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8-K - 8-K - Apple REIT Ten, Inc.applereitten8k120215.htm
 
Exhibit 99.1
 
GRAPHIC
 
 
 

 
 
 
Dear Shareholder
 
 

 
 
   
 
graphic   
The Apple REIT Ten, Inc. (the “Company”) hotel portfolio
continues to benefit from broad geographic diversification,
a focus on the upscale select service segment of the industry
and a concentration within the Hilton® and Marriott® families
of brands. We are pleased to report that performance across
our portfolio continued to strengthen during the third quarter
of this year and we anticipate operations will remain positive
throughout the year and into 2016.
 
 
 

As of September 30, 2015, the Apple REIT Ten portfolio consisted of 54 Marriott® and Hilton® branded
hotels, with 6,898 guestrooms, geographically diversified across markets in 17 states. For the three-month
period ending September 30, 2015, the Company’s portfolio of hotels reported an average occupancy
rate of 79.2 percent, an average daily rate (ADR) of $127.78 and revenue per available room (RevPAR)
of $101.16, increases of approximately three percent, six percent and nine percent, as compared to
results from the same period of 2014, respectively. For the nine-month period ending September 30,
2015, our hotels reported an average occupancy rate of 77.6 percent, ADR of $128.51 and RevPAR
of $99.68, increases of approximately three percent, six percent and nine percent as compared to results
for the same period of 2014, respectively.
 
Subsequent to the end of the third quarter, on October 29, 2015, the Company completed the purchase
of the newly constructed 158-room Hampton Inn & Suites by Hilton® in Rosemont, IL. The property
is conveniently located near Chicago O’Hare International Airport. The Company currently has one
additional property under contract for purchase, a 153-room Homewood Suites by Hilton® in Cape
Canaveral, FL, which is under construction.
 
Modified funds from operations (MFFO) for Apple REIT Ten for the third quarter of this year totaled $23.5
million, or approximately $0.26 per share. MFFO for the same period of 2014 totaled $20.8 million,
or approximately $0.23 per share. The Company paid $0.206 per share in distributions during the third
quarter of 2015. The current annualized distribution rate is $0.825 per share. The Company’s Board of
Directors, in consultation with management, will continue to regularly monitor the distribution rate relative
to the performance of its hotels, capital improvement needs, varying economic cycles, acquisitions and
dispositions. At its discretion, the Board of Directors may make adjustments as determined to be prudent
in relation to other cash requirements of the Company.
 
With continued strength of fundamentals in our segment of the hotel industry, we believe we are
well positioned for sustainable growth in the future. For additional information about the Company,
we encourage you to visit Apple REIT Ten’s website at www.applereitten.com and review our public
filings with the Securities and Exchange Commission also available at www.sec.gov. Thank you for
your investment in our Company.
 
Sincerely,
 
   
Glade M. Knight,
Chairman and Chief Executive Officer      
 
 
 
 

 
 
STATEMENTS OF OPERATIONS (Unaudited)
 
                         
   
Three months ended
   
Three months ended
   
Nine months ended
   
Nine months ended
 
(In thousands except statistical data)
 
Sept 30, 2015
   
Sept 30, 2014
   
Sept 30, 2015
   
Sept 30, 2014
 
REVENUES                                
Room revenue
  $ 64,198     $ 52,614     $ 184,601     $ 153,365  
Other revenue
    5,082       4,177       15,133       13,220  
Total revenue
  $ 69,280     $ 56,791     $ 199,734     $ 166,585  
                                 
EXPENSES AND OTHER INCOME
                               
Direct operating expense
  $ 16,674     $ 14,275     $ 47,649     $ 41,173  
Other hotel operating expenses
    24,887       22,060       72,939       64,826  
General and administrative
    1,715       1,369       5,124       4,461  
Depreciation
    8,979       7,226       26,156       21,237  
Acquisition related costs
    14       13       2,236       1,054  
Investment income
    (2     (3,530 )     (17 )     (10,475 )
Interest expense
    2,550       1,867       6,408       6,541  
Total expenses and other income
  $ 54,817     $ 43,280     $ 160,495     $ 128,817  
                                 
NET INCOME
                               
Net income
  $ 14,463     $ 13,511     $ 39,239     $ 37,768  
Net income per share
  $ 0.16     $ 0.15     $ 0.43     $ 0.45  
                                 
