Carey Watermark Investors Inc - FORM 8-K/A - EX-99.4 - September 23, 2013

Attached files

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8-K/A - 8-K/A - Carey Watermark Investors Inca13-21117_18ka.htm
EX-99.1 - EX-99.1 - Carey Watermark Investors Inca13-21117_1ex99d1.htm
EX-99.3 - EX-99.3 - Carey Watermark Investors Inca13-21117_1ex99d3.htm
EX-99.2 - EX-99.2 - Carey Watermark Investors Inca13-21117_1ex99d2.htm

Exhibit 99.4

 

CAREY WATERMARK INVESTORS INCORPORATED

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 

Our pro forma condensed consolidated balance sheet as of June 30, 2013 has been prepared as if the significant transactions during the third quarter of 2013 (noted herein) had occurred as of June 30, 2013. Our pro forma condensed consolidated statements of operations for the year ended December 31, 2012 and six months ended June 30, 2013 have been prepared based on our historical financial statements as if the significant investments and related financings and significant disposition (noted herein) had occurred on January 1, 2012. Pro forma adjustments are intended to reflect what the effect would have been had we held our ownership interest as of January 1, 2012 on amounts that have been recorded in our historical condensed consolidated statements of operations. In our opinion, all adjustments necessary to reflect the effects of these investments have been made.

 

The pro forma condensed consolidated financial information should be read in conjunction with our historical condensed consolidated financial statements and notes thereto of our Annual Report on Form 10-K for the year ended December 31, 2012 and our Quarterly Report on Form 10-Q for the six months ended June 30, 2013. The pro forma information is not necessarily indicative of our financial condition had the significant transactions occurred on June 30, 2013, or results of operations had the significant transactions occurred on January 1, 2012, nor are they necessarily indicative of our financial position, cash flows or results of operations of future periods. In addition, the provisional accounting is preliminary and therefore subject to change. Any such changes could have a material effect on the financial statements.

 

1


 

CAREY WATERMARK INVESTORS INCORPORATED

 

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

June 30, 2013

(in thousands)

 

 

 

 

 

Pro Forma

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

 

Fairmont

 

 

 

 

 

CWI

 

Other 2013

 

Sonoma

 

 

 

 

 

Historical

 

Transactions

 

Mission Inn & Spa

 

Pro Forma

 

Assets

 

 

 

 

 

 

 

 

 

Investments in real estate:

 

 

 

 

 

 

 

 

 

Hotels, at cost

 

$

458,857

 

$

-

 

$

91,750

 A

$

550,607

 

Accumulated depreciation

 

(6,157)

 

-

 

-

 

(6,157)

 

Net investments in hotels

 

452,700

 

-

 

91,750

 

544,450

 

Equity investments in real estate

 

45,044

 

(20,818)

 A

-

 

24,226

 

Net investments in real estate

 

497,744

 

(20,818)

 

91,750

 

568,676

 

Cash

 

93,445

 

22,630

 A

(76,647)

 A

80,105

 

 

 

 

 

 

 

44,000

 A

 

 

 

 

 

 

 

 

(505)

 A

 

 

 

 

 

 

 

 

(2,818)

 A

 

 

Due from affiliates

 

25

 

-

 

-

 

25

 

Accounts receivable

 

1,828

 

-

 

75

 A

1,903

 

Restricted cash

 

11,835

 

-

 

-

 

11,835

 

Other assets

 

14,063

 

-

 

1,229

 A

15,797

 

 

 

 

 

-

 

505

 A

 

 

Total assets

 

$

618,940

 

$

1,812

 

$

57,589

 

$

678,341

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Non-recourse debt

 

$

297,373

 

$

-

 

$

44,000

 A

$

341,373

 

Accounts payable, accrued expenses and other liabilities

 

11,547

 

-

 

3,604

 A

15,151

 

Due to affiliates

 

2,862

 

-

 

-

 

2,862

 

Distributions payable

 

3,755

 

-

 

-

 

3,755

 

Total liabilities

 

315,537

 

-

 

47,604

 

363,141

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

CWI stockholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock

 

37

 

-

 

-

 

37

 

Additional paid-in capital

 

330,003

 

-

 

-

 

330,003

 

Distributions in excess of accumulated (losses) earnings

 

(27,710)

 

1,812

 A

(1,853)

 A

(27,751)

 

Accumulated other comprehensive income

 

882

 

-

 

-

 

882

 

