     Executive

     Nominating and Corporate Governance

 

 

 

 

 

 

Business Experience

 

 

 

Mr. Nickel completed a 22-year career at Marriott International, Inc., a multinational hospitality company, in 2009. He served as a corporate officer of Marriott International from 1998 until his retirement and as Executive Vice President, Lodging Development, Select Service and Extended Stay Brands from 2001 until his retirement. After retiring from Marriott, Mr. Nickel continued to serve on the advisory board of the Hunter Hotel Investment Conference until 2021 and worked as a consultant to several hotel companies, including Apple Fund Management, LLC (currently a Company subsidiary) from 2009 to 2010 and White Peterman Properties, Inc., a hotel development company, from 2011 to 2021. Before joining Marriott, Mr. Nickel was Senior Vice President in charge of franchise development at the Residence Inn Company, prior to its acquisition by Marriott. While in private practice, Mr. Nickel was managing partner of a D.C. law firm and his practice included representation of several hotel companies. Mr. Nickel graduated from Georgetown Law School and earned his Bachelor of Arts degree from Washburn University. Between college and law school, Mr. Nickel served in the U.S. Navy. The Board of Directors believes his executive management positions in the lodging industry and his hotel development and consulting experience provide him with the skills and qualifications to serve as a director.

 


 

 

 

 

 

 

 

 

 

 

 

L. Hugh Redd

 

Director Since: 2015

 

 

Age: 64

 

 

Committees:

 

     Audit (Chair)

     Compensation

 

 

 

 

 

 

 

 

 

Business Experience

 

 

 

Mr. Redd was the Senior Vice President and Chief Financial Officer of General Dynamics Corporation, an aerospace and defense company, until December 2013. He had worked for General Dynamics Corporation since 1986, serving as a Senior Financial Analyst and also as Vice President and Controller of General Dynamics Land Systems in Sterling Heights, Michigan. He received a Bachelor of Science degree in Accounting from Brigham Young University and a Master in Professional Accounting degree from the University of Texas. He is also a Certified Public Accountant. Mr. Redd currently serves as Chairman of the Board of Trustees for Southern Virginia University in Buena Vista, Virginia. The Board of Directors believes his extensive financial and accounting experience, as well as his public company management experience, provide him with the skills and qualifications to serve as a director.

 

 


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Howard E. Woolley

 

Director Since: 2021

 

 

Age: 64

 

 

Committees:

 

     Nominating and Corporate Governance

 

 

 

 

 

 

 

 

 

Business Experience

 

 

 

Mr. Woolley has served as President of Howard Woolley Group, LLC, a government relations, public policy and regulatory risk advisory firm serving large technology and wireless industry corporations, since 2015. His firm has also provided diversity, equity, and inclusion advice to clients. Prior to founding Howard Woolley Group, LLC, Mr. Woolley served as Senior Vice President Wireless Policy and Strategic Alliances for Verizon Communications Inc. (“Verizon”). During his tenure at Verizon, Mr. Woolley led the federal and state government relations for Verizon Wireless which contributed to the company’s growth and expansion. He advised all CEOs of Verizon Wireless on public policy from the company’s founding in 2000 until his retirement in 2013. From 1981 until 1993, Mr. Woolley served in various congressional affairs and regulatory public policy positions ultimately rising to the position of Vice President, Regulatory Affairs, with the National Association of Broadcasters. Mr. Woolley currently serves as the Lead Director on the Board of Directors for Somos, Inc., a telecommunications registry management and data solutions company, and serves on the Compensation Committee and Nominating and Governance Committee of such board. Mr. Woolley also serves on the Allianz Life Insurance Company of North America Board of Directors where he is a member of the Audit Committee and the Nomination, Evaluation and Compensation Committee. Mr. Woolley serves on the Board of Trustees for Johns Hopkins University and the Board of Trustees for Johns Hopkins Medicine and the Executive Committee of such board, and co-chairs the Johns Hopkins University and Medicine External Affairs and Community Engagement Committee. Mr. Woolley is on the Board of Trustees for Syracuse University and serves on the Audit and Risk Committee and Academic Affairs Committee for such board. Beginning in 2010, Mr. Woolley served on the boards of leading civil rights organizations including the National Urban League. Mr. Woolley holds a Bachelor of Science degree from the S.I. Newhouse School of Public Communications at Syracuse University and a Master of Administrative Sciences degree in business from Johns Hopkins University. Mr. Woolley is a National Association of Corporate Directors Governance Fellow. The Board of Directors believes his extensive leadership and governance experience, as well as his experience in public policy, regulatory and government affairs, provide him with the skills and qualifications to serve as a director.

 

 

(1)

Below are the “Apple REIT Companies” that were sold to a third party or merged with the Company. All of the Apple REIT Companies, founded by Glade M. Knight, were REITs with ownership of primarily rooms-focused hotels.

 

 Company

 

Formation Date

 

 Sale/Merger Description

Apple Suites, Inc. (“Apple Suites”)

 

1999

 

Merged with Apple Hospitality Two, Inc. in January 2003

Apple Hospitality Two, Inc. (“Apple Two”)

 

2001

 

Sold to an affiliate of ING Clarion in May 2007

Apple Hospitality Five, Inc. (“Apple Five”)

 

2002

 

Sold to Inland American Real Estate Trust, Inc. in October 2007

Apple REIT Six, Inc. (“Apple Six”)

 

2004

 

Sold to an affiliate of Blackstone Real Estate Partners VII in May 2013

Apple REIT Seven, Inc. (“Apple Seven”)

 

2005

 

Merged with the Company in March 2014

Apple REIT Eight, Inc. (“Apple Eight”)

 

2007

 

Merged with the Company in March 2014

Apple REIT Nine, Inc. (“Apple Nine”)

 

2007

 

Original name of the Company. Name changed to Apple Hospitality REIT, Inc. in March 2014

Apple REIT Ten, Inc. (“Apple Ten”)

 

2010

 

Merged with the Company in September 2016

 

 


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Proposal 2. Advisory Vote On Executive Compensation Paid by the Company

In accordance with Section 14A of the Exchange Act, the Company is providing its shareholders with the opportunity to approve, on a non-binding, advisory basis, the compensation paid to the Company’s named executive officers as disclosed in this proxy statement. The Board of Directors has adopted a policy, which shareholders approved by a non-binding advisory vote, of providing for an annual “say-on-pay” advisory vote. The Company encourages shareholders to read the disclosure under “Compensation Discussion and Analysis” for more information concerning the Company’s compensation philosophy, programs and practices, the compensation and governance-related actions taken in fiscal year 2021 and the compensation paid to the named executive officers.

Accordingly, the Company is asking you to approve the adoption of the following resolution:

RESOLVED: That the shareholders of the Company approve, on a non-binding, advisory basis, the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion in the proxy statement.

The affirmative vote of a majority of the votes cast will be necessary to approve this proposal. Abstentions and broker non-votes will have no effect on the outcome of this proposal. The shareholder vote on this proposal is advisory and non-binding and serves only as a recommendation to the Board of Directors. Although the vote is non-binding, the Compensation Committee and the Board of Directors value the opinions of shareholders and will consider the outcome of the vote when making future compensation decisions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ABOVE PROPOSAL.

 


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Proposal 3. Ratification of the Appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm

The firm of Ernst & Young LLP served as the independent registered public accounting firm for the Company in 2021. A representative of Ernst & Young LLP is expected to be present at the Annual Meeting. The representative will have an opportunity to make a statement if he or she so desires and will be available to answer appropriate questions from shareholders. The Board of Directors has approved the retention of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2022, based on the recommendation of the Audit Committee. Independent accounting fees for the last two fiscal years are shown in the table below:

 

Year

 

Audit Fees

 

Audit-Related Fees

 

Tax Fees

 

All Other Fees

2021

 

 

$

946,900

 

 

 

 

 

 

 

 

 

$

477,150

 

 

 

 

 

 

 

2020

 

 

$

894,300

 

 

 

 

 

 

 

 

 

$

380,000

 

 

 

 

 

 

 

 

All services rendered by Ernst & Young LLP are permissible under applicable laws and regulations, and the annual audit of the Company was pre-approved by the Audit Committee, as required by applicable law. The nature of each of the services categorized in the preceding table is described below:

Audit Fees. These are fees for professional services rendered for the audit of the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K, reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q, or services normally provided by the independent auditor in connection with statutory or regulatory filings or engagements, and other accounting and financial reporting work necessary to comply with the standards of the Public Company Accounting Oversight Board (“PCAOB”) and fees for services that only the Company’s independent auditor can reasonably provide.

Audit-Related Fees. These are fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements. Such services include accounting consultations, internal control reviews, audits in connection with acquisitions, attest services related to financial reporting that are not required by statute or regulation and required agreed-upon procedure engagements.

Tax Fees. Such services include tax compliance, tax advice and tax planning.

All Other Fees. These are fees for other permissible work that does not meet the above category descriptions.  Such services include information technology and technical assistance provided to the Company. Generally, this category would include permitted corporate finance assistance, advisory services and licenses to technical accounting research software.

These accounting services are actively monitored (as to both spending level and work content) by the Audit Committee to maintain the appropriate objectivity and independence in the core area of accounting work performed by Ernst & Young LLP, which is the audit of the Company’s consolidated financial statements.

Pre-Approval Policy for Audit and Non-Audit Services. In accordance with the Sarbanes-Oxley Act of 2002, all audit and non-audit services provided to the Company by its independent auditors must be pre-approved by the Audit Committee. As authorized by that act, the Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve up to $25,000 in audit and non-audit services. This authority may be exercised when the Audit Committee is not in session. Any decisions by the Chair of the Audit Committee under this delegated authority will be reported at the next meeting of the Audit Committee. All services reported in the preceding fee table for fiscal years 2020 and 2021 were pre-approved by the full Audit Committee, as required by then applicable law.

The Company is asking you to vote on the adoption of the following resolution:

RESOLVED: That the shareholders of the Company ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022.

The affirmative vote of a majority of the votes cast will be necessary to approve this proposal. Abstentions will have no effect on the outcome of this proposal. The shareholder vote on this proposal is advisory and non-binding and serves only as a recommendation to the Board of Directors. If the shareholders do not ratify the appointment of Ernst & Young LLP by the affirmative vote of a majority of the votes cast at the meeting, the Audit Committee will reconsider whether or not to retain Ernst & Young LLP.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ABOVE PROPOSAL.

