Apple Hospitality REIT Inc

Previous wording

The Company is a Virginia corporation that has elected to be treated as a REIT for U.S. federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the U.S. As of June 30, 2024, the Company owned 224 hotels with an aggregate of 30,068 guest rooms located in urban, high-end suburban and developing markets throughout 37 states and the District of Columbia. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 16 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.”

Current wording

The Company is a Virginia corporation that has elected to be treated as a REIT for U.S. federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the U.S. As of September 30, 2024, the Company owned 224 hotels with an aggregate of 30,068 guest rooms located in urban, high-end suburban and developing markets throughout 37 states and the District of Columbia, including one hotel with 90 guest rooms classified as held for sale, which is expected to be sold to an unrelated party in November 2024. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 16 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.”

Previous wording

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, during the six months ended June 30, 2024, the Company acquired two hotels for an aggregate purchase price of $196.3 million: an existing 234-guest-room AC Hotel in Washington, D.C. and a 262-guest-room Embassy Suites in Madison, Wisconsin that was purchased at the completion of development. The Company utilized its proceeds from the sale of three properties and borrowings under its Revolving Credit Facility to fund these recently completed acquisitions.

Current wording

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, during the nine months ended September 30, 2024, the Company acquired two hotels for an aggregate purchase price of $196.3 million: an existing 234-guest-room AC Hotel in Washington, D.C. and a 262-guest-room Embassy Suites in Madison, Wisconsin that was purchased at the completion of development. The Company utilized proceeds from the sale of three properties and borrowings under its Revolving Credit Facility to fund these recently completed acquisitions.

Previous wording

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 six months ended June 30, 2024, the Company sold three hotels in two separate transactions with unrelated parties for a combined gross sales price of approximately $40.6 million, resulting in a combined gain on the sale of approximately $18.2 million, net of transaction costs. The Company used a portion of the net proceeds from the sale of two of the hotels to complete a like-kind exchange, in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, for the acquisition of the AC Hotel in Washington, D.C., which was completed in March 2024.

Current wording

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 nine months ended September 30, 2024, the Company sold three hotels in two separate transactions with unrelated parties for a combined gross sales price of approximately $40.6 million, resulting in a combined gain on the sales of approximately $18.2 million, net of transaction costs. The Company used a portion of the net proceeds from the sale of two of the hotels to complete a like-kind exchange, in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, for the acquisition of the AC Hotel in Washington, D.C., which was completed in March 2024. As of September 30, 2024, the Company had an outstanding contract to sell one of its hotels for a gross sales price of approximately $3.1 million, which is expected to be completed in November 2024. Subsequent to the end of the quarter, in October 2024, the Company entered into three purchase and sale agreements with unrelated parties for the sale of three hotels for a combined gross sales price of $28.0 million. The Company expects to complete the sales of these hotels in late 2024 or early 2025. There are many conditions to closing on the sales of these hotels that have not yet been satisfied, and there can be no assurance that closings on the sales of these hotels will occur under the outstanding purchase and sale agreements.

Previous wording

See Note 2 titled “Investment in Real Estate” and Note 3 titled “Dispositions” 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.

Current wording

See Note 2 titled “Investment in Real Estate” and Note 3 titled “Assets Held for Sale and Dispositions” 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.

Previous wording

In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 guest rooms. Lease revenue from this property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result of the lease and transfer of possession to the operator, this property has been excluded from the Company’s hotel and guest room counts since May 2023. Results of the hotel operations for this property are included only for the period prior to the lease agreement becoming effective in May 2023. The Company has terminated the lease for failure to make lease payments timely, and in April 2024 commenced legal proceedings to remove the operator from possession of the hotel. The Company intends to enforce its rights under the lease and transition management of the hotel to a third-party manager, however, the removal process is still ongoing and the timing of the resolution of this matter and the transition of management operations cannot be predicted at this time.

