UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 24, 2013 (August 9, 2013)
CHATHAM LODGING TRUST
(Exact name of Registrant as specified in its charter)
Maryland | 001-34693 | 27-1200777 |
(State or Other Jurisdiction of Incorporation or Organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
50 Cocoanut Row, Suite 211 Palm Beach, Florida | 33480 |
(Address of principal executive offices) | (Zip Code) |
(561) 802-4477
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed from last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01 Regulation FD Disclosure
On September 24, 2013, Chatham Lodging Trust (the "Company") issued a press release announcing that it has launched a public offering of its common shares of beneficial interest, $0.01 par value per share (the "Offering").
A copy of such press release is furnished as Exhibit 99.1 to this report.
Item 8.01. | Other Events |
Completed Hotel Acquisitions
On August 9, 2013, the Company acquired the 111-room Hampton Inn and Suites by Hilton® in Exeter, New Hampshire (the “Exeter Hampton Inn & Suites”) for a cash purchase price of $15.2 million, plus customary pro-rated amounts and closing costs. The Company funded the acquisition of the Exeter Hampton Inn & Suites with borrowings under its senior secured revolving credit facility. The Exeter Hampton Inn & Suites is managed by Island Hospitality Management (“IHM”), pursuant to a management agreement between a wholly owned subsidiary of Chatham TRS Holding, Inc., one of the Company's taxable REIT subsidiaries (“TRS”), and IHM.
Hotels Under Contract
On August 28, 2013, a wholly owned subsidiary of the Company entered into an agreement to purchase the 180-room Hilton Garden Inn® Denver Tech Center in Denver, Colorado (the "Denver Hilton Garden") for a total cash purchase price of $27.9 million. Once completed, the acquisition of the Denver Hilton Garden will be the Company's first hotel under the Hilton Garden Inn® brand. Upon the completion of the acquisition, the Denver Hilton Garden will be managed by IHM, pursuant to a management agreement between the TRS and IHM. The Company intends to fund the purchase price for the Denver Hilton Garden with borrowings under the Company's senior secured revolving credit facility and from available cash. The Company currently anticipates that the acquisition of the Denver Hilton Garden will close by September 26, 2013. However, because the acquisition remains subject to customary closing requirements and conditions, the Company can give no assurance that the acquisition will be consummated during that time period or at all.
On August 30, 2013, the Company entered into an agreement to acquire the 231-room Residence Inn by Marriott® Bellevue Downtown in Bellevue, Washington (the “Bellevue Hotel”) for a total cash purchase price of $73.2 million, plus customary pro-rated amounts and closing costs. Upon completion of the acquisition, the Bellevue Hotel will be managed by IHM, pursuant to a management agreement between the TRS and IHM. The Company intends to fund a portion of the purchase price for the Bellevue Hotel with the proceeds of the Offering. The Company currently anticipates that the acquisition of the Bellevue Hotel will close by October 31, 2013. However, because the acquisition remains subject to customary closing requirements and conditions, the Company can give no assurance that the acquisition will be consummated during that time period or at all. This Current Report on Form 8-K includes the historical financial statements and pro forma financial information that will be required by Items 9.01 (a) and (b) if the acquisition of the Bellevue Hotel is consummated. The pro forma financial information required by Item 9.01(b) does not reflect the $15.2 million of debt incurred under the Company's senior secured revolving credit facility to fund the acquisition the Exeter Hampton Inn & Suites.
Dividends
On July 10, 2013, the Company declared a monthly dividend of $0.07 per common share, which was paid on August 30, 2013 to shareholders of record as of July 31, 2013. On August 9, 2013, the Company declared a monthly dividend of $0.07 per common share, which is payable on September 27, 2013 to shareholders of record as of August 30, 2013. On September 10, 2013, the Company declared a monthly dividend of $0.07 per common share, which is payable on October 25, 2013 to shareholders of record as of September 30, 2013.
Other Matters
On September 4, 2013, the joint venture in which we own a 10.3% interest (the "INK JV") refinanced its existing debt with a $950 million, non-recourse loan from JPMorgan Chase Bank, National Association. The loan is collateralized by the INK JV's 51 hotels and matures on September 9, 2015, with three 1-year extension options. The
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new loan carries an interest rate of one-month LIBOR plus 480 basis points. Following the closing of the new loan, the INK JV pre-funded approximately $52 million of capital expenditures related to future renovations at its hotels and $5 million of other customary, lender required reserves. With the proceeds of the refinancing, certain asset sales and cash generated from operations, the INK JV has made distributions to the Company of approximately $12.0 million since June 30, 2013.
On September 20, 2013, the Company's Washington D.C. hotel completed its conversion to the Residence Inn by Marriott® brand. The hotel was formerly a DoubleTree Guest Suites® hotel and operated without a hotel brand since the conversion process began on February 1, 2013. The conversion process involved renovations to the guest rooms, common areas, the building exterior, the elevators and the fire and life safety systems.
Item 9.01. | Financial Statements and Exhibits. |
(a) Financial Statements of Businesses Acquired.
Residence Inn by Marriott Bellevue Downtown Hotel – probable acquisition
MG-Bellevue, LLC and MGB Hotel, LLC
Unaudited Combined Balance Sheets as of June 30, 2013 and December 31, 2012
Unaudited Combined Statements of Operations for the six-month periods ended June 30, 2013 and 2012
Unaudited Combined Statements of Member's Equity for the six-month period ended June 30, 2013
Unaudited Combined Statements of Cash Flows for the six-month periods ended June 30, 2013 and 2012
Unaudited Combined Notes to Financial Statements
Independent Auditor's Report
Combined Balance Sheets as of December 31, 2012 and 2011
Combined Statements of Operations for the years ended December 31, 2012 and 2011
Combined Statements of Member's Equity for the years ended December 31, 2012 and 2011
Combined Statements of Cash Flows for for the years ended December 31, 2012 and 2011
Combined Notes to Financial Statements
(b) Pro Forma Financial Information.
Chatham Lodging Trust
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2013
Unaudited Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2013
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2012
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(d) Exhibits.
