Apple Hospitality REIT, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Dollar amounts below are USD unless stated. The company is a U.S. lodging REIT; at quarter-end it owned 232 hotels with 29,753 rooms in 35 states, including 20 hotels classified as held for sale.
Financial results and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $247.4 million | $81.1 million | $406.1 million | $319.1 million |
| Operating income (loss) | $39.0 million | ($59.8 million) | $11.2 million | ($46.9 million) |
| Net income (loss) | $20.3 million | ($78.2 million) | ($26.2 million) | ($81.0 million) |
| Net income (loss) per share | $0.09 | ($0.35) | ($0.12) | ($0.36) |
| Operating cash flow | Not presented separately | Not presented separately | $49.8 million | $12.5 million |
| Adjusted Hotel EBITDA | $94.8 million | $0.7 million | $130.2 million | $64.0 million |
Q2 2021 operating and net margins were approximately 15.8% and 8.2%, respectively; six-month margins were approximately 2.8% and negative 6.4%. These are calculated from reported figures. Adjusted Hotel EBITDA is a company-defined non-GAAP measure and is not a substitute for cash flow or GAAP results.
- Hotel demand: Q2 occupancy was 70.7%, ADR was $120.56 and RevPAR was $85.28, compared with 28.2%, $100.76 and $28.44, respectively, in Q2 2020. For comparable hotels, Q2 RevPAR was still 26.8% below Q2 2019.
- Six-month comparable performance: Occupancy rose to 63.3% from 44.5%; ADR fell to $112.20 from $123.89; RevPAR increased 28.7% to $70.97.
- Cash and liquidity: June 30 cash and cash equivalents were $2.9 million; restricted cash was $31.2 million. The company reported $343 million available under its revolving credit facility. Six-month capital improvements were $4.9 million.
- Debt: Debt, net, was $1.396 billion, down from $1.483 billion at year-end 2020. Total principal obligations were approximately $1.403 billion; weighted-average debt interest rate was 3.96%. About 91% of debt was fixed-rate or effectively fixed by swaps.
- Distributions and equity: The company declared quarterly distributions of $0.01 per share during the first half, reflecting lender restrictions. In Q2 it issued about 4.7 million shares through its at-the-market program for $75.1 million net proceeds, used to repay revolving-credit borrowings.
Changes versus the prior comparable period
Results rebounded sharply from Q2 2020, when pandemic-related travel disruption drove occupancy and earnings to exceptionally low levels. Revenue increased 205.1% year over year in Q2, and the company returned to quarterly profitability. For the first half, revenue rose 27.3% and the net loss narrowed by $54.9 million. The comparison remains affected by COVID-19 and by hotel acquisitions and dispositions. Despite the recovery, comparable Q2 RevPAR remained materially below 2019.
Hotel operating expense rose to $135.4 million in Q2 from $61.8 million, but declined as a share of revenue to 54.7% from 76.2%. Six-month hotel operating expense was 58.9% of revenue versus 68.0%. Six-month interest and other expense increased to $37.1 million from $34.0 million, partly due to higher credit-facility rates under covenant amendments.
Outlook, risks and unusual items
- Management reported continued recovery through the first half and expected improvement for the rest of 2021, but did not provide quantified earnings or revenue guidance. It did not expect a full recovery until business travel improves and government travel and operating restrictions are lifted; declines versus 2019 could persist through the rest of 2021 and potentially beyond.
- COVID-19 resurgences and variants, travel restrictions, consumer confidence, seasonality, inflation and labor-cost pressure could disrupt the recovery. Management noted that cost-saving measures would not fully offset revenue losses.
- In July 2021, after the quarter, the company completed the sale of 20 hotels for gross proceeds of about $211 million; a portion of net proceeds repaid revolving-credit borrowings. First-half sales of three other hotels generated a reported $4.5 million gain.
- First-half impairment charges were $10.8 million: $9.4 million for four hotels included in the 20-hotel sale and $1.3 million for another hotel sold in April. The Q2 results also included approximately $0.9 million of costs associated with the subsequent 20-hotel sale. Texas winter storms added $1.8 million in six-month utility costs.
- The company exited its extended covenant-waiver period effective July 29, 2021, after reporting that it met the initial applicable covenant thresholds based on annualized Q2 results. It anticipated continued compliance but gave no assurance. The waiver-period restrictions, including limits on distributions, acquisitions and capital spending, remained in effect throughout Q2.
- Potential acquisitions under contract as of July 2021 totaled about $226.5 million for four hotels; a separate Seattle land purchase was expected to cost $80 million, including a $56 million one-year seller note. These transactions were conditional and not assured to close.
- The company expected to spend a further $20–25 million on capital improvements in the second half of 2021. It cited uncertainty around future distributions and noted that REIT status generally requires distributions of at least 90% of ordinary taxable income.
Most important facts for investors to verify
- Whether hotel occupancy, ADR and RevPAR continue recovering, particularly against 2019 levels and as business travel returns.
- Post-quarter sale proceeds, resulting debt paydown and the company’s current cash and revolving-credit availability.
- Ongoing compliance with financial covenants after exiting the waiver period, including the effect of covenant thresholds and interest rates.
- Whether the proposed hotel and Seattle land purchases close, their funding terms and their effect on leverage and liquidity.
- Future distribution decisions, which remain subject to board approval, operating cash flow, debt terms and REIT requirements.