Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - APPLE REIT SIX INC | Financial_Report.xls |
EX-32.1 - APPLE REIT SIX INC | ex32-1.htm |
EX-31.2 - APPLE REIT SIX INC | ex31-2.htm |
EX-31.1 - APPLE REIT SIX INC | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______
|
Commission File Number 000-51270
APPLE REIT SIX, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA
|
20-0620523
|
|
(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)
|
(804) 344-8121
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ¨
|
Accelerated filer ¨
|
Non-accelerated filer x
|
Smaller reporting company ¨
|
|||
(Do not check if a smaller
reporting company)
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Number of registrant’s common shares outstanding as of May 1, 2012: 90,916,139
APPLE REIT SIX, INC.
FORM 10-Q
INDEX
Page Number
|
|||
PART I. FINANCIAL INFORMATION
|
|||
Item 1.
|
|||
3
|
|||
4
|
|||
5
|
|||
6
|
|||
Item 2.
|
12
|
||
Item 3.
|
21
|
||
Item 4.
|
21
|
||
PART II. OTHER INFORMATION
|
|||
Item 1.
|
22
|
||
Item 2.
|
23
|
||
Item 6.
|
24
|
||
Signatures | 25 |
This Form 10-Q includes references to certain trademarks or service marks. The SpringHill Suites® by Marriott, TownePlace Suites® by Marriott, Fairfield Inn® by Marriott, Courtyard® by Marriott, Residence Inn® by Marriott and Marriott Suites® trademarks are the property of Marriott International, Inc. or one of its affiliates. The Homewood Suites® by Hilton, Hilton Garden Inn®, Hampton Inn® and Hampton Inn & Suites® trademarks are the property of Hilton Worldwide or one or more of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Apple REIT Six, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
March 31,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Investment in real estate, net of accumulated depreciation
of $193,862 and $185,860, respectively
|
$ | 741,257 | $ | 746,354 | ||||
Cash and cash equivalents
|
0 | 32 | ||||||
Restricted cash-furniture, fixtures and other escrows
|
3,663 | 3,570 | ||||||
Due from third party manager, net
|
11,588 | 6,598 | ||||||
Other assets, net
|
3,757 | 2,811 | ||||||
TOTAL ASSETS
|
$ | 760,265 | $ | 759,365 | ||||
LIABILITIES
|
||||||||
Credit facility
|
$ | 52,540 | $ | 43,690 | ||||
Mortgage debt
|
19,175 | 19,377 | ||||||
Accounts payable and accrued expenses
|
6,321 | 5,670 | ||||||
TOTAL LIABILITIES
|
78,036 | 68,737 | ||||||
SHAREHOLDERS' EQUITY
|
||||||||
Preferred stock, authorized 15,000,000 shares; none issued and outstanding
|
0 | 0 | ||||||
Series A preferred stock, no par value, authorized 200,000,000 shares;
issued and outstanding 91,212,249 and 91,181,198 shares, respectively
|
0 | 0 | ||||||
Series B convertible preferred stock, no par value, authorized 240,000 shares;
issued and outstanding 240,000 shares, respectively
|
24 | 24 | ||||||
Common stock, no par value, authorized 200,000,000 shares;
issued and outstanding 91,212,249 and 91,181,198 shares, respectively
|
899,692
|
899,345
|
||||||
Distributions greater than net income
|
(217,487 | ) | (208,741 | ) | ||||
TOTAL SHAREHOLDERS' EQUITY
|
682,229 | 690,628 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 760,265 | $ | 759,365 |
See notes to consolidated financial statements.
Apple REIT Six, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
Three months ended
|
||||||||
March 31,
|
||||||||
2012
|
2011
|
|||||||
Revenues:
|
||||||||
Room revenue
|
$ | 53,918 | $ | 50,769 | ||||
Other revenue
|
4,072 | 3,758 | ||||||
Reimbursed expenses
|
1,913 | 1,824 | ||||||
Total revenue
|
59,903 | 56,351 | ||||||
Expenses:
|
||||||||
Operating expense
|
15,283 | 14,368 | ||||||
Hotel administrative expense
|
4,927 | 4,699 | ||||||
Sales and marketing
|
4,730 | 4,417 | ||||||
Utilities
|
2,261 | 2,371 | ||||||
Repair and maintenance
|
2,791 | 2,622 | ||||||
Franchise fees
|
2,413 | 2,286 | ||||||
Management fees
|
1,944 | 1,824 | ||||||
Taxes, insurance and other
|
3,135 | 3,008 | ||||||
General and administrative
|
2,397 | 1,245 | ||||||
Reimbursed expenses
|
1,913 | 1,824 | ||||||
Depreciation expense
|
8,007 | 7,857 | ||||||
Total expenses
|
49,801 | 46,521 | ||||||
Operating income
|
10,102 | 9,830 | ||||||
Interest expense, net
|
(822 | ) | (889 | ) | ||||
Income from continuing operations
|
9,280 | 8,941 | ||||||
Income from discontinued operations
|
0 | 515 | ||||||
Net income
|
$ | 9,280 | $ | 9,456 | ||||
Basic and diluted net income per common share
|
||||||||
From continuing operations
|
$ | 0.10 | $ | 0.10 | ||||
From discontinued operations
|
0 | 0 | ||||||
Total basic and diluted net income per common share
|
$ | 0.10 | $ | 0.10 | ||||
Weighted average common shares outstanding -
basic and diluted |
91,082 | 91,356 |
See notes to consolidated financial statements.
Three Months Ended
|
||||||||
March 31,
|
||||||||
2012
|
2011
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 9,280 | $ | 9,456 | ||||
Adjustments to reconcile net income to cash provided by operating activities:
|
||||||||
Depreciation
|
8,007 | 7,857 | ||||||
Amortization of deferred financing costs, fair value
adjustments and other non-cash expenses, net |
36 | 21 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Increase in due from third party managers, net
|
(4,990 | ) | (4,956 | ) | ||||
Increase in other assets
|
(1,104 | ) | (629 | ) | ||||
Increase (decrease) in accounts payable and accrued expenses
|
863 | (307 | ) | |||||
Net cash provided by operating activities
|
12,092 | 11,442 | ||||||
Cash flows from investing activities:
|
||||||||
Capital improvements, net
|
(3,056 | ) | (3,530 | ) | ||||
Net increase in cash restricted for property improvements
|
(54 | ) | (76 | ) | ||||
Net cash used in investing activities
|
(3,110 | ) | (3,606 | ) | ||||
Cash flows from financing activities:
|
||||||||
Net proceeds from credit facility
|
8,850 | 9,256 | ||||||
Payments of mortgage debt
|
(185 | ) | (206 | ) | ||||
Net proceeds related to issuance of Units
|
5,399 | 7,343 | ||||||
Redemptions of Units
|
(5,052 | ) | (6,655 | ) | ||||
Distributions paid to common shareholders
|
(18,026 | ) | (17,574 | ) | ||||
Net cash used in financing activities
|
(9,014 | ) | (7,836 | ) | ||||
Net change in cash and cash equivalents
|
(32 | ) | 0 | |||||
Cash and cash equivalents, beginning of period
|
32 | 0 | ||||||
Cash and cash equivalents, end of period
|
$ | 0 | $ | 0 |
See notes to consolidated financial statements.
Apple REIT Six, Inc.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its 2011 Annual Report on Form 10-K. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2012.
2. General Information and Summary of Significant Accounting Policies
Organization
Apple REIT Six, Inc., together with its wholly owned subsidiaries (the “Company”), is a Virginia corporation that has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. The Company was formed to invest in income-producing real estate in the United States. Initial capitalization occurred on January 20, 2004 and operations began on May 28, 2004 when the Company acquired its first hotel. The Company concluded its best-efforts offering of Units (each Unit consists of one common share and one Series A preferred share) in March 2006. The Company’s fiscal year end is December 31. As of March 31, 2012 the Company owned 66 hotels. The Company has no foreign operations or assets and its operating structure includes only one segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Significant Account Policies
Use of Estimates
The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Earnings per Common Share
Basic earnings per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted earnings per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. There were no potential common shares with a dilutive effect during the three months ended March 31, 2012 or 2011. As a result, basic and dilutive outstanding shares were the same. Series B convertible preferred shares are not included in earnings per common share calculations until such time that such shares are eligible to be converted to common shares.
