Attached files
| file | filename |
|---|---|
| 8-K - SUMMIT HOTEL PROPERTIES LLC | v197238_8k.htm |
SUMMIT
HOTEL PROPERTIES, LLC
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
SUMMIT
HOTEL PROPERTIES, LLC
Index to
Financial Statements
|
Page
|
|
|
REPORTS
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
1-3
|
|
FINANCIAL
STATEMENTS
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 (restated) and 2008
|
4
|
|
Consolidated
Statements of Operations for the years ended
|
|
|
December
31, 2009 (restated), 2008 and 2007
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5
|
|
Consolidated
Statements of Changes in Members’ Equity for the years
ended
|
|
|
December
31, 2009 (restated), 2008 and 2007
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6
|
|
Consolidated
Statements of Cash Flows for the years ended
|
|
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December
31, 2009 (restated), 2008 and 2007
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7-8
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Notes
to Consolidated Financial Statements
|
9-29
|
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Managers
Summit
Hotel Properties, LLC
Sioux
Falls, South Dakota
We have
audited the accompanying consolidated balance sheets of Summit Hotel Properties,
LLC (the “Company”) as of December 31, 2009 and 2008 and the related
consolidated statements of operations, changes in members’ equity and cash flows
for each of the years in the two year period ended December 31, 2009 and 2008.
The Company’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Summit Hotel
Properties, LLC as of December 31, 2009 and 2008, and the consolidated results
of its operations and its cash flows for each of the years in the two-year
period ended December 31, 2009 and 2008 in conformity with accounting principles
generally accepted in the United States of America.
As
discussed in Note 21 of the accompanying notes to the financial statements, the
financial statements for the year ended December 31, 2009 have been
restated.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Summit Hotel Properties, LLC’s internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 31,
2010, expressed an unqualified opinion on the Company’s internal control over
financial reporting.
/s/
Eide Bailly LLP
Greenwood
Village, Colorado
March 31,
2010 (except for Note 21which
is dated
September 21, 2010)
1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Managers
Summit
Hotel Properties, LLC
Sioux
Falls, South Dakota
We have
audited Summit Hotel Properties, LLC (the “Company”) internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Summit Hotel Properties, LLC management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Summit Hotel Properties, LLC maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets and the related
consolidated statements of operations, members’ equity, and cash flows of Summit
Hotel Properties, LLC, and our report dated March 31, 2010 and September 21,
2010 as to Note 21, expressed an unqualified opinion on those financial
statements.
/s/
Eide Bailly LLP
Greenwood
Village, Colorado
March 31,
2010
2
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Managers
Summit
Hotel Properties, LLC
Sioux
Falls, South Dakota
We have
audited the accompanying consolidated statements of operations, changes in
members’ equity and cash flows of Summit Hotel Properties, LLC (the “Company”)
for the year ended December 31, 2007. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Summit Hotel
Properties, LLC for the year ended December 31, 2007 in conformity with
accounting principles generally accepted in the United States of
America.
/s/
Gordon, Hughes & Banks, LLP
Greenwood
Village, Colorado
March 21,
2008
3
SUMMIT
HOTEL PROPERTIES, LLC
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2009 AND 2008
|
2009 (restated)
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 8,239,225 | $ | 18,153,435 | ||||
|
Restricted
cash
|
1,755,053 | 1,679,027 | ||||||
|
Trade
receivables
|
2,608,198 | 2,622,164 | ||||||
|
Prepaid
expenses and other
|
1,416,480 | 2,170,955 | ||||||
|
Total
current assets
|
14,018,956 | 24,625,581 | ||||||
|
PROPERTY
AND EQUIPMENT, NET
|
482,767,601 | 461,894,270 | ||||||
|
OTHER
ASSETS
|
||||||||
|
Deferred
charges and other assets, net
|
4,828,185 | 5,664,796 | ||||||
|
Land
held for sale
|
12,226,320 | - | ||||||
|
Other
noncurrent assets
|
4,074,179 | - | ||||||
|
Restricted
cash
|
331,190 | 2,570,374 | ||||||
|
Total
other assets
|
21,459,874 | 8,235,170 | ||||||
|
TOTAL
ASSETS
|
$ | 518,246,431 | $ | 494,755,021 | ||||
|
LIABILITIES
AND MEMBERS' EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Current
portion of long-term debt
|
$ | 134,370,900 | $ | 19,508,600 | ||||
|
Lines
of credit
|
21,457,943 | 12,288,500 | ||||||
|
Notes
payable
|
- | 7,469,865 | ||||||
|
Accounts
payable
|
1,088,265 | 3,770,908 | ||||||
|
Related
party accounts payable
|
494,248 | 3,173,179 | ||||||
|
Accrued
expenses
|
9,182,013 | 9,956,372 | ||||||
|
Total
current liabilities
|
166,593,369 | 56,167,424 | ||||||
|
LONG-TERM
DEBT, NET OF CURRENT PORTION
|
270,353,750 | 350,826,837 | ||||||
|
COMMITMENTS
AND CONTINGENCIES (NOTE 15)
|
||||||||
|
MEMBERS'
EQUITY
|
||||||||
|
Class
A, 1,166.62 units issued and outstanding
|
59,961,958 | 76,512,442 | ||||||
|
Class
A-1, 437.83 & 196.50 units issued and outstanding,
respectively
|
34,244,056 | 15,855,756 | ||||||
|
Class
B, 81.36 units issued and outstanding
|
1,804,718 | 3,007,247 | ||||||
|
Class
C, 173.60 units issued and outstanding
|
(13,086,957 | ) | (5,990,222 | ) | ||||
|
Total
Summit Hotel Properties, LLC members' equity
|
82,923,775 | 89,385,223 | ||||||
|
Noncontrolling
interest
|
(1,624,463 | ) | (1,624,463 | ) | ||||
|
Total
equity
|
81,299,312 | 87,760,760 | ||||||
|
TOTAL
LIABILITIES AND MEMBERS' EQUITY
|
$ | 518,246,431 | $ | 494,755,021 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
4
SUMMIT
HOTEL PROPERTIES, LLC
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
2009 (restated)
|
2008
|
2007
|
||||||||||
|
REVENUES
|
||||||||||||
|
Room
revenues
|
$ | 118,959,822 | $ | 132,796,698 | $ | 112,043,997 | ||||||
|
Other
hotel operations revenues
|
2,239,914 | 2,310,764 | 1,845,333 | |||||||||
| 121,199,736 | 135,107,462 | 113,889,330 | ||||||||||
|
COSTS
AND EXPENSES
|
||||||||||||
|
Direct
hotel operations
|
42,070,893 | 42,380,950 | 35,021,263 | |||||||||
|
Other
hotel operating expenses
|
16,986,818 | 15,186,138 | 11,980,423 | |||||||||
|
General,
selling and administrative
|
24,017,471 | 25,993,091 | 22,008,912 | |||||||||
|
Repairs
and maintenance
|
6,151,474 | 8,008,854 | 10,404,860 | |||||||||
|
Depreciation
and amortization
|
23,971,118 | 22,307,426 | 16,135,758 | |||||||||
|
Loss
on impairment of assets
|
7,505,836 | - | - | |||||||||
| 120,703,610 | 113,876,459 | 95,551,216 | ||||||||||
|
INCOME
FROM OPERATIONS
|
496,126 | 21,231,003 | 18,338,114 | |||||||||
|
OTHER
INCOME (EXPENSE)
|
||||||||||||
|
Interest
income
|
49,805 | 194,687 | 446,219 | |||||||||
|
Interest
(expense)
|
(18,320,736 | ) | (17,025,180 | ) | (14,214,151 | ) | ||||||
|
Gain
(loss) on disposal of assets
|
(4,335 | ) | (389,820 | ) | (651,948 | ) | ||||||
| (18,275,266 | ) | (17,220,313 | ) | (14,419,880 | ) | |||||||
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
(17,779,140 | ) | 4,010,690 | 3,918,234 | ||||||||
|
INCOME
(LOSS) FROM DISCONTINUED OPERATIONS
|
1,464,808 | 10,278,595 | 11,587,145 | |||||||||
|
NET
INCOME (LOSS) BEFORE INCOME TAXES
|
(16,314,332 | ) | 14,289,285 | 15,505,379 | ||||||||
|
STATE
INCOME TAX (EXPENSE)
|
- | (826,300 | ) | (715,187 | ) | |||||||
|
NET
INCOME (LOSS)
|
(16,314,332 | ) | 13,462,985 | 14,790,192 | ||||||||
|
NET
INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST
|
- | 384,269 | 777,762 | |||||||||
|
NET
INCOME (LOSS) ATTRIBUTABLE TO SUMMIT HOTEL PROPERTIES, LLC
|
$ | (16,314,332 | ) | $ | 13,078,716 | $ | 14,012,430 | |||||
|
BASIC
AND DILUTED EARNINGS PER $100,000 CAPITAL UNIT
|
$ | (9,391.54 | ) | $ | 8,411.67 | $ | 9,012.19 | |||||
|
WEIGHTED
AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED
EARNINGS PER CAPITAL UNIT (based on $100,000 investment)
|
1,737.13 | 1,554.83 | 1,554.83 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
5
SUMMIT
HOTEL PROPERTIES, LLC
CONSOLIDATED
STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
Equity
|
||||||||||||||||||||||||||||
|
