8-K 1 moody-8k_062414.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported):
June 24, 2014


Moody National REIT I, Inc.

(Exact Name of Registrant as Specified in Charter)


 
 
Maryland 000-55200 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):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

The information set forth under Items 2.01 and 2.03 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 1.01.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

Property Acquisition

 

On February 3, 2014, Moody National REIT I, Inc. (the “Company”) entered into an Agreement of Purchase and Sale (the “Purchase Agreement”) for the acquisition of a hotel property located in Newark, California commonly known as the TownePlace Suites by Marriott Newark/Silicon Valley (the “Silicon Valley Hotel”), from MN Newark, LLC, an unaffiliated third party seller (the “Seller”). On June 3, 2014, the Company assigned all of its rights and interests in and to the Purchase Agreement to Moody National Cedar-Newark Holding, LLC, a wholly-owned subsidiary of the Company (“Moody Holding”).

 

On June 24, 2014, Moody Holding acquired from the Seller fee simple title to the Silicon Valley Hotel for an aggregate purchase price of $11,400,000, excluding acquisition costs. The Company financed the purchase price for the Silicon Valley Hotel with (1) proceeds from the Company’s ongoing public offering and (2) the assumption of the mortgage loan secured by the Silicon Valley Hotel with an original principal amount of $5,250,000 (the “Property Loan”) from U.S. Bank National Association, as Trustee for the registered holders of Wells Fargo Commercial Mortgage Securities, Inc., Commercial Mortgage Pass-Through Certificates, Series 2012-LC5 (the “Lender”). See Item 2.03 of this Current Report on Form 8-K for an additional discussion of the Property Loan. In connection with the acquisition of the Silicon Valley Hotel, the Company’s advisor earned an acquisition fee of $171,000 and a debt financing fee of $50,600.

 

Pursuant to the Purchase Agreement, Moody National TPS Newark MT, LLC (the “Master Tenant”), an indirect, wholly owned subsidiary of our operating partnership which leases the Silicon Valley Hotel from the Seller, transferred to the Company all of the interests owned by Master Tenant in the Silicon Valley Hotel, including, without limitation, all personal property, inventory, intangible property not owned by the Seller, contracts and leases and concession and occupancy agreements. Master Tenant did not receive any of the purchase price paid by the Company to the Seller for the Silicon Valley Hotel. In connection with the closing of the acquisition of the Silicon Valley Hotel, Moody National Management, L.P., an entity indirectly owned by Brett C. Moody, assigned its ownership interest in Master Tenant to a wholly owned subsidiary of our operating partnership.

 

The Silicon Valley Hotel was built in 2000 and features 127 suites with fully-equipped kitchenettes. The Silicon Valley Hotel also includes an exercise room, outdoor pool, BBQ area, and guest laundry facilities. The Silicon Valley Hotel is located on Cedar Boulevard in Newark, approximately one quarter mile north of the intersection of Cedar Boulevard with Stevenson Road, which is a major thoroughfare connecting to Interstate 80. Newark is located on the edge of Silicon Valley, in the San Francisco Bay Area in Northern California. Silicon Valley is home to many of the world’s largest technology corporations, as well as numerous smaller startup companies.

 

Management and Leasing of the Property

 

The Master Tenant leases the Silicon Valley Hotel from Moody Holding pursuant to an Amended and Restated Master Lease Agreement between Master Tenant and Moody Holding (the “Hotel Lease”). The Hotel Lease provides for a ten-year lease term, subject to one-year extensions in the event that the Franchise Agreement (defined below) is still in effect as of the end of the lease term and in certain other circumstances; provided, however, that Moody Holding may terminate the Hotel Lease upon 45 days prior written notice to the Master Tenant in the event that Moody Holding contracts to sell the Silicon Valley Hotel to a non-affiliated entity, effective upon the consummation of such a sale of the Silicon Valley Hotel. Pursuant to the Hotel Lease, Master Tenant will pay an annual base rent of $1,500,000 per year for the first five years of the term of the Hotel Lease. The annual base rent paid by Master Tenant will be adjusted as set forth in the Hotel Lease beginning in year six of the lease term. In addition, Master Tenant will pay an annual percentage rent, to the extent that such percentage rent is greater than the base rent due for such period, in an amount equal to (1) a fixed percentage of the Silicon Valley Hotel’s gross revenues for the previous year (as set forth in the Hotel Lease), minus (2) the amount of the annual base rent paid for the previous year. The annual percentage rent will be adjusted as set forth in the Hotel Lease beginning in year six of the lease term.

