Apple Hospitality REIT and Apple REIT Ten have entered into a definitive merger agreement for an implied transaction value of US$1.3 billion (~US$184,000/key), creating a combined portfolio of 234 hotels in 33 states and a combined enterprise value of approximately US$5.7 billion.
The combined company will have a total equity market capitalization of approximately US$4.4 billion and creates one of the largest select-service lodging REITs in the industry across 94 MSAs and 33 states.
The US$1.3 billion transaction value is comprised of approximately US$94 million in cash, approximately 49.1 million Apple Hospitality common shares issued to Apple Ten shareholders and the extinguishment or assumption of approximately US$239 million in debt.
The merger is expected to result in strategic and financial benefits for Apple Hospitality and Apple Ten shareholders:
- The merger further enhances Apple Hospitality’s ability to grow while maintaining a geographically diversified, strategically consistent, select-service portfolio. Apple Ten’s portfolio is comprised of only Hilton and Marriott brands, a cornerstone of Apple Hospitality’s concentrated brand ownership strategy.
- Scale has always been a strength of Apple Hospitality providing benefits from purchasing power to depth of experience and information. The transaction increases the size and scale of Apple Hospitality’s operations and continues to position Apple Hospitality with potential cost of capital and operational advantages.
- Apple Ten’s low leverage complements Apple Hospitality’s long-term strategy of maintaining a conservative capital structure. The Pro Forma Combined Company’s anticipated leverage (Net Debt / 2016 estimated Adjusted EBITDA) is expected to be approximately 3.0x at closing.
- The transaction will provide Apple Ten shareholders with the option to participate in the potential future growth of the Pro Forma Combined Company, a larger more diverse hospitality REIT with a consistent strategy, or the option of liquidity.
- Apple Hospitality has always considered reinvestment in its portfolio a core principal. Apple Hospitality’s portfolio has an average age of 11 years and an average time since opening or last renovation of 4 years. Apple Ten’s portfolio has an average age of 7 years and an average time since opening or last renovation of 3 years.
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. The merger agreement provides for Apple Ten to pay a termination fee of US$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 US$25 million if Apple Ten terminates the merger agreement in connection with a superior proposal that arises following the go-shop period.