| Maryland | 001-34571 | 27-1055421 | ||
| (State or other jurisdiction | (Commission | (I.R.S. Employer | ||
| of incorporation) | File Number) | Identification No.) |
| 2 Bethesda Metro Center, Suite 1530, | ||
| Bethesda, Maryland | 20814 | |
| (Address of principal executive offices) | (Zip Code) |
| PEBBLEBROOK HOTEL TRUST |
||||
| December 29, 2010 | By: | /s/ Raymond D. Martz | ||
| Name: | Raymond D. Martz | |||
| Title: | Executive Vice President, Chief
Financial Officer, Treasurer and Secretary |
|||
| December 31, | ||||||||||||
| September 30, 2010 | ||||||||||||
| (Unaudited) | 2009 | 2008 | ||||||||||
Assets |
||||||||||||
Cash |
$ | 2,700,467 | $ | 1,624,214 | $ | 1,917,514 | ||||||
Restricted cash |
— | 216,444 | 600,018 | |||||||||
Accounts receivable, net of allowance of $13,261, $15,257, $17,828 |
1,442,643 | 617,557 | 451,178 | |||||||||
Prepaid expenses and other assets |
660,937 | 432,488 | 549,349 | |||||||||
Total current assets |
4,804,047 | 2,890,703 | 3,518,059 | |||||||||
Property and equipment, at cost |
66,471,411 | 66,265,497 | 65,915,613 | |||||||||
Less: accumulated depreciation |
(11,022,877 | ) | (9,271,268 | ) | (6,924,292 | ) | ||||||
| 55,448,534 | 56,994,229 | 58,991,321 | ||||||||||
Other assets |
22,141 | 36,091 | 35,040 | |||||||||
Total assets |
$ | 60,274,722 | $ | 59,921,023 | $ | 62,544,420 | ||||||
Liabilities and Owner’s Equity in Hotel |
||||||||||||
Accounts payable and accrued expenses |
$ | 810,098 | $ | 413,656 | $ | 522,783 | ||||||
Accrued wages and benefits |
543,718 | 526,004 | 443,413 | |||||||||
Accrued interest payable |
— | 174,792 | 178,293 | |||||||||
Advance deposits |
1,362,885 | 1,555,058 | 1,543,111 | |||||||||
Note payable — current |
— | 35,749,224 | 715,979 | |||||||||
Total current liabilities |
2,716,701 | 38,418,734 | 3,403,579 | |||||||||
Note payable — long term |
— | — | 35,749,224 | |||||||||
Total liabilities |
2,716,701 | 38,418,734 | 39,152,803 | |||||||||
Owner’s equity in Hotel |
57,558,021 | 21,502,289 | 23,391,617 | |||||||||
Total liabilities and owner’s equity
in Hotel |
$ | 60,274,722 | $ | 59,921,023 | $ | 62,544,420 | ||||||
2
| Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
| 2010 | 2009 | 2009 | 2008 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
Revenues: |
||||||||||||||||
Rooms |
$ | 6,149,067 | $ | 5,223,009 | $ | 6,643,886 | 8,225,864 | |||||||||
Food and beverage |
6,480,609 | 5,622,055 | 7,083,738 | 8,578,494 | ||||||||||||
Conference center |
644,826 | 461,474 | 565,185 | 858,390 | ||||||||||||
Other |
1,958,081 | 2,148,750 | 2,579,956 | 3,035,745 | ||||||||||||
Total revenues |
15,232,583 | 13,455,288 | 16,872,765 | 20,698,493 | ||||||||||||
Operating expenses: |
||||||||||||||||
Rooms |
1,482,902 | 1,226,793 | 1,632,350 | 1,907,673 | ||||||||||||
Food and beverage |
4,026,311 | 3,749,245 | 4,835,618 | 5,397,250 | ||||||||||||
Conference center |
599,340 | 450,378 | 572,937 | 857,651 | ||||||||||||
General and administrative |
1,065,594 | 1,104,519 | 1,476,379 | 1,858,835 | ||||||||||||
Marketing |
1,064,986 | 1,146,712 | 1,457,182 | 1,693,479 | ||||||||||||
Utilities |
345,514 | 365,824 | 492,465 | 549,190 | ||||||||||||
Property operation and maintenance |
427,482 | 399,982 | 517,733 | 551,130 | ||||||||||||
Property and other taxes and insurance |
467,483 | 440,741 | 584,804 | 649,818 | ||||||||||||
Depreciation |
1,751,609 | 1,764,884 | 2,346,976 | 2,225,364 | ||||||||||||
Management fees |
380,810 | 336,387 | 421,824 | 517,458 | ||||||||||||
Other expenses |
1,125,276 | 1,137,570 | 1,429,630 | 1,740,789 | ||||||||||||
Total operating expenses |
12,737,307 | 12,123,035 | 15,767,898 | 17,948,637 | ||||||||||||
Other expenses: |
||||||||||||||||
Interest expense |
(1,396,338 | ) | (1,596,537 | ) | (2,115,895 | ) | (2,161,838 | ) | ||||||||
Other expense |
(154,356 | ) | (164,069 | ) | (199,998 | ) | (147,076 | ) | ||||||||
Total other expense |
(1,550,694 | ) | (1,760,606 | ) | (2,315,893 | ) | (2,308,914 | ) | ||||||||
Net income (loss) |
$ | 944,582 | $ | (428,353 | ) | $ | (1,211,026 | ) | $ | 440,942 | ||||||
3
Balance at December 31, 2007 |
$ | 22,172,252 | ||
Hotel owner (distributions) funding, net |
778,423 | |||
Net income |
440,942 | |||
Balance at December 31, 2008 |
23,391,617 | |||
Hotel owner (distributions) funding, net |
(678,302 | ) | ||
Net loss |
(1,211,026 | ) | ||
Balance at December 31, 2009 |
21,502,289 | |||
Hotel owner (distributions) funding, net (unaudited) |
35,111,150 | |||
Net income (unaudited) |
944,582 | |||
Balance at September 30, 2010 (unaudited) |
$ | 57,558,021 | ||
4
| Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
| 2010 | 2009 | 2009 | 2008 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income (loss) |
$ | 944,582 | $ | (428,353 | ) | $ | (1,211,026 | ) | $ | 440,942 | ||||||
Adjustments to reconcile net loss to net cash provided by
operating activities: |
||||||||||||||||
Depreciation |
1,751,609 | 1,764,884 | 2,346,976 | 2,225,364 | ||||||||||||
Amortization of deferred financing costs |
25,958 | 29,209 | 38,936 | 38,936 | ||||||||||||
Change in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
(825,086 | ) | (650,650 | ) | (166,379 | ) | 35,343 | |||||||||
Prepaid expenses and other current assets |
(254,407 | ) | (183,823 | ) | 77,925 | (156,708 | ) | |||||||||
Other assets |
13,950 | (1,051 | ) | (1,051 | ) | (2,243 | ) | |||||||||
Accounts payable |
396,442 | 74,775 | (109,127 | ) | 203,431 | |||||||||||
Accrued wages and benefits |
17,714 | 23,980 | 82,591 | (70,983 | ) | |||||||||||
Advance deposits |
(192,173 | ) | (402,325 | ) | 11,947 | 18,435 | ||||||||||
Accrued interest |
(174,792 | ) | (4,928 | ) | (3,501 | ) | (3,277 | ) | ||||||||
Restricted cash |
101,352 | 344,264 | 6,852 | 180,739 | ||||||||||||
Net cash provided by operating activities |
1,805,149 | 565,982 | 1,074,143 | 2,909,979 | ||||||||||||
Cash flows from investing activities: |
||||||||||||||||
Change in restricted cash |
115,092 | (109,957 | ) | 376,722 | (277,359 | ) | ||||||||||
Purchases of property and equipment |
(205,914 | ) | (338,295 | ) | (349,884 | ) | (2,865,218 | ) | ||||||||
Net cash provided by (used in) investing activities |
(90,822 | ) | (448,252 | ) | 26,838 | (3,142,577 | ) | |||||||||
Cash flows from financing activities: |
||||||||||||||||
Repayment of note payable |
(502,505 | ) | (474,668 | ) | (715,979 | ) | (670,259 | ) | ||||||||
Hotel owner funding (distributions), net |
(135,569 | ) | (343,097 | ) | (678,302 | ) | 778,423 | |||||||||
Net cash used in financing activities |
(638,074 | ) | (817,765 | ) | (1,394,281 | ) | 108,164 | |||||||||
Net increase (decrease) in cash |
1,076,253 | (700,035 | ) | (293,300 | ) | (124,434 | ) | |||||||||
Cash and cash equivalents: |
||||||||||||||||
Beginning of year |
1,624,214 | 1,917,514 | 1,917,514 | 2,041,948 | ||||||||||||
End of year |
$ | 2,700,467 | $ | 1,217,479 | $ | 1,624,214 | $ | 1,917,514 | ||||||||
Supplemental cash flow disclosures: |
||||||||||||||||
Cash paid for interest |
$ | 1,545,172 | $ | 1,565,596 | $ | 2,080,460 | $ | 2,126,179 | ||||||||
Noncash hotel owner contribution through extinguishment of Hotel note payable |
$ | 35,246,652 | ||||||||||||||
5
| (1) | Description of Business, Formation and Basis of Presentation |
| The Skamania Lodge (the Hotel), is a full service 254-room resort and conference center located in Stevenson, Washington. The Hotel is owned by a Trust (the Company) that was created for the benefit of the Pennsylvania State employees’ retirement system. The Hotel is managed under an agreement with Destination Hotels and Resorts (“Destination”). | ||
| The accompanying unaudited financial statements of the Hotel as of September 30, 2010 and for the nine-month periods ended September 30, 2010 and 2009, have been prepared pursuant to the Securities and Exchange Commission (SEC) rules and regulations. All amounts included in the financial statements referring to September 30, 2010, and for the nine-month periods ended September 30, 2010 and 2009, are unaudited. The accompanying financial statements reflect, in the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. | ||
| The accompanying financial statements are presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. Actual results could differ from those estimates. | ||
| The Hotel collateralizes a loan obligation of the Hotel’s owner. Cash flows from the Hotel were used to fund the debt service. Although the direct obligation of the Hotel’s owner, the debt balance and related deferred financing costs, interest expense and amortization are presented in the financial statements of the Hotel. |
| (2) | Summary of Significant Accounting Policies |
| (a) | Cash and Cash Equivalents | ||
| Cash and cash equivalents includes the Hotel’s operating cash accounts, which may include liquid temporary cash investments with maturities of three months or less at the date of purchase, which are considered to be cash and cash equivalents. | |||
| (b) | Restricted Cash | ||
| In accordance with the management agreement a reserve fund for property improvements and the replacement of furniture, fixtures, and equipment is required. The replacement reserve fund is funded with an amount equal to 4% of gross revenue, as defined, on a monthly basis. In September 2010 (unaudited), Destination waived the requirement to maintain escrow funds in a replacement reserve fund. In accordance with the loan agreement, a property tax escrow account is also required. | |||
| The Hotel’s note payable contains a minimum debt service coverage ratio. Beginning in May 2010, the Hotel failed to meet the coverage ratio and all cash receipts were directed to a lender controlled account and used to fund operating expenses and debt service. The note payable was extinguished by the Hotel’s owner in September 2010. |
| (c) | Accounts Receivable | ||
| Accounts receivable, which represent amounts due from Hotel guests, are presented net of allowances. The Hotel establishes a specific reserve for doubtful collections of receivables based on customers’ payment history, liquidity, or bankruptcy. | |||
| (d) | Deferred Financing Costs | ||
