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): June 15, 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 certain property acquisitions involving a "significant amount" of
assets within the meaning of the General Instructions to Form 8-K. Certain
related matters also are reported below.
Property Acquisition in Missouri
On June 15, 2001, we caused a new and wholly-owned subsidiary to acquire
the Chesterfield Homewood Suites(R) by Hilton near St. Louis, Missouri for a
base purchase price of $11.5 million. The hotel is located on a 4.3 acre site
at 840 Chesterfield Parkway West, Chesterfield, MO 63017. The hotel is
approximately 20 miles from the center of downtown St. Louis and the Lambert St.
Louis International Airport.
The Missouri hotel opened in March 2000. It consists of one building with
three floors and contains a total of 145 suites, which have a combined rentable
area of 88,848 square feet. The following types of suites are available:
Type of Suite Number Available Square Feet/per Suite
------------- ---------------- ---------------------
King Suite 123 600
Double Suite 17 624
Two-Bedroom Suite 5 888
The Missouri hotel offers a 40-seat breakfast/lounge area, two meeting
rooms that accommodate 12 people and 20 to 25 people, and a business center that
offers guests the use of a personal computer, printer and photocopier.
Recreational facilities include an outdoor pool and an exercise room. The hotel
also contains a guest convenience store and laundry facility. The hotel has its
own parking lot with approximately 160 spaces. The hotel provides complimentary
shuttle service within a five-mile radius.
We believe that the Missouri hotel has been well maintained and is
generally in very good condition. Over the next 12 months, we plan to spend
approximately $200,000 on renovations or improvements. We expect that the
principal renovations and improvements will include minor room renovations and
additional exterior signage.
During 2001 (through the end of May), approximately 51% of the guests have
stayed for five nights or more. In general, occupancy at the Missouri hotel is
not significantly affected by seasonal variations. The following table shows
average daily occupancy rates since the opening of the hotel:
Average Daily Occupancy Rate (calendar year)
2001
2000 (through May)
---- -------------
66.0% 63.9%
During 2001 (through the end of May), the average daily rate per suite has
been $86.83, and the average daily net revenue per suite has been $55.45. 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) King Double Two Bedroom
- ------------------- ---- ------ -----------
1 to 4 $109 $119 $189
5 to 13 99 109 179
14 to 29 89 99 169
30 or more 69 79 159
The Missouri 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.
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The following table shows the average effective annual rental per square
foot since the opening of the Missouri hotel:
2001
2000 (annualized)
---- -----------
$31.74 $33.03
The depreciable real property component of the Missouri hotel has a
currently estimated Federal tax basis of $11.5 million 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 shows the Missouri hotel's real estate tax information
for 2000:
Tax Assessed Tax Amount
Jurisdiction Value Rate of Tax
- ------------ -------- ---- ------
County of St. Louis $2,573,370 0.08372 $215,442.54
We estimate that the annual property tax on the expected improvements will
be no more than approximately $16,800.
Property Acquisition in Oregon
On June 15, 2001, we acquired the Beaverton Homewood Suites(R) by Hilton
near Portland, Oregon for a base purchase price of $10.5 million. The hotel is
located on a 3.3 acre site at 15525 Northwest Gateway Court, Beaverton, OR
97006. The hotel is approximately 15 miles from the center of downtown Portland
and 22 miles from the Portland International Airport.
The Oregon hotel opened in July 1998. It consists of one building with four
floors and contains a total of 123 suites, which have a combined rentable area
of 63,688 square feet. The following types of suites are available:
Type of Suite Number Available Square Feet/per Suite
------------- ---------------- ---------------------
King Suite 98 489
Twin Suite 18 543
Two-Bedroom Suite 7 856
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The Oregon hotel offers a 40-seat breakfast/lounge area, three meeting
rooms that, combined, accommodate up to 55 people, and a business center that
offers guests the use of a personal computer, printer and photocopier.
Recreational facilities include an outdoor pool and an exercise room. The hotel
also contains a guest convenience store and laundry facility. The hotel has its
own parking lot with approximately 135 spaces. The hotel provides complimentary
shuttle service within a five-mile radius.
We believe that the Oregon hotel has been well maintained and is generally
in very good condition. Over the next 12 months, we plan to spend approximately
$220,000 on renovations or improvements. We expect that the principal
renovations and improvements will include minor room renovations and additional
exterior signage.
