S-4/A
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As filed with the Securities and Exchange Commission on February 27, 2013

Registration No. 333-186090

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

BRE Select Hotels Corp

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   6798   35-2464254
(State or other jurisdiction of
incorporation or organization)
 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

c/o Blackstone Real Estate Partners VII L.P.

345 Park Avenue

New York, New York 10154

(212) 583-5000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Brian Kim

Vice President, Secretary and Managing Director

345 Park Avenue

New York, New York 10154

(212) 583-5000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With copies to:

Brian M. Stadler

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017-3954

(212) 455-2000

 

David W. Robertson

James M. Anderson III

McGuireWoods LLP

One James Center

901 East Cary Street

Richmond, Virginia 23219

(804) 775-1000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement is declared effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨


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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   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ¨

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus is subject to completion and amendment. A registration statement relating to the securities described in this proxy statement/prospectus has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy these securities be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction, in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

SUBJECT TO COMPLETION, DATED February 27, 2013

 

LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

[], 2013

Dear Shareholder:

You are cordially invited to attend a special meeting of shareholders of Apple REIT Six, Inc. (“Apple Six”) to be held at Apple Six’s corporate headquarters, 814 East Main Street, Richmond, Virginia 23219 on [], 2013, starting at [] [].m., eastern time.

At the meeting, you will be asked to consider and vote upon a proposal to approve a merger agreement under which Apple Six would be merged with and into BRE Select Hotels Corp (“BRE Select Hotels”), a subsidiary of BRE Select Hotels Holdings LP (“Buyer”), which is an affiliate of Blackstone Real Estate Partners VII L.P. (“Sponsor”).

If the merger agreement is approved by Apple Six’s shareholders and the merger is completed, as a shareholder you will be entitled to receive consideration with a stated value of $11.10 per share which will consist of (i) $9.20 in cash, without interest, and (ii) one share of 7% Series A Cumulative Redeemable Preferred Stock of BRE Select Hotels with an initial liquidation preference of $1.90 per share (the “New Preferred Shares”), for each Apple Six share owned by you at the completion of the merger (the “merger consideration”). As described under “Description of New Preferred Shares—Adjustment to Liquidation Preference” in this proxy statement/prospectus, the initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million. The New Preferred Shares will include an option for the holder of any New Preferred Shares to redeem all or a portion of such holder’s New Preferred Shares at the liquidation preference, plus any accumulated and unpaid dividends, after 7-1/2 years following the issuance of the New Preferred Shares in connection with the merger and an initial dividend rate of 7% per share. The New Preferred Shares will also be redeemable by BRE Select Hotels at any time at the liquidation preference, plus any accumulated and unpaid dividends. The dividend rate on the New Preferred Shares will increase to 11% per share if the New Preferred Shares are not redeemed within five years following the issuance of the New Preferred Shares in connection with the merger. The New Preferred Shares issued in connection with the merger will not be listed on any securities exchange.

The Apple Six board of directors has unanimously determined that the merger and the merger agreement are advisable and in the best interest of Apple Six and its shareholders and unanimously recommends that you vote “FOR” the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement, and “FOR” adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

Your vote is very important, regardless of the number of shares of Apple Six you own. If you do not vote on the proposal to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement, this will have the same effect as a vote by you against the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

This proxy statement/prospectus provides you with detailed information about the special meeting, the merger agreement, the merger and other related matters. A copy of the merger agreement is included as Annex A to this proxy statement/prospectus and a copy of the related plan of merger is attached as Annex B to this proxy statement/prospectus. We encourage you to read this proxy statement/prospectus and the merger agreement and the other annexes to this proxy statement/prospectus carefully and in their entirety. In particular, you should carefully consider the discussion in the section of this proxy statement/prospectus entitled “Risk Factors” beginning on page 28. You may also obtain more information about Apple Six from the documents Apple Six files with the Securities and Exchange Commission.

Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope or submit your proxy through the Internet or by telephone. To submit your proxy through the Internet, visit www.proxyvote.com. To submit your proxy by telephone, dial 1-800-690-6903 using a touch-tone phone and follow the recorded instructions. If you submit your proxy through the Internet or by telephone, you will be asked to provide the company number and control number from the enclosed proxy card. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.

Thank you in advance for your continued support.

 

Sincerely,

 

Glade M. Knight

Chairman and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the New Preferred Shares to be issued in connection with the merger or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated [], 2013,

and is first being mailed to Apple Six shareholders on or about [], 2013.


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Apple REIT Six, Inc.

814 East Main Street

Richmond, Virginia 23219

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON [], 2013

 

 

To the Shareholders of Apple REIT Six, Inc.:

A special meeting of shareholders of Apple REIT Six, Inc., a Virginia corporation (“Apple Six”), will be held at Apple Six’s corporate headquarters, 814 East Main Street, Richmond, Virginia 23219 on [], 2013, starting at [] [].m., eastern time, for the following purposes:

1. To consider and vote to approve the Agreement and Plan of Merger, dated as of November 29, 2012 (the “merger agreement”), among Apple Six, BRE Select Hotels Holdings LP, a Delaware limited partnership (“Buyer”), and BRE Select Hotels Corp, a Delaware corporation (“BRE Select Hotels”), the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

2. To consider and vote on the adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

3. To transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

These items of business are described in the enclosed proxy statement/prospectus. Apple Six’s board of directors has designated the close of business on [], 2013 as the record date for the purpose of determining the shareholders who are entitled to receive notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting, unless a new record date is fixed in connection with an adjournment or postponement of the special meeting. Only shareholders of record at the close of business on the record date are entitled to notice of, and to vote at, the special meeting and at any adjournment or postponement of the special meeting.

THE APPLE SIX BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER AND THE MERGER AGREEMENT ARE ADVISABLE AND IN THE BEST INTEREST OF APPLE SIX AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE MERGER AGREEMENT, THE RELATED PLAN OF MERGER, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, AND “FOR” ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE, FOR THE PURPOSE OF SOLICITING ADDITIONAL VOTES FOR THE APPROVAL OF THE MERGER AGREEMENT, THE RELATED PLAN OF MERGER, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.

Your vote is very important, regardless of the number of shares of Apple Six you own. If you do not vote on the proposal to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement, this will have the same effect as a vote by you against the approval of this proposal. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement and “FOR the adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy card in the accompanying envelope prior to the special meeting to ensure that your shares will be represented and voted at the special meeting if you are unable to attend. If you hold your shares in “street name,” which means through a bank, broker or other custodian, you must obtain a legal proxy from this bank, broker or other custodian in order to vote in person at the special meeting.


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If you attend the special meeting, you may revoke your proxy and vote in person, even if you have previously returned your proxy card or submitted your proxy through the Internet or by telephone. If your shares are held by a bank, broker or other custodian, and you plan to attend the special meeting, please bring to the special meeting your statement evidencing your beneficial ownership of your Apple Six shares. Please carefully review the instructions in the enclosed proxy statement/prospectus and the enclosed proxy card or the information forwarded by your bank, broker or other custodian regarding each of these options.

The list of shareholders entitled to vote at the special meeting will be available for inspection during ordinary business hours at Apple Six’s corporate headquarters at 814 East Main Street, Richmond, Virginia 23219, beginning two business days after the notice of the meeting is given and continuing through the special meeting. Holders of Apple Six shares may examine this list for purposes related to the special meeting. We have concluded that shareholders are entitled to assert appraisal rights in connection with the merger under Article 15 of the Virginia Stock Corporation Act.

 

By Order of the Board of Directors,

 

David P. Buckley

Secretary

Richmond, Virginia

[], 2013


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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     1   

SUMMARY TERM SHEET

     7   

Parties to the Merger

     7   

The Merger

     8   

The Special Meeting

     8   

Effective Time of the Merger

     9   

Treatment of Options

     10   

Recommendation of Apple Six’s Board of Directors

     10   

Opinion of Wells Fargo Securities, LLC

     10   

Interests of Apple Six Directors and Executive Officers in the Merger

     11   

Voting Agreement between Buyer and Glade M. Knight

     11   

Financing of the Merger

     11   

Regulatory Approvals

     12   

Dissenters’ Rights of Appraisal

     12   

Merger Consideration

     12   

Conditions to Complete the Merger

     13   

Material U.S. Federal Income Tax Consequences

     13   

Acquisition Proposals

     14   

Termination of the Merger Agreement

     14   

Termination Fees and Expenses

     15   

Limited Guaranty and Remedies

     15   

Transfer Agreements

     16   

SELECTED HISTORICAL FINANCIAL DATA OF APPLE REIT SIX, INC.

     17   

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     19   

RISK FACTORS

     28   

Risks Related to the Merger

     28   

Risks Related to the Financing of the Merger and Indebtedness

     29   

Risks Related to the Ownership of the New Preferred Shares

     32   

Risks Related to BRE Select Hotels

     36   

Tax Risks

     40   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     42   

THE PARTIES TO THE MERGER

     44   

Apple REIT Six, Inc.

     44   

BRE Select Hotels Holdings LP

     44   

BRE Select Hotels Corp

     44   

THE SPECIAL MEETING

     45   

Purpose of the Apple Six Special Meeting

     45   

Record Date; Voting Rights; Proxies

     45   

Solicitation of Proxies

     46   

Quorum; Abstentions and Broker Non-Votes

     46   

Required Vote

     47   

Voting Agreement and Series B Convertible Preferred Shares

     47   

THE MERGER

     48   

Background of the Merger

     48   

Apple Six’s Reasons for the Merger

     53   

Recommendation of the Apple Six Board of Directors

     56   

Projected Financial Information

     56   

Opinion of Wells Fargo Securities, LLC

     57   

Interests of Apple Six Directors and Executive Officers in the Merger

     64   

Financing of the Merger

     67   

 

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Regulatory Approvals

     73   

Accounting Treatment

     73   

No Stock Exchange Listing of New Preferred Shares

     73   

Resale of New Preferred Shares Following the Merger

     73   

Control of BRE Select Hotels

     73   

THE MERGER AGREEMENT

     74   

The Merger

     74   

Effective Time of the Merger

     74   

Merger Consideration

     74   

Dissenting Shares

     75   

Treatment of Options

     75   

Certificate of Incorporation and Bylaws

     75   

Exchange Procedures

     75   

Representations and Warranties

     76   

Conduct of Apple Six’s Business Pending the Merger

     78   

Agreement to Take Certain Actions and Use Reasonable Best Efforts

     82   

Acquisition Proposals

     83   

Shareholders Meeting

     86   

Termination of Certain Agreements

     86   

Financing; Cooperation

     87   

Certain Other Covenants

     89   

Conditions to Complete the Merger

     89   

Termination of the Merger Agreement

     92   

Termination Fees and Expenses

     94   

Limited Guaranty and Remedies

     94   

Amendment and Waiver

     95   

VOTING AGREEMENT BETWEEN BUYER AND GLADE M. KNIGHT

     96   

Agreement to Vote

     96   

Non-Solicitation

     96   

Transfer Restrictions

     97   

Termination

     97   

TRANSFER AGREEMENTS

     98   

Management Company Transfer Agreement

     98   

Headquarters Transfer Agreement

     99   

Membership Interest Purchase Agreement

     100   

LEGACY MATTERS

     101   

Apple REIT Class Action Litigation

     101   

SEC Investigation

     102   

FINRA Proceeding

     102   

Release and Indemnification Agreement

     102   

Litigation Cost Sharing Agreement

     103   

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     104   

DISSENTERS’ RIGHTS OF APPRAISAL

     115   

DESCRIPTION OF NEW PREFERRED SHARES

     117   

General

     117   

Ranking

     117   

Dividends

     118   

Liquidation Rights

     120   

Adjustment to Liquidation Preference

     121   

Redemption

     121   

Voting Rights

     124   

Conversion

     124   

Limitation on Indebtedness

     125   

 

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Restrictions on Ownership and Transfer

     125   

COMPARISON OF SHAREHOLDERS’ RIGHTS

     127   

DESCRIPTION OF REAL ESTATE AND OPERATING DATA OF APPLE REIT SIX, INC.

     140   

SUMMARY OF CONTRACTS FOR PROPERTIES OF APPLE REIT SIX, INC.

     142   

Ownership, Leasing and Management Summary

     142   

Hotel Lease Agreements

     146   

Management Agreements

     147   

Franchise Agreements

     147   

FINANCIAL AND OPERATING INFORMATION FOR PROPERTIES OF APPLE REIT SIX, INC.

     149   

INVESTMENT OBJECTIVES AND POLICIES OF APPLE REIT SIX, INC.

     158   

DESCRIPTION OF BUSINESS AND POLICIES OF BRE SELECT HOTELS

     160   

Business of BRE Select Hotels

     160   

BRE Select Hotels’ Investment Policies and Policies with Respect to Certain Activities

     160   

CONTROL AND MANAGEMENT OF BRE SELECT HOTELS

     163   

BRE Select Hotels Holdings LP

     163   

Board of Directors of BRE Select Hotels

     163   

Executive Officers of BRE Select Hotels

     163   

Related Party Transactions

     164   

Dividend Policy

     164   

PRINCIPAL AND MANAGEMENT SHAREHOLDERS OF APPLE SIX

     165   

SECURITIES OWNERSHIP OF BRE SELECT HOTELS AFTER THE MERGER

     167   

LEGAL MATTERS

     168   

EXPERTS

     169   

SHAREHOLDER PROPOSALS FOR 2013 ANNUAL MEETING OF APPLE SIX SHAREHOLDERS

     170   

WHERE YOU CAN FIND MORE INFORMATION

     171   

Annex A

 

—Merger Agreement

  

Annex B

 

—Plan of Merger

  

Annex C

 

—Form of Amended and Restated Certificate of Incorporation of BRE Select Hotels

  

Annex D

 

—Form of Amended and Restated By-Laws of BRE Select Hotels

  

Annex E

 

—Form of Certificate of Designations

  

Annex F

 

—Opinion of Wells Fargo Securities, LLC

  

Annex G

 

—Article 15 of the Virginia Stock Corporation Act

  

Annex H

 

—Apple REIT Six, Inc. Annual Report on Form 10-K for the fiscal year ended
December 31, 2012

  

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers do not address all questions that may be important to you as an Apple Six shareholder. Please refer to the “Summary Term Sheet” beginning on page 7 and the more detailed information contained elsewhere in this proxy statement/prospectus and the annexes to this proxy statement/prospectus, which you should read carefully. Unless otherwise indicated or the context requires otherwise, all references in this document to “Apple Six” refer to Apple REIT Six, Inc. and its subsidiaries; all references to “Buyer” refer to BRE Select Hotels Holdings LP; all references to “BRE Select Hotels” refer to BRE Select Hotels Corp; all references to “Sponsor” refer to Blackstone Real Estate Partners VII L.P.; all references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of November 29, 2012, among Apple Six, Buyer and BRE Select Hotels, a copy of which is attached as Annex A to this proxy statement/prospectus, including the related plan of merger, a copy of which is attached as Annex B to this proxy statement/prospectus, as it may be amended from time to time; all references to the “merger” refer to the merger contemplated by the merger agreement; all references to a “unit” refer to an Apple Six common share together with one Series A preferred share; and all references to “Apple Six shares” refer to the issued and outstanding units and the issued and outstanding Series B convertible preferred shares on an as-converted basis in accordance with Apple Six’s articles of incorporation with each Series B convertible preferred share being convertible into 24.17104 common shares.

 

Q: What is the proposed transaction?

 

A: The proposed transaction is the merger of Apple Six with BRE Select Hotels, a subsidiary of Buyer, which is an affiliate of Sponsor. If the merger agreement is approved by Apple Six shareholders and the other closing conditions to the merger are satisfied or waived, Apple Six will merge with and into BRE Select Hotels. BRE Select Hotels will be the surviving corporation in the merger and Buyer will own all of the outstanding shares of common stock of BRE Select Hotels.

 

Q: What will I receive for my Apple Six shares in the merger?

 

A: Under the terms of the merger agreement, you will receive (i) $9.20 in cash, without interest, which we refer to in this proxy statement/prospectus as the “cash consideration,” and (ii) one share of 7% Series A Cumulative Redeemable Preferred Stock of BRE Select Hotels with a liquidation preference of $1.90 per share subject to adjustments (which we refer to in this proxy statement/prospectus as the “New Preferred Shares”), for each Apple Six share owned by you at the completion of the merger (other than for Apple Six shares with respect to which you have properly exercised, perfected and not subsequently withdrawn or lost your appraisal rights in accordance with Article 15 of the Virginia Stock Corporation Act).

The New Preferred Shares will include an option for the holder of any New Preferred Shares to redeem all or a portion of such holder’s New Preferred Shares at the liquidation preference, plus any accumulated and unpaid dividends, after 7-1/2 years following the issuance of the New Preferred Shares in connection with the merger and an initial dividend rate of 7% per share. The New Preferred Shares will also be redeemable by BRE Select Hotels at any time at the liquidation preference, plus any accumulated and unpaid dividends. The dividend rate on the New Preferred Shares will increase to 11% per share if the New Preferred Shares are not redeemed within five years following the issuance of the New Preferred Shares in connection with the merger. The New Preferred Shares issued in connection with the merger will not be listed on any securities exchange. For a more detailed description of the New Preferred Shares, see “Description of New Preferred Shares” beginning on page 117.

In the event that Apple Six declares, sets aside or makes or pays any dividends or distributions (whether in cash, stock, property or otherwise) in respect of any shares, including for the purpose of maintaining its

 

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qualification as a real estate investment trust, the cash consideration will be reduced by the per share amount of that dividend or distribution.

 

Q: What adjustments may be made to the liquidation preference for the New Preferred Shares?

 

A: The liquidation preference for the New Preferred Shares will initially be $1.90 per share. However, as described under “Description of New Preferred Shares—Adjustment to Liquidation Preference,” the initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million.

 

Q: When and where is the special meeting?

 

A: The special meeting of shareholders of Apple Six will be held on [], 2013, at the corporate headquarters of Apple Six, 814 East Main Street, Richmond, Virginia 23219, starting at [] [].m., eastern time.

 

Q: What matters will be voted on at the special meeting?

 

A: You will be asked to consider and vote on the following proposals:

 

   

to consider and vote to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement;

 

   

to consider and vote on the adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement; and

 

   

to transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

 

Q: How does Apple Six’s board of directors recommend that I vote on the proposals?

 

A: Apple Six’s board of directors unanimously recommends that you vote:

 

   

“FOR” approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement; and

 

   

“FOR” adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

 

Q: Do the Apple Six directors and executive officers have any interests in the merger?

 

A: In considering the recommendation of Apple Six’s board of directors with respect to the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement, you should be aware that some of Apple Six’s directors and executive officers have interests in the merger that are different from, or in addition to, your interests as a shareholder and that may present actual or potential conflicts of interest. These interests include:

 

   

vesting and exchange of all outstanding company options;

 

   

continued indemnification and insurance coverage for Apple Six’s directors and officers in accordance with the merger agreement;

 

   

conversion of Apple Six Series B convertible preferred shares held by Glade M. Knight, the chairman and chief executive officer of Apple Six, and rights of certain Apple Six executives, family members and other employees as assignees, as described under “The Merger—Interests of Apple Six Directors and Executive Officers in the Merger” beginning on page 64; and

 

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consummation of the transactions contemplated by three transfer agreements with entities related to Apple Six described under “Transfer Agreements” beginning on page 98.

For additional information, see “The Merger—Interests of Apple Six Directors and Executive Officers in the Merger” beginning on page 64.

 

Q: What vote is required for Apple Six shareholders to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement?

 

A: The approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement will require the affirmative vote, in each case voting as a separate voting group, of the holders of:

 

   

a majority of the outstanding Apple Six common shares;

 

   

more than two-thirds of the outstanding Apple Six Series A preferred shares; and

 

   

more than two-thirds of the outstanding Apple Six Series B convertible preferred shares.

 

Q: What vote is required for Apple Six shareholders to approve the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement?

 

A: Approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement will require that the number of votes cast for this proposal exceeds the number of votes cast against this proposal from holders of the Apple Six common shares represented in person or by proxy and entitled to vote at the special meeting. Holders of Series A preferred shares and Series B convertible preferred shares are not entitled to vote those shares on the adjournment proposal. Less than a quorum may adjourn the meeting.

 

Q: How are votes counted?

 

A: For the proposal to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement, you may vote “FOR,AGAINST or “ABSTAIN.” Abstentions will count for the purpose of determining whether a quorum is present at the special meeting. If you abstain or fail to return your proxy card, it will have the same effect as a vote against the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement. In addition, if your shares are held in the name of a bank, broker or other custodian, your bank, broker or other custodian will not vote your shares in the absence of specific instructions from you on how to vote your shares. These non-voted shares, which we refer to in this proxy statement/prospectus as “broker non-votes,” will be counted for purposes of determining a quorum, but will have the same effect as a vote against the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

For the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement, you may vote “FOR,AGAINST or “ABSTAIN.” Abstentions, failure to return a proxy card and broker non-votes will have no effect on the outcome of this proposal.

If you sign and return your proxy card without indicating your vote, your shares will be voted “FOR the approval of the merger agreement, the related plan of merger, the merger and the other transactions

 

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contemplated by the merger agreement and “FOR” the adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

 

Q: Who is entitled to vote at the special meeting?

 

A: All holders of Apple Six common shares, Series A preferred shares and Series B convertible preferred shares as of the close of business on [], 2013, the record date for the special meeting, are entitled to vote at the special meeting, unless a new record date is fixed for any adjournment or postponement of the special meeting. As of the record date, there were [] issued and outstanding common shares, [] issued and outstanding Series A preferred shares and [] issued and outstanding Series B convertible preferred shares of Apple Six. Each holder of record of Apple Six common shares, Series A preferred shares and Series B convertible preferred shares on the record date is entitled to one vote per share.

 

Q: What happens if I sell my shares of Apple Six before the special meeting?

 

A: The record date of the special meeting is earlier than the special meeting and the date that the merger is expected to be completed. If you sell your shares of Apple Six after the record date but before the special meeting, you will retain your right to vote at the special meeting, but you will have transferred your right to receive the merger consideration. In order to receive the merger consideration, you must hold your shares through completion of the merger.

 

Q: How do I vote?

 

A: You may submit your proxy either by telephone, through the Internet or by mailing the enclosed proxy card, or you may vote in person at the special meeting.

To submit your proxy by telephone, dial 1-800-690-6903 using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the enclosed proxy card. To submit your proxy through the Internet, visit www.proxyvote.com. You will be asked to provide the company number and control number from the enclosed proxy card. Proxies submitted by telephone or through the Internet must be received by [], [].m., eastern time, on [], 2013.

To submit your proxy by mail, complete, date and sign each proxy card you receive and return it as promptly as practicable in the enclosed prepaid envelope. If you sign and return your proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted “FOR” the proposal to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement and “FOR the adjournment proposal.

If you hold your shares in “street name,” please read the immediately following question and answer.

 

Q: My shares are held in “street name” by my bank, broker or other custodian. Will my bank, broker or other custodian vote my shares for me?

 

A: Your bank, broker or other custodian will only be permitted to vote your shares if you instruct your bank, broker or other custodian how to vote. You should follow the procedures provided by your bank, broker or other custodian regarding the voting of your shares. If you do not instruct your bank, broker or other custodian how to vote your shares, your shares will not be voted and the effect will be the same as a vote against the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement, but will have no effect on the proposal to adjourn the special meeting.

 

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Q: How can I revoke or change my vote?

 

A: You may revoke your proxy at any time before the vote is taken at the special meeting in any of the following ways:

 

   

submitting a later proxy by telephone or through the Internet prior to [],[].m., eastern time, on [], 2013,

 

   

filing with the Secretary of Apple Six, before the taking of the vote at the special meeting, a written notice of revocation bearing a later date than the proxy card,

 

   

duly executing a later dated proxy card relating to the same shares and delivering it to the Secretary of Apple Six before the taking of the vote at the special meeting, or

 

   

voting in person at the special meeting.

Your attendance at the special meeting does not automatically revoke your previously submitted proxy. If you have instructed your bank, broker or other custodian to vote your shares, the options described above for revoking your proxy do not apply. Instead, you must follow the directions provided by your bank, broker or other custodian to change your vote.

 

Q: How will I receive the merger consideration if the merger is completed?

 

A: You will receive a letter of transmittal with detailed written instructions for exchanging your Apple Six shares for the merger consideration. If your shares are held in “street name” by your bank, broker or other

custodian, you will receive instructions from your bank, broker or other custodian as to how to effect the surrender of your “street name” shares in exchange for the merger consideration.

 

Q: What happens if the merger is not completed?

 

A: If the merger agreement is not approved by Apple Six shareholders or if the merger is not completed for any other reason, shareholders will not receive any payment for their shares in connection with the merger. Instead, Apple Six would remain an independent company. Under certain circumstances, Buyer may be required to pay Apple Six a termination fee and reimburse Apple Six for certain of its out-of-pocket expenses; or Apple Six may be required to pay Buyer a termination fee and reimburse Buyer for certain of its out-of-pocket expenses as described under “The Merger Agreement—Termination Fees and Expenses” beginning on page 94.

 

Q: Am I entitled to exercise appraisal rights?

 

A: Yes. As a shareholder of Apple Six, you are entitled to exercise appraisal rights under Virginia law in connection with the merger if you meet certain conditions, which are described in this proxy statement/prospectus under “Dissenters’ Rights of Appraisal” beginning on page 115.

 

Q: Will BRE Select Hotels have the same strategy as Apple Six?

 

A: Following completion of the merger, subsidiaries of BRE Select Hotels will own the hotels currently owned by subsidiaries of Apple Six. As described under “Investment Objectives and Policies of Apple REIT Six, Inc.” beginning on page 158, Apple Six’s bylaws currently place certain restrictions on the type of real estate activities Apple Six conducts. Although BRE Select Hotels currently anticipates that its real estate investments will continue to be concentrated in hotels, BRE Select Hotels will have greater flexibility than Apple Six to pursue other investments, subject to the limitations imposed by reason of BRE Select Hotels’ intention to qualify as a REIT. See “Description of Business and Policies of BRE Select Hotels” beginning on page 160.

 

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Q: Is the merger expected to be taxable to me?

 

A: Yes. The receipt of cash and New Preferred Shares by U.S. holders (as defined under “Material U.S. Federal Income Tax Consequences” beginning on page 104) in exchange for their units in the merger will be a taxable transaction for United States federal income tax purposes. In general, a U.S. holder will recognize a gain or loss for United States federal income tax purposes equal to the difference, if any, between the sum of the amount of cash and the fair market value of the New Preferred Shares received in exchange for units and the U.S. holder’s adjusted tax basis in such units. You should read “Material U.S. Federal Income Tax Consequences” beginning on page 104 for a more detailed discussion of the U.S. federal income tax consequences of the merger. You should also consult your tax advisor for a complete analysis of the effect of the merger on your federal, state and local and/or foreign taxes.

 

Q: How can I obtain additional information about Apple Six?

 

A: Apple Six files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (which we refer to in this proxy statement/prospectus as the “SEC”). Apple Six will provide copies of its reports, proxy statements and other information, including this proxy statement/prospectus, without charge to any shareholder who makes a request to Apple REIT Six, Inc., 814 East Main Street, Richmond, Virginia 23219, Attention: Investor Relations, or at (804) 344-8121. Apple Six’s filings with the SEC may also be accessed on the Internet at http://www.sec.gov or on the Investor Information page of Apple Six’s website at http://www.applereitsix.com. The information provided on Apple Six’s website is not part of this proxy statement/prospectus and is not incorporated by reference into this proxy statement/prospectus. A copy of Apple Six’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 is attached to this proxy statement/prospectus as Annex H. For a more detailed description of the information available, please see “Where You Can Find More Information” on page 171.

 

Q: Who can help answer my questions?

 

A: If you have additional questions about the merger or the special meeting after reading this proxy statement/prospectus, please call Apple Six’s proxy solicitor, David Lerner Associates, Inc., toll-free at []. If your bank, broker or other custodian holds your shares, you should also call your bank, broker or other custodian for additional information.

 

Q: What else do I need to do now?

 

A: You are urged to read this proxy statement/prospectus carefully and in its entirety, including its annexes, and to consider how the merger affects you. Even if you plan to attend the special meeting, if you hold your shares in your own name as the shareholder of record, please vote your shares by completing, signing, dating and returning the enclosed proxy card. You can also attend the special meeting and vote, or change your prior vote, in person. If you hold your shares in “street name” through a bank, broker or other custodian, then you should have received this proxy statement/prospectus from that custodian, along with that custodian’s proxy card which includes voting instructions and instructions on how to change your vote.

 

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SUMMARY TERM SHEET

The following summary highlights selected information in this proxy statement/prospectus and may not contain all the information that may be important to you with respect to the merger agreement, the merger or the special meeting. Accordingly, you are encouraged to read this proxy statement/prospectus, including its annexes, carefully and in its entirety. Each item in this summary includes a page reference directing you to a more complete description of that topic. See also “Where You Can Find More Information” on page 170.

Parties to the Merger (Page 44)

Apple REIT Six, Inc.

Apple REIT Six, Inc.

814 East Main Street

Richmond, Virginia 23219

(804) 344-8121

Apple Six, a Virginia corporation, is a real estate investment trust, which we refer to in this proxy statement/prospectus as a “REIT,” focused on upscale, extended-stay and select-service hotels. Its portfolio consists of 66 hotels, containing a total of 7,658 guestrooms, diversified among 18 states. Apple Six, through its best efforts offering, originally sold its common shares and Series A preferred shares, which, together, we refer to in this proxy statement/prospectus as “units,” for $10.50-$11.00 per unit. Since its offering in 2004, Apple Six has paid approximately $7.29 per unit in distributions, or $589 million in the aggregate.

BRE Select Hotels Holdings LP

BRE Select Hotels Holdings LP

c/o Blackstone Real Estate Partners VII L.P.

345 Park Avenue

New York, New York 10154

(212) 583-5000

Buyer is a Delaware limited partnership and is an affiliate of Sponsor. Buyer was formed solely for the purpose of acquiring Apple Six and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

BRE Select Hotels Corp

BRE Select Hotels Corp

c/o Blackstone Real Estate Partners VII L.P.

