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): June 8, 2011

 


 

APPLE REIT TEN, INC.

(Exact name of registrant as specified in its charter)

 



 

 

 

 

 

Virginia

 

333-168971

 

27-3218228

(State or other jurisdiction

 

(Commission File Number)

 

(I.R.S. Employer

of incorporation)

 

 

 

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 June 8, 2011 and filed (by the required date) on June 13, 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.

 

 

 

 

 

 

 

Hawkeye Hotel Portfolio (3 Hotels)

 

 

 

(Cedar Rapids, Iowa Homewood Suites; Cedar Rapids, Iowa Hampton Inn & Suites and Davenport, Iowa Hampton Inn & Suites)

 

 

 

 

 

(Audited)

 

 

 

 

 

 

 

Independent Auditors Report

 

3

 

Combined Balance Sheets – As of December 31, 2010 and 2009

 

4

 

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

 

5

 

Combined Statements of Members’ Equity and Accumulated Comprehensive Loss – Years Ended December 31, 2010 and 2009

 

6

 

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

 

7

 

Notes to Combined Financial Statements

 

8

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

Combined Balance Sheets – As of March 31, 2011 and 2010

 

16

 

Combined Statements of Operations – For the Three Months Ended March 31, 2011 and 2010

 

17

 

Combined Statements of Members’ Equity and Accumulated Comprehensive Loss – For the Three Months Ended March 31, 2011 and 2010

 

18

 

Combined Statements of Cash Flows – For the Three Months Ended March 31, 2011 and 2010

 

19

 

 

 

 

(b)

Pro forma financial information.

 

 

 

 

 

 

 

The below pro forma financial information pertains to the hotels 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 March 31, 2011

 

20

 

Notes to Pro Forma Condensed Consolidated Balance Sheet

 

22

 

Pro Forma Condensed Consolidated Statements of Operations for the Year Ended December 31, 2010 and Three Months Ended March 31, 2011

 

23

 

Notes to Pro Forma Condensed Consolidated Statement of Operations

 

26

 

 

 

 

(c)

Shell company transactions.

 

 

 

 

 

 

 

Not Applicable

 

 

 

 

 

 

(d)

Exhibits.

 

 

 

 

 

 

 

None

 

 

2


INDEPENDENT AUDITORS REPORT

Members of the Board of Directors
Apple REIT Ten, Inc.
Richmond, Virginia

We have audited the accompanying combined balance sheets of the group of selected entities managed by Hawkeye Hospitality Management, Inc., an Iowa corporation, as defined in Note 1, as of December 31, 2010 and 2009, and the related statements of operations, statements of members’ equity and accumulated comprehensive loss, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the group of selected entities managed by Hawkeye Hospitality Management, Inc. at December 31, 2010 and 2009 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

 

 

 

 

/s/ Wade Stables P.C.

 

 

 

 

 

Wade Stables P.C.

 

Certified Public Accountants

Hannibal, Missouri
June 17, 2011

3



 

GROUP OF SELECTED ENTITIES MANAGED BY HAWKEYE HOSPITALITY MANAGEMENT, INC.

COMBINED BALANCE SHEETS

December 31, 2010 and 2009


 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 


 


 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and Cash equivalents

 

$

2,188,768

 

$

419,433

 

Tax Escrow

 

 

17,993

 

 

 

Accounts receivable

 

 

54,931

 

 

42,158

 

Due from affiliated parties (Note 6)

 

 

3,841,628

 

 

1,769,808

 

 

 



 



 

 

 

 

 

 

 

 

 

Total current assets

 

$

6,103,320

 

$

2,231,399

 

 

 



 



 

 

 

 

 

 

 

 

 

Property and equipment (Note 3)

 

 

 

 

 

 

 

Property and equipment

 

$

26,499,545

 

$

20,660,908

 

Accumulated depreciation

 

 

(1,533,135

)

 

(820,540

)

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

24,966,410

 

$

19,840,368

 

 

 



 



 

Other assets

 

 

 

 

 

 

 

Franchise fees, net of amortization (Note 1)

 

$

147,970

 

$

154,356

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

147,970

 

$

154,356

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

31,217,700

 

$

22,226,123

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

7,058

 

$

56,067

 

Due to affiliated parties (Note 7)

 

 

5,217,083

 

 

6,072,911

 

Accrued payroll and payroll taxes

 

 

12,939

 

 

 

Accrued property taxes

 

 

8,184

 

 

108,188

 

Other accrued expenses

 

 

42,174

 

 

53,321

 

Current portion of long-term debt (Note 8)

 

 

714,515

 

 

926,713

 

 

 



 



 

 

 

 

 

 

 

 

 

Total current liabilities

 

$

6,001,953

 

$

7,217,200

 

 

 



 



 

 

 

 

 

 

 

 

 

Long-term debt (Note 8)

 

$

22,311,334

 

$

12,851,899

 

Fair value of interest rate swap (Note 9)

 

 

289,830

 

 

73,747

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

22,601,164

 

$

12,925,646

 

 

 



 



 

 

 

 

 

 

 

 

 

Members’ equity

 

$

2,904,413

 

$

2,157,024

 

Accumulated comprehensive income (Loss)

 

 

(289,830

)

 

(73,747

)

 

 



 



 

 

 

 

 

 

 

 

 

Total members’ equity

 

$

2,614,583

 

$

2,083,277

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

31,217,700

 

$

22,226,123

 

 

 



 



 

The accompanying notes to financial statements are an integral part of this statement.

4



 

GROUP OF SELECTED ENTITIES MANAGED BY HAWKEYE HOSPITALITY MANAGEMENT, INC.

COMBINED STATEMENTS OF OPERATIONS

Years ended December 31, 2010 and 2009


 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 


 


 

Revenue

 

 

 

 

 

 

 

Rooms

 

$

6,644,418

 

$

5,130,598

 

Food and beverage

 

 

 

 

 

Telephone

 

 

 

 

 

Vending, rent, and other

 

 

66,382

 

 

47,577

 

 

 



 



 

 

 

 

 

 

 

 

 

Total revenue

 

$

6,710,800

 

$

5,178,175

 

 

 



 



 

 

 

 

 

 

 

 

 

Department expense

 

 

 

 

 

 

 

Rooms

 

$

988,020

 

$

845,913

 

Food and beverage

 

 

 

 

 

Telephone

 

 

12,035

 

 

13,519

 

Vending, rent, and other

 

 

3,980

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

Total department expense

 

$

1,004,035

 

 

859,432

 

 

 



 



 

 

 

 

 

 

 

 

 

Department profit

 

$

5,706,765

 

$

4,318,743

 

 

 



 



 

 

 

 

 

 

 

 

 

Undistributed expenses

 

 

 

 

 

 

 

