Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - Watermark Lodging Trust, Inc. | cwi220168-kalajollaexh992.htm |
| EX-99.1 - EXHIBIT 99.1 - Watermark Lodging Trust, Inc. | cwi220168-kalajollaexh991.htm |
| 8-K/A - 8-K/A - Watermark Lodging Trust, Inc. | cwi220168-kalajolla.htm |
Exhibit 99.3
CAREY WATERMARK INVESTORS 2 INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Our pro forma condensed consolidated balance sheet as of March 31, 2016 has been prepared as if the significant transactions during the second and third quarters of 2016 (noted herein) had occurred as of March 31, 2016. Our pro forma condensed consolidated statements of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 have been prepared based on our historical financial statements as if the significant transaction and related financing during the first quarter of 2016 had occurred on July 14, 2015, the opening date of that hotel, and as if the significant transactions and related financings during the year ended December 31, 2015 and the second and third quarters of 2016 had occurred on January 1, 2015. Pro forma adjustments are intended to reflect what the effect would have been on amounts that have been recorded in our historical consolidated statement of operations had we held our ownership interest as of July 14, 2015 for the significant transaction during the first quarter of 2016 and as of January 1, 2015 for the significant transactions during the year ended December 31, 2015 and the second and third quarters of 2016. 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 three months ended March 31, 2016 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 three months ended March 31, 2016. The pro forma condensed consolidated financial information for the year ended December 31, 2015 should be read in conjunction with our historical consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2015. The pro forma information is not necessarily indicative of our financial condition had the significant transactions during the second and third quarter of 2016 occurred on March 31, 2016, or results of operations had the significant transaction during the first quarter of 2016 occurred on July 14, 2015 and the significant transactions during the year ended December 31, 2015 and the second and third quarters of 2016 occurred on January 1, 2015, 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) | ||||||||||||||||||||||
March 31, 2016 | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||
CWI 2 Historical | Le Méridien Arlington | San Jose Marriott | San Diego Marriott La Jolla | Pro Forma | ||||||||||||||||||
Assets | ||||||||||||||||||||||
Investments in real estate: | ||||||||||||||||||||||
Hotels, at cost | $ | 550,533 | $ | 56,525 | A | $ | 153,837 | A | $ | 136,780 | A | $ | 897,675 | |||||||||
Accumulated depreciation | (9,174 | ) | — | — | — | (9,174 | ) | |||||||||||||||
Net investments in hotels | 541,359 | 56,525 | 153,837 | 136,780 | 888,501 | |||||||||||||||||
Equity investments in real estate | 38,000 | — | — | — | 38,000 | |||||||||||||||||
Cash | 119,615 | (54,891 | ) | A | (153,814 | ) | A | (136,781 | ) | A | 26,674 | |||||||||||
35,000 | A | 88,000 | A | 85,000 | A | |||||||||||||||||
(2,043 | ) | A | (4,831 | ) | A | (4,284 | ) | A | ||||||||||||||
(570 | ) | A | (676 | ) | A | (188 | ) | A | ||||||||||||||
— | (126 | ) | A | (2,605 | ) | A | ||||||||||||||||
— | — | 59,868 | B | |||||||||||||||||||
