Washington, D.C. 20549
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
Sioux Falls, South Dakota 57105
(605) 361-9566
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
President and Chief Executive Officer
2701 South Minnesota Avenue, Suite 6
Sioux Falls, South Dakota 57105
(605) 361-9566
(Name and address, including zip code, and telephone number, including area code, of agent for service)
David C. Wright, Esq. Edward W. Elmore, Jr., Esq. Hunton & Williams LLP Riverfront Plaza, East Tower 951 E. Byrd Street Richmond, Virginia 23219-4074 Tel: (804) 788-8200 Fax: (804) 788-8218 | James E. Showen, Esq. Kevin L. Vold, Esq. Hogan Lovells US LLP Columbia Square 555 13th Street NW Washington, DC 20004 Tel: (202) 637-5600 Fax: (202) 637-5910 |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
Per Share | Total | |||||||
Public offering price | $ | $ | ||||||
Underwriting discount | $ | $ | ||||||
Proceeds, before expenses, to us | $ | $ | ||||||
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§ | Our business strategy depends significantly on achieving revenue and net income growth from anticipated increases in demand for hotel rooms—any delay or a weaker than anticipated economic recovery will adversely affect our future results of operations and our growth prospects. | |
§ | Our unseasoned hotels have limited operating history and may not achieve the operating performance we anticipate, and as a result, our overall returns may not improve as we expect or may decline. | |
§ | We have no operating history as a publicly traded REIT and may not be successful in operating as a publicly traded REIT, which may adversely affect our ability to make distributions to our stockholders. | |
§ | Our success depends on key personnel whose continued service is not guaranteed. |
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§ | We may be unable to complete acquisitions that would grow our business, and even if they are completed, we may fail to successfully integrate and operate such acquired hotels. | |
§ | Upon completion of this offering and the formation transactions, the management of all of the hotels in our portfolio will be concentrated in one hotel management company, Interstate Management Company, LLC, or Interstate, and termination of our hotel management agreement with that company may cause us to pay substantial termination fees or experience significant disruptions at our hotels. | |
§ | Funds spent to maintain franchisor operating standards, the loss of a franchise license or a decline in the value of a franchise brand may have a material adverse effect on our business and financial results. | |
§ | We will rely on external sources of capital to fund future capital needs, and if we encounter difficulty in obtaining such capital we may not be able to make future acquisitions necessary to grow our business or meet maturing obligations. | |
§ | We have a significant amount of debt, and our organizational documents have no limitation on the amount of additional indebtedness that we may incur in the future. As a result, we may become highly leveraged in the future, which could adversely affect our financial condition. | |
§ | The agreements governing our indebtedness place restrictions on us and our subsidiaries, reducing operational flexibility and creating default risks. |
§ | We may not be able to obtain a secured revolving credit facility on the indicative terms and conditions described in this prospectus or at all. |
§ | Our Executive Chairman, Mr. Boekelheide, and other members of our management team exercised significant influence with respect to the terms of the formation transactions, including transactions in which they determined the compensation they would receive. | |
§ | Competition from other upscale and midscale without food and beverage hotels in the markets in which we operate could have a material adverse effect on our results of operations. | |
§ | Our operating results and ability to make distributions to our stockholders may be adversely affected by the markets in which we operate and risks inherent to the ownership of hotels. | |
§ | Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of hotels in which we may invest or to adjust our portfolio in response to changes in economic and other conditions, and, therefore, may harm our financial condition. | |
§ | We may change the distribution policy with respect to our common stock in the future. | |
§ | The cash available for distribution may not be sufficient to make distributions at expected levels, and we cannot assure you of our ability to make distributions in the future. We may use borrowed funds or funds from other sources to make distributions, which may adversely impact our operations. |
§ | We may use a portion of the net proceeds from this offering and the concurrent private placement to make distributions to our stockholders, if necessary to permit us to satisfy the requirements for qualification as a REIT and eliminate federal income and excise taxes that otherwise would be imposed on us, which would, among other things, reduce our cash available for investing. |
§ | If you purchase shares of common stock in this offering, you will experience immediate dilution. | |
§ | Failure to qualify as a REIT, or failure to remain qualified as a REIT, would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distributions to our stockholders. |
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§ | have potential for strong risk-adjusted returns located in the top 50 MSAs, with a secondary focus on the next 100 markets; |
§ | operate under leading franchise brands, which may include but are not limited to brands owned by Marriott, Hilton, IHG and Hyatt; |
§ | are located in close proximity to multiple demand generators, including businesses and corporate headquarters, retail centers, airports, medical facilities, tourist attractions and convention centers, with a diverse source of potential guests, including corporate, government and leisure travelers; | |
§ | are located in markets exhibiting barriers to entry due to strong franchise areas of protection or other factors; | |
§ | can be acquired at a discount to replacement cost; and | |
§ | provide an opportunity to add value through operating efficiencies, repositioning, renovating or rebranding. |
• | RevPAR Growth. Colliers PKF Hospitality Research forecasts that our two market segments will experience among the largest amount of RevPAR growth of any segment in the industry. | |
• | Consistently Strong and Growing Demand. Over the last twenty years, our market segments have demonstrated the strongest compounded growth in demand of all segments of the lodging industry, and strong demand growth is expected to continue. | |
• | More Stable Cash Flow Potential. Our hotels can be operated with fewer employees than full-service hotels that offer more expansive food and beverage options, which we believe enables us to generate more consistent cash flows with less volatility resulting from reductions in RevPAR and less dependence on group travel. |
• | Broad Customer Base. Our target brands deliver consistently high-quality hotel accommodations with value-oriented pricing that we believe appeals to a wider range of customers, including both business and leisure travelers, than more expensive full-service hotels. We believe that our hotels are particularly popular with frequent business travelers who seek to stay in hotels operating under Marriott, Hilton, Hyatt or IHG brands, which offer strong loyalty rewards program points that can be redeemed for family travel. |
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• | Enhanced Diversification. Premium-branded limited-service and select-service assets generally cost significantly less, on a per-key basis, than hotels in the midscale with food and beverage, upper upscale and luxury segments of the industry. As a result, we can diversify our ownership into a larger number of hotels than we could in other segments. |
§ | We will sell shares of our common stock in this offering. |
§ | Concurrently with this offering, we will sell in a separate private placement to an affiliate of IHG $12.5 million in shares of our common stock (subject to a maximum investment of 4.9% of the total number of shares to be sold in this offering, excluding any shares sold pursuant to the underwriters’ over-allotment option) at a price per share equal to the IPO price per share less the underwriting discount. The closing of the concurrent private placement is contingent upon the completion of this offering; however, the closing of this offering is not contingent upon the closing of the concurrent private placement. |
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§ | Our predecessor will merge with and into our operating partnership, which will be the survivor of the merger. Pursuant to the merger, our predecessor’s members, including two of our executive officers and their affiliates as described below, will receive an aggregate of 9,993,992 OP units having an aggregate assumed value of $ based on the mid-point of the anticipated IPO price range shown on the cover of this prospectus. The total number of OP units to be issued to our predecessor’s members in the merger reflects our predecessor’s 100% ownership of 63 of our initial hotels prior to the merger and its ownership of a 49% Class A membership interest in Summit of Scottsdale, the owner of two Scottsdale, Arizona hotels prior to the merger. Of the 9,993,992 OP units to be issued in the merger, (1) our Executive Chairman, Mr. Boekelheide, and his affiliates, including The Summit Group, will receive an aggregate of 1,517,879 OP units having an aggregate assumed value of $ based on the mid-point of the anticipated IPO price range shown on the cover of this prospectus and (2) our Executive Vice President and Chief Operating Officer, Mr. Aniszewski, will receive an aggregate of 4,105 OP units having an aggregate value of $ based on the mid-point of the anticipated IPO price range shown on the cover of this prospectus. On November 30, 2010, our predecessor’s members approved the merger. The merger is subject to customary closing conditions, including obtaining all required third-party consents and approvals and completion of this offering. The closing of the merger is not conditioned on the completion of the concurrent private placement. In addition to the OP units issued in the merger, our operating partnership will issue an aggregate of 106,008 OP units to The Summit Group and an unaffiliated third-party investor in the Summit of Scottsdale transaction described below. |
§ | The Summit Group will contribute its 36% Class B membership interest in Summit of Scottsdale to our operating partnership in exchange for 74,829 OP units having an aggregate assumed value of $ based on the mid-point of the anticipated IPO price range shown on the cover of this prospectus. An unaffiliated third-party investor will contribute its 15% Class C membership interest in Summit of Scottsdale to our operating partnership in exchange for 31,179 OP units having an aggregate assumed value of $ based on the mid-point of the anticipated IPO price range shown on the cover of this prospectus. The contributions of the Class B and Class C membership interests in Summit of Scottsdale are subject to customary closing conditions, including obtaining all required third-party consents and approvals and completion of this offering. The closing of these contributions is not conditioned on the completion of the concurrent private placement. |
§ | Upon completion of the merger and the contributions described above, our operating partnership will become the sole owner of our 65 initial hotels and will enter into new lease agreements with our TRS lessees with respect to the 65 hotels in our initial portfolio. |
§ | The Summit Group will assign all of the hotel management agreements pursuant to which it managed the hotels owned by our predecessor to Interstate for consideration payable to The Summit Group of $12.75 million, and our TRS lessees will enter into a hotel management agreement with Interstate pursuant to which those hotels will be operated. Interstate has advised us that it expects to offer continued employment to nearly all of the employees of The Summit Group responsible for the day-to-day operations of our hotels prior to the formation transactions. |
§ | Our operating partnership intends to use the net proceeds of this offering and the concurrent private placement as follows: (1) approximately $227.6 million to repay or extinguish existing indebtedness that we will assume following completion of the formation transactions, including estimated costs related to this debt repayment totaling approximately $3.8 million; (2) approximately $10.0 million to fund capital improvements at our initial hotels; and (3) the balance for general corporate and working capital purposes, including possible future acquisitions of hotels. |
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(1) | To be formed prior to completion of this offering. |
(2) | Upon completion of the formation transactions, our operating partnership will own 25 of our 65 hotel properties and will lease these hotel properties to our TRS lessees. |
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Name | Benefits Received | |
Kerry W. Boekelheide, Executive Chairman and Director | In the formation transactions, Mr. Boekelheide and The Summit Group will receive an aggregate of 1,200,993 OP units, including: (1) 17,000 OP units to be issued to a revocable trust, the trustee and sole beneficiary of which is Mr. Boekelheide, in exchange for the trust’s Class A membership interests in our predecessor; (2) 1,109,164 OP units to be issued to The Summit Group in the merger; and (3) 74,829 OP units to be issued to The Summit Group in exchange for its 36% Class B membership interest in Summit of Scottsdale. These OP units will represent approximately % of our combined common stock and OP units outstanding upon completion of this offering, the concurrent private placement and the formation transactions and have an aggregate value of $ million based on the mid-point of the anticipated IPO price range shown on the cover of this prospectus. | |
In addition, entities affiliated with Mr. Boekelheide other than The Summit Group will receive an aggregate of 316,886 OP units. Mr. Boekelheide will share voting and investment power over these OP units with individuals who are not affiliated with us. These OP units will represent approximately % of our combined common stock and OP units outstanding upon completion of this offering, the concurrent private placement and the formation transactions and have a combined aggregate value of $ million based on the mid-point of the anticipated IPO price range shown on the cover of this prospectus. | ||
In consideration for assigning to them the existing hotel management agreements with our predecessor, The Summit Group will receive a cash payment from Interstate in the amount of $12.75 million. | ||
Craig J. Aniszewski, Executive Vice President and Chief Operating Officer | In the merger, Mr. Aniszewski will receive an aggregate of 4,105 OP units in exchange for his Class B membership interests in our predecessor. These OP units represent approximately % of our combined common stock and OP units outstanding upon completion of this offering, the concurrent private placement and the formation transactions and have an aggregate value of $ based on the mid-point of the anticipated IPO price range shown on the cover of this prospectus. |
§ | employment agreements that will provide for salary, bonus and other benefits, including severance benefits in the event of a termination of employment in certain circumstances (see “Management—Employment Agreements”); |
§ | options to purchase an aggregate of 940,000 shares of our common stock, exercisable at the IPO price, will be granted to our named executive officers upon completion of this offering pursuant to the 2010 Equity Incentive Plan (see “Management—Executive Compensation”); |
§ | agreements providing for indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against them as an officer and/or director of our company (see “Management—Indemnification Agreements” and “Certain Provisions of Maryland Law and of Our Charter and Bylaws”); and |
§ | redemption and registration rights under our operating partnership’s partnership agreement with respect to OP units to be issued in the formation transactions (see “Description of the Partnership Agreement” and “Shares Eligible for Future Sale”). |
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§ | beneficially owning shares of our capital stock to the extent that such beneficial ownership would result in our being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of the taxable year); | |
§ | transferring shares of our capital stock to the extent that such transfer would result in shares of our capital stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code); | |
§ | beneficially or constructively owning shares of our capital stock to the extent such beneficial or constructive ownership would cause us to constructively own ten percent or more of the ownership interests in a tenant (other than a TRS) of our real property within the meaning of Section 856(d)(2)(B) of the Code; or | |
§ | beneficially or constructively owning or transferring shares of our capital stock if such beneficial or constructive ownership or transfer would otherwise cause us to fail to qualify as a REIT under the Code, including, but not limited to, as a result of any hotel management companies failing to qualify as an “eligible independent contractor” under the REIT rules. |
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Common stock offered by us in this offering | shares |
Common stock to be outstanding after this offering and the concurrent private placement | shares(1) |
Common stock and OP units to be outstanding after this offering, the concurrent private placement and the formation transactions | shares and OP units(2) |
Use of proceeds | We estimate that the net proceeds we will receive from the sale of shares of our common stock in this offering and shares of our common stock in the concurrent private placement will be approximately $ million (or approximately $ million if the underwriters exercise their over-allotment option in full), after deducting the underwriting discount of approximately $ million (or approximately $ million if the underwriters exercise their over-allotment option in full) and estimated expenses related to this offering, the concurrent private placement and the formation transactions of approximately $3.6 million payable by us. We will contribute the net proceeds of this offering and the concurrent private placement to our operating partnership. Our operating partnership intends to use the net proceeds of this offering and the concurrent private placement as follows: (1) approximately $227.6 million to repay or extinguish existing indebtedness that we will assume upon completion of the formation transactions, including estimated related costs totaling approximately $3.8 million; (2) approximately $10.0 million to fund capital improvements at our hotels; and (3) the balance for general corporate and working capital purposes, including possible future hotel acquisitions. See “Use of Proceeds” for additional information. |
Ownership and transfer restrictions | In order to assist us in qualifying as a REIT, our charter provides that, subject to certain exceptions, no person may beneficially or constructively own more than 9.8% in value or in number of shares, whichever is more restrictive, of our common stock and places certain other restrictions on ownership of our stock. | |
Proposed NYSE symbol | “INN” |
(1) | Immediately prior to the closing of this offering and the concurrent private placement, we will have a total of 1,000 shares of common stock outstanding. We sold these shares to our Executive Chairman, Mr. Boekelheide, in connection with our formation and initial capitalization for total consideration of $1,000. At the closing of this offering and the concurrent private placement, we will repurchase these shares from Mr. Boekelheide for $1,000. The number of shares of common stock to be outstanding immediately after the repurchase of these shares and the closing of this offering and the concurrent private placement includes: (i) shares of common stock to be sold in this offering, (ii) shares of common stock to be sold in the concurrent private placement to an affiliate of IHG and (iii) an aggregate of 4,000 shares of common stock to be issued to our independent directors pursuant to the 2010 Equity Incentive Plan upon completion of this offering. The number of shares of common stock to be outstanding immediately after the closing of this offering and the concurrent private placement excludes: (i) up to shares of common stock issuable upon exercise of the underwriters’ over-allotment option; (ii) an aggregate of 940,000 shares of common stock issuable upon exercise of options that we will grant to our Executive Chairman, Mr. Boekelheide, our President and Chief Executive Officer, Daniel P. Hansen, our Executive Vice President and Chief Operating Officer, Mr. Aniszewski, our Executive Vice President and Chief Financial Officer, Stuart J. Becker, and our Vice President of Acquisitions, Ryan A. Bertucci, pursuant to the 2010 Equity Incentive Plan upon completion of this offering; (iii) the shares of common stock remaining available for future issuance under the 2010 Equity Incentive Plan after the stock awards to our independent directors and the option grants to our named executive officers, each of which is described above, have been made; and (iv) up to 10,100,000 shares of common stock issuable upon redemption of the 10,100,000 OP units to be issued by our operating partnership in the formation transactions. |
(2) | Includes all of the shares of common stock identified in the fourth sentence of footnote (1) above, and 10,100,000 OP units to be issued in the formation transactions to our predecessor’s former members and the former Class B and Class C members of Summit of Scottsdale in exchange for their membership interests in those entities. Pursuant to the limited partnership agreement of our operating partnership, limited partners, other than us, will have redemption rights which will enable them to cause our operating partnership to redeem their OP units in exchange for cash or, at our operating partnership’s option, shares of our common stock on a one-for-one basis. The number of shares of common stock issuable upon redemption of OP units may be adjusted upon the occurrence of certain events described under “Description of the Partnership Agreement—Redemption Rights.” |
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§ | the sale of shares of our common stock in this offering at $ per share, the mid-point of the anticipated IPO price range shown on the cover of this prospectus, and the sale of shares of our common stock in the concurrent private placement at $ per share, the mid-point of the anticipated IPO price range on the cover of this prospectus less the underwriting discount per share, for approximately $260.4 million of estimated net proceeds, after the deduction of the estimated underwriting discount of approximately $ million and the payment by us of approximately $3.6 million of estimated expenses related to this offering, the concurrent private placement and the formation transactions; |
§ | the merger of our predecessor with and into our operating partnership, with our predecessor as the acquirer for accounting purposes, and the issuance by our operating partnership of an aggregate of 9,993,992 OP units to the Class A, Class A-1, Class B and Class C members of our predecessor in exchange for their membership interests in our predecessor; |
§ | the contribution to our operating partnership of the Class B and Class C membership interests in Summit of Scottsdale held by The Summit Group and an unaffiliated third-party investor in exchange for an aggregate of 106,008 OP units; |
§ | the contribution of the net proceeds of this offering and the concurrent private placement to our operating partnership in exchange for OP units that represent an approximate % partnership interest in our operating partnership, including the sole general partnership interest; |
§ | the repayment or extinguishment of approximately $223.8 million of outstanding indebtedness and the payment of estimated costs and expenses of approximately $3.8 million in connection with the retirement of this indebtedness; and |
§ | the grant upon completion of this offering of an aggregate of 4,000 shares of our common stock to our independent directors and options to purchase an aggregate of 940,000 shares of our common stock to Messrs. Boekelheide, Hansen, Aniszewski, Becker and Bertucci pursuant to the 2010 Equity Incentive Plan. |
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Pro Forma | ||||
as of September 30, 2010 | ||||
(unaudited) | ||||
Cash and cash equivalents | $ | 35,836 | ||
Property and equipment, net | $ | 454,983 | ||
Total assets | $ | 534,173 | ||
Mortgages and notes payable | $ | 198,425 | ||
Total liabilities | $ | 212,357 | ||
Stockholders’ equity | $ | 256,260 | ||
Noncontrolling interest | $ | 65,556 | ||
Total liabilities and equity | $ | 534,173 |
Pro Forma | Pro Forma | |||||||
Nine Months Ended | Year Ended | |||||||
September 30, 2010 | December 31, 2009 | |||||||
(unaudited) | (unaudited) | |||||||
Statement of Operations Data: | ||||||||
Revenue | ||||||||
Room revenues | $ | 102,874 | $ | 118,960 | ||||
Other hotel operations revenues | 1,939 | 2,240 | ||||||
Total Revenue | 104,813 | 121,200 | ||||||
Expenses(1) | ||||||||
Hotel operating expenses: | ||||||||
Rooms | 30,677 | 36,720 | ||||||
Other direct | 13,068 | 18,048 | ||||||
Other indirect | 28,392 | 33,540 | ||||||
Other | 460 | 681 | ||||||
Total hotel operating expenses | 72,597 | 88,989 | ||||||
Depreciation and amortization | 20,094 | 23,088 | ||||||
Corporate general and administrative: | ||||||||
Salaries and other compensation | 2,950 | 3,933 | ||||||
Equity-based compensation | ||||||||
Other | 1,381 | 1,841 | ||||||
Hotel property acquisition costs | 130 | 1,389 | ||||||
Loss on impairment of assets | — | 7,506 | ||||||
Total expenses | 97,152 | 126,746 | ||||||
Income (loss) from operations | 7,661 | (5,546 | ) | |||||
Other Income (expense): | ||||||||
Interest income | 36 | 50 | ||||||
Interest expense | (7,770 | ) | (9,052 | ) | ||||
Loss on disposal of assets | (40 | ) | (4 | ) | ||||
Total other expense | (7,774 | ) | (9,006 | ) | ||||
Loss from continuing operations | (113 | ) | (14,552 | ) | ||||
Net loss before income taxes | (113 | ) | (14,552 | ) | ||||
Income tax expense | (770 | ) | (840 | ) | ||||
Net loss | $ | (883 | ) | $ | (15,392 | ) |
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Pro Forma | Pro Forma | |||||||
Nine Months Ended | Year Ended | |||||||
September 30, 2010 | December 31, 2009 | |||||||
(unaudited) | (unaudited) | |||||||
Net loss attributable to noncontrolling interest | $ | (309 | ) | $ | (5,387 | ) | ||
Net loss attributable to common stockholders | (574 | ) | (10,005 | ) | ||||
Pro forma net income (loss) per common share: | ||||||||
Basic | ||||||||
Diluted | ||||||||
Pro forma weighted-average number of shares outstanding: | ||||||||
Basic | ||||||||
Diluted | ||||||||
Other Data: | ||||||||
FFO(2) | $ | 19,211 | $ | 7,696 | ||||
EBITDA(3) | $ | 27,715 | $ | 17,538 |
(1) | Historically, our predecessor segregated its operating expenses (direct hotel operations expense, other hotel operating expense, general, selling and administrative expense and repairs and maintenance) from its other operating expenses, such as depreciation and amortization and impairment losses. Following completion of this offering, we intend to reclassify our operating expenses into categories of hotel operating expenses (room expenses, other direct expenses, other indirect expenses and other expenses) and reclassify our predecessor’s historical items of hotel operating expense to increase the comparability of our hotel operating expenses and our hotel operating results with those of other publicly traded hospitality REITs. Accordingly, historical balances included in our predecessor’s: |
§ | direct hotel operations expense related to (1) wages, payroll taxes and benefits, linens, cleaning and guestroom supplies and complimentary breakfast will be reclassified to rooms expense in our consolidated statements of operations and (2) franchise fees will be reclassified to other indirect expense in our consolidated statements of operations; | |
§ | other hotel operating expenses related to (1) utilities and telephone will be reclassified to other direct expenses in our consolidated statements of operations and (2) real and personal property taxes, insurance and cable will be reclassified to other indirect expenses in our consolidated statements of operations; | |
§ | general, selling and administrative expenses related to (1) office supplies, advertising, miscellaneous operating expenses and bad debt expense will be reclassified to other direct expenses in our consolidated statements of operations, (2) credit card/travel agent commissions, management company expenses, management company legal and accounting fees and franchise fees will be reclassified to other indirect expenses in our consolidated statements of operations, (3) hotel development and startup costs will be reclassified to hotel property acquisition costs in our consolidated statements of operations and (4) ground rent and other miscellaneous expenses will be reclassified to other expenses in our consolidated statements of operations; and | |
§ | repairs and maintenance will be reclassified to other direct expenses in our consolidated statements of operations. |
On a pro forma basis, the reclassification reduces total hotel operating expenses (direct hotel operations expense, other hotel operating expense, general, selling and administrative expense and repairs and maintenance) by $130,000 for the nine months ended September 30, 2010 and $1.4 million for the year ended December 31, 2009, which were reclassified to hotel operating costs. The reclassification does not impact amounts reported by our predecessor as total expenses (total hotel operating expenses, depreciation and amortization and loss on impairment of assets), income from operations, total other income, income (loss) from continuing operations, income (loss) from discontinued operations, net income (loss) before income taxes or net income (loss). See “Unaudited Pro Forma Condensed Consolidated Financial Statements” for additional information. |
