Carey Watermark Investors Inc - FORM 8-K/A - EX-99.2 - EXHIBIT 99.2 - June 2, 2015

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Exhibit 99.2

CAREY WATERMARK INVESTORS INCORPORATED

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Our pro forma condensed consolidated balance sheet as of December 31, 2014 has been prepared as if the significant transactions during the first quarter of 2015 (noted herein) had occurred as of December 31, 2014. Our pro forma condensed consolidated statement of operations for the year ended December 31, 2014 has been prepared based on our historical financial statements as if the significant investments and related financings had occurred on January 1, 2014. Pro forma adjustments are intended to reflect what the effect would have been had we held our ownership interest as of January 1, 2014 on amounts that have been recorded in our historical consolidated statement 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 consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2014. The pro forma information is not necessarily indicative of our financial condition had the significant transactions occurred on December 31, 2014, or results of operations had the significant transactions occurred on January 1, 2014, 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 pro forma condensed consolidated financial information.


 
1
 
 


CAREY WATERMARK INVESTORS INCORPORATED
 
 
 
 
 
 
 
 
 
 
 
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
December 31, 2014
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CWI
 
Westin
 
Westin
 
 
 
 
 
 
Historical
 
Minneapolis
 
Pasadena
 
Pro Forma
Assets
 
 
 
 
 
 
 
Investments in real estate:
 
 
 
 
 
 
 
 
Hotels, at cost
$
1,569,200

 
$
66,356

A
$
142,379

A
$
1,777,935

 
Accumulated depreciation
(59,903
)
 
—

 
—

 
(59,903
)
 
 
Net investments in hotels
1,509,297

 
66,356

 
142,379

 
1,718,032

Equity investments in real estate
13,177

 
—

 
—

 
13,177

Cash
330,811

 
(66,176
)
A
(141,738
)
A
247,171

 
 
 
 
43,500

A
88,500

A

 
 
 
(2,044
)
A
(4,360
)
A
 
 
 
 
 
 
 
(600
)
A
(250
)
A
 
 
 
 
 
 
 
(277
)
A
(195
)
A
 
Intangible assets, net
41,869

 
—

 
—

 
41,869

Accounts receivable
14,583

 
97

A
94

A
14,774

Restricted cash
61,624

 
600

A
250

A
62,474

Other assets
30,894

 
164

A
608

A
32,138

 
 
 
 
 
 
277

A
195

A

 
Total assets
$
2,002,255

 
$
41,897

 
$
85,483

 
$
2,129,635

 
 
 
 
 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Non-recourse debt
$
969,594

 
$
43,500

A
$
88,500

A
$
1,101,594

Accounts payable, accrued expenses and other liabilities
68,798

 
441

A
1,343

A
70,582

Due to related parties and affiliates
2,059

 
—

 
—

 
2,059

Distributions payable
14,859

 
—

 
—

 
14,859

 
Total liabilities
1,055,310

 
43,941

 
89,843

 
1,189,094

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
CWI stockholders’ equity:
 
 
 
 
 
 
 
Common stock
129

 
—

 
—

 
129

Additional paid-in capital
1,078,768

 
—

 
—

 
1,078,768

Distributions and accumulated losses
(142,123
)
 
(2,044
)
A
(4,360
)
A
(148,527
)
Accumulated other comprehensive loss
(517
)
 
—

 
—

 
(517
)
Less: treasury stock at cost
(3,000
)
 
—

 
—

 
(3,000
)
 
Total CWI stockholders’ equity
933,257

 
(2,044
)
 
(4,360
)
 
926,853

Noncontrolling interests
13,688

 
—

 
—

 
13,688

 
Total equity
946,945

 
(2,044
)
 
(4,360
)
 
940,541

 
Total liabilities and equity
$
2,002,255

 
$
41,897

 
$
85,483

 
$
2,129,635

 
 
 
 
 
 
 
 
 
 
 
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, 2014
(in thousands except share and per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro Forma Adjustments
(Including Pre-Acquisition Historical Amounts)
 
 
 
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
CWI
 
Westin
 
Westin
 
Average
 
 
 
 
 
 
Historical
 
Minneapolis
 
Pasadena
 
Shares
 
Pro Forma
Hotel Revenues
 
 
 
 
 
 
 
 
 
 
 
Rooms
$
248,987

 
$
11,574

B
$
20,930

B
 
 
$
281,491

 
 
Food and beverage
68,095

 
3,324

B
7,924

B
 
 
79,343

 
 
Other hotel income
30,997

 
220

B
511

B
 
 
31,728

 
 
 
Total Revenues
348,079

 
15,118

 
29,365

 
 
 
392,562

Operating Expenses
 
 
 
 
 
 
 
 
 
 
Hotel Expenses
 
 
 
 
 
 
 
 
 
 
 
Rooms
64,483

 
2,312

C
3,858

C
 
 
70,653

 
 
Food and beverage
50,666

 
2,641

C
5,233

C
 
 
58,540

 
 
Other hotel operating expenses
17,167

 
183

C
391

C
 
 
17,741

 
 
Sales and marketing
32,431

 
1,678

C
3,591

C
 
 
37,700

 
 
