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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
 
 

FORM 8-K
CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): February 5, 2018

392133453_cwilogoa07.jpg

CAREY WATERMARK INVESTORS INCORPORATED
(Exact Name of Registrant as Specified in Charter)

000-54263
 
26-2145060
(Commission File Number)

 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
50 Rockefeller Plaza, New York, NY
 
10020
(Address of Principal Executive Offices)
 
(Zip Code)
 
 
 
Registrant’s telephone number, including area code: (212) 492-1100
(Former Name or Former Address, if Changed Since Last Report)

 
 
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
 






Item 2.01 - Completion of Acquisition or Disposition of Assets.

On February 5, 2018, Carey Watermark Investors Incorporated, or CWI, sold its 100% ownership interests in the Hampton Inn Atlanta Downtown and the Hampton Inn Memphis Beale Street to an unaffiliated third-party for a contractual sales price of $63.0 million and net proceeds of approximately $31.8 million.

Item 9.01 — Financial Statements and Exhibits.

(a) N/A

(b) Pro forma financial information.

The pro forma financial information required pursuant to Article 11 of Regulation S-X is attached as Exhibit 99.1 hereto and is incorporated by reference herein.

(c) N/A

(d) Exhibits

Exhibit No.
 
Description
99.1
 







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
Carey Watermark Investors Incorporated
Date:
February 9, 2018
 
 
 
 
By:
/s/ Noah K. Carter
 
 
 
Noah K. Carter
 
 
 
Chief Accounting Officer




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

CAREY WATERMARK INVESTORS INCORPORATED

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Our pro forma condensed consolidated balance sheet as of September 30, 2017 has been prepared as if the significant dispositions during the fourth quarter of 2017 and first quarter of 2018 (noted herein) had occurred as of September 30, 2017. Our pro forma condensed consolidated statements of operations for the nine months ended September 30, 2017 and for the year ended December 31, 2016 have been prepared based on our historical financial statements as if the significant acquisition and related financing during the year ended December 31, 2016 and the significant dispositions during the first quarter of 2017 had occurred on January 1, 2015 and as if the significant dispositions during the fourth quarter of 2017 and first quarter of 2018 had occurred on January 1, 2016. Pro forma adjustments are intended to reflect the estimated effect of our acquisition and disposition activity described in Notes 2 and 3. In our opinion, all adjustments necessary to reflect the effects of these investments have been made.

The pro forma condensed consolidated financial information for the nine months ended September 30, 2017 should be read in conjunction with our historical consolidated financial statements and notes thereto in our Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2017. The pro forma condensed consolidated financial information for the year ended December 31, 2016 should be read in conjunction with our historical consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2016. This pro forma information is presented for informational purposes only and does not purport to be indicative of our financial results as if the transactions reflected herein had occurred on the dates disclosed above or been in effect during the periods indicated above, nor are they necessarily indicative of our financial position or results of operations of future periods. The provisional accounting for the dispositions is preliminary and therefore subject to change. Any such changes could have a material effect on the pro forma condensed consolidated financial information.



 
1
 
 



CAREY WATERMARK INVESTORS INCORPORATED
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2017
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CWI Historical
 
Westin Atlanta Venture Disposition
 
Marriott Boca Raton at Boca Center Disposition
 
Hampton Inn Atlanta Downtown Disposition
 
Hampton Inn Memphis Beale Street Disposition
 
Pro Forma
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
 
 
 
 
 
 
 
 
Hotels, at cost
$
2,285,805

 
$

 
$
(69,473
)
A
$
(18,579
)
A
$
(30,774
)
A
$
2,166,979

 
Accumulated depreciation
(223,945
)
 

 
7,437

A
2,727

A
3,783

A
(209,998
)
Net investments in hotels
2,061,860

 

 
(62,036
)
 
(15,852
)
 
(26,991
)
 
1,956,981

Equity investments in real estate
136,514

 
(4,464
)
A

 

