A local REIT has struck a $1.2 billion deal to sell one of its funds to a New York financial giant.
Apple REIT Six, which owns 66 hotels across the country, said Friday that it would be acquired by BRE Select Hotels Corp. BRE is part of Blackstone Real Estate Partners, an affiliate of private equity and financial firm Blackstone.
Headquartered on Main Street in downtown Richmond, the Apple REIT companies consist of five funds, all of which own dozens of hotels and have raised billions of dollars through the sale of shares to investors. The five funds own a combined 288 hotels.
Established in 2004, Apple REIT Six is the oldest of the company’s funds. Its 66 Marriott- and Hilton-brand hotels are spread across 18 states and have a total of 7,658 rooms. Its closest property to Richmond is a Hilton Garden Inn in Fredericksburg. The fund produced $18 million in profit during the third quarter, according to Securities and Exchange Commission filings.
Apple REIT spokesperson Kelly Clarke declined to comment on the deal.
“At this time we are unable to provide comment outside of our press release and filings with the SEC,” Clarke said in an email to BizSense.
Should they vote to approve the deal, shareholders of Apple REIT Six would receive $11.10 per share, made up of $9.20 in cash and one share of BRE Select preferred stock. Apple REIT Six shares had been sold over the years for $10.50 and $11 per share.
The BRE shares would carry a 7 percent dividend and could be redeemed after seven and a half years or liquidated before then for $1.90 per share. BRE would also have the option to redeem the shares at any time. The dividend rate would increase to 11 percent if Blackstone does not redeem them within five years. Blackstone created BRE solely for the purpose of this deal.
Pending shareholder approval, the deal is expected to close in the first half of 2013.
Apple REIT hired McGuireWoods as its legal adviser on the BRE deal. Wells Fargo Securities was its financial adviser.
The deal comes about a month after a California firm made yet another solicitation to entice Apple REIT Six shareholders to sell some of their shares at $5.50 each.
The firm, MacKenzie Capital Management, has made similar offers to shareholders of several of Apple REIT’s funds. Apple REIT each time urged its shareholders to reject MacKenzie’s offers, claiming they were trying to take advantage of shareholders with a low price.
Meanwhile in Shockoe Slip, another of the company’s funds, Apple REIT Nine, is in the early stages of developing a 134,000-square-foot hotel project at 14th and Cary streets.
The project to be known as the First Freedom Center hit a small bump in recent weeks when the city’s Commission of Architectural Review rejected some of its design plans.
The overall plan for the project, consisting of twin Marriott-brand hotels, has been approved by the city planning commission and City Council. But some elements, including window designs and the placement of an underground power vault, are still being worked out with the city.
“The pattern for the windows didn’t convey the kind of depth and scale of the historic designs,” architectural committee member Dave Johannes said.
Johannes said the issues would likely not be resolved until next year because Apple REIT could not turn the new designs around before the committee’s Dec. 11 meeting.
Craig Amos, Apple REIT’s senior vice president of capital investments, said the issues would not derail the project.
“We are working with the commission to finalize two minor architectural details. The project remains on schedule and we do not anticipate these minor details will have any impact on our overall timeline,” Amos said.
BizSense reporter David Larter contributed to this story.