Page 32 - Apple REIT 9 2008 Annual Report

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The Company anticipates that cash flow, and cash on hand, will be adequate to cover its operating expenses and to permit the
Company to meet its anticipated liquidity requirements, including anticipated distributions to shareholders and capital improvements.
The Company intends to use the proceeds from the Company’s on-going best-efforts offering, and cash on hand, to purchase income
producing real estate.
The Company is raising capital through a best-efforts offering of Units (each Unit consists of one common share and one Series A
preferred share) by David Lerner Associates, Inc., the managing dealer, which receives selling commissions and a marketing expense
allowance based on proceeds of the Units sold. The minimum offering of 9,523,810 Units at $10.50 per Unit was sold as of May
14, 2008, with proceeds net of commissions and marketing expenses totaling $90 million. Subsequent to the minimum offering and
through December 31, 2008, an additional 31.5 million Units, at $11 per Unit, were sold, with the Company receiving proceeds, net of
commissions, marketing expenses and other offering costs of approximately $310.5 million. The Company is continuing its offering at
$11.00 per Unit. The Company will offer Units until April 25, 2010 unless the offering is extended, or terminated if all of the Units are
sold before then.
To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. Distributions since the
initial capitalization through December 31, 2008 totaled approximately $13.0 million and were paid at a monthly rate of $0.073334
per common share beginning in June 2008. For the same period the Company’s cash generated from operations was approximately
$3.3 million. Due to the inherent delay between raising capital and investing that same capital in income producing real estate, the
Company has had significant amounts of cash earning interest at short term money market rates. As a result, the difference between
distributions paid and cash generated from operations has been funded from proceeds from the offering of Units, and this portion
of distributions is expected to be treated as a return of capital for federal income tax purposes. In May, 2008, the Company’s Board
of Directors established a policy for an annualized dividend rate of $0.88 per common share, payable in monthly distributions. The
Company intends to continue paying dividends on a monthly basis, consistent with the annualized dividend rate established by its
Board of Directors. The Company’s Board of Directors, upon the recommendation of the Audit Committee, may amend or establish
a new annualized dividend rate and may change the timing of when distributions are paid. Since a portion of distributions has to
date been funded with proceeds from the offering of Units, the Company’s ability to maintain its current intended rate of distribution
will be based on its ability to fully invest its offering proceeds and thereby increase its cash generated from operations. Since there
can be no assurance of the Company’s ability to acquire properties that provide income at this level, there can be no assurance as to
the classification or duration of distributions at the current rate. Proceeds of the offering which are distributed are not available for
investment in properties.
The Company has on-going capital commitments to fund its capital improvements. The Company is required, under all of
the hotel management agreements and certain loan agreements, to make available, for the repair, replacement, refurbishing of
furniture, fixtures, and equipment, a percentage of gross revenues provided that such amount may be used for the Company’s capital
expenditures with respect to the hotels. The Company expects that this amount will be adequate to fund required repair, replacement,
and refurbishments and to maintain the Company’s hotels in a competitive condition. As of December 31, 2008, the Company held
with various lenders $1.3 million in reserves for capital expenditures. The Company has six major renovations scheduled for 2009.
Total capital expenditures for these hotels are anticipated to be approximately $12 million.
As of December 31, 2008, the Company had entered into outstanding contracts for the purchase of 19 additional hotels for a total
purchase price of approximately $329 million. Of these 19 hotels, 15 are under construction and should be completed over the next 12
to 18 months. The other four hotels are expected to close within the next three months. The Company also has one purchase contract
for land that is subject to a feasibility study for the construction of a SpringHill Suites hotel. Although the Company is working
towards acquiring these hotels, there are many conditions to closing that have not yet been satisfied and there can be no assurance
that closings will occur under the outstanding purchase contracts. The Company also anticipates assuming outstanding mortgage loan
obligations on four of the 19 properties, representing a source of funding of approximately $29.3 million of the total purchase price of
the contracts outstanding as of December 31, 2008. It is anticipated the remainder of the purchase price will be funded from proceeds
of the Company’s ongoing best-efforts offering of Units and cash on hand.
Subsequent Events
In January 2009, the Company declared and paid approximately $3.0 million in dividend distributions to its common
shareholders, or $0.073334 per outstanding common share. The Company also closed on the issuance of 4.0 million Units through its
ongoing best-efforts offering, representing gross proceeds to the Company of $44.5 million and proceeds net of selling and marketing
costs of $40.0 million.