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Corporate Responsibility Overview

The Company has always worked to uphold high environmental, social and governance standards. Alignment with the best interests of the Company’s shareholders is at the forefront of Apple Hospitality’s values. Apple Hospitality is committed to maintaining strong governance practices that align with the best interests of its shareholders, minimizing the environmental impact of the Company and its hotels, and making a positive impact throughout the Company, the hospitality industry, local communities and the many communities served by the Company’s hotels. Together with brand affiliates, hotel management teams and industry colleagues, Apple Hospitality is focused on advancing sustainability initiatives that effectively balance environmental stewardship with the Company’s business goals, improving communities through thoughtful outreach programs, and promoting diversity, equity and inclusion.

The Company remains focused on enhancing its Corporate Responsibility disclosures to provide stakeholders with a better understanding of the Company’s policies, programs, procedures and initiatives related to environmental stewardship, social responsibility and corporate governance. In 2020, the Company formally adopted the following policies:

 

an Environmental Policy;

 

a Health, Safety and Well-Being Policy;

 

a Human Rights Policy; and

 

a Vendor Code of Conduct.

All of the above policies are available within the Corporate Responsibility section of the Company's website at https://applehospitalityreit.com/corporate-responsibility/. Apple Hospitality’s policies are supported by the Board of Directors, and the Nominating and Corporate Governance Committee reviews the Company’s policies, programs and practices related to corporate responsibility and sustainability, including environmental, social, human capital and other matters. The Company’s senior management team is responsible for providing oversight over policy enforcement and updating the Company’s Board of Directors on implementation efforts. The Company commits to reporting publicly to its stakeholders on its progress and to considering stakeholder feedback to support the ongoing evolution of programs and strategies in support of the Company’s policies. The Company’s Environmental, Social and Governance (“ESG”) Advisory Committee is comprised of key Company leaders and is responsible for overseeing the Company’s ESG policies, initiatives and disclosures. The Company’s Chief Financial Officer serves as the executive sponsor for the ESG Advisory Committee.

The Company is working towards the publication of a Corporate Responsibility Report that it expects to publish later in 2022 that will convey its corporate responsibility strategy and priorities in detail, including the Company’s responsible investments, sustainability initiatives, environmental stewardship, social impact initiatives, community outreach and governance practices, including various metrics. To further advance the Company’s environmental, social and governance initiatives and standards, the Company is actively working towards the establishment of environmental stewardship and social responsibility targets.


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Corporate Governance Practices

Below are some highlights of the Company’s corporate governance practices.

 

 

Practice

Description

 

 

Annual director elections with majority vote requirements

An incumbent director not receiving the majority of the votes cast in an election must tender his or her resignation from the Board

 

 

Independent directors

All members of the Audit, Compensation, and Nominating and Corporate Governance Committees are independent directors who have access to management and employees

 

 

Board independence

     Six out of nine of the Company’s directors are independent

     Executive Chairman of the Board and Chief Executive Officer are the only employee directors

 

 

Board diversity

Two out of nine directors are female and one is racially diverse

 

 

Lead independent director

Lead Independent Director is designated by independent directors, maintains expansive duties intended to optimize the Board’s effectiveness and independence, including serving as a liaison to facilitate communications between management and shareholders and the Board

 

 

Separation in leadership structure 

Executive Chairman of the Board and Chief Executive Officer are separate individuals

 

 

Board self-evaluations

Nominating and Corporate Governance Committee oversees an annual self-evaluation of the Board and each committee

 

 

Succession planning

The Board actively monitors the Company’s succession planning and employee development and receives regular updates on employee engagement, retention and diversity

 

 

Director stock ownership

Directors are required to own securities of the Company with a value of at least 4 times their annual base cash retainer

 

 

Executive stock ownership

Executive officers are required to own securities of the Company with a value of at least 5 times (Chief Executive Officer) and 3 times (other executive officers) their annual base salary

 

 

Anti-hedging policy

The Company’s Insider Trading Policy prohibits directors and employees from engaging in any hedging of Company securities

 

 

Code of business conduct and ethics

The Company has a Code of Business Conduct and Ethics that serves as the foundation for how it conducts its business

 

 

Incentive-based compensation

77% of 2021 target compensation for executive officers is incentive-based (50% based on shareholder return metrics and 50% based on operational performance metrics)

 

 

Elimination of certain takeover defenses

     The Company opted out of the Virginia Stock Corporation Act provisions requiring super majority vote for specified transactions with interested shareholders

     The Company has elected, pursuant to a provision in its bylaws, to exempt any acquisition of its shares from the control share acquisition provisions of the Virginia Stock Corporation Act

 

 

Accountability to shareholders

     Annual advisory vote on executive compensation

     No shareholder rights plan

     Continual shareholder outreach, communication and engagement

 

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Sustainability Initiatives

 

The Company established a formal energy management program in 2018 and adopted a formal Environmental Policy in 2020 to ensure that energy efficiency, water conservation and waste management are a priority not only within the Company, but also with the Company’s third-party management companies and brands. As noted previously, the Company is working towards the publication of a Corporate Responsibility Report in 2022, including, as they relate to environmental matters, the Company’s responsible investments, sustainability initiatives and environmental stewardship. To further advance the Company’s sustainability initiatives and standards, the Company is working towards the establishment of reduction targets for its primary environmental impacts.

 

Due to their efficient operating model and strong consumer preference, the Company is primarily invested in rooms-focused hotels. In addition to being more operationally efficient, rooms-focused hotels are more environmentally efficient than full-service hotels and resorts and use less electricity, water and natural gas on a per-square-foot basis. In addition to its overall strategy of investing in rooms-focused hotels, the Company is committed to identifying and incorporating sustainability opportunities into its investment and asset management strategies, with a focus on minimizing its environmental impact through reductions in energy and water consumption and improvements in waste management. The Company’s hotels are concentrated in the Marriott, Hilton and Hyatt brand families. In addition to the initiatives the Company implements at its hotels through its asset management strategies, the Company also works with its third-party management companies to leverage brand initiatives to further drive sustainability across its hotels.

 

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. For example, the Company has realized cost savings and reductions in its carbon footprint through the installation of LED lighting, energy management systems, smart irrigation systems and the use of energy and water conservation guidelines at the property level, with 100% of the Company’s portfolio enrolled in the U.S. Environmental Protection Agency’s ENERGY STAR® program. Additionally, as part of the Company’s acquisition due diligence, the Company performs sustainability assessments to identify areas of opportunity that will improve the property’s environmental performance, and when working with developers to construct new hotels, strives to implement environmentally efficient construction and building functionality. For example, in 2020, the Company acquired a newly constructed Hyatt House and Hyatt Place in Tempe, Arizona, that are LEED Certified®. In 2021, the Company acquired a Hampton Inn & Suites in Portland, Oregon that was constructed with a green roof system. Additional information related to the Company’s sustainability initiatives can be found on the Company’s website at https://applehospitalityreit.com/sustainability/. Information on or accessible through the Company’s website is not and should not be considered part of this proxy statement.

 

Social Responsibility

 

Apple Hospitality is dedicated to making a positive impact throughout the Company, local communities, the hospitality industry and the many communities served by the Company’s hotels. The safety, health and well-being of guests, hotel associates and employees has always been the Company’s top priority, and since the onset of the COVID-19 pandemic, the Company has worked diligently to implement enhanced safety and cleanliness protocols at all of its hotels and its corporate office. In 2020, Apple Hospitality formally adopted a Health, Safety and Well-Being Policy, a Human Rights Policy and a Vendor Code of Conduct to further drive positive social impact. Additional information related to the Company’s social responsibility initiatives can be found on the Company’s website at https://applehospitalityreit.com/social-responsibility/. Information on or accessible through the Company’s website is not and should not be considered part of this proxy statement. As noted above, the Company is working towards the publication of a Corporate Responsibility Report in 2022 that will convey its corporate responsibility strategy, priorities and metrics in detail, including, as they relate to social responsibility matters, the Company’s social impact initiatives and community outreach. The Company is actively working towards the establishment of targets that will further advance the Company’s social responsibility initiatives and standards.

The Company is committed to strengthening its communities through charitable giving, encouraging employees to volunteer their time and talents, and participation in the many philanthropic programs important to its employees and leaders within its industry, including its brands, the American Hotel & Lodging Association and its third-party hotel management companies. In 2017, the Company formed Apple Gives, an employee-led charitable organization, to expand its impact and further advance the achievement of the Company’s corporate philanthropic goals. 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. Apple Gives strives to select organizations that are important to the Company’s employees, the Company’s third-party management

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companies, its hotels and numerous industry organizations. Since Apple Gives was formed, the Company has contributed to more than 100 non-profit organizations, including through company-matched donations, and employees have devoted more than 550 hours volunteering and fundraising for a variety of charitable organizations. The Company’s hotels and third-party management companies are engaged in targeted charitable programs that provide support to their respective communities, and hotel associates are encouraged to serve in ways that improve their localities. The Company’s third-party management colleagues donate to food drives, participate in charity walks and bike rides, assemble care packages, donate school supplies, provide disaster relief, and pursue numerous other altruistic initiatives.

 

 

550+ Hours

Volunteered by the Company’s Employees 

100+ Non-Profit Organizations

Helped by the Company 

Human Capital

 

The Company believes that each of its team members plays a vital role in the success of the organization. Management aims to provide an inspiring, equitable and inclusive work environment where employees feel valued, empowered and encouraged to make positive differences within the Company and throughout their communities, with a belief that the most successful management provides clear leadership while empowering the team to make timely and responsible decisions and to take actions necessary to achieve exceptional operating results.

 

The Company is committed to diversity, equity and inclusion and does not tolerate discrimination or harassment in the workplace. The Company’s executive team, comprising eight individuals, is 50% female.

 

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 focused on the prevention of discrimination and harassment in the workplace, including unconscious bias;

 

the Company’s CEO, Justin G. Knight, took the CEO Action for Diversity & Inclusion™ pledge, which is the largest CEO-driven business commitment to advance diversity and inclusion in the workplace; and

 

the recruitment of a diverse pool of candidates for all job vacancies. 

 

The Company offers competitive compensation and benefits, a flexible leave policy, fully paid parental leave, an education reimbursement program, and a culture that encourages balance of work and personal life. The Company provides its employees with two days paid leave each year for volunteer work and donation matching to support non-profit organizations. The Company emphasizes an open-door policy for communications and conducts annual employee satisfaction surveys, 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, and in compliance with applicable Occupational Safety and Health Act standards.

 

All employees involved in the day-to-day operation of the Company’s hotels are employed by third-party management companies engaged pursuant to the hotel management agreements. Apple Hospitality is committed to the health, safety, security and well-being of hotel associates and guests and is proud to support the initiatives of the

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American Hotel & Lodging Association (AHLA), including: the 5-Star Promise; Safe Stay initiative; No Room for Trafficking program; and career development opportunities. The Company’s CEO serves as the chair of the AHLA 2022 Board of Directors.

