424B3 1 c62742_424b3.htm 3B2 EDGAR HTML -- c62742_preflight.htm

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-147414

SUPPLEMENT NO. 13 DATED SEPTEMBER 16, 2010

TO PROSPECTUS DATED SEPTEMBER 21, 2009

APPLE REIT NINE, INC.

The following information supplements the prospectus of Apple REIT Nine, Inc. dated September 21, 2009 and is part of the prospectus. This Supplement updates the information presented in the prospectus. Prospective investors should carefully review the prospectus, Supplement No. 11 (which is cumulative and replaces all prior Supplements), Supplement No. 12 and this Supplement No. 13.

TABLE OF CONTENTS

 

 

 

Status of the Offering

 

S-3

Recent Developments

 

S-3

Acquisitions and Related Matters

 

S-5

Summary of Contracts for Our Recently Purchased Properties

 

S-7

Financial and Operating Information for Our Recently Purchased Properties

 

S-8

Certain forward-looking statements are included in the prospectus and this supplement. These forward-looking statements may involve our plans and objectives for future operations, including future growth and availability of funds. These forward-looking statements are based on current expectations, which are subject to numerous risks and uncertainties. Assumptions relating to these statements involve judgments with respect to, among other things, the continuation of our offering of Units, future economic, competitive and market conditions and future business decisions, together with local, national and international events (including, without limitation, acts of terrorism or war, and their direct and indirect effects on travel and the economy). All of these matters are difficult or impossible to predict accurately and many of them are beyond our control. Although we believe the assumptions relating to the forward-looking statements, and the statements themselves, are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that these forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans, which we consider to be reasonable, will be achieved.

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“Courtyard by Marriott,” “Fairfield Inn,” “Fairfield Inn & Suites,” “TownePlace Suites,” “Marriott,” “SpringHill Suites” and “Residence Inn” are each a registered trademark of Marriott International, Inc. or one of its affiliates. All references below to “Marriott” mean Marriott International, Inc. and all of its affiliates and subsidiaries, and their respective officers, directors, agents, employees, accountants and attorneys. Marriott is not responsible for the content of this prospectus supplement, whether relating to hotel information, operating information, financial information, Marriott’s relationship with Apple REIT Nine, Inc., or otherwise. Marriott is not involved in any way, whether as an “issuer” or “underwriter” or otherwise, in the offering by Apple REIT Nine, Inc. and receives no proceeds from the offering. Marriott has not expressed any approval or disapproval regarding this prospectus supplement or the offering related to this prospectus supplement, and the grant by Marriott of any franchise or other rights to Apple REIT Nine, Inc. shall not be construed as any expression of approval or disapproval. Marriott has not assumed, and shall not have, any liability in connection with this prospectus supplement or the offering related to this prospectus supplement.

“Hampton Inn,” “Hampton Inn & Suites,” “Homewood Suites,” “Embassy Suites,” “Hilton Garden Inn” and “Home2 by Hilton” are each a registered trademark of Hilton Worldwide or one of its affiliates. All references below to “Hilton” mean Hilton Worldwide and all of its affiliates and subsidiaries, and their respective officers, directors, agents, employees, accountants and attorneys. Hilton is not responsible for the content of this prospectus supplement, whether relating to hotel information, operating information, financial information, Hilton’s relationship with Apple REIT Nine, Inc., or otherwise. Hilton is not involved in any way, whether as an “issuer” or “underwriter” or otherwise, in the offering by Apple REIT Nine, Inc. and receives no proceeds from the offering. Hilton has not expressed any approval or disapproval regarding this prospectus supplement or the offering related to this prospectus supplement, and the grant by Hilton of any franchise or other rights to Apple REIT Nine, Inc. shall not be construed as any expression of approval or disapproval. Hilton has not assumed, and shall not have, any liability in connection with this prospectus supplement or the offering related to this prospectus supplement.