General and administrative
27,951

 
1,289

C
2,188

C
 
 
31,428

 
 
Repairs and maintenance
13,121

 
496

C
937

C
 
 
14,554

 
 
Utilities
10,524

 
420

C
862

C
 
 
11,806

 
 
Management fees
8,169

 
453

C
881

C
 
 
9,503

 
 
Property taxes, insurance and rent
24,920

 
1,093

C
1,851

C
 
 
27,864

 
 
Depreciation and amortization
46,358

 
2,385

C
4,931

C
 
 
53,674

 
 
 
Total Hotel Expenses
295,790

 
12,950

 
24,723

 
 
 
333,463

 
Other Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Acquisition-related expenses
25,899

 
(23
)
D
—


 
 
25,876

 
 
Corporate general and administrative expenses
11,845

 
—

 
—

 
 
 
11,845

 
 
Asset management fees to affiliate and other
7,329

 
337

E
768

E
 
 
8,434

 
 
 
Total Other Operating Expenses
45,073

 
314

 
768

 
 
 
46,155

Operating Income
7,216

 
1,854

 
3,874

 
 
 
12,944

Other Income and (Expenses)
 
 
 
 
 
 
 
 
 
 
Interest expense
(36,405
)
 
(1,619
)
F
(3,418
)
F
 
 
(41,442
)
 
Equity in losses of equity method investments in real
  estate
(731
)
 
—

 
—

 
 
 
(731
)
 
Other income
46

 
—

 
—

 
 
 
46

 
 
 
(37,090
)
 
(1,619
)
 
(3,418
)
 
 
 
(42,127
)
Loss from Operations Before Income Taxes
(29,874
)
 
235

 
456

 
 
 
(29,183
)
 
Provision for income taxes
(3,846
)
 
(214
)
G
(409
)
G
 
 
(4,469
)
Net Loss
(33,720
)
 
21

 
47

 
 
 
(33,652
)
 
Loss attributable to noncontrolling interests
988

 
—

 
—

 
 
 
988

Net Loss Attributable to CWI Stockholders
$
(32,732
)
 
$
21

 
$
47

 
 
 
$
(32,664
)
Basic and Diluted Net Loss Per Share
$
(0.38
)
 
 
 
 
 
 
 
$
(0.35
)
Basic and Diluted Weighted-Average Shares
  Outstanding
85,124,745

 
 
 
 
 
9,306,225

H
94,430,970

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


 
3
 
 


CAREY WATERMARK INVESTORS INCORPORATED

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Basis of Presentation

The pro forma condensed consolidated balance sheet as of December 31, 2014 and the pro forma condensed consolidated statement of operations for the year ended December 31, 2014 were derived from our historical audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Note 2. Pro Forma Adjustments

A. Investment

Westin Minneapolis

On February 12, 2015, we acquired Westin Minneapolis from HEI Hotels & Resorts, an unaffiliated third party, and acquired real estate and other hotel assets, net of assumed liabilities, totaling $66.2 million. The full-service hotel includes 214 guestrooms and is located in downtown Minneapolis, Minnesota. The hotel will continue to be managed by HEI Hotels & Resorts. In connection with this acquisition, we expensed acquisition costs of $2.0 million, including acquisition fees of $1.7 million paid to our advisor, which are reflected as a charge to distributions and accumulated losses in the pro forma condensed consolidated balance sheet as of December 31, 2014. We placed $0.6 million into lender-held escrow accounts in connection with planned renovations.

We acquired Westin Minneapolis through a wholly-owned subsidiary and obtained a non-recourse mortgage loan of $43.5 million, with an annual interest rate fixed at 3.63% and a maturity date of March 1, 2022. The loan is interest-only for 24 months.
We capitalized $0.3 million of deferred financing costs related to this loan.

Westin Pasadena

On March 19, 2015, we acquired Westin Pasadena from HEI Hotels & Resorts, an unaffiliated third party, and acquired real estate and other hotel assets, net of assumed liabilities, totaling $141.7 million. The full-service hotel includes 350 guestrooms and is located in downtown Pasadena, California. The hotel will continue to be managed by HEI Hotels & Resorts. In connection with this acquisition, we expensed acquisition costs of $4.4 million, including acquisition fees of $3.9 million paid to our advisor, which are reflected as a charge to distributions and accumulated losses in the pro forma condensed consolidated balance sheet as of December 31, 2014. We placed $0.3 million into lender-held escrow accounts in connection with general repair and maintenance of the hotel.

We acquired Westin Pasadena through a wholly-owned subsidiary and obtained a non-recourse mortgage loan of $88.5 million, with an annual interest rate fixed at 3.83% and a maturity date of May 1, 2022. The loan is interest-only for 48 months. We capitalized $0.2 million of deferred financing costs related to this loan.