 

Corporate Governance, Risk Oversight and Procedures for Shareholder Communications

Board of Directors. The Company’s Board of Directors has determined that all of the Company’s directors (and nominees for director), except Mrs. Kristian M. Gathright, Mr. Glade M. Knight and Mr. Justin G. Knight, are “independent” within the meaning of the rules of the New York Stock Exchange (“NYSE”). In making this determination, the Board considered all relationships between the applicable director and the Company, including commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. Although retired from the Company, due to her previous employment by the Company, Mrs. Gathright will not be considered independent under the NYSE rules until at least three years have elapsed since her retirement date of March 31, 2020.

The Board has adopted a categorical standard that a director is not independent (a) if he or she receives any personal financial benefit from, on account of or in connection with a relationship between the Company and the director (excluding directors’ fees and equity-based awards); (b) if he or she is a partner, officer, employee or managing member of an entity that has a business or professional relationship with, and that receives compensation from, the Company; or (c) if he or she is a non-managing member or shareholder of such an entity and owns 10% or more of the membership interests or common stock of that entity. The Board may determine that a director with a business or other relationship that does not fit within the categorical standard described in the immediately preceding sentence is independent, but in that event, the Board is required to disclose the basis for its determination in the Company’s then current annual proxy statement.  

In order to optimize the effectiveness and independence of the Board, the independent directors have designated an independent, non-employee director to serve as the Company’s Lead Independent Director, which currently is held by Jon Fosheim. See “Committees of the Board and Board Leadership.”

Code of Ethics. The Board has adopted a Code of Business Conduct and Ethics for the Company’s officers, directors and employees, which is available at the Company’s website, www.applehospitalityreit.com. The purpose of the Code of Business Conduct and Ethics is to promote (a) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest; (b) full, fair, accurate, timely and understandable disclosure in periodic reports required to be filed by the Company; and (c) compliance with all applicable rules and regulations that apply to the Company and its officers, directors and employees. Any waiver of the Code of Business Conduct and Ethics for the Company’s executive officers or Board may be made only by the Board or one of the Board’s committees. The Company anticipates that any waivers of the Code of Business Conduct and Ethics will be posted on the Company’s website.

Corporate Governance Guidelines. The Board has adopted Corporate Governance Guidelines that set forth the guidelines and principles for the conduct of the Board of Directors, which is available at the Company’s website, www.applehospitalityreit.com. The Corporate Governance Guidelines reflect the Board of Directors’ commitment to monitoring the effectiveness of decision-making at the Board and management level and ensuring adherence to good corporate governance principles, all with a goal of enhancing shareholder value over the long term.

Risk Oversight. The Board believes that risk oversight is a key function of a Board of Directors. It administers its oversight responsibilities through its Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee. All members of each of these committees are independent directors. The entire Board is kept abreast of and involved in the Company’s risk oversight process. It is through the approval of officers and compensation plans, as well as management updates on property performance, industry performance, financing strategy, acquisitions and dispositions strategy and capital improvements, that the Board has input to manage the Company’s various risks. Additionally, through the Audit Committee, the Board reviews management’s and independent auditors’ reports on the Company’s internal controls and any associated potential risks of fraudulent activities as well as risks related to cyber security. Through the Nominating and Corporate Governance Committee, the Board reviews the Company’s Corporate Governance Guidelines and related risks, as well as the Company’s policies, programs and practices related to corporate responsibility and sustainability, including environmental and related risks, social, human capital and other matters. Through the Compensation Committee, the Board oversees risk related to compensation practices with the objective of balancing risk/rewards to overall business strategy, including the Company’s corporate responsibility initiatives. Risk oversight is also one of the factors considered by the Board in establishing its leadership structure. The Company has separated the roles of Executive Chairman and Chief Executive Officer to create a leadership structure that the Board believes strikes the appropriate balance between the authority of those who oversee the Company and

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those who manage it on a day-to-day basis and also has a Lead Independent Director to optimize the effectiveness and independence of the Board.

Shareholder Communications. The Company and the Board value the views and opinions of the Company’s shareholders and believe strong corporate governance practices demand consistent outreach, effective communication and regular engagement with shareholders. Regular shareholder engagement better positions the Company to: understand which issues are most important to its shareholders and provide relevant information; provide transparency related to its business, operations, strategies, governance and compensation; recognize expectations for future performance; identify emerging issues that may affect its business, operations, strategies, governance or compensation; and obtain valuable feedback of its business and the lodging industry in general. The Company’s shareholder and investor interaction includes industry conferences, analyst meetings, investor road shows and individual meetings, both in person and virtually. The Company also provides information to stakeholders through its website, quarterly earnings calls, SEC filings, proxy statement, news releases, investor presentations and other communication channels. Shareholders and other interested parties may send communications to the Board or to specified individual directors. Any such communications should be directed to the attention of the Lead Independent Director at Apple Hospitality REIT, Inc., 814 East Main Street, Richmond, Virginia 23219. The Lead Independent Director will decide what action should be taken with respect to the communication, including whether such communication should be reported to the full Board.

Share Ownership Guidelines. The Board believes that equity ownership by directors and executive officers will align their interests with shareholders’ interests. To that end, the Company has adopted formal share ownership guidelines, included in the Company’s Corporate Governance Guidelines, applicable to all of its directors and executive officers. On an annual basis, the Company evaluates the ownership status of the directors and executive officers. Directors and executive officers are required to own securities of the Company with a value equal to the following multiple of their annual base cash retainer (for directors) or their annual base salary (for executive officers):

 

Directors

4x

Chief Executive Officer

5x

Other executive officers

3x

 

New directors and the Chief Executive Officer are required to comply with the ownership requirements within two years of becoming a member of the Board or Chief Executive Officer and other new executive officers are required to comply with the ownership requirements by January 1st of the year following the fourth anniversary of being named an executive officer. In February 2022, the Board increased the share ownership requirement applicable to directors from two times the annual base cash retainer to four times the annual base cash retainer with a transition period of two years. All current directors and executive officers have either met the equity ownership levels of the guidelines or are within the applicable transition period.

The Nominating and Corporate Governance Committee may waive the stock ownership requirements in the event of financial hardship or other good cause.

Hedging and Pledging of Company Securities. The Company’s Insider Trading Policy prohibits directors and employees, including the executive officers, from hedging their ownership of the Company’s stock, including a prohibition on engaging in the following transactions: (i) trading in call or put options involving the Company’s securities and other derivative securities; (ii) engaging in short sales of the Company’s securities; (iii) holding the Company’s securities in a margin account; (iv) other hedging or monetization transactions related to the Company’s securities, including the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds; and (v) pledging more than 50% of the number of the Company’s securities held individually to secure margin or other loans.

Board Self-Evaluation. Pursuant to the Company’s Corporate Governance Guidelines and the charters of the Compensation, Audit and Nominating and Corporate Governance Committees of the Board of Directors, the Nominating and Corporate Governance Committee oversees the annual self-evaluation of the Board and each committee. The self-evaluation requires each director to complete a detailed questionnaire soliciting input on matters such as board structure and composition, committee structure, board and committee meeting conduct, board support, education, and board and committee performance. The Nominating and Corporate Governance Committee reports the assessments to the Board, and if the Board determines that changes in its governance practices need to be made, management and the Nominating and Corporate Governance Committee will work with the Board to implement the necessary changes. 

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Consideration of Director Nominees

Director Qualifications. The Company believes the Board should encompass a diverse range of talent, skill and expertise sufficient to provide sound and prudent guidance with respect to the Company’s operations and interests. Each director also is expected to exhibit high standards of integrity, practical and mature business judgment, including the ability to make independent analytical inquiries, and be willing to devote sufficient time to carrying out their duties and responsibilities effectively.

The Board has determined that the Board of Directors as a whole must have the right mix of characteristics and skills for the optimal functioning of the Board in its oversight of the Company. The Board believes it should be comprised of persons with skills in areas such as finance, real estate, investment, banking, strategic planning, human resources, leadership of business organizations, and legal matters. Although the Board does not have a diversity policy, the Board is committed to diversity and believes it is desirable for the Board to be composed of individuals who represent a mix of viewpoints, experiences and backgrounds, including racial, ethnic and gender diversity. The Board will continue to endeavor to ensure the qualified pool of new director candidates is diverse and includes women, individuals from minority groups and underrepresented communities. In addition to the targeted skill areas, the Board looks for a strong record of achievement in key knowledge areas that it believes are critical for directors to add value to the Board, including:

 

Strategy—knowledge of the Company’s business model, the formulation of corporate strategies, knowledge of key competitors and markets;

 

Leadership—skills in coaching and working with senior executives and the ability to assist the Chief Executive Officer;

 

Organizational Issues—understanding of strategy implementation, change management processes, group effectiveness and organizational design;

 

Relationships—understanding how to interact with investors, accountants, attorneys, management companies, analysts, and communities in which the Company operates;

 

Functional—understanding of finance matters, financial statements and auditing procedures, technical expertise, legal issues, information technology and marketing; and

 

Ethics—the ability to identify and raise key ethical issues concerning the activities of the Company and senior management as they affect the business community and society.

Nomination Procedures. The Board has established a Nominating and Corporate Governance Committee that oversees the nomination process and recommends nominees to the Board. As outlined above, in selecting a qualified nominee, the Board considers such factors as it deems appropriate, which may include the current composition of the Board; the range of talents of the nominee that would best complement those already represented on the Board; the extent to which the nominee would diversify the Board; the nominee’s standards of integrity, commitment and independence of thought and judgment; and the need for specialized expertise. Applying these criteria, the Board considers candidates for Board membership suggested by its members, as well as management and shareholders. Shareholders of record may nominate directors in accordance with the Company’s bylaws which require, among other items, notice sent to the Company’s Secretary not less than 60 days prior to a shareholder meeting that will include the election of Board members. No nominations other than those proposed by the Nominating and Corporate Governance Committee were received for the Annual Meeting.

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Committees of the Board and Board Leadership

Summary. The Board of Directors has four standing committees, which are specified below. The following table shows each committee’s function, membership and the number of meetings held during 2021:

 

Committee

 

Responsibilities

 

Members

 

Number of

Meetings During

2021

Executive

 

Has all powers vested in the Board of Directors, except powers specifically withheld under the Company’s bylaws or by law.

 

Glade M. Knight(1)

Glenn W. Bunting

Jon A. Fosheim

Justin G. Knight

Daryl A. Nickel

 

0

Audit

 

Responsibilities are outlined in its written charter that is available at the Company’s website, www.applehospitalityreit.com, and include oversight responsibility relating to the integrity of the Company’s consolidated financial statements and financial reporting processes. The audit committee also oversees the Company’s overall risk profile and risk management policies to include those related to cyber security. A report by the Audit Committee appears in a following section of this proxy statement.