 

 
132,050

Cash
64,854

 
25,219

B
33,954

B
9,390

B
21,176

B
154,593

Intangible assets, net
78,819

 

 

 
(4
)
A

 
78,815

Accounts receivable
39,063

 
705

B
(205
)
A
(138
)
A
(228
)
A
39,197

Restricted cash
71,138

 

 
(1,995
)
A
(667
)
A
(1,272
)
A
67,204

Other assets
27,101

 

 
(209
)
A
(115
)
A
(124
)
A
26,653

 
Total assets
$
2,479,349

 
$
21,460

 
$
(30,491
)
 
$
(7,386
)
 
$
(7,439
)
 
$
2,455,493

Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
 
Non-recourse debt, net
$
1,423,498

 
$


$
(39,850
)
A
$
(12,446
)
A
$
(19,985
)
A
$
1,351,217

WPC Credit Facility
97,835

 

 

 

 

 
97,835

Accounts payable, accrued expenses and other liabilities
125,598

 

 
(2,181
)
A
(623
)
A
(729
)
A
122,065

Due to related parties and affiliates
3,243

 

 



 

 
3,243

Distributions payable
19,527

 

 

 

 

 
19,527

 
Total liabilities
1,669,701

 

 
(42,031
)
 
(13,069
)
 
(20,714
)
 
1,593,887

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
Common stock
137

 

 

 

 

 
137

Additional paid-in capital
1,144,797

 

 

 

 

 
1,144,797

Distributions and accumulated losses
(388,974
)
 
21,460

C
11,540

C
5,683

C
13,275

C
(337,016
)
Accumulated other comprehensive loss
(552
)
 

 

 

 

 
(552
)
 
Total stockholders’ equity
755,408

 
21,460

 
11,540

 
5,683

 
13,275

 
807,366

Noncontrolling interests
54,240

 

 

 

 

 
54,240

 
Total equity
809,648

 
21,460

 
11,540

 
5,683

 
13,275

 
861,606

 
Total liabilities and equity
$
2,479,349

 
$
21,460

 
$
(30,491
)
 
$
(7,386
)
 
$
(7,439
)
 
$
2,455,493

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.

 
2
 
 



CAREY WATERMARK INVESTORS INCORPORATED
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the Nine Months Ended September 30, 2017
(in thousands except share and per share amounts)
 
 
 
 
 
 
Pro Forma Adjustments
(Including Pre-Acquisition Historical Amounts)
 
 
 
 
 
 
CWI Historical
 
Other 2017 Dispositions
 
Westin Atlanta Venture Disposition
 
Marriott Boca Raton at Boca Center Disposition
 
Hampton Inn Atlanta Downtown Disposition
 
Hampton Inn Memphis Beale Street Disposition
 
Pro Forma
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 

Hotel Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rooms
$
320,043

 
(847
)
D


(10,368
)
D
$
(4,081
)
D
$
(6,309
)
D
$
298,438

 
 
Food and beverage
123,555

 
(30
)
D


(2,765
)
D

 

 
120,760

 
 
Other operating revenue
42,289

 
(14
)
D


(194
)
D
(518
)
D
(437
)
D
41,126

 
 
 
Total Hotel Revenues
485,887

 
(891
)
 

 
(13,327
)
 
(4,599
)
 
(6,746
)
 
460,324

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hotel Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rooms
71,095

 
(219
)
D


(1,914
)
D
(879
)
D
(1,427
)
D
66,656

 
 
Food and beverage
87,315

 
(58
)
D


(1,696
)
D

 

 
85,561

 
 
Other hotel operating expenses
22,413

 
(10
)
D


(61
)
D
(241
)
D
(117
)
D
21,984

 
 
Property taxes, insurance, rent and other
49,041

 
(65
)
D


(834
)
D
(224
)
D
(120
)
D
47,798

 
 
