JOINT PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT
July 15, 2016
Dear Shareholder:
If the merger is completed pursuant to the Merger Agreement, each issued and outstanding unit (consisting of a common share and related Series A preferred share) of Apple Ten (other than those with respect to which statutory dissenters’ rights of appraisal have been properly exercised, perfected and not subsequently withdrawn under Virginia law) will be converted into the right to receive:
● | $1.00 in cash; and | |
● | 0.522 (the “unit exchange ratio”) Apple Hospitality common shares. |
Holders of Apple Hospitality common shares will continue to own their existing Apple Hospitality common shares after the merger.
At the Apple Ten special meeting, the shareholders of Apple Ten will be asked to consider and vote on a proposal (i) to approve the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated thereby under which Apple Ten would be merged with and into Acquisition Sub (the “Apple Ten Merger Proposal”) and (ii) to approve the adjournment of the Apple Ten special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Apple Ten Merger Proposal (the “Apple Ten Adjournment Proposal”). The Apple Ten Board of Directors (the “Apple Ten board”), based on the unanimous recommendation of an independent special committee of the Apple Ten board, has (i) determined that the transactions contemplated by the Merger Agreement and related plan of merger are advisable and in the best interests of Apple Ten and the Apple Ten shareholders and (ii) authorized, approved and adopted the Merger Agreement and the plan of merger. The Apple Ten board recommends that Apple Ten shareholders vote “FOR” the Apple Ten Merger Proposal and the Apple Ten Adjournment Proposal.
This joint proxy statement/prospectus provides you with detailed information about the special meetings of Apple Hospitality and Apple Ten, the Merger Agreement, the merger and other related matters. A copy of the Merger Agreement is included as Annex A to this joint proxy statement/prospectus and a copy of the plan of merger is attached as Annex B to this joint proxy statement/prospectus. We encourage you to read this joint proxy statement/prospectus, the Merger Agreement, the related plan of merger and the other annexes to this joint proxy statement/prospectus carefully and in their entirety. In particular, you should carefully consider the discussion in the section of this joint proxy statement/prospectus entitled “Risk Factors” beginning on page 29. You may also obtain more information about each company from the documents they file with the Securities and Exchange Commission.
Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the Apple Hospitality special meeting or the Apple Ten special meeting, as applicable, please submit a proxy to vote your shares as promptly as possible to make sure that your shares are represented at the applicable special meeting. Please note that the failure to vote shares of Apple Ten is the equivalent of a vote against the Apple Ten Merger Proposal.
Thank you in advance for your continued support.
Sincerely,
Justin G. Knight | Glade M. Knight |
President and Chief Executive Officer | Chairman and Chief Executive Officer |
Apple Hospitality REIT, Inc. | Apple REIT Ten, Inc. |
Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the securities to be issued in connection with the merger or passed upon the adequacy or accuracy of this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is dated July 15, 2016,
and is first being mailed to the shareholders of each Apple REIT on or about July 27, 2016.
Apple Hospitality REIT, Inc.
814 East Main Street
Richmond, Virginia 23219
NOTICE OF SPECIAL MEETING OF APPLE HOSPITALITY REIT, INC. SHAREHOLDERS
TO BE HELD ON AUGUST 31, 2016
To the Shareholders of Apple Hospitality REIT, Inc.:
1. To consider and vote on a proposal to approve the issuance of common shares of Apple Hospitality (“Apple Hospitality common shares”) to the shareholders of Apple REIT Ten, Inc., a Virginia corporation (“Apple Ten”), pursuant to the Agreement and Plan of Merger, dated as of April 13, 2016 (as amended on July 13, 2016, the “Merger Agreement”), among Apple Hospitality, Apple Ten and 34 Consolidated, Inc., a Virginia corporation (“Acquisition Sub”) (an as-amended copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice), pursuant to which Apple Ten will merge with and into Acquisition Sub (the “merger”), with Acquisition Sub being the surviving corporation in the merger and remaining a wholly owned subsidiary of Apple Hospitality (the “Share Issuance Proposal”);
2. To consider and vote on a proposal to approve the adjournment of the Apple Hospitality special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Share Issuance Proposal (the “Apple Hospitality Adjournment Proposal”); and
3. To transact such other business as may properly come before the Apple Hospitality special meeting or any adjournments or postponements of the special meeting.
These items of business are described in the enclosed joint proxy statement/prospectus. The Apple Hospitality Board of Directors (the “Apple Hospitality board”) has designated the close of business on July 22, 2016 as the record date for the purpose of determining the shareholders who are entitled to receive notice of, and to vote at, the Apple Hospitality special meeting and any adjournments or postponements of the special meeting, unless a new record date is fixed in connection with an adjournment or postponement of the special meeting. Only Apple Hospitality shareholders of record at the close of business on the record date are entitled to notice of, and to vote at, the Apple Hospitality special meeting and at any adjournment or postponement of the special meeting.
The Apple Hospitality board has (i) determined that the Merger Agreement, the related plan of merger, the merger and the transactions contemplated thereby, including the issuance of the Apple Hospitality common shares to Apple Ten shareholders in the merger pursuant to the Merger Agreement, are advisable and in the best interests of Apple Hospitality and the Apple Hospitality shareholders and (ii) authorized, approved and adopted the Merger Agreement and the plan of merger. The Apple Hospitality board recommends that Apple Hospitality shareholders vote “FOR” each of the Share Issuance Proposal and the Apple Hospitality Adjournment Proposal.
Your vote is very important, regardless of the number of shares of Apple Hospitality you own. Whether or not you plan to attend the Apple Hospitality special meeting, please submit a proxy to vote your shares as promptly as possible to make sure that your shares are represented at the special meeting. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Share Issuance Proposal and “FOR” the Apple Hospitality Adjournment Proposal. Even if you plan to attend the Apple Hospitality special meeting in person, we request that you complete, sign, date and return the enclosed proxy card in the accompanying envelope prior to the special meeting to ensure that your shares will be represented and voted at the special meeting if you are unable to attend. If you hold your Apple Hospitality common shares in “street name,” which means through a bank, broker or
other nominee, you must obtain a legal proxy from this bank, broker or other nominee in order to vote in person at the Apple Hospitality special meeting.
If you attend the Apple Hospitality special meeting, you may revoke your proxy and vote in person, even if you have previously returned your proxy card or submitted your proxy through the Internet or by telephone. If your Apple Hospitality common shares are held by a bank, broker or other nominee, and you plan to attend the Apple Hospitality special meeting, please bring to the special meeting your statement evidencing your beneficial ownership of your Apple Hospitality common shares. Please carefully review the instructions in the enclosed joint proxy statement/prospectus and the enclosed proxy card or the information forwarded by your bank, broker or other nominee regarding each of these options.
The list of Apple Hospitality shareholders entitled to vote at the Apple Hospitality special meeting will be available for inspection during ordinary business hours at Apple Hospitality’s corporate headquarters at 814 East Main Street, Richmond, Virginia 23219, beginning two business days after the notice of special meeting is given and continuing through the date of the special meeting. Holders of Apple Hospitality common shares may examine this list for purposes related to the Apple Hospitality special meeting.
By Order of the Board of Directors, | |
David P. Buckley | |
Secretary |
Richmond, Virginia
July 15, 2016
Apple REIT Ten, Inc.
814 East Main Street
Richmond, Virginia 23219
NOTICE OF SPECIAL MEETING OF APPLE REIT TEN, INC. SHAREHOLDERS
TO BE HELD ON AUGUST 31, 2016
To the Shareholders of Apple REIT Ten, Inc.:
1. To consider and vote on a proposal to approve the Agreement and Plan of Merger, dated as of April 13, 2016 (as amended on July 13, 2016, the “Merger Agreement”), among Apple Hospitality REIT, Inc., a Virginia corporation (“Apple Hospitality”), Apple Ten and 34 Consolidated, Inc., a Virginia corporation and wholly owned subsidiary of Apple Hospitality (“Acquisition Sub”), the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement (copies of the as-amended Merger Agreement and related plan of merger are attached as Annexes A and B, respectively, to the joint proxy statement/prospectus accompanying this notice), pursuant to which Apple Ten will merge with and into Acquisition Sub (the “merger”), with Acquisition Sub being the surviving corporation in the merger and remaining a wholly owned subsidiary of Apple Hospitality (the “Apple Ten Merger Proposal”);
2. To consider and vote on a proposal to approve the adjournment of the Apple Ten special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Apple Ten Merger Proposal (the “Apple Ten Adjournment Proposal”); and
3. To transact such other business as may properly come before the Apple Ten special meeting or any adjournments or postponements of the special meeting.
These items of business are described in the enclosed joint proxy statement/prospectus. The Apple Ten Board of Directors (the “Apple Ten board”) has designated the close of business on July 22, 2016 as the record date for the purpose of determining the shareholders who are entitled to receive notice of, and to vote at, the Apple Ten special meeting and any adjournments or postponements of the special meeting, unless a new record date is fixed in connection with an adjournment or postponement of the special meeting. Only Apple Ten shareholders of record at the close of business on the record date are entitled to notice of, and to vote at, the Apple Ten special meeting and at any adjournment or postponement of the special meeting.
Based on the unanimous recommendation of the independent special committee of the Apple Ten board, the Apple Ten board has (i) determined that the transactions contemplated by the Merger Agreement and related plan of merger are advisable and in the best interests of Apple Ten and the Apple Ten shareholders and (ii) authorized, approved and adopted the Merger Agreement and the plan of merger. The Apple Ten board recommends that Apple Ten shareholders vote “FOR” each of the Apple Ten Merger Proposal and the Apple Ten Adjournment proposal.
Your vote is very important, regardless of the number of shares of Apple Ten you own. Whether or not you plan to attend the Apple Ten special meeting, please submit a proxy to vote your shares as promptly as possible to make sure that your shares are represented at the special meeting. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Apple Ten Merger Proposal and “FOR” the Apple Ten Adjournment Proposal. Even if you plan to attend the Apple Ten special meeting in person, we request that you
complete, sign, date and return the enclosed proxy card in the accompanying envelope prior to the special meeting to ensure that your shares will be represented and voted at the special meeting if you are unable to attend. If you hold your Apple Ten shares in “street name,” which means through a bank, broker or other nominee, you must obtain a legal proxy from this bank, broker or other nominee in order to vote in person at the Apple Ten special meeting.
If you do not vote on the Apple Ten Merger Proposal, this will have the same effect as a vote by you against the approval of the Apple Ten Merger Proposal.
If you attend the Apple Ten special meeting, you may revoke your proxy and vote in person, even if you have previously returned your proxy card or submitted your proxy through the Internet or by telephone. If your Apple Ten shares are held by a bank, broker or other nominee, and you plan to attend the Apple Ten special meeting, please bring to the special meeting your statement evidencing your beneficial ownership of your Apple Ten shares. Please carefully review the instructions in the enclosed joint proxy statement/prospectus and the enclosed proxy card or the information forwarded by your bank, broker or other nominee regarding each of these options.
The list of Apple Ten shareholders entitled to vote at the Apple Ten special meeting will be available for inspection during ordinary business hours at Apple Ten’s corporate headquarters at 814 East Main Street, Richmond, Virginia 23219, beginning two business days after the notice of special meeting is given and continuing through the date of the special meeting. Holders of Apple Ten shares may examine this list for purposes related to the Apple Ten special meeting. Apple Ten shareholders are entitled to assert appraisal rights in connection with the merger under Article 15 of the Virginia Stock Corporation Act.
By Order of the Board of Directors, | |
David P. Buckley | |
Secretary |
Richmond, Virginia
July 15, 2016
ADDITIONAL INFORMATION
Apple Hospitality REIT, Inc. 814 East Main Street Richmond, Virginia 23219 (804) 344-8121 Attn: Investor Relations |
ABOUT THIS DOCUMENT
You should rely only on the information contained or incorporated by reference in this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated July 15, 2016. You should not assume that the information contained in, or incorporated by reference into, this joint proxy statement/prospectus is accurate as of any date other than that date. Neither the mailing of this joint proxy statement/prospectus to Apple Hospitality’s shareholders or Apple Ten’s shareholders nor the issuance by Apple Hospitality of its common shares to Apple Ten shareholders in the merger pursuant to the Merger Agreement will create any implication to the contrary.
This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or to any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this joint proxy statement/prospectus regarding Apple Hospitality has been provided by Apple Hospitality and information contained in this joint proxy statement/prospectus regarding Apple Ten has been provided by Apple Ten.
i |
ii |
iii |
ANNEX A: Agreement and Plan of Merger, as amended
ANNEX B: Plan of Merger
ANNEX C: Termination Agreement
ANNEX D: Opinion of Apple Hospitality Financial Advisor
ANNEX E: Opinion of the Apple Ten Special Committee’s Financial Advisor
ANNEX F: Article 15 of the Virginia Stock Corporation Act
ANNEX G: Apple Ten Annual Report on Form 10-K for the year ended December 31, 2015
ANNEX H: Apple Ten Quarterly Report on Form 10-Q for the quarter ended March 31, 2016
“Courtyard by Marriott®,” “Fairfield Inn by Marriott®,” “Fairfield Inn & Suites by Marriott®,” “Marriott® Hotels,” “Renaissance® Hotels,” “Residence Inn by Marriott®,” “SpringHill Suites by Marriott®,” and “TownePlace Suites by Marriott®” are each a registered trademark of Marriott International, Inc. or one of its affiliates. All references to “Marriott®” mean Marriott International, Inc. and all of its affiliates and subsidiaries, and their respective officers, directors, agents, employees, accountants and attorneys. Marriott® is not responsible for the content of this joint proxy statement/prospectus, or the information incorporated by reference herein, whether relating to the hotel information, operating information, financial information, Marriott®’s relationship with Apple Hospitality REIT, Inc., Apple REIT Ten, Inc. or otherwise. Marriott® is not involved in any way, whether as an “issuer” or “underwriter” or otherwise, in any Apple Hospitality REIT, Inc. or Apple REIT Ten, Inc. offering and will receive no proceeds from the offering of the securities to be offered hereby. Marriott® has not expressed any approval or disapproval regarding this joint proxy statement/prospectus, and the grant by Marriott® of any franchise or other rights to Apple Hospitality REIT, Inc. or Apple REIT Ten, Inc. shall not be construed as any expression of approval or disapproval. Marriott® has not assumed and shall not have any liability in connection with this prospectus.
“Embassy Suites by Hilton®,” “Hampton Inn by Hilton®,” “Hampton Inn & Suites by Hilton®,” “Hilton®,” “Hilton Garden Inn®,” “Home2 Suites by Hilton®,” and “Homewood Suites by Hilton®” are each a registered trademark of Hilton Worldwide Holdings Inc. or one of its affiliates. All references to “Hilton®” mean Hilton Worldwide Holdings Inc. and all of its affiliates and subsidiaries, and their respective officers, directors, agents, employees, accountants and attorneys. Hilton® is not responsible for the content of this joint proxy statement/prospectus, or the information incorporated by reference herein, whether relating to hotel information, operating information, financial information, Hilton®’s relationship with Apple Hospitality REIT, Inc., Apple REIT Ten, Inc. or otherwise. Hilton® is not involved in any way, whether as an “issuer” or “underwriter” or otherwise, in any Apple Hospitality REIT, Inc. or Apple REIT Ten, Inc. offering and will receive no proceeds from the offering of the securities to be offered hereby. Hilton® has not expressed any approval or disapproval regarding this joint proxy statement/prospectus, and the grant by Hilton® of any franchise or other rights to Apple Hospitality REIT, Inc. or Apple REIT Ten, Inc. shall not be construed as any expression of approval or disapproval. Hilton® has not assumed and shall not have any liability in connection with this prospectus.
iv |
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS AND THE MERGER
The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the Merger Agreement and the Apple Hospitality and Apple Ten special meetings. These questions and answers do not address all questions that may be important to you as a shareholder. Please refer to the “Summary” beginning on page 12 and the more detailed information contained elsewhere in this joint proxy statement/prospectus and the annexes to this joint proxy statement/prospectus, which you should read carefully. Unless otherwise indicated or the context requires otherwise, all references in this document to:
● | “Acquisition Sub” refer to 34 Consolidated, Inc., a wholly-owned subsidiary of Apple Hospitality; |
● | “Apple Hospitality” refer to Apple Hospitality REIT, Inc. and its subsidiaries; |
● | “Apple Hospitality common shares” refer to the common shares, no par value, of Apple Hospitality; |
● | “Apple Hospitality shares” refer to the Apple Hospitality common shares and the preferred shares, no par value, of Apple Hospitality, that may be issued and outstanding from time to time; |
● | “Apple Hospitality’s articles of incorporation” refer to the articles of incorporation, as amended, of Apple Hospitality; |
● | “Apple Hospitality board” refer to the board of directors of Apple Hospitality; |
● | “Apple Hospitality special meeting” refer to the special meeting of Apple Hospitality shareholders to be held on August 31, 2016, at the corporate headquarters of Apple Hospitality, 814 East Main Street, Richmond, Virginia 23219, starting at 11:00 a.m., Eastern time; |
● | the “Apple REITs” refer to Apple Hospitality and Apple Ten, collectively; |
● | “Apple Realty Group” refer to Apple Realty Group, Inc. (formerly Apple Suites Realty Group, Inc.); |
● | “Apple Ten” refer to Apple REIT Ten, Inc. and its subsidiaries; |
● | “Apple Ten Advisors” refer to Apple Ten Advisors, Inc.; |
● | “Apple Ten board” refer to the board of directors of Apple Ten; |
● | “Apple Ten shares” refer to Apple Ten units and Series B convertible preferred shares, no par value, of Apple Ten; |
● | “Apple Ten special committee” refer to an independent special committee of the Apple Ten board; |
● | “Apple Ten special meeting” refer to the special meeting of Apple Ten shareholders to be held on August 31, 2016, at the corporate headquarters of Apple Ten, 814 East Main Street, Richmond, Virginia 23219, starting at 10:00 a.m., Eastern time; |
● | an “Apple Ten unit” and “unit” refer to an Apple Ten common share, no par value, together with one Apple Ten Series A preferred share, no par value; |
● | “Code” refers to the Internal Revenue Code of 1986, as amended; |
● | “combined company” refer to Apple Hospitality and its subsidiaries after the effective time of the merger; |
● | “merger” refer to the merger of Apple Ten with and into Acquisition Sub with Acquisition Sub being the surviving corporation in the merger; |
● | “Merger Agreement” refer to the Agreement and Plan of Merger, dated as of April 13, 2016, among Apple Hospitality, Apple Ten and Acquisition Sub, as amended on July 13, 2016, and as it may be further amended or modified from time to time, an as-amended copy of which is attached as Annex A to this joint proxy statement/prospectus; |
● | “plan of merger” refer to the plan of merger, a copy of which is attached as Annex B to this joint proxy statement/prospectus, as it may be amended from time to time; and |
● | “REIT” refer to a real estate investment trust. |
Q: | What is the proposed transaction? |
A: | The proposed transaction is the merger of Apple Ten with and into Acquisition Sub, a wholly owned subsidiary of Apple Hospitality. If the proposal to approve the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement is approved by the shareholders of Apple Ten, the proposal to approve the issuance of Apple Hospitality common shares to the shareholders of Apple Ten in the merger is approved by the shareholders of Apple Hospitality, and the other closing conditions to the merger are satisfied or waived, Apple Ten will merge with and into Acquisition Sub, with Acquisition Sub being the surviving corporation in the merger and remaining a wholly owned subsidiary of Apple Hospitality. |
In connection of the merger, Apple Ten will terminate its advisory agreements with Apple Ten Advisors and Apple Realty Group. |
Q: | Why are Apple Hospitality and Apple Ten proposing the merger? |
A: | The Apple Hospitality board and the Apple Ten board believe that the merger will provide a number of significant potential strategic opportunities and benefits that will be in the best interests of their respective shareholders. The combined company will be one of the largest hospitality REITs in the U.S. with 235 hotels and over 30,000 guest rooms in 33 states. The Apple Hospitality board believes that the merger will, among other things: |
● | allow Apple Hospitality shareholders to participate in a stronger combined company with a platform that offers superior value creation opportunities; |
● | provide increased access to capital-raising alternatives, including potential debt financings or equity issuances; |
● | compliment the Apple Hospitality principle of reinvesting in its portfolio, which Apple Hospitality believes is one of the strengths of its business strategy; and |
● | provide improved liquidity for Apple Hospitality shareholders as a result of the increased equity capitalization and the increased shareholder base of the combined company. |
Based on the recommendation of the Apple Ten special committee, the Apple Ten board has determined that the transactions contemplated by the Merger Agreement are advisable and in the best interests of Apple Ten and its shareholders after careful consideration of a number of factors including:
● | the Apple Ten per unit merger consideration implies merger consideration of $11.17 per Apple Ten unit, based on the 20-day volume-weighted average price of Apple Hospitality common shares ending April 12, 2016 (or $10.85 per Apple Ten unit, based on the closing price per Apple Hospitality common share on April 12, 2016) compared to the initial public offering price for the Apple Ten units of $10.50 for the first $100 million in gross proceeds raised and $11.00 per unit for the remaining approximately $950 million in gross proceeds raised; |
● | the Apple Ten merger consideration, consisting of cash plus Apple Hospitality common shares which will be listed for trading on the New York Stock Exchange (“NYSE”), provides a liquidity opportunity for Apple Ten shareholders desiring to liquidate their investment after the merger; |
● | the receipt of Apple Hospitality common shares as part of the Apple Ten merger consideration provides Apple Ten shareholders the opportunity to continue ownership in the combined company which is expected to provide a number of significant potential strategic opportunities and benefits; and |
● | the unit exchange ratio in the merger is fixed and will not fluctuate as a result of changes in the value of Apple Ten or Apple Hospitality, which provides certainty as to the respective pro forma percentage ownership of the combined company and limits the impact of external factors on the merger. |
To review the reasons for the merger in greater detail, please see “The Merger—Recommendation of the Apple Hospitality Board and Its Reasons for the Merger” beginning on page 61 and “The Merger—Recommendation of the Apple Ten Board and Its Reasons for the Merger” beginning on page 64.
Q: | Were appraisals or valuations performed on the assets and liabilities of the Apple REITs in connection with the merger? |
A: | No third-party appraisals or valuations on the assets and liabilities of the Apple REITs were obtained in connection with the merger. For additional information, see “The Merger—Background of the Merger” beginning on page 53. |
Q: | What happens if the market price of Apple Hospitality common shares changes before the closing of the merger? |
A: | No change will be made to the exchange ratio of 0.522 or the merger consideration if the market price of Apple Hospitality common shares changes before the merger. |
Q: | Are there any conditions to completion of the merger? |
A: | Yes. In addition to the approvals of the shareholders of each of Apple Hospitality and Apple Ten as described herein, there are a number of conditions that must be satisfied or waived for the merger to be consummated. Among other things, holders of no more than 5% of the Apple Ten common shares outstanding immediately prior to the effective time of the merger have exercised dissenters’ rights. For a description of all of the conditions to the merger, see “The Merger Agreement—Conditions to Complete the Merger” beginning on page 107. |
The following questions and answers apply to Apple Hospitality shareholders only:
Q: | When and where is the Apple Hospitality special meeting? |
A: | The special meeting of shareholders of Apple Hospitality will be held on August 31, 2016, at the corporate headquarters of Apple Hospitality, 814 East Main Street, Richmond, Virginia 23219, starting at 11:00 a.m., Eastern time. |
Q: | What matters will be voted on at the Apple Hospitality special meeting? |
A: | You will be asked to consider and vote on the following proposals: |
● | a proposal to approve the issuance of Apple Hospitality common shares to the shareholders of Apple Ten pursuant to the Merger Agreement (the “Share Issuance Proposal”); |
● | a proposal to approve the adjournment of the Apple Hospitality special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Share Issuance Proposal (the “Apple Hospitality Adjournment Proposal”); and |
● | to transact such other business as may properly come before the Apple Hospitality special meeting or any adjournments or postponements of the special meeting. |
Q: | How does the Apple Hospitality board recommend that I vote on the proposals? |
A: | After careful consideration, the Apple Hospitality board has: |
● | determined that the Merger Agreement, the related plan of merger, the merger and the transactions contemplated thereby, including the issuance of the Apple Hospitality common shares to Apple Ten shareholders in the merger pursuant to the Merger Agreement, are advisable and in the best interests of Apple Hospitality and the Apple Hospitality shareholders; and |
● | authorized, approved and adopted the Merger Agreement, the plan of merger, the merger and the other transactions contemplated by the Merger Agreement. |
The Apple Hospitality board recommends that Apple Hospitality shareholders vote FOR the Share Issuance Proposal and FOR the Apple Hospitality Adjournment Proposal. For a more complete description of the recommendation of the Apple Hospitality board, see “The Merger—Recommendation of the Apple Hospitality Board and Its Reasons for the Merger” beginning on page 61.
Q: | Do the Apple Hospitality directors and executive officers have any interests in the merger? |
A: | Yes. You should be aware that some of Apple Hospitality’s directors and executive officers have interests in the merger that are different from, or in addition to, your interests as a shareholder and that may present actual or potential conflicts of interest. These interests include: |
· | the consummation of the transactions contemplated by a termination agreement among Apple Hospitality, Apple Ten and entities owned by Glade M. Knight and related to Apple Hospitality. The termination agreement will not result in additional payments to any of the parties; |
· | the conversion of the 480,000 Apple Ten Series B convertible preferred shares acquired at the formation of Apple Ten, prior to Apple Ten having any other assets, by Glade M. Knight, the chairman and chief executive officer of Apple Ten, for $0.10 a share or a total of $48,000, including the related rights of certain Apple Ten executives, family members and other employees as assignees if the merger is completed, that would be converted into the right to receive approximately $5.8 million in cash and approximately 3.0 million Apple Hospitality common shares, which will represent approximately 1.4% of the Apple Hospitality common shares after the merger; and |
· | Apple Ten and Apple Hospitality being affiliated entities with Apple Ten managed by employees of Apple Hospitality, and as a result there are conflicts of interest inherent where the individuals who comprise the management teams of Apple Ten and Apple Hospitality are assisting the Apple Hospitality board in connection with the merger and providing certain assistance to Apple Ten. |
For additional information, see “The Merger—Interests of Apple REIT Directors and Executive Officers in the Merger” beginning on page 85.
Q: | What constitutes a quorum for the Apple Hospitality shareholders meeting? |
A: | Apple Hospitality’s second amended and restated bylaws ( “Apple Hospitality’s bylaws”) provide that the holders of a majority of the outstanding Apple Hospitality common shares entitled to vote at the Apple Hospitality special meeting and present in person or represented by proxy, will constitute a quorum at the special meeting. Abstentions will be counted for purposes of determining a quorum. |
Q: | What vote is required for Apple Hospitality shareholders to approve the Share Issuance Proposal? |
A: | Approval of the Share Issuance Proposal will require that the number of votes cast for this proposal exceeds the number of votes cast against this proposal from holders of the Apple Hospitality common shares represented in person or by proxy and entitled to vote at the Apple Hospitality special meeting, assuming a quorum is present. |
Q: | What vote is required for Apple Hospitality shareholders to approve the Apple Hospitality Adjournment Proposal? |
A: | Approval of the Apple Hospitality Adjournment Proposal will require the affirmative vote of the holders of a majority of the Apple Hospitality common shares represented in person or by proxy at the special meeting, whether or not a quorum is present. |
Q: | How are votes counted? |
A: | For the Share Issuance Proposal, shareholders may vote “FOR,” “AGAINST” or “ABSTAIN.” If you fail to vote, fail to instruct your broker, bank or nominee to vote, or abstain from voting on this proposal, it will have no effect on the result of the vote on this proposal, provided a quorum is otherwise present at the special meeting, although abstentions will be considered present for the purpose of determining the presence of a quorum. |
For the Apple Hospitality Adjournment Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you fail to vote, fail to instruct your broker, bank or nominee to vote, or abstain from voting on this proposal, are present in person or by proxy at the Apple Hospitality special meeting but a quorum is not present, it will have the same effect as a vote “AGAINST” the proposal, and if you are not present in person or by proxy at the Apple Hospitality special meeting, it will not have an effect on the proposal. |
If you sign and return your proxy card without indicating your vote, your shares will be voted “FOR” the Share Issuance Proposal and “FOR” the Apple Ten Adjournment Proposal.
Q: | Who is entitled to vote at the Apple Hospitality special meeting? |
A: | All holders of Apple Hospitality common shares as of the close of business on July 22, 2016, the record date for the Apple Hospitality special meeting, are entitled to vote at the special meeting, unless a new record date is fixed for any adjournment or postponement of the special meeting. As of the record date, there were 174,670,726 issued and outstanding Apple Hospitality common shares. Each holder of record of Apple Hospitality common shares is entitled to one vote per share. |
Q: | How will Apple Hospitality shareholders be affected by the merger and the issuance of Apple Hospitality common shares to Apple Ten shareholders in the merger? |
A: | After the merger, each Apple Hospitality shareholder will continue to own the Apple Hospitality common shares that such shareholder held immediately prior to the merger. As a result, each Apple Hospitality shareholder will continue to own common shares in the combined company, which will be a larger company with more assets. However, because Apple Hospitality will be issuing new Apple Hospitality common shares to Apple Ten shareholders in the merger, each outstanding Apple Hospitality common share immediately prior to the merger will represent a smaller percentage of the aggregate number of Apple Hospitality common shares outstanding after the merger. |
The following questions and answers apply to Apple Ten shareholders only:
Q: | What will I receive for my Apple Ten units in the merger? |
A: | Under the terms of the Merger Agreement, you will receive 0.522 Apple Hospitality common shares and $1.00 in cash for each Apple Ten unit owned by you at the completion of the merger (other than for Apple Ten units with respect to which you have properly exercised, perfected and not subsequently withdrawn or lost your appraisal rights in accordance with Article 15 of the Virginia Stock Corporation Act (“VSCA”)). |
Q: | How will I receive the merger consideration if the merger is completed? |
A: | For the Apple Ten shareholders, you will receive a letter of transmittal with detailed written instructions for exchanging shares for the merger consideration. If your shares are held in “street name” by your bank, broker or other nominee, you will receive instructions from your bank, broker or other nominee as to how to effect the surrender of your “street name” shares in exchange for the applicable merger consideration. |
Q: | When and where is the Apple Ten special meeting? |
A: | The special meeting of shareholders of Apple Ten will be held on August 31, 2016, at the corporate headquarters of Apple Ten, 814 East Main Street, Richmond, Virginia 23219, starting at 10:00 a.m., Eastern time. |
Q: | What matters will be voted on at the Apple Ten special meeting? |
A: | You will be asked to consider and vote on the following proposals: |
● | a proposal to approve the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement (the “Apple Ten Merger Proposal”); |
● | a proposal to approve the adjournment of the Apple Ten special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Apple Ten Merger Proposal (the “Apple Ten Adjournment Proposal”); and |
● | to transact such other business as may properly come before the Apple Ten special meeting or any adjournments or postponements of the special meeting. |
Q: | How does the Apple Ten board recommend that I vote on the proposals? |
A: | After careful consideration, the Apple Ten board, based on the unanimous recommendation of the Apple Ten special committee, has (i) determined that the transactions contemplated by the Merger Agreement and related plan of merger are advisable and in the best interests of Apple Ten and the Apple Ten shareholders and (ii) authorized, approved and adopted the Merger Agreement and the plan of merger. The Apple Ten board recommends that Apple Ten shareholders vote FOR the Apple Ten Merger Proposal and FOR the Apple Ten Adjournment Proposal. For a more complete description of the recommendation of the Apple Ten board, see “The Merger—Recommendation of the Apple Ten Board and Its Reasons for the Merger” beginning on page 64. |
Q: | Do the Apple Ten directors and executive officers have any interests in the merger? |
A: | Yes. You should be aware that some of Apple Ten’s directors and executive officers have interests in the merger that are different from, or in addition to, your interests as a shareholder and that may present actual or potential conflicts of interest. These interests include: |
· | exchange of the outstanding 353,749 Apple Ten options, each with an exercise price of $11, which are held by non-management directors of Apple Ten for approximately 203,041 Apple Hospitality options with an estimated exercise price of approximately $19.17, assuming the merger occurred on July 8, 2016; |
· | the conversion of the 480,000 Apple Ten Series B convertible preferred shares acquired at the formation of Apple Ten, prior to Apple Ten having any other assets, by Glade M. Knight, the chairman and chief executive officer of Apple Ten, for $0.10 a share or a total of $48,000, including the related rights of certain Apple Ten executives, family members and other employees as assignees if the merger is completed, that would be converted into the right to receive approximately $5.8 million in cash and approximately 3.0 million Apple Hospitality common shares, which will represent approximately 1.4% of the Apple Hospitality common shares after the merger; |
· | Apple Ten and Apple Hospitality being affiliated entities with Apple Ten managed by employees of Apple Hospitality, and as a result there are conflicts of interest inherent where the individuals who comprise the management teams of Apple Ten and Apple Hospitality are assisting the Apple Hospitality board in connection with the merger and providing certain assistance to Apple Ten; |
· | consummation of the transactions contemplated by a termination agreement among Apple Hospitality, Apple Ten and entities owned by Glade M. Knight and related to Apple Ten. The termination agreement will not result in additional payments to any of the parties; and |
· | continued indemnification and insurance coverage for Apple Ten’s directors and officers in accordance with the Merger Agreement. |
For additional information, see “The Merger—Interests of Apple REIT Directors and Executive Officers in the Merger” beginning on page 85.
Q: | What constitutes a quorum? |
A: | Apple Ten’s bylaws, as amended, provide that the holders of a majority of each of the outstanding Apple Ten common shares, Series A preferred shares and Series B convertible preferred shares, in each case entitled to vote at the Apple Ten special meeting and present in person or represented by proxy, will constitute a quorum at the special meeting for each such class of shares. Abstentions will be counted for purposes of determining a quorum. |
Q: | What vote is required for Apple Ten shareholders to approve the Apple Ten Merger Proposal? |
A: | The approval of the Apple Ten Merger Proposal will require the affirmative vote, in each case voting as a separate voting group, of the holders of: |
● | a majority of the outstanding Apple Ten common shares; |
● | a majority of the outstanding Apple Ten Series A preferred shares; and |
● | a majority of the outstanding Apple Ten Series B convertible preferred shares. |
Q: | What vote is required for Apple Ten shareholders to approve the Apple Ten Adjournment Proposal? |
A: | Approval of the Apple Ten Adjournment Proposal will require the affirmative vote of the holders of a majority of the Apple Ten common shares present in person or by proxy at the special meeting, whether or not a quorum is present. Holders of Apple Ten Series A preferred shares and Series B convertible preferred shares are not entitled to vote those shares on the Apple Ten Adjournment Proposal. |
Q: | How are votes counted? |
A: | For the Apple Ten Merger Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you abstain or fail to return your proxy card, it will have the same effect as a vote “AGAINST” the Apple Ten Merger Proposal. |
In addition, if your shares are held in the name of a bank, broker or other nominee, your bank, broker or other nominee will not vote your shares in the absence of specific instructions from you on how to vote your shares. These “broker non-votes” (if any) and abstentions will have the same effect as a vote against the Apple Ten Merger Proposal. |
For the Apple Ten Adjournment Proposal, holders of Apple Ten common shares may vote “FOR,” “AGAINST” or “ABSTAIN.” If you are present in person or by proxy at the Apple Ten special meeting, abstentions and broker non-votes (if any) will have the same effect as a vote “AGAINST” the proposal, and if you are not present in person or by proxy at the Apple Ten special meeting, it will not have an effect on the proposal.
If you sign and return your proxy card without indicating your vote, your shares will be voted “FOR” the Apple Ten Merger Proposal and “FOR” the Apple Ten Adjournment Proposal.
Q: | Who is entitled to vote at the Apple Ten special meeting? |
A: | All holders of Apple Ten common shares, Series A preferred shares and Series B convertible preferred shares as of the close of business on July 22, 2016, the record date for the Apple Ten special meeting, are entitled to vote at the special meeting, unless a new record date is fixed for any adjournment or postponement of the special meeting. As of the record date, there were 87,558,918 issued and outstanding common shares, 87,558,918 issued and outstanding Series A preferred shares and 480,000 issued and outstanding Series B convertible preferred shares of Apple Ten. Each holder of record of Apple Ten common shares, Series A preferred shares and Series B convertible preferred shares on the record date is entitled to one vote per share. |
The following questions and answers apply to Apple Hospitality and Apple Ten shareholders:
Q: | Have any shareholders already agreed to vote in favor of the proposals? |
A: | Glade M. Knight, executive chairman of Apple Hospitality and chairman and chief executive officer of Apple Ten, has entered into a voting agreement with the Apple REITs pursuant to which he has agreed to vote all of the Apple Hospitality common shares, and Apple Ten units and Apple Ten Series B convertible preferred shares held by him, together with any additional shares of Apple Hospitality and Apple Ten capital stock acquired by him after April 13, 2016 until the merger is consummated or the Merger Agreement is terminated, in favor of each of the Share Issuance Proposal and Apple Ten Merger Proposal. Pursuant to the terms of the voting agreement, Mr. Knight has agreed to vote all of his Apple Hospitality common shares and Apple Ten common shares and any additional Apple Hospitality common shares and Apple Ten common shares acquired by Mr. Knight after April 13, 2016 until the merger is consummated or the Merger Agreement is terminated in favor of each of the Apple Hospitality Adjournment Proposal and Apple Ten Adjournment Proposal (collectively, the “Adjournment Proposals”). |
Q: | What happens if I sell my shares before the special meetings? |
A: | The record date for each company’s special meeting is earlier than the date of each company’s special meeting and the date that the merger is expected to be completed. If you sell your shares after the company’s record date but before the date of each company’s special meeting, you will retain your right to vote at the company’s special meeting, but, for Apple Ten shareholders, you will have transferred your right to receive the merger consideration. For the Apple Ten shareholders, in order to receive the merger consideration, you must hold your shares through completion of the merger. |
Q: | How do I vote? |
A: | You may submit your proxy either by telephone, through the Internet or by mailing the enclosed proxy card, or you may vote in person at the special meeting of the company for which you are a shareholder. |
To submit your proxy by mail, complete, date and sign each proxy card you receive and return it as promptly as practicable in the enclosed prepaid envelope. If you sign and return your proxy card, but do not mark the boxes
showing how you wish to vote, your shares will be voted “FOR” the Share Issuance Proposal or Apple Ten Merger Proposal, as applicable, and “FOR” the applicable Adjournment Proposal.
If you intend to vote in person, please bring proper identification, together with proof that you are a record owner of shares of the applicable Apple REIT. If your shares are held in “street name,” please bring acceptable proof of ownership, such as a letter from your broker or an account statement showing that you beneficially own such shares on the applicable record date.
If you hold your shares in “street name,” please read the question and answer referencing “street name” shares below.
Q: | What happens if I am a shareholder of both Apple Hospitality and Apple Ten? |
A: | If you are a shareholder of both Apple Hospitality and Apple Ten, you are entitled to vote at the special meeting of each company. If you are a shareholder of both Apple Hospitality and Apple Ten, you will need to separately complete and timely submit a proxy card for each company, or vote in person at the special meeting of each company. You will receive a separate proxy card for each company in which you hold shares. |
Q: | If my shares are held in “street name” by my bank, broker or other nominee, will my broker, bank or other nominee vote my shares for me? |
A: | No, unless you instruct your broker, bank or other nominee to vote your shares held in street name, your shares will NOT be voted. If you hold your shares in a stock brokerage account or if your shares are held by a bank or other nominee (that is, in “street name”), you must provide your broker, bank or other nominee with instructions on how to vote your shares. You should follow the procedures provided by your bank, broker or nominee regarding the voting of your shares. |
Q: | How can I revoke or change my vote? |
A: | You may revoke your proxy at any time before the vote is taken at the special meeting of the company of which you are a shareholder in any of the following ways: |
● | submitting a later proxy by telephone or through the Internet prior to 11:59 p.m., Eastern time, on August 30, 2016; |
● | filing with the Secretary of the company, before the taking of the vote at the company’s special meeting, a written notice of revocation bearing a later date than the proxy card; |
● | duly executing a later dated proxy card relating to the same shares and delivering it to the Secretary of the company before the taking of the vote at the company’s special meeting; or |
● | voting in person at the company’s special meeting. |
Your attendance at the company’s special meeting does not automatically revoke your previously submitted proxy. If you have instructed your bank, broker or other nominee to vote your shares, the options described above for revoking your proxy do not apply. Instead, you must follow the directions provided by your bank, broker or other nominee to change your vote.
Q: | When is the merger expected to be completed? |
A: | We expect to complete the merger in the third quarter of 2016, although we cannot assure completion by any particular date, if at all. Because the merger is subject to a number of conditions, including the approval of the Share Issuance Proposal by the requisite vote of the Apple Hospitality shareholders and the Apple Ten Merger Proposal by the requisite vote of the Apple Ten shareholders, and the receipt of certain consents and waivers from third parties, the exact timing of the merger cannot be determined at this time and we cannot guarantee that the merger will be completed at all. |
Q: | What percentage of Apple Hospitality common shares after the merger will current Apple Hospitality and Apple Ten shareholders own? |
A: | Following the completion of the merger, assuming no exercise of dissenters’ rights: |
● | the former Apple Ten units will represent approximately 20.4% of the Apple Hospitality common shares after the merger; |
● | the former Apple Ten Series B convertible preferred shares will represent approximately 1.4% of the Apple Hospitality common shares after the merger; and |
● | the Apple Hospitality common shares held by the current Apple Hospitality shareholders will represent approximately 78.2% of the Apple Hospitality common shares after the merger. |
Q: | What happens if the merger is not completed? |
A: | If the Share Issuance Proposal or Apple Ten Merger Proposal is not approved by Apple Hospitality shareholders or Apple Ten shareholders, respectively, or if the merger is not completed for any other reason, Apple Ten shareholders will not have their Apple Ten shares exchanged for Apple Hospitality common shares in connection with the merger. Instead, Apple Ten would remain a separate company. Under certain circumstances, Apple Hospitality may be required to pay Apple Ten a termination fee or Apple Ten may be required to pay Apple Hospitality a termination fee and reimburse it for certain of its out-of-pocket expenses, as described under “The Merger Agreement—Termination Fees and Expenses” beginning on page 111. |
Q: | Am I entitled to exercise appraisal rights? |
A: | Apple Ten shareholders are entitled to exercise appraisal rights under Virginia law in connection with the merger if they meet certain conditions. Any Apple Ten shareholder wishing to exercise appraisal rights in connection with the merger must deliver to Apple Ten, before the vote on the merger is taken at the special meeting of shareholders of Apple Ten, a written notice of intent to demand payment for the shareholder’s Apple Ten shares. A vote against the merger by itself will not satisfy this notice requirement. A shareholder delivering a notice of intent must not vote any of his or her shares in favor of the merger or he or she will lose his or her appraisal rights. For further information, please read the section entitled “The Merger—Dissenters’ Rights of Appraisal” beginning on page 89 and Article 15 of the VSCA which is attached to this joint proxy statement/prospectus as Annex F. Apple Hospitality shareholders are not entitled to exercise appraisal rights. |
Q: | Will Apple Hospitality have the same strategy as Apple Ten? |
A: | Following completion of the merger, subsidiaries of Apple Hospitality will own the hotels currently owned by subsidiaries of Apple Ten. As described under “Investment Objectives and Policies of Apple Ten” beginning on page 139, Apple Ten’s bylaws currently place certain restrictions on the type of real estate activities they conduct. Apple Hospitality’s bylaws do not place the same restrictions on the type of real estate activities Apple Hospitality conducts. However, Apple Hospitality currently has, and following the merger intends to pursue, similar investment objectives and policies to Apple Ten. See “Description of Policies of Apple Hospitality” on page 136. |
Q: | Will my monthly dividend payments continue after the merger? |
A: | To maintain its qualification as a REIT, Apple Hospitality will be required to distribute dividends, other than capital gain dividends, to its shareholders in an amount at least equal to the sum of 90% of its “REIT taxable income.” See “U.S. Federal Income Tax Considerations—Requirements for Qualification as a REIT—Annual distribution requirements applicable to REITs” in the Form 8-K filed by Apple Hospitality on March 14, 2016 and incorporated by reference herein. Following completion of the merger, holders of Apple Hospitality common shares will be entitled to receive dividends when, as and if declared by the Apple Hospitality board out of funds legally available therefor. After the merger, Apple Hospitality plans to continue to pay a consistent distribution on a monthly basis, with distributions from anticipated cash generated from operations and debt. The anticipated initial annual distribution rate after the merger is expected to be $1.20 per Apple Hospitality common share. As it has done historically, Apple Hospitality may use financing to maintain the consistency of the monthly distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. Any distribution will be subject to approval of the Apple Hospitality board and there can be no assurance of the duration of distributions at the anticipated initial annual distribution rate after the merger. |
Q: | Are there risks associated with the merger that I should consider in deciding how to vote? |
A: | Yes. There are a number of risks related to the merger that are discussed in this joint proxy statement/ prospectus described in the section entitled “Risk Factors” beginning on page 29. |
Q: | What are the material U.S. federal income tax consequences of the merger to U.S. holders of Apple Ten shares? |
A: | It is expected that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code and the completion of the merger is conditioned on the receipt by each of Apple Ten and Apple Hospitality of an opinion from its outside counsel to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. |
As a result of the merger, U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences” beginning on page 117) will recognize gain, but will not recognize any loss, for U.S. federal income tax purposes, equal to the smaller of (i) the amount of cash received (other than cash received in lieu of a fractional Apple Hospitality common share) and (ii) the excess, if any, of (x) the sum of the amount of cash received (including cash received in lieu of a fractional Apple Hospitality common share) and the fair market value of the Apple Hospitality common shares received in the merger (determined at the effective time of the merger) over (y) the U.S. holder’s tax basis in the Apple Ten shares deemed surrendered in the merger. In addition, the U.S. holder will recognize gain or loss attributable to cash received in lieu of a fractional Apple Hospitality common share. Any gain recognized generally will be long-term capital gain, provided certain holding period and other requirements are met. However, there are certain scenarios where such gain could be taxed as dividend income rather than capital gain. See “Material U.S. Federal Income Tax Consequences—Potential Treatment of Cash as a Dividend.”
Q: | What are the material U.S. federal income tax consequences of the merger to Apple Hospitality shareholders? |
A: | Holders of Apple Hospitality common shares will not recognize any gain or loss as a result of the merger as a result of their ownership of Apple Hospitality common shares. Holders of Apple Hospitality common shares who also hold Apple Ten shares will be subject to the tax consequences described above under “What are the material U.S. federal income tax consequences of the merger to U.S. holders of Apple Ten shares?” with respect to their ownership of Apple Ten shares. |
Q: | How can I obtain additional information about the Apple REITs? |
A: | Each company files annual, quarterly and current reports, proxy statements and other information with the SEC. Each company will provide copies of its reports, proxy statements and other information, including this joint proxy statement/prospectus, without charge to any shareholder who makes a request to the Apple REITs, 814 East Main Street, Richmond, Virginia 23219, Attention: Investor Relations, or at (804) 344-8121. Each company’s filings with the SEC may also be accessed on the Internet at http://www.sec.gov or on the Investor Information page of the company’s website at http://www.applehospitality.com or http://www.applereitten.com, as applicable. The information provided on each company’s website is not part of this joint proxy statement/prospectus and is not incorporated by reference into this joint proxy statement/prospectus. A copy of Apple Hospitality’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 are incorporated by reference in this joint proxy statement/prospectus. A copy of Apple Ten’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 are attached to this joint proxy statement/prospectus as Annex G and Annex H, respectively. For a more detailed description of the information available, please see “Where You Can Find More Information and Incorporation by Reference” on page 145. |
Q: | What else do I need to do now? |
A: | You are urged to read this joint proxy statement/prospectus carefully and in its entirety, including its annexes, and to consider how the merger affects you. Even if you plan to attend your company’s special meeting, if you hold your shares in your own name as the shareholder of record, please vote your shares by completing, signing, dating and returning the enclosed proxy card. You can also attend your company’s special meeting and vote, or change your prior vote, in person. If you hold your shares in “street name” through a bank, broker or other nominee, then you should have received this joint proxy statement/prospectus from that nominee, along with that nominee’s proxy card which includes voting instructions and instructions on how to change your vote. |
Q: | Who can answer my questions? |
A: | If you have any questions about the merger or the other matters to be voted on at the Apple Hospitality special meeting or Apple Ten special meeting or how to submit your proxy or need additional copies of this joint proxy statement/prospectus, the enclosed proxy card or voting instructions, you should contact: |
If you are an Apple Hospitality shareholder: | If you are an Apple Ten shareholder: | |
Apple Hospitality REIT, Inc. 814 East Main Street Richmond, Virginia 23219 (804) 344-8121 Attn: Investor Relations | Apple REIT Ten, Inc. 814 East Main Street Richmond, Virginia 23219 (804) 344-8121 Attn: Investor Relations |
The following summary highlights selected information in this joint proxy statement/prospectus and may not contain all the information that may be important to you with respect to the Merger Agreement, the merger or the special meetings. Accordingly, you are encouraged to read this joint proxy statement/prospectus, including its annexes, carefully and in its entirety. Each item in this summary includes a page reference directing you to a more complete description of that topic. See also “Where You Can Find More Information and Incorporation by Reference” on page 145.
Apple Hospitality REIT, Inc. (Page 40)
Apple Hospitality REIT, Inc.
814 East Main Street
Richmond, Virginia 23219
(804) 344-8121
Apple Hospitality, a Virginia corporation, is a self-advised REIT traded on the NYSE under the ticker symbol “APLE” that invests in income-producing real estate, primarily in the lodging sector, in the United States. As of April 30, 2016, Apple Hospitality owned 179 hotels operating in 32 states with an aggregate of 22,961 rooms.
Apple REIT Ten, Inc. (Page 40)
Apple REIT Ten, Inc.
814 East Main Street
Richmond, Virginia 23219
(804) 344-8121
Apple Ten, a Virginia corporation, is a non-traded REIT that invests in hotels and other income-producing real estate in selected metropolitan areas in the United States. As of April 30, 2016, Apple Ten owned 56 hotels operating in 17 states with an aggregate of 7,209 rooms. Initial capitalization occurred on August 13, 2010, with its first investor closing under its best-efforts offering of units on January 27, 2011. Apple Ten concluded its best-efforts offering of units on July 31, 2014. Apple Ten, through its best-efforts offering, originally sold its units for $10.50-$11.00 per unit. Since its initial offering in 2011 through April 30, 2016, Apple Ten has paid approximately $4.33 per unit in distributions, or $297 million in the aggregate.
34 Consolidated, Inc. (Page 41)
34 Consolidated, Inc.
814 East Main Street
Richmond, Virginia 23219
(804) 344-8121
Acquisition Sub, a Virginia corporation, was formed on April 8, 2016 solely for the purpose of facilitating Apple Hospitality’s acquisition of Apple Ten. Apple Hospitality owns all of the outstanding shares of capital stock of Acquisition Sub. Acquisition Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement. Upon completion of the proposed merger, Apple Ten will merge with and into Acquisition Sub and Acquisition Sub will continue as the surviving corporation.
The Combined Company (Page 41)
The common shares of the combined company will continue to be listed on the NYSE, trading under the symbol “APLE.”
The combined company’s principal executive offices will continue to be located at 814 East Main Street, Richmond, Virginia 23219 and its telephone number is (804) 344-8121.
The Merger Agreement (Page 92)
Apple Hospitality, Apple Ten and Acquisition Sub have entered into the Merger Agreement attached as Annex A to this joint proxy statement/prospectus, which is incorporated herein by reference. Apple Hospitality and Apple Ten encourage you to carefully read the Merger Agreement in its entirety because it is the principal document governing the merger and the other transactions contemplated by the Merger Agreement.
The Merger (Page 92)
Subject to the terms and conditions of the Merger Agreement, at the effective time of the merger, Apple Ten will be merged with and into Acquisition Sub, and Acquisition Sub will be the surviving corporation in the merger. The common shares of the combined company, including the Apple Hospitality common shares to be issued in the merger, are expected to be listed and traded on the NYSE under the symbol “APLE.”
Upon completion of the merger, we estimate that the continuing Apple Hospitality shareholders will own approximately 78% of the common equity of the combined company, including the Apple Hospitality common shares to be issued in the merger, and the former Apple Ten shareholders will own approximately 22% of the common equity of the combined company, assuming no exercise of applicable dissenters’ rights.
Merger Consideration (Page 92)
Pursuant to the terms of the Merger Agreement, at the effective time of the merger, each issued and outstanding Apple Ten unit (other than Apple Ten shares with respect to which holders have properly exercised, perfected and not subsequently withdrawn or lost their appraisal rights in accordance with Article 15 of the VSCA) will be converted into the right to receive (x) $1.00 in cash and (y) 0.522 (the “unit exchange ratio”) Apple Hospitality common shares (collectively, the “unit merger consideration”), and each issued and outstanding Series B convertible preferred share of Apple Ten will be converted into the right to receive (a) a number of Apple Hospitality common shares equal to 12.11423 multiplied by the unit exchange ratio and (b) an amount in cash equal to 12.11423 multiplied by $1.00 (together with the unit merger consideration, the “merger consideration”).
No fractional Apple Hospitality common shares will be issued in the merger. The value of any fractional interests of any Apple Hospitality common shares will be paid in cash based on the volume weighted average price of the Apple Hospitality common shares during the ten-day trading period ending on the third trading day immediately preceding the closing date of the merger.
Each issued and outstanding Apple Ten unit (including any fractional units) that is owned by either of the Apple REITs, Acquisition Sub or any of their respective subsidiaries will no longer be outstanding and will automatically be canceled and will cease to exist, and no consideration will be delivered in exchange therefor.
Recommendation of the Apple Hospitality Board (Page 61)
After careful consideration, the Apple Hospitality board has (i) determined that the Merger Agreement, the related plan of merger, the merger and the transactions contemplated thereby, including the issuance of the Apple Hospitality common shares to Apple Ten shareholders in the merger pursuant to the Merger Agreement, are advisable and in the best interests of Apple Hospitality and the Apple Hospitality shareholders and (ii) authorized, approved and adopted the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated thereby. Certain factors considered by the Apple Hospitality board in reaching its decision to authorize, approve and adopt the Merger Agreement, related plan of merger, the merger and the other transactions contemplated thereby can be found in the section entitled “The Merger—Recommendation of the Apple Hospitality Board and Its Reasons for the Merger” beginning on page 61.
The Apple Hospitality board recommends that Apple Hospitality shareholders vote “FOR” the Share Issuance Proposal and “FOR” the Apple Hospitality Adjournment Proposal.
Recommendation of the Apple Ten Board (Page 64)
Based on the unanimous recommendation of the independent special committee of the Apple Ten board, the Apple Ten board has (i) determined that the transactions contemplated by the Merger Agreement and related plan of merger are advisable and in the best interests of Apple Ten and the Apple Ten shareholders and (ii) authorized, approved and adopted the Merger Agreement and the plan of merger. Certain factors considered by the Apple Ten board in reaching its decision to authorize, approve and adopt the Merger Agreement and related plan of merger can be found in the section entitled “The Merger—Recommendation of the Apple Ten Board and Its Reasons for the Merger” beginning on page 64.
The Apple Ten board recommends that Apple Ten shareholders vote “FOR” the Apple Ten Merger Proposal and “FOR” the Apple Ten Adjournment Proposal.
Summary of Risk Factors Related to the Merger (Page 29)
You should consider carefully all of the risk factors together with all of the other information included in this joint proxy statement/prospectus before deciding how to vote. The risks related to the merger and the related transactions are described under the section “Risk Factors—Risk Related to the Merger” beginning on page 29.
The Apple Hospitality Special Meeting (Pages 42 and 45)
Purpose. At the Apple Hospitality special meeting, Apple Hospitality shareholders will be asked to approve the Share Issuance Proposal and the Apple Hospitality Adjournment Proposal.
Quorum. The holders of a majority of the outstanding Apple Hospitality common shares entitled to vote at the Apple Hospitality special meeting and present in person or represented by proxy, will constitute a quorum at the special meeting.
Required Vote. The approval of the Share Issuance Proposal requires that the number of votes cast for this proposal exceeds the number of votes cast against this proposal from holders of the Apple Hospitality common shares represented in person or by proxy and entitled to vote at the Apple Hospitality special meeting, assuming a quorum is present.
The approval of the Apple Hospitality Adjournment Proposal will require the affirmative vote of the holders of a majority of the Apple Hospitality common shares present in person or by proxy at the special meeting, whether or not a quorum is present.
As of the record date for the Apple Hospitality special meeting, the directors and executive officers of Apple Hospitality owned less than 7% of the outstanding Apple Hospitality common shares entitled to vote with respect to the Share Issuance Proposal. The Apple REITs have entered into a voting agreement with Glade M. Knight, whereby Mr. Knight has agreed to vote the Apple Hospitality common shares held by him, together with any additional securities of Apple Hospitality acquired by Mr. Knight after April 13, 2016, in favor of the Share Issuance Proposal and Apple Hospitality Adjournment Proposal. Mr. Knight has not acquired any additional securities of Apple Hospitality since April 13, 2016.
The Apple Ten Special Meeting (Pages 47 and 51)
Quorum. The holders of a majority of each of the outstanding Apple Ten common shares, Series A preferred shares and Series B convertible preferred shares, in each case entitled to vote at the Apple Ten special meeting and present in person or represented by proxy, will constitute a quorum at the special meeting for each such class of shares.
Required Vote. The approval of the Apple Ten Merger Proposal requires the affirmative vote, in each case voting as a separate voting group, of the holders of:
● | a majority of the outstanding Apple Ten common shares; |
● | a majority of the outstanding Apple Ten Series A preferred shares; and |
● | a majority of the outstanding Apple Ten Series B convertible preferred shares. |
The approval of the Apple Ten Adjournment Proposal will require the affirmative vote of the holders of a majority of the Apple Ten common shares present in person or by proxy at the special meeting, whether or not a quorum is present. Holders of Apple Ten Series A preferred shares and Series B convertible preferred shares are not entitled to vote those shares on the Apple Ten Adjournment Proposal.
As of the record date for the Apple Ten special meeting, the directors and executive officers of Apple Ten owned less than 1% of the outstanding Apple Ten common shares and less than 1% of the Apple Ten Series A preferred shares, in each case entitled to vote with respect to the Apple Ten Merger Proposal. As of the record date for the Apple Ten special meeting, Glade M. Knight, the chairman and chief executive officer of Apple Ten, owned of record all outstanding Series B convertible preferred shares of Apple Ten and 90,920 of the issued and outstanding Apple Ten units. The Apple REITs have entered into a voting agreement with Mr. Knight, whereby Mr. Knight has agreed to vote the Apple Ten Series B convertible preferred shares and the Apple Ten units held by him, together with any additional securities of Apple Ten acquired by Mr. Knight after April 13, 2016, in favor of the Apple Ten Merger Proposal. The voting agreement also requires Mr. Knight to vote all of his Apple Ten common shares and any additional securities of Apple Ten acquired by Mr. Knight after April 13, 2016 in favor of the Apple Ten Adjournment Proposal. Mr. Knight has not acquired any additional securities of Apple Ten since April 13, 2016.
Further Information Relevant to the Apple REITs Special Meetings (Pages 42 and 47)
Voting; Proxies. Votes may be cast either in person or by a properly executed proxy at each Apple REITs’ special meeting.
For the Share Issuance Proposal, abstentions, failure to return a proxy card and broker non-votes will have no effect on the outcome of the proposal provided a quorum is otherwise present.
For the Apple Ten Merger Proposal, abstentions, failure to return a proxy card and broker non-votes will have the same effect as a vote “AGAINST” the Apple Ten Merger Proposal.
For the applicable Adjournment Proposals, if you are present in person or by proxy at the Apple Hospitality special meeting or Apple Ten special meeting, as applicable, abstentions and broker non-votes will have the same effect as a vote “AGAINST” the proposal, and if you are not present in person or by proxy at the applicable special meeting, it will not have an effect on the proposal.
Revocation. Any proxy given by a shareholder pursuant to this solicitation may be revoked at any time before the vote is taken at the applicable special meeting in any of the following ways:
● | submitting a later proxy by telephone or through the Internet prior to 11:59 p.m., Eastern time, on August 30, 2016; |
● | filing with the Secretary of the applicable Apple REIT, before the taking of the vote at the applicable special meeting, a written notice of revocation bearing a later date than the proxy card; |
● | duly executing a later dated proxy card relating to the same shares and delivering it to the Secretary of the applicable Apple REIT before the taking of the vote at the applicable special meeting; or |
● | voting in person at the applicable special meeting, although attendance at the special meeting will not by itself constitute a revocation of a proxy. |
Solicitation of Proxies; Costs. Each Apple REIT is soliciting proxies on behalf of its board. Each Apple REIT will bear the costs of soliciting proxies for its special meeting. In addition to the solicitation of proxies by use of the mails, proxies may be solicited from shareholders by directors, officers and employees of each Apple REIT in person or by telephone, by facsimile, on the Internet or other appropriate means of communications. No additional compensation, except for reimbursement of reasonable out-of-pocket expenses, will be paid to directors, officers and employees of each Apple REIT in connection with its solicitation.
Opinions of Financial Advisors
Opinion of Apple Hospitality’s Financial Advisor (Page 67)
In connection with the merger, on April 13, 2016, at a meeting of the Apple Hospitality board, Robert W. Baird & Co. Incorporated (“Baird”) rendered its oral opinion (which was subsequently confirmed by delivery of a written opinion dated April 13, 2016) to the Apple Hospitality board to the effect that, subject to the contents of such opinion, including the various assumptions and limitations set forth therein, Baird was of the opinion that, as of such date, the merger consideration payable by Apple Hospitality was fair, from a financial point of view, to the Unaffiliated Shareholders of Apple Hospitality. The full text of Baird’s written opinion, dated April 13, 2016, delivered to the Apple Hospitality board, which sets forth the assumptions made, general procedures followed, matters considered and limitations on the scope of review undertaken by Baird in rendering its opinion, is attached as Annex D to this joint proxy statement/prospectus and is incorporated herein by reference. Apple Hospitality shareholders are urged to read the opinion carefully in its entirety. Baird’s opinion is directed only to the fairness, as of the date of the opinion and from a financial point of view, to the Unaffiliated Shareholders of Apple Hospitality of the merger consideration payable by Apple Hospitality and does not constitute a recommendation to any shareholder as to how such shareholder should vote with respect to the merger.
Opinion of the Apple Ten Special Committee’s Financial Advisor (Page 74)
In connection with the merger, the Apple Ten special committee’s financial advisor, Citigroup Global Markets Inc. (“Citi”), delivered a written opinion, dated April 13, 2016, to the Apple Ten special committee as to the fairness, from a financial point of view and as of the date of the opinion, to holders of Apple Ten units, other than Apple Hospitality, Acquisition Sub and their respective affiliates, of the unit merger consideration to be received by such holders pursuant to the Merger Agreement. The full text of Citi’s written opinion, dated April 13, 2016, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex E to this joint proxy statement/prospectus and is incorporated herein by reference. The description of Citi’s opinion set forth below is qualified in its entirety by reference to the full text of Citi’s opinion. Citi’s opinion was provided for the information of the Apple Ten special committee (in its capacity as such) in connection with its evaluation of the unit merger consideration from a financial point of view and did not address any other terms, aspects or implications of the merger. Citi was not requested to consider, and its opinion did not address, the underlying business decision of Apple Ten to effect the merger, the relative merits of the merger as compared to any alternative business strategies or opportunities that might exist for Apple Ten or the effect of any other transaction in which Apple Ten might engage or consider. Citi’s opinion is not intended to be and does not constitute a recommendation as to how any securityholder should vote or act on any matters relating to the proposed merger or otherwise.
Directors and Management of Apple Hospitality After the Merger (Page 85)
Following the consummation of the merger, the combined company’s board of directors will consist of seven members, all of whom are current directors of Apple Hospitality. The existing directors of Apple Hospitality are: Glade M. Knight, Justin G. Knight, Glenn W. Bunting, Jon A. Fosheim, Bruce H. Matson, Daryl A. Nickel and L. Hugh Redd. Each of the executive officers of Apple Hospitality immediately prior to the effective time of the merger will continue as an executive officer of the combined company following the effective time of the merger. Justin Knight, Apple Hospitality’s president and chief executive officer and Apple Ten’s president, will serve as president and chief executive officer of the combined company. Glade M. Knight, Apple Hospitality’s executive chairman and Apple Ten’s chairman and chief executive officer, will serve as executive chairman of the combined company. Bryan Peery, Apple Hospitality’s and Apple Ten’s executive vice president and chief financial officer will serve as executive vice president and chief financial officer of the combined company. Kristian Gathright, Apple Hospitality’s and Apple Ten’s executive vice president and chief operating officer, will serve as executive vice president and chief operating officer of the combined company. David P. Buckley, Apple Hospitality’s and Apple Ten’s executive vice president and chief legal counsel, will serve as executive vice president and chief legal counsel of the combined company. Nelson G. Knight, the executive vice president and chief investment officer of Apple Hospitality, will serve as executive vice president and chief investment officer of the combined company.
Interests of Apple REIT Directors and Executive Officers in the Merger (Page 85)
You should be aware that the directors and executive officers of each of Apple Hospitality and Apple Ten have interests in the merger that are different from, or in addition to, your interests as a shareholder and that may present actual or potential conflicts of interest. These interests include:
● | the conversion of the 480,000 Apple Ten Series B convertible preferred shares acquired at the formation of Apple Ten, prior to Apple Ten having any other assets, by Glade M. Knight, the chairman and chief executive officer of Apple Ten, for $0.10 a share or a total of $48,000, including the related rights of certain Apple Ten executives, family members and other employees as assignees if the merger is completed, that would be converted into the right to receive approximately $5.8 million in cash and approximately 3.0 million Apple Hospitality common shares, which will represent approximately 1.4% of the Apple Hospitality common shares after the merger; |
● | exchange of the outstanding 353,749 Apple Ten options, each with an $11 per Apple Ten unit exercise price and held by current non-management directors of Apple Ten for approximately 203,041 Apple Hospitality options with an estimated exercise price of approximately $19.17, assuming the merger occurred on July 8, 2016 (see “—Treatment of Options” below for a discussion of assumptions of options by Apple Hospitality); |
● | Apple Ten and Apple Hospitality being affiliated entities with Apple Ten managed by employees of Apple Hospitality, and as a result there are conflicts of interest inherent where the individuals who comprise the management teams of Apple Ten and Apple Hospitality are assisting the Apple Hospitality board in connection with the merger and providing certain assistance to Apple Ten; |
● | consummation of the transactions contemplated by the termination agreement among Apple Hospitality, Apple Ten and entities owned by Glade M. Knight and related to Apple Ten. The termination agreement will not result in additional payments to any of the parties, as described under “Termination Agreement” beginning on page 116; and |
● | continued indemnification and insurance coverage for the directors and officers of Apple Ten in accordance with the Merger Agreement. |
Treatment of Options (Page 93)
Each Apple Ten option that is outstanding immediately prior to the effective time of the merger will be assumed by Apple Hospitality, subject to the same terms and conditions (including vesting) as were applicable prior to the merger, except that (i) each option will be exercisable for that number of Apple Hospitality common shares equal to the product of the number of Apple Ten common shares underlying such option multiplied by
the Equity Exchange Factor as defined below, rounded down to the nearest whole number of Apple Hospitality common shares and (ii) the per share exercise price for the Apple Hospitality common shares issuable upon exercise of such option will be equal to the quotient determined by dividing the exercise price by the Equity Exchange Factor, rounded up to the nearest whole cent. The “Equity Exchange Factor” is the number (rounded to the third decimal place) equal to the quotient of (A) divided by (B), where: (A) equals the sum of (x) $1.00 plus (y) the product obtained by multiplying the APLE Price by the unit exchange ratio; and (B) equals the APLE Price. For these purposes, the “APLE Price” equals the average of the closing price of Apple Hospitality common shares on the NYSE on the trading day immediately prior to and after the date of closing of the merger.