Exhibit Number | Description | |
23.1 | Consent of PricewaterhouseCoopers LLP | |
99.1 | Press Release dated September 24, 2013 | |
The information contained in the press release attached as Exhibit 99.1 to this report shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. Furthermore, the information contained in the press release attached as Exhibit 99.1 to this report shall not be deemed to be incorporated by reference in the filings of the registrant under the Securities Act of 1933.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CHATHAM LODGING TRUST | ||
Date: September 24, 2013 | By: | /s/ Dennis M. Craven Dennis M. Craven Executive Vice President and Chief Financial Officer |
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EXHIBIT INDEX
Exhibit Number | Description | |
23.1 | Consent of PricewaterhouseCoopers LLP | |
99.1 | Press Release dated September 24, 2013 | |
6
MG-BELLEVUE, LLC AND MGB HOTEL, LLC
Unaudited - Combined Financial Statements
June 30, 2013
7
MG-Bellevue, LLC and MGB Hotel, LLC
Combined Balance Sheets
June 30, 2013 | December 31, 2012 | ||||||
(unaudited) | |||||||
Assets: | |||||||
Hotel Property | |||||||
Land | $ | 7,601,541 | $ | 7,601,541 | |||
Buildings and improvements | 45,338,869 | 45,338,869 | |||||
Furnishings and equipment | 5,946,964 | 5,928,316 | |||||
58,887,374 | 58,868,726 | ||||||
Less: Accumulated depreciation | (10,988,870 | ) | (9,814,283 | ) | |||
Net hotel property | 47,898,504 | 49,054,443 | |||||
Cash and cash equivalents | 1,413,651 | 2,664,320 | |||||
Restricted cash | 1,248,363 | 1,011,401 | |||||
Accounts receivable | 956,798 | 562,793 | |||||
Prepaid expenses | 25,576 | 3,309 | |||||
Due from affiliates | 6,367,139 | 3,931,138 | |||||
Deferred financing costs, net of accumulated amortization of $875,507 in 2013 and $827,414 in 2012 | 83,046 | 132,139 | |||||
Total assets | $ | 57,993,077 | $ | 57,359,543 | |||
Liabilities and Member's Equity: | |||||||
Liabilities | |||||||
Mortgage loan payable | $ | 39,000,000 | $ | 39,000,000 | |||
Accounts payable and accrued expenses | 242,955 | 330,685 | |||||
Total liabilities | 39,242,955 | 39,330,685 | |||||
Member's equity | 18,750,122 | 18,028,858 | |||||
Total liabilities and member's equity | $ | 57,993,077 | $ | 57,359,543 | |||
The accompanying notes are an integral part of these combined financial statements.
8
MG-Bellevue, LLC and MGB Hotel, LLC
Combined Statements of Operations (Unaudited)
For the Six Months Ended | For the Six Months Ended | ||||||
June 30, 2013 | June 30, 2012 | ||||||
Revenue: | |||||||
Room | $ | 5,194,820 | $ | 4,320,740 | |||
Food and beverage | 110,373 | 107,351 | |||||
Other | 284,462 | 250,383 | |||||
Total revenue | 5,589,655 | 4,678,474 | |||||
Expenses: | |||||||
Hotel operating expenses: | |||||||
Room | 1,004,380 | 860,764 | |||||
Food and beverage expense | 63,405 | 42,774 | |||||
Telephone expense | 11,639 | 20,610 | |||||
Other expense | 23,132 | 18,453 | |||||
General and administration | 424,268 | 341,618 | |||||
Advertising and promotions | 352,060 | 312,648 | |||||
Utilities | 240,753 | 158,796 | |||||
Repairs and maintenance | 208,611 | 173,605 | |||||
Asset and management fees | 546,451 | 466,896 | |||||
Total hotel operating expenses | 2,874,699 | 2,396,164 | |||||
Depreciation and amortization | 1,174,588 | 1,170,758 | |||||
Property taxes and insurance | 192,521 | 181,776 | |||||
General and administrative | 28,791 | 7,341 | |||||
Total operating expenses | 4,270,599 | 3,756,039 | |||||
Operating income | 1,319,056 | 922,435 | |||||
Interest and other income | 334 | 291 | |||||
Interest expense, including amortization of deferred fees | (598,126 | ) | (602,489 | ) | |||
Net income | $ | 721,264 | $ | 320,237 | |||
The accompanying notes are an integral part of these combined financial statements.
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MG-Bellevue, LLC and MGB Hotel, LLC
Combined Statements of Member's Equity (Unaudited)
For the Six Months Ended June 30, 2013
Total Equity | |||
Balance at December 31, 2012 | $ | 18,028,858 | |
Net income | 721,264 | ||
Balance at June 30, 2013 | $ | 18,750,122 | |
The accompanying notes are an integral part of these combined financial statements.
10
MG-Bellevue, LLC and MGB Hotel, LLC
Combined Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2013 and 2012
2013 | 2012 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 721,264 | $ | 320,237 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization expense | 1,174,588 | 1,170,758 | |||||
Amortization of deferred financing fees included in interest expense | 49,093 | 49,528 | |||||
Changes in assets and liabilities: | |||||||
Increase in accounts receivable | (394,005 | ) | (525,290 | ) | |||
(Increase) decrease in prepaid expenses | (22,267 | ) | 5,776 | ||||
Decrease in accounts payable and accrued expenses | (87,730 | ) | (203,956 | ) | |||
Net cash provided by operating activities | 1,440,943 | 817,053 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | (18,649 | ) | (33,602 | ) | |||
Change in restricted cash | (236,962 | ) | (145,234 | ) | |||
Advances to affiliates | (2,436,001 | ) | (1,325,000 | ) | |||
Net cash used in investing activities | (2,691,612 | ) | (1,503,836 | ) | |||
Cash flows from financing activities: | |||||||
Payment of deferred financing fees | — | (3,262 | ) | ||||
Net cash used in financing activities | — | (3,262 | ) | ||||
Net decrease in cash and cash equivalents | (1,250,669 | ) | (690,045 | ) | |||
Cash and cash equivalents, beginning of period | 2,664,320 | 2,486,690 | |||||
Cash and cash equivalents, end of period | $ | 1,413,651 | $ | 1,796,645 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest | $ | 637,000 | $ | 655,294 | |||
The accompanying notes are an integral part of these combined financial statements.
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MG-Bellevue, LLC and MGB Hotel, LLC
Notes to Combined Financial Statements (Unaudited)
(1) | General |
The statements presented herein have been prepared in conformity with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited balance sheet as of December 31, 2012, and the related statements of operations, changes in member’s equity, and cash flows for the year ended December 31, 2012 included hereinafter. MG-Bellevue, LLC and MGB Hotel, LLC (hereinafter the "Company" or the “Hotel”) is located in Bellevue, WA. In the opinion of management, all adjustments that are deemed necessary have been made in order to fairly present the unaudited interim financial statements for the period and accounting policies have been consistently applied.
(2) | Management Agreement |
The Company has executed a management agreement with the Hotel Manager for the operation of the Hotel. Base management fees are calculated as 7% of gross revenues. The Hotel Manager can earn additional incentive fees if certain conditions are met. During the six months ended June 30, 2013 and 2012, the Company incurred $391,276 and $311,721, respectively, in hotel management fees.
(3) | Related-Party Transactions |
Asset Management Agreement
Pursuant to the terms of an asset management agreement, the Company pays MG Fund V Manager, LLC (an affiliate of Fund V) an annual asset management fee calculated at 1.5%, per annum, of aggregate invested equity. During the six months ended June 30, 2013 and 2012, the Company incurred asset management fees of $155,175 and $155,175, respectively, which are included on the combined statements of operations within Asset and management fees.