(2) | As defined by the National Association of Real Estate Investment Trusts, or NAREIT, funds from operations, or FFO, represents net income or loss (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization (excluding amortization of deferred financing costs). We present FFO because we consider it an important supplemental measure of our operational performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy, room rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. Further, FFO does not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. FFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. |
We caution investors that amounts presented in accordance with our definitions of FFO may not be comparable to similar measures disclosed by other companies, since not all companies calculate this non-GAAP measure in the same manner. FFO should not be considered as an alternative measure of our net income (loss) or operating performance. FFO may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. Although we believe that FFO can enhance your understanding of our financial condition and results of operations, this non-GAAP financial measure is not necessarily a better indicator of any trend as compared to a comparable GAAP measure such as net income (loss). Below, we include a quantitative |
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reconciliation of pro forma FFO to the most directly comparable GAAP financial performance measure, which is pro forma net income (loss) (dollars in thousands): |
Pro Forma | Pro Forma | |||||||
Nine Months Ended | Year Ended | |||||||
September 30, 2010 | December 31, 2009 | |||||||
Net loss | $ | (883 | ) | $ | (15,392 | ) | ||
Depreciation and amortization | 20,094 | 23,088 | ||||||
FFO | $ | 19,211 | $ | 7,696 | ||||
(3) | EBITDA represents net income or loss, excluding: (i) interest, (ii) income tax expense and (iii) depreciation and amortization. We believe EBITDA is useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our asset base (primarily depreciation and amortization) from our operating results. Our management also uses EBITDA as one measure in determining the value of acquisitions and dispositions. | |
We caution investors that amounts presented in accordance with our definitions of EBITDA may not be comparable to similar measures disclosed by other companies, since not all companies calculate this non-GAAP measure in the same manner. EBITDA should not be considered as an alternative measure of our net income (loss) or operating performance. EBITDA may include funds that may not be available for our discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions and other commitments and uncertainties. Although we believe that EBITDA can enhance your understanding of our financial condition and results of operations, this non-GAAP financial measure is not necessarily a better indicator of any trend as compared to a comparable GAAP measure such as net income (loss). Below, we include a quantitative reconciliation of pro forma EBITDA to the most directly comparable GAAP financial performance measure, which is pro forma net income (loss) (dollars in thousands): |
Pro Forma | Pro Forma | |||||||
Nine Months Ended | Year Ended | |||||||
September 30, 2010 | December 31, 2009 | |||||||
Net loss | $ | (883 | ) | $ | (15,392 | ) | ||
Interest income | (36 | ) | (50 | ) | ||||
Interest expense | 7,770 | 9,052 | ||||||
Income tax expense | 770 | 840 | ||||||
Depreciation and amortization | 20,094 | 23,088 | ||||||
EBITDA | $ | 27,715 | $ | 17,538 | ||||
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§ | we may be unable to acquire or may be forced to acquire at significantly higher prices desired hotels because of competition from other real estate investors with more capital, including other real estate operating companies, REITs and investment funds; | |
§ | we may be unable to obtain the necessary debt or equity financing to consummate an acquisition or, if obtainable, financing may not be on satisfactory terms; and | |
§ | agreements for the acquisition of hotels are typically subject to customary conditions to closing, including satisfactory completion of due diligence investigations, and we may spend significant time and money on potential acquisitions that we do not consummate. |
§ | we may not possess the same level of familiarity with the dynamics and market conditions of any new markets that we may enter, which could result in us paying too much for hotels in new markets; |
§ | market conditions may result in lower than expected occupancy and room rates; |
§ | we may acquire hotels without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as clean-up of environmental contamination, claims by tenants, vendors or other persons against the former owners of the hotels and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the hotels. | |
§ | we may need to spend more than budgeted amounts to make necessary improvements or renovations to our newly acquired hotels; and | |
§ | we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of hotels, into our existing operations. |
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§ | require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing our cash flow available to fund working capital, capital expenditures and other general corporate purposes, including to pay dividends on our common stock as currently contemplated or necessary to satisfy the requirements for qualification as a REIT; | |
§ | increase our vulnerability to general adverse economic and industry conditions and limit our flexibility in planning for, or reacting to, changes in our business and our industry; | |
§ | limit our ability to borrow additional funds or refinance indebtedness on favorable terms or at all to expand our business or ease liquidity constraints; and | |
§ | place us at a competitive disadvantage relative to competitors that have less indebtedness. |
§ | merge, consolidate or transfer all or substantially all of our or our subsidiaries’ assets; | |
§ | sell, transfer, pledge or encumber our stock or the ownership interests of our subsidiaries; | |
§ | incur additional debt or issue preferred stock; | |
§ | enter into, terminate or modify leases for our hotels and hotel management and franchise agreements; | |
§ | make certain expenditures, including capital expenditures; | |
§ | pay dividends on or repurchase our capital stock; and | |
§ | enter into certain transactions with affiliates. |
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§ | prevent us from taking actions that are opposed by our joint venture partners; |
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§ | create impasses on major decisions, such as acquisitions or sales; | |
§ | prevent us from selling our interests in the joint venture without the consent of our joint venture partners; or | |
§ | subject us to liability for the actions of our joint venture partners. |
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§ | over-building of hotels in our markets, which could adversely affect occupancy and revenues at the hotels we acquire; | |
§ | adverse effects of international, national, regional and local economic and market conditions; and | |
§ | changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances. |
§ | dependence on business and commercial travelers and tourism; | |
§ | increases in energy costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists; | |
§ | increases in operating costs due to inflation and other factors that may not be offset by increased room rates; | |
§ | events beyond our control, such as terrorist attacks, travel related health concerns including pandemics and epidemics such as H1N1 influenza (swine flu), avian bird flu and severe acute respiratory syndrome, or SARS, imposition of taxes or surcharges by regulatory authorities, travel-related accidents and unusual weather patterns, including natural disasters such as hurricanes and environmental disasters such as the oil spill in the Gulf of Mexico; | |
§ | potential increases in labor costs at our hotels, including as a result of unionization of the labor force; and | |
§ | adverse effects of a downturn in the lodging industry. |
§ | possible environmental problems; | |
§ | construction cost overruns and delays; | |
§ | a possible shortage of available cash to fund capital improvements and replacements and, the related possibility that financing for these capital improvements may not be available to us on affordable terms; |
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§ | these capital improvements and replacements may not prove to be accretive to FFO; and | |
§ | uncertainties as to market demand or a loss of market demand after capital improvements and replacements have begun. |
§ | possible environmental problems; | |
§ | construction delays or cost overruns that may increase project costs; | |
§ | receipt of zoning, occupancy and other required governmental permits and authorizations; | |
§ | development costs incurred for projects that are not pursued to completion; | |
§ | acts of God such as earthquakes, hurricanes, floods or fires that could adversely impact a project; | |
§ | inability to raise capital; and | |
§ | governmental restrictions on the nature or size of a project. |
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§ | adverse changes in international, national, regional and local economic and market conditions; | |
§ | changes in interest rates and in the availability, cost and terms of debt financing; | |
§ | changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances; | |
§ | the ongoing need for capital improvements, particularly in older structures, that may require us to expend funds to correct defects or to make improvements before an asset can be sold; | |
§ | changes in operating expenses; and | |
§ | civil unrest, acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses, and acts of war or terrorism, including the consequences of the terrorist acts such as those that occurred on September 11, 2001. |
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§ | “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of us who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding stock) or an affiliate of any interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super- |
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majority stockholder voting requirements on these combinations, unless, among other conditions, our common stockholders receive a minimum price, as defined in the MGCL, for their stock and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares; and |
§ | “control share” provisions that provide that our “control shares” (defined as voting shares of stock which, when aggregated with all other shares of stock controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding shares owned by the acquirer, by our officers or by our employees who are also directors of our company. |
§ | actual receipt of an improper benefit or profit in money, property or services; or | |
§ | active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated. |
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§ | a limited availability of market quotations for our securities; | |
§ | reduced liquidity with respect to our securities; | |
§ | a determination that our common stock is “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for the common stock; |
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§ | a limited amount of news and analyst coverage; and | |
§ | a decreased ability to issue additional securities or obtain additional financing in the future. |
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§ | actual or anticipated variations in our quarterly results of operations; | |
§ | changes in market valuations of companies in the lodging industry; | |
§ | changes in expectations of future financial performance or changes in estimates of securities analysts; | |
§ | fluctuations in stock market prices and volumes; | |
§ | our issuances of common stock or other securities in the future; | |
§ | the inclusion of our common stock in equity indices, which could induce additional purchases; | |
§ | the addition or departure of key personnel; | |
§ | announcements by us or our competitors of acquisitions, investments or strategic alliances; and | |
§ | unforeseen events beyond our control, such as terrorist attacks, travel related health concerns including pandemics and epidemics such as H1N1 influenza (swine flu), avian bird flu and SARS, political instability, regional hostilities, increases in fuel prices, imposition of taxes or surcharges by regulatory authorities and travel-related accidents and unusual weather patterns, including natural disasters such as hurricanes. |
§ | the history of, and prospects for, us and the industry in which we compete; | |
§ | an assessment of our management; | |
§ | the prospects for our future earnings; | |
§ | the prevailing conditions of the applicable United States securities market at the time of this offering; | |
§ | market valuations of publicly traded companies that we and the underwriters believe to be comparable to us; and | |
§ | other factors as were deemed relevant. |
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§ | we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to federal income tax at regular corporate rates; | |
§ | we could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and | |
§ | unless we are entitled to relief under certain federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT. |
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§ | use of the proceeds of this offering and the concurrent private placement; |
§ | the state of the U.S. economy generally or in specific geographic regions in which we operate, and the effect of general economic conditions on the lodging industry in particular; | |
§ | market trends in our industry, interest rates, real estate values and the capital markets; | |
§ | our business and investment strategy and, particularly, our ability to identify and complete hotel acquisitions; | |
§ | our projected operating results; | |
§ | actions and initiatives of the U.S. government and changes to U.S. government policies and the execution and impact of these actions, initiatives and policies; | |
§ | our ability to manage our relationships with Interstate and other management companies, as well as franchisors; |
§ | our ability to obtain a secured revolving credit facility on the indicative terms and conditions described in this prospectus or at all and our ability to maintain our existing and future financing arrangements; |
§ | changes in the value of our properties; | |
§ | impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; | |
§ | our ability to satisfy the requirements for qualification as a REIT under the Code; | |
§ | availability of qualified personnel; | |
§ | estimates relating to our ability to make distributions to our stockholders in the future; | |
§ | general volatility of the market price of our common stock; and | |
§ | degree and nature of our competition. |
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Outstanding Principal | ||||||||||
Balance as of | ||||||||||
Indebtedness to be Repaid | September 30, 2010 | Interest Rate(1) | Maturity Date | |||||||
Fortress Credit Corp. | $ | 86,075,691 | (2) | 30-day LIBOR + 8.75%(3) | March 5, 2011 | |||||
Lehman Brothers Bank | 77,380,701 | (4) | 5.40% | January 11, 2012 | ||||||
Marshall & Ilsley Bank | 21,420,178 | 30-day LIBOR + 3.90% | December 31, 2010 | |||||||
First National Bank of Omaha | 18,902,762 | 90-day LIBOR + 4.00%(5) | July 31, 2011 | |||||||
First National Bank of Omaha | 19,992,785 | (6) | 90-day LIBOR + 4.00%(5) | July 31, 2011 | ||||||
Total | $ | 223,772,117 | (7) | |||||||
(1) | As of September 30, 2010, the 30-day LIBOR rate was 0.26% and the 90-day LIBOR rate was 0.29%. |
(2) | We will be required to pay an exit fee equal to 1.0% of the outstanding principal balance of the Fortress Credit Corp. indebtedness being repaid. We estimate that the exit fee will be approximately $0.9 million. After December 31, 2010, the exit fee increases to 1.5% of the outstanding principal balance. From September 8, 2009 to November 30, 2010, we borrowed an aggregate of approximately $4.2 million of this indebtedness from Fortress to pay accrued interest under the Fortress loans. |
(3) | Interest is paid monthly at the 30-day LIBOR rate plus 5.75%, and additional interest accrues at the annual rate of 30-day LIBOR plus 3.00% and is deferred until the maturity date. As a result, the outstanding principal balance will increase prior to the date of repayment. | |
(4) | We will be required to pay a extinguishment premium and other transaction costs in an amount estimated to be approximately $2.9 million in connection with the extinguishment of the Lehman Brothers Bank indebtedness. | |
(5) | Subject to a minimum interest rate of 5.5%. |
(6) | On December 31, 2009, we borrowed approximately $12.9 million of this indebtedness from First National Bank of Omaha to fund construction costs of our AloftSM hotel in Jacksonville, Florida. |
(7) | Excludes approximately $3.8 million of prepayment and related fees as described in footnotes (2) and (4) above to be paid with the net proceeds of this offering and the concurrent private placement. |
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§ | our predecessor’s historical capitalization as of September 30, 2010; and |
§ | our capitalization as of September 30, 2010 on a pro forma basis, after giving effect to the repurchase, for $1,000 upon the closing of this offering, of 1,000 shares of common stock purchased by our Executive Chairman, Mr. Boekelheide, in connection with our initial capitalization for $1,000, the formation transactions, including this offering and the concurrent private placement, and the application of the net proceeds from this offering and the concurrent private placement as described in “Use of Proceeds,” as if each of them had occurred on September 30, 2010. |
As of September 30, 2010 | ||||||||
Historical | ||||||||
Summit Hotel | Pro Forma | |||||||
Properties, LLC | Summit Hotel | |||||||
(our predecessor) | Properties, Inc. | |||||||
(unaudited) | ||||||||
(dollars in thousands) | ||||||||
Mortgages and notes payable, including current portion | $ | 422,198 | $ | |||||
Common stock, $0.01 par value, 1,000 shares authorized, issued and outstanding, historical; 500,000,000 shares authorized, shares issued and outstanding, pro forma | — | (1 | ) | |||||
Preferred stock, $0.01 par value, no shares authorized, issued and outstanding, historical; 100,000,000 shares authorized, no shares issued and outstanding, pro forma | — | — | ||||||
Additional paid-in capital | — | |||||||
Members’ equity | 75,463 | — | ||||||
Noncontrolling interest of our predecessor’s consolidated subsidiaries | (1,624 | ) | — | |||||
Noncontrolling interest in our operating partnership | — | |||||||
Total members’ equity/stockholders’ equity | 73,839 | |||||||
Total capitalization | $ | 496,037 | $ | |||||
(1) | Includes: (i) shares of common stock to be sold in this offering; (ii) shares of common stock to be sold in the concurrent private placement; and (iii) an aggregate of 4,000 shares of common stock to be issued to our independent director nominees pursuant to the 2010 Equity Incentive Plan upon completion of this offering. Excludes: (i) up to shares of common stock issuable by us upon exercise of the underwriters’ over-allotment option; (ii) an aggregate of 940,000 shares of common stock issuable upon exercise of options that we will grant to Messrs. Boekelheide, Hansen, Aniszewski, Becker and Bertucci pursuant to the 2010 Equity Incentive Plan upon completion of this offering; (iii) the shares of common stock remaining available for future issuance under the 2010 Equity Incentive Plan after the stock awards to our independent directors and the option grants to our named executive officers, each of which is described above, have been made; and (iv) up to 10,100,000 shares of common stock issuable upon redemption of the 10,100,000 OP units to be issued by our operating partnership in the formation transactions. |
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Assumed IPO price per share | $ | |||
Pro forma net tangible book value per share as of September 30, 2010, after giving effect to the formation transactions, but before this offering and the concurrent private placement(1) | ||||
Increase in pro forma net tangible book value per share attributable to this offering | ||||
Increase in pro forma net tangible book value per share attributable to the concurrent private placement | ||||
Pro forma net tangible book value per share after the formation transactions, this offering and the concurrent private placement(2) | ||||
Dilution in pro forma net tangible book value per share to new investors(3) | $ | |||
(1) | Represents pro forma net tangible book value as of September 30, 2010, after giving effect to the formation transactions, but before this offering and the concurrent private placement, of approximately $73.8 million, divided by the sum of (i) 10,100,000 shares of our common stock, which assumes the 10,100,000 OP units to be issued in the formation transactions to the members of our predecessor and the Class B and Class C members of Summit of Scottsdale are redeemed for shares of our common stock on a one-for-one basis, and (ii) 1,000 shares of common stock purchased by our Executive Chairman, Mr. Boekelheide, in connection with our initial capitalization for $1,000, all of which will be repurchased for $1,000 upon the closing of this offering. |
(2) | Represents pro forma net tangible book value as of September 30, 2010, after giving effect to the formation transactions, this offering, the concurrent private placement, the deduction of the underwriting discount and the payment of estimated expenses related to this offering and the formation transactions of approximately $ million, divided by the sum of (i) shares of our common stock to be sold in this offering, (ii) shares of our common stock to be sold in the concurrent private placement, (iii) 10,100,000 shares of our common stock, which assumes the 10,100,000 OP units to be issued in the formation transactions to the members of our predecessor and the Class B and Class C members of Summit of Scottsdale are redeemed for shares of our common stock on a one-for-one basis, and (iv) an aggregate of 4,000 shares of our common stock to be granted to our independent directors upon completion of this offering pursuant to the 2010 Equity Incentive Plan. The pro forma total number of shares of our common stock outstanding after the formation transactions, this offering and the concurrent private placement excludes: (i) up to shares of our common stock issuable upon exercise of the underwriters’ over-allotment option and (ii) an aggregate of 940,000 shares of our common stock issuable upon exercise of options to be granted to Messrs. Boekelheide, Hansen, Aniszewski, Becker and Bertucci pursuant to the 2010 Equity Incentive Plan upon completion of this offering. |
(3) | Dilution is determined by subtracting pro forma net tangible book value per share after the formation transactions, this offering and the concurrent private placement from the assumed IPO price per share paid by a new investor for a share of our common stock. |
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§ | the number of OP units to be received by our predecessor’s members and the Class B and Class C members of Summit of Scottsdale, or the continuing investors, in the formation transactions, the number of shares of common stock to be received by the affiliate of IHG purchasing shares in the concurrent private placement and the number of shares of common stock to be received by the new investors purchasing shares in this offering; and |
§ | the total consideration paid and the average price per OP unit paid by the continuing investors (based on the net tangible book value of the assets being acquired by our operating partnership in the formation transactions) and the total consideration paid and the average price per share paid by each of the affiliate of IHG purchasing shares in the concurrent private placement and the new investors purchasing shares in this offering. |
Net Tangible | ||||||||||||||||||||
Book Value of | Average | |||||||||||||||||||
OP Units/ Shares Issued | Contribution/Cash | Price per | ||||||||||||||||||
Number | Percentage(1) | Amount | Percentage | Share/OP Unit | ||||||||||||||||
Continuing investors | (2) | (3) | ||||||||||||||||||
Concurrent private placement purchaser | (4) | |||||||||||||||||||
New investors | (5) | |||||||||||||||||||
Total | ||||||||||||||||||||
(1) | Represents the percentage of the total number of shares of common stock to be outstanding upon completion of the formation transactions, this offering and the concurrent private placement and assumes all of the 10,100,000 OP units to be issued to the continuing investors in the formation transactions are redeemed for shares of our common stock on a one-for-one basis. |
(2) | Includes: (i) 10,100,000 shares of common stock, assuming all of the 10,100,000 OP units to be issued to the continuing investors in the formation transactions are redeemed for shares of our common stock on a one-for-one basis and (ii) an aggregate of 4,000 shares of common stock to be issued to our independent directors upon completion of this offering pursuant to the 2010 Equity Incentive Plan. Excludes 940,000 shares of our common stock issuable upon exercise of options to be granted to Messrs. Boekelheide, Hansen, Aniszewski, Becker and Bertucci pursuant to the 2010 Equity Incentive Plan upon completion this offering. |
(3) | Represents pro forma net tangible book value as of September 30, 2010 of the assets being acquired by our operating partnership in the formation transactions. |
(4) | Represents the aggregate offering price of the shares to be sold in the concurrent private placement. |
(5) | Represents the aggregate IPO price of the shares to be sold in this offering. |
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§ | actual results of operations; | |
§ | our level of retained cash flows; |
§ | the timing of the investment of the net proceeds of this offering and the concurrent private placement; |
§ | any debt service requirements; | |
§ | capital expenditure requirements for our properties; | |
§ | our taxable income; | |
§ | the annual distribution requirements under the REIT provisions of the Code; and | |
§ | other factors that our board of directors may deem relevant. |
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§ | income and cash flows from operations for the twelve months ended December 31, 2009 is substantially the same for the twelve months ended September 30, 2010, with the exception of increases in contractual ground rent; |
§ | cash flows used in investing activities will be the contractually committed and planned amounts for the twelve months ending September 30, 2011; and |
§ | cash flows used in financing activities will be the contractually committed amounts for the twelve months ending September 30, 2011. |
Pro forma net income for the year ended December 31, 2009 | $ | (15,392 | ) | |
Less: Pro forma net income for the nine months ended September 30, 2009 | 8,907 | |||
Add: Pro forma net income for the nine months ended September 30, 2010 | (883 | ) | ||
Pro forma net income for the twelve months ended September 30, 2010 | (7,368 | ) | ||
Add: Pro forma depreciation and amortization for the twelve months ended September 30, 2010 | 26,431 | |||
Add: Pro forma non-cash straight line ground rent expense for the twelve months ended September 30, 2010(1) | 119 | |||
Add: Pro forma amortization of deferred financing costs for the twelve months ended September 30, 2010(2) | — | |||
Add: Pro forma loss on impairment of assets(3) | 1,001 | |||
Add: Pro forma loss (gain) on disposal of assets(4) | 40 | |||
Add: Pro forma hotel property acquisition costs(5) | 453 | |||
Less: Pro forma increase in contractual ground rent expense for the twelve months ended September 30, 2010(6) | — | |||
Add: Pro forma non-cash amortization of stock and option awards for the twelve months ended September 30, 2010(7) | ||||
Estimated cash flows from operating activities for the twelve months ending September 30, 2011 | 20,676 | |||
Estimated cash flows used in investing activities—required capital expenditure reserve contributions(8) | (5,744 | ) | ||
Estimated cash flows used in financing activities—scheduled principal payments on debt payable(9) | (6,090 | ) | ||
Estimated cash available for distribution for the twelve months ending September 30, 2011 | $ | 8,842 | ||
Our share of cash available for distribution | ||||
Noncontrolling interests’ share of cash available for distribution | ||||
Total estimated initial annual distribution | $ | 8,842 | ||
Estimated initial annual distribution per share(10) | $ | |||
Payout ratio based on cash available for distribution | 100 | % | ||
(1) | Represents non-cash item recorded as an operating expense. | |
(2) | Represents non-cash item recorded as interest expense. | |
(3) | Represents non-cash item recorded as loss on impairment of assets. | |
(4) | Represents non-cash item recorded on the disposal of assets. | |
(5) | Represents hotel property acquisition costs funded with loan or equity proceeds. | |
(6) | Represents estimated higher ground rent expense pursuant to existing ground lease agreement. | |
(7) | Represents non-cash compensation recorded as an administrative and general corporate expense. | |
(8) | Estimated amount based on the amount of reserves required pursuant to management, franchise and loan agreements, at 4% of the revenues of each hotel. | |
(9) | Estimated amount based on pro forma indebtedness to be outstanding following completion of this offering. | |
