# Tableof Contents

 

 

 

# **UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

# **Washington,D.C. 20549**

#  

**FORM 10-Q**

 

| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------|

 

**FOR THE QUARTERLY PERIODENDED MARCH 31, 2010**

 

| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|----------------------------------------------------------------------------------------------------------|

 

**FOR THE TRANSITION PERIOD FROM              TO               **

 

**Commission File Number 000-51270**

 

**APPLE REIT SIX, INC.**

(Exact name of registrant asspecified in its charter)

 

| **VIRGINIA**                             | ** ** | **20-0620523**      |
|------------------------------------------|------------|---------------------|
| (State or other jurisdiction             |       | (IRS Employer       |
| of incorporation or organization)        |       | Identification No.) |
|                                     |       |                |
| **814  EAST MAIN STREET**                |       |                |
| **RICHMOND,  VIRGINIA**                  | ** ** | **23219**           |
| (Address of principal executive offices) |       | (Zip Code)          |

 

**(804) 344-8121**

(Registrant’s telephonenumber, including area code)

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act:

 

| Large  accelerated filer o                                              |   | Accelerated  filer o    |
|------------------------------------------------------------------------------|--------|------------------------------|
|                                                                         |   |                         |
| Non-accelerated  filer x  (Do not check if a smaller reporting company) |   | Smaller  reporting company o |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o  No x

 

Number ofregistrant’s common shares outstanding as of May 1, 2010: 91,066,414

 

 

 

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**APPLE REIT SIX, INC.**FORM 10-Q

INDEX

 
| ** **       | ** **                | ** **                                                                                                                   | ** ** | **Page  Number** |
|------------------|---------------------------|------------------------------------------------------------------------------------------------------------------------------|------------|------------------|
| ** **       | ** **                | ** **                                                                                                                   | ** ** | ** **       |
| **PART I.** | **FINANCIAL INFORMATION** |                                                                                                                         |       |
|             |                      |                                                                                                                         |       |             |
| Item  1.         |                      | Financial Statements  (Unaudited)                                                                                            |       |             |
|             |                      |                                                                                                                         |       |             |
|             |                      | Consolidated Balance  Sheets -  March 31, 2010 and December 31, 2009                                               |       | 3                |
|             |                      |                                                                                                                         |       |             |
|             |                      | Consolidated  Statements of Operations -  Three months ended March 31, 2010 and  Three months ended March 31, 2009 |       | 4                |
|             |                      |                                                                                                                         |       |             |
|             |                      | Consolidated  Statements of Cash Flows -  Three months ended March 31, 2010 and  Three months ended March 31, 2009 |       | 5                |
|             |                      |                                                                                                                         |       |             |
|             |                      | Notes to  Consolidated Financial Statements                                                                                  |       | 6                |
|             |                      |                                                                                                                         |       |             |
| Item 2.          |                      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                  |       | 10               |
|             |                      |                                                                                                                         |       |             |
| Item 3.          |                      | Quantitative  and Qualitative Disclosures About Market Risk                                                                  |       | 16               |
|             |                      |                                                                                                                         |       |             |
| Item 4.          |                      | Controls and  Procedures                                                                                                     |       | 16               |
|             |                      |                                                                                                                         |       |             |
| PART II.    | OTHER INFORMATION         |                                                                                                                         |       |
|             |                      |                                                                                                                         |       |             |
| Item  1.         |                      | Legal Proceedings (not  applicable)                                                                                          |       |             |
|             |                      |                                                                                                                         |       |             |
| Item  1A.        |                      | Risk Factors (not  applicable)                                                                                               |       |             |
|             |                      |                                                                                                                         |       |             |
| Item 2.          |                      | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                 |       | 17               |
|             |                      |                                                                                                                         |       |             |
| Item  3.         |                      | Defaults Upon Senior  Securities (not applicable)                                                                            |       |             |
|             |                      |                                                                                                                         |       |             |
| Item  4.         |                      | (Removed and reserved)                                                                                                       |       |             |
|             |                      |                                                                                                                         |       |             |
| Item  5.         |                      | Other Information (not  applicable)                                                                                          |       |             |
|             |                      |                                                                                                                         |       |             |
| Item 6.          |                      | Exhibits                                                                                                                     |       | 18               |
|             |                      |                                                                                                                         |       |             |
| Signatures       |                      |                                                                                                                         |       | 19               |
|                  |                           |                                                                                                                              |            |                  |  |

 

This Form 10-Q includes references to certaintrademarks or service marks. The SpringHill Suites® by Marriott, TownePlace Suites® by Marriott, Fairfield Inn® by Marriott, Courtyard® by Marriott, Residence Inn® by Marriott and Marriott Suites® trademarks are the property ofMarriott International, Inc. or one of its affiliates. The Homewood Suites® by Hilton, Hilton Garden Inn®, Hampton Inn® andHampton Inn & Suites® trademarks are the property of HiltonWorldwide or one or more of its affiliates. For convenience, the applicabletrademark or servicemark symbol has been omitted but will be deemed to be includedwherever the above-referenced terms are used.

 

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**AppleREIT Six, Inc.**

**Consolidated Balance Sheets**

**(unaudited)**

**(inthousands, except share data)**

 
| ** **                                                                                                                                            | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                            | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| **ASSETS**                                                                                                                                            |       |               |       |                  |       |
| Investment  in real estate, net of accumulated depreciation of $132,705 and $124,943,  respectively                                                   |       | $                  | 795,217    |                  | $          | 801,646 |   |
| Restricted  cash-furniture, fixtures and other escrows                                                                                                |       | 4,806              |       | 4,506                 |       |
| Due  from third party manager, net                                                                                                                    |       | 10,384             |       | 6,331                 |       |
| Other  assets, net                                                                                                                                    |       | 3,806              |       | 3,101                 |       |
|                                                                                                                                                  |       |               |       |                  |       |
| **TOTAL ASSETS**                                                                                                                                      |       | $                  | 814,213    |                  | $          | 815,584 |   |
|                                                                                                                                                  |       |               |       |                  |       |
| **LIABILITIES**                                                                                                                                       |       |               |       |                  |       |
| Notes  payable                                                                                                                                        |       | $                  | 63,290     |                  | $          | 54,040 |   |
| Other  liabilities                                                                                                                                    |       | 4,060              |       | 4,056                 |       |
|                                                                                                                                                  |       |               |       |                  |       |
| **TOTAL LIABILITIES**                                                                                                                                 |       | 67,350             |       | 58,096                |       |
|                                                                                                                                                  |       |               |       |                  |       |
| **SHAREHOLDERS’ EQUITY**                                                                                                                         |       |               |       |                  |       |
| Preferred  stock, authorized 15,000,000 shares; none issued and outstanding                                                                           |       | —             |       | —                |       |
| Series A  preferred stock, no par value, authorized 200,000,000 shares; issued and  outstanding 91,589,456 and 91,472,421 shares, respectively   |       | —             |       | —                |       |
| Series B  convertible preferred stock, no par value, authorized 240,000 shares; issued  and outstanding 240,000 and 240,000 shares, respectively |       | 24                 |       | 24                    |       |
| Common  stock, no par value, authorized 200,000,000 shares; issued and outstanding  91,589,456 and 91,472,421 shares, respectively                    |       | 903,507            |       | 902,202               |       |
| Distributions  greater than net income                                                                                                                |       | (156,668           | )          | (144,738              | )          |
|                                                                                                                                                  |       |               |       |                  |       |
| **TOTAL SHAREHOLDERS’ EQUITY**                                                                                                                   |       | 746,863            |       | 757,488               |       |
|                                                                                                                                                  |       |               |       |                  |       |
| **TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                   |       | $                  | 814,213    |                  | $          | 815,584 |   |