Current wording

In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 guest rooms. Lease revenue from this property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result of the lease and transfer of possession to the operator, this property has been excluded from the Company’s hotel and guest room counts since May 2023. Results of the hotel operations for this property are included only for the period prior to the lease agreement becoming effective in May 2023. As a result of the operator's failure to make lease payments, the Company has commenced legal proceedings to remove the operator from possession of the hotel. The Company intends to enforce its rights under the lease and transition management of the hotel to a third-party manager, however, the removal process is still ongoing and the timing of the resolution of this matter and the transition of management operations cannot be predicted at this time.

Previous wording

As of June 30, 2024, the Company owned 224 hotels with a total of 30,068 guest rooms as compared to 220 hotels with a total of 28,929 guest rooms as of June 30, 2023. 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 six months ended June 30, 2024, the Company acquired two properties, including one existing hotel acquired on March 25, 2024 and one hotel acquired upon the completion of development on June 20, 2024. The Company sold three properties, two on February 9, 2024 and one on May 21, 2024. During the six months ended June 30, 2023, the Company acquired one existing hotel on June 30, 2023 and did not dispose of any properties.

Current wording

As of September 30, 2024, the Company owned 224 hotels, including one hotel classified as held for sale, with a total of 30,068 guest rooms as compared to 220 hotels with a total of 28,929 guest rooms as of September 30, 2023. 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 nine months ended September 30, 2024, the Company acquired two properties, including one existing hotel acquired on March 25, 2024 and one hotel acquired upon the completion of development on June 20, 2024. The Company sold three properties, two on February 9, 2024 and one on May 21, 2024. During the nine months ended September 30, 2023, the Company acquired one existing hotel on June 30, 2023 and did not dispose of any properties.

Previous wording

The following table reflects certain operating statistics for the Company’s 224 hotels owned as of June 30, 2024 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 224 hotels owned as of the end of the reporting period. For the hotels acquired during the reporting periods shown, 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.

Current wording

The following table reflects certain operating statistics for the Company’s 223 hotels owned and held for use as of September 30, 2024 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 223 hotels owned and held for use as of the end of the reporting period. For the hotels acquired during the reporting periods shown, 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 and assets held for sale, results have been excluded for the Company’s period of ownership.

Previous wording

The following table reflects certain operating statistics for the 216 hotels owned by the Company as of January 1, 2023 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.

Current wording

The following table reflects certain operating statistics for the 215 hotels owned and held for use by the Company as of January 1, 2023 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.

Previous wording

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. Economic indicators in the U.S. have generally been stable. As a result, the Company’s Comparable Hotels and Same Store Hotels revenue and operating results have generally remained unchanged to slightly improved during the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, which is consistent with the overall lodging industry. The Company expects its RevPAR growth and operating results for its Comparable Hotels for the full year of 2024 to be similar to its performance during the three months ended June 30, 2024, as opposed to its performance during the three months ended

Current wording

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. Economic indicators in the U.S. have generally been stable. As a result, the Company’s Comparable Hotels and Same Store Hotels revenue and operating results have generally remained unchanged during the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, which is consistent with the overall lodging industry. The Company expects its RevPAR growth and operating results for its Comparable Hotels for the full year of 2024, compared to the same period in 2023, to be similar to its performance during the nine months ended September 30, 2024, with modest growth and consistent trends in both business transient and leisure demand.

Previous wording

The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended June 30, 2024 and 2023, the Company had total revenue of $390.1 million and $361.6 million, respectively. For the six months ended June 30, 2024 and 2023 the Company had total revenue of $719.6 million and $673.1 million, respectively. For the three months ended June 30, 2024 and 2023, respectively, Comparable Hotels achieved combined average occupancy of 79.8% and 78.1%, ADR of $163.01 and $162.51 and RevPAR of $130.09 and $126.97. For the six months ended June 30, 2024 and 2023, respectively, Comparable Hotels achieved combined average occupancy of 76.0% and 75.2%, ADR of $158.83 and $158.53 and RevPAR of $120.63 and $119.15. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

