10-Q 1 applereitsix10q033113.htm applereitsix10q033113.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, 2013

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 (§232.405 of this chapter) 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, 2013: 91,226,580
 
 
 

 
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.
         22
 
 
Item 4.
         22
 
         
PART II.  OTHER INFORMATION
   
     
 
Item 1.
         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,
 
   
2013
   
2012
 
   
(unaudited)
       
Assets
           
Investment in real estate, net of accumulated depreciation
   of $224,313 and $216,910, respectively
  $ 726,894     $ 729,108  
Restricted cash-furniture, fixtures and other escrows
    947       1,459  
Due from third party manager, net
    11,056       7,546  
Other assets, net
    2,176       2,257  
  Total Assets   $ 741,073     $ 740,370  
                 
Liabilities
               
Credit facility
  $ 25,470     $ 34,470  
Mortgage debt
    23,805       23,947  
Accounts payable and accrued expenses
    7,249       7,306  
  Total Liabilities     56,524       65,723  
                 
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 91,226,580 and 91,226,580 shares, respectively
    0       0  
Series B convertible preferred stock, no par value, authorized 240,000 shares;
   issued and outstanding 240,000 shares
    24       24  
Common stock, no par value, authorized 200,000,000 shares;
   issued and outstanding 91,226,580 and 91,226,580 shares, respectively
    899,958       899,958  
Distributions greater than net income
    (215,433 )     (225,335 )
  Total Shareholders' Equity     684,549       674,647  
                 
  Total Liabilities and Shareholders' Equity   $ 741,073     $ 740,370  
 
See notes to consolidated financial statements.
 
 
3

 
APPLE REIT SIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Revenues:
           
Room revenue
  $ 54,274     $ 53,918  
Other revenue
    4,007       4,072  
Reimbursed expenses
    1,893       1,913  
Total revenue
    60,174       59,903  
                 
Expenses:
               
Operating expense
    15,686       15,283  
Hotel administrative expense
    4,837       4,927  
Sales and marketing
    4,881       4,730  
Utilities
    2,278       2,261  
Repair and maintenance
    2,775       2,791  
Franchise fees
    2,461       2,413  
Management fees
    1,950       1,944  
Property taxes, insurance and other
    3,226       3,047  
General and administrative
    1,604       1,716  
Merger transaction costs
    669       681  
Reimbursed expenses
    1,893       1,913  
Depreciation expense
    7,403       8,007  
Total expenses
    49,663       49,713  
                 
Operating income
    10,511       10,190  
                 
Interest expense, net
    (514 )     (822 )
                 
Income before income taxes
    9,997       9,368  
                 
Income tax expense
    (95 )     (88 )
                 
Net income
  $ 9,902     $ 9,280  
                 
Basic and diluted net income per common share
  $ 0.11     $ 0.10  
                 
Weighted average common shares outstanding -
basic and diluted
    91,227       91,082  
 
See notes to consolidated financial statements.

 
4

 
APPLE REIT SIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Cash flows from operating activities:
           
Net income
  $ 9,902     $ 9,280  
Adjustments to reconcile net income to cash provided by operating activities:
               
Depreciation
    7,403       8,007  
Amortization of deferred financing costs, fair value
   adjustments and other non-cash expenses, net
    57       148  
Changes in operating assets and liabilities:
               
Increase in due from third party managers, net
    (3,510 )     (4,990 )
Increase (decrease) in other assets, net
    302       (1,104 )
Increase in accounts payable and accrued expenses
    1,138       751  
Net cash provided by operating activities
    15,292       12,092  
                 
Cash flows from investing activities:
               
Capital improvements
    (6,391 )     (3,056 )
Net decrease (increase) in cash restricted for property improvements
    241       (54 )
Net cash used in investing activities
    (6,150 )     (3,110 )
                 
Cash flows from financing activities:
               
Net proceeds related to issuance of Units
    0       5,399  
Redemptions of Units
    0       (5,052 )
Distributions paid to common shareholders
    0       (18,026 )
Net proceeds from (payments on) credit facility
    (9,000 )     8,850  
Payments of mortgage debt
    (142 )     (185 )
Net cash used in financing activities
    (9,142 )     (9,014 )
                 
Net change in cash and cash equivalents
    0       (32 )
                 
Cash and cash equivalents, beginning of period
    0       32  
                 
Cash and cash equivalents, end of period
  $ 0     $ 0  
 
See notes to consolidated financial statements.
 
