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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______

 

Commission File Number 001-37389

APPLE HOSPITALITY REIT, INC.

(Exact name of registrant as specified in its charter)

 

Virginia

 

26-1379210

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

814 East Main Street

Richmond, Virginia

 

23219

(Address of principal executive offices)   

 

(Zip Code)

 

(804) 344-8121

(Registrant's telephone number, including area code) 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Shares, no par value

 

APLE

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer                  

 

Non-accelerated filer      

Smaller reporting company

Emerging growth company 

                    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 

Number of registrant’s common shares outstanding as of August 2, 2021: 228,340,959

 

 

 

 


 

 

Apple Hospitality REIT, Inc.

Form 10-Q

Index

 

 

 

 

Page

Number

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

 

 

Consolidated Balance Sheets – June 30, 2021 and December 31, 2020

3

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) – three and six months ended June 30, 2021 and 2020

4

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity – three and six months ended June 30, 2021 and 2020

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows – six months ended June 30, 2021 and 2020

6

 

 

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

42

 

 

 

 

 

Item 6.

Exhibits

42

 

 

 

 

Signatures

43

 

This Form 10-Q includes references to certain trademarks or service marks. The AC Hotels by Marriott®, Aloft Hotels®, Courtyard by Marriott®, Fairfield by Marriott®, Marriott® Hotels, Residence Inn by Marriott®, SpringHill Suites by Marriott® and TownePlace Suites by Marriott® trademarks are the property of Marriott International, Inc. or one of its affiliates. The Embassy Suites by Hilton®, Hampton by Hilton®, Hampton Inn by Hilton®, Hampton Inn & Suites by Hilton®, Hilton Garden Inn®, Home2 Suites by Hilton® and Homewood Suites by Hilton® trademarks are the property of Hilton Worldwide Holdings Inc. or one or more of its affiliates. The Hyatt®, Hyatt House® and Hyatt Place® trademarks are the property of Hyatt Hotels Corporation or one or more of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.

 


Index

 

PART I. FINANCIAL INFORMATION 

Item 1. Financial Statements

Apple Hospitality REIT, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Investment in real estate, net of accumulated depreciation and amortization of

   $1,228,937 and $1,235,698, respectively

 

$

4,459,866

 

 

$

4,732,896

 

Assets held for sale

 

 

208,026

 

 

 

5,316

 

Cash and cash equivalents

 

 

2,899

 

 

 

5,556

 

Restricted cash-furniture, fixtures and other escrows

 

 

31,215

 

 

 

28,812

 

Due from third party managers, net

 

 

54,296

 

 

 

22,137

 

Other assets, net

 

 

36,084

 

 

 

35,042

 

Total Assets

 

$

4,792,386

 

 

$

4,829,759

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Debt, net

 

$

1,396,408

 

 

$

1,482,571

 

Finance lease liabilities

 

 

222,081

 

 

 

219,981

 

Accounts payable and other liabilities

 

 

79,574

 

 

 

97,860

 

Total Liabilities

 

 

1,698,063

 

 

 

1,800,412

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

Preferred stock, authorized 30,000,000 shares; none issued and outstanding

 

 

-

 

 

 

-

 

Common stock, no par value, authorized 800,000,000 shares; issued and outstanding

   228,340,959 and 223,212,346 shares, respectively

 

 

4,569,332

 

 

 

4,488,419

 

Accumulated other comprehensive loss

 

 

(28,076

)

 

 

(42,802

)

Distributions greater than net income

 

 

(1,446,933

)

 

 

(1,416,270

)

Total Shareholders' Equity

 

 

3,094,323

 

 

 

3,029,347

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders' Equity

 

$

4,792,386

 

 

$

4,829,759

 

 

See notes to consolidated financial statements.

3


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Room

 

$

231,166

 

 

$

76,828

 

 

$

379,647

 

 

$

294,807

 

Food and beverage

 

 

5,088

 

 

 

839

 

 

 

7,871

 

 

 

12,151

 

Other

 

 

11,150

 

 

 

3,411

 

 

 

18,599

 

 

 

12,130

 

Total revenue

 

 

247,404

 

 

 

81,078

 

 

 

406,117

 

 

 

319,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating

 

 

53,186

 

 

 

19,707

 

 

 

91,336

 

 

 

87,736

 

Hotel administrative

 

 

21,538

 

 

 

13,811

 

 

 

39,282

 

 

 

37,454

 

Sales and marketing

 

 

20,380

 

 

 

9,430

 

 

 

35,268

 

 

 

33,789

 