(10) | Represents the aggregate amount of the estimated intended annual distribution divided by the shares of common stock that will be outstanding upon completion of this offering. The number of shares to be outstanding upon completion of this offering excludes shares of common stock that may be issued by us upon exercise of the underwriters’ overallotment option or upon exercise of options or redemption of OP units. |
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Pro Forma* | Historical | Pro Forma* | Historical | |||||||||||||||||||||||||||||||||
Nine | ||||||||||||||||||||||||||||||||||||
Months | Year | |||||||||||||||||||||||||||||||||||
Ended | Nine Months Ended | Ended | ||||||||||||||||||||||||||||||||||
September 30, | September 30, | December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||
2010 | 2010 | 2009 | 2009 | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (restated) | ||||||||||||||||||||||||||||||||
(dollars in thousands, except statistical data) | ||||||||||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||
Room revenues | $ | 102,874 | $ | 102,874 | $ | 91,096 | $ | 118,960 | $ | 118,960 | $ | 132,797 | $ | 112,044 | $ | 99,009 | $ | 71,025 | ||||||||||||||||||
Other hotel operations revenues | 1,939 | 1,939 | 1,708 | 2,240 | 2,240 | 2,310 | 1,845 | 1,653 | 1,301 | |||||||||||||||||||||||||||
Total revenue | 104,813 | 104,813 | 92,804 | 121,200 | 121,200 | 135,107 | 113,889 | 100,662 | 72,326 | |||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||
Direct hotel operations | – | 35,351 | 31,415 | – | 42,071 | 42,381 | 35,021 | 31,036 | 22,143 | |||||||||||||||||||||||||||
Other hotel operating expenses | – | 14,056 | 12,564 | – | 16,987 | 15,186 | 11,980 | 10,589 | 7,982 | |||||||||||||||||||||||||||
General, selling and administrative | – | 18,810 | 17,862 | – | 24,017 | 25,993 | 22,009 | 18,038 | 12,786 | |||||||||||||||||||||||||||
Repairs and maintenance | – | 3,396 | 5,049 | – | 6,152 | 8,009 | 10,405 | 8,157 | 3,741 | |||||||||||||||||||||||||||
Rooms | 30,677 | – | – | 36,720 | – | – | – | – | – | |||||||||||||||||||||||||||
Other direct | 13,068 | – | – | 18,048 | – | – | – | – | – | |||||||||||||||||||||||||||
Other indirect | 28,392 | – | – | 33,540 | – | – | – | – | – | |||||||||||||||||||||||||||
Other | 460 | – | – | 681 | – | – | – | – | – | |||||||||||||||||||||||||||
Total hotel operating expenses | 72,597 | 71,613 | 66,890 | 88,989 | 89,227 | 91,569 | 79,415 | 67,820 | 46,652 | |||||||||||||||||||||||||||
Depreciation and amortization | 20,094 | 20,328 | 16,985 | 23,088 | 23,971 | 22,307 | 16,136 | 13,649 | 9,891 | |||||||||||||||||||||||||||
Corporate general and administrative | 4,331 | – | – | 5,774 | – | – | – | – | – | |||||||||||||||||||||||||||
Salaries and other compensation | – | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||
Equity-based compensation | – | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||
Other | – | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||
Hotel property acquisition costs | 130 | – | – | 1,389 | – | – | – | – | – | |||||||||||||||||||||||||||
Loss on impairment of assets | – | – | 6,505 | 7,506 | 7,506 | – | – | – | – | |||||||||||||||||||||||||||
Total expenses | 97,152 | 91,941 | 90,380 | 126,746 | 120,704 | 113,876 | 95,551 | 81,469 | 56,543 | |||||||||||||||||||||||||||
Income from operations | 7,661 | 12,872 | 2,424 | (5,546 | ) | 496 | 21,231 | 18,338 | 19,193 | 15,783 | ||||||||||||||||||||||||||
Other Income (expense): | ||||||||||||||||||||||||||||||||||||
Interest income | 36 | 36 | 29 | 50 | 50 | 195 | 446 | 605 | 278 | |||||||||||||||||||||||||||
Interest expense | (7,770 | ) | (19,520 | ) | (12,639 | ) | (9,052 | ) | (18,321 | ) | (17,025 | ) | (14,214 | ) | (11,135 | ) | (7,934 | ) | ||||||||||||||||||
Loss on disposal of assets | (40 | ) | (40 | ) | (4 | ) | (4 | ) | (4 | ) | (390 | ) | (652 | ) | (749 | ) | (155 | ) | ||||||||||||||||||
Total other expense | (7,774 | ) | (19,524 | ) | (12,614 | ) | (9,006 | ) | (18,275 | ) | (17,220 | ) | (14,420 | ) | (11,279 | ) | (7,811 | ) | ||||||||||||||||||
Income (loss) from continuing operations | (113 | ) | (6,652 | ) | (10,190 | ) | (14,552 | ) | (17,779 | ) | 4,011 | 3,918 | 7,914 | 7,972 | ||||||||||||||||||||||
Income (loss) from discontinued operations | – | – | 1,465 | – | 1,465 | 10,278 | 11,587 | 2,728 | (3,118 | ) | ||||||||||||||||||||||||||
Net income (loss) before income taxes | (113 | ) | (6,652 | ) | (8,725 | ) | (14,552 | ) | (16,314 | ) | 14,289 | 15,505 | 10,642 | 4,854 | ||||||||||||||||||||||
Income tax expense | (770 | ) | (273 | ) | (20 | ) | (840 | ) | – | (826 | ) | (715 | ) | (539 | ) | (827 | ) | |||||||||||||||||||
Net income (loss) | (883 | ) | (6,925 | ) | (8,745 | ) | (15,392 | ) | (16,314 | ) | 13,463 | 14,790 | 10,103 | 4,027 | ||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interest | (309 | ) | – | (207 | ) | (5,387 | ) | – | 384 | 778 | 661 | 352 | ||||||||||||||||||||||||
Net income (loss) attributable to Summit Hotel Properties, LLC | $ | (574 | ) | $ | (6,925 | ) | $ | (8,952 | ) | $ | (10,005 | ) | $ | (16,314 | ) | $ | 13,079 | $ | 14,012 | $ | 9,442 | $ | 3,675 | |||||||||||||
Balance Sheet Data (as of period end): | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 35,836 | $ | 11,247 | $ | 8,239 | $ | 18,153 | $ | 7,776 | $ | 7,999 | $ | 7,340 | ||||||||||||||||||||||
Property and equipment, net | $ | 454,983 | $ | 454,983 | $ | 482,767 | $ | 461,894 | $ | 426,494 | $ | 331,707 | $ | 288,486 | ||||||||||||||||||||||
Other assets | $ | 31,556 | $ | 32,880 | ||||||||||||||||||||||||||||||||
Total assets | $ | 534,173 | $ | 509,969 | $ | 518,246 | $ | 494,755 | $ | 447,990 | $ | 355,959 | $ | 317,278 | ||||||||||||||||||||||
Mortgages and notes payable | $ | 198,425 | $ | 422,198 | $ | 426,182 | $ | 390,094 | $ | 336,659 | $ | 237,074 | $ | 196,162 | ||||||||||||||||||||||
Total liabilities | $ | 212,357 | $ | 436,130 | $ | 436,947 | $ | 406,994 | $ | 352,298 | $ | 249,248 | $ | 207,009 | ||||||||||||||||||||||
Members’/stockholders’ equity | $ | 256,260 | $ | 75,463 | $ | 82,923 | $ | 89,385 | $ | 97,395 | $ | 108,222 | $ | 111,472 | ||||||||||||||||||||||
Noncontrolling interest | $ | 65,556 | $ | (1,624 | ) | $ | (1,624 | ) | $ | (1,624 | ) | $ | (1,703 | ) | $ | (1,511 | ) | $ | (1,203 | ) | ||||||||||||||||
Total liabilities and equity | $ | 534,173 | $ | 509,969 | $ | 518,246 | $ | 494,755 | $ | 447,990 | $ | 355,959 | $ | 317,278 | ||||||||||||||||||||||
Other Data (unaudited): | ||||||||||||||||||||||||||||||||||||
FFO(1) | $ | 19,211 | $ | 13,403 | $ | 8,394 | $ | 7,696 | $ | 6,514 | $ | 27,886 | $ | 23,297 | $ | 25,511 | $ | 17,023 | ||||||||||||||||||
EBITDA(2) | $ | 27,715 | $ | 33,160 | $ | 21,024 | $ | 17,538 | $ | 26,082 | $ | 54,147 | $ | 48,160 | $ | 37,820 | $ | 25,506 | ||||||||||||||||||
Statistical Data (unaudited): | ||||||||||||||||||||||||||||||||||||
Average room count | 6,533 | 5,956 | 6,079 | 5,725 | 5,647 | 5,426 | 4,570 | |||||||||||||||||||||||||||||
Ending number of hotels | 65 | 63 | 65 | 62 | 64 | 60 | 60 | |||||||||||||||||||||||||||||
Occupancy | 65.6 | % | 64.1 | % | 61.9 | % | 66.2 | % | 66.9 | % | 69.7 | % | 68.9 | % | ||||||||||||||||||||||
ADR | $ | 87.88 | $ | 88.42 | $ | 87.40 | $ | 100.95 | $ | 96.20 | $ | 88.57 | $ | 80.62 | ||||||||||||||||||||||
RevPAR | $ | 57.68 | $ | 56.71 | $ | 54.12 | $ | 66.78 | $ | 64.37 | $ | 61.77 | $ | 55.53 |
50
* | Historically, our predecessor segregated its operating expenses (direct hotel operations expense, other hotel operating expense, general, selling and administrative expense and repairs and maintenance) from its other operating expenses, such as depreciation and amortization and impairment losses. Following completion of this offering, we intend to reclassify our operating expenses into categories of hotel operating expenses (room expenses, other direct expenses, other indirect expenses and other expenses) and reclassify our predecessor’s historical items of hotel operating expense to increase the comparability of our hotel operating expenses and our hotel operating results with other publicly traded hospitality REITs. Accordingly, historical balances included in our predecessor’s: |
§ | direct hotel operations expense related to (1) wages, payroll taxes and benefits, linens, cleaning and guestroom supplies and complimentary breakfast will be reclassified to rooms expense in our consolidated statements of operations and (2) franchise fees will be reclassified to other indirect expense in our consolidated statements of operations; | |
§ | other hotel operating expenses related to (1) utilities and telephone will be reclassified to other direct expenses in our consolidated statements of operations and (2) real and personal property taxes, insurance and cable will be reclassified to other indirect expenses in our consolidated statements of operations; | |
§ | general, selling and administrative expenses related to (1) office supplies, advertising, miscellaneous operating expenses and bad debt expense will be reclassified to other direct expenses in our consolidated statements of operations, (2) credit card/travel agent commissions, management company expenses, management company legal and accounting fees and franchise fees will be reclassified to other indirect expenses in our consolidated statements of operations, (3) hotel development and startup costs will be reclassified to hotel property acquisition costs in our consolidated statements of operations and (4) ground rent and other miscellaneous expenses will be reclassified to other expenses in our consolidated statements of operations; and | |
§ | repairs and maintenance will be reclassified to other direct expenses in our consolidated statements of operations. |
(1) | Below, we include a quantitative reconciliation of historical FFO to the most directly comparable GAAP financial performance measure, which is net income (loss) (dollars in thousands): |
Pro Forma | ||||||||||||||||||||||||||||||||||||
Nine Months | Pro Forma | |||||||||||||||||||||||||||||||||||
Ended | Historical | Year Ended | Historical | |||||||||||||||||||||||||||||||||
September 30, | Nine Months Ended September 30, | December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||
2010 | 2010 | 2009 | 2009 | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||
(restated) | ||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | (883 | ) | $ | (6,925 | ) | $ | (8,745 | ) | $ | (15,392 | ) | $ | (16,314 | ) | $ | 13,463 | $ | 14,790 | $ | 10,103 | $ | 4,027 | |||||||||||||
(Gain) on disposition of assets | – | – | – | – | (1,297 | ) | (8,605 | ) | (10,380 | ) | (1,240 | ) | – | |||||||||||||||||||||||
Depreciation and amortization | 20,094 | 20,328 | 17,139 | 23,088 | 24,125 | 23,028 | 18,887 | 16,648 | 12,996 | |||||||||||||||||||||||||||
FFO | $ | 19,211 | $ | 13,403 | $ | 8,394 | $ | 7,696 | $ | 6,514 | $ | 27,886 | $ | 23,297 | $ | 25,511 | $ | 17,023 | ||||||||||||||||||
�� |
(2) | Below, we include a quantitative reconciliation of EBITDA to the most directly comparable GAAP financial performance measure, which is net income (loss). |
Pro Forma | Historical | Pro Forma | Historical | |||||||||||||||||||||||||||||||||
Nine | Nine | |||||||||||||||||||||||||||||||||||
Months | Months | Year | ||||||||||||||||||||||||||||||||||
Ended | Ended | Ended | ||||||||||||||||||||||||||||||||||
September 30, | September 30, | December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||
2010 | 2010 | 2009 | 2009 | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||
(restated) | ||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | (883 | ) | $ | (6,925 | ) | $ | (8,745 | ) | $ | (15,392 | ) | $ | (16,314 | ) | $ | 13,463 | $ | 14,790 | $ | 10,103 | $ | 4,027 | |||||||||||||
Depreciation and amortization | 20,094 | 20,328 | 17,139 | 23,088 | 24,125 | 23,028 | 18,887 | 16,648 | 12,996 | |||||||||||||||||||||||||||
Interest expense | 7,770 | 19,520 | 12,639 | 9,052 | 18,321 | 17,025 | 14,214 | 11,135 | 7,934 | |||||||||||||||||||||||||||
Interest income | (36 | ) | (36 | ) | (29 | ) | (50 | ) | (50 | ) | (195 | ) | (446 | ) | (605 | ) | (278 | ) | ||||||||||||||||||
Income taxes | 770 | 273 | 20 | 840 | – | 826 | 715 | 539 | 827 | |||||||||||||||||||||||||||
EBITDA | $ | 27,715 | $ | 33,160 | $ | 21,024 | $ | 17,538 | $ | 26,082 | $ | 54,147 | $ | 48,160 | $ | 37,820 | $ | 25,506 | ||||||||||||||||||
51
Financial Condition and Results of Operations
52
§ | direct hotel operations expense related to (1) wages, payroll taxes and benefits, linens, cleaning and guestroom supplies and complimentary breakfast will be reclassified to rooms expense in our consolidated statements of operations and (2) franchise fees will be reclassified to other indirect expense in our consolidated statements of operations; | |
§ | other hotel operating expenses related to (1) utilities and telephone will be reclassified to other direct expenses in our consolidated statements of operations and (2) real and personal property taxes, insurance and cable will be reclassified to other indirect expenses in our consolidated statements of operations; | |
§ | general, selling and administrative expenses related to (1) office supplies, advertising, miscellaneous operating expenses and bad debt expense will be reclassified to other direct expenses in our consolidated statements of operations, (2) credit card/travel agent commissions, management company expenses, management company legal and accounting fees and franchise fees will be reclassified to other indirect expenses in our consolidated statements of operations, (3) hotel development and startup costs will be reclassified to hotel property acquisition costs in our consolidated statements of operations and (4) ground rent and other miscellaneous expenses will be reclassified to other expenses in our consolidated statements of operations; and | |
§ | repairs and maintenance will be reclassified to other direct expenses in our consolidated statements of operations. |
53
§ | Occupancy; |
§ | ADR; and |
§ | RevPAR. |
54
Franchisor/Brand | No. of Hotels | No. of Rooms | ||||||
Marriott | ||||||||
Courtyard by Marriott | 6 | 715 | ||||||
Residence Inn | 4 | 411 | ||||||
Fairfield Inn | 9 | 787 | ||||||
Fairfield Inn & Suites | 1 | 80 | ||||||
SpringHill Suites | 7 | 671 | ||||||
TownePlace Suites | 1 | 90 | ||||||
28 | 2,754 | |||||||
Hilton | ||||||||
Hampton Inn | 8 | 821 | ||||||
Hampton Inn & Suites | 3 | 390 | ||||||
Hilton Garden Inn | 1 | 120 | ||||||
12 | 1,331 | |||||||
IHG | ||||||||
Holiday Inn Express | 2 | 182 | ||||||
Holiday Inn Express & Suites | 4 | 365 | ||||||
Staybridge Suites | 1 | 92 | ||||||
7 | 639 | |||||||
Hyatt | ||||||||
Hyatt Place | 4 | 556 | ||||||
Choice | ||||||||
Cambria Suites® | 4 | 485 | ||||||
Comfort Inn® | 3 | 201 | ||||||
Comfort Inn & Suites® | 1 | 111 | ||||||
Comfort Suites® | 3 | 199 | ||||||
11 | 996 | |||||||
Starwood | ||||||||
Aloft | 1 | 136 | ||||||
Carlson | ||||||||
Country Inn & Suites By Carlson® | 1 | 64 | ||||||
Independent | ||||||||
Aspen Hotel & Suites | 1 | 57 | ||||||
Total | 65 | 6,533 | ||||||
55
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
Number of hotels at end of period | 46 | 46 | 46 | 45 | 45 | |||||||||||||||
Average number of rooms | 4,173 | 4,173 | 4,173 | 4,093 | 4,012 | |||||||||||||||
Undepreciated (gross) book value at end of period | $ | 295,159 | $ | 293,316 | $ | 283,985 | $ | 276,148 | $ | 268,974 | ||||||||||
Revenues | $ | 67,431 | $ | 68,276 | $ | 87,542 | $ | 105,542 | $ | 103,871 | ||||||||||
Occupancy | 66.4% | 66.7% | 64.8% | 69.5% | 70.0% | |||||||||||||||
ADR | $ | 87.97 | $ | 88.55 | $ | 87.42 | $ | 100.29 | $ | 99.78 | ||||||||||
RevPAR | $ | 58.41 | $ | 59.04 | $ | 56.63 | $ | 69.70 | $ | 69.80 |
�� | ||||||||||||||||||||
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | ||||||||||||||||
Number of hotels at end of period | 19 | 17 | 19 | 14 | 11 | |||||||||||||||
Average number of rooms | 2,360 | 1,706 | 2,360 | 1,324 | 625 | |||||||||||||||
Undepreciated (gross) book value at end of period | $ | 266,161 | $ | 227,851 | $ | 265,333 | $ | 163,232 | $ | 125,529 | ||||||||||
Revenues | $ | 37,382 | $ | 24,528 | $ | 33,658 | $ | 29,565 | $ | 10,018 | ||||||||||
Occupancy | 64.3% | 57.9% | 55.3% | 55.3% | 49.2% | |||||||||||||||
ADR | $ | 87.70 | $ | 88.44 | $ | 87.58 | $ | 107.37 | $ | 87.58 | ||||||||||
RevPAR | $ | 56.38 | $ | 51.16 | $ | 48.47 | $ | 59.33 | $ | 43.09 |
56
Nine Months Ended September 30, 2010 | Nine Months Ended September 30, 2009 | |||||||||||||||||||||||||||||||||||||||
Revenue | Expense | Occupancy | ADR | RevPAR | Revenue | Expense | Occupancy | ADR | RevPAR | |||||||||||||||||||||||||||||||
Total (65 and 63 hotels, respectively)(1) | $ | 104,813 | $ | 91,941 | 65.6 | % | $ | 87.88 | $ | 57.68 | $ | 92,804 | $ | 90,380 | 64.1 | % | $ | 88.42 | $ | 56.71 | ||||||||||||||||||||
Seasoned (46 hotels)(2) | $ | 67,431 | $ | 53,461 | 66.4 | % | $ | 87.97 | $ | 58.41 | $ | 68,276 | $ | 55,031 | 66.7 | % | $ | 88.55 | $ | 59.04 | ||||||||||||||||||||
Unseasoned (19 and 17 hotels, respectively)(2) | $ | 37,382 | $ | 38,480 | 64.3 | % | $ | 87.70 | $ | 56.38 | $ | 24,528 | $ | 35,349 | 57.9 | % | $ | 88.44 | $ | 51.16 | ||||||||||||||||||||
Same-store (60 hotels)(3) | $ | 94,735 | $ | 79,757 | 66.1 | % | $ | 88.53 | $ | 58.55 | $ | 92,212 | $ | 82,397 | 64.5 | % | $ | 88.52 | $ | 57.10 |
(1) | Includes revenues from discontinued operations. | |
(2) | Excludes hotels that were reclassified to discontinued operations during either period. | |
(3) | Includes seasoned and unseasoned hotels that were owned during both periods presented for the full periods presented, but excludes hotels that were reclassified to discontinued operations during either period. |
57
Nine Months Ended | Nine Months Ended | |||||||
September 30, 2010 | September 30, 2009 | |||||||
Seasoned Hotel Expenses (46 hotels): | ||||||||
Direct hotel operations | $ | 22,328 | $ | 22,301 | ||||
Other hotel operating expenses | 8,482 | 8,440 | ||||||
General, selling and administrative | 11,992 | 12,040 | ||||||
Repairs and maintenance | 2,246 | 3,332 | ||||||
Depreciation and amortization | 8,413 | 8,918 | ||||||
Loss on impairment of assets | — | — | ||||||
Total Expenses | $ | 53,461 | $ | 55,031 | ||||
Unseasoned Hotel Expenses (19 and 14 hotels, respectively): | ||||||||
Direct hotel operations | $ | 13,023 | $ | 9,114 | ||||
Other hotel operating expenses | 5,574 | 4,124 | ||||||
General, selling and administrative | 6,818 | 5,822 | ||||||
Repairs and maintenance | 1,150 | 1,717 | ||||||
Depreciation and amortization | 11,915 | 8,067 | ||||||
Loss on impairment of assets | — | 6,505 | ||||||
Total Expenses | $ | 38,480 | $ | 35,349 | ||||
Same-Store Portfolio Expenses (60 hotels): | ||||||||
Direct hotel operations | $ | 31,769 | $ | 31,239 | ||||
Other hotel operating expenses | 12,643 | 12,487 | ||||||
General, selling and administrative | 16,886 | 16,673 | ||||||
Repairs and maintenance | 3,147 | 5,013 | ||||||
Depreciation and amortization | 15,312 | 16,985 | ||||||
Loss on impairment of assets | — | — | ||||||
Total Expenses | $ | 79,757 | $ | 82,397 | ||||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||||||||||||||||||||||||||||||||||
Total | Total | Total | Total | |||||||||||||||||||||||||||||||||||||
Revenues | Expenses | Occupancy | ADR | RevPAR | Revenues | Expenses | Occupancy | ADR | RevPAR | |||||||||||||||||||||||||||||||
Total (65 and 62 hotels, respectively)(1) | $ | 122,333 | $ | 120,704 | 61.9 | % | $ | 87.40 | $ | 54.12 | $ | 141,933 | $ | 113,876 | 66.2 | % | $ | 100.95 | $ | 66.78 | ||||||||||||||||||||
Seasoned (46 and 45 hotels, respectively)(2) | $ | 87,542 | $ | 73,553 | 64.8 | % | $ | 87.42 | $ | 56.63 | $ | 105,542 | $ | 79,540 | 69.5 | % | $ | 100.29 | $ | 69.70 | ||||||||||||||||||||
Unseasoned (19 and 14 hotels, respectively)(2) | $ | 33,657 | $ | 47,151 | 55.3 | % | $ | 87.58 | $ | 48.47 | $ | 29,565 | $ | 34,336 | 55.3 | % | $ | 107.37 | $ | 59.33 | ||||||||||||||||||||
Same-store (57 hotels)(3) | $ | 112,129 | $ | 99,020 | 63.7 | % | $ | 88.13 | $ | 56.13 | $ | 134,934 | $ | 110,898 | 66.3 | % | $ | 101.82 | $ | 67.47 |
(1) | Includes revenues from discontinued operations. | |
(2) | Excludes hotels that were reclassified to discontinued operations during either period. | |
(3) | Includes seasoned and unseasoned hotels that were owned during both periods presented for the full periods presented, but excludes hotels that were reclassified to discontinued operations during either period. |
58
Year Ended | Year Ended | |||||||
December 31, 2009 | December 31, 2008 | |||||||
Seasoned Hotel Expenses (46 and 45 hotels, respectively): | ||||||||
Direct hotel operations | $ | 29,272 | $ | 32,182 | ||||
Other hotel operating expenses | 11,205 | 11,002 | ||||||
General, selling and administrative | 15,870 | 19,091 | ||||||
Repairs and maintenance | 4,083 | 4,342 | ||||||
Depreciation and amortization | 11,950 | 12,923 | ||||||
Loss on impairment of assets | 1,173 | – | ||||||
Total Expenses | $ | 73,553 | $ | 79,540 | ||||
59
Year Ended | Year Ended | |||||||
December 31, 2009 | December 31, 2008 | |||||||
Unseasoned Hotel Expenses (19 and 14 hotels, respectively): | ||||||||
Direct hotel operations | $ | 12,799 | $ | 10,199 | ||||
Other hotel operating expenses | 5,782 | 4,184 | ||||||
General, selling and administrative | 8,147 | 6,902 | ||||||
Repairs and maintenance | 2,069 | 3,667 | ||||||
Depreciation and amortization | 12,021 | 9,384 | ||||||
Loss on impairment of assets | 6,333 | – | ||||||
Total Expenses | $ | 47,151 | $ | 34,336 | ||||
Same-Store Portfolio Expenses (57 hotels): | ||||||||
Direct hotel operations | $ | 37,867 | $ | 42,136 | ||||
Other hotel operating expenses | 15,359 | 15,132 | ||||||
General, selling and administrative | 20,414 | 24,328 | ||||||
Repairs and maintenance | 4,849 | 7,970 | ||||||
Depreciation and amortization | 19,358 | 21,332 | ||||||
Loss on impairment of assets | 1,173 | – | ||||||
Total Expenses | $ | 99,020 | $ | 110,898 | ||||
Year Ended December 31, 2008 | Year Ended December 31, 2007 | |||||||||||||||||||||||||||||||||||||||
Total | Total | Total | Total | |||||||||||||||||||||||||||||||||||||
Revenues | Expenses | Occupancy | ADR | RevPAR | Revenues | Expenses | Occupancy | ADR | RevPAR | |||||||||||||||||||||||||||||||
Total (62 and 64 hotels, respectively)(1) | $ | 141,933 | $ | 113,876 | 66.2 | % | $ | 100.95 | $ | 66.78 | $ | 134,748 | $ | 95,551 | 66.9 | % | $ | 96.20 | $ | 64.37 | ||||||||||||||||||||
Seasoned (45 hotels)(2) | $ | 105,542 | $ | 79,540 | 69.5 | % | $ | 100.29 | $ | 69.70 | $ | 103,871 | $ | 80,049 | 70.0 | % | $ | 99.78 | $ | 69.80 | ||||||||||||||||||||
Unseasoned (14 and 11 hotels, respectively)(2) | $ | 29,565 | $ | 34,336 | 55.3 | % | $ | 107.37 | $ | 59.33 | $ | 10,018 | $ | 15,502 | 49.2 | % | $ | 87.58 | $ | 43.09 | ||||||||||||||||||||
Same-store (47 hotels)(3) | $ | 107,840 | $ | 81,889 | 68.7 | % | $ | 100.69 | $ | 69.20 | $ | 107,819 | $ | 86,105 | 69.8 | % | $ | 99.08 | $ | 69.18 |
(1) | Includes revenues from discontinued operations. | |
(2) | Excludes hotels that were reclassified to discontinued operations during either period. | |
(3) | Includes seasoned and unseasoned hotels that were owned during both periods presented for the full periods presented, but excludes hotels that were reclassified to discontinued operations during either period. |
60
Year Ended | Year Ended | |||||||
December 31, 2008 | December 31, 2007 | |||||||
Seasoned Hotel Expenses (45 hotels): | ||||||||
Direct hotel operations | $ | 32,182 | $ | 30,655 | ||||
Other hotel operating expenses | 11,002 | 10,159 | ||||||
General, selling and administrative | 19,091 | 18,389 | ||||||
Repairs and maintenance | 4,342 | 7,978 | ||||||
Depreciation and amortization | 12,923 | 12,868 | ||||||
Loss on impairment of assets | – | – | ||||||
Total Expenses | $ | 79,540 | $ | 80,049 | ||||
Unseasoned Hotel Expenses (14 and 11 hotels, respectively): | ||||||||
Direct hotel operations | $ | 10,199 | $ | 4,366 | ||||
Other hotel operating expenses | 4,184 | 1,821 | ||||||
General, selling and administrative | 6,902 | 3,620 | ||||||
Repairs and maintenance | 3,667 | 2,427 | ||||||
Depreciation and amortization | 9,384 | 3,268 | ||||||
Loss on impairment of assets | – | – | ||||||
Total Expenses | $ | 34,336 | $ | 15,502 | ||||
61
Year Ended | Year Ended | |||||||
December 31, 2008 | December 31, 2007 | |||||||
Same-Store Portfolio Expenses (47 hotels): | ||||||||
Direct hotel operations | $ | 33,066 | $ | 32,120 | ||||
Other hotel operating expenses | 11,327 | 10,701 | ||||||
General, selling and administrative | 19,597 | 19,059 | ||||||
Repairs and maintenance | 4,654 | 9,814 | ||||||
Depreciation and amortization | 13,245 | 14,411 | ||||||
Loss on impairment of assets | – | – | ||||||
Total Expenses | $ | 81,889 | $ | 86,105 | ||||
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Total Debt to EBITDA | LIBOR Margin | Base Rate Margin | ||||||
<3.50x | % | % | ||||||
³3.50x; <5.00x | % | % | ||||||
³5.00x | % | % |
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• | a minimum consolidated tangible net worth (as defined in the loan documentation) equal to 80% of our consolidated tangible net worth as of the facility’s closing date plus 80% of the net proceeds of common equity issuances; |
• | a minimum ratio of adjusted consolidated EBITDA (as defined in the loan documentation) to consolidated fixed charges (as defined in the loan documentation) of not less than 1.50 to 1.00 for the first two years of the secured revolving credit facility, increasing to not less than 1.60 to 1:00 for year three and 1.75 to 1.0 for any extension period; |
• | a maximum dividend payout ratio of 95% of FFO (as defined in the loan documentation) or an amount necessary to maintain REIT tax status and avoid corporate income and excise taxes; and |
• | a maximum ratio of consolidated indebtedness (as defined in the loan documentation) to consolidated EBITDA (as defined in the loan documentation) of not more than 6.00 to 1.00 for the first year, not more than 5.75 to 1.00 for the second year, not more than 5.50 to 1.00 for the third year and not more than 5.25 to 1.00 for any extension period. |
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Outstanding | ||||||||||||||||
Principal | Interest Rate | |||||||||||||||
Balance as of | as of | Amortization | Maturity | |||||||||||||
Lender | Collateral | September 30, 2010 | September 30, 2010(1) | (years) | Date | |||||||||||
Bank of the Cascades | Residence Inn, Portland, OR | $ | 12,623,347 | Prime rate, subject to a floor of 6.00% | 25 | 09/30/11 | ||||||||||
ING Investment Management(2) | Fairfield Inn & Suites, Germantown, TN Residence Inn, Germantown, TN Holiday Inn Express, Boise, ID Courtyard by Marriott, Memphis, TN Hampton Inn & Suites, El Paso, TX Hampton Inn, Ft. Smith, AR | 29,204,498 | 5.60% | 20 | 07/01/25 | |||||||||||
MetaBank | Cambria Suites, Boise, ID SpringHill Suites, Lithia Springs, GA | 7,339,544 | Prime rate, subject to a floor of 5.00% | 20 | 03/01/12 | |||||||||||
Chambers Bank | Aspen Hotel & Suites, Ft. Smith, AR | 1,615,101 | 6.50% | 20 | 06/24/12 | |||||||||||
Bank of the Ozarks(3) | Hyatt Place, Portland, OR | 6,444,447 | 90-day LIBOR + 4.00%, subject to a floor of 6.75% | 25 | 06/29/12 | |||||||||||
ING Investment Management(4)(10) | Hilton Garden Inn, Ft. Collins, CO | 7,954,303 | 6.34% | 20 | 07/01/12 | |||||||||||
ING Investment Management(4)(11) | Comfort Inn, Ft. Smith, AR Holiday Inn Express, Sandy, UT Fairfield Inn, Lewisville, TX Hampton Inn, Denver, CO Holiday Inn Express, Vernon Hills, IL Hampton Inn, Fort Wayne, IN Courtyard by Marriott, Missoula, MT Comfort Inn, Missoula, MT | 29,601,595 | 6.10% | 20 | 07/01/12 | |||||||||||
BNC National Bank(13) | Hampton Inn & Suites, Ft. Worth, TX | 5,768,755 | 5.01% | 20 | 11/01/13 | |||||||||||
First National Bank of Omaha(5) | Courtyard by Marriott, Germantown, TN Courtyard by Marriott, Jackson, MS Hyatt Place, Atlanta, GA | 24,367,948 | 90-day LIBOR + 4.00%, subject to a floor of 5.25% | 20 | 07/01/13 | |||||||||||
ING Investment Management(6)(12) | Residence Inn, Jackson, MS | 6,281,130 | 6.61% | 20 | 11/01/28 | |||||||||||
General Electric Capital Corp.(7)(14) | Cambria Suites, San Antonio, TX | 11,262,138 | 90-day LIBOR + 2.55% | 25 | 04/01/14 | |||||||||||
National Western Life Insurance(8) | Courtyard by Marriott, Scottsdale, AZ SpringHill Suites, Scottsdale, AZ | 13,734,486 | 8.00% | 17 | 01/01/15 | |||||||||||
BNC National Bank(13) | Holiday Inn Express & Suites, Twin Falls, ID | 5,814,136 | Prime rate – 0.25% | 20 | 04/01/16 | |||||||||||
Compass Bank | Courtyard by Marriott, Flagstaff, AZ | 16,492,293 | Prime rate – 0.25%, subject to a floor of 4.50% | 20 | 05/17/18 | |||||||||||
General Electric Capital Corp.(14) | SpringHill Suites, Denver, CO | 8,802,903 | 90-day LIBOR + 1.75% | 20 | 04/01/18 | |||||||||||
General Electric Capital Corp.(9)(14) | Cambria Suites, Baton Rouge, LA | 11,119,105 | 90-day LIBOR + 1.80% | 25 | 03/01/19 | |||||||||||
Total | $ | 198,425,729 | ||||||||||||||
(1) | As of September 30, 2010, the Prime rate was 3.25% and the 90-day LIBOR rate was 0.29%. |
(2) | The lender has the right to call the loan, which is secured by multiple hotel properties, at January 1, 2012, January 1, 2017 and January 1, 2022. At January 1, 2012, the loan begins to amortize according to a 19.5 year amortization schedule. If this loan is repaid prior to maturity, there is a prepayment penalty equal to the greater of (i) 1% of the principal being repaid and the (ii) the yield maintenance premium. There is no prepayment penalty if the loan is prepaid 60 days prior to any call date. | |
(3) | The maturity date may be extended to June 20, 2014 based on the exercise of two, one-year extension options, subject to the satisfaction of certain conditions. If this loan is repaid prior to June 29, 2011, there is a prepayment penalty equal to 1% of the principal being repaid. | |
(4) | If this loan is repaid prior to maturity, there is a prepayment penalty equal to the greater of (i) 1% of the principal being repaid and the (ii) the yield maintenance premium. |
(5) | Evidenced by three promissory notes, the loan secured by the Hyatt Place located in Atlanta, Georgia has a maturity date of February 1, 2014. The three promissory notes are cross-defaulted and cross-collateralized. |
(6) | The lender has the right to call the loan at November 1, 2013, 2018 and 2023. If this loan is repaid prior to maturity, there is a prepayment penalty equal to the greater of (i) 1% of the principal being repaid and the (ii) the yield maintenance premium. There is no prepayment penalty if the loan is prepaid 60 days prior to any call date. |