 

**Seenotes to consolidated financial statements.**

 

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**AppleREIT Six, Inc.**

**Consolidated Statements of Operations**

**(unaudited)**

**(inthousands, except per share data)**

 
| ** **                                                      | ** ** | **Three months ended**  | ** ** | **Three months ended**  | ** ** |
|-----------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                      | ** ** | **March 31, 2010** | ** ** | **March 31, 2009** | ** ** |
|                                                            | ** ** | ** **              | ** ** | ** **              | ** ** |
| Revenues:                                                       |       |                    |       |                    |       |
| Room revenue                                               |       | $                       | 48,392     |                    | $          | 47,861 |   |
| Other  revenue                                                  |       | 3,477                   |       | 3,711                   |       |
| Reimbursed  expenses                                            |       | 1,632                   |       | 1,310                   |       |
| Total  revenue                                                  |       | 53,501                  |       | 52,882                  |       |
|                                                            |       |                    |       |                    |       |
| Expenses:                                                       |       |                    |       |                    |       |
| Operating  expense                                              |       | 13,753                  |       | 13,526                  |       |
| Hotel  administrative expense                                   |       | 4,517                   |       | 4,672                   |       |
| Sales  and marketing                                            |       | 4,166                   |       | 4,197                   |       |
| Utilities                                                       |       | 2,402                   |       | 2,497                   |       |
| Repair  and maintenance                                         |       | 2,599                   |       | 2,504                   |       |
| Franchise  fees                                                 |       | 2,177                   |       | 2,129                   |       |
| Management  fees                                                |       | 1,652                   |       | 1,798                   |       |
| Taxes,  insurance and other                                     |       | 3,238                   |       | 3,419                   |       |
| Reimbursed  expenses                                            |       | 1,632                   |       | 1,310                   |       |
| General  and administrative                                     |       | 1,037                   |       | 1,169                   |       |
| Depreciation  expense                                           |       | 7,762                   |       | 7,653                   |       |
| Total  expenses                                                 |       | 44,935                  |       | 44,874                  |       |
|                                                            |       |                    |       |                    |       |
| Operating  income                                               |       | 8,566                   |       | 8,008                   |       |
|                                                            |       |                    |       |                    |       |
| Interest  expense, net                                          |       | (909                    | )          | (246                    | )          |
|                                                            |       |                    |       |                    |       |
| Net  income                                                     |       | $                       | 7,657      |                    | $          | 7,762 |   |
|                                                            |       |                    |       |                    |       |
| Basic  and diluted net income per common share                  |       | $                       | 0.08       |                    | $          | 0.09 |   |
|                                                            |       |                    |       |                    |       |
| Weighted  average common shares outstanding - basic and diluted |       | 91,363                  |       | 91,288                  |       |
|                                                            |       |                    |       |                    |       |
| Distributions  declared per common share                        |       | $                       | 0.215      |                    | $          | 0.226 |   |

 

**Seenotes to consolidated financial statements.**

 

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**AppleREIT Six, Inc.**

**Consolidated Statements of Cash Flows**

**(unaudited)**

**(inthousands)**

 
| ** **                                                                     | ** ** | **Three months ended**  | ** ** | **Three months ended**  | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                                     | ** ** | **March 31, 2010** | ** ** | **March 31, 2009** | ** ** |
| ** **                                                                     | ** ** | ** **              | ** ** | ** **              | ** ** |
| **Cash flow provided by operating activities:**                                |       |                    |       |                    |       |
| Net  income                                                                    |       | $                       | 7,657      |                    | $          | 7,762 |   |
| Adjustments  to reconcile net income to cash provided by operating activities: |       |                    |       |                    |       |
| Depreciation                                                                   |       | 7,762                   |       | 7,653                   |       |
| Other  non-cash expenses, net                                                  |       | 132                     |       | (17                     | )          |
| Changes  in operating assets and liabilities, net of amounts acquired/assumed: |       |                    |       |                    |       |
| Due  from third party manager                                                  |       | (4,053                  | )          | (2,706                  | )          |
| Other  assets                                                                  |       | (947                    | )          | 159                     |       |
| Other  liabilities                                                             |       | 297                     |       | (222                    | )          |
| Net  cash provided by operating activities                                     |       | 10,848                  |       | 12,629                  |       |
|                                                                           |       |                    |       |                    |       |
| **Cash flow used in investing activities:**                                    |       |                    |       |                    |       |
| Capital  improvements                                                          |       | (1,626                  | )          | (5,162                  | )          |
| Redemption  of investment interest in non-hotel assets                         |       | —                  |       | 3,240                   |       |
| Net  decrease (increase) in cash restricted for property improvements          |       | (241                    | )          | 58                      |       |
| Net  cash used in investing activities                                         |       | (1,867                  | )          | (1,864                  | )          |
|                                                                           |       |                    |       |                    |       |
| **Cash flow used in financing activities:**                                    |       |                    |       |                    |       |
| Net  proceeds from line of credit                                              |       | 9,505                   |       | 12,500                  |       |
| Repayment  of secured notes payable                                            |       | (204                    | )          | (198                    | )          |
| Net  proceeds from issuance of Units                                           |       | 8,344                   |       | 8,861                   |       |
| Redemptions  of Units                                                          |       | (7,039                  | )          | (12,278                 | )          |
| Cash  distributions paid to shareholders                                       |       | (19,587                 | )          | (20,585                 | )          |
| Net  cash used in financing activities                                         |       | (8,981                  | )          | (11,700                 | )          |
|                                                                           |       |                    |       |                    |       |
| Decrease  in cash and cash equivalents                                         |       | —                  |       | (935                    | )          |
|                                                                           |       |                    |       |                    |       |
| Cash  and cash equivalents, beginning of period                                |       | —                  |       | 935                     |       |
|                                                                           |       |                    |       |                    |       |
| Cash  and cash equivalents, end of period                                      |       | $                       | —     |                    | $          | — |   |

 

**Seenotes to consolidated financial statements.**

 

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**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

** **

**Note 1**

 

**Basis of Presentation**

 

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith the instructions for Form 10-Q and Article 10 of RegulationS-X.  Accordingly, they do not includeall of the information required by accounting principles generally accepted inthe United States.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  These unaudited statements should be read inconjunction with the Company’s audited financial statements included in its2009 Annual Report on Form 10-K. Operating results for the period ended March 31, 2010 are notnecessarily indicative of the results that may be expected for the periodending December 31, 2010.