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The Master Tenant is party to a Relicensing Franchise Agreement (as amended, the “Franchise Agreement”) with MIF, L.L.C. (“Marriott”) pursuant to which Marriott has granted Master Tenant a limited, non-exclusive license to establish and operate a hotel under the name “TownePlace Suites by Marriott.” The Franchise Agreement has a term expiring on March 31, 2015, subject to extension to March 31, 2030 upon the Master Tenant’s satisfaction of certain property improvement requirements and the payment of an additional application fee to Marriott. Pursuant to the Franchise Agreement, the Master Tenant pays Marriott a monthly franchise fee equal to 5.0% of the Silicon Valley Hotel’s gross room sales (as defined in the Franchise Agreement) and a monthly marketing fund charge equal to 1.5% of the Silicon Valley Hotel’s gross room sales.

 

Moody National Hospitality Management, LLC, an affiliate of the Company (the “Property Manager”), manages the Silicon Valley Hotel pursuant to a Hotel Management Agreement between Property Manager and Master Tenant (as amended, the “Management Agreement”). Pursuant to the Management Agreement, the Master Tenant will pay the Property Manager a monthly base management fee in an amount equal to 3.0% of the Silicon Valley Hotel’s gross operating revenues (as defined in the Management Agreement) for the previous month. Each month during the term of the Management Agreement and for one month following the termination of the Management Agreement, the Property Manager will receive a $2,500 fee for providing centralized accounting services, which accounting services fee will be subject to annual increases based upon increases in the consumer price index. In addition, the Property Manager is eligible to receive additional fees for technical, procurement or other services provided by the Property Manager at the request of the Master Tenant. The Management Agreement has an initial ten-year term (commencing in January 2014), and thereafter will automatically renew for four consecutive five-year terms unless Property Manager or Master Tenant provides written notice of termination at least 180 days prior to the end of the then-current term. Master Tenant may terminate the Management Agreement upon (1) a material breach, default, or noncompliance by Property Manager under the Management Agreement, (2) the operation of the Silicon Valley Hotel by the Property Manager in such a manner as to cause Marriott to require the removal of the Property Manager as the operator of the Silicon Valley Hotel or to give notice to the Master Tenant of its intent to terminate the Franchise Agreement, or (3) the Property Manager’s bankruptcy, dissolution, insolvency or liquidation or general assignment for the benefit of creditors, subject to cure provisions as described in the Management Agreement. In the event that Master Tenant terminates the Management Agreement for any reason other than Property Manager’s default or bankruptcy, the Master Tenant will pay the Property Manager a termination fee equal to the base management fee estimated to be earned by Property Manager for the remaining term of the Management Agreement, as adjusted for inflation and other factors. Notwithstanding the foregoing, so long as the Property Loan remains outstanding, the Master Tenant may terminate the Management Agreement at any time upon 30 days prior notice with or without cause, and no termination fee will be paid in connection with such termination.

 

Item 2.03

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

Assumption of Property Loan

 

In connection with the acquisition of the Silicon Valley Hotel, Moody Holding assumed all of the obligations of the Seller under the Property Loan pursuant to an assumption agreement.

 

The entire unpaid principal balance of the Property Loan and all accrued and unpaid interest thereon and all other amounts due under the loan agreement and the related loan documents are due and payable in full on July 6, 2022 (the “Maturity Date”). Interest on the outstanding principal balance of the Property Loan accrues at a per annum rate equal to 5.50%. In the event that, and so long as, any event of default has occurred and is continuing under the Property Loan, the outstanding principal balance of the Property Loan and any unpaid interest thereon will bear interest at a per annum rate equal to the lesser of (1) the highest interest rate permitted by applicable law and (2) 10.50%. In addition, in the event that any principal, interest or any other amount due under the Property Loan is not paid when due, Moody Holding will

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pay upon demand by the Lender a late charge in an amount equal to the lesser of (1) 5.0% of the amount of the overdue payment and (2) the maximum amount payable pursuant to applicable law. Moody Holding may, upon at least 30 days prior written notice to the Lender, prepay the outstanding principle balance, plus all accrued interest and other amounts due, in full (but not in part) without payment of any penalty or premium on any business day following the date that is three months prior to the Maturity Date. Any other voluntary prepayment of the Property Loan will be subject to a prepayment penalty calculated in accordance with the Loan Agreement. As of July 1, the principal balance outstanding under the Property Loan was $5,060,493.