Due from Affiliates
Due from affiliates represents advances made by the Company to Fund V and its subsidiaries for operating expenses. These advances are non-interest-bearing and are repaid by Fund V as excess cash becomes available.
(4) Subsequent Events
On August 30, 2013, the Company entered into a $73.2 million purchase and sale agreement with Chatham Lodging Trust for the sale of the Hotel. The sale is anticipated to close on October 31, 2013.
The Company has evaluated subsequent events from the balance sheet date through September 24, 2013, the date the financial statements were available to be issued, and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements.
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MG-BELLEVUE, LLC AND MGB HOTEL, LLC
Combined Financial Statements
As of and For the Years Ended December 31, 2012 and 2011
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Independent Auditor's Report
To Members
MG-Bellevue, LLC and MGB Hotel, LLC
We have audited the accompanying combined financial statements of MG-Bellevue, LLC and MGB Hotel, LLC (collectively the "Company"), which comprise the combined balance sheets as of December 31, 2012 and 2011, and the related combined statements of operations, member's equity and cash flows for the years then ended.
Management's Responsibility for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on the combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the combined financial statements in order to design 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. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of MG-Bellevue, LLC and MGB Hotel, LLC at December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
April 19, 2013
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MG-Bellevue, LLC and MGB Hotel, LLC
Combined Balance Sheets
December 31, 2012 and 2011
2012 | 2011 | ||||||
Assets: | |||||||
Hotel Property | |||||||
Land | $ | 7,601,541 | $ | 7,601,541 | |||
Buildings and improvements | 45,338,869 | 45,314,308 | |||||
Furnishings and equipment | 5,928,316 | 5,874,038 | |||||
58,868,726 | 58,789,887 | ||||||
Less: Accumulated depreciation | (9,814,283 | ) | (7,470,743 | ) | |||
Net hotel property | 49,054,443 | 51,319,144 | |||||
Cash and cash equivalents | 2,664,320 | 2,486,690 | |||||
Restricted cash | 1,011,401 | 637,308 | |||||
Accounts receivable | 562,793 | 349,204 | |||||
Prepaid expenses | 3,309 | 21,838 | |||||
Due from affiliates | 3,931,138 | 1,406,138 | |||||
Deferred financing costs, net of accumulated amortization of $827,414 in 2012 and $728,794 in 2011 | 132,139 | 226,148 | |||||
Total assets | $ | 57,359,543 | $ | 56,446,470 | |||
Liabilities and Member's Equity: | |||||||
Liabilities | |||||||
Mortgage loan payable | $ | 39,000,000 | $ | 39,000,000 | |||
Accounts payable and accrued expenses | 330,685 | 372,111 | |||||
Total liabilities | 39,330,685 | 39,372,111 | |||||
Member's equity | 18,028,858 | 17,074,359 | |||||
Total liabilities and member's equity | $ | 57,359,543 | $ | 56,446,470 | |||
The accompanying notes are an integral part of these combined financial statements.
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MG-Bellevue, LLC and MGB Hotel, LLC
Combined Statements of Operations
For the Years Ended December 31, 2012 and 2011
2012 | 2011 | ||||||
Revenue: | |||||||
Room | $ | 9,654,104 | $ | 8,800,278 | |||
Food and beverage | 229,107 | 171,068 | |||||
Other | 550,417 | 486,548 | |||||
Total revenue | 10,433,628 | 9,457,894 | |||||
Expenses: | |||||||
Hotel operating expenses: | |||||||
Room | 1,923,907 | 1,821,638 | |||||
Food and beverage expense | 136,343 | 111,993 | |||||
Telephone expense | 45,560 | 45,494 | |||||
Other expense | 43,218 | 38,220 | |||||
General and administration | 782,127 | 720,779 | |||||
Advertising and promotions | 681,364 | 755,835 | |||||
Utilities | 443,267 | 367,977 | |||||
Repairs and maintenance | 424,297 | 382,342 | |||||
Asset and management fees | 1,040,704 | 890,062 | |||||
Total hotel operating expenses | 5,520,787 | 5,134,340 | |||||
Depreciation and amortization | 2,343,540 | 2,334,520 | |||||
Property taxes and insurance | 376,116 | 386,564 | |||||
General and administrative | 40,027 | 268,521 | |||||
Total operating expenses | 8,280,470 | 8,123,945 | |||||
Operating income | 2,153,158 | 1,333,949 | |||||
Interest and other income | 8,023 | 898 | |||||
Interest expense, including amortization of deferred fees | (1,206,682 | ) | (1,346,319 | ) | |||
Net income (loss) | $ | 954,499 | $ | (11,472 | ) | ||
The accompanying notes are an integral part of these combined financial statements.
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MG-Bellevue, LLC and MGB Hotel, LLC
Combined Statements of Member's Equity
For the years ended December 31, 2012 and 2011
Total Equity | |||
Balance at January 1, 2011 | $ | 17,085,831 | |
Net loss | (11,472 | ) | |
Balance at December 31, 2011 | 17,074,359 | ||
Net income | 954,499 | ||
Balance at December 31, 2012 | $ | 18,028,858 | |
The accompanying notes are an integral part of these combined financial statements.
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MG-Bellevue, LLC and MGB Hotel, LLC
Combined Statements of Cash Flows
Years Ended December 31, 2013 and 2011
2012 | 2011 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | 954,499 | $ | (11,472 | ) | ||
Adjustments to reconcile net income loss to net cash provided by operating activities: | |||||||
Depreciation and amortization expense | 2,343,540 | 2,334,520 | |||||
Amortization of deferred financing fees included in interest expense | 98,620 | 116,486 | |||||
Changes in operating assets and liabilities: | |||||||
(Increase) decrease in accounts receivable | (213,589 | ) | 80,706 | ||||
Decrease in prepaid expenses | 18,529 | 18,477 | |||||
(Decrease) increase in accounts payable and accrued expenses | (41,426 | ) | 104,527 | ||||
Net cash provided by operating activities | 3,160,173 | 2,643,244 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | (78,839 | ) | (22,493 | ) | |||
Change in restricted cash | (374,093 | ) | (325,795 | ) | |||
Advances to affiliates | (2,525,000 | ) | (410,499 | ) | |||
Net cash used in investing activities | (2,977,932 | ) | (758,787 | ) | |||
Cash flows from financing activities: | |||||||
Repayments on mortgage loan payable | — | (39,040,000 | ) | ||||
Proceeds from mortgage loan payable | — | 39,000,000 | |||||
Payment of deferred financing fees | (4,611 | ) | (290,759 | ) | |||
Net cash used in by financing activities | (4,611 | ) | (330,759 | ) | |||
Net increase in cash and cash equivalents | 177,630 | 1,553,698 | |||||
Cash and cash equivalents, beginning of period | 2,486,690 | 932,992 | |||||
Cash and cash equivalents, end of period | $ | 2,664,320 | $ | 2,486,690 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest | $ | 1,122,428 | $ | 1,253,834 | |||
The accompanying notes are an integral part of these combined financial statements.
