UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2019 or ☐ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 001-37389 | --- | --- | --- | |--------------------------------------------------------------|-----------------------------------------------------------------------|---------------- ...

Apple Hospitality REIT, Inc. (NYSE:APLE) Q3 2019 Earnings Conference Call November 5, 2019 9:00 AM ET Company Participants Kelly Clarke – Vice President-Investor Relations Justin Knight – Chief Executive Officer Krissy Gathright – Chief Operating Officer Rachael Rothman – Chief Financial Officer Conference Call Participants Anthony Powell – Barclays Austin Wurschmidt – KeyBanc Capital Markets Bryan Maher – B. Riley FBR Michael Bellisario – Robert W. Baird Neil Malkin – Capital One Securities Dori Kesten – W ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ Commission File Number 001-37389 APPLE HOSPITALITY REIT, INC. (Exact name of registrant as specified in its charter) Virginia 26-1379210 (State or ot ...

Financial Data and Key Metrics Changes - Actual RevPAR increased by 1.1% while comparable hotels' RevPAR was essentially flat with a nominal decline of 0.1% [8][9] - Comparable ADR for the quarter increased by 0.5%, offset by a 50 basis points decline in occupancy [9] - Adjusted EBITDA decreased by 3% for the quarter and 2% year-to-date [9][30] - Comparable hotels' adjusted hotel EBITDA margin was 39.6% for the quarter, down 40 basis points year-over-year [9][25] Business Line Data and Key Metrics Changes - Non-room revenue grew by 3% in the second quarter, while food and beverage revenue declined [24] - Same store total payroll increased by 4% for occupied room, with controllable operating expenses increasing less than 1% for occupied room [25] Market Data and Key Metrics Changes - Only two markets, Los Angeles and San Diego, contributed more than 5% to EBITDA for the quarter, both showing approximately 3% RevPAR growth above the portfolio average [22] - The Phoenix market performed well with healthy demand exceeding new supply increases [23] - Austin, Chicago, Dallas, Nashville, and Seattle markets faced challenges due to new supply absorption [23] Company Strategy and Development Direction - The company remains selective in considering new acquisitions and dispositions, with a focus on high-quality existing select service hotels [12] - The company plans to spend an additional $45 million to $55 million on renovations in 2019, including starting renovations at 20 hotels [32] - The company is exploring potential dispositions through brokered transactions and reverse inquiries, with a strong balance sheet providing flexibility [13] Management's Comments on Operating Environment and Future Outlook - Management believes demand will remain steady through the remainder of the year, offsetting continued supply growth in many markets [10] - The company is tightening its full-year operating guidance without adjusting the midpoint, reflecting performance during the second quarter [10][29] - Management expressed confidence in the strength of their brands and onsite management teams to remain competitive long-term [11][19] Other Important Information - The company has returned over $150 million to shareholders in dividends, representing a 7.9% yield [33] - The company has seven hotels under contract for acquisition, totaling an expected purchase price of $216 million [13] Q&A Session Summary Question: What is the reason for the relative strength in transient demand? - Management noted that transient demand has been better than group demand, with a 1% increase in transient demand [36][37] Question: What is the company's view on new lifestyle brands? - The company is interested in expanding into lifestyle brands but sees Moxy as a niche play, while new concepts from Hilton may have broader appeal [41][42] Question: Why was there no stock buyback in the quarter? - Management indicated that they are more focused on redeploying proceeds from sales into share repurchases, especially given the recent pullback in stock price [44][45] Question: What is the company's strategy regarding acquisitions versus buybacks? - Management sees new builds as better opportunities currently, with share repurchases being equally attractive due to the recent stock price decline [46][47] Question: What is the status of the boutique hotel acquisition? - The boutique hotel acquisition is seen as a unique opportunity to gain insights into the independent hotel business without straying from the company's core strategy [56][57][58]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%2E%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited consolidated financial statements, including balance sheets, operations, equity, and cash flows, with detailed notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets and liabilities slightly increased, while shareholders' equity decreased due to finance lease liabilities and reduced debt Consolidated Balance Sheets (in thousands) | Metric | December 31, 2018 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | | :------------------------------------- | :------------------------------- | :--------------------------- | :-------------------- | | **Assets** | | | | | Investment in real estate, net | $4,816,410 | $4,858,103 | $41,693 | | Restricted cash | $33,632 | $33,199 | $(433) | | Due from third party managers, net | $29,091 | $52,214 | $23,123 | | Other assets, net | $49,539 | $45,323 | $(4,216) | | **Total Assets** | **$4,928,672** | **$4,988,839** | **$60,167** | | **Liabilities** | | | | | Debt, net | $1,412,242 | $1,384,314 | $(27,928) | | Finance lease liabilities | $- | $163,508 | $163,508 | | Accounts payable and other liabilities | $107,420 | $88,949 | $(18,471) | | **Total Liabilities** | **$1,519,662** | **$1,636,771** | **$117,109** | | **Shareholders' Equity** | | | | | Common stock | $4,495,073 | $4,493,598 | $(1,475) | | Accumulated other comprehensive income (loss) | $10,006 | $(6,158) | $(16,164) | | Distributions greater than net income | $(1,096,069) | $(1,135,372) | $(39,303) | | **Total Shareholders' Equity** | **$3,409,010** | **$3,352,068** | **$(56,942)** | | **Total Liabilities and Shareholders' Equity** | **$4,928,672** | **$4,988,839** | **$60,167** | [Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Total revenue showed mixed trends, while net and comprehensive income declined for Q2 and H1 2019, influenced by interest and derivatives Consolidated Statements of Operations and Comprehensive Income (in thousands, except per share data) | Metric (in thousands, except per share data) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $341,117 | $344,714 | $644,904 | $643,103 | | Total expense | $262,853 | $263,723 | $514,002 | $507,848 | | Operating income | $78,103 | $80,991 | $131,954 | $135,255 | | Interest and other expense, net | $(15,857) | $(13,210) | $(31,351) | $(25,129) | | Income before income taxes | $62,246 | $67,781 | $100,603 | $110,126 | | Net income | $62,090 | $67,630 | $100,241 | $109,812 | | Other comprehensive income (loss): Interest rate derivatives | $(10,120) | $1,740 | $(16,164) | $8,032 | | Comprehensive income | $51,970 | $69,370 | $84,077 | $117,844 | | Basic and diluted net income per common share | $0.28 | $0.29 | $0.45 | $0.48 | | Weighted average common shares outstanding | 223,899 | 230,342 | 223,915 | 230,428 | [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity decreased due to negative derivative adjustments and distributions exceeding net income, despite share-based compensation and repurchases Consolidated Statements of Shareholders' Equity (in thousands) | Metric (in thousands) | Balance at December 31, 2018 | Six Months Ended June 30, 2019 Changes | Balance at June 30, 2019 | | :------------------------------------------------ | :--------------------------- | :------------------------------------- | :----------------------- | | Common Stock Amount | $4,495,073 | $(1,475) | $4,493,598 | | Accumulated Other Comprehensive Income (Loss) | $10,006 | $(16,164) | $(6,158) | | Distributions Greater Than Net Income | $(1,096,069) | $(39,303) | $(1,135,372) | | Total Shareholders' Equity | $3,409,010 | $(56,942) | $3,352,068 | **Key Changes (Six Months Ended June 30, 2019):** * **Cumulative effect of ASU 2016-02 adoption:** $(5,201) thousand (to Distributions Greater Than Net Income) * **Share based compensation, net:** $2,621 thousand * **Common shares repurchased:** $(4,096) thousand * **Interest rate derivatives:** $(16,164) thousand * **Net income:** $100,241 thousand * **Distributions declared to shareholders ($0.60 per share):** $(134,343) thousand [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flows remained stable, investing activities shifted to a net inflow, and financing activities resulted in a net outflow Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $164,072 | $166,368 | | Net cash provided by (used in) investing activities | $2,731 | $(174,605) | | Net cash (used in) provided by financing activities | $(167,236) | $10,725 | | Net change in cash, cash equivalents and restricted cash | $(433) | $2,488 | | Cash, cash equivalents and restricted cash, end of period | $33,199 | $32,279 | - Investing activities shifted from a net outflow of **$174.6 million** in H1 2018 to a net inflow of **$2.7 million** in H1 2019, primarily due to **$95.0 million** in net proceeds from real estate sales in 2019[16](index=16&type=chunk) - Financing activities saw a significant change from a net inflow of **$10.7 million** in H1 2018 to a net outflow of **$167.2 million** in H1 2019, driven by net payments on the revolving credit facility and distributions paid[16](index=16&type=chunk) [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, financial instrument valuations, and specific transactions, including new lease accounting, real estate, debt, and compensation [1. Organization and Summary of Significant Accounting Policies](index=8&type=section&id=1.