Apple Hospitality REIT Reports Results of Operations for Second Quarter 2020

RICHMOND, Va.–(BUSINESS WIRE)–Apple Hospitality REIT, Inc. (NYSE: APLE) (the “Company” or “Apple Hospitality”) today announced results of operations for the second quarter ended June 30, 2020 and provided an operational update regarding the Company’s response to the COVID-19 pandemic.

Apple Hospitality REIT, Inc.

Selected Statistical and Financial Data

As of and For the Three and Six Months Ended June 30

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

 

Three Months Ended

 

Six Months Ended

June 30,

 

June 30,

 

2020

 

 

 

2019

 

 

% Change

 

 

2020

 

 

 

2019

 

 

% Change

 
Net income (loss)

$

(78,243

)

$

62,090

 

n/m

 

$

(81,012

)

$

100,241

 

n/m

 

Net income (loss) per share

$

(0.35

)

$

0.28

 

n/m

 

$

(0.36

)

$

0.45

 

n/m

 

 
Adjusted EBITDAre

$

(5,321

)

$

126,451

 

n/m

 

$

48,453

 

$

227,118

 

(78.7

%)

Comparable Hotels Adjusted Hotel EBITDA

$

742

 

$

133,132

 

(99.4

%)

$

63,635

 

$

238,128

 

(73.3

%)

Modified funds from operations (MFFO)

$

(24,016

)

$

110,190

 

n/m

 

$

13,794

 

$

194,914

 

(92.9

%)

MFFO per share

$

(0.11

)

$

0.49

 

n/m

 

$

0.06

 

$

0.87

 

(93.1

%)

 
Average Daily Rate (ADR) (Actual)

$

100.76

 

$

141.60

 

(28.8

%)

$

122.48

 

$

139.09

 

(11.9

%)

Occupancy (Actual)

 

28.2

%

 

81.4

%

(65.4

%)

 

44.5

%

 

77.6

%

(42.7

%)

Revenue Per Available Room (RevPAR) (Actual)

$

28.44

 

$

115.30

 

(75.3

%)

$

54.55

 

$

107.95

 

(49.5

%)

 
Comparable Hotels ADR

$

100.76

 

$

142.01

 

(29.0

%)

$

122.52

 

$

139.88

 

(12.4

%)

Comparable Hotels Occupancy

 

28.2

%

 

81.5

%

(65.4

%)

 

44.5

%

 

77.8

%

(42.8

%)

Comparable Hotels RevPAR

$

28.44

 

$

115.73

 

(75.4

%)

$

54.50

 

$

108.82

 

(49.9

%)

 
Distributions paid

$

 

$

67,155

 

(100.0

%)

$

67,324

 

$

134,343

 

(49.9

%)

Distributions paid per share

$

 

$

0.30

 

(100.0

%)

$

0.30

 

$

0.60

 

(50.0

%)

 
Cash and cash equivalents

$

156,461

 

$

 

n/a

 

Total debt outstanding

$

1,588,721

 

Total debt outstanding, net of cash and cash equivalents

$

1,432,260

 

Total debt outstanding, net of cash and cash equivalents, to total capitalization (2)

39.9

%

 

Note: n/m = not meaningful.

(1)

 

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

(2)

 

Total debt outstanding, net of cash and cash equivalents (“net total debt outstanding”), divided by net total debt outstanding plus equity market capitalization based on the Company’s closing share price of $9.66 on June 30, 2020.

Comparable Hotels is defined as the 233 hotels owned by the Company as of June 30, 2020. For hotels acquired during the periods noted, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership, and for dispositions, results have been excluded for the Company’s period of ownership. Results for periods prior to the Company’s ownership have not been included in the Company’s actual Consolidated Financial Statements and are included only for comparison purposes. Results included for periods prior to the Company’s ownership are based on information from the prior owner of each hotel and have not been audited or adjusted.

Justin Knight, Chief Executive Officer of Apple Hospitality, commented, “The second quarter of this year was unlike anything we have experienced in our more than 20-year history in the hospitality industry. I want to thank our corporate team and the many talented and dedicated individuals working for our brands, our management companies and at our hotels for their efforts during these challenging times. From the onset of the pandemic, we have been intently focused on maintaining a sound liquidity position, safeguarding long-term value for our shareholders and ensuring our ability to thrive in future years while also addressing immediate needs at our hotels to ensure the health and well-being of our guests and associates. Our rooms-focused hotels, broadly diversified across markets and demand generators, are open and uniquely positioned with broad consumer appeal. Despite extraordinary declines in rate and occupancy during the second quarter, we were able to achieve positive Adjusted Hotel EBITDA for the quarter and positive Adjusted EBITDAre for the month of June. We have been working diligently to reduce expenses and maximize hotel operating results by targeting available business in our markets. With sequential improvement since April, we estimate July cash flow will be slightly positive for the Company. While we have many unknowns and unprecedented challenges ahead of us, the current operating environment has confirmed the strength and resiliency of our portfolio and underlying strategy, and I am confident we are well positioned to weather the current challenges and outperform as travel recovers.”