345 Park Avenue

New York, New York 10154

(212) 583-5000

BRE Select Hotels, a Delaware corporation, was formed on November 28, 2012 solely for the purpose of facilitating Buyer’s acquisition of Apple Six. Buyer owns all of the outstanding shares of common stock of BRE Select Hotels. BRE Select Hotels has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement. Upon completion of the merger, BRE Select Hotels will merge with Apple Six and will continue as the surviving corporation.

 

 

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The Merger (Page 48)

Under the merger agreement, Apple Six will be merged with and into BRE Select Hotels. BRE Select Hotels will be the surviving corporation in the merger. Upon completion of the merger, all of the shares of common stock of BRE Select Hotels will be owned by Buyer.

The Special Meeting (Page 45)

Date, Time and Place. The special meeting of the Apple Six shareholders will be held at the corporate headquarters of Apple Six, 814 East Main Street, Richmond, Virginia 23219, on [], 2013 at [] [].m., eastern time.

Purpose. At the special meeting, Apple Six shareholders will be asked to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement and to approve any adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

Record Date; Voting Rights. You are entitled to vote at the special meeting if you owned Apple Six common shares, Series A preferred shares or Series B preferred shares at the close of business on [], 2013, the record date for the special meeting, unless a new record date is fixed for any adjournment or postponement of the special meeting. As of the record date, there were [] issued and outstanding common shares, [] issued and outstanding Series A preferred shares, and [] issued and outstanding Series B convertible preferred shares of Apple Six. Each holder of Apple Six common shares, Series A preferred shares and Series B convertible preferred shares on the record date is entitled to one vote per share.

Voting; Proxies. Votes may be cast either in person or by a properly executed proxy at the special meeting. Abstentions, failure to return a proxy card and broker non-votes will have the same effect as votes against the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement. Abstentions, failure to return a proxy card and broker non-votes will have no effect on the proposal to adjourn the special meeting.

Revocation. Any proxy given by a shareholder pursuant to this solicitation may be revoked at any time before the vote is taken at the special meeting in any of the following ways:

 

   

submitting a later proxy by telephone or through the Internet prior to [], [].m., eastern time, on [], 2013,

 

   

filing with the Secretary of Apple Six, before the taking of the vote at the special meeting, a written notice of revocation bearing a later date than the proxy card,

 

   

duly executing a later dated proxy card relating to the same shares and delivering it to the Secretary of Apple Six before the taking of the vote at the special meeting, or

 

   

voting in person at the special meeting, although attendance at the special meeting will not by itself constitute a revocation of a proxy.

Solicitation of Proxies; Costs. Apple Six is soliciting proxies on behalf of its board of directors. Apple Six will bear the costs of soliciting proxies. In addition to the solicitation of proxies by use of the mails, proxies may be solicited from shareholders by directors, officers and employees of Apple Six in person or by telephone, by facsimile, on the Internet or other appropriate means of communications. No additional compensation, except for reimbursement of reasonable out-of-pocket expenses, will be paid to directors, officers and employees of Apple Six in connection with this solicitation. Apple Six has retained David Lerner Associates, Inc. to solicit, and for advice and assistance in connection with the solicitation of, proxies for the special meeting at a cost of $200,000, including out-of-pocket expenses.

 

 

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Quorum. The holders of a majority of each of the outstanding Apple Six common shares, Series A preferred shares and Series B convertible preferred shares, in each case entitled to vote at the special meeting and present in person or represented by proxy, will constitute a quorum at the special meeting for each such class of shares.

Required Vote. The approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement requires the affirmative vote, in each case voting as a separate voting group, of the holders of:

 

   

a majority of the outstanding Apple Six common shares;

 

   

more than two-thirds of the outstanding Apple Six Series A preferred shares; and

 

   

more than two-thirds of the outstanding Apple Six Series B convertible preferred shares.

The approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement will require that the number of votes cast for this proposal exceeds the number of votes cast against this proposal from holders of the Apple Six common shares represented in person or by proxy and entitled to vote at the special meeting. Holders of Series A preferred shares and Series B convertible preferred shares are not entitled to vote those shares on the adjournment proposal. Less than a quorum may adjourn the special meeting.

As of the record date for the special meeting, the directors and executive officers of Apple Six owned less than 1% of the outstanding Apple Six common shares and Series A preferred shares entitled to vote with respect to the proposal to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement. As of the record date for the special meeting, Glade M. Knight, the chairman and chief executive officer of Apple Six, owned of record all outstanding Series B convertible preferred shares of Apple Six. Buyer has entered into a voting agreement with Mr. Knight, whereby Mr. Knight has agreed to vote the Series B convertible preferred shares and the common shares and Series A preferred shares held by him, together with any additional shares of Apple Six capital stock acquired by Mr. Knight after November 29, 2012, in favor of the proposal to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement and the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

Effective Time of the Merger (Page 74)

The merger will become effective:

 

   

at such time as the State Corporation Commission of the Commonwealth of Virginia issues a certificate of merger and a certificate of merger has been filed with the Secretary of State of the State of Delaware, or

 

   

at such later time as Apple Six and BRE Select Hotels agree and specify in the articles of merger to be filed with the State Corporation Commission of the Commonwealth of Virginia and the certificate of merger to be filed with the Secretary of State of the State of Delaware.

Apple Six, Buyer and BRE Select Hotels will cause the effective time to occur on the closing date, which will occur on the third business day (or such other business day as may be agreed by the parties to the merger agreement) after satisfaction or waiver of the conditions described under “The Merger Agreement—Conditions to Complete the Merger” beginning on page 89 (other than those conditions that by their terms are required to be satisfied or, if permissible, waived at the closing).

 

 

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Treatment of Options (Page 75)

Each outstanding option to purchase units, which we refer to in this proxy statement/prospectus as a “company option,” will be cancelled and converted into the right to receive, in full satisfaction of the rights of the holder with respect to such company option:

 

   

an amount (rounded down to the nearest whole cent) in cash, without interest, equal to the product of (x) 82.883%, multiplied by (y) the aggregate option payment value, and

 

   

subject to no fractional shares being issued and any adjustment for dividends or distributions as described under “The Merger Agreement—Merger Consideration” beginning on page 74, a number of New Preferred Shares equal to the quotient of (x) an amount (rounded down to the nearest whole cent) equal to the product of (A) 17.117%, multiplied by (B) the aggregate option payment value, divided by (y) $1.90.

For purposes of this proxy statement/prospectus, we refer to the “aggregate option payment value” as the amount equal to the product of (I) the number of units subject to a company option, multiplied by (II) the excess, if any, of (1) $11.10 over (2) the exercise price per unit subject to such company option.

Recommendation of Apple Six’s Board of Directors (Page 56)

After careful consideration and for the reasons set forth below under “The Merger—Apple Six’s Reasons for the Merger” beginning on page 53, the Apple Six board of directors has unanimously determined that the merger and the merger agreement are advisable and in the best interests of Apple Six and its shareholders. The Apple Six board of directors unanimously recommends that you vote “FOR” the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement and “FOR” adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

Opinion of Wells Fargo Securities, LLC (Page 57)

In connection with the merger, Apple Six’s board of directors received an opinion, dated November 29, 2012, of Wells Fargo Securities, LLC, which we refer to in this proxy statement/prospectus as “Wells Fargo Securities,” as to the fairness, from a financial point of view and as of such date, of the consideration to be received in the merger pursuant to the merger agreement by holders of units (other than any holder entering into a voting agreement and such holder’s controlled affiliates). The full text of Wells Fargo Securities’ written opinion is attached as Annex F to this proxy statement/prospectus and is incorporated herein by reference. The written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken by Wells Fargo Securities in rendering its opinion. The opinion was addressed to Apple Six’s board of directors (in its capacity as such) for its information and use in connection with its evaluation of the merger consideration from a financial point of view and did not address any other terms, aspects or implications of the merger or any related transaction. Wells Fargo Securities’ opinion did not address the merits of the underlying decision by Apple Six to enter into the merger agreement or the relative merits of the merger or any related transaction compared with other business strategies or transactions available or that have been or might be considered by Apple Six’s management or board of directors or in which Apple Six might engage. The opinion does not constitute a recommendation to Apple Six’s board of directors or any other person or entity in respect of the merger or any related transaction, including as to how any shareholder should vote or act in connection with the merger or any other matters.

 

 

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Interests of Apple Six Directors and Executive Officers in the Merger (Page 64)

In considering the recommendation of the board of directors, you should be aware that Apple Six’s directors and executive officers have interests in the merger that are different from, or in addition to, your interests as a shareholder and that may present actual or potential conflicts of interest. These interests include:

 

   

vesting and exchange of all outstanding company options;

 

   

continued indemnification and insurance coverage for Apple Six’s directors and officers in accordance with the merger agreement;

 

   

conversion of Apple Six Series B convertible preferred shares held by Glade M. Knight, the chairman and chief executive officer of Apple Six, and rights of certain Apple Six executives, family members and other employees as assignees as described under “The Merger—Interests of Apple Six Directors and Executive Officers in the Merger” beginning on page 64; and

 

   

consummation of the transactions contemplated by three transfer agreements with entities related to Apple Six described under “Transfer Agreements” beginning on page 98.

Voting Agreement between Buyer and Glade M. Knight (Page 96)

Buyer has entered into a voting agreement with Glade M. Knight, chairman and chief executive officer of Apple Six, whereby Mr. Knight has agreed to vote the Series B convertible preferred shares and the common shares and Series A preferred shares held by him, together with any additional shares of Apple Six capital stock acquired by Mr. Knight after November 29, 2012, in favor of the proposal to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement and the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement. Mr. Knight currently owns of record all outstanding 240,000 Series B convertible preferred shares of Apple Six, which are sufficient to approve, on behalf of the Apple Six Series B convertible preferred shareholders only, the merger agreement.

Under the terms of the voting agreement, Mr. Knight has also agreed to vote against any acquisition proposal other than the merger and the other transactions contemplated by the merger agreement and any other action that would be expected to adversely affect the merger. Additionally, Mr. Knight has agreed that he will use his reasonable best efforts not to initiate, solicit or knowingly encourage any inquiries or the making of any proposal or offer that may reasonably be expected to lead to an acquisition proposal other than the merger and the other transactions contemplated by the merger agreement.

Financing of the Merger (Page 67)

In connection with the merger, Buyer will cause approximately $893 million in cash to be paid to Apple Six’s shareholders and holders of company options. In addition, Apple Six’s credit facility with Wells Fargo Bank, N.A. and certain of Apple Six’s mortgage debt will be repaid. The aggregate amount of indebtedness of Apple Six to be repaid upon completion of the merger will be approximately $40 million.

These payments will be funded by a combination of equity contributions by Sponsor and its affiliates to Buyer and the proceeds of Buyer’s debt financing. In connection with the execution and delivery of the merger agreement, Buyer obtained a debt commitment letter from Citibank, N.A. and Bank of America, N.A., pursuant to which, and subject to the conditions set forth therein, the lenders have committed to provide up to $775 million of loans, subject to the satisfaction of certain conditions contained therein. The debt commitment letter expires on May 29, 2013.

 

 

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As of February 26, 2013, the initial interest rate for the loan would have been approximately 4.2% assuming the merger were completed as of such date, before giving effect to potential increases described under “The Merger—Debt Financing—Interest Rate.” The applicability of any such increase will not be determined until after the date of this proxy statement/prospectus. Although the debt agreements will contain covenants that may impair BRE Select Hotels’ ability to pay cash dividends, BRE Select Hotels currently expects to be able to pay cash dividends on completion of the merger. For a description of the debt yield covenant, see “The Merger—Debt Financing—Other Terms” below. See also “Risk Factors—Risks Related to the Ownership of the New Preferred Shares.”

The merger agreement does not contain a financing condition or a “market MAC” condition to the completion of the merger. Buyer has agreed to use its reasonable best efforts to arrange the debt financing on terms and conditions described in the debt commitment letter.

Regulatory Approvals (Page 73)

No material federal or state regulatory approvals are required in connection with the merger other than regulatory approvals that Apple Six, Buyer and BRE Select Hotels expect to obtain in the ordinary course.

Dissenters’ Rights of Appraisal (Page 115)

Under Virginia law, you are entitled to exercise appraisal rights in connection with the merger, which means that you have the right to dissent from the merger and, instead of receiving the merger consideration, obtain payment in cash of the fair value of your shares as determined pursuant to applicable Virginia law. The fair value of your shares under Virginia law governing appraisal rights could be more than, the same as or less than the merger consideration that would be paid pursuant to the merger agreement. The provisions of Virginia law governing appraisal rights are complex and you should study them carefully. A shareholder may take actions that prevent that shareholder from successfully asserting appraisal rights, and multiple steps must be taken to properly exercise and perfect appraisal rights. A copy of Article 15 of the Virginia Stock Corporation Act, which we refer to in this proxy statement/prospectus as the “VSCA,” is attached to this proxy statement/prospectus as Annex G and is incorporated herein by reference.

Merger Consideration (Page 74)

If the merger is completed, each outstanding Apple Six share (other than Apple Six shares with respect to which holders have properly exercised, perfected and not subsequently withdrawn or lost their appraisal rights in accordance with Article 15 of the VSCA) will be converted into the right to receive (i) $9.20 in cash per share without interest and (ii) one validly issued, fully paid and non assessable New Preferred Share. “Apple Six shares” refers to the issued and outstanding units and the issued and outstanding Series B convertible preferred shares on an as-converted basis in accordance with Apple Six’s articles of incorporation with each Series B convertible preferred share being convertible into 24.17104 common shares. As described under “Description of New Preferred Shares—Adjustment to Liquidation Preference,” the initial liquidation preference of the New Preferred Shares of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million.

The New Preferred Shares will include an option for the holder of any New Preferred Shares to redeem all or a portion of such holder’s New Preferred Shares at the liquidation preference, plus any accumulated and unpaid dividends, after 7-1/2 years following the issuance of the New Preferred Shares in connection with the merger and an initial dividend rate of 7% per share. The New Preferred Shares will also be redeemable by BRE Select Hotels at any time at the liquidation preference, plus any accumulated and unpaid dividends. The dividend rate on the New Preferred Shares will increase to 11% per share if the New Preferred Shares are not redeemed

 

 

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within five years following the issuance of the New Preferred Shares in connection with the merger. The New Preferred Shares will not be listed on any securities exchange. For a more detailed description of the New Preferred Shares, see “Description of New Preferred Shares” beginning on page 117.

In the event that Apple Six declares, sets aside or makes or pays any dividends or distributions (whether in cash, stock, property or otherwise) in respect of any shares, including for the purpose of maintaining its qualification as a REIT, the cash consideration will be reduced by the per share amount of that dividend or distribution. See also “The Merger Agreement—Merger Consideration” on page 74.

Conditions to Complete the Merger (Page 89)

The obligations of Apple Six, Buyer and BRE Select Hotels to complete the merger and the other transactions contemplated by the merger agreement are subject to the satisfaction or waiver of a number of conditions, including the following:

 

   

the approval of the merger agreement by Apple Six’s shareholders;

 

   

the registration statement on Form S-4, of which this proxy statement/prospectus constitutes a part, to be filed with the SEC by BRE Select Hotels, in connection with the issuance of the New Preferred Shares following the merger must have become effective, and no stop-order or proceeding suspending the effectiveness of the registration statement has been initiated or threatened by the SEC;

 

   

no court has issued any temporary restraining order, preliminary or permanent injunction or other order, and no other legal restraint or prohibition preventing the consummation of the merger or any of the other transactions contemplated by the merger agreement is in effect;

 

   

all material actions by or in respect of or filings with any governmental entity required for the consummation of the merger or any of the other transactions contemplated by the merger agreement have been obtained, and any waiting period under applicable laws has expired or been terminated;

 

   

Apple Six’s, Buyer’s and BRE Select Hotels’ respective representations and warranties in the merger agreement must be true and correct as of the closing date in the manner described under “The Merger Agreement—Representations and Warranties” beginning on page 76;

 

   

with respect to Buyer’s and BRE Select Hotels’ obligation to effect the merger only, that from November 29, 2012 through the effective time of the merger, no circumstance, development, effect, event or change has occurred that, individually or in the aggregate with all other circumstances, developments, effects, events and changes, has had or would reasonably be expected to have a company material adverse effect as described under “The Merger Agreement—Conditions to Complete the Merger” beginning on page 89; and

 

   

the holders of not more than 5% of Apple Six’s issued and outstanding units or Series B convertible preferred shares have demanded appraisal of their units or Series B convertible preferred shares under the VSCA.

Material U.S. Federal Income Tax Consequences (Page 104)

The receipt of cash and New Preferred Shares by U.S. holders (as defined under “Material U.S. Federal Income Tax Consequences” beginning on page 104) in exchange for their units in the merger will be a taxable transaction for United States federal income tax purposes. In general a U.S. holder will recognize a gain or loss for United States federal income tax purposes equal to the difference, if any, between the sum of the amount of cash and the fair market value of the New Preferred Shares received in exchange for units and the U.S. holder’s adjusted tax basis in such units. You should read “Material U.S. Federal Income Tax Consequences” beginning

 

 

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on page 104 for a more detailed discussion of the U.S. federal income tax consequences of the merger. You should also consult your tax advisor for a complete analysis of the effect of the merger on your federal, state and local and/or foreign taxes.

Acquisition Proposals (Page 83)

The merger agreement provides that Apple Six is generally not permitted to initiate, solicit or knowingly encourage inquiries or the making of proposals or offers that constitute, or may reasonably be expected to lead to, an acquisition proposal for Apple Six or engage in, continue or otherwise participate in any discussions or negotiations regarding any acquisition proposal or provide non-public information to any person relating to an acquisition proposal or knowingly facilitate any effort or attempt by any person to make an acquisition proposal as described under “The Merger Agreement—Acquisition Proposals.”

Notwithstanding these restrictions, under certain circumstances, Apple Six may, before the merger agreement is approved by Apple Six shareholders, respond to a written unsolicited bona fide acquisition proposal, if Apple Six’s board of directors determines, in good faith, after consultation with its outside legal counsel, that the failure to take such action would be inconsistent with the directors’ legal duties under applicable law, and, after consulting with its outside legal counsel and its financial advisor, that such acquisition proposal constitutes a superior proposal or could reasonably be expected to result in a superior proposal.

Termination of the Merger Agreement (Page 92)

The merger agreement may be terminated by mutual written consent of Apple Six and Buyer at any time before the completion of the merger (including after Apple Six shareholders have approved the merger agreement). In addition, either Apple Six or Buyer may terminate the merger agreement if:

 

   

a judgment, injunction, order, decree or action by any governmental entity preventing the consummation of the merger has become final and non-appealable;

 

   

the merger has not been consummated on or before May 29, 2013, except that a party to the merger agreement that has willfully and materially breached any of its representations, warranties or covenants in the merger agreement will not be entitled to exercise its right to terminate the merger agreement described in this bullet; or

 

   

upon a vote at a duly held meeting of Apple Six’s shareholders, including any adjournment or postponement of such meeting, the vote of its shareholders required to approve the merger agreement has not been obtained.

Apple Six may also terminate the merger agreement if any of the following occurs:

 

   

Apple Six is not in material breach of the merger agreement and there has been a breach of any representation, warranty, covenant or agreement in the merger agreement on the part of Buyer or BRE Select Hotels, or if any representation or warranty of Buyer or BRE Select Hotels has become untrue, in either case such that the conditions to complete the merger relating to the representations, warranties, covenants or agreements of Buyer and BRE Select Hotels would be incapable of being satisfied by May 29, 2013;

 

   

prior to obtaining the approval of the merger agreement by Apple Six’s shareholders, Apple Six’s board of directors has withdrawn or modified in compliance with the requirements described under “The Merger Agreement—Acquisition Proposals” beginning on page 83 in any manner adverse to Buyer its approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement in connection with the approval and

 

 

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recommendation of a superior proposal, so long as (i) Apple Six is not in breach of any of Apple Six’s or its subsidiaries’ obligations under the merger agreement in any material respect and (ii) Apple Six has paid to Buyer or its designee the termination fee and the expense reimbursement described under “The Merger Agreement—Termination Fees and Expenses” beginning on page 94; or

 

   

if all of the following requirements are satisfied:

 

   

all of the conditions to each party’s obligation to effect the merger and the additional conditions to the obligations of Buyer and BRE Select Hotels to effect the merger have been satisfied or waived by Buyer (other than those conditions that are satisfied by action taken at the closing of the merger);

 

   

on or after the date the closing of the merger should have occurred pursuant to the merger agreement, Apple Six has delivered notice to Buyer to the effect that all conditions to each party’s obligation to effect the merger and the additional conditions to the obligations of Buyer and BRE Select Hotels to effect the merger have been satisfied or waived by Buyer (other than those conditions that are satisfied by action taken at the closing of the merger, so long as such conditions are capable of being satisfied as of the date of Apple Six’s notice) and that Apple Six is prepared to consummate the merger; and

 

   

Buyer fails to consummate the merger by the third business day after the delivery of Apple Six’s notice, and Apple Six was prepared to consummate the merger on each business day of such three business day period.

Buyer may also terminate if any of the following occurs:

 

   

Buyer is not in material breach of the merger agreement and there has been a breach of any representation, warranty, covenant or agreement in the merger agreement on Apple Six’s part, or if any of Apple Six’s representations or warranties has become untrue, in either case such that the conditions to complete the merger relating to Apple Six’s representations, warranties, covenants or agreements would be incapable of being satisfied by May 29, 2013; or

 

   

(i) the board of directors of Apple Six has made a change of recommendation, (ii) Apple Six has entered into an acquisition agreement, merger agreement or similar definitive agreement or any letter of intent, memorandum of understanding or agreement in principle relating to an acquisition proposal, (iii) a tender offer or exchange offer (other than by Buyer or BRE Select Hotels) prior to obtaining approval of the merger agreement by Apple Six’s shareholders has been commenced and Apple Six’s board of directors has failed to recommend against acceptance of such tender offer or exchange offer by Apple Six’s shareholders within ten business days after commencement or (iv) Apple Six or its board of directors has publicly announced its intention to do any of the foregoing.

Termination Fees and Expenses (Page 94)

If the merger agreement is terminated under certain circumstances:

 

   

Apple Six may be obligated to pay a termination fee of $20 million as directed by Buyer, and all documented reasonable out-of-pocket expenses of Buyer up to a maximum amount of $5 million; and

 

   

Buyer may be obligated to pay Apple Six a termination fee of $35 million, all documented reasonable out-of-pocket expenses of Apple Six up to a maximum amount of $5 million and any documented reasonable out-of-pocket costs Apple Six incurred in assisting Buyer in procuring Buyer’s debt financing.

Limited Guaranty and Remedies (Page 94)

In connection with the merger agreement, Sponsor entered into a limited guaranty in Apple Six’s favor to guarantee Buyer’s payment obligations with respect to the termination fee and expense reimbursement payable to Apple Six as described under “The Merger Agreement—Termination Fees and Expenses” beginning on page 94.

 

 

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The maximum aggregate liability of Sponsor will not exceed $40 million, plus any costs or expenses Apple Six may incur with assisting Buyer in procuring the debt financing and all reasonable and documented third party costs and out-of-pocket expenses actually incurred by Apple Six relating to any litigation or other proceeding brought by Apple Six to collect any amount due under the limited guaranty, if Apple Six prevails in such litigation or proceeding.

Apple Six cannot seek specific performance to require Buyer or BRE Select Hotels to complete the merger and, except with respect to enforcing certain confidentiality obligations, Apple Six’s sole and exclusive remedy against Buyer and BRE Select Hotels will be the right to receive the termination fee and expense reimbursement under the conditions described under “The Merger Agreement—Termination Fees and Expenses.” Buyer and BRE Select Hotels may, however, seek specific performance to require Apple Six to complete the merger.

Transfer Agreements (Page 98)

In connection with the merger agreement, Apple Six entered into three transfer agreements, pursuant to which, immediately prior to or immediately following the effective time of the merger, Apple Six will transfer its wholly owned subsidiary, Apple Fund Management, LLC (which we refer to in this proxy statement/prospectus as “Apple Fund Management”), its headquarters located in Richmond, Virginia, and its interest in Apple Air Holding, LLC (which refer to in this proxy statement/prospectus as “Apple Air”). The three transfer agreements are described in greater detail under “Transfer Agreements” beginning on page 98.

 

 

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SELECTED HISTORICAL FINANCIAL DATA OF APPLE REIT SIX, INC.

The following selected historical financial information for each of the years during the three-year period ended December 31, 2012 and the selected balance sheet data as of December 31, 2012 and 2011 have been derived from Apple Six’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2012 contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on February 26, 2013, a copy of which is attached to this proxy statement/prospectus as Annex H and which is incorporated herein by reference. The selected historical financial information for each of the years ended December 31, 2009 and 2008 and the selected balance sheet data as of December 31, 2010, 2009 and 2008 have been derived from Apple Six’s audited consolidated financial statements for such years contained in Apple Six’s reports filed with the SEC, which are not incorporated by reference into this proxy statement/prospectus.

You should read the selected historical financial information presented below together with the financial statements included in Apple Six’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on February 26, 2013, a copy of which is attached to this proxy statement/prospectus as Annex H and which is incorporated herein by reference, and the accompanying notes and management’s discussion and analysis of operations and financial condition of Apple Six contained in such reports. See also “Where You Can Find More Information” on page 171.

 

(in thousands except per share
and statistical data)
   For the year
ended
December 31,
2012
     For the year
ended
December 31,
2011
     For the year
ended
December 31,
2010
    For the year
ended
December 31,
2009
    For the year
ended
December 31,
2008
 

Revenues:

            

Room revenue

   $ 235,630       $ 220,227       $ 206,624      $ 195,671      $ 233,112   

Other revenue

     16,837         16,553         14,634        14,753        19,744   

Reimbursed expenses

     7,965         7,241         6,055        5,899        6,057   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenue

     260,432         244,021         227,313        216,323        258,913   

Expenses:

            

Hotel operating expenses

     144,026         137,986         130,896        126,120        144,751   

Taxes, insurance and other

     13,103         12,133         12,143        13,248        13,438   

Reimbursed expenses

     7,965         7,241         6,055        5,899        6,057   

General and administrative

     7,620         6,151         6,072        4,935        5,397   

Depreciation

     31,054         32,432         30,806        30,417        30,411   

Merger transaction costs

     4,037         —           —          —          —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Interest expense, net

     3,084         3,617         3,800        2,312        1,784   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total expenses

     210,889         199,560         189,772        182,931        201,838   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income from continuing operations

     49,543         44,461         37,541        33,392        57,075   

Income (loss) from discontinued operations

     —           700         (3,157     (13     1,427   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   $ 49,543       $ 45,161       $ 34,384      $ 33,379      $ 58,502   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Per share:

            

Income from continuing operations per common share

   $ 0.54       $ 0.48       $ 0.41      $ 0.37      $ 0.63   

Income (loss) from discontinued operations per common share

     —           0.01         (0.03     —          0.01   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net income per common share

   $ 0.54       $ 0.49       $ 0.38      $ 0.37      $ 0.64   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Distributions paid per common share

   $ 0.73       $ 0.78       $ 0.79      $ 0.90      $ 0.90   

Weighted-average common shares outstanding—basic and diluted

     91,142         91,254         91,323        91,178        90,899   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

 

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Table of Contents
(in thousands except per share
and statistical data)
   For the year
ended
December 31,
2012
    For the year
ended
December 31,
2011
    For the year
ended
December 31,
2010
    For the year
ended
December 31,
2009
    For the year
ended
December 31,
2008
 

Balance Sheet Data (at end of period):

          

Cash and cash equivalents

   $ —        $ 32      $ —        $ —        $ 935   

Investment in real estate, net

   $ 729,108      $ 746,354      $ 764,557      $ 801,646      $ 823,463   

Total assets

   $ 740,370      $ 759,365      $ 788,213      $ 815,584      $ 849,783   

Credit facility and mortgage debt

   $ 58,417      $ 63,067      $ 63,736      $ 54,040      $ 29,097   

Shareholders’ equity

   $ 674,647      $ 690,628      $ 719,771      $ 757,488      $ 809,382   

Net book value per share

   $ 7.40      $ 7.57      $ 7.87      $ 8.28      $ 8.82   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Data:

          

Cash flow provided by (used in):

          

Operating activities

   $ 81,176      $ 78,138      $ 70,956      $ 66,029      $ 88,747   

Investing activities

   $ (10,852   $ (2,721   $ (8,505   $ (6,571   $ (33,234

Financing activities

   $ (70,356   $ (75,385   $ (62,451   $ (60,393   $ (87,839

Number of hotels owned at end of period (including hotels held for sale)

     66        66        68        68        68   

Average Daily Rate (ADR) (a)(f)

   $ 115      $ 110      $ 104      $ 107      $ 117   

Occupancy (f)

     73     72     71     66     71

Revenue Per Available Room
(RevPAR) (b)(f)

   $ 84      $ 79      $ 74      $ 70      $ 83   

Total rooms sold (c)(f)

     2,056,557        2,005,542        1,986,223        1,836,076        1,990,489   

Total rooms available (d)(f)

     2,799,182        2,792,055        2,791,708        2,791,698        2,795,278   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Funds From Operations Calculation (e):

          

Net income

   $ 49,543      $ 45,161      $ 34,384      $ 33,379      $ 58,502   

Impairment loss on hotels held
for sale

     —          —          3,567        —          —     

Depreciation of real estate owned

     31,054        32,432        31,199        30,938        29,313   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations

   $ 80,597      $ 77,593      $ 69,150      $ 64,317      $ 87,815   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Merger transaction costs

     4,037        562        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Modified funds from operations

   $ 84,634      $ 78,155      $ 69,150      $ 64,317      $ 87,815   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Total room revenue divided by number of room nights sold.
(b) ADR multiplied by occupancy percentage.
(c) Represents the number of room nights sold during the period.
(d) Represents the number of rooms owned by Apple Six multiplied by the number of nights in the period.
(e) Funds from operations (FFO) is defined as net income (computed in accordance with generally accepted accounting principles—GAAP) excluding gains and losses from sales of depreciable property, plus depreciation and amortization and the impairment loss on hotels held for sale. Modified FFO (MFFO) excludes costs associated with merger transactions. The Company considers FFO and MFFO in evaluating property acquisitions and its operating performance and believes that FFO and MFFO should be considered along with, but not as an alternative to, net income and cash flows as a measure of the Company’s activities in accordance with GAAP. The Company considers FFO and MFFO as supplemental measures of operating performance in the real estate industry, and along with the other financial measures included in this proxy statement/prospectus, including net income, cash flows provided by (used in) operating activities, investing activities and financing activities, they provide investors with an indication of the performance of the Company. The Company’s definition of FFO and MFFO are not necessarily the same as such terms that are used by other companies. FFO and MFFO are not necessarily indicative of cash available to fund cash needs.
(f) From continuing operations.