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) Apple Hospitality REIT, Inc., a self-advised REIT, adopted new lease accounting standards on January 1, 2019, recognizing right-of-use assets and lease liabilities - Apple Hospitality REIT, Inc. is a self-advised REIT focused on income-producing real estate in the U.S. lodging sector[18](index=18&type=chunk) - As of June 30, 2019, the Company owned **234 hotels** with **30,046 rooms** in 34 states[18](index=18&type=chunk)[25](index=25&type=chunk) - The Company adopted ASU No. 2016-02, Leases (Topic 842), effective January 1, 2019, resulting in the recognition of right-of-use assets and lease liabilities on the balance sheet[21](index=21&type=chunk)[22](index=22&type=chunk) - A cumulative-effect adjustment of approximately **$5.2 million** was recorded to distributions greater than net income upon adoption of Topic 842[22](index=22&type=chunk)[23](index=23&type=chunk) [2. Investment in Real Estate](index=10&type=section&id=2.%20Investment%20in%20Real%20Estate) Net investment in real estate increased to $4.86 billion, with two hotel acquisitions and commitments for five more totaling $159.2 million in H1 2019 Investment in Real Estate, net (in thousands) | Investment Category (in thousands) | December 31, 2018 | June 30, 2019 | | :--------------------------------- | :---------------- | :------------ | | Land | $737,822 | $730,614 | | Building and Improvements | $4,503,728 | $4,469,348 | | Furniture, Fixtures and Equipment | $471,399 | $471,324 | | Finance Ground Lease Assets | $- | $144,768 | | Franchise Fees | $13,354 | $13,787 | | Less Accumulated Depreciation and Amortization | $(909,893) | $(971,738) | | **Investment in Real Estate, net** | **$4,816,410** | **$4,858,103** | - The Company acquired two hotels in H1 2019 for an aggregate purchase price of approximately **$52.4 million**, adding 288 rooms[27](index=27&type=chunk)[28](index=28&type=chunk) - As of June 30, 2019, the Company had outstanding contracts for the potential purchase of five hotels for approximately **$159.2 million**, expected to be completed and opened over the next 12 to 24 months[30](index=30&type=chunk)[32](index=32&type=chunk) [3. Hotel Dispositions](index=12&type=section&id=3.%20Hotel%20Dispositions) In March 2019, the Company sold nine hotels for $95.0 million, realizing a $1.7 million gain, with proceeds reducing debt - In March 2019, the Company sold nine hotels for a total combined gross sales price of **$95.0 million**, realizing a gain of approximately **$1.7 million**[34](index=34&type=chunk) - During 2018, three hotels were sold for approximately **$15.8 million**, resulting in a combined gain of **$0.2 million**, following impairment losses of approximately **$3.1 million** recognized in Q2 2018[35](index=35&type=chunk) - Net proceeds from the 2019 sales were used to pay down borrowings on the Company's revolving credit facility[37](index=37&type=chunk) [4. Debt](index=13&type=section&id=4.%20Debt) Total debt, net, decreased to $1.38 billion as of June 30, 2019, with 77% fixed-rate and 23% variable-rate after swaps, at a 3.76% weighted-average rate Debt Category (in thousands) | Debt Category (in thousands) | December 31, 2018 | June 30, 2019 | | :--------------------------- | :---------------- | :------------ | | Revolving credit facility | $268,800 | $192,700 | | Term loans, net | $653,382 | $729,022 | | Mortgage debt, net | $490,060 | $462,592 | | **Total Debt, net** | **$1,412,242** | **$1,384,314** | Debt Type (in thousands) | Debt Type (in thousands) | December 31, 2018 | Percentage | June 30, 2019 | Percentage | | :----------------------- | :---------------- | :--------- | :------------ | :--------- | | Fixed-rate debt | $1,046,273 | 74% | $1,069,067 | 77% | | Variable-rate debt | $371,300 | 26% | $320,200 | 23% | | **Total** | **$1,417,573** | | **$1,389,267** | | | Weighted-average interest rate of debt | 3.74% | | 3.76% | | - The Company's credit facilities include an **$850 million** facility (comprising a **$425 million** revolving credit facility and a **$425 million** term loan facility), a **$225 million** term loan facility, and an **$85 million** term loan[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - As of June 30, 2019, approximately **$461.6 million** in outstanding mortgage debt was secured by 29 properties, with interest rates ranging from **3.55% to 6.25%**[48](index=48&type=chunk) [5. Fair Value of Financial Instruments](index=17&type=section&id=5.%20Fair%20Value%20of%20Financial%20Instruments) Debt's carrying value approximates fair value; interest rate swaps manage variable-rate debt risk, with changes recorded in other comprehensive income - The carrying value and estimated fair value of the Company's debt were approximately **$1.4 billion** as of June 30, 2019, and December 31, 2018[53](index=53&type=chunk) - The Company uses interest rate swaps to manage interest rate risks on variable-rate debt, paying a fixed rate and receiving a floating rate (one-month LIBOR)[54](index=54&type=chunk) Hedge Type (in thousands) | Hedge Type | Notional Amount at June 30, 2019 (in thousands) | Fair Value Asset (Liability) June 30, 2019 (in thousands) | Fair Value Asset (Liability) December 31, 2018 (in thousands) | | :--------- | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Cash flow hedge | $682,500 | $(6,158) | $10,006 | - Approximately **$1.0 million** of net unrealized gains from cash flow hedges are expected to be reclassified as a decrease to interest and other expense, net, within the next 12 months[57](index=57&type=chunk) [6. Related Parties](index=18&type=section&id=6.%20Related%20Parties) The Company engages in related party transactions, primarily with Apple Realty Group, Inc. (ARG), for support services and aircraft usage - The Company provides support services to Apple Realty Group, Inc. (ARG), owned by its Executive Chairman, and is reimbursed for these costs[59](index=59&type=chunk)[60](index=60&type=chunk) - Total reimbursed costs from ARG for the six months ended June 30, 2019, and 2018 were approximately **$0.6 million** and **$0.5 million**, respectively[60](index=60&type=chunk) - The Company also utilizes aircraft owned by affiliates, reimbursing them at third-party rates, with total costs of approximately **$0.05 million** for the six months ended June 30, 2019 and 2018[63](index=63&type=chunk) [7. Shareholders' Equity](index=19&type=section&id=7.%20Shareholders'%20Equity) The Company maintains a $1.20 per share annual distribution, paid $0.60 per share in H1 2019, and extended its $360 million share repurchase program - The Company's current annual distribution rate is **$1.20 per common share**, payable monthly[64](index=64&type=chunk) - For the six months ended June 30, 2019, the Company paid distributions of **$0.60 per common share**, totaling **$134.3 million**[64](index=64&type=chunk) - In May 2019, the Board extended the Share Repurchase Program, authorizing repurchases up to an aggregate of **$360 million**, ending in July 2020[65](index=65&type=chunk) - During Q1 2019, approximately **0.3 million** common shares were repurchased for an aggregate of **$4.1 million**[65](index=65&type=chunk) [8. Compensation Plans](index=19&type=section&id=8.%20Compensation%20Plans) The 2019 Incentive Plan links executive bonuses to operational and shareholder return metrics, with $4.7 million accrued and 75% of awards in stock - The 2019 Incentive Plan bases executive bonuses on **50% operational performance metrics** and **50% shareholder return metrics**[66](index=66&type=chunk) - As of June 30, 2019, approximately **$4.7 million** was accrued for potential executive bonus payments under the 2019 Incentive Plan[66](index=66&type=chunk) - Compensation expense recognized under the 2019 Incentive Plan totaled approximately **$4.7 million** for the six months ended June 30, 2019[66](index=66&type=chunk) - **75% of awards** under the 2019 Incentive Plan, if any, will be issued in stock, with two-thirds vesting at the end of 2019 and one-third in December 2020[66](index=66&type=chunk) [9. Leases](index=20&type=section&id=9.