 

L. Hugh Redd(1)(2)

Glenn W. Bunting

Jon A. Fosheim(2)

 

5

Compensation

 

Responsibilities are outlined in its written charter that is available at the Company’s website, www.applehospitalityreit.com, and include administration of the Company’s compensation and incentive plans for the Company’s executive officers and oversight of the Company’s compensation practices.

 

Glenn W. Bunting(1)

Daryl A. Nickel

L. Hugh Redd

 

3

Nominating and Corporate Governance

 

Responsibilities are outlined in its written charter that is available at the Company’s website, www.applehospitalityreit.com, and include oversight of all aspects of the Company’s corporate governance, director compensation, and nominations process for the Board of Directors and its committees. The Nominating and Corporate Governance Committee also reviews the Company’s policies, programs and practices related to corporate responsibility and sustainability, including environmental and related risks, social, human capital and other matters.

 

Blythe J. McGarvie(1)

Jon A. Fosheim

Daryl A. Nickel

Howard E. Woolley

 

5

 

(1)

Indicates the Committee Chair.

(2)

Indicates Audit Committee Financial Expert.

Board Leadership.  The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide independent oversight of management. The Board understands that there is no single generally accepted approach to providing Board leadership and the right Board leadership structure may vary as circumstances warrant. Consistent with this understanding, the independent directors periodically consider the Board’s leadership structure. Currently, the roles of Executive Chairman and Chief Executive Officer are held by different directors. Mr. Glade M. Knight serves as Executive Chairman and Mr. Justin G. Knight serves as Chief Executive Officer. The Board believes that this structure provides the appropriate balance between the authority of those who oversee the Company and those who manage it on a day-to-day basis. The Executive Chairman of the Board

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presides at all meetings of the shareholders and of the Board as a whole. The Executive Chairman performs such other duties, and exercises such powers, as from time to time shall be prescribed in the bylaws or by the Board.

Additionally, the Board has appointed Mr. Jon A. Fosheim to serve as Lead Independent Director. The Lead Independent Director’s responsibilities include, among other things, presiding at meetings or executive sessions of the independent directors and non-employee directors, serving as a liaison to facilitate communications between the Executive Chairman, the Chief Executive Officer and other members of the Board, without inhibiting direct communications between and among such persons, and serving as a liaison to shareholders who request direct communications and consultations with the Board.

Audit Committee Independence. The Board of Directors has determined that each current member of the Audit Committee is “independent” as defined in the listing standards of the NYSE. To be considered independent, a member of the Audit Committee must not (other than in his or her capacity as a director or committee member, and subject to certain other limited exceptions) either (a) accept directly or indirectly any consulting, advisory, or other compensatory fee from the Company or any subsidiary; or (b) be an affiliate of the Company or any subsidiary. The Audit Committee currently has two members, Mr. Jon A. Fosheim and Mr. L. Hugh Redd, who are “financial experts” within the meaning of the regulations issued by the Securities and Exchange Commission. The Company’s management believes that the combined experience and capabilities of the Audit Committee members are sufficient for the current and anticipated operations and needs of the Company. In this regard, the Board has determined that each Audit Committee member is “financially literate” and that at least two members have “accounting or related financial management expertise,” as all such terms are defined by the rules of the NYSE.

Board Meetings, Attendance and Related Information. The Board held a total of three meetings during 2021 (including regularly scheduled and special meetings). It is the policy of the Company that directors should attend each annual meeting of shareholders. All directors at the time of the meeting attended the 2021 Annual Meeting. The Company also expects directors to attend each regularly scheduled and special meeting of the Board, but recognizes that, from time to time, other commitments may preclude full attendance. In 2021, each director attended at least 75% of the aggregate of (a) the total number of meetings of the Board of Directors that were held during the period in which he or she was a director, and (b) the total number of meetings held by all committees of the Board on which he or she served during the period in which he or she served.

Executive Sessions. The independent members of the Board of Directors meet independently of management and the non-independent directors in executive sessions on a regular basis, presided by the Lead Independent Director. During 2021, the independent members of the Board of Directors met four times.

2021 Compensation of Directors

The compensation of the directors is reviewed and approved annually by the Board of Directors. During 2021, the directors of the Company were compensated as follows:

Reimbursements to Directors in 2021. All directors were reimbursed by the Company for travel and other out-of-pocket expenses incurred by them to attend meetings of the directors and committee meetings and in conducting the business of the Company. 

Compensation of Non-Employee Directors. In 2021, the non-employee directors (classified by the Company as all directors other than Mr. Glade M. Knight and Mr. Justin G. Knight) were scheduled to receive the following compensation in quarterly installments:

 

Position Held

2021 Compensation

 

Board of Directors - Annual Retainer (payable in cash)

$

65,000

 

Board of Directors - Annual Retainer (payable in common shares)

 

100,000

 

Audit Committee Chair (in addition to fees for service on Disclosure Committee)

 

15,000

 

Compensation Committee Chair

 

10,000

 

Nomination and Corporate Governance Committee Chair

 

10,000

 

Lead Independent Director

 

10,000

 

In January 2022, the Nominating and Corporate Governance Committee engaged Ferguson Partners Consulting L.P. (“FPC”) to evaluate the independent directors’ compensation. Utilizing the same peer group as the report prepared for executive compensation discussed below under “Compensation Discussion and Analysis,” the annual retainer paid to the non-employee directors, was determined to be on the lower end of the peer group, ranking in the 25th percentile;

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separately it was found that the proportion of compensation paid in the form of equity was amongst the highest of the peer group, ranking in the top decile. After reviewing the report and considering FPC’s recommendations, the Nominating and Corporate Governance Committee recommended to the Board of Directors a change to the non-employee directors’ compensation to bring the compensation close to the median of the peer group. The Nominating and Corporate Governance Committee believes the change was important to continue to attract and retain superior board members. Upon review and discussion of the Nominating and Corporate Governance Committee’s recommendation, the Board of Directors approved the following non-employee director compensation effective beginning March 2022: (i) an annual retainer, calculated from March of the current year through February of the following year, of $185,000 ($115,000 paid in vested stock grants and $70,000 paid in cash) paid in quarterly installments, (ii) an annual retainer for the Chair of the Audit Committee of $20,000 (in addition to fees for service on the Company’s Disclosure Committee) paid in cash in quarterly installments, and (iii) an annual retainer for the Chair of the Compensation Committee, the Chair of the Nominating and Corporate Governance Committee and the Lead Independent Director of $15,000, each paid in cash in quarterly installments.  

Non-Employee Director Deferral Program. Effective June 1, 2018, the Board of Directors adopted the Non-Employee Director Deferral Program (the “Director Deferral Program”) under the Apple Hospitality REIT, Inc. 2014 Omnibus Incentive Plan (the “2014 Omnibus Incentive Plan”) for the purpose of providing non-employee members of the Board the opportunity to elect to defer receipt of all or a portion of the annual retainer payable to them for their service on the Board, including the portion of the annual retainer amounts payable in cash (including for service as a Chair of a committee of the Board or Lead Independent Director) and the portion of the annual retainer amounts payable in fully vested Common Shares. As specified by the director, the receipt of payment may be deferred until either (i) the date that his or her service on the Board has ended, (ii) a specified date, or (iii) the earlier of the specified date or the date that his or her service on the Board has ended. The deferred amounts will also be paid if, prior to the time specified by the director, the Company experiences a change in control or upon death of the director. For the portion of the director fees payable in shares, the director may elect to defer his or her fees in the form of deferred stock units, and for the portion of the director fees payable in cash, the director may elect to defer his or her fees either in the form of deferred stock units or as deferred cash fees.

Under the Director Deferral Program, the Company has established a notional deferral account (for bookkeeping purposes only) for each non-employee director who has elected to participate and all deferred fees are credited to this account, whether in cash or stock, as of the date the fee otherwise would have been paid to the director (the “Quarterly Deferral Date”). Deferred fees converted into deferred stock units are credited to the deferral account based on the fair market value of the Company’s Common Shares on the Quarterly Deferral Date. On each Quarterly Deferral Date, dividends earned on deferred stock units are credited to the deferral account in the form of additional deferred stock units based on dividends declared by the Company on its outstanding Common Shares during the quarter and the fair market value of the stock on such date. Additionally, on each Quarterly Deferral Date, deferred cash fees are credited with an additional deferred cash amount based on the dividends declared by the Company during the quarter on its outstanding Common Shares and the share equivalent, as defined in the Director Deferral Program, of the deferred cash balance from the preceding quarter. Upon the applicable payment date, as described above in the preceding paragraph, any deferred stock units credited to a director’s deferral account will be settled solely by delivering an amount of the Company’s Common Shares equal to the number of such deferred stock units, and, with respect to any deferred cash fees credited to the director’s deferral account, such fees will be paid solely in the form of cash. Directors have no rights as shareholders of the Company with respect to deferred stock units credited to their deferral accounts.

During 2021, three of the non-employee directors elected to participate in the Director Deferral Program by deferring all or a portion of their annual retainer fees in the form of deferred stock units and/or deferred cash fees.

Employee Directors.  Mr. Glade M. Knight and Mr. Justin G. Knight are employee directors of the Company and accordingly, during 2021, they received no compensation from the Company during their term of employment for their services as directors.

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Director Compensation. The following table shows the amounts earned in 2021 by the Company’s non-employee directors.

 

Director

 

Fees Earned or

Paid in Cash (1)

 

Share

Awards (2)

 

All Other

Compensation (3)

 

Total

 

Glenn W. Bunting

 

 

$

75,000

 

 

 

 

$

98,266

 

 

 

 

$

-

 

 

 

 

$

173,266

 

Jon A. Fosheim

 

 

 

75,000

 

 

 

 

 

98,266

 

 

 

 

 

901

 

 

 

 

 

174,167

 

Kristian M. Gathright

 

 

 

65,000

 

 

 

 

 

98,266

 

 

 

 

 

-

 

 

 

 

 

163,266

 

Blythe J. McGarvie

 

 

 

75,000

 

 

 

 

 

99,976

 

 

 

 

 

-

 

 

 

 

 

174,976

 

Daryl A. Nickel

 

 

 

65,000

 

 

 

 

 

98,266

 

 

 

 

 

973

 

 

 

 

 

164,239

 

L. Hugh Redd

 

 

 

84,000

 

 

 

 

 

98,266

 

 

 

 

 

578

 

 

 

 

 

182,844

 

Howard E. Woolley (4)

 

 

 

54,347

 

 

 

 

 

74,982

 

 

 

 

 

90

 

 

 

 

 

129,419

 

 

(1)

In addition to cash fees not deferred, the amounts in this column include any cash fees that non-employee directors elected to defer in the form of deferred stock units or deferred cash fees under the Director Deferral Program.