Less, treasury stock at cost

 

(338)

 

-

 

-

 

(338)

 

Total CWI stockholders’ equity

 

302,874

 

1,812

 

(1,853)

 

302,833

 

Noncontrolling interests

 

529

 

-

 

12,803

 A

12,367

 

 

 

 

 

 

 

(965)

 A

 

 

Total equity

 

303,403

 

1,812

 

9,985

 

315,200

 

Total liabilities and equity

 

$

618,940

 

$

1,812

 

$

57,589

 

$

678,341

 

 

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

 

2


 

CAREY WATERMARK INVESTORS INCORPORATED

 

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

For the Year Ended December 31, 2012

(in thousands except share and per share amounts)

 

 

 

 

 

Pro Forma Adjustments (Including Pre-Acquisition Historical Amounts)

 

 

 

 

 

 

 

 

 

 

 

Fairmont

 

Weighted

 

 

 

 

 

CWI

 

2012

 

Other 2013

 

Sonoma

 

Average

 

 

 

 

 

Historical

 

Acquisitions

 

Transactions

 

Mission Inn & Spa

 

Shares

 

Pro Forma

 

Hotel Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Rooms

 

$

8,906

 

$

18,401

 B

$

56,546

 B

$

17,491

 B

 

 

$

101,344

 

Food and beverage

 

2,671

 

3,295

 B

5,376

 B

10,471

 B

 

 

21,813

 

Other hotel income

 

1,395

 

2,245

 B

2,960

 B

6,393

 B

 

 

12,993

 

Total Hotel Revenues

 

12,972

 

23,941

 

64,882

 

34,355

 

 

 

136,150

 

Other real estate income

 

64

 

-

 

-

 

-

 

 

 

64

 

Total Revenues

 

13,036

 

23,941

 

64,882

 

34,355

 

 

 

136,214

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Hotel Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Rooms

 

2,508

 

3,732

 C

12,315

 C

4,829

 C

 

 

23,384

 

Food and beverage

 

2,160

 

2,942

 C

4,512

 C

8,982

 C

 

 

18,596

 

Other hotel operating expenses

 

817

 

810

 C

1,506

 C

5,402

 C

 

 

8,535

 

General and administrative

 

1,269

 

2,339

 C

5,134

 C

3,529

 C

 

 

12,271

 

Sales and marketing

 

1,191

 

2,593

 C

7,210

 C

2,456

 C

 

 

13,450

 

Repairs and maintenance

 

679

 

963

 C

2,312

 C

1,312

 C

 

 

5,266

 

Utilities

 

635

 

807

 C

2,099

 C

1,006

 C

 

 

4,547

 

Management fees

 

199

 

749

 C

1,562

 C

1,031

 C

 

 

3,541

 

Property taxes, insurance and rent

 

676

 

1,038

 C

2,911

 C

1,194

 C

 

 

5,819

 

Depreciation and amortization

 

1,392

 

3,558

 C

9,884

 C

4,113

 C

 

 

18,947

 

Total Hotel Expenses

 

11,526

 

19,531

 

49,445

 

33,854

 

 

 

114,356

 

Other Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related expenses

 

5,549

 

(5,143)

 D

(97)

 D

-

 

 

 

309

 

Management expenses

 

689

 

-

 

-

 

-

 

 

 

689

 

Corporate general and administrative expenses

 

2,475

 

-

 

-

 

-

 

 

 

2,475

 

Asset management fees to affiliate

 

601

 

680

 E

1,419

 E

482

 E

 

 

3,182

 

Total Other Operating Expenses

 

9,314

 

(4,463)

 

1,322

 

482

 

 

 

6,655

 

Operating (Loss) Income

 

(7,804)

 

8,873

 

14,115

 

19

 

 

 

15,203

 

Other Income and (Expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from equity investments in real estate

 

1,611

 

(840)

 F

(1,812)

 F

-

 

 

 

(1,041)

 

Other income

 

85

 

-

 

-

 

-

 

 

 

85

 

Bargain purchase gain

 

3,809

 

(3,809)

 G

-

 

-

 

 

 

-

 

Interest expense

 

(1,199)

 

(3,090)

 H

(9,716)

 H

(1,797)

 H

 

 

(15,802)

 

 

 

4,306

 

(7,739)

 

(11,528)

 

(1,797)

 

 

 

(16,758)

 

(Loss) Income from Operations Before Income Taxes

 

(3,498)

 

