Business Context and Reporting Period
Company: Apple Hospitality REIT, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: June 5, 2020
Context: The Company entered into amendments to its primary credit agreement and four other unsecured credit facilities to address financial covenant testing and liquidity requirements during the ongoing economic disruption.
Key Financial Metrics and Debt Structure
Credit Facilities:
- Primary Credit Agreement: $850 million total facility ($425 million revolving, $425 million term loans).
- Other Unsecured Facilities: Aggregate outstanding balance of $445 million as of June 8, 2020.
Outstanding Balances (as of June 8, 2020):
- Revolving Credit Facility: $200 million outstanding; $225 million availability.
- Term Loans (Primary): $425 million outstanding.
Liquidity Requirements:
- Minimum liquidity covenant set at $100 million.
- Collateral pledge trigger if average monthly liquidity falls below $275 million or revolving facility usage exceeds $275 million.
Interest Rate Adjustments:
- Revolving loans: Base Rate + 1.25% or LIBOR + 2.25%.
- Term loans: Base Rate + 1.20% or LIBOR + 2.20%.
- LIBOR floor increased from 0 to 25 basis points; Base Rate floor set at 1.25% for unhedged loans.
Note: This filing does not provide revenue, profit, cash flow, or margin data.
Material Changes Versus Prior Period
The primary material change is the suspension of financial maintenance covenant testing under the Credit Agreement until the compliance certificate for the fiscal quarter ending June 30, 2021 (the "Covenant Waiver Period"). Additionally, the Company amended four other unsecured credit facilities with terms substantially similar to the primary amendment.
Guidance, Restrictions, and Risks
Operational and Financial Restrictions During Waiver Period:
- Prepayments: Mandatory prepayments required from net cash proceeds of debt/equity issuances and asset dispositions (subject to exceptions).
- Distributions: Restrictions on cash distributions, except those required to maintain REIT status.
- Capital Expenditures: Maximum discretionary capex limited to $50 million.
- Debt: Restrictions on incurring additional indebtedness or prepaying certain existing debt.
- Investments: Limitations on additional investments.
Covenant Modifications:
- Calculation of financial covenants for the four quarters following the waiver period will be annualized if the most recent quarter is less than four quarters from the end of the waiver period.
Risks: The Company faces increased interest costs and strict liquidity monitoring. Failure to maintain the $100 million minimum liquidity or the $275 million threshold may trigger collateral pledges of unencumbered property equity interests.
Key Facts for Investor Verification
- Verify the Company's ability to maintain the $100 million minimum liquidity covenant.
- Monitor the $275 million liquidity threshold to avoid triggering mandatory equity pledges of unencumbered properties.
- Confirm the impact of increased interest rate margins and the new LIBOR/Base Rate floors on future interest expense.
- Track compliance with the $50 million discretionary capital expenditure cap.
- Review the status of the $225 million availability on the revolving credit facility for future liquidity needs.