Filed Pursuant to Rule 424(b)(3)
Registration No. 333-147414
SUPPLEMENT NO. 16 DATED DECEMBER 2, 2010
TO PROSPECTUS DATED SEPTEMBER 21, 2009
APPLE REIT NINE, INC.
The following information supplements the prospectus of Apple REIT Nine, Inc. dated September 21, 2009 and is part of the prospectus. This Supplement updates the information presented in the prospectus.Prospective investors should carefully review the prospectus, Supplement No. 14 (which is cumulative and replaces all prior Supplements), Supplement No. 15 and this Supplement No. 16.
TABLE OF CONTENTS
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Financial and Operating Information for Our Recently Purchased Properties |
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Certain forward-looking statements are included in the prospectus and this supplement. These forward-looking statements may involve our plans and objectives for future operations, including future growth and availability of funds. These forward-looking statements are based on current expectations, which are subject to numerous risks and uncertainties. Assumptions relating to these statements involve judgments with respect to, among other things, the continuation of our offering of Units, future economic, competitive and market conditions and future business decisions, together with local, national and international events (including, without limitation, acts of terrorism or war, and their direct and indirect effects on travel and the economy). All of these matters are difficult or impossible to predict accurately and many of them are beyond our control. Although we believe the assumptions relating to the forward-looking statements, and the statements themselves, are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that these forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans, which we consider to be reasonable, will be achieved.
S-1
“Courtyard by Marriott,” “Fairfield Inn,” “Fairfield Inn & Suites,” “TownePlace Suites,” “Marriott,” “SpringHill Suites” and “Residence Inn” are each a registered trademark of Marriott International, Inc. or one of its affiliates. All references below to “Marriott” mean Marriott International, Inc. and all of its affiliates and subsidiaries, and their respective officers, directors, agents, employees, accountants and attorneys. Marriott is not responsible for the content of this prospectus supplement, whether relating to hotel information, operating information, financial information, Marriott’s relationship with Apple REIT Nine, Inc., or otherwise. Marriott is not involved in any way, whether as an “issuer” or “underwriter” or otherwise, in the offering by Apple REIT Nine, Inc. and receives no proceeds from the offering. Marriott has not expressed any approval or disapproval regarding this prospectus supplement or the offering related to this prospectus supplement, and the grant by Marriott of any franchise or other rights to Apple REIT Nine, Inc. shall not be construed as any expression of approval or disapproval. Marriott has not assumed, and shall not have, any liability in connection with this prospectus supplement or the offering related to this prospectus supplement. “Hampton Inn,” “Hampton Inn & Suites,” “Homewood Suites,” “Embassy Suites,” “Hilton Garden Inn” and “Home2 by Hilton” are each a registered trademark of Hilton Worldwide or one of its affiliates. All references below to “Hilton” mean Hilton Worldwide and all of its affiliates and subsidiaries, and their respective officers, directors, agents, employees, accountants and attorneys. Hilton is not responsible for the content of this prospectus supplement, whether relating to hotel information, operating information, financial information, Hilton’s relationship with Apple REIT Nine, Inc., or otherwise. Hilton is not involved in any way, whether as an “issuer” or “underwriter” or otherwise, in the offering by Apple REIT Nine, Inc. and receives no proceeds from the offering. Hilton has not expressed any approval or disapproval regarding this prospectus supplement or the offering related to this prospectus supplement, and the grant by Hilton of any franchise or other rights to Apple REIT Nine, Inc. shall not be construed as any expression of approval or disapproval. Hilton has not assumed, and shall not have, any liability in connection with this prospectus supplement or the offering related to this prospectus supplement. S-2