 

**Note 2**

 

**General Information and Summary of Significant Accounting Policies**

 

*Organization*

 

Apple REIT Six, Inc., together with itswholly-owned subsidiaries (the “Company”), is a Virginia corporation formed toinvest in hotels and other selected real estate in select metropolitan areas inthe United States. The Company has elected to be treated as a real estateinvestment trust (“REIT”) for federal income tax purposes. Initialcapitalization occurred on January 20, 2004 and operations began on May 28,2004 when the Company acquired its first hotel. On March 3, 2006, theCompany concluded its best-efforts offering of Units (each Unit consists of onecommon share and one Series A preferred share). The Company has no foreignoperations or assets and its operating structure includes only onesegment.  The consolidated financialstatements include the accounts of the Company and its subsidiaries. Allintercompany transactions and balances have been eliminated upon consolidation.

 

*Earnings per Common Share*

 

Basic earnings per common share are computed basedupon the weighted average number of shares outstanding during the year. Dilutedearnings per share are calculated after giving effect to all potential commonshares that were dilutive and outstanding for the year. There were no potentialcommon shares with a dilutive effect during the three months ended March 31,2010 or 2009. As a result, basic and diluted outstanding shares were the same. Series Bconvertible preferred shares are not included in earnings per common sharecalculations until such time as the Series B convertible preferred sharesare converted to common shares.

 

*Use of Estimates*

 

The preparation of the financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the amounts reported in thefinancial statements and accompanying notes. Actual results could differ fromthose estimates.

 

*Recent Accounting Pronouncements*

 

In June 2009, the Financial AccountingStandards Board (“FASB”) issued a pronouncement (Accounting Standards Update No. 2009-17)which amends its guidance surrounding a company’s analysis to determine whetherany of its variable interests constitute controlling financial interests in avariable interest entity.  This analysisidentifies the primary beneficiary of a variable interest entity as theenterprise that has both of the following characteristics:  (a) the power to direct the activitiesof a variable interest entity that most significantly impact the entity’seconomic performance, and (b) the obligation to absorb losses of theentity that could potentially be significant to the variable interest entity orthe right to receive 

 

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benefitsfrom the entity that could potentially be significant to the variable interestentity.  Additionally, an enterprise isrequired to assess whether it has an implicit financial responsibility toensure that a variable interest entity operates as designed when determiningwhether it has the power to direct the activities of the variable interestentity that most significantly impact the entity’s economic performance. Thenew pronouncement also requires ongoing assessments of whether an enterprise isthe primary beneficiary of a variable interest entity and enhanced disclosureabout an enterprise’s involvement with a variable interest entity.  This pronouncement was adopted by the Companyin the first quarter of 2010. The adoption of this standard did not have a materialimpact on the Company’s consolidated financial statements.

 

**Note3**

 

**Sale of Ownership Interest**

 

In January 2009, theCompany’s ownership interest in Apple Air Holding, LLC (Apple Air), was reducedfrom 50% to 26% through the redemption of a 24% ownership interest by AppleAir. The Company received approximately $3.2 million for the ownership interestredeemed. No gain or loss from the redemption was recognized by the Company.Due to the reduction in ownership the Company deconsolidated Apple Air and nowrecords its ownership interest of approximately $2.3 and $2.4 million at March31, 2010 and December 31, 2009 in “Other assets, net” in the Company’sConsolidated Balance Sheets. The Company records its share of income or loss ofApple Air under the equity method of accounting, adjusting its investmentaccordingly. The loss of $0.1 million for the three months ended March 31, 2010and 2009 is included in “General and administrative” expense in the Company’sConsolidated Statements of Operations. The other members of Apple Air are AppleREIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.

 

**Note4**

 

**Lineof Credit**

 

In March 2008, the Company entered into a $20million unsecured line of credit with a commercial bank. The applicableinterest rate was equal to LIBOR (the London Interbank Offered Rate) plus 2%,with interest payments due monthly. Effective August 31, 2009, the Companymodified this agreement, increasing its capacity to $40 million. The principalmust be paid by the maturity date of March 2011, and may be prepaidwithout penalty. The Company has an option to extend the line of credit oneyear, subject to a fee and certain conditions. The applicable interest rate isequal to LIBOR (the London Interbank Offered Rate) plus 3.5%, with a minimuminterest rate of 5.0%. The line of credit also has an unused fee of 0.5%. At March 31,2010 and December 31, 2009, the credit line had outstanding principalbalances of $35.4 and $25.9 million.

 

**Note5**

 

**Fair Value of Financial Instruments**

 

The Company estimates thefair value of its fixed rate debt and the credit spreads over variable marketrates on its variable rate debt by discounting the future cash flows of eachinstrument at estimated market rates or credit spreads consistent with thematurity of the debt obligation with similar credit policies. Credit spreadstake into consideration general market conditions and maturity. As of March 31,2010, the carrying value and estimated fair value of the Company’s debt was$63.3 and $64.2 million. As of December 31, 2009, the carrying value andestimated fair value of the Company’s debt was $54.0 and $55.5 million. Thecarrying value of the Company’s other financial instruments approximates fairvalue due to the short-term nature of these financial instruments.

 

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**Note6**

 

**Related Parties**

 

The Company has significant transactions withrelated parties.  These transactionscannot be construed to be arms length, and the results of the Company’soperations may be different if these transactions were conducted withnon-related parties.

 

The Company is party to an advisory agreement withApple Six Advisors, Inc. (“A6A”), pursuant to which A6A providesmanagement services to the Company. An annual fee ranging from .1% to .25% oftotal equity proceeds received by the Company, in addition to certainreimbursable expenses, is payable for these services. During the first three monthsof 2010 and 2009, A6A utilized Apple Fund Management, LLC, a subsidiary of theCompany, to provide these services. The advisory fees incurred under theagreement with A6A for the three months ended March 31, 2010 and 2009,totaled approximately $0.4 million for each period.

 

Through its wholly-owned subsidiary, Apple FundManagement, LLC, the Company provides support services to Apple Suites RealtyGroup, Inc. (“ASRG”), A6A, Apple Seven Advisors, Inc. (“A7A”), AppleREIT Seven, Inc., Apple Eight Advisors, Inc. (“A8A”), Apple REITEight, Inc., Apple Nine Advisors, Inc. (“A9A”) and Apple REIT Nine, Inc.A7A provides day to day advisory and administrative functions for Apple REITSeven, Inc. A8A provides day to day advisory and administrative functionsfor Apple REIT Eight, Inc. A9A provides day to day advisory andadministrative functions for Apple REIT Nine, Inc. ASRG provides realestate brokerage services to Apple REIT Seven, Inc., Apple REIT Eight, Inc.and Apple REIT Nine, Inc. Each of these companies has agreed to reimbursethe Company for its costs in providing these services. For the three monthsended March 31, 2010 and 2009, the Company received reimbursement of itscosts totaling approximately $1.6 and $1.3 million. ASRG, A6A, A7A, A8A and A9Aare 100% owned by Glade Knight, the Company’s Chairman and Chief ExecutiveOfficer.

 

Including ASRG, A6A, A7A, A8A and A9A discussedabove, Mr. Knight is also Chairman and Chief Executive Officer of AppleREIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.Members of the Company’s Board of Directors are also on the boards of AppleREIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.

