Attached files
| file | filename |
|---|---|
| 8-K/A - 8-K/A - Watermark Lodging Trust, Inc. | cwi22015q38-kaembassysuites.htm |
| EX-99.1 - EXHIBIT 99.1 - Watermark Lodging Trust, Inc. | cwi28-kaesdenverexh991.htm |
Exhibit 99.2
CAREY WATERMARK INVESTORS 2 INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Our pro forma condensed consolidated balance sheet as of September 30, 2015 has been prepared as if the significant transaction during the fourth quarter of 2015 (noted herein) had occurred as of September 30, 2015. Our pro forma condensed consolidated statements of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014 have been prepared based on our historical financial statements as if the significant transactions and related financings during the nine months ended September 30, 2015 had occurred on January 1, 2014. We were formed as a Maryland corporation on May 22, 2014, therefore, our historical statement of operations represents the results of operations from May 22, 2014 (Inception) to December 31, 2014. Pro forma adjustments are intended to reflect what the effect would have been had we held our ownership interests 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 for the nine months ended September 30, 2015 should be read in conjunction with our historical consolidated financial statements and notes thereto in our Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2015. The pro forma condensed consolidated financial information for the year ended December 31, 2014 should be read in conjunction with our historical consolidated financial statements for the period from Inception through December 31, 2014 included in our Registration Statement on Form S-11 (File No. 333-196681) filed on January 16, 2015. The pro forma information is not necessarily indicative of our financial condition had the significant transactions occurred on September 30, 2015, 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 2 INCORPORATED | ||||||||||||||
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) | ||||||||||||||
September 30, 2015 | ||||||||||||||
(in thousands) | ||||||||||||||
CWI 2 Historical | Embassy Suites Denver Downtown | Pro Forma | ||||||||||||
Assets | ||||||||||||||
Investments in real estate: | ||||||||||||||
Hotels, at cost | $ | 193,293 | $ | 169,884 | A | $ | 363,177 | |||||||
Accumulated depreciation | (3,489 | ) | — | (3,489 | ) | |||||||||
Net investments in hotels | 189,804 | 169,884 | 359,688 | |||||||||||
Equity investments in real estate | 38,672 | — | 38,672 | |||||||||||
Cash | 60,038 | (168,809 | ) | A | 62,045 | |||||||||
100,000 | A | |||||||||||||
(3,335 | ) | A | ||||||||||||
(4,856 | ) | A | ||||||||||||
(328 | ) | A | ||||||||||||
79,335 | B | |||||||||||||
Restricted cash | 7,551 | 3,335 | A | 10,886 | ||||||||||
Accounts receivable | 4,152 | 76 | A | 4,228 | ||||||||||
Other assets | 18,970 | 565 | A | 19,863 | ||||||||||
328 | A | |||||||||||||
Total assets | $ | 319,187 | $ | 176,195 | $ | 495,382 | ||||||||
Liabilities and Equity | ||||||||||||||
Liabilities: | ||||||||||||||
Non-recourse debt | $ | 108,700 | $ | 100,000 | A | $ | 208,700 | |||||||
Due to related parties and affiliates | 79,773 | — | 79,773 | |||||||||||
Accounts payable, accrued expenses and other liabilities | 15,800 | 1,716 | A | 17,516 | ||||||||||
Distributions payable | 577 | — | 577 | |||||||||||
