APPLE REIT NINE ANNUAL REPORT 2012 2 3H O MAPEP2L ES UREITITE SN, INNAESHVILLE, TN C O R P O R A T E P R O F I L E Apple REIT Nine, Inc. is a real estate investment trust (REIT) focused on the acquisition and ownership of income- producing real estate that generates attractive returns for our shareholders. Our hotels operate under the Courtyard® by Marriott®, Fairfield Inn® by Marriott®, Fairfield Inn & Suites® by Marriott®, Marriott® Hotels & Resorts, Residence Inn® by Marriott®, SpringHill Suites® by Marriott®, TownePlace Suites® by Marriott®, Embassy Suites Hotels®, Hilton®, Home2 Suites by Hilton®, Homewood Suites by Hilton®, Hilton Garden Inn®, Hampton Inn®, and Hampton Inn & Suites® brands. The Apple REIT Nine portfolio consists of 89 hotels with a total of 11,371 guestrooms in 27 states. M I S S I O N Apple REIT Nine, Inc. is a premier real estate investment company committed to providing maximum value for our shareholders. Financial Highlights (in thousands, except per share and statistical data) Operating results for the years ended December 31, 2012 2011 TOTAL REVENUE $365,586 $320,500 NET INCOME $75,476 $69,988 FUNDS FROM OPERATIONS (A) $128,224 $119,803 MODIFIED FUNDS FROM OPERATIONS (A) $130,983 $118,920 DISTRIBUTIONS PAID PER SHARE (B) $1.60 $0.88 WEIGHTED-AVERAGE SHARES OUTSTANDING 182,222 182,396 REVENUE PER AVAILABLE ROOM (RevPAR) $80 $74 Balance sheet data as of December 31, 2012 2011 INVESTMENT IN REAL ESTATE, NET $1,463,894 $1,480,722 TOTAL ASSETS $1,526,017 $1,700,967 SHAREHOLDERS’ EQUITY $1,346,133 $1,563,590 (A) 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. Modified funds from operations (MFFO) excludes rental revenue earned but not received during the period or straight-line rental income and costs associated with the acquisition of real estate, and includes interest earned on a note receivable that is not included in net income. 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 including net income, cash flow from operating activities, financing activities and investing 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. (B) 2012 distributions include a Special Distribution of $0.75 per share in May 2012. ANNUAL REPORT 2012 1 D ear S H A R E H O L D E R , Apple REIT Nine, Inc. is dedicated to the protection of green initiatives and modern amenities for which the shareholder investments, the distribution of attractive returns Marriott® and Hilton® brands are known. Historically, we have and increasing shareholder value through the steady invested approximately $48 million in the renovation of our improvement of hotel performance. In 2012, hotel hotels and in 2012, the Company allocated $16 million to operations continued to recover from the recessionary a variety of property improvement projects as well as major environment of 2009 and 2010. Our conservative strategy renovations of our Hilton Garden Inn® in Lafayette, LA, has guided our operations and is evident in the strength of our Hilton Garden Inn® in West Monroe, LA, our Hilton our balance sheet, our ability to remain profitable during Garden Inn® in Twinsburg, OH, our Hampton Inn & Suites® fluctuating real estate cycles and our portfolio of high-quality in Arlington, TX, our SpringHill Suites® by Marriott® in hotels. Apple REIT Nine is off to a positive start in 2013 and Andover, MA, our Hampton Inn® in St. Louis, MO, our I remain confident in the long-term success of our program. Courtyard® by Marriott® in West Orange, NJ, our Hampton Inn & Suites® in Texarkana, TX and our full-service Hilton® The Apple REIT Nine portfolio of lodging real estate includes in Dallas, TX. As we seek to increase the value of your 89 Marriott®- and Hilton®-branded hotels, with 11,371 investment over the long term, additional capital guestrooms, that are diversified across 27 states and represent improvement projects are underway or planned for 2013. some of the strongest full-service, extended-stay and select- service brands in the hotel industry. In collaboration with our On April 27, 2012, Apple REIT Nine completed the sale third-party management teams, our asset managers diligently of 110 parcels of land in the Ft. Worth, TX area. The work to maximize hotel performance through effective Company originally made this investment in 2009 pricing strategies, efficient operations, superior hospitality for $147 million. Through a lease agreement for the land, service and strategic property renovations. As a result, the sites received rent of approximately $47 million while our hotels are leaders within their respective markets and under our ownership and were sold in 2012 for a total for the 12-month period ending December 31, 2012, of approximately $198 million, including a $60 million our properties achieved an average occupancy rate of 72 note that continues to provide returns for the Company. percent, an average daily rate (ADR) of $111 and revenue As a result of this transaction, in May of 2012, the Company per available room (RevPAR) of $80. In 2012, RevPAR made a Special Distribution to shareholders of $0.75 per increased by approximately eight percent as compared share and the liquidation preference of each share was to the previous year, driven by a three percent increase reduced by the amount of the Special Distribution, from in occupancy and a four percent increase in ADR. Hotel $11.00 to $10.25 per share. To