8-K/A 1 moody-8ka_091813.htm AMENDMENT TO CURRENT REPORT moody-8ka_091813.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported):
July 2, 2013
 

 
Moody National REIT I, Inc.
(Exact Name of Registrant as Specified in Charter)
 

 
Maryland   333-150612   26-1812865
(State or Other Jurisdiction
of Incorporation)
  (Commission File Number)  
(IRS Employer
Identification No.)

6363 Woodway Drive, Suite 110
Houston, Texas 77057
(Address of Principal Executive Offices, including Zip Code)
 
Registrant’s telephone number, including area code: (713) 977-7500
 
Not applicable
(Former Name or Former Address, if Changed Since Last Report)
 

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
 


 
 
Item 9.01
Financial Statements and Exhibits.
 
On July 2, 2013, Moody National REIT I, Inc. (the “Company”) filed a Form 8-K reporting the Company’s acquisition of an interest in a Hyatt Place hotel property located in North Charleston, South Carolina, commonly known as the Charleston Hotel. The Company is filing this Current Report on Form 8-K/A in order to amend the Current Report on Form 8-K filed on July 9, 2013 to provide the required financial information related to the Company’s acquisition of an interest in the Charleston Hotel.
 
(a) Financial Statements of Business Acquired
 
Naman Ashley I, LLC
 
(b) Pro Forma Financial Information
 
Moody National REIT I, Inc. and Subsidiaries
(c) Shell Company Transactions
 
Not applicable
 
(d) Exhibits
 
None

 
 

 
 
 
To the Members
Naman Ashley I, LLC
Germantown, TN

We have audited the accompanying financial statements of Naman Ashley I, LLC, which comprise the balance sheets as of December 31, 2012 and 2011, and the related statements of operations, owners’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Naman Ashley I, LLC as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
 
/s/ Frazier & Deeter, LLC
 
Atlanta, Georgia
 
September 18, 2013 
 
 
 
F-1

 
 
NAMAN ASHLEY I, LLC
AT JUNE 30, 2013 (UNAUDITED) AND DECEMBER 31, 2012 AND 2011
 
   
June 30, 2013
   
December 31, 2012
   
December 31, 2011
 
   
(unaudited)
             
                   
ASSETS
                 
Investments in hotel property, net
  $ 8,982,847     $ 9,190,395     $ 9,732,444  
Cash and cash equivalents
    290,568       487,263       526,321  
Guest receivables, net
    66,067       31,065       36,100  
Prepaid expenses
    34,213       16,167       15,726  
Deferred costs, net
    38,750       41,750       44,750  
                         
TOTAL ASSETS
  $ 9,412,445     $ 9,766,640     $ 10,355,341  
                         
LIABILITIES AND OWNERS’ DEFICIT
                       
                         
LIABILITIES
                       
Accounts payable and accrued expenses
  $ 226,380     $ 174,431     $ 339,035  
Note payable
    9,745,516       9,984,068       10,446,586  
                         
Total liabilities
    9,971,896       10,158,499       10,785,621  
                         
OWNERS’ DEFICIT
    (559,451 )     (391,859 )     (430,280 )
                         
TOTAL LIABILITIES AND OWNERS’ DEFICIT
  $ 9,412,445     $ 9,766,640     $ 10,355,341  
 
See accompanying notes to financial statements.
 
 
F-2

 
 
NAMAN ASHLEY I, LLC
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 2012 AND 2011
 
   
June 30, 2013
   
June 30, 2012
   
December 31, 2012
   
December 31, 2011
 
   
(unaudited)
   
(unaudited)
             
                         
REVENUE
                       
Room revenue
  $ 1,438,328     $ 1,406,129     $ 2,737,815     $ 2,630,712  
Other hotel revenue
    73,702       61,009       125,173       136,730  
                                 
Total hotel revenue
    1,512,030       1,467,138       2,862,988       2,767,442  
                                 
EXPENSES
                               
Salaries and wages
    239,515       268,887       521,155       590,468  
Room
    161,875       178,093       350,156       349,140  
Food and beverage
    33,856       40,719       80,287       79,290  
Other operating expenses
    5,303       4,805       9,657       10,759  
Franchise fees
    97,669       107,678       220,619       203,555  
Administrative and general
    58,448       63,850       134,781       131,317  
Advertising
    8,524       15,234       26,731       48,365  
Management fee
    33,935       34,342       68,684       78,921  
Repair and maintenance
    19,990       24,120       51,189       66,358  
Utilities
    70,461       65,549       139,364       129,597  
Taxes, insurance, and rentals
    111,309       125,660       236,445       243,892  
Depreciation and amortization
    214,024       274,024       545,049       759,050  
                                 
