Business Context and Reporting Period
This Form 8-K was filed by Apple REIT Nine, Inc. on April 7, 2009. The filing reports the entry into a material definitive agreement and the completion of a preliminary asset acquisition involving approximately 417 acres of land in the Fort Worth, Texas area.
Key Financial Metrics and Transaction Details
- Asset Acquisition: Purchase of approximately 417 acres across 113 sites for a total price of approximately $147 million.
- Lease Agreement: A 40-year lease with five 5-year renewal options was executed with Chesapeake Operating, Inc. (guaranteed by Chesapeake Energy Corporation).
- Rent Terms: Annual rent ranges from approximately $15.5 million to $27.4 million, with an average annual rent of $21.8 million over the initial term.
- Payment Structure: Monthly payments in advance.
- Operating Costs: The tenant is responsible for all operating costs, including maintenance, insurance, property taxes, and environmental compliance.
- Funding Source: The acquisition was funded through the company's ongoing offering of Units (one common share and one Series A preferred share).
Material Changes and Transaction Status
The filing marks the Preliminary Closing of the purchase contract, granting equitable title to the subsidiary Apple Nine Ventures Ownership, Inc. (A9V). The recorded fee simple title is contingent upon an Outside Final Closing Deadline, defined as the earlier of November 30, 2009, or the completion of platting for each site. Currently, the tenant utilizes over 40% of the sites for natural gas production and anticipates using the remainder for the same purpose.
Outlook, Risks, and Management Commentary
The transaction involves a long-term lease with a major energy company, providing a defined revenue stream with an average of $21.8 million annually. The filing notes that the tenant and seller have no material relationship with the registrant other than through these specific contracts. The primary contingency identified is the completion of the final closing for fee simple title, which depends on local platting processes or the November 30, 2009 deadline.
Key Facts for Investor Verification
- Verify the status of the platting process for the 113 sites to ensure the fee simple title transfer occurs by the November 30, 2009 deadline.
- Confirm the creditworthiness of Chesapeake Energy Corporation as the guarantor of the lease.
- Review the terms of the ongoing Unit offering to understand the dilution impact of funding the $147 million purchase.
- Monitor the tenant's progress in developing the remaining 60% of the land for natural gas production to ensure full rent realization.