 

**Note 7**

 

**Shareholders’ Equity**

 

In July 2005, the Company instituted a UnitRedemption Program to provide limited interim liquidity to its shareholders whohave held their Units for at least one year. Shareholders may requestredemption of Units for a purchase price equal to the lesser of: (1) thepurchase price per Unit that the shareholder actually paid for the Unit; or (2) $11.00per Unit. The Company reserves the right to change the purchase price ofredemptions, reject any request for redemption, or otherwise amend the termsof, suspend, or terminate the Unit Redemption Program. During the three monthsended March 31, 2010, the Company redeemed approximately 0.6 million Unitsin the amount of $7.0 million under the program. Since the inception of theprogram through March 31, 2010, the Company has redeemed approximately11.8 million Units for $128.9 million under the program.

 

In February 2006, the Company instituted aDividend Reinvestment Plan for its shareholders. The plan provides a convenientand cost effective way to increase shareholder investment in the Company byreinvesting dividends to purchase additional Units of the Company. The uses ofthe proceeds from this plan may include purchasing Units under the Company’sUnit Redemption Program, enhancing properties, satisfying financing obligationsand other expenses, increasing working capital, funding various corporateoperations, and acquiring hotels. During the three months ended March 31,2010, approximately 0.8 million Units, representing $8.3 million in proceeds tothe Company, were issued under the plan. Since the inception of the plan throughMarch 31, 2010, 12.2 million Units, representing $134.4 million inproceeds to the Company, were issued under the plan.

 

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**Note 8**

 

**Subsequent Events**

 

In April 2010, theCompany declared and paid approximately $5.9 million, or $.064 per share, indistributions to its common shareholders of which $2.5 million or 224,609 Unitswere reinvested under the Company’s Dividend Reinvestment Plan.

 

On April 20, 2010, the Company redeemed747,651 Units in the amount of $8.2 million under its Unit Redemption Program.

 

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**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

This quarterly report contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended.  Such statements involve known and unknown risks,uncertainties, and other factors which may cause the actual results,performance, or achievements of the Company to be materially different fromfuture results, performance or achievements expressed or implied by suchforward-looking statements.  Such factors include, but are not limited to,the ability of the Company to implement its acquisition strategy and operatingstrategy; the Company’s ability to manage planned growth; changes in economiccycles, including the current economic recession throughout the United States;and competition within the hotel industry.  Although the Company believesthat the assumptions underlying the forward-looking statements contained hereinare reasonable, any of the assumptions could be inaccurate, and therefore therecan be no assurance that such statements included in the quarterly report willprove to be accurate.  In light of the significant uncertainties inherentin the forward-looking statements included herein, the inclusion of suchinformation should not be regarded as a representation by the Company or anyother person that the results or conditions described in such statements or theobjectives and plans of the Company will be achieved.  In addition, theCompany’s qualification as a real estate investment trust involves theapplication of highly technical and complex provisions of the Internal RevenueCode.  Readers should carefully review the Company’s financial statementsand the notes thereto, as well as the risk factors described in the Company’sfilings with the Securities and Exchange Commission. Any forward-lookingstatement that the Company makes speaks only as of the date of this report. TheCompany undertakes no obligation to publicly update or revise anyforward-looking statements or cautionary factors as a result of newinformation, future events or otherwise, except as required by law.

 

*Overview*

 

Apple REIT Six, Inc. (together with its whollyowned subsidiaries, the “Company”) was formed and initially capitalized on January 20,2004, with its first investor closing on April 23, 2004. The Company owns68 hotels within different markets in the United States. The Company is treatedas a Real Estate Investment Trust (“REIT”) for federal income tax purposes. TheCompany’s first hotel was acquired on May 28, 2004. Although hotelperformance can be influenced by many factors including local competition,local and general economic conditions in the United States and the performanceof individual managers assigned to each hotel, performance of the hotels withintheir respective markets, in general, has met the Company’s expectations forthe period owned. With the decline in economic conditions throughout the UnitedStates, the Company has experienced a significant decline in revenue ascompared to 2008, but a slight recovery in revenue as compared to the firstquarter of 2009. Although there is no way to predict general economicconditions, the Company anticipates revenue and income to stabilize in 2010 ascompared to 2009. In evaluating financial condition and operating performance,the most important matters on which the Company focuses are revenuemeasurements, such as: average occupancy, average daily rate, revenue peravailable room, and market yield (a comparison of a hotel’s revenue results tothe average of other hotels in its local market); and expenses, such as hoteloperating expenses, general and administrative and other expenses describedbelow.  The following is a summary of theCompany’s results:

 

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| **(in thousands except statistical data)** | ** ** | **Three months  ended March 31,  2010** | ** ** | **Percent of  Hotel  Revenue** | ** ** | **Three months  ended March 31,  2009** | ** ** | **Percent of  Hotel  Revenue** | ** ** | **Percent  Change** | ** ** |
|--------------------------------------------|------------|----------------------------------------------|------------|--------------------------------|------------|----------------------------------------------|------------|--------------------------------|------------|---------------------|------------|
|                                       |       |                                         |       |                           |       |                                         |       |                           |       |                |       |
| Total  hotel revenue                       |       | $                                            | 51,869     |                           | 100        | %                                            | $          | 51,572                         |       | 100                 | %          | 1 | % |
| Hotel  operating expenses                  |       | 31,266                                       |       | 60                             | %          | 31,323                                       |       | 61                             | %          | —              |       |
| Taxes,  insurance and other expense        |       | 3,238                                        |       | 6                              | %          | 3,419                                        |       | 7                              | %          | -5                  | %          |
| General  and administrative expense        |       | 1,037                                        |       | 2                              | %          | 1,169                                        |       | 2                              | %          | -11                 | %          |
|                                       |       |                                         |       |                           |       |                                         |       |                           |       |                |       |
| Depreciation                               |       | 7,762                                        |       |                           |       | 7,653                                        |       |                           |       | 1                   | %          |
| Interest  expense, net                     |       | 909                                          |       |                           |       | 246                                          |       |                           |       | 270                 | %          |
|                                       |       |                                         |       |                           |       |                                         |       |                           |       |                |       |
| Number  of Hotels                          |       | 68                                           |       |                           |       | 68                                           |       |                           |       | —              |       |
| Average  RevPAR Market Yield (1)           |       | 124                                          |       |                           |       | 120                                          |       |                           |       | 3                   | %          |
| ADR                                        |       | $                                            | 102        |                           |       |                                         | $          | 111                            |       |                |       | -8 | % |
| Occupancy                                  |       | 67                                           | %          |                           |       | 61                                           | %          |                           |       | 10                  | %          |
| RevPAR                                     |       | $                                            | 68         |                           |       |                                         | $          | 67                             |       |                |       | 1 | % |

 

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(1) Data iscalculated from information provided by Smith Travel Research, Inc., forcomparable hotels.