%20Leases) Following ASU No. 2016-02 adoption, the Company recognized $171.6 million in lease assets and $176.0 million in lease liabilities, reclassifying four ground leases as finance leases - The Company adopted ASU No. 2016-02 (Topic 842) effective January 1, 2019, requiring recognition of ROU assets and lease liabilities for leases over 12 months[72](index=72&type=chunk) - Four of the Company's ground leases, previously operating leases, are now classified as finance leases under Topic 842, leading to amortization and interest expense recognition instead of operating ground lease expense[23](index=23&type=chunk)[76](index=76&type=chunk) Lease Position (in thousands) | Lease Position (in thousands) | Amount | | :------------------------------ | :----- | | Total lease assets | $171,602 | | Total lease liabilities | $175,978 | | Weighted-average remaining lease term (Operating leases) | 36 years | | Weighted-average remaining lease term (Finance leases) | 32 years | | Weighted-average discount rate (Operating leases) | 5.43% | | Weighted-average discount rate (Finance leases) | 5.28% | Lease Costs (in thousands) | Lease Costs (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :------------------------- | :------------------------------- | :----------------------------- | | Operating lease costs | $423 | $828 | | Amortization of lease assets (Finance) | $1,149 | $2,190 | | Interest on lease liabilities (Finance) | $2,133 | $3,959 | | **Total lease costs** | **$3,705** | **$6,977** | [10. Subsequent Events](index=24&type=section&id=10.%20Subsequent%20Events) In July 2019, the Company paid $22.4 million in distributions, declared another monthly distribution, and entered into two new hotel purchase contracts totaling $56.9 million - In July 2019, the Company paid approximately **$22.4 million** (**$0.10 per common share**) in distributions and declared a similar distribution for August 2019[84](index=84&type=chunk)[85](index=85&type=chunk) - The Company entered into two new hotel purchase contracts in July 2019 for a total anticipated gross purchase price of approximately **$56.9 million**[85](index=85&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the Company's financial performance, condition, and outlook, focusing on new lease accounting, hotel portfolio activities, operating results, non-GAAP measures, liquidity, and capital [Overview](index=25&type=section&id=Overview) Apple Hospitality REIT, Inc. is a self-advised REIT investing in U.S. lodging real estate, owning 234 Marriott, Hilton, or Hyatt branded hotels - The Company is a Virginia corporation that has elected to be treated as a REIT for federal income tax purposes, investing in income-producing real estate, primarily in the U.S. lodging sector[89](index=89&type=chunk) - As of June 30, 2019, the Company owned **234 hotels** with an aggregate of **30,046 rooms** located in 34 states, all operating under Marriott, Hilton, or Hyatt brands[89](index=89&type=chunk) [New Lease Accounting Standard](index=25&type=section&id=New%20Lease%20Accounting%20Standard) The Company adopted ASU No. 2016-02 (Topic 842) on January 1, 2019, reclassifying four ground leases to finance leases, impacting expense comparability - The Company adopted ASU No. 2016-02, Leases (Topic 842), effective January 1, 2019, without restating prior periods[90](index=90&type=chunk) - Four ground leases previously classified as operating leases are now accounted for as finance leases, leading to amortization and interest expense recognition instead of operating ground lease expense[90](index=90&type=chunk) - The implementation of the new lease accounting standard affects the comparability of operating ground lease expense, depreciation and amortization expense, and interest and other expense, net[90](index=90&type=chunk) [2019 Hotel Portfolio Activities](index=26&type=section&id=2019%20Hotel%20Portfolio%20Activities) In H1 2019, the Company acquired two hotels for $52.4 million and sold nine for $95.0 million, using proceeds for debt reduction, with seven additional purchase contracts totaling $216.1 million - During the first six months of 2019, the Company acquired two hotels for approximately **$52.4 million**[92](index=92&type=chunk) - In March 2019, the Company sold nine hotels for a total combined gross sales price of **$95.0 million**, with net proceeds used to pay down borrowings[93](index=93&type=chunk) - As of July 31, 2019, the Company had outstanding contracts for the potential purchase of seven hotels for approximately **$216.1 million**, with six under development and one existing hotel[92](index=92&type=chunk) [Hotel Operations](index=26&type=section&id=Hotel%20Operations) Hotel operations in H1 2019 showed stable RevPAR for Comparable Hotels, with modest ADR increases offset by slight occupancy decreases, while expenses generally rose [Operating Results Summary](index=27&type=section&id=Operating%20Results%20Summary) Total revenue decreased by 1.0% for Q2 but increased by 0.3% for H1 2019, with slight ADR and RevPAR increases and minor occupancy decline Operating Results Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Percent Change | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Percent Change | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Total revenue | $341,117 | $344,714 | -1.0% | $644,904 | $643,103 | 0.3% | | Hotel operating expense | $187,190 | $186,531 | 0.4% | $362,639 | $358,860 | 1.1% | | Property taxes, insurance and other expense | $18,823 | $18,681 | 0.8% | $38,031 | $35,910 | 5.9% | | Operating ground lease expense | $423 | $2,912 | -85.5% | $828 | $5,762 | -85.6% | | General and administrative expense | $8,308 | $6,721 | 23.6% | $16,445 | $13,598 | 20.9% | | Loss on impairment of depreciable real estate assets | $- | $3,135 | n/a | $- | $3,135 | n/a | | Depreciation and amortization expense | $48,109 | $45,743 | 5.2% | $96,059 | $90,583 | 6.0% | | Interest and other expense, net | $15,857 | $13,210 | 20.0% | $31,351 | $25,129 | 24.8% | | ADR | $141.60 | $139.58 | 1.4% | $139.09 | $137.09 | 1.5% | | Occupancy | 81.4% | 81.7% | -0.4% | 77.6% | 78.2% | -0.8% | | RevPAR | $115.30 | $114.09 | 1.1% | $107.95 | $107.20 | 0.7% | [Comparable Hotels Operating Results](index=27&type=section&id=Comparable%20Hotels%20Operating%20Results) For 234 Comparable Hotels, ADR increased modestly while occupancy slightly decreased, resulting in virtually flat RevPAR for Q2 and H1 2019 Comparable Hotels Operating Results | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Percent Change | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Percent Change | | :-------- | :------------------------------- | :------------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | ADR | $141.60 | $140.94 | 0.5% | $139.62 | $138.49 | 0.8% | | Occupancy | 81.4% | 81.9% | -0.6% | 77.8% | 78.4% | -0.8% | | RevPAR | $115.30 | $115.44 | -0.1% | $108.58 | $108.62 | - | [Same Store Operating Results](index=28&type=section&id=Same%20Store%20Operating%20Results) For 227 Same Store Hotels, ADR increased slightly, occupancy decreased marginally, leading to a nearly flat RevPAR for Q2 and H1 2019 Same Store Operating Results | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Percent Change | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Percent Change | | :-------- | :------------------------------- | :------------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | ADR | $141.52 | $140.72 | 0.6% | $139.11 | $138.13 | 0.7% | | Occupancy | 81.8% | 82.1% | -0.4% | 78.0% | 78.5% | -0.6% | | RevPAR | $115.73 | $115.59 | 0.1% | $108.52 | $108.45 | 0.1% | - The Company expects its RevPAR growth for Comparable Hotels for the full year of 2019 to be slightly negative to slightly positive compared to 2018[104](index=104&type=chunk) [Revenues](index=28&type=section&id=Revenues) Total revenue for Comparable Hotels showed modest ADR increases offset by modest occupancy decreases, resulting in unchanged RevPAR, with varied regional performance - For the three months ended June 30, 2019, total revenue was **$341.1 million**, and for the six months, it was **$644.9 million**[105](index=105&type=chunk) - Comparable Hotels experienced modest increases in ADR (**0.5% for Q2, 0.8% for H1**) offset by modest decreases in occupancy (**-0.6% for Q2, -0.8% for H1**), leading to virtually unchanged RevPAR[101](index=101&type=chunk)[105](index=105&type=chunk) - Markets with above-average growth included Birmingham, AL; Sacramento, CA; Norfolk, VA; and Phoenix and Tucson, AZ. Below-average markets included Houston, TX; Seattle, WA; and southern Florida[106](index=106&type=chunk) [Hotel Operating Expense](index=28&type=section&id=Hotel%20Operating%20Expense) Hotel operating expense increased by 0.4% for Q2 and 1.1% for H1 2019, primarily due to higher labor costs, partially offset by lower utilities Hotel Operating Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Hotel operating expense | $187,190 | $186,531 | $362,639 | $358,860 | | % of total revenue | 54.9% | 54.1% | 56.2% | 55.8% | - The primary cause of the increase in hotel operating expense was higher labor costs as a percentage of revenue, slightly offset by decreases in utility costs[107](index=107&type=chunk) - The Company anticipates continued increases in labor costs due to government regulations, wage-related initiatives, and lower unemployment rates[107](index=107&type=chunk) [Property Taxes, Insurance and Other Expense](index=29&type=section&id=Property%20Taxes,%20Insurance%20and%20Other%20Expense) Property taxes, insurance, and other expenses increased by 0.8% for Q2 and 5.9% for H1 2019, driven by higher real estate taxes and insurance Property Taxes, Insurance and Other Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Property taxes, insurance and other expense | $18,823 | $18,681 | $38,031 | $35,910 | | % of total revenue | 5.5% | 5.4% | 5.9% | 5.6% | - Real estate taxes increased due to property value reassessments, partially offset by successful appeals. Property insurance costs also increased due to higher losses incurred by carriers[109](index=109&type=chunk) - The Company anticipates continued increases in property tax assessments and property insurance costs for the remainder of 2019[109](index=109&type=chunk) [Operating Ground Lease Expense](index=29&type=section&id=Operating%20Ground%20Lease%20Expense) Operating ground lease expense significantly decreased by over 85% for Q2 and H1 2019, due to reclassification of four ground leases as finance leases Operating Ground Lease Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating ground lease expense | $423 | $2,912 | $828 | $5,762 | | Percent Change | -85.5% | | -85.6% | | - The substantial decrease in operating ground lease expense is primarily due to the reclassification of four ground leases as finance leases under the new lease accounting standard, effective January 1, 2019[110](index=110&type=chunk) [General and Administrative Expense](index=29&type=section&id=General%20and%20Administrative%20Expense) General and administrative expense increased by 23.6% for Q2 and 20.9% for H1 2019, mainly due to higher incentive plan accruals and management changes General and Administrative Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | General and administrative expense | $8,308 | $6,721 | $16,445 | $13,598 | | % of total revenue | 2.4% | 1.9% | 2.5% | 2.1% | - The increase in general and administrative expense was primarily due to increased accruals for anticipated performance under the Company's incentive plans and costs associated with senior management changes[111](index=111&type=chunk) [Loss on Impairment of Depreciable Real Estate Assets](index=29&type=section&id=Loss%20on%20Impairment%20of%20Depreciable%20Real%20Estate%20Assets) No impairment losses were recognized for Q2 and H1 2019, compared to $3.1 million in 2018, related to subsequently sold hotels Loss on Impairment of Depreciable Real Estate Assets (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Loss on impairment of depreciable real estate assets | $- | $3,135 | $- | $3,135 | - The **$3.1 million** impairment loss in 2018 was related to the two Columbus hotels and the Springdale, Arkansas Residence Inn, which were subsequently sold[112](index=112&type=chunk) [Depreciation and Amortization Expense](index=29&type=section&id=Depreciation%20and%20Amortization%20Expense) Depreciation and amortization expense increased by 5.2% for Q2 and 6.0% for H1 2019, due to hotel acquisitions, renovations, and finance ground lease amortization Depreciation and Amortization Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Depreciation and amortization expense | $48,109 | $45,743 | $96,059 | $90,583 | | Percent Change | 5.2% | | 6.0% | | - The increase was primarily due to the acquisition of two hotels in Q1 2019 and five hotels in 2018, as well as renovations completed throughout 2019 and 2018[113](index=113&type=chunk) - Depreciation and amortization expense for H1 2019 includes approximately **$2.2 million** associated with the amortization of the Company's four finance ground lease assets due to the new lease accounting standard[113](index=113&type=chunk) [Interest and Other Expense, net](index=29&type=section&id=Interest%20and%20Other%20Expense,%20net) Interest and other expense, net, increased by 20.0% for Q2 and 24.8% for H1 2019, driven by higher average borrowings, increased effective interest rates, and finance lease interest Interest and Other Expense, net (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest and other expense, net | $15,857 | $13,210 | $31,351 | $25,129 | | Percent Change | 20.0% | | 24.8% | | - The increase was a result of increased average borrowings from acquisitions and share repurchases, partially offset by debt repayment from dispositions[114](index=114&type=chunk) - The Company's effective interest rate increased due to a rise in the one-month LIBOR from **2.09%** at June 30, 2018, to **2.40%** at June 30, 2019[114](index=114&type=chunk) - Interest and other expense, net, for H1 2019 includes approximately **$4.0 million** of interest recorded on the Company's four finance lease liabilities under the new lease accounting standard[114](index=114&type=chunk) [Non-GAAP Financial Measures](index=30&type=section&id=Non-GAAP%20Financial%20Measures) The Company uses non-GAAP measures like FFO, MFFO, EBITDA, EBITDAre, and Adjusted EBITDAre to provide supplemental insights into operating performance [FFO and MFFO](index=30&type=section&id=FFO%20and%20MFFO) FFO and MFFO are presented to compare operating performance, with FFO at $192.6 million and MFFO at $194.9 million for H1 2019 - FFO is defined by Nareit as net income excluding gains/losses from real estate sales, extraordinary items, and cumulative effect of accounting changes, plus real estate depreciation, amortization, and impairments[116](index=116&type=chunk) - MFFO further adjusts FFO by excluding amortization of finance ground lease assets, amortization of favorable/unfavorable operating leases, and non-cash straight-line operating ground lease expense[117](index=117&type=chunk) FFO and MFFO (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $62,090 | $67,630 | $100,241 | $109,812 | | Funds from operations (FFO) | $108,963 | $116,267 | $192,567 | $203,059 | | Modified funds from operations (MFFO) | $110,190 | $117,313 | $194,914 | $205,215 | [EBITDA, EBITDAre and Adjusted EBITDAre](index=31&type=section&id=EBITDA,%20EBITDAre%20and%20Adjusted%20EBITDAre) EBITDA, EBITDAre, and Adjusted EBITDAre evaluate ongoing operating performance, with Adjusted EBITDAre at $227.1 million for H1 2019 - EBITDA is defined as net income excluding interest, income taxes, depreciation, and amortization[120](index=120&type=chunk) - EBITDAre, per Nareit, further excludes gains/losses from real estate sales and includes real estate related impairments[121](index=121&type=chunk) - Adjusted EBITDAre additionally excludes non-cash straight-line operating ground lease expense[122](index=122&type=chunk) EBITDA, EBITDAre and Adjusted EBITDAre (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $62,090 | $67,630 | $100,241 | $109,812 | | EBITDA | $126,243 | $126,882 | $228,075 | $226,192 | | EBITDAre | $126,404 | $130,017 | $227,023 | $229,327 | | Adjusted EBITDAre | $126,451 | $130,915 | $227,118 | $231,129 | [Hotels Owned](index=32&type=section&id=Hotels%20Owned) As of June 30, 2019, the Company owned 234 hotels with 30,046 rooms across 34 states, diversified across major brands - As of June 30, 2019, the Company owned **234 hotels** with an aggregate of **30,046 rooms** located in 34 states[125](index=125&type=chunk) Hotels Owned by Brand | Brand | Number of Hotels | Number of Rooms | | :------------------ | :--------------- | :-------------- | | Hilton Garden Inn | 41 | 5,665 | | Hampton | 40 | 5,065 | | Courtyard | 37 | 5,070 | | Residence Inn | 33 | 3,939 | | Homewood Suites | 33 | 3,731 | | SpringHill Suites | 15 | 2,040 | | Fairfield | 11 | 1,300 | | Home2 Suites | 9 | 1,038 | | TownePlace Suites | 9 | 931 | | Marriott | 2 | 616 | | Embassy Suites | 2 | 316 | | Renaissance | 1 | 208 | | Hyatt Place | 1 | 127 | | **Total** | **234** | **30,046** | - Texas (**31 hotels, 3,755 rooms**), California (**27 hotels, 3,807 rooms**), and Florida (**23 hotels, 2,912 rooms**) represent the largest concentrations of hotels by state[126](index=126&type=chunk) [Related Parties](index=38&type=section&id=Related%20Parties) The Company engages in non-arm's length related party transactions, primarily with Apple Realty Group, Inc. (ARG) - The Company engages in transactions with related parties, including Apple Realty Group, Inc. (ARG), which are not at arm's length[136](index=136&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by operating cash flow and a $232.3 million available revolving credit facility, with capital used for distributions, share repurchases, capital improvements, and hotel acquisitions - Principal daily sources of liquidity are operating cash flow and availability under the revolving credit facility[137](index=137&type=chunk) - As of June 30, 2019, the Company had **$232.3 million** in unused borrowing capacity under its **$425 million** revolving credit facility[138](index=138&type=chunk) - The Company anticipates cash flow from operations, credit facilities, additional borrowings, and proceeds from dispositions/equity offerings will meet liquidity requirements[143](index=143&type=chunk) - Distributions paid during the six months ended June 30, 2019, totaled approximately **$134.3 million** (**$0.60 per common share**), while net cash generated from operations was **$164.1 million**[144](index=144&type=chunk) - During the six months ended June 30, 2019, the Company invested approximately **$33.2 million** in capital expenditures and anticipates spending an additional **$45 million to $55 million** during the remainder of 2019[149](index=149&type=chunk) - As of July 31, 2019, the Company had outstanding contracts for the potential purchase of seven hotels for approximately **$216.1 million**[150](index=150&type=chunk) [Seasonality](index=40&type=section&id=Seasonality) The hotel industry is seasonal, with higher