 
5


APPLE REIT SIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  Organization 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. 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. As of March 31, 2013, the Company owned 66 hotels located in 18 states with an aggregate of 7,658 rooms.

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 2012 Annual Report on Form 10-K. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2013.

Use of Estimates

The preparation of the financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain amounts in the 2012 consolidated financial statements have been reclassified to conform with the 2013 presentation with no effect on previously reported net income or shareholders’ equity.

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 for the three months ended March 31, 2013 or 2012. 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.

 
6


2.  Merger

On November 29, 2012, the Company entered into a definitive merger agreement (the “Merger Agreement”) to be acquired by BRE Select Hotels Corp (“BRE Select Hotels”), a newly formed affiliate of Blackstone Real Estate Partners VII L.P. (the “Merger”). Under the Merger Agreement, each issued and outstanding Unit and each share of Series B convertible preferred stock of the Company (on an as converted basis), other than any dissenting shares, will be converted into the right to receive consideration with a stated value of $11.10 per Unit consisting of (i) $9.20 in cash, without interest, and (ii) one share of 7% Series A Cumulative Redeemable Preferred Stock of BRE Select Hotels having an initial liquidation preference of $1.90 per share (the “New Preferred Shares”). The stated value of the transaction based on the outstanding Units and as converted Series B convertible preferred stock at March 31, 2013 is approximately $1.1 billion, including approximately $64.4 million related to the Series B convertible preferred stock which would be recorded as expense at the time of the Merger.

The New Preferred Shares will include an option for the holder of any New Preferred Shares to redeem all or a portion of such holder’s New Preferred Shares at the liquidation preference, plus any accumulated and unpaid dividends, after 7-1/2 years following the issuance of the New Preferred Shares in connection with the Merger and an initial dividend rate of 7% per share. The New Preferred Shares will also be redeemable by BRE Select Hotels Corp at any time at the liquidation preference, plus any accumulated and unpaid dividends, and will have limited voting rights. The dividend rate on the New Preferred Shares will increase to 11% per share if the New Preferred Shares are not redeemed within five years following the issuance of the New Preferred Shares in connection with the Merger. The initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million.

The Company’s dividend reinvestment and share redemption programs were suspended upon the execution of the Merger Agreement. Also, in accordance with the Merger Agreement, the Company suspended dividend payments. A shareholder meeting is scheduled for May 9, 2013 to vote on the transaction. The Merger Agreement contains various closing conditions, including shareholder approval. As a result, there can be no assurance that the Merger will close. If the closing conditions are satisfied, it is anticipated that the Merger will close during the second quarter of 2013. Under the Merger Agreement, the Company may terminate the Merger Agreement in certain circumstances. However the Company may be required to pay a fee of $20 million to an affiliate of BRE Select Hotels, plus certain expenses not to exceed $5 million. In certain other circumstances, the Merger Agreement provides for an affiliate of BRE Select Hotels to pay the Company a fee of $35 million upon termination of the Merger Agreement, plus certain expenses not to exceed $5 million. All costs related to the proposed Merger transaction are being expensed in the period they are incurred and are included in Merger transaction costs in the Company’s consolidated statements of operations. In connection with these activities, the Company incurred $0.7 million in expenses for the three months ended March 31, 2013.

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 (as discussed above, under the Merger Agreement redemptions and distributions have been suspended). 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, 2013 and December 31, 2012 was $25.5 million and $34.5 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 100%, and b) the Company maintain a minimum net worth, as defined in the loan documents, greater than $500 million. The Company was in compliance with each of these covenants at March 31, 2013. In the event the Merger does not occur, the Company intends to refinance the credit facility. If the Company is unable to complete a refinancing the outstanding balance of the credit facility would be payable in September 2013 to the lender.
 