 

*Hotels Owned*

 

As of March 31, 2010, the Company owned 68hotels, with a total of 7,897 rooms. The following table summarizes thelocation, brand, manager, date acquired, number of rooms and gross purchaseprice for each hotel. All dollar amounts are in thousands.

 
| **City**       | ** ** | **State**   | ** ** | **Brand**                               | ** ** | **Manager**       | ** ** | **Date  Acquired** | ** ** | **Rooms** | ** ** | **Gross  Purchase  Price** | ** ** |
|----------------|------------|-------------|------------|-----------------------------------------|------------|-------------------|------------|--------------------|------------|-----------|------------|----------------------------|------------|
| Birmingham     |       | Alabama     |       | Fairfield  Inn                          |       | LBA               |       | 8/25/05            |       | 63        |       | $                          | 2,176      |   |
| Dothan         |       | Alabama     |       | Courtyard                               |       | LBA               |       | 8/11/05            |       | 78        |       | 8,016                      |       |
| Dothan         |       | Alabama     |       | Hampton Inn & Suites |       | LBA               |       | 6/24/05            |       | 85        |       | 8,673                      |       |
| Huntsville     |       | Alabama     |       | Fairfield  Inn                          |       | LBA               |       | 9/30/05            |       | 79        |       | 4,954                      |       |
| Huntsville     |       | Alabama     |       | Residence  Inn                          |       | LBA               |       | 6/24/05            |       | 78        |       | 8,288                      |       |
| Montgomery     |       | Alabama     |       | SpringHill  Suites                      |       | LBA               |       | 9/30/05            |       | 79        |       | 6,835                      |       |
| Tuscaloosa     |       | Alabama     |       | Courtyard                               |       | LBA               |       | 8/25/05            |       | 78        |       | 7,551                      |       |
| Tuscaloosa     |       | Alabama     |       | Fairfield  Inn                          |       | LBA               |       | 8/25/05            |       | 63        |       | 3,982                      |       |
| Anchorage      |       | Alaska      |       | Hampton  Inn                            |       | Stonebridge       |       | 3/14/05            |       | 101       |       | 11,500                     |       |
| Anchorage      |       | Alaska      |       | Hilton  Garden Inn                      |       | Stonebridge       |       | 10/12/04           |       | 125       |       | 18,900                     |       |
| Anchorage      |       | Alaska      |       | Homewood  Suites                        |       | Stonebridge       |       | 10/12/04           |       | 122       |       | 13,200                     |       |
| Phoenix        |       | Arizona     |       | Hampton  Inn                            |       | Stonebridge       |       | 10/12/04           |       | 99        |       | 6,700                      |       |
| Tempe          |       | Arizona     |       | SpringHill  Suites                      |       | Western           |       | 6/30/05            |       | 121       |       | 8,060                      |       |
| Tempe          |       | Arizona     |       | TownePlace  Suites                      |       | Western           |       | 6/30/05            |       | 119       |       | 8,128                      |       |
| Arcadia        |       | California  |       | Hilton  Garden Inn                      |       | Stonebridge       |       | 10/12/04           |       | 124       |       | 12,000                     |       |
| Arcadia        |       | California  |       | SpringHill  Suites                      |       | Stonebridge       |       | 10/12/04           |       | 86        |       | 8,100                      |       |
| Bakersfield    |       | California  |       | Hilton  Garden Inn                      |       | Hilton            |       | 3/18/05            |       | 120       |       | 11,500                     |       |
| Folsom         |       | California  |       | Hilton  Garden Inn                      |       | Inn Ventures |       | 11/30/05           |       | 100       |       | 18,028                     |       |
| Foothill Ranch |       | California  |       | Hampton  Inn                            |       | Stonebridge       |       | 4/21/05            |       | 84        |       | 7,400                      |       |
| Lake Forest    |       | California  |       | Hilton Garden Inn             |       | Stonebridge       |       | 10/12/04           |       | 103       |       | 11,400                     |       |
| Milpitas       |       | California  |       | Hilton  Garden Inn                      |       | Inn  Ventures     |       | 11/30/05           |       | 161       |       | 18,600                     |       |
| Roseville      |       | California  |       | Hilton  Garden Inn                      |       | Inn  Ventures     |       | 11/30/05           |       | 131       |       | 20,759                     |       |
| San Francisco  |       | California  |       | Hilton  Garden Inn                      |       | Inn  Ventures     |       | 1/30/06            |       | 169       |       | 12,266                     |       |
| Boulder        |       | Colorado    |       | Marriott                                |       | WLS               |       | 5/9/05             |       | 157       |       | 30,000                     |       |
| Glendale       |       | Colorado    |       | Hampton Inn &  Suites     |       | Stonebridge       |       | 10/12/04           |       | 133       |       | 14,700                     |       |
| Lakewood       |       | Colorado    |       | Hampton  Inn                            |       | Stonebridge       |       | 10/12/04           |       | 170       |       | 10,600                     |       |
| Farmington     |       | Connecticut |       | Courtyard                               |       | WLS               |       | 10/20/05           |       | 119       |       | 16,330                     |       |
| Rocky Hill     |       | Connecticut |       | Residence  Inn                          |       | WLS               |       | 8/1/05             |       | 96        |       | 12,070                     |       |
| Wallingford    |       | Connecticut |       | Homewood  Suites                        |       | WLS               |       | 7/8/05             |       | 104       |       | 12,780                     |       |
| Clearwater     |       | Florida     |       | SpringHill  Suites                      |       | LBA               |       | 2/17/06            |       | 79        |       | 6,923                      |       |
| Lake Mary      |       | Florida     |       | Courtyard                               |       | LBA               |       | 3/18/05            |       | 86        |       | 6,000                      |       |
| Lakeland       |       | Florida     |       | Residence  Inn                          |       | LBA               |       | 6/24/05            |       | 78        |       | 9,886                      |       |
| Orange Park    |       | Florida     |       | Fairfield  Inn                          |       | LBA               |       | 11/8/05            |       | 83        |       | 7,221                      |       |
| Panama City    |       | Florida     |       | Courtyard                               |       | LBA               |       | 4/26/06            |       | 84        |       | 9,245                      |       |
| Pensacola      |       | Florida     |       | Courtyard                               |       | LBA               |       | 8/25/05            |       | 90        |       | 11,369                     |       |
| Pensacola      |       | Florida     |       | Fairfield  Inn                          |       | LBA               |       | 8/25/05            |       | 63        |       | 4,858                      |       |
| Pensacola      |       | Florida     |       | Hampton  Inn & Suites          |       | LBA               |       | 7/21/05            |       | 85        |       | 9,279                      |       |
| Tallahassee    |       | Florida     |       | Hilton  Garden Inn                      |       | Hilton            |       | 3/18/05            |       | 99        |       | 10,850                     |       |
| Albany         |       | Georgia     |       | Courtyard                               |       | LBA               |       | 6/24/05            |       | 84        |       | 8,597                      |       |
| Columbus       |       | Georgia     |       | Residence  Inn                          |       | LBA               |       | 6/24/05            |       | 78        |       | 7,888                      |       |
| Savannah       |       | Georgia     |       | SpringHill  Suites                      |       | LBA               |       | 9/30/05            |       | 79        |       | 5,407                      |       |
| Valdosta       |       | Georgia     |       | Courtyard                               |       | LBA               |       | 10/3/05            |       | 84        |       | 8,284                      |       |
| Mt. Olive      |       | New  Jersey |       | Residence  Inn                          |       | WLS               |       | 9/15/05            |       | 123       |       | 12,070                     |       |
|                |            |             |            |                                         |            |                   |            |                    |            |           |            |                            |            |  |

 

