Apple Hospitality REIT, Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by Apple Hospitality REIT, Inc. on March 1, 2021. The filing details the entry into a Third Amendment to the Company's Credit Agreement and amendments to four other unsecured credit facilities. The Company operates as a real estate investment trust (REIT) focused on the ownership of hotels.
Key Financial Metrics and Debt Structure
The filing focuses on debt facilities and liquidity covenants rather than operating performance metrics like revenue or profit.
- Primary Credit Facility: An $850 million facility consisting of a $425 million revolving credit facility and $425 million in term loans.
- Outstanding Balances (as of March 1, 2021):
- Revolving Credit Facility: $160.6 million outstanding with $264.4 million availability.
- Term Loans: $425 million outstanding.
- Other Unsecured Facilities: Four additional facilities (term loans and senior notes) with an aggregate outstanding balance of $445 million as of March 2, 2021.
- Minimum Liquidity Covenant: Set at $125 million during the Extended Covenant Waiver Period.
- Interest Rates (during waiver period):
- Revolving: Base Rate + 1.40% or LIBOR + 2.40%.
- Term Loans: Base Rate + 1.35% or LIBOR + 2.35%.
Material Changes and Covenant Modifications
The primary material change is the extension of the suspension of financial maintenance covenant testing (the "Extended Covenant Waiver Period") until the compliance certificate for the fiscal quarter ending June 30, 2022. Specific changes include:
- Covenant Testing Suspension: Most financial covenants are suspended until June 30, 2022. The Minimum Fixed Charge Coverage Ratio and Minimum Unsecured Interest Coverage Ratio are suspended until March 31, 2022.
- Post-Waiver Covenant Levels: Following the waiver period, covenants will be less restrictive initially before tightening:
- Maximum Consolidated Leverage Ratio: Starts at 8.50:1.00, stepping down to 6.50:1.00.
- Minimum Fixed Charge Coverage Ratio: Starts at 1.05:1.00, stepping up to 1.50:1.00.
- Minimum Unsecured Interest Coverage Ratio: Starts at 1.25:1.00, stepping up to 2.00:1.00.
- Maximum Unsecured Leverage Ratio: 65% for two quarters, then 60%.
- Asset Acquisition Allowances: $300 million allowance for acquiring unencumbered assets using asset sale proceeds; $300 million allowance for acquisitions funded by common equity (subject to revolver balance limits).
- Capital Expenditures: Maximum discretionary capex limited to $50 million.
- Debt Repayment Restrictions: Generally restricted, with an exception allowing prepayment of up to $35 million of secured debt maturities in 2021.
Guidance, Risks, and Restrictions
The filing outlines significant operational and financial restrictions imposed during the Extended Covenant Waiver Period:
- Distribution Restrictions: Cash distributions are restricted, with exceptions only for $0.01 per share quarterly dividends or payments required to maintain REIT status/tax reasons.
- Collateral Requirements: The Company must pledge equity interests of unencumbered property owners if average monthly liquidity falls below $200 million or if revolver borrowings exceed $275 million.
- Indebtedness Restrictions: Incurring additional indebtedness is restricted, except for recourse debt maturing no earlier than June 5, 2026, provided proceeds repay existing debt.
- Risk Factors: The filing implies liquidity risk, necessitating the $125 million minimum liquidity covenant and the potential pledge of assets if liquidity thresholds are breached.
Key Facts for Investor Verification
- Verify the Company's ability to maintain the $125 million minimum liquidity covenant throughout the waiver period.
- Monitor the utilization of the $264.4 million available revolver capacity, as exceeding $275 million in outstanding borrowings triggers collateral pledges.
- Confirm the Company's compliance with the $50 million discretionary capital expenditure limit.
- Review the impact of the restricted dividend policy ($0.01/share) on total shareholder returns compared to historical distributions.
- Assess the timeline for the resumption of full covenant testing in the second half of 2022 and the Company's projected leverage ratios at that time.