Total liabilities | 204,850 | 101,716 | 306,566 | |||||||||||
Commitments and contingencies | ||||||||||||||
Equity: | ||||||||||||||
CWI 2 stockholders’ equity: | ||||||||||||||
Preferred stock | — | — | — | |||||||||||
Class A common stock | 4 | 8 | B | 12 | ||||||||||
Class T common stock | 6 | — | 6 | |||||||||||
Additional paid-in capital | 86,775 | 79,327 | B | 166,102 | ||||||||||
Distributions and accumulated losses | (7,450 | ) | (4,856 | ) | A | (12,306 | ) | |||||||
Accumulated other comprehensive loss | (87 | ) | — | (87 | ) | |||||||||
Total CWI 2 stockholders’ equity | 79,248 | 74,479 | 153,727 | |||||||||||
Noncontrolling interests | 35,089 | — | 35,089 | |||||||||||
Total equity | 114,337 | 74,479 | 188,816 | |||||||||||
Total liabilities and equity | $ | 319,187 | $ | 176,195 | $ | 495,382 | ||||||||
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements. | ||||||||||||||
2 | |
CAREY WATERMARK INVESTORS 2 INCORPORATED | |||||||||||||||||||||
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) | |||||||||||||||||||||
For the Nine Months Ended September 30, 2015 | |||||||||||||||||||||
(in thousands, except share and per share amounts) | |||||||||||||||||||||
Pro Forma Adjustments (Including Pre-Acquisition Historical Amounts) | |||||||||||||||||||||
CWI 2 Historical | Other 2015 Acquisitions | Embassy Suites Denver Downtown | Weighted Average Shares | Pro Forma | |||||||||||||||||
Hotel Revenues | |||||||||||||||||||||
Rooms | $ | 17,262 | $ | 8,934 | C | $ | 16,749 | C | $ | 42,945 | |||||||||||
Food and beverage | 10,165 | 6,458 | C | 4,542 | C | 21,165 | |||||||||||||||
Other hotel income | 4,084 | 1,799 | C | 1,500 | C | 7,383 | |||||||||||||||
Total Revenues | 31,511 | 17,191 | 22,791 | 71,493 | |||||||||||||||||
Operating Expenses | |||||||||||||||||||||
Hotel Expenses | |||||||||||||||||||||
Rooms | 3,550 | 1,858 | D | 3,010 | D | 8,418 | |||||||||||||||
Food and beverage | 6,801 | 3,804 | D | 2,215 | D | 12,820 | |||||||||||||||
Other hotel operating expenses | 2,000 | 877 | D | 519 | D | 3,396 | |||||||||||||||
Sales and marketing | 2,610 | 1,396 | D | 2,713 | D | 6,719 | |||||||||||||||
General and administrative | 2,446 | 1,416 | D | 1,361 | D | 5,223 | |||||||||||||||
Repairs and maintenance | 1,357 | 731 | D | 488 | D | 2,576 | |||||||||||||||
Utilities | 1,418 | 693 | D | 581 | D | 2,692 | |||||||||||||||
Management fees | 1,320 | 653 | D | 495 | D | 2,468 | |||||||||||||||
Property taxes, insurance, rent and other | 1,637 | 860 | D | 957 | D | 3,454 | |||||||||||||||
Depreciation and amortization | 3,489 | 1,740 | D | 3,316 | D | 8,545 | |||||||||||||||
Total Hotel Expenses | 26,628 | 14,028 | 15,655 | 56,311 | |||||||||||||||||
Other Operating Expenses | |||||||||||||||||||||
Acquisition-related expenses | 8,184 | (7,853 | ) | E | (122 | ) | E | 209 | |||||||||||||
Corporate general and administrative expenses | 1,541 | — | — | 1,541 | |||||||||||||||||
Asset management fees to affiliate and other | 681 | 526 | F | 719 | F | 1,926 | |||||||||||||||
Total Other Operating Expenses | 10,406 | (7,327 | ) | 597 | 3,676 | ||||||||||||||||
Operating (Loss) Income | (5,523 | ) | 10,490 | 6,539 | 11,506 | ||||||||||||||||
Other Income and (Expenses) | |||||||||||||||||||||
Interest expense | (2,518 | ) | (1,168 | ) | G | (2,993 | ) | G | (6,679 | ) | |||||||||||
