Item 1. Financial Statements
Apple Hospitality REIT, Inc.
See notes to consolidated financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. Forward-looking statements are typically identified by use of statements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “outlook,” “strategy,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company’s forward-looking statements continues to be the adverse effect of COVID-19, including resurgences and variants, on the Company’s business, financial performance and condition, operating results and cash flows, the real estate market and the hospitality industry specifically, and the global economy and financial markets generally. The significance, extent and duration of the continued impacts caused by the COVID-19 pandemic on the Company will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the scope, severity and duration of the pandemic, the extent and effectiveness of the actions taken to contain the pandemic or mitigate its impact, the efficacy, acceptance and availability of vaccines, the duration of associated immunity and efficacy of the vaccines against variants of COVID-19, the potential for additional hotel closures/consolidations that may be mandated or advisable, whether based on increased COVID-19 cases, new variants or other factors, the slowing or potential rollback of “reopenings” in certain states, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section titled “Risk Factors” in the Company’s 2021 Form 10-K as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Additional factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties and redeploy proceeds; the anticipated timing and frequency of shareholder distributions; the ability of the Company to fund capital obligations; the ability of the Company to successfully integrate pending transactions and implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions; reduced business and leisure travel due to travel-related health concerns, including the COVID-19 pandemic or an increase in COVID-19 cases or any other infectious or contagious diseases in the U.S. or abroad; adverse changes in the real estate and real estate capital markets; financing risks; changes in interest rates; litigation risks; regulatory proceedings or inquiries; and changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a REIT. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Readers should carefully review the risk factors described in the Company’s filings with the Securities and Exchange Commission (“SEC”), including but not limited to those discussed in the section titled “Risk Factors” in the 2021 Form 10-K. Any forward-looking statement that the Company makes speaks only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events, or otherwise, except as required by law.
The following discussion and analysis should be read in conjunction with the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the information contained in the 2021 Form 10-K.
Overview
The Company is a Virginia corporation that has elected to be treated as a REIT for federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the U.S. As of June 30, 2022, the Company owned 219 hotels with an aggregate of 28,748 rooms located in urban, high-end suburban and developing markets throughout 36 states. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 17 hotel management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the NYSE under the ticker symbol “APLE.”
21
Index
The Impact of COVID-19 on the Company and Hospitality Industry
The COVID-19 pandemic has negatively impacted the U.S. and global economies and financial markets. The effect of COVID-19 on the hotel industry has been unprecedented and has dramatically reduced business and impacted leisure travel, which adversely impacted the Company’s business, financial performance, operating results and cash flows, beginning in March 2020.
Since the beginning of the pandemic and through the first six months of 2022, the Company, with the support of its management companies and brands, has taken steps to minimize costs and cash outflow to operate efficiently and maximize performance. The Company has implemented cost elimination and efficiency initiatives at each of its hotels by adjusting operations to manage total labor costs, reducing or eliminating certain amenities and reducing rates under various service contracts; enhanced its sales efforts by strategically targeting available demand; reduced capital improvement projects in 2020 and 2021; and entered into amendments to its unsecured credit facilities that provided for the temporary waiver of financial covenant testing for the majority of its financial maintenance covenants until June 30, 2022 (the Company exited the waiver period in July 2021 due to improved financial performance). Cost reduction initiatives, including those discussed above have not, and are not expected to, materially offset revenue losses from COVID-19.
The extent and duration of the COVID-19 effects remain unknown, and these uncertainties continue to make it difficult to project operating results. The Company has experienced significant improvement in its business during the twelve months ended December 31, 2021 and through the first six months of 2022 driven by strength in leisure, small group and local negotiated business demand. While the Company has seen continued improvement in overall business demand, it anticipates that some larger corporate demand drivers may take longer to fully recover.
Hotel Operations
As of June 30, 2022, the Company owned 219 hotels with a total of 28,748 rooms as compared to 232 hotels with a total of 29,753 rooms as of June 30, 2021. Results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and prior year. During the six months ended June 30, 2022, the Company did not acquire or dispose of any properties. During the same period of 2021, the Company acquired one newly constructed hotel on February 18, 2021 and sold three properties in three separate transactions.
In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”), and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below. RevPAR and operating results may be impacted by regional and local economies as well as changes in lodging demands due to macroeconomic factors including inflationary pressures, higher energy prices or a recessionary environment.
The following is a summary of the results from operations of the Company’s hotels for their respective periods of ownership by the Company:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(in thousands, except statistical data) |
|
2022 |
|
|
Percent
of
Revenue |
|
|
2021 |
|
|
Percent
of
Revenue |
|
|
Percent
Change |
|
|
2022 |
|
|
Percent
of
Revenue |
|
|
2021 |
|
|
Percent
of
Revenue |
|
|
Percent
Change |
|
Total revenue |
|
$ |
337,668 |
|
|
|
100.0 |
% |
|
$ |
247,404 |
|
|
|
100.0 |
% |
|
|
36.5 |
% |
|
$ |
598,146 |
|
|
|
100.0 |
% |
|
$ |
406,117 |
|
|
|
100.0 |
% |
|
|
47.3 |
% |
Hotel operating expense |
|
|
182,515 |
|
|
|
54.1 |
% |
|
|
135,410 |
|
|
|
54.7 |
% |
|
|
34.8 |
% |
|
|
336,517 |
|
|
|
56.3 |
% |
|
|
239,150 |
|
|
|
58.9 |
% |
|
|
40.7 |
% |
Property taxes, insurance and other expense |
|
|
18,779 |
|
|
|
5.6 |
% |
|
|
17,321 |
|
|
|
7.0 |
% |
|
|
8.4 |
% |
|
|
37,458 |
|
|
|
6.3 |
% |
|
|
37,009 |
|
|
|
9.1 |
% |
|
|
1.2 |
% |
General and administrative expense |
|
|
10,307 |
|
|
|
3.1 |
% |
|
|
8,435 |
|
|
|
3.4 |
% |
|
|
22.2 |
% |
|
|
19,945 |
|
|
|
3.3 |
% |
|
|
16,554 |
|
|
|
4.1 |
% |
|
|
20.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on impairment of depreciable real estate assets |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
n/a |
|
|
|
- |
|
|
|
|
|
|
|
10,754 |
|
|
|
|
|
|
n/a |
|
Depreciation and amortization expense |
|
|
45,322 |
|
|
|
|
|
|
|
46,386 |
|
|
|
|
|
|
|
-2.3 |
% |
|
|
90,646 |
|
|
|
|
|
|
|
95,096 |
|
|
|
|
|
|
|
-4.7 |
% |
Gain (loss) on sale of real estate |
|
|
- |
|
|
|
|
|
|
|
(864 |
) |
|
|
|
|
|
n/a |
|
|
|
- |
|
|
|
|
|
|
|
3,620 |
|
|
|
|
|
|
n/a |
|
Interest and other expense, net |
|
|
15,198 |
|
|
|
|
|
|
|
18,618 |
|
|
|
|
|
|
|
-18.4 |
% |
|
|
29,852 |
|
|
|
|
|
|
|
37,131 |
|
|
|
|
|
|
|
-19.6 |
% |
Income tax expense |
|
|
202 |
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
132.2 |
% |
|
|
381 |
|
|
|
|
|
|
|
195 |
|
|
|
|
|
|
|
95.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
65,345 |
|
|
|
|
|
|
|
20,283 |
|
|
|
|
|
|
|
222.2 |
% |
|
|
83,347 |
|
|
|
|
|
|
|
(26,152 |
) |
|
|
|
|
|
n/a |
|
Adjusted Hotel EBITDA (1) |
|
|
136,515 |
|
|
|
|
|
|
|
94,814 |
|
|
|
|
|
|
|
44.0 |
% |
|
|
224,451 |
|
|
|
|
|
|
|
130,241 |
|
|
|
|
|
|
|
72.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hotels owned at end of period |
|
|
219 |
|
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
-5.6 |
% |
|
|
219 |
|
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
-5.6 |
% |
ADR |
|
$ |
153.35 |
|
|
|
|
|
|
$ |
120.56 |
|
|
|
|
|
|
|
27.2 |
% |
|
$ |
145.84 |
|
|
|
|
|
|
$ |
111.19 |
|
|
|
|
|
|
|
31.2 |
% |
Occupancy |
|
|
77.9 |
% |
|
|
|
|
|
|
70.7 |
% |
|
|
|
|
|
|
10.2 |
% |
|
|
72.5 |
% |
|
|
|
|
|
|
63.2 |
% |
|
|
|
|
|
|
14.7 |
% |
RevPAR |
|
$ |
119.41 |
|
|
|
|
|
|
$ |
85.28 |
|
|
|
|
|
|
|
40.0 |
% |
|
$ |
105.77 |
|
|
|
|
|
|
$ |
70.23 |
|
|
|
|
|
|
|
50.6 |
% |
22
Index
(1) |
See reconciliation of Adjusted Hotel EBITDA to net income (loss) in “Non-GAAP Financial Measures” below. |
The following table highlights the Company’s quarterly ADR, Occupancy, RevPAR, net income and adjusted hotel earnings before interest, income taxes, depreciation and amortization for real estate (“Adjusted Hotel EBITDA”), all of which have been impacted by COVID-19, during the last five quarters (in thousands except statistical data):
|
|
2nd Quarter |
|
|
3rd Quarter |
|
|
4th Quarter |
|
|
1st Quarter |
|
|
2nd Quarter |
|
|
|
2021 |
|
|
2021 |
|
|
2021 |
|
|
2022 |
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADR |
|
$ |
120.56 |
|
|
$ |
140.02 |
|
|
$ |
131.04 |
|
|
$ |
137.03 |
|
|
$ |
153.35 |
|
Occupancy |
|
|
70.7 |
% |
|
|
71.5 |
% |
|
|
67.5 |
% |
|
|
67.1 |
% |
|
|
77.9 |
% |
RevPAR |
|
$ |
85.28 |
|
|
$ |
100.14 |
|
|
$ |
88.43 |
|
|
$ |
91.98 |
|
|
$ |
119.41 |
|
Net income |
|
$ |
20,283 |
|
|
$ |
31,759 |
|
|
$ |
13,221 |
|
|
$ |
18,002 |
|
|
$ |
65,345 |
|
Adjusted Hotel EBITDA (1) |
|
$ |
94,814 |
|
|
$ |
105,423 |
|
|
$ |
84,609 |
|
|
$ |
87,936 |
|
|
$ |
136,515 |
|
(1) |
See reconciliation of Adjusted Hotel EBITDA to net income (loss) in “Non-GAAP Financial Measures” below. |
While the Company experienced its most significant decline in operating results (driven by the impact of COVID-19) during 2020 and the first quarter of 2021, occupancy and RevPAR have since shown improvement with a RevPAR increase of 40.0% and 50.6% for the three and six months ended June 30, 2022, compared to the same periods in 2021. Although the Company expects continued recovery in rate and occupancy, it is difficult to project the pace at which the Company will experience a full recovery to pre-pandemic levels and future revenues and operating results could be negatively impacted by, among other things, historical seasonal trends, new COVID-19 variants, state and local governments and businesses reverting to tighter COVID-19 mitigation restrictions, deterioration of consumer sentiment, labor shortages, supply chain disruptions, a recessionary macroeconomic environment or inflationary pressures.
