aple20190630

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.

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 1, 2019: 223,869,190

This Form 10-Q includes references to certain trademarks or service marks. The Courtyard by Marriott®, Fairfield by Marriott®, Marriott® Hotels, Renaissance® 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 & 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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. Such 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 implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions; 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 the Securities and Exchange Commission (“SEC”), including but not limited to those discussed in the section titled “Risk Factors” in the 2018 Form 10-K. 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 2018 Form 10-K.

The Company is a Virginia 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 the U.S. As of June 30, 2019, the Company owned 234 hotels with an aggregate of 30,046 rooms located in urban, high-end suburban and developing markets throughout 34 states. All of the Company’s hotels operate under Marriott, Hilton or Hyatt brands. The hotels are operated and managed under separate management agreements with 23 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.”

On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), electing to recognize and measure its leases prospectively at the beginning of the period of adoption through a cumulative-effect adjustment to shareholders’ equity, without restating the presentation of periods prior to the effective date (the “new lease accounting standard”). Under the new lease accounting standard, beginning in 2019, four of the Company’s ground leases that were previously accounted for as operating leases are accounted for as finance leases. For these finance leases, effective January 1, 2019, the Company recognizes amortization expense, included in depreciation and amortization expense, and interest expense, included in interest and other expense, net, instead of operating ground lease expense, in the Company’s consolidated statements of operations. Results prior to January 1, 2019 have not been restated. As a result, the comparability of operating ground lease expense, depreciation and amortization expense, and interest and other expense, net are affected by the implementation of the new lease accounting standard. See Note 1 titled “Organization and Summary of Significant Accounting Policies” and Note 9 titled “Leases” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information on the adoption of the new lease accounting standard.

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, the Company acquired two hotels for an aggregate purchase price of approximately $52.4 million during the first six months of 2019: a 160-room Hampton Inn & Suites in St. Paul, Minnesota and a 128-room Home2 Suites in Orlando, Florida. Also, as of July 31, 2019, the Company had outstanding contracts for the potential purchase of seven hotels for a total expected purchase price of approximately $216.1 million, six of which are under development and are planned to be completed and opened for business over the next 12 to 24 months from June 30, 2019, at which time closings on these hotels are expected to occur, and one existing hotel that is expected to close before the end of 2019. 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. The Company utilized its revolving credit facility to fund the completed acquisitions and plans to utilize its credit facilities available 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, in March 2019, the Company sold nine hotels for a total combined gross sales price of $95.0 million. 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” and Note 3 titled “Hotel 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.

Although hotel performance can be influenced by many factors including local competition, local and general economic conditions in the U.S. and the performance of individual managers assigned to each hotel, performance of the Company’s hotels as compared to other hotels within their respective local markets, in general, has met the Company’s expectations for the period owned. Over the past several years, improvements in the general U.S. economy have been offset by increased lodging supply in many markets, offsetting increases in demand in the lodging sector. With essentially flat growth in revenue per available room (“RevPAR”), the Company’s hotels produced stable operating results during the first six months of 2019 on a comparable basis (as defined below). There is no way to predict future economic conditions, and there continue to be additional factors that could negatively affect the lodging industry and the Company, including but not limited to, increased hotel supply in certain markets, labor uncertainty both for the economy as a whole and the lodging industry in particular, global volatility, government fiscal policies and economic concerns in the U.S. The Company, on a comparable basis, is forecasting slightly negative to slightly positive RevPAR growth for the full year of 2019 as compared to 2018, which reflects modestly lower expectations for demand growth, consistent with lower expected Gross Domestic Product growth in the U.S., relatively consistent anticipated hotel supply growth and slightly favorable comparisons caused by natural disasters.

As of June 30, 2019, the Company owned 234 hotels with a total of 30,046 rooms as compared to 243 hotels with a total of 30,929 rooms as of June 30, 2018. 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, 2019, the Company acquired one existing hotel on March 4, 2019 and one newly constructed hotel on March 19, 2019, and sold nine hotels on March 28, 2019. During 2018, the Company acquired one newly constructed hotel on May 2, 2018 and four existing hotels (two on February 5, 2018, one on June 28, 2018 and one on December 7, 2018), and sold three hotels (two on July 13, 2018 and one on November 29, 2018). As a result, the comparability of results for the three and six months ended June 30, 2019 and 2018 as discussed below is impacted by these transactions.

In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“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:

The following table reflects certain operating statistics for the Company’s 234 hotels owned as of June 30, 2019 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 234 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.

The following table reflects certain operating statistics for the 227 hotels owned by the Company as of January 1, 2018 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.

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 favorable, which has been offset by increased lodging supply in many of the Company’s markets. As a result, the Company’s revenue and operating results for its Comparable Hotels and Same Store Hotels were generally unchanged during the first six months of 2019 as compared to 2018, which is consistent with industry/brand averages. The Company expects its RevPAR growth and operating results for its Comparable Hotels for the full year of 2019 to be slightly negative to slightly positive compared to its performance in 2018.