 

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma condensed consolidated financial statements reflect the financial condition and results of operations of BRE Select Hotels, after giving effect to the merger, the related disposition transactions required by the terms of the merger agreement, and certain financing and ancillary transactions directly associated with the merger. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2012 gives effect to these transactions as if each of these transactions had occurred on January 1, 2012. The unaudited pro forma condensed consolidated balance sheet gives effect to each of these transactions as if each of these transactions had occurred on December 31, 2012.

The unaudited pro forma condensed consolidated financial statements have been prepared by applying the acquisition method of accounting to the merger with BRE Select Hotels being treated as the accounting acquirer. These unaudited pro forma condensed consolidated financial statements are prepared for informational purposes only and are based on assumptions and estimates considered appropriate by BRE Select Hotels’ management; however, they are not necessarily indicative of what BRE Select Hotels’ financial condition and results of operations actually would have been if the merger had been consummated as of the dates indicated, nor do they purport to represent the consolidated financial position or results of operations for future periods.

In applying the acquisition method of accounting, the merger consideration will be allocated to the assets acquired and liabilities assumed based on their respective acquisition-date fair values. The allocation of the merger consideration reflected in these unaudited pro forma condensed consolidated financial statements has not been finalized, and is based upon preliminary estimates of fair value which is the best information available at the current time. A final determination of fair value and related allocation of the merger consideration, which cannot be made prior to the completion of the merger, will be based on the actual valuation of the tangible and intangible assets and liabilities that exist as of the date of completion of the merger. The completion of the final valuation, the allocation of the merger consideration, the timing of the completion of the merger and other changes in tangible and intangible assets and liabilities that occur prior to completion of the merger could cause significant differences in the information presented.

These unaudited pro forma condensed consolidated financial statements should be read in conjunction with Apple Six’s audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2012 included in Apple Six’s Annual Report on Form 10-K filed with the SEC on February 26, 2013, a copy of which is attached to this proxy statement/prospectus as Annex H.

 

 

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BRE Select Hotels Corp Unaudited Pro Forma Condensed Consolidated Balance Sheet December 31, 2012 (in thousands)

 

                Pro Forma Adjustments              
    BRE Select
Hotels
Historical
    Apple Six
Historical
    Divested
Operations
          New
Capital
Structure
          Purchase
Accounting
          Old Capital
Structure
          BRE Select
Hotels
Pro Forma
 

Assets:

                     

Investment in real estate, net

  $       —        $ 729,108      $ (4,525     (A   $ —          $ 234,192        (G   $ —          $ 958,775   

Cash and cash equivalents

    —          —          5,356        (B     936,391        (F     (901,433     (G     (40,314     (I     —     

Due from third party manager, net

    —          7,546        —            —            —            —            7,546   

Other assets, net

    —          3,716        (1,829     (C     38,609        (F     169,196        (G     (149     (I     209,543   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total Assets

  $ —        $ 740,370      $ (998     $ 975,000        $ (498,045     $ (40,463     $ 1,175,864   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Liabilities:

                     

Credit facility

  $ —        $ 34,470      $ —          $ —          $ —          $ (34,470     (I   $ —     

Mortgage debt

    —          23,947        —            775,000        (F     —            (5,709     (I     793,238   

Accounts payable and accrued expenses

    —          7,306        (27     (D     —            24,573        (G     (135     (I     31,717   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total Liabilities

  $ —          65,723        (27       775,000          24,573          (40,314       824,955   

7% Series A Cumulative Redeemable Preferred Shares

    —          —          —            —            181,837        (G     —            181,837   

Shareholders’ Equity

                     

Preferred stock

    —          —          —            —            —            —            —     

Series A preferred stock

    —          —          —            —            —            —            —     

Series B preferred stock

    —          24        —            —            (24     (H     —            —     

Common stock

    —          899,958        —            200,000        (F     (899,958     (H     —            200,000   

Distributions greater than net income

    —          (225,335     (971     (E     —            195,527        (H     (149     (I     (30,928
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total Shareholders’ Equity

      674,647        (971       200,000          (704,455       (149       169,072   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total Liabilities and Shareholders’ Equity

  $ —        $ 740,370      $ (998     $ 975,000        $ (497,045     $ (40,464     $ 1,175,864   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

 

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BRE Select Hotels Corp

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the year ended December 31, 2012

(in thousands, except per share data)

 

                Pro Forma Adjustments                    
    BRE Select
Hotels
Historical
    Apple
Six
Historical
    Divested
Operations
          Old
Capital
Structure
          New
Capital
Structure
          Purchase
Accounting
          BRE Select
Hotels Pro
Forma
       

Revenues:

                       

Room revenue

  $       —        $ 235,630      $ —          $ —          $ —          $ —          $ 235,630     

Other revenue

    —          16,837        —            —            —            —            16,837     

Reimbursed expenses

    —          7,965        —            —            —            (7,965     (E     —       
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total revenue

    —          260,432        —            —            —            (7,965       252,467     

Expenses:

                       

Operating expenses

    —          63,743        —            —            —            —            63,743     

Hotel administrative expense

    —          19,875        —            —            —            —            19,875     

Sales and marketing

    —          20,345        —            —            —            —            20,345     

Utilities

    —          9,522        —            —            —            —            9,522     

Repair and maintenance

    —          11,246        —            —            —            —            11,246     

Franchise fees

    —          10,614        —            —            —            —            10,614     

Management fees

    —          8,681        —            —            —            —            8,681     

Taxes, insurance and other

    —          13,103        (149     (A     —            —            —            12,954     

General and administrative

    —          7,620        (7,597     (A     —            —            —            23     

Merger transaction costs

    —          4,037        (4,037     (A     —            —            —            —       

Reimbursed expenses

    —          7,965        —            —            —            (7,965     (E     —       

Depreciation expense

    —          31,054        (463     (A     —            —            16,254        (F     46,845     
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total expenses

    —          207,805        (12,246       —            —            8,289          203,848     
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Operating income

    —          52,627        12,246          —            —            (16,254       48,619     

Interest expense, net

    —          3,084        12        (A     (1,986     (B     37,328        (C     —            38,438     
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Income from continuing operations

    —          49,543        12,234          1,986          (37,328       (16,254       10,181     

7% Series A Cumulative Redeemable Preferred Share dividends

    —          —          —            —            12,905        (D     —            12,905     
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Income from continuing operations attributable to common stockholders

  $ —        $ 49,543      $ 12,234        $ 1,986        $ (50,233     $ (16,254     $ (2,724  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Income from continuing operations attributable to common stockholders per common share:

                       

Basic

    n.a.      $ 0.54        n.a.          n.a.          n.a.          n.a.        $ (27,240     (G

Diluted

    n.a.      $ 0.54        n.a.          n.a.          n.a.          n.a.        $ (27,240     (G

Weighted average common shares outstanding

                       

Basic

    n.a.        91,142        n.a.          n.a.          n.a.          n.a.          0.1        (G

Diluted

    n.a.        91,142        n.a.          n.a.          n.a.          n.a.          0.1        (G

 

 

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Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

Unless otherwise specified and except for per share data, all amounts referenced in the notes to these unaudited pro forma condensed consolidated financial statements are stated in thousands.

Balance Sheet

Divested Operations

Apple Six’s historical consolidated financial statements include its interests in certain entities and assets that will be transferred to entities related to Apple Six immediately prior to or immediately following the effective time of the merger pursuant to three transfer agreements entered into in connection with the merger agreement. Each of the adjustments described below relate to the effects each of these transfer agreements is expected to have on the historical financial position of Apple Six.

For a more detailed description of these transfer agreements, which we refer to in these unaudited pro forma condensed consolidated financial statements as the “management company transfer agreement,” the “headquarters transfer agreement” and the “membership interest purchase agreement,” see “Transfer Agreements” beginning on page 98.

 

  (A) Represents adjustments to reflect the transfer of the Apple Six headquarters and the lease agreement pursuant to the headquarters transfer agreement. Included within this adjustment are gross assets (land; building; furniture, fixtures and equipment; and related improvements) of $7,447 and the related accumulated depreciation of $2,922.

 

  (B) Represents adjustments to reflect the cash to be received pursuant to the membership interest purchase agreement ($1,450), the management company transfer agreement (1 dollar), and the headquarters transfer agreement ($4,500). The adjustment is net of the cash expected to be used to defease a mortgage loan with an original principal amount of $6,800 executed by Portland West Cym Hotel, LLC and assumed by Apple Six SPE Hillsboro CY, Inc., a consolidated subsidiary of Apple Six, pursuant to the merger agreement ($595).

 

  (C) Represents adjustments to reflect the transfer of Apple Six’s interest in Apple Air pursuant to the membership interest purchase agreement ($1,542) and the transfer of Apple Fund Management pursuant to the management company transfer agreement. Included within the adjustment associated with Apple Fund Management are certain receivables and prepaid expenses ($287).

 

  (D) Represents adjustments to remove the liabilities historically accrued by Apple Six that will be transferred or settled in connection the transfer of Apple Fund Management, Apple Six’s headquarters and interest in Apple Air. Such liabilities include amounts related to employee benefits ($13) and other miscellaneous liabilities ($14).

 

  (E) Represents adjustments to reflect the net loss expected to be realized by Apple Six in connection with the transactions effected pursuant to the membership interest purchase agreement, the management company transfer agreement, and the headquarters transfer agreement. The net loss expected to be realized is calculated as the sum of the adjustments described in clauses (A) through (D) above, or $5,356 less $6,327.

New Capital Structure

 

  (F)

BRE Select Hotels is a new entity formed by Buyer to effect the transactions contemplated by the merger agreement. At the closing of the merger, BRE Select Hotels is expected to be capitalized with up to $200,000 in cash contributions indirectly made by Sponsor and its affiliates through Buyer and up to $775,000 in debt financing provided by certain third party lenders. These adjustments represent the

 

 

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  effects of these capitalization transactions and the recognition of the estimated costs directly attributable to the debt financing of $38,609, including escrowed cash to be used for property improvements. See “The Merger—Financing of the Merger—Debt Financing” beginning on page 67 for additional information.

Purchase Accounting

 

  (G) Represents adjustments to reflect the acquisition of Apple Six by BRE Select Hotels for the estimated merger consideration of $1,077,065. The merger consideration will include (i) cash of $892,702 funded through the cash contributions made by Sponsor and its affiliates and the proceeds of Buyer’s debt financing; and (ii) the New Preferred Shares issued by BRE Select Hotels to the current shareholders of Apple Six with an initial liquidation preference of $184,362. Further details relating to the computation of the cash component and the New Preferred Shares component are set forth below.

 

       As of December 31, 2012, 91,226.580 units (consisting of 91,226.580 common shares and 91,226.580 Series A preferred shares) and 240 Series B convertible preferred shares (convertible into 5,801.050 common shares) were issued and outstanding. Additionally, 580.116 units were reserved for issuance upon exercise of outstanding company options.

 

  Cash component. Pursuant to the terms of the merger agreement, each unit will be converted into the right to receive $9.20 in cash per unit without any interest. Additionally, pursuant to the terms of the merger agreement, each company option will be converted into the right to receive cash in the same proportion as the units resulting in total cash consideration of $892,702 calculated as follows:

 

Recipient

   Units     Cash Amount/Unit      Total cash  

Unit holders

     97,027.630  (1)    $ 9.20/unit       $ 892,654.196   

Company option holders (2)

     580.116        0.08/unit         48.082   
  

 

 

   

 

 

    

 

 

 

Total

     97,607.746        n.a.       $ 892,702.278   
  

 

 

      

 

 

 

 

  (1) Includes 5,801.050 common shares to account for the 240 Series B convertible preferred shares that will be treated on an as-converted basis in the merger.
  (2) Pursuant to the terms of the merger agreement, each holder of company options will receive an amount in cash equal to 82.883% of the aggregate option payment value. The “aggregate option payment value” is the amount equal to the product of (I) the number of units subject to a company option, multiplied by (II) the excess, if any, of (1) $11.10 over (2) the exercise price per unit subject to such company option. The exercise price for each company option is $11.00.

 

  New Preferred Share component. Pursuant to the terms of the merger agreement, each unit will be converted into the right to receive one New Preferred Share. Additionally, pursuant to the terms of the merger agreement, each company option will be converted into the right to receive one New Preferred Share in the same proportion as the units resulting in a total of 97,032.856 New Preferred Shares to be issued in the merger having a total initial liquidation preference of $184,362.426, calculated as follows:

 

Recipient

   New Preferred
Shares
    Initial Liquidation
Preference/Share
     Total Liquidation
Preference
 

Unit holders

     97,027.630  (1)    $ 1.90/share       $ 184,352.497   

Company option holders (2)

     5.226        1.90/share         9.929   
  

 

 

   

 

 

    

 

 

 

Total

     97,032.856        n.a.       $ 184,362.426   
  

 

 

      

 

 

 

 

 

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  (1) Includes 5,801.050 common shares into which the 240 Series B convertible preferred shares will be converted in connection with the merger.
  (2) Pursuant to the terms of the merger agreement, each holder of company options will receive a number of New Preferred Shares equal to the quotient of (i) an amount equal to the product of (a) 17.117%, multiplied by (b) the aggregate option payment value, divided by (ii) $1.90.

 

       As described under “Description of New Preferred Shares—Adjustment to Liquidation Preference” on page 121, the initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3,500.

 

       The terms of the New Preferred Shares will provide BRE Select Hotels with the right to redeem the New Preferred Shares at any time for an amount equal to the liquidation preference, plus any accumulated and unpaid dividends. In addition, the terms of the New Preferred Shares will include an option for the holder of any New Preferred Shares to require BRE Select Hotels to redeem all or a portion of such holder’s New Preferred Shares after 7-1/2 years following the issuance of New Preferred Shares in connection with the merger for an amount equal to the liquidation preference, plus any accumulated and unpaid dividends. Due to the option provided to the holders of the New Preferred Shares, the New Preferred Shares have been classified outside permanent equity. See “Description of New Preferred Shares,” beginning on page 117 for additional information.

 

       The merger consideration has been preliminarily allocated to the assets acquired and liabilities assumed, a description of which is provided throughout these notes. In connection with the acquisition, BRE Select Hotels is expected to incur transaction costs of $33,304 (in addition to the costs discussed in the adjustment described in clause (F) above), which relate to, among other things, transfer taxes, title costs and advisory fees. These transaction costs will, for accounting purposes, be treated as expenses, except that the costs that are directly attributable to the issuance of the New Preferred Shares will be accounted for as a reduction in the carrying value of the New Preferred Shares. Accordingly, for purposes of the pro forma condensed consolidated balance sheet, $2,525 of the transaction costs have been reflected as a reduction to the carrying value of the New Preferred Shares and the remaining $30,779 of transaction costs have been reflected as an addition to distributions greater than net income.

 

       The transaction costs incurred in connection with the merger will be paid with the cash contributions indirectly made by Sponsor and its affiliates, the proceeds from the debt financing and operating cash flows generated by Apple Six prior to the consummation of the merger and/or BRE Select Hotels subsequent to the consummation of the merger. For purposes of the unaudited pro form condensed consolidated balance sheet, the estimated amount of transaction costs to be paid with operating cash flows has been shown as an adjustment to accounts payable and accrued expenses.

 

 

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       The following provides a summary of the preliminary allocation by major category of assets and liabilities presented within the unaudited pro forma condensed consolidated balance sheet as of December 31, 2012:

 

Assets:

  

Investment in real estate1

   $ 958,775   

Identifiable intangible assets1

     56,399   

Cash and cash equivalents and other assets2

     14,789   
  

 

 

 

Total assets

   $ 1,029,963   
  

 

 

 

Liabilities:

  

Credit facility2

   $ 34,470   

Mortgage notes2

     23,947   

Accounts payable and accrued expenses2

     7,279   
  

 

 

 

Total liabilities

     65,696   
  

 

 

 

Estimated fair value of net assets acquired

   $ 964,267   
  

 

 

 

 

  (1) The investment in real estate and identifiable intangible assets pro forma adjustments of $234,192 and $56,399, respectively (excluding estimated goodwill of $112,797), represent the adjustments required to record the real estate and identifiable intangible assets to be acquired through the merger at current estimates of fair value, which includes (as applicable) the elimination of historical accumulated depreciation and amortization. For purposes of these adjustments, fair value was estimated based on preliminary analyses performed by BRE Select Hotels and comparable market transactions, which included a preliminary evaluation of the fair values ascribed to component assets relative to overall transaction value in comparable market transactions. Upon completion of the merger, the methodologies and significant inputs and assumptions used in deriving final estimates of fair value will vary based on the nature of the tangible or intangible asset. For land, estimates of fair value will likely be derived using a market approach which contemplates an evaluation of recent transactions involving comparable assets. For building and improvements and furniture, fixtures and equipment, estimates of fair value will likely be derived using a cost approach which contemplates an evaluation of the costs required to construct or acquire such assets with adjustments made to account for the effects of physical depreciation, and functional and/or economic obsolescence, each as applicable. Estimates of fair value associated with identifiable intangible assets will likely be derived using generally accepted methodologies under the income approach. Significant inputs and assumptions associated with these approaches include estimates of future operating cash flows, as contemplated in determining the merger consideration, and discount rates based on an evaluation of observable market data. These estimates of fair value are preliminary and, as a result, subject to change based on various factors, including market conditions existing at the time the merger is consummated. Final estimates of fair value may be significantly different from these preliminary estimates. To the extent inputs different from those used for purposes of determining these preliminary estimates of fair value were utilized, the investment in real estate and identifiable intangible assets pro form adjustments could be $166,514 to $292,821 and $33,839 to $78,958, respectively. Please see clause (F) under “Income Statement – Purchase Accounting” for the impact of different estimates on the unaudited condensed consolidated pro forma statement of operations for the year ended December 31, 2012.
  (2)

No adjustments were made to the historical carrying value of cash and cash equivalents and other assets; the credit facility and mortgage debt; and accounts payable and accrued expenses as the estimated fair values of such items were preliminarily determined to

 

 

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  approximate their historical carrying values. These preliminary determinations were based on their short term nature and/or the stated terms approximating current market terms.

 

       Estimated fair values of each component included within investment in real estate are as follows:

 

Land

   $ 169,196   

Building and improvements

     733,181   

Furniture, fixtures and equipment

     56,399   
  

 

 

 

Total

   $ 958,775   
  

 

 

 
  (H) Represents the elimination of the historical balance of Apple Six’s common shares, Series A preferred shares, and Series B convertible preferred shares in connection with the acquisition of Apple Six by BRE Select Hotels.

Old Capital Structure

 

  (I) Upon completion of the merger, all of the existing consolidated indebtedness of Apple Six, which consists of the credit facility with Wells Fargo Bank, N.A. and certain mortgage debt, will be repaid with a portion of the cash contributed by Sponsor and its affiliates, except for the mortgage note on the Residence Inn located in Fort Worth, Texas, described below, which will remain outstanding.

 

       The credit facility is a $60,000 unsecured credit facility with Wells Fargo Bank, N.A. that has historically been utilized by Apple Six for working capital, hotel renovations, and other general corporate funding purposes, including the payment of redemptions and distributions. The outstanding principal is required to be paid by the stated maturity date of September 8, 2013, but may be prepaid without penalty. Interest payments are due monthly and the interest rate is equal to the applicable London interbank offered rate for deposits, or LIBOR, plus 350 basis points. At December 31, 2012, the outstanding balance on the credit facility was $34,470 and the interest rate was 3.75%.

 

       At December 31, 2012, the mortgage debt consisted of two mortgage notes (which were secured by two of Apple Six’s hotel properties located in Texas and Oregon) with an aggregate outstanding balance of $23,947, stated interest rates ranging from 4.73% to 6.40% and maturity dates of December 11, 2014 through October 6, 2022. The mortgage loan with an original principal amount of $6,800 executed by Portland West Cym Hotel, LLC and assumed by Apple Six SPE Hillsboro CY, Inc. will be defeased in connection with the merger. The remaining mortgage note on the Residence Inn located in Fort Worth, Texas, totalling $18,300, was issued on September 14, 2012 and will remain outstanding following the completion of the merger. This note provides for scheduled payments of interest and principal on a monthly basis, has a fixed annual interest rate of 4.73% and a stated maturity date of October 6, 2022.

 

       As a result of the accelerated repayments, the adjustments presented in the unaudited pro forma condensed consolidated balance sheet represent the repayment of the outstanding indebtedness and accelerated amortization of the related deferred financing costs which will result in the recognition of $149 in amortization expense.

Income Statements

These unaudited pro forma condensed consolidated financial statements include an unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2012.

Divested Operations

 

  (A)

Represents the adjustments required to remove the taxes, insurance and other general and administrative and depreciation expenses and previously capitalized interest associated with the

 

 

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  transfer of Apple Six’s interests in certain entities and assets pursuant to three transfer agreements immediately prior to or immediately following the effective time of the merger. Please see “—Balance Sheet—Divested Operations” above for further details.

Subsequent to consummation of the merger, BRE Select Hotels will incur certain general and administrative costs in connection with operating its business which are expected to include those associated with ongoing SEC reporting and compliance and asset management. Currently, BRE Select Hotels anticipates that such costs will range from approximately $3,300 to $3,700; however, these estimates are preliminary and are subject to change.

Old Capital Structure

 

  (B) Represents the adjustments required to remove the historical interest and amortization expense associated with Apple Six’s outstanding indebtedness that will be repaid in connection with the merger. Please see clause (I) under “—Balance Sheet—Old Capital Structure” above for further details.

New Capital Structure

 

  (C) Represents the adjustments required to reflect the interest cost associated with the debt financing and the amortization of the applicable portion of the related costs. For purposes of the adjustments reflected for the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2012, an interest rate of approximately 4.240% was utilized. This interest rate reflects the average interest rate for the period. An attribution period of three years was utilized for purposes of calculating the amortization discussed above.

 

  (D) Represents the adjustments required to reflect the amount of dividends payable with respect to the 97,032.856 New Preferred Shares to be issued in the merger at a dividend rate of 7%.

Purchase Accounting

 

  (E) Represents the adjustments required to remove the expense and related income incurred and earned, respectively, in connection with a historical arrangement that will not continue following the completion of the merger due to the transfer of Apple Fund Management pursuant to the management company transfer agreement. Apple Six historically provided support services to certain of its affiliates, and those affiliates reimbursed Apple Six for the costs it incurred in connection with providing those support services.

 

  (F) Represents the adjustment required to reflect the depreciation and amortization associated with real estate and identifiable intangible assets. Depreciation and amortization periods used for purposes of determining this adjustment were as follows: building and improvements, 25 years; furniture, fixtures and equipment, 5 years; and identifiable intangibles, 10 years.

 

       As discussed within clause (G) under “—Balance Sheet—Purchase Accounting,” the fair value of the real estate and identifiable intangible assets to be acquired through the merger are based on current estimates and consequently are subject to change. To the extent that different inputs from those used for purposes of determining these estimates of fair value were utilized, the associated depreciation and amortization could be $35,773 to $46,638 and $3,384 to $7,896, respectively, for the year ended December 31, 2012.

Earnings Per Share

 

  (G) Upon completion of the merger, Buyer will own 100 shares of common stock of BRE Select Hotels, representing all of the outstanding shares of common stock of BRE Select Hotels. Accordingly, earnings per share for the year ended December 31, 2012, was calculated by taking income from continuing operations for the year less the amount dividends payable to the holders of the New Preferred Shares for the applicable dividend periods described in clause (D) above, divided by the 100 shares of BRE Select Hotels common stock.

 

 

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RISK FACTORS

In addition to other information included elsewhere in this proxy statement/prospectus and in the annexes to this proxy statement/prospectus, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 42, you should carefully consider the following risk factors in deciding whether to vote for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement. Please also see “Where You Can Find More Information” on page 170.

Risks Related to the Merger

The merger may not be completed, which could adversely affect Apple Six’s business.

Completion of the merger is subject to the satisfaction of various conditions, including approval of the merger agreement by Apple Six’s shareholders and the other conditions described in the merger agreement. Neither Apple Six, BRE Select Hotels nor Buyer can guarantee when or if these conditions will be satisfied or that the merger will be successfully completed. In the event that the merger is not completed, Apple Six may be subject to several risks, including the following:

 

   

Apple Six management’s and employees’ attention from day-to-day business may be diverted;

 

   

Apple Six’s relationships with property managers may be substantially disrupted as a result of uncertainties with regard to its business and prospects; and

 

   

Apple Six would still be required to pay significant transaction costs related to the merger, including legal and accounting fees, and under certain circumstances would be required to reimburse Buyer’s out-of pocket transaction expenses up to $5 million and pay a termination fee of $20 million. See “The Merger Agreement—Termination Fees and Expenses” beginning on page 94.

Uncertainties associated with the merger may have a negative impact on business relationships.

The announcement of the merger may have a negative impact on Apple Six’s business relationships. These events could have a material negative impact on Apple Six’s results of operations and financial condition. Given that Apple Six’s management and employees will be transferred by Apple Six immediately following the effective time of the merger, the success of BRE Select Hotels following the merger will depend in part on its ability to hire and retain new employees.

The costs of the merger, increased interest expense and other fees could adversely affect BRE Select Hotels’ operating results.

Apple Six and Buyer estimate the total merger-related costs to be approximately $72 million, primarily consisting of investment banking, legal and accounting fees and other related fees and expenses, including financing fees. This cost estimate is preliminary and subject to change.

In addition, the consolidated net income of Apple Six and BRE Select Hotels may be adversely affected by the merger due to an increase in interest expenses in connection with the new indebtedness to be incurred upon the completion of the merger. For an estimate of how BRE Select Hotels’ net income may be affected by interest expenses and other fees following the merger on a pro forma consolidated basis, see “Unaudited Pro Forma Condensed Consolidated Financial Statements” on page 19.

Some of the directors and executive officers of Apple Six have interests in seeing the merger completed that are different from, or in addition to, those of the other Apple Six shareholders.

Some of the directors and executive officers of Apple Six have arrangements that provide them with interests in the merger that are different from, or in addition to, those of the shareholders of Apple Six. These

 

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interests include, among other things, company options, indemnification and insurance arrangements, interests in the Series B convertible preferred shares, employment and directorships with affiliated entities. These interests, among other things, may influence the directors and executive officers of Apple Six to support or approve the merger. See “The Merger—Interests of Apple Six Directors and Executive Officers in the Merger” beginning on page 64.

In addition, BRE Select Hotels has entered into a voting agreement with Glade M. Knight, chairman and chief executive officer of Apple Six, in his capacity as a shareholder of Apple Six. The voting agreement requires Mr. Knight to vote in favor of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement and to vote against certain actions. See “Voting Agreement between Buyer and Glade M. Knight” beginning on page 96.

If the merger agreement is terminated under certain circumstances, Apple Six would be required to pay a termination fee and expense reimbursement.

If the merger agreement is terminated under certain circumstances, Apple Six must pay a termination fee as directed by Buyer of $20,000,000 and reimburse all of the documented reasonable out-of-pocket expenses incurred by or on behalf of Buyer or BRE Select Hotels in connection with the merger agreement and the transactions contemplated by the merger agreement up to a maximum amount of $5,000,000. See “The Merger Agreement—Termination Fee and Expenses” beginning on page 94.

The merger agreement contains provisions that could discourage a potential competing acquirer of Apple Six to submit an alternative acquisition proposal or that could result in any competing acquisition proposal being at a lower price than it might otherwise be.

Under the merger agreement, Apple Six agreed not to (i) solicit proposals relating to alternative acquisition proposals or (ii) engage or participate in discussions or negotiations with, or provide non-public information to, any person relating to any such alternative acquisition proposal, subject to certain limited exceptions where the failure to take certain action would be inconsistent with the legal duties of Apple Six’s board of directors under applicable law. See “The Merger Agreement—Acquisition Proposals” beginning on page 83. Even if a person submits an alternative acquisition proposal, prior to recommending such alternative acquisition proposal to its shareholders as a superior proposal and terminating the merger agreement Apple Six must negotiate with Buyer and BRE Select Hotels in good faith for a period of three business days (to the extent Buyer desires to negotiate) to revise the terms of the merger agreement, the financing commitments obtained by Buyer or the limited guaranty in response to such alternative acquisition proposal. In addition, upon termination of the merger agreement in certain circumstances, Apple Six may be required to pay a termination fee and expense reimbursement as directed by Buyer. See “The Merger Agreement—Termination Fees and Expenses” beginning on page 94. These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Apple Six from considering or submitting an alternative acquisition proposal, even if it were prepared to pay consideration with a higher per share cash or other value than the merger consideration. These provisions could also result in a potential competing acquirer proposing to pay a lower price per share than it might otherwise have proposed to pay because of the incremental expense of the termination fee and expense reimbursement that may become payable by Apple Six in certain circumstances.

Risks Related to the Financing of the Merger and Indebtedness

Subsidiaries of BRE Select Hotels will have a substantial amount of indebtedness and may not be able to make the required payments on their debt or refinance their indebtedness when it comes due.

