UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (Date of Earliest Event Reported): December 29, 2010
(November 3, 2010)
PEBBLEBROOK
HOTEL TRUST
(Exact name of registrant as specified in its charter)
Maryland | 001-34571 | 27-1055421 | ||
(State or other jurisdiction | (Commission | (I.R.S. Employer | ||
of incorporation) | File Number) | Identification No.) |
2 Bethesda Metro Center, Suite 1530, | ||
Bethesda, Maryland | 20814 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (240) 507-1300
Not Applicable
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:
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))
This Current Report on Form 8-K/A amends and supplements the Current Reports on Form 8-K filed by
Pebblebrook Hotel Trust (the Company) on November 4, 2010, for the acquisition of the Skamania
Lodge, November 22, 2010, for the acquisition of the Sheraton Delfina Santa Monica hotel, and
December 6, 2010, for the acquisition of South 17th Street OwnerCo, LLC and
South 17th Street LeaseCo, LLC, the entities that own the Sofitel
Philadelphia Hotel, to include the historical
financial statements and pro forma financial information required by Items 9.01(a) and (b).
This Current Report on Form 8-K/A also amends and supplements the Current Report on Form 8-K filed
by the Company on November 30, 2010 announcing the Companys entry into an agreement to acquire an
upscale, full-service hotel in the San Francisco/Oakland/San Jose region for $84.0 million, the
Argonaut Hotel San Francisco, to include the historical financial statements and pro forma
financial information that will be required by Items 9.01(a) and (b) if the acquisition is
consummated.
Item 9.01. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
Skamania Lodge
Independent Auditors Report
Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009 and 2008
Statements of Operations for the nine months ended September 30, 2010 and 2009 (unaudited) and
years ended December 31, 2009 and 2008
Statements of Owners Equity in Hotel for the nine months ended September 30, 2010 (unaudited) and
years ended December 31, 2009 and 2008
Statements of Cash Flows for the nine months ended September 30,
2010 and 2009 (unaudited) and years ended December 31, 2009 and 2008
Notes to Financial Statements
Sheraton Delfina Santa Monica Hotel
Independent Auditors Report
Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009 (restated) and 2008
(restated)
Statements of Operations for the nine months ended September 30, 2010 and 2009 (unaudited) and
years ended December 31, 2009 (restated) and 2008 (restated)
Statements of Changes in Members Deficit for the nine months ended September 30, 2010 (unaudited)
and years ended December 31, 2009 (restated) and 2008 (restated)
Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited) and years ended
December 31, 2009 (restated) and 2008 (restated)
Notes to Financial Statements
South
17th Street OwnerCo, LLC and South 17th Street LeaseCo, LLC (Sofitel Philadelphia Hotel)
Independent Auditors Report
Combined Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009 and 2008
Combined Statements of Operations for the nine months ended September 30, 2010 and 2009 (unaudited) and
years ended December 31, 2009 and 2008
Combined Statements of Members Equity for the nine months ended September 30, 2010 (unaudited) and
years ended December 31, 2009 and 2008
Combined Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited) and years ended
December 31, 2009 and 2008
Notes to Combined Financial Statements
Argonaut Hotel San Francisco probable acquisition
Independent Auditors Report
Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009 and 2008
Statements of Operations for the nine months ended September 30, 2010 and 2009 (unaudited) and
years ended December 31, 2009 and 2008
Statements of Owners Equity in Hotel for the nine months ended September 30, 2010 (unaudited) and
years ended December 31, 2009 and 2008
Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited) and years ended
December 31, 2009 and 2008
Notes to Financial Statements
(b) Pro forma financial information.
Pebblebrook Hotel Trust
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2010
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30,
2010
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2009
(d) Exhibits
Incorporated herein by reference to the Exhibit Index filed herewith.
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 hereunto duly authorized.
PEBBLEBROOK HOTEL TRUST |
||||
December 29, 2010 | By: | /s/ Raymond D. Martz | ||
Name: | Raymond D. Martz | |||
Title: | Executive Vice President, Chief
Financial Officer, Treasurer and Secretary |
|||
Independent Auditors Report
The Owner of Skamania Lodge:
We have audited the accompanying balance sheets of Skamania Lodge (the Hotel) as of December 31,
2009 and 2008, and the related statements of operations, owners equity in Hotel, and cash flows
for the years then ended. These financial statements are the responsibility of the Hotels
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Hotels internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Hotel as of December 31, 2009 and 2008, and the results of
its operations and its cash flows for the years then ended in conformity with U.S. generally
accepted accounting principles.
/s/ KPMG LLP
McLean, Virginia
December 22, 2010
December 22, 2010
SKAMANIA LODGE
Balance Sheets
December 31, | ||||||||||||
September 30, 2010 | ||||||||||||
(Unaudited) | 2009 | 2008 | ||||||||||
Assets |
||||||||||||
Cash |
$ | 2,700,467 | $ | 1,624,214 | $ | 1,917,514 | ||||||
Restricted cash |
| 216,444 | 600,018 | |||||||||
Accounts receivable, net of allowance of $13,261, $15,257, $17,828 |
1,442,643 | 617,557 | 451,178 | |||||||||
Prepaid expenses and other assets |
660,937 | 432,488 | 549,349 | |||||||||
Total current assets |
4,804,047 | 2,890,703 | 3,518,059 | |||||||||
Property and equipment, at cost |
66,471,411 | 66,265,497 | 65,915,613 | |||||||||
Less: accumulated depreciation |
(11,022,877 | ) | (9,271,268 | ) | (6,924,292 | ) | ||||||
55,448,534 | 56,994,229 | 58,991,321 | ||||||||||
Other assets |
22,141 | 36,091 | 35,040 | |||||||||
Total assets |
$ | 60,274,722 | $ | 59,921,023 | $ | 62,544,420 | ||||||
Liabilities and Owners Equity in Hotel |
||||||||||||
Accounts payable and accrued expenses |
$ | 810,098 | $ | 413,656 | $ | 522,783 | ||||||
Accrued wages and benefits |
543,718 | 526,004 | 443,413 | |||||||||
Accrued interest payable |
| 174,792 | 178,293 | |||||||||
Advance deposits |
1,362,885 | 1,555,058 | 1,543,111 | |||||||||
Note payable current |
| 35,749,224 | 715,979 | |||||||||
Total current liabilities |
2,716,701 | 38,418,734 | 3,403,579 | |||||||||
Note payable long term |
| | 35,749,224 | |||||||||
Total liabilities |
2,716,701 | 38,418,734 | 39,152,803 | |||||||||
Owners equity in Hotel |
57,558,021 | 21,502,289 | 23,391,617 | |||||||||
Total liabilities and owners equity
in Hotel |
$ | 60,274,722 | $ | 59,921,023 | $ | 62,544,420 | ||||||
See accompanying notes to financial statements.
2
SKAMANIA LODGE
Statements of Operations
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
2010 | 2009 | 2009 | 2008 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Revenues: |
||||||||||||||||
Rooms |
$ | 6,149,067 | $ | 5,223,009 | $ | 6,643,886 | 8,225,864 | |||||||||
Food and beverage |
6,480,609 | 5,622,055 | 7,083,738 | 8,578,494 | ||||||||||||
Conference center |
644,826 | 461,474 | 565,185 | 858,390 | ||||||||||||
Other |
1,958,081 | 2,148,750 | 2,579,956 | 3,035,745 | ||||||||||||
Total revenues |
15,232,583 | 13,455,288 | 16,872,765 | 20,698,493 | ||||||||||||
Operating expenses: |
||||||||||||||||
Rooms |
1,482,902 | 1,226,793 | 1,632,350 | 1,907,673 | ||||||||||||
Food and beverage |
4,026,311 | 3,749,245 | 4,835,618 | 5,397,250 | ||||||||||||
Conference center |
599,340 | 450,378 | 572,937 | 857,651 | ||||||||||||
General and administrative |
1,065,594 | 1,104,519 | 1,476,379 | 1,858,835 | ||||||||||||
Marketing |
1,064,986 | 1,146,712 | 1,457,182 | 1,693,479 | ||||||||||||
Utilities |
345,514 | 365,824 | 492,465 | 549,190 | ||||||||||||
Property operation and maintenance |
427,482 | 399,982 | 517,733 | 551,130 | ||||||||||||
Property and other taxes and insurance |
467,483 | 440,741 | 584,804 | 649,818 | ||||||||||||
Depreciation |
1,751,609 | 1,764,884 | 2,346,976 | 2,225,364 | ||||||||||||
Management fees |
380,810 | 336,387 | 421,824 | 517,458 | ||||||||||||
Other expenses |
1,125,276 | 1,137,570 | 1,429,630 | 1,740,789 | ||||||||||||
Total operating expenses |
12,737,307 | 12,123,035 | 15,767,898 | 17,948,637 | ||||||||||||
Other expenses: |
||||||||||||||||
Interest expense |
(1,396,338 | ) | (1,596,537 | ) | (2,115,895 | ) | (2,161,838 | ) | ||||||||
Other expense |
(154,356 | ) | (164,069 | ) | (199,998 | ) | (147,076 | ) | ||||||||
Total other expense |
(1,550,694 | ) | (1,760,606 | ) | (2,315,893 | ) | (2,308,914 | ) | ||||||||
Net income (loss) |
$ | 944,582 | $ | (428,353 | ) | $ | (1,211,026 | ) | $ | 440,942 | ||||||
See accompanying notes to financial statements.
3
SKAMANIA LODGE
Statements of Owners Equity in Hotel
Balance at December 31, 2007 |
$ | 22,172,252 | ||
Hotel owner (distributions) funding, net |
778,423 | |||
Net income |
440,942 | |||
Balance at December 31, 2008 |
23,391,617 | |||
Hotel owner (distributions) funding, net |
(678,302 | ) | ||
Net loss |
(1,211,026 | ) | ||
Balance at December 31, 2009 |
21,502,289 | |||
Hotel owner (distributions) funding, net (unaudited) |
35,111,150 | |||
Net income (unaudited) |
944,582 | |||
Balance at September 30, 2010 (unaudited) |
$ | 57,558,021 | ||
See accompanying notes to financial statements.
4
SKAMANIA LODGE
Statements of Cash Flows
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
2010 | 2009 | 2009 | 2008 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income (loss) |
$ | 944,582 | $ | (428,353 | ) | $ | (1,211,026 | ) | $ | 440,942 | ||||||
Adjustments to reconcile net loss to net cash provided by
operating activities: |
||||||||||||||||
Depreciation |
1,751,609 | 1,764,884 | 2,346,976 | 2,225,364 | ||||||||||||
Amortization of deferred financing costs |
25,958 | 29,209 | 38,936 | 38,936 | ||||||||||||
Change in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
(825,086 | ) | (650,650 | ) | (166,379 | ) | 35,343 | |||||||||
Prepaid expenses and other current assets |
(254,407 | ) | (183,823 | ) | 77,925 | (156,708 | ) | |||||||||
Other assets |
13,950 | (1,051 | ) | (1,051 | ) | (2,243 | ) | |||||||||
Accounts payable |
396,442 | 74,775 | (109,127 | ) | 203,431 | |||||||||||
Accrued wages and benefits |
17,714 | 23,980 | 82,591 | (70,983 | ) | |||||||||||
Advance deposits |
(192,173 | ) | (402,325 | ) | 11,947 | 18,435 | ||||||||||
Accrued interest |
(174,792 | ) | (4,928 | ) | (3,501 | ) | (3,277 | ) | ||||||||
Restricted cash |
101,352 | 344,264 | 6,852 | 180,739 | ||||||||||||
Net cash provided by operating activities |
1,805,149 | 565,982 | 1,074,143 | 2,909,979 | ||||||||||||
Cash flows from investing activities: |
||||||||||||||||
Change in restricted cash |
115,092 | (109,957 | ) | 376,722 | (277,359 | ) | ||||||||||
Purchases of property and equipment |
(205,914 | ) | (338,295 | ) | (349,884 | ) | (2,865,218 | ) | ||||||||
Net cash provided by (used in) investing activities |
(90,822 | ) | (448,252 | ) | 26,838 | (3,142,577 | ) | |||||||||
Cash flows from financing activities: |
||||||||||||||||
Repayment of note payable |
(502,505 | ) | (474,668 | ) | (715,979 | ) | (670,259 | ) | ||||||||
Hotel owner funding (distributions), net |
(135,569 | ) | (343,097 | ) | (678,302 | ) | 778,423 | |||||||||
Net cash used in financing activities |
(638,074 | ) | (817,765 | ) | (1,394,281 | ) | 108,164 | |||||||||
Net increase (decrease) in cash |
1,076,253 | (700,035 | ) | (293,300 | ) | (124,434 | ) | |||||||||
Cash and cash equivalents: |
||||||||||||||||
Beginning of year |
1,624,214 | 1,917,514 | 1,917,514 | 2,041,948 | ||||||||||||
End of year |
$ | 2,700,467 | $ | 1,217,479 | $ | 1,624,214 | $ | 1,917,514 | ||||||||
Supplemental cash flow disclosures: |
||||||||||||||||
Cash paid for interest |
$ | 1,545,172 | $ | 1,565,596 | $ | 2,080,460 | $ | 2,126,179 | ||||||||
Noncash hotel owner contribution through extinguishment of Hotel note payable |
$ | 35,246,652 |
See accompanying notes to financial statements.