 
4
 
 

Notes to Pro Forma Condensed Consolidated Financial Statements
 

The following table presents a summary of assets acquired and liabilities assumed in these business combinations, each at the date of acquisition (in thousands):
 
 
 
 
 
Westin
 
Westin
 
 
 
 
 
Minneapolis
 
Pasadena
Acquisition consideration
 
 
 
 
Cash consideration
$
66,176

 
$
141,738

Assets acquired at fair value:
 
 
 
 
Buildings
$
56,989

 
$
112,073

 
Land
6,405

 
22,785

 
Furniture, fixtures and equipment
2,846

 
7,379

 
Building and site improvements
116

 
142

 
Accounts receivable
97

 
94

 
Other assets
164

 
608

Liabilities assumed at fair value:

 
 
 
Accounts payable, accrued expenses, and other liabilities
(441
)
 
(1,343
)
 
 
Net assets acquired at fair value
$
66,176

 
$
141,738


B. Hotel Revenue

Pro forma adjustments for hotel revenue are derived from the historical financial statements of each of our investments. The following pro forma adjustments for the year ended December 31, 2014 represent the incremental hotel revenues that would have been incurred in addition to those presented in our historical financial statements (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Pre-Acquisition Historical
 
 
 
 
 
Year Ended December 31, 2014
 
 
 
 
 
Westin
 
Westin
 
 
 
 
 
Minneapolis
 
Pasadena
Rooms
$
11,574

 
$
20,930

Food and beverage
3,324

 
7,924

Other hotel income
220

 
511

 
$
15,118

 
$
29,365


 
5
 
 

Notes to Pro Forma Condensed Consolidated Financial Statements
 


C. 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 following pro forma adjustments for the year ended December 31, 2014 represent the incremental hotel expenses that would have been incurred in addition to those presented in our historical financial statements (in thousands):
 
 
 
 
 
Pre-Acquisition Historical
 
 
 
 
 
Year Ended December 31, 2014
 
 
 
 
 
Westin
 
Westin
 
 
 
 
 
Minneapolis
 
Pasadena
Rooms
$
2,312

 
$
3,858

Food and beverage
2,641

 
5,233

Other hotel operating expenses
183

 
391

General and administrative
1,289

 
2,188

Repairs and maintenance
496

 
937

Utilities
420

 
862

Property taxes, insurance and rent
1,093

 
1,851

 
$
8,434

 
$
15,320


Adjusted Hotel Expenses

Pro forma adjustments reflect depreciation and amortization of the acquired assets at fair value on a straight-line basis using the estimated useful lives if the properties (limited to 40 years for buildings and ranging generally from four years up to the remaining life of the building at the time of addition for building improvements), site improvements (generally four to 15 years) and furniture, fixtures and equipment (generally one to 12 years). Pro forma adjustments for sales and marketing and management fees reflect expenses resulting from franchise and management agreements, respectively, entered into upon acquisition. The following pro forma adjustments for the year ended December 31, 2014 represent the incremental hotel expenses that would have been incurred in addition to those presented in our historical financial statements (in thousands):

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2014
 
 
 
 
 
Westin
 
Westin
 
 
 
 
 
Minneapolis
 
Pasadena
Sales and marketing - pre-acquisition historical
$
1,678

 
$
3,190

Sales and marketing - pro forma adjustments
—

 
401

Sales and marketing - pro forma results
$
1,678

 
$
3,591

 
 
 
 
Management fees - pre-acquisition historical
$
453

 
$
959

Management fees - pro forma adjustments
—

 
(78
)
Management fees - pro forma results
$
453

 
$
881

 
 
 
 
 
 
 
 
Depreciation and amortization - pre-acquisition historical
$
1,082

 
$
3,208

Depreciation and amortization - pro forma adjustments
1,303

 
1,723

Depreciation and amortization - pro forma results
$
2,385

 
$
4,931


D. Acquisition-Related Expenses

Acquisition costs of less than $0.1 million related to the Westin Minneapolis transaction, which are non-recurring in nature, are reflected in our historical condensed consolidated statement of operations for the year ended December 31, 2014. We have

 
6
 
 

Notes to Pro Forma Condensed Consolidated Financial Statements
 

reflected a pro forma adjustment to exclude these non-recurring charges from 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 acquisition of investments occurred on January 1, 2014. The following pro forma adjustments for the year ended December 31, 2014 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
 
 
December 31, 2014

Westin Minneapolis
 
$
337

Westin Pasadena
 
768

 
 
$
1,105


F. Interest Expense

The following pro forma adjustments for the year ended December 31, 2014 represent the incremental interest expense that would have been incurred in addition to the amount presented in our historical financial statements (in thousands):

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2014
 
 
 
 
 
 
Westin
 
Westin
 
 
 
 
 
 
Minneapolis
 
Pasadena
Interest expense - pre-acquisition historical
 
$
874

 
$
2,096

Interest expense - pro forma adjustments
 
745

 
1,322

Interest expense - pro forma results
 
$
1,619

 
$
3,418


G. Provision for 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 acquisition of the investments occurred on January 1, 2014. The following pro forma adjustments for the year ended December 31, 2014 represent the expense that would have been incurred based on the new entity structure, as applicable (in thousands):
 
 
 
 
 
 
Year Ended
 
 
December 31, 2014
Westin Minneapolis
 
$
214

Westin Pasadena
 
409

 
 
$
623


H. 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, 2014.

 
7
 
 

Carey Watermark Investors Inc Reports