Apple Hospitality REIT, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Apple Hospitality is a self-advised lodging REIT; at quarter-end it owned 219 hotels with 28,747 rooms across 36 states. The unaudited results are not necessarily indicative of full-year performance.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $260.5 million | $158.7 million |
| Operating income (loss) | $32.8 million | $(27.8) million |
| Net income (loss) | $18.0 million | $(46.4) million |
| Basic and diluted EPS | $0.08 | $(0.21) |
| Operating cash flow | $39.1 million | $(2.1) million |
| Capital improvements | $13.6 million cash outflow | $2.5 million cash outflow |
- Revenue increased 64.1%; hotel operating expense rose 48.4% to $154.0 million, declining to 59.1% of revenue from 65.4%. Property taxes, insurance and other expense were $18.7 million, or 7.2% of revenue, versus $19.7 million, or 12.4%.
- Adjusted Hotel EBITDA, a non-GAAP measure, was $87.9 million, up 148.2% from $35.4 million. MFFO was $63.5 million versus $8.7 million; these supplemental measures are not substitutes for GAAP results or cash available for distributions.
- Comparable hotel RevPAR rose 66.2% year over year to $91.98, as ADR increased 37.1% to $137.03 and occupancy improved to 67.1% from 55.4%. RevPAR remained 10.9% below Q1 2019.
- At March 31, total assets were $4.79 billion, total liabilities $1.61 billion and shareholders’ equity $3.18 billion. Debt, net, was $1.43 billion, down from $1.44 billion at year-end. The weighted-average debt rate was 3.46%; 91% of debt was fixed-rate or effectively fixed through swaps.
- Cash and cash equivalents were $0.6 million; restricted cash and escrows were $40.6 million. The company reported $348.5 million of unused revolving-credit capacity. Debt includes $76.5 million outstanding on a revolving facility maturing July 2022, with an extension option subject to conditions.
Material changes versus the prior comparable period
- The company moved from a Q1 2021 net loss to Q1 2022 net income, alongside higher hotel demand and RevPAR. Q1 2021 included $10.8 million of impairment charges and a $4.5 million gain on real estate sales; neither item recurred in Q1 2022.
- Interest and other expense declined 20.8% to $14.7 million, reflecting lower average borrowings and interest rates, as well as reduced finance-lease interest after the 2021 purchase of Seattle land.
- Hotel operating costs increased in dollars with the recovery in business, while labor availability, wage inflation and supply-chain costs remained pressures. The portfolio was smaller than a year earlier (219 hotels versus 233), following 2021 dispositions.
- Operating cash flow improved by $41.2 million year over year. Distributions paid were $13.7 million in Q1 2022; none were paid in Q1 2021.
Outlook, risks and notable items
- Management reported improving demand led by leisure, small groups and some corporate business, but said full recovery to pre-pandemic results depends on business travel. The filing gives no specific revenue or earnings guidance.
- Management anticipated 2022 capital spending of approximately $55–$65 million, including renovations at about 20–25 hotels. Q1 capital expenditures were approximately $8.1 million, per MD&A; cash-flow statement capital improvements were $13.6 million.
- The company cited COVID-19 and variants, seasonality, travel demand, labor shortages, inflation, supply-chain disruptions, interest rates and capital-market access as risks. It cautioned that recovery timing and future performance remain uncertain.
- Approximately $311.9 million of principal and interest payments were due over the next 12 months. Management planned to address about $180.4 million of mortgage maturities in the second half of 2022 and Q1 2023 using revolving-credit borrowings and/or new financing.
- The company had exited its COVID-related covenant waiver period in July 2021 and reported meeting applicable financial covenants at March 31, 2022. The revolving facility and other debt remain subject to covenants and refinancing risk.
- The board reinstated monthly distributions in February 2022. A $0.05-per-share distribution was paid April 18; another $0.05 distribution for May was declared. Future distributions remain subject to board approval, operating cash flow and financing capacity.
- A potential $78.6 million purchase of a 260-room Embassy Suites under development in Madison, Wisconsin remained conditional, with opening expected in early 2024 and no assurance the transaction will close.
Most important facts for investors to verify
- Whether RevPAR gains persist and business-travel recovery closes the remaining gap to Q1 2019 levels.
- Liquidity and funding plans for near-term revolving-credit and mortgage maturities, and the company’s ongoing covenant compliance.
- Whether operating costs, wages and renovation spending rise faster than hotel revenue amid inflation and supply constraints.
- Whether operating cash generation supports the reinstated monthly distribution and planned capital spending.
- Progress and closing conditions for the Madison hotel purchase commitment and timing of planned renovations.