Apple Hospitality REIT Inc

Previous wording

The Company is a Virginia corporation that has elected to be treated as a REIT for U.S. federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the U.S. As of March 31, 2024, the Company owned 224 hotels with an aggregate of 29,886 guest rooms located in urban, high-end suburban and developing markets throughout 37 states and the District of Columbia. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 16 hotel management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the NYSE under the ticker symbol “APLE.”

Current wording

The Company is a Virginia corporation that has elected to be treated as a REIT for U.S. federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the U.S. As of June 30, 2024, the Company owned 224 hotels with an aggregate of 30,068 guest rooms located in urban, high-end suburban and developing markets throughout 37 states and the District of Columbia. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 16 hotel management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the NYSE under the ticker symbol “APLE.”

Previous wording

The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in rooms-focused hotels, during the three months ended March 31, 2024, the Company acquired an existing AC Hotel in Washington, D.C. with 234 guest rooms for a gross purchase price of $116.8 million, utilizing its proceeds from the sale of two properties and borrowings under its Revolving Credit Facility.

Current wording

The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in rooms-focused hotels, during the six months ended June 30, 2024, the Company acquired two hotels for an aggregate purchase price of $196.3 million: an existing 234-guest-room AC Hotel in Washington, D.C. and a 262-guest-room Embassy Suites in Madison, Wisconsin that was purchased at the completion of development. The Company utilized its proceeds from the sale of three properties and borrowings under its Revolving Credit Facility to fund these recently completed acquisitions.

Previous wording

As of March 31, 2024, the Company had separate outstanding contracts for the potential purchase of two hotels, consisting of one hotel in Madison, Wisconsin and one hotel in Nashville, Tennessee, for a total combined purchase price of approximately $177.5 million. Both hotels are under development, with the hotel in Madison, Wisconsin currently planned to be completed and opened for business in mid-2024 and the hotel in Nashville, Tennessee currently planned to be completed and opened for business in late 2025, at which respective times the Company expects to complete the purchases of these hotels. If the closings occur, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured credit facilities available at closing, to purchase the hotels under contract. Although the Company is working towards acquiring these hotels, in each case there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under the applicable purchase contracts and acquire these hotels. As these hotels are under development, at this time, the sellers have not met all of the conditions to closing.

Current wording

As of June 30, 2024, the Company had one outstanding contract, which was entered into during May 2023, for the potential purchase of a hotel in Nashville, Tennessee for an expected purchase price of approximately $98.2 million. The hotel is under development and is currently planned to be completed and opened for business in late 2025, as a 260-guest-room Motto. As of June 30, 2024, a $1.1 million contract deposit (refundable if the seller does not meet its obligations under the contract) had been paid. If the closing occurs, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured credit facilities available at closing, to purchase the hotel under contract. Although the Company is working towards acquiring this hotel, there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closing on this hotel will occur under the outstanding purchase contract. If the seller meets all of the conditions to closing, the Company is obligated to specifically perform under the purchase contract and acquire this hotel. As this hotel is under development, at this time, the seller has not met all of the conditions to closing.

Previous wording

For its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided from the sale of the property. As a result, during the three months ended March 31, 2024, the Company sold two hotels to an unrelated party for a combined gross sales price of approximately $33.5 million, resulting in a combined gain on the sale of approximately $17.8 million, net of transaction costs. The Company used a portion of the net proceeds from the sale of the two hotels to complete a like-kind exchange, in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, for the acquisition of the AC Hotel in Washington, D.C., which was completed in March 2024.

Current wording

For its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided from the sale of the property. As a result, during the six months ended June 30, 2024, the Company sold three hotels in two separate transactions with unrelated parties for a combined gross sales price of approximately $40.6 million, resulting in a combined gain on the sale of approximately $18.2 million, net of transaction costs. The Company used a portion of the net proceeds from the sale of two of the hotels to complete a like-kind exchange, in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, for the acquisition of the AC Hotel in Washington, D.C., which was completed in March 2024.

Previous wording

In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 hotel guest rooms. Lease revenue from this property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result of the lease agreement, this property has been excluded from the Company’s hotel and guest room counts since May 2023. Results of the hotel operations for this property are included only for the period prior to the lease agreement becoming effective in May 2023. The Company has terminated the lease for failure to make lease payments timely, and in April 2024 commenced legal proceedings to remove the tenant from possession of the hotel. The Company intends to enforce its rights under the lease and transition management of the hotel to a third-party manager, however, the timing of the resolution of this matter and the transition of management operations cannot be predicted at this time.

