APPLE HOSPITALITY REIT, INC. Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by use of statements that include phrases such as "may," "believe," "expect," "anticipate," "intend," "estimate," "project," "target," "goal," "plan," "should," "will," "predict," "potential," "outlook," "strategy," and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company's forward-looking statements is the potential increased adverse effect of COVID-19 on the Company's business, financial performance and condition, operating results and cash flows, the real estate market and the hospitality industry specifically, and the global economy and financial markets. The significance, extent and duration of the impacts caused by the COVID-19 outbreak on the Company will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the scope, severity and duration of the pandemic, the extent and effectiveness of the actions taken to contain the pandemic or mitigate its impact, the Company's ability to complete the anticipated amendments to its credit facilities on the terms and timing anticipated, or at all, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Such additional factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties; the ability of the Company to successfully integrate pending transactions and implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions; reduced business and leisure travel due to travel-related health concerns, including the widespread outbreak of COVID-19 or any other infectious or contagious diseases in theU.S. or abroad; adverse changes in the real estate and real estate capital markets; financing risks; litigation risks; regulatory proceedings or inquiries; and changes in laws or regulations or interpretations of current laws and regulations that impact the Company's business, assets or classification as a REIT. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company's qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code. Readers should carefully review the risk factors described in the Company's filings with theSecurities and Exchange Commission ("SEC"), including but not limited to those discussed in the section titled "Risk Factors" in the 2019 Form 10-K and in Part II, Item 1A of this Form 10-Q. Any forward-looking statement that the Company makes speaks only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events, or otherwise, except as required by law.
The following discussion and analysis should be read in conjunction with the Company's Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the information contained in the 2019 Form 10-K.
Overview The Company is aVirginia corporation that has elected to be treated as a REIT for federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in theU.S. As ofMarch 31, 2020 , the Company owned 231 hotels with an aggregate of 29,535 rooms located in urban, high-end suburban and developing markets throughout 34 states. Substantially all of the Company's hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 20 hotel management companies, none of which are affiliated with the Company. The Company's common shares are listed on the NYSE under the ticker symbol "APLE."
COVID-19 and the Company's Actions to Mitigate its Impact
Since first being reported in
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The outbreak of COVID-19 has not only specifically reduced travel, but also has had a detrimental impact on regional and global economies and financial markets. The global, national and local impact of the outbreak has been rapidly evolving and many countries, including theU.S. , as well as state and local governments, have reacted by instituting a wide variety of measures intended to control its spread, including states of emergency, mandatory quarantines, implementation of "stay at home" orders, business closures, border closings, and restrictions on travel and large gatherings, which has resulted in cancellation of events, including sporting events, conferences and meetings. Many experts predict that the outbreak will trigger a period of material global economic slowdown or a global recession and many experts believe that theU.S. is already in a recession. The Company cannot presently determine the extent or duration of the overall operational and financial effects that COVID-19 will have on the Company. The effects of the pandemic on the hotel industry are unprecedented. COVID-19 has disrupted the industry and its consequences have dramatically reduced business and leisure travel, which has had a significant adverse impact on, and will continue to significantly adversely impact and disrupt, the Company's business, financial performance and condition, operating results and cash flows. For example, average occupancy for theCompany's Comparable Hotels (as defined below) declined from approximately 76% in February to below 20% by the end of March and for the entire month of April, which has been accompanied by declines in average daily rate ("ADR") of approximately 30% for the month of April compared to 2019. The Company expects this significant decline in revenue associated with COVID-19 throughout its portfolio and the overall decline in theU.S. economy to negatively impact the Company's revenue and operating results for an extended period of time. The Company does not expect a material improvement in results until business travel and general consumer confidence related to risks associated with the COVID-19 pandemic improves and government restrictions on travel and "stay at home" orders are lifted.
The following table highlights the impact beginning in March to the Company's ADR, Occupancy and revenue per available room ("RevPAR").
Two Months Three Months Two Months Three Months Percent Change
Ended Ended Ended Ended Two Months Three
February 29, March 31, February 28, March 31, Ended Months
2020 March 2020 2020 2019 March 2019 2019 February March Ended March
ADR
-0.6 % -6.5 % -2.8 %
Occupancy 71.0 % 41.0 % 60.9 % 70.5 % 80.2 % 73.9 % 0.7 % -48.9 %
-17.6 %
RevPAR
0.2 % -52.2 % -19.9 %
The Company, its management companies and the brands the Company's hotels are
franchised with have all aggressively worked to mitigate the costs and uses of
cash associated with operating the hotels in a low-occupancy environment and are
thoughtfully working to position the hotels to adapt to the changes that may
occur to guest preferences in the future. The impact of the situation has varied
and will vary by market and hotel. With the support of its brands and
third-party management companies, the Company will continue to evaluate and
implement additional measures as the situation evolves.
The following is a brief summary of certain measures the Company, its management companies and its brands have taken to minimize costs and cash outflow to maintain a sound liquidity position.
? During
implemented cost elimination and efficiency initiatives at each of the
Company's hotels by reducing labor costs, reducing or eliminating certain
amenities and reducing or deferring payments under various service contracts.
As of
receiving reservations. The Company has intentionally consolidated operations
at 38 hotels in market clusters to maximize operational efficiencies and one
hotel was closed (which has since re-opened) due to the impact of a local
ordinance prohibiting short-term lodging. The cost structure of the Company's
primarily rooms-focused hotels allows them to operate cost effectively even at
very low occupancy levels.
? Together with its third-party management companies, the Company has enhanced
its sales efforts by focusing on COVID-19-specific demand opportunities in
certain markets and identifying other sectors that may have needs such asconstruction, manufacturing, government or maintenance industries. The Company
and its third-party management companies are also working with existing
customers to move business to later in the year.
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? The Company has postponed all non-essential capital improvement projects
planned for 2020 and anticipates a reduction of approximately
originally planned capital improvements for the year.
? The Company suspended its monthly distributions, with the last distribution
being paid
with management, will continue to monitor hotel operations and intends to
resume monthly distributions at a time and level determined to be prudent in
relation to the Company's other cash requirements.
? The Company terminated its written trading plan under its Share Repurchase
Program in March 2020 .
? The Company's Executive Chairman voluntarily agreed to forego six months of
salary, the Chief Executive Officer volunteered to reduce his target
compensation by 60 percent and the non-employee directors on the Board of
Directors volunteered as a group to reduce their annual director fees by more
than 15 percent.
