RICHMOND, Va.—Apple Hospitality REIT, Inc. and Apple REIT Ten, Inc. (“Apple Ten”), collectively the “Pro Forma Combined Company,” announced today that the boards of directors of both companies have approved a definitive merger agreement under which the companies will create one of the largest select service lodging REITs in the industry. The transaction joins two highly complementary select service hotel portfolios with a combined asset base consisting of 234 hotels with 30,017 guestrooms geographically diversified across 94 MSAs throughout 33 states. The Pro Forma Combined Company will have an enterprise value of approximately $5.7 billion and a total equity market capitalization of approximately $4.4 billion, based on the 20 Day VWAP (volume weighted average price) of Apple Hospitality’s common shares ending April 12, 2016.
The implied transaction value is $1.3 billion and is comprised of approximately $94 million in cash, approximately 49.1 million Apple Hospitality common shares issued to Apple Ten shareholders and the extinguishment or assumption of approximately $239 million in debt (as of March 31, 2016). Under the terms of the merger agreement, Apple Ten’s shareholders would receive $1 in cash per each Apple Ten “Unit” (a Unit consists of one common share and one series A preferred share) and each Unit of Apple Ten would be converted into a fixed exchange ratio of 0.522 Apple Hospitality common shares. Additionally, each Apple Ten Series B convertible preferred share would receive the same consideration on an as converted basis. Based on Apple Hospitality’s 20 Day VWAP ending April 12, 2016 of $19.49 per share, the total per Unit consideration equates to an implied offer price of $11.17 per Apple Ten Unit, including the $1 cash per Unit consideration.
The merger agreement also provides Apple Ten with a go-shop period, during which Apple Ten will actively solicit alternative proposals from third parties for the next 45 days concluding at 11:59 pm on May 28, 2016. The merger agreement provides for Apple Ten to pay a termination fee of $5 million (plus expenses not to exceed $3 million) to Apple Hospitality if Apple Ten terminates the merger agreement in connection with a superior proposal that arises during the go-shop period, and a termination fee of $25 million if Apple Ten terminates the merger agreement in connection with a superior proposal that arises following the go-shop period. There can be no assurance that this process will result in a superior proposal. Apple Ten does not intend to disclose developments with respect to the solicitation process unless and until its Board of Directors has made a decision with respect to any potential superior proposal. At closing, Apple Hospitality shareholders are expected to own approximately 78 percent of the Pro Forma Combined Company and Apple Ten shareholders are expected to own approximately 22 percent.
Justin Knight, Apple Hospitality’s president and chief executive officer, said, “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. 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.”
The Special Committee of Apple Ten’s Board of Directors, formed to evaluate the proposed transaction, and consisting of independent members of the Board of Directors, said, “We are excited to provide our shareholders with the opportunity to participate in a leading publicly traded select service hotel REIT. The Pro Forma Combined Company offers a liquidity option for our shareholders as well as the potential for meaningful value creation through an operating strategy and balance sheet philosophy that is consistent with those utilized in the development of the Apple Ten platform.”