occupancy and revenues in Q2 and Q3, requiring the Company to use cash or financing during lower cash flow periods - The hotel industry is seasonal, with occupancy rates and hotel revenues generally greater in the second and third quarters than in the first and fourth quarters[153](index=153&type=chunk) - The Company expects to utilize cash on hand or available financing sources to meet cash requirements during quarters with insufficient operating cash flow due to seasonal fluctuations[153](index=153&type=chunk) [Subsequent Events](index=41&type=section&id=Subsequent%20Events) In July 2019, the Company paid $22.4 million in distributions, declared another monthly distribution, and entered into two new hotel purchase contracts totaling $56.9 million - In July 2019, the Company paid approximately **$22.4 million** (**$0.10 per common share**) in distributions to common shareholders and declared a regular monthly cash distribution of **$0.10 per common share** for August 2019[154](index=154&type=chunk)[155](index=155&type=chunk) - The Company entered into two new hotel purchase contracts in July 2019 for a total anticipated gross purchase price of approximately **$56.9 million**[156](index=156&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company is exposed to interest rate risk from its variable-rate debt (23% of total debt), mitigated by interest rate swaps; a 100 basis point change would impact annual net income by $3.2 million - The Company is exposed to interest rate risk due to its variable-rate debt, which constituted approximately **23%** (**$320.2 million**) of its total debt outstanding as of June 30, 2019, after giving effect to interest rate swaps[157](index=157&type=chunk) - A **100 basis point change** in interest rates would impact the Company's annual net income by approximately **$3.2 million**[157](index=157&type=chunk) - The Company uses interest rate swaps to manage this risk, with seven agreements effectively fixing interest rates on approximately **$607.5 million** of variable-rate debt as of June 30, 2019[158](index=158&type=chunk) Debt Maturity and Interest Rates (in thousands) | Debt Type | Maturities (July-Dec 2019) | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | Average Interest Rates (1) | | :---------------- | :------------------------- | :--- | :--- | :--- | :--- | :--------- | :---- | :------------------------- | | Total debt (in thousands) | $6,600 | $28,349 | $47,586 | $301,952 | $295,615 | $709,165 | $1,389,267 | 3.76% | | Variable rate debt (in thousands) | $- | $- | $- | $192,700 | $250,000 | $485,000 | $927,700 | 3.42% | | Fixed rate debt (in thousands) | $6,600 | $28,349 | $47,586 | $109,252 | $45,615 | $224,165 | $461,567 | 4.28% | (1) The average interest rate gives effect to interest rate swaps, as applicable. [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Senior management concluded disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting - The Company's disclosure controls and procedures were effective as of June 30, 2019, as evaluated by senior management[160](index=160&type=chunk) - There have been no material changes in the Company's internal control over financial reporting during the last fiscal quarter[160](index=160&type=chunk) [PART II. OTHER INFORMATION](index=43&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not currently involved in any material or threatened litigation that would adversely affect its financial position or results - The Company is not currently involved in any material litigation, nor is any litigation threatened, that would have a material adverse effect on its consolidated financial position or results of operations[162](index=162&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the Company's 2018 Form 10-K - There have been no material changes to the risk factors previously disclosed in the Company's 2018 Form 10-K[163](index=163&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents, compensation plans, certifications, and iXBRL financial statements - Exhibits include Amended and Restated Articles of Incorporation, Second Amended and Restated Bylaws, Executive Severance Pay Plan, Separation Agreement, CEO/CFO/CAO certifications, and iXBRL financial statements[164](index=164&type=chunk) [Signatures](index=44&type=section&id=Signatures) The report is duly signed on August 5, 2019, by Justin G. Knight (President and CEO), Rachael S. Rothman (CFO), and Bryan Peery (CAO) - The report was signed on August 5, 2019, by Justin G. Knight (President and Chief Executive Officer), Rachael S. Rothman (Chief Financial Officer), and Bryan Peery (Chief Accounting Officer)[166](index=166&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q1 2019 was $304 million, an increase of 2% from Q1 2018 [21] - Adjusted EBITDA was $101 million, compared to $100 million in the same period of 2018, reflecting a growth of approximately 1% [21] - Modified FFO per share remained flat at $0.38 compared to the previous year [21] - Comparable hotels RevPAR increased by 0.1%, driven by a 1.2% increase in average daily rate [8] Business Line Data and Key Metrics Changes - Comparable hotel adjusted hotel EBITDA margin was reported at 36% for the quarter [9] - Same-store payroll increased by 3.5% per occupied room, which was lower than the 4% increase factored into guidance [16] - The decline in food and beverage revenue was attributed mainly to the full-service Marriott in Richmond, Virginia, which faced fewer city-wide events [41] Market Data and Key Metrics Changes - Several markets in the Sunbelt, including Atlanta and Phoenix, remained strong performers due to expanding economic opportunities [17] - Markets with softer hotel performance included Houston, Miami, and Orlando, impacted by decreased demand and increased new supply [18] - Approximately 66.2% of properties had new construction projects within a five-mile radius, indicating increased competition [12] Company Strategy and Development Direction - The company completed the sale of nine hotels for $95 million, reducing exposure to lower RevPAR markets [10] - Two hotels were acquired for a combined total of $52 million, with five additional hotels under contract for acquisition [11] - The company plans to invest $60 million to $70 million in renovations during 2019, focusing on maintaining competitive positioning [14] Management's Comments on Operating Environment and Future Outlook - Management anticipates healthy demand growth but acknowledges that new supply will continue to impact property-level performance [9] - The company expects RevPAR growth for Q2 to be at the low end of the full-year outlook, with a pickup anticipated in Q3 [20] - Management remains confident in the portfolio's ability to remain competitive despite increased competition from newly opened hotels [13] Other Important Information - The company adopted a new lease accounting standard, resulting in an increase of approximately $147 million in assets and $152 million in liabilities [22] - The company paid distributions of $0.30 per share, totaling approximately $67 million, representing a 7.3% yield based on the closing price [24] Q&A Session Summary Question: Is the uptick in new supply concentrated in already supply-challenged markets? - Management indicated that the increase in new supply is affecting more markets, particularly those with the highest RevPAR [28] Question: Are the remaining seven assets from the original portfolio still under negotiation? - Management is actively exploring options for the remaining assets and is optimistic about finding opportunities to prune the portfolio [31] Question: What sources are being used to identify acquisition targets? - The company is being selective in acquisitions, leveraging long-standing relationships with developers and operators [36] Question: Can you discuss the decline in food and beverage revenue? - The decline was primarily due to fewer group room nights and increased competition in the Richmond market [41] Question: How has the underwriting for new development deals changed? - The methodology remains unchanged, but the company is more conservative in ramp-up expectations due to moderate RevPAR growth [45] Question: What is the outlook for market share shifts between brand families? - The company saw over half of its hotels grow market share, with Hilton hotels performing slightly better than Marriott [47] Question: What revenue management initiatives are expected to drive growth? - The company is focusing on increasing parking fees and late cancellation fees, along with optimizing revenue mix management [49]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ Commission File Number 001-37389 APPLE HOSPITALITY REIT, INC. (Exact name of registrant as specified in its charter) Virginia 26-1379210 (State or other ...

Apple Hospitality REIT, Inc. (NYSE:APLE) Q4 2018 Earnings Conference Call February 26, 2019 9:00 AM ET Company Participants Kelly Clarke - VP, IR Justin Knight - President and CEO Kristian Gathright - EVP and COO Bryan Peery - EVP and CFO Conference Call Participants Anthony Powell - Barclays Capital Bryan Maher - B. Riley Michael Bellisario - Robert W. Baird Operator Greetings, and welcome to Apple Hospitality REIT Fourth Quarter and Full Year 2018 Earnings Call. At this time, all participants are in a lis ...