Despite the cost reduction initiatives discussed above, the Company does not
expect to be able to fully, or even materially, offset revenue losses from the
COVID-19 pandemic. The significance, extent and duration of COVID-19 effects are
not currently known and these uncertainties make it difficult to predict
operating results for the Company's hotels for the remainder of 2020. Therefore,
there can be no assurances that the Company will not experience further declines
in hotel revenues or earnings at its hotels.
2020
The following discussion regarding the Company's approach to acquisitions and dispositions reflects the Company's historical strategy. While the Company anticipates it will continue to approach the acquisition and disposition of hotels similarly over the long term, the detrimental impact of COVID-19 to the Company and overall lodging industry may limit the Company's ability to effectively acquire or dispose of hotels until the industry recovers. The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company's focus on investing in rooms-focused hotels, in 2018 the Company entered into a contract to purchase a combined 224-room dual-brandedHampton Inn & Suites and Home2 Suites complex to be constructed inCape Canaveral, Florida . Construction of the hotels was completed inApril 2020 and the Company acquired the hotels. The purchase price was approximately$46.7 million , funded by$25.0 million of cash on hand and a one-year note with the developer for$21.7 million payable in 2021. Also, as ofMay 15, 2020 , the Company had outstanding contracts, all of which were entered into prior to 2020, for the potential purchase of three hotels under development for a total expected purchase price of approximately$113.0 million , which are planned to be completed and opened for business over the next five to 15 months fromMarch 31, 2020 , at which time closings on these hotels are expected to occur. In each case, there are a number of conditions to closing that have not yet been satisfied and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under these contracts. The Company plans to utilize its available cash at closing for any additional acquisitions. For its existing portfolio, the Company monitors each property's profitability, market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided from the sale of the property. As a result, during the first quarter of 2020, the Company sold two hotels for a total combined gross sales price of$45.0 million and recognized a gain on sale of approximately$8.8 million in the first quarter of 2020. The net proceeds from the sales were used to pay down borrowings on the Company's revolving credit facility. See Note 2 titled "Investment in Real Estate", Note 3 titled "Dispositions" and Note 9 titled "Subsequent Events" in the Company's Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning these transactions. EffectiveJanuary 20, 2020 , the Company converted itsNew York, New York Renaissance hotel to an independent boutique hotel. As anticipated, the operating results of the hotel declined in the first quarter of 2020 (prior to COVID-19) as compared to the first quarter of 2019 as the management team worked to replace revenue that was historically generated from the Renaissance brand system and have experienced further declines due to COVID-19. 22
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IndexHotel Operations Beginning inMarch 2020 , COVID-19 caused widespread cancellations of both business and leisure travel throughout theU.S. , resulting in significant decreases in RevPAR throughout the Company's hotel portfolio and the hospitality industry as a whole. With the overall uncertainty of the longevity of COVID-19 in theU.S. and the resulting economic decline, it is difficult to project the duration of revenue declines for the industry and Company; however, the Company currently expects the decline in revenue and operating results as compared to 2019 to continue throughout the remainder of 2020 with the second quarter having the largest decline, moderating in the third and fourth quarters of 2020. Although these are the Company's current expectations, there can be no assurances of the amount or period of declines due to the uncertainty regarding the duration and long-term impact of COVID-19. As ofMarch 31, 2020 , the Company owned 231 hotels with a total of 29,535 rooms as compared to 234 hotels with a total of 30,046 rooms as ofMarch 31, 2019 . Results of operations are included only for the period of ownership for hotels acquired or disposed of during the current reporting period and prior year. During the three months endedMarch 31, 2020 , the Company sold one hotel onJanuary 16, 2020 and one hotel onFebruary 28, 2020 . During 2019, the Company acquired one newly developed hotel onMarch 19, 2019 and two existing hotels (one onMarch 4, 2019 and one onOctober 9, 2019 ), and sold 11 hotels (nine onMarch 28, 2019 , one onDecember 19, 2019 and one onDecember 30, 2019 ). As a result, the comparability of results for the three months endedMarch 31, 2020 and 2019 as discussed below is impacted by these transactions in addition to the impact of COVID-19 beginning inMarch 2020 .
In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, ADR and RevPAR, and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below.
The following is a summary of the results from operations of the Company's hotels for their respective periods of ownership by the Company:
Three Months Ended March 31,
(in thousands, except Percent of Percent of
statistical data) 2020 Revenue 2019 Revenue Percent Change
Total revenue $ 238,010 100.0 % $ 303,787 100.0 % -21.7 %
Hotel operating expense 155,266 65.2 % 175,449 57.8 % -11.5 %
Property taxes, insurance and
other expense 19,595 8.2 % 19,613 6.5 % -0.1 %
General and administrative
expense 9,523 4.0 % 8,137 2.7 % 17.0 %
Depreciation and amortization
expense 49,522 47,950 3.3 %
Gain on sale of real estate 8,839 1,213 n/a
Interest and other expense, net 15,566 15,494 0.5 %
Income tax expense 146 206 -29.1 %
Number of hotels owned at end
of period 231 234 -1.3 %
ADR $ 132.55 $ 136.36 -2.8 %
Occupancy 60.9 % 73.9 % -17.6 %
RevPAR $ 80.66 $ 100.71 -19.9 %
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Comparable Hotels Operating Results
The following table reflects certain operating statistics for the Company's 231 hotels owned as ofMarch 31, 2020 ("Comparable Hotels "). The Company defines metrics fromComparable Hotels as results generated by the 231 hotels owned as of the end of the reporting period. For the hotels acquired during the current reporting period and prior year, the Company has included, as applicable, results of those hotels for periods prior to the Company's ownership using information provided by the properties' prior owners at the time of acquisition and not adjusted by the Company. This information has not been audited, either for the periods owned or prior to ownership by the Company. For dispositions, results have been excluded for the Company's period of ownership. Three Months Ended March 31, 2020 2019 Percent Change ADR$ 132.66 $ 137.51 -3.5 % Occupancy 60.8 % 74.0 % -17.8 % RevPAR$ 80.70 $ 101.81 -20.7 %