Total expenses
    1,054,909       1,202,961       2,384,117       2,690,712  
                                 
OPERATING INCOME
    457,121       264,177       478,871       76,730  
                                 
OTHER INCOME AND (EXPENSES)
                               
Interest income
    98       400       805       1,063  
Interest expense
    (174,811 )     (184,168 )     (364,255 )     (375,181 )
Total other income (expenses)
    (174,713 )     (183,768 )     (363,450 )     (374,118 )
                                 
NET INCOME (LOSS)
  $ 282,408     $ 80,409     $ 115,421     $ (297,388 )
 
See accompanying notes to financial statements.
 
 
F-3

 
 
NAMAN ASHLEY I, LLC
FOR THE SIX MONTHS ENDED JUNE 30, 2013 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 2012 AND 2011
 
BALANCE, January 1, 2011
  $ (132,892 )
         
Net loss
    (297,388 )
         
BALANCE, December 31, 2011
    (430,280 )
         
Capital contributions
    120,000  
Capital distributions
    (197,000 )
Net income
    115,421  
         
BALANCE, December 31, 2012
    (391,859 )
         
Capital distributions (unaudited)
    (450,000 )
Net income (unaudited)
    282,408  
         
BALANCE, June 30, 2013 (unaudited)
  $ (559,451 )
 
See accompanying notes to financial statements.
 
 
F-4

 
 
NAMAN ASHLEY I, LLC
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED) AND
YEAR ENDED DECEMBER 31, 2012 AND 2011
 
   
June 30, 2013
   
June 30, 2012
   
December 31, 2012
   
December 31, 2011
 
   
(unaudited)
   
(unaudited)
             
                         
CASH FLOWS FROM OPERATING ACTIVITIES
                       
Net income (loss)
  $ 282,408     $ 80,409     $ 115,421     $ (297,388 )
Adjustments to reconcile net income to net cash provided by operating activities:
                               
Depreciation and amortization
    214,024       274,024       545,049       759,050  
Changes in assets and liabilities:
                               
Guest receivables, net
    (35,002 )     3,462       5,035       (23,459 )
Prepaid expenses
    (18,046 )     (32,775 )     (441 )     (15,726 )
Accounts payable and accrued expenses
    51,949       (25,293 )     (164,604 )     210,410  
Net cash provided by operating activities
    495,333       299,827       500,460       632,887  
                                 
CASH FLOWS FROM INVESTING ACTIVITIES
                               
Investment in hotel property
    (3,476 )                 (10,053 )
Net cash used in investing activities
    (3,476 )                 (10,053 )
                                 
CASH FLOWS FROM FINANCING ACTIVITIES
                               
Payments on note payable
    (238,552 )     (229,196 )     (462,518 )     (451,548 )
Proceeds of note payable
                      338,310  
Capital contributions
                120,000        
Capital distributions
    (450,000 )           (197,000 )      
Net cash used in financing activities
    (688,552 )     (229,196 )     (539,518 )     (113,238 )
                                 
NET CHANGES IN CASH AND CASH EQUIVALENTS
    (196,695 )     70,631       (39,058 )     509,596  
                                 
CASH AND CASH EQUIVALENTS, beginning of period
    487,263       526,321       526,321       16,725  
                                 
CASH AND CASH EQUIVALENTS, end of period
  $ 290,568     $ 596,952     $ 487,263     $ 526,321  
                                 
SUPPLEMENTAL DISCLOSURES OF
                               
CASH FLOW INFORMATION
                               
Cash paid during the period for interest
  $ 174,812     $ 184,168     $ 364,209     $ 375,181  
 
See accompanying notes to financial statements.
 
 
F-5

 
 
NAMAN ASHLEY I, LLC
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 2012 AND 2011
 
1.  ORGANIZATION AND BASIS OF PRESENTATION
 
The Charleston Hotel (the “Charleston Hotel”) is a 113-guestroom hotel property located in North Charleston, South Carolina. The Charleston Hotel was owned by Naman Ashley I, LLC, a South Carolina limited liability company (the “Owner”). As used herein, unless specifically stated otherwise, the term “Charleston Hotel” shall be deemed to mean the financial position and results of operations of the Charleston Hotel based upon the books and records of the Owner.