Comparable Hotels Operating Results
The following tables reflect certain operating statistics for the Company’s 219 hotels owned as of June 30, 2022 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 219 hotels owned as of the end of the reporting period. For the hotels acquired during the reporting periods shown, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company. This information has not been audited, either for the periods owned or prior to ownership by the Company. For dispositions, results have been excluded for the Company’s period of ownership.
|
|
Three Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
Percent Change 2021 |
|
|
2019 |
|
|
Percent Change 2019 |
|
ADR |
|
$ |
153.35 |
|
|
$ |
122.69 |
|
|
|
25.0 |
% |
|
$ |
145.14 |
|
|
|
5.7 |
% |
Occupancy |
|
|
77.9 |
% |
|
|
70.7 |
% |
|
|
10.2 |
% |
|
|
81.6 |
% |
|
|
-4.5 |
% |
RevPAR |
|
$ |
119.41 |
|
|
$ |
86.71 |
|
|
|
37.7 |
% |
|
$ |
118.41 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
Percent Change 2021 |
|
|
2019 |
|
|
Percent Change 2019 |
|
ADR |
|
$ |
145.84 |
|
|
$ |
112.79 |
|
|
|
29.3 |
% |
|
$ |
142.64 |
|
|
|
2.2 |
% |
Occupancy |
|
|
72.5 |
% |
|
|
63.1 |
% |
|
|
14.9 |
% |
|
|
77.7 |
% |
|
|
-6.7 |
% |
RevPAR |
|
$ |
105.77 |
|
|
$ |
71.14 |
|
|
|
48.7 |
% |
|
$ |
110.90 |
|
|
|
-4.6 |
% |
23
Index
Same Store Operating Results
The following tables reflect certain operating statistics for the 204 hotels owned by the Company as of January 1, 2019 and during the entirety of the reporting periods being compared (“Same Store Hotels”). Comparisons to 2019 operating results are included to provide a better understanding of the Company’s recovery from the impact of COVID-19 on hotel operations. This information has not been audited.
|
|
Three Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
Percent Change 2021 |
|
|
2019 |
|
|
Percent Change 2019 |
|
ADR |
|
$ |
152.07 |
|
|
$ |
121.99 |
|
|
|
24.7 |
% |
|
$ |
144.35 |
|
|
|
5.3 |
% |
Occupancy |
|
|
78.0 |
% |
|
|
71.4 |
% |
|
|
9.2 |
% |
|
|
81.8 |
% |
|
|
-4.6 |
% |
RevPAR |
|
$ |
118.64 |
|
|
$ |
87.07 |
|
|
|
36.3 |
% |
|
$ |
118.07 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
Percent Change 2021 |
|
|
2019 |
|
|
Percent Change 2019 |
|
ADR |
|
$ |
144.52 |
|
|
$ |
112.29 |
|
|
|
28.7 |
% |
|
$ |
141.99 |
|
|
|
1.8 |
% |
Occupancy |
|
|
72.8 |
% |
|
|
63.7 |
% |
|
|
14.3 |
% |
|
|
78.0 |
% |
|
|
-6.7 |
% |
RevPAR |
|
$ |
105.23 |
|
|
$ |
71.56 |
|
|
|
47.1 |
% |
|
$ |
110.76 |
|
|
|
-5.0 |
% |
As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. COVID-19 has been negatively affecting the U.S. hotel industry since March 2020. The Company’s Same Store Hotels revenue and operating results improved during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, which is consistent with the overall lodging industry. While the Company’s Same Store Hotels RevPAR was down approximately 5.0% for the six months ended June 30, 2022, compared to the same period in 2019 (the last year prior to the COVID-19 pandemic), RevPAR was approximately 0.5% higher for the three months ended June 30, 2022 compared to the same period in 2019. Though the Company anticipates further improvement to RevPAR compared to 2021, the Company can give no assurances as to the amount or period of improvement due to the uncertainty regarding the duration and long-term impact of COVID-19.
Revenues
The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended June 30, 2022 and 2021, the Company had total revenue of $337.7 million and $247.4 million, respectively. For the six months ended June 30, 2022 and 2021, the Company had total revenue of $598.1 million and $406.1 million, respectively. For the three months ended June 30, 2022 and 2021, respectively, Comparable Hotels achieved combined average occupancy of 77.9% and 70.7%, ADR of $153.35 and $122.69 and RevPAR of $119.41 and $86.71. For the six months ended June 30, 2022 and 2021, respectively, Comparable Hotels achieved combined average occupancy of 72.5% and 63.1%, ADR of $145.84 and $112.79 and RevPAR of $105.77 and $71.14. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.
Compared to the same periods in 2021, during the three and six months ended June 30, 2022, the Company experienced increases in ADR and occupancy, resulting in increases of 37.7% and 48.7%, respectively, in RevPAR for Comparable Hotels. Compared to the same periods of 2019 (pre-COVID-19), Comparable Hotels RevPAR for the second quarter of 2022 increased by 0.8% and for the first half of 2022 decreased by 4.6% primarily as a result of increases in ADR, offset by reductions in occupancy. Revenue recovery in the three and six months ended June 30, 2022, as compared to the same periods of 2021 was led by leisure transient and small group demand, with increased demand from small corporate business. Suburban markets continued to see stronger demand than urban markets and the Sun Belt generally outperformed other regions of the U.S. throughout the hospitality industry. The Company expects improvement to continue, however, future revenues could be negatively impacted by, among other things, historical seasonal trends, an increase in COVID-19 cases, new COVID-19 variants, state and local governments and businesses reverting to tighter mitigation restrictions, or deterioration of consumer sentiment.
Hotel Operating Expense
Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. Hotel operating expense for the three months ended June 30, 2022 and 2021 totaled $182.5 million and $135.4 million, respectively, or 54.1% and 54.7% of total revenue for the respective periods. Hotel operating expense for the six months ended June 30, 2022 and 2021 totaled $336.5 million and $239.2 million, respectively, or 56.3% and 58.9% of total revenue for the respective periods. Comparatively, prior to COVID-19, hotel operating expense was 54.9% and 56.2% of total revenue for the three and six months ended June 30, 2019.
24
Index
The impact of the pandemic has varied and will continue to vary by market and hotel. With the support of its brands and third-party management companies, the Company worked to reduce costs associated with operating hotels in a lower occupancy environment than that experienced prior to COVID-19. As occupancy has increased, adding staff to meet increased demand has been challenging, and while the Company’s hotels made progress in filling open positions through the first two quarters of 2022, they have often done so at higher wage rates as compared to 2021 or with more expensive contract labor. Likewise, supply chain disruptions and broader inflationary pressures throughout the overall economy and global tensions have driven shortages and cost increases for materials and supplies such as food and equipment. The Company continues to work with its management companies to realize operational efficiencies and mitigate the impact of cost pressures resulting from supply chain shortages, inflation and staffing challenges. The Company will continue to evaluate and work with its management companies to implement adjustments to the hotel operating model in response to continued changes in the operating environment and guest preferences including evaluating staffing levels at its hotels to maximize efficiency.
Property Taxes, Insurance and Other Expense
Property taxes, insurance, and other expense for the three months ended June 30, 2022 and 2021 was $18.8 million and $17.3 million, respectively, or 5.6% and 7.0% of total revenue for the respective periods. The increase was primarily due to increases in property taxes in certain locations due to the reassessment of property values by localities related to the improved economy, partially offset by decreases at other locations due to successful appeals of tax assessments. For the six months ended June 30, 2022 and 2021, property taxes, insurance and other expense totaled $37.5 million and $37.0 million, or 6.3% and 9.1% of total revenue for the respective periods. The Company will continue to aggressively appeal tax assessments in certain jurisdictions in an attempt to minimize tax increases, as warranted, and will continue to monitor locality guidance as a result of COVID-19.
