UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 333-147414
Apple REIT Nine, Inc.
(Exact name of registrant as specified in its charter)
| Virginia | 26-1379210 | |
|
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
|
|
814 East Main Street Richmond, Virginia |
23219 | |
| (Address of principal executive offices) | (Zip Code) | |
(804) 344-8121
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company x | |||
|
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Number of registrant’s common shares outstanding as of May 1, 2008: 10
FORM 10-Q
INDEX
|
Page
Number |
||||||
| PART I. FINANCIAL INFORMATION | ||||||
| Item 1. | Financial Statements (Unaudited) | |||||
| Consolidated Balance Sheets - March 31, 2008 and December 31, 2007 | 3 | |||||
| Consolidated Statement of Operations - Three months ended March 31, 2008 | 4 | |||||
| Consolidated Statement of Cash Flows - Three months ended March 31, 2008 | 5 | |||||
| Notes to Consolidated Financial Statements | 6 | |||||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 14 | ||||
| Item 4. | Controls and Procedures | 15 | ||||
| PART II. OTHER INFORMATION | ||||||
| Item 1. | Legal Proceedings (not applicable) | |||||
| Item 1A. | Risk Factors (not applicable) | |||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds (not applicable) | |||||
| Item 3. | Defaults Upon Senior Securities (not applicable) | |||||
| Item 4. | Submission of Matters to a Vote of Security Holders (not applicable) | |||||
| Item 5. | Other Information (not applicable) | |||||
| Item 6. | Exhibits | 16 | ||||
| Signatures | 17 | |||||
2
| ITEM 1. | FINANCIAL STATEMENTS |
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
|
Three Months Ended
March 31, 2008 |
||||
|
Revenue |
$ | — | ||
|
Expenses: |
||||
|
General and Administrative |
17,216 | |||
|
Interest |
2,636 | |||
|
Total Expenses |
19,852 | |||
|
Net loss |
$ | (19,852 | ) | |
|
Net loss per common share |
$ | (1,985.20 | ) | |
|
Weighted average common shares |
10 | |||
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
|
Three Months Ended
March 31, 2008 |
||||
|
Cash flow from operating activities: |
||||
|
Net loss |
$ | (19,852 | ) | |
|
Changes in operating assets and liabilities: |
||||
|
Accrued expenses |
1,086 | |||
|
Net cash used in operating activities |
(18,766 | ) | ||
|
Cash flow from investing activities |
— | |||
|
Cash flow from financing activities: |
||||
|
Cash paid for offering costs |
(41,520 | ) | ||
|
Proceeds from line of credit |
50,000 | |||
|
Net cash provided by financing activities |
8,480 | |||
|
Decrease in cash and cash equivalents |
(10,286 | ) | ||
|
Cash and cash equivalents, beginning of period |
19,904 | |||
|
Cash and cash equivalents, end of period |
$ | 9,618 | ||
See accompanying notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include all of the information required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financials should be read in conjunction with the Company’s audited consolidated financial statements included in its registration statement filed on Form S-11 with the Securities and Exchange Commission (File No. 333-147414). Operating results for the three month period ended March 31, 2008 are not necessarily indicative of the results that may be expected for the twelve month period ending December 31, 2008.
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Apple REIT Nine, Inc. together with its wholly owned subsidiaries (the “Company”) is a Virginia corporation that intends to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. The Company, which owns no properties and has no operating history, was formed to invest in hotels, residential apartment communities and other income-producing real estate in selected metropolitan areas in the United States. Initial capitalization occurred on November 9, 2007, when 10 Units, each Unit consisting of one common share and one Series A preferred share, were purchased by Apple Nine Advisors, Inc. (“A9A”) (see Notes 3 and 4) and 480,000 Series B convertible preferred shares were purchased by Glade M. Knight, the Company’s Chairman, Chief Executive Officer and President (see Note 6). The Company’s fiscal year end is December 31. The consolidated balance sheet includes the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Significant Accounting Policies
Income Taxes
The Company intends to make an election to be treated, and expects to qualify, as a REIT under the Internal Revenue Code of 1986, as amended. As a REIT, the Company will be allowed a deduction for the amount of dividends paid to its shareholders, thereby subjecting the distributed net income of the Company to taxation only at the shareholder level. The Company’s continued qualification as a REIT will depend on its compliance with numerous requirements, including requirements as to the nature of its income and distribution of dividends.
The Company has established Apple Nine Hospitality Management, Inc. as a 100% owned taxable REIT subsidiary (“TRS”). The TRS will lease all hotels from the Company and be subject to income tax at regular corporate rates on any income that it would earn.
Start Up Costs
Start up costs are expensed as incurred.
Use of Estimates
The preparation of the financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
6
Offering Costs
Offering costs have been deferred and recorded as prepaid expense. Upon the commencement of the Company’s offering these costs will be recorded as a reduction to shareholders’ equity.
Earnings Per Common Share
Basic earnings per common share will be computed upon the weighted average number of shares outstanding during the year. Diluted earnings per share will be calculated after giving effect to all potential common shares that were dilutive and outstanding for the year. There were no shares with a dilutive effect for the three months ended March 31, 2008. Series B convertible preferred shares are not included in earnings per common share calculations until such time that such shares are converted to common shares (see Note 6).