Voting Agreement between the Apple REITs and Glade M. Knight (Page 114)
The Apple REITs have entered into a voting agreement with Glade M. Knight, executive chairman of Apple Hospitality and chairman and chief executive officer of Apple Ten, whereby Mr. Knight has agreed to vote the Apple Ten Series B convertible preferred shares and the Apple Ten units and the Apple Hospitality common shares held by him, together with any additional shares of Apple Hospitality and Apple Ten capital stock acquired by Mr. Knight after April 13, 2016, in favor of each of the Share Issuance Proposal and Apple Ten Merger Proposal. Mr. Knight currently owns of record all outstanding 480,000 Series B convertible preferred shares of Apple Ten, which are sufficient to approve, only on behalf of the Apple Ten Series B convertible preferred shareholders, the Apple Ten Merger Proposal. Pursuant to the terms of the voting agreement, Mr. Knight has agreed to vote all of his Apple Hospitality common shares and Apple Ten common shares and any additional Apple Hospitality common shares and Apple Ten common shares acquired by Mr. Knight after April 13, 2016 in favor of each of the Adjournment Proposals. Mr. Knight has not acquired any Apple Hospitality common shares or Apple Ten common shares since April 13, 2016.
Under the terms of the voting agreement, Mr. Knight has agreed that he will waive, and prevent the execution of, any appraisal and dissenters’ rights relating to the merger that he may have directly or indirectly, and that he will not sell or transfer any Apple REIT securities beneficially owned by him or grant any proxies or deposit such securities into a voting trust or enter into a voting agreement with respect to such securities or take any action that is intended to have the effect of preventing Mr. Knight from complying with the voting agreement.
Conditions to Complete the Merger (Page 107)
A number of conditions must be satisfied or, to the extent permitted by law, waived before either Apple Hospitality or Apple Ten is obligated to complete the merger. These include, among others:
● | the shareholder approval of Apple Hospitality of the Share Issuance Proposal and the shareholder approval of Apple Ten of the Apple Ten Merger Proposal; | |
● | no court having issued any temporary restraining order, preliminary or permanent injunction or other order, and no other legal restraint or prohibition preventing the consummation of the merger or any of the other transactions contemplated by the Merger Agreement being in effect; | |
● | all material actions by or in respect of or filings with any governmental entity required for the consummation of the merger or any of the other transactions contemplated by the Merger Agreement, and any waiting period under applicable laws having expired or being terminated; | |
● | the termination agreement, as described below under “Termination Agreement” beginning on page 116, remaining in effect and having not been amended or modified and none of the Apple Hospitality’s or Apple Ten’s rights thereunder having been waived, except in each case to the extent each of Apple Ten (acting at the direction of the Apple Ten special committee) and Apple Hospitality has approved in writing prior to such amendment, modification or waiver; | |
● | the registration statement on Form S-4 to be filed with the SEC by Apple Hospitality, of which this joint proxy statement/prospectus constitutes a part, with respect to the Apple Hospitality common shares issuable in the merger, being declared effective by the SEC, and no stop-order or proceeding suspending the effectiveness of the Form S-4 having been initiated or threatened by the SEC; | |
● | the approval for listing on the NYSE of the Apple Hospitality common shares to be issued in the merger, subject to official notice of issuance; | |
● | the delivery of opinions from each of Apple Hospitality’s and Apple Ten’s respective tax counsels to their respective clients that the merger will qualify as a reorganization under Section 368(a) of the Code; | |
● | the absence of any material adverse effect being experienced by the other party; | |
● | the accuracy of the representations and warranties made by the other party in the Merger Agreement and performance by the other party of its obligations under the Merger Agreement (subject in each case to certain materiality standards); | |
● | the receipt by each party of an opinion of the other party’s legal counsel regarding the other party’s qualification as a REIT under the Code; | |
● | the representations and warranties made by the other party must be true and correct in all material respects as of the closing date of the merger in the manner described under “The Merger Agreement—Conditions to Complete the Merger”; | |
● | Apple Ten having performed in all material respects all obligations required to be performed by it under the Merger Agreement at or prior to the effective time of the merger; | |
● | all required consents and waivers from third parties having been obtained, other than such consents and waivers from third parties, which, if not obtained, would not result, individually or in the aggregate, in a material adverse effect on Apple Ten or Apple Hospitality, as applicable; and | |
● | that holders of no more than 5% of the Apple Ten common shares outstanding immediately prior to the effective time of the merger have exercised dissenters’ rights. |
Regulatory Approvals Required for the Merger (Page 88)
No material federal or state regulatory approvals are required in connection with the merger other than regulatory approvals that the Apple REITs expect to obtain in the ordinary course.
Listing of Apple Hospitality Common Shares; Deregistration of Apple Ten Units (Page 91)
It is a condition to the completion of the merger that the Apple Hospitality common shares issuable in connection with the merger be approved for listing on the NYSE, subject to official notice of issuance. If the merger is completed, Apple Ten units will be deregistered under the Exchange Act, and Apple Ten will no longer file periodic reports with the SEC.
Accounting Treatment of the Merger (Page 88)
Apple Hospitality will account for the merger under the acquisition method of accounting for business combinations under United States generally accepted accounting principles with Apple Hospitality being deemed to have acquired Apple Ten. This means that Apple Hospitality will record the assets and liabilities of Apple Ten as of the completion of the merger, at their fair values including an amount for goodwill, if applicable, representing the difference between the purchase price and fair value of the identifiable assets and liabilities. Financial statements of Apple Hospitality issued after the merger will reflect only the operations of Apple Ten’s businesses after the merger and will not be restated retroactively to reflect the historical financial position or results of operations of Apple Ten prior to the merger.
Comparison of Shareholders’ Rights (Page 128)
Apple Hospitality and Apple Ten are each Virginia corporations and, accordingly, are governed by the VSCA and by their respective articles of incorporation and bylaws. For a summary of certain material differences between the current rights of the shareholders of Apple Ten and the shareholders of Apple Hospitality, see “Comparison of Rights of Apple Ten and Apple Hospitality Shareholders” beginning on page 128.
Dissenters’ Rights of Appraisal (Page 89)
The provisions of Virginia law governing appraisal rights are complex and you should study them carefully. A shareholder may take actions that prevent that shareholder from successfully asserting appraisal rights, and multiple steps must be taken to properly exercise and perfect appraisal rights. A copy of Article 15 of the VSCA is attached to this joint proxy statement/prospectus as Annex F and is incorporated herein by reference.
Under Virginia law, Apple Ten shareholders are entitled to exercise appraisal rights in connection with the merger, which means that Apple Ten shareholders have the right to dissent from the merger and, instead of receiving the merger consideration, obtain payment in cash of the fair value of their shares as determined pursuant to applicable Virginia law. The fair value of the Apple Ten shares under Virginia law governing appraisal rights could be more than, the same as or less than the merger consideration that would be paid pursuant to the Merger Agreement.
“Go Shop” Period, No Solicitation and Apple Ten Change in Recommendation (Page 102)
Pursuant to the Merger Agreement, following the go shop period end time (as defined in “The Merger Agreement—Apple Ten Acquisition Proposals; Change in Recommendation”), except with respect to Go Shop Bidders (as defined in “The Merger Agreement—Apple Ten Acquisition Proposals; Change in Recommendation”), Apple Ten has agreed, among other things, that it will not and will cause its subsidiaries not to, and will not authorize or permit any of its representatives to, initiate, solicit, knowingly encourage or facilitate any acquisition proposal or enter into, continue or participate in any discussions or negotiations with any person, or furnish to any person any non-public information in furtherance of such inquiries or to obtain an acquisition proposal. However, prior to receipt of the Apple Ten shareholder approval (as defined in “The Merger Agreement—Shareholder Votes”), with respect to certain written, bona fide acquisition proposals received by Apple Ten or any of its subsidiaries or any of their respective representatives as described in “The Merger Agreement—Apple Ten Acquisition Proposals; Change in Recommendation,” Apple Ten may provide access to nonpublic information with respect to Apple Ten and its subsidiaries (subject to certain limitations), participate in negotiations regarding such acquisition proposal and disclose to Apple Ten’s shareholders any information required to be disclosed under applicable law. Under the Merger Agreement, Apple Ten is required to notify Apple Hospitality promptly (and in no event later than 48 hours) after receipt of any acquisition proposal or any request for information relating to Apple Ten in connection with an acquisition proposal or potential acquisition proposal or any inquiry or request for discussions or negotiations regarding any acquisition proposal after the “go shop” period.
Prior to receipt of the Apple Ten shareholder approval, the Apple Ten board may, under certain specified circumstances as described in “The Merger Agreement—Apple Ten Acquisition Proposals; Change in Recommendation,” withdraw, modify or amend its recommendation to the Apple Ten shareholders with respect to the merger, the plan of merger and the other transactions contemplated by the Merger Agreement if it determines in good faith after consultation with its legal advisors (and based on the recommendation of the Apple Ten special committee) that failure to do so would reasonably be likely to be inconsistent with its fiduciary duties to Apple Ten’s shareholders under applicable law. Prior to making a change in its recommendation, Apple Ten must offer Apple Hospitality the opportunity to modify the terms of the Merger Agreement in response to the applicable circumstances leading to the Apple Ten board’s intention to make a change in recommendation.
Apple Hospitality Change in Recommendation (Page 105)
Pursuant to the Merger Agreement, prior to receipt of the Apple Hospitality shareholder approval (as defined in “The Merger Agreement—Shareholder Votes”), the Apple Hospitality board may, under certain specified circumstances as described in “The Merger Agreement—Apple Hospitality Change in Recommendation,” withdraw, modify or amend its recommendation to the Apple Hospitality shareholders with respect to the issuance of the Apple Hospitality common shares to be issued in the merger if it determines in good faith after consultation with its legal and financial advisors that failure to do so would be inconsistent with its fiduciary duties to Apple Hospitality’s shareholders under applicable law. Prior to making a change in its recommendation, Apple Hospitality must offer Apple Ten the opportunity to modify the terms of the Merger Agreement in response to the applicable circumstances leading to the Apple Hospitality’s board intention to make a change in recommendation.
Termination of the Merger Agreement (Page 109)
The Merger Agreement may be terminated and the merger and the other transactions contemplated by the Merger Agreement may be abandoned at any time before the effective time of the merger by the mutual written consent of Apple Ten (with the prior approval of the Apple Ten special committee) and Apple Hospitality (with the prior approval of the Apple Hospitality board) or under certain other specified circumstances.
For more information regarding termination of the Merger Agreement, see “The Merger Agreement—Termination of the Merger Agreement—Termination by either Apple Ten or Apple Hospitality” beginning on page 109, “The Merger Agreement—Termination of the Merger Agreement—Termination by Apple Ten” beginning on page 110 and “The Merger Agreement—Termination of the Merger Agreement—Termination by Apple Hospitality” beginning on page 110.
Termination Fees and Expenses (Page 111)
Generally, all out-of-pocket costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring the cost or expense. However, if the Merger Agreement is terminated under certain specified circumstances, Apple Ten may be obligated to pay Apple Hospitality a termination fee of $5.0 million and reimburse Apple Hospitality’s expenses up to $3.0 million. If the Merger Agreement is terminated under certain other specified circumstances, either Apple Ten or Apple Hospitality may be obligated to pay the other a termination fee of $25.0 million.
For more information regarding the termination fee and expense reimbursement, see “The Merger Agreement—Termination Fees and Expenses—Termination Fee and Expenses Payable by Apple Ten” beginning on page 111 and “The Merger Agreement—Termination Fees and Expenses—Termination Fee Payable by Apple Hospitality” beginning on page 112.
Material U.S. Federal Income Tax Consequences (Page 117)
It is a condition to the consummation of the merger that McGuireWoods LLP renders a tax opinion to Apple Ten, and Hogan Lovells US LLP renders a tax opinion to Apple Hospitality, to the effect that, for U.S. federal income tax purposes, the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.
As a result of the merger, U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences” beginning on page 117) of Apple Ten shares will recognize gain, but will not recognize any loss, for U.S. federal income tax purposes, equal to the smaller of (i) the amount of cash received (other than cash received in lieu of a fractional Apple Hospitality common share) and (ii) the excess, if any, of (x) the sum of the amount of cash received (including cash received in lieu of a fractional Apple Hospitality common share) and the fair market value of the Apple Hospitality common shares received in the merger (determined at the effective time of the merger) over (y) the U.S. holder’s tax basis in the Apple Ten shares deemed surrendered in the merger. In addition, the U.S. holder will recognize gain or loss attributable to cash received in lieu of a fractional Apple Hospitality common share. Any gain recognized generally will be long-term capital gain, provided certain holding period and other requirements are met. However, there are certain scenarios where such gain could be taxed as dividend income rather than capital gain. See “Material U.S. Federal Income Tax Consequences—Potential Treatment of Cash as a Dividend.”
Holders of Apple Hospitality common shares will not recognize any gain or loss as a result of the merger as a result of their ownership of Apple Hospitality common shares.
You should read “Material U.S. Federal Income Tax Consequences” beginning on page 117 for a more detailed discussion of the U.S. federal income tax consequences of the merger. You should also consult your tax advisor for a complete analysis of the effect of the merger on your federal, state and local and/or foreign taxes.
Termination Agreement (Page 116)
Pursuant to the terms of the termination agreement entered into among Apple Hospitality and Apple Ten, and Apple Ten Advisors and Apple Realty Group, each of which is wholly owned by Glade M. Knight, effective immediately after the effective time of the merger, the existing advisory agreement, property acquisition/disposition agreement and subcontract agreement with respect to Apple Ten, Apple Ten Advisors and Apple Realty Group will be terminated. As a result, Apple Ten will no longer pay the various fees currently paid under these agreements and Apple Ten Advisors will no longer subcontract its advisory services to Apple Hospitality.
Description of Apple Hospitality Common Shares (Page 123)
The following contains a summary of certain material provisions of Apple Hospitality’s articles of incorporation and bylaws relating to the Apple Hospitality common shares.
Subject to the provisions of Apple Hospitality’s articles of incorporation regarding the restrictions on transfer and ownership of capital shares, each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders. The holders of Apple Hospitality common shares have exclusive voting power with respect to the election of directors and for all other purposes, except as otherwise required by law or as provided in its articles of incorporation with respect to any series of preferred shares then outstanding.
Subject to the preferential rights of any other class or series of shares and to the provisions of Apple Hospitality’s articles of incorporation and bylaws regarding the restrictions on transfer and ownership of capital shares, holders of Apple Hospitality common shares are entitled to receive dividends on such common shares if, as and when authorized by the board out of assets legally available therefor. Subject to the rights of holders of shares ranking senior to the holders of Apple Hospitality common shares as to dividends and distributions, holders of Apple Hospitality common shares also are entitled to receive, if and when declared by the board, dividends and distribution of Apple Hospitality’s net assets legally available for distribution to shareholders in the event of its liquidation, dissolution or winding up of the affairs of Apple Hospitality.
Three Months Ended March 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||
(in thousands except per share data) | Apple Hospitality | Apple Ten | Apple Hospitality | Apple Ten | ||||||||||||
Cash flow from operating activities | $ | 50,804 | $ | 14,793 | $ | 281,052 | $ | 83,853 | ||||||||
Total distributions paid | $ | 52,360 | $ | 18,232 | $ | 229,127 | $ | 74,259 | ||||||||
Total distributions paid per common share | $ | 0.300 | $ | 0.206 | $ | 1.267 | $ | 0.825 |
The Apple REITs believe that cash is fungible and the source of distributions is not determinable. However, included above is a summary of each of the Apple REITs’ cash flow from operating activities for the noted periods. For further information, see the Apple REITs’ related statement of cash flows included in Apple Hospitality’s Annual Report on Form 10-K for the year ended December 31, 2015 and Form 10-Q for the quarter ended March 31, 2016 incorporated herein by reference, and Apple Ten’s Annual Report on Form 10-K for the year ended December 31, 2015 and Form 10-Q for the quarter ended March 31, 2016 included in Annexes G and H, respectively.
If Apple Hospitality liquidates its assets or dissolves entirely post-merger, subject to the provisions of Apple Hospitality’s articles of incorporation and bylaws regarding the restrictions on transfer and ownership of capital shares, common shares will have equal dividend, liquidation and other rights.
Selected Historical Financial Information of Apple Ten
The following selected historical financial information for each of the years during the five-year period ended December 31, 2015 and the selected balance sheet data as of December 31 for each of the years in the five-year period ended December 31, 2015 have been derived from Apple Ten’s audited consolidated financial statements. The selected historical financial information for the three months ended March 31, 2016 and 2015 and the selected balance sheet data as of March 31, 2016 and 2015 have been derived from Apple Ten’s unaudited interim consolidated financial statements.
Three Months Ended March 31, | Year Ended December 31, | |||||||||||||||||||||||||||
(in thousands except per share and statistical data) | 2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||
Room | $ | 60,448 | $ | 55,737 | $ | 241,712 | $ | 202,036 | $ | 144,123 | $ | 106,759 | $ | 37,911 | ||||||||||||||
Other | 5,032 | 4,660 | 20,383 | 17,518 | 14,793 | 10,907 | 4,180 | |||||||||||||||||||||
Total revenue | 65,480 | 60,397 | 262,095 | 219,554 | 158,916 | 117,666 | 42,091 | |||||||||||||||||||||
Expenses and other income: | ||||||||||||||||||||||||||||
Hotel operating expense | 36,516 | 33,836 | 143,844 | 124,361 | 90,364 | 65,948 | 23,737 | |||||||||||||||||||||
Property taxes, insurance and other expense | 4,337 | 3,945 | 15,370 | 12,773 | 10,523 | 7,914 | 2,393 | |||||||||||||||||||||
Ground lease expense | 311 | 85 | 895 | 372 | 256 | 153 | 27 | |||||||||||||||||||||
General and administrative expense | 1,846 | 1,489 | 6,980 | 6,403 | 5,057 | 4,408 | 3,062 | |||||||||||||||||||||
Transaction costs | 282 | 1,580 | 2,763 | 2,018 | 6,960 | 1,582 | 11,265 | |||||||||||||||||||||
Depreciation expense | 9,329 | 8,389 | 35,419 | 29,030 | 21,272 | 15,795 | 6,009 | |||||||||||||||||||||
Interest and other expense, net (a) | 2,756 | 1,684 | 9,063 | (3,686 | ) | (2,317 | ) | 4,482 | 607 | |||||||||||||||||||
Income tax (benefit) expense | 56 | 59 | (27 | ) | 2,288 | 463 | 305 | 125 | ||||||||||||||||||||
Total expenses and other income | 55,433 | 51,067 | 214,307 | 173,559 | 132,578 | 100,587 | 47,225 | |||||||||||||||||||||
Net income (loss) | $ | 10,047 | $ | 9,330 | $ | 47,788 | $ | 45,995 | $ | 26,338 | $ | 17,079 | $ | (5,134 | ) | |||||||||||||
Per Share: | ||||||||||||||||||||||||||||
Net income (loss) per common share | $ | 0.11 | $ | 0.10 | $ | 0.53 | $ | 0.53 | $ | 0.37 | $ | 0.31 | $ | (0.18 | ) | |||||||||||||
Distributions declared and paid per common share | $ | 0.206 | $ | 0.206 | $ | 0.825 | $ | 0.825 | $ | 0.825 | $ | 0.825 | $ | 0.756 | ||||||||||||||
Weighted-average common shares outstanding | ||||||||||||||||||||||||||||
- basic and diluted | 88,324 | 90,702 | 89,935 | 86,242 | 72,047 | 54,888 | 29,333 | |||||||||||||||||||||
Balance Sheet Data (at end of period): | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | — | $ | 46,341 | $ | — | $ | 146,530 | $ | 7,079 | ||||||||||||||
Investment in real estate, net | $ | 930,649 | $ | 908,844 | $ | 938,417 | $ | 839,032 | $ | 764,579 | $ | 506,689 | $ | 452,205 | ||||||||||||||
Energy investment | $ | — | $ | — | $ | — | $ | — | $ | 100,340 | $ | — | $ | — | ||||||||||||||
Total assets (b) | $ | 965,400 | $ | 937,355 | $ | 968,385 | $ | 908,106 | $ | 888,721 | $ | 667,003 | $ | 470,359 | ||||||||||||||
Notes payable (b) | $ | 240,543 | $ | 163,807 | $ | 227,287 | $ | 118,778 | $ | 195,307 | $ | 80,404 | $ | 68,773 | ||||||||||||||
Shareholders’ equity | $ | 713,556 | $ | 763,391 | $ | 727,746 | $ | 777,166 | $ | 682,772 | $ | 579,525 | $ | 395,915 | ||||||||||||||
Net book value per share | $ | 8.09 | $ | 8.42 | $ | 8.20 | $ | 8.54 | $ | 8.66 | $ | 8.92 | $ | 9.10 | ||||||||||||||
Other Data: | ||||||||||||||||||||||||||||
Cash Flow From (Used In): | ||||||||||||||||||||||||||||
Operating activities | $ | 14,793 | $ | 11,006 | $ | 83,853 | $ | 75,010 | $ | 47,462 | $ | 33,133 | $ | 821 | ||||||||||||||
Investing activities | $ | (3,926 | ) | $ | (79,325 | ) | $ | (124,703 | ) | $ | (497 | ) | $ | (342,057 | ) | $ | (58,606 | ) | $ | (393,640 | ) | |||||||
Financing activities | $ | (10,867 | ) | $ | 21,978 | $ | (5,491 | ) | $ | (28,172 | ) | $ | 148,065 | $ | 164,924 | $ | 399,774 | |||||||||||
Number of hotels owned at end of period | 55 | 53 | 55 | 51 | 47 | 31 | 26 |
(a) | Interest and other expense, net for the years ended December 31, 2014 and 2013 includes investment income of approximately $11.8 million and $7.8 million, respectively, related to income earned on Apple Ten’s investment as a preferred member in Cripple Creek Energy, which was acquired in June and July 2013 for a purchase price of $100 million and was fully redeemed in November 2014. | |
(b) | Apple Ten adopted Accounting Standards Update No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, effective December 31, 2015, on a retrospective basis, which is reflected in these amounts for all periods presented. The adoption of the standard resulted in the reclassification of unamortized debt issuance costs related to Apple Ten’s mortgage debt from total assets to notes payable for all periods prior to adoption. |
Selected Historical and Pro Forma Financial Information of Apple Hospitality
The following selected historical financial information for each of the years during the five-year period ended December 31, 2015 and the selected balance sheet data as of December 31 for each of the years in the five-year period ended December 31, 2015 have been derived from Apple Hospitality’s audited consolidated financial statements. The selected historical financial information for the three months ended March 31, 2016 and 2015 and the selected balance sheet data as of March 31, 2016 and 2015 have been derived from Apple Hospitality’s unaudited interim consolidated financial statements.
Pro forma (e) | ||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, | Year Ended December 31, | Three Months Ended March 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||
(in thousands except per share and statistical data) | 2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | 2016 | 2015 | |||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||
Room | $ | 206,150 | $ | 192,013 | $ | 821,733 | $ | 735,882 | $ | 353,338 | $ | 331,610 | $ | 291,858 | $ | 266,598 | $ | 1,063,445 | ||||||||||||||||||
Other | 18,337 | 18,339 | 76,581 | 68,014 | 34,653 | 33,976 | 28,642 | 23,369 | 96,964 | |||||||||||||||||||||||||||
Total revenue | 224,487 | 210,352 | 898,314 | 803,896 | 387,991 | 365,586 | 320,500 | 289,967 | 1,160,409 | |||||||||||||||||||||||||||
Expenses and other income: | ||||||||||||||||||||||||||||||||||||
Hotel operating expense | 127,212 | 122,513 | 507,081 | 455,895 | 220,214 | 206,568 | 184,641 | 163,728 | 650,925 | |||||||||||||||||||||||||||
Property taxes, insurance and other expense | 12,452 | 11,561 | 46,023 | 40,046 | 20,556 | 19,616 | 18,040 | 16,789 | 61,393 | |||||||||||||||||||||||||||
Ground lease expense | 2,466 | 2,501 | 9,996 | 8,341 | 302 | 368 | 347 | 2,777 | 10,891 | |||||||||||||||||||||||||||
General and administrative expense | 4,828 | 5,547 | 19,552 | 20,914 | 6,169 | 8,590 | 8,189 | 6,674 | 26,532 | |||||||||||||||||||||||||||
Transaction costs | 293 | 1,224 | 7,181 | 5,142 | 3,179 | 1,101 | 5,275 | 175 | 9,944 | |||||||||||||||||||||||||||
Series B convertible preferred share expense | — | — | — | 117,133 | — | — | — | — | — | |||||||||||||||||||||||||||
Loss on impairment of depreciable real estate assets | — | — | 45,000 | 10,988 | — | — | — | — | 45,000 | |||||||||||||||||||||||||||
Depreciation expense | 33,484 | 30,719 | 127,449 | 113,112 | 54,827 | 52,748 | 48,415 | 42,325 | 162,811 | |||||||||||||||||||||||||||
Interest and other expense, net | 8,803 | 7,737 | 33,132 | 23,523 | 8,446 | 6,745 | 4,371 | 11,972 | 43,085 | |||||||||||||||||||||||||||
Investment income from note receivable | — | — | — | — | (9,040 | ) | — | — | — | — | ||||||||||||||||||||||||||
Gain on sale of real estate | — | (15,629 | ) | (15,286 | ) | — | — | — | — | — | (15,286 | ) | ||||||||||||||||||||||||
Income tax expense | 263 | 312 | 898 | 1,969 | 1,422 | 1,166 | 1,068 | 319 | 871 | |||||||||||||||||||||||||||
Total expenses and other income | 189,801 | 166,485 | 781,026 | 797,063 | 306,075 | 296,902 | 270,346 | 244,759 | 996,166 | |||||||||||||||||||||||||||
Income from continuing operations | 34,686 | 43,867 | 117,288 | 6,833 | 81,916 | 68,684 | 50,154 | 45,208 | 164,243 | |||||||||||||||||||||||||||
Income from discontinued operations, net of tax | — | — | — | — | 33,306 | 6,792 | 19,834 | — | — | |||||||||||||||||||||||||||
Net income | $ | 34,686 | $ | 43,867 | $ | 117,288 | $ | 6,833 | $ | 115,222 | $ | 75,476 | $ | 69,988 | $ | 45,208 | $ | 164,243 | ||||||||||||||||||
Per Share (a): | ||||||||||||||||||||||||||||||||||||
Income from continuing operations per common share | $ | 0.20 | $ | 0.24 | $ | 0.65 | $ | 0.04 | $ | 0.90 | $ | 0.75 | $ | 0.55 | $ | 0.20 | $ | 0.72 | ||||||||||||||||||
Income from discontinued operations per common share | — | — | — | — | 0.36 | 0.08 | 0.22 | $ | — | $ | — | |||||||||||||||||||||||||
Net income per common share | $ | 0.20 | $ | 0.24 | $ | 0.65 | $ | 0.04 | $ | 1.26 | $ | 0.83 | $ | 0.77 | $ | 0.20 | $ | 0.72 | ||||||||||||||||||
Distributions declared per common share (a)(b)(c) | $ | 0.30 | $ | 0.34 | $ | 1.37 | $ | 1.39 | $ | 1.66 | $ | 3.20 | $ | 1.76 | n/a | n/a | ||||||||||||||||||||
Weighted-average common shares outstanding | ||||||||||||||||||||||||||||||||||||
- basic and diluted (a) | 174,666 | 186,446 | 180,261 | 171,489 | 91,308 | 91,111 | 91,198 | 223,743 | 229,338 | |||||||||||||||||||||||||||
Balance Sheet Data (at end of period): | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 46,905 | $ | — | $ | — | $ | 18,102 | $ | 9,027 | $ | 30,733 | $ | — | n/a | |||||||||||||||||||
Investment in real estate, net | $ | 3,627,296 | $ | 3,482,039 | $ | 3,641,767 | $ | 3,492,821 | $ | 1,443,498 | $ | 1,463,894 | $ | 1,480,722 | $ | 4,878,319 | n/a | |||||||||||||||||||
Assets held for sale | $ | — | $ | — | $ | — | $ | 195,588 | $ | — | $ | — | $ | 158,552 | $ | — | n/a | |||||||||||||||||||
Total assets (d) | $ | 3,723,074 | $ | 3,631,325 | $ | 3,722,775 | $ | 3,776,805 | $ | 1,489,926 | $ | 1,524,774 | $ | 1,699,767 | $ | 5,008,576 | n/a | |||||||||||||||||||
Notes payable (d) | $ | 1,021,042 | $ | 603,968 | $ | 998,103 | $ | 706,626 | $ | 161,196 | $ | 165,540 | $ | 122,924 | $ | 1,363,543 | n/a | |||||||||||||||||||
Shareholders’ equity | $ | 2,628,606 | $ | 2,983,973 | $ | 2,647,058 | $ | 3,014,624 | $ | 1,311,811 | $ | 1,346,133 | $ | 1,563,590 | $ | 3,560,706 | n/a | |||||||||||||||||||
Net book value per share (a) | $ | 15.05 | $ | 16.02 | $ | 15.18 | $ | 16.13 | $ | 14.35 | $ | 14.74 | $ | 17.10 | $ | 15.91 | n/a | |||||||||||||||||||
Other Data: | ||||||||||||||||||||||||||||||||||||
Cash Flow From (Used In): | ||||||||||||||||||||||||||||||||||||
Operating activities | $ | 50,804 | $ | 36,258 | $ | 281,052 | $ | 252,187 | $ | 137,446 | $ | 122,966 | $ | 116,044 | n/a | n/a | ||||||||||||||||||||
Investing activities | $ | (20,884 | ) | $ | 186,883 | $ | (82,285 | ) | $ | (58,404 | ) | $ | 25,446 | $ | 105,951 | $ | (166,085 | ) | n/a | n/a | ||||||||||||||||
Financing activities | $ | (29,920 | ) | $ | (176,236 | ) | $ | (198,767 | ) | $ | (211,885 | ) | $ | (153,817 | ) | $ | (250,623 | ) | $ | (143,334 | ) | n/a | n/a | |||||||||||||
Number of hotels owned at end of period (including assets held for sale) | 179 | 173 | 179 | 191 | 89 | 89 | 88 | 234 | 234 |
(a) | On May 18, 2015, Apple Hospitality completed a 50% reverse share split. As a result of the reverse share split, every two Apple Hospitality common shares were converted into one Apple Hospitality common share. All common shares and per share amounts for all periods presented have been adjusted to reflect the reverse share split. |
(b) | 2015 distributions include a distribution of $0.10 per Apple Hospitality common share that was declared in December 2015 and paid in January 2016. For all other periods presented, distributions declared equaled distributions paid. |
(c) | 2012 distributions include a special distribution of $1.50 per Apple Hospitality common share paid in May 2012. |
(d) | Apple Hospitality adopted Accounting Standards Update No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, effective December 31, 2015, on a retrospective basis, which is reflected in these amounts for all periods presented. The adoption of the standard resulted in the reclassification of unamortized debt issuance costs related to Apple Hospitality’s term loans and mortgage debt from total assets to notes payable for all periods prior to adoption. |
(e) | The unaudited pro forma information has been derived from the historical information of Apple Hospitality and Apple Ten. The pro forma information is not necessarily indicative of what Apple Hospitality’s financial condition and results of operations actually would have been if the merger had been consummated as of the dates indicated, nor do they purport to represent the consolidated financial position or results of operations for future periods. No adjustments have been made to the unaudited pro forma information for events that occurred subsequent to March 31, 2016, including (i) the redemption of approximately 0.6 million Apple Ten units in the amount of $6.8 million in April 2016 under Apple Ten’s Unit Redemption Program and (ii) Apple Ten’s purchase of a newly constructed 153-room Homewood Suites hotel in Cape Canaveral, Florida on April 29, 2016 for a purchase price of approximately $25.2 million. See “Index to Unaudited Pro Forma Condensed Consolidated Financial Statements” for further detail on the pro forma financial information. |
Unaudited Comparative Per Share Information
The following table sets forth for the year ended December 31, 2015 and the three months ended March 31, 2016, selected per share information for Apple Hospitality common shares on a historical and pro forma combined basis and for Apple Ten shares on a historical and pro forma equivalent basis. Except for the historical information as of and for the year ended December 31, 2015, the information in the table is unaudited. You should read the table below together with the historical consolidated financial statements and related notes thereto of Apple Hospitality and Apple Ten contained in their respective Annual Reports on Form 10-K for the year ended December 31, 2015 and respective Quarterly Reports on Form 10-Q for the quarter ended March 31, 2016. Apple Hospitality’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report for the quarter ended March 31, 2016 are incorporated herein by reference into this joint proxy statement/prospectus. Apple Ten’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 are included in Annexes G and H, respectively, to this joint proxy statement/prospectus and are incorporated herein by reference. See “Where You Can Find More Information and Incorporation by Reference” beginning on page 145.
The Apple Ten pro forma equivalent per common share amounts were calculated by multiplying the Apple Hospitality pro forma amounts by the unit exchange ratio of 0.522 plus $1.00.
Apple Hospitality | Apple Ten | |||||||||||||||
Historical | Pro Forma Combined | Historical | Pro Forma Equivalent(1) | |||||||||||||
For the Year Ended December 31, 2015 | ||||||||||||||||
Net Income per common share, basic and diluted | $ | 0.65 | $ | 0.72 | $ | 0.53 | $ | 0.41 | ||||||||
Cash dividends declared per common share | $ | 1.367 | $ | N/A | (2) | $ | 0.825 | $ | N/A | (2) |
Apple Hospitality | Apple Ten | |||||||||||||||
Historical | Pro Forma Combined | Historical | Pro Forma Equivalent(1) | |||||||||||||
As of March 31, 2016 | ||||||||||||||||
Net book value per common share | $ | 15.05 | $ | 15.91 | $ | 8.09 | $ | 9.14 |
Apple Hospitality | Apple Ten | |||||||||||||||
Historical | Pro Forma Combined | Historical | Pro Forma Equivalent(1) | |||||||||||||
For the Quarter Ended March 31, 2016 | ||||||||||||||||
Net Income per common share, basic and diluted | $ | 0.20 | $ | 0.20 | $ | 0.11 | $ | 0.11 | ||||||||
Cash dividends declared per common share | $ | 0.30 | $ | N/A | (2) | $ | 0.206 | $ | N/A | (2) |
(1) | Represents Apple Ten per common share results based on equivalent Apple Ten common shares to be issued under the Merger Agreement as of May 6, 2016 and based on Apple Hospitality’s closing price on May 6, 2016. | |
(2) | Pro forma dividends per common share is not presented as the dividend policy for the combined company will be determined by Apple Hospitality’s board following the completion of the merger. It is anticipated that the initial per share dividend will be $1.20 annually paid on a monthly basis. |
RISK FACTORS
In addition to other information included elsewhere in this joint proxy statement/prospectus and in the annexes to this joint proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38, you should carefully consider the following risk factors in deciding whether to vote for the Share Issuance Proposal and the Apple Ten Merger Proposal. In addition, you should read and consider the risks associated with the businesses of each of the Apple REITs. These risks can be found in the Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 of Apple Hospitality, which reports are incorporated by reference into this joint proxy statement/prospectus, and Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 of Apple Ten, which reports are attached hereto as Annexes G and H, respectively, and incorporated by reference. You should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. Please also see “Where You Can Find More Information and Incorporation by Reference” on page 145.
Because the merger consideration for Apple Ten shareholders is fixed and will not be adjusted for changes in share value, the value of the Apple Hospitality common shares issued by Apple Hospitality and received by the holders of Apple Ten shares may be higher or lower at the closing of the merger than when the Merger Agreement was executed.
Under the Merger Agreement, when the merger is completed, each issued and outstanding Apple Ten unit will be converted into the right to receive (i) 0.522 Apple Hospitality common shares and (ii) $1.00 in cash and each issued and outstanding Apple Ten Series B convertible preferred share will be converted into the right to receive (x) a number of Apple Hospitality common shares equal to 12.11423 multiplied by the unit exchange ratio and (y) an amount in cash equal to 12.11423 multiplied by $1.00. The merger consideration is fixed and will not be adjusted for changes in the values of Apple Ten units, Apple Ten Series B convertible preferred shares or Apple Hospitality common shares prior to the merger. There can be no assurance that, individually or in the aggregate, material changes have not occurred, or will not occur, in the values of Apple Ten units and Apple Ten Series B convertible preferred shares surrendered in the merger and the values of Apple Hospitality common shares issued as merger consideration during the period between the execution of the Merger Agreement and the closing of the merger.
The market value of the Apple Hospitality common shares that Apple Ten shareholders will receive in the merger will fluctuate depending on the trading price of the Apple Hospitality common shares prior to the closing of the merger. Share price changes may result from a variety of factors (many of which are beyond the control of Apple Hospitality and Apple Ten), including the following factors:
● | market reaction to the announcement of the merger; |
● | changes in the respective businesses, operations, assets, liabilities and prospects of Apple Hospitality or Apple Ten; |
● | changes in market assessments of the business, operations, financial position and prospects of Apple Hospitality or Apple Ten; |
● | market assessments of the likelihood that the merger will be completed; |
● | interest rates, general market and economic conditions and other factors generally affecting the market prices of Apple Hospitality common shares and Apple Ten shares; |
● | the actual or perceived impact of U.S. monetary policy; |
● | changes in or perceptions of the lodging industry; |
● | federal, state and local legislation, governmental regulation and legal developments in the businesses in which Apple Hospitality and Apple Ten operate; and |
● | other factors beyond the control of either Apple Hospitality or Apple Ten, including those described or referred to elsewhere in this “Risk Factors” section. |
Apple Ten does not have the right to terminate the Merger Agreement based on a decline in the market price of Apple Hospitality common shares.
The voting power of Apple Hospitality shareholders and Apple Ten shareholders will be diluted by the merger.
The merger will dilute the ownership position of the current holders of Apple Hospitality common shares and result in holders of Apple Ten shares having an ownership stake in Apple Hospitality that is smaller than their current stake in Apple Ten. Following the issuance of Apple Hospitality common shares to Apple Ten shareholders pursuant to the Merger Agreement, and assuming no exercise of applicable dissenters’ rights, current Apple Hospitality shareholders and former holders of Apple Ten shares are expected to hold approximately 78% and 22%, respectively, of the outstanding Apple Hospitality common shares immediately after the merger. Consequently, holders of Apple Hospitality common shares and holders of Apple Ten shares, as a general matter, will have less influence over the management and policies of Apple Hospitality after the merger than each currently exercise over the management and policies of Apple Hospitality and Apple Ten, as applicable.
As a result of the merger, the Apple Ten Series B convertible preferred shares will convert into Apple Hospitality common shares, and will therefore acquire voting and distribution rights.
Currently, there are no dividends payable on the Apple Ten Series B convertible preferred shares and the Apple Ten Series B convertible preferred shares have no voting rights except as provided by Virginia law. Following the merger, the Apple Ten Series B convertible preferred shares will convert into Apple Hospitality common shares and the holders of such shares will acquire voting and distribution rights. Immediately after the merger and assuming no exercise of dissenters’ rights, current holders of Apple Hospitality common shares and former holders of Apple Ten units are expected to hold approximately 78.2% and 20.4%, respectively, of the outstanding Apple Hospitality common shares and former holders of Apple Ten Series B convertible preferred shares are expected to hold approximately 1.4% of the outstanding Apple Hospitality common shares.
The Merger Agreement prohibits Apple Ten from soliciting proposals relating to alternative business combination transactions after the “go-shop” period, and places conditions on its ability to negotiate and accept a superior proposal, which may adversely affect Apple Ten’s shareholders.
In the Merger Agreement, Apple Ten agreed on behalf of itself and its subsidiaries and their representatives, beginning as of 11:59 p.m. (New York City time) on May 28, 2016, to restrictions relating to, among other things, the initiation, solicitation, knowing encouragement or facilitation of any inquiries, offers, or other actions that constitute or may reasonably be expected to lead to an acquisition proposal (as defined in “The Merger Agreement—Apple Ten Acquisition Proposals; Change in Recommendation”). After that date, under certain circumstances, Apple Ten may engage in the restricted activities with respect to an acquisition proposal (or an amendment to such proposal) if it had received the proposal prior to such date from a go-shop bidder (as defined in “The Merger Agreement—Apple Ten Acquisition Proposals; Change in Recommendation”). Additionally, under certain circumstances, if Apple Ten receives a bona fide written acquisition proposal from any person that did not result from a breach of its obligations described herein under “The Merger Agreement—Apple Ten Acquisition Proposals; Change in Recommendation” and if the Apple Ten special committee determines in good faith after consultation with its legal and financial advisors that such acquisition proposal is or is reasonably expected to lead to a superior proposal, Apple Ten and its subsidiaries may, upon making certain determinations relating to its fiduciary duties, take certain actions, including furnishing non-public information with respect to Apple Ten and its subsidiaries (subject to compliance with certain matters) and disclosing to Apple Ten’s shareholders any information required to be disclosed under applicable law. Under the Merger Agreement, the Apple Ten board may also, upon making certain determinations relating to its fiduciary duties and based upon the recommendation of the Apple Ten special committee, make an Apple Ten change in recommendation (as defined in “The Merger Agreement—Apple Ten Acquisition Proposals; Change in Recommendation”), terminate the Merger Agreement and enter into an agreement relating to a superior proposal. The limitations, requirements and conditions mentioned above are further described herein under the heading “The Merger Agreement—Apple Ten Acquisition Proposals; Change in Recommendation.”
The limitations, requirements and conditions described above may make it more unlikely that after May 28, 2016 a proposal relating to an alternative business combination transaction would emerge for Apple Ten and may make it more difficult and expensive for Apple Ten to accept a proposal relating to an alternative business combination transaction that the Apple Ten special committee determines to be superior to the merger.
Some of the directors and executive officers of the respective Apple REITs have interests in seeing the merger completed that are different from, or in addition to, those of the other shareholders of the respective Apple REITs.
In addition, the Apple REITs have entered into a voting agreement with Glade M. Knight, executive chairman of Apple Hospitality and chairman and chief executive officer of Apple Ten, in his capacity as a shareholder of the respective Apple REITs. The voting agreement requires Mr. Knight to vote all of his Apple Hospitality common shares in favor of the Share Issuance Proposal and all of his Apple Ten shares in favor of the Apple Ten Merger Proposal and to vote against certain actions. See “Voting Agreement between the Apple REITs and Glade M. Knight” beginning on page 114.
The merger and related transactions are subject to approval by shareholders of both Apple Ten and Apple Hospitality.
The merger cannot be completed unless (i) the Apple Ten shareholders approve the merger and the other transactions contemplated by the Merger Agreement by the affirmative vote of the holders of at least a majority of the issued and outstanding Apple Ten common shares, Apple Ten Series A preferred shares and Apple Ten Series B convertible preferred shares (each voting as a separate voting group), and (ii) the number of votes cast by the Apple Hospitality shareholders for the issuance of the Apple Hospitality common shares to the Apple Ten shareholders in the merger pursuant to the terms of the Merger Agreement exceeds the number of votes cast against this proposal from holders represented in person or by proxy and entitled to vote at the Apple Hospitality special meeting. If the shareholders of either Apple REIT do not approve the proposals, the merger and related transactions cannot be completed.
The pendency of the merger could adversely affect the business and operations of the Apple REITs.
Prior to the effective time of the merger, some customers or vendors of the Apple REITs may delay or defer decisions, which could negatively affect the revenues, earnings, cash flows and expenses of the Apple REITS, regardless of whether the merger is completed. In addition, due to operating restrictions in the Merger Agreement, the Apple REITs may be unable, during the pendency of the merger, to pursue strategic transactions, undertake significant unscheduled capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
The merger is subject to a number of conditions which, if not satisfied or waived in a timely manner, would delay the merger or adversely impact the Apple REITs’ ability to complete the transactions.
The completion of the merger is subject to the satisfaction or waiver of a number of conditions. While it is currently anticipated that the merger will be completed promptly following the shareholder meetings, there can be no assurance that the conditions to closing will be satisfied in a timely manner or at all, or that an effect, event, development or change will not transpire that could delay or prevent these conditions from being satisfied. Accordingly, Apple Hospitality and Apple Ten cannot provide any assurances with respect to the timing of the closing of the merger, whether the merger will be completed at all and when Apple Ten shareholders would receive the merger consideration, if at all.
The merger may not be completed, which could adversely affect the value of the shares and business of each of the Apple REITs.
Completion of the merger is subject to the satisfaction of various conditions, including approval of the Share Issuance Proposal by the shareholders of Apple Hospitality, the approval of the Apple Ten Merger Proposal by the shareholders of Apple Ten and the other conditions described in the Merger Agreement. Neither of the Apple REITs can guarantee when or if these conditions will be satisfied or that the merger will be successfully completed. In the event that the merger is not completed, each Apple REIT may be subject to several risks, including the following:
● | its management’s and employees’ attention to day-to-day business and operational matters may be diverted; |
● | it would still be required to pay significant transaction costs related to the merger, including legal, financial advisor, printing, mailing and accounting fees; |
● | under certain circumstances Apple Ten would be required to pay Apple Hospitality a go-shop termination fee of $5 million and reimburse Apple Hospitality’s transaction expenses up to an amount equal to $3 million, or a termination fee of $25 million (see “The Merger Agreement—Termination Fees and Expenses—Termination Fee and Expenses Payable by Apple Ten” beginning on page 111); |
● | under certain circumstances Apple Hospitality would be required to pay Apple Ten a termination fee of $25 million (see “The Merger Agreement—Termination Fees and Expenses—Termination Fee Payable by Apple Hospitality” beginning on page 112); and |
● | reputational harm due to the adverse perception of any failure to successfully complete the merger. |
Furthermore, if the merger is not completed, shareholders of Apple Ten will not have the opportunity to achieve liquidity through the merger and the Apple Ten board would continue to review other liquidity alternatives, which may not occur in the near term or on terms as attractive as the terms of the proposed merger. If the merger is not completed, these risks could materially affect the business and financial results of Apple Hospitality and Apple Ten, the share price of Apple Hospitality common shares and the value of Apple Ten.
In certain circumstances, either of the Apple REITs may terminate the Merger Agreement.
Apple Hospitality or Apple Ten may terminate the Merger Agreement if the merger has not been consummated by August 31, 2016, subject to extension to November 30, 2016 in certain circumstances. Also, the Merger Agreement may be terminated if a final and non-appealable order is entered prohibiting or disapproving the transaction, upon a material uncured breach by the other party that would cause the closing conditions not to be satisfied, or upon the failure to obtain receipt of shareholder approval from either the Apple Ten shareholders or Apple Hospitality shareholders. See “The Merger Agreement—Termination of the Merger Agreement” beginning on page 109.
The closing of the merger is subject to the receipt of certain consents from the franchisors and certain lenders of Apple Ten.
In order for the merger to be completed, the consent of franchisors and certain lenders of Apple Ten must be obtained. There can be no guarantee that these consents will be obtained.
If a substantial number of shareholders of Apple Ten demand appraisal rights, Apple Hospitality’s ability to pay distributions could be adversely affected.
Neither Apple REIT can predict the amount of cash that Apple Hospitality may be required to provide following the merger to any objecting shareholder seeking appraisal rights. If those amounts or the number of objecting shares are substantial, particularly if the number of dissenting shares exceeds the percentage described above and Apple Hospitality waives the applicable closing condition, it could have a material adverse effect on Apple Hospitality’s ability to pay distributions or fund other initiatives or achieve other anticipated benefits of the merger.
The historical and unaudited pro forma condensed consolidated financial information included elsewhere in this joint proxy statement/prospectus may not be representative of Apple Hospitality’s results after the merger, and accordingly, you have limited financial information on which to evaluate Apple Hospitality following the merger.
The unaudited pro forma condensed consolidated financial information included elsewhere in this joint proxy statement/prospectus has been presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that actually would have occurred had the merger been completed as of the dates indicated, nor is it indicative of the future operating results or financial position of Apple Hospitality following the merger. The unaudited pro forma condensed consolidated financial information does not reflect future events that may occur after the merger. The unaudited pro forma condensed consolidated financial information presented elsewhere in this joint proxy statement/prospectus is based in part on certain assumptions regarding the merger that the Apple REITs believe are reasonable under the circumstances. Neither of the Apple REITs can assure you that the assumptions will prove to be accurate over time.
Risks Related to the Combined Company Following the Merger
The following risk factors contemplate that the merger and other transactions contemplated by the Merger Agreement are consummated.
The combined company will have additional indebtedness following the merger and may need to incur more in the future.
The combined company will have additional indebtedness following completion of the merger. At March 31, 2016, Apple Hospitality and Apple Ten had total outstanding indebtedness of approximately $1.0 billion and $240.5 million, respectively. The pro forma combined company’s outstanding indebtedness at March 31, 2016 was approximately $1.4 billion, which includes approximately $104.0 million of indebtedness incurred to pay the estimated cash consideration in the merger and transaction costs. The outstanding indebtedness of Apple Ten at March 31, 2016 will be assumed or repaid using funds available under credit facilities of Apple Hospitality at the closing of the merger. For further information on the pro forma combined company’s outstanding indebtedness, see the “Unaudited Pro Forma Condensed Consolidated Financial Statements” beginning on page F-1.
In addition, the combined company may incur additional indebtedness in the future. The amount of such indebtedness could have material adverse consequences for the combined company, including:
● | hindering the combined company’s ability to adjust to changing market, industry or economic conditions; |
● | limiting the combined company’s ability to access the capital markets to raise additional equity or refinance maturing debt on favorable terms or to fund acquisitions; |
● | limiting the amount of free cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses; and |
● | making the combined company more vulnerable to economic or industry downturns, including interest rate increases. |
Moreover, to respond to competitive challenges, the combined company may be required to raise additional capital to execute its business strategy. The combined company’s ability to arrange additional financing will depend on, among other factors, the combined company’s financial position and performance, as well as prevailing market conditions and other factors beyond the combined company’s control.
The combined company expects to incur substantial expenses related to the merger.
The Apple REITs expect to incur substantial expenses in connection with completing the merger. Although Apple Hospitality and Apple Ten have assumed that a certain level of transaction and integration expenses will be incurred, there are a number of factors beyond their control that could affect the total amount or the timing of the incurrence of the transaction expenses. Many of the expenses that will be incurred, by their nature, are difficult to
estimate accurately at the present time. As a result, the transaction expenses associated with the merger could be greater than anticipated.
The future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the merger.
Following the merger, the combined company will have expanded operations and operate in additional markets where Apple Hospitality does not currently have a significant presence. The combined company also expects to continue to expand its operations, including possibly through additional acquisitions of hotels, some of which may involve complex challenges. The future success of the combined company will depend, in part, upon the ability of the combined company to manage its expanded operations, which may pose substantial challenges for the combined company to integrate new operations into its existing business in an efficient and timely manner, and upon its ability to successfully monitor its operations, costs, regulatory compliance and service quality, and to maintain other necessary internal controls. There is no assurance that the combined company’s expanded operations or acquisition opportunities will be successful, or that the combined company will realize its expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.
Risks Related to an Investment in Apple Hospitality Common Shares Following the Merger
The following risk factors contemplate that the merger and the other transactions contemplated by the Merger Agreement are consummated.
Following the merger, the market price of Apple Hospitality common shares may be affected by factors different from those affecting the price of Apple Hospitality common shares before the merger.
The results of operations of Apple Hospitality, as well as the market price of Apple Hospitality common shares after the merger may be affected by factors in addition to those currently affecting Apple Hospitality’s or Apple Ten’s results of operations and the market prices of Apple Hospitality common shares. These factors include:
● | the possibility that the Apple Ten shareholders, who prior to the merger have held Apple Ten shares which are not traded on a stock exchange and thus are difficult to sell, may wish to monetize their investment by selling the Apple Hospitality common shares they receive in the merger; |
● | a greater number of Apple Hospitality common shares outstanding as compared to the number of currently outstanding shares; |
● | additional shareholders; |
● | additional markets in which Apple Hospitality hotels operate; and |
● | the benefits of the merger or the effect of the merger on Apple Hospitality’s financial results is not consistent with the expectations. |
Accordingly, the historical market prices of Apple Hospitality and financial results of Apple Hospitality and Apple Ten may not be indicative of these matters for Apple Hospitality after the merger. In addition, if current shareholders of Apple Hospitality and Apple Ten dispose of some or all of their Apple Hospitality common shares, including for any of the reasons listed above, the price of Apple Hospitality common shares could decline. For a discussion of the business of Apple Hospitality and certain risks to consider in connection with investing in its business, see the documents incorporated by reference by Apple Hospitality into this prospectus/proxy statement referred to under “Where You Can Find More Information and Incorporation by Reference” on page 145 and the Annual Report on Form 10-K for the year ended December 31, 2015 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 of Apple Ten attached hereto as Annexes G and H, respectively.
Following the merger, Apple Hospitality may not pay dividends at the rate it currently pays.
Apple Hospitality shareholders may not receive dividends at the same rate that they did prior to the merger. Decisions on whether, when and in what amounts to make any future dividends will remain at all times entirely at the discretion of the Apple Hospitality board, which reserves the right to change Apple Hospitality’s dividend practices at any time and for any reason. Changes to dividend practices may occur for various reasons, including due to limitations under financing arrangements or other cash needs. Shareholders of Apple Hospitality will have no contractual or other legal right to dividends that have not been declared by the Apple Hospitality board.
While Apple Hospitality generally seeks to make distributions from its operating cash flows, distributions may be made (although there is no obligation to do so) in certain circumstances, in part, from financing proceeds or other sources. While distributions from such sources would result in the shareholder receiving cash, the consequences to the shareholders would differ from a distribution from Apple Hospitality’s operating cash flows. For example, if financing is the source of a distribution, that financing would not be available for other opportunities and would have to be repaid.
Three Months Ended March 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||
(in thousands except per share data) | Apple Hospitality | Apple Ten | Apple Hospitality | Apple Ten | ||||||||||||
Cash flow from operating activities | $ | 50,804 | $ | 14,793 | $ | 281,052 | $ | 83,853 | ||||||||
Total distributions paid | $ | 52,360 | $ | 18,232 | $ | 229,127 | $ | 74,259 | ||||||||
Total distributions paid per common share | $ | 0.300 | $ | 0.206 | $ | 1.267 | $ | 0.825 |
The Apple REITs believe that cash is fungible and the source of distributions is not determinable. For further information, see Apple Hospitality’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 incorporated by reference in this joint proxy statement/prospectus, and Apple Ten’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 attached to this joint proxy statement/prospectus as Annex G and Annex H, respectively.
Upon consummation of the merger, the holders of Apple Ten units and Apple Ten Series B convertible preferred shares will lose their liquidation preference.
At the effective time of the merger, each Apple Ten unit will be converted into the right to receive (i) 0.522 Apple Hospitality common shares and (ii) $1.00 in cash and each Apple Ten Series B convertible preferred share will be converted into the right to receive (x) a number of Apple Hospitality common shares equal to 12.11423 multiplied by the unit exchange ratio and (y) an amount in cash equal to 12.11423 multiplied by $1.00. As a result, all holders of Apple Ten units and Apple Ten Series B convertible preferred shares will hold only Apple Hospitality common shares and will no longer be entitled to a priority distribution upon the sale of assets in liquidation associated with the Apple Ten Series A preferred shares and Apple Ten Series B convertible preferred shares.
After the merger is completed, holders of Apple Ten units and Apple Ten Series B convertible preferred shares who receive Apple Hospitality common shares in the merger will have different rights that may be less favorable than their current rights as holders of Apple Ten units and Apple Ten Series B convertible preferred shares.
After the closing of the merger, holders of Apple Ten units and Apple Ten Series B convertible preferred shares who receive Apple Hospitality common shares in the merger will have different rights than they currently have as holders of Apple Ten units and Apple Ten Series B convertible preferred shares which may be less favorable. For a detailed discussion of the significant differences between the current rights of holders of Apple Ten units and Apple Ten Series B convertible preferred shares and the rights of a holder of Apple Hospitality common shares following the merger, see “Comparison of Rights of Apple Ten and Apple Hospitality Shareholders” beginning on page 128.
Apple Hospitality has no restriction on changes in its investment and financing policies and the Apple Hospitality board may change these policies without shareholder approval.
Although the bylaws of Apple Ten impose certain restrictions on its investment activities, the Apple Hospitality bylaws and articles of incorporation do not contain similar restrictions. The Apple Hospitality board approves its investment and financing policies, including its policies with respect to growth, debt, capitalization and payment of distributions. The Apple Hospitality board could at any time amend or waive current investment or financing policies at its discretion without a vote of shareholders. For example, the Apple Hospitality board could determine without shareholder approval that it is in the best interests of the shareholders to cease all investments in hotels or to make investments primarily in other types of assets. Further, the Apple Hospitality board may in its sole discretion determine the amount and nature of the aggregate debt of Apple Hospitality.
Risks Related to Tax Following the Merger
Apple Hospitality may incur adverse tax consequences if Apple Hospitality has failed or fails, or if Apple Ten has failed, to qualify as a REIT for U.S. federal income tax purposes.
Each of Apple Ten and Apple Hospitality has operated in a manner that it believes has allowed it to qualify as a REIT for U.S. federal income tax purposes under the Code, and intends to continue to do so through the time of the merger. Apple Hospitality intends to operate in a manner that it believes will allow it to qualify as a REIT after the merger. Neither Apple Ten nor Apple Hospitality has requested or plans to request a ruling from the Internal Revenue Service (the “IRS”) that it qualifies as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within the control of either of Apple Ten or Apple Hospitality may affect its ability to qualify as a REIT. In order to qualify as a REIT, each of Apple Ten and Apple Hospitality must satisfy a number of requirements, including requirements regarding the ownership of its shares and the composition of its gross income and assets. Also, a REIT must make distributions to shareholders aggregating annually at least 90% of its net taxable income, excluding any net capital gains.
If Apple Hospitality loses its REIT status, or is determined to have lost its REIT status in a prior year, it will face serious tax consequences that would substantially reduce its cash available for distribution, including cash available to pay dividends to its shareholders, because:
● | it would be subject to U.S. federal income tax on its net income at regular corporate rates for the years it did not qualify for taxation as a REIT (and, for such years, would not be allowed a deduction for dividends paid to shareholders in computing its taxable income); |
● | it could be subject to the federal alternative minimum tax and possibly increased state and local taxes for such periods; |
● | unless it is entitled to relief under applicable statutory provisions, neither it nor any “successor” company could elect to be taxed as a REIT for four taxable years following the year during which it was disqualified; and |
● | for the five years following re-election of REIT status, upon a taxable disposition of an asset owned as of such re-election, it would be subject to corporate level tax with respect to any built-in gain inherent in such asset at the time of re-election. |
Even if Apple Hospitality retains its REIT status, if Apple Ten is determined to have lost its REIT status for a taxable year ending on or before the merger, Apple Hospitality could face serious tax consequences that would substantially reduce its cash available for distribution, including cash available to pay dividends to its shareholders, because, assuming that Apple Hospitality otherwise maintains its REIT qualification:
● | Apple Hospitality would be subject to tax (at the highest corporate rate in effect at the date of the sale) on the built-in gain on each asset of Apple Ten existing at the time of the merger if Apple Hospitality were to dispose of the Apple Ten asset for up to five years following the merger; |
● | Apple Hospitality would succeed to any earnings and profits accumulated by Apple Ten for taxable periods that it did not qualify as a REIT, and Apple Hospitality would have to pay a special dividend and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate such earnings and profits (if Apple Hospitality does not timely distribute those earnings and profits, Apple Hospitality could fail to qualify as a REIT); and |
● | if Apple Ten incurred any unpaid tax liabilities prior to the merger, those tax liabilities would be transferred to Apple Hospitality as a result of the merger. |
If there is an adjustment to Apple Ten’s taxable income or dividends paid deductions, Apple Hospitality could elect to use the deficiency dividend procedure in order to maintain Apple Ten’s REIT status. That deficiency dividend procedure could require Apple Hospitality to make significant distributions to its shareholders and to pay significant interest to the IRS.
As a result of all these factors, Apple Hospitality’s failure (before or after the merger), or Apple Ten’s failure (before or at the merger), to qualify as a REIT could impair Apple Hospitality’s ability after the merger to expand its business and raise capital, and could materially adversely affect the value of Apple Hospitality’s common shares.
If the merger fails to qualify as a reorganization under the Code, there will be adverse tax consequences.
The parties intend that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code, and Apple Ten will receive a legal opinion to that effect from its legal counsel, McGuireWoods LLP, and Apple Hospitality will receive a legal opinion to that effect from its legal counsel, Hogan Lovells US LLP. These tax opinions represent the legal judgment of counsel rendering the opinion and are not binding on the IRS or the courts. If the merger were to fail to qualify as a reorganization, then an Apple Ten shareholder generally would recognize gain or loss, as applicable, equal to the difference between (i) the sum of the amount of cash received (including cash received in lieu of a fractional Apple Hospitality common share) and the fair market value of the Apple Hospitality common shares received in the merger (determined at the effective time of the merger) and (ii) the Apple Ten shareholder’s adjusted tax basis in the Apple Ten shares deemed surrendered in the merger. Moreover, Apple Ten would be treated as selling, in a taxable transaction, all of its assets to Apple Hospitality, with the result that Apple Ten would generally recognize gain or loss on the deemed transfer of its assets to Apple Hospitality and, unless Apple Ten has made distributions (which would be deemed to include for this purpose the cash and fair market value of the Apple Hospitality common shares issued pursuant to the merger) to Apple Ten shareholders in an amount at least equal to the net income or gain on the deemed sale of its assets to Apple Hospitality, Apple Ten could incur a significant current tax liability, which, as a result of the merger, Apple Hospitality would be liable for.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus and the annexes to this joint proxy statement/prospectus contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are predictions and generally can be identified by use of statements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “likely,” or other words, phrases or expressions of similar import, or the negative or other words or expressions of similar meaning, and statements regarding the benefits of the merger or the other transactions contemplated by the Merger Agreement or the future financial condition, results of operations and business of any Apple REIT. Without limiting the generality of the preceding sentence, certain information contained in the sections “The Merger—Background of the Merger,” “The Merger—Recommendation of the Apple Hospitality Board and Its Reasons for the Merger,” “The Merger—Recommendation of the Apple Ten Board and Its Reasons for the Merger,” “The Merger—Certain Apple Hospitality Unaudited Prospective Financial Information,” and “The Merger—Certain Apple Ten Unaudited Prospective Financial Information” constitute forward-looking statements.
The Apple REITs base these forward-looking statements on particular assumptions that they have made in light of their industry experience, as well as their perception of historical trends, current conditions, expected future developments and other factors that they believe are appropriate under the circumstances. The forward-looking statements are necessarily estimates reflecting the judgment of the Apple REITs’ respective management and involve a number of known and unknown risks, uncertainties and other factors which may cause actual results, performance, or achievements of Apple Hospitality, Apple Ten or the pro forma combined company to be materially different from those expressed or implied by the forward-looking statements. In addition to other factors and matters contained in this joint proxy statement/prospectus, including those disclosed under “Risk Factors” beginning on page 29, these forward-looking statements are subject to risks, uncertainties and other factors, including, among others:
● | the ability of the Apple REITs to obtain the required shareholder and other third party approvals to consummate the merger; |
● | the satisfaction or waiver of other conditions in the Merger Agreement; |
● | the risk that the merger or the other transactions contemplated by the Merger Agreement may not be completed in the time frame expected by the parties or at all; |
● | the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement and that a termination under certain circumstances could require an Apple REIT to pay the other Apple REIT a termination fee and expense reimbursement, as described under “The Merger Agreement—Termination Fees and Expenses” beginning on page 111; |
● | the ability of Apple Hospitality to effectively acquire and dispose of properties, including properties to be acquired in the merger; |
● | the ability of Apple Hospitality to successfully integrate pending transactions and implement its operating strategy, including the merger; |
● | changes in general political, economic and competitive conditions and specific market conditions; |
● | adverse changes in the real estate and real estate capital markets; |
● | financing risks; |
● | the outcome of current and future litigation, including any legal proceedings that may be instituted against Apple Hospitality, Apple Ten and others related to the Merger Agreement; |
● | regulatory proceedings or inquiries; |
● | changes in laws or regulations or interpretations of current laws and regulations that impact Apple Hospitality’s or Apple Ten’s business, assets or classification as a real estate investment trust; and |
● | other risks detailed in filings made by each Apple REIT with the SEC, including the Annual Report on Form 10-K for the year ended December 31, 2015 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed by Apple Hospitality with the SEC and incorporated herein by reference |
and the Annual Report on Form 10-K for the year ended December 31, 2015 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed by Apple Ten and attached to this joint proxy statement/prospectus as Annexes G and H, respectively. See also “Where You Can Find More Information and Incorporation by Reference” on page 145 of this joint proxy statement/prospectus. |
Although Apple Hospitality and Apple Ten believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this joint proxy statement/prospectus will prove to be accurate. As you read and consider the information in this joint proxy statement/prospectus, you are cautioned to not place undue reliance on these forward-looking statements. These statements are not guarantees of performance or results and speak only as of the date of this joint proxy statement/prospectus, in the case of forward-looking statements contained in this joint proxy statement/prospectus, or the dates of the documents incorporated by reference or attached as annexes to this joint proxy statement/prospectus, in the case of forward-looking statements made in those documents. Neither Apple Hospitality nor Apple Ten undertakes any obligation to update or revise any forward-looking statements, whether as a result of new information or developments, future events, or otherwise, except as required by law.
All forward-looking statements, expressed or implied, included in this joint proxy statement/prospectus are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Apple Hospitality, Apple Ten or persons acting on their behalf may issue.
Apple Hospitality REIT, Inc.
814 East Main Street
Richmond, Virginia 23219
(804) 344-8121
Apple Hospitality, a, Virginia corporation, is a self-advised REIT that invests in income-producing real estate, primarily in the lodging sector, in the United States. As of April 30, 2016, Apple Hospitality owned 179 hotels operating in 32 states with an aggregate of 22,961 rooms. All of Apple Hospitality’s hotels operate under Marriott or Hilton brands. Apple Hospitality has elected to be treated as a REIT for federal income tax purposes. Apple Hospitality has wholly-owned taxable REIT subsidiaries, which lease all of Apple Hospitality’s hotels from wholly-owned qualified REIT subsidiaries. The hotels are operated and managed under separate management agreements with 20 hotel management companies, none of which are affiliated with Apple Hospitality.
On May 18, 2015, Apple Hospitality’s common shares were listed and began trading on the NYSE under the ticker symbol “APLE”.
For more information about Apple Hospitality, please see the documents incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information and Incorporation by Reference” beginning on page 145.
Apple REIT Ten, Inc.
814 East Main Street
Richmond, Virginia 23219
(804) 344-8121
Apple Ten, a Virginia corporation, is a non-traded REIT that invests in hotels and other income-producing real estate in selected metropolitan areas in the United States. As of April 30, 2016, Apple Ten owned 56 hotels operating in 17 states with an aggregate of 7,209 rooms. All of Apple Ten’s hotels operate under Marriott or Hilton brands. Apple Ten has elected to be treated as a REIT for federal income tax purposes. Apple Ten has wholly-owned taxable REIT subsidiaries, which lease all of Apple Ten’s hotels from wholly-owned qualified REIT subsidiaries. The hotels are operated and managed under separate management agreements with 12 hotel management companies, none of which are affiliated with Apple Ten.
Initial capitalization occurred on August 13, 2010, with its first investor closing under its best-efforts offering of units on January 27, 2011. Apple Ten concluded its best-efforts offering of units on July 31, 2014. Apple Ten, through its best-efforts offering, originally sold its units for $10.50-$11.00 per unit. Since its initial offering in 2011 through April 30, 2016, Apple Ten has paid approximately $4.33 per unit in distributions, or $297 million in the aggregate.
