Apple Hospitality REIT, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Apple Hospitality is a U.S. lodging REIT; at quarter-end it owned 233 hotels with 29,855 rooms across 35 states.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $158.7 million | $238.0 million | -33.3% |
| Operating income (loss) | $(27.8) million | $12.9 million | — |
| Net income (loss) | $(46.4) million | $(2.8) million | Loss increased |
| Net loss per share | $(0.21) | $(0.01) | — |
| Operating cash flow | $(2.1) million | $33.3 million | — |
| Adjusted Hotel EBITDA* | $35.4 million | $63.3 million | -44.0% |
Hotel performance: Comparable-hotel RevPAR was $55.39, down 31.6%; occupancy was 55.8%, down 5.1 percentage points; ADR was $99.29, down 25.4%. Against Q1 2019, comparable RevPAR was down 45.8%.
Costs and margins: Hotel operating expenses were $103.7 million, or 65.4% of revenue, versus 65.2% a year earlier and 57.8% in Q1 2019. Property taxes, insurance and other expenses were $19.7 million, or 12.4% of revenue, versus 8.2%. Interest and other expense rose 18.9% to $18.5 million. Depreciation and amortization was $48.7 million.
Non-GAAP measures: FFO was $6.9 million and MFFO was $8.7 million, compared with $36.1 million and $37.8 million, respectively, in Q1 2020. These measures are not substitutes for GAAP results or operating cash flow.
Balance sheet, debt and liquidity
- Total assets were $4.83 billion and shareholders’ equity was $3.00 billion at March 31, 2021.
- Debt, net, was $1.52 billion, compared with $1.48 billion at year-end 2020; finance lease liabilities were $221.0 million. The weighted-average debt interest rate was 3.88%.
- After swaps, 19% of debt, or approximately $295.5 million, was variable-rate. Management estimated that a 100-basis-point rate change would affect annual net income by approximately $3.0 million, all else equal.
- Cash and cash equivalents were $5.8 million; restricted cash was $30.1 million. The company reported approximately $275.1 million available under its revolving credit facility.
- Contractual principal maturities include $259.7 million in 2022, $296.2 million in 2023 and $338.6 million in 2024.
- Net cash used in investing was $34.3 million, including $49.4 million for a hotel acquisition, partly offset by $17.6 million of real estate sale proceeds. Financing provided $38.0 million, principally through $44.1 million of revolving-credit borrowings.
Material changes and notable items
- Revenue and hotel earnings remained severely affected by COVID-19; the company reported its strongest operating results since the pandemic began, but results were still materially below pre-pandemic levels.
- In March 2021, amendments to unsecured credit facilities extended covenant-testing waivers for most financial maintenance covenants through the quarter ending June 30, 2022; two coverage-ratio tests remain suspended through the quarter ending March 31, 2022. The company said it was compliant with applicable covenants at quarter-end.
- The amended facilities impose a $125 million minimum-liquidity covenant, increase borrowing costs by 0.15% above the highest leverage-based margin during the waiver period, and restrict distributions, repurchases, additional debt, investments and discretionary capital spending. Common distributions are generally limited to $0.01 per share per quarter or amounts needed to preserve REIT status.
- The company recorded $10.8 million of real estate impairment losses: $1.3 million on a Kansas hotel held for sale and $9.4 million on four hotels identified as potential sales. Two hotels were sold during the quarter for gross proceeds of $18.3 million, generating a $4.5 million gain. The Kansas hotel sale closed in April for $5.3 million; proceeds were used to repay revolver borrowings.
- The company acquired a newly developed 176-room Hilton Garden Inn in Madison, Wisconsin, for $49.6 million in February, funded with revolver borrowings.
- Distributions were suspended in March 2020 and resumed at $0.01 per share for Q1 2021; the approximately $2.2 million payment was made April 15, 2021.
Outlook, management commentary and risks
Management provided no specific numerical earnings or revenue guidance. It expected revenue and operating results to remain below 2019 levels through the remainder of 2021 and potentially beyond, and said a material recovery depended on improved business travel, consumer confidence and easing of restrictions. Management cited improving occupancy—55.5% portfolio-wide in Q1 and estimated at approximately 68% in April—led largely by leisure demand, while cautioning that renewed COVID-19 cases, restrictions or weaker consumer sentiment could reverse progress.
The company said available cash and revolver capacity were expected to cover near-term operating deficits, debt service and capital expenditures, but acknowledged uncertainty and possible difficulty or higher costs in raising capital. It anticipated $23–28 million of additional capital expenditures during the rest of 2021. Other risks include debt covenant compliance after waivers expire, interest-rate exposure, hotel demand and operating-cost pressures, and the effects of COVID-19 and variants. The filing also notes ordinary-course legal proceedings, with none expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether occupancy, ADR and RevPAR continue to recover, and how quickly results approach pre-pandemic levels.
- Liquidity and compliance with amended credit-facility covenants, including the $125 million minimum-liquidity requirement and restrictions during the waiver period.
- Debt refinancing needs and maturities, particularly in 2022–2024, and the cost of variable-rate borrowings.
- Whether management’s expected capital spending and limited quarterly distributions remain appropriate as operating cash flow evolves.
- Potential sale plans and valuations for the four properties associated with the $9.4 million impairment charge.
*Adjusted Hotel EBITDA is a company-defined non-GAAP measure. The filing cautions that it is not necessarily indicative of cash available for distributions.