Administrative and general

 

$

386,690

 

$

339,916

 

Sales and promotion

 

 

43,701

 

 

18,422

 

Franchise fees (Note 4)

 

 

529,626

 

 

408,467

 

Other outside administration and program fees (Note 4)

 

 

522,873

 

 

360,086

 

Utilities

 

 

223,896

 

 

179,122

 

Repairs and maintenance

 

 

151,008

 

 

101,512

 

 

 



 



 

 

 

 

 

 

 

 

 

Total undistributed expenses

 

$

1,857,794

 

$

1,407,525

 

 

 



 



 

 

 

 

 

 

 

 

 

House profit

 

$

3,848,971

 

$

2,911,218

 

 

 



 



 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

Property tax

 

$

369,104

 

$

216,376

 

Property insurance

 

 

82,096

 

 

80,290

 

 

 



 



 

 

 

 

 

 

 

 

 

Income before management fees and other expense

 

$

3,397,771

 

$

2,614,552

 

 

 



 



 

 

 

 

 

 

 

 

 

Management and accounting fees (Note 5)

 

$

420,544

 

$

288,960

 

 

 



 



 

 

 

 

 

 

 

 

 

Income before other expense

 

$

2,977,227

 

$

2,325,592

 

 

 



 



 

 

 

 

 

 

 

 

 

Other (income) expense

 

 

 

 

 

 

 

Depreciation and amortization

 

$

718,980

 

$

512,852

 

Interest expense (net)

 

 

1,051,435

 

 

802,880

 

Organizational and preopening expenses (Note 1)

 

 

18,359

 

 

11,250

 

Loan and refinancing expenses (Note 1)

 

 

158,516

 

 

40,465

 

Swap agreement fees (Note 9)

 

 

154,565

 

 

95,563

 

Other

 

 

(17,017

)

 

(15,299

)

 

 



 



 

 

 

 

 

 

 

 

 

Total other expense

 

$

2,084,838

 

$

1,447,711

 

 

 



 



 

 

 

 

 

 

 

 

 

Net income

 

$

892,389

 

$

877,881

 

 

 



 



 

The accompanying notes to financial statements are an integral part of this statement.

5



 

GROUP OF SELECTED ENTITIES MANAGED BY HAWKEYE HOSPITALITY MANAGEMENT, INC.

COMBINED STATEMENTS OF MEMBERS’ EQUITY AND ACCUMULATED COMPREHENSIVE LOSS

Years ended December 31, 2010 and 2009


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members’
Equity

 

Accumulated
Comprehensive
Income (Loss)

 

Total
Members’
Equity

 

Comprehensive
Income

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 1, 2009

 

$

1,323,545

 

$

 

$

1,323,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions from members

 

 

200,000

 

 

 

 

200,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to members

 

 

(244,402

)

 

 

 

(244,402

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

877,881

 

 

 

 

877,881

 

$

877,881

 

Unrealized loss on hedging activities, net

 

 

 

 

(73,747

)

 

(73,747

)

 

(73,747

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

$

804,134

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2009

 

$

2,157,024

 

$

(73,747

)

$

2,083,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions from members/partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to members

 

 

(145,000

)

 

 

 

(145,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

892,389

 

 

 

 

892,389

 

$

892,389

 

Unrealized loss on hedging activities, net

 

 

 

 

(216,083

)

 

(216,083

)

 

(216,083

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

$

676,306

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2010

 

$

2,904,413

 

$

(289,830

)

$

2,614,584

 

 

 

 

 

 



 



 



 

 

 

 

The accompanying notes to financial statements are an integral part of this statement.

6



 

GROUP OF SELECTED ENTITIES MANAGED BY HAWKEYE HOSPITALITY MANAGEMENT, INC.

COMBINED STATEMENTS OF CASH FLOWS

Years ended December 31, 2010 and 2009


 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 


 


 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

 

$

892,389

 

$

877,881

 

Adjustments to reconcile net profit to net cash provided by (used in) operating activities

 

 

 

 

 

 

 

Depreciation

 

 

712,595

 

 

507,717

 

Amortization

 

 

6,385

 

 

5,135

 

(Increase)/decrease in assets

 

 

 

 

 

 

 

Accounts receivable

 

 

(12,773

)

 

(38,494

)

Due from affiliatied companies

 

 

(16,667

)

 

2,146

 

Increase/(decrease) in liabilities

 

 

 

 

 

 

 

Accounts payable

 

 

(49,009

)

 

(1,105

)

Due to affiliated companies

 

 

8,249

 

 

8,249

 

Accrued payroll and payroll taxes

 

 

12,939

 

 

 

Accrued property taxes

 

 

(100,004

)

 

56,087

 

Other accrued expenses

 

 

(11,147

)

 

(91,086

)

 

 



 



 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

1,424,964

 

$

1,326,532

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures for property and equipment

 

$

(5,838,636

)

$

(6,246,087

)

 

 



 



 

 

 

 

 

 

 

 

 

Net cash used in investing activites

 

$

(5,838,636

)

$

(6,246,087

)

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from the issuance of debt

 

$

23,067,000

 

$

8,433,583

 

Principal payments on debt

 

 

(13,819,763

)

 

(5,195,215

)

Due from affiliated companies

 

 

(2,055,154

)

 

(746,558

)

Due to affiliated companies

 

 

(864,076

)

 

2,828,946

 

Contributions from members

 

 

 

 

200,000

 

Distributions to members

 

 

(145,000

)

 

(244,402

)

 

 



 



 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

$

6,183,006

 

$

5,276,354

 

 

 



 



 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

$

1,769,335

 

$

356,798

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

 

419,433

 

 

62,635

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

$

2,188,768

 

$

419,433

 

 

 



 



 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid during the year for interest, net of capitalized interest

 

$

1,088,749

 

$

944,972

 

 

 



 



 

The accompanying notes to financial statements are an integral part of this statement.

7


Group of Selected Entities Managed by Hawkeye Hospitality Management, Inc.
Notes to Combined Financial Statements
Years ended December 31, 2010 and 2009

NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and Basis of Combination: The accompanying combined financial statements include the accounts of the following group of selected entities managed by Hawkeye Hospitality, Inc.:

 

 

 

 

Sajni, Inc. which owns and operates a Hampton Inn and Suites located in Davenport, IA. The hotel was opened for operations on October 9, 2007.

 

Collins Hospitality, Inc. which owns and operates a Hampton Inn and Suites located in Cedar Rapids, IA. The hotel opened for operations on January 8, 2009.

 

Five Seasons Hospitality, Inc. which owns and operates a Homewood Suites located in Cedar Rapids, IA. The hotel opened for operations on August 13, 2010.