The level of consolidated indebtedness of BRE Select Hotels following completion of the merger and the related financing will be substantially greater than the level of indebtedness of Apple Six before the completion of the merger. Upon completion of the merger, BRE Select Hotels’ consolidated indebtedness is expected to be

 

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approximately $793 million, as compared to approximately $58 million as of December 31, 2012. In connection with the execution and delivery of the merger agreement, Buyer obtained a debt commitment letter from Citibank, N.A. and Bank of America, N.A. providing for debt financing in an aggregate principal amount of up to $775 million (which we refer to in this proxy statement/prospectus as the “debt financing”) for the completion of the merger and other costs such as transaction costs relating to the merger and escrowed cash to be used for property improvements. See “Unaudited Pro Forma Condensed Consolidated Financial Statements” beginning on page 19 and “The Merger—Financing of the Merger” beginning on page 67.

BRE Select Hotels’ substantial leverage following the completion of the merger subjects BRE Select Hotels to a number of risks, including the following:

 

   

a decrease in net operating cash flow or an increase in expenses of BRE Select Hotels could make it difficult for BRE Select Hotels or its subsidiaries to satisfy their respective debt service requirements or force BRE Select Hotels to modify its operations;

 

   

the indebtedness will be secured by mortgage liens on all or substantially all of BRE Select Hotels’ properties or pledges of its ownership interests in certain subsidiaries, reducing BRE Select Hotels’ ability to obtain additional financing;

 

   

BRE Select Hotels’ ability to obtain additional financing for working capital, capital expenditures or other purposes may be impaired or any such financing may not be available on terms favorable to BRE Select Hotels;

 

   

interest expense will reduce the funds that would otherwise be available to BRE Select Hotels for its operations and future business opportunities or for distributions to the holders of New Preferred Shares or other shareholders;

 

   

the substantial leverage will increase BRE Select Hotels’ vulnerability to general economic downturns and adverse industry conditions, or it may be unable to carry out capital spending that is important to its growth and the maintenance of BRE Select Hotels’ properties;

 

   

the substantial leverage could limit BRE Select Hotels’ flexibility in planning for, or reacting to, changes in its business and in its industry in general;

 

   

the substantial leverage may cause BRE Select Hotels to make non-strategic divestitures; and

 

   

the substantial leverage and the amount required to pay BRE Select Hotels’ debt obligations could place BRE Select Hotels in a competitive disadvantage to its competitors that are less highly-leveraged because, among other things, it may restrict BRE Select Hotels’ ability to make competitive upgrades to its existing buildings.

BRE Select Hotels’ substantial consolidated indebtedness exposes its assets to the possibility of foreclosure, which could result in the loss of its investment in one or more properties.

Upon the completion of the merger, BRE Select Hotels will have approximately $793 million of mortgage and mezzanine debt outstanding with direct and indirect ownership interests in sixty-five of its sixty-six properties being subject to cross-collateralized and cross-defaulted debt and the one remaining property securing a separate existing mortgage loan, which will remain outstanding following completion of the merger. If the subsidiaries of BRE Select Hotels that are borrowers under the debt financing, which we refer to in this proxy statement/prospectus as “borrowers,” are unable to meet the required debt service payments under the debt financing, the holder of the mortgage or lender could foreclose on direct or indirect ownership interests in the property or direct or indirect ownership interests in the cross-defaulted and cross-collateralized properties, resulting in a loss of BRE Select Hotels’ investments. Alternatively, if BRE Select Hotels decides to cause the sale of properties to raise funds to meet debt service obligations, it is possible that such properties would be disposed of at a loss.

 

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Existence of mezzanine indebtedness creates additional foreclosure risk.

One or more mezzanine loans will be funded to certain subsidiaries of BRE Select Hotels that own direct or indirect ownership interests in the mortgage borrowers. Each mezzanine loan will be secured by a first priority, cross-collateralized pledge of direct or indirect ownership interests in the mortgage borrowers, all related personal property, reserves, a pledge of all income received by each mezzanine borrower with respect to its direct or indirect ownership interests in the mortgage borrowers and a cash management account. If there were a default under any mezzanine loan, the lender of such mezzanine loan would be entitled to foreclose on the direct or indirect ownership interests in the mortgage borrower. The process for any such foreclosure may vary, but foreclosure on mezzanine indebtedness generally occurs more expeditiously than foreclosure on mortgage indebtedness. Accordingly, it is more difficult to restructure mezzanine loans or delay or prevent foreclosure of mezzanine loans by causing sales of properties or refinancing mezzanine loans.

Following the completion of the merger, BRE Select Hotels may not be able to make the required payments on its debt or refinance its debt when it comes due, and may be forced to take other actions to satisfy its obligations under its debt, which may or may not be successful.

The debt financing is not subject to any mandatory amortization payments. Indebtedness with a substantial remaining principal balance on its stated maturity involves a greater risk of non-payment at maturity than a fully amortizing loan. When the remaining principal balance under the debt financing becomes due, borrowers may not have enough cash to repay the outstanding indebtedness under the debt financing and may not be able to obtain new financing to repay the outstanding indebtedness under the debt financing or the terms of any new financing may not be as favorable as the terms of the debt financing. If the interest rate on any new debt is higher than the rate on the debt financing, the borrowers’ costs will increase. The borrowers’ ability to refinance the debt financing and the terms on which they might refinance will depend upon economic conditions, conditions in the capital markets and in the hotel industry and on the performance of the properties owned by borrowers. The recent economic downturn has resulted in the tightening of lending standards and a substantial reduction in capital available to refinance commercial mortgage loans. These factors have increased the risks in refinancing commercial mortgage loans. There is no guarantee that BRE Select Hotels will be able to refinance or cause the repayment of the outstanding indebtedness under the debt financing or any of its loans at maturity. If principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, cash flows may not be sufficient in all years to repay all maturing debt at the relevant time(s) and one or more properties or ownership interests in the mortgage borrowers may be foreclosed upon or BRE Select Hotels may be forced to dispose of properties on disadvantageous terms.

Covenants and other restrictions in BRE Select Hotels’ post-merger financing arrangement will limit its operations and activities.

The loan documents to which borrowers will be a party, which we refer to in this proxy statement/prospectus as the “debt agreements,” will, and the terms of any future indebtedness may, contain certain financial, operating and other covenants that restrict BRE Select Hotels’ ability to finance future operations or capital needs or engage in other activities that may be in its interest. Such restrictions will affect, and in many respects limit or prohibit, among other things, BRE Select Hotels or certain of its subsidiaries’ ability to:

 

   

incur additional secured or unsecured indebtedness;

 

   

make cash distributions at any time that the debt yield, representing the quotient (expressed as a percentage) calculated by dividing the annualized net operating income of the properties subject to the debt agreements by the outstanding principal amount of indebtedness under the debt agreements, is less than 8.75% or if there is a default continuing under any mezzanine loan (including the failure to make regularly scheduled debt service payments thereunder) until such time the debt yield is equal to or greater than 9.00% or the mezzanine loan default has been cured; BRE Select Hotels currently expects that the debt yield will, on the date of the completion of the merger, be greater than 10.2%;

 

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make investments or acquisitions;

 

   

use assets as security in other transactions;

 

   

sell assets (except that the borrower is expected to be permitted to sell assets so long as the debt yield is not reduced, subject to payment of any applicable prepayment premiums);

 

   

guarantee other indebtedness; and

 

   

consolidate, merge or transfer all or substantially all of BRE Select Hotels’ assets.

A breach of any of these covenants could result in an event of default and/or accelerate some or all of BRE Select Hotels’ indebtedness under the debt agreements. If an event of default occurs under the debt agreements, the lenders could elect to declare all borrowings outstanding under the debt agreements, together with any accrued and unpaid interest, immediately due and payable, or require BRE Select Hotels to apply all its available cash to repay these borrowings.

Risks Related to the Ownership of the New Preferred Shares

BRE Select Hotels will be a holding company dependent upon the assets and operations of its subsidiaries.

BRE Select Hotels will be a holding company with no assets other than the capital stock of its subsidiaries. These subsidiaries will conduct all of BRE Select Hotels’ operations and will be its only source of income. Accordingly, BRE Select Hotels will be dependent on dividends and other distributions from its subsidiaries to generate the funds necessary to make payments on the New Preferred Shares, including payments of dividends and amounts due upon redemption. As described under “The Merger—Financing of the Merger—Other Terms” beginning on page 72, the debt agreements will contain covenants that will restrict the ability of BRE Select Hotels’ subsidiaries to pay dividends or make other distributions to BRE Select Hotels, which may impair its ability to make cash payments on the New Preferred Shares. Any future indebtedness of BRE Select Hotels or its subsidiaries will likely include restrictions with similar effects. The New Preferred Shares will be solely the obligations of BRE Select Hotels and no other entity will have any obligation, contingent or otherwise, to make any payments in respect of the New Preferred Shares.

The New Preferred Shares will effectively rank junior to any indebtedness of BRE Select Hotels or any of its subsidiaries.

The New Preferred Shares will effectively rank junior to the debt financing and any other indebtedness of BRE Select Hotels or any of its subsidiaries. It is expected that at the effective time of the merger, BRE Select Hotels and its subsidiaries will have approximately $793 million of indebtedness outstanding. The debt financing will be secured by liens on substantially all of the assets of BRE Select Hotels’ subsidiaries. This will permit the lenders under the debt financing to be paid from the proceeds of BRE Select Hotels’ assets before any of its other creditors or equity holders, including holders of New Preferred Shares, may be paid. In addition, the certificate of designations governing the New Preferred Shares will permit BRE Select Hotels and its subsidiaries to incur up to $800 million of indebtedness without the consent of the holders of two-thirds of the New Preferred Shares outstanding at the time. BRE Select Hotels may, however, incur more than $800 million of indebtedness without the consent of the holders of New Preferred Shares to extent the proceeds of such additional indebtedness are used to redeem or purchase New Preferred Shares. See “Description of New Preferred Shares—Limitation on Indebtedness” beginning on page 125.

Under certain circumstances, BRE Select Hotels may be prevented from paying dividends on the New Preferred Shares, or dividends may be paid in additional New Preferred Shares instead of cash.

Although dividends on New Preferred Shares are cumulative and will accrue in arrears until paid, holders will be entitled to dividends only when, as and if declared by BRE Select Hotels’ board of directors and will not

 

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receive cash dividends if BRE Select Hotels does not have funds legally available for such payment, or if such payment is prohibited by law or by the terms of any indebtedness of BRE Select Hotels or any of its subsidiaries.

Under Delaware law, BRE Select Hotels’ board of directors may declare dividends on the company’s capital stock, including the New Preferred Shares, only out of the company’s surplus. If BRE Select Hotels has no surplus, the board may declare dividends out of the company’s net profits for the year in which a dividend is declared or for the immediately preceding fiscal year. For the purpose of this proxy statement/prospectus, “surplus” means the excess of a company’s total assets over the sum of its total liabilities plus the par value of its outstanding capital stock. In order to pay dividends in cash, BRE Select Hotels must have surplus or net profits equal to the full amount of the cash dividend at the time the dividend is declared and paid. Neither Apple Six nor BRE Select Hotels can predict what the value of BRE Select Hotels’ assets or the amount of its liabilities will be in the future. Thus, neither Apple Six nor BRE Select Hotels can guarantee that BRE Select Hotels will be able to pay cash dividends on the New Preferred Shares.

The debt agreements will contain covenants that may impair BRE Select Hotels’ ability to pay cash dividends. To the extent that (i) BRE Select Hotels is unable to declare or pay full cash dividends on the New Preferred Shares as a result of the terms of any indebtedness of BRE Select Hotels or any of its subsidiaries, including the debt financing, or (ii) insufficient funds are legally available to BRE Select Hotels for the payment in full of such cash dividends, BRE Select Hotels may elect to instead pay such dividends in additional New Preferred Shares.

Dividends will cumulate at the specified applicable rate on the liquidation preference per share (as it may be adjusted from time to time), as described under “Description of New Preferred Shares—Dividends” on page 118. The liquidation preference will initially be $1.90 per share. As described under “Description of New Preferred Shares—Adjustment to Liquidation Preference,” the initial liquidation preference of $1.90 per share will be subject to downward adjustment should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million.

If BRE Select Hotels is dissolved, liquidated or wound up at a time when the New Preferred Shares remain outstanding, the holders of the New Preferred Shares will be entitled to receive only an amount equal to the liquidation preference (as it may be adjusted from time to time), plus any accumulated and unpaid dividends, to the extent that BRE Select Hotels has funds legally available therefor. Any remaining assets will be distributable to holders of BRE Select Hotels’ other equity securities.

New Preferred Shares are redeemable at the election of BRE Select Hotels at any time.

BRE Select Hotels will have the right to redeem all or any portion of the New Preferred Shares at any time without the consent of holders for an amount in cash equal to the liquidation preference (as it may be adjusted from time to time), plus any accumulated and unpaid dividends (subject to the right of holders of record on any dividend record date to receive the related dividend payment), which we refer to in this proxy statement/prospectus as the “redemption price.” Upon such redemption, a holder of New Preferred Shares may be required to recognize capital gains for federal income tax purposes as a result thereof. See “Description of New Preferred Shares—Redemption” on page 121.

The holders of New Preferred Shares will have limited rights to require BRE Select Hotels to redeem the New Preferred Shares, and BRE Select Hotels may not be able to redeem New Preferred Shares if required.

Although BRE Select Hotels may elect to redeem all or any portion of the New Preferred Shares at any time, BRE Select Hotels will be required to redeem the New Preferred Shares only under limited circumstances and only if funds are legally available therefor.

 

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Specifically, BRE Select Hotels will be required to redeem, in cash out of any legally available funds, all of the New Preferred Shares for the applicable redemption price not later than the 60th day following any change of control (or, under certain circumstances, upon the occurrence of such change of control). In addition, on or after the 7-1/2th anniversary of the issuance of the New Preferred Shares in connection with the merger, any holder of New Preferred Shares may require BRE Select Hotels to redeem, in cash out of any legally available funds, all or any portion of such holder’s New Preferred Shares at the redemption price not later than the quarterly dividend payment date next following such redemption request.

For purposes of this proxy statement/prospectus, a “change of control” occurs (i) if Buyer and its affiliates cease to (x) beneficially own at least 50% of the total voting power of all shares of BRE Select Hotels entitled to vote generally in the election of directors or (y) have the right to appoint a majority of the members of the board of directors of BRE Select Hotels or (ii) upon the sale, lease, conveyance or other transfer, directly or indirectly, of all or substantially all of BRE Select Hotels’ property and assets. Accordingly, Buyer and its affiliates may sell a significant portion of BRE Select Hotels’ common stock or property and assets without being required to redeem any New Preferred Shares.

BRE Select Hotels may not have sufficient legally available funds to redeem the New Preferred Shares if required to do so following any change of control or pursuant to any redemption request. In addition, the debt agreements will contain covenants that may impair BRE Select Hotels’ ability to redeem New Preferred Shares.

The rights of the holders of New Preferred Shares will be significantly more limited than the rights of Apple Six’s unitholders.

The rights of the holders of New Preferred Shares will be significantly more limited than the rights of Apple Six’s unitholders. In particular, the holders of New Preferred Shares will not be entitled to vote in the election or removal of directors or any other matters submitted to a vote of shareholders, except with respect to the authorization or issuance of other classes or series of capital stock ranking senior to or on parity with the New Preferred Shares or certain adverse changes to the rights or preferences of the New Preferred Shares, as described under “Description of New Preferred Shares—Voting Rights” on page 124. In addition, except as described under “Description of New Preferred Shares—Dividends” on page 118, “Description of New Preferred Shares—Liquidation Rights” on page 120 and “Description of New Preferred Shares—Redemption” on page 121, holders of New Preferred Shares will not be entitled to receive distributions or other payments in respect of their ownership interest. See “Comparison of Shareholders’ Rights” beginning on page 127 for a general comparison of material similarities and differences between the rights of Apple Six’s unitholders and the rights of the holders of the New Preferred Shares.

The liquidation preference of the New Preferred Shares may be reduced in the future.

As described under “Description of New Preferred Shares—Adjustment to Liquidation Preference” on page 121, the initial liquidation preference of $1.90 per New Preferred Share may be reduced significantly should net costs and payments relating to certain legacy litigation and regulatory matters exceed $3.5 million. The legal matters to which these costs relate are described under “Legacy Matters” beginning on page 101. At this time, Apple Six cannot reasonably predict the outcome of these proceedings or provide a reasonable estimate of the costs of these proceedings, if any, but it is possible that the liquidation preference of the New Preferred Shares could be reduced to zero.

Even if BRE Select Hotels is successful in addressing these legal matters, the costs associated with them may be significant, and the liquidation preference may therefore be reduced significantly below $1.90 per share.

 

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The New Preferred Shares do not and will not have a trading market and will be subject to restrictions on ownership and transfer.

No public market for the New Preferred Shares currently exists and BRE Select Hotels does not expect that one will develop at any time in the future. The New Preferred Shares will not be listed on any securities exchange.

In addition, BRE Select Hotels must comply with certain requirements to qualify as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to in this proxy statement/prospectus as the “Code.” Accordingly, BRE Select Hotels’ certificate of incorporation will provide that to the extent that any transfer of stock would jeopardize its status as a REIT, cause it to be “pension-held,” or cause it not to be “domestically controlled,” which events in this proxy statement/prospectus we refer to as “prohibited events,” then the number of shares that otherwise would result in a prohibited event will be deemed to have been transferred to a trustee to be held in a trust established by BRE Select Hotels’ board of directors for the benefit of a charitable beneficiary. If the transfer to the charitable trust would not for any reason prevent the prohibited event, then the transfer of that number of shares that otherwise would cause the prohibited event will be void. In either case, the intended transferee, which in this proxy statement/prospectus we refer to as the “prohibited owner,” will not acquire any rights in such shares. A prohibited owner would receive net proceeds from the sale as described under “Description of New Preferred Shares—Restrictions on Ownership and Transfer” beginning on page 125.

As a result of the lack of a trading market and the restrictions on transferability discussed above, you may not be able to sell the New Preferred Shares should you need liquidity and, even if you sell New Preferred Shares, the price at which you sell them may be significantly less than their liquidation preference or their fair market value. Prospective holders should view the New Preferred Shares as illiquid and must be prepared to hold their investment indefinitely.

Sponsor and its affiliates will control BRE Select Hotels and may have conflicts of interest with BRE Select Hotels or holders of the New Preferred Shares.

Sponsor and its affiliates will control BRE Select Hotels following completion of the merger. Through their ownership of Buyer, they will have the power to elect all of BRE Select Hotels’ directors and appoint new management. Subject to the limited rights of the holders of New Preferred Shares described under “Description of New Preferred Shares—Voting Rights,” Sponsor and its affiliates will also have the power to approve any action requiring the approval of shareholders of BRE Select Hotels, including the adoption of amendments to BRE Select Hotels’ certificate of incorporation and BRE Select Hotels’ decisions to enter into any significant corporate transactions, including mergers and sales of substantially all of BRE Select Hotels’ assets.

So long as Sponsor and its affiliates continue to directly or indirectly hold a significant amount of BRE Select Hotels’ equity interests, they will continue to be able to strongly influence or effectively control BRE Select Hotels’ decisions. Further, Sponsor and its affiliates are in the business of making investments in companies and real estate assets and currently own, and may, from time to time, acquire and hold, in each case, interests in businesses or assets that compete directly or indirectly with BRE Select Hotels. In addition, certain affiliates of Sponsor own Hilton Hotels Corporation, which is or owns the franchisor of 27 of the hotels currently owned by Apple Six. In accordance with the BRE Select Hotels’ certificate of incorporation, Sponsor will have no obligation to present any corporate opportunities to BRE Select Hotels or to conduct its other business and investment affairs in the best interests of BRE Select Hotels or holders of New Preferred Shares. See “Comparison of Shareholders’ Rights—Competing Activities and Corporate Opportunities” on page 133.

 

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Buyer and its affiliates may sell their shares in BRE Select Hotels, or cause BRE Select Hotels to sell significant portions of its property or assets, to any third party at any time without making any payment to the holders of New Preferred Shares, so long as such sale does not constitute a change of control.

Buyer and any of its affiliates that may own shares of BRE Select Hotels may sell their shares, or may cause BRE Select Hotels to sell significant portions of its property or assets, to any third party at any time without obtaining the consent of the holders of the New Preferred Shares. Holders of New Preferred Shares will not be entitled to any redemption or other payment upon such sale unless it constitutes a change of control.

You will not be protected from certain important corporate events, such as a reorganization, restructuring, merger or similar transaction, unless such transaction constitutes a change of control. Such a transaction may not involve a change in voting power or beneficial ownership or, even if it does, may not involve a change that constitutes a change of control that would trigger BRE Select Hotels’ obligation to redeem the New Preferred Shares.

BRE Select Hotels has the ability to terminate its Exchange Act reporting if permitted by applicable law.

Following completion of the merger, if BRE Select Hotels were to cease to be a reporting company under the Securities Exchange Act of 1934, as amended, which we refer to in this proxy statement/prospectus as the “Exchange Act,” and to the extent not required in connection with any other debt or equity securities of BRE Select Hotels registered or required to be registered under the Exchange Act, the information now available to Apple Six shareholders in the annual, quarterly and other reports required to be filed by Apple Six would not be available to holders of the New Preferred Shares.

Risks Related to BRE Select Hotels

BRE Select Hotels has no operating history.

BRE Select Hotels has not commenced operations and therefore has no operating history upon which you may evaluate its performance. There can be no assurance that BRE Select Hotels will be able to implement its investment strategy and investment approach or that its shareholders will receive a return of their capital. Past performance of Apple Six is not necessarily indicative of future results of BRE Select Hotels, particularly in light of the changes that will occur in connection with the merger, including changes in management and capital structure.

Legal and Governmental Regulatory Oversight Risks

As a result of regulatory inquiries or other regulatory actions, BRE Select Hotels may become subject to lawsuits. As described under “Legacy Matters” beginning on page 101, Apple Six is currently party to class action litigation and an SEC investigation. Following completion of the merger, BRE Select Hotels, as the surviving corporation in the merger, would become involved in these legacy matters to the extent then pending. If the outcome of any regulatory actions or lawsuits, including the legacy matters, is unfavorable BRE Select Hotels may be required to pay damages and/or change its business practices, any of which could have a material adverse effect on BRE Select Hotels’ financial condition, results of operations and cash flows. The ability of the BRE Select Hotels to access capital markets, including commercial debt markets, could be negatively impacted by unfavorable, or the possibility of unfavorable, outcomes to lawsuits or adverse regulatory actions. As described under “Description of New Preferred Shares—Adjustment to Liquidation Preference,” net costs and payments relating to the legacy matters could result in a downward adjustment to the initial liquidation preference of $1.90 per New Preferred Share.

BRE Select Hotels may become subject to regulatory inquiries, which could result in costs and personnel time commitment in connection with responding. BRE Select Hotels may also become subject to action by governing regulatory agencies as a result of its activities, which could result in costs to respond and fines or

 

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changes in BRE Select Hotels’ business practices, any of which could have a material adverse effect on the financial condition, results of operations, liquidity and capital resources, and cash flows of BRE Select Hotels.

Hospitality Industry

The success of BRE Select Hotels’ properties will depend largely on the property operators’ ability to adapt to dominant trends in the hotel industry as well as greater competitive pressures, increased consolidation, industry overbuilding, dependence on consumer spending patterns and changing demographics, the introduction of new concepts and products, availability of labor, price levels and general economic conditions. The success of a particular hotel brand, the ability of a hotel brand to fulfill any obligations to operators of its business, and trends in the hotel industry may affect BRE Select Hotels’ income and the funds it has available to distribute to shareholders. Additionally, each of the properties is affiliated with a national or international hotel chain. Changes in public perception of the chain or deterioration in the financial health of the franchisor may affect the income generated by the properties.

The hospitality industry could also experience a significant decline in occupancy and average daily rates due to a reduction in business or leisure travel. General economic conditions, increased fuel costs, natural disasters and terrorist attacks are a few factors that could affect an individual’s willingness to travel.

Seasonality

The hotel industry is seasonal in nature. As a result, there may be quarterly fluctuations in results of operations, which may affect revenues and BRE Select Hotels’ ability to make distributions to shareholders.

Franchise Agreements

BRE Select Hotels’ subsidiaries will operate all of the properties pursuant to franchise, management or license agreements with nationally recognized hotel brands. These agreements contain specific standards for, and restrictions and limitations on, the operation and maintenance of BRE Select Hotels’ properties in order to maintain uniformity within the franchisor system. These standards could potentially conflict with BRE Select Hotels’ ability to create specific business plans tailored to each property and to each market. In connection with the completion of the merger, it is expected that the franchisors for the properties will require BRE Select Hotels to engage in certain upgrades with respect to the properties that will result in additional capital expenditures. The existence of construction or renovation at a property may make a property less attractive to guests, and accordingly have a negative impact on cash flows. Additionally, such construction or renovations may not be completed or may not be completed in the contemplated time frame. Upon completion, such construction or renovation may not improve the operations at, or increase the value of, the subject property.

Competition

The hotel industry is highly competitive. At the completion of the merger, each of BRE Select Hotels’ hotels will be located in a developed area that includes other hotels and will compete for guests primarily with other hotels in BRE Select Hotels’ immediate vicinity and secondarily with other hotels in the BRE Select Hotels’ geographic market. An increase in the number of competitive hotels in a particular area could have a material adverse effect on the occupancy, average daily rate and revenue per available room of BRE Select Hotels’ hotels in that area.

General Local and National Economic Conditions

Changes in general local or national economic or market conditions, increased costs of energy, increased costs of insurance, increased costs of products, increased costs and shortages of labor, competitive factors, fuel shortages, quality of management, the ability of a hotel chain to fulfill any obligations to operators of its hotel business, limited alternative uses for the building, changing consumer habits, condemnation or uninsured losses,

 

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changing demographics, changing traffic patterns, inability to remodel outmoded buildings as required by the franchise or lease agreement and other factors beyond BRE Select Hotels’ control may reduce operating results and the value of properties that BRE Select Hotels owns. Additionally, these items, among others, may reduce the availability of capital to BRE Select Hotels. As a result, cash available to make distributions to shareholders may be affected.

Current General Economic Environment in the Lodging Industry

The United States continues to be in a post-recessionary low-growth environment, which has experienced historically high levels of unemployment. Uncertainty over the depth and duration of this economic environment continues to have a negative impact on the lodging industry. There is some general consensus among economists that the economy in the United States emerged from a recessionary environment in 2009, but high unemployment levels and sluggish business and consumer travel trends were evident in 2010, 2011 and 2012. As a result, BRE Select Hotels and the industry may, among other things, experience reductions in revenue. Accordingly, BRE Select Hotels’ financial results will be impacted by the economic environment, and future financial results and growth could be further harmed until a more expansive national economic environment is prevalent. A weaker than anticipated economic recovery, or a return to a recessionary national economic environment, could result in low or decreased levels of business and consumer travel, negatively impacting the lodging industry. Such an economic outcome could also negatively impact BRE Select Hotels’ future growth prospects and results of operations.

Real estate property investments are illiquid, and it may not be possible to dispose of assets when appropriate or on favorable terms.

Real estate property investments generally cannot be disposed of quickly, and a return of capital and realization of gains, if any, from an investment generally occur upon the disposition or refinancing of the underlying property. BRE Select Hotels may be unable to realize its investment objectives by sale, other disposition or refinancing at attractive prices or within any desired period of time. The ability to sell assets could also be restricted by certain covenants in the debt agreements. As a result, BRE Select Hotels may be required to dispose of assets on less than favorable terms, if at all, and it may be unable to vary its portfolio in response to economic or other conditions, which could adversely affect its financial position.

Environmental conditions could result in significant unexpected costs.

BRE Select Hotels is subject to federal, state and local environmental regulations that apply generally to the ownership of real property and the operations conducted on real property. Under various federal, state and local laws, ordinances and regulations, upon completion of the merger BRE Select Hotels may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances or petroleum product releases at a property and, therefore, may become liable for the costs of removal or remediation of certain hazardous substances released on or in BRE Select Hotels’ property or disposed of by BRE Select Hotels, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). Such liability may be imposed whether or not BRE Select Hotels knew of, or was responsible for, the presence of these hazardous or toxic substances. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect BRE Select Hotels’ ability to sell such property or to borrow using such property as collateral.

There may also be asbestos-containing materials at some of BRE Select Hotels’ properties. While BRE Select Hotels does not expect the environmental conditions at its properties, considered as a whole, to have a material adverse effect, there can be no assurance that this will be the case. Further, no assurance can be given that any environmental studies performed have identified or will identify all material environmental conditions that may exist with respect to any of the properties owned by BRE Select Hotels.

 

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Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require BRE Select Hotels to make expenditures that adversely affect its cash flows.

All of the properties that will be owned by BRE Select Hotels are required to comply with the Americans with Disabilities Act, which we refer to in this proxy statement/prospectus as the “ADA.” The ADA has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and noncompliance could result in imposition of fines by the United States government or an award of damages to private litigants, or both. As a result, BRE Select Hotels could be required to expend funds to comply with the provisions of the ADA, which could adversely affect the results of operations and financial condition. In addition, BRE Select Hotels would be required to operate the properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to the properties. BRE Select Hotels may be required to make substantial capital expenditures to comply with those requirements, and these expenditures could have a material adverse effect on its ability to meet its financial obligations, to sell such property or to borrow using such property as collateral.

BRE Select Hotels’ real estate assets may be subject to impairment charges.

On a periodic basis, BRE Select Hotels will assess whether there are any indicators that the value of its real estate assets and intangible assets may be impaired. Long-lived assets and intangible assets will be reviewed for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is determined by a comparison of the carrying amount of the assets to the future net undiscounted net cash flow expected to be generated by the asset. If the carrying value of such assets exceeds such cash flows, the assets are considered impaired. The impairment charge to be recognized is measured by the amount by which carrying value exceeds fair value. Fair value is determined by using management’s best estimate of discounted net cash flows over the remaining life of the asset, including proceeds from the eventual disposition of the asset.

BRE Select Hotels would be required to use estimates and assumptions that affect the reported value of these assets and these assessments will have a direct impact on BRE Select Hotels’ earnings because recording an impairment charge results in an immediate negative adjustment to earnings. There can be no assurance that BRE Select Hotels will not take charges in the future related to the impairment of its assets. Any future impairment could have a material adverse effect on BRE Select Hotels’ results of operations in the period in which the charge is taken.

