Apple Hospitality REIT Reports Results of Operations for Fourth Quarter and Full Year 2018

RICHMOND, Va.–(BUSINESS WIRE)–Apple Hospitality REIT, Inc. (NYSE: APLE) (the “Company” or “Apple
Hospitality”) today announced results of operations for the fourth
quarter and full year ended December 31, 2018.

 

Selected Statistical and Financial Data

As of and For the Three Months and Years Ended December 31

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

                             
Three Months Ended Years Ended
December 31, December 31,
2018 2017 % Change 2018 2017 % Change
 
Net income (loss) $ 34,152 $ (2,303) n/a $ 206,086 $ 182,492 12.9%
Net income (loss) per share $ 0.15 $ (0.01) n/a $ 0.90 $ 0.82 9.8%
 
Adjusted EBITDAre $ 94,831 $ 93,073 1.9% $ 448,512 $ 438,538 2.3%
Comparable Hotels Adjusted Hotel EBITDA $ 102,273 $ 103,368 (1.1%) $ 474,431 $ 476,889 (0.5%)
Comparable Hotels Adjusted Hotel EBITDA Margin % 34.6% 35.1% (50 bps) 37.2% 37.9% (70 bps)
Modified funds from operations (MFFO) $ 81,502 $ 80,956 0.7% $ 395,785 $ 389,430 1.6%
MFFO per share $ 0.36 $ 0.36 $ 1.72 $ 1.74 (1.1%)
 
Average Daily Rate (ADR) (Actual) $ 131.93 $ 130.30 1.3% $ 136.04 $ 134.61 1.1%
Occupancy (Actual) 72.5% 73.5% (1.4%) 76.9% 77.4% (0.6%)
Revenue Per Available Room (RevPAR) (Actual) $ 95.63 $ 95.76 (0.1%) $ 104.66 $ 104.13 0.5%
 
Comparable Hotels ADR $ 131.88 $ 130.75 0.9% $ 136.11 $ 135.22 0.7%
Comparable Hotels Occupancy 72.5% 73.7% (1.6%) 77.0% 77.7% (0.9%)
Comparable Hotels RevPAR $ 95.59 $ 96.40 (0.8%) $ 104.80 $ 105.00 (0.2%)
 
Distributions paid $ 68,627 $ 67,201 2.1% $ 275,892 $ 267,917 3.0%
Distributions paid per share $ 0.30 $ 0.30 $ 1.20 $ 1.20
 
Total debt outstanding $ 1,417,573
Total debt to total capitalization (2) 30.7%
(1) Explanations of and reconciliations to net income (loss)
determined in accordance with generally accepted accounting
principles (“GAAP”) of non-GAAP financial measures, Adjusted
EBITDAre, Comparable Hotels Adjusted Hotel EBITDA and MFFO, are
included below.
(2) Total debt outstanding divided by total debt outstanding plus
equity market capitalization based on the Company’s closing share
price of $14.26 on December 31, 2018.
 

Comparable Hotels is defined as the 241 hotels owned by the
Company as of December 31, 2018. For hotels acquired during the
periods noted, the Company has included, as applicable, results of
those hotels for periods prior to the Company’s ownership, and for
dispositions, results have been excluded for the Company’s period
of ownership. Results for periods prior to the Company’s ownership
have not been included in the Company’s actual Consolidated
Financial Statements and are included only for comparison
purposes. Results included for periods prior to the Company’s
ownership are based on information from the prior owner of each
hotel and have not been audited or adjusted.

 

Justin Knight, President and Chief Executive Officer of Apple
Hospitality REIT, commented, “Through strategic revenue management and
effective cost control measures, we achieved stable operating results
across our geographically diversified portfolio of hotels during the
fourth quarter and full year of 2018. RevPAR growth was impacted by
competitive pressures in many markets and hurricane-related
outperformance in 2017. However, despite the current moderate growth and
increasing cost environment, we are pleased to report Comparable Hotels
Adjusted Hotel EBITDA Margin of 37.2 percent for the year. Highlighting
our commitment to pursuing opportunities that will enhance shareholder
value, we repurchased more than 6.5 million shares of our stock since
the end of the third quarter of 2018. We are confident we are uniquely
positioned to maximize operating results and take advantage of
additional opportunities in the marketplace in 2019.”