Apple Ten is externally managed and advised by Apple Hospitality through a subcontract agreement with Apple Ten Advisors, which is owned by Glade M. Knight.
For more information about Apple Ten, please see Apple Ten’s Annual Report on Form 10-K for the year ended December 31, 2015, a copy of which is attached to this joint proxy statement/prospectus as Annex G, and Apple Ten’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, a copy of which is attached to this joint proxy statement/prospectus as Annex H. For more information on Apple Ten, see “Where You Can Find More Information and Incorporation by Reference” on page 145.
34 Consolidated, Inc.
814 East Main Street
Richmond, Virginia 23219
(804) 344-8121
Acquisition Sub, a Virginia corporation, was formed on April 8, 2016 solely for the purpose of facilitating Apple Hospitality’s acquisition of Apple Ten. Apple Hospitality owns all of the outstanding shares of common stock of Acquisition Sub. Acquisition Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement. Upon completion of the proposed merger, Apple Ten will merge with and into Acquisition Sub and Acquisition Sub will continue as the surviving corporation.
The common shares of the combined company will continue to be listed on the NYSE, trading under the symbol “APLE.”
The combined company’s principal executive offices will continue to be located at 814 East Main Street, Richmond, Virginia 23219 and its telephone number is (804) 344-8121.
THE APPLE HOSPITALITY SPECIAL MEETING
Purpose of the Apple Hospitality Special Meeting
● | consider and vote on the Share Issuance Proposal, the proposal to approve the issuance of Apple Hospitality common shares to the shareholders of Apple Ten in the merger pursuant to the Merger Agreement; |
● | to consider and vote on the Apple Hospitality Adjournment Proposal, the proposal to approve the adjournment of the Apple Hospitality special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Share Issuance Merger Proposal; and |
● | to transact such other business as may properly come before the Apple Hospitality special meeting or any adjournments or postponements of the special meeting. |
Only business within the purposes described in the Notice of Special Meeting of Apple Hospitality Shareholders may be conducted at the Apple Hospitality special meeting. Any action may be taken on the items of business described above at the Apple Hospitality special meeting on the date specified above, or on any date or dates to which the special meeting may be postponed or to which, by original or later adjournment, the special meeting may be adjourned.
This joint proxy statement/prospectus also contains information regarding the Apple Ten special meeting, including the items of business for that special meeting. Apple Hospitality shareholders are not voting on the proposals to be voted on at the Apple Ten special meeting.
Record Date; Voting Rights; Proxies
You may submit your proxy either by telephone, through the Internet or by mailing the enclosed proxy card, or you may vote in person at the Apple Hospitality special meeting.
● | To submit your proxy by telephone, dial (800) 690-6903 using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the enclosed proxy card. To submit your proxy through the Internet, visit www.proxyvote.com. You will be asked to provide the company number and control number from the enclosed proxy card. Proxies submitted by telephone or through the Internet must be received by 11:59 p.m., Eastern time, on August 30, 2016. |
● | To submit your proxy by mail, complete, date and sign each proxy card you receive and return it as promptly as practicable in the enclosed prepaid envelope. If you sign and return your proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted “FOR” the Share Issuance Proposal and “FOR” the Apple Hospitality Adjournment Proposal. |
● | If you intend to vote in person, please bring proper identification, together with proof that you are a record owner of Apple Hospitality common shares. If your Apple Hospitality common shares are held in “street name,” please bring acceptable proof of ownership, such as a letter from your broker or an account statement showing that you beneficially own such shares on the applicable record date. |
If you hold your Apple Hospitality common shares in “street name,” please read the question and answer referencing “street name” shares above.
All Apple Hospitality common shares that are entitled to vote and are represented at the Apple Hospitality special meeting by properly executed proxies received before or at the special meeting and not revoked, will be voted at such special meeting in accordance with the instructions indicated on the proxies. If no instructions are given on a timely and properly executed proxy card, your shares will be voted:
● | “FOR” the Share Issuance Proposal; and |
● | “FOR” the Apple Hospitality Adjournment Proposal. |
Votes cast by proxy or in person at the Apple Hospitality special meeting will be tabulated by the inspector of elections appointed for the special meeting who will determine whether or not a quorum is present.
If any other matters are properly presented at the Apple Hospitality special meeting for consideration, the persons named in the proxies will have discretion to vote on such matters in accordance with their best judgment.
Any proxy given by a shareholder pursuant to this solicitation may be revoked at any time before the vote is taken at the special meeting in any of the following ways:
● | submitting a later proxy by telephone or through the Internet prior to 11:59 p.m., Eastern time, on August 30, 2016; |
● | filing with the Secretary of Apple Hospitality, before the taking of the vote at the Apple Hospitality special meeting, a written notice of revocation bearing a later date than the proxy card; |
● | duly executing a later dated proxy card relating to the same shares and delivering it to the Secretary of Apple Hospitality before the taking of the vote at the Apple Hospitality special meeting; or |
● | voting in person at the Apple Hospitality special meeting, although attendance at the special meeting will not by itself constitute a revocation of a proxy. |
Any written notice of revocation or subsequent proxy card should be sent to Apple Hospitality REIT, Inc., 814 East Main Street, Richmond, Virginia 23219, Attention: Secretary, or hand delivered to the Secretary of Apple Hospitality before the taking of the vote at the Apple Hospitality special meeting.
Apple Hospitality is soliciting proxies on behalf of the Apple Hospitality board. Apple Hospitality will bear the costs of soliciting proxies. Brokerage houses, fiduciaries, nominees and others will be reimbursed for their out-of-pocket expenses in forwarding proxy materials to owners of Apple Hospitality common shares held in their names. In addition to the solicitation of proxies by use of the mails, proxies may be solicited from Apple Hospitality shareholders by directors, officers and employees of Apple Hospitality in person or by telephone, by facsimile, on the Internet or other appropriate means of communications. No additional compensation, except for reimbursement of reasonable out-of-pocket expenses, will be paid to directors, officers and employees of Apple Hospitality in connection with this solicitation. Apple Hospitality has retained David Lerner Associates, Inc. to solicit, and for advice and assistance in connection with the solicitation of, proxies for the Apple Hospitality special meeting at a cost of $100,000, including out-of-pocket expenses. No portion of the amount that Apple Hospitality has agreed to pay to David Lerner Associates, Inc. is contingent upon the closing of the merger. Apple Hospitality has agreed to indemnify David Lerner Associates, Inc. against any loss, damage, expense, liability or claim arising out of such services, other than out-of-pocket expenses incurred in the ordinary course or resulting from David Lerner Associates, Inc.’s negligence, misconduct or failure to comply with applicable requirements of laws, rules or regulations. David Lerner Associates, Inc. has agreed to indemnify Apple Hospitality against any loss, damage, expense, liability or claim arising out of David Lerner Associates, Inc.’s negligence, misconduct, or any failure to comply with applicable laws, rules or regulations. Any questions or requests for assistance regarding this joint proxy statement/prospectus and related proxy materials may be directed to Apple Hospitality by telephone at (804) 344-8121, Attention: Investor Relations, or your bank, broker or other custodian that holds your shares.
Quorum; Abstentions and Broker Non-Votes
The holders of a majority of the outstanding Apple Hospitality common shares entitled to vote at the Apple Hospitality special meeting and present in person or represented by proxy, will constitute a quorum at the special meeting. Shares that abstain from voting will be treated as shares that are present and entitled to vote at the Apple Hospitality special meeting for purposes of determining whether a quorum exists. Because approval of the Share Issuance Proposal requires that the number of votes cast for this proposal exceeds the number of votes cast against this proposal from holders of the Apple Hospitality common shares represented in person or by proxy and entitled to vote at the Apple Hospitality special meeting, abstentions and the failure to return a proxy card will have no effect on the outcome of this proposal provided a quorum is otherwise present at the special meeting. With respect to the Apple Hospitality Adjournment Proposal, if you are present in person or by proxy at the Apple Hospitality special meeting, abstentions will have the same effect as a vote “AGAINST” the proposal, and if you are not present in person or by proxy at the Apple Hospitality special meeting, it will not have an effect on the proposal.
Banks, brokers and other nominees that hold their customers’ shares in street name may not vote their customers’ shares on “non-routine” matters without instructions from their customers. As each of the proposals to be voted upon at the Apple Hospitality special meeting is considered “non-routine,” such organizations do not have discretion to vote on any of the proposals. As a result, if you fail to provide your broker, bank or other nominee with any instructions regarding how to vote your Apple Hospitality common shares, your Apple Hospitality common shares will not be considered present at the Apple Hospitality special meeting and will not be voted on any of the proposals.
The approval of the Share Issuance Proposal will require that the number of votes cast for this proposal exceeds the number of votes cast against this proposal from holders of the Apple Hospitality common shares represented in person or by proxy and entitled to vote at the Apple Hospitality special meeting, assuming a quorum is present.
The approval of the Apple Hospitality Adjournment Proposal will require the affirmative vote of the holders of a majority of the Apple Hospitality common shares present in person or by proxy and entitled to vote at the Apple Hospitality special meeting, whether or not a quorum is present
Regardless of the number of Apple Hospitality common shares you own, your vote is important. Please complete, sign, date and promptly return the enclosed proxy card today or vote by phone or internet.
Voting Agreement and Apple Hospitality Common Shares
Glade M. Knight, executive chairman of Apple Hospitality, has entered into a voting agreement with the Apple REITs. Pursuant to the terms of the voting agreement, Mr. Knight has agreed to vote all of his Apple Hospitality common shares and any additional securities of Apple Hospitality acquired by Mr. Knight after April 13, 2016 in favor of the Share Issuance Proposal and the Apple Hospitality Adjournment Proposal. Mr. Knight owns 8,042,857 of the issued and outstanding Apple Hospitality common shares. Mr. Knight has not acquired any Apple Hospitality common shares since April 13, 2016.
The voting agreement also requires Mr. Knight: (i) to vote all his Apple Hospitality common shares against any action or agreement that would reasonably be expected to impede, interfere with, or delay the consummation of the transactions contemplated by the Merger Agreement and any acquisition proposal (other than the merger) and any action required in furtherance thereof, (ii) to waive, and prevent the execution of, any appraisal and dissenters’ rights relating to the merger that Mr. Knight may have directly or indirectly and (iii) to not sell or transfer any Apple REIT securities beneficially owned by Mr. Knight or grant any proxies or deposit such securities into a voting trust or enter into a voting agreement with respect to such securities or take any action that is intended to have the effect of preventing Mr. Knight from complying with the voting agreement. For more information on the voting agreement with Mr. Knight, see “Voting Agreement between the Apple REITs and Glade M. Knight” on page 114.
PROPOSALS SUBMITTED TO APPLE HOSPITALITY SHAREHOLDERS
(Proposal 1 on the Apple Hospitality Proxy Card)
Apple Hospitality shareholders are being asked to approve the issuance of Apple Hospitality common shares to the shareholders of Apple Ten in the merger pursuant to the Merger Agreement. For a summary and detailed information regarding this proposal, see the information about the merger and the Merger Agreement throughout this joint proxy statement/prospectus, including the information set forth in sections entitled “The Merger” beginning on page 53 and “The Merger Agreement” beginning on page 92. A copy of the Merger Agreement is attached as Annex A to this joint proxy statement/prospectus.
Pursuant to the Merger Agreement, approval of this proposal is a condition to the consummation of the merger. If this proposal is not approved, the merger will not be completed.
Approval of the Share Issuance Proposal requires that the number of votes cast for this proposal exceeds the number of votes cast against this proposal from holders of the Apple Hospitality common shares represented in person or by proxy and entitled to vote at the Apple Hospitality special meeting, assuming a quorum is present.
Recommendation of the Apple Hospitality Board
The Apple Hospitality board recommends that Apple Hospitality shareholders vote “FOR” the Share Issuance Proposal to issue Apple Hospitality common shares to shareholders of Apple Ten in the merger pursuant to the Merger Agreement.
Apple Hospitality Adjournment Proposal
(Proposal 2 on the Apple Hospitality Proxy Card)
Apple Hospitality shareholders are being asked to approve a proposal that will give the Apple Hospitality board the authority to adjourn the Apple Hospitality special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Share Issuance Proposal if there are not sufficient votes at the time of the Apple Hospitality special meeting to approve the Share Issuance Proposal.
If, at the Apple Hospitality special meeting, the number of Apple Hospitality common shares present or represented by proxy and voting for the approval of the Share Issuance Proposal is insufficient to approve such proposal or a quorum does not exist, Apple Hospitality intends to move to adjourn the Apple Hospitality special meeting to another place, date or time in order to enable the Apple Hospitality board to solicit additional proxies for approval of the Share Issuance Proposal. The holders of a majority of the Apple Hospitality common shares present at the Apple Hospitality special meeting, in person or by proxy, may adjourn the special meeting to another place, date or time. Apple Hospitality does not intend to call a vote on this proposal if the Share Issuance Proposal considered at the Apple Hospitality special meeting has been approved at the Apple Hospitality special meeting.
If the Apple Hospitality special meeting is adjourned for the purpose of soliciting additional proxies, Apple Hospitality shareholders who have already submitted their proxies will be able to revoke them at any time prior to their use.
Approval of the Apple Hospitality Adjournment Proposal requires the affirmative vote of the holders of a majority of the Apple Hospitality common shares present in person or by proxy and entitled to vote at the Apple Hospitality special meeting, whether or not a quorum is present.
Recommendation of the Apple Hospitality Board
The Apple Hospitality board recommends that Apple Hospitality shareholders vote “FOR” the Apple Hospitality Adjournment Proposal to adjourn the Apple Hospitality special meeting, if necessary or appropriate, to solicit additional votes for the approval of the Share Issuance Proposal.
At this time, Apple Hospitality does not intend to bring any other matters before the Apple Hospitality special meeting, and Apple Hospitality does not know of any matters to be brought before the Apple Hospitality special meeting by others. If, however, any other matters properly come before the Apple Hospitality special meeting, the persons named in the enclosed proxy, or their duly constituted substitutes, acting at the Apple Hospitality special meeting or any adjournment or postponement thereof will be deemed authorized to vote the Apple Hospitality common shares represented thereby in accordance with the judgment of management on any such matter.
Purpose of the Apple Ten Special Meeting
● | to consider and vote on a proposal to approve the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement (the “Apple Ten Merger Proposal”); |
● | to consider and vote on a proposal to approve the adjournment of the Apple Ten special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Apple Ten Merger Proposal (the “Apple Ten Adjournment Proposal”); and |
● | to transact such other business as may properly come before the Apple Ten special meeting or any adjournments or postponements of the special meeting. |
Only business within the purposes described in the Notice of Special Meeting of Apple Ten Shareholders may be conducted at the Apple Ten special meeting. Any action may be taken on the items of business described above at the Apple Ten special meeting on the date specified above, or on any date or dates to which the special meeting may be postponed or to which, by original or later adjournment, the special meeting may be adjourned.
This joint proxy statement/prospectus also contains information regarding the Apple Hospitality special meeting, including the items of business for that special meeting. Apple Ten shareholders are not voting on the proposals to be voted on at the Apple Hospitality special meeting.
Record Date; Voting Rights; Proxies
You may submit your proxy either by telephone, through the Internet or by mailing the enclosed proxy card, or you may vote in person at the Apple Ten special meeting.
● | To submit your proxy by telephone, dial (800) 690-6903 using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the enclosed proxy card. To submit your proxy through the Internet, visit www.proxyvote.com. You will be asked to provide the company number and control number from the enclosed proxy card. Proxies submitted by telephone or through the Internet must be received by 11:59 p.m., Eastern time, on August 30, 2016. |
● | To submit your proxy by mail, complete, date and sign each proxy card you receive and return it as promptly as practicable in the enclosed prepaid envelope. If you sign and return your proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted “FOR” the Apple Ten Merger Proposal and “FOR” the Apple Ten Adjournment Proposal. |
● | If you intend to vote in person, please bring proper identification, together with proof that you are a record owner of the Apple Ten shares. If your Apple Ten shares are held in “street name,” please bring acceptable proof of ownership, such as a letter from your broker or an account statement showing that you beneficially own such shares on the applicable record date. |
If you hold your Apple Ten shares in “street name,” please read the question and answer referencing “street name” shares above.
All Apple Ten shares that are entitled to vote and are represented at the Apple Ten special meeting by properly executed proxies received before or at the special meeting and not revoked, will be voted at such special meeting in accordance with the instructions indicated on the proxies. If no instructions are given on a timely and properly executed proxy card, your shares will be voted:
● | “FOR” the Apple Ten Merger Proposal; and |
● | “FOR” the Apple Ten Adjournment Proposal. |
Votes cast by proxy or in person at the Apple Ten special meeting will be tabulated by the inspector of elections appointed for the special meeting who will determine whether or not a quorum is present.
If any other matters are properly presented at the Apple Ten special meeting for consideration, the persons named in the proxies will have discretion to vote on such matters in accordance with their best judgment.
Any proxy given by a shareholder pursuant to this solicitation may be revoked at any time before the vote is taken at the special meeting in any of the following ways:
● | submitting a later proxy by telephone or through the Internet prior to 11:59 p.m., Eastern time, on August 30, 2016; |
● | filing with the Secretary of Apple Ten, before the taking of the vote at the Apple Ten special meeting, a written notice of revocation bearing a later date than the proxy card; |
● | duly executing a later dated proxy card relating to the same shares and delivering it to the Secretary of Apple Ten before the taking of the vote at the Apple Ten special meeting; or |
● | voting in person at the Apple Ten special meeting, although attendance at the special meeting will not by itself constitute a revocation of a proxy. |
Any written notice of revocation or subsequent proxy card should be sent to Apple REIT Ten, Inc., 814 East Main Street, Richmond, Virginia 23219, Attention: Secretary, or hand delivered to the Secretary of Apple Ten before the taking of the vote at the Apple Ten special meeting.
Quorum; Abstentions and Broker Non-Votes
The holders of a majority of the outstanding Apple Ten common shares, Series A preferred shares and Series B convertible preferred shares, in each case entitled to vote at the Apple Ten special meeting and present in person or represented by proxy, will constitute a quorum at the special meeting for each such class of shares. Shares that abstain from voting will be treated as shares that are present and entitled to vote at the Apple Ten special meeting for purposes of determining whether a quorum exists. Because approval of the Apple Ten Merger Proposal requires the affirmative vote of a specified amount of each of the outstanding Apple Ten common shares, Apple Ten Series A preferred shares and Apple Ten Series B convertible preferred shares, abstentions and the failure to vote will have the same effect as votes “AGAINST” approval of the Apple Ten Merger Proposal. With respect to the Apple Ten Adjournment Proposal, if you are present in person or by proxy at the Apple Ten special meeting, abstentions will have the same effect as a vote “AGAINST” the proposal, and if you are not present in person or by proxy at the Apple Ten special meeting, it will not have an effect on the proposal.
Banks, brokers and other nominees that hold their customers’ shares in street name may not vote their customers’ shares on “non-routine” matters without instructions from their customers. As each of the proposals to be voted upon at the Apple Ten special meeting is considered “non-routine,” such organizations do not have discretion to vote on any of the proposals. As a result, if you fail to provide your broker, bank or other nominee with any instructions regarding how to vote your Apple Ten shares, your Apple Ten shares will not be considered present at the Apple Ten special meeting and will not be voted on any of the proposals.
The approval of the Apple Ten Merger Proposal will require the affirmative vote, in each case voting as a separate voting group, of the holders of:
● | a majority of the outstanding Apple Ten common shares; |
● | a majority of the outstanding Apple Ten Series A preferred shares; and |
● | a majority of the outstanding Apple Ten Series B convertible preferred shares. |
The approval of the Apple Ten Adjournment Proposal will require the affirmative vote of the holders of a majority of the Apple Ten common shares present in person or by proxy at the Apple Ten special meeting, whether or not a quorum is present. Holders of Apple Ten Series A preferred shares and Series B convertible preferred shares are not entitled to vote those shares on the Apple Ten Adjournment Proposal.
Regardless of the number of Apple Ten shares you own, your vote is important. Please complete, sign, date and promptly return the enclosed proxy card today or vote by phone or internet.
Voting Agreement and Apple Ten Units and Apple Ten Series B Convertible Preferred Shares
Glade M. Knight, chairman and chief executive officer of Apple Ten, has entered into a voting agreement with the Apple REITs. Pursuant to the terms of the voting agreement, Mr. Knight has agreed to vote all of his Apple Ten Series B convertible preferred shares in favor of the Apple Ten Merger Proposal. Mr. Knight currently is the owner of record of all outstanding 480,000 Apple Ten Series B convertible preferred shares, which are sufficient to approve, on behalf of the Apple Ten Series B convertible preferred shareholders only, the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement.
The voting agreement also requires Mr. Knight to vote all of his Apple Ten common shares and Apple Ten Series A preferred shares and any additional securities of Apple Ten acquired by Mr. Knight after April 13, 2016 in favor of the Apple Ten Merger Proposal. The voting agreement also requires Mr. Knight to vote all of his Apple Ten common shares and any additional Apple Ten securities of record acquired by Mr. Knight after April 13, 2016 in favor of the Apple Ten Adjournment Proposal. Mr. Knight owns 90,920 of the issued and outstanding Apple Ten common shares and 90,920 of the issued and outstanding Apple Ten Series A preferred shares. Mr. Knight has not acquired any Apple Ten shares since April 13, 2016.
The voting agreement also requires Mr. Knight: (i) to vote all his Apple Ten common shares, Apple Ten Series A preferred shares and Apple Ten Series B convertible preferred shares and any securities of Apple Ten acquired by Mr. Knight after April 13, 2016 against any action or agreement that would reasonably be expected to impede, interfere with, or delay the consummation of the transactions contemplated by the Merger Agreement and
any acquisition proposal (other than the merger) and any action required in furtherance thereof, (ii) to waive, and prevent the execution of, any appraisal and dissenters’ rights relating to the merger that Mr. Knight may have directly or indirectly and (iii) to not sell or transfer any Apple REIT securities beneficially owned by Mr. Knight or grant any proxies or deposit such securities into a voting trust or enter into a voting agreement with respect to such securities or take any action that is intended to have the effect of preventing Mr. Knight from complying with the voting agreement. For more information on the voting agreement with Mr. Knight, see “Voting Agreement between the Apple REITs and Glade M. Knight” on page 114.
PROPOSALS SUBMITTED TO APPLE TEN SHAREHOLDERS
(Proposal 1 on the Apple Ten Proxy Card)
Apple Ten shareholders are asked to approve the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement. For a summary and detailed information regarding this proposal, see the information about the merger and the Merger Agreement throughout this joint proxy statement/prospectus, including the information set forth in sections entitled “The Merger” beginning on page 53 and “The Merger Agreement” beginning on page 92. A copy of the Merger Agreement is attached as Annex A to this joint proxy statement/prospectus.
Pursuant to the Merger Agreement, approval of this proposal is a condition to the consummation of the merger. If this proposal is not approved, the merger will not be completed.
Approval of the proposal to approve the merger and the other transactions contemplated by the Merger Agreement requires the affirmative vote, in each case voting as a separate voting group, of the holders of:
● | a majority of the outstanding Apple Ten common shares; |
● | a majority of the outstanding Apple Ten Series A preferred shares; and |
● | a majority of the outstanding Apple Ten Series B convertible preferred shares. |
Recommendation of the Apple Ten Board
The Apple Ten board recommends that Apple Ten shareholders vote “FOR” the Apple Ten Merger Proposal to approve the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement.
Apple Ten Adjournment Proposal
(Proposal 2 on the Apple Ten Proxy Card)
The Apple Ten common shareholders are being asked to approve a proposal that will give the Apple Ten board the authority to adjourn the Apple Ten special meeting if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Apple Ten Merger Proposal if there are not sufficient votes at the time of the Apple Ten special meeting to approve the Apple Ten Merger Proposal.
If, at the Apple Ten special meeting, the number of Apple Ten common shares, Series A preferred shares and Series B convertible preferred shares, present or represented by proxy and voting for the approval of the Apple Ten Merger Proposal of each such class of shares is insufficient to approve such proposal, Apple Ten intends to move to adjourn the Apple Ten special meeting to another place, date or time in order to enable the Apple Ten board to solicit additional proxies for approval of the proposal. The holders of a majority of the Apple Ten common shares present at the Apple Ten special meeting, in person or by proxy, may adjourn the special meeting to another place, date or time. Apple Ten does not intend to call a vote on this proposal if the Apple Ten Merger Proposal considered at the Apple Ten special meeting has been approved at the Apple Ten special meeting.
If the Apple Ten special meeting is adjourned for the purpose of soliciting additional proxies, Apple Ten shareholders who have already submitted their proxies will be able to revoke them at any time prior to their use.
Approval of the Apple Ten Adjournment Proposal requires the affirmative vote of the holders of a majority of the Apple Ten common shares present in person or by proxy and entitled to vote at the Apple Ten special meeting. Holders of Apple Ten Series A preferred shares and Series B convertible preferred shares are not entitled to vote those shares on the Apple Ten Adjournment Proposal.
Recommendation of the Apple Ten Board
The Apple Ten board recommends that Apple Ten shareholders vote “FOR” the Apple Ten Adjournment Proposal to adjourn the Apple Ten special meeting, if necessary or appropriate, to solicit additional votes for the approval of the Apple Ten Merger Proposal.
At this time, Apple Ten does not intend to bring any other matters before the Apple Ten special meeting, and Apple Ten does not know of any matters to be brought before the Apple Ten special meeting by others. If, however, any other matters properly come before the Apple Ten special meeting, the persons named in the enclosed proxy, or their duly constituted substitutes, acting at the Apple Ten special meeting or any adjournment or postponement thereof will be deemed authorized to vote the Apple Ten shares represented thereby in accordance with the judgment of management on any such matter.
The following is a summary of the material terms of the merger. This summary does not purport to be complete and may not contain all of the information about the merger that is important to you. The summary of the material terms of the merger below and elsewhere in this joint proxy statement/prospectus is qualified in its entirety by reference to the Merger Agreement and the related plan of merger, copies of which are attached to this joint proxy statement/prospectus as Annex A and Annex B, respectively, and are incorporated by reference into this joint proxy statement/prospectus. You are urged to read this joint proxy statement/prospectus, including the Merger Agreement and the related plan of merger, carefully and in their entirety for a more complete understanding of the merger.
Each of the Apple Hospitality board and the Apple Ten board has approved the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement. In the merger, Apple Ten will merge with and into Acquisition Sub, with Acquisition Sub continuing as the surviving corporation, and Apple Ten shareholders will receive the merger consideration described below under “The Merger Agreement—Merger Consideration.”
Recommendation of the Apple Hospitality Board and Its Reasons for the Merger
After careful consideration, the Apple Hospitality board, at a meeting held on April 13, 2016, determined that the terms of the Merger Agreement, the related plan of merger, the merger and the transactions contemplated by the Merger Agreement are in the best interests of Apple Hospitality and its shareholders and authorized, approved, adopted and declared advisable the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement. In reaching its determination, the Apple Hospitality board consulted with Apple Hospitality’s senior management and legal and financial advisors and carefully considered numerous factors that the Apple Hospitality board viewed as supporting its decision, including the following material factors:
● | the combined company is expected to provide a number of significant potential strategic opportunities and benefits, including the following: |
º | the combined company, with enhanced geographic diversity and a strategically consistent select service portfolio with continued exclusive focus on Marriott® and Hilton® brands, will be one of the largest hospitality REITs in the U.S. with 235 hotels and over 30,000 guest rooms in 33 states, which will allow Apple Hospitality shareholders to participate in a stronger combined company with a platform that offers superior value creation opportunities; |
º | the combined company, which increases size and scale and enhances brand recognition while maintaining a conservative capital structure with low leverage relative to its peer companies, is expected to have access to a lower cost of capital than Apple Hospitality on a stand-alone basis, and provide increased access to capital-raising alternatives, including potential debt financings or equity issuances, which could be used, among other things, to acquire additional properties or provide greater financial flexibility to capture opportunities across business cycles; and |
º | the combination of the Apple Hospitality portfolio, which has an average age of 11 years and an average time since opening or last renovation of 4 years, with the Apple Ten portfolio, which has an average age of 7 years and an average time since opening or last renovation of 3 years, reduces the age of the overall portfolio and compliments the Apple Hospitality principle of reinvesting in its portfolio, which Apple Hospitality believes is one of the strengths of its business strategy; |
● | the combined company is expected to provide improved liquidity for Apple Hospitality shareholders as a result of the increased equity capitalization and the increased shareholder base of the combined company; |
● | the transaction is expected to be accretive in the first year after closing; |
● | the Apple Hospitality board considered the oral opinion of Baird delivered at a meeting of the Apple Hospitality board on April 13, 2016, which was subsequently confirmed by delivery to the Apple Hospitality board of a written opinion of Baird, dated April 13, 2016, to the effect that, subject to the contents of such opinion, including the various assumptions and limitations set forth therein, Baird was of the opinion that, as of such date, the merger consideration payable by Apple Hospitality was fair, from a financial point of view, to the Unaffiliated Shareholders of Apple Hospitality, as more fully described in the section entitled “—Opinion of Apple Hospitality’s Financial Advisor” beginning on page 67; |
● | the unit exchange ratio in the merger is fixed and will not fluctuate as a result of changes in the value of Apple Ten or Apple Hospitality, which provides certainty as to the respective pro forma percentage ownership of the combined company and limits the impact of external factors on the merger; |
● | Apple Hospitality’s management team’s deep understanding of the Apple Ten portfolio through its existing management responsibilities with respect to Apple Ten and its portfolio; |
● | no fees are payable in connection with the termination of the advisory arrangements for Apple Ten under the Termination Agreement, as more fully described in the section entitled “Termination Agreement” beginning on page 116; |
● | due to the age and continued investment in the properties by Apple Ten, there is minimal non-routine capital expenditures needed for the portfolio of hotels; |
● | the combined company is expected to achieve cost savings through the elimination of duplicative costs and functions by, among other things, consolidation of the public reporting process, consolidation of the legal and accounting process, the general reduction in duplicate administrative processes; |
● | the commitment on the part of each of Apple Hospitality and Apple Ten to complete the merger as reflected in their respective obligations under the terms of the Merger Agreement and the absence of any required government consents, and the likelihood that the merger will be completed on a timely basis and without the challenges frequently encountered integrating unrelated companies, based on, among other things, that Apple Hospitality currently manages the Apple Ten portfolio; |
● | the Merger Agreement provides the Apple Hospitality board with the ability, under certain specified circumstances, to make an Apple Hospitality change in recommendation if a material event, circumstance, change or development that was not known or the consequences of which were not reasonably foreseeable to the Apple Hospitality board on April 13, 2016, and the Apple Hospitality board determines in good faith (after consultation with its legal and financial advisors) that failure to do so would be inconsistent with its fiduciary duties to the shareholders of Apple Hospitality under applicable law, as more fully described in the section entitled “The Merger Agreement—Apple Hospitality Change in Recommendation” beginning on page 105; and |
● | the other terms of the Merger Agreement, including representations, warranties and covenants of the parties, as well as the conditions to their respective obligations under the Merger Agreement. |
The Apple Hospitality board also considered a variety of risks and other potentially negative factors in considering the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement, including the following material factors:
● | under the terms of the Merger Agreement, in certain circumstances, the Apple Ten board can modify, amend or withdraw its recommendation that Apple Ten shareholders vote in favor of the merger, the plan of merger and the other transactions contemplated by the Merger Agreement if failure to take such action would be inconsistent with its fiduciary duties under applicable law to the shareholders of Apple Ten and after compliance with the other requirements set forth in the Merger Agreement, as more fully described in the section entitled “The Merger Agreement—Apple Ten Acquisition Proposals; Change in Recommendation” beginning on page 102; |
● | the Merger Agreement provides Apple Ten a 45-day “go-shop” period during which Apple Ten may actively solicit additional acquisition proposals from third parties providing an opportunity to determine if a third party is willing to pay a higher value per share than Apple Hospitality and permits Apple Ten to terminate the Merger Agreement after complying with applicable provisions to enter into an agreement for a superior proposal in connection with the go shop process upon the payment to Apple Hospitality of a $5 million termination fee plus reimbursement of reasonable third party expenses not to exceed $3 million; |
● | under the terms of the Merger Agreement, Apple Hospitality must pay to Apple Ten a $25 million termination fee if the Merger Agreement is terminated under certain circumstances, as more fully described in the section entitled “The Merger Agreement—Termination Fees and Expenses—Termination Fee Payable by Apple Hospitality” beginning on page 112; |
● | notwithstanding the likelihood of the merger being completed, the merger may not be completed, or completion may be unduly delayed, including the effect of the pendency of the merger and the effect such failure to be completed may have on the trading price of Apple Hospitality common shares and Apple Hospitality’s operating results; |
● | the risk of diverting management focus and resources from operational matters and other strategic opportunities while working to implement the merger; |
● | the consummation of the merger is subject to the approval of Apple Hospitality’s shareholders and Apple Ten’s shareholders and the merger may not close if the Apple Hospitality shareholders do not approve the Share Issuance Proposal or the Apple Ten shareholders do not approve the Apple Ten Merger Proposal; |
● | as is customary for transactions of this type, the transaction has been structured as a merger; as a result, Apple Hospitality will be liable for Apple Ten’s unknown liabilities, including litigation resulting from the transaction; |
● | the obligations under the Merger Agreement regarding the restrictions on the operation of Apple Hospitality’s business during the period between the signing of the Merger Agreement and the completion of the merger may delay or prevent Apple Hospitality from undertaking business opportunities that may arise or any other action it would otherwise take with respect to its operations absent the pending completion of the merger; |
● | Apple Hospitality and Apple Ten may be obligated to complete the merger without having obtained appropriate consents, approvals or waivers from, or successfully refinanced, the outstanding indebtedness of Apple Ten that requires lender consent or approval to consummate the merger, and the risk that such consummation could trigger the termination of, and mandatory prepayments of amounts outstanding under, certain of Apple Ten’s indebtedness; |
● | because the unit exchange ratio is fixed in the Merger Agreement and will not fluctuate as a result of changes in the value of Apple Ten or Apple Hospitality, a decline in the value of Apple Ten unmatched by a similar decline in the value of Apple Hospitality, or an increase in the value of Apple Hospitality without a similar increase in the value of Apple Ten, would impact the relative value of Apple Ten in a manner adverse to Apple Hospitality; |
● | Apple Hospitality may not realize all of the anticipated strategic benefits and operational efficiencies or other anticipated benefits or cost savings of the merger within the expected timeframe or at all; |
● | the expenses to be incurred in connection with the merger; |
● | the potential risk that the market price of Apple Hospitality common shares after the merger may be affected by factors relating to the merger, including increased liquidity for Apple Ten shareholders; |
● | the availability of appraisal rights to holders of Apple Ten common shares who comply with all the required procedures under Virginia law, which allows such holders to seek appraisal of the fair value of their shares in accordance with Virginia law; |
● | Apple Ten and Apple Hospitality are affiliated entities with Apple Ten managed by employees of Apple Hospitality, and there are conflicts of interest inherent where the individuals who comprise the management teams of Apple Ten and Apple Hospitality are assisting the Apple Hospitality board in connection with the merger and providing certain assistance to Apple Ten, and some of Apple Hospitality’s directors and executive officers have interests with respect to the merger that are different from, and in addition to, those of Apple Hospitality shareholders generally, including the interests of Glade M. Knight in connection with the conversion of the Apple Ten Series B convertible preferred shares, as more fully described in the section entitled “—Interests of Apple REIT Directors and Executive Officers in the Merger” beginning on page 85; |
● | the need for incremental debt to fund the cash portion of the merger consideration; and |
● | the types and nature of the risks described under the section entitled “Risk Factors” beginning on page 29. |
The foregoing discussion of the factors considered by the Apple Hospitality board is not intended to be exhaustive and is not provided in any specific order or ranking, but rather includes material factors considered by the Apple Hospitality board. In view of the wide variety of factors considered in connection with its evaluation of the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement, and the complexity of these matters, the Apple Hospitality board did not consider it practicable to, and did not attempt to, qualify, rank or otherwise assign any relative or specific weights or values to the factors considered, and individual directors may have held varied views of the relative importance of the factors considered and given different weights or values to different factors. The Apple Hospitality board viewed its position and recommendation as being based on an overall review of the totality of the information available to it, including discussions with Apple Hospitality’s management and legal and financial advisors, and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement.
The explanation and reasoning of the Apple Hospitality board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38.
For the reasons set forth above, the Apple Hospitality board determined that the terms of the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement are in the best interests of Apple Hospitality and its shareholders and authorized, approved, adopted and declared advisable the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement. The Apple Hospitality board recommends to Apple Hospitality’s shareholders that they vote “FOR” the Share Issuance Proposal.
Recommendation of the Apple Ten Board and Its Reasons for the Merger
In evaluating the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement, the Apple Ten board consulted with the Apple Ten special committee’s legal and financial advisors and considered the unanimous recommendation of the Apple Ten special committee. In reaching their respective determinations, the Apple Ten board and Apple Ten special committee considered a number of factors, including the following material factors which the Apple Ten board and Apple Ten special committee viewed as supporting their respective decisions with respect to the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement:
● | when Apple Ten conducted its initial public offering beginning in 2011, Apple Ten indicated that within approximately seven years it intended to list its shares on a national securities exchange, dispose of all its properties in a manner which would permit distributions to shareholders of cash or merge or otherwise combine with a real estate investment trust or similar combination with a similar investment vehicle; |
● | the Apple Ten per unit merger consideration implies merger consideration of $11.17 per Apple Ten unit, based on the 20-day volume-weighted average price of Apple Hospitality common shares ending April 12, 2016 (or $10.85 per Apple Ten unit, based on the closing price per Apple Hospitality common share on April 12, 2016) compared to the initial public offering price for the Apple Ten units of $10.50 for the first $100 million in gross proceeds raised and $11.00 per unit for the remaining approximately $950 million in gross proceeds raised; |
● | the Apple Ten merger consideration, consisting of cash plus Apple Hospitality common shares, which will be listed for trading on the NYSE, provides a liquidity opportunity for Apple Ten shareholders desiring to liquidate their investment after the merger; |
● | the receipt of Apple Hospitality common shares as part of the Apple Ten merger consideration provides Apple Ten shareholders the opportunity to continue ownership in the combined company which is expected to provide a number of significant potential strategic opportunities and benefits, including the following: |
º | the combined company, with enhanced geographic diversity and a strategically consistent select service portfolio with continued exclusive focus on Marriott and Hilton brands, will be one of the largest hospitality REITs in the U.S. with 235 hotels and over 30,000 guest rooms in 33 states, which will allow Apple Ten shareholders to participate in a stronger combined company with a platform that offers enhanced ability to take advantage of opportunistic growth opportunities; |
º | the combined company, which increases size and scale and enhances brand recognition while maintaining a conservative capital structure with low leverage relative to its peer companies, is expected to have access to a lower cost of capital than Apple Ten on a standalone basis, and provide increased access to capital-raising alternatives, including potential debt financings or equity issuances, among other things, to acquire additional properties, or provide greater financial flexibility to capture opportunities across business cycles; and |
º | the combined company will be self-managed thereby eliminating the external advisory structure under which Apple Ten presently operates; |
● | the unit exchange ratio in the merger is fixed and will not fluctuate as a result of changes in the value of Apple Ten or Apple Hospitality, which provides certainty as to the respective pro forma percentage ownership of the combined company and limits the impact of external factors on the merger; |
● | the opinion of Citi, dated April 13, 2016, to the Apple Ten special committee as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of Apple Ten units (other than Apple Hospitality, Merger Sub and their respective affiliates) of the unit merger consideration to be received by such holders pursuant to the Merger Agreement, which opinion was based on and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on review undertaken as more fully described in the section entitled “—Opinion of the Apple Ten Special Committee’s Financial Advisor” beginning on page 74; |
● | the Merger Agreement provides Apple Ten a 45-day “go-shop” period during which Apple Ten may actively solicit additional acquisition proposals from third parties providing an opportunity to determine if a third party is willing to pay a higher value per share than Apple Hospitality and permits Apple Ten to terminate the Merger Agreement after complying with applicable provisions to enter into an agreement for a superior proposal in connection with the go shop process upon the payment to Apple Hospitality of a $5 million termination fee plus reimbursement of reasonable third party expenses not to exceed $3 million; |
● | the potential for less attractive strategic alternatives being available to Apple Ten in the future as a result of macroeconomic or industry specific trends; |
● | the Merger Agreement permits Apple Ten to continue to pay its shareholders regular monthly dividends of up to $0.06875 per Apple Ten common share through the effective date of the merger; |
● | the Merger Agreement is subject to approval of the Apple Ten shareholders, including approval of a majority of the outstanding Apple Ten common shares and Apple Ten Series A preferred shares (each voting as a separate voting group); |
● | the availability of appraisal rights to holders of Apple Ten common shares who comply with all the required procedures under Virginia law, which allows such holders to seek appraisal of the fair value of their shares in accordance with Virginia law; |
● | the intent for the merger to qualify as a reorganization for U. S. federal income tax purposes resulting in the receipt of Apple Hospitality common shares in the merger on a tax-free basis; |
● | after expiration of the “go shop” period, the Merger Agreement provides Apple Ten with the ability, under certain specified circumstances, to consider an acquisition transaction if the Apple Ten special committee determines it is reasonably expected to lead to a superior proposal and provides the Apple Ten board with the ability, under certain specified circumstances, to make an Apple Ten change in recommendation and to terminate the Merger Agreement following such Apple Ten change in recommendation and/or in order to enter into an agreement with respect to a superior proposal outside the “go shop” process upon payment of a $25 million termination fee; |
● | the commitment on the part of each of Apple Ten and Apple Hospitality to complete the merger as reflected in their respective obligations under the terms of the Merger Agreement and the absence of any required government consents, and the likelihood that the merger will be completed on a timely basis and without the challenges frequently encountered integrating unrelated companies, based on, among other things, that Apple Hospitality currently manages the Apple Ten portfolio; and |
● | the other terms of the Merger Agreement, including representations, warranties and covenants of the parties, as well as the conditions to their respective obligations under the Merger Agreement. |
The Apple Ten special committee also considered whether to solicit proposals from third parties prior to entering into the Merger Agreement. After taking into account: the 45-day “go shop” period permitting Apple Ten to actively solicit alternative acquisition proposals, the potential reluctance by other parties to respond to solicitations of interests before a definitive merger agreement was signed given Apple Hospitality’s familiarity with Apple Ten and the market perception of Apple Hospitality as a buyer for Apple Ten, and the provisions of the draft merger agreement permitting Apple Ten to terminate the Merger Agreement to enter into an agreement for a superior proposal, the Apple Ten special committee determined to move forward with the transaction without soliciting other proposals before execution of a definitive merger agreement.
The Apple Ten board and Apple Ten special committee also considered a variety of risks and other potentially negative factors in considering the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement, including the following material factors:
● | that, because the unit exchange ratio is fixed in the Merger Agreement and will not fluctuate as a result of changes in the value of Apple Ten or Apple Hospitality, a decline in the value of Apple Hospitality unmatched by a similar decline in the value of Apple Ten, or an increase in the value of Apple Ten without a similar increase in the value of Apple Hospitality, would reduce the relative value of the Apple Hospitality common shares received in the merger; |
● | due to the inclusion of cash as a portion of the merger consideration, the “roll up” procedures set forth in the Apple Ten articles of incorporation were not triggered, but the Apple Ten special committee believed it was unlikely that any third party acquirer would pursue a transaction structure triggering the “roll up” procedures in an acquisition; |
● | the risk that a different strategic alternative could prove to be more beneficial to Apple Ten shareholders than the proposed merger; |
● | that, under the terms of the Merger Agreement, Apple Ten must pay to Apple Hospitality a $5 million termination fee if the Merger Agreement is terminated in connection with the “go-shop” process under certain circumstances and $25 million termination fee if the Merger Agreement is terminated after the go shop period under certain circumstances, which might discourage or deter other parties from proposing an alternative transaction that may be more advantageous to Apple Ten shareholders, or which may become payable in circumstances where no alternative transaction or superior proposal is available to Apple Ten; |
● | the terms of the Merger Agreement place limitations beginning on May 29, 2016 on the ability of Apple Ten to initiate, solicit or knowingly encourage or facilitate any inquiries or the making of any proposal by or with a third party with respect to a competing transaction and to furnish information to, or enter into discussions with, a third party interested in pursuing an alternative strategic transaction; |
● | the risk that, while the merger is expected to be completed, there is no assurance that all of the conditions to the parties’ obligations to complete the merger will be satisfied or waived; |
● | the risk of diverting management focus and resources from operational matters and other strategic opportunities while working to implement the merger; |
● | the consummation of the merger is subject to the approval of Apple Hospitality’s shareholders and the merger may not close if the Apple Hospitality shareholders do not approve the Share Issuance Proposal; |
● | that, under the terms of the Merger Agreement, in certain circumstances, the Apple Hospitality board may make a change in recommendation in response to a material event, circumstance, change or development that was not known to the Apple Hospitality board prior to the execution of the Merger Agreement (or if known, the consequences of which were not known or reasonably foreseeable), which event or circumstance, or any material consequence thereof, becomes known to the Apple Hospitality board prior to the effective time of the merger, as more fully described in the section entitled “The Merger Agreement—Apple Hospitality Change in Recommendation” beginning on page 105; |
● | the obligations under the Merger Agreement regarding the restrictions on the operation of Apple Ten’s business during the period between the signing of the Merger Agreement and the completion of the merger may delay or prevent Apple Ten from undertaking business opportunities that may arise or any other action it would otherwise take with respect to its operations absent the pending completion of the merger; |
● | the expenses to be incurred in connection with the merger; |
● | the fact that the Merger Agreement requires Apple Ten to suspend its unit redemption program; |
● | the condition, unless waived by Apple Hospitality, to Apple Hospitality’s obligation to complete the merger that limits appraisal rights to no more than 5% of the Apple Ten common shares outstanding immediately prior to the effective time of the merger; |
● | Apple Ten and Apple Hospitality are affiliated entities with Apple Ten managed by employees of Apple Hospitality, and there are conflicts of interest inherent where the individuals who comprise the management teams of Apple Ten and Apple Hospitality are assisting the Apple Hospitality board in connection with the merger and providing certain assistance to Apple Ten, and some of Apple Ten’s directors and executive officers have interests with respect to the merger that are different from, and in addition to, those of Apple Ten shareholders generally, including the conversion of the Series B preferred shares of Apple Ten, as more fully described in the sections entitled “—Interests of Apple REIT Directors and Executive Officers in the Merger” beginning on page 85; and |
● | the types and nature of the risks described under the section entitled “Risk Factors” beginning on page 29. |
The foregoing discussion of the factors considered by the Apple Ten board and Apple Ten special committee is not intended to be exhaustive and is not provided in any specific order or ranking, but rather includes material factors considered by the Apple Ten board and the Apple Ten special committee. In view of the wide variety of factors considered in connection with their respective evaluation of the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement, and the complexity of these matters, the Apple Ten board and the Apple Ten special committee did not consider it practical to, and did not attempt to, quantify, rank or otherwise assign any relative or specific weights or values to the different factors considered and individuals may have given different weights to different factors. The Apple Ten board and the Apple Ten special committee conducted an overall review of the factors considered and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated by the Merger Agreement.
The explanation and reasoning of the Apple Ten board and the Apple Ten special committee and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38.
After careful consideration, for the reasons set forth above and based on the recommendation of the Apple Ten special committee, the Apple Ten board has approved the Merger Agreement, the related plan of merger, the merger and the other transactions contemplated thereby and has determined that the transactions contemplated by the Merger Agreement are advisable and in the best interests of Apple Ten and its shareholders and recommends to the Apple Ten shareholders that they vote “FOR” the Apple Ten Merger Proposal.
Opinion of Apple Hospitality’s Financial Advisor
On April 13, 2016, Baird rendered its oral opinion (which was subsequently confirmed by delivery of a written opinion dated April 13, 2016) to the Apple Hospitality board to the effect that, subject to the contents of such opinion, including the various assumptions and limitations set forth therein, Baird was of the opinion that, as of such date, the merger consideration payable by Apple Hospitality was fair, from a financial point of view, to the Unaffiliated Shareholders of Apple Hospitality.
As a matter of policy, Baird’s opinion was approved by a fairness committee, a majority of the members of which were not involved in providing financial advisory services to Apple Hospitality in connection with the merger.
The full text of Baird’s written opinion, dated April 13, 2016, delivered to the Apple Hospitality board, which sets forth the assumptions made, general procedures followed, matters considered and limitations on the scope of review undertaken by Baird in rendering its opinion, is attached as Annex D to this joint proxy statement/prospectus and is incorporated herein by reference. Baird’s opinion is directed only to the fairness, as of the date of the opinion and from a financial point of view, to the Unaffiliated Shareholders of Apple Hospitality of the merger consideration and does not constitute a recommendation to any shareholder as to how such shareholder should vote with respect to the merger. Baird expresses no opinion with respect to the amount or nature of any compensation to any of Apple Hospitality’s or Apple Ten’s officers, directors or employees, or class of such persons, relative to the merger consideration to be received by Apple Ten’s shareholders in the merger. The summary of Baird’s opinion set forth below is qualified in its entirety by reference to the full text of such opinion attached as Annex D to this joint proxy statement/prospectus. Apple Hospitality shareholders are urged to read the opinion carefully in its entirety.
expressed no opinion on, any such information, and Baird assumed, without independent verification, that neither Apple Ten nor Apple Hospitality is aware of any information prepared by it or its advisors that might be material to the opinion that was not provided to Baird. Baird assumed, without any independent verification, that: (i) all material assets and liabilities (contingent or otherwise, known or unknown) of Apple Ten and Apple Hospitality are as set forth in Apple Ten’s and Apple Hospitality’s respective financial statements provided to Baird; (ii) the financial statements of Apple Ten and Apple Hospitality provided to Baird present fairly the results of operations, cash flows and financial condition of Apple Ten and Apple Hospitality, respectively, for the periods, and as of the dates, indicated and were prepared in conformity with U.S. generally accepted accounting principles consistently applied; (iii) the Forecasts for Apple Ten and Apple Hospitality and the Expected Synergies were reasonably prepared on bases reflecting the best available estimates and good faith judgments of Apple Ten’s and Apple Hospitality’s senior management as to the future performance of Apple Ten and Apple Hospitality, and Baird relied, without independent verification, upon such Forecasts and the Expected Synergies in the preparation of its opinion, although Baird expresses no opinion with respect to the Forecasts, the Expected Synergies and/or the consensus earnings estimates, or any judgments, estimates, assumptions or basis on which they were based, and Baird assumed, without independent verification, that the Forecasts and the strategic, operating and cost benefits and/or synergies reflected in the Expected Synergies currently contemplated by the management of Apple Ten and Apple Hospitality and the consensus earnings estimates used in its analysis will be realized in the amounts and on the time schedule contemplated; (iv) in all respects material to Baird’s analysis, the merger will be consummated in accordance with the material terms and conditions of the draft Merger Agreement reviewed by Baird without any material amendment thereto and without waiver by any party of any of the material conditions to their respective obligations thereunder; (v) in all respects material to Baird’s analysis, the representations and warranties contained in the Merger Agreement are true and correct and that each party will perform all of the material covenants and agreements required to be performed by it under the Merger Agreement; (vi) all material corporate, governmental, regulatory or other consents and approvals (contractual or otherwise) required to consummate the merger have been, or will be, obtained without the need for any material changes to the merger consideration or other material financial terms of the merger or that would otherwise materially affect Apple Ten or Apple Hospitality or Baird’s analysis; (vii) the merger contemplated by the Merger Agreement will be treated as a tax-free reorganization for U.S. federal income tax purposes and (viii) the fair market value of one Apple Hospitality common share is based on the trailing 20 day volume weighted average trading price through and including April 12, 2016. Baird relied, without independent verification, as to all legal and tax matters regarding the merger on the advice of counsel of Apple Hospitality. In conducting its review, Baird did not undertake or obtain an independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise, known or unknown) or solvency of Apple Ten or Apple Hospitality nor did Baird make a physical inspection of the properties or facilities of Apple Ten or Apple Hospitality. Baird did not consider any expenses or potential adjustments to the merger consideration relating to the merger as part of its analysis. Baird expresses no opinion with respect to the terms (or impact on Apple Hospitality, the price or trading range of Apple Hospitality common shares or Apple Hospitality’s financial condition, results of operation or cash flows) of the financing obtained by Apple Hospitality to effect the merger and/or its payment of the merger consideration. In rendering the opinion, Baird is not expressing any opinion with respect to the amount or nature of any compensation to any of Apple Hospitality’s or Apple Ten’s officers, directors, or employees, or any class of such persons, relative to the consideration to be received by Apple Ten’s shareholders in the merger, or with respect to the fairness of any such compensation. In each case, Baird made the assumptions and took the actions or inactions described above with Apple Hospitality’s knowledge and consent.
The opinion necessarily was based upon economic, monetary and market conditions as they existed and could be evaluated on the date of the opinion, and the opinion does not predict or take into account any changes which may occur, or information which may become available, after the date of the opinion. Furthermore, Baird expresses no opinion as to the price or trading range at which any of Apple Hospitality’s securities (including Apple Hospitality common shares) will trade following the date of the opinion or as to the effect of the merger on such price or trading range, or any earnings or ownership dilutive impact that may result from Apple Hospitality’s issuance of Apple Hospitality common shares as part of the merger consideration. Such price and trading range may be affected by a number of factors, including but not limited to (i) dispositions of Apple Hospitality common shares by shareholders within a short period of time after, or other market effects resulting from, the announcement and/or effective date of the merger; (ii) changes in prevailing interest rates and other factors which generally influence the price of securities; (iii) adverse changes in the current capital markets; (iv) the occurrence of adverse changes in the financial condition, business, assets, results of operations or prospects of Apple Hospitality or in Apple Hospitality’s industries; (v) any necessary actions by, or restrictions of, federal, state or other governmental agencies or regulatory authorities; and (vi) timely completion of the merger on terms and conditions that are acceptable to all parties of interest.
The opinion does not address the relative merits or risks of: (i) the merger, the Merger Agreement or any other agreements or other matters provided for, or contemplated by, the Merger Agreement; (ii) any other transactions that may be or might have been available as an alternative to the merger; or (iii) the merger compared to any other potential alternative transactions or business strategies considered by the Apple Hospitality board and, accordingly, Baird relied upon its discussions with the senior management of Apple Hospitality with respect to the availability and consequences of any alternatives to the merger. The opinion does not constitute a recommendation to any shareholder of Apple Hospitality as to how any such shareholder should vote with respect to the merger.
The following is a summary of the material financial analyses performed by Baird in connection with rendering its opinion, which is qualified in its entirety by reference to the full text of the opinion attached as Annex D to this joint proxy statement/prospectus and to the other disclosures contained in this section. The following summary, however, does not purport to be a complete description of the financial analyses performed by Baird. The order of analyses described does not represent relative importance or weight given to the analyses performed by Baird. Some of the summaries of the financial analyses include information presented in a tabular format. These tables must be read together with the full text of each summary and alone are not a complete description of Baird’s financial analyses. Except as otherwise noted, the following quantitative information is based on market and financial data as it existed on or before April 12, 2016 and is not necessarily indicative of current market conditions.
Implied Valuation and Transaction Multiples. Based on each issued and outstanding Apple Ten unit receiving (x) 0.522 Apple Hospitality common shares, and (y) $1.00 in cash, and each issued and outstanding Apple Ten Series B convertible preferred share receiving (x) a number of Apple Hospitality common shares equal to (1) 12.11423 multiplied by (2) the unit exchange ratio and (y) an amount in cash equal to 12.11423 multiplied by $1.00, and Apple Hospitality’s volume weighted average share price of $19.49 for the trailing 20 days through and including April 12, 2016, the implied “Per Share Equity Purchase Price” is $11.17 per share. Baird calculated the implied “equity purchase price” (defined as the Per Share Equity Purchase Price multiplied by the total number of diluted Apple Ten shares (including Apple Ten Series B convertible preferred shares on an as-converted basis) outstanding, including gross shares issuable upon the exercise of stock options and warrants, less assumed option and warrant proceeds) to be $1,053.7 million, based on the number of fully diluted Apple Ten shares outstanding as of the date of the opinion. In addition, Baird calculated the implied “total purchase price” (defined as the equity purchase price plus the book value of Apple Ten’s total debt, preferred stock and minority interests, less cash, cash equivalents and marketable securities) to be $1,276.9 million. Baird then calculated the multiples of the total purchase price to Apple Ten’s projected 2016 and projected 2017 (i) earnings before interest, taxes, depreciation and amortization adjusted for non-cash items (“Adjusted EBITDA”), and (ii) total revenues less hotel operating expenses (“Hotel EBITDA”) in each case based upon information provided by the senior management of Apple Ten. Baird also calculated the multiples of the Per Share Equity Purchase Price to Apple Ten’s projected 2016 and projected 2017 (i) diluted funds from operations (“FFO”) per share, (ii) adjusted funds from operations (“AFFO”) per share, and (iii) net asset value (“NAV”) per share. These transaction multiples are summarized in the table below.
2016 E | 2017 P | |||||||
Total Purchase Price / Adjusted EBITDA | 11.6 | x | 11.0 | x | ||||
Total Purchase Price / Hotel EBITDA | 11.0 | x | 10.4 | x | ||||
Equity Purchase Price / FFO | 10.7 | x | 10.1 | x | ||||
Equity Purchase Price / AFFO | 12.2 | x | 11.4 | x | ||||
Equity Purchase Price / NAV | 94.2 | % |
Apple Ten Selected Publicly Traded Company Analysis. Baird reviewed certain publicly available financial information and stock market information for certain publicly traded companies that Baird deemed relevant. The group of selected publicly traded companies reviewed is listed below.
● Apple Hospitality REIT, Inc. | ● Chatham Lodging Trust |
● Chesapeake Lodging Trust | ● DiamondRock Hospitality Company |
● FelCor Lodging Trust Incorporated | ● Hersha Hospitality Trust |
● Pebblebrook Hotel Trust | ● RLJ Lodging Trust |
● Summit Hotel Properties, Inc. |
For each company, Baird calculated the “equity market value” (defined as the market price per share of each company’s common stock multiplied by the total number of outstanding diluted common shares and OP units of such company, including net shares issuable upon the exercise of stock options and warrants). In addition, Baird calculated the “total market value” (defined as the equity market value plus the book value of each company’s total debt, preferred stock and minority interests, less cash, cash equivalents and marketable securities). Baird calculated the multiples of each company’s total market value to its projected 2016 and projected 2016 Adjusted EBITDA and Hotel EBITDA. Baird also calculated multiples of each company’s price per share to its consensus NAV per share. Baird then compared the transaction multiples implied in the merger with the corresponding trading multiples for the selected companies, with a primary range of the 20th through the 80th percentile of each selected methodology. Stock market and historical financial information for the selected companies was based on publicly available information as of April 12, 2016, and projected financial information was based on publicly available research reports as of such date. A summary of the implied multiples is provided in the table below.
Adjusted EBITDA Multiple | Hotel EBITDA Multiple | Price / | ||||||||||||||||||
2016E | 2017P | 2016E | 2017P | NAV | ||||||||||||||||
20th Percentile | 10.4 | x | 9.9 | x | 9.4 | x | 9.0 | x | 83.7 | % | ||||||||||
80th Percentile | 11.9 | x | 11.4 | x | 11.0 | x | 10.5 | x | 101.1 | % |
In addition, Baird calculated the implied per share equity values of Apple Ten shares (including Apple Ten Series B convertible preferred shares on an as-converted basis) based on the trading multiples of the selected public companies and compared such values to the implied Per Share Equity Purchase Price of $11.17 per share. The implied per share equity values, based on the multiples that Baird deemed relevant, are summarized in the table below.
20th Percentile | 80th Percentile | |||||||
Adjusted EBITDA | ||||||||
2016E | $ | 9.54 | $ | 11.31 | ||||
2017P | 9.70 | 11.50 | ||||||
Hotel EBITDA | ||||||||
2016E | $ | 9.06 | $ | 11.03 | ||||
2017P | 9.19 | 11.13 | ||||||
NAV | $ | 9.95 | $ | 12.02 | ||||
Adjusted Mean | $ | 9.47 | $ | 11.32 |
Baird compared the implied per share equity values in the table above with the Per Share Equity Purchase Price implied in the merger in concluding that the merger consideration was fair to Apple Hospitality’s Unaffiliated Shareholders from a financial point of view.
Apple Ten Selected Acquisition Analysis. Baird reviewed certain publicly available financial information concerning completed or pending acquisition transactions that Baird deemed relevant, with a focus on publicly traded REIT acquisitions. The group of selected acquisition transactions is listed below.
Acquiror | Target | Announcement Date | ||
Harrison Street RE Cap LLC | Campus Crest Communities Inc. | 10/16/2015 | ||
Blackstone Group L.P. | BioMed Realty Trust Inc. | 10/8/2015 | ||
Blackstone Group L.P. | Strategic Hotels & Resorts Inc. | 9/8/2015 | ||
Chambers Street Properties | Gramercy Property Trust Inc. | 7/1/2015 | ||
Lone Star Investment Advs LLC | Home Properties Inc. | 6/22/2015 | ||
Independence Realty Trust Inc. | Trade Street Residential Inc. | 5/11/2015 | ||
Brookfield Asset Mgmt Inc. | Associated Estates Realty | 4/22/2015 | ||
Blackstone Group L.P. | Excel Trust Inc. | 4/10/2015 | ||
EDENS Inc. | AmREIT Inc. | 10/31/2014 | ||
Omega Healthcare Investors | Aviv REIT Inc. | 10/31/2014 | ||
Washington Prime Group Inc. | Glimcher Realty Trust | 9/16/2014 | ||
Essex Property Trust Inc. | BRE Properties Inc. | 12/19/2013 | ||
American Realty Capital Ppts. | Cole Real Estate | 10/23/2013 | ||
Mid-America Apartment | Colonial Properties Trust | 6/3/2013 | ||
American Realty Capital Ppts. | CapLease Inc. | 5/28/2013 | ||
Brookfield Office Ppts. | MPG Office Trust Inc. | 4/25/2013 | ||
Cole Credit Property Trust II | Spirit Realty Capital Inc. | 1/22/2013 | ||
Realty Income Corp. | American Realty Capital Trust | 9/6/2012 | ||
Ventas Inc. | Cogdell Spencer Inc. | 12/27/2011 | ||
Ventas Inc. | Nationwide Health Properties | 2/28/2011 |
Baird chose these acquisition transactions based on a review of completed and pending acquisition transactions involving companies with sufficiently similar corporate structures to Apple Ten for comparison purposes. Baird noted that none of the acquisition transactions or subject target companies reviewed is identical to the merger or Apple Ten, respectively, and that, accordingly, the analysis of such acquisition transactions necessarily involves complex considerations and judgments concerning differences in the business, operating and financial characteristics of each subject target company and each acquisition transaction and other factors that affect the values implied in such acquisition transactions. Baird noted that no acquisition meeting the selection criteria was excluded from its analysis.
For each transaction, Baird calculated the implied “equity purchase price” (defined as the purchase price per share of each target company’s common stock multiplied by the total number of diluted common shares outstanding of such company, including gross shares issuable upon the exercise of stock options and warrants, less assumed option and warrant proceeds, or alternatively defined as the value attributable to the equity of a target company). In addition, Baird calculated the implied “total purchase price” (defined as the equity purchase price plus the book value of each target company’s total debt, preferred stock and minority interests, less cash, cash equivalents and marketable securities). Baird calculated multiples of each target company’s implied equity purchase price to its consensus NAV per share at the announcement date. Baird then compared the transaction multiples and premiums implied in the merger with the corresponding acquisition transaction multiples for the selected acquisition transactions. Stock market and historical financial information for the selected transactions was based on publicly available information as of the announcement date of each respective transaction. A summary of the implied multiples and premiums is provided in the table below.
Price / NAV | |||||
20th Percentile | 96.6 | % | |||
80th Percentile | 158.7 | % |
In addition, Baird calculated the implied per share equity values of Apple Ten shares (including Apple Ten Series B convertible preferred shares on an as-converted basis) based on the acquisition transaction multiples of the selected acquisition transactions and compared such values to the implied Per Share Equity Purchase Price of $11.17 per share. The implied per share equity values, based on the multiples that Baird deemed relevant, are summarized in the table below.
20th Percentile | 80th Percentile | ||||||||
NAV | $ | 10.12 | $ | 12.44 |
Baird compared the implied per share equity values in the table above with the Per Share Equity Purchase Price implied in the merger in concluding that the merger consideration was fair to Apple Hospitality’s Unaffiliated Shareholders from a financial point of view.
Apple Ten Discounted Cash Flow Analysis. Baird performed a discounted cash flow analysis utilizing Apple Ten’s projected unlevered free cash flows (defined as FFO less capital expenditures and increases in net working capital, plus/minus changes in other operating and investing cash flows) from 2017 to 2021, as provided by Apple Hospitality’s senior management. In such analysis, Baird calculated the present values of the unlevered free cash flows from 2017 to 2021 by discounting such amounts at rates ranging from 9% to 11%, which were based on data provided in the Duff & Phelps 2016 Valuation Handbook. Baird calculated the present values of the free cash flows beyond 2021 by assuming terminal values ranging from 10.4x to 12.4x year 2021 forecasted Adjusted EBITDA and discounting the resulting terminal values at rates ranging from 9% to 11%. The summation of the present values of the unlevered free cash flows and the present values of the terminal values, assuming a 10% discount rate and taking the 20th percentile to the 80th percentile of implied values, produced equity values ranging from $10.74 to $11.78 per share, as compared to the implied Per Share Equity Purchase Price of $11.17 per share. Baird compared these implied per share equity values with the Per Share Equity Purchase Price implied in the merger in concluding that the merger consideration was fair to Apple Hospitality’s Unaffiliated Shareholders from a financial point of view.
Apple Ten Net Asset Value Analysis. Baird performed a net asset value analysis of Apple Ten by calculating the estimated asset value per share of Apple Ten based on forecasted 2016 net operating income projections (forecasted 2016 Hotel EBITDA less 4% of forecasted 2016 revenue to account for recurring capital expenditures) provided by Apple Ten’s management and applying capitalization rates based on a survey of sell-side equity research reports for Apple Hospitality over the last 120 days as of April 12, 2016.
Baird applied a median applied capitalization rate of 7.75% to the forecasted 2016 net operating income of Apple Ten, which, after accounting for tangible assets and liabilities, produced a mid-point net asset value per share. Baird then applied a range of capitalization rates from 7.25% to 8.25% to Apple Ten’s forecasted 2016 net operating income and adjusted for tangible assets and liabilities, which produced a firm value, equity value and equity value per share for each applied capitalization rate. After adjusting the range of implied equity values to the 20th percentile to the 80th percentile of the values calculated by applying the capitalization rate range referenced above, the analysis produced equity values ranging from $11.40 to $12.51 per share, as compared to the implied Per Share Equity Purchase Price of $11.17 per share. Baird compared these implied per share equity values with the Per Share Equity Purchase Price implied in the merger in concluding that the merger consideration was fair to Apple Hospitality’s Unaffiliated Shareholders from a financial point of view.
