UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 26, 2001
APPLE SUITES, INC.
(Exact name of registrant as specified in its charter)
Virginia 000-30491 54-1933472
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
9 North Third Street, Richmond, VA 23219
(Address of principal executive offices) (Zip Code)
(804) 643-4964
(Registrant's telephone number, including area code)
Item 2. Acquisition or Disposition of Assets
Apple Suites, Inc. (which is referred to below as the Company or as "we,"
"us" or "our") is filing this report pursuant to Item 2 of Form 8-K. This report
describes a property acquisition and a subsequent financing transaction in which
certain assets were mortgaged. For purposes of the General Instructions to Form
8-K, the mortgage constitutes a "disposition" of assets and (together with the
earlier property acquisition) involves a "significant amount" of assets. Certain
related matters also are reported below.
Property Acquisition
On April 26, 2001, we acquired the Buckhead/Atlanta Homewood Suites(R) by
Hilton for a base purchase price of $12.9 million. The hotel is located on a
2.0 acre site at 3566 Piedmont Road, Atlanta, Georgia 30305. The hotel is
approximately 5 miles from the center of downtown Atlanta and 15 miles from the
Atlanta Hartsfield International Airport.
The hotel opened in September 1997. It consists of a single four-story
building and contains 92 suites, which have a combined rentable area of 45,544
square feet. The following types of suites are available:
Type of Suite Number Available Square Feet/per Suite
------------------ ---------------- ---------------------
Master Suite 78 446
Homewood Suite 6 526
Two-Bedroom Suite 8 950
The hotel offers a 40-seat breakfast/lounge area, a meeting room that
accommodates 25 to 30 people, and a business center that offers guests the use
of a personal computer, a photocopier and an electric typewriter. Recreational
facilities include an outdoor pool, a whirlpool and an exercise room. The hotel
also contains a guest convenience store and laundry. The hotel has its own
parking lot with approximately 100 spaces. The hotel provides complimentary
shuttle service within a 5 mile radius.
We believe that the hotel has been well maintained and is generally in very
good condition. Over the next 12 months, we plan to spend approximately
$350,000 on renovations or improvements. We expect that the principal
renovations and improvements will include replacing common area carpets and
flooring, renovating rooms, and replacing exterior signage. We expect to pay for
the costs of these renovations and improvements with proceeds from our ongoing
offering of common shares.
During 2001 (through May), approximately 24.5% of the guests have stayed
for five nights or more. In general, occupancy at the hotel is not
significantly affected by seasonal variations. The following table shows
average daily occupancy rates, expressed as a percentage, since 1997:
Average Daily Occupancy Rate (calendar year)
2001
1997 1998 1999 2000 (through May)
---- ---- ---- ---- -------------
33.4% 68.8% 73.8% 75.0% 75.3%
During 2001 (through May), the average daily rate per suite has been
$115.48, and the average daily net revenue per suite has been $86.91. The
hotel's current rate structure is based on length of stay and type of suite, as
summarized below:
Length of Stay
(number of nights) Homewood Master Two Bedroom
- ----------------- -------- ------ -----------
1 to 4 $149 $139 $225
5 to 13 115 105 195
14 to 29 105 95 185
30 or more 95 85 165
The hotel offers a weekend discount. This discount varies by type of suite
and generally reduces the basic rate by 20 to 33%. The weekend discount is not
available to guests who stay for five nights or more. The hotel also offers
discounts to guests who stay under certain corporate accounts. These discounts
are often negotiated with the corporate customer and vary from account to
account
The table below shows the average effective annual rental per square foot
since 1997:
2001
1997 1998 1999 2000 (annualized)
---- ---- ---- ---- ------------
$28.68 $55.62 $60.85 $66.91 $64.08
The depreciable real property component of the hotel has a currently
estimated Federal tax basis of $7,907,973 and will be depreciated using the
straight-line method over a life of 39 years (or less, as permitted by the
Internal Revenue Code). The basis of the personal property component of the
hotel will be depreciated in accordance with the modified accelerated cost
recovery system of the Internal Revenue Code.