We completed the minimum offering of Units (with each Unit consisting of one Common Share and one Series A Preferred Share) at $10.50 per Unit on May 14, 2008. We are continuing the offering at $11 per Unit in accordance with the prospectus. We registered to sell a total of 182,251,082 Units. As of November 30, 2010, 1,693,896 Units remained unsold. Our offering of Units expires on April 25, 2011, provided that the offering will be terminated if all of the Units are sold before then. As of November 30, 2010, we had closed on the following sales of Units in the offering: Price Per Number of Gross Proceeds Net of Selling $10.50 9,523,810 $ 100,000,000 $ 90,000,000 $11.00 171,033,376 1,881,367,143 1,693,230,429 Total 180,557,186 $ 1,981,367,143 $ 1,783,230,429 Recent Purchases On November 30, 2010, through one of our indirect wholly-owned subsidiaries, we closed on the purchase of two hotels located in Holly Springs, North Carolina and Philadelphia (Malvern), Pennsylvania. On December 1, 2010, through one of our indirect wholly-owned subsidiaries, we closed on the purchase of a hotel located in Arlington, Texas. The aggregate gross purchase price for these hotels, which contain a total of 349 guest rooms, was approximately $45.8 million. Further information about our recently purchased hotels is provided in other sections below. Loan Assumptions The purchase contract for one of the recently purchased hotels required us to assume a loan secured by the hotel. The total outstanding principal balance of the assumed loan is $7.9 million. The assumed loan has a non-recourse structure, which means that the lender generally must rely on the property, rather than the borrower, as the lender’s source of repayment in any collection action. There are exceptions to the non-recourse structure in certain situations, such as misappropriation of funds and environmental liabilities. In these situations, the lender would be permitted to seek repayment from the guarantor or indemnitor of the loan, which is one of our indirect wholly-owned subsidiaries. Source of Funds and Related Party Payments Our recent purchases, which resulted in our ownership of three additional hotels, were funded primarily by the proceeds from our ongoing offering of Units. We have entered into a property acquisition and disposition agreement with Apple Suites Realty Group, Inc. to acquire and dispose of our real estate assets. A fee of 2% of the gross purchase price or gross sale price in addition to certain reimbursable expenses will be payable for these services. This entity is owned by Glade M. Knight, who is our Chairman and Chief Executive Officer. We used our offering proceeds to pay $915,600 to Apple Suites Realty Group, Inc., representing 2% of the gross purchase price for our recent purchases. S-3
Unit
Units Sold
Proceeds
Commissions and Marketing
Expense Allowance
Overview of Owned Hotels As a result of our recent purchases, we currently own 75 hotels, which are located in the states indicated in the map below:
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ACQUISITIONS AND RELATED MATTERS Each of our recently purchased hotels has been leased to one of our indirect wholly-owned subsidiaries, as the lessee, under a separate hotel lease agreement. For simplicity, the applicable lessee will be referred to below as the “lessee.” Each hotel is managed under a separate management agreement between the applicable lessee and the manager. For simplicity, the applicable manager will be referred to below as the “manager.” The hotel lease agreements and the management agreements are among the contracts described in another section below. The table below specifies the franchise, hotel owner, lessee and manager for our recently purchased hotels: Hotel Location Franchise (a) Hotel Lessee Manager 1. Holly Springs, North Carolina Hampton Inn Apple Nine North Carolina, L.P. Apple Nine Hospitality Management, Inc. LBAM–Investor Group, L.L.C. 2. Philadelphia (Malvern), Pennsylvania Courtyard Apple Nine Malvern Pennsylvania Business Trust Apple Nine Hospitality Management, Inc. White Lodging Services Corporation 3. Arlington, Texas Hampton Inn & Suites Apple Nine Hospitality Ownership, Inc. Apple Nine Hospitality Texas Services II, Inc. Texas Western Management Partners, L.P.
Owner/Lessor
Note for Table:
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(a) |
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| All brand and trade names, logos or trademarks contained, or referred to, in this prospectus supplement are the properties of their respective owners. These references shall not in any way be construed as participation by, or endorsement of, our offering by any of our franchisors or managers. | |||||||||||||||||
We have no material relationship or affiliation with the sellers or managers, except for the relationship resulting from our purchases, our management agreements for the hotels we own, and any related documents.