Current wording

The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended September 30, 2024 and 2023, the Company had total revenue of $378.8 million and $358.3 million, respectively. For the nine months ended September 30, 2024 and 2023 the Company had total revenue of $1.1 billion and $1.0 billion, respectively. For the three months ended September 30, 2024 and 2023, respectively, Comparable Hotels achieved combined average occupancy of 77.0% and 77.3%, ADR of $162.66 and $160.78 and RevPAR of $125.30 and $124.25. For the nine months ended September 30, 2024 and 2023, respectively, Comparable Hotels achieved combined average occupancy of 76.4% and 75.9%, ADR of $160.19 and $159.37 and RevPAR of $122.32 and $120.98. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

Previous wording

Compared to the same periods in 2023, during the three and six months ended June 30, 2024, the Company experienced marginal increases in ADR while occupancy increased by 2.2% and 1.1%, respectively, resulting in increases of 2.5% and 1.2%, respectively, in RevPAR for Comparable Hotels. Revenue growth for the three and six months ended June 30, 2024, as compared to the same periods of 2023, was led by the additional hotels acquired in 2023 and 2024 and was supported by the continued strength in leisure transient and small group demand, with increased demand from corporate business for the portfolio. Revenue growth for the six months ended June 30, 2024, as compared to the same period of 2023, was partially offset by a challenging Super Bowl comparison, as discussed above. Markets with significant above average growth in the second quarter of 2024, compared to the same period in 2023, for the Company included Las Vegas, Houston, Phoenix and Louisville. Leisure demand, which has produced the strongest rate growth post pandemic, showed signs of increased rate sensitivity during the quarter and midweek rate growth came at lower absolute rates than those achieved on weekends, with the combined effect weighing on overall ADR growth for the quarter. Future revenues could be negatively impacted by, among other things, historical seasonal trends, deterioration of consumer sentiment, a recessionary macroeconomic environment or inflationary pressures.

Current wording

Compared to the same periods in 2023, during the three and nine months ended September 30, 2024, occupancy remained relatively flat while ADR increased by 2.0% and 1.4% respectively, resulting in increases of 1.8% and 2.0%, respectively, in RevPAR. Revenue growth for the three and nine months ended September 30, 2024, as compared to the same periods of 2023, was led by the additional hotels acquired in 2023 and 2024 and was supported by increased strength in business transient demand for the portfolio. Markets with significant above average growth in the third quarter of 2024, compared to the same period in 2023, for the Company included Chicago, Cape Canaveral, Anchorage, Houston and Omaha. Leisure demand, which has produced the strongest rate growth post pandemic, showed signs of increased rate sensitivity in some markets during the quarter, and midweek rate growth came at lower absolute rates than those achieved on weekends, with the combined effect weighing on overall ADR growth for the quarter. Future revenues could be negatively impacted by, among other things, historical seasonal trends, deterioration of consumer sentiment, a recessionary macroeconomic environment or inflationary pressures.

Previous wording

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 ended June 30, 2024 and 2023 totaled $216.3 million and $200.5 million, respectively, or 55.4% of total revenue for each period, and for the six months ended June 30, 2024 and 2023 hotel operating expense totaled $413.6 million and $385.7 million, respectively, or 57.5% and 57.3% of total revenue for the respective periods. The increases in hotel operating expense for the three and six months ended June 30, 2024, as compared to the same periods in 2023, were led by the additional hotels acquired in 2023 and 2024 and amplified by increased labor costs, repairs and maintenance and sales and marketing costs driven by inflationary pressures throughout the overall economy and revenue growth for certain variable expenses. The Company continues to feel upward pressure on wage rates given a continued tight labor market with lower unemployment rates, but its management companies have made progress in reducing their use of contract labor. For the second half of 2024, the Company anticipates a slightly more favorable operating expense environment as interest rates plateau and the impact of inflationary pressures decreases. The Company continues to work with its management companies to realize operational efficiencies and mitigate the impact of cost pressures resulting from inflation and a tight labor market. The Company will continue to evaluate and work with its management companies to implement adjustments to the hotel operating model in response to continued changes in the operating environment and guest preferences, including evaluating staffing levels at its hotels to maximize efficiency.

