Exhibit 99.1
Financial Statements
WEBSTER STREET HOTEL, LLC
Years Ended December 31, 2004 and 2003
WEBSTER STREET HOTEL, LLC
Years Ended December 31, 2004 and 2003
CONTENTS
| Page | ||||
Independent auditors’ report | 1 | |||
Financial statements: | ||||
| Balance sheets | 2 | |||
| Statements of operations | 3 | |||
| Statements of members’ equity | 4 | |||
| Statements of cash flows | 5 | |||
Notes to financial statements | 6-9 | |||
Independent Auditors’ Report
To the Members
Webster Street Hotel, LLC
Shelton, Connecticut
We have audited the accompanying balance sheets of Webster Street Hotel, LLC as of December 31, 2004 and 2003, and the related statements of operations, members’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Webster Street Hotel, LLC as of December 31, 2004 and 2003 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Dworken, Hillman, LaMorte & Sterczala, P.C.
February 10, 2005
WEBSTER STREET HOTEL, LLC
BALANCE SHEETS
| December 31, | ||||||||
| 2004 | 2003 | |||||||
Assets(Notes 4 and 5) | ||||||||
| Current assets: | ||||||||
| Cash | $ | 365,008 | $ | 247,894 | ||||
| Restricted cash | 558,806 | 124,098 | ||||||
| Accounts receivable | 97,640 | 82,336 | ||||||
| Prepaid expenses and other | 53,400 | 51,271 | ||||||
| Total current assets | 1,074,854 | 505,599 | ||||||
| Property and equipment (Note 2) | 27,888,747 | 29,001,877 | ||||||
| Prepaid ground lease, net of accumulated amortization (2004, $20,822; 2003, $10,411) (Note 3) | 968,251 | 978,662 | ||||||
| Deferred costs, net of accumulated amortization (2004, $42,144; 2003, $449,561) | 354,232 | 220,040 | ||||||
| Other | 6,553 | |||||||
Total Assets | $ | 30,286,084 | $ | 30,712,731 | ||||
Liabilities and Members’ Equity | ||||||||
| Current liabilities: | ||||||||
| Note payable, bank (Note 5) | $ | 17,641,029 | ||||||
| Accounts payable and accrued expenses | $ | 612,446 | 473,854 | |||||
| Total current liabilities | 612,446 | 18,114,883 | ||||||
| Long-term debt (Note 4) | 19,000,000 | |||||||
Members’ Equity | 10,673,638 | 12,597,848 | ||||||
Total Liabilities and Members’ Equity | $ | 30,286,084 | $ | 30,712,731 | ||||
| See notes to financial statements. | 2 |
WEBSTER STREET HOTEL, LLC
STATEMENTS OF OPERATIONS
| Year Ended December 31, | ||||||||
| 2004 | 2003 | |||||||
Departmental revenues: | ||||||||
| Rooms | $ | 7,077,135 | $ | 3,821,348 | ||||
| Food and beverage | 236,265 | 134,870 | ||||||
| Parking | 274,961 | 158,379 | ||||||
| Other departmental | 228,725 | 116,056 | ||||||
| 7,817,086 | 4,230,653 | |||||||
Departmental expenses: | ||||||||
| Rooms | 1,272,456 | 790,329 | ||||||
| Food and beverage | 253,623 | 167,930 | ||||||
| Parking | 63,124 | 47,512 | ||||||
| Other departmental | 123,549 | 62,043 | ||||||
| 1,712,752 | 1,067,814 | |||||||
| Total departmental profit | 6,104,334 | 3,162,839 | ||||||
Overhead expenses: | ||||||||
| Administrative and general | 435,007 | 290,273 | ||||||
| Credit card commissions | 183,312 | 96,820 | ||||||
| Management fee (Note 7) | 312,895 | 169,372 | ||||||
| Advertising and sales (Notes 6 and 7) | 464,136 | 312,124 | ||||||
| Royalties (Note 6) | 391,773 | 211,630 | ||||||
| Repairs and maintenance | 239,706 | 145,307 | ||||||
| Utilities | 330,113 | 184,034 | ||||||
| General insurance (Note 7) | 87,043 | 65,471 | ||||||
| Real estate and personal property taxes | 337,128 | 135,214 | ||||||
| 2,781,113 | 1,610,245 | |||||||
| Income from operations | 3,323,221 | 1,552,594 | ||||||
Other charges: | ||||||||
| Interest expense | 1,206,145 | 823,696 | ||||||
| Depreciation and amortization | 1,336,074 | 1,314,441 | ||||||
| 2,542,219 | 2,138,137 | |||||||
Net income (loss) | $ | 781,002 | ($ | 585,543 | ) | |||
| See notes to financial statements. | 3 |
WEBSTER STREET HOTEL, LLC
