Notes to the Consolidated Financial Statements
(in thousands, except share and per share data, unless otherwise specified)
(unaudited)
1. Organization
Chatham Lodging Trust (“we,” “us” or the “Company”) was formed as a Maryland real estate investment trust (“REIT”) on October 26, 2009. The Company is internally-managed and invests primarily in upscale extended-stay and premium-branded select-service hotels.
In January 2014, the Company established an At the Market Equity Offering ("ATM Plan") whereby, from time to time, we may publicly offer and sell our common shares having an aggregate maximum offering price of up to
$50 million
by means of ordinary brokers’ transactions on the New York Stock Exchange (the "NYSE"), in negotiated transactions or in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, with Cantor Fitzgerald & Co. ("Cantor") acting as sales agent pursuant to a Sales Agreement (the “Cantor Sales Agreement”). On January 13, 2015, the Company entered into a Sales Agreement (the “Barclays Sales Agreement”) with Barclays Capital Inc. (“Barclays”) to add Barclays as an additional sales agent under the Company’s ATM Plan. As of
March 31, 2017
, we had issued
880,820
shares under the ATM Plan at a weighted average price of
$23.54
. As of
March 31, 2017
, there was approximately
$29.3
million available for issuance under the ATM Plan.
In January 2014, the Company established a
$25 million
dividend reinvestment and stock purchase plan ("DRSPP"). Under the DRSPP, shareholders may purchase additional common shares by reinvesting some or all of the cash dividends received on the Company's common shares. Shareholders may also make optional cash purchases of the Company's common shares subject to certain limitations detailed in the prospectus for the DRSPP. In January 2017, we filed a new
$25 million
registration statement for the DRSPP to replace the prior existing program. As of
March 31, 2017
, we had issued
35,998
shares under the DRSPP at a weighted average price of
$21.02
. As of
March 31, 2017
, there was approximately
$24.2
million available for issuance under the DRSPP.
The net proceeds from any share offerings or issuances are contributed to Chatham Lodging, L.P., our operating partnership (the “Operating Partnership”), in exchange for partnership interests. Substantially all of the Company’s assets are held by, and all operations are conducted through, the Operating Partnership. Chatham Lodging Trust is the sole general partner of the Operating Partnership and owns
100%
of the common units of limited partnership interest in the Operating Partnership. Certain of the Company’s executive officers hold vested and unvested long-term incentive plan units in the Operating Partnership ("LTIP units"), which are presented as non-controlling interests on our consolidated balance sheets.
On January 1, 2016, the Company adopted accounting guidance under Accounting Standards Codification (ASC) Topic 810, "Consolidation,” modifying the analysis it must perform to determine whether it should consolidate certain types of legal entities. The guidance does not amend the existing disclosure requirements for variable interest entities ("VIEs") or voting interest model entities. The guidance, however, modified the requirements to qualify under the voting interest model. Under the revised guidance, the Operating Partnership will be a VIE of the Company. As the Operating Partnership is already consolidated in the financial statements of the Company, the identification of this entity as a VIE has no impact on the consolidated financial statements of the Company. There were no other legal entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption. In addition, there were no other voting interest entities under prior existing guidance determined to be variable interest entities under the revised guidance.
As of
March 31, 2017
, the Company wholly owned
38
hotels with an aggregate of
5,712
rooms located in
15
states and the District of Columbia. As of
March 31, 2017
, the Company also (i) held a
10.3%
noncontrolling interest in a joint venture (the “NewINK JV”) with affiliates of Colony NorthStar, Inc. ("CLNS"), which was formed in the second quarter of 2014 and acquired
47
hotels comprising an aggregate of
6,097
rooms from a joint venture (the "Innkeepers JV") between the Company and Cerberus Capital Management ("Cerberus") and (ii) held a
10.0%
noncontrolling interest in a separate joint venture (the "Inland JV") with affiliates of CLNS, which was formed in the fourth quarter of 2014 and acquired
48
hotels from Inland American Real Estate Trust, Inc. ("Inland"), comprising an aggregate of
6,401
rooms. We sometimes refer to the NewINK JV and Inland JV collectively as the ("JVs").
To qualify as a REIT, the Company cannot operate the hotels. Therefore, the Operating Partnership and its subsidiaries lease the Company's wholly owned hotels to taxable REIT subsidiary lessees (“TRS Lessees”), which are wholly owned by the Company’s taxable REIT subsidiary (“TRS”) holding company. The Company indirectly (i) owns its
10.3%
interest in all of the
47
NewINK JV hotels and (ii) owns its
10%
interest in all of the
48
Inland JV hotels through the Operating Partnership. All of the NewINK JV hotels and Inland JV hotels are leased to TRS Lessees, in which the Company indirectly owns noncontrolling interests through its TRS holding company. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel revenue. The initial term of each of the TRS leases is
5 years
. Lease revenue from each TRS Lessee is eliminated in consolidation.
The TRS Lessees have entered into management agreements with third-party management companies that provide day-to-day management for the hotels. As of
March 31, 2017
, Island Hospitality Management LLC (“IHM”), which is
51%
owned by Jeffrey H. Fisher, the Company's Chairman, President and Chief Executive Officer, managed all
38
of the Company’s wholly owned hotels. As of
March 31, 2017
, all of the NewINK JV hotels were managed by IHM. As of
March 31, 2017
,
34
of the Inland JV hotels were managed by IHM and
14
hotels were managed by Marriott International, Inc. ("Marriott").
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. These unaudited consolidated financial statements, in the opinion of management, include all adjustments consisting of normal, recurring adjustments which are considered necessary for a fair statement of the consolidated balance sheets, consolidated statements of operations, consolidated statements of equity, and consolidated statements of cash flows for the periods presented. Interim results are not necessarily indicative of full year performance due to seasonal and other factors, including the timing of the acquisition of hotels.
The consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements prepared in accordance with GAAP, and the related notes thereto as of
December 31, 2016
, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2016
.
Reclassifications
Certain prior period amounts in the consolidated financial statements have been reclassified to conform to be comparable to the current period presentation. The reclassification did not have any impact on the previously reported income or equity.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
3. Recently Issued Accounting Standards
On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09 ("ASU 2014-09"),
Revenue from Contracts with Customers
, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption beginning January 1, 2017. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. The Company has begun to evaluate each of its revenue streams under the new model. Based on preliminary assessments, the Company does not expect adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.