# of
|
Attributable to
|
|||||||||||||||||||||||||||
|
Capital
|
Noncontrolling
|
|||||||||||||||||||||||||||
|
Units
|
Class A
|
Class A-1
|
Class B
|
Class C
|
Total
|
Interest
|
||||||||||||||||||||||
|
BALANCES,
JANUARY 1, 2007
|
1,554.83 | $ | 88,253,669 | $ | 11,035,274 | $ | 4,972,353 | $ | 3,961,011 | $ | 108,222,307 | $ | (1,511,494 | ) | ||||||||||||||
|
Net
Income (Loss)
|
- | 11,214,409 | 1,165,504 | 259,939 | 1,372,578 | 14,012,430 | 777,762 | |||||||||||||||||||||
|
Distributions
to members
|
- | (16,575,137 | ) | (1,528,017 | ) | (1,124,079 | ) | (5,612,615 | ) | (24,839,848 | ) | (969,000 | ) | |||||||||||||||
|
BALANCES,
DECEMBER 31, 2007
|
1,554.83 | $ | 82,892,941 | $ | 10,672,761 | $ | 4,108,213 | $ | (279,026 | ) | $ | 97,394,889 | $ | (1,702,732 | ) | |||||||||||||
|
Class
A-1 units issued in private placement
|
63.25 | 5,614,466 | $ | 5,614,466 | ||||||||||||||||||||||||
|
Net
Income (Loss)
|
- | 10,785,507 | 1,136,502 | 184,178 | 972,529 | 13,078,716 | 384,269 | |||||||||||||||||||||
|
Distributions
to members
|
- | (17,166,006 | ) | (1,567,973 | ) | (1,285,144 | ) | (6,683,725 | ) | (26,702,848 | ) | (306,000 | ) | |||||||||||||||
|
BALANCES,
DECEMBER 31, 2008
|
1,618.08 | $ | 76,512,442 | $ | 15,855,756 | $ | 3,007,247 | $ | (5,990,222 | ) | $ | 89,385,223 | $ | (1,624,463 | ) | |||||||||||||
|
Class
A-1 units issued in private placement
|
241.33 | 22,123,951 | $ | 22,123,951 | ||||||||||||||||||||||||
|
Net
Income (Loss) (restated)
|
- | (6,807,644 | ) | (1,207,424 | ) | (1,202,529 | ) | (7,096,735 | ) | (16,314,332 | ) | - | ||||||||||||||||
|
Distributions
to members
|
- | (9,742,840 | ) | (2,528,227 | ) | - | - | (12,271,067 | ) | - | ||||||||||||||||||
|
BALANCES,
DECEMBER 31, 2009 (restated)
|
1,859.41 | $ | 59,961,958 | $ | 34,244,056 | $ | 1,804,718 | $ | (13,086,957 | ) | $ | 82,923,775 | $ | (1,624,463 | ) | |||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
6
SUMMIT
HOTEL PROPERTIES, LLC
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
2009 (restated)
|
2008
|
2007
|
||||||||||
|
OPERATING
ACTIVITIES
|
||||||||||||
|
Net
income (loss)
|
$ | (16,314,332 | ) | $ | 13,078,716 | $ | 14,012,430 | |||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
24,125,066 | 23,027,566 | 18,887,126 | |||||||||
|
Amortization
of prepaid lease
|
118,501 | - | - | |||||||||
|
Unsuccessful
project costs
|
1,262,219 | - | - | |||||||||
|
Noncontrolling
interests in operations of consolidated LLC
|
- | 384,269 | 777,762 | |||||||||
|
(Gain)
loss on disposal of assets
|
(1,297,488 | ) | (8,604,779 | ) | (10,379,556 | ) | ||||||
|
Loss
on impairment of assets
|
7,505,836 | - | - | |||||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Trade
receivables
|
13,966 | 570,544 | (41,035 | ) | ||||||||
|
Prepaid
expenses and other assets
|
315,891 | (307,109 | ) | (102,077 | ) | |||||||
|
Accounts
payable and related party accounts payable
|
(5,847,835 | ) | (1,656,286 | ) | 1,180,615 | |||||||
|
Accrued
expenses
|
(774,359 | ) | 316,909 | 1,601,614 | ||||||||
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
9,107,465 | 26,809,830 | 25,936,879 | |||||||||
|
INVESTING
ACTIVITIES
|
||||||||||||
|
Land
and hotel acquisitions and construction in progress
|
(14,810,896 | ) | (12,904,466 | ) | (3,841,941 | ) | ||||||
|
Purchases
of other property and equipment
|
(6,613,397 | ) | (6,628,779 | ) | (9,465,898 | ) | ||||||
|
Proceeds
from asset dispositions, net of closing costs
|
207,814 | 23,584,638 | 35,581,012 | |||||||||
|
Restricted
cash released (funded)
|
2,163,158 | (585,271 | ) | 164,348 | ||||||||
|
NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
(19,053,321 | ) | 3,466,122 | 22,437,521 | ||||||||
|
FINANCING
ACTIVITIES
|
||||||||||||
|
Proceeds
from issuance of long-term debt
|
223,518 | 4,837,000 | 8,853,669 | |||||||||
|
Principal
payments on long-term debt
|
(6,890,949 | ) | (20,909,992 | ) | (22,932,344 | ) | ||||||
|
Financing
fees on long-term debt
|
(945,442 | ) | (942,405 | ) | (1,277,528 | ) | ||||||
|
Proceeds
from issuance of notes payable and line of credit
|
4,860,000 | 18,510,867 | - | |||||||||
|
Principal
payments on notes payable and line of credit
|
(19,865 | ) | - | (7,432,397 | ) | |||||||
|
Proceeds
from equity contributions, net of commissions
|
15,075,451 | 5,614,466 | - | |||||||||
|
Distributions
to members
|
(12,271,067 | ) | (26,702,848 | ) | (24,839,848 | ) | ||||||
|
Distributions
to noncontrolling interest
|
- | (306,000 | ) | (969,000 | ) | |||||||
|
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
31,646 | (19,898,912 | ) | (48,597,448 | ) | |||||||
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
(9,914,210 | ) | 10,377,040 | (223,048 | ) | |||||||
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
18,153,435 | 7,776,395 | 7,999,443 | |||||||||
|
CASH
AND CASH EQUIVALENTS AT END OF YEAR
|
$ | 8,239,225 | $ | 18,153,435 | $ | 7,776,395 | ||||||
(continued
on next page)
7
SUMMIT
HOTEL PROPERTIES, LLC
CONSOLIDATED
STATEMENTS OF CASH FLOWS – PAGE 2
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
2009 (restated)
|
2008
|
2007
|
||||||||||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||||||
|
Cash
payments for interest, net of the amounts capitalized
below
|
$ | 17,810,544 | $ | 17,833,598 | $ | 15,867,060 | ||||||
|
Interest
capitalized
|
$ | 2,977,101 | $ | 3,829,267 | $ | 4,489,724 | ||||||
|
Cash
payments for state income taxes
|
$ | 728,514 | $ | 781,081 | $ | 356,187 | ||||||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH FINANCIAL INFORMATION:
|
||||||||||||
|
Acquisitions
of hotel properties and land through issuance of debt
|
$ | - | $ | 16,447,237 | $ | 42,341,906 | ||||||
|
Construction
in progress financed through accounts payable
|
$ | 244,126 | $ | - | $ | - | ||||||
|
Construction
in progress financed through related party accounts
payable
|
$ | 242,135 | $ | 2,600,260 | $ | 690,629 | ||||||
|
Construction
in progress financed through issuance of debt
|
$ | 51,098,872 | $ | 38,765,692 | $ | 78,752,652 | ||||||
|
Conversion
of construction in progress to other assets
|
$ | 4,149,379 | $ | - | $ | - | ||||||
|
Issuance
of long-term debt for short-term debt
|
$ | 7,450,000 | $ | 12,772,819 | $ | - | ||||||
|
Issuance
of long-term debt to refinance existing long-term debt
|
$ | 22,215,852 | $ | 11,073,070 | $ | 3,286,331 | ||||||
|
Equity
contributions used to pay down debt
|
$ | 7,048,500 | $ | - | $ | - | ||||||
|
Financing
costs funded through construction draws
|
$ | - | $ | 1,651,886 | $ | - | ||||||
|
Sale
proceeds used to pay down long-term debt
|
$ | 6,134,285 | $ | 4,215,362 | $ | - | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
8
|
SUMMIT
HOTEL PROPERTIES, LLC
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
DECEMBER
31, 2009, 2008 AND 2007
|
NOTE
1 - PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING
POLICIES
Nature
of Business
Summit
Hotel Properties, LLC, “The Company”, (a South Dakota limited liability company)
was organized January 8, 2004, and is engaged in the business of developing,
owning and operating hotel properties.
The
Company has agreements for the use of various trade names, trademarks and
service marks which include Carlson Hospitality, Choice Hotels International,
Hilton Hotel Corporation, Intercontinental Hotels Group, Hyatt Hotel Corporation
and Marriott International. The Company also owns and
operates one independent non-franchised hotel. As of December
31, 2009, the Company owned and managed 65 hotels, representing approximately
6,533 rooms located in 19 states. As of December 31, 2008, the Company
owned and managed 62 hotels, representing approximately 5,854 rooms located in
19 states. As of December 31, 2007, the Company owned and managed 64
hotels, representing approximately 5,863 rooms located in 19
states. The Company’s hotel properties are located throughout various
regions of the United States. Hotels operating in any given region
are potentially susceptible to adverse economic and competitive conditions as
well as unique trends associated with that particular region. The
potential adverse affect of such conditions on the Company’s business, financial
position, and results of its operations is mitigated due to the diversified
locations of the Company’s properties. The Company has only one
operating segment.
Restatement
Certain
December 31, 2009 amounts have been restated to correct an immaterial error (see
Note 21).