Actions to Mitigate Operational and Financial Impact of COVID-19 and Enhance Liquidity

Apple Hospitality, its brands and its third-party management companies have taken the following actions to mitigate the operational and financial impact of the COVID-19 pandemic and enhance liquidity:

  • Reduced property-level expenses: Beginning in March 2020, the Company, its brands and its third-party management companies implemented cost elimination and efficiency initiatives at each of the Company’s hotels by reducing labor costs, reducing or eliminating certain services and amenities, and reducing rates under various service contracts. Hotel operating expenses were reduced by 67% during the second quarter of 2020 as compared to the same period last year.
  • Sustained hotel operations: As of June 30, 2020, all of the Company’s hotels were open and receiving reservations with enhanced health and sanitation measures in place, and the Company intentionally consolidated operations at 18 hotels, down from 38 hotels as of May 2020, in market clusters to maximize operational efficiencies. The cost structure of the Company’s primarily rooms-focused hotels allows them to operate cost effectively even at very low occupancy levels.
  • Enhanced sales efforts: Together with its third-party management companies, the Company has enhanced its sales efforts by focusing on COVID-19-specific demand opportunities in certain markets and strategically targeting and maximizing performance based on available demand, such as leisure, construction, manufacturing, government, medical and maintenance focused business.
  • Postponed non-essential capital improvement projects: The Company has postponed all non-essential capital improvement projects planned for 2020 and anticipates a reduction of approximately $50 million in originally planned capital improvements for the year.
  • Suspended distributions: The Company suspended its monthly distributions, with the last distribution being paid March 16, 2020.
  • Ceased share repurchases: The Company terminated its written trading plan under its Share Repurchase Program in March 2020, and no shares were repurchased during the second quarter of 2020.
  • Reduced executive compensation: The Company’s Executive Chairman voluntarily agreed to forego six months of his salary, the Company’s Chief Executive Officer volunteered to reduce his target compensation by 60% and the non-employee directors on the Company’s Board of Directors volunteered as a group to reduce their annual director fees by more than 15%. General and administrative expenses were reduced by approximately 27% during the second quarter of 2020 as compared to the same period last year primarily due to anticipated decreases in compensation and other overhead expenses.
  • Completed amendments to unsecured credit facilities: Effective June 5, 2020, the Company entered into amendments to its unsecured credit facilities to suspend its financial covenants until June 30, 2021, and modify the calculations for the following year.
  • Terminated purchase contract: In May 2020, the Company terminated the contract to purchase the planned Courtyard by Marriott to be constructed in Denver, Colorado, for approximately $49 million, and the refundable deposit of approximately $0.6 million was repaid to the Company.
  • Hotel under contract to sell: In June 2020, the Company entered into a contract for the sale of its Homewood Suites by Hilton in Memphis, Tennessee, for a gross sales price of $9 million.

Operations Update

While the Company experienced a significant decline in operating results during April 2020, as compared to April 2019, occupancy and RevPAR showed sequential improvement in May and June 2020, resulting in positive Adjusted Hotel EBITDA for the months of May and June 2020, as well as in total for the second quarter. Adjusted Hotel EBITDA for the month of June 2020 covered substantially all of the Company’s interest and general and administrative expenses, and the Company estimates, based on July 2020 occupancy of approximately 45%, that its cash flow for the month of July 2020 will be slightly positive. The following tables highlight the monthly impact of the COVID-19 pandemic on the Company’s ADR, Occupancy, RevPAR and Adjusted Hotel EBITDA during the second quarter of 2020, as compared to the second quarter of 2019 (in thousands, except statistical data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three

 

 

 

 

 

 

 

Three

April

 

May

 

June

 

Months Ended

 

April

 

May

 

June

 

Months Ended

 

2020

 

 

 

2020

 

 

 

2020

 

 

June 30, 2020

 

 

2019

 

 

 

2019

 

 

 

2019

 

 

June 30, 2019

 
ADR

$

99.92

 

$

95.67

 

$

105.09

 

$

100.76

 

$

139.83

 

$

139.72

 

$

145.14

 

$

141.60

 

Occupancy

 

17.7

%

 

28.6

%

 

38.2

%

 

28.2

%

 

80.6

%

 

80.1

%

 

83.7

%

 

81.4

%

RevPAR

$

17.70

 

$

27.39

 

$

40.17

 

$

28.44

 

$

112.64

 

$

111.94

 

$

121.41

 

$

115.30

 

Adjusted Hotel EBITDA (1)

$

(7,931

)

$

575

 

$

8,060

 

$

704

 

$

42,014

 

$

43,542

 

$

49,203

 

$

134,759

 

 
(1) See explanation and reconciliation of Adjusted Hotel EBITDA to net income (loss) included below.