General and Administrative Expense
General and administrative expense for the three months ended June 30, 2022 and 2021 was $10.3 million and $8.4 million, respectively, or 3.1% and 3.4% of total revenue for the respective periods. For the six months ended June 30, 2022 and 2021, general and administrative expense was $19.9 million and $16.6 million, respectively, or 3.3% and 4.1% of total revenue for the respective periods. The principal components of general and administrative expense are payroll and related benefit costs, legal fees, accounting fees and reporting expenses. The increase in general and administrative expense for the three and six months ended June 30, 2022 compared to the same periods in 2021, was primarily due to increased accruals of $1.2 million and $2.0 million, respectively, related to executive incentive compensation, based on operational and shareholder return performance through June 30, 2022 and estimated for the remainder of the year.
Loss on Impairment of Depreciable Real Estate Assets
The Company did not recognize any loss on the impairment of depreciable real estate assets for the six months ended June 30, 2022. Loss on impairment of depreciable real estate assets was $10.8 million for the six months ended June 30, 2021, consisting of impairment losses of $1.3 million for the Overland Park, Kansas SpringHill Suites and $9.4 million for four hotel properties identified by the Company in the first quarter of 2021 for potential sale. See Note 3 titled “Dispositions” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning these impairment losses.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended June 30, 2022 and 2021 was $45.3 million and $46.4 million, respectively. For the six months ended June 30, 2022 and 2021, depreciation and amortization expense was $90.6 million and $95.1 million, respectively. Depreciation and amortization expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for the respective periods owned. The decreases of approximately $1.1 million and $4.5 million, respectively, for the three and six months ended June 30, 2022 were primarily due to the hotel dispositions completed throughout 2021, partially offset by acquisitions completed throughout 2021 and renovations completed throughout 2022.
Interest and Other Expense, net
Interest and other expense, net for the three months ended June 30, 2022 and 2021 was
25
Index
$15.2 million and $18.6 million, respectively. For the six months ended June 30, 2022 and 2021, interest and other expense, net was $29.9 million and $37.1 million, respectively. Interest and other expense, net for the six months ended June 30, 2022 is net of approximately $0.3 million of interest capitalized associated with renovation projects. Additionally, interest and other expense, net for the three months ended June 30, 2022 and 2021 includes approximately $1.5 million and $2.9 million, respectively, of interest recorded on the Company’s finance lease liabilities. For the six months ended June 30, 2022 and 2021, interest and other expense, net includes approximately $2.9 million and $5.8 million, respectively, of interest recorded on the Company’s finance lease liabilities.
Interest expense related to the Company’s debt instruments for the six months ended June 30, 2022 decreased compared to the six months ended June 30, 2021 as a result of both lower average borrowings and lower average interest rates as the Company paid higher rates due to its covenant waiver status during the first six months of 2021. The Company anticipates interest expense for the second half of 2022 to be similar to the second half of 2021 due to reduced average borrowings offset by higher interest rates. See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional discussion of the Company’s amended unsecured credit facilities. In addition, interest on the Company’s finance leases decreased $2.9 million for the six months ended June 30, 2022 compared to the same period in 2021, due to the August 16, 2021 purchase of the fee interest in the land at the Company’s Seattle, Washington Residence Inn that was previously under a ground lease.
Non-GAAP Financial Measures
The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations (“FFO”), Modified Funds from Operations (“MFFO”), Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), Earnings Before Interest, Income Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”), Adjusted EBITDAre (“Adjusted EBITDAre”) and Adjusted Hotel EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss), cash flow from operations or any other operating GAAP measure. FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA are not necessarily indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. Although FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA, as reported by other companies that do not define such terms exactly as the Company defines such terms, the Company believes these supplemental measures are useful to investors when comparing the Company’s results between periods and with other REITs.
FFO and MFFO
The Company calculates and presents FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), which defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), extraordinary items as defined by GAAP, and the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated affiliates. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the Nareit definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.
The Company calculates MFFO by further adjusting FFO for the exclusion of amortization of finance ground lease assets, amortization of favorable and unfavorable operating leases, net and non-cash straight-line operating ground lease expense, as these expenses do not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.
The following table reconciles the Company’s GAAP net income (loss) to FFO and MFFO for the three and six months ended June 30, 2022 and 2021 (in thousands):
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income (loss) |
|
$ |
65,345 |
|
|
$ |
20,283 |
|
|
$ |
83,347 |
|
|
$ |
(26,152 |
) |
Depreciation of real estate owned |
|
|
44,557 |
|
|
|
44,764 |
|
|
|
89,117 |
|
|
|
91,852 |
|
(Gain) loss on sale of real estate |
|
|
- |
|
|
|
864 |
|
|
|
- |
|
|
|
(3,620 |
) |
Loss on impairment of depreciable real estate assets |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,754 |
|
Funds from operations |
|
|
109,902 |
|
|
|
65,911 |
|
|
|
172,464 |
|
|
|
72,834 |
|
Amortization of finance ground lease assets |
|
|
760 |
|
|
|
1,618 |
|
|
|
1,519 |
|
|
|
3,235 |
|
Amortization of favorable and unfavorable operating leases, net |
|
|
103 |
|
|
|
98 |
|
|
|
202 |
|
|
|
196 |
|
Non-cash straight-line operating ground lease expense |
|
|
38 |
|
|
|
43 |
|
|
|
78 |
|
|
|
87 |
|
Modified funds from operations |
|
$ |
110,803 |
|
|
$ |
67,670 |
|
|
$ |
174,263 |
|
|
$ |
76,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Index
EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA
EBITDA is a commonly used measure of performance in many industries and is defined as net income (loss) excluding interest, income taxes, depreciation and amortization. The Company believes EBITDA is useful to investors because it helps the Company and its investors evaluate the ongoing operating performance of the Company by removing the impact of its capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). In addition, certain covenants included in the agreements governing the Company’s indebtedness use EBITDA, as defined in the specific credit agreement, as a measure of financial compliance.
In addition to EBITDA, the Company also calculates and presents EBITDAre in accordance with standards established by Nareit, which defines EBITDAre as EBITDA, excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), plus real estate related impairments, and adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates. The Company presents EBITDAre because it believes that it provides further useful information to investors in comparing its operating performance between periods and between REITs that report EBITDAre using the Nareit definition.
The Company also considers the exclusion of non-cash straight-line operating ground lease expense from EBITDAre useful, as this expense does not reflect the underlying performance of the related hotels (Adjusted EBITDAre).
The Company further excludes actual corporate-level general and administrative expense for the Company from Adjusted EBITDAre (Adjusted Hotel EBITDA) to isolate property-level operational performance over which the Company’s hotel operators have direct control. The Company believes Adjusted Hotel EBITDA provides useful supplemental information to investors regarding operating performance and is used by management to measure the performance of the Company’s hotels and effectiveness of the operators of the hotels.
