Nashville Hotel Group, LLC
Courtyard Nashville Downtown
Financial Report
For the Three Months Ended March 31, 2015 and 2014 (Unaudited)
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| Contents |
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| Financial Statements | |
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| Balance Sheet (Unaudited) | 2 |
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| Statement of Operations (Unaudited) | 3 |
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| Statements of Changes in Members' Equity (Deficit) (Unaudited) | 4 |
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| Statements of Cash Flows (Unaudited) | 5 |
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| Notes to Financial Statements (Unaudited) | 6-9 |
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| Nashville Hotel Group, LLC | |
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| Balance Sheet (Unaudited) | |
| March 31, 2015 | |
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| Assets | |
| Investment in hotel property, net | $ | 15,139,912 |
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| Cash and cash equivalents | 2,368,641 |
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| Restricted cash | 763,285 |
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| Accounts receivable | 153,861 |
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| Deferred financing costs, net | 59,965 |
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| Prepaid expenses and other assets | 127,098 |
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| | $ | 18,612,762 |
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| Liabilities and Members' Equity | |
| Liabilities | |
| Mortgage payable | $ | 15,660,000 |
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| Accounts payable and accrued expenses | 294,645 |
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| Due to affiliates | 102,412 |
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| Advance deposits | 30,681 |
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| Accrued property taxes | 84,929 |
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| Accrued franchise and excise tax | 104,366 |
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| Deferred rent liability | 724,832 |
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| | 17,001,865 |
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| Members' Equity | 1,610,897 |
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| | $ | 18,612,762 |
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| See Notes to Financial Statements (Unaudited). | |
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| Nashville Hotel Group, LLC | | |
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| Statements of Operations (Unaudited) | | |
| Three Months Ended March 31, 2015 and 2014 | | |
| | 2015 | 2014 |
| Revenue: | | |
| Rooms | $ | 2,362,781 |
| $ | 2,707,592 |
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| Food and beverage | 213,808 |
| 211,389 |
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| Other hotel income | 60,503 |
| 80,684 |
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| | 2,637,092 |
| 2,999,665 |
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| Expenses: | | |
| Rooms | 382,567 |
| 392,286 |
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| Food and beverage | 160,369 |
| 145,200 |
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| Other hotel expense | 4,555 |
| 7,413 |
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| Administrative and general | 203,064 |
| 196,066 |
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| Sales and marketing | 180,010 |
| 161,868 |
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| Property taxes and other | 88,496 |
| 84,450 |
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| Rent expense | 92,063 |
| 91,341 |
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| Insurance | 10,285 |
| 12,498 |
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| Utilities | 98,264 |
| 98,589 |
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| Repairs and maintenance | 80,911 |
| 67,572 |
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| Management fees | 330,723 |
| 454,378 |
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| Depreciation | 226,909 |
| 229,755 |
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| | 1,858,216 |
| 1,941,416 |
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| Income from operations | 778,876 |
| 1,058,249 |
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| Other (income) expenses: | | |
| Interest income | (67) |
| (65) |
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| State franchise and excise tax | 82,804 |
| 82,804 |
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| Interest expense | 218,961 |
| 224,170 |
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| Interest expense - amortization of deferred financing costs | 4,997 |
| 4,997 |
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| | 306,695 |
| 311,906 |
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| Net income | $ | 472,181 |
| $ | 746,343 |
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| See Notes to Financial Statements (Unaudited). | | |
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| Nashville Hotel Group, LLC | |
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| Statements of Changes in Members' Equity (Deficit) (Unaudited) | |
| Three Months Ended March 31, 2015 and 2014 | |
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| Balance, January 1, 2014 | $ | (392,044 | ) |
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| Net income | 746,343 |
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| Balance, March 31, 2014 | $ | 354,299 |
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| Balance, January 1, 2015 | $ | 1,138,716 |
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| Net income | 472,181 |
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| Balance, March 31, 2015 | $ | 1,610,897 |
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| See Notes to Financial Statements (Unaudited). | |
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| Nashville Hotel Group, LLC | | |
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| Statements of Cash Flows (Unaudited) | | |
| Three Months Ended March 31, 2015 and 2014 | | |
| | 2015 | 2014 |
| Cash Flows from Operating Activities | | |
| Net income | $ | 472,181 |
| $ | 746,343 |
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| Adjustments to reconcile net income to net cash | | |
| provided by operating activities | | |
| Depreciation | 226,909 |
| 229,755 |
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| Amortization of deferred financing costs | 4,997 |
| 4,997 |
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| Deferred rent liability | (2,507) |
| (2,507) |
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| Changes in: | | |
| Accounts receivable | 157,904 |
| (96,584) |
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| Prepaid expenses | (428) |