These financial statements of the Charleston Hotel have been prepared for the purpose of complying with the provisions of Article 8-04 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to acquired businesses to be included with certain filings with the SEC.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
 
The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates include the valuation of guest receivables, useful lives of real estate assets for purposes of determining depreciation expense and assessments as to whether there is impairment in the value of long-lived assets. Actual results could differ from those estimates.
 
Investments in Hotel Property
 
Investments in hotel property are stated at cost. Major renovations and purchases of equipment are capitalized. Maintenance and repairs are charged to expense as incurred.
 
Depreciation of investments in hotel property is computed using the straight-line and declining balance methods over the estimated useful lives of the related assets as follows:
 
Buildings and improvements
15 – 39 years
Furniture and fixtures
5 – 7 years
 
Depreciation expense for the six months ended June 30, 2013 and 2012 was $211,024 and $271,024, respectively, and for the years ended December 31, 2012 and 2011, was $542,049, and $754,850, respectively.
 
Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amounts may not be recoverable. If such an event occurs in which the carrying amount of long-lived assets may not be recoverable, a comparison is made of the aggregate amount of current and projected operating cash flows into the foreseeable future on an undiscounted basis to the carrying amount. The carrying amount is adjusted, if necessary, to the estimated fair value to reflect impairment in the value of the asset. Fair values are determined by management utilizing cash flow models and market discount rates, or by obtaining third-party broker or appraisal estimates in accordance with the fair value measurements policy.
 
 
F-6

 
 
NAMAN ASHLEY I, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 2012 AND 2011
 
For real estate, the Charleston Hotel monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable. When such events or changes in circumstances are present, the Charleston Hotel assesses potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition, to the carrying amount of the asset. In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, the Charleston Hotel recognizes an impairment loss to adjust the carrying amount of the asset to estimated fair value for assets held for use and fair value less costs to sell for assets held for sale. There were no such impairment losses for the six months ended June 30, 2013 and 2012 and the year ended December 31, 2012.

Cash and Cash Equivalents

All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.
 
Revenue Recognition

Hotel revenues, including room, food, beverage, and ancillary revenues such as long-distance telephone service and laundry, are recognized when services have been rendered.
The Charleston Hotel is required to collect certain taxes from customers on behalf of government agencies and remit these back to the applicable governmental entity on a periodic basis. These taxes are collected from customers at the time of purchase, but are not included in revenue. The Charleston Hotel records a liability upon collection from the customer and relieves the liability when payments are remitted to the applicable governmental agency.

Guest Receivables, net

Guest receivables include hotel guests and corporate accounts. The Charleston Hotel maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. Receivables are considered past due based on the due date determined by contractual terms. Balances that remain outstanding after the Charleston Hotel has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to accounts receivable.

Guest receivables are reported net of the allowance for doubtful accounts. The Charleston Hotel’s estimate of the allowance is based on historical collection experience and a review of other accounts receivable. There was no allowance for doubtful accounts as of June 30, 2013 and December 31, 2012 and 2011.
 
Deferred Costs, net

Deferred costs consist of deferred franchise costs. Deferred financing fees are recorded at cost and are amortized to interest expense using a straight-line method that approximates the effective interest method over the life of the related debt. The franchise costs are recorded at cost and amortized over the term of the franchise contract.
 
 
F-7

 
 
NAMAN ASHLEY I, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 2012 AND 2011
 
Owners’ Equity

Owners’ equity includes capital contributions provided by the members of Owner offset by costs of the offering of the Owner. Distributions are reflected when paid or declared, if applicable.
 
Income Taxes

The Owner is organized as a limited liability company (“LLC”). Each member of the Owner owns its respective share of the Owner. A Return of Partnership Income is filed by the Owner which reports each member’s share of taxable income and deductions. As an LLC, the Owner is not a tax paying entity under the existing provisions of the Internal Revenue Code of 1986, as amended. Income and losses of the Charleston Hotel flow through to the members of the Owner. Accordingly, no provision has been made for federal and state income taxes in the accompanying financial statements.