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, 2013, the carrying value and estimated fair value of the Company’s debt was approximately $49.3 million and $50.4 million. As of December 31, 2012, the carrying value and estimated fair value of the Company’s debt was $58.4 million and $59.6 million. The carrying value of the Company’s other financial instruments approximates fair value due to the short-term nature of these financial instruments.
 
 
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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 arm’s 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, 2013. 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 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 for each of the three months ended March 31, 2013 and 2012.
 
Through its wholly-owned subsidiary, Apple Fund Management, LLC (“AFM”), the Company provides support services to Apple Six Realty Group (“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. A6RG provides real estate brokerage services to the Company. 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 (collectively the “Advisors”) are 100% owned by Glade Knight, the Company’s Chairman and Chief Executive Officer. For the three months ended March 31, 2013 and 2012, the Company received reimbursement of its costs totaling $1.9 million for each period from the participating entities. The Company’s net allocated cost for these support services was approximately $0.5 million and $0.3 million for the three months ended March 31, 2013 and 2012. 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 Advisors. 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 REITs and is reviewed at least annually by the Compensation Committees of the 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.
 
 
8

 
In addition to owning the Advisors discussed above, Mr. Knight is 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.
 
The Company has incurred legal fees associated with the Legal Proceedings and Related Matters 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 Company, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc., and Apple REIT Ten, Inc. (“the Apple REIT Companies”). The professionals cannot always specifically identify their fees for one company; therefore management allocates these costs across the companies that benefit from the services. As a result of the Merger, the Company entered into a formal agreement with the other Apple REIT Companies for its share of costs associated with the Legal Proceedings and the SEC investigation where the Company will pay 20% of the total costs related to the Legal Proceedings and 25% of the total costs related to the SEC investigation. Total costs for these legal matters (discussed further in Note 7) for all of the Apple REIT Companies was approximately $0.8 million for the three months ended March 31, 2013, of which $0.2 million was allocated to the Company.
 
In connection with the Merger Agreement, on November 29, 2012, the Company entered into an assignment and transfer agreement with A9A for the transfer of the Company’s interest in AFM. The assignment and transfer is expected to occur immediately after the closing of the Merger. As part of the assignment, AFM, A9A and the other Advisors agreed to indemnify BRE Select Hotels and related parties for any liabilities related to AFM. If a closing occurs, no additional costs of AFM will be allocated to the Company.

Also on November 29, 2012, in connection with the Merger Agreement, Apple REIT Nine, Inc. entered into a transfer agreement with the Company for the potential acquisition of the Apple REIT Companies’ and Advisors’ headquarters in Richmond, Virginia (“Headquarters”), currently owned by the Company, and the assignment of the Fort Worth, Texas office lease agreement from the Company for approximately $4.5 million which is expected to close immediately prior to the closing of the Merger. Also, as part of the purchase, Apple REIT Nine, Inc. agreed to release the Company and related parties from any liabilities related to the Headquarters or office lease. If a closing occurs, no additional costs associated with the Headquarters and office lease will be allocated to the Company.

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 $1.5 million at both March 31, 2013 and December 31, 2012. 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, 2013 and 2012, the Company recorded a loss of approximately $57,000 and $42,000 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.

On December 5, 2012, in connection with the Merger Agreement, Apple REIT Ten, Inc. entered into a membership interest purchase agreement with the Company for the transfer of the Company’s 26% membership interest in Apple Air for approximately $1.45 million that is expected to close immediately prior to the closing of the Merger. Also as part of the purchase, Apple REIT Ten, Inc. agreed to indemnify BRE Select Hotels and related parties for any liabilities related to the membership interest.
 
 
9


6.  Shareholders’ Equity

Series B Convertible Preferred Stock

The Company has issued 240,000 Series B convertible preferred shares to Glade M. Knight, Chairman and Chief Executive Officer of the Company, in exchange for the payment by him of $0.10 per Series B convertible preferred share, or an aggregate of $24,000. Expense related to the issuance of 240,000 Series B convertible preferred shares to Mr. Knight will be recognized at such time when the number of common shares to be issued for conversion of the Series B convertible preferred shares can be reasonably estimated and the event triggering the conversion of the Series B convertible preferred shares to common shares occurs. The expense will be measured as the difference between the fair value of the common stock for which the Series B convertible preferred shares can be converted and the amounts paid for the Series B convertible preferred shares. Under the Merger Agreement, if the transaction is completed, the Series B convertible preferred shares will receive total consideration of approximately $64.4 million at the Merger’s stated value of $11.10 per Unit.

