Press Release

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Homewood Suites, Cape Canaveral, Florida

Apple Hospitality REIT Reports Results of Operations for Third Quarter 2017

Company Release - 11/6/2017 4:15 PM ET

RICHMOND, Va.--(BUSINESS WIRE)-- Apple Hospitality REIT, Inc. (NYSE: APLE) (the “Company” or “Apple Hospitality”) today announced results of operations for the third quarter of 2017.

 
Selected Statistical and Financial Data
As of and For the Three and Nine Months Ended September 30

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

       
Three Months Ended Nine Months Ended
September 30, September 30,
2017   2016 % Change 2017   2016 % Change
 
Net income $ 62,824 $ 13,694 358.8% $ 184,795 $ 103,098 79.2%
Net income per share $ 0.28 $ 0.07 300.0% $ 0.83 $ 0.57 45.6%
 
Adjusted EBITDA $ 120,400 $ 104,084 15.7% $ 345,465 $ 283,208 22.0%
Comparable Hotels Adjusted Hotel EBITDA $ 125,094 $ 123,399 1.4% $ 360,078 $ 364,251 (1.1%)
Comparable Hotels Adjusted Hotel EBITDA Margin 38.9% 38.9% - 38.5% 39.5% (100 bps)
Modified funds from operations (MFFO) $ 107,943 $ 93,706 15.2% $ 308,474 $ 253,384 21.7%
MFFO per share $ 0.48 $ 0.49 (2.0%) $ 1.38 $ 1.41 (2.1%)
 
ADR (Actual) $ 136.73 $ 136.04 0.5% $ 135.97 $ 135.88 0.1%
Occupancy (Actual) 80.0% 80.2% (0.2%) 78.7% 78.9% (0.3%)
RevPAR (Actual) $ 109.45 $ 109.07 0.3% $ 106.96 $ 107.18 (0.2%)
 
Comparable Hotels ADR $ 136.83 $ 134.79 1.5% $ 135.84 $ 134.88 0.7%
Comparable Hotels Occupancy 80.2% 80.4% (0.2%) 78.8% 78.7% 0.1%
Comparable Hotels RevPAR $ 109.77 $ 108.32 1.3% $ 107.10 $ 106.20 0.8%
 
Distributions paid $ 66,905 $ 57,227 16.9% $ 200,716 $ 161,940 23.9%
Distributions paid per share $ 0.30 $ 0.30 - $ 0.90 $ 0.90 -
 
Total debt outstanding $ 1,306,836
Total debt to total capitalization (2) 23.7%
 
(1) Explanations of and reconciliations to net income of Adjusted EBITDA, 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 $18.91 on September 30, 2017.
 

Comparable Hotels is defined as the 236 hotels owned and held for use by the Company as of September 30, 2017. 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 and assets held for sale, 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, “We are pleased to have produced solid Comparable Hotels RevPAR growth of 1.3 percent and a strong Comparable Hotels Adjusted Hotel EBITDA Margin of 38.9 percent during the third quarter of this year, despite modest growth in business travel. We continue to enhance our portfolio through strategic transactions that we believe will increase shareholder value over the long term and are pleased to have acquired five well-located, select-service hotels and sold three full-service assets in the last year. With locations in 88 markets and a focus on the upscale segment of the industry, we believe we are well positioned for any economic environment.”

Mr. Knight continued, “While the damage to our hotels from hurricanes Harvey and Irma was not material, the storms had a devastating impact on numerous communities. We are incredibly proud of the operating teams at our hotels in the paths of the storms. Our hotel associates, some with catastrophic damage to their own homes, worked tirelessly to ensure the safety and comfort of our guests and we commend them for their hard work and continued efforts to aid in the rebuilding of their communities.”

Hotel Portfolio Overview

Apple Hospitality owns a highly diversified hotel portfolio, which helps insulate the revenue stream of the Company from regional economic dislocations that may occur from time to time. As of October 31, 2017, Apple Hospitality owned 238 hotels with 30,187 rooms, comprised of 117 Marriott® branded hotels and 121 Hilton® branded hotels, with locations in 88 markets throughout 34 states.

