Sotherly Hotels Inc. - FORM 8-K/A - EX-99.3

Attached files

file	filename
EX-99.4 - EX-99.4 - Sotherly Hotels Inc.	soho-ex994_108.htm
EX-99.2 - EX-99.2 - Sotherly Hotels Inc.	soho-ex992_106.htm
EX-23.1 - EX-23.1 - Sotherly Hotels Inc.	soho-ex231_178.htm
8-K/A - 8-K/A - Sotherly Hotels Inc.	soho-8ka_20150731.htm

Exhibit 99.3

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF SOTHERLY HOTELS INC.

On July 31, 2015, Sotherly Hotels Inc. (the “Company”) acquired the 75.0% interest in the entities that own the 311-room Crowne Plaza Hollywood Beach Resort (the “Hollywood Hotel”) for a purchase price of $26.3 million, plus customary pro-rated amounts and closing costs. The Company previously owned a 25.0% non-controlling interest in the Hollywood Hotel through a joint venture with an affiliate of The Carlyle Group. The existing mortgage loan secured by the Hollywood Hotel in the amount of $57.0 million issued by Bank of America, N.A. remains in place.

The following unaudited pro forma balance sheet as of March 31, 2015 reflects the acquisition of the Hollywood Hotel as if the acquisition had occurred on that date. The unaudited balance sheet also includes a pro forma adjustment for the common stock offering completed on July 1, 2015 as well as the underwriters’ exercise of their over-allotment option completed on July 17, 2015.

The following unaudited pro forma financial statements of operations for the three months ended March 31, 2015 and the year ended December 31, 2014, reflect the acquisition of the Hollywood Hotel and the completion of the common stock offering and underwriters’ exercise of their over-allotment option as if all had occurred on January 1, 2014. The unaudited pro forma financial statements of operations for the year ended December 31, 2014 also includes pro forma adjustments for the acquisition of The Georgian Terrace (acquired March 27, 2014), which is deemed to be a significant acquisition under Rule 3-05 of Regulation S-X, as if it had been completed on January 1, 2014.

The unaudited pro forma financial information does not purport to represent what the Company’s results of operations or financial condition would actually have been if the completion of these transactions had in fact occurred at the beginning of the periods presented, or to project the Company’s results of operations or financial condition for any future period. In addition, the unaudited financial information is based upon available information and upon assumptions and estimates, some of which are set forth in the notes to the unaudited pro forma financial statements, which the Company believes are reasonable under the circumstances. The unaudited pro forma financial information and accompanying notes should be read in conjunction with the Company’s audited financial statements included in its 2014 Annual Report on Form 10-K.

SOTHERLY HOTELS INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 2015

				Proforma Adjustments
	Historical Sotherly Hotels Inc.			Common Share Offering and Underwiters’ Over-Allotment (1)		Acquisition of the Hollywood Hotel (2)			Proforma Sotherly Hotels Inc.
ASSETS
Investment in hotel properties, net	$	261,129,988		$	—	$	91,665,211		$	352,795,199
Investment in joint venture		1,856,456			—		(1,856,456	)		—
Cash and cash equivalents		16,083,091			22,607,479		(25,466,939	)		13,223,631
Restricted cash		4,218,224			—		656,008			4,874,232
Accounts receivable, net		3,716,765			—		312,533			4,029,298
Accounts receivable-affiliate		242,214			—		(127,774	)		114,440
Prepaid expenses, inventory and other assets		4,149,439			—		639,320			4,788,759
Deferred income taxes		4,039,749			—		—			4,039,749
Deferred financing costs, net		5,048,275			—		—			5,048,275
TOTAL ASSETS	$	300,484,201		$	22,607,479	$	65,821,903		$	388,913,583
LIABILITIES
Mortgage loans, net with premium	$	204,131,986		$	—	$	57,259,156		$	261,391,142
Unsecured notes		52,900,000			—		—			52,900,000
Accounts payable and accrued liabilities		13,185,243			—		1,990,974			15,176,217
Advance deposits		1,772,219			—		408,398			2,180,617
Dividends and distributions payable		921,076			—		—			921,076
TOTAL LIABILITIES		272,910,524			—		59,658,528			332,569,052
Commitments and contingencies (see Note 7)
EQUITY
Sotherly Hotels Inc. stockholders’ equity
Preferred stock, par value $0.01, 972,350 shares authorized, 0 shares issued and outstanding		—			—		—			—
Common stock, par value $0.01, 49,000,000 shares authorized, 10,607,032 shares and 14,042,032 (pro forma) shares issued and outstanding		106,070			34,350		—			140,420
Additional paid in capital		58,930,475			22,573,129		—			81,503,604
Distributions in excess of retained earnings		(35,555,470	)		—		5,215,877			(30,339,593	)
Total Sotherly Hotels Inc. stockholders’ equity		23,481,075			22,607,479		5,215,877			51,304,431
Noncontrolling interest		4,092,602			—		947,498			5,040,100
TOTAL EQUITY		27,573,677			22,607,479		6,163,375			56,344,531
TOTAL LIABILITIES AND EQUITY	$	300,484,201		$	22,607,479	$	65,821,903		$	388,913,583