Current wording

In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 guest rooms. Lease revenue from this property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result of the lease and transfer of possession to the operator, this property has been excluded from the Company’s hotel and guest room counts since May 2023. Results of the hotel operations for this property are included only for the period prior to the lease agreement becoming effective in May 2023. The Company has terminated the lease for failure to make lease payments timely, and in April 2024 commenced legal proceedings to remove the operator from possession of the hotel. The Company intends to enforce its rights under the lease and transition management of the hotel to a third-party manager, however, the removal process is still ongoing and the timing of the resolution of this matter and the transition of management operations cannot be predicted at this time.

Previous wording

As of March 31, 2024, the Company owned 224 hotels with a total of 29,886 guest rooms as compared to 220 hotels with a total of 28,984 guest rooms as of March 31, 2023. Results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and prior year. During the three months ended March 31, 2024, the Company acquired one existing hotel on March 25, 2024 and sold two properties on February 9, 2024. During the same period of 2023, the Company did not acquire or sell any properties.

Current wording

As of June 30, 2024, the Company owned 224 hotels with a total of 30,068 guest rooms as compared to 220 hotels with a total of 28,929 guest rooms as of June 30, 2023. Results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and prior year. During the six months ended June 30, 2024, the Company acquired two properties, including one existing hotel acquired on March 25, 2024 and one hotel acquired upon the completion of development on June 20, 2024. The Company sold three properties, two on February 9, 2024 and one on May 21, 2024. During the six months ended June 30, 2023, the Company acquired one existing hotel on June 30, 2023 and did not dispose of any properties.

Previous wording

The following table reflects certain operating statistics for the 217 hotels owned by the Company as of January 1, 2023 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.

Current wording

The following table reflects certain operating statistics for the 216 hotels owned by the Company as of January 1, 2023 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.

Previous wording

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. Economic indicators in the U.S. have generally been stable. As a result, the Company’s Comparable Hotels and Same Store Hotels revenue and operating results have generally remained unchanged during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, which is consistent with the overall lodging industry. The Company expects its RevPAR growth and operating results for its Comparable Hotels for the full year of 2024 to improve compared to its performance during the three months ended March 31, 2024 which was negatively impacted by a challenging Super Bowl comparison (held in the Las Vegas market in 2024, where the Company has 299 guest rooms, and the Phoenix market in 2023, where the Company has 1,403 guest rooms) and timing of the Easter holiday compared to the same period in 2023.

Current wording

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. Economic indicators in the U.S. have generally been stable. As a result, the Company’s Comparable Hotels and Same Store Hotels revenue and operating results have generally remained unchanged to slightly improved during the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, which is consistent with the overall lodging industry. The Company expects its RevPAR growth and operating results for its Comparable Hotels for the full year of 2024 to be similar to its performance during the three months ended June 30, 2024, as opposed to its performance during the three months ended

Previous wording

The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended March 31, 2024 and 2023, the Company had total revenue of $329.5 million and $311.5 million, respectively. For the three months ended March 31, 2024 and 2023, respectively, Comparable Hotels achieved combined average occupancy of 72.1% and 72.1%, ADR of $154.10 and $154.08 and RevPAR of $111.09 and $111.14. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

Current wording

The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended June 30, 2024 and 2023, the Company had total revenue of $390.1 million and $361.6 million, respectively. For the six months ended June 30, 2024 and 2023 the Company had total revenue of $719.6 million and $673.1 million, respectively. For the three months ended June 30, 2024 and 2023, respectively, Comparable Hotels achieved combined average occupancy of 79.8% and 78.1%, ADR of $163.01 and $162.51 and RevPAR of $130.09 and $126.97. For the six months ended June 30, 2024 and 2023, respectively, Comparable Hotels achieved combined average occupancy of 76.0% and 75.2%, ADR of $158.83 and $158.53 and RevPAR of $120.63 and $119.15. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

