UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2021

or

☐ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-37389

APPLE HOSPITALITY REIT, INC.

(Exact name of registrant as specified in its charter)

Virginia	26-1379210
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
814 East Main Street Richmond, Virginia	23219
(Address of principal executive offices)	(Zip Code)

(804) 344-8121

(Registrant’s telephone number, including area code)

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

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ☐    No  ☒

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

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

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

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.     ☒

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

The aggregate market value of the common shares held by non-affiliates of the registrant (based on the closing sale price on the New York Stock Exchange) was approximately $3,258,201,788 as of June 30, 2021.

The number of common shares outstanding on February 14, 2022 was 228,255,642.

Documents Incorporated by Reference

The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the Company’s annual meeting of shareholders to be held on May 13, 2022.

APPLE HOSPITALITY REIT, INC.

FORM 10-K

Index

			Page
Part I
	Item 1.	Business	4
	Item 1A.	Risk Factors	12
	Item 1B.	Unresolved Staff Comments	26
	Item 2.	Properties	27
	Item 3.	Legal Proceedings	33
	Item 4.	Mine Safety Disclosures	33
Part II
	Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	34
	Item 6.	Reserved	37
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	53
	Item 8.	Financial Statements and Supplementary Data	54
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	86
	Item 9A.	Controls and Procedures	86
	Item 9B.	Other Information	87
	Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	87
Part III
	Item 10.	Directors, Executive Officers and Corporate Governance	88
	Item 11.	Executive Compensation	88
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	88
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	88
	Item 14.	Principal Accounting Fees and Services	88
Part IV
	Item 15.	Exhibits, Financial Statement Schedules	89
	Item 16.	Form 10-K Summary	91
Signatures			99

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

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PART I

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 Apple Hospitality REIT, Inc. and its wholly-owned subsidiaries (the “Company”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company’s forward-looking statements continues to be the adverse effect of the coronavirus COVID-19 pandemic (“COVID-19”), including resurgences and variants, on the Company’s business, financial performance and condition, operating results and cash flows, the real estate market and the hospitality industry specifically, and the global economy and financial markets generally. The significance, extent and duration of the continued impacts caused by the COVID-19 pandemic on the Company will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the scope, severity and duration of the pandemic, the extent and effectiveness of the actions taken to contain the pandemic or mitigate its impact, the efficacy, acceptance and availability of vaccines, the duration of associated immunity and efficacy of the vaccines against variants of COVID-19, the potential for additional hotel closures/consolidations that may be mandated or advisable, whether based on increased COVID-19 cases, new variants or other factors, the slowing or potential rollback of “reopenings” in certain states, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section titled “Risk Factors” in this Annual Report on Form 10-K as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Additional factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties and redeploy proceeds; the anticipated timing and frequency of shareholder distributions; the ability of the Company to fund capital obligations; the ability of the Company to successfully integrate pending transactions and implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions; reduced business and leisure travel due to travel-related health concerns, including the COVID-19 pandemic or an increase in COVID-19 cases or any other infectious or contagious diseases in the U.S. or abroad; adverse changes in the real estate and real estate capital markets; financing risks; changes in interest rates; 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 real estate investment trust (“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 Annual Report on Form 10-K 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 of 1986, as amended (the “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 Item 1A in this Annual Report on Form 10-K. Any forward-looking statement that the Company makes speaks only as of the date of this Annual Report on Form 10-K. 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.

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Item 1. Business

The Company, formed in November 2007 as a Virginia corporation, is a self-advised REIT that invests in income-producing real estate, primarily in the lodging sector, in the United States (“U.S.”). The Company has elected to be treated as a REIT for federal income tax purposes. As of December 31, 2021, the Company owned 219 hotels with an aggregate of 28,747 rooms located in urban, high-end suburban and developing markets throughout 36 states. As of December 31, 2021, 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 New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.” The Company has no foreign operations or assets and its operating structure includes only one reportable segment. Refer to Part II, Item 8, for the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Annual Report on Form 10-K.

Business Objectives

The Company is one of the largest hospitality REITs in the U.S., in both the number of hotels and guest rooms, with significant geographic and brand diversity. The Company’s primary business objective is to maximize shareholder value by achieving long-term growth in cash available for distributions to its shareholders. The Company has pursued and will continue to pursue this objective through the following investment strategies:

• pursuing thoughtful capital allocation with selective acquisitions and dispositions of primarily rooms-focused hotels in the upscale sector of the lodging industry;

• employing broad geographic diversification of its investments;

• franchising and collaborating with leading brands in the sector;

• utilizing strong experienced operators for its hotels and enhancing their performance with proactive asset management;

• reinvesting in the Company’s hotels to maintain their competitive advantage; and

• maintaining low leverage providing the Company with financial flexibility.

The Company has generally acquired fee simple ownership of its properties, with a focus on hotels that have or have the potential to have diverse demand generators, strong brand recognition, high levels of customer satisfaction and strong operating margins. Due to their efficient operating model and strong consumer preference, the Company concentrates on the acquisition of rooms-focused hotels. The Company’s acquisitions have been in broadly diversified markets across the U.S. to limit dependence on any one geographic area or demand generator. With an emphasis on upscale rooms-focused hotels, the Company utilizes its asset management experience and expertise to improve the quality and performance of its hotels by working with its property managers to aggressively manage revenue and expenses by benchmarking with internal and external data, using the Company’s scale to help negotiate favorable vendor contracts, engaging industry leaders in hotel management, and franchising the hotels with leading brands and actively participating with the franchisors to strengthen the brands. To maintain its competitive advantage in each market, the Company continually reinvests in its hotels. With its depth of ownership in many upscale and upper midscale rooms-focused brands and extensive experience with the Hilton and Marriott rooms-focused brands, the Company has been able to enhance its reinvestment approach. By maintaining a flexible balance sheet, with a total debt to total capitalization (total debt outstanding plus equity market capitalization based on the Company’s December 31, 2021 closing share price) ratio at December 31, 2021 of 28.1%, the Company is not only positioned to opportunistically consider investments that further improve shareholder value, but management believes it is equipped to address developments caused by adverse economic environments such as the current conditions brought on by COVID-19.

The Impact of COVID-19 on the Company and the Hospitality Industry

Since first being reported in December 2019, COVID-19 has spread globally, including to every state in the U.S. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to COVID-19.

The COVID-19 pandemic has not only specifically reduced travel, but also has had a detrimental impact on regional and global economies and financial markets. The global, national and local impact of the pandemic has continued to evolve and many countries, including the U.S., as well as state and local governments, have reacted and continue to react with a

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wide variety of measures intended to control its spread, including states of emergency, mandatory quarantines, implementation of “stay at home” orders, business closures, border closings, and restrictions on travel and large gatherings, which has resulted in, and may continue to result in, cancellation of events, including sporting events, conferences and meetings. While the Company’s operating results and the overall economy in the U.S. continue to show signs of recovery, the Company cannot presently determine the extent or duration of the overall operational and financial effects that COVID-19 will have on the Company, its business, the hospitality industry and the economy, or whether the recovery will continue. See “The Impact of COVID-19 on the Company and the Hospitality Industry” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, appearing elsewhere in this Annual Report on Form 10-K, for more information about the Company’s response to the effects of COVID-19.

Hotel Operating Performance

As of December 31, 2021, the Company owned 219 hotels with a total of 28,747 rooms as compared to 234 hotels with a total of 29,937 rooms as of December 31, 2020 and 233 hotels with a total of 29,870 rooms as of December 31, 2019. Operating performance is included only for the period of ownership for hotels acquired or disposed of during 2021, 2020 and 2019. During 2021, the Company acquired eight hotels and sold 23 hotels. During 2020, the Company acquired four hotels and sold three hotels. During 2019, the Company acquired three hotels and sold 11 hotels. The following table reflects certain operating statistics for the Company’s hotels for their respective periods of ownership by the Company. Average Daily Rate (“ADR”) is calculated as room revenue divided by the number of rooms sold, and revenue per available room (“RevPAR”) is calculated as occupancy multiplied by ADR.

	Years Ended December 31,
	2021			2020			2019
ADR	$	123.78		$	111.49		$	137.30
Occupancy		66.3	%		46.1	%		77.0	%
RevPAR	$	82.03		$	51.34		$	105.72

Comparable Hotels Operating Performance

The following table reflects certain operating statistics for the Company’s 219 hotels owned as of December 31, 2021 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 219 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.  

	Years Ended December 31,
	2021			2020			2019
ADR	$	125.43		$	112.72		$	141.04
Occupancy		66.3	%		45.9	%		77.2	%
RevPAR	$	83.14		$	51.69		$	108.87

Hotel performance is impacted by many factors, including the economic conditions in the U.S. and in each individual locality. COVID-19 has been negatively affecting the U.S. hotel industry since March 2020. The Company’s revenue and operating results improved during 2021 as compared to 2020, which is consistent with the overall lodging industry. However, as a result of COVID-19, the Company’s revenue and operating results declined as compared to 2019 and the Company expects future revenues could be negatively impacted if, for example, COVID-19 cases begin to increase again, new vaccine-resistant variants emerge, state and local governments tighten or implement new mitigation restrictions or consumer sentiment deteriorates. The Company can give no assurances as to the amount or period of decline that may result from uncertainty regarding the duration and long-term impact of, as well as governmental and consumer response to, COVID-19. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, appearing elsewhere in this Annual Report on Form 10-K for more information on the Company’s results of operations.

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Recent Investing Activities

Acquisitions and Contracts for Potential Acquisitions

The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in rooms-focused hotels, in 2019 the Company entered into a contract to purchase a 176-room Hilton Garden Inn to be constructed in Madison, Wisconsin. Construction of the hotel was completed in February 2021 and the Company acquired the hotel on February 18, 2021 for a gross purchase price of $49.6 million, utilizing borrowings under the Company’s revolving credit facility. In 2021, the Company also acquired seven existing hotels for an aggregate purchase price of approximately $311.9 million: a 178-room AC Hotel in Portland, Maine; a 130-room Hyatt Place in Greenville, South Carolina; a 157-room Aloft in Portland, Maine; a 150-room Hilton Garden Inn in Memphis, Tennessee; a 157-room Hilton Garden Inn in Fort Worth, Texas; a 112-room Homewood Suites in Fort Worth, Texas; and a 243-room Hampton Inn & Suites in Portland, Oregon. The Company utilized available cash (including a portion of the proceeds from the sale of 20 hotels in July 2021) and borrowings under its revolving credit facility to fund the acquisitions and plans to utilize its credit facilities available at closing for any additional acquisitions. In addition, on August 16, 2021, the Company purchased the fee interest in the land at its Seattle, Washington Residence Inn that was previously under a ground lease for a purchase price of $80.0 million, consisting of a $24.0 million cash payment utilizing a portion of the proceeds from the sale of 20 hotels in July 2021 and a one-year note payable to the seller for $56.0 million.

As of December 31, 2021 the Company had an outstanding contract for the potential purchase of a hotel under development in Madison, Wisconsin for a purchase price of $78.6 million, which is expected to be completed as a 260-room Embassy Suites and opened for business in early 2024, at which time the Company expects to complete the purchase of this hotel. Although the Company is working towards acquiring this hotel, there are a number of conditions to closing that have not yet been satisfied and there can be no assurance that closing on this hotel will occur under the outstanding purchase contract.

Dispositions and Contracts for Potential Dispositions

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 2021, the Company sold a total of 23 hotels for a total combined gross sales price of approximately $234.6 million. The net proceeds from the sales were used to pay down borrowings under the Company’s revolving credit facility, for acquisitions of hotel properties in the second half of 2021 and for general corporate purposes.

See Note 2 titled “Investment in Real Estate” and Note 3 titled “Dispositions” in Part II, Item 8, of the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Annual Report on Form 10-K for additional information concerning these transactions.

Share Repurchases

In addition to continually considering opportunities to invest in rooms-focused hotels, the Company also monitors the trading price of its common shares and repurchases its common shares when it believes there is an opportunity to increase shareholder value. In May 2021, the Company’s Board of Directors approved an extension of its existing share repurchase program, authorizing share repurchases up to an aggregate of $345 million (the “Share Repurchase Program”). No common shares were repurchased in 2021. Past 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.

See Note 7 titled “Shareholders’ Equity” in Part II, Item 8, of the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Annual Report on Form 10-K for additional information concerning the share repurchase program.

Hotel Industry and Competition

The hotel industry is highly competitive. Each of the Company’s hotels competes for guests primarily with other hotels in its immediate vicinity and secondarily with other hotels or lodging facilities in its geographic market. An increase in the

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number of competitive hotels or other lodging facilities in a particular area could have a material adverse effect on the occupancy, ADR and RevPAR of the Company’s hotels in that area. The Company believes that brand recognition, location, price and quality (of both the hotel and the services provided) are the principal competitive factors affecting the Company’s hotels. Additionally, general economic conditions, both in a particular market and nationally, impact the performance of the hotel industry.  

Management and Franchise Agreements

Substantially all of the Company’s hotels operate under Marriott or Hilton brands, and as of December 31, 2021, consisted of the following:

Number of Hotels and Guest Rooms by Brand
	Number of	Number of
Brand	Hotels	Rooms
Hilton Garden Inn	40		5,592
Hampton	37		4,953
Courtyard	33		4,653
Homewood Suites	30		3,417
Residence Inn	29		3,548
Fairfield	10		1,213
Home2 Suites	10		1,146
SpringHill Suites	9		1,245
TownePlace Suites	9		931
Hyatt Place	3		411
Marriott	2		619
Embassy Suites	2		316
Independent	2		263
AC	1		178
Aloft	1		157
Hyatt House	1		105
Total	219		28,747

Each of the Company’s 219 hotels owned as of December 31, 2021 is operated and managed under separate management agreements with 16 hotel management companies, none of which are affiliated with the Company. The management agreements generally provide for initial terms of one to 30 years and are terminable by the Company for either failure to achieve performance thresholds, sale of the property, or without cause. As of December 31, 2021, over 80% of the Company’s hotels operate under a variable management fee agreement, with an average initial term of approximately one to two years, which the Company believes better aligns incentives for each hotel manager to maximize each property’s performance than a base-plus-incentive management fee structure, as described below, which is more common throughout the industry. Under the variable fee structure, the management fee earned for each hotel is generally within a range of 2.5% to 3.5% of gross revenues. The performance measures are based on various financial and quality performance metrics. The Company’s remaining hotels operate under a management fee structure which generally includes the payment of base management fees and an opportunity for incentive management fees. Under this structure, base management fees are calculated as a percentage of gross revenues and the incentive management fees are calculated as a percentage of operating profit in excess of a priority return to the Company, as defined in the management agreements. In addition to the above, management fees for all of the Company’s hotels generally include accounting fees and other fees for centralized services, which are allocated among all of the hotels that receive the benefit of such services. During 2020 and 2021, in response to COVID-19 and its impact on hotel performance, the management fee under all variable management fee agreements was set to 3% of gross revenues.  

Thirteen of the Company’s hotels are managed by affiliates of Marriott. The remainder of the Company’s hotels are managed by companies that are not affiliated with either Marriott, Hilton or Hyatt, and, as a result, the branded hotels they manage were required to obtain separate franchise agreements with each respective franchisor. The franchise agreements generally provide for initial terms of approximately 10 to 30 years and generally provide for renewals subject to franchise requirements at the time of renewal. The Company pays various fees under these agreements, including the payment of royalty fees, marketing fees, reservation fees, a communications support fee, brand loyalty program fees and other similar fees based on room revenues.

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The franchise and/or management agreements provide a variety of benefits for the Company, which include national advertising, publicity, and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality standards, centralized reservation systems and best practices within the industry.

Hotel Maintenance and Renovation

Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it deems prudent. The Company’s hotels have an ongoing need for renovation and refurbishment. 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. During 2021, 2020 and 2019, the Company’s capital improvements for its hotels were approximately $25.8 million, $37.6 million and $78.7 million, respectively. Expenditures for 2021 and 2020 were lower than previous years due to the reduction of non-essential capital improvement projects as a result of COVID-19. During 2022, the Company anticipates investing approximately $55 to $65 million in capital improvements, which includes renovation projects for approximately 20 to 25 properties.

Financing

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. Depending on market conditions, the Company also may enter into additional secured and unsecured debt financing or issue common shares through equity offerings, such as the Company’s at-the-market offering program described below. The Company anticipates that funds from these sources will be adequate to meet its anticipated liquidity requirements, including debt service, hotel acquisitions, hotel renovations, share repurchases, and required distributions to shareholders.

As of December 31, 2021, the Company had approximately $1.4 billion of total outstanding debt with a combined weighted-average interest rate, including the effect of interest rate swaps, of approximately 3.38%, consisting of approximately $498.0 million in outstanding mortgage debt secured by 28 properties, with maturity dates ranging from August 2022 to May 2038 and stated interest rates ranging from 3.40% to 5.00%, and approximately $946.0 million in outstanding debt under its unsecured credit facilities with maturity dates ranging from July 2022 to March 2030 and effective interest rates, including the effect of interest rate swaps, ranging from 1.58% to 4.64%.  

The Company’s unused borrowing capacity under its $425 million revolving credit facility as of December 31, 2021 was $349.0 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. As discussed above, the Company has historically maintained and plans in the future to maintain relatively low leverage as compared to the real estate industry as a whole and the lodging sector in particular. The Company’s ratio of total debt to total capitalization as of December 31, 2021 was 28.1%. The Company intends to maintain staggered maturities of its debt, utilize unsecured debt when available and fix the rate on a portion of its debt. All of these strategies reduce shareholder risk related to the Company’s financing structure.

As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company entered into amendments in June 2020 that suspended the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities. These amendments imposed certain restrictions regarding its investing and financing activities that were applicable during a specified waiver period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders, capital expenditures and use of proceeds from the sale of property or common shares of the Company. On March 1, 2021, as a result of the continued disruption from COVID-19 and the related uncertainty with respect to the Company’s future operating results, the Company entered into further amendments to each of the unsecured credit facilities to extend the covenant waiver period for all but two of the Company’s existing financial maintenance covenants until the date that the compliance certificate was required to be delivered for the fiscal quarter ending June 30, 2022 (unless the Company elected an earlier date) (the “Extended Covenant Waiver Period”). The testing for the other two covenants, the Minimum Fixed Charge Coverage Ratio and the Minimum Unsecured Interest Coverage Ratio, was suspended until the compliance certificate was required to be delivered for the fiscal quarter ending March 31, 2022 (unless the Company elected an earlier date). In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021. Upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to certain restrictions regarding its investing and financing activities that were applicable during the Extended Covenant Waiver Period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders, capital expenditures and use of proceeds from the sale of property or common shares of the Company. Those restrictions, including the restriction on payment of distributions to shareholders, were still in place throughout the second quarter of 2021. See Note 4 titled “Debt” in Part II, Item 8, of the Consolidated

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Financial Statements and Notes thereto, appearing elsewhere in this Annual Report on Form 10-K for additional information regarding the Company’s debt, including the amendments to each of the unsecured credit facilities and the exit from the Extended Covenant Waiver Period mentioned above.  

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 the Company’s preferred shares; (4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5) rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. On August 12, 2020, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $300 million of its common shares under an at-the-market offering program (the “ATM Program”). As of December 31, 2021, the Company had sold approximately 4.7 million common shares under its ATM Program at a weighted-average market sales price of approximately $16.26 per common share and received aggregate gross proceeds of approximately $76.0 million and proceeds net of offering costs, which included $0.9 million of commissions, of approximately $75.1 million. The Company used the net proceeds from the sale of these shares primarily to pay down borrowings under its revolving credit facility and used the corresponding increased availability under the revolving credit facility for general corporate purposes, including acquisitions of hotel properties. As of December 31, 2021, approximately $224.0 million remained available for issuance under the ATM Program. The Company plans to use future net proceeds from the sale of these shares to continue to pay down borrowings under its revolving credit facility (if any). The Company plans to use the corresponding increased availability under the revolving credit facility for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of other outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the 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.

Distribution Policy

The Company has historically paid distributions on a monthly basis, with distributions based on anticipated cash generated from operations. The Company attempts to set a rate that can be consistent over a period of time as it forecasts its cash available from operations. As a result of COVID-19 and the impact on its business, the Company suspended its monthly distributions in March 2020. As discussed in Note 4 titled “Debt” in Part II, Item 8 in this Annual Report on Form 10-K, during the Extended Covenant Waiver Period, as a requirement under the amendments to its unsecured credit facilities, the Company was restricted in its ability to make distributions except for the payment of cash distributions of $0.01 per common share per quarter or to the extent required to maintain REIT status. Beginning in March 2021, the Board of Directors declared distributions of $0.01 per common share in the last month of each quarter and the distributions were paid out each following month. As discussed above, in July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021. As a result, upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions on distributions that were applicable during the Extended Covenant Waiver Period.

On February 22, 2022, the Company announced that its Board of Directors has reinstated its policy of distributions on a monthly basis and declared a monthly cash distribution of $0.05 per common share payable on March 15, 2022. While management expects monthly cash distributions to continue, each distribution is subject to approval by the Company’s Board of Directors and there can be no assurance of the classification, timing or duration of distributions at the current distribution rate. The Company’s Board of Directors, in consultation with management, will continue to monitor hotel operations and the timing and level of distributions in relation to the Company’s other cash requirements or in order to maintain its REIT status for federal income tax purposes. 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. As it has done historically, due to seasonality, the Company may use its revolving credit facility to maintain consistency of the distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. Although the Company has relatively low levels of debt, there can be no assurance it will be successful with this strategy and may need to reduce its distributions to required levels to maintain its REIT status. 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.

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Insurance

The Company maintains insurance coverage for general liability, property, business interruption, cyber threats and other risks with respect to all of its hotels. These policies offer coverage features and insured limits that the Company believes are customary for similar types of properties in similar locations. However, various types of catastrophic losses, like earthquakes, hurricanes, or certain types of terrorism, may not be insurable or may not be economically insurable.

Environmental Matters

The Company’s hotels are subject to various U.S. federal, state, and local environmental, health and safety laws and regulations that address a wide variety of issues, including, but not limited to, storage tanks, air emissions from emergency generators, storm water and waste water discharges, lead-based paint, mold and mildew and waste management, and impose liability for contamination. In connection with each of the Company’s hotel acquisitions, the Company reviewed a Phase I Environmental Site Assessment and additional environmental reports and surveys, as were necessitated by the preliminary report. Based on the reports, the Company is not aware of any environmental situations requiring remediation at the Company’s properties, which have not been, or are not currently being remediated as necessary. No material remediation costs have occurred or are expected to occur. Under various laws, owners as well as tenants and operators of real estate may be required to investigate and clean up or remove hazardous substances present at or migrating from properties they own, lease or operate and may be held liable for property damage or personal injuries that result from hazardous substances. These laws also expose the Company to the possibility that it may become liable to reimburse governments for damages and costs they incur in connection with hazardous substances.

Sustainability

The Company established a formal energy management program in 2018 and adopted a formal Environmental Policy in 2020 to ensure that energy, water and waste management are a priority not only within the Company, but also with the Company’s management companies. In addition to being more operationally efficient, rooms-focused hotels are more environmentally efficient than full-service hotels and resorts. With less open or unused space and less equipment needed for operating than full-service hotels, rooms-focused hotels use less electricity, water and natural gas on a per-square-foot basis than full-service or resort hotels. In addition to its overall strategy of investing in rooms-focused hotels, the Company is committed to identifying and incorporating sustainability opportunities into its investment and asset management strategies, with a focus on minimizing its environmental impact through reductions in energy and water consumption and improvements in waste management. The Company seeks to invest in proven sustainability practices when renovating its hotels and in portfolio-wide capital projects that can enhance asset value while also improving environmental performance. For example, the Company has realized cost savings and reductions in its carbon footprint through the installation of LED lighting, energy management systems, smart irrigation systems and the use of energy and water conservation guidelines at the property level with 98% of the Company’s portfolio as of December 31, 2020 enrolled in the U.S. Environmental Protection Agency’s Energy Star program. Additionally, as part of the Company’s acquisition due diligence, the Company performs sustainability assessments to identify areas of opportunity that will improve the property’s environmental performance, and when working with developers to construct new hotels, strives to implement environmentally efficient construction and building functionality.

Human Capital

The Company believes that each of its 63 team members (as of December 31, 2021) plays a vital role in the success of the organization. Management aims to provide an inspiring, inclusive work environment where employees feel valued, empowered and encouraged to make positive differences within the Company and throughout their communities, with a belief that the most successful management provides clear leadership while empowering the team to make timely and responsible decisions and to take actions necessary to achieve exceptional operating results. The Company is committed to diversity, equity and inclusion and does not tolerate discrimination or harassment in the workplace.

The Company offers competitive compensation and benefits, a flexible leave policy, fully paid parental leave, an education reimbursement program, and a culture that encourages balance of work and personal life. The Company provides its employees with two days paid leave each year for volunteer work and donation matching to support non-profit organizations. The Company emphasizes an open-door policy for communication and conducts regular employee satisfaction surveys, which provide the opportunity for continuous improvement.

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The Company is committed to working safely and maintaining a safe workplace in compliance with cleanliness guidelines set forth by the Centers for Disease Control and Prevention (CDC), and in compliance with applicable Occupational Safety and Health Act (OSHA) standards.

The Company has implemented various initiatives to ensure the Company remains inclusive, equitable and supportive for all, including a formal online training program that all employees of the Company are required to complete annually for the prevention of discrimination and harassment in the workplace, including unconscious bias.

During 2021, all employees involved in the day-to-day operation of the Company’s hotels were employed by one of 16 third-party management companies engaged pursuant to the hotel management agreements.

Social Engagement

The Company is committed to strengthening its communities through charitable giving, encouraging employees to volunteer their time and talents, and participation in the many philanthropic programs important to its employees and leaders within its industry, including its brands, the American Hotel & Lodging Association and its hotel management companies. In 2017, the Company formed Apple Gives, an employee-led charitable organization, to expand its impact and further advance the achievement of the Company’s corporate philanthropic goals. Apple Gives organizes company-wide community events with charitable organizations, deploys aid to markets and associates affected by natural disasters, and allocates funds and other resources to a variety of causes. Apple Gives strives to select organizations that are important to the Company’s employees, the Company’s third-party management companies, its hotels and numerous industry organizations. Since Apple Gives was formed, the Company has contributed to more than 100 non-profit organizations, including through company-matched donations, and employees have devoted more than 550 hours volunteering and fundraising for a variety of charitable organizations. The Company’s hotels and third-party management companies are engaged in targeted charitable programs that provide support to their respective communities, and hotel associates are encouraged to serve in ways that improve their localities. The Company’s third-party management companies donate to food drives, participate in charity walks and bike rides, assemble care packages, donate school supplies, provide disaster relief, and pursue numerous other altruistic initiatives.

Seasonality

The hotel industry has been historically 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 for the Company’s hotels are greater in the second and third quarters than in the first and fourth quarters. However, due to the effects of COVID-19, these typical seasonal patterns were disrupted in 2020 and 2021, although the Company experienced some seasonal decrease in demand in the first and fourth quarter of each year. 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.

Related Parties

The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. Certain employees of the Company also provide support services to Apple Realty Group, Inc. (“ARG”), which is wholly owned by Glade M. Knight, Executive Chairman of the Company. ARG reimburses the Company for the support services that it receives.

See Note 6 titled “Related Parties” in Part II, Item 8, of the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Annual Report on Form 10-K for additional information concerning the Company’s related party transactions.

Website Access

The address of the Company’s Internet website is www.applehospitalityreit.com. The Company makes available free of charge through its Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. Information contained on the Company’s website is not incorporated by reference into this report.

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Item 1A. Risk Factors

The Company has identified the following significant risk factors which may affect, among other things, the Company’s business, financial position, results of operations, operating cash flow, market value, and ability to service its debt obligations and make distributions to its shareholders. You should carefully consider the risks described below and the risks disclosed by the Company in other filings with the SEC, in addition to the other information contained in this Annual Report on Form 10-K.

Risks Related to the Company’s Business and Operations

The current COVID-19 pandemic has significantly adversely impacted and disrupted, and is expected to continue to significantly adversely impact and disrupt, the Company’s business, financial performance and condition, operating results and cash flows, as could any future outbreak of another highly infectious or contagious disease.

The COVID-19 pandemic, including resurgences and new variants, has had and continues to have a detrimental impact on, and another pandemic in the future could similarly impact, regional and global economies and financial markets. The global, national and local impact of the pandemic has continued to evolve and many countries, including the U.S., and state and local governments, have reacted and continue to react with a wide variety of measures intended to control its spread, including states of emergency, mandatory quarantines, implementation of stay-at-home orders, business closures, border closings, and restrictions on travel and large gatherings, which has resulted in cancellation of events, including sporting events, conferences and meetings.

The effects of the pandemic on the hotel industry are unprecedented. COVID-19 has disrupted the industry and has dramatically reduced business and impacted leisure travel, which has had a significant adverse impact, and management expects COVID-19, including new variants, will continue to significantly adversely impact and disrupt the Company’s business, financial performance and condition, operating results and cash flows. Beginning in March 2020, the Company experienced a significant decline in revenue throughout its portfolio and the Company expects the impact of this decline to continue for an extended period of time. More than half of the Company’s properties continue to operate at reduced levels as compared to 2019 and the Company has reduced certain services and amenities. Although currently all of the Company’s hotels are open, the Company may need or elect to temporarily suspend operations at properties in the future depending on the length and severity of COVID-19 and related effects, including any increase in the number of COVID-19 cases. If operations at the Company’s hotel properties are suspended, the Company cannot give any assurance as to when they will resume operations at a full or reduced level.

Additional factors that would negatively impact the Company’s ability to successfully operate during or following COVID-19 or another pandemic, or that could otherwise significantly adversely impact and disrupt its business, financial performance and condition, operating results and cash flows, include:

• sustained negative consumer or business sentiment or continued corporate travel policy restrictions, including beyond the end of COVID-19, which could further adversely impact demand for lodging;

• continued postponement and cancellation of events, including sporting events, conferences and meetings;

• hotel closures and the Company’s ability to reopen hotels that are temporarily closed in a timely manner, and its ability to attract customers to its hotels when they are able to reopen;

• a severe disruption or instability in the global financial markets or deterioration in credit and financing conditions;

• continued increased costs and potential difficulty accessing supplies related to personal protective equipment, increased sanitation, social distancing and other mitigation measures at hotels;

• continued increased labor costs to attract employees due to government-issued vaccination requirements or prohibitions, perceived risk of exposure to COVID-19, as well as potential for increased workers’ compensation claims if hotel employees are exposed to COVID-19 through the workplace; and

• increased susceptibility to litigation related to, among other things, the financial impacts of COVID-19 on the Company’s business or litigation related to individuals contracting COVID-19 as a result of alleged exposures on the Company’s premises.

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The results of these factors could include:

• continued decreased demand resulting in hotel properties not generating revenue sufficient to meet operating expenses, which may adversely affect the value of the Company’s hotel properties, potentially requiring the Company to recognize significant non-cash impairment charges or other significant unanticipated cash or non-cash costs;

• the further scaling back and delay of a significant amount of the Company’s planned capital expenditures, including planned renovation projects, which could adversely affect the value of the Company’s properties;

• a material adverse effect on the Company’s ability to consummate acquisitions and dispositions of hotel properties;

• changes in the amount or frequency of the Company’s distributions;

• increased indebtedness and sustained or further decreases in operating results, which could increase the Company’s risk of default under its loan agreements or other long-term contracts;

• inability of the Company to maintain compliance with certain covenants in its unsecured credit facilities and the need to seek amendments to such facilities in the future, which could result in concessions from the Company, such as increased interest rates;

• increased volatility of the Company’s stock price;

• disruptions in the Company’s supply chains, which may increase operating costs and costs for essential capital improvements or may impact hotels that are under development and that the Company expects to acquire following completion;

• declines in regional and local economies, reducing travel to and from the localities;

• increased risk that the Company could be required to close on the purchase under its existing contracts for newly developed hotels, where the hotel is not legally allowed to open due to temporary regulations resulting from COVID-19 mitigation;

• increased risk in the Company’s and its management companies’ ability to retain, and the continued service and availability of, personnel, including the Company’s senior leadership team and key field personnel, including general managers, and the Company’s ability to recruit, attract and retain skilled personnel to the extent its management or personnel are impacted by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work;

• disruptions as a result of corporate employees working remotely, including risk of cybersecurity incidents and disruptions to internal control procedures; and

• difficulty accessing debt and equity capital on attractive terms, or at all, under the Company’s secured and unsecured indebtedness, or capital necessary to fund business operations or address maturing liabilities.

Moreover, many risk factors set forth in this Annual Report on Form 10-K should be interpreted as heightened risks as a result of the ongoing and numerous adverse impacts of COVID-19.

The extent and duration of the impacts caused by COVID-19 on the Company’s business, including financial condition, operating results and cash flows, remains largely uncertain and dependent on future developments that are highly uncertain and cannot be accurately predicted at this time, such as the continued severity, duration, transmission rate and geographic spread of COVID-19 in the U.S.; the effectiveness, acceptance and availability of vaccines; the duration of associated immunity and efficacy of the vaccines against variants of COVID-19; the extent and effectiveness of actions taken to contain the pandemic or mitigate its impact; the timing of and manner in which containment efforts are reduced or lifted; and the response of the overall economy, the financial markets and the population, particularly in areas in which the Company operates, as containment measures are reduced or lifted. As a result, the Company cannot provide an estimate of the overall impact of COVID-19 on its business or when, or if, the Company will be able to resume pre-COVID-19 levels of operations. COVID-19 presents material uncertainty and risk with respect to the Company’s business, financial performance and condition, operating results and cash flows.

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The Company is subject to various risks which are common to the hotel industry on a national, regional and local market basis that are beyond its control and could adversely affect its business.

The success of the Company’s hotels depends largely on the hotel operators’ ability to adapt to dominant trends and risks in the hotel industry, both nationally and in individual local markets. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms as well as hotel operating expenses. The following is a summary of risks that may affect the hotel industry in general and as a result may affect the Company:

• over-building of hotels in the markets in which the Company operates, resulting in an increase in supply of hotel rooms that exceeds increases in demand;

• competition from other hotels and lodging alternatives in the markets in which the Company operates;

• a downturn in the hospitality industry;

• dependence on business and leisure travel;

• increases in energy costs and other travel expenses, which may affect travel patterns and reduce business and leisure travel;

• reduced business and leisure travel due to geo-political uncertainty, including terrorism, travel-related health concerns, including COVID-19 or other widespread outbreaks of infectious or contagious diseases in the U.S., inclement weather conditions, including natural disasters such as hurricanes, earthquakes and wildfires, and government shutdowns, airline strikes or other disruptions;

• reduced travel due to adverse national, regional or local economic and market conditions;

• seasonality of the hotel industry may cause quarterly fluctuations in operating results;

• changes in marketing and distribution for the hospitality industry including the cost and the ability of third-party internet and other travel intermediaries to attract and retain customers;

• changes in hotel room demand generators in a local market;

• ability of a hotel franchise to fulfill its obligations to franchisees;

• brand expansion;

• the performance of third-party managers of the Company’s hotels;

• increases in operating costs, including ground lease payments, property and casualty insurance, utilities and real estate and personal property taxes, due to inflation, climate change and other factors that may not be offset by increased room rates;

• labor shortages and other increases in the cost of labor due to low unemployment rates or to government regulations surrounding work rules, government-issued vaccination requirements or prohibitions, wage rates, health care coverage and other benefits;

• changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with applicable laws and regulations;

• business interruptions due to cyber-attacks and other technological events;

• requirements for periodic capital reinvestment to repair and upgrade hotels;

• limited alternative uses for hotel buildings; and

• condemnation or uninsured losses.