The following table reconciles the Company’s GAAP net income (loss) to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA for the three and six months ended June 30, 2022 and 2021 (in thousands):
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income (loss) |
|
$ |
65,345 |
|
|
$ |
20,283 |
|
|
$ |
83,347 |
|
|
$ |
(26,152 |
) |
Depreciation and amortization |
|
|
45,322 |
|
|
|
46,386 |
|
|
|
90,646 |
|
|
|
95,096 |
|
Amortization of favorable and unfavorable operating leases, net |
|
|
103 |
|
|
|
98 |
|
|
|
202 |
|
|
|
196 |
|
Interest and other expense, net |
|
|
15,198 |
|
|
|
18,618 |
|
|
|
29,852 |
|
|
|
37,131 |
|
Income tax expense |
|
|
202 |
|
|
|
87 |
|
|
|
381 |
|
|
|
195 |
|
EBITDA |
|
|
126,170 |
|
|
|
85,472 |
|
|
|
204,428 |
|
|
|
106,466 |
|
(Gain) loss on sale of real estate |
|
|
- |
|
|
|
864 |
|
|
|
- |
|
|
|
(3,620 |
) |
Loss on impairment of depreciable real estate assets |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,754 |
|
EBITDAre |
|
|
126,170 |
|
|
|
86,336 |
|
|
|
204,428 |
|
|
|
113,600 |
|
Non-cash straight-line operating ground lease expense |
|
|
38 |
|
|
|
43 |
|
|
|
78 |
|
|
|
87 |
|
Adjusted EBITDAre |
|
|
126,208 |
|
|
|
86,379 |
|
|
|
204,506 |
|
|
|
113,687 |
|
General and administrative expense |
|
|
10,307 |
|
|
|
8,435 |
|
|
|
19,945 |
|
|
|
16,554 |
|
Adjusted Hotel EBITDA |
|
$ |
136,515 |
|
|
$ |
94,814 |
|
|
$ |
224,451 |
|
|
$ |
130,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Index
The following table reconciles the Company’s GAAP net income to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA by quarter for the last five quarters (in thousands):
|
|
2nd Quarter |
|
|
3rd Quarter |
|
|
4th Quarter |
|
|
1st Quarter |
|
|
2nd Quarter |
|
|
|
2021 |
|
|
2021 |
|
|
2021 |
|
|
2022 |
|
|
2022 |
|
Net income |
|
$ |
20,283 |
|
|
$ |
31,759 |
|
|
$ |
13,221 |
|
|
$ |
18,002 |
|
|
$ |
65,345 |
|
Depreciation and amortization |
|
|
46,386 |
|
|
|
44,217 |
|
|
|
45,158 |
|
|
|
45,324 |
|
|
|
45,322 |
|
Amortization of favorable and unfavorable
operating leases, net |
|
|
98 |
|
|
|
98 |
|
|
|
99 |
|
|
|
99 |
|
|
|
103 |
|
Interest and other expense, net |
|
|
18,618 |
|
|
|
15,977 |
|
|
|
14,640 |
|
|
|
14,654 |
|
|
|
15,198 |
|
Income tax expense |
|
|
87 |
|
|
|
114 |
|
|
|
159 |
|
|
|
179 |
|
|
|
202 |
|
EBITDA |
|
|
85,472 |
|
|
|
92,165 |
|
|
|
73,277 |
|
|
|
78,258 |
|
|
|
126,170 |
|
(Gain) loss on sale of real estate |
|
|
864 |
|
|
|
(44 |
) |
|
|
68 |
|
|
|
- |
|
|
|
- |
|
EBITDAre |
|
|
86,336 |
|
|
|
92,121 |
|
|
|
73,345 |
|
|
|
78,258 |
|
|
|
126,170 |
|
Non-cash straight-line operating ground lease
expense |
|
|
43 |
|
|
|
41 |
|
|
|
41 |
|
|
|
40 |
|
|
|
38 |
|
Adjusted EBITDAre |
|
|
86,379 |
|
|
|
92,162 |
|
|
|
73,386 |
|
|
|
78,298 |
|
|
|
126,208 |
|
General and administrative expense |
|
|
8,435 |
|
|
|
13,261 |
|
|
|
11,223 |
|
|
|
9,638 |
|
|
|
10,307 |
|
Adjusted Hotel EBITDA |
|
$ |
94,814 |
|
|
$ |
105,423 |
|
|
$ |
84,609 |
|
|
$ |
87,936 |
|
|
$ |
136,515 |
|
Hotels Owned
As of June 30, 2022, the Company owned 219 hotels with an aggregate of 28,748 rooms located in 36 states. The following tables summarize the number of hotels and rooms by brand and by state:
Number of Hotels and Guest Rooms by Brand |
|
|
|
Number of |
|
Number of |
|
Brand |
|
Hotels |
|
Rooms |
|
Hilton Garden Inn |
|
40 |
|
|
5,593 |
|
Hampton |
|
37 |
|
|
4,953 |
|
Courtyard |
|
33 |
|
|
4,653 |
|
Homewood Suites |
|
30 |
|
|
3,417 |
|
Residence Inn |
|
29 |
|
|
3,548 |
|
Fairfield |
|
10 |
|
|
1,213 |
|
Home2 Suites |
|
10 |
|
|
1,146 |
|
SpringHill Suites |
|
9 |
|
|
1,245 |
|
TownePlace Suites |
|
9 |
|
|
931 |
|
Hyatt Place |
|
3 |
|
|
411 |
|
Marriott |
|
2 |
|
|
619 |
|
Embassy Suites |
|
2 |
|
|
316 |
|
Independent |
|
2 |
|
|
263 |
|
AC Hotels |
|
1 |
|
|
178 |
|
Aloft |
|
1 |
|
|
157 |
|
Hyatt House |
|
1 |
|
|
105 |
|
Total |
|
219 |
|
|
28,748 |
|
28
Index
Number of Hotels and Guest Rooms by State |
|
|
|
Number of |
|
|
Number of |
|
State |
|
Hotels |
|
|
Rooms |
|
Alabama |
|
|
13 |
|
|
|
1,246 |
|
Alaska |
|
|
2 |
|
|
|
304 |
|
Arizona |
|
|
13 |
|
|
|
1,776 |
|
Arkansas |
|
|
2 |
|
|
|
248 |
|
California |
|
|
26 |
|
|
|
3,721 |
|
Colorado |
|
|
4 |
|
|
|
567 |
|
Florida |
|
|
22 |
|
|
|
2,844 |
|
Georgia |
|
|
5 |
|
|
|
585 |
|
Idaho |
|
|
1 |
|
|
|
186 |
|
Illinois |
|
|
7 |
|
|
|
1,255 |
|
Indiana |
|
|
4 |
|
|
|
479 |
|
Iowa |
|
|
3 |
|
|
|
301 |
|
Kansas |
|
|
3 |
|
|
|
320 |
|
Louisiana |
|
|
3 |
|
|
|
422 |
|
Maine |
|
|
3 |
|
|
|
514 |
|
Maryland |
|
|
2 |
|
|
|
233 |
|
Massachusetts |
|
|
3 |
|
|
|
330 |
|
Michigan |
|
|
1 |
|
|
|
148 |
|
Minnesota |
|
|
3 |
|
|
|
405 |
|
Mississippi |
|
|
2 |
|
|
|
168 |
|
Missouri |
|
|
4 |
|
|
|
544 |
|
Nebraska |
|
|
4 |
|
|
|
621 |
|
New Jersey |
|
|
5 |
|
|
|
629 |
|
New York |
|
|
4 |
|
|
|
554 |
|
North Carolina |
|
|
8 |
|
|
|
881 |
|
Ohio |
|
|
2 |
|
|
|
252 |
|
Oklahoma |
|
|
4 |
|
|
|
545 |
|
Oregon |
|
|
1 |
|
|
|
243 |
|
Pennsylvania |
|
|
3 |
|
|
|
391 |
|
South Carolina |
|
|
5 |
|
|
|
590 |
|
Tennessee |
|
|
11 |
|
|
|
1,337 |
|
Texas |
|
|
27 |
|
|
|
3,328 |
|
Utah |
|
|
3 |
|
|
|
393 |
|
Virginia |
|
|
12 |
|
|
|
1,722 |
|
Washington |
|
|
3 |
|
|
|
490 |
|
Wisconsin |
|
|
1 |
|
|
|
176 |
|
Total |
|
|
219 |
|
|
|
28,748 |
|
|
|
|
|
|
|
|
|
|
29
Index
The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 219 hotels the Company owned as of June 30, 2022:
City |
|
State |
|
Brand |
|
Manager |
|
Date
Acquired or
Completed |
|
Rooms |
|
Anchorage |
|
AK |
|
Embassy Suites |
|
Stonebridge |
|
4/30/2010 |
|
|
169 |
|
Anchorage |
|
AK |
|
Home2 Suites |
|
Stonebridge |
|
12/1/2017 |
|
|
135 |
|
Auburn |
|
AL |
|
Hilton Garden Inn |
|
LBA |
|
3/1/2014 |
|
|
101 |
|
Birmingham |
|
AL |
|
Courtyard |
|
LBA |
|
3/1/2014 |
|
|
84 |
|
Birmingham |
|
AL |
|
Hilton Garden Inn |
|
LBA |
|
9/12/2017 |
|
|
104 |
|
Birmingham |
|
AL |
|
Home2 Suites |
|
LBA |
|
9/12/2017 |
|
|
106 |
|
Birmingham |
|
AL |
|
Homewood Suites |
|
McKibbon |
|
3/1/2014 |
|
|
95 |
|
Dothan |
|
AL |
|
Hilton Garden Inn |
|
LBA |
|
6/1/2009 |
|
|
104 |
|
Dothan |
|
AL |
|
Residence Inn |
|
LBA |
|
3/1/2014 |
|
|
84 |
|
Huntsville |
|
AL |
|
Hampton |
|
LBA |
|
9/1/2016 |
|
|
98 |
|
Huntsville |
|
AL |
|
Hilton Garden Inn |
|
LBA |
|
3/1/2014 |
|
|
101 |