On February 25, 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”),
Leases
, which relates to the accounting for leasing transactions. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 is expected to impact the Company's financial statements as the Company has certain operating/land rights arrangements for which the Company is the lessee.
On August 26, 2016, the FASB issued ASU 2016-15 ("ASU 2016-15"),
Classification of Certain Cash Receipts and Cash Payments,
which clarifies and provides specific guidance on eight cash flow classification issues with an objective to reduce the current diversity in practice. This standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years with earlier adoption permitted. We are evaluating the impact the adoption of ASU 2016-15 will have on our consolidated financial statements as the Company has certain cash payments and receipts related to debt extinguishment and distributions from equity method investments that will be affected by the new standard.
On November 17, 2016, the FASB issued ASU 2016-18 ("ASU 2016-18"),
Restricted Cash,
which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. This standard will be effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and all other entities for fiscal years beginning after December 15, 2018. We are evaluating the impact the adoption of ASU 2016-18 will have on our consolidated financial statements.
On January 5, 2017, the FASB issued ASU 2017-01 ("ASU 2017-01"),
Definition of a Business,
which will likely result in more acquisitions being accounted for as asset acquisitions across all industries, particularly real estate, pharmaceutical and oil and gas. Application of the changes would also affect the accounting for disposal transactions. This standard will be effective for public business entities with a calendar year end in 2018 and all other entities have an additional year to adopt. We are evaluating the impact the adoption of ASU 2017-01 will have on our consolidated financial statements.
4. Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts at a level believed to be adequate to absorb estimated probable losses. That estimate is based on past loss experience, current economic and market conditions and other relevant factors. The allowance for doubtful accounts was
$0.2 million
and
$0.2 million
as of
March 31, 2017
and
December 31, 2016
, respectively.
5. Investment in Hotel Properties
Investment in hotel properties as of
March 31, 2017
and
December 31, 2016
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Land and improvements
|
$
|
274,554
|
|
|
$
|
274,554
|
|
Building and improvements
|
1,048,398
|
|
|
1,045,880
|
|
Furniture, fixtures and equipment
|
50,803
|
|
|
50,495
|
|
Renovations in progress
|
12,348
|
|
|
10,067
|
|
|
1,386,103
|
|
|
1,380,996
|
|
Less: accumulated depreciation
|
(159,839
|
)
|
|
(147,902
|
)
|
Investment in hotel properties, net
|
$
|
1,226,264
|
|
|
$
|
1,233,094
|
|
6. Investment in Unconsolidated Entities
On June 9, 2014, the Company acquired a
10.3%
interest in the NewINK JV, a joint venture between affiliates of NorthStar Realty Finance Corp. ("NorthStar") and the Operating Partnership. The Company accounts for this investment under the equity method. NorthStar merged with Colony Capital, Inc. ("Colony") on January 10, 2017 to form a new company, CLNS, which owns a
89.7%
interest in the NewINK JV. As of
March 31, 2017
and
2016
, the Company’s share of partners’ capital in the NewINK JV is approximately
$46.6 million
and
$12.9 million
, respectively and the total difference between the carrying amount of investment and the Company’s share of partners’ capital is approximately
$52.4 million
and
$16.6 million
(for which the basis difference related to amortizing assets is being recognized over the life of the related assets as a basis difference adjustment). The value of NewINK JV assets and liabilities were adjusted to reflect estimated fair market value at the time Colony merged with NorthStar.
During the
three months ended March 31, 2017
and
2016
, the Company received cash distributions from the NewINK JV as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
March 31,
|
|
2017
|
|
2016
|
Cash generated from other activities and excess cash
|
$
|
—
|
|
|
$
|
822
|
|
Total
|
$
|
—
|
|
|
$
|
822
|
|
On November 17, 2014, the Company acquired a
10.0%
interest in the Inland JV, a joint venture between affiliates of NorthStar and the Operating Partnership. The Company accounts for this investment under the equity method. NorthStar merged with Colony Capital, Inc. ("Colony") on January 10, 2017 to form a new company, CLNS, which owns a
90.0%
interest in the Inland JV. As of March 31, 2017 and
2016
, the Company's share of partners' capital in the Inland JV is approximately
$28.2 million
and
$23.1 million
, respectively and the total difference between the carrying amount of the investment and the Company's share of partners' capital is approximately
$8.1 million
and
$0.0 million
, respectively (for which the basis difference related to amortizing assets is being recognized over the life of the related assets as a basis difference adjustment). The value of Inland JV assets and liabilities were adjusted to reflect estimated fair market value at the time Colony merged with NorthStar. The Company serves as managing member of the Inland JV. During the
three months ended March 31, 2017
and
2016
, the Company received
no
cash distributions from the Inland JV.
The Company’s ownership interests in the JVs are subject to change in the event that either the Company or CLNS calls for additional capital contributions to the respective JVs necessary for the conduct of business, including contributions to fund costs and expenses related to capital expenditures. The Company could be required under its unconditional guaranty to repay portions of the debt of the JVs. The Company manages the JVs and will receive a promote interest in each applicable JV if it meets certain return thresholds for such JV. CLNS may also approve certain actions by the JVs without the Company’s consent, including certain property dispositions conducted at arm’s length, certain actions related to the restructuring of the applicable JV and removal of the Company as managing member in the event the Company fails to fulfill its material obligations under the applicable joint venture agreement.