Any of these factors, among others, may reduce the Company’s operating results, the value of the properties that the Company owns, and the availability of capital to the Company.

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Economic conditions in the U.S. and individual markets may adversely affect the Company’s business operations and financial performance.

The performance of the lodging industry has historically been highly cyclical and closely linked to the performance of the general economy both nationally and within local markets in the U.S. The lodging industry is also sensitive to government, business and personal discretionary spending levels. Declines in government and corporate budgets and consumer demand due to adverse general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence or adverse political conditions have lowered and may continue to lower the revenue and profitability of the Company’s hotels and therefore the net operating profits of its investments. An economic downturn or prolonged economic recession, including lower GDP growth, corporate earnings, consumer confidence, employment rates, income levels and personal wealth, has led and may continue to lead to a significant decline in demand for products and services provided by the lodging industry, lower occupancy levels and significantly reduced room rates. The Company cannot predict the pace or duration of an economic recession or cycle or the cycles of the lodging industry. In the event conditions in the industry deteriorate or do not continue to see sustained improvement, or there is an extended period of economic weakness, the Company’s revenue and profitability could be adversely affected. Furthermore, even if the economy in the U.S. improves, the Company cannot provide any assurances that demand for hotels will increase from current levels, nationally or more specifically, where the Company’s properties are located.

In addition, many of the expenses associated with the Company’s business, including certain personnel costs, interest expense, ground leases, property taxes, insurance and utilities, are relatively fixed. During a period of overall economic weakness, if the Company is unable to meaningfully decrease these costs as demand for its hotels decreases, the Company’s business operations and financial performance may be adversely affected.

The Company is affected by restrictions in, and compliance with, its franchise and license agreements.

The Company’s wholly-owned taxable REIT subsidiaries (“TRSs”) (or subsidiaries thereof) operate substantially all of its hotels pursuant to franchise or license agreements with nationally recognized hotel brands. These franchise and license agreements contain specific standards for, and restrictions and limitations on, the operation and maintenance of the Company’s hotels in order to maintain uniformity within the franchisor system. The Company may be required to incur costs to comply with these standards and these standards could potentially conflict with the Company’s ability to create specific business plans tailored to each property and to each market. Failure to comply with these brand standards may result in termination of the applicable franchise or license agreement. In addition, as the Company’s franchise and license agreements expire, the Company may not be able to renew them on favorable terms, or at all. If the Company were to lose or was unable to renew a franchise or license agreement, the Company would be required to re-brand the hotel, which could result in a decline in the value of the hotel, the loss of marketing support and participation in guest loyalty programs, and harm to the Company’s relationship with the franchisor, impeding the Company’s ability to operate other hotels under the same brand. Additionally, the franchise and license agreements have provisions that could limit the Company’s ability to sell or finance a hotel which could further affect the Company.

Substantially all of the Company’s hotels operate under Marriott or Hilton brands; therefore, the Company is subject to risks associated with concentrating its portfolio in these brand families.

Substantially all of the Company’s hotels operate under brands owned by Marriott or Hilton. As a result, the Company’s success is dependent in part on the continued success of Marriott and Hilton and their respective brands. The Company believes that building brand value is critical to increase demand and strengthen customer loyalty. Consequently, if market recognition or the positive perception of any of these brands is reduced or compromised, the goodwill associated with the Marriott or Hilton branded hotels in the Company’s portfolio may be adversely affected. Also, if Marriott or Hilton alter certain policies, including their respective guest loyalty programs, this could reduce the Company’s future revenues. Furthermore, if the Company’s relationship with Marriott or Hilton were to deteriorate or terminate as a result of disputes regarding the Company’s hotels or for other reasons, the franchisors could, under certain circumstances, terminate the Company’s current franchise licenses with them or decline to provide franchise licenses for hotels that the Company may acquire in the future. If any of the foregoing were to occur, it could have a material adverse effect on the Company.

Although substantially all of the Company’s hotels operate under the brands noted above, the Company owns and may from time to time acquire independent hotels or hotels affiliated with other brands, and/or may choose to operate hotels independently of a brand if the Company believes that these properties will operate most effectively as independent hotels. However, without the support and recognition of a large established brand, the capability of these independent or less recognized branded hotels to market the hotel, maintain guest loyalty, attract new guests, and operate in a cost-effective manner may be difficult, which could adversely affect the Company’s overall operating results.

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Competition in the markets where the Company owns hotels may adversely affect the Company’s results of operations.

The hotel industry is highly competitive. Each of the Company’s hotels competes for guests primarily with other hotels in its immediate vicinity and secondarily with other hotels in its geographic market. The Company also competes with numerous owners and operators of vacation ownership resorts, as well as alternative lodging companies, including third-party providers of short-term rental properties and serviced apartments that can be rented on a nightly, weekly or monthly basis. An increase in the number of competitive hotels, vacation ownership resorts and alternative lodging arrangements in a particular area could have a material adverse effect on the occupancy, ADR and RevPAR of the Company’s hotels in that area and lower the Company’s revenue and profitability.

The Company is dependent on third-party hotel managers to operate its hotels and could be adversely affected if such management companies do not manage the hotels successfully.

To maintain its status as a REIT, the Company is not permitted to operate any of its hotels. As a result, the Company has entered into management agreements with third-party managers to operate its hotels. For this reason, the Company’s ability to direct and control how its hotels are operated is less than if the Company were able to manage its hotels directly. Under the terms of the hotel management agreements, the Company’s ability to participate in operating decisions regarding its hotels is limited to certain matters, and it does not have the authority to require any hotel to be operated in a particular manner (for instance, setting room rates). The Company does not supervise any of the hotel managers or their respective personnel on a day-to-day basis. The Company cannot be assured that the hotel managers will manage its hotels in a manner that is consistent with their respective obligations under the applicable management agreement or the Company’s obligations under its hotel franchise agreements. The Company could be materially and adversely affected if any of its third-party managers fail to effectively manage revenues and expenses, provide quality services and amenities, or otherwise fail to manage its hotels in its best interest, and may be financially responsible for the actions and inactions of the managers. In certain situations, based on the terms of the applicable management agreement, the Company or manager may terminate the agreement. In the event that any of the Company’s management agreements are terminated, the Company can provide no assurance that it could identify a replacement manager, that the franchisor will consent to the replacement manager in a timely manner, or at all, or that the replacement manager will manage the hotel successfully. A failure by the Company’s hotel managers to successfully manage its hotels could lead to an increase in its operating expenses, a decrease in its revenues, or both. Furthermore, if one of the Company’s third-party managers is financially unable or unwilling to perform its obligations pursuant to its management agreements with the Company, the Company’s ability to find a replacement manager or managers for those properties could be costly and time-consuming for the Company and disrupt hotel operations which could materially and adversely affect the Company.

The growing use of non-franchisor lodging distribution channels could adversely affect the Company’s business and profitability.

Although a majority of rooms sold are sold through the hotel franchisors’ distribution channels, a growing number of the Company’s hotel rooms are sold through other channels or intermediaries. Rooms sold through non-franchisors’ channels are generally less profitable (after associated fees) than rooms sold through franchisors’ channels. Although the Company’s franchisors may have established agreements with many of these alternative channels or intermediaries that limit transaction fees for hotels, there can be no assurance that the Company’s franchisors will be able to renegotiate such agreements upon their expiration with terms as favorable as the provisions that exist today. Moreover, alternative channels or intermediaries may employ aggressive marketing strategies, including expending significant resources for online and television advertising campaigns to drive consumers to their websites. As a result, consumers may develop brand loyalties to the intermediaries’ offered brands, websites and reservations systems rather than to those of the Company’s franchisors. If this happens, the Company’s business and profitability may be materially and adversely affected.

Renovations and capital improvements at the Company’s existing hotels or new hotel developments may reduce the Company’s profitability.

The Company has ongoing needs for hotel renovations and capital improvements, including maintenance requirements and updates to brand standards under all of its hotel franchise and management agreements and certain loan agreements. In addition, from time to time the Company will need to make renovations and capital improvements to comply with applicable laws and regulations, to remain competitive with other hotels and to maintain the economic value of its hotels. As properties increase in age, the frequency and cost of renovations needed to maintain appealing facilities for hotel guests may increase. The Company may also need to make significant capital improvements to hotels that it acquires, or may be involved in the development of new hotels. Construction delays and cost overruns, including increases in the costs of labor, goods and materials and delays and cost increases caused by supply chain disruptions, have increased and may continue to increase

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renovation or development costs for the Company and have delayed and may in the future delay the acquisition or opening of hotels or the length of time that rooms are out of service. Occupancy and ADR are often affected during periods of renovations and capital improvements at a hotel, especially if the Company encounters delays, or if the improvements require significant disruption at the hotel. The costs of renovations and capital improvements the Company needs or chooses to make at the Company’s existing hotels, or the costs related to the development of new hotels, could reduce the funds available for other purposes and may reduce the Company’s profitability.

Certain hotels are subject to ground leases that may affect the Company’s ability to use the hotel or restrict its ability to sell the hotel.

As of December 31, 2021, 14 of the Company’s hotels were subject to ground leases. Accordingly, the Company effectively only owns a long-term leasehold interest in these hotels. If the Company is found to be in breach of a ground lease, it could lose the right to use the hotel. In addition, unless the Company can purchase a fee interest in the underlying land or renew the terms of these leases before their expiration, as to which no assurance can be given, the Company will lose its right to operate these properties and its interest in the property, including any investment that it made in the property. The Company’s ability to exercise any extension options relating to its ground leases is subject to the condition that the Company is not in default under the terms of the ground lease at the time that it exercises such options, and the Company can provide no assurances that it will be able to exercise any available options at such time. If the Company were to lose the right to use a hotel due to a breach or non-renewal of a ground lease, it would be unable to derive income from such hotel. Finally, the Company may not be permitted to sell or finance a hotel subject to a ground lease without the consent of the lessor.

The Company may not be able to complete hotel dispositions when and as anticipated.

The Company continually monitors the profitability of its hotels, market conditions, and capital requirements and attempts to maximize shareholder value by timely disposal of its hotels. Real estate investments are, in general, relatively difficult to sell due to, among other factors, the size of the required investment and the volatility in availability of adequate financing for a potential buyer. This illiquidity will tend to limit the Company’s ability to promptly vary its portfolio in response to changes in economic or other conditions. Additionally, factors specific to an individual property, such as its specific market and operating performance, restrictions in franchise and management agreements, debt secured by the property, a ground lease, or capital expenditure needs may further increase the difficulty in selling a property. Therefore, the Company cannot predict whether it will be able to sell any hotels on acceptable terms, or at all. In addition, provisions of the Code relating to REITs have certain limits on the Company’s ability to sell hotels.

Real estate impairment losses may adversely affect the Company’s financial condition and results of operations.

As a result of changes in an individual hotel’s operating results or to the Company’s planned hold period for a hotel, the Company may be required to record an impairment loss for a property. The Company analyzes its hotel properties individually for indicators of impairment throughout the year. The Company records an impairment loss on a hotel property if indicators of impairment are present, and the sum of the undiscounted cash flows estimated to be generated by the respective property over its estimated remaining useful life, based on historical and industry data, is less than the property’s carrying amount. Indicators of impairment include, but are not limited to, a property with current or potential losses from operations, when it becomes more likely than not that a property will be sold before the end of its previously estimated useful life or when events, trends, contingencies or changes in circumstances indicate that a triggering event has occurred and an asset’s carrying value may not be recoverable.

The Company’s failure to identify and complete accretive acquisitions may adversely affect the profitability of the Company.

The Company’s business strategy includes identifying and completing accretive hotel acquisitions. The Company competes with other investors who are engaged in the acquisition of hotels, and these competitors may affect the supply and demand dynamics and, accordingly, increase the price the Company must pay for hotels it seeks to acquire, or these competitors may succeed in acquiring those hotels. Any delay or failure on the Company’s part to identify, negotiate, finance on favorable terms, consummate and integrate such acquisitions could materially impede the Company’s growth. The Company may also incur costs that it cannot recover if it abandons a potential acquisition. Also, if the Company does not reinvest proceeds received from hotel dispositions into new properties in a timely manner, the Company’s profitability could be negatively impacted. The Company’s profitability may also suffer because future acquisitions of hotels may not yield the returns the Company expects and the integration of such acquisitions may disrupt the Company’s business or may take longer than projected.

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The Company’s inability to obtain financing on favorable terms or pay amounts due on its financing may adversely affect the Company’s operating results.

Although the Company anticipates maintaining relatively low levels of debt, it may periodically use financing to acquire properties, perform renovations to its properties, or make shareholder distributions or share repurchases in periods of fluctuating income from its properties. The credit markets have historically been volatile and subject to increased regulation, and as a result, the Company may not be able to obtain debt financing to meet its cash requirements, including refinancing any scheduled debt maturities, which may adversely affect its ability to execute its business strategy. If the Company refinances debt, such refinancing may not be in the same amount or on terms as favorable as the terms of the existing debt being refinanced. If the Company is unable to refinance its debt, it may be forced to dispose of hotels or issue equity at inopportune times or on disadvantageous terms, which could result in higher costs of capital.

The Company is also subject to risks associated with increases in interest rates with respect to the Company’s variable-rate debt which could reduce cash from operations. In addition, the Company has used interest rate swaps to manage its interest rate risks on a portion of its variable-rate debt, and in the future, it may use hedging arrangements, such as interest rate swaps to manage its exposure to interest rate volatility. The Company’s actual hedging decisions are determined in light of the facts and circumstances existing at the time of the hedge. There is no assurance that the Company’s hedging strategy will achieve its objectives, and the Company may be subject to costs, such as transaction fees or breakage costs, if it terminates these hedging arrangements.

The phase-out, replacement, or unavailability of LIBOR as the reference interest rate under the Company’s variable-rate debt and hedging arrangements could have a material adverse effect on the business, financial condition and results of operations of the Company, and the replacement rate may differ from LIBOR and between the loan and hedge markets.

The Company’s variable-rate debt and hedging arrangements use the London Inter-Bank Offered Rate (“LIBOR”) as the reference rate. On March 5, 2021, the U.K. Financial Conduct Authority (“FCA”) announced staggered dates by which LIBOR settings will either cease to be provided by any administrator or no longer be representative. In connection with the cessation of LIBOR, the Company expects a transition from LIBOR to another reference rate by June 30, 2023.

The Secured Overnight Financing Rate (“SOFR”), which is published by the New York Federal Reserve, has been proposed as the preferred alternative to LIBOR as a reference rate. In October 2020, after a number of industry consultations, the International Swaps and Derivatives Association published a LIBOR transition protocol, to which the Company has adhered. The discontinuation of LIBOR, and the transition to SOFR or another alternative reference rate may be disruptive to financial markets. When LIBOR is discontinued, the interest rate for the Company’s variable-rate debt will be based on an alternative reference rate as specified in the applicable documentation governing such debt, and the reference rate for its interest rate swaps will be SOFR unless otherwise agreed. Such an event would not affect the Company’s ability to borrow or maintain already outstanding borrowings or outstanding swaps, but SOFR or another replacement reference rate could perform differently than LIBOR prior to its discontinuance. While market participants have proposed certain methods to interpolate and transition between LIBOR and SOFR, there can be no assurance that SOFR (including a term SOFR or compounded SOFR) will perform in the same way as LIBOR would have at any time, including, without limitation, as a result of changes in interest and yield rates in the market, market volatility, or global or regional economic, financial, political, regulatory, judicial or other events.

Furthermore, differences between LIBOR replacement methodology in loan and hedging markets could result in differences in conversion between the Company’s variable-rate debt arrangements and corresponding hedges. While the loan market may eventually generally adopt the same replacement for LIBOR as the hedging market, there can be no assurance as to the timing of such adoption and any differences in the timing of adoption of LIBOR replacements between the loan and hedge market as well as differences in methodology and valuation can lead to mismatches in hedging, which could result in changes to the Company’s risk exposure, adverse tax or accounting effects, and increased compliance, legal and operational costs. The transition from LIBOR, or any changes or reforms to the determination of LIBOR, could have an adverse impact on the Company’s interest rates on its current or future indebtedness, as well as its variable-rate hedging arrangements, which could have a material adverse effect on the business, financial condition and results of operations of the Company.

Compliance with financial and other covenants in the Company’s existing or future debt agreements may reduce operational flexibility and create default risk.

The Company’s existing indebtedness, whether secured by mortgages on certain properties or unsecured, contains, and indebtedness that the Company may enter into in the future likely will contain, customary covenants that may restrict the Company’s operations and limit its ability to enter into future indebtedness. In addition, the Company’s ability to borrow under its unsecured credit facilities is subject to compliance with its financial and other covenants, including, among others, a

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minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios, and restrictions on certain investments. The Company’s failure to comply with the covenants in its existing or future indebtedness, or its inability to make required principal and interest payments, could cause a default under the applicable debt agreement, which could result in the acceleration of the debt, requiring the Company to repay such debt with capital obtained from other sources, which may not be available to the Company or may only be available on unfavorable terms.

If the Company defaults on its secured debt, lenders may take possession of the property or properties securing such debt. As a general policy, the Company seeks to obtain mortgages securing indebtedness which encumber only the particular property to which the indebtedness relates, but recourse on these loans may include all of its assets. If recourse on any loan incurred by the Company to acquire or refinance any particular property includes all of its assets, the equity in other properties could be reduced or eliminated through foreclosure on that loan. If a loan is secured by a mortgage on a single property, the Company could lose that property through foreclosure if it defaults on that loan. If the Company defaults under a loan, it is possible that it could become involved in litigation related to matters concerning the loan, and such litigation could result in significant costs for the Company. Additionally, defaulting under a loan may damage the Company’s reputation as a borrower and may limit its ability to secure financing in the future.

Technology is used in operations, and any material failure, inadequacy, interruption or security failure of that technology from cyber-attacks or other events could harm the Company’s business.

The Company, and its hotel managers and franchisors rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personally identifiable information, reservations, billing and operating data. The Company and its hotel managers and franchisors rely on commercially available and internally developed systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential operator and customer information, such as personally identifiable information, including information relating to financial accounts. A number of hotels, hotel management companies, and brands have been subject to successful cyber-attacks, including those seeking guest credit card information. Moreover, the risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. It is possible that the safety and security measures taken by the Company and its hotel managers and franchisors will not be able to prevent damage to the systems, the systems’ improper functioning, or the improper access or disclosure of personally identifiable information.

Security breaches, whether through physical or electronic break-ins, cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, social engineering or phishing schemes, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of information systems could interrupt operations, damage the reputations of the Company, the Company’s hotel managers or franchisors, and subject the Company to liability claims or regulatory penalties that may not be fully covered by insurance, all of which could have a material adverse effect on the business, financial condition and results of operations of the Company.

Potential losses not covered by insurance may adversely affect the Company’s financial condition.

The Company maintains comprehensive insurance coverage for general liability, property, business interruption and other risks with respect to all of its hotels. These policies offer coverage features and insured limits that the Company believes are customary for similar types of properties. There are no assurances that coverage will be available or at reasonable rates in the future. Also, various types of catastrophic losses, like earthquakes, hurricanes and other storms, wildfires, or certain types of terrorism, may not be insurable or may not be economically insurable for all or certain locations. Even when insurable, these policies may have high deductibles and/or high premiums. Additionally, although the Company may be insured for a particular loss, the Company is not insured against the impact a catastrophic event may have on the hospitality industry as a whole. There also can be risks such as certain environmental hazards that may be deemed to fall outside of the coverage. In the event of a substantial loss, the Company’s insurance coverage may not be sufficient to cover the full current market value or replacement cost of its lost investment. Should an uninsured loss or a loss in excess of insured limits occur, the Company could lose all or a portion of the capital it has invested in a hotel, as well as the anticipated future revenue from the hotel. In that event, the Company might nevertheless remain obligated for any mortgage debt or other financial obligations related to the hotel. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also prevent the Company from using insurance proceeds to replace or renovate a hotel after it has been damaged or destroyed. The Company also may encounter challenges with an insurance provider regarding whether it will pay a particular claim that the Company believes to be covered under the relevant policy. Under those circumstances, the

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insurance proceeds the Company receives might be inadequate to restore its economic position in the damaged or destroyed hotel. Additionally, as a result of substantial claims, insurance carriers may reduce insured limits and/or increase premiums, if insurance coverage is provided at all, in the future. Any of these or similar events could have a material adverse effect on the Company’s financial condition and results of operations.

The Company faces possible risks associated with the physical effects of, and laws and regulations related to, climate change.

The Company is subject to the risks associated with the physical effects of climate change, which could include more frequent or severe storms, droughts, wildfires, hurricanes and flooding, any of which could have a material adverse effect on the Company’s properties, operations and business. To the extent climate change causes changes in weather patterns, the markets in which the Company operates could experience increases in storm intensity and rising sea levels causing damage to the Company’s properties. Over time, these conditions could result in declining hotel demand or the Company’s inability to operate the affected hotels at all. Climate change also may have indirect effects on the Company’s business by increasing the cost of (or making unavailable) property insurance on terms the Company finds acceptable, as well as increasing the cost of renovations, energy and water at its properties. The federal government and some of the states and localities in which the Company operates have enacted certain climate change laws and regulations and/or have begun regulating carbon footprints and greenhouse gas emissions and may enact new laws in the future. Although these laws and regulations have not had any known material adverse effect on the Company to date, they could impact companies with which the Company does business or result in substantial costs to the Company, including compliance costs, construction costs, monitoring and reporting costs and capital expenditures for environmental control facilities and other new equipment. Climate change, and any future laws and regulations, or future interpretations of current laws and regulations, could have a material adverse effect on the Company.

The Company could incur significant, material costs related to government regulation and litigation with respect to environmental matters, which could have a material adverse effect on the Company.

The Company’s hotels are subject to various U.S. federal, state and local environmental laws that impose liability for contamination. Under these laws, governmental entities have the authority to require the Company, as the current owner of a hotel, to perform or pay for the clean-up of contamination (including hazardous substances, asbestos and asbestos-containing materials, waste, petroleum products or mold) at, on, under or emanating from the hotel and to pay for natural resource damages arising from such contamination. Such laws often impose liability without regard to whether the owner or operator or other responsible party knew of, or caused such contamination, and the liability may be joint and several. Because these laws also impose liability on persons who owned or operated a property at the time it became contaminated, it is possible the Company could incur cleanup costs or other environmental liabilities even after it sells or no longer operates hotels. Contamination at, on, under or emanating from the Company’s hotels also may expose it to liability to private parties for the costs of remediation, personal injury and/or property damage. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs required to address such contamination. If contamination is discovered on the Company’s properties, environmental laws also may impose restrictions on the manner in which the properties may be used or businesses may be operated, and these restrictions may require substantial expenditures. Moreover, environmental contamination can affect the value of a property and, therefore, an owner's ability to borrow funds using the property as collateral or to sell the property on favorable terms, or at all. Furthermore, if, as part of the remediation of a contaminated property, the Company were to dispose of certain waste products at a waste disposal facility, such as a landfill or an incinerator, the Company may be liable for costs associated with the cleanup of that facility.

In addition, the Company’s hotels are subject to various U.S. federal, state, and local environmental, health and safety laws and regulations that address a wide variety of issues, including, but not limited to, storage tanks, air emissions from emergency generators, storm water and wastewater discharges, lead-based paint, mold and mildew, and waste management. Some of the Company’s hotels routinely handle and use hazardous or regulated substances and wastes as part of their operations, which are subject to regulation (e.g., swimming pool chemicals and cleaning supplies). The Company’s hotels incur costs to comply with these environmental, health and safety laws and regulations, and could be subject to fines and penalties for non-compliance with applicable requirements.

Liabilities and costs associated with environmental contamination at or emanating from the Company’s hotel properties, defending against claims related to alleged or actual environmental issues, or complying with environmental, health and safety laws and regulations could be material and could materially and adversely affect the Company. The Company can make no assurances that changes in current laws or regulations or future laws or regulations will not impose additional or new material environmental liabilities or that the current environmental condition of its hotels will not be affected by its operations, the condition of the properties in the vicinity of its hotels, or by third parties unrelated to the

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Company. The discovery of material environmental liabilities at its properties could subject the Company to unanticipated significant costs, which could significantly reduce or eliminate its profitability.

The Company may incur significant costs complying with various regulatory requirements, which could materially and adversely affect the Company.

The Company and its hotels are subject to various U.S. federal, state and local regulatory requirements. These requirements are wide-ranging and include among others, state and local fire and life safety requirements, federal laws such as the Americans with Disabilities Act of 1990 and the Accessibility Guidelines promulgated thereunder and the Sarbanes-Oxley Act of 2002. Liabilities and costs associated with complying with these requirements are and could be material. If the Company fails to comply with these various requirements, it could incur governmental fines or private damage awards. In addition, existing requirements could change, and future requirements might require the Company to make significant unanticipated expenditures, which could have material and adverse effects on the Company.

In addition, as a result of these significant regulations, the Company could become subject to regulatory investigations and lawsuits. Regulatory investigations and lawsuits could result in significant costs to respond and costs of fines or settlements, or changes in the Company’s business practices, any of which could have a material adverse effect on the financial condition, results of operations, liquidity and capital resources, and cash flows of the Company. The ability of the Company to access capital markets, including commercial debt markets, could also be negatively impacted by unfavorable, or the possibility of unfavorable, outcomes from adverse regulatory actions or lawsuits.

Risks Related to the Company’s Organization and Structure

The Company’s ownership limitations may restrict or prevent certain acquisitions and transfers of its shares.

In order for the Company to maintain its qualification as a REIT under the Code, not more than 50% in value of its outstanding shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year following the Company’s first year (the “5/50 Test”). Additionally, at least 100 persons must beneficially own the Company’s shares during at least 335 days of each taxable year (the “100 Shareholder Test”). The Company’s amended and restated articles of incorporation (the “Charter”), with certain exceptions, authorizes the Company’s Board of Directors to take the actions that are necessary and desirable to preserve its qualification as a REIT. In addition to the 5/50 Test and the 100 Shareholder Test, the Company’s Charter provides that no person or entity may directly or indirectly, beneficially or constructively, own more than 9.8% of the aggregate of its outstanding common shares or 9.8% of the aggregate of the outstanding preferred shares of any class or series (“share ownership limits”). The Company’s Board of Directors may, in its sole discretion, grant an exemption to the share ownership limits, subject to certain conditions and the receipt by the Board of Directors of certain representations and undertakings. In addition, the Board of Directors may change the share ownership limits. The share ownership limits contained in the Charter key off the ownership at any time by any “person,” which term includes entities, and take into account direct and indirect ownership as determined under various ownership attribution rules in the Code. The share ownership limits might delay or prevent a transaction or a change in the Company’s control that might involve a premium price for the Company’s common shares or otherwise be in the best interests of its shareholders.

The Company’s future issuances of preferred shares or debt securities may adversely affect the voting power or ownership interest of the holders of common shares or may limit the ability of a third party to acquire control of the Company.

The Company’s Charter allows the Board of Directors to issue up to 30 million “blank check” preferred shares, without action by shareholders. Preferred shares may be issued on terms determined by the Board of Directors, and may have rights, privileges and preferences superior to those of common shares. Without limiting the foregoing, (i) such preferred shares could have liquidation rights that are senior to the liquidation preference applicable to common shares, (ii) such preferred shares could have voting or conversion rights, which could adversely affect the voting power of the holders of common shares, and (iii) the ownership interest of holders of common shares will be diluted following the issuance of any such preferred shares. In addition, the issuance of blank check preferred shares could have the effect of discouraging, delaying or preventing a change of control of the Company. Additionally, the Company may issue debt securities which would have distribution rights that are senior to common shares and liquidation rights that are senior to the liquidation preference applicable to common shares. Common shareholders bear the risk that the Company’s future issuances of preferred shares or debt securities will negatively affect the market price of the Company’s common shares.

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Provisions of the Company’s third amended and restated bylaws could inhibit changes in control.

Provisions in the Company’s third amended and restated bylaws may make it difficult for another company to acquire it and for shareholders to receive any related takeover premium for its common shares. Pursuant to the Company’s third amended and restated bylaws, directors are elected by the plurality of votes cast and entitled to vote in the election of directors. However, the Company’s corporate governance guidelines require that if an incumbent director fails to receive at least a majority of the votes cast, such director will tender his or her resignation from the Board of Directors. The Nominating and Corporate Governance Committee of the Board of Directors will consider, and determine whether to accept, such resignation. Additionally, the third amended and restated bylaws of the Company have various advance notice provisions that require shareholders to meet certain requirements and deadlines for proposals at an annual meeting of shareholders. These provisions may have the effect of delaying, deferring or preventing a transaction or a change in control of the Company that might involve a premium to the price of the Company’s common shares or otherwise be in the shareholders’ best interests.

The Company’s Executive Chairman has interests that may conflict with the interests of the Company and that may detract from the time devoted to the Company.

Glade M. Knight, the Company’s Executive Chairman, is and will be a principal in other real estate investment transactions or programs that may compete with the Company, and he is and may be a principal in other business ventures. Mr. Knight’s management and economic interests in these other transactions or programs may conflict with the interests of the Company. Mr. Knight is not required to devote a fixed amount of time and attention to the Company’s business affairs as opposed to the other companies, which could detract from time devoted to the Company.

Tax-Related Risks and Risks Related to the Company’s Status as a REIT

Qualifying as a REIT involves highly technical and complex provisions of the Code and failure of the Company to qualify as a REIT would have adverse consequences to the Company and its shareholders.

The Company’s qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize the Company’s REIT qualification. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for the Company to qualify as a REIT. Maintaining the Company’s qualification as a REIT depends on the Company’s satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. The Company’s ability to satisfy the REIT income and asset tests depends upon the Company’s analysis of the characterization and fair market values of the Company’s assets, some of which are not susceptible to a precise determination and for which the Company will not obtain independent appraisals, and upon the Company’s ability to successfully manage the composition of its income and assets on an ongoing basis. In addition, the Company’s ability to satisfy the requirements to maintain its qualification as a REIT depends in part on the actions of third parties over which the Company has no control or only limited influence.

If the Company does not qualify as a REIT or if the Company fails to remain qualified as a REIT, the Company will be subject to U.S. federal corporate income tax and potentially state and local taxes, which would reduce the Company’s earnings and the amount of cash available for distribution to its shareholders.

If the Company failed to qualify as a REIT in any taxable year and any available relief provisions did not apply, the Company would be subject to U.S. federal and state corporate income tax on its taxable income at the regular corporate rate, and dividends paid to its shareholders would not be deductible by the Company in computing its taxable income. Unless the Company was entitled to statutory relief under certain Code provisions, the Company also would be disqualified from taxation as a REIT for the four taxable years following the year in which it failed to qualify as a REIT.

Any determination that the Company does not qualify as a REIT would have a material adverse effect on the Company’s results of operations and could materially reduce the market price of its common shares. The Company’s additional tax liability could be substantial and would reduce its net earnings available for investment, debt service or distributions to shareholders. Furthermore, the Company would no longer be required to make any distributions to shareholders as a condition to REIT qualification and all of its distributions to shareholders would be taxable as ordinary C corporation dividends to the extent of its current and accumulated earnings and profits. The Company’s failure to qualify as a REIT also could cause an event of default under loan documents governing its debt.

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Even if the Company qualifies as a REIT, it may face other tax liabilities that reduce its cash flow.

Even if the Company qualifies for taxation as a REIT, it may be subject to certain U.S. federal, state and local taxes, including payroll taxes, taxes on any undistributed income, taxes on income from some activities conducted as a result of a foreclosure, a 100% excise tax on any transactions with a TRS that are not conducted on an arm’s-length basis, and state or local income, franchise, property and transfer taxes. Moreover, if the Company has net income from the sale of properties that are “dealer” properties (a “prohibited transaction” under the Code), that income will be subject to a 100% tax. The Company could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain its qualification as a REIT. In addition, the Company’s TRSs will be subject to U.S. federal, state and local corporate income taxes on their net taxable income, if any. Any of these taxes would decrease cash available for other uses, such as the payment of the Company’s debt obligations and distributions to shareholders.

REIT distribution requirements could adversely affect the Company’s ability to execute its business plan or cause it to increase debt levels or issue additional equity during unfavorable market conditions.

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 for U.S. federal corporate income tax not to apply to earnings that it distributes. To the extent that the Company satisfies this distribution requirement but distributes less than 100% of its taxable income, the Company will be subject to U.S. federal corporate income tax on its undistributed taxable income. In addition, the Company will be subject to a 4% nondeductible excise tax if the actual amount that the Company pays out to its shareholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. If there is an adjustment to any of the Company’s taxable income or dividends-paid deductions, the Company could elect to use the deficiency dividend procedure in order to maintain the Company’s REIT status. That deficiency dividend procedure could require the Company to make significant distributions to its shareholders and to pay significant interest to the IRS.

From time to time, the Company may generate taxable income greater than its income for financial reporting purposes prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). In addition, differences in timing between the recognition of taxable income and the actual receipt of cash may occur. As a result, the Company may find it difficult or impossible to meet distribution requirements in certain circumstances. In particular, where the Company experiences differences in timing between the recognition of taxable income and the actual receipt of cash, the requirement to distribute a substantial portion of its taxable income could cause it to: (1) sell assets in unfavorable market conditions; (2) incur debt or issue additional equity on disadvantageous terms; (3) distribute amounts that would otherwise be invested in future acquisitions or capital expenditures or used for the repayment of debt; or (4) make a taxable distribution of its common shares as part of a distribution in which shareholders may elect to receive the Company’s common shares or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with REIT requirements. These alternatives could increase the Company’s costs or dilute its equity. In addition, because the REIT distribution requirement prevents the Company from retaining earnings, the Company generally will be required to refinance debt at its maturity with additional debt or equity. Thus, compliance with the REIT requirements may hinder the Company’s ability to grow, which could adversely affect the market price of its common shares.  

The Company may in the future choose to pay dividends in the form of common shares, in which case shareholders may be required to pay income taxes in excess of the cash dividends they receive.

The Company may seek in the future to distribute taxable dividends that are payable in cash and common shares, at the election of each shareholder. Taxable shareholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of the Company’s current and accumulated earnings and profits for U.S. federal income tax purposes, however, generally a shareholder will receive a taxable income deduction for 20% of all ordinary dividends received from a REIT. As a result, shareholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. shareholder sells the common shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of common shares at the time of the sale. In addition, in such case, a U.S. shareholder could have a capital loss with respect to the common shares sold that could not be used to offset such dividend income. Furthermore, with respect to certain non-U.S. shareholders, the Company may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common shares. In addition, such a taxable share dividend could be viewed as equivalent to a reduction in the Company’s cash distributions, and that factor, as well as the possibility that a significant number of the Company’s shareholders could determine to sell the common shares in order to pay taxes owed on dividends, may put downward pressure on the market price of the Company’s common shares.

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If the Company’s leases are not respected as true leases for U.S. federal income tax purposes, the Company would likely fail to qualify as a REIT.