During 2001 (through the end of May), approximately 54% 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 since the opening of the Oregon hotel:
Average Daily Occupancy Rate (calendar year)
2001
1998 1999 2000 (through May)
---- ---- ---- -------------
34.9% 59.0% 75.1% 69.6%
During 2001 (through the end of May), the average daily rate per suite has
been $86.19, and the average daily net revenue per suite has been $60.17. The
Oregon hotel's current rate structure is based on length of stay and type of
suite, as summarized below:
Length of Stay
(number of nights) King Twin Two Bedroom
- ------------------ ---- ---- -----------
1 to 5 $149 $159 $179
5 to 11 139 149 175
12 to 21 129 139 159
22 or more 119 129 139
The Oregon 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 following table shows the average effective annual rental per square
foot since the opening of the Oregon hotel:
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2001
1998 1999 2000 (annualized)
---- ---- ---- ------------
$20.22 $32.54 $42.27 $42.42
The depreciable real property component of the Oregon hotel has a currently
estimated Federal tax basis of $10.5 million 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 shows the Oregon hotel's real estate tax information
for 2001:
Tax Assessed Tax Amount
Jurisdiction Value Rate of Tax
- ------------ -------- ---- ------
County of Washington $3,584,350 0.0167451 $60,020.30
We estimate that the annual property tax on the expected improvements will
be no more than approximately $3,700.00.
Financing of Property Acquisitions
The purchase of our new hotels was achieved with short-term seller
financing for 75% of the base purchase price. The short-term financing for each
hotel is evidenced by a separate promissory note that is secured by the hotel
involved. The notes are described below:
Base Principal
Location of Hotel Purchase Price Amount of Note
----------------- -------------- --------------
Chesterfield, Missouri $11,500,000 $ 8,625,000
Beaverton, Oregon 10,500,000 7,875,000
----------- -----------
TOTAL $22,000,000 $16,500,000
Each promissory note is substantially similar and provides for the
following:
. a maturity date of December 15, 2001
. a stated annual interest rate of 8.5%
. the monthly payment of interest only until maturity
. the full payment of principal and all other amounts at maturity
. the acceleration, at the option of the lender, of all amounts due under
the note upon any default under the note or the related loan documents
. a late payment premium of 4% on any payment that is not made within 10
days of its due date
. a right of prepayment, in whole or in part, without premium or penalty
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We directly acquired the hotel in Oregon and executed the related
promissory note. The promissory note for the hotel in Missouri was signed both
by us and by Apple Suites-MO, LLC, as the new wholly-owned subsidiary that
acquired the hotel.
Cross-Default Provisions
The two hotels that secure the promissory notes are subject to cross-
default and cross-collateral provisions under separate and corresponding deeds
of trust and related security documents. In general, any default under one
promissory note would constitute a default under the other promissory note and
would enable the lender to exercise its rights against both of the hotels.
Deeds of Trust and Security Documents
The hotels that secure the promissory notes are subject to mortgages and
other encumbrances, including a security interest in the related personal
property and various assignments of leases and rents, 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, including
obligations to maintain adequate insurance. The security documents prohibit any
further encumbrances and any further assignments of leases or rents with respect
to the hotels.
Upon any default that occurs under a promissory note or related security
document, various remedies are available to the lender. Those remedies include,
for example (a) declaring the entire principal balance under the promissory
notes, together with all accrued and unpaid interest, to be due and payable
immediately; (b) taking possession of the collateral, including the hotels; and
(c) collecting rents from the hotels, or foreclosing on such properties, to
satisfy unpaid amounts under the promissory notes. The lender would be entitled
to recover any costs that it may incur in exercising such remedies.
Hotel License Agreements
Each of our new hotels is licensed to operate as part of the Homewood
Suites(R) by Hilton franchise under separate franchise license agreements
between Apple Suites Management, Inc. and Promus Hotels, Inc. (Apple Suites
Management, Inc. is one of our wholly-owned subsidiaries and leases the hotels
from us under separate lease agreements that are substantially similar to lease
agreements for our other hotels). The franchise license agreements are
substantially similar to the franchise license agreement executed with respect
to the Atlanta/Buckhead hotel that we acquired in April 2001.
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Hotel Management Agreements
Each of our new hotels is or will be managed under separate management
agreements between Apple Suites Management, Inc. and Promus Hotels, Inc. The
management agreements are substantially similar to the management agreement
executed with respect to the Atlanta/Buckhead hotel that we acquired in April
2001.
Item 7. Financial Statements and Exhibits
(Financial Statements and Exhibits are to be filed by amendment
as soon as practicable)
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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
July 2, 2001
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