Previous wording

Compared to the same period in 2023, during the three months ended March 31, 2024, the Company experienced marginal increases in ADR while occupancy remained unchanged, resulting in stable RevPAR for Comparable Hotels. Revenue growth for the three months ended March 31, 2024, as compared to the same period of 2023, was led by the additional hotels acquired in 2023 and was supported by the continued strength in leisure transient and small group demand, with increased demand from corporate business for the portfolio. For the three months ended March 31, 2024, markets with above average growth in the first quarter of 2024, compared to the same period in 2023, for the Company included Las Vegas, Washington, D.C., Houston, Seattle, Richmond, Tucson, Anchorage, and Pittsburgh. Revenue for the three months ended March 31, 2024, as compared to the same period of 2023, was negatively impacted by a challenging Super Bowl comparison and timing of the Easter holiday. The Company expects revenue trends to continue, however, future revenues could be negatively impacted by, among other things, historical seasonal trends, deterioration of consumer sentiment, a recessionary macroeconomic environment or inflationary pressures.

Current wording

Compared to the same periods in 2023, during the three and six months ended June 30, 2024, the Company experienced marginal increases in ADR while occupancy increased by 2.2% and 1.1%, respectively, resulting in increases of 2.5% and 1.2%, respectively, in RevPAR for Comparable Hotels. Revenue growth for the three and six months ended June 30, 2024, as compared to the same periods of 2023, was led by the additional hotels acquired in 2023 and 2024 and was supported by the continued strength in leisure transient and small group demand, with increased demand from corporate business for the portfolio. Revenue growth for the six months ended June 30, 2024, as compared to the same period of 2023, was partially offset by a challenging Super Bowl comparison, as discussed above. Markets with significant above average growth in the second quarter of 2024, compared to the same period in 2023, for the Company included Las Vegas, Houston, Phoenix and Louisville. Leisure demand, which has produced the strongest rate growth post pandemic, showed signs of increased rate sensitivity during the quarter and midweek rate growth came at lower absolute rates than those achieved on weekends, with the combined effect weighing on overall ADR growth for the quarter. Future revenues could be negatively impacted by, among other things, historical seasonal trends, deterioration of consumer sentiment, a recessionary macroeconomic environment or inflationary pressures.

Previous wording

Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. Hotel operating expense for the three months ended March 31, 2024 and 2023 totaled $197.3 million and $185.2 million, respectively, or 59.9% and 59.5% of total revenue for the respective periods, which is consistent with the increase in Comparable Hotels hotel operating expense as a percentage of revenue for the same period. The increase in hotel operating expense for the three months ended March 31, 2024, as compared to the same period in 2023, was due to increased labor costs, repairs and maintenance and sales and marketing costs driven by inflationary pressures throughout the overall economy, partially offset by a decrease in utility costs. The Company continues to feel upward pressure on wage rates given a continued tight labor market with lower unemployment rates, but its management companies have made progress in reducing their use of contract labor. Likewise, broader inflationary pressures throughout the overall economy and global tensions have driven shortages and cost increases for materials and supplies such as food and equipment. The Company continues to work with its management companies to realize operational efficiencies and mitigate the impact of cost pressures resulting from inflation, shortages and staffing challenges. The Company will continue to evaluate and work with its management companies to implement adjustments to the hotel operating model in response to continued changes in the operating environment and guest preferences, including evaluating staffing levels at its hotels to maximize efficiency.

Current wording

Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. Hotel operating expense for the three months ended June 30, 2024 and 2023 totaled $216.3 million and $200.5 million, respectively, or 55.4% of total revenue for each period, and for the six months ended June 30, 2024 and 2023 hotel operating expense totaled $413.6 million and $385.7 million, respectively, or 57.5% and 57.3% of total revenue for the respective periods. The increases in hotel operating expense for the three and six months ended June 30, 2024, as compared to the same periods in 2023, were led by the additional hotels acquired in 2023 and 2024 and amplified by increased labor costs, repairs and maintenance and sales and marketing costs driven by inflationary pressures throughout the overall economy and revenue growth for certain variable expenses. The Company continues to feel upward pressure on wage rates given a continued tight labor market with lower unemployment rates, but its management companies have made progress in reducing their use of contract labor. For the second half of 2024, the Company anticipates a slightly more favorable operating expense environment as interest rates plateau and the impact of inflationary pressures decreases. The Company continues to work with its management companies to realize operational efficiencies and mitigate the impact of cost pressures resulting from inflation and a tight labor market. The Company will continue to evaluate and work with its management companies to implement adjustments to the hotel operating model in response to continued changes in the operating environment and guest preferences, including evaluating staffing levels at its hotels to maximize efficiency.