Basis
of Presentation and Consolidation
The
Company is a 49% owner and the primary beneficiary of Summit Group of
Scottsdale, AZ, LLC (“Scottsdale”), which qualifies as a variable interest
entity. Accordingly, the financial position and results of operations
and cash flows of Scottsdale have been included in the accompanying consolidated
financial statements. The entity was formed for the purpose of
purchasing two hotel properties in Scottsdale, AZ and its activities primarily
relate to owning and operating those two hotel properties. As of
December 31, 2009 and for the year then ended, Scottsdale had assets of
$19,771,907, liabilities of $14,251,068, revenues of $5,848,427, and expenses of
$5,825,455. As of December 31, 2008 and for the year then ended, Scottsdale
had assets of $21,291,843, liabilities of $14,725,106, revenues of $8,871,475
and expenses of $7,049,137. As of December 31, 2007 and for the year then
ended, Scottsdale had assets of $21,842,939, liabilities of $15,429,670,
revenues of $10,062,022, and expenses of $7,468,129. Included in the
consolidated assets are assets as of December 31, 2009 totaling $18,533,866
which represent collateral for obligations of Scottsdale. The
Company’s maximum exposure to loss is $5,520,839. Apart from that
amount, creditors and the beneficial holders of Scottsdale have no recourse to
the assets or general credit of the Company. All significant
intercompany balances and transactions have been eliminated in
consolidation. The Company is a Class A Member and receives a 10%
priority distribution on their capital contribution before distributions to
other classes. Class A members may also receive additional operating
distributions based on their Sharing Ratio. These additional
distributions are determined by the managing member and are based on excess cash
from operations after normal operating expenses, loan payments, priority
distributions, and reserves. Any income generated by the LLC is first
allocated to Class A members up to the 10% priority return.
9
|
SUMMIT
HOTEL PROPERTIES, LLC
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
DECEMBER
31, 2009, 2008 AND 2007
|
The
Company has adopted FASB Accounting Standards Codification (“ASC”) 810, Consolidation. Under Topic 810,
variable interest entities (“VIEs”) are required to be consolidated by their
primary beneficiaries if they do not effectively disperse risks among the
parties involved. The primary beneficiary of a VIE is the party that
absorbs a majority of the entity’s expected losses, receives a majority of its
expected residual returns, or both, as a result of holding variable
interests. In applying Topic 810, management has utilized available
information and reasonable assumptions and estimates in evaluating whether an
entity is a VIE and which party is the primary beneficiary. These
assumptions and estimates are subjective and the use of different assumptions
could result in different conclusions.
Beginning
on October 1, 2004, the Company considered its interest in Summit Group of
Scottsdale, AZ, LLC, a VIE in which the Company is the primary
beneficiary. As per the provisions of Topic 810, the Company’s
interest in the VIE has been included in the accompanying consolidated financial
statements.
The
Company is the 100% owner of several special purpose entities which were
established due to various lending requirements. These entities
include Summit Hospitality I, LLC; Summit Hospitality II, LLC; Summit
Hospitality III, LLC; Summit Hospitality IV, LLC; and Summit Hospitality V,
LLC. All assets, liabilities, revenues, and expenses of these
wholly-owned subsidiaries are reflected on the financial
statements.
The
Company has evaluated all subsequent events through March 29, 2010, the date the
financial statements were issued.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from these
estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At times, cash on
deposit may exceed the federally insured limit. The Company maintains its cash
with high credit quality financial institutions. Due to the financial
institution crisis and economic downturn that occurred in the second half of
2008, management has assessed the risks of each of the financial institutions
where the Company has deposits in excess of insured limits and believes the risk
of loss to still be minimal.
Receivables
and Credit Policies
Trade
receivables are uncollateralized customer obligations resulting from the rental
of hotel rooms and the sales of food, beverage, catering and banquet services
due under normal trade terms requiring payment upon receipt of the
invoice. Trade receivables are stated at the amount billed to the
customer and do not accrue interest. Customer account balances with
invoices dated over 60 days old are considered delinquent. Payments
of trade receivables are allocated to the specific invoices identified on the
customer’s remittance advice or, if unspecified, are applied to the earliest
unpaid invoices.
The
Company reviews the collectability of the receivables monthly. A
provision for losses on receivables is determined on the basis of previous loss
experience and current economic conditions. There were no material
uncollectible receivables and no allowance for doubtful accounts recorded as of
December 31, 2009 and 2008, respectively. The Company incurred bad
debt expense of $88,125, $172,481, and $94,155 for 2009, 2008 and 2007,
respectively.
10
|
SUMMIT
HOTEL PROPERTIES, LLC
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
DECEMBER
31, 2009, 2008 AND 2007
|
Property
and Equipment
Buildings
and major improvements are recorded at cost and depreciated using the
straight-line method over 27 to 40 years, the estimated useful lives of the
assets. Hotel equipment, furniture and fixtures are recorded at cost
and depreciated using the straight-line method over the estimated useful lives
of the related assets of 2 to 15 years. Development costs and other
overhead costs are allocated to building and equipment on a prorated
basis. The Company periodically re-evaluates fixed asset lives based
on current assessments of remaining utilization that may result in changes in
estimated useful lives. Such changes are accounted for prospectively
and will increase or decrease depreciation expense. Depreciation
expense from continuing operations for the year ended December 31, 2009 and 2008
totaled $21,748,782 and $20,085,238, respectively. Expenditures that
materially extend a property’s life are capitalized. These costs may
include hotel refurbishment, renovation and remodeling
expenditures. Normal maintenance and repair costs are expensed as
incurred. When depreciable property is retired or disposed of, the
related cost and accumulated depreciation is removed from the accounts and any
gain or loss is reflected in current operations.
Capitalized
Development and Interest Costs
The
Company capitalizes all hotel development costs and other direct overhead costs
related to the purchase and construction of hotels. Additionally, the
Company capitalizes the interest costs associated with constructing new
hotels. Capitalized development, direct overhead and interest are
depreciated over the estimated lives of the respective
assets. Organization and start-up costs are expensed as
incurred. For the years ended December 31, 2009, 2008 and 2007, the
Company capitalized interest of $2,977,101, $3,829,267, and $4,489,724,
respectively.
Assets
Held for Sale
Properties
are classified as other noncurrent assets when management determines that they
are excess and intends to list them for sale. These assets are
recorded at the lower of cost or fair value and consist of land only at December
31, 2009. Excess properties are classified as assets held for sale in
current assets when they are under contract for sale, or otherwise probable that
they will be sold within the next twelve months. There are no assets
that fit this classification at December 31, 2009.
Long-Lived
Assets and Impairment (restated)
The
Company applies the provisions of FASB ASC 360, Property Plant and Equipment,
which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. FASB ASC 360 requires a long-lived
asset to be sold to be classified as “held for sale” in the period in which
certain criteria are met, including that the sale of the asset within one year
is probable. FASB ASC 360 also requires that the results of
operations of a component of an entity that either has been disposed of or is
classified as held for sale be reported in discontinued operations if the
operations and cash flows of the component have been or will be eliminated from
the Company’s ongoing operations.
11
|
SUMMIT
HOTEL PROPERTIES, LLC
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
DECEMBER
31, 2009, 2008 AND 2007
|
The
Company periodically reviews the carrying value of its long-term assets in
relation to historical results, current business conditions and trends to
identify potential situations in which the carrying value of assets may not be
recoverable. If such reviews indicate that the carrying value of such
assets may not be recoverable, the Company would estimate the undiscounted sum
of the expected cash flows of such assets to determine if such sum is less than
the carrying value of such assets to ascertain if an impairment
exists. If an impairment exists, the Company would determine the fair
value by using quoted market prices, if available for such assets, or if quoted
market prices are not available, the Company would discount the expected future
cash flows of such assets.
During
2009, the Company has determined that six land parcels were deemed to be
impaired and written down to their fair market value. The Company has
also determined that the Courtyard hotel in Memphis, TN was deemed to be
impaired and written down to its fair market value. Carrying value of
the assets exceeded fair value by $7,505,836, with fair value being determined
by reference to the estimated quoted market prices of such assets as defined in
Level 3 Inputs as discussed under Fair Value and in Note 4. An
impairment loss of that amount has been charged to operations in 2009 (see Note
21).
Deferred
Charges
These
assets are carried at cost and consist of deferred financing fees and initial
franchise fees. Costs incurred in obtaining financing are capitalized
and amortized on the straight-line method over the term of the related debt,
which approximates the interest method. Initial franchise fees are capitalized
and amortized over the term of the franchise agreement using the straight line
method. Amortization expense from continuing operations for the year
ended December 31, 2009 and 2008 totaled $2,222,336 and $2,439,178,
respectively.
Restricted
Cash
Restricted
cash consists of certain funds maintained in escrow for property taxes,
insurance and certain capital expenditures. Funds may be disbursed
from the account upon proof of expenditures and approval from the
lenders. See also Note 8.
Income
Taxes
Summit Hotel Properties,
LLC is a
limited liability company and, as such, all federal taxable
income of the limited liability company flows through and is taxable to the
members of the Company. The Company
has adopted the provisions of FASB ASC 740, Income Taxes, on January 1,
2009. The implementation of this standard had no impact on the financial
statements. As of both the date of adoption, and as of December 31, 2009, the
unrecognized tax benefit accrual was zero.
The
Company will recognize future accrued interest and penalties related to
unrecognized tax benefits in income tax expense if incurred. The Company
is no longer subject to Federal tax examinations by tax authorities for years
before 2006.
The
Company has elected to pay state income taxes at the Company level in all of the
states in which it does business. The Company’s estimated state
income tax expenses at current statutory rates were $0, $826,300, and $715,187,
for the years ended December 31, 2009, 2008 and 2007,
respectively.