MODIFIED FUNDS FROM OPERATIONS (A)
                               
Net income
  $ 14,463     $ 13,511     $ 39,239     $ 37,768  
Depreciation of real estate owned
    8,979       7,226       26,156       21,237  
Funds from operations (FFO)
  $ 23,442     $ 20,737     $ 65,395     $ 59,005  
Acquisition related costs
    14       13       2,236       1,054  
Modified funds from operations (MFFO)
  $ 23,456     $ 20,750     $ 67,631     $ 60,059  
FFO per share
  $ 0.26     $ 0.23     $ 0.72     $ 0.70  
MFFO per share
  $ 0.26     $ 0.23     $ 0.75     $ 0.71  
                                 
WEIGHTED-AVERAGE SHARES OUTSTANDING 
    89,793       90,267       90,260       84,605  
                                 
OPERATING STATISTICS
                               
Occupancy
    79.2 %     76.9 %     77.6 %     75.2 %
Average daily rate
  $ 127.78     $ 120.23     $ 128.51     $ 121.05  
RevPAR
  $ 101.16     $ 92.40     $ 99.68     $ 91.08  
Number of hotels
    54       49                  
Distributions per share
  $ 0.206     $ 0.206     $ 0.619     $ 0.619  
                             
BALANCE SHEET HIGHLIGHTS (Unaudited)
                           
(In thousands)
                 
September 30, 2015
   
December 31, 2014
 
ASSETS
                               
Investment in real estate, net
                  $ 918,311     $ 839,032  
Cash and cash equivalents
                    10,630       46,341  
Other assets
                    35,598       23,663  
Total assets
                  $ 964,539     $ 909,036  
                                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                               
Notes payable
                  $ 206,491     $ 119,708  
Other liabilities
                    11,317       12,162  
Total liabilities
                    217,808       131,870  
Total shareholders’ equity
                    746,731       777,166  
Total liabilities and shareholders’ equity
                  $ 964,539     $ 909,036  
 
(A) Funds from operations (FFO) is defined as net income (computed in accordance with generally accepted accounting principles - GAAP) excluding gains and losses from sales of depreciable property, plus depreciation and amortization. Modified funds from operations (MFFO) excludes costs associated with the acquisition of real estate. The Company considers FFO and MFFO in evaluating property acquisitions and its operating performance and believes that FFO and MFFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of the Company’s activities in accordance with GAAP. FFO and MFFO are not necessarily indicative of cash available to fund cash needs.
  
The financial information furnished reflects all adjustments necessary for a fair presentation of financial position at September 30, 2015 and the results of operations for the interim periods ended September 30, 2015 and 2014. Such interim results are not necessarily indicative of the results that can be expected for the full year. The accompanying financial statements should be read in conjunction with the audited financial statements and related notes appearing in the Apple REIT Ten, Inc. 2014 Annual Report.
 
 
 

 
 
 

 
 
   
Our Hotels
 
 
         
         
 
ALABAMA
 
NEBRASKA
 
 
Huntsville (2), Mobile
 
Omaha (3)
 
         
 
ARIZONA
 
NORTH CAROLINA
 
 
Phoenix (3), Scottsdale
  Charlotte/Matthews, Jacksonville, Winston-Salem  
         
 
CALIFORNIA
 
OHIO
 
 
San Diego/Oceanside, San Juan Capistrano, Tustin (2) 
 
Cincinnati/Mason
 
         
 
COLORADO
 
OKLAHOMA
 
 
Colorado Springs, Denver
 
Oklahoma City (2), Oklahoma City/West
 
         
 
FLORIDA
 
SOUTH CAROLINA
 
 
Boca Raton, Fort Lauderdale/Dania Beach,
Gainesville (2), Pensacola, Tallahassee
 
Charleston, Columbia
 
      TENNESSEE  
 
ILLINOIS
 
Franklin (2), Knoxville (3), Nashville
 
  Chicago/Des Plaines, Chicago/Rosemont,      
 
Chicago/Skokie, Hoffman Estates
  TEXAS  
     
Austin/Round Rock, Dallas, Denton, Houston (2),
 
 
INDIANA
 
Houston/Shenandoah 
 
 
Merrillville, South Bend
     
      VIRGINIA  
 
IOWA
 
Fairfax, Richmond/Henrico
 
 
Cedar Rapids (2), Davenport
     
         
 