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, 2019 and 2018, the Company had total revenue of $341.1 million and $344.7 million, respectively. For the six months ended June 30, 2019 and 2018, the Company had total revenue of $644.9 million and $643.1 million, respectively. For the three months ended June 30, 2019 and 2018, respectively, Comparable Hotels achieved combined average occupancy of 81.4% and 81.9%, ADR of $141.60 and $140.94 and RevPAR of $115.30 and $115.44. For the six months ended June 30, 2019 and 2018, respectively, Comparable Hotels achieved combined average occupancy of 77.8% and 78.4%, ADR of $139.62 and $138.49 and RevPAR of $108.58 and $108.62. 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 periods in 2018, during the second quarter and first half of 2019, the Company experienced modest increases in ADR offset by modest decreases in occupancy for Comparable Hotels, leaving RevPAR for Comparable Hotels virtually unchanged. Markets/areas with above average growth in the second quarter and first half of 2019 for the Company and industry included Birmingham, Alabama, Sacramento, California, Norfolk, Virginia, and Phoenix and Tucson, Arizona. Markets that were below average for the Company and industry included Houston, Texas, Seattle, Washington and southern Florida. The Company also experienced increased revenue due to demand in the Florida Panhandle, southern Alabama, eastern North Carolina and Anchorage, Alaska related to recovery and restoration efforts related to hurricanes Florence and Michael and the 2018 earthquake in Anchorage, Alaska.

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, 2019 and 2018 totaled $187.2 million and $186.5 million, respectively, or 54.9% and 54.1% of total revenue for each respective period, and for the six months ended June 30, 2019 and 2018 totaled $362.6 million and $358.9 million, respectively, or 56.2% and 55.8% of total revenue for each respective period, which are consistent with the increases in Comparable Hotels hotel operating expense as a percentage of revenue for the same periods. Increases in labor costs as a percentage of revenue during the first six months of 2019 as compared to the same period in 2018 were the primary cause of the increase in hotel operating expense, which were slightly offset by decreases in utility costs. The Company anticipates continued increases in labor costs due to government regulations surrounding wages, healthcare and other benefits, other wage-related initiatives and lower unemployment rates. The Company will continue to work with its management companies to reduce costs as a percentage of revenue where possible while maintaining quality and service levels at each property.

Property taxes, insurance, and other expense for the three months ended June 30, 2019 and 2018 totaled $18.8 million and $18.7 million, respectively, or 5.5% and 5.4% of total revenue for each respective period, and for the six months ended June 30, 2019 and 2018 totaled $38.0 million and $35.9 million, respectively, or 5.9% and 5.6% of total revenue for each respective period, which are consistent with the increases in Comparable Hotels expense as a percentage of revenue for the same periods. For the Company’s Comparable Hotels, real estate taxes increased during the first half of 2019 compared to the same period in 2018, with tax increases at certain locations due to the reassessment of property values by localities related to the improved economy, partially offset by decreases at other locations due to successful appeals of tax assessments. With the economy continuing to improve, the Company anticipates continued increases in property tax assessments during the remainder of 2019. The Company will continue to appeal tax assessments in certain jurisdictions to attempt to minimize tax increases as warranted. Additionally, due to increased losses incurred by property insurance carriers during the past few years, the Company’s property insurance costs increased as a percentage of revenue for the first half of 2019 as compared to the same period in 2018 and are anticipated to increase for the remainder of 2019.

Operating ground lease expense for the three months ended June 30, 2019 and 2018 was $0.4 million and $2.9 million, respectively. Operating ground lease expense for the six months ended June 30, 2019 and 2018 was $0.8 million and $5.8 million, respectively. Operating ground lease expense in 2019 primarily represents the expense incurred by the Company to lease land for nine of its hotel properties. Operating ground lease expense in 2018 primarily represents the expense incurred by the Company to lease land for 13 of its hotel properties, which, for the three and six months ended June 30, 2018, included approximately $2.4 million and $4.8 million, respectively, of expense related to four ground leases that were previously classified as operating leases that are classified as finance leases under the new lease accounting standard effective January 1, 2019.

General and administrative expense for the three months ended June 30, 2019 and 2018 was $8.3 million and $6.7 million, respectively, or 2.4% and 1.9% of total revenue for each respective period. For the six months ended June 30, 2019 and 2018, general and administrative expense was $16.4 million and $13.6 million, respectively, or 2.5% and 2.1% 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. The increase in expense during the three and six months ended June 30, 2019 was due primarily to increased accruals for anticipated performance under the Company’s incentive plans and costs associated with the Company’s senior management changes.

Loss on impairment of depreciable real estate assets was $3.1 million for both the three and six months ended June 30, 2018, which consisted of impairment charges for the two Columbus hotels and the Springdale, Arkansas Residence Inn. See Note 3 titled “Hotel 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 impairment losses.

Depreciation and amortization expense for the three months ended June 30, 2019 and 2018 was $48.1 million and $45.7 million, respectively. For the six months ended June 30, 2019 and 2018, depreciation and amortization expense was $96.1 million and $90.6 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. The increase was primarily due to the increase in the number of properties owned as a result of the acquisition of two hotels in the first quarter of 2019 and five hotels in 2018 and renovations completed throughout 2019 and 2018. Additionally, depreciation and amortization expense for the three and six months ended June 30, 2019 includes approximately $1.1 million and $2.2 million, respectively, of expense associated with amortization of the Company’s four finance ground lease assets in accordance with the new lease accounting standard.