Members’
Capital Contributions and Profit and Loss Allocations
The
Company is organized as a limited liability company and can issue to its members
Class A, Class A-1, Class B and Class C units.
12
|
SUMMIT
HOTEL PROPERTIES, LLC
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
DECEMBER
31, 2009, 2008 AND 2007
|
Approximate
sharing ratios are as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Class
A
|
42 | % | 45 | % | 46 | % | ||||||
|
Class
A-1
|
7 | 4 | 3 | |||||||||
|
Class
B
|
7 | 8 | 8 | |||||||||
|
Class
C
|
44 | 43 | 43 | |||||||||
| 100 | % | 100 | % | 100 | % | |||||||
The
limited liability company operating agreement provides that net profits are
allocated to cover a 10% priority return to Class A members, 8% priority return
to Class A-1 members, then the balance is allocated based on ownership of common
membership units. Net losses are allocated to members based on
ownership of common membership units.
Only
Class A and A-1 members contribute capital. These members receive
an 8-10% priority return on their capital contributions before
distributions to other classes. Class A and A-1 members may also
receive additional operating distributions based on their Sharing
Ratio. These additional distributions are determined by the managing
member and are based on excess cash from operations after normal operating
expenses, loan payments, priority distributions, and reserves. Class
A and A-1 members have voting rights on creation of new classes of membership,
amendments to the Articles of Organization, and dissolution of the
company. Class A and A-1 memberships are sold in units of $100,000
each. Class B members do not have voting rights and receive
distributions in accordance with their Sharing Ratio after Class A and A-1
members have received their priority return. The Class C member is
The Summit Group, Inc. (SGI), a related party. SGI has limited voting
rights, in addition to the right to appoint members to the
Board. SGI, however, has significant authority to manage the hotel
properties and acts as the Company’s Manager. SGI receives
distributions in accordance with its Sharing Ratio after Class A and A-1 members
have received their priority return.
Costs
paid for syndication are charged directly to equity against the proceeds
raised. The Company’s operating agreement contains extensive
restrictions on the transfer of membership interests. In addition,
the transferability of membership interests is restricted by federal and state
law. The membership interests may not be offered, sold, transferred,
pledged, or hypothecated to any person without the consent of The Summit Group,
Inc., a related party and 44% owner of the Company through its holding of 100%
of the outstanding Class C units.
Earnings
per Capital Unit
For
purposes of calculating basic earnings per capital unit, capital units issued by
the Company are considered outstanding on the effective date of issue and are
based on a $100,000 capital unit.
Noncontrolling
Interests
Summit
Group of Scottsdale, AZ, LLC has made distributions to noncontrolling members in
excess of income allocations to those members. Their excess is
reflected in the consolidated balance sheets.
13
|
SUMMIT
HOTEL PROPERTIES, LLC
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
DECEMBER
31, 2009, 2008 AND 2007
|
Concentrations
of Credit Risk
The
Company grants credit to qualified customers generally without collateral, in
the form of accounts receivable. The Company believes its risk of loss is
minimal due to its periodic evaluations of the credit worthiness of the
customers.
Advertising
and Marketing Costs
The
Company expenses all advertising and marketing costs as they are incurred. Total
costs for the years ended December 31, 2009, 2008 and 2007 were $9,015,388,
$9,588,243, and $8,647,625, respectively. Of this total cost, $880,534,
$846,971, and $669,491, represented general advertising expense for 2009, 2008
and 2007, respectively, and $8,134,854, $8,741,272, and $7,978,134, represented
national media fees required by the hotel franchise agreements for 2009, 2008
and 2007, respectively. These costs are reported as components of
general, selling and administrative costs in the accompanying consolidated
statements of operations.
Sales
Taxes
The
Company has customers in states and municipalities in which those governmental
units impose a sales tax on certain sales. The Company collects those sales
taxes from its customers and remits the entire amount to the various
governmental units. The Company’s accounting policy is to exclude the tax
collected and remitted from revenue and cost of revenue.
Revenue
Recognition
The
Company’s hotel revenues are derived from room rentals and other sources, such
as charges to guests for long-distance telephone service, fax machine use, movie
and vending commissions, meeting and banquet room revenue, restaurant and bar
revenue, and parking and laundry services. The Company recognizes
hotel revenue on a daily basis based on an agreed upon daily rate after the
guest has stayed at one of its hotels for a day, used its lodging facilities and
received related lodging services and amenities. The Company believes
that the credit risk with respect to trade receivables is limited, because
approximately 90% of the Company’s revenue is related to credit card
transactions, which are typically reimbursed within 2-3
days. Reserves for any uncollectible accounts, if material, are
established for accounts that age beyond a predetermined acceptable
period. The Company had not recorded any such reserves at December
31, 2009 and 2008.
Adopted
Accounting Standards
The
Company follows accounting standards set by the Financial Accounting Standards
Board, commonly referred to as the “FASB.” The FASB sets generally
accepted accounting principles (GAAP) that we follow to ensure we consistently
report our financial condition, results of operations, and cash
flows. In June 2009, the FASB issued FASB ASC 105, Generally Accepted Accounting
Principles, which establishes the FASB Accounting Standards Codification,
sometimes referred to as the Codification or ASC, as the sole source of
authoritative GAAP. The FASB finalized the Codification
effective for periods ending on or after September 1, 2009. Prior
FASB standards are no longer being issued by the FASB. Pursuant to
the provisions of FASB ASC 105, the Company has updated references to GAAP in
its financial statements issued for the years ended December 31, 2009 and
2008. The Codification will have no effect on the Company’s
consolidated financial statements as it is for disclosure purposes
only.
14
|
SUMMIT
HOTEL PROPERTIES, LLC
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
DECEMBER
31, 2009, 2008 AND 2007
|
In
January 2009, the Company adopted FASB ASC 810, Consolidation, which changes
the accounting and reporting standards of noncontrolling interests (previously
called minority interest) in consolidated financial statements. ASC
810 requires that equity attributable to noncontrolling interests be recognized
in equity separate from that of the Company’s and that consolidated net income
now includes the results of operations attributable to its noncontrolling
interests. A reconciliation of noncontrolling interests from the beginning of
the reporting period to the end is required either in the notes to the financial
statements or as part of the consolidated statement of changes in equity, if
presented. Further, this provision requires a separate schedule that
shows the effects of any changes in the Company’s ownership interest in its
subsidiaries on the Company’s equity. The effects on our consolidated
financial statements include the reclassification of previously classified
minority interest as noncontrolling interest in a subsidiary with no effect on
net income or loss.
In
January 2009, the Company adopted FASB ASC 805, Business Combinations, which
includes the primary requirements as follows: (i) Upon initially
obtaining control, the acquiring entity in a business combination must recognize
100% of the fair values of the acquired assets, including goodwill, and assumed
liabilities, with only limited exceptions even if the acquirer has not acquired
100% of its target. As a consequence, the current step acquisition
model will be eliminated. (ii) Contingent consideration arrangements
will be fair valued at the acquisition date and included on that basis in the
purchase price consideration. The concept of recognizing contingent
consideration at a later date when the amount of that consideration is
determinable beyond a reasonable doubt, will no longer be
applicable. (iii) All transaction costs will be expensed as
incurred. This ASC is effective for business combinations in which
the acquisition date is on or after the first annual reporting period beginning
on or after December 15, 2008. The adoption of this ASC did not have a
material impact on the Company’s consolidated financial statements.
In
January 2009, the Company adopted FASB ASC 815, Derivatives and Hedging,
which is intended to improve financial reporting about derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity’s financial position, financial
performance, and cash flows. This ASC has had no impact on the
consolidated financial statements as the Company does not have derivative
instruments or hedging activities.
Future
Adoption of Accounting Standards
In June
2009, the FASB issued an update to ASC 810, Consolidations, and changed
the consolidation guidance applicable to a variable interest
entity. Among other things, it requires a qualitative analysis to be
performed in determining whether an enterprise is the primary beneficiary of a
variable interest entity. FASB ASC 810 is effective for interim and
annual reporting periods ending after November 15, 2009. The Company
is currently evaluating the effect that ASC 810 will have on its consolidated
financial statements.
Fair
Value
Effective
January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements, which defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. FASB ASC 820 also establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1)
and lowest priority to unobservable inputs (Level 3). The three
levels of the fair value hierarchy under Topic 820 are described
below:
15
|
SUMMIT
HOTEL PROPERTIES, LLC
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
DECEMBER
31, 2009, 2008 AND 2007
|
Level 1 –
Observable inputs that reflect quoted prices (unadjusted) for identical assets
or liabilities in active markets.
Level 2 –
Inputs reflect quoted prices for identical assets or liabilities in markets that
are not active; quoted prices for similar assets or liabilities in active
markets; inputs other than quoted prices that are observable for the asset or
the liability; or inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
Level 3 –
Unobservable inputs reflecting the Company’s own assumptions incorporated in
valuation techniques used to determine fair value. These assumptions are
required to be consistent with market participant assumptions that are
reasonable available.
Our
estimates of the fair value of financial instruments as of December 31, 2009 and
2008 were determined using available market information and appropriate
valuation methods. Considerable judgment is necessary to interpret
market data and develop estimated fair value. The use of different
market assumptions or estimation methods may have a material effect on the
estimated fair value amounts.
The
Company’s financial instruments consist primarily of cash and cash equivalents,
trade receivables, accounts payable, and debt obligations. The fair
values of cash and cash equivalents, trade receivables, and accounts payable
approximate their carrying values due to the short-term nature of these
instruments. At December 31, 2009 and 2008, the Company’s long-term
debt obligations consisted of fixed and variable rate debt that had a carrying
value of $404,724,650 and $370,335,437, respectively, and a fair value, based on
current market interest rates of $384,856,147 and $403,573,174,
respectively. The Company has classified their long-term debt
instruments as Level 2 in the hierarchy of FASB ASC 820 described
above.