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The Statement applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. In February 2008, the FASB released FASB Staff Position (FSP) FAS 157-2 – Effective Date of FASB Statement No. 157, which defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and liabilities, except those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The effective date of the statement related to those items not covered by the deferral (all financial assets and liabilities or nonfinancial assets and liabilities recorded at fair value on a recurring basis) is for fiscal years beginning after November 15, 2007. The adoption of this statement did not have or is not anticipated to have a material impact on the Company’s results of operations or financial position.
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. SFAS 159 is effective for the Company beginning January 1, 2008. The Company has elected not to use the fair value measurement provisions of SFAS 159 and therefore, adoption of this standard did not have an impact on the financial statements.
In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under SFAS 133. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not currently have any instruments that qualify within the scope of SFAS 133, and therefore the adoption of this statement is not anticipated to have a material impact on the Company’s financial statements.
3. OFFERING OF SHARES
The Company intends to raise capital through a “best-efforts” offering of shares by David Lerner Associates, Inc. (the “Managing Dealer”), which will receive selling commissions and a marketing expense allowance based on proceeds of the shares sold.
7
With each purchase of a Unit, the Company will issue one common share and one Series A preferred share. The Series A preferred shares will have no voting rights, no conversion rights and no distribution rights. The only right associated with the Series A preferred shares will be a priority distribution upon the sale of the Company’s assets. The priority will be equal to $11.00 per Series A preferred share, and no more, before any distributions are made to the holders of any other shares. In the event the Company pays special dividends, the amount of the $11.00 priority will be reduced by the amount of any special dividends approved by the board. The Series A preferred shares will not be separately tradable from the common shares to which they relate.
4. RELATED PARTIES
The Company will have significant transactions with related parties. These transactions cannot be construed to be at arms length and the results of the Company’s operations may be different than if conducted with non-related parties.
The Company has entered into a Property Acquisition and Disposition Agreement with Apple Suites Realty Group, Inc. (“ASRG”), to acquire and dispose of real estate assets for the Company. A fee of 2% of the gross purchase price or gross sale price in addition to certain reimbursable expenses will be payable for these services. There have been no amounts incurred by the Company under this agreement as of March 31, 2008.
The Company has entered into an advisory agreement with A9A to provide management of the Company and its assets. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company in addition to certain reimbursable expenses will be payable for these services. There were no fees earned under this agreement during the three months ended March 31, 2008. A9A has entered into an agreement with Apple REIT Six, Inc. (“AR6”) to provide certain management services to the Company. The Company will reimburse A9A for the cost of the services provided by AR6. Total reimbursable expenses incurred by the Company under the advisory agreement are included in general and administrative expenses and totaled $16,086 for the three months ended March 31, 2008.
ASRG and A9A are 100% owned by Glade M. Knight, Chairman, Chief Executive Officer and President of the Company. ASRG and A9A may purchase in the “best efforts” offering up to 2.5% of the total number of shares sold in the offering.
Mr. Knight is also Chairman and Chief Executive Officer of Apple REIT Six, Inc., Apple REIT Seven, Inc. and Apple REIT Eight, Inc., other REITS.
5. STOCK INCENTIVE PLAN
During April 2008, the Company adopted a stock incentive plan (the “Directors’ Plan”) to provide incentives to attract and retain directors. The plan will provide for the grant of options to purchase a specified number of shares of common stock (“Options”) to directors of the Company. Following consummation of the offering, a Compensation Committee (“Committee”) will be established to implement and administer the plan. The Committee will be responsible for granting Options and for establishing the exercise price of Options.
6. SERIES B CONVERTIBLE PREFERRED STOCK
The Company has authorized 480,000 shares of Series B convertible preferred stock. The Company has issued 480,000 Series B convertible preferred shares to Glade M. Knight, Chairman, Chief Executive Officer and President of the Company, in exchange for the payment by him of $0.10 per Series B convertible preferred share, or an aggregate of $48,000. The Series B convertible preferred shares are convertible into common shares pursuant to the formula and on the terms and conditions set forth below.
There are no dividends payable on the Series B convertible preferred shares. Holders of more than two-thirds of the Series B convertible preferred shares must approve any proposed amendment to the articles of incorporation that would adversely affect the Series B convertible preferred shares.
8
Upon the Company’s liquidation, the holder of the Series B convertible preferred shares is entitled to a priority liquidation payment before any distribution of liquidation proceeds to the holders of the common shares. However, the priority liquidation payment of the holder of the Series B convertible preferred shares is junior to the holders of the Series A preferred shares distribution rights. The holder of a Series B convertible preferred share is entitled to a liquidation payment of $11 per number of common shares each Series B convertible preferred share would be convertible into according to the formula described below. In the event that the liquidation of the Company’s assets results in proceeds that exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds will be distributed between the common shares and the Series B convertible preferred shares, on an as converted basis.