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MG-Bellevue, LLC and MGB Hotel, LLC
Notes to Combined Financial Statements
December 31, 2012 and 2011
1. | Organization and Nature of Business |
MG-Bellevue, LLC and MGB Hotel, Inc. (collectively, the Company) were formed on November 9, 2006 and January 22, 2007, respectively, to develop, own, and operate the Marriott Residence Inn Bellevue Downtown (the Property or the Hotel) in Bellevue, Washington. The Company is a wholly owned and consolidated subsidiary of Miller Global Fund V, LLC (Fund V). Effective January 1, 2010, MGB Hotel, Inc. changed its legal structure to an LLC.
In April 2007, MG-Bellevue, LLC acquired a parcel of land, including a project under construction, located in Bellevue, Washington at a cost of approximately $15,200,000 for the purpose of developing a 231 room, eight story Residence Inn by Marriott. Construction was completed in September 2008 and began operations in October 2008 at a cost of approximately $58,700,000. The hotel is operated by MGB Hotel, LLC under a long term operating lease and is managed by Marriott International, Inc. (Hotel Manager).
2. | Summary of Significant Accounting Policies |
Principles of Accounting
The Company follows accounting standards established by the Financial Accounting Standards Board (the FASB) to ensure consistent reporting of financial condition, results of operations, and cash flows. References to Generally Accepted Accounting Principles (U.S. GAAP) in these footnotes are to the FASB Accounting Standards Codification™, sometimes referred to as the Codification or ASC.
Principles of Combination
The combined financial statements include the accounts of MG-Bellevue, LLC and MGB Hotel, LLC and are combined since the Company has common ownership. All significant intercompany balances and transactions have been eliminated in combination.
Hotel Property
Hotel property is stated at cost. Buildings are depreciated using the straight-line method over an estimated useful life of 39 years. Building improvements are depreciated using the straight-line method over an estimated useful life of 5 to 39 years. Furniture and equipment are depreciated using the straight-line method over the estimated useful life of 5 years. Depreciation commenced when the Property was placed in service. For the years ended December 31, 2012 and 2011, depreciation expense was $2,343,540 and $2,334,520, respectively.
The Company has adopted the provisions of ASC 360, Property, Plant and Equipment. As required by this standard, management of the Company assesses the carrying value of the Hotel for impairment when facts and circumstances indicate that such amounts may not be recoverable from future operations. The Company evaluates events or changes in circumstances based on a number of factors including operating results, business plans and forecasts, general industry trends, economic projections and anticipated cash flows. When conditions indicating potential impairment exist, the Company performs an analysis to determine if the estimated undiscounted future cash flows, without interest charges, from operations and the proceeds from the ultimate disposition of the Hotel property exceed the property's carrying value. If the estimated undiscounted future cash flows are less than the carrying amount, an adjustment to reduce the carrying amount to the asset's estimated fair value is recorded, and an impairment loss recognized. Impairment losses are recognized in earnings on the combined statements of operations. Based upon its review, management does not believe that any impairment was necessary at December 31, 2012 and 2011.
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MG-Bellevue, LLC and MGB Hotel, LLC
Notes to Combined Financial Statements
December 31, 2012 and 2011
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. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits. The Company does not believe it is exposed to any significant credit risk.
Restricted Cash
Under the terms of the management agreement, the Company is required to deposit 4.0% of the Hotel's annual gross receipts (as defined) through November of 2012 and 5% thereafter into an interest bearing escrow account to fund capital improvements at the Hotel. Access to this escrow account is limited to the Hotel Manager. During the years ended December 31, 2012 and 2011, the Company deposited $428,311 and $378,316, respectively, into escrow.
The Company is required to keep a minimum cash balance of $500,000 with the mortgage lender. See Note 3.
Accounts Receivable
Accounts receivable are carried at their outstanding balances, net of an allowance for credit losses as determined by the Company's management. Accounts receivable are assessed for collectibility on a periodic basis and all receivables deemed uncollectible are written off. During the years ended December 31, 2012 and 2011, there was no allowance for doubtful accounts.
Deferred Financing Costs
Deferred financing costs are being amortized using the straight-line method, which approximates the effective interest method, over the term of the related loan and are included in interest expense on the combined statements of operations. For the years ended December 31, 2012 and 2011, $98,620 and $116,486, respectively, was amortized to expense.
Fair Value Measurements
Management believes that the carrying values of the Company's cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and accounts payable and accrued expenses approximate their fair values due to their short-term nature.
The mortgage loan payable has a variable interest rate. At December 31, 2012 and 2011, the Company's management believes that the rate for similar borrowings would not differ significantly from the rate currently charged on this loan. Therefore, the fair value of the mortgage loan payable is believed to approximate its carrying value at December 31, 2012 and 2011.
Revenue and Expense Recognition
Revenue from room rental, food and beverage and telephone usage is recognized as services are provided and when collection is reasonably assured. Hotel expenses are recognized as incurred.
Income Taxes
Generally no provision for income taxes is made in the accompanying combined financial statements because the Company is not subject to state or federal income taxes; such taxes are the responsibility of the individual members.
The FASB provides guidance for how uncertain tax positions should be recognized, measured, disclosed and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained “when challenged” or “when examined” by the applicable tax authority. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is
20
MG-Bellevue, LLC and MGB Hotel, LLC
Notes to Combined Financial Statements
December 31, 2012 and 2011
reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Company recognizes interest and penalties related to unrecognized tax benefits as adjustments to interest expense and general and administrative expenses, respectively. The Company is not subject to examination of U.S. federal and state tax authorities for tax years before 2009. For the years ended December 31, 2012 and 2011, management has determined that there are no material uncertain income tax positions.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior period's financial statements in order to conform to current period presentation with no effect to equity, net loss, or operating cash flows as previously reported.
3. | Mortgage Loan Payable |
On April 30, 2007, the Company obtained a mortgage loan in the amount of $39,440,000 to finance the acquisition and development of the Property. The original loan bore interest at one-month LIBOR plus 350 basis points. The loan matured on May 1, 2010 and was extended to May 1, 2011. Interest and principal payments of $50,000, starting in May of 2010, were due monthly under the original loan.
Starting in May of 2010, the Company was subject to a cash sweep arrangement imposed by the lender where, on a monthly basis, all cash flows from operations in excess of debt service and certain other expenses were placed in an account controlled by the lender. On a quarterly basis, all funds in the lender controlled account in excess of $250,000 would be applied against the principal of the loan. This was not a requirement for the new loan that was in effect as of April 29, 2011.