Sales and marketing
45,589

 
(162
)
D


(1,804
)
D
(682
)
D
(1,004
)
D
41,937

 
 
General and administrative
42,373

 
(119
)
D


(1,252
)
D
(497
)
D
(577
)
D
39,928

 
 
Repairs and maintenance
15,652

 
(58
)
D


(343
)
D
(205
)
D
(232
)
D
14,814

 
 
Management fees
13,516

 
(61
)
D


(393
)
D
(125
)
D
(219
)
D
12,718

 
 
Utilities
12,531

 
(32
)
D


(371
)
D
(161
)
D
(159
)
D
11,808

 
 
Depreciation and amortization
61,510

 




(2,156
)
D
(488
)
D
(675
)
D
58,191

 
 
 
Total Hotel Expenses
421,035

 
(784
)
 

 
(10,824
)
 
(3,502
)
 
(4,530
)
 
401,395

Other Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset management fees to affiliate and other expenses
11,679

 
(18
)
D
(200
)
D
(343
)
D
(87
)
D
(284
)
D
10,747

 
 
Corporate general and administrative expenses
7,898

 

 


(17
)
D
(12
)
D
(3
)
D
7,866

 
 
 
Hurricane loss
7,609

 

 

 
(355
)
D

 

 
7,254

 
 
 
Total Other Operating Expenses
27,186

 
(18
)
 
(200
)
 
(715
)
 
(99
)
 
(287
)
 
25,867

Operating Income
37,666

 
(89
)
 
200

 
(1,788
)
 
(998
)
 
(1,929
)
 
33,062

Other Income and (Expenses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(49,820
)
 
93

D

 
1,472

D
420

D
660

D
(47,175
)
 
 
Equity in earnings of equity method investments in real estate
1,072

 

 
(638
)
D

 

 

 
434

 
 
Net loss on extinguishment of debt
(225
)
 

 

 

 

 

 
(225
)
 
 
Other income
93

 

 

 

 

 

 
93

 
 
 
Total Other Income and (Expenses)
(48,880
)
 
93

 
(638
)
 
1,472

 
420

 
660

 
(46,873
)
Loss from Operations Before Income Taxes and Net Gain on Sale of Real Estate
(11,214
)
 
4

 
(438
)
 
(316
)
 
(578
)
 
(1,269
)
 
(13,811
)
 
Provision for income taxes
(630
)
 

 

 
93

D

 
163

D
(374
)
Loss from Operations Before Net Gain on Sale of Real Estate
(11,844
)
 
4

 
(438
)
 
(223
)
 
(578
)
 
(1,106
)
 
(14,185
)
 
Net gain on sale of real estate, net of tax
5,164

 
352

E

 

 

 

 
5,516

Net Loss
(6,680
)
 
356

 
(438
)
 
(223
)
 
(578
)
 
(1,106
)
 
(8,669
)
 
Loss attributable to noncontrolling interests
2,881

 

 

 

 

 

 
2,881

Net Loss Attributable to CWI Stockholders
$
(3,799
)
 
$
356

 
$
(438
)
 
$
(223
)
 
$
(578
)
 
$
(1,106
)
 
$
(5,788
)
Basic and Diluted Loss Per Share
$
(0.03
)
 
 
 
 
 
 
 
 
 
 
 
$
(0.04
)
Basic and Diluted Weighted-Average Shares Outstanding
136,759,817

 
 
 
 
 
 
 
 
 
 
 
136,759,817

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.