Current wording

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 ended September 30, 2024 and 2023 totaled $219.9 million and $203.7 million, respectively, or 58.1% and 56.9% of total revenue for the respective periods, and for the nine months ended September 30, 2024 and 2023, hotel operating expense totaled $633.5 million and $589.4 million, respectively, or 57.7% and 57.1% of total revenue for the respective periods. The increases in hotel operating expense for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, were led by the additional hotels acquired in 2023 and 2024 and amplified by increased labor costs, repairs and maintenance and sales and marketing costs driven by inflationary pressures throughout the overall economy and revenue growth for certain variable expenses. The Company continues to feel upward pressure on wage rates given a competitive labor market where the demand for hotel labor remains higher than the availability of hotel associates. However, the rate of growth has slowed and management companies have made progress in reducing their use of contract labor. For the remainder of 2024, the Company anticipates a slightly more favorable operating expense environment as the impact of inflationary pressures moderates. The Company continues to monitor its management companies’ efforts to realize operational efficiencies and mitigate the impact of cost pressures resulting from inflation and a tight labor market. The Company will continue to support its management companies to implement adjustments to the hotel operating model in response to continued changes in the operating environment and guest preferences, including its efforts to maximize operational efficiency.

Previous wording

General and administrative expense for the three months ended June 30, 2024 and 2023 was $11.1 million and $12.1 million, respectively, or 2.8% and 3.3% of total revenue for the respective periods. For the six months ended June 30, 2024 and 2023, general and administrative expense was $21.6 million and $23.6 million, respectively, or 3.0% and 3.5% of total revenue for the respective periods. The principal components of general and administrative expense are payroll and related benefit costs, executive incentive compensation, legal fees, accounting fees and reporting expenses. The decreases in general and administrative expense for the three and six months ended June 30, 2024, as compared to the same periods in 2023, were primarily due to decreased accruals for anticipated performance under the Company’s executive incentive compensation plan, partially offset by increased payroll and related benefit costs.

Current wording

General and administrative expense for the three months ended September 30, 2024 and 2023 was $9.2 million and $11.1 million, respectively, or 2.4% and 3.1% of total revenue for the respective periods. For the nine months ended September 30, 2024 and 2023, general and administrative expense was $30.8 million and $34.6 million, respectively, or 2.8% and 3.4% of total revenue for the respective periods. The principal components of general and administrative expense are payroll and related benefit costs, executive incentive compensation, legal fees, accounting fees and reporting expenses. The decreases in general and administrative expense for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, were primarily due to decreased accruals for anticipated performance under the Company’s executive incentive compensation plan, partially offset by increased payroll and related benefit costs.

Previous wording

Depreciation and amortization expense for the three months ended June 30, 2024 and 2023 was $47.7 million and $46.0 million, respectively. For the six months ended June 30, 2024 and 2023, depreciation and amortization expense was $94.5 million and $91.9 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 the respective periods owned. The increases of approximately $1.7 million and $2.6 million for the three and six months ended June 30, 2024, as compared to the same periods in 2023, were primarily due to the acquisitions of six hotels and one free-standing parking garage in 2023 and two hotels in the first half of 2024, as well as renovations completed throughout 2023 and the first half of 2024, partially offset by the sale of three hotels in the first half of 2024.

Current wording

Depreciation and amortization expense for the three months ended September 30, 2024 and 2023 was $48.1 million and $45.5 million, respectively. For the nine months ended September 30, 2024 and 2023, depreciation and amortization expense was $142.7 million and $137.4 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 the respective periods owned. The increases of approximately $2.6 million and $5.3 million for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, were primarily due to the acquisitions of six hotels and one free-standing parking garage in 2023 and two hotels in the first half of 2024, as well as renovations completed throughout 2023 and 2024, partially offset by the sale of three hotels in 2024.

Previous wording

Interest and other expense, net for the three months ended June 30, 2024 and 2023 was $19.4 million and $17.5 million, respectively. For the six months ended June 30, 2024 and 2023, interest and other expense, net was $36.7 million and $33.5 million, respectively. Interest and other expense, net for the six months ended June 30, 2024 and 2023, is net of approximately $0.6 million and $0.7 million, respectively, of interest capitalized associated with renovation projects.