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| Somerset         |   | New  Jersey     |   | Homewood  Suites     |   | WLS           |   | 8/17/05  |   | 123   |   | 17,750 |    |
|------------------|--------|-----------------|--------|----------------------|--------|---------------|--------|----------|--------|-------|--------|--------|---------|
| Saratoga Springs |   | New  York       |   | Hilton  Garden Inn   |   | WLS           |   | 9/29/05  |   | 112   |   | 17,750 |    |
| Roanoke Rapids   |   | North  Carolina |   | Hilton  Garden Inn   |   | Newport       |   | 3/10/08  |   | 147   |   | 17,764 |    |
| Hillsboro        |   | Oregon          |   | Courtyard            |   | Inn  Ventures |   | 3/9/06   |   | 155   |   | 11,000 |    |
| Hillsboro        |   | Oregon          |   | Residence  Inn       |   | Inn  Ventures |   | 3/9/06   |   | 122   |   | 15,500 |    |
| Hillsboro        |   | Oregon          |   | TownePlace  Suites   |   | Inn  Ventures |   | 12/19/05 |   | 136   |   | 11,500 |    |
| Portland         |   | Oregon          |   | Residence  Inn       |   | Inn  Ventures |   | 12/19/05 |   | 258   |   | 42,000 |    |
| Pittsburgh       |   | Pennsylvania    |   | Residence  Inn       |   | WLS           |   | 9/2/05   |   | 156   |   | 11,000 |    |
| Myrtle Beach     |   | South  Carolina |   | Courtyard            |   | Marriott      |   | 6/8/04   |   | 135   |   | 9,200  |    |
| Nashville        |   | Tennessee       |   | Homewood  Suites     |   | Hilton        |   | 5/24/05  |   | 121   |   | 8,103  |    |
| Arlington        |   | Texas           |   | SpringHill  Suites   |   | Western       |   | 6/30/05  |   | 122   |   | 7,486  |    |
| Arlington        |   | Texas           |   | TownePlace  Suites   |   | Western       |   | 6/30/05  |   | 95    |   | 7,148  |    |
| Dallas           |   | Texas           |   | SpringHill  Suites   |   | Western       |   | 12/9/05  |   | 147   |   | 19,500 |    |
| Ft. Worth        |   | Texas           |   | Homewood Suites |   | Hilton        |   | 5/24/05  |   | 137   |   | 9,097  |    |
| Ft. Worth        |   | Texas           |   | Residence  Inn       |   | Western       |   | 5/6/05   |   | 149   |   | 17,000 |    |
| Ft. Worth        |   | Texas           |   | SpringHill  Suites   |   | Marriott      |   | 5/28/04  |   | 145   |   | 13,340 |    |
| Laredo           |   | Texas           |   | Homewood  Suites     |   | Western       |   | 11/30/05 |   | 106   |   | 10,500 |    |
| Laredo           |   | Texas           |   | Residence  Inn       |   | Western       |   | 9/12/05  |   | 109   |   | 11,445 |    |
| Las Colinas      |   | Texas           |   | TownePlace  Suites   |   | Western       |   | 6/30/05  |   | 136   |   | 7,178  |    |
| McAllen          |   | Texas           |   | Hilton  Garden Inn   |   | Western       |   | 7/19/05  |   | 104   |   | 9,000  |    |
| Fredericksburg   |   | Virginia        |   | Hilton  Garden Inn   |   | Hilton        |   | 12/20/05 |   | 148   |   | 16,600 |    |
| Kent             |   | Washington      |   | TownePlace  Suites   |   | Inn  Ventures |   | 12/19/05 |   | 152   |   | 12,000 |    |
| Mukilteo         |   | Washington      |   | TownePlace  Suites   |   | Inn  Ventures |   | 12/19/05 |   | 128   |   | 12,000 |    |
| Redmond          |   | Washington      |   | Marriott             |   | Marriott      |   | 7/7/04   |   | 262   |   | 64,000 |    |
| Renton           |   | Washington      |   | Hilton  Garden Inn   |   | Inn  Ventures |   | 11/30/05 |   | 150   |   | 16,096 |    |
|             |   |            |   |                 |   |          |   | Total    |   | 7,897 |   | $      | 845,330 |   |
|                  |        |                 |        |                      |        |               |        |          |        |       |        |        |         |  |

 

*Results ofOperations*

 

As of March 31, 2010,the Company owned 68 hotels with 7,897 rooms. The Company’s portfolio of hotelsowned is unchanged since 2008. Hotel performance is impacted by many factors,including economic conditions in the United States, as well as each locality.Due to a continuing recessionary economic environment throughout the UnitedStates, the financial results of the Company’s hotels were belowpre-recessionary levels. However, they did show modest improvement from resultsfor the same period in 2009. Although it is anticipated that the properties’performance will continue to be below comparable pre-recession operatingperiods until general economic conditions improve, the Company does anticipatestabilized revenue and income in 2010 as compared to 2009 results, which isconsistent with many industry forecasts. The Company will continue toaggressively pursue market opportunities to improve revenue and aggressivelypursue cost controls to improve results during and after the economic downturn.

 

*Revenues*

 

The Company’s principal source of revenue is hotelroom revenue and other related revenue. For the three months ended March 31,2010 and 2009, the Company had total hotel revenue of $51.9 and $51.6 million,respectively, with average occupancy of 67% and 61%, average daily rate (“ADR”)of $102 and $111 and revenue per available room (“RevPAR”) of $68 and $67. ADRis calculated as room revenue divided by the number of rooms sold, and RevPARis calculated as occupancy multiplied by ADR. As reflected in the Company’soccupancy increase, the industry is beginning to realize an increase in demand.The increase is a result of reduced room rates and the sense that the overalleconomy is stabilizing.

 

While the revenue rates earned by the Company areconsistent with industry and brand averages, the Company continually works withthe hotel managers to maximize rates and occupancy. As a result, althoughRevPAR has declined from pre-recession levels, the Company has increased itsaverage market share as compared to the first quarter of 2009 by 3%.

 

*Expenses*

 

With the current state of the economy, the Companyand its managers are aggressively reducing expenses where possible while stillmaintaining the quality and service levels of its properties. For the threemonths ended March 31, 2010 and 2009, hotel operating expenses totaled$31.3 million each period, or 

 

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60%and 61% of total hotel revenue. While certain costs of a hotel are fixed innature, such as management costs, certain utility costs, minimum maintenanceand supply costs, the Company has been successful in reducing overall payrollcosts, food and supplies, and utilities by continually monitoring and sharingutilization data across its hotels and management companies. The Company willcontinue to aggressively work with its managers to contain operating costs.

 

Taxes, insurance, and other expenses for the threemonths ended March 31, 2010 and 2009 were $3.2 and $3.4 million, or 6% and7% of total hotel revenue. The Company expects property insurance and propertytaxes to show modest declines compared to 2009.

 

General and administrative expenses for the threemonths ended March 31, 2010 and 2009 were $1.0 and $1.2 million, or 2% oftotal hotel revenue for each period. The principal components of general andadministrative expense are advisory fees, loss on equity method investment inApple Air Holding, LLC, legal fees, accounting fees and reporting expenses.

 

Depreciation expense for the three months ended March 31,2010 and 2009 was $7.8 and $7.7 million. Depreciation expense representsexpense of the Company’s 68 hotels and related personal property for theirrespective periods owned. The increase in depreciation is due to renovationscompleted throughout 2009 and in the first quarter of 2010.