The mortgage loan was refinanced with a new lender on April 29, 2011. The outstanding balance was $39,000,000 as of December 31, 2012. The loan bears interest at one-month LIBOR plus 255 basis points (2.80% at December 31, 2012 and 2.8625% at December 31, 2011). The loan matures on April 29, 2014 with two (2) one (1) year extension options if certain conditions are met. There is a balloon payment at maturity. The loan is collateralized by substantially all of the assets associated with the Property with a carrying value of $49,054,443. In the event of a borrower default, as defined in the loan agreement, Fund V has agreed to provide a payment guaranty of 30% of the unpaid loan balance. The Company is required to maintain a cash balance of not less than $500,000 with the lender. As of December 31, 2012, the Company is in compliance with all related debt covenants.
21
MG-Bellevue, LLC and MGB Hotel, LLC
Notes to Combined Financial Statements
December 31, 2012 and 2011
4. | Hotel Management Agreement |
The Company has executed a management agreement with the Hotel Manager for the operation of the Hotel. Base management fees are calculated as 6% of gross revenues through October of 2011 and 7% of gross revenues, thereafter. The Hotel Manager can earn additional incentive fees if certain conditions are met. During the years ended December 31, 2012 and 2011, the Company incurred $730,354 and $579,712, respectively, in management fees.
5. | Related-Party Transactions |
Asset Management Agreement
Pursuant to the terms of an asset management agreement, the Company pays MG Fund V Manager, LLC (an affiliate of Fund V) an annual asset management fee calculated at 1.5%, per annum, of aggregate invested equity. During the years ended December 31, 2012 and 2011, the Company incurred asset management fees of $310,350 and $310,350, respectively, which are included on the combined statements of operations.
Due from Affiliates
Due from affiliates represents advances made by the Company to Fund V and its subsidiaries for operating expenses. These advances are non-interest-bearing and are repaid by Fund V as excess cash becomes available.
6. Commitments and Contingencies
The Company is subject to certain claims arising in the normal course of business. In the opinion of management, the results of these claims will not have a material impact on the Company's financial condition or results of operations.
7. | Subsequent Events |
The Company has evaluated subsequent events through April 19, 2013, which is the date the financial statements were available to be issued, and concludes that there are no subsequent events requiring disclosure.
22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF CHATHAM LODGING TRUST
Chatham Lodging Trust (“Chatham”) was formed as a Maryland real estate investment trust (“REIT”) on October 26, 2009. Chatham completed its initial public offering (“IPO”) and concurrent private placement of common shares of beneficial interest on April 21, 2010. Chatham raised approximately $158.7 million, net of underwriting discounts and commissions and other offering costs. On February 8, 2011, Chatham completed a second public offering of common shares, raising approximately $69.4 million, net of underwriting discounts and commissions and other offering costs. On January 14, 2013, Chatham completed a third public offering of common shares, raising approximately $48.5 million and a partial exercise of the underwriters’ option to purchase additional shares raising approximately $1.4 million both net of underwriting discounts and commissions and other offering costs. On June 18, 2013, Chatham completed a fourth public offering of common shares, raising approximately $70.2 million and a partial exercise of the underwriters' option to purchase additional shares raising approximately $7.4 million both net of underwriting discounts and commissions and other offering costs.
On December 27, 2012, Chatham acquired the Hampton Inn Portland Downtown in Portland, Maine for $28.0 million. On February 5, 2013, Chatham acquired the Courtyard by Marriott Houston Medical Center in Houston, Texas for $34.8 million. On August 9, 2013, Chatham acquired the Hampton Inn and Suites hotel by Hilton in Exeter, New Hampshire for $15.2 million These acquisitions were not deemed significant and therefore are not included in the pro forma financial information.
On June 17, 2013, Chatham acquired the 178-room Hyatt Place® Pittsburgh North Shore hotel in Pittsburgh, Pennsylvania (the “North Shore Hotel”) for a cash purchase price of $40.0 million, plus customary pro-rated amounts and closing costs.
On August 30, 2013, Chatham entered into a purchase and sale agreement with MG-Bellevue, LLC ("MG Owner") to acquire the 231-room Residence Inn by Marriott Bellevue hotel in Bellevue, Washington (the "Bellevue Hotel") for a cash purchase price of $73.2 million, plus customary pro-rated amounts and closing costs.
The unaudited pro forma consolidated balance sheet as of June 30, 2013 includes the pro forma financial information as if the Bellevue Hotel was acquired on June 30, 2013.
The unaudited pro forma consolidated statement of operations for the six months ended June 30, 2013 includes the pro forma financial information as if the North Shore and Bellevue Hotels were acquired on January 1, 2012.
The unaudited pro forma consolidated statement of operations for the year ended December 31, 2012 includes the pro forma financial information as if the North Shore and Bellevue Hotels were acquired on January 1, 2012.
The unaudited pro forma financial information is not necessarily indicative of what Chatham’s results of operations or financial condition would have been assuming such transactions had been completed at the dates described above, nor is it indicative of Chatham’s results of operations or financial condition for future periods. In management’s opinion, all material adjustments necessary to reflect the effects of the significant acquisition described above have been made. In addition, the unaudited pro forma financial information is based upon available information and upon assumptions and estimates, some of which are set forth in the notes to the unaudited pro forma financial information, which we believe are reasonable under the circumstances. The unaudited pro forma financial information and accompanying notes should be read in conjunction with the historical financial statements and notes thereto of Chatham in Chatham’s 2012 Annual Report on Form 10-K and the Quarterly Report on Form 10−Q for the six months ended June 30, 2013.