The Company's investment in the NewINK JV and the Inland JV were
$(5.8) million
and
$20.1 million
, respectively, at
March 31, 2017
and
$(6.0) million
and
$20.4 million
, respectively, at
December 31, 2016
. The following table sets forth the combined components of net income (loss), including the Company’s share, related to the NewINK JV and Inland JV for the
three months ended March 31, 2017
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
March 31,
|
|
2017
|
|
2016
|
Revenue
|
$
|
108,574
|
|
|
$
|
108,429
|
|
Total hotel operating expenses
|
74,957
|
|
|
74,245
|
|
Operating income
|
$
|
33,617
|
|
|
$
|
34,184
|
|
Net loss from continuing operations
|
$
|
(7,513
|
)
|
|
$
|
(7,890
|
)
|
Net loss
|
$
|
(7,513
|
)
|
|
$
|
(7,890
|
)
|
|
|
|
|
Loss allocable to the Company
|
$
|
(760
|
)
|
|
$
|
(797
|
)
|
Basis difference adjustment
|
675
|
|
|
150
|
|
Total loss from unconsolidated real estate entities attributable to the Company
|
$
|
(85
|
)
|
|
$
|
(647
|
)
|
7. Debt
The Company’s mortgage loans and its senior unsecured revolving credit facility are collateralized by first-mortgage liens on certain of the Company’s properties. The mortgages are non-recourse except for instances of fraud or misapplication of funds. Mortgage debt consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral
|
Interest
Rate
|
|
Maturity Date
|
|
3/31/17
Property
Carrying
Value
|
|
Balance Outstanding on Loan as of
|
March 31, 2017
|
|
December 31,
2016
|
Senior Unsecured Revolving Credit Facility
(1)
|
3.35
|
%
|
|
November 25, 2019
|
|
$
|
—
|
|
|
$
|
56,500
|
|
|
$
|
52,500
|
|
Residence Inn by Marriott New Rochelle, NY
|
5.75
|
%
|
|
September 1, 2021
|
|
19,849
|
|
|
14,045
|
|
|
14,141
|
|
Residence Inn by Marriott San Diego, CA
|
4.66
|
%
|
|
February 6, 2023
|
|
44,514
|
|
|
28,885
|
|
|
29,026
|
|
Homewood Suites by Hilton San Antonio, TX
|
4.59
|
%
|
|
February 6, 2023
|
|
32,654
|
|
|
16,494
|
|
|
16,575
|
|
Residence Inn by Marriott Vienna, VA
|
4.49
|
%
|
|
February 6, 2023
|
|
30,747
|
|
|
22,585
|
|
|
22,699
|
|
Courtyard by Marriott Houston, TX
|
4.19
|
%
|
|
May 6, 2023
|
|
32,008
|
|
|
18,661
|
|
|
18,758
|
|
Hyatt Place Pittsburgh, PA
|
4.65
|
%
|
|
July 6, 2023
|
|
35,479
|
|
|
22,755
|
|
|
22,864
|
|
Residence Inn by Marriott Bellevue, WA
|
4.97
|
%
|
|
December 6, 2023
|
|
68,788
|
|
|
46,016
|
|
|
46,206
|
|
Residence Inn by Marriott Garden Grove, CA
|
4.79
|
%
|
|
April 6, 2024
|
|
39,878
|
|
|
33,542
|
|
|
33,674
|
|
Residence Inn by Marriott Silicon Valley I, CA
|
4.64
|
%
|
|
July 1, 2024
|
|
82,028
|
|
|
64,800
|
|
|
64,800
|
|
Residence Inn by Marriott Silicon Valley II, CA
|
4.64
|
%
|
|
July 1, 2024
|
|
89,831
|
|
|
70,700
|
|
|
70,700
|
|
Residence Inn by Marriott San Mateo, CA
|
4.64
|
%
|
|
July 1, 2024
|
|
64,635
|
|
|
48,600
|
|
|
48,600
|
|
Residence Inn by Marriott Mountain View, CA
|
4.64
|
%
|
|
July 6, 2024
|
|
56,776
|
|
|
37,900
|
|
|
37,900
|
|
SpringHill Suites by Marriott Savannah, GA
|
4.62
|
%
|
|
July 6, 2024
|
|
37,190
|
|
|
30,000
|
|
|
30,000
|
|
Hilton Garden Inn Marina del Rey, CA
|
4.68
|
%
|
|
July 6, 2024
|
|
42,798
|
|
|
22,047
|
|
|
22,145
|
|
Homewood Suites by Hilton Billerica, MA
|
4.32
|
%
|
|
December 6, 2024
|
|
11,536
|
|
|
16,225
|
|
|
16,225
|
|
Homewood Suites by Hilton Carlsbad CA
|
4.32
|
%
|
|
December 6, 2024
|
|
29,710
|
|
|
19,950
|
|
|
19,950
|
|
Hampton Inn & Suites Houston Medical Center, TX
|
4.25
|
%
|
|
January 6, 2025
|
|
14,987
|
|
|
18,300
|
|
|
18,300
|
|
|
|
|
|
|
|
|
|
|
|
Total debt before unamortized debt issue costs
|
|
|
|
|
$
|
733,408
|
|
|
$
|
588,005
|
|
|
$
|
585,063
|
|
Unamortized mortgage debt issue costs
|
|
|
|
|
|
|
(2,138
|
)
|
|
(2,240
|
)
|
Total debt outstanding
|
|
|
|
|
|
|
$
|
585,867
|
|
|
$
|
582,823
|
|
|
|
(1)
|
The interest rate for the senior unsecured revolving credit facility is variable and based on either LIBOR plus an applicable margin ranging from
1.55%
to
2.3%
, or prime plus an applicable margin of
0.55%
to
1.3%
.
|
At
March 31, 2017
and
December 31, 2016
, the Company had
$56.5 million
and
$52.5 million
, respectively, of outstanding borrowings under its senior unsecured revolving credit facility. At
March 31, 2017
, the maximum borrowing availability under the senior unsecured revolving credit facility was
$250.0 million
.
The Company estimates the fair value of its fixed rate debt by discounting the future cash flows of each instrument at estimated market rates. All of the Company's mortgage loans are fixed-rate. Rates take into consideration general market conditions, quality and estimated value of collateral and maturity of debt with similar credit terms and are classified within level 3 of the fair value hierarchy. The estimated fair value of the Company’s fixed rate debt as of
March 31, 2017
and
December 31, 2016
was
$524.1 million
and
$516.0 million
, respectively.
The Company estimates the fair value of its variable rate debt by taking into account general market conditions and the estimated credit terms it could obtain for debt with similar maturity and is classified within level 3 of the fair value hierarchy. As of
March 31, 2017
, the Company’s only variable rate debt is under its senior unsecured revolving credit facility. The estimated fair value of the Company’s variable rate debt as of
March 31, 2017
and
December 31, 2016
was
$56.5 million
and
$52.5 million
, respectively.