Portfolio Activity

Acquisitions and Contracts for Potential Acquisitions

During 2018, Apple Hospitality acquired five hotels with 732 rooms for a
combined total purchase price of approximately $152 million, including
the existing 127-room Hyatt Place in Jacksonville, Florida, which was
acquired during the fourth quarter for approximately $15 million.

The Company currently has contracts for the potential acquisition of six
additional hotels with 766 rooms for a combined total purchase price of
approximately $162 million, including a contract that was entered into
in January 2019 for the potential purchase of an existing 160-room
Hampton Inn & Suites by Hilton in St. Paul, Minnesota, for approximately
$32 million. As previously announced, the other five hotels under
contract are currently under development. If all conditions to closing
are met, the Company anticipates acquiring two of the hotels in March of
2019 and four of the hotels in 2020. There are many conditions to
closing under each of the contracts that have not yet been satisfied,
and there can be no assurance that closings on the hotels will occur.

Dispositions and Contracts for Potential Dispositions

Apple Hospitality sold three hotels during 2018, for a total combined
gross sales price of approximately $16 million, including the 72-room
Residence Inn by Marriott in Springdale, Arkansas, which was sold during
the fourth quarter for approximately $6 million.

In February 2019, the Company terminated its previously announced
contract for the potential sale of 16 hotels and entered into contracts
with the same unrelated party for the sale of nine properties for a
combined gross sales price of $95 million. There are many conditions to
closing under each of the contracts that have not yet been satisfied,
and there can be no assurance that closings on the hotels will occur
under the outstanding sales contracts. If closings occur, the sales are
expected to be completed during the first half of 2019. The purchaser
under these contracts has made a $7 million nonrefundable deposit to
secure the contracts.

Capital Improvements

Apple Hospitality consistently reinvests in its hotels to maintain and
enhance each property’s relevance and competitive position within its
respective market. During the year ended December 31, 2018, the Company
invested approximately $71 million in capital expenditures. The Company
plans to continue to reinvest in its hotels and anticipates investing
approximately $80 million to $90 million in capital improvements during
2019, which includes various scheduled renovation projects for
approximately 30 to 35 properties.

Balance Sheet

As of December 31, 2018, Apple Hospitality had approximately $1.4
billion of total outstanding indebtedness with a current combined
weighted-average interest rate of approximately 3.7 percent for 2019.
Excluding unamortized debt issuance costs and fair value adjustments,
the Company’s total outstanding indebtedness is comprised of
approximately $489 million in property-level debt secured by 31 hotels
and $929 million outstanding on its unsecured credit facilities. Apple
Hospitality’s undrawn capacity on its unsecured credit facilities at
December 31, 2018, was approximately $231 million. The Company’s total
debt to total capitalization at December 31, 2018, was approximately 31
percent, which provides Apple Hospitality with financial flexibility to
fund capital requirements and pursue opportunities in the marketplace.
The Company’s weighted-average debt maturities are 5.2 years, and the
weighted-average maturity of its effectively fixed-rate debt is 4.4
years at a weighted-average interest rate of 4.0 percent.

Share Repurchase Program

During 2018, the Company purchased, under its Share Repurchase Program,
approximately 6.6 million of its common shares at a weighted-average
market purchase price of approximately $15.87 per common share, for an
aggregate purchase price of approximately $104 million. Substantially
all of the purchases were made during the fourth quarter of 2018, with
approximately 6.3 million shares purchased at a weighted-average market
purchase price of approximately $15.83, for an aggregate purchase price
of approximately $100 million. During the month of January 2019, the
Company purchased, under its Share Repurchase Program, approximately 0.2
million of its common shares, at a weighted-average market purchase
price of approximately $14.81 per common share, for an aggregate
purchase price of approximately $4 million. The timing of share
repurchases and the number of common shares to be repurchased under the
Share Repurchase Program will depend upon prevailing market conditions,
regulatory requirements and other factors. The Company is not obligated
to repurchase any specific number of shares and may suspend repurchases
at any time at its discretion. Repurchases under the Share Repurchase
Program have been funded, and the Company intends to fund future
repurchases, with availability under its credit facilities.