Interest and other expense, net for the three months ended June 30, 2019 and 2018 was $15.9 million and $13.2 million, respectively. For the six months ended June 30, 2019 and 2018, interest and other expense, net was $31.4 million and $25.1 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 and six months ended June 30, 2019 includes approximately $2.1 million and $4.0 million, respectively, of interest recorded on the Company’s four finance lease liabilities in accordance with the new lease accounting standard. Interest expense related to the Company’s debt increased as a result of increased average borrowings in the first half of 2019 as compared to the first half of 2018 resulting from acquisitions and share repurchases, partially offset by the repayment of borrowings with proceeds from dispositions, combined with an increase in the Company’s effective interest rate during the first half of 2019 as compared to the first half of 2018, due to an increase in interest rates on the Company’s variable-rate debt, with the one-month LIBOR increasing from 2.09% at June 30, 2018 to 2.40% at June 30, 2019. The Company anticipates interest rates for the second half of 2019 on its variable rate debt to be consistent with interest rates for the same period in 2018. Interest expense is anticipated to increase in the second half of 2019 compared to the same period in 2018, due to the increase in average borrowings.

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.

The Company calculates and presents FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), which defines FFO as net income (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.

The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three and six months ended June 30, 2019 and 2018 (in thousands):

EBITDA is a commonly used measure of performance in many industries and is defined as net income 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 to EBITDA, EBITDAre and Adjusted EBITDAre for the three and six months ended June 30, 2019 and 2018 (in thousands):

As of June 30, 2019, the Company owned 234 hotels with an aggregate of 30,046 rooms located in 34 states. The following tables summarize the number of hotels and rooms by brand and by state:

The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 234 hotels the Company owned as of June 30, 2019.

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.

The Company’s principal daily sources of liquidity are the operating cash flow generated from the Company’s properties and availability under its revolving credit facility. Periodically, the Company may receive proceeds from strategic additional secured and unsecured debt financing, dispositions of its hotel properties and offerings of the Company’s common shares.

As of June 30, 2019, the Company had $1.4 billion of total outstanding debt consisting of $461.6 million of mortgage debt and $927.7 million outstanding under its credit facilities, excluding unamortized debt issuance costs and fair value adjustments. The Company’s unused borrowing capacity under its $425 million revolving credit facility as of June 30, 2019 was $232.3 million, which is available for acquisitions, hotel renovations, share repurchases, working capital and other general corporate funding purposes, including the payment of distributions to shareholders.

The credit agreements governing the credit facilities contain mandatory prepayment requirements, customary affirmative covenants, 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 at June 30, 2019.

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 of June 30, 2019.

The Company has a universal shelf registration statement on Form S-3 (No. 333-231021) that was automatically effective upon filing on April 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 its 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.

The Company anticipates that cash flow from operations, availability under its credit facilities, additional borrowings and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated liquidity requirements, including debt service, hotel acquisitions, hotel renovations, share repurchases, and required distributions to shareholders (the Company is not required to make distributions at its current rate for REIT purposes).

To maintain its REIT status, the Company is required to distribute at least 90% of its ordinary income. Distributions paid during the six months ended June 30, 2019 totaled approximately $134.3 million or $0.60 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 $164.1 million.

The Company’s current annual distribution rate, payable monthly, is $1.20 per common share. As it has done historically, due to seasonality, the Company may use its revolving credit facility to maintain the consistency of the monthly distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. Any distribution will be subject to approval of the Company’s Board of Directors and there can be no assurance of the classification or duration of distributions at the current annual distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of its hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of the Company. If cash flow from operations and the revolving credit facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurances it will be successful with this strategy and may need to reduce its distributions to required levels. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.

In May 2019, the Company’s Board of Directors approved an extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of $360 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2020 if not terminated earlier. During the first quarter of 2019 and 2018, the Company purchased, under its Share Repurchase Program, approximately 0.3 million of its common shares in each respective period, at a weighted-average market purchase price of approximately $14.93 and $16.89 per common share for an aggregate purchase price, including commissions, of approximately $4.1 million and $4.3 million, respectively. No shares were repurchased during the second quarter of 2019 and 2018. Repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future repurchases, with availability under its credit facilities. 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.

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 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, 2019, the Company held $30.4 million in reserve related to these properties. During the six months ended June 30, 2019, the Company invested approximately $33.2 million in capital expenditures and anticipates spending an additional $45 million to $55 million during the remainder of 2019, which includes various scheduled renovation projects for approximately 15 to 20 properties. The Company does not currently have any existing or planned projects for development.

As of July 31, 2019, the Company had outstanding contracts for the potential purchase of seven hotels for a total expected purchase price of approximately $216.1 million, six of which are under development and are planned to be completed and opened for business over the next 12 to 24 months from June 30, 2019, at which time closings on these hotels are expected to occur, and one existing hotel that is expected to close before the end of 2019. 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. It is anticipated that the purchase price for these hotels will be funded through the Company’s credit facilities available at closing.