MINNESOTA
     
 
Minneapolis/Maple Grove
     
 
GRAPHIC
 
 
 

 
 
 
 
graphic
 
CORPORATE PROFILE   Apple REIT Ten, Inc. (the “Company”) is a public real estate investment trust (REIT) focused on the acquisition and ownership of income-producing real estate that generates attractive returns for our shareholders. Our hotels operate under the Courtyard by Marriott®, Fairfield Inn & Suites by Marriott®, Marriott® Hotels, Residence Inn by Marriott®, SpringHill Suites by Marriott®, TownePlace Suites by Marriott®, Hampton Inn & Suites by Hilton®, Hilton Garden Inn®, Home2 Suites by Hilton® and Homewood Suites by Hilton® brands. As of October 30, 2015, the Company’s portfolio consisted of 55 hotels, containing a total of 7,056 guestrooms, diversified among markets in 17 states.
 
MISSION Apple REIT Ten, Inc. is a premier real estate investment company committed to providing maximum value for our shareholders.
 
As always, we encourage our shareholders to know their investment and stay informed by reviewing information on our website at www.applereitten.com, as well as our filings with the Securities and Exchange Commission, which can be found on their website at www.sec.gov.
 
 
     
 
Cover image: Residence Inn, Dania Beach, FL
 
“Courtyard by Marriott®,” “Fairfield Inn & Suites by Marriott®,” “Marriott® Hotels,” “Residence Inn by Marriott®,” “SpringHill Suites by Marriott®,” and “TownePlace Suites by Marriott®” are each a registered trademark of Marriott® International, Inc. or one of its affiliates. All references to “Marriott®” mean Marriott® International, Inc. and all of its affiliates and subsidiaries, and their respective officers, directors, agents, employees, accountants and attorneys. Marriott® is not responsible for the content of this Quarterly Report, whether relating to hotel information, operating information, financial information, Marriott®’s relationship with Apple REIT Ten, Inc. or otherwise. Marriott® was not involved in any way, whether as an “issuer” or “underwriter” or otherwise, in the Apple REIT Ten offering and received no proceeds from the offering. Marriott® has not expressed any approval or disapproval regarding this Quarterly Report, and the grant by Marriott® of any franchise or other rights to Apple REIT Ten shall not be construed as any expression of approval or disapproval. Marriott® has not assumed and shall not have any liability in connection with this Quarterly Report.
 
“Hampton Inn & Suites by Hilton®,” “Hilton Garden Inn®,” “Home2 Suites by Hilton®,” and “Homewood Suites by Hilton®” are each a registered trademark of Hilton® Worldwide Holdings, Inc. or one of its affiliates. All references to “Hilton®” mean Hilton® Worldwide Holdings, Inc. and all of its affiliates and subsidiaries, and their respective officers, directors, agents, employees, accountants and attorneys. Hilton® is not responsible for the content of this Quarterly Report, whether relating to hotel information, operating information, financial information, Hilton®’s relationship with Apple REIT Ten, Inc. or otherwise. Hilton® was not involved in any way, whether as an “issuer” or “underwriter” or otherwise, in the Apple REIT Ten offering and received no proceeds from the offering. Hilton® has not expressed any approval or disapproval regarding this Quarterly Report, and the grant by Hilton® of any franchise or other rights to Apple REIT Ten shall not be construed as any expression of approval or disapproval. Hilton® has not assumed and shall not have any liability in connection with this Quarterly Report.
 
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 Apple REIT Ten, Inc. (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; the ability of the Company to provide liquidity opportunities for its shareholders; changes in general political, economic and competitive conditions and specific market conditions; adverse changes in the real estate and real estate capital markets; financing risks; the outcome of future litigation; regulatory proceedings or inquiries; and changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a real estate investment trust. Although the Company believes that the assumptions underlying the forwardlooking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this 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 (“SEC”) including but not limited to those discussed in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. 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.
 
 
 
 
 
CORPORATE HEADQUARTERS
814 East Main Street | Richmond, Virginia 23219
(804) 344-8121 | (804) 344-8129 FAX
applereitten.com
 
 
INVESTOR INFORMATION
For additional information about the Company, please
contact: Kelly Clarke, Director of Investor Services
(804) 727-6321 or kclarke@applereit.com