 
3
 
 



CAREY WATERMARK INVESTORS INCORPORATED
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the Year Ended December 31, 2016
(in thousands except share and per share amounts)
 
 
 
 
 
 
Pro Forma Adjustments
(Including Pre-Acquisition Historical Amounts)
 
 
 
 
 
 
CWI Historical
 
2016 Acquisition
 
Other 2017 Dispositions
 
Westin Atlanta Venture Disposition
 
Marriott Boca Raton at Boca Center Disposition
 
Hampton Inn Atlanta Downtown Disposition
 
Hampton Inn Memphis Beale Street Disposition
 
Weighted Average Shares
 
Pro Forma
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hotel Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rooms
$
437,051

 
$
1,056

G
$
(11,281
)
F
$


$
(13,350
)
F
$
(5,339
)
F
$
(8,006
)
F
 
 
$
400,131

 
 
Food and beverage
159,765

 
397

G
(603
)
F


(4,343
)
F

 

 
 
 
155,216

 
 
Other operating revenue
54,279

 
394

G
(155
)
F


(412
)
F
(441
)
F
(555
)
F
 
 
53,110

 
 
 
Total Hotel Revenues
651,095

 
1,847

 
(12,039
)
 

 
(18,105
)
 
(5,780
)
 
(8,561
)
 
 
 
608,457

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hotel Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rooms
94,472

 
313

H
(2,830
)
F


(2,415
)
F
(1,309
)
F
(1,807
)
F
 
 
86,424

 
 
Food and beverage
112,928

 
364

H
(566
)
F


(2,451
)
F

 

 
 
 
110,275

 
 
Other hotel operating expenses
29,328

 
234

H
(91
)
F


(78
)
F
(32
)
F
(146
)
F
 
 
29,215

 
 
Property taxes, insurance, rent and other
66,788

 
125

H
(604
)
F


(1,066
)
F
(255
)
F
(255
)
F
 
 
64,733

 
 
Sales and marketing
62,578

 
153

H
(2,092
)
F


(2,492
)
F
(907
)
F
(1,192
)
F
 
 
56,048

 
 
General and administrative
55,038

 
254

H
(1,134
)
F


(1,509
)
F
(593
)
F
(757
)
F
 
 
51,299

 
 
Repairs and maintenance
20,921

 
93

H
(573
)
F


(467
)
F
(228
)
F
(355
)
F
 
 
19,391

 
 
Management fees
18,190

 
55

H
(315
)
F


(533
)
F
(157
)
F
(270
)
F
 
 
16,970

 
 
Utilities
16,445

 
132

H
(499
)
F


(486
)
F
(270
)
F
(204
)
F
 
 
15,118

 
 
Depreciation and amortization
80,698

 
299

H
(1,209
)
F


(3,107
)
F
(649
)
F
(895
)
F
 
 
75,137

 
 
 
Total Hotel Expenses
557,386

 
2,022

 
(9,913
)
 

 
(14,604
)
 
(4,400
)
 
(5,881
)
 
 
 
524,610

 
Other Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset management fees to affiliate and other expenses
15,468

 
54

I
(200
)
F
(238
)
F
(410
)
F
(107
)
F
(349
)
F
 
 
14,218

 
 
Corporate general and administrative expenses
11,562

 







 
(23
)
F
(3
)
F
 
 
11,536

 
 
Impairment charge
4,112

 


(4,112
)
F



 

 

 
 
 

 
 
Acquisition-related expenses
3,727

 
(3,727
)
J





 

 

 
 
 

 
 
 
Total Other Operating Expenses
34,869

 
(3,673
)
 
(4,312
)
 
(238
)
 
(410
)
 
(130
)
 
(352
)
 
 
 
25,754

Operating Income
58,840

 
3,498

 
2,186

 
238

 
(3,091
)
 
(1,250
)
 
(2,328
)
 
 
 
58,093

Other Income and (Expenses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(65,164
)
 
(282
)
K
1,314

F


1,708

F
575

F
906

F
 
 
(60,943
)
 
 
Equity in earnings of equity method investments in real estate
5,232

 




(860
)
F

 

 

 
 
 
4,372

 
 
Net loss on extinguishment of debt
(2,268
)
 







 

 

 
 
 
(2,268
)
 
 
Other income
45

 







 

 

 
 
 
45

 
 
 
Total Other Income and (Expenses)
(62,155
)
 
(282
)
 
