Work is underway on a six-story, 210-room hotel at Cary and 14th streets that Apple REIT Nine is funding. (Photo by Burl Rolett)
Moving toward a potentially lucrative merger and with a new hotel underway in Shockoe Slip, a local real estate investment firm this month cut a deal to end a government investigation.
Various executives and pieces of the Apple REIT Companies on Feb. 12 entered into a settlement with the SEC related to questions about financial disclosures, the value of their shares, executive compensation and other issues. The company is made up of several REIT funds that each own dozens of hotels.
The agreement calls for Apple REIT founder and chief executive Glade Knight and CFO Bryan Peery to pay fines to the SEC of $125,000 and $50,000, respectively. Four advisory affiliate companies wholly owned by Knight also agreed to pay a combined $1.5 million in fines.
The REIT funds in question, including Apple REITs Six, Seven, Eight and Nine, were able to exit the investigation without admitting or denying any wrongdoing. Apple REIT Six was sold last year in a $1.2 billion deal.
The Apple REIT Companies headquarters downtown. (Photo by Lena Price)
“We are pleased to have resolved this matter, which we neither admit nor deny consistent with standard SEC practice,” Apple REIT spokesperson Kelly Clark said in an email.
“We have and will continue to work with professionals that focus on regulatory requirements to further enhance our disclosure. The settlement allows the Apple REITs to continue moving forward with their business without imposing any financial penalty on Apple REIT shareholders, and allows our management team to remain focused on serving the shareholders of the Apple REITs.”
As described in a 23-page document, the SEC found that Apple REITs Six, Seven and Eight made allegedly “material misrepresentations and omissions” related to the share prices of the funds in dividend reinvestment plan documents. It said the $11 per share price Apple REIT used to sell the shares when launching each fund was “arbitrarily established.”
The company’s funds are non-traded, meaning their shares aren’t traded on public markets. The shares are sold by a New York broker who has seen his share of trouble in recent years.
The SEC found that the REITs in question allegedly failed to disclose numerous short-term transfers of funds among them, ranging from $25,000 to $20 million. That money was used to fund acquisitions, dividends and shareholder redemptions, the SEC order explains. It also discussed loans that were personally guaranteed by Knight to fund redemption payments to shareholders. Those personal guarantees were allegedly found to be undisclosed in some of the company’s SEC filings.
Compensation agreements between the REIT executives and the Knight-owned advisory firms were also called into question by the SEC. The company says those advisory firms perform various functions for the REITs, including management services. The SEC findings mention undisclosed payments to four executives from those companies.
The resolution of the investigation is timely for Apple REIT. Its shareholders are set to vote Thursday on a proposed merger of Apple REITs Seven, Eight and Nine in a deal that would create a fund with 191 hotels across the country. The company has said it could then look to take the combined funds public.
The shareholder meeting will be Thursday at the company’s headquarters at 814 E. Main St.
Apple REIT disclosed the investigation in early 2013. The SEC’s investigation did not involve Apple REIT Ten, the newest of the company’s funds and the only one that remains open to new investors and is still selling shares.
The SEC alleged disclosure deficiencies and made a cease-and-desist order against Apple REIT to prevent further violations.
Dealing with the investigation hasn’t been cheap. In 2012 alone, the four funds combined spent a total of $7.3 million on legal costs associated with the investigation, according to SEC filings.
Apple REIT is also busy building a new hotel in Shockoe Slip. The joint venture between Apple REIT and the nonprofit First Freedom Center will build a six-story, 210-room hotel at Cary and 14th streets. The project, funded by Apple REIT Nine, will cost $30 million to develop.
Work is underway on a six-story, 210-room hotel at Cary and 14th streets that Apple REIT Nine is funding. (Photo by Burl Rolett)
Moving toward a potentially lucrative merger and with a new hotel underway in Shockoe Slip, a local real estate investment firm this month cut a deal to end a government investigation.
Various executives and pieces of the Apple REIT Companies on Feb. 12 entered into a settlement with the SEC related to questions about financial disclosures, the value of their shares, executive compensation and other issues. The company is made up of several REIT funds that each own dozens of hotels.
The agreement calls for Apple REIT founder and chief executive Glade Knight and CFO Bryan Peery to pay fines to the SEC of $125,000 and $50,000, respectively. Four advisory affiliate companies wholly owned by Knight also agreed to pay a combined $1.5 million in fines.
The REIT funds in question, including Apple REITs Six, Seven, Eight and Nine, were able to exit the investigation without admitting or denying any wrongdoing. Apple REIT Six was sold last year in a $1.2 billion deal.
The Apple REIT Companies headquarters downtown. (Photo by Lena Price)
“We are pleased to have resolved this matter, which we neither admit nor deny consistent with standard SEC practice,” Apple REIT spokesperson Kelly Clark said in an email.
“We have and will continue to work with professionals that focus on regulatory requirements to further enhance our disclosure. The settlement allows the Apple REITs to continue moving forward with their business without imposing any financial penalty on Apple REIT shareholders, and allows our management team to remain focused on serving the shareholders of the Apple REITs.”
As described in a 23-page document, the SEC found that Apple REITs Six, Seven and Eight made allegedly “material misrepresentations and omissions” related to the share prices of the funds in dividend reinvestment plan documents. It said the $11 per share price Apple REIT used to sell the shares when launching each fund was “arbitrarily established.”
The company’s funds are non-traded, meaning their shares aren’t traded on public markets. The shares are sold by a New York broker who has seen his share of trouble in recent years.
The SEC found that the REITs in question allegedly failed to disclose numerous short-term transfers of funds among them, ranging from $25,000 to $20 million. That money was used to fund acquisitions, dividends and shareholder redemptions, the SEC order explains. It also discussed loans that were personally guaranteed by Knight to fund redemption payments to shareholders. Those personal guarantees were allegedly found to be undisclosed in some of the company’s SEC filings.
Compensation agreements between the REIT executives and the Knight-owned advisory firms were also called into question by the SEC. The company says those advisory firms perform various functions for the REITs, including management services. The SEC findings mention undisclosed payments to four executives from those companies.
The resolution of the investigation is timely for Apple REIT. Its shareholders are set to vote Thursday on a proposed merger of Apple REITs Seven, Eight and Nine in a deal that would create a fund with 191 hotels across the country. The company has said it could then look to take the combined funds public.
The shareholder meeting will be Thursday at the company’s headquarters at 814 E. Main St.
Apple REIT disclosed the investigation in early 2013. The SEC’s investigation did not involve Apple REIT Ten, the newest of the company’s funds and the only one that remains open to new investors and is still selling shares.
The SEC alleged disclosure deficiencies and made a cease-and-desist order against Apple REIT to prevent further violations.
Dealing with the investigation hasn’t been cheap. In 2012 alone, the four funds combined spent a total of $7.3 million on legal costs associated with the investigation, according to SEC filings.
Apple REIT is also busy building a new hotel in Shockoe Slip. The joint venture between Apple REIT and the nonprofit First Freedom Center will build a six-story, 210-room hotel at Cary and 14th streets. The project, funded by Apple REIT Nine, will cost $30 million to develop.