Business Context and Reporting Period
Company: Apple REIT Nine, Inc. (a subsidiary of Apple Hospitality REIT, Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: August 1, 2008
Event: Entry into Material Definitive Agreements for the potential acquisition of six hotels.
Key Financial Metrics and Transaction Details
This filing details potential acquisitions rather than historical financial performance. Key transaction metrics include:
- Total Potential Portfolio (5 Hotels): 702 rooms with a total purchase price of $95,000,000.
- Single Property Acquisition (Charlotte, NC): 112 rooms with a purchase price of $5,750,000.
- Total Potential Investment: $100,750,000.
- Initial Deposits Paid: $1,000,000 for the 5-hotel portfolio and $200,000 for the Charlotte property.
- Assumed Debt: The 5-hotel portfolio includes assuming existing loans totaling $24,864,645.
- Funding Source: Proceeds from the Company's ongoing offering of Units (one common share and one Series A preferred share).
| Property Group | Total Rooms | Purchase Price | Assumed Debt |
|---|---|---|---|
| 5-Hotel Portfolio (OH, TX) | 702 | $95,000,000 | $24,864,645 |
| Charlotte Hotel (NC) | 112 | $5,750,000 | $0 |
| Total | 814 | $100,750,000 | $24,864,645 |
Material Changes and Transaction Status
The filing represents a material change in the Company's potential asset base, though no assets have been acquired as of the report date. The transactions are subject to a "review period" expiring on September 15, 2008.
- Contingency: There is no assurance that the purchases will close. The Company may terminate the contracts during the review period for any reason.
- Deposit Terms: Initial deposits are refundable if terminated during the review period. If the review period expires without termination, an additional deposit is required ($1,000,000 for the portfolio; $200,000 for Charlotte).
- Closing Conditions: Several conditions remain unsatisfied, including obtaining third-party consents, terminating existing franchise/management agreements, and executing new agreements.
Outlook, Risks, and Management Commentary
Management Commentary: Management states that the purchasing subsidiary will evaluate legal, title, physical, environmental, and financial documents during the review period. If facts arise causing termination, the Company may walk away from the deal.
Risks and Contingencies:
- Termination Risk: If the Company terminates the contract after the review period (and not due to seller failure), deposits may be forfeited to the seller.
- Closing Failure: Failure to satisfy closing conditions (e.g., franchise agreements, loan defeasance costs) allows the Company to terminate and receive a refund of deposits.
- Cost Increases: The purchase price for the Twinsburg, Ohio property may increase due to the cost of defeasing an existing loan.
Key Facts for Investor Verification
- Verify the status of the "review period" expiration on September 15, 2008, and whether the Company elected to proceed or terminate.
- Confirm if the additional deposits ($1,200,000 total) were paid following the review period.
- Check subsequent filings to determine if the closing conditions (specifically franchise and management agreements) were satisfied.
- Monitor the Company's ongoing Unit offering to ensure sufficient capital was raised to fund the $100.75 million total purchase price.
- Verify if the assumed debt terms ($24.86 million) were finalized and if the defeasance costs for the Twinsburg property were quantified.