A hotel-focused downtown real estate firm is absorbing its sister fund – if no one else wants to buy it.
The publicly traded Apple Hospitality REIT announced Thursday it is merging with Apple REIT Ten, a non-listed real estate investment trust that shares the same downtown office and staff.
The cash-and-stock deal, valued at $1.3 billion, would bring Apple Hospitality’s portfolio of hotels to 234 in 33 states with the addition of Apple REIT Ten’s 55 properties, which locally includes the Springhill Suites at 9960 Independence Park Drive in Henrico.
The combined company would continue as Apple Hospitality REIT and continue trading on the New York Stock Exchange under the ticker symbol APLE.
The combined company would have a value of $5.7 billion, according to the announcement, with Apple Ten’s shareholders receiving 49.1 million Apple Hospitality common shares and $1 in cash per each Apple Ten unit of shares. The deal would also extinguish $239 million in Apple Ten debt that Apple Hospitality would assume.
But there’s a catch.
The merger agreement also provides Apple Ten with a “go-shop” period in which it can solicit alternative proposals from third parties for 45 days, through May 28. If Apple Ten secures a “superior” proposal, it would pay a termination fee of $5 million during that period or $25 million if the proposal is secured after that period.
If no alternative proposal arises, the Apple Hospitality merger would close in the third quarter of this year.
The transaction would consolidate the last remaining Apple REIT fund into Apple Hospitality REIT, which was created in 2014 from the merger of three other funds: Apple REIT Seven, Eight and Nine.
That same year, Apple REIT Ten reached $1.05 billion in funds raised from investors and was closed off to new investors. While that raise was in progress, Apple REIT Ten used the funds to acquire hotels around the country. Its portfolio consists of Marriott and Hilton brand hotels in 17 states.
Apple Hospitality REIT owns 179 hotels in 32 states, including the Richmond Marriott on East Broad Street and the Courtyard Marriott and Residence Inn in Shockoe Slip. Last year, the previously non-listed REIT became a publicly traded company with a listing on the New York Stock Exchange.
Both firms are headed by the father-son team of Glade and Justin Knight, with Glade Knight serving as CEO of Apple Ten and Justin Knight serving that role for Apple Hospitality. They also serve both as chairman and president, respectively. The leadership structure for Apple Hospitality would lead the combined company.
The announcement quotes Justin Knight as saying: “We are pleased to have the opportunity to acquire this highly complementary portfolio of leading Hilton and Marriott branded select service hotels, while preserving our conservative capital structure.
“The merger further strengthens our presence in key markets and expands our geographic footprint to include locations in 94 MSAs throughout 33 states,” the statement said. “This acquisition highlights our team’s disciplined approach to growth and focus on shareholder value and we look forward to welcoming Apple Ten shareholders to Apple Hospitality.”
Spokeswoman Kelly Clarke said the company had no additional comment.
Apple Hospitality’s financial advisors are Wells Fargo Securities/Eastdil Secured and Robert W. Baird & Co., and Hogan Lovells US LLP is serving as legal counsel. Citigroup Global Markets is serving as financial advisor to a committee of Apple Ten’s board of directors, and McGuireWoods is legal counsel to Apple Ten and the committee.
The announcement also included a statement from the committee, which was formed to evaluate the merger proposal.
“We are excited to provide our shareholders with the opportunity to participate in a leading publicly traded select service hotel REIT,” the statement said, adding that the combined company would offer a liquidity option for shareholders.
The company has sold off some of its other funds in the past, most recently in 2013 with the sale of its Apple REIT Six for $1.2 billion to an affiliate of New York investment firm Blackstone.