STATEMENTS OF MEMBERS’ EQUITY
Balance, January 1, 2003 | $ | 15,244,143 | ||
| Net loss | ( | 585,543 | ) | |
| Distributions | ( | 2,060,752 | ) | |
Balance, December 31, 2003 | 12,597,848 | |||
| Net income | 781,002 | |||
| Distributions | ( | 2,705,212 | ) | |
Balance, December 31, 2004 | $ | 10,673,638 | ||
| See notes to financial statements. | 4 |
WEBSTER STREET HOTEL, LLC
STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||
| 2004 | 2003 | |||||||
Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 781,002 | ($ | 585,543 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 1,336,074 | 1,314,441 | ||||||
| Ground rent amortization | 10,411 | 10,411 | ||||||
| (Increase) decrease in assets: | ||||||||
| Accounts receivable | ( | 15,303 | ( | 81,737 | ) | |||
| Prepaid expenses and other | ( | 2,130 | ) | ( | 51,241 | ) | ||
| Other assets | ( | 6,553 | ) | ( | 6,553 | ) | ||
| Increase in liabilities: | ||||||||
| Accounts payable and accrued expenses | 138,592 | 360,049 | ||||||
| Net cash flows provided by operating activities | 2,255,199 | 959,827 | ||||||
Cash flows from investing activities: | ||||||||
| Restricted cash | ( | 434.708 | ) | ( | 124,098 | ) | ||
| Deferred costs | ( | 321,176 | ) | ( | 669,601 | ) | ||
| Prepaid ground lease | ( | 989,103 | ) | |||||
| Capital expenditures | ( | 35,960 | ) | ( | 8,675,083 | ) | ||
| Net cash used in investing activities | ( | 791,844 | ) | ( | 10,457,885 | ) | ||
Cash flows from financing activities: | ||||||||
| Distributions to members | ( | 2,705,212 | ) | ( | 2,060,752 | ) | ||
| Net proceeds (repayments) of note payable, bank | ( | 17,641,029 | ) | 11,696,070 | ||||
| Proceeds from long-term debt | 19,000,000 | |||||||
| Net cash provided by (used in) financing activities | ( | 1,346,241 | ) | 9,635,318 | ||||
Net increase in cash | 117,114 | 137,260 | ||||||
| Cash, beginning | 247,894 | 110,634 | ||||||
Cash, ending | $ | 365,008 | $ | 247,894 | ||||
| See notes to financial statements. | 5 |
WEBSTER STREET HOTEL, LLC
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2004 and 2003
| 1. | Description of the business and summary of significant accounting policies: | |||
| Description of business: | ||||
Webster Street Hotel, LLC (the Company) was formed as of February 9, 2000 as a limited liability company (LLC) for the purpose of owning and operating a 188 room “Courtyard by Marriott” located in Boston, Massachusetts. The hotel commenced operations in April 2003.
Estimates and assumptions:
Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities and the reported revenues and expenses. Actual results could vary from the estimates used.
Cash:
The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk.
Restricted cash:
Under the terms of its debt agreement, the Company is required to deposit 3% of annual gross revenues, as defined, into an account to be used for equipment replacement, repairs and renovations.
Accounts receivable:
The Company continuously monitors the creditworthiness of customers and establishes an allowance for amounts that may become uncollectible in the future based on current economic trends, historical payment and bad debt write-off experience, and any specific customer related collection issues.
Property and equipment:
Property and equipment are stated at cost. Depreciation is being provided using the straight-line method over the estimated useful asset lives.
6
WEBSTER STREET HOTEL, LLC
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2004 and 2003
| 1. | Summary of significant accounting policies(continued): | |||
| Deferred expenses: | ||||
Cost related to obtaining financing and franchise application fees are capitalized and amortized over the term of the related agreement using the straight-line method.
