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EX-32 - EXHIBIT 32 - Carey Watermark Investors Inc | c17123exv32.htm |
EX-31.1 - EXHIBIT 31.1 - Carey Watermark Investors Inc | c17123exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - Carey Watermark Investors Inc | c17123exv31w2.htm |
EX-10.1 - EXHIBIT 10.1 - Carey Watermark Investors Inc | c17123exv10w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-54263
CAREY WATERMARK INVESTORS INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland | 26-2145060 | |
(State of incorporation) | (I.R.S. Employer Identification No.) | |
50 Rockefeller Plaza | ||
New York, New York | 10020 | |
(Address of principal executive office) | (Zip Code) |
Investor Relations (212) 492-8920
(212) 492-1100
(Registrants telephone numbers, including area code)
(212) 492-1100
(Registrants telephone numbers, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Registrant has 1,948,749 shares of common stock, $0.001 par value, outstanding at May 9, 2011.
INDEX
Page No. | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
10 | ||||||||
11 | ||||||||
11 | ||||||||
12 | ||||||||
12 | ||||||||
13 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q (the Report), including Managements Discussion and Analysis
of Financial Condition and Results of Operations in Item 2 of Part I of this Report, contains
forward-looking statements within the meaning of the federal securities laws. These forward-looking
statements generally are identified by the words believe, project, expect, anticipate,
estimate, intend, strategy, plan, may, should, will, would, will be, will
continue, will likely result, and similar expressions. It is important to note that our actual
results could be materially different from those projected in such forward-looking statements. You
should exercise caution in relying on forward-looking statements as they involve known and unknown
risks, uncertainties and other factors that may materially affect our future results, performance,
achievements or transactions. Information on factors which could impact actual results and cause
them to differ from what is anticipated in the forward-looking statements contained herein is
included in this report as well as in our other filings with the Securities and Exchange Commission
(the SEC), including but not limited to those described in Item 1A. Risk Factors in our Annual
Report on Form 10-K for the year ended December 31, 2010 as filed with the SEC on March 18, 2011
(the 2010 Annual Report). We do not undertake to revise or update any forward-looking statements.
Additionally, a description of our critical accounting estimates is included in the Managements
Discussion and Analysis of Financial Condition and Results of Operations section of our 2010 Annual
Report. There has been no significant change in our critical accounting estimates.
CWI 3/31/201110-Q 1
Table of Contents
PART I
Item 1. | Financial Statements |
CAREY WATERMARK INVESTORS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2011 | December 31, 2010 | |||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 13,024,305 | $ | 332,989 | ||||
Other assets, net |
6,672 | | ||||||
Total assets |
$ | 13,030,977 | $ | 332,989 | ||||
Liabilities and Equity |
||||||||
Liabilities: |
||||||||
Accounts payable, accrued expenses and other liabilities |
$ | 505,709 | $ | 190,752 | ||||
Due to affiliates |
487,318 | 45,500 | ||||||
Distributions payable |
40,908 | | ||||||
Total liabilities |
1,033,935 | 236,252 | ||||||
Commitments and contingencies (Note 4) |
||||||||
Equity |
||||||||
Common stock $0.001 par value; authorized 300,000,000 shares;
issued and outstanding, 1,452,098 and 23,222 shares, respectively |
1,452 | 23 | ||||||
Additional paid-in capital |
12,868,583 | 208,977 | ||||||
Accumulated deficit |
(1,058,618 | ) | (297,888 | ) | ||||
Total Carey Watermark Investors Incorporated shareholders equity |
11,811,417 | (88,888 | ) | |||||
Noncontrolling interest |
185,625 | 185,625 | ||||||
Total equity |
11,997,042 | 96,737 | ||||||
Total liabilities and equity |
$ | 13,030,977 | $ | 332,989 | ||||
See Notes to Consolidated Financial Statements.
