Business Context and Reporting Period
This Form 8-K, filed on August 7, 2013, by Apple REIT Nine, Inc. ("Apple Nine"), reports the entry into a definitive Agreement and Plan of Merger with Apple REIT Seven, Inc. ("Apple Seven") and Apple REIT Eight, Inc. ("Apple Eight"). The transaction involves the merger of Apple Seven and Apple Eight into wholly-owned subsidiaries of Apple Nine. Upon consummation, Apple Nine will transition from an externally advised structure to a self-advised entity, terminating its existing advisory arrangements.
Key Financial Metrics and Transaction Terms
The filing details the exchange ratios and structural changes rather than operational financial metrics such as revenue or cash flow, which are not provided in this document.
- Exchange Ratios: Each Apple Seven Unit converts to 1.0 Apple Nine Common Share. Each Apple Eight Unit converts to 0.85 Apple Nine Common Shares.
- Preferred Share Conversion: Apple Nine Series B Convertible Preferred Shares will convert into 24.17104 Apple Nine Common Shares. Apple Seven and Apple Eight Series B shares will convert based on their respective exchange ratios multiplied by 24.17104. All Series A Preferred Shares will terminate.
- Termination Fees: If the Merger Agreement is terminated under specific conditions (e.g., adverse recommendation change or superior competing transaction), the terminating company must pay the other companies $1.7 million plus reasonable third-party expenses.
- Capital Structure: Apple Nine's authorized Common Shares will increase from 400 million to 800 million. A 50% reverse stock split is proposed contingent on shareholder approval and listing on a national securities exchange.
Material Changes Versus Prior Period
This filing represents a material structural change rather than a period-over-period financial comparison. Key changes include:
- Advisory Structure: Transition from externally advised REITs to a self-advised structure for Apple Nine.
- Corporate Consolidation: Apple Seven and Apple Eight will cease to exist as independent public entities, becoming subsidiaries of Apple Nine.
- Management Control: Glade M. Knight has entered a Voting Agreement to vote his holdings in favor of the merger and against competing proposals.
Guidance, Outlook, Risks, and Contingencies
Outlook and Conditions: The transaction is intended to qualify as a tax-free reorganization. Closing is contingent upon shareholder approvals from all three companies, SEC effectiveness of the Form S-4 registration statement, and the absence of material adverse effects. The deal must be consummated by February 28, 2014, extendable to April 30, 2014.
Risks and Contingencies:
- Approval Risk: Failure to obtain required shareholder votes or regulatory approvals.
- Competing Transactions: The agreement includes "no-shop" provisions, though exceptions exist for superior bona fide proposals.
- REIT Qualification: Risks associated with maintaining REIT tax status under the Internal Revenue Code.
- Forward-Looking Statements: Actual results may differ due to economic cycles, competition in the hotel industry, and litigation outcomes.
Important Facts for Investor Verification
- Verify the final exchange ratios and the impact of the proposed 50% reverse stock split on share ownership.
- Confirm the status of the Form S-4 registration statement and the timeline for shareholder votes.
- Review the specific terms of the termination fees ($1.7 million) and the conditions triggering them.
- Assess the implications of the transition to a self-advised model on future operating expenses and management alignment.
- Check for any dissenters' rights of appraisal exercised by shareholders of Apple Seven, Apple Eight, or Apple Nine.