The above entities are managed by Hawkeye Hospitality Management, Inc., a related party as discussed in Note 5. All material intercompany accounts have been eliminated.

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

Cash and Cash Equivalents: Cash and cash equivalents include deposits in financial institutions.

Accounts Receivable: The selected entities account for trade receivables based on the amounts billed to customers. The selected entities periodically review outstanding accounts for potential losses of receivables based on existing economic conditions and historical relationships with customers. Management has determined no allowance on the receivable accounts is necessary as of December 31, 2010 and 2009.

Depreciation: Property and equipment are carried at cost less accumulated depreciation. Depreciation is provided on the property and equipment over their estimated useful lives. The selected entities compute depreciation using a straight-line depreciation method.

Financial Instruments: The carrying values of accounts receivable, accounts payable, and current and long-term debt approximate fair value. The fair value of the derivative instrument is based on the amount the selected entities would pay to terminate the agreement as of December 31, 2010 and 2009.

Revenue Recognition: Revenue is recognized as services are provided.

Franchise Fees: Franchise fees are carried at cost less accumulated amortization and are being amortized on a straight-line basis over 20 years. At December 31, 2010 and 2009, accumulated amortization was $14,729 and $8,344, respectively. Total amortization expense was $6,385 and $5,135 for December 31, 2010 and 2009 respectively.

Refinancing and Loan Costs: Due to the nature of these financial statements and subsequent sale of entities costs incurred to obtain debt financing are expensed in the period incurred.

Preopening and other organizational Expenses: Preopening and other organizational expenses consist of legal and other period expenses incurred prior to the opening of the hotel and are expensed in the period incurred.

Comprehensive Loss: Comprehensive Loss includes both the net loss and other comprehensive income (loss). Other Comprehensive income (loss) represents the change in unrealized gains and losses on hedging activities relating to an interest rate swap.

8



 

Group of Selected Entities Managed by Hawkeye Hospitality Management, Inc.
Notes to Combined Financial Statements
Years ended December 31, 2010 and 2009

 


NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICES (Continued)

Impairment of Long-Lived Assets: On an ongoing basis, the selected entities review long-lived assets for impairment whenever events or circumstances indicate that the carrying amounts may be overstated. The selected entities recognize impairment losses if the undiscounted cash flows expected to be generated by the asset are less than the carrying value of the related asset. The impairment loss adjusts the assets to fair value. As of December 31, 2010 and 2009, management believes no impairments existed.

NOTE 2 – INCOME TAXES

The combined financial statements include three S-corporation entities. Under the Internal Revenue Code S-corporations will be treated as a partnership for tax purposes. A partnership is not subject to income taxes. Each member or partner reports their distributive share of the selected entities’ profit or loss on their personal income tax return.

NOTE 3 – PROPERTY AND EQUIPMENT

Property and Equipment at December 31, 2010 and 2009 consisted of the following:

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 


 


 

 

 

 

 

 

 

 

 

Land

 

$

2,436,902

 

$

2,436,902

 

Building and building improvements

 

 

19,896,749

 

 

15,733,461

 

Furniture, fixtures, and equipment

 

 

4,165,894

 

 

2,490,545

 

 

 



 



 

 

 

$

26,499,545

 

$

20,660,908

 

Accumulated Depreciation

 

 

(1,533,135

)

 

(820,540

)

 

 



 



 

 

 

$

24,966,410

 

$

19,840,368

 

 

 



 



 

A total of $808,255 in interest cost was capitalized and added to building costs above over the construction periods involved. Depreciation expense was $712,595 and $507,717 for the years ended December 31, 2010 and 2009, respectively.

NOTE 4 – FRANCHISE AGREEMENTS

Franchise fees and royalty fees are computed in accordance with the terms of individual franchise agreements between the selected entities and Promus Hotels, Inc. The agreements are for periods of 20 years from the opening date of the hotels. As of December 31, 2010 and 2009, franchise fees are computed as 4% of the gross room revenues, as defined in the agreement. Royalty fees are computed as 5% of the gross room revenues.

During the years ended December 31, 2010 and 2009, franchise fee and royalty expenses were $529,626 and $408,467, respectively.

In addition to the monthly fees above, the entities are subject to other costs including the Hilton HHonors, computer and marketing support, and travel agent commissions.

During the years ended December 31, 2010 and 2009, these fees were $522,873 and $360,086, respectively.

9



 

Group of Selected Entities Managed by Hawkeye Hospitality Management, Inc.
Notes to Combined Financial Statements
Years ended December 31, 2010 and 2009

 


NOTE 5 – RELATED-PARTY TRANSACTIONS

The selected entities have entered into individual management agreements with Hawkeye Hospitality Management, Inc., an entity related through common ownership. No written agreements exist between entities. The agreements provide for base monthly management fees calculated at 4% of gross revenue, as calculated by Hawkeye Hospitality Management, Inc. Base management fees for 2010 and 2009 were $408,540 and $278,960, respectively. In addition base monthly accounting fees of $400 per month are charged by Hawkeye Hospitality Management, Inc. to all selected entities. Accounting fees for 2010 and 2009 were $12,004 and $10,000, respectively.

NOTE 6 – DUE FROM AFFILIATED PARTIES

A summary of due from affiliated parties follows. All amounts are considered in the ordinary course of business and have not been eliminated in these combined financial statements.

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 


 


 

Sanji, Inc. (Hampton Inn and Suites’ - Davenport)

 

 

 

 

 

 

 

Due from Patel Investments. No written note. No interest paid or accrued.

 

$

2,206,053

 

$

1,761,559

 

 

 

 

 

 

 

 

 

Due from Bapa, Inc. No written note. No interest paid or accrued.

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

Due from Kriya, Inc. No written note. No interest paid or accrued.

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

Due from Mile High, Inc. No written note. No interest paid or accrued

 

 

600,000

 

 

 

 

 

 

 

 

 

 

 

Collins Hospitality, Inc. (Hampton Inn and Suites’ - Cedar Rapids)

 

 

 

 

 

 

 

Due from Five Seasons, Inc. for property taxes. No written note. No interest paid or accrued.

 

 

16,498

 

 

8,249

 

 

 

 

 

 

 

 

 

Due from Sajni, Inc. No written note. No interest paid or accrued.

 

 

810,659

 

 

 

 

 

 

 

 

 

 

 

Due from Arya Hospitality, Inc. No written note. No interest paid or accrued.

 

 

8,418

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 

Total

 

$

3,841,628

 

$

1,769,808

 

 

 



 



 

10



 

Group of Selected Entities Managed by Hawkeye Hospitality Management, Inc.
Notes to Combined Financial Statements
Years ended December 31, 2010 and 2009

 


NOTE 7 – DUE TO AFFILIATED PARTIES

A summary of due to affiliated parties follows. All amounts are considered in the ordinary course of business and have not been eliminated in these combined financial statements.