The foregoing summary does not purport to be a complete description of the analyses performed by Baird or its presentations to the Apple Hospitality board. The preparation of financial analyses and a fairness opinion is a complex process and is not necessarily susceptible to partial analyses or summary description. Baird believes that its analyses (and the summary set forth above) must be considered as a whole and that selecting portions of such analyses and factors considered by Baird, without considering all of such analyses and factors, could create an incomplete view of the processes and judgments underlying the analyses performed and conclusions reached by Baird and its opinion. Baird did not attempt to assign specific weights to particular analyses. Any estimates contained in Baird’s analyses are not necessarily indicative of actual values, which may be significantly more or less favorable than as set forth therein. Estimates of values of companies do not purport to be appraisals or necessarily to reflect the prices at which companies may actually be sold. Because such estimates are inherently subject to uncertainty, Baird does not assume responsibility for their accuracy.
merger. During the last three years, neither Baird nor any of its affiliates have provided any other investment banking and/or financial advisory services to either Apple Hospitality or Apple Ten, or any affiliates thereof, for which Baird received (or will receive) compensation.
Baird is a full service securities firm. As such, in the ordinary course of its business, Baird may from time to time trade the securities of Apple Hospitality (including Apple Hospitality common shares) for its own account or the accounts of its customers and, accordingly, may at any time hold long or short positions or effect transactions in such securities. Baird has and may in the future also prepare equity analyst research reports from time to time regarding Apple Hospitality.
Opinion of the Apple Ten Special Committee’s Financial Advisor
In connection with the merger, the Apple Ten special committee requested that Citi evaluate the fairness, from a financial point of view, to holders of Apple Ten units, other than Apple Hospitality, Acquisition Sub and their respective affiliates, of the unit merger consideration to be received by such holders pursuant to the Merger Agreement. On April 13, 2016, at a meeting of the Apple Ten special committee held to evaluate the merger, Citi delivered to the Apple Ten special committee an oral opinion, confirmed by delivery of a written opinion dated April 13, 2016, to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, the unit merger consideration to be received by holders of Apple Ten units pursuant to the Merger Agreement was fair, from a financial point of view, to such holders (other than Apple Hospitality, Acquisition Sub and their respective affiliates).
The full text of Citi’s written opinion, dated April 13, 2016, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex E to this joint proxy statement/prospectus and is incorporated herein by reference. The description of Citi’s opinion set forth below is qualified in its entirety by reference to the full text of Citi’s opinion. Citi’s opinion was provided for the information of the Apple Ten special committee (in its capacity as such) in connection with its evaluation of the unit merger consideration from a financial point of view and did not address any other terms, aspects or implications of the merger. Citi was not requested to consider, and its opinion did not address, the underlying business decision of Apple Ten to effect the merger, the relative merits of the merger as compared to any alternative business strategies or opportunities that might exist for Apple Ten or the effect of any other transaction in which Apple Ten might engage or consider. Citi’s opinion is not intended to be and does not constitute a recommendation as to how any securityholder should vote or act on any matters relating to the proposed merger or otherwise.
In arriving at its opinion, Citi:
● | reviewed a draft, dated April 11, 2016, of the merger agreement; |
● | held discussions with the members of the Apple Ten special committee, certain senior officers and other representatives of Apple Hospitality, in its capacity as the external manager of Apple Ten (the “Apple Ten external manager”),and certain senior officers and other representatives of Apple Hospitality concerning the businesses, operations and prospects of Apple Ten and Apple Hospitality; |
● | reviewed certain publicly available business and financial information relating to Apple Ten and Apple Hospitality as well as certain financial forecasts and other information and data relating to Apple Ten which were provided to or discussed with Citi by the management of the Apple Ten external manager and certain financial forecasts and other information and data relating to Apple Hospitality which were provided to or discussed with Citi by the management of Apple Hospitality, including information relating to potential strategic implications and operational benefits (including the amount, timing and achievability thereof) anticipated by the management of Apple Hospitality to result from the merger, and discussed with the managements of the Apple Ten external manager and Apple Hospitality, as applicable, their assessments as to the likelihood of achieving the future financial results reflected in such financial forecasts and other information and data; |
● | reviewed the financial terms of the merger as set forth in the merger agreement in relation to, among other things: current and historical market prices of Apple Hospitality common shares; the financial condition and historical and projected cash flows and other operating data of Apple Ten and Apple Hospitality; and the capitalization of Apple Ten and Apple Hospitality; |
● | considered, to the extent publicly available, the financial terms of other transactions which Citi considered relevant in evaluating the merger; |
● | analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations Citi considered relevant in evaluating those of Apple Ten and Apple Hospitality; |
● | evaluated certain potential pro forma financial effects of the merger on Apple Hospitality utilizing the financial forecasts and other information and data relating to Apple Ten and Apple Hospitality and the potential strategic implications and operational benefits referred to above; and |
● | conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as Citi deemed appropriate in arriving at its opinion. |
In rendering its opinion, Citi assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with Citi and upon the assurances of the managements of the Apple Ten external manager and Apple Hospitality that they were not aware of any relevant information that was omitted or that remained undisclosed to Citi. As the Apple Ten special committee was aware, Apple Ten is not managed independently from Apple Hospitality and based on the assessments of the managements of the Apple Ten external manager and Apple Hospitality, as applicable, as to the likelihood of achieving the future financial results reflected in the financial forecasts and other information and data relating to Apple Ten and Apple Hospitality provided to or otherwise reviewed by or discussed with Citi, including estimates as to the potential strategic implications and operational benefits anticipated by the management of Apple Hospitality to result from the merger, Citi was directed to utilize, and relied upon, such financial forecasts and other information and data. Citi assumed that, were Citi to have access to management of Apple Ten that is independent from Apple Hospitality, any information received would not affect or change Citi’s analyses or opinion in any meaningful respect. With respect to such financial forecasts and other information and data, Citi was advised by the managements of the Apple Ten external manager and Apple Hospitality, and assumed, with the Apple Ten special committee’s consent, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of the Apple Ten external manager and Apple Hospitality as to, and were a reasonable basis upon which to evaluate, the future financial performance of Apple Ten and Apple Hospitality, the potential strategic implications and operational benefits (including the amount, timing and achievability thereof) anticipated by the management of Apple Hospitality to result from, and other potential pro forma financial effects of, the merger and the other matters covered thereby. Citi assumed, with the Apple Ten special committee’s consent, that the financial results, including with respect to the potential strategic implications and operational benefits anticipated to result from the merger, reflected in such financial forecasts and other information and data would be realized in the amounts and at the times projected. Citi relied, at the Apple Ten special committee’s direction, upon the assessments of the managements of the Apple Ten external manager and Apple Hospitality as to, among other things, (i) the potential impact on Apple Ten and Apple Hospitality of certain market, competitive and other trends in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the lodging sector and related credit and financial markets, including supply and demand for hotel rooms and consumer spending patterns, which are subject to significant volatility and which, if different than as assumed, could have a material impact on Citi analyses or opinion, (ii) existing and future relationships, agreements and arrangements with, and the ability to attract and retain, key franchisors, lessors, third-party hotel managers and other commercial relationships of Apple Ten and Apple Hospitality, (iii) potential future acquisitions (including the timing and amount thereof) of properties contemplated to be undertaken by Apple Ten and Apple Hospitality and (iv) the ability to integrate the operations of Apple Ten and Apple Hospitality. Citi assumed, with the Apple Ten special committee’s consent, that there would be no developments with respect to any such matters or adjustments to the unit merger consideration that would have an adverse effect on Apple Ten, Apple Hospitality or the merger (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to its analyses or opinion.
Citi did not make and was not provided with an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Apple Ten, Apple Hospitality or any other entity and it did not make any physical inspection of the properties or assets of Apple Ten, Apple Hospitality or any other entity. Citi is not an expert in the evaluation of, and it did not evaluate, mortgage, loan or lease portfolios and Citi expressed no view or opinion as to the adequacy or sufficiency of allowances for losses or other matters with respect thereto. Citi assumed, with the Apple Ten special committee’s consent, that the merger would be consummated in accordance with its terms and in compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary governmental,
regulatory or third party approvals, consents, releases, waivers and agreements for the merger, no delay, limitation, restriction or condition, including any divestiture requirements, amendments or modifications, would be imposed or occur that would have an adverse effect on Apple Ten, Apple Hospitality or the merger (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to Citi’s analyses or opinion. Citi was advised by the management of the Apple Ten external manager that Apple Ten and Apple Hospitality have operated in conformity with the requirements for qualification as a REIT for U.S. federal income tax purposes since each of their respective formation as a REIT and Citi assumed, with the Apple Ten special committee’s consent, that the merger would not adversely affect the status or operations of Apple Ten or Apple Hospitality. Citi also assumed, with the Apple Ten special committee’s consent, that the merger would qualify for the intended tax treatment contemplated by the Merger Agreement. Citi’s opinion, as set forth therein, relates to the relative values of Apple Hospitality and Apple Ten, after adjusting values for Apple Ten to exclude the $1.00 cash component of the unit merger consideration. Citi assumed, with the Apple Ten special committee’s consent, that each of the Apple Ten common shares and the Apple Ten Series A preferred shares have no independent value distinct from the other and, at the direction of the Apple Ten special committee, Citi evaluated the Apple Ten common shares and the Apple Ten Series A preferred shares as a single integrated security for purposes of its analyses and opinion. Citi did not express any view or opinion as to the value of any preferred shares (including Apple Ten Series A preferred shares) or any other securities, the actual value of Apple Hospitality common shares when issued in the merger or the prices at which Apple Ten units, Apple Hospitality common shares or any other securities would trade or otherwise be transferable at any time, including following announcement or consummation of the merger. Citi also assumed, with the Apple Ten special committee’s consent, that the final terms of the Merger Agreement would not vary materially from those set forth in the draft reviewed by Citi. Citi did not express any opinion with respect to accounting, tax, regulatory, legal or similar matters and Citi assumed, with the Apple Ten special committee’s consent, the accuracy and completeness of the assessments of representatives of Apple Ten and Apple Hospitality as to such matters.
Citi’s opinion, as expressed therein, related to the fairness, from a financial point of view, to holders of Apple Ten units (other than Apple Hospitality, Acquisition Sub and their respective affiliates) of the unit merger consideration to be received by such holders. Citi did not express any view or opinion as to any securities of Apple Ten (other than Apple Ten units) or as to individual circumstances of specific holders with respect to control or other rights or aspects which may distinguish such holders or the securities of Apple Ten held by such holders and Citi’s analyses and opinion did not address, take into consideration or give effect to, any rights, preferences, restrictions or limitations that may be attributable to any such securities nor did Citi’s opinion in any way address proportionate allocation or relative fairness. Citi’s opinion did not address any terms (other than the unit merger consideration to the extent expressly specified therein), aspects or implications of the merger, including, without limitation, the form or structure of the merger, the form of the unit merger consideration, any consideration payable in respect of, or conversion, liquidation or other terms of, any other securities (including preferred stock) of Apple Ten or any terms, aspects or implications of any voting or other agreement, arrangement or understanding to be entered into in connection with or contemplated by the merger or otherwise. In connection with Citi’s engagement, Citi was not requested to, and it did not, undertake a third-party solicitation process on behalf of Apple Ten with respect to the acquisition of all or a part of Apple Ten prior to execution of the Merger Agreement. Citi also expressed no view as to, and its opinion did not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation to any officers, directors or employees of any parties to the merger, or any class of such persons, relative to the unit merger consideration or otherwise, including any promote fee or other amount payable to the Apple Ten external manager. Citi’s opinion was necessarily based upon information available, and financial, stock market and other conditions and circumstances existing and disclosed, to Citi as of the date of its opinion. Although subsequent developments may affect Citi’s opinion, Citi has no obligation to update, revise or reaffirm its opinion. Citi noted for the Apple Ten special committee that the credit, financial and stock markets, and the industries in which Apple Ten and Apple Hospitality operate, had experienced and continue to experience volatility and Citi expressed no opinion or view as to any potential effects of such volatility on Apple Ten, Apple Hospitality or the merger (including the contemplated benefits thereof). The issuance of Citi’s opinion was authorized by Citi’s fairness opinion committee.
In preparing its opinion, Citi performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below is not a complete description of Citi’s opinion or the analyses underlying, and factors considered in connection with, Citi’s opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Citi arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole, and it did not draw, in isolation, conclusions from or with
regard to any one factor or method of analysis. Accordingly, Citi believes that the analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying such analyses and its opinion.
The estimates contained in Citi’s analyses and the valuation ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by such analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the results derived from, Citi’s analyses are inherently subject to substantial uncertainty.
Citi was not requested to, and it did not, recommend or determine the specific consideration payable in the merger. The type and amount of consideration payable in the merger were determined through negotiations between the Apple Ten special committee and Apple Hospitality and the decision to enter into the Merger Agreement was solely that of the Apple Ten special committee and the Apple Ten board. Citi’s opinion was only one of many factors considered by the Apple Ten special committee in its evaluation of the merger and should not be viewed as determinative of the views of the Apple Ten special committee, the Apple Ten board or the Apple Ten external manager with respect to the merger or the consideration payable in the merger.
The following is a brief summary of the material financial analyses prepared and reviewed with the Apple Ten special committee in connection with Citi’s opinion, dated April 13, 2016. The summary set forth below does not purport to be a complete description of the financial analyses performed by, and underlying the opinion of, Citi, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by Citi. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary as the tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the financial analyses, could create a misleading or incomplete view of such financial analyses. None of Apple Ten, Apple Hospitality, Citi or any other person assumes responsibility if future results are different from those described, whether or not any such difference is material. For purposes of the financial analyses described below, the term “implied unit merger consideration” refers to an implied consideration of $10.85 per outstanding Apple Ten unit based on the unit merger consideration of $1.00 in cash and 0.522 of an Apple Hospitality common share utilizing, for the share component of the consideration, the closing price per Apple Hospitality common share on April 12, 2016 of $18.87. In calculating approximate implied exchange ratio reference ranges as reflected in the financial analyses described below, Citi (i) divided the low-end of the approximate implied per share equity value reference ranges derived for Apple Ten from such analyses, adjusted to exclude the $1.00 cash component of the unit merger consideration, by the high-end of the approximate implied per share equity value reference ranges derived for Apple Hospitality from such analyses in order to calculate the low-end of the approximate implied exchange ratio reference ranges and (ii) divided the high-end of the approximate implied per share equity value reference ranges derived for Apple Ten from such analyses, adjusted to exclude the $1.00 cash component of the unit merger consideration, by the low-end of the approximate implied per share equity value reference ranges derived for Apple Hospitality from such analyses in order to calculate the high-end of the approximate implied exchange ratio reference ranges. Financial data for Apple Ten and Apple Hospitality utilized in the financial analyses described below were based on, among other things, forecasts and estimates prepared by the managements of the Apple Ten external manager and Apple Hospitality, referred to, in the case of Apple Ten, as the Apple Ten external manager forecasts, and, in the case of Apple Hospitality, as the Apple Hospitality forecasts.
Selected Public Companies Analyses. Citi performed separate selected public companies analyses of each of Apple Ten and Apple Hospitality in which Citi reviewed, as applicable, certain financial and stock market information relating to Apple Ten, Apple Hospitality and the following three selected publicly traded REITs that Citi in its professional judgment considered generally relevant as select service lodging REITs with similar brand, chain scale and proximity to metropolitan centers, collectively referred to as the selected REITs:
● | Apple Hospitality REIT, Inc. |
● | RLJ Lodging Trust |
● | Summit Hotel Properties, Inc. |
Citi reviewed, among other information, enterprise values (calculated as implied equity values based on closing share prices on April 12, 2016 plus debt and non-controlling interests and less cash and cash equivalents) as a multiple of calendar year 2016 estimated earnings before interest, taxes, depreciation and amortization (“EBITDA”) and as a multiple of total number of room keys. The overall low to high calendar year 2016 estimated EBITDA multiples and estimated values per room key observed for the selected REITs were 10.5x to 12.5x (with a mean of 11.6x and a median of 11.7x) and $168,000 to $202,000 (with a mean of $186,000 and a median of $188,000). Citi then applied selected ranges of calendar year 2016 estimated EBITDA multiples and estimated values per room key derived from the selected REITs to corresponding data of Apple Ten, pro forma for Apple Ten’s publicly announced pending acquisition of a hotel property in Cape Canaveral, Florida, and Apple Hospitality, pro forma for Apple Hospitality’s publicly announced pending acquisition of a hotel property in Atlanta, Georgia. Financial data of the selected REITs were based on publicly available research analysts’ estimates, public filings and other publicly available information. Financial data of Apple Ten was based on public filings and the Apple Ten external manager forecasts and financial data of Apple Hospitality was based on public filings and the Apple Hospitality forecasts. These analyses indicated approximate implied per share equity value reference ranges for Apple Ten of $9.69 to $12.02 based on calendar year 2016 estimated EBITDA multiples and $11.23 to $12.00 based on estimated values per room key, as compared to the implied unit merger consideration of $10.85 per outstanding Apple Ten unit, and for Apple Hospitality of $15.96 to $20.06 based on calendar year 2016 estimated EBITDA multiples and $18.20 to $19.53 based on estimated values per room key, as compared to the closing price of Apple Hospitality common shares on April 12, 2016 of $18.87 per share.
Utilizing the approximate implied per share equity value reference ranges derived for Apple Ten and Apple Hospitality as described above, Citi calculated the following approximate implied exchange ratio reference ranges, as compared to the exchange ratio for the share component of the unit merger consideration:
Implied Exchange Ratio Reference Ranges Based on: | ||||
Calendar Year | Values | |||
2016E EBITDA Multiples | Per Room Key | Exchange Ratio | ||
0.433x – 0.690x | 0.524x – 0.604x | 0.522x |
Citi noted that such approximate implied exchange ratio reference ranges implied pro forma ownership by holders of Apple Ten units in Apple Hospitality of approximately 18.9% to 27.1% based on calendar year 2016 estimated EBITDA multiples and 22.0% to 24.5% based on estimated values per room key.
Discounted Cash Flow Analyses. Citi performed separate discounted cash flow analyses of Apple Ten and Apple Hospitality by calculating the estimated present value of standalone unlevered free cash flows that Apple Ten and Apple Hospitality were forecasted to generate during the calendar years ending December 31, 2016 through December 31, 2020 based on the Apple Ten external manager forecasts and the Apple Hospitality forecasts and pro forma for Apple Ten’s publicly announced pending acquisition of a hotel property in Cape Canaveral, Florida and Apple Hospitality’s publicly announced pending acquisition of a hotel property in Atlanta, Georgia. For purposes of these analyses, stock-based compensation for the management of Apple Hospitality was treated as a cash expense.
Citi calculated terminal values for Apple Ten and Apple Hospitality by applying to Apple Ten’s and Apple Hospitality’s calendar year 2021 estimated EBITDA (assuming growth rates in such terminal year equal to growth rates during calendar year 2020) a selected range of next 12 months EBITDA multiples of 9.8x to 11.8x. The present values (as of January 1, 2016) of the cash flows and terminal values were then calculated using a selected range of discount rates of 8.3% to 9.2%, in the case of Apple Ten, and 6.9% to 7.9%, in the case of Apple Hospitality. These analyses indicated approximate implied per share equity value reference ranges for Apple Ten of $10.13 to $12.35, as compared to the implied unit merger consideration of $10.85 per outstanding Apple Ten unit, and for Apple
Hospitality of $17.55 to $21.90, as compared to the closing price of Apple Hospitality common shares on April 12, 2016 of $18.87 per share.
Utilizing the approximate implied per share equity value reference ranges derived for Apple Ten and Apple Hospitality as described above, Citi calculated the following approximate implied exchange ratio reference ranges, as compared to the exchange ratio for the share component of the unit merger consideration:
Implied Exchange Ratio Reference Range | Exchange Ratio | |
0.417x – 0.647x | 0.522 |
Citi noted that such approximate implied exchange ratio reference range implied pro forma ownership by holders of Apple Ten units in Apple Hospitality of approximately 18.3% to 25.8%.
Selected Precedent Transactions Analyses. Citi performed separate selected precedent transactions analyses of Apple Ten and Apple Hospitality in which Citi reviewed certain financial terms of the following nine selected transactions announced from January 1, 2006 to April 13, 2016 that Citi in its professional judgment considered generally relevant involving target companies that are select service lodging REITs, collectively referred to as the selected transactions:
Announcement Date | Acquiror | Target | ||||
November 29, 2012 | ● | BRE Selected Hotels Corp (an affiliate of Blackstone Real Estate Partners VII L.P.) | ● | Apple REIT Six, Inc. | ||
July 25, 2007 | ● | Inland American Real Estate Trust, Inc. | ● | Apple Hospitality Five, Inc. | ||
June 21, 2007 | ● | Whitehall Street Global Real Estate Limited Partnership 2007 | ● | Equity Inns, Inc. | ||
April 30, 2007 | ● | Apollo Real Estate Venture Fund V, L.P./ AIMCAP VII LLC | ● | Eagle Hospitality Properties Trust, Inc. | ||
April 24, 2007 | ● | JER Partners Acquisitions IV, LLC | ● | Highland Hospitality Corporation | ||
April 16, 2007 | ● | Apollo Investment Corporation | ● | Innkeepers USA Trust | ||
April 3, 2007 | ● | Inland American Real Estate Trust, Inc. | ● | Winston Hotels, Inc. | ||
February 15, 2007 | ● | ING Groep N.V. | ● | Apple Hospitality Two, Inc. | ||
February 21, 2006 | ● | The Blackstone Group L.P. | ● | MeriStar Hospitality Corporation |
Citi reviewed, among other information, transaction values (calculated as the implied purchase prices paid for the target entities in the selected transactions plus debt, preferred equity and non-controlling interests, if applicable, and less cash and cash equivalents) as a multiple of the target entity’s latest 12 months EBITDA as of the date of announcement of the transaction. The overall low to high latest 12 months EBITDA multiples observed for the selected transactions were 10.4x to 16.2x (with a mean of 13.7x and a median of 13.4x). Citi then applied selected ranges of latest 12 months EBITDA multiples of 12.4x to 14.4x derived from the selected transactions to the latest 12 months (as of February 29, 2016) EBITDA of Apple Ten, pro forma for Apple Ten’s publicly announced pending acquisition of a hotel property in Cape Canaveral, Florida, and Apple Hospitality, pro forma for Apple Hospitality’s publicly announced pending acquisition of a hotel property in Atlanta, Georgia. Financial data of the selected transactions were based on public filings and other publicly available information. Financial data of Apple Ten was based on public filings and information and data relating to Apple Ten which were provided to Citi by the management of the Apple Ten external manager and financial data of Apple Hospitality was based on public filings and information and data relating to Apple Hospitality which were provided to Citi by the management of Apple Hospitality. These analyses indicated approximate implied per share equity value reference ranges for Apple Ten of $10.27 to $12.37, as compared to the implied unit merger consideration of $10.85 per outstanding Apple Ten unit, and for Apple Hospitality of $17.31 to $21.06, as compared to the closing price of Apple Hospitality common shares on April 12, 2016 of $18.87 per share.
Utilizing the approximate implied per share equity value reference ranges derived for Apple Ten and Apple Hospitality as described above, Citi calculated the following approximate implied exchange ratio reference ranges, as compared to the exchange ratio for the share component of the unit merger consideration:
Implied Exchange Ratio Reference Range | Exchange Ratio | |
0.440x – 0.657x | 0.522 |
Citi noted that such approximate implied exchange ratio reference range implied pro forma ownership by holders of Apple Ten units in Apple Hospitality of approximately 19.1% to 26.1%.
Has/Gets. Citi observed illustrative potential pro forma implied per share equity values for holders of Apple Ten units based on an approximate per share equity value reference range for Apple Hospitality implied by a discounted cash flow analysis of Apple Hospitality after giving effect to the merger (applying, in calculating a terminal value for Apple Hospitality utilizing unlevered free cash flows that Apple Ten and Apple Hospitality were forecasted to generate during the calendar years ending December 31, 2016 through December 31, 2020 and after taking into account potential strategic implications and operational benefits anticipated by the management of Apple Hospitality to result from the merger, in each case based on the Apple Ten external manager forecasts and the Apple Hospitality forecasts, the same selected range of next 12 months EBITDA multiples described above under “—Discounted Cash Flow Analyses” and, in calculating the present value (as of January 1, 2016) of such cash flows and terminal values, the same selected range of discount rates for Apple Hospitality described above under “—Discounted Cash Flow Analyses”). Citi observed that the merger could result in illustrative potential implied pro forma per share equity values for holders of Apple Ten units of approximately $10.28 to $12.60, as compared to the approximate implied per share equity value reference range for Apple Ten described above under “—Discounted Cash Flow Analyses.” Actual results achieved by Apple Ten, Apple Hospitality and Apple Hospitality after giving effect to the merger may vary from forecasted results and such variations may be material.
Additional Information
Citi observed certain additional information that was not considered part of its financial analyses with respect to its opinion but was referenced for informational purposes, including, among other information, the following:
Selected Precedent Asset Transactions Analyses. Citi performed separate selected precedent asset transactions analyses of Apple Ten and Apple Hospitality in which Citi reviewed certain market-based transaction data of 378 selected asset transactions, consisting of 177 selected asset transactions involving upper midscale lodging portfolios, referred to as the selected upper midscale asset transactions, 178 selected asset transactions involving upscale lodging portfolios, referred to as the selected upscale asset transactions, and 23 selected asset transactions involving upper upscale lodging portfolios, referred to as the selected upper upscale asset transactions and, together with the selected upper midscale asset transactions and the selected upscale asset transactions, collectively referred to as the selected asset transactions. Citi reviewed, among other information, the implied purchase prices per room key in the selected asset transactions. The overall mean purchase prices per room key observed for the selected upper midscale asset transactions, the selected upscale asset transactions and the selected upper upscale asset transactions were approximately $157,080, $170,024 and $181,372, respectively. Citi then applied selected ranges of purchase prices per room key of $147,000 to $167,000, $160,000 to $180,000 and $171,000 to $191,000 derived from the selected upper midscale asset transactions, the selected upscale asset transactions and the selected upper upscale asset transactions, respectively, to the total number of room keys in the upper midscale, upscale and upper upscale lodging portfolios of Apple Ten pro forma for Apple Ten’s publicly announced pending acquisition of a hotel property in Cape Canaveral, Florida, and Apple Hospitality, pro forma for Apple Hospitality’s publicly announced pending acquisition of a hotel property in Atlanta, Georgia. Financial data of the selected asset transactions were based on public filings and other publicly available information. Financial data of Apple Ten was based on public filings and the Apple Ten external manager forecasts and financial data of Apple Hospitality was based on public filings and the Apple Hospitality forecasts. These analyses indicated approximate implied per share equity value reference ranges for Apple Ten of $9.35 to $10.88, as compared to the implied unit merger consideration of $10.85 per outstanding Apple Ten unit, and for Apple Hospitality of $14.94 to $17.59, as compared to the closing price of Apple Hospitality common shares on April 12, 2016 of $18.87 per share.
Relative Contributions Analysis. Citi performed a relative contributions analysis in which Citi reviewed the relative contributions of Apple Ten and Apple Hospitality to Apple Hospitality’s calendar years 2015, 2016 and 2017 estimated funds from operations (“FFO”) and estimated EBITDA after giving effect to the merger before taking into account potential strategic implications and operational benefits. Financial data of Apple Ten was based on the Apple Ten external manager forecasts and financial data of Apple Hospitality was based on the Apple Hospitality forecasts. This analysis indicated overall relative contributions of Apple Ten and Apple Hospitality to Apple Hospitality’s calendar years 2015, 2016 and 2017 estimated FFO and estimated EBITDA after giving effect to the merger of approximately 22.9% to 23.6%, in the case of Apple Ten, and 76.4% to 77.1%, in the case of Apple Hospitality. Utilizing such approximate implied percentage equity value contribution ranges derived for Apple Ten and Apple Hospitality and after adjusting the equity value contribution ranges derived for Apple Ten to exclude the $1.00 cash component of the unit merger consideration, Citi observed an overall approximate implied exchange ratio reference range of 0.506x to 0.548x (with a mean of 0.527x and a median of 0.522x), as compared to the exchange ratio for the share component of the unit merger consideration of 0.522 of an Apple Hospitality common share. Citi also observed
that the unit merger consideration implied by such approximate implied exchange ratio reference range, including the $1.00 cash component of the unit merger consideration, would be approximately $10.55 to $11.34 (with a mean of $10.95 and a median of $10.86), as compared to the implied unit merger consideration of $10.85 per outstanding Apple Ten unit. Citi further observed that such approximate implied exchange ratio reference range would imply pro forma ownership by holders of Apple Ten units in Apple Hospitality of approximately 21.4% to 22.8%.
Other. Citi also observed the following:
● | per share equity values for Apple Ten published in a publicly available third party prepared report, which indicated an implied per share equity value reference for Apple Ten of $10.60 to $11.60; |
● | the historical price performance of Apple Hospitality common shares from May 18, 2015 to April 12, 2016, which indicated low and high closing prices for Apple Hospitality common shares during such period of approximately $16.38 to $20.68 per share, as compared to the closing price of Apple Hospitality common shares on April 12, 2016 of $18.87 per share; |
● | publicly available research analysts’ share price targets for Apple Hospitality common shares, which indicated a target share price range for Apple Hospitality common shares of approximately $13.00 to $22.00 per share (or $20.00 to $22.00 per share excluding the lowest publicly available research analyst’s share price target), as compared to the closing price of Apple Hospitality common shares on April 12, 2016 of $18.87 per share; |
● | calendar year 2016 estimated EBITDA multiples for Apple Hospitality, which indicated an approximate calendar year 2016 estimated EBITDA multiple for Apple Hospitality of 12.1x based on the Apple Hospitality forecasts and the closing price of Apple Hospitality common shares on April 12, 2016 and 12.5x based on publicly available research analysts’ consensus estimates and such closing price of Apple Hospitality common shares; and |
● | calendar year 2016 estimated EBITDA multiples and estimated values per room key for three other select service lodging REITs (Chatham Lodging Trust, Hersha Hospitality Trust and Hospitality Properties Trust, referred to as the “other selected REITS”), which indicated approximate overall low to high calendar year 2016 estimated EBITDA multiples and estimated values per room key observed for the other selected REITs of 10.0x to 11.0x (with a mean of 10.4x and a median of 10.2x) and $169,000 to $298,000 (with a mean of $229,000 and a median of $220,000), respectively. |
Miscellaneous
Apple Ten has agreed to pay Citi for its services in connection with the proposed merger an aggregate fee of $4 million, of which a portion was payable upon delivery of Citi’s opinion and $3 million is payable contingent upon consummation of the merger. In addition, Apple Ten agreed to reimburse Citi for certain expenses, including reasonable fees and expenses of counsel, and to indemnify Citi and certain related parties against liabilities, including liabilities under federal securities laws, arising from Citi’s engagement.
The Apple Ten special committee selected Citi to act as financial advisor to the Apple Ten special committee in connection with the proposed merger based on Citi’s reputation, experience and familiarity with Apple Ten and its businesses. Citi is an internationally recognized investment banking firm that regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.
Certain Apple Hospitality Unaudited Prospective Financial Information
Apple Hospitality does not as a matter of course make public long-term projections as to future revenues, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, Apple Hospitality is including in this joint proxy statement/prospectus certain unaudited prospective financial information that was made available to the Apple Hospitality board and the Apple Ten board in connection with the evaluation of the merger. This information also was provided to Apple Hospitality’s and the Apple Ten Special Committee’s respective financial advisors for their use and reliance in connection with their respective financial analyses and opinions described under the headings “—Opinion of Apple Hospitality’s Financial Advisor” and “—Opinion of the Apple Ten Special Committee’s Financial Advisor.” The inclusion of this information should not be regarded as an indication that any of Apple Hospitality, Apple Ten, their respective affiliates, advisors or other representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results.
The unaudited prospective financial information was, in general, prepared solely for internal use and is subjective in many respects. It also was prepared on a standalone basis for Apple Hospitality, without regard to the impact of the merger on Apple Hospitality. As a result, the prospective results may not be realized and the actual results may be significantly higher or lower than estimated. Since the unaudited prospective financial information covers multiple years, that information by its nature becomes less predictive with each successive year. You are encouraged to review the risks and uncertainties described under the headings “Risk Factors—Risks Related to the Merger” beginning on page 29 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38 and the risks described in the periodic reports filed by Apple Hospitality with the SEC, which reports can be found as described under the heading “Where You Can Find More Information and Incorporation by Reference” beginning on page 145. The unaudited prospective financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with U.S. generally accepted accounting principles (“GAAP”), published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In addition, the unaudited prospective financial information requires significant estimates and assumptions that make it inherently less comparable to the similarly titled GAAP measures in Apple Hospitality’s historical GAAP financial statements.
Neither Apple Hospitality’s independent auditors nor any other independent accountants have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.
The report of Apple Hospitality’s independent auditors contained in Apple Hospitality’s Annual Report on Form 10-K for the year ended December 31, 2015, which is incorporated by reference into this joint proxy statement/prospectus, relates to Apple Hospitality’s historical financial information. It does not extend to the unaudited prospective financial information and should not be read to do so. Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the date it was prepared.
The following table presents selected unaudited prospective financial data for the fiscal years ending 2016 through 2020 for Apple Hospitality on a standalone basis:
2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
(in millions, except RevPAR) | ||||||||||||||||||||
RevPAR | $ | 106 | $ | 111 | $ | 114 | $ | 116 | $ | 118 | ||||||||||
Revenue | $ | 977.0 | $ | 1,020.9 | $ | 1,046.5 | $ | 1,067.4 | $ | 1,083.4 | ||||||||||
Adjusted EBITDA | $ | 357.6 | $ | 379.2 | $ | 389.7 | $ | 398.5 | $ | 404.2 | ||||||||||
Adjusted Hotel EBITDA | $ | 378.3 | $ | 400.5 | $ | 411.6 | $ | 420.9 | $ | 427.3 |
In preparing the foregoing unaudited projected financial information, Apple Hospitality made a number of assumptions regarding, among other things, occupancy levels, changes in average daily rate, the amount, timing and cost of existing and planned development properties, lease-up rates of existing and planned developments, the return on acquisitions, costs to support increased revenues such as increased wages, utilities, marketing, maintenance, property taxes and franchise and management fees which are directly related to revenue growth and the amount of general and administrative costs.
The assumptions made in preparing the above unaudited prospective financial information may not necessarily reflect actual future conditions. The estimates and assumptions underlying the unaudited prospective financial information involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions which may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among others, risks and uncertainties described under the headings “Risk Factors— Risks Related to the Merger” beginning on page 29 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38 and the risks described in the periodic reports filed by Apple Hospitality with the SEC, which reports can be found as described under the heading “Where You Can Find More Information and Incorporation by Reference” beginning on page 145, all of which are difficult to predict and many of which are beyond the control of Apple Hospitality and/or Apple Ten. The underlying assumptions and projected results may not be realized, and actual results likely will differ, and may differ materially, from those reflected in the unaudited prospective financial information, whether or not the merger is completed.
In addition, although presented with numerical specificity, the above unaudited prospective financial information reflects numerous assumptions and estimates as to future events made by Apple Hospitality management that Apple Hospitality management believes were reasonable. The above unaudited prospective financial information does not give effect to the merger. Apple Hospitality and Apple Ten shareholders are urged to review the most recent SEC filings of Apple Hospitality for a description of the reported results of operations and financial condition and capital resources, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Apple Hospitality’s Annual Report on Form 10-K for the year ended December 31, 2015 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, which are incorporated by reference into this joint proxy statement/prospectus.
Readers of this joint proxy statement/prospectus are cautioned not to place undue reliance on the unaudited prospective financial information set forth above. No representation is made by Apple Hospitality, Apple Ten or any other person to any Apple Hospitality shareholder or any Apple Ten shareholder regarding the ultimate performance of Apple Hospitality compared to the information included in the above unaudited prospective financial information. The inclusion of unaudited prospective financial information in this joint proxy statement/prospectus should not be regarded as an indication that the prospective financial information will be necessarily predictive of actual future events, and such information should not be relied on as such.
APPLE HOSPITALITY DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE ABOVE UNAUDITED PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE, EXCEPT AS MAY BE REQUIRED BY LAW.
Certain Apple Ten Unaudited Prospective Financial Information
Apple Ten does not as a matter of course make public long-term projections as to future revenues, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, Apple Ten is including in this joint proxy statement/prospectus certain unaudited prospective financial information that was made available to the Apple Hospitality board and the Apple Ten board in connection with the evaluation
of the merger. This information also was provided to Apple Hospitality’s and the Apple Ten Special Committee’s respective financial advisors for their use and reliance in connection with their respective financial analyses and opinions described under the headings “—Opinion of Apple Hospitality’s Financial Advisor” and “—Opinion of the Apple Ten Special Committee’s Financial Advisor.” The inclusion of this information should not be regarded as an indication that any of Apple Hospitality, Apple Ten, their respective affiliates, advisors or other representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results.
The unaudited prospective financial information was, in general, prepared solely for internal use and is subjective in many respects. It also was prepared on a standalone basis for Apple Ten, without regard to the impact of the merger on Apple Ten. As a result, the prospective results may not be realized and the actual results may be significantly higher or lower than estimated. Since the unaudited prospective financial information covers multiple years, that information by its nature becomes less predictive with each successive year. You are encouraged to review the risks and uncertainties described under the headings “Risk Factors—Risks Related to the Merger” beginning on page 29 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38 and the risks described in Apple Ten’s most recent annual report filed with the SEC on Form 10-K which is attached hereto as Annex G and other reports which can be found as described under the heading “Where You Can Find More Information and Incorporation by Reference” beginning on page 145. The unaudited prospective financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with GAAP, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In addition, the unaudited prospective financial information requires significant estimates and assumptions that make it inherently less comparable to the similarly titled GAAP measures in Apple Ten’s historical GAAP financial statements.
Neither Apple Ten’s independent auditors nor any other independent accountants have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.
The report of Apple Ten’s independent auditors contained in Apple Ten’s Annual Report on Form 10-K for the year ended December 31, 2015, which is attached hereto as Annex G, relates to Apple Ten’s historical financial information. It does not extend to the unaudited prospective financial information and should not be read to do so. Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the date it was prepared.
The following table presents selected unaudited prospective financial data for the fiscal years ending 2016 through 2020 for Apple Ten on a standalone basis:
2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
(in millions, except RevPAR) | ||||||||||||||||||||
RevPAR | $ | 102 | $ | 107 | $ | 109 | $ | 111 | $ | 113 | ||||||||||
Revenue | $ | 291.4 | $ | 304.6 | $ | 312.1 | $ | 318.4 | $ | 323.1 | ||||||||||
Adjusted EBITDA | $ | 109.7 | $ | 116.2 | $ | 119.4 | $ | 122.1 | $ | 123.9 | ||||||||||
Adjusted Hotel EBITDA | $ | 116.5 | $ | 123.3 | $ | 126.7 | $ | 129.5 | $ | 131.5 |
For purposes of the unaudited prospective financial information presented herein, RevPAR means the revenue per available room. Adjusted Earnings Before Interest Taxes Depreciation and Amortization (“Adjusted EBITDA”) is a non-GAAP financial performance measure composed of net income excluding interest, income taxes and depreciation and amortization, further adjusted to exclude (i) transaction costs and gains or losses from sales of real estate as these do not represent ongoing operations and (ii) non-cash straight-line ground lease expense as this expense does not reflect the underlying performance of the related hotels. Apple Ten further adjusts Adjusted EBITDA by excluding general and administrative expense to calculate Adjusted Hotel EBITDA.
The assumptions made in preparing the above unaudited prospective financial information may not necessarily reflect actual future conditions. The estimates and assumptions underlying the unaudited prospective financial information involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions which may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among others, the risks and uncertainties described under the headings “Risk Factors— Risks Related to the Merger” beginning on page 29 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 38, and the risks described in Apple Ten’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on From 10-Q for the quarter ended March 31, 2016, which are attached hereto as Annexes G and H, respectively. All of these uncertainties and contingencies are difficult to predict and many of which are beyond the control of Apple Hospitality and/or Apple Ten. The underlying assumptions and projected results may not be realized, and actual results likely will differ, and may differ materially, from those reflected in the unaudited prospective financial information, whether or not the merger is completed.
In addition, although presented with numerical specificity, the above unaudited prospective financial information reflects numerous assumptions and estimates as to future events made by Apple Ten management that Apple Ten management believes were reasonable. The above unaudited prospective financial information does not give effect to the merger. Apple Ten shareholders and Apple Hospitality shareholders are urged to review Apple Ten’s most recent SEC filings for a description of Apple Ten’s results of operations and financial condition and capital resources, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Apple Ten’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, which are attached hereto as Annexes G and H, respectively.
Readers of this joint proxy statement/prospectus are cautioned not to place undue reliance on the unaudited prospective financial information set forth above. No representation is made by Apple Hospitality, Apple Ten or any other person to any Apple Hospitality shareholder or any Apple Ten shareholder regarding the ultimate performance of Apple Ten compared to the information included in the above unaudited prospective financial information. The inclusion of unaudited prospective financial information in this joint proxy statement/prospectus should not be regarded as an indication that the prospective financial information will be necessarily predictive of actual future events, and such information should not be relied on as such.
APPLE TEN DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE ABOVE UNAUDITED PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE, EXCEPT AS MAY BE REQUIRED BY LAW.
Directors and Management of Apple Hospitality After the Merger
Following the consummation of the merger, the combined company’s board of directors will consist of seven members, all of whom are current directors of Apple Hospitality. The existing directors of Apple Hospitality are: Glade M. Knight, Justin G. Knight, Glenn W. Bunting, Jon A. Fosheim, Bruce H. Matson, Daryl A. Nickel and L. Hugh Redd. Each of the executive officers of Apple Hospitality immediately prior to the effective time of the merger will continue as an executive officer of the combined company following the effective time of the merger. Justin Knight, Apple Hospitality’s president and chief executive officer and Apple Ten’s president, will serve as president and chief executive officer of the combined company. Glade M. Knight, Apple Hospitality’s executive chairman and Apple Ten’s chairman and chief executive officer, will serve as executive chairman of the combined company. Bryan Peery, Apple Hospitality’s and Apple Ten’s executive vice president and chief financial officer, will serve as executive vice president and chief financial officer of the combined company. Kristian Gathright, Apple Hospitality’s and Apple Ten’s executive vice president and chief operating officer, will serve as executive vice president and chief operating officer of the combined company. David P. Buckley, Apple Hospitality’s and Apple Ten’s executive vice president and chief legal counsel, will serve as executive vice president and chief legal counsel of the combined company. Nelson G. Knight, the executive vice president and chief investment officer of Apple Hospitality, will serve as executive vice president and chief investment officer of the combined company.
Interests of Apple REIT Directors and Executive Officers in the Merger
In addition to their interests in the merger as shareholders, some of the Apple Hospitality and Apple Ten directors and executive officers have interests in the merger that differ from, or are in addition to, the interests of the
Apple Hospitality shareholders and the Apple Ten shareholders. Each of the Apple Hospitality board and the Apple Ten board was aware of, and considered the interests of, its respective directors and executive officers in approving the Merger Agreement.
Conversion of Series B Convertible Preferred Shares
The directors and executive officers of Apple Ten who will receive certain benefits of the Apple Ten Series B convertible preferred shares in connection with the merger are listed below along with the number of Apple Hospitality common shares into which such Series B convertible preferred shares assigned to each such person would be convertible.
Name of Directors or Executive Officer | Number of Current Apple Ten Series B Convertible Preferred Shares | Number of Apple Hospitality Common Shares Based On Merger Consideration for the Apple Ten Series B Convertible Preferred Shares | ||||||
Glade M. Knight | 300,991 | (1) | 1,903,355 | |||||
Justin G. Knight | 30,090 | (2) | 190,277 | |||||
Kristian M. Gathright | 30,090 | (2) | 190,277 | |||||
David McKenney | 30,090 | (2) | 190,277 | |||||
Bryan F. Peery | 15,045 | (2) | 95,138 | |||||
David P. Buckley | 15,045 | (2) | 95,138 | |||||
Above directors and executive officers as a group: | 421,351 | 2,664,462 |
(1) | Does not include 120,360 Apple Ten Series B convertible preferred shares whose benefits were assigned to the executive officers listed in the table above and 58,649 Apple Ten Series B convertible preferred shares whose benefits were assigned to others. | |
(2) | Number of shares refers to Apple Ten Series B convertible preferred shares with respect to which benefits have been assigned. |
Options
The Merger Agreement provides that, at the effective time of the merger, each outstanding Apple Ten option, whether or not exercisable at the effective time of the merger, will be assumed by Apple Hospitality, subject to the same terms and conditions (including vesting schedule) as were applicable to such option immediately prior to the effective time of the merger, except that from and after the effective time of the merger (i) each option, when exercisable, will be exercisable for that number of Apple Hospitality common shares equal to the product of the number of Apple Ten common shares underlying such option immediately prior to the effective time of the merger multiplied by the Equity Exchange Factor, rounded down to the nearest whole number of Apple Hospitality common shares and (ii) the per share exercise price for the Apple Hospitality common shares issuable upon exercise of such option will be equal to the quotient determined by dividing the exercise price of the option by the Equity Exchange
For illustration purposes, if the closing of the merger occurred on July 8, 2016, then the “APLE Price” would be $19.30 (i.e., the average closing price of Apple Hospitality common shares on July 7, 2016 and July 11, 2016), and the “Equity Exchange Factor” would be 0.5740. Assuming this 0.5740 Equity Exchange Factor (which does not necessarily reflect the value of the actual Equity Exchange Factor to be used to determine the merger consideration), the exercise price for such options after the merger will be $19.17 per option and the Apple Ten directors will be entitled to and vested in the number of Apple Hospitality options shown in the table below. None of Glade M. Knight, Justin G. Knight or the other executive officers of Apple Ten hold any options.
Name | Number of Current Apple Ten Options | Number of Apple Hospitality Options After the Merger Exchanged for Current Apple Ten Options | ||||||
David J. Adams | 83,488 | 47,920 | ||||||
Kent W. Colton | 90,087 | 51,707 | ||||||
R. Garnett Hall, Jr. | 90,087 | 51,707 | ||||||
Anthony F. Keating, III | 90,087 | 51,707 | ||||||
Total | 353,749 | 203,041 |
Affiliation of Apple Ten and Apple Hospitality
Termination Agreement
In connection with the merger, Apple Hospitality and Apple Ten have entered into a termination agreement with Apple Ten Advisors and Apple Realty Group, each of which is wholly owned by Glade M. Knight, as discussed under “Termination Agreement” beginning on page 116. Currently, Apple Ten pays significant fees to the advisor entities, as described more fully under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Parties” in the Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 of Apple Ten attached to this joint proxy statement/prospectus as Annexes G and H, respectively, and to Apple Hospitality pursuant to the subcontract agreement between Apple Ten Advisors and Apple Hospitality.
Apple Ten will no longer subcontract its advisory services to Apple Hospitality. The termination of the subcontract agreement will have no financial impact on the combined company.
The Apple Hospitality board and the Apple Ten board (based on the recommendation of the Apple Ten special committee) have approved the termination agreement.
Meeting Fees
Each of the Apple Ten directors received meeting fees of $1,500 for each Apple Ten special committee meeting (excluding Glade M. Knight and Anthony F. Keating, III) and $1,000 for each Apple Ten board meeting (excluding Glade M. Knight) attended in connection with the merger. Each of the Apple Hospitality directors, excluding Glade M. Knight and Justin Knight, received a total of $6,000 for all Apple Hospitality board meetings in connection with the merger.
Directors’ and Officers’ Indemnification and Insurance
The Merger Agreement provides that, from and after the effective time of the merger, Apple Hospitality will indemnify all present and former directors, officers, employees and agents of Apple Ten and its subsidiaries who at any time prior to the effective time of the merger were entitled to indemnification under the articles of incorporation or bylaws of Apple Ten or employment agreements between Apple Ten and its officers existing on the date of the Merger Agreement to the same extent as they are entitled to indemnification under such articles of incorporation or bylaws or existing employment agreements in respect of actions or omissions occurring at or prior to the effective time of the merger (including, without limitation, the transactions contemplated by the Merger Agreement).
Further, the articles of incorporation and bylaws of Acquisition Sub provide that Acquisition Sub will indemnify a director or officer of the surviving corporation who prevails in the defense of a proceeding to which he was a party because he is or was a director or officer of Acquisition Sub and also provide the maximum indemnification permitted by law to any director, officer, employee or agent of Acquisition Sub in connection with a proceeding that is brought against such person based on the actions taken or not taken by such person on behalf of Acquisition Sub, or such person’s status as a director, officer, employee or agent, except if such person was engaged in willful misconduct or a knowing violation of the law.
In addition, the Merger Agreement also requires Apple Hospitality to maintain for a period of six years from the effective time of the merger, “run-off” or “tail” director and officer liability coverage for the benefit of the directors and officers of Apple Ten and its subsidiaries without reduction of existing coverage under, and having terms not less favorable to the insured persons, than the director and officer liability insurance coverage currently maintained by Apple Ten.
Employment and Directorships with Affiliates
All of the current directors of Apple Hospitality will continue as directors of Apple Hospitality following the consummation of the merger. The sole director of Acquisition Sub, the surviving corporation in the merger, will be Bryan F. Peery, executive vice president and chief financial officer of Apple Hospitality and Apple Ten, and Bryan F. Peery will serve as its president and treasurer and David P. Buckley, executive vice president and chief legal counsel of Apple Hospitality and Apple Ten, will serve as its vice president and secretary.
Regulatory Approvals Required in the Merger
No material federal or state regulatory approvals are required in connection with the merger other than regulatory approvals that the Apple REITs expect to obtain in the ordinary course.
Apple Hospitality will account for the merger under the acquisition method of accounting for business combinations under United States generally accepted accounting principles with Apple Hospitality being deemed to have acquired Apple Ten. This means that Apple Hospitality will record the assets and liabilities of Apple Ten as of the completion of the merger, at their fair values including an amount for goodwill, if applicable, representing the difference between the purchase price and fair value of the identifiable assets and liabilities. Financial statements of Apple Hospitality issued after the merger will reflect only the operations of Apple Ten’s businesses after the merger and will not be restated retroactively to reflect the historical financial position or results of operations of Apple Ten prior to the merger.
Dissenters’ Rights of Appraisal
Apple Ten shareholders are entitled to assert appraisal rights under Article 15 of the VSCA in connection with the merger. The following discussion is only a summary of the material aspects of Article 15 of the VSCA and does not purport to be a complete statement of the law pertaining to appraisal rights under the VSCA. The text of Article 15 of the VSCA is reprinted in its entirety as Annex F to this joint proxy statement/prospectus. This summary is qualified in its entirety by reference to Article 15 of the VSCA. Under the VSCA, shareholders who follow the procedures set forth in Article 15 of the VSCA will be entitled to receive payment of the “fair value” of their shares. Any shareholder who wishes to exercise appraisal rights should review the following discussion and Annex F carefully because failure to comply in a timely and proper manner with the procedures specified under Article 15 of the VSCA may result in the loss of appraisal rights under the VSCA. In addition, Apple Ten’s audited financial statements for the year ended December 31, 2015 are included in the Annual Report on Form 10-K for the year ended December 31, 2015 and Apple Ten’s unaudited financial statements for the period ended March 31, 2016 are included in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, copies of which are attached to this joint proxy statement/prospectus as Annexes G and H, respectively.
A shareholder wishing to exercise appraisal rights in connection with the merger must deliver to Apple Ten, before the vote on the merger is taken at the special meeting of shareholders of Apple Ten, a written notice of intent to demand payment for the shareholder’s Apple Ten shares. A vote against the merger by itself will not satisfy this notice requirement. A shareholder delivering a notice of intent must not vote any of his or her Apple Ten shares in favor of the merger or he or she will lose his or her appraisal rights. All notices of intent to demand payment for a shareholder’s Apple Ten shares should be sent or delivered to:
Apple REIT Ten, Inc.
814 East Main Street
Richmond, Virginia 23219
Attention: Secretary
Within ten days after the effective time of the merger, Acquisition Sub, as the surviving corporation in the merger, is required to deliver an appraisal notice in writing to all shareholders of Apple Ten who properly delivered a notice of intent to demand payment for their Apple Ten shares and did not vote any of their Apple Ten shares in favor of the merger. The appraisal notice will:
● | state where the shareholder’s payment demand needs to be sent and where and when the shareholder’s share certificates need to be deposited; |
● | state a date by which Acquisition Sub must receive the payment demand, which date may not be fewer than 40 nor more than 60 days after the date the appraisal notice was sent; |
● | state Acquisition Sub’s estimate of the fair value of the Apple Ten shares; and |
● | include such other information as required by the VSCA, including the date by which a shareholder can withdraw his or her demand for payment without the consent of Acquisition Sub. |
Under Article 15 of the VSCA, “fair value” means the value of the Apple Ten shares determined immediately before the effectuation of the merger, using customary and current valuation concepts and techniques generally employed for similar businesses in the context of a merger, without discounting for lack of marketability or minority status.
A shareholder demanding appraisal who received an appraisal notice must demand payment within the time specified in the notice by completing, signing and returning the appraisal notice form sent by Acquisition Sub, depositing his or her share certificates in accordance with the terms of the appraisal notice and making certain certifications required by the VSCA. If a shareholder is not the record holder of his or her Apple Ten shares, the shareholder must also submit to Acquisition Sub the record holder’s written consent to the assertion of appraisal rights by the date specified in the appraisal notice. If the shareholder fails to take any of these actions, he or she will lose his or her appraisal rights.
Within 30 days after the date by which Acquisition Sub must receive the payment demand from one of its shareholders, Acquisition Sub must pay the shareholder in cash its estimate of the fair value of the shareholder’s shares plus interest. At Acquisition Sub’s option, however, it may withhold payment and instead make an offer to pay its estimate of the fair value of the Apple Ten shares to any shareholder who failed to certify in the appraisal
notice form that his or her Apple Ten shares were acquired before the date of the announcement of the merger. With any payment, Acquisition Sub must provide its most recent year-end financial statements, which shall be dated not more than 16 months before the date of the payment, its most recent quarterly financial statements, a statement of its estimate of the fair value of the Apple Ten shares and a statement of the shareholder’s right to continue to demand fair value for his or her Apple Ten shares.
A shareholder demanding appraisal who is dissatisfied with the amount paid or offered must notify Acquisition Sub of his or her own stated estimate of the fair value of his or her Apple Ten shares and demand payment of that estimate plus interest (less any payment already received). If a shareholder fails to give this notice, the shareholder waives his or her rights to demand payment and will be entitled only to the payment made or offered by Acquisition Sub. This notice must be given in writing within 30 days of the date that Acquisition Sub made or offered to have payment made for the shareholder’s shares.
If a shareholder’s demand for payment remains unsettled, Acquisition Sub is obligated to commence a proceeding and petition a court to determine the fair value of the Apple Ten shares and accrued interest within 60 days of the receipt of the shareholder’s payment demand. If Acquisition Sub fails to commence such proceeding in accordance with the VSCA, it must pay the shareholder in cash the amount demanded by the shareholder plus interest. The appraisal proceeding must be brought in the Circuit Court of the City of Richmond, Virginia.
Shareholders considering seeking appraisal should be aware that the fair value of their Apple Ten shares, as determined under Article 15 of the VSCA, could be more than, the same as, or less than, the merger consideration that would be paid to them in the merger pursuant to the Merger Agreement. Shareholders also should be aware that investment banking opinions as to the fairness from a financial point of view of the consideration payable in a merger are not opinions as to, and do not in any manner address, fair value under Article 15 of the VSCA. The costs and expenses of the appraisal proceeding will be determined by the court and assessed against Acquisition Sub unless the court determines that the shareholder acted arbitrarily, vexatiously or not in good faith with respect to the shareholder’s right to appraisal, in which case, costs and expenses may be assessed against the shareholder. Shareholders will only be entitled to receive payment in accordance with Article 15 of the VSCA and will not be entitled to vote their shares or exercise any other rights of a shareholder. Once the date set forth in the appraisal notice by which a shareholder can withdraw his or her demand for payment has passed, a shareholder may withdraw his or her demand only with the written consent of Acquisition Sub.
If any shareholder who demands appraisal of his or her Apple Ten shares under Article 15 fails to perfect, or effectively withdraws or loses, his or her right to appraisal, as provided in the VSCA, prior to the date by which Acquisition Sub must receive the shareholder’s payment demand, the Apple Ten shares of that holder will be converted into the right to receive the merger consideration in accordance with the Merger Agreement. If any shareholder who demands appraisal of his or her Apple Ten shares under Article 15 fails to perfect, or effectively withdraws or loses, his or her right to appraisal, as provided in the VSCA, after Acquisition Sub pays or offers to pay its estimate of the fair value of those Apple Ten shares, the shareholder will waive his or her right to demand further payment and will only be entitled to the payment made or offered by Acquisition Sub.
In view of the complexity of Article 15 of the VSCA, shareholders who may wish to pursue appraisal rights should consult their own legal advisor.
Exchange of Shares in the Merger
Apple Hospitality shareholders need not take any action with respect to their share certificates or book-entry shares.
Apple Hospitality currently pays a monthly dividend on its common shares at an annualized rate of $1.20 per share and Apple Ten currently pays a monthly dividend on its common shares at an annual rate of $0.825. Each of Apple Hospitality and Apple Ten plan to continue its current dividend policy until the closing of the merger. In addition, the Merger Agreement permits Apple Hospitality to continue to pay regular monthly dividends, and any distribution that is reasonably necessary to maintain its REIT qualification under the Code and avoid or reduce the imposition of any corporate level tax or excise tax under the Code. The Merger Agreement permits Apple Ten to continue to pay regular monthly dividends, and any distribution that is reasonably necessary to maintain its REIT qualification under the Code and avoid or reduce the imposition of any corporate level tax or excise tax under the Code.
Following the closing of the merger, Apple Hospitality expects to continue its current dividend policy for shareholders, subject to the discretion of the Apple Hospitality board, which reserves the right to change Apple Hospitality’s dividend policy at any time and for any reason. See “Risk Factors—Risks Related to an Investment in Apple Hospitality Common Shares Following the Merger—Following the merger, Apple Hospitality may not pay dividends at the rate it currently pays” on page 34.
Listing of Apple Hospitality Common Shares
It is a condition to the completion of the merger that the Apple Hospitality common shares issuable in connection with the merger be approved for listing on the NYSE, subject to official notice of issuance.
Deregistration of Apple Ten Units
If the merger is completed, Apple Ten units will be deregistered under the Exchange Act, and Apple Ten will no longer file periodic reports with the SEC.
The following is a summary of the material terms of the Merger Agreement. This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. The summary of the material terms of the Merger Agreement below and elsewhere in this joint proxy statement/prospectus is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to this joint proxy statement/prospectus as Annex A and is incorporated by reference into this joint proxy statement/prospectus. You are urged to read the Merger Agreement carefully and in its entirety because it, and not the description below or elsewhere in this joint proxy statement/prospectus, is the legal document that governs the merger.
The Merger Agreement has been included in this joint proxy statement/prospectus to provide you with information regarding the terms of the merger. It is not intended to provide you with any other factual or financial information about Apple Hospitality or Apple Ten or any of their respective affiliates or businesses. Information about Apple Hospitality and Apple Ten can be found elsewhere in this joint proxy statement/prospectus and in the other filings each of Apple Hospitality and Apple Ten has made with the SEC, which are available without charge at http://www.sec.gov. See “Where You Can Find More Information and Incorporation by Reference” on page 145.
The Merger Agreement provides for the merger of Apple Ten with and into Acquisition Sub, a wholly-owned subsidiary of Apple Hospitality. At the effective time of the merger, the separate corporate existence of Apple Ten will cease and Acquisition Sub will be the surviving corporation and a wholly owned subsidiary of Apple Hospitality.
Closing; Effective Time of the Merger
The closing of the merger will occur:
● | as promptly as practicable (but no later than the second business day) after satisfaction or (to the extent permitted by applicable law) waiver of the conditions described under “—Conditions to Complete the Merger” beginning on page 107 (other than those conditions that by their nature are to be satisfied by actions taken at the closing, but subject to the satisfaction or waiver (to the extent permitted by applicable law) of such conditions); or |
● | on such other date as may be agreed in writing by Apple Hospitality and Apple Ten; provided, however, that Apple Hospitality may elect to accelerate or defer the closing date to the last business day of the calendar month during which all of the conditions described under “—Conditions to Complete the Merger” (other than those conditions that by their nature are to be satisfied by actions taken at the closing, but subject to the satisfaction or waiver (to the extent permitted by applicable law) of such conditions) have been satisfied or (to the extent permitted by applicable law) waived. |
The merger will become effective at such time and on such date as Acquisition Sub and Apple Ten will specify in the Articles of Merger with respect to the merger. The parties to the merger will cause the effective time of the merger to occur on the closing date.
Upon completion of the merger, the directors and officers of Acquisition Sub will be the directors and officers of the surviving corporation of the merger.
The articles of incorporation and bylaws of Acquisition Sub, as in effect immediately prior to the effective time of the merger, will become the articles of incorporation and bylaws of the surviving corporation of the merger as of the effective time of the merger, with the name of the surviving corporation changed to the name “Apple REIT Ten, Inc.” as of the effective time of the merger.
Pursuant to the terms of the Merger Agreement, at the effective time of the merger, each issued and outstanding Apple Ten unit (including any fractional units) (other than Apple Ten shares with respect to which holders have properly exercised, perfected and not subsequently withdrawn or lost their appraisal rights in accordance with
Article 15 of the VSCA) will be converted into the right to receive 0.522 Apple Hospitality common shares and $1.00 in cash, and each issued and outstanding Apple Ten Series B convertible preferred share will be converted into the right to receive (i) a number of Apple Hospitality common shares equal to 12.11423 multiplied by the unit exchange ratio and (ii) an amount in cash equal to 12.11423 multiplied by $1.00 (collectively, the “merger consideration”).
No fractional Apple Hospitality common shares will be issued with respect to the merger. Each holder of Apple Ten shares who would otherwise have been entitled to receive a fraction of an Apple Hospitality common share will receive, in lieu thereof, cash, without interest, in an amount equal to such fractional part of an Apple Hospitality common share multiplied by the volume weighted average price of the Apple Hospitality common shares for the ten-day trading period ending on the third trading day immediately preceding the closing date of the merger (the “fractional share consideration”).
Each issued and outstanding Apple Ten share (including any fractional shares) that is owned by Apple Hospitality, Acquisition Sub or any of their respective subsidiaries will no longer be outstanding and will automatically be canceled and will cease to exist, and no consideration will be delivered in exchange therefor.
Payment of the merger consideration under the Merger Agreement is subject to applicable withholding requirements.
Apple Ten shares held by a holder who properly exercises, perfects and does not subsequently withdraw or lose its appraisal rights with respect to such shares in accordance with Article 15 of the VSCA will not be converted into the right to receive, or become exchangeable for, the merger consideration, but rather will be entitled to obtain payment of the fair value of such shares as further described in this joint proxy statement/prospectus under “Merger—Dissenters’ Rights of Appraisal” beginning on page 89. However, if after the effective time of the merger, any such holder fails to perfect or effectively withdraws or loses such appraisal rights, the Apple Ten shares held by that holder will be treated as if they had been converted into the right to receive, and become exchangeable for the merger consideration described above under “—Merger Consideration.”
Each Apple Ten option that is outstanding immediately prior to the effective time of the merger, whether or not exercisable at the effective time of the merger, will be assumed by Apple Hospitality by virtue of the merger and without any action on the part of the holder thereof. The terms and conditions of each option will otherwise remain the same as the terms and conditions (including vesting schedule) of the original Apple Ten option, except that (A) when exercisable, each option will be exercisable for that number of whole Apple Hospitality common shares equal to the product of the number of Apple Ten common shares that were subject to such original Apple Ten option immediately prior to the effective time of the merger multiplied by the Equity Exchange Factor (as defined below), rounded down to the nearest whole number of Apple Hospitality common shares, and (B) the exercise price per share of such option will equal the quotient of (i) the exercise price per share of such original Apple Ten option divided by (ii) the Equity Exchange Factor, rounded up to the nearest whole cent.
The “Equity Exchange Factor” is the number (rounded to the third decimal place) equal to the quotient of (A) divided by (B), where: (A) equals the sum of (x) $1.00 plus (y) the product obtained by multiplying the APLE Price by the unit exchange ratio; and (B) equals the APLE Price. For these purposes, the “APLE Price” equals the average of the closing price of Apple Hospitality common shares on the NYSE on the trading day immediately prior to and after the closing date of the merger.
At or before the effective time of the merger, Apple Hospitality will deposit or cause Acquisition Sub to deposit with the paying agent evidence of Apple Hospitality common shares in book-entry form issuable in the merger and cash in an amount sufficient to pay the cash portion of the merger consideration, the fractional share consideration and any dividends or distributions to which holders of Apple Ten shares may be entitled (the “exchange fund”).
As promptly as practicable after the effective time of the merger and in no event later than two business days following the effective time of the merger, the paying agent will mail to each holder of record of outstanding Apple Ten shares that were converted into the right to receive the merger consideration, as described above under “—Merger
Consideration,” a letter of transmittal (which will be in a customary form with such other provisions as reasonably agreed upon by Apple Hospitality and Apple Ten prior to the effective time of the merger), which shall specify, among other things, (A) that delivery shall be effected, and risk of loss and title to Apple Ten shares represented by certificate or registered in the transfer books of Apple Ten in book-entry shall pass, only upon proper delivery of the certificates (or affidavits of loss in lieu thereof) or transfer of any book-entry shares to the paying agent and (B) instructions for use in effecting the surrender of the certificates or the transfer of book-entry shares in exchange for the merger consideration.
Upon surrender of a certificate (or affidavit of loss in lieu thereof) or transfer of any book-entry share to the paying agent, together with a properly completed and validly executed letter of transmittal, or receipt of an “agent’s message” by the paying agent (or such other evidence, if any, of transfer as the paying agent may reasonably request) in the case of transfer of a book-entry share, and such other documents as may reasonably be required by the paying agent, the holder of such certificate or book-entry share will be entitled to receive in exchange therefor the merger consideration plus the fractional share consideration and any amounts that such holder has the right to receive in respect of dividends or distributions to which holders may be entitled (in each case, without interest and less any applicable withholding taxes). The merger consideration may be paid to a person other than the person in whose name the certificate or book-entry share so surrendered is registered, if such certificate or book-entry share is properly endorsed or otherwise in proper form for transfer and the person requesting such payment pays any transfer or other taxes or establishes to the reasonable satisfaction of Apple Hospitality that such tax has been paid or is not applicable.
The merger consideration (including the fractional share consideration) issued upon exchange of the Apple Ten shares will be deemed to have been issued in full satisfaction of all rights pertaining to the Apple Ten shares. There will be no further registration of transfers on the stock transfer books of Apple Ten of the shares that were outstanding immediately prior to the effective time of the merger. Any portion of the exchange fund delivered to the paying agent pursuant to the Merger Agreement (including any interest and income received with respect thereto and any fractional share consideration and any applicable dividends or other distributions with respect to Apple Hospitality common shares) that remains undistributed for twelve months after the effective time of the merger will be delivered by the paying agent to Apple Hospitality, upon demand, and any holders of Apple Ten shares that have not been surrendered as contemplated by the Merger Agreement must thereafter look only to Apple Hospitality and the surviving corporation of the merger for payment of the merger consideration, subject to applicable abandoned property, escheat and other similar laws.
None of Apple Ten, Acquisition Sub, Apple Hospitality or the paying agent will be liable to any person in respect of any merger consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
Representations and Warranties
The Merger Agreement contains representations and warranties of each of the parties to the Merger Agreement to the other parties. The assertions embodied in those representations and warranties were made solely for purposes of the Merger Agreement and may be subject to important confidential disclosures and qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Merger Agreement. Accordingly, shareholders of Apple Hospitality and Apple Ten should not rely on representations and warranties as characterizations of the actual state of facts or circumstances, and should bear in mind that the representations and warranties were made solely for the benefit of the parties to the Merger Agreement, were negotiated for purposes of allocating contractual risk among the parties to the Merger Agreement rather than to establish matters as facts, and may be subject to contractual standards of materiality different from those generally applicable to shareholders. Moreover, information concerning the subject matter of such representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be reflected in public disclosures by Apple Hospitality and Apple Ten. This description of the representations and warranties is included to provide shareholders of Apple Hospitality and Apple Ten with information regarding the terms of the Merger Agreement.