Current wording

Interest and other expense, net for the three months ended September 30, 2024 and 2023 was $21.2 million and $17.5 million, respectively. For the nine months ended September 30, 2024 and 2023, interest and other expense, net was $57.9 million and $51.0 million, respectively. Interest and other expense, net for both the nine months ended September 30, 2024 and 2023 is net of approximately $0.7 million of interest capitalized associated with renovation projects.

Previous wording

Interest expense related to the Company’s debt instruments for the three and six months ended June 30, 2024 increased compared to the same periods of 2023 as a result of higher average borrowings associated with variable-rate debt and higher average interest rates on the Company's variable-rate debt due to the high inflationary environment within the current economy. The Company anticipates interest expense for the remainder of 2024 will be greater than the interest expense for the same period of 2023 as a result of higher borrowings under the Revolving Credit Facility to finance recent acquisitions, share repurchases and to repay maturing secured debt obligations, and a decrease in the amount of variable-rate debt that is fixed by interest rate swaps. The proportion of fixed-rate debt will continue to decrease in the remainder of 2024, as the Company has three interest rate swaps in effect on $150.0 million of variable-rate debt that mature during the remainder of 2024, in addition to the three interest rate swaps that were in effect on $135.0 million of variable-rate debt that matured in the first half of 2024. If the Company replaces expiring interest rate swaps in the current interest rate environment with new agreements, the Company anticipates those new agreements to be at higher rates than the expiring swap agreements.

Current wording

Interest expense related to the Company’s debt instruments for the three and nine months ended September 30, 2024 increased compared to the same periods of 2023 as a result of higher average borrowings associated with variable-rate debt and higher average interest rates on the Company's variable-rate debt due to the current inflationary environment. The Company anticipates interest expense for the remainder of 2024 will be greater than the interest expense for the same period of 2023 as a result of a decrease in the amount of variable-rate debt that is fixed by interest rate swaps and higher borrowings under the Revolving Credit Facility. These borrowings financed acquisitions, share repurchases and repayment of matured secured debt obligations, all of which occurred during the nine months ended September 30, 2024. The proportion of fixed-rate debt decreased over the nine months ended September 30, 2024 compared to the same period of 2023, as the Company had six interest rate swaps in effect on $285.0 million of variable-rate debt that matured during 2024 while the Company entered into four new swaps in effect on $200.0 million of variable rate debt during 2024, but at a higher fixed rate than the swaps that expired. If the Company continues to replace expiring interest rate swaps in the current interest rate environment with new agreements, the Company anticipates those new agreements to be at higher rates than the expiring swap agreements.

Previous wording

The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three and six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

The following table reconciles the Company’s GAAP net income to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA for the three and six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table reconciles the Company’s GAAP net income to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

As of June 30, 2024, the Company owned 224 hotels with an aggregate of 30,068 guest rooms located in 37 states and the District of Columbia. The following tables summarize the number of hotels and guest rooms by brand and by state:

Current wording

As of September 30, 2024, the Company owned 224 hotels with an aggregate of 30,068 guest rooms located in 37 states and the District of Columbia, including one hotel with 90 guest rooms classified as held for sale, which is expected to be sold to an unrelated party in November 2024. The following tables summarize the number of hotels and guest rooms by brand and by state:

Previous wording

The following table summarizes the location, brand, manager, date acquired or completed and number of guest rooms for each of the 224 hotels and the non-hotel property that the Company owned as of June 30, 2024. As noted below, 14 of the Company’s properties are subject to ground leases and 15 of its hotels are encumbered by mortgages securing associated loan obligations.

Current wording

The following table summarizes the location, brand, manager, date acquired or completed and number of guest rooms for each of the 224 hotels and the non-hotel property that the Company owned as of September 30, 2024. As noted below, 14 of the Company’s properties are subject to ground leases and 14 of its hotels are encumbered by mortgages securing associated loan obligations.

Previous wording

In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 guest rooms. Lease revenue from this property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result of the lease and transfer of possession to the operator, this property has been excluded from the Company’s hotel and guest room counts since May 2023 and is considered a non-hotel property. The Company has terminated the lease for failure to make lease payments timely, and in April 2024 commenced legal proceedings to remove the operator from possession of the hotel. The Company intends to enforce its rights under the lease and transition management of the hotel to a third-party manager, however, the removal process is still ongoing and the timing of the resolution of this matter and the transition of management operations cannot be predicted at this time.