5
SKAMANIA LODGE
Notes to Financial Statements
(1) | Description of Business, Formation and Basis of Presentation |
The Skamania Lodge (the Hotel), is a full service 254-room resort and conference center located in Stevenson, Washington. The Hotel is owned by a Trust (the Company) that was created for the benefit of the Pennsylvania State employees retirement system. The Hotel is managed under an agreement with Destination Hotels and Resorts (Destination). | ||
The accompanying unaudited financial statements of the Hotel as of September 30, 2010 and for the nine-month periods ended September 30, 2010 and 2009, have been prepared pursuant to the Securities and Exchange Commission (SEC) rules and regulations. All amounts included in the financial statements referring to September 30, 2010, and for the nine-month periods ended September 30, 2010 and 2009, are unaudited. The accompanying financial statements reflect, in the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. | ||
The accompanying financial statements are presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. Actual results could differ from those estimates. | ||
The Hotel collateralizes a loan obligation of the Hotels owner. Cash flows from the Hotel were used to fund the debt service. Although the direct obligation of the Hotels owner, the debt balance and related deferred financing costs, interest expense and amortization are presented in the financial statements of the Hotel. |
(2) | Summary of Significant Accounting Policies |
(a) | Cash and Cash Equivalents | ||
Cash and cash equivalents includes the Hotels operating cash accounts, which may include liquid temporary cash investments with maturities of three months or less at the date of purchase, which are considered to be cash and cash equivalents. | |||
(b) | Restricted Cash | ||
In accordance with the management agreement a reserve fund for property improvements and the replacement of furniture, fixtures, and equipment is required. The replacement reserve fund is funded with an amount equal to 4% of gross revenue, as defined, on a monthly basis. In September 2010 (unaudited), Destination waived the requirement to maintain escrow funds in a replacement reserve fund. In accordance with the loan agreement, a property tax escrow account is also required. | |||
The Hotels note payable contains a minimum debt service coverage ratio. Beginning in May 2010, the Hotel failed to meet the coverage ratio and all cash receipts were directed to a lender controlled account and used to fund operating expenses and debt service. The note payable was extinguished by the Hotels owner in September 2010. |
SKAMANIA LODGE
Notes to Financial Statements
(c) | Accounts Receivable | ||
Accounts receivable, which represent amounts due from Hotel guests, are presented net of allowances. The Hotel establishes a specific reserve for doubtful collections of receivables based on customers payment history, liquidity, or bankruptcy. | |||
(d) | Deferred Financing Costs | ||
Deferred financing costs incurred in connection with the note payable are amortized to interest expense using the straight-line method over the contractual life of the note payable, which approximates the effective-interest method. | |||
(e) | Property and Equipment | ||
Building and improvements, furniture, fixtures, and equipment are stated at cost. The cost of additions, alterations, and improvements is capitalized. Expenditures for repairs and maintenance are expensed as incurred. |
9/30/2010 | 12/31/2009 | 12/312008 | ||||||||||
Building and Improvements |
$ | 49,916,135 | $ | 49,823,419 | $ | 49,608,130 | ||||||
Land |
8,495,000 | 8,495,000 | 8,495,000 | |||||||||
Furniture, Fixtures and equipment |
8,060,276 | 7,947,078 | 7,812,483 | |||||||||
Total |
$ | 66,471,411 | $ | 66,265,497 | $ | 65,915,613 | ||||||
Depreciation is computed utilizing the straight-line method over the following estimated useful lives: |
Building and improvements
|
40 years | |
Furniture, fixtures and equipment
|
5 7 years |
(f) | Impairment of Long-Lived Assets | ||
The Hotel evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment was recognized in any period presented. | |||
(g) | Advance Deposits | ||
Advance deposits consist mainly of amounts collected for rooms, banquets, food and beverage, and other property operations in advance of providing services. | |||
(h) | Revenue Recognition | ||
Hotel revenues are recognized when the services are provided. Revenues consist of room sales, food and beverage sales, conference center, and other department revenues such as telephone, golf and |
SKAMANIA LODGE
Notes to Financial Statements
gift shop. Additionally, the Hotel collects sales, use, occupancy, and similar taxes, which is presented on a net basis (excluded from revenues) on the statements of operations. Other revenue primarily consists of golf green fees and other related charges, and gift shop and spa sales. | |||
(i) | Marketing | ||
Marketing costs are expensed as incurred. | |||
(j) | Income Taxes | ||
The Hotel is not directly subject to federal, state or local income taxes. The owner of the Hotel is a Trust under section 501(c) of the internal revenue code and is exempt from income taxes. |
(3) | Note Payable |
The Hotel collateralized a note payable obligation of the Hotels owner. The note payable matured and was extinguished by the owner on September 1, 2010. The outstanding principal balance on the note payable was $36.5 million and $35.7 million as of December 31, 2008 and 2009, respectively. The note payable had a fixed interest rate of 5.7%. |
(4) | Management Agreement |
The Hotel has entered into a hotel management agreement with Destination to manage the Hotel. In accordance with the hotel management agreement, the Hotel pays a management fee equal to 2.5% of gross revenues. The management agreement expires on December 31, 2010, and may be extended for an additional 60 month at the option of the Hotel. |
(5) | Subsequent Events |
The Hotel has evaluated the need for disclosures and/or adjustments resulting from subsequent events through December 22, 2010, the date the financial statements were available to be issued. | ||
On November 3, 2010, the Hotel was acquired by Pebblebrook Hotel Trust (Pebblebrook) for cash consideration of approximately $55.8 million. |
Independent Auditors Report
To the Members
Regis Properties, L.L.C.
Regis Properties, L.L.C.
We have audited the accompanying balance sheets of Regis Properties, L.L.C. (the Company) as of
December 31, 2009 and 2008, and the related statements of operations, changes in members deficit
and cash flows for the years then ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing, the accounting principles used and
significant estimates made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our report dated October 1, 2010, we expressed an opinion that the 2009 and 2008 financial
statements did not fairly present the Companys financial position, results of operations, and cash
flows in conformity with accounting principles generally accepted in the United States of America
because the Company depreciated property and equipment using statutory income tax methods and
lives, which is a departure from accounting principles generally accepted in the United States of
America. As described in Note 3 to the financial statements, the Company has restated its 2009 and
2008 financial statements to conform with accounting principles generally accepted in the United
States of America. Accordingly, our present opinion on the 2009 and 2008 financial statements, as
presented herein, is different from that expressed in our previous report.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2009 and 2008, and the results
of its operations, its members deficit and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
/s/ McGladrey & Pullen, LLP
Chicago, Illinois
December 15, 2010
December 15, 2010
Regis Properties, L.L.C.
Balance Sheets
September 30, | December 31, | |||||||||||
2010 | 2009 | 2008 | ||||||||||
(Unaudited) | Restated | Restated | ||||||||||
Assets |
||||||||||||
Investment in hotel operating property, at cost |
||||||||||||
Land |
$ | 5,710,580 | $ | 5,710,580 | $ | 5,710,580 | ||||||
Building and improvements |
37,775,202 | 37,355,553 | 37,269,531 | |||||||||
Furniture, fixtures, and equipment |
11,232,581 | 10,900,443 | 10,395,937 | |||||||||
54,718,363 | 53,966,576 | 53,376,048 | ||||||||||
Accumulated depreciation |
(16,149,640 | ) | (14,914,994 | ) | (12,747,540 | ) | ||||||
38,568,723 | 39,051,582 | 40,628,508 | ||||||||||
Cash and cash equivalents |
4,118,599 | 3,330,008 | 1,158,537 | |||||||||
Escrows |
3,228,751 | 2,433,082 | 2,740,978 | |||||||||
Accounts receivable (net) |
1,182,011 | 1,189,270 | 597,736 | |||||||||
Inventories |
93,966 | 104,523 | 128,988 | |||||||||
Prepaid expenses and other assets |
880,137 | 555,850 | 605,036 | |||||||||
Due from affiliates |
258,424 | 329,311 | 187,748 | |||||||||
Deferred costs (net) |
68,896 | 24,750 | 47,000 | |||||||||
$ | 48,399,507 | $ | 47,018,376 | $ | 46,094,531 | |||||||
Liabilities and Members Deficit |
||||||||||||
Mortgage notes payable |
$ | 58,000,000 | $ | 58,000,000 | $ | 58,000,000 | ||||||
Accounts payable |
646,881 | 692,833 | 945,117 | |||||||||
Taxes payable |
229,023 | 176,146 | 171,549 | |||||||||
Accrued expenses |
1,019,361 | 842,262 | 1,039,888 | |||||||||
Accrued interest payable |
102,733 | 106,427 | 155,849 | |||||||||
Due to affiliates |
| 1,741 | 21,507 | |||||||||
59,997,998 | 59,819,409 | 60,333,910 | ||||||||||
Members deficit |
(11,598,491 | ) | (12,801,033 | ) | (14,239,379 | ) | ||||||
$ | 48,399,507 | $ | 47,018,376 | $ | 46,094,531 | |||||||
See Notes to Financial Statements.
2
Regis Properties, L.L.C.
Statements of Operations
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
2010 | 2009 | 2009 | 2008 | |||||||||||||
(Unaudited) | (Unaudited) | Restated | Restated | |||||||||||||
Departmental revenue: |
||||||||||||||||
Room |
$ | 13,785,530 | $ | 12,352,069 | $ | 16,371,343 | $ | 19,681,336 | ||||||||
Food and beverage |
2,852,854 | 2,903,400 | 3,812,532 | 4,923,347 | ||||||||||||
Other |
1,071,981 | 1,530,207 | 1,871,616 | 1,731,375 | ||||||||||||
17,710,365 | 16,785,676 | 22,055,491 | 26,336,058 | |||||||||||||
Departmental expenses: |
||||||||||||||||
Room |
3,178,453 | 3,053,890 | 4,017,770 | 5,064,279 | ||||||||||||
Food and beverage |
2,657,350 | 2,474,331 | 3,201,238 | 4,415,806 | ||||||||||||
Other |
617,116 | 746,973 | 969,321 | 1,184,052 | ||||||||||||
6,452,919 | 6,275,194 | 8,188,329 | 10,664,137 | |||||||||||||
Gross profit - departments |
11,257,446 | 10,510,482 | 13,867,162 | 15,671,921 | ||||||||||||
Operating expenses |
||||||||||||||||
General and administrative |
1,139,086 | 1,210,949 | 1,536,116 | 1,903,090 | ||||||||||||
Franchise fees |
1,642,672 | 1,456,519 | 1,925,557 | 2,153,727 | ||||||||||||
Marketing |
701,865 | 674,779 | 895,249 | 1,277,613 | ||||||||||||
Repairs and maintenance |
636,005 | 689,764 | 854,094 | 1,119,206 | ||||||||||||
Utilities |
425,781 | 436,891 | 559,346 | 640,573 | ||||||||||||
Management fees |
531,307 | 503,167 | 662,735 | 765,303 | ||||||||||||
Property taxes |
492,215 | 483,106 | 637,908 | 693,219 | ||||||||||||
Insurance |
259,409 | 249,254 | 336,215 | 354,728 | ||||||||||||
Owners expenses |
1,083,168 | 777,844 | 868,729 | 1,223,221 | ||||||||||||
6,911,508 | 6,482,273 | 8,275,949 | 10,130,680 | |||||||||||||
Operating income before fixed charges |
4,345,938 | 4,028,209 | 5,591,213 | 5,541,241 | ||||||||||||
Fixed charges: |
||||||||||||||||
Interest expense |
1,393,593 | 1,403,754 | 1,861,663 | 3,370,338 | ||||||||||||
Depreciation and amortization |
1,346,693 | 1,718,403 | 2,291,204 | 2,856,213 | ||||||||||||
2,740,286 | 3,122,157 | 4,152,867 | 6,226,551 | |||||||||||||
Net income (loss) |
$ | 1,605,652 | $ | 906,052 | $ | 1,438,346 | $ | (685,310 | ) | |||||||
See Notes to Financial Statements.
3
Regis Properties, L.L.C.
Statements of Changes in Members Deficit
Balance, January 1, 2008, as originally reported |
$ | (16,767,478 | ) | |
Adjustment |
3,213,409 | |||
Balance, January 1, 2008, as restated |
(13,554,069 | ) | ||
Net loss, as restated |
(685,310 | ) | ||
Balance, December 31, 2008 |
(14,239,379 | ) | ||
Net income, as restated |
1,438,346 | |||
Balance, December 31, 2009 |
(12,801,033 | ) | ||
Distributions (unaudited) |
(403,110 | ) | ||
Net income (unaudited) |
1,605,652 | |||
Balance, September 30, 2010 (unaudited) |
$ | (11,598,491 | ) | |
See Notes to Financial Statements.
4
Regis Properties, L.L.C.
Statements of Cash Flows
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
2010 | 2009 | 2009 | 2008 | |||||||||||||
(Unaudited) | (Unaudited) | Restated | Restated | |||||||||||||
Cash Flows from Operating Activities |
||||||||||||||||
Net income (loss) |
$ | 1,605,652 | $ | 906,052 | $ | 1,438,346 | $ | (685,310 | ) | |||||||
Depreciation and amortization |
1,346,693 | 1,718,403 | 2,291,204 | 2,856,213 | ||||||||||||
Unrealized loss on interest rate cap |
5,000 | 47,000 | 47,000 | 65,225 | ||||||||||||
Changes in: |
||||||||||||||||
Escrows |
(685,422 | ) | 123,628 | 153,758 | (324,984 | ) | ||||||||||
Accounts receivable |
7,259 | (1,094,118 | ) | (591,534 | ) | (6,931 | ) | |||||||||
Inventories |
10,557 | 18,774 | 24,465 | (3,648 | ) | |||||||||||
Prepaid expenses and other assets |
(324,287 | ) | (71,817 | ) | 49,186 | (118,216 | ) | |||||||||
Due from affiliates |
70,887 | (73,460 | ) | (141,563 | ) | (106,634 | ) | |||||||||
Accounts payable |
(45,952 | ) | (458,500 | ) | (252,284 | ) | 42,187 | |||||||||
Taxes payable |
52,877 | 40,182 | 4,597 | (37,998 | ) | |||||||||||
Accrued expenses |
177,099 | 120,466 | (197,626 | ) | (256,766 | ) | ||||||||||
Accrued interest |
(3,694 | ) | (49,422 | ) | (49,422 | ) | (59,924 | ) | ||||||||
Due to affiliates |
(1,741 | ) | (21,507 | ) | (19,766 | ) | (424,400 | ) | ||||||||
Net cash provided by operating activities |
2,214,928 | 1,205,681 | 2,756,361 | 938,814 | ||||||||||||
Cash Flows from Investing Activities |
||||||||||||||||
Additions to investment property |
(751,787 | ) | (503,004 | ) | (590,528 | ) | (1,012,858 | ) | ||||||||
Escrows |
(107,712 | ) | 402,468 | 160,401 | (212,472 | ) | ||||||||||
Net cash used in investing activities |
(859,499 | ) | (100,536 | ) | (430,127 | ) | (1,225,330 | ) | ||||||||
Cash Flows from Financing Activities |
||||||||||||||||
Loan fees and costs |
(161,193 | ) | (148,500 | ) | (148,500 | ) | (47,000 | ) | ||||||||
Escrows |
(2,535 | ) | (7,823 | ) | (6,263 | ) | (12,053 | ) | ||||||||
Distributions |
(403,110 | ) | | | | |||||||||||
Net cash used in financing activities |
(566,838 | ) | (156,323 | ) | (154,763 | ) | (59,053 | ) | ||||||||
Increase (decrease) in cash and cash equivalents |
788,591 | 948,822 | 2,171,471 | (345,569 | ) | |||||||||||
Cash and cash equivalents |
||||||||||||||||
Beginning of year |
3,330,008 | 1,158,537 | 1,158,537 | 1,504,106 | ||||||||||||
End of year |
$ | 4,118,599 | $ | 2,107,359 | $ | 3,330,008 | $ | 1,158,537 | ||||||||
Supplemental Disclosure of Cash Flow Information |
||||||||||||||||
Interest paid |
$ | 1,392,287 | $ | 1,406,176 | $ | 1,864,085 | $ | 3,319,975 | ||||||||
See Notes to Financial Statements.