Same Store Operating Results
The following table reflects certain operating statistics for the 228 hotels owned by the Company as ofJanuary 1, 2019 and during the entirety of the reporting periods being compared ("Same Store Hotels "). This information has not been audited. Three Months Ended March 31, 2020 2019 Percent Change ADR$ 132.60 $ 137.44 -3.5 % Occupancy 60.8 % 74.1 % -17.9 % RevPAR$ 80.57 $ 101.80 -20.9 % As discussed above, hotel performance is impacted by many factors, including the economic conditions in theU.S. as well as each individual locality. COVID-19 has negatively affected theU.S. hotel industry beginning inMarch 2020 . As a result of COVID-19, the Company's revenue and operating results declined during the first three months of 2020 as compared to the first three months of 2019, which is consistent with the overall lodging industry. Compared to 2019, the Company expects the decline in revenue and operating results to continue throughout the remainder of 2020 with the second quarter having the largest decline, moderating in the third and fourth quarters of 2020, but the Company can give no assurances of the amount or period of decline due to the uncertainty regarding the duration and long term impact of COVID-19. Revenues The Company's principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months endedMarch 31, 2020 and 2019, the Company had total revenue of$238.0 million and$303.8 million , respectively. For the three months endedMarch 31, 2020 and 2019, respectively,Comparable Hotels achieved combined average occupancy of 60.8% and 74.0%, ADR of$132.66 and$137.51 and RevPAR of$80.70 and$101.81 . ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR. Compared to the same period in 2019, during the first quarter of 2020, the Company experienced decreases in ADR and occupancy, resulting in a decrease of 20.7% in RevPAR forComparable Hotels . For the first two months of 2020 (before COVID-19 significantly impacted the Company's performance) and 2019, respectively,Comparable Hotels achieved combined average occupancy of 71.1% and 70.7% (an increase of 0.6%), ADR of$132.88 and$134.62 (a decrease of 1.3%) and RevPAR of$94.45 and$95.18 (a decrease of 0.8%). During March, the hotel industry and the Company began to see a significant decrease in occupancy as both mandated and voluntary restrictions on travel were implemented throughout theU.S. For Comparable Hotels , the Company experienced occupancy of approximately 41.0% in March and below 20% for the month of April, with ADR declines by April of approximately 30% compared to 2019. 24
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IndexHotel Operating Expense Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. Hotel operating expense for the three months endedMarch 31, 2020 and 2019 totaled$155.3 million and$175.4 million , respectively, or 65.2% and 57.8% of total revenue for each respective period. Included in hotel operating expense for the three months endedMarch 31, 2020 were approximately$1.6 million in separation and furlough costs for hotel employees as a result of the occupancy declines discussed above. The Company has worked and will continue to work with its management companies to make reductions in staffing models, consolidate operations in markets with multiple properties, adjust or reduce food and beverage offerings and other amenities, among other efficiency initiatives to mitigate the impact of revenue declines on its results of operations. For example, in some markets the Company is "clustering" hotels, whereby multiple properties in a market have consolidated their operations to increase efficiency; certain brand standards have been reduced; and the Company has also successfully reduced or deferred payments under various service contracts. Although certain operating costs of a hotel are more fixed in nature, such as base utility and maintenance costs, the Company is working to reduce all non-essential costs including service contracts, utilities in areas not utilized and certain maintenance costs. Additionally, as the Company modifies operations to address concerns related to COVID-19, the Company expects to incur increased operating costs related to the supplying of personal protective equipment for employees as well as increased sanitation, social distancing and other measures.
Property Taxes, Insurance and Other Expense
Property taxes, insurance, and other expense for the three months endedMarch 31, 2020 and 2019 totaled$19.6 million in each respective period, or 8.2% and 6.5% of total revenue for each respective period. Although the Company will continue to aggressively appeal assessments and monitor locality guidance as a result of COVID-19, it does not currently anticipate significant decreases in property taxes in 2020 as compared to 2019, as many assessments are made at the beginning of each calendar year.
General and Administrative Expense
General and administrative expense for the three months endedMarch 31, 2020 and 2019 was$9.5 million and$8.1 million , respectively, or 4.0% and 2.7% of total revenue for each respective period. The principal components of general and administrative expense are payroll and related benefit costs, legal fees, accounting fees and reporting expenses. General and administrative expense for the three months endedMarch 31, 2020 included the accrual of approximately$2.5 million in separation benefits awarded in connection with the previously announced retirements of the Company's former Chief Operating Officer and former Chief Financial Officer onMarch 31, 2020 . General and administrative expense for the three months endedMarch 31, 2019 included the accrual of approximately$0.5 million for the separation payment in connection with the retirement of the Company's former Chief Legal Officer. As discussed above, in order to minimize costs, the Company's Executive Chairman voluntarily agreed to forego six months of salary, the Chief Executive Officer volunteered to reduce his target compensation by 60 percent and the non-employee directors on the Board of Directors volunteered as a group to reduce their annual director fees by more than 15 percent. Additionally, in light of the decline in revenue and operating results due to COVID-19 and the associated impact on the current operational and shareholder return metrics in the 2020 Incentive Plan (see Note 8 titled "Compensation Plans" in the Company's Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for additional details), the Company anticipates a reduced payout for executive management compared to the originally established performance metrics for target compensation.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months endedMarch 31, 2020 and 2019 was$49.5 million and$48.0 million , respectively. Depreciation and amortization expense primarily represents expense of the Company's hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for their respective periods owned. Depreciation and amortization expense for the three months endedMarch 31, 2020 and 2019 also includes$1.6 million and$1.0 million , respectively, of amortization of the Company's four finance ground lease assets. The remaining increase of approximately$0.9 million was primarily due to renovations completed throughout 2019 and the first quarter of 2020. 25