1,134

 

2,587

 

(1,778)

 

 

 

(1,555)

 

Provision for income taxes

 

(344)

 

(101)

 I

(441)

 I

(50)

 I

 

 

(936)

 

Net (Loss) Income

 

(3,842)

 

1,033

 

2,146

 

(1,828)

 

 

 

(2,491)

 

Loss (income) attributable to noncontrolling interests

 

1,119

 

(259)

 J

-

 

1,828

 J

 

 

2,688

 

Net (Loss) Income Attributable to CWI Stockholders

 

$

(2,723)

 

$

774

 

$

2,146

 

$

-

 

 

 

$

197

 

Basic and Diluted Net (Loss) Income Per Share

 

$

(0.29)

 

 

 

 

 

 

 

 

 

$

0.01

 

Basic and Diluted Weighted Average Shares Outstanding

 

9,323,705

 

 

 

 

 

 

 

20,577,000

 K

29,900,705

 

 

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

 

3


 

CAREY WATERMARK INVESTORS INCORPORATED

 

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

For the Six Months Ended June 30, 2013

(in thousands except share and per share amounts)

 

 

 

 

 

Pro Forma Adjustments
(Including Pre-Acquisition Historical Amounts)

 

 

 

 

 

 

 

 

 

Fairmont

 

Weighted

 

 

 

 

 

CWI

 

Other 2013

 

Sonoma

 

Average

 

 

 

 

 

Historical

 

Transactions

 

Mission Inn & Spa

 

Shares

 

Pro Forma

 

Hotel Revenues

 

 

 

 

 

 

 

 

 

 

 

Rooms

 

$

26,185

 

$

14,649

 B

$

6,875

 B

 

 

$

47,709

 

Food and beverage

 

3,884

 

2,228

 B

4,189

 B

 

 

10,301

 

Other hotel income

 

2,245

 

1,148

 B

2,572

 B

 

 

5,965

 

Total Revenues

 

32,314

 

18,025

 

13,636

 

 

 

63,975

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Hotel Expenses

 

 

 

 

 

 

 

 

 

 

 

Rooms

 

5,985

 

3,484

 C

2,281

 C

 

 

11,750

 

Food and beverage

 

2,877

 

1,747

 C

3,963

 C

 

 

8,587

 

Other hotel operating expenses

 

1,077

 

566

 C

2,320

 C

 

 

3,963

 

General and administrative

 

2,722

 

1,482

 C

1,769

 C

 

 

5,973

 

Sales and marketing

 

3,466

 

1,488

 C

1,342

 C

 

 

6,296

 

Repairs and maintenance

 

1,254

 

628

 C

679

 C

 

 

2,561

 

Utilities

 

1,139

 

607

 C

471

 C

 

 

2,217

 

Management fees

 

710

 

317

 C

409

 C

 

 

1,436

 

Property taxes, insurance and rent

 

1,655

 

1,088

 C

648

 C

 

 

3,391

 

Depreciation and amortization

 

4,779

 

2,945

 C

2,056

 C

 

 

9,780

 

Total Hotel Expenses

 

25,664

 

14,352

 

15,938

 

 

 

55,954

 

Other Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related expenses

 

11,866

 

(11,313)

 D

(408)

 D

 

 

145

 

Management expenses

 

523

 

-

 

-

 

 

 

523

 

Corporate general and administrative expenses

 

1,847

 

-

 

-

 

 

 

1,847

 

Asset management fees to affiliate

 

951

 

395

 E

241

 E

 

 

1,587

 

Total Other Operating Expenses

 

15,187

 

(10,918)

 

(167)

 

 

 

4,102

 

Operating (Loss) Income

 

(8,537)

 

14,591

 

(2,135)

 

 

 

3,919

 

Other (Expenses) and Income

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from equity investments in real estate

 

482

 

(672)

 F

-

 

 

 

(190)

 

Interest expense

 

(3,836)

 

(3,331)

 H

(934)

 H

 

 

(8,101)

 

 

 

(3,354)

 

(4,003)

 

(934)

 

 

 

(8,291)

 

(Loss) Income from Operations Before Incomes Taxes

 

(11,891)

 

10,588

 

(3,069)

 

 

 

(4,372)

 

(Provision for) benefit from income taxes

 

(547)

 

(29)

 I

432

 I

 

 

(144)

 

Net (Loss) Income

 

(12,438)

 

10,559

 

(2,637)

 

 