 

The performance of the obligations of Moody Holding under the Property Loan are secured by, among other things, (1) a security interest in the Silicon Valley Hotel and other collateral granted to Lender pursuant to a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (the “Deed of Trust”), (2) an Assignment of Leases And Rents in favor of the Lender, and (3) an assignment of all of Moody Holding’s right, title and interest in and to the Management Agreement and the subordination of all of Property Manager’s right to receive management fees and other rights and interests with respect to the Silicon Valley Hotel to the liens and interests of the Lender pursuant to a Subordination of Property Management Agreement.

 

The Company has agreed to irrevocably and unconditionally guarantee the payment to the Lender and its successors and assigns of, and to indemnify the Lender from and against, any and all liabilities, losses, damages, costs and expenses, claims and judgments, of any kind, which may be imposed upon or incurred by the Lender as a result of, among other events: (1) the breach of any representation, warranty, covenant or indemnification provision in the Environmental Indemnity (defined below), the Deed of Trust or any other loan document concerning environmental laws or hazardous materials, (2) material physical waste of the Silicon Valley Hotel, (3) the commission of a criminal act by Moody Holdings, Master Tenant or Brett C. Moody, (4) any action by Moody Holdings, Master Tenant or Mr. Moody that constitutes intentional material misrepresentation or gross negligence, (5) the breach of certain representations and provisions of the loan agreement and other loan documents, and (6) the amendment or modification of the Master Lease or the termination of the Management Agreement by Master Tenant, Mr. Moody or the Property Manager without Lender’s prior written consent. In addition, the Company has agreed that Moody Holding’s obligations with respect to the Property Loan will become fully recourse to the Company as guarantor in the event that, among other things, (1) the first monthly payment due under the Property Loan is not paid in full when due, (2) Moody Holdings, Master Tenant, the Company or Mr. Moody or any of their affiliates engages in any action constituting fraud or willful misconduct in connection with the Silicon Valley Hotel or the Property Loan, (3) the termination, cancellation, or surrender of the Master Lease without Lender’s prior written consent, (4) Moody Holdings or Master Tenant fails to obtain the Lender’s prior consent to any voluntary lien encumbering the Silicon Valley Hotel or any portion thereof or interest therein, except to the extent expressly permitted by the terms of the Property Loan, or (5) Moody Holdings or Master Tenant files a voluntary petition under any federal, state or local bankruptcy or insolvency law, consents to or joins any involuntary petition filed by any other person under any other federal, state, local bankruptcy or insolvency law, or makes an assignment for the benefit of creditors.

 

Pursuant to an Environmental Indemnity Agreement (the “Environmental Indemnity”), Moody Holdings and the Company (collectively, the “Indemnitors”) have agreed to jointly and severally indemnify and hold harmless the Lender and its officers, directors, employees and agents, from and against any losses, damages, costs, claims, suits or other liabilities of any nature that the Lender may suffer or incur as a result of, among other things, (1) any presence of any hazardous substances at the Silicon Valley Hotel or release of hazardous substances from the Silicon Valley Hotel, (2) any activity by the Indemnitors or their respective affiliates or any tenant or occupant of the Silicon Valley Hotel in connection with any treatment, storage, release, removal, handling, transfer or transportation to or from the Silicon Valley Hotel of any hazardous substances, (3) any non-compliance or violations of any environmental laws or permits in connection with the Silicon Valley Hotel or its operations, and (4) any breach by the Indemntitors of any representation, warranty, covenant or other obligation relating to environmental laws or hazardous substances under the Environmental

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Indemnity or any other loan document.

 

Item 9.01 Financial Statements and Exhibits.

 

(a)Financial Statements.

 

It is not practical at this time to provide the required financial statements for the acquired real property described in this Current Report on Form 8-K, and no financial statements (audited or unaudited) are available at this time. The required financial statements will be filed as an amendment to this Current Report on Form 8-K no later than 71 days after the deadline for filing this Current Report on Form 8-K.

 

(b)Pro Forma Financial Information.

 

See paragraph (a) above.

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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:   June 30, 2014 By:  /s/ Brett C. Moody
    Brett C. Moody
Chief Executive Officer and President