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Net Investment in Hotels
 9 Months Ended
Sep. 30, 2013
Net Investment in Hotels  
Net Investment in Hotels

Note 4. Net Investment in Hotels

 

Net Investment in Hotels

 

Net investment in hotels is summarized as follows (in thousands):

 

 

      
 September 30, 2013 December 31, 2012
Buildings$ 479,605 $ 106,885
Building and site improvements  8,140   2,570
Land  98,650   23,555
Furniture, fixtures and equipment  38,218   8,170
Construction in progress  3,950   1,585
Hotels, at cost  628,563   142,765
Less: Accumulated depreciation  (11,519)   (1,392)
Net investments in hotels$ 617,044 $ 141,373

Acquisitions

 

Hilton Southeast Portfolio

 

On February 14, 2013, we acquired five select-service hotels within the Hilton Worldwide (“Hilton”) portfolio of brands from entities managed by Fairwood Capital, LLC, an unaffiliated third-party, for $94.6 million (the “Hilton Southeast Portfolio”). The Hilton Southeast Portfolio consists of the 144-room Hampton Inn Memphis Beale Street in Tennessee, the 119-room Hampton Inn Atlanta Downtown in Georgia, the 133-room Hampton Inn Birmingham Colonnade in Alabama, the 105-room Hampton Inn Frisco Legacy Park in Texas and the 131-room Hilton Garden Inn Baton Rouge Airport in Louisiana. The Hampton Inn Memphis Beale Street, the Hampton Inn Atlanta Downtown and the Hampton Inn Birmingham Colonnade are managed by Crescent Hotels & Resorts. The Hampton Inn Frisco Legacy Park and Hilton Garden Inn Baton Rouge Airport hotels are managed by HRI Lodging Inc. Crescent Hotels & Resorts and HRI Lodging Inc. are unaffiliated third parties. In connection with this acquisition, we expensed acquisition costs of $3.7 million, including acquisition fees of $2.6 million paid to the advisor. As part of our franchise agreement with Hilton, we are required to make renovations up to $3.2 million at these hotels. These renovations are currently expected to be completed by the second quarter of 2014 (Note 9). We obtained five individual mortgage loans totaling $64.5 million, which do not contain cross-default provisions, upon acquisition of these hotels (Note 8).

 

Courtyard Pittsburgh Shadyside

 

On March 12, 2013, we acquired the Courtyard by Marriott Pittsburgh Shadyside (“Courtyard Pittsburgh Shadyside”) from Moody National CY Shadyside S, LLC, an unaffiliated third party, for $29.9 million. The 132-room select-service hotel is located in the Shadyside neighborhood of Pittsburgh, Pennsylvania. The hotel is managed by Concord Hospitality Enterprises Company, an unaffiliated third party. In connection with this acquisition, we expensed acquisition costs of $1.8 million, including acquisition fees of $0.9 million paid to the advisor. In addition, as part of our franchise agreement with Marriott, we are required to make renovations to the hotel totaling approximately $1.9 million. These renovations are currently expected to be completed by early 2014 (Note 9). We obtained a mortgage loan on the property of up to $21.0 million upon acquisition, of which $19.1 million was funded at closing; the remaining $1.9 million will be available through renovation draws (Note 8).

 

Hutton Hotel Nashville

 

On May 29, 2013, we acquired the Hutton Hotel (“Hutton Hotel Nashville”) from a joint venture between Lubert-Adler and Amerimar Enterprises, Inc., unaffiliated third parties, for $73.6 million. The 247-room full-service, independent hotel is located in the West End neighborhood of Nashville, Tennessee. The hotel is managed by Amerimar Hutton Management Co., LLC, an affiliate of Amerimar Enterprises, Inc. In connection with this acquisition, we expensed acquisition costs of $2.2 million, including acquisition fees of $1.9 million paid to the advisor. On June 25, 2013, we obtained a mortgage loan on the property of $44.0 million (Note 8).