 

(4,516)

 

Loss attributable to noncontrolling interests

 

78

 

-

 

2,637

 J

 

 

2,715

 

Net (Loss) Income Attributable to CWI Stockholders

 

$

(12,360)

 

$

10,559

 

$

-

 

 

 

$

(1,801)

 

Basic and Diluted Net Loss Per Share

 

$

(0.49)

 

 

 

 

 

 

 

$

(0.05)

 

Basic and Diluted Weighted Average Shares Outstanding

 

25,075,110

 

 

 

 

 

8,650,409

 K

33,725,519

 

 

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

 

4


 

CAREY WATERMARK INVESTORS INCORPORATED

 

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1. Basis of Presentation

 

The condensed consolidated statement of operations for the year ended December 31, 2012 was derived from our historical audited consolidated financial statements as of and for the year ended December 31, 2012, included in our Annual Report on Form 10-K for the year ended December 31, 2012. The pro forma condensed consolidated balance sheet as of June 30, 2013 and the pro forma condensed consolidated statement of operations for the six months ended June 30, 2013 were derived from the unaudited consolidated financial statements included in our Quarterly Report on Form 10-Q for the six months ended June 30, 2013.

 

Note 2. Historical Acquisitions

 

2012 Acquisitions

 

On May 31, 2012, June 8, 2012, July 9, 2012 and December 6, 2012, we acquired controlling interests in four hotels: Hampton Inn Boston Braintree, Hilton Garden Inn New Orleans French Quarter/CBD, Lake Arrowhead Resort and Spa, and Courtyard San Diego Mission Valley, respectively. Additionally, on October 3, 2012, we entered into the Westin Atlanta Venture, which we account for under the equity method of accounting (collectively, our “2012 Acquisitions”).

 

Our 2012 Acquisitions are reflected in our historical condensed consolidated statement of operations for the duration of the six months ended June 30, 2013 and for a portion of the year ended December 31, 2012, reflecting their results of operations from their respective dates of acquisition through the end of each period presented. We made pro forma adjustments (Note 3, adjustments B through K) to reflect the impact on our results of operations had these acquisitions been made on January 1, 2012.

 

Other 2013 Transactions

 

On February 14, 2013, March 12, 2013, May 29, 2013 and June 6, 2013, we acquired controlling interests in the Hilton Southeast Portfolio (which is comprised of five select-service hotels), the Courtyard Pittsburgh Shadyside, the Hutton Hotel Nashville and the Holiday Inn Manhattan 6th Avenue Chelsea, respectively (collectively, our “Other 2013 Acquisitions” and, with the disposition described below, the “Other 2013 Transactions”).

 

All of the transactions noted above are reflected in our historical condensed consolidated balance sheet at June 30, 2013 and, therefore, no pro forma adjustments to our historical condensed consolidated balance sheet as of June 30, 2013 were required. In addition, the transactions noted above are reflected in our historical condensed consolidated statement of operations for the six months ended June 30, 2013 reflecting their results of operations from their respective dates of acquisition through June 30, 2013. We made pro forma adjustments (Note 3, adjustments B through K) to reflect the impact on our results of operations had these acquisitions been made on January 1, 2012.

 

On July 17, 2013, we sold our 49% joint venture interest in the Long Beach Venture, comprising our share of all the assets and liabilities of the venture, to Ensemble Hotel Partners, LLC, our joint venture partner, for $22.6 million. The venture owned two hotels: the Hotel Maya, a DoubleTree by Hilton; and the Residence Inn Long Beach Downtown.

 

On August 13, 2013, we acquired the Marriott Raleigh City Center for $83.0 million and obtained a non-recourse mortgage loan of $51.5 million. Given the timing of this acquisition; however, it was not feasible to include pro forma financial information for this investment in this filing.