| Deferred financing costs incurred in connection with the note payable are amortized to interest expense using the straight-line method over the contractual life of the note payable, which approximates the effective-interest method. | |||
| (e) | Property and Equipment | ||
| Building and improvements, furniture, fixtures, and equipment are stated at cost. The cost of additions, alterations, and improvements is capitalized. Expenditures for repairs and maintenance are expensed as incurred. |
| 9/30/2010 | 12/31/2009 | 12/312008 | ||||||||||
Building and Improvements |
$ | 49,916,135 | $ | 49,823,419 | $ | 49,608,130 | ||||||
Land |
8,495,000 | 8,495,000 | 8,495,000 | |||||||||
Furniture, Fixtures and equipment |
8,060,276 | 7,947,078 | 7,812,483 | |||||||||
Total |
$ | 66,471,411 | $ | 66,265,497 | $ | 65,915,613 | ||||||
| Depreciation is computed utilizing the straight-line method over the following estimated useful lives: |
Building and improvements
|
40 years | |
Furniture, fixtures and equipment
|
5 — 7 years |
| (f) | Impairment of Long-Lived Assets | ||
| The Hotel evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment was recognized in any period presented. | |||
| (g) | Advance Deposits | ||
| Advance deposits consist mainly of amounts collected for rooms, banquets, food and beverage, and other property operations in advance of providing services. | |||
| (h) | Revenue Recognition | ||
| Hotel revenues are recognized when the services are provided. Revenues consist of room sales, food and beverage sales, conference center, and other department revenues such as telephone, golf and |
| gift shop. Additionally, the Hotel collects sales, use, occupancy, and similar taxes, which is presented on a net basis (excluded from revenues) on the statements of operations. Other revenue primarily consists of golf green fees and other related charges, and gift shop and spa sales. | |||
| (i) | Marketing | ||
| Marketing costs are expensed as incurred. | |||
| (j) | Income Taxes | ||
| The Hotel is not directly subject to federal, state or local income taxes. The owner of the Hotel is a Trust under section 501(c) of the internal revenue code and is exempt from income taxes. |
| (3) | Note Payable |
| The Hotel collateralized a note payable obligation of the Hotel’s owner. The note payable matured and was extinguished by the owner on September 1, 2010. The outstanding principal balance on the note payable was $36.5 million and $35.7 million as of December 31, 2008 and 2009, respectively. The note payable had a fixed interest rate of 5.7%. |
| (4) | Management Agreement |
| The Hotel has entered into a hotel management agreement with Destination to manage the Hotel. In accordance with the hotel management agreement, the Hotel pays a management fee equal to 2.5% of gross revenues. The management agreement expires on December 31, 2010, and may be extended for an additional 60 month at the option of the Hotel. |
| (5) | Subsequent Events |
| The Hotel has evaluated the need for disclosures and/or adjustments resulting from subsequent events through December 22, 2010, the date the financial statements were available to be issued. | ||
| On November 3, 2010, the Hotel was acquired by Pebblebrook Hotel Trust (Pebblebrook) for cash consideration of approximately $55.8 million. |
| September 30, | December 31, | |||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (Unaudited) | Restated | Restated | ||||||||||
Assets |
||||||||||||
Investment in hotel operating property, at cost |
||||||||||||
Land |
$ | 5,710,580 | $ | 5,710,580 | $ | 5,710,580 | ||||||
Building and improvements |
37,775,202 | 37,355,553 | 37,269,531 | |||||||||
Furniture, fixtures, and equipment |
11,232,581 | 10,900,443 | 10,395,937 | |||||||||
| 54,718,363 | 53,966,576 | 53,376,048 | ||||||||||
Accumulated depreciation |
(16,149,640 | ) | (14,914,994 | ) | (12,747,540 | ) | ||||||
| 38,568,723 | 39,051,582 | 40,628,508 | ||||||||||
Cash and cash equivalents |
4,118,599 | 3,330,008 | 1,158,537 | |||||||||
Escrows |
3,228,751 | 2,433,082 | 2,740,978 | |||||||||
Accounts receivable (net) |
1,182,011 | 1,189,270 | 597,736 | |||||||||
Inventories |
93,966 | 104,523 | 128,988 | |||||||||
Prepaid expenses and other assets |
880,137 | 555,850 | 605,036 | |||||||||
Due from affiliates |
258,424 | 329,311 | 187,748 | |||||||||
Deferred costs (net) |
68,896 | 24,750 | 47,000 | |||||||||
| $ | 48,399,507 | $ | 47,018,376 | $ | 46,094,531 | |||||||
Liabilities and Member’s Deficit |
||||||||||||
Mortgage notes payable |
$ | 58,000,000 | $ | 58,000,000 | $ | 58,000,000 | ||||||
Accounts payable |
646,881 | 692,833 | 945,117 | |||||||||
Taxes payable |
229,023 | 176,146 | 171,549 | |||||||||
Accrued expenses |
1,019,361 | 842,262 | 1,039,888 | |||||||||
Accrued interest payable |
102,733 | 106,427 | 155,849 | |||||||||
Due to affiliates |
— | 1,741 | 21,507 | |||||||||
| 59,997,998 | 59,819,409 | 60,333,910 | ||||||||||
Member’s deficit |
(11,598,491 | ) | (12,801,033 | ) | (14,239,379 | ) | ||||||
| $ | 48,399,507 | $ | 47,018,376 | $ | 46,094,531 | |||||||
2
| Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
| 2010 | 2009 | 2009 | 2008 | |||||||||||||
| (Unaudited) | (Unaudited) | Restated | Restated | |||||||||||||
Departmental revenue: |
||||||||||||||||
Room |
$ | 13,785,530 | $ | 12,352,069 | $ | 16,371,343 | $ | 19,681,336 | ||||||||
Food and beverage |
2,852,854 | 2,903,400 | 3,812,532 | 4,923,347 | ||||||||||||
Other |
1,071,981 | 1,530,207 | 1,871,616 | 1,731,375 | ||||||||||||
| 17,710,365 | 16,785,676 | 22,055,491 | 26,336,058 | |||||||||||||
Departmental expenses: |
||||||||||||||||
Room |
3,178,453 | 3,053,890 | 4,017,770 | 5,064,279 | ||||||||||||
Food and beverage |
2,657,350 | 2,474,331 | 3,201,238 | 4,415,806 | ||||||||||||
Other |
617,116 | 746,973 | 969,321 | 1,184,052 | ||||||||||||
| 6,452,919 | 6,275,194 | 8,188,329 | 10,664,137 | |||||||||||||
Gross profit - departments |
11,257,446 | 10,510,482 | 13,867,162 | 15,671,921 | ||||||||||||
Operating expenses |
||||||||||||||||
General and administrative |
1,139,086 | 1,210,949 | 1,536,116 | 1,903,090 | ||||||||||||
Franchise fees |
1,642,672 | 1,456,519 | 1,925,557 | 2,153,727 | ||||||||||||
Marketing |
701,865 | 674,779 | 895,249 | 1,277,613 | ||||||||||||
Repairs and maintenance |
636,005 | 689,764 | 854,094 | 1,119,206 | ||||||||||||
Utilities |
425,781 | 436,891 | 559,346 | 640,573 | ||||||||||||
Management fees |
531,307 | 503,167 | 662,735 | 765,303 | ||||||||||||
Property taxes |
492,215 | 483,106 | 637,908 | 693,219 | ||||||||||||
Insurance |
259,409 | 249,254 | 336,215 | 354,728 | ||||||||||||
Owners’ expenses |
1,083,168 | 777,844 | 868,729 | 1,223,221 | ||||||||||||
| 6,911,508 | 6,482,273 | 8,275,949 | 10,130,680 | |||||||||||||
Operating income before fixed charges |
4,345,938 | 4,028,209 | 5,591,213 | 5,541,241 | ||||||||||||
Fixed charges: |
||||||||||||||||
Interest expense |
1,393,593 | 1,403,754 | 1,861,663 | 3,370,338 | ||||||||||||
Depreciation and amortization |
1,346,693 | 1,718,403 | 2,291,204 | 2,856,213 | ||||||||||||
| 2,740,286 | 3,122,157 | 4,152,867 | 6,226,551 | |||||||||||||
Net income (loss) |
$ | 1,605,652 | $ | 906,052 | $ | 1,438,346 | $ | (685,310 | ) | |||||||
3
Balance, January 1, 2008, as originally reported |
$ | (16,767,478 | ) | |
Adjustment |
3,213,409 | |||
Balance, January 1, 2008, as restated |
(13,554,069 | ) | ||
Net loss, as restated |
(685,310 | ) | ||
Balance, December 31, 2008 |
(14,239,379 | ) | ||
Net income, as restated |
1,438,346 | |||
Balance, December 31, 2009 |
(12,801,033 | ) | ||
Distributions (unaudited) |
(403,110 | ) | ||
Net income (unaudited) |
1,605,652 | |||
Balance, September 30, 2010 (unaudited) |
$ | (11,598,491 | ) | |
4
| Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
| 2010 | 2009 | 2009 | 2008 | |||||||||||||
| (Unaudited) | (Unaudited) | Restated | Restated | |||||||||||||
Cash Flows from Operating Activities |
||||||||||||||||
Net income (loss) |
$ | 1,605,652 | $ | 906,052 | $ | 1,438,346 | $ | (685,310 | ) | |||||||
Depreciation and amortization |
1,346,693 | 1,718,403 | 2,291,204 | 2,856,213 | ||||||||||||
Unrealized loss on interest rate cap |
5,000 | 47,000 | 47,000 | 65,225 | ||||||||||||
Changes in: |
||||||||||||||||
Escrows |
(685,422 | ) | 123,628 | 153,758 | (324,984 | ) | ||||||||||
Accounts receivable |
7,259 | (1,094,118 | ) | (591,534 | ) | (6,931 | ) | |||||||||
Inventories |
10,557 | 18,774 | 24,465 | (3,648 | ) | |||||||||||
Prepaid expenses and other assets |
(324,287 | ) | (71,817 | ) | 49,186 | (118,216 | ) | |||||||||
Due from affiliates |
70,887 | (73,460 | ) | (141,563 | ) | (106,634 | ) | |||||||||
Accounts payable |
(45,952 | ) | (458,500 | ) | (252,284 | ) | 42,187 | |||||||||
Taxes payable |
52,877 | 40,182 | 4,597 | (37,998 | ) | |||||||||||
Accrued expenses |
177,099 | 120,466 | (197,626 | ) | (256,766 | ) | ||||||||||
Accrued interest |
(3,694 | ) | (49,422 | ) | (49,422 | ) | (59,924 | ) | ||||||||
Due to affiliates |
(1,741 | ) | (21,507 | ) | (19,766 | ) | (424,400 | ) | ||||||||
Net cash provided by operating activities |
2,214,928 | 1,205,681 | 2,756,361 | 938,814 | ||||||||||||
Cash Flows from Investing Activities |
||||||||||||||||
Additions to investment property |
(751,787 | ) | (503,004 | ) | (590,528 | ) | (1,012,858 | ) | ||||||||
Escrows |
(107,712 | ) | 402,468 | 160,401 | (212,472 | ) | ||||||||||
Net cash used in investing activities |
(859,499 | ) | (100,536 | ) | (430,127 | ) | (1,225,330 | ) | ||||||||
Cash Flows from Financing Activities |
||||||||||||||||
Loan fees and costs |
(161,193 | ) | (148,500 | ) | (148,500 | ) | (47,000 | ) | ||||||||
Escrows |
(2,535 | ) | (7,823 | ) | (6,263 | ) | (12,053 | ) | ||||||||
Distributions |
(403,110 | ) | — | — | — | |||||||||||
Net cash used in financing activities |
(566,838 | ) | (156,323 | ) | (154,763 | ) | (59,053 | ) | ||||||||
Increase (decrease) in cash and cash equivalents |
788,591 | 948,822 | 2,171,471 | (345,569 | ) | |||||||||||
Cash and cash equivalents |
||||||||||||||||
Beginning of year |
3,330,008 | 1,158,537 | 1,158,537 | 1,504,106 | ||||||||||||
End of year |
$ | 4,118,599 | $ | 2,107,359 | $ | 3,330,008 | $ | 1,158,537 | ||||||||
Supplemental Disclosure of Cash Flow Information |
||||||||||||||||
Interest paid |
$ | 1,392,287 | $ | 1,406,176 | $ | 1,864,085 | $ | 3,319,975 | ||||||||
