EX-99.5 7 d401204dex995.htm EX-99.5 EX-99.5

Exhibit 99.5

MB Hospitality (EP), LP

Financial Statements

June 30, 2017 and 2016


MB Hospitality (EP), LP

June 30, 2017 and 2016

Table of Contents

 

     Page(s)

Balance Sheets

   2

Statements of Operations

   3

Statements of Partners’ Capital (Deficit)

   4

Statements of Cash Flows

   5

Notes to Financial Statements

   6-10


MB Hospitality (EP), LP

Balance Sheets

 

     June 30,  
     2017     2016  
Assets     

Current assets

    

Cash and cash equivalents

   $ 303,769     $ 942,179  

Reserve and escrow accounts

     411,512       226,198  

Accounts receivable

     30,841       38,682  

Prepaid expenses and other current assets

     16,638       7,969  
  

 

 

   

 

 

 

Total current assets

     762,760       1,215,028  
  

 

 

   

 

 

 

Property and equipment

    

Land and land improvements

     2,494,978       2,494,978  

Buildings and improvements

     7,306,270       7,306,270  

Furniture, fixtures and equipment

     1,792,550       1,783,051  

Computer software and equipment

     9,869       9,869  
  

 

 

   

 

 

 
     11,603,667       11,594,168  

Less accumulated depreciation

     (1,047,533     (566,783
  

 

 

   

 

 

 

Total property and equipment, net

     10,556,134       11,027,385  
  

 

 

   

 

 

 

Other assets, net of accumulated amortization

     92,710       —    
  

 

 

   

 

 

 

Total assets

   $ 11,411,604     $ 12,242,413  
  

 

 

   

 

 

 
Liabilities and Partners’ Capital (Deficit)  

Current liabilities

    

Current maturities of note payable

   $ 231,600     $ 77,200  

Fair value of derivative, current

     45,822       —    

Accounts payable

     175,233       165,615  

Accrued expenses and other liabilities

     236,570       193,798  
  

 

 

   

 

 

 

Total current liabilities

     689,225       436,613  
  

 

 

   

 

 

 

Fair value of derivative, net of current portion

     17,194       —    

Note payable, net of current maturities

     11,180,053       8,133,727  
  

 

 

   

 

 

 

Total liabilities

     11,886,472       8,570,340  
  

 

 

   

 

 

 

Commitments and contingencies

    

Partners’ capital (deficit)

    

General partner

     (48     368  

Limited partners

     (474,820     3,671,705  
  

 

 

   

 

 

 

Total partners’ capital (deficit)

     (474,868     3,672,073  
  

 

 

   

 

 

 

Total liabilities and partners’ capital

   $ 11,411,604     $ 12,242,413  
  

 

 

   

 

 

 

See accompanying notes to financial statements.

 

2


MB Hospitality (EP), LP

Statements of Operations

 

     Six Months Ended June 30,  
     2017      2016  

Revenues

   $ 1,778,101      $ 1,891,755  

Costs and expenses

     

Rooms

     343,586        343,046  

General and administrative

     314,256        308,057  

Advertising and marketing

     52,975        54,499  

Repairs and maintenance

     11,906        9,462  

Utilities

     35,851        52,353  

Property taxes and insurance

     130,743        133,587  

Management fee and owners’ expense

     71,385        75,645  

Information and telecommunication systems

     35,843        28,562  

Other expenses

     972        914  
  

 

 

    

 

 

 

Total costs and expenses

     997,517        1,006,125  
  

 

 

    

 

 

 

Operating income

     780,584        885,630  
  

 

 

    

 

 

 

Unrealized loss on interest swap derivative

     63,016        —    

Interest expense

     278,046        157,275  

Depreciation

     237,843        242,907  
  

 

 

    

 

 

 

Net income

   $ 201,679      $ 485,448  
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

3


MB Hospitality (EP), LP

Statements of Partners’ Capital (Deficit)

For the Six Months Ended June 30, 2017 and 2016

 

     General Partner     Limited Partners     Total  

Balance, January 1, 2016

   $ 394     $ 3,936,231     $ 3,936,625  

Distribution

     (75     (749,925     (750,000

Net income

     49       485,399       485,448  
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2016

   $ 368     $ 3,671,705     $ 3,672,073  
  

 

 

   

 

 

   

 

 

 

Balance, January 1, 2017

   $ 307     $ 3,072,541     $ 3,072,848  

Distribution

     (375     (3,749,020     (3,749,395

Net income

     20       201,659       201,679  
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2017

   $ (48   $ (474,820   $ (474,868
  

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

4


MB Hospitality (EP), LP

Statements of Cash Flows

 