 

Note 3. Pro Forma Adjustments

 

A.  Investments and Disposition

 

Fairmont Sonoma Mission Inn & Spa

 

On July 10, 2013, we acquired through a wholly-owned subsidiary a 75% interest in a newly-formed joint venture owning the Fairmont Sonoma Mission Inn & Spa with Fairmont Hotels & Resorts, the property owner and an unaffiliated third party. The joint venture acquired real estate assets totaling $91.8 million. Our investment was made in the form of a preferred equity interest that carries a cumulative preferred dividend of 8.5% per year, which is payable after Fairmont Hotels & Resorts receives $150,000 in cumulative distributions. The resort will be

 

5


 

Notes to Pro Forma Condensed Consolidated Financial Statements

 

managed by Fairmont Hotels & Resorts (Maryland) LLC, an unrelated third party. In connection with this acquisition, we expensed acquisition costs of $2.8 million (including $1.0 attributable to noncontrolling interest), which are reflected as a charge to distributions in excess of accumulated losses in the pro forma condensed consolidated balance sheet as of June 30, 2013. The pro forma adjustment on the balance sheet at June 30, 2013 also reflects the fair value of the noncontrolling interest at the date of acquisition of $12.8 million. Our pro forma loss attributable to noncontrolling interests would be approximately $1.8 million and $2.6 million for the year ended December 31, 2012 and the six months ended June 30, 2013, respectively, based upon our preferred equity interest calculation.

 

The resort is currently undergoing a renovation that commenced, prior to our ownership, in September 2012 and is expected to total $8.4 million. The estimated remaining renovations of $2.6 million will be funded through our cash accounts and include $1.8 million to complete the refurbishment of guestrooms and public space, which is currently anticipated to be completed in the fourth quarter of 2013, and $0.8 million to complete the renovation of the spa, which is currently anticipated to be completed in the second quarter of 2014.

 

In connection with the acquisition, we obtained a mortgage loan of $44.0 million. The stated interest rate of one-month LIBOR plus 2.5% has effectively been fixed at approximately 4.1% through an interest rate swap agreement, maturing on July 10, 2018, which is the maturity date of the loan. We capitalized $0.5 million of deferred financing costs related to this loan.

 

Prior to our acquisition of the property, Fairmont Hotels & Resorts (the “Successor”) acquired the Fairmont Sonoma Mission Inn & Spa from SMI Real Estate, LLC (the “Predecessor”) on March 9, 2012.

 

The following table presents a summary of assets acquired in this business combination, at the date of acquisition (in thousands):

 

 

 

Fairmont

 

 

 

Sonoma

 

 

 

Mission Inn & Spa

 

Acquisition consideration

 

 

 

CWI Cash consideration

 

  $

76,647

 

Assets and liabilities acquired at fair value:

 

 

 

Land

 

  $

17,657

 

Building

 

66,423

 

Building and site improvements

 

-

 

Furniture, fixtures and equipment

 

7,670

 

Accounts receivable

 

75

 

Other assets

 

1,229

 

Accounts payable, accrued expenses, and other liabilities

 

(3,604

)

Investments in real estate

 

89,450

 

Contributions from noncontrolling interests

 

(12,803

)

 

 

  $

76,647

 

 

Other 2013 Transactions

 

On July 17, 2013, we sold our 49% joint venture interest in the Long Beach Venture, comprising our share of all the assets and liabilities of the venture, to Ensemble Hotel Partners, LLC, our joint venture partner, for $22.6 million. We made an adjustment to reflect a pro forma gain of approximately $1.8 million. The venture owned two hotels: the Hotel Maya, a DoubleTree by Hilton; and the Residence Inn Long Beach Downtown.

 

6


 

Notes to Pro Forma Condensed Consolidated Financial Statements

 

B.  Hotel Revenue

 

The pro forma adjustments related to our 2012 Acquisitions for the year ended December 31, 2012 represent the historical incremental revenues recognized by each property prior to our acquisition from January 1, 2012 to their respective acquisition dates. The pro forma adjustments related to our Other 2013 Acquisitions for the six months ended June 30, 2013 represent the historical incremental revenues recognized by each property prior to our acquisition from January 1, 2013 to their respective acquisition dates.

 

(Dollars in thousands)

 

 

 

Pre-Acquisition Historical

 

 

 

Year Ended December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

Other 2013

 

Fairmont Sonoma Mission Inn & Spa

 

 

 

Acquisitions

 

Acquisitions

 

Predecessor

 

Successor

 

Total

 

Rooms

 

$

18,401

 

$

56,546

 

$

1,639

 

$

15,852

 

$

17,491

 

Food and beverage

 

3,295

 

5,376

 

1,087

 

9,384

 

10,471

 

Other hotel income

 

2,245

 

2,960

 

914

 

5,479

 

6,393

 

 

 

$

23,941

 

$

64,882

 

$

3,640

 

$

30,715

 

$

34,355

 

 

(Dollars in thousands)

 

 

 

Pre-Acquisition Historical

 

 

 

Six Months Ended June 30, 2013

 