Restricted cash | 25,023 | — | 126 | A | 2,605 | A | 27,754 | |||||||||||||||
Accounts receivable | 8,029 | 41 | A | 2,286 | A | 112 | A | 10,468 | ||||||||||||||
Other assets | 7,991 | 290 | A | 423 | A | 607 | A | 9,311 | ||||||||||||||
Total assets | $ | 740,017 | $ | 34,352 | $ | 85,225 | $ | 141,114 | $ | 1,000,708 | ||||||||||||
Liabilities and Equity | ||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||
Non-recourse and limited-recourse debt | $ | 318,224 | $ | 35,000 | A | $ | 88,000 | A | $ | 85,000 | A | $ | 524,790 | |||||||||
(570 | ) | A | (676 | ) | A | (188 | ) | A | ||||||||||||||
Due to related parties and affiliates | 8,508 | — | — | — | 8,508 | |||||||||||||||||
Accounts payable, accrued expenses and other liabilities | 24,391 | 1,965 | A | 2,732 | A | 718 | A | 29,806 | ||||||||||||||
Distributions payable | 3,908 | — | — | — | 3,908 | |||||||||||||||||
Total liabilities | 355,031 | 36,395 | 90,056 | 85,530 | 567,012 | |||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||
Equity: | ||||||||||||||||||||||
CWI 2 stockholders’ equity: | ||||||||||||||||||||||
Preferred stock | — | — | — | — | — | |||||||||||||||||
Class A common stock | 17 | — | — | 6 | B | 23 | ||||||||||||||||
Class T common stock | 25 | — | — | — | 25 | |||||||||||||||||
Additional paid-in capital | 370,851 | — | — | 59,862 | B | 430,713 | ||||||||||||||||
Distributions and accumulated losses | (22,718 | ) | (2,043 | ) | A | (4,831 | ) | A | (4,284 | ) | A | (33,876 | ) | |||||||||
Accumulated other comprehensive loss | (1,281 | ) | — | — | — | (1,281 | ) | |||||||||||||||
Total CWI 2 stockholders’ equity | 346,894 | (2,043 | ) | (4,831 | ) | 55,584 | 395,604 | |||||||||||||||
Noncontrolling interests | 38,092 | — | — | — | 38,092 | |||||||||||||||||
Total equity | 384,986 | (2,043 | ) | (4,831 | ) | 55,584 | 433,696 | |||||||||||||||
Total liabilities and equity | $ | 740,017 | $ | 34,352 | $ | 85,225 | $ | 141,114 | $ | 1,000,708 | ||||||||||||
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 Three Months Ended March 31, 2016 | |||||||||||||||||||||
(in thousands, except share and per share amounts) | |||||||||||||||||||||
Pro Forma Adjustments (Including Pre-Acquisition Historical Amounts) | |||||||||||||||||||||
CWI 2 Historical | Other 2016 Acquisitions | San Diego Marriott La Jolla | Weighted Average Shares | Pro Forma | |||||||||||||||||
Hotel Revenues | |||||||||||||||||||||
Rooms | $ | 18,141 | $ | 12,402 | C | $ | 5,626 | C | $ | 36,169 | |||||||||||
Food and beverage | 9,960 | 4,017 | C | 2,496 | C | 16,473 | |||||||||||||||
Other operating revenue | 2,751 | 466 | C | 457 | C | 3,674 | |||||||||||||||
Total Revenues | 30,852 | 16,885 | 8,579 | 56,316 | |||||||||||||||||
Operating Expenses | |||||||||||||||||||||
Hotel Expenses | |||||||||||||||||||||
Rooms | 3,431 | 2,660 | D | 1,138 | D | 7,229 | |||||||||||||||
Food and beverage | 5,833 | 3,173 | D | 1,341 | D | 10,347 | |||||||||||||||
Other hotel operating expenses | 1,247 | 392 | D | 54 | D | 1,693 | |||||||||||||||
Sales and marketing | 2,700 | 1,287 | D | 815 | D | 4,802 | |||||||||||||||
General and administrative | 2,462 | 1,180 | D | 660 | D | 4,302 | |||||||||||||||
Property taxes, insurance, rent and other | 1,521 | 848 | D | 335 | D | 2,704 | |||||||||||||||
Repairs and maintenance | 951 | 576 | D | 204 | D | 1,731 | |||||||||||||||
Utilities | 910 | 355 | D | 241 | D | 1,506 | |||||||||||||||
Management fees | 1,092 | 503 | D | 257 | D | 1,852 | |||||||||||||||