The Owner has reviewed tax positions under GAAP guidance that clarifies the relevant criteria and approach for the recognition and measurement of uncertain tax positions. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the financial statements if it is more likely than not that the tax position will be sustained upon examination. The Owner has no material uncertain tax positions as of June 30, 2013.

Advertising Expenses

Advertising and sales promotion costs are expensed as incurred. Advertising expense was $8,524 and $15,234 for the six months ended June 30, 2013 and 2012 and was $26,731 and $48,365 for the years ended December 31, 2012 and 2011, respectively.

 Fair Value of Financial Assets and Liabilities

The Charleston Hotel measures and discloses certain financial assets and liabilities at fair value. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
 
Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

For disclosure purposes, assets and liabilities are classified in their entirety in the fair value hierarchy level based on the lowest level of input that is significant to the overall fair value measurement. The Charleston Hotel’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy.
 
 
F-8

 
 
NAMAN ASHLEY I, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 2012 AND 2011
 
Charleston Hotel utilizes the active market approach to measure fair value for its financial assets and liabilities.

3.  INVESTMENT IN THE HOTEL

Investment in the Charleston Hotel consists of the following:
   
June 30, 2013
   
December 31, 2012
   
December 31, 2011
 
   
(unaudited)
             
                         
Land
  $ 980,000     $ 980,000     $ 980,000  
Building and improvements
    9,803,556       9,803,556       9,803,556  
Furniture and fixtures
    1,833,994       1,830,518       1,830,518  
                         
Investment in hotel property, gross
    12,617,550       12,614,074       12,614,074  
                         
Less accumulated depreciation
    (3,634,703 )     (3,423,679 )     (2,881,630 )
                         
Investment in hotel property, net
  $ 8,982,847     $ 9,190,395     $ 9,732,444  
 
4.  DEFERRED COSTS
 
The initial hotel franchise cost is being amortized over twenty years and is being charged to amortization expense.
 
Deferred costs for the periods covered are as follows:
 
   
June 30, 2013
   
December 31, 2012
   
December 31, 2011
 
   
(unaudited)
             
                   
Franchise costs
  $ 60,000     $ 60,000     $ 60,000  
Less accumulated amortization
    (21,250 )     (18,250 )     (15,250 )
                         
Deferred costs, net
  $ 38,750     $ 41,750     $ 44,750  
 
Expected future amortization of deferred costs is as follows:
 
Years Ending
     
June 30
     
2014
  $ 3,000  
2015
    3,000  
2016
    3,000  
2017
    3,000  
Thereafter
    26,750  
Total
  $ 38,750  
 
 
F-9

 
 
NAMAN ASHLEY I, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 2012 AND 2011
 
5.  NOTE PAYABLE
 
In connection with the acquisition and construction of the Charleston Hotel, the Owner financed $11,369,000 of the cost with a mortgage loan (the “Loan”) from Branch Banking and Trust Company (the “Lender”). The balance of the Loan owed at June 30, 2013 and December 31, 2012 and 2011, was $9,745,516, $9,984,068 and $10,446,586, respectively. The Loan requires monthly principal and interest payments of $68,894, bearing an interest rate of 3.50%, until its maturity date on January 20, 2015, when all remaining interest and principal amounts are due. The Loan is secured by the Charleston Hotel and its related assets. Principal payments of $488,773, $506,403, $523,844, $543,563 and $7,682,933 are due for the years ending June 30, 2014, 2015, 2016, 2017 and thereafter, respectively.

6.  MANAGEMENT FEES

The Charleston Hotel is managed and operated by Naman Management, LLC (the “Manager”) pursuant to a management agreement (“Management Agreement”). Pursuant to the terms of the Management Agreement, the Manager is responsible for the day-to-day operations of the Charleston Hotel in accordance with the hotel business plan. The Management Agreement is effective as of June 1, 2010 and may be terminated by the Manager or Owner under certain specified conditions.

The Management Agreement includes a basic management fee equal to 3.0% of gross room revenues. These fees amounted to $33,935 and $34,242 for the six months ended June 30, 2013 and 2012 and to $68,684 and $78,921 for the years ended December 31, 2012 and 2011, respectively. If the Management Agreement is terminated prior to its expiration, certain fees may be assessed in accordance with the terms. See Note 9.