Distributions and Redemptions

In accordance with the Merger Agreement, the Company suspended distributions and redemptions to shareholders in December 2012. In the event the Merger does not occur, the Company plans to reinstate its monthly distribution to shareholders, including its Dividend Reinvestment Plan and its quarterly Unit Redemption Program. Prior to the Merger Agreement, the Company’s annual distribution rate was $0.792 per common share and was paid monthly. For the three months ended March 31, 2012, the Company made distributions of $0.198 per common share for a total of $18.0 million, including the issuance of approximately 0.5 million Units, representing $5.4 million in proceeds to the Company, under its Dividend Reinvestment Plan. For the three months ended March 31, 2012, the Company redeemed 0.5 million Units in the amount of $5.1 million under the Unit Redemption Program.

7.  Legal Proceedings and Related Matters

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 Company was previously named as a party in the Kronberg, et al. v. David Lerner Associates, Inc., et al. putative class action lawsuit, which was filed on June 20, 2011.

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.
 
 
10


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 defendants moved to dismiss the consolidated complaint in the In re Apple REITs Litigation. The briefing period for the motions to dismiss was completed on July 13, 2012.

By Order entered on March 31, 2013 and opinion issued on April 3, 2013, the Court dismissed the consolidated complaint in its entirety with prejudice and without leave to amend. Plaintiffs filed a Notice of Appeal to the Second Circuit Court of Appeals on April 12, 2013. The Company believes that any claims against it, its officers and directors and other Apple REIT Companies 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.
 
The Securities and Exchange Commission (“SEC”) staff has been conducting a non-public investigation, which is focused principally on the adequacy of certain disclosures in the Company's filings with the SEC beginning in 2008, as well as the Company's review of certain transactions involving the Company and the other Apple REIT Companies. The Company intends to continue to cooperate with the SEC staff, and it is engaging in a dialogue with the SEC staff concerning these issues and the roles of certain officers. The Company does not believe the issues raised by the SEC staff affect the material accuracy of the Company's consolidated financial statements. At this time, the Company cannot predict the outcome of this investigation as to the Company or any of its officers, nor can it predict the timing associated with any such conclusion or resolution.
 
 
11


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 obtain required shareholder or other third-party approvals required to consummate the proposed merger with and into BRE Select Hotels Corp, a Delaware corporation (“BRE Select Hotels”); the satisfaction or waiver of other conditions in the merger agreement; a material adverse effect on the Company; the outcome of any legal proceedings that may be instituted against the Company and others related to the merger agreement; the failure to consummate debt financing arrangements set forth in a commitment letter received in connection with the merger; the ability of the Company to implement its operating strategy; the Company’s ability to manage planned growth; changes in economic cycles; financing risks; the outcome of current and future litigation, regulatory proceedings, or inquiries; 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; and competition within the hotel and real estate 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 (“SEC”). 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, 2013, the Company owned 66 hotels within different markets in the United States. The Company’s first hotel was acquired on May 28, 2004.

Merger

On November 29, 2012, the Company entered into a definitive merger agreement (the “Merger Agreement”) to be acquired by BRE Select Hotels Corp (“BRE Select Hotels”), a newly formed affiliate of Blackstone Real Estate Partners VII L.P. (the “Merger”). Under the Merger Agreement, each issued and outstanding Unit and each share of Series B convertible preferred stock of the Company (on an as converted basis), other than any dissenting shares, will be converted into the right to receive consideration with a stated value of $11.10 per Unit consisting of (i) $9.20 in cash, without interest, and (ii) one share of 7% Series A Cumulative Redeemable Preferred Stock of BRE Select Hotels having an initial liquidation preference of $1.90 per share (the “New Preferred Shares”). The stated value of the transaction based on the outstanding Units and as converted Series B convertible stock at March 31, 2013 is approximately $1.1 billion, including approximately $64.4 million related to the Series B convertible preferred stock.
 