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(7) | If this loan is repaid prior to April 1, 2011, there is a prepayment penalty equal to 0.75% of the principal being repaid. After this date, there is no prepayment penalty. A portion of the loan can be prepaid without penalty at any time to bring the loan-to-value ratio to no less than 65%. | |
(8) | On December 8, 2009, we entered into two cross-collateralized and cross-defaulted mortgage loans with National Western Life Insurance in the amounts of $8,650,000 and $5,350,000 to refinance the JP Morgan debt on the two Scottsdale, AZ hotels. Prior to February 1, 2011, these loans cannot be prepaid. If these loans are prepaid, there is a prepayment penalty ranging from 5% to 1% of the principal being prepaid. A one-time, ten-year extension of the maturity date is permitted, subject to the satisfaction of certain conditions. | |
(9) | If this loan is repaid prior to February 27, 2011, there is a prepayment penalty equal to 0.75% of the principal being repaid. After this date, and until July 1, 2011, there is no prepayment penalty. A portion of the loan can be prepaid without penalty at any time to bring the loan-to-value ratio to no less than 65%. |
(10) | This loan is cross-collateralized with the ING Investment Management loan secured by the following hotel properties: Comfort Inn, Ft. Smith, AR; Holiday Inn Express, Sandy, UT; Fairfield Inn, Lewisville, TX; Hampton Inn, Denver, CO; Holiday Inn Express, Vernon Hills, IL; Hampton Inn, Fort Wayne, IN; Courtyard by Marriott, Missoula, MT; Comfort Inn, Missoula, MT. |
(11) | This loan is secured by multiple hotel properties. |
(12) | This loan is cross-collateralized with the ING Investment Management loan secured by the following hotel properties: Fairfield Inn & Suites, Germantown, TN; Residence Inn, Germantown, TN; Holiday Inn Express, Boise, ID; Courtyard by Marriott, Memphis, TN; Hampton Inn & Suites, El Paso, TX; Hampton Inn, Ft. Smith, AR. |
(13) | The two BNC loans are cross-defaulted. | |
(14) | The three General Electric Capital Corp. loans are cross-defaulted. Effective July 1, 2011, the interest rate on all three loans will increase to 90-day LIBOR + 4.00%. Effective August 1, 2011, all three loans will be subject to a prepayment penalty equal to 2% of the principal repaid prior to August 1, 2012, 1% of the principal repaid prior to August 1, 2013, and 0% thereafter. |
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Payments Due By Periods | ||||||||||||||||||||
Less than | One to Three | Four to Five | More than | |||||||||||||||||
Total | One Year | Years | Years | Five Years | ||||||||||||||||
Long-term debt obligations(1) | $ | 439.0 | $ | 176.0 | $ | 184.0 | $ | 36.8 | $ | 42.2 | ||||||||||
Operating lease obligations | 8.2 | 0.2 | 0.5 | 0.5 | 7.0 | |||||||||||||||
Total | $ | 447.2 | $ | 176.2 | $ | 184.5 | $ | 37.3 | $ | 49.2 | ||||||||||
(1) | The amounts shown include amortization of principal on our fixed-rate and variable-rate obligations, debt maturities on our fixed-rate and variable-rate obligations and estimated interest payments of our fixed-rate obligations. Interest payments have been included based on the weighted-average interest rate. |
Pro Forma | ||||||||||||||||||||
Payments Due By Periods | ||||||||||||||||||||
Less than | One to Three | Four to Five | More than | |||||||||||||||||
Total | One Year | Years | Years | Five Years | ||||||||||||||||
Long-term debt obligations(1) | $ | 227.1 | $ | 9.2 | $ | 140.2 | $ | 35.6 | $ | 42.1 | ||||||||||
Operating lease obligations | 8.2 | 0.2 | 0.5 | 0.5 | 7.0 | |||||||||||||||
Total | $ | 235.3 | $ | 9.4 | $ | 140.7 | $ | 36.1 | $ | 49.1 | ||||||||||
(1) | The amounts shown include amortization of principal on our fixed-rate and variable-rate obligations, debt maturities on our fixed-rate and variable-rate obligations and estimated interest payments of our fixed-rate obligations. Interest payments have been included based on the weighted-average interest rate. |
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§ | the formation of our company, our operating partnership, Summit TRS and Summit TRS II; |
§ | the sale of shares of our common stock in this offering; |
§ | the sale of shares of our common stock in the concurrent private placement; |
§ | the contribution of the net proceeds of this offering and the concurrent private placement to our operating partnership in exchange for OP units; |
§ | the merger of our predecessor with and into our operating partnership, with our predecessor’s members receiving OP units; | |
§ | the contribution of the Class B and Class C membership interests in Summit of Scottsdale to our operating partnership in exchange for OP units and our assumption of mortgage debt secured by the two Scottsdale hotels owned by Summit of Scottsdale; | |
§ | the lease of the 65 hotels in our portfolio to our TRS lessees; and | |
§ | assignment by The Summit Group of all of the hotel management agreements pursuant to which it managed the hotels owned by our predecessor to Interstate for consideration consisting of $12,750,000 and the entry into a new hotel management agreement with Interstate, an independent hotel management company, pursuant to which Interstate will operate the 65 hotels in our portfolio. |
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§ | High-Quality Portfolio of Hotels. Our initial portfolio is composed of 65 hotels with characteristics that we believe will provide a solid platform on which to deliver strong risk-adjusted returns to our stockholders. Our hotels are located in 19 states and have an average age of ten years. No single hotel accounted for more than 3.5% of our predecessor’s hotel operating revenues for the 12-month period ended September 30, 2010, which we believe positions our portfolio to experience more consistent risk-adjusted returns and lower volatility compared to owners with properties more highly concentrated in particular geographic regions. We believe all of our hotels are located in markets where there will be limited growth in lodging supply over the next several years. Additionally, in many of our markets, we own two or more hotels in close proximity to each other, which we believe allows our hotel managers to maintain rate integrity and maximize occupancy by referring travelers to our other hotels. Similarly, franchise areas of protection, which prohibit the opening of hotels with the same brand as one of our hotels within certain proximities of our hotels, provide barriers to entry in suburban markets where many of our hotels are located. |
§ | Seasoned Portfolio and Significant Upside Potential. Our initial portfolio is composed of 46 seasoned hotels with established track records and strong positions within their markets. We classify our other 19 hotels, which were either built after January 1, 2007 or experienced a brand conversion since January 1, 2008, as unseasoned. We believe that the market penetration of our unseasoned hotels is significantly less than that of our seasoned hotels due to the dramatic economic slowdown over the past two years that delayed these hotels from achieving anticipated growth rates and revenues. However, most of our unseasoned hotels operate under premium brands and are newer, larger and are located in larger markets than our seasoned hotels. As a result, we believe our unseasoned hotels can experience significant growth in RevPAR and profitability as the economy and industry fundamentals improve. | |
§ | Experienced Executive Management Team With a Proven Track Record. Our management team, led by our Executive Chairman, Mr. Boekelheide, has extensive experience acquiring, developing, owning, operating, renovating, rebranding and financing hotel properties. Our Executive Chairman, Mr. Boekelheide, our President and Chief Executive Officer, Mr. Hansen, and our Executive Vice President and Chief Operating Officer, Mr. Aniszewski, have extensive experience in the hotel business and have worked together as a team for the last seven years on behalf of our predecessor. Through this experience, our management team has developed strong execution capabilities as well as an extensive network of industry, corporate and institutional relationships, including relationships with the leading lodging franchisors in our targeted markets. We believe these relationships |
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will provide insight and access to attractive investment opportunities and allow us to react to local market conditions by seeking the optimal franchise brand for the market in which each of our hotels is located. |
§ | Aggressive Asset Management and Experienced Asset Management Team. We will maintain a dedicated asset management team led by our Executive Vice President and Chief Operating Officer, Mr. Aniszewski, to analyze our portfolio as a whole and oversee our independent hotel managers. Our asset management team has managed hotel assets in every industry segment through multiple hotel business cycles. Our entire asset management team has worked together at The Summit Group for the last ten years, providing us expertise, operational stability and in-depth knowledge of our portfolio. Although we will not manage our hotels directly following this offering, we intend to structure our hotel management agreements to allow us to closely monitor the performance of our hotels. We will work proactively with our hotel managers to continue to drive operational performance by identifying and implementing strategies to optimize hotel profitability through revenue management strategies, budgeting, analyzing cost structure, market positioning, evaluating and making capital improvements and continually reviewing and refining our overall business strategy. We believe that by working with our hotel managers to implement sophisticated revenue management techniques we have the opportunity to enhance revenue performance for our hotels. Among other techniques, we initially will employ three full-time asset managers who will assist our hotel management companies to structure room rate plans and develop occupancy strategies to achieve optimum revenues. |
§ | Strategic Focus on Largest Segments of Lodging Industry. We believe we will be the only publicly traded REIT that focuses exclusively on upscale hotels and midscale without food and beverage hotels on a national basis. According to Smith Travel Research, representative brands in these segments include Courtyard by Marriott, Hilton Garden Inn, Hyatt Place, Homewood Suites, Residence Inn, SpringHill Suites, Staybridge Suites, Fairfield Inn, Hampton Inn, Hampton Inn & Suites, Holiday Inn Express and TownePlace Suites. By number of rooms, 81% of our hotels operate under brands owned by Marriott, Hilton, IHG or Hyatt. These brands are generally regarded as the premium global franchises in our segments. We believe that business and leisure travelers prefer the consistent service and quality associated with these premium brands, and that brand serves as a significant driver of demand for hotel rooms. As reported by Smith Travel Research in 2010, of the approximately 29,735 branded hotels in the United States, 13,066 hotels, or 43.9%, are within our target segments (upscale: 3,536 hotels; midscale without food and beverage: 9,530 hotels). The size of this market represents a potential acquisition pool significantly larger than the upper upscale (1,669 hotels, or 5.6%, of total branded hotels) or luxury (341 hotels, or 1.2%, of total branded hotels) segments. We believe the fragmented ownership of premium-branded limited-service and select-service hotels in the upscale and midscale without food and beverage segments, the size of the segments, our longstanding relationships with franchisors, the lack of well-capitalized competitors and our extensive experience and expertise provide us a distinct competitive advantage and a significant opportunity to profitably grow our company. |
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§ | Growth-Oriented Capital Structure. Upon completion of this offering and the formation transactions, we expect to employ a prudent leverage structure that will provide us the ability to make strategic acquisitions as industry fundamentals and the lending environment improves. Upon completion of this offering and the concurrent private placement and application of the net proceeds as described in “Use of Proceeds,” we will have approximately $198.4 million in outstanding indebtedness and 33 hotels unencumbered by indebtedness, including 25 hotels with 2,330 rooms operating under premium brands owned by Marriott, Hilton, IHG or Hyatt available to secure future loans. At or shortly after the closing of this offering, the concurrent private placement and the formation transactions, we anticipate entering into a $ million revolving credit facility that we expect will be secured by at least 15 of these properties. We believe our capital structure positions us well to capitalize on what we expect to be significant acquisition opportunities. As described further in “Distribution Policy,” we expect to pay our initial distribution with respect to the period commencing on the date of completion of this offering and ending March 31, 2011 based on a rate of $ per share for a full quarter. On an annualized basis, this would equal approximately $ per share, or an annual distribution rate of approximately % based on an assumed IPO price of $ , the mid-point of the anticipated IPO price range shown on the cover of this prospectus. |
§ | Strategic Relationship with IHG. We have entered into a sourcing agreement with IHG, a global hospitality company with widely recognized, industry-leading brands. We believe this strategic relationship with IHG, as well as IHG’s strong brands and excellent hotel management services, will enhance our ability to execute our business strategy and potentially provide us with additional attractive acquisition opportunities. In addition, an affiliate of IHG has agreed to make a significant equity investment in our common stock concurrent with the completion of this offering. We believe that this equity stake will serve to align IHG’s interests with ours and may provide IHG with added incentive to help us to execute our strategy. For a full description of our relationship with IHG, see “—Relationship with IHG.” |
Year of | ||||||||||||||||||||||||
Opening | Twelve Months Ended | |||||||||||||||||||||||
or Brand | Number of | September 30, 2010 | ||||||||||||||||||||||
Franchise/Brand | Location | Conversion | Rooms | Occupancy(1) | ADR(2) | RevPAR(3) | Segment | |||||||||||||||||
Marriott | ||||||||||||||||||||||||
Courtyard by Marriott* | Flagstaff, AZ | 2009 | 164 | 60.3 | % | $ | 87.37 | $ | 52.68 | Upscale | ||||||||||||||
Courtyard by Marriott | Germantown, TN | 2005 | 93 | 64.7 | 93.21 | 60.35 | Upscale | |||||||||||||||||
Courtyard by Marriott | Jackson, MS | 2005 | 117 | 67.3 | 93.58 | 63.02 | Upscale | |||||||||||||||||
Courtyard by Marriott | Memphis, TN | 2005 | 96 | 63.8 | 75.13 | 47.90 | Upscale | |||||||||||||||||
Courtyard by Marriott | Missoula, MT | 2005 | 92 | 63.7 | 102.46 | 65.29 | Upscale | |||||||||||||||||
Courtyard by Marriott | Scottsdale, AZ | 2003 | 153 | 59.0 | 100.34 | 59.17 | Upscale | |||||||||||||||||
Fairfield Inn | Baton Rouge, LA | 2004 | 79 | 58.3 | 81.75 | 47.62 | Midscale w/o F&B | |||||||||||||||||
Fairfield Inn | Bellevue, WA | 1997 | 144 | 60.1 | 103.16 | 61.98 | Midscale w/o F&B | |||||||||||||||||
Fairfield Inn | Boise, ID | 1995 | 63 | 61.7 | 69.22 | 42.73 | Midscale w/o F&B | |||||||||||||||||
Fairfield Inn | Denver, CO | 1997 | 161 | 68.8 | 85.11 | 58.52 | Midscale w/o F&B | |||||||||||||||||
Fairfield Inn | Emporia, KS | 1994 | 57 | 62.6 | 75.63 | 47.38 | Midscale w/o F&B | |||||||||||||||||
Fairfield Inn | Lakewood, CO | 1995 | 63 | 65.3 | 86.47 | 56.45 | Midscale w/o F&B |
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Year of | ||||||||||||||||||||||||
Opening | Twelve Months Ended | |||||||||||||||||||||||
or Brand | Number of | September 30, 2010 | ||||||||||||||||||||||
Franchise/Brand | Location | Conversion | Rooms | Occupancy(1) | ADR(2) | RevPAR(3) | Segment | |||||||||||||||||
Fairfield Inn | Lewisville, TX | 2000 | 71 | 49.0 | % | $ | 74.48 | $ | 36.47 | Midscale w/o F&B | ||||||||||||||
Fairfield Inn | Salina, KS | 1994 | 63 | 67.8 | 70.66 | 47.91 | Midscale w/o F&B | |||||||||||||||||
Fairfield Inn | Spokane, WA | 1995 | 86 | 67.8 | 106.75 | 72.41 | Midscale w/o F&B | |||||||||||||||||
Fairfield Inn & Suites | Germantown, TN | 2005 | 80 | 54.7 | 76.16 | 41.64 | Midscale w/o F&B | |||||||||||||||||
Residence Inn | Fort Wayne, IN | 2006 | 109 | 67.4 | 94.06 | 63.37 | Upscale | |||||||||||||||||
Residence Inn | Germantown, TN | 2005 | 78 | 65.5 | 96.83 | 63.42 | Upscale | |||||||||||||||||
Residence Inn*(4) | Portland, OR | 2009 | 124 | 71.1 | 98.16 | 69.76 | Upscale | |||||||||||||||||
Residence Inn* | Ridgeland, MS | 2007 | 100 | 79.4 | 98.18 | 77.96 | Upscale | |||||||||||||||||
SpringHill Suites | Baton Rouge, LA | 2004 | 78 | 58.9 | 86.85 | 51.12 | Upscale | |||||||||||||||||
SpringHill Suites* | Denver, CO | 2007 | 124 | 64.5 | 95.43 | 61.55 | Upscale | |||||||||||||||||
SpringHill Suites* | Flagstaff, AZ | 2008 | 112 | 64.9 | 86.83 | 56.35 | Upscale | |||||||||||||||||
SpringHill Suites | Lithia Springs, GA | 2004 | 78 | 49.6 | 75.66 | 37.54 | Upscale | |||||||||||||||||
SpringHill Suites | Little Rock, AR | 2004 | 78 | 60.6 | 89.34 | 54.11 | Upscale | |||||||||||||||||
SpringHill Suites | Nashville, TN | 2004 | 78 | 68.9 | 97.55 | 67.23 | Upscale | |||||||||||||||||
SpringHill Suites | Scottsdale, AZ | 2003 | 123 | 57.2 | 91.93 | 52.57 | Upscale | |||||||||||||||||
TownePlace Suites | Baton Rouge, LA | 2004 | 90 | 70.0 | 76.24 | 53.39 | Midscale w/o F&B | |||||||||||||||||
Subtotal/Weighted Average | 2,754 | 63.6 | % | $ | 89.64 | $ | 57.15 | |||||||||||||||||
Hilton | ||||||||||||||||||||||||
Hampton Inn | Denver, CO | 2003 | 149 | 46.3 | % | $ | 81.36 | $ | 37.68 | Midscale w/o F&B | ||||||||||||||
Hampton Inn | Fort Collins, CO | 1996 | 75 | 61.1 | 81.75 | 49.95 | Midscale w/o F&B | |||||||||||||||||
Hampton Inn(4) | Fort Smith, AR | 2005 | 178 | 60.2 | 97.10 | 58.43 | Midscale w/o F&B | |||||||||||||||||
Hampton Inn | Fort Wayne, IN | 2006 | 119 | 62.3 | 90.19 | 56.15 | Midscale w/o F&B | |||||||||||||||||
Hampton Inn | Medford, OR | 2001 | 75 | 70.4 | 101.10 | 71.13 | Midscale w/o F&B | |||||||||||||||||
Hampton Inn | Twin Falls, ID | 2004 | 75 | 64.6 | 80.87 | 52.25 | Midscale w/o F&B | |||||||||||||||||
Hampton Inn | Provo, UT | 1996 | 87 | 72.9 | 86.27 | 62.91 | Midscale w/o F&B | |||||||||||||||||
Hampton Inn | Boise, ID | 1995 | 63 | 69.8 | 85.77 | 59.84 | Midscale w/o F&B | |||||||||||||||||
Hampton Inn & Suites* | Bloomington, MN | 2007 | 146 | 72.2 | 113.94 | 82.23 | Midscale w/o F&B | |||||||||||||||||
Hampton Inn & Suites | El Paso, T X | 2005 | 139 | 82.9 | 109.36 | 90.65 | Midscale w/o F&B | |||||||||||||||||
Hampton Inn & Suites* | Fort Worth, TX | 2007 | 105 | 67.2 | 111.39 | 74.82 | Midscale w/o F&B | |||||||||||||||||
Hilton Garden Inn* | Fort Collins, CO | 2007 | 120 | 54.1 | 89.57 | 48.50 | Upscale | |||||||||||||||||
Subtotal/Weighted Average | 1,331 | 64.7 | % | $ | 95.50 | $ | 62.53 | |||||||||||||||||
IHG | ||||||||||||||||||||||||
Holiday Inn Express | Boise, ID | 2005 | 63 | 70.7 | % | $ | 77.86 | $ | 55.07 | Midscale w/o F&B | ||||||||||||||
Holiday Inn Express* | Vernon Hills, IL | 2008 | 119 | 52.5 | 80.99 | 42.56 | Midscale w/o F&B | |||||||||||||||||
Holiday Inn Express & Suites | Emporia, KS | 2000 | 58 | 77.2 | 87.53 | 67.61 | Midscale w/o F&B | |||||||||||||||||
Holiday Inn Express & Suites* | Las Colinas, TX | 2007 | 128 | 38.6 | 79.51 | 30.66 | Midscale w/o F&B | |||||||||||||||||
Holiday Inn Express & Suites | Sandy, UT | 1998 | 88 | 72.8 | 88.05 | 64.09 | Midscale w/o F&B | |||||||||||||||||
Holiday Inn Express & Suites* | Twin Falls, ID | 2009 | 91 | 58.1 | 86.38 | 50.20 | Midscale w/o F&B | |||||||||||||||||
Staybridge Suites | Jackson, MS | 2007 | 92 | 65.5 | 86.31 | 56.53 | Midscale w/o F&B | |||||||||||||||||
Subtotal/Weighted Average | 639 | 59.2 | % | $ | 83.48 | $ | 49.75 | |||||||||||||||||
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Year of | ||||||||||||||||||||||||
Opening | Twelve Months Ended | |||||||||||||||||||||||
or Brand | Number of | September 30, 2010 | ||||||||||||||||||||||
Franchise/Brand | Location | Conversion | Rooms | Occupancy(1) | ADR(2) | RevPAR(3) | Segment | |||||||||||||||||
Hyatt | ||||||||||||||||||||||||
Hyatt Place | Atlanta, GA | 2006 | 150 | 81.1 | % | $ | 72.89 | $ | 59.15 | Upscale | ||||||||||||||
Hyatt Place* | Fort Myers, FL | 2009 | 148 | 32.3 | 76.94 | 24.87 | Upscale | |||||||||||||||||
Hyatt Place* | Las Colinas, TX | 2007 | 122 | 57.3 | 87.95 | 50.43 | Upscale | |||||||||||||||||
Hyatt Place*(4) | Portland, OR | 2009 | 136 | 61.2 | 80.29 | 49.13 | Upscale | |||||||||||||||||
Subtotal/Weighted Average | 556 | 58.0 | % | $ | 79.08 | $ | 45.66 | |||||||||||||||||
Choice | ||||||||||||||||||||||||
Cambria Suites* | Baton Rouge, LA | 2008 | 127 | 67.2 | % | $ | 83.31 | $ | 56.02 | Upscale | ||||||||||||||
Cambria Suites* | Bloomington, MN | 2007 | 113 | 69.6 | 78.22 | 54.41 | Upscale | |||||||||||||||||
Cambria Suites* | Boise, ID | 2007 | 119 | 62.4 | 73.37 | 45.78 | Upscale | |||||||||||||||||
Cambria Suites* | San Antonio, TX | 2008 | 126 | 64.0 | 79.19 | 50.69 | Upscale | |||||||||||||||||
Comfort Inn(4) | Fort Smith, AR | 1995 | 89 | 52.4 | 70.95 | 37.14 | Midscale w/o F&B | |||||||||||||||||
Comfort Inn | Missoula, MT | 1996 | 52 | 64.2 | 86.67 | 55.63 | Midscale w/o F&B | |||||||||||||||||
Comfort Inn | Salina, KS | 1992 | 60 | 64.5 | 69.85 | 45.04 | Midscale w/o F&B | |||||||||||||||||
Comfort Inn & Suites | Twin Falls, ID | 1992 | 111 | 65.9 | 68.77 | 45.31 | Midscale w/o F&B | |||||||||||||||||
Comfort Suites | Charleston, WV | 2001 | 67 | 73.2 | 94.11 | 68.94 | Midscale w/o F&B | |||||||||||||||||
Comfort Suites | Fort Worth, TX | 1999 | 70 | 50.5 | 83.77 | 42.29 | Midscale w/o F&B | |||||||||||||||||
Comfort Suites | Lakewood, CO | 1995 | 62 | 64.3 | 83.03 | 53.38 | Midscale w/o F&B | |||||||||||||||||
Subtotal/Weighted Average | 996 | 63.8 | % | $ | 78.40 | $ | 50.12 | |||||||||||||||||
Starwood | ||||||||||||||||||||||||
Aloft* | Jacksonville. FL | 2009 | 136 | 57.2 | % | $ | 63.29 | $ | 36.20 | Upscale | ||||||||||||||
Carlson | ||||||||||||||||||||||||
Country Inn & Suites By Carlson | Charleston, WV | 2001 | 64 | 76.2 | 95.85 | 73.06 | Midscale w/o F&B | |||||||||||||||||
Independent | ||||||||||||||||||||||||
Aspen Hotel & Suites | Fort Smith, AR | 2003 | 57 | 51.3 | 64.81 | 33.27 | Midscale w/o F&B | |||||||||||||||||
Total/Weighted Average | 6,533 | 62.8 | % | $ | 86.91 | $ | 54.98 | |||||||||||||||||
* | Unseasoned hotel. | |
(1) | Occupancy represents the percentage of available rooms that were sold during a specified period of time and is calculated by dividing the number of rooms sold by the total number of rooms available, expressed as a percentage. | |
(2) | ADR represents the average rate paid for rooms sold, calculated by dividing room revenue (i.e., excluding food and beverage revenues or other hotel operations revenues such as telephone, parking and other guest services) by rooms sold. |
(3) | RevPAR is the product of ADR and occupancy. RevPAR does not include food and beverage revenues or other hotel operations revenues such as telephone, parking and other guest services. |
(4) | These hotels are subject to ground leases. See “Our Hotel Operating Agreements—Ground Lease Agreements.” |
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§ | the competitive set must include a minimum of three hotels (other than our own hotel) that have provided data to Smith Travel Research for any of the three months preceding a report, or participating hotels; | |
§ | no single company (other than us) can exceed 60% of the total room supply of the participating hotels of the competitive set; | |
§ | no single hotel (excluding our hotel) or brand can represent more than 40% of the total room supply of the competitive set; and | |
§ | the competitive set must include at least two brands other than that of our hotel. |
For the Twelve Months Ended September 30, 2010
RevPAR | ||||||
Hotel | Location | Penetration Index | ||||
Marriott | ||||||
Courtyard by Marriott | Germantown, TN | 101.0 | % | |||
Courtyard by Marriott | Jackson, MS | 109.6 | ||||
Courtyard by Marriott | Memphis, TN | 99.9 | ||||
Courtyard by Marriott | Missoula, MT | 116.0 | ||||
Courtyard by Marriott | Scottsdale, AZ | 120.6 | ||||
Fairfield Inn | Baton Rouge, LA | 125.8 | ||||
Fairfield Inn | Bellevue, WA | 115.3 | ||||
Fairfield Inn | Boise, ID | 146.0 | ||||
Fairfield Inn | Denver, CO | 114.0 | ||||
Fairfield Inn | Emporia, KS | 124.6 | ||||
Fairfield Inn | Lakewood, CO | 121.3 | ||||
Fairfield Inn | Lewisville, TX | 86.5 | ||||
Fairfield Inn | Salina, KS | 125.9 | ||||
Fairfield Inn | Spokane, WA | 131.9 | ||||
Fairfield Inn & Suites | Germantown, TN | 109.2 | ||||
Residence Inn | Fort Wayne, IN | 110.9 | ||||
Residence Inn | Germantown, TN | 111.8 | ||||
SpringHill Suites | Baton Rouge, LA | 92.4 | ||||
SpringHill Suites | Lithia Springs, GA | 96.5 | ||||
SpringHill Suites | Little Rock, AR | 100.0 | ||||
SpringHill Suites | Nashville, TN | 132.6 | ||||
SpringHill Suites | Scottsdale, AZ | 112.3 | ||||
TownePlace Suites | Baton Rouge, LA | 161.6 |
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RevPAR | ||||||
Hotel | Location | Penetration Index | ||||
Hilton | ||||||
Hampton Inn | Denver, CO | 79.9 | % | |||
Hampton Inn | Fort Collins, CO | 118.5 | ||||
Hampton Inn | Fort Smith, AR | 128.8 | ||||
Hampton Inn | Fort Wayne, IN | 110.2 | ||||
Hampton Inn | Medford, OR | 125.3 | ||||
Hampton Inn | Twin Falls, ID | 133.8 | ||||
Hampton Inn | Provo, UT | 126.8 | ||||
Hampton Inn | Boise, ID | 124.3 | ||||
Hampton Inn & Suites | El Paso, TX | 139.0 | ||||
IHG | ||||||
Holiday Inn Express | Boise, ID | 144.6 | ||||
Holiday Inn Express & Suites | Emporia, KS | 195.5 | ||||
Holiday Inn Express & Suites | Sandy, UT | 137.3 | ||||
Staybridge | Jackson, MS | 126.6 | ||||
Hyatt | ||||||
Hyatt Place | Atlanta, GA | 101.0 | ||||
Choice | ||||||
Comfort Inn | Fort Smith, AR | 108.4 | ||||
Comfort Inn | Missoula, MT | 135.3 | ||||
Comfort Inn | Salina, KS | 148.0 | ||||
Comfort Inn & Suites | Twin Falls, ID | 129.3 | ||||
Comfort Suites | Charleston, WV | 105.4 | ||||
Comfort Suites | Fort Worth, TX | 103.8 | ||||
Comfort Suites | Lakewood, CO | 122.1 | ||||
Carlson | ||||||
Country Inn & Suites By Carlson | Charleston, WV | 114.0 | ||||
Independent | ||||||
Aspen Hotel & Suites | Fort Smith, AR | 80.9 | ||||
Weighted average (based on number of rooms) | 118.3 | % | ||||
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For the Twelve Months Ended September 30, 2010
RevPAR | ||||||
Hotel | Location | Penetration Index | ||||
Marriott | ||||||
Courtyard by Marriott | Flagstaff, AZ | 84.4 | % | |||
Residence Inn | Portland, OR | 114.9 | ||||
Residence Inn | Ridgeland, MS | 128.8 | ||||
SpringHill Suites | Denver, CO | 93.7 | ||||
SpringHill Suites | Flagstaff, AZ | 92.4 | ||||
Hilton | ||||||
Hampton Inn & Suites | Bloomington, MN | 116.0 | ||||
Hampton Inn & Suites | Fort Worth, TX | 116.4 | ||||
Hilton Garden Inn | Fort Collins, CO | 96.0 | ||||
IHG | ||||||
Holiday Inn Express | Vernon Hills, IL | 87.7 | ||||
Holiday Inn Express & Suites | Las Colinas, TX | 64.3 | ||||
Holiday Inn Express & Suites | Twin Falls, ID | 128.7 | ||||
Hyatt | ||||||
Hyatt Place | Fort Myers, FL | 51.2 | ||||
Hyatt Place | Las Colinas, TX | 86.8 | ||||
Hyatt Place | Portland, OR | 76.8 | ||||
Choice | ||||||
Cambria Suites | Baton Rouge, LA | 89.9 | ||||
Cambria Suites | Bloomington, MN | 77.5 | ||||
Cambria Suites | Boise, ID | 92.7 | ||||
Cambria Suites | San Antonio, TX | 77.4 | ||||
Starwood | ||||||
Aloft | Jacksonville, FL | 65.8 | ||||
Weighted average (based on number of rooms) | 90.0 | % | ||||
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Location | Potential Use | Acres | ||||
Flagstaff, Arizona | Development of one restaurant pad | 2.0 | ||||
Jacksonville, Florida | Development of one hotel | 3.3 | ||||
Ft. Myers, Florida | Development of one or two restaurant pads | 3.1 | ||||
Boise, Idaho | Development of one hotel | 3.1 | ||||
Boise, Idaho | Possible expansion of existing hotel | 2.3 | ||||
Boise, Idaho | Possible expansion of existing hotel | 1.0 | ||||
Twin Falls, Idaho | Development of one hotel | 2.5 | ||||
Missoula, Montana | Development of one hotel | 2.2 | ||||
El Paso, Texas | Development of two hotels | 5.0 | ||||
Houston, Texas | Development of one hotel | 2.8 | ||||
San Antonio, Texas | Development of one hotel | 2.6 | ||||
San Antonio, Texas | Development of two hotels | 6.0 | ||||
San Antonio, Texas | Development of two restaurant pads | 3.0 | ||||
Spokane, Washington | Development of two hotels | 4.6 |
§ | Internal Growth from Strengthening Lodging Industry Fundamentals. Since January 1, 2007, we have made approximately $311.0 million of capital investments through development, strategic acquisitions and upgrades and improvements to our hotels to be well-positioned for improving general lodging fundamentals. We believe our hotels will experience significant revenue growth as lodging industry fundamentals recover from the economic recession which caused industry-wide RevPAR to suffer a combined 18.4% decline in 2008 and 2009, according to Smith Travel Research. Industry conditions have shown improvement during the first nine months of 2010, with RevPAR growth across all segments of 4.5% as compared to the same period of 2009, according to Smith Travel Research. Colliers PKF Hospitality Research forecasts significant compound annual growth in RevPAR from 2010 to 2014 of 7.0% for the upscale segment and 8.5% for the midscale without food and beverage segment, among the largest for any segment in the industry. We believe both our seasoned and unseasoned hotels will benefit from these improving fundamentals. In particular, we expect our unseasoned hotels to contribute significantly to cash flow as the hotels continue to stabilize. In addition, we believe the significant recent capital investments in our hotels will position our hotels to outperform their competitors during this recovery period. |