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.

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.

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. 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.

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 lease accounting standard on January 1, 2019.

In July 2019, the Company paid approximately $22.4 million, or $0.10 per outstanding common share, in distributions to its common shareholders.

In July 2019, the Company declared a regular monthly cash distribution of $0.10 per common share for the month of August 2019. The distribution is payable on August 15, 2019.

In July 2019, the Company entered into two unrelated purchase contracts for the purchase of two hotels. The first purchase contract is for a hotel that will be constructed in Madison, Wisconsin, for an anticipated gross purchase price of approximately $49.6 million. This hotel is planned to be a Hilton Garden Inn which is expected to contain 176 guest rooms. The second purchase contract is for an existing hotel located in Richmond, Virginia, for an anticipated gross purchase price of approximately $7.3 million. This is an independent boutique hotel containing 55 guest rooms. 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.

As of June 30, 2019, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk. However, the Company is exposed to interest rate risk due to possible changes in short term interest rates as it invests its cash or borrows on its revolving credit facility and due to the portion of its variable-rate term debt that is not fixed by interest rate swaps. As of June 30, 2019, after giving effect to interest rate swaps, as described below, approximately $320.2 million, or approximately 23% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s variable-rate debt outstanding as of June 30, 2019, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately $3.2 million, all other factors remaining the same. With the exception of interest rate swap transactions, the Company has not engaged in transactions in derivative financial instruments or derivative commodity instruments. The Company’s cash and cash equivalents at June 30, 2019 were $0.

As of June 30, 2019, the Company’s variable-rate debt consisted of its credit facilities, including borrowings outstanding under its $425 million revolving credit facility and $735 million of term loans. Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. As of June 30, 2019, the Company had seven interest rate swap agreements that effectively fix the interest payments on approximately $607.5 million of the Company’s variable-rate debt outstanding. In addition, in December 2018, the Company entered into two interest rate swap agreements which, beginning January 31, 2020 and May 18, 2020, will effectively fix the interest rate on $25 million and $50 million, respectively, of its variable-rate debt. Under the terms of all of the Company’s interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one-month LIBOR.

In addition to its variable-rate debt and interest rate swaps discussed above, the Company has assumed or originated fixed interest rate mortgages payable to lenders under permanent financing arrangements. The following table summarizes the annual maturities and average interest rates of the Company’s mortgage debt and borrowings outstanding under its credit facilities at June 30, 2019. All dollar amounts are in thousands.

Senior management, including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2019. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company is or may be a party to various legal proceedings that arise in the ordinary course of business. The Company is not currently involved in any material litigation nor, to management’s knowledge, is any litigation threatened against the Company where the outcome would, in management’s judgment based on information currently available to the Company, have a material adverse effect on the Company’s consolidated financial position or results of operations.

For a discussion of the Company’s potential risks and uncertainties, see the section titled “Risk Factors” in the 2018 Form 10-K. There have been no material changes to the risk factors previously disclosed in the 2018 Form 10-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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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)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, no par value	APLE	New York Stock Exchange

			Page Number
PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)

		Consolidated Balance Sheets – June 30, 2019 and December 31, 2018	3

		Consolidated Statements of Operations and Comprehensive Income – Three and six months ended June 30, 2019 and 2018	4

		Consolidated Statements of Shareholders’ Equity – Three and six months ended June 30, 2019 and 2018	5

		Consolidated Statements of Cash Flows – Six months ended June 30, 2019 and 2018	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	37

	Item 4.	Controls and Procedures	38

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	39

	Item 1A.	Risk Factors	39

	Item 6.	Exhibits	39

Signatures			40

	June 30,			December 31,
	2019			2018
	(unaudited)
Assets
Investment in real estate, net of accumulated depreciation and amortization of $971,738 and $909,893, respectively	$	4,858,103		$	4,816,410
Restricted cash-furniture, fixtures and other escrows		33,199			33,632
Due from third party managers, net		52,214			29,091
Other assets, net		45,323			49,539
Total Assets	$	4,988,839		$	4,928,672

Liabilities
Debt, net	$	1,384,314		$	1,412,242
Finance lease liabilities		163,508			-
Accounts payable and other liabilities		88,949			107,420
Total Liabilities		1,636,771			1,519,662

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 223,869,190 and 223,997,348 shares, respectively		4,493,598			4,495,073
Accumulated other comprehensive income (loss)		(6,158	)		10,006
Distributions greater than net income		(1,135,372	)		(1,096,069	)
Total Shareholders' Equity		3,352,068			3,409,010

Total Liabilities and Shareholders' Equity	$	4,988,839		$	4,928,672

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenues:
Room	$	315,232		$	319,022		$	594,702		$	593,858
Food and beverage		15,692			16,518			30,707			32,228
Other		10,193			9,174			19,495			17,017
Total revenue		341,117			344,714			644,904			643,103