 

 

 

 

Fairmont Sonoma

 

 

 

Other 2013

 

Mission Inn & Spa

 

 

 

Acquisitions

 

(Successor)

 

Rooms

 

$

14,649

 

$

6,875

 

Food and beverage

 

2,228

 

4,189

 

Other hotel income

 

1,148

 

2,572

 

 

 

$

18,025

 

$

13,636

 

 

7


 

Notes to Pro Forma Condensed Consolidated Financial Statements

 

C.  Hotel Expenses

 

Pre-Acquisition Historical Hotel Expenses

 

Pro forma adjustments for hotel expenses are derived from the historical financial statements of each of our investments except for those related to depreciation and amortization, sales and marketing, and management fees as illustrated below. The pro forma adjustments related to our 2012 Acquisitions for the year ended December 31, 2012 represent the pre-acquisition historical incremental expenses recognized by each property prior to our acquisition from January 1, 2012 to their respective acquisition dates. The pro forma adjustments related to our Other 2013 Acquisitions for the six months ended June 30, 2013 represent the pre-acquisition historical incremental expenses recognized by each property prior to our acquisition from January 1, 2013 to their respective acquisition dates.

 

(Dollars in thousands)

 

 

 

Pre-Acquisition Historical

 

 

 

Year Ended December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

Other 2013

 

Fairmont Sonoma Mission Inn & Spa

 

 

 

Acquisitions

 

Acquisitions

 

Predecessor

 

Successor

 

Total

 

Rooms

 

$

3,732

 

$

12,315

 

$

777

 

$

4,052

 

$

4,829

 

Food and beverage

 

2,942

 

4,512

 

1,325

 

7,657

 

8,982

 

Other hotel operating expenses

 

810

 

1,506

 

1,037

 

4,365

 

5,402

 

General and administrative

 

2,339

 

5,134

 

550

 

2,979

 

3,529

 

Repairs and maintenance

 

963

 

2,312

 

281

 

1,031

 

1,312

 

Utilities

 

807

 

2,099

 

164

 

842

 

1,006

 

Property taxes, insurance and rent

 

1,038

 

2,911

 

173

 

1,021

 

1,194

 

 

 

$

12,631

 

$

30,789

 

$

4,307

 

$

21,947

 

$

26,254

 

 

(Dollars in thousands)

 

 

 

 

Pre-Acquisition Historical

 

 

 

Six Months Ended June 30, 2013

 

 

 

 

 

Fairmont Sonoma

 

 

 

Other 2013

 

Mission Inn & Spa

 

 

 

Acquisitions

 

(Successor)

 

Rooms

 

$

3,484

 

$

2,281

 

Food and beverage

 

1,747

 

3,963

 

Other hotel operating expenses

 

566

 

2,320

 

General and administrative

 

1,482

 

1,769

 

Repairs and maintenance

 

628

 

679

 

Utilities

 

607

 

471

 

Property taxes, insurance and rent

 

1,088

 

648

 

 

 

$

9,602

 

$

12,131

 

 

8


 

Notes to Pro Forma Condensed Consolidated Financial Statements

 

Adjusted Hotel Expenses

 

Pro forma adjustments reflect depreciation and amortization of the acquired assets at fair value on a straight-line basis using an estimated useful life not to exceed 40 years for building and building improvements, one to 11 years for furniture, fixtures and equipment and one to 15 years for intangible assets. Pro forma adjustments for sales and marketing and management fees reflect expenses resulting from franchise and management agreements entered into upon acquisition. The following pro forma adjustments for the year ended December 31, 2012 and the six months ended June 30, 2013 represent the incremental hotel expenses that would have been incurred in addition to those presented in our historical financial statements.

 

(Dollars in thousands)

 

 

 

Year Ended December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

Other 2013

 

Fairmont Sonoma Mission Inn & Spa

 

 

 

Acquisitions

 

Acquisitions

 

Predecessor

 

Successor

 

Total

 

Sales and marketing - pre-acquisition historical

 

$

2,573

 

$

6,341

 

$

380

 

$

2,076

 

$

2,456

 

Sales and marketing - pro forma adjustments

 

20

 

869

 

-

 

-

 

-

 

Sales and marketing - pro forma results

 

$

2,593

 

$

7,210

 

$

380

 

$

2,076

 

$

2,456

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees - pre-acquisition historical

 

$

740

 

$

2,147

 

$

100

 

$

845

 

