UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 8-K/A

 


AMENDMENT NO. 1 TO

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): March 4, 2011

 


APPLE REIT TEN, INC.

(Exact name of registrant as specified in its charter)

 



 

 

 

 

 

Virginia

 

333-168971

 

27-3218228

(State or other jurisdiction
of incorporation)

 

(Commission File Number)

 

(I.R.S. Employer
Identification Number)


 

 

 

814 East Main Street, Richmond, Virginia

 

23219

(Address of principal executive offices)

 

(Zip Code)

(804) 344-8121
(Registrant’s telephone number, including area code)

 


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

o

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

o

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

o

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

o

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 




          Apple REIT Ten, Inc. hereby amends Item 9.01 of its Current Report on Form 8-K dated March 4, 2011 and filed (by the required date) on March 8, 2011 for the purpose of filing certain financial statements and information. In accordance with Rule 12b-15 under the Securities and Exchange Act of 1934, as amended, this Amendment No. 1 sets forth the complete text of the item as amended.

 

 

Item 9.01.

Financial Statements and Exhibits.


 

 

 

 

 

(a)

Financial statements of businesses acquired.

 

 

 

 

 

 

 

Denver, Colorado Hilton Garden Inn

 

 

 

 

 

 

 

(Audited)

 

 

 

 

 

 

 

Report of Independent Auditors

 

3

 

Balance Sheets – As of December 31, 2010 and 2009

 

4

 

Statements of Operations – Years Ended December 31, 2010 and 2009

 

5

 

Statements of Owner’s Equity – Years Ended December 31, 2010 and 2009

 

6

 

Statements of Cash Flows – Years Ended December 31, 2010 and 2009

 

7

 

Notes to Financial Statements

 

8

 

 

 

 

(b)

Pro forma financial information.

 

 

 

 

 

 

 

The below pro forma financial information pertains to the hotel referred to in the financial statements (see (a) above) and to a separate group of recently purchased hotels.

 

 

 

 

 

 

 

Apple REIT Ten, Inc. (Unaudited)

 

 

 

 

 

 

 

Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2010

 

14

 

Notes to Pro Forma Condensed Consolidated Balance Sheet

 

16

 

Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2010

 

17

 

Notes to Pro Forma Condensed Consolidated Statement of Operations

 

19

 

 

 

 

(c)

Shell company transactions.

 

 

 

 

 

 

 

Not Applicable

 

 

 

 

 

 

(d)

Exhibits.

 

 

 

 

 

 

 

None

 

 


2


Report of Independent Auditors

Board of Directors
Apple REIT Ten, Inc.

We have audited the accompanying balance sheets of the Denver, Colorado – Hilton Garden Inn (the Hotel) as of December 31, 2010 and 2009, and the related statements of operations, cash flows, and owner’s equity for the years then ended. These financial statements are the responsibility of the Hotel’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Hotel’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Hotel’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Denver, Colorado – Hilton Garden Inn at December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

 

 

 

/s/ Ernst & Young LLP

May 10, 2011

3


Denver, Colorado – Hilton Garden Inn

Balance Sheets

 

 

 

 

 

 

 

 

 

 

As of December 31

 

 

 

2010

 

2009

 

 

 





Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

386,202

 

$

294,518

 

Investments

 

 

 

 

1,036,863

 

Accounts receivable

 

 

96,685

 

 

65,648

 

Prepaid expenses and other assets, net

 

 

293,841

 

 

400,722

 

Investment in real estate, net of accumulated depreciation of $4,482,398 and $3,189,207, respectively

 

 

30,323,062

 

 

31,695,955

 

 

 







 

 

$

31,099,790

 

$

33,493,706

 

 

 







 

 

 

 

 

 

 

 

Liabilities and owner’s equity

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

948,670

 

$

795,004

 

Mortgage payable

 

 

24,817,950

 

 

25,327,285

 

 

 






 

Total liabilities

 

 

25,766,620

 

 

26,122,289

 

Owner’s equity

 

 

5,333,170

 

 

7,371,417

 

 

 







Total liabilities and owner’s equity

 

$

31,099,790

 

$

33,493,706

 

 

 








See accompanying notes.