Transactional Activity

Acquisitions

On September 12, 2017, Apple Hospitality acquired the newly-constructed, dual-branded Hilton Garden Inn® and Home2 Suites by Hilton® property in Birmingham, Alabama, with a combined total of 210 rooms, for a gross purchase price of approximately $38 million.

On October 13, 2017, the Company acquired an existing 179-room Residence Inn by Marriott® in Portland, Maine, for a gross purchase price of approximately $56 million.

On October 20, 2017, the Company acquired an existing 136-room Residence Inn by Marriott® in the Murray suburb of Salt Lake City, Utah, for a gross purchase price of approximately $26 million.

Effective September 1, 2016, Apple Hospitality completed its merger with Apple REIT Ten, Inc. (“Apple Ten”). The merger added 56 Marriott® and Hilton® branded primarily select-service and extended-stay hotels with 7,209 guestrooms to the Company’s portfolio. As consideration in the merger, the Company issued approximately 49 million common shares and paid approximately $94 million to the Apple Ten shareholders, and assumed approximately $257 million of debt.

Dispositions

On October 5, 2017, the Company completed the sale of the 316-room Marriott® in Fairfax, Virginia, for a gross sales price of approximately $42 million. The sale resulted in an estimated gain of approximately $0.3 million, which will be recognized in the fourth quarter of 2017.

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 nine months ended September 30, 2017, the Company invested approximately $42 million in capital expenditures. The Company plans to continue to reinvest in its hotels and anticipates investing an additional $25 million in capital improvements during the remainder of 2017, which includes various scheduled renovation projects for approximately 15 properties.

Balance Sheet

As of September 30, 2017, Apple Hospitality had approximately $1.3 billion of total outstanding indebtedness with a current combined weighted average interest rate of approximately 3.5 percent for the remainder of 2017. Excluding unamortized debt issuance costs and fair value adjustments, the Company’s total outstanding indebtedness is comprised of approximately $430 million in property-level debt secured by 28 hotels and $877 million outstanding on its unsecured credit facilities. In July 2017, the Company entered into an unsecured $85 million seven-year term loan. The net proceeds from the term loan were used to pay down borrowings on the Company’s revolving credit facility. The term loan is subject to requirements and covenants similar to the Company’s unsecured $965 million credit facility. The interest rate for the term loan is equal to an annual rate of the one month LIBOR plus a margin ranging from 1.80 percent to 2.60 percent, depending upon the Company’s leverage ratio. In conjunction with the term loan, the Company entered into interest rate swap agreements to effectively fix the interest rate on the $85 million term loan at 3.76 percent. Apple Hospitality’s undrawn capacity on its unsecured credit facilities at September 30, 2017, was approximately $323 million. The Company’s total debt to total capitalization at September 30, 2017, was approximately 24 percent, which provides Apple Hospitality with financial flexibility to fund capital requirements and pursue opportunities in the marketplace.

Shareholder Distributions

Apple Hospitality paid distributions of $0.30 per common share during the three-month period ended September 30, 2017. Based on the Company’s common share closing price of $18.92 on November 2, 2017, the annualized distribution of $1.20 per common share represents an annual yield of approximately 6.3 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.

2017 Outlook

Apple Hospitality is providing its operational and financial outlook for 2017. 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 Growth and Comparable Hotels Adjusted Hotel EBITDA Margin % guidance include properties acquired, including those acquired through the Apple Ten merger, as if the hotels were owned as of January 1, 2016, and exclude completed dispositions since January 1, 2016. For the full year 2017, the Company anticipates:

           
2017 Guidance(1)
Low-End   High-End
 
Net income $206 Million $223 Million
 
Comparable Hotels RevPAR Growth 0.0% 1.5%
 
Comparable Hotels Adjusted Hotel EBITDA Margin % 36.8% 37.5%
 
Adjusted EBITDA $425 Million $440 Million
 
(1)   Explanations of and reconciliations to net income guidance of Adjusted EBITDA guidance are included below.
 