Depreciation and amortization | 3,815 | 1,894 | D | 977 | D | 6,686 | |||||||||||||||
Total Hotel Expenses | 23,962 | 12,868 | 6,022 | 42,852 | |||||||||||||||||
Other Operating Expenses | |||||||||||||||||||||
Acquisition-related expenses | 4,866 | (4,820 | ) | E | (44 | ) | E | 2 | |||||||||||||
Corporate general and administrative expenses | 1,014 | — | — | 1,014 | |||||||||||||||||
Asset management fees to affiliate and other expenses | 917 | 359 | F | 196 | F | 1,472 | |||||||||||||||
Total Other Operating Expenses (Income) | 6,797 | (4,461 | ) | 152 | 2,488 | ||||||||||||||||
Operating Income | 93 | 8,478 | 2,405 | 10,976 | |||||||||||||||||
Other Income and (Expenses) | |||||||||||||||||||||
Interest expense | (2,916 | ) | (1,320 | ) | G | (884 | ) | G | (5,120 | ) | |||||||||||
Equity in earnings of equity method investment in real estate | 798 | — | — | 798 | |||||||||||||||||
Other income and (expenses) | 9 | — | — | 9 | |||||||||||||||||
(2,109 | ) | (1,320 | ) | (884 | ) | (4,313 | ) | ||||||||||||||
(Loss) Income from Operations Before Income Taxes | (2,016 | ) | 7,158 | 1,521 | 6,663 | ||||||||||||||||
Provision for income taxes | (30 | ) | (236 | ) | I | (122 | ) | I | (388 | ) | |||||||||||
Net (Loss) Income | (2,046 | ) | 6,922 | 1,399 | 6,275 | ||||||||||||||||
Income attributable to noncontrolling interest | (1,655 | ) | — | — | (1,655 | ) | |||||||||||||||
Net (Loss) Income Attributable to CWI 2 Stockholders | $ | (3,701 | ) | $ | 6,922 | $ | 1,399 | $ | 4,620 | ||||||||||||
Class A Common Stock | |||||||||||||||||||||
Net (loss) income attributable to CWI 2 Stockholders | $ | (1,497 | ) | $ | 2,802 | ||||||||||||||||
Basic and diluted weighted-average shares outstanding | 14,398,254 | 17,820,176 | K | 32,218,430 | |||||||||||||||||
Basic and Diluted Net (Loss) Income Per Share | $ | (0.10 | ) | $ | 0.09 | ||||||||||||||||
Class T Common Stock | |||||||||||||||||||||
Net (loss) income attributable to CWI 2 Stockholders | $ | (2,204 | ) | $ | 1,818 | ||||||||||||||||
Basic and diluted weighted-average shares outstanding | 21,063,401 | — | 21,063,401 | ||||||||||||||||||
Basic and Diluted Net (Loss) Income Per Share | $ | (0.10 | ) | $ | 0.09 | ||||||||||||||||
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, 2015 | |||||||||||||||||||||||||
(in thousands, except share and per share amounts) | |||||||||||||||||||||||||
Pro Forma Adjustments (Including Pre-Acquisition Historical Amounts) | |||||||||||||||||||||||||
CWI 2 Historical | 2015 Acquisitions | Other 2016 Acquisitions | San Diego Marriott La Jolla | Weighted Average Shares | Pro Forma | ||||||||||||||||||||
Hotel Revenues | |||||||||||||||||||||||||
Rooms | $ | 27,524 | $ | 28,052 | C | $ | 48,629 | C | $ | 21,060 | C | $ | 125,265 | ||||||||||||
Food and beverage | 15,321 | 11,452 | C | 17,030 | C | 7,274 | C | 51,077 | |||||||||||||||||
Other operating revenue | 6,240 | 3,506 | C | 1,992 | C | 1,683 | C | 13,421 | |||||||||||||||||
Total Revenues | 49,085 | 43,010 | 67,651 | 30,017 | 189,763 | ||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||
Hotel Expenses | |||||||||||||||||||||||||
Rooms | 5,812 | 5,243 | D | 12,482 | D | 4,205 | D | 27,742 | |||||||||||||||||
Food and beverage | 10,220 | 6,256 | D | 13,273 | D | 4,779 | D | 34,528 | |||||||||||||||||
Other hotel operating expenses | 3,044 | 1,445 | D | 1,106 | D | 154 | D | 5,749 | |||||||||||||||||
Sales and marketing | 4,423 | 4,589 | D | 6,016 | D | 3,019 | D | 18,047 | |||||||||||||||||