4


Denver, Colorado – Hilton Garden Inn

Statements of Operations

 

 

 

 

 

 

 

 

 

 

Year Ended December 31

 

 

 

2010

 

2009

 

 

 





Revenues

 

 

 

 

 

 

 

Rooms

 

$

8,978,312

 

$

7,202,922

 

Other revenue

 

 

2,371,649

 

 

2,210,898

 

 

 







Total revenues

 

 

11,349,961

 

 

9,413,820

 

 

 







 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

Operating Expenses

 

 

2,766,902

 

 

2,429,711

 

Hotel administrative expenses

 

 

1,022,739

 

 

956,448

 

Utilities

 

 

343,523

 

 

289,709

 

Depreciation and amortization

 

 

1,324,718

 

 

1,320,642

 

Taxes, insurance and other

 

 

374,287

 

 

525,363

 

Sales and marketing

 

 

555,539

 

 

280,531

 

Repair and maintenance

 

 

132,239

 

 

145,353

 

Franchise and management fees

 

 

1,003,183

 

 

831,997

 

General and administrative

 

 

611,750

 

 

461,081

 

 

 







Total expenses

 

 

8,134,880

 

 

7,240,835

 

 

 







 

 

 

 

 

 

 

 

Operating income

 

 

3,215,081

 

 

2,172,985

 

Interest expense, net

 

 

753,328

 

 

728,039

 

 

 







Net income

 

$

2,461,753

 

$

1,444,946

 

 

 







See accompanying notes.

5


Denver, Colorado – Hilton Garden Inn

Statements of Owner’s Equity

 

 

 

 

 

 

 

 

 

 

Year Ended December 31

 

 

 

2010

 

2009

 

 

 





Owner’s equity at beginning of period

 

$

7,371,417

 

$

8,726,471

 

Distributions to owner

 

 

(4,500,000

)

 

(2,800,000

)

Net income

 

 

2,461,753

 

 

1,444,946

 

 

 







Owner’s equity at end of period

 

$

5,333,170

 

$

7,371,417

 

 

 







See accompanying notes.

6


Denver, Colorado – Hilton Garden Inn

Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

Year Ended December 31

 

 

 

2010

 

2009

 

 

 





Cash flows from operating activities

 

 

 

 

 

 

 

Net income

 

$

2,461,753

 

$

1,444,946

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,324,718

 

 

1,320,642

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(31,037

)

 

17,896

 

Prepaid expenses and other assets, net

 

 

94,361

 

 

(37,540

)

Accounts payable and accrued expenses

 

 

153,666

 

 

157,875

 

 

 







Net cash provided by operating activities

 

 

4,003,461

 

 

2,903,819

 

 

 







 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Investments in CDs

 

 

1,036,863

 

 

(36,863

)

Purchase of property and equipment

 

 

(91,145

)

 

(206,086

)

Reimbursement for property and equipment

 

 

170,847

 

 

 

Net increase in cash restricted for property improvements

 

 

 

 

33,376

 

 

 







Net cash used in investing activities

 

 

1,116,565

 

 

(209,573

)

 

 







 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Payment of financing costs

 

 

(19,007

)

 

 

Payments on secured notes payable

 

 

(509,335

)

 

(538,454

)

Distributions to owner

 

 

(4,500,000

)

 

(2,800,000

)

 

 







Net cash used in financing activities

 

 

(5,028,342

)

 

(3,338,454

)

 

 







 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

91,684

 

 

(644,208

)

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of year

 

 

294,518

 

 

938,726

 

 

 






 

End of year

 

$

386,202

 

$

294,518

 

 

 







 

 

 

 

 

 

 

 

Supplemental information

 

 

 

 

 

 

 

Cash paid for interest

 

$

695,005

 

$

779,181

 

 

 







See accompanying notes.

7


Denver, Colorado – Hilton Garden Inn

Notes to Financial Statements

December 31, 2010 and 2009

1. Nature of Business

The accompanying financial statements present the financial information of the Denver, Colorado – Hilton Garden Inn (the Hotel) as of December 31, 2010 and 2009, and for the years then ended. The Hotel was owned by 5280 Lodging, LLC (the Company), a Colorado Limited Liability Company that was formed for the purpose of acquiring, owning, and operating hotels. The Hotel commenced operations in July 2007 and has 221 rooms operating under the Hilton franchise in Denver, Colorado. On March 4, 2011 the Company sold the Hotel to a subsidiary of Apple REIT Ten, Inc., a Virginia Corporation, for $58,500,000.