|
Huntsville |
|
AL |
|
Home2 Suites |
|
LBA |
|
9/1/2016 |
|
|
77 |
|
Huntsville |
|
AL |
|
Homewood Suites |
|
LBA |
|
3/1/2014 |
|
|
107 |
|
Mobile |
|
AL |
|
Hampton |
|
McKibbon |
|
9/1/2016 |
|
|
101 |
|
Prattville |
|
AL |
|
Courtyard |
|
LBA |
|
3/1/2014 |
|
|
84 |
|
Rogers |
|
AR |
|
Hampton |
|
Raymond |
|
8/31/2010 |
|
|
122 |
|
Rogers |
|
AR |
|
Homewood Suites |
|
Raymond |
|
4/30/2010 |
|
|
126 |
|
Chandler |
|
AZ |
|
Courtyard |
|
North Central |
|
11/2/2010 |
|
|
150 |
|
Chandler |
|
AZ |
|
Fairfield |
|
North Central |
|
11/2/2010 |
|
|
110 |
|
Phoenix |
|
AZ |
|
Courtyard |
|
North Central |
|
11/2/2010 |
|
|
164 |
|
Phoenix |
|
AZ |
|
Hampton |
|
North Central |
|
9/1/2016 |
|
|
125 |
|
Phoenix |
|
AZ |
|
Hampton |
|
North Central |
|
5/2/2018 |
|
|
210 |
|
Phoenix |
|
AZ |
|
Homewood Suites |
|
North Central |
|
9/1/2016 |
|
|
134 |
|
Phoenix |
|
AZ |
|
Residence Inn |
|
North Central |
|
11/2/2010 |
|
|
129 |
|
Scottsdale |
|
AZ |
|
Hilton Garden Inn |
|
North Central |
|
9/1/2016 |
|
|
122 |
|
Tempe |
|
AZ |
|
Hyatt House |
|
Crestline |
|
8/13/2020 |
|
|
105 |
|
Tempe |
|
AZ |
|
Hyatt Place |
|
Crestline |
|
8/13/2020 |
|
|
154 |
|
Tucson |
|
AZ |
|
Hilton Garden Inn |
|
Western |
|
7/31/2008 |
|
|
125 |
|
Tucson |
|
AZ |
|
Residence Inn |
|
Western |
|
3/1/2014 |
|
|
124 |
|
Tucson |
|
AZ |
|
TownePlace Suites |
|
Western |
|
10/6/2011 |
|
|
124 |
|
Agoura Hills |
|
CA |
|
Homewood Suites |
|
Dimension |
|
3/1/2014 |
|
|
125 |
|
Burbank |
|
CA |
|
Courtyard |
|
Huntington |
|
8/11/2015 |
|
|
190 |
|
Burbank |
|
CA |
|
Residence Inn |
|
Marriott |
|
3/1/2014 |
|
|
166 |
|
Burbank |
|
CA |
|
SpringHill Suites |
|
Marriott |
|
7/13/2015 |
|
|
170 |
|
Clovis |
|
CA |
|
Hampton |
|
Dimension |
|
7/31/2009 |
|
|
86 |
|
Clovis |
|
CA |
|
Homewood Suites |
|
Dimension |
|
2/2/2010 |
|
|
83 |
|
Cypress |
|
CA |
|
Courtyard |
|
Dimension |
|
3/1/2014 |
|
|
180 |
|
Cypress |
|
CA |
|
Hampton |
|
Dimension |
|
6/29/2015 |
|
|
110 |
|
Oceanside |
|
CA |
|
Courtyard |
|
Marriott |
|
9/1/2016 |
|
|
142 |
|
Oceanside |
|
CA |
|
Residence Inn |
|
Marriott |
|
3/1/2014 |
|
|
125 |
|
Rancho Bernardo/San Diego |
|
CA |
|
Courtyard |
|
InnVentures |
|
3/1/2014 |
|
|
210 |
|
Sacramento |
|
CA |
|
Hilton Garden Inn |
|
Dimension |
|
3/1/2014 |
|
|
153 |
|
San Bernardino |
|
CA |
|
Residence Inn |
|
InnVentures |
|
2/16/2011 |
|
|
95 |
|
San Diego |
|
CA |
|
Courtyard |
|
Huntington |
|
9/1/2015 |
|
|
245 |
|
San Diego |
|
CA |
|
Hampton |
|
Dimension |
|
3/1/2014 |
|
|
177 |
|
San Diego |
|
CA |
|
Hilton Garden Inn |
|
InnVentures |
|
3/1/2014 |
|
|
200 |
|
San Diego |
|
CA |
|
Residence Inn |
|
Dimension |
|
3/1/2014 |
|
|
121 |
|
San Jose |
|
CA |
|
Homewood Suites |
|
Dimension |
|
3/1/2014 |
|
|
140 |
|
30
Index
City |
|
State |
|
Brand |
|
Manager |
|
Date
Acquired or
Completed |
|
Rooms |
|
San Juan Capistrano |
|
CA |
|
Residence Inn |
|
Marriott |
|
9/1/2016 |
|
|
130 |
|
Santa Ana |
|
CA |
|
Courtyard |
|
Dimension |
|
5/23/2011 |
|
|
155 |
|
Santa Clarita |
|
CA |
|
Courtyard |
|
Dimension |
|
9/24/2008 |
|
|
140 |
|
Santa Clarita |
|
CA |
|
Fairfield |
|
Dimension |
|
10/29/2008 |
|
|
66 |
|
Santa Clarita |
|
CA |
|
Hampton |
|
Dimension |
|
10/29/2008 |
|
|
128 |
|
Santa Clarita |
|
CA |
|
Residence Inn |
|
Dimension |
|
10/29/2008 |
|
|
90 |
|
Tustin |
|
CA |
|
Fairfield |
|
Marriott |
|
9/1/2016 |
|
|
145 |
|
Tustin |
|
CA |
|
Residence Inn |
|
Marriott |
|
9/1/2016 |
|
|
149 |
|
Colorado Springs |
|
CO |
|
Hampton |
|
Chartwell |
|
9/1/2016 |
|
|
101 |
|
Denver |
|
CO |
|
Hilton Garden Inn |
|
Stonebridge |
|
9/1/2016 |
|
|
221 |
|
Highlands Ranch |
|
CO |
|
Hilton Garden Inn |
|
Dimension |
|
3/1/2014 |
|
|
128 |
|
Highlands Ranch |
|
CO |
|
Residence Inn |
|
Dimension |
|
3/1/2014 |
|
|
117 |
|
Boca Raton |
|
FL |
|
Hilton Garden Inn |
|
Dimension |
|
9/1/2016 |
|
|
149 |
|
Cape Canaveral |
|
FL |
|
Hampton |
|
LBA |
|
4/30/2020 |
|
|
116 |
|
Cape Canaveral |
|
FL |
|
Homewood Suites |
|
LBA |
|
9/1/2016 |
|
|
153 |
|
Cape Canaveral |
|
FL |
|
Home2 Suites |
|
LBA |
|
4/30/2020 |
|
|
108 |
|
Fort Lauderdale |
|
FL |
|
Hampton |
|
Dimension |
|
6/23/2015 |
|
|
156 |
|
Fort Lauderdale |
|
FL |
|
Residence Inn |
|
LBA |
|
9/1/2016 |
|
|
156 |
|
Gainesville |
|
FL |
|
Hilton Garden Inn |
|
McKibbon |
|
9/1/2016 |
|
|
104 |
|
Gainesville |
|
FL |
|
Homewood Suites |
|
McKibbon |
|
9/1/2016 |
|
|
103 |
|
Jacksonville |
|
FL |
|
Homewood Suites |
|
McKibbon |
|
3/1/2014 |
|
|
119 |
|
Jacksonville |
|
FL |
|
Hyatt Place |
|
Crestline |
|
12/7/2018 |
|
|
127 |
|
Miami |
|
FL |
|
Courtyard |
|
Dimension |
|
3/1/2014 |
|
|
118 |
|
Miami |
|
FL |
|
Hampton |
|
HHM |
|
4/9/2010 |
|
|
121 |
|
Miami |
|
FL |
|
Homewood Suites |
|
Dimension |
|
3/1/2014 |
|
|
162 |
|
Orlando |
|
FL |
|
Fairfield |
|
Marriott |
|
7/1/2009 |
|
|
200 |
|
Orlando |
|
FL |
|
Home2 Suites |
|
LBA |
|
3/19/2019 |
|
|
128 |
|
Orlando |
|
FL |
|
SpringHill Suites |
|
Marriott |
|
7/1/2009 |
|
|
200 |
|
Panama City |
|
FL |
|
Hampton |
|
LBA |
|
3/12/2009 |
|
|
95 |
|
Panama City |
|
FL |
|
TownePlace Suites |
|
LBA |
|
1/19/2010 |
|
|
103 |
|
Pensacola |
|
FL |
|
TownePlace Suites |
|
McKibbon |
|
9/1/2016 |
|
|
97 |
|
Tallahassee |
|
FL |
|
Fairfield |
|
LBA |
|
9/1/2016 |
|
|
97 |
|
Tallahassee |
|
FL |
|
Hilton Garden Inn |
|
LBA |
|
3/1/2014 |
|
|
85 |
|
Tampa |
|
FL |
|
Embassy Suites |
|
HHM |
|
11/2/2010 |
|
|
147 |
|
Atlanta/Downtown |
|
GA |
|
Hampton |
|
McKibbon |
|
2/5/2018 |
|
|
119 |
|
Atlanta/Perimeter Dunwoody |
|
GA |
|
Hampton |
|
LBA |
|
6/28/2018 |
|
|
132 |
|
Atlanta |
|
GA |
|
Home2 Suites |
|
McKibbon |
|
7/1/2016 |
|
|
128 |
|
Macon |
|
GA |
|
Hilton Garden Inn |
|
LBA |
|
3/1/2014 |
|
|
101 |
|
Savannah |
|
GA |
|
Hilton Garden Inn |
|
Newport |
|
3/1/2014 |
|
|
105 |
|
Cedar Rapids |
|
IA |
|
Hampton |
|
Aimbridge |
|
9/1/2016 |
|
|
103 |
|
Cedar Rapids |
|
IA |
|
Homewood Suites |
|
Aimbridge |
|
9/1/2016 |
|
|
95 |
|
Davenport |
|
IA |
|
Hampton |
|
Aimbridge |
|
9/1/2016 |
|
|
103 |
|
Boise |
|
ID |
|
Hampton |
|
Raymond |
|
4/30/2010 |
|
|
186 |
|
Des Plaines |
|
IL |
|
Hilton Garden Inn |
|
Raymond |
|
9/1/2016 |
|
|
253 |
|
Hoffman Estates |
|
IL |
|
Hilton Garden Inn |
|
HHM |
|
9/1/2016 |
|
|
184 |
|
Mettawa |
|
IL |
|
Hilton Garden Inn |
|
HHM |
|