General and administrative | 3,817 | 2,937 | D | 6,084 | D | 2,315 | D | 15,153 | |||||||||||||||||
Property taxes, insurance, rent and other | 2,495 | 2,009 | D | 3,926 | D | 1,293 | D | 9,723 | |||||||||||||||||
Repairs and maintenance | 2,144 | 1,263 | D | 2,416 | D | 937 | D | 6,760 | |||||||||||||||||
Utilities | 2,145 | 1,345 | D | 1,746 | D | 954 | D | 6,190 | |||||||||||||||||
Management fees | 1,975 | 1,214 | D | 1,970 | D | 900 | D | 6,059 | |||||||||||||||||
Depreciation and amortization | 5,975 | 5,462 | D | 8,922 | D | 4,775 | D | 25,134 | |||||||||||||||||
Total Hotel Expenses | 42,050 | 31,763 | 57,941 | 23,331 | 155,085 | ||||||||||||||||||||
Other Operating Expenses | |||||||||||||||||||||||||
Acquisition-related expenses | 13,133 | (12,709 | ) | E | (404 | ) | E | — | 20 | ||||||||||||||||
Corporate general and administrative expenses | 2,302 | — | — | — | 2,302 | ||||||||||||||||||||
Asset management fees to affiliate and other expenses | 1,152 | 1,199 | F | 1,675 | F | 786 | F | 4,812 | |||||||||||||||||
Total Other Operating Expenses | 16,587 | (11,510 | ) | 1,271 | 786 | 7,134 | |||||||||||||||||||
Operating (Loss) Income | (9,552 | ) | 22,757 | 8,439 | 5,900 | 27,544 | |||||||||||||||||||
Other Income and (Expenses) | |||||||||||||||||||||||||
Interest expense | (4,368 | ) | (4,533 | ) | G | (6,369 | ) | G | (3,537 | ) | G | (18,807 | ) | ||||||||||||
Equity in earnings of equity method investment in real estate | 1,846 | 926 | H | — | — | 2,772 | |||||||||||||||||||
Other income and (expenses) | 83 | — | — | — | 83 | ||||||||||||||||||||
(2,439 | ) | (3,607 | ) | (6,369 | ) | (3,537 | ) | (15,952 | ) | ||||||||||||||||
(Loss) Income from Operations Before Income Taxes | (11,991 | ) | 19,150 | 2,070 | 2,363 | 11,592 | |||||||||||||||||||
Provision for income taxes | (72 | ) | (566 | ) | I | (924 | ) | I | (428 | ) | I | (1,990 | ) | ||||||||||||
Net (Loss) Income | (12,063 | ) | 18,584 | 1,146 | 1,935 | 9,602 | |||||||||||||||||||
Income attributable to noncontrolling interest | (471 | ) | (703 | ) | J | — | — | (1,174 | ) | ||||||||||||||||
Net (Loss) Income Attributable to CWI 2 Stockholders | $ | (12,534 | ) | $ | 17,881 | $ | 1,146 | $ | 1,935 | $ | 8,428 | ||||||||||||||
Class A Common Stock | |||||||||||||||||||||||||
Net (loss) income attributable to CWI 2 Stockholders | $ | (5,328 | ) | $ | 7,569 | ||||||||||||||||||||
Basic and diluted weighted-average shares outstanding | 2,447,082 | 26,724,231 | K | 29,171,313 | |||||||||||||||||||||
Basic and Diluted Net (Loss) Income Per Share | $ | (2.18 | ) | $ | 0.26 | ||||||||||||||||||||
Class T Common Stock | |||||||||||||||||||||||||
Net (loss) income attributable to CWI 2 Stockholders | $ | (7,206 | ) | $ | 859 | ||||||||||||||||||||
Basic and diluted weighted-average shares outstanding | 3,309,508 | — | 3,309,508 | ||||||||||||||||||||||
Basic and Diluted Net (Loss) Income Per Share | $ | (2.18 | ) | $ | 0.26 | ||||||||||||||||||||
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 March 31, 2016 and the pro forma condensed consolidated statement of operations for the three months ended March 31, 2016 were derived from our historical consolidated financial statements included in our Quarterly Report on Form 10-Q as of and for the three months ended March 31, 2016. The pro forma condensed consolidated statement of operations for the year ended December 31, 2015 was derived from our historical consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.