(Remainder of Page Intentionally Left Blank)
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SUMMARY OF CONTRACTS Hotel Lease Agreements Each of our recently purchased hotels is covered by a separate hotel lease agreement between the owner (one of our indirect wholly-owned subsidiaries) and the applicable lessee (another one of our indirect wholly-owned subsidiaries, as specified in the previous section). Each lease provides for an initial term of 10 years. The applicable lessee has the option to extend its lease term for two additional five-year periods, provided it is not in default at the end of the prior term or at the time the option is exercised. Each lease provides for annual base rent and percentage rent. The annual base rent is payable in advance in equal monthly installments and will be adjusted each year in proportion to the Consumer Price Index (based on the U.S. City Average). Shown below are the annual base rent and the lease commencement date for our recently purchased hotels: Hotel Location Franchise Annual Date of Lease 1. Holly Springs, North Carolina Hampton Inn $ 833,882 November 30, 2010 2. Philadelphia (Malvern), Pennsylvania Courtyard 1,355,043 November 30, 2010 3. Arlington, Texas Hampton Inn & Suites 661,496 December 1, 2010 The annual percentage rent depends on a formula that compares fixed “suite revenue breakpoints” with a portion of “suite revenue,” which is equal to gross revenue from guest rentals less sales and room taxes and credit card fees. The suite revenue breakpoints will be adjusted each year in proportion to the Consumer Price Index (based on the U.S. City Average). Specifically, the annual percentage rent is equal to the sum of (a) 17% of all suite revenue for the year, up to the applicable suite revenue breakpoint; plus (b) 55% of the suite revenue for the year in excess of the applicable suite revenue breakpoint, as reduced by base rent paid for the year. Management Agreements Each of our hotels is being managed by the manager under a separate management agreement between the manager and the applicable lessee (which is one of our indirect wholly-owned subsidiaries, as specified in the previous section). The manager is responsible for managing and supervising the daily operations of the hotel and for collecting revenues for the benefit of the applicable lessee. The fees and other terms of these agreements are the result of commercial negotiations between otherwise unrelated parties. We believe that such fees and terms are appropriate for the hotels and the markets in which they operate. Franchise Agreements For the hotel franchised by Marriott International, Inc. or one of its affiliates, there is a relicensing franchise agreement between the lessee and Marriott International, Inc. or an affiliate. The relicensing franchise agreement provides for the payment of royalty fees and marketing contributions to the franchisor. A percentage of gross room revenues is used to determine these payments. In addition, we have caused Apple Nine Hospitality, Inc. or another one of our subsidiaries to provide a separate guaranty of the payment and performance of the lessee under the relicensing franchise agreement. For the hotels franchised by Hilton Worldwide or one of its affiliates, there is a franchise license agreement between the applicable lessee and Hilton Worldwide or an affiliate. Each franchise license agreement provides for the payment of royalty fees and program fees to the franchisor. A percentage of gross room revenues is used to determine these payments. Apple Nine Hospitality, Inc. or another one of our subsidiaries has guaranteed the payment and performance of the lessee under the applicable franchise license agreement. The fees and other terms of these agreements are the result of commercial negotiations between otherwise unrelated parties, and we believe that such fees and terms are appropriate for the hotels and the markets in which they operate. These agreements may be terminated for various reasons, S-6
FOR OUR RECENTLY PURCHASED PROPERTIES
Base Rent
Commencement