Each holder of outstanding Series B convertible preferred shares shall have the right to convert any of such shares into common shares of the Company upon and for 180 days following the occurrence of any of the following events:
(1) substantially all of the Company’s assets, stock or business is sold or transferred through exchange, merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the Company;
(2) the termination or expiration without renewal of the advisory agreement, or if the Company ceases to use ASRG to provide property acquisition and disposition services; or
(3) the Company’s common shares are listed on any securities exchange or quotation system or in any established market.
Upon the occurrence of any conversion event, each Series B convertible preferred share may be converted into a number of common shares based upon the gross proceeds raised through the date of conversion in the Company’s $2 billion offering according to the following table:
|
Gross Proceeds Raised from Sales of Units through Date of Conversion |
Number of Common Shares through Conversion of One Series B Convertible Preferred Share |
|
|
$100 million |
0.92321 | |
|
$200 million |
1.83239 | |
|
$300 million |
3.19885 | |
|
$400 million |
4.83721 | |
|
$500 million |
6.11068 | |
|
$600 million |
7.29150 | |
|
$700 million |
8.49719 | |
|
$800 million |
9.70287 | |
|
$900 million |
10.90855 | |
|
$ 1 billion |
12.11423 | |
|
$ 1.1 billion |
13.31991 | |
|
$ 1.2 billion |
14.52559 | |
|
$ 1.3 billion |
15.73128 | |
|
$ 1.4 billion |
16.93696 | |
|
$ 1.5 billion |
18.14264 | |
|
$ 1.6 billion |
19.34832 | |
|
$ 1.7 billion |
20.55400 | |
|
$ 1.8 billion |
21.75968 | |
|
$ 1.9 billion |
22.96537 | |
|
$ 2 billion |
24.17104 |
9
In the event that after raising gross proceeds of $2 billion, the Company raises additional gross proceeds in a subsequent public offering, each Series B convertible preferred share may be converted into an additional number of common shares based on the additional gross proceeds raised through the date of conversion in a subsequent public offering according to the following formula: (X/100 million) x 1.20568, where X is the additional gross proceeds rounded down to the nearest 100 million.
No additional consideration is due upon the conversion of the Series B convertible preferred shares. The conversion into common shares of the Series B convertible preferred shares will result in dilution of the shareholders’ interests.
Expense related to the issuance of 480,000 Series B convertible preferred shares to Mr. Knight will be recognized at such time when the number of common shares to be issued for conversion of the Series B shares can be reasonably estimated and the event triggering the conversion of the Series B shares to common shares occurs. The expense will be measured as the difference between the fair value of the common stock for which the Series B shares can be converted and the amounts paid for the Series B shares. Although the fair market value cannot be determined at this time, expense if the maximum offering is achieved could range from $0 to in excess of $127 million (assumes $11 per unit fair market value).
7. LINE OF CREDIT
The Company has obtained an unsecured line of credit in a principal amount of $400,000 to fund certain start-up costs and offering expenses. The lender is Wachovia Bank, N.A. The line of credit bears interest at a variable rate based on the London Interbank Borrowing Rate (LIBOR). Interest is payable monthly. Glade M. Knight, the Company’s Chairman, Chief Executive Officer and President, has guaranteed repayment of the line of credit. Mr. Knight will not receive any consideration in exchange for providing this guarantee. The line of credit will mature in November 2008. The Company may prepay the line of credit without premium or penalty. The outstanding balance as of March 31, 2008 was $200,500. The Company intends to repay this debt with proceeds from the “best-efforts” offering.
10
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the ability of the Company to implement its acquisition strategy and operating strategy; the Company’s ability to manage planned growth; changes in economic cycles and competition within the real estate industry. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in the quarterly report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code. Readers should carefully review the Company’s financial statements and the notes thereto, as well as the risk factors described in the Company’s filings with the Securities and Exchange Commission.
Overview
The Company is a Virginia corporation that intends to qualify as a REIT for federal income tax purposes. The Company, which owns no properties and has no operating history, was formed to invest in hotels, residential apartment communities and other income-producing real estate in selected metropolitan areas in the United States. Initial capitalization occurred on November 9, 2007, when 10 Units, each Unit consisting of one common share and one Series A preferred share, were purchased by Apple Nine Advisors, Inc. and 480,000 Series B convertible preferred shares were purchased by Glade M. Knight, the Company’s Chairman, Chief Executive Officer and President. The Company’s fiscal year end is December 31.
Related Party Transactions
The Company will have significant transactions with related parties. These transactions cannot be construed to be at arms length and the results of the Company’s operations may be different than if conducted with non-related parties.
The Company has entered into a Property Acquisition and Disposition Agreement with ASRG, to acquire and dispose of real estate assets for the Company. A fee of 2% of the gross purchase price or gross sale price in addition to certain reimbursable expenses will be payable for these services. There have been no amounts incurred by the Company under this agreement as of March 31, 2008.
The Company has entered into an advisory agreement with A9A to provide management of the Company and its assets. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company in addition to certain reimbursable expenses will be payable for these services. There were no fees earned under this agreement during the three months ended March 31, 2008. A9A has entered into an agreement with Apple REIT Six, Inc. (“AR6”) to provide certain management services to the Company. The Company will reimburse A9A for the cost of the services provided by AR6. Total reimbursable expenses incurred by the Company under the advisory agreement are included in general and administrative expenses and totaled $16,086 for the three months ended March 31, 2008.