Equity in earnings of equity method investment in real estate | 1,112 | 926 | H | — | 2,038 | ||||||||||||||||
Other income and (expenses) | (25 | ) | — | — | (25 | ) | |||||||||||||||
(1,431 | ) | (242 | ) | (2,993 | ) | (4,666 | ) | ||||||||||||||
(Loss) Income from Operations Before Income Taxes | (6,954 | ) | 10,248 | 3,546 | 6,840 | ||||||||||||||||
Benefit from (provision for) income taxes | 1,450 | (223 | ) | I | (303 | ) | I | 924 | |||||||||||||
Net (Loss) Income | (5,504 | ) | 10,025 | 3,243 | 7,764 | ||||||||||||||||
Income attributable to noncontrolling interest | (1,216 | ) | (703 | ) | J | — | (1,919 | ) | |||||||||||||
Net (Loss) Income Attributable to CWI 2 Stockholders | $ | (6,720 | ) | $ | 9,322 | $ | 3,243 | $ | 5,845 | ||||||||||||
Class A Common Stock | |||||||||||||||||||||
Net (loss) income attributable to CWI 2 Stockholders | $ | (2,989 | ) | $ | 5,275 | ||||||||||||||||
Basic and diluted weighted-average shares outstanding | 879,525 | 7,976,480 | K | 8,856,005 | |||||||||||||||||
Basic and Diluted Net (Loss) Income Per Share | $ | (3.40 | ) | $ | 0.60 | ||||||||||||||||
Class T Common Stock | |||||||||||||||||||||
Net (loss) income attributable to CWI 2 Stockholders | $ | (3,731 | ) | $ | 570 | ||||||||||||||||
Basic and diluted weighted-average shares outstanding | 1,076,930 | — | 1,076,930 | ||||||||||||||||||
Basic and Diluted Net (Loss) Income Per Share | $ | (3.46 | ) | $ | 0.53 | ||||||||||||||||
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements. | |||||||||||||||||||||
3 | |
CAREY WATERMARK INVESTORS 2 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) | |||||||||||||||||||||
CWI 2 Historical May 22, 2014 (Inception) through December 31, 2014 | Other 2015 Acquisitions | Embassy Suites Denver Downtown | Weighted Average Shares | Pro Forma | |||||||||||||||||
Hotel Revenues | |||||||||||||||||||||
Rooms | $ | — | $ | 31,983 | C | $ | 21,247 | C | $ | 53,230 | |||||||||||
Food and beverage | — | 20,929 | C | 5,538 | C | 26,467 | |||||||||||||||
Other hotel income | — | 6,060 | C | 1,658 | C | 7,718 | |||||||||||||||
Total Revenues | — | 58,972 | 28,443 | 87,415 | |||||||||||||||||
Operating Expenses | |||||||||||||||||||||
Hotel Expenses | |||||||||||||||||||||
Rooms | — | 6,791 | D | 4,251 | D | 11,042 | |||||||||||||||
Food and beverage | — | 12,738 | D | 2,911 | D | 15,649 | |||||||||||||||
Other hotel operating expenses | — | 3,348 | D | 674 | D | 4,022 | |||||||||||||||
Sales and marketing | — | 4,441 | D | 3,533 | D | 7,974 | |||||||||||||||
General and administrative | — | 5,478 | D | 1,805 | D | 7,283 | |||||||||||||||
Repairs and maintenance | — | 2,675 | D | 568 | D | 3,243 | |||||||||||||||
Utilities | — | 2,597 | D | 799 | D | 3,396 | |||||||||||||||
Management fees | — | 2,309 | D | 611 | D | 2,920 | |||||||||||||||
Property taxes, insurance, rent and other | — | 3,333 | D | 1,697 | D | 5,030 | |||||||||||||||
Depreciation and amortization | — | 6,255 | D | 4,422 | D | 10,677 | |||||||||||||||
Total Hotel Expenses | — | 49,965 | 21,271 | 71,236 | |||||||||||||||||
Other Operating Expenses | |||||||||||||||||||||
Corporate general and administrative expenses | 108 | — | — | 108 | |||||||||||||||||
Asset management fees to affiliate and other | — | 1,197 | F | 962 | F | 2,159 | |||||||||||||||
Total Other Operating Expenses | 108 | 1,197 | 962 | 2,267 | |||||||||||||||||