FASB
issued an update to ASC 820 which the Company adopted effective January 1,
2009. This update requires that non-financial assets and
non-financial liabilities be disclosed at fair value in the financial statements
if these items occur regularly, such as in determining impairment loss or the
value of assets held for sale as described below.
The
following tables summarize the changes in fair value of our Level 3
non-financial assets for the year ended December 31, 2009 (restated) (See Note
4):
Fair Value Measurement of
Non-Financial Assets Using Level 3 Inputs
|
Beginning
balance at January 1, 2009
|
$ | 24,574,383 | ||
|
Add
current year additions
|
37,415 | |||
|
Less
depreciation
|
(379,642 | ) | ||
|
Less
impairment
|
(7,505,836 | ) | ||
|
Ending
balance at December 31, 2009
|
$ | 16,726,320 | ||
|
Impairment
for 2009 included in earnings attributable to the change in unrealized
losses
|
$ | (7,505,836 | ) |
The
December 31, 2009 ending balance of $16,726,320 is comprised of land held for
sale with a fair value of $12,226,320 and the Memphis, TN Courtyard with a fair
value of $4,500,000.
16
|
SUMMIT
HOTEL PROPERTIES, LLC
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
DECEMBER
31, 2009, 2008 AND 2007
|
NOTE
2 - PREPAID EXPENSES AND OTHER
Prepaid
expenses and other at December 31, 2009 and 2008, are comprised of the
following:
|
2009
|
2008
|
|||||||
|
Prepaid
insurance expense
|
$ | 781,144 | $ | 743,491 | ||||
|
Other
prepaid expense
|
635,336 | 1,427,464 | ||||||
| $ | 1,416,480 | $ | 2,170,955 | |||||
NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment at December 31, 2009 and 2008 are comprised of the
following:
|
2009 (restated)
|
2008
|
|||||||
|
Land
|
$ | 75,272,012 | $ | 90,014,168 | ||||
|
Hotel
buildings and improvements
|
390,909,814 | 321,115,322 | ||||||
|
Furniture,
fixtures and equipment
|
87,642,374 | 64,738,527 | ||||||
|
Construction
in progress
|
8,551,354 | 45,387,313 | ||||||
| 562,375,554 | 521,255,330 | |||||||
|
Less
accumulated depreciation
|
79,607,953 | 59,361,060 | ||||||
| $ | 482,767,601 | $ | 461,894,270 | |||||
The
construction in progress asset accounts consist of 5 hotels under development
which the Company anticipates will be constructed in 2011 and
2012. During 2007, the Company purchased land in Houston,
TX for $1,864,000, San Antonio, TX for $10,420,000, Portland, OR for $3,650,000,
El Paso, TX for $2,614,000 and Ft. Myers, FL for
$3,307,500. Construction has been completed on one hotel in San
Antonio, one in Ft. Myers, and two hotels in Portland. During 2008,
the Company purchased land in Twin Falls, ID for $2,212,000, Spokane, WA for
$1,730,000, and Missoula, MT for $1,379,000. Construction on one of
the Twin Falls sites has been completed.
NOTE
4 - ASSETS HELD FOR SALE
As a part
of regular policy, the Company periodically reviews hotels based on established
criteria such as age of hotel property, type of franchise associated with hotel
property, and adverse economic and competitive conditions in the region
surrounding the property.
During
2009, the Company completed a comprehensive review of its investment strategy
and of its existing hotel portfolio to identify properties which the Company
believes are either non-core or no longer complement the business as required by
FASB ASC 360. As of December 31, 2009 and 2008, the Company had no
hotels that met the Company’s criteria of held for sale classification. The
Company has committed to sell six parcels of land that were originally purchased
for development and thus, their net book value, as defined in Level 3 Inputs, is
recorded as assets held for sale as of December 31, 2009.
Assets
held for sale at December 31, 2009 and December 31, 2008 are comprised of the
following:
17
|
SUMMIT
HOTEL PROPERTIES, LLC
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
DECEMBER
31, 2009, 2008 AND 2007
|
|
2009
|
2008
|
|||||||
|
Land
|
$ | 12,226,320 | $ | - | ||||
NOTE
5 - OTHER NONCURRENT ASSETS
Other
noncurrent assets at December 31, 2009 and 2008, are comprised of the
following:
|
2009
|
2008
|
|||||||
|
Prepaid
land lease
|
$ | 3,635,595 | $ | - | ||||
|
Seller
financed notes receivable
|
438,584 | - | ||||||
| $ | 4,074,179 | $ | - | |||||
NOTE
6 - DISCONTINUED OPERATIONS
The
Company has reclassified its consolidated financial statements of operations for
the years ended December 31, 2009, 2008 and 2007 and its consolidated balance
sheets as of December 31, 2009 and 2008, as a result of implementing FASB ASC
360 to reflect discontinued operations of eleven consolidated hotel properties
sold or to be sold during these periods pursuant to the plan for hotel
dispositions. This reclassification has no impact on the Company’s
net income or the net income per share. During 2007, the
Company sold six hotel properties located in Coeur D’Alene, ID; Pueblo, CO;
Lincoln, NE; Fenton, MO; and Detroit, MI for approximately $36,095,000 with net
proceeds of $35,581,000. During 2008, the Company sold three hotel
properties located in Lewiston, ID; Jackson, MS; and Overland Park, KS and two
hotel properties located in Kennewick, WA for approximately $28,575,000 with net
proceeds of $27,775,000. During 2009, the Company sold two hotel
properties located in Ellensburg, WA and St. Joesph, MO for approximately
$6,810,000 with net proceeds of $6,342,000.
Condensed
financial information of the results of operations for these hotel properties
included in discontinued operations are as follows:
18
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
|
2009
|
2008
|
2007
|
||||||||||
|
REVENUES
|
$ | 1,133,690 | $ | 6,825,908 | $ | 20,859,130 | ||||||
|
COSTS
AND EXPENSES
|
||||||||||||
|
Direct
hotel operations
|
348,065 | 2,210,724 | 7,484,861 | |||||||||
|
Other
hotel operating expenses
|
135,122 | 813,490 | 2,746,811 | |||||||||
|
General,
selling and administrative
|
258,495 | 1,058,716 | 4,088,156 | |||||||||
|
Repairs
and maintenance
|
36,091 | 199,290 | 1,096,351 | |||||||||
|
Depreciation
and amortization
|
153,948 | 720,140 | 2,751,368 | |||||||||
| 931,721 | 5,002,360 | 18,167,547 | ||||||||||
|
INCOME
FROM OPERATIONS
|
201,969 | 1,823,548 | 2,691,583 | |||||||||
|
OTHER
INCOME (EXPENSE)
|
||||||||||||
|
Interest
income
|
116 | 16,790 | (22,818 | ) | ||||||||
|
Interest
(expense)
|
(39,100 | ) | (556,342 | ) | (2,113,124 | ) | ||||||
|
Gain
(loss) on disposal of assets
|
1,301,823 | 8,994,599 | 11,031,504 | |||||||||
| 1,262,839 | 8,455,047 | 8,895,562 | ||||||||||
|
INCOME
(LOSS) FROM DISCONTINUED OPERATIONS
|
$ | 1,464,808 | $ | 10,278,595 | $ | 11,587,145 | ||||||
NOTE
7 - ACQUISITIONS
The
Company applies the principles of FASB ASC 805, Business Combinations, in
accounting for its acquisitions. The Company determines the cost of
the acquired property based upon the fair value of assets distributed as
consideration and the fair value of liabilities incurred. The cost of
the acquired entity includes all direct costs of the business combination
whereas indirect and general expenses are expensed as incurred. The
Company allocates the cost of the acquired entity to the assets acquired and
liabilities assumed based upon their estimated fair market values at the date of
acquisition. To determine fair value of the various components acquired, the
Company engages independent valuation consultants and other third-party
real-estate appraisals as necessary. The Company allocates the cost
of the acquired property based upon the relative fair values of the various
components contained in the appraisals. In certain cases, the cost of
the property acquired may be less than the fair value contained in the
appraisals. In these cases, the Company reduces the fair values based
upon the relative value of the components of the acquisition. The
excess of the cost of the acquisition over the fair value will be assigned to
intangible assets if the intangible asset is separable and if it arises from a
contractual or other legal right. Any remaining excess of the cost of
acquisition over fair values assigned to separable assets is recognized as
goodwill. Further, many of the Company’s hotel acquisitions to date
have been aggregated in accordance with Topic 805 and has resulted in
an aggregated purchase price allocation. Since its inception, the
Company’s acquisitions and subsequent purchase price allocations have resulted
in no goodwill.
The
Company’s strategy is to pursue the acquisition of additional hotels under the
investment parameters established in the Company’s Operating
Agreement. In accordance with this strategy, the Company has made the
following acquisitions.
On
October 30, 2008, the Company purchased a hotel property in Flagstaff, AZ for
approximately $10,750,000. Essentially all of the assets purchased
were allocated to property and equipment.