| 820 |
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| Due to/from affiliates | 364,950 |
| (295,659) |
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| Accounts payable and accrued expenses | 16,905 |
| 68,579 |
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| Accrued property taxes | (254,885) |
| (254,885) |
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| Accrued excise and franchise taxes | 82,804 |
| 29,804 |
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| Advance deposits | (30,720) |
| 46,665 |
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| Net cash provided by operating activities | 1,038,110 |
| 477,328 |
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| Cash Flows from Investing Activities | | |
| Additions to hotel operating property | (1,251,445) |
| (93,459) |
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| Restricted cash | 661,872 |
| 137,793 |
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| Net cash (used in) provided by investing activities | (589,573) |
| 44,334 |
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| Cash Flows from Financing Activities | | |
| Payments of mortgage note payable | (96,359) |
| (91,150) |
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| Net cash used in financing activities | (96,359) |
| (91,150) |
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| Increase in cash and cash equivalents | 352,178 |
| 430,512 |
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| Cash and cash equivalents: | | |
| Beginning of period | 2,016,463 |
| 788,873 |
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| End of period | $ | 2,368,641 |
| $ | 1,219,385 |
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| Supplemental Disclosure of Cash Flow Information | | |
| Interest paid | $ | 219,411 |
| $ | 224,593 |
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| See Notes to Financial Statements (Unaudited). | | |
Nashville Hotel Group, LLC
Notes to Financial Statements (Unaudited)
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| Note 1. | Nature of Business and Significant Accounting Policies |
Nashville Hotel Group, LLC (the Company), a South Carolina limited liability company, was formed on April 26, 1996, for the purpose of acquiring, developing and operating the Courtyard Nashville Downtown (the Hotel), a 192 room select-service hotel located in the Printers Alley Historic District of Nashville, Tennessee. Pursuant to the terms of the Limited Liability Company Agreement and all amendments (the Agreement), the Company will terminate on December 31, 2071, or an earlier date as provided for in the Agreement.
At March 31, 2015, the Company’s members include Schaedale Worthington Hyde Properties, L.P. with a 99 percent membership interest (the Managing Member) and Marriott Hotel Services, Inc. with a 1 percent membership interest (collectively the Members). All profits, losses, distributions and contributions are allocated in accordance with the Members’ Percentage Interests in accordance with the Agreement.
On May 1, 2015, the Hotel was sold to an unaffiliated third party (Note 8).
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| Note 2. | Summary of Significant Accounting Policies |
Basis of presentation: The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America (GAAP).
In the opinion of management, the unaudited financial information for the interim periods presented in this interim financial report reflect all normal and recurring adjustments necessary for a fair statement of financial position, results of operations and cash flows. The interim financial statements should be read in conjunction with the audited financial statements and accompanying notes of the Company for the years ended December 31, 2014 and 2013 (collectively the audited financial statements), as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this interim financial report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.
Use of estimates: The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. The Company maintained cash balances in financial institutions that, from time to time, exceeded the Federal Deposit Insurance Corporation (FDIC) insured limit. The Company believes the Hotel is not exposed to any significant credit risk related to cash.
Restricted cash: Restricted cash consists of cash held in escrow reserves to be utilized for the payment of future capital improvements as well as funding tax and insurance escrows.
Accounts receivable: Accounts receivable are comprised of (a) amounts billed but uncollected for room rental, food and beverage sales and other hotel income and (b) amounts earned but unbilled for the aforementioned services until guests check out of the Hotel. Receivables are recorded at the Company’s respective estimate of the amounts that will ultimately be collected. On a periodic basis, accounts receivable balances are evaluated and an allowance for doubtful accounts is established, when deemed necessary, based on its history of past write offs, collections and current credit conditions. At March 31, 2015, there was no allowance for doubtful accounts.
Nashville Hotel Group, LLC
Notes to Financial Statements (Unaudited)
Note 2. Summary of Significant Accounting Policies (Continued)
Investment in hotel property and depreciation: Investment in hotel property including land, building and improvements, furniture, fixtures, and equipment are stated at cost. Replacements and improvements are capitalized and recorded at cost, while repairs and maintenance are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, 40 years for the building, 10 years for building improvements,10 years for land improvements, and 3 to 10 years for furniture, fixtures, and equipment.
Impairment of long-lived assets: The Company reviews long-lived assets and certain identifiable intangibles with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to estimated future cash flows expected to be generated by the asset. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment of the carrying value of long-lived assets was recognized for three months ended March 31, 2015 and 2014.
Deferred financing costs: Deferred finance fees are bank fees and other costs incurred in obtaining financing that are amortized over the term of the respective loan agreement using a method which approximates the effective interest method.
Advance deposits: Advances received for rooms, group reservations, banquets, food and beverage, and other property operations in advance of providing the related services are deferred. Related revenue is recognized when occupancy or the service is performed, or when an advance deposit is forfeited.
Revenue recognition: Hotel revenues are recognized when the services are provided and items are sold. Revenues consist of individual and group room sales, food and beverage sales and other hotel revenues such as telephone and rental income.
Sales and marketing costs: All sales and marketing costs, including production cost of print, radio, television, and other advertisements are expensed, as incurred.