Previous wording

General and administrative expense for the three months ended March 31, 2024 and 2023 was $10.6 million and $11.5 million, respectively, or 3.2% and 3.7% of total revenue for the respective periods. The principal components of general and administrative expense are payroll and related benefit costs, executive incentive compensation, legal fees, accounting fees and reporting expenses. The decrease in general and administrative expense for the three months ended March 31, 2024, compared to the same period in 2023, was primarily due to decreased accruals for anticipated performance under the Company’s executive incentive compensation plan, partially offset by increased payroll and related benefit costs.

Current wording

General and administrative expense for the three months ended June 30, 2024 and 2023 was $11.1 million and $12.1 million, respectively, or 2.8% and 3.3% of total revenue for the respective periods. For the six months ended June 30, 2024 and 2023, general and administrative expense was $21.6 million and $23.6 million, respectively, or 3.0% and 3.5% of total revenue for the respective periods. The principal components of general and administrative expense are payroll and related benefit costs, executive incentive compensation, legal fees, accounting fees and reporting expenses. The decreases in general and administrative expense for the three and six months ended June 30, 2024, as compared to the same periods in 2023, were primarily due to decreased accruals for anticipated performance under the Company’s executive incentive compensation plan, partially offset by increased payroll and related benefit costs.

Previous wording

Depreciation and amortization expense for the three months ended March 31, 2024 and 2023 was $46.8 million and $45.9 million, respectively. Depreciation and amortization expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for the respective periods owned. The increase of approximately $0.9 million for the three months ended March 31, 2024, compared to the same period in 2023, was primarily due to the acquisitions of one hotel in the second quarter of 2023, five hotels and one free-standing parking garage in the fourth quarter of 2023 and one hotel in the first quarter of 2024, as well as renovations completed throughout 2023 and the first quarter of 2024, partially offset by the sale of two hotels in the first quarter of 2024.

Current wording

Depreciation and amortization expense for the three months ended June 30, 2024 and 2023 was $47.7 million and $46.0 million, respectively. For the six months ended June 30, 2024 and 2023, depreciation and amortization expense was $94.5 million and $91.9 million, respectively. Depreciation and amortization expense primarily represents expense of the Company’s hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for the respective periods owned. The increases of approximately $1.7 million and $2.6 million for the three and six months ended June 30, 2024, as compared to the same periods in 2023, were primarily due to the acquisitions of six hotels and one free-standing parking garage in 2023 and two hotels in the first half of 2024, as well as renovations completed throughout 2023 and the first half of 2024, partially offset by the sale of three hotels in the first half of 2024.

Previous wording

Interest and other expense, net for the three months ended March 31, 2024 and 2023 was $17.3 million and $16.0 million, respectively. Interest and other expense, net for both the three months ended March 31, 2024 and 2023, is net of approximately $0.6 million of interest capitalized associated with renovation projects.

Current wording

Interest and other expense, net for the three months ended June 30, 2024 and 2023 was $19.4 million and $17.5 million, respectively. For the six months ended June 30, 2024 and 2023, interest and other expense, net was $36.7 million and $33.5 million, respectively. Interest and other expense, net for the six months ended June 30, 2024 and 2023, is net of approximately $0.6 million and $0.7 million, respectively, of interest capitalized associated with renovation projects.

Previous wording

Interest expense related to the Company’s debt instruments for the three months ended March 31, 2024 increased compared to the same period of 2023 as a result of higher average borrowings associated with variable-rate debt and higher average interest rates on the Company's variable-rate debt due to the high inflationary environment within the current economy. The Company anticipates interest expense for the remainder of 2024 will be greater than the interest expense for the same period of 2023 as a result of higher borrowings under the Revolving Credit Facility to finance recent acquisitions and higher average market interest rates on the Company’s variable-rate debt as interest rates are expected to plateau and then eventually start to decrease at what is anticipated to be a slower rate compared to how quickly they increased throughout 2023. In addition, the proportion of fixed-rate debt will decrease in 2024, as the Company had one interest rate swap in effect on $50.0 million of variable-rate debt mature in the first quarter of 2024 and has five interest rate swaps in effect on $235.0 million of variable-rate debt that mature during the remainder of 2024, resulting in a decrease in the amount of variable-rate debt that is fixed by interest rate swaps. If the Company replaces expiring interest rate swaps in the current interest rate environment with new agreements, the Company anticipates those new agreements to be at higher rates than the expiring swap agreements.