5
Regis Properties, L.L.C.
Notes to Financial Statements
Note 1. Organization and Nature of Activities
Regis Properties, L.L.C., a Delaware limited liability company (the Company), was formed in
September 2000 to acquire and operate the Sheraton Delfina Hotel (the Hotel), a 314-room full
service hotel located in Santa Monica, California.
Regis Properties Holding Company, LLC (the Member), is the sole equity member. The Companys
operating agreement, as amended on October 31, 2003, provides for (a) profits and losses to be
allocated to the Member and (b) distributions to be made to the Member at the times and in the
aggregate amounts determined by the board of directors.
The accompanying financial statements as of September 30, 2010 and for the nine-month periods ended
September 30, 2010 and 2009, have been presented pursuant to the Securities and Exchange Commission
(SEC) rules and regulations. All amounts included in the notes to the financial statements
referring to September 30, 2010 and for the nine-month periods ended September 30, 2010 and 2009,
are unaudited. The accompanying financial statements reflect, in the opinion of management, all
adjustments considered necessary for fair presentation of the interim financial statements. All
such adjustments are of a normal and recurring nature.
Note 2. Basis of Accounting and Significant Accounting Policies
Basis of accounting: The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
Cash and cash equivalents: Cash equivalents include highly liquid debt instruments acquired with an
original maturity of three months or less. During the year, the Company maintained cash balances
in financial institutions in amounts greater than the federally insured limit. The Company has not
experienced any losses on such accounts and believes it is not exposed to significant risks with
respect to such balances.
Escrows: Escrows include amounts held for future renovation and construction costs, debt service,
real estate taxes and insurance. The escrow amounts are maintained by the mortgage lender and have
been pledged as additional collateral for the mortgage loan.
Accounts receivable: Accounts receivable are comprised of (a) amounts billed but uncollected for
room rental, restaurant sales and banquet services and (b) amounts earned but unbilled for the
aforementioned services until guests check out of the Hotel. Receivables are recorded at
managements estimate of the amounts that will ultimately be collected. The allowance for doubtful
accounts is based on specific identification of uncollectible accounts and the Companys historical
collection experience. The allowance for doubtful accounts was $40,720 and $14,400 as of December
31, 2009 and 2008, respectively, and $29,403 as of September 30, 2010 (unaudited).
Inventory: Inventory is comprised of food and beverage, which are stated at the lower of cost or
market.
Investment in hotel operating property: Equipment and direct and indirect costs associated with the
acquisition and renovation of the hotel property are capitalized and depreciated on a straight-line
basis over the estimated useful lives of the assets of 5 40 years. Depreciation expense was
$2,167,454 and $2,711,059 for the years ended December 31, 2009 and 2008, respectively, and
$1,234,646 and $1,625,591 for the nine months ended September 30, 2010 and 2009 (unaudited),
respectively.
6
Regis Properties, L.L.C.
Notes to Financial Statements
Note 2 Basis of Accounting and Significant Accounting Policies (Continued)
The Company reviews its investment in hotel operating property for impairment when events or
changes in circumstances indicate the carrying amount of a property may not be recoverable. If
such conditions exist, management will estimate the future cash flows from operations and
disposition of the property. If the estimated undiscounted future cash flows are less than the
carrying amount of the assets, an adjustment to reduce the carrying amount to the propertys
estimated market value would be recorded and an impairment loss would be recognized. The Company
evaluated its investment property and does not believe there are any events or circumstances
indicating impairment.
Deferred costs: Legal fees and certain other costs incurred in connection with obtaining the
mortgage loans have been capitalized and are being amortized over the term of the related debt.
Amortization of deferred financing costs was $123,750 and $145,154 for the years ended December 31,
2009 and 2008, respectively, and $112,047 and $92,812 for the nine months ended September 30, 2010
and 2009 (unaudited), respectively.
Derivative financial instruments: All derivative financial instruments are recognized as either
assets or liabilities at their fair value in the balance sheet with the changes in the fair value
reported in current-period earnings. These instruments are classified on the balance sheet as
deferred costs and the change in the fair value is recorded on the statement of operations in
interest expense. For the years ended December 31, 2009 and 2008, the Company recognized a loss of
$47,000 and $65,225, respectively, and $5,000 and $47,000 for the nine months ended September 30,
2010 and 2009 (unaudited), respectively, on these instruments (interest rate caps).
Fair value of financial instruments: Accounting principles generally accepted in the United States
of America applicable to Fair Value Measurements applies to all asset and liabilities that that are
being measured and reported at fair value. The accounting principle requires new disclosures that
establish a framework for measuring fair value in accordance with accounting principles generally
accepted in the United States of America. This accounting principle enables the reader of the
financial statements to assess the inputs used to develop those measurements by establishing a
hierarchy for ranking the quality and reliability of the information used to determine fair values.
The fair value of the Companys derivative instruments was provided by valuation experts. Certain
derivatives with limited market activity are valued using externally developed models that consider
unobservable market parameters.
The Company believes that based on available market information, the carrying amount of the
Companys financial instruments; principally, cash and cash equivalents, accounts receivable,
escrow, interest rate cap, accounts payable, mortgage payable, and working capital items
approximate fair value.
Revenue recognition: Hotel revenue is recognized when services have been rendered or when goods
have been sold.
Advertising: Advertising costs are expensed as incurred. Advertising expense was $359,950 and
$487,676 for the years ended December 31, 2009 and 2008, respectively, and $214,769 and $275,480
for the nine months ended September 30, 2010 and 2009 (unaudited), respectively.
Income taxes: The Company is not subject to federal income tax because its income and losses are
includable in the tax returns of its members but may be subject to certain state taxes. The
Financial Accounting Standards Board (FASB) has provided guidance on how uncertain tax positions
should be recognized, measured, disclosed and presented in the financial statements. This requires
the evaluation of tax positions taken or expected to be taken in
the course of preparing the Companys tax returns to determine whether the tax positions are
more-likely-than-not of being sustained when challenged or when examined by the applicable taxing
authority.
7
Regis Properties, L.L.C.
Notes to Financial Statements
Note 2 Basis of Accounting and Significant Accounting Policies (Continued)
The Company adopted the provisions of the Accounting for Uncertainty of Income Taxes section of the
FASB Accounting Standards Codification on January 1, 2009. Management has determined that there
are no material uncertain income tax positions.
Tax returns filed by the Company are generally subject to examination by U.S. and state taxing
authorities for years ended after December 31, 2005.
Use of estimates: The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates and assumptions.
Subsequent events: The Company has evaluated subsequent events for potential recognition and/or
disclosure through December 15, 2010, the date the financial statements were available to be
issued.
Note 3. Restatement
The current and prior years audited financial statements have been restated to reflect
depreciation in accordance with accounting principles generally accepted in the United States of
America. The Company had previously depreciated property and equipment using statutory income tax
methods and lives, which is a departure from accounting principles generally accepted in the United
States of America.
8
Regis Properties, L.L.C.
Notes to Financial Statements
Note 3 Restatement (Continued)
The adjustment to accumulated depreciation resulted in the following increases (decreases):
Originally | ||||||||||||
Reported | Adjustment | Restated | ||||||||||
As of December 31, 2009: |
||||||||||||
Investment in hotel operating property |
$ | 36,841,103 | $ | 2,210,479 | $ | 39,051,582 | ||||||
Total assets |
44,807,897 | 2,210,479 | 47,018,376 | |||||||||
Members deficit |
(15,011,512 | ) | 2,210,479 | (12,801,033 | ) | |||||||
For the year ended December 31, 2009: |
||||||||||||
Depreciation and amortization |
1,892,767 | 398,437 | 2,291,204 | |||||||||
Net income |
1,836,783 | (398,437 | ) | 1,438,346 | ||||||||
As of December 31, 2008: |
||||||||||||
Investment in hotel operating property |
38,019,592 | 2,608,916 | 40,628,508 | |||||||||
Total assets |
43,485,615 | 2,608,916 | 46,094,531 | |||||||||
Members deficit |
(16,848,295 | ) | 2,608,916 | (14,239,379 | ) | |||||||
For the year ended December 31, 2008: |
||||||||||||
Depreciation and amortization |
2,251,720 | 604,493 | 2,856,213 | |||||||||
Net loss |
(80,817 | ) | (604,493 | ) | (685,310 | ) |
There were no changes in total cash flows from operating activities, investing activities or
financing activities.
Note 4. Mortgage Notes Payable
On February 21, 2006, the Company entered into a $30,000,000 mortgage loan (Senior Loan) and a
$28,000,000 mezzanine loan (Mezzanine Loan) (the Loans). The Senior Loan is payable in monthly
installments of interest only at a rate equal to LIBOR plus 1.23 percent (1.46 percent and 2.43
percent at December 31, 2009 and 2008, respectively, and 1.49 percent and 1.47 percent at September
30, 2010 and 2009 (unaudited), respectively). The Mezzanine Loan is payable in monthly
installments of interest only at a rate equal to LIBOR plus 4.59 percent (4.82 percent and 5.79
percent at December 31, 2009 and 2008, respectively, and 4.85 percent and 4.83 percent at September
30, 2010 and 2009 (unaudited), respectively). The original maturity date of the Loans was March 9,
2008. The Loans provide for three extension terms of one year each, provided certain conditions
are met as set forth in the loan agreements. The Company exercised its third option to extend the
maturity date of the Loans to March 9, 2011.
9
Regis Properties, L.L.C.
Notes to Financial Statements
Note 4 Mortgage Notes Payable (Continued)
The Mortgage Loan is secured by a mortgage lien on the hotel operating property as well as a
collateral assignment of leases and rents and has been personally guaranteed by certain members of
affiliated entities.
In conjunction with the loan agreements, the Company entered into interest rate cap agreements to
fix the underlying LIBOR at 5.50 percent. The notional amount of the interest rate cap is
$58,000,000 and the interest rate cap agreements mature concurrent with the maturity of the Loans.
The estimated fair value of the interest rate cap was $0 at December 31, 2009 and 2008 and
September 30, 2010. The Company recognized a loss of $47,000 and $65,225 for the years ended
December 31, 2009 and 2008, respectively, and $5,000 and $47,000 for the nine months ended
September 30, 2010 and 2009 (unaudited), respectively, which is reflected in interest expense on
the accompanying statements of operations.
The Company may, provided no event of default has occurred and certain conditions are satisfied,
prepay the Loans in whole but not in part with 15-day prior written notice specifying the date upon
which the prepayment is to be made. Thereafter, the prepayment penalty is equal to 0.5 percent
of the principal amount being repaid.
Note 5. Related-Party Transactions
Management fees: In April 2003, the Company entered into a management agreement with KOR Hotel
Management, L.L.C. (KOR), an affiliate of the Company, to manage and operate the Hotel through
April 2013. The Company has the option to terminate the agreement with 60 days written notice if
certain performance metrics (as defined) are not met. The management agreement provides for a
basic management fee equal to 3 percent of gross revenue (as defined) and an incentive fee equal to
excess operating profit over the hurdle amount (as defined). The basic management fee and
incentive fee are capped at 4 percent of gross revenue in any calendar year. No incentive fees
have been earned. Management fees incurred for the years ended December 31, 2009 and 2008 were
$662,735 and $765,303, respectively, and $531,307 and $503,167 for the nine months ended September
30, 2010 and 2009 (unaudited), respectively, of which $47,050 and $42,408 as of December 31, 2009
and 2008, respectively, and $53,898 as of September 30, 2010 (unaudited) was unpaid and included in
accrued expenses on the accompanying balance sheets
Other management services: The management agreement also provides for reimbursement to KOR for
certain services including, but not limited to, advertising, accounting functions, and training.
Reimbursable services shall be equal to the lesser of 1 percent of gross revenue or actual costs
incurred. In addition, the management agreement provides for a group services fee equal to the
lesser of 1 percent of gross revenue or actual costs incurred for reimbursement of certain
centralized services provided by KOR. Total reimbursable services and group services fees incurred
for the years ended December 31, 2009 and 2008 amounted to $441,823 and $495,865, respectively, and
$354,205 and $335,445 for the nine months ended September 30, 2010 and 2009 (unaudited),
respectively, which is included in owners expenses on the accompanying statements of operations.
Financing fee: An affiliate of the Company is entitled to receive a financing fee equal to (i) 0.5
percent of the gross amount of any refinancing proceeds obtained if a third-party broker is used or
(ii) 1 percent of the gross amount if no broker is used. No financing fees were paid in 2009 or
2008.
10
Regis Properties, L.L.C.
Notes to Financial Statements
Note 5 Related-Party Transactions (Continued)
Due to/from affiliates: Due to/from affiliates includes amounts due from/to other properties
managed by KOR. Amounts due from other properties totaled $129,165 and $114,602 as of December 31,
2009 and 2008, respectively, and $131,424 as of September 30, 2010 (unaudited). Amounts due to
other properties totaled $1,741 and $21,507, as of December 31, 2009 and 2008, respectively, and $0
as of September 30, 2010 (unaudited). In addition, the Hotel made advances to KOR to fund working
capital needs. Advances due from KOR totaled $200,146 and $73,146 at December 31, 2009 and
December 31, 2008, respectively, and $127,000 as of September 30, 2010 (unaudited).