     Six Months Ended June 30,  
     2017     2016  

Cash flows from operating activities

    

Net income

   $ 201,679     $ 485,448  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     237,843       242,907  

Amortization of deferred financing costs

     11,494       11,494  

Unrealized loss on derivative

     63,016       —    

Changes in operating assets and liabilities:

    

Reserve and escrow accounts

     (6,014     (21,998

Accounts receivable

     1,638       (11,105

Prepaid expenses and other current assets

     9,632       19,978  

Other assets

     (92,710     —    

Accounts payable

     (54,720     27,660  

Accrued expenses and other liabilities

     (120,844     (46,924
  

 

 

   

 

 

 

Net cash provided by operating activities

     251,014       707,460  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of property and equipment

     (8,343     (1,563
  

 

 

   

 

 

 

Net cash used in investing activities

     (8,343     (1,563
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Distribution to partners

     (3,749,395     (750,000

Proceeds from note payable

     3,166,244       —    
  

 

 

   

 

 

 

Net cash used in financing activities

     (583,151     (750,000
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (340,480     (44,103

Cash and equivalents at beginning of period

     644,249       986,282  
  

 

 

   

 

 

 

Cash and equivalents at end of period

   $ 303,769     $ 942,179  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 279,250     $ 145,781  
  

 

 

   

 

 

 

Cash paid for taxes

   $ 20,000     $ —    
  

 

 

   

 

 

 

See accompanying notes to financial statements.

 

5


MB Hospitality (EP), LP

Notes to Financial Statements

June 30, 2017 and 2016

Note 1 - Summary of Significant Accounting Policies

Description of business

MB Hospitality (EP), LP (“the Partnership”), a Texas limited partnership, was formed on May 27, 2014. The Partnership was formed to develop, own and operate a hotel in El Paso, Texas, consisting of 124 guest rooms and related amenities and facilities. The hotel opened on May 1, 2015.

Organization

The Partnership’s ownership structure is comprised of a General Partner with a 0.01% interest and two Limited Partners with 4.99% and 95.00% interests. Profit and losses are allocated proportionally to the partners based on their respective capital percentages. The partnership agreement has a term lasting until December 31, 2064, unless sooner dissolved in accordance with the agreement.

Cash equivalents

For purposes of the statements of cash flows, the Partnership considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.

Reserve and escrow accounts

The Partnership’s reserve and escrow accounts consists of escrow deposits to be used for future improvements to the property and for property tax and insurance payments.

Property and equipment

Property and equipment are stated at cost. Depreciation is calculated on the straight-line method based upon the estimated useful lives of the assets as follows:

 

     Useful Lives

Land improvements

   15 years

Building

   39 years

Building improvements

   27.5 years

Computer software and equipment

   5 years

Improvements that extend the life of the asset are capitalized. Maintenance and repairs are charged to expense as incurred.

The Partnership reviews its properties whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable through operations. If an impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds its fair value. The Partnership does not believe that any such changes have occurred and as such there were no impairment losses recorded in 2017 or 2016.

 

6


MB Hospitality (EP), LP

Notes to Financial Statements

June 30, 2017 and 2016

Note 1 - Summary of Significant Accounting Policies (Continued)

 

Accounts receivable

Accounts receivable consist of unbilled hotel guest charges for guests staying at the hotel at period-end and corporate account customer charges from various times throughout the period. The Partnership estimates an allowance for doubtful accounts based on historical activity, with no allowance deemed necessary as of June 30, 2017 and 2016.

Deferred financing costs

Deferred financing costs are those costs incurred in connection with obtaining a note payable and is amortized to interest expense, on a straight-line basis, which approximates the interest method, over the term of the note payable. Deferred financing costs are presented as a direct deduction from the carrying value of the associated note payable.

Income taxes

The Partnership is organized as a Texas limited partnership and therefore, income and losses are reported in the tax returns of the partners.

The Partnership recognizes in the financial statements the impact of an uncertain tax position only if that position is more likely than not of being sustained upon examination by the taxing authority. Should the Partnership be subject to examination by the taxing authority, any adjustments required would be passed through to the partners for their share of such adjustments.

Revenue recognition

Revenues are recognized when services have been performed, generally at the time of the hotel stay or at the point of sale.

Advertising

Advertising costs are expensed as incurred. Advertising expense was $52,975 and $54,499 for the six months ended June 30, 2017 and 2016, respectively, which is included in advertising and marketing on the accompanying statements of operations.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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.

 

7


MB Hospitality (EP), LP

Notes to Financial Statements

June 30, 2017 and 2016

Note 1 - Summary of Significant Accounting Policies (Continued)

 

Concentrations of credit risk

The Partnership operates one hotel. Future operations could be affected by economic or other conditions in its geographical area or by changes in the travel and tourism industry.