Part I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Apple Hospitality REIT, Inc. is a self-advised REIT primarily investing in income-producing lodging properties across 34 U.S. states, operating under Marriott, Hilton, or Hyatt brands - The Company is a self-advised REIT investing in **241 hotels** (**30,812 rooms**) across 34 U.S. states, all operating under Marriott, Hilton, or Hyatt brands[9](index=9&type=chunk) - Primary business objective is to maximize shareholder value through long-term growth in cash available for distributions[10](index=10&type=chunk) - Investment strategies include selective acquisitions and dispositions of upscale, rooms-focused hotels, broad geographic diversification, franchising with leading brands, utilizing experienced operators, reinvesting in hotels, and maintaining low leverage[10](index=10&type=chunk)[12](index=12&type=chunk) Hotel Operating Statistics (2017-2018) | Metric | 2018 | 2017 | Percent Change | | :-------- | :------ | :------ | :------------- | | ADR | $136.04 | $134.61 | 1.1% | | Occupancy | 76.9% | 77.4% | -0.6% | | RevPAR | $104.66 | $104.13 | 0.5% | Comparable Hotels Operating Statistics (2017-2018) | Metric | 2018 | 2017 | Percent Change | | :-------- | :------ | :------ | :------------- | | ADR | $136.11 | $135.22 | 0.7% | | Occupancy | 77.0% | 77.7% | -0.9% | | RevPAR | $104.80 | $105.00 | -0.2% | - In 2018, the Company acquired five hotels for approximately **$152.2 million** and sold three hotels for approximately **$15.8 million**. As of January 31, 2019, there were contracts for potential purchase of six additional hotels for **$162.5 million** and a contract to sell nine properties for **$95 million**[19](index=19&type=chunk)[20](index=20&type=chunk) - The Company repurchased approximately **6.6 million** common shares in 2018 for **$104.3 million** under its **$464 million** Share Repurchase Program[22](index=22&type=chunk) - The Company refinanced its **$965 million** credit facility to **$850 million** and increased its **$150 million** term loan facility to **$225 million** in 2018, reducing interest rates and extending maturities[30](index=30&type=chunk) - Total outstanding debt as of December 31, 2018, was approximately **$1.4 billion** with a weighted-average interest rate of **3.74%**[31](index=31&type=chunk) - The Company maintains a monthly distribution rate of **$1.20 per common share**, funded by operating cash flow and revolving credit facility[35](index=35&type=chunk) [Item 1A. Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The Company faces significant risks from hotel industry competition, economic conditions, operational dependencies, financial leverage, REIT compliance, and environmental factors - The hotel industry is highly competitive, with risks including over-building, competition from other lodging facilities (including alternative lodging companies like Airbnb), dependence on business/leisure travel, and increases in operating costs (energy, insurance, taxes, labor)[24](index=24&type=chunk)[45](index=45&type=chunk)[56](index=56&type=chunk) - Economic conditions in the U.S. and local markets significantly impact lodging industry performance, with downturns potentially reducing occupancy, room rates, and profitability, while many expenses remain fixed[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) - Dependence on Marriott, Hilton, and Hyatt brands exposes the Company to risks if brand recognition or perception is reduced, or if franchisor policies change[54](index=54&type=chunk)[55](index=55&type=chunk) - Reliance on third-party hotel managers means the Company has limited control over day-to-day operations, and manager underperformance could adversely affect revenues and expenses[57](index=57&type=chunk)[58](index=58&type=chunk) - Renovations and capital improvements are ongoing needs, which can reduce profitability due to costs and potential disruptions to occupancy and ADR[61](index=61&type=chunk) - Inability to obtain financing on favorable terms or comply with debt covenants could adversely affect operations, potentially leading to asset dispositions or equity issuance at disadvantageous times[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk) - Failure to qualify or remain qualified as a REIT would subject the Company to U.S. federal income tax, significantly reducing earnings and distributions, and potentially impacting its market price[103](index=103&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - REIT distribution requirements may force the Company to sell assets, incur debt, or issue equity under unfavorable conditions to meet distribution thresholds, potentially hindering growth[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - The Company is exposed to risks from climate change (e.g., severe weather, rising sea-levels affecting properties) and significant costs related to environmental regulations and litigation[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) [Item 1B. Unresolved Staff Comments](index=23&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The Company reported no unresolved staff comments from the SEC - No unresolved staff comments were reported[134](index=134&type=chunk) [Item 2. Properties](index=23&type=section&id=Item%202.%20Properties) The Company owned 241 Marriott, Hilton, or Hyatt branded hotels across 34 states, managed by 23 unaffiliated companies, as of December 31, 2018 - As of December 31, 2018, the Company owned **241 hotels** with **30,812 rooms** in 34 states, all under Marriott, Hilton, or Hyatt brands[136](index=136&type=chunk) - Hotels are managed by **23 unaffiliated hotel management companies**[136](index=136&type=chunk) Hotel Portfolio by Brand (December 31, 2018) | Brand | Number of Hotels | Number of Rooms | | :---------------- | :--------------- | :-------------- | | Hilton Garden Inn | 42 | 5,807 | | Courtyard | 40 | 5,460 | | Hampton | 40 | 5,029 | | Homewood Suites | 34 | 3,831 | | Residence Inn | 33 | 3,939 | | SpringHill Suites | 16 | 2,159 | | Fairfield | 11 | 1,300 | | TownePlace Suites | 11 | 1,110 | | Home2 Suites | 8 | 910 | | Marriott | 2 | 616 | | Embassy Suites | 2 | 316 | | Renaissance | 1 | 208 | | Hyatt Place | 1 | 127 | | **Total** | **241** | **30,812** | Investment in Real Estate, Net (December 31, 2018) | Category | Amount (in thousands) | | :------------------------ | :-------------------- | | Land | $737,822 | | Building and Improvements | 4,503,728 | | Furniture, Fixtures, and Equipment | 471,399 | | Franchise Fees | 13,354 | | **Total Gross Investment**| **5,726,303** | | Less Accumulated Depreciation | (909,893) | | **Investment in Real Estate, net** | **$4,816,410** | - **13** of the Company's hotels are subject to ground leases and **31** hotels are encumbered by mortgage notes[138](index=138&type=chunk) [Item 3. Legal Proceedings](index=28&type=section&id=Item%203.%20Legal%20Proceedings) The Company is not aware of any material adverse legal proceedings impacting its financial position or operations - The Company is not currently involved in any litigation that would have a material adverse effect on its consolidated financial position or results of operations[148](index=148&type=chunk) [Item 4. Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not Applicable[149](index=149&type=chunk) Part II [Item 5. Market For Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=29&type=section&id=Item%205.%20Market%20For%20Registrant%27s%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section details the Company's NYSE-listed common equity, shareholder distributions, share repurchase program, and equity compensation plans - The Company's common shares are listed on the NYSE under the ticker symbol '**APLE**' since May 18, 2015[149](index=149&type=chunk) Common Share Closing Prices | Date | Closing Price | | :------------- | :------------ | | Dec 31, 2018 | $14.26 | | Feb 15, 2019 | $16.36 | Cumulative Total Shareholder Return (May 2015 - Dec 2018) | Index / Company | 05/18/15 | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | | :-------------------------- | :------- | :------- | :------- | :------- | :------- | | Apple Hospitality REIT, Inc.| $100.00 | $115.73 | $123.34 | $128.27 | $99.81 | | S&P 500 Index | $100.00 | $97.29 | $108.92 | $132.70 | $126.88 | | SNL U.S. REIT Hotel Index | $100.00 | $81.94 | $101.55 | $107.92 | $93.39 | - As of February 15, 2019, there were approximately **224 million** common shares outstanding[152](index=152&type=chunk) - To maintain REIT status, the Company is required to distribute at least **90%** of its ordinary income. Distributions declared per common share were **$1.20** for 2018 and 2017[154](index=154&type=chunk) - In 2018, the Company repurchased approximately **6.6 million** common shares for **$104.3 million** under its **$464 million** Share Repurchase Program. As of December 31, 2018, **$364.0 million** remained available[155](index=155&type=chunk)[390](index=390&type=chunk) Share Repurchases (Q4 2018) | Period | Total Number of Shares Purchased | Average Price per Share | Approximate Value Remaining (in thousands) | | :-------------------------- | :------------------------------- | :---------------------- | :----------------------------------------- | | Oct 1 - Oct 31, 2018 | 1,576,520 | $16.35 | $438,200 | | Nov 1 - Nov 30, 2018 | 2,554,278 | $16.03 | $397,200 | | Dec 1 - Dec 31, 2018 | 2,225,598 | $15.22 | $364,000 | - The 2014 Omnibus Incentive Plan authorizes the issuance of up to **10 million** common shares for compensation. As of December 31, 2018, approximately **9.0 million** shares were available[158](index=158&type=chunk)[394](index=394&type=chunk) [Item 6. Selected Financial Data](index=38&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents a five-year summary of key financial data, including revenues, net income, per-share metrics, balance