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 


 


 

Sanji, Inc. (Hampton Inn and Suites’- Davenport)

 

 

 

 

 

 

 

Due to Collins Hospitality. No written note. No interest paid or accrued.

 

$

810,659

 

$

 

 

 

 

 

 

 

 

 

Due to Hawkeye Hospitality. No Written note. No interest paid or accrued

 

 

20,000

 

 

 

 

 

 

 

 

 

 

 

Five Seasons Hospitality, Inc. (Homewood Suites- Cedar Rapids)

 

 

 

 

 

 

 

Due to Parul Patel. No written note. Interest paid and expensed in 2010 $21,713, none in 2009. No interest accrued.

 

 

250,000

 

 

250,000

 

 

 

 

 

 

 

 

 

Due to Collins Hospitality. No written note. Due for property tax.

 

 

16,498

 

 

8,249

 

 

 

 

 

 

 

 

 

Due to Patel Investments. No written note. Interest paid and capitalized to building costs $153,339 in 2009 and $156,126 in 2010. $95,338 in interest paid and expensed in 2010 after facility opened.

 

 

3,667,941

 

 

5,017,412

 

 

 

 

 

 

 

 

 

Collins Hospitality, Inc. (Hampton Inn and Suites’-Cedar Rapids)

 

 

 

 

 

 

 

Due to Patel Investments. No written note. $96,535 interest expensed in 2009 and $58,278 in 2010.

 

 

451,985

 

 

397,250

 

 

 

 

 

 

 

 

 

Due to Sat West Enterprises, Inc. No written note. $5,359 interest expense in 2009 and $1,677 in 2010.

 

 

 

 

200,000

 

 

 

 

 

 

 

 

 

Due to Sat West Live Oak. No written note. $3,353 interest expense in 2009 and $839 in 2010.

 

 

 

 

100,000

 

 

 

 

 

 

 

 

 

Due to Val Plaza, LLC. No written note. $3,353 interest expense in 2009 and $839 in 2010.

 

 

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 



 



 

Total

 

$

5,217,083

 

$

6,072,911

 

 

 



 



 

11



 

Group of Selected Entities Managed by Hawkeye Hospitality Management, Inc.
Notes to Combined Financial Statements
Years ended December 31, 2010 and 2009

 


NOTE 8 – LONG-TERM DEBT

The Company had the following long-term debt obligations at December 31, 2010 and 2009:

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 


 


 

Sanji, Inc. (Hampton Inn and Suites’ Davenport)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GE Capital Financial, Inc. dated December 31, 2010. Original amount $8,510,000. Due in 60 monthly payments of $59,166 including interest at 5.55%. In addition the note requires a monthly tax escrow impound amount.

 

$

8,510,000

 

$

 

 

 

 

 

 

 

 

 

Bankers Trust Company, N.A. dated April 21, 2009. Original amount $7,000,000. Due in 58 monthly payments of $42,569 including interest at 4.08531%. Note was paid off December 31, 2010 by GE Capital Financial, Inc.

 

 

 

 

6,850,082

 

 

 

 

 

 

 

 

 

Five Seasons Hospitality, Inc. (Homewood Suites- Cedar Rapids)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bjorsen Investment Corporation dated February 15, 2007. Original amount $567,200. Due in monthly payments of $4,569 including interest at 7.5%. Due February 15, 2012. Note was paid off by Patel Investments on January 19, 2010.

 

 

 

 

528,530

 

 

 

 

 

 

 

 

 

State Central Bank dated December 3, 2010. Original amount $6,200,105. Beginning February 1, 2011 due in monthly payments of $49,236 including interest at 7% over a 19 year term.

 

 

6,199,448

 

 

 

 

 

 

 

 

 

 

 

State Central Bank dated December 3, 2010. Original amount $1,146,895. Beginning February 1, 2011 due in monthly payments of $16,699 including interest at 7% over a 7 year term.

 

 

1,106,400

 

 

 

 

 

 

 

 

 

 

 

Collins Hospitality, Inc. (Hampton Inn and Suites’-Cedar Rapids)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GE Capital Financial, Inc. dated December 31, 2010. Original amount $7,210,100. Due in 60 monthly payments of $50,128 including interest at 5.55%. In addition the note requires a monthly tax escrow impound amount.

 

 

7,210,000

 

 

 

 

 

 

 

 

 

 

 

Cedar Rapids Bank and Trust dated April 1, 2008. Original amount $5,225,000. Due in 24 monthly interest only payments beginning May 1, 2008. Beginning April 16, 2010 due in 47 semi-monthly payments of $17,464 including interest at 6.3%. Balloon payment due April 1, 2012. Note was paid off December 31, 2010 by GE Capital Financial, Inc.

 

 

 

 

5,225,000

 

12



 

Group of Selected Entities Managed by Hawkeye Hospitality Management, Inc.

Notes to Combined Financial Statements
Years ended December 31, 2010 and 2009

 


 

NOTE 8 – LONG-TERM DEBT (Continued)


 

 

 

 

 

 

 

 

Cedar Rapids Bank and Trust dated April 1, 2008. Original amount $1,175,000. Due in 24 monthly interest only payments beginning May 1,2008. Beginning April 16,2010 due in 47 semi-monthly payments of $8,693 including interest at 6.3%. Balloon payment due April 1, 2012. Note was paid off December 31, 2010 by GE Capital Financial, Inc.

 

 

 

 

1,175,000

 

 

 



 



 

 

 

$

23,025,849

 

$

13,778,612

 

 

 

 

 

 

 

 

 

Current Portion

 

 

(714,515

)

 

(926,713

)

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

22,311,334

 

$

12,851,899

 

 

 



 



 

Long-term debt maturities for the years subsequent to December 31, 2010 are as follows:

 

 

 

 

 

2011

 

$

714,515

 

2012

 

 

784,108

 

2013

 

 

833,480

 

2014

 

 

886,006

 

2015

 

 

14,138,336

 

Thereafter

 

 

5,669,405

 

 

 



 

 

 

$

23,025,849

 

 

 



 

During 2010 and 2009, the Company capitalized interest of $329,214 and $193,578, respectively, related to the construction of the selected hotels.

NOTE 9 – FINANCIAL DERIVATIVES

As a result of financing activities, the Company is exposed to change in interest rates which may adversely affect its results of operations and financial condition. In seeking to minimize the risks and/or costs associated with such activities, the Company manages exposure to changes in interest rates through its regular operating and financing activities and, when deemed appropriate, through the use of swap agreements. On April 21, 2009, the Company entered into an interest rate swap agreement which expires on April 21, 2014. Under the agreement, the rate of interest on $6,300,000 of variable rate debt was converted to a fixed interest rate. This interest rate swap was entered into by Sanji, Inc. on its note with Bankers Trust Company, N.A.