Current wording

Interest expense related to the Company’s debt instruments for the three and six months ended June 30, 2024 increased compared to the same periods of 2023 as a result of higher average borrowings associated with variable-rate debt and higher average interest rates on the Company's variable-rate debt due to the high inflationary environment within the current economy. The Company anticipates interest expense for the remainder of 2024 will be greater than the interest expense for the same period of 2023 as a result of higher borrowings under the Revolving Credit Facility to finance recent acquisitions, share repurchases and to repay maturing secured debt obligations, and a decrease in the amount of variable-rate debt that is fixed by interest rate swaps. The proportion of fixed-rate debt will continue to decrease in the remainder of 2024, as the Company has three interest rate swaps in effect on $150.0 million of variable-rate debt that mature during the remainder of 2024, in addition to the three interest rate swaps that were in effect on $135.0 million of variable-rate debt that matured in the first half of 2024. If the Company replaces expiring interest rate swaps in the current interest rate environment with new agreements, the Company anticipates those new agreements to be at higher rates than the expiring swap agreements.

Previous wording

The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three and six months ended June 30, 2024 and 2023 (in thousands):

Previous wording

The Company further excludes actual corporate-level general and administrative expense for the Company as well as Adjusted EBITDAre from its non-hotel property from Adjusted EBITDAre (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 it is used by management to measure the performance of the Company’s hotels and effectiveness of the operators of the hotels.

Current wording

The Company further excludes actual corporate-level general and administrative expense for the Company as well as Adjusted EBITDAre from the non-hotel property from Adjusted EBITDAre (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 it is used by management to measure the performance of the Company’s hotels and effectiveness of the operators of the hotels.

Previous wording

The following table reconciles the Company’s GAAP net income to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

The following table reconciles the Company’s GAAP net income to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA for the three and six months ended June 30, 2024 and 2023 (in thousands):

Previous wording

Non-hotel property only includes the results of one hotel in New York, New York that is leased to a third-party hotel operator. This property’s Adjusted EBITDAre results are not included in Adjusted Hotel EBITDA starting in the second half of 2023.

Current wording

Non-hotel property only includes the results of one hotel in New York, New York that was leased to a third-party hotel operator. The Company is in the process of removing the operator from possession of the hotel. This property’s Adjusted EBITDAre results are not included in Adjusted Hotel EBITDA starting in the second half of 2023.

Previous wording

As of March 31, 2024, the Company owned 224 hotels with an aggregate of 29,886 guest rooms located in 37 states and the District of Columbia. The following tables summarize the number of hotels and guest rooms by brand and by state:

Current wording

As of June 30, 2024, the Company owned 224 hotels with an aggregate of 30,068 guest rooms located in 37 states and the District of Columbia. The following tables summarize the number of hotels and guest rooms by brand and by state:

Previous wording

In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 hotel guest rooms. Lease revenue from this property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result of the lease agreement, this property has been excluded from the Company’s hotel and guest room counts since May 2023 and is considered a non-hotel property. The Company has terminated the lease for failure to make lease payments timely, and in April 2024 commenced legal proceedings to remove the tenant from possession of the hotel. The Company intends to enforce its rights under the lease and transition management of the hotel to a third-party manager, however, the timing of the resolution of this matter and the transition of management operations cannot be predicted at this time.

Current wording

In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 guest rooms. Lease revenue from this property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result of the lease and transfer of possession to the operator, this property has been excluded from the Company’s hotel and guest room counts since May 2023 and is considered a non-hotel property. The Company has terminated the lease for failure to make lease payments timely, and in April 2024 commenced legal proceedings to remove the operator from possession of the hotel. The Company intends to enforce its rights under the lease and transition management of the hotel to a third-party manager, however, the removal process is still ongoing and the timing of the resolution of this matter and the transition of management operations cannot be predicted at this time.