§ | Disciplined Acquisition of Hotels. We intend to grow through acquisitions of existing hotels using a disciplined and targeted approach while maintaining a prudent capital structure. Our expectation is that the current lodging cycle will present us with many favorable acquisition opportunities, as hotel owners seek to exit distressed investments or minimize refinancing risks through hotel sales. We also believe that franchisors may be interested in focusing their capital on hotel management as opposed to ownership, which could enable us to leverage our relationships with our brand partners to acquire hotels directly from them in off-market transactions. We believe that our strategic relationship with IHG will also potentially provide us with attractive acquisition opportunities. In this favorable acquisition environment, we will actively screen investment opportunities, analyzing changing business demand dynamics, consumer habits and the landscape of city development. In addition, we employ a proactive and continuous assessment of our hotels, markets and brands in order to quickly and efficiently |
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upgrade our hotels as market conditions warrant. We intend to target upscale and midscale without food and beverage hotels that meet one or more of the following acquisition criteria including: |
– | have potential for strong risk-adjusted returns located in the top 50 MSAs, with a secondary focus on the next 100 markets; |
– | operate under leading franchise brands, which may include but are not limited to Marriott, Hilton, IHG and Hyatt; |
– | are located in close proximity to multiple demand generators, including businesses and corporate headquarters, retail centers, airports, medical facilities, tourist attractions, and convention centers, with a diverse source of potential guests, including corporate, government and leisure travelers; | |
– | are located in markets exhibiting barriers to entry due to strong franchise areas of protection or other factors; | |
– | can be acquired at a discount to replacement cost; and | |
– | provide an opportunity to add value through operating efficiencies, repositioning, renovating or rebranding. |
§ | Selective Hotel Development. We believe there will be attractive opportunities to partner on a selective basis with experienced hotel developers to acquire upon completion newly constructed hotels that meet our investment criteria. In reviewing these opportunities, we target markets exhibiting one or more of the following characteristics: |
– | no suitable and appropriately priced existing hotel in the market that is available for purchase; | |
– | demonstrated demand in the market for upscale hotels or midscale without food and beverage hotels; | |
– | barriers to entry of additional new hotels from franchise areas of protection; | |
– | availability of a high-quality franchise appropriate for the market; and | |
– | availability of a high-quality franchise near one of our existing hotels that could otherwise compete with us. |
§ | Strategic Hotel Sales. Our strategy is to acquire and own hotels. However, consistent with our strategy of maximizing the cash flow of our portfolio and our return an invested capital, we periodically review our hotels to determine if any significant changes to area markets or our hotels have occurred or are anticipated to occur that would warrant the sale of a particular hotel. We also consistently evaluate the best way to optimize our portfolio and return on invested capital. The factors we use in evaluating whether to sell a hotel include, among others: |
– | quality of brand; | |
– | new hotel supply; | |
– | age of the hotel; | |
– | cost of renovation; | |
– | major infrastructure expansion; | |
– | changes to major area employers; | |
– | changes to hotel demand generators; | |
– | ability to profitably invest the proceeds of a sale; and | |
– | tax consequences of a sale. |
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• | RevPAR Growth. Colliers PKF Hospitality Research forecasts that our two market segments will experience among the largest amount of RevPAR growth of any segment in the industry, as shown in the following chart. |
• | Consistently Strong and Growing Demand. As shown in the chart below, over the last twenty years, our market segments have demonstrated the strongest compounded growth in demand of all segments of the lodging industry, and strong demand growth is expected to continue. |
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• | More Stable Cash Flow Potential. Our hotels can be operated with fewer employees than full-service hotels that offer more expansive food and beverage options, which we believe enables us to generate more consistent cash flows with less volatility resulting from reductions in RevPAR and less dependence on group travel. |
• | Broad Customer Base. Our target brands deliver consistently high-quality hotel accommodations with value-oriented pricing that we believe appeals to a wider range of customers, including both business and leisure travelers, than more expensive full-service hotels. We believe that our hotels are particularly popular with frequent business travelers who seek to stay in hotels operating under Marriott, Hilton, Hyatt or IHG brands, which offer strong loyalty rewards program points that can be redeemed for family travel. |
• | Enhanced Diversification. Premium-branded limited-service and select-service assets generally cost significantly less, on a per-key basis, than hotels in the midscale with food and beverage, upper upscale and luxury segments of the industry. As a result, we can diversify our ownership into a larger number of hotels than we could in other segments. |
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§ | The Comfort Inn located in Fort Smith, Arkansas is subject to a ground lease with an initial lease termination date of August 31, 2022. The initial lease term may be extended for an additional 30 years. Annual ground rent currently is $44,088 per year. Annual ground rent is adjusted every fifth year with adjustments based on the Consumer Price Index for All Urban Consumers. The next scheduled ground rent adjustment is January 1, 2015. |
§ | The Hampton Inn located in Fort Smith, Arkansas is subject to a ground lease with an initial lease termination date of May 31, 2030 with 11, five-year renewal options. Annual ground rent currently is $145,987 per year. Annual ground rent is adjusted on June 1st of each year, with adjustments based on increases in RevPAR calculated in accordance with the terms of the ground lease. |
§ | The Residence Inn located in Portland, Oregon is subject to a ground lease with an initial lease termination date of June 30, 2084 with one option to extend for an additional 14 years. Ground rent for the initial lease term was prepaid in full at the time we acquired the leasehold interest. If the option to extend is exercised, monthly ground rent will be charged based on a formula established in the ground lease. |
§ | The Hyatt Place located in Portland, Oregon is subject to a ground lease with a lease termination date of June 30, 2084 with one option to extend for an additional 14 years. Ground rent for the initial lease term was prepaid in full at the time we acquired the leasehold interest. If the option to extend is exercised, monthly ground rent will be charged based on a formula established in the ground lease. |
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§ | a default by either party in the payment of any amount required to by paid under the terms of the agreement; | |
§ | a material default by either party of its obligations under the agreement that is reasonably likely to result in a threat to the health and safety of a hotel’s employees or guests; | |
§ | a material default by either party in the performance of its other obligations under the agreement; | |
§ | the following actions by either party: (i) the making of an assignment for the benefit of creditors; (ii) the institution of any proceeding seeking relief under any federal or state bankruptcy or insolvency laws; (iii) the institution of any proceeding seeking the appointment of a receiver, trustee, custodian or similar official for its business or assets; or (iv) the consent to the institution against it of any such proceeding by any other person or entity; | |
§ | the commencement of an involuntary proceeding against either party (defined as the institution of any of the aforementioned proceedings by another person or entity) that has remained undismissed for a period of 60 days; or | |
§ | our violation of representations in the agreement relating to (i) affiliations with persons on various U.S. government restricted lists or persons owned or controlled by, or acting on behalf of, foreign governments that are subject to an embargo by the U.S. government and (ii) violations of the Foreign Corrupt Practices Act. |
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Name | Age | Position | ||||
Kerry W. Boekelheide | 56 | Executive Chairman of the Board and Director | ||||
Daniel P. Hansen | 41 | President and Chief Executive Officer and Director | ||||
Craig J. Aniszewski | 47 | Executive Vice President and Chief Operating Officer | ||||
Stuart J. Becker | 49 | Executive Vice President, Chief Financial Officer and Treasurer | ||||
Ryan A. Bertucci | 37 | Vice President of Acquisitions | ||||
Christopher R. Eng | 39 | Vice President, General Counsel and Secretary | ||||
Bjorn R. L. Hanson | 59 | Independent Director* | ||||
David S. Kay | 44 | Independent Director* | ||||
Thomas W. Storey | 54 | Independent Director* | ||||
Wayne W. Wielgus | 56 | Independent Director* |
* | Has agreed to become a director upon completion of this offering. |
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§ | an annual cash retainer of $50,000; | |
§ | an initial grant of 1,000 shares of our common stock to be issued upon completion of this offering; | |
§ | on the date of each director’s reelection to our board of directors beginning on the date of our 2012 annual meeting of stockholders, an annual grant of shares of our common stock having a value of $15,000 based on the market price of our common stock on the date of grant; | |
§ | an additional annual cash retainer of $12,500 to the chair of our audit committee; | |
§ | an additional annual cash retainer of $10,000 to the chair of our compensation committee; and | |
§ | an additional annual cash retainer of $7,500 to the chair of our nominating and corporate governance committee. |
§ | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
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§ | full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications; | |
§ | compliance with applicable governmental laws, rules and regulations; | |
§ | prompt internal reporting of violations of the code to appropriate persons identified in the code; and | |
§ | accountability for adherence to the code. |
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Option | ||||||||||||||||||||
Name and Principal Position | Year | Base Salary(1) | Bonus(2) | Awards(3)(4) | Total | |||||||||||||||
Kerry W. Boekelheide | 2010 | $ | 380,000 | $ | — | $ | $ | |||||||||||||
Executive Chairman of the Board | ||||||||||||||||||||
Daniel P. Hansen | 2010 | 350,000 | — | |||||||||||||||||
President and Chief Executive Officer | ||||||||||||||||||||
Craig J. Aniszewski | 2010 | 300,000 | — | |||||||||||||||||
Executive Vice President and Chief Operating Officer | ||||||||||||||||||||
Stuart J. Becker | 2010 | 250,000 | — | |||||||||||||||||
Executive Vice President, Chief Financial Officer and Treasurer | ||||||||||||||||||||
Ryan A. Bertucci | 2010 | 220,000 | — | |||||||||||||||||
Vice President of Acquisitions |
(1) | Full-year amount. Each executive will receive a pro rata portion of his base salary for the period from the date of completion of this offering through December 31, 2010. | |
(2) | We will not pay annual bonuses to these executives for 2010. | |
Under their employment agreements, Messrs. Boekelheide, Hansen and Aniszewski will receive annual bonuses for 2011 equal to $380,000, $350,000 and $225,000, respectively, if the 2011 hotel-level earnings before interest, taxes, depreciation and amortization for the 65 properties in our initial portfolio is at least $55 million. Beginning in 2012, Messrs. Boekelheide, Hansen and Aniszewski will be eligible to earn an annual cash bonus to the extent that individual and corporate goals to be established by our compensation committee are achieved. Our compensation committee will determine the actual amount of the cash bonus payable in 2012 and subsequent years. For 2012 and subsequent years, each of Messrs. Boekelheide and Hansen has the opportunity to earn an annual cash bonus of up to 100% of his annual base salary and Mr. Aniszewski has the opportunity to earn an annual cash bonus of up to 75% of his annual base salary. | ||
Under their employment agreements, Messrs. Becker and Bertucci will be eligible to earn an annual cash bonus for 2011 and subsequent years to the extent that individual and corporate goals to be established by our compensation committee are achieved. Our compensation committee will determine the actual amount of the cash bonus payable in 2011 and subsequent years. Each of Messrs. Becker and Bertucci has the opportunity to earn an annual cash bonus of up to 50% of his annual base salary for 2011 and subsequent years. | ||
(3) | Reflects option awards to be made to Mr. Boekelheide (376,000 shares), Mr. Hansen (235,000 shares), Mr. Aniszewski (235,000 shares), Mr. Becker (47,000 shares) and Mr. Bertucci (47,000 shares). These options will be granted pursuant to the 2010 Equity Incentive Plan upon completion of this offering, will have an exercise price equal to the IPO price, and will vest ratably on the first five anniversaries of the date of grant unless otherwise accelerated under certain circumstances. The compensation committee of our board of directors may make additional equity awards to our named executive officers in the future. | |
(4) | Represents the aggregate grant date fair value of the option awards referred to in note (3) above is computed in accordance with FASB ASC Topic 718 and assumes exercise of the options within a five-year period. The compensation reported in the table above is not necessarily an indication of actual compensation that will be received by the named executive officers. For more information on the valuation of these option awards and the assumptions used in arriving at the amounts disclosed, please see the footnotes to our pro forma financial statements beginning on page F-2 of this prospectus. |
All Other Option | ||||||||||||||
Awards: Number of | Exercise or Base | |||||||||||||
Securities | Price of Option | Grant Date Fair | ||||||||||||
Underlying Options | Awards | Value of Option | ||||||||||||
Name | Date of Grant | (#) | ($/share) | Awards | ||||||||||
Kerry W. Boekelheide | (1) | 376,000(2 | ) | (3 | ) | (4 | ) | |||||||
Daniel P. Hansen | (1) | 235,000(2 | ) | (3 | ) | (4 | ) | |||||||
Craig J. Aniszewski | (1) | 235,000(2 | ) | (3 | ) | (4 | ) | |||||||
Stuart J. Becker | (1) | 47,000(2 | ) | (3 | ) | (4 | ) | |||||||
Ryan A. Bertucci | (1) | 47,000(2 | ) | (3 | ) | (4 | ) |
(1) | Date of completion of this offering. | |
(2) | The awarded options will vest ratably on the first five anniversaries of the date of grant. | |
(3) | The exercise price of the options will be equal to the IPO price of the shares sold in this offering. |
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(4) | The amount is computed in accordance with FASB ASC Topic 718 and assumes exercise of the options within a five-year period. |
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Payment in | Acceleration | |||||||||||||||||||
Lieu of | and | |||||||||||||||||||
Medical/Welfare | Continuation | |||||||||||||||||||
Cash | Benefits | of | Total | |||||||||||||||||
Severance | (present | Equity | Excise Tax | Termination | ||||||||||||||||
Payment | value)(5) | Awards(6) | Gross-Up(7) | Benefits | ||||||||||||||||
Kerry W. Boekelheide(1)(2) | ||||||||||||||||||||
Involuntary termination without cause(3) | $ | 2,280,000 | $ | 79,200 | — | |||||||||||||||
Voluntary termination or involuntary termination with cause | — | — | — | — | — | |||||||||||||||
Change in control (no termination) | — | — | — | |||||||||||||||||
Involuntary or good reason termination in connection with change in control(4) | $ | 2,280,000 | $ | 79,200 | — | |||||||||||||||
Death or disability | — | — | ||||||||||||||||||
Daniel P. Hansen(1)(2) | ||||||||||||||||||||
Involuntary termination without cause(3) | $ | 2,100,000 | $ | 79,200 | — | |||||||||||||||
Voluntary termination or involuntary termination with cause | — | — | — | — | — | |||||||||||||||
Change in control (no termination) | — | — | — | |||||||||||||||||
Involuntary or good reason termination in connection with change in control(4) | $ | 2,100,000 | $ | 79,200 | — | |||||||||||||||
Death or disability | — | — | — | |||||||||||||||||
Craig J. Aniszewski(1)(2) | ||||||||||||||||||||
Involuntary termination without cause(3) | $ | 787,500 | $ | 39,600 | — | |||||||||||||||
Voluntary termination or involuntary termination with cause | — | — | — | — | — | |||||||||||||||
Change in control (no termination) | — | — | — | |||||||||||||||||
Involuntary or good reason termination in connection with change in control(4) | $ | 1,050,000 | $ | 52,800 | — | |||||||||||||||
Death or disability | — | — | — | |||||||||||||||||
Stuart J. Becker(1)(2) | ||||||||||||||||||||
Involuntary termination without cause(3) | $ | 562,500 | $ | 9,000 | — | |||||||||||||||
Voluntary termination or involuntary termination with cause | — | — | — | — | ||||||||||||||||
Change in control (no termination) | — | — | — | |||||||||||||||||
Involuntary or good reason termination in connection with change in control(4) | $ | 750,000 | $ | 12,000 | — | |||||||||||||||
Death or disability | — | — | — | |||||||||||||||||
Ryan A. Bertucci(1)(2) | ||||||||||||||||||||
Involuntary termination without cause(3) | $ | 330,000 | $ | 26,400 | — | |||||||||||||||
Voluntary termination or involuntary termination with cause | — | — | — | |||||||||||||||||
Change in control (no termination) | — | — | — | — | ||||||||||||||||
Involuntary or good reason termination in connection with change in control(4) | $ | 660,000 | $ | 52,800 | — | |||||||||||||||
Death or disability | — | — | — |
(1) | The amounts shown in the table do not include accrued salary, earned but unpaid bonuses, accrued but unused vacation pay or the distribution of benefits from any tax-qualified retirement or 401(k) plan. Those amounts are payable to Messrs. Boekelheide, Hansen, Aniszewski, Becker and Bertucci upon any termination of employment, including an involuntary termination with cause and a resignation without good reason. | |
(2) | A termination of employment due to death or disability entitles Messrs. Boekelheide, Hansen, Aniszewski, Becker and Bertucci to benefits under our life insurance and disability insurance plans. In addition, outstanding options immediately vest upon a termination of employment due to death or disability. | |
(3) | Amounts calculated in accordance with provisions of the applicable employment agreement as disclosed in “—Employment Agreements.��� | |
(4) | Amounts calculated in accordance with provisions of the applicable employment agreement as disclosed in “—Employment Agreements.” | |
(5) | The amounts shown in this column are estimates of the cash payments to be made under the employment agreements based on the annual premiums to be paid by us for health care, life and disability insurance and other benefits expected to be provided to Messrs. Boekelheide, Hansen, Aniszewski, Becker and Bertucci. | |
(6) | The amounts shown in this column represent the value, on the date of grant of the options that are expected to be granted to Messrs. Boekelheide, Hansen, Aniszewski, Becker and Bertucci upon completion of this offering. The values were computed in accordance with FASB ASC Topic 718 and |
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reflect (i) the number of shares for which the options are exercisable following the specified termination event (which is zero shares in the cases of voluntary termination and involuntary termination with cause and all of the option shares in other cases), (ii) the option exercise price, (iii) the period in which the option may be exercised following the specified termination event (which we assume, for purposes of this table, is five years in each case) and (iv) the assumed volatility of our common stock during the period in which the option remains exercisable. For more information on the value of these option awards and the assumptions used in arriving at the amounts disclosed, please see the footnotes to our pro forma financial statements beginning on page F-2 of this prospectus. | ||
Amounts reflecting accelerated vesting of equity awards in the rows “Change in control (no termination)” and “Involuntary or good reason termination in connection with change in control” will be paid upon only one of the specified triggering events (not both) and will not be duplicated in the event that the executive incurs a qualifying termination following a change in control event that has previously resulted in acceleration. | ||
(7) | The employment agreements with Messrs. Boekelheide, Hansen, Aniszewski, Becker and Bertucci do not provide an indemnification or gross-up payment for the parachute payment excise tax under Sections 280G and 4999 of the Code. The employment agreements instead provide that the severance and any other payments or benefits that are treated as parachute payments under the Code will be reduced to the maximum amount that can be paid without an excise tax liability. The parachute payments will not be reduced, however, if the executive will receive greater after-tax benefits by receiving the total or unreduced benefits (after taking into account any excise tax liability payable by the executive). The amounts shown in the table assume that Messrs. Boekelheide, Hansen, Aniszewski, Becker and Bertucci will receive the total or unreduced benefits. |
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§ | a person, entity or affiliated group (with certain exceptions) acquires, in a transaction or series of transactions, more than 50% of the total combined voting power of our outstanding securities; | |
§ | we merge into another entity unless the holders of our voting securities immediately prior to the merger have more than 50% of the combined voting power of the securities in the merged entity or its parent; |
§ | we sell or dispose of all or substantially all of our assets to any entity, more than 50% of the combined voting power and common stock of which is owned by our stockholders after the sale or disposition; or |
§ | during any period of two consecutive years individuals who, at the beginning of such period, constitute our board of directors together with any new directors (other than individuals who become directors in connection with certain transactions or election contests) cease for any reason to constitute a majority of our board of directors. |
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Number of Shares | Percentage of All | |||||||||||
and OP Units | Percentage of All | Shares and OP Units | ||||||||||
Name of Beneficial Owner | Beneficially Owned | Shares(1) | Beneficially Owned(2) | |||||||||
Kerry W. Boekelheide(3) | 1,517,879 | – | – | |||||||||
Daniel P. Hansen(4) | – | – | – | |||||||||
Craig J. Aniszewski(5) | 4,105 | * | * | |||||||||
Stuart J. Becker(4) | – | – | – | |||||||||
Ryan A. Bertucci(4) | – | – | – | |||||||||
Bjorn R. L. Hanson | 1,000(6 | ) | * | * | ||||||||
David S. Kay | 1,000(6 | ) | * | * | ||||||||
Thomas W. Storey | 1,000(6 | ) | * | * | ||||||||
Wayne W. Wielgus | 1,000(6 | ) | * | * | ||||||||
All directors and executive officers as a group (9 persons) | 1,525,984 | * | 5.3 | % |
* | Represents less than 1% |
(1) | Assumes shares of our common stock are outstanding immediately following this offering. In addition, amounts for individuals assume that all OP units held by the person are redeemed for shares of our common stock, and amounts for all executive officers and directors as a group assume all OP units held by them are exchanged for shares of our common stock. The total number of shares of common stock outstanding used in calculating this percentage assumes that none of the OP units held by other persons are exchanged for shares of our common stock. |
(2) | Assumes a total of shares of our common stock and 10,100,000 OP units, which OP units may redeemed for cash or, at our election, shares of our common stock as described in “Description of the Partnership Agreement,” are outstanding immediately following this offering. | |
(3) | Upon completion of this offering, Mr. Boekelheide will not beneficially own any shares of our common stock, except in the form of OP units. Includes (i) 17,000 OP units to be issued to a revocable trust, the trustee and sole beneficiary of which is Mr. Boekelheide, in exchange for the trust’s membership interests in our predecessor; (ii) 1,109,164 OP units to be issued to The Summit Group in the merger in exchange for its membership interests in our predecessor; (iii) 74,829 OP units to be issued to The Summit Group in exchange for its Class B membership interest in Summit of Scottsdale; and (iv) an aggregate of 316,886 OP units to be issued to entities affiliated with Mr. Boekelheide other than The Summit Group, over which Mr. Boekelheide will share voting and investment power with individuals who are not affiliated with us. Excludes options to purchase 376,000 shares of our common stock at the IPO price, none of which has vested. |
(4) | Does not reflect options to be granted to Messrs. Hansen, Becker and Bertucci to purchase an aggregate of 329,000 shares of our common stock at the IPO price, none of which has vested. |
(5) | Upon completion of this offering, Mr. Aniszewski will not beneficially own any shares of our common stock, except in the form of OP units. Includes 4,105 OP units to be issued to Mr. Aniszewski in exchange for his Class B membership interests in our predecessor. Excludes options to purchase 235,000 shares of our common stock at the IPO price, none of which has vested. |
(6) | We will grant 1,000 shares of common stock to each initial independent director upon completion of this offering. |
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§ | Mr. Boekelheide, our Executive Chairman, will receive an aggregate of 1,200,993 OP units, including: (1) 17,000 OP units to be issued to a revocable trust, the trustee and sole beneficiary of which is Mr. Boekelheide, in exchange for the trust’s Class A membership interests in our predecessor pursuant to the merger; (2) 1,109,164 OP units to be issued to The Summit Group pursuant to the merger; and (3) 74,829 OP units to be issued to The Summit Group in exchange for its 36% Class B membership interest in Summit of Scottsdale. These OP units will represent approximately % of our combined common stock and OP units outstanding upon completion of this offering, the concurrent private placement and the formation transactions and have a combined aggregate value of $ million based on the anticipated mid-point of the IPO price range shown on the cover of this prospectus. |
§ | Entities affiliated with Mr. Boekelheide, other than The Summit Group, will receive an aggregate of 316,886 OP units. Mr. Boekelheide will share voting and investment power over these OP units with individuals who are not affiliated with us. These OP units will represent approximately % of our combined common stock and OP units outstanding upon completion of this offering, the concurrent private placement and the formation transactions and have a combined aggregate value of $ million based on the anticipated mid-point of the IPO price range shown on the cover of this prospectus. |
§ | Mr. Aniszewski, our Executive Vice President and Chief Operating Officer, will receive an aggregate of 4,105 OP units in exchange for his Class B membership interest in our predecessor pursuant to the merger. These OP units will represent approximately % of our combined common stock and OP units outstanding upon completion of this offering, the concurrent private placement and the formation transactions and have a combined aggregate value of $ million based on the anticipated mid-point of the IPO price range shown on the cover of this prospectus. |
§ | employment agreements that will provide for salary, bonus and other benefits, including severance benefits in the event of a termination of employment in certain circumstances (see “Management—Employment Agreements”); |
§ | options to purchase an aggregate of 940,000 shares of our common stock at the IPO price of the shares in this offering that will be granted to our named executive officers upon completion of this offering pursuant to the 2010 Equity Incentive Plan (see “Management—IPO Grants of Plan-Based Awards”); |
§ | agreements providing for indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against them as an officer and/or director of our company (see “Management—Indemnification Agreements” and “Certain Provisions of Maryland Law and of Our Charter and Bylaws”); and |
§ | redemption and registration rights under our operating partnership’s partnership agreement with respect to OP units to be issued in the formation transactions (see “Description of the Partnership Agreement”). |
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§ | have the right to receive ratably any distributions from funds legally available therefor, when, as and if authorized by our board of directors and declared by us; and |
§ | are entitled to share ratably in the assets of our company legally available for distribution to the holders of our common stock in the event of our liquidation, dissolution or winding up of our affairs. |
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§ | beneficially owning shares of our capital stock to the extent that such beneficial ownership would result in our being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of the taxable year); | |
§ | transferring shares of our capital stock to the extent that such transfer would result in our shares of capital stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code); | |