7.  COMMITMENTS AND CONTINGENCIES

The Charleston Hotel is subject to various legal proceedings and claims that arise in the ordinary course of business. The Charleston Hotel believes that the final outcome of known matters will not have a material adverse effect on the financial position, results of operations, or cash flows of the Charleston Hotel.

8.  SIGNIFICANT CONCENTRATIONS

Financial instruments that potentially subject the Charleston Hotel to concentrations of credit risk consist principally of cash deposits resulting from daily operations. The Charleston Hotel has a concentration of credit risk represented by cash balances in certain large commercial banks in amounts that occasionally exceed current federal deposit insurance limits. The financial condition of the institutions are periodically assessed and management believes the risk of loss is minimal.
 
 
F-10

 
 
NAMAN ASHLEY I, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 2012 AND 2011
 
9.  SUBSEQUENT EVENTS

On July 2, 2013, Moody National REIT I, Inc. (the “Moody REIT”) acquired the Charleston Hotel from the Owner through Moody National HP N-Charles Holding, LLC, Moody REIT’s indirect wholly owned subsidiary (“Moody Holding”). Moody REIT owns a 100% interest in Moody Holding through Moody REIT’s operating partnership. The aggregate purchase price paid by Moody Holding for the Charleston Hotel was $11,800,000, plus closing costs. Moody REIT funded the purchase price of the Charleston Hotel with proceeds of Moody REIT’s ongoing public offering and the proceeds of a mortgage loan in the principal amount of approximately $7,800,000 secured by the Charleston Hotel.
 
In connection with the acquisition of the Charleston Hotel by Moody Holding, the Management Agreement was terminated. The effect of this termination was not material.
 
The Charleston Hotel evaluated subsequent events through September 18, 2013, for inclusion in the financial statements.
 
 
F-11

 
 

MOODY NATIONAL REIT I, INC.

Unaudited Pro Forma Consolidated Financial Information

On July 2, 2013, Moody National REIT I, Inc. (the “Company”) acquired the Charleston Hotel, a 113-guestroom hotel property located in North Charleston, South Carolina (the “Charleston Hotel”) through Moody National HP N-Charles Holding, LLC, the Company’s indirect wholly owned subsidiary (“Moody Holding”). The Company owns a 100% interest in Moody Holding through the Company’s operating partnership. The aggregate purchase price paid by Moody Holding for the Charleston Hotel was $11,800,000, plus closing costs. The Company financed the purchase price of the Charleston Hotel with proceeds from the Company’s ongoing public offering and the proceeds of a mortgage loan in the principal amount of approximately $7,800,000 secured by the Charleston Hotel.

The following unaudited pro forma consolidated balance sheet as of June 30, 2013 is presented as if the Company acquired the Charleston Hotel on June 30, 2013. The following unaudited pro forma consolidated statements of operations for the six months ended June 30, 2013 and the year ended December 31, 2012 are presented as if the Company had acquired the Charleston Hotel on January 1, 2012. This unaudited pro forma consolidated financial information should be read in conjunction with the historical financial statements and notes thereto as filed in the Company’s quarterly report on Form 10-Q for the six months ended June 30, 2013 and the Company’s annual report on Form 10-K for the year ended December 31, 2012. This pro forma information is not necessarily indicative of what the Company’s actual financial position or results of operations would have been had the Company’s acquisition of the Charleston Hotel occurred on or been in effect during the periods indicated, nor is it necessarily indicative of the Company’s future results. In the Company’s opinion, all material adjustments necessary to reflect the effects of the above transaction have been made.
 
 
F-12

 

MOODY NATIONAL REIT I, INC.
AS OF JUNE 30, 2013
 
   
June 30, 2013
   
Pro Forma
   
Pro Forma June 30,
 
   
(a)
   
Adjustments (b)
   
2013
 
ASSETS
                 
Investment in hotel properties, net
  $ 22,895,283     $ 11,800,000     $ 34,695,283  
Cash and cash equivalents
    5,640,447       (4,000,000 )     1,640,447  
Restricted cash
    1,694,820             1,694,820  
Accounts receivable, net of allowance of $7,000
    86,717             86,717  
Mortgage note receivable
    12,369,352             12,369,352  
Earnest money and deposits
    245,000             245,000  
Prepaid expenses and other assets
    194,947             194,947  
Deferred costs, net of accumulated amortization of $40,655
    306,128             306,128  
Total Assets
  $ 43,432,694     $ 7,800,000     $ 51,232,694  
                         