2. Significant Accounting Policies

Basis of Accounting

The financial statements have been prepared on the accrual basis in accordance with accounting principles generally accepted in the United States.

Cash and Cash Equivalents

The Hotel considers all highly liquid instruments purchased with maturities of three months or less to be cash and cash equivalents.

Restricted Cash

Restricted cash includes reserves for furniture, fixtures, and equipment replacements. There was a zero balance at December 31, 2010 and 2009.

Investments

Investments consist of certificates of deposits (CD). The CD was purchased in December 2008 with an interest rate of 3.5% and maturity term of 14 months. The interest earned in 2010 and 2009 was $3,376 and $36,862, respectively.

Accounts Receivable

Accounts receivable are comprised of receivables due from guests of the hotel and credit card receipts yet to be processed from guests of the hotel. The Hotel records an allowance for doubtful accounts sufficient to cover potential credit losses. Management has determined that no allowance was considered necessary at December 31, 2010 and 2009.

8


2. Significant Accounting Policies (continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment in Real Estate

Real estate is stated at cost, net of accumulated depreciation. The Hotel capitalizes costs, which both materially add value and extend the useful life of an asset. Provisions for depreciation of buildings and improvements, furniture, fixtures, and equipment are computed on a straight-line basis over the estimated useful lives, ranging from five to 30 years. Repairs and maintenance costs are expensed as incurred.

Impairment of Long-Lived Assets

The Hotel follows the requirements of ASC Topic 360, Impairment or Disposal of Long-Lived Assets (ASC 360). ASC 360 requires impairment losses to be recorded on long-lived assets held for investment when indicators of impairment are present and the future undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying value.

The Hotel’s management reviews the carrying value of tangible and intangible assets whenever significant events or changes in circumstances occur that might impair the recovery of these costs. Recovery is evaluated by measuring the carrying value of the assets against the associated future estimated cash flows. Management’s estimates of fair values are based on the best information available and require the use of estimates, judgment and projections as considered necessary. As of December 31, 2010 and 2009, no impairment losses were recognized.

Revenue Recognition

Revenue is recognized as earned, which is generally defined as the date upon which a guest occupies a room or utilizes the hotel’s services.

9


2. Significant Accounting Policies (continued)

Advertising costs

Advertising costs are expensed when incurred. Advertising expense for the years ended December 31, 2010 and 2009 was $33,100 and $34,179, respectively, which is included in sales and marketing expense in the accompanying statements of operations.

Income Taxes

The Hotel was owned by a limited liability company. The members of the Company separately accounted for the Hotel’s items of income, deductions, losses, and credits for federal and state income tax reporting.

New Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures About Fair Value Measurements (ASU 2010-06), which provides amendments to ASC Subtopic No. 820-10, Fair Value Measurements and Disclosures – Overall. ASU 2010-06 requires additional disclosures and clarifications of existing disclosures for recurring and nonrecurring fair value measurements. The revised guidance was effective January 1, 2010. The adoption of this guidance did not have a material impact on the Hotel’s financial position or results of operations.

3. Investment in Real Estate

Investment in real estate at December 31, 2010 and December 31, 2009 consisted of the following:

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 




 

 

 

 

 

 

 

 

 

Land

 

$

3,489,630

 

$

3,489,630

 

Building and improvements

 

 

27,577,216

 

 

27,558,068

 

Furnishings and equipment

 

 

3,738,614

 

 

3,837,464

 

 

 







Total cost

 

 

34,805,460

 

 

34,885,162

 

Less accumulated depreciation

 

 

(4,482,398

)

 

(3,189,207

)

 

 







Investment in real estate, net

 

$

30,323,062

 

$

31,695,955

 

 

 







Depreciation expense for the years ended 2010 and 2009 was $1,293,190 and $1,287,031, respectively. During 2010, the Hotel received reimbursements from a contractor of $170,897 for certain improvement costs incurred in 2009.

4. Loan Fees

The Hotel capitalizes fees related to mortgage note issuance costs and modifications in accordance with ASC 470. These costs are amortized as amortization expense on the effective interest method over the term of the mortgage note. The amortization expense totaled $25,753 and $27,836 for the years ended December 31, 2010 and 2009, respectively. The unamortized loan fees at December 31, 2010 and 2009 were $18,995 and $25,741, respectively.