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STATUS OF THE OFFERING

We completed the minimum offering of Units (with each Unit consisting of one Common Share and one Series A Preferred Share) at $10.50 per Unit on May 14, 2008. We are continuing the offering at $11 per Unit in accordance with the prospectus. We registered to sell a total of 182,251,082 Units. As of August 31, 2010, 30,277,044 Units remained unsold. Our offering of Units expires on April 25, 2011, provided that the offering will be terminated if all of the Units are sold before then.

As of August 31, 2010, we had closed on the following sales of Units in the offering:

 

 

 

 

 

 

 

Price Per
Unit

 

Number of
Units Sold

 

Gross
Proceeds

 

Proceeds Net of Selling
Commissions and Marketing
Expense Allowance

$10.50

 

 

 

9,523,810

 

 

 

$

 

100,000,000

 

 

 

$

 

90,000,000

 

$11.00

 

 

 

142,450,228

 

 

 

 

1,566,952,515

 

 

 

 

1,410,257,264

 

 

 

 

 

 

 

 

Total

 

 

 

151,974,038

 

 

 

$

 

1,666,952,515

 

 

 

$

 

1,500,257,264

 

 

 

 

 

 

 

 

RECENT DEVELOPMENTS

Recent Purchases

On August 31, 2010, through one of our indirect wholly-owned subsidiaries, we closed on the purchase of three hotels located in Rogers, Arkansas, St. Louis, Missouri, and Kansas City, Missouri. On September 15, 2010, through one of our indirect wholly-owned subsidiaries, we closed on the purchase of a hotel located in Alexandria, Louisiana. The aggregate gross purchase price for these hotels, which contain a total of 530 guest rooms, was approximately $52.6 million.

Further information about our recently purchased hotels is provided in other sections below.

Loan Assumptions

The purchase contracts for three of the recently purchased hotels required us to assume loans secured by these hotels. The total outstanding aggregate principal balance of the assumed loans is $28.8 million. Each of the assumed loans has a non-recourse structure, which means that the lender generally must rely on the property, rather than the borrower, as the lender’s source of repayment in any collection action. There are exceptions to the non-recourse structure in certain situations, such as misappropriation of funds and environmental liabilities. In these situations, the lender would be permitted to seek repayment from the guarantor or indemnitor of the loan, which is one of our indirect wholly-owned subsidiaries.

Recent Purchase Contracts

We caused one of our indirect wholly-owned subsidiaries to enter into a series of purchase contracts for the potential purchase of 17 hotels.

The total gross purchase price for these hotels, which contain a total of 2,376 guest rooms, is approximately $297.8 million. Deposits totaling $5.1 million have been made and certain contracts require an additional aggregate deposit in the amount of $8.2 million at or after the end of our contractual review periods. A number of required conditions to closing currently remain unsatisfied under each of the purchase contracts. Accordingly, there can be no assurance at this time that any closings will occur under these purchase contracts. Upon a purchase, the deposit amounts would be credited against the applicable purchase price.

Further information about these purchase contracts and hotels is provided in the “Acquisitions and Related Matters” section below.

Source of Funds and Related Party Payments

Our recent purchases, which resulted in our ownership of four additional hotels, were funded primarily by the proceeds from our ongoing offering of Units. Our offering proceeds also have been

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used to fund the initial deposits required by the hotel purchase contracts and will be used for the related additional deposits.

We have entered into a property acquisition and disposition agreement with Apple Suites Realty Group, Inc. to acquire and dispose of our real estate assets. A fee of 2% of the gross purchase price or gross sale price in addition to certain reimbursable expenses will be payable for these services. This entity is owned by Glade M. Knight, who is our Chairman and Chief Executive Officer. We used our offering proceeds to pay $1,052,901 to Apple Suites Realty Group, Inc., representing 2% of the gross purchase price for our recent purchases.

Overview of Owned Hotels

As a result of our recent purchases, we currently own 52 hotels, which are located in the states indicated in the map below:

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ACQUISITIONS AND RELATED MATTERS

Each of our recently purchased hotels has been leased to one of our indirect wholly-owned subsidiaries, as the lessee, under a separate hotel lease agreement. For simplicity, the applicable lessee will be referred to below as the “lessee.”