reflect the Special industry analysts have projected demand for travel will Distribution, the Company’s Board of Directors adjusted the continue to outpace the level of new supply in 2013, annualized distribution rate from $0.88 per share to $0.83 providing the potential for additional increases in nightly per share. We believe this investment provided a unique rates. Our team will continue to aggressively pursue opportunity to increase profitability during our initial additional opportunities for revenue growth and as various acquisition phase while the sale provided a return that activities from college graduations and sporting competitions could otherwise take several years to achieve and returned to area festivals and national events occur within our markets our portfolio of real estate to our core ownership strategy we will strive towards an optimal balance of occupancy and of outstanding hospitality assets. ADR that will maximize RevPAR throughout the year. In 2012, Apple REIT Nine achieved modified funds from Each year capital is strategically allocated to the renovation operations (MFFO) of approximately $131.0 million, of select properties with the intent to elevate our hotels to the or approximately $0.72 per share, an increase of top of their market tier by integrating the innovative interiors, approximately ten percent as compared to MFFO achieved 2 APPLE REIT NINE in 2011 of $118.9 million, or $0.65 per share. Although structure and integrity of the investment for all of our the Company has experienced improvements in hotel shareholders, the Company strives to match funds used for operations, unexpected costs associated with ongoing redemptions to the amount of proceeds received through its litigation, an unsolicited tender offer and unfavorable media Dividend Reinvestment Plan (DRIP). Beginning with the attention had a negative impact on earnings in 2011 and Company’s July 20, 2011 redemption payment, the level 2012. The Company paid distributions of approximately of requests for the redemption of shares through our Unit $1.60 per share in 2012, including the $0.75 Special Redemption Program exceeded funds allocated to that Distribution in May. Since the time of the Company’s first purpose and the Company began making redemptions on distribution payment through the end of 2012, we have paid a pro-rata basis, subject to guidelines as outlined in the approximately $640 million in distributions, or approximately Offering Prospectus or as otherwise adopted by our Board $4.75 per share to those who have been shareholders of the of Directors. As contemplated in the program, over the Company since our initial closing, including the $136 course of 2012, the Company paid a total of approximately million Special Distribution. The Company has achieved $52 million in redemption requests. The Company’s first since its beginning total MFFO of approximately $348 redemption payment was made in 2009 and by the end million and total net income of approximately $181 million.¹ of 2012 we had paid a total of $101.2 million in the Our annualized distribution rate of $0.83 per share is redemption of shares and raised approximately $109.1 closely monitored, taking into account varying economic million through the DRIP. At January 22, 2013, the most cycles and capital improvements, as well as current and recent quarterly redemption date, a total of $114 million projected hotel performance and adjustments may be made in redemptions had been requested but not yet paid. as needed based on available cash resources. Our team has remained committed to our long-term Apple REIT Nine is purposely structured as a non-traded shareholder objectives and in 2012, operations across public REIT, a long-term commercial real estate investment our portfolio improved, capital was strategically allocated option with annual dividend income. Due to the nature to the beautiful renovation of select hotels and we provided of our structure and as contemplated when it began, attractive shareholder distributions while maintaining one our program is currently closed to new investors and liquidity of the lowest debt levels in our industry. As hotel industry is very limited during the cycle of our REIT. In time, analysts have projected continued improvements across the Company will seek a strategic liquidity event based lodging fundamentals this year, I am confident our Company on market conditions that will maximize shareholder value. is well positioned for the future. As always, thank you for In the interim, the Company provides a Unit Redemption your investment in Apple REIT Nine. Program to shareholders who may unexpectedly need access to their funds during the cycle of our REIT; however, the Sincerely, program is limited in the amount of redemptions it can provide based on the tender offer rules set forth by the Securities and Exchange Commission and the amount of Glade M. Knight cash the Company is able to allocate to redemptions. Chairman and Chief Executive Officer In general, to minimize debt and maintain the long-term ¹ The difference in net income and MFFO for the period from initial capitalization in 2008 through December 31, 2012, is depreciation of $152 million, acquisition-related costs of $30 million, straight-line rental income of $19 million and interest earned on a note receivable of $4 million. Images from left