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Interest and Other Expense, net
Interest and other expense, net for the three months endedMarch 31, 2020 and 2019 was$15.6 million and$15.5 million , respectively, and is net of approximately$0.7 million and$0.5 million , respectively, of interest capitalized associated with renovation projects. Additionally, interest and other expense, net for the three months endedMarch 31, 2020 and 2019 includes approximately$2.8 million and$1.8 million , respectively, of interest recorded on the Company's four finance lease liabilities. Interest expense related to the Company's debt instruments decreased as a result of decreased average borrowings in the first three months of 2020 as compared to the first three months of 2019 as well as a decrease in the Company's effective interest rate during the first three months of 2020 as compared to the same period in 2019, due to lower average interest rates. However, the Company anticipates interest expense to be higher for the remainder of 2020 compared to the same period of 2019 due to increased borrowings under its revolving credit facility as compared to the same periods in 2019 related to declines in operating results. InMarch 2020 , the Company drew the remaining availability under its revolving credit facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in the financial markets resulting from COVID-19. Additionally, as discussed further above in Note 4 titled "Debt" in the Company's Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, interest rate margins for the Company's unsecured debt are anticipated to increase for the remainder of the year to the highest margin under each facility as a condition to obtaining waivers on those facilities' covenants. Non-GAAP Financial Measures The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations ("FFO"), Modified FFO ("MFFO"), Earnings before Interest, Income Taxes, Depreciation and Amortization ("EBITDA"), Earnings Before Interest, Income Taxes, Depreciation and Amortization for Real Estate ("EBITDAre"), and Adjusted EBITDAre ("Adjusted EBITDAre"). These non-GAAP financial measures should be considered along with, but not as alternatives to, net income, cash flow from operations or any other operating GAAP measure. FFO, MFFO, EBITDA, EBITDAre and Adjusted EBITDAre are not necessarily indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. Although FFO, MFFO, EBITDA, EBITDAre and Adjusted EBITDAre, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA, EBITDAre and Adjusted EBITDAre as reported by other companies that do not define such terms exactly as the Company defines such terms, the Company believes these supplemental measures are useful to investors when comparing the Company's results between periods and with other REITs. FFO and MFFO The Company calculates and presents FFO in accordance with standards established by theNational Association of Real Estate Investment Trusts ("Nareit"), which defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), extraordinary items as defined by GAAP, and the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated affiliates. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company's operations. The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the Nareit definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders. The Company calculates MFFO by further adjusting FFO for the exclusion of amortization of finance ground lease assets, amortization of favorable and unfavorable operating leases, net and non-cash straight-line operating ground lease expense, as these expenses do not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance. 26
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The following table reconciles the Company's GAAP net income (loss) to FFO and
MFFO for the three months ended
Three Months Ended March 31,
2020 2019
Net income (loss) $ (2,769 ) $ 38,151
Depreciation of real estate owned 47,668 46,666
Gain on sale of real estate (8,839 ) (1,213 )
Funds from operations 36,060 83,604
Amortization of finance ground lease assets 1,602 1,041
Amortization of favorable and unfavorable operating leases, net 101 31 Non-cash straight-line operating ground lease expense 47 48 Modified funds from operations$ 37,810 $ 84,724
EBITDA, EBITDAre and Adjusted EBITDAre
EBITDA is a commonly used measure of performance in many industries and is defined as net income (loss) excluding interest, income taxes, depreciation and amortization. The Company believes EBITDA is useful to investors because it helps the Company and its investors evaluate the ongoing operating performance of the Company by removing the impact of its capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). In addition, certain covenants included in the agreements governing the Company's indebtedness use EBITDA, as defined in the specific credit agreement, as a measure of financial compliance. In addition to EBITDA, the Company also calculates and presents EBITDAre in accordance with standards established by Nareit, which defines EBITDAre as EBITDA, excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), plus real estate related impairments, and adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates. The Company presents EBITDAre because it believes that it provides further useful information to investors in comparing its operating performance between periods and between REITs that report EBITDAre using the Nareit definition. The Company also considers the exclusion of non-cash straight-line operating ground lease expense from EBITDAre useful, as this expense does not reflect the underlying performance of the related hotels. The following table reconciles the Company's GAAP net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre for the three months endedMarch 31, 2020 and 2019 (in thousands): Three Months Ended March 31, 2020 2019 Net income (loss)$ (2,769 ) $ 38,151 Depreciation and amortization 49,522
47,950
Amortization of favorable and unfavorable operating leases, net 101 31 Interest and other expense, net 15,566 15,494 Income tax expense 146 206 EBITDA 62,566 101,832 Gain on sale of real estate (8,839 ) (1,213 ) EBITDAre 53,727 100,619 Non-cash straight-line operating ground lease expense 47 48 Adjusted EBITDAre$ 53,774 $ 100,667 27