19
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
The
following table illustrates the allocation of the respective purchase prices for
each of the aggregated property purchases discussed above during 2009 and
2008:
|
2009
|
2008
|
|||||||
|
Current
assets
|
$ | - | $ | - | ||||
|
Property
and equipment
|
- | 10,750,000 | ||||||
|
Intangible
assets
|
- | - | ||||||
|
Total
assets acquired
|
- | 10,750,000 | ||||||
|
Current
liabilities
|
- | - | ||||||
|
Long-term
debt
|
- | - | ||||||
|
Total
liabilities assumed
|
- | - | ||||||
|
Net
assets acquired
|
$ | - | $ | 10,750,000 | ||||
NOTE
8 - DEFERRED CHARGES AND OTHER ASSETS
Deferred
charges and other assets at December 31, 2009 and 2008, are comprised of the
following:
|
2009
|
2008
|
|||||||
|
Initial
franchise fees
|
$ | 2,596,042 | $ | 2,270,544 | ||||
|
Deferred
financing costs
|
8,204,003 | 7,415,091 | ||||||
| 10,800,045 | 9,685,635 | |||||||
|
Less
accumulated amortization
|
5,971,860 | 4,020,839 | ||||||
|
Total
|
$ | 4,828,185 | $ | 5,664,796 | ||||
Future
amortization expense is expected to be approximately:
|
2010
|
$ | 1,542,341 | ||
|
2011
|
1,174,959 | |||
|
2012
|
672,118 | |||
|
2013
|
357,098 | |||
|
2014
|
300,868 | |||
|
Thereafter
|
780,801 | |||
| $ | 4,828,185 |
20
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
NOTE
9 - RESTRICTED CASH
|
Property
|
FF&E
|
|||||||||||||||||||
|
Financing Lender
|
Taxes
|
Insurance
|
Reserves
|
2009
|
2008
|
|||||||||||||||
|
Wells
Fargo (Scottsdale)
|
$ | - | $ | - | $ | - | $ | - | $ | 1,556,520 | ||||||||||
|
Wells
Fargo (Lehman)
|
641,402 | 625,694 | 331,190 | 1,598,286 | 1,954,937 | |||||||||||||||
|
National
Western Life
|
31,178 | - | - | 31,178 | - | |||||||||||||||
|
Capmark
(ING)
|
128,504 | - | - | 128,504 | 195,166 | |||||||||||||||
|
Capmark
(ING)
|
145,061 | - | - | 145,061 | 501,778 | |||||||||||||||
|
Capmark
(ING)
|
83,473 | - | - | 83,473 | 31,485 | |||||||||||||||
|
Capmark
(ING)
|
99,741 | - | - | 99,741 | 9,515 | |||||||||||||||
| $ | 1,129,359 | $ | 625,694 | $ | 331,190 | $ | 2,086,243 | $ | 4,249,401 | |||||||||||
The
Company has financing arrangements under which an agreed upon percentage of
gross income is required to be deposited into a special reserve account for
future replacements of furniture, fixtures and equipment. Some
financing arrangements also include provisions that restricted cash must be
maintained in escrow for property taxes and insurance. Funds may be
disbursed from the account upon proof of expenditures and approval from the
lender.
NOTE
10 - ACCRUED EXPENSES
Accrued
expenses at December 31, 2009 and 2008 are comprised of the
following:
|
2009
|
2008
|
|||||||
|
Accrued
sales and other taxes
|
$ | 5,238,690 | $ | 5,910,209 | ||||
|
Accrued
salaries and benefits
|
1,400,729 | 1,838,615 | ||||||
|
Accrued
interest
|
1,303,999 | 1,109,577 | ||||||
|
Other
accrued expenses
|
1,238,595 | 1,097,971 | ||||||
| $ | 9,182,013 | $ | 9,956,372 | |||||
21
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
NOTE
11 - DEBT OBLIGATIONS
The
Company's debt obligations at December 31, 2009 and 2008 are as
follows:
|
Interest
|
Maturity
|
||||||||||||
|
Payee
|
Rate
|
Date
|
2009
|
2008
|
|||||||||
|
Lehman
Brothers Bank
|
Fixed
(5.4025%)
|
1/11/2012
|
$ | 78,980,016 | $ | 81,016,607 | |||||||
|
ING
Investment Management
|
Fixed
(5.60%)
|
1/1/2012
|
30,088,766 | 31,211,603 | |||||||||
|
Fixed
(6.10%)
|
7/1/2012
|
30,416,427 | 31,445,191 | ||||||||||
|
Fixed
(6.61%)
|
11/1/2013
|
6,412,683 | 6,578,270 | ||||||||||
|
Fixed
(6.34%)
|
7/1/2012
|
8,122,717 | 8,319,000 | ||||||||||
| 75,040,593 | 77,554,064 | ||||||||||||
|
National
Western Life Insurance
|
(i)
|
Fixed
(8.0%)
|
1/1/2015
|
14,000,000 | - | ||||||||
|
Chambers
Bank
|
Fixed
(6.5%)
|
6/24/2010
|
1,669,020 | 1,742,534 | |||||||||
|
JP
Morgan
|
Fixed
(7.5%)
|
11/11/2024
|
- | 14,180,289 | |||||||||
|
Bank
of the Ozarks
|
(h)
|
Variable
(6.75% at 12/31/09)
|
6/29/2012
|
5,794,427 | - | ||||||||
|
MetaBank
|
(g)
|
Variable
(5.0% at 12/31/09)
|
4/1/2012
|
7,450,000 | - | ||||||||
|
BNC
National Bank
|
Fixed
(5.01%)
|
11/1/2013
|
5,910,962 | 6,092,607 | |||||||||
|
(f)
|
Variable
(3.0% at 12/31/09
|
4/1/2016
|
5,755,882 | 2,041,373 | |||||||||
|
and
3.0% at 12/31/08)
|
11,666,844 | 8,133,980 | |||||||||||
|
M
& I Bank
|
Variable
(4.13% at 12/31/09
|
12/31/2010
|
9,895,727 | 9,895,727 | |||||||||
|
and
6.8% at 12/31/08)
|
12/31/2010
|
11,524,451 | 11,524,451 | ||||||||||
| 21,420,178 | 21,420,178 | ||||||||||||
|
General
Electric Capital Corp.
|
Fixed
(3.36%)
|
12/1/2017
|
9,122,315 | 9,396,990 | |||||||||
|
Variable
(2.05% at 12/31/09and 3.6% at 12/31/08)
|
3/1/2019
|
11,300,000 | 9,557,647 | ||||||||||
|
(c)
|
Variable
(3.0% at 12/31/09
|
4/1/2014
|
11,400,000 | 9,887,995 | |||||||||
|
and
4.4% at 12/31/08)
|
31,822,315 | 28,842,632 | |||||||||||
|
Fortress
Credit Corp.
|
(b)
|
Variable
(5.98% at 12/31/09 and 6.63% at 12/31/08)
|
3/5/2010
|
83,524,828 | 74,899,566 | ||||||||
|
First
National Bank of Omaha
|
(a)
|
Variable
(5.5% at 12/31/09 and 3.03% at 12/31/08)
|
7/1/2010
|
20,400,000 | 24,400,000 | ||||||||
|
First
National Bank of Omaha
|
(a)
|
Fixed
(5.25%)
|
7/1/2013
|
16,081,630 | 16,889,585 | ||||||||
|
First
National Bank of Omaha
|
(a)
|
Fixed
(6.62%)
|
4/1/2012
|
- | 2,971,977 | ||||||||
|
First
National Bank of Omaha
|
Fixed
(5.25%)
|
2/1/2014
|
8,771,867 | 13,462,622 | |||||||||
|
Bank
of Cascades
|
(d)
|
Variable
(6.0% at 12/31/09 and 6.0% at 12/31/08)
|
9/30/2011
|
12,445,888 | 1,862,974 | ||||||||
|
Compass
Bank
|
(e)
|
Variable
(4.5% at 12/31/09 and 3.0% at 12/31/08)
|
5/17/2018
|
15,657,044 | 2,958,429 | ||||||||
|
Total
long-term debt
|
404,724,650 | 370,335,437 | |||||||||||
|
Less
current portion
|
(134,370,900 | ) | (19,508,600 | ) | |||||||||
|
Total
long-term debt, net of current portion
|
$ | 270,353,750 | $ | 350,826,837 | |||||||||
22
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
(a) The
Company has a credit pool agreement with the First National Bank of Omaha
providing the Company with medium-term financing up to $35,000,000 on a
revolving basis through June 2010. The agreement allows for two-year
interest only notes and five-year amortizing notes, for which the term of an
individual note can extend beyond the term of the agreement. Interest
on unpaid principal is payable monthly at a rate LIBOR plus 4.0% and a floor of
between 5.25% and 5.50%. The amount of credit available on this
agreement to the Company was $0 at December 31, 2009.
(b) On
March 5, 2007, the Company closed on a loan with Fortress Credit Corporation to
refinance the debt on several construction projects and provide equity for the
acquisition, development and construction of additional real estate and hotel
properties. The loan is in the amount of $99,700,000. The current
balance on this note is $83,524,828 and carries a variable interest rate of
30-day LIBOR plus 575 basis points. The maturity date of the note is March
5, 2010. The amount of credit available on this loan was $16,175,172 at
December 31, 2009.
(c) On
February 29, 2008, the Company entered into a loan with General Electric Capital
Corporation in the amount of $11,400,000 to fund the land acquisition and hotel
construction located in San Antonio, TX. The loan carries a variable
interest rate of 90 day LIBOR plus 225 basis points and matures in May,
2014. The current balance is approximately $11,400,000.
(d) On
October 3, 2008, the Company entered into a loan with Bank of the Cascades in
the amount of $13,270,000 to fund the land acquisition and hotel construction of
the Residence Inn located in Portland, OR. The loan carries a
variable interest rate of Prime, with a floor of 6%, and matures September 30,
2011. The current balance is approximately
$12,445,888. The amount of credit available on this loan was
approximately $824,000 at December 31, 2009.