In the Merger Agreement, Apple Ten made representations and warranties relating to, among other things:
● | due incorporation, valid existence, good standing and power and authority of Apple Ten to operate its assets and properties and to carry on its business as it is now being conducted; |
● | due incorporation or organization, valid existence and good standing and power and authority of Apple Ten’s subsidiaries to carry on their businesses as now being conducted; |
● | capital structure and capitalization of Apple Ten and its subsidiaries; |
● | authority to enter into the Merger Agreement and, subject to shareholder approval, complete the merger and the other transactions contemplated by the Merger Agreement; |
● | enforceability of the Merger Agreement against Apple Ten; |
● | approval by the Apple Ten board of the Merger Agreement, the plan of merger, the voting agreement and the termination agreement and the transactions contemplated thereby, including the merger, based on the unanimous recommendation of the Apple Ten special committee; |
● | absence of conflicts with, violations or breaches of, or defaults under, Apple Ten’s organizational documents, certain contracts applicable to it and its subsidiaries, and applicable laws; |
● | consents, approvals, orders or authorizations of, or registrations or filings with, governmental entities required in connection with executing and delivering the Merger Agreement or the consummation of the transactions contemplated by the Merger Agreement; |
● | Apple Ten’s SEC filings since January 1, 2014, and the financial statements contained therein; |
● | Apple Ten’s internal controls over financial reporting and its disclosure controls and procedures, and the absence of any off-balance sheet arrangements where the result, purpose or effect is to avoid disclosure of any material transaction involving, or material liabilities of, Apple Ten or its subsidiaries; |
● | absence of any material adverse effect, as defined below under “—Material Adverse Effect,” on Apple Ten and certain other changes and events since December 31, 2015 through the date of the Merger Agreement; |
● | absence of any undisclosed litigation or investigations against or affecting Apple Ten or its subsidiaries; |
● | tax matters affecting Apple Ten and its subsidiaries, including Apple Ten’s REIT qualification; |
● | the absence of loans, employment contracts or severance arrangements to or from Apple Ten or its subsidiaries’ employees, officers or directors; |
● | receipt by the Apple Ten special committee of an opinion from the financial advisor to the special committee; |
● | absence of any undisclosed broker’s, finder’s or other similar fees; |
● | possession of all permits necessary to own, lease and operate the properties and assets of Apple Ten and its subsidiaries or to carry on the business of Apple Ten and its subsidiaries, and the absence of violations of, and failures to comply with, any such permits and applicable laws; |
● | the material contracts of Apple Ten and its subsidiaries, the absence of breaches or violations of, or defaults under, any such material contract and the absence of certain related party transactions; |
● | environmental matters affecting Apple Ten and its subsidiaries; |
● | real property owned or ground leased by Apple Ten and its subsidiaries; |
● | certain of the franchise and management agreements of Apple Ten and its subsidiaries; |
● | personal property owned or leased by Apple Ten and its subsidiaries; |
● | insurance policies of Apple Ten and its subsidiaries; |
● | the accuracy of the information contained in this joint proxy statement/prospectus and supplied by Apple Ten for inclusion or incorporation by reference in this joint proxy statement/prospectus or any other document filed with the SEC in connection with the merger; |
● | books and records of Apple Ten and its subsidiaries; |
● | labor matters affecting Apple Ten and its subsidiaries; |
● | the vote of the shareholders of Apple Ten required to approve the merger, the Merger Agreement, the plan of merger and the other transactions contemplated by the Merger Agreement; |
● | absence of liabilities other than liabilities reserved for on the most recent audited balance sheet for the period ended December 31, 2015, liabilities incurred in the ordinary course of business consistent with past practice of such company subsequent to December 31, 2015 and such other liabilities as would not have a material adverse effect on Apple Ten; |
● | intellectual property used by, owned by or licensed to Apple Ten and its subsidiaries; |
● | stock incentive plans and other benefit programs provided or maintained by Apple Ten and its subsidiaries; |
● | exemption of the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement from the requirements in anti-takeover statutes or similar statutes or regulations; and |
● | absence and disclaimer of any other representations or warranties made with respect to Apple Ten and its subsidiaries. |
In the Merger Agreement, Apple Hospitality and Acquisition Sub made representations and warranties relating to, among other things:
● | due incorporation, valid existence, good standing and power and authority of each of Apple Hospitality and Acquisition Sub to operate its assets and properties and to carry on its business as it is now being conducted; |
● | due incorporation or organization, valid existence and good standing and power and authority of Apple Hospitality’s subsidiaries to carry on their businesses as now being conducted; |
● | capital structure and capitalization of Apple Hospitality and its subsidiaries; |
● | the Apple Hospitality common shares to be issued in exchange for Apple Ten shares in the merger; |
● | authority to enter into the Merger Agreement and, subject to shareholder approval, complete the merger and the other transactions contemplated by the Merger Agreement; |
● | enforceability of the Merger Agreement against Apple Hospitality and Acquisition Sub; |
● | absence of conflicts with, violations or breaches of, or defaults under, Apple Hospitality’s organizational documents, certain contracts applicable to it and its subsidiaries, and applicable laws; |
● | consents, approvals, orders or authorizations of, or registrations or filings with, governmental entities required in connection with executing and delivering the Merger Agreement or the consummation of the transactions contemplated by the Merger Agreement; |
● | Apple Hospitality’s SEC filings since January 1, 2014, and the financial statements contained therein; |
● | Apple Hospitality’s internal controls over financial reporting and its disclosure controls and procedures, and the absence of any off-balance sheet arrangements where the result, purpose or effect is to avoid disclosure of any material transaction involving, or material liabilities of, Apple Hospitality or its subsidiaries; |
● | absence of any material adverse effect, as defined below under “—Conditions to Complete the Merger,” on Apple Hospitality and certain other changes and events since December 31, 2015 through the date of the Merger Agreement; |
● | absence of any undisclosed litigation or investigations against or affecting Apple Hospitality or its subsidiaries; |
● | tax matters affecting Apple Hospitality and its subsidiaries, including Apple Hospitality’s REIT qualification; |
● | absence of certain related party transactions; |
● | absence of any undisclosed broker’s, finder’s or other similar fees; |
● | possession of all permits necessary to own, lease and operate the properties and assets of Apple Hospitality and its subsidiaries or to carry on the business of Apple Hospitality and its subsidiaries, and the absence of violations of, and failures to comply with, any such permits and applicable laws; |
● | the material contracts of Apple Hospitality and its subsidiaries, the absence of breaches or violations of, or defaults under, any such material contract; |
● | environmental matters affecting Apple Hospitality and its subsidiaries; |
● | real property owned or ground leased by Apple Hospitality and its subsidiaries; |
● | certain of the franchise and management agreements of Apple Hospitality and its subsidiaries; |
● | personal property owned or leased by Apple Hospitality and its subsidiaries; |
● | insurance policies of Apple Hospitality and its subsidiaries; |
● | the accuracy of the information contained in this joint proxy statement/prospectus and supplied by Apple Hospitality for inclusion or incorporation by reference in this joint proxy statement/prospectus or any other document filed with the SEC in connection with the merger; |
● | labor matters affecting Apple Hospitality and its subsidiaries; |
● | the vote of the shareholders of Apple Hospitality required to approve the issuance of the Apple Hospitality common shares in the merger; |
● | absence of liabilities other than liabilities reserved for on the most recent audited balance sheet for the period ended December 31, 2015, liabilities incurred in the ordinary course of business consistent with past practice of Apple Hospitality subsequent to December 31, 2015 and such other liabilities as would not have a material adverse effect on Apple Hospitality; |
● | intellectual property used by, owned by or licensed to Apple Hospitality and its subsidiaries; |
● | stock incentive plans and other benefit programs provided or maintained by Apple Hospitality and its subsidiaries; |
● | exemption of the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement from the requirements in anti-takeover statutes or similar statutes or regulations; and |
● | absence and disclaimer of any other representations or warranties made with respect to Apple Hospitality and its subsidiaries. |
The representations and warranties of all the parties to the Merger Agreement will expire upon the effective time of the merger.
Many of the representations of Apple Hospitality and Apple Ten are qualified by a “material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true and correct, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect). For the purposes of the Merger Agreement, “material adverse effect” means any circumstance, development, effect, event, liability or change that individually or in the aggregate with all other circumstances, developments, effects, events, liabilities or changes, is or is reasonably likely to (a) become materially adverse to the business, properties, assets, liabilities, condition (financial or otherwise) or results of the operations of Apple Ten or its subsidiaries, on a consolidated basis taken as a whole, or Apple Hospitality or its subsidiaries, on a consolidated basis taken as a whole, as the case may be, other than circumstances, developments, effects, events, liabilities or changes arising out of or resulting from:
● | changes in economic, market or business conditions generally in the U.S. or any other jurisdiction in which Apple Ten or its subsidiaries or Apple Hospitality or its subsidiaries, as the case may be, operate or in the U.S. or global financial markets generally, including changes in interest or exchange rates; |
● | changes, circumstances or events that, in each case, generally affect the hotel industry in the jurisdictions in which Apple Ten or its subsidiaries or Apple Hospitality or its subsidiaries, as the case may be, operate; |
● | changes in any law or U.S. generally accepted accounting principles (“GAAP”) following the date of the Merger Agreement; |
● | the negotiation, execution or announcement of the Merger Agreement or the consummation of the transactions contemplated by the Merger Agreement, including the impact thereof on relationships, contractual or otherwise, with customers, suppliers, licensors, distributors, lenders, partners or employees; |
● | acts of war, sabotage or terrorism, or any escalation or worsening of any such acts of war, sabotage or terrorism threatened or underway as of the date of the Merger Agreement; or |
● | earthquakes or other natural disasters, |
which circumstance, development, effect, event, liability or change, in the case of each of the first, second, fifth and sixth bullet points above, does not affect Apple Ten or its subsidiaries or Apple Hospitality or its subsidiaries, as the case may be, in a materially disproportionate manner relative to other participants in the hotel industry or (b) prevent Apple Ten or Apple Hospitality, as the case may be, from performing, or materially impair the ability of Apple Ten or Apple Hospitality, as the case may be, to perform, its obligations under the Merger Agreement.
Conduct of Business by Apple Ten Pending the Merger
Under the Merger Agreement, Apple Ten has agreed that, between the date of the Merger Agreement and the earlier to occur of the effective time of the merger and the date, if any, on which the Merger Agreement is terminated (the “Interim Period”), it will, and will cause each of its subsidiaries to, carry on its business in the usual, regular and ordinary course in substantially the same manner as conducted before the date of the Merger Agreement and, to the extent consistent with that conduct, use commercially reasonable efforts (i) to preserve intact its current business organization, goodwill, ongoing businesses and its status as a REIT within the meaning of the Code, (ii) to preserve its current beneficial relationships with any person with which it has material business relationships (including, without limitation, customers, suppliers, directors, officers and other employees if any), and (iii) to keep available the services of its officers and key employees, if any.
Apple Ten also has agreed that, during the Interim Period, subject to certain exceptions, it will not, and will cause each of its subsidiaries not to (and not to authorize or commit or agree to), unless Apple Hospitality otherwise consents in writing:
● | declare, set aside or pay any dividends on, or make any other distributions in respect of, any shares of capital stock of Apple Ten, except for regular monthly dividends; |
● | split, combine or reclassify any capital stock, partnership interests or other equity interests or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of such capital stock, partnership interests or other equity interests, |
● | purchase, redeem or otherwise acquire any shares of capital stock, partnership interests or other equity interests of Apple Ten or any of its subsidiaries; |
● | amend the organizational documents of Apple Ten; |
● | merge or consolidate with any person; |
● | acquire or agree to acquire (by merger, consolidation or acquisition of stock or assets, or by lease or license) any real property, corporation, partnership or other business organization or division thereof (except of or from any subsidiary of Apple Ten), or acquire other assets, other than: |
○ | supplies, equipment and investment securities or other assets in bona fide transactions, on arm’s-length terms in the ordinary course of business of Apple Ten and its subsidiaries in a manner that is consistent with past practice, and/or |
○ | certain specified acquisitions; |
● | issue, deliver, sell, or grant any option or other right in respect of, any shares of capital stock or debt securities, or any other specified securities of, Apple Ten or any subsidiary of Apple Ten, except to Apple Ten or any of its subsidiaries and as noted below in connection with award grants under any stock incentive plan (including any severance plan) in the ordinary course of business consistent with past practice and other than the issuance of any shares of capital stock upon the exercise of stock options that are outstanding on the date of the Merger Agreement in accordance with the terms of the stock incentive plans on the date of the Merger Agreement; |
● | amend any term of any shares or equity equivalents of Apple Ten; |
● | sell, pledge, lease, dispose of, exclusively license or encumber or grant any third party any rights with respect to any property or assets, other than sales of assets, securities, properties, interests or businesses in the ordinary course of business and where the assets which did not, individually or in the aggregate, contribute more than 10% of Apple Ten’s earnings before interest, taxes, depreciation and amortization for the fiscal year ending December 31, 2015; |
● | other than in the ordinary course of business and consistent with past practice: |
○ | incur, create or assume any indebtedness or issue or amend the terms of any debt securities; |
○ | assume, guarantee or endorse, or otherwise become responsible for the obligations of any other person or entity (other than any subsidiary of Apple Ten) for borrowed money; or |
○ | pledge, encumber or otherwise subject to an encumbrance any properties of Apple Ten; |
● | make any loans, advances or capital contributions to, or investments in, any other person, other than in the ordinary course of business consistent with past practice or loans, advances or capital contributions to, or investments in, wholly owned subsidiaries of Apple Ten; |
● | make, modify or rescind any tax election, change any annual tax accounting period, adopt or change any method of tax accounting except as required by applicable law, file or amend any material tax returns, enter into any material closing agreement, settle any material tax claim, audit or assessment, surrender any right to claim a material tax refund, offset or other reduction in tax liability or agree to a waiver or extension of a statute of limitations with respect to material taxes; |
● | change in any material manner any of its methods, principles or practices of accounting in effect at December 31, 2015, except as may be required by the SEC, applicable law or GAAP and with notice thereof to Apple Hospitality; |
● | settle or compromise any claim or action relating to taxes, except in the case of settlements or compromises in an amount not to exceed, individually or in the aggregate, $1,000,000; |
● | apply for or enter into any private letter ruling, closing agreement, or other similar agreement, arrangement or determination related to taxes, except as may be required by the SEC, applicable law or GAAP and with notice thereof to Apple Hospitality; |
● | surrender any right to claim any material tax refund; |
● | change any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of its most recently filed federal income tax return; |
● | incur any capital expenditures or any obligations or liabilities in respect thereof, except for: |
○ | those in an amount not to exceed the total amount of the capital expenditure budget for Apple Ten; and |
○ | any unbudgeted capital expenditures not to exceed $2,000,000 individually or $2,000,000 in the aggregate; |
● | adopt or enter or make any commitment to adopt or enter into any employee benefit plan or agreement that would be an “employee benefit plan” as defined in Section 3(3) of the ERISA if it were in existence as of the date of the Merger Agreement; |
● | grant any awards under any stock incentive plan (including any severance plan) except awards to the directors of Apple Ten in the ordinary course of business consistent with past practice; |
● | take any action or exercise any discretion to accelerate the vesting or payment of, or to fund or in any other way secure the payment of, any compensation or benefit under any stock incentive plan; |
● | settle any material legal action involving or against Apple Ten or any of its subsidiaries, including any shareholder derivative or class action claims, including any arising out of or in connection with the merger or the other transactions contemplated by the Merger Agreement; |
● | amend or modify in any material respect or terminate (excluding terminations upon expiration of the term thereof in accordance with their terms) any material contracts of Apple Ten or waive, release or assign any material rights, claims or benefits of it or its subsidiaries under any material contract of Apple Ten, or enter into any contract that would have been a material contract of Apple Ten had it been entered into prior to the Merger Agreement, except in the ordinary course of business consistent with past practice; |
● | enter into or amend or otherwise modify any material agreement or arrangement with persons that are affiliates or, as of the date hereof, are officers, directors or employees of Apple Ten or any subsidiary of Apple Ten; |
● | enter into or amend any employment, consulting, severance, retention, change in control, tax gross-up, deferred compensation, special or stay bonus, or any other agreement between Apple Ten and any officer or any director of a subsidiary of Apple Ten or other employee or contractor of Apple Ten; |
● | increase the amount of compensation, bonus or other benefits payable to any current or former director, trustee, officer or other employee (other than in the ordinary course of business consistent with past practices), of Apple Ten or its subsidiaries; |
● | grant any severance or termination pay or benefits (or any increase in the amount of such pay or benefits) to any current or former director, trustee, officer or other employee of Apple Ten or the subsidiaries of Apple Ten that would be payable at or after the effective time of the merger; |
● | adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of Apple Ten or any subsidiary thereof (other than the merger); or |
● | agree, resolve or commit to do any of the foregoing activities or to prevent the taking of any action required by the Merger Agreement. |
Notwithstanding the foregoing, nothing shall prohibit Apple Ten from taking certain actions in respect of tax matters and its REIT qualification with notice thereof to Apple Hospitality.
Conduct of Business by Apple Hospitality and Acquisition Sub Pending the Merger
Under the Merger Agreement, each of Apple Hospitality and Acquisition Sub have agreed that, during the Interim Period, it will, and will cause its subsidiaries to, carry on its business in the usual, regular and ordinary course in substantially the same manner as conducted before the date of the Merger Agreement and, to the extent consistent with that conduct, use commercially reasonable efforts (i) to preserve intact its current business organization, goodwill, ongoing businesses and its status as a REIT within the meaning of the Code, (ii) to preserve its current beneficial relationships with any person with which Apple Hospitality has material business relationships (including, without limitation, customers, suppliers, directors, officers and other employees if any), and (iii) to keep available the services of its officers and key employees, if any.
Each of Apple Hospitality and Acquisition Sub also has agreed that, during the Interim Period, it will not, and will cause its subsidiaries, not to (and not to authorize or commit or agree to), unless Apple Ten, with approval of the Apple Ten special committee, otherwise consents in writing:
● | declare, set aside or pay any dividends on, or make any other distributions in respect of, any shares of capital stock of Apple Hospitality, except for regular monthly dividends; |
● | split, combine or reclassify any capital stock, partnership interests or other equity interests or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of such capital stock, partnership interests or other equity interests; |
● | purchase, redeem or otherwise acquire any shares of capital stock, partnership interests or other equity interests of Apple Ten; |
● | amend the Apple Hospitality organizational documents in a manner that would adversely affect the economic benefits of the merger to the holders of Apple Ten shares; |
● | except pursuant to any Apple Hospitality stock incentive plans, issue, deliver, sell, or grant any option or other right in respect of, any shares of capital stock or debt securities, or any other specified securities of, Apple Hospitality or any subsidiary of Apple Hospitality, except to Apple Hospitality or any of its subsidiaries and except for issuances, deliveries, sales or grants of up to $300 million in the aggregate in connection with (i) real estate asset acquisitions, (ii) portfolio acquisitions and (iii) issuances of up to $150 million under Apple Hospitality’s existing shelf registration statement; |
● | merge or consolidate with any person if such merger or consolidation would, or would reasonably be expected to, prevent or materially impair the ability of Apple Hospitality or Acquisition Sub to consummate the merger before the Outside Date (as defined in “—Termination of the Merger Agreement—Termination by either Apple Ten or Apple Hospitality”); |
● | acquire or agree to acquire (by merger, consolidation or acquisition of stock or assets, or by lease or license) any real property, corporation, partnership or other business organization or any division or material amount of assets thereof (except of or from any subsidiary of Apple Hospitality), if such transaction would, or would reasonably be expected to, prevent or materially impair the ability of Apple Hospitality or Acquisition Sub to consummate the merger before the Outside Date; |
● | amend any term of any Apple Hospitality shares or equity equivalents of Apple Hospitality in a manner that would adversely affect the economic benefits of the merger to the holders of Apple Ten shares; |
● | other than in the ordinary course of business consistent with past practice, if such transaction would, or would reasonably be expected to, prevent or materially impair the ability of Apple Hospitality or Acquisition Sub to consummate the merger before the Outside Date: |
○ | incur, create or assume any indebtedness or issue or amend the terms of any debt securities, |
○ | assume, guarantee or endorse, or otherwise become responsible for the obligations of any other person or entity (other than any subsidiary of Apple Hospitality) for borrowed money, or |
○ | pledge, encumber or otherwise subject to an encumbrance any properties of Apple Hospitality; |
● | make any loans, advances or capital contributions to, or investments in, any other person, other than in the ordinary course of business consistent with past practice or loans, advances or capital contributions to, or investments in, wholly owned subsidiaries of Apple Hospitality or Acquisition Sub, if such transaction would, or would reasonably be expected to, prevent or materially impair the ability of Apple Hospitality or Acquisition Sub to consummate the merger before the Outside Date; |
● | make, modify or rescind any tax election, change any annual tax accounting period, or adopt or change any method of tax accounting except as required by applicable law; |
● | amend or modify in any material respect or terminate (excluding terminations upon expiration of the term thereof in accordance with their terms) any material contract of Apple Hospitality or waive, release or assign any material rights, claims or benefits of it or its subsidiaries under any material contract of Apple Hospitality, or enter into any contract or agreement that would have been a material contract of Apple Hospitality had it been entered into prior to the Merger Agreement, except in the ordinary course of business consistent with past practice, in each case, if such contract or amendment of a contract would, or would reasonably be expected to, prevent or materially impair the ability of Apple Hospitality or Acquisition Sub to consummate the merger before the Outside Date; |
● | adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of Apple Hospitality, Acquisition Sub or any such entity’s subsidiary thereof (other than the merger); or |
● | agree, resolve or commit to do any of the foregoing activities or to prevent the taking of any action required by the Merger Agreement. |
Notwithstanding the foregoing, nothing shall prohibit Apple Hospitality from taking certain actions in respect of tax matters and its REIT qualification with notice thereof to Apple Ten.
Other Actions Pending the Merger
During the Interim Period, neither Apple Hospitality nor Apple Ten will take or cause to be taken any action that would reasonably be expected to result in any of the representations and warranties of such party set forth in the Merger Agreement becoming untrue such that the conditions to the merger described below under “—Conditions to Complete the Merger” would not be satisfied by the Outside Date.
Agreement to Take Certain Actions and Use Reasonable Best-Efforts
Each of Apple Hospitality and Apple Ten has agreed to use its reasonable best-efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other in doing, all things necessary, proper or advisable to fulfill all conditions applicable to such party pursuant to the Merger Agreement and to consummate and make effective, in the most expeditious manner practicable, the merger and the other transactions contemplated by the Merger Agreement, including:
● | the obtaining of all necessary actions or nonactions, waivers, consents and approvals from governmental entities and the making of all necessary registrations and filings and the taking of all reasonable steps as may be necessary to obtain an approval, waiver or exemption from, or to avoid an action or proceeding by, any governmental entity; |
● | the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging the merger, the Merger Agreement or the consummation of any of the other transactions contemplated by the Merger Agreement, including seeking to have any stay or temporary restraining order entered by any court or other governmental entity vacated or reversed; and |
● | the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by and to fully carry out the purposes of the Merger Agreement. |
In connection with and without limiting the foregoing, (i) Apple Ten will take all action necessary so that no “fair price,” “business combination,” “moratorium,” “control share acquisition” or any other anti-takeover statute or similar statute enacted under state or federal laws of the United States or similar statute or regulation (a “takeover statute”) is or becomes applicable to the merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement and (ii) if any takeover statute becomes applicable to the merger, the Merger Agreement, or any of the other transactions contemplated by the Merger Agreement, each of Apple Hospitality and Apple Ten will take all action necessary so that the merger may be consummated as promptly as practicable on the terms contemplated by the Merger Agreement and otherwise to minimize the effect of such takeover statute on the merger or the consummation of any of the other transactions contemplated by the Merger Agreement.
Apple Ten Acquisition Proposals; Change in Recommendation
Until 11:59 p.m. (New York City time) on May 28, 2016 (the “go shop period end time”), Apple Ten and its subsidiaries had the right to, directly or indirectly:
● | initiate, solicit, encourage or facilitate any inquiries or the making of any proposal, offer or other action that constitutes, or may reasonably be expected to lead to, any acquisition proposal (as defined below), including by way of contacting third parties, broadly disseminating public disclosure or providing access to the properties, offices, assets, books, records and personnel of Apple Ten and its subsidiaries and furnishing non-public information only pursuant to one or more confidentiality agreements at least as favorable to Apple Ten as the confidentiality agreement executed with Apple Hospitality; provided, however, that Apple Ten has previously furnished, made available or provided access to such non-public information to Apple Hospitality; |
● | enter into, continue or otherwise participate in discussions or negotiations with any person relating to, or, in furtherance of such inquiries, proposals, offers or other actions or to obtain an acquisition proposal; |
● | release any person from, or refrain from enforcing, any standstill agreement or similar obligation to Apple Ten or any of its subsidiaries; and |
● | disclose to Apple Ten shareholders any information required to be disclosed under applicable law (provided that any such disclosure will be deemed to be an Apple Ten change in recommendation if not accompanied by an express public reaffirmation of the Apple Ten recommendation (as defined below under “—Shareholder Meetings”)). |
Subject to the provisions described under this section “—Apple Ten Acquisition Proposals; Change in Recommendation” and except with respect to Go Shop Bidders (as defined below) and Apple Hospitality, upon the go shop period end time, Apple Ten has agreed to immediately cease any discussions, negotiations or communications with respect to any acquisition proposal or potential acquisition proposal and immediately terminate all physical and electronic data room access previously granted to any such person.
Following the go shop period end time and prior to the receipt of the Apple Ten shareholder approval (as defined under “—Shareholder Votes”), Apple Ten may continue discussions and negotiations regarding an acquisition proposal with any Go Shop Bidder. For purposes of the Merger Agreement, a “Go Shop Bidder” is any person that submits a proposal or offer regarding an acquisition proposal not later than the go shop period end time that has not been withdrawn and that the Apple Ten special committee determines prior to the go shop period end time (or in the case of any such proposal or offer received less than two business days before the date of the go shop period end time, not later than two business days after the go shop period end time), has resulted in, or would be reasonably expected to result in, a superior proposal (as defined below).
Apple Ten has agreed that, from and after the go shop period end time, except with respect to a Go Shop Bidder and subject to the provisions described below, Apple Ten will not and will cause each of its subsidiaries not to and will not authorize or permit any of its representatives to:
● | initiate, solicit, knowingly encourage or facilitate any inquiries or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, an acquisition proposal; |
● | enter into, continue or otherwise participate in any discussions or negotiations with any person, or furnish to any person other than Apple Hospitality any non-public information, in furtherance of such inquiries or to obtain an acquisition proposal; |
● | release any person from or fail to enforce any standstill agreement or similar obligation to Apple Ten or any of its subsidiaries; |
● | withdraw, modify or amend the Apple Ten recommendation in any manner adverse to Apple Hospitality or Acquisition Sub or fail to make the Apple Ten recommendation or fail to include the Apple Ten recommendation in this joint proxy statement/prospectus; |
● | approve, endorse or recommend any acquisition proposal (any event described in this bullet point and the immediately preceding bullet point, whether taken by the Apple Ten board or a committee thereof, is referred to herein as an “Apple Ten change in recommendation”); |
● | enter into any agreement in principle, arrangement, understanding, contract or agreement (whether binding or not) contemplating or otherwise relating to an acquisition proposal; or |
● | take any action to exempt any person from any takeover statute or similar restrictive provision of Apple Ten’s organizational documents. |
If, from and after the go shop period end time and prior to receipt of the Apple Ten shareholder approval, Apple Ten or any of its subsidiaries or any of their respective representatives receives a bona fide written acquisition proposal from any person that did not result from a breach of the obligations described above under this section “—Apple Ten Acquisition Proposals; Change in Recommendation” and if the Apple Ten special committee determines in good faith after consultation with its legal and financial advisors that such acquisition proposal is or is reasonably expected to lead to a superior proposal, Apple Ten and its subsidiaries may take the following actions (but only if and to the extent that the Apple Ten special committee determines in good faith following consultation with its legal advisors that the failure to do so would be inconsistent with its fiduciary duties to the shareholders of Apple Ten under applicable law):
● | furnish, make available or provide access to non-public information with respect to Apple Ten and its subsidiaries to the person who made such acquisition proposal (provided that Apple Ten has previously furnished, made available or provided access to such non-public information to Apple Hospitality and |
such information is furnished or made available pursuant to a confidentiality agreement at least as favorable to Apple Ten as the confidentiality agreement executed with Apple Hospitality); |
● | participate in negotiations regarding such acquisition proposal; and |
● | disclose to Apple Ten’s shareholders any information required to be disclosed under applicable law (provided that any such disclosure will be deemed to be an Apple Ten change in recommendation if not accompanied by an express public reaffirmation of the Apple Ten recommendation). |
From and after the go shop period end time, in the event Apple Ten, any of its subsidiaries or any of their respective representatives receives from a person (including a Go Shop Bidder) or group of related persons an acquisition proposal or an amended or modified proposal or offer with respect to any such acquisition proposal, any request for information relating to Apple Ten from a person who informs Apple Ten that it is considering making or has made an acquisition proposal, or any inquiry or request for discussions or negotiations regarding any acquisition proposal, Apple Ten must promptly notify Apple Hospitality of (but in no event more than 48 hours following) such receipt. Apple Ten must keep Apple Hospitality apprised on a current basis of (and in any event no later than 24 hours after) any material developments, discussions and negotiations concerning, any such acquisition proposal, inquiry or request. Apple Ten and its subsidiaries and representatives may contact in writing any person submitting an acquisition proposal (that was not the result of a breach of the obligations described above under this section “—Apple Ten Acquisition Proposals; Change in Recommendation”) solely to clarify the terms of the acquisition proposal for the sole purpose of the Apple Ten board (or the Apple Ten special committee) informing itself about such acquisition proposal.
Prior to receipt of the Apple Ten shareholder approval, if the Apple Ten board determines in good faith after consultation with its legal advisor (and based on the recommendation of the Apple Ten special committee) that the failure to do so would reasonably be likely to be inconsistent with its fiduciary duties to Apple Ten’s shareholders under applicable law, (i) upon receipt by Apple Ten of an acquisition proposal that constitutes a superior proposal (whether or not from a Go Shop Bidder), the Apple Ten board may make an Apple Ten change in recommendation and may terminate the Merger Agreement in accordance with the terms of the Merger Agreement and enter into an agreement relating to, or for the implementation of, such superior proposal, or (ii) otherwise make an Apple Ten change in recommendation in response to a material event, circumstance, change or development that was not known to the Apple Ten board prior to the execution of the Merger Agreement (or if known, the consequences of which were not known or reasonably foreseeable), which event or circumstance, or any material consequence thereof, becomes known to the Apple Ten board prior to the effective time of the merger (which shall in no event include the receipt, existence or terms of an acquisition proposal or any matter relating thereof or consequence thereof), provided that:
● | in the case of an Apple Ten change in recommendation described under clause (i) above, such acquisition proposal did not result from Apple Ten’s breach of its obligations described above under this section “—Apple Ten Acquisition Proposals; Change in Recommendation” and the Apple Ten board must have determined in good faith, after consultation with its legal and financial advisors (and based on the recommendation of the Apple Ten special committee), that such acquisition proposal constitutes a superior proposal and, after consultation with its legal advisor, that the failure of Apple Ten to terminate the Merger Agreement in accordance with its terms or make an Apple Ten change in recommendation, as the case may be, would be inconsistent with its fiduciary duties to Apple Ten’s shareholders under applicable law, taking into account all adjustments to the terms of the Merger Agreement that may be offered by Apple Hospitality pursuant to the fourth bullet point below; |
● | in the case of an Apple Ten change in recommendation described under clause (ii) above, the Apple Ten board must have determined in good faith, after consultation with its legal advisor (and based on the recommendation of the Apple Ten special committee), that the failure of Apple Ten to make an Apple Ten change in recommendation would be inconsistent with its fiduciary duties to Apple Ten’s shareholders under applicable law, taking into account all adjustments to the terms of the Merger Agreement that may be offered by Apple Hospitality pursuant to the fourth bullet point below; |
● | Apple Ten must have notified Apple Hospitality in writing that the Apple Ten board intends to make an Apple Ten change in recommendation or enter into an agreement related to the superior proposal (an “Apple Ten change notice”); and |
● | during the five business day period following Apple Hospitality’s receipt of an Apple Ten change notice (and following any amendment to any acquisition proposal, during the three business day period |
following Apple Hospitality’s receipt of an Apple Ten change notice with respect to such amended acquisition proposal), Apple Ten must have offered to negotiate with (and, if accepted, negotiated in good faith with), and must have caused its respective financial and legal advisors to offer to negotiate with (and, if accepted, negotiate in good faith with), Apple Hospitality in making adjustments to the terms and conditions of the Merger Agreement such that (a) in circumstances involving or relating to an acquisition proposal, the superior proposal ceases to be a superior proposal and (b) in circumstances not involving an acquisition proposal, as may be proposed by Apple Hospitality. |
For purposes of the Merger Agreement, “acquisition proposal” means any proposal or offer, whether in one transaction or a series of related transactions, relating to any of the following:
● | merger, consolidation, share exchange, business combination or similar transaction involving Apple Ten or any of its subsidiaries that would constitute a “significant subsidiary” (as defined in Rule 1-02 of Regulation S-X); |
● | sale or other disposition, by merger, consolidation, share exchange, business combination or any similar transaction, of any assets of Apple Ten or any of its subsidiaries representing 20% or more of the consolidated assets of Apple Ten and its subsidiaries, taken as a whole; |
● | issuance, sale or other disposition by Apple Ten or any of its subsidiaries of (including by way of merger, consolidation, share exchange, business combination or any similar transaction) securities (or options, rights or warrants to purchase, or securities convertible into, such securities) representing 20% or more of the votes associated with the outstanding Apple Ten shares; |
● | tender offer or exchange offer in which any person or “group” (as such term is defined under the Exchange Act) shall acquire beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), or the right to acquire beneficial ownership, of 20% or more of the votes associated with the outstanding Apple Ten shares; |
● | recapitalization, restructuring, liquidation, dissolution or other similar type of transaction with respect to Apple Ten in which a third party shall acquire beneficial ownership of 20% or more of the outstanding Apple Ten shares; or |
● | transaction that is similar in form, substance or purpose to any of the foregoing transactions. |
For purposes of the Merger Agreement, the term “superior proposal” means a written acquisition proposal made by a third party (except for purposes of this definition, the references in the definition of acquisition proposal to “20%” are replaced with “50%”) which the Apple Ten board (based on the recommendation of the Apple Ten special committee) determines in its good faith judgment (after consultation with its legal and financial advisors and after taking into account (a) all of the terms and conditions of the acquisition proposal and the Merger Agreement (as it may be proposed to be amended by Apple Hospitality) and (b) the feasibility and certainty of consummation of such acquisition proposal on the terms proposed (taking into account all legal, financial, regulatory and other aspects of such acquisition proposal and conditions to consummation thereof)) to be more favorable from a financial point of view to Apple Ten’s shareholders (in their capacities as shareholders) than the merger and the other transactions contemplated by the Merger Agreement (as it may be proposed to be amended by Apple Hospitality).
Apple Hospitality Change in Recommendation
Apple Hospitality has agreed that, except as provided below, Apple Hospitality will not withdraw, modify or amend the Apple Hospitality recommendation (as defined below under “—Shareholder Meetings”) in any manner adverse to Apple Ten or fail to make the Apple Hospitality recommendation or fail to include the Apple Hospitality recommendation in this joint proxy statement/prospectus (such event, an “Apple Hospitality change in recommendation”).
Prior to receipt of the Apple Hospitality shareholder approval (as defined below under “—Shareholder Votes”), the Apple Hospitality board may make an Apple Hospitality change in recommendation in response to a material event, circumstance, change or development that was not known to the Apple Hospitality board prior to the execution of the Merger Agreement (or if known, the consequences of which were not known or reasonably foreseeable), which event or circumstance, or any material consequence thereof, becomes known to the Apple Hospitality board prior to the effective time of the merger, subject to the following limitations:
● | the Apple Hospitality board must have determined in good faith after consultation with its legal and financial advisors that failure of Apple Hospitality to make an Apple Hospitality change in recommendation would be inconsistent with its fiduciary duties to the shareholders of Apple Hospitality under applicable law, taking into account all adjustments to the terms of the Merger Agreement that may be offered by Apple Ten pursuant to the third bullet point below; |
● | Apple Hospitality must have notified Apple Ten in writing that the Apple Hospitality board intends to make an Apple Hospitality change in recommendation (an “Apple Hospitality change notice”); and |
● | during the five business day period following Apple Ten’s receipt of an Apple Hospitality change notice, Apple Hospitality must have offered to negotiate with (and, if accepted, negotiated in good faith with), and must have caused its respective financial and legal advisors to offer to negotiate with (and, if accepted, negotiate in good faith with), Apple Ten in making adjustments to the terms and conditions of the Merger Agreement as may be proposed by Apple Ten. |
Apple Ten is required to cause this joint proxy statement/prospectus to be mailed to its shareholders as promptly as practicable after the Form S-4 is declared effective by the SEC. Apple Ten also is required to, as promptly as practicable following the date of the Merger Agreement, duly call, give notice of, convene and hold a meeting of its shareholders for the purpose of seeking shareholder approval of the merger, the plan of merger and the other transactions contemplated by the Merger Agreement. Apple Ten is required to (i) through the Apple Ten board, recommend to its shareholders that they approve the merger, the plan of merger and the other transactions contemplated by the Merger Agreement (the “Apple Ten recommendation”) and (ii) use its reasonable best-efforts to solicit approval of the merger, the plan of merger and the other transactions contemplated by the Merger Agreement by its shareholders, except to the extent that the Apple Ten board (based on the recommendation of the Apple Ten special committee) has effected an Apple Ten change in recommendation, as permitted and determined in accordance with the provisions described above under “—Apple Ten Acquisition Proposals; Change in Recommendation.”
Apple Hospitality is required to cause this joint proxy statement/prospectus to be mailed to its shareholders as promptly as practicable after the Form S-4 is declared effective by the SEC. Apple Hospitality also is required to, as promptly as practicable following the date of the Merger Agreement, duly call, give notice of, convene and hold a meeting of its shareholders for the purpose of seeking shareholder approval of the issuance of the Apple Hospitality common shares to be issued in the merger. Apple Hospitality is required to (i) through the Apple Hospitality board, recommend to its shareholders that they approve the issuance of the Apple Hospitality common shares to be issued in the merger (the “Apple Hospitality recommendation”) and (ii) use its reasonable best-efforts to solicit approval of the issuance of the Apple Hospitality common shares to be issued in the merger by its shareholders, except to the extent that the Apple Hospitality board or any committee thereof has effected an Apple Hospitality change in recommendation, as permitted and determined in accordance with the provisions described under “—Apple Hospitality Change in Recommendation.”
Shareholder approval of Apple Ten is required in order to effect the merger. Shareholder approval of Apple Hospitality is required in order to issue the Apple Hospitality common shares to Apple Ten shareholders in the merger.
Apple Ten shareholder approval requires the affirmative vote of the holders of at least a majority of the issued and outstanding Apple Ten common shares, Apple Ten Series A preferred shares and Apple Ten Series B convertible preferred shares (each voting as a separate voting group) to approve the merger, the plan of merger and the other transactions contemplated by the Merger Agreement (the “Apple Ten shareholder approval”).
Apple Hospitality shareholder approval requires the affirmative vote of a majority of the votes cast at the Apple Hospitality shareholder meeting to approve the issuance of the Apple Hospitality common shares to be issued in the merger (the “Apple Hospitality shareholder approval”).
Directors’ and Officers’ Indemnification and Insurance
The Merger Agreement provides that, from and after the effective time of the merger, Apple Hospitality will indemnify all present and former directors, officers, employees or agents of Apple Ten and its subsidiaries who at any time prior to the effective time of the merger were entitled to indemnification under the articles of incorporation or bylaws of Apple Ten or employment agreements between Apple Ten and its officers existing on the date of the
Merger Agreement to the same extent as such directors, officers, employees or agents are entitled to indemnification under such articles of incorporation or bylaws or existing employment agreements in respect of actions or omissions occurring at or prior to the effective time of the merger (including, without limitation, the transactions contemplated by the Merger Agreement).
In addition, Acquisition Sub, as the surviving corporation of the merger, has agreed to obtain and maintain for a period of six years from and after the effective time of the merger “run-off” or “tail” director and officer liability coverage for the benefit of the directors and officers of Apple Ten and its subsidiaries, without reduction of existing coverage under, and having terms not less favorable to the insured persons, than the director and officer liability insurance coverage presently maintained by Apple Ten.
Further, the articles of incorporation and bylaws of Acquisition Sub, as the surviving corporation of the merger, in effect as of and after the effective time of the merger must contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors, officers, employees or agents of Apple Ten and any of its subsidiaries, than are presently set forth in the articles of incorporation and bylaws of Apple Ten.
The Merger Agreement contains certain other covenants of Apple Hospitality and Apple Ten relating to, among other things:
● | the preparation and filing of this joint proxy statement/prospectus with the SEC, and cooperation in responding to any comments received from the SEC; |
● | affording Apple Hospitality and its representatives reasonable access to Apple Ten’s properties, books, contracts, commitments, personnel and records; |
● | notice of certain events; |
● | consultation regarding any press releases or other public statements with respect to the merger or the other transactions contemplated by the Merger Agreement; |
● | the preparation, execution and filing of returns, questionnaires or other documents regarding transfer taxes; |
● | the termination of certain advisory agreements and property acquisition/disposition agreements; |
● | the continued suspension of Apple Ten’s unit redemption program; |
● | the opportunity to participate in the defense or settlement of any shareholder litigation against any of Apple Hospitality, Apple Ten and/or their respective directors relating to the merger and the other transactions contemplated by the Merger Agreement; |
● | exemption of dispositions of shares of Apple Ten, and acquisitions of Apple Hospitality common shares, resulting from the merger and the other transactions contemplated by the Merger Agreement under Rule 16b-3 promulgated under the Exchange Act; and |
● | certain other transactions, payments of dividends and distributions and delivery of tax certifications. |
Conditions to Complete the Merger
The obligations of each of Apple Hospitality and Apple Ten to complete the merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver by Apple Ten (at the direction of the Apple Ten special committee) and Apple Hospitality of the following conditions:
● | each of the Apple Ten shareholder approval and the Apple Hospitality shareholder approval having been obtained; |
● | no court having issued any temporary restraining order, preliminary or permanent injunction or other order, and no other legal restraint or prohibition preventing the consummation of the merger or any of the other transactions contemplated by the Merger Agreement being in effect; |
● | all material actions by or in respect of or filings with any governmental entity required for the consummation of the merger or any of the other transactions contemplated by the Merger Agreement having been obtained or made, and any waiting period under applicable laws having expired or being terminated; |
● | the termination agreement, as described below under “Termination Agreement” beginning on page 116, remaining in effect and having not been amended or modified and none of Apple Hospitality’s or Apple Ten’s rights thereunder having been waived, except in each case to the extent each of Apple Ten (acting at the direction of the Apple Ten special committee) and Apple Hospitality has approved in writing prior to such amendment, modification or waiver; |
● | the registration statement on Form S-4 to be filed with the SEC by Apple Hospitality, of which this joint proxy statement/prospectus constitutes a part, with respect to the Apple Hospitality common shares issuable in the merger, having been declared effective by the SEC, and no stop-order or proceeding suspending the effectiveness of the Form S-4 having been initiated or threatened by the SEC; |
● | the approval for listing on the NYSE of the Apple Hospitality common shares to be issued in the merger, subject to official notice of issuance; and |
● | the delivery of opinions from each of Apple Hospitality’s and Apple Ten’s respective tax counsels to their respective clients that the merger will qualify as a tax-free reorganization under Section 368(a) of the Code. |
The obligations of Apple Hospitality and Acquisition Sub to complete the merger and the other transactions contemplated by the Merger Agreement are further subject to the following conditions, any one or more of which may be waived by Apple Hospitality:
● | (i) each of the representations and warranties of Apple Ten regarding organization, good standing and corporate power, capital structure, authority and enforceability, opinion of financial advisors and no brokers, as set forth in the Merger Agreement, must be true and correct in all material respects as of the date of the Merger Agreement and as of the closing date of the merger, as though made on and as of the closing date, except that the accuracy of such representations and warranties that by their terms speak as of the date of this Agreement or some other date will be determined as of such date and not as of the closing date; and (ii) the other representations and warranties of Apple Ten set forth in the Merger Agreement must be true and correct as of the closing date of the merger, as though made on and as of such closing date, except that (x) the accuracy of such representations and warranties that by their terms speak as of the date of the Merger Agreement or some other date will be determined as of such date and not as of the closing date, and (y) where any such failure of the representations and warranties to be true and correct would not, individually or in the aggregate, have a material adverse effect on Apple Ten (without giving effect to any “materiality” or “material adverse effect” qualifications contained therein); |
● | Apple Ten having performed in all material respects all obligations required to be performed by it under the Merger Agreement at or prior to the effective time of the merger; |
● | all required consents and waivers from third parties having been obtained, other than such consents and waivers from third parties, which, if not obtained, would not result, individually or in the aggregate, in a material adverse effect on Apple Ten; |
● | absence of any event, circumstance or occurrence arising after the date of the Merger Agreement that, individually or in the aggregate, constitutes or would reasonably be expected to result in a material adverse effect on Apple Ten; |
● | that holders of no more than 5% of the Apple Ten common shares outstanding immediately prior to the effective time of the merger have exercised dissenters’ rights; and |
● | Apple Hospitality having received an opinion from McGuireWoods dated as of the closing date with respect to the qualification of Apple Ten as a REIT under the Code. |
The obligations of Apple Ten to complete the merger and the other transactions contemplated by the Merger Agreement are further subject to the following conditions, any one or more of which may be waived by Apple Ten (at the direction of the Apple Ten special committee):
● | each of (i) the representations and warranties of Apple Hospitality and Acquisition Sub regarding organization, good standing and corporate power, authority and enforceability and Apple Hospitality’s SEC filings, as set forth in the Merger Agreement must be true and correct in all material respects as of the date of the Merger Agreement and the closing date of the merger, as though made on and as of such closing date; and (ii) the other representations and warranties of Apple Hospitality and Acquisition Sub set forth in the Merger Agreement must be true and correct as of the closing date, as though made on and as of the closing date, except that (x) the accuracy of such representations and warranties that by their terms speak as of the date of the Merger Agreement or some other date will be determined as of such date and not as of the closing date, and (y) where any such failure of the representations and warranties to be true and correct would not, individually or in the aggregate, have a material adverse effect on Apple Hospitality (without giving effect to any “materiality” or “material adverse effect” qualifications contained therein). |
● | each of Apple Hospitality and Acquisition Sub having performed in all material respects all obligations required to be performed by it under the Merger Agreement at or prior to the effective time of the merger; |
● | all required consents and waivers from third parties having been obtained, other than such consents and waivers from third parties, which, if not obtained, would not result, individually or in the aggregate, in a material adverse effect on Apple Hospitality; |
● | absence of any effect, circumstance or occurrence after the date of the Merger Agreement that individually or in the aggregate constitutes or would reasonably be expected to result in a material adverse effect on Apple Hospitality; and |
● | Apple Ten having received an opinion from Hogan Lovells US LLP dated as of the closing date with respect to the qualification of Apple Hospitality as a REIT under the Code. |
For the third party consents and waivers mentioned above, each of Apple Hospitality and Apple Ten is required to obtain the consents from non-governmental third parties under each of Apple Hospitality’s and Apple Ten’s loan, management and franchise agreements listed in in its respective disclosure letter delivered in connection with the Merger Agreement. Apple Ten and its affiliates have made submissions to each of Marriott International, Inc. and Hilton Worldwide to request their consent, as franchisor under the existing franchise agreements, to the ownership change of Apple Ten contemplated by the Merger Agreement. Also, Apple Ten and its affiliates have submitted or will submit to multiple servicers of the loans encumbering its affiliates’ hotels, the documentation required to request consent for the assumption by Apple Hospitality of certain guaranty obligations of Apple Ten, or its affiliates, related to those loans.
Termination of the Merger Agreement
Apple Ten (with the prior approval of the Apple Ten special committee) and Apple Hospitality (with the prior approval of the Apple Hospitality board) may agree by mutual written consent to terminate the Merger Agreement and to abandon the merger and the other transactions contemplated thereby prior to the effective time of the merger.
Termination by either Apple Ten or Apple Hospitality
In addition, either Apple Ten (with the prior approval of the Apple Ten special committee) or Apple Hospitality may terminate the Merger Agreement and abandon the merger and the other transactions contemplated thereby:
● | if any judgment, injunction, order, decree, ruling or action by any governmental authority of competent authority preventing the consummation of the merger has become final and nonappealable, except that a party that has willfully and materially breached a representation, warranty or covenant of such party set forth in the Merger Agreement that proximately contributed to the occurrence of such judgment, injunction, order, decree, ruling or action will not be entitled to exercise its right to terminate the Merger Agreement as described in this bullet point; |
● | if the merger has not been consummated before August 31, 2016 (the “Outside Date”), except that if, prior to June 30, 2016, the Form S-4 has not been declared effective by the SEC, then the Outside Date shall be extended on a daily basis until the Form S-4 has been declared effective by the SEC, except that the Outside Date will not be later than November 30, 2016, but a party that has willfully and materially |
breached a representation, warranty or covenant of such party set forth in the Merger Agreement will not be entitled to exercise its right to terminate the Merger Agreement as described in this bullet point; |
● | if, upon a vote taken at the Apple Ten shareholder meeting or any adjournment thereof, the Apple Ten shareholder approval is not obtained, except that Apple Ten will not be entitled to exercise its right to terminate the Merger Agreement as described in this bullet point if the failure to obtain the Apple Ten shareholder approval was caused by the action or failure to act of Apple Ten and such action or failure to act constitutes a material breach by Apple Ten of certain of its obligations under the Merger Agreement; or |
● | if, upon a vote taken at the Apple Hospitality shareholder meeting or any adjournment thereof, the Apple Hospitality shareholder approval is not obtained, except that Apple Hospitality will not be entitled to exercise its right to terminate the Merger Agreement as described in this bullet point if the failure to obtain the Apple Hospitality shareholder approval was caused by the action or failure to act of Apple Hospitality and such action or failure to act constitutes a material breach by Apple Hospitality of certain of its obligations under the Merger Agreement. |
Termination by Apple Ten
Apple Ten (with the prior approval of the Apple Ten special committee) may also terminate the Merger Agreement:
● | upon a breach of any representation, warranty, covenant or agreement on the part of Apple Hospitality or Acquisition Sub set forth in the Merger Agreement, or if any representation or warranty of Apple Hospitality or Acquisition Sub has become untrue, in either case such that the first two bullet points of the conditions to Apple Ten’s obligation to complete the merger described above under “—Conditions to Complete the Merger” would be incapable of being satisfied by the Outside Date, except that Apple Ten will not be entitled to exercise its right to terminate the Merger Agreement as described in this bullet point if Apple Ten is then in material breach of any of its representations, warranties, covenants or agreements such that the first two bullet points of the conditions to Apple Hospitality’s obligation to complete the merger are incapable of being satisfied; |
● | if, prior to obtaining the Apple Ten shareholder approval, the Apple Ten board (based on the recommendation of the Apple Ten special committee) approves and authorizes Apple Ten to enter into a definitive agreement providing for the implementation of a superior proposal in a manner permitted under the Merger Agreement, except that Apple Ten will not be entitled to exercise its right to terminate the Merger Agreement as described in this bullet point unless concurrently with the occurrence of such termination Apple Ten pays the applicable termination fee required under the Merger Agreement described below under “—Termination Fees and Expenses—Termination Fee and Expenses Payable by Apple Ten” in full to Apple Hospitality and the definitive agreement relating to the superior proposal is entered into, and in the event that such definitive agreement is not concurrently entered into and such termination fee is not concurrently paid, such termination shall be null and void; or |
● | if, at any time prior to obtaining the Apple Hospitality shareholder approval, Apple Hospitality, the Apple Hospitality board or any committee thereof, for any reason, has effected an Apple Hospitality change in recommendation. |
Termination by Apple Hospitality
Apple Hospitality may also terminate the Merger Agreement:
● | upon a breach of any representation, warranty, covenant or agreement on the part of Apple Ten set forth in the Merger Agreement, or if any representation or warranty of Apple Ten has become untrue, in either case such that the first two bullet points of the conditions to Apple Hospitality’s obligation to complete the merger described above under “—Conditions to Complete the Merger” would be incapable of being satisfied by the Outside Date, except that Apple Hospitality will not be entitled to exercise its right to terminate the Merger Agreement as described in this bullet point if Apple Hospitality is then in material breach of any of its representations, warranties, covenants or agreements such that the first two bullet points of the conditions to Apple Ten’s obligations to complete the merger are incapable of being satisfied; |
● | if, at any time prior to obtaining the Apple Ten shareholder approval, Apple Ten, the Apple Ten board or any committee thereof, for any reason, has effected an Apple Ten change in recommendation; or |
● | if, at any time prior to the Apple Ten shareholder approval, (i) the Apple Ten board or any committee thereof approves, adopts or publicly endorses or recommends any acquisition proposal, (ii) Apple Ten enters into a contract or agreement relating to an acquisition proposal (other than a confidentiality agreement entered into in compliance with the Merger Agreement), (iii) a tender offer or exchange offer for any Apple Ten shares that constitutes an acquisition proposal (other than by Apple Hospitality or any of its affiliates) is commenced and the Apple Ten board fails to recommend against acceptance of such tender offer or exchange offer by the shareholders of Apple Ten and to publicly reaffirm the Apple Ten recommendation within ten business days of being requested to do so by Apple Hospitality, (iv) the Apple Ten board or any committee thereof fails to include the Apple Ten recommendation in this joint proxy statement/prospectus, or (v) Apple Ten has (or is deemed to have) materially violated its obligations under the Merger Agreement prohibiting the solicitation of transactions (other than any immaterial or inadvertent violations thereof that did not result in an alternative acquisition proposal). |
Except as agreed in writing by the parties or as described below, all out-of-pocket costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring the cost or expense whether or not the merger closes.
Termination Fee and Expenses Payable by Apple Ten
Apple Ten has agreed to pay to Apple Hospitality the termination fee (as defined below) or the go shop termination fee (as defined below), as the case may be, if:
● | Apple Hospitality terminates the Merger Agreement because, prior to obtaining the Apple Ten shareholder approval, Apple Ten, the Apple Ten board or any committee thereof, for any reason has effected an Apple Ten change in recommendation; |
● | Apple Hospitality terminates the Merger Agreement because, prior to obtaining the Apple Ten shareholder approval, (i) the Apple Ten board or any committee thereof approves, adopts or publicly endorses or recommends any acquisition proposal, (ii) Apple Ten enters into a contract or agreement relating to an acquisition proposal (other than a confidentiality agreement entered into in compliance with the Merger Agreement), (iii) a tender offer or exchange offer for any Apple Ten shares that constitutes an acquisition proposal (other than by Apple Hospitality or any of its affiliates) is commenced and the Apple Ten board fails to recommend against acceptance of such tender offer or exchange offer by the shareholders of Apple Ten and to publicly reaffirm the recommendation in favor of the Apple Ten recommendation within ten business days of being requested to do so by Apple Hospitality, (iv) the Apple Ten board or any committee thereof fails to include the Apple Ten recommendation in this joint proxy statement, or (v) Apple Ten has (or is deemed to have) materially violated certain of its obligations under the Merger Agreement (other than any immaterial or inadvertent violations thereof that did not result in an alternative acquisition proposal); or |
● | Apple Ten terminates the Merger Agreement because, prior to obtaining the Apple Ten shareholder approval, the Apple Ten board (based on the recommendation of the Apple Ten special committee) approves and authorizes Apple Ten to enter into a definitive agreement providing for the implementation of a superior proposal in a manner permitted under the Merger Agreement. |
Apple Ten will pay to Apple Hospitality the go shop termination fee in the event of a termination of the Merger Agreement described above in connection with Apple Ten entering into or recommending a superior proposal with a Go Shop Bidder on or before the date that is fifteen days following the go shop period end time. In the event of any other termination of the Merger Agreement described above, Apple Ten will pay to Apple Hospitality the termination fee.
Apple Ten has also agreed that if the Merger Agreement is terminated as described above, in each case in connection with Apple Ten entering into or recommending a superior proposal with a Go Shop Bidder on or before the date that is fifteen days following the go shop period end time, then, in addition to payment of the go shop termination fee, Apple Ten will reimburse Apple Hospitality’s expenses up to $3.0 million.
For purposes of the Merger Agreement, “termination fee” means $25.0 million and “go shop termination fee” means $5.0 million.
In addition, Apple Ten has agreed to pay to Apple Hospitality the termination fee if all of the following requirements are satisfied:
● | (x) Apple Hospitality or Apple Ten terminates the Merger Agreement following a failure to obtain the Apple Ten shareholder approval or (y) Apple Hospitality terminates the Merger Agreement upon a breach of any representation, warranty, covenant or agreement on the part of Apple Ten, or if any representation or warranty of Apple Ten becomes untrue, and the first two bullet points of the conditions to Apple Hospitality’s obligation to complete the merger described above under “—Conditions to Complete the Merger” are incapable of being satisfied by the Outside Date; |
● | at any time after the date of the Merger Agreement and (i) in the case of a termination pursuant to clause (x) in the immediately preceding bullet point, prior to the failure to obtain Apple Ten’s shareholder approval, an acquisition proposal (whether or not conditional) or an intention to make an acquisition proposal (whether or not conditional) has been made to the Apple Ten board, the Apple Ten special committee, or directly to its shareholders which proposal has been publicly announced or otherwise disclosed to Apple Ten’s shareholders and not publicly withdrawn prior to the Apple Ten shareholder meeting or (ii) in the case of a termination pursuant to clause (y) in the immediately preceding bullet point, prior to the breach giving rise to such termination, an acquisition proposal (whether or not condition) or an intention to make an acquisition proposal (whether or not conditional) has been made to the Apple Ten board, the Apple Ten special committee or directly to Apple Ten’s shareholders or is otherwise publicly announced prior to the date of termination of the Merger Agreement; and |
● | concurrently with such termination or within 12 months following the date of termination of the Merger Agreement, Apple Ten consummates an acquisition proposal (in each case whether or not such acquisition proposal was the same acquisition proposal referred to in the immediately preceding bullet point, and for purposes of the provisions described in this bullet point, the references to “20%” in the definition of “acquisition proposal” being deemed to be references to “50%”). |
Termination Fee Payable by Apple Hospitality
Apple Hospitality has agreed to pay to Apple Ten the termination fee if Apple Ten terminates the Merger Agreement because, prior to obtaining the Apple Hospitality shareholder approval, Apple Hospitality, the Apple Hospitality board or any committee thereof, for any reason has effected an Apple Hospitality change in recommendation.
The Merger Agreement may be amended in writing by Apple Ten (following the approval of such action by the Apple Ten special committee) and Apple Hospitality at any time before or after the Apple Ten shareholder approval is obtained and prior to the effective time of the merger. After the Apple Ten shareholder approval is obtained, no such amendment, modification or supplement will change (i) the amount or kind of consideration to be delivered to the shareholders of Apple Ten, (ii) the articles of incorporation of the surviving corporation except for changes permitted by Section 13.1-706 of the VSCA, or (iii) any of the other terms or conditions of the Merger Agreement that would adversely affect the shareholders of Apple Ten in any material respect. For any amendment of the Merger Agreement that does not require shareholder approval, each of Apple Hospitality and Apple Ten will file a Current Report on Form 8-K to notify their respective shareholders of such amendment.
At any time prior to the effective time of the merger, Apple Ten (following approval of such action by the Apple Ten special committee) and Apple Hospitality may waive the other party’s compliance with certain provisions of the Merger Agreement.
From and after the date of the Merger Agreement, the Apple Ten board will act solely with the prior approval of the Apple Ten special committee with respect to any actions of Apple Ten to be taken with respect to the Merger Agreement, including any amendment, modification, or waiver of the Merger Agreement.
Each of Apple Hospitality and Apple Ten are entitled to seek an injunction or injunctions to prevent breaches of the Merger Agreement and to enforce specifically the terms and provisions of the Merger Agreement in addition to any and all other remedies at law or in equity to which each is entitled.
VOTING AGREEMENT BETWEEN THE APPLE REITS AND GLADE M. KNIGHT
In order to induce the Apple REITs to enter into the Merger Agreement, concurrently with the execution of the Merger Agreement, on April 13, 2016, Glade M. Knight entered into a voting agreement with the Apple REITs (the “voting agreement”). Mr. Knight is the record holder and has the power to vote all of the outstanding Series B convertible preferred shares of Apple Ten, 90,920 Apple Ten units and 8,042,857 Apple Hospitality common shares. The Apple Ten Series B convertible preferred shares and the Apple Ten units and the Apple Hospitality common shares held by Mr. Knight, together with any additional securities of the Apple REITS acquired by Mr. Knight after April 13, 2016, are referred to in this joint proxy statement/prospectus as the “subject shares.”
Mr. Knight executed the voting agreement solely in his capacity as a shareholder of each Apple REIT and not in his capacity as an officer, director, employee or manager of any Apple REIT. Without limiting the foregoing, nothing in the voting agreement will limit or affect any actions taken by Mr. Knight in his capacity as an officer, director, employee or manager of any Apple REIT in connection with the exercise of any Apple REIT’s rights under the Merger Agreement.
The following is a summary of the material terms of the voting agreement. This summary does not purport to be complete and may not contain all of the information about the voting agreement that is important to you. The summary of the material terms of the voting agreement below and elsewhere in this joint proxy statement/prospectus is qualified in its entirety by reference to the voting agreement, a copy of which is incorporated by reference as an exhibit to the registration statement on Form S-4 of which this joint proxy statement/prospectus forms a part.
Mr. Knight has agreed that, during the period from the date of the Merger Agreement through the earlier of (i) the date on which the merger is consummated or (ii) the date on which the Merger Agreement is terminated according to its terms, he will:
● | be present, in person or represented by proxy, at each meeting (whether annual or special and whether or not an adjourned or postponed meeting) of the shareholders of either Apple REIT, however called, so that all of his subject shares may be counted for purposes of determining the presence of a quorum at each such meeting; |
● | cast or cause to be cast all votes attributable to the subject shares at any such shareholders’ meeting, including any adjournments or postponements thereof, or in connection with any written consent or other vote of the shareholders of either Apple REIT, in favor of: |
○ | with respect to the shareholders’ meeting of Apple Ten, the approval and adoption of the Merger Agreement (including any amendments or modifications to the terms of the Merger Agreement approved by the Apple Ten board (based upon the recommendation of the Apple Ten special committee) that would not materially adversely affect Mr. Knight in his capacity as beneficial owner of the subject shares), the related plan of merger, approval of the merger, each of the other actions and transactions contemplated in and by the Merger Agreement and any actions required in furtherance thereof; |
○ | with respect to the shareholders’ meeting of Apple Hospitality, the issuance of the Apple Hospitality common shares to be issued in the merger; and |
○ | approval and adoption of any proposal to adjourn or postpone such shareholders’ meeting to a later date if there are not sufficient votes for the foregoing matters described in the first and second sub-bullets above to be approved at each such shareholders’ meeting on the date on which such shareholders’ meetings are held; |
● | cast or cause to be cast all votes attributable to the subject shares at each such shareholders’ meeting, and at any adjournment or postponement thereof, or in connection with any written consent or other vote of the shareholders of either Apple REIT, against: (i) any action or agreement that would reasonably be expected to frustrate the purposes of, impede, hinder, interfere with, or prevent or delay the consummation of the transactions contemplated by the Merger Agreement and (ii) any acquisition proposal (other than the merger) and any action required in furtherance thereof; and |
● | retain the right to vote his subject shares, in his sole discretion, on all matters other than those described in the first, second and third primary bullets above, and Mr. Knight may grant proxies and enter into voting agreements or voting trusts for his subject shares in respect of such other matters, in each case so long as such other arrangements do not interfere with or prevent Mr. Knight from complying with his obligations under the voting agreement. |
In addition, Mr. Knight has also appointed each Apple REIT during the period from the date of the Merger Agreement through the earlier of (i) the date on which the merger is consummated or (ii) the date on which the Merger Agreement is terminated according to its terms as his attorney, agent and proxy, with full power of substitution, to vote and otherwise act with respect to all of the subject shares of such Apple REIT, and at any adjournment or adjournments and postponements thereof, and in any written consent of the shareholders of such Apple REIT, on the matters and in the manner specified in the second and third primary bullets above.
Mr. Knight has agreed to certain restrictions on the transfer of the subject shares. He has agreed that, during the period from the date of the Merger Agreement through the earlier of (i) the date on which the merger is consummated or (ii) the date on which the Merger Agreement is terminated according to its terms, he will not, directly or indirectly:
● | sell, sell short, transfer (including by gift), pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other agreement or understanding with respect to the sale, transfer, pledge, encumbrance, assignment or other disposition of, any subject shares; |
● | grant any proxies or powers of attorney for any subject shares with respect to any matters described above in the first, second and third primary bullets under “—Agreement to Vote” (other than a proxy directing the holder thereof to vote the subject shares in a manner required by the provisions described above in the first, second and third primary bullets under “—Agreement to Vote”); |
● | deposit any subject shares into a voting trust or enter into a voting agreement or other arrangement with respect to any subject shares with respect to any of the matters described above in the first, second and third primary bullets under “—Agreement to Vote”, or tender any subject shares in a transaction other than a transaction contemplated by the Merger Agreement; or |
● | take any action which is intended to have the effect of preventing or disabling Mr. Knight from performing his obligations under the voting agreement. |
Notwithstanding the transfer restrictions describe above, nothing in the voting agreement will prevent:
● | the sale, transfer, pledge, encumbrance, assignment or other disposition of any of the subject shares, provided that such purchaser, transferee, pledgee or assignee agrees in writing with the Apple REITs, prior to such sale, transfer, pledge, encumbrance, assignment or other disposition, to be bound by the terms of the voting agreement; or |
● | the assignment of certain benefits by Mr. Knight pursuant to agreements entered into before the date of the Merger Agreement with respect to Apple Ten Series B convertible preferred shares as to which Mr. Knight is not the sole beneficial owner. |
Mr. Knight has waived any rights of appraisal or rights to dissent from the merger, and has agreed to prevent the execution of, any rights of appraisal and dissenters’ rights relating to the merger that Mr. Knight may have directly or indirectly by virtue of the ownership of the subject shares.
The voting agreement will terminate immediately upon the earlier of (i) the date on which the merger is consummated or (ii) the date on which the Merger Agreement is terminated according to its terms.