3. Credit Facility
The Company has a $60 million unsecured credit facility with a commercial bank that is utilized for working capital, hotel renovations, and other general corporate funding purposes, including the payment of redemptions and distributions. The Company refinanced the credit facility in September 2011 with its existing lender. The outstanding principal is required to be paid by the maturity date of September 8, 2013 and may be prepaid without penalty. Interest payments are due monthly and the interest rate is equal to the applicable LIBOR (the London Interbank Offered Rate) plus 3.5%. The credit facility also has an unused fee of 0.35% if the average outstanding quarterly balance is greater than $30 million and 0.5% if the average outstanding quarterly balance is less than $30 million. The outstanding balance on the credit facility as of March 31, 2012 and December 31, 2011 was $52.5 million and $43.7 million and its interest rate was 3.75% and 3.82%, respectively. The credit facility has two primary financial covenants. The Company was in compliance with each of these covenants at March 31, 2012.
4. Fair Value of Financial Instruments
The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity of the debt obligation with similar credit terms and credit characteristics which are Level 3 inputs. Market rates take into consideration general market conditions and maturity. As of March 31, 2012, the carrying value and estimated fair value of the Company’s debt was approximately $71.7 million and $73.2 million. As of December 31, 2011, the carrying value and estimated fair value of the Company’s debt was $63.1 million and $64.0 million. The carrying value of the Company’s other financial instruments approximates fair value due to the short-term nature of these financial instruments.
5. Related Parties
The Company has, and is expected to continue to engage in, significant transactions with related parties. These transactions cannot be construed to be at arms length, and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. The Company’s independent members of the Board of Directors oversee and annually review the Company’s related party relationships (which include the relationships discussed in this section) and are required to approve any significant modifications to the contracts, as well as any new significant related party transactions. There were no changes to the contracts discussed in this section and no new significant related party transactions during the three months ended March 31, 2012. The Board of Directors is not required to approve each individual transaction that falls under the related party relationships. However, under the direction of the Board of Directors, at least one member of the Company’s senior management team approves each related party transaction.
The Company has a contract with Apple Six Realty Group (“A6RG”), to provide brokerage services for the acquisition and disposition of the Company’s real estate assets. In accordance with the contract, A6RG is paid a fee of 2% of the gross purchase price of any acquisitions or gross sale price of any dispositions of real estate investments, subject to certain conditions plus certain reimbursable costs. As of March 31, 2012, payments to A6RG for services under the terms of this contract have totaled $16.9 million since inception which were capitalized as a part of the purchase price of the hotels. No fees were incurred during the three months ended March 31, 2012 and 2011 under this contract.
The Company is party to an advisory agreement with Apple Six Advisors, Inc. (“A6A”), pursuant to which A6A provides management services to the Company. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company, in addition to certain reimbursable expenses, are payable for these services. Total advisory fees incurred by the Company under the advisory agreement are included in general and administrative expenses and totaled $0.6 million and $0.4 million for the three months ended March 31, 2012 and 2011.
Through its wholly-owned subsidiary, Apple Fund Management, LLC (“AFM”), the Company provides support services to A6RG, Apple Suites Realty Group, Inc. (“ASRG”), A6A, Apple Seven Advisors, Inc. (“A7A”), Apple REIT Seven, Inc., Apple Eight Advisors, Inc. (“A8A”), Apple REIT Eight, Inc., Apple Nine Advisors, Inc. (“A9A”), Apple REIT Nine, Inc., Apple Ten Advisors, Inc. (“A10A”) and Apple REIT Ten, Inc. A7A provides day to day advisory and administrative functions for Apple REIT Seven, Inc. A8A provides day to day advisory and administrative functions for Apple REIT Eight, Inc. A9A provides day to day advisory and administrative functions for Apple REIT Nine, Inc. A10A provides day to day advisory and administrative functions for Apple REIT Ten, Inc. ASRG provides real estate brokerage services to Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Each of these companies has agreed to reimburse the Company for its costs in providing these services. A6RG, ASRG, A6A, A7A, A8A, A9A, and A10A are 100% owned by Glade Knight, the Company’s Chairman and Chief Executive Officer. For the three months ended March 31, 2012 and 2011, the Company received reimbursement of its costs totaling $1.9 million and $1.8 million from the participating entities. The Company’s net allocated cost for these support services was approximately $0.3 million and $0.4 million for the three months ended March 31, 2012 and 2011. As part of this arrangement, the day to day transactions may result in amounts due to or from the noted related parties. To effectively manage cash disbursements, the individual companies may make payments for any or all of the related companies. The amounts due to or from the related companies are reimbursed or collected and are not significant in amount.
Although there is a potential conflict on time allocation of personnel due to the fact that a senior manager, officer or staff member will provide services to more than one company, the Company believes that the executives and staff compensation sharing arrangement allows the companies to share costs yet attract and retain superior executives and staff. The cost sharing structure also allows each entity to maintain a much more cost effective structure than having separate staffing arrangements. Amounts reimbursed to the Company include both compensation for personnel and “overhead” (office rent, utilities, benefits, office supplies, etc.) utilized by the companies. AFM receives its direction for staffing and compensation from the advisory companies (A6A, A7A, A8A, A9A, A10A, ASRG, and A6RG) each of which is wholly owned by Glade M Knight. Since the employees of AFM may also perform services for the advisors, individuals, including executive officers, have received and may receive consideration directly from the advisors. The allocation of costs is made by the management of the several REITs and is reviewed at least annually by the Compensation Committees of the several REITs. In making the allocation, management and the Compensation Committee consider all relevant facts related to the Company’s level of business activity and the extent to which the Company requires the services of particular personnel. The costs allocated are actual costs and do not include any profit/markup for the Company. Such payments are not based on formal record keeping regarding the time these personnel devote to the Company, but are based on a good faith estimate by the employee and/or his or her supervisor of the time devoted by the employee to each Company.
Including A6RG, ASRG, A6A, A7A, A8A, A9A and A10A discussed above, Mr. Knight is also Chairman and Chief Executive Officer of Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Members of the Company’s Board of Directors are also on the boards of Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.
Included in other assets, net on the Company’s consolidated balance sheet is a 26% equity investment in Apple Air Holding, LLC (“Apple Air”). The other members of Apple Air are Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc. Through its equity investment the Company has access to Apple Air’s aircraft for asset management and renovation purposes. The Company’s equity investment was approximately $1.7 million at both March 31, 2012 and December 31, 2011. The Company has recorded its share of income and losses of the entity under the equity method of accounting and adjusted its investment in Apple Air accordingly. For the three months ended March 31, 2012 and 2011, the Company recorded a loss of approximately $42,000 and $53,000 as its share of the net loss of Apple Air, which primarily relates to the depreciation of the aircraft, and is included in general and administrative expense in the Company’s consolidated statements of operations.
The Company has incurred legal fees associated with the Legal Proceedings discussed herein. The Company also incurs other professional fees such as accounting, auditing and reporting. These fees are included in general and administrative expense in the Company’s consolidated statements of operations. To be cost effective, these services received by the Company are shared as applicable across the other Apple REIT Companies (Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc., and Apple REIT Ten, Inc.). The professionals cannot always specifically identify their fees for one company therefore management allocates these costs across the companies that benefit from the services.