Operating (Loss) Income | (108 | ) | 7,810 | 6,210 | 13,912 | ||||||||||||||||
Other Income and (Expenses) | |||||||||||||||||||||
Interest expense | — | (5,263 | ) | G | (4,001 | ) | G | (9,264 | ) | ||||||||||||
Equity in earnings of equity method investment in real estate | — | 3,359 | H | — | 3,359 | ||||||||||||||||
— | (1,904 | ) | (4,001 | ) | (5,905 | ) | |||||||||||||||
(Loss) Income from Operations Before Income Taxes | (108 | ) | 5,906 | 2,209 | 8,007 | ||||||||||||||||
Provision for income taxes | — | (763 | ) | I | (378 | ) | I | (1,141 | ) | ||||||||||||
Net (Loss) Income | (108 | ) | 5,143 | 1,831 | 6,866 | ||||||||||||||||
Income attributable to noncontrolling interest | — | (511 | ) | J | — | (511 | ) | ||||||||||||||
Net (Loss) Income Attributable to CWI 2 Stockholders | $ | (108 | ) | $ | 4,632 | $ | 1,831 | $ | 6,355 | ||||||||||||
Class A Common Stock | |||||||||||||||||||||
Net (loss) income attributable to CWI 2 Stockholders | $ | (108 | ) | $ | 6,355 | ||||||||||||||||
Basic and diluted weighted-average shares outstanding | 22,222 | 7,972,905 | K | 7,995,127 | |||||||||||||||||
Basic and Diluted Net (Loss) Income Per Share | $ | (4.86 | ) | $ | 0.79 | ||||||||||||||||
Class T Common Stock | |||||||||||||||||||||
Net income attributable to CWI 2 Stockholders | $ | — | $ | — | |||||||||||||||||
Basic and diluted weighted-average shares outstanding | — | — | — | ||||||||||||||||||
Basic and Diluted Net Income Per Share | $ | — | $ | — | |||||||||||||||||
The accompanying notes are an integral part of these pro forma condensed consolidated financial statements. | |||||||||||||||||||||
4 | |
CAREY WATERMARK INVESTORS 2 INCORPORATED
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The pro forma condensed consolidated balance sheet as of September 30, 2015 and the pro forma condensed consolidated statement of operations for the nine months ended September 30, 2015 were derived from our historical consolidated financial statements included in our Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2015. The pro forma condensed consolidated statement of operations for the year ended December 31, 2014 was derived from our historical consolidated financial statements included in our Registration Statement on Form S-11 (File No. 333-196681) filed on January 16, 2015.
Note 2. Historical Acquisitions
Other 2015 Transactions
On April 1, 2015 and May 1, 2015, we acquired controlling interests in two hotels: Marriott Sawgrass Golf Resort & Spa and Courtyard Nashville Downtown, respectively. Additionally, on May 29, 2015, we acquired a noncontrolling interest in a joint venture that owns the Ritz-Carlton Key Biscayne hotel, which we account for under the equity method of accounting (collectively, our "Other 2015 Acquisitions").
All of the transactions noted above are reflected in our historical consolidated balance sheet at September 30, 2015 and, therefore, no pro forma adjustments to our historical consolidated balance sheet as of September 30, 2015 were required. In addition, the transactions noted above are reflected in our historical consolidated statement of operations for the nine months ended September 30, 2015 from their respective dates of acquisition through September 30, 2015. We made pro forma adjustments (Note 3, adjustments C through K) to reflect the impact on our results of operations had these acquisitions been made on January 1, 2014.
