RICHMOND, Virginia—Hotel real estate investment trusts have so far experienced a quiet 2016 in terms of transactions, but that tranquility was briefly interrupted Thursday with the announcement that Apple Hospitality REIT officials plan to spend $1.3 billion on a portfolio its management team assembled.
Apple Hospitality REIT President and CEO Justin Knight announced the planned merger with the non-listed Apple REIT Ten Thursday saying the combined company, which will retain the Apple Hospitality identity, will be “one of the largest select-service lodging REITs in the industry with a combined portfolio consisting of 234 hotels.”
The deal will give Apple Ten shareholders roughly 49.1 million Apple Hospitality common shares and $94 million in cash, which together accounts for an offer of $11.17 per Apple Ten share.
The merger, which is not expected to close until the third quarter of 2016, brings 55 Hilton- and Marriott-branded properties into the fold for Apple Hospitality. The hotels are mostly upscale and upper-midscale and account for more than 7,000 rooms, bringing the company’s total to slightly more than 30,000 across 33 states. Knight said his company’s prior knowledge of the Apple Ten portfolio helped make the deal happen.
“Our management team assembled the Apple Ten portfolio of hotels and has managed the company since its first acquisition in 2011, providing us deep knowledge of each of the assets,” Knight said Thursday during a conference call discussing the planned merger.
Apple Hospitality EVP and CFO Bryan Peery said the next step for the deal will be shareholders’ votes for each company, but Peery and other company officials did not provide a date for when that might occur.
The deal rationale
Apple officials laid out various “strategic and financial benefits” from the planned merger, saying both companies’ portfolios of select-service hotels complement each other well, with 2015 comparable hotels revenue per available room of $100.59 for the Apple Hospitality portfolio and $97.10 for Apple Ten.
Company officials also expect the merged company to have greater purchasing power and manageable debt. The deal is expected to be accretive in the first year after closing.
Knight told analysts Thursday that Apple Hospitality officials are hopeful they can work with Marriott and Hilton to avoid triggering property improvement plans for the newly purchased hotels, which on average were opened or renovated roughly three years ago.
“We have, as you know, a long-standing relationship with both Marriott and Hilton and are optimistic— well, are confident—that they’ll work with us on this transaction,” Knight said.
Shopping for alternatives
Peery said one of the biggest remaining hurdles for the deal before closing is a 45-day window, ending 28 May, where Apple Ten officials will shop for alternative third-party offers for the company and its portfolio.
Apple Ten will face $5 million in termination fees if the company ends up walking away from the proposed merger during that shopping period. The company will pay $25 million if it pursues a superior proposal after the 45 days.