CWI 3/31/201110-Q 2
Table of Contents
CAREY WATERMARK INVESTORS INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended | ||||
March 31, 2011 | ||||
Operating Expenses |
||||
General and administrative |
$ | (719,822 | ) | |
Net Loss |
$ | (719,822 | ) | |
Loss Per Share |
||||
Basic and diluted |
$ | (1.77 | ) | |
Weighted Average Shares Outstanding |
||||
Basic and diluted |
406,276 | |||
See Notes to Consolidated Financial Statements.
CWI 3/31/201110-Q 3
Table of Contents
CAREY WATERMARK INVESTORS INCORPORATED
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
Additional | Accumulated | Total CWI | Noncontrolling | |||||||||||||||||||||||||
Shares | Common Stock | Paid-In Capital | Deficit | Shareholders | Interest | Total | ||||||||||||||||||||||
Balance at January 1, 2010 |
1,000 | $ | 1 | $ | 8,999 | $ | (337 | ) | $ | 8,663 | $ | | $ | 8,663 | ||||||||||||||
Shares, $0.001 par value, issued to the
advisor at $9.00 per share |
22,222 | 22 | 199,978 | 200,000 | 200,000 | |||||||||||||||||||||||
Contributions from noncontrolling interest |
185,625 | 185,625 | ||||||||||||||||||||||||||
Net loss |
(297,551 | ) | (297,551 | ) | | (297,551 | ) | |||||||||||||||||||||
Balance at December 31, 2010 |
23,222 | 23 | 208,977 | (297,888 | ) | (88,888 | ) | 185,625 | 96,737 | |||||||||||||||||||
Net loss |
(719,822 | ) | (719,822 | ) | | (719,822 | ) | |||||||||||||||||||||
Shares issued, net of offering costs |
1,424,876 | 1,425 | 12,618,453 | 12,619,878 | 12,619,878 | |||||||||||||||||||||||
Stock-based compensation |
4,000 | 4 | 41,153 | 41,157 | 41,157 | |||||||||||||||||||||||
Distributions declared ($0.1000 per share) |
(40,908 | ) | (40,908 | ) | | (40,908 | ) | |||||||||||||||||||||
Balance at March 31, 2011 |
1,452,098 | $ | 1,452 | $ | 12,868,583 | $ | (1,058,618 | ) | $ | 11,811,417 | $ | 185,625 | $ | 11,997,042 | ||||||||||||||
See Notes to Consolidated Financial Statements.
CWI 3/31/201110-Q 4
Table of Contents
CAREY WATERMARK INVESTORS INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months | ||||
Ended March 31, | ||||
2011 | ||||
Cash Flows Operating Activities |
||||
Net loss |
$ | (719,822 | ) | |
Adjustments to net loss: |
||||
Stock-based compensation expense |
41,157 | |||
Increase in due to affiliates |
231,136 | |||
Net changes in other operating assets and liabilities |
314,958 | |||
Net cash used in operating activities |
(132,571 | ) | ||
Cash Flows Financing Activities |
||||
Proceeds from issuance of shares, net of offering costs |
12,823,887 | |||
Net cash provided by financing activities |
12,823,887 | |||
Change in Cash and Cash Equivalents During the Period |
||||
Net increase in cash and cash equivalents |
12,691,316 | |||
Cash and cash equivalents, beginning of period |
332,989 | |||
Cash and cash equivalents, end of period |
$ | 13,024,305 | ||
Noncash investing and financing activities: |
||||
(a) Noncash financing activities include $210,682 of offering costs paid by the advisor. |
See Notes to Consolidated Financial Statements.
CWI 3/31/201110-Q 5
Table of Contents
CAREY WATERMARK INVESTORS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Business
Organization
Carey Watermark Investors Incorporated (together with its consolidated subsidiaries, we, us, or
our) is a Maryland corporation formed in March 2008 for the purpose of acquiring, owning,
disposing of and, through our advisor, managing and seeking to enhance the value of, interests in
lodging and lodging related properties primarily in the United States (U.S.). We intend to
conduct substantially all of our investment activities and own all of our assets through CWI
OP, LP, our Operating Partnership. We are a general partner and a limited partner
and own a 99.985% capital interest in the Operating Partnership. Carey Watermark Holdings, LLC
(Carey Watermark Holdings), which is owned indirectly by W. P. Carey & Co. LLC (W. P. Carey)
and Watermark Capital Partners, LLC, holds a special general partner interest in the Operating
Partnership. We began operations on March 3, 2011.