As of
March 31, 2017
, the Company was in compliance with all of its financial covenants. At
March 31, 2017
, the Company’s consolidated fixed charge coverage ratio was
3.40
. and the bank covenant is
1.5
. Future scheduled principal payments of debt obligations as of
March 31, 2017
, for the current year and each of the next four calendar years and thereafter are as follows (in thousands):
|
|
|
|
|
|
Amount
|
2017 (remaining nine months)
|
$
|
3,243
|
|
2018
|
5,374
|
|
2019
|
63,840
|
|
2020
|
9,899
|
|
2021
|
22,308
|
|
Thereafter
|
483,341
|
|
Total debt before unamortized debt issue costs
|
$
|
588,005
|
|
Unamortized mortgage debt issue costs
|
(2,138
|
)
|
Total debt outstanding
|
$
|
585,867
|
|
8. Income Taxes
The Company’s TRS is subject to federal and state income taxes.
The components of income tax expense for the following periods are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
March 31,
|
|
2017
|
|
2016
|
Federal
|
$
|
271
|
|
|
$
|
—
|
|
State
|
46
|
|
|
—
|
|
Tax expense (benefit)
|
$
|
317
|
|
|
$
|
—
|
|
As of each reporting date, the Company's management considers new evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets. The Company's TRS is expecting increased losses in 2017. As of
March 31, 2017
, the TRS recorded a full valuation allowance equal to
100%
of the gross deferred tax asset due to the uncertainty of the TRS's ability to fully utilize these deferred tax assets. As of
March 31, 2017
, the Company's TRS has a valuation allowance of
$1.4 million
. Management will continue to monitor the need for a valuation allowance on a quarterly basis.
9. Dividends Declared and Paid
The Company declared total common share dividends of
$0.33
per share and distributions on LTIP units of
$0.33
per unit for the
three months ended March 31, 2017
. The dividends and distributions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Record
Date
|
|
Payment
Date
|
|
Common
share
distribution
amount
|
|
LTIP
unit
distribution
amount
|
January
|
1/31/2017
|
|
2/24/2017
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
February
|
2/28/2017
|
|
3/31/2017
|
|
0.11
|
|
|
0.11
|
|
March
|
3/31/2017
|
|
4/28/2017
|
|
0.11
|
|
|
0.11
|
|
1st Quarter 2017
|
|
|
|
|
$
|
0.33
|
|
|
$
|
0.33
|
|
10. Earnings Per Share
The two-class method is used to determine earnings per share because unvested restricted shares and unvested LTIP units are considered to be participating shares. The LTIP units held by the non-controlling interest holders, which may be converted to common shares of beneficial interest, have been excluded from the denominator of the diluted earnings per share calculation as there would be no effect on the amounts since limited partners' share of income or loss would also be added back to net income or loss. Unvested restricted shares, unvested long-term incentive plan units and unvested Class A Performance units that could potentially dilute basic earnings per share in the future would not be included in the computation of diluted loss per share, for the periods where a loss has been recorded, because they would have been anti-dilutive for the periods presented. The following is a reconciliation of the amounts used in calculating basic and diluted net income per share (in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
March 31,
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
Net income attributable to common shareholders
|
$
|
4,613
|
|
|
$
|
3,300
|
|
Dividends paid on unvested shares and units
|
(42
|
)
|
|
(46
|
)
|
Net income attributable to common shareholders
|
$
|
4,571
|
|
|
$
|
3,254
|
|
Denominator:
|
|
|
|
Weighted average number of common shares - basic
|
38,361,113
|
|
|
38,274,448
|
|
Effect of dilutive securities:
|
|
|
|
Unvested shares
|
212,815
|
|
|
138,906
|
|
Weighted average number of common shares - diluted
|
38,573,928
|
|
|
38,413,354
|
|
Basic income per Common Share:
|
|
|
|
Net income attributable to common shareholders per weighted average basic common share
|
$
|
0.12
|
|
|
$
|
0.09
|
|
Diluted income per Common Share:
|
|
|
|
Net income attributable to common shareholders per weighted average diluted common share
|
$
|
0.12
|
|
|
$
|
0.08
|
|
11. Equity Incentive Plan
The Company maintains its Equity Incentive Plan to attract and retain independent trustees, executive officers and other key employees and service providers. The plan provides for the grant of options to purchase common shares, share awards, share appreciation rights, performance units and other equity-based awards. The plan was amended and restated as of May 17, 2013 to increase the maximum number of shares available under the plan to
3,000,000
shares. Share awards under this plan generally vest over
three
years, though compensation for the Company’s independent trustees includes shares granted that vest immediately. The Company pays dividends on unvested shares and units, except for performance based shares and outperformance based units, for which dividends on unvested performance based shares and units are not paid until those shares or units vest. Certain awards may provide for accelerated vesting if there is a change in control. In January
2017
and
2016
, the Company issued
23,980
and
26,488
common shares, respectively, to its independent trustees as compensation for services performed in
2016
and
2015
, respectively. The quantity of shares was calculated based on the average of the closing price for the Company’s common shares on the NYSE for the last
ten
trading days of
2016
. The Company would have distributed
6,467
common shares for services performed in
2017
had this liability classified award been satisfied as of
March 31, 2017
. As of
March 31, 2017
, there were
1,871,942
common shares available for issuance under the Equity Incentive Plan.
Restricted Share Awards
A summary of the shares granted to executive officers that have not fully vested pursuant to the Equity Incentive Plan as of
March 31, 2017
is as follows:
|
|
|
|
|
|
|
|
|
Award Type
|
Award Date
|
|
Total Shares Granted
|
|
Vested as of March 31, 2017
|
2014 Time-based Awards
|
1/31/2014
|
|
48,213
|
|
|
48,213
|
|
2014 Performance-based Awards
|
1/31/2014
|
|
38,805
|
|
|
12,935
|
|
2015 Time-based Awards
|
1/30/2015
|
|
40,161
|
|
|
26,774
|
|
2015 Performance-based Awards
|
1/30/2015
|
|
36,144
|
|
|
—
|
|
2015 Time-based Awards
|
6/1/2015
|
|
8,949
|
|
|
2,983
|
|
2017 Restricted Board Awards
|
1/11/2017
|
|
5,000
|
|
|
—
|
|
Time-based shares vest over a
three
-year period. The performance-based shares will be issued and vest over a
three
-year period only if and to the extent that long-term performance criteria established by the Board of Trustees are met and the recipient remains employed by the Company through the vesting date.