Expenses:
Hotel operating expense:
Operating		80,166			81,242			155,746			157,196
Hotel administrative		26,967			26,558			52,597			51,660
Sales and marketing		30,831			28,168			58,525			53,500
Utilities		9,561			10,247			19,500			20,530
Repair and maintenance		13,041			13,476			25,907			25,929
Franchise fees		14,752			14,781			27,863			27,514
Management fees		11,872			12,059			22,501			22,531
Total hotel operating expense		187,190			186,531			362,639			358,860
Property taxes, insurance and other		18,823			18,681			38,031			35,910
Operating ground lease		423			2,912			828			5,762
General and administrative		8,308			6,721			16,445			13,598
Loss on impairment of depreciable real estate assets		-			3,135			-			3,135
Depreciation and amortization		48,109			45,743			96,059			90,583
Total expense		262,853			263,723			514,002			507,848

Gain (loss) on sale of real estate		(161	)		-			1,052			-

Operating income		78,103			80,991			131,954			135,255

Interest and other expense, net		(15,857	)		(13,210	)		(31,351	)		(25,129	)

Income before income taxes		62,246			67,781			100,603			110,126

Income tax expense		(156	)		(151	)		(362	)		(314	)

Net income	$	62,090		$	67,630		$	100,241		$	109,812

Other comprehensive income (loss):
Interest rate derivatives		(10,120	)		1,740			(16,164	)		8,032

Comprehensive income	$	51,970		$	69,370		$	84,077		$	117,844

Basic and diluted net income per common share	$	0.28		$	0.29		$	0.45		$	0.48

Weighted average common shares outstanding - basic and diluted		223,899			230,342			223,915			230,428

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

	Common Stock					Accumulated Other Comprehensive Income (Loss)			Distributions Greater Than Net Income
	Number of Shares		Amount						Distributions Greater Than Net Income			Total

Balance at March 31, 2019		223,868	$	4,493,362		$	3,962		$	(1,130,297	)	$	3,367,027
Share based compensation, net		1		236			-			-			236
Interest rate derivatives		-		-			(10,120	)		-			(10,120	)
Net income		-		-			-			62,090			62,090
Distributions declared to shareholders ($0.30 per share)		-		-			-			(67,165	)		(67,165	)
Balance at June 30, 2019		223,869	$	4,493,598		$	(6,158	)	$	(1,135,372	)	$	3,352,068

Balance at March 31, 2018		230,340	$	4,594,247		$	16,070		$	(1,053,843	)	$	3,556,474
Share based compensation, net		7		455			-			-			455
Issuance of common shares, net		-		(2	)		-			-			(2	)
Interest rate derivatives		-		-			1,740			-			1,740
Net income		-		-			-			67,630			67,630
Distributions declared to shareholders ($0.30 per share)		-		-			-			(69,060	)		(69,060	)
Balance at June 30, 2018		230,347	$	4,594,700		$	17,810		$	(1,055,273	)	$	3,557,237

	Common Stock						Accumulated Other Comprehensive Income (Loss)			Distributions Greater Than Net Income
	Number of Shares			Amount			Accumulated Other Comprehensive Income (Loss)			Distributions Greater Than Net Income			Total

Balance at December 31, 2018		223,997		$	4,495,073		$	10,006		$	(1,096,069	)	$	3,409,010
Cumulative effect of the adoption of ASU 2016-02 related to leases		-			-			-			(5,201	)		(5,201	)
Share based compensation, net		146			2,621			-			-			2,621
Common shares repurchased		(274	)		(4,096	)		-			-			(4,096	)
Interest rate derivatives		-			-			(16,164	)		-			(16,164	)
Net income		-			-			-			100,241			100,241
Distributions declared to shareholders ($0.60 per share)		-			-			-			(134,343	)		(134,343	)
Balance at June 30, 2019		223,869		$	4,493,598		$	(6,158	)	$	(1,135,372	)	$	3,352,068

Balance at December 31, 2017		229,962		$	4,588,188		$	9,778		$	(1,026,881	)	$	3,571,085
Share based compensation, net		397			6,139			-			-			6,139
Issuance of common shares, net		243			4,677			-			-			4,677
Common shares repurchased		(255	)		(4,304	)		-			-			(4,304	)
Interest rate derivatives		-			-			8,032			-			8,032
Net income		-			-			-			109,812			109,812
Distributions declared to shareholders ($0.60 per share)		-			-			-			(138,204	)		(138,204	)
Balance at June 30, 2018		230,347		$	4,594,700		$	17,810		$	(1,055,273	)	$	3,557,237

Location (1)	Brands	Date of Purchase Contract	Rooms		Refundable Deposits		Gross Purchase Price
Cape Canaveral, FL (2)	Hampton and Home2 Suites	4/11/2018		224	$	3	$	46,704
Tempe, AZ (3)	Hyatt House and Hyatt Place	6/13/2018		254		720		63,341
Denver, CO	Courtyard	4/5/2019		182		586		49,140
				660	$	1,309	$	159,185

City	State	Brand	Rooms
Sarasota	FL	Homewood Suites		100
Tampa	FL	TownePlace Suites		94
Baton Rouge	LA	SpringHill Suites		119
Holly Springs	NC	Hampton		124
Duncanville	TX	Hilton Garden Inn		142
Texarkana	TX	Courtyard		90
Texarkana	TX	TownePlace Suites		85
Bristol	VA	Courtyard		175
Harrisonburg	VA	Courtyard		125
Total				1,054