The New Preferred Shares will include an option for the holder of any New Preferred Shares to redeem all or a portion of such holder’s New Preferred Shares at the liquidation preference, plus any accumulated and unpaid dividends, after 7-1/2 years following the issuance of the New Preferred Shares in connection with the Merger and an initial dividend rate of 7% per share. The New Preferred Shares will also be redeemable by BRE Select Hotels Corp at any time at the liquidation preference, plus any accumulated and unpaid dividends, and will have limited voting rights. The dividend rate on the New Preferred Shares will increase to 11% per share if the New Preferred Shares are not redeemed within five years following the issuance of the New Preferred Shares in connection with the Merger. The initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million.
 
 
12


The Company’s dividend reinvestment and share redemption programs were suspended upon the execution of the Merger Agreement. Also, in accordance with the Merger Agreement, the Company suspended dividend payments. A shareholder meeting is scheduled for May 9, 2013 to vote on the transaction. The Merger Agreement contains various closing conditions, including shareholder approval. As a result, there can be no assurance that the Merger will close. If the closing conditions are satisfied, it is anticipated that the Merger will close during the second quarter of 2013. Under the Merger Agreement, the Company may terminate the Merger Agreement in certain circumstances. However the Company may be required to pay a fee of $20 million to an affiliate of BRE Select Hotels, plus certain expenses not to exceed $5 million. In certain other circumstances, the Merger Agreement provides for an affiliate of BRE Select Hotels to pay the Company a fee of $35 million upon termination of the Merger Agreement, plus certain expenses not to exceed $5 million. All costs related to the proposed Merger transaction are being expensed in the period they are incurred and are included in Merger transaction costs in the Company’s consolidated statements of operations. In connection with these activities, the Company incurred $0.7 million in expenses for the three months ended March 31, 2013.

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. The hotel industry and the Company continue to see improvement in both revenues and operating income as compared to the prior year. Although there is no way to predict future general economic conditions, and there are several key factors that may continue to negatively affect the economic recovery in the United States and add to general market uncertainty, including but not limited to, the continued high levels of unemployment, the slow pace of the economic recovery in the United States and the uncertainty surrounding the fiscal policy of the United States, the Company and industry are forecasting a mid-single digit percentage increase in revenue for 2013 as compared to 2012.

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 following is a summary of the results of the 66 hotels owned by the Company for the three months ended March 31, 2013 and 2012:

   
Three Months Ended March 31,
 
 (in thousands except statistical data)
 
2013
   
Percent of Revenue
   
2012
   
Percent of Revenue
   
Percent Change
 
                               
Total hotel revenue
  $ 58,281       100 %   $ 57,990       100 %     1 %
Hotel operating expenses
    34,868       60 %     34,349       59 %     2 %
Property taxes, insurance and other expense
    3,226       6 %     3,047       5 %     6 %
General and administrative expense
    1,604       3 %     1,716       3 %     -7 %
                                         
Merger transaction costs
    669               681               -2 %
Depreciation
    7,403               8,007               -8 %
Interest expense, net
    514               822               -37 %
Income tax expense
    95               88               8 %
                                         
Number of hotels
    66               66               0 %
Average Market Yield (1)
    121               122               -1 %
ADR
  $ 113             $ 110               3 %
Occupancy
    70 %             70 %             0 %
RevPAR
  $ 79             $ 77               3 %
Total rooms sold (2)
    480,674               483,179               -1 %
Total rooms available (3)
    690,216               692,447               0 %
 
(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.
 
 
13


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 Company was previously named as a party in the Kronberg, et al. v. David Lerner Associates, Inc., et al. putative class action lawsuit, which was filed on June 20, 2011.

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 defendants moved to dismiss the consolidated complaint in the In re Apple REITs Litigation. The briefing period for the motions to dismiss was completed on July 13, 2012.
 
By Order entered on March 31, 2013 and opinion issued on April 3, 2013, the Court dismissed the consolidated complaint in its entirety with prejudice and without leave to amend. Plaintiffs filed a Notice of Appeal to the Second Circuit Court of Appeals on April 12, 2013. The Company believes that any claims against it, its officers and directors and other Apple REIT Companies 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.
 