5
6
7
8
| Originally | ||||||||||||
| Reported | Adjustment | Restated | ||||||||||
As of December 31, 2009: |
||||||||||||
Investment in hotel operating property |
$ | 36,841,103 | $ | 2,210,479 | $ | 39,051,582 | ||||||
Total assets |
44,807,897 | 2,210,479 | 47,018,376 | |||||||||
Member’s deficit |
(15,011,512 | ) | 2,210,479 | (12,801,033 | ) | |||||||
For the year ended December 31, 2009: |
||||||||||||
Depreciation and amortization |
1,892,767 | 398,437 | 2,291,204 | |||||||||
Net income |
1,836,783 | (398,437 | ) | 1,438,346 | ||||||||
As of December 31, 2008: |
||||||||||||
Investment in hotel operating property |
38,019,592 | 2,608,916 | 40,628,508 | |||||||||
Total assets |
43,485,615 | 2,608,916 | 46,094,531 | |||||||||
Member’s deficit |
(16,848,295 | ) | 2,608,916 | (14,239,379 | ) | |||||||
For the year ended December 31, 2008: |
||||||||||||
Depreciation and amortization |
2,251,720 | 604,493 | 2,856,213 | |||||||||
Net loss |
(80,817 | ) | (604,493 | ) | (685,310 | ) | ||||||
9
10
11
12
| September 30, | December 31, | |||||||||||
| 2010 (Unaudited) | 2009 | 2008 | ||||||||||
Assets |
||||||||||||
Investment in hotel properties, at cost: |
||||||||||||
Land |
$ | 8,534,242 | $ | 8,534,242 | $ | 8,534,242 | ||||||
Building and improvements |
45,785,889 | 45,785,889 | 45,785,889 | |||||||||
Personal property |
10,053,392 | 8,570,260 | 7,892,753 | |||||||||
Less accumulated depreciation |
(10,005,282 | ) | (7,814,680 | ) | (5,102,927 | ) | ||||||
| 54,368,241 | 55,075,711 | 57,109,957 | ||||||||||
Cash and cash equivalents |
2,919,081 | 2,970,926 | 4,767,095 | |||||||||
Accounts receivable, net of allowance of $0 , $503, $0 |
967,259 | 684,225 | 552,266 | |||||||||
Escrow deposits |
1,569,882 | 2,342,729 | 2,241,826 | |||||||||
Inventories |
108,134 | 98,836 | 109,544 | |||||||||
Prepaid expenses and other assets |
700,326 | 59,808 | 31,402 | |||||||||
Deferred financing costs, net of accumulated amortization |
4,863 | 2,047 | 32,567 | |||||||||
Total assets |
$ | 60,637,786 | $ | 61,234,282 | $ | 64,844,657 | ||||||
Liabilities and Members’ Equity |
||||||||||||
Note payable |
$ | 56,070,000 | $ | 56,070,000 | $ | 56,070,000 | ||||||
Accounts payable |
317,997 | 539,766 | 337,992 | |||||||||
Accounts payable — affiliates |
156,194 | 157,028 | 160,391 | |||||||||
Accrued expenses |
246,939 | 281,155 | 391,775 | |||||||||
Accrued payroll and withholding |
748,087 | 593,894 | 794,790 | |||||||||
Accrued interest payable |
— | — | 154,022 | |||||||||
Sales tax payable |
293,058 | 203,911 | 375,680 | |||||||||
Advanced deposits |
462,069 | 241,341 | 198,739 | |||||||||
Total liabilities |
58,294,344 | 58,087,095 | 58,483,389 | |||||||||
Members’ equity |
2,343,442 | 3,147,187 | 6,361,268 | |||||||||
Total liabilities
and members’ equity |
$ | 60,637,786 | $ | 61,234,282 | $ | 64,844,657 | ||||||
2
| Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
| 2010 | 2009 | 2009 | 2008 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
Department revenues: |
||||||||||||||||
Rooms |
$ | 10,355,529 | $ | 10,952,934 | $ | 14,574,526 | $ | 17,951,064 | ||||||||
Food and beverage |
4,149,145 | 3,704,448 | 5,478,718 | 6,944,242 | ||||||||||||
Telephone |
73,271 | 89,265 | 40,981 | 145,205 | ||||||||||||
Other |
793,581 | 957,929 | 1,039,850 | 1,045,330 | ||||||||||||
Total department revenues |
15,371,526 | 15,704,576 | 21,134,075 | 26,085,841 | ||||||||||||
Department expenses: |
||||||||||||||||
Rooms |
3,158,776 | 3,112,547 | 4,189,139 | 4,359,736 | ||||||||||||
Food and beverage |
3,515,298 | 3,332,467 | 4,670,233 | 5,356,499 | ||||||||||||
Telephone |
171,633 | 185,221 | 638,722 | 252,616 | ||||||||||||
Other |
596,997 | 563,026 | 305,881 | 713,350 | ||||||||||||
Total department expenses |
7,442,704 | 7,193,261 | 9,803,975 | 10,682,201 | ||||||||||||
Operating expenses: |
||||||||||||||||
General and administrative |
1,199,148 | 984,636 | 1,526,212 | 1,560,340 | ||||||||||||
Sales and marketing |
1,105,516 | 1,095,942 | 1,318,540 | 1,414,092 | ||||||||||||
Utilities |
747,382 | 747,719 | 1,005,293 | 1,330,443 | ||||||||||||
Property operation and maintenance |
701,955 | 695,665 | 940,849 | 1,122,613 | ||||||||||||
Real estate and other property taxes |
541,363 | 546,218 | 721,008 | 721,009 | ||||||||||||
Management fee |
461,147 | 471,138 | 634,022 | 782,719 | ||||||||||||
Incentive fee |
— | — | — | 449,210 | ||||||||||||
Insurance |
97,713 | 66,996 | 111,396 | 98,658 | ||||||||||||
Asset management fee |
53,800 | 54,966 | 73,969 | 66,819 | ||||||||||||
Depreciation |
2,190,604 | 2,021,254 | 2,711,754 | 2,667,955 | ||||||||||||
Amortization |
11,640 | 34,349 | 37,100 | 341,641 | ||||||||||||
Other expenses |
101,707 | 204,662 | 244,440 | 402,709 | ||||||||||||
Total operating expenses |
7,211,975 | 6,923,545 | 9,324,583 | 10,958,208 | ||||||||||||
Other (expense) income: |
||||||||||||||||
Interest expense |
(669,734 | ) | (715,176 | ) | (935,946 | ) | (2,387,844 | ) | ||||||||
Interest and other income |
15,030 | 12,812 | 14,483 | 87,727 | ||||||||||||
Total other expense, net |
(654,704 | ) | (702,364 | ) | (921,463 | ) | (2,300,117 | ) | ||||||||
Net income |
$ | 62,143 | $ | 885,406 | $ | 1,084,054 | $ | 2,145,315 | ||||||||
3
Balance at December 31, 2007 |
$ | 8,388,956 | ||
Contributions from members |
25,000 | |||
Distributions to members |
(4,198,003 | ) | ||
Net income |
2,145,315 | |||
Balance at December 31, 2008 |
6,361,268 | |||
Contributions from members |
211,865 | |||
Distributions to members |
(4,510,000 | ) | ||
Net income |
1,084,054 | |||
Balance at December 31, 2009 |
3,147,187 | |||
Contributions from members (unaudited) |
22,100 | |||
Distributions to members (unaudited) |
(887,988 | ) | ||
Net income (unaudited) |
62,143 | |||
Balance at September 30, 2010 (unaudited) |
$ | 2,343,442 | ||
4
| Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
| 2010 | 2009 | 2009 | 2008 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income |
$ | 62,143 | $ | 885,406 | $ | 1,084,054 | $ | 2,145,315 | ||||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||||||||||
Amortization of deferred costs |
11,640 | 34,349 | 37,100 | 341,641 | ||||||||||||
Depreciation |
2,190,604 | 2,021,254 | 2,711,754 | 2,667,955 | ||||||||||||
Loss on interest rate cap |
— | — | 15 | 12,072 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
(283,034 | ) | (550,570 | ) | (131,959 | ) | 98,063 | |||||||||
Escrow deposits |
168,609 | 186,916 | 18,600 | (67,475 | ) | |||||||||||
Inventories |
(9,298 | ) | 9,896 | 10,708 | (18,799 | ) | ||||||||||
Prepaid expenses and other assets |
(294,909 | ) | (459,259 | ) | (28,422 | ) | 17,958 | |||||||||
Account payable — affiliates |
(834 | ) | (3,363 | ) | (3,363 | ) | 150,719 | |||||||||
Accounts payable |
(221,769 | ) | (97,984 | ) | 201,774 | 305,891 | ||||||||||
Accrued expenses |
(34,216 | ) | (153,061 | ) | (110,620 | ) | 69,218 | |||||||||
Accrued payroll and withholding |
154,193 | (52,967 | ) | (200,896 | ) | 80,877 | ||||||||||
Accrued interest payable |
— | (154,022 | ) | (154,022 | ) | (162,017 | ) | |||||||||
Sales tax payable |
89,147 | (145,216 | ) | (171,769 | ) | (4,355 | ) | |||||||||
Advanced deposits |
220,728 | 313,713 | 42,602 | (92,819 | ) | |||||||||||
Net cash provided by operating activities |
2,053,004 | 1,835,092 | 3,305,556 | 5,544,244 | ||||||||||||
Cash flows from investing activities: |
||||||||||||||||
Purchases of property and equipment |
(1,828,741 | ) | (76,566 | ) | (677,507 | ) | (859,412 | ) | ||||||||
Escrow deposits |
604,236 | (488,035 | ) | (119,503 | ) | (181,509 | ) | |||||||||
Net cash (used in) investing activities |
(1,224,505 | ) | (564,601 | ) | (797,010 | ) | (1,040,921 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||||||
Contributions from members |
22,100 | 201,376 | 211,865 | 25,000 | ||||||||||||
Distributions to members |
(887,988 | ) | — | (4,510,000 | ) | (4,198,003 | ) | |||||||||
Cap paid for interest rate cap |
— | — | — | (12,000 | ) | |||||||||||
Deferred costs paid |
(14,456 | ) | (5,018 | ) | (6,580 | ) | (6,661 | ) | ||||||||
Net cash provided by (used in) financing activities |
(880,344 | ) | 196,358 | (4,304,715 | ) | (4,191,664 | ) | |||||||||
Net increase (decrease) in cash |
(51,845 | ) | 1,466,849 | (1,796,169 | ) | 311,659 | ||||||||||
Cash and cash equivalents: |
||||||||||||||||
Beginning of year |
2,970,926 | 4,767,095 | 4,767,095 | 4,455,436 | ||||||||||||
End of period |
$ | 2,919,081 | $ | 6,233,944 | $ | 2,970,926 | $ | 4,767,095 | ||||||||
Supplemental cash flow disclosures: |
||||||||||||||||
Cash paid for interest |
$ | 669,734 | $ | 869,198 | $ | 1,089,953 | $ | 2,537,789 | ||||||||
5
| (1) | Description of Business and Basis of Accounting | |
| The Sofitel Hotel Philadelphia (the Hotel) is a full-service 306-room hotel located in Philadelphia, Pennsylvania. The Hotel is owned by South 17th Street OwnerCo, LLC (OwnerCo) and is leased to South 17th Street LeaseCo, LLC (LeaseCo), under a related party lease agreement. OwnerCo and LeaseCo are collectively referred to as the Company. Platinum OwnerCo, LLC and Platinum LeaseCo, LLC are the parent of the Company. Profits, losses, and distributions are shared pursuant to each Company’s respective Limited Liability Company Agreement. The members of the Company have no personal liability for the obligations of the Company except to the extent required by the Delaware Limited Liability Company Act, as amended, and the Company will continue until dissolved and terminated in accordance with the provisions of the agreements. The Hotel is managed under an agreement with Accor Business and Leisure Management LLC (Accor). | ||
| The accompanying unaudited combined financial statements of the Company as of September 30, 2010 and for the nine-month periods ended September 30, 2010 and 2009, have been prepared pursuant to the Securities and Exchange Commission (SEC) rules and regulations. All amounts included in the notes to the combined financial statements referring to September 30, 2010, and for the nine-month periods ended September 30, 2010 and 2009, are unaudited. The accompanying combined financial statements reflect, in the opinion of management, all adjustments considered necessary for a fair presentation of the interim combined financial statements. All such adjustments are of a normal and recurring nature. | ||