(2)

The amounts in this column reflect the grant date fair value determined in accordance with FASB ASC Topic 718. Ms. McGarvie was awarded 6,684, Mr. Bunting, Mr. Fosheim, Mrs. Gathright, Mr. Nickel and Mr. Redd were awarded 6,564 and Mr. Woolley, who became a member of the Board of Directors on March 1, 2021, was awarded 4,930 fully vested Common Shares (or deferred stock units if so elected). No share options were granted in 2021.

(3)

This column represents earnings on deferred stock unit and deferred cash fee accounts under the Director Deferral Program.

(4)

Howard E. Woolley became a member of the Board of Directors on March 1, 2021.

Outstanding Stock Option Awards. In 2008, the Company adopted the Apple REIT Nine, Inc. 2008 Non-Employee Directors Stock Option Plan (the “Directors’ Plan”). The Directors’ Plan provided for automatic grants of options to acquire Common Shares. The Directors’ Plan applied to directors of the Company who were not employees or executive officers of the Company. The Directors’ Plan was terminated effective upon the listing of the Company’s Common Shares on the NYSE on May 18, 2015 (the “Listing”). No further grants can be made under the Directors’ Plan, provided however, the termination did not affect any outstanding director option awards previously issued under the Directors’ Plan. Following the termination of the Directors’ Plan, all awards to directors are made under the 2014 Omnibus Incentive Plan.

See “Ownership of Certain Beneficial Owners and Management” for the number of outstanding options that were granted to Mr. Glenn W. Bunting under the Directors’ Plan, which are all fully vested, as of the Record Date. Since adoption of the Directors’ Plan, Mr. Bunting has not exercised any of his options to acquire Common Shares. The directors did not have any other outstanding option awards as of the Record Date.

Audit Committee Report

The Audit Committee of the Board of Directors is currently composed of three directors. All three directors are independent directors as defined under “Committees of the Board and Board Leadership—Audit Committee Independence.” The Audit Committee operates under a written charter that was adopted by the Board of Directors and is annually reassessed and updated, as needed, in accordance with applicable rules of the Securities and Exchange Commission. The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. In fulfilling its oversight duties, the Audit Committee reviewed and discussed the audited financial statements for fiscal year 2021 with management and the Company’s independent auditors, Ernst & Young LLP, including the quality and acceptability of the accounting principles, the reasonableness of significant judgments, any critical audit matters identified during the audit and the clarity of disclosure in the financial statements. The Audit Committee also reviewed management’s report on its assessment of the effectiveness of the Company’s internal control over financial reporting and Ernst & Young LLP’s report on the effectiveness of the Company’s internal control over financial reporting. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements, accounting and financial reporting principles, internal controls, and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Ernst & Young LLP is responsible for performing an independent audit of the consolidated financial statements and the notes thereto in accordance with generally accepted auditing standards.

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The Audit Committee also has discussed with the independent auditors the matters required to be discussed pursuant to the applicable requirements of the PCAOB and the Securities and Exchange Commission. Additionally, the Audit Committee has received the written disclosures and letter from the independent auditors required by the applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence and has discussed, with the independent auditors, the independent auditors’ independence.    

Based on the review and discussions described in this Report, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for filing with the Securities and Exchange Commission.

 

 

Current Members of the Audit Committee:

 

L. Hugh Redd, Chair

 

Glenn W. Bunting

 

Jon A. Fosheim

 

The Audit Committee Report above does not constitute “soliciting material” and will not be deemed “filed” or incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, that might incorporate SEC filings by reference, in whole or in part, notwithstanding anything to the contrary set forth in those filings.

Certain Relationships and Agreements

The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. The Company’s independent members of the Board of Directors are responsible for overseeing and reviewing 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. 

Mr. Glade M. Knight, the Company’s Executive Chairman, 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. Also, an entity controlled by Mr. Knight is currently a member of and Mr. Knight is Chief Executive Officer of Energy 11 GP, LLC and Energy Resources 12 GP, LLC, which are the respective general partners of Energy 11, L.P. and Energy Resources 12, L.P., each of which receive support services from ARG. As an executive officer of the Company, Mr. Knight’s total annual compensation in 2021, 2020 and 2019 was $1,445,716, $849,417 and $1,192,975 respectively, calculated in accordance with the determination of compensation in the Summary Compensation Table in the section titled “Executive Compensation—Summary Compensation Table” below.

Cost Sharing with Related Entities

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 2021 totaled approximately $0.8 million.

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, 2021, total amounts due from ARG for reimbursements under the cost sharing structure totaled approximately $0.3 million.

The Company, through its wholly-owned subsidiary, Apple Air Holding, LLC, owns a Learjet used primarily for acquisition, asset management, renovation and investor and public relations purposes. The aircraft is also leased to affiliates of the Company based on third party rates, which leasing activity was not significant during 2021. The

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Company also utilizes one aircraft, owned by an entity which is owned by the Company’s Executive Chairman, for acquisition, asset management, renovation and investor and public relations purposes, and reimburses the entity at third party rates. Total costs incurred for the use of the aircraft during 2021 were less than $0.1 million.

Executive Officers

Each executive officer is appointed annually by the Board of Directors. The following table sets forth biographical information regarding the Company’s executive officers, other than Mr. Glade M. Knight, Executive Chairman and Mr. Justin G. Knight, Chief Executive Officer, who also serve as directors and whose information is provided above in the section titled “Proposals to be Voted Upon—Proposal 1. Election of Directors”:

 

Name and Title

 

Business Experience (1)

Jeanette A. Clarke

Senior Vice President and Chief Capital Investments Officer

Age: 40

 

Ms. Clarke was appointed Senior Vice President and Chief Capital Investments Officer effective April 1, 2020. Ms. Clarke previously served as Senior Vice President of Capital Investments for the Company since March 2019 and has held various management and senior management positions with the Apple REIT Companies (as described in Note 1 below) since 2012. Ms. Clarke joined the Apple REIT Companies in 2008. Ms. Clarke has been instrumental in the development of the Company’s capital investments team, fostering valuable relationships with brand, manager and supplier teams, leading strategic capital reinvestment initiatives, and overseeing the Company’s energy efficiency and sustainability investment programs. Prior to joining the Apple REIT Companies, Ms. Clarke served as a Senior Financial Analyst at Genworth Financial, and from 2003 until 2008, she served in various roles at Circuit City Stores, Inc., including Accounting Manager of Expense, Service and Advertising Payables. Within the industry, Ms. Clarke serves on the Marriott Capital Asset Planning and Execution (CAPE) Board. Ms. Clarke holds a Master of Business Administration degree from Virginia Commonwealth University and a Bachelor of Science degree, Magna Cum Laude, in Business Administration with a concentration in Finance and minor in Economics from Longwood University.

 

Karen C. Gallagher

Senior Vice President and Chief Operating Officer

Age: 45

 

Ms. Gallagher was appointed Senior Vice President and Chief Operating Officer effective April 1, 2020. Ms. Gallagher previously served as Senior Vice President of Asset Management for the Company since January 2012 and has held various management and senior management positions with the Apple REIT Companies (as described in Note 1 below) since 2005. Ms. Gallagher joined the Apple REIT Companies in 2003. Ms. Gallagher’s leadership of the asset management team has been instrumental in fostering relationships with brand and management company teams and developing the Company’s analytical and benchmarking of property-level performance methodology, each helping to maximize profitability. Prior to joining the Apple REIT Companies, from 2000 to 2003, Ms. Gallagher served as Senior Assurance Associate with Ernst & Young, LLP, where she specialized in real estate clients. Within the industry, Ms. Gallagher serves as a member of the Hampton by Hilton Ownership Advisory Council, as well as the Global Finance Committee for the lodging industry sponsored by the Hospitality Financial and Technology Professionals and American Hotel & Lodging Association. Ms. Gallagher holds a Master of Science degree in Accounting and a Bachelor of Science degree in Commerce from the McIntire School of Commerce at the University of Virginia, and a second major in Economics from the School of Arts and Sciences at the University of Virginia. Ms. Gallagher is a Certified Public Accountant.

 


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Name and Title

 

Business Experience (1)

Nelson G. Knight

President, Real Estate and Investments

Age: 40

 

Mr. Knight was appointed President, Real Estate and Investments effective April 1, 2020. Mr. Knight previously served as Executive Vice President and Chief Investment Officer for the Company since May 2014. Prior to serving in that position, Mr. Knight held various senior management positions with the Apple REIT Companies (as described in Note 1 below). Mr. Knight joined the Apple REIT Companies in 2005. Mr. Knight executes on the Company’s capital deployment strategies, including oversight of the Company’s capital reinvestment team. Mr. Knight serves on Hilton’s Product Advisory Council, on the TownePlace Suites by Marriott Franchise Advisory Council, and as an advisory member of the Hunter Hotel Investment Conference. Mr. Knight also serves on the Board of Trustees for Southern Virginia University in Buena Vista, Virginia. Mr. Knight holds a Master of Business Administration degree from Texas Christian University, as well as a Bachelor of Arts degree, Cum Laude, in History with a minor in Business from Southern Virginia University.

 

Nelson G. Knight is the son of Glade M. Knight, the Company’s Executive Chairman, and the brother of Justin G. Knight, the Company’s Chief Executive Officer.

 

 

 

Rachel S. Labrecque

Senior Vice President and Chief Accounting Officer

Age: 43

 

Ms. Labrecque was appointed Senior Vice President and Chief Accounting Officer effective April 1, 2020. Ms. Labrecque previously served as Senior Vice President of Accounting for the Company since January 2019 and since joining the Apple REIT Companies (as described in Note 1 below) in 2015, has held various management and senior management positions. Ms. Labrecque oversees accounting, financial reporting, treasury operations and taxation for the Company. Prior to joining the Apple REIT Companies, Ms. Labrecque served as Senior Vice President of Finance and Corporate Controller (2011-2015), Vice President and Corporate Controller (2008-2011) and Director of Financial Reporting (2006-2008) of Bowlero Corporation, formerly BowlmorAMF Corporation. Ms. Labrecque also held various financial reporting, accounting and auditing roles with The Mills Corporation (a publicly traded REIT), AOL Time Warner, and Arthur Andersen, LLP. Ms. Labrecque holds a Bachelor of Science degree in Accounting from the Virginia Tech Pamplin College of Business. Ms. Labrecque is a Certified Public Accountant.