ASRG and A9A are 100% owned by Glade M. Knight, Chairman, Chief Executive Officer and President of the Company. ASRG and A9A may purchase in the “best efforts” offering up to 2.5% of the total number of shares sold in the offering.
11
Mr. Knight is also Chairman and Chief Executive Officer of Apple REIT Six, Inc., Apple REIT Seven, Inc. and Apple REIT Eight, Inc., other REITS.
Liquidity and Capital Resources
The Company’s principal source of liquidity will be the proceeds of the “best-efforts” offering and the cash flow generated from properties the Company will acquire and any short term investments. In addition, the Company may borrow funds, subject to the approval of the Company’s board of directors.
The Company intends to raise capital through a “best-efforts” offering of shares by David Lerner Associates, Inc. (the “Managing Dealer”), which will receive selling commissions and a marketing expense allowance based on proceeds of the shares sold.
With each purchase of a Unit, the Company will issue one common share and one Series A preferred share. The Series A preferred shares will have no voting rights, no conversion rights and no distribution rights. The only right associated with the Series A preferred shares will be a priority distribution upon the sale of the Company’s assets. The priority will be equal to $11.00 per Series A preferred share, and no more, before any distributions are made to the holders of any other shares. In the event the Company pays special dividends, the amount of the $11.00 priority will be reduced by the amount of any special dividends approved by the board. The Series A preferred shares will not be separately tradable from the common shares to which they relate.
The Company has obtained an unsecured line of credit in a principal amount of $400,000 to fund certain start-up costs and offering expenses. The lender is Wachovia Bank, N.A. The line of credit bears interest at a variable rate based on the London Interbank Borrowing Rate (LIBOR). Interest is payable monthly. Glade M. Knight, the Company’s Chairman, Chief Executive Officer and President, has guaranteed repayment of the line of credit. Mr. Knight will not receive any consideration in exchange for providing this guarantee. The line of credit will mature in November 2008. The Company may prepay the line of credit without premium or penalty. The outstanding balance as March 31, 2008 was $200,500. The Company intends to repay this debt with proceeds from the “best-efforts” offering.
Once the Company begins acquiring properties, the Company anticipates that its cash flow from operations and the “best-efforts” offering will be adequate to cover its operating expenses and to permit the Company to meet its anticipated liquidity requirements, including distribution requirements. As REIT’s are required to distribute substantially all of their earnings and profits annually, there may be distributions that include a return of capital. Additionally, due to the inherent delay between raising capital and investing that same capital in income producing real estate, a portion of distributions paid may be funded from the Company’s offering of Units. Proceeds of the offering which are distributed are not available for investment in properties. As of the date of this Form 10-Q, the Company has no material commitments for capital expenditures.
Series B Convertible Preferred Stock
The Company has authorized 480,000 shares of Series B convertible preferred stock. The Company has issued 480,000 Series B convertible preferred shares to Glade M. Knight, chairman, chief executive officer and president of the Company, in exchange for the payment by him of $0.10 per Series B convertible preferred share, or an aggregate of $48,000. The Series B convertible preferred shares are convertible into common shares pursuant to the formula and on the terms and conditions set forth below.
There are no dividends payable on the Series B convertible preferred shares. Holders of more than two-thirds of the Series B convertible preferred shares must approve any proposed amendment to the articles of incorporation that would adversely affect the Series B convertible preferred shares.
Upon the Company’s liquidation, the holder of the Series B convertible preferred shares is entitled to a priority liquidation payment before any distribution of liquidation proceeds to the holders of the common shares. However, the priority liquidation payment of the holder of the Series B convertible preferred shares is junior to the holders of the Series A preferred shares distribution rights. The holder of a Series B
12
convertible preferred share is entitled to a liquidation payment of $11 per number of common shares each Series B convertible preferred share would be convertible into according to the formula described below. In the event that the liquidation of the Company’s assets results in proceeds that exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds will be distributed between the common shares and the Series B convertible preferred shares, on an as converted basis.
Each holder of outstanding Series B convertible preferred shares shall have the right to convert any of such shares into common shares of the Company upon and for 180 days following the occurrence of any of the following events:
(1) substantially all of the Company’s assets, stock or business is sold or transferred through exchange, merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of the Company;
(2) the termination or expiration without renewal of the advisory agreement, or if the Company ceases to use ASRG to provide property acquisition and disposition services; or
(3) the Company’s common shares are listed on any securities exchange or quotation system or in any established market.