We are managed by our advisor, Carey Lodging Advisors, LLC, a related party. Our advisor will
manage our overall portfolio, including providing oversight and strategic guidance to the
independent property operators that manage our properties. Our subadvisor, CWA, LLC, a subsidiary of Watermark Capital Partners, LLC, provides
services to the advisor primarily relating to acquiring, managing, financing and disposing of our
assets and overseeing the independent property operators that will manage the day-to-day operations
of our future properties. In addition, the subadvisor provides us with the services of our chief
executive officer during the term of the subadvisory agreement, subject to the approval of our
independent directors.
Public Offering
On September 15, 2010, our Registration Statement on Form S-11 (File No. 333-149899), covering an
initial public offering of up to 100,000,000 shares of common stock at $10.00 per share, was
declared effective under the Securities Act of 1933, as amended (the Securities Act). The
Registration Statement also covers the offering of up to 25,000,000 shares of common stock at $9.50
pursuant to our distribution reinvestment plan. Our initial public offering is being offered on a
best efforts basis by Carey Financial, LLC, an affiliate of the advisor (Carey Financial), and
other selected dealers. We intend to use the net proceeds of the offering to acquire, own and
manage a portfolio of interests in lodging and lodging related properties. While our core strategy
is focused on the lodging industry, we may also invest in other real estate property sectors.
On March 19, 2008, Carey REIT II, a wholly-owned subsidiary of W. P. Carey and an affiliate of our
advisor, purchased 1,000 shares of our common stock for $9,000 and was admitted as our initial
stockholder. Additionally, on August 16, 2010, we received a capital contribution of $200,000 in
cash from Carey REIT II in exchange for 22,222 shares of our common stock. Carey REIT II purchased
its shares at $9.00 per share, net of commissions and fees, which would have otherwise been payable
to Carey Financial. On October 13, 2010, Carey Watermark Holdings purchased a capital interest in
the Operating Partnership representing its special general partnership interest of 0.015% for
$185,625.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
Our interim consolidated financial statements have been prepared, without audit, in accordance with
the instructions to Form 10-Q and therefore do not necessarily include all information and
footnotes necessary for a fair statement of our consolidated financial position, results of
operations and cash flows in accordance with accounting principles generally accepted in the United
States (GAAP).
In the opinion of management, the unaudited financial information for the interim periods presented
in this Report reflects all normal and recurring adjustments necessary for a fair statement of
results of operations, financial position and cash flows. Operating results for interim periods are
not necessarily indicative of operating results for an entire fiscal year.
We had no significant operations as of March 31, 2011. Our operating expenses for the three months
ended March 31, 2011 consist solely of administrative expenses primarily related to personnel
related costs and legal and professional fees. Activity for the three months ended March 31, 2010
was nominal and, therefore, is not presented.
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts
in our consolidated financial statements and the accompanying notes. Actual results could differ
from those estimates.
CWI 3/31/201110-Q 6
Table of Contents
Notes to Consolidated Financial Statements
Basis of Consolidation
The consolidated financial statements reflect all of our accounts, including those of our
majority-owned and/or controlled subsidiaries. The portion of equity in a subsidiary that is not
attributable, directly or indirectly, to us is presented as noncontrolling interests. All
significant intercompany accounts and transactions have been eliminated.
The Financial Accounting Standards Board (FASB) has issued amended guidance related to the
consolidation of variable interest entities (VIEs). The amended guidance affects the overall
consolidation analysis, changing the approach taken by companies in identifying which entities are
VIEs and in determining which party is the primary beneficiary, and requires an enterprise to
qualitatively assess the determination of the primary beneficiary of a VIE based on whether the
entity (i) has the power to direct the activities that most significantly impact the economic
performance of the VIE and (ii) has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the VIE. The amended guidance changes
the consideration of kick-out rights in determining if an entity is a VIE. Additionally, the
guidance requires an ongoing reconsideration of the primary beneficiary and provides a framework
for the events that trigger a reassessment of whether an entity is a VIE.