	June 30, 2019		December 31, 2018
Revolving credit facility	$	192,700	$	268,800
Term loans, net		729,022		653,382
Mortgage debt, net		462,592		490,060
Debt, net	$	1,384,314	$	1,412,242

2019 (July - December)	$	6,600
2020		28,349
2021		47,586
2022		301,952
2023		295,615
Thereafter		709,165
		1,389,267
Unamortized fair value adjustment of assumed debt		2,977
Unamortized debt issuance costs related to term loans and mortgage debt		(7,930	)
Total	$	1,384,314

	June 30, 2019			Percentage			December 31, 2018			Percentage
Fixed-rate debt ⁽¹⁾	$	1,069,067			77	%	$	1,046,273			74	%
Variable-rate debt ⁽²⁾		320,200			23	%		371,300			26	%
Total	$	1,389,267					$	1,417,573
Weighted-average interest rate of debt		3.76	%					3.74	%

			Outstanding Balance
	Interest Rate	Maturity Date	June 30, 2019			December 31, 2018
Revolving credit facility ⁽¹⁾	LIBOR + 1.40% - 2.25%	7/27/2022	$	192,700		$	268,800

Term loans
$200 million term loan	LIBOR + 1.35% - 2.20%	7/27/2023		200,000			200,000
$225 million term loan	LIBOR + 1.35% - 2.20%	1/31/2024		225,000			225,000
$50 million term loan	LIBOR + 1.35% - 2.20%	8/2/2023		50,000			50,000
$175 million term loan	LIBOR + 1.65% - 2.50%	8/2/2025		175,000			100,000
$85 million term loan	LIBOR + 1.80% - 2.60%	7/25/2024		85,000			85,000
Term loans at stated value				735,000			660,000
Unamortized debt issuance costs				(5,978	)		(6,618	)
Term loans, net				729,022			653,382

Revolving credit facility and term loans, net⁽¹⁾			$	921,722		$	922,182
Weighted-average interest rate⁽²⁾				3.42	%		3.37	%

Location	Brand	Interest Rate (1)			Loan Assumption or Origination Date	Maturity Date		Principal Assumed or Originated		Outstanding balance as of June 30, 2019			Outstanding balance as of December 31, 2018
Syracuse, NY	Courtyard		4.75	%	10/16/2015		(2)	$	11,199	$	-		$	10,357
Syracuse, NY	Residence Inn		4.75	%	10/16/2015		(2)		11,199		-			10,357
San Juan Capistrano, CA	Residence Inn		4.15	%	9/1/2016	6/1/2020			16,210		15,253			15,431
Colorado Springs, CO	Hampton		6.25	%	9/1/2016	7/6/2021			7,923		7,545			7,617
Franklin, TN	Courtyard		6.25	%	9/1/2016	8/6/2021			14,679		13,982			14,115
Franklin, TN	Residence Inn		6.25	%	9/1/2016	8/6/2021			14,679		13,982			14,115
Grapevine, TX	Hilton Garden Inn		4.89	%	8/29/2012	9/1/2022			11,810		9,940			10,101
Collegeville/Philadelphia, PA	Courtyard		4.89	%	8/30/2012	9/1/2022			12,650		10,647			10,820
Hattiesburg, MS	Courtyard		5.00	%	3/1/2014	9/1/2022			5,732		4,978			5,058
Rancho Bernardo/San Diego, CA	Courtyard		5.00	%	3/1/2014	9/1/2022			15,060		13,079			13,289
Kirkland, WA	Courtyard		5.00	%	3/1/2014	9/1/2022			12,145		10,548			10,717
Seattle, WA	Residence Inn		4.96	%	3/1/2014	9/1/2022			28,269		24,532			24,928
Anchorage, AK	Embassy Suites		4.97	%	9/13/2012	10/1/2022			23,230		19,643			19,957
Somerset, NJ	Courtyard		4.73	%	3/1/2014	10/6/2022			8,750		7,568			7,692
Tukwila, WA	Homewood Suites		4.73	%	3/1/2014	10/6/2022			9,431		8,156			8,291
Prattville, AL	Courtyard		4.12	%	3/1/2014	2/6/2023			6,596		5,657			5,754
Huntsville, AL	Homewood Suites		4.12	%	3/1/2014	2/6/2023			8,306		7,123			7,246
San Diego, CA	Residence Inn		3.97	%	3/1/2014	3/6/2023			18,600		15,921			16,198
Miami, FL	Homewood Suites		4.02	%	3/1/2014	4/1/2023			16,677		14,301			14,547
New Orleans, LA	Homewood Suites		4.36	%	7/17/2014	8/11/2024			27,000		23,875			24,232
Westford, MA	Residence Inn		4.28	%	3/18/2015	4/11/2025			10,000		9,007			9,137
Denver, CO	Hilton Garden Inn		4.46	%	9/1/2016	6/11/2025			34,118		31,757			32,198
Oceanside, CA	Courtyard		4.28	%	9/1/2016	10/1/2025			13,655		12,946			13,077
Omaha, NE	Hilton Garden Inn		4.28	%	9/1/2016	10/1/2025			22,682		21,503			21,722
Boise, ID	Hampton		4.37	%	5/26/2016	6/11/2026			24,000		22,803			23,015
Burbank, CA	Courtyard		3.55	%	11/3/2016	12/1/2026			25,564		23,903			24,247
San Diego, CA	Courtyard		3.55	%	11/3/2016	12/1/2026			25,473		23,818			24,161
San Diego, CA	Hampton		3.55	%	11/3/2016	12/1/2026			18,963		17,730			17,986
Burbank, CA	SpringHill Suites		3.94	%	3/9/2018	4/1/2028			28,470		27,671			28,018
Santa Ana, CA	Courtyard		3.94	%	3/9/2018	4/1/2028			15,530		15,094			15,283
San Jose, CA	Homewood Suites		4.22	%	12/22/2017	1/1/2038			30,000		28,605			29,107
								$	528,600		461,567			488,773
Unamortized fair value adjustment of assumed debt											2,977			3,428
Unamortized debt issuance costs											(1,952	)		(2,141	)
Total										$	462,592		$	490,060