The Company accounts for this instrument as a cash flow hedge and considers the hedge to be highly effective. Any ineffective amounts are considered not to be significant. As a result, the Company records the derivative instrument as an asset or liability at its fair value, with any unrealized gains or losses recognized as other comprehensive income (loss) in the statements of members’ equity. In 2010 and 2009, the Company recognized an unrealized loss of $216,083 and an unrealized loss of $73,747, respectively, relating to the swap agreement. The net settlements on the interest rate swap ($154,565 in 2010 and $95,563 in 2009) are included in the combined statements of operations. The Company expects to hold this swap through its term, and the fair value of the swap will reverse out of other comprehensive income with the passage of time.

13



 

Group of Selected Entities Managed by Hawkeye Hospitality Management, Inc.

Notes to Combined Financial Statements

Years ended December 31, 2010 and 2009

 


NOTE 9 – FINANCIAL DERIVATIVES (Continued)

Below is a summary of the interest rate swap classification on the balance sheet:

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value of Interest Rate Swap

 

 

Balance Sheet Location

 

2010

 

2009

 

 

 

 


 


 

Interest rate swap

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

 

$

 

 

Long-term liabilities

 

 

289,830

 

 

73,747

 

 

 

 



 



 

 

 

 

$

289,830

 

$

73,747

 

 

 

 



 



 

Although the Note entered into with Bankers Trust Company, N.A., was paid off December 31, 2010, the swap agreement will continue with agreed upon future financing.

The ability of the Company to realize the benefit of this arrangement is dependent upon the creditworthiness of the counterparty, which the Company expects will perform in accordance with the terms if the swap.

NOTE 10 – FAIR VALUE

The Company accounts for items requiring fair value hierarchy which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs within the fair value hierarchy are defined as follows:

 

 

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

 

 

 

Level 2: Significant other observable inputs other that Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

 

 

Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability

The interest rate swap does not have observable market quotes. For this financial instrument, the related Company’s swap counterparty provides a periodic valuation using the difference between the fixed rate paid by the related Company and the counterparty’s interest rate forecast discounted at the swap yield curve. The model is based on observable inputs for forward interest rates and discount rates. As such, this derivative instrument is classified within Level 2 of the fair value hierarchy.

NOTE 11 – OTHER COMPREHENSIVE INCOME (LOSS)

The activity relating to hedging transactions included in other comprehensive income (loss) in 2010 and 2009 is as follows:

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 


 


 

Unrealized gain (loss) on hedging activities with interest rate swap

 

$

(216,083

)

$

(73,747

)

 

 



 



 

14



 

Group of Selected Entities Managed by Hawkeye Hospitality Management, Inc.

Notes to Combined Financial Statements
Years ended December 31, 2010 and 2009

 


NOTE 12 – CASH CONCENTRATION

At December 31, 2010, the Company had deposits in various financial institutions. At December 31, 2010 no accounts at any one institution exceeded $250,000. Due to the Company’s participation in the Transaction Account Guarantee Program, presently deposits are unlimitedly secured by the FDIC.

Included in cash at December 31, 2010 the company had $2,544,304 in an uninsured sweep account backed by various securities.

NOTE 13 – SUBSEQUENT EVENTS

On April 4, 2011, The Group of Selected Entities Managed by Hawkeye Hospitality Management, Inc. entered into agreements with Apple Ten Hospitality Ownership, Inc. for a sale of the three hotels. As of June 17, 2011 two of the three properties have closed. A total of $39,000,000 will be paid for the three hotels including all of the associated furniture and equipment of each property. As part of the sale agreement, a total of $600,000 will be put into escrow for a period of nine months for any potential asserted claims. As part of the transaction, all of the related debt and the interest rate swap will be paid off or renegotiated. In addition, the existing management agreements were terminated and new management agreements were entered into between Apple Ten Hospitality Ownership, Inc. and new management.

As part of the sale contract, the existing franchise agreements discussed in note 4 were terminated and new agreements were obtained by Apple Ten Hospitality Ownership, Inc.

The Company has evaluated subsequent events through June 17, 2011, the date the financial statements were available to be issued.

15



 

GROUP OF SELECTED ENTITIES MANAGED BY HAWKEYE HOSPITALITY MANAGEMENT, INC.

COMBINED BALANCE SHEETS (UNAUDITED)

March 31, 2011 and 2010


 

 

 

 

 

 

 

 

 

 

2011

 

2010

 

 

 


 


 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and Cash equivalents

 

$

1,546,581

 

$

372,494

 

Tax Escrow

 

 

77,958

 

 

 

Accounts receivable

 

 

120,310

 

 

77,712

 

Due from affiliated parties

 

 

4,965,086

 

 

2,578,126

 

 

 



 



 

 

 

 

 

 

 

 

 

Total current assets

 

$

6,709,935

 

$

3,028,332

 

 

 



 



 

 

 

 

 

 

 

 

 

Property and equipment

 

 

 

 

 

 

 

Property and equipment

 

$

26,504,325

 

$

21,629,052

 

Accumulated depreciation

 

 

(1,781,634

)

 

(948,690

)

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

24,722,691

 

$

20,680,362

 

 

 



 



 

Other assets

 

 

 

 

 

 

 

Franchise fees, net of amortization

 

$

145,970

 

$

153,131

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

145,970

 

$

153,131

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

31,578,596

 

$

23,861,825

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

11,626

 

$

61,241

 

Due to affiliated parties

 

 

5,589,718

 

 

5,116,221

 

Accrued payroll and payroll taxes

 

 

36,388

 

 

601

 

Accrued property taxes

 

 

8,184

 

 

91,000

 

Swap termination fee payable

 

 

21,683

 

 

 

Other accrued expenses

 

 

117,049

 

 

64,174

 

Current portion of long-term debt

 

 

724,515

 

 

491,010

 

 

 



 



 

 

 

 

 

 

 

 

 

Total current liabilities

 

$

6,509,163

 

$

5,824,247

 

 

 



 



 

 

 

 

 

 

 

 

 

Long-term debt

 

$

22,180,758

 

$

15,634,897

 

Fair value of interest rate swap

 

 

 

 

73,747

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

22,180,758

 

$

15,708,644

 

 

 



 



 

 

 

 

 

 

 

 

 

Members’ equity

 

$

2,888,675

 

$

2,402,681

 

Accumulated comprehensive income

 

 

 

 

(73,747

)

 

 



 



 

 

 

 

 

 

 

 

 

Total members’ equity

 

$

2,888,675

 

$

2,328,934

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

$

31,578,596

 

$

23,861,825

 

 

 



 



 

16



 

GROUP OF SELECTED ENTITIES MANAGED BY HAWKEYE HOSPITALITY MANAGEMENT, INC.

COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended March 31, 2011 and 2010


 

 

 

 

 

 

 

 

 

 

2011

 

2010

 

 

 


 


 

Revenue

 

 

 

 

 

 

 

Rooms

 

$

1,699,657

 

$

1,288,776

 

Telephone

 

 

181

 

 

 

Vending, rent, and other

 

 

16,776

 

 

13,590

 

 

 



 



 

 

 

 

 

 

 

 

 

Total revenue

 

$

1,716,614

 

$

1,302,366

 

 

 



 



 

 

 

 

 

 

 

 

 

Department expense

 

 

 

 

 

 

 

Rooms

 

$

278,807

 

$

163,514

 

Telephone

 

 

2,500

 

 

2,563

 

 

 



 



 

 

 

 

 

 

 

 

 

Total department expense

 

$

281,307

 

 

166,077

 

 

 



 



 

 

 

 

 

 

 

 

 

Department profit

 

$

1,435,307

 

$

1,136,290

 

 

 



 



 

 

 

 

 

 

 

 

 

Undistributed expenses

 

 

 

 

 

 

 

Administrative and general

 

$

124,076

 

$

56,295

 

Sales and promotion

 

 

10,985

 

 

3,043

 

Franchise fees

 

 

141,537

 

 

102,662

 

Other outside administration and program fees

 

 

124,075

 

 

90,205

 

Utilities

 

 

88,542

 

 

43,114

 

Repairs and maintenance

 

 

42,335

 

 

22,667

 

 

 



 



 

 

 

 

 

 

 

 

 

Total undistributed expenses

 

$

531,550

 

$

317,985

 

 

 



 



 

 

 

 

 

 

 

 

 

House profit

 

$

903,757

 

$

818,304

 

 

 



 



 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

Property tax

 

$

184,552

 

$

91,000

 

Property insurance

 

 

 

 

5,250

 

 

 



 



 

 

 

 

 

 

 

 

 

Income before management fees and other expense

 

$

719,205

 

$

722,054

 

 

 



 



 

 

 

 

 

 

 

 

 

Management and accounting fees

 

$

87,273

 

$

99,611

 

 

 



 



 

 

 

 

 

 

 

 

 

Income before other expense

 

$

631,932

 

$

622,443

 

 

 



 



 

 

 

 

 

 

 

 

 

Other (income) expense

 

 

 

 

 

 

 

Depreciation and amortization

 

$

250,500

 

$

129,375

 

Interest expense (net)

 

 

343,237

 

 

205,344

 

Organizational and preopening expenses

 

 

 

 

5,025

 

Swap agreement fees

 

 

37,533

 

 

39,101

 

Swap termination fees

 

 

21,683

 

 

 

Other

 

 

(5,283

)

 

(2,060

)

 

 



 



 

 

 

 

 

 

 

 

 

Total other expense

 

$

647,670

 

$

376,786

 

 

 



 



 

 

 

 

 

 

 

 

 

Net income (Loss)

 

$

(15,738

)

$

245,657

 

 

 



 



 

17



 

GROUP OF SELECTED ENTITIES MANAGED BY HAWKEYE HOSPITALITY MANAGEMENT, INC.

COMBINED STATEMENTS OF MEMBERS’ EQUITY AND ACCUMULATED COMPREHENSIVE LOSS (UNAUDITED)

For the three months ended March 31, 2011 and 2010


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members’
Equity

 

Accumulated
Comprehensive
Income (Loss)

 

Total
Members’
Equity

 

Comprehensive
Income

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 1, 2010

 

$

2,157,024

 

$

(73,747

)

$

2,083,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions from members

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to members

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

245,657

 

 

 

 

245,657

 

$

245,657

 

Unrealized loss on hedging activities, net

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

$

245,657

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, March 31, 2010

 

$

2,402,681

 

$

(73,747

)

$

2,328,934

 

 

 

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 1, 2011

 

$

2,904,413

 

$

(289,830

)

$

2,614,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contributions from members

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to members

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (Loss)

 

 

(15,738

)

 

 

 

(15,738

)

$

(15,738

)

Unrealized gain on hedging activities, net

 

 

 

 

289,830

 

 

289,830

 

 

289,830

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

$

274,092

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, March 31, 2011

 

$

2,888,675

 

$

 

$

2,888,675

 

 

 

 

 

 



 



 



 

 

 

 

18



 

GROUP OF SELECTED ENTITIES MANAGED BY HAWKEYE HOSPITALITY MANAGEMENT, INC.

COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the three months ended March 31, 2011 and 2010


 

 

 

 

 

 

 

 

 

 

2011

 

2010

 

 

 


 


 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income (loss)

 

$

(15,738

)

$

245,657

 

Adjustments to reconcile net profit to net cash provided by (used in) operating activities

 

 

 

 

 

 

 

Depreciation

 

 

248,500

 

 

128,150

 

Amortization

 

 

2,000

 

 

1,225

 

(Increase)/decrease in assets

 

 

 

 

 

 

 

Escrow - tax and insurance

 

 

(59,965

)

 

 

Accounts receivable

 

 

(65,379

)

 

(35,554

)

Due from affiliatied companies

 

 

 

 

(8,249

)

Increase/(decrease) in liabilities

 

 

 

 

 

 

 

Accounts payable

 

 

4,568

 

 

5,174

 

Due to affiliated companies

 

 

 

 

8,249

 

Accrued payroll and payroll taxes

 

 

23,449

 

 

601

 

Accrued property taxes

 

 

 

 

(17,188

)

Swap termination fees

 

 

21,683

 

 

 

Other accrued expenses

 

 

74,875

 

 

10,853

 

 

 



 



 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

233,993

 

$

338,918

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures for property and equipment

 

$

(4,781

)

$

(968,144

)

 

 



 



 

 

 

 

 

 

 

 

 

Net cash used in investing activites

 

$

(4,781

)

$

(968,144

)

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from the issuance of debt

 

$

 

$

2,930,397

 

Principal payments on debt

 

 

(120,576

)

 

(583,102

)

Due from affiliated companies

 

 

(1,123,457

)

 

(800,070

)

Due to affiliated companies

 

 

372,634

 

 

(964,939

)

Contributions from members

 

 

 

 

 

Distributions to members

 

 

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

$

(871,399

)

$

582,286

 

 

 



 



 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

$

(642,187

)

$

(46,939

)

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

 

2,188,768

 

 

419,433

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

$

1,546,581

 

$

372,494

 

 

 



 



 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid during the year for interest, net of capitalized interest

 

$

271,115

 

$

196,901

 

 

 



 



 

19


Apple REIT Ten, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2011 (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