Shareholder Distributions

Apple Hospitality paid distributions of $0.30 per common share during
the three-month period ended December 31, 2018. Distributions paid by
the Company totaled $1.20 per common share for the year ended December
31, 2018. Based on the Company’s common share closing price of $16.76 on
February 21, 2019, the annualized distribution rate of $1.20 per common
share represents an annual yield of approximately 7.2 percent. The
Company’s Board of Directors, in consultation with management, will
continue to regularly monitor the Company’s distribution rate relative
to the performance of its hotels, capital improvement needs, varying
economic cycles, acquisitions and dispositions. At its discretion, the
Company’s Board of Directors may make adjustments as determined to be
prudent in relation to other cash requirements of the Company.

2019 Outlook

Apple Hospitality is providing its operational and financial outlook for
2019. This outlook, which is based on management’s current view of both
operating and economic fundamentals of the Company’s existing portfolio
of hotels, does not take into account any unanticipated developments in
its business or changes in its operating environment, nor does it take
into account any unannounced hotel acquisitions or dispositions.
Comparable Hotels RevPAR Change and Comparable Hotels Adjusted Hotel
EBITDA Margin % guidance include properties acquired, as if the hotels
were owned as of January 1, 2018, and exclude completed dispositions
since January 1, 2018. For the full year 2019, the Company anticipates:

         
2019 Guidance(1)(2)
Low-End High-End
 
Net Income $168 Million $192 Million
 
Comparable Hotels RevPAR Change (1.0%) 1.0%
 
Comparable Hotels Adjusted Hotel EBITDA Margin % 35.4% 36.4%
 
Adjusted EBITDAre(3) $423 Million $443 Million
 
Adjusted EBITDAre, assuming disposition of hotels under contract for
sale(3)
$416 Million $436 Million
(1)     Explanations of and reconciliations to net income guidance of
Adjusted EBITDAre guidance are included below.
(2) The 2019 Guidance does not include the effect of the Company’s
adoption of Accounting Standards Codification Topic 842, “Leases” on
January 1, 2019. Under the new standard, certain leases that were
previously accounted for as operating leases will be accounted for
as finance leases under Topic 842. For these finance leases, the
Company will recognize depreciation expense and interest and other
expense, net in the Company’s consolidated statements of operations,
instead of ground lease expense. While the total expense recognized
over the life of a lease will be unchanged, the timing of expense
recognition for finance leases will result in higher expense
recognition during the earlier years of the lease and lower expense
during the later years of the lease.
(3) In February 2019, the Company entered into contracts for the
disposition of nine hotels for a combined gross sales price of
approximately $95 million. The contracts are subject to many
conditions before closings could occur, therefore, there can be no
assurance that the hotels will be sold. For purposes of the
Company’s 2019 Outlook, the Company has presented Adjusted EBITDAre
guidance (i) without giving effect to closings on the sales of the
hotels and (ii) assuming closings on the sales of the hotels at the
end of the first quarter of 2019. The dispositions would not affect
the Company’s outlook for Comparable Hotels RevPAR Change or
Comparable Hotels Adjusted Hotel EBITDA Margin %.
 

Fourth Quarter and Full Year 2018 Earnings
Conference Call

The Company will host a quarterly conference call for investors and
interested parties on Tuesday, February 26, 2019, at 9:00 a.m. Eastern
Time. The conference call will be accessible by telephone and the
internet. To access the call, participants from within the U.S. should
dial (877) 407-9039, and participants from outside the U.S. should dial
(201) 689-8470. Participants may also access the call via live webcast
by visiting the Investor Information section of the Company’s website at ir.applehospitalityreit.com.
A replay of the call will be available from approximately 12:00 p.m.
Eastern Time on February 26, 2019, through 11:59 p.m. Eastern Time on
March 12, 2019. To access the replay, the domestic dial-in number is
(844) 512-2921, the international dial-in number is (412) 317-6671, and
the passcode is 13685854. The archive of the webcast will be available
on the Company’s website for a limited time.

About Apple Hospitality REIT, Inc.

Apple Hospitality REIT, Inc. (NYSE: APLE) is a publicly traded real
estate investment trust (REIT) that owns one of the largest and most
diverse portfolios of upscale, rooms-focused hotels in the United
States. Apple Hospitality’s portfolio consists of 241 hotels with more
than 30,800 guest rooms located in 88 markets throughout 34 states.
Franchised with industry-leading brands, the Company’s portfolio
comprises 114 Marriott-branded hotels, 126 Hilton-branded hotels and one
Hyatt-branded hotel. For more information, please visit www.applehospitalityreit.com.