6. Shareholders’ Equity
Unit Redemption Program
The Company has a Unit Redemption Program to provide limited interim liquidity to its shareholders who have held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equal to the lesser of: (1) the purchase price per Unit that the shareholder actually paid for the Unit; or (2) $11.00 per Unit. The Company reserves the right to change the purchase price of redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. Since inception of the program through March 31, 2012, the Company has redeemed approximately 17.1 million Units representing $187.5 million, including 0.5 million Units in the amount of $5.1 million and 0.6 million Units in the amount of $6.7 million redeemed during the three months ended March 31, 2012 and 2011, respectively. As contemplated in the program, beginning with the July 2011 redemption, the scheduled redemption date for the third quarter of 2011, the Company redeemed Units on a pro-rata basis. Prior to July 2011, the Company redeemed 100% of redemption requests. The following is a summary of the Unit redemptions during 2011 and the first quarter of 2012:
Redemption
Date
|
Requested Unit
Redemptions
|
Units Redeemed
|
Redemption Requests
not Redeemed
|
|||||||||
January 2011
|
606,064 | 606,064 | - | |||||||||
April 2011
|
683,427 | 683,427 | - | |||||||||
July 2011
|
4,412,066 | 737,284 | 3,674,782 | |||||||||
October 2011
|
9,878,351 | 726,613 | 9,151,738 | |||||||||
January 2012
|
11,591,274 | 459,736 | 11,131,538 |
As noted in the table above, beginning with the July 2011 redemption, the total redemption requests exceeded the authorized amount of redemptions and, as a result the Board of Directors has and will continue to limit the amount of redemptions as it deems prudent.
Dividend Reinvestment Plan
In February 2006, the Company instituted a Dividend Reinvestment Plan for its shareholders. The plan provides a way to increase shareholder investment in the Company by reinvesting dividends to purchase additional Units of the Company. The uses of the proceeds from this plan may include purchasing Units under the Company’s Unit Redemption Program, enhancing properties, satisfying financing obligations and other expenses, increasing working capital, funding various corporate operations, and acquiring hotels. The Company has registered 20 million Units for potential issuance under the plan. During the three months ended March 31, 2012 and 2011, approximately 0.5 million Units, representing $5.4 million and 0.7 million Units, representing $7.3 million in proceeds to the Company, were issued under the plan. Since the inception of the plan through March 31, 2012, approximately 17.2 million Units, representing $189.0 million in proceeds to the Company, were issued under the plan.
Distributions
The Company’s annual distribution rate as of March 31, 2012 was $0.792 per common share, payable monthly. For the three months ended March 31, 2012 and 2011, the Company made distributions of $0.198 and $0.193 per common share for a total of $18.0 million and $17.6 million.
7. Legal Proceedings
The term the “Apple REIT Companies” means the Company, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc.
On December 13, 2011, the United States District Court for the Eastern District of New York ordered that three putative class actions, Kronberg, et al. v. David Lerner Associates, Inc., et al., Kowalski v. Apple REIT Ten, Inc., et al., and Leff v. Apple REIT Ten, Inc., et al., be consolidated and amended the caption of the consolidated matter to be In re Apple REITs Litigation. The District Court also appointed lead plaintiffs and lead counsel for the consolidated action and ordered lead plaintiffs to file and serve a consolidated complaint by February 17, 2012. The parties agreed to a schedule for answering or otherwise responding to the complaint and that briefing on any motion to dismiss the complaint will be concluded by June 18, 2012. The Company was previously named as a party in the Kronberg, et al. v. David Lerner Associates, Inc., et al. class action lawsuit.
On February 17, 2012, lead plaintiffs and lead counsel in the In re Apple REITs Litigation, Civil Action No. 1:11-cv-02919-KAM-JO, filed an amended consolidated complaint in the United States District Court for the Eastern District of New York against the Company, Apple Suites Realty Group, Inc., Apple Eight Advisors, Inc., Apple Nine Advisors, Inc., Apple Ten Advisors, Inc., Apple Fund Management, LLC, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc., their directors and certain officers, and David Lerner Associates, Inc. and David Lerner. The consolidated complaint, purportedly brought on behalf of all purchasers of Units in the Company and the other Apple REIT Companies, or those who otherwise acquired these Units that were offered and sold to them by David Lerner Associates, Inc., or its affiliates and on behalf of subclasses of shareholders in New Jersey, New York, Connecticut and Florida, asserts claims under Sections 11, 12 and 15 of the Securities Act of 1933. The consolidated complaint also asserts claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, negligence, and unjust enrichment, and claims for violation of the securities laws of Connecticut and Florida. The complaint seeks, among other things, certification of a putative nationwide class and the state subclasses, damages, rescission of share purchases and other costs and expenses.
On February 16, 2012, one shareholder of the Company and Apple REIT Seven, Inc., filed a putative class action lawsuit captioned Laurie Brody v. David Lerner Associates, Inc., et al., Case No. 1:12-cv-782-ERK-RER, in the United States District Court for the Eastern District of New York against the Company, Apple REIT Seven, Inc., Glade M. Knight, Apple Suites Realty Group, Inc., David Lerner Associates, Inc., and certain executives of David Lerner Associates, Inc. The complaint, purportedly brought on behalf of all purchasers of Units of the Company and Apple REIT Seven, Inc., or those who otherwise acquired these Units, asserts claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, unjust enrichment, negligence, breach of written or implied contract (against the David Lerner Associates, Inc. defendants only), and for violation of New Jersey’s state securities laws. On March 13, 2012, by order of the court, Laurie Brody v. David Lerner Associates, Inc., et al. was consolidated into the In re Apple REITs Litigation.
On April 18, 2012, the Company, and the other Apple REIT Companies, served a motion to dismiss the consolidated complaint in the In re Apple REITs Litigation. The Company and the other Apple REIT Companies accompanied their motion to dismiss the consolidated complaint with a memorandum of law in support of their motion to dismiss the consolidated complaint. As noted above, the briefing for any motion to dismiss is expected to be concluded by June 18, 2012.
The Company believes that any claims against it, its officers and directors and other Apple entities are without merit, and intends to defend against them vigorously. At this time, the Company cannot reasonably predict the outcome of these proceedings or provide a reasonable estimate of the possible loss or range of loss due to these proceedings, if any.
8. Discontinued Operations
The Company completed the sale of two hotels on June 6, 2011; therefore these properties had no results of operations in 2012. The results of operations for these properties for the three months ended March 31, 2011 have been classified in the consolidated statements of operations in the line item income from discontinued operations.
The following table sets forth the components of income from discontinued operations for the three months ended March 31, 2011 (in thousands):
Three months
|
||||
ended
|
||||
March 31, 2011
|
||||
Total revenue
|
$ | 1,352 | ||
Hotel operating expenses
|
760 | |||
Taxes, insurance and other
|
77 | |||
Depreciation expense
|
- | |||
Income from discontinued operations
|
$ | 515 |
9. Subsequent Events
In April 2012, the Company declared and paid approximately $6.0 million, or $0.066 per outstanding common share, in distributions to its common shareholders, of which approximately $1.7 million or 159,000 Units were reinvested under the Company’s Dividend Reinvestment Plan.
In April 2012, under the guidelines of the Company’s Unit Redemption Program, the Company redeemed approximately 455,000 Units in the amount of $5.0 million. As contemplated in the program, the Company redeemed Units on a pro-rata basis, whereby a percentage of each requested redemption was fulfilled at the discretion of the Company’s Board of Directors. This redemption was approximately 4% of the total 11.2 million requested Units to be redeemed, with approximately 10.7 million requested Units not redeemed.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by use of terms such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the ability of the Company to implement its acquisition strategy and operating strategy; the Company’s ability to manage planned growth; changes in economic cycles; the outcome of current and future litigation, regulatory proceedings, or inquiries; and competition within the hotel industry. Although the Company believes 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 the quarterly report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code. Readers should carefully review the Company’s financial statements and the notes thereto, as well as the risk factors described in the Company’s filings with the Securities and Exchange Commission. Any forward-looking statement that the Company makes speaks only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events or otherwise, except as required by law.
Overview
Apple REIT Six, Inc., together with its wholly owned subsidiaries (the “Company”), was formed to invest in income-producing real estate in the United States. The Company was initially capitalized on January 20, 2004, with its first investor closing on April 23, 2004. The Company completed its best-efforts offering of Units (each Unit consists of one common share and one Series A preferred share) in March 2006. The Company has elected to be treated as a real estate investment trust (“REIT”) for federal income tax purposes. As of March 31, 2012, the Company owned 66 hotels within different markets in the United States. The Company’s first hotel was acquired on May 28, 2004.