| The accompanying combined financial statements are presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Intercompany accounts and transactions have been eliminated in combination. The preparation of the combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and the accompanying notes. Actual results could differ from those estimates and assumptions. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. | ||
| On December 3, 2010, Pebblebrook Hotel Trust (Pebblebrook) acquired the membership interests in OwnerCo and LeaseCo for approximately $87.0 million. The acquisition was funded from $30.9 million in cash and the assumption of the existing $56.1 million mortgage. | ||
| (2) | Significant Accounting Policies |
| (a) | Cash and Cash Equivalents | ||
| Cash and cash equivalents includes cash and liquid temporary investments with maturities of three months or less at the date of purchase. The Company is exposed to credit risk on its cash and cash equivalents as it holds amounts in financial institutions in excess of FDIC insured amounts. | |||
| (b) | Escrow Deposits | ||
| Escrow deposits are required per the mortgage documents for furniture, fixtures and equipment, renovation reserves, and real estate taxes. | |||
| (c) | Inventories | ||
| Inventories, consisting primarily of food and beverage items, are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. |
6
| (d) | Investment in Hotel Properties | ||
| Land, building and improvements and personal property are stated at cost. The cost of additions, alterations, and improvements are capitalized. Expenditures for routine repairs and maintenance are expensed as incurred. Depreciation is computed utilizing the straight-line method over the estimated useful lives, which are 40 years for buildings and improvements and 3, 5, or 15 years for personal property. | |||
| (e) | Impairment of Long-Lived Assets | ||
| The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. No such impairment losses have been recognized to date. | |||
| (f) | Revenue Recognition | ||
| The Company recognizes revenues when the services are provided. Revenues consist of room sales, food and beverage sales, and other department revenues such as telephone and gift shop. Additionally, the Company collects sales, use, occupancy, and similar taxes, which are presented on a net basis (excluded from revenues) in our combined statements of operations. | |||
| (g) | Accounts Receivable | ||
| Accounts receivable, which primarily represents amounts due from hotel guests, are recorded at management’s estimate of the amounts that will be ultimately collected. The Company provides for an allowance for doubtful accounts, which is based on specific identification and management’s historical experience. | |||
| (h) | Fair Value Measurement | ||
| The Company is required to disclose the fair value of certain assets and liabilities according to a fair value hierarchy. This hierarchy ranks the quality and reliability of the inputs used to determine fair values, which are then classified and disclosed in one of three categories. The three levels of the fair value hierarchy are: |
| • | Level 1 — quoted prices (unadjusted) in active markets for identical assets and liabilities. | ||
| • | Level 2 — quoted prices in active markets for similar assets and liabilities: quoted prices in markets that are not active; and model-derived valuations whose inputs are observable. | ||
| • | Level 3 — model-derived valuations with unobservable inputs. |
| As required by the guidance, assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of certain assets and liabilities and their classifications within the fair value hierarchy. |
7
| (i) | Deferred Financing Costs | ||
| Deferred financing costs incurred in connection with the note payable are amortized to interest expense using the straight-line method over the contractual life of the note payable, which approximates the effective interest method. Deferred financing costs are shown net of accumulated amortization. | |||
| (j) | Derivatives and Hedging Instruments | ||
| In March 2008, the Financial Accounting Standard Board (FASB) issued guidance that amends and expands the disclosure requirements for derivative instruments and hedging activities, to provide users of financial statements with an enhanced understanding of the use of derivative instruments, accounting for derivative instruments and related hedged items, and the effect on an entitiy’s combined financial position, financial performance, and cash flows. This guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, as well as disclosures about credit risk related to contingent features in derivative agreements. | |||
| The Company uses derivative instruments such as interest rate caps to manage exposure to the variability of cash flows to be paid related to interest rate risks inherent in variable rate debt. The Company’s interest rate cap is recognized as an asset or liability and is recorded at fair value. The Company does not enter into derivatives for speculative or trading purposes and no derivatives have been designated as hedging instruments. As such, where required, changes in the fair value of the Company’s interest rate cap is reported in net income in the combined statement of operations. For the nine months ended September 30, 2010 and 2009 (unaudited) and the years ended December 31, 2009 and 2008, the interest rate cap had an immaterial effect on the Company’s combined results of operations. | |||
| (k) | Marketing and Advertising Expenses | ||
| Marketing and advertising costs are expensed as incurred. | |||
| (l) | Fair Value of Financial Instruments | ||
| The Company has utilized market information as available or present value techniques to estimate the fair value of financial instruments required to be disclosed. Since such values are estimates, there can be no assurance that the fair value of any financial instrument could be realized by immediate settlement of the instrument. Based on borrowing rates available to the Company at the end of 2009 and 2008, the fair value of the notes payable was approximately $55,200,000 and $56,000,000 as of December 31, 2009, and 2008, respectively. | |||
| (m) | Accounts Payable to Affiliates | ||
| The accounts payable to affiliates consists of an advance from the Company’s parent, miscellaneous expenses paid by the Company’s parent, and local tax paid by the Company’s parent. | |||
| (n) | Income Taxes | ||
| No provision for income taxes has been made within the combined financial statements as the liability for such tax is that of the members of the Company. In certain instances, the Company may |
8
| be subject to certain state and local taxes. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. As of September 30, 2010 (unaudited), December 31, 2009 and 2008, the Company has no unrecognized tax benefits. |
| (3) | Note Payable | |
| On January 5, 2007, the Company entered into a $56,070,000 mortgage loan (the “Note”) secured by the Hotel. The Note is payable in monthly installments of interest only at the rate equal to LIBOR plus 1.3 percent (1.5309 percent and 1.7475 percent at December 31, 2009 and 2008, respectively). The note contains customary affirmative covenants. As of September 30, 2010 (unaudited), December 31, 2009 and 2008, the Company was in compliance with such covenants. The original maturity date of the Note was February 1, 2009. The loan provided for three extension terms of one year each, provided certain conditions are met as set forth in the loan agreement. On February 1, 2010, the Company exercised its second of three one-year extension options on the outstanding note payable. | ||
| In conjunction with the Note agreement, the Company entered into an interest rate cap agreement with a notional amount equal to the principal amount which caps the underlying LIBOR rate at 7.00 percent. The Company elected to not designate the interest rate caps as hedging instruments and, as such, the Company recognizes changes in the fair value of these derivatives in the combined statements of operations. For the nine months ended September 30, 2010 and 2009 (unaudited) and the years ended December 31, 2009 and 2008, the Company recognized a loss of $0, $0, $15 and $12,072, respectively, due to the change in the fair value of the instruments, which is included in interest expense in the accompanying combined statements of operations. The fair value of the interest rate caps was $0, $0 and $15, at September 30, 2010 (unaudited), December 31, 2009 and 2008, respectively. | ||
| (4) | Management Agreement | |
| Upon acquisition of the Hotel, the Company entered into a management agreement with Accor. The management agreement expires on January 5, 2032, with three automatic extensions for periods of 10 years each. The management agreement requires a base management fee equal to 3% of gross revenues (as defined) and an incentive management fee equal to 20% by which net operating income (as defined) exceeds the threshold amount (as defined). The incentive fee is calculated on a pooled portfolio basis along with eight other hotels owned by the same owner. Pursuant to the terms of the management agreement, Accor provides the Hotel with various services and supplies, including marketing, reservations, construction management, and insurance. Base and incentive management fee expenses were $634,022 and $0 respectively for the year ended December 31, 2009, and $782,719 and $449,210 respectively, for the year ended December 31, 2008. Base and incentive management fees expenses were $461,147 and $0, respectively, for the nine months ended September 30, 2010 (unaudited), and $471,138 and $0, respectively, for the nine months ended September 30, 2009 (unaudited). | ||
| Additionally, the management agreement defines aggregate deviations and Gross Operating Income Deviations (GOI) based on certain formulas that require Accor to reimburse the Company for these deviations. In 2009, Accor reimbursed the Company $4,186 for GOI which is reflected in interest and other income in the accompanying combined statement of operations. There was no GOI Deviation in 2008 therefore no payment was made for 2008. |