Note 6. Franchise Fees
In 2003, the Company entered into a franchise agreement with The Sheraton Corporation (the
Licensor) for a 10-year term which expires in January 2013. The agreement requires the payment of
monthly royalty fees equal to 5 percent of gross room revenue (as defined) and a monthly marketing
program fee equal to 1.239 percent of gross room revenue. Additionally, the Company has agreed to
pay all applicable fees for programs and services required by the Licensor, including reservation
services and the Licensors frequent guest program. Fees incurred from the Licensor were
$1,925,557 and $2,153,727 for the years ended December 31, 2009 and 2008, respectively, and
$1,642,672 and $1,456,519 for the nine months ended September 30, 2010 and 2009 (unaudited),
respectively.
Note 7. Collective Bargaining Agreements and Union Pension Plans
In August 2006, the Hotel Manager (Note 4) entered into a Collective Bargaining Agreement with the
local employee union to establish rates of pay, hours and other conditions of employment for
employees who are members of the union. The agreement originally expired on July 31, 2009 but
automatically renews for additional one-year terms unless either party provides written notice at
least 60 days prior to the anniversary date to modify or terminate the agreement.
Beginning August 1, 2007, the Hotel Manager was required to contribute $0.10 per hour worked for
each eligible employee to Santa Monica Hotel Employees and Restaurant Employees Retirement Fund.
Such contribution increased to $0.20 per hour effective August 1, 2008 through the termination of
the Collective Bargaining Agreement. Total contributions to the plan were $37,045 and $39,201 for
the years ended December 31, 2009 and 2008, respectively, and $31,905 and $28,710 for the nine
months ended September 30, 2010 and 2009 (unaudited), respectively.
Note 8. Commitments and Contingencies
Prior to 2008, the Company self-insured against workmans compensation claims. Effective January
2008, the Company secured a new workmans compensation insurance policy under which the Company
pays monthly premiums for full coverage of workmans compensation claims. However, the Company is
still liable to fund individual workmans compensation claims prior to 2008. Estimated outstanding
workmans compensation claims totaled $171,538 and $218,906 as of December 31, 2009 and 2008,
respectively, and $272,294 as of September 30, 2010 (unaudited), which is included in accrued
expenses on the accompanying balance sheets.
The Company from time to time may be involved in litigation arising in the ordinary course of
business. The Company believes the outcome of such litigation is not expected to have a material
adverse effect on the Companys financial position or results of its operations.
11
Regis Properties, L.L.C.
Notes to Financial Statements
Note 9. Subsequent Events
On November 19, 2010, the Hotel was acquired by Pebblebrook Hotel Trust (Pebblebrook) for cash
consideration of $102,750,000. Pebblebrook did not assume any amounts due under the mortgage notes
payable obligation. At closing, the settlement agent wired $58,000,000 plus accrued interest to
the lenders which paid off the mortgage notes payable in full.
12
Independent Auditors Report
The Members
South 17th Street OwnerCo, LLC and
South 17th Street OwnerCo, LLC and
South 17th Street LeaseCo, LLC:
We have audited the accompanying combined balance sheets of South 17th Street OwnerCo, LLC and
South 17th Street LeaseCo, LLC (together, the Company) as of December 31, 2009 and 2008, and the
related combined statements of operations, members equity, and cash flows for the years then
ended. These combined financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the combined financial statements referred to above present fairly, in all material
respects, the financial position of the South 17th Street OwnerCo, LLC and South 17th Street
LeaseCo, LLC, as of December 31, 2009 and 2008, and the results of their operations and their cash
flows for the years then ended in conformity with U.S. generally accepted accounting principles.
/s/ KPMG, LLP
Chicago, Illinois
December 21, 2010
December 21, 2010
South 17th Street OwnerCo, LLC and South 17th Street LeaseCo, LLC
Combined Balance Sheets
Combined Balance Sheets
September 30, | December 31, | |||||||||||
2010 (Unaudited) | 2009 | 2008 | ||||||||||
Assets |
||||||||||||
Investment in hotel properties, at cost: |
||||||||||||
Land |
$ | 8,534,242 | $ | 8,534,242 | $ | 8,534,242 | ||||||
Building and improvements |
45,785,889 | 45,785,889 | 45,785,889 | |||||||||
Personal property |
10,053,392 | 8,570,260 | 7,892,753 | |||||||||
Less accumulated depreciation |
(10,005,282 | ) | (7,814,680 | ) | (5,102,927 | ) | ||||||
54,368,241 | 55,075,711 | 57,109,957 | ||||||||||
Cash and cash equivalents |
2,919,081 | 2,970,926 | 4,767,095 | |||||||||
Accounts receivable, net of allowance of $0 , $503, $0 |
967,259 | 684,225 | 552,266 | |||||||||
Escrow deposits |
1,569,882 | 2,342,729 | 2,241,826 | |||||||||
Inventories |
108,134 | 98,836 | 109,544 | |||||||||
Prepaid expenses and other assets |
700,326 | 59,808 | 31,402 | |||||||||
Deferred financing costs, net of accumulated amortization |
4,863 | 2,047 | 32,567 | |||||||||
Total assets |
$ | 60,637,786 | $ | 61,234,282 | $ | 64,844,657 | ||||||
Liabilities and Members Equity |
||||||||||||
Note payable |
$ | 56,070,000 | $ | 56,070,000 | $ | 56,070,000 | ||||||
Accounts payable |
317,997 | 539,766 | 337,992 | |||||||||
Accounts payable affiliates |
156,194 | 157,028 | 160,391 | |||||||||
Accrued expenses |
246,939 | 281,155 | 391,775 | |||||||||
Accrued payroll and withholding |
748,087 | 593,894 | 794,790 | |||||||||
Accrued interest payable |
| | 154,022 | |||||||||
Sales tax payable |
293,058 | 203,911 | 375,680 | |||||||||
Advanced deposits |
462,069 | 241,341 | 198,739 | |||||||||
Total liabilities |
58,294,344 | 58,087,095 | 58,483,389 | |||||||||
Members equity |
2,343,442 | 3,147,187 | 6,361,268 | |||||||||
Total liabilities
and members equity |
$ | 60,637,786 | $ | 61,234,282 | $ | 64,844,657 | ||||||
See accompanying notes to combined financial statements.
2
South 17th Street OwnerCo, LLC and South 17th Street LeaseCo, LLC
Combined Statements of Operations
Combined Statements of Operations
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
2010 | 2009 | 2009 | 2008 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Department revenues: |
||||||||||||||||
Rooms |
$ | 10,355,529 | $ | 10,952,934 | $ | 14,574,526 | $ | 17,951,064 | ||||||||
Food and beverage |
4,149,145 | 3,704,448 | 5,478,718 | 6,944,242 | ||||||||||||
Telephone |
73,271 | 89,265 | 40,981 | 145,205 | ||||||||||||
Other |
793,581 | 957,929 | 1,039,850 | 1,045,330 | ||||||||||||
Total department revenues |
15,371,526 | 15,704,576 | 21,134,075 | 26,085,841 | ||||||||||||
Department expenses: |
||||||||||||||||
Rooms |
3,158,776 | 3,112,547 | 4,189,139 | 4,359,736 | ||||||||||||
Food and beverage |
3,515,298 | 3,332,467 | 4,670,233 | 5,356,499 | ||||||||||||
Telephone |
171,633 | 185,221 | 638,722 | 252,616 | ||||||||||||
Other |
596,997 | 563,026 | 305,881 | 713,350 | ||||||||||||
Total department expenses |
7,442,704 | 7,193,261 | 9,803,975 | 10,682,201 | ||||||||||||
Operating expenses: |
||||||||||||||||
General and administrative |
1,199,148 | 984,636 | 1,526,212 | 1,560,340 | ||||||||||||
Sales and marketing |
1,105,516 | 1,095,942 | 1,318,540 | 1,414,092 | ||||||||||||
Utilities |
747,382 | 747,719 | 1,005,293 | 1,330,443 | ||||||||||||
Property operation and maintenance |
701,955 | 695,665 | 940,849 | 1,122,613 | ||||||||||||
Real estate and other property taxes |
541,363 | 546,218 | 721,008 | 721,009 | ||||||||||||
Management fee |
461,147 | 471,138 | 634,022 | 782,719 | ||||||||||||
Incentive fee |
| | | 449,210 | ||||||||||||
Insurance |
97,713 | 66,996 | 111,396 | 98,658 | ||||||||||||
Asset management fee |
53,800 | 54,966 | 73,969 | 66,819 | ||||||||||||
Depreciation |
2,190,604 | 2,021,254 | 2,711,754 | 2,667,955 | ||||||||||||
Amortization |
11,640 | 34,349 | 37,100 | 341,641 | ||||||||||||
Other expenses |
101,707 | 204,662 | 244,440 | 402,709 | ||||||||||||
Total operating expenses |
7,211,975 | 6,923,545 | 9,324,583 | 10,958,208 | ||||||||||||
Other (expense) income: |
||||||||||||||||
Interest expense |
(669,734 | ) | (715,176 | ) | (935,946 | ) | (2,387,844 | ) | ||||||||
Interest and other income |
15,030 | 12,812 | 14,483 | 87,727 | ||||||||||||
Total other expense, net |
(654,704 | ) | (702,364 | ) | (921,463 | ) | (2,300,117 | ) | ||||||||
Net income |
$ | 62,143 | $ | 885,406 | $ | 1,084,054 | $ | 2,145,315 | ||||||||
See accompanying notes to combined financial statements.
3
South 17th Street OwnerCo, LLC and South 17th Street LeaseCo, LLC
Combined Statement of Members Equity
Combined Statement of Members Equity
Balance at December 31, 2007 |
$ | 8,388,956 | ||
Contributions from members |
25,000 | |||
Distributions to members |
(4,198,003 | ) | ||
Net income |
2,145,315 | |||
Balance at December 31, 2008 |
6,361,268 | |||
Contributions from members |
211,865 | |||
Distributions to members |
(4,510,000 | ) | ||
Net income |
1,084,054 | |||
Balance at December 31, 2009 |
3,147,187 | |||
Contributions from members (unaudited) |
22,100 | |||
Distributions to members (unaudited) |
(887,988 | ) | ||
Net income (unaudited) |
62,143 | |||
Balance at September 30, 2010 (unaudited) |
$ | 2,343,442 | ||
See accompanying notes to combined financial statements.
4
South 17th Street OwnerCo, LLC and South 17th Street LeaseCo, LLC
Combined Statements of Cash Flows
Combined Statements of Cash Flows
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
2010 | 2009 | 2009 | 2008 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income |
$ | 62,143 | $ | 885,406 | $ | 1,084,054 | $ | 2,145,315 | ||||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||||||||||
Amortization of deferred costs |
11,640 | 34,349 | 37,100 | 341,641 | ||||||||||||
Depreciation |
2,190,604 | 2,021,254 | 2,711,754 | 2,667,955 | ||||||||||||
Loss on interest rate cap |
| | 15 | 12,072 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
(283,034 | ) | (550,570 | ) | (131,959 | ) | 98,063 | |||||||||
Escrow deposits |
168,609 | 186,916 | 18,600 | (67,475 | ) | |||||||||||
Inventories |
(9,298 | ) | 9,896 | 10,708 | (18,799 | ) | ||||||||||
Prepaid expenses and other assets |
(294,909 | ) | (459,259 | ) | (28,422 | ) | 17,958 | |||||||||
Account payable affiliates |
(834 | ) | (3,363 | ) | (3,363 | ) | 150,719 | |||||||||
Accounts payable |
(221,769 | ) | (97,984 | ) | 201,774 | 305,891 | ||||||||||
Accrued expenses |
(34,216 | ) | (153,061 | ) | (110,620 | ) | 69,218 | |||||||||
Accrued payroll and withholding |
154,193 | (52,967 | ) | (200,896 | ) | 80,877 | ||||||||||
Accrued interest payable |
| (154,022 | ) | (154,022 | ) | (162,017 | ) | |||||||||
Sales tax payable |
89,147 | (145,216 | ) | (171,769 | ) | (4,355 | ) | |||||||||
Advanced deposits |
220,728 | 313,713 | 42,602 | (92,819 | ) | |||||||||||
Net cash provided by operating activities |
2,053,004 | 1,835,092 | 3,305,556 | 5,544,244 | ||||||||||||
Cash flows from investing activities: |
||||||||||||||||
Purchases of property and equipment |
(1,828,741 | ) | (76,566 | ) | (677,507 | ) | (859,412 | ) | ||||||||
Escrow deposits |
604,236 | (488,035 | ) | (119,503 | ) | (181,509 | ) | |||||||||
Net cash (used in) investing activities |
(1,224,505 | ) | (564,601 | ) | (797,010 | ) | (1,040,921 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||||||
Contributions from members |
22,100 | 201,376 | 211,865 | 25,000 | ||||||||||||
Distributions to members |
(887,988 | ) | | (4,510,000 | ) | (4,198,003 | ) | |||||||||
Cap paid for interest rate cap |
| | | (12,000 | ) | |||||||||||
Deferred costs paid |
(14,456 | ) | (5,018 | ) | (6,580 | ) | (6,661 | ) | ||||||||
Net cash provided by (used in) financing activities |
(880,344 | ) | 196,358 | (4,304,715 | ) | (4,191,664 | ) | |||||||||
Net increase (decrease) in cash |
(51,845 | ) | 1,466,849 | (1,796,169 | ) | 311,659 | ||||||||||
Cash and cash equivalents: |
||||||||||||||||
Beginning of year |
2,970,926 | 4,767,095 | 4,767,095 | 4,455,436 | ||||||||||||
End of period |
$ | 2,919,081 | $ | 6,233,944 | $ | 2,970,926 | $ | 4,767,095 | ||||||||
Supplemental cash flow disclosures: |
||||||||||||||||
Cash paid for interest |
$ | 669,734 | $ | 869,198 | $ | 1,089,953 | $ | 2,537,789 |
See accompanying notes to combined financial statements.