The Company measures compensation expense for time-based share awards based upon the fair market value of its common shares at the date of grant. For the performance-based shares granted in 2014 and 2015, compensation expense is based on a valuation of $
13.17
and
$21.21
, respectively, per performance share granted, which takes into account that some or all of the awards may not vest if long-term performance criteria are not met during the vesting period. The 2014 performance-based shares did not meet the vesting criteria for 2015 or 2016 causing those shares not to be eligible for future vesting.
The grant date fair values of the performance-based share awards were determined using a Monte Carlo simulation method with the following assumptions:
|
|
|
|
|
|
|
|
|
Performance Award
|
|
|
|
|
|
Risk Free Interest
|
Grant Date
|
|
Volatility
|
|
Dividend Yield
|
|
Rate
|
1/31/2014
|
|
27%
|
|
—%
|
|
0.71%
|
1/30/2015
|
|
29%
|
|
—%
|
|
0.84%
|
Compensation expense is recognized on a straight-line basis over the vesting period and is included in general and administrative expense in the accompanying consolidated statements of operations. The Company pays dividends on unvested time-based restricted shares. Dividends for performance-based shares are accrued and paid annually only if and to the extent that long-term performance criteria established by the Board of Trustees are met and the recipient remains employed by the Company on the vesting date.
A summary of the Company’s restricted share awards for the
three months ended March 31, 2017
and the year ended
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Year Ended
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Number of
Shares
|
|
Weighted -
Average Grant
Date Fair
Value
|
|
Number of
Shares
|
|
Weighted -
Average Grant
Date Fair
Value
|
Non-vested at beginning of the period
|
110,825
|
|
|
$
|
22.05
|
|
|
170,480
|
|
|
$
|
21.38
|
|
Granted
|
5,000
|
|
|
20.20
|
|
|
—
|
|
|
—
|
|
Vested
|
(29,458
|
)
|
|
25.55
|
|
|
(59,655
|
)
|
|
20.14
|
|
Forfeited
|
(25,870
|
)
|
|
$
|
13.17
|
|
|
—
|
|
|
$
|
—
|
|
Non-vested at end of the period
|
60,497
|
|
|
$
|
23.99
|
|
|
110,825
|
|
|
$
|
22.05
|
|
As of
March 31, 2017
and
December 31, 2016
, there were
$0.7 million
and
$0.9 million
, respectively, of unrecognized compensation costs related to restricted share awards. As of
March 31, 2017
, these costs were expected to be recognized over a weighted–average period of approximately
1.1 years
. For the
three months ended March 31, 2017
and
2016
, the Company recognized approximately
$0.2 million
and
$0.3 million
, respectively of expense related to the restricted share awards. This expense is included in general and administrative expenses in the accompanying consolidated statements of operations.
Long-Term Incentive Plan Units
The Company recorded
$0.4 million
and
$0.3 million
in compensation expense related to the LTIP units for the
three months ended March 31, 2017
and
2016
, respectively. As of
March 31, 2017
and
December 31, 2016
, there was
$6.4 million
and
$2.6 million
, respectively, of total unrecognized compensation cost related to LTIP units. This cost is expected to be recognized over approximately
2.6 years
, which represents the weighted average remaining vesting period of the LTIP units. Upon the closing of the Company's equity offering on September 30, 2013, the Company determined that a revaluation event occurred, as defined in the Internal Revenue Code of 1986, as amended, and
26,250
LTIP units awarded in 2010 and held by
one
of the officers of the Company had achieved full parity with the common units of the Operating Partnership with respect to liquidating distributions and all other purposes.
100%
of these units have vested as of
March 31, 2017
. As of June 4, 2014, the Company determined that a revaluation event occurred, as defined in the Internal Revenue Code of 1986, as amended, and
231,525
LTIP units awarded in 2010 and held by
two
other officers of the Company had achieved full parity with the common units of the Operating Partnership with respect to liquidating distributions and all other purposes. As of
March 31, 2017
,
100%
of these units have vested. Accordingly, these LTIP units awarded in 2010 are allocated their pro-rata share of the Company's net income.
A summary of the Company's LTIP Unit awards for the
three months ended March 31, 2017
and the year ended
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Year Ended
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Number of
Shares
|
|
Weighted -
Average Grant
Date Fair
Value
|
|
Number of
Shares
|
|
Weighted -
Average Grant
Date Fair
Value
|
Non-vested at beginning of the period
|
295,551
|
|
|
$
|
14.36
|
|
|
183,300
|
|
|
$
|
14.13
|
|
Granted
|
223,922
|
|
|
19.20
|
|
|
112,251
|
|
|
14.73
|
|
Vested
|
(37,417
|
)
|
|
14.73
|
|
|
—
|
|
|
—
|
|
Non-vested at end of the period
|
482,056
|
|
|
$
|
16.58
|
|
|
295,551
|
|
|
$
|
14.36
|
|
On June 1, 2015, the Company's Operating Partnership granted
183,300
Class A Performance LTIP units, as recommended by the Compensation Committee of the Board (the “Compensation Committee”), pursuant to a long-term, multi-year performance plan (the “Outperformance Plan”).
