Page 29 - Apple REIT 9 2008 Annual Report

19
Hotel performance can be influenced by many factors including local competition, local and general economic conditions in the
United States and the performance of individual managers assigned to each hotel. In evaluating financial condition and operating
performance, the most important matters on which the Company focuses are revenue measurements, such as average occupancy,
average daily rate (“ADR”) and revenue per available room (“RevPAR”), and expenses, such as hotel operating expenses, general and
administrative and other expenses as described below.
During the past several quarters, the overall weakness in the U.S. economy has had a considerable negative impact on both
consumer and business travel. As a result, lodging demand in most markets in the United States has declined. The Company expects
this trend to continue into 2009 and will not reverse course until general economic conditions improve. The properties owned by the
Company have shown results consistent with industry and brand averages for the short period of ownership. In its acquisition process,
the Company has anticipated a certain amount of decline in income from historical results; however, there can be no assurance that
actual results will meet expectations.
Revenues
The Company’s principal source of revenue is hotel room revenue and other related revenue. For the year ended December 31,
2008, the Company had total revenue of $11.5 million. These revenues reflect hotel operations for the 21 hotels acquired through
December 31, 2008 for their respective periods of ownership by the Company. For the period from acquisition through December 31,
2008, the hotels achieved combined average occupancy of approximately 59%, ADR of $110 and RevPAR of $65. ADR is calculated
as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.
Expenses
Hotel operating expenses for the year ended December 31, 2008 represent the expenses related to the 21 hotels acquired through
December 31, 2008 for their respective periods owned. Hotel operating expenses consist of direct room expenses, hotel administrative
expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. For the
year ended December 31, 2008, hotel operating expenses totaled $7.4 million or 64% of total revenue.
Taxes, insurance, and other expenses for the year ended December 31, 2008 were $731,000 or 6% of total revenue.
General and administrative expense for the year ended December 31, 2008 was $1.3 million. The principal components of general
and administrative expense are advisory fees, legal fees, accounting fees and reporting expense.
Depreciation expense for the year ended December 31, 2008 was $2.3 million. Depreciation expense represents expense of the
Company’s 21 hotel buildings and related improvements, and associated personal property (furniture, fixtures, and equipment) for
their respective periods owned.
Interest expense for the year ended December 31, 2008 was $375,000. Interest expense primarily arose from debt assumed with
the acquisition of four of the Company’s hotels, and from short-term financing under a line of credit facility which was outstanding
from November 14, 2007 to May 14, 2008. During 2008, the Company also recognized $2.7 million in interest income, representing
interest on excess cash invested in short-term money market instruments and certificates of deposit.
Related Party Transactions
The Company has 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 a contract 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 is paid to ASRG for these services. As of December 31,
2008, payments to ASRG for services under the terms of this contract have totaled approximately $6.8 million since inception, which
were capitalized as a part of the purchase price of the hotels. With the adoption of Financial Accounting Standards Board Statement
No. 141R in January 2009, any additional amounts incurred under this contract will be expensed.