Merger Agreement with Apple REIT Ten, Inc.

6 Months Ended

Jun. 30, 2016

Disclosure Text Block Supplement [Abstract]

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

2.  Merger Agreement with Apple REIT Ten, Inc.

On April 13, 2016, the Company, Apple REIT Ten, Inc. (“Apple Ten”) and 34 Consolidated, Inc., a wholly-owned subsidiary of the Company (“Acquisition Sub”), entered into an Agreement and Plan of Merger, as amended on July 13, 2016 (the “Merger Agreement”).  The terms and conditions of the Merger Agreement provide that Apple Ten will merge with and into Acquisition Sub, with Acquisition Sub being the surviving corporation in the merger and remaining a wholly-owned subsidiary of the Company (the “merger”).  Acquisition Sub was formed solely for the purpose of engaging in the merger and has not conducted any prior activities.  As of June 30, 2016, Apple Ten owned 56 hotels with 7,209 rooms.  Under the terms of the Merger Agreement, each issued and outstanding unit of Apple Ten (consisting of a common share and related Series A preferred share) (each, an “Apple Ten unit”), other than those Apple Ten units with respect to which statutory dissenters’ rights of appraisal have been properly exercised, perfected and not subsequently withdrawn or lost under Virginia law, will be converted into the right to receive (i) 0.522 (the “unit exchange ratio”) common shares of the Company and (ii) $1.00 in cash, and each issued and outstanding Series B convertible preferred share of Apple Ten will be converted into the right to receive (i) a number of common shares of the Company equal to 12.11423 multiplied by the unit exchange ratio and (ii) an amount in cash equal to 12.11423 multiplied by $1.00, resulting in the issuance of a total of approximately 48.7 million common shares of the Company and a total payment of approximately $93.4 million in cash to Apple Ten shareholders (assuming no exercise of dissenters’ rights).  The current outstanding Company common shares will remain outstanding.  As a result of the merger, the Company, through its wholly-owned subsidiary, will assume all of Apple Ten’s assets and liabilities at closing, which include approximately $262 million of debt as of June 30, 2016.  

If the merger closes, the advisory and related party arrangements with respect to Apple Ten and its advisors, as described in more detail in Note 7, will terminate.  The merger is subject to approval by Apple Ten shareholders and the proposed issuance of common shares by the Company in the merger is subject to approval by the Company’s shareholders.  In addition to the shareholder approvals, the merger is subject to other customary closing conditions, therefore there is no assurance that the merger will occur.  Shareholder meetings for each company are scheduled for August 31, 2016.  All costs related to the merger are being expensed in the period they are incurred and are included in transaction costs in the Company’s consolidated statements of operations.  In connection with these activities, the Company incurred approximately $1.2 million in expenses for the six months ended June 30, 2016, and anticipates that the Company’s total merger costs will be approximately $4 million.