Upon the occurrence of any conversion event, each Series B convertible preferred share may be converted into a number of common shares based upon the gross proceeds raised through the date of conversion in the Company’s $2 billion offering according to the following table:
|
Gross Proceeds Raised from Sales of Units through Date of Conversion |
Number of Common Shares through Conversion of One Series B Convertible Preferred Share |
|
|
$100 million |
0.92321 | |
|
$200 million |
1.83239 | |
|
$300 million |
3.19885 | |
|
$400 million |
4.83721 | |
|
$500 million |
6.11068 | |
|
$600 million |
7.29150 | |
|
$700 million |
8.49719 | |
|
$800 million |
9.70287 | |
|
$900 million |
10.90855 | |
|
$ 1 billion |
12.11423 | |
|
$ 1.1 billion |
13.31991 | |
|
$ 1.2 billion |
14.52559 | |
|
$ 1.3 billion |
15.73128 | |
|
$ 1.4 billion |
16.93696 | |
|
$ 1.5 billion |
18.14264 | |
|
$ 1.6 billion |
19.34832 | |
|
$ 1.7 billion |
20.55400 | |
|
$ 1.8 billion |
21.75968 | |
|
$ 1.9 billion |
22.96537 | |
|
$ 2 billion |
24.17104 |
In the event that after raising gross proceeds of $2 billion, the Company raises additional gross proceeds in a subsequent public offering, each Series B convertible preferred share may be converted into an additional number of common shares based on the additional gross proceeds raised through the date of conversion in a subsequent public offering according to the following formula: (X/100 million) x 1.20568, where X is the additional gross proceeds rounded down to the nearest 100 million.
13
No additional consideration is due upon the conversion of the Series B convertible preferred shares. The conversion into common shares of the Series B convertible preferred shares will result in dilution of the shareholders’ interests.
Expense related to the issuance of 480,000 Series B convertible preferred shares to Mr. Knight will be recognized at such time when the number of common shares to be issued for conversion of the Series B shares can be reasonably estimated and the event triggering the conversion of the Series B shares to common shares occurs. The expense will be measured as the difference between the fair value of the common stock for which the Series B shares can be converted and the amounts paid for the Series B shares. Although the fair market value cannot be determined at this time, expense if the maximum offering is achieved could range from $0 to in excess of $127 million (assumes $11 per unit fair market value).
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The Statement applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. In February 2008, the FASB released FASB Staff Position (FSP) FAS 157-2 – Effective Date of FASB Statement No. 157, which defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and liabilities, except those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The effective date of the statement related to those items not covered by the deferral (all financial assets and liabilities or nonfinancial assets and liabilities recorded at fair value on a recurring basis) is for fiscal years beginning after November 15, 2007. The adoption of this statement did not have or is not anticipated to have a material impact on the Company’s results of operations or financial position.
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. SFAS 159 is effective for the Company beginning January 1, 2008. The Company has elected not to use the fair value measurement provisions of SFAS 159 and therefore, adoption of this standard did not have an impact on the financial statements.
In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under SFAS 133. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not currently have any instruments that qualify within the scope of SFAS 133, and therefore the adoption of this statement is not anticipated to have a material impact on the Company’s financial statements.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
The Company does not engage in transactions in derivative financial instruments or derivative commodity instruments. As of March 31, 2008, the Company’s financial instruments were not exposed to significant market risk due to interest rate risk, foreign currency exchange risk, commodity price risk or equity price risk. The Company will be exposed to changes in short term money market rates as it invests
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its cash. Based on the Company’s cash invested at March 31, 2008, of $9,618, every 100 basis points change in interest rates will impact the Company’s annual net income by $96, all other factors remaining the same. In addition, interest rate fluctuations may affect the annual interest expense on the Company’s unsecured line of credit. Based on our outstanding balance of $200,500 at March 31, 2008, every 100 basis point change in interest rates will impact the Company’s net income by $2,005 per year, all other factors remaining the same.
| Item 4. | Controls and Procedures |
Senior management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective and that there have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Since that evaluation process was completed, there have been no significant changes in internal controls or in other factors that could significantly affect these controls.