LIABILITIES AND EQUITY
                       
Liabilities:
                       
Notes payable
  $ 25,471,364     $ 7,800,000     $ 33,271,364  
Accounts payable and accrued expenses
    746,791             746,791  
Dividends payable
    140,324             140,324  
Total Liabilities
    26,358,479       7,800,000       34,158,479  
                         
Special partnership Units - 100 Special units of the Operating Partnership
    1,000             1,000  
                         
Equity:
                       
Stockholders’ equity:
                       
 
                       
Common stock, $0.01 par value per share; 400,000,000 shares authorized, 2,203,950 issued and outstanding at June 30, 2013
    22,040             22,040  
Preferred stock, $0.01 par value per share; 50,000,000 shares authorized, no shares issued and outstanding
                 
Additional paid-in capital
    18,351,851             18,351,851  
Accumulated deficit
    (1,772,714 )           (1,772,714 )
Total stockholders’ equity
    16,601,177             16,601,177  
Noncontrolling interest- 100 common units of the
                       
Operating Partnership
    839             839  
Noncontrolling interest in consolidated joint venture
    471,199             471,199  
Total Equity
    17,073,215             17,073,215  
                         
TOTAL LIABILITIES AND EQUITY
  $ 43,432,694     $ 7,800,000     $ 51,232,694  
 
See accompanying unaudited notes to pro forma consolidated financial statements.
 
 
F-13

 
 
MOODY NATIONAL REIT I, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 2013
 
   
Six months Ended June 30, 2013 As Reported by the Company
(a)
   
Historical Statement Of Operations of Charleston Hotel
(b)
   
Pro Forma Adjustments
     
 
Pro Forma Six months Ended June 30, 2013
 
Revenue
                         
Room revenue
  $ 1,720,381     $ 1,438,328     $       $ 3,158,709  
Other hotel revenue
    71,997       73,702               145,699  
Total hotel revenue
    1,792,378       1,512,030               3,304,408  
Interest income from note receivable
    163,038                     163,038  
Total revenue
    1,955,416       1,512,030               3,467,446  
                                   
Expenses
                                 
Hotel operating expenses
    1,033,914       729,576               1,763,490  
Property taxes, insurance and other
    114,097       111,309               225,406  
Depreciation and amortization
    236,612       214,024       51,660  
(c)
    502,296  
Property acquisition
    410,520                     410,520  
Corporate general and administrative
    56,827                     56,827  
Total expenses
    1,851,970       1,054,909       51,660         2,958,539  
                                   
Operating Income
    103,446       457,121       (51,660 )       508,907  
                                   
Interest expense and amortization of deferred loan costs
    272,880       174,713       28,939  
(d)
    476,532  
                                   
Income (loss) before income tax expense
    (169,434 )     282,408       (80,599 )       32,375  
Income tax expense
    42,100                     42,100  
Net Income (Loss)
    (211,534 )     282,408       (80,599 )       (9,725 )
                                   
Income attributable to noncontrolling interest from consolidated joint ventures
    (19,895 )                   (19,895 )
 
                                 
Loss attributable to noncontrolling interest in common operating partnership units
    13                     13  
                                   
Net income (loss) attributable to common shareholders
  $ (231,416 )   $ 282,408     $ (80,599 )     $ (29,607 )
                                   
Net income per common share, basic and diluted
                            $ (0.01 )
Weighted average shares outstanding
                              2,023,290  
 
See accompanying unaudited notes to pro forma consolidated financial statements.
 
 
F-14

 
 
MOODY NATIONAL REIT I, INC.
FOR THE YEAR ENDED DECEMBER 31, 2012
 
   
Year Ended
   
Historical
               
   
December 31, 2012
   
Statement
           
Pro Forma
 
   
As Reported by
   
Of Operations of
           
Year Ended
 
   
the Company
   
Charleston Hotel
    Pro Forma      
December 31,
 
    (a)     (b)     Adjustments      
2012
 
Revenue
                         
Room revenue
  $ 424,678     $ 2,737,815     $       $ 3,162,493  
Other hotel revenue
    11,974       125,173                 137,147  
Total hotel revenue
    436,652       2,862,988               3,299,640  
Interest income from note receivable
    658,268                       658,268  
Total revenue
    1,094,920       2,862,988               3,957,908  
Expenses
                                 