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Index Hotels Owned As ofMarch 31, 2020 , the Company owned 231 hotels with an aggregate of 29,535 rooms located in 34 states. The following tables summarize the number of hotels and rooms by brand and by state: Number of Hotels and Guest Rooms by Brand Number of Number of Brand Hotels Rooms Hilton Garden Inn 41 5,665 Hampton 39 4,956 Courtyard 36 4,948 Residence Inn 33 3,939 Homewood Suites 33 3,731 SpringHill Suites 13 1,705 Fairfield 11 1,300 Home2 Suites 9 1,038 TownePlace Suites 9 931 Marriott 2 616 Embassy Suites 2 316 Independent 2 263 Hyatt Place 1 127 Total 231 29,535 Number of Hotels and Guest Rooms by State Number of Number of State Hotels Rooms Alabama 15 1,434 Alaska 2 304 Arizona 12 1,644 Arkansas 3 336 California 27 3,807 Colorado 4 567 Florida 21 2,698 Georgia 6 672 Idaho 1 186 Illinois 8 1,420 Indiana 4 479 Iowa 3 301 Kansas 4 422 Louisiana 3 422 Maine 1 179 Maryland 2 233 Massachusetts 4 466 Michigan 1 148 Minnesota 3 404 Mississippi 2 168 Missouri 4 544 Nebraska 4 621 New Jersey 5 629 New York 4 553 North Carolina 10 1,091 Ohio 2 252 Oklahoma 4 545 Pennsylvania 3 391 South Carolina 5 538 Tennessee 13 1,502 Texas 31 3,755 Utah 3 393 Virginia 13 1,822 Washington 4 609 Total 231 29,535 28
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The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 231 hotels the Company owned as ofMarch 31, 2020 . Date Acquired or City State Brand Manager Completed Rooms Anchorage AK Embassy Suites Stonebridge 4/30/2010 169 Anchorage AK Home2 Suites Stonebridge 12/1/2017 135 Auburn AL Hilton Garden Inn LBA 3/1/2014 101 Birmingham AL Courtyard LBA 3/1/2014 84 Birmingham AL Hilton Garden Inn LBA 9/12/2017 104 Birmingham AL Home2 Suites LBA 9/12/2017 106 Birmingham AL Homewood Suites McKibbon 3/1/2014 95 Dothan AL Hilton Garden Inn LBA 6/1/2009 104 Dothan AL Residence Inn LBA 3/1/2014 84 Huntsville AL Hampton LBA 9/1/2016 98 Huntsville AL Hilton Garden Inn LBA 3/1/2014 101 Huntsville AL Home2 Suites LBA 9/1/2016 77 Huntsville AL Homewood Suites LBA 3/1/2014 107 Mobile AL Hampton McKibbon 9/1/2016 101 Montgomery AL Hilton Garden Inn LBA 3/1/2014 97 Montgomery AL Homewood Suites LBA 3/1/2014 91 Prattville AL Courtyard LBA 3/1/2014 84 Rogers AR Hampton Raymond 8/31/2010 122 Rogers AR Homewood Suites Raymond 4/30/2010 126 Rogers AR Residence Inn Raymond 3/1/2014 88 Chandler AZ Courtyard North Central 11/2/2010 150 Chandler AZ Fairfield North Central 11/2/2010 110 Phoenix AZ Courtyard North Central 11/2/2010 164 Phoenix AZ Courtyard North Central 9/1/2016 127 Phoenix AZ Hampton North Central 9/1/2016 125 Phoenix AZ Hampton North Central 5/2/2018 210 Phoenix AZ Homewood Suites North Central 9/1/2016 134 Phoenix AZ Residence Inn North Central 11/2/2010 129 Scottsdale AZ Hilton Garden Inn North Central 9/1/2016 122 Tucson AZ Hilton Garden Inn Western 7/31/2008 125 Tucson AZ Residence Inn Western 3/1/2014 124 Tucson AZ TownePlace Suites Western 10/6/2011 124 Agoura Hills CA Homewood Suites Dimension 3/1/2014 125 Burbank CA Courtyard Huntington 8/11/2015 190 Burbank CA Residence Inn Marriott 3/1/2014 166 Burbank CA SpringHill Suites Marriott 7/13/2015 170 Clovis CA Hampton Dimension 7/31/2009 86 Clovis CA Homewood Suites Dimension 2/2/2010 83 Cypress CA Courtyard Dimension 3/1/2014 180 Cypress CA Hampton Dimension 6/29/2015 110 Oceanside CA Courtyard Marriott 9/1/2016 142 Oceanside CA Residence Inn Marriott 3/1/2014 125 Rancho Bernardo/San Diego CA Courtyard InnVentures 3/1/2014 210 Sacramento CA Hilton Garden Inn Dimension 3/1/2014 153 San Bernardino CA Residence Inn InnVentures 2/16/2011 95 San Diego CA Courtyard Huntington 9/1/2015 245 San Diego CA Hampton Dimension 3/1/2014 177 San Diego CA Hilton Garden Inn InnVentures 3/1/2014 200 San Diego CA Residence Inn Dimension 3/1/2014 121 29
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Index
Date
Acquired
or
City State Brand Manager Completed Rooms
San Jose CA Homewood Suites Dimension 3/1/2014 140
San Juan
Capistrano CA Residence Inn Marriott 9/1/2016 130
Santa Ana CA Courtyard Dimension 5/23/2011 155
Santa Clarita CA Courtyard Dimension 9/24/2008 140
Santa Clarita CA Fairfield Dimension 10/29/2008 66
Santa Clarita CA Hampton Dimension 10/29/2008 128
Santa Clarita CA Residence Inn Dimension 10/29/2008 90
Tulare CA Hampton InnVentures 3/1/2014 86
Tustin CA Fairfield Marriott 9/1/2016 145
Tustin CA Residence Inn Marriott 9/1/2016 149
Colorado Springs CO Hampton Chartwell 9/1/2016 101
Denver CO Hilton Garden Inn Stonebridge 9/1/2016 221
Highlands Ranch CO Hilton Garden Inn Dimension 3/1/2014 128
Highlands Ranch CO Residence Inn Dimension 3/1/2014 117
Boca Raton FL Hilton Garden Inn White Lodging 9/1/2016 149
Cape Canaveral FL Homewood Suites LBA 9/1/2016 153
Fort Lauderdale FL Hampton LBA 6/23/2015 156
Fort Lauderdale FL Residence Inn LBA 9/1/2016 156
Gainesville FL Hilton Garden Inn McKibbon 9/1/2016 104
Gainesville FL Homewood Suites McKibbon 9/1/2016 103
Jacksonville FL Homewood Suites McKibbon 3/1/2014 119
Jacksonville FL Hyatt Place Crestline 12/7/2018 127 (1)
Lakeland FL Courtyard LBA 3/1/2014 78
Miami FL Courtyard Dimension 3/1/2014 118
Miami FL Hampton White Lodging 4/9/2010 121
Miami FL Homewood Suites Dimension 3/1/2014 162
Orlando FL Fairfield Marriott 7/1/2009 200
Orlando FL Home2 Suites LBA 3/19/2019 128
Orlando FL SpringHill Suites Marriott 7/1/2009 200
Panama City FL Hampton LBA 3/12/2009 95
Panama City FL TownePlace Suites LBA 1/19/2010 103
Pensacola FL TownePlace Suites McKibbon 9/1/2016 97
Tallahassee FL Fairfield LBA 9/1/2016 97
Tallahassee FL Hilton Garden Inn LBA 3/1/2014 85
Tampa FL Embassy Suites White Lodging 11/2/2010 147
Albany GA Fairfield LBA 1/14/2010 87
Atlanta/Downtown GA Hampton McKibbon 2/5/2018 119
Atlanta/Perimeter
Dunwoody GA Hampton LBA 6/28/2018 132
Atlanta GA Home2 Suites McKibbon 7/1/2016 128
Macon GA Hilton Garden Inn LBA 3/1/2014 101
Savannah GA Hilton Garden Inn Newport 3/1/2014 105
Cedar Rapids IA Hampton Aimbridge 9/1/2016 103
Cedar Rapids IA Homewood Suites Aimbridge 9/1/2016 95
Davenport IA Hampton Aimbridge 9/1/2016 103
Boise ID Hampton Raymond 4/30/2010 186
Des Plaines IL Hilton Garden Inn Raymond 9/1/2016 252
Hoffman Estates IL Hilton Garden Inn White Lodging 9/1/2016 184
Mettawa IL Hilton Garden Inn White Lodging 11/2/2010 170
Mettawa IL Residence Inn White Lodging 11/2/2010 130
Rosemont IL Hampton Raymond 9/1/2016 158
Schaumburg IL Hilton Garden Inn White Lodging 11/2/2010 166
Skokie IL Hampton Raymond 9/1/2016 225
Warrenville IL Hilton Garden Inn White Lodging 11/2/2010 135
30--------------------------------------------------------------------------------
Index
Date
Acquired
or
City State Brand Manager Completed Rooms
Indianapolis IN SpringHill Suites White Lodging 11/2/2010 130
Merrillville IN Hilton Garden Inn White Lodging 9/1/2016 124
Mishawaka IN Residence Inn White Lodging 11/2/2010 106
South Bend IN Fairfield White Lodging 9/1/2016 119
Overland Park KS Fairfield True North 3/1/2014 110
Overland Park KS Residence Inn True North 3/1/2014 120