$

945

 

Management fees - pro forma adjustments

 

9

 

(585)

 

90

 

(4)

 

86

 

Management fees - pro forma results

 

$

749

 

$

1,562

 

$

190

 

$

841

 

$

1,031

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization - pre-acquisition historical

 

$

2,702

 

$

8,614

 

$

1,024

 

$

1,417

 

$

2,441

 

Depreciation and amortization - pro forma adjustments

 

856

 

1,270

 

(267)

 

1,939

 

1,672

 

Depreciation and amortization - pro forma results

 

$

3,558

 

$

9,884

 

$

757

 

$

3,356

 

$

4,113

 

 

(Dollars in thousands)

 

 

 

Six Months Ended June 30, 2013

 

 

 

 

 

Fairmont Sonoma

 

 

 

Other 2013

 

Mission Inn & Spa

 

 

 

Acquisitions

 

(Successor)

 

Sales and marketing - pre-acquisition historical

 

$

1,565

 

$

1,342

 

Sales and marketing - pro forma adjustments

 

(77)

 

-

 

Sales and marketing - pro forma results

 

$

1,488

 

$

1,342

 

 

 

 

 

 

 

Management fees - pre-acquisition historical

 

$

597

 

$

375

 

Management fees - pro forma adjustments

 

(280)

 

34

 

Management fees - pro forma results

 

$

317

 

$

409

 

 

 

 

 

 

 

Depreciation and amortization - pre-acquisition historical

 

$

2,563

 

$

937

 

Depreciation and amortization - pro forma adjustments

 

382

 

1,119

 

Depreciation and amortization - pro forma results

 

$

2,945

 

$

2,056

 

 

D.  Acquisition-Related Expenses

 

Acquisition costs related to our 2012 Acquisitions, aggregating $5.1 million, are reflected in our historical condensed consolidated statement of operations for the year ended December 31, 2012. We have reflected a pro forma adjustment to exclude the total in our pro forma condensed consolidated statement of operations.

 

Acquisition costs related to our Other 2013 Acquisitions, aggregating $0.1 million and $11.3 million, are reflected in our historical condensed consolidated statement of operations for the year ended December 31, 2012 and six months ended June 30, 2013, respectively. We have reflected a pro forma adjustment to exclude the total in our pro forma condensed consolidated statement of operations.

 

9


 

Notes to Pro Forma Condensed Consolidated Financial Statements

 

The Successor incurred acquisition-related expenses of $0.6 million during the year ended December 31, 2012 in connection with its acquisition of the hotel on March 9, 2012. These expenses were included in Other Expenses in its historical financial statements and we have made a pro forma adjustment to remove these expenses as they are not considered recurring in nature. Additionally, acquisition costs of $0.4 million related to the Fairmont Sonoma Mission Inn & Spa transaction are reflected in our historical condensed consolidated statement of operations for the six months ended June 30, 2013. We have reflected a pro forma adjustment to exclude the total in our pro forma condensed consolidated statement of operations.

 

E.  Asset Management Fees

 

We pay our advisor an annual asset management fee equal to 0.50% of the aggregate average monthly market value of our investments. Pro forma adjustments for such fees are reflected in the accompanying pro forma condensed consolidated statement of operations in order to reflect what the fee would have been had the investments been made on January 1, 2012. The following pro forma adjustments for the year ended December 31, 2012 and the six months ended June 30, 2013 represent incremental asset management fees that would have been incurred in addition to asset management fees presented in our historical financial statements (in thousands):

 

 

 

Year Ended

 

Six Months Ended

 

 

 

December 31, 2012

 

June 30, 2013

 

2012 Acquisitions

 

$

680

 

$

-

 

Other 2013 Acquisitions

 

1,419

 

395

 

Fairmont Sonoma Mission Inn & Spa

 

482

 

241

 

 

 

$

2,581

 

$

636

 

 

F.  Net Income (Loss) from Equity Investments in Real Estate

 

Earnings for our equity method investments are recognized in accordance with each respective investment agreement and are based upon the allocation of the investment’s net assets at book value as if the investment were hypothetically liquidated at the end of each reporting period. Under the conventional approach to accounting for equity investments, an investor applies its percentage ownership interest to the venture’s net income to determine the investor’s share of the earnings or losses of the venture. This approach is not applicable if the venture’s capital structure gives different rights and priorities to its investors as it is difficult to describe an investor’s interest in a venture simply as a specified percentage. As we have priority return on our investments, we follow the hypothetical liquidation at book value method in determining our share of the ventures’ earnings or losses for the reporting period as this method better reflects our claim on the ventures’ book value at the end of each reporting period. Due to our preferred interests, we are not responsible for and will not reflect losses to the extent our partners continue to have equity in the investments.