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|
Exhibit Number |
Description of Documents |
|
| 1.1 | Agency Agreement between the Registrant and David Lerner Associates, Inc. with form of selected Dealer Agreement attached as Exhibit A thereto. (Incorporated by reference to Exhibit 1.1 to amendment no. 4 to the registrant’s registration statement on Form S-11 (SEC File No. 333-147414) filed April 23, 2008 and effective April 25, 2008) | |
| 1.2 | Escrow Agreement. (Incorporated by reference to Exhibit 1.2 to amendment no. 4 to the registrant’s registration statement on Form S-11 (SEC File No. 333-147414) filed April 23, 2008 and effective April 25, 2008) | |
| 3.1 | Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the registrant’s registration statement on Form S-11 (SEC File No. 333-147414) filed November 15, 2007 and effective April 25, 2008) | |
| 3.2 | Bylaws of the Registrant, as amended. (Incorporated by reference to Exhibit 3.2 to the registrant’s registration statement on Form S-11 (SEC File No. 333-147414) filed November 15, 2007 and effective April 25, 2008) | |
| 4.1 | Promissory Note to Wachovia Bank, N.A. (Incorporated by reference to Exhibit 4.1 to the registrant’s registration statement on Form S-11 (SEC File No. 333-147414) filed November 15, 2007 and effective April 25, 2008) | |
| 4.2 | Guaranty of Glade M. Knight. (Incorporated by reference to Exhibit 4.2 to the registrant’s registration statement on Form S-11 (SEC File No. 333-147414) filed November 15, 2007 and effective April 25, 2008) | |
| 10.1 | Advisory Agreement between the Registrant and Apple Nine Advisors, Inc. (Incorporated by reference to Exhibit 10.1 to amendment no. 4 to the registrant’s registration statement on Form S-11 (SEC File No. 333-147414) filed April 23, 2008 and effective April 25, 2008) | |
| 10.2 | Property Acquisition/Disposition Agreement between the Registrant and Apple Suites Realty Group, Inc. (Incorporated by reference to Exhibit 10.2 to amendment no. 4 to the registrant’s registration statement on Form S-11 (SEC File No. 333-147414) filed April 23, 2008 and effective April 25, 2008) | |
| 10.4 | Apple REIT Nine, Inc. 2008 Non-Employee Directors Stock Option Plan. (FILED HEREWITH) | |
| 31.1 | Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH) | |
| 31.2 | Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH) | |
| 32.1 | Certification of the registrant’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (FILED HEREWITH) | |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Apple REIT Nine, I NC . | ||||||
| By: |
/s/ G LADE M. K NIGHT |
Date: May 7, 2008 | ||||
| Glade M. Knight, | ||||||
|
Chairman of the Board, Chief Executive Officer, and President (Principal Executive Officer) |
||||||
| By: |
/s/ B RYAN P EERY |
Date: May 7, 2008 | ||||
| Bryan Peery, | ||||||
|
Chief Financial Officer (Principal Financial and Principal Accounting Officer) |
||||||
17
Exhibit 10.4
APPLE REIT NINE, INC.
2008 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
EFFECTIVE APRIL 30, 2008
APPLE REIT NINE, INC.
2008 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
EFFECTIVE APRIL 30, 2008
1. Purpose. The purpose of this Apple REIT Nine, Inc. 2008 Non-Employee Directors Stock Option Plan (the “Plan”) is to encourage ownership in Apple REIT Nine, Inc. (the “Company) by non-employee members of the Board, in order to promote long-term stockholder value and to provide non-employee members of the Board with an incentive to continue as directors of the Company.
2. Definitions. As used in the Plan, the following terms have the meanings indicated:
(a) “Act” means the Securities Exchange Act of 1934, as amended.
(b) “Board” means the board of directors of the Company.
(c) “Code” means the Internal Revenue Code of 1986, as amended.
(d) “Company” means Apple REIT Nine, Inc., a Virginia corporation.
(e) “Date of Grant” means the date as of which an Eligible Director is automatically awarded an Option pursuant to Section 7.
(f) “Disability” or “Disabled” means that the participant (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Employer.
(g) “Eligible Director” means a director described in Section 4.
(h) “Fair Market Value” means, on any given date, (i) if the Units are traded on an exchange, the closing registered sales prices of the Company Stock on such day on the exchange on which it generally has the greatest trading volume, (ii) if the Units are traded on the over-the-counter market, the average between the closing bid and asked prices on such day as reported by NASDAQ, or (iii) if the Units are not traded on any exchange or over-the-counter market, the fair market value shall be determined by the Board using the reasonable application of a reasonable valuation method consistent with the requirements of Treasury Regulations section 1.409A-1(b)(5)(iv)(B).
(i) “Initial Closing” means the first closing of the Offering that will occur after the Minimum Offering is achieved.
(j) “Insider” means a person subject to Section 16(b) of the Act.
(k) “Minimum Offering” means the sale of 9,523,810 Units pursuant to the Offering.
(l) “Offering” means, collectively, (1) the sale of up to $2,000,000,000 in Units to the public and the registration of such shares with the Securities and Exchange Commission, as authorized by resolutions of the Board dated November 8, 2007 (the “Initial Offering”), and (2) the issuance of any additional Units as authorized by resolutions of the Board from time to time, which issuance occurs before the termination of this Plan (the “Additional Offerings”).
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(m) “Option” means a right to acquire Units granted under the Plan, at a price determined in accordance with the Plan.
(n) “Treasury Regulations” mean the final, temporary or proposed regulations issued by the Treasury Department and/or Internal Revenue Service as codified in Title 26 of the United States Code of Federal Regulations
(o) “Unit” means one common share and one Series A preferred share, no par value, of the Company. If the par value of the common shares or Series A preferred shares is changed, or in the event of a change in the capital structure of the Company (as provided in Section 12), the Units resulting from such a change shall be deemed to be Units within the meaning of the Plan.
3. Administration. The Plan shall be administered by the Board. Options shall be granted as described in Section 7. However, the Board shall have all powers vested in it by the terms of the Plan, including, without limitation, the authority (within the limitations described herein) to prescribe the form of the agreement embodying the grant of Options, to construe the Plan, to determine all questions arising under the Plan, and to adopt and amend rules and regulations for the administration of the Plan as it may deem desirable. Any decision of the Board in the administration of the Plan, as described herein, shall be final and conclusive. The Board may act only by a majority of its members in office, except that members thereof may authorize any one or more of their number or any officer of the Company to execute and deliver documents on behalf of the Board. No member of the Board shall be liable for anything done or omitted to be done by him or any other member of the Board in connection with the Plan, except for his own willful misconduct or as expressly provided by statue.