10


5. Fair Value Disclosures

At December 31, 2010, as required by ASC 825, Financial Instruments, the following presents the net book value and estimated value of the Hotel’s certificate of deposit and notes payable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31
2010

 

December 31
2009

 

 

 





 

 

Cost

 

Fair Market
Value

 

Cost

 

Fair Market
Value

 

 

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of Deposits

 

$

 

$

 

$

1,036,863

 

$

1,067,204

 

FirsTier Bank Mortgage

 

 

24,817,950

 

 

24,817,950

 

 

25,327,285

 

 

24,363,421

 

The estimated fair values of the Hotel’s financial instruments are based on a cash flow model discounted at market interest rates that considers the underlying risks of these instruments.

6. Franchise Agreement

The Hotel operates as a Hilton Garden Inn under a franchise agreement. The Hotel is required to pay the franchisor a flat fee monthly for various supporting services, and is required to pay franchise, marketing, and reservation service fees which are based on a percentage of gross room revenues. These fees totaled $791,281 and $638,383 for the years ended 2010 and 2009, respectively. Of these amounts, $439,090 and $355,104 are included in franchise and management fees for the years ended 2010 and 2009, respectively. The remaining amounts are included in sales and marketing expense and operating expense.

The franchise agreement required an initial one-time fee of $91,500, which was recorded as an intangible asset. Amortization is calculated on a straight-line basis over 20 years, and began on the first day of operations.

11


6. Franchise Agreement (continued)

Franchise fees at December 31, 2010 and 2009 consisted of the following:

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 




 

 

 

 

 

 

 

 

 

Initial Cost

 

$

91,500

 

$

91,500

 

Less accumulated amortization

 

 

16,394

 

 

11,819

 

 

 






 

Franchise fees, net

 

$

75,106

 

$

79,681

 

 

 






 

Amortization expense for 2010 and 2009 was $4,575 in each period. The estimated aggregate amortization expense is $22,875 for the five succeeding fiscal years.

The Hotel also entered into an insignificant franchise agreement that required an initial one-time fee of $12,000, which was recorded as an intangible asset. Amortization is calculated on a straight-line basis over 10 years and began on the first day of operations.

7. Related Parties

The Hotel pays a monthly management fee of 5% of gross sales, as outlined in the management agreement, to Stonebridge Hospitality Services (the Manager), an affiliate of the Company. For the years ending December 31, 2010 and 2009, the fees were $564,093 and $476,893, respectively.

The Company makes distributions to the owners when cash on hand exceeds the current and anticipated needs of the Company. For the years ending December 31, 2010 and 2009, the distributions were $4,500,000 and $2,800,000, respectively.

8. Mortgage Payable

The Hotel had a mortgage note with FirsTier Bank at December 31, 2009 with outstanding balance of $25,327,285.

On December 31, 2010, the Hotel modified the FirsTier Bank note to extend the maturity date to January 1, 2014 and changed the monthly payment to $153,315 and interest rate to Prime Rate quoted in Wall Street Journal plus 2%, with floor of 5.9%. The outstanding balance of the note at December 31, 2010 was $24,817,950.

12


8. Mortgage Payable (continued)

The FirsTier Bank note requires the Hotel to maintain compliance with certain financial and non-financial covenants, as defined. As of December 31, 2010, the hotel was in compliance with these covenants.

The annual principal payment requirements are as follows:

 

 

 

 

 

2011

 

$

332,121

 

2012

 

 

381,382

 

2013

 

 

409,020

 

2014

 

 

23,695,427

 

 

 



 

 

 

$

24,817,950

 

 

 



 

9. Subsequent Events

On March 4, 2011 the Company sold the Hotel to a subsidiary of Apple REIT Ten, Inc., a Virginia Corporation, for $58,500,000.

On March 4, 2011 the Company paid off the mortgage note.

On March 4, 2011 the Company made a distribution to the owners for $32,000,000.

On April 15, 2011 the Company made a distribution to the owners for $1,375,000.

The Hotel has evaluated events through May 10, 2011, which is the date the financial statements were available for issuance.