including failure by the applicable lessee to operate in accordance with the standards, procedures and requirements established by the franchisors. FINANCIAL AND OPERATING INFORMATION Our hotels offer guest rooms and suites, together with related amenities, that are consistent with their operations. The hotels are located in developed or developing areas and in competitive markets. We believe the hotels are well-positioned to compete in their markets based on location, amenities, rate structure and franchise affiliation. In the opinion of management, each hotel is adequately covered by insurance. The following tables present further information about our hotels: Table 1. General Information Hotel Location Franchise Number Gross Average Federal Purchase Date 1. Holly Springs, North Carolina Hampton Inn 124 $ 14,880,000 $ 129-139 $ 13,260,000 November 30, 2010 (c) 2. Philadelphia (Malvern), Pennsylvania Courtyard 127 21,000,000 199-209 20,019,000 November 30, 2010 3. Arlington, Texas Hampton Inn & Suites 98 9,900,000 129-149 8,683,370 December 1, 2010 Total 349 $ 45,780,000
FOR OUR RECENTLY PURCHASED PROPERTIES
of
Rooms/
Suites
Purchase
Price
Daily
Rate
(Price)
per
Room/
Suite (a)
Income Tax
Basis for
Depreciable
Real
Property
Component
of Hotel (b)
Notes for Table 1:
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(a) |
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| The amounts shown are subject to change, and exclude discounts that may be offered to corporate, frequent and other select customers. | |||||||||||||||||
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(b) |
| The depreciable life is 39 years (or less, as may be permitted by federal tax laws) using the straight-line method. The modified accelerated cost recovery system will be used for the hotel’s personal property component. | ||||||||||||||||||
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(c) |
| The date that the hotel was acquired was the date the hotel began operations. | ||||||||||||||||||
Table 2. Loan Information (a)
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Hotel | Franchise | Assumed | Annual | Maturity Date | ||||||||||||||||
1. | Philadelphia (Malvern), Pennsylvania | Courtyard |
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| $ |
| 7,893,592 |
| 6.50% | October 1, 2032 | ||||||||||
Note for Table 2:
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(a) |
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| This table summarizes a loan that (i) pre-dated our purchase, (ii) is secured by our hotel, and (iii) was assumed by our purchasing subsidiary. The loan provides for monthly payments of principal and interest on an amortized basis. | |||||||||||||||||
Table 3. Operating Information (a)
PART A
Franchise
Avg. Daily Occupancy Rates (%)
2005
2006
2007
2008
2009
Hotel Location
1.
Holly Springs, North Carolina
Hampton Inn
n/a
n/a
n/a
n/a
n/a
2.
Philadelphia (Malvern), Pennsylvania
Courtyard
n/a
n/a
44
%
59
%
57
%
3.
Arlington, Texas
Hampton Inn & Suites
n/a
n/a
45
%
70
%
61
%
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PART B Franchise Revenue per Available Room/Suite ($) 2005 2006 2007 2008 2009 Hotel Location 1. Holly Springs, North Carolina Hampton Inn n/a n/a n/a n/a n/a 2. Philadelphia (Malvern), Pennsylvania Courtyard n/a n/a $ 77 $ 94 $ 80 3. Arlington, Texas Hampton Inn & Suites n/a n/a $ 47 $ 83 $ 68
Note for Table 3:
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(a) |
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| Operating data is presented for the last five years (or since the beginning of hotel operations). The hotel in Holly Springs has no data because it was under construction and not open at that time. See Table 1. General Information above for the date the hotel was acquired. | |||||||||||||||||
Table 4. Tax and Related Information
Hotel Location
Franchise
Tax
Year
Real
Property
Tax Rate (d)
Real
Property
Tax
1.
Holly Springs, North Carolina
Hampton Inn
2010 (a
)
0.9
%
$
9,004
(c)
2.
Philadelphia (Malvern), Pennsylvania
Courtyard
2010 (b
)
2.2
%
123,252
3.
Arlington, Texas
Hampton Inn & Suites
2010 (a
)
2.6
%
129,770
Notes for Table 4:
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(a) |
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| Represents a calendar year. | |||||||||||||||||
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(b) |
| Represents two tax periods: 12-month period from July 1, 2010 through June 30, 2011 and calendar year. | ||||||||||||||||||
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(c) |
| The hotel property consisted of undeveloped land for a portion of the tax year, and the real property tax is not necessarily indicative of property taxes expected for the hotel in the future. | ||||||||||||||||||
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(d) |
| Property tax rate is an aggregate figure for county, city and other local taxing authorities (to the extent applicable). | ||||||||||||||||||
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