Each hotel is managed under a separate management agreement between the applicable lessee and the manager. For simplicity, the applicable manager will be referred to below as the “manager.”

The hotel lease agreements and the management agreements are among the contracts described in another section below. The table below specifies the franchise, hotel owner, lessee and manager for our recently purchased hotels:

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Location

 

Franchise (a)

 

Hotel
Owner/Lessor

 

Lessee

 

Manager

1.

 

Rogers, Arkansas

 

Hampton Inn

 

Apple Nine
SPE Rogers, Inc.

 

Apple Nine Services
Rogers, Inc.

 

Raymond Management Company, Inc. (b)

2.

 

St. Louis, Missouri

 

Hampton Inn

 

Apple Nine
St. Louis, LLC

 

Apple Nine Services
St. Louis, Inc.

 

Raymond Management Company, Inc. (b)

3.

 

Kansas City, Missouri

 

Hampton Inn

 

Apple Nine
Kansas City, LLC

 

Apple Nine Services
Kansas City, Inc.

 

Raymond Management Company, Inc. (b)

4.

 

Alexandria, Louisiana

 

Courtyard

 

Sunbelt-CAL, LLC

 

Apple Nine
Hospitality
Management, Inc.

 

LBAM—Investor
Group, L.L.C. (b)


Note for Table:

 

(a)

 

 

 

All brand and trade names, logos or trademarks contained, or referred to, in this prospectus supplement are the properties of their respective owners. These references shall not in any way be construed as participation by, or endorsement of, our offering by any of our franchisors or managers.

 

(b)

 

 

 

The hotel specified was purchased from an affiliate of the indicated manager.

We have no material relationship or affiliation with the sellers or managers, except for the relationship resulting from our purchases, our management agreements for the hotels we own, and any related documents.

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Potential Acquisitions

The following table provides a summary of the hotels covered by pending purchase contracts entered into since our Prospectus Supplement No. 12 dated August 19, 2010:

 

 

 

 

 

 

 

 

 

 

 

   

Hotel Location

 

Franchise

 

Date of
Purchase
Contract

 

Number of
Rooms

 

Gross
Purchase
Price (a)

 

1.

   

Andover, Massachusetts

 

SpringHill Suites

 

August 30, 2010

 

 

 

136

 

 

 

$

 

6,500,000

 

 

 

2.

   

Indianapolis, Indiana

 

SpringHill Suites

 

September 10, 2010

 

 

 

130

 

 

 

 

12,800,000

 

 

3.

   

Mishawaka, Indiana

 

Residence Inn

 

September 10, 2010

 

 

 

106

 

 

 

 

13,700,000

 

 

 

4.

   

Phoenix, Arizona

 

Courtyard

 

September 10, 2010

 

 

 

164

 

 

 

 

16,000,000

 

 

5.

   

Phoenix, Arizona

 

Residence Inn

 

September 10, 2010

 

 

 

129

 

 

 

 

14,000,000

 

 

 

6.

   

Lake Forest/Mettawa, Illinois

 

Residence Inn

 

September 10, 2010

 

 

 

130

 

 

 

 

23,500,000

 

 

7.

   

Lake Forest/Mettawa, Illinois

 

Hilton Garden Inn

 

September 10, 2010

 

 

 

170

 

 

 

 

30,500,000

 

 

 

8.

   

Austin, Texas

 

Hilton Garden Inn

 

September 10, 2010

 

 

 

117

 

 

 

 

16,000,000

 

 

9.

   

Novi, Michigan

 

Hilton Garden Inn

 

September 10, 2010

 

 

 

148

 

 

 

 

16,200,000

 

 

 

10.

   

Warrenville, Illinois

 

Hilton Garden Inn

 

September 10, 2010

 

 

 

135

 

 

 

 

22,000,000

 

 

11.

   

Schaumburg, Illinois

 

Hilton Garden Inn

 

September 10, 2010

 

 

 

166

 

 

 

 

20,500,000

 

 

 

12.