Utilities

 

 

9,352

 

 

 

6,308

 

 

 

19,912

 

 

 

15,498

 

Repair and maintenance

 

 

11,886

 

 

 

6,348

 

 

 

22,111

 

 

 

18,141

 

Franchise fees

 

 

10,865

 

 

 

3,656

 

 

 

17,784

 

 

 

13,913

 

Management fees

 

 

8,203

 

 

 

2,557

 

 

 

13,457

 

 

 

10,552

 

Total hotel operating expense

 

 

135,410

 

 

 

61,817

 

 

 

239,150

 

 

 

217,083

 

Property taxes, insurance and other

 

 

17,321

 

 

 

18,702

 

 

 

37,009

 

 

 

38,297

 

General and administrative

 

 

8,435

 

 

 

6,025

 

 

 

16,554

 

 

 

15,548

 

Loss on impairment of depreciable real estate assets

 

 

-

 

 

 

4,382

 

 

 

10,754

 

 

 

4,382

 

Depreciation and amortization

 

 

46,386

 

 

 

49,897

 

 

 

95,096

 

 

 

99,419

 

Total expense

 

 

207,552

 

 

 

140,823

 

 

 

398,563

 

 

 

374,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on sale of real estate

 

 

(864

)

 

 

(54

)

 

 

3,620

 

 

 

8,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

38,988

 

 

 

(59,799

)

 

 

11,174

 

 

 

(46,856

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other expense, net

 

 

(18,618

)

 

 

(18,386

)

 

 

(37,131

)

 

 

(33,952

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

20,370

 

 

 

(78,185

)

 

 

(25,957

)

 

 

(80,808

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(87

)

 

 

(58

)

 

 

(195

)

 

 

(204

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

20,283

 

 

$

(78,243

)

 

$

(26,152

)

 

$

(81,012

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivatives

 

 

(1,356

)

 

 

(4,195

)

 

 

14,726

 

 

 

(46,361

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

18,927

 

 

$

(82,438

)

 

$

(11,426

)

 

$

(127,373

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per common share

 

$

0.09

 

 

$

(0.35

)

 

$

(0.12

)

 

$

(0.36

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

224,772

 

 

 

223,278

 

 

 

224,255

 

 

 

223,786

 

 

See notes to consolidated financial statements.

4


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Shareholders' Equity

(Unaudited)

(in thousands, except per share data)

 

Three Months Ended June 30, 2021 and 2020

 

 

 

Common Stock

 

 

Accumulated

Other

 

 

Distributions

 

 

 

 

 

 

 

Number

of Shares

 

 

Amount

 

 

Comprehensive

Income (Loss)

 

 

Greater Than

Net Income

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

223,656

 

 

$

4,493,422

 

 

$

(26,720

)

 

$

(1,464,937

)

 

$

3,001,765

 

Share based compensation, net

 

 

8

 

 

 

843

 

 

 

-

 

 

 

-

 

 

 

843

 

Issuance of common shares, net

 

 

4,677

 

 

 

75,067

 

 

 

-

 

 

 

-

 

 

 

75,067

 

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

(1,356

)

 

 

-

 

 

 

(1,356

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,283

 

 

 

20,283

 

Distributions declared to shareholders ($0.01 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,279

)

 

 

(2,279

)

Balance at June 30, 2021

 

 

228,341

 

 

$

4,569,332

 

 

$

(28,076

)

 

$

(1,446,933

)

 

$

3,094,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

 

223,017

 

 

$

4,487,441

 

 

$

(46,864

)

 

$

(1,245,773

)

 

$

3,194,804

 

Share based compensation, net

 

 

207

 

 

 

593

 

 

 

-

 

 

 

-

 

 

 

593

 

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

(4,195

)

 

 

-

 

 

 

(4,195

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(78,243

)

 

 

(78,243

)

Balance at June 30, 2020

 

 

223,224

 

 

$

4,488,034

 

 

$

(51,059

)

 

$

(1,324,016

)

 

$

3,112,959

 

 

Six Months Ended June 30, 2021 and 2020

 

 

 

Common Stock

 

 

Accumulated

Other

 

 

Distributions

 

 

 

 

 

 

 

Number

of Shares

 

 

Amount

 

 

Comprehensive

Income (Loss)

 

 

Greater Than

Net Income

 

 

Total

 

Balance at December 31, 2020

 

 

223,212

 

 

$

4,488,419

 

 

$

(42,802

)

 

$

(1,416,270

)

 

$

3,029,347

 

Share based compensation, net

 

 

452

 

 

 

5,847

 

