Business Context and Reporting Period
This Form 8-K is filed by Apple REIT Nine, Inc. (the "Company") for the reporting period ending October 29, 2008. The filing details the entry into a material definitive agreement for a potential hotel acquisition and the completion of acquisitions for six existing hotels.
Key Financial Metrics and Transactions
Completed Acquisitions (Item 2.01)
On October 29 and October 31, 2008, the Company closed on the purchase of six hotels totaling 648 rooms for an aggregate purchase price of $86,491,188.
| Location | Franchise | Rooms | Purchase Price | Closing Date |
|---|---|---|---|---|
| Santa Clarita, CA | Hampton Inn | 128 | $17,129,348 | Oct 29, 2008 |
| Santa Clarita, CA | Residence Inn | 90 | $16,599,578 | Oct 29, 2008 |
| Santa Clarita, CA | Fairfield Inn | 66 | $9,337,262 | Oct 29, 2008 |
| Beaumont, TX | Residence Inn | 133 | $16,900,000 | Oct 29, 2008 |
| Pueblo, CO | Hampton Inn & Suites | 81 | $8,025,000 | Oct 31, 2008 |
| Allen, TX | Hilton Garden Inn | 150 | $18,500,000 | Oct 31, 2008 |
| Total | 648 | $86,491,188 |
Debt Assumption: The Company assumed an existing loan secured by the Allen, Texas hotel with an outstanding principal balance of $10,786,698. The loan carries a fixed interest rate of 5.37% and matures in October 2015.
Funding: The purchase price for the Santa Clarita properties (net of assumed loans) and the Allen property were funded by the Company's ongoing offering of Units (one common share and one Series A preferred share).
Potential Acquisition (Item 1.01)
On October 29, 2008, the Company entered a purchase contract for a full-service Marriott hotel in Houston, Texas, currently under construction.
- Purchase Price: $51,000,000
- Room Count: 206 (expected upon completion)
- Deposits: Initial deposit of $100,000 (refundable during review period ending November 23, 2008). An additional $100,000 is due if the contract is not terminated during the review period.
- Funding Source: Proceeds from the ongoing offering of Units.
Material Changes and Conditions
The filing represents a significant expansion of the Company's portfolio through the immediate acquisition of six properties and the potential addition of a seventh. The Santa Clarita purchase prices were adjusted for the defeasance of two existing loans secured by those properties. The Houston acquisition is contingent upon several closing conditions, including the completion of construction, obtaining third-party consents, and the execution of new franchise and management agreements.
Outlook, Risks, and Contingencies
Contingencies: The Houston acquisition is not guaranteed. The Company may terminate the contract during the review period (ending November 23, 2008) for any reason. If terminated after the review period without seller default, deposits may be forfeited. Closing is subject to the satisfaction of specific conditions, including construction completion and franchise agreement execution.
Financial Statements: Financial statements and pro forma information for the acquired hotels will be filed as necessary by amendment within the required time period.
Investor Verification Checklist
- Verify the status of the Houston, Texas hotel construction and whether the November 23, 2008 review period deadline was met.
- Confirm the execution of new franchise and management agreements for the Houston property.
- Review the amended filings for financial statements and pro forma information regarding the six acquired hotels.
- Monitor the Company's ongoing Unit offering to ensure sufficient capital for the Houston acquisition and future growth.
- Assess the impact of the assumed $10.8 million debt on the Company's overall leverage ratios.