The Company, its third-party management companies and the brands the Company’s hotels are franchised with have aggressively worked to mitigate the costs and uses of cash associated with operating the Company’s hotels in a low-occupancy environment and are thoughtfully working to position the hotels to adapt to changes that may occur to guest preferences in the future. The operational impact of the COVID-19 pandemic has varied and will vary by market and hotel. With the support of its brands and third-party management companies, the Company will continue to evaluate and implement additional measures as the situation evolves.

Portfolio Activity

Acquisitions and Contracts for Potential Acquisitions

In April 2020, Apple Hospitality closed on the purchase of the newly developed Hampton Inn & Suites by Hilton and Home2 Suites by Hilton in Cape Canaveral, Florida, a combined 224-room, dual-branded complex. The Company entered into the contract to purchase the hotels in 2018. The purchase price was approximately $47 million, funded by $25 million of cash on hand and a one-year note payable with the developer secured by the hotels for approximately $22 million.

The Company has outstanding contracts, all of which were entered into prior to 2020, for the potential purchase of three additional hotels. The three hotels are currently under development and details related to the hotels under contract for purchase are as follows:

  • The Company has an outstanding contract to purchase a combined 259-room Hyatt House and Hyatt Place dual-branded complex in Tempe, Arizona, for a total purchase price of approximately $65 million. The Company anticipates acquiring the two hotels in August 2020.
  • The Company has an outstanding contract to purchase a 176-room Hilton Garden Inn in Madison, Wisconsin, for a total purchase price of approximately $50 million. The Company anticipates acquiring the hotel during the next 12 months from June 30, 2020.

There are many conditions to closing under each of the contracts that have not yet been satisfied, including completion of construction, and there can be no assurance that closings on the three hotels will occur. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under these contracts.

Dispositions and Contract for Potential Disposition

The Company sold two hotels during the first quarter of 2020 for a combined gross sales price of approximately $45 million. In June 2020, the Company entered into a contract to sell its 140-room Homewood Suites by Hilton in Memphis, Tennessee, for a gross sales price of $9 million. As a result of committing to sell the hotel, the Company recognized an impairment loss on the hotel of approximately $4 million in the second quarter of 2020. Although the Company is working towards the sale of the hotel, there are many conditions to closing that have not yet been satisfied, and there can be no assurance that a closing on the hotel will occur. If all conditions to closing are met, the sale is expected to be completed in the fourth quarter of 2020.

Capital Improvements

During the six months ended June 30, 2020, the Company invested approximately $30 million in capital expenditures. The Company anticipates spending an additional $5 million to $10 million in capital expenditures during the remainder of 2020. This estimate is approximately $50 million less than originally planned for the entire year of 2020, as the Company has postponed all previously-planned, non-essential capital improvements in order to maintain a sound liquidity position as a result of COVID-19.

Balance Sheet and Liquidity

Summary

As of June 30, 2020, Apple Hospitality had approximately $1.6 billion of total outstanding indebtedness with a current combined weighted-average interest rate of approximately 3.8%, cash on hand of approximately $156 million and availability under its revolving credit facility of approximately $225 million. Excluding unamortized debt issuance costs and fair value adjustments, the Company’s total outstanding indebtedness is comprised of approximately $519 million in property-level debt secured by 33 hotels and approximately $1.1 billion outstanding on its unsecured credit facilities. In March 2020, the Company borrowed the remaining availability under its $425 million revolving credit facility as a precautionary measure to increase its cash position and preserve financial flexibility in light of uncertainty in the financial markets resulting from COVID-19. In connection with entering into amendments to each of its unsecured credit facilities in June 2020, and as a result of improved operating cash flows as compared to April and May 2020, the Company repaid approximately $225 million and $100 million of borrowings under its revolving credit facility in June 2020 and July 2020, respectively. The Company’s total debt to total capitalization, net of cash and cash equivalents at June 30, 2020 was approximately 40%. As of June 30, 2020, the Company’s weighted-average debt maturities are 5 years, with no maturities for the remainder of 2020 and $53 million, net of reserves, maturing in 2021.

