Business Context and Reporting Period
Company: Apple Hospitality REIT, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: July 25, 2022
Event: Entry into a material definitive agreement to amend and restate the Company's unsecured credit facility.
Key Financial Metrics and Debt Structure
This filing details a refinancing transaction rather than periodic operating results. Key debt metrics include:
- Total Credit Facility Capacity: Increased from $850,000,000 to $1,225,000,000 (with an accordion feature to increase to $1,500,000,000).
- Term Loan Facility 1: $275,000,000 maturing July 25, 2027.
- Term Loan Facility 2: Up to $300,000,000 maturing January 31, 2028 (includes a $150,000,000 delayed draw option).
- Revolving Credit Facility: $650,000,000 with an initial maturity of July 25, 2026 (extendable by one year).
- Closing Borrowings: $475,000,000 borrowed under term loans at closing.
- Repayments: $425,000,000 of prior term loans and $50,000,000 of prior revolving credit facility debt were repaid.
- Interest Rate Margin: Reduced to a range of 1.35% to 2.25% over adjusted SOFR, depending on leverage ratio.
- Unused Fee: Remained at 0.20% or 0.25% per annum on the revolving facility.
Material Changes Versus Prior Period
- Capacity Increase: Total borrowing capacity increased by $375,000,000 compared to the previous $850,000,000 facility.
- Maturity Extension: Maturity dates were extended, with the longest term loan now maturing in 2028.
- Reference Rate Transition: The facility transitioned from LIBOR to the Secured Overnight Financing Rate (SOFR).
- Cost Reduction: The interest margin was reduced compared to the previous agreement.
Guidance, Outlook, Risks, and Covenants
The filing does not provide forward-looking revenue guidance or management commentary on operational outlook. However, it outlines significant financial maintenance covenants that act as risk factors for the Company's liquidity and solvency:
- Debt-to-EBITDA: Consolidated total debt to consolidated EBITDA must not exceed 7.25 to 1.00.
- Secured Debt Ratio: Consolidated secured debt to consolidated total assets must not exceed 45%.
- Tangible Net Worth: Minimum consolidated tangible net worth of $3.4 billion (plus 75% of net cash proceeds from equity issuances).
- Fixed Charge Coverage: Adjusted consolidated EBITDA to consolidated fixed charges must be at least 1.50 to 1.00.
- Unencumbered Asset Coverage: Net operating income from unencumbered properties to unsecured indebtedness implied interest expense must be at least 2.00 to 1.00.
- Unsecured Indebtedness Ratio: Consolidated unsecured indebtedness to unencumbered asset value must not exceed 60%.
- Recourse Debt Ratio: Consolidated secured recourse debt to consolidated total asset value must not exceed 10%.
Failure to comply with these covenants could result in an event of default, permitting lenders to declare obligations immediately due and payable.
Investor Verification Checklist
- Verify the Company's current leverage ratio to ensure compliance with the 7.25x Debt-to-EBITDA covenant.
- Confirm the Company's tangible net worth exceeds the $3.4 billion threshold.
- Review the impact of the SOFR transition on future interest expense projections compared to the previous LIBOR-based rates.
- Assess the utilization of the $650,000,000 revolving credit facility and the associated unused fees.
- Examine the full text of the Credit Agreement (Exhibit 10.1) for specific definitions of EBITDA and asset valuation methodologies used in covenant calculations.