Current wording

In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel’s 210 guest rooms. Lease revenue from this property is recorded in other revenue in the Company’s consolidated statements of operations and comprehensive income. As a result of the lease and transfer of possession to the operator, this property has been excluded from the Company’s hotel and guest room counts since May 2023 and is considered a non-hotel property. As a result of the operator's failure to make lease payments, the Company has commenced legal proceedings to remove the operator from possession of the hotel. The Company intends to enforce its rights under the lease and transition management of the hotel to a third-party manager, however, the removal process is still ongoing and the timing of the resolution of this matter and the transition of management operations cannot be predicted at this time.

Previous wording

In the second quarter of 2024, the property converted a meeting room into a guest room, increasing the number of guest rooms from 299 at acquisition to 300 as of June 30, 2024.

Current wording

In the second quarter of 2024, the property converted a meeting room into a guest room, increasing the number of guest rooms from 299 at acquisition to 300.

Previous wording

As of June 30, 2024, the Company had $1.5 billion of total outstanding debt consisting of $278.5 million of mortgage debt and $1.3 billion outstanding under its unsecured credit facilities, excluding unamortized debt issuance costs and fair value adjustments. As of June 30, 2024, the Company had available corporate cash on hand of approximately $7.2 million, and unused borrowing capacity under its Revolving Credit Facility of approximately $481 million.

Current wording

As of September 30, 2024, the Company had $1.5 billion of total outstanding debt consisting of $256.5 million of mortgage debt and $1.3 billion outstanding under its unsecured credit facilities, excluding unamortized debt issuance costs and fair value adjustments. As of September 30, 2024, the Company had available corporate cash on hand of approximately $6.1 million, and unused borrowing capacity under its Revolving Credit Facility of approximately $539.5 million.

Previous wording

In connection with the Company’s current shelf registration statement, on February 23, 2024, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $500 million of its common shares under the ATM Program. No shares were sold under the Company’s ATM Program during the three and six months ended June 30, 2024 and no common shares were sold during the six months ended June 30, 2024 under the Prior ATM Program, which was terminated in February 2024 in connection with the commencement of the current ATM Program. During the year ended December 31, 2023, the Company sold approximately 12.8 million common shares under the Prior ATM Program at a weighted-average market sales price of approximately $17.05 per common share and received aggregate gross proceeds of approximately $218.6 million and proceeds net of offering costs, which included $2.6 million of commissions, of approximately $216.0 million. The Company plans to use future net proceeds from the sale of shares under the ATM Program for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the future net proceeds to acquire another REIT or other company that invests in income producing properties. 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.

Current wording

In connection with the Company’s current shelf registration statement, on February 23, 2024, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $500 million of its common shares under the ATM Program. No common shares were sold under the Company’s ATM Program during the three and nine months ended September 30, 2024 and no common shares were sold during the nine months ended September 30, 2024 under the Prior ATM Program, which was terminated in February 2024 in connection with the commencement of the current ATM Program. During the year ended December 31, 2023, the Company sold approximately 12.8 million common shares under the Prior ATM Program at a weighted-average market sales price of approximately $17.05 per common share and received aggregate gross proceeds of approximately $218.6 million and proceeds net of offering costs, which included $2.6 million of commissions, of approximately $216.0 million. The Company plans to use future net proceeds from the sale of shares under the ATM Program for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the future net proceeds to acquire another REIT or other company that invests in income producing properties. 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.

Previous wording

The Company generally must distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order to maintain its REIT status. On June 18, 2024, the Company declared a monthly cash distribution of $0.08 per common share, paid on July 15, 2024, to shareholders of record as of June 28, 2024. For the three and six months ended June 30, 2024, the Company paid distributions of $0.24 and $0.53 per common share, respectively, for a total of $58.0 million and $128.2 million, respectively. Subsequent to quarter end, on July 18, 2024, the Company declared a monthly cash distribution of $0.08 per common share, payable on August 15, 2024 to shareholders of record as of July 31, 2024.

