's plannedacquisition of nontradedApple REIT Ten Inc. willbenefit from the overlap in the two companies' leadership, executives said in anApril 14 conference call.
AppleHospitality REIT, which listedpublicly on the NYSE in 2015, is itself the result of a combination of several nontradedREITs: the former Apple REIT Seven Inc., Apple REIT Eight Inc. and Apple REIT NineInc. Its president and CEO, Justin Knight, is president of Apple Ten, and Knight'sfather, Glade Knight, is chairman of both companies.
In 2014,Apple Hospitality took over Apple Ten's external-management duties after subcontractingwith the REIT's manager, which is owned by Glade Knight. Executives said in theconference call that the REITs will not have to pay a fee to the manager for endingits advisory agreement — nor would any other buyer of Apple Ten, should one emergeduring the deal's 45-day go-shop period.
AppleTen will pay a $5 million termination fee, plus expenses, to Apple Hospitality ifthe former company terminates the merger in connection with a superior proposalduring the go-shop period, or a $25 million fee if it terminates the agreement becauseof an offer that arises after the period.
Analystswho cover Apple Hospitality said the deal was not a surprise, though it may havecome sooner than expected.
On thecall, Justin Knight touted Apple Ten's 55-property portfolio of primarily upscaleand upper-midscale hotels, spread across 17 states.
"Perhapsmost importantly," he said, "our management team assembled the Apple Tenportfolio of hotels, and it managed the company since its first acquisition in 2011,providing us the knowledge of each of the assets."
Knightdeclined to provide details on the mechanism by which Apple Hospitality valued AppleTen, adding that further information would be available in a proxy filing likelyto be released after the go-shop period. Executives noted that the proposed stockconsideration in the transaction equates to $11.17 per Apple Ten share based onApple Hospitality's April 12 20-day volume-weighted average share price — a premiumover the nontraded REIT shares' original sale price, including fees and commissions.
Knightsaid the REITs expect to maintain their current staffing levels, though the dealshould produce some cost savings stemming from their combined operations.
"Thelargest advantage we have in this particular transaction is that we are currentlymanaging the portfolio and have intimate knowledge of the individual assets,"he said. "And so where we see ourselves as having significant advantage isin the seamless nature of the merger from an operational standpoint."