11/2/2010 |
|
|
170 |
|
Mettawa |
|
IL |
|
Residence Inn |
|
HHM |
|
11/2/2010 |
|
|
130 |
|
Rosemont |
|
IL |
|
Hampton |
|
Raymond |
|
9/1/2016 |
|
|
158 |
|
Skokie |
|
IL |
|
Hampton |
|
Raymond |
|
9/1/2016 |
|
|
225 |
|
Warrenville |
|
IL |
|
Hilton Garden Inn |
|
HHM |
|
11/2/2010 |
|
|
135 |
|
31
Index
City |
|
State |
|
Brand |
|
Manager |
|
Date
Acquired or
Completed |
|
Rooms |
|
Indianapolis |
|
IN |
|
SpringHill Suites |
|
HHM |
|
11/2/2010 |
|
|
130 |
|
Merrillville |
|
IN |
|
Hilton Garden Inn |
|
HHM |
|
9/1/2016 |
|
|
124 |
|
Mishawaka |
|
IN |
|
Residence Inn |
|
HHM |
|
11/2/2010 |
|
|
106 |
|
South Bend |
|
IN |
|
Fairfield |
|
HHM |
|
9/1/2016 |
|
|
119 |
|
Overland Park |
|
KS |
|
Fairfield |
|
Raymond |
|
3/1/2014 |
|
|
110 |
|
Overland Park |
|
KS |
|
Residence Inn |
|
Raymond |
|
3/1/2014 |
|
|
120 |
|
Wichita |
|
KS |
|
Courtyard |
|
Aimbridge |
|
3/1/2014 |
|
|
90 |
|
Lafayette |
|
LA |
|
Hilton Garden Inn |
|
LBA |
|
7/30/2010 |
|
|
153 |
|
Lafayette |
|
LA |
|
SpringHill Suites |
|
LBA |
|
6/23/2011 |
|
|
103 |
|
New Orleans |
|
LA |
|
Homewood Suites |
|
Dimension |
|
3/1/2014 |
|
|
166 |
|
Marlborough |
|
MA |
|
Residence Inn |
|
Crestline |
|
3/1/2014 |
|
|
112 |
|
Westford |
|
MA |
|
Hampton |
|
Crestline |
|
3/1/2014 |
|
|
110 |
|
Westford |
|
MA |
|
Residence Inn |
|
Crestline |
|
3/1/2014 |
|
|
108 |
|
Annapolis |
|
MD |
|
Hilton Garden Inn |
|
Crestline |
|
3/1/2014 |
|
|
126 |
|
Silver Spring |
|
MD |
|
Hilton Garden Inn |
|
Crestline |
|
7/30/2010 |
|
|
107 |
|
Portland |
|
ME |
|
AC Hotels |
|
Crestline |
|
8/20/2021 |
|
|
178 |
|
Portland |
|
ME |
|
Aloft |
|
Crestline |
|
9/10/2021 |
|
|
157 |
|
Portland |
|
ME |
|
Residence Inn |
|
Crestline |
|
10/13/2017 |
|
|
179 |
|
Novi |
|
MI |
|
Hilton Garden Inn |
|
HHM |
|
11/2/2010 |
|
|
148 |
|
Maple Grove |
|
MN |
|
Hilton Garden Inn |
|
North Central |
|
9/1/2016 |
|
|
121 |
|
Rochester |
|
MN |
|
Hampton |
|
Raymond |
|
8/3/2009 |
|
|
124 |
|
St. Paul |
|
MN |
|
Hampton |
|
Raymond |
|
3/4/2019 |
|
|
160 |
|
Kansas City |
|
MO |
|
Hampton |
|
Raymond |
|
8/31/2010 |
|
|
122 |
|
Kansas City |
|
MO |
|
Residence Inn |
|
Raymond |
|
3/1/2014 |
|
|
106 |
|
St. Louis |
|
MO |
|
Hampton |
|
Raymond |
|
8/31/2010 |
|
|
190 |
|
St. Louis |
|
MO |
|
Hampton |
|
Raymond |
|
4/30/2010 |
|
|
126 |
|
Hattiesburg |
|
MS |
|
Courtyard |
|
LBA |
|
3/1/2014 |
|
|
84 |
|
Hattiesburg |
|
MS |
|
Residence Inn |
|
LBA |
|
12/11/2008 |
|
|
84 |
|
Carolina Beach |
|
NC |
|
Courtyard |
|
Crestline |
|
3/1/2014 |
|
|
144 |
|
Charlotte |
|
NC |
|
Fairfield |
|
Newport |
|
9/1/2016 |
|
|
94 |
|
Durham |
|
NC |
|
Homewood Suites |
|
McKibbon |
|
12/4/2008 |
|
|
122 |
|
Fayetteville |
|
NC |
|
Home2 Suites |
|
LBA |
|
2/3/2011 |
|
|
118 |
|
Greensboro |
|
NC |
|
SpringHill Suites |
|
Newport |
|
3/1/2014 |
|
|
82 |
|
Jacksonville |
|
NC |
|
Home2 Suites |
|
LBA |
|
9/1/2016 |
|
|
105 |
|
Wilmington |
|
NC |
|
Fairfield |
|
Crestline |
|
3/1/2014 |
|
|
122 |
|
Winston-Salem |
|
NC |
|
Hampton |
|
McKibbon |
|
9/1/2016 |
|
|
94 |
|
Omaha |
|
NE |
|
Courtyard |
|
Marriott |
|
3/1/2014 |
|
|
181 |
|
Omaha |
|
NE |
|
Hampton |
|
HHM |
|
9/1/2016 |
|
|
139 |
|
Omaha |
|
NE |
|
Hilton Garden Inn |
|
HHM |
|
9/1/2016 |
|
|
178 |
|
Omaha |
|
NE |
|
Homewood Suites |
|
HHM |
|
9/1/2016 |
|
|
123 |
|
Cranford |
|
NJ |
|
Homewood Suites |
|
Dimension |
|
3/1/2014 |
|
|
108 |
|
Mahwah |
|
NJ |
|
Homewood Suites |
|
Dimension |
|
3/1/2014 |
|
|
110 |
|
Mount Laurel |
|
NJ |
|
Homewood Suites |
|
Newport |
|
1/11/2011 |
|
|
118 |
|
Somerset |
|
NJ |
|
Courtyard |
|
Newport |
|
3/1/2014 |
|
|
162 |
|
West Orange |
|
NJ |
|
Courtyard |
|
Newport |
|
1/11/2011 |
|
|
131 |
|
Islip/Ronkonkoma |
|
NY |
|
Hilton Garden Inn |
|
Crestline |
|
3/1/2014 |
|
|
166 |
|
New York |
|
NY |
|
Independent |
|
Highgate |
|
3/1/2014 |
|
|
208 |
|
Syracuse |
|
NY |
|
Courtyard |
|
Crestline |
|
10/16/2015 |
|
|
102 |
|
Syracuse |
|
NY |
|
Residence Inn |
|
Crestline |
|
10/16/2015 |
|
|
78 |
|
Mason |
|
OH |
|
Hilton Garden Inn |
|
Raymond |
|
9/1/2016 |
|
|
110 |
|
32
Index
City |
|
State |
|
Brand |
|
Manager |
|
Date
Acquired or
Completed |
|
Rooms |
|
Twinsburg |
|
OH |
|
Hilton Garden Inn |
|
Aimbridge |
|
10/7/2008 |
|
|
142 |
|
Oklahoma City |
|
OK |
|
Hampton |
|
Raymond |
|
5/28/2010 |
|
|
200 |
|
Oklahoma City |
|
OK |
|
Hilton Garden Inn |
|
Raymond |
|
9/1/2016 |
|
|
155 |
|
Oklahoma City |
|
OK |
|
Homewood Suites |
|
Raymond |
|
9/1/2016 |
|
|
100 |
|
Oklahoma City (West) |
|
OK |
|
Homewood Suites |
|
Chartwell |
|
9/1/2016 |
|
|
90 |
|
Portland |
|
OR |
|
Hampton |
|
Raymond |
|
11/17/2021 |
|
|
243 |
|
Collegeville/Philadelphia |
|
PA |
|
Courtyard |
|
Newport |
|
11/15/2010 |
|
|
132 |
|
Malvern/Philadelphia |
|
PA |
|
Courtyard |
|
Newport |
|
11/30/2010 |
|
|
127 |
|
Pittsburgh |
|
PA |
|
Hampton |
|
Newport |
|
12/31/2008 |
|
|
132 |
|
Charleston |
|
SC |
|
Home2 Suites |
|
LBA |
|
9/1/2016 |
|
|
122 |
|
Columbia |
|
SC |
|
Hilton Garden Inn |
|
Newport |
|
3/1/2014 |
|
|
143 |
|
Columbia |
|
SC |
|
TownePlace Suites |
|
Newport |
|
9/1/2016 |
|
|
91 |
|
Greenville |
|
SC |
|
Hyatt Place |
|
Crestline |
|
9/1/2021 |
|
|
130 |
|
Hilton Head |
|
SC |
|
Hilton Garden Inn |
|
McKibbon |
|
3/1/2014 |
|
|
104 |
|
Chattanooga |
|
TN |
|
Homewood Suites |
|
LBA |
|
3/1/2014 |
|
|
76 |
|
Franklin |
|
TN |
|
Courtyard |
|
Chartwell |
|
9/1/2016 |
|
|
126 |
|
Franklin |
|
TN |
|
Residence Inn |
|
Chartwell |
|
9/1/2016 |
|
|
124 |
|
Knoxville |
|
TN |
|
Homewood Suites |
|
McKibbon |
|
9/1/2016 |
|
|
103 |
|
Knoxville |
|
TN |
|
SpringHill Suites |
|
McKibbon |
|
9/1/2016 |
|
|
103 |
|
Knoxville |
|
TN |
|
TownePlace Suites |
|
McKibbon |
|
9/1/2016 |
|
|
97 |
|
Memphis |
|
TN |
|
Hampton |
|
Crestline |
|
2/5/2018 |
|
|
144 |
|
Memphis |
|
TN |
|
Hilton Garden Inn |
|
Crestline |
|
10/28/2021 |
|
|
150 |
|
Nashville |
|
TN |
|
Hilton Garden Inn |
|
Dimension |
|
9/30/2010 |
|
|
194 |
|
Nashville |
|
TN |
|
Home2 Suites |
|
Dimension |
|
5/31/2012 |
|
|
119 |
|
Nashville |
|
TN |
|
TownePlace Suites |
|
LBA |
|
9/1/2016 |
|
|
101 |
|
Addison |
|
TX |
|
SpringHill Suites |
|
Marriott |
|
3/1/2014 |
|
|
159 |
|
Arlington |
|
TX |
|
Hampton |
|
Western |
|
12/1/2010 |
|
|
98 |
|
Austin |
|
TX |
|
Courtyard |
|
HHM |
|
11/2/2010 |