The foregoing is a summary of the material terms of the termination agreement. This summary does not purport to be complete and may not contain all of the information about the termination agreement that is important to you. The summary of the material terms of the termination agreement above and elsewhere in this joint proxy statement/prospectus is qualified in its entirety by reference to the termination agreement, a copy of which is attached to this joint proxy statement/prospectus as Annex C and is incorporated by reference into this joint proxy statement/prospectus.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of Apple Ten shares that hold such shares as a capital asset within the meaning of Section 1221 of the Code. This discussion is based upon the Code, Treasury regulations promulgated under the Code (the “Treasury Regulations”), judicial decisions and published administrative rulings, all as currently in effect and all of which are subject to change, possibly with retroactive effect. This discussion does not address (i) U.S. federal taxes other than income taxes, (ii) state, local or non-U.S. taxes or (iii) tax reporting requirements applicable to the merger. In addition, this discussion does not address U.S. federal income tax considerations applicable to holders of Apple Ten shares that are subject to special treatment under U.S. federal income tax law, including, for example:
● | financial institutions; | |
● | pass-through entities (such as entities treated as partnerships for U.S. federal income tax purposes) or investors in such entities; | |
● | insurance companies; | |
● | tax-exempt organizations; | |
● | dealers in securities or currencies; | |
● | traders in securities that elect to use a mark to market method of accounting; | |
● | persons that hold Apple Ten shares as part of a straddle, hedge, constructive sale or conversion transaction; | |
● | regulated investment companies; | |
● | real estate investment trusts; | |
● | certain U.S. expatriates; | |
● | U.S. holders whose “functional currency” is not the U.S. dollar; | |
● | persons who acquired their Apple Ten shares through the exercise of an employee stock option or otherwise as compensation; and | |
● | persons who are not U.S. holders. |
For purposes of this discussion, a “U.S. holder” means a beneficial owner of Apple Ten shares that is:
● | an individual who is a citizen or resident of the United States for U.S. income tax purposes; | |
● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof; | |
● | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or | |
● | a trust that (A) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (B) has a valid election in place under the Treasury Regulations to be treated as a U.S. person. |
If a partnership (or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Apple Ten shares, the tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. Any partnership or entity or arrangement treated as a partnership for U.S. federal income tax purposes that holds Apple Ten shares, and the partners in such partnership, should consult their tax advisors.
This discussion of material U.S. federal income tax consequences of the merger is not binding on the IRS. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any described herein.
HOLDERS OF APPLE TEN SHARES ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX LAWS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
Tax Opinions from Outside Counsel
It is a condition to the consummation of the merger that McGuireWoods renders a tax opinion to Apple Ten, and Hogan Lovells renders a tax opinion to Apple Hospitality, to the effect that, for U.S. federal income tax purposes, the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. Such opinions will be based on customary representations as to factual matters made and covenants agreed to by Apple Ten and Apple Hospitality (including those contained in tax representation letters provided by Apple Ten and Apple Hospitality), and on customary assumptions. If any assumption or representation is inaccurate in any way, or any covenant is not complied with, the U.S. federal income tax consequences of the merger could differ from those described in the tax opinions. The tax opinions represent the legal judgments of McGuireWoods and Hogan Lovells and are not binding on the IRS. No ruling from the IRS has been or will be requested in connection with the merger, and there can be no assurance that the IRS would not assert, or that a court would not sustain, a position contrary to the conclusions set forth in the tax opinions. The opinion conditions are not waivable after receipt of the approval of the merger by the Apple Ten shareholders and the Apple Hospitality shareholders, unless further approval of the shareholders of Apple Ten and Apple Hospitality, as the case may be, is obtained with appropriate disclosure.
Material U.S. Federal Income Tax Consequences of the Merger
In the opinion of McGuireWoods and Hogan Lovells, the merger of Apple Ten with and into the Acquisition Sub will qualify as a reorganization within the meaning of Section 368(a) of the Code. Accordingly:
● | Apple Ten will not recognize any gain or loss as a result of the merger; |
● | each U.S. holder will recognize gain, but not loss, in the merger equal to the smaller of (i) the amount of cash received (other than cash received in lieu of a fractional Apple Hospitality common share) and (ii) the excess, if any, of (x) the sum of the amount of cash received (including cash received in lieu of a fractional Apple Hospitality common share) and the fair market value of the Apple Hospitality common shares received in the merger (determined at the effective time of the merger) over (y) the U.S. holder’s tax basis in the Apple Ten shares deemed surrendered in the merger; |
● | each U.S. holder’s aggregate tax basis in the Apple Hospitality common shares received in the merger (including any fractional Apple Hospitality common share for which cash is received) will be the same as his or her aggregate tax basis in Apple Ten shares deemed surrendered in the merger, increased by the amount of gain recognized (excluding any gain attributable to the receipt of cash in lieu of a fractional Apple Hospitality common share) and decreased by the amount of cash received (other than cash received in lieu of a fractional Apple Hospitality common share). If a U.S. holder acquired any of his or her Apple Ten shares at different prices or at different times, Treasury Regulations provide guidance on how such U.S. holder may allocate his or her tax basis to Apple Hospitality common shares received in the merger. U.S. holders that hold multiple blocks of Apple Ten shares should consult their tax advisors regarding the proper allocation of their basis among Apple Hospitality common shares received in the merger under these Treasury Regulations; and |
● | the holding period of the Apple Hospitality common shares received by a U.S. holder in the merger (including any fractional Apple Hospitality common shares for which cash is received) will include the holding period of the Apple Ten shares that he or she is deemed to surrender in the merger. |
Cash Received in Lieu of Fractional Shares
A cash payment received by a U.S. holder in lieu of a fractional Apple Hospitality common share will be treated as if the U.S. holder received a fractional Apple Hospitality common share in the merger and then received the cash in exchange for that fractional share. As a result, the U.S. holder should generally recognize capital gain or loss equal to the difference between the amount of cash received and the portion of the basis of the Apple Ten shares deemed surrendered that is allocable to the fractional share. Any gain or loss should generally be long-term capital gain or loss if the U.S. holder’s holding period for the Apple Ten shares deemed surrendered is more than one year at the effective time of the merger. The deductibility of capital losses is subject to limitations.
Potential Treatment of Cash as a Dividend
It is possible that all or part of the gain that a U.S. holder recognizes in the merger (other than any gain attributable to the receipt of cash in lieu of a fractional Apple Hospitality common share) could be treated as dividend income rather than capital gain if (1) the U.S. holder is a significant shareholder of Apple Hospitality or (2) the U.S. holder’s percentage ownership, taking into account constructive ownership rules, in Apple Hospitality after the merger is not meaningfully reduced from what his or her percentage ownership would have been if he or she had received solely Apple Hospitality common shares rather than a combination of cash and shares in the merger. This could happen, for example, because of ownership of additional Apple Hospitality common shares by such holder, ownership of Apple Hospitality common shares by a person related to such holder or a share repurchase by Apple Hospitality from other Apple Hospitality shareholders. The IRS has indicated in rulings that any reduction in the interest of a shareholder that owns a small number of shares in a publicly and widely held corporation and that exercises no control over corporate affairs would result in capital gain as opposed to dividend treatment. Because the possibility of dividend treatment depends primarily upon the particular circumstances of a U.S. holder, including the application of certain constructive ownership rules, U.S. holders are urged to consult their own tax advisors as to the potential tax consequences of the merger to them.
Medicare Tax on Certain Investment Income
Certain non-corporate U.S. holders whose income exceeds certain thresholds may also be subject to a 3.8% tax on their “net investment income” up to the amount of such excess. Gain or loss recognized in the merger will be includable in a U.S. holder’s net investment income for purposes of this tax. Non-corporate U.S. holders should consult their own tax advisors regarding the possible effect of this tax.
U.S. Federal Income Tax Consequences of the Merger to Apple Ten and its Shareholders (or Apple Hospitality) if the Merger Does Not Qualify as a Reorganization
If the merger of Apple Ten with and into Acquisition Sub fails to qualify as a reorganization, then a shareholder of Apple Ten generally would recognize gain or loss, as applicable, equal to the difference between:
● | the sum of the cash and the fair market value of the Apple Hospitality common shares received by the Apple Ten shareholder in the merger; and |
● | the shareholder’s adjusted tax basis in his or her Apple Ten shares. |
If the merger fails to qualify as a reorganization, so long as Apple Ten qualified as a REIT at the time of the merger, Apple Ten generally would not incur a U.S. federal income tax liability so long as Apple Ten has made distributions (which would be deemed to include for this purpose the cash and the fair market value of the Apple Hospitality common shares issued pursuant to the merger in respect of Apple Ten) to the Apple Ten shareholders in an amount at least equal to the net income or gain on the deemed sale of its assets to Apple Hospitality. In the event that such distributions were not sufficient to eliminate all of Apple Ten’s tax liability as a result of the deemed sale of its assets to Apple Hospitality, Apple Hospitality would be liable for any remaining tax owed by Apple Ten as a result of the merger.
If the merger fails to qualify as a reorganization and Apple Ten did not qualify as a REIT at the time of the merger, Apple Ten would generally recognize gain or loss on the deemed transfer of its assets in the merger and Apple Hospitality, as its successor, could incur a very significant current tax liability and may be unable to qualify as a REIT.
Backup Withholding
Certain U.S. holders of Apple Ten shares may be subject to backup withholding of U.S. federal income tax with respect to any cash received in the merger, including in connection with the exercise of their dissenters’ rights in lieu of taking Apple Hospitality common shares pursuant to the merger, and cash in lieu of fractional Apple Hospitality common shares. Backup withholding will not apply, however, to a U.S. holder of Apple Ten shares who furnishes a correct taxpayer identification number and certifies that it is not subject to backup withholding on IRS Form W-9 (or substitute Form W-9) or is otherwise exempt from backup withholding and provides appropriate proof of the applicable exemption. While this discussion does not otherwise address the United States federal income tax considerations applicable to non-U.S. holders, a non-U.S. holder may be subject to backup withholding unless such holder establishes an exemption, for example, by properly certifying his or her non-U.S. status on an IRS Form W-8BEN, IRS Form W-8BEN-E or another appropriate version of IRS Form W-8. Notwithstanding the foregoing,
backup withholding may apply if either we have or our paying agent has actual knowledge, or reason to know, that such holder is not a non-U.S. holder. Backup withholding is not an additional tax and any amounts withheld will be allowed as a refund or credit against the holder’s U.S. federal income tax liability, if any, provided that the holder timely furnishes the required information to the IRS.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL OF THE MERGER’S POTENTIAL TAX EFFECTS. APPLE TEN SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER APPLICABLE TAX LAWS.
REIT Qualification of Apple Ten and Apple Hospitality
It is a condition to the obligation of Apple Ten to complete the merger that Apple Ten receive an opinion from Hogan Lovells to the effect that, commencing with the taxable year of Apple Hospitality ended December 31, 2012, Apple Hospitality has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and its proposed method of operation will enable Apple Hospitality to continue to meet the requirements for qualification and taxation as a REIT under the Code. The opinion of Hogan Lovells will be subject to customary exceptions, assumptions and qualifications and be based on customary representations made by Apple Hospitality about factual matters relating to the organization and operation of Apple Hospitality and its subsidiaries.
It is a condition to the obligation of Apple Hospitality to complete the merger that Apple Hospitality receive an opinion from McGuireWoods to the effect that, commencing with the taxable year of Apple Ten ended December 31, 2011, Apple Ten has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code and its actual method of operation has enabled it to meet, through the effective time of the merger, the requirements for qualification and taxation as a REIT under the Code. The opinion of McGuireWoods will be subject to customary exceptions, assumptions and qualifications and be based on customary representations made by Apple Ten about factual matters relating to the organization and operation of Apple Ten and its subsidiaries.
The opinions described above will not be binding on the IRS. Apple Hospitality intends to continue to operate in a manner to qualify as a REIT following the merger, but there is no guarantee that it will qualify or remain qualified as a REIT. Qualification and taxation as a REIT will depend upon the ability of Apple Hospitality to meet, through actual annual (or, in some cases, quarterly) operating results, requirements relating to income, asset ownership, distribution levels and diversity of share ownership, and the various REIT qualification requirements imposed under the Code. Given the complex nature of the REIT qualification requirements, the ongoing importance of factual determinations and the possibility of future changes in the circumstances of Apple Hospitality, it cannot be guaranteed that the actual operating results of Apple Hospitality will satisfy the requirements for taxation as a REIT under the Code for any particular tax year.
Tax Liabilities and Attributes Inherited from Apple Ten
If Apple Ten failed to qualify as a REIT for any of its taxable years, Apple Ten would be liable for (and Apple Hospitality would be obligated to pay) U.S. federal income tax on its taxable income for such years at regular corporate rates and, assuming the merger qualified as a reorganization within the meaning of Section 368(a) of the Code, Apple Hospitality would be subject to tax on the built-in gain on each asset of Apple Ten existing at the time of the merger if Apple Hospitality were to dispose of the Apple Ten asset for up to five years following the merger. Such tax would be imposed at the highest regular corporate rate in effect at the date of the sale. Moreover, and irrespective of whether Apple Ten qualified as a REIT, if Apple Ten were to incur tax liabilities as a result of the failure of the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, those tax liabilities would be transferred to Apple Hospitality as a result of the merger.
Furthermore, after the merger, the asset and income tests will apply to all of the assets of Apple Hospitality, including the assets Apple Hospitality acquires from Apple Ten, and to all of the income of Apple Hospitality, including the income derived from the assets Apple Hospitality acquires from Apple Ten. As a result, the nature of the assets that Apple Hospitality acquires from Apple Ten and the income Apple Hospitality derives from those assets may have an effect on the tax status of Apple Hospitality as a REIT.
Qualification as a REIT requires Apple Hospitality to satisfy numerous requirements, some on an annual and others on a quarterly basis, as described below with respect to Apple Hospitality. There are only limited judicial and
administrative interpretations of these requirements, and qualification as a REIT involves the determination of various factual matters and circumstances that are not entirely within the control of Apple Hospitality.
Material U.S. Federal Income Tax Considerations Applicable to Holders of Apple Hospitality Common Shares
A summary of certain U.S. federal income tax considerations generally resulting from the election of Apple Hospitality to be taxed as a REIT and to holders of Apple Hospitality common shares is set forth in Exhibit 99.1 to Apple Hospitality’s Current Report on Form 8-K, filed with the SEC on March 14, 2016, and incorporated by reference in this joint proxy statement/prospectus.
The sections of the Code and the corresponding Treasury Regulations that relate to the qualification and taxation as a REIT are highly technical and complex. You are urged to consult your tax advisor regarding the specific tax consequences to you of ownership of Apple Hospitality common shares and of the election of Apple Hospitality to be taxed as a REIT. Specifically, you should consult your tax advisor regarding the federal, state, local, foreign and other tax consequences of such ownership and election, and regarding potential changes in applicable tax laws.
COMPARATIVE SHARE PRICES AND DIVIDENDS
Apple Hospitality common shares are traded on the NYSE under the symbol “APLE.” The following table presents trading information for Apple Hospitality common shares on April 13, 2016, the date preceding the announcement of the merger, and July 14, 2016, the latest practicable trading day before the date of this joint proxy statement/prospectus.
Apple Hospitality Common Shares | ||||||||||||
Date | High | Low | Close | |||||||||
April 13, 2016 | $ | 19.24 | $ | 18.69 | $ | 19.23 | ||||||
July 14, 2016 | $ | 19.75 | $ | 19.51 | $ | 19.72 |
Apple Ten units are not currently listed on any national securities exchange or quoted in the over-the-counter market. There is no established public trading market for Apple Ten units.
In addition, for illustrative purposes, the following table provides Apple Ten equivalent per unit information on each of the specified dates (assuming the conversion of Series B convertible preferred shares). Apple Ten equivalent per unit amounts are calculated by multiplying Apple Hospitality per share amounts by the unit exchange ratio, 0.522, plus $1.00, representing the cash portion of the merger consideration for each Apple Ten unit.
Apple Hospitality Common Shares | Apple Ten Equivalent Per Unit | ||||||||||||||||||||||||
Date | High | Low | Close | High | Low | Close | |||||||||||||||||||
April 13, 2016 | $ | 19.24 | $ | 18.69 | $ | 19.23 | $ | 11.04 | $ | 10.76 | $ | 11.04 | |||||||||||||
July 14, 2016 | $ | 19.75 | $ | 19.51 | $ | 19.72 | $ | 11.31 | $ | 11.18 | $ | 11.29 |
Market Prices and Dividend Data
The following tables set forth the high and low sales prices of Apple Hospitality common shares as reported on the NYSE, and the quarterly cash dividends declared per share, for each of the quarterly periods indicated.
High | Low | Dividend | ||||||||||
2015(1) | ||||||||||||
Second Quarter | $ | 19.45 | $ | 17.03 | $ | 0.4267 | ||||||
Third Quarter | 19.84 | 13.82 | 0.3000 | |||||||||
Fourth Quarter | 20.97 | 18.21 | 0.3000 | |||||||||
2016 | ||||||||||||
First Quarter | 20.53 | 16.35 | 0.3000 | |||||||||
Second Quarter | 19.78 | 17.71 | 0.3000 |
(1) Apple Hospitality common shares were listed and begin trading on the NYSE on May 18, 2015.
The market value of the Apple Hospitality common shares that holders of Apple Ten units and Apple Ten Series B convertible preferred shares will have the right to receive on the date the merger is completed may vary significantly from the market value of the Apple Hospitality common shares that holders of Apple Ten units and Apple Ten Series B convertible preferred shares would receive if the merger were completed on the date of this joint proxy statement/prospectus. As a result, you should obtain recent market prices of Apple Hospitality common shares prior to voting your shares. See “Risk Factors—Risks Related to the Merger” beginning on page 29.
DESCRIPTION OF APPLE HOSPITALITY COMMON SHARES
The following contains a summary of certain material provisions of Apple Hospitality’s articles of incorporation and bylaws relating to the Apple Hospitality common shares. The following description of the Apple Hospitality common shares does not purport to be complete and is subject to and qualified in its entirety by reference to Virginia law and to Apple Hospitality’s articles of incorporation and bylaws.
Apple Hospitality is authorized to issue up to 800,000,000 common shares, no par value per share, and 30,000,000 preferred shares, no par value per share. Apple Hospitality’s articles of incorporation authorize the Apple Hospitality board, without shareholder approval, to amend its articles of incorporation to fix in whole or in part the preferences, limitations and relative rights, within the limits set forth in the VSCA, of any series within the preferred shares prior to the issuance of any shares of that series. Under the VSCA, shareholders generally are not liable for the corporation’s debt or obligations. Following the merger, Apple Hospitality expects that approximately 223 million common shares and no preferred shares will be issued and outstanding.
All Apple Hospitality common shares issued pursuant to the merger, as contemplated by this joint proxy statement/prospectus, will be duly authorized, fully paid and nonassessable.
Voting Rights of Apple Hospitality Common Shares
Subject to the provisions of Apple Hospitality’s articles of incorporation regarding the restrictions on transfer and ownership of capital shares, each outstanding Apple Hospitality common share entitles the holder thereof to one vote on all matters submitted to a vote of shareholders. The holders of Apple Hospitality common shares have exclusive voting power with respect to the election of directors and for all other purposes, except as otherwise required by law or as provided in its articles of incorporation with respect to any series of preferred shares then outstanding. There is no cumulative voting in the election of directors. Directors are elected by the plurality of votes cast and entitled to vote in the election of directors; provided, that if an incumbent director fails to receive at least a majority of the votes cast, such director will tender his or her resignation from the board.
Under the VSCA, a Virginia corporation generally cannot dissolve, amend its articles of incorporation, merge, sell all or substantially all of its assets or engage in a share exchange unless approved by the affirmative vote of more than two-thirds of all votes entitled to be cast on the matter, unless a greater or lesser proportion of votes (but not less than a majority of all votes cast) is specified in the corporation’s articles of incorporation. Apple Hospitality’s articles of incorporation provide that its shareholders, by vote of the holders of a majority of the Apple Hospitality common shares issued and outstanding and a majority of the votes entitled to be voted by any other voting group required by law to vote thereon as a separate voting group, may vote to approve a plan of merger, share exchange or dissolution or to sell, lease, exchange or otherwise dispose of all or substantially all of Apple Hospitality’s property other than in the usual and regular course of business. Apple Hospitality’s articles of incorporation also provide that, except as otherwise provided by law or the articles of incorporation with respect to any outstanding series of Apple Hospitality’s preferred shares, Apple Hospitality’s articles of incorporation may be amended at any time, and from time to time, upon the vote of the holders of a majority of Apple Hospitality’s common shares issued and outstanding; provided that that amendments to the articles of incorporation relating to the number of directors on the Apple Hospitality board and the classification of the Apple Hospitality board requires the approval of more than two-thirds of Apple Hospitality’s issued and outstanding common shares.
Apple Hospitality’s articles of incorporation provide that its bylaws may be amended or repealed, or new bylaws adopted, at any time by (1) the Apple Hospitality board or (2) by a vote of the holders of a majority of issued and outstanding Apple Hospitality common shares, and the shareholders in amending, repealing or adopting a bylaw may, except as prohibited by applicable law, expressly provide that the Apple Hospitality board may not amend, repeal or reinstate that bylaw.
Dividends, Distributions, Liquidation and Other Rights
Subject to the preferential rights of any other class or series of shares and to the provisions of Apple Hospitality’s articles of incorporation and bylaws regarding the restrictions on transfer and ownership of capital shares, holders of Apple Hospitality common shares are entitled to receive dividends on such common shares if, as and when authorized by the Apple Hospitality board, and declared by Apple Hospitality out of assets legally available
therefor. Subject to the rights of holders of shares ranking senior to the holders of Apple Hospitality common shares as to dividends and distributions, holders of Apple Hospitality common shares also are entitled to receive, if and when declared by the board, dividends and distribution of Apple Hospitality’s net assets legally available for distribution to shareholders in the event of its liquidation, dissolution or winding up of the affairs of Apple Hospitality.
Holders of Apple Hospitality common shares have no preference, conversion, exchange, sinking fund or redemption rights and have no preemptive rights to subscribe for any of Apple Hospitality’s securities. Subject to the provisions of Apple Hospitality’s articles of incorporation and bylaws regarding the restrictions on transfer and ownership of capital shares, Apple Hospitality common shares will have equal dividend, liquidation and other rights.
A series of Apple Hospitality preferred shares could be given rights that are superior to rights of holders of Apple Hospitality common shares and a series having preferential distribution rights could limit Apple Hospitality common share distributions and reduce the amount holders of Apple Hospitality common shares would otherwise receive on dissolution. Subject to the limitations prescribed by Virginia law and the Apple Hospitality articles of incorporation and bylaws, the Apple Hospitality board is authorized, without shareholder approval, by adoption of an amendment of its articles of incorporation, to fix in whole or in part the preferences, limitations and relative rights of any series within the preferred shares prior to the issuance of any shares of that series, and to issue one or more series of preferred shares. The Apple Hospitality preferred shares could be issued in one or more series having varying voting rights, redemption and conversion features, distribution (including liquidating distribution) rights and preferences, and other rights, including rights of approval of specified transactions. The voting rights and rights to distributions of the holders of Apple Hospitality common shares will be subject to the priority rights of the holders of any subsequently-issued Apple Hospitality preferred shares.
Restrictions on Ownership and Transfer of Shares
In order to qualify as a REIT under the Code, Apple Hospitality shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, no more than 50% of the value of Apple Hospitality’s outstanding shares (after taking into account options to acquire Apple Hospitality common shares) may be owned, directly, indirectly, or through attribution, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of a taxable year (other than the first year for which an election to be a REIT has been made).
Because the Apple Hospitality board believes that it is essential for Apple Hospitality to qualify as a REIT, Apple Hospitality’s articles of incorporation, subject to certain exceptions, contain restrictions on the number of shares of Apple Hospitality capital stock that a person may own.
In order to assist Apple Hospitality in complying with the limitations on the concentration of ownership of Apple Hospitality shares imposed by the Code, Apple Hospitality’s articles of incorporation generally prohibit any person or entity (other than a person or entity who has been granted an exception) from directly or indirectly, beneficially or constructively, owning more than 9.8% of the aggregate of outstanding Apple Hospitality common shares, by value or by number of shares, whichever is more restrictive, or 9.8% of the aggregate of the outstanding Apple Hospitality preferred shares of any class or series, by value or by number of shares, whichever is more restrictive. However, the Apple Hospitality articles of incorporation permit (but do not require) exceptions to be made for Apple Hospitality shareholders; provided that the Apple Hospitality board determines that such exceptions will not jeopardize Apple Hospitality’s qualification as a REIT.
Apple Hospitality’s articles of incorporation also prohibit any person from (1) beneficially or constructively owning shares of Apple Hospitality capital stock that would result in Apple Hospitality being “closely held” under Section 856(h) of the Code, (2) transferring Apple Hospitality shares if such transfer would result in Apple Hospitality
being beneficially owned by fewer than 100 persons (determined without regard to any rules of attribution), (3) beneficially or constructively owning Apple Hospitality shares that would result in Apple Hospitality owning (directly or constructively) 10% or more of the ownership interest in a tenant of Apple Hospitality’s real property if income derived from such tenant for Apple Hospitality’s taxable year would result in more than a de minimis amount of non-qualifying income for purposes of the REIT tests that, taking into account any other non-qualifying gross income of Apple Hospitality, would cause Apple Hospitality to fail to satisfy an applicable REIT gross income requirement, and (4) beneficially or constructively owning Apple Hospitality shares that would cause Apple Hospitality otherwise to fail to qualify as a REIT, including, but not limited to, as a result of any “eligible independent contractor” (as defined in Section 856(d)(9)(A) of the Code) that operates a “qualified lodging facility” (as defined in Section 856(d)(9)(D)(i) of the Code) on behalf of a taxable REIT subsidiary, or TRS, failing to qualify as such. Any person who acquires or attempts or intends to acquire beneficial ownership of Apple Hospitality shares that will or may violate any of the foregoing restrictions on transferability and ownership will be required to give written notice immediately to Apple Hospitality and provide Apple Hospitality with such other information as it may request in order to determine the effect of such transfers on Apple Hospitality’s qualification as a REIT. The foregoing restrictions on transferability and ownership will not apply if the Apple Hospitality board determines that it is no longer in Apple Hospitality’s best interest to attempt to qualify, or to qualify, or to continue to qualify, as a REIT. In addition, the Apple Hospitality board may determine that compliance with the foregoing restrictions is no longer required for Apple Hospitality’s qualification as a REIT.
The Apple Hospitality board, in its sole discretion, may waive the 9.8% ownership limit for Apple Hospitality common shares or Apple Hospitality preferred shares for a shareholder that is not an individual if such shareholder provides information and makes representations to the Apple Hospitality board that are satisfactory to the Apple Hospitality board, in its reasonable discretion, to establish that such person’s ownership in excess of the 9.8% limit for Apple Hospitality common shares or Apple Hospitality preferred shares would not jeopardize Apple Hospitality’s qualification as a REIT. As a condition of granting the waiver, the Apple Hospitality board, in its sole and absolute discretion as it may deem necessary or advisable, may require a ruling from the IRS, or an opinion of counsel in either case in form and substance satisfactory to the Apple Hospitality board in order to determine or ensure Apple Hospitality’s qualification as a REIT.
In addition, the Apple Hospitality board from time to time may increase the share ownership limits. However, the share ownership limits may not be increased if, after giving effect to such increase, five or fewer individuals could own or constructively own in the aggregate, more than 49.9% in value of the Apple Hospitality shares then outstanding.
If any transfer of Apple Hospitality shares of beneficial interest occurs that, if effective, would result in any person beneficially or constructively owning Apple Hospitality shares in excess, or in violation, of the above transfer or ownership limitations, known as a prohibited owner, then that number of Apple Hospitality shares, the beneficial or constructive ownership of which otherwise would cause such person to violate the transfer or ownership limitations (rounded up to the nearest whole share), will automatically be transferred to a charitable trust for the exclusive benefit of a charitable beneficiary, and the prohibited owner will not acquire any rights in such shares. This automatic transfer will be considered effective as of the close of business on the business day before the violative transfer. If the transfer to the charitable trust would not be effective for any reason to prevent the violation of the above transfer or ownership limitations, then the transfer of that number of Apple Hospitality shares that otherwise would cause any person to violate the above limitations will be void. Apple Hospitality shares held in the charitable trust will continue to constitute issued and outstanding Apple Hospitality shares. The prohibited owner will not benefit economically from ownership of any Apple Hospitality shares held in the charitable trust, will have no rights to dividends or other distributions and will not possess any rights to vote or other rights attributable to the Apple Hospitality shares held in the charitable trust. The trustee of the charitable trust will be designated by Apple Hospitality and must be unaffiliated with Apple Hospitality or any prohibited owner and will have all voting rights and rights to dividends or other distributions with respect to Apple Hospitality shares held in the charitable trust, and these rights will be exercised for the exclusive benefit of the trust’s charitable beneficiary. Any dividend or other distribution paid before Apple Hospitality’s discovery that Apple Hospitality shares have been transferred to the trustee will be paid by the recipient of such dividend or distribution to the trustee upon demand, and any dividend or other distribution authorized but unpaid will be paid when due to the trustee. Any dividend or distribution so paid to the trustee will be held in trust for the trust’s charitable beneficiary. Subject to Virginia law, effective as of the date that such Apple Hospitality shares have been transferred to the charitable trust, the trustee, in its sole discretion, will have the authority to:
● | rescind as void any vote cast by a prohibited owner prior to Apple Hospitality’s discovery that such Apple Hospitality shares have been transferred to the charitable trust; and |
● | recast such vote in accordance with the desires of the trustee acting for the benefit of the trust’s charitable beneficiary. |
However, if Apple Hospitality has already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast such vote.
Within 20 days of receiving notice from Apple Hospitality that Apple Hospitality shares have been transferred to the charitable trust, and unless Apple Hospitality buys the Apple Hospitality shares first as described below, the trustee will sell the Apple Hospitality shares held in the charitable trust to a person, designated by the trustee, whose ownership of the Apple Hospitality shares will not violate the share ownership limits in Apple Hospitality’s articles of incorporation. Upon the sale, the interest of the charitable beneficiary in the Apple Hospitality shares sold will terminate and the trustee will distribute the net proceeds of the sale to the prohibited owner and to the charitable beneficiary. The prohibited owner will receive the lesser of:
● | the price paid by the prohibited owner for the Apple Hospitality shares or, if the prohibited owner did not give value for the Apple Hospitality shares in connection with the event causing the Apple Hospitality shares to be held in the charitable trust (for example, in the case of a gift or devise), the market price of the Apple Hospitality shares on the day of the event causing the Apple Hospitality shares to be held in the charitable trust; and |
● | the price per Apple Hospitality share received by the trustee from the sale or other disposition of the Apple Hospitality shares held in the charitable trust (less any commission and other expenses of a sale). |
The trustee may reduce the amount payable to the prohibited owner by the amount of dividends and distributions paid to the prohibited owner and owed by the prohibited owner to the trustee. Any net sale proceeds in excess of the amount payable to the prohibited owner will be paid immediately to the charitable beneficiary. If, before Apple Hospitality’s discovery that its shares have been transferred to the charitable trust, such Apple Hospitality shares are sold by a prohibited owner, then:
● | such Apple Hospitality shares will be deemed to have been sold on behalf of the charitable trust; and |
● | to the extent that the prohibited owner received an amount for such Apple Hospitality shares that exceeds the amount that the prohibited owner was entitled to receive as described above, the excess must be paid to the trustee upon demand. |
In addition, Apple Hospitality shares held in the charitable trust will be deemed to have been offered for sale to Apple Hospitality, or Apple Hospitality’s designee, at a price per share equal to the lesser of:
● | the price per share in the transaction that resulted in such transfer to the charitable trust (or, in the case of a gift or devise, the market price at the time of the gift or devise); and |
● | the market price on the date Apple Hospitality, or Apple Hospitality’s designee, accepts such offer. |
Apple Hospitality may reduce the amount payable to the prohibited owner by the amount of dividends and distributions paid to the prohibited owner and owed by the prohibited owner to the trustee. Apple Hospitality may pay the amount of such reduction to the trustee for the benefit of the charitable beneficiary. Apple Hospitality will have the right to accept the offer until the trustee has sold the Apple Hospitality shares held in the charitable trust. Upon such a sale to Apple Hospitality, the interest of the charitable beneficiary in the Apple Hospitality shares sold will terminate and the trustee will distribute the net proceeds of the sale to the prohibited owner and any dividends or other distributions held by the trustee will be paid to the charitable beneficiary.
All certificates representing Apple Hospitality shares will bear a legend referring to the restrictions described above.
Every Apple Hospitality shareholder of record of more than 5% (or such lower percentage as required by the Code or the regulations promulgated thereunder) in value of the outstanding Apple Hospitality shares will be required to give written notice to Apple Hospitality within 30 days after the end of each taxable year stating the name and address of each actual owner, the number of shares of each class and series of Apple Hospitality shares that each actual owner beneficially owns and a description of the manner in which such Apple Hospitality shares are
held. Each such shareholder shall provide to Apple Hospitality such additional information as it may request in order to determine the effect, if any, of such beneficial ownership on Apple Hospitality’s status as a REIT and to ensure compliance with the ownership limitations. In addition, each Apple Hospitality shareholder shall upon demand be required to provide to Apple Hospitality such information as it may request, in good faith, in order to determine Apple Hospitality’s status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance.
These share ownership limitations could delay, deter or prevent a transaction or a change in control that might involve a premium price for holders of Apple Hospitality common shares or might otherwise be in the best interest of Apple Hospitality shareholders.
The transfer agent and registrar for Apple Hospitality common shares is American Stock Transfer & Trust Company, LLC.
On May 18, 2015, Apple Hospitality’s common shares were listed and began trading on the NYSE under the symbol “APLE.” It is a condition to the completion of the merger that the Apple Hospitality common shares issuable in connection with the merger be approved for listing on the NYSE, subject to official notice of issuance.
COMPARISON OF RIGHTS OF APPLE TEN AND APPLE HOSPITALITY SHAREHOLDERS
Apple Ten and Apple Hospitality are both Virginia corporations and, accordingly, are governed by the VSCA and by their respective articles of incorporation and bylaws.
Currently, each Apple Ten unit consists of one common share and one Series A preferred share. Series A preferred shares are not separately tradable from the common shares to which they relate. The only right associated with the Apple Ten Series A preferred shares is a priority distribution right upon the sale of Apple Ten’s assets in liquidation, dissolution or the winding up of its business. All of the Apple Ten Series B convertible preferred shares are owned of record by Glade M. Knight. Currently, all shareholders of Apple Hospitality hold common shares and there are no Apple Hospitality preferred shares issued and outstanding.
As a result of the merger, each issued and outstanding Apple Ten unit will be converted into the right to receive $1.00 in cash and 0.522 Apple Hospitality common shares (except for any units held by holders who have properly exercised, perfected and not subsequently withdrawn their appraisal rights in accordance with Article 15 of the VSCA, as described under “The Merger—Dissenters’ Rights of Appraisal” beginning on page 89, and any units held by Apple Hospitality, Acquisition Sub or any of their respective subsidiaries) and each issued and outstanding Apple Ten Series B convertible preferred share will be converted into the right to receive a number of Apple Hospitality common shares equal to 12.11423 multiplied by the unit exchange ratio and an amount in cash equal to 12.11423 multiplied by $1.00. Following the merger, all current shareholders of Apple Ten (other than those unit holders who have properly exercised, perfected and not subsequently withdrawn their appraisal rights) will hold Apple Hospitality common shares.
Certain Differences Between the Rights of Apple Ten Shareholders and Apple Hospitality Shareholders
The following is a general comparison of the material differences between the rights of the shareholders of Apple Ten and Apple Hospitality. This discussion is only a summary of certain provisions, does not purport to be a complete description of such differences, and is qualified in its entirety by reference to the VSCA and the full text of the Articles of Incorporation and bylaws of each company. See also “Description of Apple Hospitality Common Shares” beginning on page 123 and “Where You Can Find More Information and Incorporation by Reference” on page 145.
Apple Ten | Apple Hospitality | |||
Authorized Capital Stock | Apple Ten is authorized to issue 1) 400,000,000 Apple Ten common shares, no par value, and 2) 430,480,000 preferred shares, consisting of a) 400,000,000 Apple Ten Series A preferred shares, no par value, b) 480,000 Apple Ten Series B convertible preferred shares, no par value; and c) 30,000,000 additional preferred shares, no par value. | Apple Hospitality is authorized to issue 1) 800,000,000 Apple Hospitality common shares, no par value, and 2) 30,000,000 Apple Hospitality preferred shares, no par value. | ||
As of July 22, 2016, Apple Ten had 87,558,918 common shares, 87,558,918 Series A preferred shares and 480,000 Series B preferred shares issued and outstanding. | As of July 22, 2016, Apple Hospitality had 174,670,726 common shares issued and outstanding. | |||
Voting Rights | Each Apple Ten common share is entitled to cast one vote with respect to matters submitted to common shareholders, including the election or removal of directors. | Each Apple Hospitality common share is entitled to cast one vote with respect to matters submitted to common shareholders, including the election or removal of directors. |
Apple Ten | Apple Hospitality | |||
Except as otherwise required by the VSCA, the holders of Apple Ten Series A preferred shares and Apple Ten Series B convertible preferred shares are not entitled to vote, except that the affirmative vote of the holders of more than two-thirds of the outstanding Apple Ten Series A preferred shares or Apple Ten Series B convertible preferred shares, as applicable, is required for (x) the adoption of any amendment, alteration or repeal of any provision of Apple Ten’s articles of incorporation that adversely changes the preferences, limitations or relative rights of such series or the holders thereof (it being understood that an increase in the number of directors of Apple Ten is not such an adverse change) or (y) the authorization of, or the increase in the authorized number of shares of, any class of shares ranking senior to or on a parity with such series as to rights in liquidation. | ||||
Dividends | Holders of Apple Ten common shares are entitled to receive dividends when, as and if declared by the Apple Ten board out of funds legally available therefor. | Holders of Apple Hospitality common shares are entitled to receive dividends when, as and if declared by the Apple Hospitality board out of funds legally available therefor. | ||
No dividends are separately payable on the Apple Ten Series A preferred shares or Apple Ten Series B convertible preferred shares. | ||||
Distributions upon Liquidation | Each currently outstanding Apple Ten unit consists of one Apple Ten Series A preferred share and one Apple Ten common share. | Because there are no Apple Hospitality preferred shares currently outstanding, upon liquidation, all proceeds will be distributed ratably among the holders of Apple Hospitality common shares. | ||
Apple Ten | Apple Hospitality | |||
Upon the voluntary or involuntary dissolution, liquidation or winding up of Apple Ten, the holders of outstanding Apple Ten Series A preferred shares are entitled to be paid out of the net assets of Apple Ten, including its capital, a liquidation payment of $11.00 per Apple Ten Series A preferred share, reduced by the amount of any dividend payable to holders of Apple Ten common shares which the Apple Ten board finds to be other than an ordinary dividend and declares to be a special dividend, before any such payments are made to the holders of Apple Ten Series B convertible preferred shares or Apple Ten common shares. Any remaining net assets must be used to make liquidation payments first, to holders of the outstanding Apple Ten Series B convertible preferred shares in the amount of $11.00 per each Apple Ten common share into which the Apple Ten Series B convertible shares would be convertible and, thereafter, to the holders of the Apple Ten common shares and the Apple Ten Series B convertible shares on an as-if-converted basis. | ||||
Amendment of Bylaws | The bylaws may generally be amended only upon the vote of the Apple Ten shareholders entitled to exercise a majority of the voting power of Apple Ten. The Apple Ten board may propose amendments to the bylaws to the Apple Ten shareholders but, subject to certain exceptions specified in the bylaws, may not amend the bylaws without a shareholder vote. | The bylaws may generally be amended (i) by the Apple Hospitality board or (ii) upon the vote of the holders of a majority of the Apple Hospitality common shares issued and outstanding. | ||
Amendment of Articles of Incorporation | Apple Ten’s articles of incorporation may be amended from time to time upon: ● the vote of the holders of a majority of the common shares issued and outstanding; and ● the affirmative vote of more than two-thirds of the issued and outstanding Apple Ten Series A preferred shares or Apple Ten Series B convertible preferred shares, each voting as a separate voting group, as applicable, (i) if the amendment adversely changes the preferences, limitations, or relative rights of such series or the holders thereof, subject to certain exceptions, or (ii) as otherwise required by the VSCA. | Apple Hospitality’s articles of incorporation may generally be amended from time to time upon the vote of the holders of a majority of the common shares outstanding. However, provisions of Apple Hospitality’s articles of incorporation relating to the classification of the Apple Hospitality board may only be amended upon the vote of the holders of more than two-thirds of the common shares issued and outstanding. |
Apple Ten | Apple Hospitality | |||
Ownership and Transfer Limitations | The bylaws provide that no person may own or be deemed to own more than 9.8% of the issued and outstanding shares of any separate class or series. The bylaws provide that the shares subject to the purported transfer will be considered to be “excess shares.” Under the bylaws, excess shares will be deemed to have been acquired and to be held on behalf of Apple Ten. The excess shares will not be considered to be outstanding for quorum and voting purposes. The excess shares will not be entitled to receive dividends or any other distributions. Any dividends or distributions paid to a purported transferee of excess shares prior to discovery by Apple Ten in violation of its bylaws must be repaid to Apple Ten upon demand. | Subject to certain exceptions, Apple Hospitality’s articles of incorporation generally prohibit any person or entity (other than a person or entity who has been granted an exception) from directly or indirectly, beneficially or constructively, owning more than 9.8% of the aggregate of Apple Hospitality’s common shares, by value or by number of shares, whichever is more restrictive. However, Apple Hospitality’s articles of incorporation permit (but does not require) exceptions to be made for shareholders provided that the Apple Hospitality board determines that such exceptions will not jeopardize our qualification as a REIT. Shares owned by any person in excess of the foregoing limitation shall be automatically transferred to a charitable trust for the exclusive benefit of a charitable beneficiary, unless such transfer, for whatever reason, shall not prevent such person from exceeding the foregoing limitation, in which case the transfer of shares to that person shall be void ab initio. The bylaws contain similar provisions that are applicable only to those persons who did not vote in favor of amending Apple Hospitality’s articles of incorporation to include the above provisions and who were Apple Hospitality shareholders at that time. All Apple Hospitality common shares issued in connection with the merger are subject to the restrictions in Apple Hospitality’s articles of incorporation. | ||
Size of Board | The Apple Ten board shall not have less than three nor more than 15 directors. The number of directors may be established by a vote of a majority of the members of the Apple Ten board. Currently, the Apple Ten board has five directors. | The Apple Hospitality board shall not have less than three nor more than 15 directors. The number of directors may be established by a vote of a majority of the members of the Apple Hospitality board. Currently, the Apple Hospitality board has seven directors. |
Apple Ten | Apple Hospitality | |||
Special Meeting of Shareholders | Special meetings of shareholders may be called by Apple Ten’s president, by a majority of the Apple Ten board, by a majority of independent directors or by the chairman of the Apple Ten board. Additionally, subject to the provisions of Apple Ten’s bylaws, special meetings of the Apple Ten shareholders shall be called by Apple Ten’s chairman of the board, president or secretary upon the written request of Apple Ten shareholders holding not less than 10% of the eligible votes. Only matters set forth in the notice of the special meeting may be considered and acted upon at such a meeting. Virginia law and Apple Ten’s bylaws provide that any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting by unanimous written consent, if that consent describes that action, is signed by each Apple Ten shareholder entitled to vote on the matter, bearing the date of each signature, and is delivered to the secretary of Apple Ten for inclusion in the minutes or filing with Apple Ten’s corporate records. | Special meetings of shareholders may be called by Apple Hospitality’s president, by a majority of Apple Hospitality’s board, or by the chairman of Apple Hospitality’s board. Additionally, subject to the provisions of Apple Hospitality’s bylaws, special meetings of the Apple Hospitality shareholders shall be called by Apple Hospitality’s chairman of the board, president or secretary upon the written request of Apple Hospitality shareholders holding not less than 10% of the eligible votes. Only matters set forth in the notice of the special meeting may be considered and acted upon at such a meeting. Virginia law and Apple Hospitality’s bylaws provide that any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting by unanimous written consent, if that consent describes that action, is signed by each Apple Hospitality shareholder entitled to vote on the matter, bearing the date of each signature, and is delivered to the secretary of Apple Hospitality for inclusion in the minutes or filing with Apple Hospitality’s corporate records. | ||
Control Share Acquisitions | The VSCA provides that shares of a Virginia corporation acquired in a “control share acquisition” have no voting rights except to the extent approved by the affirmative vote of the holders of a majority of the shares entitled to vote on the matter, excluding “interested shares” in a Virginia corporation. “Interested shares” are shares of a corporation which any of the following persons is entitled to exercise or direct the exercise of the voting power in the election of directors: (1) an acquiring person with respect to a control share acquisition; (2) any officer of such corporation; or (3) any employee of such corporation who is also a director of the corporation. A “control share acquisition” means the direct or indirect acquisition of shares, other than in an excepted acquisition, by a person that when added to all other shares which then have voting rights and are beneficially owned by such person would cause such person to become entitled, immediately upon acquisition of such shares, to vote or direct the vote of, shares having voting power within any of the following ranges of the votes entitled to be cast in an election of directors: ● one-fifth or more but less than one-third of such votes; ● one-third or more but less than a majority of such votes; or ● a majority or more of such votes. A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses and making a “control share acquisition statement” as described in the VSCA), may compel the board of directors to call a special meeting of shareholders to be held within 50 days of the acquiring person’s request to consider the voting rights of the shares. If no request for a special meeting is made, the corporation may itself present the question at any shareholders’ meeting. |
Apple Ten | Apple Hospitality | |||
If voting rights for control shares are approved at a shareholders’ meeting and the acquiror has beneficial ownership of shares entitled to cast a majority of the votes which could be cast in an election of directors, all shareholders other than the acquiring person may be entitled to exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger or share exchange if the corporation is a party to the transaction. | ||||
Apple Ten is subject to the control share acquisition provisions of the statute. | As permitted by the VSCA, Apple Hospitality has elected pursuant to a provision in its bylaws to exempt any acquisition of its shares from the control share acquisition provisions of the statute. However, the Apple Hospitality board may further amend the bylaws to opt into the control share provisions at any time in the future. | |||
Term of Directors | Each director on the Apple Ten board is elected to serve a one-year term expiring at the next annual meeting. | Directors serving on the Apple Hospitality board are divided into three classes with staggered three-year terms. | ||
Limitation on Liability | Apple Ten’s articles of incorporation provide that no director or officer of Apple Ten shall be liable to Apple Ten or its shareholders for monetary damages, subject to any applicable conditions set forth in the VSCA and, in the case of a director, the satisfaction of all applicable requirements for indemnification. | The VSCA provides that in any proceeding brought by or in the right of a corporation or brought by or on behalf of shareholders of the corporation, the damages assessed against an officer or director arising out of a single transaction, occurrence or course of conduct may not exceed the lesser of (1) the monetary amount, including the elimination of liability, specified in the articles of incorporation or, if approved by the shareholders, in the bylaws as a limitation on or elimination of the liability of the officer or director; or (2) the greater of (a) $100,000 or (b) the amount of cash compensation received by the officer or director from the corporation during the twelve months immediately preceding the act or omission for which liability was imposed. The liability of an officer or director is not limited under the VSCA or a corporation’s articles of incorporation and bylaws if the officer or director engaged in willful misconduct or a knowing violation of the criminal law or of any federal or state securities law. |
Apple Ten | Apple Hospitality | |||
Apple Hospitality’s articles of incorporation provide that in every instance in which the VSCA permits the limitation or elimination of liability of directors or officers of a corporation to the corporation or its shareholders, the directors and officers of Apple Hospitality shall not be liable to Apple Hospitality or its shareholders. | ||||
Indemnification | Apple Ten’s articles of incorporation provide that Apple Ten shall indemnify any individual who is a present or former director or officer of Apple Ten and who is made or threatened to be made a party to a proceeding by reason of his or her service in that capacity any individual who, while a director or officer of Apple Ten, at the request of Apple Ten, serves or has served as a director, officer, partner or trustee of another corporation real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to a proceeding by reason of his or her services in that capacity against all liabilities, loss and reasonable expenses incurred on account of the proceeding; provided that the indemnified party has determined, in good faith, that the course of conduct that caused the liability or loss was in the best interests of Apple Ten, the indemnified party was acting on behalf of or performing services for Apple Ten, such liability or loss was not the result of negligence or misconduct (in the case of a non-independent director) or gross negligence or willful misconduct (in the case of an independent director), and such indemnification or agreement to hold harmless is recoverable only out of net assets and not from Apple Ten shareholders. Apple Ten will pay or reimburse reasonable legal expenses and costs incurred by an indemnified party in advance of final disposition of a proceeding if certain conditions stated in Apple Ten’s articles of incorporation are satisfied. | Apple Hospitality’s articles of incorporation provide that Apple Hospitality shall indemnify any individual who is, was or is threatened to be made a party to a civil, criminal, administrative, investigative or other proceeding (including a proceeding by or in the right of Apple Hospitality or by or on behalf of its shareholders) because such individual is or was a director or officer of Apple Hospitality or of any legal entity controlled by Apple Hospitality, or is or was a fiduciary of any employee benefit plan established at the direction of Apple Hospitality, against all liabilities and reasonable expenses incurred by him on account of the proceeding, provided that the directors of Apple Hospitality (excluding the indemnified party) determine in good faith that his course of conduct which caused the loss or liability was in the best interests of Apple Hospitality, and provided further that such liabilities and expenses were not incurred because of his willful misconduct, bad faith, reckless disregard of duties or knowing violation of the criminal law. Before any indemnification is paid, a determination shall be made that indemnification is permissible in the circumstance because the person seeking indemnification is eligible for indemnification and has met the standard of conduct set forth above. Unless a determination has been made that indemnification is not permitted, Apple Hospitality also makes advances and reimburses expenses for any such person. |
Apple Ten | Apple Hospitality | |||
Merger, Consolidation or Sale of Substantially All Assets | Apple Ten’s articles of incorporation require that, in connection with any “roll-up” transaction, an appraisal of Apple Ten’s assets be obtained from a competent independent expert. Apple Ten shareholders who vote against any roll-up transaction are to be offered by the person sponsoring the transaction the choice of (i) accepting securities of an entity that would be created or survive after the successful completion of the transaction or (ii) one of the following (a) remaining as Apple Ten shareholders and preserving their interests in Apple Ten on the same terms and conditions as previously existed or (b) receiving cash in an amount equal to the shareholder’s pro rata share of the appraised value of the net assets of Apple Ten. Apple Ten’s articles of incorporation also prohibit it from participating in certain roll-up transactions. For purposes of Apple Ten’s articles of incorporation, a “roll-up” transaction means a transaction involving the acquisition, merger, conversion or consolidation either directly or indirectly of Apple Ten and the issuance to the Apple Ten shareholders of only securities of an entity that would be created or survive after the successful completion of the transaction. | Apple Hospitality’s articles of incorporation do not contain a comparable provision. |
DESCRIPTION OF POLICIES OF APPLE HOSPITALITY
The following is a description of Apple Hospitality’s current policies with respect to investments and certain other activities. These policies have been established by the management of Apple Hospitality. These policies may be amended or waived from time to time at the discretion of the Apple Hospitality board without a vote of the Apple Hospitality shareholders. No assurance can be given that Apple Hospitality’s investment objectives will be attained. Since it entered into the Merger Agreement, Apple Hospitality’s ability to pursue and implement certain of the objectives and policies described below have been constrained by the restrictions contained in the covenants of the Merger Agreement. See “The Merger Agreement—Conduct of Business by Apple Hospitality and Acquisition Sub Pending the Merger” beginning on page 100.
Investments in Real Estate or Interests in Real Estate
Apple Hospitality’s primary business objective is to maximize shareholder value by achieving long-term growth in cash available for distributions to its shareholders. Apple Hospitality has pursued and will continue to pursue this objective through the following investment strategies:
● | thoughtful capital allocation with selective acquisitions and dispositions of primarily hotels; |
● | focusing on investments in the upscale sector of the lodging industry; |
● | broad geographic diversification of its investments; |
● | partnering with leading brands in the sector; |
● | utilizing strong experienced operators for the hotels and enhancing their performance with proactive asset management; |
● | reinvesting in the hotels to maintain their competitive advantage; and |
● | maintaining low leverage providing Apple Hospitality with financial flexibility. |
Apple Hospitality has generally acquired fee ownership of its properties, with a focus on hotels with diverse demand generators, strong brand recognition, the potential for high levels of customer satisfaction and strong operating margins. The acquisitions have been in broadly diversified markets across the United States to limit dependence on any one geographic area or demand generator. With an emphasis on upscale select service hotels, Apple Hospitality utilizes its asset management expertise to improve the quality and performance of its hotels by working with its property managers to aggressively manage room rates and cost structure by benchmarking with internal and external data, using scale to help negotiate favorable vendor contracts, partnering with industry leaders in hotel management, and franchising the hotels with leading brands and actively participating with the franchisors to strengthen the brands. To maintain its competitive advantage in each market, Apple Hospitality continually reinvests in its hotels.
Although Apple Hospitality has not yet done so, it also may participate with other entities in property ownership, through joint ventures or other types of common ownership. Apple Hospitality will only enter into joint ventures to the extent that such ventures are consistent with its goal of acquiring hotels and other income-producing real estate, which Apple Hospitality believes will provide acceptable investment returns. Equity investments may be subject to existing mortgage financing and other indebtedness that have priority over Apple Hospitality’s equity interests. Apple Hospitality has not invested in the securities of other issuers for the purpose of exercising control.
Apple Hospitality has not in the past engaged in any significant investments in mortgages, although Apple Hospitality may engage in this activity in the future.
When advisable, Apple Hospitality may incur debt in the form of purchase money obligations to the sellers of properties, or in the form of publicly or privately placed debt instruments, financing from banks, institutional investors, or other lenders, any of which may be unsecured or may be secured by mortgages or other interests in its properties. This indebtedness may be recourse, non-recourse or cross-collateralized and, if recourse, that recourse may include Apple Hospitality’s general assets and, if non-recourse, may be limited to the particular property to which
the indebtedness relates. As a general policy, Apple Hospitality seeks to obtain mortgages securing indebtedness that encumber only the particular property to which the indebtedness relates, but recourse on these loans may include all of Apple Hospitality’s assets. In addition, Apple Hospitality may invest in properties subject to existing loans secured by mortgages or similar liens on the properties, or may refinance properties acquired on a leveraged basis. Furthermore, properties may be financed or refinanced if Apple Hospitality deems it in the best interests of the Apple Hospitality shareholders because, for example, indebtedness can be incurred on favorable terms and the incurring of indebtedness is expected to improve the shareholders’ return on invested capital. As of March 31, 2016, 34 of Apple Hospitality’s properties have mortgages that are secured by the hotels.
Apple Hospitality may use the proceeds from any borrowings for working capital, to refinance existing indebtedness or to finance acquisitions, expansion, redevelopment of existing properties, development of new properties or other corporate needs. Apple Hospitality may need to borrow to make distributions (including distributions that may be required under the Code) if it does not have sufficient cash available to make those distributions. Apple Hospitality also may incur indebtedness for other purposes when, in the opinion of the Apple Hospitality board or management, it is advisable to do so.
Apple Hospitality does not have a policy limiting its ability to make loans to other persons. Subject to REIT qualification rules, Apple Hospitality may consider offering purchase money financing in connection with the sale of properties where the provision of that financing will increase the value to be received by Apple Hospitality for the property sold. Apple Hospitality may make loans to joint ventures in which it may participate in the future. Apple Hospitality has not engaged in any significant lending activities in the past nor does it intend to in the future.
Apple Hospitality is under no obligation to sell its properties. However, a sale of one or more properties may occur at any time if Apple Hospitality deems it advisable based upon current economic considerations, and the Apple Hospitality board concurs with the decision. In deciding whether to sell a property, Apple Hospitality will also take into consideration factors such as: the amount of appreciation in value, if any, to be realized; federal, state and local tax consequences; the possible risks of continued ownership; and the anticipated advantages to be gained for the shareholders from selling a property versus continuing to hold property.
Apple Hospitality does not intend to underwrite securities of other issues, including securities of Apple Ten.
The Apple Hospitality board has the authority, without further shareholder approval, to issue additional authorized Apple Hospitality common shares and Apple Hospitality preferred shares or otherwise raise capital, including through the issuance of senior securities, in any manner and on those terms and for that consideration it deems appropriate, including in exchange for property. Existing Apple Hospitality shareholders will have no preemptive right to Apple Hospitality common shares or Apple Hospitality preferred shares issued in any offering, and any offering might cause a dilution of a shareholder’s investment in Apple Hospitality. Although Apple Hospitality has no current plans to do so, other than in connection with the closing of the merger, it may in the future issue Apple Hospitality common shares in connection with acquisitions.
Apple Hospitality may, under certain circumstances, purchase Apple Hospitality common shares in the open market or in private transactions with its shareholders, if those purchases are approved by the Apple Hospitality board. Any such action would only be taken in conformity with applicable federal and state laws and the applicable requirements for qualifying as a REIT.
Apple Hospitality plans to continue to pay a consistent distribution on a monthly basis, with distributions based on anticipated cash generated from operations. The anticipated initial annual distribution rate after the merger is expected to be $1.20 per Apple Hospitality common share. As it has done historically, due to seasonality, Apple Hospitality may use financing, including its credit facility, to maintain the consistency of the monthly distribution rate, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. Any distribution is subject to approval of the Apple Hospitality board and there can be no assurance of the classification
or duration of distributions at the anticipated initial annual distribution rate after the merger. The Apple Hospitality board monitors the company’s distribution rate relative to the performance of its hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of Apple Hospitality.
Changes in Objectives and Policies
The objectives and policies may be amended or waived at the discretion of the Apple Hospitality board without a vote of the Apple Hospitality shareholders. Apple Hospitality has no present intention to modify any of these objectives and policies, and it is anticipated that any modification would occur only if business and economic factors affecting Apple Hospitality make its stated objectives and policies unworkable or imprudent.
INVESTMENT OBJECTIVES AND POLICIES OF APPLE TEN
The following is a description of Apple Ten’s current policies with respect to investments and certain other activities. These policies have been established by the management of Apple Ten. These policies may be amended or waived from time to time at the discretion of the Apple Ten board without a vote of the Apple Ten shareholders. No assurance can be given that Apple Ten’s investment objectives will be attained. Since it entered into the Merger Agreement, Apple Ten’s ability to pursue and implement certain of the objectives and policies described below has been constrained by the restrictions contained in certain covenants of the Merger Agreement. See “The Merger Agreement—Conduct of Business by Apple Ten Pending the Merger” beginning on page 98 for more information.
Investments in Real Estate or Interests in Real Estate
Apple Ten’s primary business objective is to maximize shareholder value by achieving long-term growth in cash distributions to its shareholders. During its acquisition phase, Apple Ten pursued this objective by acquiring or investing in hotels and other income-producing real estate in metropolitan areas throughout the United States for long-term ownership. Apple Ten generally acquired fee ownership of its properties. In particular, Apple Ten’s strategy including purchasing underdeveloped hotels and hotels in underdeveloped markets with strong brand recognition, diverse demand generators, and the potential for high levels of customer satisfaction, strong operating margins and cash flow growth.
Apple Ten substantially completed its acquisition phase in 2015. Its current investment policy/strategy is to enhance shareholder value by increasing funds from operations and cash available for distributions through internal growth and selective hotel renovation. This includes utilizing Apple Ten’s asset management expertise to improve the quality and performance of Apple Ten’s hotels by working with property managers to aggressively manage room rates and cost structure by benchmarking with internal and external data, using scale to help negotiate favorable vendor contracts, partnering with industry leaders in hotel management, and franchising the hotels with leading brands and actively participating with the franchisors to strengthen the brands. Apple Ten also strategically renovates its properties to increase its ability to compete in particular markets. Although there are many factors that influence profitability, including national and local economic conditions, Apple Ten believes the strong asset management of its portfolio will improve financial results over the long-term, although there can be no assurance of these results.
Borrowing Policies
Apple Ten purchased its properties using cash from the proceeds of its best-efforts offering completed in July 2014, assumed mortgage debt and borrowings under its unsecured credit facility. When advisable, Apple Ten has incurred medium or long-term debt secured by its properties and borrowed funds under its unsecured credit facility. Apple Ten may find it necessary in the future to incur additional debt secured by its properties or to borrow additional funds under its credit facility in order to fund acquisitions, hotel renovations and other capital expenditures, working capital and other general corporate funding purposes, including the funding of redemptions and the payment of distributions. Furthermore, properties may be financed or refinanced if the Apple Ten board deems it in the best interests of the Apple Ten shareholders because, for example, indebtedness can be incurred on favorable terms and the incurring of indebtedness is expected to improve the shareholders’ cash return on invested capital.
Loans obtained by Apple Ten may be evidenced by promissory notes secured by mortgages on its properties. As a general policy, Apple Ten seeks to obtain mortgages securing indebtedness which encumber only the particular property to which the indebtedness relates, but recourse on these loans may include all of Apple Ten’s assets. If recourse on any loan incurred by Apple Ten to acquire or refinance any particular property includes all of its assets, the equity in other properties could be reduced or eliminated through foreclosure on that loan. As of March 31, 2016, 12 of Apple Ten’s properties have mortgages that are secured by the hotels.
The Apple Ten bylaws prohibit Apple Ten from incurring debt if the debt would result in aggregate debt exceeding 100% of ���Net Assets,” defined generally to mean assets at cost, before subtracting liabilities, unless the
excess borrowing is approved by a majority of the directors and disclosed to the shareholders as required by the bylaws. The bylaws also prohibit Apple Ten from allowing aggregate borrowings to exceed 50% of its “Adjusted Net Asset Value,” defined generally to mean assets at fair market value, before subtracting liabilities, subject to the same exception described in the previous sentence. In addition, the bylaws provide that the aggregate borrowings must be reasonable in relation to Apple Ten’s Net Assets and must be reviewed quarterly by its directors. Subject to the limitations on the permitted maximum amount of debt, there is no limitation on the number of mortgages or deeds of trust which may be placed against any particular property.
Assuming its directors approve, Apple Ten may borrow in excess of the debt limitations described in the previous paragraph in order to acquire a portfolio of properties.
Apple Ten is under no obligation to sell its properties. However, a sale of one or more properties may occur at any time if Apple Ten deems it advisable based upon current economic considerations, and the Apple Ten board concurs with the decision. In deciding whether to sell a property, Apple Ten will also take into consideration factors such as: the amount of appreciation in value, if any, to be realized; federal, state and local tax consequences; the possible risks of continued ownership; and the anticipated advantages to be gained for the shareholders from selling a property versus continuing to hold property.
Restrictions on Real Estate Activities
The Apple Ten bylaws place certain restrictions on the type of real estate activities Apple Ten conducts. Specifically, Apple Ten’s bylaws state that it will not:
● | invest more than 10% of its total assets in unimproved real property or mortgage loans on unimproved real property; |
● | invest in or make mortgage loans on property unless Apple Ten obtains a mortgagee’s or owner’s title insurance policy or commitment as to the priority of the mortgage or the condition of the title; |
● | invest in contracts for the sale of real estate unless they are recordable in the chain of title; |
● | make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans outstanding on the property (at the time Apple Ten makes or invests in its mortgage loan), including Apple Ten’s loans, would exceed 85% of the appraised value of the property; |
● | make or invest in junior mortgage loans, provided that this and the limitation described in the preceding bullet will not apply to Apple Ten taking back secured debt in connection with the sale of any property; or |
● | invest in single-family residential homes, condominiums, secondary homes, gaming facilities or mobile home parks. |
PRINCIPAL AND MANAGEMENT SHAREHOLDERS OF APPLE TEN
Title of Class (1) | Name of Beneficial Owner | Amount and Nature of Beneficial Ownership (2) | Percent of Class | ||||||||
Common Shares | David J. Adams | 83,488 | * | ||||||||
Kent W. Colton | 90,087 | * | |||||||||
R. Garnett Hall, Jr. | 90,087 | * | |||||||||
Anthony F. Keating, III | 90,087 | * | |||||||||
Glade M. Knight | 145,466 | (3) | * | ||||||||
Justin G. Knight | 804 | * | |||||||||
Above directors and executive officers as a group | 500,019 | * |
Title of Class (1) | Name of Beneficial Owner | Amount and Nature of Beneficial Ownership (2) | Percent of Class | |||||||
Series A Preferred Shares | David J. Adams | 83,488 | * | |||||||
Kent W. Colton | 90,087 | * | ||||||||
R. Garnett Hall, Jr. | 90,087 | * | ||||||||
Anthony F. Keating, III | 90,087 | * | ||||||||
Glade M. Knight | 145,466 | (3) | * | |||||||
Justin G. Knight | 804 | * | ||||||||
Above directors and executive officers as a group | 500,019 | * |
Title of Class (1) | Name of Beneficial Owner | Amount and Nature of Beneficial Ownership (2) | Percent of Class | |||||||
Series B Convertible Preferred Shares | Glade M. Knight | 480,000 | 100 | % |
* | Less than 1% |
(1) | Directors and executive officers not listed above for a particular class of securities hold no securities of such class. The Series A preferred shares of Apple Ten have no voting rights and are not separately tradable from the Apple Ten common shares to which they relate. |
(2) | Amounts shown for individuals consist entirely of securities that may be acquired upon the exercise of Apple Ten options (other than Glade M. Knight and Justin G. Knight, who do not have options) although no options have been exercised to date. The Apple Ten Series B convertible preferred shares are convertible into Apple Ten common shares upon the occurrence of certain events, under a formula which is based on the gross proceeds raised by Apple Ten during its best-efforts offering of Apple Ten units. As described under “The Merger—Interests of Apple REIT Directors and Executive Officers in the Merger—Conversion of Series B Convertible Preferred Shares” on page 86, Glade M. Knight has agreed to assign to certain Apple Ten executive officers, family members and other employees, the benefits (if any) associated with a total of 179,009 Apple Ten Series B convertible preferred shares. Such benefits include the right of conversion upon the happening of the following events: (1) substantially all of Apple Ten’s assets, shares or business is sold or transferred |
through exchange, merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of Apple Ten; or (2) the termination or expiration without renewal of the advisory agreement with Apple Ten Advisors or if Apple Ten ceases to use Apple Realty Group to provide property acquisition and disposition services; or (3) the Apple Ten common shares are listed on any securities exchange or quotation system or in any established market. The assignees do not have any voting or disposal rights with respect to the Apple Ten Series B convertible preferred shares unless and until one of the foregoing events occurs, and the merger will trigger the right of conversion. The number of Glade M. Knight’s Series B convertible preferred shares whose benefits were assigned to the Apple Ten executive officers are as follows: David McKenney (30,090); Justin Knight (30,090); Kristian Gathright (30,090); Bryan Peery (15,045); and David Buckley (15,045). See “The Merger—Interests of Apple REIT Directors and Executive Officers in the Merger—Conversion of Series B Convertible Preferred Shares” for additional information regarding the shares whose benefits were assigned. | |
(3) | Includes 54,546 shares held by Kathleen Knight, the wife of Glade M. Knight. |
The consolidated financial statements of Apple Hospitality REIT, Inc. appearing in Apple Hospitality REIT, Inc.’s Annual Report (Form 10-K) for the year ended December 31, 2015 (including the schedule appearing therein), and the effectiveness of Apple Hospitality REIT, Inc.’s internal control over financial reporting as of December 31, 2015, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Apple REIT Ten, Inc. appearing in Apple REIT Ten, Inc.’s Annual Report (Form 10-K) for the year ended December 31, 2015 (including the schedule appearing therein), and the effectiveness of Apple REIT Ten, Inc.’s internal control over financial reporting as of December 31, 2015 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
The validity of the Apple Hospitality common shares to be issued in the merger will be passed upon by Hogan Lovells US LLP. It is a condition to the merger that Apple Hospitality and Apple Ten receive opinions from Hogan Lovells US LLP and McGuireWoods LLP, respectively, concerning the United States federal income tax consequences of the merger.
2017 Apple Hospitality Annual Meeting of Shareholders
A date has not been set for Apple Hospitality’s 2017 annual meeting of shareholders. Any qualified Apple Hospitality shareholder who wishes to make a proposal to be acted upon next year at the 2017 annual meeting of shareholders must have submitted such proposal for inclusion in the proxy statement and proxy card to Apple Hospitality at its principal office, 814 East Main Street, Richmond, Virginia 23219, by November 29, 2016.