 

Interest expense, net was $0.9 and $0.2 million forthe three months ended March 31, 2010 and 2009. Interest expense relatesto debt assumed with certain properties acquired, as well as borrowings on theCompany’s line of credit. Interest expense increased for the three months endedMarch 31, 2010 as the Company increased borrowings on its line of credit.During the three months ended March 31, 2010 and 2009, the Companycapitalized approximately $32 thousand and $0.3 million of interest associatedwith renovation activities.

 

*Liquidity and Capital Resources*

 

Operating cash flow from the properties owned and a$40 million line of credit are the Company’s principal source of liquidity. Inaddition, the Company may borrow additional funds, subject to limitations setforth in its bylaws. The Company anticipates that cash flow and the credit linewill be adequate to cover substantially all of its operating expenses and topermit the Company to meet substantially all of its anticipated liquidityrequirements, including required distributions, capital expenditures and debtservice.The Company willpursue additional financing in 2010 so that it can make distributions in excessof required amounts to maintain its REIT status. The Company intends tomaintain a relatively stable dividend rate instead of raising and lowering thedistribution rate with varying economic cycles. With the depressed financialresults of the Company and the lodging industry, the Company will attempt toutilize additional financing to achieve this objective. Although the Companyhas relatively low levels of debt, there can be no assurances it will besuccessful with this strategy and may need to reduce its distributions torequired levels.

 

To maintain its REIT status the Company is requiredto distribute at least 90% of its ordinary income. Distributions in the firstthree months of 2010 totaled $19.6 million. For the same period the Company’scash generated from operations was $10.8 million. The shortfall was funded byborrowings on the line of credit. As the hotel industry is seasonal, theCompany does not anticipate shortfalls at this level for each quarter of 2010.The Company intends to continue paying distributions on a monthly basis.However, since there can be no assurance of the ability of the Company’sproperties to provide income at this level, there can be no assurance as to theclassification or duration of distributions at the current rate. Additionally,in light of the weakness in economic conditions throughout the United States,the Board of Directors monitors the Company’s distribution rate relative to theperformance of the hotels on an ongoing basis and may make adjustments to thedistribution rate as determined to be prudent in relation to other cashrequirements of the Company.

 

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The Company has on-going capital commitments to fundits capital improvements. The Company is required, under all of the hotelmanagement agreements, to make available, for the repair, replacement,refurbishing of furniture, fixtures, and equipment, an amount of 3% to 5% ofgross revenues provided that such amount may be used for the Company’s capitalexpenditures with respect to the hotels. The Company expects that this amountwill be adequate to fund required repair, replacement, and refurbishments andto maintain the Company’s hotels in a competitive condition. During the firstthree months of 2010, total capital expenditures were approximately $1.3million. The Company anticipates expenditures of approximately $12 million forthe full year of 2010 in connection with renovations and brand initiatives.With the depressed economic environment, the Company will only complete themost cost-effective projects.

 

In February 2006, the Company instituted aDividend Reinvestment Plan for its shareholders. The plan provides a convenientand cost effective way to increase shareholder investment in the Company byreinvesting dividends to purchase additional Units of the Company. The uses ofthe proceeds from this plan may include purchasing Units under the Company’sUnit Redemption Program, enhancing properties, satisfying financing obligationsand other expenses, increasing working capital, funding various corporateoperations, and acquiring hotels. During the three months ended March 31,2010, approximately 0.8 million Units, representing $8.3 million in proceeds tothe Company, were issued under the plan. Since the inception of the planthrough March 31, 2010, 12.2 million Units, representing $134.4 million inproceeds to the Company, were issued under the plan.

 

In July 2005, the Company instituted a UnitRedemption Program to provide limited interim liquidity to its shareholders whohave held their Units for at least one year. Shareholders may requestredemption of Units for a purchase price equal to the lesser of: (1) thepurchase price per Unit that the shareholder actually paid for the Unit; or (2) $11.00per Unit. The Company reserves the right to change the purchase price ofredemptions, reject any request for redemption, or otherwise amend the termsof, suspend, or terminate the Unit Redemption Program. During the three monthsended March 31, 2010, the Company redeemed approximately 0.6 million Unitsin the amount of $7.0 million under the program. Since the inception of theprogram through March 31, 2010, the Company has redeemed approximately11.8 million Units for $128.9 million under the program.

 

*Related Party Transactions*

 

The Company has significant transactions withrelated parties.  These transactionscannot be construed to be arms length, and the results of the Company’soperations may be different if these transactions were conducted withnon-related parties.

 

The Company is party to an advisory agreement withApple Six Advisors, Inc. (“A6A”), pursuant to which A6A providesmanagement services to the Company. An annual fee ranging from .1% to .25% oftotal equity proceeds received by the Company, in addition to certainreimbursable expenses, is payable for these services. During the first threemonths of 2010 and 2009, A6A utilized Apple Fund Management, LLC, a subsidiaryof the Company, to provide these services. The advisory fees incurred under theagreement with A6A for the three months ended March 31, 2010 and 2009,totaled approximately $0.4 million for each period.

 

Through its wholly-owned subsidiary, Apple FundManagement, LLC, the Company provides support services to Apple Suites RealtyGroup, Inc. (“ASRG”), A6A, Apple Seven Advisors, Inc. (“A7A”), AppleREIT Seven, Inc., Apple Eight Advisors, Inc. (“A8A”), Apple REITEight, Inc., Apple Nine Advisors, Inc. (“A9A”) and Apple REIT Nine, Inc.A7A provides day to day advisory and administrative functions for Apple REITSeven, Inc. A8A provides day to day advisory and administrative functionsfor Apple REIT Eight, Inc. A9A provides day to day advisory andadministrative functions for Apple REIT Nine, Inc. ASRG provides realestate brokerage services to Apple REIT Seven, Inc., Apple REIT Eight, Inc.and Apple REIT Nine, Inc. Each of these companies has agreed to reimbursethe Company for its costs in providing these services. For the three monthsended March 31, 2010 and 2009, the Company received reimbursement of itscosts totaling approximately $1.6 and $1.3 million. ASRG, A6A, A7A, A8A and A9Aare 100% owned by Glade Knight, the Company’s Chairman and Chief ExecutiveOfficer.

 

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Including ASRG, A6A, A7A, A8A and A9A discussedabove, Mr. Knight is also Chairman and Chief Executive Officer of AppleREIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.Members of the Company’s Board of Directors are also on the boards of AppleREIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.

 

In January 2009, theCompany’s ownership interest in Apple Air Holding, LLC (Apple Air), was reducedfrom 50% to 26% through the redemption of a 24% ownership interest by AppleAir. The Company received approximately $3.2 million for the ownership interestredeemed. No gain or loss from the redemption was recognized by the Company.Due to the reduction in ownership the Company deconsolidated Apple Air and nowrecords its ownership interest of approximately $2.3 and $2.4 million at March31, 2010 and December 31, 2009 in “Other assets, net” in the Company’sConsolidated Balance Sheets. The Company records its share of income or loss ofApple Air under the equity method of accounting, adjusting its investmentaccordingly. The loss of $0.1 million for the three months ended March 31, 2010and 2009 is included in “General and administrative” expense in the Company’sConsolidated Statements of Operations. The other members of Apple Air are AppleREIT Seven, Inc., Apple REIT Eight, Inc. and Apple REIT Nine, Inc.