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4. Participation in the Plan . Each director of the Company who is not otherwise an employee of the Company or any subsidiary of the Company and was not an employee of the Company or subsidiary for a period of at least one year before the Date of Grant shall be eligible to participate in the Plan.
5. Securities Subject to the Plan . Subject to Section 12 of the Plan, there shall be reserved for issuance under the Plan an aggregate of 45,000 Units plus 1.8% of the total number of Units issued in the Offering in excess of the Minimum Offering, which shall be authorized, but unissued Units. Units allocable to Options or portions thereof granted under the Plan that expire or otherwise terminate unexercised may again be subjected to an Option under the Plan.
6. Non-Statutory Stock Options . All Options granted under the Plan shall be non-statutory in nature and shall not be entitled to special tax treatment under Code section 422.
7. Award, Terms, Conditions and Form of Options . Each Option shall be evidenced by a written agreement in such form as the Board shall from time to time approve, which agreement shall comply with and be subject to the following terms and conditions:
(a) Automatic Award of Option.
(i) As of the Initial Closing, each Eligible Director shall automatically receive an Option to purchase 5,500 Units plus 0.0125% of the number of Units in excess of the Minimum Offering sold by the Initial Closing.
(ii) As of each June 1 during the years 2008 and ending upon the termination of the Plan, each Eligible Director shall automatically receive an Option to purchase 0.02% of the total number of Units issued and outstanding on that date.
4
(iii) As of the election as a director of any new person who qualifies as an Eligible Director, such Eligible Director shall automatically receive an Option to purchase 5,500 Units.
(iv) If at any time under the Plan there are not sufficient Units available to fully permit the automatic Option grants described in this paragraph, the Option grants shall be reduced pro rata (to zero if necessary) so as not to exceed the number of Units available.
(b) Option Exercise Price . The Option exercise price shall be 100% of the Fair Market Value of the Units subject to the Option on the Date of Grant.
(c) Options Not Transferable . An Option shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and shall be exercised during the lifetime of the optionee only by him. An Option transferred by will or by the laws of descent and distribution may be exercised by the optionee’s personal representative within one year of the date of the optionee’s death to the extent the optionee could have exercised the Option on the date of his death. No Option or interest therein may be transferred, assigned, pledged or hypothecated by the optionee during his lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.
(d) Exercise of Options . In no event shall an Option be exercisable earlier than six months from the later of the Date of Grant or the date of approval of the Plan by shareholders of the Company. Furthermore, no Option may be exercised:
(i) Before any amendment or restatement that requires shareholder approval pursuant to Section 13 of the Plan, is approved by shareholders of the Company;
5
(ii) Unless at such time the optionee is a director of the Company, except that he may exercise the Option within three years of the date he ceases to be a director of the Company if he ceased to be a director more than six months after the Date of Grant of the Option;
(iii) After the expiration of ten years from the Date of Grant; and
(iv) Except by written notice to the Company at its principal office, stating the number of Units the optionee has elected to purchase, accompanied by payment in cash and/or by delivery to the Company of the Units (valued at Fair Market Value on the date of exercise) in the amount of the full Option exercise price for the shares of Units being acquired thereunder.
8. Modification and Extension of Options Prohibited .
(a) Notwithstanding any provision of this Plan or any Option agreement to the contrary, (i) no Modification shall be made in respect to any Option if such Modification would result in the Option constituting a deferral of compensation, and (ii) no Extension shall be made in respect to any Option, if such Extension would result in the Option having an additional deferral feature from the Date of Grant, in each case within the meaning of applicable Treasury Regulations under Code section 409A.
(b) Subject to subsection (d) below, a “Modification” for purposes of subsection (a) means any change in the terms of the Option (or change in the terms of the Plan or applicable Option agreement) that may provide the holder of the Option with a direct or indirect reduction in the exercise price of the Option, regardless of whether the holder in fact benefits from the change in terms.
6
(c) Subject to subsection (d) below, an “Extension” for purposes of subsection (a) means either (i) the provision to the holder of an additional period of time within which to exercise the Option beyond the time originally prescribed, or (ii) the conversion or exchange of the Option for a legally binding right to compensation in a future taxable year, or (iii) the addition of any feature for the deferral of compensation to the terms of the Option, or (iv) any renewal of the Option that has the effect of (i) through (iii) above.
(d) Notwithstanding subsections (b) and (c) above, it shall not be a Modification or an Extension, respectively, to change the terms of an Option in accordance with Section 13 of the Plan, or in any of the other ways or for any of the other purposes provided in applicable Treasury Regulations or other guidance under Code section 409A as not resulting in a Modification or Extension for purposes of that section. In particular, it shall not be an Extension to extend the exercise period of an Option to a date no later than the earlier of (i) the latest date upon which the Option could have expired by its original terms under any circumstances or (ii) the 10 th anniversary of the original Date of Grant.