5 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
Note 3. Pro Forma Adjustments
A. Investment
Embassy Suites Denver Downtown
On November 4, 2015, we acquired the Embassy Suites Denver Downtown hotel from Cornerstone Real Estate Advisors, an unaffiliated third party, and acquired real estate and other hotel assets, net of assumed liabilities totaling $168.8 million, as detailed in the table that follows. The 403-room, all-suite hotel is located in Denver, Colorado. The hotel will continue to be managed by Sage Hospitality, an unaffiliated third party.
We acquired the Embassy Suites Denver Downtown through a wholly-owned subsidiary and obtained a non-recourse mortgage loan of $100.0 million, with a fixed interest rate of 3.9%. The loan is interest-only for 36 months and has a maturity date of December 1, 2022. We capitalized $0.3 million of deferred financing costs related to this loan.
The effect of an increase or decrease in interest rates of 1/8% on pro forma interest expense is $0.1 million for both the nine months ended September 30, 2015 and the year ended December 31, 2014.
In connection with this acquisition, we expensed acquisition costs of $4.9 million, including acquisition fees of $4.5 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 September 30, 2015. We placed $2.7 million into lender-held escrow accounts in connection with general repair and maintenance of the hotel and $0.6 million for property tax.
The following table presents a preliminary summary of assets acquired and liabilities assumed in these business combinations, at the date of acquisition (in thousands):
Embassy Suites Denver Downtown | |||||||
Acquisition consideration | |||||||
Cash consideration | $ | 168,809 | |||||
Assets acquired at fair value: | |||||||
Buildings | $ | 153,358 | |||||
Land | 13,000 | ||||||
Furniture, fixtures and equipment | 3,526 | ||||||
Accounts receivable | 76 | ||||||
Other assets | 565 | ||||||
Liabilities assumed at fair value: | |||||||
Accounts payable, accrued expenses and other | (1,716 | ) | |||||
Net assets acquired at fair value | $ | 168,809 | |||||
B. Fundraising
At September 30, 2015, we did not have sufficient cash on hand to acquire and commence operations of the Embassy Suites Denver Downtown; therefore, for pro forma purposes, we assumed we would have used offering proceeds of $79.3 million through the issuance of 8.0 million Class A shares to complete the transaction and maintain adequate working capital. We have reflected the cash proceeds as pro forma adjustments to our historical condensed consolidated balance sheet at September 30, 2015.
6 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
C. Hotel Revenue
Pro forma adjustments for hotel revenue are derived from the historical financial statements of our investments. The following pro forma adjustments for the nine months ended September 30, 2015 and the year ended December 31, 2014 represent the hotel revenues that would have been incurred in addition to those presented in our historical financial statements, when applicable (in thousands):
Pre-Acquisition Historical | |||||||
Nine Months Ended September 30, 2015 | |||||||
Other 2015 Acquisitions | Embassy Suites Denver Downtown | ||||||
Rooms | $ | 8,934 | $ | 16,749 | |||
Food and beverage | 6,458 | 4,542 | |||||
Other hotel income | 1,799 | 1,500 | |||||
$ | 17,191 | $ | 22,791 | ||||
Pre-Acquisition Historical | |||||||
Year Ended December 31, 2014 | |||||||
Other 2015 Acquisitions | Embassy Suites Denver Downtown | ||||||
Rooms | $ | 31,983 | $ | 21,247 | |||
Food and beverage | 20,929 | 5,538 | |||||
Other hotel income | 6,060 | 1,658 | |||||
$ | 58,972 | $ | 28,443 | ||||
D. Hotel Expenses
Pro forma adjustments for hotel expenses are derived from the historical financial statements of our investments except for those related to sales and marketing, management fees and depreciation and amortization, as illustrated below. The following pro forma adjustments for the nine months ended September 30, 2015 and the year ended December 31, 2014 represent the hotel expenses that would have been incurred in addition to those presented in our historical financial statements, when applicable (in thousands):
