Business Context and Reporting Period
This Form 8-K was filed by Apple REIT Nine, Inc. on August 29, 2008, reporting the entry into material definitive agreements. The Company, through an indirect wholly-owned subsidiary, entered into purchase contracts for three hotels located in Santa Clarita, California.
Key Financial Metrics and Transaction Details
The filing details a potential acquisition of three hotels with a total purchase price of $41,500,000. The transaction involves the following assets:
- Hampton Inn: 128 rooms, purchase price of $16,500,000.
- Residence Inn: 90 rooms, purchase price of $16,000,000.
- Fairfield Inn: 66 rooms, purchase price of $9,000,000.
Financing and Deposits:
- Aggregate initial deposits totaled $500,000, funded by proceeds from the Company's ongoing offering of Units.
- Additional deposits of $500,000 are due after the review period if contracts are not terminated.
- The purchasing subsidiary is expected to assume existing loans with a total outstanding principal balance of $16,856,250.
Assumed Debt Details:
- Hampton Inn Loan: $6,742,500 at 6.27% interest, maturing February 11, 2013.
- Residence Inn & Fairfield Inn Loan: $10,113,750 at 6.27% interest, maturing February 11, 2013.
The filing does not provide current revenue, profit, cash flow, or margin data for the Company or the target properties.
Material Changes and Transaction Status
The primary material change is the execution of purchase contracts for the three hotels. The transaction is contingent upon a "review period" ending on October 13, 2008. During this period, the subsidiary may terminate the contracts for any reason with a refund of the initial deposits. If the contracts are not terminated during the review period, additional deposits become due.
Outlook, Risks, and Contingencies
Closing Conditions: Several conditions must be met before closing, including seller compliance with covenants, obtaining third-party consents, and the termination of existing management/franchise agreements in favor of new agreements with the Company's subsidiaries.
Risks: There is no assurance that the purchase will close. If the subsidiary terminates the contract after the review period for reasons not related to seller failure, the deposits may be forfeited to the seller. If closing conditions are not met, the subsidiary may terminate and receive a refund.
Funding: Future funding for additional deposits and the purchase price is expected to come from the Company's ongoing offering of Units.
Key Facts for Investor Verification
- Verify the status of the "review period" and whether the purchase contracts were terminated or proceeded to closing after October 13, 2008.
- Confirm the successful execution of new management and franchise agreements required for closing.
- Monitor the Company's ongoing offering of Units to ensure sufficient capital is raised to fund the $41.5 million purchase price and assumed debt.
- Review subsequent filings for any updates on the assumption of the $16.86 million in existing loans.