   

Salt Lake City, Utah

 

SpringHill Suites

 

September 10, 2010

 

 

 

143

 

 

 

 

17,500,000

 

 

13.

   

Austin, Texas

 

Fairfield Inn & Suites

 

September 10, 2010

 

 

 

150

 

 

 

 

17,750,000

 

 

 

14.

   

Austin, Texas

 

Courtyard

 

September 10, 2010

 

 

 

145

 

 

 

 

20,000,000

 

 

15.

   

Chandler, Arizona

 

Courtyard

 

September 10, 2010

 

 

 

150

 

 

 

 

17,000,000

 

 

 

16.

   

Chandler, Arizona

 

Fairfield Inn & Suites

 

September 10, 2010

 

 

 

110

 

 

 

 

12,000,000

 

 

17.

   

Tampa, Florida

 

Embassy Suites

 

September 10, 2010

 

 

 

147

 

 

 

 

21,800,000

 
   

 

 

 

 

 

 

 

 

 

   

 

 

 

 

Total

 

 

 

2,376

 

 

 

$

 

297,750,000

 
   

 

 

 

 

 

 

 

 

 


Notes for Table:

 

(a)

 

 

  Under each purchase contract, we are required to make an initial deposit to the seller. The aggregate initial deposits for the hotels listed above totaled $5.1 million. We are required to make additional deposits at or after the end of our contractual review periods. If we close on the purchase of a particular hotel, the initial deposit (and any additional deposit) will be applied to the purchase price. If a closing does not occur because the seller has failed to satisfy a closing condition or breaches the purchase contract, the deposits would be refunded to us. The total of both the initial and additional deposits for the purchase contracts listed above is approximately $13.3 million.

(Remainder of Page Intentionally Left Blank)

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SUMMARY OF CONTRACTS
FOR OUR RECENTLY PURCHASED PROPERTIES

Hotel Lease Agreements

Each of our recently purchased hotels is covered by a separate hotel lease agreement between the owner (one of our indirect wholly-owned subsidiaries) and the applicable lessee (another one of our indirect wholly-owned subsidiaries, as specified in the previous section). Each lease provides for an initial term of 10 years. The applicable lessee has the option to extend its lease term for two additional five-year periods, provided it is not in default at the end of the prior term or at the time the option is exercised.

Each lease provides for annual base rent and percentage rent. The annual base rent is payable in advance in equal monthly installments and will be adjusted each year in proportion to the Consumer Price Index (based on the U.S. City Average). Shown below are the annual base rent and the lease commencement date for our recently purchased hotels:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Hotel Location

 

Franchise

 

Annual
Base Rent

 

Date of Lease
Commencement

 

 

 

 

 

 

 

1.

   

Rogers, Arkansas

 

Hampton Inn

 

 

$

 

805,911

 

 

 

 

August 31, 2010

 

 

 

 

 

 

 

 

 

2.

   

St. Louis, Missouri

 

Hampton Inn

 

 

 

1,778,985

 

 

 

 

August 31, 2010

 

 

 

 

 

 

 

 

3.

   

Kansas City, Missouri

 

Hampton Inn

 

 

 

1,072,218

 

 

 

 

August 31, 2010

 

 

 

 

 

 

 

 

 

4.

   

Alexandria, Louisiana

 

Courtyard

 

 

 

838,730

 

 

 

 

September 15, 2010

 

 

 

 

 

 

 

The annual percentage rent depends on a formula that compares fixed “suite revenue breakpoints” with a portion of “suite revenue,” which is equal to gross revenue from guest rentals less sales and room taxes and credit card fees. The suite revenue breakpoints will be adjusted each year in proportion to the Consumer Price Index (based on the U.S. City Average). Specifically, the annual percentage rent is equal to the sum of (a) 17% of all suite revenue for the year, up to the applicable suite revenue breakpoint; plus (b) 55% of the suite revenue for the year in excess of the applicable suite revenue breakpoint, as reduced by base rent paid for the year.

