Business Context and Reporting Period
This Form 8-K was filed by Apple REIT Nine, Inc. on August 5, 2010, to report the entry into material definitive agreements. The Company, a real estate investment trust, entered into purchase contracts for two hotels through an indirect wholly-owned subsidiary.
Key Financial Metrics and Transaction Details
The filing details a potential acquisition of two properties with a total purchase price of $27,250,000. The transaction involves the following specific metrics:
- Total Purchase Price: $27,250,000
- Total Room Count: 187 rooms
- Initial Deposits Paid: $150,000 (refundable during the review period)
- Additional Required Deposits: $200,000 (due if contracts are not terminated by September 4, 2010)
- Debt Assumption: Approximately $6.1 million principal on the Irving, TX property at 5.83% interest, maturing in April 2017.
| Location | Franchise | Rooms | Purchase Price |
|---|---|---|---|
| Irving, TX | Homewood Suites | 77 | $10,250,000 |
| Grapevine, TX | Hilton Garden Inn | 110 | $17,000,000 |
| Total | - | 187 | $27,250,000 |
The filing does not provide 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 two hotels. The transaction is currently in a "review period" ending September 4, 2010. During this time, the Company may terminate the contracts for any reason and receive a refund of the initial deposits. If the review period expires without termination, an additional $200,000 in deposits is required.
Outlook, Risks, and Contingencies
Financing: The initial deposits were funded by proceeds from the Company's ongoing offering of Units (common and Series A preferred shares). Future funding for additional deposits and the purchase price is expected to come from the same offering.
Closing Conditions: Several conditions must be met before closing, including seller compliance with covenants, obtaining third-party consents, and the termination of existing franchise/management agreements to be replaced by new agreements with the Company's subsidiaries.
Risks: There is no assurance that the Company will acquire either or both hotels. If the Company terminates a contract after the review period for reasons other than seller failure, the deposits may be forfeited to the seller.
Key Facts for Investor Verification
- Verify the status of the "review period" and whether the additional $200,000 deposit was paid after September 4, 2010.
- Confirm whether the closing conditions regarding franchise and management agreements were satisfied.
- Check subsequent filings to determine if the acquisition closed or if the contracts were terminated.
- Review the Company's ongoing Unit offering to confirm sufficient capital was raised to fund the $27.25 million purchase price.