In addition, Apple Hospitality’s bylaws establish an advance notice procedure with regard to certain matters, including, but not limited to, shareholder proposals not included in Apple Hospitality’s proxy statement, to be brought before an annual meeting of Apple Hospitality shareholders. In general, notice must be received by the Secretary of Apple Hospitality (i) on or after February 1st and before March 1st of the year in which the meeting will be held, or (ii) not less than 60 days before the date of the meeting if the date of such meeting is earlier than May 1 or later than May 31 in such year. The notice must contain specified information concerning the matters to be brought before such meeting and concerning the shareholder proposing such matters. Therefore, assuming Apple Hospitality holds its 2017 annual meeting in May, to be presented at such Annual Meeting, a shareholder proposal must be received by Apple Hospitality on or after February 1, 2017 but no later than February 28, 2017.
2017 Apple Ten Annual Meeting of Shareholders
Apple Ten will not hold an annual meeting of shareholders in 2017 if the merger is completed because all of the issued and outstanding shares of Apple Ten will be owned by Apple Hospitality. However, if the Merger Agreement is terminated for any reason, Apple Ten expects to hold an annual meeting of shareholders in 2017. A date has not been set for Apple Ten’s 2017 annual meeting.
If Apple Ten holds an annual meeting in 2017, any qualified Apple Ten shareholder who wishes to make a proposal to be acted upon next year at the 2017 annual meeting of shareholders must have submitted such proposal for inclusion in the proxy statement and proxy card to Apple Ten at its principal office, 814 East Main Street, Richmond, Virginia 23219, by December 1, 2016.
In addition, Apple Ten’s bylaws establish an advance notice procedure with regard to certain matters, including, but not limited to, shareholder proposals not included in Apple Ten’s proxy statement, to be brought before an annual meeting of Apple Ten shareholders. In general, notice must be received by the Secretary of Apple Ten (i) on or after February 1st and before March 1st of the year in which the meeting will be held, or (ii) not less than 60 days before the date of the meeting if the date of such meeting is earlier than May 1 or later than May 31 in such year. The notice must contain specified information concerning the matters to be brought before such meeting and concerning the shareholder proposing such matters. Therefore, if Apple Ten were to hold a 2017 annual meeting in May 2017, to be presented at such Annual Meeting, a shareholder proposal must be received by Apple Ten on or after February 1, 2017 but no later than February 28, 2017.
WHERE YOU CAN FIND MORE INFORMATION AND INCORPORATION BY REFERENCE
Apple Ten and Apple Hospitality each file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information filed at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Apple Ten’s and Apple Hospitality’s SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at “http://www.sec.gov.” You also may obtain free copies of the documents filed with the SEC by Apple Ten and Apple Hospitality by going to the “Investor Information” section of Apple Ten’s and Apple Hospitality’s websites at http://www.applereitten.com and http://www.applehospitalityreit.com, respectively. Apple Ten’s and Apple Hospitality’s website addresses are provided as an inactive textual reference only. The information provided on Apple Ten’s and Apple Hospitality’s websites is not part of this joint proxy statement/prospectus, and is not incorporated by reference into this joint proxy statement/prospectus.
Apple Hospitality has filed with the SEC a registration statement on Form S-4 of which this joint proxy statement/prospectus forms a part. The registration statement registers the Apple Hospitality common shares to be issued to Apple Ten’s shareholders in the merger. The registration statement, including the exhibits and schedules thereto, contains additional information about Apple Hospitality common shares. The rules and regulations of the SEC allow Apple Hospitality and Apple Ten to omit certain information included in the registration statement from this joint proxy statement/prospectus.
The SEC allows Apple Hospitality to “incorporate by reference” into this joint proxy statement/prospectus the information it files with the SEC, which means Apple Hospitality can disclose important information to you by referring you to those documents. Information incorporated by reference is deemed to be part of this joint proxy statement/prospectus. Later information filed with the SEC will update and supersede this information.
This joint proxy statement/prospectus incorporates by reference the Apple Hospitality documents listed below (other than any portions of the documents not deemed to be filed), all of which have been previously filed by Apple Hospitality with the SEC:
● | Annual Report on Form 10-K for the year ended December 31, 2015; |
● | Quarterly Report on Form 10-Q for the quarter ended March 31, 2016; |
● | The portions of Apple Hospitality’s Definitive Proxy Statement on Schedule 14A filed with the SEC on March 29, 2016 incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 2015; |
● | Current Reports on Form 8-K filed with the SEC on January 29, 2016, February 18, 2016, March 14, 2016, April 14, 2016 (only as to Items 1.01 and 8.01), April 15, 2016, May 18, 2016, June 6, 2016, July 1, 2016, July 7, 2016 and July 13, 2016; |
● | The description of Apple Hospitality common shares included in Apple Hospitality’s Registration Statement on Form 8-A filed with the SEC on May 13, 2015 under Section 12(b) of the Exchange Act and including any additional amendment or report filed for the purpose of updating such description. |
Apple Hospitality also incorporates by reference into this joint proxy statement/prospectus additional documents that it may file with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this joint proxy statement/prospectus and prior to the dates of the Apple Ten and Apple Hospitality special meetings; provided, however that it is not incorporating any information furnished under either Item 2.02 or Item 7.01 of any Current Report on Form 8-K.
You may request a copy of these filings, at no cost, by contacting Investor Relations, Apple Hospitality REIT, Inc., 814 East Main Street, Richmond, Virginia 23219, by telephone at (804) 344-8121, or by visiting Apple Hospitality’s website, www.applehospitalityreit.com. The information contained on Apple Hospitality’s website is not part of this joint proxy statement/prospectus. The reference to Apple Hospitality’s website is intended to be an inactive textual reference only.
In addition, attached as Annex G and Annex H to this joint proxy statement/prospectus is Apple Ten’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 which are included as part of this joint proxy statement/prospectus.
MULTIPLE SHAREHOLDERS SHARING ONE ADDRESS
The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more shareholders sharing the same address by delivering a single annual report or proxy statement, as applicable, addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for shareholders and cost savings for companies.
Apple Hospitality and Apple Ten and some brokers may be householding proxy materials by delivering proxy materials to multiple shareholders who request a copy and share an address, unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker or the Apple REITs that they or we will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If at any time you no longer wish to participate in householding and would prefer to receive a separate proxy statement and annual report, please notify your broker if your shares are held in a brokerage account or, if you are a shareholder of record of Apple Hospitality or Apple Ten, notify either Apple Hospitality or Apple Ten, as applicable, by sending a written or oral request to Investor Relations at the respective Apple REIT, 814 East Main Street, Richmond, Virginia 23219, Tel. (804) 344-8121. Shareholders of Apple Hospitality or Apple Ten who share a single address, but receive multiple copies of Apple Hospitality’s or Apple Ten’s, as applicable, proxy statement, may request that in the future they receive a single copy by notifying Apple Hospitality or Apple Ten, as applicable, at the telephone and address set forth in the preceding sentences. In addition, Apple Hospitality or Apple Ten, as applicable, will promptly deliver, upon written or oral request made to the address or telephone number above, a separate copy of the proxy statement to a shareholder at a shared address to which a single copy of the documents was delivered pursuant to a prior request.
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2016 | F-4 | ||
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2015 | F-5 | ||
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the three months ended March 31, 2016 | F-6 | ||
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements | F-7 |
APPLE HOSPITALITY REIT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements reflect the financial condition and results of operations of Apple Hospitality, after giving effect to the Merger and certain transactions directly associated with the Merger. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2015 and for the three months ended March 31, 2016 give effect to the Merger and associated transactions as if they had occurred on January 1, 2015. The unaudited pro forma condensed consolidated balance sheet gives effect to the Merger and associated transactions as if they had occurred on March 31, 2016.
The unaudited pro forma condensed consolidated financial statements have been prepared by applying the acquisition method of accounting to the Merger with Apple Hospitality being treated as the acquirer in accordance with Accounting Standards Codification 805, Business Combinations. These unaudited pro forma condensed consolidated financial statements are prepared for informational purposes only and are based on assumptions and estimates considered appropriate by Apple Hospitality’s management; however, they are not necessarily indicative of what Apple Hospitality’s financial condition and results of operations actually would have been if the Merger and associated transactions had been consummated as of the dates indicated, nor do they purport to represent the consolidated financial position or results of operations for future periods.
In applying the acquisition method of accounting, the Merger consideration will be allocated to the assets acquired and liabilities assumed from Apple Ten based on their respective acquisition date fair values. The value of the total consideration of the Merger and allocation of fair values to Apple Ten’s assets acquired and liabilities assumed is based upon preliminary estimates of fair value, which is the best information available at the date of this document. A final determination of fair value and related allocation of the Merger consideration, which cannot be made prior to the completion of the Merger, will be based on the actual market price of Apple Hospitality’s common shares and the number of outstanding Apple Ten units and Series B convertible preferred shares of Apple Ten at that time. The fair value of the tangible and intangible assets and liabilities of Apple Ten that exist as of the date of completion of the Merger will be based on information at that time and additional valuation work performed. The determination of the final value of Merger consideration, the allocation of the Merger consideration, the timing of the completion of the Merger, and other changes in tangible and intangible assets and liabilities that occur prior to completion of the Merger could cause significant differences in the information presented.
Assumptions and estimates underlying the adjustments to the underlying unaudited pro forma condensed consolidated financial statements are described in the accompanying notes. The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed consolidated financial statements to give effect to pro forma events that are directly attributable to the Merger and are factually supportable. The unaudited pro forma condensed consolidated statements of operations include only pro forma adjustments that have a continuing impact, while the unaudited pro forma condensed consolidated balance sheet includes the impact of nonrecurring items such as transaction costs.
As more fully described in the notes to the unaudited pro forma condensed consolidated financial statements, certain reclassifications have been made in the unaudited pro forma condensed consolidated financial statements to conform the presentation of Apple Hospitality’s and Apple Ten’s historical financial position and operating results.
These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto of Apple Hospitality included in Apple Hospitality’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, incorporated herein by reference into this joint proxy statement/prospectus, and of Apple Ten included in Apple Ten’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, copies of which are included in Annexes G and H, respectively, to this joint proxy statement/prospectus and are incorporated herein by reference.
Apple Hospitality REIT, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 2016
(in thousands)
Apple Hospitality Historical | Apple Ten Historical | Pro Forma Adjustments | Apple Hospitality Pro Forma | |||||||||||||
Assets | ||||||||||||||||
Investment in real estate, net | $ | 3,627,296 | $ | 930,649 | $ | 320,374 | (A) | $ | 4,878,319 | |||||||
Restricted cash-furniture, fixtures and other escrows | 20,806 | 13,205 | — | 34,011 | ||||||||||||
Due from third party managers, net | 43,027 | 12,824 | — | 55,851 | ||||||||||||
Other assets, net | 31,945 | 8,722 | (272 | )(A) | 40,395 | |||||||||||
Total Assets | $ | 3,723,074 | $ | 965,400 | $ | 320,102 | $ | 5,008,576 | ||||||||
Liabilities | ||||||||||||||||
Revolving credit facility | $ | 171,900 | $ | 44,700 | $ | 104,017 | (A)(B) | $ | 320,617 | |||||||
Term loans | 421,647 | — | — | 421,647 | ||||||||||||
Mortgage debt | 427,495 | 195,843 | (2,059 | )(A) | 621,279 | |||||||||||
Accounts payable and other liabilities | 73,426 | 11,301 | (400 | )(A)(C) | 84,327 | |||||||||||
Total liabilities | 1,094,468 | 251,844 | 101,558 | 1,447,870 | ||||||||||||
Shareholders’ Equity | ||||||||||||||||
Preferred stock | — | — | — | — | ||||||||||||
Series A preferred stock | — | — | — | — | ||||||||||||
Series B preferred stock | — | 48 | (48 | )(D) | — | |||||||||||
Common stock | 3,506,514 | 862,847 | 73,053 | (D) | 4,442,414 | |||||||||||
Accumulated other comprehensive loss | (8,751 | ) | — | — | (8,751 | ) | ||||||||||
Distributions greater than net income | (869,157 | ) | (149,339 | ) | 145,539 | (E) | (872,957 | ) | ||||||||
Total Shareholders’ Equity | 2,628,606 | 713,556 | 218,544 | 3,560,706 | ||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 3,723,074 | $ | 965,400 | $ | 320,102 | $ | 5,008,576 |
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
Apple Hospitality REIT, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 2015
(in thousands, except per share data)
Apple Hospitality Historical | Apple Ten Historical | Pro Forma Adjustments | Apple Hospitality Pro Forma | |||||||||||||
Revenues: | ||||||||||||||||
Room | $ | 821,733 | $ | 241,712 | $ | — | $ | 1,063,445 | ||||||||
Other | 76,581 | 20,383 | — | 96,964 | ||||||||||||
Total revenue | 898,314 | 262,095 | — | 1,160,409 | ||||||||||||
Expenses: | ||||||||||||||||
Operating | 227,915 | 63,619 | — | 291,534 | ||||||||||||
Hotel administrative | 69,526 | 20,680 | — | 90,206 | ||||||||||||
Sales and marketing | 71,009 | 21,000 | — | 92,009 | ||||||||||||
Utilities | 32,668 | 8,753 | — | 41,421 | ||||||||||||
Repair and maintenance | 36,886 | 9,375 | — | 46,261 | ||||||||||||
Franchise fees | 38,003 | 11,330 | — | 49,333 | ||||||||||||
Management fees | 31,074 | 9,087 | — | 40,161 | ||||||||||||
Property taxes, insurance and other | 46,023 | 15,370 | — | 61,393 | ||||||||||||
Ground lease | 9,996 | 895 | — | 10,891 | ||||||||||||
General and administrative | 19,552 | 6,980 | — | (F) | 26,532 | |||||||||||
Transaction costs | 7,181 | 2,763 | — | 9,944 | ||||||||||||
Loss on impairment of depreciable real estate assets | 45,000 | — | — | 45,000 | ||||||||||||
Depreciation | 127,449 | 35,419 | (57 | )(G) | 162,811 | |||||||||||
Total expenses | 762,282 | 205,271 | (57 | ) | 967,496 | |||||||||||
Operating income | 136,032 | 56,824 | 57 | 192,913 | ||||||||||||
Interest and other expense, net | (33,132 | ) | (9,063 | ) | (890 | )(H) | (43,085 | ) | ||||||||
Gain on sale of real estate | 15,286 | — | — | 15,286 | ||||||||||||
Income before income taxes | 118,186 | 47,761 | (833 | ) | 165,114 | |||||||||||
Income tax benefit (expense) | (898 | ) | 27 | — | (871 | ) | ||||||||||
Net income | $ | 117,288 | $ | 47,788 | $ | (833 | ) | $ | 164,243 | |||||||
Basic and diluted net income per common share | $ | 0.65 | $ | 0.53 | n.a. | $ | 0.72 | |||||||||
Weighted average common shares outstanding - basic and diluted | 180,261 | 89,935 | (40,858 | )(I) | 229,338 |
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
Apple Hospitality REIT, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the three months ended March 31, 2016
(in thousands, except per share data)
Apple Hospitality Historical | Apple Ten Historical | Pro Forma Adjustments | Apple Hospitality Pro Forma | |||||||||||||
Revenues: | ||||||||||||||||
Room | $ | 206,150 | $ | 60,448 | $ | — | $ | 266,598 | ||||||||
Other | 18,337 | 5,032 | — | 23,369 | ||||||||||||
Total revenue | 224,487 | 65,480 | — | 289,967 | ||||||||||||
Expenses: | ||||||||||||||||
Operating | 56,829 | 15,872 | — | 72,701 | ||||||||||||
Hotel administrative | 18,198 | 5,501 | — | 23,699 | ||||||||||||
Sales and marketing | 18,019 | 5,414 | — | 23,433 | ||||||||||||
Utilities | 7,600 | 2,003 | — | 9,603 | ||||||||||||
Repair and maintenance | 9,084 | 2,418 | — | 11,502 | ||||||||||||
Franchise fees | 9,445 | 2,808 | — | 12,253 | ||||||||||||
Management fees | 8,037 | 2,500 | — | 10,537 | ||||||||||||
Property taxes, insurance and other | 12,452 | 4,337 | — | 16,789 | ||||||||||||
Ground lease | 2,466 | 311 | — | 2,777 | ||||||||||||
General and administrative | 4,828 | 1,846 | — | (F) | 6,674 | |||||||||||
Transaction costs | 293 | 282 | (400 | )(J) | 175 | |||||||||||
Depreciation | 33,484 | 9,329 | (488 | )(G) | 42,325 | |||||||||||
Total expenses | 180,735 | 52,621 | (888 | ) | 232,468 | |||||||||||
Operating income | 43,752 | 12,859 | 888 | 57,499 | ||||||||||||
Interest and other expense, net | (8,803 | ) | (2,756 | ) | (413 | )(H) | (11,972 | ) | ||||||||
Income before income taxes | 34,949 | 10,103 | 475 | 45,527 | ||||||||||||
Income tax expense | (263 | ) | (56 | ) | — | (319 | ) | |||||||||
Net income | $ | 34,686 | $ | 10,047 | $ | 475 | $ | 45,208 | ||||||||
Basic and diluted net income per common share | $ | 0.20 | $ | 0.11 | n.a. | $ | 0.20 | |||||||||
Weighted average common shares outstanding - basic and diluted | 174,666 | 88,324 | (39,247 | )(I) | 223,743 |
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
General
Unless otherwise specified and except for per share and per unit data, all amounts referenced in the notes to these unaudited pro forma condensed consolidated financial statements are stated in thousands.
The Apple Hospitality and Apple Ten historical amounts include the reclassification of certain balances in their respective statements of operations for the year ended December 31, 2015 to conform to the post-Merger Apple Hospitality presentation as described below:
● | Apple Hospitality’s transaction and listing costs and Apple Ten’s acquisition related costs have been reclassified as transaction costs; |
● | Apple Ten’s ground lease expense, previously classified as a component of property taxes, insurance and other, has been reclassified to ground lease expense; and |
● | Apple Ten’s investment income and interest expense, previously classified as separate components, have been reclassified to interest and other expense, net. |
Preliminary Estimated Consideration
The total preliminary estimated consideration to be paid for Apple Ten’s equity is approximately $1.0 billion and is comprised of approximately $94 million in cash and approximately $936 million based on approximately 49.1 million Apple Hospitality common shares issued to Apple Ten shareholders at $19.07 per common share (based on the number of outstanding Apple Ten units and Apple Ten Series B convertible preferred shares as of March 31, 2016 and the closing price of Apple Hospitality’s common shares on May 6, 2016). In addition, Apple Hospitality will assume all of Apple Ten’s assets and liabilities at closing. Under the Merger Agreement, each outstanding Apple Ten unit would be exchanged for combined consideration of $1.00 in cash and 0.522 Apple Hospitality common shares, and each Apple Ten Series B convertible preferred share would receive the same consideration on an as-converted basis. The actual purchase price will be computed using the closing price of Apple Hospitality’s common shares on the closing date of the Merger; therefore, the actual purchase price will fluctuate with the market price of Apple Hospitality’s common shares until the closing date of the Merger. As a result, the final purchase price could differ significantly from the current estimate, which could materially impact the pro forma financial statements.
Price per Apple Hospitality Common Share | Calculated Value of Equity Consideration | ||||||||
Closing price on May 6, 2016 | $ | 19.07 | $ | 935,900 | |||||
Decrease of 10% | $ | 17.16 | $ | 842,163 | |||||
Increase of 10% | $ | 20.98 | $ | 1,029,637 |
Balance Sheet
(A) Represents adjustments to record the assets and liabilities of Apple Ten at their preliminary fair value estimates as of March 31, 2016. A preliminary estimated purchase price allocation was performed using the estimated value of total consideration to be paid by Apple Hospitality as described above. The final allocation will be based upon valuations and other analyses for which there is currently insufficient information to make a definitive allocation. Accordingly, the purchase price allocation adjustments are preliminary and have been made solely for the purpose of providing pro forma financial statements. The final purchase price allocation will be determined after the Merger is consummated and after completion of a thorough analysis to determine the fair value of Apple Ten’s tangible assets and liabilities and identifiable intangible assets and liabilities. The methodologies and significant inputs and assumptions used in deriving estimates of fair value will vary based on the nature of the tangible or intangible asset acquired or liability assumed. The fair value of land, building and improvements, furniture, fixtures and equipment, and identifiable intangible assets and liabilities will be developed based on the cost approach, market approach or income approach depending on available information and will be compared to a secondary approach when possible. The fair value of
debt will be estimated based on contractual future cash flows discounted using borrowing spreads and market interest rates that would be available to the Company at the time of the Merger for the issuance of debt with similar terms and remaining maturities. Significant inputs and assumptions associated with these approaches include estimates of future operating cash flows and discount rates based on an evaluation of both observable market data (categorized as Level 2 inputs under the fair value hierarchy) and unobservable inputs that reflect the Company’s own internal assumptions and calculations (categorized as Level 3 inputs under the fair value hierarchy). Final estimates of fair value may be significantly different from these preliminary estimates.
The following provides a summary of the adjustments to Apple Ten’s unaudited consolidated balance sheet as of March 31, 2016 to reflect the preliminary fair values by major category:
Book Value as of March 31, 2016 | Purchase Accounting Adjustments | Total Preliminary Value as of March 31, 2016 | ||||||||||
Investment in real estate, net (1) | $ | 930,649 | $ | 320,374 | $ | 1,251,023 | ||||||
Restricted cash-furniture, fixtures and other escrows (2) | 13,205 | — | 13,205 | |||||||||
Due from third party managers, net (2) | 12,824 | — | 12,824 | |||||||||
Other assets, net (2)(3) | 8,722 | (272 | ) | 8,450 | ||||||||
Revolving credit facility (4) | (44,700 | ) | (6,000 | ) | (50,700 | ) | ||||||
Mortgage debt (5) | (195,843 | ) | 2,059 | (193,784 | ) | |||||||
Accounts payable and other liabilities (2)(4) | (11,301 | ) | 200 | (11,101 | ) | |||||||
Fair value estimate of net assets acquired (total estimated consideration given) | $ | 1,029,917 |
(1) The preliminary fair value of Apple Ten’s real estate investments as of March 31, 2016 was estimated in more detail as follows:
Land | $ | 89,823 | ||
Building & improvements | 1,111,919 | |||
Furniture, fixtures and equipment | 46,415 | |||
Franchise fees | 2,866 | |||
Total | $ | 1,251,023 |
Apple Ten’s historical accumulated depreciation has been eliminated since the assets are presented at estimated fair value.
(2) Except as noted below in Note (A)(3) and (A)(4), no adjustments were made to the historical carrying value of the other assets and liabilities of Apple Ten as the estimated fair values of these assets and liabilities were preliminarily determined to approximate their historical carrying values. These preliminary determinations were based on their short-term nature.
(3) Other assets, net has been adjusted to remove the unamortized debt issuance costs relating to Apple Ten’s revolving credit facility, which is anticipated to be paid in full at or immediately following the time of the Merger with borrowings under Apple Hospitality’s revolving credit facility.
(4) The Apple Ten revolving credit facility has been increased by $6,000, representing total estimated Merger-related costs that is assumed to be funded with borrowings from its credit facility. No fair value adjustment has been made for the credit facility as it is anticipated this facility will be paid in full at its carrying amount at or immediately following the time of the Merger with borrowings under Apple Hospitality’s revolving credit facility. Merger-related costs incurred as of March 31, 2016 totaling $200 (which are included in the total estimated Merger-related costs) has been reclassified from accounts payable and other liabilities to the revolving credit facility.
(5) The preliminary fair value of the mortgage debt was estimated by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity, credit terms, and credit characteristics of the debt obligation.
(B) Represents the cash consideration to be paid to Apple Ten shareholders of $94,017, which will be funded with borrowings under Apple Hospitality’s revolving credit facility, as well as total estimated Merger-related costs, including advisory fees paid to third parties, of $10,000 ($4,000 for Apple Hospitality and $6,000 for Apple Ten), which will be funded with borrowings under each respective company’s revolving credit facility.
Cash consideration is calculated as follows:
Cash Consideration to be Paid to Apple Ten Shareholders | ||||
Units as of 3/31/2016 | 88,202.564 | |||
Series B convertible preferred shares (on an as converted basis) | 5,814.830 | |||
Total shares eligible for cash consideration | 94,017.394 | |||
Cash paid per Unit and Series B convertible preferred share as converted | $ | 1.00 | ||
Cash consideration to be paid | $ | 94,017.394 |
(C) Represents $200 of Merger-related costs incurred by each Apple Hospitality and Apple Ten as of March 31, 2016 which has been reclassified from accounts payable and other liabilities to the revolving credit facility. These costs are included in the total estimated Merger-related costs of $10,000 ($4,000 for Apple Hospitality and $6,000 for Apple Ten), which as discussed in (B) above will be funded with borrowings under each respective company’s revolving credit facility.
(D) Represents the following:
● | Elimination of the historical balance of Apple Ten common stock and Apple Ten Series B convertible preferred stock in connection with the acquisition of Apple Ten by Apple Hospitality; and |
● | Equity consideration paid by Apple Hospitality to Apple Ten shareholders based on the Merger Agreement and outstanding Apple Ten units and Series B convertible preferred shares as of March 31, 2016. |
Pursuant to the terms of the Merger Agreement, each issued and outstanding Apple Ten unit will be converted into 0.522 Apple Hospitality common shares. The following table sets forth the calculation of the adjustments relating to the conversion of the existing Apple Ten units to Apple Hospitality common shares:
Conversion of Apple Ten Units | ||||
Units as of 3/31/2016 | 88,202.564 | |||
Unit Exchange Ratio | 0.522 | |||
Apple Hospitality common shares issued to Unit holders | 46,041.738 | |||
Estimated price per common share (1) | $ | 19.07 | ||
Total value of Apple Hospitality common shares issued (excluding Series B convertible preferred share conversion) | $ | 878,015.944 |
(1) Represents the fair value estimate of Apple Hospitality’s common shares, which is based on the closing price on May 6, 2016.
The acquisition of Apple Ten by Apple Hospitality will result in the conversion of the Series B convertible preferred shares of Apple Ten into Apple Hospitality common shares. The following table sets forth the calculation of the adjustments relating to the conversion of the Series B convertible preferred shares of Apple Ten to Apple Hospitality common shares:
Conversion of Apple Ten Series B Convertible Preferred Shares | ||||
Series B convertible preferred shares as of 3/31/2016 | 480 | |||
Series B convertible preferred share conversion formula to common shares | 12.11423 | |||
Series B convertible preferred shares (on an as converted basis) | 5,814.830 | |||
Unit Exchange Ratio | 0.522 | |||
Apple Hospitality common shares issued to Series B convertible preferred shareholders | 3,035.341 | |||
Estimated price per common share (1) | $ | 19.07 | ||
Total value of Apple Hospitality common shares issued to Series B convertible preferred shareholders | $ | 57,883.953 |
(1) Represents the fair value estimate of Apple Hospitality’s common shares, which is based on the closing price on May 6, 2016.
The following table summarizes all common share adjustments made:
Net Adjustment to Common Stock | ||||
Elimination of historical Apple Ten common stock balance | $ | (862,847 | ) | |
Conversion of existing Apple Ten units to Apple Hospitality common shares | 878,016 | |||
Conversion of Series B convertible preferred shares to Apple Hospitality common shares | 57,884 | |||
Net adjustment to common stock | $ | 73,053 |
(E) Represents the elimination of Apple Ten’s historical balance of distributions greater than net income in connection with the acquisition of Apple Ten by Apple Hospitality less an adjustment of $3,800 which represents Apple Hospitality’s remaining estimated Merger-related costs as of March 31, 2016.
Statements of Operations (year ended December 31, 2015 and three months ended March 31, 2016)
(F) The Company believes that the Merger will create an overall savings in general and administrative expense, such as costs associated with corporate reporting, accounting and legal for two companies compared to one company. However, the extent of these synergies is not certain, and therefore the Company has not incorporated any savings into the pro forma adjustments.
Also, in connection with the Merger, the advisory and related party arrangements with respect to Apple Ten and its advisors, Apple Ten Advisors, Inc. (“A10A”) and Apple Realty Group, Inc., formerly known as Apple Suites Realty Group, Inc., will terminate. Apple Hospitality has a subcontract agreement with A10A to subcontract the obligations under the advisory agreement between A10A and Apple Ten to Apple Hospitality. Apple Hospitality provides to Apple Ten the advisory services contemplated under the advisory agreement and receives a fee and is reimbursed by Apple Ten for the use of the Company’s employees and corporate office and other costs associated with the advisory agreement. Total advisory fees earned by Apple Hospitality from Apple Ten for the year ended December 31, 2015 and three months ended March 31, 2016 totaled approximately $2,473 and $608, respectively. Additionally, Apple Hospitality provides support services to Apple Ten and its advisors, who have agreed to reimburse the Company for its costs in providing these services. Total reimbursed costs received by Apple Hospitality from Apple Ten for the year ended December 31, 2015 and three months ended March 31, 2016 totaled approximately $2,832 and $767, respectively. Both the advisory fee and reimbursed costs are recorded as general and administrative expense for Apple Ten and as a reduction to general and administrative expense for Apple Hospitality, and therefore have no impact on the pro forma operating results.
Additionally, all the Series B convertible preferred shares of Apple Ten will be converted to Apple Hospitality common shares at the effective time of the Merger. As a result, an estimated expense will be recognized in the operating results of Apple Ten for the period immediately prior to the Merger in the amount of $63,651. This conversion event does not have a continuing impact on the operating results of Apple Hospitality, therefore it has not been incorporated into the Company’s pro forma adjustments.
(G) Depreciation has been adjusted to remove historical depreciation expense for Apple Ten and to recognize depreciation expense relating to the real estate assets that have been adjusted to their estimated fair values. The estimated depreciation expense was computed on a straight-line basis over the estimated useful lives of the related assets, which are 39 years for building & improvements, 7 years for furniture, fixtures and equipment, and 13 years for franchise fees.
(H) Interest and other expense, net has been adjusted primarily to reflect the additional borrowings under Apple Hospitality’s revolving credit facility required to fund the cash consideration of $94,017 to be paid to Apple Ten shareholders and the estimated Merger-related costs of $10,000 ($4,000 for Apple Hospitality and $6,000 for Apple Ten). The additional required borrowings were reduced by the amount of cash on hand for each respective period, as applicable, and the additional interest expense was calculated using the average effective interest rate in effect on Apple Hospitality’s revolving credit facility for each respective period. Additionally, interest has been adjusted to include the amortization of the fair value adjustments for assumed mortgage debt discussed in (A)(5) above and to exclude amortization of previous fair value adjustments recorded by Apple Ten. These fair value adjustments are amortized over their remaining contractual lives. As of March 31, 2016, the weighted average remaining contractual life of these loans was five years. These increases were partially offset by the elimination of amortization of debt issuance costs for Apple Ten’s revolving credit facility, which will be extinguished at or shortly after the effective time of the Merger.
(I) Weighted average common shares outstanding has been adjusted as follows:
Year Ended December 31, 2015 | Three Months Ended March 31, 2016 | |||||||
Elimination of Apple Ten historical weighted average common shares outstanding | (89,935 | ) | (88,324 | ) | ||||
Conversion of existing Apple Ten units to Apple Hospitality common shares | 46,042 | 46,042 | ||||||
Conversion of Series B convertible preferred shares to Apple Hospitality common shares | 3,035 | 3,035 | ||||||
Net adjustment to weighted average common shares outstanding | (40,858 | ) | (39,247 | ) |
Refer also to the discussion in (D) above.
(J) Represents the reversal of transaction costs related to the Merger incurred for the three months ended March 31, 2016 for Apple Hospitality and Apple Ten as these costs are directly related to the Merger and will not have a continuing impact on the operating results of Apple Hospitality.
Subsequent Events
No adjustments have been made in the unaudited pro forma condensed consolidated financial statements for the following events that occurred subsequent to March 31, 2016:
● | In April 2016, under the guidelines of Apple Ten’s Unit Redemption Program, Apple Ten redeemed approximately 0.6 million Apple Ten units in the amount of $6.8 million. In accordance with the Merger Agreement, Apple Ten announced the suspension of its Unit Redemption Program effective after the April 2016 redemptions; and |
● | On April 29, 2016, Apple Ten closed on the purchase of a newly constructed 153-room Homewood Suites hotel in Cape Canaveral, Florida that opened for business in April 2016 for a purchase price of approximately $25.2 million. Apple Ten used borrowings under its revolving credit facility to purchase the hotel. |
ARTICLE I THE MERGER | A-1 | |
Section 1.1 | The Merger | A-1 |
Section 1.2 | Closing | A-1 |
Section 1.3 | Effective Time | A-2 |
Section 1.4 | Effects of the Merger | A-2 |
Section 1.5 | Articles and By-Laws | A-2 |
Section 1.6 | Directors | A-2 |
Section 1.7 | Officers | A-2 |
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS | A-2 | |
Section 2.1 | Effect on Capital Stock. | A-2 |
Section 2.2 | Exchange Procedures. | A-3 |
Section 2.3 | Appraisal Rights | A-5 |
Section 2.4 | Further Assurances | A-5 |
ARTICLE III REPRESENTATIONS AND WARRANTIES | A-5 | |
Section 3.1 | Representations and Warranties of the Company | A-5 |
Section 3.2 | Representations and Warranties of Parent and Merger Sub | A-19 |
ARTICLE IV COVENANTS | A-29 | |
Section 4.1 | Conduct of Business by the Company | A-29 |
Section 4.2 | Conduct of Business by Parent and Merger Sub | A-31 |
Section 4.3 | Other Actions | A-32 |
Section 4.4 | Control of Other Party’s Business | A-32 |
ARTICLE V ADDITIONAL COVENANTS | A-33 | |
Section 5.1 | Preparation of the Registration Statement and the Joint Proxy Statement; Shareholder Meetings. | A-33 |
Section 5.2 | Access to Information; Confidentiality. | A-35 |
Section 5.3 | Best Efforts; Notification. | A-35 |
Section 5.4 | No Solicitation of Transactions. | A-36 |
Section 5.5 | Parent Change in Recommendation | A-39 |
Section 5.6 | Public Announcements | A-39 |
Section 5.7 | Transfer Taxes | A-39 |
Section 5.8 | Certain Transactions. | A-39 |
Section 5.9 | Indemnification of Directors, Officers, Employees or Agents of the Company. | A-39 |
Section 5.10 | Litigation | A-40 |
Section 5.11 | Section 16 Matters | A-40 |
Section 5.12 | Dividends | A-40 |
Section 5.13 | FIRPTA Certificate | A-40 |
ARTICLE VI CONDITIONS PRECEDENT | A-41 | |
Section 6.1 | Conditions to Each Party’s Obligation to Effect the Merger | A-41 |
Section 6.2 | Conditions to Obligations of Parent and Merger Sub | A-41 |
Section 6.3 | Conditions to Obligation of the Company | A-42 |
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER | A-43 | |
Section 7.1 | Termination | A-43 |
Section 7.2 | Notice of Termination | A-44 |
Section 7.3 | Effect of Termination | A-44 |
Section 7.4 | Fees and Expenses. | A-44 |
Section 7.5 | Escrow of Termination Fee. | A-46 |
Section 7.6 | Amendment; Actions | A-47 |
Section 7.7 | Extension; Waiver | A-47 |
ARTICLE VIII GENERAL PROVISIONS | A-47 | |
Section 8.1 | Nonsurvival of Representations and Warranties | A-47 |
Section 8.2 | Notices | A-47 |
Section 8.3 | Interpretation | A-48 |
Section 8.4 | Counterparts | A-48 |
Section 8.5 | Entire Agreement; No Third-Party Beneficiaries | A-48 |
Section 8.6 | Governing Law | A-48 |
Section 8.7 | Assignment | A-48 |
Section 8.8 | Enforcement | A-48 |
Section 8.9 | Incorporation | A-49 |
Section 8.10 | Non-Recourse | A-49 |
Section 8.11 | Severability | A-49 |
ARTICLE IX CERTAIN DEFINITIONS | A-49 | |
Section 9.1 | Certain Definitions | A-49 |
Section 9.2 | Other Defined Terms | A-53 |
Exhibit A | - | Voting Agreement |
Exhibit B | - | Plan of Merger |
Exhibit C | - | List of Terminated Contracts |
Exhibit D | - | Termination Agreement |
Exhibit E | - | Form of Tax Opinions |
Exhibit F | - | Form of Company REIT Opinion |
Exhibit G | - | Form of Parent REIT Opinion |
Defined Term | Section |
Agreement | Heading |
Articles of Merger | Section 1.3 |
Book-Entry Shares | Section 2.2(c)(i) |
Cash Consideration | Section 2.1(a)(i) |
Certificates | Section 2.2(c)(i) |
Closing | Section 1.2 |
Closing Date | Section 1.2 |
Code | Recitals |
Company | Heading |
Company Board | Recitals |
Company Change in Recommendation | Section 5.4(b) |
Company Change Notice | Section 5.4(e)(C) |
Company Common Shares | Section 2.1(a)(i) |
Company Franchise Agreements | Section 3.1(n)(ii) |
Company Management Agreement Documents | Section 3.1(n)(iii) |
Company Material Contracts | Section 3.1(l)(i) |
Company Properties | Section 3.1(n)(i) |
Company Recommendation | Section 5.1(b) |
Company REIT Opinion | Section 6.2(f) |
Company SEC Documents | Section 3.1(e)(i) |
Company Series B Shares | Section 2.1(a)(i) |
Company Shareholder Meeting | Section 5.1(b) |
Company Shares | Section 2.1(a)(i) |
Company Special Committee | Recitals |
Company Stock Option | Section 2.1(c) |
Company Units | Section 2.1(a)(i) |
Dissenting Shares | Section 2.3 |
Effective Time | Section 1.3 |
Encumbrances | Section 3.1(n)(i) |
Equity Equivalents | Section 4.1(e) |
ERISA | Section 3.1(w)(i) |
Exchange Act | Section 3.1(d)(iii) |
Exchange Agent | Section 2.2(a) |
Exchange Fund | Section 2.2(b) |
FCPA | Section 3.1(k)(iii) |
Fee Recipient | Section 7.5(a) |
Defined Term | Section |
Financial Statement Date | Section 3.1(f) |
Form S-4 | Section 5.1(a) |
Fractional Share Consideration | Section 2.1(a)(ii) |
GAAP | Section 3.1(e)(ii) |
Go Shop Bidder | Section 5.4(a) |
Go Shop Period End Time | Section 5.4(a) |
Go Shop Termination Fee | Section 7.4(f)(i) |
Governmental Entity | Section 3.1(d)(iii) |
Hazardous Substance | Section 3.1(m)(iv) |
Interim Period | Section 4.1 |
IRS | Section 3.1(h)(ii) |
Joint Proxy Statement | Section 5.1(a) |
Letter of Transmittal | Section 2.2(c)(i) |
Liens | Section 3.1(b) |
Merger | Recitals |
Merger Consideration | Section 2.1(a)(i) |
Merger Sub | Heading |
Mr. Knight | Recitals |
NYSE | Section 3.2(c)(iii) |
Outside Date | Section 7.1(b)(ii) |
Parent | Heading |
Parent Board | Recitals |
Parent Change in Recommendation | Section 5.5(a) |
Parent Change Notice | Section 5.5(b)(ii) |
Parent Common Shares | Section 3.2(b)(i) |
Parent Expenses | Section 7.4(f)(ii) |
Parent Preferred Shares | Section 3.2(b)(i) |
Parent Prior Contamination | Section 3.2(l)(iv) |
Parent Properties | Section 3.2(m)(i) |
Parent Recommendation | Section 5.1(c) |
Parent REIT Opinion | Section 6.3(e) |
Parent SEC Documents | Section 3.2(d)(i) |
Parent Shareholder Meeting | Section 5.1(c) |
Parent Stock Options | Section 3.2(b)(i) |
Paying Party | Section 7.5(a) |
Per Unit Cash Consideration | Section 2.1(a)(i) |
Permits | Section 3.1(k)(i) |
Plan of Merger | Section 1.1(a) |
Prior Contamination | Section 3.1(m)(iv) |
Qualified REIT Subsidiary | Section 3.1(h)(ii) |
Qualifying Income | Section 7.5(a) |
REIT | Section 3.1(h)(ii) |
Sarbanes-Oxley Act | Section 3.1(e)(i) |
SEC | Section 3.1(d)(iii) |
Securities Act | Section 3.1(e)(i) |
Series B Cash Consideration | Section 2.1(a)(i) |
Series B Stock Consideration | Section 2.1(a)(i) |
Stock Consideration | Section 2.1(a)(i) |
Surviving Corporation | Recitals |
Takeover Statute | Section 5.3(a) |
Tax Counsel | Section 5.1(d)(ii) |
Defined Term | Section |
Tax Opinion | Section 5.1(d)(ii) |
Tax Return | Section 3.1(h)(i) |
Taxable REIT Subsidiary | Section 3.1(h)(ii) |
Taxes | Section 3.1(h)(i) |
Termination Agreement | Section 5.8(a) |
Termination Date | Section 7.1 |
Termination Fee | Section 7.4(f)(iii) |
Transfer Taxes | Section 5.7 |
Unit Exchange Ratio | Section 2.1(a)(i) |
Unit Stock Consideration | Section 2.1(a)(i) |
Voting Agreement | Recitals |
VSCA | Section 1.1 |
VWAP of Parent Common Shares | Section 2.1(a)(ii) |
APPLE REIT TEN, INC. | |||
By: /s/ Glade M. Knight | |||
Name: Glade M. Knight | |||
Title: Chief Executive Officer | |||
APPLE HOSPITALITY REIT, INC. | |||
By: /s/ Justin G. Knight | |||
Name: Justin G. Knight | |||
Title: President Chief Executive Officer | |||
34 CONSOLIDATED, INC. | |||
By: /s/ Bryan Peery | |||
Name: Bryan Peery | |||
Title: President and Treasurer | |||
* | Apple Hospitality REIT, Inc. will furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request; provided, however, that Apple Hospitality REIT, Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished. |
APPLE TEN ADVISORS, INC. | |||
By: /s/ David Buckley | |||
Name: David Buckley | |||
Title: Vice President | |||
APPLE SUITES REALTY GROUP, INC. | |||
By: /s/ David Buckley | |||
Name: David Buckley | |||
Title: Vice President | |||
APPLE REIT TEN, INC. | |||
By: /s/ David Buckley | |||
Name: David Buckley | |||
Title: Executive Vice President | |||
APPLE HOSPITALITY REIT, INC. | |||
By: /s/ Bryan Peery | |||
Name: Bryan Peery | |||
Title: Executive Vice President | |||
1. | Advisory Agreement between Apple REIT Ten, Inc. and Apple Ten Advisors, Inc. dated as of December 20, 2010. |
2. | Property Acquisition/Disposition Agreement between Apple REIT Ten, Inc. and Apple Suites Realty Group, Inc. dated as of December 20, 2010. |
3. | Subcontract Agreement between Apple Hospitality REIT, Inc. (f/k/a Apple REIT Nine, Inc.) and Apple Ten Advisors, Inc. dated as of August 7, 2013. |
☒ | Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
☐ | Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
Virginia | 27-3218228 |
(State of Organization) | (I.R.S. Employer Identification Number) |
814 East Main Street Richmond, Virginia | 23219 |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ |
(Do not check if a smaller reporting company) |
Page | |||
Part I | |||
Item 1. | 3 | ||
Item 1A. | 7 | ||
Item 1B. | 21 | ||
Item 2. | 21 | ||
Item 3. | 23 | ||
Item 4. | 23 | ||
Part II | |||
Item 5. | 24 | ||
Item 6. | 28 | ||
Item 7. | 30 | ||
Item 7A. | 44 | ||
Item 8. | 45 | ||
Item 9. | 68 | ||
Item 9A. | 68 | ||
Item 9B. | 68 | ||
Part III | |||
Item 10. | 69 | ||
Item 11. | 69 | ||
Item 12. | 69 | ||
Item 13. | 69 | ||
Item 14. | 69 | ||
Part IV | |||
Item 15. | 70 | ||
73 |
Item 1. | Business |
City | State | Brand | Manager | Date Acquired | Rooms | Gross Purchase Price | ||||||||||
Tustin | CA | Fairfield Inn & Suites | Marriott | 2/5/2015 | 145 | $ | 31,000 | |||||||||
Tustin | CA | Residence Inn | Marriott | 2/5/2015 | 149 | 42,800 | ||||||||||
San Juan Capistrano | CA | Residence Inn | Marriott | 6/5/2015 | 130 | 29,200 | ||||||||||
Rosemont | IL | Hampton Inn & Suites | Raymond | 10/29/2015 | 158 | 25,400 | ||||||||||
Total | 582 | $ | 128,400 |
Item 1A. | Risk Factors |
· | an increase in supply of hotel rooms that exceeds increases in demand; |
· | competition from other hotels and lodging alternatives in the markets in which the Company operates; |
· | dependence on business and leisure travel; |
· | increases in energy costs and other travel expenses, which may affect travel patterns and reduce business and leisure travel; |
· | reduced business and leisure travel due to geo-political uncertainty, including terrorism, travel-related health concerns, including the widespread outbreak of infectious or contagious diseases in the U.S., inclement weather conditions, including natural disasters such as hurricane and earthquakes, and airline strikes or disruptions; |
· | reduced business and leisure travel due to adverse economic conditions; |
· | seasonality of the hotel industry may cause quarterly fluctuations in operating results; |
· | changes in marketing and distribution for the industry including the ability of third-party internet and other travel intermediaries to attract and retain customers; |
· | changes in hotel room demand in a local market; |
· | ability of a hotel franchise to fulfill its obligations to franchisees; |
· | brand expansion; |
· | the performance of third-party managers of the Company’s hotels; |
· | increases in operating costs, including increases in the cost of property insurance and real estate and personal property taxes, due to inflation and other factors that may not be offset by increased room rates; |
· | labor shortages and increases in the cost of labor due to government regulations surrounding wage rates, health care coverage and other benefits; |
· | changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with applicable laws and regulations; |
· | requirements for periodic capital reinvestment to repair and upgrade hotels; |
· | limited alternative uses for the hotel buildings; |
· | condemnation or uninsured losses; |
· | adverse effects of declines in national, regional and local economic and market conditions; and |
· | adverse effects of a downturn in the hospitality industry. |
Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
Number of Hotels and Guest Rooms by Brand | ||||||||
Number of | Number of | |||||||
Brand | Hotels | Rooms | ||||||
Hilton Garden Inn | 11 | 1,719 | ||||||
Hampton Inn & Suites | 10 | 1,247 | ||||||
Homewood Suites | 10 | 1,100 | ||||||
Residence Inn | 5 | 679 | ||||||
Courtyard | 5 | 643 | ||||||
Fairfield Inn & Suites | 4 | 455 | ||||||
TownePlace Suites | 4 | 387 | ||||||
Home2 Suites | 3 | 304 | ||||||
SpringHill Suites | 2 | 206 | ||||||
Marriott | 1 | 316 | ||||||
Total | 55 | 7,056 |
Number of Hotels and Guest Rooms by State | ||||||||
Number of | Number of | |||||||
State | Hotels | Rooms | ||||||
Alabama | 3 | 276 | ||||||
Arizona | 4 | 508 | ||||||
California | 4 | 566 | ||||||
Colorado | 2 | 322 | ||||||
Florida | 6 | 706 | ||||||
Illinois | 4 | 819 | ||||||
Indiana | 2 | 243 | ||||||
Iowa | 3 | 301 | ||||||
Minnesota | 1 | 120 | ||||||
Nebraska | 3 | 440 | ||||||
North Carolina | 3 | 293 | ||||||
Ohio | 1 | 110 | ||||||
Oklahoma | 3 | 345 | ||||||
South Carolina | 2 | 213 | ||||||
Tennessee | 6 | 655 | ||||||
Texas | 6 | 720 | ||||||
Virginia | 2 | 419 | ||||||
Total | 55 | 7,056 |
City | State | Brand | Date Acquired | Rooms | |||||||
Huntsville | AL | Hampton Inn & Suites | 3/14/2013 | 98 | |||||||
Huntsville | AL | Home2 Suites | 3/14/2013 | 77 | |||||||
Mobile | AL | Hampton Inn & Suites | 6/2/2011 | 101 | (1) | ||||||
Phoenix | AZ | Courtyard | 7/26/2013 | 127 | |||||||
Phoenix | AZ | Hampton Inn & Suites | 7/26/2013 | 125 | (1) | ||||||
Phoenix | AZ | Homewood Suites | 7/26/2013 | 134 | (1) | ||||||
Scottsdale | AZ | Hilton Garden Inn | 10/3/2011 | 122 | (2) | ||||||
Oceanside | CA | Courtyard | 11/28/2011 | 142 | (2) | ||||||
San Juan Capistrano | CA | Residence Inn | 6/5/2015 | 130 | (1)(2) | ||||||
Tustin | CA | Fairfield Inn & Suites | 2/5/2015 | 145 | |||||||
Tustin | CA | Residence Inn | 2/5/2015 | 149 | |||||||
Colorado Springs | CO | Hampton Inn & Suites | 11/8/2013 | 101 | (2) | ||||||
Denver | CO | Hilton Garden Inn | 3/4/2011 | 221 | (2) | ||||||
Boca Raton | FL | Hilton Garden Inn | 7/16/2012 | 149 | |||||||
Fort Lauderdale | FL | Residence Inn | 10/24/2014 | 156 | |||||||
Gainesville | FL | Hilton Garden Inn | 6/2/2011 | 104 | |||||||
Gainesville | FL | Homewood Suites | 1/27/2012 | 103 | (2) | ||||||
Pensacola | FL | TownePlace Suites | 6/2/2011 | 97 | |||||||
Tallahassee | FL | Fairfield Inn & Suites | 12/30/2011 | 97 | |||||||
Cedar Rapids | IA | Hampton Inn & Suites | 6/8/2011 | 103 | |||||||
Cedar Rapids | IA | Homewood Suites | 6/8/2011 | 95 | |||||||
Davenport | IA | Hampton Inn & Suites | 7/19/2011 | 103 | |||||||
Des Plaines | IL | Hilton Garden Inn | 9/20/2011 | 252 | (2) | ||||||
Hoffman Estates | IL | Hilton Garden Inn | 6/10/2011 | 184 | |||||||
Rosemont | IL | Hampton Inn & Suites | 10/29/2015 | 158 | |||||||
Skokie | IL | Hampton Inn & Suites | 12/19/2011 | 225 | (2) | ||||||
Merillville | IN | Hilton Garden Inn | 9/30/2011 | 124 | |||||||
South Bend | IN | Fairfield Inn & Suites | 11/1/2011 | 119 | |||||||
Maple Grove | MN | Hilton Garden Inn | 7/26/2013 | 120 | |||||||
Charlotte | NC | Fairfield Inn & Suites | 3/25/2011 | 94 | |||||||
Jacksonville | NC | Home2 Suites | 5/4/2012 | 105 | |||||||
Winston-Salem | NC | Hampton Inn & Suites | 3/15/2011 | 94 | |||||||
Omaha | NE | Hampton Inn & Suites | 7/26/2013 | 139 | |||||||
Omaha | NE | Hilton Garden Inn | 9/1/2011 | 178 | (2) | ||||||
Omaha | NE | Homewood Suites | 7/26/2013 | 123 | |||||||
Mason | OH | Hilton Garden Inn | 9/1/2011 | 110 | |||||||
Oklahoma City | OK | Hilton Garden Inn | 1/31/2014 | 155 | |||||||
Oklahoma City | OK | Homewood Suites | 1/31/2014 | 100 | |||||||
Oklahoma City (West) | OK | Homewood Suites | 7/26/2013 | 90 | |||||||
Charleston | SC | Home2 Suites | 11/10/2011 | 122 | |||||||
Columbia | SC | TownePlace Suites | 3/25/2011 | 91 | |||||||
Franklin | TN | Courtyard | 11/8/2013 | 126 | (2) | ||||||
Franklin | TN | Residence Inn | 11/8/2013 | 124 | (2) | ||||||
Knoxville | TN | Homewood Suites | 7/19/2011 | 103 | (2) | ||||||
Knoxville | TN | SpringHill Suites | 6/2/2011 | 103 | |||||||
Knoxville | TN | TownePlace Suites | 8/9/2011 | 98 | |||||||
Nashville | TN | TownePlace Suites | 1/31/2012 | 101 | |||||||
Austin/Round Rock | TX | Homewood Suites | 10/3/2011 | 115 | |||||||
Dallas | TX | Homewood Suites | 12/5/2013 | 130 | |||||||
Denton | TX | Homewood Suites | 7/26/2013 | 107 | |||||||
Houston | TX | Courtyard | 7/17/2012 | 124 | |||||||
Houston | TX | Residence Inn | 6/7/2013 | 120 | |||||||
Shenandoah | TX | Courtyard | 11/6/2014 | 124 | |||||||
Fairfax | VA | Marriott | 3/15/2013 | 316 | |||||||
Richmond | VA | SpringHill Suites | 6/2/2011 | 103 | |||||||
Total | 7,056 |
(1) Hotel is subject to ground lease. |
(2) Hotel is encumbered by mortgage. |
December 31, | ||||
2015 | ||||
Land | $ | 89,823 | ||
Building and Improvements | 871,454 | |||
Furniture, Fixtures and Equipment | 80,983 | |||
Franchise Fees | 3,682 | |||
1,045,942 | ||||
Less Accumulated Depreciation | (107,525 | ) | ||
Investment in Real Estate, net | $ | 938,417 |
Item 3. | Legal Proceedings |
Item 4. | Mine Safety Disclosures |
Item 5. | Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities |
(in millions, except per share data) | Estimates as of 12/31/15 | |||
Estimated Fair Value of Real Estate | $ | 1,262 | ||
Estimated Fair Value of Other assets and liabilities, net | 15 | |||
Estimated Fair Value of Outstanding Debt | (227 | ) | ||
Estimated Fair Value of Equity | $ | 1,050 | ||
Common shares outstanding, including conversion of Series B | ||||
Convertible Preferred Shares | 94.6 | |||
Estimated value per Share | $ | 11.10 |
· | a shareholder would be able to resell his or her shares at this estimated value; |
· | a shareholder would ultimately realize distributions per share equal to the estimated value per share upon liquidation of the Company’s assets and settlement of its liabilities or a sale of the Company (in part because estimated values do not necessarily indicate the price at which individual assets or the Company could be sold, real estate values fluctuate and change, and the estimated value may not take into account the expenses associated with such a sale); |
· | the Company’s shares would trade at a price equal to or greater than the estimated value per share if they were listed on a national securities exchange; |
· | the methodology used to estimate the value per share would be acceptable to FINRA or for compliance with requirements applicable to a trustee’s or custodian’s obligations with respect to IRAs; or |
· | any or all of the assumptions used in estimating the value per share will prove to be accurate or complete. |
· | 5 year average revenue growth – 3.3% |
· | 5 year average annual Earnings before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”) growth – 4.2% |
· | Discount rate – 9.5% |
· | Terminal capitalization rate – 8.0% |
· | Revenue multiple – 4.00 |
· | EBITDA multiple – 11.75 |
· | a change to the EBITDA annual growth rate assumption of 50 basis points would increase or decrease the per share value range by approximately $0.20 per share, all other assumptions remaining the same; |
· | a change to the discount rate assumption of 50 basis points would increase or decrease the per share value range by approximately $0.15 per share, all other assumptions remaining the same; and |
· | a change to the terminal capitalization rate of 50 basis points would increase or decrease the per share value range by approximately $0.30 per share, all other assumptions remaining the same. |
Redemption Date | Total Requested Unit Redemptions at Redemption Date | Units Redeemed | Total Redemption Requests Not Redeemed at Redemption Date | |||||||||
First Quarter 2014 | 357,013 | 242,644 | 114,369 | |||||||||
Second Quarter 2014 | 479,078 | 479,078 | 0 | |||||||||
Third Quarter 2014 | 496,839 | 496,839 | 0 | |||||||||
Fourth Quarter 2014 | 296,642 | 296,642 | 0 | |||||||||
First Quarter 2015 | 425,833 | 425,833 | 0 | |||||||||
Second Quarter 2015 | 402,201 | 402,201 | 0 | |||||||||
Third Quarter 2015 | 524,458 | 524,458 | 0 | |||||||||
Fourth Quarter 2015 | 899,680 | 899,680 | 0 |
Issuer Purchases of Equity Securities | |||||||||||||||
(a) | (b) | (c) | (d) | ||||||||||||
Period | Total Number of Units Purchased | Average Price Paid per Unit | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs | |||||||||||
October 2015 | 899,680 | $ | 10.18 | 899,680 | (1) |
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | ||||||||||
Equity compensation plans approved by security holders | 283,701 | $ | 11.00 | 1,319,208 | ||||||||
Equity compensation plans not approved by security holders | - | - | - | |||||||||
Total equity compensation plans | 283,701 | $ | 11.00 | 1,319,208 |
(1) Represents stock options granted to the Company’s directors under the Non-Employee Directors’ Stock Option Plan. |
Item 6. | Selected Financial Data |
(in thousands except per share and statistical data) | Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | |||||||||||||||
Revenues: | ||||||||||||||||||||
Room | $ | 241,712 | $ | 202,036 | $ | 144,123 | $ | 106,759 | $ | 37,911 | ||||||||||
Other | 20,383 | 17,518 | 14,793 | 10,907 | 4,180 | |||||||||||||||
Total revenue | 262,095 | 219,554 | 158,916 | 117,666 | 42,091 | |||||||||||||||
Expenses and other income: | ||||||||||||||||||||
Hotel operating expense | 143,844 | 124,361 | 90,364 | 65,948 | 23,737 | |||||||||||||||
Property taxes, insurance and other expense | 16,265 | 13,145 | 10,779 | 8,067 | 2,420 | |||||||||||||||
General and administrative expense | 6,980 | 6,403 | 5,057 | 4,408 | 3,062 | |||||||||||||||
Acquisition related costs | 2,763 | 2,018 | 6,960 | 1,582 | 11,265 | |||||||||||||||
Depreciation expense | 35,419 | 29,030 | 21,272 | 15,795 | 6,009 | |||||||||||||||
Investment income | (19 | ) | (11,863 | ) | (7,999 | ) | (247 | ) | (395 | ) | ||||||||||