Unsecured Credit Facilities Amendments

The credit agreements governing the Company’s unsecured credit facilities contain mandatory prepayment requirements and 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. As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company anticipated that it may not be able to maintain compliance with certain of these covenants in future periods. As a result, on June 5, 2020, the Company entered into amendments to each of the unsecured credit facilities. The amendments suspend the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities until the date the compliance certificate is required to be delivered for the fiscal quarter ending June 30, 2021, unless the Company elects an earlier date, (the “Covenant Waiver Period”), and provide for, among other restrictions, the following during the Covenant Waiver Period:

  • Mandatory prepayments of amounts outstanding under the Company’s unsecured credit facilities of net cash proceeds from certain debt and equity issuances and asset dispositions, subject to various exceptions. A portion of the mandatory prepayments will be available for future borrowing under the revolving credit facility;
  • A minimum liquidity covenant of $100 million;
  • A requirement to pledge the equity interests of each direct or indirect owner of certain unencumbered property in favor of the administrative agents if average liquidity for any month is less than $275 million or the total amount outstanding under the revolving credit facility exceeds $275 million;
  • Restrictions on the Company’s and its subsidiaries’ ability to incur additional indebtedness or prepay certain existing indebtedness;
  • Restrictions on the Company’s ability to make cash distributions (except to the extent required to maintain REIT status) and share repurchases;
  • Maximum discretionary capital expenditures of $50 million;
  • Limitations on additional investments; and
  • An increase in the applicable interest rate under the unsecured credit facilities until the end of the Covenant Waiver Period to a rate that corresponds to the highest leverage-based applicable interest rate margin with respect to the unsecured credit facilities.

The amendments also modify the calculation of the existing financial covenants for the four quarters subsequent to the end of the Covenant Waiver Period to annualize calculated amounts to the extent the most recently ended fiscal quarter is not at least four fiscal quarters from the end of the Covenant Waiver Period and provide for an increase in the LIBOR floor under the credit agreements from 0 to 25 basis points for Eurodollar Rate Loans and establish a Base Rate floor of 1.25% on the revolving credit facility, and any term loans under the credit agreements that are not hedged. Except as otherwise set forth in the amendments, the terms of the credit agreements remain in effect.

As of June 30, 2020, the Company was in compliance with the applicable covenants of the credit agreements.

2020 Outlook

Given the ongoing uncertainties related to the depth and duration of the COVID-19 pandemic and its impact on the travel industry and hotel operations, the Company does not expect to issue guidance until operating fundamentals begin to stabilize.

Second Quarter 2020 Earnings Conference Call

The Company will host a quarterly conference call for investors and interested parties on Friday, August 7, 2020, at 10:00 a.m. Eastern Time. The conference call will be accessible by telephone and the internet. To access the call, participants from within the U.S. should dial 877-407-9039, and participants from outside the U.S. should dial 201-689-8470. Participants may also access the call via live webcast by visiting the Investor Information section of the Company’s website at ir.applehospitalityreit.com. A replay of the call will be available from approximately 1:00 p.m. Eastern Time on August 7, 2020, through 11:59 p.m. Eastern Time on August 28, 2020. To access the replay, the domestic dial-in number is 844-512-2921, the international dial-in number is 412-317-6671, and the passcode is 13706336. The archive of the webcast will be available on the Company’s website for a limited time.

About Apple Hospitality REIT, Inc.

Apple Hospitality REIT, Inc. (NYSE: APLE) is a publicly traded real estate investment trust (“REIT”) that owns one of the largest and most diverse portfolios of upscale, rooms-focused hotels in the United States. Apple Hospitality’s portfolio consists of 233 hotels with more than 29,700 guest rooms located in 87 markets throughout 34 states. Concentrated with industry-leading brands, the Company’s portfolio consists of 104 Marriott-branded hotels, 126 Hilton-branded hotels, one Hyatt-branded hotel and two independent hotels. For more information, please visit www.applehospitalityreit.com.

Apple Hospitality REIT Non-GAAP Financial Measures

The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations (“FFO”); Modified FFO (“MFFO”); Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”); Earnings Before Interest, Income Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”); Adjusted EBITDAre (“Adjusted EBITDAre”); and Adjusted Hotel EBITDA (“Adjusted Hotel EBITDA”). These non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss), cash flow from operations or any other operating GAAP measure. FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA are not necessarily indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. Although FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA, as reported by other companies that do not define such terms exactly as the Company defines such terms, the Company believes these supplemental measures are useful to investors when comparing the Company’s results between periods and with other REITs. Reconciliations of these non-GAAP financial measures to net income (loss) are provided in the following pages.

Forward-Looking Statements Disclaimer

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 is the adverse effect of COVID-19, including possible resurgences, 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 impacts caused by the COVID-19 outbreak 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 potential for additional hotel closures/consolidations that may be mandated or advisable, whether based on increased COVID-19 cases 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.

Contacts

Apple Hospitality REIT, Inc.

Kelly Clarke, Vice President, Investor Relations

804-727-6321

[email protected]

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