 

*Impact of Inflation*

 

Operators of hotels, in general, possess the abilityto adjust room rates daily to reflect the effects of inflation. Competitivepressures may, however, limit the operators’ ability to raise room rates.Currently the Company is not experiencing any material impact from inflation.

 

*Business Interruption*

 

Being in the real estate industry, the Company isexposed to natural disasters both locally and nationally, and although managementbelieves there is adequate insurance to cover this exposure, there can be noassurance that such events will not have a material adverse effect on theCompany’s financial position or results of operations.

 

*Seasonality*

 

The hotel industry historically has been seasonal innature. Seasonal variations in occupancy at the Company’s hotels may causequarterly fluctuations in its revenues. To the extent that cash flow fromoperations is insufficient during any quarter, due to temporary or seasonalfluctuations in revenue, the Company expects to utilize cash on hand andavailable credit to make distributions.

 

*Recent Accounting Pronouncements*

 

In June 2009, the Financial AccountingStandards Board (“FASB”) issued a pronouncement (Accounting Standards Update No. 2009-17)which amends its guidance surrounding a company’s analysis to determine whetherany of its variable interests constitute controlling financial interests in avariable interest entity.  This analysisidentifies the primary beneficiary of a variable interest entity as theenterprise that has both of the following characteristics:  (a) the power to direct the activitiesof a variable interest entity that most significantly impact the entity’seconomic performance, and (b) the obligation to absorb losses of theentity that could potentially be significant to the variable interest entity orthe right to receive benefits from the entity that could potentially besignificant to the variable interest entity. Additionally, an enterprise is required to assess whether it has animplicit financial responsibility to ensure that a variable interest entityoperates as designed when determining whether it has the power to direct theactivities of the variable interest entity that most significantly impact theentity’s economic performance. The new pronouncement also requires ongoingassessments of whether an enterprise is the primary beneficiary of a variableinterest entity and enhanced disclosure about an enterprise’s involvement witha variable interest entity.  Thispronouncement was adopted by the Company in the first quarter of 2010. Theadoption of this standard did not have a material impact on the Company’sconsolidated financial statements.

 

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*Subsequent Events*

 

In April 2010, theCompany declared and paid approximately $5.9 million, or $.064 per share, indistributions to its common shareholders of which $2.5 million or 224,609 Unitswere reinvested under the Company’s Dividend Reinvestment Plan.

 

On April 20, 2010, the Company redeemed747,651 Units in the amount of $8.2 million under its Unit Redemption Program.

 

**Item3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

 

The Company does not engage in transactions inderivative financial instruments or derivative commodity instruments. As of March 31,2010, the Company’s financial instruments were not exposed to significantmarket risk due to interest rate risk, foreign currency exchange risk,commodity price risk or equity price risk. The Company is exposed to changes inshort term interest rates paid on its line of credit. Based on the balance ofthe Company’s line of credit at March 31, 2010, of $35.4 million, every100 basis points change in interest rates will impact the Company’s annual netincome by $354,000, all other factors remaining the same.

 

**Item 4. Controls and Procedures**

 

Senior management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report.  Based on this evaluation process, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective and that there have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Since that evaluation, there have been no significant changes in internal controls or in other factors that could significantly affect these controls.

 

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**PART II.                                             OTHER INFORMATION**

 

**Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds**

 

*Unit Redemption Program*

 

In July 2005, the Company instituted a shareredemption program to provide its shareholders who have held their Units for atleast one year with the benefit of limited interim liquidity, by presenting forredemption all or any portion of their Units at any time and in accordance withcertain procedures. Once this time limitation has been met, the Company may,subject to certain conditions and limitations, redeem the Units presented forredemption for cash, to the extent that the Company has sufficient fundsavailable to fund the redemption. If Units are held for the required one-yearperiod, the Units may be redeemed for a purchase price equal to the lesser of: (1) $11.00per Unit; or (2) the purchase price per Unit that was actually paid forthe Units. The board of directors reserves the right, in its sole discretion,at any time and from time to time, to waive the one-year holding period, rejectany request for redemption, change the purchase price for redemptions orotherwise amend the terms of, suspend, or terminate the Unit redemptionprogram.  The following is a summary ofredemptions during the first quarter of 2010:

 

**Issuer Purchases of Equity Securities**

 
| ** **        | ** ** | **(a)**                                 | ** ** | **(b)**                          | ** ** | **(c)**                                                                                          | ** ** | **(d)**                                                                                       | ** ** |
|-------------------|------------|-----------------------------------------|------------|----------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|
| **Period**        | ** ** | **Total Number   of Units   Purchased** | ** ** | **Average Price Paid  per Unit** | ** ** | **Total Number of   Units Purchased as   Part of Publicly   Announced Plans   or Programs** | ** ** | **Maximum Number   of Units that May   Yet Be Purchased   Under the Plans or  Programs** | ** ** |
| January 2010 |       | 641,475                                 |       | $                                | 10.97      |                                                                                             | 11,750,871 |                                                                                          |       | (1) |
|                   |            |                                         |            |                                  |            |                                                                                                  |            |                                                                                               |            |  |

 

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(1)  The maximum number of Units that may be redeemed in any 12 month period is limited to five percent (5.0%) of the weighted average number of Units outstanding from the beginning of the 12 month period.

 

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**Item 6.    Exhibits**

** **
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                    |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                               |
| 3.1                 |       | Articles of  Incorporation of the Company. (Incorporated by reference to Exhibit 3.1  to the Company’s registration statement on Form S-11 (SEC File  No. 333-112169) effective April 23, 2004).          |
|                |       |                                                                                                                                                                                                                               |
| 3.2                 |       | Bylaws of the Company.  (Incorporated by reference to Exhibit 3.2 to the Company’s  Post-Effective Amendment No. 4 to Form S-11 (SEC File  No. 333-112169) effective June 14, 2005).                 |
|                |       |                                                                                                                                                                                                                               |
| 31.1                |       | Certification of the  Company’s Chief Executive Officer pursuant to Rule 13a — 14(a) and  Rule 15d — 14(a) of the Securities Exchange Act, as amended (**FILED HEREWITH**).                     |
|                |       |                                                                                                                                                                                                                               |
| 31.2                |       | Certification of the  Company’s Chief Financial Officer pursuant to Rule 13a — 14(a) and  Rule 15d — 14(a) of the Securities Exchange Act, as amended (**FILED HEREWITH**).                     |
|                |       |                                                                                                                                                                                                                               |
| 32.1                |       | Certification of the  Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18  U.S.C. Section 1350 as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 (**FILED HEREWITH**). |

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| **APPLE REIT SIX, INC.** |                                                                                             |   |
|--------------------------|--------------------------------------------------------------------------------------------------|--------|
|                     |                                                                                             |   |
| By:                      | /s/    GLADE  M. KNIGHT                                                      |   | Date: May 5, 2010 |
| ** **               | **Glade  M. Knight,**                                                                            |   |   |
| ** **               | **Chairman  of the Board and**

**Chief  Executive Officer**

**(Principal  Executive Officer)** |   |   |
|                     |                                                                                             |   |   |
| By:                      | /s/    BRYAN  PEERY                                                          |   | Date: May 5, 2010 |
| ** **               | **Bryan  Peery,**                                                                                |   |   |
| ** **               | **Chief  Financial Officer  (Principal Financial and Principal Accounting Officer)**             |   |   |

 

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