9
| Accor is responsible for maintaining the Hotel’s furniture, fixtures, and equipment and making purchases as considered necessary. Pursuant to the management agreements, OwnerCo is responsible for funding a furniture, fixture, and equipment escrow account (the FF&E Reserve) equal to 4 percent of the Hotel’s gross revenue, as defined in the management agreement. Upon purchase of furniture, fixtures, and equipment, Accor requests reimbursement from the FF&E Reserve. At September 30, 2010 (unaudited), December 31, 2009 and 2008, the FF&E Reserve balance was $662,440, $1,266,806 and $1,148,058, respectively, and is included in escrow deposits in the accompanying combined balance sheets. |
| (5) | Asset Management Agreements | |
| Upon acquisition of the Hotel, the Company entered into an asset management agreement with SCS Hotels, Inc. (the Asset Manager). The asset management agreements expired on December 31, 2009. The Company initiated discussions with the asset manager to negotiate an extension to this agreement. The asset management agreement requires a base fee equal to 0.35% of gross revenues (as defined) and an incentive fee equal to 10.0% of the excess of the actual net operating income (as defined) less the actual incentive management fee over the projected net operating income (as defined) less the projected incentive fee (as defined). Pursuant to the terms of the asset management agreements, the Asset Manager provides additional monitoring and oversight of the Hotel’s operations. Base and incentive asset management fee expenses were $73,969 and $0, respectively, for the year ended December 31, 2009 and $91,300 and $(24,481), respectively, for the year ended December 31, 2008. Base and incentive asset management fee expenses were $53,800 and $0, respectively, for the nine months ended September 30, 2010 (unaudited) and $54,966 and $0, respectively, for the nine months ended September 30, 2009 (unaudited). The negative incentive fee in 2009 is a result of the Hotel not achieving certain net operating income thresholds. | ||
| (6) | Commitments and Contingencies | |
| The nature of the Company’s operations exposes it to the risk of claims and litigation in the normal course of its business. Although the outcome of such matters cannot be determined, management believes the ultimate resolution of these matters will not have a material adverse effect on the combined financial position, results of operations, or cash flows of the Company. | ||
| (7) | Subsequent Events | |
| The Hotel has evaluated the need for disclosures and/or adjustments resulting from subsequent events through December 21, 2010, the date the combined financial statements were available to be issued. |
10
| September 30, | ||||||||||||
| 2010 | December 31, | |||||||||||
| (Unaudited) | 2009 | 2008 | ||||||||||
Assets |
||||||||||||
Cash and cash equivalents |
$ | 4,414,550 | $ | 3,088,147 | $ | 2,974,359 | ||||||
Restricted cash |
3,350,976 | 3,024,727 | 2,628,877 | |||||||||
Accounts receivable, net |
1,200,434 | 438,284 | 518,959 | |||||||||
Prepaid expenses |
1,287,544 | 909,490 | 746,985 | |||||||||
Other assets |
367,903 | 314,563 | 379,125 | |||||||||
Total current assets |
10,621,407 | 7,775,211 | 7,248,305 | |||||||||
Leasehold improvements |
$ | 31,472,074 | $ | 31,472,074 | $ | 31,472,074 | ||||||
Furniture, fixtures, and equipment |
7,509,063 | 7,480,887 | 7,230,948 | |||||||||
Work in progress |
2,592 | — | 5,990 | |||||||||
| 38,983,729 | 38,952,961 | 38,709,012 | ||||||||||
Accumulated depreciation |
(12,405,599 | ) | (11,537,455 | ) | (10,371,747 | ) | ||||||
Property and equipment, net |
26,578,130 | 27,415,506 | 28,337,265 | |||||||||
Deferred financing fees, net |
48,896 | 74,782 | 109,297 | |||||||||
Total assets |
$ | 37,248,433 | $ | 35,265,499 | $ | 35,694,867 | ||||||
Liabilities and Owner’s Deficit in Hotel |
||||||||||||
Accounts payable |
$ | 257,157 | $ | 205,257 | $ | 814,779 | ||||||
Accrued liabilities |
1,644,204 | 979,482 | 1,360,393 | |||||||||
Advance deposits |
202,902 | 76,843 | 62,114 | |||||||||
Due to affiliates |
92,747 | 44,736 | 56,717 | |||||||||
Total current liabilities |
2,197,010 | 1,306,318 | 2,294,003 | |||||||||
Other non-current liabilities |
18,885 | 16,027 | 8,667 | |||||||||
Long-term debt |
$ | 42,000,000 | $ | 42,000,000 | $ | 42,000,000 | ||||||
Total liabilities |
44,215,895 | 43,322,345 | 44,302,670 | |||||||||
Owner’s deficit in Hotel |
(6,967,462 | ) | (8,056,846 | ) | (8,607,803 | ) | ||||||
Total liabilities and owner’s deficit in Hotel |
$ | 37,248,433 | $ | 35,265,499 | $ | 35,694,867 | ||||||
2
| Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
| 2010 | 2009 | 2009 | 2008 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
Revenues: |
||||||||||||||||
Rooms |
$ | 11,213,844 | $ | 9,888,920 | $ | 13,218,210 | $ | 16,826,283 | ||||||||
Food and beverage |
3,481,081 | 3,547,355 | 4,612,957 | 5,196,402 | ||||||||||||
Other operated departments |
232,333 | 226,898 | 318,588 | 409,007 | ||||||||||||
Rentals, other income |
407,984 | 453,718 | 601,396 | 645,178 | ||||||||||||
Total revenues |
15,335,242 | 14,116,891 | 18,751,151 | 23,076,870 | ||||||||||||
Operating expenses: |
||||||||||||||||
Rooms |
3,186,897 | 2,747,164 | 3,780,973 | 4,057,898 | ||||||||||||
Food and beverage |
2,450,301 | 2,422,416 | 3,202,096 | 3,611,145 | ||||||||||||
Other operated departments |
279,659 | 246,145 | 347,608 | 429,608 | ||||||||||||
General and administrative |
1,422,728 | 1,333,355 | 1,762,146 | 2,142,172 | ||||||||||||
Marketing |
682,758 | 611,960 | 806,509 | 993,203 | ||||||||||||
Energy |
332,550 | 315,639 | 415,562 | 453,681 | ||||||||||||
Property operation and maintenance |
402,587 | 358,820 | 514,625 | 585,837 | ||||||||||||
Property taxes and insurance |
844,523 | 870,080 | 1,152,259 | 1,021,446 | ||||||||||||
Depreciation and amortization |
882,796 | 874,627 | 1,176,053 | 1,765,090 | ||||||||||||
Rent |
1,037,719 | 994,128 | 1,324,443 | 1,608,412 | ||||||||||||
Management fee |
886,633 | 723,180 | 848,936 | 1,405,703 | ||||||||||||
Other |
4,926 | — | — | 7,606 | ||||||||||||
Total operating expenses |
12,414,077 | 11,497,514 | 15,331,210 | 18,081,801 | ||||||||||||
Other expenses: |
||||||||||||||||
Interest expense |
(1,831,781 | ) | (1,831,782 | ) | (2,448,990 | ) | (2,513,237 | ) | ||||||||
Net income |
$ | 1,089,384 | $ | 787,595 | $ | 970,951 | $ | 2,481,832 | ||||||||
3
Balance at
January 1, 2008 |
$ | (8,628,437 | ) | |
Hotel owner distributions |
(2,461,198 | ) | ||
Net income |
2,481,832 | |||
Balance at December 31, 2008 |
(8,607,803 | ) | ||
Hotel owner distributions |
(419,994 | ) | ||
Net income |
970,951 | |||
Balance at December 31, 2009 |
(8,056,846 | ) | ||
Net income (unaudited) |
1,089,384 | |||
Balance at September 30, 2010 (unaudited) |
$ | (6,967,462 | ) | |
4
| Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||
| 2010 | 2009 | 2009 | 2008 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income |
$ | 1,089,384 | $ | 787,595 | $ | 970,951 | $ | 2,481,832 | ||||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||||||||||
Amortization of deferred costs |
25,886 | 25,886 | 34,515 | 34,515 | ||||||||||||
Depreciation and amortization |
882,796 | 874,627 | 1,176,053 | 1,765,090 | ||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable |
(762,150 | ) | (327,140 | ) | 80,675 | 235,557 | ||||||||||
Prepaid expenses |
(378,054 | ) | (480,596 | ) | (162,505 | ) | 240,037 | |||||||||
Other assets |
(53,340 | ) | 65,636 | 64,562 | (242,999 | ) | ||||||||||
Accounts payable |
51,900 | (524,656 | ) | (609,522 | ) | 638,079 | ||||||||||
Other liabilities |
841,650 | 26,512 | (370,803 | ) | (791,214 | ) | ||||||||||
Net cash provided by operating activities |
1,698,072 | 447,864 | 1,183,926 | 4,360,897 | ||||||||||||
Cash flows from investing activities: |
||||||||||||||||
Change in restricted cash |
(326,249 | ) | (188,311 | ) | (395,850 | ) | 83,482 | |||||||||
Additions to property and equipment |
(45,420 | ) | (250,949 | ) | (254,294 | ) | (782,105 | ) | ||||||||
Net cash used in investing activities |
(371,669 | ) | (439,260 | ) | (650,144 | ) | (698,623 | ) | ||||||||
Cash flows from financing activities — Hotel owner distributions |
— | (209,997 | ) | (419,994 | ) | (2,461,198 | ) | |||||||||
Net increase (decrease) in cash |
1,326,403 | (201,393 | ) | 113,788 | 1,201,076 | |||||||||||
Cash and cash equivalents: |
||||||||||||||||
Beginning of year |
3,088,147 | 2,974,359 | 2,974,359 | 1,773,283 | ||||||||||||
End of year |
$ | 4,414,550 | $ | 2,772,966 | $ | 3,088,147 | $ | 2,974,359 | ||||||||
Supplemental cash flow disclosures: |
||||||||||||||||
Cash paid for interest |
$ | 1,831,781 | $ | 1,831,782 | $ | 2,448,990 | $ | 2,513,237 | ||||||||
5
| (1) | Description of Business and Basis of Accounting | |
| The Argonaut Hotel (the Hotel), is a full service, 252-room hotel located at 495 Jefferson Street San Francisco, CA. The Hotel is owned by Maritime Hotel Associates, L.P., a California limited partnership (the Partnership). The Partnership is an affiliate of Kimpton Group, the manager of the Hotel. | ||
| The accompanying financial statements are presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. Actual results could differ from those estimates. | ||
| The accompanying unaudited financial statements of the Hotel as of September 30, 2010 and for the nine-month periods ended September 30, 2010 and 2009, have been prepared pursuant to the Securities and Exchange Commission (SEC) rules and regulations. All amounts included in the notes to the financial statements referring to September 30, 2010, and for the nine-month periods ended September 30, 2010 and 2009, are unaudited. The accompanying financial statements reflect, in the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. | ||
| The Hotel collateralizes a note payable obligation of the Partnership. Cash from the Hotel’s operations account may be used to fund debt service. Although technically an obligation of the Partnership and not the Hotel, the outstanding principal balance of the note payable, interest expense, deferred financing costs, and related amortization are presented in the financial statements of the Hotel. | ||