Note 2. Historical Acquisitions
2015 Acquisitions
On April 1, 2015, May 1, 2015 and November 4, 2015, we acquired controlling interests in three hotels: Marriott Sawgrass Golf Resort & Spa, Courtyard Nashville Downtown and Embassy Suites by Hilton Denver-Downtown/Convention Center, 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 "2015 Acquisitions").
All of the transactions noted above are reflected in our historical consolidated statement of operations for the year ended December 31, 2015 from their respective dates of acquisition through December 31, 2015 and fully reflected in our historical consolidated statement of operations for the three months ended March 31, 2016. We made pro forma adjustments (Note 3, adjustments C through K) to reflect the impact on our results of operations had all of these acquisitions been made on January 1, 2015.
Other 2016 Acquisitions
On January 22, 2016, June 28, 2016 and July 13, 2016 we acquired controlling interests in the Seattle Marriott Bellevue, the Le Méridien Arlington and the San Jose Marriott, respectively (collectively, our "Other 2016 Acquisitions").
The acquisition of the Seattle Marriott Bellevue is reflected in our historical consolidated balance sheet at March 31, 2016 and, therefore, no pro forma adjustments to our historical consolidated balance sheet as of March 31, 2016 were required. In addition, the acquisition of the Seattle Marriott Bellevue is reflected in our historical consolidated statement of operations for the three months ended March 31, 2016 from its respective date of acquisition through March 31, 2016. We made pro forma adjustments (Note 3, adjustments C through K) to reflect the impact on our results of operations had the acquisitions of the Le Méridien Arlington and the San Jose Marriott been made on January 1, 2015 and the acquisition of the Seattle Marriott Bellevue had been made on July 14, 2015, the opening date of the hotel.
5 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
Note 3. Pro Forma Adjustments
A. Investment
Le Méridien Arlington
On June 28, 2016, we acquired a 100% interest in the Le Méridien Arlington from HEI Hotels & Resorts, an unaffiliated third party, and acquired real estate and other hotel assets, net of assumed liabilities totaling $54.9 million, as detailed in the table that follows. The 154-room, full-service hotel is located in Rosslyn, Virginia. The hotel continues to be managed by HEI Hotels & Resorts.
We acquired the Le Méridien Arlington through a wholly-owned subsidiary and obtained a non-recourse mortgage loan of $35.0 million, with a floating annual interest rate of London Interbank Offered, or LIBOR, rate plus 2.8%, which is subject to an interest rate cap. The loan is interest-only for 36 months and has a maturity date of June 28, 2020. We recognized $0.6 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 three months ended March 31, 2016 and the year ended December 31, 2015.
In connection with this acquisition, we expensed acquisition costs of $2.0 million, including acquisition fees of $1.5 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 March 31, 2016.
San Jose Marriott
On July 13, 2016, we acquired a 100% interest in the San Jose Marriott from SP6 San Jose Hotel Lessee, LLC and SP6 San Jose Hotel Owner, LLC, unaffiliated third parties, and, collectively, the Seller, and acquired real estate and other hotel assets, net of assumed liabilities totaling $153.8 million, as detailed in the table that follows. The 510-room, full-service hotel is located in San Jose, California. The hotel continues to be managed by Marriott International, Inc.
We acquired the San Jose Marriott through a wholly-owned subsidiary and obtained a non-recourse mortgage loan of $88.0 million, with a floating annual interest rate of LIBOR plus 2.8%, which is subject to an interest rate cap. The loan is interest-only for 36 months and has a maturity date of July 12, 2019. We recognized $0.7 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 three months ended March 31, 2016 and the year ended December 31, 2015.