Management Agreements

Each of our hotels is being managed by the manager under a separate management agreement between the manager and the applicable lessee (which is one of our indirect wholly-owned subsidiaries, as specified in the previous section). The manager is responsible for managing and supervising the daily operations of the hotel and for collecting revenues for the benefit of the applicable lessee. The fees and other terms of these agreements are the result of commercial negotiations between otherwise unrelated parties. We believe that such fees and terms are appropriate for the hotels and the markets in which they operate.

Franchise Agreements

For the hotel franchised by Marriott International, Inc. or one of its affiliates, there is a relicensing franchise agreement between the lessee and Marriott International, Inc. or an affiliate. Each relicensing franchise agreement provides for the payment of royalty fees and marketing contributions to the franchisor. A percentage of gross room revenues is used to determine these payments. In addition, we have caused Apple Nine Hospitality, Inc. or another one of our subsidiaries to provide a separate guaranty of the payment and performance of the applicable lessee under the relicensing franchise agreement.

For the hotels franchised by Hilton Worldwide or one of its affiliates, there is a franchise license agreement between the applicable lessee and Hilton Worldwide or an affiliate. Each franchise license agreement provides for the payment of royalty fees and program fees to the franchisor. A percentage of gross room revenues is used to determine these payments. Apple Nine Hospitality, Inc. or another one of our subsidiaries has guaranteed the payment and performance of the lessee under the applicable franchise license agreement.

The fees and other terms of these agreements are the result of commercial negotiations between otherwise unrelated parties, and we believe that such fees and terms are appropriate for the hotels

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and the markets in which they operate. These agreements may be terminated for various reasons, including failure by the applicable lessee to operate in accordance with the standards, procedures and requirements established by the franchisors.

FINANCIAL AND OPERATING INFORMATION
FOR OUR RECENTLY PURCHASED
PROPERTIES

Our hotels offer guest rooms and suites, together with related amenities, that are consistent with their operations. The hotels are located in developed or developing areas and in competitive markets. We believe the hotels are well-positioned to compete in their markets based on location, amenities, rate structure and franchise affiliation. In the opinion of management, each hotel is adequately covered by insurance. The following tables present further information about our hotels:

Table 1. General Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Hotel Location

 

Franchise

 

Number
of
Rooms/
Suites

 

Gross
Purchase
Price

 

Average
Daily
Rate
(Price)
per
Room/
Suite (a)

 

Federal
Income Tax
Basis for
Depreciable
Real
Property
Component
of Hotel (b)

 

Purchase Date

 

1.

   

Rogers, Arkansas

 

Hampton Inn

 

 

 

122

 

 

 

$

 

9,600,000

 

 

 

 

$109-129

 

 

 

$

 

8,614,200

   

August 31, 2010

 

 

2.

   

St. Louis, Missouri

 

Hampton Inn

 

 

 

190

 

 

 

 

23,000,000

 

 

 

 

129-139

 

 

 

 

21,210,750

   

August 31, 2010

 

3.

   

Kansas City, Missouri

 

Hampton Inn

 

 

 

122

 

 

 

 

10,130,000

 

 

 

 

119-129

 

 

 

 

9,395,000

   

August 31, 2010

 

 

4.

   

Alexandria, Louisiana (c)

 

Courtyard

 

 

 

96

 

 

 

 

9,915,069

 

 

 

 

129

 

 

 

 

8,816,500

   

September 15, 2010

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

530

 

 

 

$

 

52,645,069

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Notes for Table 1:

 

(a)

 

 

 

The amounts shown are subject to change, and exclude discounts that may be offered to corporate, frequent and other select customers.

 

(b)

 

 

 

The depreciable life is 39 years (or less, as may be permitted by federal tax laws) using the straight-line method. The modified accelerated cost recovery system will be used for the hotel’s personal property component.

 

(c)

 

 

 

The date that the hotel was acquired was the date the hotel began operations.

Table 2. Loan Information (a)

 

 

 

 

 

 

 

 

 

 

 

   

Hotel

 

Franchise

 

Assumed Principal
Balance of Loan

 

Annual
Interest
Rate

 

Maturity Date

 

1.