1,314

 
(860
)
 
1,708

 
575

 
906

 
 
 
(58,794
)
Loss from Operations Before Income Taxes
(3,315
)
 
3,216

 
3,500

 
(622
)
 
(1,383
)
 
(675
)
 
(1,422
)
 
 
 
(701
)
 
Provision for income taxes
(3,661
)
 
(26
)
L
13

F


278

F

 
244

F
 
 
(3,152
)
Net Loss
(6,976
)
 
3,190

 
3,513

 
(622
)
 
(1,105
)
 
(675
)
 
(1,178
)
 
 
 
(3,853
)
 
Income attributable to noncontrolling interests
(1,777
)
 







 

 

 
 
 
(1,777
)
Net Loss Attributable to CWI Stockholders
$
(8,753
)
 
$
3,190

 
$
3,513

 
$
(622
)
 
$
(1,105
)
 
$
(675
)
 
$
(1,178
)
 
 
 
$
(5,630
)
Basic and Diluted Loss Per Share
$
(0.07
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(0.04
)
Basic and Diluted Weighted-Average Shares Outstanding
134,646,021

 
 
 
 
 
 
 
 
 
 
 
 
 
16,067,766

M
150,713,787

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.


 
4
 
 



CAREY WATERMARK INVESTORS INCORPORATED

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Basis of Presentation

The pro forma condensed consolidated balance sheet as of September 30, 2017 and the pro forma condensed consolidated statement of operations for the nine months ended September 30, 2017 were derived from our historical consolidated financial statements included in our Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2017. The pro forma condensed consolidated statement of operations for the year ended December 31, 2016 was derived from our historical consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.

Note 2. Pro Forma Adjustments for Dispositions

Other 2017 Dispositions
    
On February 1, 2017, CWI sold its 100% ownership interests in the Hampton Inn Birmingham Colonnade, the Hampton Inn Frisco Legacy Park and the Hilton Garden Inn Baton Rouge Airport to an unaffiliated third-party for a contractual sales price of $33.0 million and net proceeds of approximately $7.7 million (our "Other 2017 Dispositions").
    
No pro forma adjustments to our historical consolidated balance sheet as of September 30, 2017 were required for these dispositions. See footnotes below for adjustments made to reflect the impact of the sale on our results of operations.

Westin Atlanta Venture Disposition

On October 19, 2017, the Westin Atlanta Venture, in which CWI owned a 57% interest, was sold to an unaffiliated third-party for a contractual sales price of $85.5 million. CWI received net proceeds of approximately $25.9 million. The Westin Atlanta Venture was accounted for under the equity method of accounting.

Marriott Boca Raton at Boca Center Disposition

On January 25, 2018, CWI sold its 100% ownership interest in the Marriott Boca Raton at Boca Center to an unaffiliated third-party for a contractual sales price of $76.0 million and net proceeds of approximately $35.4 million.

Hampton Inn Atlanta Downtown and Hampton Inn Memphis Beale Street Dispositions

On February 5, 2018, CWI sold its 100% ownership interests in the Hampton Inn Atlanta Downtown and the Hampton Inn Memphis Beale Street to an unaffiliated third-party for a contractual sales price of $63.0 million and net proceeds of approximately $31.8 million.

Balance Sheet Adjustments

A.     These adjustments represent the elimination of the carrying value of the Westin Atlanta Venture and the assets and liabilities of the Marriott Boca Raton at Boca Center, the Hampton Inn Atlanta Downtown and the Hampton Inn Memphis Beale Street.