Technology is used in operations, and any material failure, inadequacy, interruption or security failure of that technology could harm the business.

BRE Select Hotels and its hotel managers and franchisors will rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data. Some of the information technology is purchased from vendors, on whom the systems depend. BRE Select Hotels and its hotel managers and franchisors may rely on commercially available and internally developed systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential operator and other customer information, such as individually identifiable information, including information relating to financial accounts. Although BRE Select Hotels and its hotel managers and franchisors will have taken steps advisable to protect the security of their information systems and the data maintained in those systems, it is possible that the safety and security measures taken will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function,

 

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security and availability of information systems could interrupt operations, damage reputation, subject BRE Select Hotels to liability claims or regulatory penalties and could have a material adverse effect on the business, financial condition and results of operations of BRE Select Hotels.

Certain perils could adversely affect BRE Select Hotels’ business.

Concentrations of properties in particular geographic areas or regions of the United States may increase the risk that adverse economic or other developments or natural disasters (e.g. earthquakes, floods, hurricanes or events such as the platform explosion and subsequent oil spill that occurred in the Gulf of Mexico in 2010) affecting a particular region of the country could adversely impact the business of BRE Select Hotels. Some of the properties of BRE Select Hotels will be located in areas, such as California, Oregon and Washington, which are high-risk geographical areas for earthquakes. In addition, BRE Select Hotels will have properties that are located in coastal counties which may be more susceptible to wind or flood damage than properties in other parts of the country. Some of the properties are also located in or near major urban areas which could be the target of future terrorist acts. Depending upon its magnitude, an earthquake, hurricane, severe storm or terrorist act could severely damage one or more of BRE Select Hotels’ properties, which would adversely affect its business. BRE Select Hotels will likely maintain earthquake, wind and flood and, to the extent it is available at reasonable rates or required by the financing debt documents, terrorism insurance for BRE Select Hotels’ properties and the resulting business interruption. Although the properties are insured to the extent and at levels consistent with insurance carried by institutional owners of hotels, there is no assurance that any loss incurred will be of a type covered by such insurance and will not exceed the limits of such insurance. Additionally, any earthquake, wind, flood or terrorist peril, whether or not insured, could have an adverse effect on BRE Select Hotels’ results of operations and financial condition, which could result in a decline in the value of the New Preferred Shares.

Tax Risks

Your investment has various income tax risks.

Although the U.S. federal income tax considerations relevant to the merger and your investment are generally described in “Material U.S. Federal Income Tax Consequences,” you should consult your own tax advisor concerning the effects of federal, state and local income tax law of the merger and an investment in the New Preferred Shares.

Qualification as a REIT

The U.S. federal income tax rules governing a REIT are highly technical and complex. They require ongoing compliance with and interpretation of a variety of tests and regulations that depend on, among other things, future operations. Though BRE Select Hotels intends to operate as a REIT and expects to satisfy these tests, there can be no assurance that it will qualify as a REIT for any particular year. If BRE Select Hotels was to fail to qualify as a REIT for any taxable year, it would be subject to federal income tax at corporate rates and distributions to its shareholders would not qualify for the dividends paid deduction. This tax liability would reduce net earnings available for distribution to shareholders. In addition, BRE Select Hotels would generally be disqualified from treatment as a REIT for the year in which it loses its REIT status and for the four taxable years following such year.

Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations.

The maximum marginal rate of tax payable by taxpayers taxed at individual rates on dividends received from a regular C corporation is 20%. This reduced tax rate, however, will not apply to dividends paid by a REIT on its stock, except for certain limited amounts.

 

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BRE Select Hotels may pay taxable dividends of its New Preferred Shares.

If and only if and to the extent (i) BRE Select Hotels is unable to declare or pay full cash dividends on the New Preferred Shares as a result of the terms of any indebtedness of BRE Select Hotels or any of its subsidiaries or (ii) insufficient funds are legally available to BRE Select Hotels for the payment in full of such cash dividends, BRE Select Hotels may elect to instead pay such dividends in additional New Preferred Shares. Shareholders receiving such dividends will be required to include the fair market value of such New Preferred Shares as ordinary income to the extent of BRE Select Hotels’ current and accumulated earnings and profits, as determined for federal income tax purposes. As a result, shareholders may be required to pay income tax with respect to such dividends in excess of the cash dividends received.

You may be required to include constructive distributions in income.

You may be treated as receiving constructive distributions for U.S. federal income tax purposes if the “issue price” of your New Preferred Shares is lower than the Liquidation Preference of such stock. Such constructive distributions would be included in your income as dividend income (to the extent of current or accumulated earnings and profits as determined for federal income tax purposes) in increasing amounts during the period from the date a New Preferred Share is issued to the date on which you may redeem such stock. While BRE Select Hotels does not expect that the issue price of the New Preferred Shares will be lower than their Liquidation Preference, the determination of issue price is not entirely clear and depends in part on facts that will not be known until after the merger.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the annexes to this proxy statement/prospectus contain “forward-looking statements.” You can identify these statements by the fact that they do not relate strictly to historical or current facts. Further, statements that include words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue” or “pursue,” or the negative or other words or expressions of similar meaning, may identify forward-looking statements, and statements regarding the benefits of the merger or the other transactions contemplated by the merger agreement or Apple Six’s or BRE Select Hotels’ future financial condition, results of operations and business are also forward-looking statements. Without limiting the generality of the preceding sentence, certain information contained in the sections “The Merger—Background of the Merger,” “The Merger—Reasons for the Merger,” “The Merger—Recommendation of the Apple Six Board of Directors” and “The Merger—Projected Financial Information” constitute forward-looking statements.

Apple Six and BRE Select Hotels base these forward-looking statements on particular assumptions that they have made in light of their industry experience, as well as their perception of historical trends, current conditions, expected future developments and other factors that they believe are appropriate under the circumstances. The forward-looking statements are necessarily estimates reflecting the judgment of Apple Six’s and BRE Select Hotels’ management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. In addition to other factors and matters contained in this proxy statement/prospectus, including those disclosed under “Risk Factors” beginning on page 28, these forward-looking statements are subject to risks, uncertainties and other factors, including, among others:

 

   

the inability to complete the merger due to the failure to obtain approval of the merger agreement by Apple Six’s shareholders or the failure to satisfy the other conditions to completion of the merger described in the merger agreement;

 

   

the failure of the merger to be completed for any other reason or any significant delay in the expected completion of the merger and the other transactions contemplated by the merger agreement;

 

   

the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement and the fact that a termination under certain circumstances could require Apple Six to pay Buyer a termination fee and expense reimbursement or require Buyer to pay Apple Six a termination fee and expense reimbursement, as described under “The Merger Agreement—Termination Fees and Expenses” beginning on page 94;

 

   

the possibility that the merger and the other transactions contemplated by the merger agreement involve unexpected costs that may be in addition to or exceed Apple Six’s and Buyer’s estimate of the merger-related costs and expenses described under “Risk Factors—Risks Related to the Merger;”

 

   

the failure of Buyer to obtain the necessary debt financing set forth in the debt commitment letter received in connection with the merger agreement;

 

   

the outcome of any litigation and judicial actions that may be instituted against Apple Six, BRE Select Hotels, Buyer and others relating to the merger and the other transactions contemplated by the merger agreement;

 

   

the risk that the announcement of the merger disrupts Apple Six’s ongoing business operations;

 

   

adverse changes in the real estate and real estate capital markets;

 

   

changes in laws, including increased tax rates, changes in regulations or accounting standards, third-party relations and approvals, and decisions of courts, regulations and governmental bodies;

 

   

the ability of Apple Six to implement its operating strategy and to manage planned growth;

 

   

the outcome of current and future litigation, regulatory proceedings or inquiries;

 

   

changes in general political, economic and competitive conditions and specific market conditions;

 

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and other risks detailed in Apple Six’s filings with the SEC, including Apple Six’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, a copy of which is attached to this proxy statement/prospectus as Annex H. See also “Where You Can Find More Information” on page 171 of this proxy statement/prospectus.

As you read and consider the information in this proxy statement/prospectus, you are cautioned to not place undue reliance on these forward-looking statements. These statements are not guarantees of performance or results and speak only as of the date of this proxy statement/prospectus, in the case of forward-looking statements contained in this proxy statement/prospectus, or the dates of the documents attached as annexes to this proxy statement/prospectus, in the case of forward-looking statements made in those documents. These forward-looking statements involve risks, uncertainties and assumptions. In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this proxy statement/prospectus or the annexes to this proxy statement/prospectus will in fact transpire. New factors emerge from time to time, and it is not possible for Apple Six or BRE Select Hotels to predict all of them. Nor can Apple Six or BRE Select Hotels assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

Neither Apple Six nor BRE Select Hotels undertake any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events, except as required by law.

All subsequent written or oral forward-looking statements concerning the merger or the other transactions contemplated by the merger agreement or other matters addressed in this proxy statement/prospectus and attributable to Apple Six, on the one hand, and/or Buyer or BRE Select Hotels, on the other hand, or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section of this proxy statement/prospectus.

 

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THE PARTIES TO THE MERGER

Apple REIT Six, Inc.

Apple REIT Six, Inc.

814 East Main Street

Richmond, Virginia 23219

(804) 344-8121

Apple Six, a Virginia corporation, is a REIT focused on upscale, extended-stay and select-service hotels. The portfolio consists of 66 hotels, containing a total of 7,658 guestrooms, diversified among 18 states. Apple Six, through its best efforts offering, originally sold its units for $10.50-$11.00 per unit. Since its offering in 2004, Apple Six has paid approximately $7.29 per unit in distributions, or $589 million in the aggregate.

For more information about Apple Six, please see Apple Six’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, a copy of which is attached to this proxy statement/prospectus as Annex H, or visit Apple Six’s website at www.applereitsix.com. Apple Six’s website address is provided as an inactive textual reference only. The information provided on Apple Six’s website is not part of this proxy statement/prospectus and is not incorporated by reference into this proxy statement/prospectus. For more information on Apple Six, see “Where You Can Find More Information” on page  171.

BRE Select Hotels Holdings LP

BRE Select Hotels Holdings LP

c/o Blackstone Real Estate Partners VII L.P.

345 Park Avenue

New York, New York 10154

(212) 583-5000

Buyer is a Delaware limited partnership and is an affiliate of Sponsor. Buyer was formed solely for the purpose of acquiring Apple Six and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

BRE Select Hotels Corp

BRE Select Hotels Corp

c/o Blackstone Real Estate Partners VII L.P.

345 Park Avenue

New York, New York 10154

(212) 583-5000

BRE Select Hotels, a Delaware corporation, was formed on November 28, 2012 solely for the purpose of facilitating Buyer’s acquisition of Apple Six. Buyer owns all of the outstanding shares of common stock of BRE Select Hotels. BRE Select Hotels has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement. Upon completion of the proposed merger, BRE Select Hotels will merge with Apple Six and will continue as the surviving corporation.

 

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THE SPECIAL MEETING

This proxy statement/prospectus is being furnished in connection with the solicitation of proxies from Apple Six shareholders for use at the Apple Six special meeting. This proxy statement/prospectus and accompanying form of proxy are first being mailed to Apple Six shareholders on or about [], 2013.

Purpose of the Apple Six Special Meeting

A special meeting of the Apple Six shareholders will be held at the corporate headquarters of Apple Six, 814 East Main Street, Richmond, Virginia 23219, on [], 2013 at [] [].m., eastern time, for the following purposes:

 

   

to consider and vote to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement;

 

   

to consider and vote on the adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement; and

 

   

to transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

Only business within the purposes described in the Notice of Special Meeting of Shareholders may be conducted at the special meeting. Any action may be taken on the items of business described above at the special meeting on the date specified above, or on any date or dates to which the special meeting may be postponed or to which, by original or later adjournment, the special meeting may be adjourned.

Record Date; Voting Rights; Proxies

Apple Six has fixed the close of business on [], 2013 as the record date for determining holders of Apple Six common shares, Series A preferred shares and Series B convertible preferred shares entitled to notice of, and to vote at, the special meeting. Only holders of Apple Six common shares, Series A preferred shares and Series B convertible preferred shares at the close of business on the record date will be entitled to notice of and to vote at the special meeting, unless a new record date is set in connection with any adjournment or postponement of the special meeting. As of the record date, there were [] issued and outstanding common shares, [] issued and outstanding Series A preferred shares and [] issued and outstanding Series B convertible preferred shares of Apple Six. Each holder of record of Apple Six common shares, Series A preferred shares and Series B convertible preferred shares on the record date is entitled to one vote per share. Votes may be cast either in person or by properly executed proxy at the special meeting. All of the Series B convertible preferred shares are owned of record by Glade M. Knight. As of [], the issued and outstanding Apple Six common shares and Series A preferred shares are held by approximately 19,500 beneficial owners.

All shares which are entitled to vote and are represented at the special meeting by properly executed proxies received before or at the special meeting and not revoked, will be voted at such special meeting in accordance with the instructions indicated on the proxies. If no instructions are given on a timely and properly executed proxy card, your shares will be voted:

 

   

“FOR” approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement; and

 

   

“FOR” adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

Votes cast by proxy or in person at the special meeting will be tabulated by the inspector of elections appointed for the special meeting who will determine whether or not a quorum is present.

 

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If any other matters are properly presented at the special meeting for consideration, the persons named in the proxies will have discretion to vote on such matters in accordance with their best judgment.

Any proxy given by a shareholder pursuant to this solicitation may be revoked at any time before the vote is taken at the special meeting in any of the following ways:

 

   

submitting a later proxy by telephone or through the Internet prior to [],[].m., eastern time, on [], 2013,

 

   

filing with the Secretary of Apple Six, before the taking of the vote at the special meeting, a written notice of revocation bearing a later date than the proxy card,

 

   

duly executing a later dated proxy card relating to the same shares and delivering it to the Secretary of Apple Six before the taking of the vote at the special meeting, or

 

   

voting in person at the special meeting, although attendance at the special meeting will not by itself constitute a revocation of a proxy.

Any written notice of revocation or subsequent proxy card should be sent to Apple REIT Six, Inc., 814 East Main Street, Richmond, Virginia 23219, Attention: Secretary, or hand delivered to the Secretary of Apple Six before the taking of the vote at the special meeting.

Solicitation of Proxies

Apple Six is soliciting proxies on behalf of its board of directors. Apple Six will bear the costs of soliciting proxies. Brokerage houses, fiduciaries, nominees and others will be reimbursed for their out-of-pocket expenses in forwarding proxy materials to owners of shares held in their names. In addition to the solicitation of proxies by use of the mails, proxies may be solicited from shareholders by directors, officers and employees of Apple Six in person or by telephone, by facsimile, on the Internet or other appropriate means of communications. No additional compensation, except for reimbursement of reasonable out-of-pocket expenses, will be paid to directors, officers and employees of Apple Six in connection with this solicitation. Apple Six has retained David Lerner Associates, Inc. to solicit, and for advice and assistance in connection with the solicitation of, proxies for the special meeting at a cost of $200,000, including out-of-pocket expenses. Any questions or requests for assistance regarding this proxy statement/prospectus and related proxy materials may be directed to Apple Six by telephone at (804) 344-8121, Attention: Investor Relations.

Quorum; Abstentions and Broker Non-Votes

The holders of a majority of the outstanding Apple Six common shares, Series A preferred shares and Series B convertible preferred shares, in each case entitled to vote at the special meeting and present in person or represented by proxy, will constitute a quorum at the special meeting for each such class of shares. Shares that abstain from voting and broker non-votes will be treated as shares that are present and entitled to vote at the special meeting for purposes of determining whether a quorum exists. Because approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement requires the affirmative vote of a specified amount of the outstanding Apple Six common shares, Series A preferred shares and Series B convertible preferred shares, abstentions and broker non-votes will have the same effect as votes against approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement. Abstentions and broker non-votes will, however, have no effect on the outcome of the vote to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes because approval of the proposal to adjourn the special meeting requires a majority of the votes cast in favor of that proposal. In addition, the failure of a holder of Apple Six common shares, Series A preferred shares or Series B convertible preferred shares to return a proxy card will have the effect of a vote against approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement, but will have no effect on the outcome of the vote to adjourn the special meeting.

 

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The actions proposed in this proxy statement/prospectus are not matters that can be voted on by bankers, brokers or other custodians holding shares for beneficial owners without the beneficial owners’ specific instructions. If you hold your shares in “street name” through a bank, broker or other custodian and do not instruct your bank, broker or other custodian on how to vote your shares, they will not be able to vote your shares. Accordingly, if a bank, broker or other custodian holds your Apple Six common shares, Series A preferred shares or Series B convertible preferred shares you are urged to instruct your bank, broker or other custodian on how to vote your shares.

Required Vote

The approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement will require the affirmative vote, in each case voting as a separate voting group, of the holders of:

 

   

a majority of the outstanding Apple Six common shares;

 

   

more than two-thirds of the outstanding Apple Six Series A preferred shares; and

 

   

more than two-thirds of the outstanding Apple Six Series B convertible preferred shares.

The approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement will require that the number of votes cast for this proposal exceeds the number of votes cast against this proposal from holders of the Apple Six common shares represented in person or by proxy and entitled to vote at the special meeting. Holders of Series A preferred shares and Series B convertible preferred shares are not entitled to vote those shares on the proposal to adjourn the special meeting. Less than a quorum may adjourn the meeting.

Regardless of the number of shares you own, your vote is important. Please complete, sign, date and promptly return the enclosed proxy card today.

Voting Agreement and Series B Convertible Preferred Shares

Glade M. Knight, chairman and chief executive officer of Apple Six, has entered into a voting agreement with Buyer to vote all of his Apple Six Series B convertible preferred shares in favor of the proposal to approve the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement and the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement. Mr. Knight currently owns of record all outstanding 240,000 Series B convertible preferred shares of Apple Six, which are sufficient to approve, on behalf of the Apple Six Series B convertible preferred shareholders only, the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

The voting agreement also requires Mr. Knight to vote all of his common shares and Series A preferred shares and any additional shares of Apple Six’s capital stock acquired by Mr. Knight after November 29, 2012 in favor of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement. Mr. Knight owns 15,360 of the issued and outstanding common shares of Apple Six and 15,360 of the issued and outstanding Series A preferred shares of Apple Six.

The voting agreement also requires Mr. Knight to vote all his common shares, Series A preferred shares and Series B convertible preferred shares against any alternative acquisition proposal and any other action that would reasonably be expected to impede, interfere with, delay, postpone or adversely affect the merger or any of the other transactions contemplated by the merger agreement or result in a breach in any material respect of any covenant, representation or warranty or other obligation or agreement of Apple Six under the merger agreement. For more information on the voting agreement with Mr. Knight, see “Voting Agreement between Buyer and Glade M. Knight” on page 96.

 

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THE MERGER

Background of the Merger

Apple Six was incorporated in January 2004 and conducted its initial public offering beginning in April 2004 with the initial closing occurring in April 2004. At that time and due in part to the fact that its shares would not be actively traded on an exchange, Apple Six indicated that within approximately seven years from the initial closing of its public offering, Apple Six intended to seek a liquidity event by causing its common shares to be listed on a national securities exchange, disposing of all of its properties in a manner which would permit distributions to shareholders of cash, or merging or otherwise combining with a real estate investment trust or similar investment vehicle. The Apple Six board of directors and senior management regularly have reviewed Apple Six’s strategic plan, which is focused on maximizing shareholder value. Apple Six has sought to execute this plan by investing in and operating a diversified hotel portfolio and, in the last several years, reviewing and pursuing various possible liquidity events for its units.

In view of Apple Six’s intention to seek a liquidity event within approximately seven years from the April 2004 initial closing of its public offering, the Apple Six board of directors, at a meeting held on November 10, 2010, determined to review and evaluate various strategic alternatives, including a possible sale, merger or listing of Apple Six, and approved the engagement of Wells Fargo Securities as Apple Six’s financial advisor. Members of management and representatives of Wells Fargo Securities and McGuireWoods LLP, Apple Six’s legal counsel, which we refer to in this proxy statement/prospectus as “McGuireWoods,” were present at this meeting. On November 30, 2010, Apple Six announced that it had engaged Wells Fargo Securities to assist Apple Six in reviewing and evaluating various strategic alternatives, including a possible sale, merger or listing of Apple Six. Apple Six instructed Wells Fargo Securities, on Apple Six’s behalf, to solicit interest from third parties in a possible acquisition of Apple Six and, in accordance with these instructions, Wells Fargo Securities contacted approximately 130 prospective buyers to determine their interest in acquiring Apple Six. Of the parties contacted, 36 signed confidentiality agreements and Apple Six provided them access to Apple Six’s online data room to conduct due diligence. Two of the 36 parties submitted preliminary indications of interest to acquire all of Apple Six’s shares for cash. Apple Six determined that the indications of interest were not sufficiently attractive to warrant further discussions and directed representatives of Wells Fargo Securities to advise the two parties of Apple Six’s determination. After representatives of Wells Fargo Securities so advised the two parties, neither of them submitted revised indications at higher values. At meetings of the Apple Six board of directors on February 17, 2011 and May 12, 2011, management updated the Apple Six board of directors on the status of the sale process and management and the board of directors continued to discuss Apple Six’s strategic alternatives.

Following discussion among management and the Apple Six board of directors, and approval by the board of directors, at a meeting of the board of directors held on August 18, 2011, Apple Six announced on August 19, 2011 that its board of directors had authorized the evaluation of a potential consolidation transaction in which Apple Six, Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc. would be combined, which consolidation transaction could also include a listing of the stock of the combined enterprise for trading on a national exchange at the time of the combination or at a future date. Apple Six, Apple REIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc. are a series of real estate investment trusts sponsored and organized by Glade M. Knight to acquire and own hotels and other property throughout the United States.

On November 21, 2011, Apple Six and each of the other Apple REITs announced that its respective board of directors had designated a committee consisting of all of its non-management directors to continue the previously announced evaluation of a potential consolidation transaction.

On May 14, 2012, Apple Six announced that the special committee of its board of directors, and the special committees of the board of directors of each of the other Apple REITs, had recommended to their respective full boards of directors not to move forward with a potential consolidation transaction at that time. Apple Six’s board of directors and the board of directors of each of the other Apple REITs accepted the recommendation of their

 

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respective special committees and determined not to move forward with the potential consolidation transaction at that time. Apple Six also announced that it would continue to evaluate any future potential liquidity events as appropriate for Apple Six.

On May 17, 2012, following Apple Six’s annual meeting, the Apple Six board of directors discussed with management and representatives of Wells Fargo Securities various potential strategic alternatives, including a listing of Apple Six’s shares, a merger, a sale of Apple Six or maintaining the status quo. In considering a potential listing of Apple Six’s shares, the board of directors discussed with management and representatives of Wells Fargo Securities the stock performance of other publicly traded REITs and the potential timing of a public listing, as well as complexities of listing given, among other factors, Apple Six’s management structure, its relationship with the advisory companies owned by Glade M. Knight, its chairman and chief executive officer, and the support services provided to the other Apple REITs through Apple Six’s subsidiary, Apple Fund Management. The board of directors directed management to continue to assess a potential listing and, in connection with a listing, to consider potential revisions to its management structure and relationships with the advisory companies and the other Apple REITs. Management continued to assess a potential listing with the assistance of Wells Fargo Securities, McGuireWoods and special legal counsel engaged to assist with evaluating a potential listing.

On June 12, 2012, Mr. Justin Knight, President of Apple Six, met with representatives of one party, which we refer to in this proxy statement/prospectus as “Company A,” to discuss whether Company A had any continuing interest in a transaction with Apple Six. Representatives of Company A previously had approached representatives of Apple Six during February 2012, on an unsolicited basis, after the announcement that Apple Six and the other Apple REITs were evaluating a potential consolidation transaction, with potential interest in acquiring an equity position in Apple Six in connection with a possible listing of Apple Six’s shares in the event the potential consolidation transaction occurred. During the June 12, 2012 meeting, representatives of Company A verbally expressed preliminary interest in acquiring Apple Six as well as the other Apple REITs. Management of Apple Six informed representatives of Company A that in order to pursue such a transaction Company A would need to submit separate written proposals to Apple Six and each of the other Apple REITs. Company A did not subsequently provide a written proposal to Apple Six or any of the other Apple REITs. Although preliminary discussions between management of Apple Six and representatives of Company A continued, management did not actively pursue this potential transaction given, among other factors, that Company A did not submit written proposals as requested, the complexities of a transaction involving Apple Six and each of the other Apple REITs and management’s uncertainty as to whether Company A had the financial resources and experience to consummate a transaction of the magnitude of a transaction involving Apple Six and the other Apple REITs.

At an Apple Six board of directors meeting held on July 13, 2012, management updated the board of directors on the evaluation of the potential listing and other strategic alternatives including the discussions with Company A. Management and the board discussed plans to conduct a third-party solicitation process through a joint broker agreement to explore whether any additional third parties would be interested in a possible acquisition of Apple Six.

Following the board meeting, Apple Six retained Hodges Ward Elliot, Inc. and Hotel Assets Group LLC, brokers in the lodging industry, to assist it in a sale process. Apple Six directed the brokers, on Apple Six’s behalf, to solicit interest from third parties in a possible acquisition of Apple Six. The brokers contacted approximately 20 prospective buyers that Apple Six and the brokers believed would be interested in pursuing a transaction and would have the financial capacity to effectuate a transaction. The two parties that provided preliminary indications of interest during the process commenced in November 2010 were not contacted as part of the July 2012 process because, in the case of one of these parties, it was not then actively pursuing acquisitions in the lodging industry and, in the case of the other, of concerns about that party’s financial capacity to execute a transaction. The brokers informed the prospective buyers that any transaction would not include Apple Six’s headquarters, Apple Fund Management or Apple Six’s interest in Apple Air, each of which would be transferred to a related entity, and that members of management would not remain with Apple Six after a transaction in view

 

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of their positions with the other Apple REITs. Of the approximately 20 parties contacted, six parties signed confidentiality agreements, including Company A which had not been contacted and had not signed a confidentiality agreement in the prior process, and Apple Six provided these parties access to Apple Six’s online data room to conduct due diligence. Three of these six parties previously signed confidentiality agreements as part of the process commenced in November 2010. One of these six parties, in addition to Company A, indicated an interest in pursuing a potential transaction.

On August 5, 2012, Mr. Justin Knight and other members of Apple Six management met with representatives of the second party which indicated an interest in Apple Six, which we refer to in this proxy statement/prospectus as “Company B.” Company B, which signed a confidentiality agreement in the process commenced in November 2010 but had not submitted an indication of interest in that process, requested the meeting as part of its consideration of a transaction with Apple Six. On August 16, 2012, Company B delivered to Apple Six a written proposal to acquire the hotel assets of Apple Six for a cash purchase price $950 million, which was equivalent to approximately $9.19 per share after paying Apple Six’s outstanding debt and before deducting closing costs and Apple Six’s transaction costs which Company B contemplated being paid by Apple Six as well as any amount for cash to be retained by Apple Six (rather than distributed to Apple Six’s shareholders) to address contingent liabilities, including any arising from the legacy matters which are described under “Legacy Matters” beginning on page 101. Mr. Justin Knight advised Company B that the proposed purchase price was below a level which management considered attractive. Mr. Justin Knight also requested that Company B consider restructuring its proposal as an acquisition of Apple Six’s shares instead of an acquisition of its assets in view of the complexity of liquidating a public company and determining the amount of cash to be retained by Apple Six to address contingent liabilities.

In September 2012, representatives of Merrill Lynch, Pierce, Fenner & Smith Incorporated, financial advisor to an affiliate of Sponsor, contacted and informed Apple Six management that Sponsor had a potential interest in an acquisition of Apple Six. Prior to such contact, Sponsor did not have any relationship with Apple Six or the members of its board of directors, except that certain affiliates of Sponsor own Hilton Hotels Corporation, which is or owns the franchisor of 27 of the hotels currently owned by Apple Six. On September 18, 2012, an affiliate of Sponsor executed a confidentiality agreement and Apple Six subsequently provided Sponsor access to its online data room to conduct due diligence. Just as other prospective buyers had been informed, Apple Six management told Sponsor that any transaction would not include Apple Six’s headquarters, Apple Fund Management or Apple Six’s interest in Apple Air, each of which would be transferred to a related entity. Sponsor was also told that members of management would not remain with Apple Six after a transaction in view of their positions with the other Apple REITs. Management began discussions with representatives of Sponsor concerning a potential transaction. Wells Fargo Securities, which had been requested by Apple Six to provide certain financial advisory services to Apple Six in connection with a potential transaction in addition to a potential listing, also attended these meetings. In early October 2012, Sponsor verbally proposed to management an initial indication of interest to acquire Apple Six for $10.50 per share in cash.

On October 4, 2012, at an Apple Six board of directors meeting, management provided an update on a potential listing indicating that early 2013 would likely be a better time to list than later in 2012 in view of, among other things, uncertainties related to the presidential election. Management also reviewed with the Apple Six board of directors its discussions with Company A, Company B and Sponsor regarding potential transactions. Management and the board of directors also discussed the use of potential debt financings to fund a special dividend to Apple Six’s shareholders as an alternative means to provide a partial liquidity event to Apple Six’s shareholders in the event one of the other liquidity events were not pursued.

On October 9, 2012, Company B delivered to Apple Six a revised written proposal to acquire the hotel assets of Apple Six increasing its purchase price to $1.1 billion in cash, which was equivalent to approximately $10.73 per share in cash, after paying Apple Six’s outstanding debt and before deducting closing costs and Apple Six’s transaction costs which Company B contemplated being paid by Apple Six as well as any amount for cash to be retained by Apple Six (rather than distributed to Apple Six’s shareholders) to address contingent liabilities.

 

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On October 10, 2012, members of Apple Six management met with representatives of Sponsor to discuss a potential transaction. Later that day, members of Apple Six management met with representatives of Company B to discuss its revised proposal. Representatives of Wells Fargo Securities also attended these meetings. Mr. Justin Knight indicated in each meeting that the Apple Six board of directors expected to make a decision shortly regarding its strategic options, and would likely move forward with a listing or a debt financing unless such party improved its proposal.