sheet items, and cash flows Selected Financial Data (2014-2018) | Metric (in thousands, except per share) | 2018 | 2017 | 2016 | 2015 | 2014 | | :-------------------------------------- | :---------- | :---------- | :---------- | :---------- | :---------- | | **Revenues:** | | | | | | | Room | $1,172,331 | $1,143,987 | $956,119 | $821,733 | $735,882 | | Food and beverage | 62,600 | 66,030 | 59,558 | 54,710 | 47,768 | | Other | 35,624 | 28,605 | 25,348 | 21,871 | 20,246 | | **Total revenue** | **$1,270,555**| **$1,238,622**| **$1,041,025**| **$898,314** | **$803,896** | | **Net income** | **$206,086** | **$182,492** | **$144,652** | **$117,288** | **$6,833** | | **Per Share:** | | | | | | | Net income per common share | $0.90 | $0.82 | $0.76 | $0.65 | $0.04 | | Distributions declared per common share | $1.20 | $1.20 | $1.20 | $1.37 | $1.39 | | **Balance Sheet Data (at end of period):**| | | | | | | Investment in real estate, net | $4,816,410 | $4,793,159 | $4,823,489 | $3,641,767 | $3,492,821 | | Total assets | $4,928,672 | $4,902,338 | $4,979,883 | $3,722,775 | $3,776,805 | | Total debt, net | $1,412,242 | $1,222,196 | $1,337,963 | $998,103 | $706,626 | | Shareholders' equity | $3,409,010 | $3,571,085 | $3,517,064 | $2,647,058 | $3,014,624 | | **Cash Flow From (Used In):** | | | | | | | Operating activities | $404,812 | $384,071 | $331,171 | $279,628 | $251,593 | | Investing activities | $(210,160)$ | $(158,256)$ | $(162,200)$ | $(90,736)$ | $(34,700)$ | | Financing activities | $(190,811)$ | $(225,449)$ | $(162,197)$ | $(198,767)$ | $(211,885)$ | | Number of hotels owned at end of period | 241 | 239 | 235 | 179 | 191 | - Total revenue increased by **2.6%** from 2017 to 2018, and net income increased by **12.9%** over the same period[162](index=162&type=chunk) - The Company completed mergers with Apple REIT Ten, Inc. in 2016 and Apple REIT Seven, Inc. and Apple REIT Eight, Inc. in 2014, significantly expanding its portfolio[162](index=162&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the Company's financial condition and operating results, including hotel performance metrics, revenue/expense breakdown, non-GAAP measures, liquidity, and accounting policies - The Company is a self-advised REIT that owned **241 hotels** with **30,812 rooms** across 34 states as of December 31, 2018, all operating under Marriott, Hilton, or Hyatt brands[166](index=166&type=chunk) - In 2018, the Company acquired five hotels for **$152.2 million** and sold three hotels for **$15.8 million**. As of January 31, 2019, it had contracts for six potential acquisitions (**$162.5 million**) and nine dispositions (**$95 million**)[167](index=167&type=chunk)[168](index=168&type=chunk) - Comparable Hotels RevPAR was virtually unchanged in 2018 compared to 2017, with a slight ADR increase and occupancy decrease. The Company forecasts slightly negative to slightly positive RevPAR growth for 2019[18](index=18&type=chunk)[172](index=172&type=chunk)[183](index=183&type=chunk) Total Revenue and Hotel Operating Expenses (2016-2018) | Metric (in thousands) | 2018 | Percent of Revenue | 2017 | Percent of Revenue | 2016 | Percent of Revenue | | :-------------------------- | :---------- | :----------------- | :---------- | :----------------- | :---------- | :----------------- | | Total revenue | $1,270,555 | 100.0% | $1,238,622 | 100.0% | $1,041,025 | 100.0% | | Hotel operating expense | 715,934 | 56.3% | 697,402 | 56.3% | 582,839 | 56.0% | | Property taxes, insurance and other expense | 74,640 | 5.9% | 69,391 | 5.6% | 56,860 | 5.5% | | Ground lease expense | 11,364 | 0.9% | 11,313 | 0.9% | 10,409 | 1.0% | | General and administrative expense | 24,294 | 1.9% | 26,341 | 2.1% | 17,032 | 1.6% | | Depreciation expense | 183,482 | | 176,499 | | 148,163 | | | Interest and other expense, net | 51,185 | | 47,343 | | 40,026 | | Comparable Hotels Operating Statistics (2016-2018) | Metric | 2018 | Change 2017 to 2018 | 2017 | Change 2016 to 2017 | 2016 | | :-------- | :------ | :------------------ | :------ | :------------------ | :------ | | ADR | $136.11 | 0.7% | $135.22 | 1.0% | $133.89 | | Occupancy | 77.0% | -0.9% | 77.7% | 0.8% | 77.1% | | RevPAR | $104.80 | -0.2% | $105.00 | 1.7% | $103.27 | Same Store Operating Results (2016-2018) | Metric | 2018 | Change 2017 to 2018 | 2017 | Change 2016 to 2017 | 2016 | | :-------- | :------ | :------------------ | :------ | :------------------ | :------ | | ADR | $136.92 | 0.7% | $136.01 | 1.0% | $134.71 | | Occupancy | 77.2% | -0.6% | 77.7% | 0.1% | 77.6% | | RevPAR | $105.70 | - | $105.69 | 1.1% | $104.50 | - Hotel operating expense as a percentage of total revenue remained at **56.3%** in 2018, with increases in labor costs being a primary driver[184](index=184&type=chunk) - General and administrative expense decreased in 2018 due to lower executive compensation expense under the 2018 Incentive Plan[190](index=190&type=chunk) - Loss on impairment of depreciable real estate assets significantly decreased from **$45.9 million** in 2017 to **$3.1 million** in 2018[192](index=192&type=chunk) - Interest expense increased in 2018 due to higher average borrowings and an increase in the effective interest rate, partially offset by debt refinancing[194](index=194&type=chunk) Reconciliation of GAAP Net Income to FFO and MFFO (2016-2018) | Metric (in thousands) | 2018 | 2017 | 2016 | | :------------------------------------------ | :-------- | :-------- | :-------- | | Net income | $206,086 | $182,492 | $144,652 | | Depreciation of real estate owned | 182,527 | 175,581 | 147,244 | | (Gain) loss on sale of real estate | (152) | (16,295) | 153 | | Loss on impairment of depreciable real estate assets | 3,135 | 45,875 | 5,471 | | **Funds from operations** | **391,596** | **387,653** | **297,520** | | Transaction and litigation costs (reimbursements) | - | (2,586) | 34,989 | | Amortization of favorable and unfavorable leases, net | 647 | 663 | 674 | | Non-cash straight-line ground lease expense | 3,542 | 3,700 | 3,419 | | **Modified funds from operations** | **$395,785**| **$389,430**| **$336,602**| Reconciliation of GAAP Net Income to EBITDA, EBITDAre and Adjusted EBITDAre (2016-2018) | Metric (in thousands) | 2018 | 2017 | 2016 | | :------------------------------------------ | :-------- | :-------- | :-------- | | Net income | $206,086 | $182,492 | $144,652 | | Depreciation | 183,482 | 176,499 | 148,163 | | Amortization of favorable and unfavorable leases, net | 647 | 663 | 674 | | Interest and other expense, net | 51,185 | 47,343 | 40,026 | | Income tax expense | 587 | 847 | 431 | | **EBITDA** | **441,987** | **407,844** | **333,946** | | (Gain) loss on sale of real estate | (152) | (16,295) | 153 | | Loss on impairment of depreciable real estate assets | 3,135 | 45,875 | 5,471 | | **EBITDAre** | **444,970** | **437,424** | **339,570** | | Transaction and litigation costs (reimbursements) | - | (2,586) | 34,989 | | Non-cash straight-line ground lease expense | 3,542 | 3,700 | 3,419 | | **Adjusted EBITDAre** | **$448,512**| **$438,538**| **$377,978**| - The Company's principal liquidity sources are operating cash flow and its revolving credit facility. It anticipates these, along with debt financing and equity offerings, will be adequate for its liquidity requirements[225](index=225&type=chunk)[233](index=233&type=chunk) - The Company adopted new accounting standards for revenue recognition, cash flow classification, restricted cash, and hedging activities in 2018, with no material impact on financial statements, except for retrospective adjustments to cash flow statements for restricted cash[313](index=313&type=chunk)[314](index=314&type=chunk)[315](index=315&type=chunk)[318](index=318&type=chunk) - The Company plans to adopt the new lease accounting standard (Topic 842) in 2019, expecting to record **$110 million to $125 million** in right-of-use assets and lease liabilities, and reclassify certain ground leases as finance leases[320](index=320&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company's primary market risk is interest rate fluctuations on variable-rate debt, managed through interest rate swaps - The Company's primary market risk is interest rate risk on its variable-rate debt[257](index=257&type=chunk) - As of December 31, 2018, approximately **26%** (**$371.3 million**) of total outstanding debt was subject to variable interest rates[257](index=257&type=chunk) - A **100 basis point** change in interest rates would impact the Company's annual net income by approximately **$3.7 million**[257](index=257&type=chunk) - The Company uses interest rate swaps to manage interest rate risk, effectively fixing interest payments on approximately **$557.5 million** of its variable-rate debt as of December 31, 2018[258](index=258&type=chunk) Debt Maturities and Average Interest Rates (December 31, 2018) | Category | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | Fair Market Value | | :---------------- | :------ | :------ | :------ | :-------- | :-------- | :---------- | :---------- | :---------------- | | **Total debt:** | | | | | | | | | | Maturities | $33,805 | $28,349 | $47,586 | $378,052 | $295,616 | $634,165 | $1,417,573 | $1,396,638 | | Average interest rates | 3.7% | 3.9% | 3.9% | 3.9% | 3.9% | 4.0% | | | | **Variable rate debt:** | | | | | | | | | | Maturities | - | - | - | $268,800 | $250,000 | $410,000 | $928,800 | $929,435 | | Average interest rates | 3.4% | 3.6% | 3.8% | 3.8% | 3.9% | 4.0% | | | | **Fixed rate debt:** | | | | | | | | | | Maturities | $33,805 | $28,349 | $47,586 | $109,252 | $45,616 | $224,165 | $488,773 | $467,203 | | Average interest rates | 4.4% | 4.4% | 4.4% | 4.2% | 4.1% | 4.1% | | | [Item 8. Financial Statements and Supplementary Data](index=57&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the Company's audited consolidated financial statements, including balance sheets, income