 

 

 

Elizabeth S. Perkins

Senior Vice President and Chief Financial Officer

Age: 39

 

Ms. Perkins was appointed Senior Vice President and Chief Financial Officer effective April 1, 2020. Ms. Perkins previously served as Senior Vice President of Corporate Strategy and Reporting for the Company since April 2015 and has held various management and senior management positions with the Apple REIT Companies (as described in Note 1 below) since 2008. Ms. Perkins joined the Apple REIT Companies in 2006. Ms. Perkins has been a key part of the leadership team at the Company, fostering valuable relationships, aiding in strategic investment decisions, directing corporate strategy and reporting initiatives, and overseeing the Company’s finance, capital markets, investor relations, risk management, information technology and internal audit functions. Ms. Perkins currently serves as the executive sponsor for the Company’s ESG Advisory Committee. Prior to joining the Apple REIT Companies, from 2004 to 2006, Ms. Perkins served as Assurance Associate with Ernst & Young, LLP, where she specialized in insurance clients. Within the industry, Ms. Perkins currently serves on the Residence Inn by Marriott System Marketing Fund Council; the American Hotel & Lodging Association’s Consumer Innovation Forum, Owners Committee and ForWard Advisory Committee; and the distribution advisory councils for Marriott and Hilton. Ms. Perkins holds a Bachelor of Business Administration degree in Accounting from the J.M. Tull School of Accounting within the Terry College of Business at the University of Georgia.

 


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Name and Title

 

Business Experience (1)

Matthew P. Rash

Senior Vice President, Chief Legal Officer and Secretary

Age: 43

 

Mr. Rash was appointed Senior Vice President, Chief Legal Officer and Secretary effective April 1, 2020. Mr. Rash previously served as Senior Vice President and General Counsel since joining the Company in March 2019. Mr. Rash oversees all legal matters for the Company and serves on the Company’s ESG Advisory Committee. Prior to joining the Company, Mr. Rash served as a Partner (2016-2019) and Associate (2005-2015) at McGuireWoods LLP, a full-service law firm in Richmond, Virginia, where he specialized in commercial real estate transactions, including acquisitions, dispositions and lending, working on numerous transactions with the Apple REIT Companies. From 2004 to 2005, he was a law clerk with the United States District Court for the Eastern District of Virginia, for the Honorable James R. Spencer. Mr. Rash holds a Juris Doctor degree from the University of Richmond and a Bachelor of Arts degree in Government and Foreign Affairs from the University of Virginia.

 

(1)

See Note 1 to the Director Nominees table above in the section titled “Proposals to be Voted Upon—Proposal 1. Election of Directors” for a description of the “Apple REIT Companies.”

 

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes the Company’s executive compensation arrangements for the Company’s named executive officers for 2021 and explains the structure and rationale associated with each material element of the 2021 compensation arrangements. The named executive officers for 2021 are as follows:

 

 

Justin G. Knight

Chief Executive Officer 

 

Elizabeth S. Perkins

Senior Vice President and Chief Financial Officer

 

Karen C. Gallagher

Senior Vice President and Chief Operating Officer

 

Nelson G. Knight

President, Real Estate and Investments

 

Rachel S. Labrecque

Senior Vice President and Chief Accounting Officer

 

Much like 2020, 2021 proved to be a challenging year on a global scale. The COVID-19 pandemic and associated variants of the virus have reduced travel and have had a detrimental impact on regional and global economies. The global, national and local impact of the pandemic has continued to evolve and many countries, including the U.S., as well as state and local governments, have reacted and continue to react with a wide variety of measures intended to control its spread, including states of emergency, mandatory quarantines, implementation of stay-at-home orders, business closures, border closings, and restrictions on travel and large gatherings, which has resulted in, and may continue to result in, cancellation of events, including sporting events, conferences and meetings. Despite the challenges brought on by COVID-19, the Company has been successful in navigating the pandemic, with improving operational performance as well as strong relative stock outperformance as compared to its peer group.

COVID-19 continues to have a significant impact on the hospitality industry contributing to an environment with relatively low visibility into future trends. In light of the uncertainties related to the ongoing COVID-19 pandemic, and the lack of visibility into more predictable operating fundamentals and trends, the Company did not issue 2021 operational and financial guidance, which was generally consistent with the approach taken in 2021 by other members of the Company’s peer group. However, the Company and the executive team remained focused on a number of critical areas to effectively and successfully navigate the Company through the pandemic. As a result, and as discussed in further detail below, in February 2021, the Compensation Committee approved an annual incentive program that provided that one-half (50%) of 2021 incentive compensation would be based on discretionary operational performance goals and one-half (50%) of the incentive program would continue to be based on shareholder return performance consistent with the Company’s historical incentive programs based 75% on relative shareholder return metrics and 25% on total shareholder return metrics over one-year, two-year, and three-year periods. The first half of the year—for the period of January 1 to June 30, 2021—was based on operational performance goals established by the Compensation Committee at the beginning of the year, including goals regarding portfolio occupancy growth, expense management, successful negotiation of covenant waivers to the Company’s credit facilities and effective allocation of capital to drive incremental returns, with no specific target or weighting assigned to each metric. After the first half of the year, the Compensation Committee evaluated whether more specific quantitative metrics could reasonably be established for the rest of the year; however, it was deemed to not be feasible due to the continued impact of COVID-19, specifically the rise of COVID-19 cases due to the emergence of the Delta variant which caused additional disruptions during this period. Therefore, operational performance goals for the period of July 1 to December 31, 2021 were set by the

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Compensation Committee in August 2021 and continued to be based on goals with no specific target or weighting assigned to each goal, including goals regarding top line growth, bottom line growth, capital allocation and balance sheet management. The Compensation Committee will continue to maintain a rigorous framework, one that requires outperformance (55th percentile) to achieve target level payout for the relative total shareholder return metrics.  

Key Executive Compensation Practices

The following is a summary of the Company’s key practices to align executive compensation with the interests of its shareholders, with target compensation percentages based on the Compensation Committee’s determinations:

What the Company Does

What the Company Doesn’t Do

     Annual advisory vote on executive compensation;

     77% of executive target compensation for 2021 is incentive-based;

     Approximately 75% of executive target incentive-based compensation for 2021 is payable in Common Shares of the Company;

     50% of target incentive-based compensation for 2021 is based on shareholder return metrics;

     50% of target incentive-based compensation for 2021 is based on operational performance goals;

     Compensation Committee comprised entirely of independent directors;

     Compensation Committee retains FPC, an independent compensation consultant who advises the committee on a regular basis;

     Limited perquisites that are generally on the same terms as other employees and which represent only a small portion of total executive officer compensation;

     Stock ownership requirements for executive officers;

     Maximum amounts payable for executive incentive compensation awards; and

     Market-aligned severance policy for executives with a double trigger for any change in control payments.

     No employment contracts with executive officers;

     Company Insider Trading Policy prohibits directors and employees from engaging in hedging of Company securities;

     No dividends paid on restricted stock awards unless they vest;

     No grants of stock options; and

     No supplemental retirement plans.

 

Advisory Vote on Executive Compensation 

The Company provides its shareholders annually with the opportunity to cast an advisory vote on executive compensation, and in 2021 approximately 97% of the shares voted were in support of the 2020 compensation of the executive officers. The Compensation Committee viewed this advisory vote as an expression by the shareholders of their general satisfaction with the Company’s executive compensation program. Consistent with the advisory vote of the shareholders at the 2017 annual meeting of shareholders, the Company will hold advisory votes on executive compensation annually until the next say-on-frequency vote is conducted, which will be no later than 2023.


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Pay for Performance Philosophy 

 

The Company believes that a significant portion of each named executive officer’s total compensation should be incentive based to best align their interest with those of its shareholders. As a result, for 2021, the Compensation Committee approved a target compensation for the named executive officers with the following average compensation mix:

 

All incentive compensation is performance based:

50% on shareholder return metrics

50% on operational performance goals

 

The 2021 incentive compensation plan was based on multiple discretionary operational performance goals and six objective shareholder return metrics. To further align interests with its shareholders, 75% of the target incentive compensation was payable in Common Shares of the Company, of which one-third was restricted and subject to a one-year vesting period and the remaining two-thirds being vested at issuance. Based on FPC’s 2021 peer group report discussed below, at that time the Company had the highest percentage of target executive compensation based on objective share and operating performance targets compared to its peer group.

 

General Philosophy and Objectives

The Company’s executive compensation philosophy continues to focus on attracting, motivating and retaining a superior management team that can maximize shareholder value. The compensation arrangements are designed to reward performance relative to financial and other metrics that the Company believes are key metrics that will enhance shareholder value and to reward executive officers for performance at levels that the Compensation Committee believes to be competitive with other public hospitality REITs. The compensation arrangements consist of both base salary and incentive compensation which is intended to incentivize executive officers to manage the Company in a prudent manner without encouraging unnecessary risk-taking. In establishing the compensation arrangements, the Compensation Committee believes the best way to maintain the alignment of management and shareholder objectives is to have a larger variable component tied to key metrics. On average approximately 77% of target compensation of the named executive officers was designed to be variable in 2021. The incentive goals in the incentive compensation program are set at competitive levels which are expected to require stretch performance but are believed to be achievable. However, as a result of the uncertainties in 2021 related to the effect of COVID-19 on the hospitality industry, no specific targets or weightings were initially assigned by the Compensation Committee to the individual operational performance goals. The Compensation Committee also reviews and considers the management team’s overall compensation. The Company has not adopted a formal policy or guideline for allocating compensation between long-term and short-term compensation, between cash and non-cash compensation or among different forms of non-cash compensation.

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Role of the Compensation Committee 

Pursuant to the Compensation Committee’s charter, the Compensation Committee assists the Board of Directors in discharging the Board of Directors’ responsibilities relating to compensation of the Company’s officers. The Compensation Committee’s duties and responsibilities include, among other things, the following:

 

annually review and approve corporate goals and objectives relevant to the compensation of the Chief Executive Officer, and after evaluating performance in light of those goals and objectives, approve compensation of the Chief Executive Officer;

 

annually review corporate goals and objectives relevant to the compensation of the executive management officers of the Company, and after evaluating performance in light of those goals and objectives, approve compensation of the executive management officers, other than the Chief Executive Officer; and

 

review and make periodic recommendations to the Board of Directors with respect to the general compensation, benefits and perquisites policies and practices of the Company.

The Compensation Committee’s charter permits it to delegate its functions to one or more subcommittees as permitted by law and to retain consultants and other advisors to assist the Compensation Committee in carrying out its duties in evaluation of executive officer compensation.

