Page 45 - Apple REIT 9 2008 Annual Report

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In connection with the acquisitions of the Duncanville, Texas, Allen, Texas and Lewisville, Texas Hilton Garden Inn hotels, the
Company assumed agreements with the various localities for the use of the hotel’s banquet and meeting facilities. These agreements
were at above market rates and as a result the Company recorded an asset of approximately $2.1 million associated with these
agreements, which is included in other assets in the Company’s consolidated balance sheets. These amounts are being amortized over
the remaining terms (average of approximately 8 years) of the respective agreements.
No goodwill was recorded in connection with any of the acquisitions.
Note 3
Notes Payable
During 2008, the Company assumed approximately $34.5 million of debt secured by first mortgage notes on three of its hotel
properties. In addition, the Company assumed a non-mortgage note payable of $3.8 million in connection with the Lewisville, Texas
Hilton Garden Inn hotel. The following table summarizes the hotel, interest rate, maturity date and the principal amount assumed
associated with each note payable. All dollar amounts are in thousands.
Outstanding
balance as of
Interest Maturity Principal December 31,
Location Brand Rate Date Assumed 2008
Lewisville, TX Hilton Garden Inn 0.00% 12/31/2016 $ 3,750 $ 3,750
Duncanville, TX Hilton Garden Inn 5.88% 5/11/2017 13,966 13,937
Allen, TX Hilton Garden Inn 5.37% 10/11/2015 10,787 10,759
Bristol, VA Courtyard 6.59% 8/1/2016 9,767 9,757
$ 38,270 $ 38,203
The aggregate amounts of principal payable under the Company’s debt obligations, for the five years subsequent to December 31,
2008 are as follows (in thousands):
2009. ................................................................. $ 474
2010. ................................................................. 503
2011................................................................... 534
2012. ................................................................. 2,311
2013. ................................................................. 601
Thereafter.......................................................... 33,780
38,203
Fair Value Adjustment of Assumed Debt.......... 444
Total.................................................................. $ 38,647
A fair value adjustment was recorded upon the assumption of one above market rate mortgage loan (premium) and one below
market rate unsecured loan (discount) in connection with two of the Company’s hotel acquisitions. These fair value adjustments will
be amortized into interest expense over the remaining term of the related indebtedness using a method approximating the effective
interest rate method. The effective interest rates on the applicable debt obligations assumed ranged from 3.9% to 6.5% at the date of
assumption. The total adjustment to interest expense was $1,500 for the year ended December 31, 2008.
During 2008, the Company incurred loan origination costs related to the assumption of the mortgage obligations on purchased
hotels, totaling $371,000. Such costs are amortized over the period to maturity of the applicable mortgage loan, as an addition to
interest expense. Amortization of such costs totaled $8,000 for the year ended December 31, 2008.
The fair value of the Company’s outstanding debt at December 31, 2008 was approximately $40.4 million.