 

Holiday Inn Manhattan 6th Avenue Chelsea

 

On June 6, 2013, we acquired the Holiday Inn Manhattan 6th Avenue (“Holiday Inn Manhattan 6th Avenue Chelsea”) from Magna Hospitality Group, L.C. and Greenfield Partners, unaffiliated third parties, for $113.0 million. The 226-room full-service hotel is located in the Chelsea neighborhood of New York, New York. The hotel is managed by MHG-26, LLC, an affiliate of Magna Hospitality. In connection with this acquisition, we expensed acquisition costs of $3.7 million, including acquisition fees of $3.0 million paid to the advisor. In addition, as part of our franchise agreement with Holiday Inn, we are required to make renovations to the hotel totaling approximately $2.5 million. These renovations are currently expected to be completed by the second quarter of 2014 (Note 9). We obtained a mortgage loan on the property of $80.0 million upon acquisition (Note 8).

 

Fairmont Sonoma Mission Inn & Spa

 

On July 10, 2013, we acquired a 75% interest in a newly-formed joint venture owning the Fairmont Sonoma Mission Inn & Spa with Fairmont Hotels & Resorts, the property owner and an unaffiliated third party. The joint venture acquired real estate assets totaling $91.8 million. Our investment of $76.6 million was made in the form of a preferred equity interest that carries a cumulative preferred dividend of 8.5% per year, which is payable after Fairmont Hotels & Resorts receives $150,000 in cumulative distributions. The 226 room, full-service resort is managed by Fairmont Hotels & Resorts (Maryland) LLC, an affiliate of our joint venture partner. In connection with this acquisition, we expensed acquisition costs of $2.8 million, including acquisition fees of $1.9 million paid to the advisor. The resort is currently undergoing a renovation that commenced, prior to our ownership, in September 2012 and is expected to total $8.4 million, of which we currently expect to fund $2.6 million. The estimated remaining renovations of $2.6 million include $1.8 million to complete the refurbishment of guestrooms and public space, which is currently expected to be completed in the fourth quarter of 2013, and $0.8 million to complete the renovation of the spa, which is currently expected to be completed in the second quarter of 2014 (Note 9). We obtained a mortgage loan on the property of $44.0 million upon acquisition of this property (Note 8).

 

Marriott Raleigh City Center

 

On August 13, 2013, we acquired the Marriott Raleigh City Center from Noble Raleigh Associates, LLC, an unaffiliated third party, for $82.2 million. The 400-room full-service hotel is located in downtown Raleigh, North Carolina. The hotel is managed by Noble-Interstate Management Group, LLC. In connection with this acquisition, we expensed acquisition costs of $2.7 million, including acquisition fees of $2.2 million paid to the advisor. In addition, as part of our franchise agreement with Marriott, we are required to make renovations to the hotel totaling approximately $2.5 million. These renovations are currently expected to be completed by the second quarter of 2014 (Note 9). We obtained a mortgage loan on the property of $51.5 million upon acquisition (Note 8).

 

The following tables present a summary of assets acquired and liabilities assumed in these business combinations, each at the date of acquisition, and revenues and earnings thereon, from the date of acquisition through September 30, 2013 (in thousands):

 

                   
  Hilton Southeast Portfolio Courtyard Pittsburgh Shadyside Hutton Hotel Nashville Holiday Inn Manhattan 6th Avenue Chelsea Fairmont Sonoma Mission Inn & Spa (a) Marriott Raleigh City Center (a)
Cash consideration$ 94,600 $ 29,900 $ 73,600 $ 113,000 $ 76,647 $ 82,193
                   
Assets acquired at fair value:                 
 Land$ 16,050 $ 3,515 $ 7,850 $ 30,023 $ 17,657 $ -
 Building  71,906   25,484   59,990   81,333   66,423   67,541
 Building and site improvements  1,607   349   230   65   -   1,004
 Furniture, fixtures and equipment  5,008   534   5,500   1,579   7,670   3,881
 Accounts receivable  -   -   -   -   75   172
 Other assets (b)  29   18   30   -   1,229   10,798
Liabilities assumed at fair value:                 
 Accounts payable, accrued expenses and other liabilities  -   -   -   -   (3,604)   (1,203)
Contributions from noncontrolling interests at fair value  -   -   -   -   (12,803)   -
Net assets acquired at fair value$ 94,600 $ 29,900 $ 73,600 $ 113,000 $ 76,647 $ 82,193
                   
                   
                   
                  
                   