We performed an analysis of all of our subsidiary entities to determine whether they qualify as
VIEs and whether they should be consolidated or accounted for as equity investments in an
unconsolidated venture. As a result of our assessment, we have concluded that none of our
subsidiaries is a VIE and all are consolidated under the voting model.
We account for the capital interest held by Carey Watermark Holdings in the Operating Partnership
as a noncontrolling interest. Carey Watermark Holdings special general partner interest will
entitle it to receive distributions of 10% of available cash generated by Operating Partnership
operations, subject to certain limitations. In addition, in the event of the dissolution of the
Operating Partnership, Carey Watermark Holdings will be entitled to receive distributions of up to
15% of net proceeds, provided certain return thresholds are met for the initial investors in the
Operating Partnership. There was no profit or loss allocated to this noncontrolling interest during
the periods presented because the Operating Partnership had minimal operations.
Cash and Cash Equivalents and Short-Term Investments
We consider all short-term, highly liquid investments that are both readily convertible to cash and
have a maturity of generally three months or less at the time of purchase to be cash equivalents.
Items to be classified as cash equivalents include commercial paper and money-market funds. Our
cash and cash equivalents are held in the custody of one financial institution and, these balances,
at times, exceed federally insurable limits. We mitigate this risk by depositing funds with major
financial institutions. Instruments that have a maturity of three months or more at the time of
purchase will be classified as short-term investments in the consolidated financial statements.
Federal Income Taxes
We intend to qualify as a real estate investment trust (REIT) under the Internal Revenue Code of
1986 (the Code) beginning with our taxable year ending December 31, 2011. In order to maintain
our qualification as a REIT, we will be required to, among other things, distribute at least 90% of
our REIT taxable income to our stockholders and meet certain tests regarding the nature of our
income and assets. Under the Code, REITs are subject to numerous organizational and operational
requirements including limitations on certain types of gross income. As a REIT, we generally will
not be subject to U.S. federal income tax on income that we distribute to stockholders as long as
we meet such requirements and distribute at least 90% of our net taxable income (excluding net
capital gains) on an annual basis. If we fail to qualify for taxation as a REIT for any taxable
year, our income will be taxed at regular corporate rates, and we may not be able to qualify for
treatment as a REIT for that year and the next four years. Even if we qualify as a REIT for U.S.
federal income tax purposes, we may be subject to state, local and foreign taxes on our income and
property and to income and excise taxes on our U.S. undistributed income.
We may elect to treat one or more of our corporate subsidiaries as a taxable REIT subsidiary
(TRS). In general, a TRS may perform additional services for our tenants and generally may engage
in any real estate or non-real estate related business (except for the operation or management of
health care facilities or lodging facilities or providing to any person, under a franchise, license
or otherwise, rights to any brand name under which any lodging facility or health care facility is
operated). A TRS is subject to corporate federal income tax.
CWI 3/31/201110-Q 7
Table of Contents
Notes to Consolidated Financial Statements
Organization and Offering Costs
The advisor has paid various organization and offering costs on our behalf, a portion of which we
became liable for under the advisory agreement on March 3, 2011 (see Notes 3 and 4). As funds are
raised, we accrue costs incurred in connection with the raising of capital as deferred offering
costs. Upon receipt of offering proceeds and reimbursement to the advisor for costs incurred, we
charge the deferred offering costs to shareholders equity as appropriate. Such reimbursements will
not exceed regulatory cost limitations. Organization costs will be expensed as incurred and will be
included in General and administrative expenses in the financial statements.
Stock-Based Compensation
We have granted restricted share units (RSUs) to certain employees of our subadvisor and
independent directors. Stock-based compensation expense for awards made to non-employees is based
on the fair value of the services received. Stock-based compensation expense for awards made to
directors is based on the grant date fair value estimated in accordance with current accounting
guidance for share-based payments. We recognize these compensation costs for only those shares
expected to vest on a straight-line basis over the requisite service period of the award. We
include stock-based compensation within General and administrative expense.