On October 15, 2012, Company B delivered to Apple Six a revised written proposal to acquire all of the outstanding Apple Six shares for a purchase price of $11.00 per share in cash. The proposal from Company B also required indemnification by Apple Fund Management or related parties for litigation by shareholders and regulators dating from before closing. Although it was unclear from the brief indemnification provision in Company B’s proposal who would ultimately be responsible for the proposed indemnification, the request for indemnification raised the possibility of a management conflict of interest. However, the provision was not a factor in the decision by the Apple Six board of directors discussed below to pursue Sponsor’s proposal instead of Company B’s proposal, nor in management’s assessment of the two proposals, in view of, among other things, the likelihood that a transaction with Sponsor or any other party would require the legacy matters to be addressed in some manner. As described below, Apple Six ultimately agreed with Sponsor to potential downward adjustments to the liquidation preference of the New Preferred Shares in connection with the legacy matters.

On October 15, 2012, Sponsor delivered to Apple Six a written proposal to acquire all of the outstanding Apple Six shares for a purchase price of $11.00 per share, comprised of $9.20 per share in cash plus $1.80 per share in 7% preferred stock. After receiving the proposal, Apple Six management asked representatives of Sponsor to provide additional detail regarding the terms of the proposed preferred stock. On October 16, 2012, Sponsor delivered to Apple Six a revised written proposal indicating that the preferred stock would have a five-year term, would be fully redeemable by the issuer at par at any time and would not have any covenants or any right for the holders to require early repayment.

The proposals from Company B and Sponsor each required a 30-day exclusivity period as a condition to proceeding with negotiations and were subject to final due diligence. The proposal from Company B required the suspension of dividends after the signing of a definitive agreement and the proposal from Sponsor required the suspension of dividends equivalent to five months of dividends. The proposal from Company B also provided for Apple Six, following execution of a definitive agreement and a $20 million non-refundable deposit from Company B, to notify certain third-party managers of Apple Six’s hotels that their management agreements would be terminated.

On October 16, 2012, Mr. Justin Knight advised representatives of Sponsor and Company B that Apple Six had received a written proposal of $11.00 per share in total consideration from another party (without identifying the other party) and asked if such party would be willing to increase its proposed consideration. Sponsor indicated it would consider increasing its proposed consideration and Company B indicated it would not.

After receiving the October 15th proposals from Sponsor and Company B and before the Apple Six board of directors meeting on October 17, 2012, Mr. Justin Knight also had conversations with representatives of Company A to advise it that Apple Six had received written proposals of $11.00 per share in total consideration (without identifying the parties) and to inquire whether Company A had an interest in submitting a proposal to acquire Apple Six at a price of $11.00 per share or greater. During these conversations, Company A indicated that it was not interested in submitting such a proposal.

On October 17, 2012, Sponsor submitted a revised written proposal that increased its proposed purchase price to $11.10 per share, comprised of $9.20 per share in cash plus $1.90 per share in preferred stock and was otherwise on the same terms set forth in its October 16, 2012 proposal.

On October 17, 2012, the Apple Six board of directors met and considered the proposals from Sponsor and from Company B and Apple Six’s other strategic alternatives. Also present at this meeting were members of Apple

 

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Six management, and representatives of McGuireWoods and Wells Fargo Securities. Management and Wells Fargo Securities updated the Apple Six board of directors on a potential listing, including the uncertainty regarding the prices at which Apple Six’s shares may trade. The Apple Six board of directors discussed with management and Wells Fargo Securities the two third-party solicitation processes commenced in November 2010 and July 2012 as well as the acquisition proposals submitted by Sponsor and Company B. It was noted that (i) while the proposal from Company B was for all cash, Sponsor’s proposal had a higher stated value of $11.10, a substantial portion of which was cash with the remainder in 7% redeemable preferred stock, (ii) Sponsor had completed more due diligence than Company B, increasing the likelihood of reaching a definitive agreement at the proposed value, (iii) Sponsor had greater financial resources than Company B and was one of the largest owners and operators of hotels in the United States and (iv) Sponsor had extensive experience in REIT transactions and transactions of this scale. Following deliberations, the Apple Six board of directors authorized a 30-day exclusivity period with Sponsor. The Apple Six board of directors decided to authorize the exclusivity period with Sponsor rather than Company B in view of the foregoing factors including the greater likelihood of reaching a definitive agreement with Sponsor at the proposed value in view of the level of Sponsor’s due diligence and Sponsor’s experience in reaching and completing large acquisition transactions on agreed upon terms. On October 18, 2012, Apple Six and Sponsor executed a 30-day exclusivity agreement.

On October 30, 2012, McGuireWoods circulated to Simpson Thacher & Bartlett LLP, counsel for Sponsor, which we refer to in this proxy statement/prospectus as “Simpson Thacher,” an initial draft of the merger agreement. On November 5, 2012, Simpson Thacher circulated an initial draft term sheet for the New Preferred Shares and, on November 8, 2012, Simpson Thacher circulated to McGuireWoods comments to the draft merger agreement. During the period from November 8, 2012 through November 29, 2012, representatives of Apple Six’s management and representatives of Sponsor, together with their respective advisors, negotiated the terms of the merger agreement and other transaction documents, including the limited guarantee of Buyer’s payment obligations under the merger agreement provided by Sponsor. These negotiations covered various aspects of the transaction, including, among other things, the representations and warranties made by the parties, the restrictions on the conduct of Apple Six’s business from the signing of the merger agreement through closing, the conditions to completion of the merger, the provisions regarding termination of the merger agreement, including the amounts and triggers for the termination fees and expense reimbursement, the ability of Apple Six to provide due diligence information to or negotiate with a third party that may make an alternative acquisition proposal after the merger agreement is signed and the remedies for breach of the merger agreement. In addition, during this period the certificate of designations containing the terms of the New Preferred Shares was negotiated. The terms discussed included, among other things, the optional and mandatory redemption features, the increase in the dividend rate from 7% to 11% under specified circumstances, including if the New Preferred Shares have not been redeemed by the five-year anniversary of the completion of the merger, the addition of certain covenants for the benefit of the holders of the New Preferred Shares and potential adjustments to the liquidation preference of the New Preferred Shares relating to the legacy matters. As part of the negotiations, Sponsor also required Glade M. Knight to execute a voting agreement pursuant to which Mr. Knight agreed to vote the shares of Apple Six’s Series B convertible preferred stock, of which he is the sole record holder, and the units held by Mr. Knight in favor of the merger agreement.

On November 16, 2012, at a meeting of the Apple Six board of directors, the board of directors discussed with management and representatives of McGuireWoods and Wells Fargo Securities the status of negotiations with Sponsor. At this meeting, the Apple Six board of directors authorized the Chairman to extend the exclusivity period with Sponsor through November 21, 2012 and to continue merger negotiations with Sponsor. Later that day, Apple Six and Sponsor executed an extension of the exclusivity period through November 21, 2012.

On November 20, 2012, at a meeting of the Apple Six board of directors, the board of directors discussed with management and representatives of McGuireWoods and Wells Fargo Securities the status of negotiations with Sponsor. At this meeting, representatives of Wells Fargo Securities discussed with the board of directors certain financial aspects of the proposed transaction including the proposed financial terms of the New Preferred Shares. Representatives of McGuireWoods provided the Apple Six board of directors with a summary of the

 

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draft merger agreement and discussed terms of the draft agreement with the board. Management provided an update on the status of negotiations, including discussions with respect to potential adjustment to the liquidation preference of the New Preferred Shares relating to the legacy matters and a release from Mr. Glade Knight and Mr. Bryan Peery and an indemnification agreement from Mr. Glade Knight relating to the SEC investigation that is one of the legacy matters. The board of directors authorized the Chairman to extend the exclusivity period with Sponsor through November 28, 2012 and to continue to proceed with merger negotiations with Sponsor. On November 21, 2012, Apple Six and Sponsor executed an extension of the exclusivity period through November 28, 2012.

On November 29, 2012, the Apple Six board of directors held a meeting to consider the proposed transaction with Sponsor. At the meeting, management provided an update on the final negotiations of the proposed transaction. McGuireWoods reviewed the directors duties under Virginia law and provided a detailed review of the merger agreement and related documents. Wells Fargo Securities reviewed with the board of directors its financial analysis of the merger consideration and rendered to the Apple Six board of directors an oral opinion, confirmed by delivery of a written opinion dated November 29, 2012, to the effect that, as of such date and based on and subject to various qualifications, limitations and assumptions stated in its opinion, the consideration to be received in the merger pursuant to the merger agreement by holders of Apple Six units (other than any holder entering into a voting agreement and such holder’s controlled affiliates) was fair, from a financial point of view, to such holders. Following a discussion by the board of directors, in which it considered the factors discussed further under “The Merger—Apple Six’s Reasons for the Merger” beginning on page 53, the Apple Six board of directors determined it was in the best interest of Apple Six and its shareholders to enter into the merger agreement with BRE Select Hotels, an affiliate of Sponsor. Accordingly, the board of directors (i) unanimously determined that the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement were advisable and in the best interest of Apple Six and its shareholders and approved the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement, including the other transaction agreements, and (ii) unanimously recommended that the Apple Six shareholders approve the merger and the other transactions contemplated by the merger agreement. Apple Six and BRE Select Hotels executed and delivered the merger agreement and the related agreements.

On the morning of November 30, 2012, Apple Six issued a press release announcing the execution of the merger agreement.

Apple Six’s Reasons for the Merger

In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Apple Six board of directors consulted with Apple Six’s management and outside legal and financial advisors and considered a number of factors, including the following material factors which the board of directors viewed as supporting its decision to unanimously approve and recommend the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement:

 

   

when Apple Six conducted its initial public offering, Apple Six indicated that within approximately seven years it intended to list its shares on a national securities exchange, dispose of all its properties in a manner which would permit distributions to shareholders of cash or merge or otherwise combine with a real estate investment trust or similar combination with a similar investment vehicle;

 

   

the stated per Apple Six share merger consideration of $11.10 was higher than the initial public offering price of Apple Six of $10.50 per unit (for the first $50 million raised) and $11.00 per unit (for the remaining $950 million raised), and considering the fact that Apple Six has paid approximately $7.29 per unit in aggregate dividends to holders of its units since the inception of Apple Six;

 

   

certain of the terms of the New Preferred Shares as further described in the section of this proxy statement/prospectus entitled “Description of New Preferred Shares” beginning on page 117, which include (i) ranking senior to all other equity securities of BRE Select Hotels with respect to rights to the

 

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payment of dividends and the distribution of assets upon the liquidation, dissolution or winding up of BRE Select Hotels, (ii) a dividend rate of 7% per annum, which will increase to 11% per annum on the five year anniversary of completion of the merger if the New Preferred Shares are still outstanding; and (iii) the ability of a holder of New Preferred Shares to seek redemption of all or any specified portion of a holder’s New Preferred Shares after 7-1/2 years following the issuance of the New Preferred Shares in connection with the merger;

 

   

the merger consideration consists substantially of cash, which will enable Apple Six shareholders to immediately realize a substantial portion of the value of their investment, in cash, and will provide certainty of value for a significant portion of the amounts invested by the Apple Six shareholders;

 

   

the Apple Six board of directors’ belief that the merger is more favorable to Apple Six shareholders than the other alternatives available to Apple Six, including listing company securities on a national securities exchange, which belief was formed based on the Apple Six board of directors’ review, with the assistance of management and legal and financial advisors, of potential strategic and other alternatives available to Apple Six and consideration of the third-party solicitation processes conducted by Apple Six in 2010 and 2012;

 

   

the high probability that the merger would be completed, based on, among other things, Sponsor’s proven ability to complete large acquisition transactions on the agreed upon terms, Sponsor’s extensive experience in the hospitality industry, and Sponsor’s guarantee of certain of Buyer’s obligations under the merger agreement, including a termination fee of $35 million and reimbursement of Apple Six expenses under specified circumstances;

 

   

the receipt of executed commitment letters from Buyer’s sources of debt and equity financing for the merger, including the terms of the commitments and the reputation of the financing sources which, in the judgment of the Apple Six board of directors, increases the likelihood of such financings being completed;

 

   

the financial presentation and opinion, dated November 29, 2012, of Wells Fargo Securities to the Apple Six board of directors as to the fairness, from a financial point of view and as of such date, of the consideration to be received in the merger pursuant to the merger agreement by holders of units (other than any holder entering into a voting agreement and such holder’s controlled affiliates), which opinion was based on and subject to the assumptions made, procedures followed, factors considered and limitations on the review undertaken by Wells Fargo Securities as further described in the section of this proxy statement/prospectus entitled “The Merger—Opinion of Wells Fargo Securities, LLC” beginning on page 57;

 

   

the availability of appraisal rights to holders of Apple Six common shares and Series A preferred shares who comply with all the required procedures under Virginia law, which allows such holders to seek appraisal of the fair value of their shares in accordance with Virginia law;

 

   

the merger agreement is subject to approval of the Apple Six shareholders, including approval of more than two-thirds of the outstanding Apple Six Series A preferred shares;

 

   

the ability of Apple Six, under specified circumstances, to consider a competing transaction and to terminate the merger agreement subject to specified requirements and the payment of a $20 million termination fee as directed by Buyer and reimbursement of transaction expenses of Buyer up to $5 million; and

 

   

the other terms of the merger agreement, including representations, warranties and covenants of the parties, as well as the conditions to their respective obligations under the merger agreement;

The Apple Six board of directors also considered the following potential negative factors in considering the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement:

 

   

the fact that one other party had indicated a potential all-cash transaction with consideration of $11.00 per share as further discussed in the section of this proxy statement/prospectus entitled “The Merger—Background of the Merger,” beginning on page 48;

 

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as a result of the merger, Apple Six shareholders will no longer participate like a holder of Apple Six common shares would in future earnings growth or appreciation in the value of the surviving corporation or its hotel portfolio;

 

   

the fact that a portion of the merger consideration is in the form of New Preferred Shares, instead of cash, and the New Preferred Shares, as further described in the section of this proxy statement/prospectus entitled “Description of New Preferred Shares” beginning on page 117, (i) have a liquidation preference subject to downward adjustment, (ii) will not have a trading market and holders will not be able to seek redemption for 7-1/2 years, (iii) have limited voting rights, (iv) are redeemable at the election of BRE Select Hotels at any time, and (v) will be subject to specified restrictions on ownership and transfer;

 

   

the value of a New Preferred Share may not equal its liquidation preference in view of its terms, including the provision providing for potential downward adjustment of the liquidation preference in connection with the legacy matters;

 

   

the substantial amount of consolidated indebtedness that BRE Select Hotels will have compared to the current level of consolidated indebtedness of Apple Six, which may negatively impact BRE Select Hotels’ ability to make payments otherwise due on the New Preferred Shares, including dividend payments;

 

   

the possibility that the $20 million termination fee and expense reimbursement of up to $5 million payable by Apple Six on termination of the merger agreement in certain circumstances might discourage other bidders from making a competing offer to acquire Apple Six;

 

   

Apple Six’s inability to seek specific performance to require Buyer or BRE Select Hotels to complete the merger, and the fact that Apple Six’s exclusive remedy, available only if the merger agreement is terminated in certain circumstances, would be limited to $35 million plus reimbursement of reasonable out-of-pocket expenses of up to $5 million, the payment of which is guaranteed by Sponsor;

 

   

the risk that, while the merger is expected to be completed, there is no assurance that all of the conditions to the parties’ obligations to complete the merger will be satisfied;

 

   

the restrictions on the conduct of business of Apple Six prior to the completion of the merger, which could delay or prevent Apple Six from undertaking business opportunities that may arise pending completion of the merger;

 

   

the fact that the merger agreement requires Apple Six to suspend its regular monthly dividend payments, dividend reinvestment plan and unit redemption program;

 

   

the fact that all of the merger consideration is taxable to Apple Six’s shareholders for U.S. federal income tax purposes;

 

   

some of Apple Six’s directors and executive officers have interests with respect to the merger that are different from, and in addition to, those of Apple Six shareholders generally, as further described under “The Merger—Interests of Apple Six Directors and Executive Officers in the Merger” beginning on page 64; and

 

   

the types and nature of the risks described under the section entitled “Risk Factors” beginning on page 28.

The foregoing discussion of the factors considered by the Apple Six board of directors is not expected to be exhaustive, but rather includes material facts considered by the Apple Six board of directors. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Apple Six board of directors did not quantify or assign any relative weights to the factors considered and individuals may have given different weights to different factors.

 

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Recommendation of the Apple Six Board of Directors

After careful consideration, for the reasons set forth above, the Apple Six board of directors has unanimously determined that the merger and the merger agreement are advisable and in the best interests of Apple Six and its shareholders. The Apple Six board of directors unanimously recommends that you vote “FOR” the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement and “FOR” adjournment of the special meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement.

Projected Financial Information

Apple Six does not, as a matter of course, publicly disclose forecasts or internal projections as to its future performance, revenues, earnings or financial condition. In connection with the process described under “—Background of the Merger,” Apple Six management prepared and provided the Apple Six board of directors and Wells Fargo Securities with selected, non-public financial forecasts regarding Apple Six’s future performance on a standalone basis. Apple Six did not provide these forecasts to Buyer or Sponsor before execution of the merger agreement or to any of the other companies that had indicated an interest in pursuing a potential transaction with Apple Six. Apple Six did, however, make the 2012 budget available to Buyer, Sponsor and the other companies that had indicated an interest in 2012 in pursuing a potential transaction with Apple Six. The following table presents a summary of these forecasts.

 

($ in thousands, except RevPAR)    2012      2013      2014      2015      2016      2017  

RevPAR (1)

   $ 83.86       $ 88.33       $ 94.31       $ 99.41       $ 102.71       $ 105.79   

Total Revenue

   $ 251,811       $ 264,326       $ 281,638       $ 296,421       $ 306,901       $ 315,382   

Corporate EBITDA (2)

   $ 88,303       $ 93,568       $ 101,888       $ 108,435       $ 112,147       $ 114,934   

Hotel EBITDA (3)

   $ 94,976       $ 100,440       $ 108,966       $ 115,726       $ 119,657       $ 122,669   

Hotel Net Operating Income (4)

   $ 83,389       $ 88,280       $ 95,829       $ 101,902       $ 105,346       $ 107,963   

 

  (1) RevPAR is revenue per available room.
  (2) Corporate EBITDA represents earnings before interest, taxes, depreciation and amortization.
  (3) Hotel EBITDA is EBITDA generated directly by the hotel properties. This does not include corporate, general and administrative expense.
  (4) Hotel Net Operating Income is Hotel EBITDA less a reserve for capital expenditures.

Apple Six’s management prepared these forecasts based on actual results of each of Apple Six’s properties through September 30, 2012 and various assumptions that Apple Six’s management believes were reasonable. For example, Apple Six management assumed an overall RevPAR increase of 5% in 2013 as compared to 2012, 7% in 2014 as compared to 2013, 5% in 2015 as compared to 2014, 3% in 2016 as compared to 2015 and 3% in 2017 as compared to 2016. The forecasted increases were developed based on each property’s individual market and reviewed across the portfolio to ensure consistency with industry analysts’ projections of revenue growth. In addition, Apple Six management assumed higher operating costs due to additional management company costs to support increased revenue (costs such as wages, marketing, utilities and maintenance), and an increase in variable costs such as franchise and management fees which are generally based on revenue. Apple Six management also assumed Apple Six would incur increased fixed costs such as property taxes due to improved operating results and general inflation. These assumptions were made as of the time the financial forecasts were prepared, and are subject to inherent uncertainties as discussed below.

These forecasts were not prepared with a view toward public disclosure. Accordingly, these forecasts were not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, published guidelines of the SEC regarding forward-looking statements or generally accepted accounting principles in the United States, which we refer to in

 

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this proxy statement/prospectus as “GAAP,” and some of the forecasts present financial metrics that were not prepared in accordance with GAAP, including Hotel EBITDA, Corporate EBITDA and Hotel Net Operating Income. Apple Six considers Hotel EBITDA, Corporate EBITDA and Hotel Net Operating Income as supplemental measures of operating performance in the real estate industry that, along with other financial measures included in this proxy statement/prospectus under “Selected Historical Financial Data of Apple REIT Six, Inc.” provides investors with an indication of the performance of Apple Six. However, these measures do not provide a complete picture of Apple Six’s operations and should not be considered a substitute for or superior to GAAP results. Neither Apple Six’s independent auditors nor any other independent accountants have compiled, examined or performed any procedures with respect to the financial forecasts set forth above, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, these financial forecasts.

The financial forecasts were prepared solely for internal use and are subjective in many respects. As a result, there can be no assurance that these prospective results will be realized or that actual results will not be significantly higher or lower than estimated. The financial forecasts are forward-looking statements and are based on estimates and assumptions that involve judgments with respect to, among other things, future economic, competitive and financial market conditions and future business decisions that may not be realized and are inherently subject to significant business, economic, competitive and regulatory uncertainties, including the factors described under “Cautionary Statement Regarding Forward-Looking Statements,” all of which are difficult to predict and many of which are beyond Apple Six’s control and will be beyond the control of Buyer and BRE Select Hotels. Specifically, items or events which could have affected or may affect these forecasts include, without limitation, costs incurred by Apple Six in conjunction with the merger and the other transactions contemplated by the merger agreement, unanticipated property impairment costs, costs resulting from unforeseen natural disasters, the ability of Apple Six to implement its operating strategy and to manage planned growth, the outcome of current and future litigation and regulatory proceedings or inquiries, changes in economic cycles and competition within the hotel industry.

Apple Six has made publicly available its actual results for the fiscal year ended December 31, 2012. To obtain this information, you should review Apple Six’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, a copy of which is attached to this proxy statement/prospectus as Annex H. See also “Where You Can Find More Information” beginning on page 171. You are cautioned not to place undue reliance on the specific portions of the financial forecasts. No one has made or makes any representation to any shareholder regarding the information included in the financial forecasts.

For the foregoing reasons, there can be no assurance that the forecasted results would be realized, that actual results would not differ materially from those forecasted or that actual results will not be significantly higher or lower than forecasted. These forecasts cannot, therefore, be considered a guaranty of future operating results, and this information should not be relied on as such.

Neither Apple Six, on the one hand, nor Buyer and BRE Select Hotels, on the other hand, intend to update or otherwise revise any of this information to reflect circumstances existing since it was prepared, including unanticipated events. Further, neither Apple Six, on the one hand, nor Buyer and BRE Select Hotels, on the other hand, intend to update or otherwise revise any of this information to reflect changes in the general economy or industry conditions.

Opinion of Wells Fargo Securities, LLC

In connection with the merger, Apple Six engaged Wells Fargo Securities to provide an opinion to Apple Six’s board of directors as to the fairness, from a financial point of view, of the consideration to be received in the merger pursuant to the merger agreement by holders of units. On November 29, 2012, at a meeting of Apple Six’s board of directors held to evaluate the merger, Wells Fargo Securities rendered to Apple Six’s board of directors an oral opinion, confirmed by delivery of a written opinion dated November 29, 2012, to the effect that,

 

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as of such date and based on and subject to various qualifications, limitations and assumptions stated in its opinion, the consideration to be received in the merger pursuant to the merger agreement by holders of units (other than any holder entering into a voting agreement and such holder’s controlled affiliates) was fair, from a financial point of view, to such holders.

The full text of Wells Fargo Securities’ written opinion, dated November 29, 2012, to Apple Six’s board of directors is attached as Annex F to this proxy statement/prospectus and is incorporated herein by reference. The written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken by Wells Fargo Securities in rendering its opinion. The following summary is qualified in its entirety by reference to the full text of the opinion. The opinion was addressed to Apple Six’s board of directors (in its capacity as such) for its information and use in connection with its evaluation of the merger consideration from a financial point of view and did not address any other terms, aspects or implications of the merger or any related transaction. Wells Fargo Securities’ opinion did not address the merits of the underlying decision by Apple Six to enter into the merger agreement or the relative merits of the merger or any related transaction compared with other business strategies or transactions available or that have been or might be considered by Apple Six’s management or board of directors or in which Apple Six might engage. The opinion does not constitute a recommendation to Apple Six’s board of directors or any other person or entity in respect of the merger or any related transaction, including as to how any shareholder should vote or act in connection with the merger or any other matters.

The terms of the merger were determined through negotiations between Apple Six and Sponsor, rather than by any financial advisor, and the decision to enter into the merger was solely that of Apple Six’s board of directors. Wells Fargo Securities did not recommend any specific form of consideration to Apple Six’s board of directors or that any specific form of consideration constituted the only appropriate consideration for the merger. The opinion was only one of many factors considered by Apple Six’s board of directors in its evaluation of the merger and should not be viewed as determinative of the views of Apple Six’s board of directors, management or any other party with respect to the merger or the consideration payable in the merger.

In arriving at its opinion, Wells Fargo Securities, among other things:

 

   

reviewed a draft, dated November 28, 2012, of the merger agreement, including the financial terms of the merger, and certain related documents, including a draft, dated November 29, 2012, of the form of certificate of designations for the New Preferred Shares;

 

   

reviewed certain publicly available business, financial and other information regarding Apple Six, including information set forth in its annual reports to shareholders and annual reports on Form 10-K for the fiscal years ended December 31, 2009, 2010 and 2011 and quarterly reports on Form 10-Q for the period ended September 30, 2012;

 

   

reviewed certain other business and financial information regarding Apple Six furnished to Wells Fargo Securities by and discussed with Apple Six’s management, including financial forecasts and estimates for the fiscal years ending December 31, 2012 through 2017 relating to Apple Six prepared by Apple Six’s management;

 

   

discussed with Apple Six’s management the operations and prospects of Apple Six, including the historical financial performance and trends in the results of operations of Apple Six;

 

   

reviewed certain information regarding the surviving corporation furnished to Wells Fargo Securities by Apple Six and discussed with Wells Fargo Securities by the managements of Apple Six and Sponsor, including the proposed capital structure and future prospects of the surviving corporation;

 

   

compared certain financial terms of the New Preferred Shares to financial terms, to the extent publicly available, of other preferred equity securities of certain issuers that Wells Fargo Securities deemed relevant in evaluating the New Preferred Shares;

 

   

compared certain financial data of Apple Six with similar data of certain publicly traded companies that Wells Fargo Securities deemed relevant in evaluating Apple Six;

 

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analyzed the estimated net asset value of Apple Six’s real estate portfolio based upon financial forecasts and estimates referred to above and related assumptions discussed with and confirmed as reasonable by Apple Six’s management;

 

   

analyzed the estimated present value of the future cash flows of Apple Six based upon financial forecasts and estimates referred to above and related assumptions discussed with and confirmed as reasonable by Apple Six’s management;

 

   

reviewed various public filings of Apple Six relating to, and discussed with Apple Six’s senior management and other representatives their assessments regarding, outstanding litigation, regulatory inquiries and other actions involving certain affiliates, agents or other representatives of Apple Six, including related costs and possible settlement thereof and the potential impact of such matters on the New Preferred Shares; and

 

   

considered other information, such as financial studies, analyses, and investigations, as well as financial, economic and market criteria that Wells Fargo Securities deemed relevant.

In connection with its review, Wells Fargo Securities assumed and relied upon the accuracy and completeness of the financial and other information provided, discussed with or otherwise made available to Wells Fargo Securities, including all accounting, tax, regulatory and legal information, and Wells Fargo Securities did not make (and assumed no responsibility for) any independent verification of such information. Wells Fargo Securities relied upon assurances of the managements of Apple Six and Sponsor that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial forecasts, estimates and other information related to Apple Six utilized in Wells Fargo Securities’ analyses, Wells Fargo Securities was advised by Apple Six’s management and, at Apple Six’s direction, Wells Fargo Securities assumed that they were reasonably prepared and reflected the best currently available estimates, judgments and assumptions of such management as to the future financial performance of Apple Six. Wells Fargo Securities assumed no responsibility for, and expressed no view as to, such forecasts, estimates or other information utilized in Wells Fargo Securities’ analyses or the judgments or assumptions upon which they were based. Wells Fargo Securities also assumed that there were no material changes in the condition (financial or otherwise), results of operations, business or prospects of Apple Six since the respective dates of the most recent financial statements and other information provided to Wells Fargo Securities. Wells Fargo Securities was not provided with long-term financial forecasts relating to the surviving corporation prepared by Sponsor and Wells Fargo Securities relied, at Apple Six’s direction, upon the assessments of the managements of Apple Six and Sponsor as to the proposed capital structure and future operations and prospects of the surviving corporation, including the impact thereof on the New Preferred Shares and the ability of the surviving corporation to make dividend, redemption and liquidation payments in respect of the New Preferred Shares. Wells Fargo Securities assumed, with Apple Six’s consent, that there would be no developments with respect to any of the foregoing that would be meaningful to its analyses or opinion. In arriving at its opinion, Wells Fargo Securities did not conduct physical inspections of the properties or assets of Apple Six, nor did it make, and it was not provided with, any evaluations or appraisals of the properties, assets or liabilities (contingent or otherwise) of Apple Six. Wells Fargo Securities did not undertake an independent analysis of any potential or actual litigation, regulatory inquiries or other actions, possible unasserted claims or other contingent liabilities to which Apple Six or any of its affiliates, agents or representatives was or may have been a party or was or may have been subject. In addition, with Apple Six’s consent, Wells Fargo Securities relied upon the assessments of Apple Six’s management and other representatives as to such matters and assumed that there would be no reduction in the liquidation preference of the New Preferred Shares as a result thereof that would be meaningful in any respect to its analyses or opinion.