Notes:

(1)	Reflects the proceeds, net of underwriting fees and offering costs, from the Company’s common stock offering completed on July 1, 2015 as well as the underwriters’ exercise of their over-allotment option completed on July 17, 2015.

(2)	Reflects the acquisition of the 75.0% interest in the entities that own Hollywood Hotel as if it had occurred on March 31, 2015 for approximately $26.3 million. The pro forma adjustments reflect the following:

Assumption of the existing $57.0 million mortgage indebtedness;

Assumption of net working capital of approximately $2.2 million, inclusive of cash and cash equivalents of approximately $2.9 million;

A gain on change in control of unconsolidated subsidiaries of approximately $7.4 million;

Cash paid of approximately $0.5 million for acquisition costs.

SOTHERLY HOTELS INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2015

				Proforma Adjustments
	Historical Sotherly Hotels Inc.			Acquisition of the Hollywood Hotel (1)			Other Proforma Adjustments			Proforma Sotherly Hotels Inc.
REVENUE
Rooms department	$	21,336,414		$	5,744,329		$	—		$	27,080,743
Food and beverage department		7,726,807			871,287			—			8,598,094
Other operating departments		1,912,409			426,343			—			2,338,752
Total revenue		30,975,630			7,041,959			—			38,017,589
EXPENSES
Hotel operating expenses
Rooms department		5,842,940			952,598			—			6,795,538
Food and beverage department		5,405,385			637,728			—			6,043,113
Other operating departments		338,179			166,908			—			505,087
Indirect		11,468,343			2,169,747			(105,629	)(2)		13,532,461
Total hotel operating expenses		23,054,847			3,926,981			(105,629	)		26,876,199
Depreciation and amortization		2,904,391			444,576			142,790	(3)		3,491,757
Corporate general and administrative		1,451,224			127,145			—			1,578,369
Total operating expenses		27,410,462			4,498,702			37,161			31,946,325
NET OPERATING INCOME		3,565,168			2,543,257			(37,161	)		6,071,264
Other income (expense)
Interest expense		(3,774,535	)		(645,861	)		—			(4,420,396	)
Interest income		10,102			—			—			10,102
Equity income (loss) in joint venture		474,349			—			(474,349	)(4)		—
Net income before income taxes		275,084			1,897,396			(511,510	)		1,660,970
Income tax (provision) benefit		438,775			—			(329,234	)(5)		109,541
Net income		713,859			1,897,396			(840,744	)		1,770,511
Less: Net income attributable to the noncontrolling interest		(138,523	)		—			(133,843	)(6)		(272,366	)
Net income attributable to the Company	$	575,336		$	1,897,396		$	(974,587	)	$	1,498,145
Net income per share attributable to the Company
Basic and diluted (7)	$	0.05								$	0.11
Weighted average number of shares outstanding
Basic and diluted (7)		10,595,801									14,030,801

Notes:

(1)	Reflects the results of operations of the Hollywood Hotel for the three months ended March 31, 2015.

(2)	Reflects the adjustment to indirect operating expenses for the change in related-party management fee contracts.

(3)

Reflects adjustment to depreciation expense based on the Company’s cost basis in the acquired hotel and its accounting policy for depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the assets, generally 39 years for buildings and 3-10 years for furniture, fixtures and equipment.

(4)	Reflects reversal of the Company’s 25% equity interest in the Hollywood Hotel included in (1).

(5)	Reflects adjustment to record pro forma income taxes related to the Company’s taxable REIT subsidiary as if the acquisition had occurred on January 1, 2015.