In connection with this acquisition, we expensed acquisition costs of $4.8 million, including acquisition fees of $4.1 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 March 31, 2016. We placed $0.1 million into lender-held escrow accounts in connection with general repair and maintenance of the hotel.
San Diego Marriott La Jolla
On July 21, 2016, we acquired a 100% interest in the San Diego Marriott La Jolla from HEI La Jolla LLC, an unaffiliated third party, and acquired real estate and other hotel assets, net of assumed liabilities totaling $136.8 million, as detailed in the table that follows. The 372-room, full-service hotel is located in La Jolla, California. The hotel continues to be managed by HEI Hotels & Resorts.
We acquired the San Diego Marriott La Jolla through a wholly-owned subsidiary and obtained a non-recourse mortgage loan of $85.0 million, with a fixed interest rate of 4.1%. The loan is interest-only for 36 months and has a maturity date of August 1, 2023. We recognized $0.2 million of deferred financing costs related to this loan.
In connection with this acquisition, we expensed acquisition costs of $4.3 million, including acquisition fees of $3.7 million paid to our advisor, which are reflected as a charge to Distributions and accumulated losses in the pro forma condensed consolidated balance sheet as of March 31, 2016. We placed $2.6 million into lender-held escrow accounts in connection with general repair and maintenance of the hotel.
6 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
The following table presents a preliminary summary of assets acquired and liabilities assumed in these business combinations, at the dates of acquisition (in thousands):
Le Méridien Arlington | San Jose Marriott | San Diego Marriott La Jolla | ||||||||||||||
Acquisition consideration | ||||||||||||||||
Cash consideration | $ | 54,891 | $ | 153,814 | $ | 136,781 | ||||||||||
Assets acquired at fair value: | ||||||||||||||||
Building | $ | 42,791 | $ | 138,027 | $ | 109,240 | ||||||||||
Land | 9,167 | 7,650 | 20,264 | |||||||||||||
Furniture, fixtures and equipment | 4,567 | 8,160 | 6,216 | |||||||||||||
Building and site improvements | — | — | 1,060 | |||||||||||||
Accounts receivable | 41 | 2,286 | 112 | |||||||||||||
Other assets | 290 | 423 | 607 | |||||||||||||
Liabilities assumed at fair value: | ||||||||||||||||
Accounts payable, accrued expenses and other | (1,965 | ) | (2,732 | ) | (718 | ) | ||||||||||
Net assets acquired at fair value | $ | 54,891 | $ | 153,814 | $ | 136,781 | ||||||||||
B. Fundraising
At March 31, 2016, we did not have sufficient cash on hand to acquire and commence operations of the San Diego Marriott La Jolla; therefore, for pro forma purposes, we assumed we would have used offering proceeds of $59.9 million through the issuance of 6.0 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 March 31, 2016.
