Apple Hospitality REIT(APLE) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended June 30, 2025, reflect decreased revenue and net income, with total assets slightly down and debt up Consolidated Balance Sheets Total assets slightly decreased to $4.93 billion as of June 30, 2025, while total liabilities and net debt increased Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $4,929,092 | $4,969,920 | | Investment in real estate, net | $4,764,731 | $4,820,748 | | Cash and cash equivalents | $7,896 | $10,253 | | Total Liabilities | $1,730,307 | $1,704,061 | | Debt, net | $1,525,866 | $1,471,452 | | Total Shareholders' Equity | $3,198,785 | $3,265,859 | Consolidated Statements of Operations and Comprehensive Income Q2 2025 total revenue decreased to $384.4 million, with net income falling to $63.6 million or $0.27 per share Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $384,370 | $390,077 | $712,072 | $719,589 | | Operating Income | $84,851 | $93,515 | $135,710 | $165,130 | | Net Income | $63,648 | $73,931 | $94,869 | $127,981 | | Basic and Diluted EPS | $0.27 | $0.31 | $0.40 | $0.53 | Consolidated Statements of Shareholders' Equity Shareholders' equity decreased to $3.20 billion by June 30, 2025, primarily due to distributions and share repurchases - For the six months ended June 30, 2025, the company repurchased approximately 3.4 million common shares for $43.2 million[15] - Distributions declared to shareholders totaled $114.6 million for the first six months of 2025, at a rate of $0.48 per share[15] Consolidated Statements of Cash Flows Net cash from operating activities decreased to $157.9 million for H1 2025, with significant cash used in investing and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $157,935 | $181,955 | | Net cash used in investing activities | ($39,818) | ($202,226) | | Net cash (used in) provided by financing activities | ($120,361) | $15,172 | Notes to Consolidated Financial Statements Notes detail accounting policies, hotel portfolio (221 hotels), recent acquisitions/dispositions, and future commitments - As of June 30, 2025, the Company owned 221 hotels with 29,893 guest rooms in 37 states and D.C., including one hotel classified as held for sale[20] - Acquired one Homewood Suites in Tampa, Florida for a gross purchase price of approximately $18.8 million during the first six months of 2025[30] - Sold two hotels for a combined gross sales price of approximately $21.0 million, resulting in a gain of $3.6 million during the first six months of 2025[34] - As of June 30, 2025, the company had an outstanding contract to purchase a hotel under development in Nashville, Tennessee for an expected price of approximately $98.2 million[76] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes H1 2025 performance decline to travel disruptions and macroeconomic uncertainty, with RevPAR down and expenses up Hotel Operations Hotel performance declined in H1 2025, with total revenue down 1.0% and RevPAR down 0.2%, impacted by external factors Key Operating Metrics (Total Portfolio) | Metric | Q2 2025 | Q2 2024 | % Change | YTD 2025 | YTD 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | ADR | $163.56 | $162.98 | 0.4% | $160.11 | $158.34 | 1.1% | | Occupancy | 78.6% | 79.8% | -1.5% | 74.9% | 75.9% | -1.3% | | RevPAR | $128.59 | $130.07 | -1.1% | $119.88 | $120.18 | -0.2% | Comparable Hotels Operating Results (219 hotels) | Metric | Q2 2025 | Q2 2024 | % Change | YTD 2025 | YTD 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | RevPAR | $128.68 | $130.89 | -1.7% | $120.18 | $121.49 | -1.1% | - Management expects RevPAR for Comparable Hotels to moderately improve, but full-year 2025 RevPAR is expected to be slightly lower than 2024, assuming the current macroeconomic environment continues[99] Results of Operations Analysis H1 2025 revenue declined due to external factors, while operating expenses rose from labor and utility costs, and interest expense increased - The decline in revenue for H1 2025 was primarily due to weather-related travel disruption, reduced government travel, and the additional day of revenues in 2024 from the leap year[101] - Hotel operating expenses increased in H1 2025 due to higher labor costs, utility costs, and general inflationary pressures[102] - General and administrative expenses decreased in H1 2025 primarily due to lower accruals for the executive incentive compensation plan[105] - Interest expense increased due to higher average borrowings on variable-rate debt and a decrease in the amount of variable-rate debt fixed by interest rate swaps[108] Non-GAAP Financial Measures Key non-GAAP metrics for H1 2025, including FFO ($185.8 million) and MFFO ($187.5 million), showed a year-over-year decrease FFO and MFFO Reconciliation (in thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $63,648 | $73,931 | $94,869 | $127,981 | | Funds from operations (FFO) | $110,910 | $120,434 | $185,755 | $202,777 | | Modified funds from operations (MFFO) | $111,803 | $121,329 | $187,542 | $204,569 | EBITDA and Adjusted Hotel EBITDA Reconciliation (in thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $63,648 | $73,931 | $94,869 | $127,981 | | EBITDA | $132,975 | $141,332 | $231,877 | $259,872 | | Adjusted EBITDAre | $133,006 | $140,916 | $228,384 | $241,726 | | Adjusted Hotel EBITDA | $141,070 | $151,680 | $246,335 | $261,473 | Liquidity and Capital Resources The company maintains strong liquidity with $1.5 billion in debt and $474.9 million available on its credit facility, with recent refinancing activities - As of June 30, 2025, the company had $1.5 billion of total outstanding debt and unused borrowing capacity under its Revolving Credit Facility of approximately $474.9 million[133] - Subsequent to quarter end, on July 24, 2025, the company entered into a new $385 million term loan facility with a maturity date of July 31, 2030, using proceeds to repay a $225 million facility and pay down its revolver[133][144] - The company repurchased 3.4 million common shares for approximately $43.2 million in the first six months of 2025. As of June 30, 2025, $257.6 million remained available under the Share Repurchase Program[141] - The company anticipates spending approximately $80 million to $90 million on capital expenditures during 2025, including renovations for approximately 20 properties[142] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk, with 39% ($603.0 million) of its debt at variable rates, impacting net income by $6.0 million per 100 bps change - The company is exposed to interest rate risk, with approximately $603.0 million, or 39% of its total debt, subject to variable interest rates as of June 30, 2025 (after giving effect to interest rate swaps)[155] - A 100 basis point change in interest rates is estimated to impact the company's annual net income by approximately $6.0 million[155] - The company utilizes nine interest rate swap agreements to effectively fix the interest payments on approximately $585.0 million of its variable-rate debt[156] Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls - The Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[159] PART II. OTHER INFORMATION Legal Proceedings No current or threatened litigation is expected to materially impact the company's financial position or operations - The company reports no current or threatened litigation that would have a material adverse effect on its consolidated financial position or results of operations[161] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1,432,127 common shares in Q2 2025, with $257.6 million remaining under the repurchase program Share Repurchases in Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 493,988 | $12.18 | | May 2025 | 505,964 | $11.57 | | June 2025 | 432,175 | $11.57 | | Total Q2 | 1,432,127 | | Other Information No Rule 10b5-1 trading arrangements were adopted or terminated, and new tax legislation impacts REIT dividends and TRS asset limits - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[164] - New tax legislation effective July 4, 2025, permanently extended the 20% deduction for qualified REIT dividends and increased the TRS asset test limit to 25% from 20% for taxable years beginning after December 31, 2025[165] Exhibits This section lists exhibits filed with Form 10-Q, including corporate governance documents and officer certifications