Apple Hospitality REIT, Inc. current report, Q4 FY2008

Business Context and Reporting Period

This Form 8-K was filed by Apple REIT Nine, Inc. on November 14, 2008. The report details the entry into a Material Definitive Agreement where a subsidiary of the Company acquired purchase contracts for four hotels currently under construction from a subsidiary of Apple REIT Eight, Inc.

Key Financial Metrics and Transaction Details

The transaction involves the potential acquisition of four hotels with a combined total of 643 rooms. The aggregate purchase price is $84,036,000. No profit was generated for the seller (Apple REIT Eight) in this assignment; the Company reimbursed Apple REIT Eight for initial deposits of $1.2 million and transaction costs of approximately $64,000.

Hotel Location Franchise Rooms Purchase Price Contract Date
Orlando, Florida Fairfield Inn & Suites 200 $54,800,000 (combined) 9/27/2007
Orlando, Florida SpringHill Suites 200 $54,800,000 (combined) 9/27/2007
Baton Rouge, Louisiana SpringHill Suites 119 $15,100,000 12/14/2007
Rochester, Minnesota Hampton Inn & Suites 124 $14,136,000 1/25/2008
Total - 643 $84,036,000 -

The filing does not provide current revenue, profit, cash flow, or debt metrics for the Company, as this report focuses solely on the specific acquisition agreement.

Material Changes and Funding

The primary material change is the assignment of rights and obligations under three purchase contracts from Apple REIT Eight to Apple REIT Nine. The reimbursement of deposits and transaction costs was funded by proceeds from the Company's ongoing offering of Units (one common share and one Series A preferred share). Future funding for the purchase price, if closing occurs, is also expected to come from this ongoing offering.

Outlook, Risks, and Contingencies

The acquisition is subject to several closing conditions that are not currently satisfied, including:

  • Completion of hotel construction.
  • Obtaining all necessary third-party consents.
  • Assignment or termination of existing management and franchise agreements and execution of new ones.
  • Sellers complying with all material covenants.

Risks: There is no assurance that the Company will acquire any of the hotels. If the Company terminates a contract before closing (not due to seller failure), the deposit will be released to the seller. If closing conditions are not met, the Company may terminate the contract and receive a refund of the deposit.

Key Facts for Investor Verification

  • Transaction Status: The deal is contingent; closing is not guaranteed.
  • Related Party: The seller (Apple REIT Eight) shares the same Chairman and CEO (Glade M. Knight) as the Company.
  • Asset Status: All four hotels are currently under construction.
  • Funding Source: Reliance on the ongoing offering of Units for both deposit reimbursement and potential purchase price funding.
  • Financial Impact: Immediate cash outflow is limited to the reimbursement of $1.2 million in deposits and ~$64,000 in transaction costs.