 
14


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, 2013.  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  
 
 
15

 
Results of Operations

As of March 31, 2013, the Company owned 66 hotels with 7,658 rooms. Hotel performance is impacted by many factors, including the economic conditions in the United States, as well as each locality. Although hampered by government spending uncertainty economic indicators in the United States have shown evidence of a sustainable recovery, which continues to overall positively impact the lodging industry. As a result, the Company’s revenue and operating income improved in the first quarter of 2013 as compared to the same period of 2012 and the Company expects continued improvement in revenue and operating income in 2013 as compared to 2012. 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, 2013 and 2012, the Company had total hotel revenue of $58.3 million and $58.0 million, respectively. For the three months ended March 31, 2013 and 2012, the hotels achieved combined average occupancy of 70%, ADR of $113 and $110 and RevPAR of $79 and $77. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.

During the first quarter of 2013, the Company experienced an increase in ADR of 3% as compared to the prior year while maintaining stable occupancy levels. Although certain markets have been negatively impacted by reduced government spending, with stability in overall demand and continued room rate improvement, the Company and industry are forecasting a mid-single digit percentage increase in revenue for 2013 as compared to 2012. Also during the first quarter of 2013, the Company had approximately 10,000 room nights out of service for six planned renovation projects which negatively impacted revenue growth as compared to 2012. The Company’s hotels continue to be leaders in their respective markets. The Company’s average Market Yield for the first three months of 2013 and 2012 was 121 and 122, respectively. 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, 2013 and 2012, hotel operating expenses totaled $34.9 million and $34.3 million, respectively, representing 60% and 59% of total hotel revenue.  Results for the three months ended March 31, 2013 reflect the impact of modest increases in revenues at most of the Company’s hotels and the Company’s efforts to control costs. The Company’s operating expenses were also impacted by several hotel renovations during the period. 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. The slight increase in operating expenses as a percentage of revenue is due primarily to increases in labor benefit costs. These labor benefit costs are likely to continue to grow at increased rates due to the associated new government regulations surrounding healthcare. Although operating expenses will increase as revenue increases, the Company has and will continue to work with its management companies to reduce costs as a percentage of revenue where possible while maintaining quality and service levels at each property.
 
 
16


Property taxes, insurance, and other expenses for the three months ended March 31, 2013 and 2012 were $3.2 million and $3.0 million, respectively, or 6% and 5% of total hotel revenue. Although the first three months of 2012 included the benefit of successful appeals, property taxes have increased in 2013 as the economy has continued to improve and localities reassessed property values accordingly. Also, 2013 insurance rates have increased modestly.

General and administrative expense for the three months ended March 31, 2013 and 2012 was $1.6 million and $1.7 million, or 3% and 3% 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, 2013 and 2012, the Company incurred approximately $0.2 million and $0.5 million, respectively, in legal costs due to the legal matters discussed herein and continued costs related to responding to requests from the staff of the SEC. The SEC staff has been conducting a non-public investigation, which is focused principally on the adequacy of certain disclosures in the Company’s filings with the SEC beginning in 2008, as well as the Company’s review of certain transactions involving the Company and the other Apple REIT Companies. The Company intends to continue to cooperate with the SEC staff, and it is engaging in a dialogue with the SEC staff concerning these issues and the roles of certain officers. The Company does not believe the issues raised by the SEC staff affect the material accuracy of the Company's consolidated financial statements. At this time, the Company cannot predict the outcome of this investigation as to the Company or any of its officers, nor can it predict the timing associated with any such conclusion or resolution. As discussed below under Related Parties, the Company shares legal counsel with the other Apple REIT Companies. Total costs for these legal matters for all of the Apple REIT Companies were approximately $0.8 million during the three months ended March 31, 2013. The Company anticipates it will continue to incur costs associated with these matters.

Merger transaction costs for the three months ended March 31, 2013 and 2012 totaled $0.7 million in both periods. Costs incurred during the three months ended March 31, 2013 were in connection with the Merger discussed herein. Costs incurred during the three months ended March 31, 2012 were associated with the Company’s evaluation of a potential consolidation transaction with Apple REIT Seven, Inc., Apple REIT Eight, Inc., and Apple REIT Nine, Inc. (the “other Apple REITs”). In May 2012, it was determined by the Board of Directors of the Company and each of the other Apple REIT’s Board of Directors not to move forward with the potential consolidation transaction at that time.