§ | beneficially or constructively owning shares of our capital stock to the extent such beneficial or constructive ownership would cause us to constructively own ten percent or more of the ownership interests in a tenant (other than a TRS) of our real property within the meaning of Section 856(d)(2)(B) of the Code; or | |
§ | beneficially or constructively owning or transferring shares of our capital stock if such beneficial or constructive ownership or transfer would otherwise cause us to fail to qualify as a REIT under the Code, including, but not limited to, as a result of any hotel management companies failing to qualify as an “eligible independent contractor” under the REIT rules. |
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§ | the corporation’s board of directors will be divided into three classes; | |
§ | the affirmative vote of two-thirds of the votes cast in the election of directors generally is required to remove a director; | |
§ | the number of directors may be fixed only by vote of the directors; | |
§ | a vacancy on the board be filled only by the remaining directors and that directors elected to fill a vacancy will serve for the remainder of the full term of the class of directors in which the vacancy occurred; and | |
§ | the request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting is required for stockholders to require the calling of a special meeting of stockholders. |
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§ | supermajority vote and cause requirements for removal of directors; | |
§ | requirement that stockholders holding at least a majority of our outstanding common stock must act together to make a written request before our stockholders can require us to call a special meeting of stockholders; | |
§ | provisions that vacancies on our board of directors may be filled only by the remaining directors for the full term of the directorship in which the vacancy occurred; | |
§ | the power of our board to increase or decrease the aggregate number of authorized shares of stock or the number of shares of any class or series of stock; | |
§ | the power of our board of directors to cause us to issue additional shares of stock of any class or series and to fix the terms of one or more classes or series of stock without stockholder approval; | |
§ | the restrictions on ownership and transfer of our stock; and | |
§ | advance notice requirements for director nominations and stockholder proposals. |
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§ | the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty; | |
§ | the director or officer actually received an improper personal benefit in money, property or services; or | |
§ | in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. |
§ | a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation; and | |
§ | a written undertaking by the director or officer or on the director’s or officer’s behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct. |
§ | any present or former director or officer of our company who is made, or threatened to be made, a party to the proceeding by reason of his or her service in that capacity; or |
§ | any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in that capacity. |
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§ | we receive the consent of limited partners holding more than 50% of the partnership interests of the limited partners (other than those held by our company or our subsidiaries); | |
§ | as a result of such transaction, all limited partners (other than our company or our subsidiaries) will receive, or have the right to receive, for each partnership unit an amount of cash, securities or other property equal or substantially equivalent in value to the product of the conversion factor and the greatest amount of cash, securities or other property paid in the transaction to a holder of one of our shares of common stock, provided that if, in connection with the transaction, a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than 50% of the outstanding common stock, each holder of partnership units (other than those held by our company or our subsidiaries) shall be given the option to exchange its partnership units for the greatest amount of cash, securities or other property that a limited partner would have received had it (A) exercised its redemption right (described below) and (B) sold, tendered or exchanged pursuant to the offer common stock received upon exercise of the redemption right immediately prior to the expiration of the offer; or | |
§ | we are the surviving entity in the transaction and either (A) our stockholders do not receive cash, securities or other property in the transaction or (B) all limited partners (other than our company or our subsidiaries) receive for each partnership unit an amount of cash, securities or other property equal or substantially equivalent in value to less than the greatest amount of cash, securities or other property received in the transaction by our stockholders. |
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§ | result in any person owning, directly or indirectly, shares of common stock in excess of the share ownership limit in our charter; | |
§ | result in our being owned by fewer than 100 persons (determined without reference to any rules of attribution); | |
§ | result in our being “closely held” within the meaning of Section 856(h) of the Code; | |
§ | cause us to own, actually or constructively, 10% or more of the ownership interests in a tenant (other than a TRS) of ours, our operating partnership’s or a subsidiary partnership’s real property, within the meaning of Section 856(d)(2)(B) of the Code; | |
§ | cause us to fail to qualify as a REIT under the Code, including, but not limited to, as a result of any hotel management company failing to qualify as an eligible independent contractor under the Code; or | |
§ | cause the acquisition of common stock by such redeeming limited partner to be “integrated” with any other distribution of common stock for purposes of complying with the registration provisions of the Securities Act. |
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§ | all expenses relating to our continuity of existence and our subsidiaries’ operations; | |
§ | all expenses relating to offerings and registration of securities; | |
§ | all expenses associated with any repurchase by us of any securities; | |
§ | all expenses associated with the preparation and filing of any of our periodic or other reports and communications under federal, state or local laws or regulations; | |
§ | all expenses associated with our compliance with laws, rules and regulations promulgated by any regulatory body; | |
§ | all administrative costs and expenses, including salaries and other payments to directors, officers or employees; | |
§ | all expenses associated with any 401(k) plan, incentive plan, bonus plan or other plan providing compensation to our employees; | |
§ | all expenses incurred by us relating to any issuance or redemption of partnership interests; and | |
§ | all of our other operating or administrative costs incurred in the ordinary course of business on behalf of our operating partnership. |
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§ | to use our reasonable best efforts to have the registration statement declared effective; | |
§ | to furnish to limited partners redeeming their limited partnership interests for our shares of common stock prospectuses, supplements, amendments, and such other documents reasonably requested by them; | |
§ | to register or qualify such shares under the securities or blue sky laws of such jurisdictions within the United States as the limited partners reasonably request; |
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§ | to list shares of our common stock issued pursuant to the exercise of redemption rights on any securities exchange or national market system upon which our shares of common stock are then listed; and | |
§ | to indemnify limited partners exercising redemption rights against all losses caused by any untrue statement of a material fact contained in the registration statement, preliminary prospectus or prospectus or caused by any omission to state a material fact required to be stated or necessary to make the statements therein not misleading, except insofar as such losses are caused by any untrue statement or omission based upon information furnished to us by such limited partners. |
§ | that no limited partner will offer or sell shares of our common stock that are issued upon redemption of their limited partnership interests until such shares have been included in an effective registration statement; | |
§ | that, if we determine in good faith that registration of shares for resale would require the disclosure of important information that we have a business purpose for preserving as confidential, the registration rights of each limited partner will be suspended until we notify such limited partners that suspension of their registration rights is no longer necessary (so long as we that do not suspend their rights for more than 180 days in any 12-month period); | |
§ | that if we propose an underwritten public offering, each limited partner will agree not to effect any offer, sale or distribution of our shares during the period commencing on the tenth day prior to the expected effective date of a registration statement filed with respect to the public offering or commencement date of a proposed offering and ending on the date specified by the managing underwriter for such offering; and | |
§ | to indemnify us and each of our officers, directors and controlling persons against all losses caused by any untrue statement or omission contained in (or omitted from) any registration statement based upon information furnished to us by such limited partner. |
§ | any amendment affecting the operation of the conversion factor (for holders of LTIP units) or the redemption right (except as otherwise provided in the partnership agreement) in a manner that adversely affects the limited partners in any material respect; | |
§ | any amendment that would adversely affect the rights of the limited partners to receive the distributions payable to them under the partnership agreement, other than with respect to the issuance of additional partnership units pursuant to the partnership agreement; | |
§ | any amendment that would alter our operating partnership’s allocations of profit and loss to the limited partners, other than with respect to the issuance of additional OP units pursuant to the partnership agreement; or | |
§ | any amendment that would impose on the limited partners any obligation to make additional capital contributions to our operating partnership. |
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§ | the act or omission of the indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; | |
§ | the indemnitee actually received an improper personal benefit in money, property or services; or | |
§ | in the case of any criminal proceeding, the indemnitee had reasonable cause to believe that the act or omission was unlawful. |
§ | the bankruptcy, dissolution, removal or withdrawal of the general partner (unless the limited partners elect to continue the partnership); | |
§ | the passage of 90 days after the sale or other disposition of all or substantially all of the assets of the partnership; | |
§ | the redemption of all partnership units (other than those held by us, if any) unless we decide to continue the partnership by the admission of one or more general partners; or | |
§ | an election by us in our capacity as the general partner. |
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§ | insurance companies; | |
§ | tax-exempt organizations (except to the limited extent discussed in “—Taxation of Tax-Exempt Stockholders” below); | |
§ | financial institutions or broker-dealers; | |
§ | non-U.S. individuals, partnerships and foreign corporations (except to the limited extent discussed in “—Taxation of Non-U.S. Stockholders” below); | |
§ | U.S. expatriates; | |
§ | persons who mark-to-market our common stock; | |
§ | subchapter S corporations; | |
§ | U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar; | |
§ | regulated investment companies and REITs; | |
§ | trusts and estates; | |
§ | holders who receive our common stock through the exercise of employee share options or otherwise as compensation; | |
§ | persons holding our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment; | |
§ | persons subject to the alternative minimum tax provisions of the Code; and | |
§ | persons holding our common stock through a partnership or similar pass-through entity. |
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§ | We will pay federal income tax on any taxable income, including undistributed net capital gain, that we do not distribute to stockholders during, or within a specified time period after, the calendar year in which the income is earned. | |
§ | We may be subject to the “alternative minimum tax” on any items of tax preference including any deductions of net operating losses. | |
§ | We will pay income tax at the highest corporate rate on: |
– | net income from the sale or other disposition of property acquired through foreclosure or after a default on a lease of the property (“foreclosure property”) that we hold primarily for sale to customers in the ordinary course of business, and | |
– | other non-qualifying income from foreclosure property. |
§ | We will pay a 100% tax on net income from sales or other dispositions of property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business. | |
§ | If we fail to satisfy one or both of the 75% gross income test or the 95% gross income test, as described below under “—Gross Income Tests,” and nonetheless continue to qualify as a REIT because we meet other requirements, we will pay a 100% tax on the gross income attributable to the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, in either case, multiplied by a fraction intended to reflect our profitability. |
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§ | If we fail to distribute during a calendar year at least the sum of (1) 85% of our REIT ordinary income for the year, (2) 95% of our REIT capital gain net income for the year, and (3) any undistributed taxable income required to be distributed from earlier periods, we will pay a 4% nondeductible excise tax on the excess of the required distribution over the amount we actually distributed. | |
§ | We may elect to retain and pay income tax on our net long-term capital gain. In that case, a U.S. stockholder would be taxed on its proportionate share of our undistributed long-term capital gain (to the extent that we made a timely designation of such gain to the stockholders) and would receive a credit or refund for its proportionate share of the tax we paid. | |
§ | We will be subject to a 100% excise tax on transactions with a TRS that are not conducted on an arm’s-length basis. | |
§ | In the event of a failure of any of the asset tests, other than a de minimis failure of the 5% asset test or the 10% vote or value test, as described below under “—Asset Tests,” as long as the failure was due to reasonable cause and not to willful neglect, we file a description of each asset that caused such failure with the IRS, and we dispose of such assets or otherwise comply with the asset tests within six months after the last day of the quarter in which we identify such failure, we will pay a tax equal to the greater of $50,000 or the highest federal income tax rate then applicable to U.S. corporations (currently 35%) on the net income from the nonqualifying assets during the period in which we failed to satisfy the asset tests. | |
§ | In the event we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, and such failure is due to reasonable cause and not to willful neglect, we will be required to pay a penalty of $50,000 for each such failure. | |
§ | If we acquire any asset from a C corporation, or a corporation that generally is subject to full corporate-level tax, in a merger or other transaction in which we acquire a basis in the asset that is determined by reference either to the C corporation’s basis in the asset or to another asset, we will pay tax at the highest regular corporate rate applicable if we recognize gain on the sale or disposition of the asset during the 10-year period after we acquire the asset provided no election is made for the transaction to be taxable on a current basis. The amount of gain on which we will pay tax is the lesser of: |
– | the amount of gain that we recognize at the time of the sale or disposition, and | |
– | the amount of gain that we would have recognized if we had sold the asset at the time we acquired it. |
§ | We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record-keeping requirements intended to monitor our compliance with rules relating to the composition of a REIT’s stockholders, as described below in “—Recordkeeping Requirements.” | |
§ | The earnings of our lower-tier entities that are subchapter C corporations, including TRSs, will be subject to federal corporate income tax. |
1. | It is managed by one or more directors or trustees. | |
2. | Its beneficial ownership is evidenced by transferable shares, or by transferable certificates of beneficial interest. | |
3. | It would be taxable as a domestic corporation, but for the REIT provisions of the federal income tax laws. | |
4. | It is neither a financial institution nor an insurance company subject to special provisions of the federal income tax laws. |
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5. | At least 100 persons are beneficial owners of its shares or ownership certificates. | |
6. | Not more than 50% in value of its outstanding shares or ownership certificates is owned, directly or indirectly, by five or fewer individuals, which the Code defines to include certain entities, during the last half of any taxable year. | |
7. | It elects to be a REIT, or has made such election for a previous taxable year, and satisfies all relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT status. | |
8. | It meets certain other qualification tests, described below, regarding the nature of its income and assets and the amount of its distributions to stockholders. | |
9. | It uses a calendar year for federal income tax purposes and complies with the recordkeeping requirements of the federal income tax laws. |
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§ | rents from real property; | |
§ | interest on debt secured by mortgages on real property, or on interests in real property; | |
§ | dividends or other distributions on, and gain from the sale of, shares in other REITs; | |
§ | gain from the sale of real estate assets; and | |
§ | income derived from the temporary investment in stock and debt investments purchased with the proceeds from the issuance of our stock or a public offering of our debt with a maturity date of at least five years and that we receive during the one-year period beginning on the date on which we received such new capital. |
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§ | First, the rent must not be based, in whole or in part, on the income or profits of any person, but may be based on a fixed percentage or percentages of receipts or sales. | |
§ | Second, neither we nor a direct or indirect owner of 10% or more of our stock may own, actually or constructively, 10% or more of a tenant from whom we receive rent, other than a TRS. If the tenant is a TRS and the property is a “qualified lodging facility,” such TRS may not directly or indirectly operate or manage such property. Instead, the property must be operated on behalf of the TRS by a person who qualifies as an “independent contractor” and who is, or is related to a person who is, actively engaged in the trade or business of operating lodging facilities for any person unrelated to us and the TRS. | |
§ | Third, if the rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as rents from real property. However, if the 15% threshold is exceeded, the rent attributable to personal property will not qualify as rents from real property. | |
§ | Fourth, we generally must not operate or manage our real property or furnish or render services to our tenants, other than certain customary services provided to tenants through an “independent contractor” who is adequately compensated and from whom we do not derive revenue. Furthermore, we may own up to 100% of the stock of a TRS which may provide customary and noncustomary services to our tenants without tainting our rental income for the related properties. We need not provide services through an “independent contractor” or a TRS, but instead may provide services directly to our tenants, if the services are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not considered to be provided for the tenants’ convenience. In addition, we may provide a minimal amount of services not described in the prior sentence to the tenants of a property, other than through an independent contractor or a TRS, as long as our income from the services (valued at not less than 150% of our direct cost of performing such services) does not exceed 1% of our income from the related property. |
§ | the intent of the parties; | |
§ | the form of the agreement; | |
§ | the degree of control over the property that is retained by the property owner (for example, whether the lessee has substantial control over the operation of the property or whether the lessee was required simply to use its best efforts to perform its obligations under the agreement); and | |
§ | the extent to which the property owner retains the risk of loss with respect to the property (for example, whether the lessee bears the risk of increases in operating expenses or the risk of damage to the property) or the potential for economic gain with respect to the property. |
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§ | our operating partnership and the lessee will intend for their relationship to be that of a lessor and lessee, and such relationship will be documented by a lease agreement; | |
§ | the lessee will have the right to exclusive possession and use and quiet enjoyment of the hotels covered by the lease during the term of the lease; | |
§ | the lessee will bear the cost of, and will be responsible for, day-to-day maintenance and repair of the hotels other than the cost of certain capital expenditures, and will dictate through hotel managers that are eligible independent contractors, who will work for the lessee during the terms of the lease, and generally will dictate how the hotels will be operated and maintained; | |
§ | the lessee will bear all of the costs and expenses of operating the hotels, including the cost of any inventory used in their operation, during the term of the lease, other than real estate and personal property taxes and the cost of certain furniture, fixtures and equipment, and certain capital expenditures; | |
§ | the lessee will benefit from any savings and will bear the burdens of any increases in the costs of operating the hotels during the term of the lease; | |
§ | in the event of damage or destruction to a hotel, the lessee will be at economic risk because it will bear the economic burden of the loss in income from operation of the hotels subject to the right, in certain circumstances, to terminate the lease if the lessor does not restore the hotel to its prior condition; | |
§ | the lessee will generally indemnify the lessor against all liabilities imposed on the lessor during the term of the lease by reason of (A) injury to persons or damage to property occurring at the hotels or (B) the lessee’s use, management, maintenance or repair of the hotels; | |
§ | the lessee will be obligated to pay, at a minimum, substantial base rent for the period of use of the hotels under the lease; | |
§ | the lessee will stand to incur substantial losses or reap substantial gains depending on how successfully it, through the hotel managers, who work for the lessees during the terms of the leases, operates the hotels; | |
§ | we expect that each lease that we enter into, at the time we enter into it (or at any time that any such lease is subsequently renewed or extended) will enable the tenant to derive a meaningful profit, after expenses and taking into account the risks associated with the lease, from the operation of the hotels during the term of its leases; and | |
§ | upon termination of each lease, the applicable hotel will be expected to have a substantial remaining useful life and substantial remaining fair market value. |
§ | are fixed at the time the percentage leases are entered into; |
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§ | are not renegotiated during the term of the percentage leases in a manner that has the effect of basing percentage rent on income or profits; and | |
§ | conform with normal business practice. |
149
§ | an amount that is based on a fixed percentage or percentages of receipts or sales; and | |
§ | an amount that is based on the income or profits of a debtor, as long as the debtor derives substantially all of its income from the real property securing the debt from leasing substantially all of its interest in the property, and only to the extent that the amounts received by the debtor would be qualifying “rents from real property” if received directly by a REIT. |
150
§ | the REIT has held the property for not less than two years; | |
§ | the aggregate expenditures made by the REIT, or any partner of the REIT, during the two-year period preceding the date of the sale that are includable in the basis of the property do not exceed 30% of the selling price of the property; | |
§ | either (1) during the year in question, the REIT did not make more than seven sales of property other than foreclosure property or sales to which Section 1033 of the Code applies, (2) the aggregate adjusted bases of all such properties sold by the REIT during the year did not exceed 10% of the aggregate bases of all of the assets of the REIT at the beginning of the year or (3) the aggregate fair market value of all such properties sold by the REIT during the year did not exceed 10% of the aggregate fair market value of all of the assets of the REIT at the beginning of the year; | |
§ | in the case of property not acquired through foreclosure or lease termination, the REIT has held the property for at least two years for the production of rental income; and | |
§ | if the REIT has made more than seven sales of non-foreclosure property during the taxable year, substantially all of the marketing and development expenditures with respect to the property were made through an independent contractor from whom the REIT derives no income. |
151
§ | that is acquired by a REIT as the result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property to ownership or possession by agreement or process of law, after there was a default or default was imminent on a lease of such property or on indebtedness that such property secured; | |
§ | for which the related loan was acquired by the REIT at a time when the default was not imminent or anticipated; and | |
§ | for which the REIT makes a proper election to treat the property as foreclosure property. |
§ | on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of the 75% gross income test, or any amount is received or accrued, directly or indirectly, pursuant to a lease entered into on or after such day that will give rise to income that does not qualify for purposes of the 75% gross income test; | |
§ | on which any construction takes place on the property, other than completion of a building or any other improvement, where more than 10% of the construction was completed before default became imminent; or | |
§ | which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business which is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income. |
152
§ | our failure to meet those tests is due to reasonable cause and not to willful neglect; and | |
§ | following such failure for any taxable year, we file a schedule of the sources of our income in accordance with regulations prescribed by the Secretary of the U.S. Treasury. |
§ | cash or cash items, including certain receivables and, in certain circumstances, foreign currencies; | |
§ | government securities; | |
§ | interests in real property, including leaseholds and options to acquire real property and leaseholds; | |
§ | interests in mortgage loans secured by real property; | |
§ | stock in other REITs; and | |
§ | investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through equity offerings or public offerings of debt with at least a five-year term. |
153
§ | “Straight debt” securities, which is defined as a written unconditional promise to pay on demand or on a specified date a sum certain in money if (i) the debt is not convertible, directly or indirectly, into equity, and (ii) the interest rate and interest payment dates are not contingent on profits, the borrower’s discretion, or similar factors. “Straight debt” securities do not include any securities issued by a partnership or a corporation in which we or any controlled TRS (i.e., a TRS in which we own directly or indirectly more than 50% of the voting power or value of the stock) hold non-“straight debt” securities that have an aggregate value of more than 1% of the issuer’s outstanding securities. However, “straight debt” securities include debt subject to the following contingencies: |
– | a contingency relating to the time of payment of interest or principal, as long as either (i) there is no change to the effective yield of the debt obligation, other than a change to the annual yield that does not exceed the greater of 0.25% or 5% of the annual yield, or (ii) neither the aggregate issue price nor the aggregate face amount of the issuer’s debt obligations held by us exceeds $1.0 million and no more than 12 months of unaccrued interest on the debt obligations can be required to be prepaid; and | |
– | a contingency relating to the time or amount of payment upon a default or prepayment of a debt obligation, as long as the contingency is consistent with customary commercial practice; |
§ | Any loan to an individual or an estate; | |
§ | Any “section 467 rental agreement,” other than an agreement with a related party tenant; | |
§ | Any obligation to pay “rents from real property”; | |