|
|
145 |
|
Austin |
|
TX |
|
Fairfield |
|
HHM |
|
11/2/2010 |
|
|
150 |
|
Austin |
|
TX |
|
Hampton |
|
Dimension |
|
4/14/2009 |
|
|
124 |
|
Austin |
|
TX |
|
Hilton Garden Inn |
|
HHM |
|
11/2/2010 |
|
|
117 |
|
Austin |
|
TX |
|
Homewood Suites |
|
Dimension |
|
4/14/2009 |
|
|
97 |
|
Austin/Round Rock |
|
TX |
|
Hampton |
|
Dimension |
|
3/6/2009 |
|
|
94 |
|
Austin/Round Rock |
|
TX |
|
Homewood Suites |
|
Dimension |
|
9/1/2016 |
|
|
115 |
|
Dallas |
|
TX |
|
Homewood Suites |
|
Western |
|
9/1/2016 |
|
|
130 |
|
Denton |
|
TX |
|
Homewood Suites |
|
Chartwell |
|
9/1/2016 |
|
|
107 |
|
El Paso |
|
TX |
|
Homewood Suites |
|
Western |
|
3/1/2014 |
|
|
114 |
|
Fort Worth |
|
TX |
|
Courtyard |
|
LBA |
|
2/2/2017 |
|
|
124 |
|
Fort Worth |
|
TX |
|
Hilton Garden Inn |
|
Raymond |
|
11/17/2021 |
|
|
157 |
|
Fort Worth |
|
TX |
|
Homewood Suites |
|
Raymond |
|
11/17/2021 |
|
|
112 |
|
Fort Worth |
|
TX |
|
TownePlace Suites |
|
Western |
|
7/19/2010 |
|
|
140 |
|
Frisco |
|
TX |
|
Hilton Garden Inn |
|
Western |
|
12/31/2008 |
|
|
102 |
|
Grapevine |
|
TX |
|
Hilton Garden Inn |
|
Western |
|
9/24/2010 |
|
|
110 |
|
Houston |
|
TX |
|
Courtyard |
|
LBA |
|
9/1/2016 |
|
|
124 |
|
Houston |
|
TX |
|
Marriott |
|
Western |
|
1/8/2010 |
|
|
206 |
|
Houston |
|
TX |
|
Residence Inn |
|
Western |
|
3/1/2014 |
|
|
129 |
|
Houston |
|
TX |
|
Residence Inn |
|
Western |
|
9/1/2016 |
|
|
120 |
|
Lewisville |
|
TX |
|
Hilton Garden Inn |
|
Aimbridge |
|
10/16/2008 |
|
|
165 |
|
San Antonio |
|
TX |
|
TownePlace Suites |
|
Western |
|
3/1/2014 |
|
|
106 |
|
Shenandoah |
|
TX |
|
Courtyard |
|
LBA |
|
9/1/2016 |
|
|
124 |
|
33
Index
City |
|
State |
|
Brand |
|
Manager |
|
Date
Acquired or
Completed |
|
Rooms |
|
Stafford |
|
TX |
|
Homewood Suites |
|
Western |
|
3/1/2014 |
|
|
78 |
|
Texarkana |
|
TX |
|
Hampton |
|
Aimbridge |
|
1/31/2011 |
|
|
81 |
|
Provo |
|
UT |
|
Residence Inn |
|
Dimension |
|
3/1/2014 |
|
|
114 |
|
Salt Lake City |
|
UT |
|
Residence Inn |
|
Huntington |
|
10/20/2017 |
|
|
136 |
|
Salt Lake City |
|
UT |
|
SpringHill Suites |
|
HHM |
|
11/2/2010 |
|
|
143 |
|
Alexandria |
|
VA |
|
Courtyard |
|
Marriott |
|
3/1/2014 |
|
|
178 |
|
Alexandria |
|
VA |
|
SpringHill Suites |
|
Marriott |
|
3/28/2011 |
|
|
155 |
|
Charlottesville |
|
VA |
|
Courtyard |
|
Crestline |
|
3/1/2014 |
|
|
139 |
|
Manassas |
|
VA |
|
Residence Inn |
|
Crestline |
|
2/16/2011 |
|
|
107 |
|
Richmond |
|
VA |
|
Independent |
|
Crestline |
|
10/9/2019 |
|
|
55 |
|
Richmond |
|
VA |
|
Courtyard |
|
White Lodging |
|
12/8/2014 |
|
|
135 |
|
Richmond |
|
VA |
|
Marriott |
|
White Lodging |
|
3/1/2014 |
|
|
413 |
|
Richmond |
|
VA |
|
Residence Inn |
|
White Lodging |
|
12/8/2014 |
|
|
75 |
|
Suffolk |
|
VA |
|
Courtyard |
|
Crestline |
|
3/1/2014 |
|
|
92 |
|
Suffolk |
|
VA |
|
TownePlace Suites |
|
Crestline |
|
3/1/2014 |
|
|
72 |
|
Virginia Beach |
|
VA |
|
Courtyard |
|
Crestline |
|
3/1/2014 |
|
|
141 |
|
Virginia Beach |
|
VA |
|
Courtyard |
|
Crestline |
|
3/1/2014 |
|
|
160 |
|
Kirkland |
|
WA |
|
Courtyard |
|
InnVentures |
|
3/1/2014 |
|
|
150 |
|
Seattle |
|
WA |
|
Residence Inn |
|
InnVentures |
|
3/1/2014 |
|
|
234 |
|
Tukwila |
|
WA |
|
Homewood Suites |
|
Dimension |
|
3/1/2014 |
|
|
106 |
|
Madison |
|
WI |
|
Hilton Garden Inn |
|
Raymond |
|
2/18/2021 |
|
|
176 |
|
Total |
|
|
|
|
|
|
|
|
|
|
28,748 |
|
Related Parties
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. See Note 6 titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning the Company’s related party transactions.
Liquidity and Capital Resources
Capital Resources
The Company’s principal short term sources of liquidity are the operating cash flows generated from the Company’s properties and availability under its Revolving Credit Facility. Over the long term, the Company may receive proceeds from strategic additional secured and unsecured debt financing, dispositions of its hotel properties and offerings of the Company’s common shares, including pursuant to the ATM Program. Macroeconomic pressures including inflation, increases in interest rates and general market uncertainty could impact the Company’s ability to raise debt or equity capital to fund long-term liquidity requirements in a cost-effective manner.
As of June 30, 2022, the Company had $1.4 billion of total outstanding debt consisting of $366.0 million of mortgage debt and $1.0 billion outstanding under its unsecured credit facilities, excluding unamortized debt issuance costs and fair value adjustments. As of June 30, 2022, the Company had available corporate cash on hand of approximately $1.6 million as well as unused borrowing capacity under its Revolving Credit Facility of approximately $359 million.
The credit agreements governing the unsecured credit facilities contain mandatory prepayment requirements, customary affirmative and negative covenants and events of default. The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios, and restrictions on certain investments. The Company was in compliance with the applicable covenants as of June 30, 2022.
As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company entered into amendments in June 2020 that suspended the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities. These amendments imposed certain restrictions regarding the Company’s investing and financing activities that were applicable during a specified waiver period. On March 1, 2021, as a result of the continued disruption from COVID-19 and the related uncertainty with respect to the Company’s future operating results, the Company entered into the March 2021 amendments to extend
34
Index
the covenant waiver period for all but two of the Company’s existing financial maintenance covenants until the date that the compliance certificate was required to be delivered for the fiscal quarter ended June 30, 2022, and extending to March 31, 2022 for the remaining two covenants (unless, in each case, the Company elected an earlier date) (the “Extended Covenant Waiver Period”). The March 2021 amendments provided for continued restrictions on the Company’s ability to make cash distributions, except for the payment of cash dividends of $0.01 per common share per quarter or to the extent required to maintain REIT status.