	June 30,			December 31,
	2019			2018

Land	$	730,614		$	737,822
Building and Improvements		4,469,348			4,503,728
Furniture, Fixtures and Equipment		471,324			471,399
Finance Ground Lease Assets		144,768			-
Franchise Fees		13,787			13,354
		5,829,841			5,726,303
Less Accumulated Depreciation and Amortization		(971,738	)		(909,893	)
Investment in Real Estate, net	$	4,858,103		$	4,816,410

	Notional							Fair Value Asset (Liability)
Hedge Type	Amount at June 30, 2019		Origination Date	Maturity Date	Swap Fixed Interest Rate			June 30, 2019			December 31, 2018
Cash flow hedge	$	212,500	5/21/2015	5/18/2020		1.58	%	$	565		$	2,744
Cash flow hedge		110,000	7/2/2015	5/18/2020		1.62	%		255			1,361
Cash flow hedge		50,000	4/7/2016	3/31/2021		1.09	%		519			1,519
Cash flow hedge		100,000	4/7/2016	3/31/2023		1.33	%		1,010			4,477
Cash flow hedge		75,000	5/31/2017	6/30/2024		1.96	%		(1,200	)		1,905
Cash flow hedge		10,000	8/10/2017	6/30/2024		2.01	%		(180	)		226
Cash flow hedge ⁽¹⁾		50,000	6/1/2018	6/30/2025		2.89	%		(3,551	)		(1,276	)
Cash flow hedge ⁽²⁾		25,000	12/6/2018	6/30/2025		2.75	%		(1,466	)		(379	)
Cash flow hedge ⁽³⁾		50,000	12/7/2018	1/31/2024		2.72	%		(2,110	)		(571	)
	$	682,500						$	(6,158	)	$	10,006

	Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss)					Net Unrealized Gain Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net
	Three Months Ended June 30,					Three Months Ended June 30,
	2019			2018		2019		2018
Interest rate derivatives in cash flow hedging relationships	$	(8,898	)	$	2,252	$	1,222	$	512

	Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss)					Net Unrealized Gain Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net
	Six Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019		2018
Interest rate derivatives in cash flow hedging relationships	$	(13,668	)	$	8,600	$	2,496	$	568

	2018 Incentive Plan			2017 Incentive Plan

Period common shares issued	First Quarter 2019			First Quarter 2018

Common shares earned under each incentive plan		156,926			415,866
Common shares surrendered on issuance date to satisfy tax withholding obligations		24,999			48,533
Common shares earned and issued under each incentive plan, net of common shares surrendered on issuance date to satisfy tax withholding obligations		131,927			367,333
Closing stock price on issuance date	$	16.49		$	16.92
Total share-based compensation earned, including the surrendered shares (in millions)	$	2.6	(1)	$	7.0	(2)
Of the total common shares earned and issued, total common shares unrestricted at time of issuance		105,345			223,421
Of the total common shares earned and issued, total common shares restricted at time of issuance		26,582			143,912

Restricted common shares vesting date	December 13, 2019			December 14, 2018
Common shares surrendered on vesting date to satisfy tax withholding requirements resulting from vesting of restricted common shares		n/a			41,389

	Consolidated Balance Sheet Classification	June 30, 2019
Assets
Operating lease assets, net	Other assets, net	$	28,941
Finance ground lease assets, net ⁽¹⁾	Investment in real estate, net		142,661
Total lease assets		$	171,602

Liabilities
Operating lease liabilities	Accounts payable and other liabilities	$	12,470
Finance lease liabilities	Finance lease liabilities		163,508
Total lease liabilities		$	175,978

Weighted-average remaining lease term
Operating leases		36 years
Finance leases		32 years

Weighted-average discount rate
Operating leases			5.43	%
Finance leases			5.28	%

	Consolidated Statements of Operations Classification	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease costs ⁽¹⁾	Operating ground lease expense	$	423	$	828
Finance lease costs:
Amortization of lease assets	Depreciation and amortization expense		1,149		2,190
Interest on lease liabilities	Interest and other expense, net		2,133		3,959
Total lease costs		$	3,705	$	6,977