(e) On
September 17, 2008, the Company entered into a loan with Compass Bank in the
amount of $19,250,000 to fund the land acquisition and hotel construction of the
Courtyard by Marriott located in Flagstaff, AZ. The loan carries a
variable interest rate of Prime minus 25 basis points and matures May 17,
2018. The current balance is approximately
$15,657,044. The amount of credit available on this loan was
approximately $3,593,000 at December 31, 2009.
(f) On
October 1, 2008, the Company entered into a loan with BNC National Bank in the
amount of $6,460,000 to fund the land acquisition and hotel construction of the
Holiday Inn Express located in Twin Falls, ID. The loan carries a
variable interest rate of Prime minus 25 basis points and matures April 1,
2016. The current balance is approximately
$5,755,882. The amount of credit available on this loan was
approximately $704,000 at December 31, 2009.
(g) On
March 10, 2009, the Company entered into a loan modification agreement with
MetaBank in the amount of $7,450,000 on the Boise, ID Cambria
Suites. The loan modification extended the maturity date to April 1,
2012.
(h) On
June 29, 2009, the Company entered into a loan with Bank of the Ozarks in the
amount of $10,816,000 to fund the hotel construction located in Portland,
OR. The loan carries a variable interest rate of 90 day LIBOR plus
400 basis points with a floor of 6.75% and matures on June 29,
2012. The current balance is approximately $5,794,427. The
amount of credit available on this loan was approximately $4,778,000 at December
31, 2009.
(i) On
December 9, 2009, the Company entered into two loans with National Western Life
Insurance Company in the amounts of $8,650,000 and $5,350,000 to refinance the
JP Morgan debt on the two Scottsdale, AZ hotels. The loans carry a
fixed rate of 8.0% and mature on January 1, 2015. The current balance
on the two notes is $14,000,000.
23
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
Maturities
of long-term debt for each of the next five years are estimated as
follows:
|
2010
|
$ | 134,370,900 | ||
|
2011
|
19,601,500 | |||
|
2012
|
147,401,500 | |||
|
2013
|
36,369,600 | |||
|
2014
|
28,574,200 | |||
|
Thereafter
|
38,406,950 | |||
| $ | 404,724,650 |
At
December 31, 2009 and 2008, the Company owned 64 and 62 properties,
respectively, that were pledged as collateral on various credit agreements, as
well as accounts receivable and intangible assets. Some of the credit agreements
were also guaranteed by the affiliated members of the Company and certain
affiliated entities. Significant covenants in the credit agreements require the
Company to maintain minimum debt service coverage ratios. The
weighted average interest rate for all borrowings was 5.40% and 5.01% at
December 31, 2009 and 2008, respectively.
NOTE
12 - LINES OF CREDIT AND NOTES PAYABLE
The
Company has a line-of-credit agreement with the First National Bank of Omaha
providing the Company with short-term financing up to $28,200,000 on a revolving
basis. Interest on unpaid principal is payable monthly at a rate
equal to LIBOR plus 4.0%, with a floor of 5.5%. The amount of
outstanding on this line-of-credit was $21,457,943 and $12,288,500 at December
31, 2009 and 2008, respectively, which also represents the maximum amount of
borrowings during the year. This line-of-credit is secured by a
mortgage on the specific hotels financed.
NOTE
13 - MEMBERS’ EQUITY
The
Company was formed on January 8, 2004. As specified in the Company’s
Operating Agreement, the Company has four classes of membership capital units
authorized: Class A, A-1, B and C.
On
October 21, 2008, the Company issued a “Confidential Private Placement
Memorandum” (PPM) for the purpose of acquiring additional
investors. The PPM offered up to $100,000,000 of Class A-1 membership
units. For the period ended December 31, 2008, the Company issued
63.25 units in connection with this offering. The Company received
proceeds of the offering (net of expenses) of $5,614,466. For
the period ended December 31, 2009, the company issued 241.33 units in
connection with this offering. The Company received proceeds of the
offering (net of expenses) of $22,123,951. The offering closed on
October 20, 2009.
NOTE
14 - FRANCHISE AGREEMENTS
The
Company operates hotels under franchise agreements with various hotel chains
expiring through 2025. The franchise agreements are for 3-20 year terms. Under
the franchise agreements, the Company pays royalties of 2.5% to 5.0% of room
revenues and national advertising and media fees of 3% to 4% of total room
revenues.
24
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
For the
years ended December 31, 2009, 2008 and 2007, the Company incurred royalties of
$5,402,948, $6,172,495, and $5,852,019, respectively, and advertising and
national media fees of $8,134,854, $8,741,272, and $7,978,134,
respectively.
The
franchise agreements include restrictions on the transfer of the franchise
licenses and the sale or lease of the hotel properties without prior written
consent of the franchisor.
NOTE
15 - BENEFIT PLANS
The
Company has a qualified contributory retirement plan (the Plan), under Section
401(k) of the Internal Revenue Code which covers all full-time employees who
meet certain eligibility requirements. Voluntary contributions may be made to
the Plan by employees. Discretionary matching Company contributions of $69,385
and $68,543 were made in the years ended December 31, 2008 and 2007,
respectively. The Plan was changed to a Safe Harbor Plan effective
for the 2008 calendar year. This Plan requires a mandatory employer
contribution. Therefore, the Company accrued $137,135 for employer
contributions for the 2008 calendar year. The plan was converted back
to a discretionary match during the fourth quarter 2009. Therefore,
the employer contributions expense for the first three quarters of 2009 was
$116,020.
NOTE
16 - COMMITMENTS AND CONTINGENCIES
The
Company leases land for two of its Ft. Smith properties under the terms of
operating ground lease agreements expiring August 2022 and May
2030. The lease on the Ellensburg property was transferred with the
sale of that hotel in 2009. The Company has options to renew the
other leases for periods that range from 5-30 years. The Company has
a prepaid land lease on the Portland hotels with a remaining balance of
$3,635,595 on December 31, 2009. This lease expires in June
2084. Total rent expense for these leases for the years ended
December 31, 2009, 2008 and 2007 was $321,916, $235,549, and $248,246,
respectively.
Approximate
future minimum rental payments for noncancelable operating leases in excess of
one year are as follows:
|
2010
|
$ | 237,475 | ||
|
2011
|
241,855 | |||
|
2012
|
246,366 | |||
|
2013
|
251,012 | |||
|
2014
|
255,798 | |||
|
Thereafter
|
6,994,127 | |||
| $ | 8,226,633 |
NOTE
17 - RELATED PARTY TRANSACTIONS
Pursuant
to a management agreement, The Summit Group, Inc. (a related party through
common ownership and management control) provides management and accounting
services for the Company. The agreement provides for the Company to
reimburse The Summit Group, Inc. for its actual overhead costs and expenses
relating to the managing of the hotel properties. At no time will the
reimbursed management expenses exceed 4.5% of annual gross
revenues. For the periods ended December 31, 2009, 2008 and 2007, the
Company paid reimbursed management expenses of $2,894,078, $4,186,593, and
$4,122,048, respectively, and reimbursed accounting services of $589,012,
$626,685, and $637,448, respectively. The Company also reimbursed for
maintenance and purchasing services of $530,457, $641,526, and $691,174, for the
periods ended December 31, 2009, 2008, and 2007,
respectively. At December 31, 2009 and 2008, the Company had
accounts payable of $252,113 and $572,919, respectively, to The Summit Group,
Inc. The Company cannot remove The Summit Group, Inc. as its manager
except for cause as specified in the agreement.
25
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
As of
December 31, 2009 and 2008, the Company had accounts payable to The Summit
Group, Inc. for $242,135 and $2,600,260 relating to reimbursement and
development expenses for 5 and 17 new hotel properties,
respectively. The Company reimbursed The Summit Group, Inc. for
development expenses in the amount of $1,300,000 and $1,995,000 for the years
ended December 31, 2009 and 2008, respectively.
In 2008,
the Company issued a private placement memorandum (PPM) for the purpose of
acquiring additional investors. Summit Capital Partners, LLC (SCP), a
related party through common ownership and management control, brokered
securities related to the PPM for the company. For the year ended
December 31, 2008, capital contributions of $6,325,000 (cash proceeds received
net of expenses equaled $5,614,466) was raised with the assistance of
SCP. Commission expense paid to SCP for the year ended December 31,
2008 was $206,625. For the year ended December 31, 2009, capital
contributions of $24,133,000 (cash proceeds received net of expenses equaled
$22,123,951) was raised with the assistance of SCP. Commission
expense paid to SCP for the year ended December 31, 2009 was
$570,600.
NOTE
18 - SUBSEQUENT EVENTS
The
Company and Fortress Credit Corp (“Fortress”) have agreed to the material terms
of an extension of the Company’s loan with Fortress (“Fortress Loan”). In
March 2007 the Company entered into the Fortress Loan, in the amount of $99.7
million and with a maturity date of March 5, 2010. To permit the parties
to finalize the definitive documentation for the extension, Fortress has agreed
to forbear from declaring a default or otherwise enforcing its rights under the
Fortress Loan until April 5, 2010. The extension is anticipated to be for
a period of one year, with an option for an additional six month extension
contingent on meeting certain requirements.
NOTE
19 - SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
Selected
consolidated quarterly financial data (in thousands, except per unit amounts)
for 2009, 2008 and 2007 is summarized below. The sum of the quarterly
earnings (loss) per unit amounts may not equal the annual earnings per unit
amounts due primarily to changes in the number of common units and common unit
equivalents outstanding from quarter to quarter. The matters which
affect the comparability of our quarterly results include
seasonality.