The March 2021 amendments also modified certain of the existing financial maintenance covenants to less restrictive levels upon exiting the Extended Covenant Waiver Period as follows (capitalized terms are defined in the amended credit agreements):
|
● |
Maximum Consolidated Leverage Ratio of 8.50 to 1.00 for the first two fiscal quarters, 8.00 to 1.00 for two fiscal quarters, 7.50 to 1.00 for one fiscal quarter and then a ratio of 6.50 to 1.00 thereafter; |
|
● |
Minimum Fixed Charge Coverage Ratio of 1.05 to 1.00 for the first fiscal quarter, 1.25 to 1.00 for one fiscal quarter and then a ratio of 1.50 to 1.00 thereafter; |
|
● |
Minimum Unsecured Interest Coverage Ratio of no less than 1.25 to 1.00 for one fiscal quarter, 1.50 to 1.00 for one fiscal quarter, 1.75 to 1.00 for one fiscal quarter and a ratio of 2.00 to 1.00 thereafter; and |
|
● |
Maximum Unsecured Leverage Ratio of 65% for two fiscal quarters and 60% thereafter. |
Except as otherwise set forth in the amendments described above, the terms of the credit agreements remain in effect.
In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021. Upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions described above regarding its investing and financing activities that were applicable during the Extended Covenant Waiver Period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders (except to the extent required to maintain REIT status), capital expenditures and use of proceeds from the sale of property or common shares of the Company. Those restrictions, including the restriction on payment of distributions to shareholders, were still in place throughout the second quarter of 2021.
On June 2, 2022, the Company entered into an unsecured $75 million senior notes facility with a maturity date of June 2, 2029. The Company used the net proceeds from the $75 million senior notes facility for general corporate purposes, including the repayment of borrowings under the Company’s Revolving Credit Facility and repayment of mortgage debt.
In July 2022, the Company entered into an amendment and restatement of its $850 million credit facility, increasing the borrowing capacity to $1.2 billion. The amendment and restatement effectively extended the maturity date of the facility and changed the reference rate of the facility from LIBOR to SOFR plus 10 basis points plus a margin ranging from 1.35% to 2.25% depending on the Company’s leverage ratio.
See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for a description of the Company’s debt agreements as of June 30, 2022 and amendments to those agreements subsequent to that date.
The Company has a universal shelf registration statement on Form S-3 (No. 333-262915) that was automatically effective upon filing on February 23, 2022. The Company may offer an indeterminate number or amount, as the case may be, of (1) common shares, no par value per share; (2) preferred shares, no par value per share; (3) depository shares representing the Company’s preferred shares; (4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5) rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. Future offerings will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company’s common shares and opportunities for uses of any proceeds.
The Company has entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $300 million of its common shares under the ATM Program under the Company’s prior shelf registration statement and the current shelf registration statement described above. Since inception of the ATM Program in August 2020 through June 30, 2022, the Company has sold approximately 4.7 million common shares at a weighted-average market sales price of approximately $16.26 per common share and received aggregate gross proceeds of approximately $76.0 million and proceeds net of offering costs, which included $0.9 million of commissions, of approximately $75.1 million. The Company used the net proceeds from the sale of these shares primarily to pay down borrowings under its Revolving Credit Facility and for general corporate purposes, including acquisitions of hotel properties. As of June 30, 2022, approximately $224.0 million remained available for issuance under the ATM Program. No shares were sold under the Company’s ATM Program in the first two quarters of 2022. The Company plans to use future net proceeds from the sale of shares under the ATM Program to continue to pay down borrowings under its Revolving Credit Facility (if any). The Company plans to use the corresponding increased availability under the Revolving Credit Facility for general corporate
35
Index
purposes which may include, among other things, acquisitions of additional properties, the repayment of other outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the net proceeds to acquire another REIT or other company that invests in income producing properties.
Capital Uses
The Company anticipates that cash flow from operations, availability under its credit facilities, additional borrowings and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including required distributions to shareholders, share repurchases, capital improvements, debt service, hotel acquisitions, lease commitments, and cash management activities.
Distributions
The Company generally must distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order to maintain its REIT status. During the Extended Covenant Waiver Period, as a requirement under the amendments to its unsecured credit facilities, the Company was restricted in its ability to make distributions except for the payment of cash distributions of $0.01 per common share per quarter or to the extent required to maintain REIT status. As discussed above, in July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021. As a result, upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions on distributions that were applicable during the Extended Covenant Waiver Period. On February 22, 2022, the Company announced that its Board of Directors reinstated its policy of distributions on a monthly basis, with the first monthly cash distribution paid on March 15, 2022. On June 20, 2022, the Company declared a monthly cash distribution of $0.05 per common share for the month of July, paid on July 15, 2022, to shareholders of record as of July 5, 2022. For the three and six months ended June 30, 2022, the Company paid distributions of $0.15 and $0.21, respectively, per common share for a total of $34.3 million and $48.0 million, respectively.
The Company, as it has done historically due to seasonality, may use its Revolving Credit Facility to maintain the consistency of distributions, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. Any distribution will be subject to approval of the Company’s Board of Directors and there can be no assurance of the classification or duration of distributions at any particular distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of its hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company or to the extent required to maintain REIT status. If cash flow from operations and the Revolving Credit Facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurance it will be successful with this strategy, and it may need to reduce its distributions to minimum levels required to maintain its qualification as a real estate investment trust. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.
Share Repurchases
In May 2022, the Company’s Board of Directors approved a one-year extension of its existing share repurchase program, authorizing share repurchases up to an aggregate of $345 million (the “Share Repurchase Program”). The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2023 if not terminated or extended earlier. During the six months ended June 30, 2022, the Company purchased, under its Share Repurchase Program, less than 0.1 million of its common shares at a weighted-average market purchase price of approximately $14.42 per common share for an aggregate purchase price, including commissions, of approximately $0.1 million. The shares were repurchased under a written trading plan as part of the Share Repurchase Program that provided for share repurchases in open market transactions and that was intended to comply with Rule 10b5-1 under the Exchange Act. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash on hand or availability under its unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will also depend upon prevailing market conditions, regulatory requirements and other factors. As of June 30, 2022, approximately $344.9 million remained available for purchase under the Share Repurchase Program.
Capital Improvements
Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it deems prudent. The Company is committed to maintaining and enhancing each property’s competitive position in its market. The Company has invested in and plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. As of June 30, 2022, the Company held approximately $34.1 million in reserve related to these properties. During the six months ended June 30, 2022, the Company invested approximately $16.6 million in capital expenditures. The Company anticipates spending approximately $55 to $65 million during 2022, which includes various renovation projects for approximately 20 to 25 properties, however, inflationary pressures or supply chain shortages, among other issues, may result in increased costs and delays for anticipated projects. The Company does not currently have any existing or planned projects for new property development.
36
Index
Upcoming Debt Maturities and Debt Service Payments
The Company has approximately $191.5 million of principal and interest payments due on its debt over the next 12 months. Included in this total is $66.0 million due under the Company’s Revolving Credit Facility, which was scheduled to mature on July 27, 2022, but was amended and restated on July 25, 2022, extending the initial maturity date to July 25, 2026. Also included in the total above is approximately $69.9 million of mortgage loans maturing in the second half of 2022 and first half of 2023, of which the Company paid off $31.7 million on August 1, 2022 using borrowings under its unsecured credit facilities, and the remainder of which the Company plans to pay off using borrowings under its Revolving Credit Facility and/or new financing. See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q.
Hotel Purchase Contract Commitments
As of June 30, 2022, the Company had one outstanding contract, which was entered into during 2021, for the potential purchase of a hotel in Madison, Wisconsin for an expected purchase price of approximately $78.6 million. The hotel is currently under development and is expected to be completed and opened for business in early 2024, as a 260-room Embassy Suites. Although the Company is working towards acquiring this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that closing on this hotel will occur under the outstanding purchase contract. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to purchase the hotel.
Cash Management Activities
As part of the cost sharing arrangements discussed in Note 6, titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under the cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies.
Business Interruption
Being in the real estate industry, the Company is exposed to natural disasters on both a local and national scale. Although management believes the Company has adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Company’s financial position or results of operations.
Seasonality
The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues for the Company’s hotels are greater in the second and third quarters than in the first and fourth quarters. However, due to the effects of COVID-19, these typical seasonal patterns have been disrupted since the first quarter of 2020, although the Company experienced some seasonal decrease in demand in the first and fourth quarters of each year. To the extent that cash flow from operations is insufficient during any quarter due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements.
Critical Accounting Policies and Estimates
The preparation of the Company’s financial statements in accordance with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Company’s financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the Company’s Unaudited Consolidated Financial Statements and Notes thereto. The Company has discussed those policies and estimates that it believes are critical and require the use of complex judgment in their application in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 22, 2022. There have been no material changes to the Company’s critical accounting policies or the methods or assumptions we apply.
37
Index
New Accounting Standards
See Note 1 titled “Organization and Summary of Significant Accounting Policies” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for information on the adoption of recently issued accounting standards in the six months ended June 30, 2022.
Subsequent Events
On July 15, 2022, the Company paid approximately $11.4 million, or $0.05 per common share, in distributions to shareholders of record as of July 5, 2022.
In July 2022, the Company declared a monthly cash distribution of $0.05 per common share for the month of August 2022. The distribution is payable on August 15, 2022, to shareholders of record as of August 2, 2022.
In July 2022, the Company refinanced its $850 million credit facility and amended all other unsecured credit facilities to align the financial covenants with the amended $1.2 billion credit facility and to replace the reference rate used (LIBOR) with SOFR plus 0.10% as applicable. See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10Q, for additional information on the Company’s debt refinancing.
On August 1, 2022, the Company repaid in full three secured mortgage loans for a total of $31.7 million. See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning these transactions.
38
Index