In rendering its opinion, Wells Fargo Securities assumed, at Apple Six’s direction, that the final form of the merger agreement, when signed by the parties thereto, and final terms of the New Preferred Shares as contemplated by the certificate of designations, when issued in the merger, would not differ from the drafts of the merger agreement and certificate of designations reviewed by Wells Fargo Securities in any respect meaningful

 

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to its analyses or opinion, that the merger and related transactions would be consummated in accordance with the terms described in the merger agreement and related documents and in compliance with all applicable laws without amendment or waiver of any material terms or conditions and that, in the course of obtaining any necessary legal, regulatory or third party consents, approvals or agreements for the merger and related transactions, no delay, limitation or restriction would be imposed or action would be taken that would have an adverse effect on Apple Six, the surviving corporation or the merger. Wells Fargo Securities was advised by representatives of Apple Six that Apple Six has operated in conformity with the requirements for qualification as a REIT for U.S. federal income tax purposes since its formation as a REIT and further assumed, at Apple Six’s direction, that the merger and related transactions would not adversely affect the status or operations of Apple Six or the surviving corporation. In addition, Wells Fargo Securities assumed, at Apple Six’s direction, that there would be no adjustments to the consideration that would be meaningful in any respect to its analyses or opinion. Wells Fargo did not express any opinion as to the underlying valuation, future performance or long-term viability of Apple Six or the surviving corporation or as to what the value of the New Preferred Shares actually would be when issued pursuant to the merger or the prices at which securities of Apple Six or the surviving corporation would trade (if a public trading market for such securities existed) or would otherwise be transferable at any time. Wells Fargo Securities’ opinion was necessarily based on economic, market, financial and other conditions existing, and information made available to Wells Fargo Securities, as of the date of its opinion. The credit, financial and stock markets have been experiencing unusual volatility and Wells Fargo Securities expressed no opinion or view as to any potential effects of such volatility on Apple Six, the surviving corporation or the merger. Although subsequent developments may affect the matters set forth in its opinion, Wells Fargo Securities does not have any obligation to update, revise, reaffirm or withdraw its opinion or otherwise comment on or consider any such events occurring or coming to Wells Fargo Securities’ attention after the date of its opinion.

Wells Fargo Securities’ opinion only addressed the fairness, from a financial point of view and as of the date of its opinion, of the consideration to be received in the merger pursuant to the merger agreement by holders of units (other than any holder entering into a voting agreement and such holder’s controlled affiliates) to the extent expressly specified in its opinion and did not address any other terms, aspects or implications of the merger or any related transaction, including, without limitation, the form or structure of the merger consideration (including the New Preferred Shares) or the merger, any adjustments to or allocation of the merger consideration or any terms, aspects or implications of any classes of securities of Apple Six, the transfer by Apple Six of certain assets and ownership interests in connection with the merger or any voting agreement or other agreement, arrangement or understanding entered into in connection with or contemplated by the merger or otherwise. In addition, Wells Fargo Securities’ opinion did not address the fairness of the amount or nature of, or any other aspects relating to, any compensation to be received by any officers, directors or employees of any parties to the merger or any related transaction, or class of such persons, relative to the merger consideration or otherwise. In connection with the merger, Wells Fargo Securities was not requested to, and it did not, solicit indications of interest from third parties regarding a potential transaction with Apple Six. Wells Fargo Securities also did not express any view or opinion with respect to, and with Apple Six’s consent relied upon the assessments of Apple Six’s representatives regarding, accounting, tax, regulatory, legal or similar matters and Wells Fargo Securities understood that Apple Six obtained such advice as it deemed necessary from qualified professionals. Except as described in this summary, Apple Six imposed no other instructions or limitation on Wells Fargo Securities with respect to the investigations made or procedures followed by Wells Fargo Securities in rendering its opinion.

In connection with rendering its opinion, Wells Fargo Securities performed certain financial, comparative and other analyses as summarized below. This summary is not a complete description of the financial analyses performed and factors considered in connection with such opinion. In arriving at its opinion, Wells Fargo Securities did not ascribe a specific value to units but rather made its determinations as to the fairness, from a financial point of view, of the merger consideration on the basis of various financial and comparative analyses taken as a whole. The preparation of a financial opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a financial opinion is not readily susceptible to summary description.

 

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In arriving at its opinion, Wells Fargo Securities did not attribute any particular weight to any single analysis or factor considered but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered and in the context of the circumstances of this particular transaction. Accordingly, the analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying such opinion. The fact that any specific analysis has been referred to in the summary below is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary. No company or transaction is identical to Apple Six or the merger and an evaluation of Wells Fargo Securities’ analyses is not entirely mathematical; rather, such analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or other values of the companies reviewed.

In performing its analyses, Wells Fargo Securities considered industry performance, general business and economic conditions and other matters existing as of the date of its opinion, many of which are beyond the control of Apple Six, BRE Select Hotels or any other parties to the merger. None of Apple Six, Buyer, BRE Select Hotels, Wells Fargo Securities or any other person assumes responsibility if future results are different from those discussed, whether or not any such difference is material. Any estimates contained in these analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of properties, businesses or securities do not purport to be appraisals or necessarily reflect the prices at which properties, businesses or securities may actually be sold or acquired. Accordingly, the assumptions and estimates used in, and the results derived from, the following analyses are inherently subject to substantial uncertainty.

The following is a summary of the material financial analyses provided on November 29, 2012 to Apple Six’s board of directors by Wells Fargo Securities in connection with its opinion. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of such financial analyses. For purposes of the financial analyses described below, the “implied merger consideration” of approximately $10.87 to $11.02 per unit was calculated as the sum of (i) the cash consideration of $9.20 per unit and (ii) the implied value range for one New Preferred Share of approximately $1.67 to $1.82 per share derived from the financial analysis of the New Preferred Shares described below assuming no adjustments to the merger consideration.

Apple Six Financial Analysis

Net Asset Value Analysis

Wells Fargo Securities performed a net asset valuation of Apple Six’s real estate portfolio based on internal estimates of Apple Six’s management. Wells Fargo Securities calculated the estimated net asset value of Apple Six’s hospitality properties on an asset-by-asset basis by applying selected capitalization rates ranging from 6.75% to 10.0% depending on the property to the calendar year 2012 estimated net operating income of such property or, in the case of certain assets without stabilized operating income, per key values based on the number of rooms of the applicable property. Wells Fargo Securities also took into account for purposes of such analysis (i) Apple Six’s other assets and liabilities as reflected on its balance sheet as of September 30, 2012 and (ii) Apple Six’s 2013 estimated capital expenditures in excess of contractual furniture, fixture and equipment obligations provided by Apple Six’s management. Implied per unit equity values were calculated as Apple Six’s

implied net asset value derived from such analysis divided by the number of Apple Six’s fully diluted units per

 

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Apple Six’s management. This analysis indicated the following approximate implied per unit equity value reference range for Apple Six, as compared to the implied merger consideration:

 

Implied Per Unit

Equity Value Reference Range

 

Implied

Merger Consideration

$9.85 - $10.62

  $10.87 - $11.02

Discounted Cash Flow Analysis

Wells Fargo Securities performed a discounted cash flow analysis of Apple Six to calculate a range of implied present values of the standalone unlevered free cash flows that Apple Six was forecasted to generate during the fiscal years ending December 31, 2013 through December 31, 2017 and of terminal values for Apple Six based on Apple Six’s fiscal year 2017 estimated unlevered free cash flows utilizing internal estimates of Apple Six’s management. Implied terminal values were derived by applying to Apple Six’s fiscal year 2017 estimated net operating income a range of terminal capitalization rates of 8.25% to 8.75%. Present values (as of December 31, 2012) of the unlevered free cash flows and terminal values were then calculated using a discount rate range of 9.0% to 10.0%. Implied per unit equity values were calculated as Apple Six’s implied enterprise value derived from such analysis less Apple Six’s net debt divided by the number of Apple Six’s fully diluted units per Apple Six’s management. This analysis indicated the following approximate implied per unit equity value reference range for Apple Six, as compared to the implied merger consideration:

 

Implied Per Unit

Equity Value Reference Range

 

Implied

Merger Consideration

$10.55 - $11.49

  $10.87 - $11.02

Selected Public Companies Analysis

Wells Fargo Securities reviewed and compared financial and operating data relating to Apple Six and the following seven selected publicly traded lodging REITs with, as is the case with Apple Six, enterprise values in excess of $400 million and a significant portion of their real estate portfolio comprised of limited or select service properties located throughout the United States, including hotels that are classified in the hospitality industry as upscale and upper midscale:

 

   

Ashford Hospitality Trust, Inc.

 

   

Chatham Lodging Trust

 

   

FelCor Lodging Trust Incorporated

 

   

Hersha Hospitality Trust

 

   

Hospitality Properties Trust

 

   

RLJ Lodging Trust

 

   

Summit Hotel Properties, Inc.

Wells Fargo Securities reviewed enterprise values of the selected companies, calculated as equity values based on closing stock prices as of November 28, 2012 plus total consolidated and pro rata joint venture debt and total preferred equity at trading value less cash, as a multiple of calendar year 2013 estimated earnings before interest, taxes, depreciation and amortization less general and administrative expense, referred to as corporate EBITDA. The overall low to high calendar year 2013 estimated corporate EBITDA multiples observed for the selected companies were 9.9x to 12.7x (with a median of 11.1x). Wells Fargo Securities then applied a selected range of calendar year 2013 estimated corporate EBITDA multiples of 10.0x to 11.0x derived from the selected companies to corresponding data of Apple Six. Implied per unit equity values were calculated as Apple Six’s implied enterprise value derived from such analysis less Apple Six’s net debt divided by the number of Apple Six’s fully diluted units per Apple Six’s management. Financial data of the selected companies were based on publicly available research analysts’ estimates, public filings and other publicly available information. Financial data of Apple Six were based on internal estimates of Apple Six’s management. This analysis indicated the

 

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following approximate implied per unit equity value reference range for Apple Six, as compared to the implied merger consideration:

 

Implied Per Unit

Equity Value Reference Range

 

Implied

Merger Consideration

$9.04 - $10.00

  $10.87 - $11.02

New Preferred Shares Financial Analysis

Wells Fargo Securities reviewed and compared financial terms of the New Preferred Shares to financial terms of the preferred equity securities of two selected publicly traded lodging REITs, Ashford Hospitality Trust, Inc. and FelCor Lodging Trust Incorporated, taking into consideration the leverage ratios of these selected REITs given the proposed pro forma leverage of the surviving corporation. Wells Fargo Securities reviewed the closing prices as of November 28, 2012 of the preferred equity securities relative to their par values and dividend payment coupons, referred to as strip yield. The overall low to high strip yields observed for the selected preferred equity securities were 8.289% to 8.567%. Wells Fargo Securities also took into account certain attributes of the surviving corporation and the New Preferred Shares, including the illiquidity of the New Preferred Shares, the expected smaller capitalization of the surviving corporation relative to the capitalizations of such selected companies, the large size of the contemplated issuance of New Preferred Shares in the merger as a percentage of the surviving corporation’s total capitalization and certain dividend payment protection provisions of the New Preferred Shares. Wells Fargo Securities then discounted, utilizing a selected range of illustrative strip yields for the New Preferred Shares of 8.75% to 10.25%, the (i) liquidation preference payable to holders of New Preferred Shares at the end of the holding period for New Preferred Shares assuming a three to seven year holding period and (ii) dividends payable to such holders of New Preferred Shares assuming 7% per annum cash dividends payable quarterly during the first five years of the holding period increasing to 11% during the last two years of such holding period and no reduction in the liquidation preference of the New Preferred Shares for the legacy matters. Financial data of the selected companies were based on public filings and other publicly available information. Financial data of the surviving corporation were based on discussions with the managements of Apple Six and Sponsor. This analysis indicated an approximate range of implied values for the New Preferred Shares of $1.67 to $1.82 per share.

Miscellaneous

Wells Fargo Securities is the trade name for certain capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Securities, LLC. Wells Fargo Securities is an internationally recognized investment banking firm which is regularly engaged in providing financial advisory services in connection with mergers and acquisitions. Apple Six’s board of directors selected Wells Fargo Securities because of its qualifications, reputation and experience and its familiarity with Apple Six and its business. The issuance of Wells Fargo Securities’ opinion was approved by an authorized committee of Wells Fargo Securities.

As compensation for Wells Fargo Securities’ financial advisory services to Apple Six’s board of directors in connection with the merger, Apple Six has agreed to pay Wells Fargo Securities an aggregate fee of $3 million, $2 million of which was paid upon delivery of its opinion and $1 million of which is contingent upon consummation of the merger. Apple Six also has agreed to reimburse certain of Wells Fargo Securities’ expenses, including fees and disbursements of Wells Fargo Securities’ counsel, and to indemnify Wells Fargo Securities and certain related parties against certain liabilities, including liabilities under the U.S. federal securities laws, that may arise out of Wells Fargo Securities’ engagement. Wells Fargo Securities and its affiliates provide a full range of investment banking and financial advisory, securities trading, brokerage and lending services in the ordinary course of business, for which Wells Fargo Securities and such affiliates receive customary fees. In connection with unrelated matters, Wells Fargo Securities and its affiliates in the past have provided, currently are providing and in the future may provide banking and financial services to certain affiliates of Apple Six and Sponsor, for which Wells Fargo Securities and such affiliates have received and expect to receive fees, including (i) acting as administrative agent for, and as a lender under, a credit facility of an affiliate of Apple Six, which credit facility will be repaid in connection with the merger, and as a lender to

 

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certain other affiliates of Apple Six and (ii) acting as administrative agent for, and as a lender under various credit facilities of, and providing real estate and mortgage brokerage services to, certain affiliates and/or portfolio companies of Sponsor. In addition, affiliates of Wells Fargo Securities are equity investors in certain funds managed by affiliates of Sponsor. In the ordinary course of business, Wells Fargo Securities and its affiliates may actively trade, hold or otherwise effect transactions in the securities or financial instruments (including bank loans or other obligations) of Apple Six, Sponsor and their respective affiliates and/or portfolio companies for Wells Fargo Securities’ and its affiliates’ own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities or financial instruments.

Interests of Apple Six Directors and Executive Officers in the Merger

In addition to their interests in the merger as shareholders, some of the Apple Six directors and executive officers have interests in the merger that differ from, or are in addition to, the interests of the Apple Six shareholders. In considering the recommendation of the Apple Six board of directors to vote “FOR” the approval of the merger agreement, the related plan of merger, the merger and the other transactions contemplated by the merger agreement, the Apple Six board of directors was aware of, and considered the interests of, the Apple Six directors and executive officers in approving the merger agreement and making its recommendations to the Apple Six shareholders.

Company Options

The merger agreement provides that, on the day the merger is completed, each outstanding company option will be cancelled and converted into the right to receive, in full satisfaction of the rights of the holder with respect to such company option:

 

   

an amount (rounded down to the nearest whole cent) in cash, without interest, equal to the product of (x) 82.883%, multiplied by (y) the aggregate option payment value, and

 

   

subject to no fractional shares being issued and any adjustment for dividends or distributions as described under “The Merger Agreement—Merger Consideration” beginning on page 74, a number of New Preferred Shares equal to the quotient of (x) an amount (rounded down to the nearest whole cent) equal to the product of (A) 17.117%, multiplied by (B) the aggregate option payment value, divided by (y) $1.90.

The “aggregate option payment value” is the amount equal to the product of (I) the number of units subject to a company option, multiplied by (II) the excess, if any, of (1) $11.10 over (2) the exercise price per unit subject to such company option. The exercise price for each company option is $11.00 per unit.

Based on the company options held by the Apple Six directors on November 29, 2012, upon completion of the merger, the Apple Six directors will be entitled to receive cash payments (subject to required tax withholding) and the number of New Preferred Shares on account of those company options as shown in the table below. The Apple Six executive officers do not hold any company options.

 

Name

   Number
of  Company
Options
     Cash
Consideration
     New
Preferred Shares
 

Lisa B. Kern (1)

     145,029       $ 12,021         1,306   

Bruce H. Matson

     145,029         12,021         1,306   

Michael S. Waters

     145,029         12,021         1,306   

Robert M. Wily

     145,029         12,021         1,306   
  

 

 

    

 

 

    

 

 

 

Total

     580,116         48,084         5,224   

 

  (1) Lisa B. Kern accepted a new employment position, and as a requirement of the new position in accordance with her employer’s policy prohibiting service on the board of directors of any publicly-held company, she resigned from the board of directors of Apple Six effective February 11, 2013.

 

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Directors’ and Officers’ Indemnification and Insurance

The merger agreement provides that, from and after the effective time of the merger, BRE Select Hotels will indemnify all present and former directors and officers of Apple Six to the same extent as they were entitled to or eligible for indemnification, exculpation and advancement of expenses under Apple Six’s articles of incorporation and bylaws for actions or omissions occurring at or before the effective time of the merger, including the transactions contemplated by the merger agreement. However, such indemnification does not apply with respect to Glade M. Knight and Bryan Peery for matters related to the SEC investigation, as described under “Legacy Matters—Release and Indemnification Agreement” on page 102.

In addition, BRE Select Hotels has agreed to obtain and maintain for a period of six years after the effective time of the merger “run-off” or “tail” directors and officers liability coverage for Apple Six’s and its subsidiaries’ directors and officers on terms not materially less favorable to the insured persons than those policies presently maintained by Apple Six. BRE Select Hotels will not, however, be required to pay for the “run-off” or “tail” directors and officers liability coverage in excess of 300% of the annual premium that Apple Six paid for this coverage in 2012. If the premium of such insurance coverage, however, exceeds this cap amount, BRE Select Hotels will obtain a policy with the greatest coverage available for a cost not exceeding this cap amount.

Meeting Fees

Each of the Apple Six directors, excluding Glade M. Knight, received regular meeting fees for meetings attended in connection with the sales process and the merger agreement.

Conversion of Series B Convertible Preferred Shares

Glade M. Knight is currently the sole record holder of all 240,000 outstanding Series B convertible preferred shares of Apple Six. Mr. Knight has agreed to assign the benefits (if any) associated with a total of 76,450 Series B convertible preferred shares to certain Apple Six executives, family members and other employees, including the right of conversion upon the occurrence of certain events.

At the effective time of the merger, each outstanding Series B convertible preferred share will be treated on an as-converted basis and will be converted into the right to receive the amount of cash consideration and New Preferred Shares receivable by a holder of a number of Apple Six common shares into which such Series B convertible preferred shares might have been converted. Each Series B convertible preferred share is convertible into 24.17104 common shares. The directors and executive officers who will receive the benefits of the Series B convertible preferred shares upon the completion of the merger are listed below along with the amounts of common shares into which the Series B convertible shares assigned to each such person would be convertible.

 

Name of Director or Executive Officer

   Number of
Series B
convertible
preferred shares
    Number of
common shares
after giving
effect to as-

converted
treatment
     Cash
Consideration
     New Preferred
Shares
 

Glade M. Knight

     167,300  (1)      4,043,815       $ 37,203,098         4,043,815   

Justin G. Knight

     33,795  (2)(3)      816,860         7,515,112         816,860   

David S. McKenney

     15,045  (2)      363,653         3,345,608         363,653   

Kristian M. Gathright

     15,045  (2)      363,653         3,345,608         363,653   

Bryan Peery

     1,875  (2)      45,321         416,953         45,321   
  

 

 

   

 

 

    

 

 

    

 

 

 

Above directors and executive officers as a group

     233,060        5,633,302         51,826,379         5,633,302   

 

          
  (1) Number of shares consists of 3,750 shares with benefits assigned to Glade M. Knight’s spouse and 163,550 shares with benefits retained by Glade M. Knight.

 

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  (2) Number of shares refers to Series B convertible preferred shares with respect to which benefits have been assigned.
  (3) Number of shares includes 18,750 shares with benefits assigned to JAMN Ltd. Partnership LLC of which Justin G. Knight is the general partner. Justin Knight disclaims beneficial ownership of those shares except to the extent of his pecuniary interest therein.

Employment and Directorships with Affiliate Entities

In connection with the merger, Apple Six has entered into three transfer agreements, which are discussed under “Transfer Agreements” beginning on page 98.

Under the management company transfer agreement, Apple Six agreed to transfer all of the membership interests in its wholly owned subsidiary, Apple Fund Management, to Apple Nine Advisors, Inc. immediately following the effective time of the merger in consideration for $1.00 and other consideration described in the management company transfer agreement. Through Apple Fund Management, Apple Six provides support services to Apple Six, Apple REIT Seven, Inc. (which we refer to in this proxy statement/prospectus as “Apple Seven”), Apple REIT Eight, Inc. (which we refer to in this proxy statement/prospectus as “Apple Eight”), Apple REIT Nine, Inc. (which we refer to in this proxy statement/prospectus as “Apple Nine”) and Apple REIT Ten, Inc. (which we refer to in this proxy statement/prospectus as “Apple Ten”) and their respective advisor and real estate brokerage service companies. All of the costs of Apple Fund Management are allocated among, and reimbursed by, the companies that receive these support services. Apple Fund Management does not and, following the completion of the merger, will not provide services to BRE Select Hotels. Apple Nine Advisors, Inc. is wholly owned by Glade M. Knight and provides day-to-day advisory and administrative functions for Apple Nine. From and after the effective time of the transactions contemplated by the management company transfer agreement, Apple Seven Advisors, Inc., Apple Eight Advisors, Inc. and Apple Ten Advisors, Inc., all of which are wholly owned by Mr. Knight, will, together with Apple Fund Management and Apple Nine Advisors, Inc., fully release and indemnify Buyer and BRE Select Hotels and their respective representatives and affiliates from certain liabilities, as described under “Transfer Agreements—Management Company Transfer Agreement” beginning on page 98. Because all of Apple Six’s employees are employees of Apple Fund Management, BRE Select Hotels will have different employees upon consummation of the transactions contemplated by the management company transfer agreement.

Apple Six has entered into the headquarters transfer agreement, pursuant to which Apple Six agreed to transfer its headquarters located in Richmond, Virginia, the personal property owned by Apple Six at its headquarters, other than Apple Six’s books and records, and an office lease in Fort Worth, Texas, to Apple Nine immediately prior to the effective time of the merger for $4.5 million. Under the headquarters transfer agreement, Apple Nine will, upon completion of the transactions contemplated by the headquarters transfer agreement, release Apple Six and its related parties from certain liabilities, as described under “Transfer Agreements—Headquarters Transfer Agreement” beginning on page 99.

Apple Six has entered into the membership interest purchase agreement, pursuant to which Apple Six agreed to transfer all of the equity interests it owns in Apple Air to Apple Ten immediately prior to the effective time of the merger for $1.45 million. Apple Six currently owns 26% of the membership interests in Apple Air. Apple Seven, Apple Eight and Apple Nine own the remaining membership interests in Apple Air. Through its equity investment in Apple Air, Apple Six has access to Apple Air’s aircraft. Under the membership interest purchase agreement, following the effective time of the transactions contemplated by the membership interest purchase agreement Apple Ten will release and indemnify Apple Six from certain liabilities, as described under “Transfer Agreements—Membership Interest Purchase Agreement” beginning on page 100.

The Apple Six board of directors has unanimously approved the transfer agreements. The management company transfer agreement, the headquarters transfer agreement and the membership interest purchase

 

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agreement have also been approved by the boards of directors of Apple Nine Advisors, Inc., Apple Nine, and Apple Ten, respectively.

Glade M. Knight, Bruce H. Matson, Michael S. Waters and Robert M. Wily serve as directors on the Apple Six board of directors and concurrently serve as directors for Apple Nine. Messrs. Knight and Matson and Kent W. Colton and Glenn W. Bunting are directors of Apple Seven. Messrs. Knight, Bunting, Colton, Waters and Wily are also directors of Apple Eight. Messrs. Knight and Colton are also directors of Apple Ten. Lisa B. Kern served as a director on the boards of directors of Apple Six, Apple Seven and Apple Nine before her resignation from all three boards of directors on February 11, 2013 as a requirement for a new employment position.

Glade M. Knight is Apple Six’s chairman and chief executive officer, and is also chairman and chief executive officer of Apple Seven, Apple Eight, Apple Nine and Apple Ten.

Apple Seven, Apple Eight, Apple Nine and Apple Ten are organized as REITs formed to acquire and own hotels, residential apartments and other properties located in selected metropolitan areas in the United States.

Financing of the Merger

In connection with the merger, Buyer will cause approximately $893 million in cash to be paid to Apple Six’s shareholders and holders of company options. In addition, Apple Six’s credit facility with Wells Fargo Bank, N.A. and certain of Apple Six’s mortgage debt will be repaid. The aggregate amount of indebtedness of Apple Six to be repaid upon completion of the merger will be approximately $40 million. These payments will be funded by a combination of equity contributions by Sponsor and its affiliates to Buyer and the proceeds of the debt financing. The merger agreement does not contain a financing condition or a “market MAC” condition to the closing of the merger.

Buyer has agreed to use reasonable best efforts to arrange and obtain the debt financing on the terms and conditions described in the debt commitment letter. In the event any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the debt commitment letter, Buyer will use its reasonable best efforts to arrange and obtain any such portion from alternative sources, in an amount sufficient to consummate the transactions contemplated by the merger agreement on terms and conditions no less favorable in the aggregate to Buyer and BRE Select Hotels (as determined in the reasonable judgment of Buyer) than the existing debt financing as promptly as practicable following the occurrence of such event, but in all cases at or prior to the closing of the merger. For more information, see “The Merger Agreement—Financing; Cooperation” on page 87 and “The Merger Agreement—Conditions to Complete the Merger” on page 89.

Debt Financing

Commitment

In connection with the execution and delivery of the merger agreement, Buyer obtained a debt commitment letter from Citibank, N.A. and Bank of America, N.A., which, together with any other lenders that may be added prior to the completion of the merger, we refer to in this proxy statement/prospectus as the “lenders.” Under the debt commitment letter, the lenders have committed to provide to certain subsidiaries of BRE Select Hotels, up to $775 million of mortgage and mezzanine loans. The amount of the debt financing will be reduced to the extent certain funding conditions described under “—Amount of the Debt Financing” are not met. The debt financing is also subject to the satisfaction of certain conditions described under “—Conditions Precedent to Debt Financing.” In addition to the payment of the merger consideration, the proceeds from the debt financing will be used to repay Apple Six’s credit facility with Wells Fargo Bank, N.A., to repay or redeem certain of Apple Six’s mortgage debt, for other costs and expenses relating to the transactions contemplated by the merger agreement and to establish reserves, including certain reserves required to be established under the debt commitment letter.

 

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The debt commitment letter expires on May 29, 2013. The lenders have the right to terminate the commitment letter under certain circumstances, including:

 

   

any sale, transfer, pledge, encumbrance or assignment of Sponsor’s, Buyer’s or any borrower’s interests in the properties or collateral/security for the loan or any ownership interests of the borrowers;

 

   

Sponsor, Buyer or any borrower breaches any material provision contained in the commitment, subject to cure rights;

 

   

any material representation or warranty to the lenders being or having become untrue and which, in each case, individually or in the aggregate, could reasonably be expected to materially and adversely affect the debt financing;

 

   

the borrowers under the debt financing not being able to make certain representations and warranties set forth in the definitive documentation relating to the debt financing;

 

   

the failure of any condition precedent to the consummation of the debt financing as described under “—Conditions Precedent to Debt Financing” unless waived in writing by the lenders;

 

   

following the occurrence of a market MAC, except that, at the borrower’s option, the lenders must waive the termination in return for an increase in interest by 25 basis points;

 

   

upon termination of the merger agreement by Buyer and/or BRE Select Hotels or Apple Six to the extent Apple Six is permitted to terminate the merger agreement in accordance with its terms; and

 

   

upon any material amendment or waiver to the merger agreement by Buyer or BRE Select Hotels (including any waiver of their conditions precedent to closing as set forth in Sections 6.1 and 6.2 of the merger agreement) that affects one or more of the properties owned directly or indirectly by Apple Six and that is adverse to the lenders in any material respect, without the lenders’ consent which must not be unreasonably withheld, conditioned or delayed.

In this proxy statement/prospectus, a “market MAC” means:

 

   

any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange for three or more consecutive business days, including any changes in trading conditions resulting from actual or threatened terrorist attacks, responses by the United States or its allies to such attacks, or the effects of such attacks;

 

   

the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or New York for three or more consecutive business days;

 

   

after November 29, 2012, an international or national crisis directly or indirectly involving the United States or any of its territories, including any acts of terrorism, domestic or foreign or responses of the United States or its allies (in each case that has materially impaired the market value of the debt financing or the securitization of the debt financing or the lenders’ ability to fund the debt financing on the terms provided in the debt commitment letter for three or more consecutive business days);

 

   

after November 29, 2012, a national or international economic or financial crisis including the heightening of any such crisis that may have existed as of November 29, 2012 (in each case that has materially impaired the market value of the debt financing or the securitization of the debt financing or the lenders’ ability to fund the debt financing on the terms provided in the debt commitment letter for three or more consecutive business days); or

 

   

any limitation by any governmental, regulatory or administrative agency or authority which prohibits the extension of credit by banks or other lending institutions in the United States or New York in a manner that prevents the lenders from providing the debt financing for a period of three or more consecutive business days.

 

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If, on the date of the completion of the merger, a market MAC has occurred for less than three consecutive business days, the lenders will not be obligated to fund the debt financing pursuant to the debt commitment letter as long as such market MAC continues, except that the lenders will be obligated to fund the debt financing, if the borrower agrees to an increase in interest by 25 basis points.

Conditions Precedent to Debt Financing

The debt financing is conditioned upon the negotiation, execution and delivery of definitive documentation relating to the debt financing and completion by the lenders of their due diligence investigation relating to the assets, liabilities and properties of Apple Six, Sponsor and the borrowers, including with respect to engineering, environmental, zoning, title, survey, appraisals, insurance, liens, litigation, know-your-customer searches, underwriting and market due diligence, financial statements and other operating and financial information, material contracts, ground leases, licenses, permits and franchise and management agreements. The lenders are also entitled to receive specified closing deliverables, including comfort letters and consents from franchisors, title insurance, ground lessor estoppels and opinions of counsel. Except as described under “—Amount of Debt Financing” below with respect to appraisals, if any due diligence shortfall exists with respect to the properties subject to the debt financing prior to completion of the merger, then the lenders may establish a special reserve as described under “—Reserves” on page 72.