5
SOUTH
17TH STREET OWNERCO, LLC AND SOUTH 17TH STREET LEASECO, LLC
Notes to Combined Financial Statements
(1) | Description of Business and Basis of Accounting | |
The Sofitel Hotel Philadelphia (the Hotel) is a full-service 306-room hotel located in Philadelphia, Pennsylvania. The Hotel is owned by South 17th Street OwnerCo, LLC (OwnerCo) and is leased to South 17th Street LeaseCo, LLC (LeaseCo), under a related party lease agreement. OwnerCo and LeaseCo are collectively referred to as the Company. Platinum OwnerCo, LLC and Platinum LeaseCo, LLC are the parent of the Company. Profits, losses, and distributions are shared pursuant to each Companys respective Limited Liability Company Agreement. The members of the Company have no personal liability for the obligations of the Company except to the extent required by the Delaware Limited Liability Company Act, as amended, and the Company will continue until dissolved and terminated in accordance with the provisions of the agreements. The Hotel is managed under an agreement with Accor Business and Leisure Management LLC (Accor). | ||
The accompanying unaudited combined financial statements of the Company as of September 30, 2010 and for the nine-month periods ended September 30, 2010 and 2009, have been prepared pursuant to the Securities and Exchange Commission (SEC) rules and regulations. All amounts included in the notes to the combined financial statements referring to September 30, 2010, and for the nine-month periods ended September 30, 2010 and 2009, are unaudited. The accompanying combined financial statements reflect, in the opinion of management, all adjustments considered necessary for a fair presentation of the interim combined financial statements. All such adjustments are of a normal and recurring nature. | ||
The accompanying combined financial statements are presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Intercompany accounts and transactions have been eliminated in combination. The preparation of the combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and the accompanying notes. Actual results could differ from those estimates and assumptions. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. | ||
On December 3, 2010, Pebblebrook Hotel Trust (Pebblebrook) acquired the membership interests in OwnerCo and LeaseCo for approximately $87.0 million. The acquisition was funded from $30.9 million in cash and the assumption of the existing $56.1 million mortgage. | ||
(2) | Significant Accounting Policies |
(a) | Cash and Cash Equivalents | ||
Cash and cash equivalents includes cash and liquid temporary investments with maturities of three months or less at the date of purchase. The Company is exposed to credit risk on its cash and cash equivalents as it holds amounts in financial institutions in excess of FDIC insured amounts. | |||
(b) | Escrow Deposits | ||
Escrow deposits are required per the mortgage documents for furniture, fixtures and equipment, renovation reserves, and real estate taxes. | |||
(c) | Inventories | ||
Inventories, consisting primarily of food and beverage items, are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. |
6
SOUTH 17TH STREET OWNERCO, LLC AND SOUTH 17TH STREET LEASECO, LLC
Notes to Combined Financial Statements
(d) | Investment in Hotel Properties | ||
Land, building and improvements and personal property are stated at cost. The cost of additions, alterations, and improvements are capitalized. Expenditures for routine repairs and maintenance are expensed as incurred. Depreciation is computed utilizing the straight-line method over the estimated useful lives, which are 40 years for buildings and improvements and 3, 5, or 15 years for personal property. | |||
(e) | Impairment of Long-Lived Assets | ||
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. No such impairment losses have been recognized to date. | |||
(f) | Revenue Recognition | ||
The Company recognizes revenues when the services are provided. Revenues consist of room sales, food and beverage sales, and other department revenues such as telephone and gift shop. Additionally, the Company collects sales, use, occupancy, and similar taxes, which are presented on a net basis (excluded from revenues) in our combined statements of operations. | |||
(g) | Accounts Receivable | ||
Accounts receivable, which primarily represents amounts due from hotel guests, are recorded at managements estimate of the amounts that will be ultimately collected. The Company provides for an allowance for doubtful accounts, which is based on specific identification and managements historical experience. | |||
(h) | Fair Value Measurement | ||
The Company is required to disclose the fair value of certain assets and liabilities according to a fair value hierarchy. This hierarchy ranks the quality and reliability of the inputs used to determine fair values, which are then classified and disclosed in one of three categories. The three levels of the fair value hierarchy are: |
| Level 1 quoted prices (unadjusted) in active markets for identical assets and liabilities. | ||
| Level 2 quoted prices in active markets for similar assets and liabilities: quoted prices in markets that are not active; and model-derived valuations whose inputs are observable. | ||
| Level 3 model-derived valuations with unobservable inputs. |
As required by the guidance, assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Companys assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of certain assets and liabilities and their classifications within the fair value hierarchy. |
7
SOUTH 17TH STREET OWNERCO, LLC AND SOUTH 17TH STREET LEASECO, LLC
Notes to Combined Financial Statements
(i) | Deferred Financing Costs | ||
Deferred financing costs incurred in connection with the note payable are amortized to interest expense using the straight-line method over the contractual life of the note payable, which approximates the effective interest method. Deferred financing costs are shown net of accumulated amortization. | |||
(j) | Derivatives and Hedging Instruments | ||
In March 2008, the Financial Accounting Standard Board (FASB) issued guidance that amends and expands the disclosure requirements for derivative instruments and hedging activities, to provide users of financial statements with an enhanced understanding of the use of derivative instruments, accounting for derivative instruments and related hedged items, and the effect on an entitiys combined financial position, financial performance, and cash flows. This guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, as well as disclosures about credit risk related to contingent features in derivative agreements. | |||
The Company uses derivative instruments such as interest rate caps to manage exposure to the variability of cash flows to be paid related to interest rate risks inherent in variable rate debt. The Companys interest rate cap is recognized as an asset or liability and is recorded at fair value. The Company does not enter into derivatives for speculative or trading purposes and no derivatives have been designated as hedging instruments. As such, where required, changes in the fair value of the Companys interest rate cap is reported in net income in the combined statement of operations. For the nine months ended September 30, 2010 and 2009 (unaudited) and the years ended December 31, 2009 and 2008, the interest rate cap had an immaterial effect on the Companys combined results of operations. | |||
(k) | Marketing and Advertising Expenses | ||
Marketing and advertising costs are expensed as incurred. | |||
(l) | Fair Value of Financial Instruments | ||
The Company has utilized market information as available or present value techniques to estimate the fair value of financial instruments required to be disclosed. Since such values are estimates, there can be no assurance that the fair value of any financial instrument could be realized by immediate settlement of the instrument. Based on borrowing rates available to the Company at the end of 2009 and 2008, the fair value of the notes payable was approximately $55,200,000 and $56,000,000 as of December 31, 2009, and 2008, respectively. | |||
(m) | Accounts Payable to Affiliates | ||
The accounts payable to affiliates consists of an advance from the Companys parent, miscellaneous expenses paid by the Companys parent, and local tax paid by the Companys parent. | |||
(n) | Income Taxes | ||
No provision for income taxes has been made within the combined financial statements as the liability for such tax is that of the members of the Company. In certain instances, the Company may |
8
SOUTH 17TH STREET OWNERCO, LLC AND SOUTH 17TH STREET LEASECO, LLC
Notes to Combined Financial Statements
be subject to certain state and local taxes. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. As of September 30, 2010 (unaudited), December 31, 2009 and 2008, the Company has no unrecognized tax benefits. |
(3) | Note Payable | |
On January 5, 2007, the Company entered into a $56,070,000 mortgage loan (the Note) secured by the Hotel. The Note is payable in monthly installments of interest only at the rate equal to LIBOR plus 1.3 percent (1.5309 percent and 1.7475 percent at December 31, 2009 and 2008, respectively). The note contains customary affirmative covenants. As of September 30, 2010 (unaudited), December 31, 2009 and 2008, the Company was in compliance with such covenants. The original maturity date of the Note was February 1, 2009. The loan provided for three extension terms of one year each, provided certain conditions are met as set forth in the loan agreement. On February 1, 2010, the Company exercised its second of three one-year extension options on the outstanding note payable. | ||
In conjunction with the Note agreement, the Company entered into an interest rate cap agreement with a notional amount equal to the principal amount which caps the underlying LIBOR rate at 7.00 percent. The Company elected to not designate the interest rate caps as hedging instruments and, as such, the Company recognizes changes in the fair value of these derivatives in the combined statements of operations. For the nine months ended September 30, 2010 and 2009 (unaudited) and the years ended December 31, 2009 and 2008, the Company recognized a loss of $0, $0, $15 and $12,072, respectively, due to the change in the fair value of the instruments, which is included in interest expense in the accompanying combined statements of operations. The fair value of the interest rate caps was $0, $0 and $15, at September 30, 2010 (unaudited), December 31, 2009 and 2008, respectively. | ||
(4) | Management Agreement | |
Upon acquisition of the Hotel, the Company entered into a management agreement with Accor. The management agreement expires on January 5, 2032, with three automatic extensions for periods of 10 years each. The management agreement requires a base management fee equal to 3% of gross revenues (as defined) and an incentive management fee equal to 20% by which net operating income (as defined) exceeds the threshold amount (as defined). The incentive fee is calculated on a pooled portfolio basis along with eight other hotels owned by the same owner. Pursuant to the terms of the management agreement, Accor provides the Hotel with various services and supplies, including marketing, reservations, construction management, and insurance. Base and incentive management fee expenses were $634,022 and $0 respectively for the year ended December 31, 2009, and $782,719 and $449,210 respectively, for the year ended December 31, 2008. Base and incentive management fees expenses were $461,147 and $0, respectively, for the nine months ended September 30, 2010 (unaudited), and $471,138 and $0, respectively, for the nine months ended September 30, 2009 (unaudited). | ||
Additionally, the management agreement defines aggregate deviations and Gross Operating Income Deviations (GOI) based on certain formulas that require Accor to reimburse the Company for these deviations. In 2009, Accor reimbursed the Company $4,186 for GOI which is reflected in interest and other income in the accompanying combined statement of operations. There was no GOI Deviation in 2008 therefore no payment was made for 2008. |
9
SOUTH 17TH STREET OWNERCO, LLC AND SOUTH 17TH STREET LEASECO, LLC
Notes to Combined Financial Statements
Accor is responsible for maintaining the Hotels furniture, fixtures, and equipment and making purchases as considered necessary. Pursuant to the management agreements, OwnerCo is responsible for funding a furniture, fixture, and equipment escrow account (the FF&E Reserve) equal to 4 percent of the Hotels gross revenue, as defined in the management agreement. Upon purchase of furniture, fixtures, and equipment, Accor requests reimbursement from the FF&E Reserve. At September 30, 2010 (unaudited), December 31, 2009 and 2008, the FF&E Reserve balance was $662,440, $1,266,806 and $1,148,058, respectively, and is included in escrow deposits in the accompanying combined balance sheets. |
(5) | Asset Management Agreements | |
Upon acquisition of the Hotel, the Company entered into an asset management agreement with SCS Hotels, Inc. (the Asset Manager). The asset management agreements expired on December 31, 2009. The Company initiated discussions with the asset manager to negotiate an extension to this agreement. The asset management agreement requires a base fee equal to 0.35% of gross revenues (as defined) and an incentive fee equal to 10.0% of the excess of the actual net operating income (as defined) less the actual incentive management fee over the projected net operating income (as defined) less the projected incentive fee (as defined). Pursuant to the terms of the asset management agreements, the Asset Manager provides additional monitoring and oversight of the Hotels operations. Base and incentive asset management fee expenses were $73,969 and $0, respectively, for the year ended December 31, 2009 and $91,300 and $(24,481), respectively, for the year ended December 31, 2008. Base and incentive asset management fee expenses were $53,800 and $0, respectively, for the nine months ended September 30, 2010 (unaudited) and $54,966 and $0, respectively, for the nine months ended September 30, 2009 (unaudited). The negative incentive fee in 2009 is a result of the Hotel not achieving certain net operating income thresholds. | ||
(6) | Commitments and Contingencies | |
The nature of the Companys operations exposes it to the risk of claims and litigation in the normal course of its business. Although the outcome of such matters cannot be determined, management believes the ultimate resolution of these matters will not have a material adverse effect on the combined financial position, results of operations, or cash flows of the Company. | ||
(7) | Subsequent Events | |
The Hotel has evaluated the need for disclosures and/or adjustments resulting from subsequent events through December 21, 2010, the date the combined financial statements were available to be issued. |
10
Independent Auditors Report
The Manager of
the Argonaut Hotel:
the Argonaut Hotel:
We have audited the accompanying balance sheets of the Argonaut (the Hotel) as of December 31,
2009 and 2008, and the related statements of operations, owners deficit in Hotel, and cash flows
for the years then ended. These financial statements are the responsibility of the Hotels
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Hotels internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Hotel as of December 31, 2009 and 2008, and the results of
its operations and its cash flows for the years then ended in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst
& Young LLP
San Francisco, California
December 28, 2010
December 28, 2010
ARGONAUT SAN FRANCISCO
Balance Sheets
September 30, | ||||||||||||
2010 | December 31, | |||||||||||
(Unaudited) | 2009 | 2008 | ||||||||||
Assets |
||||||||||||
Cash and cash equivalents |
$ | 4,414,550 | $ | 3,088,147 | $ | 2,974,359 | ||||||
Restricted cash |
3,350,976 | 3,024,727 | 2,628,877 | |||||||||
Accounts receivable, net |
1,200,434 | 438,284 | 518,959 | |||||||||
Prepaid expenses |
1,287,544 | 909,490 | 746,985 | |||||||||
Other assets |
367,903 | 314,563 | 379,125 | |||||||||
Total current assets |
10,621,407 | 7,775,211 | 7,248,305 | |||||||||
Leasehold improvements |
$ | 31,472,074 | $ | 31,472,074 | $ | 31,472,074 | ||||||
Furniture, fixtures, and equipment |
7,509,063 | 7,480,887 | 7,230,948 | |||||||||
Work in progress |
2,592 | | 5,990 | |||||||||
38,983,729 | 38,952,961 | 38,709,012 | ||||||||||
Accumulated depreciation |
(12,405,599 | ) | (11,537,455 | ) | (10,371,747 | ) | ||||||
Property and equipment, net |
26,578,130 | 27,415,506 | 28,337,265 | |||||||||
Deferred financing fees, net |
48,896 | 74,782 | 109,297 | |||||||||
Total assets |
$ | 37,248,433 | $ | 35,265,499 | $ | 35,694,867 | ||||||
Liabilities and Owners Deficit in Hotel |
||||||||||||
Accounts payable |
$ | 257,157 | $ | 205,257 | $ | 814,779 | ||||||
Accrued liabilities |
1,644,204 | 979,482 | 1,360,393 | |||||||||
Advance deposits |
202,902 | 76,843 | 62,114 | |||||||||
Due to affiliates |
92,747 | 44,736 | 56,717 | |||||||||
Total current liabilities |
2,197,010 | 1,306,318 | 2,294,003 | |||||||||
Other non-current liabilities |
18,885 | 16,027 | 8,667 | |||||||||
Long-term debt |
$ | 42,000,000 | $ | 42,000,000 | $ | 42,000,000 | ||||||
Total liabilities |
44,215,895 | 43,322,345 | 44,302,670 | |||||||||
Owners deficit in Hotel |
(6,967,462 | ) | (8,056,846 | ) | (8,607,803 | ) | ||||||
Total liabilities and owners deficit in Hotel |
$ | 37,248,433 | $ | 35,265,499 | $ | 35,694,867 | ||||||
See accompanying notes to financial statements.