Acquisition Costs
We immediately expense all acquisition costs and fees associated with transactions deemed to be
business combinations, but we capitalize these costs for transactions deemed to be acquisitions of
an asset. To the extent we make investments that are deemed to be business combinations, our
results of operations will be negatively impacted by the immediate expensing of acquisition costs
and fees incurred. Subsequent to the acquisition, there will be a positive impact on our results of
operations through a reduction in depreciation expense over the estimated life of the properties.
During the three months ended March 31, 2011 we expensed $331,838 related to an acquisition that
was finalized during the second quarter of 2011.
Note 3. Agreements and Transactions with Related Parties
Effective September 15, 2010, we entered into a dealer manager agreement with Carey Financial,
whereby Carey Financial will receive a selling commission of up to $0.70 per share sold and a
dealer manager fee of up to $0.30 per share sold, a portion of which may be re-allowed to the
selected broker dealers. During the three months ended March 31, 2011, we began admitting
shareholders and sold 1,424,876 shares and reflected the related offering proceeds of $14,213,989
net of such commissions of $1,390,102.
Effective September 15, 2010, we entered into an advisory agreement with the advisor to perform
certain services for us, including managing the offering and our overall business, identification,
evaluation, negotiation, purchase and disposition of lodging related properties and the performance
of certain administrative duties. Pursuant to the advisory agreement, upon reaching the minimum
offering amount of $10,000,000 on March 3, 2011, we became obligated to reimburse the advisor for
all organization and offering costs incurred in connection with our offering, up to a maximum
amount (excluding selling commissions and the dealer manager fee) of 2% of the gross proceeds of
our offering and distribution reinvestment plan. Through March 31, 2011, the advisor has incurred
organization and offering costs on our behalf of approximately $73,598 and $3,722,587,
respectively. However at March 31, 2011, we were only obligated to pay $284,280 of these costs
because of the 2% limitation described above. The advisor will also receive acquisition fees of
2.5% of the total investment cost of the properties acquired and loans originated by us not to
exceed 6% of the aggregate contract purchase price of all investments and loans. We will also pay
the advisor an annual asset management fee equal to 0.50% of the aggregate average market value of
our investments. Carey Watermark Holdings an affiliate of the advisor, will receive a 10% interest
in distributions of available cash by the Operating Partnership and a subordinated interest of 15%
of the net proceeds from the sale, exchange or other disposition of operating partnership assets.
The advisor will also receive disposition fees of up to 1.5% of the contract sales price of a
property. We will also pay the advisor a loan refinancing fee of up to 1% of a refinanced loan, if
certain conditions described in our prospectus are met.
Additionally, effective September 15, 2010, the advisor entered into a subadvisory agreement with
the subadvisor, whereby the advisor will pay 20% of the aforementioned fees earned under the
advisory agreement to the subadvisor. In addition, the subadvisor owns a 20% interest in Carey
Watermark Holdings. For the three months ended March 31, 2011, we reimbursed the subadvisor for
personnel costs and other charges totaling $148,631.
CWI 3/31/201110-Q 8
Table of Contents
Notes to Consolidated Financial Statements
Note 4. Commitments and Contingencies
As of March 31, 2011, we were not involved in any material litigation.
We will be liable for certain expenses of the offering described in our prospectus, which include
filing, legal, accounting, printing and escrow fees, which are to be deducted from the gross
proceeds of the offering. We will reimburse Carey Financial or one of its affiliates for expenses
(including fees and expenses of its counsel) and for the costs of any sales and information
meetings of Carey Financials registered representatives or employees of one of its affiliates
relating to the offering. The total underwriting compensation to Carey Financial and other dealers
in connection with the offering shall not exceed limitations prescribed by the Financial Industry
Regulatory Authority, Inc. The advisor has agreed to be responsible for the repayment of (i)
organization and offering expenses (excluding selling commissions to Carey Financial with respect
to shares held by clients of it and selected dealers and fees paid and expenses reimbursed to
selected dealers) which exceed 2% of the gross proceeds of the offering and (ii) organization and
offering expenses (including selling commissions, fees and fees paid and expenses reimbursed to
selected dealers) which exceed 15% of the gross proceeds of the offering.