The awards granted pursuant to the Outperformance Plan are subject to two separate performance measurements, with
60%
of the award (the "Absolute Award") based solely on the Company's total shareholder return ("TSR") (the "Absolute TSR Component") and
40%
of the award (the "Relative Award") measured by the Company's TSR (the "Relative TSR Component") relative to the other companies (the "Index Companies") that were constituents of the SNL US REIT Hotel Index (the "Index") during the entire measurement period. Under the Absolute TSR Component,
37.5%
of the Absolute Award is earned if the Company achieves a
25%
TSR over the measurement period. That percentage increases on a linear basis with the full Absolute Award being earned at a
50%
TSR over the measurement period. For TSR performance below
25%
, no portion of the Absolute Award will be earned. Under the Relative TSR Component,
37.5%
of the Relative Award is earned if the Company is at the
50th
percentile of the Index Companies at the end of the measurement period. That percentage increases on a linear basis with the full Relative Award earned if the Company is at the
75th
percentile of the Index Companies at the end of the measurement period. If the Company is below the
50th
percentile of the Index Companies at the end of the measurement period, no portion of the Relative Award will be earned. Compensation expense is based on an estimated value of
$14.13
per Class A Performance LTIP unit, which takes into account that some or all of the awards may not vest if long-term performance criteria are not met during the vesting period. Awards earned under the Outperformance Plan will vest
50%
at the end of the
three
-year measurement period on June 1, 2018 and
25%
each on the one-year and two-year anniversaries of the end of the three-year measurement period, or June 1, 2019 and 2020, respectively, and provided that the recipient remains employed by the Company through the vesting dates. In the event of a Change in Control (as defined in the executive officers’ employment agreements), Outperformance Plan awards will be earned contingent upon the attainment of a pro rata TSR hurdle for the Absolute Award and achievement of the relative TSR percentile for the Relative Award based upon the in-place formula and using the Change of Control as the end of measurement period. Vesting continues to apply to awards earned upon a Change of Control, subject to full acceleration upon termination without cause or resignation for good reason within
18
months of the Change of Control. Prior to vesting, holders of Class A Performance LTIP Units will not be entitled to vote their Class A Performance LTIP units. In addition, under the terms of the Class A Performance LTIP units, a holder of a Class A Performance LTIP unit will generally (i) be entitled to receive
10%
of the distributions made on a common unit of the Operating Partnership during the period prior to vesting of such Class A Performance LTIP unit (the “Pre-Vesting Distributions”), (ii) be entitled, upon the vesting of such Class A Performance LTIP unit, to receive a special one-time “catch-up” distribution equal to the aggregate amount of distributions that were paid on a common unit during the period prior to vesting of such Class A Performance LTIP unit minus the aggregate amount of Pre-Vesting Distributions paid on such Class A Performance LTIP unit, and (iii) be entitled, following the vesting of such Class A Performance LTIP unit, to receive the same amount of distributions paid on a common unit of the Operating Partnership.
Time-Based Equity Incentive Awards
On January 28, 2016, the Company’s Operating Partnership, upon the recommendation of the Compensation Committee, granted
72,966
time-based LTIP unit awards (the “2016 Time-Based LTIP Unit Award”). The grants were made pursuant to award agreements that provide for time-based vesting.
The 2016 Time-Based LTIP Unit Awards vest ratably on each of January 28, 2017, January 28, 2018 and January 28, 2019 (provided that the recipient remains employed by the Company through the applicable vesting date
, subject to acceleration of vesting in the event of the recipient’s death, disability, termination without cause or resignation with good reason, or in the event of a change of control of the Company
).
Prior to vesting, a holder is entitled to receive distributions on and to vote the LTIP Units that comprise the 2016 Time-Based LTIP Unit Awards. Compensation expense is based on an estimated value of
$16.69
per 2016 Time-Based LTIP Unit Award.
On March 1, 2017, the Company's Operating Partnership, upon recommendation of the Compensation Committee, granted
89,574
time-based awards (the "2017 Time-Based LTIP Unit Award"). The grants were made pursuant to the award agreements that provide for time-based vesting.
The 2017 Time-based LTIP Unit Awards will vest ratably on each of March 1, 2018, March 1, 2019 and March 1, 2020 (provided that the recipient remains employed by the Company through the applicable vesting date
, subject to acceleration of vesting in the event of the recipient’s death, disability, termination without cause or resignation with good reason, or in the event of a change of control of the Company
).
Prior to vesting, a holder is entitled to receive distributions on and to vote the LTIP Units that comprise the 2017 Time-Based LTIP Unit Awards. Compensation expense is based on an estimated value of
$18.53
per 2017 Time-Based LTIP Unit Award.
Performance-Based Equity Incentive Awards
On January 28, 2016, the Company’s Operating Partnership,
upon the recommendation of the Compensation Committee, also granted
39,285
performance-based LTIP unit awards (the "2016 Performance-Based LTIP Unit Awards").
The grants were made pursuant to award agreements that provide for performance-based vesting.
The 2016 Performance-Based LTIP Unit Awards are comprised of Class A Performance LTIP Units of the Operating Partnership (“Class A Performance LTIP Units”) that will vest only if and to the extent that (i) the Company achieves certain long-term performance criteria established by the Compensation Committee and (ii) the recipient remains employed by the Company through the applicable vesting date, subject to acceleration of vesting in the event of the recipient’s death, disability, termination without cause or resignation with good reason, or in the event of a change of control of the Company. Compensation expense is based on an estimated value of
$11.09
per 2016 Performance-Based LTIP Unit Award, which takes into account that some or all of the awards may not vest if long-term performance criteria are not met during the vesting period.
The 2016 Performance-Based LTIP Unit Awards shall vest based on the following:
(a) The number of Class A Performance LTIP Units that most nearly equals (but does not exceed)
one-third
of the Class A Performance LTIP Units issued pursuant to such 2016 Performance-Based LTIP Unit Award shall vest on January 28, 2017, if the Total Shareholder Return for the
12-month
period beginning January 28, 2016 and ending on January 27, 2017 is
8%
or more.
(b) The number of Class A Performance LTIP Units that most nearly equals (but does not exceed)
one-third
of the Class A Performance LTIP Units issued pursuant to such 2016 Performance-Based LTIP Unit Award shall vest on January 28, 2018, if the Total Shareholder Return for the
12-month
period beginning January 28, 2017 and ending on January 27, 2018 is
8%
or more.
(c) The number of Class A Performance LTIP Units that most nearly equals (but does not exceed)
one-third
of the Class A Performance LTIP Units issued pursuant to such 2016 Performance-Based LTIP Unit Award shall vest on January 28, 2019, if the Total Shareholder Return for the
12-month
period beginning January 28, 2018 and ending on January 27, 2019 is
8%
or more.
(d) All of the Class A Performance LTIP Units issued pursuant to such 2016 Performance-Based LTIP Unit Award (less any Class A Performance LTIP Units that previously vested under paragraphs (a), (b) or (c) above), shall vest on January 28, 2019, if the average Total Shareholder Return for the
36-month
period ending on January 27, 2019 is
8%
or more.