§ | Certain securities issued by governmental entities; | |
§ | Any security issued by a REIT; | |
§ | Any debt instrument issued by an entity treated as a partnership for federal income tax purposes in which we are a partner to the extent of our proportionate interest in the equity and debt securities of the partnership; and | |
§ | Any debt instrument issued by an entity treated as a partnership for federal income tax purposes not described in the preceding bullet points if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test described above in “—Gross Income Tests.” |
154
§ | we satisfied the asset tests at the end of the preceding calendar quarter; and | |
§ | the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets. |
§ | the sum of |
– | 90% of our “REIT taxable income,” computed without regard to the dividends paid deduction and our net capital gain or loss; and | |
– | 90% of our after-tax net income, if any, from foreclosure property, minus |
§ | the excess of the sum of certain items of non-cash income over 5% of our “REIT taxable income.” |
§ | 85% of our REIT ordinary income for such year, | |
§ | 95% of our REIT capital gain income for such year, and | |
§ | any undistributed taxable income from prior periods, |
155
156
§ | a citizen or resident of the United States; | |
§ | a corporation (including an entity treated as a corporation for federal income tax purposes) created or organized in or under the laws of the United States, any of its states or the District of Columbia; | |
§ | an estate whose income is subject to federal income taxation regardless of its source; or | |
§ | any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person. |
157
158
§ | the percentage of our dividends that the tax-exempt trust must treat as UBTI is at least 5%; | |
§ | we qualify as a REIT by reason of the modification of the rule requiring that no more than 50% of our stock be owned by five or fewer individuals that allows the beneficiaries of the pension trust to be treated as holding our stock in proportion to their actuarial interests in the pension trust; and | |
§ | either: |
– | one pension trust owns more than 25% of the value of our stock; or | |
– | a group of pension trusts individually holding more than 10% of the value of our stock collectively owns more than 50% of the value of our stock. |
159
§ | a lower treaty rate applies and the non-U.S. stockholder files an IRS Form W-8BEN evidencing eligibility for that reduced rate with us; or | |
§ | the non-U.S. stockholder files an IRS Form W-8ECI with us claiming that the distribution is effectively connected income. |
160
§ | our common stock is treated as being regularly traded under applicable Treasury regulations on an established securities market; and | |
§ | the non-U.S. stockholder owned, actually or constructively, 5% or less of our common stock at all times during a specified testing period. |
§ | the gain is effectively connected with the non-U.S. stockholder’s U.S. trade or business, in which case the non-U.S. stockholder will be subject to the same treatment as U.S. stockholders with respect to such gain; or | |
§ | the non-U.S. stockholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a “tax home” in the United States, in which case the non-U.S. stockholder will incur a 30% tax on his or her capital gains. |
§ | is a corporation (for payments made prior to January 1, 2011) or qualifies for certain other exempt categories and, when required, demonstrates this fact; or | |
§ | provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules. |
161
§ | is treated as a partnership under the Treasury regulations relating to entity classification (the “check-the-box regulations”); and | |
§ | is not a “publicly traded” partnership. |
162
163
§ | the amount of cash and the basis of any other property contributed by us to our operating partnership; | |
§ | increased by our allocable share of our operating partnership’s income and our allocable share of indebtedness of our operating partnership; and |
164
§ | reduced, but not below zero, by our allocable share of our operating partnership’s loss and the amount of cash distributed to us, and by constructive distributions resulting from a reduction in our share of indebtedness of our operating partnership. |
165
166
167
Number of | ||||
Shares | ||||
Robert W. Baird & Co. Incorporated | ||||
Total | ||||
§ | the representations and warranties made by us are true and agreements have been performed; | |
§ | there is no material adverse change in the financial markets or in our business; and | |
§ | we deliver customary closing documents. |
No Exercise | Full Exercise | |||||||
Underwriting discount per share | $ | $ | ||||||
Total underwriting discount | $ | $ | ||||||
Proceeds to us (before expenses) | $ | $ |
168
169
§ | the information set forth in this prospectus and otherwise available to the representatives; |
§ | our prospects and the history and prospects for the industry in which we compete; | |
§ | an assessment of our management; | |
§ | our prospects for future earnings; | |
§ | the general condition of the securities markets at the time of this offering; | |
§ | the recent market prices of, and demand for, publicly traded shares of our common stock of generally comparable companies; and | |
§ | other factors deemed relevant by the representative and us. |
§ | Stabilizing transactions permit bids to purchase shares of our common stock so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. | |
§ | Over-allotment transactions involve sales by the underwriters of shares of our common stock in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares of our common stock over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market. | |
§ | Syndicate covering transactions involve purchases of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the over-allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering. | |
§ | Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the common stock originally sold by that syndicate member is purchased in stabilizing or syndicate covering transactions to cover syndicate short positions. |
170
§ | to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; | |
§ | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; | |
§ | to fewer than 100 natural or legal persons (other than qualified investors as defined in the EU Prospectus Directive) subject to obtaining the prior consent of the book-running manager for any such offer; or | |
§ | in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. |
171
172
Summit Hotel Properties, Inc. | ||||
Unaudited Pro Forma Condensed Consolidated Financial Information: | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
Historical Financial Statements: | ||||
F-10 | ||||
F-11 | ||||
F-12 | ||||
Summit Hotel Properties, LLC | ||||
Unaudited Condensed Consolidated Financial Information: | ||||
F-13 | ||||
F-14 | ||||
F-15 | ||||
F-16 | ||||
F-18 | ||||
Historical Financial Statements: | ||||
F-23 | ||||
F-26 | ||||
F-27 | ||||
F-28 | ||||
F-29 | ||||
F-31 |
F-1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2010
Pro Forma | ||||||||||||||||||||||||
Summit Hotel | Reclassification | Reclassified | Pro Forma | Summit Hotel | ||||||||||||||||||||
Properties, LLC(A) | Adjustments(B) | Subtotal | Offering(C) | Adjustments(D) | Properties, Inc. | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 11,247 | $ | 11,247 | $ | 260,445 | $ | (235,856 | )(1)(2)(6) | $ | 35,836 | |||||||||||||
Restricted cash | 2,556 | $ | 939 | 3,495 | 3,495 | |||||||||||||||||||
Trade receivables | 4,773 | 4,773 | 4,773 | |||||||||||||||||||||
Prepaid expenses and other | 3,530 | 3,530 | 3,530 | |||||||||||||||||||||
Property and equipment, net | 454,983 | 454,983 | 454,983 | |||||||||||||||||||||
Deferred charges and other assets, net | 4,671 | 4,671 | (385 | )(3) | 4,286 | |||||||||||||||||||
Land held for sale | 23,242 | 23,242 | 23,242 | |||||||||||||||||||||
Other assets | 4,028 | 4,028 | 4,028 | |||||||||||||||||||||
Restricted cash | 939 | (939 | ) | — | — | |||||||||||||||||||
Total assets | $ | 509,969 | $ | 509,969 | $ | 534,173 | ||||||||||||||||||
LIABILITIES AND MEMBERS’/STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||
Current portion of long-term debt | $ | 146,379 | $ | (146,379 | ) | $ | — | $ | — | |||||||||||||||
Lines of credit | 19,993 | (19,993 | ) | — | — | |||||||||||||||||||
Accounts payable | 1,291 | 1,291 | 1,291 | |||||||||||||||||||||
Related party accounts payable | 437 | 437 | 437 | |||||||||||||||||||||
Accrued expenses | 12,204 | 12,204 | 12,204 | |||||||||||||||||||||
Mortgages and notes payable | 255,826 | 166,372 | 422,198 | $ | (223,773 | )(1) | 198,425 | |||||||||||||||||
Total liabilities | 436,130 | 436,130 | 212,357 | |||||||||||||||||||||
Members’/Stockholders’ Equity: | ||||||||||||||||||||||||
Members’ equity | 75,463 | 75,463 | (75,463 | )(4) | — | |||||||||||||||||||
Stockholders’ equity | — | — | $ | 260,445 | (4,185 | )(1)(3)(5)(6) | 256,260 | |||||||||||||||||
Noncontrolling interest | (1,624 | ) | (1,624 | ) | 67,180 | (4) | 65,556 | |||||||||||||||||
Total members’/stockholders’ equity | 73,839 | 73,839 | 321,816 | |||||||||||||||||||||
Total liabilities and members’/stockholders’ equity | $ | 509,969 | $ | 509,969 | $ | 534,173 | ||||||||||||||||||
F-2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
Pro Forma | ||||||||||||||||||||
Summit Hotel | Reclassification | Reclassified | Pro Forma | Summit Hotel | ||||||||||||||||
Properties, LLC(A) | Adjustments(B) | Subtotal | Adjustments | Properties, Inc. | ||||||||||||||||
(In thousands, except per-share data) | ||||||||||||||||||||
REVENUE | ||||||||||||||||||||
Room revenues | $ | 102,874 | $ | 102,874 | $ | 102,874 | ||||||||||||||
Other hotel operations revenues | 1,939 | 1,939 | 1,939 | |||||||||||||||||
Total revenues | 104,813 | 104,813 | 104,813 | |||||||||||||||||
EXPENSES | ||||||||||||||||||||
Hotel operating expenses: | ||||||||||||||||||||
Direct hotel operations | 35,351 | $ | (35,351 | )(1) | — | — | ||||||||||||||
Other hotel operating expenses | 14,056 | (14,056 | )(2) | — | — | |||||||||||||||
General, selling and administrative | 18,810 | (18,810 | )(3) | — | — | |||||||||||||||
Repairs and maintenance | 3,396 | (3,396 | )(4) | — | — | |||||||||||||||
Rooms | — | 30,677 | (1) | 30,677 | 30,677 | |||||||||||||||
Other direct | — | 13,068 | (2)(3)(4) | 13,068 | 13,068 | |||||||||||||||
Other indirect | — | 27,278 | (1)(2)(3)(5) | 27,278 | $ | 1,114 | (C) | 28,392 | ||||||||||||
Other | — | 460 | (3) | 460 | 460 | |||||||||||||||
Total hotel operating expenses | 71,613 | 71,483 | 72,597 | |||||||||||||||||
Depreciation and amortization | 20,328 | 20,328 | (234 | )(D) | 20,094 | |||||||||||||||
Corporate general and administrative: | ||||||||||||||||||||
Salaries and other compensation | — | — | 2,950 | (E) | 2,950 | |||||||||||||||
Other | 1,381 | (E) | 1,381 | |||||||||||||||||
Equity-based compensation | — | — | (F) | — | ||||||||||||||||
Hotel property acquisition costs | — | 130 | (5) | 130 | 130 | |||||||||||||||
Loss on impairment of assets | — | — | — | |||||||||||||||||
Total expenses | 91,941 | 91,941 | 97,152 | |||||||||||||||||
Income (loss) from operations | 12,872 | 12,872 | 7,661 | |||||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 36 | 36 | 36 | |||||||||||||||||
Interest expense | (19,520 | ) | (19,520 | ) | 11,750 | (G) | (7,770 | ) | ||||||||||||
Loss on disposal of assets | (40 | ) | (40 | ) | (40 | ) | ||||||||||||||
Total other expense | (19,524 | ) | (19,524 | ) | (7,774 | ) | ||||||||||||||
Loss from continuing operations | (6,652 | ) | (6,652 | ) | (113 | ) | ||||||||||||||
Net loss before income taxes | (6,652 | ) | (6,652 | ) | (113 | ) | ||||||||||||||
Income tax expense | (273 | ) | (273 | ) | (497 | )(H) | (770 | ) | ||||||||||||
Net loss | $ | (6,925 | ) | $ | (6,925 | ) | $ | (883 | ) | |||||||||||
Net loss allocated to noncontrolling interests | $ | (309 | ) | |||||||||||||||||
Net loss allocated to common stockholders | $ | (574 | ) | |||||||||||||||||
Pro forma earnings per share: | ||||||||||||||||||||
Basic | $ | |||||||||||||||||||
Diluted | $ | |||||||||||||||||||
Pro forma weighted-average number of shares: | ||||||||||||||||||||
Basic | ||||||||||||||||||||
Diluted |
F-3
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009
Pro Forma | ||||||||||||||||||||
Summit Hotel | Reclassification | Reclassified | Pro Forma | Summit Hotel | ||||||||||||||||
Properties, LLC(A) | Adjustments(B) | Subtotal | Adjustments | Properties, Inc. | ||||||||||||||||
(In thousands, except per-share data) | ||||||||||||||||||||
REVENUE | ||||||||||||||||||||
Room revenues | $ | 118,960 | $ | 118,960 | $ | 118,960 | ||||||||||||||
Other hotel operations revenues | 2,240 | 2,240 | 2,240 | |||||||||||||||||
Total revenues | 121,200 | 121,200 | 121,200 | |||||||||||||||||
EXPENSES | ||||||||||||||||||||
Hotel operating expenses: | ||||||||||||||||||||
Direct hotel operations | 42,071 | $ | (42,071 | )(1) | — | — | ||||||||||||||
Other hotel operating expenses | 16,987 | (16,987 | )(2) | — | — | |||||||||||||||
General, selling and administrative | 24,017 | (24,017 | )(3) | — | — | |||||||||||||||
Repairs and maintenance | 6,152 | (6,152 | )(4) | — | — | |||||||||||||||
Rooms | — | 36,720 | (1) | 36,720 | 36,720 | |||||||||||||||
Other direct | — | 18,048 | (2)(3)(4) | 18,048 | 18,048 | |||||||||||||||
Other indirect | — | 32,389 | (1)(2)(3)(5) | 32,389 | $ | 1,151 | (C) | 33,540 | ||||||||||||
Other | — | 681 | (3) | 681 | 681 | |||||||||||||||
Total hotel operating expenses | 89,227 | 87,838 | 88,989 | |||||||||||||||||
Depreciation and amortization | 23,971 | 23,971 | (883 | )(D) | 23,088 | |||||||||||||||
Corporate general and administrative: | ||||||||||||||||||||
Salaries and other compensation | — | — | 3,933 | (E) | 3,933 | |||||||||||||||
Equity-based compensation | — | — | (F) | |||||||||||||||||
Other | — | — | 1,841 | (E) | 1,841 | |||||||||||||||
Hotel property acquisition costs | — | 1,389 | (5) | 1,389 | 1,389 | |||||||||||||||
Loss on impairment of assets | 7,506 | 7,506 | 7,506 | |||||||||||||||||
Total expenses | 120,704 | 120,704 | 126,746 | |||||||||||||||||
Income (loss) from operations | 496 | 496 | (5,546 | ) | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 50 | 50 | 50 | |||||||||||||||||
Interest expense | (18,321 | ) | (18,321 | ) | 9,269 | (G) | (9,052 | ) | ||||||||||||
Loss on disposal of assets | (4 | ) | (4 | ) | (4 | ) | ||||||||||||||
Total other expense | (18,275 | ) | (18,275 | ) | (9,006 | ) | ||||||||||||||
Loss from continuing operations | (17,779 | ) | (17,779 | ) | (14,552 | ) | ||||||||||||||
Income from discontinued operations | 1,465 | 1,465 | (1,465 | )(H) | — | |||||||||||||||
Net loss before income taxes | (16,314 | ) | (16,314 | ) | (14,552 | ) | ||||||||||||||
Income tax expense | — | — | (840 | )(I) | (840 | ) | ||||||||||||||
Net loss | $ | (16,314 | ) | $ | (16,314 | ) | $ | (15,392 | ) | |||||||||||
Net loss allocated to noncontrolling interest | $ | (5,387 | ) | |||||||||||||||||
Net income (loss) allocated to common stockholders | $ | (10,005 | ) | |||||||||||||||||
Pro forma earnings per share: | ||||||||||||||||||||
Basic | $ | |||||||||||||||||||
Diluted | $ | |||||||||||||||||||
Pro forma weighted-average number of shares: | ||||||||||||||||||||
Basic | ||||||||||||||||||||
Diluted |
F-4
1. | Basis of Presentation |
2. | Adjustments to the Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2010: |
§ | To reclassify restricted cash (current and noncurrent) into one account. | |
§ | To reclassify current maturities and notes payable into one account. |
F-5
Sale of shares of common stock at an IPO price of $ per share | $ | 270,500 | ||
Underwriting discount | (18,935 | ) | ||
Sale of shares of common stock at a private placement price of $ per share | 12,500 | |||
Legal, accounting and other offering-related costs | (3,620 | ) | ||
Net proceeds | $ | 260,445 | ||
First National Bank of Omaha/Acquisition Line of Credit | $ | 19,993 | ||
First National Bank of Omaha/Line of Credit Pool One | 18,903 | |||
Lehman Brothers Bank | 77,381 | |||
Marshall & Ilsley Bank | 21,420 | |||
Fortress Credit Corp. | 86,076 | |||
Use of proceeds | $ | 223,773 | ||
3. | Adjustments to the Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2010: |
F-6
Historical accounting expense reimbursement | $ | (480 | ) | |
Historical management expense reimbursement | (2,400 | ) | ||
Historical amounts paid to The Summit Group | (2,880 | ) | ||
Base management fee under new hotel management agreement | 3,144 | |||
Accounting expense reimbursement under new hotel management agreement | 850 | |||
Incentive management fee payable under new hotel management agreement | — | |||
Amounts payable to Interstate under new hotel management agreement | $ | 1,114 | ||
F-7
4. | Adjustments to the Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2009: |
Historical accounting expense reimbursement | $ | (589 | ) | |
Historical management expense reimbursement | (3,029 | ) | ||
Historical amounts paid to The Summit Group | (3,618 | ) | ||
Base management fee under new hotel management agreement | 3,636 | |||
Accounting expense reimbursement under new hotel management agreement | 1,133 | |||
Incentive management fee payable under new hotel management agreement | — | |||
Amounts payable to Interstate under new hotel management agreement | $ | 1,151 | ||
F-8
F-9
F-10
As of | As of | |||||||
September 30, 2010 | July 12, 2010 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash and total assets | $ | 1 | $ | 1 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities | $ | — | $ | — | ||||
Stockholders’ Equity | ||||||||
Common stock, par value $0.01 per share; 1,000 shares authorized, issued and outstanding | — | — | ||||||
Additional paid in capital | 1 | 1 | ||||||
Retained earnings | — | — | ||||||
Total stockholders’ equity | 1 | 1 | ||||||
Total liabilities and stockholders’ equity | $ | 1 | $ | 1 | ||||
F-11
Note 1— | Organization and Summary of Significant Accounting Policies |
Note 2— | Income Taxes |
Note 3— | Offering Costs |
F-12
ASSETS | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents | $ | 11,247,069 | ||
Restricted cash | 2,556,224 | |||
Trade receivables | 4,772,974 | |||
Prepaid expenses and other | 3,529,906 | |||
Total current assets | 22,106,173 | |||
PROPERTY AND EQUIPMENT, NET | 454,982,656 | |||
OTHER ASSETS | ||||
Deferred charges and other assets, net | 4,670,836 | |||
Land held for sale | 23,242,004 | |||
Other noncurrent assets | 4,027,649 | |||
Restricted cash | 939,465 | |||
Total other assets | 32,879,954 | |||
TOTAL ASSETS | $ | 509,968,783 | ||
LIABILITIES AND MEMBERS’ EQUITY | ||||
CURRENT LIABILITIES | ||||
Current portion of long-term debt | $ | 146,378,800 | ||
Lines of credit | 19,992,785 | |||
Accounts payable | 1,290,568 | |||
Related party accounts payable | 436,953 | |||
Accrued expenses | 12,204,358 | |||
Total current liabilities | 180,303,464 | |||
LONG-TERM DEBT, NET OF CURRENT PORTION | 255,826,259 | |||
COMMITMENTS AND CONTINGENCIES | ||||
MEMBERS’ EQUITY | ||||
Class A, 1,166.62 units issued and outstanding | 56,678,580 | |||
Class A-1, 437.83 units issued and outstanding | 33,589,994 | |||
Class B, 81.36 units issued and outstanding | 1,294,277 | |||
Class C, 173.60 units issued and outstanding | (16,099,328 | ) | ||
Total Summit Hotel Properties, LLC members’ equity | 75,463,523 | |||
Noncontrolling interest | (1,624,463 | ) | ||
Total members’ equity | 73,839,060 | |||
TOTAL LIABILITIES AND MEMBERS’ EQUITY | $ | 509,968,783 | ||
F-13
2010 | 2009 | |||||||
REVENUES | ||||||||
Room revenues | $ | 102,874,263 | $ | 91,095,662 | ||||
Other hotel operations revenues | 1,938,680 | 1,708,635 | ||||||
104,812,943 | 92,804,297 | |||||||
COSTS AND EXPENSES | ||||||||
Direct hotel operations | 35,351,300 | 31,415,257 | ||||||
Other hotel operating expenses | 14,056,399 | 12,564,374 | ||||||
General, selling and administrative | 18,810,080 | 17,861,695 | ||||||
Repairs and maintenance | 3,395,690 | 5,048,783 | ||||||
Depreciation and amortization | 20,327,601 | 16,984,804 | ||||||
Loss on impairment of assets | — | 6,504,925 | ||||||
91,941,070 | 90,379,838 | |||||||
INCOME FROM OPERATIONS | 12,871,873 | 2,424,459 | ||||||
OTHER INCOME (EXPENSE) | ||||||||
Interest income | 35,614 | 29,189 | ||||||
Interest (expense) | (19,519,570 | ) | (12,639,306 | ) | ||||
Gain (loss) on disposal of assets | (39,723 | ) | (4,335 | ) | ||||
(19,523,679 | ) | (12,614,452 | ) | |||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | (6,651,806 | ) | (10,189,993 | ) | ||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | — | 1,464,808 | ||||||
NET INCOME (LOSS) BEFORE INCOME TAXES | (6,651,806 | ) | (8,725,185 | ) | ||||
STATE INCOME TAX (EXPENSE) | (273,185 | ) | (20,370 | ) | ||||
NET INCOME (LOSS) | (6,924,991 | ) | (8,745,555 | ) | ||||
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST | — | 207,328 | ||||||
NET INCOME (LOSS) ATTRIBUTABLE TO SUMMIT HOTEL PROPERTIES, LLC | $ | (6,924,991 | ) | $ | (8,952,883 | ) | ||
BASIC AND DILUTED EARNINGS PER $100,000 CAPITAL UNIT | $ | (3,724.29 | ) | $ | (5,243.52 | ) | ||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED EARNINGS PER CAPITAL UNIT (based on $100,000 investment) | 1,859.41 | 1,707.42 | ||||||
F-14
Equity Attributable | ||||||||||||||||||||||||||||
# of Capital | to Noncontrolling | |||||||||||||||||||||||||||
Units | Class A | Class A-1 | Class B | Class C | Total | Interest | ||||||||||||||||||||||
BALANCES, JANUARY 1, 2010 | 1,859.41 | $ | 59,961,958 | $ | 34,244,056 | $ | 1,804,718 | $ | (13,086,957 | ) | $ | 82,923,775 | $ | (1,624,463 | ) | |||||||||||||
Net income (loss) | — | (2,889,660 | ) | (512,519 | ) | (510,441 | ) | (3,012,371 | ) | (6,924,991 | ) | — | ||||||||||||||||
Distributions to members | — | (393,718 | ) | (141,543 | ) | — | — | (535,261 | ) | — | ||||||||||||||||||
BALANCES, SEPTEMBER 30, 2010 | 1,859.41 | $ | 56,678,580 | $ | 33,589,994 | $ | 1,294,277 | $ | (16,099,328 | ) | $ | 75,463,523 | $ | (1,624,463 | ) | |||||||||||||
F-15
2010 | 2009 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | (6,924,991 | ) | $ | (8,745,555 | ) | ||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation and amortization | 20,327,601 | 17,138,752 | ||||||
Amortization of prepaid lease | 35,550 | — | ||||||
Unsuccessful project costs | — | 1,065,840 | ||||||
(Gain) loss on disposal of assets | 39,723 | (1,297,488 | ) | |||||
Loss on impairment of assets | — | 6,504,925 | ||||||
Changes in current assets and liabilities: | ||||||||
Trade receivables | (2,164,776 | ) | (1,308,463 | ) | ||||
Prepaid expenses and other | (2,113,426 | ) | 1,417,544 | |||||
Accounts payable and related party accounts payable | 145,008 | (5,613,554 | ) | |||||
Accrued expenses | 3,022,345 | 147,857 | ||||||
Restricted cash released (funded) | (801,171 | ) | (699,681 | ) | ||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 11,565,863 | 8,610,177 | ||||||
INVESTING ACTIVITIES | ||||||||
Land and hotel acquisitions and construction in progress | (1,191,422 | ) | (10,167,860 | ) | ||||
Purchases of other property & equipment | (1,050,096 | ) | (9,809,112 | ) | ||||
Proceeds from asset dispositions, net of closing costs | 10,980 | 207,814 | ||||||
Restricted cash released (funded) | (608,275 | ) | 717,903 | |||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (2,838,813 | ) | (19,051,255 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Proceeds from issuance of long-term debt | 4,271,847 | — | ||||||
Principal payments on long-term debt | (6,791,438 | ) | (5,185,186 | ) | ||||
Financing fees on long-term debt | (1,199,196 | ) | (614,092 | ) | ||||
Proceeds from issuance of notes payable and line of credit | — | 4,598,831 | ||||||
Principal payments on notes payable and line of credit | (1,465,158 | ) | (276,329 | ) | ||||
Proceeds from equity contributions | — | 12,385,707 | ||||||
Distributions to members | (535,261 | ) | (8,999,279 | ) | ||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (5,719,206 | ) | 1,909,652 | |||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 3,007,844 | (8,531,426 | ) | |||||
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD | 8,239,225 | 18,153,435 | ||||||
CASH AND CASH EQUIVALENTS END OF PERIOD | $ | 11,247,069 | $ | 9,622,009 | ||||
F-16
2010 | 2009 | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash payments for interest, net of the amounts capitalized below | $ | 19,069,854 | $ | 12,653,385 | ||||
Interest capitalized | $ | — | $ | 2,786,468 | ||||
Cash payments for state income taxes | $ | (3,726 | ) | $ | 512,810 | |||
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL INFORMATION: | ||||||||
Construction in progress financed through related party accounts payable | $ | — | $ | 1,098,940 | ||||
Construction in progress financed through accounts payable | $ | — | $ | 5,130,917 | ||||
Construction in progress financed through issuance of debt | $ | — | $ | 44,489,363 | ||||
Issuance of long-term debt to refinance existing long-term debt | $ | — | $ | 8,440,000 | ||||
Conversion of debt to equity | $ | — | $ | 3,449,150 | ||||
Sale proceeds used to payoff long-term debt | $ | — | $ | 6,134,285 | ||||
F-17
NOTE 1— | SELECTED SUPPLEMENTARY INFORMATION |
F-18
F-19
2010 | 2009 | |||||||
Land | $ | 23,242,004 | $ | 12,226,320 |
Three Months Ended | Nine Months Ended | |||||||
September 30, 2009 | September 30, 2009 | |||||||
REVENUES | $ | 166,648 | $ | 1,133,690 | ||||
COSTS AND EXPENSES | ||||||||
Direct hotel operations | 50,254 | 348,065 | ||||||
Other hotel operating expenses | 21,454 | 135,122 | ||||||
General, selling and administrative | 69,093 | 258,495 | ||||||
Repairs and maintenance | 3,143 | 36,091 | ||||||
Depreciation and amortization | 61,442 | 153,948 | ||||||
205,386 | 931,721 | |||||||
INCOME FROM OPERATIONS | (38,738 | ) | 201,969 | |||||
OTHER INCOME (EXPENSE) | ||||||||
Interest income | — | 116 | ||||||
Interest expense | (3,935 | ) | (39,100 | ) | ||||
Gain (loss) on disposal of assets | (293,063 | ) | 1,301,823 | |||||
(296,998 | ) | 1,262,839 | ||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | $ | (335,736 | ) | $ | 1,464,808 | |||
F-20
2010 | 2009 | |||||||
Accrued taxes | $ | 6,747,664 | $ | 5,238,690 | ||||
Accrued salaries and benefits | 2,051,301 | 1,400,729 | ||||||
Accrued interest | 1,753,715 | 1,303,999 | ||||||
Other accrued expenses | 1,651,678 | 1,238,595 | ||||||
$ | 12,204,358 | $ | 9,182,013 | |||||
F-21
F-22
which is dated September 21, 2010)
F-23
F-24
F-25
2009 | ||||||||
(restated) | 2008 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 8,239,225 | $ | 18,153,435 | ||||
Restricted cash | 1,755,053 | 1,679,027 | ||||||
Trade receivables | 2,608,198 | 2,622,164 | ||||||
Prepaid expenses and other | 1,416,480 | 2,170,955 | ||||||
Total current assets | 14,018,956 | 24,625,581 | ||||||
PROPERTY AND EQUIPMENT, NET | 482,767,601 | 461,894,270 | ||||||
OTHER ASSETS | ||||||||
Deferred charges and other assets, net | 4,828,185 | 5,664,796 | ||||||
Land held for sale | 12,226,320 | — | ||||||
Other noncurrent assets | 4,074,179 | — | ||||||
Restricted cash | 331,190 | 2,570,374 | ||||||
Total other assets | 21,459,874 | 8,235,170 | ||||||
TOTAL ASSETS | $ | 518,246,431 | $ | 494,755,021 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Current portion of long-term debt | $ | 134,370,900 | $ | 19,508,600 | ||||
Lines of credit | 21,457,943 | 12,288,500 | ||||||
Notes payable | — | 7,469,865 | ||||||
Accounts payable | 1,088,265 | 3,770,908 | ||||||
Related party accounts payable | 494,248 | 3,173,179 | ||||||
Accrued expenses | 9,182,013 | 9,956,372 | ||||||
Total current liabilities | 166,593,369 | 56,167,424 | ||||||
LONG-TERM DEBT, NET OF CURRENT PORTION | 270,353,750 | 350,826,837 | ||||||
COMMITMENTS AND CONTINGENCIES (NOTE 15) | ||||||||
MEMBERS’ EQUITY | ||||||||
Class A, 1,166.62 units issued and outstanding | 59,961,958 | 76,512,442 | ||||||
Class A-1, 437.83 & 196.50 units issued and outstanding, respectively | 34,244,056 | 15,855,756 | ||||||
Class B, 81.36 units issued and outstanding | 1,804,718 | 3,007,247 | ||||||
Class C, 173.60 units issued and outstanding | (13,086,957 | ) | (5,990,222 | ) | ||||
Total Summit Hotel Properties, LLC members’ equity | 82,923,775 | 89,385,223 | ||||||
Noncontrolling interest | (1,624,463 | ) | (1,624,463 | ) | ||||
Total equity | 81,299,312 | 87,760,760 | ||||||
TOTAL LIABILITIES AND MEMBERS’ EQUITY | $ | 518,246,431 | $ | 494,755,021 | ||||
F-26
2009 | ||||||||||||
(restated) | 2008 | 2007 | ||||||||||
REVENUES | ||||||||||||
Room revenues | $ | 118,959,822 | $ | 132,796,698 | $ | 112,043,997 | ||||||
Other hotel operations revenues | 2,239,914 | 2,310,764 | 1,845,333 | |||||||||
121,199,736 | 135,107,462 | 113,889,330 | ||||||||||
COSTS AND EXPENSES | ||||||||||||
Direct hotel operations | 42,070,893 | 42,380,950 | 35,021,263 | |||||||||
Other hotel operating expenses | 16,986,818 | 15,186,138 | 11,980,423 | |||||||||
General, selling and administrative | 24,017,471 | 25,993,091 | 22,008,912 | |||||||||
Repairs and maintenance | 6,151,474 | 8,008,854 | 10,404,860 | |||||||||
Depreciation and amortization | 23,971,118 | 22,307,426 | 16,135,758 | |||||||||
Loss on impairment of assets | 7,505,836 | — | — | |||||||||
120,703,610 | 113,876,459 | 95,551,216 | ||||||||||
INCOME FROM OPERATIONS | 496,126 | 21,231,003 | 18,338,114 | |||||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Interest income | 49,805 | 194,687 | 446,219 | |||||||||
Interest (expense) | (18,320,736 | ) | (17,025,180 | ) | (14,214,151 | ) | ||||||
Gain (loss) on disposal of assets | (4,335 | ) | (389,820 | ) | (651,948 | ) | ||||||
(18,275,266 | ) | (17,220,313 | ) | (14,419,880 | ) | |||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS | (17,779,140 | ) | 4,010,690 | 3,918,234 | ||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | 1,464,808 | 10,278,595 | 11,587,145 | |||||||||
NET INCOME (LOSS) BEFORE INCOME TAXES | (16,314,332 | ) | 14,289,285 | 15,505,379 | ||||||||
STATE INCOME TAX (EXPENSE) | — | (826,300 | ) | (715,187 | ) | |||||||
NET INCOME (LOSS) | (16,314,332 | ) | 13,462,985 | 14,790,192 | ||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST | — | 384,269 | 777,762 | |||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO SUMMIT HOTEL PROPERTIES, LLC | $ | (16,314,332 | ) | $ | 13,078,716 | $ | 14,012,430 | |||||
BASIC AND DILUTED EARNINGS PER $100,000 CAPITAL UNIT | $ | (9,391.54 | ) | $ | 8,411.67 | $ | 9,012.19 | |||||