2
ARGONAUT SAN FRANCISCO
Statements of Operations
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
2010 | 2009 | 2009 | 2008 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Revenues: |
||||||||||||||||
Rooms |
$ | 11,213,844 | $ | 9,888,920 | $ | 13,218,210 | $ | 16,826,283 | ||||||||
Food and beverage |
3,481,081 | 3,547,355 | 4,612,957 | 5,196,402 | ||||||||||||
Other operated departments |
232,333 | 226,898 | 318,588 | 409,007 | ||||||||||||
Rentals, other income |
407,984 | 453,718 | 601,396 | 645,178 | ||||||||||||
Total revenues |
15,335,242 | 14,116,891 | 18,751,151 | 23,076,870 | ||||||||||||
Operating expenses: |
||||||||||||||||
Rooms |
3,186,897 | 2,747,164 | 3,780,973 | 4,057,898 | ||||||||||||
Food and beverage |
2,450,301 | 2,422,416 | 3,202,096 | 3,611,145 | ||||||||||||
Other operated departments |
279,659 | 246,145 | 347,608 | 429,608 | ||||||||||||
General and administrative |
1,422,728 | 1,333,355 | 1,762,146 | 2,142,172 | ||||||||||||
Marketing |
682,758 | 611,960 | 806,509 | 993,203 | ||||||||||||
Energy |
332,550 | 315,639 | 415,562 | 453,681 | ||||||||||||
Property operation and maintenance |
402,587 | 358,820 | 514,625 | 585,837 | ||||||||||||
Property taxes and insurance |
844,523 | 870,080 | 1,152,259 | 1,021,446 | ||||||||||||
Depreciation and amortization |
882,796 | 874,627 | 1,176,053 | 1,765,090 | ||||||||||||
Rent |
1,037,719 | 994,128 | 1,324,443 | 1,608,412 | ||||||||||||
Management fee |
886,633 | 723,180 | 848,936 | 1,405,703 | ||||||||||||
Other |
4,926 | | | 7,606 | ||||||||||||
Total operating expenses |
12,414,077 | 11,497,514 | 15,331,210 | 18,081,801 | ||||||||||||
Other expenses: |
||||||||||||||||
Interest expense |
(1,831,781 | ) | (1,831,782 | ) | (2,448,990 | ) | (2,513,237 | ) | ||||||||
Net income |
$ | 1,089,384 | $ | 787,595 | $ | 970,951 | $ | 2,481,832 | ||||||||
See accompanying notes to financial statements.
3
ARGONAUT SAN FRANCISCO
Statements of Owners Deficit in Hotel
Balance at
January 1, 2008 |
$ | (8,628,437 | ) | |
Hotel owner distributions |
(2,461,198 | ) | ||
Net income |
2,481,832 | |||
Balance at December 31, 2008 |
(8,607,803 | ) | ||
Hotel owner distributions |
(419,994 | ) | ||
Net income |
970,951 | |||
Balance at December 31, 2009 |
(8,056,846 | ) | ||
Net income (unaudited) |
1,089,384 | |||
Balance at September 30, 2010 (unaudited) |
$ | (6,967,462 | ) | |
See accompanying notes to financial statements.
4
ARGONAUT SAN FRANCISCO
Statements of Cash Flows
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
2010 | 2009 | 2009 | 2008 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income |
$ | 1,089,384 | $ | 787,595 | $ | 970,951 | $ | 2,481,832 | ||||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||||||||||
Amortization of deferred costs |
25,886 | 25,886 | 34,515 | 34,515 | ||||||||||||
Depreciation and amortization |
882,796 | 874,627 | 1,176,053 | 1,765,090 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
(762,150 | ) | (327,140 | ) | 80,675 | 235,557 | ||||||||||
Prepaid expenses |
(378,054 | ) | (480,596 | ) | (162,505 | ) | 240,037 | |||||||||
Other assets |
(53,340 | ) | 65,636 | 64,562 | (242,999 | ) | ||||||||||
Accounts payable |
51,900 | (524,656 | ) | (609,522 | ) | 638,079 | ||||||||||
Other liabilities |
841,650 | 26,512 | (370,803 | ) | (791,214 | ) | ||||||||||
Net cash provided by operating activities |
1,698,072 | 447,864 | 1,183,926 | 4,360,897 | ||||||||||||
Cash flows from investing activities: |
||||||||||||||||
Change in restricted cash |
(326,249 | ) | (188,311 | ) | (395,850 | ) | 83,482 | |||||||||
Additions to property and equipment |
(45,420 | ) | (250,949 | ) | (254,294 | ) | (782,105 | ) | ||||||||
Net cash used in investing activities |
(371,669 | ) | (439,260 | ) | (650,144 | ) | (698,623 | ) | ||||||||
Cash flows from financing activities Hotel owner distributions |
| (209,997 | ) | (419,994 | ) | (2,461,198 | ) | |||||||||
Net increase (decrease) in cash |
1,326,403 | (201,393 | ) | 113,788 | 1,201,076 | |||||||||||
Cash and cash equivalents: |
||||||||||||||||
Beginning of year |
3,088,147 | 2,974,359 | 2,974,359 | 1,773,283 | ||||||||||||
End of year |
$ | 4,414,550 | $ | 2,772,966 | $ | 3,088,147 | $ | 2,974,359 | ||||||||
Supplemental cash flow disclosures: |
||||||||||||||||
Cash paid for interest |
$ | 1,831,781 | $ | 1,831,782 | $ | 2,448,990 | $ | 2,513,237 |
See accompanying notes to financial statements.
5
ARGONAUT HOTEL
Notes to Financial Statements
(1) | Description of Business and Basis of Accounting | |
The Argonaut Hotel (the Hotel), is a full service, 252-room hotel located at 495 Jefferson Street San Francisco, CA. The Hotel is owned by Maritime Hotel Associates, L.P., a California limited partnership (the Partnership). The Partnership is an affiliate of Kimpton Group, the manager of the Hotel. | ||
The accompanying financial statements are presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. Actual results could differ from those estimates. | ||
The accompanying unaudited financial statements of the Hotel as of September 30, 2010 and for the nine-month periods ended September 30, 2010 and 2009, have been prepared pursuant to the Securities and Exchange Commission (SEC) rules and regulations. All amounts included in the notes to the financial statements referring to September 30, 2010, and for the nine-month periods ended September 30, 2010 and 2009, are unaudited. The accompanying financial statements reflect, in the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. | ||
The Hotel collateralizes a note payable obligation of the Partnership. Cash from the Hotels operations account may be used to fund debt service. Although technically an obligation of the Partnership and not the Hotel, the outstanding principal balance of the note payable, interest expense, deferred financing costs, and related amortization are presented in the financial statements of the Hotel. | ||
Pebblebrook Hotel Trust has signed an agreement to acquire the Hotel and is negotiating the assumption of this note payable obligation (see note 5). The outstanding principal balance on the note payable is $42 million. The note bears interest equal to 5.67%. The note payable requires monthly interest only payments through March 2012, the maturity date. | ||
(2) | Significant Accounting Policies |
(a) | Cash and Cash Equivalents | ||
Includes the Hotels operating cash accounts, which may include liquid temporary cash investments with maturities of three months or less at the date of purchase which are considered to be cash and cash equivalents. | |||
(b) | Restricted Cash | ||
In accordance with the hotel operating and loan agreements, a replacement reserve fund for the purpose of replacements to, and additions of, furniture and equipment is required. The replacement reserve fund is funded with an amount equal to 4% of gross revenue, as defined by the loan agreement, on a monthly basis. |
6
ARGONAUT HOTEL
Notes to Financial Statements
(c) | Leasehold Improvements and Furniture, Fixtures and Equipment | ||
The Partnership owns a leasehold interest in the Hotel, which is subject to a lease agreement with the U.S. Government (see note 3). Leasehold improvements, furniture, fixtures and equipment are stated at cost. The cost of additions, alterations, and improvements is capitalized. Expenditures for repairs and maintenance are expensed as incurred. Amortization of the leasehold interest and depreciation of the furniture, fixtures and equipment is computed utilizing the straight-line method over lives of 3 to 40 years. | |||
Construction in progress totaling $2,592 (unaudited), $0 and $5,990 at September 30, 2010, December 31, 2009 and 2008, respectively, is included in leasehold improvements and furniture, fixtures and equipment. Construction in progress represents renovations to the hotel and is capitalized as the costs are incurred. Renovation projects are generally less than six months in duration, and the hotel remains fully operational while renovations occur. Upon completion of the renovations, depreciation of the improvements commences. | |||
(d) | Impairment of Long-Lived Assets | ||
The Hotel evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. No such impairment losses have been recognized to date. | |||
(e) | Revenue Recognition | ||
Hotel revenues are recognized when the services are provided. Revenues consist of room sales, food and beverage sales, and other department revenues such as telephone and audio/visual. Additionally, we collect sales, use, occupancy and similar taxes at our hotels which we present on a net basis (excluded from revenues) on our statements of operations. | |||
(f) | Accounts Receivable | ||
Accounts receivable, which represent amounts due from Hotel guests, are presented net of allowances, which were $438,284 and $518,959 for the years ended December 31, 2009 and 2008, respectively. | |||
(g) | Fair Value Measurement | ||
The Company is required to disclose the fair value of certain assets and liabilities according to a fair value hierarchy. This hierarchy ranks the quality and reliability of the inputs used to determine fair values, which are then classified and disclosed in one of three categories. The three levels of the fair value hierarchy are: |
| Level 1 quoted prices (unadjusted) in active markets for identical assets and liabilities. | ||
| Level 2 quoted prices in active markets for similar assets and liabilities: quoted prices in markets that are not active; and model-derived valuations whose inputs are observable. |
7
ARGONAUT HOTEL
Notes to Financial Statements
| Level 3 model-derived valuations with unobservable inputs. |
As required by the guidance, assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Companys assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of certain assets and liabilities and their classifications within the fair value hierarchy. | |||
(h) | Deferred Financing Costs | ||
Deferred financing costs incurred in connection with the note payable are amortized to interest expense using the straight-line method over the contractual life of the note payable, which approximates the effective-interest method. | |||
(i) | Marketing and Advertising Expenses | ||
Marketing and advertising costs are expensed as incurred. | |||
(j) | Fair Value of Financial Instruments | ||
The Company has utilized market information as available or present value techniques to estimate the fair value of financial instruments required to be disclosed. Since such values are estimates, there can be no assurance that the fair value of any financial instrument could be realized by immediate settlement of the instrument. The book value of Long-term debt approximates fair value based upon the current interest rates. | |||
(k) | Income Taxes | ||
The Hotel is not directly subject to federal, state or local income taxes. However the owner of the Hotel is a limited partnership and may be subject to certain income or other taxes, and the members of the limited partnership are responsible for reporting their share of taxable income or loss on their respective income tax returns. |
(3) | Ground Lease | |
The owner of the Hotel leases the building structure and land under a noncancelable lease with the United States Department of the Interior, National Park Service expiring in 2059. The lease has been accounted for as an operating lease. The Hotel is required to pay the greater of base rent (as adjusted for CPI increases every 5 years beginning the day after the Certificate of Occupancy was issued on September 17, 2003) or a percentage of gross hotel revenues in excess of $13,563,200 as well as a fixed percentage of all gross food, beverage, and all other department revenues (as adjusted for CPI increases), as defined. The percentage of gross hotel room revenue ranges from 6% to 10% in the initial years to 8% to 14% in the later years of the lease. The percentage of gross hotel food, beverage, and all other department revenues is 4% in all years of the lease. Percentage rent exceeded base rent for the nine months ended September 30, 2010 (unaudited) and for the years ended December 31, 2009 and 2008. Percentage rent did not exceed base rent for the nine months ended September 30, 2009 (unaudited). | ||
Rent expense was approximately $1,011,000 (unaudited), $900,000 (unaudited), $1,216,000 and $1,524,000 for the nine months ended September 30, 2010 and 2009 and for the years ended December 31, 2009 and 2008, respectively. Future minimum rental payments under the ground lease for the next five years are as follows: |
8
ARGONAUT HOTEL
Notes to Financial Statements
Oct Dec 2010 |
300,000 | |||
2011 |
1,200,000 | |||
2012 |
1,200,000 | |||
2013 |
1,200,000 | |||
2014 |
1,200,000 | |||
2015 |
1,200,000 | |||
Thereafter |
52,800,000 |
(4) | Related-Party Transactions | |
The Hotel has entered into a hotel operating agreement with the Kimpton Group to manage the Hotel. In accordance with the hotel operating agreement, the Hotel pays a base management fee of 4% of gross revenues and an incentive fee of 16% of the Hotels distributable cash, as defined in the agreement, after payment of a preferred return to the owner of the Hotel. Total management fees were $886,633 (unaudited), $723,180 (unaudited), $848,936 and $1,405,703 for the nine month periods ended September 30, 2010 and 2009 and the years ended December 31, 2009 and 2008, respectively. | ||
Under the operating agreement, the Hotel also reimburses the Kimpton Group for the Hotels pro rata share of certain group service costs, as defined in the agreement. In addition, the Hotel reimburses the Kimpton Group for the Hotels pro rata share of initial development costs and recurring operating costs related to the central reservation system, and costs associated with the guest loyalty program Kimpton In-Touch. Total reimbursements were $230,000 (unaudited), $137,945 (unaudited), $232,099 and $265,182 for the nine month periods ended September 30, 2010 and 2009 and the years ended December 31, 2009 and 2008, respectively. | ||
The Hotel shares certain costs with other hotels and entities that are managed by or affiliated with the Kimpton Group. The Hotel has total outstanding payables due to the Kimpton Group of $92,747, $44,736 and $56,717 as of September 30, 2010 (unaudited), December 31, 2009 and 2008, respectively. | ||
(5) | Subsequent Event | |
The Hotel has evaluated the need for disclosures and/or adjustments resulting from subsequent events through December 28, 2010, the date the financial statements were available to be issued. | ||
On November 29, 2010, Pebblebrook Hotel Trust (Pebblebrook) entered into an agreement to acquire the Hotel for $84 million, subject to customary closing conditions. Pebblebrook may assume the existing note payable. However, no agreement has been reached with the lender. |
9
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF PEBBLEBROOK HOTEL TRUST
Pebblebrook Hotel Trust (the Company) completed its initial public offering and concurrent
private placement of common shares of beneficial interest on December 14, 2009. The Company raised
$379.6 million, net of underwriting discounts and offering costs. On July 28, 2010, the Company
completed a secondary offering of 19,550,000 common shares, including the underwriters
overallotment of 2,550,000 common shares, at an offering price of $17.00 per share. The net
proceeds to the Company, after underwriters discounts and offering costs, were $318.3 million.