| Pebblebrook Hotel Trust has signed an agreement to acquire the Hotel and is negotiating the assumption of this note payable obligation (see note 5). The outstanding principal balance on the note payable is $42 million. The note bears interest equal to 5.67%. The note payable requires monthly interest only payments through March 2012, the maturity date. | ||
| (2) | Significant Accounting Policies |
| (a) | Cash and Cash Equivalents | ||
| Includes the Hotel’s operating cash accounts, which may include liquid temporary cash investments with maturities of three months or less at the date of purchase which are considered to be cash and cash equivalents. | |||
| (b) | Restricted Cash | ||
| In accordance with the hotel operating and loan agreements, a replacement reserve fund for the purpose of replacements to, and additions of, furniture and equipment is required. The replacement reserve fund is funded with an amount equal to 4% of gross revenue, as defined by the loan agreement, on a monthly basis. |
6
| (c) | Leasehold Improvements and Furniture, Fixtures and Equipment | ||
| The Partnership owns a leasehold interest in the Hotel, which is subject to a lease agreement with the U.S. Government (see note 3). Leasehold improvements, furniture, fixtures and equipment are stated at cost. The cost of additions, alterations, and improvements is capitalized. Expenditures for repairs and maintenance are expensed as incurred. Amortization of the leasehold interest and depreciation of the furniture, fixtures and equipment is computed utilizing the straight-line method over lives of 3 to 40 years. | |||
| Construction in progress totaling $2,592 (unaudited), $0 and $5,990 at September 30, 2010, December 31, 2009 and 2008, respectively, is included in leasehold improvements and furniture, fixtures and equipment. Construction in progress represents renovations to the hotel and is capitalized as the costs are incurred. Renovation projects are generally less than six months in duration, and the hotel remains fully operational while renovations occur. Upon completion of the renovations, depreciation of the improvements commences. | |||
| (d) | Impairment of Long-Lived Assets | ||
| The Hotel evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. No such impairment losses have been recognized to date. | |||
| (e) | Revenue Recognition | ||
| Hotel revenues are recognized when the services are provided. Revenues consist of room sales, food and beverage sales, and other department revenues such as telephone and audio/visual. Additionally, we collect sales, use, occupancy and similar taxes at our hotels which we present on a net basis (excluded from revenues) on our statements of operations. | |||
| (f) | Accounts Receivable | ||
| Accounts receivable, which represent amounts due from Hotel guests, are presented net of allowances, which were $438,284 and $518,959 for the years ended December 31, 2009 and 2008, respectively. | |||
| (g) | Fair Value Measurement | ||
| The Company is required to disclose the fair value of certain assets and liabilities according to a fair value hierarchy. This hierarchy ranks the quality and reliability of the inputs used to determine fair values, which are then classified and disclosed in one of three categories. The three levels of the fair value hierarchy are: |
| • | Level 1 — quoted prices (unadjusted) in active markets for identical assets and liabilities. | ||
| • | Level 2 — quoted prices in active markets for similar assets and liabilities: quoted prices in markets that are not active; and model-derived valuations whose inputs are observable. |
7
| • | Level 3 — model-derived valuations with unobservable inputs. |
| As required by the guidance, assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of certain assets and liabilities and their classifications within the fair value hierarchy. | |||
| (h) | Deferred Financing Costs | ||
| Deferred financing costs incurred in connection with the note payable are amortized to interest expense using the straight-line method over the contractual life of the note payable, which approximates the effective-interest method. | |||
| (i) | Marketing and Advertising Expenses | ||
| Marketing and advertising costs are expensed as incurred. | |||
| (j) | Fair Value of Financial Instruments | ||
| The Company has utilized market information as available or present value techniques to estimate the fair value of financial instruments required to be disclosed. Since such values are estimates, there can be no assurance that the fair value of any financial instrument could be realized by immediate settlement of the instrument. The book value of Long-term debt approximates fair value based upon the current interest rates. | |||
| (k) | Income Taxes | ||
| The Hotel is not directly subject to federal, state or local income taxes. However the owner of the Hotel is a limited partnership and may be subject to certain income or other taxes, and the members of the limited partnership are responsible for reporting their share of taxable income or loss on their respective income tax returns. |
| (3) | Ground Lease | |
| The owner of the Hotel leases the building structure and land under a noncancelable lease with the United States Department of the Interior, National Park Service expiring in 2059. The lease has been accounted for as an operating lease. The Hotel is required to pay the greater of base rent (as adjusted for CPI increases every 5 years beginning the day after the Certificate of Occupancy was issued on September 17, 2003) or a percentage of gross hotel revenues in excess of $13,563,200 as well as a fixed percentage of all gross food, beverage, and all other department revenues (as adjusted for CPI increases), as defined. The percentage of gross hotel room revenue ranges from 6% to 10% in the initial years to 8% to 14% in the later years of the lease. The percentage of gross hotel food, beverage, and all other department revenues is 4% in all years of the lease. Percentage rent exceeded base rent for the nine months ended September 30, 2010 (unaudited) and for the years ended December 31, 2009 and 2008. Percentage rent did not exceed base rent for the nine months ended September 30, 2009 (unaudited). | ||
| Rent expense was approximately $1,011,000 (unaudited), $900,000 (unaudited), $1,216,000 and $1,524,000 for the nine months ended September 30, 2010 and 2009 and for the years ended December 31, 2009 and 2008, respectively. Future minimum rental payments under the ground lease for the next five years are as follows: |
8
Oct – Dec 2010 |
300,000 | |||
2011 |
1,200,000 | |||
2012 |
1,200,000 | |||
2013 |
1,200,000 | |||
2014 |
1,200,000 | |||
2015 |
1,200,000 | |||
Thereafter |
52,800,000 |
| (4) | Related-Party Transactions | |
| The Hotel has entered into a hotel operating agreement with the Kimpton Group to manage the Hotel. In accordance with the hotel operating agreement, the Hotel pays a base management fee of 4% of gross revenues and an incentive fee of 16% of the Hotel’s distributable cash, as defined in the agreement, after payment of a preferred return to the owner of the Hotel. Total management fees were $886,633 (unaudited), $723,180 (unaudited), $848,936 and $1,405,703 for the nine month periods ended September 30, 2010 and 2009 and the years ended December 31, 2009 and 2008, respectively. | ||
| Under the operating agreement, the Hotel also reimburses the Kimpton Group for the Hotel’s pro rata share of certain group service costs, as defined in the agreement. In addition, the Hotel reimburses the Kimpton Group for the Hotel’s pro rata share of initial development costs and recurring operating costs related to the central reservation system, and costs associated with the guest loyalty program Kimpton In-Touch. Total reimbursements were $230,000 (unaudited), $137,945 (unaudited), $232,099 and $265,182 for the nine month periods ended September 30, 2010 and 2009 and the years ended December 31, 2009 and 2008, respectively. | ||
| The Hotel shares certain costs with other hotels and entities that are managed by or affiliated with the Kimpton Group. The Hotel has total outstanding payables due to the Kimpton Group of $92,747, $44,736 and $56,717 as of September 30, 2010 (unaudited), December 31, 2009 and 2008, respectively. | ||
| (5) | Subsequent Event | |
| The Hotel has evaluated the need for disclosures and/or adjustments resulting from subsequent events through December 28, 2010, the date the financial statements were available to be issued. | ||
| On November 29, 2010, Pebblebrook Hotel Trust (Pebblebrook) entered into an agreement to acquire the Hotel for $84 million, subject to customary closing conditions. Pebblebrook may assume the existing note payable. However, no agreement has been reached with the lender. |
9
| Completed Acquisitions | Probable Acquisition | |||||||||||||||||||||||||||
| Acquisition of | Pro Forma | Pro Forma | ||||||||||||||||||||||||||
| Historical | Sheraton Delfina | Acquisition of | Pebblebrook Hotel | Acquisition of | Pebblebrook Hotel | |||||||||||||||||||||||
| Pebblebrook Hotel | Acquisition of | Santa Monica | Sofitel Philadelphia | Trust before probable | Argonaut Hotel San | Trust after probable | ||||||||||||||||||||||
| Trust | Skamania Lodge (1) | Hotel (2) | Hotel (3) | acquisition | Francisco (4) | acquisition | ||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||||||
Investment in hotel properties, net |
$ | 367,028 | $ | 55,750 | $ | 102,750 | $ | 86,986 | $ | 612,514 | $ | 84,000 | $ | 696,514 | ||||||||||||||
Cash and cash equivalents |
370,995 | (54,813 | ) | (102,437 | ) | (32,769 | ) | 180,976 | (43,700 | ) | 137,276 | |||||||||||||||||
Restricted cash |
1,390 | — | 1,040 | 2,430 | — | 2,430 | ||||||||||||||||||||||
Accounts receivable, net |
3,920 | 59 | 34 | 652 | 4,665 | — | 4,665 | |||||||||||||||||||||
Deferred financing costs, net |
2,142 | — | — | — | 2,142 | — | 2,142 | |||||||||||||||||||||
Prepaid expenses and other assets |
5,043 | 333 | 171 | 104 | 5,651 | — | 5,651 | |||||||||||||||||||||
Total assets |