 

 

-

 

 

 

-

 

 

 

5,847

 

Issuance of common shares, net

 

 

4,677

 

 

 

75,066

 

 

 

-

 

 

 

-

 

 

 

75,066

 

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

14,726

 

 

 

-

 

 

 

14,726

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(26,152

)

 

 

(26,152

)

Distributions declared to shareholders ($0.02 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,511

)

 

 

(4,511

)

Balance at June 30, 2021

 

 

228,341

 

 

$

4,569,332

 

 

$

(28,076

)

 

$

(1,446,933

)

 

$

3,094,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

223,863

 

 

$

4,493,763

 

 

$

(4,698

)

 

$

(1,198,052

)

 

$

3,291,013

 

Share based compensation, net

 

 

882

 

 

 

8,607

 

 

 

-

 

 

 

-

 

 

 

8,607

 

Common shares repurchased

 

 

(1,521

)

 

 

(14,336

)

 

 

-

 

 

 

-

 

 

 

(14,336

)

Interest rate derivatives

 

 

-

 

 

 

-

 

 

 

(46,361

)

 

 

-

 

 

 

(46,361

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(81,012

)

 

 

(81,012

)

Distributions declared to shareholders ($0.20 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(44,952

)

 

 

(44,952

)

Balance at June 30, 2020

 

 

223,224

 

 

$

4,488,034

 

 

$

(51,059

)

 

$

(1,324,016

)

 

$

3,112,959

 

 

See notes to consolidated financial statements.

5


Index

 

Apple Hospitality REIT, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(26,152

)

 

$

(81,012

)

Adjustments to reconcile net loss to cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

95,096

 

 

 

99,419

 

Loss on impairment of depreciable real estate assets

 

 

10,754

 

 

 

4,382

 

Gain on sale of real estate

 

 

(3,620

)

 

 

(8,785

)

Other non-cash expenses, net

 

 

5,493

 

 

 

4,802

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Decrease (increase) in due from third party managers, net

 

 

(32,157

)

 

 

2,029

 

Decrease (increase) in other assets, net

 

 

145

 

 

 

(270

)

Increase (decrease) in accounts payable and other liabilities

 

 

214

 

 

 

(8,016

)

Net cash provided by operating activities

 

 

49,773

 

 

 

12,549

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of hotel properties, net

 

 

(49,345

)

 

 

(25,095

)

Refunds (payments) for potential acquisitions, net

 

 

(2,375

)

 

 

416

 

Capital improvements

 

 

(4,906

)

 

 

(38,296

)

Net proceeds from sale of real estate

 

 

22,765

 

 

 

44,382

 

Net cash used in investing activities

 

 

(33,861

)

 

 

(18,593

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds related to issuance of common shares

 

 

75,066

 

 

 

-

 

Repurchases of common shares

 

 

-

 

 

 

(14,336

)

Repurchases of common shares to satisfy employee withholding requirements

 

 

(1,650

)

 

 

(1,748

)

Distributions paid to common shareholders

 

 

(2,232

)

 

 

(67,324

)

Net proceeds from (payments on) revolving credit facility

 

 

(23,800

)

 

 

148,800

 

Proceeds from term loans and senior notes

 

 

-

 

 

 

50,000

 

Proceeds from mortgage debt and other loans

 

 

-

 

 

 

81,520

 

Payments of mortgage debt and other loans

 

 

(62,049

)

 

 

(39,170

)

Financing costs

 

 

(1,501

)

 

 

(2,185

)

Net cash provided by (used in) financing activities

 

 

(16,166

)

 

 

155,557

 

 

 

 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

 

(254

)

 

 

149,513

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

34,368

 

 

 

34,661

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

 

$

34,114

 

 

$

184,174

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

35,336

 

 

$

29,598

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Notes payable originated from acquisitions

 

$

-

 

 

$

21,704

 

Accrued distribution to common shareholders

 

$

2,279

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

5,556

 

 

$

-

 

Restricted cash-furniture, fixtures and other escrows, beginning of period

 

 

28,812

 

 

 

34,661

 

Cash, cash equivalents and restricted cash, beginning of period

 

$

34,368

 

 

$

34,661

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

2,899

 

 

$

156,461

 

Restricted cash-furniture, fixtures and other escrows, end of period

 

 

31,215

 

 

 

27,713

 

Cash, cash equivalents and restricted cash, end of period

 

$

34,114

 

 

$

184,174

 

 

See notes to consolidated financial statements.