On November 3, 2010, the Company, through a subsidiary, acquired the 254-room Skamania Lodge in
Stevenson, Washington for a purchase price of $55.8 million, adjusted for net working capital
balances.
On November 19, 2010, the Company, through a subsidiary, acquired the 310-room Sheraton Delfina
Santa Monica Hotel in Santa Monica, California for a purchase price of $102.8 million, adjusted for
net working capital balances.
On December 3, 2010, the Company, through a subsidiary, acquired South 17th Street OwnerCo, LLC and South 17th Street
LeaseCo, LLC, the entities that own the 306-room Sofitel Philadelphia
Hotel in Philadelphia, Pennsylvania, for a purchase price of $87.0 million, adjusted for net working
capital balances. The Company assumed a $56.1 million loan in connection with this acquisition.
On November 29, 2010, the Company, through a subsidiary, entered into an agreement to acquire the
Argonaut Hotel San Francisco for $84 million, plus closing costs and net working capital. The
Company expects the closing of the purchase of the Argonaut Hotel San Francisco to occur on or
before February 28, 2011, however, because the acquisition is subject to customary closing
requirements and conditions, the Company can give no assurance that the transaction will be
consummated during that time period or at all. The Company expects to fund the acquisition with
approximately $42 million in cash and the assumption of approximately $42 million of debt.
The unaudited pro forma consolidated balance sheet as of September 30, 2010 is presented as if the
acquisitions of the Skamania Lodge, Sheraton Delfina Santa Monica
Hotel and South 17th Street OwnerCo, LLC and South 17th Street LeaseCo, LLC,
and the probable acquisition of the Argonaut Hotel San Francisco occurred on September 30,
2010. The unaudited pro forma consolidated statements of operations for the nine months ended
September 30, 2010 and for the year ended December 31, 2009 are presented as if the acquisitions of
the Skamania Lodge, Sheraton Delfina Santa Monica Hotel, Sofitel Philadelphia Hotel, and the
probable acquisition of the Argonaut Hotel San Francisco, had been completed effective January 1,
2009.
The unaudited pro forma financial information is not necessarily indicative of what the Companys
results of operations or financial condition would have been assuming such transactions had been
completed at the beginning of the periods presented, nor is it indicative of the results of
operations for future periods. The unaudited pro forma financial information reflects the
preliminary application of purchase accounting to the acquisitions of the Skamania Lodge, Sheraton
Delfina Santa Monica Hotel and South 17th Street OwnerCo, LLC and
South 17th Street LeaseCo, LLC and the probable acquisition of the
Argonaut Hotel San Francisco. The preliminary purchase accounting may be adjusted if any of the
assumptions underlying the purchase accounting change. In managements opinion, all adjustments
necessary to reflect the effects of the significant acquisitions described above have been made.
This unaudited pro forma financial information should be read in conjunction with the historical
financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2009, and the Companys Quarterly
Report on Form 10-Q for the periods ended
September 30, 2010.
Pebblebrook Hotel Trust
Unaudited Proforma Consolidated Balance Sheet
As of September 30, 2010
(in thousands, except share and per share data)
Unaudited Proforma Consolidated Balance Sheet
As of September 30, 2010
(in thousands, except share and per share data)
Completed Acquisitions | Probable Acquisition | |||||||||||||||||||||||||||
Acquisition of | Pro Forma | Pro Forma | ||||||||||||||||||||||||||
Historical | Sheraton Delfina | Acquisition of | Pebblebrook Hotel | Acquisition of | Pebblebrook Hotel | |||||||||||||||||||||||
Pebblebrook Hotel | Acquisition of | Santa Monica | Sofitel Philadelphia | Trust before probable | Argonaut Hotel San | Trust after probable | ||||||||||||||||||||||
Trust | Skamania Lodge (1) | Hotel (2) | Hotel (3) | acquisition | Francisco (4) | acquisition | ||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||||||
Investment in hotel properties, net |
$ | 367,028 | $ | 55,750 | $ | 102,750 | $ | 86,986 | $ | 612,514 | $ | 84,000 | $ | 696,514 | ||||||||||||||
Cash and cash equivalents |
370,995 | (54,813 | ) | (102,437 | ) | (32,769 | ) | 180,976 | (43,700 | ) | 137,276 | |||||||||||||||||
Restricted cash |
1,390 | | 1,040 | 2,430 | | 2,430 | ||||||||||||||||||||||
Accounts receivable, net |
3,920 | 59 | 34 | 652 | 4,665 | | 4,665 | |||||||||||||||||||||
Deferred financing costs, net |
2,142 | | | | 2,142 | | 2,142 | |||||||||||||||||||||
Prepaid expenses and other assets |
5,043 | 333 | 171 | 104 | 5,651 | | 5,651 | |||||||||||||||||||||
Total assets |
$ | 750,518 | $ | 1,329 | $ | 518 | $ | 56,013 | $ | 808,378 | $ | 40,300 | $ | 848,678 | ||||||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||||||||||||||
Senior secured credit facility |
$ | | $ | | $ | | $ | | $ | | | $ | | |||||||||||||||
Mortgage debt |
35,000 | | | 56,070 | 91,070 | 42,000 | 133,070 | |||||||||||||||||||||
Accounts payable and accrued expenses |
10,965 | 1,041 | 670 | 810 | 13,486 | | 13,486 | |||||||||||||||||||||
Accrued underwriter fees |
8,050 | | | 8,050 | | 8,050 | ||||||||||||||||||||||
Advance deposits |
1,657 | 688 | 148 | 333 | 2,826 | | 2,826 | |||||||||||||||||||||
Accrued interest |
110 | | | | 110 | | 110 | |||||||||||||||||||||
Total liabilities |
55,782 | 1,729 | 818 | 57,213 | 115,542 | 42,000 | 157,542 | |||||||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||||||
Shareholders equity: |
||||||||||||||||||||||||||||
Preferred shares of beneficial interest, $0.01
par value; 100,000,000 shares authorized;
no shares issued and outstanding |
| | | | | | | |||||||||||||||||||||
Common shares of beneficial interest, $0.01
par value; 500,000,000 shares authorized;
39,810,590 shares issued and outstanding |
398 | | | | 398 | | 398 | |||||||||||||||||||||
Additional paid-in capital |
697,950 | | | | 697,950 | | 697,950 | |||||||||||||||||||||
Accumulated deficit |
(4,868 | ) | (400 | ) | (300 | ) | (1,200 | ) | (6,768 | ) | (1,700 | ) | (8,468 | ) | ||||||||||||||
Total shareholders equity |
693,480 | (400 | ) | (300 | ) | (1,200 | ) | 691,580 | (1,700 | ) | 689,880 | |||||||||||||||||
Non-controlling interest |
1,256 | | | | 1,256 | | 1,256 | |||||||||||||||||||||
Total equity |
694,736 | (400 | ) | (300 | ) | (1,200 | ) | 692,836 | (1,700 | ) | 691,136 | |||||||||||||||||
Total liabilities and equity |
$ | 750,518 | $ | 1,329 | $ | 518 | $ | 56,013 | $ | 808,378 | $ | 40,300 | $ | 848,678 | ||||||||||||||
Footnotes: | ||
(1) | Reflects the purchase of the Skamania Lodge as if it had occurred on September 30, 2010 for $55,750. The pro forma adjustment reflects the following: Purchase of land, building, and furniture, fixtures and equipment of $55,750; Cash paid of $400 for hotel acquisition costs; and Net working capital deficit of $1,337. | |
(2) | Reflects the purchase of the Sheraton Delfina Santa Monica Hotel as if it had occurred on September 30, 2010 for $102,750. The pro forma adjustment reflects the following: Purchase of land, building, and furniture, fixtures and equipment of $102,750; Cash paid of $300 for hotel acquisition costs; and Net working capital deficit of $517. | |
(3) | Reflects the purchase of South 17th Street OwnerCo, LLC and 17th Street LeaseCo LLC, the entities that own the Sofitel Philadelphia Hotel, as if it had occurred on September 30, 2010 for $86,986. The acquisition was funded with $30,916 cash and assumption of a $56,070 mortgage debt. The pro forma adjustment reflects the following: Purchase of land, building, and furniture, fixtures and equipment of $86,986; Cash paid of $1,200 for hotel acquisition costs; and Net working capital of $653. | |
(4) | Reflects the probable acquisition of the Argonaut Hotel San Francisco as if it had occurred on September 30, 2010 for $84,000. The acquisition, if consummated, will be funded with a combination of available cash and the assumption of existing debt of $42,000. The pro forma adjustment reflects the following estimates: Purchase of land, building, and furniture, fixtures and equipment of $84,000; Assumption of existing mortgage debt of $42,000; and Cash paid of $1,700 for hotel acquisition costs. |
Pebblebrook Hotel Trust
Unaudited Proforma Income Statement
For the nine months ended September 30, 2010
(in thousands, except share and per share data)
Unaudited Proforma Income Statement
For the nine months ended September 30, 2010
(in thousands, except share and per share data)
Completed Acquisitions | Probable Acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||
Pro Forma | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of | Pro Forma | Pebblebrook | ||||||||||||||||||||||||||||||||||||||||||||||||||
Doubletree | Pebblebrook | Hotel Trust | ||||||||||||||||||||||||||||||||||||||||||||||||||
Historical | Bethesda Hotel and | Acquisition of | Acquisition of | Acquisition of | Acquisition of | Acquisition of | Hotel Trust | Acquisition of | after | |||||||||||||||||||||||||||||||||||||||||||
Pebblebrook | Executive Meeting | Sir Francis | InterContinental | Hotel Monaco | Acquisition of | Sheraton Delfina | Sofitel Philadelphia | Pro Forma | before probable | Argonaut Hotel San | Pro Forma | probable | ||||||||||||||||||||||||||||||||||||||||
Hotel Trust | Center (1) | Drake Hotel (2) | Buckhead Hotel (3) | Washington DC (4) | Skamania Lodge (5) | Santa Monica Hotel (6) | Hotel (7) | Adjustments | acquisition | Francisco (15) | Adjustments | acquisition | ||||||||||||||||||||||||||||||||||||||||
REVENUE |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Room |
$ | 14,165 | $ | 4,404 | $ | 7,184 | $ | 8,639 | $ | 9,021 | $ | 6,149 | $ | 13,786 | $ | 10,356 | $ | | $ | 73,704 | $ | 11,214 | $ | | $ | 84,918 | ||||||||||||||||||||||||||
Food and beverage |
8,586 | 1,593 | 6,639 | 6,709 | 4,618 | 6,481 | 2,853 | 4,149 | | 41,628 | 3,481 | | 45,109 | |||||||||||||||||||||||||||||||||||||||
Other operating department |
1,102 | 233 | 1,039 | 1,029 | 425 | 2,603 | 1,072 | 867 | | 8,370 | 640 | | 9,010 | |||||||||||||||||||||||||||||||||||||||
Total revenues |
23,853 | 6,230 | 14,862 | 16,377 | 14,064 | 15,233 | 17,711 | 15,372 | | 123,702 | 15,335 | | 139,037 | |||||||||||||||||||||||||||||||||||||||
EXPENSES |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Hotel operating expenses: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Room |
4,067 | 854 | 3,320 | 2,552 | 2,304 | 1,483 | 3,178 | 3,159 | 11 | (8) | 20,928 | 3,187 | | 24,115 | ||||||||||||||||||||||||||||||||||||||
Food and beverage |
6,020 | 1,122 | 5,144 | 4,101 | 3,330 | 4,026 | 2,657 | 3,515 | | 29,915 | 2,450 | | 32,365 | |||||||||||||||||||||||||||||||||||||||
Other direct expenses |
493 | 150 | 557 | 304 | 304 | 599 | 617 | 769 | | 3,793 | 280 | | 4,073 | |||||||||||||||||||||||||||||||||||||||
Other indirect expenses |
6,651 | 2,162 | 4,437 | 3,624 | 4,261 | 4,411 | 6,161 | 4,370 | 451 | (8) | 36,528 | 3,731 | | 40,259 | ||||||||||||||||||||||||||||||||||||||
Total hotel operating expenses |
17,231 | 4,288 | 13,458 | 10,581 | 10,199 | 10,519 | 12,613 | 11,813 | 462 | 91,164 | 9,648 | | 100,812 | |||||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
2,260 | | | 1,988 | 491 | 1,752 | 1,347 | 2,203 | 2,896 | (9) | 12,937 | 883 | 869 | (9) | 14,689 | |||||||||||||||||||||||||||||||||||||
Real estate taxes, personal property taxes & insurance |
909 | 225 | 752 | 783 | 284 | 467 | 751 | 639 | | 4,810 | 845 | | 5,655 | |||||||||||||||||||||||||||||||||||||||
Ground rent |
11 | | | | 212 | | | | 165 | (10) | 388 | 1,038 | | 1,426 | ||||||||||||||||||||||||||||||||||||||
General and administrative |
5,371 | | | | | | | | | 5,371 | | | 5,371 | |||||||||||||||||||||||||||||||||||||||
Acquisition transaction costs |
4,811 | | | | | | | | (4,282 | )(11) | 529 | | | 529 | ||||||||||||||||||||||||||||||||||||||
Total operating expenses |
30,593 | 4,513 | 14,210 | 13,352 | 11,186 | 12,738 | 14,711 | 14,655 | (759 | ) | 115,199 | 12,414 | 869 | 128,482 | ||||||||||||||||||||||||||||||||||||||
Operating income (loss) |
(6,740 | ) | 1,717 | 652 | 3,025 | 2,878 | 2,495 | 3,000 | 717 | 759 | 8,503 | 2,921 | (869 | ) | 10,555 | |||||||||||||||||||||||||||||||||||||
Interest income |
2,513 | | | | | | | | (1,300 | )(12) | 1,213 | | (295 | )(12) | 918 | |||||||||||||||||||||||||||||||||||||
Interest expense |
(471 | ) | | (805 | ) | | (1,430 | ) | (1,396 | ) | (1,394 | ) | (670 | ) | 3,569 | (13) | (2,597 | ) | (1,832 | ) | | (4,429 | ) | |||||||||||||||||||||||||||||