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 three months ended March 31, 2016 and the year ended December 31, 2015 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 | |||||||
Three Months Ended March 31, 2016 | |||||||
Other 2016 Acquisitions | San Diego Marriott La Jolla | ||||||
Rooms | $ | 12,402 | $ | 5,626 | |||
Food and beverage | 4,017 | 2,496 | |||||
Other hotel income | 466 | 457 | |||||
$ | 16,885 | $ | 8,579 | ||||
Pre-Acquisition Historical | |||||||||||
Year Ended December 31, 2015 | |||||||||||
2015 Acquisitions | Other 2016 Acquisitions | San Diego Marriott La Jolla | |||||||||
Rooms | $ | 28,052 | $ | 48,629 | $ | 21,060 | |||||
Food and beverage | 11,452 | 17,030 | 7,274 | ||||||||
Other hotel income | 3,506 | 1,992 | 1,683 | ||||||||
$ | 43,010 | $ | 67,651 | $ | 30,017 | ||||||
7 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
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 three months ended March 31, 2016 and the year ended December 31, 2015 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 | |||||||
Three Months Ended March 31, 2016 | |||||||
Other 2016 Acquisitions | San Diego Marriott La Jolla | ||||||
Rooms | $ | 2,660 | $ | 1,138 | |||
Food and beverage | 3,173 | 1,341 | |||||
Other hotel operating expenses | 392 | 54 | |||||
General and administrative | 1,180 | 660 | |||||
Property taxes, insurance, rent and other | 848 | 335 | |||||
Repairs and maintenance | 576 | 204 | |||||
Utilities | 355 | 241 | |||||
$ | 9,184 | $ | 3,973 | ||||
Pre-Acquisition Historical | |||||||||||
Year Ended December 31, 2015 | |||||||||||
2015 Acquisitions | Other 2016 Acquisitions | San Diego Marriott La Jolla | |||||||||
Rooms | $ | 5,243 | $ | 12,482 | $ | 4,205 | |||||
Food and beverage | 6,256 | 13,273 | 4,779 | ||||||||
Other hotel operating expenses | 1,445 | 1,106 | 154 | ||||||||
General and administrative | 2,937 | 6,084 | 2,315 | ||||||||
Property taxes, insurance, rent and other | 2,009 | 3,926 | 1,293 | ||||||||
Repairs and maintenance | 1,263 | 2,416 | 937 | ||||||||
Utilities | 1,345 | 1,746 | 954 | ||||||||
$ | 20,498 | $ | 41,033 | $ | 14,637 | ||||||
8 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
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 three months ended March 31, 2016 and the year ended December 31, 2015 represent the hotel expenses that would have been incurred in addition to those presented in our historical financial statements, when applicable (in thousands):
Three Months Ended March 31, 2016 | |||||||
Other 2016 Acquisitions | San Diego Marriott La Jolla | ||||||
Sales and marketing - pre-acquisition historical | $ | 1,287 | $ | 744 | |||
Sales and marketing - pro forma adjustments | — | 71 | |||||
Sales and marketing - pro forma results | $ | 1,287 | $ | 815 | |||
Management fees - pre-acquisition historical | $ | 499 | $ | 257 | |||
Management fees - pro forma adjustments | 4 | — | |||||
Management fees - pro forma results | $ | 503 | $ | 257 | |||
Depreciation and amortization - pre-acquisition historical | $ | 1,724 | $ | 1,230 | |||
Depreciation and amortization - pro forma adjustments | 170 | (253 | ) | ||||
Depreciation and amortization - pro forma results | $ | 1,894 | $ | 977 | |||
Year Ended December 31, 2015 | |||||||||||
2015 Acquisitions | Other 2016 Acquisitions | San Diego Marriott La Jolla | |||||||||
Sales and marketing - pre-acquisition historical | $ | 4,589 | $ | 6,016 | $ | 2,769 | |||||
Sales and marketing - pro forma adjustments | — | — | 250 | ||||||||
Sales and marketing - pro forma results | $ | 4,589 | $ | 6,016 | $ | 3,019 | |||||
Management fees - pre-acquisition historical | $ | 1,410 | $ | 1,950 | $ | 900 | |||||
Management fees - pro forma adjustments | (196 | ) | 20 | — | |||||||
Management fees - pro forma results | $ | 1,214 | $ | 1,970 | $ | 900 | |||||
Depreciation and amortization - pre-acquisition historical | $ | 5,382 | $ | 7,217 | $ | 4,883 | |||||
Depreciation and amortization - pro forma adjustments | 80 | 1,705 | (108 | ) | |||||||
Depreciation and amortization - pro forma results | $ | 5,462 | $ | 8,922 | $ | 4,775 | |||||
E. Acquisition-Related Expenses
Acquisition costs of $12.7 million and $0.4 million related to 2015 Acquisitions and Other 2016 Acquisitions, respectively, which are non-recurring in nature, are reflected in our historical consolidated statement of operations for the year ended December 31, 2015. For the three months ended March 31, 2016, acquisition costs of $4.8 million and less than $0.1 million are reflected in our historical consolidated statement of operation related to Other 2016 Acquisitions and the San Diego Marriott La Jolla, respectively. We have reflected pro forma adjustments to exclude these non-recurring charges from our pro forma condensed consolidated statement of operations.