$ | 750,518 | $ | 1,329 | $ | 518 | $ | 56,013 | $ | 808,378 | $ | 40,300 | $ | 848,678 | ||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||||||||||||||||||
Senior secured credit facility |
$ | — | $ | — | $ | — | $ | — | $ | — | — | $ | — | |||||||||||||||
Mortgage debt |
35,000 | — | — | 56,070 | 91,070 | 42,000 | 133,070 | |||||||||||||||||||||
Accounts payable and accrued expenses |
10,965 | 1,041 | 670 | 810 | 13,486 | — | 13,486 | |||||||||||||||||||||
Accrued underwriter fees |
8,050 | — | — | 8,050 | — | 8,050 | ||||||||||||||||||||||
Advance deposits |
1,657 | 688 | 148 | 333 | 2,826 | — | 2,826 | |||||||||||||||||||||
Accrued interest |
110 | — | — | — | 110 | — | 110 | |||||||||||||||||||||
Total liabilities |
55,782 | 1,729 | 818 | 57,213 | 115,542 | 42,000 | 157,542 | |||||||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||||||
Shareholders’ equity: |
||||||||||||||||||||||||||||
Preferred shares of beneficial interest, $0.01
par value; 100,000,000 shares authorized;
no shares issued and outstanding |
— | — | — | — | — | — | — | |||||||||||||||||||||
Common shares of beneficial interest, $0.01
par value; 500,000,000 shares authorized;
39,810,590 shares issued and outstanding |
398 | — | — | — | 398 | — | 398 | |||||||||||||||||||||
Additional paid-in capital |
697,950 | — | — | — | 697,950 | — | 697,950 | |||||||||||||||||||||
Accumulated deficit |
(4,868 | ) | (400 | ) | (300 | ) | (1,200 | ) | (6,768 | ) | (1,700 | ) | (8,468 | ) | ||||||||||||||
Total shareholders’ equity |
693,480 | (400 | ) | (300 | ) | (1,200 | ) | 691,580 | (1,700 | ) | 689,880 | |||||||||||||||||
Non-controlling interest |
1,256 | — | — | — | 1,256 | — | 1,256 | |||||||||||||||||||||
Total equity |
694,736 | (400 | ) | (300 | ) | (1,200 | ) | 692,836 | (1,700 | ) | 691,136 | |||||||||||||||||
Total liabilities and equity |
$ | 750,518 | $ | 1,329 | $ | 518 | $ | 56,013 | $ | 808,378 | $ | 40,300 | $ | 848,678 | ||||||||||||||
| Footnotes: | ||
| (1) | Reflects the purchase of the Skamania Lodge as if it had occurred on September 30, 2010 for $55,750. The pro forma adjustment reflects the following: Purchase of land, building, and furniture, fixtures and equipment of $55,750; Cash paid of $400 for hotel acquisition costs; and Net working capital deficit of $1,337. | |
| (2) | Reflects the purchase of the Sheraton Delfina Santa Monica Hotel as if it had occurred on September 30, 2010 for $102,750. The pro forma adjustment reflects the following: Purchase of land, building, and furniture, fixtures and equipment of $102,750; Cash paid of $300 for hotel acquisition costs; and Net working capital deficit of $517. | |
| (3) | Reflects the purchase of South 17th Street OwnerCo, LLC and 17th Street LeaseCo LLC, the entities that own the Sofitel Philadelphia Hotel, as if it had occurred on September 30, 2010 for $86,986. The acquisition was funded with $30,916 cash and assumption of a $56,070 mortgage debt. The pro forma adjustment reflects the following: Purchase of land, building, and furniture, fixtures and equipment of $86,986; Cash paid of $1,200 for hotel acquisition costs; and Net working capital of $653. | |
| (4) | Reflects the probable acquisition of the Argonaut Hotel San Francisco as if it had occurred on September 30, 2010 for $84,000. The acquisition, if consummated, will be funded with a combination of available cash and the assumption of existing debt of $42,000. The pro forma adjustment reflects the following estimates: Purchase of land, building, and furniture, fixtures and equipment of $84,000; Assumption of existing mortgage debt of $42,000; and Cash paid of $1,700 for hotel acquisition costs. |
| Completed Acquisitions | Probable Acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Pro Forma | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of | Pro Forma | Pebblebrook | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Doubletree | Pebblebrook | Hotel Trust | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Historical | Bethesda Hotel and | Acquisition of | Acquisition of | Acquisition of | Acquisition of | Acquisition of | Hotel Trust | Acquisition of | after | |||||||||||||||||||||||||||||||||||||||||||
| Pebblebrook | Executive Meeting | Sir Francis | InterContinental | Hotel Monaco | Acquisition of | Sheraton Delfina | Sofitel Philadelphia | Pro Forma | before probable | Argonaut Hotel San | Pro Forma | probable | ||||||||||||||||||||||||||||||||||||||||
| Hotel Trust | Center (1) | Drake Hotel (2) | Buckhead Hotel (3) | Washington DC (4) | Skamania Lodge (5) | Santa Monica Hotel (6) | Hotel (7) | Adjustments | acquisition | Francisco (15) | Adjustments | acquisition | ||||||||||||||||||||||||||||||||||||||||
REVENUE |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Room |
$ | 14,165 | $ | 4,404 | $ | 7,184 | $ | 8,639 | $ | 9,021 | $ | 6,149 | $ | 13,786 | $ | 10,356 | $ | — | $ | 73,704 | $ | 11,214 | $ | — | $ | 84,918 | ||||||||||||||||||||||||||
Food and beverage |
8,586 | 1,593 | 6,639 | 6,709 | 4,618 | 6,481 | 2,853 | 4,149 | — | 41,628 | 3,481 | — | 45,109 | |||||||||||||||||||||||||||||||||||||||
Other operating department |
1,102 | 233 | 1,039 | 1,029 | 425 | 2,603 | 1,072 | 867 | — | 8,370 | 640 | — | 9,010 | |||||||||||||||||||||||||||||||||||||||
Total revenues |
23,853 | 6,230 | 14,862 | 16,377 | 14,064 | 15,233 | 17,711 | 15,372 | — | 123,702 | 15,335 | — | 139,037 | |||||||||||||||||||||||||||||||||||||||
EXPENSES |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Hotel operating expenses: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Room |
4,067 | 854 | 3,320 | 2,552 | 2,304 | 1,483 | 3,178 | 3,159 | 11 | (8) | 20,928 | 3,187 | — | 24,115 | ||||||||||||||||||||||||||||||||||||||
Food and beverage |
6,020 | 1,122 | 5,144 | 4,101 | 3,330 | 4,026 | 2,657 | 3,515 | — | 29,915 | 2,450 | — | 32,365 | |||||||||||||||||||||||||||||||||||||||
Other direct expenses |
493 | 150 | 557 | 304 | 304 | 599 | 617 | 769 | — | 3,793 | 280 | — | 4,073 | |||||||||||||||||||||||||||||||||||||||
Other indirect expenses |
6,651 | 2,162 | 4,437 | 3,624 | 4,261 | 4,411 | 6,161 | 4,370 | 451 | (8) | 36,528 | 3,731 | — | 40,259 | ||||||||||||||||||||||||||||||||||||||
Total hotel operating expenses |
17,231 | 4,288 | 13,458 | 10,581 | 10,199 | 10,519 | 12,613 | 11,813 | 462 | 91,164 | 9,648 | — | 100,812 | |||||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
2,260 | — | — | 1,988 | 491 | 1,752 | 1,347 | 2,203 | 2,896 | (9) | 12,937 | 883 | 869 | (9) | 14,689 | |||||||||||||||||||||||||||||||||||||
Real estate taxes, personal property taxes & insurance |
909 | 225 | 752 | 783 | 284 | 467 | 751 | 639 | — | 4,810 | 845 | — | 5,655 | |||||||||||||||||||||||||||||||||||||||
Ground rent |
11 | — | — | — | 212 | — | — | — | 165 | (10) | 388 | 1,038 | — | 1,426 | ||||||||||||||||||||||||||||||||||||||
General and administrative |
5,371 | — | — | — | — | — | — | — | — | 5,371 | — | — | 5,371 | |||||||||||||||||||||||||||||||||||||||
Acquisition transaction costs |
4,811 | — | — | — | — | — | — | — | (4,282 | )(11) | 529 | — | — | 529 | ||||||||||||||||||||||||||||||||||||||
Total operating expenses |
30,593 | 4,513 | 14,210 | 13,352 | 11,186 | 12,738 | 14,711 | 14,655 | (759 | ) | 115,199 | 12,414 | 869 | 128,482 | ||||||||||||||||||||||||||||||||||||||
Operating income (loss) |
(6,740 | ) | 1,717 | 652 | 3,025 | 2,878 | 2,495 | 3,000 | 717 | 759 | 8,503 | 2,921 | (869 | ) | 10,555 | |||||||||||||||||||||||||||||||||||||
Interest income |
2,513 | — | — | — | — | — | — | — | (1,300 | )(12) | 1,213 | — | (295 | )(12) | 918 | |||||||||||||||||||||||||||||||||||||
Interest expense |
(471 | ) | — | (805 | ) | — | (1,430 | ) | (1,396 | ) | (1,394 | ) | (670 | ) | 3,569 | (13) | (2,597 | ) | (1,832 | ) | — | (4,429 | ) | |||||||||||||||||||||||||||||
Other income |
— | — | — | — | — | (154 | ) | — | 15 | — | (139 | ) | — | — | (139 | ) | ||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes |
(4,698 | ) | 1,717 | (153 | ) | 3,025 | 1,448 | 945 | 1,606 | 62 | 3,028 | 6,980 | 1,089 | (1,164 | ) | 6,905 | ||||||||||||||||||||||||||||||||||||
Income tax benefit (expense) |
(23 | ) | — | — | — | — | — | — | — | (399 | )(14) | (422 | ) | — | (61 | )(14) | (483 | ) | ||||||||||||||||||||||||||||||||||
Net income (loss) |
$ | (4,721 | ) | $ | 1,717 | $ | (153 | ) | $ | 3,025 | $ | 1,448 | $ | 945 | $ | 1,606 | $ | 62 | $ | 2,629 | $ | 6,558 | $ | 1,089 | $ | (1,225 | ) | $ | 6,422 | |||||||||||||||||||||||
Loss per common share, basic and diluted |
$ | (0.19 | ) | $ | 0.16 | |||||||||||||||||||||||||||||||||||||||||||||||
Weighted average number of common shares, basic and diluted |
24,915,173 | (16) | 39,810,590 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Footnotes: | ||
| (1) | Reflects the historical unaudited statement of operations of the Doubletree Bethesda Hotel and Executive Meeting Center from the beginning of the period presented through the date of acquisition. | |
| (2) | Reflects the historical unaudited statement of operations of the Sir Francis Drake Hotel from the beginning of the period presented through the date of acquistion. | |
| (3) | Reflects the historical unaudited statement of operations of the InterContinental Buckhead Hotel from the beginning of the period presented through the date of acquisition. | |
| (4) | Reflects the historical unaudited statement of operations of the Hotel Monaco Washington DC from the beginning of the period presented through the date of acquisition. | |
| (5) | Reflects the historical unaudited statement of operations of the Skamania Lodge from the beginning of the period presented through the date of acquisition. | |
| (6) | Reflects the historical unaudited statement of operations of the Sheraton Delfina Santa Monica Hotel from the beginning of the period presented through the date of acquisition. | |
| (7) | Reflects the historical unaudited combined statement of operations of South 17th Street OwnerCo, LLC and South 17th Street LeaseCo, LLC, the entities that own the Sofitel Philadelphia Hotel, from the beginning of the period presented through the date of acquisition. | |
| (8) | Reflects adjustment to record management fee and related costs for the InterContinental Buckhead Hotel as no such fees or costs are included in the historical amounts presented because the hotel was self managed. | |