B.     These adjustments represent CWI's portion of the net proceeds received from the disposition of the Westin Atlanta Venture, the Marriott Boca Raton at Boca Center, the Hampton Inn Atlanta Downtown and the Hampton Inn Memphis Beale Street. The pro forma adjustments to cash for the Marriott Boca Raton at Boca Center, the Hampton Inn Atlanta Downtown and the Hampton Inn Memphis Beale Street were calculated as follows:
 
Marriott Boca Raton at Boca Center Disposition
 
Hampton Inn Atlanta Downtown Disposition
 
Hampton Inn Memphis Beale Street Disposition
Net proceeds from purchaser, net of closing costs
$
35,371

 
$
9,802

 
$
21,976

Changes in working capital
(1,417
)
 
(412
)
 
(800
)
Net pro forma cash proceeds from purchaser, net of closing costs
$
33,954

 
$
9,390

 
$
21,176



 
5
 
 


Notes to Pro Forma Condensed Consolidated Financial Statements
 

C.     The adjustments to distributions and accumulated losses are not reflected in the pro forma condensed consolidated statements of operations as the effect of the transaction is nonrecurring.

Statements of Operations Adjustments

D.     These adjustments represent the elimination of the revenue and expenses of our Other 2017 Dispositions, the Marriott Boca Raton at Boca Center Disposition, the Hampton Inn Atlanta Downtown and the Hampton Inn Memphis Beale Street and the elimination of asset management fees and equity in earnings of equity method investment in real estate of our Westin Atlanta Venture Disposition that were recorded during the nine months ended September 30, 2017.
    
E.    The adjustment to net gain on sale of real estate, net of tax represents the elimination of the net loss on sale of real estate recognized in connection with our Other 2017 Dispositions. The adjustments to net gain on sale of real estate, net of tax are not reflected in the pro forma condensed consolidated statements of operations as the effect of the transaction is nonrecurring.

F.     These adjustments represent the elimination of the revenue and expenses of our Other 2017 Dispositions, the Marriott Boca Raton at Boca Center Disposition, the Hampton Inn Atlanta Downtown and the Hampton Inn Memphis Beale Street and the elimination of asset management fees and equity in earnings of equity method investment in real estate of our Westin Atlanta Venture Disposition that were recorded during the year ended December 31, 2016.

Note 3. Pro Forma Adjustments for Acquisitions

2016 Acquisition

On February 17, 2016, we acquired a 100% interest in Equinox, A Luxury Collection Golf Resort & Spa, or Equinox, from HEI Hotels & Resorts, an unaffiliated third party (our "2016 Acquisition").

The transaction noted above is reflected in our historical consolidated balance sheet at September 30, 2017 and, therefore, no pro forma adjustments to our historical consolidated balance sheet as of September 30, 2017 were required. In addition, the transaction noted above is reflected in our historical consolidated statement of operations for the year ended December 31, 2016 from the respective date of acquisition through December 31, 2016 and fully reflected in our historical consolidated statement of operations for the nine months ended September 30, 2017. We made pro forma adjustments G through M below to reflect the impact on our results of operations had this acquisition been made on January 1, 2015.

G. Hotel Revenue

Pro forma adjustments for hotel revenue are derived from the historical financial statements of each of our investments. The following pro forma adjustments for the year ended December 31, 2016 represent the hotel revenues that would have been incurred in addition to those presented in our historical consolidated financial statements, when applicable (in thousands):
 
Pre-Acquisition Historical
 
Year Ended December 31, 2016
 
2016 Acquisition
Rooms
$
1,056

Food and beverage
397

Other operating revenue
394

 
$
1,847



 
6
 
 


Notes to Pro Forma Condensed Consolidated Financial Statements
 

H. Hotel Expenses

Pro forma adjustments for hotel expenses are derived from the historical financial statements of our investments except for those related to depreciation and amortization, sales and marketing, and management fees, as illustrated below. The following pro forma adjustments for the year ended December 31, 2016 represent the incremental hotel expenses that would have been incurred in addition to those presented in our historical consolidated financial statements, when applicable (in thousands):
 