Hotel operating expenses
    274,322       1,602,623               1,876,945  
Property taxes, insurance and other
    29,615       236,445               266,060  
Depreciation and amortization
    58,650       545,049       176,238  
(c)
    779,937  
Property acquisition
    365,720                     365,720  
Corporate general and administrative
    138,479                     138,479  
Total expenses
    866,786       2,384,117       176,238         3,427,141  
                                   
Operating Income
    228,134       478,871       (176,238 )       530,767  
Interest expense and amortization of deferred loan costs
    413,954       363,450       47,230  
(d)
    824,634  
Income (loss) from continuing operations
    (185,820 )     115,421       (223,468 )       (293,867 )
Discontinued operations:
                                 
Operating loss from discontinued operations
    (329,353 )                   (329,353 )
Gain on disposition of hotel property
    1,510,786                     1,510,786  
Income tax expense
    (1,500 )                   (1,500 )
Total income from discontinued operations
    1,179,933                     1,179,933  
Net Income
    994,113       115,421       (223,468 )       886,066  
Income attributable to noncontrolling interest from consolidated joint ventures
    (373,806 )                   (373,806 )
Income attributable to noncontrolling interest in common operating partnership units
    (79 )                   (79 )
Net income attributable to common shareholders
  $ 620,228     $ 115,421     $ (223,468 )     $ 512,181  
                                   
Net income per common share, basic and diluted
                            $ 0.54  
Weighted average shares outstanding
                              950,374  
See accompanying unaudited notes to pro forma consolidated financial statements.
 
 
F-15

 
 
MOODY NATIONAL REIT I, INC.


Unaudited Pro Forma Consolidated Balance Sheet

 
a.
Reflects the Company’s historical unaudited balance sheet as of June 30, 2013 as filed with the Securities and Exchange Commission on August 14, 2013.

 
b.
Reflects the acquisition of a 100% interest in the Charleston Hotel on July 2, 2013 for approximately $11,800,000. The acquisition was funded with proceeds from the Company’s ongoing public offering and approximately $7,800,000 of debt financing secured by the Charleston Hotel.

Depreciation and amortization are computed using the straight-line and accelerated methods based upon the following estimated useful lives:
 
Description
 
Allocation
   
Estimated Useful Life
 
Land
  $ 1,000,000      
Buildings and improvements
    9,613,000    
39 years
 
Furniture, fixtures, and equipment
    1,187,000    
5 years
 
    $ 11,800,000          
 
Other assets and liabilities were not acquired.
 
 
F-16

 
 
MOODY NATIONAL REIT I, INC.

UNAUDITED NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2013

 
a.
Reflects the Company’s unaudited historical operations for the six months ended June 30, 2013 as filed with the Securities and Exchange Commission on August 14, 2013.

 
b.
Reflects historical operations of the Charleston Hotel for the six months ended June 30, 2013.

 
c.
Reflects the removal of historical depreciation and amortization expense of $214,024 and recognition of pro forma depreciation and amortization expense of $265,684. Depreciation for the building is computed using the straight-line method over the estimated useful life of 39 years and for furniture, fixtures, and equipment is computed using an accelerated method over the useful life of 5 years.

 
d.
Reflects the removal of historical interest expense of $174,713 and the recognition of pro forma interest expense of $203,652.

 
F-17

 

MOODY NATIONAL REIT I, INC.

UNAUDITED NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
 
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2012

 
a.
Reflects the Company’s historical operations for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on March 29, 2013.

 
b.
Reflects historical operations of the Charleston Hotel for the year ended December 31, 2012.

 
c.
Reflects the removal of historical depreciation and amortization expense of $545,049 and recognition of pro forma depreciation and amortization expense of $721,287. Depreciation for the building is computed using the straight-line method over the estimated useful life of 39 years and for furniture, fixtures, and equipment is computed using an accelerated method over the useful life of 5 years

 
d.
Reflects the removal of historical interest expense of $363,450 and the recognition of pro forma interest expense of $410,680.

 
F-18

 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
  MOODY NATIONAL REIT I, INC.
     
Date: September 18, 2013 By: /s/ Brett C. Moody
    Brett C. Moody
    Chief Executive Officer and President