Hotel Operations
Although hotel performance can be influenced by many factors including local competition, local and general economic conditions in the United States and the performance of individual managers assigned to each hotel, performance of the hotels as compared to other hotels within their respective local markets, in general, has met the Company’s expectations for the period owned. Beginning in 2011 and continuing through the first quarter of 2012, the hotel industry and Company’s revenues and operating income have shown improvement from the significant decline in the industry during 2008 through 2010. Although there is no way to predict future general economic conditions, the Company anticipates mid single digit revenue percentage increases for 2012 as compared to 2011. In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”), revenue per available room (“RevPAR”), and market yield which compares an individual hotel’s results to others in its local market, and expenses, such as hotel operating expenses, general and administrative and other expenses described below.
The Company continually monitors the profitability of its properties and attempts to maximize shareholder value by timely disposal of properties. During the third quarter of 2010 the Company committed to sell two underperforming assets, the Tempe, Arizona TownePlace Suites and SpringHill Suites. The Company completed the sale of these two hotels in June 2011. The results of these properties have been included in discontinued operations for the period owned and are not included in the summary below. The following is a summary of the Company’s results from continuing operations:
Three Months Ended March 31,
|
||||||||||||||||||||
(in thousands, except statistical data)
|
2012
|
Percent of Revenue
|
2011
|
Percent of Revenue
|
Percent Change
|
|||||||||||||||
Total hotel revenue
|
$ | 57,990 | 100 | % | $ | 54,527 | 100 | % | 6 | % | ||||||||||
Hotel operating expenses
|
34,349 | 59 | % | 32,587 | 60 | % | 5 | % | ||||||||||||
Taxes, insurance and other expense
|
3,135 | 5 | % | 3,008 | 6 | % | 4 | % | ||||||||||||
General and administrative expense
|
2,397 | 4 | % | 1,245 | 2 | % | 93 | % | ||||||||||||
Depreciation
|
8,007 | 7,857 | 2 | % | ||||||||||||||||
Interest expense, net
|
822 | 889 | -8 | % | ||||||||||||||||
Number of hotels
|
66 | 66 | - | |||||||||||||||||
Average Market Yield (1)
|
123 | 123 | - | |||||||||||||||||
ADR
|
$ | 110 | $ | 107 | 3 | % | ||||||||||||||
Occupancy
|
70 | % | 69 | % | 1 | % | ||||||||||||||
RevPAR
|
$ | 77 | $ | 74 | 4 | % | ||||||||||||||
Total rooms sold (2)
|
483,179 | 470,596 | 3 | % | ||||||||||||||||
Total rooms available (3)
|
692,447 | 685,320 | 1 | % |
(1) Calculated from data provided by Smith Travel Research, Inc.® Excludes hotels under renovation during the applicable periods.
|
(2) Represents the number of room nights sold during the period.
|
(3) Represents the number of rooms owned by the Company multiplied by the number of nights in the period.
|
Legal Proceedings
The term the “Apple REIT Companies” means the Company, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc.
On December 13, 2011, the United States District Court for the Eastern District of New York ordered that three putative class actions, Kronberg, et al. v. David Lerner Associates, Inc., et al., Kowalski v. Apple REIT Ten, Inc., et al., and Leff v. Apple REIT Ten, Inc., et al., be consolidated and amended the caption of the consolidated matter to be In re Apple REITs Litigation. The District Court also appointed lead plaintiffs and lead counsel for the consolidated action and ordered lead plaintiffs to file and serve a consolidated complaint by February 17, 2012. The parties agreed to a schedule for answering or otherwise responding to the complaint and that briefing on any motion to dismiss the complaint will be concluded by June 18, 2012. The Company was previously named as a party in the Kronberg, et al. v. David Lerner Associates, Inc., et al. class action lawsuit.
On February 17, 2012, lead plaintiffs and lead counsel in the In re Apple REITs Litigation, Civil Action No. 1:11-cv-02919-KAM-JO, filed an amended consolidated complaint in the United States District Court for the Eastern District of New York against the Company, Apple Suites Realty Group, Inc., Apple Eight Advisors, Inc., Apple Nine Advisors, Inc., Apple Ten Advisors, Inc., Apple Fund Management, LLC, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc., their directors and certain officers, and David Lerner Associates, Inc. and David Lerner. The consolidated complaint, purportedly brought on behalf of all purchasers of Units in the Company and the other Apple REIT Companies, or those who otherwise acquired these Units that were offered and sold to them by David Lerner Associates, Inc., or its affiliates and on behalf of subclasses of shareholders in New Jersey, New York, Connecticut and Florida, asserts claims under Sections 11, 12 and 15 of the Securities Act of 1933. The consolidated complaint also asserts claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, negligence, and unjust enrichment, and claims for violation of the securities laws of Connecticut and Florida. The complaint seeks, among other things, certification of a putative nationwide class and the state subclasses, damages, rescission of share purchases and other costs and expenses.
On February 16, 2012, one shareholder of the Company and Apple REIT Seven, Inc., filed a putative class action lawsuit captioned Laurie Brody v. David Lerner Associates, Inc., et al., Case No. 1:12-cv-782-ERK-RER, in the United States District Court for the Eastern District of New York against the Company, Apple REIT Seven, Inc., Glade M. Knight, Apple Suites Realty Group, Inc., David Lerner Associates, Inc., and certain executives of David Lerner Associates, Inc. The complaint, purportedly brought on behalf of all purchasers of Units of the Company and Apple REIT Seven, Inc., or those who otherwise acquired these Units, asserts claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, unjust enrichment, negligence, breach of written or implied contract (against the David Lerner Associates, Inc. defendants only), and for violation of New Jersey’s state securities laws. On March 13, 2012, by order of the court, Laurie Brody v. David Lerner Associates, Inc., et al. was consolidated into the In re Apple REITs Litigation.
On April 18, 2012, the Company, and the other Apple REIT Companies, served a motion to dismiss the consolidated complaint in the In re Apple REITs Litigation. The Company and the other Apple REIT Companies accompanied their motion to dismiss the consolidated complaint with a memorandum of law in support of their motion to dismiss the consolidated complaint. As noted above, the briefing for any motion to dismiss is expected to be concluded by June 18, 2012.
The Company believes that any claims against it, its officers and directors and other Apple entities are without merit, and intends to defend against them vigorously. At this time, the Company cannot reasonably predict the outcome of these proceedings or provide a reasonable estimate of the possible loss or range of loss due to these proceedings, if any.
Hotels Owned
The following table summarizes the location, brand, manager, date acquired, number of rooms and gross purchase price for each of the 66 hotels the Company owned at March 31, 2012. All dollar amounts are in thousands.
