Apple Hospitality REIT, Inc. Income Taxes Disclosure
Note 11
Income Taxes
The Company is operated as, and has elected to be taxed as, a REIT under Sections 856 to 860 of the Code. As a REIT, the Company is generally not subject to corporate level income taxes on REIT taxable income that is distributed to its shareholders. Income related to the Lessee, as a taxable REIT subsidiary (“TRS”) of the Company, is subject to federal and state income taxes.
The components of income tax expense (benefit) are as follows (in thousands):
|
|
Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
State |
|
|
959 |
|
|
|
947 |
|
|
|
1,135 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
- |
|
|
|
- |
|
|
|
- |
|
State |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income tax expense |
|
$ |
959 |
|
|
$ |
947 |
|
|
$ |
1,135 |
|
Income tax expense for the years ended December 31, 2025, 2024 and 2023 was $1.0 million, $0.9 million and $1.1 million, respectively. Texas franchise tax comprises more than 50% of the Company’s total state income tax expense. No other state or jurisdiction represented more than 20% of the Company’s total income tax expense.
Below is a reconciliation between the provision for income taxes and the amounts computed by applying the federal statutory income tax rate to the income or loss before taxes (in thousands):
|
|
Year Ended December 31, |
|||||||||||||
|
|
2025 |
|
Percent of income before income taxes |
|
2024 |
|
Percent of income before income taxes |
|
2023 |
|
Percent of income before income taxes |
|||
Statutory federal tax expense |
|
$ |
37,028 |
|
21% |
|
$ |
44,954 |
|
21% |
|
$ |
37,273 |
|
21% |
Federal tax impact of REIT election |
|
|
(46,325 |
) |
-26% |
|
|
(50,456 |
) |
-23% |
|
|
(39,865 |
) |
-22% |
Statutory federal tax expense |
|
|
(9,297 |
) |
-5% |
|
|
(5,502 |
) |
-3% |
|
|
(2,592 |
) |
-1% |
State income tax expense (benefit), net |
|
|
758 |
|
0% |
|
|
748 |
|
0% |
|
|
897 |
|
1% |
Change in valuation allowance |
|
|
9,498 |
|
5% |
|
|
5,701 |
|
3% |
|
|
2,830 |
|
2% |
Income tax expense |
|
$ |
959 |
|
1% |
|
$ |
947 |
|
0% |
|
$ |
1,135 |
|
1% |
Income taxes paid are as follows (in thousands):
|
Year Ended December 31, |
|
|||||||||
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Cash paid for income taxes: |
|
|
|
|
|
|
|
|
|||
Federal |
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Texas |
|
682 |
|
|
|
666 |
|
|
|
619 |
|
Oregon |
|
260 |
|
|
|
87 |
|
|
|
290 |
|
Ohio |
* |
|
|
|
54 |
|
|
* |
|
||
Illinois |
* |
|
|
* |
|
|
|
70 |
|
||
Other state and local jurisdictions |
|
96 |
|
|
|
69 |
|
|
|
314 |
|
Total income taxes paid, net |
$ |
1,038 |
|
|
$ |
876 |
|
|
$ |
1,293 |
|
* Indicates the amount of income taxes paid for this jurisdiction does not meet the 5% disaggregation threshold for the period.
As of December 31, 2025, the Company had deferred tax assets of approximately $43 million consisting primarily of net operating loss carryforwards. A portion of the federal loss carryforwards expire beginning in 2029; however, a portion of the federal loss carryforwards do not expire. The state loss carryforwards have various expiration dates; however, for certain states some loss carryforwards do not expire. The TRS had a net operating loss carryforward for U.S. federal income tax purposes of approximately $155 million as of December 31, 2025, and $110 million as of December 31, 2024. The TRS has historical cumulative operating losses and is expected to be in a cumulative loss for the foreseeable future. As a result, the realizability of the Company’s deferred tax assets as of December 31, 2025 and 2024 is not reasonably assured. Therefore, the Company has recorded a valuation allowance equal to the full 100% of the net deferred tax assets as of December 31, 2025 and 2024.
Characterization of Distributions
For income tax purposes, distributions paid consist of ordinary income, capital gains, return of capital or a combination thereof. For the years ended December 31, 2025, 2024 and 2023, distributions per share were characterized as follows (unaudited):
|
|
Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Amount of distributions per share |
|
$ |
0.96 |
|
|
$ |
1.01 |
|
|
$ |
1.01 |
|
Characterized as: |
|
|
|
|
|
|
|
|
|
|||
Ordinary income |
|
|
100 |
% |
|
|
100 |
% |
|
|
97 |
% |
Capital gain distributions |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Return of capital |
|
|
0 |
% |
(1) |
|
0 |
% |
|
|
3 |
% |
Distributions of $0.13 per common share declared in December 2023 and paid in were treated as 2023 distributions for tax purposes. Distributions of $0.13 per common share declared in December 2024 and paid in were
treated as 2024 distributions for tax purposes. Distributions of $0.08 per common share declared in December 2025 and paid in were treated as 2025 distributions for tax purposes.
No provision for U.S. federal income taxes has been included in the Company’s financial statements for the years ended December 31, 2025, 2024 and 2023 related to its REIT activities.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 23, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 21, 2023 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.