In reviewing the Company’s executive compensation structure, the Compensation Committee evaluates data regarding executive compensation paid by, and executive compensation plans of, other public hospitality REITs and other peer group information which has been provided every two years since 2014 by FPC, most recently in 2021. The Compensation Committee utilizes FPC’s recommendations in conjunction with market data to determine annual executive compensation. Target compensation for 2021 for each named executive officer was approved by the Compensation Committee after consideration of each individual’s experience in their position and the industry, the risks and deterrents associated with their positions, the anticipated difficulty to replace the individual, and total compensation paid to each named executive officer in prior years.

Role of the Chief Executive Officer

In connection with determining compensation of executive officers other than the Chief Executive Officer, the Compensation Committee may seek input from the Company’s Chief Executive Officer. Any recommendations given by the Chief Executive Officer will be based upon the Chief Executive Officer’s assessment of the Company’s overall performance, each executive officer’s individual performance and employee retention considerations. The Compensation Committee reviews the Chief Executive Officer’s recommendations, and in its sole discretion determines all executive officer compensation. The Chief Executive Officer will not provide any recommendations to the Compensation Committee regarding his own compensation.

Compensation Consultant

The Compensation Committee periodically consults with FPC as its independent executive compensation consultant regarding compensation arrangements. The Compensation Committee’s charter authorizes the Compensation Committee to retain or obtain the advice of a compensation consultant to advise it in the evaluation of executive officer compensation. In connection with developing the executive compensation structure and making executive compensation decisions, the Compensation Committee relies upon FPC to:

 

advise the Compensation Committee on the principal aspects of the executive compensation program;

 

assist in the selection of a group of peer companies (based on, among other things, industry, size and asset type);

 

provide information on the compensation structures of and the compensation paid to executive officers by peer companies;

 

advise on appropriate levels of compensation; and

 

advise on compensation trends in light of unusual circumstances such as the COVID-19 pandemic.

Peer Group Information

In connection with its comprehensive review of the executive compensation arrangements for all of the Company’s executive officers, the Compensation Committee relies upon FPC to provide, among other things, compensation information and data regarding executive officers in the Company’s peer group. The peer group

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compensation information and data are one factor the Compensation Committee considers in establishing the Company’s executive compensation arrangements. At the time of FPC’s 2021 report, the peer group consisted of the following nine public company REITs in the hospitality industry with similar market capitalization to the Company, with an overall median market capitalization of approximately $2.3 billion at the time of FPC’s 2021 report (the Company’s market capitalization at the time of the report was $2.9 billion):

 

DiamondRock Hospitality Company

Hersha Hospitality Trust

Host Hotels & Resorts, Inc.

Park Hotels & Resorts Inc.

Pebblebrook Hotel Trust

RLJ Lodging Trust

Summit Hotel Properties, Inc.

Sunstone Hotel Investors, Inc.

Xenia Hotels & Resorts, Inc.

 

 

The Compensation Committee believes the peer group above represents companies with which the Company competes for talent and business. The Compensation Committee used data from this peer group to provide the Compensation Committee with a context in which to make base salary determinations and decisions regarding appropriate payout levels for incentive compensation.

Elements of Executive Compensation

The Company’s executive compensation arrangements consist of base salary and incentive compensation. 

Annual Base Salary

Annual base salary is a fixed level of compensation that reflects each named executive officer’s position and individual performance and is intended to comprise, on average, approximately 20% of each named executive officer’s target compensation. Base salary is designed to serve as a retention tool throughout the executive’s career. In determining base salaries, the Compensation Committee considers the salary information and data obtained for the executive officers in the peer group of companies identified above, each executive officer’s role and responsibility, unique skills, future potential with the Company, and internal pay equity considerations. After evaluating these factors, the Compensation Committee approved the following annual base salary of each named executive officer.

 

 

 

 

 

2021 Annual

Base Salary(1)

2020 Annual

Base Salary(1)

Justin G. Knight

 

 

$

557,500

 

 

 

$

557,500

 

 

Elizabeth S. Perkins (2)

 

 

 

425,000

 

 

 

 

375,000

 

 

Karen C. Gallagher (2)

 

 

 

425,000

 

 

 

 

375,000

 

 

Nelson G. Knight (2)

 

 

 

425,000

 

 

 

 

382,500

 

 

Rachel S. Labrecque (2)

 

 

 

375,000

 

 

 

 

360,000

 

 

 

(1)

Annual base salary represents the annual base salary rate approved by the Compensation Committee.

 

(2)

2020 annual base salary rate effective April 1, 2020, the date of appointment as an executive officer.

Incentive Compensation

The named executive officers are eligible to earn variable incentive compensation awards designed to reward the achievement of annual operational/financial performance measures and annual/multi-year total shareholder return measures. The Compensation Committee establishes target annual incentive award opportunities for each named executive officer, consisting of an annual cash bonus award and an equity compensation award opportunity, following an analysis of market information and data for executive officers in the peer group of companies identified above, each executive officer’s role and responsibility, unique skills, future potential with the Company, and internal pay equity considerations. The Compensation Committee considers all relevant facts and circumstances when evaluating performance, including changing market conditions and broad corporate strategic initiatives, along with overall responsibilities and contributions, and retains the ability to exercise its judgment and discretion to adjust an incentive compensation award.

For 2021, approximately 75% of the target incentive compensation of the named executive officers was intended to be provided through equity awards and the remainder as an annual cash bonus, with one-third of the target equity award being restricted and subject to a one-year vesting period and the remaining two-thirds of the target equity

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award being fully vested. Target incentive compensation awards earned upon the achievement of the performance goals consist of (i) for the shareholder return metrics discussed below, one-half of the total award in restricted Common Shares that vest on the second Friday of December in the year issued, i.e., December 9, 2022, and the remaining one-half in fully vested Common Shares and (ii) for the operating metrics discussed below, one-half of the total award in fully vested Common Shares and the other half of the award as the annual cash bonus.

The Compensation Committee’s normal practice is to adopt annual performance goals for the annual incentive compensation awards following a review of the Company’s business plan and budget, which typically occurs in February of each year. Named executive officers employed as of the end of the year are eligible to receive incentive compensation awards to be determined pursuant to a weighted average formula based on the achievement of certain performance measures, consisting of shareholder return metrics and operational performance measures. For 2021, as discussed further below, the ongoing effects of the COVID-19 pandemic disrupted the Compensation Committee’s ability to set normal objective operational performance measures. 

Performance Measures

For 2021, the Compensation Committee adopted performance goals for the 2021 incentive compensation awards, consisting of shareholder return metrics and operational performance goals. The shareholder return metrics for the full year were set in February 2021, as were the operational performance goals for the first six months of the year, following a review of the Company’s business plan for the year. As discussed further below, the Compensation Committee determined to delay setting operational performance goals for the second half of 2021 until later in the year, at a point in time when the Compensation Committee expected to have additional information and clarity regarding potential trends and outlook for the Company and the industry as a whole. At the time each of the performance goals were set, the Compensation Committee believed that the goals that had been established were substantially uncertain to be achieved.

The Compensation Committee determined that the operational performance measures for 2021 would need to be based on discretionary goals for the first and second halves of the year based on the overall progress of the industry and economy due to the high level of economic uncertainty, but the shareholder return performance measures should be based on objective goals (consistent with normal practice). The Compensation Committee did not set separate performance goals for individual executive officers. As described in greater detail in the sections that follow, the incentive compensation awards for 2021 were based on the following operational and shareholder return performance goals and resulted in the following payout achievement levels:

  

 

 

Annual

Incentive

Compensation

Award

Established Goals for 2021

 

2021 Actual

 

2021 Actual

 

 

 

Weighting

Threshold

 

Target

 

Maximum

 

Results

 

Payout

 

Operational Performance Goals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational performance (1st half of 2021)

 

 

 

25.0

%

 

 

 

Threshold performance

 

 

 

 

Target performance

 

 

 

 

Maximum performance

 

 

 

 

Maximum achievement

 

 

 

 

 

50.0

%

Operational performance (2nd half of 2021)

 

 

 

25.0

%

 

 

 

Threshold performance

 

 

 

 

Target performance

 

 

 

 

Maximum performance

 

 

 

 

80% Maximum achievement, 20% Target achievement

 

 

 

 

 

45.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholder Return Metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total shareholder one-year return

 

 

 

4.2

%

 

 

 

 

4.0

%

 

 

 

 

7.0

%

 

 

 

 

10.0

%

 

 

 

 

25.4

%

 

 

 

 

8.3

%

Total shareholder two-year return

 

 

 

4.2

%

 

 

 

 

7.0

%

 

 

 

 

13.0

%

 

 

 

 

19.0

%

 

 

 

 

1.4

%

 

 

 

 

0.0

%

Total shareholder three-year return

 

 

 

4.2

%

 

 

 

 

11.0

%

 

 

 

 

18.0

%

 

 

 

 

27.0

%

 

 

 

 

24.1

%

 

 

 

 

7.0

%

Total shareholder one-year return relative to peer group

 

 

 

12.5

%

 

 

 

30th percentile

 

 

 

 

55th percentile

 

 

 

 

75th percentile

 

 

 

 

96th percentile

 

 

 

 

 

25.0

%

Total shareholder two-year return relative to peer group

 

 

 

12.5

%

 

 

 

30th percentile

 

 

 

 

55th percentile

 

 

 

 

75th percentile

 

 

 

 

100th percentile

 

 

 

 

 

25.0

%

Total shareholder three-year return relative to peer group

 

 

 

12.5

%

 

 

 

30th percentile

 

 

 

 

55th percentile

 

 

 

 

75th percentile

 

 

 

 

100th percentile

 

 

 

 

 

25.0

%

 

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The Compensation Committee believes that each of the goals and metrics set for 2021 reflect key measurements of the Company’s operational, financial and shareholder return performance. The following summarizes how the Company measures each goal or metric, as well as how the Company performed in 2021:

Operational Performance Goals

Due to the uncertain nature of the lodging industry and overall economy during the COVID-19 pandemic, the Compensation Committee set separate discretionary goals for operating performance for the first and second halves of 2021. The amounts actually payable to each named executive officer with respect to the operational performance goals were determined within the Compensation Committee’s discretion after an evaluation of performance against each goal.  Due to the ongoing impact of the COVID-19 pandemic and the increased uncertainties it created, the Compensation Committee did not assign a particular weighting when it established each operational performance goal or a specific pre-determined payout level of performance, as they were not based on quantitative performance measures. Instead, the Compensation Committee engaged in a detailed review of the performance with respect to each goal, progress towards the goal, and benefits realized by the Company, among other factors. In order to assess performance for the executive officers, during this evaluation, the Compensation Committee assigned weightings for each goal, with no single goal exceeding 15% of the potential payout attributable to the operational goals for the year. After a rigorous evaluation process, the Compensation Committee then determined the payout level, which would be at one of the following levels: target (100% payout, equal to the assigned weighting), threshold (50% payout, equal to half of the assigned weighting) or maximum (200% payout, equal to two times the assigned weighting).