Pre-Acquisition Historical | |||||||
Nine Months Ended September 30, 2015 | |||||||
Other 2015 Acquisitions | Embassy Suites Denver Downtown | ||||||
Rooms | $ | 1,858 | $ | 3,010 | |||
Food and beverage | 3,804 | 2,215 | |||||
Other hotel operating expenses | 877 | 519 | |||||
General and administrative | 1,416 | 1,361 | |||||
Repairs and maintenance | 731 | 488 | |||||
Utilities | 693 | 581 | |||||
Property taxes, insurance, rent and other | 860 | 957 | |||||
$ | 10,239 | $ | 9,131 | ||||
7 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
Pre-Acquisition Historical | |||||||
Year Ended December 31, 2014 | |||||||
Other 2015 Acquisitions | Embassy Suites Denver Downtown | ||||||
Rooms | $ | 6,791 | $ | 4,251 | |||
Food and beverage | 12,738 | 2,911 | |||||
Other hotel operating expenses | 3,348 | 674 | |||||
General and administrative | 5,478 | 1,805 | |||||
Repairs and maintenance | 2,675 | 568 | |||||
Utilities | 2,597 | 799 | |||||
Property taxes, insurance, rent and other | 3,333 | 1,697 | |||||
$ | 36,960 | $ | 12,705 | ||||
Adjusted Hotel Expenses
Pro forma adjustments for sales and marketing and management fees reflect expenses resulting from franchise and management agreements, respectively, entered into upon acquisition, when applicable. Pro forma adjustments for depreciation and amortization reflect depreciation and amortization of the acquired assets at fair value on a straight-line basis using the estimated useful lives of 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). The following pro forma adjustments for the nine months ended September 30, 2015 and the year ended December 31, 2014 represent the hotel expenses that would have been incurred in addition to those presented in our historical financial statements, when applicable (in thousands):
Nine Months Ended September 30, 2015 | |||||||
Other 2015 Acquisitions | Embassy Suites Denver Downtown | ||||||
Sales and marketing - pre-acquisition historical | $ | 1,396 | $ | 2,713 | |||
Sales and marketing - pro forma adjustments | — | — | |||||
Sales and marketing - pro forma results | $ | 1,396 | $ | 2,713 | |||
Management fees - pre-acquisition historical | $ | 766 | $ | 526 | |||
Management fees - pro forma adjustments | (113 | ) | (31 | ) | |||
Management fees - pro forma results | $ | 653 | $ | 495 | |||
Depreciation and amortization - pre-acquisition historical | $ | 853 | $ | 4,036 | |||
Depreciation and amortization - pro forma adjustments | 887 | (720 | ) | ||||
Depreciation and amortization - pro forma results | $ | 1,740 | $ | 3,316 | |||
8 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
Year Ended December 31, 2014 | |||||||
Other 2015 Acquisitions | Embassy Suites Denver Downtown | ||||||
Sales and marketing - pre-acquisition historical | $ | 5,741 | $ | 3,533 | |||
Sales and marketing - pro forma adjustments | (1,300 | ) | — | ||||
Sales and marketing - pro forma results | $ | 4,441 | $ | 3,533 | |||
Management fees - pre-acquisition historical | $ | 3,481 | $ | 636 | |||
Management fees - pro forma adjustments | (1,172 | ) | (25 | ) | |||
Management fees - pro forma results | $ | 2,309 | $ | 611 | |||
Depreciation and amortization - pre-acquisition historical | $ | 6,303 | $ | 5,176 | |||
Depreciation and amortization - pro forma adjustments | (48 | ) | (754 | ) | |||
Depreciation and amortization - pro forma results | $ | 6,255 | $ | 4,422 | |||
E. Acquisition-Related Expenses
Acquisition costs of $7.9 million and $0.1 million related to Other 2015 Acquisitions and Embassy Suites Denver Downtown, respectively, which are non-recurring in nature, are reflected in our historical consolidated statement of operations for the nine months ended September 30, 2015. We have reflected pro forma adjustments to exclude these non-recurring charges from our pro forma condensed consolidated statement of operations.
