SYgle>Industry Information>Apple Hospitality REIT Full Year 2016 Net Income Increases 23.3 Percent

Apple Hospitality REIT Full Year 2016 Net Income Increases 23.3 Percent

Column: industry Tag: Apple Hospitality REIT Published: 2017-02-28 14:10 Source: Author:

Apple Hospitality REIT, Inc. (NYSE: APLE) today announced results of operations for the fourth quarter and full year of 2016.

Justin Knight, President and Chief Executive Officer, commented, “We are pleased to report another year of solid performance for Apple Hospitality. In 2016, we achieved Comparable Hotels RevPAR growth of 2.7 percent and Adjusted EBITDA growth of 17.6 percent. Given the strength of our hospitality platform and the significant transactional and operational flexibility of our balance sheet, we believe we are well positioned to enhance shareholder value despite a more moderate growth environment.”

Hotel Portfolio Overview

Apple Hospitality owns a highly diversified hotel portfolio, which helps insulate the revenue stream of the Company from regional economic dislocations that may occur from time to time. As of December 31, 2016, Apple Hospitality owned 235 hotels, with 30,073 rooms, comprised of 115 Marriott® branded hotels and 120 Hilton® branded hotels, with locations in 96 MSAs throughout 33 states.

Transactional Activity

Acquisitions

Effective September 1, 2016, Apple Hospitality completed its merger with Apple REIT Ten, Inc. (“Apple Ten”). The merger added 56 Marriott® and Hilton® branded primarily select service and extended stay hotels with 7,209 guestrooms to the Company’s portfolio. As consideration in the merger, the Company issued approximately 49 million common shares and paid approximately $94 million to the Apple Ten shareholders and assumed approximately $257 million of debt. The Company acquired the newly constructed 124-room Courtyard by Marriott® in Fort Worth, TX in February 2017, for a purchase price of approximately $18 million. In July 2016, the Company acquired a newly constructed 128-room Home2 Suites by Hilton® in Atlanta, GA for a purchase price of approximately $25 million.

Dispositions

In December 2016, the Company completed the sale of its 226-room Marriott® hotel in Chesapeake, VA for a gross sales price of approximately $9.9 million, resulting in a net loss recognized by the Company in the fourth quarter of 2016 of approximately $0.2 million. During the third quarter of 2016, the Company recognized an impairment loss of approximately $5.5 million as a result of the change in the Company’s planned hold period for the Chesapeake Marriott®. The Company is under contract to sell its 224-room Hilton® hotel in Dallas, TX, for a gross sales price of approximately $56.1 million. The sale of the Dallas Hilton® remains subject to a number of conditions to closing and therefore there can be no assurance that a closing will occur. If closing conditions are met, it is anticipated that a closing would occur during the first half of 2017. The estimated gain on sale of the Dallas Hilton®, if a closing does occur, is approximately $16 million.

Litigation Settlements

As previously disclosed, Apple Hospitality is one of the parties to a derivative action commenced by a former shareholder of Apple Ten in connection with the Apple Ten merger. On November 2, 2016, the parties reached an agreement in principle to settle the litigation for $32 million, which settlement was preliminarily approved by the Court in December 2016, but remains subject to final approval. The Company has reflected the settlement amount in accounts payable and other liabilities in its consolidated balance sheet, and in transaction and litigation costs in its consolidated statements of operations, in its 2016 financial statements. The Company has also included approximately $10 million of insurance proceeds from its director and officer insurance carriers received in January 2017 in other assets, net in its consolidated balance sheet as of December 31, 2016, and in transaction and litigation costs in the Company’s consolidated statement of operations in the fourth quarter of 2016.

Also, in January 2017, the Company reached an agreement in principle with the plaintiff in the previously disclosed complaint by a purported shareholder of Apple REIT Seven, Inc. and Apple REIT Eight, Inc., who purchased additional shares under the dividend reinvestment plans of those companies between July 17, 2007 and February 12, 2014. The proposed settlement is for $5.5 million, and remains subject to final court approval. The Company has included the proposed settlement amount in accounts payable and other liabilities in its consolidated balance sheet as of December 31, 2016, and in transaction and litigation costs in the Company’s consolidated statement of operations in the fourth quarter of 2016.

Share Repurchase Program

Effective September 2, 2016, Apple Hospitality established a written trading plan (“2016 Plan”) under its $475 million share repurchase program that provides for share repurchases up to an aggregate of $400 million in open market transactions that is intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The timing of share repurchases and the number of common shares to be repurchased under the 2016 Plan will depend upon prevailing market conditions, regulatory requirements and other factors. The 2016 Plan does not obligate the Company to repurchase any specific number of shares and may be suspended at any time at its discretion. During 2016, the Company purchased approximately 0.4 million common shares under the 2016 Plan, at a weighted-average market purchase price of approximately $17.71 per common share for an aggregate purchase price of approximately $7.5 million. The Company has funded and intends to fund future purchases, if any, under the 2016 Plan, with availability under its $540 million revolving credit facility.

Capital Improvements

To maintain and enhance each property’s relevance and competitive position within its market, Apple Hospitality consistently reinvests in its hotels. During the year ended December 31, 2016, the Company invested approximately $63 million in capital expenditures for existing hotels. The Company plans to continue to reinvest in its hotels and anticipates investing approximately $65 to $75 million in capital improvements during 2017, which includes various scheduled renovation projects for approximately 30 to 35 properties.

Balance Sheet

As of December 31, 2016, Apple Hospitality had approximately $1.3 billion of total indebtedness with a current combined weighted average interest rate of approximately 3.4 percent for 2017. In November 2016, the Company entered into a ten year $70 million mortgage loan secured by three properties with an annual fixed interest rate of 3.55 percent. Excluding unamortized debt issuance costs and fair value adjustments, total indebtedness is comprised of approximately $494 million in property-level debt secured by 32 hotels, and $845 million outstanding on its unsecured credit facilities. Apple Hospitality’s undrawn capacity on its unsecured credit facilities at December 31, 2016 was approximately $270 million. The Company’s total debt to total capitalization at December 31, 2016 was 23 percent, which provides Apple Hospitality with financial flexibility to fund capital requirements and pursue opportunities in the marketplace.

Shareholder Distributions

Apple Hospitality paid distributions of $0.30 per common share during the three-month period ended December 31, 2016. Based on the Company’s common share closing price of $20.16 on February 23, 2017, the annualized distribution of $1.20 per common share represents an annual yield of approximately 6.0 percent. The Company’s Board of Directors, in consultation with management, will continue to regularly monitor the Company’s distribution rate relative to the performance of its hotels, capital improvement needs, varying economic cycles, acquisitions and dispositions. At its discretion, the Company’s Board of Directors may make adjustments as determined to be prudent in relation to other cash requirements of the Company.

2017 Outlook

Apple Hospitality is providing its operational and financial outlook for 2017. This outlook, which is based on management’s current view of both operating and economic fundamentals of the Company’s existing portfolio of hotels, does not take into account any unanticipated developments in its business or changes in its operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. Comparable Hotels RevPAR Growth and Comparable Hotels Adjusted EBITDA Margin % guidance include properties acquired, including those acquired through the Apple Ten merger, as if the hotels were owned as of January 1, 2016, and excludes the Chesapeake, VA Marriott® hotel that was sold in December 2016, and the Dallas, TX Hilton® hotel which is currently under contract for sale. For the full year 2017, the Company anticipates.

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