WEIGHTED-AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED EARNINGS PER CAPITAL UNIT (based on $100,000 investment) | 1,737.13 | 1,554.83 | 1,554.83 | |||||||||
F-27
Equity | ||||||||||||||||||||||||||||
# of | Attributable to | |||||||||||||||||||||||||||
Capital | Noncontrolling | |||||||||||||||||||||||||||
Units | Class A | Class A-1 | Class B | Class C | Total | Interest | ||||||||||||||||||||||
BALANCES, JANUARY 1, 2007 | 1,554.83 | $ | 88,253,669 | $ | 11,035,274 | $ | 4,972,353 | $ | 3,961,011 | $ | 108,222,307 | $ | (1,511,494 | ) | ||||||||||||||
Net Income (Loss) | — | 11,214,409 | 1,165,504 | 259,939 | 1,372,578 | 14,012,430 | 777,762 | |||||||||||||||||||||
Distributions to members | — | (16,575,137 | ) | (1,528,017 | ) | (1,124,079 | ) | (5,612,615 | ) | (24,839,848 | ) | (969,000 | ) | |||||||||||||||
BALANCES, DECEMBER 31, 2007 | 1,554.83 | $ | 82,892,941 | $ | 10,672,761 | $ | 4,108,213 | $ | (279,026 | ) | $ | 97,394,889 | $ | (1,702,732 | ) | |||||||||||||
Class A-1 units issued in private placement | 63.25 | 5,614,466 | 5,614,466 | |||||||||||||||||||||||||
Net Income (Loss) | — | 10,785,507 | 1,136,502 | 184,178 | 972,529 | 13,078,716 | 384,269 | |||||||||||||||||||||
Distributions to members | — | (17,166,006 | ) | (1,567,973 | ) | (1,285,144 | ) | (6,683,725 | ) | (26,702,848 | ) | (306,000 | ) | |||||||||||||||
BALANCES, DECEMBER 31, 2008 | 1,618.08 | $ | 76,512,442 | $ | 15,855,756 | $ | 3,007,247 | $ | (5,990,222 | ) | $ | 89,385,223 | $ | (1,624,463 | ) | |||||||||||||
Class A-1 units issued in private placement | 241.33 | 22,123,951 | 22,123,951 | |||||||||||||||||||||||||
Net Income (Loss) (restated) | — | (6,807,644 | ) | (1,207,424 | ) | (1,202,529 | ) | (7,096,735 | ) | (16,314,332 | ) | — | ||||||||||||||||
Distributions to members | — | (9,742,840 | ) | (2,528,227 | ) | — | — | (12,271,067 | ) | — | ||||||||||||||||||
BALANCES, DECEMBER 31, 2009 (restated) | 1,859.41 | $ | 59,961,958 | $ | 34,244,056 | $ | 1,804,718 | $ | (13,086,957 | ) | $ | 82,923,775 | $ | (1,624,463 | ) | |||||||||||||
F-28
2009 | ||||||||||||
(restated) | 2008 | 2007 | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income (loss) | $ | (16,314,332 | ) | $ | 13,078,716 | $ | 14,012,430 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 24,125,066 | 23,027,566 | 18,887,126 | |||||||||
Amortization of prepaid lease | 118,501 | — | — | |||||||||
Unsuccessful project costs | 1,262,219 | — | — | |||||||||
Noncontrolling interests in operations of consolidated LLC | — | 384,269 | 777,762 | |||||||||
(Gain) loss on disposal of assets | (1,297,488 | ) | (8,604,779 | ) | (10,379,556 | ) | ||||||
Loss on impairment of assets | 7,505,836 | — | — | |||||||||
Changes in assets and liabilities: | ||||||||||||
Trade receivables | 13,966 | 570,544 | (41,035 | ) | ||||||||
Prepaid expenses and other assets | 315,891 | (307,109 | ) | (102,077 | ) | |||||||
Accounts payable and related party accounts payable | (5,847,835 | ) | (1,656,286 | ) | 1,180,615 | |||||||
Accrued expenses | (774,359 | ) | 316,909 | 1,601,614 | ||||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 9,107,465 | 26,809,830 | 25,936,879 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Land and hotel acquisitions and construction in progress | (14,810,896 | ) | (12,904,466 | ) | (3,841,941 | ) | ||||||
Purchases of other property and equipment | (6,613,397 | ) | (6,628,779 | ) | (9,465,898 | ) | ||||||
Proceeds from asset dispositions, net of closing costs | 207,814 | 23,584,638 | 35,581,012 | |||||||||
Restricted cash released (funded) | 2,163,158 | (585,271 | ) | 164,348 | ||||||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (19,053,321 | ) | 3,466,122 | 22,437,521 | ||||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of long-term debt | 223,518 | 4,837,000 | 8,853,669 | |||||||||
Principal payments on long-term debt | (6,890,949 | ) | (20,909,992 | ) | (22,932,344 | ) | ||||||
Financing fees on long-term debt | (945,442 | ) | (942,405 | ) | (1,277,528 | ) | ||||||
Proceeds from issuance of notes payable and line of credit | 4,860,000 | 18,510,867 | — | |||||||||
Principal payments on notes payable and line of credit | (19,865 | ) | — | (7,432,397 | ) | |||||||
Proceeds from equity contributions, net of commissions | 15,075,451 | 5,614,466 | — | |||||||||
Distributions to members | (12,271,067 | ) | (26,702,848 | ) | (24,839,848 | ) | ||||||
Distributions to noncontrolling interest | — | (306,000 | ) | (969,000 | ) | |||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 31,646 | (19,898,912 | ) | (48,597,448 | ) | |||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (9,914,210 | ) | 10,377,040 | (223,048 | ) | |||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 18,153,435 | 7,776,395 | 7,999,443 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 8,239,225 | $ | 18,153,435 | $ | 7,776,395 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
Cash payments for interest, net of the amounts capitalized below | $ | 17,810,544 | $ | 17,833,598 | $ | 15,867,060 | ||||||
Interest capitalized | $ | 2,977,101 | $ | 3,829,267 | $ | 4,489,724 | ||||||
F-29
2009 | ||||||||||||
(restated) | 2008 | 2007 | ||||||||||
Cash payments for state income taxes | $ | 728,514 | $ | 781,081 | $ | 356,187 | ||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL INFORMATION: | ||||||||||||
Acquisitions of hotel properties and land through issuance of debt | $ | — | $ | 16,447,237 | $ | 42,341,906 | ||||||
Construction in progress financed through accounts payable | $ | 244,126 | $ | — | $ | — | ||||||
Construction in progress financed through related party accounts payable | $ | 242,135 | $ | 2,600,260 | $ | 690,629 | ||||||
Construction in progress financed through issuance of debt | $ | 51,098,872 | $ | 38,765,692 | $ | 78,752,652 | ||||||
Conversion of construction in progress to other assets | $ | 4,149,379 | $ | — | $ | — | ||||||
Issuance of long-term debt for short-term debt | $ | 7,450,000 | $ | 12,772,819 | $ | — | ||||||
Issuance of long-term debt to refinance existing long-term debt | $ | 22,215,852 | $ | 11,073,070 | $ | 3,286,331 | ||||||
Equity contributions used to pay down debt | $ | 7,048,500 | $ | — | $ | — | ||||||
Financing costs funded through construction draws | $ | — | $ | 1,651,886 | $ | — | ||||||
Sale proceeds used to pay down long-term debt | $ | 6,134,285 | $ | 4,215,362 | $ | — | ||||||
F-30
F-31
F-32
F-33
2009 | 2008 | 2007 | ||||||||||
Class A | 42 | % | 45 | % | 46 | % | ||||||
Class A-1 | 7 | 4 | 3 | |||||||||
Class B | 7 | 8 | 8 | |||||||||
Class C | 44 | 43 | 43 | |||||||||
100 | % | 100 | % | 100 | % | |||||||
F-34
F-35
F-36
Fair Value Measurement of Non-Financial Assets Using Level 3 Inputs | ||||
Beginning balance at January 1, 2009 | $ | 24,574,383 | ||
Add current year additions | 37,415 | |||
Less depreciation | (379,642 | ) | ||
Less impairment | (7,505,836 | ) | ||
Ending balance at December 31, 2009 | $ | 16,726,320 | ||
Impairment for 2009 included in earnings attributable to the change in unrealized losses | $ | (7,505,836 | ) |
2009 | 2008 | |||||||
Prepaid insurance expense | $ | 781,144 | $ | 743,491 | ||||
Other prepaid expense | 635,336 | 1,427,464 | ||||||
$ | 1,416,480 | $ | 2,170,955 | |||||
F-37
2009 | ||||||||
(restated) | 2008 | |||||||
Land | $ | 75,272,012 | $ | 90,014,168 | ||||
Hotel buildings and improvements | 390,909,814 | 321,115,322 | ||||||
Furniture, fixtures and equipment | 87,642,374 | 64,738,527 | ||||||
Construction in progress | 8,551,354 | 45,387,313 | ||||||
562,375,554 | 521,255,330 | |||||||
Less accumulated depreciation | 79,607,953 | 59,361,060 | ||||||
$ | 482,767,601 | $ | 461,894,270 | |||||
2009 | 2008 | |||||||
Land | $ | 12,226,320 | $ | — | ||||
2009 | 2008 | |||||||
Prepaid land lease | $ | 3,635,595 | $ | — | ||||
Seller financed notes receivable | 438,584 | $ | — | |||||
$ | 4,074,179 | $ | — | |||||
F-38
2009 | 2008 | 2007 | ||||||||||
REVENUES | $ | 1,133,690 | $ | 6,825,908 | $ | 20,859,130 | ||||||
COSTS AND EXPENSES | ||||||||||||
Direct hotel operations | 348,065 | 2,210,724 | 7,484,861 | |||||||||
Other hotel operating expenses | 135,122 | 813,490 | 2,746,811 | |||||||||
General, selling and administrative | 258,495 | 1,058,716 | 4,088,156 | |||||||||
Repairs and maintenance | 36,091 | 199,290 | 1,096,351 | |||||||||
Depreciation and amortization | 153,948 | 720,140 | 2,751,368 | |||||||||
931,721 | 5,002,360 | 18,167,547 | ||||||||||
INCOME FROM OPERATIONS | 201,969 | 1,823,548 | 2,691,583 | |||||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Interest income | 116 | 16,790 | (22,818 | ) | ||||||||
Interest (expense) | (39,100 | ) | (556,342 | ) | (2,113,124 | ) | ||||||
Gain (loss) on disposal of assets | 1,301,823 | 8,994,599 | 11,031,504 | |||||||||
1,262,839 | 8,455,047 | 8,895,562 | ||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | $ | 1,464,808 | $ | 10,278,595 | $ | 11,587,145 | ||||||
F-39
2009 | 2008 | |||||||
Current assets | $ | — | $ | — | ||||
Property and equipment | — | 10,750,000 | ||||||
Intangible assets | — | — | ||||||
Total assets acquired | — | 10,750,000 | ||||||
Current liabilities | — | — | ||||||
Long-term debt | — | — | ||||||
Total liabilities assumed | — | — | ||||||
Net assets acquired | $ | — | 10,750,000 | |||||
2009 | 2008 | |||||||
Initial franchise fees | $ | 2,596,042 | $ | 2,270,544 | ||||
Deferred financing costs | 8,204,003 | 7,415,091 | ||||||
10,800,045 | 9,685,635 | |||||||
Less accumulated amortization | 5,971,860 | 4,020,839 | ||||||
Total | $ | 4,828,185 | $ | 5,664,796 | ||||
2010 | $ | 1,542,341 | ||
2011 | 1,174,959 | |||
2012 | 672,118 | |||
2013 | 357,098 | |||
2014 | 300,868 | |||
Thereafter | 780,801 | |||
$ | 4,828,185 | |||
F-40
Property | FF&E | |||||||||||||||||||
Financing Lender | Taxes | Insurance | Reserves | 2009 | 2008 | |||||||||||||||
Wells Fargo (Scottsdale) | $ | — | $ | — | $ | — | $ | — | $ | 1,556,520 | ||||||||||
Wells Fargo (Lehman) | 641,402 | 625,694 | 331,190 | 1,598,286 | 1,954,937 | |||||||||||||||
National Western Life | 31,178 | — | — | 31,178 | — | |||||||||||||||
Capmark (ING) | 128,504 | — | — | 128,504 | 195,166 | |||||||||||||||
Capmark (ING) | 145,061 | — | — | 145,061 | 501,778 | |||||||||||||||
Capmark (ING) | 83,473 | — | — | 83,473 | 31,485 | |||||||||||||||
Capmark (ING) | 99,741 | — | — | 99,741 | 9,515 | |||||||||||||||
$ | 1,129,359 | $ | 625,694 | $ | 331,190 | $ | 2,086,243 | $ | 4,249,401 | |||||||||||
2009 | 2008 | |||||||
Accrued sales and other taxes | $ | 5,238,690 | $ | 5,910,209 | ||||
Accrued salaries and benefits | 1,400,729 | 1,838,615 | ||||||
Accrued interest | 1,303,999 | 1,109,577 | ||||||
Other accrued expenses | 1,238,595 | 1,097,971 | ||||||
$ | 9,182,013 | $ | 9,956,372 | |||||
F-41
Interest | Maturity | |||||||||||||||||
Payee | Rate | Date | 2009 | 2008 | ||||||||||||||
Lehman Brothers Bank | Fixed (5.4025)% | 1/11/2012 | $ | 78,980,016 | $ | 81,016,607 | ||||||||||||
ING Investment Management | Fixed (5.60)% | 1/1/2012 | 30,088,766 | 31,211,603 | ||||||||||||||
Fixed (6.10)% | 7/1/2012 | 30,416,427 | 31,445,191 | |||||||||||||||
Fixed (6.61)% | 11/1/2013 | 6,412,683 | 6,578,270 | |||||||||||||||
Fixed (6.34)% | 7/1/2012 | 8,122,717 | 8,319,000 | |||||||||||||||
75,040,593 | 77,554,064 | |||||||||||||||||
National Western Life Insurance | (i | ) | Fixed (8.0)% | 1/1/2015 | 14,000,000 | — | ||||||||||||
Chambers Bank | Fixed (6.5)% | 6/24/2010 | 1,669,020 | 1,742,534 | ||||||||||||||
JP Morgan | Fixed (7.5)% | 11/11/2024 | — | 14,180,289 | ||||||||||||||
Bank of the Ozarks | (h | ) | Variable (6.75% at 12/31/09) | 6/29/2012 | 5,794,427 | — | ||||||||||||
MetaBank | (g | ) | Variable (5.0% at 12/31/09) | 4/1/2012 | 7,450,000 | — | ||||||||||||
BNC National Bank | Fixed (5.01)% | 11/1/2013 | 5,910,962 | 6,092,607 | ||||||||||||||
(f | ) | Variable (3.0% at 12/31/09 | 4/1/2016 | 5,755,882 | 2,041,373 | |||||||||||||
and 3.0% at 12/31/08) | 11,666,844 | 8,133,980 | ||||||||||||||||
M&I Bank | Variable (4.13% at 12/31/09 | 12/31/2010 | 9,895,727 | 9,895,727 | ||||||||||||||
and 6.8% at 12/31/08) | 12/31/2010 | 11,524,451 | 11,524,451 | |||||||||||||||
21,420,178 | 21,420,178 | |||||||||||||||||
General Electric Capital Corp. | Fixed (3.36%) | 12/1/2017 | 9,122,315 | 9,396,990 | ||||||||||||||
Variable (2.05% at 12/31/09 | ||||||||||||||||||
and 3.6% at 12/31/08) | 3/1/2019 | 11,300,000 | 9,557,647 | |||||||||||||||
(c | ) | Variable (3.0% at 12/31/09 | 4/1/2014 | 11,400,000 | 9,887,995 | |||||||||||||
and 4.4% at 12/31/08) | 31,822,315 | 28,842,632 | ||||||||||||||||
Fortress Credit Corp. | (b | ) | Variable (5.98% at 12/31/09 | 3/5/2010 | 83,524,828 | 74,899,566 | ||||||||||||
and 6.63% at 12/31/08) | ||||||||||||||||||
First National Bank of Omaha | (a | ) | Variable (5.5% at 12/31/09 | 7/1/2010 | 20,400,000 | 24,400,000 | ||||||||||||
and 3.03% at 12/31/08) | ||||||||||||||||||
First National Bank of Omaha | (a | ) | Fixed (5.25)% | 7/1/2013 | 16,081,630 | 16,889,585 | ||||||||||||
First National Bank of Omaha | (a | ) | Fixed (6.62)% | 4/1/2012 | — | 2,971,977 | ||||||||||||
First National Bank of Omaha | Fixed (5.25)% | 2/1/2014 | 8,771,867 | 13,462,622 | ||||||||||||||
Bank of Cascades | (d | ) | Variable (6.0% at 12/31/09 | 9/30/2011 | 12,445,888 | 1,862,974 | ||||||||||||
and 6.0% at 12/31/08) | ||||||||||||||||||
Compass Bank | (e | ) | Variable (4.5% at 12/31/09 | 5/17/2018 | 15,657,044 | 2,958,429 | ||||||||||||
and 3.0% at 12/31/08) | ||||||||||||||||||
Total long-term debt | 404,724,650 | 370,335,437 | ||||||||||||||||
Less current portion | (134,370,900 | ) | (19,508,600 | ) | ||||||||||||||
Total long-term debt, net of current portion | $ | 270,353,750 | $ | 350,826,837 | ||||||||||||||
(a) | The Company has a credit pool agreement with the First National Bank of Omaha providing the Company with medium-term financing up to $35,000,000 on a revolving basis through June 2010. The agreement allows for two-year |
F-42
interest only notes and five-year amortizing notes, for which the term of an individual note can extend beyond the term of the agreement. Interest on unpaid principal is payable monthly at a rate LIBOR plus 4.0% and a floor of between 5.25% and 5.50%. The amount of credit available on this agreement to the Company was $0 at December 31, 2009. | ||
(b) | On March 5, 2007, the Company closed on a loan with Fortress Credit Corporation to refinance the debt on several construction projects and provide equity for the acquisition, development and construction of additional real estate and hotel properties. The loan is in the amount of $99,700,000. The current balance on this note is $83,524,828 and carries a variable interest rate of 30-day LIBOR plus 575 basis points. The maturity date of the note is March 5, 2010. The amount of credit available on this loan was $16,175,172 at December 31, 2009. | |
(c) | On February 29, 2008, the Company entered into a loan with General Electric Capital Corporation in the amount of $11,400,000 to fund the land acquisition and hotel construction located in San Antonio, TX. The loan carries a variable interest rate of 90 day LIBOR plus 225 basis points and matures in May 2014. The current balance is approximately $11,400,000. |
(d) | On October 3, 2008, the Company entered into a loan with Bank of the Cascades in the amount of $13,270,000 to fund the land acquisition and hotel construction of the Residence Inn located in Portland, OR. The loan carries a variable interest rate of Prime, with a floor of 6%, and matures September 30, 2011. The current balance is approximately $12,445,888. The amount of credit available on this loan was approximately $824,000 at December 31, 2009. |
(e) | On September 17, 2008, the Company entered into a loan with Compass Bank in the amount of $19,250,000 to fund the land acquisition and hotel construction of the Courtyard by Marriott located in Flagstaff, AZ. The loan carries a variable interest rate of Prime minus 25 basis points and matures May 17, 2018. The current balance is approximately $15,657,044. The amount of credit available on this loan was approximately $3,593,000 at December 31, 2009. |
(f) | On October 1, 2008, the Company entered into a loan with BNC National Bank in the amount of $6,460,000 to fund the land acquisition and hotel construction of the Holiday Inn Express located in Twin Falls, ID. The loan carries a variable interest rate of Prime minus 25 basis points and matures April 1, 2016. The current balance is approximately $5,755,882. The amount of credit available on this loan was approximately $704,000 at December 31, 2009. |
(g) | On March 10, 2009, the Company entered into a loan modification agreement with MetaBank in the amount of $7,450,000 on the Boise, ID Cambria Suites. The loan modification extended the maturity date to April 1, 2012. |
(h) | On June 29, 2009, the Company entered into a loan with Bank of the Ozarks in the amount of $10,816,000 to fund the hotel construction located in Portland, OR. The loan carries a variable interest rate of 90 day LIBOR plus 400 basis points with a floor of 6.75% and matures on June 29, 2012. The current balance is approximately $5,794,427. The amount of credit available on this loan was approximately $4,778,000 at December 31, 2009. | |
(i) | On December 9, 2009, the Company entered into two loans with National Western Life Insurance Company in the amounts of $8,650,000 and $5,350,000 to refinance the JP Morgan debt on the two Scottsdale, AZ hotels. The loans carry a fixed rate of 8.0% and mature on January 1, 2015. The current balance on the two notes is $14,000,000. |
2010 | $ | 134,370,900 | ||
2011 | 19,601,500 | |||
2012 | 147,401,500 | |||
2013 | 36,369,600 | |||
2014 | 28,574,200 | |||
Thereafter | 38,406,950 | |||
$ | 404,724,650 | |||
F-43
F-44
2010 | $ | 237,475 | ||
2011 | 241,855 | |||
2012 | 246,366 | |||
2013 | 251,012 | |||
2014 | 255,798 | |||
Thereafter | 6,994,127 | |||
$ | 8,226,633 | |||
F-45
Three Months Ended | Year Ended | |||||||||||||||||||
3/31 | 6/30 | 9/30 | 12/31 | 12/31 | ||||||||||||||||
2009 (restated): | ||||||||||||||||||||
Total revenue | $ | 29,301 | $ | 31,293 | $ | 32,211 | $ | 28,395 | $ | 121,200 | ||||||||||
Net income (loss) from continuing operations before minority interests | (1,698 | ) | (1,619 | ) | (6,914 | ) | (7,548 | ) | (17,779 | ) | ||||||||||
Less minority interests in operations of consolidated partnerships | (123 | ) | (63 | ) | 393 | (207 | ) | — | ||||||||||||
Net income (loss) from continuing operations | (1,575 | ) | (1,556 | ) | (7,307 | ) | (7,341 | ) | (17,779 | ) | ||||||||||
Discontinued operations | 104 | 1,697 | (336 | ) | — | 1,465 | ||||||||||||||
Net income (loss) before income taxes | (1,471 | ) | 141 | (7,643 | ) | (7,341 | ) | (16,314 | ) | |||||||||||
Less state income tax | — | — | (20 | ) | 20 | — | ||||||||||||||
Net income (loss) | $ | (1,471 | ) | $ | 141 | $ | (7,623 | ) | $ | (7,361 | ) | $ | (16,314 | ) | ||||||
Net income (loss) per unit: | $ | (893.99 | ) | $ | 82.31 | $ | (4,422.24 | ) | $ | (4,157.62 | ) | $ | (9,391.54 | ) | ||||||
2008: | ||||||||||||||||||||
Total revenue | $ | 32,381 | $ | 35,556 | $ | 38,018 | $ | 29,152 | $ | 135,107 | ||||||||||
Net income (loss) from continuing operations before minority interests | 459 | 2,688 | 5,337 | (4,473 | ) | 4,011 | ||||||||||||||
Less minority interests in operations of consolidated partnerships | 244 | 73 | (158 | ) | 225 | 384 | ||||||||||||||
Net income (loss) from continuing operations | 215 | 2,615 | 5,495 | (4,698 | ) | 3,627 | ||||||||||||||
Discontinued operations | 290 | 1,751 | 8,048 | 189 | 10,278 | |||||||||||||||
Net income (loss) before income taxes | 505 | 4,366 | 13,543 | (4,509 | ) | 13,905 | ||||||||||||||
Less state income tax | — | 309 | 895 | (378 | ) | 826 | ||||||||||||||
Net income (loss) | $ | 505 | $ | 4,057 | $ | 12,648 | $ | (4,131 | ) | $ | 13,079 | |||||||||
Net income (loss) per unit: | $ | 324.79 | $ | 2,609.29 | $ | 8,134.65 | $ | (2,656.88 | ) | $ | 8,411.67 | |||||||||
2007: | ||||||||||||||||||||
Total revenue | $ | 25,855 | $ | 29,105 | $ | 30,590 | $ | 28,339 | $ | 113,889 | ||||||||||
Net income (loss) from continuing operations before minority interests | 2,624 | 875 | 2,919 | (2,500 | ) | 3,918 | ||||||||||||||
Less minority interests in operations of consolidated partnerships | 333 | 219 | (107 | ) | 333 | 778 | ||||||||||||||
Net income (loss) from continuing operations | 2,291 | 656 | 3,026 | (2,833 | ) | 3,140 | ||||||||||||||
Discontinued operations | 6 | 3,561 | 2,076 | 5,944 | 11,587 | |||||||||||||||
Net income (loss) before income taxes | 2,297 | 4,217 | 5,102 | 3,111 | 14,727 | |||||||||||||||
Less state income tax | 72 | 411 | 298 | (66 | ) | 715 | ||||||||||||||
Net income (loss) | $ | 2,225 | $ | 3,806 | $ | 4,804 | $ | 3,177 | $ | 14,012 | ||||||||||
Net income (loss) per unit: | $ | 1,431.02 | $ | 2,447.86 | $ | 3,089.73 | $ | 2,043.31 | $ | 9,012.19 |
F-46
For the Year Ended December 31: | ||||||||||||
2009 | ||||||||||||
(restated) | 2008 | 2007 | ||||||||||
Total revenue | $ | 121,199,736 | $ | 142,583,370 | $ | 136,638,460 | ||||||
Net income before minority interests | (16,466,961 | ) | 12,984,433 | 14,040,192 | ||||||||
Minority interests in operations of consolidated partnerships | — | 384,269 | 777,762 | |||||||||
Net income | $ | (16,466,961 | ) | $ | 12,600,164 | $ | 13,262,430 | |||||
Net income per unit: | $ | (9,479.41 | ) | $ | 8,103.89 | $ | 8,529.83 |
December 31, 2009 | ||||||||
As Previously | As | |||||||
Reported | Restated | |||||||
Consolidated Balance Sheet | ||||||||
Property and Equipment, net | $ | 483,940,701 | $ | 482,767,601 | ||||
Total Assets | $ | 519,419,531 | $ | 518,246,431 | ||||
Class A, 1,166.62 units | $ | 60,451,469 | $ | 59,961,958 | ||||
Class A-1, 437.83 & 196.50 units | 34,330,877 | 34,244,056 | ||||||
Class B, 81.36 units | 1,891,187 | 1,804,718 | ||||||
Class C, 173.60 units | (12,576,658 | ) | (13,086,957 | ) | ||||
Total Summit Hotel Properties, LLC members’ equity | $ | 84,096,875 | $ | 82,923,775 | ||||
Total Equity | $ | 82,472,412 | $ | 81,299,312 | ||||
Total Liabilities and Members’ Equity | $ | 519,419,531 | $ | 518,246,431 | ||||
Consolidated Statement of Operations | ||||||||
Loss on impairment of assets | $ | 6,332,836 | $ | 7,505,836 | ||||
Costs and expenses | 119,530,510 | 120,703,610 | ||||||
Income from operations | 1,669,226 | 496,126 | ||||||
Income (loss) from continuing operations | (16,606,040 | ) | (17,779,140 | ) |
F-47
December 31, 2009 | ||||||||
As Previously | As | |||||||
Reported | Restated | |||||||
Net income (loss) before income taxes | $ | (15,141,232 | ) | $ | (16,314,332 | ) | ||
Net income (loss) | (15,141,232 | ) | (16,314,332 | ) | ||||
Net loss attributable to Summit Hotel Properties, LLC | $ | (15,141,232 | ) | $ | (16,314,332 | ) | ||
Basic and diluted loss per $100,000 capital unit | $ | (8,716.23 | ) | $ | (9,391.54 | ) | ||
Consolidated Statement of Changes in Members’ Equity | ||||||||
Net Income (Loss) | $ | (15,141,323 | ) | $ | (16,314,332 | ) | ||
Class A | (6,318,133 | ) | (6,807,644 | ) | ||||
Class A-1 | (1,120,603 | ) | (1,207,424 | ) | ||||
Class B | (1,116,060 | ) | (1,202,529 | ) | ||||
Class C | (6,586,436 | ) | (7,096,735 | ) | ||||
Total Summit Hotel Properties, LLC members’ equity | $ | 84,096,875 | $ | 82,923,775 | ||||
Class A | 60,451,469 | 59,961,958 | ||||||
Class A-1 | 34,330,877 | 34,244,056 | ||||||
Class B | 1,891,187 | 1,804,718 | ||||||
Class C | (12,576,658 | ) | (13,086,957 | ) | ||||
Consolidated Statement of Cash Flows Net income (loss) | $ | (15,141,232 | ) | $ | (16,314,332 | ) | ||
Loss on impairment of assets | $ | 6,332,836 | $ | 7,505,836 |
F-48
Item 31. | Other Expenses of Issuance and Distribution. |
SEC registration fee | $ | 23,205 | ||
FINRA filing fee | 33,045 | |||
NYSE listing fee | ||||
Printing and engraving fees | ||||
Legal fees and expenses | ||||
Accounting fees and expenses | ||||
Transfer agent and registrar fees | ||||
Director and officer liability insurance policy premium | ||||
Miscellaneous Expenses | ||||
Total | $ | |||
Item 32. | Sales to Special Parties. |
Item 33. | Recent Sales of Unregistered Securities. |
Item 34. | Indemnification of Directors and Officers. |
II-1
• | the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty; | |
• | the director or officer actually received an improper personal benefit in money, property or services; or | |
• | in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. |
• | a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation; and | |
• | a written undertaking by the director or officer or on the director’s or officer’s behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct. |
• | any present or former director or officer of our company who is made, or threatened to be made, a party to the proceeding by reason of his or her service in that capacity; or |
• | any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in that capacity. |
Item 35. | Treatment of Proceeds from Stock Being Registered. |
Item 36. | Financial Statements and Exhibits. |
(a) | Financial Statements. |
(b) | Exhibits. |
II-2
Item 37. | Undertakings. |
II-3
By: | /s/ Kerry W. Boekelheide |
Signature | Title | Date | ||||
/s/ Kerry W. Boekelheide Kerry W. Boekelheide | Executive Chairman of the Board and Director | December 2, 2010 | ||||
/s/ Daniel P. Hansen Daniel P. Hansen | President and Chief Executive Officer and Director (principal executive officer) | December 2, 2010 | ||||
/s/ Stuart J. Becker Stuart J. Becker | Executive Vice President and Chief Financial Officer (principal financial officer) | December 2, 2010 | ||||
/s/ JoLynn M. Sorum JoLynn M. Sorum | Vice President, Controller and Chief Accounting Officer (principal accounting officer) | December 2, 2010 |
II-4
Exhibit | ||||
Number | Exhibit Description | |||
1 | .1* | Form of Underwriting Agreement | ||
3 | .1** | Form of Articles of Amendment and Restatement of Summit Hotel Properties, Inc. | ||
3 | .2** | Form of Amended and Restated Bylaws of Summit Hotel Properties, Inc. | ||
3 | .3** | Form of First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (replaces Exhibit 3.3 previously filed by the Registrant on Form S-11 on September 23, 2009 (File No. 333-168685)) | ||
4 | .1** | Form of Common Stock Certificate | ||
5 | .1* | Opinion of Venable LLP regarding the validity of the securities being registered | ||
8 | .1* | Opinion of Hunton & Williams LLP regarding tax matters | ||
10 | .1** | Agreement and Plan of Merger, dated August 5, 2010, by and among Summit Hotel Properties, LLC and Summit Hotel OP, LP | ||
10 | .2(a)** | Contribution Agreement, dated August 5, 2010, by and between The Summit Group, Inc. and Summit Hotel OP, LP | ||
10 | .2(b)** | Contribution Agreement, dated August 5, 2010, by and between Summit Hotel OP, LP and Gary Tharaldson | ||
10 | .3** | Form of Hotel Management Agreement | ||
10 | .4** | Form of TRS Lease | ||
10 | .5** | Form of Summit Hotel Properties, Inc. 2010 Equity Incentive Plan | ||
10 | .6** | Form of Option Award Agreement | ||
10 | .7** | Form of Employment Agreement between Summit Hotel Properties, Inc. and Kerry W. Boekelheide | ||
10 | .8** | Form of Employment Agreement between Summit Hotel Properties, Inc. and Daniel P. Hansen | ||
10 | .9** | Form of Employment Agreement between Summit Hotel Properties, Inc. and Craig J. Aniszewski | ||
10 | .10** | Form of Employment Agreement between Summit Hotel Properties, Inc. and Stuart J. Becker | ||
10 | .11** | Form of Employment Agreement between Summit Hotel Properties, Inc. and Ryan A. Bertucci | ||
10 | .12** | Form of Severance Agreement between Summit Hotel Properties, Inc. and Christopher R. Eng | ||
10 | .13** | Form of Severance Agreement between Summit Hotel Properties, Inc. and JoLynn M. Sorum | ||
10 | .14** | Form of Indemnification Agreement between Summit Hotel Properties, Inc. and each of its Executive Officers and Directors (replaces Exhibit 10.14 previously filed by the Registrant on Form S-11 on September 23, 2010 (File No. 333-168686)) | ||
10 | .15** | Loan Agreement between Summit Hotel Properties, LLC and ING Life Insurance and Annuity Company dated December 23, 2005 | ||
10 | .16** | Loan Agreement between Summit Hotel Properties, LLC and ING Life Insurance and Annuity Company, dated June 15, 2006 | ||
10 | .17** | First Modification of Loan Agreement between Summit Hotel Properties, LLC and ING Life Insurance and Annuity Company, dated April 24, 2007 | ||
10 | .18** | Modification of Promissory Note and Loan Agreement between Summit Hotel Properties, LLC and ING Life Insurance and Annuity Company, dated November 28, 2007 | ||
10 | .19** | Loan Agreement between Summit Hotel Properties, LLC and General Electric Capital Corporation, dated April 30, 2007, for a loan in the amount of $9,500,000 | ||
10 | .20** | Loan Agreement between Summit Hotel Properties, LLC and General Electric Capital Corporation, dated August 15, 2007, for a loan in the amount of $11,300,000 | ||
10 | .21** | Loan Modification Agreement between Summit Hotel Properties, LLC and General Electric Capital Corporation ($11,300,000 loan), dated December 2008 | ||
10 | .22** | Loan Agreement between Summit Hospitality V, LLC and General Electric Capital Corporation, dated February 29, 2008, for a loan in the amount of $11,400,000 | ||
10 | .23** | Loan Agreement between Summit Hotel Properties, LLC and Compass Bank, dated September 17, 2008, for a loan in the amount of $19,250,000 | ||
10 | .24** | Form of Tax Protection Agreement | ||
10 | .25 | Stock Purchase Agreement, dated December 2, 2010, among Summit Hotel Properties, Inc., Summit Hotel OP, LP and Six Continents Limited | ||
10 | .26 | Sourcing Agreement, dated December 2, 2010, between InterContinental Hotels Group and Summit Hotel Properties, Inc. | ||
21 | .1** | List of Subsidiaries of Summit Hotel Properties, Inc. | ||
23 | .1 | Consent of KPMG LLP | ||
23 | .2 | Consent of Eide Bailly LLP |
Exhibit | ||||
Number | Exhibit Description | |||
23 | .3 | Consent of Gordon, Hughes & Banks, LLP | ||
23 | .4* | Consent of Venable LLP (included in Exhibit 5.1) | ||
23 | .5* | Consent of Hunton & Williams LLP (included in Exhibit 8.1) | ||
99 | .1** | Consent of Bjorn R. L. Hanson to being named as a director | ||
99 | .2** | Consent of David S. Kay to being named as a director | ||
99 | .3** | Consent of Thomas W. Storey to being named as a director | ||
99 | .4** | Consent of Wayne W. Wielgus to being named as a director |
* | To be filed by amendment. | |
** | Previously filed. |