For purposes of the 2016 Performance-Based LTIP Unit Awards, "Total Shareholder Return" means, with respect to the measurement periods described in paragraphs (a), (b), (c) and (d) above, the total percentage return per common share of the Company based on the closing price of the Company’s common shares on the NYSE on the last trading day immediately preceding the first day of the applicable measurement period compared to the closing price of the Company’s common shares on the NYSE on the last trading day of such measurement period and assuming contemporaneous reinvestment in Company common shares of all dividends and other distributions at the closing price of the Company’s common shares on the date such dividend or other distribution was paid.
On March 1, 2017, The Company's Operating Partnership, upon the recommendation of the Compensation Committee, also granted
134,348
performance-based awards (the "2017 Performance-Based LTIP Unit Awards"). The grants were made pursuant to award agreements that provide for performance-based vesting. The
2017
Performance-Based LTIP Unit Awards are comprised of Class A Performance LTIP Units
that will vest only if and to the extent that (i) the Company achieves certain long-term performance criteria established by the Compensation Committee and (ii) the recipient remains employed by the Company through the vesting date, subject to acceleration of vesting in the event of the recipient’s death, disability, termination without cause or resignation with good reason, or in the event of a change of control of the Company. Compensation expense is based on an estimated value of
$19.65
per 2017 Performance-Based LTIP Unit Award, which takes into account that some or all of the awards may not vest if long-term performance criteria are not met during the vesting period.
The 2017
Performance-Based LTIP Unit Awards
may be earned based on the Company’s relative TSR performance for the three-year period beginning on March 1, 2017 and ending on February 28, 2020. The 2017
Performance-Based LTIP Unit Awards, if earned, will be paid out between
50%
and
150%
of target value as follows:
|
|
|
|
|
Relative TSR Hurdles (Percentile)
|
Payout Percentage
|
Threshold
|
25th
|
50%
|
Target
|
50th
|
100%
|
Maximum
|
75th
|
150%
|
Payouts at performance levels in between the hurdles will be calculated by straight-line interpolation. The TSR hurdles are based on the Company’s performance relative to the average TSR for the companies included in the SNL US Hotel REIT Index.
TSR will be calculated to include share price appreciation plus dividends assuming the reinvestment of dividends as calculated by a third-party such as SNL Financial. The Company will estimate the aggregate compensation cost to be recognized over the service period determined as of the grant date under ASC 718, excluding the effect of estimated forfeitures, and will calculate the value at the grant date based on the probable outcome of the performance conditions.
A holder of a Class A Performance LTIP Unit will generally (i) only be entitled, during the period prior to the vesting of such Class A Performance LTIP Unit, to receive
10%
of the distributions made on a common unit of limited partnership interest (“Common Unit”) in the Operating Partnership (the “Pre-Vesting Distributions”), and (ii) be entitled, upon the vesting of such Class A Performance LTIP Unit, to a special one-time “catch-up” distribution equal to the aggregate amount of distributions that were paid on a Common Unit during the period prior to vesting of such Class A Performance LTIP Unit minus the aggregate amount of Pre-Vesting Distributions paid on such Class A Performance LTIP Unit. In addition, prior to the vesting of a Class A Performance LTIP Unit, the holder of such Class A Performance LTIP Unit will not be entitled to vote on such Class A Performance LTIP Unit.
The LTIP units' fair value was determined using a Monte Carlo approach. In determining the discounted value of the LTIP units, the Company considered the inherent uncertainty that the LTIP units would never reach parity with the other common units of the Operating Partnership and thus have an economic value of zero to the grantee. Additional factors considered in reaching the assumptions of uncertainty included discounts for illiquidity; expectations for future dividends; limited or no operations history as of the date of the grant; significant dependency on the efforts and services of our executive officers and other key members of management to implement the Company's business plan; available acquisition opportunities; and economic environment and conditions.
The grant date fair value of the performance LTIP awards were determined using a Monte Carlo simulation method with the following assumptions (based on the three-year risk free U.S. Treasury yield over the measurement period of the LTIP awards):
|
|
|
|
|
|
|
|
Grant Date
|
Volatility
|
Dividend Yield
|
Risk Free Interest Rate
|
Discount
|
Outperformance Plan
|
6/1/2015
|
26%
|
4.5%
|
0.95%
|
—%
|
2016 Time-Based LTIP Unit Awards
|
1/28/2016
|
28%
|
—%
|
0.79%
|
7.5%
|
2016 Performance-Based LTIP Unit Awards
|
1/28/2016
|
30%
|
5.8%
|
1.13%
|
—%
|
2017 Time-Based LTIP Unit Awards
|
3/1/2017
|
24%
|
—%
|
0.92%
|
7.5%
|
2017 Performance-Based LTIP Unit Awards
|
3/1/2017
|
25%
|
5.8%
|
1.47%
|
—%
|
12. Commitments and Contingencies
Litigation
The nature of the operations of the Company's hotels exposes those hotels, the Company and the Operating Partnership to the risk of claims and litigation in the normal course of their business. The Company is not presently subject to any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company or its properties.
Hotel Ground Rent
The Courtyard Altoona hotel is subject to a ground lease with an expiration date of
April 30, 2029
with an extension option by the Company of up to
12
additional terms of
five years
each. Monthly payments are determined by the quarterly average room occupancy of the hotel. Rent is currently equal to approximately
$8,000
per month when monthly occupancy is less than
85%
and can increase up to approximately
$20,000
per month if occupancy is
100%
, with minimum rent increased by two and one-half percent (
2.5%
) on an annual basis.
The Residence Inn Gaslamp hotel is subject to a ground lease with an expiration date of
January 31, 2065
with an extension option by the Company of up to
three
additional terms of
ten years
each. Monthly payments are currently approximately
$40,000
per month and increase
10%
every
five
years. The hotel is subject to annual supplemental rent payments calculated as
5%
of gross revenues during the applicable lease year, minus
12
times the monthly base rent scheduled for the lease year.
The Residence Inn New Rochelle is subject to an air rights lease and garage lease that each expire on
December 1, 2104
. The lease agreements with the City of New Rochelle cover the space above the parking garage that is occupied by the hotel as well as
128
parking spaces in a parking garage that is attached to the hotel. The annual base rent for the garage lease is the hotel’s proportionate share of the city’s adopted budget for the operations, management and maintenance of the garage and established reserves to fund for the cost of capital repairs. Aggregate rent for
2017
is approximately
$26,000
per quarter.