13


Apple REIT Ten, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2010 (unaudited)
(in thousands, except share data)

The following unaudited Pro Forma Condensed Consolidated Balance Sheet of Apple REIT Ten, Inc. gives effect to the following hotel acquisitions:

 

 

 

 

 

 

 

 

Franchise

 

Location

 

Gross Purchase
Price (millions)

 

Actual Acquisition Date


 


 


 


Hilton Garden Inn

 

Denver, CO

 

$

58.5

 

March 4, 2011

 

 

 

 

 

 

 

 

CN Hotel Portfolio (4 Hotels):

 

 

 

 

 

 

 

Hampton Inn & Suites

 

Winston-Salem, NC

 

 

11.0

 

March 15, 2011

Fairfield Inn & Suites

 

Matthews, NC

 

 

10.0

 

March 25, 2011

TownePlace Suites

 

Columbia, SC

 

 

10.5

 

March 25, 2011

Home2 Suites

 

Jacksonville, NC

 

 

12.0

 

Pending

 

 

 

 



 

 

 

 

Total

 

$

102.0

 

 

 

 

 

 



 

 

This Pro Forma Condensed Consolidated Balance Sheet also assumes all of the hotels had been leased to our wholly-owned taxable REIT subsidiaries pursuant to master hotel lease arrangements. The hotels acquired will be managed by affiliates of Stonebridge Realty Advisors, Inc., MHH Management, LLC and Newport Hospitality Group, Inc. under separate management agreements.

Such pro forma information is based in part upon the historical Consolidated Balance Sheet of Apple REIT Ten, Inc. and the historical balance sheets of the hotel properties.

The following unaudited Pro Forma Condensed Consolidated Balance Sheet of Apple REIT Ten, Inc. is not necessarily indicative of what the actual financial position would have been assuming such transactions had been completed as of December 31, 2010 nor does it purport to represent the future financial position of Apple REIT Ten, Inc.

The unaudited Pro Forma Condensed Consolidated Balance Sheet should be read in conjunction with, and is qualified in its entirety by, the historical balance sheets of the acquired hotels.

14


Balance Sheet as of December 31, 2010 (unaudited)
(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company
Historical
Balance Sheet

 

Pro forma
Adjustments

 

 

 

Total
Pro forma

 

 

 


 


 

 

 


 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Investment in hotel properties, net

 

$

 

$

102,247

 

(A)

 

$

102,247

 

Cash and cash equivalents

 

 

124

 

 

76

 

(D)

 

 

200

 

Other assets

 

 

868

 

 

83

 

(C)

 

 

951

 

 

 



 



 

 

 



 

Total Assets

 

$

992

 

$

102,406

 

 

 

$

103,398

 

 

 



 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Note payable

 

$

400

 

 

(400

)

(E)

 

$

 

Accounts payable and accrued expenses

 

 

575

 

 

117

 

(C)

 

 

692

 

 

 



 



 

 

 



 

Total Liabilities

 

 

975

 

 

(283

)

 

 

 

692

 

 

 



 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, authorized 30,000,000 shares

 

 

 

 

 

 

 

 

 

Series A preferred stock, no par value, authorized 400,000,000 shares

 

 

 

 

 

 

 

 

 

Series B convertible preferred stock, no par value, authorized 480,000 shares

 

 

48

 

 

 

 

 

 

48

 

Common stock, no par value, authorized 400,000,000 shares

 

 

 

 

104,978

 

(E)

 

 

104,978

 

Accumulated deficit

 

 

(31

)

 

(2,289

)

(B)

 

 

(2,320

)

 

 



 



 

 

 



 

Total Shareholders’ Equity

 

 

17

 

 

102,689

 

 

 

 

102,706

 

 

 



 



 

 

 



 

Total Liabilities and Shareholders’ Equity

 

$

992

 

$

102,406

 

 

 

$

103,398

 

 

 



 



 

 

 



 


15



 

 

 

Notes to Pro Forma Condensed Consolidated Balance Sheet (unaudited)

 

 

(A)

The estimated total purchase price for the five properties that have been, or will be purchased after December 31, 2010 consists of the following. This purchase price allocation is preliminary and subject to change.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Denver, CO
Hilton
Garden Inn

 

Winston-Salem, NC
Hampton Inn
& Suites

 

Matthews, NC
Fairfield Inn
& Suites

 

Columbia, SC
TownePlace
Suites

 

Jacksonville, NC
Home2
Suites

 

Total
Combined

 

 

 

 


 


 


 


 


 


 

 

 

Purchase price per contract

 

$

58,500

 

$

11,000

 

$

10,000

 

$

10,500

 

$

12,000

 