23
CHATHAM LODGING TRUST
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2013
(in thousands except share data)
Chatham Lodging Trust (1) | Acquisition of Bellevue Hotel (2) | Offering Adjustments (3) | ProForma Chatham Lodging Trust | ||||||||||||
Assets: | |||||||||||||||
Investment in hotel properties, net | $ | 501,038 | $ | 73,200 | $ | — | $ | 574,238 | |||||||
Cash and cash equivalents | 18,690 | (75,839 | ) | 73,200 | 16,051 | ||||||||||
Restricted cash | 2,686 | 1,248 | — | 3,934 | |||||||||||
Investment in unconsolidated real estate entities | 13,383 | — | — | 13,383 | |||||||||||
Hotel receivables (net of allowance for doubtful accounts of $40) | 2,302 | 957 | — | 3,259 | |||||||||||
Deferred costs, net | 5,463 | — | — | 5,463 | |||||||||||
Prepaid expenses and other assets | 2,485 | 26 | — | 2,511 | |||||||||||
Total assets | $ | 546,047 | $ | (408 | ) | $ | 73,200 | $ | 618,839 | ||||||
Liabilities and Equity: | |||||||||||||||
Debt | $ | 175,842 | $ | — | $ | — | $ | 175,842 | |||||||
Revolving credit facility | 30,500 | — | — | 30,500 | |||||||||||
Accounts payable and accrued expenses | 10,089 | 242 | — | 10,331 | |||||||||||
Distributions payable | 1,657 | — | — | 1,657 | |||||||||||
Total liabilities | 218,088 | 242 | — | 218,330 | |||||||||||
Commitments and contingencies | |||||||||||||||
Equity: | |||||||||||||||
Shareholders’ Equity: | |||||||||||||||
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at June 30, 2013 and December 31, 2012 | — | — | — | — | |||||||||||
Common shares, $0.01 par value, 500,000,000 shares authorized; 22,559,418 and 22,558,058 shares issued and outstanding, respectively, at June 30, 2013 | 223 | — | 45 | 268 | |||||||||||
Additional paid-in capital | 368,540 | — | 73,155 | 441,695 | |||||||||||
Accumulated deficit | (42,698 | ) | (650 | ) | — | (43,348 | ) | ||||||||
Total shareholders’ equity | 326,065 | (650 | ) | 73,200 | 398,615 | ||||||||||
Noncontrolling Interests: | |||||||||||||||
Noncontrolling Interest in Operating Partnership | 1,894 | — | — | 1,894 | |||||||||||
Total equity | 327,959 | (650 | ) | 73,200 | 400,509 | ||||||||||
Total liabilities and equity | $ | 546,047 | $ | (408 | ) | $ | 73,200 | $ | 618,839 | ||||||
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
24
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
The Unaudited Pro Forma Consolidated Balance Sheet assumes the following occurred on June 30, 2013
• | Completion of the purchase of the Bellevue Hotel. |
• | Payment of costs and expenses of approximately $650 related to the Bellevue Hotel. |
• | A public offering resulting in the issuance of 4,461,580 shares at the closing price on June 30, 2013 of $17.18 per share. The actual number of shares and the price per share in the offering may be different than those assumed. The completion of the purchase of the Bellevue Hotel is conditioned upon the completion of the assumed offering. |
Notes and Management Assumptions:
1) Represents Chatham’s unaudited historical consolidated balance sheet as of June 30, 2013. No expenses were included prior to June 30, 2013 related to the acquisition of the Bellevue Hotel.
2) The following adjustment records the preliminary allocation of the purchase price for the Bellevue Hotel based on the estimated fair value of the assets received, the liabilities assumed and the consideration transferred which was funded through use of proceeds from the assumed offering.
The preliminary allocation of the purchase price is:
Land | $ | 5,000 | |
Building | 65,200 | ||
Furniture, fixtures and equipment | 3,000 | ||
Cash and cash equivalents | (75,839 | ) | |
Restricted cash | 1,248 | ||
Hotel receivables | 957 | ||
Prepaid expenses and other assets | 26 | ||
Accounts payable and accrued expenses | (242 | ) | |
$ | (650 | ) | |
The estimated costs incurred by Chatham to complete the purchase of the Bellevue Hotel are as follows:
Closing costs | $ | 500 | |
Accounting fees related to audit and review | 50 | ||
Legal fees | 100 | ||
$ | 650 | ||
3) Assumed proceeds from the issuance of 4,461,580 shares at the closing price on June 30, 2013 of $17.18 per share, net of estimated offering costs and a 4.5% underwriters discount based on the quantity of shares sufficient to consummate the probable acquisition. The actual number of shares and the price per share in the offering may be different than those assumed.
25
CHATHAM LODGING TRUST
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(in thousands except share and per share data)
Chatham Lodging Trust (1) | North Shore Hotel (2) | Bellevue Hotel (3) | Pro Forma Adjustments | ProForma Chatham Lodging Trust | ||||||||||||||||
Revenue: | ||||||||||||||||||||
Room | $ | 53,195 | $ | 2,819 | $ | 5,195 | $ | — | $ | 61,209 | ||||||||||
Food and beverage | 349 | 261 | 110 | — | 720 | |||||||||||||||
Other operating | 2,213 | 170 | 285 | — | 2,668 | |||||||||||||||
Cost reimbursements from unconsolidated real estate entities | 768 | — | — | — | 768 | |||||||||||||||
Total revenue | 56,525 | 3,250 | 5,590 | — | 65,365 | |||||||||||||||
Expenses: | ||||||||||||||||||||
Hotel operating expenses: | ||||||||||||||||||||
Room | 11,615 | 700 | 1,004 | — | 13,319 | |||||||||||||||
Food and beverage expense | 317 | 142 | 63 | — | 522 | |||||||||||||||
Telephone expense | 407 | — | 12 | 419 | ||||||||||||||||
Other expense | 727 | 20 | 23 | 770 | ||||||||||||||||
General and administration | 5,308 | 306 | 424 | — | 6,038 | |||||||||||||||
Franchise and marketing fees | 4,144 | 172 | — | 447 | (4) | 4,763 | ||||||||||||||
Advertising and promotions | 1,308 | 197 | 352 | 1,857 | ||||||||||||||||
Utilities | 2,183 | 95 | 241 | — | 2,519 | |||||||||||||||
Repairs and maintenance | 3,001 | 112 | 209 | — | 3,322 | |||||||||||||||
Management fees | 1,509 | 114 | 546 | (381 | ) | (5) | 1,788 | |||||||||||||
Insurance | 348 | — | — | — | 348 | |||||||||||||||
Total hotel operating expenses | 30,867 | 1,858 | 2,874 | 66 | 35,665 | |||||||||||||||
Depreciation and amortization | 7,778 | 601 | 1,175 | (118 | ) | (6&7) | 9,436 | |||||||||||||
Property taxes and insurance | 4,032 | 263 | 193 | — | 4,488 | |||||||||||||||
General and administrative | 4,046 | — | 29 | (29 | ) | (8) | 4,046 | |||||||||||||
Hotel property acquisition costs and other charges | 1,236 | — | — | (939 | ) | (9) | 297 | |||||||||||||
Reimbursed costs from unconsolidated real estate entities | 768 | — | — | — | 768 | |||||||||||||||
Total operating expenses | 48,727 | 2,722 | 4,271 | (1,020 | ) | 54,700 | ||||||||||||||
Operating income | 7,798 | 528 | 1,319 | 1,020 | 10,665 | |||||||||||||||
Interest and other income | 115 | — | — | — | 115 | |||||||||||||||
Interest expense, including amortization of deferred fees | (5,658 | ) | (219 | ) | (598 | ) | 298 | (10) | (6,177 | ) | ||||||||||
Loss on early extinguishment of debt | (933 | ) | — | — | — | (933 | ) | |||||||||||||