Depreciation expense for the three months ended March 31, 2013 and 2012 was $7.4 million and $8.0 million. Depreciation expense represents the expense of the 66 hotels and related personal property for the respective periods owned. The decrease in depreciation expense is due to an increase in the number of hotels whose personal property has become fully depreciated throughout 2012 and first three months of 2013, which was partially offset by hotel renovations completed during this period.

Interest expense, net for the three months ended March 31, 2013 and 2012, was $0.5 million and $0.8 million. 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, 2013, the Company had debt outstanding of $49.3 million compared to $71.7 million at March 31, 2012. The decrease in interest expense from 2012 was due primarily to a reduction in the Company’s average outstanding balance under its credit facility, as well as the extinguishment of four mortgage loans during 2012, which was partially offset by the origination of one mortgage loan at a lower effective rate. During the three months ended March 31, 2013 and 2012, the Company capitalized interest of approximately $158,000 and $34,000 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 arm’s 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, 2013. 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.
 
 
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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 for each of the three months ended March 31, 2013 and 2012.
 
Through its wholly-owned subsidiary, Apple Fund Management, LLC (“AFM”), the Company provides support services to Apple Six Realty Group (“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. A6RG provides real estate brokerage services to the Company. 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 (collectively the “Advisors”) are 100% owned by Glade Knight, the Company’s Chairman and Chief Executive Officer. For the three months ended March 31, 2013 and 2012, the Company received reimbursement of its costs totaling $1.9 million for each period from the participating entities. The Company’s net allocated cost for these support services was approximately $0.5 million and $0.3 million for the three months ended March 31, 2013 and 2012. 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 Advisors. 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 REITs and is reviewed at least annually by the Compensation Committees of the 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.
 
In addition to owning the Advisors discussed above, Mr. Knight is 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.
 
 
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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 Company, Apple REIT Seven, Inc., Apple REIT Eight, Inc., Apple REIT Nine, Inc., and Apple REIT Ten, Inc. (“the Apple REIT Companies”). The professionals cannot always specifically identify their fees for one company; therefore management allocates these costs across the companies that benefit from the services. As a result of the Merger, the Company entered into a formal agreement with the other Apple REIT Companies for its share of costs associated with the Legal Proceedings and the SEC investigation where the Company will pay 20% of the total costs related to the Legal Proceedings and 25% of the total costs related to the SEC investigation. Total costs for these legal matters discussed above for all of the Apple REIT Companies was approximately $0.8 million for the three months ended March 31, 2013, of which $0.2 million was allocated to the Company.
 
In connection with the Merger Agreement, on November 29, 2012, the Company entered into an assignment and transfer agreement with A9A for the transfer of the Company’s interest in AFM. The assignment and transfer is expected to occur immediately after the closing of the Merger. As part of the assignment, AFM, A9A and the other Advisors agreed to indemnify BRE Select Hotels and related parties for any liabilities related to AFM. If a closing occurs, no additional costs of AFM will be allocated to the Company.

Also on November 29, 2012, in connection with the Merger Agreement, Apple REIT Nine, Inc. entered into a transfer agreement with the Company for the potential acquisition of the Apple REIT Companies’ and Advisors’ headquarters in Richmond, Virginia (“Headquarters”), currently owned by the Company, and the assignment of the Fort Worth, Texas office lease agreement from the Company for approximately $4.5 million which is expected to close immediately prior to the closing of the Merger. Also, as part of the purchase, Apple REIT Nine, Inc. agreed to release the Company and related parties from any liabilities related to the Headquarters or office lease. If a closing occurs, no additional costs associated with the Headquarters and office lease will be allocated to the Company.

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 $1.5 million at both March 31, 2013 and December 31, 2012. 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, 2013 and 2012, the Company recorded a loss of approximately $57,000 and $42,000 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.

On December 5, 2012, in connection with the Merger Agreement, Apple REIT Ten, Inc. entered into a membership interest purchase agreement with the Company for the transfer of the Company’s 26% membership interest in Apple Air for approximately $1.45 million that is expected to close immediately prior to the closing of the Merger. Also as part of the purchase, Apple REIT Ten, Inc. agreed to indemnify BRE Select Hotels and related parties for any liabilities related to the membership interest.
 