Previous wording

As of March 31, 2024, the Company had $1.5 billion of total outstanding debt consisting of $280.7 million of mortgage debt and $1.2 billion outstanding under its unsecured credit facilities, excluding unamortized debt issuance costs and fair value adjustments. As of March 31, 2024, the Company had available corporate cash on hand of approximately $4.9 million, and unused borrowing capacity under its Revolving Credit Facility of approximately $519 million.

Current wording

As of June 30, 2024, the Company had $1.5 billion of total outstanding debt consisting of $278.5 million of mortgage debt and $1.3 billion outstanding under its unsecured credit facilities, excluding unamortized debt issuance costs and fair value adjustments. As of June 30, 2024, the Company had available corporate cash on hand of approximately $7.2 million, and unused borrowing capacity under its Revolving Credit Facility of approximately $481 million.

Previous wording

In connection with the Company’s current shelf registration statement, on February 23, 2024, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $500 million of its common shares under ATM Program. No shares were sold under the Company’s ATM Program during the three months ended March 31, 2024 and no common shares were sold during the three months ended March 31, 2024 under the Prior ATM Program, which was terminated in February 2024 in connection with the commencement of the current ATM Program. During the year ended December 31, 2023, the Company sold approximately 12.8 million common shares under the Prior ATM Program at a weighted-average market sales price of approximately $17.05 per common share and received aggregate gross proceeds of approximately $218.6 million and proceeds net of offering costs, which included $2.6 million of commissions, of approximately $216.0 million. The Company plans to use future net proceeds from the sale of shares under the ATM Program for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the future net proceeds to acquire another REIT or other company that invests in income producing properties. Future offerings will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company’s common shares and opportunities for uses of any proceeds.

Current wording

In connection with the Company’s current shelf registration statement, on February 23, 2024, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $500 million of its common shares under the ATM Program. No shares were sold under the Company’s ATM Program during the three and six months ended June 30, 2024 and no common shares were sold during the six months ended June 30, 2024 under the Prior ATM Program, which was terminated in February 2024 in connection with the commencement of the current ATM Program. During the year ended December 31, 2023, the Company sold approximately 12.8 million common shares under the Prior ATM Program at a weighted-average market sales price of approximately $17.05 per common share and received aggregate gross proceeds of approximately $218.6 million and proceeds net of offering costs, which included $2.6 million of commissions, of approximately $216.0 million. The Company plans to use future net proceeds from the sale of shares under the ATM Program for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the future net proceeds to acquire another REIT or other company that invests in income producing properties. Future offerings will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company’s common shares and opportunities for uses of any proceeds.

Previous wording

The Company anticipates that cash flow from operations, availability under its Revolving Credit Facility, additional borrowings, and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including required distributions to shareholders, share repurchases, capital improvements, debt service, hotel acquisitions, lease commitments and cash management activities.

Current wording

The Company anticipates that cash flow from operations, availability under its Revolving Credit Facility, additional borrowings, and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including share repurchases, capital improvements, debt service, hotel acquisitions, lease commitments, cash management activities and required distributions to shareholders.

Previous wording

The Company generally must distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order to maintain its REIT status. On March 18, 2024, the Company declared a monthly cash distribution of $0.08 per common share, paid on April 15, 2024, to shareholders of record as of March 28, 2024. For the three months ended March 31, 2024, the Company paid distributions of $0.29 per common share for a total of $70.2 million. Subsequent to quarter end, on April 18, 2024, the Company declared a monthly cash distribution of $0.08 per common share, payable on May 15, 2024 to shareholders of record as of April 30, 2024.

Current wording

The Company generally must distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order to maintain its REIT status. On June 18, 2024, the Company declared a monthly cash distribution of $0.08 per common share, paid on July 15, 2024, to shareholders of record as of June 28, 2024. For the three and six months ended June 30, 2024, the Company paid distributions of $0.24 and $0.53 per common share, respectively, for a total of $58.0 million and $128.2 million, respectively. Subsequent to quarter end, on July 18, 2024, the Company declared a monthly cash distribution of $0.08 per common share, payable on August 15, 2024 to shareholders of record as of July 31, 2024.

Previous wording

The Company's current annual distribution rate, payable monthly, is $0.96 per common share. As it has done historically, due to seasonality, the Company may use its Revolving Credit Facility to maintain the consistency of the monthly distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. While management currently expects monthly cash distributions to continue at $0.08 per common share, any distribution will be subject to approval of the Company’s Board of Directors, and there can be no assurance of the classification, timing or duration of distributions at any particular distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of its hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company or to the extent required to maintain REIT status. If cash flows from operations and the Revolving Credit Facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurance it will be successful with this strategy, and it may need to reduce its distributions to minimum levels required to maintain its qualification as a real estate investment trust. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.