Earnings Call

The Company will host a quarterly conference call for investors and interested parties on Tuesday, November 7, 2017, at 10:00 a.m. Eastern Time. The conference call will be accessible by telephone and the Internet. To access the call, participants from within the U.S. should dial (877) 407-9039, and participants from outside the U.S. should dial (201) 689-8470. Participants may also access the call via live webcast by visiting the Investor Information section of the Company's website at ir.applehospitalityreit.com. A replay of the call will be available from approximately 1:00 p.m. Eastern Time on November 7, 2017, through 11:59 p.m. Eastern Time on November 21, 2017. 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 13671610. 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 portfolios of upscale, select-service hotels in the United States. The Company’s portfolio consists of 238 hotels, with more than 30,000 guestrooms, diversified across the Hilton® and Marriott® families of brands with locations in urban, high-end suburban and developing markets throughout 34 states. 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”); Adjusted EBITDA (“Adjusted EBITDA”); 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, Adjusted EBITDA, 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, Adjusted EBITDA, and Adjusted Hotel EBITDA, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA, Adjusted EBITDA, 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; the outcome of current and future litigation, including any legal proceedings that have been or may be instituted against Apple Hospitality or others; 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 entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. 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)
 
 
September 30, December 31,
2017 2016
(unaudited)
Assets

Investment in real estate, net of accumulated depreciation of $686,787 and $557,597, respectively

$ 4,742,590 $ 4,823,489
Assets held for sale 40,626 39,000
Restricted cash-furniture, fixtures and other escrows 30,299 29,425
Due from third party managers, net 52,354 31,460
Other assets, net   48,018     56,509  
Total Assets $ 4,913,887   $ 4,979,883  
 
Liabilities
Revolving credit facility $ 216,700 $ 270,000
Term loans 655,988 570,934
Mortgage debt 432,783 497,029
Accounts payable and other liabilities   104,467     124,856  
Total Liabilities 1,409,938 1,462,819
 
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 223,060,840 and 222,938,648 shares, respectively

4,455,390 4,453,205
Accumulated other comprehensive income 5,218 4,589
Distributions greater than net income   (956,659 )   (940,730 )
Total Shareholders' Equity   3,503,949     3,517,064  
 
Total Liabilities and Shareholders' Equity $ 4,913,887   $ 4,979,883  
 

Note:

The Consolidated Balance Sheets and corresponding footnotes can be found in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.

 
 
Apple Hospitality REIT, Inc.
Consolidated Statements of Operations and Comprehensive Income

(Unaudited) (in thousands, except per share data)

       
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Revenues:
Room $ 302,298 $ 255,269 $ 877,974 $ 698,759
Other   22,628     21,202     71,581     59,835  
Total revenue 324,926 276,471 949,555 758,594
 
Expenses:
Operating 79,975 69,082 235,474 187,370
Hotel administrative 24,842 20,866 74,895 57,921
Sales and marketing 25,488 21,329 75,867 59,244
Utilities 12,036 10,543 31,982 25,862
Repair and maintenance 12,199 10,478 36,394 29,167
Franchise fees 13,974 11,834 40,611 32,212
Management fees 11,315 9,205 33,072 26,189
Property taxes, insurance and other 17,598 14,787 52,346 40,315
Ground lease 2,831 2,615 8,486 7,587
General and administrative 5,350 2,623 18,255 12,511
Transaction and litigation costs (reimbursements) - 36,452 (2,586 ) 37,861
Loss on impairment of depreciable real estate assets - 5,471 7,875 5,471
Depreciation   44,110     37,343     131,770     104,651  
Total expenses   249,718     252,628     744,441     626,361  
 
Operating income 75,208 23,843 205,114 132,233
 
Interest and other expense, net (12,024 ) (10,156 ) (35,590 ) (28,519 )
Gain (loss) on sale of real estate   (157 )   -     15,983     -  
 
Income before income taxes 63,027 13,687 185,507 103,714
 
Income tax benefit (expense)   (203 )   7     (712 )   (616 )
 
Net income $ 62,824   $ 13,694   $ 184,795   $ 103,098  
 
Other comprehensive income (loss):
Interest rate derivatives   259     4,261     629     (7,934 )
 
Comprehensive income $ 63,083   $ 17,955   $ 185,424   $ 95,164  
 
Basic and diluted net income per common share $ 0.28   $ 0.07   $ 0.83   $ 0.57  
 
Weighted average common shares outstanding - basic and diluted 223,057 190,563 223,052 180,004
 

Note:

The Consolidated Statements of Operations and Comprehensive Income and corresponding footnotes can be found in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.

 
           
Apple Hospitality REIT, Inc.
Comparable Hotels Operating Metrics and Statistical Data

(Unaudited) (in thousands except statistical data)

 

 
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 % Change 2017 2016 % Change
 
Room revenue $ 299,987 $ 294,296 1.9% $ 867,213 $ 855,115 1.4%
Other revenue   21,871     22,651   (3.4%)   67,949     67,651   0.4%
Total revenue 321,858 316,947 1.5% 935,162 922,766 1.3%
 
Total operating expenses   196,764     193,548   1.7%   575,084     558,515   3.0%
 
Adjusted Hotel EBITDA $ 125,094   $ 123,399   1.4% $ 360,078   $ 364,251   (1.1%)
Adjusted Hotel EBITDA Margin % 38.9 % 38.9 % - 38.5 % 39.5 % (100 bps)
 
 
ADR (Comparable Hotels) $ 136.83 $ 134.79 1.5% $ 135.84 $ 134.88 0.7%
Occupancy (Comparable Hotels) 80.2 % 80.4 % (0.2%) 78.8 % 78.7 % 0.1%
RevPAR (Comparable Hotels) $ 109.77 $ 108.32 1.3% $ 107.10 $ 106.20 0.8%
 
ADR (Actual) $ 136.73 $ 136.04 0.5% $ 135.97 $ 135.88 0.1%
Occupancy (Actual) 80.0 % 80.2 % (0.2%) 78.7 % 78.9 % (0.3%)
RevPAR (Actual) $ 109.45 $ 109.07 0.3% $ 106.96 $ 107.18 (0.2%)
 

Reconciliation to Actual Results

 
Total Revenue (Actual) $ 324,926 $ 276,471 $ 949,555 $ 758,594
Revenue from acquisitions prior to ownership - 49,452 - 191,165
Revenue from dispositions/assets held for sale (3,017 ) (8,929 ) (14,248 ) (26,996 )
Lease revenue intangible amortization   (51 )   (47 )   (145 )   3  
Comparable Hotels Total Revenue $ 321,858   $ 316,947   $ 935,162   $ 922,766  
 
Adjusted Hotel EBITDA (AHEBITDA) (Actual) $ 125,750 $ 106,707 $ 363,720 $ 295,719
AHEBITDA from acquisitions prior to ownership - 18,985 - 75,552
AHEBITDA from dispositions/assets held for sale   (656 )   (2,293 )   (3,642 )   (7,020 )
Comparable Hotels AHEBITDA $ 125,094   $ 123,399   $ 360,078   $ 364,251  
 

Note:

Comparable Hotels is defined as the 236 hotels owned and held for use by the Company as of September 30, 2017. 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 and assets held for sale, 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 to non-GAAP financial measures is included in the following pages.

 
 
Apple Hospitality REIT, Inc.
Comparable Hotels Quarterly Operating Metrics and Statistical Data

(Unaudited) (in thousands except statistical data)

               
Three Months Ended
12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017 6/30/2017 9/30/2017
 
Room revenue $ 244,192 $ 260,563 $ 300,256 $ 294,296 $ 251,554 $ 264,521 $ 302,705 $ 299,987
Other revenue   22,583     21,431     23,569     22,651     22,588     21,670     24,408     21,871  
Total revenue 266,775 281,994 323,825 316,947 274,142 286,191 327,113 321,858
 
Total operating expenses   171,683     175,794     189,173     193,548     177,017     182,066     196,254     196,764  
 
Adjusted Hotel EBITDA $ 95,092   $ 106,200   $ 134,652   $ 123,399   $ 97,125   $ 104,125   $ 130,859   $ 125,094  
Adjusted Hotel EBITDA Margin % 35.6 % 37.7 % 41.6 % 38.9 % 35.4 % 36.4 % 40.0 % 38.9 %
 
 
ADR (Comparable Hotels) $ 126.57 $ 132.62 $ 136.99 $ 134.79 $ 127.68 $ 133.00 $ 137.41 $ 136.83
Occupancy (Comparable Hotels) 71.8 % 73.8 % 82.0 % 80.4 % 72.5 % 74.6 % 81.6 % 80.2 %
RevPAR (Comparable Hotels) $ 90.85 $ 97.89 $ 112.34 $ 108.32 $ 92.58 $ 99.25 $ 112.15 $ 109.77
 
ADR (Actual) $ 127.04 $ 133.16 $ 138.16 $ 136.04 $ 127.81 $ 133.39 $ 137.56 $ 136.73
Occupancy (Actual) 71.9 % 74.1 % 82.2 % 80.2 % 72.4 % 74.4 % 81.5 % 80.0 %
RevPAR (Actual) $ 91.36 $ 98.66 $ 113.59 $ 109.07 $ 92.52 $ 99.27 $ 112.10 $ 109.45
 

Reconciliation to Actual Results

 
Total Revenue (Actual) $ 213,033 $ 224,487 $ 257,636 $ 276,471 $ 282,431 $ 292,925 $ 331,704 $ 324,926
Revenue from acquisitions prior to ownership 62,799 65,479 76,234 49,452 - - - -
Revenue from dispositions/assets held for sale (9,024 ) (8,069 ) (9,998 ) (8,929 ) (8,242 ) (6,687 ) (4,544 ) (3,017 )
Lease revenue intangible amortization   (33 )   97     (47 )   (47 )   (47 )   (47 )   (47 )   (51 )
Comparable Hotels Total Revenue $ 266,775   $ 281,994   $ 323,825   $ 316,947   $ 274,142   $ 286,191   $ 327,113   $ 321,858  
 
Adjusted Hotel EBITDA (AHEBITDA) (Actual) $ 74,790 $ 83,438 $ 105,574 $ 106,707 $ 99,291 $ 105,832 $ 132,138 $ 125,750
AHEBITDA from acquisitions prior to ownership 22,825 24,494 32,073 18,985 - - - -
AHEBITDA from dispositions/assets held for sale   (2,523 )   (1,732 )   (2,995 )   (2,293 )   (2,166 )   (1,707 )   (1,279 )   (656 )
Comparable Hotels AHEBITDA $ 95,092   $ 106,200   $ 134,652   $ 123,399   $ 97,125   $ 104,125   $ 130,859   $ 125,094  
 

Note:

Comparable Hotels is defined as the 236 hotels owned and held for use by the Company as of September 30, 2017. 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 and assets held for sale, 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 to non-GAAP financial measures is included in the following pages.

 
 
Apple Hospitality REIT, Inc.
Same Store Hotels Operating Metrics and Statistical Data

(Unaudited) (in thousands except statistical data)

           
Three Months Ended Nine Months Ended
September 30, September 30,
  2017     2016   % Change   2017     2016   % Change
 
Room revenue $ 230,819 $ 227,863 1.3% $ 665,311 $ 662,984 0.4%
Other revenue   17,069     17,896   (4.6%)   53,692     53,789   (0.2%)
Total revenue 247,888 245,759 0.9% 719,003 716,773 0.3%
 
Total operating expenses   152,069     150,336   1.2%   444,179     435,212   2.1%
 
Adjusted Hotel EBITDA $ 95,819   $ 95,423   0.4% $ 274,824   $ 281,561   (2.4%)
Adjusted Hotel EBITDA Margin % 38.7 % 38.8 % (10 bps) 38.2 % 39.3 % (110 bps)
 
 
ADR (Same Store Hotels) $ 138.86 $ 136.60 1.7% $ 137.09 $ 136.09 0.7%
Occupancy (Same Store Hotels) 80.2 % 80.5 % (0.4%) 79.0 % 79.0 % -
RevPAR (Same Store Hotels) $ 111.42 $ 110.02 1.3% $ 108.23 $ 107.49 0.7%
 
ADR (Actual) $ 136.73 $ 136.04 0.5% $ 135.97 $ 135.88 0.1%
Occupancy (Actual) 80.0 % 80.2 % (0.2%) 78.7 % 78.9 % (0.3%)
RevPAR (Actual) $ 109.45 $ 109.07 0.3% $ 106.96 $ 107.18 (0.2%)
 

Reconciliation to Actual Results

 
Total Revenue (Actual) $ 324,926 $ 276,471 $ 949,555 $ 758,594
Revenue from acquisitions

(73,970

) (23,880 ) (216,159 ) (23,880 )
Revenue from dispositions/assets held for sale

(3,017

) (6,785 ) (14,248 ) (17,944 )
Lease revenue intangible amortization  

(51

)   (47 )   (145 )   3  
Same Store Hotels Total Revenue $ 247,888   $ 245,759   $ 719,003   $ 716,773  
 
Adjusted Hotel EBITDA (AHEBITDA) (Actual) $ 125,750 $ 106,707 $ 363,720 $ 295,719
AHEBITDA from acquisitions

(29,275

) (9,490 )

(85,254

) (9,490 )
AHEBITDA from dispositions/assets held for sale  

(656

)   (1,794 )  

(3,642

)   (4,668 )
Same Store Hotels AHEBITDA $ 95,819   $ 95,423   $ 274,824   $ 281,561  
 

Note:

Same Store Hotels is defined as the 177 hotels owned and held for use by the Company as of January 1, 2016 and during the entirety of the periods being compared. This information has not been audited.

 

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

 
 
Apple Hospitality REIT, Inc.
Same Store Hotels Quarterly Operating Metrics and Statistical Data

(Unaudited) (in thousands except statistical data)

             
Three Months Ended
3/31/2016 6/30/2016 9/30/2016 12/31/2016 3/31/2017 6/30/2017 9/30/2017
 
Room revenue $ 202,285 $ 232,836 $ 227,863 $ 193,850 $ 202,007 $ 232,485 $ 230,819
Other revenue   17,156     18,737     17,896     18,361     17,243     19,380     17,069  
Total revenue 219,441 251,573 245,759 212,211 219,250 251,865 247,888
 
Total operating expenses   137,197     147,679     150,336     137,389     140,244     151,866     152,069  
 
Adjusted Hotel EBITDA $ 82,244   $ 103,894   $ 95,423   $ 74,822   $ 79,006   $ 99,999   $ 95,819  
Adjusted Hotel EBITDA Margin % 37.5 % 41.3 % 38.8 % 35.3 % 36.0 % 39.7 % 38.7 %
 
 
ADR (Same Store Hotels) $ 133.16 $ 138.23 $ 136.60 $ 128.69 $ 133.43 $ 138.65 $ 138.86
Occupancy (Same Store Hotels) 74.2 % 82.2 % 80.5 % 72.7 % 74.7 % 81.8 % 80.2 %
RevPAR (Same Store Hotels) $ 98.75 $ 113.66 $ 110.02 $ 93.60 $ 99.70 $ 113.45 $ 111.42
 
ADR (Actual) $ 133.16 $ 138.16 $ 136.04 $ 127.81 $ 133.39 $ 137.56 $ 136.73
Occupancy (Actual) 74.1 % 82.2 % 80.2 % 72.4 % 74.4 % 81.5 % 80.0 %
RevPAR (Actual) $ 98.66 $ 113.59 $ 109.07 $ 92.52 $ 99.27 $ 112.10 $ 109.45
 

Reconciliation to Actual Results

 
Total Revenue (Actual) $ 224,487 $ 257,636 $ 276,471 $ 282,431 $ 292,925 $ 331,704 $ 324,926
Revenue from acquisitions - - (23,880 )

(61,931

)

(66,941

) (75,248 )

(73,970

)
Revenue from dispositions/assets held for sale (5,143 ) (6,016 ) (6,785 )

(8,242

)

(6,687

) (4,544 )

(3,017

)
Lease revenue intangible amortization   97     (47 )   (47 )  