 
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Liquidity and Capital Resources
 
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 (as discussed above, under the Merger Agreement redemptions and distributions have been suspended). 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. 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, 2013. The outstanding balance on the credit facility as of March 31, 2013 was $25.5 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 100%, and b) the Company maintain a minimum net worth, as defined in the loan documents, greater than $500 million. The Company was in compliance with each of these covenants at March 31, 2013. In the event the Merger does not occur, the Company intends to refinance the credit facility. If the Company is unable to complete a refinancing the outstanding balance of the credit facility would be payable in September 2013 to the lender.
 
Capital Uses
 
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, and planned Unit redemptions if the Merger does not occur. 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. If the Company were unable to refinance its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions or redemptions.

To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. In accordance with the Merger Agreement, the Company suspended distributions to shareholders. In the event the Merger does not occur, the Company plans to reinstate its monthly distributions to shareholders. Under the Merger Agreement, the Company is generally prohibited from making distributions to shareholders. However, if necessary, the Company is permitted to make the minimum distribution payments to maintain its REIT status. No distributions were made during the first three months of 2013. If the Merger does not occur, it is the Company’s intention to maintain a relatively stable distribution rate with varying economic cycles. 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. 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. Prior to the execution of the Merger Agreement, distributions were paid at a monthly rate of $0.066 per common share. Total distributions in the first three months of 2012 were $18.0 million or $0.198 per common share.

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 invested approximately $6.4 million in capital expenditures during the first three months of 2013. The Company anticipates total capital expenditures of approximately $16 to $18 million for the full year of 2013 in connection with renovations and brand initiatives. The Company currently does not have any existing or planned projects for new development.
 
 
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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. The Unit Redemption Program was suspended upon the execution of the Merger Agreement. As a result, the last purchase under the Unit Redemption Program was October 2012. In the event the Merger does not occur, the Company plans to reinstate the Unit Redemption Program. Since inception of the program through March 31, 2013, the Company has redeemed approximately 18.3 million Units representing $200.5 million, including 0.5 million Units in the amount of $5.1 million redeemed during the three months ended March 31, 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.

The Company’s Dividend Reinvestment Plan was suspended upon the execution of the Merger Agreement. As a result, the last offering under the Dividend Reinvestment Plan occurred in November 2012. In the event the Merger does not occur, the Company plans to reinstate the Dividend Reinvestment Plan. During the three months ended March 31, 2012, approximately 0.5 million Units, representing $5.4 million in proceeds to the Company, were issued under the plan. Since the inception of the plan through March 31, 2013, approximately 18.4 million Units, representing $202.1 million in proceeds to the Company, have been issued under the plan.

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. Generally, occupancy rates and hotel revenues are greater in the second and third quarters than in the first and fourth quarters. 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.
 
 
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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, 2013, 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, 2013 of $25.5 million, every 100 basis points change in interest rates could impact the Company’s annual net income by $255,000, all other factors remaining the same. The Company’s cash balance at March 31, 2013 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, 2013. 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.
 
 
 
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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 Company was previously named as a party in the Kronberg, et al. v. David Lerner Associates, Inc., et al. putative class action lawsuit, which was filed on June 20, 2011.

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 defendants moved to dismiss the consolidated complaint in the In re Apple REITs Litigation. The briefing period for the motions to dismiss was completed on July 13, 2012.

By Order entered on March 31, 2013 and opinion issued on April 3, 2013, the Court dismissed the consolidated complaint in its entirety with prejudice and without leave to amend. Plaintiffs filed a Notice of Appeal to the Second Circuit Court of Appeals on April 12, 2013. The Company believes that any claims against it, its officers and directors and other Apple REIT Companies 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.
 
 
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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, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail (FURNISHED HEREWITH)




 
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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 6, 2013
 
Glade M. Knight,
   
 
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
   
       
By:
/s/    BRYAN PEERY
 
Date: May 6, 2013
 
Bryan Peery,
   
 
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
   
 

 
 
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