Current wording

The Company generally must distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order to maintain its REIT status. On September 19, 2024, the Company declared a monthly cash distribution of $0.08 per common share, paid on October 15, 2024, to shareholders of record as of September 30, 2024. For the three and nine months ended September 30, 2024, the Company paid distributions of $0.24 and $0.77 per common share, respectively, for a total of $57.7 million and $185.9 million, respectively. Subsequent to quarter end, on October 18, 2024, the Company declared a monthly cash distribution of $0.08 per common share, payable on November 15, 2024 to shareholders of record as of October 31, 2024.

Previous wording

In May 2024, the Company’s Board of Directors approved a one-year extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of $335.4 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2025 if not terminated or extended earlier. The Company previously entered into and expects to continue to enter into written trading plans as part of the Share Repurchase Program that provide for share repurchases in open market transactions that are intended to comply with Rule 10b5-1 under the Exchange Act. During the six months ended June 30, 2024, the Company purchased, under its Share Repurchase Program, approximately 1.1 million of its common shares at a weighted-average market purchase price of approximately $14.35 per common share for an aggregate purchase price of approximately $15.5 million, including commissions. 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 unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will also depend upon prevailing market conditions, regulatory requirements and other factors. As of June 30, 2024, approximately $320.0 million remained available for purchase under the Share Repurchase Program.

Current wording

In May 2024, the Company’s Board of Directors approved a one-year extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of $335.4 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2025 if not terminated or extended earlier. The Company previously entered into and expects to continue to enter into written trading plans as part of the Share Repurchase Program that provide for share repurchases in open market transactions that are intended to comply with Rule 10b5-1 under the Exchange Act. During the three months ended September 30, 2024, the Company purchased, under its Share Repurchase Program, approximately 1.4 million of its common shares at a weighted-average market purchase price of approximately $14.02 per common share for an aggregate purchase price, including commissions, of approximately $19.2 million, bringing the total for the nine months ended September 30, 2024, to approximately 2.4 million common shares at a weighted-average market purchase price of approximately $14.16 per common share for an aggregate purchase price, including commissions, of approximately $34.7 million. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with cash on hand, proceeds from dispositions or availability under its unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of common shares to be repurchased under the Share Repurchase Program will also depend upon prevailing market conditions, regulatory requirements and other factors. As of September 30, 2024, approximately $300.8 million remained available for purchase under the Share Repurchase Program.

Previous wording

Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it deems prudent. The Company is committed to maintaining and enhancing each property’s competitive position in its market. The Company has invested in and 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 of June 30, 2024, the Company held approximately $28.6 million in reserves related to these properties. During the six months ended June 30, 2024, the Company invested approximately $32.6 million in capital expenditures. The Company anticipates spending approximately $75 million to $85 million during 2024, which includes various comprehensive renovation projects for approximately 20 properties, however, inflationary pressures or supply chain shortages, among other issues, may result in increased costs and delays for anticipated projects. The Company does not currently have any existing or planned projects for new property development.

Current wording

Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it deems prudent. The Company is committed to maintaining and enhancing each property’s competitive position in its market. The Company has invested in and 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 at the applicable hotel, based on a percentage of the hotel’s gross revenues, provided that such amount may be used for the Company’s capital expenditures with respect to those hotels. As of September 30, 2024, the Company held approximately $29.6 million in reserves related to these properties. During the nine months ended September 30, 2024, the Company invested approximately $47.7 million in capital expenditures. The Company anticipates spending approximately $75 million to $85 million during 2024, which includes various comprehensive renovation projects for approximately 20 properties, however, inflationary pressures or supply chain shortages, among other issues, may result in increased costs and delays for anticipated projects. The Company does not currently have any existing or planned projects for new property development.