 

The goals for the first half of 2021 consisted of the following:

 

Goal

Initial Weighting (As a % of Operational Goals)

Achievement

Performance Summary

Grow portfolio occupancy

15%

Maximum

Grew occupancy from a 2020 high of 54% (October 2020) to 74% in June 2021, with weekend occupancies at the end of the second quarter exceeding pre-pandemic levels

Portfolio occupancies exceeded industry averages and averages specific to Company’s chain scales

Manage expenses effectively as occupancy increases

15%

Maximum

Hotel operating expense increased 10% for first six months of 2021 compared to same period of 2020 on 27% revenue growth

Successfully negotiate extended covenant waiver period under the unsecured facilities with favorable terms

10%

Maximum

Extended covenant waiver period into 2022 while enhancing ability to exit early by securing temporary covenant modifications

Obtained increased flexibility to acquire assets and pay dividends

Effectively allocate capital to drive incremental return

10%

Maximum

Entered into contract to sell 20 hotels for $211 million

Entered into contract to purchase 3 hotels for $148 million

Raised approximately $76 million through issuances of equity at an average price of $16.26 per share

Total Operational Performance Goal Weighting:

50%

 

 

 


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The goals for the second half of 2021 consisted of the following:

 

Goal

Initial Weighting (As a % of Operational Goals)

Achievement

Performance Summary

Work with third-party management companies to capture additional business and leisure room nights in key markets

5%

Target

Grew market share sequentially each month beginning in August 2021 and through November 2021

Total market share exceeded 2019 levels in November 2021

 

Continue revenue management efforts to maximize revenue production

5%

Maximum

Average daily rate (“ADR”) in the second half of 2021 was down only 2% on a comparable hotel basis and down slightly over 2% on a same store basis as compared to the same period in 2019. For comparison, first half 2021 ADR was down over 20% on a comparable hotel basis as compared to the same period in 2019

Effective use of revenue management systems with oversight from the asset management and revenue management teams has enabled the Company to grow rate much faster than in past cycles

Work with management companies to manage labor challenges  

5%

Maximum

Despite significant wage pressure and lower occupancy, second half of 2021 total wages through November per occupied room were down almost 4% on a same store basis compared to the same period in 2019

Total payroll was down approximately 5% compared to the same period in 2019 on a same store basis

Effective management of labor contributed to margin outperformance during the second half of the year

Control operating expenses to maximize margins

10%

Maximum

Even with reinstituting services and amenities and increased occupancy over the summer, the Company still achieved savings in rooms expenses excluding payroll of over 8% on a same store basis for the second half of 2021 compared to the same period in 2019

Third quarter 2021 Adjusted Hotel EBITDA margin exceeded the same period in 2019 and the fourth quarter 2021 margin was only slightly down compared to 2019 on a comparable hotel basis despite meaningful variance in topline performance

Continue to identify opportunities to lower costs

5%

Maximum

Negotiated internet service pricing for nearly 60 hotels resulting in significant monthly savings

Obtained COVID relief credits through vendors and management companies

Renegotiated contracts for video, data and connectivity services at 42 hotels

Transitioned Hilton properties to new vendor reducing the number of internet circuits needed

Obtained grants to cover charger installations for electric vehicles anticipated to generate incremental room nights and incremental revenue

Leased space for cell towers at a number of hotels

Explore opportunistic dispositions

2.5%

Target

Completed sale of 20 hotels for $211 million

Evaluated potential additional sales with multiple buyers

Effectively deploy proceeds from sales

5%

Maximum

Purchased seven hotels for $312 million during the second half of 2021 using the $211 million proceeds from 20-hotel sale transaction and proceeds from equity raises

Anticipated stabilized yield on acquisitions averaged approximately 8%, within 50 basis points of 2019 capitalization rate for disposition assets after taking into consideration near term capital expenditures

Acquisitions were on average younger than dispositions with four of the seven acquired hotels being less than four years old and all of the assets being younger than the Company average

Five of the seven hotels are located in markets approaching or exceeding 2019 performance with two hotels purchased below replacement cost and recent comparable transaction price levels

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Minimize transaction related frictional costs

2.5%

Maximum

Capitalization rate spread on forecasted results favored acquisitions with added benefit of lower capital expenditures, further bolstering relative returns

Rapid deployment of proceeds from portfolio sale further limited frictional costs

Manage business to ensure compliance with modified covenants under unsecured credit facilities

7.5%

Maximum

Completed successful early exit from covenant waiver period under unsecured credit facilities

Continued to operate within modified covenants on both annualized and trailing twelve-month basis

Explore options to restructure balance sheet and refinance or extend term of revolving credit facility

2.5%

Target

Continued discussions with lenders to explore both structure and timing for potential modifications

Total Operational Performance Goal Weighting:

50%

 

 

 

Shareholder Return Metrics

 

Shareholder return metrics included both absolute and relative total shareholder return metrics:

 

Total shareholder return metrics – The Company used shareholder returns over a one-year period (measured from January 1, 2021 to December 31, 2021), a two-year period (measured from January 1, 2020 to December 31, 2021) and a three-year period (measured from January 1, 2019 to December 31, 2021), measuring the benefit to shareholders of holding the Company’s Common Shares over a period of time. Shareholder return includes the change in the share price as well as the reinvestment of dividends during the periods noted.

Total shareholder return relative to a peer group metrics – The Company used relative shareholder returns compared to the Company’s peers over a one-year period (measured from January 1, 2021 to December 31, 2021), a two-year period (measured from January 1, 2020 to December 31, 2021) and a three-year period (measured from January 1, 2019 to December 31, 2021), measuring the benefit to shareholders of holding the Company’s Common Shares relative to that of its peer companies. For this performance goal, consistent with prior years, the Company’s peer group consisted of Ashford Hospitality Trust, Inc., Chatham Lodging Trust, Hersha Hospitality Trust, RLJ Lodging Trust and Summit Hotel Properties, Inc. Shareholder return includes the change in the share price as well as the reinvestment of dividends during the periods noted.

Consistent with prior years, the amounts payable with respect to the shareholder return measures were determined based upon whether the Company’s performance met certain “threshold,” “target” or “maximum” levels for each of the performance measures. The “threshold” level can be characterized as “stretch but attainable,” meaning that, although attainment is uncertain, based on historical performance, it can reasonably be anticipated that threshold performance may be achieved. The “target” and “maximum” levels represent increasingly challenging and aggressive levels of performance. With respect to each performance measure, results below the threshold level resulted in a payment of 0% of the target value, results between the threshold and the target levels resulted in a payment of 50% to 100% of the target value, results between the target and the maximum levels resulted in a payment of 100% to 200% of the target value, and results above the maximum level resulted in a payment of 200% of the target value.

Despite the COVID-19 pandemic’s adverse impact on the Company and the hospitality industry as a whole, the Company was able to maintain strong performance relative to its peer group. As reflected in the following tables, for the one-year, two-year, and three-year periods ended December 31, 2021, the Company outperformed the peer group cumulative total shareholder return average (consisting of Ashford Hospitality Trust, Inc., Chatham Lodging Trust, Hersha Hospitality Trust, RLJ Lodging Trust and Summit Hotel Properties, Inc.) and outperformed this peer group on a one-year, two-year, and three-year total shareholder return basis (returns for the one-year, two-year and three-year periods ended December 31, 2021 assume the reinvestment of dividends).

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Actual Award Earned

 

The Company’s 2021 actual results as compared to the established goals are summarized in the table above under “Performance Measures.”  For 2021, the Company achieved an average of 185.3% of the target incentive for each of the metrics and goals discussed above, resulting in the compensation awards as follows:

 

 

 

2021 Target

Cash Incentive

Compensation

Award

Opportunity

 

2021 Target

Equity Incentive

Compensation

Award

Opportunity

 

2021 Target

Total Incentive

Compensation

Award

Opportunity

 

2021Actual

Cash Incentive

Compensation

Award

 

2021 Actual

Equity Incentive

Compensation

Award

 

2021 Actual

Total Incentive

Compensation

Award

Justin G. Knight

 

 

$

975,625

 

 

 

 

$

2,926,875

 

 

 

 

$

3,902,500

 

 

 

 

$

1,853,688

 

 

 

 

$

5,378,614

 

 

 

 

$

7,232,302

 

 

Elizabeth S. Perkins

 

 

 

318,750

 

 

 

 

 

956,250

 

 

 

 

 

1,275,000

 

 

 

 

 

605,625

 

 

 

 

 

1,757,267

 

 

 

 

 

2,362,892

 

 

Karen C. Gallagher

 

 

 

318,750

 

 

 

 

 

956,250

 

 

 

 

 

1,275,000

 

 

 

 

 

605,625

 

 

 

 

 

1,757,267

 

 

 

 

 

2,362,892

 

 

Nelson G. Knight

 

 

 

371,875

 

 

 

 

 

1,115,625

 

 

 

 

 

1,487,500

 

 

 

 

 

706,563

 

 

 

 

 

2,050,144

 

 

 

 

 

2,756,707

 

 

Rachel S. Labrecque

 

 

 

234,375

 

 

 

 

 

703,125

 

 

 

 

 

937,500

 

 

 

 

 

445,313

 

 

 

 

 

1,292,108

 

 

 

 

 

1,737,421

 

 

 

These incentive compensation awards were determined by the Compensation Committee in February 2022, and the cash was paid and equity grants were issued in March 2022, with 67% of the equity awards vested immediately and 33% of the equity awards to vest in December 2022.

Realized Pay

The tables below, which supplement the Executive Compensation—Summary Compensation Table, shows the value of the 2021 and 2020 compensation earned by each named executive officer under the compensation program.

 

2021 Realized Pay Table (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salary

 

Share

Awards (2)

 

Non-Equity

Incentive Plan

Compensation

 

All Other

Compensation

 

2021 Total

Compensation

Realized

Justin G. Knight

 

 

$

557,500

 

 

 

 

$

5,378,614

 

 

 

 

$

1,853,688

 

 

 

 

$

44,102

 

 

 

 

$

7,833,904

 

 

Elizabeth S. Perkins

 

 

 

425,000

 

 

 

 

 

1,757,267

 

 

 

 

 

605,625

 

 

 

 

 

38,607

 

 

 

 

 

2,826,499

 

 

Karen C. Gallagher

 

 

 

425,000

 

 

 

 

 

1,757,267

 

 

 

 

 

605,625

 

 

 

 

 

36,659