9 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
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 the Seattle Marriott Bellevue occurred on July 1, 2015 and our 2015 Acquisitions and the acquisition of the Le Méridien Arlington, the San Jose Marriott and the San Diego Marriott La Jolla occurred on January 1, 2015. The following pro forma adjustments for the three months ended March 31, 2016 and year ended December 31, 2015 represent incremental asset management fees that would have been incurred in addition to asset management fees presented in our historical financial statements (in thousands):
Three Months Ended March 31, 2016 | ||||||||||||
Other 2016 Acquisitions | San Diego Marriott La Jolla | |||||||||||
Asset management fee expense - pre-acquisition historical | $ | 62 | $ | — | ||||||||
Asset management fee expense - pro forma adjustments | 297 | 196 | ||||||||||
Asset management fee expense - pro forma results | $ | 359 | $ | 196 | ||||||||
Year Ended December 31, 2015 | ||||||||||||||||
2015 Acquisitions | Other 2016 Acquisitions | San Diego Marriott La Jolla | ||||||||||||||
Asset management fee expense - pre-acquisition historical | $ | — | $ | 275 | $ | — | ||||||||||
Asset management fee expense - pro forma adjustments | 1,199 | 1,400 | 786 | |||||||||||||
Asset management fee expense - pro forma results | $ | 1,199 | $ | 1,675 | $ | 786 | ||||||||||
G. Interest Expense
The following pro forma adjustments for the three months ended March 31, 2016 and year ended December 31, 2015 represent the incremental interest expense that would have been incurred in addition to the amounts presented in our historical financial statements (in thousands):
Three Months Ended March 31, 2016 | |||||||
Other 2016 Acquisitions | San Diego Marriott La Jolla | ||||||
Interest expense - pre-acquisition historical | $ | 895 | $ | 491 | |||
Interest expense - pro forma adjustments | 425 | 393 | |||||
Interest expense - pro forma results | $ | 1,320 | $ | 884 | |||
Year Ended December 31, 2015 | |||||||||||
2015 Acquisitions | Other 2016 Acquisitions | San Diego Marriott La Jolla | |||||||||
Interest expense - pre-acquisition historical | $ | 3,349 | $ | 4,047 | $ | 1,849 | |||||
Interest expense - pro forma adjustments | 1,184 | 2,322 | 1,688 | ||||||||
Interest expense - pro forma results | $ | 4,533 | $ | 6,369 | $ | 3,537 | |||||
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.
10 | |
Notes to Pro Forma Condensed Consolidated Financial Statements
Based upon the hypothetical liquidation at book value method, our adjustment to pro forma equity in earnings would have been $0.9 million for the year ended December 31, 2015.
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 three months ended March 31, 2016 and year ended December 31, 2015 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):
Three Months Ended March 31, 2016 | |||||||
Other 2016 Acquisitions | San Diego Marriott La Jolla | ||||||
Provision for income taxes - pre-acquisition historical | $ | — | $ | — | |||
Provision for income taxes - pro forma adjustments | 236 | 122 | |||||
Provision for income taxes - pro forma results | $ | 236 | $ | 122 | |||
Year Ended December 31, 2015 | |||||||||||
2015 Acquisitions | Other 2016 Acquisitions | San Diego Marriott La Jolla | |||||||||
Provision for income taxes - pre-acquisition historical | $ | — | $ | — | $ | — | |||||
Provision for income taxes - pro forma adjustments | 566 | 924 | 428 | ||||||||
Provision for income taxes - pro forma results | $ | 566 | $ | 924 | $ | 428 | |||||
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 for the year ended December 31, 2015.
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 the Seattle Marriott Bellevue in these pro forma condensed consolidated financial statements were issued on July 14, 2015 and any shares needed for our 2015 Acquisitions and the acquisitions of the Le Méridien Arlington, the San Jose Marriott and the San Diego Marriott La Jolla included in these pro forma condensed consolidated financial statements were issued on January 1, 2015.
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