Previous wording

As of June 30, 2024, the Company had approximately $220.6 million of principal and interest payments due on its debt over the next 12 months. Included in this total is an $85.0 million term loan which was scheduled to mature on July 25, 2024, but was amended on July 17, 2024, to increase the amount of the term loan facility to $130 million and to extend the maturity date to July 25, 2026. The amount due over the next twelve months also includes a mortgage loan of approximately $19.9 million that matures in the third quarter of 2024 and two mortgages totaling $34.3 million that mature in the second quarter of 2025. The Company plans to pay outstanding amounts and service payments due upon the upcoming debt maturity dates using funds from operations, borrowings under its Revolving Credit Facility and/or proceeds from new financing, available credit extensions under its unsecured credit facilities or refinancing the maturing debt. The Company may also pursue amendments with its lenders to extend the maturity date of any expiring loans. Interest expense related to the Company’s unsecured credit facilities is expected to be higher over the next 12 months than it was during the previous 12 months as a result of increased borrowings under the Company’s Revolving Credit Facility and a decrease in the amount of the Company’s variable-rate debt that is fixed by interest rate swaps. The proportion of fixed-rate debt will continue to decrease over the next 12 months, as the Company has six interest rate swaps in effect on $300.0 million of variable-rate debt that mature during the next 12 months in addition to the three interest rate swaps that were in effect on $135.0 million of variable-rate debt that matured in the first half of 2024. If the Company replaces expiring interest rate swaps in the current interest rate environment with new agreements, the Company anticipates those new agreements to be at higher rates than the expiring swap agreements. See Note 4 titled “Debt” and Note 5 titled “Fair Value of Financial Instruments” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for more detail regarding future maturities of the Company’s debt instruments and interest rate swap agreements as of June 30, 2024.

Current wording

As of September 30, 2024, the Company had approximately $340.1 million of principal and interest payments due on its debt over the next 12 months. Included in this total are two mortgages totaling $34.0 million that mature in the second quarter of 2025 and two term loans totaling $225.0 million that mature in the third quarter of 2025. The Company plans to pay outstanding amounts and service payments due upon the upcoming debt maturity dates using funds from operations, borrowings under its Revolving Credit Facility, proceeds from new financing, available credit extensions under its unsecured credit facilities or refinancing the maturing debt. The Company may also pursue amendments with its lenders to extend the maturity date of any expiring loans. Interest expense related to the Company’s unsecured credit facilities is expected to be higher over the next 12 months than it was during the previous 12 months as a result of increased borrowings under the Company’s Revolving Credit Facility and a decrease in the amount of the Company’s variable-rate debt that is fixed by interest rate swaps partially offset by the expected decrease in SOFR rates. The proportion of variable-rate debt that is fixed by interest rate swaps has decreased during the nine months ended September 30, 2024 as the Company had six interest rate swaps in effect on $285.0 million of variable-rate debt that matured while the Company entered into four new interest rate swaps in effect on $200.0 million but at higher rates than the expiring swap agreements. If the Company replaces expiring interest rate swaps in the current interest rate environment with new agreements, the Company anticipates those new agreements to be at higher rates than the expiring swap agreements. See Note 4 titled “Debt” and Note 5 titled “Fair Value of Financial Instruments” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this

Previous wording

The Company relies on the performance of its hotels and the ability of its hotel operators to increase revenue to keep pace with inflation. Hotel operators, in general, possess the ability to adjust room rates daily to reflect the effects of inflation on the Company's operating expenses. However, competitive pressures could limit the operators’ ability to raise room rates and, as a result, the Company may not be able to offset increased operating expenses with increases in revenue.

Current wording

The Company relies on the performance of its hotels and the ability of its hotel operators to increase revenue to keep pace with inflation. Hotel operators, in general, possess the ability to adjust room rates daily to reflect the effects of inflation on the Company's operating expenses. However, competitive pressures and other factors could limit the operators’ ability to raise room rates and, as a result, the Company may not be able to offset increased operating expenses with increases in revenue.

Previous wording

On July 15, 2024, the Company paid approximately $19.3 million, or $0.08 per common share, in distributions to shareholders of record as of June 28, 2024.

Current wording

On October 15, 2024, the Company paid approximately $19.2 million, or $0.08 per common share, in distributions to shareholders of record as of September 30, 2024.