Amount of the Debt Financing

The amount of the debt financing will be reduced if any of the following funding conditions are not satisfied on the date of the completion of the merger:

 

   

a minimum debt yield (representing the quotient, expressed as a percentage, calculated by dividing the annualized net operating income of the properties subject to the debt agreements by the outstanding principal amount under the debt agreements) of 10.2% (based on the current annualized net operating income of the properties that will be subject to the debt agreements, the minimum debt yield would be satisfied on the date of completion of the merger);

 

   

a maximum loan to cost ratio (representing the quotient, expressed as a percentage, calculated by dividing the outstanding principal amount under the debt agreements by the merger consideration, including the repayments of any existing indebtedness of Apple Six and its subsidiaries, plus the out-of-pocket transaction costs for the merger and the debt financing, and the prefunded reserves for capital expenditures under the debt agreements, including any reserves required under the franchise agreements) of 69.0%; or

 

   

a maximum loan to value ratio (representing the quotient, expressed as a percentage, calculated by dividing the outstanding principal amount under the debt agreements by the “as is” appraised value of the properties subject to the debt agreements determined pursuant appraisals conducted in accordance with the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and ordered, received and reasonably approved by the lenders, including any additional premium in the appraisals to account for the portfolio nature of the properties) of 73.5%.

In the event the foregoing conditions with respect to minimum debt yield or maximum loan to value ratio are not satisfied on the date of the completion of the merger, the lenders will, at the election of the borrowers, instead of reducing the debt financing as described above, fund the full debt financing proceeds, subject to an increase of the applicable interest rate by not more than 35 basis points, if the debt yield is equal to or greater than 9.7% and the maximum loan to value ratio is equal to or less than 77%.

Term of the Debt Financing

The initial term of the debt financing will be three years with an option by the borrowers to extend the initial term for two one-year extension terms, subject to certain conditions. In the event the borrowers exercise the second one-year extension option, there will be a one-time increase in the applicable interest rate by 25 basis points for the last one-year extension period.

 

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Security for Mortgage Loans and Mezzanine Loans

The mortgage loan portion of the debt financing, which we refer to in this proxy statement/prospectus as the “mortgage loans,” will be secured by first priority, cross-collateralized mortgage liens on sixty-five of the sixty-six properties to be owned or ground leased by certain subsidiaries of BRE Select Hotels, all related personal property, reserves, a pledge of all income received by the borrowers under the mortgage loans with respect to the properties and a cash management account. The sixty-sixth hotel, the Residence Inn located in Fort Worth, Texas, will continue to secure a separate mortgage loan, which will remain outstanding following the completion of the merger. In this proxy statement/prospectus, we refer to the borrowers under the mortgage loans as the “mortgage borrowers.”

One or more mezzanine loans, which we refer to in this proxy statement/prospectus as the “mezzanine loans,” will be funded to certain subsidiaries of BRE Select Hotels that own direct or indirect interests in the mortgage borrowers. In this proxy statement/prospectus, we refer to the borrowers under the mezzanine loans as the “mezzanine borrowers.” Each mezzanine loan will be secured by first priority, cross-collateralized pledges of the direct or indirect ownership interests in the mortgage borrowers, all related personal property, reserves, a pledge of all income received by each mezzanine borrower with respect to its direct or indirect ownership interest in the mortgage borrowers and a cash management account.

Each portion of the collateral security for the debt financing will be cross-defaulted with all other collateral securing the debt financing.

Interest Rate

The initial interest rate for the debt financing will be equal to the one-month London interbank offered rate for deposits, which we refer to in this proxy statement/prospectus as “LIBOR,” plus a margin rate of 4.00%. The margin rate may be increased by 25 basis points as described under “Commitment” above, by 35 basis points as described under “—Amount of Debt Financingabove and by 25 basis points as described under “—Term of the Debt Financing” above. The interest rate may also be increased by up to 100 basis points in order for the lenders to sell, syndicate or securitize 100% of the debt financing and achieve a net profit of 100 basis points (inclusive of the commitment fee) after deduction of all unreimbursed out-of-pocket lender costs, including hedging costs, but including any profits from any lender hedges. In connection with the debt financing, the borrowers will be required to enter into an interest rate cap agreement that will protect the borrowers if, at any time during the initial term of the debt financing, LIBOR exceeds 4.00%. As of February 26, 2013, LIBOR was approximately 0.2% and, accordingly, the initial interest rate for the loan would have been approximately 4.2% assuming the merger were completed as of such date, before giving effect to any increases described above. The applicability of any such increase will not be determined until after the date of this proxy statement/prospectus. Although the debt agreements will contain covenants that may impair BRE Select Hotels’ ability to pay cash dividends, BRE Select Hotels currently expects to be able to pay cash dividends on completion of the merger. For a description of the debt yield covenant, see “—Other Terms” below. See also “Risk Factors—Risks Related to the Ownership of the New Preferred Shares.”

Prepayments and Amortization

The debt financing is not prepayable during the first twelve months of the initial term of the debt financing, except that the borrowers may prepay up to 15% of the amount of the debt financing funded by the lenders during such twelve month period and at any time thereafter without prepayment penalty or fee. The borrowers may prepay the debt financing, in whole or in part, any time after the twelfth month of the initial term of the debt financing, except that, if a prepayment is made at any time during the thirteenth month through the eighteenth month of the initial term of the debt financing and such prepayment, when aggregated with all other prepayments made of the debt financing, exceeds 15% of the amount of the debt financing funded to the borrowers, then the borrowers will pay to the lenders an amount equal to the present value of the interest payable on the principal being prepaid for the period from the date of the prepayment through the eighteenth month of the initial term of the debt financing assuming, for purposes of calculating the present value of the interest payments, an interest

 

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rate equal to the margin rate under the debt financing as described under “—Interest Rate” above and an annual discount rate equal to the yield to maturity of United States Treasury securities with a maturity date closest to the last date of the initial term of the debt financing. Any prepayment made after the eighteenth month of the initial term of the debt financing may be made without any prepayment penalty or fee. Notwithstanding the foregoing, any prepayment of the debt financing with casualty or condemnation proceeds or any prepayment made to enable the borrowers to remove a leased property as collateral security due to a default by a borrower under the applicable ground lease will not be subject to any limitation on prepayment or any prepayment fee or penalty.

The debt financing is not subject to any mandatory amortization payments.

Recourse

The lenders will, subject to certain exceptions, have recourse with respect to the debt financing only to the collateral described under “—Security for the Mortgage Loans and Mezzanine Loans” above. The borrowers and BRE Select Hotels will have recourse liability under the debt financing for certain matters typical of a transaction of this type, including, without limitation, if any security instrument or debt agreement is deemed to be a fraudulent conveyance or a preference. The borrowers will also have recourse liability with respect to environmental matters relating to the properties securing the debt financing. The borrowers, BRE Select Hotels and Sponsor and certain affiliated funds will have recourse liability to the lenders relating to losses arising out of actions by parties controlled by Sponsor and certain affiliated funds which constitute fraud, intentional misrepresentation, misappropriation of funds (including insurance proceeds), removal or disposal of any property after an event of default under the debt financing, a material violation of the due on sale/encumbrance covenants set forth in the debt agreements, willful misconduct that results in waste to any property and any material modification or voluntary termination of a ground lease without the lenders’ prior written consent if required under the debt agreements.

In addition, the borrowers, BRE Select Hotels and Sponsor and certain affiliated funds will have recourse liability for the debt financing in the event of a voluntary bankruptcy or a collusive involuntary bankruptcy of any borrower, borrower or any affiliate of Sponsor consenting to or joining in an application for the appointment of a custodian, receiver, trustee or examiner of any borrower or any property or borrower making an assignment for the benefit of creditors. The liability of Sponsor and certain affiliated funds with respect to such bankruptcy-related matters for each mortgage loan and each mezzanine loan will, however, be capped at 15% of the original principal amount of such mortgage loan or such mezzanine loan. Sponsor and its affiliates, through Buyer, will indirectly control the management and operations of BRE Select Hotels, including the borrowers of the debt financing. BRE Select Hotels’ certificate of incorporation will provide that so long as Buyer or its affiliates continue to own at least 50% of the shares of the BRE Select Hotels’ common stock owned by Buyer or its affiliates on the day following the consummation of the merger (as adjusted to reflect stock dividends, stock splits, repurchases, recapitalizations and similar transactions), without the written consent of the Buyer or any affiliate of Buyer designated by Buyer, BRE Select Hotels may not, and may not permit any of its subsidiaries to, pursuant to or within the meaning of any bankruptcy law, commence any voluntary case, consent to the filing of or join, acquiesce or otherwise collude in any involuntary petition filed against it, consent to the entry of an order for relief against it in an involuntary case, solicit or cause to be solicited any petitioning or applicant creditors for an involuntary petition against it (or collude with any person with respect thereto), consent to or acquiesce in the appointment of a custodian of it or for any portion of its property, make a general assignment for the benefit of creditors, seek, consent to or cause a creditor to seek the substantive consolidation of it with any other person or take any comparable action under any foreign laws relating to insolvency. Additionally, for so long as Buyer owns a majority of the shares of common stock of BRE Select Hotels, one or more subsidiaries that control the actions of the borrowers under the financings will have a zero percent equity holder that is owned and controlled by Buyer. This equityholder’s vote will be required in the event of any bankruptcy-related action for a borrower under the financing, or any other subsidiaries with obligations relating to the operation of the properties. The actions and decisions of the equity holder will be indirectly controlled by Sponsor and its affiliates. For so long as the borrowers, BRE Select Hotels and Sponsor and certain affiliated funds have the recourse liability for the

 

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debt financing described in this paragraph, it is expected that none of Sponsor, Buyer or any entity controlled by Sponsor or Buyer, including BRE Select Hotels and the borrowers, will approve of any bankruptcy-related action. See also “Comparison of Shareholders’ Rights—Consent to Bankruptcy” beginning on page 136.

Reserves

The lenders will collect reserves with respect to real estate taxes, insurance and ground rent. Additionally, the lenders will collect reserves to be applied to replacements of furniture, fixtures and equipment equal to the greater of 4% and reserves required for such items under the franchise or management agreements with the franchisors. Escrows for property improvement plans will be determined by the lenders based on franchisor requirements after lenders’ completion of due diligence. The borrowers and the lenders must, however, cooperate in agreeing to a schedule of property improvement plan escrows taking into account the required timing of completion of any related property improvement plan program.

If prior to completion of the merger there exists any material defect, environmental condition or other due diligence shortfall (other than with respect to appraisals as described under “—Amount of Debt Financing” above) with respect to any of the properties subject to the debt financing such that the collateral would not otherwise meet the customary standards for a securitization of a large portfolio of properties of a similar size and character, the lenders may establish a separate special reserve as additional collateral in an amount (as reasonably determined by the lenders) sufficient to correct or collateralize such deficiency. The debt agreements will also contain a covenant by the borrowers to correct the deficiency within a reasonable time following the completion of the merger. If the deficiency is not curable with making a payment, or if the payment amount cannot be determined, the amount of any special reserve will equal the allocated loan amount for the collateral to which the deficiency relates, except that, in lieu of establishing a special reserve, the borrowers may elect to have the property to which the deficiency relates removed from the collateral for the debt financing and the debt financing will be reduced by the portion of the debt financing allocable to that property.

In addition, if (i) any material damage or destruction occurs with respect to the improvements located upon any property subject to the debt agreements or (ii) there is a material condemnation of all or any portion of any such property, then the lenders may also remove the affected property from the collateral and reduce the amount of the debt financing by the allocated loan amount with respect to such property.

Other Terms

The debt agreements will also contain certain financial, operating and other covenants that will, among other things, limit BRE Select Hotels’ ability to:

 

   

incur additional secured or unsecured indebtedness;

 

   

make cash distributions at any time that the debt yield, representing the quotient (expressed as a percentage) calculated by dividing the annualized net operating income of the properties subject to the debt agreements by the outstanding principal amount of indebtedness under the debt agreements, is less than 8.75% or if there is a default continuing under any mezzanine loan (including the failure to make regularly scheduled debt service payments thereunder) until such time the debt yield is equal to or greater than 9.00% or the mezzanine loan default has been cured; BRE Select Hotels currently expects that the debt yield will, on the date of the completion of the merger, be greater than 10.2%;

 

   

make investments or acquisitions;

 

   

use assets as security in other transactions;

 

   

sell assets (except that the borrower is expected to be permitted to sell assets so long as the debt yield is not reduced, subject to payment of any applicable prepayment premiums);

 

   

guarantee other indebtedness; and

 

   

consolidate, merge or transfer all or substantially all of BRE Select Hotels’ assets.

 

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BRE Select Hotels will have the ability to amend or refinance the debt financing without the consent of the holders of New Preferred Shares, subject to certain exceptions involving the incurrence of more than $800 million of indebtedness discussed under “Description of New Preferred Shares—Limitation on Indebtedness” beginning on page 125.

Equity Financing

In connection with the execution and delivery of the merger agreement, Buyer obtained an equity commitment letter from Sponsor, pursuant to which, and subject to the conditions contained therein, Sponsor has agreed to cause Buyer to be capitalized with up to $200 million of equity to fund a portion of the cash consideration.

Regulatory Approvals

No material federal or state regulatory approvals are required in connection with the merger other than regulatory approvals that Apple Six, Buyer and BRE Select Hotels expect to obtain in the ordinary course.

Accounting Treatment

The merger will be accounted for through applying the “acquisition” method of accounting by BRE Select Hotels of Apple Six, as that term is used under GAAP for accounting and financial reporting purposes. As a result, the historical financial statements of Apple Six will become the historical financial statements of BRE Select Hotels. The assets (including identifiable intangible assets) and liabilities of Apple Six as of the completion of the merger will be recorded at their respective fair values and added to those of BRE Select Hotels. Any excess of the purchase price over the net fair values of assets and liabilities of Apple Six will be recorded as goodwill. Financial statements of BRE Select Hotels issued after the completion of the merger will reflect such fair values and will not be restated retroactively to reflect the historical financial position or results of operations of Apple Six. The results of operations of Apple Six will be included in the results of operations of BRE Select Hotels beginning on the closing date of the merger. See “Unaudited Pro Forma Condensed Consolidated Financial Statements” beginning on page 19.

No Stock Exchange Listing of New Preferred Shares

Upon completion of the merger, shares of BRE Select Hotels will not be listed on a securities exchange, such as the New York Stock Exchange or Nasdaq Stock Market.

Resale of New Preferred Shares Following the Merger

The New Preferred Shares issued in the merger will be registered with the SEC. Accordingly, the New Preferred Shares issued in the merger will not be subject to any restrictions on transfer arising under the Securities Act, except for shares issued to any Apple Six shareholder or holder of company options who may be deemed to be an “affiliate” of Apple Six or BRE Select Hotels for purposes of Rule 144 or Rule 145 under the Securities Act.

Control of BRE Select Hotels

Following completion of the merger, Buyer will, through its ownership of all of the common stock of BRE Select Hotels, control BRE Select Hotels, and could take actions that may conflict with the interests of the holders of the New Preferred Shares. As the owner of all of the common stock of BRE Select Hotels, Buyer will have the power to elect all of BRE Select Hotels’ directors and appoint new management. The holders of New Preferred Shares will not be entitled to vote in the election or removal of directors of BRE Select Hotels or any other matters submitted to a vote of shareholders, except with respect to the authorization or issuance of other classes or series of capital stock ranking senior to or on parity with the New Preferred Shares or certain adverse changes to the rights or preferences of the New Preferred Shares as described under “Description of New Preferred Shares—Voting Rights” on page 124. As a result, subject to the limited rights of the holders of New Preferred Shares, Buyer will have the power to approve any action requiring the approval of the shareholders of BRE Select Hotels, including the adoption of amendments to BRE Select Hotels’ certificate of incorporation and BRE Select Hotels’ decisions to enter into any significant corporate transactions, including mergers and sales of substantially all of BRE Select Hotel’s assets. See also “Risk Factors—Risks Related to the Ownership of the New Preferred Shares” on page 32.

 

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THE MERGER AGREEMENT

The following is a summary of the material terms of the merger agreement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. The summary of the material terms of the merger agreement below and elsewhere in this proxy statement/prospectus is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement/prospectus as Annex A and is incorporated by reference into this proxy statement/prospectus. You are urged to read the merger agreement carefully and in its entirety because it, and not the description below or elsewhere in this proxy statement/prospectus, is the legal document that governs the merger.

The merger agreement has been included in this proxy statement/prospectus to provide you with information regarding the terms of the merger. It is not intended to provide you with any other factual or financial information about Apple Six, Buyer, BRE Select Hotels or their respective affiliates or businesses. Information about Apple Six can be found elsewhere in this proxy statement/prospectus and in the other filings Apple Six makes with the SEC, which are available without charge at http://www.sec.gov. See “Where You Can Find More Information” on page 171.

The Merger

The merger agreement provides for the merger of Apple Six with and into BRE Select Hotels, a subsidiary of Buyer. At the effective time of the merger, Apple Six’s separate corporate existence will cease and BRE Select Hotels will be the surviving corporation. Upon completion of the merger, the directors and officers of BRE Select Hotels will be the initial directors and officers of the surviving corporation.

Effective Time of the Merger

The merger will become effective:

 

   

at such time as the State Corporation Commission of the Commonwealth of Virginia issues the certificate of merger and a certificate of merger has been filed with the Secretary of State of the State of Delaware, or

 

   

at such later time as Apple Six and BRE Select Hotels agree and specify in the articles of merger to be filed with the State Corporation Commission of the Commonwealth of Virginia and the certificate of merger to be filed with the Secretary of State of the State of Delaware.

Apple Six, Buyer and BRE Select Hotels will cause the effective time to occur on the closing date, which will occur on the third business day (or such other business day as may be agreed by the parties to the merger agreement) after satisfaction or waiver of the conditions described under “—Conditions to Complete the Merger” beginning on page 89 (other than those conditions that by their terms are required to be satisfied or, if permissible, waived at the closing).

Merger Consideration

In the merger, each issued and outstanding Apple Six share (other than shares with respect to which holders have properly exercised, perfected and not subsequently withdrawn or lost their appraisal rights in accordance with Article 15 of the VSCA) will be converted into the right to receive

 

   

$9.20 in cash per share, without interest, and

 

   

one validly issued, fully paid and non-assessable New Preferred Share which, together with the cash consideration, we refer to in this proxy statement/prospectus as the “merger consideration.”

 

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“Apple Six shares” refer to the issued and outstanding units and the issued and outstanding Series B convertible preferred shares on an as-converted basis in accordance with Apple Six’s articles of incorporation with each Series B convertible preferred share being convertible into 24.17104 common shares.

In the event that Apple Six declares, sets aside or makes or pays any dividends or distributions (whether in cash, stock, property or otherwise) in respect of any shares, including for the purpose of maintaining its qualification as a REIT, the cash consideration will be reduced by the per share amount of that dividend or distribution.

Dissenting Shares

Shares of Apple Six held by a holder who properly exercises, perfects and does not subsequently withdraw or lose its appraisal rights with respect to such shares in accordance with Article 15 of the VSCA will not be converted into the right to receive, or become exchangeable for, the merger consideration, but rather will be entitled to appraisal rights as further described in this proxy statement/prospectus under “Dissenters’ Rights of Appraisal” beginning on page 115. However, if after the effective time of the merger any holder of shares fails to perfect or effectively withdraws or loses such appraisal right, then that holder, subject to certain exceptions, will not receive appraisal rights in accordance with Virginia law, and the shares held by that holder will be treated as if they had been converted into the right to receive, and become exchangeable for, at the effective time of the merger, the merger consideration, without interest, as described above under “—Merger Consideration.”

Treatment of Options

Each outstanding company option will be cancelled and converted into the right to receive, in full satisfaction of the rights of the holder with respect to such company option:

 

   

an amount (rounded down to the nearest whole cent) in cash, without interest, equal to the product of (x) 82.883%, multiplied by (y) the aggregate option payment value, and

 

   

subject to no fractional shares being issued and any adjustment for dividends or distributions as described above under “—Merger Consideration,” a number of New Preferred Shares equal to the quotient of (x) an amount (rounded down to the nearest whole cent) equal to the product of (A) 17.117%, multiplied by (B) the aggregate option payment value, divided by (y) $1.90.

Certificate of Incorporation and Bylaws

The certificate of incorporation and bylaws of BRE Select Hotels, in each case as in effect immediately prior to the effective time of the merger, will become the certificate of incorporation and bylaws of the surviving corporation as of the effective time of the merger. Copies of the form of amended and restated certificate of incorporation and the form of the amended and restated bylaws of BRE Select Hotels have been attached as Annexes C and D, respectively, to this proxy statement/prospectus.

Exchange Procedures

Prior to the effective time of the merger, Apple Six will mail to each holder of record of Apple Six’s outstanding shares a letter of transmittal (which will be in a form and have such other provisions as Buyer and Apple Six may reasonably agree prior to the effective time of the merger) to be used for surrendering shares for payment of the merger consideration.

The merger consideration paid upon surrender of each share will be deemed to have been paid in full satisfaction of all rights pertaining to the shares. There will be no further registration of transfers on Apple Six’s stock transfer books of shares which were outstanding immediately prior to the effective time of the merger. Any portion of the merger consideration delivered to the paying agent pursuant to the merger agreement that remains

 

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unclaimed for twelve months after the effective time of the merger will be redelivered by the paying agent to Buyer, upon demand, and any holders of shares which have not been surrendered as contemplated by the merger agreement must thereafter look only to BRE Select Hotels for delivery of the merger consideration and any distribution with respect to the New Preferred Shares, subject to applicable abandoned property, escheat and other similar laws. Any portion of the cash consideration that is deposited with the paying agent and remains unclaimed by holders of the shares as of the date immediately prior to the time such amounts would otherwise escheat to or become property of any governmental entity will, to the extent permitted by applicable law, become the property of BRE Select Hotels free and clear of any claims or interest of any person previously entitled to such portion of the cash consideration. None of Buyer, Apple Six, the paying agent or BRE Select Hotels will be liable to any holder of Apple Six shares for any such shares (or dividends or distributions with respect to such shares), or any merger consideration delivered to a public official pursuant to any abandoned property, escheat or other similar law.

Representations and Warranties

The merger agreement contains representations and warranties of each of the parties to the merger agreement to the other parties. These representations and warranties were made only for the purposes of the merger agreement, have been qualified by confidential disclosures and were made for the purposes of allocating contractual risk between the parties to the merger agreement and not to establish these matters as facts. The representations and warranties may be subject to standards of materiality applicable to the parties to the merger agreement that differ from the standards applicable to you or other investors. You should not rely on the representations and warranties contained in the merger agreement or any descriptions of such representations and warranties as characterizations of the actual state of facts or condition of Apple Six, BRE Select Hotels, Buyer or any of their respective affiliates or businesses.

In the merger agreement, Apple Six made representations and warranties relating to, among other things:

 

   

due organization, valid existence, good standing and power and authority to own, lease and operate its assets and properties and to carry on its business;

 

   

its subsidiaries’ due incorporation, valid existence, good standing and power and authority to own, lease and operate their assets and properties and to carry on their businesses;

 

   

capital structure of Apple Six;

 

   

authority to enter into the merger agreement and to complete the merger and the other transactions contemplated by the merger agreement;

 

   

enforceability of the merger agreement against it;

 

   

approval and recommendation of Apple Six’s board of directors of the merger, the merger agreement and the other transactions contemplated by the merger agreement;

 

   

receipt by Apple Six’s board of directors of an opinion from Wells Fargo Securities;

 

   

absence of conflicts with, violations of, or defaults under, its and its subsidiaries’ organizational documents, certain contracts applicable to it and its subsidiaries, and applicable laws;

 

   

consents, approvals of, or registrations or filings with, governmental entities required in connection with executing and delivering the merger agreement or the consummation of the transactions contemplated by the merger agreement;

 

   

Apple Six’s SEC filings since January 1, 2009, and the financial statements contained therein;

 

   

absence of liabilities required to be reflected on a balance sheet by GAAP since September 30, 2012;

 

   

absence of any company material adverse effect, as defined under “—Conditions to Complete the Merger,” and certain other changes and events since December 31, 2011 through the date of the merger agreement;

 

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absence of litigation or investigations against or affecting Apple Six or its subsidiaries;

 

   

tax matters affecting Apple Six and its subsidiaries, including Apple Six’s REIT qualification;

 

   

any loans or payments to or from Apple Six or its subsidiaries’ employees, officers or directors;

 

   

absence of any undisclosed broker’s or finder’s fees;

 

   

possession of all permits necessary to operate Apple Six and its subsidiaries’ properties and carry on Apple Six and its subsidiaries’ business and the absence of violations of, and failures to comply with, any such permits and applicable laws;

 

   

Apple Six and its subsidiaries’ material contracts, the absence of any breach or violation or default of any material contract and the absence of certain related party transactions;

 

   

environmental matters affecting Apple Six and its subsidiaries;

 

   

real property owned, leased or subleased by Apple Six and its subsidiaries;

 

   

certain of Apple Six and its subsidiaries’ franchise and management agreements;

 

   

Apple Six and its subsidiaries’ personal property;

 

   

accuracy and compliance with applicable securities law of the information supplied by Apple Six for inclusion in this proxy statement/prospectus and other filings made with the SEC in connection with the merger;

 

   

Apple Six and its subsidiaries’ books and records;

 

   

labor matters affecting Apple Six and its subsidiaries;

 

   

the vote of Apple Six shareholders required to approve the merger, the merger agreement and the other transactions contemplated by the merger agreement;

 

   

Apple Six and its subsidiaries’ insurance policies;

 

   

intellectual property used by, owned by or licensed to Apple Six and its subsidiaries;

 

   

transfer agreements relating to the transfer of (i) Apple Six’s interests in Apple Fund Management, its wholly owned subsidiary, to Apple Nine Advisors, Inc., (ii) Apple Six’s interest in Apple Air to Apple Ten and (iii) Apple Six’s Richmond, Virginia headquarters to Apple Nine; and

 

   

exemption of the merger agreement, the voting agreement between Buyer and Glade M. Knight, the merger and the other transactions contemplated by the merger agreement from the restrictions in any anti-takeover statutes or similar statutes or regulations.

In the merger agreement, Buyer and BRE Select Hotels made representations and warranties relating to, among other things:

 

   

due organization, valid existence, good standing and power and authority to own, lease and operate their assets and properties and to carry on their business;

 

   

authority to enter into the merger agreement and to complete the merger and the other transactions contemplated by the merger agreement;

 

   

enforceability of the merger agreement against them;

 

   

absence of conflicts with, violations of, or defaults under, their organizational documents, certain contracts applicable to them, and applicable laws;

 

   

consents, approvals of, or registrations or filings with, governmental entities required in connection with executing and delivering the merger agreement or the consummation of the transactions contemplated by the merger agreement;

 

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capital resources, including in particular the equity financing and debt financing which will provide Buyer with acquisition financing at the effective time of the merger sufficient to complete the merger and the other transactions contemplated by the merger agreement;

 

   

capital structure of BRE Select Hotels;

 

   

New Preferred Shares;

 

   

ownership and the activities of BRE Select Hotels;

 

   

broker’s and finder’s fees;

 

   

accuracy and compliance with applicable securities law of the information supplied by Buyer or BRE Select Hotels for inclusion in this proxy statement/prospectus and other filings made with the SEC in connection with the merger;

 

   

absence of litigation;

 

   

organizational documents of BRE Select Hotels; and

 

   

limited guaranty of the Sponsor.

The representations and warranties of all the parties to the merger agreement will expire upon the effective time of the merger.

Conduct of Apple Six’s Business Pending the Merger

Under the merger agreement, Apple Six has agreed that, subject to certain exceptions in the disclosure letter delivered in connection with the merger agreement, between the date of the merger agreement and the effective time of the merger, Apple Six will, and will cause its subsidiaries to, carry on Apple Six and its subsidiaries’ businesses in the usual, regular and ordinary course in substantially the same manner as conducted before the date of the merger agreement and, to the extent consistent with that conduct, use commercially reasonable efforts to retain the services of Apple Six and its subsidiaries’ current officers and key employees, preserve intact Apple Six and its subsidiaries’ current business organization, goodwill, relationships with Apple Six and its subsidiaries’ franchisors, licensors, customers, managers, suppliers and other persons with whom Apple Six or any of its subsidiaries have material business relationships, preserve intact Apple Six and its subsidiaries’ ongoing businesses and maintain Apple Six’s status as a REIT within the meaning of the Code. Apple Six also agreed to suspend its dividend reinvestment plan and its unit redemption program as soon as reasonably practical after execution of the merger agreement.

Apple Six also agreed that during the same time period, except as specifically permitted by the merger agreement or consented to in writing by Buyer, Apple Six will not, and will cause its subsidiaries and, to the extent applicable, the property managers of Apple Six and its subsidiaries’ owned or leased real property not to:

 

   

declare, set aside or pay any dividends or other distributions on, or enter into any contract with respect to the voting of, any shares of Apple Six’s capital stock or any other of Apple Six or its subsidiaries’ equity interests, except that Apple Six may make dividend payments necessary to maintain its qualification as a REIT which dividend payments will result in a reduction of the cash consideration as described in “—Merger Consideration;”

 

   

split, combine, reclassify or subdivide any shares of Apple Six or its subsidiaries’ capital stock, partnership interests or other equity securities;

 

   

authorize the issuance of, issue or sell, dispose of or subject to any lien any of Apple Six or its subsidiaries’ shares of capital stock or other equity interests or any options, warrants, convertible securities or other rights of any kind to acquire any such shares, or any such other equity interest;

 

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purchase, redeem or otherwise acquire any shares of Apple Six’s or its subsidiaries’ capital stock, partnership interests, equity interests or other securities;

 

   

adopt any change in Apple Six or its subsidiaries’ organizational documents;

 

   

(i) merge, consolidate or enter into any other business combination transaction with any person, (ii) acquire (by merger, share exchange, consolidation, acquisition of equity interests or assets, any other business combination or otherwise) any person (or division of such person), or (iii) purchase any capital stock or debt securities, any other voting or redeemable securities of or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or redeemable or convertible securities, or all or a material portion of the assets of, any person;

 

   

purchase or otherwise acquire any a