Interest expense | 9,082 | 8,177 | 5,682 | 4,729 | 1,002 | |||||||||||||||
Income tax (benefit) expense | (27 | ) | 2,288 | 463 | 305 | 125 | ||||||||||||||
Total expenses and other income | 214,307 | 173,559 | 132,578 | 100,587 | 47,225 | |||||||||||||||
Net income (loss) | $ | 47,788 | $ | 45,995 | $ | 26,338 | $ | 17,079 | $ | (5,134 | ) | |||||||||
Per Share: | ||||||||||||||||||||
Net income (loss) per common share | $ | 0.53 | $ | 0.53 | $ | 0.37 | $ | 0.31 | $ | (0.18 | ) | |||||||||
Distributions paid per common share | $ | 0.825 | $ | 0.825 | $ | 0.825 | $ | 0.825 | $ | 0.756 | ||||||||||
Weighted-average common shares outstanding - basic and diluted | 89,935 | 86,242 | 72,047 | 54,888 | 29,333 | |||||||||||||||
Balance Sheet Data (at end of period): | ||||||||||||||||||||
Cash and cash equivalents | $ | - | $ | 46,341 | $ | - | $ | 146,530 | $ | 7,079 | ||||||||||
Investment in real estate, net | $ | 938,417 | $ | 839,032 | $ | 764,579 | $ | 506,689 | $ | 452,205 | ||||||||||
Energy investment | $ | - | $ | - | $ | 100,340 | $ | - | $ | - | ||||||||||
Total assets (a) | $ | 968,385 | $ | 908,106 | $ | 888,721 | $ | 667,003 | $ | 470,359 | ||||||||||
Notes payable (a) | $ | 227,287 | $ | 118,778 | $ | 195,307 | $ | 80,404 | $ | 68,773 | ||||||||||
Shareholders’ equity | $ | 727,746 | $ | 777,166 | $ | 682,772 | $ | 579,525 | $ | 395,915 | ||||||||||
Net book value per share | $ | 8.20 | $ | 8.54 | $ | 8.66 | $ | 8.92 | $ | 9.10 | ||||||||||
Other Data: | ||||||||||||||||||||
Cash Flow From (Used In): | ||||||||||||||||||||
Operating activities | $ | 83,853 | $ | 75,010 | $ | 47,462 | $ | 33,133 | $ | 821 | ||||||||||
Investing activities | $ | (124,703 | ) | $ | (497 | ) | $ | (342,057 | ) | $ | (58,606 | ) | $ | (393,640 | ) | |||||
Financing activities | $ | (5,491 | ) | $ | (28,172 | ) | $ | 148,065 | $ | 164,924 | $ | 399,774 | ||||||||
Number of hotels owned at end of period | 55 | 51 | 47 | 31 | 26 | |||||||||||||||
Average Daily Rate (ADR) (b) | $ | 127.71 | $ | 120.91 | $ | 114.61 | $ | 113.89 | $ | 110.16 | ||||||||||
Occupancy | 75.8 | % | 73.6 | % | 71.4 | % | 69.6 | % | 69.0 | % | ||||||||||
Revenue Per Available Room (RevPAR) (c) | $ | 96.77 | $ | 88.97 | $ | 81.86 | $ | 79.21 | $ | 75.96 | ||||||||||
Modified Funds From Operations Calculation (d): | ||||||||||||||||||||
Net income (loss) | $ | 47,788 | $ | 45,995 | $ | 26,338 | $ | 17,079 | $ | (5,134 | ) | |||||||||
Depreciation of real estate owned | 35,419 | 29,030 | 21,272 | 15,795 | 6,009 | |||||||||||||||
Funds from operations | 83,207 | 75,025 | 47,610 | 32,874 | 875 | |||||||||||||||
Acquisition related costs | 2,763 | 2,018 | 6,960 | 1,582 | 11,265 | |||||||||||||||
Modified funds from operations | $ | 85,970 | $ | 77,043 | $ | 54,570 | $ | 34,456 | $ | 12,140 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Number of Hotels and Guest Rooms by Brand | ||||||||
Number of | Number of | |||||||
Brand | Hotels | Rooms | ||||||
Hilton Garden Inn | 11 | 1,719 | ||||||
Hampton Inn & Suites | 10 | 1,247 | ||||||
Homewood Suites | 10 | 1,100 | ||||||
Residence Inn | 5 | 679 | ||||||
Courtyard | 5 | 643 | ||||||
Fairfield Inn & Suites | 4 | 455 | ||||||
TownePlace Suites | 4 | 387 | ||||||
Home2 Suites | 3 | 304 | ||||||
SpringHill Suites | 2 | 206 | ||||||
Marriott | 1 | 316 | ||||||
Total | 55 | 7,056 |
Number of Hotels and Guest Rooms by State | ||||||||
Number of | Number of | |||||||
State | Hotels | Rooms | ||||||
Alabama | 3 | 276 | ||||||
Arizona | 4 | 508 | ||||||
California | 4 | 566 | ||||||
Colorado | 2 | 322 | ||||||
Florida | 6 | 706 | ||||||
Illinois | 4 | 819 | ||||||
Indiana | 2 | 243 | ||||||
Iowa | 3 | 301 | ||||||
Minnesota | 1 | 120 | ||||||
Nebraska | 3 | 440 | ||||||
North Carolina | 3 | 293 | ||||||
Ohio | 1 | 110 | ||||||
Oklahoma | 3 | 345 | ||||||
South Carolina | 2 | 213 | ||||||
Tennessee | 6 | 655 | ||||||
Texas | 6 | 720 | ||||||
Virginia | 2 | 419 | ||||||
Total | 55 | 7,056 |
City | State | Brand | Manager | Date Acquired | Rooms | Gross Purchase Price | ||||||||||
Denver | CO | Hilton Garden Inn | Stonebridge | 3/4/2011 | 221 | $ | 58,500 | |||||||||
Winston-Salem | NC | Hampton Inn & Suites | McKibbon | 3/15/2011 | 94 | 11,000 | ||||||||||
Charlotte | NC | Fairfield Inn & Suites | Newport | 3/25/2011 | 94 | 10,000 | ||||||||||
Columbia | SC | TownePlace Suites | Newport | 3/25/2011 | 91 | 10,500 | ||||||||||
Mobile | AL | Hampton Inn & Suites | McKibbon | 6/2/2011 | 101 | 13,000 | ||||||||||
Gainesville | FL | Hilton Garden Inn | McKibbon | 6/2/2011 | 104 | 12,500 | ||||||||||
Pensacola | FL | TownePlace Suites | McKibbon | 6/2/2011 | 97 | 11,500 | ||||||||||
Knoxville | TN | SpringHill Suites | McKibbon | 6/2/2011 | 103 | 14,500 | ||||||||||
Richmond | VA | SpringHill Suites | McKibbon | 6/2/2011 | 103 | 11,000 | ||||||||||
Cedar Rapids | IA | Hampton Inn & Suites | Schulte | 6/8/2011 | 103 | 13,000 | ||||||||||
Cedar Rapids | IA | Homewood Suites | Schulte | 6/8/2011 | 95 | 13,000 | ||||||||||
Hoffman Estates | IL | Hilton Garden Inn | White Lodging | 6/10/2011 | 184 | 10,000 | ||||||||||
Davenport | IA | Hampton Inn & Suites | Schulte | 7/19/2011 | 103 | 13,000 | ||||||||||
Knoxville | TN | Homewood Suites | McKibbon | 7/19/2011 | 103 | 15,000 | ||||||||||
Knoxville | TN | TownePlace Suites | McKibbon | 8/9/2011 | 98 | 9,000 | ||||||||||
Mason | OH | Hilton Garden Inn | Schulte | 9/1/2011 | 110 | 14,825 | ||||||||||
Omaha | NE | Hilton Garden Inn | White Lodging | 9/1/2011 | 178 | 30,018 | ||||||||||
Des Plaines | IL | Hilton Garden Inn | Raymond | 9/20/2011 | 252 | 38,000 | ||||||||||
Merillville | IN | Hilton Garden Inn | White Lodging | 9/30/2011 | 124 | 14,825 | ||||||||||
Austin/Round Rock | TX | Homewood Suites | Vista Host | 10/3/2011 | 115 | 15,500 | ||||||||||
Scottsdale | AZ | Hilton Garden Inn | North Central | 10/3/2011 | 122 | 16,300 | ||||||||||
South Bend | IN | Fairfield Inn & Suites | White Lodging | 11/1/2011 | 119 | 17,500 | ||||||||||
Charleston | SC | Home2 Suites | LBA | 11/10/2011 | 122 | 13,908 | ||||||||||
Oceanside | CA | Courtyard | Marriott | 11/28/2011 | 142 | 30,500 | ||||||||||
Skokie | IL | Hampton Inn & Suites | Raymond | 12/19/2011 | 225 | 32,000 | ||||||||||
Tallahassee | FL | Fairfield Inn & Suites | LBA | 12/30/2011 | 97 | 9,355 | ||||||||||
Gainesville | FL | Homewood Suites | McKibbon | 1/27/2012 | 103 | 14,550 | ||||||||||
Nashville | TN | TownePlace Suites | LBA | 1/31/2012 | 101 | 9,848 | ||||||||||
Jacksonville | NC | Home2 Suites | LBA | 5/4/2012 | 105 | 12,000 | ||||||||||
Boca Raton | FL | Hilton Garden Inn | White Lodging | 7/16/2012 | 149 | 10,900 | ||||||||||
Houston | TX | Courtyard | LBA | 7/17/2012 | 124 | 14,632 | ||||||||||
Huntsville | AL | Hampton Inn & Suites | LBA | 3/14/2013 | 98 | 11,466 | ||||||||||
Huntsville | AL | Home2 Suites | LBA | 3/14/2013 | 77 | 9,009 | ||||||||||
Fairfax | VA | Marriott | White Lodging | 3/15/2013 | 316 | 34,000 | ||||||||||
Houston | TX | Residence Inn | Western | 6/7/2013 | 120 | 18,000 | ||||||||||
Denton | TX | Homewood Suites | Chartwell | 7/26/2013 | 107 | 11,300 | ||||||||||
Maple Grove | MN | Hilton Garden Inn | North Central | 7/26/2013 | 120 | 12,675 | ||||||||||
Oklahoma City (West) | OK | Homewood Suites | Chartwell | 7/26/2013 | 90 | 11,500 | ||||||||||
Omaha | NE | Hampton Inn & Suites | White Lodging | 7/26/2013 | 139 | 19,775 | ||||||||||
Omaha | NE | Homewood Suites | White Lodging | 7/26/2013 | 123 | 17,625 | ||||||||||
Phoenix | AZ | Courtyard | North Central | 7/26/2013 | 127 | 10,800 | ||||||||||
Phoenix | AZ | Hampton Inn & Suites | North Central | 7/26/2013 | 125 | 8,600 | ||||||||||
Phoenix | AZ | Homewood Suites | North Central | 7/26/2013 | 134 | 12,025 | ||||||||||
Colorado Springs | CO | Hampton Inn & Suites | Chartwell | 11/8/2013 | 101 | 11,500 | ||||||||||
Franklin | TN | Courtyard | Chartwell | 11/8/2013 | 126 | 25,500 | ||||||||||
Franklin | TN | Residence Inn | Chartwell | 11/8/2013 | 124 | 25,500 | ||||||||||
Dallas | TX | Homewood Suites | Western | 12/5/2013 | 130 | 25,350 | ||||||||||
Oklahoma City | OK | Hilton Garden Inn | Raymond | 1/31/2014 | 155 | 27,353 | ||||||||||
Oklahoma City | OK | Homewood Suites | Raymond | 1/31/2014 | 100 | 17,647 | ||||||||||
Fort Lauderdale | FL | Residence Inn | LBA | 10/24/2014 | 156 | 23,088 | ||||||||||
Shenandoah | TX | Courtyard | LBA | 11/6/2014 | 124 | 15,872 | ||||||||||
Tustin | CA | Fairfield Inn & Suites | Marriott | 2/5/2015 | 145 | 31,000 | ||||||||||
Tustin | CA | Residence Inn | Marriott | 2/5/2015 | 149 | 42,800 | ||||||||||
San Juan Capistrano | CA | Residence Inn | Marriott | 6/5/2015 | 130 | 29,200 | ||||||||||
Rosemont | IL | Hampton Inn & Suites | Raymond | 10/29/2015 | 158 | 25,400 | ||||||||||
Total | 7,056 | $ | 997,146 |
Hotel Operations
Years Ended December 31, | ||||||||||||||||||||
(in thousands, except statistical data) | 2015 | Percent of Revenue | 2014 | Percent of Revenue | Percent Change | |||||||||||||||
Total revenue | $ | 262,095 | 100 | % | $ | 219,554 | 100 | % | 19 | % | ||||||||||
Hotel operating expense | 143,844 | 55 | % | 124,361 | 57 | % | 16 | % | ||||||||||||
Property taxes, insurance and other expense | 16,265 | 6 | % | 13,145 | 6 | % | 24 | % | ||||||||||||
General and administrative expense | 6,980 | 3 | % | 6,403 | 3 | % | 9 | % | ||||||||||||
Acquisition related costs | 2,763 | 2,018 | ||||||||||||||||||
Depreciation expense | 35,419 | 29,030 | ||||||||||||||||||
Investment income | 19 | 11,863 | ||||||||||||||||||
Interest expense | 9,082 | 8,177 | ||||||||||||||||||
Income tax (benefit) expense | (27 | ) | 2,288 | |||||||||||||||||
Number of hotels | 55 | 51 | 8 | % | ||||||||||||||||
ADR | $ | 127.71 | $ | 120.91 | 6 | % | ||||||||||||||
Occupancy | 75.8 | % | 73.6 | % | 3 | % | ||||||||||||||
RevPAR | $ | 96.77 | $ | 88.97 | 9 | % |
Amount of Commitments Expiring per Period | ||||||||||||||||||||
Total | 1 Year | 2-3 Years | 4-5 Years | Over 5 Years | ||||||||||||||||
Property Purchase Commitments | $ | 25,245 | $ | 25,245 | $ | - | $ | - | $ | - | ||||||||||
Debt (including interest of $47.8 million) | 273,125 | 60,378 | 69,653 | 31,276 | 111,818 | |||||||||||||||
Ground Leases | 62,232 | 409 | 844 | 880 | 60,099 | |||||||||||||||
$ | 360,602 | $ | 86,032 | $ | 70,497 | $ | 32,156 | $ | 171,917 |
Redemption Date | Total Requested Unit Redemptions at Redemption Date | Units Redeemed | Total Redemption Requests Not Redeemed at Redemption Date | |||||||||
First Quarter 2014 | 357,013 | 242,644 | 114,369 | |||||||||
Second Quarter 2014 | 479,078 | 479,078 | 0 | |||||||||
Third Quarter 2014 | 496,839 | 496,839 | 0 | |||||||||
Fourth Quarter 2014 | 296,642 | 296,642 | 0 | |||||||||
First Quarter 2015 | 425,833 | 425,833 | 0 | |||||||||
Second Quarter 2015 | 402,201 | 402,201 | 0 | |||||||||
Third Quarter 2015 | 524,458 | 524,458 | 0 | |||||||||
Fourth Quarter 2015 | 899,680 | 899,680 | 0 |
Item 7A. | Quantitative and Qualitative Disclosure About Market Risk |
2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total | Fair Market Value | |||||||||||||||||||||||||
Maturities | $ | 50,202 | $ | 54,353 | $ | 2,511 | $ | 2,636 | $ | 17,457 | $ | 98,183 | $ | 225,342 | $ | 226,915 | ||||||||||||||||
Average interest rates | 4.8 | % | 4.7 | % | 4.9 | % | 4.9 | % | 5.0 | % | 5.0 | % |
Item 8. | Financial Statements and Supplementary Data |
/s/ Glade M. Knight | /s/ Bryan Peery | |
Glade M. Knight | Bryan Peery | |
Chairman and Chief Executive Officer (Principal Executive Officer) | Chief Financial Officer (Principal Financial and Principal Accounting Officer) |
As of December 31, | ||||||||
2015 | 2014 | |||||||
Assets | ||||||||
Investment in real estate, net of accumulated depreciation of $107,525 and $72,106, respectively | $ | 938,417 | $ | 839,032 | ||||
Cash and cash equivalents | 0 | 46,341 | ||||||
Restricted cash-furniture, fixtures and other escrows | 13,412 | 11,920 | ||||||
Due from third party managers, net | 7,329 | 5,565 | ||||||
Other assets, net | 9,227 | 5,248 | ||||||
Total Assets | $ | 968,385 | $ | 908,106 | ||||
Liabilities | ||||||||
Credit facility | $ | 30,400 | $ | 0 | ||||
Mortgage debt | 196,887 | 118,778 | ||||||
Accounts payable and other liabilities | 13,352 | 12,162 | ||||||
Total Liabilities | 240,639 | 130,940 | ||||||
Shareholders’ Equity | ||||||||
Preferred stock, authorized 30,000,000 shares; none issued and outstanding | 0 | 0 | ||||||
Series A preferred stock, no par value, authorized 400,000,000 shares; issued and outstanding 88,785,416 and 91,037,588 shares, respectively | 0 | 0 | ||||||
Series B convertible preferred stock, no par value, authorized 480,000 shares; issued and outstanding 480,000 shares | 48 | 48 | ||||||
Common stock, no par value, authorized 400,000,000 shares; issued and outstanding 88,785,416 and 91,037,588 shares, respectively | 868,852 | 891,801 | ||||||
Distributions greater than net income | (141,154 | ) | (114,683 | ) | ||||
Total Shareholders’ Equity | 727,746 | 777,166 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 968,385 | $ | 908,106 |
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Revenues: | ||||||||||||
Room | $ | 241,712 | $ | 202,036 | $ | 144,123 | ||||||
Other | 20,383 | 17,518 | 14,793 | |||||||||
Total revenue | 262,095 | 219,554 | 158,916 | |||||||||
Expenses: | ||||||||||||
Operating | 63,619 | 55,287 | 40,413 | |||||||||
Hotel administrative | 20,680 | 17,399 | 12,583 | |||||||||
Sales and marketing | 21,000 | 18,589 | 14,047 | |||||||||
Utilities | 8,753 | 8,066 | 5,698 | |||||||||
Repair and maintenance | 9,375 | 8,278 | 5,908 | |||||||||
Franchise fees | 11,330 | 9,792 | 6,708 | |||||||||
Management fees | 9,087 | 6,950 | 5,007 | |||||||||
Property taxes, insurance and other | 16,265 | 13,145 | 10,779 | |||||||||
General and administrative | 6,980 | 6,403 | 5,057 | |||||||||
Acquisition related costs | 2,763 | 2,018 | 6,960 | |||||||||
Depreciation | 35,419 | 29,030 | 21,272 | |||||||||
Total expenses | 205,271 | 174,957 | 134,432 | |||||||||
Operating income | 56,824 | 44,597 | 24,484 | |||||||||
Investment income | 19 | 11,863 | 7,999 | |||||||||
Interest expense | (9,082 | ) | (8,177 | ) | (5,682 | ) | ||||||
Income before income taxes | 47,761 | 48,283 | 26,801 | |||||||||
Income tax benefit (expense) | 27 | (2,288 | ) | (463 | ) | |||||||
Net income | $ | 47,788 | $ | 45,995 | $ | 26,338 | ||||||
Basic and diluted net income per common share | $ | 0.53 | $ | 0.53 | $ | 0.37 | ||||||
Weighted average common shares outstanding - basic and diluted | 89,935 | 86,242 | 72,047 |
Series B Convertible | Distributions | |||||||||||||||||||||||
Common Stock | Preferred Stock | Greater | ||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Amount | Than Net Income | Total | |||||||||||||||||||
Balance at December 31, 2012 | 64,984 | $ | 636,191 | 480 | $ | 48 | $ | (56,714 | ) | $ | 579,525 | |||||||||||||
Net proceeds from the issuance of common shares | 15,923 | 157,007 | 0 | 0 | 0 | 157,007 | ||||||||||||||||||
Common shares redeemed | (2,039 | ) | (20,810 | ) | 0 | 0 | 0 | (20,810 | ) | |||||||||||||||
Net income | 0 | 0 | 0 | 0 | 26,338 | 26,338 | ||||||||||||||||||
Distributions declared and paid to shareholders ($0.825 per share) | 0 | 0 | 0 | 0 | (59,288 | ) | (59,288 | ) | ||||||||||||||||
Balance at December 31, 2013 | 78,868 | 772,388 | 480 | 48 | (89,664 | ) | 682,772 | |||||||||||||||||
Net proceeds from the issuance of common shares | 13,685 | 134,960 | 0 | 0 | 0 | 134,960 | ||||||||||||||||||
Common shares redeemed | (1,515 | ) | (15,547 | ) | 0 | 0 | 0 | (15,547 | ) | |||||||||||||||
Net income | 0 | 0 | 0 | 0 | 45,995 | 45,995 | ||||||||||||||||||
Distributions declared and paid to shareholders ($0.825 per share) | 0 | 0 | 0 | 0 | (71,014 | ) | (71,014 | ) | ||||||||||||||||
Balance at December 31, 2014 | 91,038 | 891,801 | 480 | 48 | (114,683 | ) | 777,166 | |||||||||||||||||
Common shares redeemed | (2,253 | ) | (23,056 | ) | 0 | 0 | 0 | (23,056 | ) | |||||||||||||||
Other changes in equity | 0 | 107 | 0 | 0 | 0 | 107 | ||||||||||||||||||
Net income | 0 | 0 | 0 | 0 | 47,788 | 47,788 | ||||||||||||||||||
Distributions declared and paid to shareholders ($0.825 per share) | 0 | 0 | 0 | 0 | (74,259 | ) | (74,259 | ) | ||||||||||||||||
Balance at December 31, 2015 | 88,785 | $ | 868,852 | 480 | $ | 48 | $ | (141,154 | ) | $ | 727,746 |
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 47,788 | $ | 45,995 | $ | 26,338 | ||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||
Depreciation | 35,419 | 29,030 | 21,272 | |||||||||
Other non-cash expenses, net | 514 | 417 | 241 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Increase in due from third party managers, net | (1,549 | ) | (976 | ) | (1,939 | ) | ||||||
Decrease (increase) in other assets, net | (2 | ) | 395 | (725 | ) | |||||||
Increase in accounts payable and other liabilities | 1,683 | 149 | 2,275 | |||||||||
Net cash provided by operating activities | 83,853 | 75,010 | 47,462 | |||||||||
Cash flows from investing activities: | ||||||||||||
Redemption of (cash paid for) energy investment | 0 | 100,000 | (100,000 | ) | ||||||||
Acquisition of hotel properties, net | (110,938 | ) | (79,177 | ) | (232,400 | ) | ||||||
Deposits and other disbursements for potential acquisitions | 0 | (602 | ) | (3,591 | ) | |||||||
Capital improvements | (13,475 | ) | (19,555 | ) | (8,527 | ) | ||||||
Decrease (increase) in capital improvement reserves | (290 | ) | (1,163 | ) | 3,911 | |||||||
Investment in other assets | 0 | 0 | (1,450 | ) | ||||||||
Net cash used in investing activities | (124,703 | ) | (497 | ) | (342,057 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Net proceeds related to issuance of Units | 0 | 134,818 | 156,957 | |||||||||
Redemptions of Units | (23,056 | ) | (15,547 | ) | (20,810 | ) | ||||||
Distributions paid to common shareholders | (74,259 | ) | (71,014 | ) | (59,288 | ) | ||||||
Net proceeds from (payments on) credit facility | 30,400 | (74,039 | ) | 74,039 | ||||||||
Proceeds from mortgage debt | 71,850 | 0 | 0 | |||||||||
Payments of mortgage debt | (9,256 | ) | (2,137 | ) | (1,585 | ) | ||||||
Financing costs | (1,170 | ) | (253 | ) | (1,248 | ) | ||||||
Net cash provided by (used in) financing activities | (5,491 | ) | (28,172 | ) | 148,065 | |||||||
Increase (decrease) in cash and cash equivalents | (46,341 | ) | 46,341 | (146,530 | ) | |||||||
Cash and cash equivalents, beginning of period | 46,341 | 0 | 146,530 | |||||||||
Cash and cash equivalents, end of period | $ | 0 | $ | 46,341 | $ | 0 | ||||||
Supplemental cash flow information: | ||||||||||||
Interest paid | $ | 9,314 | $ | 8,778 | $ | 5,514 | ||||||
Income taxes paid | $ | 82 | $ | 3,666 | $ | 352 | ||||||
Supplemental disclosure of noncash investing and financing activities: | ||||||||||||
Notes payable assumed in acquisitions | $ | 16,569 | $ | 0 | $ | 38,723 |
December 31, | December 31, | |||||||
2015 | 2014 | |||||||
Land | $ | 89,823 | $ | 77,943 | ||||
Building and Improvements | 871,454 | 762,134 | ||||||
Furniture, Fixtures and Equipment | 80,983 | 67,529 | ||||||
Franchise Fees | 3,682 | 3,532 | ||||||
1,045,942 | 911,138 | |||||||
Less Accumulated Depreciation | (107,525 | ) | (72,106 | ) | ||||
Investment in Real Estate, net | $ | 938,417 | $ | 839,032 |
Number of Hotels and Guest Rooms by Brand | ||||||||
Number of | Number of | |||||||
Brand | Hotels | Rooms | ||||||
Hilton Garden Inn | 11 | 1,719 | ||||||
Hampton Inn & Suites | 10 | 1,247 | ||||||
Homewood Suites | 10 | 1,100 | ||||||
Residence Inn | 5 | 679 | ||||||
Courtyard | 5 | 643 | ||||||
Fairfield Inn & Suites | 4 | 455 | ||||||
TownePlace Suites | 4 | 387 | ||||||
Home2 Suites | 3 | 304 | ||||||
SpringHill Suites | 2 | 206 | ||||||
Marriott | 1 | 316 | ||||||
Total | 55 | 7,056 |
City | State | Brand | Manager | Date Acquired | Rooms | Gross Purchase Price | ||||||||||
Denver | CO | Hilton Garden Inn | Stonebridge | 3/4/2011 | 221 | $ | 58,500 | |||||||||
Winston-Salem | NC | Hampton Inn & Suites | McKibbon | 3/15/2011 | 94 | 11,000 | ||||||||||
Charlotte | NC | Fairfield Inn & Suites | Newport | 3/25/2011 | 94 | 10,000 | ||||||||||
Columbia | SC | TownePlace Suites | Newport | 3/25/2011 | 91 | 10,500 | ||||||||||
Mobile | AL | Hampton Inn & Suites | McKibbon | 6/2/2011 | 101 | 13,000 | ||||||||||
Gainesville | FL | Hilton Garden Inn | McKibbon | 6/2/2011 | 104 | 12,500 | ||||||||||
Pensacola | FL | TownePlace Suites | McKibbon | 6/2/2011 | 97 | 11,500 | ||||||||||
Knoxville | TN | SpringHill Suites | McKibbon | 6/2/2011 | 103 | 14,500 | ||||||||||
Richmond | VA | SpringHill Suites | McKibbon | 6/2/2011 | 103 | 11,000 | ||||||||||
Cedar Rapids | IA | Hampton Inn & Suites | Schulte | 6/8/2011 | 103 | 13,000 | ||||||||||
Cedar Rapids | IA | Homewood Suites | Schulte | 6/8/2011 | 95 | 13,000 | ||||||||||
Hoffman Estates | IL | Hilton Garden Inn | White Lodging | 6/10/2011 | 184 | 10,000 | ||||||||||
Davenport | IA | Hampton Inn & Suites | Schulte | 7/19/2011 | 103 | 13,000 | ||||||||||
Knoxville | TN | Homewood Suites | McKibbon | 7/19/2011 | 103 | 15,000 | ||||||||||
Knoxville | TN | TownePlace Suites | McKibbon | 8/9/2011 | 98 | 9,000 | ||||||||||
Mason | OH | Hilton Garden Inn | Schulte | 9/1/2011 | 110 | 14,825 | ||||||||||
Omaha | NE | Hilton Garden Inn | White Lodging | 9/1/2011 | 178 | 30,018 | ||||||||||
Des Plaines | IL | Hilton Garden Inn | Raymond | 9/20/2011 | 252 | 38,000 | ||||||||||
Merillville | IN | Hilton Garden Inn | White Lodging | 9/30/2011 | 124 | 14,825 | ||||||||||
Austin/Round Rock | TX | Homewood Suites | Vista Host | 10/3/2011 | 115 | 15,500 | ||||||||||
Scottsdale | AZ | Hilton Garden Inn | North Central | 10/3/2011 | 122 | 16,300 | ||||||||||
South Bend | IN | Fairfield Inn & Suites | White Lodging | 11/1/2011 | 119 | 17,500 | ||||||||||
Charleston | SC | Home2 Suites | LBA | 11/10/2011 | 122 | 13,908 | ||||||||||
Oceanside | CA | Courtyard | Marriott | 11/28/2011 | 142 | 30,500 | ||||||||||
Skokie | IL | Hampton Inn & Suites | Raymond | 12/19/2011 | 225 | 32,000 | ||||||||||
Tallahassee | FL | Fairfield Inn & Suites | LBA | 12/30/2011 | 97 | 9,355 | ||||||||||
Gainesville | FL | Homewood Suites | McKibbon | 1/27/2012 | 103 | 14,550 | ||||||||||
Nashville | TN | TownePlace Suites | LBA | 1/31/2012 | 101 | 9,848 | ||||||||||
Jacksonville | NC | Home2 Suites | LBA | 5/4/2012 | 105 | 12,000 | ||||||||||
Boca Raton | FL | Hilton Garden Inn | White Lodging | 7/16/2012 | 149 | 10,900 | ||||||||||
Houston | TX | Courtyard | LBA | 7/17/2012 | 124 | 14,632 | ||||||||||
Huntsville | AL | Hampton Inn & Suites | LBA | 3/14/2013 | 98 | 11,466 | ||||||||||
Huntsville | AL | Home2 Suites | LBA | 3/14/2013 | 77 | 9,009 | ||||||||||
Fairfax | VA | Marriott | White Lodging | 3/15/2013 | 316 | 34,000 |
City | State | Brand | Manager | Date Acquired | Rooms | Gross Purchase Price | ||||||||||
Houston | TX | Residence Inn | Western | 6/7/2013 | 120 | $ | 18,000 | |||||||||
Denton | TX | Homewood Suites | Chartwell | 7/26/2013 | 107 | 11,300 | ||||||||||
Maple Grove | MN | Hilton Garden Inn | North Central | 7/26/2013 | 120 | 12,675 | ||||||||||
Oklahoma City (West) | OK | Homewood Suites | Chartwell | 7/26/2013 | 90 | 11,500 | ||||||||||
Omaha | NE | Hampton Inn & Suites | White Lodging | 7/26/2013 | 139 | 19,775 | ||||||||||
Omaha | NE | Homewood Suites | White Lodging | 7/26/2013 | 123 | 17,625 | ||||||||||
Phoenix | AZ | Courtyard | North Central | 7/26/2013 | 127 | 10,800 | ||||||||||
Phoenix | AZ | Hampton Inn & Suites | North Central | 7/26/2013 | 125 | 8,600 | ||||||||||
Phoenix | AZ | Homewood Suites | North Central | 7/26/2013 | 134 | 12,025 | ||||||||||
Colorado Springs | CO | Hampton Inn & Suites | Chartwell | 11/8/2013 | 101 | 11,500 | ||||||||||
Franklin | TN | Courtyard | Chartwell | 11/8/2013 | 126 | 25,500 | ||||||||||
Franklin | TN | Residence Inn | Chartwell | 11/8/2013 | 124 | 25,500 | ||||||||||
Dallas | TX | Homewood Suites | Western | 12/5/2013 | 130 | 25,350 | ||||||||||
Oklahoma City | OK | Hilton Garden Inn | Raymond | 1/31/2014 | 155 | 27,353 | ||||||||||
Oklahoma City | OK | Homewood Suites | Raymond | 1/31/2014 | 100 | 17,647 | ||||||||||
Fort Lauderdale | FL | Residence Inn | LBA | 10/24/2014 | 156 | 23,088 | ||||||||||
Shenandoah | TX | Courtyard | LBA | 11/6/2014 | 124 | 15,872 | ||||||||||
Tustin | CA | Fairfield Inn & Suites | Marriott | 2/5/2015 | 145 | 31,000 | ||||||||||
Tustin | CA | Residence Inn | Marriott | 2/5/2015 | 149 | 42,800 | ||||||||||
San Juan Capistrano | CA | Residence Inn | Marriott | 6/5/2015 | 130 | 29,200 | ||||||||||
Rosemont | IL | Hampton Inn & Suites | Raymond | 10/29/2015 | 158 | 25,400 | ||||||||||
Total | 7,056 | $ | 997,146 |
· | Minimum Net Worth shall not be less than $580 million; |
· | Total Indebtedness to Total Asset Value must not exceed 50%; |
· | Total Secured Indebtedness to Total Asset Value must not exceed 30%; |
· | Ratio of Adjusted Net Operating Income to Fixed Charges for the four trailing quarters must equal or exceed two; |
· | Ratio of Adjusted Net Operating Income attributable to Unencumbered Hotels to Implied Debt Service for the four trailing quarters must equal or exceed two; |
· | Distributions cannot exceed $0.825 per share per year, and effective in 2016 limits distributions to 100% of Funds from Operations during any fiscal year, unless the Company is required to distribute more to meet REIT requirements; |
· | Additional Unsecured Indebtedness (other than this credit facility) shall not exceed $2.5 million; and |
· | Unencumbered Leverage Ratio must be less than 45%. |
Location | Brand | Interest Rate (1) | Loan Assumption or Origination Date | Maturity Date | Principal Assumed or Originated | Outstanding balance as of December 31, 2015 | Outstanding balance as of December 31, 2014 | |||||||||||||||||
Knoxville, TN | TownePlace Suites | 5.45 | % | 8/9/2011 | (2) | $ | 7,392 | $ | 0 | $ | 6,616 | |||||||||||||
Skokie, IL | Hampton Inn & Suites | 6.15 | % | 12/19/2011 | 7/1/2016 | 19,092 | 17,700 | 18,082 | ||||||||||||||||
Des Plaines, IL | Hilton Garden Inn | 5.99 | % | 9/20/2011 | 8/1/2016 | 20,838 | 19,142 | 19,582 | ||||||||||||||||
Knoxville, TN | Homewood Suites | 6.30 | % | 7/19/2011 | 10/8/2016 | 11,499 | 10,630 | 10,849 | ||||||||||||||||
Scottsdale, AZ | Hilton Garden Inn | 6.07 | % | 10/3/2011 | 2/1/2017 | 10,585 | 9,811 | 10,016 | ||||||||||||||||
Gainesville, FL | Homewood Suites | 5.89 | % | 1/27/2012 | 5/8/2017 | 13,067 | 12,216 | 12,453 | ||||||||||||||||
San Juan Capistrano, CA | Residence Inn | 4.15 | % | 6/5/2015 | 6/1/2020 | 16,569 | 16,417 | 0 | ||||||||||||||||
Colorado Springs, CO | Hampton Inn & Suites | 6.25 | % | 11/8/2013 | 7/6/2021 | 8,231 | 8,002 | 8,115 | ||||||||||||||||
Franklin, TN | Courtyard | 6.25 | % | 11/8/2013 | 8/6/2021 | 15,246 | 14,824 | 15,033 | ||||||||||||||||
Franklin, TN | Residence Inn | 6.25 | % | 11/8/2013 | 8/6/2021 | 15,246 | 14,824 | 15,033 | ||||||||||||||||
Denver, CO | Hilton Garden Inn | 4.46 | % | 6/10/2015 | 6/11/2025 | 35,000 | 34,627 | 0 | ||||||||||||||||
Oceanside, CA | Courtyard | 4.28 | % | 9/22/2015 | 10/1/2025 | 13,850 | 13,810 | 0 | ||||||||||||||||
Omaha, NE | Hilton Garden Inn | 4.28 | % | 9/22/2015 | 10/1/2025 | 23,000 | 22,939 | 0 | ||||||||||||||||
$ | 209,615 | 194,942 | 115,779 | |||||||||||||||||||||
Unamortized fair value adjustment of assumed debt | 3,270 | 3,929 | ||||||||||||||||||||||
Unamortized debt issuance costs | (1,325 | ) | (930 | ) | ||||||||||||||||||||
Total | $ | 196,887 | $ | 118,778 |
2016 | $ | 50,202 | ||
2017 | 54,353 | |||
2018 | 2,511 | |||
2019 | 2,636 | |||
2020 | 17,457 | |||
Thereafter | 98,183 | |||
225,342 | ||||
Unamortized fair value adjustment of assumed debt | 3,270 | |||
Unamortized debt issuance costs related to mortgage debt | (1,325 | ) | ||
Total | $ | 227,287 |
Redemption Date | Total Requested Unit Redemptions at Redemption Date | Units Redeemed | Total Redemption Requests Not Redeemed at Redemption Date | |||||||||
First Quarter 2014 | 357,013 | 242,644 | 114,369 | |||||||||
Second Quarter 2014 | 479,078 | 479,078 | 0 | |||||||||
Third Quarter 2014 | 496,839 | 496,839 | 0 | |||||||||
Fourth Quarter 2014 | 296,642 | 296,642 | 0 | |||||||||
First Quarter 2015 | 425,833 | 425,833 | 0 | |||||||||
Second Quarter 2015 | 402,201 | 402,201 | 0 | |||||||||
Third Quarter 2015 | 524,458 | 524,458 | 0 | |||||||||
Fourth Quarter 2015 | 899,680 | 899,680 | 0 |
Manager | Number of Hotels | |||
LBAM-Investor Group, LLC (“LBA”) | 9 | |||
MHH Management, LLC (“McKibbon”) | 9 | |||
White Lodging Services Corporation (“White Lodging”) | 8 | |||
Chartwell Hospitality, LLC (“Chartwell”) | 5 | |||
North Central Hospitality, LLC (“North Central”) | 5 | |||
Raymond Management Company, Inc. (“Raymond”) | 5 | |||
Marriott International, Inc. (“Marriott”) | 4 | |||
Schulte Hospitality Group, Inc. (“Schulte”) | 4 | |||
Newport Hospitality Group, Inc. (“Newport”) | 2 | |||
Texas Western Management Partners, LP (“Western”) | 2 | |||
Stonebridge Realty Advisors, Inc. (“Stonebridge”) | 1 | |||
Vista Host, Inc. (“Vista Host”) | 1 | |||
Total | 55 |
2016 | $ | 409 | ||
2017 | 409 | |||
2018 | 435 | |||
2019 | 440 | |||
2020 | 440 | |||
Thereafter | 60,099 | |||
Total | $ | 62,232 |
2015 (in thousands except per share data) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
Total revenue | $ | 60,397 | $ | 70,057 | $ | 69,280 | $ | 62,361 | ||||||||
Net income | $ | 9,330 | $ | 15,446 | $ | 14,463 | $ | 8,549 | ||||||||
Basic and diluted net income per common share | $ | 0.10 | $ | 0.17 | $ | 0.16 | $ | 0.10 | ||||||||
Distributions declared and paid per common share | $ | 0.206 | $ | 0.206 | $ | 0.206 | $ | 0.206 |
2014 (in thousands except per share data) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
Total revenue | $ | 50,464 | $ | 59,330 | $ | 56,791 | $ | 52,969 | ||||||||
Net income | $ | 9,408 | $ | 14,849 | $ | 13,511 | $ | 8,227 | ||||||||
Basic and diluted net income per common share | $ | 0.12 | $ | 0.18 | $ | 0.15 | $ | 0.09 | ||||||||
Distributions declared and paid per common share | $ | 0.206 | $ | 0.206 | $ | 0.206 | $ | 0.206 |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
Item 9B. | Other Information |
Item 10. | Directors, Executive Officers and Corporate Governance |
Item 11. | Executive Compensation |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Item 14. | Principal Accounting Fees and Services |
Item 15. | Exhibits, Financial Statement Schedules |
Subsequently | ||||||||||||||||||||||||||||||||||||||
Initial Cost | Capitalized | |||||||||||||||||||||||||||||||||||||
Land/Land | Bldg./ | Bldg. | Total | |||||||||||||||||||||||||||||||||||
Improvements | FF&E | Imp. & | Gross | Acc. | Date of | Date | Depreciable | # of | ||||||||||||||||||||||||||||||
City | State | Description | Encumbrances | (1) | /Other | FF&E | Cost (2) | Deprec. | Construction | Acquired | Life | Rooms | ||||||||||||||||||||||||||
Huntsville | AL | Hampton Inn & Suites | $ | 0 | $ | 713 | $ | 10,637 | $ | 25 | $ | 11,375 | $ | (1,170 | ) | 2013 | Mar-13 | 3 - 39 yrs. | 98 | |||||||||||||||||||
Huntsville | AL | Home2 Suites | 0 | 538 | 8,382 | 2 | 8,922 | (916 | ) | 2013 | Mar-13 | 3 - 39 yrs. | 77 | |||||||||||||||||||||||||
Mobile | AL | Hampton Inn & Suites | 0 | 0 | 11,525 | 1,068 | 12,593 | (2,059 | ) | 2006 | Jun-11 | 3 - 39 yrs. | 101 | |||||||||||||||||||||||||
Phoenix | AZ | Courtyard | 0 | 1,382 | 9,488 | 1,461 | 12,331 | (1,074 | ) | 2008 | Jul-13 | 3 - 39 yrs. | 127 | |||||||||||||||||||||||||
Phoenix | AZ | Hampton Inn & Suites | 0 | 0 | 8,474 | 1,238 | 9,712 | (1,051 | ) | 2008 | Jul-13 | 3 - 39 yrs. | 125 | |||||||||||||||||||||||||
Phoenix | AZ | Homewood Suites | 0 | 0 | 11,813 | 1,762 | 13,575 | (1,391 | ) | 2008 | Jul-13 | 3 - 39 yrs. | 134 | |||||||||||||||||||||||||
Scottsdale | AZ | Hilton Garden Inn | 9,811 | 2,089 | 14,291 | 1,593 | 17,973 | (2,521 | ) | 2005 | Oct-11 | 3 - 39 yrs. | 122 | |||||||||||||||||||||||||
Oceanside | CA | Courtyard | 13,810 | 3,198 | 27,252 | 92 | 30,542 | (3,636 | ) | 2011 | Nov-11 | 3 - 39 yrs. | 142 | |||||||||||||||||||||||||
San Juan Capistrano | CA | Residence Inn | 16,417 | 0 | 23,960 | 48 | 24,008 | (475 | ) | 2012 | Jun-15 | 3 - 39 yrs. | 130 | |||||||||||||||||||||||||
Tustin | CA | Fairfield Inn & Suites | 0 | 4,080 | 26,616 | 12 | 30,708 | (789 | ) | 2013 | Feb-15 | 3 - 39 yrs. | 145 | |||||||||||||||||||||||||
Tustin | CA | Residence Inn | 0 | 5,438 | 36,991 | 29 | 42,458 | (1,106 | ) | 2013 | Feb-15 | 3 - 39 yrs. | 149 | |||||||||||||||||||||||||
Colorado Springs | CO | Hampton Inn & Suites | 8,002 | 1,099 | 11,450 | 1,243 | 13,792 | (897 | ) | 2008 | Nov-13 | 3 - 39 yrs. | 101 | |||||||||||||||||||||||||
Denver | CO | Hilton Garden Inn | 34,627 | 5,240 | 53,264 | 3,254 | 61,758 | (8,348 | ) | 2007 | Mar-11 | 3 - 39 yrs. | 221 | |||||||||||||||||||||||||
Boca Raton | FL | Hilton Garden Inn | 0 | 2,144 | 8,836 | 2,795 | 13,775 | (1,832 | ) | 2002 | Jul-12 | 3 - 39 yrs. | 149 | |||||||||||||||||||||||||
Fort Lauderdale | FL | Residence Inn | 0 | 2,487 | 20,611 | 4 | 23,102 | (981 | ) | 2014 | Oct-14 | 3 - 39 yrs. | 156 | |||||||||||||||||||||||||
Gainesville | FL | Hilton Garden Inn | 0 | 860 | 11,720 | 1,437 | 14,017 | (2,313 | ) | 2007 | Jun-11 | 3 - 39 yrs. | 104 | |||||||||||||||||||||||||
Gainesville | FL | Homewood Suites | 12,216 | 1,152 | 13,463 | 1,648 | 16,263 | (2,290 | ) | 2005 | Jan-12 | 3 - 39 yrs. | 103 | |||||||||||||||||||||||||
Pensacola | FL | TownePlace Suites | 0 | 1,003 | 10,547 | 745 | 12,295 | (1,623 | ) | 2008 | Jun-11 | 3 - 39 yrs. | 97 | |||||||||||||||||||||||||
Tallahassee | FL | Fairfield Inn & Suites | 0 | 1,098 | 8,116 | 33 | 9,247 | (1,275 | ) | 2011 | Dec-11 | 3 - 39 yrs. | 97 | |||||||||||||||||||||||||
Cedar Rapids | IA | Hampton Inn & Suites | 0 | 784 | 12,282 | 837 | 13,903 | (1,954 | ) | 2009 | Jun-11 | 3 - 39 yrs. | 103 | |||||||||||||||||||||||||
Cedar Rapids | IA | Homewood Suites | 0 | 868 | 12,194 | 67 | 13,129 | (2,027 | ) | 2010 | Jun-11 | 3 - 39 yrs. | 95 | |||||||||||||||||||||||||
Davenport | IA | Hampton Inn & Suites | 0 | 1,107 | 11,964 | 1,318 | 14,389 | (1,840 | ) | 2007 | Jul-11 | 3 - 39 yrs. | 103 | |||||||||||||||||||||||||
Des Plaines | IL | Hilton Garden Inn | 19,142 | 2,792 | 33,604 | 2,477 | 38,873 | (5,419 | ) | 2005 | Sep-11 | 3 - 39 yrs. | 252 | |||||||||||||||||||||||||
Hoffman Estates | IL | Hilton Garden Inn | 0 | 1,474 | 8,507 | 2,539 | 12,520 | (2,552 | ) | 2000 | Jun-11 | 3 - 39 yrs. | 184 | |||||||||||||||||||||||||
Rosemont | IL | Hampton Inn & Suites | 0 | 2,384 | 23,166 | 31 | 25,581 | (214 | ) | 2015 | Oct-15 | 3 - 39 yrs. | 158 | |||||||||||||||||||||||||
Skokie | IL | Hampton Inn & Suites | 17,700 | 2,176 | 29,945 | 531 | 32,652 | (4,004 | ) | 2000 | Dec-11 | 3 - 39 yrs. | 225 | |||||||||||||||||||||||||
Merrillville | IN | Hilton Garden Inn | 0 | 1,414 | 13,438 | 2,154 | 17,006 | (2,735 | ) | 2008 | Sep-11 | 3 - 39 yrs. | 124 | |||||||||||||||||||||||||
South Bend | IN | Fairfield Inn & Suites | 0 | 1,100 | 16,450 | 52 | 17,602 | (2,254 | ) | 2010 | Nov-11 | 3 - 39 yrs. | 119 | |||||||||||||||||||||||||
Maple Grove | MN | Hilton Garden Inn | 0 | 1,693 | 11,105 | 495 | 13,293 | (1,017 | ) | 2003 | Jul-13 | 3 - 39 yrs. | 120 | |||||||||||||||||||||||||
Charlotte | NC | Fairfield Inn & Suites | 0 | 1,377 | 8,673 | 59 | 10,109 | (1,557 | ) | 2010 | Mar-11 | 3 - 39 yrs. | 94 | |||||||||||||||||||||||||
Jacksonville | NC | Home2 Suites | 0 | 788 | 11,217 | 18 | 12,023 | (1,604 | ) | 2012 | May-12 | 3 - 39 yrs. | 105 | |||||||||||||||||||||||||
Winston-Salem | NC | Hampton Inn & Suites | 0 | 1,440 | 9,610 | 31 | 11,081 | (1,683 | ) | 2010 | Mar-11 | 3 - 39 yrs. | 94 | |||||||||||||||||||||||||
Omaha | NE | Hampton Inn & Suites | 0 | 3,082 | 16,828 | 1,337 | 21,247 | (1,385 | ) | 2007 | Jul-13 | 3 - 39 yrs. | 139 | |||||||||||||||||||||||||
Omaha | NE | Hilton Garden Inn | 22,939 | 1,397 | 28,655 | 3,058 | 33,110 | (4,818 | ) | 2001 | Sep-11 | 3 - 39 yrs. | 178 | |||||||||||||||||||||||||
Omaha | NE | Homewood Suites | 0 | 3,396 | 14,364 | 1,881 | 19,641 | (1,275 | ) | 2008 | Jul-13 | 3 - 39 yrs. | 123 | |||||||||||||||||||||||||
Mason | OH | Hilton Garden Inn | 0 | 1,183 | 13,722 | 102 | 15,007 | (2,169 | ) | 2010 | Sep-11 | 3 - 39 yrs. | 110 | |||||||||||||||||||||||||
Oklahoma City | OK | Hilton Garden Inn | 0 | 1,324 | 25,214 | (20 | ) | 26,518 | (1,836 | ) | 2014 | Jan-14 | 3 - 39 yrs. | 155 | ||||||||||||||||||||||||
Oklahoma City | OK | Homewood Suites | 0 | 854 | 16,284 | (13 | ) | 17,125 | (1,163 | ) | 2014 | Jan-14 | 3 - 39 yrs. | 100 | ||||||||||||||||||||||||
Oklahoma City (West) | OK | Homewood Suites | 0 | 878 | 10,752 | 1,472 | 13,102 | (1,103 | ) | 2008 | Jul-13 | 3 - 39 yrs. | 90 | |||||||||||||||||||||||||
Charleston | SC | Home2 Suites | 0 | 914 | 12,994 | 99 | 14,007 | (2,142 | ) | 2011 | Nov-11 | 3 - 39 yrs. | 122 | |||||||||||||||||||||||||
Columbia | SC | TownePlace Suites | 0 | 613 | 9,937 | 165 | 10,715 | (1,560 | ) | 2009 | Mar-11 | 3 - 39 yrs. | 91 | |||||||||||||||||||||||||
Franklin | TN | Courtyard | 14,824 | 1,335 | 25,957 | 994 | 28,286 | (1,643 | ) | 2008 | Nov-13 | 3 - 39 yrs. | 126 | |||||||||||||||||||||||||
Franklin | TN | Residence Inn | 14,824 | 1,314 | 25,977 | 47 | 27,338 | (1,657 | ) | 2009 | Nov-13 | 3 - 39 yrs. | 124 | |||||||||||||||||||||||||
Knoxville | TN | Homewood Suites | 10,630 | 1,069 | 14,948 | 1,410 | 17,427 | (2,659 | ) | 2005 | Jul-11 | 3 - 39 yrs. | 103 | |||||||||||||||||||||||||
Knoxville | TN | SpringHill Suites | 0 | 884 | 13,738 | 968 | 15,590 | (2,341 | ) | 2006 | Jun-11 | 3 - 39 yrs. | 103 | |||||||||||||||||||||||||
Knoxville | TN | TownePlace Suites | 0 | 700 | 8,081 | 130 | 8,911 | (1,275 | ) | 2003 | Aug-11 | 3 - 39 yrs. | 98 | |||||||||||||||||||||||||
Nashville | TN | TownePlace Suites | 0 | 705 | 9,062 | 41 | 9,808 | (1,412 | ) | 2012 | Jan-12 | 3 - 39 yrs. | 101 | |||||||||||||||||||||||||
Austin/Round Rock | TX | Homewood Suites | 0 | 2,817 | 12,743 | 52 | 15,612 | (2,125 | ) | 2010 | Oct-11 | 3 - 39 yrs. | 115 | |||||||||||||||||||||||||
Dallas | TX | Homewood Suites | 0 | 1,985 | 23,495 | 472 | 25,952 | (1,734 | ) | 2013 | Dec-13 | 3 - 39 yrs. | 130 | |||||||||||||||||||||||||
Denton | TX | Homewood Suites | 0 | 1,091 | 10,339 | 1,190 | 12,620 | (989 | ) | 2009 | Jul-13 | 3 - 39 yrs. | 107 | |||||||||||||||||||||||||
Houston | TX | Courtyard | 0 | 1,263 | 13,090 | 31 | 14,384 | (1,795 | ) | 2012 | Jul-12 | 3 - 39 yrs. | 124 | |||||||||||||||||||||||||
Houston | TX | Residence Inn | 0 | 1,080 | 16,995 | 33 | 18,108 | (1,624 | ) | 2012 | Jun-13 | 3 - 39 yrs. | 120 | |||||||||||||||||||||||||
Shenandoah | TX | Courtyard | 0 | 2,190 | 13,313 | 3 | 15,506 | (602 | ) | 2014 | Nov-14 | 3 - 39 yrs. | 124 | |||||||||||||||||||||||||
Fairfax | VA | Marriott | 0 | 6,743 | 27,313 | 9,110 | 43,166 | (3,865 | ) | 1984 | Mar-13 | 3 - 39 yrs. | 316 | |||||||||||||||||||||||||
Richmond | VA | SpringHill Suites | 0 | 1,088 | 9,963 | 1,085 | 12,136 | (1,739 | ) | 2008 | Jun-11 | 3 - 39 yrs. | 103 | |||||||||||||||||||||||||
Other | 0 | 0 | 0 | 19 | 19 | (7 | ) | |||||||||||||||||||||||||||||||
$ | 194,942 | $ | 89,823 | $ | 903,355 | $ | 52,764 | $ | 1,045,942 | $ | (107,525 | ) | 7,056 |
Real estate owned: | 2015 | 2014 | 2013 | |||||||||
Balance as of January 1 | $ | 911,138 | $ | 807,655 | $ | 528,493 | ||||||
Acquisitions | 122,234 | 82,656 | 270,244 | |||||||||
Improvements | 12,570 | 20,827 | 8,918 | |||||||||
Balance at December 31 | $ | 1,045,942 | $ | 911,138 | $ | 807,655 |
Accumulated depreciation: | 2015 | 2014 | 2013 | |||||||||
Balance as of January 1 | $ | (72,106 | ) | $ | (43,076 | ) | $ | (21,804 | ) | |||
Depreciation expense | (35,419 | ) | (29,030 | ) | (21,272 | ) | ||||||
Balance at December 31 | $ | (107,525 | ) | $ | (72,106 | ) | $ | (43,076 | ) |
Apple REIT Ten, Inc. | ||||
By: | /s/ Glade M. Knight | Date: March 4, 2016 | ||
Glade M. Knight, | ||||
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | ||||
By: | /s/ Bryan Peery | Date: March 4, 2016 | ||
Bryan Peery, | ||||
Chief Financial Officer (Principal Financial and Principal Accounting Officer) |
By: | /s/ Glade M. Knight | Date: March 4, 2016 | ||
Glade M. Knight, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | ||||
By: | /s/ Bryan Peery | Date: March 4, 2016 | ||
Bryan Peery, Chief Financial Officer (Principal Financial and Principal Accounting Officer) | ||||
By: | /s/ David J. Adams | Date: March 4, 2016 | ||
David J. Adams, Director | ||||
By: | /s/ Kent W. Colton | Date: March 4, 2016 | ||
Kent W. Colton, Director | ||||
By: | /s/ R. Garnett Hall, Jr. | Date: March 4, 2016 | ||
R. Garnett Hall, Jr., Director | ||||
By: | /s/ Anthony Francis Keating, III | Date: March 4, 2016 | ||
Anthony Francis Keating, III, Director |
Exhibit Number | Description of Documents |
3.1 | Articles of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3.1 to amendment no. 4 to the Company’s registration statement on Form S-11 (SEC File No. 333-168971) filed January 7, 2011 and effective January 19, 2011) |
3.2 | Bylaws of the Company, as amended. (Incorporated by reference to Exhibit 3.2 to amendment no. 3 to the Company’s registration statement on Form S-11 (SEC File No. 333-168971) filed December 20, 2010 and effective January 19, 2011) |
10.1 | Advisory Agreement between the Company and Apple Ten Advisors, Inc., as amended. (Incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q (SEC File No. 333-168971) filed May 6, 2011) |
10.2 | Property Acquisition/Disposition Agreement between the Company and Apple Suites Realty Group, Inc. (Incorporated by reference to Exhibit 10.2 to amendment no. 3 to the Company’s registration statement on Form S-11 (SEC File No. 333-168971) filed December 20, 2010 and effective January 19, 2011) |
10.3* | Apple REIT Ten, Inc. 2010 Non-Employee Directors Stock Option Plan. (Incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q (SEC File No. 333-168971) filed May 6, 2011) |
10.4 | Credit Agreement dated as of July 26, 2013 between Apple Ten Hospitality, Inc. and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.67 to the Company’s current report on Form 8-K (SEC File No. 000-54651) filed July 31, 2013) |
10.5 | First Amendment dated October 3, 2013 to Credit Agreement dated July 26, 2013 between Apple Ten Hospitality, Inc. and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.68 to the Company’s quarterly report on Form 10-Q (SEC File No. 000-54651) filed May 8, 2014) |
10.6 | Second Amendment dated July 2, 2015 to Credit Agreement dated July 26, 2013 between Apple Ten Hospitality, Inc. and Wells Fargo Bank, National Association (Incorporated by reference to Exhibit 10.69 to the Company’s quarterly report on Form 10-Q (SEC File No. 000-54651) filed August 6, 2015) |
21.1 | Subsidiaries of the Company (FILED HEREWITH) |
31.1 | Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH) |
31.2 | Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH) |
32.1 | Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FURNISHED HEREWITH) |
101 | The following materials from Apple REIT Ten, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH) |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ |
Virginia | 27-3218228 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
814 East Main Street Richmond, Virginia | 23219 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Page Number | |||
PART I. FINANCIAL INFORMATION | |||
Item 1. | |||
3 | |||
4 | |||
5 | |||
6 | |||
Item 2. | 11 | ||
Item 3. | 19 | ||
Item 4. | 19 | ||
PART II. OTHER INFORMATION | |||
Item 1A. | 20 | ||
Item 2. | 21 | ||
Item 6. | 22 | ||
23 |
March 31, 2016 | December 31, 2015 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Investment in real estate, net of accumulated depreciation of $116,854 and $107,525, respectively | $ | 930,649 | $ | 938,417 | ||||
Restricted cash-furniture, fixtures and other escrows | 13,205 | 13,412 | ||||||
Due from third party managers, net | 12,824 | 7,329 | ||||||
Other assets, net | 8,722 | 9,227 | ||||||
Total Assets | $ | 965,400 | $ | 968,385 | ||||
Liabilities | ||||||||
Revolving credit facility | $ | 44,700 | $ | 30,400 | ||||
Mortgage debt | 195,843 | 196,887 | ||||||
Accounts payable and other liabilities | 11,301 | 13,352 | ||||||
Total Liabilities | 251,844 | 240,639 | ||||||
Shareholders' Equity | ||||||||
Preferred stock, authorized 30,000,000 shares; none issued and outstanding | 0 | 0 | ||||||
Series A preferred stock, no par value, authorized 400,000,000 shares; issued and outstanding 88,202,564 and 88,785,416 shares, respectively | 0 | 0 | ||||||
Series B convertible preferred stock, no par value, authorized 480,000 shares; issued and outstanding 480,000 shares | 48 | 48 | ||||||
Common stock, no par value, authorized 400,000,000 shares; issued and outstanding 88,202,564 and 88,785,416 shares, respectively | 862,847 | 868,852 | ||||||
Distributions greater than net income | (149,339 | ) | (141,154 | ) | ||||
Total Shareholders' Equity | 713,556 | 727,746 | ||||||
Total Liabilities and Shareholders' Equity | $ | 965,400 | $ | 968,385 |
Three Months Ended | ||||||||
March 31, | ||||||||
2016 | 2015 | |||||||
Revenues: | ||||||||
Room | $ | 60,448 | $ | 55,737 | ||||
Other | 5,032 | 4,660 | ||||||
Total revenue | 65,480 | 60,397 | ||||||
Expenses: | ||||||||
Operating | 15,872 | 14,633 | ||||||
Hotel administrative | 5,501 | 5,006 | ||||||
Sales and marketing | 5,414 | 4,953 | ||||||
Utilities | 2,003 | 2,103 | ||||||
Repair and maintenance | 2,418 | 2,146 | ||||||
Franchise fees | 2,808 | 2,680 | ||||||
Management fees | 2,500 | 2,315 | ||||||
Property taxes, insurance and other | 4,337 | 3,945 | ||||||
Ground lease | 311 | 85 | ||||||
General and administrative | 1,846 | 1,489 | ||||||
Transaction costs | 282 | 1,580 | ||||||
Depreciation | 9,329 | 8,389 | ||||||
Total expenses | 52,621 | 49,324 | ||||||
Operating income | 12,859 | 11,073 | ||||||
Interest and other expense, net | (2,756 | ) | (1,684 | ) | ||||
Income before income taxes | 10,103 | 9,389 | ||||||
Income tax expense | (56 | ) | (59 | ) | ||||
Net income | $ | 10,047 | $ | 9,330 | ||||
Basic and diluted net income per common share | $ | 0.11 | $ | 0.10 | ||||
Weighted average common shares outstanding - basic and diluted | 88,324 | 90,702 |
Three Months Ended | ||||||||
March 31, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 10,047 | $ | 9,330 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation | 9,329 | 8,389 | ||||||
Other non-cash expenses, net | 140 | 55 | ||||||
Changes in operating assets and liabilities: | ||||||||
Increase in due from third party managers, net | (5,495 | ) | (6,383 | ) | ||||
Decrease in other assets, net | 1,492 | 751 | ||||||
Decrease in accounts payable and other liabilities | (720 | ) | (1,136 | ) | ||||
Net cash provided by operating activities | 14,793 | 11,006 | ||||||
Cash flows from investing activities: | ||||||||
Acquisition of hotel properties, net | 0 | (73,221 | ) | |||||
Deposits and other disbursements for potential acquisitions | (150 | ) | (100 | ) | ||||
Capital improvements | (3,063 | ) | (6,355 | ) | ||||
Decrease (increase) in capital improvement reserves | (713 | ) | 351 | |||||
Net cash used in investing activities | (3,926 | ) | (79,325 | ) | ||||
Cash flows from financing activities: | ||||||||
Redemptions of Units | (5,985 | ) | (4,387 | ) | ||||
Distributions paid to common shareholders | (18,232 | ) | (18,718 | ) | ||||
Net proceeds from credit facility | 14,300 | 45,700 | ||||||
Payments of mortgage debt | (950 | ) | (579 | ) | ||||
Financing costs | 0 | (38 | ) | |||||
Net cash provided by (used in) financing activities | (10,867 | ) | 21,978 | |||||
Decrease in cash and cash equivalents | 0 | (46,341 | ) | |||||
Cash and cash equivalents, beginning of period | 0 | 46,341 | ||||||
Cash and cash equivalents, end of period | $ | 0 | $ | 0 | ||||
Supplemental cash flow information: | ||||||||
Interest paid | $ | 2,861 | $ | 1,908 |
March 31, | December 31, | |||||||
2016 | 2015 | |||||||
Land | $ | 89,823 | $ | 89,823 | ||||
Building and Improvements | 872,377 | 871,454 | ||||||
Furniture, Fixtures and Equipment | 81,621 | 80,983 | ||||||
Franchise Fees | 3,682 | 3,682 | ||||||
1,047,503 | 1,045,942 | |||||||
Less Accumulated Depreciation | (116,854 | ) | (107,525 | ) | ||||
Investment in Real Estate, net | $ | 930,649 | $ | 938,417 |
Redemption Date | Total Requested Unit Redemptions at Redemption Date | Units Redeemed | Total Redemption Requests Not Redeemed at Redemption Date | |||||||||
First Quarter 2015 | 425,833 | 425,833 | 0 | |||||||||
Second Quarter 2015 | 402,201 | 402,201 | 0 | |||||||||
Third Quarter 2015 | 524,458 | 524,458 | 0 | |||||||||
Fourth Quarter 2015 | 899,680 | 899,680 | 0 | |||||||||
First Quarter 2016 | 582,852 | 582,852 | 0 |
Number of Hotels and Guest Rooms by Brand | ||||||||
Number of | Number of | |||||||
Brand | Hotels | Rooms | ||||||
Hilton Garden Inn | 11 | 1,719 | ||||||
Hampton Inn & Suites | 10 | 1,247 | ||||||
Homewood Suites | 10 | 1,100 | ||||||
Residence Inn | 5 | 679 | ||||||
Courtyard | 5 | 643 | ||||||
Fairfield Inn & Suites | 4 | 455 | ||||||
TownePlace Suites | 4 | 387 | ||||||
Home2 Suites | 3 | 304 | ||||||
SpringHill Suites | 2 | 206 | ||||||
Marriott | 1 | 316 | ||||||
Total | 55 | 7,056 |
Number of Hotels and Guest Rooms by State | ||||||||
Number of | Number of | |||||||
State | Hotels | Rooms | ||||||
Alabama | 3 | 276 | ||||||
Arizona | 4 | 508 | ||||||
California | 4 | 566 | ||||||
Colorado | 2 | 322 | ||||||
Florida | 6 | 706 | ||||||
Illinois | 4 | 819 | ||||||
Indiana | 2 | 243 | ||||||
Iowa | 3 | 301 | ||||||
Minnesota | 1 | 120 | ||||||
Nebraska | 3 | 440 | ||||||
North Carolina | 3 | 293 | ||||||
Ohio | 1 | 110 | ||||||
Oklahoma | 3 | 345 | ||||||
South Carolina | 2 | 213 | ||||||
Tennessee | 6 | 655 | ||||||
Texas | 6 | 720 | ||||||
Virginia | 2 | 419 | ||||||
Total | 55 | 7,056 |
City | State | Brand | Manager | Date Acquired | Rooms | Gross Purchase Price | ||||||||||
Denver | CO | Hilton Garden Inn | Stonebridge | 3/4/2011 | 221 | $ | 58,500 | |||||||||
Winston-Salem | NC | Hampton Inn & Suites | McKibbon | 3/15/2011 | 94 | 11,000 | ||||||||||
Charlotte | NC | Fairfield Inn & Suites | Newport | 3/25/2011 | 94 | 10,000 | ||||||||||
Columbia | SC | TownePlace Suites | Newport | 3/25/2011 | 91 | 10,500 | ||||||||||
Mobile | AL | Hampton Inn & Suites | McKibbon | 6/2/2011 | 101 | 13,000 | ||||||||||
Gainesville | FL | Hilton Garden Inn | McKibbon | 6/2/2011 | 104 | 12,500 | ||||||||||
Pensacola | FL | TownePlace Suites | McKibbon | 6/2/2011 | 97 | 11,500 | ||||||||||
Knoxville | TN | SpringHill Suites | McKibbon | 6/2/2011 | 103 | 14,500 | ||||||||||
Richmond | VA | SpringHill Suites | McKibbon | 6/2/2011 | 103 | 11,000 | ||||||||||
Cedar Rapids | IA | Hampton Inn & Suites | Schulte | 6/8/2011 | 103 | 13,000 | ||||||||||
Cedar Rapids | IA | Homewood Suites | Schulte | 6/8/2011 | 95 | 13,000 | ||||||||||
Hoffman Estates | IL | Hilton Garden Inn | White Lodging | 6/10/2011 | 184 | 10,000 | ||||||||||
Davenport | IA | Hampton Inn & Suites | Schulte | 7/19/2011 | 103 | 13,000 | ||||||||||
Knoxville | TN | Homewood Suites | McKibbon | 7/19/2011 | 103 | 15,000 | ||||||||||
Knoxville | TN | TownePlace Suites | McKibbon | 8/9/2011 | 98 | 9,000 | ||||||||||
Mason | OH | Hilton Garden Inn | Schulte | 9/1/2011 | 110 | 14,825 | ||||||||||
Omaha | NE | Hilton Garden Inn | White Lodging | 9/1/2011 | 178 | 30,018 | ||||||||||
Des Plaines | IL | Hilton Garden Inn | Raymond | 9/20/2011 | 252 | 38,000 | ||||||||||
Merillville | IN | Hilton Garden Inn | White Lodging | 9/30/2011 | 124 | 14,825 | ||||||||||
Austin/Round Rock | TX | Homewood Suites | Vista Host | 10/3/2011 | 115 | 15,500 | ||||||||||
Scottsdale | AZ | Hilton Garden Inn | North Central | 10/3/2011 | 122 | 16,300 | ||||||||||
South Bend | IN | Fairfield Inn & Suites | White Lodging | 11/1/2011 | 119 | 17,500 | ||||||||||
Charleston | SC | Home2 Suites | LBA | 11/10/2011 | 122 | 13,908 | ||||||||||
Oceanside | CA | Courtyard | Marriott | 11/28/2011 | 142 | 30,500 | ||||||||||
Skokie | IL | Hampton Inn & Suites | Raymond | 12/19/2011 | 225 | 32,000 | ||||||||||
Tallahassee | FL | Fairfield Inn & Suites | LBA | 12/30/2011 | 97 | 9,355 | ||||||||||
Gainesville | FL | Homewood Suites | McKibbon | 1/27/2012 | 103 | 14,550 | ||||||||||
Nashville | TN | TownePlace Suites | LBA | 1/31/2012 | 101 | 9,848 | ||||||||||
Jacksonville | NC | Home2 Suites | LBA | 5/4/2012 | 105 | 12,000 | ||||||||||
Boca Raton | FL | Hilton Garden Inn | White Lodging | 7/16/2012 | 149 | 10,900 | ||||||||||
Houston | TX | Courtyard | LBA | 7/17/2012 | 124 | 14,632 | ||||||||||
Huntsville | AL | Hampton Inn & Suites | LBA | 3/14/2013 | 98 | 11,466 | ||||||||||
Huntsville | AL | Home2 Suites | LBA | 3/14/2013 | 77 | 9,009 | ||||||||||
Fairfax | VA | Marriott | White Lodging | 3/15/2013 | 316 | 34,000 | ||||||||||
Houston | TX | Residence Inn | Western | 6/7/2013 | 120 | 18,000 | ||||||||||
Denton | TX | Homewood Suites | Chartwell | 7/26/2013 | 107 | 11,300 | ||||||||||
Maple Grove | MN | Hilton Garden Inn | North Central | 7/26/2013 | 120 | 12,675 | ||||||||||
Oklahoma City (West) | OK | Homewood Suites | Chartwell | 7/26/2013 | 90 | 11,500 | ||||||||||
Omaha | NE | Hampton Inn & Suites | White Lodging | 7/26/2013 | 139 | 19,775 | ||||||||||
Omaha | NE | Homewood Suites | White Lodging | 7/26/2013 | 123 | 17,625 | ||||||||||
Phoenix | AZ | Courtyard | North Central | 7/26/2013 | 127 | 10,800 | ||||||||||
Phoenix | AZ | Hampton Inn & Suites | North Central | 7/26/2013 | 125 | 8,600 | ||||||||||
Phoenix | AZ | Homewood Suites | North Central | 7/26/2013 | 134 | 12,025 | ||||||||||
Colorado Springs | CO | Hampton Inn & Suites | Chartwell | 11/8/2013 | 101 | 11,500 | ||||||||||
Franklin | TN | Courtyard | Chartwell | 11/8/2013 | 126 | 25,500 | ||||||||||
Franklin | TN | Residence Inn | Chartwell | 11/8/2013 | 124 | 25,500 | ||||||||||
Dallas | TX | Homewood Suites | Western | 12/5/2013 | 130 | 25,350 | ||||||||||
Oklahoma City | OK | Hilton Garden Inn | Raymond | 1/31/2014 | 155 | 27,353 | ||||||||||
Oklahoma City | OK | Homewood Suites | Raymond | 1/31/2014 | 100 | 17,647 | ||||||||||
Fort Lauderdale | FL | Residence Inn | LBA | 10/24/2014 | 156 | 23,088 | ||||||||||
Shenandoah | TX | Courtyard | LBA | 11/6/2014 | 124 | 15,872 | ||||||||||
Tustin | CA | Fairfield Inn & Suites | Marriott | 2/5/2015 | 145 | 31,000 | ||||||||||
Tustin | CA | Residence Inn | Marriott | 2/5/2015 | 149 | 42,800 | ||||||||||
San Juan Capistrano | CA | Residence Inn | Marriott | 6/5/2015 | 130 | 29,200 | ||||||||||
Rosemont | IL | Hampton Inn & Suites | Raymond | 10/29/2015 | 158 | 25,400 | ||||||||||
Total | 7,056 | $ | 997,146 |
Three Months Ended March 31, | ||||||||||||||||||||
(in thousands, except statistical data) | 2016 | Percent of Revenue | 2015 | Percent of Revenue | Percent Change | |||||||||||||||
Total revenue | $ | 65,480 | 100.0 | % | $ | 60,397 | 100.0 | % | 8.4 | % | ||||||||||
Hotel operating expense | 36,516 | 55.8 | % | 33,836 | 56.0 | % | 7.9 | % | ||||||||||||
Property taxes, insurance and other expense | 4,337 | 6.6 | % | 3,945 | 6.5 | % | 9.9 | % | ||||||||||||
Ground lease expense | 311 | 0.5 | % | 85 | 0.1 | % | 265.9 | % | ||||||||||||
General and administrative expense | 1,846 | 2.8 | % | 1,489 | 2.5 | % | 24.0 | % | ||||||||||||
Transaction costs | 282 | 1,580 | ||||||||||||||||||
Depreciation expense | 9,329 | 8,389 | ||||||||||||||||||
Interest and other expense, net | 2,756 | 1,684 | ||||||||||||||||||
Income tax expense | 56 | 59 | ||||||||||||||||||
Number of hotels | 55 | 53 | 3.8 | % | ||||||||||||||||
ADR | $ | 131.00 | $ | 128.60 | 1.9 | % | ||||||||||||||
Occupancy | 71.9 | % | 72.4 | % | -0.7 | % | ||||||||||||||
RevPAR | $ | 94.14 | $ | 93.16 | 1.1 | % |
● | its management’s and employees’ attention to day-to-day business and operational matters may be diverted; |
● | it would still be required to pay significant transaction costs related to the merger, including legal, financial advisor, printing, mailing and accounting fees, and under certain circumstances could be required to pay Apple Hospitality a termination fee of $25 million; and |
● | reputational harm due to the adverse perception of any failure to successfully complete the merger. |
certain circumstances, if a final and non-appealable order is entered prohibiting or disapproving the transaction, upon a material uncured breach by the other party that would cause the closing conditions not to be satisfied, or the failure to obtain receipt of shareholder approval from either the Company’s shareholders or Apple Hospitality shareholders.
Redemption Date | Total Requested Unit Redemptions at Redemption Date | Units Redeemed | Total Redemption Requests Not Redeemed at Redemption Date | |||||||||
First Quarter 2015 | 425,833 | 425,833 | 0 | |||||||||
Second Quarter 2015 | 402,201 | 402,201 | 0 | |||||||||
Third Quarter 2015 | 524,458 | 524,458 | 0 | |||||||||
Fourth Quarter 2015 | 899,680 | 899,680 | 0 | |||||||||
First Quarter 2016 | 582,852 | 582,852 | 0 |
Issuer Purchases of Equity Securities | ||||||||||||||||
(a) | (b) | (c) | (d) | |||||||||||||
Period | Total Number of Units Purchased | Average Price Paid per Unit | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
January 2016 | 582,852 | $ | 10.27 | 582,852 | (1) |
Exhibit Number | Description of Documents |
2.1 | Agreement and Plan of Merger, dated as of April 13, 2016, among Apple REIT Ten, Inc., Apple Hospitality REIT, Inc. and 34 Consolidated, Inc. (Incorporated by reference to Exhibit 2.1 to the Company’s current report on Form 8-K (SEC File No. 000-54651) filed April 14, 2016) |
3.1 | Articles of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3.1 to amendment no. 4 to the Company’s registration statement on Form S-11 (SEC File No. 333-168971) filed January 7, 2011 and effective January 19, 2011) |
3.2 | Bylaws of the Company, as amended. (Incorporated by reference to Exhibit 3.2 to amendment no. 3 to the Company’s registration statement on Form S-11 (SEC File No. 333-168971) filed December 20, 2010 and effective January 19, 2011) |
10.7 | Voting Agreement, dated as of April 13, 2016, by and among Apple REIT Ten, Inc., Apple Hospitality REIT, Inc. and Glade M. Knight (Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K (SEC File No. 000-54651) filed April 14, 2016) |
10.8 | Termination Agreement, dated as of April 13, 2016, by and among Apple Ten Advisors, Inc., Apple Suites Realty Group, Inc., Apple REIT Ten, Inc. and Apple Hospitality REIT, Inc. (Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K (SEC File No. 000-54651) filed April 14, 2016) |
10.9 | Third Amendment dated April 8, 2016 to Credit Agreement dated July 26, 2013 between Apple Ten Hospitality, Inc. and Wells Fargo Bank, National Association (FILED HEREWITH) |
31.1 | Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH) |
31.2 | Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH) |
32.1 | Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FURNISHED HEREWITH) |
101 | The following materials from Apple REIT Ten, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail (FILED HEREWITH) |
Apple REIT Ten, Inc. | ||||
By: | /s/ Glade M. Knight | Date: May 6, 2016 | ||
Glade M. Knight, | ||||
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) | ||||
By: | /s/ Bryan Peery | Date: May 6, 2016 | ||
Bryan Peery, | ||||
Chief Financial Officer (Principal Financial and Principal Accounting Officer) |