(47

)   (47 )   (47 )   (51 )
Same Store Hotels Total Revenue $ 219,441   $ 251,573   $ 245,759   $ 212,211   $ 219,250   $ 251,865   $ 247,888  
 
Adjusted Hotel EBITDA (AHEBITDA) (Actual) $ 83,438 $ 105,574 $ 106,707 $ 99,291 $ 105,832 $ 132,138 $ 125,750
AHEBITDA from acquisitions - - (9,490 )

(22,303

)

(25,119

) (30,860 )

(29,275

)
AHEBITDA from dispositions/assets held for sale   (1,194 )   (1,680 )   (1,794 )  

(2,166

)  

(1,707

)   (1,279 )  

(656

)
Same Store Hotels AHEBITDA $ 82,244   $ 103,894   $ 95,423   $ 74,822   $ 79,006   $ 99,999   $ 95,819  
 

Note:

Same Store Hotels is defined as the 177 hotels owned and held for use by the Company as of January 1, 2016 and during the entirety of the periods being compared. This information has not been audited.

 

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

 

Apple Hospitality REIT, Inc.
Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Adjusted Hotel EBITDA
(Unaudited) (in thousands)

EBITDA is a commonly used measure of performance in many industries and is defined as net income (loss) excluding interest, income taxes, depreciation and amortization. The Company believes EBITDA is useful to investors because it helps the Company and its investors evaluate the ongoing operating performance of the Company by removing the impact of its capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). In addition, certain covenants included in the agreements governing the Company’s indebtedness use EBITDA, as defined in the specific credit agreement, as a measure of financial compliance.

The Company considers the exclusion or inclusion of certain additional items from EBITDA (Adjusted EBITDA) useful, including (i) the exclusion of transaction and litigation costs (reimbursements), gains or losses from sales of real estate, and the loss on impairment of depreciable real estate assets, as these items do not represent ongoing operations, and (ii) the exclusion of non-cash straight-line ground lease expense, as this expense does not reflect the underlying performance of the related hotels.

The Company further excludes actual corporate-level general and administrative expense for the Company from Adjusted EBITDA (Adjusted Hotel EBITDA) to isolate property-level operational performance over which the Company’s hotel operators have direct control. The Company believes Adjusted Hotel EBITDA provides useful supplemental information to investors regarding operating performance and is used by management to measure the performance of the Company’s hotels and effectiveness of the operators of the hotels.

The following table reconciles the Company’s GAAP net income (loss) to EBITDA, Adjusted EBITDA and Adjusted Hotel EBITDA on a quarterly basis from December 31, 2015 through September 30, 2017.

 
Three Months Ended
12/31/2015   3/31/2016   6/30/2016   9/30/2016   12/31/2016   3/31/2017   6/30/2017     9/30/2017
Net income (loss) $ (17,792 ) $ 34,686 $ 54,718 $ 13,694 $ 41,554 $ 34,365 $ 87,606 $ 62,824
Depreciation 33,244 33,484 33,824 37,343 43,512 43,767 43,893 44,110
Amortization of favorable and unfavorable leases, net 133 262 119 132 161 165 168 165
Interest and other expense, net 8,867 8,803 9,560 10,156 11,507 11,717 11,849 12,024
Income tax (benefit) expense   26     263   360   (7 )   (185 )   250   259     203
EBITDA 24,478 77,498 98,581 61,318 96,549 90,264 143,775 119,326
Transaction and litigation costs (reimbursements) (710 ) 293 1,116 36,452 (2,872 ) - (2,586 ) -
(Gain) Loss on sale of real estate 72 - - - 153 - (16,140 ) 157
Loss on impairment of depreciable real estate assets 45,000 - - 5,471 - 7,875 - -
Non-cash straight-line ground lease expense   819     819   817   843     940     939   938     917
Adjusted EBITDA $ 69,659   $ 78,610 $ 100,514 $ 104,084   $ 94,770   $ 99,078 $ 125,987   $ 120,400
General and administrative expense   5,131     4,828   5,060   2,623     4,521     6,754   6,151     5,350
Adjusted Hotel EBITDA $ 74,790   $ 83,438 $ 105,574 $ 106,707   $ 99,291   $ 105,832 $ 132,138   $ 125,750
 

