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Related Parties
6 Months Ended
Jun. 30, 2016
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]
7.  Related Parties

The Company has, and is expected to continue to engage in, 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 (including the relationships discussed in this section) and are required to approve any significant modifications to the existing relationships, as well as any new significant related party transactions.  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.  As of June 30, 2016, there have been no changes to the contracts and relationships discussed in the Company’s 2015 Annual Report on Form 10-K, other than the Merger Agreement and related transactions discussed herein.  Below is a summary of the related party relationships in effect and transactions that occurred during the six months ended June 30, 2016 and 2015.

Glade M. Knight, Executive Chairman of the Company, is currently Chairman and Chief Executive Officer of Apple Ten.  Apple Ten’s advisors, Apple Ten Advisors, Inc. (“A10A”) and Apple Realty Group, Inc., formerly known as Apple Suites Realty Group, Inc. (“ARG”), are wholly owned by Mr. Knight.  Mr. Knight is also a partner and Chief Executive Officer of Energy 11 GP, LLC, which is the general partner of Energy 11, L.P.  Justin G. Knight, the Company’s President and Chief Executive Officer, and a member of the Company’s Board of Directors, also serves as President of Apple Ten.

Subcontract Agreement with A10A

The Company has a subcontract agreement with A10A.  Under the agreement, A10A has subcontracted its obligations under its advisory agreement with Apple Ten to the Company.  The Company provides to Apple Ten the advisory services contemplated under the A10A advisory agreement and receives an annual fee ranging from 0.1% to 0.25% (based on Apple Ten’s operating results) of total equity proceeds received by Apple Ten, and is reimbursed by Apple Ten for the use of the Company’s employees and corporate office and other costs associated with the advisory agreement, as described below.  Total advisory fees earned by the Company from Apple Ten for the six months ended June 30, 2016 and 2015 totaled approximately $1.2 million in each period, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations.

Support Services to Apple Ten, A10A and ARG

The Company provides support services to Apple Ten and its advisors, A10A and ARG, which have agreed to reimburse the Company for its costs in providing these services.  Total reimbursed costs received by the Company from these entities for the six months ended June 30, 2016 and 2015 totaled approximately $1.7 million and $1.3 million, respectively, and are recorded as a reduction to general and administrative expenses in the Company’s consolidated statements of operations.  As of June 30, 2016 and December 31, 2015, total amounts due from Apple Ten, A10A and ARG for reimbursements under the cost sharing structure totaled approximately $0.1 million and $0.3 million, respectively, and are included in other assets, net in the Company’s consolidated balance sheets.  Under this cost sharing structure, amounts reimbursed to the Company include both compensation for personnel and office related costs (including office rent, utilities, office supplies, etc.) used by each company.  The amounts reimbursed to the Company are based on a good faith estimate of the proportionate amount of time incurred by the Company’s employees on behalf of Apple Ten, A10A and ARG.  As part of the cost sharing arrangements, certain day-to-day transactions may result in amounts due to or from the Company, Apple Ten, A10A and ARG.  To efficiently manage cash disbursements, the Company, Apple Ten, A10A or ARG may make payments for any or all of the related companies.  Under the cash management process, each of the companies may advance or defer up to $1 million at any time.  Each month, any outstanding amounts are settled among the affected companies.  This process allows each company to minimize its cash on hand, which, in turn, reduces the cost of each company’s credit facility.  The amounts outstanding at any point in time are not significant to any of the companies.

Apple Air Holding, LLC (“Apple Air”)

The Company, through a jointly-owned subsidiary, Apple Air, owns a Learjet used primarily for acquisition, asset management, renovation and public relations purposes.  Apple Air is jointly owned by the Company (74%) and Apple Ten (26%), with Apple Ten’s ownership interest accounted for as a minority interest, which as of June 30, 2016 and December 31, 2015, totaled approximately $0.8 and $0.7 million, respectively, and is included in accounts payable and other liabilities in the Company’s consolidated balance sheets.  The aircraft is also leased to affiliates of the Company based on third party rates, which was not significant during the reporting periods.  The Company also utilizes aircraft, owned through two entities, one of which is owned by the Company’s Executive Chairman, and the other, its President and Chief Executive Officer, for acquisition, asset management, renovation and public relations purposes, and reimburses these entities at third party rates.  Total amounts incurred during the six months ended June 30, 2016 and 2015 were approximately $0.1 million in each period related to aircraft owned through these two entities and are included in general and administrative expenses in the Company’s consolidated statements of operations.

Merger Agreement and Related Transactions

Concurrently with the execution of the Merger Agreement, as discussed in Note 2, on April 13, 2016, the Company, Apple Ten, A10A and ARG entered into a termination agreement (the “termination agreement”).  Pursuant to the terms of the termination agreement, the existing advisory agreement, property acquisition/disposition agreement and subcontract agreement with respect to the Company, Apple Ten, A10A and ARG, discussed above, will be terminated effective immediately after the effective time of the merger, and no fees will be payable as a result of the termination of these agreements.  As a result, if the merger is completed, Apple Ten would no longer pay the various fees currently paid to the Company under the subcontract agreement and A10A would no longer subcontract its advisory services to the Company.  Additionally, Apple Ten would no longer have any advisory contracts with A10A or ARG after the merger.  Both the advisory fees and reimbursed costs received by the Company from Apple Ten are recorded as general and administrative expense by Apple Ten and reductions to general and administrative expense by the Company and, therefore, the termination of the subcontract agreement will have no financial impact on the combined company after the effective time of the merger.  Also under the Merger Agreement, Apple Ten’s 26% interest in Apple Air would be one of the assets acquired by the Company if the merger is completed.

Under the proposed merger, if completed, the officers and Executive Chairman of the Company would receive a combined 3.1 million common shares of the Company and $6.0 million in exchange for their ownership interests in Apple Ten, including amounts assigned to others.