Note 5. Stock-Based Compensation
2010 Equity Incentive Plan and Directors Incentive Plan 2010 Incentive Plan
We maintain the 2010 Equity Incentive Plan, which authorizes the issuance of shares of our common
stock to non-employees. The 2010 Equity Incentive Plan provides for the grant of RSUs, performance
share units, and dividend equivalent rights. We also maintain the Directors Incentive Plan 2010
Incentive Plan which authorizes the issuance of shares of our common stock to our independent
directors. The Directors Incentive Plan 2010 Incentive Plan provides for the grant of RSUs and
performance share units. A maximum of 4,000,000 awards may be granted, in the aggregate, under
these two plans.
During the three months ended March 31, 2011, we issued 1,000 RSUs to each of our four independent
directors. The market value of these units, which vested immediately, was $40,000, which we
recognized as stock-based compensation expense. We also recognized $1,157 in amortization expense
related to 16,000 RSUs issued to employees of our subadvisor during March 2011. The non-employee
awards vest over three years.
Note 6. Acquisition
On May 5, 2011, we completed a joint venture investment with Ensemble Hotel Partners, LLC
(Ensemble), the owner of the leasehold interests in two waterfront hotel properties located in
Long Beach, CA: the Hotel Maya, a Doubletree by Hilton Hotel (the Hotel Maya); and the Residence
Inn Long Beach Downtown (the Residence Inn).
We acquired a 49% interest in the venture (the Venture) for $43,600,000, which includes our
allocable share of the Ventures debt and an acquisition fee of $1,085,000 payable to the advisor
and other transaction costs. The Ventures total capitalization, including partner equity and debt,
is approximately $88,000,000. We have the right, subject to certain conditions, to increase our
ownership in the Venture to 50%. Our investment was made in the form of a preferred equity interest
that carries a cumulative preferred dividend of 9.5% per year and is senior to Ensembles equity
interest.
Both properties are subject to mortgage financing. The financing on the Hotel Maya is a three-year,
$15,000,000 mortgage that bears interest at 6.5% per year. The financing on the Residence Inn is a
10-year, $32,000,000 mortgage that bears interest at 7.25% per year. The Venture is a guarantor of
the mortgage financing on the Hotel Maya. Ensemble has agreed to be responsible for, and has
indemnified us regarding, any and all amounts due under the guarantee. Our investment was financed
in part by a $4,000,000 loan from a subsidiary of W. P. Carey at a rate of 30-day London inter-bank offered rate (LIBOR) plus 2.5%
and with a maturity date of June 6, 2011.
As of the date of this Report, we have not completed our initial accounting for this acquisition,
including the determination of the fair value of the assets acquired and liabilities assumed.
Therefore, we are not yet able to present the pro forma impact on our earnings for the three months
ended March 31, 2011 and 2010.
CWI 3/31/201110-Q 9
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Managements discussion and analysis of financial condition and results of operations (MD&A) is
intended to provide the reader with information that will assist in understanding our financial
statements and the reasons for changes in certain key components of our financial statements from
period to period. MD&A also provides the reader with our perspective on our financial position and
liquidity, as well as certain other factors that may affect our future results. Our MD&A should be
read in conjunction with our 2010 Annual Report.
Business Overview
We were formed in March 2008 for the purpose of acquiring, owning, disposing of and, through our
advisor, managing and seeking to enhance the value of, interests in lodging and lodging related
properties, primarily in the U.S. We intend to qualify as a REIT and intend to conduct
substantially all of our investment activities and own all of our assets through our Operating
Partnership. We are a general partner and a limited partner and own approximately a 99.985% capital
interest in the Operating Partnership. Carey Watermark Holdings, an entity substantially all of
which is owned by CLA Holdings, LLC, Carey REIT II, Inc. and CWA, LLC holds a special general
partner interest in the Operating Partnership. Our advisor and the subadvisor will manage our
overall portfolio, including providing oversight and strategic guidance to the independent property
operators that will manage our future properties.