$

102,000

 

 

Other capitalized costs (credits) incurred

 

 

47

 

 

50

 

 

50

 

 

50

 

 

50

 

 

247

 

 

 

 



 



 



 



 



 



 

 

Investment in hotel properties

 

 

58,547

 

 

11,050

 

 

10,050

 

 

10,550

 

 

12,050

 

 

102,247

 

(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition fee payable to Apple Suites Realty Group (2% of purchase price per contract)

 

 

1,170

 

 

220

 

 

200

 

 

210

 

 

240

 

 

2,040

 

(B)

Other acquisition related costs

 

 

89

 

 

24

 

 

31

 

 

45

 

 

60

 

 

249

 

(B)

Net other assets/(liabilities) assumed

 

 

44

 

 

(17

)

 

(3

)

 

(34

)

 

(24

)

 

(34

)

(C)

 

 



 



 



 



 



 



 

 

Total purchase price

 

$

59,850

 

$

11,277

 

$

10,278

 

$

10,771

 

$

12,326

 

$

104,502

 

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Cash on hand at December 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(124

)

 

Plus: Working capital requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

(D)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plus: Payoff of note payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

400

 

(E)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Equity proceeds needed for acquisitions, working capital and payoff of note payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 

104,978

 

(E)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 


 

 

(B)

Represents costs incurred to complete the acquisition, including, title, legal, accounting and other related costs, as well as the commission paid to Apple Suites Realty Group totaling 2% of purchase price per contract.

 

 

(C)

Represents other assets and liabilities assumed in the acquisition of the hotel including, operational charges and credits and accrued property taxes.

 

 

(D)

Represents the increase of cash and cash equivalents by the amount required for working capital.

 

 

(E)

Represents the issuance of additional shares required to fund working capital, payoff of note payable and fund acquisitions.


16


Apple REIT Ten, Inc.
Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the year ended December 31, 2010
(in thousands, except per share data)

The following unaudited Pro Forma Condensed Consolidated Statement of Operations of Apple REIT Ten, Inc. gives effect to the following hotel acquisition:

 

 

 

 

 

 

 

 

 

 

 

Franchise

 

 

Location

 

Gross Purchase
Price (millions)

 

 

Actual Acquisition Date

 


 

 


 


 

 


 

Hilton Garden Inn

 

 

Denver, CO

 

$

58.5

 

 

March 4, 2011

 

 

 

 

 

 

 

 

 

 

 

 

CN Hotel Portfolio (4 Hotels):

 

 

 

 

 

 

 

 

 

 

Hampton Inn & Suites

 

 

Winston-Salem, NC

 

 

11.0

 

 

March 15, 2011

 

Fairfield Inn & Suites

 

 

Matthews, NC

 

 

10.0

 

 

March 25, 2011

 

TownePlace Suites

 

 

Columbia, SC

 

 

10.5

 

 

March 25, 2011

 

Home2 Suites

 

 

Jacksonville, NC

 

 

12.0

 

 

Pending

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Total

 

$

102.0

 

 

 

 

 

 

 

 

 



 

 

 

 

This Pro Forma Condensed Consolidated Statement of Operations also assumes all of the hotels had been leased to our wholly-owned taxable REIT subsidiaries pursuant to master hotel lease arrangements. The hotels acquired will be managed by affiliates of Stonebridge Realty Advisors, Inc., MHH Management, LLC and Newport Hospitality Group, Inc. under separate management agreements.

Such pro forma information is based in part upon the historical Consolidated Statement of Operations of Apple REIT Ten, Inc. and the historical Statements of Operations of the hotel properties.

The following unaudited Pro Forma Condensed Consolidated Statement of Operations of Apple REIT Ten, Inc. is not necessarily indicative of what the actual financial results would have been assuming such transactions had been completed on the latter of January 1, 2010, or the date the hotel began operations nor do they purport to represent the future financial results of Apple REIT Ten, Inc.

The unaudited Pro Forma Condensed Consolidated Statement of Operations should be read in conjunction with, and is qualified in its entirety by the historical Statements of Operations of the acquired hotels.