                   
  For the Period from
  February 14, 2013 March 12, 2013 May 29, 2013 June 6, 2013 July 10, 2013 August 13, 2013
  through through through through through through
  September 30, 2013 September 30, 2013 September 30, 2013 September 30, 2013 September 30, 2013 September 30, 2013
 Revenues$ 14,610 $ 3,889 $ 8,064 $ 5,602 $ 10,495 $ 2,906
 Net income$ 3,171 $ 1,077 $ 1,870 $ 2,000 $ 2,123 $ 564

__________

  • The purchase price was allocated to the assets acquired and liabilities assumed based upon their preliminary fair values. The information in this table is based on the current best estimates of management. We are in the process of finalizing our assessment of the fair value of the assets acquired and liabilities assumed. Accordingly, the fair value of these assets acquired and liabilities assumed are subject to change.
  • Includes intangible assets totaling $10.6 million, comprised of a below-market ground lease of $9.0 million and a below-market parking garage lease of $1.5 million for Marriott Raleigh City Center and in-place lease intangibles aggregating $0.1 million relating to our other 2013 acquisitions. The weighted-average amortization periods for our below-market ground lease, below-market parking garage lease and our in-place leases acquired during the nine months ended September 30, 2013 are 92.5 years, 92.5 years and 3.1 years, respectively.

 

 

Pro Forma Financial Information

 

The following unaudited consolidated pro forma financial information presents our financial results as if the Consolidated Hotel investments that we completed during the year ended December 31, 2012 and the nine months ended September 30, 2013, and the new financings related to these acquisitions, had occurred on January 1, 2012, for the three and nine months ended September 30, 2013 and 2012. These transactions are accounted for as business combinations. The pro forma financial information is not necessarily indicative of what the actual results would have been, nor does it purport to represent the results of operations for future periods.

 

(Dollars in thousands, except share and per share amounts)

 

             
  Three Months Ended September 30,  Nine Months Ended September 30,
  2013 2012 2013(a) 2012
Pro forma total revenues$ 44,741 $ 40,405 $ 119,927 $ 118,776
Pro forma net income (loss)  1,795   438   (1,352)   (14,745)
Add: (Income) loss from continuing operations attributable to noncontrolling interests  (1,089)   690   1,766   2,829
Pro forma income (loss) from continuing operations attributable to CWI stockholders$ 706 $ 1,128 $ 414 $ (11,916)
Pro forma income (loss) per share:            
 Net income (loss) attributable to CWI stockholders$ 0.01 $ 0.04 $ 0.01 $ (0.43)
 Pro forma weighted average shares outstanding (b)  50,938,677   28,659,596   39,391,497   28,018,156

__________

  • Subsequent to the filing of the Company's Form 10-Q for the period ended March 31, 2013, we identified three errors in the pro forma financial information presented in the footnotes to the financial statements.   These errors resulted in a net overstatement of pro forma expenses, an aggregate overstatement of the reported Pro forma net loss and Pro forma loss from continuing operations attributable to CWI stockholders of approximately $0.3 million and an overstatement to Pro forma loss per share of approximately $0.02. Corrected amounts after considering the impact of the errors discussed above are a $1.1 million pro forma net loss, a $1.2 million pro forma loss from continuing operations attributable to CWI stockholders and a $0.052 pro forma loss per share. We evaluated the impact of the errors on the previously-filed financial statements and the pro forma disclosures and concluded that such amounts were immaterial to our Form 10-Q for the period ended March 31, 2013. The errors and revisions were related to our pro forma disclosures only and did not affect our consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive loss, consolidated statements of equity, or cash balances for any reporting periods.
  • The pro forma weighted average shares outstanding were determined as if the number of shares issued in our public offering in order to raise the funds used for each acquisition were issued on January 1, 2012. All acquisition costs are presented as if they were incurred on January 1, 2012.

 

Construction in Progress

 

At September 30, 2013, construction in progress was $4.0 million, recorded at cost, and related primarily to the renovations of the Lake Arrowhead Resort and Spa and the Courtyard Pittsburgh Shadyside (Note 9). We capitalize interest expense and certain other costs, such as property taxes, property insurance and employee costs related to hotels undergoing major renovations. During the three and nine months ended September 30, 2013 we capitalized $0.1 million and $0.3 million, respectively, of such costs. No such costs were capitalized during either the three or nine months ended September 30, 2012.