statements, cash flows, and related notes, along with auditor reports - Management concluded that the Company's internal control over financial reporting was effective as of December 31, 2018[268](index=268&type=chunk) - Ernst & Young LLP issued an unqualified opinion on the Company's consolidated financial statements and internal control over financial reporting as of December 31, 2018[271](index=271&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk) Consolidated Balance Sheets (December 31, 2018 and 2017) | Asset/Liability (in thousands) | 2018 | 2017 | | :----------------------------- | :---------- | :---------- | | Investment in real estate, net | $4,816,410 | $4,793,159 | | Restricted cash | 33,632 | 29,791 | | Due from third party managers, net | 29,091 | 31,457 | | Other assets, net | 49,539 | 47,931 | | **Total Assets** | **$4,928,672**| **$4,902,338**| | Debt, net | $1,412,242 | $1,222,196 | | Accounts payable and other liabilities | 107,420 | 109,057 | | **Total Liabilities** | **$1,519,662**| **$1,331,253**| | Common stock | 4,495,073 | 4,588,188 | | Accumulated other comprehensive income | 10,006 | 9,778 | | Distributions greater than net income | (1,096,069) | (1,026,881) | | **Total Shareholders' Equity** | **$3,409,010**| **$3,571,085**| | **Total Liabilities and Shareholders' Equity** | **$4,928,672**| **$4,902,338**| Consolidated Statements of Operations and Comprehensive Income (2016-2018) | Revenue/Expense (in thousands) | 2018 | 2017 | 2016 | | :----------------------------- | :---------- | :---------- | :---------- | | Room revenue | $1,172,331 | $1,143,987 | $956,119 | | Food and beverage | 62,600 | 66,030 | 59,558 | | Other revenue | 35,624 | 28,605 | 25,348 | | **Total revenue** | **$1,270,555**| **$1,238,622**| **$1,041,025**| | Total hotel operating expense | 715,934 | 697,402 | 582,839 | | Property taxes, insurance and other | 74,640 | 69,391 | 56,860 | | Ground lease expense | 11,364 | 11,313 | 10,409 | | General and administrative | 24,294 | 26,341 | 17,032 | | Loss on impairment of depreciable real estate assets | 3,135 | 45,875 | 5,471 | | Depreciation | 183,482 | 176,499 | 148,163 | | **Net income** | **$206,086** | **$182,492** | **$144,652** | | Basic and diluted net income per common share | $0.90 | $0.82 | $0.76 | Consolidated Statements of Cash Flows (2016-2018) | Cash Flow Activity (in thousands) | 2018 | 2017 | 2016 | | :-------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $404,812 | $384,071 | $331,171 | | Net cash used in investing activities | $(210,160)$ | $(158,256)$ | $(162,200)$ | | Net cash used in financing activities | $(190,811)$ | $(225,449)$ | $(162,197)$ | | Net change in cash, cash equivalents and restricted cash | 3,841 | 366 | 6,774 | | Cash, cash equivalents and restricted cash, end of period | $33,632 | $29,791 | $29,425 | - The Company's investment in real estate, net, increased from **$4,793.159 million** in 2017 to **$4,816.410 million** in 2018[284](index=284&type=chunk) - Total debt, net, increased from **$1,222.196 million** in 2017 to **$1,412.242 million** in 2018[284](index=284&type=chunk) - The Company's qualification as a REIT involves complex Code provisions, and failure to qualify would result in significant tax liabilities[305](index=305&type=chunk)[306](index=306&type=chunk) - The Company uses interest rate swaps to manage interest rate risks on its variable-rate debt, with a total notional amount of **$682.5 million** as of December 31, 2018[374](index=374&type=chunk)[375](index=375&type=chunk) - The Company incurred approximately **$43.9 million** in management fees and **$54.5 million** in franchise royalty fees in 2018[243](index=243&type=chunk)[404](index=404&type=chunk) - As of December 31, 2018, the Company had **13 hotels** subject to ground leases, with estimated minimum future lease payments totaling **$436.8 million**[405](index=405&type=chunk)[409](index=409&type=chunk) - Subsequent events in January-February 2019 include monthly distributions of **$0.10 per share**, a contract to purchase a **160-room hotel** for **$31.7 million**, and repurchase of **0.2 million** common shares for **$3.6 million**[253](index=253&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk)[419](index=419&type=chunk)[421](index=421&type=chunk)[422](index=422&type=chunk)[423](index=423&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=91&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The Company reported no changes in or disagreements with accountants on accounting and financial disclosure - None[425](index=425&type=chunk) [Item 9A. Controls and Procedures](index=91&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - The Company's disclosure controls and procedures were effective as of December 31, 2018[426](index=426&type=chunk) - No material changes in internal control over financial reporting occurred during the last fiscal quarter[426](index=426&type=chunk) [Item 9B. Other Information](index=91&type=section&id=Item%209B.%20Other%20Information) The Company reported no other information required by this item - None[427](index=427&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=92&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section lists the Company's directors and executive officers, with further governance details incorporated from the 2019 Proxy Statement - Lists the Board of Directors and Executive Officers as of February 25, 2019[429](index=429&type=chunk)[430](index=430&type=chunk) - Additional information is incorporated by reference from the Company's 2019 Proxy Statement[430](index=430&type=chunk) [Item 11. Executive Compensation](index=92&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the Company's 2019 Proxy Statement - Information on executive compensation is incorporated by reference from the Company's 2019 Proxy Statement[431](index=431&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=92&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) Information concerning security ownership of certain beneficial owners and management, and related shareholder matters, is incorporated by reference from the Company's 2019 Proxy Statement - Information on security ownership and related shareholder matters is incorporated by reference from the Company's 2019 Proxy Statement[431](index=431&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=92&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the Company's 2019 Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the Company's 2019 Proxy Statement[432](index=432&type=chunk) [Item 14. Principal Accounting Fees and Services](index=92&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information concerning principal accounting fees and services is incorporated by reference from the Company's 2019 Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the Company's 2019 Proxy Statement[432](index=432&type=chunk) Part IV [Item 15. Exhibits, Financial Statement Schedules](index=94&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and a comprehensive exhibit listing, with financial statements incorporated from Item 8 - Financial statements of Apple Hospitality REIT, Inc. are incorporated by reference from Item 8[434](index=434&type=chunk) - Includes Schedule III – Real Estate and Accumulated Depreciation[435](index=435&type=chunk) - Provides a listing of various exhibits, including merger agreements, articles of incorporation, bylaws, compensation plans, and credit agreements[435](index=435&type=chunk)[436](index=436&type=chunk)[437](index=437&type=chunk) [Item 16. Form 10-K Summary](index=95&type=section&id=Item%2016.%20Form%2010-K%20Summary) The Company states that no Form 10-K Summary is included - None[437](index=437&type=chunk) [SCHEDULE III Real Estate and Accumulated Depreciation](index=96&type=section&id=SCHEDULE%20III%20Real%20Estate%20and%20Accumulated%20Depreciation) This schedule details the Company's real estate investments and accumulated depreciation, including property specifics and changes over 2016-2018 - Detailed listing of **241 hotel properties**, including location, brand, acquisition date, and room count[438](index=438&type=chunk)[440](index=440&type=chunk)[441](index=441&type=chunk)[442](index=442&type=chunk)[443](index=443&type=chunk)[444](index=444&type=chunk)[445](index=445&type=chunk) - Identifies properties subject to ground leases (land cost **$0**) and those encumbered by mortgages[438](index=438&type=chunk)[440](index=440&type=chunk)[441](index=441&type=chunk)[442](index=442&type=chunk)[443](index=443&type=chunk)[444](index=444&type=chunk)[445](index=445&type=chunk) Real Estate Owned and Accumulated Depreciation Summary (2016-2018) | Metric (in thousands) | 2018 | 2017 | 2016 | | :-------------------------------- | :------------ | :------------ | :------------ | | **Real estate owned:** | | | | | Balance as of January 1 | $5,524,443 | $5,381,086 | $4,064,824 | | Acquisitions | 153,034 | 162,734 | 1,319,986 | | Improvements | 71,058 | 69,081 | 63,364 | | Dispositions | (19,097) | (42,583) | (11,951) | | Impairment of Depreciable Assets | (3,135) | (45,875) | (5,471) | | **Balance at December 31** | **$5,726,303**| **$5,524,443**| **$5,381,086**| | **Accumulated depreciation:** | | | | | Balance as of January 1 | $(731,284)$ | $(557,597)$ | $(423,057)$ | | Depreciation Expense | (182,527) | (175,581) | (147,244) | | Accumulated Depreciation on Dispositions | 3,918 | 1,894 | 2,038 | | **Balance at December 31** | **$(909,893)$**| **$(731,284)$**| **$(557,597)$**| [Signatures](index=103&type=section&id=Signatures) This section contains the required signatures of the Company's executive officers and directors, certifying the report - The report is signed by Glade M. Knight (Executive Chairman), Justin G. Knight (President and CEO), Bryan Peery (CFO), and other Directors[448](index=448&type=chunk)[449](index=449&type=chunk)