The following table summarizes the hotel's real estate tax information for
2000:
Tax Assessed Taxable Portion Tax Amount
Jurisdiction Value (40% of Assessment) Rate of Tax
- ------------ -------- ------------------- ------- -----------
City of Atlanta, $6,035,700 $2,414,280 0.04677 $112,915.88
Fulton County
We estimate that the annual property tax on the expected improvements will
be approximately $16,400.
Summary of Financing
On June 1, 2001, we obtained long-term financing in the amount of
$10,700,000 from First Union National Bank. We expect to use the proceeds from
this financing for general corporate purposes.
The borrower for the financing is Apple Suites SPE III, Inc., which we
formed as a new wholly-owned subsidiary. In connection with the financing, and
at the request of the lender, our
new subsidiary is a "special purpose entity." To qualify as a special purpose
entity, our new subsidiary has organizational documents that impose certain
requirements during the term of the financing. In particular, the subsidiary
must maintain its separate legal identity and must limit its activities to
dealing with the property that secures the financing. The secured property
includes the real and personal property that constitutes the Homewood
Suites(R) by Hilton extended-stay hotel in Boulder, Colorado. We transferred
this hotel to our new subsidiary in connection with the financing.
Promissory Note
The financing is evidenced by a promissory note in the principal amount of
$10,700,000. The note provides for the following:
. a stated annual interest rate of 8.15%
. a maturity date of June 1, 2011
. payment of principal and interest in consecutive monthly installments
of $83,650.38
. a balloon payment of approximately $8,878,400 at maturity
. full payment of principal and all other amounts at maturity
. acceleration, at the option of the lender, of all amounts due under the
note if any required monthly payment is not made within seven days of
its due date or if there is any other event of default
. a late charge of 5% on any payment that is not made within seven days
of its due date
. an increase of 4% in the applicable interest rate upon any default
. a restriction on voluntary prepayment, which is not permitted without
penalty until the final two months of the note
Additional payments or penalties would apply in other circumstances, such
as acceleration of the promissory note during the first two years, based upon an
event of default. If acceleration occurs in the first year, the sum of the
additional payments would equal at least 5% of the remaining debt under the
note.
The promissory note also contains substantial limitations on release and
substitution of collateral. The hotel that serves as collateral under the
promissory note cannot be released from its mortgage during the first two years
of the note. After two years, our borrowing subsidiary could obtain such a
release by providing the lender with substitute collateral in the form of
direct, non-callable obligations of the United States. These substitute
obligations must be
structured to pay a series of amounts that match, as closely as possible, the
remainder of the installments required under the promissory note.
Security Documents
As indicated above, the loan is secured by a mortgage and other
encumbrances on the hotel owned by our new subsidiary. The other encumbrances
include a security interest in the related personal property and various
assignments of leases, rents, profits, contracts and permits, all in favor of
the lender. These encumbrances are created by multiple agreements and
instruments, which will be referred to as "security documents" for simplicity.
The security documents impose a number of requirements on our borrowing
subsidiary, as the owner of the hotel, including obligations to maintain
adequate insurance. The security documents prohibit any further encumbrances and
any further assignments of leases, rents, profits, contracts or permits with
respect to the hotel.
Upon any default that occurs under the promissory note or a security
document, various remedies are available to the lender. Those remedies include,
for example (1) declaring the entire principal balance under the promissory
note, together with all accrued and unpaid interest, to be due and payable
immediately; (2) taking possession of the collateral, including the hotel; and
(3) collecting rents from the hotel, or foreclosing on it, to satisfy unpaid
amounts under the promissory note. Our borrowing subsidiary, as the maker of the
promissory note, would be required to pay any costs that may be incurred by the
lender in exercising such remedies.
Indemnity And Guaranty Agreement
The Company is required to indemnify the lender against defaults under
the promissory note executed by its borrowing subsidiary and to guaranty the
collection of all amounts due under the note. The Company has agreed to these
requirements in a separate Indemnity and Guaranty Agreement.