	Operating leases		Finance leases
2019 (July - December)	$	697	$	4,126
2020		1,231		7,385
2021		1,015		7,552
2022		851		7,702
2023		777		8,051
Thereafter		33,187		363,171
Total minimum lease payments		37,758		397,987
Less: amount of lease payments representing interest		25,288		234,479
Present value of lease liabilities	$	12,470	$	163,508

	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	727
Operating cash flows for finance leases		2,885

	Three Months Ended June 30,															Six Months Ended June 30,
(in thousands, except statistical data)	2019			Percent of Revenue			2018			Percent of Revenue			Percent Change			2019			Percent of Revenue			2018			Percent of Revenue			Percent Change

Total revenue	$	341,117			100.0	%	$	344,714			100.0	%		-1.0	%	$	644,904			100.0	%	$	643,103			100.0	%		0.3	%
Hotel operating expense		187,190			54.9	%		186,531			54.1	%		0.4	%		362,639			56.2	%		358,860			55.8	%		1.1	%
Property taxes, insurance and other expense		18,823			5.5	%		18,681			5.4	%		0.8	%		38,031			5.9	%		35,910			5.6	%		5.9	%
Operating ground lease expense		423			0.1	%		2,912			0.8	%		-85.5	%		828			0.1	%		5,762			0.9	%		-85.6	%
General and administrative expense		8,308			2.4	%		6,721			1.9	%		23.6	%		16,445			2.5	%		13,598			2.1	%		20.9	%

Loss on impairment of depreciable real estate assets		-						3,135						n/a			-						3,135						n/a
Depreciation and amortization expense		48,109						45,743						5.2	%		96,059						90,583						6.0	%
Gain (loss) on sale of real estate		(161	)					-						n/a			1,052						-						n/a
Interest and other expense, net		15,857						13,210						20.0	%		31,351						25,129						24.8	%
Income tax expense		156						151						3.3	%		362						314						15.3	%

Number of hotels owned at end of period		234						243						-3.7	%		234						243						-3.7	%
ADR	$	141.60					$	139.58						1.4	%	$	139.09					$	137.09						1.5	%
Occupancy		81.4	%					81.7	%					-0.4	%		77.6	%					78.2	%					-0.8	%
RevPAR	$	115.30					$	114.09						1.1	%	$	107.95					$	107.20						0.7	%

Number of Hotels and Guest Rooms by Brand
	Number of		Number of
Brand	Hotels		Rooms
Hilton Garden Inn		41		5,665
Hampton		40		5,065
Courtyard		37		5,070
Residence Inn		33		3,939
Homewood Suites		33		3,731
SpringHill Suites		15		2,040
Fairfield		11		1,300
Home2 Suites		9		1,038
TownePlace Suites		9		931
Marriott		2		616
Embassy Suites		2		316
Renaissance		1		208
Hyatt Place		1		127
Total		234		30,046

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		23		2,912
Georgia		6		672
Idaho		2		416
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		11		1,213
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		12		1,767
Washington		4		609
Total		234		30,046

	July 1 - December 31, 2019			2020			2021			2022			2023			Thereafter			Total		Fair Market Value
Total debt:
Maturities	$	6,600		$	28,349		$	47,586		$	301,952		$	295,615		$	709,165		$	1,389,267	$	1,394,440
Average interest rates⁽¹⁾		3.8	%		3.9	%		3.9	%		3.9	%		3.9	%		4.0	%

Variable rate debt:
Maturities	$	-		$	-		$	-		$	192,700		$	250,000		$	485,000		$	927,700	$	929,318
Average interest rates⁽¹⁾		3.4	%		3.6	%		3.8	%		3.8	%		3.9	%		4.0	%

Fixed rate debt:
Maturities	$	6,600		$	28,349		$	47,586		$	109,252		$	45,615		$	224,165		$	461,567	$	465,122
Average interest rates		4.4	%		4.4	%		4.4	%		4.2	%		4.1	%		4.1	%

Exhibit Number	Description of Documents

3.1	Amended and Restated Articles of Incorporation of the Company, as amended (Incorporated by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed August 6, 2018)

3.2	Second Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed February 18, 2016)

10.1*	First Amendment to the Company’s Executive Severance Pay Plan (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed March 27, 2019)

10.2*	Separation Agreement and General Release, dated as of March 22, 2019, by and between the Company and David P. Buckley (Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed March 27, 2019)

31.1	Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)

31.2	Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)

31.3	Certification of the Company’s Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH)

32.1	Certification of the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FURNISHED HEREWITH)

101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Cover Page, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Operations and Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH)
________________
* Denotes Management Contract or Compensation Plan


Apple Hospitality REIT, Inc.

By:	/s/ Justin G. Knight	Date: August 5, 2019
	Justin G. Knight,
	President and Chief Executive Officer (Principal Executive Officer)

By:	/s/ Rachael S. Rothman	Date: August 5, 2019
	Rachael S. Rothman,
	Chief Financial Officer (Principal Financial Officer)

By:	/s/ Bryan Peery	Date: August 5, 2019
	Bryan Peery,
	Chief Accounting Officer (Principal Accounting Officer)