Financial instruments which potentially subject the Partnership to concentrations of credit risk are primarily cash and cash equivalents and trade receivables. The Partnership maintains cash accounts in major U.S. financial institutions. The balances of these accounts occasionally exceed the federally insured limits, although no losses have been incurred in connection with such cash balances. Any losses incurred in connection with accounts receivable are immaterial and considered a normal cost of operations.

Derivative financial instruments

On December 28, 2016, the Partnership entered into one 4.86% LIBOR interest rate swap agreement. This swap agreement has an initial notional amount of $8,625,000 with a declining balance which matures on December 1, 2019. For the six months ended June 30, 2017, the realized loss from the interest rate swap was $37,201 and is included in interest expense in the accompanying statements of operations. For the six months ended June 30, 2017, the unrealized loss from the interest rate swap was $63,016 and is included in unrealized loss on interest swap derivative on the accompanying statements of operations.

The Partnership has not designated these interest rate derivative contracts as cash flow hedges, and as such, any changes in fair value of these derivatives are recognized currently in earnings. As of June 30, 2017, the fair value of this instrument was a liability of $63,016 and is reflected in the balance sheets as a component of fair value of derivative instruments.

Recent accounting pronouncement

In April 2015, the Financial Accounting Standards Board issued new guidance which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt. The new guidance does not affect the recognition and measurement of debt issuance costs. Therefore, the amortization of such costs will continue to be calculated using the interest method and be reported as interest expense. The new guidance is effective for financial statements issued in fiscal years beginning after December 15, 2015, and will be applied on a retrospective basis. Early adoption is permitted for financial statements that have not been previously issued. The Partnership’s adoption of this guidance did not have a material impact on the Partnership’s financial statements, other than balance sheet reclassifications.

 

8


MB Hospitality (EP), LP

Notes to Financial Statements

June 30, 2017 and 2016

 

Note 2 - Note Payable to Financial Institution

Effective June 27, 2014, the Partnership entered into a promissory note agreement with a financial institution that allows for draws up to $9,195,000 upon certain milestones. The original maturity date of the note was on June 27, 2017 with interest payments due monthly and principal and any accrued but unpaid interest due at maturity. On February 10, 2017, the note was amended to allow for draws up to $11,500,000 and the maturity date was extended to March 10, 2022. Principal payments are due in monthly installments of $19,300 beginning on March 1, 2017 with the final lump-sum payment due at maturity. The amended note agreement also requires the Partnership to be in compliance with certain financial covenants. The note is secured by the hotel and partners’ guarantees. Interest accrues at a rate of LIBOR plus 3% per annum. As of June 30, 2017 and 2016, the interest rate was 4.23% and 3.47%, respectively.

In connection with the note payable, the Partnership incurred deferred financing costs of $68,963. For deferred financing costs recorded within each of the six months ended June 30, 2017 and 2016, the Partnership recorded $11,494 of interest expense related to the note payable.

Long-term debt at June 30, 2017 and 2016 consisted of the following:

 

     2017      2016  

Note payable to financial institution

   $ 11,422,800      $ 8,245,062  

Less: unamortized debt financing cost

     (11,147      (34,135
  

 

 

    

 

 

 

Long-term debt, less unamortized debt financing cost

     11,411,653        8,210,927  

Less: current maturities

     (231,600      (77,200
  

 

 

    

 

 

 

Long-term debt, less current maturities

   $ 11,180,053      $ 8,133,727  
  

 

 

    

 

 

 

The following is a schedule by year of maturities of the long-term note payable at June 30, 2017:

 

    Year Ended

        June 30,    

      

2018

   $ 231,600  

2019

     231,600  

2020

     231,600  

2021

     231,600  

2022

     231,600  

Thereafter

     10,264,800  
  

 

 

 

Total

   $ 11,422,800  
  

 

 

 

 

9


MB Hospitality (EP), LP

Notes to Financial Statements

June 30, 2017 and 2016

 

Note 3 - Related Party Transactions

For the six months ended June 30, 2017 and 2016, the Partnership incurred $26,728 and $28,351, respectively, in asset management fees, to a related party for hotel management functions. The asset management fee is calculated based on 1.5% of gross revenue.

Note 4 - Subsequent Events

Subsequent to June 30, 2017, the Partnership received a letter of intent for the purchase of the hotel from a public company. There is a due diligence period of 45 days with closing set to occur 30 days after the due diligence period.

The Partnership has evaluated subsequent events as of August 25, 2017, which is the date the financial statements were available to be issued and has determined that there are no other items that require disclosure.

 

10