Overland Park KS SpringHill Suites True North 3/1/2014 102
Wichita KS Courtyard Aimbridge 3/1/2014 90
Lafayette LA Hilton Garden Inn LBA 7/30/2010 153
Lafayette LA SpringHill Suites LBA 6/23/2011 103
New Orleans LA Homewood Suites Dimension 3/1/2014 166
Andover MA SpringHill Suites Marriott 11/5/2010 136
Marlborough MA Residence Inn True North 3/1/2014 112
Westford MA Hampton True North 3/1/2014 110
Westford MA Residence Inn True North 3/1/2014 108
Annapolis MD Hilton Garden Inn Crestline 3/1/2014 126
Silver Spring MD Hilton Garden Inn White Lodging 7/30/2010 107
Portland ME Residence Inn Crestline 10/13/2017 179 (1)
Novi MI Hilton Garden Inn White Lodging 11/2/2010 148
Maple Grove MN Hilton Garden Inn North Central 9/1/2016 120
Rochester MN Hampton Raymond 8/3/2009 124
St. Paul MN Hampton Vista Host 3/4/2019 160
Kansas City MO Hampton Raymond 8/31/2010 122
Kansas City MO Residence Inn True North 3/1/2014 106
St. Louis MO Hampton Raymond 8/31/2010 190
St. Louis MO Hampton Raymond 4/30/2010 126
Hattiesburg MS Courtyard LBA 3/1/2014 84
Hattiesburg MS Residence Inn LBA 12/11/2008 84
Carolina Beach NC Courtyard Crestline 3/1/2014 144
Charlotte NC Fairfield Newport 9/1/2016 94
Charlotte NC Homewood Suites McKibbon 9/24/2008 118
Durham NC Homewood Suites McKibbon 12/4/2008 122
Fayetteville NC Home2 Suites LBA 2/3/2011 118
Fayetteville NC Residence Inn LBA 3/1/2014 92
Greensboro NC SpringHill Suites Newport 3/1/2014 82
Jacksonville NC Home2 Suites LBA 9/1/2016 105
Wilmington NC Fairfield Crestline 3/1/2014 122
Winston-Salem NC Hampton McKibbon 9/1/2016 94
Omaha NE Courtyard Marriott 3/1/2014 181
Omaha NE Hampton White Lodging 9/1/2016 139
Omaha NE Hilton Garden Inn White Lodging 9/1/2016 178
Omaha NE Homewood Suites White Lodging 9/1/2016 123
Cranford NJ Homewood Suites Dimension 3/1/2014 108
Mahwah NJ Homewood Suites Dimension 3/1/2014 110
Mount Laurel NJ Homewood Suites Newport 1/11/2011 118
Somerset NJ Courtyard Newport 3/1/2014 162
West Orange NJ Courtyard Newport 1/11/2011 131
Islip/Ronkonkoma NY Hilton Garden Inn Crestline 3/1/2014 165
New York NY Independent Highgate 3/1/2014 208
Syracuse NY Courtyard Crestline 10/16/2015 102
Syracuse NY Residence Inn Crestline 10/16/2015 78
Mason OH Hilton Garden Inn Raymond 9/1/2016 110
Twinsburg OH Hilton Garden Inn Interstate 10/7/2008 142
31--------------------------------------------------------------------------------
Index
Date
Acquired
or
City State Brand Manager Completed Rooms
Oklahoma City OK Hampton Raymond 5/28/2010 200
Oklahoma City OK Hilton Garden Inn Raymond 9/1/2016 155
Oklahoma City OK Homewood Suites Raymond 9/1/2016 100
Oklahoma City (West) OK Homewood Suites Chartwell 9/1/2016 90
Collegeville/Philadelphia PA Courtyard White Lodging 11/15/2010 132
Malvern/Philadelphia PA Courtyard White Lodging 11/30/2010 127
Pittsburgh PA Hampton Newport 12/31/2008 132
Charleston SC Home2 Suites LBA 9/1/2016 122
Columbia SC Hilton Garden Inn Newport 3/1/2014 143
Columbia SC TownePlace Suites Newport 9/1/2016 91
Greenville SC Residence Inn McKibbon 3/1/2014 78
Hilton Head SC Hilton Garden Inn McKibbon 3/1/2014 104
Chattanooga TN Homewood Suites LBA 3/1/2014 76
Franklin TN Courtyard Chartwell 9/1/2016 126
Franklin TN Residence Inn Chartwell 9/1/2016 124
Jackson TN Hampton Vista Host 12/30/2008 85
Johnson City TN Courtyard LBA 9/25/2009 90
Knoxville TN Homewood Suites McKibbon 9/1/2016 103
Knoxville TN SpringHill Suites McKibbon 9/1/2016 103
Knoxville TN TownePlace Suites McKibbon 9/1/2016 97
Memphis TN Hampton Crestline 2/5/2018 144
Memphis TN Homewood Suites Hilton 3/1/2014 140
Nashville TN Hilton Garden Inn Vista Host 9/30/2010 194
Nashville TN Home2 Suites Vista Host 5/31/2012 119
Nashville TN TownePlace Suites LBA 9/1/2016 101
Addison TX SpringHill Suites Marriott 3/1/2014 159
Allen TX Hampton Interstate 9/26/2008 103
Allen TX Hilton Garden Inn Interstate 10/31/2008 150
Arlington TX Hampton Western 12/1/2010 98
Austin TX Courtyard White Lodging 11/2/2010 145
Austin TX Fairfield White Lodging 11/2/2010 150
Austin TX Hampton Vista Host 4/14/2009 124
Austin TX Hilton Garden Inn White Lodging 11/2/2010 117
Austin TX Homewood Suites Vista Host 4/14/2009 97
Austin/Round Rock TX Homewood Suites Vista Host 9/1/2016 115
Beaumont TX Residence Inn Western 10/29/2008 133
Burleson/Fort Worth TX Hampton LBA 10/7/2014 88
Dallas TX Homewood Suites Western 9/1/2016 130
Denton TX Homewood Suites Chartwell 9/1/2016 107
El Paso TX Hilton Garden Inn Western 12/19/2011 145
El Paso TX Homewood Suites Western 3/1/2014 114
Fort Worth TX Courtyard LBA 2/2/2017 124
Fort Worth TX TownePlace Suites Western 7/19/2010 140
Frisco TX Hilton Garden Inn Western 12/31/2008 102
Grapevine TX Hilton Garden Inn Western 9/24/2010 110
Houston TX Courtyard LBA 9/1/2016 124
Houston TX Marriott Western 1/8/2010 206
Houston TX Residence Inn Western 3/1/2014 129
Houston TX Residence Inn Western 9/1/2016 120
Irving TX Homewood Suites Western 12/29/2010 77
Lewisville TX Hilton Garden Inn Interstate 10/16/2008 165
Round Rock TX Hampton Vista Host 3/6/2009 94
San Antonio TX TownePlace Suites Western 3/1/2014 106
32--------------------------------------------------------------------------------
Index
Date
Acquired
or
City State Brand Manager Completed Rooms
Shenandoah TX Courtyard LBA 9/1/2016 124
Stafford TX Homewood Suites Western 3/1/2014 78
Texarkana TX Hampton Aimbridge 1/31/2011 81
Provo UT Residence Inn Dimension 3/1/2014 114
Salt Lake City UT Residence Inn Huntington 10/20/2017 136
Salt Lake City UT SpringHill Suites White Lodging 11/2/2010 143
Alexandria VA Courtyard Marriott 3/1/2014 178
Alexandria VA SpringHill Suites Marriott 3/28/2011 155
Charlottesville VA Courtyard Crestline 3/1/2014 139
Manassas VA Residence Inn Crestline 2/16/2011 107
Richmond VA Independent Crestline 10/9/2019 55
Richmond VA Courtyard White Lodging 12/8/2014 135
Richmond VA Marriott White Lodging 3/1/2014 410
Richmond VA Residence Inn White Lodging 12/8/2014 75
Richmond VA SpringHill Suites McKibbon 9/1/2016 103
Suffolk VA Courtyard Crestline 3/1/2014 92
Suffolk VA TownePlace Suites Crestline 3/1/2014 72
Virginia Beach VA Courtyard Crestline 3/1/2014 141
Virginia Beach VA Courtyard Crestline 3/1/2014 160
Kirkland WA Courtyard InnVentures 3/1/2014 150
Seattle WA Residence Inn InnVentures 3/1/2014 234
Tukwila WA Homewood Suites Dimension 3/1/2014 106
Vancouver WA SpringHill Suites InnVentures 3/1/2014 119
Total 29,535
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(1) Manager noted was effective as of
Related Parties The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm's length and the results of the Company's operations may be different if these transactions were conducted with non-related parties. See Note 6 titled "Related Parties" in the Company's Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning the Company's related party transactions.
Liquidity and Capital Resources