 

6


Index

 

 

Apple Hospitality REIT, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization          

Apple Hospitality REIT, Inc., together with its wholly-owned subsidiaries (the “Company”), is a Virginia corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. The Company is a self-advised REIT that invests in income-producing real estate, primarily in the lodging sector, in the United States (“U.S.”). The Company’s fiscal year end is December 31. The Company has no foreign operations or assets and its operating structure includes only one reportable segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does not have any elements of power in the decision-making process of these entities, and therefore does not consolidate the entities. As of June 30, 2021, the Company owned 232 hotels with an aggregate of 29,753 rooms located in 35 states, including 20 hotels with 2,133 rooms classified as held for sale, which were sold to an unrelated party in July 2021. The Company’s common shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.”

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include all of the information required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2021.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Novel Coronavirus COVID-19 Pandemic 

As a result of the current novel coronavirus COVID-19 pandemic (“COVID-19”) and the impact it has had on travel and the broader economy throughout the U.S. since March 2020, the Company’s hotels have experienced significant declines in occupancy, which have had and are expected to continue to have a significant negative effect on the Company’s revenue and operating results. While occupancy has recovered significantly during the first six months of 2021, there remains significant uncertainty as to when or if operations at the hotels will return to pre-pandemic levels.

Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net income (loss) per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. Basic and diluted net income (loss) per common share were the same for each of the periods presented.

Accounting Standards Recently Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance through December 31, 2022 to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. In January 2021, the FASB issued 2021-01, Reference Rate Reform (Topic 848), Scope, which further clarified the scope of the reference rate reform optional practical expedients and exceptions outlined in Topic 848. The amendments in ASU Nos. 2020-04 and 2021-01 apply to contract modifications that replace a reference rate affected by reference rate reform, providing optional expedients regarding the measurement of hedge effectiveness in hedging relationships that have been modified to replace a reference rate. The guidance in ASU Nos. 2020-04 and 2021-01 became effective upon issuance and the provisions of the ASUs have not had a material impact on the Company’s consolidated financial statements and related disclosures as of June 30, 2021. The provisions of these updates will generally affect the Company by allowing, among other things, the following:

7


Index

 

 

Allowing modifications of the Company’s unsecured credit facilities (as defined below) to replace the London Interbank Offered Rate (LIBOR) with a substitute index to be accounted for as a non-substantial modification and not be considered a debt extinguishment.

 

Allowing changes to the floating interest rate index used in the Company’s interest rate swaps to not be considered a change to the critical terms of the hedge and therefore not requiring a dedesignation of the hedging relationship.

 

The Company has not entered into any contract modifications yet as it directly relates to reference rate reform but anticipates having to undertake such modifications in the future as a majority of the Company’s unsecured credit facilities and interest rate swaps are indexed to LIBOR.

Accounting Standards Recently Issued

 

Accounting for Certain Equity Options

In May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (Topics 260, 470, 718 and 815), which provides updated guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The provisions of this update are effective for annual and interim periods beginning after December 15, 2021. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

2. Investment in Real Estate

The Company’s investment in real estate consisted of the following (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Land

 

$

692,586

 

 

$

725,512

 

Building and improvements

 

 

4,313,527

 

 

 

4,525,850

 

Furniture, fixtures and equipment

 

 

466,206

 

 

 

499,865

 

Finance ground lease assets

 

 

203,617

 

 

 

203,617

 

Franchise fees

 

 

12,867

 

 

 

13,750

 

 

 

 

5,688,803

 

 

 

5,968,594

 

Less accumulated depreciation and amortization

 

 

(1,228,937

)

 

 

(1,235,698

)

Investment in real estate, net

 

$

4,459,866

 

 

$

4,732,896

 

 

As of June 30, 2021, the Company owned 232 hotels with an aggregate of 29,753 rooms located in 35 states, including 20 hotels with 2,133 rooms classified as held for sale, which were sold to an unrelated party in July 2021.

The Company leases all of its hotels to its wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under master hotel lease agreements.

Hotel Acquisitions

The Company acquired one hotel during the six months ended June 30, 2021. The hotel was a newly developed 176-room Hilton Garden Inn in Madison, Wisconsin managed by Raymond and purchased for $49.6 million on February 18, 2021.

 

During the year ended December 31, 2020, the Company acquired four hotels, including two hotels during the six months ended June 30, 2020. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price, excluding transaction costs, for each hotel. All dollar amounts are in thousands.

 

City

 

State

 

Brand

 

Manager

 

Date

Acquired

 

Rooms

 

 

Gross

Purchase

Price

 

Cape Canaveral

 

FL

 

Hampton