(6)	Reflects adjustment to record the net income attributable to the noncontrolling interest as if the acquisition had occurred on January 1, 2015.

(7)	Reflects the increased weighted average number of basic and diluted shares outstanding as if the Company’s common stock offering as well as the underwriters’ exercise of their over-allotment option had occurred on January 1, 2015.

SOTHERLY HOTELS INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2014

				Proforma Adjustments
	Historical Sotherly Hotels Inc.			Acquisition of the Georgian Terrace (1)			Acquisition of the Hollywood Hotel (2)			Other Proforma Adjustments			Proforma Sotherly Hotels Inc.
REVENUE
Rooms department	$	84,618,889		$	2,847,867		$	15,386,595		$	—		$	102,853,351
Food and beverage department		31,444,984			1,513,374			2,968,395			—			35,926,753
Other operating departments		6,876,046			409,423			1,385,469			—			8,670,938
Total revenue		122,939,919			4,770,664			19,740,459			—			147,451,042
EXPENSES
Hotel operating expenses
Rooms department		22,913,479			918,717			3,270,929			—			27,103,125
Food and beverage department		21,026,202			1,293,937			2,270,918			—			24,591,057
Other operating departments		1,192,183			101,346			655,818			—			1,949,347
Indirect		45,072,491			1,273,867			7,436,199			(296,109	)(3)		53,486,448
Total hotel operating expenses		90,204,355			3,587,867			13,633,864			(296,109	)		107,129,977
Depreciation and amortization		11,969,284			513,031			2,116,211			344,726	(4)		14,943,252
Impairment of investment in hotel properties, net		3,175,000						—			—			3,175,000
Corporate general and administrative		5,085,949			—			148,873			(155,187	)(5)		5,079,635
Total operating expenses		110,434,588			4,100,898			15,898,948			(106,570	)		130,327,864
NET OPERATING INCOME		12,505,331			669,766			3,841,511			106,570			17,123,178
Other income (expense)
Interest expense		(14,636,870	)		(226,150	)		(2,612,032	)		(602,893	)(6)		(18,077,945	)
Interest income		19,865			—			—			—			19,865
Equity income (loss) in joint venture		307,370			—			—			(307,370	)(7)		—
Loss on extinguishment of debt		(831,079	)		—			—			—			(831,079	)
Gain on involuntary conversion of asset		169,151			—			—			—			169,151
Net (loss) before income taxes		(2,466,232	)		443,616			1,229,479			(803,693	)		(1,596,830	)
Income tax (provision) benefit		1,727,723			—			—			(151,072	)(8)		1,576,651
Net (loss)		(738,509	)		443,616			1,229,479			(954,765	)		(20,179	)
Add: Net loss attributable to the noncontrolling interest		153,838			—			—			(150,508	)(9)		3,330
Net (loss) attributable to the Company	$	(584,671	)	$	443,616		$	1,229,479		$	(1,105,273	)	$	(16,849	)
Net (loss) per share attributable to the Company
Basic and diluted (10)	$	(0.06	)										$	(0.00	)
Weighted average number of shares outstanding
Basic and diluted (10)		10,377,125												13,812,125

Notes:

(1)	Reflects the results of operations of The Georgian Terrace for the period prior to acquisition.

(2)	Reflects the results of operations of the Hollywood Hotel for the year ended December 31, 2014.

(3)	Reflects the adjustment to indirect operating expenses for the change in related-party management fee contracts.

(4)

(5)	Reflects removal of historical transactions costs related to the acquisition of The Georgian Terrace.

(6)	Reflects substitution of interest expense related to the debt incurred in order to consummate the acquisition of The Georgian Terrace for the historical interest expense related to debt not assumed in the acquisition.

(7)	Reflects reversal of the Company’s 25% equity interest in the Hollywood Hotel included in (1).

(8)	Reflects adjustment to record pro forma income taxes related to the Company’s taxable REIT subsidiary as if the acquisition had occurred on January 1, 2014.

(9)	Reflects adjustment to record the net income attributable to the noncontrolling interest as if the acquisition had occurred on January 1, 2014.

(10)	Reflects the increased weighted average number of basic and diluted shares outstanding as if the Company’s common stock offering as well as the underwriters’ exercise of their over-allotment option had occurred on January 1, 2014.

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