Income taxes:
The Company was formed as an LLC and is taxed as a partnership. Federal and state income tax regulations provide that a partnership is not subject to income taxes at the partnership level. Rather, each partner is taxed on their share of the Partnership’s taxable income, whether or not distributed, and is entitled to deduct on their own income tax return their share of any net losses of the Partnership to the extent of tax basis of their partnership interest, subject to certain passive activity loss limitations.
| 2. | Property and equipment: |
| 2004 | 2003 | |||||||
| Building | $ | 27,333,577 | $ | 27,333,577 | ||||
| Furniture, fixtures and equipment | 2,569,140 | 2,533,180 | ||||||
| 29,902,717 | 29,866,757 | |||||||
| Less accumulated depreciation | 2,013,970 | 864,880 | ||||||
| $ | 27,888,747 | $ | 29,001,877 | |||||
The Company capitalized interest costs on borrowings incurred during the period of construction. Capitalized interest was added to the cost of the underlying assets and is being amortized over the useful lives of the assets. The Company capitalized $210,000 of interest in connection with the construction of the hotel in 2003.
The Company entered into a project administration agreement with an affiliate. The agreement was completed in 2003 for a total cost of $700,000. The project administration fee was capitalized as part of the building.
| 3. | Prepaid ground lease: |
In October 2000, the Company entered into a noncancellable ground lease with the City of Brookline, Massachusetts for a period not to exceed 95 years. Under the terms of the ground lease, the Company was required to pay an initial lease payment of $75,000, perform improvements to the property, as defined, and pay the City 50% of all parking fees collected from the 60 overnight resident parking spaces located on the property.
7
WEBSTER STREET HOTEL, LLC
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2004 and 2003
| 3. | Prepaid ground lease(continued): |
The initial lease payment and property improvements are being amortized on a straight-line basis over the term of the ground lease. Rent expense was $10,411 and $12,871 in 2004 and 2003, respectively.
| 4. | Long-term debt: |
Note payable, Prudential Insurance (Prudential), payable in monthly installments of interest only at 5.98% through July 2006. Beginning in August 2006, monthly principal and interest payments of $126,854 are required through July 2009, at which time the remaining outstanding balance is due.
The aggregate maturities of long-term debt as of December 31, 2004 are as follows:
| Year Ending December 31: | ||||
| 2005 | $ | — | ||
| 2006 | 162,464 | |||
| 2007 | 406,791 | |||
| 2008 | 431,795 | |||
| 2009 | 17,998,950 | |||
| $ | 19,000,000 | |||
In January 2005, the Company borrowed an additional $4,000,000 from Prudential. The additional borrowing is payable in monthly installments of interest only at 5.69% through July 2006. Beginning in August 2006, monthly principal and interest payments of $26,018 are required through July 2009, at which time the remaining outstanding balance is due.
The notes are secured by substantially all assets of the Company.
| 5. | Note payable, bank: |
Note payable, bank, is subject to the terms of a building loan agreement and provides for a borrowing limit of $19,200,000. The note requires monthly payments of interest only. The note matures in April 2004, but provides for up to four six-month extensions, subject to certain terms and conditions. The note is secured by substantially all assets of the Company and is guaranteed by, among others, New Castle Hotels, LLC, an affiliate of the Company. The note was paid in full in June 2004.
8
WEBSTER STREET HOTEL, LLC
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2004 and 2003
| 6. | Franchise agreement: |
In June 2001, the Company entered into a franchise agreement to operate the hotel as a “Courtyard by Marriott” franchise. The initial term of the agreement is for 20 years and requires monthly payments of 7.50% of gross room revenues, as defined, which includes a 2% advertising fee. Total franchise expense was $533,720, including advertising expense of $141,949, in 2004 and $288,059, including advertising expense of $76,429, in 2003.
| 7. | Related party transactions: |
Management agreement:
In April 2001, the Company entered into a management agreement with Brookline Hotel Management, LLC, an affiliate of the Company. The agreement calls for a monthly fee of 4% of gross revenues. The initial term of the agreement is ten years, but provides for two five-year extensions at the Company’s option.
Insurance:
The Company obtains general and workers compensation insurance through an affiliate. Total insurance premiums paid to the affiliate were $107,226 and $115,679 in 2004 and 2003, respectively.
Marketing fees:
An affiliate provides marketing services to the Company. Total marketing fees paid to the affiliate were $2,090 and $29,645 in 2004 and 2003, respectively.
| 8. | Supplemental disclosure of cash flow information: |
Cash paid for interest was $1,155,647 and $1,033,116 in 2004 and 2003, respectively.