Loss from unconsolidated real estate entities | (720 | ) | — | — | — | (720 | ) | |||||||||||||
Income before income tax benefit | 602 | 309 | 721 | 1,318 | 2,950 | |||||||||||||||
Income tax expense | (45 | ) | — | — | (81 | ) | (11) | (126 | ) | |||||||||||
Net income | $ | 557 | $ | 309 | $ | 721 | $ | 1,237 | $ | 2,824 | ||||||||||
Earnings per share data: | ||||||||||||||||||||
Basic - income per common share | $ | 0.02 | $ | 0.13 | ||||||||||||||||
Diluted - income per common share | $ | 0.02 | $ | 0.13 | ||||||||||||||||
Basic and diluted - weighted average number of common shares outstanding | 17,682,199 | 4,461,580 | (12) | 22,143,779 | ||||||||||||||||
Basic and diluted - weighted average number of common shares outstanding | 17,897,255 | 4,461,580 | (12) | 22,358,835 | ||||||||||||||||
See Notes to Unaudited Pro Forma Consolidated Statement of Operations
26
27
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(in thousands, except share data)
1) | Represents the unaudited historical results of operations of Chatham for the six months ended June 30, 2013. |
2) | Represents the unaudited results of operations of the North Shore Hotel for the six months ended June 30, 2013. |
3) | Represents the historical results of operations of the Bellevue Hotel for the six months ended June 30, 2013. |
4) | Reflects the adjustment to franchise fees based on previously obtained franchise agreements for contractual differences related to the fees that will be payable under the new franchise agreement on the Bellevue Hotel of $447. |
5) | Reflects the adjustment to management fees of $(381) for contractual differences related to the fees required to be paid under the old management agreements compared to the new contracts or proposed agreements as follows (in thousands): |
Description | New Fees | Old Fees | Adjustment | |||||
North Shore Hotel | Accounting and other fees | 12 | 29 | (17 | ) | |||
Bellevue Hotel | Accounting and other fees | 15 | 155 | (140 | ) | |||
Bellevue Hotel | Management fee | 167 | 391 | (224 | ) | |||
194 | 575 | (381 | ) | |||||
6) | Reflects net decrease to depreciation expense based on Chatham’s cost basis in the North Shore and Bellevue Hotels and their accounting policy for depreciation of ($124). Depreciation is computed using the straight-line method over the estimated useful lives of the assets, five years for furniture and equipment, 15 years for land improvements and 40 years for buildings and five to 15 years for building improvements. |
7) | Reflects the increase to amortization of franchise fees of $6 based on the franchise application fees paid of $71 and the term of the new agreement which is 17 years from the closing of the purchase of the North Shore Hotel and application fees paid of $75 and the term of the new agreement which is 15 years from the closing of the purchase of the Bellevue Hotel. |
8) | Reflects the elimination of corporate general and administrative fees at the Bellevue Hotel which are not recurring and thus excluded from the pro forma results of operations. |
9) | Reflects the adjustment for one-time hotel acquisition costs for the hotels acquired that are reflected in the pro forma and are not recurring and thus excluded from the pro forma results of operations. |
10) | Reflects the elimination of interest expense for the Bellevue Hotel which will be paid for with available cash and the incremental interest expense on the North Shore Hotel. |
11) | Reflects the adjustment to recognize income tax expense at an effective rate of 40% on the taxable income of Chatham’s TRS for the North Shore and Bellevue Hotels of $81. |
12) | Adjustment to reflect shares needed to fund acquisition as outstanding during the period. |
28
CHATHAM LODGING TRUST
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
(in thousands except share and per share data)
Chatham Lodging Trust (1) | North Shore Hotel (2) | Bellevue Hotel (3) | Pro Forma Adjustments | ProForma Chatham Lodging Trust | ||||||||||||||||
Revenue: | ||||||||||||||||||||
Room | $ | 94,566 | $ | 6,415 | $ | 9,654 | $ | — | $ | 110,635 | ||||||||||
Food and beverage | 253 | 610 | 229 | 1,092 | ||||||||||||||||
Other | 4,023 | 351 | 550 | — | 4,924 | |||||||||||||||
Cost reimbursements from unconsolidated real estate entities | 1,622 | — | — | — | 1,622 | |||||||||||||||
Total revenue | 100,464 | 7,376 | 10,433 | — | 118,273 | |||||||||||||||
Expenses: | ||||||||||||||||||||
Hotel operating expenses: | ||||||||||||||||||||
Room | 20,957 | 1,499 | 1,924 | — | 24,380 | |||||||||||||||
Food and beverage expense | 307 | 284 | 136 | — | 727 | |||||||||||||||
Telephone expense | 718 | — | 46 | 764 | ||||||||||||||||
Other expense | 1,508 | 53 | 43 | 1,604 | ||||||||||||||||
General and administration | 9,546 | 616 | 782 | — | 10,944 | |||||||||||||||
Franchise fees | 7,529 | 389 | — | 835 | (4) | 8,753 | ||||||||||||||
Advertising and Promotions | 2,257 | 322 | 681 | — | 3,260 | |||||||||||||||
Utilities | 4,081 | 221 | 443 | — | 4,745 | |||||||||||||||
Repairs and maintenance | 4,958 | 198 | 425 | — | 5,581 | |||||||||||||||
Management fees | 2,646 | 258 | 1,041 | (736 | ) | (5) | 3,209 | |||||||||||||
Insurance | 523 | — | — | — | 523 | |||||||||||||||
Total hotel operating expenses | 55,030 | 3,840 | 5,521 | 99 | 64,490 | |||||||||||||||
Depreciation and amortization | 14,273 | 1,287 | 2,343 | (178 | ) | (6&7) | 17,725 | |||||||||||||
Property taxes and insurance | 7,088 | 376 | 376 | — | 7,840 | |||||||||||||||
General and administrative | 7,565 | — | 40 | (40 | ) | (8) | 7,565 | |||||||||||||
Hotel property acquisition costs and other charges | 236 | — | — | — | 236 | |||||||||||||||
Reimbursed costs from unconsolidated real estate entities | 1,622 | — | — | — | 1,622 | |||||||||||||||
Total operating expenses | 85,814 | 5,503 | 8,280 | (119 | ) | 99,478 | ||||||||||||||
Operating income | 14,650 | 1,873 | 2,153 | 119 | 18,795 | |||||||||||||||
Interest and other income | 55 | — | 8 | (8 | ) | (9) | 55 | |||||||||||||
Interest expense, including amortization of deferred fees | (14,641 | ) | (701 | ) | (1,207 | ) | 872 | (10) | (15,677 | ) | ||||||||||
Loss from unconsolidated real estate entities | (1,439 | ) | — | — | — | (1,439 | ) | |||||||||||||
Income (loss) before income tax benefit | (1,375 | ) | 1,172 | 954 | 983 | 1,734 | ||||||||||||||
Income tax expense | (75 | ) | — | — | (167 | ) | (11) | (242 | ) | |||||||||||
Net income (loss) | $ | (1,450 | ) | $ | 1,172 | $ | 954 | $ | 816 | $ | 1,492 | |||||||||
Earnings per share data: | ||||||||||||||||||||
Basic - income (loss) per common share | $ | (0.12 | ) | $ | 0.08 | |||||||||||||||
Basic - weighted average number of common shares outstanding | 13,811,691 | 4,461,580 | (12) | 18,273,271 | ||||||||||||||||
See Notes to Unaudited Pro Forma Consolidated Statement of OperationS
29