9. Effective Date of the Plan . This Plan was originally effective on April 30, 2008, having been approved by the shareholders of the Company on such date. Until the requirements of any applicable state or federal securities laws have been met, no Option shall be exercisable that is not contingent on the satisfaction of these requirements. If at any time subsequent to the initial satisfaction of these requirements, the requirements of any applicable federal or state securities laws fail to be met, no Option granted shall be exercisable until the Board has determined that these requirements have again been met.
7
10. Termination . The Plan shall terminate upon the earlier of:
(a) The adoption of a resolution of the Board terminating the Plan; or
(b) The date on which the Company’s existence terminates (provided, however, that if the existence of the Company is reinstated as permitted by law, the Plan shall continue during the effective period of any reinstatement, subject to earlier termination pursuant to Section 10(a) above).
No termination of the Plan shall without his consent materially and adversely affect any of the rights or obligations of any person under any Option previously granted under the Plan.
11. Limitation of Rights .
(a) No Right to Continue as a Director . Neither the Plan nor any action taken pursuant to the Plan shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain any person as a director for any period of time.
(b) No Shareholders Rights Under Options . An optionee shall have no rights as a shareholder with respect to Units covered by his Option until the date of exercise of the Option, and, except as provided in Section 12, no adjustment will be made for dividends or other rights for which the record date is prior to the date of such exercise.
12. Changes in Capital Structure .
(a) In the event of a stock dividend, stock split or combination of stock, recapitalization or merger in which the Company is the surviving corporation or other change in the Company’s capital stock (including, but not limited to, the creation or
8
issuance to shareholders generally of rights, options or warrants for the purchase of common shares or preferred shares of the Company), the number and kind of units or other securities to be subject to the Plan and to Options then outstanding or to be granted thereunder, the maximum number of units or securities which may be delivered under the Plan, the exercise price and other relevant provisions shall be appropriately adjusted by the Board, whose determination shall be binding on all persons. If the adjustment would produce fractional units or other securities with respect to any unexercised Option, the Board shall round down the number of units or other securities covered by the Option so as to eliminate the fractional unit or other security.
(b) If the Company is a party to a consolidation or a merger in which the Company is not the surviving corporation, a transaction that results in the acquisition of substantially all of the Company’s outstanding stock by a single person or entity, or a sale or transfer of substantially all of the Company’s assets, the Board may take such actions with respect to outstanding Options as the Board deems appropriate, consistent with applicable provisions of the Code and any applicable federal or state securities laws.
(c) Notwithstanding anything in the Plan to the contrary, the Board may take the foregoing actions without the consent of any optionee and the Board’s determination shall be conclusive and binding on all persons for all purposes.
13. Amendment of the Plan . The Board (except as provided below) may suspend or discontinue the Plan or revise or amend the Plan in any respect; provided, however, that without approval of the shareholders of the Company no revision or amendment shall increase the number of shares subject to the Plan (except as provided in Section 12), materially modifies the requirements as to eligibility for participation in the Plan or materially increase the benefits
9
accruing to participants under the Plan. The Plan shall not be amended more than once every six months other than an amendment required to comply with Rule 16b-3 of the Securities and Exchange Commission promulgated under the Act or other applicable federal or state securities laws or to meet the requirements of the Code and regulations thereunder.
14. Notice . All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally or mailed first class, postage prepaid, as follows: (a) if the Company – at its principal business address to the attention of the President; (b) if to any participant – at the last address of the participant know to the sender at the time the notice or other communication is sent.
15. Governing Law . The terms of this Plan shall be governed by the laws of the Commonwealth of Virginia without regard to conflicts of law. Options granted under the Plan are not intended to provide for any deferral of compensation that would be subject to Code section 409A.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed this 30 th day of April, 2008.
| APPLE REIT NINE, INC. | ||
| By: |
/s/ Glade M. Knight |
|
| Glade M. Knight, | ||
| Chairman of the Board | ||
10
Exhibit 31.1
CERTIFICATIONS
I, Glade M. Knight, certify that:
| 1. | I have reviewed this report on Form 10-Q of Apple REIT Nine, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| c) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 7, 2008 |
/s/ G LADE M. K NIGHT |
|
| Glade M. Knight | ||
| Chief Executive Officer | ||
| Apple REIT Nine, Inc. |
Exhibit 31.2
CERTIFICATION
I, Bryan Peery, certify that:
| 1. | I have reviewed this report on Form 10-Q of Apple REIT Nine, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| c) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 7, 2008 |
/s/ B RYAN P EERY |
|
| Bryan Peery | ||
| Chief Financial Officer | ||
| Apple REIT Nine, Inc. |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Apple REIT Nine, Inc., (the “Company”) on Form 10-Q for the quarter ending March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) the information contained in the Report fairly represents, in all material respects, the financial conditions and results of operations of the Company as of March 31, 2008, and for the period then ended.
|
/s/ G LADE M. K NIGHT |
| Glade M. Knight |
| Chief Executive Officer |
| May 7, 2008 |
|
/s/ B RYAN P EERY |
| Bryan Peery |
| Chief Financial Officer |
| May 7, 2008 |