F. Asset Management Fees
We pay our advisor an annual asset management fee equal to 0.55% of the aggregate average 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 nine months ended September 30, 2015 and 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):
Nine Months Ended | Year Ended | ||||
September 30, 2015 | December 31, 2014 | ||||
Other 2015 Acquisitions | 526 | 1,197 | |||
Embassy Suites Denver Downtown | 719 | 962 | |||
G. Interest Expense
The following pro forma adjustments for the nine months ended September 30, 2015 and year ended December 31, 2014 represent the incremental interest expense that would have been incurred in addition to the amounts presented in our historical financial statements (in thousands):
Nine Months Ended September 30, 2015 | |||||||
Other 2015 Acquisitions | Embassy Suites Denver Downtown | ||||||
Interest expense - pre-acquisition historical | $ | 1,015 | $ | 2,080 | |||
Interest expense - pro forma adjustments | 153 | 913 | |||||
Interest expense - pro forma results | $ | 1,168 | $ | 2,993 | |||
9 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
Year Ended December 31, 2014 | |||||||
Other 2015 Acquisitions | Embassy Suites Denver Downtown | ||||||
Interest expense - pre-acquisition historical | $ | 1,619 | $ | 2,916 | |||
Interest expense - pro forma adjustments | 3,644 | 1,085 | |||||
Interest expense - pro forma results | $ | 5,263 | $ | 4,001 | |||
H. Equity in Earnings of Equity Method Investment in Real Estate
Under the conventional approach of accounting for equity method 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 inappropriate to use if the venture’s capital structure gives different rights and priorities to its investors. We have a priority return on our equity method investment. Therefore, we follow the hypothetical liquidation at book value method in determining our share of the venture’s earnings or losses for the reporting period as this method better reflects our claim on the venture’s book value at the end of each reporting period. Earnings for our equity method investment are recognized in accordance with the investment agreement and, where applicable, based upon the allocation of the investment’s net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period.
Based upon the hypothetical liquidation at book value method, our adjustment to pro forma equity in earnings would have been $0.9 million and $3.4 million for the nine months ended September 30, 2015 the year ended December 31, 2014, respectively.
I. Provision for Income Taxes
We have reflected pro forma adjustments related to our investments based upon an estimated effective tax rate, which takes into account the fact that certain activities are taxable and other activities are pass-through items for income tax purposes. The following pro forma adjustments for the nine months ended September 30, 2015 and year ended December 31, 2014 reflect the incremental income tax provisions that would have been incurred, based on the new entity structure, in addition to the amounts presented in the historical financial statements, if any (in thousands):
Nine Months Ended September 30, 2015 | |||||||
Other 2015 Acquisitions | Embassy Suites Denver Downtown | ||||||
Provision for income taxes - pre-acquisition historical | $ | — | $ | — | |||
Provision for income taxes - pro forma adjustments | 223 | 303 | |||||
Provision for income taxes - pro forma results | $ | 223 | $ | 303 | |||
Year Ended December 31, 2014 | |||||||
Other 2015 Acquisitions | Embassy Suites Denver Downtown | ||||||
Benefit for income taxes - pre-acquisition historical | $ | (433 | ) | $ | — | ||
Provision for income taxes - pro forma adjustments | 1,196 | 378 | |||||
Provision for income taxes - pro forma results | $ | 763 | $ | 378 | |||
J. Income Attributable to Noncontrolling Interest
The pro forma adjustment to income attributable to noncontrolling interest related to CWI 1's ownership interest in the Marriott Sawgrass Golf Resort & Spa was $0.7 million and $0.5 million for the nine months ended September 30, 2015 and year ended December 31, 2014, respectively.
K. Weighted Average Shares
The pro forma weighted average shares outstanding were determined as if the number of shares required to raise the funds for the acquisition of Embassy Suites Denver Downtown included in these pro forma condensed consolidated financial statements were issued on January 1, 2014.
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