9
Financial Statements
WEBSTER STREET HOTEL, LLC
Three Months Ended March 31, 2005 and 2004
WEBSTER STREET HOTEL, LLC
Three Months Ended March 31, 2005 and 2004
CONTENTS
| Page | ||||
Accountants’ review report | 1 | |||
Financial statements: | ||||
| Balance sheets | 2 | |||
| Statements of operations | 3 | |||
| Statements of members’ equity | 4 | |||
| Statements of cash flows | 5 | |||
Notes to financial statements | 6-9 | |||
To the Members
Webster Street Hotel, LLC
Shelton, Connecticut
We have reviewed the balance sheets of Webster Street Hotel, LLC (the Company) as of March 31, 2005 and 2004, and the related statements of operations, members’ equity, and cash flows for the three months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Information in these financial statements is the representation of the management of the Company.
A review consists of principally of inquiries of Company personnel and analytical procedures applied to financial information. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is to express an opinion on the financial statements taken as a whole. Accordingly, we do not express an opinion.
Based on our reviews, we are not aware of material modifications that should be made to the financial statements for them to conform with accounting principles generally accepted in the United States of America.
Dworken, Hillman, LaMorte & Sterczala, P.C.
June 27, 2005
1
WEBSTER STREET HOTEL, LLC
BALANCE SHEETS
(See Accountants’ Review Report)
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Assets(Notes 4 and 5) | ||||||||
| Current assets: | ||||||||
| Cash | $ | 390,406 | $ | 175,300 | ||||
| Restricted cash | 606,773 | 157,096 | ||||||
| Accounts receivable | 118,196 | 170,683 | ||||||
| Prepaid expenses and other | 132,241 | 76,744 | ||||||
| Total current assets | 1,247,616 | 579,823 | ||||||
| Property and equipment (Note 2) | 27,609,429 | 28,723,192 | ||||||
| Prepaid ground lease, net of accumulated amortization (2005, $23,425; 2004, $13,014) (Note 3) | 965,648 | 976,059 | ||||||
| Deferred costs, net of accumulated amortization (2005, $59,456; 2004, $599,414) | 381,599 | 70,187 | ||||||
| Other | 3,200 | |||||||
Total Assets | $ | 30,204,292 | $ | 30,352,461 | ||||
Liabilities and Members’ Equity | ||||||||
| Current liabilities: | ||||||||
| Note payable, bank (Note 4) | $ | 17,641,029 | ||||||
| Accounts payable and accrued expenses | $ | 797,227 | 640,045 | |||||
| Total current liabilities | 797,227 | 18,281,074 | ||||||
| Long-term debt (Note 5) | 23,000,000 | |||||||
Members’ Equity | 6,407,065 | 12,071,387 | ||||||
Total Liabilities and Members’ Equity | $ | 30,204,292 | $ | 30,352,461 | ||||
| See notes to financial statements. | 2 |
WEBSTER STREET HOTEL, LLC
STATEMENTS OF OPERATIONS
(See Accountants’ Review Report)
| Three Months | ||||||||
| Ended March 31, | ||||||||
| 2005 | 2004 | |||||||
Departmental revenues: | ||||||||
| Rooms | $ | 1,384,537 | $ | 1,064,061 | ||||
| Food and beverage | 49,896 | 43,092 | ||||||
| Parking | 67,445 | 54,786 | ||||||
| Other departmental | 51,831 | 43,133 | ||||||
| 1,553,709 | 1,205,072 | |||||||
Departmental expenses: | ||||||||
| Rooms | 293,535 | 232,729 | ||||||
| Food and beverage | 57,805 | 47,479 | ||||||
| Parking | 9,672 | 19,461 | ||||||
| Other departmental | 32,152 | 16,751 | ||||||
| 393,164 | 316,420 | |||||||
| Total departmental profit | 1,160,545 | 888,652 | ||||||
Overhead expenses: | ||||||||
| Administrative and general | 79,664 | 94,659 | ||||||
| Credit card commissions | 35,383 | 25,782 | ||||||
| Management fee (Note 7) | 62,511 | 52,020 | ||||||
| Advertising and sales (Notes 6 and 7) | 91,591 | 78,645 | ||||||
| Royalties (Note 6) | 76,764 | 60,088 | ||||||
| Repairs and maintenance | 64,807 | 53,810 | ||||||
| Utilities | 110,545 | 93,268 | ||||||
| General insurance (Note 7) | 20,625 | 23,282 | ||||||
| Real estate and personal property taxes | 101,514 | 84,282 | ||||||
| 643,404 | 565,836 | |||||||
| Income from operations | 517,141 | 322,816 | ||||||
Other charges: | ||||||||
| Interest expense | 320,724 | 312,148 | ||||||
| Depreciation and amortization | 305,480 | 437,129 | ||||||
| 626,204 | 749,277 | |||||||
Net loss | ($ | 109,063 | ) | ($ | 426,461 | ) | ||
| See notes to financial statements. | 3 |
WEBSTER STREET HOTEL, LLC
STATEMENTS OF MEMBERS’ EQUITY
(See Accountants’ Review Report)
| 2005 | 2004 | |||||||
Balance, January 1 | $ | 10,673,638 | $ | 12,597,848 | ||||
| Net loss | ( | 109,063 | ) | ( | 426,461 | ) | ||
| Distributions | ( | 4,157,510 | ) | ( | 100,000 | ) | ||
Balance, March 31 | $ | 6,407,065 | $ | 12,071,387 | ||||
| See notes to financial statements. | 4 |
WEBSTER STREET HOTEL, LLC
STATEMENTS OF CASH FLOWS
(See Accountants’ Review Report)
| Three Months | ||||||||
| Ended March 31, | ||||||||
| 2005 | 2004 | |||||||
Cash flows from operating activities: | ||||||||
| Net loss | ($ | 109,063 | ) | ($ | 426,461 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 305,480 | 437,129 | ||||||
| Ground rent amortization | 2,603 | 2,603 | ||||||
| Increase in assets: | ||||||||
| Accounts receivable | ( | 20,556 | ) | ( | 88,347 | ) | ||
| Prepaid expenses and other | ( | 78,838 | ) | ( | 25,473 | ) | ||
| Increase in liabilities: | ||||||||
| Accounts payable and accrued expenses | 184,781 | 169,544 | ||||||
| Net cash flows provided by operating activities | 284,407 | 68,995 | ||||||
Cash flows from investing activities: | ||||||||
| Restricted cash | ( | 47,967 | ) | ( | 32,998 | ) | ||
| Deferred costs | ( | 44,680 | ) | |||||
| Capital expenditures | ( | 8,852 | ) | ( | 8,591 | ) | ||
| Net cash used in investing activities | ( | 101,499 | ) | ( | 41,589 | ) | ||
Cash flows from financing activities: | ||||||||
| Distributions to members | ( | 4,157,510 | ) | ( | 100,000 | ) | ||
| Proceeds from long-term debt | 4,000,000 | |||||||
| Net cash used in financing activities | ( | 157,510 | ) | ( | 100,000 | ) | ||
Net increase (decrease) in cash | 25,398 | ( | 72,594 | ) | ||||
| Cash, beginning | 365,008 | 247,894 | ||||||
Cash, ending | $ | 390,406 | $ | 175,300 | ||||
See notes to financial statements.
5
WEBSTER STREET HOTEL, LLC
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 2005 and 2004
(See Accountants’ Review Report)
| 1. | Description of the business and summary of significant accounting policies: |
Description of business:
Webster Street Hotel, LLC (the Company) was formed as of February 9, 2000 as a limited liability company (LLC) for the purpose of owning and operating a 188 room “Courtyard by Marriott” located in Boston, Massachusetts. The hotel commenced operations in April 2003.
Estimates and assumptions:
Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities and the reported revenues and expenses. Actual results could vary from the estimates used.
Cash:
The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk.
Restricted cash:
Under the terms of its debt agreement, the Company is required to deposit 3% of annual gross revenues, as defined, into an account to be used for equipment replacement, repairs and renovations.
Accounts receivable:
The Company continuously monitors the creditworthiness of customers and establishes an allowance for amounts that may become uncollectible in the future based on current economic trends, historical payment and bad debt write-off experience, and any specific customer related collection issues.
Property and equipment:
Property and equipment are stated at cost. Depreciation is being provided using the straight-line method over the estimated useful asset lives.
6
WEBSTER STREET HOTEL, LLC
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 2005 and 2004
(See Accountants’ Review Report)
| 1. | Summary of significant accounting policies(continued): |
Deferred expenses:
Cost related to obtaining financing and franchise application fees are capitalized and amortized over the term of the related agreement using the straight-line method.