Apple Hospitality REIT Non-GAAP Financial
Measures

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

Forward-Looking Statements Disclaimer

Certain statements contained in this press release, other than
historical facts, may be considered forward-looking statements. These
forward-looking statements are predictions and generally can be
identified by use of statements that include phrases such as “may,”
“believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,”
“target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,”
“outlook,” “strategy,” and similar expressions that convey the
uncertainty of future events or outcomes. Such statements involve known
and unknown risks, uncertainties, and other factors which may cause the
actual results, performance, or achievements of Apple Hospitality to be
materially different from future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors
include, but are not limited to, the ability of Apple Hospitality to
effectively acquire and dispose of properties; the ability of Apple
Hospitality to successfully integrate pending transactions and implement
its operating strategy; changes in general political, economic and
competitive conditions and specific market conditions; adverse changes
in the real estate and real estate capital markets; financing risks;
litigation risks; regulatory proceedings or inquiries; and changes in
laws or regulations or interpretations of current laws and regulations
that impact Apple Hospitality’s business, assets or classification as a
real estate investment trust. Although Apple Hospitality believes that
the assumptions underlying the forward-looking statements contained
herein are reasonable, any of the assumptions could be inaccurate, and
therefore there can be no assurance that such statements included in
this press release will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be
regarded as a representation by Apple Hospitality or any other person
that the results or conditions described in such statements or the
objectives and plans of Apple Hospitality will be achieved. In addition,
Apple Hospitality’s qualification as a real estate investment trust
involves the application of highly technical and complex provisions of
the Internal Revenue Code. Readers should carefully review Apple
Hospitality’s financial statements and the notes thereto, as well as the
risk factors described in Apple Hospitality’s filings with the
Securities and Exchange Commission, including, but not limited to, in
the section titled “Risk Factors” in the Company’s Annual Report on Form
10-K for the year ended December 31, 2018. Any forward-looking statement
that Apple Hospitality makes speaks only as of the date of such
statement. Apple Hospitality undertakes no obligation to publicly update
or revise any forward-looking statements or cautionary factors, as a
result of new information, future events, or otherwise, except as
required by law.

For additional information or to receive press releases by email,
visit
www.applehospitalityreit.com.

 

Apple Hospitality REIT, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 
      As of December 31,
2018       2017  
 
Assets

Investment in real estate, net of accumulated depreciation of
$909,893 and $731,284, respectively

$ 4,816,410 $ 4,793,159
Restricted cash-furniture, fixtures and other escrows 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  
 
Liabilities
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
 
Shareholders’ Equity

Preferred stock, authorized 30,000,000 shares; none issued and
outstanding

Common stock, no par value, authorized 800,000,000 shares; issued
and outstanding 223,997,348 and 229,961,548 shares, respectively

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  

Note:

The Consolidated Balance Sheets and corresponding footnotes can
be found in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2018.

 
             
Apple Hospitality REIT, Inc.
Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share data)
 
Three Months Ended Years Ended
December 31, (Unaudited) December 31,
2018   2017 2018 2017
Revenues:
Room $ 270,679 $ 266,013 $ 1,172,331 $ 1,143,987
Food and beverage 15,743 16,119 62,600 66,030
Other   8,833     6,935     35,624     28,605  
Total revenue 295,255 289,067 1,270,555 1,238,622
 
Expenses:
Hotel operating expense:
Operating 76,849 75,282 315,363 310,756
Hotel administrative 24,637 24,850 102,019 99,745
Sales and marketing 25,069 25,010 105,834 100,877
Utilities 9,781 9,927 42,474 41,909
Repair and maintenance 12,680 12,069 51,813 48,463
Franchise fees 12,654 12,319 54,494 52,930
Management fees   10,156     9,650     43,937     42,722  
Total hotel operating expense 171,826 169,107 715,934 697,402
Property taxes, insurance and other 19,500 17,045 74,640 69,391
Ground lease 2,784 2,827 11,364 11,313
General and administrative 7,326 8,086 24,294 26,341
Transaction and litigation costs (reimbursements) (2,586 )
Loss on impairment of depreciable real estate assets 38,000 3,135 45,875
Depreciation   46,730     44,729     183,482     176,499  
Total expense 248,166 279,794 1,012,849 1,024,235
 