| (9) | Reflects adjustment to depreciation expense based on the Company’s cost basis in the acquired hotel properties and its accounting policy for depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 years for building and seven years for furniture, fixtures and equipment. | |
| (10) | Reflects adjustment to amortize a ground lease intangible asset associated with the Hotel Monaco Washington DC resulting from the finalization of the purchase price allocation for this acquisition. | |
| (11) | Reflects removal of acquisition costs associated with the acquisitions of the Doubletree Bethesda Hotel, Sir Francis Drake Hotel, InterContinental Buckhead Hotel, and the Hotel Monaco Washington DC. | |
| (12) | Reflects removal of historical interest income associated with a reduction in cash invested in interest bearing accounts in conjunction with the completed acquisitions and the probable acquisition. | |
| (13) | Reflects removal of historical interest expense associated with debt which was not assumed in conjunction with the acquisitions of the Sir Francis Drake Hotel, Skamania Lodge, and the Sheraton Delfina Hotel. | |
| (14) | Reflects adjustment to record pro forma income taxes related to the Company’s taxable REIT subsidiary subsequent to the hotel acquisitions. The Company’s REIT subsidiary’s pro forma pre-tax net income was $998 for the nine months ended September 30, 2010. The pro forma income tax was calculated using the Company’s taxable REIT subsidiary’s estimated effective tax rate of 40%. | |
| (15) | Reflects the historical unaudited statement of operations of the Argonaut Hotel San Francisco. | |
| (16) | Reflects number of common shares issued and outstanding as if the Company’s IPO and private placement transactions and secondary offering had occurred on January 1, 2009 . |
| Completed Acquisitions | Probable Acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Pro Forma | Pro Forma | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of | Acquisition of | Acquisition of | Pebblebrook | Pebblebrook | ||||||||||||||||||||||||||||||||||||||||||||||||
| Historical | Doubletree Bethesda | Acquisition of | Acquisition of | Acquisition of | Acquisition of | Sheraton Delfina | Sofitel | Hotel Trust | Hotel Trust | |||||||||||||||||||||||||||||||||||||||||||
| Pebblebrook | Hotel and Executive | Sir Francis | InterContinental | Hotel Monaco | Skamania | Santa Monica | Philadelphia | Pro Forma | before probable | Acquisition of Argonaut | Pro Forma | after probable | ||||||||||||||||||||||||||||||||||||||||
| Hotel Trust | Meeting Center (1) | Drake Hotel (2) | Buckhead Hotel (3) | Washington DC (4) | Lodge (5) | Hotel (6) | Hotel (7) | Adjustments | acquisition | Hotel San Francisco (16) | Adjustments | acquisition | ||||||||||||||||||||||||||||||||||||||||
REVENUE |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Room |
$ | — | $ | 11,119 | $ | 16,065 | $ | 16,188 | $ | 13,658 | $ | 6,644 | $ | 16,371 | $ | 14,575 | $ | — | $ | 94,620 | $ | 13,218 | $ | — | $ | 107,838 | ||||||||||||||||||||||||||
Food and beverage |
— | 2,184 | 14,349 | 12,345 | 6,630 | 7,084 | 3,813 | 5,479 | — | 51,884 | 4,613 | — | 56,497 | |||||||||||||||||||||||||||||||||||||||
Other operating department |
— | 2,406 | 2,063 | 2,077 | 688 | 3,145 | 1,872 | 1,080 | — | 13,331 | 920 | — | 14,251 | |||||||||||||||||||||||||||||||||||||||
Total revenues |
— | 15,709 | 32,477 | 30,610 | 20,976 | 16,873 | 22,056 | 21,134 | — | 159,835 | 18,751 | — | 178,586 | |||||||||||||||||||||||||||||||||||||||
EXPENSES |
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Hotel operating expenses: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Room |
— | 2,143 | 6,970 | 4,775 | 3,446 | 1,632 | 4,018 | 4,189 | 17 | (8) | 27,190 | 3,781 | — | 30,971 | ||||||||||||||||||||||||||||||||||||||
Food and beverage |
— | 2,014 | 10,767 | 7,749 | 4,795 | 4,836 | 3,201 | 4,670 | — | 38,032 | 3,202 | — | 41,234 | |||||||||||||||||||||||||||||||||||||||
Other direct expenses |
— | 648 | — | — | — | 573 | 969 | 945 | — | 3,135 | 348 | — | 3,483 | |||||||||||||||||||||||||||||||||||||||
Other indirect expenses |
— | 5,785 | 10,450 | 7,527 | 6,177 | 5,795 | 7,303 | 5,743 | 849 | (8) | 49,629 | 4,348 | — | 53,977 | ||||||||||||||||||||||||||||||||||||||
Total hotel operating expenses |
— | 10,590 | 28,187 | 20,051 | 14,418 | 12,836 | 15,491 | 15,547 | 866 | 117,986 | 11,679 | — | 129,665 | |||||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
— | 1,926 | 5,439 | 5,708 | 1,130 | 2,347 | 2,291 | 2,749 | (4,368 | )(9) | 17,222 | 1,176 | 1,160 | (9) | 19,558 | |||||||||||||||||||||||||||||||||||||
Real estate taxes, personal property taxes & insurance |
— | 491 | 1,756 | 1,261 | 551 | 585 | 974 | 832 | — | 6,450 | 1,152 | — | 7,602 | |||||||||||||||||||||||||||||||||||||||
Ground rent |
— | — | — | — | 383 | — | — | — | 220 | (10) | 603 | 1,324 | — | 1,927 | ||||||||||||||||||||||||||||||||||||||
General and administrative |
262 | — | — | — | — | — | — | — | 7,837 | (11) | 8,099 | — | — | 8,099 | ||||||||||||||||||||||||||||||||||||||
Acquisition transaction costs |
— | — | — | — | — | — | — | — | 6,182 | (12) | 6,182 | — | 1,700 | (12) | 7,882 | |||||||||||||||||||||||||||||||||||||
Total operating expenses |
262 | 13,007 | 35,382 | 27,020 | 16,482 | 15,768 | 18,756 | 19,128 | 10,737 | 156,542 | 15,331 | 2,860 | 174,733 | |||||||||||||||||||||||||||||||||||||||
Operating income (loss) |
(262 | ) | 2,702 | (2,905 | ) | 3,590 | 4,494 | 1,105 | 3,300 | 2,006 | (10,737 | ) | 3,293 | 3,420 | (2,860 | ) | 3,853 | |||||||||||||||||||||||||||||||||||
Interest income |
115 | — | — | — | — | — | — | — | (115 | )(13) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Interest expense |
— | (2,638 | ) | (1,958 | ) | — | (2,095 | ) | (2,116 | ) | (1,862 | ) | (936 | ) | 8,574 | (14) | (3,031 | ) | (2,449 | ) | — | (5,480 | ) | |||||||||||||||||||||||||||||
Other income |
— | 3 | 5 | — | — | (200 | ) | — | 14 | — | (178 | ) | — | — | (178 | ) | ||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes |
(147 | ) | 67 | (4,858 | ) | 3,590 | 2,399 | (1,211 | ) | 1,438 | 1,084 | (2,278 | ) | 84 | 971 | (2,860 | ) | (1,805 | ) | |||||||||||||||||||||||||||||||||
Income tax benefit (expense) |
— | — | — | — | — | — | — | — | (639 | )(15) | (639 | ) | (75 | )(15) | (714 | ) | ||||||||||||||||||||||||||||||||||||
Net income (loss) |
$ | (147 | ) | $ | 67 | $ | (4,858 | ) | $ | 3,590 | $ | 2,399 | $ | (1,211 | ) | $ | 1,438 | $ | 1,084 | $ | (2,917 | ) | $ | (555 | ) | $ | 971 | $ | (2,935 | ) | $ | (2,519 | ) | |||||||||||||||||||
Loss per common share, basic and diluted |
$ | (0.04 | ) | $ | (0.06 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Weighted average number of common shares, basic and diluted |
4,011,198 | (17) | 39,810,590 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | Reflects the historical audited statement of operations of the Doubletree Bethesda Hotel and Executive Meeting Center for the year ended December 31, 2009. | |
| (2) | Reflects the historical audited statement of operations of the Sir Francis Drake Hotel for the year ended December 31, 2009. | |
| (3) | Reflects the historical audited statement of operations of the InterContinental Buckhead Hotel for the year ended December 31, 2009. | |
| (4) | Reflects the historical audited statement of operations of the Hotel Monaco Washington DC for the year ended December 31, 2009. | |
| (5) | Reflects the historical audited statement of operations of the Skamania Lodge for the year ended December 31, 2009. | |
| (6) | Reflects the historical audited statement of operations of the Sheraton Delfina Santa Monica Hotel for the year ended December 31, 2009. | |
| (7) | Reflects the historical audited combined statement of operations of South 17th Street OwnerCo, LLC and South 17th Street LeaseCo, LLC, the entities that own the Sofitel Philadelphia Hotel, for the year ended December 31, 2009. | |
| (8) | Reflects adjustment to record management fee and related costs for the InterContinental Buckhead Hotel as no such fees or costs are included in the historical amounts presented because the hotel was self managed. | |
| (9) | Reflects adjustment to depreciation expense based on the Company’s cost basis in the acquired hotel properties and its accounting policy for depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 years for building and seven years for furniture, fixtures and equipment. | |
| (10) | Reflects adjustment to amortize a ground lease intangible asset associated with the Hotel Monaco Washington DC resulting from the finalization of the purchase price allocation for this acquisition. | |
| (11) | Reflects adjustment to record full year corporate general and adminstrative expenses, including employee payroll and benefits, share-based compensation expense, board of trustee fees, investor relation costs, professional fees, and other costs. | |
| (12) | Reflects adjustment to record transaction costs incurred to acquire the hotels. | |
| (13) | Reflects removal of historical interest income associated with a reduction in cash invested in interest bearing accounts in conjunction with the acquisitions. | |
| (14) | Reflects removal of historical interest expense associated with debt which was not assumed in conjunction with the acquisitions of the Doubletree Bethesda Hotel, Sir Francis Drake Hotel, Skamania Lodge, and the Sheraton Delfina Hotel. The InterContinental Buckhead Hotel did not have debt prior to acquisition. | |
| (15) | Reflects adjustment to record pro forma income taxes related to the Company’s taxable REIT subsidiary subsequent to the hotel acquisitions. The Company’s taxable REIT subsidiary’s pro forma pre-tax net income was $1,598 for the year ended December 31, 2009. The pro forma income tax was calculated using the Company’s taxable REIT subsidiary’s estimated effective tax rate of 40%. | |
| (16) | Reflects the historical audited statement of operations of the Argonaut Hotel San Francisco for the year ended December 31, 2009. | |
| (17) | Reflects number of common shares issued and outstanding as if the Company’s IPO and private placement transactions and secondary offering had occurred on January 1, 2009 . |