Current wording

The Company's current annual distribution rate, payable monthly, is $0.96 per common share. As it has done historically, due to seasonality, the Company may use its Revolving Credit Facility to maintain the consistency of the monthly distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. While management currently expects monthly cash distributions to continue at $0.08 per common share, any distribution will be subject to approval of the Company’s Board of Directors, and there can be no assurance of the classification, timing or duration of distributions at any particular distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of its hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company or to the extent required to maintain the Company’s REIT status. If cash flows from operations and the Revolving Credit Facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurance it will be successful with this strategy, and it may need to reduce its distributions to minimum levels required to maintain its qualification as a real estate investment trust. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.

Previous wording

In May 2023, the Company’s Board of Directors approved a one-year extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of $338.7 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2024 if not terminated or extended earlier. The Company previously entered into and expects to continue to enter into written trading plans as part of the Share Repurchase Program that provides for share repurchases in open market transactions that is intended to comply with Rule 10b5-1 under the Exchange Act. The Company did not repurchase any shares during the three months ended March 31, 2024. Past repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash on hand or availability under its unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will also depend upon prevailing market conditions, regulatory requirements and other factors. As of March 31, 2024, approximately $335.4 million remained available for purchase under the Share Repurchase Program.

Current wording

In May 2024, the Company’s Board of Directors approved a one-year extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of $335.4 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2025 if not terminated or extended earlier. The Company previously entered into and expects to continue to enter into written trading plans as part of the Share Repurchase Program that provide for share repurchases in open market transactions that are intended to comply with Rule 10b5-1 under the Exchange Act. During the six months ended June 30, 2024, the Company purchased, under its Share Repurchase Program, approximately 1.1 million of its common shares at a weighted-average market purchase price of approximately $14.35 per common share for an aggregate purchase price of approximately $15.5 million, including commissions. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash on hand or availability under its unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will also depend upon prevailing market conditions, regulatory requirements and other factors. As of June 30, 2024, approximately $320.0 million remained available for purchase under the Share Repurchase Program.

Previous wording

Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it deems prudent. The Company is committed to maintaining and enhancing each property’s competitive position in its market. The Company has invested in and plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. As of March 31, 2024, the Company held approximately $27.7 million in reserves related to these properties. During the three months ended March 31, 2024, the Company invested approximately $20.3 million in capital expenditures. The Company anticipates spending approximately $75 million to $85 million during 2024, which includes various comprehensive renovation projects for approximately 20 properties, however, inflationary pressures or supply chain shortages, among other issues, may result in increased costs and delays for anticipated projects. The Company does not currently have any existing or planned projects for new property development.

Current wording

Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it deems prudent. The Company is committed to maintaining and enhancing each property’s competitive position in its market. The Company has invested in and plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. As of June 30, 2024, the Company held approximately $28.6 million in reserves related to these properties. During the six months ended June 30, 2024, the Company invested approximately $32.6 million in capital expenditures. The Company anticipates spending approximately $75 million to $85 million during 2024, which includes various comprehensive renovation projects for approximately 20 properties, however, inflationary pressures or supply chain shortages, among other issues, may result in increased costs and delays for anticipated projects. The Company does not currently have any existing or planned projects for new property development.

Previous wording

As of March 31, 2024, the Company had approximately $184.9 million of principal and interest payments due on its debt over the next 12 months. Included in this total is an $85.0 million term loan and a mortgage loan of approximately $20.1 million, both maturing in the third quarter of 2024. The Company plans to pay outstanding amounts and service payments due upon the upcoming debt maturity dates using funds from operations, borrowings under its Revolving Credit Facility and/or proceeds from new financing or refinancing the maturing debt. The Company may also pursue amendments with its lenders to extend the maturity date of any expiring loans. Interest expense related to the Company’s unsecured credit facilities is expected to be higher over the next 12 months than it was during the previous 12 months as a result of increases in market interest rates on its variable-rate debt and increased borrowings on its Revolving Credit Facility. In addition, the proportion of fixed-rate debt will decrease over the next 12 months, as the Company had one interest rate swap in effect on $50.0 million of variable-rate debt mature in the first quarter of 2024 and has five interest rate swaps in effect on $235.0 million of variable-rate debt that mature during the remainder of 2024, resulting in a decrease in the amount of variable-rate debt that is fixed by interest rate swaps. If the Company replaces expiring interest rate swaps in the current interest rate environment with new agreements, the Company anticipates those new agreements to be at higher rates than the expiring swap agreements. See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for more detail regarding future maturities of the Company’s debt instruments as of March 31, 2024.