Other Agreements
Before our transfer of the hotel in Boulder, Colorado to our borrowing
subsidiary, the hotel was subject to separate license, management and lease
agreements. The transfer did not have any effect on the license agreement and
the hotel continues to operate as part of the Homewood Suites(R) by Hilton
franchise. The management agreement was not modified in connection with the
transfer, but our borrowing subsidiary did enter into a consent and agreement of
manager for the benefit of the lender. Our borrowing subsidiary also leased the
hotel to Apple Suites Management, Inc. (one of our wholly-owned subsidiaries).
Other than the identity of the hotel owner, the new lease agreement is
substantially identical to the previous lease agreement.
Item 7. Financial Statements and Exhibits
(The exhibits listed below are to be filed by amendment as soon as
practicable)
c. Exhibits.
4.1 Promissory Note dated June 1, 2001 in the principal amount of
$10,700,000 made payable by Apple Suites SPE III, Inc. to First
Union National Bank, with respect to the Homewood Suites(R) by
Hilton hotel in Boulder, Colorado.
4.2 Indemnity and Guaranty Agreement dated as of June 1, 2001 by Apple
Suites, Inc. as Indemnitor in favor of First Union National Bank
as Lender, in connection with a $10,700,000 loan to Apple Suites
SPE III, Inc. as Borrower with respect to the Homewood Suites(R)
by Hilton hotel in Boulder, Colorado.
4.3 Deed of Trust and Security Agreement dated as of June 1, 2001,
from Apple Suites SPE III, Inc. as Grantor to The Public Trustee
of the County of Boulder, Colorado as Trustee for the benefit of
First Union National Bank as Beneficiary, with respect to the
Homewood Suites(R) by Hilton hotel in Boulder, Colorado.
4.4 Security Agreement dated as of June 1, 2001 by Apple Suites SPE
III, Inc. as Debtor in favor of First Union National Bank as
Lender with respect to the Homewood Suites(R) by Hilton hotel in
Boulder, Colorado.
4.5 Assignment of Contracts and Permits dated as of June 1, 2001 from
Apple Suites SPE III, Inc. as Assignor to First Union National
Bank as Assignee with respect to the Homewood Suites(R) by
Hilton hotel in Boulder, Colorado.
4.6 Assignment of Leases, Rents and Profits dated as of June 1, 2001
by Apple Suites SPE III, Inc. as Assignor in favor of First Union
National Bank as Assignee with respect to the Homewood Suites(R)
by Hilton hotel in Boulder, Colorado.
4.7 Percentage Lease Subordination and Attornment Agreement dated as
of June 1, 2001 between First Union National Bank as Lender and
Apple Suites Management, Inc. as Lessee with respect to the
Homewood Suites(R) by Hilton hotel in Boulder, Colorado.
4.8 Consent and Agreement of Manager dated as of June 1, 2001 by Apple
Suites SPE III, Inc. as Borrower in favor of First Union National
Bank as Lender with respect to the Homewood Suites(R) by Hilton
hotel in Boulder, Colorado.
4.9 Environmental Indemnity Agreement dated as of June 1, 2001 by
Apple Suites SPE III, Inc. and Apple Suites, Inc., as Indemnitors,
in favor of First Union
National Bank, as Lender, with respect to the Homewood Suites(R)
by Hilton hotel in Boulder, Colorado.
4.10 Receipt and Closing Certificate dated June 1, 2001 by Apple Suites
SPE III, Inc. as Borrower and Apple Suites, Inc. as Guarantor in
favor of First Union National Bank, as Lender, with respect to the
Homewood Suites(R) by Hilton hotel in Boulder, Colorado.
10.1 Apple Suites SPE III, Inc. Articles of Incorporation.
10.2 Apple Suites SPE III, Inc. Bylaws.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Apple Suites, Inc.
By: /s/ Glade M. Knight
------------------------------
Glade M. Knight, President
June 18, 2001