City
|
State
|
Brand
|
Manager
|
Date Acquired
|
Rooms
|
Gross
Purchase
Price
|
||||||||||
Birmingham
|
Alabama
|
Fairfield Inn
|
LBA
|
8/25/05
|
63 | $ | 2,176 | |||||||||
Dothan
|
Alabama
|
Courtyard
|
LBA
|
8/11/05
|
78 | 8,016 | ||||||||||
Dothan
|
Alabama
|
Hampton Inn & Suites
|
LBA
|
6/24/05
|
85 | 8,673 | ||||||||||
Huntsville
|
Alabama
|
Fairfield Inn
|
LBA
|
9/30/05
|
79 | 4,954 | ||||||||||
Huntsville
|
Alabama
|
Residence Inn
|
LBA
|
6/24/05
|
78 | 8,288 | ||||||||||
Montgomery
|
Alabama
|
SpringHill Suites
|
LBA
|
9/30/05
|
79 | 6,835 | ||||||||||
Tuscaloosa
|
Alabama
|
Courtyard
|
LBA
|
8/25/05
|
78 | 7,551 | ||||||||||
Tuscaloosa
|
Alabama
|
Fairfield Inn
|
LBA
|
8/25/05
|
63 | 3,982 | ||||||||||
Anchorage
|
Alaska
|
Hampton Inn
|
Stonebridge
|
3/14/05
|
101 | 11,500 | ||||||||||
Anchorage
|
Alaska
|
Hilton Garden Inn
|
Stonebridge
|
10/12/04
|
125 | 18,900 | ||||||||||
Anchorage
|
Alaska
|
Homewood Suites
|
Stonebridge
|
10/12/04
|
122 | 13,200 | ||||||||||
Phoenix
|
Arizona
|
Hampton Inn
|
Stonebridge
|
10/12/04
|
99 | 6,700 | ||||||||||
Arcadia
|
California
|
Hilton Garden Inn
|
Stonebridge
|
10/12/04
|
124 | 12,000 | ||||||||||
Arcadia
|
California
|
SpringHill Suites
|
Stonebridge
|
10/12/04
|
86 | 8,100 | ||||||||||
Bakersfield
|
California
|
Hilton Garden Inn
|
Hilton
|
3/18/05
|
120 | 11,500 | ||||||||||
Folsom
|
California
|
Hilton Garden Inn
|
Inn Ventures
|
11/30/05
|
100 | 18,028 | ||||||||||
Foothill Ranch
|
California
|
Hampton Inn
|
Stonebridge
|
4/21/05
|
84 | 7,400 | ||||||||||
Lake Forest
|
California
|
Hilton Garden Inn
|
Stonebridge
|
10/12/04
|
103 | 11,400 | ||||||||||
Milpitas
|
California
|
Hilton Garden Inn
|
Inn Ventures
|
11/30/05
|
161 | 18,600 | ||||||||||
Roseville
|
California
|
Hilton Garden Inn
|
Inn Ventures
|
11/30/05
|
131 | 20,759 | ||||||||||
San Francisco
|
California
|
Hilton Garden Inn
|
White
|
1/30/06
|
169 | 12,266 | ||||||||||
Boulder
|
Colorado
|
Marriott
|
White
|
5/9/05
|
157 | 30,000 | ||||||||||
Glendale
|
Colorado
|
Hampton Inn & Suites
|
Stonebridge
|
10/12/04
|
133 | 14,700 |
Lakewood
|
Colorado
|
Hampton Inn
|
Stonebridge
|
10/12/04
|
170 | 10,600 | ||||||||||
Farmington
|
Connecticut
|
Courtyard
|
White
|
10/20/05
|
119 | 16,330 | ||||||||||
Rocky Hill
|
Connecticut
|
Residence Inn
|
White
|
8/1/05
|
96 | 12,070 | ||||||||||
Wallingford
|
Connecticut
|
Homewood Suites
|
White
|
7/8/05
|
104 | 12,780 | ||||||||||
Clearwater
|
Florida
|
SpringHill Suites
|
LBA
|
2/17/06
|
79 | 6,923 | ||||||||||
Lake Mary
|
Florida
|
Courtyard
|
LBA
|
3/18/05
|
86 | 6,000 | ||||||||||
Lakeland
|
Florida
|
Residence Inn
|
LBA
|
6/24/05
|
78 | 9,886 | ||||||||||
Orange Park
|
Florida
|
Fairfield Inn
|
LBA
|
11/8/05
|
83 | 7,221 | ||||||||||
Panama City
|
Florida
|
Courtyard
|
LBA
|
4/26/06
|
84 | 9,245 | ||||||||||
Pensacola
|
Florida
|
Courtyard
|
LBA
|
8/25/05
|
90 | 11,369 | ||||||||||
Pensacola
|
Florida
|
Fairfield Inn
|
LBA
|
8/25/05
|
63 | 4,858 | ||||||||||
Pensacola
|
Florida
|
Hampton Inn & Suites
|
LBA
|
7/21/05
|
85 | 9,279 | ||||||||||
Tallahassee
|
Florida
|
Hilton Garden Inn
|
Hilton
|
3/18/05
|
99 | 10,850 | ||||||||||
Albany
|
Georgia
|
Courtyard
|
LBA
|
6/24/05
|
84 | 8,597 | ||||||||||
Columbus
|
Georgia
|
Residence Inn
|
LBA
|
6/24/05
|
78 | 7,888 | ||||||||||
Savannah
|
Georgia
|
SpringHill Suites
|
LBA
|
9/30/05
|
79 | 5,407 | ||||||||||
Valdosta
|
Georgia
|
Courtyard
|
LBA
|
10/3/05
|
84 | 8,284 | ||||||||||
Mt. Olive
|
New Jersey
|
Residence Inn
|
White
|
9/15/05
|
123 | 12,070 | ||||||||||
Somerset
|
New Jersey
|
Homewood Suites
|
White
|
8/17/05
|
123 | 17,750 | ||||||||||
Saratoga Springs
|
New York
|
Hilton Garden Inn
|
White
|
9/29/05
|
112 | 17,750 | ||||||||||
Roanoke Rapids
|
North Carolina
|
Hilton Garden Inn
|
Newport
|
3/10/08
|
147 | 17,764 | ||||||||||
Hillsboro
|
Oregon
|
Courtyard
|
Inn Ventures
|
3/9/06
|
155 | 11,000 | ||||||||||
Hillsboro
|
Oregon
|
Residence Inn
|
Inn Ventures
|
3/9/06
|
122 | 15,500 | ||||||||||
Hillsboro
|
Oregon
|
TownePlace Suites
|
Inn Ventures
|
12/19/05
|
136 | 11,500 | ||||||||||
Portland
|
Oregon
|
Residence Inn
|
Inn Ventures
|
12/19/05
|
258 | 42,000 | ||||||||||
Pittsburgh
|
Pennsylvania
|
Residence Inn
|
White
|
9/2/05
|
156 | 11,000 | ||||||||||
Myrtle Beach
|
South Carolina
|
Courtyard
|
Marriott
|
6/8/04
|
135 | 9,200 | ||||||||||
Nashville
|
Tennessee
|
Homewood Suites
|
Hilton
|
5/24/05
|
121 | 8,103 | ||||||||||
Arlington
|
Texas
|
SpringHill Suites
|
Western
|
6/30/05
|
122 | 7,486 | ||||||||||
Arlington
|
Texas
|
TownePlace Suites
|
Western
|
6/30/05
|
95 | 7,148 | ||||||||||
Dallas
|
Texas
|
SpringHill Suites
|
Western
|
12/9/05
|
148 | 19,500 | ||||||||||
Ft. Worth
|
Texas
|
Homewood Suites
|
Hilton
|
5/24/05
|
137 | 9,097 | ||||||||||
Ft. Worth
|
Texas
|
Residence Inn
|
Western
|
5/6/05
|
149 | 17,000 | ||||||||||
Ft. Worth
|
Texas
|
SpringHill Suites
|
Marriott
|
5/28/04
|
145 | 13,340 | ||||||||||
Laredo
|
Texas
|
Homewood Suites
|
Western
|
11/30/05
|
106 | 10,500 | ||||||||||
Laredo
|
Texas
|
Residence Inn
|
Western
|
9/12/05
|
109 | 11,445 | ||||||||||
Las Colinas
|
Texas
|
TownePlace Suites
|
Western
|
6/30/05
|
136 | 7,178 | ||||||||||
McAllen
|
Texas
|
Hilton Garden Inn
|
Western
|
7/19/05
|
104 | 9,000 | ||||||||||
Fredericksburg
|
Virginia
|
Hilton Garden Inn
|
Hilton
|
12/20/05
|
148 | 16,600 | ||||||||||
Kent
|
Washington
|
TownePlace Suites
|
Inn Ventures
|
12/19/05
|
152 | 12,000 | ||||||||||
Mukilteo
|
Washington
|
TownePlace Suites
|
Inn Ventures
|
12/19/05
|
128 | 12,000 | ||||||||||
Redmond
|
Washington
|
Marriott
|
Marriott
|
7/7/04
|
262 | 64,000 | ||||||||||
Renton
|
Washington
|
Hilton Garden Inn
|
Inn Ventures
|
11/30/05
|
150 | 16,096 | ||||||||||
Total
|
7,658 | $ | 829,142 |
Results of Operations
As of March 31, 2012, the Company owned 66 hotels with 7,658 rooms. The Company’s portfolio reflects the sale of two Tempe, Arizona properties in June 2011. Hotel performance is impacted by many factors, including the economic conditions in the United States, as well as each locality. During the period from the second half of 2008 through 2010, the overall weakness in the U.S. economy had a considerable negative impact on both consumer and business travel. As a result, hotel revenue in most markets in the United States declined from levels of 2007 and the first half of 2008. However, economic conditions have shown evidence of improvement in 2011 and the first quarter of 2012. Although the Company expects continued improvements in 2012, it is not anticipated that revenue and operating income will completely return to pre-recession levels. The Company’s hotels in general have shown results consistent with industry and brand averages for the period of ownership.
Revenues
The Company’s principal source of revenue is hotel revenue, consisting of room and other related revenue. For the three months ended March 31, 2012 and 2011, the Company had total hotel revenue from continuing operations of $58.0 million and $54.5 million, respectively. For the three months ended March 31, 2012 and 2011, the hotels achieved average occupancy of 70% and 69%, ADR of $110 and $107 and RevPAR of $77 and $74. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.
Since the beginning of 2010 and continuing into 2012, the Company has experienced an increase in demand, as demonstrated by the improvement in average occupancy. In addition, also signifying a stabilizing economy, the Company experienced an increase in ADR of 3% during the first quarter of 2012 as compared to the first quarter of 2011. With continued demand and room rate improvement, the Company and industry are forecasting a mid single digit percentage increase in revenue for 2012 as compared to 2011. While reflecting the impact of post-recessionary levels of single-digit growth in national economic activity, the Company’s hotels also continue to be leaders in their respective markets. The Company’s average Market Yield for the first three months of both 2012 and 2011 was 123. The Market Yield is a measure of each hotel’s RevPAR compared to the average in the market; with 100 being the average (the index excludes hotels under renovation) and is provided by Smith Travel Research, Inc. ®, an independent company that tracks historical hotel performance in most markets throughout the world. The Company will continue to pursue market opportunities to improve revenue.
Expenses
Hotel operating expenses consist of direct room expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. For the three months ended March 31, 2012 and 2011, hotel operating expenses from continuing operations totaled $34.3 million and $32.6 million, respectively, representing 59% and 60% of total hotel revenue. Results for the three months ended March 31, 2012 reflect the impact of modest increases in revenues and occupancy at most of the Company’s hotels, and the Company’s efforts to control costs. Certain operating costs such as management costs, certain utility costs and minimum supply and maintenance costs are relatively fixed in nature. The Company has been successful in reducing, relative to revenue increases, certain labor costs, hotel supply costs, maintenance costs and utilities by continually monitoring and sharing utilization data across its hotels and management companies. Although operating expenses will increase as occupancy and revenue increases, the Company has and will continue to work with its management companies to reduce costs as a percentage of revenue as aggressively as possible while maintaining quality and service levels at each property.
Taxes, insurance, and other expenses from continuing operations for the three months ended March 31, 2012 and 2011 were $3.1 million and $3.0 million, respectively, or 5% and 6% of total hotel revenue. Although the first quarter of 2012 included the benefit of successful appeals, property taxes will likely increase for the full year of 2012 if the economy continues to improve and localities reassess property values accordingly. Also, 2012 insurance rates have increased due to property and casualty carriers’ losses world-wide in the past year.
General and administrative expense from continuing operations for the three months ended March 31, 2012 and 2011 was $2.4 million and $1.2 million, or 4% and 2% of total hotel revenue. The principal components of general and administrative expense are advisory fees and reimbursable expenses, legal fees, accounting fees, the Company’s share of the loss in its investment in Apple Air Holding, LLC, and reporting expenses. During the three months ended March 31, 2012 and 2011, the Company incurred approximately $0.5 million and $0.2 million, respectively, in legal costs, an increase over prior year due to the legal matters discussed herein and continued costs related to responding to Securities and Exchange Commission inquiries. The Company anticipates it will continue to incur significant legal costs for at least the remainder of 2012. Also, during the fourth quarter of 2011, the Company began to incur costs associated with its evaluation of a potential consolidation transaction with Apple REIT Seven, Inc., Apple REIT Eight, Inc., and Apple REIT Nine, Inc. Total costs incurred during the three months ended March 31, 2012 were approximately $0.7 million. The Company will continue to incur these costs during 2012 if a transaction is pursued.
Depreciation expense from continuing operations for the three months ended March 31, 2012 and 2011 was $8.0 million and $7.9 million. Depreciation expense represents the expense of the 66 hotels included in the Company’s continuing operations and related personal property for the respective periods owned. The increase in depreciation is due to renovations completed throughout 2011 and in the first three months of 2012.
Interest expense, net was $0.8 million and $0.9 million for the three months ended March 31, 2012 and 2011. Interest expense primarily arose from mortgage debt outstanding on certain properties acquired, in addition to interest on borrowings under the Company’s credit facility. As of March 31, 2012, the Company had debt outstanding of $71.7 million compared to $72.7 million at March 31, 2011. Interest expense decreased from 2011 due to a reduction in debt and a reduction in the effective interest rate under the Company’s credit facility. In addition, during the three months ended March 31, 2012 and 2011, the Company capitalized interest of approximately $34,000 and $154,000 in conjunction with hotel renovations.
Related Parties
The Company has, and is expected to continue to engage in, significant transactions with related parties. These transactions cannot be construed to be at arms length, and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. The Company’s independent members of the Board of Directors oversee and annually review the Company’s related party relationships (which include the relationships discussed in this section) and are required to approve any significant modifications to the contracts, as well as any new significant related party transactions. There were no changes to the contracts discussed in this section and no new significant related party transactions during the three months ended March 31, 2012. The Board of Directors is not required to approve each individual transaction that falls under the related party relationships. However, under the direction of the Board of Directors, at least one member of the Company’s senior management team approves each related party transaction.
The Company has a contract with Apple Six Realty Group (“A6RG”), to provide brokerage services for the acquisition and disposition of the Company’s real estate assets. In accordance with the contract, A6RG is paid a fee of 2% of the gross purchase price of any acquisitions or gross sale price of any dispositions of real estate investments, subject to certain conditions plus certain reimbursable costs. As of March 31, 2012, payments to A6RG for services under the terms of this contract have totaled $16.9 million since inception which were capitalized as a part of the purchase price of the hotels. No fees were incurred during the three months ended March 31, 2012 and 2011 under this contract.
The Company is party to an advisory agreement with Apple Six Advisors, Inc. (“A6A”), pursuant to which A6A provides management services to the Company. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company, in addition to certain reimbursable expenses, are payable for these services. Total advisory fees incurred by the Company under the advisory agreement are included in general and administrative expenses and totaled $0.6 million and $0.4 million for the three months ended March 31, 2012 and 2011.
Through its wholly-owned subsidiary, Apple Fund Management, LLC (“AFM”), the Company provides support services to A6RG, Apple Suites Realty Group, Inc. (“ASRG”), A6A, Apple Seven Advisors, Inc. (“A7A”), Apple REIT Seven, Inc., Apple Eight Advisors, Inc. (“A8A”), Apple REIT Eight, Inc., Apple Nine Advisors, Inc. (“A9A”), Apple REIT Nine, Inc., Apple Ten Advisors, Inc. (“A10A”) and Apple REIT Ten, Inc. A7A provides day to day advisory and administrative functions for Apple REIT Seven, Inc. A8A provides day to day advisory and administrative functions for Apple REIT Eight, Inc. A9A provides day to day advisory and administrative functions for Apple REIT Nine, Inc. A10A provides day to day advisory and administrative functions for Apple REIT Ten, Inc. ASRG provides real estate brokerage services to Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Each of these companies has agreed to reimburse the Company for its costs in providing these services. A6RG, ASRG, A6A, A7A, A8A, A9A, and A10A are 100% owned by Glade Knight, the Company’s Chairman and Chief Executive Officer. For the three months ended March 31, 2012 and 2011, the Company received reimbursement of its costs totaling $1.9 million and $1.8 million from the participating entities. The Company’s net allocated cost for these support services was approximately $0.3 million and $0.4 million for the three months ended March 31, 2012 and 2011. As part of this arrangement, the day to day transactions may result in amounts due to or from the noted related parties. To effectively manage cash disbursements, the individual companies may make payments for any or all of the related companies. The amounts due to or from the related companies are reimbursed or collected and are not significant in amount.
Although there is a potential conflict on time allocation of personnel due to the fact that a senior manager, officer or staff member will provide services to more than one company, the Company believes that the executives and staff compensation sharing arrangement allows the companies to share costs yet attract and retain superior executives and staff. The cost sharing structure also allows each entity to maintain a much more cost effective structure than having separate staffing arrangements. Amounts reimbursed to the Company include both compensation for personnel and “overhead” (office rent, utilities, benefits, office supplies, etc.) utilized by the companies. AFM receives its direction for staffing and compensation from the advisory companies (A6A, A7A, A8A, A9A, A10A, ASRG, and A6RG) each of which is wholly owned by Glade M Knight. Since the employees of AFM may also perform services for the advisors, individuals, including executive officers, have received and may receive consideration directly from the advisors. The allocation of costs is made by the management of the several REITs and is reviewed at least annually by the Compensation Committees of the several REITs. In making the allocation, management and the Compensation Committee consider all relevant facts related to the Company’s level of business activity and the extent to which the Company requires the services of particular personnel. The costs allocated are actual costs and do not include any profit/markup for the Company. Such payments are not based on formal record keeping regarding the time these personnel devote to the Company, but are based on a good faith estimate by the employee and/or his or her supervisor of the time devoted by the employee to each Company.
Including A6RG, ASRG, A6A, A7A, A8A, A9A and A10A discussed above, Mr. Knight is also Chairman and Chief Executive Officer of Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc. Members of the Company’s Board of Directors are also on the boards of Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.
Included in other assets, net on the Company’s consolidated balance sheet is a 26% equity investment in Apple Air Holding, LLC (“Apple Air”). The other members of Apple Air are Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc. Through its equity investment the Company has access to Apple Air’s aircraft for asset management and renovation purposes. The Company’s equity investment was approximately $1.7 million at both March 31, 2012 and December 31, 2011. The Company has recorded its share of income and losses of the entity under the equity method of accounting and adjusted its investment in Apple Air accordingly. For the three months ended March 31, 2012 and 2011, the Company recorded a loss of approximately $42,000 and $53,000 as its share of the net loss of Apple Air, which primarily relates to the depreciation of the aircraft, and is included in general and administrative expense in the Company’s consolidated statements of operations.
The Company has incurred legal fees associated with the Legal Proceedings discussed herein. The Company also incurs other professional fees such as accounting, auditing and reporting. These fees are included in general and administrative expense in the Company’s consolidated statements of operations. To be cost effective, these services received by the Company are shared as applicable across the other Apple REIT Companies (Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc., and Apple REIT Ten, Inc.). The professionals cannot always specifically identify their fees for one company therefore management allocates these costs across the companies that benefit from the services.
Liquidity and Capital Resources
The Company has a $60 million unsecured credit facility with a commercial bank, that is utilized for working capital, hotel renovations, and other general corporate funding purposes, including the payment of redemptions and distributions. The Company refinanced the credit facility in September 2011 with its existing lender. The outstanding principal is required to be paid by the maturity date of September 8, 2013 and may be prepaid without penalty. Interest payments are due monthly and the applicable interest rate is equal to the applicable LIBOR (the London Interbank Offered Rate) plus 3.5%. With the availability of this credit facility, the Company maintains little cash on hand, accessing the facility as necessary. As a result, cash on hand was $0 at March 31, 2012. The outstanding balance on the credit facility as of March 31, 2012 was $52.5 million and its interest rate was 3.75%. The credit facility has two primary financial covenants, which are: a) at the end of each calendar quarter, the shareholder payout ratio, as defined in the loan documents, cannot exceed the Company’s funds from operations for the immediately preceding twelve month period, which is 105% through December 31, 2012 and 100% thereafter, and b) the Company must maintain a minimum net worth, as defined in the loan documents, greater than $500 million at all times. The Company was in compliance with each of these covenants at March 31, 2012.
Operating cash flow from the properties owned and the $60 million credit facility are the Company’s principal sources of liquidity. The Company anticipates that cash flow from operations and the credit facility will be adequate to meet its anticipated liquidity requirements, including debt service, capital improvements, required distributions to shareholders (the Company is not required to make distributions at its current rate for REIT purposes), and planned Unit redemptions. The Company intends to maintain a relatively stable distribution rate with varying economic cycles. If cash flow from operations and the credit facility are not adequate to meet liquidity requirements, the Company will attempt if necessary to utilize additional financing to achieve this objective. Although the Company has relatively low levels of debt, there can be no assurances it will be successful with this strategy and may need to reduce its distributions to required levels. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions or redemptions. The Company’s bylaws require board approval and review of any debt financing obtained by the Company.
To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. The Company’s objective in setting a distribution rate is to project a rate that will provide consistency over the life of the Company, taking into account acquisitions and capital improvements, ramp up of new properties and varying economic cycles. Distributions in the first three months of 2012 totaled $18.0 million and were paid monthly at a rate of $0.066 per common share. For the same period the Company’s cash generated from operations was $12.1 million. The shortfall includes a return of capital and was funded primarily by borrowings on the credit facility. The Company intends to continue paying distributions on a monthly basis. However, since there can be no assurance of the ability of the Company’s properties to provide income at this level, there can be no assurance as to the classification or duration of distributions at the current rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of the 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 the Company.
The Company has on-going capital commitments to fund its capital improvements. The Company is required, under all of the hotel management agreements and under certain loan agreements, to make available, for the repair, replacement and refurbishing of furniture, fixtures, and equipment, a percentage of gross revenues provided that such amount may be used for the Company’s capital expenditures with respect to the hotels. The Company expects that this amount will be adequate to fund required repair, replacement, and refurbishments and to maintain the Company’s hotels in a competitive condition. The Company invested approximately $3.1 million in capital expenditures during the first three months of 2012. The Company anticipates total capital expenditures of approximately $18 million to $20 million for the full year of 2012 in connection with renovations and brand initiatives. The Company currently does not have any existing or planned projects for new development.
The Company has a Unit Redemption Program to provide limited interim liquidity to its shareholders who have held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equal to the lesser of: (1) the purchase price per Unit that the shareholder actually paid for the Unit; or (2) $11.00 per Unit. The Company reserves the right to change the purchase price of redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. Since inception of the program through March 31, 2012, the Company has redeemed approximately 17.1 million Units representing $187.5 million, including 0.5 million Units in the amount of $5.1 million and 0.6 million Units in the amount of $6.7 million redeemed during the three months ended March 31, 2012 and 2011, respectively. As contemplated in the program, beginning with the July 2011 redemption, the scheduled redemption date for the third quarter of 2011, the Company redeemed Units on a pro-rata basis. Prior to July 2011, the Company redeemed 100% of redemption requests. The following is a summary of the Unit redemptions during 2011 and the first quarter of 2012:
Redemption
Date
|
Requested Unit
Redemptions
|
Units Redeemed
|
Redemption Requests
not Redeemed
|
|||||||||
January 2011
|
606,064 | 606,064 | - | |||||||||
April 2011
|
683,427 | 683,427 | - | |||||||||
July 2011
|
4,412,066 | 737,284 | 3,674,782 | |||||||||
October 2011
|
9,878,351 | 726,613 | 9,151,738 | |||||||||
January 2012
|
11,591,274 | 459,736 | 11,131,538 |
As noted in the table above, beginning with the July 2011 redemption, the total redemption requests exceeded the authorized amount of redemptions and, as a result the Board of Directors has and will continue to limit the amount of redemptions as it deems prudent. Currently, the Company plans to redeem under its Unit Redemption Program approximately 2% of weighted average Units during 2012.
In February 2006, the Company instituted a Dividend Reinvestment Plan for its shareholders. The plan provides a way to increase shareholder investment in the Company by reinvesting dividends to purchase additional Units of the Company. The uses of the proceeds from this plan may include purchasing Units under the Company’s Unit Redemption Program, enhancing properties, satisfying financing obligations and other expenses, increasing working capital, funding various corporate operations, and acquiring hotels. The Company has registered 20 million Units for potential issuance under the plan. As of March 31, 2012, approximately 17.2 million Units, representing $189.0 million in proceeds to the Company, have been issued under the plan, including 0.5 million Units and 0.7 million Units, representing $5.4 million and $7.3 million in proceeds to the Company during the three months ended March 31, 2012 and 2011.
Impact of Inflation
Operators of hotels, in general, possess the ability to adjust room rates daily to reflect the effects of inflation. Competitive pressures may, however, limit the operators’ ability to raise room rates. Currently the Company is not experiencing any material impact from inflation.
Business Interruption
Being in the real estate industry, the Company is exposed to natural disasters on both a local and national scale. Although management believes there is adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Company’s financial position or results of operations
Seasonality
The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. To the extent that cash flow from operations is insufficient during any quarter, due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or, if necessary, any available other financing sources to make distributions.
Subsequent Events
In April 2012, the Company declared and paid approximately $6.0 million, or $0.066 per outstanding common share, in distributions to its common shareholders, of which approximately $1.7 million or 159,000 Units were reinvested under the Company’s Dividend Reinvestment Plan.
In April 2012, under the guidelines of the Company’s Unit Redemption Program, the Company redeemed approximately 455,000 Units in the amount of $5.0 million. As contemplated in the program, the Company redeemed Units on a pro-rata basis, whereby a percentage of each requested redemption was fulfilled at the discretion of the Company’s Board of Directors. This redemption was approximately 4% of the total 11.2 million requested Units to be redeemed, with approximately 10.7 million requested Units not redeemed.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not engage in transactions in derivative financial instruments or derivative commodity instruments. As of March 31, 2012, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk. The Company will be exposed to interest rate risk due to possible changes in short term interest rates as it invests its cash, or borrows on its credit facility. Based on the balance of the Company’s credit facility at March 31, 2012, of $52.5 million, every 100 basis points change in interest rates could impact the Company’s annual net income by $525,000, all other factors remaining the same. The Company’s cash balance at March 31, 2012 was $0.
Item 4. Controls and Procedures
Senior management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2012. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The term the “Apple REIT Companies” means the Company, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc.
On December 13, 2011, the United States District Court for the Eastern District of New York ordered that three putative class actions, Kronberg, et al. v. David Lerner Associates, Inc., et al., Kowalski v. Apple REIT Ten, Inc., et al., and Leff v. Apple REIT Ten, Inc., et al., be consolidated and amended the caption of the consolidated matter to be In re Apple REITs Litigation. The District Court also appointed lead plaintiffs and lead counsel for the consolidated action and ordered lead plaintiffs to file and serve a consolidated complaint by February 17, 2012. The parties agreed to a schedule for answering or otherwise responding to the complaint and that briefing on any motion to dismiss the complaint will be concluded by June 18, 2012. The Company was previously named as a party in the Kronberg, et al. v. David Lerner Associates, Inc., et al. class action lawsuit.
On February 17, 2012, lead plaintiffs and lead counsel in the In re Apple REITs Litigation, Civil Action No. 1:11-cv-02919-KAM-JO, filed an amended consolidated complaint in the United States District Court for the Eastern District of New York against the Company, Apple Suites Realty Group, Inc., Apple Eight Advisors, Inc., Apple Nine Advisors, Inc., Apple Ten Advisors, Inc., Apple Fund Management, LLC, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc. and Apple REIT Ten, Inc., their directors and certain officers, and David Lerner Associates, Inc. and David Lerner. The consolidated complaint, purportedly brought on behalf of all purchasers of Units in the Company and the other Apple REIT Companies, or those who otherwise acquired these Units that were offered and sold to them by David Lerner Associates, Inc., or its affiliates and on behalf of subclasses of shareholders in New Jersey, New York, Connecticut and Florida, asserts claims under Sections 11, 12 and 15 of the Securities Act of 1933. The consolidated complaint also asserts claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, negligence, and unjust enrichment, and claims for violation of the securities laws of Connecticut and Florida. The complaint seeks, among other things, certification of a putative nationwide class and the state subclasses, damages, rescission of share purchases and other costs and expenses.
On February 16, 2012, one shareholder of the Company and Apple REIT Seven, Inc., filed a putative class action lawsuit captioned Laurie Brody v. David Lerner Associates, Inc., et al., Case No. 1:12-cv-782-ERK-RER, in the United States District Court for the Eastern District of New York against the Company, Apple REIT Seven, Inc., Glade M. Knight, Apple Suites Realty Group, Inc., David Lerner Associates, Inc., and certain executives of David Lerner Associates, Inc. The complaint, purportedly brought on behalf of all purchasers of Units of the Company and Apple REIT Seven, Inc., or those who otherwise acquired these Units, asserts claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, unjust enrichment, negligence, breach of written or implied contract (against the David Lerner Associates, Inc. defendants only), and for violation of New Jersey’s state securities laws. On March 13, 2012, by order of the court, Laurie Brody v. David Lerner Associates, Inc., et al. was consolidated into the In re Apple REITs Litigation.
On April 18, 2012, the Company, and the other Apple REIT Companies, served a motion to dismiss the consolidated complaint in the In re Apple REITs Litigation. The Company and the other Apple REIT Companies accompanied their motion to dismiss the consolidated complaint with a memorandum of law in support of their motion to dismiss the consolidated complaint. As noted above, the briefing for any motion to dismiss is expected to be concluded by June 18, 2012.
The Company believes that any claims against it, its officers and directors and other Apple entities are without merit, and intends to defend against them vigorously. At this time, the Company cannot reasonably predict the outcome of these proceedings or provide a reasonable estimate of the possible loss or range of loss due to these proceedings, if any.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unit Redemption Program
In July 2005, the Company instituted a Unit redemption program to provide limited interim liquidity to its shareholders who have held their Units for at least one year. Shareholders may request redemption of Units for a purchase price equal to the lesser of: (1) the purchase price per Unit that the shareholder actually paid for the Unit; or (2) $11.00 per Unit. The Company reserves the right to change the purchase price of redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate the Unit Redemption Program. As noted below, during 2011 and the first quarter of 2012, the total redemption requests exceeded the authorized amount of redemptions and the Board of Directors has and will continue to limit the amount of redemptions as it deems prudent.
Since inception of the program through March 31, 2012, the Company has redeemed approximately 17.1 million Units representing $187.5. During the three months ended March 31, 2012 the Company redeemed approximately 0.5 million Units in the amount of $5.1 million. As contemplated in the program, beginning with the July 2011redemption, the Company redeemed Units on a pro-rata basis with approximately 17% of the amount requested redeemed in the third quarter of 2011, approximately 7% of the amount requested redeemed in the fourth quarter of 2011, and approximately 4% of the amount requested redeemed in January 2012 (the last scheduled redemption date during the three months ended March 31, 2012), leaving approximately 11.1 million Units requested but not redeemed. Prior to July 2011, the Company had redeemed 100% of redemption requests. The Company has a number of cash sources including cash from operations, dividend reinvestment plan proceeds, borrowings under its credit facilities and asset sales from which it can make redemptions. See the Company’s complete consolidated statements of cash flows for the three months ended March 31, 2012 and 2011 in the Company’s interim financial statements in Item 1 of this Form 10-Q for further description of the sources and uses of the Company’s cash flows. The following is a summary of redemptions during the first quarter of 2012 (no redemptions occurred in February and March 2012):
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 2012
|
459,736 | $ | 10.99 | 459,736 | (1) | |||||||||||
(1) The maximum number of Units that may be redeemed in any 12 month period is limited to up to five percent (5.0%) of the weighted average number of Units outstanding from the beginning of the 12 month period, subject to the Company’s right to change the number of Units to be redeemed. |
Item 6. Exhibits
Exhibit
Number
|
Description of Documents
|
3.1
|
Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form S-11 (SEC File No. 333-112169) effective April 23, 2004)
|
3.2
|
Bylaws of the Registrant. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Post-Effective Amendment No. 4 to Form S-11 (SEC File No. 333-112169) effective June 14, 2005)
|
31.1
|
|
31.2
|
|
32.1
|
|
101
|
The following materials from Apple REIT Six, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 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 (FURNISHED HEREWITH)
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
APPLE REIT SIX, INC.
|
||||
By:
|
/s/ GLADE M. KNIGHT
|
Date: May 7, 2012
|
||
Glade M. Knight,
|
||||
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
|
||||
By:
|
/s/ BRYAN PEERY
|
Date: May 7, 2012
|
||
Bryan Peery,
|
||||
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
|