Apple Hospitality REIT(APLE) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements detail the company's financial position, operational results, and cash flows for the third quarter and first nine months of 2021 Consolidated Balance Sheets The balance sheet shows total assets of $4.70 billion and total liabilities of $1.58 billion as of September 30, 2021, with shareholders' equity increasing to $3.13 billion Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 (unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Investment in real estate, net | $4,541,424 | $4,732,896 | | Cash and cash equivalents | $39,432 | $5,556 | | Total Assets | $4,704,827 | $4,829,759 | | Liabilities | | | | Debt, net | $1,366,621 | $1,482,571 | | Accounts payable and other liabilities | $111,706 | $219,981 | | Total Liabilities | $1,576,713 | $1,800,412 | | Total Shareholders' Equity | $3,128,114 | $3,029,347 | Consolidated Statements of Operations and Comprehensive Income (Loss) The company's profitability significantly improved, reporting a net income of $31.8 million for Q3 2021 compared to a net loss of $40.9 million in Q3 2020 Key Operating Results (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $277,164 | $148,826 | $683,281 | $467,914 | | Operating Income (Loss) | $47,850 | $(22,356) | $59,024 | $(69,212) | | Net Income (Loss) | $31,759 | $(40,948) | $5,607 | $(121,960) | | Basic and Diluted EPS | $0.14 | $(0.18) | $0.02 | $(0.55) | Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $3.13 billion, driven by net income and common share issuances, partially offset by shareholder distributions - For the nine months ended September 30, 2021, the company issued 4.68 million common shares, netting $75.0 million[16] - Distributions declared to shareholders totaled $6.8 million ($0.03 per share) for the first nine months of 2021, compared to $45.0 million ($0.20 per share) in the same period of 2020[16] Consolidated Statements of Cash Flows Net cash from operations was $146.4 million for the nine-month period, with investing activities funded by real estate sales and financing activities used for debt repayment Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $146,362 | $26,199 | | Net cash provided by (used in) investing activities | $21,997 | $(88,100) | | Net cash provided by (used in) financing activities | $(128,849) | $82,859 | | Net change in cash | $39,510 | $20,958 | Notes to Consolidated Financial Statements The notes detail accounting policies and significant financial activities, including the impact of COVID-19, real estate transactions, and debt management - As of September 30, 2021, the Company owned 215 hotels with 28,085 rooms in 35 states[20] - The company notes that while hotel occupancy has recovered significantly during the first nine months of 2021, significant uncertainty remains as to when or if operations will return to pre-pandemic levels due to COVID-19[23] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant recovery in hotel operations, portfolio changes, financial performance, and liquidity position during 2021 Overview and COVID-19 Impact The company's operations showed recovery from the COVID-19 pandemic driven by leisure travel, though a full recovery remains uncertain and dependent on business travel - The company expects the decline in revenue associated with COVID-19 to negatively impact operating results for an extended period, with a full recovery dependent on the return of business travel[104] - Cost reduction initiatives, such as adjusting operations, reducing amenities, and renegotiating service contracts, are not expected to fully offset revenue losses from the pandemic[105] 2021 Hotel Portfolio Activities The company actively managed its portfolio by acquiring four hotels for $197.5 million and selling 23 hotels for $234.6 million during the first nine months of 2021 - Acquired four hotels in Madison, WI; Portland, ME (two hotels); and Greenville, SC for an aggregate gross purchase price of approximately $147.9 million, plus a previously contracted Hilton Garden Inn in Madison, WI for $49.6 million[106] - Sold 23 hotels for a total gross sales price of approximately $234.6 million, resulting in a net gain of $3.7 million[110] - As of September 30, 2021, the company had outstanding contracts to purchase five hotels for a total expected price of $242.6 million, with four expected to close in Q4 2021 and one in 2023[107] Hotel Operations Hotel operations demonstrated a strong recovery in Q3 2021, with RevPAR for the total portfolio increasing 96.6% year-over-year, though still below pre-pandemic levels Total Portfolio Operating Metrics | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | ADR | $140.02 | $104.78 | 33.6% | | Occupancy | 71.5% | 48.6% | 47.1% | | RevPAR | $100.14 | $50.94 | 96.6% | Comparable Hotels (215 properties) Operating Metrics | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | ADR | $141.56 | $106.13 | 33.4% | | Occupancy | 71.6% | 48.7% | 47.0% | | RevPAR | $101.32 | $51.64 | 96.2% | - Occupancy for the company's portfolio reached approximately 76% in July 2021, the highest monthly level since the pandemic began, and was approximately 73% in October 2021[124] Non-GAAP Financial Measures Key non-GAAP metrics like MFFO and Adjusted Hotel EBITDA showed substantial year-over-year growth, reflecting the operational recovery in Q3 2021 Reconciliation of Net Income (Loss) to FFO and MFFO (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $31,759 | $(40,948) | $5,607 | $(121,960) | | Funds from operations | $74,743 | $7,359 | $147,577 | $17,656 | | Modified funds from operations | $76,065 | $9,118 | $152,417 | $22,912 | Reconciliation of Net Income (Loss) to Adjusted Hotel EBITDA (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $31,759 | $(40,948) | $5,607 | $(121,960) | | EBITDA | $92,165 | $27,918 | $198,631 | $80,683 | | Adjusted Hotel EBITDA | $105,423 | $34,688 | $235,664 | $98,689 | Liquidity and Capital Resources The company maintained strong liquidity with $1.4 billion in debt and $464.4 million in available capital, exiting its debt covenant waiver period in July 2021 - Total liquidity as of September 30, 2021, included approximately $39.4 million in cash and $425 million of unused capacity on the revolving credit facility[164] - The company exited its Extended Covenant Waiver Period on July 29, 2021, and is no longer subject to prior restrictions on acquisitions, distributions, and capital expenditures[169] - In Q2 2021, the company sold 4.7 million shares under its ATM Program, raising approximately $75.1 million in net proceeds[171] - The company anticipates spending an additional $15-20 million on capital expenditures for the remainder of 2021, including renovations for approximately eight properties[178] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure, which is significantly mitigated through interest rate swaps covering most of its variable-rate debt - The company uses 13 interest rate swap agreements to effectively fix the interest payments on $770.0 million of its variable-rate debt[188] - Approximately 4% ($50.0 million) of the company's total debt outstanding was subject to variable interest rates as of September 30, 2021[187] - A 100 basis point change in interest rates is estimated to impact annual net income by approximately $0.5 million[187] PART II. OTHER INFORMATION Legal Proceedings The company is not involved in any litigation expected to have a material adverse effect on its financial condition or operations - The Company is not currently a party to any legal proceedings that would have a material adverse effect on its financial condition or operations[194] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period - The Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2021[191] Exhibits This section lists all exhibits filed with the report, including corporate governance documents and required certifications Signatures The report is duly signed and authorized by the company's executive officers as of November 4, 2021