Presentation of sales tax: Sales tax is collected from all nonexempt customers and the Company remits the entire amount to the respective state tax jurisdiction upon collection from the customer. The accounting policy is to exclude the tax collected and remitted to the state from revenue and expense.
Income taxes: The Company has elected to be taxed as a limited liability company treated as a partnership and as such does not pay federal income taxes on its taxable income. Instead, the Members are liable for federal income taxes that result from the taxable income generated from its investments. The State of Tennessee subjects certain limited liability companies to a franchise and excise (income) tax at the entity level. The Company is subject to this tax, which amounted to $82,804 for both the three months ended March 31, 2015 and 2014.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions are more-likely-than-not of being sustained when challenged or when examined by the applicable taxing authority. For the three months ended March 31 2015 and 2014, the Company has determined that there are no material uncertain income tax positions.
With a few exceptions, the Company is no longer subject to income tax examinations by taxing authorities for years before 2011.
Nashville Hotel Group, LLC
Notes to Financial Statements (Unaudited)
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| Note 3. | Investment in Hotel Property |
At March 31, 2015, investment in hotel property consists of the following:
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| Land | $ | 1,807,949 |
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| Buildings and improvements | 21,817,808 |
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| Furniture, fixture and equipment | 4,110,653 |
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| Construction in progress | 1,457,896 |
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| | 29,194,306 |
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| Less accumulated depreciation | (14,054,394) |
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| Investment in hotel property, net | $ | 15,139,912 |
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| Note 4. | Mortgage Note Payable |
On April 28, 2011, the Company entered into an amended and restated mortgage loan agreement with an aggregate principal balance of $17,000,000. The loan requires monthly payments of interest and principal of $105,107 and a balloon payment of any remaining unpaid principal and accrued interest at the maturity date of May 1, 2018. The note bears interest at 5.57 percent and was collateralized by a mortgage on the Hotel. The Company may only prepay the mortgage for any month in entirety after the 49th month following the loan funding pursuant to the terms of the mortgage loan agreement. At March 31, 2015, the balance on the mortgage note payable was $15,660,000.
The future minimum payments of the mortgage note payable are as follows:
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| 2015 (9 months) | $ | 297,240 |
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| 2016 | 416,091 |
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| 2017 | 439,868 |
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| 2018 | 14,506,801 |
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| | $ | 15,660,000 |
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In connection with the sale of the property to an unrelated third party (Note 8), the outstanding balance of the mortgage loan had been repaid in its entirety.
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| Note 5. | Related Party Transactions |
The Company entered into an agreement with Marriott International Inc. (Marriott), an affiliate of one of the Members, to perform property management (the Marriott Agreement) and other services for the Hotel. Commencing with the acquisition of the Hotel, the initial term of the Marriott Agreement is through 2028 with one automatic renewal for 10 additional years. Pursuant to the terms of the Marriott Agreement, a base annual management fee of 7 percent of gross operating revenues of the Hotel, as defined in the Marriott Agreement and an incentive fee as calculated per the terms of the Marriott Agreement are required. For the three months ended March 31, 2015 and 2014, the Company incurred $184,596 and $209,977, respectively, of base management fees. For the three months ended March 31, 2015 and 2014, the Company incurred $146,127 and $244,401, respectively, of incentive management fees.
Nashville Hotel Group, LLC
Notes to Financial Statements (Unaudited)
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| Note 6. | Commitments and Contingencies |
The Company has two noncancelable leases for the parking facility attached to the Hotel through 2028. Under these provisions, future minimum lease commitments are as follows as of March 31, 2015:
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| Year Ending December 31, | |
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| 2015 (9 months) | $ | 279,000 |
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| 2016 | 372,000 |
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| 2017 | 372,000 |
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| 2018 | 390,000 |
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| 2019 | 408,000 |
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| Thereafter | 3,718,000 |
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| | $ | 5,539,000 |
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Both leases provide for annual rent that increases on every 5th anniversary based on the increase in the Consumer Price Index (CPI) for the immediately preceding 5 years. For financial statement purposes, rent expense is being recorded on a straight-line basis over both lease terms. Accordingly, at March 31, 2015, a deferred rent liability of $724,832 is included in the accompanying balance sheet and results from the excess of straight-line rent over the amounts payable pursuant to the leases. Rent expense under these leases, including escalations as described above, amounted to approximately $90,000 both for the three months ended March 31, 2015 and 2014 and are included within rent expense within the accompanying statements of operations.
The Company may be involved from time to time in litigation arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity.
On February 13, 2015, the Company entered into an agreement to sell the Hotel to an unrelated third party for a purchase price of $57,900,000. The sale of the Hotel was completed on May 1, 2015. In connection with the sale, the acquirer paid off any existing amounts due under the mortgage note payable. Marriott was retained to manage and operate the Hotel.
Subsequent events were evaluated for potential recognition and/or disclosures in the financial statements through July 16, 2015, the date the financial statements were available to be issued.