Significant Developments
Public Offering
On September 15, 2010, our Registration Statement on Form S-11 (File No. 333-149899), covering an
initial public offering of up to 100,000,000 shares of our common stock at $10.00 per share, was
declared effective under the Securities Act. The Registration Statement also covers the offering of
up to 25,000,000 shares of common stock at $9.50 per share pursuant to our distribution
reinvestment plan. Our initial public offering is being offered on a best efforts basis by Carey
Financial and other selected dealers. Since we began admitting shareholders on March 3, 2011 and
through May 10, 2011, we have raised more than $19,200,000.
We intend to use the net proceeds of the offering to acquire, own and manage a portfolio of
interests in lodging and lodging related properties. While our core strategy will be focused on the
lodging industry, we may also invest in other real estate property sectors.
Subsequent Events
On May 5, 2011, we completed a joint venture investment with Ensemble, the owner of the leasehold
interests in two waterfront hotel properties located in Long Beach, CA: the Hotel Maya; and the
Residence Inn (see Note 6).
We acquired a 49% interest in the Venture for $43,600,000, which includes our allocable share of
the Ventures debt and an acquisition fee of $1,085,000 payable to the advisor and other
transaction costs. The Ventures total capitalization, including partner equity and debt, is
approximately $88,000,000. We have the right, subject to certain conditions, to increase our
ownership in the Venture to 50%. Our investment was made in the form of a preferred equity interest
that carries a cumulative preferred dividend of 9.5% per year and is senior to Ensembles equity
interest.
Both properties are subject to mortgage financing. The financing on the Hotel Maya is a three-year,
$15,000,000 mortgage that bears interest at 6.5% per year. The financing on the Residence Inn is a
10-year, $32,000,000 mortgage that bears interest at 7.25% per year. The Venture is a guarantor of
the mortgage financing on the Hotel Maya. Ensemble has agreed to be responsible for, and has
indemnified us regarding, any and all amounts due under the guarantee. Our investment was financed
in part by a $4,000,000 loan from a subsidiary of W. P. Carey at a rate of 30-day LIBOR plus 2.5%
and with a maturity date of June 6, 2011.
Results of Operations
We are a newly formed company and have no significant operating history. We are dependent upon
proceeds received from the offering to conduct our proposed activities. In addition, we did not own
any properties at March 31, 2011. The capital required to purchase any property will be obtained
from the offering proceeds and from any mortgage indebtedness that we may incur in connection with
the acquisition of any property or thereafter.
CWI 3/31/201110-Q 10
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We incurred a loss of $719,822 for three months ended March 31, 2011 representing general and
administrative costs which consist primarily of expenses related to our acquisition of $331,838,
expenses reimbursed to the subadvisor of $148,631, legal and
professional fees (including organization costs described below) of $139,257, directors fees of
$45,000, and non-cash stock-based compensation of $41,157. To date, these costs have been funded
primarily by advances from an affiliate of the advisor. Additionally, organization and offering
costs paid by the advisor were $73,598 and $3,722,587, respectively, through March 31, 2011.
Pursuant to our advisory agreement as described in Note 3, on March 3, 2011, we became liable for
the organization costs of $73,598 and $210,682 of the offering costs paid by the advisor on our
behalf. As of the date of this Report, we have no commitments to acquire any property or to make
any other material capital expenditures.
Financial Condition
Liquidity would be affected adversely by unanticipated costs and greater-than-anticipated operating
expenses. To the extent that the working capital reserve is insufficient to satisfy our cash
requirements, additional funds may be provided from cash generated from operations or through
short-term borrowings. In addition, subject to limitations described in our prospectus, we may
incur indebtedness in connection with the acquisition of any property, refinance the debt thereon,
arrange for the leveraging of any previously unfinanced property or reinvest the proceeds of
financings or refinancings in additional properties.
If we qualify as a REIT, we will not be subject to U.S. federal income taxes on amounts distributed
to stockholders provided we meet certain conditions, including distributing at least 90% of our
taxable income to stockholders. Our objectives are to pay quarterly distributions at an increasing
rate, to increase equity in our real estate through regular mortgage principal payments and to own
a geographically diversified portfolio of lodging properties that will increase in value. Our
distributions may exceed our earnings and our cash flow from operating activities and may be paid
from borrowings, offering proceeds and other sources, without limitation, particularly during the
period before we have substantially invested the net proceeds from this offering.