17


Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the year ended December 31, 2010
(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company
Historical
Statement of
Operations

 

Denver, CO
Hilton
Garden Inn (A)

 

CN Hotel
Portfolio (A)

 

Pro forma
Adjustments

 

 

 

Total
Pro forma

 

 

 


 


 


 


 

 

 


 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Room revenue

 

$

 

$

8,978

 

$

3,339

 

$

 

 

 

$

12,317

 

Other revenue

 

 

 

 

2,372

 

 

59

 

 

 

 

 

 

2,431

 

 

 



 



 



 



 

 

 



 

Total revenue

 

 

 

 

11,350

 

 

3,398

 

 

 

 

 

 

14,748

 

 

 



 



 



 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

3,798

 

 

1,097

 

 

 

 

 

 

4,895

 

General and administrative

 

 

28

 

 

1,635

 

 

34

 

 

200

 

(B)

 

 

1,897

 

Management and franchise fees

 

 

 

 

1,003

 

 

494

 

 

 

 

 

 

1,497

 

Taxes, insurance and other

 

 

 

 

374

 

 

234

 

 

 

 

 

 

608

 

Acquisition related costs

 

 

 

 

 

 

 

 

1,989

 

(H)

 

 

1,989

 

Depreciation of real estate owned

 

 

 

 

1,325

 

 

463

 

 

(1,788

)

(C)

 

 

2,218

 

 

 

 

 

 

 

 

 

 

 

 

 

2,218

 

(D)

 

 

 

 

Interest, net

 

 

3

 

 

753

 

 

324

 

 

(1,081

)

(E)

 

 

(1

)

 

 



 



 



 



 

 

 



 

Total expenses

 

 

31

 

 

8,888

 

 

2,646

 

 

1,538

 

 

 

 

13,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

(G)

 

 

 

 

 



 



 



 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(31

)

$

2,462

 

$

752

 

$

(1,538

)

 

 

$

1,645

 

 

 



 



 



 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share

 

$

(3,083.50

)

 

 

 

 

 

 

 

 

 

 

 

$

0.19

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

 

 

 

 

 

 

 

8,707

 

(F)

 

 

8,707

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 


18


Notes to Pro Forma Condensed Consolidated Statements of Operations (unaudited):

(A) Represents results of operations for the hotels on a pro forma basis as if the hotels were owned by the Company at January 1, 2010 for the respective period prior to acquisition by the Company. The Company was initially formed on August 13, 2010, and had no operations prior to that date. Additionally, two properties began operations subsequent to January 1, 2010, and one property remained under construction as of December 31, 2010. Therefore, these hotels had limited historical operational activity prior to their opening. The properties and their applicable status are as follows: Winston-Salem, NC Hampton Inn & Suites, opened April 2010, Matthews, NC Fairfield Inn & Suites opened November 2010 and Jacksonville, NC Home2 Suites is under construction.

(B) Represents adjustments to level of administrative and other costs associated with being a public company and owning additional properties, including the advisory fee, accounting and legal expenses, net of cost savings derived from owning multiple operating properties.

(C) Represents elimination of historical depreciation and amortization expense of the acquired properties.

(D) Represents the depreciation on the hotels acquired based on the purchase price allocation to depreciable property and the dates the hotels began operation. The weighted average lives of the depreciable assets are 39 years for building and seven years for furniture, fixtures and equipment (FF&E). These estimated useful lives are based on management’s knowledge of the properties and the hotel industry in general.

(E) Interest expense related to prior owner’s debt which was not assumed has been eliminated.

(F) Represents the weighted average number of shares required to be issued to generate the purchase price of each hotel, net of any debt assumed. The calculation assumes all properties were acquired on the latter of January 1, 2010, or the dates the hotels began operations.

(G) Estimated income tax expense of our wholly owned taxable REIT subsidiaries is zero based on the contractual agreement put in place between the Company and our lessees, based on a combined tax rate of 40% of taxable income. Based on the terms of the lease agreements, our taxable subsidiaries would have incurred a loss during these periods. No operating loss benefit has been recorded as realization is not certain.

(H) Represents costs incurred to complete acquisitions, including, title, legal, accounting and other related costs, as well as the commission paid to Apple Suites Realty Group totaling 2% of purchase price per contract. These costs have been adjusted for hotel acquisitions on the latter of January 1, 2010 or the dates the hotels began operations.

19


SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

Apple REIT Ten, Inc.

 

 

 

 

By:

/s/ Glade M. Knight

 

 


 

 

Glade M. Knight,

 

 

Chief Executive Officer

 

 

 

 

 

May 17, 2011


20