to right: GLADE KNIGHT; HILTON GARDEN INN, SCHAUMBURG, IL; HILTON GARDEN INN, WEST MONROE, LA ANNUAL REPORT 2012 3 Diversification 89 HOTELS, 11,371 GUESTROOMS Apple REIT Nine property Apple REIT Nine owns more than one property in this market 4 APPLE REIT NINE Images from left to right: HAMPTON INN & SUITES, ST. LOUIS, MO; FAIRFIELD INN & SUITES, ORLANDO, FL; COURTYARD, JOHNSON CITY, TN STATE/CITY PROPERTY STATE/CITY PROPERTY STATE/CITY PROPERTY ALABAMA ILLINOIS OHIO Dothan Hilton Garden Inn Mettawa Hilton Garden Inn Twinsburg Hilton Garden Inn Troy Courtyard Mettawa Residence Inn OKLAHOMA ALASKA Schaumburg Hilton Garden Inn Oklahoma City Hampton Inn & Suites Anchorage Embassy Suites Warrenville Hilton Garden Inn PENNSYLVANIA ARIZONA INDIANA Collegeville Courtyard Chandler Courtyard Indianapolis SpringHill Suites Malvern Courtyard Chandler Fairfield Inn & Suites Mishawaka Residence Inn Pittsburgh Hampton Inn Phoenix Courtyard LOUISIANA TENNESSEE Phoenix Residence Inn Alexandria Courtyard Jackson Courtyard Tucson Hilton Garden Inn Baton Rouge SpringHill Suites Jackson Hampton Inn & Suites Tucson TownePlace Suites Lafayette Hilton Garden Inn Johnson City Courtyard ARKANSAS Lafayette SpringHill Suites Nashville Hilton Garden Inn Rogers Hampton Inn West Monroe Hilton Garden Inn Nashville Home2 Suites Rogers Homewood Suites MARYLAND TEXAS CALIFORNIA Silver Spring Hilton Garden Inn Arlington Hampton Inn & Suites Clovis Hampton Inn & Suites MASSACHUSETTS Austin Courtyard Clovis Homewood Suites Andover SpringHill Suites Austin Fairfield Inn & Suites San Bernardino Residence Inn Austin Hampton Inn MICHIGAN Santa Ana Courtyard Novi Hilton Garden Inn Austin Hilton Garden Inn Santa Clarita Courtyard Austin Homewood Suites MINNESOTA Santa Clarita Fairfield Inn Beaumont Residence Inn Rochester Hampton Inn & Suites Santa Clarita Hampton Inn Dallas Hilton Santa Clarita Residence Inn MISSISSIPPI Dallas/Allen Hampton Inn & Suites Hattiesburg Residence Inn Dallas/Allen Hilton Garden Inn COLORADO Pueblo Hampton Inn & Suites MISSOURI Dallas/Duncanville Hilton Garden Inn Kansas City Hampton Inn Dallas/Lewisville Hilton Garden Inn FLORIDA St. Louis Hampton Inn El Paso Hilton Garden Inn Fort Lauderdale Hampton Inn St. Louis Hampton Inn & Suites Fort Worth TownePlace Suites Miami Hampton Inn & Suites Orlando Fairfield Inn & Suites NEW JERSEY Frisco Hilton Garden Inn Mt. Laurel Homewood Suites Grapevine Hilton Garden Inn Orlando SpringHill Suites West Orange Courtyard Houston Marriott Panama City TownePlace Suites Irving Homewood Suites Panama City Beach Hampton Inn & Suites NORTH CAROLINA Round Rock Hampton Inn Tampa Embassy Suites Charlotte Homewood Suites Texarkana Hampton Inn & Suites Durham Homewood Suites GEORGIA Fayetteville Home2 Suites UTAH Albany Fairfield Inn & Suites Holly Springs Hampton Inn & Suites Salt Lake City SpringHill Suites IDAHO Jacksonville TownePlace Suites VIRGINIA Boise Hampton Inn & Suites Alexandria SpringHill Suites Bristol Courtyard Manassas Residence Inn ANNUAL REPORT 2012 5 66 AAPPPPLLEE RREEIITT NNIINNEE Our 224-room Hilton® in Dallas, TX, is located within the upscale University Park area, just three miles from Southern Methodist University and the Art Institute of Dallas. Our 2012 renovations upheld the area’s elegant cowboy atmosphere and incorporated the latest in modern travel amenities. ANNUAL REPORT 2012 7 SPRINGHILL SUITES, ALEXANDRIA, VA AS AN APPLE REIT NINE SHAREHOLDER, we encourage you to stay informed, ask questions and know your investment. In addition to our correspondences and our website, www.applereitnine.com, there are a number of resources available to you including our Prospectus and our filings with the Securities and Exchange Commission which can be found at www.sec.gov. Brand Strategy The Apple REIT Nine portfolio of hotels represents two hotel industry leaders, Marriott® and Hilton®. Our team is committed to enriching our business relationship with these brands and we are pleased to announce that Apple REIT Nine was the recipient of the Outstanding Contributor Award by Marriott® in 2012 for embodying the spirit of Marriott International’s philosophy through our participation in the Marriott® training programs, development, brand initiatives and leadership. We are proud to support Marriott® and Hilton® as these award-winning brands continue to excel within the industry and among guests. A sampling of 2012 awards: • Marriott® was selected as the World’s Most Admired Company in the Lodging Industry for the 13th year and one of the 100 Best Companies to Work For by Fortune magazine. • Hilton Garden Inn® and SpringHill Suites® by Marriott® tied for the highest ranking among upscale brands by J.D. Power and Associates in their 2012 North America Hotel Guest Satisfaction Index StudySM. • Hilton® was selected as the Best Business Hotel Chain in North America by readers of Business Traveler magazine. • Homewood Suites by Hilton® received the highest ranking among extended-stay brands by J.D. Power and Associates in their 2012 North America Hotel Guest Satisfaction Index StudySM. • TownePlace Suites® by Marriott® received the highest ranking among mid-price, extended-stay brands by Business Travel News magazine in their 2012 Hotel Chain Survey. • The Marriott® Rewards program was named Program of the Year for the Americas at the 2012 Freddie Awards. 8 APPLE REIT NINE