Capital Resources Prior to the impact of COVID-19, the Company's principal short term sources of liquidity were the operating cash flows generated from the Company's properties and availability under its revolving credit facility. Periodically, the Company may have received proceeds from strategic additional secured and unsecured debt financing, dispositions of its hotel properties (such as the sale of two hotels in the first quarter of 2020 for proceeds of approximately$45 million discussed above in "2020 Portfolio Activities") and offerings of the Company's common shares. As a result of the deterioration of the Company's operating cash flows from declines in occupancy caused by COVID-19, the Company anticipates significantly reduced cash from operations until travel increases in theU.S. To increase readily available liquidity, inMarch 2020 , the Company drew down the remaining availability under its$425 million revolving credit facility and had available cash of approximately$437 million as ofMarch 31, 2020 . The Company has also taken several steps to preserve capital and increase liquidity, including postponing approximately$50 million of non-essential capital improvements and suspending its monthly distributions. The Company anticipates funding its near-term cash needs with cash on hand. As ofMarch 31, 2020 , the Company had$1.8 billion of total outstanding debt consisting of$500.0 million of mortgage debt and$1.3 billion outstanding under its credit facilities, excluding unamortized debt issuance costs and fair value adjustments. The Company, as discussed above, has drawn all of its borrowing capacity under its$425 million revolving credit facility as ofMarch 31, 2020 . In the near term, the impact of COVID-19 on the global economy, including any sustained decline in the Company's performance, may make it more difficult or costly for the Company to raise debt or equity capital to fund long-term liquidity requirements. 33
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Index
The credit agreements governing the credit facilities contain mandatory prepayment requirements, customary affirmative and negative covenants and events of default. The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios and restrictions on certain investments. The Company was in compliance with the applicable covenants atMarch 31, 2020 . As a result of COVID-19 and the associated disruption to the Company's operating results, the Company anticipates that it may not be in compliance with certain of these covenants in future periods. InApril 2020 , the Company notified the lenders under its credit facilities of the anticipated non-compliance with certain covenants and anticipates entering into amendments to each of the credit facilities that will provide for waivers of each of the covenants for four quarters beginning with the quarter endingJune 30, 2020 . The terms of the amendments are expected to include minimum liquidity requirements and restrictions on the amount of the Company's distributions, capital expenditures, share repurchases and acquisitions among other items during the covenant relief period. Additionally, the Company anticipates the amendments to require the interest rate under its credit facilities to increase, during the covenant relief period, to the highest interest rate margin under each of the credit agreements which would range from 75-80 basis points of an increase above current margins depending on the agreement. Although the Company anticipates completing these amendments, there are many conditions to closing, including but not limited to finalizing the terms of the amendments and completing the amendments themselves, and there can be no assurances that the Company will be able to complete the amendments with the noted terms or at all. If the amendments are not entered into, as currently anticipated, and the Company does not meet the covenant requirements in future periods, the Company will be in default under each credit facility, which may result in a potential acceleration of amounts due under each credit facility, which would have a material adverse effect on the Company if it is unable to obtain alternative sources of capital to repay such amounts. See Note 4 titled "Debt" in the Company's Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for a description of the Company's debt instruments as ofMarch 31, 2020 . The Company has a universal shelf registration statement on Form S-3 (No. 333-231021) that was automatically effective upon filing onApril 25, 2019 . The Company may offer an indeterminate number or amount, as the case may be, of (1) common shares, no par value per share; (2) preferred shares, no par value per share; (3) depository shares representing the Company's preferred shares; (4) warrants exercisable for the Company's common shares, preferred shares or depository shares representing preferred shares; (5) rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended. Future offerings will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company's common shares and opportunities for uses of any proceeds. During April andMay 2020 , the Company applied for and received approximately$18 million in loans under the CARES Act Paycheck Protection Program. Due to subsequent guidance issued by theSmall Business Administration and theDepartment of Treasury , related to the intended participants in this program, the Company repaid all amounts received. The Company will continue to evaluate relief initiatives and stimulus packages, including any accompanying restrictions on its business that would be imposed by such packages, that may be or become available to the Company under government stimulus programs. Capital Uses Although there can be no assurances, the Company anticipates that available cash of$437.3 million as ofMarch 31, 2020 , will be adequate to meet near-term anticipated operating cash flow deficits resulting from the effect of COVID-19, debt service, hotel acquisitions and capital expenditures. However, if the Company is unable to meet these near term anticipated capital uses, it is unable to obtain the covenant waivers noted above and the lenders accelerate the amounts due under the credit facilities or if the Company is unable to refinance maturing debt in the future, it may need to raise capital through disposition of assets, issuance of equity or issuance of debt, which may be more costly to the Company in the current environment. Distributions To maintain its REIT status, the Company is required to distribute at least 90% of its ordinary income. Distributions paid during the three months endedMarch 31, 2020 totaled approximately$67.3 million or$0.30 per common share and were paid at a monthly rate of$0.10 per common share. For the same period, the Company's net cash generated from operations was approximately$33.3 million . This shortfall includes a return of capital and was funded primarily by borrowings on the Company's revolving credit facility. InMarch 2020 , the Company announced the suspension of its monthly distributions as a result of COVID-19 and the impact on its business. Subject to the distribution restrictions discussed above anticipated to be a condition to the proposed amendments to the Company's unsecured credit facilities during the covenant relief period, the Company's Board of Directors, in consultation with management, will continue to monitor hotel operations and intends to resume monthly distributions at a time and level determined to be prudent in relation to the Company's other cash requirements. 34