Gain on sale of real estate   152     312     152     16,295  
 
Operating income 47,241 9,585 257,858 230,682
 
Interest and other expense, net   (12,916 )   (11,753 )   (51,185 )   (47,343 )
 
Income (loss) before income taxes 34,325 (2,168 ) 206,673 183,339
 
Income tax expense   (173 )   (135 )   (587 )   (847 )
 
Net income (loss) $ 34,152   $ (2,303 ) $ 206,086   $ 182,492  
 
Other comprehensive income (loss):
Interest rate derivatives   (9,461 )   4,560     228     5,189  
 
Comprehensive income $ 24,691   $ 2,257   $ 206,314   $ 187,681  
 
Basic and diluted net income (loss) per common share $ 0.15   $ (0.01 ) $ 0.90   $ 0.82  
 
Weighted average common shares outstanding – basic and diluted 227,455 224,935 229,659 223,526

Note:

The Consolidated Statements of Operations and Comprehensive
Income and corresponding footnotes can be found in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2018.

 
                           
Apple Hospitality REIT, Inc.
Comparable Hotels Operating Metrics and Statistical Data
(Unaudited)
(in thousands except statistical data)
   
Three Months Ended Years Ended
December 31, December 31,
2018 2017 % Change 2018 2017 % Change
 
Total revenue $ 295,503 $ 294,788 0.2% $ 1,274,139 $ 1,259,897 1.1%
 
Total operating expenses   193,230   191,420 0.9%   799,708   783,008 2.1%
 
Adjusted Hotel EBITDA $ 102,273 $ 103,368 (1.1%) $ 474,431 $ 476,889 (0.5%)
Adjusted Hotel EBITDA Margin % 34.6% 35.1% (50 bps) 37.2% 37.9% (70 bps)
 
 
ADR (Comparable Hotels) $ 131.88 $ 130.75 0.9% $ 136.11 $ 135.22 0.7%
Occupancy (Comparable Hotels) 72.5% 73.7% (1.6%) 77.0% 77.7% (0.9%)
RevPAR (Comparable Hotels) $ 95.59 $ 96.40 (0.8%) $ 104.80 $ 105.00 (0.2%)
 
ADR (Actual) $ 131.93 $ 130.30 1.3% $ 136.04 $ 134.61 1.1%
Occupancy (Actual) 72.5% 73.5% (1.4%) 76.9% 77.4% (0.6%)
RevPAR (Actual) $ 95.63 $ 95.76 (0.1%) $ 104.66 $ 104.13 0.5%
 

Reconciliation to Actual Results

 
Total Revenue (Actual) $ 295,255 $ 289,067 $ 1,270,555 $ 1,238,622
Revenue from acquisitions prior to ownership 674 7,130 7,782 41,357
Revenue from dispositions (360) (1,358) (3,934) (19,886)
Lease revenue intangible amortization   (66)   (51)   (264)   (196)
Comparable Hotels Total Revenue $ 295,503 $ 294,788 $ 1,274,139 $ 1,259,897
 
Adjusted Hotel EBITDA (AHEBITDA) (Actual) $ 102,157 $ 101,159 $ 472,806 $ 464,879
AHEBITDA from acquisitions prior to ownership 179 2,491 2,638 17,160
AHEBITDA from dispositions   (63)   (282)   (1,013)   (5,150)
Comparable Hotels AHEBITDA $ 102,273 $ 103,368 $ 474,431 $ 476,889

Note:

Comparable Hotels is defined as the 241 hotels owned by the
Company as of December 31, 2018. For hotels acquired during the
periods noted, the Company has included, as applicable, results of
those hotels for periods prior to the Company’s ownership, and for
dispositions, results have been excluded for the Company’s period
of ownership. Results for periods prior to the Company’s ownership
have not been included in the Company’s actual Consolidated
Financial Statements and are included only for comparison
purposes. Results included for periods prior to the Company’s
ownership are based on information from the prior owner of each
hotel and have not been audited or adjusted.

 

Reconciliation of net income (loss) to non-GAAP financial
measures is included in the following pages.

 

Contacts

Apple Hospitality REIT, Inc.
Kelly Clarke, Vice President, Investor
Relations
(804) 727-6321
[email protected]m

Read full story here

error: Content is protected !!