Apple Hospitality REIT and Apple REIT 10 announce $1.3 billion merger agreement

Published April 14, 2016 by Paula C. Squires

Apple Hospitality REIT Inc., based in Richmond, and Apple REIT Ten Inc. announced Thursday that the boards of directors of both companies have approved a merger valued at $1.3 billion that creates one of the largest select-service lodging REITs in the industry.

Select-service refers to a mid-tier level of hotel properties that offer some of the services and amenities associated with full-service properties.

The transaction joins two portfolios with a combined asset base of 234 hotels with 30,017 guestrooms in 94 metro areas in 33 states.  Apple Hospitality REIT’s current portfolio includes 179 hotels with 22,961 guestrooms. Apple Ten’s portfolio includes 55 hotels with 7,056 guestrooms.

According to the companies, the combined company will have a value of about $5.7 billion and a total equity market capitalization of about $4.4 billion, based on the 20-day volume weighted average price of Apple Hospitality’s common shares as of April 12, which was $19.49 per share.

The $1.3 billion deal includes about $94 million in cash, 49.1 million Apple Hospitality common shares issued to Apple Ten shareholders and the extinguishment or assumption of about $239 million in debt (as of March 31).

“We are pleased to have the opportunity to acquire this highly complementary portfolio of leading Hilton and Marriott branded select service hotels, while preserving our conservative capital structure. The merger further strengthens our presence in key markets and expands our geographic footprint … This acquisition highlights our team’s disciplined approach to growth and focus on shareholder value and we look forward to welcoming Apple Ten shareholders to Apple Hospitality,” Justin Knight, Apple Hospitality’s president and CEO, said in a statement.

Under the terms of the merger agreement, Apple Ten’s shareholders would receive $1 in cash per each Apple Ten “unit, ” and each unit of Apple Ten would be converted into a fixed exchange ratio of 0.522 Apple Hospitality common shares.

At closing, Apple Hospitality shareholders are expected to own about 78 percent of the pro forma combined company, and Apple Ten shareholders are expected to own approximately 22 percent.
The merger agreement also provides Apple Ten with a “go-shop” period, during which Apple Ten will actively solicit alternative proposals from third parties for the next 45 days concluding on May 28. The agreement says Apple Ten would pay a termination fee of $5 million (plus expenses not to exceed $3 million) to Apple Hospitality if Apple Ten terminates the merger agreement in connection with a superior proposal that arises during the go-shop period, and a termination fee of $25 million if Apple Ten terminates the merger agreement in connection with a proposal that comes following the go-shop period.

Upon completion of the merger, the combined company will retain the Apple Hospitality REIT name and continue to trade under the NYSE ticker symbol APLE. Apple Hospitality’s management team will continue to serve in their respective roles for the combined company, including Justin Knight as president and CEO, Krissy Gathright as COO,  Bryan Peery as CFO and Glade Knight as executive chairman.

The transaction must be approved by shareholders of both companies. It’s expected to close in the third quarter of 2016.

Wells Fargo Securities/Eastdil Secured and Robert W. Baird & Co. Incorporated are serving as financial advisors and Hogan Lovells US LLP is serving as legal counsel to Apple Hospitality.
Citigroup Global Markets Inc. is serving as financial advisor to the Special Committee of Apple Ten’s Board of Directors and McGuireWoods LLP is serving as legal counsel to Apple Ten and the Special Committee.