As a REIT, we are allowed to own lodging properties but are prohibited from operating these
properties. In order to comply with applicable REIT qualification rules, we will enter into leases
for each of our lodging properties with the TRS lessees. The TRS lessees will in turn contract with
independent property operators that will manage day-to-day operations of our properties under the
oversight of the subadvisor.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We currently have limited exposure to financial market risks, including changes in interest rates.
We currently have no foreign operations and are not exposed to foreign currency fluctuations.
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
Our disclosure controls and procedures include our controls and other procedures designed to
provide reasonable assurance that information required to be disclosed in this and other reports
filed under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded,
processed, summarized and reported within the required time periods specified in the SECs rules
and forms and that such information is accumulated and communicated to management, including our
chief executive officer and chief financial officer, to allow timely decisions regarding required
disclosures. It should be noted that no system of controls can provide complete assurance of
achieving a companys objectives and that future events may impact the effectiveness of a system of
controls.
Our chief executive officer and chief financial officer, after conducting an evaluation, together
with members of our management, of the effectiveness of the design and operation of our disclosure
controls and procedures at March 31, 2011, have concluded that our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of March 31,
2011 at a reasonable level of assurance.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our most
recently completed fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
CWI 3/31/201110-Q 11
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PART II
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
We intend to use the net proceeds of the offering to acquire, own and manage a portfolio of
interests in lodging and lodging related properties. The use of proceeds from our initial public
offering of common stock, which commenced in March 2011 pursuant to a registration statement (No.
333-149899) that was declared effective in September 2010, was as follows at March 31, 2011:
Shares registered |
100,000,000 | |||
Aggregate price of offering amount registered |
$ | 1,000,000,000 | ||
Shares sold |
1,424,876 | |||
Aggregated offering price of amount sold |
$ | 14,248,760 | ||
Direct or indirect payments to directors, officers, general
partners of the issuer or their associates; to persons
owning ten percent or more of any class of equity
securities of the issuer; and to affiliates of the issuer |
(1,170,198 | ) | ||
Direct or indirect payments to others |
(423,913 | ) | ||
Net offering proceeds to the issuer after deducting expenses |
12,654,649 | |||
Temporary investments in cash and cash equivalents |
$ | 12,654,649 | ||
Item 6. | Exhibits |
The following exhibits are filed with this Report, except where indicated.
Exhibit No. | Description | |||
10.1 | Form of Employee Restricted Stock Unit Award |
|||
10.2 | Amended and Restated Limited Liability Company Operating Agreement of
Long Beach Hotel Properties, LLC, dated as of May 2, 2011, by and between
CWI Long Beach Hotels, LLC and LBHP-Ensemble Partners, LLC (Incorporated
by reference to Current Report on Form 8-K filed May 11, 2011) |
|||
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
CWI 3/31/201110-Q 12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Carey Watermark Investors Incorporated |
||||
Date: 05/12/11 | By: | /s/ Mark J. DeCesaris | ||
Mark J. DeCesaris | ||||
Chief Financial Officer (Principal Financial Officer) |
||||
Date: 05/12/11 | By: | /s/ Thomas J. Ridings, Jr. | ||
Thomas J. Ridings, Jr. | ||||
Chief Accounting Officer (Principal Accounting Officer) |
CWI 3/31/201110-Q 13
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EXHIBIT INDEX
The following exhibits are filed with this Report, except where indicated.
Exhibit No. | Description | |||
10.1 | Form of Employee Restricted Stock Unit Award |
|||
10.2 | Amended and Restated Limited Liability Company Operating Agreement of
Long Beach Hotel Properties, LLC, dated as of May 2, 2011, by and
between CWI Long Beach Hotels, LLC and LBHP-Ensemble Partners, LLC
(Incorporated by reference to Current Report on Form 8-K filed May 11,
2011) |
|||
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |