Apple Hospitality REIT, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 22, 2022. The filing reports annual results and provides quarterly data, including fourth-quarter results. Apple Hospitality is a U.S. lodging REIT operating one reportable segment. At year-end it owned 219 hotels with 28,747 rooms in 36 states, primarily under Marriott and Hilton brands.
Key financial and operating metrics
| Metric | 2021 | 2020 | 2019 |
|---|---|---|---|
| Total revenue | $933.9 million | $601.9 million | $1,266.6 million |
| Net income (loss) | $18.8 million | $(173.2) million | $171.9 million |
| Diluted EPS | $0.08 | $(0.77) | $0.77 |
| Operating cash flow | $217.6 million | $26.7 million | $381.7 million |
| Capital improvements | $25.8 million | $37.6 million | $78.7 million |
| Adjusted Hotel EBITDA (non-GAAP) | $320.3 million | $122.0 million | $465.0 million |
For 2021, hotel operating expense was $542.2 million, or 58.1% of revenue, compared with 66.8% in 2020 and 57.2% in 2019. General and administrative expense was $41.0 million; it included higher executive incentive compensation. Impairment charges were $10.8 million, and the net gain on real estate sales was $3.6 million.
Hotel performance improved from 2020 but remained below 2019: portfolio ADR was $123.78, occupancy 66.3%, and RevPAR $82.03, up 11.0%, 20.2 percentage points, and 59.8%, respectively, from 2020. Comparable-hotel RevPAR was $83.14, still 23.6% below 2019.
Fourth quarter: Revenue was $250.6 million, net income $13.2 million, diluted EPS $0.06, and Adjusted Hotel EBITDA $84.6 million. Occupancy was 67.5%, ADR $131.04, and RevPAR $88.43.
Debt, liquidity and capital
- Year-end debt principal was approximately $1.444 billion, with a weighted-average interest rate of 3.38%; 91% was fixed-rate or effectively fixed through swaps. Balance-sheet debt, net of issuance costs and fair-value adjustments, was $1.439 billion.
- The company had $3.3 million of cash and $349.0 million of available capacity on its $425 million revolving credit facility. Restricted cash and escrows were $36.7 million and are not equivalent to unrestricted cash.
- Cash flows were $217.6 million provided by operations, $150.7 million used in investing, and $61.3 million used in financing. Investing included $362.5 million of hotel acquisitions, $231.0 million of net sale proceeds, and $18.3 million of capital improvements.
- Approximately $287.1 million of principal and interest payments were due over the next 12 months, including a $76.0 million revolver maturity in July 2022 and about $155.7 million of mortgage maturities in the second half of 2022. The company stated it intended to extend the revolver, subject to conditions, and planned to fund maturities with the revolver and/or new financing.
- Debt-to-total-capitalization was 28.1%. The company exited its extended covenant waiver period on July 29, 2021 and reported meeting applicable financial covenants at year-end.
Material changes and notable items
- Recovery from the pandemic drove higher revenue, occupancy, RevPAR, operating cash flow and Adjusted Hotel EBITDA versus 2020. Results nevertheless remained materially below 2019 levels.
- During 2021, the company acquired eight hotels for a combined gross purchase price of approximately $361.5 million and sold 23 hotels for approximately $234.6 million gross proceeds. It also purchased the fee interest in the land under its Seattle Residence Inn for $80.0 million, funded partly with a $56.0 million seller note.
- The company issued approximately 4.7 million shares under its at-the-market program through year-end, raising approximately $75.1 million net. No shares were repurchased under the repurchase program in 2021.
- Monthly distributions had been suspended in March 2020. The company paid $0.03 per share in 2021 under quarterly declarations constrained during the covenant waiver period. In February 2022, the board announced reinstatement of monthly distributions, declaring $0.05 per share for March 2022; future distributions remain subject to board approval.
- Management expected 2022 results to remain below 2019 levels and planned $55 million to $65 million of 2022 capital improvements, including renovations at approximately 20 to 25 properties. One potential 260-room Embassy Suites acquisition in Madison, Wisconsin, was under contract for $78.6 million, with completion expected in early 2024 if conditions are met.
Outlook, risks and contingencies
Management described recovery as uncertain and said a fuller recovery depended in part on improvement in business travel and broader easing of COVID-related restrictions. Risks include renewed COVID-19 cases or variants, weaker travel demand, labor shortages and wage pressure, supply-chain constraints, inflation, higher operating costs, hotel competition, and the need to refinance near-term maturities. The filing provides no quantified 2022 revenue or earnings guidance.
Other disclosed risks include debt covenant compliance and interest-rate exposure, LIBOR transition, reliance on third-party managers and concentrated Marriott/Hilton branding, required hotel renovations, potential impairment, ground leases, climate and catastrophic-event exposure, and maintaining REIT qualification. Management reported no litigation expected to have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal controls; management also concluded internal control over financial reporting was effective at year-end.
Important facts for investors to verify
- Progress and pricing in 2022 hotel demand and recovery, particularly business and group travel, and performance relative to 2019.
- How the company addresses the July 2022 revolver maturity and second-half 2022 mortgage maturities, and whether it continues to meet debt covenants.
- Whether the announced $0.05 monthly distribution is sustained and supported by operating cash flow, rather than borrowing or other financing.
- Actual 2022 renovation spending, labor and supply costs, and any further impairment charges or property sales.
- Completion conditions and financing for the proposed Madison Embassy Suites purchase, plus the effects of ATM share issuance on dilution.