 

2012 Acquisitions

 

Based on the hypothetical liquidation at book value method, our pro forma equity in the loss of the Westin Atlanta Venture would have been approximately $0.8 million for the period from January 1, 2012 through the date of acquisition.

 

Other 2013 Transactions

 

Income from the Long Beach Venture totaling $1.8 million and $0.7 million is reflected in our historical consolidated statement of operations for the year ended December 31, 2012 and the six months ended June 30, 2013, respectively. We have reflected pro forma adjustments to exclude these earnings from our respective pro forma condensed consolidated statements of operations.

 

10


 

Notes to Pro Forma Condensed Consolidated Financial Statements

 

G.  Bargain Purchase Gain

 

A bargain purchase gain of $3.8 million is included in our historical statement of operations for the year ended December 31, 2012 related to our acquisition of Lake Arrowhead Resort and Spa. We have reflected a pro forma adjustment to exclude this transaction-related gain in our pro forma condensed consolidated statement of operations, as this is not expected to have a recurring impact on us.

 

H.  Interest Expense

 

The following pro forma adjustments for the year ended December 31, 2012 and the six months ended June 30, 2013 represent the incremental interest expense that would have been incurred in addition to the amount presented in our historical financial statements.

 

(Dollars in thousands)

 

 

 

Year Ended December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

Other 2013

 

Fairmont Sonoma Mission Inn & Spa

 

 

 

Acquisitions

 

Acquisitions

 

Predecessor

 

Successor

 

Total

 

Interest expense - pre-acquisition historical

 

$

3,708

 

$

10,343

 

$

703

 

$

1,055

 

$

1,758

 

Interest expense - pro forma adjustments

 

(618)

 

(627)

 

(372)

 

411

 

39

 

Interest expense - pro forma results

 

$

3,090

 

$

9,716

 

$

331

 

$

1,466

 

$

1,797

 

 

(Dollars in thousands)

 

 

 

Six Months Ended June 30, 2013

 

 

 

 

 

Fairmont Sonoma

 

 

 

Other 2013

 

Mission Inn & Spa

 

 

 

Acquisitions

 

(Successor)

 

Interest expense - pre-acquisition historical

 

$

3,361

 

$

547

 

Interest expense - pro forma adjustments

 

(30)

 

387

 

Interest expense - pro forma results

 

$

3,331

 

$

934

 

 

I.  (Provision for) Benefit from Income Taxes

 

We have reflected pro forma adjustments related to each of our investments based upon estimated effective tax rates for each investment which take into account the fact that certain activities are taxable and other activities are pass-through items for income tax purposes. These pro forma adjustments reflect what the income tax provisions would have been had the investments been made on January 1, 2012. The following pro forma adjustments for the year ended December 31, 2012 and the six months ended June 30, 2013 represent the (expense) benefit that would have been incurred based on the new entity structure, as applicable (in thousands):

 

 

 

Year Ended

 

Six Months Ended

 

 

 

December 31, 2012

 

June 30, 2013

 

2012 Acquisitions

 

$

(101)

 

$

-

 

Other 2013 Acquisitions

 

(441)

 

(29)

 

Fairmont Sonoma Mission Inn & Spa

 

(50)

 

432

 

 

 

$

(592)

 

$

403

 

 

J.  Loss (Income) Attributable to Noncontrolling Interests

 

The combined pro forma adjustment to loss (income) attributable to noncontrolling interest related to our 2012 Acquisitions was $(0.3) million for the year ended December 31, 2012.

 

The pro forma adjustment to loss (income) attributable to noncontrolling interest related to the Fairmont Sonoma Mission Inn & Spa was $1.8 million and $2.6 million for the year ended December 31, 2012 and the six months ended June 30, 2013, respectively.

 

11


 

Notes to Pro Forma Condensed Consolidated Financial Statements

 

K.  Weighted Average Shares

 

The pro forma weighted average shares outstanding were determined as if the number of shares required to raise the funds used for each acquisition included in these pro forma condensed consolidated financial statements were issued on January 1, 2012.

 

12

Carey Watermark Investors Inc Reports