 


 


 


 


 

 

 

 

 

 

 

 

 

 

CN Hotel Portfolio (1 Hotel):

 

 

 

 

 

 

 

 

Home2 Suites

 

Jacksonville, NC

 

$

12.0

 

Pending

 

 

 

 

 

 

 

 

 

 

McKibbon Hotel Portfolio (8 Hotels):

 

 

 

 

 

 

 

 

SpringHill Suites

 

Knoxville, TN

 

 

14.5

 

June 2, 2011

 

Hilton Garden Inn

 

Gainesville, FL

 

 

12.5

 

June 2, 2011

 

SpringHill Suites

 

Richmond, VA

 

 

11.0

 

June 2, 2011

 

TownePlace Suites

 

Pensacola, FL

 

 

11.5

 

June 2, 2011

 

Hampton Inn & Suites

 

Mobile, AL

 

 

13.0

 

June 2, 2011

 

Homewood Suites

 

Knoxville, TN

 

 

15.0

 

July 19, 2011

 

TownePlace Suites

 

Knoxville, TN

 

 

9.0

 

Pending

 

Homewood Suites

 

Gainesville, FL

 

 

14.6

 

Pending

 

 

 

 

 

 

 

 

 

 

Hawkeye Hotel Portfolio (3 Hotels):

 

 

 

 

 

 

 

 

Homewood Suites

 

Cedar Rapids, IA

 

 

13.0

 

June 8, 2011

 

Hampton Inn & Suites

 

Cedar Rapids, IA

 

 

13.0

 

June 8, 2011

 

Hampton Inn & Suites

 

Davenport, IA

 

 

13.0

 

July 19, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

Total

 

$

152.1

 

 

 

 

 

 

 



 

 

 

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 MHH Management, LLC and Schulte 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 March 31, 2011 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.

20


Balance Sheet as of March 31, 2011 (unaudited)
(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company
Historical
Balance Sheet

 

Pro forma
Adjustments

 

 

Total
Pro forma

 

 

 


 


 

 


 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Investment in hotel properties, net

 

$

89,983

 

$

151,314

 

(A)

$

241,297

 

Cash and cash equivalents

 

 

120,708

 

 

(119,958

)

(D)

 

750

 

Other assets

 

 

1,161

 

 

2,999

 

(C)

 

4,160

 

 

 



 



 

 



 

Total Assets

 

$

211,852

 

$

34,355

 

 

$

246,207

 

 

 



 



 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Note payable

 

$

 

 

32,049

 

(C)

$

32,049

 

Accounts payable and accrued expenses

 

 

438

 

 

800

 

(C)

 

1,238

 

 

 



 



 

 



 

Total Liabilities

 

 

438

 

 

32,849

 

 

 

33,287

 

 

 



 



 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

215,642

 

 

4,930

 

(E)

 

220,572

 

Accumulated deficit

 

 

(2,421

)

 

(3,424

)

(B)

 

(5,845

)

Cumulative distributions paid

 

 

(1,855

)

 

 

 

 

(1,855

)

 

 



 



 

 



 

Total Shareholders’ Equity

 

 

211,414

 

 

1,506

 

 

 

212,920

 

 

 



 



 

 



 

Total Liabilities and Shareholders’ Equity

 

$

211,852

 

$

34,355

 

 

$

246,207

 

 

 



 



 

 



 

21



 

 

 

Notes to Pro Forma Condensed Consolidated Balance Sheet (unaudited)

 

 

(A)

The estimated total purchase price for the 12 properties that have been, or will be purchased after March 31, 2011 consists of the following. This purchase price allocation is preliminary and subject to change.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Jacksonville, NC
Home2
Suites

 

Cedar
Rapids, IA

Homewood
Suites

 

Cedar
Rapids, IA

Hampton Inn
& Suites

 

Davenport, IA
Hampton Inn
& Suites

 

Knoxville, TN
SpringHill
Suites

 

Gainesville, FL
Hilton Garden
Inn

 

Richmond, VA
SpringHill
Suites

 

Pensacola, FL
TownePlace
Suites

 

Mobile, AL
Hampton Inn
& Suites

 

Knoxville, TN
TownePlace
Suites

 

Knoxville, TN
Homewood
Suites

 

Gainesville, FL
Homewood
Suites

 

Total
Combined

 

 

 

 


 


 


 


 


 


 


 


 


 


 


 


 


 

 

Purchase price per contract

 

$

12,000

 

$

13,000

 

$

13,000

 

$

13,000

 

$

14,500

 

$

12,500

 

$

11,000

 

$

11,500

 

$

13,000

 

$

9,000

 

$

15,000

 

$

14,550

 

$

152,050

 

 

Other capitalized costs (credits) incurred

 

 

50

 

 

65

 

 

71

 

 

71

 

 

122

 

 

80

 

 

50

 

 

50

 

 

(1,475

)

 

50

 

 

65

 

 

65

 

 

(736

)

 

 

 



 



 



 



 



 



 



 



 



 



 



 



 



 

 

Investment in hotel properties

 

 

12,050

 

 

13,065

 

 

13,071

 

 

13,071

 

 

14,622

 

 

12,580

 

 

11,050

 

 

11,550

 

 

11,525

 

 

9,050

 

 

15,065

 

 

14,615

 

 

151,314

 

(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

240

 

 

260

 

 

260

 

 

260

 

 

290

 

 

250

 

 

220

 

 

230

 

 

260

 

 

180

 

 

300

 

 

291

 

 

3,041

 

(B)

Other acquisition related costs

 

 

30

 

 

33

 

 

33

 

 

33

 

 

36

 

 

31

 

 

28

 

 

29

 

 

33

 

 

23

 

 

38

 

 

36

 

 

383

 

(B)

Net other assets/(liabilities) assumed

 

 

(24

)

 

(15

)

 

(153

)

 

(205

)

 

(51

)

 

(48

)

 

(34

)

 

(30

)

 

1,467

 

 

(7,217

)

 

(11,036

)

 

(12,504

)

 

(29,850

)

(C)

 

 



 



 



 



 



 



 



 



 



 



 



 



 



 

 

Total purchase price

 

$

12,296

 

$

13,343

 

$

13,211

 

$

13,159

 

$

14,897

 

$

12,813

 

$

11,264

 

$

11,779

 

$

13,285

 

$

2,036

 

$

4,367

 

$

2,438

 

$

124,888

 

 

 

 



 



 



 



 



 



 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Cash on hand at March 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(120,708

)

 

Plus: Working capital requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(119,958

)

(D)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Equity proceeds needed for acquisitions and working capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,930

 

(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, mortgage payable, debt service escrows, operational charges and credits and accrued property taxes.

 

 

(D)

Represents the reduction of cash and cash equivalents by the amount utilized to fund the acquisitions.