To qualify as a REIT, the Company must satisfy two gross income tests, pursuant to which specified percentages of the Company’s gross income must be passive income, such as rent. For the rent paid pursuant to the hotel leases with the Company’s TRSs, which the Company currently expects will continue to constitute substantially all of the REIT’s gross income, to qualify for purposes of the gross income tests, the leases must be respected as true leases for U.S. federal income tax purposes and must not be treated as service contracts, joint ventures or some other type of arrangement. The Company believes that the leases have been and will continue to be respected as true leases for U.S. federal income tax purposes. There can be no assurance, however, that the IRS will agree with this characterization. If the leases were not respected as true leases for U.S. federal income tax purposes, the Company may not be able to satisfy either of the two gross income tests applicable to REITs and may lose its REIT status. Additionally, the Company could be subject to a 100% excise tax for any adjustment to its leases.

If any of the hotel management companies that the Company’s TRSs engage do not qualify as “eligible independent contractors,” or if the Company’s hotels are not “qualified lodging facilities,” the Company would likely fail to qualify as a REIT.

Rent paid by a lessee that is a “related party tenant” of the Company generally will not be qualifying income for purposes of the two gross income tests applicable to REITs. An exception is provided, however, for leases of “qualified lodging facilities” to a TRS so long as the hotels are managed by an “eligible independent contractor” and certain other requirements are satisfied. The Company intends to continue to take advantage of this exception. A “qualified lodging facility” is a hotel, motel, or other establishment more than one-half of the dwelling units in which are used on a transient basis, including customary amenities and facilities, provided that no wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. Although the Company intends to monitor future acquisitions and improvements of hotels, the REIT provisions of the Code provide only limited guidance for making determinations under the requirements for “qualified lodging facilities,” and there can be no assurance that these requirements will be satisfied in all cases.

In addition, the Company’s TRS lessees have engaged hotel management companies that are intended to qualify as “eligible independent contractors.” Among other requirements, in order to qualify as an “eligible independent contractor,” the hotel management company must not own, directly or through its shareholders, more than 35% of the Company’s outstanding shares, and no person or group of persons can own more than 35% of the Company’s outstanding shares and the shares (or ownership interest) of the hotel management company (taking into account certain ownership attribution rules). The ownership attribution rules that apply for purposes of these 35% thresholds are complex, and monitoring actual and constructive ownership of the Company’s shares by the hotel management companies and their owners may not be practical. Accordingly, there can be no assurance that these ownership levels will not be exceeded. In addition, for a hotel management company to qualify as an “eligible independent contractor,” such company or a related person must be actively engaged in the trade or business of operating “qualified lodging facilities” (as defined above) for one or more persons not related to the REIT or its TRSs at each time that such company enters into a hotel management contract with a TRS. As of the date hereof, the Company believes the hotel management companies operate “qualified lodging facilities” for certain persons who are not related to the Company or its TRSs. However, no assurances can be provided that this will continue to be the case or that any other hotel management companies that the Company may engage in the future will in fact comply with this requirement in the future.

The Company’s ownership of TRSs is limited, and the Company’s transactions with its TRSs will cause it to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. The rules also impose a 100% excise tax on certain transactions, including the leases, between the TRS and the REIT that are not conducted on an arm’s-length basis.

The Company’s TRSs will pay U.S. federal, state and local income taxes on their net taxable income, and their after-tax net income will be available for distribution to the REIT, but is not required to be distributed. The Company has monitored and will continue to monitor the value of its respective investments in its TRSs for the purpose of ensuring

24

compliance with the ownership limitations applicable to TRSs. In addition, the Company will continue to scrutinize all of its transactions with its TRSs to ensure that they are entered into on arm’s-length terms to avoid incurring the 100% excise tax. There can be no assurance, however, that the Company will be able to comply with the rules regarding TRSs or avoid application of the 100% excise tax. The most significant transactions between the Company and its TRSs are the hotel leases from the Company to its TRSs. While the Company believes its leases have customary terms and reflect normal business practices and that the rents paid thereto reflect market terms, there can be no assurance that the IRS will agree.

Complying with REIT requirements may force the Company to forgo and/or liquidate otherwise attractive investment opportunities.

To qualify as a REIT, the Company must continually satisfy tests concerning, among other things, the sources of its income, the nature and diversification of its assets, the amount it distributes to its shareholders and the ownership of its common shares. In order to meet these tests, the Company may be required to liquidate from its portfolio, or contribute to a TRS, otherwise attractive investments in order to maintain its qualification as a REIT. These actions could have the effect of reducing the Company’s income and amounts available for distribution to its shareholders. In addition, the Company may be required to make distributions to shareholders at disadvantageous times or when the Company does not have funds readily available for distribution, and may be unable to pursue investments that would otherwise be advantageous to it in order to satisfy the source of income or asset diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder the Company’s ability to make, and, in certain cases, maintain ownership of, certain attractive investments.

The Company may be subject to adverse legislative or regulatory tax changes.

The IRS, the U.S. Treasury Department and Congress frequently review U.S. federal income tax legislation, regulations and other guidance. At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws may be amended or modified. The Company cannot predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be adopted or modified. Changes to the tax laws, including the possibility of major tax legislation, possibly with retroactive application, may adversely affect taxation of the Company or the Company’s shareholders. The Company urges shareholders and prospective shareholders to consult with their tax advisors with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in the Company’s shares. Although REITs generally receive certain tax advantages compared to entities taxed as C corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated as a C corporation for U.S. federal income tax purposes.

General Risk Factors

The Company may change its distribution policy or may not have funds available to make distributions to shareholders.

The Board of Directors will continue to evaluate the Company’s distribution policy in conjunction with the impact of the economy on its operations, actual and projected financial condition and results of operations, capital expenditure requirements and other factors, including those discussed in this Annual Report on Form 10-K. While the Company intends to reinstitute a monthly distribution beginning in March 2022, there can be no assurance that the Company will continue to make distributions at any particular time or rate, or at all. Further, there is no assurance that a distribution rate achieved for a particular period will be maintained in the future and may, for example, be suspended or adjusted from time to time to a level determined to be prudent in relation to the Company’s other cash requirements. The Board of Directors evaluates the distribution rate on an ongoing basis and may make changes at any time if it believes the rate is not appropriate based on REIT taxable income, limitations under financing arrangements, or other cash needs. A suspension of or reduction in the Company’s distribution rate could have a material adverse effect on the market price of the Company’s common shares.

Further, while the Company generally seeks to make distributions from its operating cash flows, distributions may be made (although there is no obligation to do so) in certain circumstances, in part, from financing proceeds or other sources. While distributions made from such sources would result in the shareholder receiving cash, the consequences to the shareholders would differ from a distribution made from the Company’s operating cash flows. For example, if debt financing is the source of a distribution, that financing would not be available for other opportunities, would have to be repaid and interest would accrue on the financing.

25

The market price and trading volume of the Company’s common shares may fluctuate widely and could decline substantially in the future.

The Company’s common shares are listed on the NYSE under the ticker symbol “APLE.” The market price and trading volume of the Company’s common shares may fluctuate widely, depending on many factors, some of which may be beyond the Company’s control, including:

• actual versus anticipated differences in the Company’s operating results, liquidity, or financial condition;

• publication of research reports about the Company, its hotels or the lodging or overall real estate industry;

• changes in and/or failure to meet analysts’ revenue or earnings estimates;

• the reputation of REITs and real estate investments generally, and the attractiveness of REIT equity securities in comparison to other equity securities, including securities issued by other real estate companies, and fixed income instruments;

• changes in accounting principles or other laws and regulations that may adversely affect the Company or its industry;

• strategic actions by the Company or its competitors, such as acquisitions or dispositions, and announcements by franchisors, operators or REITs and other owners in the hospitality industry;

• fluctuations in the stock price and operating results of the Company’s competitors; and

• the realization of any of the other risk factors presented in this Annual Report on Form 10-K.

Stock markets in general have historically experienced volatility that has often been unrelated to the operating performance of a particular company or industry. Similar broad market fluctuations may adversely affect the trading price and volume of the Company’s common shares.

Future offerings or the perception that future offerings could occur may adversely affect the market price of the Company’s common shares and future offerings may be dilutive to existing shareholders.

The Company has in the past and may in the future issue additional common shares. Proceeds from any issuance may be used to finance hotel acquisitions, fund capital expenditures, pay down outstanding debt, or for other corporate purposes. A large volume of sales of the Company’s common shares could decrease the market price of the Company’s common shares and could impair the Company’s ability to raise additional capital through the sale of equity securities in the future. Also, a perception of the possibility of a substantial sale of common shares could depress the market price of the Company’s common shares and have a negative effect on the Company’s ability to raise capital in the future. In addition, anticipated downward pressure on the price of the Company’s common shares due to actual or anticipated sales of common shares could cause some institutions or individuals to engage in short sales of the common shares, which may itself cause the price of the common shares to decline. Because the Company’s decision to issue equity securities in any future offering will depend on market conditions and other factors beyond its control, the Company cannot predict or estimate the amount, timing or nature of its future offerings. Therefore, the Company’s shareholders bear the risk of the Company’s future offerings reducing the market price of its common shares and diluting shareholders equity interests in the Company.

Item 1B. Unresolved Staff Comments

None.

26

Item 2. Properties

As of December 31, 2021, the Company owned 219 hotels with an aggregate of 28,747 rooms located in 36 states. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 16 hotel management companies, none of which are affiliated with the Company. See “Management and Franchise Agreements” in Part I, Item 1, Business, appearing elsewhere in this Annual Report on Form 10-K, for a table summarizing the number of hotels and rooms by brand. The following table summarizes the number of hotels and rooms by state:

Number of Hotels and Guest Rooms by State
	Number of		Number of
State	Hotels		Rooms
Alabama		13		1,246
Alaska		2		304
Arizona		13		1,776
Arkansas		2		248
California		26		3,721
Colorado		4		567
Florida		22		2,844
Georgia		5		585
Idaho		1		186
Illinois		7		1,254
Indiana		4		479
Iowa		3		301
Kansas		3		320
Louisiana		3		422
Maine		3		514
Maryland		2		233
Massachusetts		3		330
Michigan		1		148
Minnesota		3		405
Mississippi		2		168
Missouri		4		544
Nebraska		4		621
New Jersey		5		629
New York		4		554
North Carolina		8		881
Ohio		2		252
Oklahoma		4		545
Oregon		1		243
Pennsylvania		3		391
South Carolina		5		590
Tennessee		11		1,337
Texas		27		3,328
Utah		3		393
Virginia		12		1,722
Washington		3		490
Wisconsin		1		176
Total		219		28,747

27

The following table is a list of the 219 hotels the Company owned as of December 31, 2021. As noted below, 14 of the Company’s hotels are subject to ground leases and 28 of its hotels are encumbered by mortgage notes.

City	State	Brand	Manager (4)	Date Acquired or Completed	Rooms
Anchorage	AK	Embassy Suites	Stonebridge	4/30/2010		169	(1)
Anchorage	AK	Home2 Suites	Stonebridge	12/1/2017		135
Auburn	AL	Hilton Garden Inn	LBA	3/1/2014		101
Birmingham	AL	Courtyard	LBA	3/1/2014		84
Birmingham	AL	Hilton Garden Inn	LBA	9/12/2017		104
Birmingham	AL	Home2 Suites	LBA	9/12/2017		106
Birmingham	AL	Homewood Suites	McKibbon	3/1/2014		95
Dothan	AL	Hilton Garden Inn	LBA	6/1/2009		104
Dothan	AL	Residence Inn	LBA	3/1/2014		84
Huntsville	AL	Hampton	LBA	9/1/2016		98
Huntsville	AL	Hilton Garden Inn	LBA	3/1/2014		101
Huntsville	AL	Home2 Suites	LBA	9/1/2016		77
Huntsville	AL	Homewood Suites	LBA	3/1/2014		107	(1)
Mobile	AL	Hampton	McKibbon	9/1/2016		101	(2)
Prattville	AL	Courtyard	LBA	3/1/2014		84	(1)
Rogers	AR	Hampton	Raymond	8/31/2010		122
Rogers	AR	Homewood Suites	Raymond	4/30/2010		126
Chandler	AZ	Courtyard	North Central	11/2/2010		150
Chandler	AZ	Fairfield	North Central	11/2/2010		110
Phoenix	AZ	Courtyard	North Central	11/2/2010		164
Phoenix	AZ	Hampton	North Central	9/1/2016		125	(2)
Phoenix	AZ	Hampton	North Central	5/2/2018		210
Phoenix	AZ	Homewood Suites	North Central	9/1/2016		134	(2)
Phoenix	AZ	Residence Inn	North Central	11/2/2010		129
Scottsdale	AZ	Hilton Garden Inn	North Central	9/1/2016		122
Tempe	AZ	Hyatt House	Crestline	8/13/2020		105	(2)
Tempe	AZ	Hyatt Place	Crestline	8/13/2020		154	(2)
Tucson	AZ	Hilton Garden Inn	Western	7/31/2008		125
Tucson	AZ	Residence Inn	Western	3/1/2014		124
Tucson	AZ	TownePlace Suites	Western	10/6/2011		124
Agoura Hills	CA	Homewood Suites	Dimension	3/1/2014		125
Burbank	CA	Courtyard	Huntington	8/11/2015		190	(1)
Burbank	CA	Residence Inn	Marriott	3/1/2014		166
Burbank	CA	SpringHill Suites	Marriott	7/13/2015		170	(1)
Clovis	CA	Hampton	Dimension	7/31/2009		86
Clovis	CA	Homewood Suites	Dimension	2/2/2010		83
Cypress	CA	Courtyard	Dimension	3/1/2014		180
Cypress	CA	Hampton	Dimension	6/29/2015		110
Oceanside	CA	Courtyard	Marriott	9/1/2016		142	(1)
Oceanside	CA	Residence Inn	Marriott	3/1/2014		125
Rancho Bernardo/San Diego	CA	Courtyard	InnVentures	3/1/2014		210	(1)
Sacramento	CA	Hilton Garden Inn	Dimension	3/1/2014		153
San Bernardino	CA	Residence Inn	InnVentures	2/16/2011		95
San Diego	CA	Courtyard	Huntington	9/1/2015		245	(1)
San Diego	CA	Hampton	Dimension	3/1/2014		177	(1)
San Diego	CA	Hilton Garden Inn	InnVentures	3/1/2014		200
San Diego	CA	Residence Inn	Dimension	3/1/2014		121	(1)
San Jose	CA	Homewood Suites	Dimension	3/1/2014		140	(1)

28

City	State	Brand	Manager (4)	Date Acquired or Completed	Rooms
San Juan Capistrano	CA	Residence Inn	Marriott	9/1/2016		130	(2)
Santa Ana	CA	Courtyard	Dimension	5/23/2011		155	(1)
Santa Clarita	CA	Courtyard	Dimension	9/24/2008		140
Santa Clarita	CA	Fairfield	Dimension	10/29/2008		66
Santa Clarita	CA	Hampton	Dimension	10/29/2008		128
Santa Clarita	CA	Residence Inn	Dimension	10/29/2008		90
Tustin	CA	Fairfield	Marriott	9/1/2016		145
Tustin	CA	Residence Inn	Marriott	9/1/2016		149
Colorado Springs	CO	Hampton	Chartwell	9/1/2016		101
Denver	CO	Hilton Garden Inn	Stonebridge	9/1/2016		221	(1)
Highlands Ranch	CO	Hilton Garden Inn	Dimension	3/1/2014		128
Highlands Ranch	CO	Residence Inn	Dimension	3/1/2014		117
Boca Raton	FL	Hilton Garden Inn	Dimension	9/1/2016		149
Cape Canaveral	FL	Hampton	LBA	4/30/2020		116
Cape Canaveral	FL	Homewood Suites	LBA	9/1/2016		153
Cape Canaveral	FL	Home2 Suites	LBA	4/30/2020		108
Fort Lauderdale	FL	Hampton	Dimension	6/23/2015		156
Fort Lauderdale	FL	Residence Inn	LBA	9/1/2016		156
Gainesville	FL	Hilton Garden Inn	McKibbon	9/1/2016		104
Gainesville	FL	Homewood Suites	McKibbon	9/1/2016		103
Jacksonville	FL	Homewood Suites	McKibbon	3/1/2014		119
Jacksonville	FL	Hyatt Place	Crestline	12/7/2018		127
Miami	FL	Courtyard	Dimension	3/1/2014		118	(2)
Miami	FL	Hampton	White Lodging	4/9/2010		121	(3)
Miami	FL	Homewood Suites	Dimension	3/1/2014		162	(1)
Orlando	FL	Fairfield	Marriott	7/1/2009		200
Orlando	FL	Home2 Suites	LBA	3/19/2019		128
Orlando	FL	SpringHill Suites	Marriott	7/1/2009		200
Panama City	FL	Hampton	LBA	3/12/2009		95
Panama City	FL	TownePlace Suites	LBA	1/19/2010		103
Pensacola	FL	TownePlace Suites	McKibbon	9/1/2016		97
Tallahassee	FL	Fairfield	LBA	9/1/2016		97
Tallahassee	FL	Hilton Garden Inn	LBA	3/1/2014		85	(2)
Tampa	FL	Embassy Suites	White Lodging	11/2/2010		147	(3)
Atlanta/Downtown	GA	Hampton	McKibbon	2/5/2018		119
Atlanta/Perimeter Dunwoody	GA	Hampton	LBA	6/28/2018		132
Atlanta	GA	Home2 Suites	McKibbon	7/1/2016		128
Macon	GA	Hilton Garden Inn	LBA	3/1/2014		101	(2)
Savannah	GA	Hilton Garden Inn	Newport	3/1/2014		105	(2)
Cedar Rapids	IA	Hampton	Aimbridge	9/1/2016		103
Cedar Rapids	IA	Homewood Suites	Aimbridge	9/1/2016		95
Davenport	IA	Hampton	Aimbridge	9/1/2016		103
Boise	ID	Hampton	Raymond	4/30/2010		186	(1)
Des Plaines	IL	Hilton Garden Inn	Raymond	9/1/2016		252
Hoffman Estates	IL	Hilton Garden Inn	White Lodging	9/1/2016		184	(3)
Mettawa	IL	Hilton Garden Inn	White Lodging	11/2/2010		170	(3)
Mettawa	IL	Residence Inn	White Lodging	11/2/2010		130	(3)
Rosemont	IL	Hampton	Raymond	9/1/2016		158
Skokie	IL	Hampton	Raymond	9/1/2016		225
Warrenville	IL	Hilton Garden Inn	White Lodging	11/2/2010		135	(3)

29

City	State	Brand	Manager (4)	Date Acquired or Completed	Rooms
Indianapolis	IN	SpringHill Suites	White Lodging	11/2/2010		130	(3)
Merrillville	IN	Hilton Garden Inn	White Lodging	9/1/2016		124	(3)
Mishawaka	IN	Residence Inn	White Lodging	11/2/2010		106	(3)
South Bend	IN	Fairfield	White Lodging	9/1/2016		119	(3)
Overland Park	KS	Fairfield	Raymond	3/1/2014		110
Overland Park	KS	Residence Inn	Raymond	3/1/2014		120
Wichita	KS	Courtyard	Aimbridge	3/1/2014		90
Lafayette	LA	Hilton Garden Inn	LBA	7/30/2010		153	(2)
Lafayette	LA	SpringHill Suites	LBA	6/23/2011		103
New Orleans	LA	Homewood Suites	Dimension	3/1/2014		166	(1)
Marlborough	MA	Residence Inn	Crestline	3/1/2014		112
Westford	MA	Hampton	Crestline	3/1/2014		110
Westford	MA	Residence Inn	Crestline	3/1/2014		108	(1)
Annapolis	MD	Hilton Garden Inn	Crestline	3/1/2014		126
Silver Spring	MD	Hilton Garden Inn	Crestline	7/30/2010		107
Portland	ME	AC Hotels	Crestline	8/20/2021		178
Portland	ME	Aloft	Crestline	9/10/2021		157
Portland	ME	Residence Inn	Crestline	10/13/2017		179	(1)
Novi	MI	Hilton Garden Inn	White Lodging	11/2/2010		148	(3)
Maple Grove	MN	Hilton Garden Inn	North Central	9/1/2016		121
Rochester	MN	Hampton	Raymond	8/3/2009		124
St. Paul	MN	Hampton	Raymond	3/4/2019		160
Kansas City	MO	Hampton	Raymond	8/31/2010		122
Kansas City	MO	Residence Inn	Raymond	3/1/2014		106
St. Louis	MO	Hampton	Raymond	8/31/2010		190
St. Louis	MO	Hampton	Raymond	4/30/2010		126
Hattiesburg	MS	Courtyard	LBA	3/1/2014		84	(1)
Hattiesburg	MS	Residence Inn	LBA	12/11/2008		84
Carolina Beach	NC	Courtyard	Crestline	3/1/2014		144
Charlotte	NC	Fairfield	Newport	9/1/2016		94
Durham	NC	Homewood Suites	McKibbon	12/4/2008		122
Fayetteville	NC	Home2 Suites	LBA	2/3/2011		118
Greensboro	NC	SpringHill Suites	Newport	3/1/2014		82
Jacksonville	NC	Home2 Suites	LBA	9/1/2016		105
Wilmington	NC	Fairfield	Crestline	3/1/2014		122
Winston-Salem	NC	Hampton	McKibbon	9/1/2016		94
Omaha	NE	Courtyard	Marriott	3/1/2014		181
Omaha	NE	Hampton	White Lodging	9/1/2016		139	(3)
Omaha	NE	Hilton Garden Inn	White Lodging	9/1/2016		178	(1)(3)
Omaha	NE	Homewood Suites	White Lodging	9/1/2016		123	(3)
Cranford	NJ	Homewood Suites	Dimension	3/1/2014		108
Mahwah	NJ	Homewood Suites	Dimension	3/1/2014		110
Mount Laurel	NJ	Homewood Suites	Newport	1/11/2011		118
Somerset	NJ	Courtyard	Newport	3/1/2014		162	(1)(2)
West Orange	NJ	Courtyard	Newport	1/11/2011		131
Islip/Ronkonkoma	NY	Hilton Garden Inn	Crestline	3/1/2014		166
New York	NY	Independent	Highgate	3/1/2014		208	(2)
Syracuse	NY	Courtyard	Crestline	10/16/2015		102
Syracuse	NY	Residence Inn	Crestline	10/16/2015		78
Mason	OH	Hilton Garden Inn	Raymond	9/1/2016		110

30

City	State	Brand	Manager (4)	Date Acquired or Completed	Rooms
Twinsburg	OH	Hilton Garden Inn	Aimbridge	10/7/2008		142
Oklahoma City	OK	Hampton	Raymond	5/28/2010		200
Oklahoma City	OK	Hilton Garden Inn	Raymond	9/1/2016		155
Oklahoma City	OK	Homewood Suites	Raymond	9/1/2016		100
Oklahoma City (West)	OK	Homewood Suites	Chartwell	9/1/2016		90
Portland	OR	Hampton	Raymond	11/17/2021		243
Collegeville/Philadelphia	PA	Courtyard	Newport	11/15/2010		132	(1)
Malvern/Philadelphia	PA	Courtyard	Newport	11/30/2010		127
Pittsburgh	PA	Hampton	Newport	12/31/2008		132
Charleston	SC	Home2 Suites	LBA	9/1/2016		122
Columbia	SC	Hilton Garden Inn	Newport	3/1/2014		143
Columbia	SC	TownePlace Suites	Newport	9/1/2016		91
Greenville	SC	Hyatt Place	Crestline	9/1/2021		130
Hilton Head	SC	Hilton Garden Inn	McKibbon	3/1/2014		104
Chattanooga	TN	Homewood Suites	LBA	3/1/2014		76
Franklin	TN	Courtyard	Chartwell	9/1/2016		126
Franklin	TN	Residence Inn	Chartwell	9/1/2016		124
Knoxville	TN	Homewood Suites	McKibbon	9/1/2016		103
Knoxville	TN	SpringHill Suites	McKibbon	9/1/2016		103
Knoxville	TN	TownePlace Suites	McKibbon	9/1/2016		97
Memphis	TN	Hampton	Crestline	2/5/2018		144
Memphis	TN	Hilton Garden Inn	Crestline	10/28/2021		150
Nashville	TN	Hilton Garden Inn	Dimension	9/30/2010		194
Nashville	TN	Home2 Suites	Dimension	5/31/2012		119
Nashville	TN	TownePlace Suites	LBA	9/1/2016		101
Addison	TX	SpringHill Suites	Marriott	3/1/2014		159
Arlington	TX	Hampton	Western	12/1/2010		98
Austin	TX	Courtyard	White Lodging	11/2/2010		145	(3)
Austin	TX	Fairfield	White Lodging	11/2/2010		150	(3)
Austin	TX	Hampton	Dimension	4/14/2009		124
Austin	TX	Hilton Garden Inn	White Lodging	11/2/2010		117	(3)
Austin	TX	Homewood Suites	Dimension	4/14/2009		97
Austin/Round Rock	TX	Hampton	Dimension	3/6/2009		94
Austin/Round Rock	TX	Homewood Suites	Dimension	9/1/2016		115
Dallas	TX	Homewood Suites	Western	9/1/2016		130
Denton	TX	Homewood Suites	Chartwell	9/1/2016		107
El Paso	TX	Homewood Suites	Western	3/1/2014		114
Fort Worth	TX	Courtyard	LBA	2/2/2017		124
Fort Worth	TX	Hilton Garden Inn	Raymond	11/17/2021		157
Fort Worth	TX	Homewood Suites	Raymond	11/17/2021		112
Fort Worth	TX	TownePlace Suites	Western	7/19/2010		140
Frisco	TX	Hilton Garden Inn	Western	12/31/2008		102
Grapevine	TX	Hilton Garden Inn	Western	9/24/2010		110	(1)
Houston	TX	Courtyard	LBA	9/1/2016		124
Houston	TX	Marriott	Western	1/8/2010		206
Houston	TX	Residence Inn	Western	3/1/2014		129
Houston	TX	Residence Inn	Western	9/1/2016		120
Lewisville	TX	Hilton Garden Inn	Aimbridge	10/16/2008		165
San Antonio	TX	TownePlace Suites	Western	3/1/2014		106
Shenandoah	TX	Courtyard	LBA	9/1/2016		124

31

City	State	Brand	Manager (4)	Date Acquired or Completed	Rooms
Stafford	TX	Homewood Suites	Western	3/1/2014		78
Texarkana	TX	Hampton	Aimbridge	1/31/2011		81
Provo	UT	Residence Inn	Dimension	3/1/2014		114
Salt Lake City	UT	Residence Inn	Huntington	10/20/2017		136
Salt Lake City	UT	SpringHill Suites	White Lodging	11/2/2010		143	(3)
Alexandria	VA	Courtyard	Marriott	3/1/2014		178
Alexandria	VA	SpringHill Suites	Marriott	3/28/2011		155
Charlottesville	VA	Courtyard	Crestline	3/1/2014		139
Manassas	VA	Residence Inn	Crestline	2/16/2011		107
Richmond	VA	Independent	Crestline	10/9/2019		55
Richmond	VA	Courtyard	White Lodging	12/8/2014		135	(1)
Richmond	VA	Marriott	White Lodging	3/1/2014		413	(2)
Richmond	VA	Residence Inn	White Lodging	12/8/2014		75	(1)
Suffolk	VA	Courtyard	Crestline	3/1/2014		92
Suffolk	VA	TownePlace Suites	Crestline	3/1/2014		72
Virginia Beach	VA	Courtyard	Crestline	3/1/2014		141
Virginia Beach	VA	Courtyard	Crestline	3/1/2014		160
Kirkland	WA	Courtyard	InnVentures	3/1/2014		150	(1)
Seattle	WA	Residence Inn	InnVentures	3/1/2014		234	(1)
Tukwila	WA	Homewood Suites	Dimension	3/1/2014		106	(1)
Madison	WI	Hilton Garden Inn	Raymond	2/18/2021		176
Total						28,747

(1) Hotel is encumbered by mortgage.

(2) Hotel is subject to ground lease.

(3) Manager noted was as of December 31, 2021. Effective February 1, 2022, management responsibility of these 18 properties was transferred to HHM.

(4) The management companies are defined in Note 9 titled “Management and Franchise Agreements” in Part II, Item 8 in this Annual Report on Form 10-K.

The Company’s investment in real estate at December 31, 2021, consisted of the following (in thousands):

Land	$	794,899
Building and Improvements		4,584,829
Furniture, Fixtures and Equipment		488,773
Finance Ground Lease Assets		102,084
Franchise Fees		17,862
		5,988,447
Less Accumulated Depreciation and Amortization		(1,311,262	)
Investment in Real Estate, net	$	4,677,185

For additional information about the Company’s properties, refer to Schedule III – Real Estate and Accumulated Depreciation and Amortization included at the end of Part IV, appearing elsewhere in this Annual Report on Form 10-K.

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Item 3. Legal Proceedings

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 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.

Item 4. Mine Safety Disclosures

Not Applicable.

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PART II

Item 5. Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market Information

On May 18, 2015, the Company’s common shares were listed and began trading on the NYSE under the ticker symbol “APLE” (the “Listing”). Prior to that time, there was no public market for the Company’s common shares. As of December 31, 2021 and February 14, 2022, the last reported closing price per share for the Company’s common shares as reported on the NYSE was $16.15 and $16.64, respectively.  

Share Return Performance

The following graph compares the five-year cumulative total shareholder return of the Company’s common shares to the cumulative total returns of the Standard and Poor’s 500 Stock Index (“S&P 500 Index”) and the Dow Jones U.S. Real Estate Hotels Index. The Dow Jones U.S. Real Estate Hotels Index is comprised of publicly traded REITs which focus on investments in hotel properties. The graph assumes an initial investment of $100 in the Company’s common shares and in each of the indices, and also assumes the reinvestment of dividends.

	Value of Initial Investment at
Name	12/31/16		12/31/17		12/31/18		12/31/19		12/31/20		12/31/21
Apple Hospitality REIT, Inc.	$	100.00	$	103.99	$	81.48	$	99.38	$	80.59	$	101.08
S&P 500 Index	$	100.00	$	121.83	$	116.49	$	153.17	$	181.35	$	233.41
Dow Jones U.S. Real Estate    Hotels Index	$	100.00	$	107.37	$	93.30	$	108.11	$	79.66	$	91.24

In its Form 10-K for the year ended December 31, 2020, the Company compared its performance to the SNL U.S. REIT Hotel Index, an index that was discontinued on August 7, 2021.

This performance graph shall not be deemed "filed" for the purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing by the Company under the Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. The performance graph is not indicative of future investment performance. The Company does not make or endorse any predictions as to future share price performance.  

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Shareholder Information

As of February 14, 2022, the Company had approximately 96 holders of record of its common shares and there were approximately 228 million common shares outstanding. Because many of the Company’s common shares are held by brokers and other institutions on behalf of shareholders, the Company believes there are substantially more beneficial holders of its common shares than record holders. In order to comply with certain requirements related to the Company’s qualification as a REIT, the Company’s Charter provides that, subject to certain exceptions, no person or entity (other than a person or entity who has been granted an exemption) may directly or indirectly, beneficially or constructively, own more than 9.8% of the aggregate of its outstanding common shares or 9.8% of the aggregate of the outstanding preferred shares of any class or series.

Distribution Information

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. Subsequent to the distribution paid in March 2020, the Company announced the suspension of its monthly distributions due to the impact of COVID-19 on its operating cash flows. As discussed in Note 4 titled “Debt” in Part II, Item 8 in this Annual Report on Form 10-K, during the Extended Covenant Waiver Period, as a requirement under the amendments to its unsecured credit facilities, the Company was restricted in its ability to make distributions except for the payment of cash distributions of $0.01 per common share per quarter or to the extent required to maintain REIT status. Beginning in March 2021, the Board of Directors declared distributions of $0.01 per common share in the last month of each quarter and the distributions were paid out each following month. In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021. As a result, upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions on distributions that were applicable during the Extended Covenant Waiver Period. For the years ended December 31, 2021 and 2020, the Company paid distributions of $0.03 and $0.30 per common share, for a total of approximately $6.8 million and $67.4 million, respectively. The quarterly distribution of $0.01 per common share declared in December 2021 totaled $2.3 million and was paid on January 18, 2022.

On February 22, 2022, the Company announced that its Board of Directors has reinstated its policy of distributions on a monthly basis and declared a monthly cash distribution of $0.05 per common share for the month of March, payable on March 15, 2022. Although the Company intends to resume paying monthly distributions beginning with the March distribution, the amount and timing of distributions to shareholders are within the discretion of the Company’s Board of Directors. The amount and frequency of future distributions will depend on certain items, including but not limited to, the Company’s results of operations, cash flow from operations, economic conditions, working capital requirements, cash requirements to fund investing and financing activities, and capital expenditure requirements, including improvements to and expansions of properties, as well as the distribution requirements under federal income tax provisions for qualification as a REIT. As of December 31, 2021, the Company had a net loss carryforward for federal income tax purposes of approximately $35.8 million which may be applied to future taxable earnings subject to limitations imposed by the Code, which will reduce the amount of distributions necessary to maintain the Company’s REIT status. As it has done historically, due to seasonality, the Company may use its revolving credit facility to maintain the consistency of the distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles.

Share Repurchases

In May 2021, the Company’s Board of Directors approved an extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of $345 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2022 if not terminated earlier or extended. During 2020, the Company purchased approximately 1.5 million of its common shares under its Share Repurchase Program at a weighted-average market purchase price of approximately $9.42 per common share for an aggregate purchase price, including commissions, of approximately $14.3 million. The shares were repurchased under a written trading plan that provided for share repurchases in open market transactions and was intended to comply with Rule 10b5-1 under the Exchange Act. In March 2020, the Company terminated its written trading plan, and the Company has not repurchased any shares since that time. Past repurchases under the Share Repurchase Program have been funded, and the Company intends to fund future purchases, 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.

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Additionally, during 2021 and 2020, certain of the Company’s employees surrendered common shares to satisfy their tax withholding obligations associated with the vesting of common shares issued under the 2014 Omnibus Incentive Plan (the “Omnibus Plan”) as described in Note 8 titled “Compensation Plans” in Part II, Item 8, of the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Annual Report on Form 10-K.

The following is a summary of all share repurchases during the fourth quarter of 2021:

Issuer Purchases of Equity Securities
	(a)		(b)		(c)		(d)
Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (1)
October 1 - October 31, 2021		-	-			-	$	345,000
November 1 - November 30, 2021		-	-			-	$	345,000
December 1 - December 31, 2021 (2)		108,292	$	15.65		-	$	345,000
Total		108,292				-

(1) Represents amount outstanding under the Company's authorized $345 million share repurchase program. This program may be suspended or terminated at any time by the Company. If not terminated earlier or extended, the program will end in July 2022. No shares were repurchased under the program during the fourth quarter of 2021.

(2) Consists of common shares surrendered to the Company to satisfy tax withholding obligations associated with the vesting of restricted common shares.

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Equity Compensation Plans

The Company’s Board of Directors adopted and the Company’s shareholders approved the Omnibus Plan, which provides for the issuance of up to 10 million common shares, subject to adjustments, to employees, officers, and directors of the Company or affiliates of the Company, consultants or advisers currently providing services to the Company or affiliates of the Company, and any other person whose participation in the Omnibus Plan is determined by the Compensation Committee to be in the best interests of the Company. The Company’s Board of Directors previously adopted, and the Company’s shareholders approved, the non-employee directors’ stock option plan (the “Directors’ Plan”) to provide incentives to attract and retain directors. In May 2015, the Directors’ Plan was terminated effective upon the Listing, and no further grants can be made under the Directors’ Plan, provided however, that the termination did not affect any outstanding director option awards previously issued under the Directors’ Plan. The following is a summary of securities issued under the Company’s equity compensation plans as of December 31, 2021:

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1)		Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights (2)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column) (3)
Equity compensation plans approved by    security holders		266,664	$	21.34		7,702,690
Equity compensation plans not approved by    security holders		-		-		-
Total equity compensation plans		266,664	$	21.34		7,702,690

(1) Includes 165,955 stock options granted to the Company’s current and former directors under the Directors’ Plan. Also includes 100,709 fully vested deferred stock units, including quarterly distributions earned, under the non-employee director deferral program under the Omnibus Plan, adopted by the Board of Directors in 2018, effective June 1, 2018, that are not included in the calculation of the weighted-average exercise price of outstanding options.

(2) The weighted-average exercise price of outstanding options relates solely to stock options, which are the only currently outstanding exercisable security.

(3) Does not include remaining shares registered under the Directors' Plan, as no further grants can be made under the Plan.

Item 6. Reserved

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with Item 8, the Consolidated Financial Statements and Notes thereto, the introduction of Part I regarding “Forward-Looking Statements,” and Item 1A, “Risk Factors” appearing elsewhere in this Annual Report on Form 10-K.

Overview

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 December 31, 2021, the Company owned 219 hotels with an aggregate of 28,747 rooms located in urban, high-end suburban and developing markets throughout 36 states. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 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.”

The Impact of COVID-19 on the Company and the Hospitality Industry

Since first being reported in December 2019, COVID-19 has spread globally, including to every state in the U.S. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to COVID-19.

The COVID-19 pandemic has not only specifically reduced travel, but also has had a detrimental impact on regional and global economies and financial markets. The global, national and local impact of the pandemic has continued to evolve and many countries, including the U.S., as well as state and local governments, have reacted and continue to react with a wide variety of measures intended to control its spread, including states of emergency, mandatory quarantines, implementation of “stay at home” orders, business closures, border closings, and restrictions on travel and large gatherings, which has resulted in, and may continue to result in, cancellation of events, including sporting events, conferences and meetings.

The effects of the COVID-19 pandemic on the hotel industry are unprecedented. COVID-19 has disrupted the industry and has dramatically reduced business and impacted leisure travel, which has had a significant adverse impact on, and management expects COVID-19 will continue to significantly adversely impact and disrupt, the Company’s business, financial performance and condition, operating results and cash flows. While a number of initial restrictions put into place during 2020 have eased, occupancy and average daily rate (“ADR”) during 2021 were still generally below 2019 pre-pandemic levels. Additionally, while the development and distributions of vaccines have helped contribute to improved conditions in 2021, there can be no assurances that the vaccines will contain the spread of the virus and its variants and allow the industry to fully recover. The Company expects the decline in revenue associated with COVID-19 and the overall influence on the U.S. economy to continue to negatively impact the Company’s operating results for the foreseeable future. While the Company has experienced significant recovery in leisure travel in 2021, the Company does not expect a full recovery in results until business travel improves and COVID-related government restrictions and other regulations impacting travel and business operations are lifted more broadly.

Since the beginning of the pandemic, the Company, its management companies and its brands have taken steps to minimize costs and cash outflow to maintain a sound liquidity position. The Company has implemented cost elimination and efficiency initiatives at each of the Company’s hotels by adjusting operations to manage total labor costs, reducing or eliminating certain amenities and reducing rates under various service contracts; enhanced its sales efforts by focusing on COVID-19-specific demand opportunities in certain markets and has strategically targeted and maximized performance based on available demand; reduced capital improvement projects planned for 2021; and entered into amendments to its unsecured credit facilities that provided for the temporary waiver of financial covenant testing for the majority of its financial maintenance covenants (the Company exited the waiver period in July 2021 due to improved financial performance). Cost reduction initiatives, including those discussed above, are not expected to fully, or even materially, offset revenue losses from COVID-19. The extent and duration of COVID-19 effects continue to remain unknown, and these uncertainties continue to make it difficult to predict operating results for the Company’s hotels for the near future. While the Company has experienced improvement in 2021 and expects further improvement, future revenues and operating results could be negatively impacted by, among other things, historical seasonal trends, an increase in COVID-19 cases, new COVID-19 variants, state and local governments and businesses reverting to tighter mitigation restrictions, deterioration of consumer sentiment, changes in business travel, labor shortages and resulting pressure on wages, or significant inflationary impacts. Therefore, there can be no assurances that the Company will not experience setbacks or further declines in hotel revenues or

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earnings at its hotels and the Company cannot predict how long the effects will continue to impact the Company’s operating results as compared to pre-pandemic levels.

Recent Hotel Portfolio Activities

The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value over the long term. Consistent with this strategy and the Company’s focus on investing in rooms-focused hotels, in 2019 the Company entered into a contract to purchase a 176-room Hilton Garden Inn to be constructed in Madison, Wisconsin. Construction of the hotel was completed in February 2021 and the Company acquired the hotel on February 18, 2021 for a gross purchase price of $49.6 million, utilizing borrowings under the Company’s revolving credit facility. In 2021, the Company also acquired seven existing hotels for an aggregate purchase price of approximately $311.9 million: a 178-room AC Hotel in Portland, Maine; a 130-room Hyatt Place in Greenville, South Carolina; a 157-room Aloft in Portland, Maine; a 150-room Hilton Garden Inn in Memphis, Tennessee; a 157-room Hilton Garden Inn in Fort Worth, Texas; a 112-room Homewood Suites in Fort Worth, Texas; and a 243-room Hampton Inn & Suites in Portland, Oregon. The Company utilized available cash (including a portion of the proceeds from the sale of 20 hotels in July 2021) and borrowings under its revolving credit facility to fund the acquisitions and plans to utilize its credit facilities available at closing for any additional acquisitions. In addition, on August 16, 2021, the Company purchased the fee interest in the land at its Seattle, Washington Residence Inn that was previously under a ground lease for a purchase price of $80.0 million, consisting of a $24.0 million cash payment utilizing a portion of the proceeds from the sale of 20 hotels in July 2021 and a one-year note payable to the seller for $56.0 million.

As of December 31, 2021 the Company had an outstanding contract for the potential purchase of a hotel under development in Madison, Wisconsin for a purchase price of $78.6 million, which is expected to be completed as a 260-room Embassy Suites and opened for business in early 2024, at which time the Company expects to complete the purchase of this hotel. Although the Company is working towards acquiring this hotel, there are a number of conditions to closing that have not yet been satisfied and there can be no assurance that closing on this hotel will occur under the outstanding purchase contract.

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 2021, the Company sold 23 hotels for a total combined gross sales price of $234.6 million and recognized a gain on sale, after giving effect to impairment charges discussed below, of approximately $3.6 million. The Company used the net proceeds from the sales to pay down borrowings under the Company’s revolving credit facility, for acquisitions of hotel properties in 2021 and for general corporate purposes.

See Note 2 titled “Investment in Real Estate” and Note 3 titled “Dispositions” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for additional information concerning these transactions.

Hotel Operations

As of December 31, 2021, the Company owned 219 hotels with a total of 28,747 rooms as compared to 234 hotels with a total of 29,937 rooms as of December 31, 2020. Results of operations are included only for the period of ownership for hotels acquired or disposed of during all periods presented. During 2021, the Company acquired eight hotels and sold 23 hotels. During 2020, the Company acquired four hotels and sold three hotels. See further discussion in Note 2 titled “Investments in Real Estate” and Note 3 titled “Dispositions” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K. As a result, in addition to the impacts of COVID-19, the comparability of results for the years ended December 31, 2021 and 2020 as discussed below is also 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, ADR and RevPAR, and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below.

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The following is a summary of the results from operations of the Company’s hotels for their respective periods of ownership by the Company:

	Year Ended December 31,
(in thousands, except statistical data)	2021			Percent of Revenue			2020			Percent of Revenue			Change 2020 to 2021			2019			Percent of Revenue			Change 2019 to 2020
Total revenue	$	933,869			100.0	%	$	601,879			100.0	%		55.2	%	$	1,266,597			100.0	%		-52.5	%
Hotel operating expense		542,178			58.1	%		402,278			66.8	%		34.8	%		724,416			57.2	%		-44.5	%
Property taxes, insurance and other    expense		71,980			7.7	%		78,238			13.0	%		-8.0	%		77,498			6.1	%		1.0	%
General and administrative expense		41,038			4.4	%		29,374			4.9	%		39.7	%		36,210			2.9	%		-18.9	%
Loss on impairment of depreciable    real estate assets		10,754						5,097						111.0	%		6,467						-21.2	%
Depreciation and amortization    expense		184,471						199,786						-7.7	%		193,240						3.4	%
Gain on sale of real estate		3,596						10,854						-66.9	%		5,021						116.2	%
Interest and other expense, net		67,748						70,835						-4.4	%		61,191						15.8	%
Income tax expense		468						332						41.0	%		679						-51.1	%
Net income (loss)		18,828						(173,207	)				n/a				171,917					n/a
Adjusted hotel EBITDA (1)		320,273						121,985						162.6	%		464,995						-73.8	%
Number of hotels owned at end    of period		219						234						-6.4	%		233						0.4	%
ADR	$	123.78					$	111.49						11.0	%	$	137.30						-18.8	%
Occupancy		66.3	%					46.1	%					43.8	%		77.0	%					-40.1	%
RevPAR	$	82.03					$	51.34						59.8	%	$	105.72						-51.4	%

(1) See reconciliation of Adjusted Hotel EBITDA to net income (loss) in "Non-GAAP Financial Measures" below.

The following table highlights the quarterly impact of COVID-19 on the Company’s ADR, Occupancy, RevPAR and adjusted hotel earnings before interest, income taxes, depreciation and amortization for real estate (“Adjusted Hotel EBITDA”) during 2021 as compared to 2020 and 2019 (in thousands except statistical data):

	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Full Year
	2021			2021			2021			2021			2021
ADR	$	99.19		$	120.56		$	140.02		$	131.04		$	123.78
Occupancy		55.5	%		70.7	%		71.5	%		67.5	%		66.3	%
RevPAR	$	55.09		$	85.28		$	100.14		$	88.43		$	82.03
Net income (loss)	$	(46,435	)	$	20,283		$	31,759		$	13,221		$	18,828
Adjusted Hotel EBITDA (1)	$	35,427		$	94,814		$	105,423		$	84,609		$	320,273
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Full Year
	2020			2020			2020			2020			2020
ADR	$	132.55		$	100.76		$	104.78		$	97.87		$	111.49
Occupancy		60.9	%		28.2	%		48.6	%		46.5	%		46.1	%
RevPAR	$	80.66		$	28.44		$	50.94		$	45.46		$	51.34
Net loss	$	(2,769	)	$	(78,243	)	$	(40,948	)	$	(51,247	)	$	(173,207	)
Adjusted Hotel EBITDA (1)	$	63,297		$	704		$	34,688		$	23,296		$	121,985
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Full Year
	2019			2019			2019			2019			2019
ADR	$	136.36		$	141.60		$	139.21		$	131.41		$	137.30
Occupancy		73.9	%		81.4	%		79.9	%		72.9	%		77.0	%
RevPAR	$	100.71		$	115.30		$	111.17		$	95.85		$	105.72
Net income	$	38,151		$	62,090		$	46,223		$	25,453		$	171,917
Adjusted Hotel EBITDA (1)	$	108,804		$	134,759		$	124,596		$	96,836		$	464,995

(1) See reconciliation of Adjusted Hotel EBITDA to net income (loss) in "Non-GAAP Financial Measures" below.

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Beginning in March 2020, COVID-19 caused widespread cancellations of both business and leisure travel throughout the U.S., resulting in significant decreases in RevPAR throughout the Company’s hotel portfolio and the hospitality industry as a whole. With the overall uncertainty of the longevity of COVID-19 in the U.S. and the resulting economic decline, it is difficult to project the depth and the duration of revenue declines for the industry and Company; however, the Company currently expects declines in revenue and operating results as compared to 2019 levels to continue into 2022. While the Company experienced its most significant decline in operating results during the second quarter of 2020 as compared to previous quarters, occupancy and RevPAR have since shown improvement. Although the Company expects continued recovery in rate and occupancy, future revenues and operating results could be negatively impacted by, among other things, historical seasonal trends, an increase in COVID-19 cases, new COVID-19 variants, state and local governments and businesses reverting to tighter mitigation restrictions, deterioration of consumer sentiment or significant labor, supply chain and inflationary pressures.

Comparable Hotels Operating Results

The following table reflects certain operating statistics for the Company’s 219 hotels owned as of December 31, 2021. The Company defines metrics from Comparable Hotels as results generated by the 219 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.

	Year Ended December 31,
	2021			2020			Change 2020 to 2021			2019			Change 2019 to 2020
ADR	$	125.43		$	112.72			11.3	%	$	141.04			-20.1	%
Occupancy		66.3	%		45.9	%		44.4	%		77.2	%		-40.5	%
RevPAR	$	83.14		$	51.69			60.8	%	$	108.87			-52.5	%

Same Store Operating Results

The following table reflects certain operating statistics for the 204 hotels owned and held for use by the Company as of January 1, 2019 and during the entirety of the reporting periods being compared (“Same Store Hotels”). This information has not been audited.

	Year Ended December 31,
	2021			2020			Change 2020 to 2021			2019			Change 2019 to 2020
ADR	$	124.27		$	112.68			10.3	%	$	140.04			-19.5	%
Occupancy		66.8	%		46.1	%		44.9	%		77.3	%		-40.4	%
RevPAR	$	83.04		$	51.99			59.7	%	$	108.20			-52.0	%

As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. COVID-19 has been negatively affecting the U.S. hotel industry since March 2020. The Company’s revenue and operating results improved during the year ended December 31, 2021 compared to the year ended December 31, 2020, which is consistent with the overall lodging industry. However, as a result of COVID-19, the Company’s revenue and operating results generally remained below corresponding 2019 levels and the Company expects these results to continue to be below 2019 levels into 2022. The Company can give no assurances as to the amount or period of decline due to the uncertainty regarding the duration and long-term impact of, as well as governmental and consumer responses to, COVID-19.

Results of Operations

A discussion regarding the Company’s results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 is presented below. A discussion regarding the results of operations for the year ended

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December 31, 2020 compared to the year ended December 31, 2019 can be found under the section titled “Results of Operations” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 23, 2021, which is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov and in the Investor Information section of the Company’s website at www.applehospitalityreit.com.

Revenues

The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the years ended December 31, 2021 and 2020, the Company had total revenue of $933.9 million and $601.9 million, respectively. For the years ended December 31, 2021 and 2020, respectively, Comparable Hotels achieved combined average occupancy of 66.3% and 45.9%, ADR of $125.43 and $112.72 and RevPAR of $83.14 and $51.69. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

Compared to 2020, the Company experienced increases in ADR and occupancy in 2021, resulting in an increase of 60.8% in RevPAR, for Comparable Hotels. As compared to 2019 (pre-COVID-19), Comparable Hotels RevPAR for 2021 decreased by 23.6% as a result of a 14.1% reduction in occupancy and an 11.1% decrease in ADR. During March 2020, the hotel industry and the Company began to see a significant decrease in occupancy as both mandated and voluntary restrictions on travel were implemented throughout the U.S. For Comparable Hotels, average occupancy fell below 50% for most of 2020 before improving to 66.3% in 2021 driven predominately by increased leisure demand as a result of improved consumer confidence in travel and the lifting of some COVID-19 mitigation restrictions, but also by increased demand from a wide variety of demand generators such as government, healthcare, automotive, construction, disaster recovery, insurance, athletics, education and local and regional business-related travel. Revenue recovery in 2021 was led by leisure transient and group demand, with increased demand from small corporate and government business. Suburban markets continued to see stronger demand than urban markets. Throughout the hospitality industry, demand for upscale and upper midscale chain scales have outperformed luxury and upper upscale chain scales and suburban locations have outperformed urban locations. As noted above, the Company expects this trend to gradually continue, however, future revenues could be negatively impacted by, among other things, historical seasonal trends, an increase in COVID-19 cases, new COVID-19 variants, state and local governments and businesses reverting to tighter mitigation restrictions, or deterioration of consumer sentiment.

Hotel Operating Expense

The Company, its management companies and the brands the Company’s hotels are franchised with have all aggressively worked to mitigate costs and uses of cash associated with operating the hotels in the low-occupancy environment experienced in 2020, have worked to maintain cost-reduction practices where feasible as the economy recovers, and are thoughtfully working to position the hotels to adapt to the changes that may occur to guest preferences in the future. The impact of the pandemic has varied and will continue to vary by market and hotel. With the support of its brands and third-party management companies, the Company will continue to evaluate and implement adjustments to the hotel operating model in response to continued changes in the operating environment and guest preferences.

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. For the years ended December 31, 2021 and 2020, hotel operating expense totaled $542.2 million and $402.3 million, respectively, or 58.1% and 66.8% of total revenue for each respective year. Comparatively, prior to COVID-19, hotel operating expense was 57.2% of total revenue for the year ended December 31, 2019. The Company has worked and will continue to work with its management companies to optimize staffing models and adjust food and beverage offerings and other amenities, among other efficiency initiatives, to mitigate the impact of revenue declines and cost pressures on its results of operations. For example, the Company has reduced service and amenity offerings as allowed by the relaxation of certain brand standards and the Company also successfully reduced rates under various service contracts. Although certain operating costs of a hotel are more fixed in nature, such as base utility and maintenance costs, the Company has worked and will continue to work to reduce all non-essential costs including service contracts, utilities in areas not utilized and certain maintenance costs. However, the Company may continue to see ongoing cost increases related to both labor and supplies due to scarcity. As occupancy has increased throughout 2021, increasing staffing to meet increased demand has been challenging, and while the Company’s hotels made progress in filling open positions during the second half of 2021, they have often done so at higher wage rates. Likewise, supply chain disruptions and broader inflationary pressures throughout the overall economy have driven shortages and increases in the cost of materials and supplies such as food and equipment.

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Property Taxes, Insurance and Other Expense

Property taxes, insurance and other expense for the years ended December 31, 2021 and 2020 totaled $72.0 million and $78.2 million, respectively, or 7.7% and 13.0% of total revenue for each respective year, which is consistent with Comparable Hotels expense as a percentage of revenue for the same period. Prior to COVID-19, property taxes, insurance and other expense for the year ended December 31, 2019 totaled $77.5 million or 6.1% of total revenue. The decrease in expenses from 2019 and 2020 to 2021 was primarily due to decreases in property taxes in certain localities as well as the reduction of the hotel portfolio by 15 properties during 2021. Although the Company will continue to aggressively appeal tax assessments in certain jurisdictions in an attempt to minimize tax increases, as warranted, and will continue to monitor locality guidance as a result of COVID-19, it does not currently anticipate significant decreases in property taxes in 2022 as compared to 2021.  

General and Administrative Expense

General and administrative expense for the years ended December 31, 2021 and 2020 was $41.0 million and $29.4 million, respectively, or 4.4% and 4.9% of total revenue for each respective year. The principal components of general and administrative expense are payroll and related benefit costs, legal fees, accounting fees and reporting expenses. The increase in general and administrative expense in 2021 as compared to 2020 was primarily due to increased accruals of $12.4 million for executive incentive compensation related to higher shareholder return and operating performance in 2021 as compared to 2020 (see Note 8 titled “Compensation Plans” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for additional details). Additionally, in order to minimize costs in 2020, the Company’s Executive Chairman voluntarily agreed to forego six months of salary, the Chief Executive Officer volunteered to reduce his target compensation by 60 percent and the non-employee directors on the Board of Directors volunteered as a group to reduce their annual director fees by more than 15 percent.

Loss on Impairment of Depreciable Real Estate Assets

Loss on impairment of depreciable real estate assets was $10.8 million for the year ended December 31, 2021, consisting of impairment losses of $1.3 million for the Overland Park, Kansas SpringHill Suites and $9.4 million for four hotel properties identified by the Company in the first quarter of 2021 for potential sale. Loss on impairment of depreciable real estate assets was $5.1 million for the year ended December 31, 2020 for the Memphis, Tennessee Homewood Suites. See Note 3, titled “Dispositions” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for additional information concerning these impairment losses.

Depreciation and Amortization Expense

Depreciation and amortization expense for the years ended December 31, 2021 and 2020 was $184.5 million and $199.8 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 decrease was primarily due to limited renovation activity and the sale of 23 hotels in 2021 and three hotels in 2020, partially offset by the acquisition of eight hotels in 2021 and four hotels in 2020. Additionally, depreciation and amortization expense for the years ended December 31, 2021 and 2020 includes approximately $5.2 million and $6.4 million, respectively, of expense associated with amortization of the Company’s finance ground leases.  

Interest and Other Expense, net

Interest and other expense, net for the years ended December 31, 2021 and 2020 was $67.7 million and $70.8 million, respectively, and is net of approximately $0.3 million and $0.9 million, respectively, of interest capitalized associated with renovation projects. Additionally, interest and other expense, net for the years ended December 31, 2021 and 2020 includes approximately $9.4 million and $11.4 million, respectively, of interest recorded on the Company’s finance lease liabilities.

Interest expense related to the Company’s debt instruments decreased as a result of lower average borrowings under the Company’s unsecured credit facilities with similar average interest rates in 2021 as compared to 2020. See Note 4 titled “Debt” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for additional discussion of the Company’s amended unsecured credit facilities. In addition to decreases in interest due to lower average borrowings under the Company’s unsecured credit facilities, interest on the Company’s finance leases decreased approximately $2.0 million during 2021 as compared to 2020 due to the August 16, 2021 purchase of the fee interest in the land at the Company’s Seattle, Washington Residence Inn that was previously under a ground lease.

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Non-GAAP Financial Measures

The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations (“FFO”), Modified Funds from Operations (“MFFO”), Earnings Before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), Earnings Before Interest, Income Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”), Adjusted EBITDAre (“Adjusted EBITDAre”) and Adjusted Hotel EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss), cash flow from operations or any other operating GAAP measure. FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA 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, Adjusted EBITDAre and Adjusted Hotel EBITDA, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA, as reported by other companies that do not define such terms exactly as the Company defines such terms, the Company believes these supplemental measures are useful to investors when comparing the Company’s results between periods and with other REITs.

FFO and MFFO

The Company calculates and presents FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), which defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), extraordinary items as defined by GAAP, and the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated affiliates. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the Nareit definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.

The Company calculates MFFO by further adjusting FFO for the exclusion of amortization of finance ground lease assets, amortization of favorable and unfavorable operating leases, net and non-cash straight-line operating ground lease expense, as these expenses do not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.  

The following table reconciles the Company’s GAAP net income (loss) to FFO and MFFO for the years ended December 31, 2021, 2020 and 2019 (in thousands).

	Year Ended December 31,
	2021			2020			2019
Net income (loss)	$	18,828		$	(173,207	)	$	171,917
Depreciation of real estate owned		179,275			192,346			187,729
Gain on sale of real estate		(3,596	)		(10,854	)		(5,021	)
Loss on impairment of depreciable real estate assets		10,754			5,097			6,467
Funds from operations		205,261			13,382			361,092
Amortization of finance ground lease assets		5,178			6,433			4,517
Amortization of favorable and unfavorable operating    leases, net		393			442			124
Non-cash straight-line operating ground lease expense		169			180			188
Modified funds from operations	$	211,001		$	20,437		$	365,921

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EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA

EBITDA is a commonly used measure of performance in many industries and is defined as net income (loss) excluding interest, income taxes, depreciation and amortization. The Company believes EBITDA is useful to investors because it helps the Company and its investors evaluate the ongoing operating performance of the Company by removing the impact of its capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). In addition, certain covenants included in the agreements governing the Company’s indebtedness use EBITDA, as defined in the specific credit agreement, as a measure of financial compliance.  

In addition to EBITDA, the Company also calculates and presents EBITDAre in accordance with standards established by Nareit, which defines EBITDAre as EBITDA, excluding gains and losses from the sale of certain real estate assets (including gains and losses from change in control), plus real estate related impairments, and adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates. The Company presents EBITDAre because it believes that it provides further useful information to investors in comparing its operating performance between periods and between REITs that report EBITDAre using the Nareit definition.

The Company also considers the exclusion of non-cash straight-line operating ground lease expense from EBITDAre useful, as this expense does not reflect the underlying performance of the related hotels (Adjusted EBITDAre).

The Company further excludes actual corporate-level general and administrative expense for the Company from Adjusted EBITDAre (Adjusted Hotel EBITDA) to isolate property-level operational performance over which the Company’s hotel operators have direct control. The Company believes Adjusted Hotel EBITDA provides useful supplemental information to investors regarding operating performance and is used by management to measure the performance of the Company’s hotels and effectiveness of the operators of the hotels. 

The following table reconciles the Company’s GAAP net income (loss) to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA for the years ended December 31, 2021, 2020 and 2019 (in thousands).

	Year Ended December 31,
	2021			2020			2019
Net income (loss)	$	18,828		$	(173,207	)	$	171,917
Depreciation and amortization		184,471			199,786			193,240
Amortization of favorable and unfavorable operating    leases, net		393			442			124
Interest and other expense, net		67,748			70,835			61,191
Income tax expense		468			332			679
EBITDA		271,908			98,188			427,151
Gain on sale of real estate		(3,596	)		(10,854	)		(5,021	)
Loss on impairment of depreciable real estate assets		10,754			5,097			6,467
EBITDAre		279,066			92,431			428,597
Non-cash straight-line operating ground lease expense		169			180			188
Adjusted EBITDAre		279,235			92,611			428,785
General and administrative expense		41,038			29,374			36,210
Adjusted Hotel EBITDA	$	320,273		$	121,985		$	464,995

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The following tables reconcile the Company’s GAAP net income (loss) to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA by quarter for the years ended December 31, 2021, 2020 and 2019 (in thousands).

	1st Quarter			2nd Quarter		3rd Quarter			4th Quarter
	2021			2021		2021			2021
Net income (loss)	$	(46,435	)	$	20,283	$	31,759		$	13,221
Depreciation and amortization		48,710			46,386		44,217			45,158
Amortization of favorable and unfavorable operating    leases, net		98			98		98			99
Interest and other expense, net		18,513			18,618		15,977			14,640
Income tax expense		108			87		114			159
EBITDA		20,994			85,472		92,165			73,277
(Gain) loss on sale of real estate		(4,484	)		864		(44	)		68
Loss on impairment of depreciable real estate assets		10,754			-		-			-
EBITDAre		27,264			86,336		92,121			73,345
Non-cash straight-line operating ground lease expense		44			43		41			41
Adjusted EBITDAre		27,308			86,379		92,162			73,386
General and administrative expense		8,119			8,435		13,261			11,223
Adjusted Hotel EBITDA	$	35,427		$	94,814	$	105,423		$	84,609

	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
	2020			2020			2020			2020
Net income (loss)	$	(2,769	)	$	(78,243	)	$	(40,948	)	$	(51,247	)
Depreciation and amortization		49,522			49,897			50,171			50,196
Amortization of favorable and unfavorable operating    leases, net		101			101			103			137
Interest and other expense, net		15,566			18,386			18,531			18,352
Income tax expense		146			58			61			67
EBITDA		62,566			(9,801	)		27,918			17,505
(Gain) loss on sale of real estate		(8,839	)		54			-			(2,069	)
Loss on impairment of depreciable real estate assets		-			4,382			-			715
EBITDAre		53,727			(5,365	)		27,918			16,151
Non-cash straight-line operating ground lease expense		47			44			44			45
Adjusted EBITDAre		53,774			(5,321	)		27,962			16,196
General and administrative expense		9,523			6,025			6,726			7,100
Adjusted Hotel EBITDA	$	63,297		$	704		$	34,688		$	23,296

	1st Quarter			2nd Quarter		3rd Quarter		4th Quarter
	2019			2019		2019		2019
Net income	$	38,151		$	62,090	$	46,223	$	25,453
Depreciation and amortization		47,950			48,109		47,887		49,294
Amortization of favorable and unfavorable operating    leases, net		31			31		31		31
Interest and other expense, net		15,494			15,857		14,759		15,081
Income tax expense		206			156		143		174
EBITDA		101,832			126,243		109,043		90,033
(Gain) loss on sale of real estate		(1,213	)		161		-		(3,969	)
Loss on impairment of depreciable real estate assets		-			-		6,467		-
EBITDAre		100,619			126,404		115,510		86,064
Non-cash straight-line operating ground lease expense		48			47		47		46
Adjusted EBITDAre		100,667			126,451		115,557		86,110
General and administrative expense		8,137			8,308		9,039		10,726
Adjusted Hotel EBITDA	$	108,804		$	134,759	$	124,596	$	96,836

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Hotels Owned

As of December 31, 2021, the Company owned 219 hotels with an aggregate of 28,747 rooms located in 36 states. See “Management and Franchise Agreements” in Part I, Item 1, Business, appearing elsewhere in this Annual Report on Form 10-K, for a table summarizing the number of hotels and rooms by brand. Refer to Part I, Item 2, of this Annual Report on Form 10-K for tables summarizing the number of hotels and rooms by state, and summarizing the location, brand, manager, date acquired or completed and number of rooms for each of the 219 hotels the Company owned as of December 31, 2021.  

Related Parties

The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. See Note 6, titled “Related Parties” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for additional information concerning the Company’s related party transactions.

Liquidity and Capital Resources   

Capital Resources

The Company’s principal short term sources of liquidity are the operating cash flows generated from the Company’s properties and availability under its revolving credit facility. Over the long term, the Company may receive proceeds from strategic additional secured and unsecured debt financing, dispositions of its hotel properties (such as the sale of 23 hotels in 2021 for proceeds of approximately $234.6 million discussed above in “Recent Hotel Portfolio Activities”) and offerings of the Company’s common shares, including pursuant to the ATM Program (as defined below).

As of December 31, 2021, the Company had approximately $1.4 billion of total outstanding debt consisting of $498.0 million of mortgage debt and $946.0 million outstanding under its credit facilities, excluding unamortized debt issuance costs and fair value adjustments. As of December 31, 2021, the Company had available corporate cash on hand of approximately $3.3 million as well as unused borrowing capacity under its $425 million revolving credit facility of approximately $349.0 million. In the near term, the impact of COVID-19 on the global economy, including any sustained decline in the Company’s performance, may make it more difficult or costly for the Company to raise debt or equity capital to fund long-term liquidity requirements. The credit agreements governing the unsecured credit facilities contain mandatory prepayment requirements, customary affirmative and negative covenants and events of default. The credit agreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios, and restrictions on certain investments. 

As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company entered into amendments in June 2020 that suspended the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities. These amendments imposed certain restrictions regarding its investing and financing activities including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders (except to the extent required to maintain REIT status), capital expenditures and use of proceeds from the sale of property or common shares of the Company, that applied during such testing suspension period. On March 1, 2021, as a result of the continued disruption from COVID-19 and the related uncertainty with respect to the Company’s future operating results, the Company entered into further amendments to each of the unsecured credit facilities to extend the covenant waiver period for all but two of the Company’s existing financial maintenance covenants until the date that the compliance certificate was required to be delivered for the fiscal quarter ending June 30, 2022 (unless the Company elected an earlier date) (the “Extended Covenant Waiver Period”). The testing for the Minimum Fixed Charge Coverage Ratio and the Minimum Unsecured Interest Coverage Ratio was suspended until the compliance certificate was required to be delivered for the fiscal quarter ending March 31, 2022 (unless the Company elected an earlier date). The amendment provided for continued restrictions on the Company’s ability to make cash distributions, except for the payment of cash dividends of $0.01 per common share per quarter or to the extent required to maintain REIT status.

Additionally, these amendments modified the calculation of the existing financial covenants for the first three quarterly calculations subsequent to the end of the Extended Covenant Waiver Period to annualize calculated amounts based on the period beginning with the first fiscal quarter upon exiting the Extended Covenant Waiver Period through the most recently ended fiscal quarter. The March 2021 amendments also modified certain of the existing financial maintenance covenants to

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less restrictive levels upon exiting the Extended Covenant Waiver Period as follows (capitalized terms are defined in the credit agreements):

● Maximum Consolidated Leverage Ratio of 8.50 to 1.00 for the first two fiscal quarters, 8.00 to 1.00 for two fiscal quarters, 7.50 to 1.00 for one fiscal quarter and then a ratio of 6.50 to 1.00 thereafter;

● Minimum Fixed Charge Coverage Ratio of 1.05 to 1.00 for the first fiscal quarter, 1.25 to 1.00 for one fiscal quarter and then a ratio of 1.50 to 1.00 thereafter;

● Minimum Unsecured Interest Coverage Ratio of no less than 1.25 to 1.00 for one fiscal quarter, 1.50 to 1.00 for one fiscal quarter, 1.75 to 1.00 for one fiscal quarter and a ratio of 2.00 to 1.00 thereafter; and

● Maximum Unsecured Leverage Ratio of 65% for two fiscal quarters and 60% thereafter.

Except as otherwise set forth in the amendments, the terms of the credit agreements remain in effect.

In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021. Upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions described above regarding its investing and financing activities that were applicable during the Extended Covenant Waiver Period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders, capital expenditures and use of proceeds from the sale of property or common shares of the Company. Those restrictions, including the restriction on payment of distributions to shareholders, were still in place throughout the second quarter of 2021.

The Company’s annualized results for the nine months ended December 31, 2021 met the financial maintenance covenants based on the thresholds stipulated for the third fiscal quarter tested upon exiting the Extended Covenant Waiver Period as described in Note 4 titled “Debt” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K. The unsecured credit facilities do not provide the Company the ability to re-enter the Extended Covenant Waiver Period once it has elected to exit.

See Note 4 titled “Debt” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for a description of the Company’s debt instruments as of December 31, 2021.

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 the Company’s preferred shares; (4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5) rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. 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.

In connection with the shelf registration statement, on August 12, 2020, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $300 million of its common shares under an at-the-market offering program (the “ATM Program”). As of December 31, 2021, the Company had sold approximately 4.7 million common shares under its ATM Program at a weighted-average market sales price of approximately $16.26 per common share and received aggregate gross proceeds of approximately $76.0 million and proceeds net of offering costs, which included $0.9 million of commissions, of approximately $75.1 million. The Company used the net proceeds from the sale of these shares primarily to pay down borrowings under its revolving credit facility and used the corresponding increased availability under the revolving credit facility for general corporate purposes, including acquisitions of hotel properties. As of December 31, 2021, approximately $224.0 million remained available for issuance under the ATM Program. The Company plans to use future net proceeds from the sale of these shares to continue to pay down borrowings under its revolving credit facility (if any). The Company plans to use the corresponding increased availability under the revolving credit facility for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of other outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the net proceeds to acquire another REIT or other company that invests in income producing properties.

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Capital Uses

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.

Distributions

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. Subsequent to the distribution paid in March 2020, the Company announced the suspension of its monthly distributions due to the impact of COVID-19 on its operating cash flows. As discussed in Note 4 titled “Debt” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, during the Extended Covenant Waiver Period, as a requirement under the amendments to its unsecured credit facilities, the Company was restricted in its ability to make distributions except for the payment of cash distributions of $0.01 per common share per quarter or to the extent required to maintain REIT status. Beginning in March 2021, the Board of Directors declared distributions of $0.01 per common share in the last month of each quarter and the distributions were paid out each following month. In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021. As a result, upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions on distributions that were applicable during the Extended Covenant Waiver Period. Distributions paid for the years ended December 31, 2021, 2020 and 2019 were $0.03, $0.30 and $1.20 per common share, respectively, for a total of approximately $6.8 million, $67.4 million and $268.7 million, respectively. The quarterly distribution declared in December 2021 totaled $2.3 million and was paid on January 18, 2022.

On February 22, 2022, the Company announced that its Board of Directors has reinstated its policy of distributions on a monthly basis and declared a monthly cash distribution of $0.05 per common share for the month of March, payable on March 15, 2022. While the Company currently expects monthly distributions to continue, each distribution is subject to approval by the Board of Directors. The Company’s Board of Directors, in consultation with management, will continue to monitor hotel operations as well as the timing and level of distributions in relation to the Company’s other cash requirements or in order to maintain its REIT status for federal income tax purposes. As of December 31, 2021, the Company had a net loss carryforward for federal income tax purposes of approximately $35.8 million which may be applied to future taxable earnings subject to limitations imposed by the Code, which will reduce the amount of distributions necessary to maintain the Company’s REIT status.

Share Repurchases

In May 2021, the Company’s Board of Directors approved an extension of its existing Share Repurchase Program, authorizing share repurchases up to an aggregate of $345 million. The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2022 if not terminated earlier or extended. No common shares were repurchased in 2021. During 2020 and 2019, the Company purchased, under its Share Repurchase Program, approximately 1.5 million and 0.3 million of its common shares, respectively, at a weighted-average market purchase price of approximately $9.42 and $14.92 per common share, respectively, for an aggregate purchase price, including commissions, of approximately $14.3 million and $4.3 million, respectively. The shares were repurchased under a written trading plan that provided for share repurchases in open market transactions and was intended to comply with Rule 10b5-1 under the Exchange Act. Past 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.

Capital Improvements

Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as it deems prudent. 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 December 31, 2021, the Company held approximately $29.3 million in reserve related to these properties. During 2021, the Company invested approximately $25.8 million in capital expenditures and anticipates spending approximately $55 to $65

49

million during 2022, which includes various renovation projects for approximately 20 to 25 properties. The Company does not currently have any existing or planned projects for new property development.

Upcoming Debt Maturities and Debt Service Payments

The Company has approximately $287.1 million of principal and interest payments due on its debt over the next 12 months. Included in this total is $76.0 million due on the Company’s revolving credit facility, which matures on July 27, 2022, but the facility can be extended up to one year, subject to certain conditions including covenant compliance and additional fees. The Company presently has the intent and ability to exercise this extension. Also included is approximately $155.7 million of mortgage loans maturing in the second half of 2022, which the Company plans to pay off using borrowings under its revolving credit facility and/or new financing. See Note 4 titled “Debt” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for more detail regarding future maturities of the Company’s debt instruments as of December 31, 2021.

Hotel Purchase Contract Commitments

As of December 31, 2021, the Company had one outstanding contract, which was entered into during 2021, for the potential purchase of a hotel currently under development for a total expected purchase price of approximately $78.6 million. The hotel is expected to be completed as a 260-room Embassy Suites and opened for business in early 2024, at which time the Company expects to complete the purchase of this hotel. Although the Company is working towards acquiring this hotel, there are many conditions to closing that have not yet been satisfied and there can be no assurance that closing on this hotel will occur under the outstanding purchase contract. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to purchase the hotel.

Lease Commitments

The Company is the lessee on certain ground leases, hotel equipment leases and office space leases. As of December 31, 2021, the Company had 14 hotels subject to ground leases and three parking lot ground leases with remaining terms ranging from approximately two to 97 years, excluding renewal options. Certain of its ground leases have options to extend beyond the initial lease term by periods ranging from five to 120 years. As of December 31, 2021, the Company has total remaining minimum lease payments of $296.8 million, including $6.7 million due in the next year. Refer to Note 10, titled “Lease Commitments” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K for additional details.

Cash Management Activities

As part of the cost sharing arrangements discussed in Note 6, titled “Related Parties” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, 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.

Management and Franchise Agreements

Each of the Company’s 219 hotels owned as of December 31, 2021 is operated and managed under separate management agreements with 16 hotel management companies, none of which are affiliated with the Company. Thirteen of the Company’s hotels are managed by affiliates of Marriott. The remainder of the Company’s hotels are managed by companies that are not affiliated with either Marriott, Hilton or Hyatt, and as a result, the branded hotels they manage were required to obtain separate franchise agreements with the applicable franchisor. See Note 9, titled “Management and Franchise Agreements” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for additional information pertaining to the management and franchise agreements, including a listing of the Company’s hotel management companies.

Business Interruption

Being in the real estate industry, the Company is exposed to natural disasters on both a local and national scale. Although management believes it has 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.

50

Seasonality

The hotel industry has been historically 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 for the Company’s hotels are greater in the second and third quarters than in the first and fourth quarters. However, due to the effects of COVID-19, these typical seasonal patterns were disrupted in 2020 and 2021, although the Company experienced some seasonal decrease in demand in the first and fourth quarter of each year. 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.

Critical Accounting Policies and Estimates

The following contains a discussion of what the Company believes to be its critical accounting policies and estimates. These items should be read to gain a further understanding of the principles and estimates used to prepare the Company’s financial statements. These principles and estimates include application of judgment; therefore, changes in judgments may have a material impact on the Company’s reported results of operations and financial condition.

Investment Policy

Upon acquisition of real estate properties, the Company estimates the fair value of acquired tangible assets (consisting of land, buildings and improvements, and furniture, fixtures and equipment) and identified intangible assets and liabilities, including in-place leases, and assumed debt based on the evaluation of information and estimates available at that date. Fair values for these assets are not directly observable and estimates are based on comparables and other information which is subjective in nature, including comparable land sales as well as industry and Company data regarding building and furniture, fixture and equipment costs, including adjustments for estimated depreciation based on the age of the property acquired and time since its most recent renovation. The Company has not assigned any value to management contracts and franchise agreements as such contracts are generally at current market rates based on the remaining terms of the contracts and any other value attributable to these contracts is not considered material. Acquisitions of hotel properties are generally accounted for as acquisitions of a group of assets, with costs incurred to effect an acquisition, including title, legal, accounting, brokerage commissions and other related costs, being capitalized as part of the cost of the assets acquired, instead of accounted for separately as expenses in the period that they are incurred. The underlying assumptions are subject to uncertainty and thus any changes to the allocation of fair value to each of the various line items within the Company’s consolidated balance sheets could have an impact on the Company’s financial condition as well as results of operations due to resulting changes in depreciation and amortization as a result of the fair value allocation. The acquisitions of real estate subject to this estimate totaled eight properties for a combined purchase price of $361.5 million for the year ended December 31, 2021 and four properties for a combined purchase price of $111.3 million for the year ended December 31, 2020.

Capitalization Policy

The Company considers expenditures to be capital in nature based on the following criteria: (1) for a single asset, the cost must be at least $500, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; (2) for group purchases of 10 or more identical assets, the unit cost for each asset must be at least $50, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; and (3) for major repairs to a single asset, the repair must be at least $2,500 and the useful life of the asset must be substantially extended.

Impairment Losses Policy

The Company records impairment losses on hotel properties used in operations if indicators of impairment are present, and the sum of the undiscounted cash flows estimated to be generated by the respective properties over their estimated remaining useful life, based on historical and industry data, is less than the properties’ carrying amount. Indicators of impairment include a property with current or potential losses from operations, when it becomes more likely than not that a property will be sold before the end of its previously estimated useful life or when events, trends, contingencies or changes in circumstances indicate that a triggering event has occurred and an asset’s carrying value may not be recoverable. The Company monitors its properties on an ongoing basis by analytically reviewing financial performance and considers each property individually for purposes of reviewing for indicators of impairment. As many indicators of impairment are subjective, such as general economic and market declines, the Company also prepares an annual recoverability analysis for each of its properties to assist with its evaluation of impairment indicators. Given the disruption in 2020 and 2021 caused by COVID-19, the Company has performed over the last two years an annual recoverability analysis by comparing each property’s net book value to its estimated operating income based on assumptions and estimates about the property's future

51

revenues, expenses and capital expenditures after recovery from disruption resulting from COVID-19 and other disruptive events such as renovations or newly opened hotels in the same market. The Company’s planned initial hold period for each property is generally 39 years. If events or circumstances change, such as the Company’s intended hold period for a property or if the operating performance of a property declines substantially for an extended period of time, the Company’s carrying value for a particular property may not be recoverable, and an impairment loss will be recorded. Impairment losses are measured as the difference between the asset’s fair value and its carrying value. The Company’s ongoing analyses and annual recoverability analyses have not identified any impairment losses other than the losses on impairment of five properties recorded in 2021, one property recorded in 2020 and one property recorded in 2019 totaling approximately $10.8 million, $5.1 million and $6.5 million, respectively, as discussed herein in Note 3, titled “Dispositions” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K.

New Accounting Standards

See Note 1, titled “Organization and Summary of Significant Accounting Policies” of the Consolidated Financial Statements and Notes thereto in Part II, Item 8, in this Annual Report on Form 10-K, for information on the anticipated adoption of recently issued accounting standards.

Subsequent Events

On January 18, 2022, the Company paid approximately $2.3 million, or $0.01 per outstanding common share, in distributions to its common shareholders.

On February 22, 2022, the Company declared a monthly cash distribution of $0.05 per common share for the month of March 2022. The distribution is payable on March 15, 2022, to shareholders of record as of March 4, 2022.

52

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As of December 31, 2021, 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 December 31, 2021, after giving effect to interest rate swaps, as described below, approximately $126.0 million, or approximately 9% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s variable-rate debt outstanding as of December 31, 2021, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately $0.1 million (subject to the LIBOR floor as discussed in Note 4 titled “Debt” in the Company’s Consolidated Financial Statements and Notes thereto in Part II, Item 8 in this Annual Report on Form 10-K), 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.

As of December 31, 2021, the Company’s variable-rate debt consisted of its credit facilities, including borrowings outstanding under its $425 million revolving credit facility and $820 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 December 31, 2021, the Company had 13 interest rate swap agreements that effectively fix the interest payments on approximately $770.0 million of the Company’s variable-rate debt outstanding with maturity dates ranging from August 2022 to December 2029. 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. See Note 5 titled “Fair Value of Financial Instruments” in Part II, Item 8, of the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Annual Report on Form 10-K, for a description of the Company’s interest rate swaps as of December 31, 2021.

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 as well as one $50 million fixed-rate senior notes facility. 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 December 31, 2021. All dollar amounts are in thousands.

	2022			2023			2024			2025			2026			Thereafter			Total		Fair Market Value
Total debt:
Maturities	$	241,831		$	296,213		$	338,597		$	245,140		$	74,649		$	247,616		$	1,444,046	$	1,409,689
Average interest rates (1)		3.3	%		3.4	%		3.7	%		3.9	%		3.8	%		3.7	%
Variable-rate debt:
Maturities	$	76,000		$	250,000		$	310,000		$	175,000		$	-		$	85,000		$	896,000	$	869,618
Average interest rates (1)		3.0	%		3.2	%		3.6	%		4.1	%		4.2	%		3.7	%
Fixed-rate debt:
Maturities	$	165,831		$	46,213		$	28,597		$	70,140		$	74,649		$	162,616		$	548,046	$	540,071
Average interest rates		4.0	%		3.9	%		3.9	%		3.8	%		3.7	%		3.7	%

(1) The average interest rate gives effect to interest rate swaps, as applicable.

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Item 8. Financial Statements and Supplementary Data

Report of Management
on Internal Control over Financial Reporting

February 22, 2022

To the Shareholders

Apple Hospitality REIT, Inc.

Management of Apple Hospitality REIT, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of the Company’s principal executive, principal financial and principal accounting officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

The Company’s internal control over financial reporting is supported by written policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of the Company’s annual consolidated financial statements, management has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of those controls.

Based on this assessment, management has concluded that as of December 31, 2021, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this report, has issued an attestation report on the Company’s internal control over financial reporting, a copy of which appears on the next page of this annual report.

/s/    Justin G. Knight	/s/    Elizabeth S. Perkins	/s/    Rachel S. Labrecque
Justin G. Knight, Chief Executive Officer	Elizabeth S. Perkins, Chief Financial Officer	Rachel S. Labrecque, Chief Accounting Officer
(Principal Executive Officer)	(Principal Financial Officer)	(Principal Accounting Officer)

54

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Apple Hospitality REIT, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Apple Hospitality REIT, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Apple Hospitality REIT, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(2) and our report dated February 22, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Richmond, Virginia

February 22, 2022

55

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Apple Hospitality REIT, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Apple Hospitality REIT, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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	Investments in Real Estate – Indicators of impairment
Description of the Matter	As of December 31, 2021, the Company had investments in real estate, net of accumulated depreciation and amortization of $4.7 billion. As more fully described in Notes 1 and 3 to the consolidated financial statements, the Company records impairment losses on hotel properties used in operations if indicators of impairment are present, and the sum of the undiscounted cash flows estimated to be generated by the respective properties over their estimated remaining useful life, based on historical and industry data, is less than the properties’ carrying amounts. Many indicators of impairment, such as a change in the intended holding period of the property, are subjective and the Company also prepares an annual recoverability analysis assuming estimated cash flows for each of its properties to assist with its evaluation of impairment indicators. Auditing management’s analysis is complex due to the highly judgmental nature of identifying indicators of impairment as well as a change in a property’s intended hold period.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s review for indicators of impairment, including changes in the intended hold period. For example, we tested controls over management’s review of the recoverability analysis and significant assumptions described above. Our testing of the Company’s indicators of impairment included, among others, testing the recoverability analysis. For example, we tested estimated cash flows by comparing them to historical operating results by property and current industry, market, and economic trends. In addition, we considered the hold period necessary for the property’s carrying value to be recovered via undiscounted cash flows. We held discussions with management about the current status of potential transactions and management’s judgments to understand the probability of future events that could affect the holding period and other cash flow assumptions for the properties. We searched for and evaluated information that corroborated or contradicted the Company’s assumptions.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2007.

Richmond, Virginia

February 22, 2022

57

Apple Hospitality REIT , Inc.

Consolidated Balance Sheets

(in thousands, except share data)

	As of December 31,
	2021			2020
Assets
Investment in real estate, net of accumulated depreciation and amortization of    $1,311,262 and $1,235,698, respectively	$	4,677,185		$	4,732,896
Assets held for sale		-			5,316
Cash and cash equivalents		3,282			5,556
Restricted cash-furniture, fixtures and other escrows		36,667			28,812
Due from third party managers, net		40,052			22,137
Other assets, net		33,341			35,042
Total Assets	$	4,790,527		$	4,829,759
Liabilities
Debt, net	$	1,438,758		$	1,482,571
Finance lease liabilities		111,776			219,981
Accounts payable and other liabilities		92,672			97,860
Total Liabilities		1,643,206			1,800,412
Shareholders' Equity
Preferred stock, authorized 30,000,000 shares; none issued and outstanding		-			-
Common stock, no par value, authorized 800,000,000 shares; issued and    outstanding 228,255,642 and 223,212,346 shares, respectively		4,569,352			4,488,419
Accumulated other comprehensive loss		(15,508	)		(42,802	)
Distributions greater than net income		(1,406,523	)		(1,416,270	)
Total Shareholders' Equity		3,147,321			3,029,347
Total Liabilities and Shareholders' Equity	$	4,790,527		$	4,829,759

See notes to consolidated financial statements.

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Apple Hospitality REIT, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share data)

	Year Ended December 31,
	2021			2020			2019
Revenues:
Room	$	871,436		$	560,485		$	1,167,203
Food and beverage		22,018			16,719			59,815
Other		40,415			24,675			39,579
Total revenue		933,869			601,879			1,266,597
Expenses:
Hotel operating expense:
Operating		216,644			156,099			312,449
Hotel administrative		85,066			68,473			103,895
Sales and marketing		79,834			61,003			116,089
Utilities		40,635			33,412			40,598
Repair and maintenance		47,660			37,087			52,695
Franchise fees		40,949			26,387			54,862
Management fees		31,390			19,817			43,828
Total hotel operating expense		542,178			402,278			724,416
Property taxes, insurance and other		71,980			78,238			77,498
General and administrative		41,038			29,374			36,210
Loss on impairment of depreciable real estate assets		10,754			5,097			6,467
Depreciation and amortization		184,471			199,786			193,240
Total expense		850,421			714,773			1,037,831
Gain on sale of real estate		3,596			10,854			5,021
Operating income (loss)		87,044			(102,040	)		233,787
Interest and other expense, net		(67,748	)		(70,835	)		(61,191	)
Income (loss) before income taxes		19,296			(172,875	)		172,596
Income tax expense		(468	)		(332	)		(679	)
Net income (loss)	$	18,828		$	(173,207	)	$	171,917
Other comprehensive income (loss):
Interest rate derivatives		27,294			(38,104	)		(14,704	)
Comprehensive income (loss)	$	46,122		$	(211,311	)	$	157,213
Basic and diluted net income (loss) per common share	$	0.08		$	(0.77	)	$	0.77
Weighted average common shares outstanding - basic and    diluted		226,361			223,544			223,910

See notes to consolidated financial statements.

59

Apple Hospitality REIT, Inc.

Consolidated Statements of Shareholders' Equity

(in thousands, except per share data)

							Accumulated
	Common Stock						Other			Distributions
	Number of Shares			Amount			Comprehensive Income (Loss)			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		156			3,025			-			-			3,025
Common shares repurchased		(290	)		(4,335	)		-			-			(4,335	)
Interest rate derivatives		-			-			(14,704	)		-			(14,704	)
Net income		-			-			-			171,917			171,917
Distributions declared to shareholders ($1.20 per share)		-			-			-			(268,699	)		(268,699	)
Balance at December 31, 2019		223,863			4,493,763			(4,698	)		(1,198,052	)		3,291,013
Share based compensation, net		870			9,368			-			-			9,368
Equity issuance costs		-			(376	)		-			-			(376	)
Common shares repurchased		(1,521	)		(14,336	)		-			-			(14,336	)
Interest rate derivatives		-			-			(38,104	)		-			(38,104	)
Net loss		-			-			-			(173,207	)		(173,207	)
Distributions declared to shareholders ($0.20 per share)		-			-			-			(45,011	)		(45,011	)
Balance at December 31, 2020		223,212			4,488,419			(42,802	)		(1,416,270	)		3,029,347
Share based compensation, net		367			5,933			-			-			5,933
Issuance of common shares, net		4,677			75,000			-			-			75,000
Interest rate derivatives		-			-			27,294			-			27,294
Net income		-			-			-			18,828			18,828
Distributions declared to shareholders ($0.04 per share)		-			-			-			(9,081	)		(9,081	)
Balance at December 31, 2021		228,256		$	4,569,352		$	(15,508	)	$	(1,406,523	)	$	3,147,321

See notes to consolidated financial statements.

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Apple Hospitality REIT, Inc.

Consolidated Statements of Cash Flows

(in thousands)

	Years Ended December, 31
	2021			2020			2019
Cash flows from operating activities:
Net income (loss)	$	18,828		$	(173,207	)	$	171,917
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		184,471			199,786			193,240
Loss on impairment of depreciable real estate assets		10,754			5,097			6,467
Gain on sale of real estate		(3,596	)		(10,854	)		(5,021	)
Other non-cash expenses, net		10,284			8,859			4,520
Changes in operating assets and liabilities:
Decrease (increase) in due from third party managers, net		(18,113	)		4,795			2,221
Decrease (increase) in other assets, net		846			(580	)		(821	)
Increase (decrease) in accounts payable and other liabilities		14,088			(7,168	)		9,151
Net cash provided by operating activities		217,562			26,728			381,674
Cash flows from investing activities:
Acquisition of hotel properties, net		(362,486	)		(88,677	)		(59,424	)
Refunds (payments) for potential acquisitions, net		(893	)		476			(1,229	)
Capital improvements		(18,312	)		(48,559	)		(74,896	)
Net proceeds from sale of real estate		231,008			54,499			121,225
Net cash used in investing activities		(150,683	)		(82,261	)		(14,324	)
Cash flows from financing activities:
Net proceeds (disbursements) related to issuance of common shares		75,000			(377	)		-
Repurchases of common shares		-			(14,336	)		(4,335	)
Repurchases of common shares to satisfy employee withholding requirements		(3,345	)		(2,532	)		(577	)
Distributions paid to common shareholders		(6,797	)		(67,378	)		(268,672	)
Net proceeds from (payments on) revolving credit facility		(29,800	)		54,900			(217,900	)
Proceeds from term loans and senior notes		-			50,000			160,000
Proceeds from mortgage debt and other loans		-			81,520			-
Payments of mortgage debt and other loans		(70,724	)		(44,268	)		(33,806	)
Payments of finance lease settlement		(24,045	)		-			-
Financing costs		(1,587	)		(2,289	)		(1,031	)
Net cash provided by (used in) financing activities		(61,298	)		55,240			(366,321	)
Net change in cash, cash equivalents and restricted cash		5,581			(293	)		1,029
Cash, cash equivalents and restricted cash, beginning of period		34,368			34,661			33,632
Cash, cash equivalents and restricted cash, end of period	$	39,949		$	34,368		$	34,661
Supplemental cash flow information:
Interest paid	$	63,149		$	63,531		$	59,877
Income taxes paid	$	637		$	980		$	790
Supplemental disclosure of noncash investing and financing activities:
Notes payable originated from acquisitions	$	56,000		$	20,551		$	-
Accrued distribution to common shareholders	$	2,281		$	-		$	22,386
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents, beginning of period	$	5,556		$	-		$	-
Restricted cash-furniture, fixtures and other escrows, beginning of period		28,812			34,661			33,632
Cash, cash equivalents and restricted cash, beginning of period	$	34,368		$	34,661		$	33,632
Cash and cash equivalents, end of period	$	3,282		$	5,556		$	-
Restricted cash-furniture, fixtures and other escrows, end of period		36,667			28,812			34,661
Cash, cash equivalents and restricted cash, end of period	$	39,949		$	34,368		$	34,661

See notes to consolidated financial statements.

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Apple Hospitality REIT, Inc.

Notes to Consolidated Financial Statements

Note 1

Organization and Summary of Significant Accounting Policies

Organization

Apple Hospitality REIT, Inc., formed in November 2007 as a Virginia corporation, together with its wholly-owned subsidiaries (the “Company”), is a self-advised real estate investment trust (“REIT”) that invests in income-producing real estate, primarily in the lodging sector, in the United States (“U.S.”). The Company’s fiscal year end is December 31. The Company has no foreign operations or assets and its operating structure includes only one reportable segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does not have any elements of power in the decision making process of these entities, and therefore does not consolidate the entities. As of December 31, 2021, the Company owned 219 hotels with an aggregate of 28,747 rooms located in 36 states. All information related to the number of rooms included in these notes to the consolidated financial statements and Schedule III - Real Estate and Accumulated Depreciation and Amortization listed in the Index at Item 15 has not been audited. The Company’s common shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.”

The Company has elected to be treated as a REIT for federal income tax purposes. The Company has a wholly-owned taxable REIT subsidiary (or subsidiaries thereof) (collectively, the “Lessee”), which leases all of the Company’s hotels.

Coronavirus COVID-19 Pandemic 

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

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. The fair market value of cash and cash equivalents approximates their carrying value. Cash balances may at times exceed federal depository insurance limits.

Restricted Cash

Restricted cash includes reserves for debt service, real estate taxes, and insurance, and reserves for furniture, fixtures, and equipment replacements of up to 5% of property revenue for certain hotels, as required by certain management or mortgage debt agreement restrictions and provisions. The fair market value of restricted cash approximates its carrying value.

Investment in Real Estate and Related Depreciation and Amortization

Real estate is stated at cost, net of depreciation and amortization. Repair and maintenance costs are expensed as incurred while significant improvements, renovations, and replacements are capitalized. As further discussed in Note 10, finance ground lease assets are capitalized at the estimated present value of the remaining minimum lease payments under the leases. Depreciation and amortization are computed using the straight-line method over the average estimated useful lives of the assets, which are generally 39 years for buildings, the remaining life of the lease for finance ground leases (which in some instances may include renewal options), 10 to 20 years for franchise fees, 10 years for major improvements and three to seven years for furniture and equipment.

The Company considers expenditures to be capital in nature based on the following criteria: (1) for a single asset, the cost must be at least $500, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; (2) for group purchases of 10 or more identical assets, the unit cost for each asset must be at least $50, including all normal and necessary costs to place the asset in service, and the useful life must be at least one year; and (3) for major repairs to a single asset, the repair must be at least $2,500 and the useful life of the asset must be substantially extended.

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Upon acquisition of real estate properties, the Company estimates the fair value of acquired tangible assets (consisting of land, buildings and improvements, and furniture, fixtures and equipment) and identified intangible assets and liabilities, including in-place leases, and assumed debt based on the evaluation of information and estimates available at that date. Fair values for these assets are not directly observable and estimates are based on comparables and other information which is subjective in nature. The Company has not assigned any value to management contracts and franchise agreements as such contracts are generally at current market rates based on the remaining terms of the contracts and any other value attributable to these contracts is not considered material. Acquisitions of hotel properties are generally accounted for as acquisitions of a group of assets, with costs incurred to effect an acquisition, including title, legal, accounting, brokerage commissions and other related costs, being capitalized as part of the cost of the assets acquired, instead of accounted for separately as expenses in the period that they are incurred.

The Company records impairment losses on hotel properties used in operations if indicators of impairment are present, and the sum of the undiscounted cash flows estimated to be generated by the respective properties over their estimated remaining useful life, based on historical and industry data, is less than the properties’ carrying amount. Indicators of impairment include a property with current or potential losses from operations, when it becomes more likely than not that a property will be sold before the end of its previously estimated useful life or when events, trends, contingencies or changes in circumstances indicate that a triggering event has occurred and an asset’s carrying value may not be recoverable. The Company monitors its properties on an ongoing basis by analytically reviewing financial performance and considers each property individually for purposes of reviewing for indicators of impairment. As many indicators of impairment are subjective, such as general economic and market declines, the Company also prepares an annual recoverability analysis for each of its properties to assist with its evaluation of impairment indicators. Given the disruption in 2020 and 2021 caused by COVID-19, the Company has performed over the last two years an annual recoverability analysis by comparing each property's net book value to its estimated operating income based on assumptions and estimates about the property's future revenues, expenses and capital expenditures after recovery from disruption resulting from COVID-19 and other disruptive events such as renovations or newly opened hotels in the same market. The Company’s planned initial hold period for each property is generally 39 years. If events or circumstances change, such as the Company’s intended hold period for a property or if the operating performance of a property declines substantially for an extended period of time, the Company’s carrying value for a particular property may not be recoverable, and an impairment loss will be recorded. Impairment losses are measured as the difference between the asset’s fair value and its carrying value. The Company’s ongoing analyses and annual recoverability analyses have not identified any impairment losses other than the losses on impairment of five properties recorded in 2021, one property recorded in 2020 and one property recorded in 2019 totaling approximately $10.8 million, $5.1 million and $6.5 million, respectively, as discussed in Note 3.

Assets Held for Sale

The Company classifies assets as held for sale when a binding agreement to sell the property has been signed under which the buyer has committed a significant amount of nonrefundable cash, no significant contingencies exist which could prevent the transaction from being completed in a timely manner, and the sale is expected to close within one year. If these criteria are met, the Company will cease recording depreciation and amortization and will record an impairment charge if the fair value less costs to sell is less than the carrying amount of the disposal group. The Company will generally classify the impairment charge, together with the related operating results, as continuing operations in the Company’s consolidated statements of operations and classify the assets and related liabilities as held for sale in the Company’s consolidated balance sheets. If the Company’s plan of sale changes and the Company subsequently decides not to sell a property that is classified as held for sale, the property will be reclassified as held and used in the period the change occurs. As of December 31, 2021, the Company did not have any assets classified as held for sale. As of December 31, 2020, the Company had one hotel classified as held for sale, which was sold to an unrelated party in February 2021, discussed further in Note 3.

Revenue Recognition

Revenues consist of amounts derived from hotel operations, including room sales, food and beverage sales, and other hotel revenues, and are presented on a disaggregated basis in the Company’s consolidated statements of operations. The Company recognizes hotel operating revenue when guest rooms are occupied, services have been provided or fees have been earned. Revenues are recorded net of any sales, occupancy or other taxes collected from customers on behalf of third parties. Room revenue is recognized when the Company’s hotels satisfy their performance obligation of providing a hotel room. The hotel reservation defines the terms of the agreement including an agreed-upon rate and length of stay. Food and beverage revenue is recognized at the time the food or beverage is purchased by and provided to the customer. Other operating revenue is recognized at the time when the goods or services are provided to the customer or when the performance obligation is satisfied. Payment is due at the time that goods or services are rendered or billed. For room revenue, payment is typically due

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and paid in full at the end of the stay with some customers prepaying for their rooms prior to the stay. Payments received from a customer prior to arrival are recorded as an advance deposit and are recognized as revenue at the time of occupancy.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss), which is comprised of unrealized gains or losses resulting from hedging activity.  

Net Income (Loss) Per Common Share

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

Reclassifications

Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period presentation with no effect on previously reported net income or shareholders’ equity.

Income Taxes

The Company is operated as, and has elected to be taxed as, a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the “Code”). Earnings and profits, which will determine the taxability of distributions to shareholders, will differ from income reported for financial reporting purposes primarily due to the differences for federal income tax purposes in the carrying value (basis) of the investment in properties and estimated useful lives used to compute depreciation, straight-line operating ground lease expense, amortization of favorable and unfavorable leases, amortization and interest expense versus lease payments related to finance ground leases, loss on impairment of depreciable real estate assets and gain (loss) on sale of real estate assets. The characterization of 2021 declared distributions of $0.04 per share for tax purposes was 100% ordinary income, 2020 paid distributions of $0.30 per share for tax purposes was 100% return of capital and 2019 paid distributions of $1.20 per share for tax purposes was 78% ordinary income and 22% return of capital. The Company utilized a portion of its net loss carryforward to reduce its taxable net income for the year ended December 31, 2021. The total net loss carryforward for federal income tax purposes was approximately $35.8 million as of December 31, 2021, and $67.0 million as of December 31, 2020, and will not expire but is subject to limitations as imposed by the Code for REITs. No provision for U.S. Federal income taxes has been included in the Company’s financial statements for the years ended December 31, 2021 and 2020 related to its REIT activities.

The Lessee, as a taxable REIT subsidiary of the Company, is subject to federal and state income taxes. Due to historical cumulative operating losses, the taxable REIT subsidiary did not incur federal income tax for the three years ended December 31, 2021 and recorded a valuation allowance against the entire deferred asset for all periods presented. The total net operating loss carry forward for federal income tax purposes was approximately $95 million as of December 31, 2021, $140 million as of December 31, 2020 and $101 million as of December 31, 2019. The net operating losses expire beginning in 2028. There are no material differences between the book and tax cost basis of the Company’s assets and liabilities, except for the carrying value (basis) of the investment in properties. The Company’s income tax expense as shown in the consolidated statements of operations primarily includes franchise and income taxes at the state jurisdiction level, which do not have any associated material deferred taxes.

The Company has and may in the future enter into purchase and sale transactions in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, for the exchange of like-kind property to defer taxable gains on the sale of real estate properties (“1031 Exchange”).

As of December 31, 2021, the tax years that remain subject to examination by major tax jurisdictions generally include 2018-2021.

Sales and Marketing Costs

Sales and marketing costs are expensed when incurred. These costs represent the expense for franchise advertising and reservation systems under the terms of the hotel management and franchise agreements and general and administrative expenses that are directly attributable to advertising and promotion.

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Use of Estimates

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

Accounting Standards Recently Adopted

Reference Rate Reform

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

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

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

The Company’s unsecured credit facilities and interest rate swap agreements have provisions in place regarding the selection of replacement reference rates upon the discontinuance of LIBOR, but the Company anticipates that it may enter into amendments to clarify the replacement reference rate in the future.

Accounting Standards Recently Issued

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

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) to increase the transparency of government assistance disclosures including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. The provisions of this update are effective for annual and interim periods beginning after December 15, 2021. The Company is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.

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Note 2

Investment in Real Estate

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

	December 31,			December 31,
	2021			2020
Land	$	794,899		$	725,512
Building and Improvements		4,584,829			4,525,850
Furniture, Fixtures and Equipment		488,773			499,865
Finance Ground Lease Assets		102,084			203,617
Franchise Fees		17,862			13,750
		5,988,447			5,968,594
Less Accumulated Depreciation and Amortization		(1,311,262	)		(1,235,698	)
Investment in Real Estate, net	$	4,677,185		$	4,732,896

As of December 31, 2021, the Company owned 219 hotels with an aggregate of 28,747 rooms located in 36 states.

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

2021 and 2020 Acquisitions

During 2021 the Company acquired eight hotels. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price, excluding transaction costs, for each hotel. All dollar amounts are in thousands.

City	State	Brand	Manager	Date Acquired	Rooms		Gross Purchase Price
Madison	WI	Hilton Garden Inn	Raymond	2/18/2021		176	$	49,599
Portland	ME	AC Hotels	Crestline	8/20/2021		178		66,750
Greenville	SC	Hyatt Place	Crestline	9/1/2021		130		30,000
Portland	ME	Aloft	Crestline	9/10/2021		157		51,150
Memphis	TN	Hilton Garden Inn	Crestline	10/28/2021		150		38,000
Fort Worth	TX	Hilton Garden Inn	Raymond	11/17/2021		157		29,500
Fort Worth	TX	Homewood Suites	Raymond	11/17/2021		112		21,500
Portland	OR	Hampton	Raymond	11/17/2021		243		75,000
						1,303	$	361,499

During 2020, the Company acquired four hotels. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price, excluding transaction costs, for each hotel. All dollar amounts are in thousands.

City	State	Brand	Manager	Date Acquired	Rooms		Gross Purchase Price
Cape Canaveral	FL	Hampton	LBA	4/30/2020		116	$	24,102
Cape Canaveral	FL	Home2 Suites	LBA	4/30/2020		108		22,602
Tempe	AZ	Hyatt House	Crestline	8/13/2020		105		26,309
Tempe	AZ	Hyatt Place	Crestline	8/13/2020		154		38,279
						483	$	111,292

The Company funded the purchase of the Cape Canaveral, Florida hotels by utilizing $25.0 million of its available cash and entering into a one-year note payable with the developer secured by the hotels for $21.7 million. The note payable bore interest, which was payable monthly, at a floating annual rate equal to the London Inter-Bank Offered Rate for a one-month term (“one-month LIBOR”) plus a margin of 2.0% for the first six months of the loan term and 3.0% for the second six

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months of the loan term. In July 2020, the principal amount of the note was reduced by approximately $1.1 million representing a credit from the developer for shared construction savings, and the note was repaid in full on April 12, 2021. The Company used borrowings under its revolving credit facility to purchase the Tempe, Arizona hotels in 2020 and the Madison, Wisconsin and Memphis, Tennessee hotels in 2021. The Company used available cash to purchase the Portland, Maine and Greenville, South Carolina hotels in 2021. The Company used a mix of available cash and borrowings under its revolving credit facility to purchase the Fort Worth, Texas and Portland, Oregon hotels in 2021. The acquisitions of these hotel properties were accounted for as acquisitions of asset groups, whereby costs incurred to effect the acquisitions (which were not significant) were capitalized as part of the cost of the assets acquired. For the eight hotels acquired during 2021, the amount of revenue and operating income included in the Company’s consolidated statement of operations from the date of acquisition through December 31, 2021 was approximately $16.0 million and $2.1 million, respectively. For the four hotels acquired during 2020, the amount of revenue and operating loss included in the Company’s consolidated statement of operations from the date of acquisition through December 31, 2020 was approximately $3.5 million and $(1.5) million, respectively.

Seattle Land Acquisition

On August 16, 2021, the Company purchased the fee interest in the land at the Seattle, Washington Residence Inn, previously held under a finance ground lease. The Company utilized $24.0 million of its available cash and entered into a one-year note payable to the seller for $56.0 million to fund the purchase price of $80.0 million. The note payable bears interest, which is payable monthly, at a fixed annual rate of 4.0%. The land purchase was accounted for as a retirement of the finance lease, with the difference of $16.6 million between the carrying amount of the net right-of-use asset of $94.5 million and the finance lease liability of $111.1 million applied as an adjustment to the carrying amount of the acquired land.

Note 3

Dispositions

2021 Dispositions

During the year ended December 31, 2021, the Company sold 23 hotels in four separate transactions with unrelated parties for a total combined gross sales price of approximately $234.6 million, resulting in a combined net gain on sale, after giving effect to impairment charges of approximately $3.6 million, net of transaction costs, which is included in the Company’s consolidated statement of operations for the year ended December 31, 2021. The 23 hotels had a total carrying value of approximately $227.2 million at the time of the sale. The following table lists the 23 hotels sold:

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City	State	Brand	Date Sold	Rooms
Charlotte	NC	Homewood Suites	2/25/2021		118
Memphis	TN	Homewood Suites	3/16/2021		140
Overland Park	KS	SpringHill Suites	4/30/2021		102
Montgomery	AL	Hilton Garden Inn	7/22/2021		97
Montgomery	AL	Homewood Suites	7/22/2021		91
Rogers	AR	Residence Inn	7/22/2021		88
Phoenix	AZ	Courtyard	7/22/2021		127
Lakeland	FL	Courtyard	7/22/2021		78
Albany	GA	Fairfield	7/22/2021		87
Schaumburg	IL	Hilton Garden Inn	7/22/2021		166
Andover	MA	SpringHill Suites	7/22/2021		136
Fayetteville	NC	Residence Inn	7/22/2021		92
Greenville	SC	Residence Inn	7/22/2021		78
Jackson	TN	Hampton	7/22/2021		85
Johnson City	TN	Courtyard	7/22/2021		90
Allen	TX	Hampton	7/22/2021		103
Allen	TX	Hilton Garden Inn	7/22/2021		150
Beaumont	TX	Residence Inn	7/22/2021		133
Burleson/Fort Worth	TX	Hampton	7/22/2021		88
El Paso	TX	Hilton Garden Inn	7/22/2021		145
Irving	TX	Homewood Suites	7/22/2021		77
Richmond	VA	SpringHill Suites	7/22/2021		103
Vancouver	WA	SpringHill Suites	7/22/2021		119
Total					2,493

A portion of the proceeds from the sale of 20 hotels on July 22, 2021 were used to complete a 1031 Exchange, which resulted in the deferral of taxable gains of approximately $23.6 million. The properties acquired for the 1031 Exchange were the fee interest in the land at the Seattle, Washington Residence Inn and the AC Hotel in Portland, Maine previously discussed in Note 2 titled “Investment in Real Estate.”

2020 Dispositions

During the year ended December 31, 2020, the Company sold three hotels in three transactions with unrelated parties for a total combined gross sales price of approximately $55.3 million, resulting in a combined gain on sale of approximately $10.9 million, which is included in the Company’s consolidated statement of operations for the year ended December 31, 2020. The three hotels had a total carrying value of approximately $43.8 million at the time of the sale. The following table lists the three hotels sold:

City	State	Brand	Date Sold	Rooms
Sanford	FL	SpringHill Suites	1/16/2020		105
Boise	ID	SpringHill Suites	2/27/2020		230
Tulare	CA	Hampton	12/30/2020		86
Total					421

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2019 Dispositions

During the year ended December 31, 2019, the Company sold 11 hotels in three transactions with unrelated parties for a total combined gross sales price of approximately $121.7 million, resulting in a combined gain on sale of approximately $5.6 million, which is included in the Company’s consolidated statement of operations for the year ended December 31, 2019. The 11 hotels had a total carrying value of approximately $115.1  million at the time of the sale. The following table lists the 11 hotels sold:

City	State	Brand	Date Sold	Rooms
Sarasota	FL	Homewood Suites	3/28/2019		100
Tampa	FL	TownePlace Suites	3/28/2019		94
Baton Rouge	LA	SpringHill Suites	3/28/2019		119
Holly Springs	NC	Hampton	3/28/2019		124
Duncanville	TX	Hilton Garden Inn	3/28/2019		142
Texarkana	TX	Courtyard	3/28/2019		90
Texarkana	TX	TownePlace Suites	3/28/2019		85
Bristol	VA	Courtyard	3/28/2019		175
Harrisonburg	VA	Courtyard	3/28/2019		125
Winston-Salem	NC	Courtyard	12/19/2019		122
Fort Lauderdale	FL	Hampton	12/30/2019		109
Total					1,285

Excluding gains on sale of real estate, the Company’s consolidated statements of operations include operating income (loss) of approximately $(6.6) million, $(7.9) million and $15.6 million for the years ended December 31, 2021, 2020 and 2019, respectively, relating to the results of operations of the 37 hotels noted above (the 23 hotels sold in 2021, the three hotels sold in 2020, and the 11 hotels sold in 2019) for the period of ownership. The sale of these properties does not represent a strategic shift that has, or will have, a major effect on the Company’s operations and financial results, and therefore the operating results for the period of ownership of these properties are included in income from continuing operations for the three years ended December 31, 2021, as applicable. The net proceeds from the sales were used to pay down borrowings under the Company’s revolving credit facility and general corporate purposes, including acquisitions of hotel properties.

 Loss on Impairment of Depreciable Real Estate Assets

During the years ended December 31, 2021, 2020 and 2019, the Company recorded impairment losses totaling approximately $10.8 million, $5.1 million and $6.5 million.

During the first quarter of 2021, the Company identified 20 hotels for potential sale and, in April 2021, entered into a purchase contract with an unrelated party for the sale of the hotels for a gross sales price of $211.0 million. As a result, the Company recognized impairment losses totaling approximately $9.4 million in the first quarter of 2021, to adjust the carrying values of four of these hotels to their estimated fair values. The fair values of these properties were based on broker opinions of value using multiple methods to determine their value, including but not limited to replacement value, discounted cash flows and the income approach based on historical and forecasted operating results of the specific properties. These valuations are Level 3 inputs under the fair value hierarchy. The Company completed the sale of the hotels in July 2021.

Additionally, during the first quarter of 2021, the Company identified the Overland Park, Kansas SpringHill Suites for potential sale and, in February 2021, entered into a purchase contract with an unrelated party for the sale of the hotel for a gross sales price of $5.3 million. As a result, the Company recognized an impairment loss totaling approximately $1.3 million in the first quarter of 2021, to adjust the carrying value of the hotel to its estimated fair value less cost to sell, which was based on the contracted sales price, a Level 1 input under the fair value hierarchy. The Company completed the sale of the hotel in April 2021.

In 2020, the Company entered into two purchase contracts with unrelated parties for the sale of its 140-room Memphis, Tennessee Homewood Suites, the first of which was terminated October 2020 and the second of which was signed in November 2020. As a result, the Company recognized impairment losses totaling approximately $5.1 million in 2020, representing the difference between the carrying values of the hotel and the contracted sales prices, net of estimated selling costs, which are Level 1 inputs under the fair value hierarchy. The Company completed the sale of the hotel in March 2021.

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During the third quarter of 2019, the Company identified the Winston-Salem, North Carolina Courtyard for potential sale and, in August 2019, entered into a purchase contract with an unrelated party (which was subsequently amended) for the sale of the hotel for a gross sales price of approximately $6.7 million. As a result, the Company recognized an impairment loss of approximately $6.5 million in the third quarter of 2019, to adjust the carrying value of the hotel to its estimated fair value less costs to sell, which was based on the contracted sales price, a Level 1 input under the fair value hierarchy. The Company completed the sale of the hotel in December 2019. 

Note 4

Debt

Summary

As of December 31, 2021 and 2020, the Company’s debt consisted of the following (in thousands):

	December 31, 2021		December 31, 2020
Revolving credit facility	$	76,000	$	105,800
Term loans and senior notes, net		865,189		864,225
Mortgage debt, net		497,569		512,546
Debt, net	$	1,438,758	$	1,482,571

The aggregate amounts of principal payable under the Company’s total debt obligations as of December 31, 2021 (including the revolving credit facility, term loans and mortgage debt), for the five years subsequent to December 31, 2021 and thereafter are as follows (in thousands):

2022	$	241,831
2023		296,213
2024		338,597
2025		245,140
2026		74,649
Thereafter		247,616
		1,444,046
Unamortized fair value adjustment of assumed debt		1,010
Unamortized debt issuance costs		(6,298	)
Total	$	1,438,758

The Company uses interest rate swaps to manage its interest rate risks on a portion of its variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the London Inter-Bank Offered Rate for a one-month term (“one-month LIBOR”). The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. See Note 5 for more information on the interest rate swap agreements. The Company’s total fixed-rate and variable-rate debt, after giving effect to its interest rate swaps in effect at December 31, 2021 and 2020, is set forth below. All dollar amounts are in thousands.

	December 31, 2021			Percentage			December 31, 2020			Percentage
Fixed-rate debt (1)	$	1,318,046			91	%	$	1,287,219			86	%
Variable-rate debt		126,000			9	%		201,351			14	%
Total	$	1,444,046					$	1,488,570
Weighted-average interest rate of debt		3.38	%					3.86	%

(1)

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Fixed-rate debt includes the portion of variable-rate debt where the interest payments have been effectively fixed by interest rate swaps as of the respective balance sheet date. See Note 5 for more information on the interest rate swap agreements.

Credit Facilities

$850 Million Credit Facility

The Company utilizes an unsecured “$850 million credit facility” comprised of (i) a $425 million revolving credit facility with an initial maturity date of July 27, 2022 (the “Revolving Credit Facility”) and (ii) a $425 million term loan facility consisting of two term loans: a $200 million term loan with a maturity date of July 27, 2023, and a $225 million term loan with a maturity date of January 31, 2024, both funded in July 2018 (the “$425 million term loan facility”). Subject to certain conditions including covenant compliance and additional fees, the $425 million revolving credit facility maturity date may be extended up to one year if certain criteria are met at the time of extension. The Company may make voluntary prepayments in whole or in part, at any time. Interest payments on the $850 million credit facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.35% to 2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. As of December 31, 2021, the Company had availability of $349.0 million under the revolving credit facility. The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20% or 0.25% on the unused portion of the $425 million revolving credit facility, based on the amount of borrowings outstanding during the quarter.

$225 Million Term Loan Facility

The Company also has an unsecured $225 million term loan facility that is comprised of (i) a $50 million term loan with a maturity date of August 2, 2023, which was funded on August 2, 2018, and (ii) a $175 million term loan with a maturity date of August 2, 2025, of which $100 million was funded on August 2, 2018 and the remaining $75 million was funded on January 29, 2019. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the $225 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.35% to 2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.  

2017 $85 Million Term Loan Facility

On July 25, 2017, the Company entered into an unsecured $85 million term loan facility with a maturity date of July 25, 2024, consisting of one term loan that was funded at closing (the “2017 $85 million term loan facility”). The credit agreement, as amended and restated in August 2018, contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions. Interest payments on the 2017 $85 million term loan facility are due monthly, and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.30% to 2.10%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement, for the remainder of the term.

2019 $85 Million Term Loan Facility

On December 31, 2019, the Company entered into an unsecured $85 million term loan facility with a maturity date of December 31, 2029, consisting of one term loan funded at closing (the “2019 $85 million term loan facility”). Net proceeds from the 2019 $85 million term loan facility were used to pay down borrowings under the Company’s revolving credit facility. The credit agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, subject to certain conditions. Interest payments on the 2019 $85 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR plus a margin ranging from 1.70% to 2.55%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.  

$50 Million Senior Notes Facility

On March 16, 2020, the Company entered into an unsecured $50 million senior notes facility with a maturity date of March 31, 2030, consisting of senior notes totaling $50 million funded at closing (the “$50 million senior notes facility” and, collectively with the $850 million credit facility, the $225 million term loan facility, the 2017 $85 million term loan facility and the 2019 $85 million term loan facility, the “unsecured credit facilities”). Net proceeds from the $50 million senior notes facility were available to provide funding for general corporate purposes. The note agreement contains requirements and covenants similar to the Company’s $850 million credit facility. The Company may make voluntary prepayments in whole or in part, at any time, subject to certain conditions, including make-whole provisions. Interest payments on the $50 million senior notes facility are due quarterly and the interest rate, subject to certain exceptions, ranges from an annual rate of 3.60% to 4.35% depending on the Company’s leverage ratio, as calculated under the terms of the facility. 

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As of December 31, 2021 and 2020, the details of the Company’s credit facilities were as set forth below. All dollar amounts are in thousands.

			Outstanding Balance
	Interest Rate (1)	Maturity Date	December 31, 2021			December 31, 2020
Revolving credit facility (2)	LIBOR + 1.40% - 2.25%	7/27/2022 (4)	$	76,000		$	105,800
Term loans and senior notes
$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			175,000
2017 $85 million term loan	LIBOR + 1.30% - 2.10%	7/25/2024		85,000			85,000
2019 $85 million term loan	LIBOR + 1.70% - 2.55%	12/31/2029		85,000			85,000
$50 million senior notes	3.60% - 4.35%	3/31/2030		50,000			50,000
Term loans and senior notes at stated    value				870,000			870,000
Unamortized debt issuance costs				(4,811	)		(5,775	)
Term loans and senior notes, net				865,189			864,225
Credit facilities, net (2)			$	941,189		$	970,025
Weighted-average interest rate (3)				2.97	%		3.64	%

(1) Interest rates on all of the unsecured credit facilities increased to 0.15% above the highest rate shown for each loan during the Extended Covenant Waiver Period (defined below) from March 1, 2021 through July 28, 2021.

(2) Excludes unamortized debt issuance costs related to the revolving credit facility totaling approximately $1.0 million and $2.1 million as of December 31, 2021 and 2020, respectively, which are included in other assets, net in the Company's consolidated balance sheets.

(3) Interest rate represents the weighted-average effective annual interest rate at the balance sheet date which includes the effect of interest rate swaps in effect on $770.0 million and $745.0 million of the outstanding variable-rate debt as of December 31, 2021 and 2020, respectively. See Note 5 for more information on the interest rate swap agreements. The one-month LIBOR at December 31, 2021 and 2020 was 0.10% and 0.14 %, respectively.

(4) Subject to certain conditions including covenant compliance and additional fees, the $425 million revolving credit facility maturity date may be extended up to one year, to July 27, 2023, if certain criteria are met at the time of extension.

Credit Facilities Covenants and Amendments

The credit agreements governing the unsecured credit facilities contain mandatory prepayment requirements, customary affirmative and negative covenants, restrictions on certain investments and events of default. The credit agreements contain the following financial and restrictive covenants:

● A ratio of Consolidated Total Indebtedness to Consolidated EBITDA (“Maximum Consolidated Leverage Ratio”) of not more than 6.50 to 1.00 (subject to a higher amount in certain circumstances);

● A ratio of Consolidated Secured Indebtedness to Consolidated Total Assets of not more than 45%;

● A minimum Consolidated Tangible Net Worth of approximately $3.2 billion plus an amount equal to 75% of the Net Cash Proceeds from issuances and sales of Equity Interests occurring after the Closing Date, July 27, 2018, subject to adjustment;

● A ratio of Adjusted Consolidated EBITDA to Consolidated Fixed Charges ("Maximum Fixed Charge Coverage Ratio") of not less than 1.50 to 1.00 for the trailing four full quarters;

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● A ratio of Unencumbered Adjusted NOI to Consolidated Implied Interest Expense for Consolidated Unsecured Indebtedness ("Maximum Unsecured Interest Coverage Ratio") of not less than 2.00 to 1.00 for the trailing four full quarters;

● A ratio of Consolidated Unsecured Indebtedness to Unencumbered Asset Value of not more than 60% (subject to a higher level in certain circumstances); and

● A ratio of Consolidated Secured Recourse Indebtedness to Consolidated Total Assets of not more than 10%.

As a result of COVID-19 and the associated disruption to the Company’s operating results, the Company entered into amendments in June 2020 that suspended the testing of the Company’s existing financial maintenance covenants under the unsecured credit facilities. These amendments imposed certain restrictions regarding the Company’s investing and financing activities that were applicable during a specified waiver period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders, except for the payment of cash distributions to the extent required to maintain REIT status, capital expenditures and use of proceeds from the sale of property or common shares of the Company, that applied during such testing suspension period. On March 1, 2021, as a result of the continued disruption from COVID-19 and the related uncertainty with respect to the Company’s future operating results, the Company entered into further amendments to each of the unsecured credit facilities (the “March 2021 amendments”) to extend the covenant waiver period for all but two of the Company’s existing financial maintenance covenants until the date that the compliance certificate was required to be delivered for the fiscal quarter ending June 30, 2022 (unless the Company elected an earlier date) (the “Extended Covenant Waiver Period”). The testing for the Minimum Fixed Charge Coverage Ratio and the Minimum Unsecured Interest Coverage Ratio was suspended until the compliance certificate was required to be delivered for the fiscal quarter ending March 31, 2022 (unless the Company elected an earlier date). The amendment provided for continued restrictions on the Company’s ability to make cash distributions, except for the payment of cash dividends of $0.01 per common share per quarter or to the extent required to maintain REIT status.

In addition to the modifications and restrictions imposed during the Extended Covenant Waiver Period, the amendments modified the calculation of the existing financial covenants for the first three quarterly calculations subsequent to the end of the Extended Covenant Waiver Period to annualize calculated amounts based on the period beginning with the first fiscal quarter upon exiting the Extended Covenant Waiver Period through the most recently ended fiscal quarter, and provided for an increase in the LIBOR floor under the revolving credit facility from 0 to 25 basis points for Eurodollar Rate Loans (as defined in the credit agreements) and established a Base Rate (as defined in the credit agreements) floor of 1.25% on the revolving credit facility.

The March 2021 amendments also modified certain of the existing financial maintenance covenants to less restrictive levels upon exiting the Extended Covenant Waiver Period as follows (capitalized terms are defined in the credit agreements):

● Maximum Consolidated Leverage Ratio of 8.50 to 1.00 for the first two fiscal quarters, 8.00 to 1.00 for two fiscal quarters, 7.50 to 1.00 for one fiscal quarter and then a ratio of 6.50 to 1.00 thereafter;

● Minimum Fixed Charge Coverage Ratio of 1.05 to 1.00 for the first fiscal quarter, 1.25 to 1.00 for one fiscal quarter and then a ratio of 1.50 to 1.00 thereafter;

● Minimum Unsecured Interest Coverage Ratio of no less than 1.25 to 1.00 for one fiscal quarter, 1.50 to 1.00 for one fiscal quarter, 1.75 to 1.00 for one fiscal quarter and a ratio of 2.00 to 1.00 thereafter; and

● Maximum Unsecured Leverage Ratio of 65% for two fiscal quarters and 60% thereafter.

Except as otherwise set forth in the amendments, the terms of the credit agreements remain in effect.

In July 2021, the Company notified its lenders under its unsecured credit facilities that it had elected to exit the Extended Covenant Waiver Period effective on July 29, 2021 pursuant to the terms of each of its unsecured credit facilities. Upon exiting the Extended Covenant Waiver Period, the Company is no longer subject to the restrictions described above regarding its investing and financing activities that were applicable during the Extended Covenant Waiver Period, including, but not limited to, limitations on the acquisition of property, payment of distributions to shareholders, capital expenditures and use of proceeds from the sale of property or common shares of the Company. Those restrictions, including the restriction on payment of distributions to shareholders, were still in place throughout the second quarter of 2021.

As of December 31, 2021, the Company met the applicable financial maintenance covenants based on the annualized results of the nine months ended December 31, 2021 at the levels required for the third fiscal quarter tested upon exiting the

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Extended Covenant Waiver Period. The unsecured credit facilities do not provide the Company the ability to re-enter the Extended Covenant Waiver Period once it has been elected to exit.

Mortgage Debt

As of December 31, 2021, the Company had approximately $498.0 million in outstanding mortgage debt secured by 28 properties with maturity dates ranging from August 2022 to May 2038, stated interest rates ranging from 3.40% to 5.00% and effective interest rates ranging from 3.40% to 4.97%. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. As a result of the effects of the COVID-19 pandemic on certain hotels, the associated lenders granted temporary deferrals of principal and interest payments during 2020, however, all payments resumed as of December 31, 2020. The following table sets forth the hotel properties securing each loan, the interest rate, loan assumption or origination date, maturity date, the principal amount assumed or originated, and the outstanding balance prior to any fair value adjustments or debt issuance costs as of December 31, 2021 and 2020 for each of the Company’s debt obligations. All dollar amounts are in thousands.

Location	Brand	Interest Rate (1)			Loan Assumption or Origination Date	Maturity Date	Principal Assumed or Originated		Outstanding balance as of December 31, 2021			Outstanding balance as of December 31, 2020
Cape Canaveral, FL	Hampton		(2	)	4/30/2020	(3)	$	10,852	$	-		$	10,275
Cape Canaveral, FL	Home2 Suites		(2	)	4/30/2020	(3)		10,852		-			10,275
Colorado Springs, CO	Hampton		6.25	%	9/1/2016	(4)		7,923		-			7,317
Franklin, TN	Courtyard		6.25	%	9/1/2016	(4)		14,679		-			13,563
Franklin, TN	Residence Inn		6.25	%	9/1/2016	(4)		14,679		-			13,563
Seattle, WA	(5)		4.00	%	8/16/2021	8/16/2022		56,000		56,000			-
Grapevine, TX	Hilton Garden Inn		4.89	%	8/29/2012	9/1/2022		11,810		9,075			9,434
Collegeville/Philadelphia, PA	Courtyard		4.89	%	8/30/2012	9/1/2022		12,650		9,720			10,105
Hattiesburg, MS	Courtyard		5.00	%	3/1/2014	9/1/2022		5,732		4,550			4,729
Kirkland, WA	Courtyard		5.00	%	3/1/2014	9/1/2022		12,145		9,640			10,018
Rancho Bernardo/San Diego, CA	Courtyard		5.00	%	3/1/2014	9/1/2022		15,060		11,954			12,422
Seattle, WA	Residence Inn		4.96	%	3/1/2014	9/1/2022		28,269		22,412			23,294
Anchorage, AK	Embassy Suites		4.97	%	9/13/2012	10/1/2022		23,230		17,959			18,660
Somerset, NJ	Courtyard		4.73	%	3/1/2014	10/6/2022		8,750		6,903			7,179
Tukwila, WA	Homewood Suites		4.73	%	3/1/2014	10/6/2022		9,431		7,440			7,737
Huntsville, AL	Homewood Suites		4.12	%	3/1/2014	2/6/2023		8,306		6,473			6,742
Prattville, AL	Courtyard		4.12	%	3/1/2014	2/6/2023		6,596		5,141			5,354
San Diego, CA	Residence Inn		3.97	%	3/1/2014	3/6/2023		18,600		14,456			15,061
Miami, FL	Homewood Suites		4.02	%	3/1/2014	4/1/2023		16,677		13,000			13,537
New Orleans, LA	Homewood Suites		4.36	%	7/17/2014	8/11/2024		27,000		21,981			22,766
Westford, MA	Residence Inn		4.28	%	3/18/2015	4/11/2025		10,000		8,320			8,605
Denver, CO	Hilton Garden Inn		4.46	%	9/1/2016	6/11/2025		34,118		29,415			30,387
Oceanside, CA	Courtyard		4.28	%	9/1/2016	10/1/2025		13,655		12,318			12,605
Omaha, NE	Hilton Garden Inn		4.28	%	9/1/2016	10/1/2025		22,682		20,460			20,936
Boise, ID	Hampton		4.37	%	5/26/2016	6/11/2026		24,000		21,680			22,146
Burbank, CA	Courtyard		3.55	%	11/3/2016	12/1/2026		25,564		22,098			23,315
San Diego, CA	Courtyard		3.55	%	11/3/2016	12/1/2026		25,473		22,019			23,232
San Diego, CA	Hampton		3.55	%	11/3/2016	12/1/2026		18,963		16,392			17,295
Burbank, CA	SpringHill Suites		3.94	%	3/9/2018	4/1/2028		28,470		25,845			27,078
Santa Ana, CA	Courtyard		3.94	%	3/9/2018	4/1/2028		15,530		14,098			14,770
Richmond, VA	Courtyard		3.40	%	2/12/2020	3/11/2030		14,950		14,447			14,739
Richmond, VA	Residence Inn		3.40	%	2/12/2020	3/11/2030		14,950		14,447			14,739
Portland, ME	Residence Inn		3.43	%	3/2/2020	4/1/2030		33,500		33,500			33,500
San Jose, CA	Homewood Suites		4.22	%	12/22/2017	5/1/2038		30,000		26,303			27,392
							$	631,096		498,046			512,770
Unamortized fair value adjustment    of assumed debt										1,010			1,624
Unamortized debt issuance costs										(1,487	)		(1,848	)
Total									$	497,569		$	512,546

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(1) Interest rates are the rates per the loan agreement. For loans assumed, the Company adjusted the interest rates per the loan agreement to market rates and is amortizing the adjustments to interest expense over the life of the loan.

(2) Interest rate was variable based on one-month LIBOR plus 3.00%. As of April 12, 2021, the date the loan was fully repaid, the interest rate was 3.11%. In July 2020, the principal amount of the note was reduced by approximately $1.1 million representing a credit from the developer for shared construction savings. 

(3) Loan was repaid in full on April 12, 2021.

(4) Loan was repaid in full on June 4, 2021.

(5) On August 16, 2021, the Company acquired the fee interest in the land at the Seattle, Washington Residence Inn, previously held under a finance ground lease, for a purchase price of $80.0 million, consisting of a $24.0 million cash payment and a one-year note payable to the seller for $56.0 million.

The total fair value, net premium adjustment for all of the Company’s debt assumptions is being amortized as a reduction to interest expense over the remaining term of the respective mortgages using a method approximating the effective interest rate method, and totaled approximately $0.6 million, $0.9 million and $0.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Debt issuance costs related to the assumption or origination of debt are amortized over the period to maturity of the applicable debt instrument, as an addition to interest expense, and totaled approximately $4.2 million, $3.8 million and $2.8 million for the three years ended December 31, 2021, 2020 and 2019.  

The Company’s interest expense in 2021, 2020 and 2019 is net of interest capitalized in conjunction with hotel renovations totaling approximately $0.3 million, $0.9 million and $1.3 million, respectively.

Note 5

Fair Value of Financial Instruments

Except as described below, the carrying value of the Company’s financial instruments approximates fair value due to the short-term nature of these financial instruments.

Debt

The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy. Market rates take into consideration general market conditions and maturity. As of December 31, 2021, both the carrying value and estimated fair value of the Company’s debt were approximately $1.4 billion. As of December 31, 2020, both the carrying value and estimated fair value of the Company’s debt were approximately $1.5 billion. Both the carrying value and estimated fair value of the Company’s debt (as discussed above) is net of unamortized debt issuance costs related to term loans and mortgage debt for each specific year.

Derivative Instruments

Currently, the Company uses interest rate swaps to manage its interest rate risks on variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of

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interest equal to the one-month LIBOR. The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. These swap instruments are recorded at fair value and, if in an asset position, are included in other assets, net, and, if in a liability position, are included in accounts payable and other liabilities in the Company’s consolidated balance sheets. The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which is considered a Level 2 measurement under the fair value hierarchy. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The following table sets forth information for each of the Company’s interest rate swap agreements outstanding as of December 31, 2021 and 2020. All dollar amounts are in thousands.

Notional						Fair Value Asset (Liability)
Amount at December 31, 2021		Origination Date	Effective Date	Maturity Date	Swap Fixed Interest Rate	December 31, 2021			December 31, 2020
Interest rate swaps designated as cash flow hedges at December 31, 2021:
$	100,000	4/7/2016	9/30/2016	3/31/2023	1.33%	$	(955	)	$	(2,681	)
	75,000	5/31/2017	7/31/2017	6/30/2024	1.96%		(1,902	)		(4,639	)
	10,000	8/10/2017	8/10/2017	6/30/2024	2.01%		(268	)		(636	)
	50,000	6/1/2018	1/31/2019	6/30/2025	2.89%		(3,123	)		(5,911	)
	50,000	7/2/2019	7/5/2019	7/18/2024	1.65%		(894	)		(2,593	)
	50,000	8/21/2019	8/23/2019	8/18/2024	1.32%		(457	)		(2,036	)
	50,000	8/21/2019	8/23/2019	8/30/2024	1.32%		(455	)		(2,049	)
	85,000	12/31/2019	12/31/2019	12/31/2029	1.86%		(3,277	)		(8,677	)
	25,000	12/6/2018	1/31/2020	6/30/2025	2.75%		(1,442	)		(2,801	)
	50,000	12/7/2018	5/18/2020	1/31/2024	2.72%		(1,965	)		(3,967	)
	75,000	8/21/2019	5/18/2020	5/18/2025	1.27%		(458	)		(3,294	)
	75,000	7/31/2020	8/18/2020	8/18/2022	0.13%		79			14
	75,000	8/21/2019	5/18/2021	5/18/2026	1.30%		(391	)		(3,415	)
	770,000						(15,508	)		(42,685	)
Interest rate swaps matured prior to December 31, 2021:
	50,000	4/7/2016	9/30/2016	3/31/2021	1.09%		-			(117	)
						$	(15,508	)	$	(42,802	)

The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. As of December 31, 2021, all 13 active interest rate swap agreements listed above were designated as cash flow hedges. The change in the fair value of the Company’s designated cash flow hedges is recorded to accumulated other comprehensive loss, a component of shareholder’s equity in the Company’s consolidated balance sheets.

Amounts reported in accumulated other comprehensive loss will be reclassified to interest and other expense, net as interest payments are made or received on the Company’s variable-rate derivatives. The Company estimates that approximately $9.0 million of net unrealized losses included in accumulated other comprehensive loss at December 31, 2021 will be reclassified as an increase to interest and other expense, net within the next 12 months.  

The following tables present the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and comprehensive income for the years ended December 31, 2021, 2020 and 2019 (in thousands):

	Net Unrealized Gain (Loss) Recognized in Other Comprehensive Income (Loss)
	2021			2020			2019
Interest rate derivatives in cash flow hedging    relationships	$	15,904		$	(45,850	)	$	(11,035	)
	Net Unrealized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest and Other Expense, net
	2021			2020			2019
Interest rate derivatives in cash flow hedging    relationships	$	(11,390	)	$	(7,746	)	$	3,669

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Note 6

Related Parties

The Company has, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. The Company’s independent members of the Board of Directors oversee and annually review the Company’s related party relationships (including the relationships discussed in this section) and are required to approve any significant modifications to the existing relationships, as well as any new significant related party transactions. The Board of Directors is not required to approve each individual transaction that falls under the related party relationships. However, under the direction of the Board of Directors, at least one member of the Company’s senior management team approves each related party transaction. Below is a summary of the significant related party relationships in effect and transactions that occurred during each of the three years in the period ended December 31, 2021.

Glade M. Knight, Executive Chairman of the Company, owns Apple Realty Group, Inc. (“ARG”), which receives support services from the Company and reimburses the Company for the cost of these services as discussed below. Mr. Knight is also currently a partner and Chief Executive Officer of Energy 11 GP, LLC and Energy Resources 12 GP, LLC, which are the respective general partners of Energy 11, L.P. and Energy Resources 12, L.P., each of which receives support services from ARG.

The Company provides support services, including the use of the Company’s employees and corporate office, to ARG and is reimbursed by ARG for the cost of these services. Under this cost sharing structure, amounts reimbursed to the Company include both compensation for personnel and office related costs (including office rent, utilities, office supplies, etc.) used by ARG. The amounts reimbursed to the Company are based on the actual costs of the services and a good faith estimate of the proportionate amount of time incurred by the Company’s employees on behalf of ARG. Total reimbursed costs allocated by the Company to ARG for the years ended December 31, 2021, 2020 and 2019 totaled approximately $0.8 million, $1.2 million and $1.3 million, respectively, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations. 

As part of the cost sharing arrangement, 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 this 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. As of December 31, 2021 and 2020, total amounts due from ARG for reimbursements under the cost sharing structure totaled approximately $0.3 million in each respective year and are included in other assets, net in the Company’s consolidated balance sheets.  

The Company, through its wholly-owned subsidiary, Apple Air Holding, LLC, owns a Learjet used primarily for acquisition, asset management, renovation and investor and public relations purposes. The aircraft is also leased to affiliates of the Company based on third-party rates, which leasing activity was not significant during the reporting periods. The Company also utilizes aircraft, owned through an entity owned by the Company’s Executive Chairman, for acquisition, asset management, renovation and investor and public relations purposes, and reimburses this entity at third-party rates. Total costs incurred for the use of the aircraft during 2021, 2020 and 2019 were less than $0.1 million in each respective year and are included in general and administrative expenses in the Company’s consolidated statements of operations.

Note 7

Shareholders’ Equity

Distributions

Subsequent to the distribution paid in March 2020, the Company announced the suspension of its monthly distributions due to the impact of COVID-19 on its operating cash flows. Prior to the suspension of its distributions, the Company’s annual distribution rate, payable monthly, was $1.20 per common share. Beginning in March 2021, the Board of Directors declared distributions of $0.01 per common share in the last month of each quarter and the distributions were paid out each following month. For the three years ended December 31, 2021, 2020 and 2019, the Company paid distributions of $0.03, $0.30 and $1.20 per common share for a total of approximately $6.8 million, $67.4 million and $268.7 million, respectively. The quarterly distribution of $0.01 per common share declared in December 2021 totaled $2.3 million and was paid on January 18, 2022. This accrued distribution was included in accounts payable and other liabilities in the Company’s consolidated

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balance sheet at December 31, 2021. During the Extended Covenant Waiver Period, the Company was subject to the restrictions on distributions under its credit facilities as discussed in Note 4 titled “Debt.”

Issuance of Shares

On August 12, 2020, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $300 million of its common shares under an at-the-market offering program (the “ATM Program”). As of December 31, 2021, the Company sold approximately 4.7 million common shares under its ATM Program at a weighted-average market sales price of approximately $16.26 per common share and received aggregate gross proceeds of approximately $76.0 million and proceeds net of offering costs, which included $0.9 million of commissions, of approximately $75.1 million. The Company used the net proceeds from the sale of these shares primarily to pay down borrowings under its revolving credit facility and used the corresponding increased availability under the revolving credit facility for general corporate purposes, including acquisitions of hotel properties. As of December 31, 2021, approximately $224.0 million remained available for issuance under the ATM Program. The Company plans to use future net proceeds from the sale of these shares to continue to pay down borrowings under its revolving credit facility (if any). The Company plans to use the corresponding increased availability under the revolving credit facility for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of other outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the net proceeds to acquire another REIT or other company that invests in income producing properties.

Share Repurchases

In May 2021, 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 $345 million (the “Share Repurchase Program”). The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2022 if not terminated earlier or extended. No common shares were repurchased in 2021. During 2020 and 2019, the Company purchased under its Share Repurchase Program approximately 1.5 million and 0.3 million of its common shares at a weighted-average market purchase price of approximately$9.42 and $14.92 per common share for an aggregate purchase price, including commissions, of approximately$14.3 million and $4.3 million, respectively. The shares were repurchased under a written trading plan that provided for share repurchases in open market transactions and was intended to comply with Rule 10b5-1 under the Exchange Act. Past 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 the prevailing market conditions, regulatory requirements and other factors.

Preferred Shares

No preferred shares of the Company are issued and outstanding. The Company’s amended and restated articles of incorporation authorize issuance of up to 30 million preferred shares. The Company believes that the authorization to issue preferred shares benefits the Company and its shareholders by permitting flexibility in financing additional growth, giving the Company additional financing options in corporate planning and in responding to developments in its business, including financing of additional acquisitions and other general corporate purposes. Having authorized preferred shares available for issuance in the future gives the Company the ability to respond to future developments and allows preferred shares to be issued without the expense and delay of a special shareholders’ meeting. At present, the Company has no specific financing or acquisition plans involving the issuance of preferred shares and the Company does not propose to fix the characteristics of any series of preferred shares in anticipation of issuing preferred shares. The Company cannot now predict whether or to what extent, if any, preferred shares will be used or if so used what the characteristics of a particular series may be. A series of preferred shares could be given rights that are superior to rights of holders of common shares and a series having preferential distribution rights could limit common share distributions and reduce the amount holders of common shares would otherwise receive on dissolution. Unless otherwise required by applicable law or regulation, the preferred shares would be issuable without further authorization by holders of the common shares and on such terms and for such consideration as may be determined by the Board of Directors. The preferred shares could be issued in one or more series having varying voting rights, redemption and conversion features, distribution (including liquidating distribution) rights and preferences, and other rights, including rights of approval of specified transactions. The voting rights and rights to distributions of the holders of common shares will be subject to the priority rights of the holders of any subsequently-issued preferred shares.

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Note 8

Compensation Plans

In May 2014, the Board of Directors adopted the Company’s 2014 Omnibus Incentive Plan (the “Omnibus Plan”), and in May 2015, the Company’s shareholders approved the Omnibus Plan. The Omnibus Plan permits the grant of awards of stock options, stock appreciation rights, restricted stock, stock units, deferred stock units, unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards, and cash bonus awards to any employee, officer, or director of the Company or an affiliate of the Company, a consultant or adviser currently providing services to the Company or an affiliate of the Company, or any other person whose participation in the Omnibus Plan is determined by the Compensation Committee of the Board of Directors (the “Compensation Committee”) to be in the best interests of the Company. The maximum number of the Company’s common shares available for issuance under the Omnibus Plan is 10 million. As of December 31, 2021, there were approximately 7.7 million common shares available for issuance under the Omnibus Plan.

Each year, the Company establishes an incentive plan for its executive management team, which is approved by the Compensation Committee. Under the incentive plan for 2021 (the “2021 Incentive Plan”), participants are eligible to receive incentive compensation based on the achievement of certain 2021 performance measures, consisting of operational performance goals and shareholder return metrics (including shareholder return relative to a peer group and total shareholder return, over one-year, two-year and three-year periods). With respect to the operational performance goals, for the period of January 1 – June 30, 2021, goals included portfolio occupancy growth, expense management, successful negotiation of amendments to each of the Company’s unsecured credit facilities and effective allocation of capital to drive incremental returns, with no specific target or weighting assigned to each goal. Operational performance goals for the period of July 1 – December 31, 2021, included goals regarding top line growth, bottom line growth, capital allocation and balance sheet metrics, with no specific target or weighting assigned to each goal. The operational performance goals account for 50% of the total target incentive compensation. The shareholder return metrics are weighted 75% for relative shareholder return metrics and 25% for total shareholder return metrics, and account for 50% of the total target incentive compensation. As of December 31, 2021, the range of potential aggregate payouts under the 2021 Incentive Plan was $0 - $22.4 million. Based on performance during 2021, the Company has accrued approximately $18.5 million as a liability for executive incentive compensation payments under the 2021 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of December 31, 2021 and in general and administrative expenses in the Company’s consolidated statement of operations for the year ended December 31, 2021. Additionally, approximately $2.5 million, which is subject to vesting on December 9, 2022, will be recognized proportionally throughout 2022. Approximately 25% of target awards under the 2021 Incentive Plan will be paid in cash, and 75% will be issued in common shares under the Company’s Omnibus Plan. The portion of awards under the 2021 Incentive Plan payable in common shares will be issued under the Company’s Omnibus Plan during the first quarter of 2022, approximately two-thirds of which will be unrestricted and one-third of which will be restricted and is subject to vesting on December 9, 2022.

Under the incentive plan for 2020 (the “2020 Incentive Plan”), the Company accrued approximately $6.1 million including $5.9 million in share-based compensation as noted below, as a liability for executive incentive compensation payments, which was included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of December 31, 2020 and in general and administrative expenses in the Company’s consolidated statement of operations for the year ended December 31, 2020. Under the incentive plan for 2019 (the “2019 Incentive Plan”), the Company accrued approximately $10.6 million, including $7.5 million in share-based compensation as noted below, as a liability for executive incentive compensation payments, which was included in general and administrative expenses in the Company’s consolidated statement of operations for the year ended December 31, 2019.  

In 2020, the Company incurred expense associated with two separation agreements of approximately $1.25 million each, totaling approximately $2.5 million, in connection with the retirements of the Company’s former Executive Vice President and Chief Operating Officer and the Company’s former Executive Vice President and Chief Financial Officer, effective March 31, 2020, which amounts were paid in October 2020. The expense was included in general and administrative expenses in the Company’s consolidated statement of operations for the year ended December 31, 2020. Pursuant to the terms of the separation agreement between Mr. Bryan F. Peery, the retiring Chief Financial Officer (“Mr. Peery”) and the Company dated as of March 4, 2020 and amended on March 30, 2020, among other things, Mr. Peery agreed to remain employed by the Company in an advisory role to support the transition of his responsibilities. As a result of the COVID-19 pandemic, Mr. Peery provided substantive additional assistance to the Company as it navigated its response to the COVID-19 pandemic beyond the anticipated transition activities originally contemplated after March 31. In light of these unexpected contributions, on November 2, 2020, the Compensation Committee of the Board of Directors of the Company approved a one-time grant of 35,070 fully vested common shares to Mr. Peery, with a grant date value of $0.35 million, which was included in general and administrative expenses in the Company’s consolidated statement of operations for the year ended December 31, 2020. This grant is in addition to amounts otherwise payable under Mr. Peery’s separation agreement.   

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In connection with the resignation in December 2019 of Ms. Rachael Rothman, the Company’s former Executive Vice President and Chief Financial Officer, the Company entered into a separation and general release agreement, pursuant to which the Company accrued in 2019 for a one-time separation payment of approximately $1.6 million, which was paid in January 2020, and a 2019 incentive payment of approximately $0.6 million which was paid in cash in March 2020. Both of these payments were included in general and administrative expenses in the Company’s consolidated statements of operations for the year ended December 31, 2019.

During the year ended December 31, 2019, the Company incurred a one-time separation payment of $0.5 million in connection with the retirement of the Company’s former Executive Vice President and Chief Legal Officer which, pursuant to the separation and general release agreement executed in March 2019, was paid in April 2019 and was included in general and administrative expenses in the Company’s consolidated statement of operations for the year ended December 31, 2019.

Share-Based Compensation Awards

The following table sets forth information pertaining to the share-based compensation issued under the 2020 Incentive Plan, the 2019 Incentive Plan and the incentive plan for 2018 (the “2018 Incentive Plan”):

	2020 Incentive Plan			2019 Incentive Plan			2018 Incentive Plan
Period common shares issued	First Quarter 2021			First Quarter 2020			First Quarter 2019
Common shares earned under each incentive plan		555,726			665,552			156,926
Common shares surrendered on issuance date to satisfy tax withholding obligations		117,647			60,616			24,999
Common shares earned and issued under each incentive plan, net of common shares surrendered on issuance date to satisfy tax withholding obligations		438,079			604,936			131,927
Closing stock price on issuance date	$	14.03		$	13.01		$	16.49
Total share-based compensation earned, including the surrendered shares (in millions)	$	7.8	(1)	$	8.7	(2)	$	2.6	(3)
Of the total common shares earned and issued, total common shares unrestricted at time of issuance		160,216			426,553			105,345
Of the total common shares earned and issued, total common shares restricted at time of issuance		277,863			178,383			26,582
Restricted common shares vesting date	December 10, 2021			December 11, 2020			December 13, 2019
Common shares surrendered on vesting date to satisfy tax withholding requirements resulting from vesting of restricted common shares		108,292			60,066			5,502

(1) Of the total 2020 share-based compensation, approximately $5.9 million was recognized as share-based compensation expense during the year ended December 31, 2020, and included in accounts payable and other liabilities in the Company's consolidated balance sheet at December 31, 2020, and the remaining $1.9 million, which vested on December 10, 2021 and excludes any restricted shares forfeited or vested prior to that date, was recognized as share-based compensation expense during the year ended December 31, 2021.

(2) Of the total 2019 share-based compensation, approximately $7.5 million was recognized as share-based compensation expense during the year ended December 31, 2019, and included in accounts payable and other liabilities in the Company's consolidated balance sheet at December 31, 2019, and the remaining $1.2 million, which vested on December 11, 2020 and excludes any restricted shares forfeited or vested prior to that date, was recognized as share-based compensation expense during the year ended December 31, 2020.

(3) Of the total 2018 share-based compensation, approximately $0.2 million, which vested on December 13, 2019, was recognized as share-based compensation expense during the year ended December 31, 2019.

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Additionally, in conjunction with the appointment of five new officers of the Company on April 1, 2020, the Company issued to the new officer group a total of approximately 200,000  restricted common shares with an aggregate grant date fair value of approximately $1.8  million. For each grantee, the restricted shares will vest on March 31, 2023 if the individual remains in service of the Company through the date of vesting. The expense associated with the awards will be amortized over the 3-year restriction period. For the years ended December 31, 2021 and 2020, the Company recognized approximately $0.6  million and $0.4 million, respectively, of share-based compensation expense related to these awards.

Non-Employee Director Deferral Program

In 2018, the Board of Directors adopted the Non-Employee Director Deferral Program (the “Director Deferral Program”) under the Omnibus Plan for the purpose of providing non-employee members of the Board the opportunity to elect to defer receipt of all or a portion of the annual retainer payable to them for their service on the Board, including amounts payable in both cash and fully vested shares of the Company’s common shares, in the form of deferred cash fees (“DCFs”) and/or deferred stock units (“DSUs”). DCFs and DSUs that are issued to the Company’s non-employee directors are fully vested and non-forfeitable on the grant date. The grant date fair values of DCFs are equal to the dollar value of the deferred fee on the grant date, while the grant date fair values of DSUs are equal to the fair market value of the Company’s common shares on the grant date. DCFs are settled for cash and DSUs are settled for shares of the Company's common stock, which are deliverable upon either: i) termination of the director’s service from the Board, ii) a date previously elected by the director, or iii) the earlier of the two dates, as determined by the director at the time he or she makes the election. The deferred amounts will also be paid if prior to the date specified by the director, the Company experiences a change in control or upon death of the director. During the years ended December 31, 2021, 2020 and 2019, non-employee directors participating in the Director Deferral Program deferred approximately $0.4 million, $0.3 million and $0.4 million, respectively, which is recorded as deferred compensation expense in general and administrative expenses in the Company’s consolidated statements of operations for the years then ended. On each quarterly deferral date (the date that a portion of the annual retainer would be paid), dividends earned on DSUs are credited to the deferral account in the form of additional DSUs based on dividends declared by the Company on its outstanding common shares during the quarter and the fair market value of the common shares on such date. Outstanding DSUs at December 31, 2021 and 2020 were approximately 101,000 and 78,000, with weighted-average grant date fair values of $14.57 and $14.46, valued at $1.5 million and $1.1 million, respectively, which is included in common stock, a component of shareholders’ equity in the Company’s consolidated balance sheets as of December 31, 2021 and 2020.

Note 9

Management and Franchise Agreements

Each of the Company’s 219 hotels owned as of December 31, 2021 is operated and managed under a separate management agreement with one of the following management companies or one of their affiliates, none of which are affiliated with the Company (number of hotels by manager are as of December 31, 2021):

Manager	Number of Hotels
LBAM-Investor Group, LLC ("LBA")		34
Dimension Development Two, LLC ("Dimension")		31
Crestline Hotels & Resorts, LLC ("Crestline")		26
Raymond Management Company, Inc. ("Raymond")		22
White Lodging Services Corporation ("White Lodging") (1)		21
MHH Management, LLC ("McKibbon")		14
Texas Western Management Partners, LP ("Western")		14
Marriott International, Inc. ("Marriott")		13
Newport Hospitality Group, Inc. ("Newport")		11
North Central Hospitality, LLC ("North Central")		9
Aimbridge Hospitality, LLC ("Aimbridge")		7
InnVentures IVI, LP ("InnVentures")		5
Chartwell Hospitality, LLC ("Chartwell")		5
Huntington Hotel Group, LP ("Huntington")		3
Stonebridge Realty Advisors, Inc. ("Stonebridge")		3
Highgate Hotels, L.P. ("Highgate")		1
Total		219

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(1) Effective February 1, 2022, management responsibility for 18 hotels previously managed by White Lodging was transferred to a subsidiary of Hersha Hospitality Management L.P. ("HHM").

The management agreements generally provide for initial terms of one to 30 years and are terminable by the Company for either failure to achieve performance thresholds, upon sale of the property, or without cause. As of December 31, 2021, over 80% of the Company’s hotels operate under a variable management fee agreement, with an average initial term of approximately one to two years, which the Company believes better aligns incentives for each hotel manager to maximize each property’s performance than a base-plus-incentive management fee structure, as described below, which is more common throughout the industry. Under the variable fee structure, the management fee earned for each hotel is generally within a range of 2.5% to 3.5% of gross revenues. The performance measures are based on various financial and quality performance metrics. The Company’s remaining hotels operate under a management fee structure which generally includes the payment of base management fees and an opportunity for incentive management fees. Under this structure, base management fees are calculated as a percentage of gross revenues and the incentive management fees are calculated as a percentage of operating profit in excess of a priority return to the Company, as defined in the management agreements. In addition to the above, management fees for all of the Company’s hotels generally include accounting fees and other fees for centralized services, which are allocated among all of the hotels that receive the benefit of such services. During 2020 and 2021, in response to COVID-19 and its impact on hotel performance, the management fee under all variable management fee agreements was set to 3% of gross revenues. For the years ended December 31, 2021, 2020 and 2019, the Company incurred approximately $31.4 million, $19.8 million and $43.8 million, respectively, in management fees.  

Thirteen of the Company’s hotels are managed by affiliates of Marriott. The remainder of the Company’s hotels are managed by companies that are not affiliated with either Marriott, Hilton or Hyatt, and as a result, the branded hotels they manage were required to obtain separate franchise agreements with each respective franchisor. The franchise agreements generally provide for initial terms of approximately 10 to 30 years and generally provide for renewals subject to franchise requirements at the time of renewal. The Company pays various fees under these agreements, including the payment of royalty fees, marketing fees, reservation fees, a communications support fee, brand loyalty program fees and other similar fees based on room revenues. For the years ended December 31, 2021, 2020 and 2019, the Company incurred approximately $40.9 million, $26.4 million and $54.9 million, respectively, in franchise royalty fees.

Note 10

Lease Commitments

The Company is the lessee on certain ground leases, hotel equipment leases and office space leases. As of December 31, 2021, the Company had 14 hotels subject to ground leases and three parking lot ground leases with remaining terms ranging from approximately two to 97 years, excluding renewal options. Certain of its ground leases have options to extend beyond the initial lease term by periods ranging from five to 120 years.

Adoption of Lease Accounting Standard Topic 842

The Company adopted ASU No. 2016-02, Leases (Topic 842), effective January 1, 2019, which requires leases with durations greater than twelve months to be recognized on the balance sheet as right-of-use (“ROU”) assets and lease liabilities. Prior year financial statements were not restated under the new standard.  

Under the standard, the Company’s leases are classified as operating or finance leases. For leases with terms greater than 12 months, at inception of the lease the Company recognizes a ROU asset and lease liability at the estimated present value of the minimum lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Many of the Company’s leases include rental escalation clauses (including fixed scheduled rent increases) and renewal options that are factored into the determination of lease payments when appropriate and the present value of the remaining lease payments is adjusted accordingly. The Company utilizes interest rates implicit in the lease if determinable or, if not, it estimates its incremental borrowing rate from information available at lease commencement, to determine the present value of the lease payments. At transition to the new standard, the Company used information available at that time to determine the incremental borrowing rates on its existing leases at January 1, 2019 based on estimates of rates the Company would pay for senior collateralized loans with terms similar to each lease.  

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Operating Leases

Twelve of the Company’s hotel and parking lot ground leases as well as certain applicable hotel equipment leases and office space leases are classified as operating leases, for which the Company recorded ROU assets and lease liabilities at adoption of the new standard. The ROU assets are included in other assets, net and the lease liabilities are included in accounts payable and other liabilities in the Company’s consolidated balance sheet. In addition, at adoption of the new standard, the Company reclassified its intangible assets for below market ground leases and intangible liabilities for above market ground leases related to these leases from other assets, net and accounts payable and other liabilities in the Company’s consolidated balance sheet, respectively, as well as accrued straight-line lease liabilities related to these leases from accounts payable and other liabilities in the Company’s consolidated balance sheet to the beginning ROU assets. Lease expense is recognized on a straight-line basis over the term of the respective lease and the value of each lease intangible is amortized over the term of the respective lease. Costs related to operating ground leases and hotel equipment leases are included in hotel operating expense and property taxes, insurance and other expense, and costs related to office space leases are included in general and administrative expense in the Company’s consolidated statements of operations.  

Finance Leases

Five of the Company’s hotel ground leases are classified as finance leases, for which the Company recorded ROU assets and lease liabilities at the latter of the adoption of the standard or the acquisition of the lease. The ROU assets are recorded as finance ground lease assets within investment in real estate, net and the lease liabilities are recorded as finance lease liabilities in the Company’s consolidated balance sheet. In addition, at adoption of the standard, the Company reclassified its intangible assets for below market ground leases and intangible liabilities for above market ground leases related to these leases from other assets, net and accounts payable and other liabilities in the Company’s consolidated balance sheet, respectively, to the beginning ROU assets. At adoption of the lease standard effective January 1, 2019, the Company recorded a cumulative-effect adjustment totaling approximately $5.2 million, which included the derecognition of accrued straight-line lease liabilities related to the finance leases, to distributions greater than net income, a component of shareholders’ equity in the Company’s consolidated balance sheet. The ROU asset and value of each lease intangible is amortized over the term of the respective lease. Costs related to finance ground leases are included in depreciation and amortization expense and interest and other expense, net in the Company’s consolidated statement of operations.

Under the terms of the Company’s ground leases, certain minimum lease payments are subject to change based on criteria specified in the lease. Changes in minimum lease payments that are not fixed scheduled increases are reflected in the ROU asset and lease liability when the payments become fixed and determinable based on the actual criteria defined in the lease. Minimum lease payments may be estimated if the change date occurs and the new minimum lease payments are not yet determinable.

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Lease Position as of December 31, 2021 and 2020

The following table sets forth the lease-related assets and liabilities included in the Company’s consolidated balance sheet as of December 31, 2021 and 2020. All dollar amounts are in thousands.

		December 31,
	Consolidated Balance Sheet Classification	2021		2020
Assets
Operating lease assets, net	Other assets, net	$	27,061	$	27,250
Finance ground lease assets, net (1)	Investment in real estate, net		93,068		192,751
Total lease assets		$	120,129	$	220,001
Liabilities
Operating lease liabilities	Accounts payable and other liabilities	$	12,015	$	11,642
Finance lease liabilities	Finance lease liabilities		111,776		219,981
Total lease liabilities		$	123,791	$	231,623
Weighted-average remaining lease term
Operating leases				36 years
Finance leases				31 years
Weighted-average discount rate
Operating leases				5.46%
Finance leases				5.31%

(1) Finance ground lease assets are net of accumulated amortization of approximately $9.0 million and $10.9 million as of December 31, 2021 and 2020, respectively.

Lease Costs for the Years Ended December 31, 2021, 2020 and 2019

The following table sets forth the lease costs related to the Company’s operating and finance ground leases included in the Company’s consolidated statement of operations for the years ended December 31, 2021, 2020 and 2019 (in thousands):

		Year Ended December 31,
	Consolidated Statement of Operations Classification	2021		2020		2019
Operating lease costs (1)	Property taxes, insurance and other    expense	$	1,585	$	1,509	$	1,658
Finance lease costs:
Amortization of lease assets	Depreciation and amortization expense		5,178		6,433		4,517
Interest on lease liabilities	Interest and other expense, net		9,415		11,402		8,241
Total lease costs		$	16,178	$	19,344	$	14,416

(1) Represents costs related to ground leases, including variable lease costs. Excludes costs related to hotel equipment leases, which are included in hotel operating expense and property taxes, insurance and other expense, and costs related to office space leases, which are included in general and administrative expense in the Company's consolidated statement of operations. These costs are not significant for disclosure.

84

Undiscounted Cash Flows

The following table reconciles the undiscounted cash flows for each of the next five years and total of the remaining years to the operating lease liabilities and finance lease liabilities included in the Company’s consolidated balance sheet as of December 31, 2021 (in thousands):

	Operating leases		Finance leases
2022	$	1,098	$	5,642
2023		1,005		5,991
2024		975		6,174
2025		983		6,338
2026		792		6,500
Thereafter		31,045		230,254
Total minimum lease payments		35,898		260,899
Less: amount of lease payments representing    interest		23,883		149,123
Present value of lease liabilities	$	12,015	$	111,776

Supplemental Cash Flow Information  

The following table sets forth supplemental cash flow information related to the Company’s operating and finance leases for the years ended December 31, 2021, 2020 and 2019 (in thousands):

	Year Ended December 31,
	2021		2020		2019
Cash paid for amounts included in the    measurement of lease liabilities:
Operating cash flows for operating leases	$	1,109	$	1,295	$	1,344
Operating cash flows for finance leases		6,568		8,048		6,989
Financing cash flows for finance leases		24,045		-		-

Note 11

Industry Segments

The Company owns hotel properties throughout the U.S. that generate rental, food and beverage, and other property-related income. The Company separately evaluates the performance of each of its hotel properties. However, because each of the hotels has similar economic characteristics, facilities, and services, and each hotel is not individually significant, the properties have been aggregated into a single reportable segment. All segment disclosures are included in or can be derived from the Company’s consolidated financial statements.

Note 12

Hotel Purchase Contract Commitments

As of December 31, 2021, the Company had one outstanding contract, which was entered into during 2021, for the potential purchase of a hotel in Madison, Wisconsin for an expected purchase price of approximately $78.6 million. The hotel is under development and is currently planned to be completed and opened for business in early 2024, as a 260-room Embassy Suites. As of December 31, 2021, a $0.9 million contract deposit (refundable if the seller does not meet its obligations under the contract) had been paid. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to purchase the hotel under contract if closing occurs. Although the Company is working towards acquiring this hotel, there are a number of conditions to closing that have not yet been satisfied and there can be no assurances that closing on this hotel will occur under the outstanding purchase contract.

85

Note 13

Quarterly Financial Data (Unaudited)

The following is a summary of quarterly results of operations for the years ended December 31, 2021, 2020 and 2019 (in thousands, except per share data):

	2021
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Total revenue	$	158,713		$	247,404		$	277,164		$	250,588
Net income (loss)	$	(46,435	)	$	20,283		$	31,759		$	13,221
Comprehensive income (loss)	$	(30,353	)	$	18,927		$	35,185		$	22,363
Basic and diluted net income (loss) per common share	$	(0.21	)	$	0.09		$	0.14		$	0.06
	2020
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Total revenue	$	238,010		$	81,078		$	148,826		$	133,965
Net loss	$	(2,769	)	$	(78,243	)	$	(40,948	)	$	(51,247	)
Comprehensive loss	$	(44,935	)	$	(82,438	)	$	(38,209	)	$	(45,729	)
Basic and diluted net loss per common share	$	(0.01	)	$	(0.35	)	$	(0.18	)	$	(0.23	)
	2019
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Total revenue	$	303,787		$	341,117		$	331,722		$	289,971
Net income	$	38,151		$	62,090		$	46,223		$	25,453
Comprehensive income	$	32,107		$	51,970		$	42,030		$	31,106
Basic and diluted net income per common share	$	0.17		$	0.28		$	0.21		$	0.11

Note 14

Subsequent Events

On January 18, 2022, the Company paid approximately $2.3 million, or $0.01 per outstanding common share, in distributions to its common shareholders.

On February 22, 2022, the Company declared a monthly cash distribution of $0.05 per common share for the month of March 2022. The distribution is payable on March 15, 2022, to shareholders of record as of March 4, 2022.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

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 December 31, 2021. 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.

See Item 8 for the Report of Management on Internal Control over Financial Reporting and the Company’s Independent Registered Public Accounting Firm’s attestation report regarding internal control over financial reporting, which are incorporated herein by reference.

86

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not Applicable.

87

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be set forth in the Company’s definitive proxy statement for its 2022 Annual Meeting of Shareholders (the “2022 Proxy Statement”). For the limited purpose of providing the information necessary to comply with this Item 10, the 2022 Proxy Statement is incorporated herein by this reference.

Item 11. Executive Compensation

The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K will be set forth in the Company’s 2022 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 11, the 2022 Proxy Statement is incorporated herein by this reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by Items 201(d) and 403 of Regulation S-K will be set forth in the Company’s 2022 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 12, the 2022 Proxy Statement is incorporated herein by this reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by Items 404 and 407(a) of Regulation S-K will be set forth in the Company’s 2022 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 13, the 2022 Proxy Statement is incorporated herein by this reference.

Item 14. Principal Accounting Fees and Services

The information required by Item 9(e) of Schedule 14A will be set forth in the Company’s 2022 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 14, the 2022 Proxy Statement is incorporated herein by this reference.

88

PART IV

Item 15. Exhibits, Financial Statement Schedules

1. Financial Statements of Apple Hospitality REIT, Inc.

Report of Management on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm—Ernst & Young LLP (PCAOB ID: 42)

Report of Independent Registered Public Accounting Firm—Ernst & Young LLP (PCAOB ID: 42)

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

These financial statements are set forth in Item 8 of this report and are hereby incorporated by reference.

2. Financial Statement Schedules

Schedule III—Real Estate and Accumulated Depreciation and Amortization (Included at the end of this Part IV of this report.)

Financial statement schedules not listed are either omitted because they are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.

3. Exhibit Listing

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	Third Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed May 18, 2020)
4.1	Description of Securities Registered Under Section 12 of the Exchange Act (FILED HEREWITH)
10.1*	The Company’s 2008 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.4 to the Company’s quarterly report on Form 10-Q (SEC File No. 333-147414) filed May 8, 2008)
10.2*	The Company’s 2014 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K (SEC File No. 000-53603) filed June 4, 2014)
10.3*	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. 000-53603) filed June 4, 2014)
10.4*	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)

89

10.5*	Second Amendment to the Company’s Executive Severance Pay Plan (Incorporated by reference to Exhibit 10.3 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed March 5, 2020
10.6	Form of Restricted Stock Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed February 18, 2016)
10.7*	Non-Employee Director Deferral Program Under the Company’s 2014 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed August 6, 2018)
10.8*	Separation Agreement and General Release, dated as of March 4, 2020 by and between the Company and Kristian Gathright (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed March 5, 2020)
10.9*	Amendment, dated March 30, 2020, to Separation Agreement and General Release, dated March 4, 2020, by and between the Company and Kristian Gathright (Incorporated by reference to Exhibit 10.4 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed May 18, 2020
10.10	Second Amended and Restated Credit Agreement dated as of July 27, 2018, among the Company, as borrower, certain subsidiaries of the Company, as guarantors, Bank of America, N.A., as Administrative Agent, KeyBank National Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, U.S. Bank National Association, as Documentation Agent, Regions Bank as Managing Agent, the Lenders and Letter of Credit Issuers party thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, KeyBanc Capital Markets, Wells Fargo Securities, LLC and U.S. Bank National Association, as Joint Lead Arrangers, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, KeyBanc Capital Markets and Wells Fargo Securities, LLC, as Joint Bookrunners (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed August 1, 2018)
10.11	First Amendment, dated February 14, 2020, to Second Amended and Restated Credit Agreement dated as of July 27, 2018, among the Company, as borrower, certain subsidiaries of the Company, as guarantors, Bank of America, N.A., as Administrative Agent, KeyBank National Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, U.S. Bank National Association, as Documentation Agent, Regions Bank as Managing Agent, the Lenders and Letter of Credit Issuers party thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, KeyBanc Capital Markets, Wells Fargo Securities, LLC and U.S. Bank National Association, as Joint Lead Arrangers, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, KeyBanc Capital Markets and Wells Fargo Securities, LLC, as Joint Bookrunners (Incorporated by reference to Exhibit 10.6 to the Company’s quarterly report on Form 10-Q (SEC File No. 001-37389) filed May 18, 2020)
10.12	Second Amendment, dated June 5, 2020, to Second Amended and Restated Credit Agreement dated as of July 27, 2018, among Apple Hospitality REIT, Inc., as borrower, certain subsidiaries of Apple Hospitality REIT, Inc., as guarantors, Bank of America, N.A., as Administrative Agent, KeyBank National Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, U.S. Bank National Association, as Documentation Agent, Regions Bank as Managing Agent, the Lenders and Letter of Credit Issuers party thereto, and BofA Securities, Inc., KeyBanc Capital Markets, Wells Fargo Securities, LLC and U.S. Bank National Association, as Joint Lead Arrangers, and BofA Securities, Inc., KeyBanc Capital Markets and Wells Fargo Securities, LLC, as Joint Bookrunners (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K (SEC File No. 001-37389) filed June 8, 2020)
10.13	Third Amendment to the Credit Agreement, dated March 1, 2021, to Second Amended and Restated Credit Agreement dated as of July 27, 2018, among Apple Hospitality REIT, Inc., as borrower, certain subsidiaries of Apple Hospitality REIT, Inc., as guarantors, Bank of America, N.A., as Administrative Agent, KeyBank National Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, U.S. Bank National Association, as Documentation Agent, Regions Bank as Managing Agent, the Lenders and Letter of Credit Issuers party thereto, and BofA Securities, Inc., KeyBanc Capital Markets, Wells Fargo Securities, LLC and U.S. Bank National Association, as Joint Lead Arrangers, and BofA Securities, Inc., KeyBanc Capital Markets and Wells Fargo Securities, LLC, as Joint Bookrunners (Incorporated by reference to Exhibit 10.1 to the Company’s current report on From 8-K/A (SEC File No. 001-37389) filed March 2, 2021)

90

10.14	Fourth Amendment to the Credit Agreement, dated June 4, 2021, to Second Amended and Restated Credit Agreement dated as of July 27, 2018, among Apple Hospitality REIT, Inc., as borrower, certain subsidiaries of Apple Hospitality REIT, Inc., as guarantors, Bank of America, N.A., as Administrative Agent, KeyBank National Association and Wells Fargo Bank, National Association, as Co-Syndication Agents, U.S. Bank National Association, as Documentation Agent, Regions Bank as Managing Agent, the Lenders and Letter of Credit Issuers party thereto, and BofA Securities, Inc., KeyBanc Capital Markets, Wells Fargo Securities, LLC and U.S. Bank National Association, as Joint Lead Arrangers, and BofA Securities, Inc., KeyBanc Capital Markets and Wells Fargo Securities, LLC, as Joint Bookrunners (FILED HEREWITH)
21.1	Subsidiaries of the Company (FILED HEREWITH)
23.1	Consent of Ernst & Young LLP (FILED HEREWITH)
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 Annual Report on Form 10-K for the year ended December 31, 2021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Income, (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH)
104	The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in iXBRL and contained in Exhibit 101.

* Denotes Management Contract or Compensation Plan.

Item 16. Form 10-K Summary

None.

91

SCHEDULE III

Real Estate and Accumulated Depreciation and Amortization

As of December 31, 2021

(dollars in thousands)

										Subsequently
					Initial Cost					Capitalized
								Bldg./ FF&E		Bldg. Imp. &		Total Gross		Acc.			Date of	Date	Depreciable	# of
City	State	Description	Encumbrances		Land (1)			/Other		FF&E		Cost (2)		Deprec.			Construction	Acquired	Life	Rooms
Anchorage	AK	Embassy Suites	$	17,959	$	2,955		$	39,053	$	4,410	$	46,418	$	(16,778	)	2008	Apr-10	3 - 39 yrs.		169
Anchorage	AK	Home2 Suites		-		2,683			21,606		37		24,326		(3,198	)	2015	Dec-17	3 - 39 yrs.		135
Auburn	AL	Hilton Garden Inn		-		1,580			9,659		735		11,974		(3,316	)	2001	Mar-14	3 - 39 yrs.		101
Birmingham	AL	Courtyard		-		2,310			6,425		1,416		10,151		(2,458	)	2007	Mar-14	3 - 39 yrs.		84
Birmingham	AL	Hilton Garden Inn		-		3,425			15,555		14		18,994		(2,634	)	2017	Sep-17	3 - 39 yrs.		104
Birmingham	AL	Home2 Suites		-		3,491			15,603		14		19,108		(2,527	)	2017	Sep-17	3 - 39 yrs.		106
Birmingham	AL	Homewood Suites		-		1,010			12,981		2,038		16,029		(4,423	)	2005	Mar-14	3 - 39 yrs.		95
Dothan	AL	Hilton Garden Inn		-		1,037			10,581		1,713		13,331		(5,059	)	2009	Jun-09	3 - 39 yrs.		104
Dothan	AL	Residence Inn		-		970			13,185		1,148		15,303		(3,700	)	2008	Mar-14	3 - 39 yrs.		84
Huntsville	AL	Hampton		-		550			11,962		88		12,600		(2,269	)	2013	Sep-16	3 - 39 yrs.		98
Huntsville	AL	Hilton Garden Inn		-		890			11,227		599		12,716		(3,428	)	2005	Mar-14	3 - 39 yrs.		101
Huntsville	AL	Home2 Suites		-		490			10,840		126		11,456		(2,037	)	2013	Sep-16	3 - 39 yrs.		77
Huntsville	AL	Homewood Suites		6,473		210			15,654		2,122		17,986		(4,994	)	2006	Mar-14	3 - 39 yrs.		107
Mobile	AL	Hampton		-		-	(1)		11,452		480		11,932		(2,266	)	2006	Sep-16	3 - 39 yrs.		101
Prattville	AL	Courtyard		5,141		2,050			9,101		1,035		12,186		(2,981	)	2007	Mar-14	3 - 39 yrs.		84
Rogers	AR	Hampton		-		911			8,483		4,177		13,571		(4,521	)	1998	Aug-10	3 - 39 yrs.		122
Rogers	AR	Homewood Suites		-		1,375			9,514		2,460		13,349		(5,676	)	2006	Apr-10	3 - 39 yrs.		126
Chandler	AZ	Courtyard		-		1,061			16,008		1,722		18,791		(6,587	)	2009	Nov-10	3 - 39 yrs.		150
Chandler	AZ	Fairfield		-		778			11,272		1,085		13,135		(4,514	)	2009	Nov-10	3 - 39 yrs.		110
Phoenix	AZ	Courtyard		-		1,413			14,669		2,676		18,758		(6,952	)	2007	Nov-10	3 - 39 yrs.		164
Phoenix	AZ	Hampton		-		-	(1)		15,209		463		15,672		(3,110	)	2008	Sep-16	3 - 39 yrs.		125
Phoenix	AZ	Hampton		-		3,406			41,174		12		44,592		(5,333	)	2018	May-18	3 - 39 yrs.		210
Phoenix	AZ	Homewood Suites		-		-	(1)		18,907		300		19,207		(3,915	)	2008	Sep-16	3 - 39 yrs.		134
Phoenix	AZ	Residence Inn		-		1,111			12,953		1,910		15,974		(5,893	)	2008	Nov-10	3 - 39 yrs.		129
Scottsdale	AZ	Hilton Garden Inn		-		6,000			26,861		478		33,339		(4,534	)	2005	Sep-16	3 - 39 yrs.		122
Tempe	AZ	Hyatt House		-		-	(1)		24,001		-		24,001		(1,273	)	2020	Aug-20	3 - 39 yrs.		105
Tempe	AZ	Hyatt Place		-		-	(1)		34,893		4		34,897		(1,805	)	2020	Aug-20	3 - 39 yrs.		154
Tucson	AZ	Hilton Garden Inn		-		1,005			17,925		2,120		21,050		(8,542	)	2008	Jul-08	3 - 39 yrs.		125
Tucson	AZ	Residence Inn		-		2,080			12,424		1,847		16,351		(4,244	)	2008	Mar-14	3 - 39 yrs.		124
Tucson	AZ	TownePlace Suites		-		992			14,543		298		15,833		(4,854	)	2011	Oct-11	3 - 39 yrs.		124
Agoura Hills	CA	Homewood Suites		-		3,430			21,290		2,501		27,221		(6,754	)	2007	Mar-14	3 - 39 yrs.		125

92

					Initial Cost					Capitalized
								Bldg./ FF&E		Bldg. Imp. &		Total Gross		Acc.			Date of	Date	Depreciable	# of
City	State	Description	Encumbrances		Land (1)			/Other		FF&E		Cost (2)		Deprec.			Construction	Acquired	Life	Rooms
Burbank	CA	Courtyard		22,098		12,916			41,218		991		55,125		(9,044	)	2002	Aug-15	3 - 39 yrs.		190
Burbank	CA	Residence Inn		-		32,270			41,559		3,020		76,849		(11,561	)	2007	Mar-14	3 - 39 yrs.		166
Burbank	CA	SpringHill Suites		25,845		10,734			49,181		188		60,103		(10,047	)	2015	Jul-15	3 - 39 yrs.		170
Clovis	CA	Hampton		-		1,287			9,888		1,314		12,489		(4,488	)	2009	Jul-09	3 - 39 yrs.		86
Clovis	CA	Homewood Suites		-		1,500			10,970		1,834		14,304		(4,909	)	2010	Feb-10	3 - 39 yrs.		83
Cypress	CA	Courtyard		-		4,410			35,033		1,590		41,033		(10,054	)	1988	Mar-14	3 - 39 yrs.		180
Cypress	CA	Hampton		-		3,209			16,749		2,319		22,277		(4,708	)	2006	Jun-15	3 - 39 yrs.		110
Oceanside	CA	Courtyard		12,318		3,080			25,769		2,214		31,063		(4,857	)	2011	Sep-16	3 - 39 yrs.		142
Oceanside	CA	Residence Inn		-		7,790			24,048		2,259		34,097		(7,004	)	2007	Mar-14	3 - 39 yrs.		125
Rancho Bernardo/San Diego	CA	Courtyard		11,954		16,380			28,952		937		46,269		(8,417	)	1987	Mar-14	3 - 39 yrs.		210
Sacramento	CA	Hilton Garden Inn		-		5,920			21,515		3,932		31,367		(7,773	)	1999	Mar-14	3 - 39 yrs.		153
San Bernardino	CA	Residence Inn		-		1,490			13,662		1,996		17,148		(5,763	)	2006	Feb-11	3 - 39 yrs.		95
San Diego	CA	Courtyard		22,019		11,268			44,851		1,049		57,168		(10,172	)	2002	Sep-15	3 - 39 yrs.		245
San Diego	CA	Hampton		16,392		13,570			36,644		3,233		53,447		(10,278	)	2001	Mar-14	3 - 39 yrs.		177
San Diego	CA	Hilton Garden Inn		-		8,020			29,151		2,915		40,086		(8,258	)	2004	Mar-14	3 - 39 yrs.		200
San Diego	CA	Residence Inn		14,456		22,400			20,640		523		43,563		(6,509	)	1999	Mar-14	3 - 39 yrs.		121
San Jose	CA	Homewood Suites		26,303		12,860			28,084		5,245		46,189		(11,092	)	1991	Mar-14	3 - 39 yrs.		140
San Juan Capistrano	CA	Residence Inn		-		-	(1)		32,292		1,045		33,337		(5,613	)	2012	Sep-16	3 - 39 yrs.		130
Santa Ana	CA	Courtyard		14,098		3,082			21,051		2,215		26,348		(7,749	)	2011	May-11	3 - 39 yrs.		155
Santa Clarita	CA	Courtyard		-		4,568			18,721		2,816		26,105		(9,528	)	2007	Sep-08	3 - 39 yrs.		140
Santa Clarita	CA	Fairfield		-		1,864			7,753		2,005		11,622		(4,495	)	1997	Oct-08	3 - 39 yrs.		66
Santa Clarita	CA	Hampton		-		1,812			15,761		6,324		23,897		(9,454	)	1988	Oct-08	3 - 39 yrs.		128
Santa Clarita	CA	Residence Inn		-		2,539			14,493		4,274		21,306		(8,996	)	1997	Oct-08	3 - 39 yrs.		90
Tustin	CA	Fairfield		-		7,700			26,580		184		34,464		(4,596	)	2013	Sep-16	3 - 39 yrs.		145
Tustin	CA	Residence Inn		-		11,680			33,645		204		45,529		(5,972	)	2013	Sep-16	3 - 39 yrs.		149
Colorado Springs	CO	Hampton		-		1,780			15,860		510		18,150		(3,089	)	2008	Sep-16	3 - 39 yrs.		101
Denver	CO	Hilton Garden Inn		29,415		9,940			57,595		1,775		69,310		(10,863	)	2007	Sep-16	3 - 39 yrs.		221
Highlands Ranch	CO	Hilton Garden Inn		-		5,480			20,465		549		26,494		(5,437	)	2006	Mar-14	3 - 39 yrs.		128
Highlands Ranch	CO	Residence Inn		-		5,350			19,167		3,444		27,961		(7,362	)	1996	Mar-14	3 - 39 yrs.		117
Boca Raton	FL	Hilton Garden Inn		-		7,220			22,177		792		30,189		(4,238	)	2002	Sep-16	3 - 39 yrs.		149
Cape Canaveral	FL	Homewood Suites		-		2,780			23,967		43		26,790		(4,889	)	2016	Sep-16	3 - 39 yrs.		153
Cape Canaveral	FL	Hampton		-		2,594			20,951		1		23,546		(1,345	)	2020	Apr-20	3 - 39 yrs.		116
Cape Canaveral	FL	Home2 Suites		-		2,415			19,668		1		22,084		(1,293	)	2020	Apr-20	3 - 39 yrs.		108
Fort Lauderdale	FL	Hampton		-		1,793			21,357		5,130		28,280		(7,304	)	2002	Jun-15	3 - 39 yrs.		156
Fort Lauderdale	FL	Residence Inn		-		5,760			26,727		209		32,696		(4,977	)	2014	Sep-16	3 - 39 yrs.		156
Gainesville	FL	Hilton Garden Inn		-		1,300			17,322		542		19,164		(3,221	)	2007	Sep-16	3 - 39 yrs.		104
Gainesville	FL	Homewood Suites		-		1,740			16,329		605		18,674		(3,281	)	2005	Sep-16	3 - 39 yrs.		103
Jacksonville	FL	Homewood Suites		-		9,480			21,247		2,727		33,454		(7,683	)	2005	Mar-14	3 - 39 yrs.		119
Jacksonville	FL	Hyatt Place		-		2,013			13,533		582		16,128		(1,725	)	2009	Dec-18	3 - 39 yrs.		127
Miami	FL	Courtyard		-		-	(1)		31,488		1,937		33,425		(8,420	)	2008	Mar-14	3 - 39 yrs.		118

93

										Subsequently
					Initial Cost					Capitalized
								Bldg./ FF&E		Bldg. Imp. &		Total Gross		Acc.			Date of	Date	Depreciable	# of
City	State	Description	Encumbrances		Land (1)			/Other		FF&E		Cost (2)		Deprec.			Construction	Acquired	Life	Rooms
Miami	FL	Hampton		-		1,972			9,987		6,488		18,447		(7,452	)	2000	Apr-10	3 - 39 yrs.		121
Miami	FL	Homewood Suites		13,000		18,820			25,375		4,521		48,716		(9,399	)	2000	Mar-14	3 - 39 yrs.		162
Orlando	FL	Fairfield		-		3,140			22,580		3,082		28,802		(10,097	)	2009	Jul-09	3 - 39 yrs.		200
Orlando	FL	Home2 Suites		-		2,731			18,063		81		20,875		(2,089	)	2019	Mar-19	3 - 39 yrs.		128
Orlando	FL	SpringHill Suites		-		3,141			25,779		2,960		31,880		(11,426	)	2009	Jul-09	3 - 39 yrs.		200
Panama City	FL	Hampton		-		1,605			9,995		1,335		12,935		(4,756	)	2009	Mar-09	3 - 39 yrs.		95
Panama City	FL	TownePlace Suites		-		908			9,549		458		10,915		(3,846	)	2010	Jan-10	3 - 39 yrs.		103
Pensacola	FL	TownePlace Suites		-		1,770			12,562		303		14,635		(2,408	)	2008	Sep-16	3 - 39 yrs.		97
Tallahassee	FL	Fairfield		-		960			11,734		660		13,354		(2,050	)	2011	Sep-16	3 - 39 yrs.		97
Tallahassee	FL	Hilton Garden Inn		-		-	(1)		10,938		438		11,376		(3,217	)	2006	Mar-14	3 - 39 yrs.		85
Tampa	FL	Embassy Suites		-		1,824			20,034		3,475		25,333		(9,097	)	2007	Nov-10	3 - 39 yrs.		147
Atlanta / Downtown	GA	Hampton		-		7,861			16,374		3,715		27,950		(3,197	)	1999	Feb-18	3 - 39 yrs.		119
Atlanta / Perimeter Dunwoody	GA	Hampton		-		3,228			26,498		31		29,757		(3,178	)	2016	Jun-18	3 - 39 yrs.		132
Atlanta	GA	Home2 Suites		-		740			23,122		1,064		24,926		(4,700	)	2016	Jul-16	3 - 39 yrs.		128
Macon	GA	Hilton Garden Inn		-		-	(1)		15,043		611		15,654		(4,262	)	2007	Mar-14	3 - 39 yrs.		101
Savannah	GA	Hilton Garden Inn		-		-	(1)		14,716		2,255		16,971		(4,689	)	2004	Mar-14	3 - 39 yrs.		105
Cedar Rapids	IA	Hampton		-		1,590			11,364		244		13,198		(2,455	)	2009	Sep-16	3 - 39 yrs.		103
Cedar Rapids	IA	Homewood Suites		-		1,770			13,116		2,098		16,984		(3,059	)	2010	Sep-16	3 - 39 yrs.		95
Davenport	IA	Hampton		-		400			16,915		752		18,067		(3,387	)	2007	Sep-16	3 - 39 yrs.		103
Boise	ID	Hampton		21,680		1,335			21,114		3,162		25,611		(9,790	)	2007	Apr-10	3 - 39 yrs.		186
Des Plaines	IL	Hilton Garden Inn		-		10,000			38,116		2,131		50,247		(6,664	)	2005	Sep-16	3 - 39 yrs.		252
Hoffman Estates	IL	Hilton Garden Inn		-		1,770			14,373		892		17,035		(3,121	)	2000	Sep-16	3 - 39 yrs.		184
Mettawa	IL	Hilton Garden Inn		-		2,246			28,328		2,764		33,338		(10,895	)	2008	Nov-10	3 - 39 yrs.		170
Mettawa	IL	Residence Inn		-		1,722			21,843		1,944		25,509		(8,246	)	2008	Nov-10	3 - 39 yrs.		130
Rosemont	IL	Hampton		-		3,410			23,594		95		27,099		(4,600	)	2015	Sep-16	3 - 39 yrs.		158
Skokie	IL	Hampton		-		2,593			31,284		3,230		37,107		(6,216	)	2000	Sep-16	3 - 39 yrs.		225
Warrenville	IL	Hilton Garden Inn		-		1,171			20,894		2,711		24,776		(8,458	)	2008	Nov-10	3 - 39 yrs.		135
Indianapolis	IN	SpringHill Suites		-		1,310			11,542		2,154		15,006		(5,259	)	2007	Nov-10	3 - 39 yrs.		130
Merrillville	IN	Hilton Garden Inn		-		1,860			17,755		694		20,309		(3,483	)	2008	Sep-16	3 - 39 yrs.		124
Mishawaka	IN	Residence Inn		-		898			12,862		1,557		15,317		(5,264	)	2007	Nov-10	3 - 39 yrs.		106
South Bend	IN	Fairfield		-		2,090			23,361		1,403		26,854		(4,258	)	2010	Sep-16	3 - 39 yrs.		119
Overland Park	KS	Fairfield		-		1,230			11,713		1,505		14,448		(3,534	)	2008	Mar-14	3 - 39 yrs.		110
Overland Park	KS	Residence Inn		-		1,790			20,633		3,027		25,450		(7,649	)	2000	Mar-14	3 - 39 yrs.		120
Wichita	KS	Courtyard		-		1,940			9,739		1,165		12,844		(3,936	)	2000	Mar-14	3 - 39 yrs.		90
Lafayette	LA	Hilton Garden Inn		-		-	(1)		17,898		5,079		22,977		(8,592	)	2006	Jul-10	3 - 39 yrs.		153
Lafayette	LA	SpringHill Suites		-		709			9,400		901		11,010		(3,384	)	2011	Jun-11	3 - 39 yrs.		103

94

										Subsequently
					Initial Cost					Capitalized
								Bldg./ FF&E		Bldg. Imp. &					Total Gross		Acc.			Date of	Date	Depreciable	# of
City	State	Description	Encumbrances		Land (1)			/Other		FF&E					Cost (2)		Deprec.			Construction	Acquired	Life	Rooms
New Orleans	LA	Homewood Suites		21,981		4,150			52,258		5,499					61,907		(15,112	)	2002	Mar-14	3 - 39 yrs.		166
Marlborough	MA	Residence Inn		-		3,480			17,341		1,917					22,738		(5,660	)	2006	Mar-14	3 - 39 yrs.		112
Westford	MA	Hampton		-		3,410			16,320		1,646					21,376		(4,837	)	2007	Mar-14	3 - 39 yrs.		110
Westford	MA	Residence Inn		8,320		1,760			20,791		4,444					26,995		(6,753	)	2001	Mar-14	3 - 39 yrs.		108
Annapolis	MD	Hilton Garden Inn		-		4,350			13,974		1,935					20,259		(4,946	)	2007	Mar-14	3 - 39 yrs.		126
Silver Spring	MD	Hilton Garden Inn		-		1,361			16,094		1,736					19,191		(6,320	)	2010	Jul-10	3 - 39 yrs.		107
Portland	ME	AC Hotels		-		6,767			61,602		3					68,372		(781	)	2018	Aug-21	3 - 39 yrs.		178
Portland	ME	Aloft Hotel		-		6,002			47,213		3					53,218		(544	)	2021	Sep-21	3 - 39 yrs.		157
Portland	ME	Residence Inn		33,500		4,440			51,534		810					56,784		(6,888	)	2009	Oct-17	3 - 39 yrs.		179
Novi	MI	Hilton Garden Inn		-		1,213			15,052		2,318					18,583		(6,714	)	2008	Nov-10	3 - 39 yrs.		148
Maple Grove	MN	Hilton Garden Inn		-		1,560			13,717		3,279					18,556		(3,433	)	2003	Sep-16	3 - 39 yrs.		121
Rochester	MN	Hampton		-		916			13,225		2,463					16,604		(6,397	)	2009	Aug-09	3 - 39 yrs.		124
St. Paul	MN	Hampton		-		2,523			29,365		23					31,911		(2,833	)	2016	Mar-19	3 - 39 yrs.		160
Kansas City	MO	Hampton		-		727			9,363		1,745					11,835		(4,510	)	1999	Aug-10	3 - 39 yrs.		122
Kansas City	MO	Residence Inn		-		2,000			20,818		3,568					26,386		(6,882	)	2002	Mar-14	3 - 39 yrs.		106
St. Louis	MO	Hampton		-		1,758			20,954		10,461					33,173		(12,393	)	2003	Aug-10	3 - 39 yrs.		190
St. Louis	MO	Hampton		-		758			15,287		2,305					18,350		(6,849	)	2006	Apr-10	3 - 39 yrs.		126
Hattiesburg	MS	Courtyard		4,550		1,390			11,324		1,371					14,085		(3,415	)	2006	Mar-14	3 - 39 yrs.		84
Hattiesburg	MS	Residence Inn		-		906			9,151		1,117					11,174		(4,418	)	2008	Dec-08	3 - 39 yrs.		84
Carolina Beach	NC	Courtyard		-		7,490			31,588		4,257					43,335		(9,417	)	2003	Mar-14	3 - 39 yrs.		144
Charlotte	NC	Fairfield		-		1,030			11,111		1,207					13,348		(2,440	)	2010	Sep-16	3 - 39 yrs.		94
Durham	NC	Homewood Suites		-		1,232			18,343		5,378					24,953		(10,768	)	1999	Dec-08	3 - 39 yrs.		122
Fayetteville	NC	Home2 Suites		-		746			10,563		1,237					12,546		(4,474	)	2011	Feb-11	3 - 39 yrs.		118
Greensboro	NC	SpringHill Suites		-		1,850			10,157		515					12,522		(3,131	)	2004	Mar-14	3 - 39 yrs.		82
Jacksonville	NC	Home2 Suites		-		910			12,527		238					13,675		(2,365	)	2012	Sep-16	3 - 39 yrs.		105
Wilmington	NC	Fairfield		-		1,310			13,034		1,275					15,619		(3,848	)	2008	Mar-14	3 - 39 yrs.		122
Winston-Salem	NC	Hampton		-		2,170			14,268		1,069					17,507		(2,514	)	2010	Sep-16	3 - 39 yrs.		94
Omaha	NE	Courtyard		-		6,700			36,829		6,111					49,640		(11,461	)	1999	Mar-14	3 - 39 yrs.		181
Omaha	NE	Hampton		-		1,710			22,636		322					24,668		(4,202	)	2007	Sep-16	3 - 39 yrs.		139
Omaha	NE	Hilton Garden Inn		20,460		1,620			35,962		1,998					39,580		(6,462	)	2001	Sep-16	3 - 39 yrs.		178
Omaha	NE	Homewood Suites		-		1,890			22,014		308					24,212		(4,373	)	2008	Sep-16	3 - 39 yrs.		123
Cranford	NJ	Homewood Suites		-		4,550			23,828		3,973					32,351		(8,393	)	2000	Mar-14	3 - 39 yrs.		108
Mahwah	NJ	Homewood Suites		-		3,220			22,742		4,384					30,346		(8,147	)	2001	Mar-14	3 - 39 yrs.		110
Mount Laurel	NJ	Homewood Suites		-		1,589			13,476		6,314					21,379		(7,156	)	2006	Jan-11	3 - 39 yrs.		118
Somerset	NJ	Courtyard		6,903		-	(1)		27,133		3,945					31,078		(11,165	)	2002	Mar-14	3 - 25 yrs.		162
West Orange	NJ	Courtyard		-		2,054			19,513		4,001					25,568		(8,298	)	2005	Jan-11	3 - 39 yrs.		131
Islip/Ronkonkoma	NY	Hilton Garden Inn		-		6,510			28,718		6,292					41,520		(9,090	)	2003	Mar-14	3 - 39 yrs.		166
New York	NY	Independent		-		-	(1)		102,832		(72,422	)	(3	)		30,410		(17,630	)	1916	Mar-14	3 - 32 yrs.		208
Syracuse	NY	Courtyard		-		812			23,278		117					24,207		(4,758	)	2013	Oct-15	3 - 39 yrs.		102
Syracuse	NY	Residence Inn		-		621			17,589		115					18,325		(3,750	)	2013	Oct-15	3 - 39 yrs.		78

95

									Subsequently
					Initial Cost				Capitalized
							Bldg./ FF&E		Bldg. Imp. &		Total Gross		Acc.			Date of	Date	Depreciable	# of
City	State	Description	Encumbrances		Land (1)		/Other		FF&E		Cost (2)		Deprec.			Construction	Acquired	Life	Rooms
Mason	OH	Hilton Garden Inn		-		1,120		16,770		1,158		19,048		(3,446	)	2010	Sep-16	3 - 39 yrs.		110
Twinsburg	OH	Hilton Garden Inn		-		1,419		16,614		3,957		21,990		(9,370	)	1999	Oct-08	3 - 39 yrs.		142
Oklahoma City	OK	Hampton		-		1,430		31,327		2,239		34,996		(12,084	)	2009	May-10	3 - 39 yrs.		200
Oklahoma City	OK	Hilton Garden Inn		-		1,270		32,700		197		34,167		(5,675	)	2014	Sep-16	3 - 39 yrs.		155
Oklahoma City	OK	Homewood Suites		-		760		20,056		15		20,831		(3,604	)	2014	Sep-16	3 - 39 yrs.		100
Oklahoma City (West)	OK	Homewood Suites		-		1,280		13,340		426		15,046		(3,082	)	2008	Sep-16	3 - 39 yrs.		90
Portland	OR	Hampton		-		10,813		64,409		-		75,222		(317	)	2017	Nov-21	3 - 39 yrs.		243
Collegeville/Philadelphia	PA	Courtyard		9,720		2,115		17,953		4,674		24,742		(8,244	)	2005	Nov-10	3 - 39 yrs.		132
Malvern/Philadelphia	PA	Courtyard		-		996		20,374		2,249		23,619		(8,053	)	2007	Nov-10	3 - 39 yrs.		127
Pittsburgh	PA	Hampton		-		2,503		18,537		4,945		25,985		(10,069	)	1991	Dec-08	3 - 39 yrs.		132
Charleston	SC	Home2 Suites		-		3,250		16,778		1,662		21,690		(3,327	)	2011	Sep-16	3 - 39 yrs.		122
Columbia	SC	Hilton Garden Inn		-		3,540		16,399		910		20,849		(5,391	)	2006	Mar-14	3 - 39 yrs.		143
Columbia	SC	TownePlace Suites		-		1,330		10,839		1,270		13,439		(2,463	)	2009	Sep-16	3 - 39 yrs.		91
Greenville	SC	Hyatt Place		-		2,802		27,696		3		30,501		(304	)	2018	Sep-21	3 - 39 yrs.		130
Hilton Head	SC	Hilton Garden Inn		-		3,600		11,386		2,576		17,562		(4,158	)	2001	Mar-14	3 - 39 yrs.		104
Chattanooga	TN	Homewood Suites		-		1,410		9,361		2,881		13,652		(4,366	)	1997	Mar-14	3 - 39 yrs.		76
Franklin	TN	Courtyard		-		2,510		31,341		708		34,559		(5,490	)	2008	Sep-16	3 - 39 yrs.		126
Franklin	TN	Residence Inn		-		2,970		29,208		1,526		33,704		(5,478	)	2009	Sep-16	3 - 39 yrs.		124
Knoxville	TN	Homewood Suites		-		2,160		14,704		280		17,144		(2,977	)	2005	Sep-16	3 - 39 yrs.		103
Knoxville	TN	SpringHill Suites		-		1,840		12,441		340		14,621		(2,505	)	2006	Sep-16	3 - 39 yrs.		103
Knoxville	TN	TownePlace Suites		-		1,190		7,920		1,484		10,594		(2,313	)	2003	Sep-16	3 - 39 yrs.		97
Memphis	TN	Hampton		-		2,449		37,097		4,514		44,060		(5,881	)	2000	Feb-18	3 - 39 yrs.		144
Memphis	TN	Hilton Garden Inn		-		4,500		33,679		3		38,182		(273	)	2019	Oct-21	3 - 39 yrs.		150
Nashville	TN	Hilton Garden Inn		-		2,754		39,997		4,087		46,838		(15,980	)	2009	Sep-10	3 - 39 yrs.		194
Nashville	TN	Home2 Suites		-		1,153		15,206		1,438		17,797		(5,359	)	2012	May-12	3 - 39 yrs.		119
Nashville	TN	TownePlace Suites		-		7,390		13,929		1,281		22,600		(2,766	)	2012	Sep-16	3 - 39 yrs.		101
Addison	TX	SpringHill Suites		-		1,210		19,700		3,028		23,938		(6,875	)	2003	Mar-14	3 - 39 yrs.		159
Arlington	TX	Hampton		-		1,217		8,738		1,665		11,620		(4,089	)	2007	Dec-10	3 - 39 yrs.		98
Austin	TX	Courtyard		-		1,579		18,487		2,110		22,176		(7,099	)	2009	Nov-10	3 - 39 yrs.		145
Austin	TX	Fairfield		-		1,306		16,504		1,944		19,754		(6,491	)	2009	Nov-10	3 - 39 yrs.		150
Austin	TX	Hampton		-		1,459		17,184		5,496		24,139		(9,225	)	1996	Apr-09	3 - 39 yrs.		124
Austin	TX	Hilton Garden Inn		-		1,614		14,451		2,234		18,299		(6,353	)	2008	Nov-10	3 - 39 yrs.		117
Austin	TX	Homewood Suites		-		1,898		16,462		6,263		24,623		(9,229	)	1997	Apr-09	3 - 39 yrs.		97

96

											Subsequently
						Initial Cost					Capitalized
									Bldg./ FF&E		Bldg. Imp. &		Total Gross		Acc.			Date of	Date	Depreciable	# of
City	State	Description	Encumbrances			Land (1)			/Other		FF&E		Cost (2)		Deprec.			Construction	Acquired	Life	Rooms
Denton	TX	Homewood Suites		-			990			14,895		352		16,237		(3,273	)	2009	Sep-16	3 - 39 yrs.		107
El Paso	TX	Homewood Suites		-			2,800			16,657		1,984		21,441		(5,260	)	2008	Mar-14	3 - 39 yrs.		114
Fort Worth	TX	Courtyard		-			2,313			15,825		123		18,261		(3,058	)	2017	Feb-17	3 - 39 yrs.		124
Fort Worth	TX	Hilton Garden Inn		-			4,637			25,073		-		29,710		(121	)	2012	Nov-21	3 - 39 yrs.		157
Fort Worth	TX	Homewood Suites		-			3,309			18,397		-		21,706		(90	)	2013	Nov-21	3 - 39 yrs.		112
Fort Worth	TX	TownePlace Suites		-			2,104			16,311		1,669		20,084		(6,400	)	2010	Jul-10	3 - 39 yrs.		140
Frisco	TX	Hilton Garden Inn		-			2,507			12,981		1,622		17,110		(6,323	)	2008	Dec-08	3 - 39 yrs.		102
Grapevine	TX	Hilton Garden Inn		9,075			1,522			15,543		2,016		19,081		(6,375	)	2009	Sep-10	3 - 39 yrs.		110
Houston	TX	Courtyard		-			2,080			21,836		136		24,052		(4,080	)	2012	Sep-16	3 - 39 yrs.		124
Houston	TX	Marriott		-			4,143			46,623		1,774		52,540		(17,518	)	2010	Jan-10	3 - 39 yrs.		206
Houston	TX	Residence Inn		-			12,070			19,769		936		32,775		(6,486	)	2006	Mar-14	3 - 39 yrs.		129
Houston	TX	Residence Inn		-			2,070			11,186		260		13,516		(2,416	)	2012	Sep-16	3 - 39 yrs.		120
Lewisville	TX	Hilton Garden Inn		-			3,361			23,919		2,923		30,203		(12,075	)	2007	Oct-08	3 - 39 yrs.		165
San Antonio	TX	TownePlace Suites		-			2,220			9,610		1,301		13,131		(3,392	)	2007	Mar-14	3 - 39 yrs.		106
Shenandoah	TX	Courtyard		-			3,350			17,256		104		20,710		(3,285	)	2014	Sep-16	3 - 39 yrs.		124
Stafford	TX	Homewood Suites		-			1,880			10,969		436		13,285		(3,798	)	2006	Mar-14	3 - 39 yrs.		78
Texarkana	TX	Hampton		-			636			8,723		1,413		10,772		(3,855	)	2004	Jan-11	3 - 39 yrs.		81
Provo	UT	Residence Inn		-			1,150			18,277		3,375		22,802		(6,364	)	1996	Mar-14	3 - 39 yrs.		114
Salt Lake City	UT	Residence Inn		-			1,515			24,214		351		26,080		(3,470	)	2014	Oct-17	3 - 39 yrs.		136
Salt Lake City	UT	SpringHill Suites		-			1,092			16,465		1,917		19,474		(6,576	)	2009	Nov-10	3 - 39 yrs.		143
Alexandria	VA	Courtyard		-			6,860			19,681		4,136		30,677		(7,628	)	1987	Mar-14	3 - 39 yrs.		178
Alexandria	VA	SpringHill Suites		-			5,968			-		20,949		26,917		(7,660	)	2011	Mar-09	3 - 39 yrs.		155
Charlottesville	VA	Courtyard		-			21,130			27,737		2,426		51,293		(7,996	)	2000	Mar-14	3 - 39 yrs.		139
Manassas	VA	Residence Inn		-			1,395			14,962		1,979		18,336		(6,120	)	2006	Feb-11	3 - 39 yrs.		107
Richmond	VA	Courtyard		14,447			2,003			-		23,170		25,173		(6,339	)	2014	Jul-12	3 - 39 yrs.		135
Richmond	VA	Independent		-			584			6,386		98		7,068		(432	)	1988	Oct-19	3 - 39 yrs.		55
Richmond	VA	Marriott		-			-	(1)		83,698		25,945		109,643		(29,851	)	1984	Mar-14	3 - 39 yrs.		413
Richmond	VA	Residence Inn		14,447			1,113			-		12,783		13,896		(3,490	)	2014	Jul-12	3 - 39 yrs.		75
Suffolk	VA	Courtyard		-			940			5,186		1,366		7,492		(2,457	)	2007	Mar-14	3 - 39 yrs.		92
Suffolk	VA	TownePlace Suites		-			710			5,241		769		6,720		(2,042	)	2007	Mar-14	3 - 39 yrs.		72
Virginia Beach	VA	Courtyard		-			10,580			29,140		3,735		43,455		(8,804	)	1999	Mar-14	3 - 39 yrs.		141
Virginia Beach	VA	Courtyard		-			12,000			40,556		4,447		57,003		(11,651	)	2002	Mar-14	3 - 39 yrs.		160
Kirkland	WA	Courtyard		9,640			18,950			25,028		930		44,908		(7,483	)	2006	Mar-14	3 - 39 yrs.		150
Seattle	WA	Residence Inn		78,412	(4)		63,484			92,786		5,346		161,616		(27,813	)	1991	Mar-14	3 - 39 yrs.		234
Tukwila	WA	Homewood Suites		7,440			8,130			16,659		4,571		29,360		(7,317	)	1992	Mar-14	3 - 39 yrs.		106
Madison	WI	Hilton Garden Inn		-			2,593			47,152		-		49,745		(1,505	)	2021	Feb-21	3 - 39 yrs.		176
Richmond	VA	Corporate Office		-			682			3,723		2,384		6,789		(2,731	)	1893	May-13	3 - 39 yrs.	N/A
			$	498,046		$	794,899		$	4,672,911	$	418,553	$	5,886,363	$	(1,302,246	)					28,747

97

Investment in Real Estate:	2021			2020			2019
Balance as of January 1	$	5,764,977		$	5,682,550		$	5,726,303
Acquisitions		430,155			104,496			59,652
Improvements		25,824			37,579			78,679
Dispositions		(336,905	)		(57,417	)		(159,685	)
Assets Held for Sale (5)		13,066			2,866			(15,932	)
Impairment of Depreciable Assets		(10,754	)		(5,097	)		(6,467	)
Total Gross Cost as of December 31		5,886,363			5,764,977			5,682,550
Finance Ground Lease Assets as of    December 31		102,084			203,617			197,617
Total Investment in Real Estate	$	5,988,447		$	5,968,594		$	5,880,167

Accumulated Depreciation and Amortization:	2021			2020			2019
Accumulated Depreciation as of January 1	$	(1,224,832	)	$	(1,049,996	)	$	(909,893	)
Depreciation Expense		(179,275	)		(192,346	)		(187,729	)
Accumulated Depreciation on Dispositions		109,610			13,599			43,787
Assets Held for Sale (5)		(7,750	)		3,911			3,839
Accumulated Depreciation as of December 31		(1,302,246	)		(1,224,832	)		(1,049,996	)
Accumulated Amortization of Finance Leases    as of December 31		(9,016	)		(10,866	)		(4,433	)
Accumulated Depreciation and Amortization    as of December 31	$	(1,311,262	)	$	(1,235,698	)	$	(1,054,429	)

(1) Land is owned fee simple unless cost is $0, which means the property is subject to a ground lease.

(2) The aggregate cost for federal income tax purposes is approximately $5.4 billion at December 31, 2021 (unaudited).

(3) Amount includes a reduction in cost due to recognition of an impairment loss.

(4) Amount includes $22.4 million outstanding mortgage debt maturing on September 1, 2022 as well as the $56.0 million one year note payable used to acquire the fee interest in the land at the Seattle Residence Inn on August 16, 2021.

(5) As of December 31, 2021, the Company did not have any hotels classified as Held for Sale. The 2021 activity was due to the sale of a hotel previously identified as Held for Sale.

98

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Apple Hospitality REIT, Inc.
By:	/s/ Justin G. Knight	Date: February 22, 2022
	Justin G. Knight, Chief Executive Officer (Principal Executive Officer)
By:	/s/ Elizabeth S. Perkins	Date: February 22, 2022
	Elizabeth S. Perkins,
	Chief Financial Officer (Principal Financial Officer)
By:	/s/ Rachel S. Labrecque	Date: February 22, 2022
	Rachel S. Labrecque,
	Chief Accounting Officer (Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

By:	/s/ Glade M. Knight	Date: February 22, 2022
	Glade M. Knight, Executive Chairman and Director
By:	/s/ Justin G. Knight	Date: February 22, 2022
	Justin G. Knight, Chief Executive Officer and Director (Principal Executive Officer)
By:	/s/ Elizabeth S. Perkins	Date: February 22, 2022
	Elizabeth S. Perkins,
	Chief Financial Officer (Principal Financial Officer)
By:	/s/ Rachel S. Labrecque	Date: February 22, 2022
	Rachel S. Labrecque,
	Chief Accounting Officer (Principal Accounting Officer)
By:	/s/ Glenn W. Bunting, Jr.	Date: February 22, 2022
	Glenn W. Bunting, Jr., Director
By:	/s/ Jon A. Fosheim	Date: February 22, 2022
	Jon A. Fosheim, Director
By:	/s/ Kristian M. Gathright	Date: February 22, 2022
	Kristian M. Gathright, Director
By:	/s/ Blythe J. McGarvie	Date: February 22, 2022
	Blythe J. McGarvie, Director
By:	/s/ Daryl A. Nickel	Date: February 22, 2022
	Daryl A. Nickel, Director
By:	/s/ L. Hugh Redd	Date: February 22, 2022
	L. Hugh Redd, Director
By:	/s/ Howard E. Woolley	Date: February 22, 2022
	Howard E. Woolley, Director

99