Apple Hospitality REIT, Inc.
2017 Guidance Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(Unaudited) (in thousands)

The guidance of net income, EBITDA and Adjusted EBITDA are forward-looking statements and are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause actual results and performance to differ materially from those expressed or implied by these forecasts. Although the Company believes the expectations reflected in the forecasts are based upon reasonable assumptions, there can be no assurance that the expectations will be achieved or that the results will not be materially different. Risks that may affect these assumptions and forecasts include, but are not limited to, the following: changes in political, economic, competitive and specific market conditions; the amount and timing of acquisitions and dispositions of hotel properties; the level of capital expenditures may change significantly, which will directly affect the level of depreciation expense, interest expense and net income; the amount and timing of debt repayments may change significantly based on market conditions, which will directly affect the level of interest expense and net income; the amount and timing of transactions involving the Company's common stock may change based on market conditions; and other risks and uncertainties associated with the Company's business described herein and in filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

The following table reconciles the Company’s GAAP net income guidance to EBITDA and Adjusted EBITDA guidance for the year ended December 31, 2017.

 
Year Ended December 31, 2017
Low-End   High-End
Net income $ 206,200 $ 223,200
Depreciation 176,000 175,000
Amortization of favorable and unfavorable leases, net 675 675
Interest and other expense, net 48,500 47,000
Income tax expense   850     1,350  
EBITDA 432,225 447,225
Transaction and litigation reimbursements (2,600 ) (2,600 )
Gain on sale of real estate (16,200 ) (16,200 )
Loss on impairment of depreciable real estate assets 7,875 7,875
Non-cash straight-line ground lease expense   3,700     3,700  
Adjusted EBITDA $ 425,000   $ 440,000  
 

Apple Hospitality REIT, Inc.
Reconciliation of Net Income to FFO and MFFO
(Unaudited) (in thousands)

The Company calculates and presents FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), which defines FFO as net income (computed in accordance with generally accepted accounting principles (“GAAP”)), excluding gains or losses from sales of real estate, extraordinary items as defined by GAAP, the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the NAREIT definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.

The Company further adjusts FFO (MFFO) for certain additional items that are not in NAREIT’s definition of FFO, including: (i) the exclusion of transaction and litigation costs (reimbursements), as these costs do not represent ongoing operations, and (ii) the exclusion of non-cash straight-line ground lease expense, as this expense does not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.

The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three and nine months ended September 30, 2017 and 2016.

       
Three Months Ended Nine Months Ended
September 30,   September 30,
2017 2016 2017 2016
Net income $ 62,824 $ 13,694 $ 184,795 $ 103,098
Depreciation of real estate owned 43,880 37,114 131,081 103,962
(Gain) loss on sale of real estate 157 - (15,983 ) -
Loss on impairment of depreciable real estate assets - 5,471 7,875 5,471
Amortization of favorable and unfavorable leases, net   165   132   498     513
Funds from operations 107,026 56,411 308,266 213,044
Transaction and litigation costs (reimbursements) - 36,452 (2,586 ) 37,861
Non-cash straight-line ground lease expense   917   843   2,794     2,479
Modified funds from operations $ 107,943 $ 93,706 $ 308,474   $ 253,384
 
 
Apple Hospitality REIT, Inc.
Debt Summary
(Unaudited) ($ in thousands)
September 30, 2017
               

October 1 -
December 31,
2017

  2018   2019   2020   2021   Thereafter   Total  

Fair Market
Value

Total debt:
Maturities $ 2,701 $ 11,071 $ 248,408 $ 451,164 $ 95,311 $ 498,181 $ 1,306,836 $ 1,307,025
Average interest rates 3.5% 3.5% 3.5% 3.8% 4.0% 4.0%
 
Variable rate debt:
Maturities $ - $ - $ 216,700 $ 425,000 $ 50,000 $ 185,000 $ 876,700 $ 877,783
Average interest rates (1) 3.0% 3.0% 3.0% 3.1% 3.3% 3.4%
 
Fixed rate debt:
Maturities $ 2,701 $ 11,071 $