26
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
|
Three Months Ended
|
||||||||||||||||||||
|
Year Ended
|
||||||||||||||||||||
|
3/31
|
6/30
|
9/30
|
12/31
|
12/31
|
||||||||||||||||
|
2009
(restated):
|
||||||||||||||||||||
|
Total
revenue
|
$ | 29,301 | $ | 31,293 | $ | 32,211 | $ | 28,395 | $ | 121,200 | ||||||||||
|
Net
income (loss) from continuing operations before minority
interests
|
(1,698 | ) | (1,619 | ) | (6,914 | ) | (7,548 | ) | (17,779 | ) | ||||||||||
|
Less
minority interests in operations of consolidated
partnerships
|
(123 | ) | (63 | ) | 393 | (207 | ) | - | ||||||||||||
|
Net
income (loss) from continuing operations
|
(1,575 | ) | (1,556 | ) | (7,307 | ) | (7,341 | ) | (17,779 | ) | ||||||||||
|
Discontinued
operations
|
104 | 1,697 | (336 | ) | - | 1,465 | ||||||||||||||
|
Net
income (loss) before income taxes
|
(1,471 | ) | 141 | (7,643 | ) | (7,341 | ) | (16,314 | ) | |||||||||||
|
Less
state income tax
|
- | - | (20 | ) | 20 | - | ||||||||||||||
|
Net
income (loss)
|
$ | (1,471 | ) | $ | 141 | $ | (7,623 | ) | $ | (7,361 | ) | $ | (16,314 | ) | ||||||
|
Net
income (loss) per unit:
|
$ | (893.99 | ) | $ | 82.31 | $ | (4,422.24 | ) | $ | (4,157.62 | ) | $ | (9,391.54 | ) | ||||||
|
2008:
|
||||||||||||||||||||
|
Total
revenue
|
$ | 32,381 | $ | 35,556 | $ | 38,018 | $ | 29,152 | $ | 135,107 | ||||||||||
|
Net
income (loss) from continuing operations before minority
interests
|
459 | 2,688 | 5,337 | (4,473 | ) | 4,011 | ||||||||||||||
|
Less
minority interests in operations of consolidated
partnerships
|
244 | 73 | (158 | ) | 225 | 384 | ||||||||||||||
|
Net
income (loss) from continuing operations
|
215 | 2,615 | 5,495 | (4,698 | ) | 3,627 | ||||||||||||||
|
Discontinued
operations
|
290 | 1,751 | 8,048 | 189 | 10,278 | |||||||||||||||
|
Net
income (loss) before income taxes
|
505 | 4,366 | 13,543 | (4,509 | ) | 13,905 | ||||||||||||||
|
Less
state income tax
|
- | 309 | 895 | (378 | ) | 826 | ||||||||||||||
|
Net
income (loss)
|
$ | 505 | $ | 4,057 | $ | 12,648 | $ | (4,131 | ) | $ | 13,079 | |||||||||
|
Net
income (loss) per unit:
|
$ | 324.79 | $ | 2,609.29 | $ | 8,134.65 | $ | (2,656.88 | ) | $ | 8,411.67 | |||||||||
|
2007:
|
||||||||||||||||||||
|
Total
revenue
|
$ | 25,855 | $ | 29,105 | $ | 30,590 | $ | 28,339 | $ | 113,889 | ||||||||||
|
Net
income (loss) from continuing operations before minority
interests
|
2,624 | 875 | 2,919 | (2,500 | ) | 3,918 | ||||||||||||||
|
Less
minority interests in operations of consolidated
partnerships
|
333 | 219 | (107 | ) | 333 | 778 | ||||||||||||||
|
Net
income (loss) from continuing operations
|
2,291 | 656 | 3,026 | (2,833 | ) | 3,140 | ||||||||||||||
|
Discontinued
operations
|
6 | 3,561 | 2,076 | 5,944 | 11,587 | |||||||||||||||
|
Net
income (loss) before income taxes
|
2,297 | 4,217 | 5,102 | 3,111 | 14,727 | |||||||||||||||
|
Less
state income tax
|
72 | 411 | 298 | (66 | ) | 715 | ||||||||||||||
|
Net
income (loss)
|
$ | 2,225 | $ | 3,806 | $ | 4,804 | $ | 3,177 | $ | 14,012 | ||||||||||
|
Net
income (loss) per unit:
|
$ | 1,431.02 | $ | 2,447.86 | $ | 3,089.73 | $ | 2,043.31 | $ | 9,012.19 | ||||||||||
27
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
NOTE
20 - PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The
following condensed pro forma financial information is presented as if the
acquisitions discussed in Note 6 had been consummated as of the beginning of the
period presented but is not necessarily indicative of what actual results of
operations of the Company would have been assuming the acquisitions had been
consummated at that time nor does it purport to represent the results of
operations for future periods.
|
For the year ended December 31:
|
||||||||||||
|
2009 (restated)
|
2008
|
2007
|
||||||||||
|
Total
revenue
|
$ | 121,199,736 | $ | 142,583,370 | $ | 136,638,460 | ||||||
|
Net
income before minority interests
|
(16,466,961 | ) | 12,984,433 | 14,040,192 | ||||||||
|
Minority
interests in operations of consolidated partnerhips
|
- | 384,269 | 777,762 | |||||||||
|
Net
income
|
$ | (16,466,961 | ) | $ | 12,600,164 | $ | 13,262,430 | |||||
|
Net
income per unit:
|
$ | (9,479.41 | ) | $ | 8,103.89 | $ | 8,529.83 | |||||
NOTE
21 – IMMATERIAL CORRECTION OF AN ERROR
As
disclosed in the quarterly report on Form 10-Q of the Company, for the quarter
ended March 31, 2010, the Company recorded an impairment charge of $1,173,100 to
write down the carrying value of its Courtyard hotel in Memphis, TN to fair
value. Management’s evaluation of impairment for this property as of
December 31, 2009 indicated a potential impairment, however, management
concluded at that time that the amount was not material to the 2009 financial
statements. Subsequently, management concluded that the fair value at
December 31, 2009 was not different from the fair value that was determined in
the quarter ended March 31, 2010. Therefore, management believes the
impairment charge should have been recorded in the quarter ended December 31,
2009. The effect of the error was to understate Loss on Impairment of
Assets for the year ended December 31, 2009 and to overstate Property and
Equipment, net at December 31, 2009.
The
following is a summary of the effects of the correction on the Company’s
consolidated balance sheet as of December 31, 2009 and the consolidated
statement of operations, statement of cash flows, and statement of changes in
members’ equity for the year ended December 31, 2009. This correction
also affected sections of Notes 1, 3, 19 and 20.
28
SUMMIT
HOTEL PROPERTIES, LLC
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
|
December
31, 2009
|
||||||||
|
As
Previously
|
As
|
|||||||
|
Reported
|
Restated
|
|||||||
|
Consolidated Balance Sheet
|
||||||||
|
Property
and Equipment, net
|
$ | 483,940,701 | $ | 482,767,601 | ||||
|
Total
Assets
|
$ | 519,419,531 | $ | 518,246,431 | ||||
|
Class
A, 1,166.62 units
|
$ | 60,451,469 | $ | 59,961,958 | ||||
|
Class
A-1, 437.83 & 196.50 units
|
34,330,877 | 34,244,056 | ||||||
|
Class
B, 81.36 units
|
1,891,187 | 1,804,718 | ||||||
|
Class
C, 173.60 units
|
(12,576,658 | ) | (13,086,957 | ) | ||||
|
Total
Summit Hotel Properties, LLC members' equity
|
$ | 84,096,875 | $ | 82,923,775 | ||||
|
Total
Equity
|
$ | 82,472,412 | $ | 81,299,312 | ||||
|
Total
Liabilities and Members' Equity
|
$ | 519,419,531 | $ | 518,246,431 | ||||
|
Consolidated Statement of
Operations
|
||||||||
|
Loss
on impairment of assets
|
$ | 6,332,836 | $ | 7,505,836 | ||||
|
Costs
and expenses
|
119,530,510 | 120,703,610 | ||||||
|
Income
from operations
|
1,669,226 | 496,126 | ||||||
|
Income
(loss) from continuing operations
|
(16,606,040 | ) | (17,779,140 | ) | ||||
|
Net
income (loss) before income taxes
|
(15,141,232 | ) | (16,314,332 | ) | ||||
|
Net
income (loss)
|
(15,141,232 | ) | (16,314,332 | ) | ||||
|
Net
loss attributable to Summit Hotel Properties, LLC
|
$ | (15,141,232 | ) | $ | (16,314,332 | ) | ||
|
Basic
and diluted loss per $100,000capital unit
|
$ | (8,716.23 | ) | $ | (9,391.54 | ) | ||
|
Consolidated Statement of Changes in Members'
Equity
|
||||||||
|
Net
Income (Loss)
|
$ | (15,141,323 | ) | $ | (16,314,332 | ) | ||
|
Class
A
|
(6,318,133 | ) | (6,807,644 | ) | ||||
|
Class
A-1
|
(1,120,603 | ) | (1,207,424 | ) | ||||
|
Class
B
|
(1,116,060 | ) | (1,202,529 | ) | ||||
|
Class
C
|
(6,586,436 | ) | (7,096,735 | ) | ||||
|
Total
SHP members' equity
|
$ | 84,096,875 | $ | 82,923,775 | ||||
|
Class
A
|
60,451,469 | 59,961,958 | ||||||
|
Class
A-1
|
34,330,877 | 34,244,056 | ||||||
|
Class
B
|
1,891,187 | 1,804,718 | ||||||
|
Class
C
|
(12,576,658 | ) | (13,086,957 | ) | ||||
|
Consolidated Statement of Cash
Flows
|
||||||||
|
Net
income (loss)
|
$ | (15,141,232 | ) | $ | (16,314,332 | ) | ||
|
Loss
on impairment of assets
|
$ | 6,332,836 | $ | 7,505,836 | ||||
29