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
(in thousands, except share data)
1) | Represents the historical results of operations of Chatham for the year ended December 31, 2012. |
2) | Represents the historical results of operations of the North Shore Hotel for the year ended December 31, 2012. |
3) | Represents the historical results of operations of the Bellevue Hotel for the year ended December 31, 2012. |
4) | Reflects the adjustment to franchise fees based on previously obtained franchise agreements for contractual differences related to the fees that will be payable under the new franchise agreement on the Bellevue Hotel of $835. |
5) | Reflects the adjustment to management fees of $ (736) for contractual differences related to the fees required to be paid under the old management agreements compared to the new contracts or proposed agreements as follows (in thousands): |
Description | New Fees | Old Fees | Adjustment | |||||
North Shore Hotel | Accounting and other fees | 26 | 65 | (39 | ) | |||
Bellevue Hotel | Accounting and other fees | 30 | 310 | (280 | ) | |||
Bellevue Hotel | Management fee | 313 | 730 | (417 | ) | |||
369 | 1,105 | (736 | ) | |||||
6) | Reflects net decrease to depreciation expense based on Chatham’s cost basis in the North Shore and Bellevue Hotels and their accounting policy for depreciation of ($190). Depreciation is computed using the straight-line method over the estimated useful lives of the assets, five years for furniture and equipment, 15 years for land improvements and 40 years for buildings and five to 15 years for building improvements. |
7) | Reflects the increase to amortization of franchise fees of $12 based on the franchise application fees paid of $71 and the term of the new agreement which is 17 years from the closing of the purchase of the North Shore Hotel and application fees paid of $75 and the term of the new agreement which is 15 years from the closing of the purchase of the Bellevue Hotel. |
8) | Reflects the elimination of corporate general and administrative fees at the Bellevue Hotel which are not recurring and thus excluded from the pro forma results of operations. |
9) | Reflects the elimination of interest income at the Bellevue hotel which is not recurring. |
10) | Reflects the elimination of interest expense for the Bellevue Hotel which will be paid for with available cash and the incremental interest expense on the North Shore Hotel. |
11) | Reflects the adjustment to recognize income tax expense at an effective rate of 40% on the taxable income of Chatham’s TRS for the North Shore and Bellevue Hotels of $167. |
12) | Adjustment to reflect shares needed to fund acquisition as outstanding during the period. |
30
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-179224)and Form S-8 (No. 333-166258) of Chatham Lodging Trust of our report dated April 19, 2013 relating to the combined financial statements of MG-Bellevue, LLC and MGB Hotel, LLC, which appears in the Current Report on Form 8-K of Chatham Lodging Trust dated September 24, 2013.
/s/ PricewaterhouseCoopers LLP
Denver, CO
September 24, 2013
September 24, 2013
Exhibit 99.1
PRESS RELEASE
Chatham Lodging Trust Launches Public Offering of Common Shares
Palm Beach, Fla. -- (BUSINESS WIRE) - September 24, 2013 -- Chatham Lodging Trust (the “Company”) (NYSE: CLDT) today announced that it is offering 3,250,000 common shares of beneficial interest, $0.01 par value per share, in a public offering. Barclays and UBS Investment Bank are acting as joint book-running managers for the offering.
The underwriters will have a 30-day option to purchase up to an additional 487,500 shares to cover overallotments, if any.
The Company will contribute the net proceeds of this offering to its operating partnership in exchange for common units of limited partnership interest in the operating partnership. The Company's operating partnership intends to use the net proceeds of the offering to repay debt under the Company's senior secured revolving credit facility (including debt to be incurred to purchase the 180-room Hilton Garden Inn Denver Tech Center in Denver, Colorado for a cash purchase price of $27.9 million) and to fund a portion of the acquisition of the 231-room Residence Inn Seattle Bellevue/Downtown in Bellevue, Washington for a cash purchase price of $73.2 million. The Company's operating partnership intends to use any remaining net proceeds to invest in additional hotel properties in accordance with the Company's investment strategy and for general corporate purposes.
The common shares will be offered pursuant to a prospectus supplement of the Company's prospectus filed as part of the Company's existing shelf registration statement which was declared effective by the Securities and Exchange Commission on February 10, 2012. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities, in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction. A copy of the preliminary prospectus supplement and accompanying prospectus relating to the offering can be obtained by contacting Barclays c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, NY 11717, Barclaysprospectus@broadridge.com, (888) 603-5847 or by contacting UBS Investment Bank, Attention: Prospectus Dept., 299 Park Avenue, New York, NY 10171, (888) 827-7275.
About Chatham Lodging Trust
Chatham Lodging Trust is a self-advised real estate investment trust that was organized to invest in upscale extended-stay hotels and premium-branded select-service hotels. The company currently owns 22 hotels with an aggregate of 3,022 rooms/suites in twelve states and the District of Columbia.
Exhibit 99.1
FORWARD-LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS. THESE FORWARD-LOOKING STATEMENTS ARE BASED UPON THE COMPANY'S PRESENT EXPECTATIONS, BUT THESE STATEMENTS ARE NOT GUARANTEED TO OCCUR. FOR EXAMPLE: THE FACT THAT THIS OFFERING HAS LAUNCHED MAY IMPLY THAT THE OFFERING WILL PRICE AND CLOSE; BUT THE PRICING AND CLOSING OF THE OFFERING ARE SUBJECT TO CONDITIONS CUSTOMARY IN TRANSACTIONS OF THIS TYPE AND MAY BE DELAYED OR MAY NOT OCCUR AT ALL. STATEMENTS containing words such as “expects,” “believes” or “will,” which indicate that those statements are forward-looking. Except for historical information, the matters discussed in this press release are forward-looking statements that are subject to certain risks and uncertainties that could cause the actual results or performance to differ materially from those discussed in such statements. Additional risks are discussed in the company's filings with the Securities and Exchange Commission. INVESTORS SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD-LOOKING STATEMENTS.
SOURCE: Chatham Lodging Trust
Media
Daly Gray Public Relations
Jerry Daly, 703-435-6293
jerry@dalygray.com
or
Chatham Lodging Trust
Dennis Craven, 561-227-1386
Chief Financial Officer
dcraven@cl-trust.com