Income taxes:
The Company was formed as an LLC and is taxed as a partnership. Federal and state income tax regulations provide that a partnership is not subject to income taxes at the partnership level. Rather, each partner is taxed on their share of the partnership’s taxable income, whether or not distributed, and is entitled to deduct on their own income tax return their share of any net losses of the partnership to the extent of tax basis of their partnership interest, subject to certain passive activity loss limitations.
| 2. | Property and equipment: |
| 2005 | 2004 | |||||||
| Building | $ | 27,333,577 | $ | 27,333,577 | ||||
| Furniture, fixtures and equipment | 2,577,990 | 2,541,771 | ||||||
| 29,911,567 | 29,875,348 | |||||||
| Less accumulated depreciation | 2,302,138 | 1,152,156 | ||||||
| $ | 27,609,429 | $ | 28,723,192 | |||||
The Company capitalized interest costs on borrowings incurred during the period of construction. Capitalized interest was added to the cost of the underlying assets and is being amortized over the useful lives of the assets. The Company capitalized $210,000 of interest in connection with the construction of the hotel in 2003.
The Company entered into a project administration agreement with an affiliate. The agreement was completed in 2003 for a total cost of $700,000. The project administration fee was capitalized as part of the building.
| 3. | Prepaid ground lease: |
In October 2000, the Company entered into a noncancellable ground lease with the City of Brookline, Massachusetts for a period not to exceed 95 years. Under the terms of the ground lease, the Company was required to pay an initial lease payment of $75,000, perform improvements to the property, as defined, and pay the City 50% of all parking fees collected from the 60 overnight resident parking spaces located on the property.
7
WEBSTER STREET HOTEL, LLC
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 2005 and 2004
(See Accountants’ Review Report)
| 3. | Prepaid ground lease(continued): |
The initial lease payment and property improvements are being amortized on a straight-line basis over the term of the ground lease. Rent expense was $2,603 for the three months ended March 31, 2005 and 2004.
| 4. | Note payable, bank: |
Note payable, bank, is subject to the terms of a building loan agreement and provides for a borrowing limit of $19,200,000. The note requires monthly payments of interest only. The note matures in April 2004, but provides for up to four six-month extensions, subject to certain terms and conditions. The note is secured by substantially all assets of the Company and is guaranteed by, among others, New Castle Hotels, LLC, an affiliate of the Company. The note was paid in full in June 2004.
| 5. | Long-term debt: |
| Note payable, Prudential Insurance (Prudential), payable in monthly installments of interest only at 5.98% through July 2006. Beginning in August 2006, monthly principal and interest payments of $126,854 are required through July 2009, at which time the remaining outstanding balance is due. | $ | 19,000,000 | ||
| Note payable, Prudential, payable in monthly installments of interest only at 5.69% through July 2006. Beginning in August 2006, monthly principal and interest payments of $26,018 are required through July 2009, at which time the remaining outstanding balance is due. | 4,000,000 | |||
| $ | 23,000,000 | |||
The notes are secured by substantially all assets of the Company.
The aggregate maturities of long-term debt as of March 31, 2005 are as follows:
| Year Ending December 31: | ||||
| 2005 | $ | – | ||
| 2006 | 205,275 | |||
| 2007 | 496,145 | |||
| 2008 | 526,368 | |||
| 2009 | 21,772,212 | |||
| $ | 23,000,000 | |||
8
WEBSTER STREET HOTEL, LLC
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 2005 and 2004
(See Accountants’ Review Report)
| 6. | Franchise agreement: |
In June 2001, the Company entered into a franchise agreement to operate the hotel as a “Courtyard by Marriott” franchise. The initial term of the agreement is for 20 years and requires monthly payments of 7.50% of gross room revenues, as defined, which includes a 2% advertising fee. Total franchise expense was $104,678, including advertising expense of $27,914 and $81,375, including advertising expense of $21,287 for the three months ended March 31, 2005 and 2004, respectively.
| 7. | Related party transactions: |
Management agreement:
In April 2001, the Company entered into a management agreement with Brookline Hotel Management, LLC, an affiliate of the Company. The agreement calls for a monthly fee of 4% of gross revenues. The initial term of the agreement is ten years, but provides for two five-year extensions at the Company’s option.
Insurance:
The Company obtains general and workers compensation insurance through an affiliate. There were no insurance premiums paid to the affiliate during the three months ended March 31, 2005 and 2004.
Marketing fees:
An affiliate provides marketing services to the Company. Total marketing fees paid to the affiliate were $628 and $1,580 for the three months ended March 31, 2005 and 2004, respectively.
| 8. | Supplemental disclosure of cash flow information: |
Cash paid for interest was $312,768 and $205,812 for the three months ended March 31, 2005 and 2004, respectively.
| 9. | Subsequent event: |
In June 2005, the Company sold substantially all of its assets to Hersha Hospitality Limited Partnership for $54,500,000. The Company used the proceeds to repay all outstanding debt.
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