   

Rogers, Arkansas

 

Hampton Inn

 

 

$

 

8,336,824

 

 

 

 

5.20

%

 

 

September 2015

 

 

2.

   

St. Louis, Missouri

 

Hampton Inn

 

 

 

13,914,689

 

 

 

 

5.30

%

 

 

September 2015

 

3.

   

Kansas City, Missouri

 

Hampton Inn

 

 

 

6,517,413

 

 

 

 

5.45

%

 

 

October 2015

   

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

$

 

28,768,926

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 


 

Note for Table 2

 

(a)

 

 

 

This table summarizes loans that (i) pre-dated our purchase, (ii) are secured by our hotels, and (iii) were assumed by our purchasing subsidiary. Each loan provides for monthly payments of principal and interest on an amortized basis.

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Table 3. Operating Information (a)

PART A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Hotel Location

 

Franchise

 

Avg. Daily Occupancy Rates (%)

 

2005

 

2006

 

2007

 

2008

 

2009

 

1.

   

Rogers, Arkansas

 

Hampton Inn

 

 

 

66

%

 

 

 

 

66

%

 

 

 

 

59

%

 

 

 

 

62

%

 

 

 

 

60

%

 

 

 

2.

   

St. Louis, Missouri

 

Hampton Inn

 

 

 

63

%

 

 

 

 

65

%

 

 

 

 

67

%

 

 

 

 

67

%

 

 

 

 

71

%

 

 

3.

   

Kansas City, Missouri

 

Hampton Inn

 

 

 

77

%

 

 

 

 

79

%

 

 

 

 

79

%

 

 

 

 

77

%

 

 

 

 

73

%

 

 

 

4.

   

Alexandria, Louisiana

 

Courtyard

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

PART B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

Hotel Location

 

Franchise

 

Revenue per Available Room/Suite ($)

 

2005

 

2006

 

2007

 

2008

 

2009

 

1.

   

Rogers, Arkansas

 

Hampton Inn

 

 

$

 

66

 

 

 

$

 

70

 

 

 

$

 

64

 

 

 

$

 

66

 

 

 

$

 

57

 

 

 

2.

   

St. Louis, Missouri

 

Hampton Inn

 

 

$

 

64

 

 

 

$

 

65

 

 

 

$

 

73

 

 

 

$

 

72

 

 

 

$

 

75

 

 

3.

   

Kansas City, Missouri

 

Hampton Inn

 

 

$

 

66

 

 

 

$

 

72

 

 

 

$

 

78

 

 

 

$

 

77

 

 

 

$

 

67

 

 

 

4.

   

Alexandria, Louisiana

 

Courtyard

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 


 

Note for Table 3

 

(a)

 

 

 

Operating data is presented for the last five years (or since the beginning of hotel operations). The hotel in Alexandria has no data because it was under construction and not open at that time. See Table 1. General Information above for the date the hotel was acquired.

Table 4. Tax and Related Information

 

 

 

 

 

 

 

 

 

 

 

   

Hotel Location

 

Franchise

 

Tax Year (a)

 

Real
Property
Tax Rate

 

Real
Property
Tax

 

1.

   

Rogers, Arkansas

 

Hampton Inn

 

 

 

2009

 

 

 

 

5.3

%

 

 

 

$

 

71,742

 

 

 

2.

   

St. Louis, Missouri

 

Hampton Inn

 

 

 

2009

 

 

 

 

9.3

%

 

 

 

 

103,588

 

 

3.

   

Kansas City, Missouri

 

Hampton Inn

 

 

 

2009

 

 

 

 

10.2

%

 

 

 

 

121,769

 

 

 

4.

   

Alexandria, Louisiana

 

Courtyard

 

 

 

2009

 

 

 

 

11.9

%

 

 

 

 

7,663

(b)

 


 

Note for Table 4:

 

(a)

 

 

 

Represents a calendar year.

 

(b)

 

 

 

The hotel property consisted of undeveloped land for a portion of the tax year, and the real property tax for tax year is not necessarily indicative of property taxes expected for the hotel in the future.

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