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Index Share Repurchases InMay 2020 , the Company's Board of Directors approved an extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of$345 million . The Share Repurchase Program may be suspended or terminated at any time by the Company and will end inJuly 2021 if not terminated earlier. During the first three months of 2020 and 2019, the Company purchased, under its Share Repurchase Program, approximately 1.5 million and 0.3 million of its common shares, respectively, at a weighted-average market purchase price of approximately$9.42 and$14.93 per common share, respectively, for an aggregate purchase price, including commissions, of approximately$14.3 million and$4.1 million , respectively. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash on hand or availability under its credit facilities. The shares were repurchased under a written trading plan that provided for share repurchases in open market transactions, and was intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. InMarch 2020 the Company terminated its written trading plan under the Share Repurchase Program. The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will depend upon prevailing market conditions, regulatory requirements and other factors. As ofMarch 31, 2020 , approximately$345.4 million remained available for purchase under the Share Repurchase Program. As discussed above, the Company anticipates a restriction on share repurchases during the covenant relief period to be a condition to the proposed amendments to the Company's unsecured credit facilities. Capital Improvements The Company has ongoing capital commitments to fund its capital improvements. To maintain and enhance each property's competitive position in its market, the Company has invested in and, subject to improved operating results, plans to continue to reinvest in its hotels. Under certain loan and management agreements, the Company is required to place in escrow funds for the repair, replacement and refurbishing of furniture, fixtures, and equipment, based on a percentage of gross revenues, provided that such amount may be used for the Company's capital expenditures with respect to the hotels. As ofMarch 31, 2020 , the Company held$30.3 million in reserve related to these properties. During the three months endedMarch 31, 2020 , the Company invested approximately$23.9 million in capital expenditures, and anticipates spending an additional$10 million to$15 million during the remainder of 2020. This estimate is approximately$50 million less than originally planned for the entire year of 2020 as the Company has postponed all planned non-essential capital improvements in order to maintain a sound liquidity position as a result of COVID-19. The Company does not currently have any existing or planned projects for new property development.Hotel Contract Commitments As ofMarch 31, 2020 , the Company had outstanding contracts, all of which were entered into prior to 2020, for the potential purchase of six newly developed hotels for a total expected purchase price of approximately$208.8 million . Two of the hotels, the newly developedHampton Inn & Suites and Home2 Suites inCape Canaveral, Florida , a combined 224-room dual-branded complex, were acquired inApril 2020 for a gross purchase price of approximately$46.7 million . Additionally, inMay 2020 , the contract to purchase the Courtyard hotel inDenver, Colorado for$49.1 million was terminated. The three remaining hotels (with a total expected purchase price of approximately$113.0 million ) are under development and are planned to be completed and opened for business over the next five to 15 months fromMarch 31, 2020 , at which time closings on these hotels are expected to occur. Although the Company is working towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance that closings on these hotels will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under these contracts. As the properties are under development, at this time, the sellers have not met all of the conditions to closing. As discussed above, the Company utilized$25.0 million of available cash and entered into a$21.7 million one-year note payable with the developer to fund the purchase of theCape Canaveral, Florida hotels and plans to utilize its available cash at closing to purchase the remaining hotels under contract if closings occur. Cash Management Activities As part of the cost sharing arrangements discussed in Note 6 titled "Related Parties" in the Company's Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under the cash management process, each company may advance or defer up to$1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies. 35
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Index Business Interruption Being in the real estate industry, the Company is exposed to natural disasters on both a local and national scale. Although management believes there is adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Company's financial position or results of operations. Seasonality The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company's hotels may cause quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters, however, due to the effects of COVID-19, these typical seasonal patterns may not occur in 2020. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements. New Accounting Standards See Note 1 titled "Organization and Summary of Significant Accounting Policies" in the Company's Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for information on the adoption of the new fair value measurement accounting standard onJanuary 1, 2020 and the guidance in the reference rate reform accounting standard effective inMarch 2020 . Subsequent Events OnApril 30, 2020 , the Company closed on the purchase of the newly developedHampton Inn & Suites and Home2 Suites inCape Canaveral, Florida , a combined 224-room dual-branded complex, for a gross purchase price of approximately$46.7 million . The Company utilized$25.0 million of its available cash and entered into a one-year note payable with the developer secured by the hotels for$21.7 million to fund the purchase price of theCape Canaveral, Florida hotels. The note payable bears interest, which is payable monthly, at a floating annual rate equal to one-month LIBOR plus a margin of 2.0% for the first six months of the loan term and 3.0% for the second six months of the loan term.
In
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