Pre-Acquisition Historical
 
Year Ended December 31, 2016
 
2016 Acquisition
Rooms
$
313

Food and beverage
364

Other hotel operating expenses
234

Property taxes, insurance, rent and other
125

General and administrative
254

Repairs and maintenance
93

Utilities
132

 
$
1,515


Adjusted Hotel Expenses

Pro forma adjustments for sales and marketing and management fees reflect expenses resulting from franchise and management agreements, respectively, entered into upon acquisition, when applicable. Pro forma adjustments for depreciation and amortization reflect depreciation and amortization of the acquired assets at fair value on a straight-line basis using the estimated useful lives of the properties (limited to 40 years for buildings and ranging generally from four years up to the remaining life of the building at the time of addition for building improvements), site improvements (generally four to 15 years) and furniture, fixtures and equipment (generally one to 12 years). The following pro forma adjustments for the year ended December 31, 2016 represent the hotel expenses that would have been incurred in addition to those presented in our historical consolidated financial statements, when applicable (in thousands):

 
 
 
 
 
Year Ended December 31, 2016
 
 
 
 
 
2016 Acquisition
Sales and marketing - pre-acquisition historical
$
159

Sales and marketing - pro forma adjustments
(6
)
Sales and marketing - pro forma results
$
153

 
 
Management fees - pre-acquisition historical
$
55

Management fees - pro forma adjustments

Management fees - pro forma results
$
55

 
 
 
 
 
 
Depreciation and amortization - pre-acquisition historical
$
471

Depreciation and amortization - pro forma adjustments
(172
)
Depreciation and amortization - pro forma results
$
299













 
7
 
 


Notes to Pro Forma Condensed Consolidated Financial Statements
 

I. Asset Management Fees

We pay our advisor an annual asset management fee equal to 0.50% of the aggregate average market value of our investments. Pro forma adjustments for such fees are reflected in the accompanying pro forma condensed consolidated statement of operations in order to reflect what the fee would have been had the acquisition occurred on January 1, 2015. The following pro forma adjustments for the year ended December 31, 2016 represent incremental asset management fees that would have been incurred in addition to asset management fees presented in our historical consolidated financial statements (in thousands):
 
 
 
 
 
 
Year Ended December 31, 2016
 
 
 
 
 
 
2016 Acquisition
Asset management fee expense - pre-acquisition historical
 
$

Asset management fee expense - pro forma adjustments
 
54

Asset management fee expense - pro forma results
 
$
54


J. Acquisition-Related Expenses

Acquisition costs of $3.7 million related to our 2016 Acquisition, which are non-recurring in nature, are reflected in our historical consolidated statement of operations for the year ended December 31, 2016. We have reflected a pro forma adjustment to exclude these non-recurring charges from our pro forma condensed consolidated statement of operations.

K. Interest Expense

The following pro forma adjustments for the year ended December 31, 2016 represent the incremental interest expense that would have been incurred in addition to the amount presented in our historical consolidated financial statements (in thousands):

 
 
 
 
 
 
Year Ended December 31, 2016
 
 
 
 
 
 
2016 Acquisition
Interest expense - pre-acquisition historical
 
$
136

Interest expense - pro forma adjustments
 
146

Interest expense - pro forma results
 
$
282


L. Provision for Income Taxes

We have reflected pro forma adjustments related to our investments based upon an estimated effective tax rate, which takes into account the fact that certain activities are taxable and other activities are pass-through items for income tax purposes. The following pro forma adjustments for the year ended December 31, 2016 reflect the incremental income tax provisions that would have been incurred, based on the new entity structure, in addition to the amounts presented in our historical consolidated financial statements, if any (in thousands):

 
Year Ended December 31, 2016
 
2016 Acquisition
Provision for income taxes - pre-acquisition historical
$

Provision for income taxes - pro forma adjustments
26

Provision for income taxes - pro forma results
$
26


M. Weighted-Average Shares

The pro forma weighted-average shares outstanding were determined as if the number of shares required to raise the funds used for the acquisition included in these pro forma condensed consolidated financial statements were issued on January 1, 2015.

 
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