Current wording

As of June 30, 2024, the Company had approximately $220.6 million of principal and interest payments due on its debt over the next 12 months. Included in this total is an $85.0 million term loan which was scheduled to mature on July 25, 2024, but was amended on July 17, 2024, to increase the amount of the term loan facility to $130 million and to extend the maturity date to July 25, 2026. The amount due over the next twelve months also includes a mortgage loan of approximately $19.9 million that matures in the third quarter of 2024 and two mortgages totaling $34.3 million that mature in the second quarter of 2025. The Company plans to pay outstanding amounts and service payments due upon the upcoming debt maturity dates using funds from operations, borrowings under its Revolving Credit Facility and/or proceeds from new financing, available credit extensions under its unsecured credit facilities or refinancing the maturing debt. The Company may also pursue amendments with its lenders to extend the maturity date of any expiring loans. Interest expense related to the Company’s unsecured credit facilities is expected to be higher over the next 12 months than it was during the previous 12 months as a result of increased borrowings under the Company’s Revolving Credit Facility and a decrease in the amount of the Company’s variable-rate debt that is fixed by interest rate swaps. The proportion of fixed-rate debt will continue to decrease over the next 12 months, as the Company has six interest rate swaps in effect on $300.0 million of variable-rate debt that mature during the next 12 months in addition to the three interest rate swaps that were in effect on $135.0 million of variable-rate debt that matured in the first half of 2024. If the Company replaces expiring interest rate swaps in the current interest rate environment with new agreements, the Company anticipates those new agreements to be at higher rates than the expiring swap agreements. See Note 4 titled “Debt” and Note 5 titled “Fair Value of Financial Instruments” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for more detail regarding future maturities of the Company’s debt instruments and interest rate swap agreements as of June 30, 2024.

Previous wording

As of March 31, 2024 the Company had separate outstanding contracts for the potential purchase of two hotels, consisting of one hotel in Madison, Wisconsin and one hotel in Nashville, Tennessee, for a total combined purchase price of approximately $177.5 million. Both hotels are under development, with the hotel in Madison, Wisconsin currently planned to be completed and opened for business in mid-2024 and the hotel in Nashville, Tennessee currently planned to be completed and opened for business in late 2025, at which respective times the Company expects to complete the purchases of these hotels. If the closings occur, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured credit facilities available at closing, to purchase the hotels under contract. Although the Company is working towards acquiring these hotels, in each case there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under the applicable purchase contracts and acquire these hotels. As these hotels are under development, at this time, the sellers have not met all of the conditions to closing.

Current wording

As of June 30, 2024 the Company had one outstanding contract, which was entered into during May 2023, for the potential purchase of a hotel in Nashville, Tennessee for an expected purchase price of approximately $98.2 million. The hotel is under development and is currently planned to be completed and opened for business in late 2025, as a 260-guest-room Motto. As of June 30, 2024, a $1.1 million contract deposit (refundable if the seller does not meet its obligations under the contract) had been paid. If the closing occurs, the Company plans to utilize its available cash or borrowings, including borrowings under its unsecured credit facilities available at closing, to purchase the hotel under contract. Although the Company is working towards acquiring this hotel, there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closing on this hotel will occur under the outstanding purchase contract. If the seller meets all of the conditions to closing, the Company is obligated to specifically perform under the purchase contract and acquire this hotel. As this hotel is under development, at this time, the seller has not met all of the conditions to closing.

Previous wording

On April 15, 2024, the Company paid approximately $19.4 million, or $0.08 per common share, in distributions to shareholders of record as of March 28, 2024.

Current wording

On July 15, 2024, the Company paid approximately $19.3 million, or $0.08 per common share, in distributions to shareholders of record as of June 28, 2024.