Other income |
| | | | | (154 | ) | | 15 | | (139 | ) | | | (139 | ) | ||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes |
(4,698 | ) | 1,717 | (153 | ) | 3,025 | 1,448 | 945 | 1,606 | 62 | 3,028 | 6,980 | 1,089 | (1,164 | ) | 6,905 | ||||||||||||||||||||||||||||||||||||
Income tax benefit (expense) |
(23 | ) | | | | | | | | (399 | )(14) | (422 | ) | | (61 | )(14) | (483 | ) | ||||||||||||||||||||||||||||||||||
Net income (loss) |
$ | (4,721 | ) | $ | 1,717 | $ | (153 | ) | $ | 3,025 | $ | 1,448 | $ | 945 | $ | 1,606 | $ | 62 | $ | 2,629 | $ | 6,558 | $ | 1,089 | $ | (1,225 | ) | $ | 6,422 | |||||||||||||||||||||||
Loss per common share, basic and diluted |
$ | (0.19 | ) | $ | 0.16 | |||||||||||||||||||||||||||||||||||||||||||||||
Weighted average number of common shares, basic and diluted |
24,915,173 | (16) | 39,810,590 | |||||||||||||||||||||||||||||||||||||||||||||||||
Footnotes: | ||
(1) | Reflects the historical unaudited statement of operations of the Doubletree Bethesda Hotel and Executive Meeting Center from the beginning of the period presented through the date of acquisition. | |
(2) | Reflects the historical unaudited statement of operations of the Sir Francis Drake Hotel from the beginning of the period presented through the date of acquistion. | |
(3) | Reflects the historical unaudited statement of operations of the InterContinental Buckhead Hotel from the beginning of the period presented through the date of acquisition. | |
(4) | Reflects the historical unaudited statement of operations of the Hotel Monaco Washington DC from the beginning of the period presented through the date of acquisition. | |
(5) | Reflects the historical unaudited statement of operations of the Skamania Lodge from the beginning of the period presented through the date of acquisition. | |
(6) | Reflects the historical unaudited statement of operations of the Sheraton Delfina Santa Monica Hotel from the beginning of the period presented through the date of acquisition. | |
(7) | Reflects the historical unaudited combined statement of operations of South 17th Street OwnerCo, LLC and South 17th Street LeaseCo, LLC, the entities that own the Sofitel Philadelphia Hotel, from the beginning of the period presented through the date of acquisition. | |
(8) | Reflects adjustment to record management fee and related costs for the InterContinental Buckhead Hotel as no such fees or costs are included in the historical amounts presented because the hotel was self managed. | |
(9) | Reflects adjustment to depreciation expense based on the Companys cost basis in the acquired hotel properties and its accounting policy for depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 years for building and seven years for furniture, fixtures and equipment. | |
(10) | Reflects adjustment to amortize a ground lease intangible asset associated with the Hotel Monaco Washington DC resulting from the finalization of the purchase price allocation for this acquisition. | |
(11) | Reflects removal of acquisition costs associated with the acquisitions of the Doubletree Bethesda Hotel, Sir Francis Drake Hotel, InterContinental Buckhead Hotel, and the Hotel Monaco Washington DC. | |
(12) | Reflects removal of historical interest income associated with a reduction in cash invested in interest bearing accounts in conjunction with the completed acquisitions and the probable acquisition. | |
(13) | Reflects removal of historical interest expense associated with debt which was not assumed in conjunction with the acquisitions of the Sir Francis Drake Hotel, Skamania Lodge, and the Sheraton Delfina Hotel. | |
(14) | Reflects adjustment to record pro forma income taxes related to the Companys taxable REIT subsidiary subsequent to the hotel acquisitions. The Companys REIT subsidiarys pro forma pre-tax net income was $998 for the nine months ended September 30, 2010. The pro forma income tax was calculated using the Companys taxable REIT subsidiarys estimated effective tax rate of 40%. | |
(15) | Reflects the historical unaudited statement of operations of the Argonaut Hotel San Francisco. | |
(16) | Reflects number of common shares issued and outstanding as if the Companys IPO and private placement transactions and secondary offering had occurred on January 1, 2009 . |
Pebblebrook Hotel Trust
Unaudited Proforma Income Statement
For the year ended December 31, 2009
(in thousands, except share and per share data)
Unaudited Proforma Income Statement
For the year ended December 31, 2009
(in thousands, except share and per share data)
Completed Acquisitions | Probable Acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of | Acquisition of | Acquisition of | Pebblebrook | Pebblebrook | ||||||||||||||||||||||||||||||||||||||||||||||||
Historical | Doubletree Bethesda | Acquisition of | Acquisition of | Acquisition of | Acquisition of | Sheraton Delfina | Sofitel | Hotel Trust | Hotel Trust | |||||||||||||||||||||||||||||||||||||||||||
Pebblebrook | Hotel and Executive | Sir Francis | InterContinental | Hotel Monaco | Skamania | Santa Monica | Philadelphia | Pro Forma | before probable | Acquisition of Argonaut | Pro Forma | after probable | ||||||||||||||||||||||||||||||||||||||||
Hotel Trust | Meeting Center (1) | Drake Hotel (2) | Buckhead Hotel (3) | Washington DC (4) | Lodge (5) | Hotel (6) | Hotel (7) | Adjustments | acquisition | Hotel San Francisco (16) | Adjustments | acquisition | ||||||||||||||||||||||||||||||||||||||||
REVENUE |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Room |
$ | | $ | 11,119 | $ | 16,065 | $ | 16,188 | $ | 13,658 | $ | 6,644 | $ | 16,371 | $ | 14,575 | $ | | $ | 94,620 | $ | 13,218 | $ | | $ | 107,838 | ||||||||||||||||||||||||||
Food and beverage |
| 2,184 | 14,349 | 12,345 | 6,630 | 7,084 | 3,813 | 5,479 | | 51,884 | 4,613 | | 56,497 | |||||||||||||||||||||||||||||||||||||||
Other operating department |
| 2,406 | 2,063 | 2,077 | 688 | 3,145 | 1,872 | 1,080 | | 13,331 | 920 | | 14,251 | |||||||||||||||||||||||||||||||||||||||
Total revenues |
| 15,709 | 32,477 | 30,610 | 20,976 | 16,873 | 22,056 | 21,134 | | 159,835 | 18,751 | | 178,586 | |||||||||||||||||||||||||||||||||||||||
EXPENSES |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Hotel operating expenses: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Room |
| 2,143 | 6,970 | 4,775 | 3,446 | 1,632 | 4,018 | 4,189 | 17 | (8) | 27,190 | 3,781 | | 30,971 | ||||||||||||||||||||||||||||||||||||||
Food and beverage |
| 2,014 | 10,767 | 7,749 | 4,795 | 4,836 | 3,201 | 4,670 | | 38,032 | 3,202 | | 41,234 | |||||||||||||||||||||||||||||||||||||||
Other direct expenses |
| 648 | | | | 573 | 969 | 945 | | 3,135 | 348 | | 3,483 | |||||||||||||||||||||||||||||||||||||||
Other indirect expenses |
| 5,785 | 10,450 | 7,527 | 6,177 | 5,795 | 7,303 | 5,743 | 849 | (8) | 49,629 | 4,348 | | 53,977 | ||||||||||||||||||||||||||||||||||||||
Total hotel operating expenses |
| 10,590 | 28,187 | 20,051 | 14,418 | 12,836 | 15,491 | 15,547 | 866 | 117,986 | 11,679 | | 129,665 | |||||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
| 1,926 | 5,439 | 5,708 | 1,130 | 2,347 | 2,291 | 2,749 | (4,368 | )(9) | 17,222 | 1,176 | 1,160 | (9) | 19,558 | |||||||||||||||||||||||||||||||||||||
Real estate taxes, personal property taxes & insurance |
| 491 | 1,756 | 1,261 | 551 | 585 | 974 | 832 | | 6,450 | 1,152 | | 7,602 | |||||||||||||||||||||||||||||||||||||||
Ground rent |
| | | | 383 | | | | 220 | (10) | 603 | 1,324 | | 1,927 | ||||||||||||||||||||||||||||||||||||||
General and administrative |
262 | | | | | | | | 7,837 | (11) | 8,099 | | | 8,099 | ||||||||||||||||||||||||||||||||||||||
Acquisition transaction costs |
| | | | | | | | 6,182 | (12) | 6,182 | | 1,700 | (12) | 7,882 | |||||||||||||||||||||||||||||||||||||
Total operating expenses |
262 | 13,007 | 35,382 | 27,020 | 16,482 | 15,768 | 18,756 | 19,128 | 10,737 | 156,542 | 15,331 | 2,860 | 174,733 | |||||||||||||||||||||||||||||||||||||||
Operating income (loss) |
(262 | ) | 2,702 | (2,905 | ) | 3,590 | 4,494 | 1,105 | 3,300 | 2,006 | (10,737 | ) | 3,293 | 3,420 | (2,860 | ) | 3,853 | |||||||||||||||||||||||||||||||||||
Interest income |
115 | | | | | | | | (115 | )(13) | | | | | ||||||||||||||||||||||||||||||||||||||
Interest expense |
| (2,638 | ) | (1,958 | ) | | (2,095 | ) | (2,116 | ) | (1,862 | ) | (936 | ) | 8,574 | (14) | (3,031 | ) | (2,449 | ) | | (5,480 | ) | |||||||||||||||||||||||||||||
Other income |
| 3 | 5 | | | (200 | ) | | 14 | | (178 | ) | | | (178 | ) | ||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes |
(147 | ) | 67 | (4,858 | ) | 3,590 | 2,399 | (1,211 | ) | 1,438 | 1,084 | (2,278 | ) | 84 | 971 | (2,860 | ) | (1,805 | ) | |||||||||||||||||||||||||||||||||
Income tax benefit (expense) |
| | | | | | | | (639 | )(15) | (639 | ) | (75 | )(15) | (714 | ) | ||||||||||||||||||||||||||||||||||||
Net income (loss) |
$ | (147 | ) | $ | 67 | $ | (4,858 | ) | $ | 3,590 | $ | 2,399 | $ | (1,211 | ) | $ | 1,438 | $ | 1,084 | $ | (2,917 | ) | $ | (555 | ) | $ | 971 | $ | (2,935 | ) | $ | (2,519 | ) | |||||||||||||||||||
Loss per common share, basic and diluted |
$ | (0.04 | ) | $ | (0.06 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Weighted average number of common shares, basic and diluted |
4,011,198 | (17) | 39,810,590 | |||||||||||||||||||||||||||||||||||||||||||||||||
Footnotes:
(1) | Reflects the historical audited statement of operations of the Doubletree Bethesda Hotel and Executive Meeting Center for the year ended December 31, 2009. | |
(2) | Reflects the historical audited statement of operations of the Sir Francis Drake Hotel for the year ended December 31, 2009. | |
(3) | Reflects the historical audited statement of operations of the InterContinental Buckhead Hotel for the year ended December 31, 2009. | |
(4) | Reflects the historical audited statement of operations of the Hotel Monaco Washington DC for the year ended December 31, 2009. | |
(5) | Reflects the historical audited statement of operations of the Skamania Lodge for the year ended December 31, 2009. | |
(6) | Reflects the historical audited statement of operations of the Sheraton Delfina Santa Monica Hotel for the year ended December 31, 2009. | |
(7) | Reflects the historical audited combined statement of operations of South 17th Street OwnerCo, LLC and South 17th Street LeaseCo, LLC, the entities that own the Sofitel Philadelphia Hotel, for the year ended December 31, 2009. | |
(8) | Reflects adjustment to record management fee and related costs for the InterContinental Buckhead Hotel as no such fees or costs are included in the historical amounts presented because the hotel was self managed. | |
(9) | Reflects adjustment to depreciation expense based on the Companys cost basis in the acquired hotel properties and its accounting policy for depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 years for building and seven years for furniture, fixtures and equipment. | |
(10) | Reflects adjustment to amortize a ground lease intangible asset associated with the Hotel Monaco Washington DC resulting from the finalization of the purchase price allocation for this acquisition. | |
(11) | Reflects adjustment to record full year corporate general and adminstrative expenses, including employee payroll and benefits, share-based compensation expense, board of trustee fees, investor relation costs, professional fees, and other costs. | |
(12) | Reflects adjustment to record transaction costs incurred to acquire the hotels. | |
(13) | Reflects removal of historical interest income associated with a reduction in cash invested in interest bearing accounts in conjunction with the acquisitions. | |
(14) | Reflects removal of historical interest expense associated with debt which was not assumed in conjunction with the acquisitions of the Doubletree Bethesda Hotel, Sir Francis Drake Hotel, Skamania Lodge, and the Sheraton Delfina Hotel. The InterContinental Buckhead Hotel did not have debt prior to acquisition. | |
(15) | Reflects adjustment to record pro forma income taxes related to the Companys taxable REIT subsidiary subsequent to the hotel acquisitions. The Companys taxable REIT subsidiarys pro forma pre-tax net income was $1,598 for the year ended December 31, 2009. The pro forma income tax was calculated using the Companys taxable REIT subsidiarys estimated effective tax rate of 40%. | |
(16) | Reflects the historical audited statement of operations of the Argonaut Hotel San Francisco for the year ended December 31, 2009. | |
(17) | Reflects number of common shares issued and outstanding as if the Companys IPO and private placement transactions and secondary offering had occurred on January 1, 2009 . |