 

 

(E)

Represents the issuance of additional shares required to fund acquisitions.

22


Apple REIT Ten, Inc.
Pro Forma Condensed Consolidated Statements of Operations (unaudited)
For the year ended December 31, 2010 and three months ended March 31, 2011
(in thousands, except per share data)

The following unaudited Pro Forma Condensed Consolidated Statements 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

 

 

 

 

 

 

 

 

McKibbon Hotel Portfolio (8 Hotels):

 

 

 

 

 

 

 

SpringHill Suites

 

Knoxville, TN

 

 

14.5

 

June 2, 2011

Hilton Garden Inn

 

Gainesville, FL

 

 

12.5

 

June 2, 2011

SpringHill Suites

 

Richmond, VA

 

 

11.0

 

June 2, 2011

TownePlace Suites

 

Pensacola, FL

 

 

11.5

 

June 2, 2011

Hampton Inn & Suites

 

Mobile, AL

 

 

13.0

 

June 2, 2011

Homewood Suites

 

Knoxville, TN

 

 

15.0

 

July 19, 2011

TownePlace Suites

 

Knoxville, TN

 

 

9.0

 

Pending

Homewood Suites

 

Gainesville, FL

 

 

14.6

 

Pending

 

 

 

 

 

 

 

 

Hawkeye Hotel Portfolio (3 Hotels):

 

 

 

 

 

 

 

Homewood Suites

 

Cedar Rapids, IA

 

 

13.0

 

June 8, 2011

Hampton Inn & Suites

 

Cedar Rapids, IA

 

 

13.0

 

June 8, 2011

Hampton Inn & Suites

 

Davenport, IA

 

 

13.0

 

July 19, 2011

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Total

 

$

242.1

 

 

 

 

 

 



 

 

These Pro Forma Condensed Consolidated Statements of Operations also assume 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, Newport Hospitality Group, Inc. and Schulte Hospitality Group, Inc. under separate management agreements.

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

The following unaudited Pro Forma Condensed Consolidated Statements of Operations of Apple REIT Ten, Inc. are 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 Statements of Operations should be read in conjunction with, and is qualified in its entirety by the historical Statements of Operations of the acquired hotels.

23


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)

 

McKibbon Hotel
Portfolio (A)

 

Hawkeye Hotel
Portfolio (A)

 

Pro forma
Adjustments

 

Total
Pro forma

 

 

 


 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Room revenue

 

$

 

$

8,978

 

$

3,339

 

$

21,903

 

$

6,644

 

$

 

$

40,864

 

Other revenue

 

 

 

 

2,372

 

 

59

 

 

510

 

 

67

 

 

 

 

3,008

 

 

 



 



 



 



 



 



 



 

Total revenue

 

 

 

 

11,350

 

 

3,398

 

 

22,413

 

 

6,711

 

 

 

 

43,872

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

3,798

 

 

1,097

 

 

7,925

 

 

1,946

 

 

 

 

14,766

 

General and administrative

 

 

28

 

 

1,635

 

 

34

 

 

2,369

 

 

387

 

 

750

  (B)

 

5,203

 

Management and franchise fees

 

 

 

 

1,003

 

 

494

 

 

1,935

 

 

950

 

 

 

 

4,382

 

Taxes, insurance and other

 

 

 

 

374

 

 

234

 

 

1,336

 

 

451

 

 

 

 

2,395

 

Acquisition related costs

 

 

 

 

 

 

 

 

 

 

 

 

5,140

  (H)

 

5,140

 

Depreciation of real estate owned

 

 

 

 

1,325

 

 

463

 

 

4,083

 

 

720

 

 

(6,591

) (C)

 

6,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,024

  (D)

 

 

 

Interest, net

 

 

3

 

 

753

 

 

324

 

 

3,227

 

 

1,365

 

 

(3,747

) (E)

 

1,925

 

 

 



 



 



 



 



 



 



 

Total expenses

 

 

31

 

 

8,888

 

 

2,646

 

 

20,875

 

 

5,819

 

 

1,576

 

 

39,835

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

  (G)

 

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(31

)

$

2,462

 

$

752

 

$

1,538

 

$

892

 

$

(1,576

)

$

4,037

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share

 

$

(3,083.50

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.21

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,582

  (F)

 

19,582

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

24


Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the three months ended March 31, 2011
(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company
Historical
Statement of
Operations

 

Denver, CO
Hilton
Garden Inn (A)

 

CN Hotel
Portfolio (A)

 

McKibbon Hotel
Portfolio (A)

 

Hawkeye Hotel
Portfolio (A)

 

Pro forma
Adjustments

 

Total
Pro forma

 

 

 


 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Room revenue

 

$

749

 

$

1,273

 

$

1,061

 

$

5,203

 

$

1,700

 

$

 

$

9,986

 

Other revenue

 

 

144

 

 

381

 

 

19

 

 

123

 

 

17

 

 

 

 

684

 

 

 



 



 



 



 



 



 



 

Total revenue

 

 

893

 

 

1,654

 

 

1,080

 

 

5,326

 

 

1,717

 

 

 

 

10,670

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

419

 

 

736

 

 

334

 

 

1,976

 

 

547

 

 

 

 

4,012

 

General and administrative

 

 

597

 

 

142

 

 

68

 

 

667

 

 

124

 

 

100

  (B)

 

1,698

 

Management and franchise fees

 

 

65

 

 

224

 

 

96

 

 

461

 

 

229

 

 

 

 

1,075

 

Taxes, insurance and other

 

 

64

 

 

66

 

 

84

 

 

342

 

 

185

 

 

 

 

741

 

Acquisition related costs

 

 

2,020

 

 

 

 

 

 

 

 

 

 

(1,988

) (H)

 

32

 

Depreciation of real estate owned

 

 

214

 

 

225

 

 

135

 

 

926

 

 

246

 

 

(1,532

) (C)

 

1,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,443

  (D)

 

 

 

Interest, net

 

 

(96

)

 

128

 

 

137

 

 

781

 

 

402

 

 

(878

) (E)

 

474

 

 

 



 



 



 



 



 



 



 

Total expenses

 

 

3,283

 

 

1,521

 

 

854

 

 

5,153

 

 

1,733

 

 

(2,855

)

 

9,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

  (G)

 

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(2,390

)

$

133

 

$

226

 

$

173

 

$

(16

)

$

2,855

 

$

981

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share

 

$

(0.23

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.05

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

10,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,369

  (F)

 

21,749

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

25


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, three properties began operations subsequent to January 1, 2010, and one property remained under construction as of March 31, 2011. 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, Cedar Rapids, IA Homewood Suites, opened August 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.

26


 


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

 

 

 

 

 

July 20, 2011

27