The Hilton Garden Inn Marina del Rey hotel is subject to a ground lease with an expiration date of
December 31, 2067
. Minimum monthly payments are currently approximately
$43,000
per month and a percentage rent payment equal to
5%
to
25%
of gross income based on the type of income less the minimum rent is due in arrears.
Office Lease
The Company entered into a new corporate office lease in September 2015. The lease is for a term of
11
years and includes a
12
-month rent abatement period and certain tenant improvement allowances. The Company has a renewal option of up to
two
successive terms of
five
years each. The Company shares the space with related parties and is reimbursed for the pro-rata share of rentable space occupied by the related parties.
Future minimum rental payments under the terms of all non-cancellable operating ground leases and the office lease under which the Company is the lessee are expensed on a straight-line basis regardless of when payments are due. The following is a schedule of the minimum future payments required under the ground, air rights, garages leases and office lease as of
March 31, 2017
, for the remainder of
2017
and for each of the next four calendar years and thereafter (in thousands):
|
|
|
|
|
|
|
|
|
|
Other Leases
(1)
|
|
Office Lease
|
|
Amount
|
2017 (remaining nine months)
|
$
|
912
|
|
|
$
|
567
|
|
2018
|
1,217
|
|
|
772
|
|
2019
|
1,220
|
|
|
792
|
|
2020
|
1,267
|
|
|
812
|
|
2021
|
1,273
|
|
|
832
|
|
Thereafter
|
69,454
|
|
|
4,163
|
|
Total
|
$
|
75,343
|
|
|
$
|
7,938
|
|
(1) Other leases includes ground, garage and air rights leases at our hotels.
Management Agreements
The management agreements with Concord Hospitality Services Company ("Concord") had an initial
ten
-year term that would have expired on
February 28, 2017
. The management agreements with Concord were terminated as of December 31, 2016. The company entered into management agreements with IHM for the hotels previously managed by Concord beginning January 1, 2017.
The management agreements with IHM have an initial term of
five years
and automatically renew for
two
five
-year periods unless IHM provides written notice to us no later than
90
days prior to the then current term’s expiration date of their intent not to renew. The IHM management agreements provide for early termination at the Company’s option upon sale of any IHM-managed hotel for no termination fee, with
six months
advance notice. The IHM management agreements may be terminated for cause, including the failure of the managed hotel to meet specified performance levels. Base management fees are calculated as a percentage of the hotel's gross room revenue. If certain financial thresholds are met or exceeded, an incentive management fee is calculated as
10%
of the hotel's net operating income less fixed costs, base management fees and a specified return threshold. The incentive management fee is capped at
1%
of gross hotel revenues for the applicable calculation.
The Company entered into agreements with IHM to manage
two
of the hotels formerly managed by Concord during the
three months ended March 31, 2017
. In addition, upon renewal in July 2016,
five
management agreements related to the Residence Inns were amended to be consistent with the remainder of the hotel portfolio. The updated agreements are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
Courtyard Altoona
|
Springhill Suites Washington
|
Residence Inn Garden Grove
|
Residence Inn San Diego
|
Residence Inn San Antonio
|
Residence Inn Vienna
|
Residence Inn Washington D.C.
|
|
|
|
|
|
|
|
|
Original Management Fee
|
4.0
|
%
|
4.0
|
%
|
2.5
|
%
|
2.5
|
%
|
2.5
|
%
|
2.5
|
%
|
2.5
|
%
|
Amended Management Fee
|
3.0
|
%
|
3.0
|
%
|
3.0
|
%
|
3.0
|
%
|
3.0
|
%
|
3.0
|
%
|
3.0
|
%
|
Original Monthly Accounting Fee
|
1,211
|
|
991
|
|
1,000
|
|
1,000
|
|
1,000
|
|
1,000
|
|
1,000
|
|
Amended Monthly Accounting Fee
|
1,500
|
|
1,200
|
|
1,200
|
|
1,200
|
|
1,200
|
|
1,200
|
|
1,200
|
|
Original Monthly Revenue Management Fee
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Amended Monthly Revenue Management Fee
|
1,000
|
|
1,000
|
|
1,000
|
|
1,000
|
|
1,000
|
|
1,000
|
|
1,000
|
|
Management fees totaled approximately
$2.2 million
and
$2.2 million
, respectively, for the
three months ended March 31, 2017
and
2016
, respectively.
Franchise Agreements
The fees associated with the franchise agreements are calculated on the specified percentage of the hotel's gross room revenue. The Company did not enter into any new franchise agreements during the
three months ended March 31, 2017
and
2016
, respectively. Franchise and marketing fees totaled approximately
$5.3 million
and
$5.2 million
, respectively, for the
three months ended March 31, 2017
and
2016
.
13. Related Party Transactions
Mr. Fisher owns
51%
of IHM. As of
March 31, 2017
, the Company had hotel management agreements with IHM to manage
38
of its wholly owned hotels. As of
March 31, 2017
, all
47
hotels owned by the NewINK JV and
34
of the
48
hotels owned by the Inland JV are managed by IHM. Hotel management, revenue management and accounting fees accrued or paid to IHM for the hotels owned by the Company for the
three months ended March 31, 2017
and
2016
were
$2.2 million
and
$2.2 million
, respectively. At
March 31, 2017
and
December 31, 2016
, the amounts due to IHM were
$1.3 million
and
$0.9 million
, respectively.
Cost reimbursements from unconsolidated real estate entities revenue represent reimbursements of costs incurred on behalf of the NewINK JV, Inland JV and an entity, Castleblack Owner Holding, LLC ("Castleblack"), which is
97.5%
owned by affiliates of CLNS and
2.5%
owned by Mr. Fisher. These costs relate primarily to corporate payroll costs at the NewINK JV and Inland JV where the Company is the employer. As the Company records cost reimbursements based upon costs incurred with no added markup, the revenue and related expense has no impact on the Company’s operating income or net income. Cost reimbursements from the JVs are recorded based upon the occurrence of a reimbursed activity.
Various shared office expenses and rent are paid by the Company and allocated to the NewINK JV, the Inland JV, Castleblack and IHM based on the amount of square footage occupied by each entity. Insurance expense for medical, workers compensation and general liability are paid by the NewINK JV and allocated back to the hotel properties or applicable entity for the
three months ended March 31, 2017
and
2016
were
$1.1 million
and
$1.5 million
, respectively.