þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 26-2145060 | |
(State of incorporation) | (I.R.S. Employer Identification No.) | |
50 Rockefeller Plaza New York, New York (Address of principal executive office) |
10020 (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Item 1. | Financial Statements |
June 30, 2011 | December 31, 2010 | |||||||
Assets |
||||||||
Equity investments in real estate |
$ | 20,466,041 | $ | | ||||
Cash and cash equivalents |
5,840,099 | 332,989 | ||||||
Other assets, net |
29,947 | | ||||||
Total assets |
$ | 26,336,087 | $ | 332,989 | ||||
Liabilities and Equity |
||||||||
Liabilities: |
||||||||
Accounts payable, accrued expenses and other liabilities |
$ | 499,389 | $ | 190,752 | ||||
Due to affiliates |
799,222 | 45,500 | ||||||
Distributions payable |
218,375 | | ||||||
Total liabilities |
1,516,986 | 236,252 | ||||||
Commitments and contingencies (Note 5) |
||||||||
Equity: |
||||||||
CWI shareholders equity: |
||||||||
Common stock $0.001 par value; authorized 300,000,000 shares;
issued and outstanding, 3,011,458 and 23,222 shares, respectively |
3,003 | 23 | ||||||
Additional paid-in capital |
26,827,592 | 208,977 | ||||||
Distributions in excess of accumulated losses |
(2,011,494 | ) | (297,888 | ) | ||||
Total CWI shareholders equity |
24,819,101 | (88,888 | ) | |||||
Noncontrolling interests |
| 185,625 | ||||||
Total equity |
24,819,101 | 96,737 | ||||||
Total liabilities and equity |
$ | 26,336,087 | $ | 332,989 | ||||
Three Months Ended | Six Months Ended | |||||||
June 30, 2011 | June 30, 2011 | |||||||
Operating Expenses |
||||||||
General and administrative |
$ | (692,825 | ) | $ | (1,412,647 | ) | ||
Property expenses |
(32,420 | ) | (32,420 | ) | ||||
(725,245 | ) | (1,445,067 | ) | |||||
Other Income and Expenses |
||||||||
Interest expense (Note 3) |
(9,257 | ) | (9,257 | ) | ||||
(9,257 | ) | (9,257 | ) | |||||
Net Loss |
$ | (734,502 | ) | $ | (1,454,324 | ) | ||
Loss Per Share |
||||||||
Basic and diluted |
$ | (0.34 | ) | $ | (1.13 | ) | ||
Weighted Average Shares Outstanding |
||||||||
Basic and diluted |
2,167,745 | 1,292,264 | ||||||
Distributions Declared Per Share |
$ | 0.1000 | $ | 0.2000 | ||||
Distributions in | ||||||||||||||||||||||||||||
Excess of | ||||||||||||||||||||||||||||
Common | Additional | Accumulated | Total CWI | Noncontrolling | ||||||||||||||||||||||||
Shares | Stock | Paid-In Capital | Earnings | Shareholders | Interest | Total | ||||||||||||||||||||||
Balance at January 1, 2010 |
1,000 | $ | 1 | $ | 8,999 | $ | (337 | ) | $ | 8,663 | $ | | $ | 8,663 | ||||||||||||||
Shares, $0.001 par value, issued to the
advisor at $9.00 per share |
22,222 | 22 | 199,978 | 200,000 | 200,000 | |||||||||||||||||||||||
Contribution from noncontrolling interest |
185,625 | 185,625 | ||||||||||||||||||||||||||
Net loss |
(297,551 | ) | (297,551 | ) | (297,551 | ) | ||||||||||||||||||||||
Balance at December 31, 2010 |
23,222 | 23 | 208,977 | (297,888 | ) | (88,888 | ) | 185,625 | 96,737 | |||||||||||||||||||
Net loss |
(1,454,324 | ) | (1,454,324 | ) | (1,454,324 | ) | ||||||||||||||||||||||
Shares issued, net of offering costs |
2,980,236 | 2,972 | 26,338,360 | 26,341,332 | 26,341,332 | |||||||||||||||||||||||
Reallocation of contributions from noncontrolling
interest |
185,625 | 185,625 | (185,625 | ) | | |||||||||||||||||||||||
Stock-based compensation |
8,000 | 8 | 94,630 | 94,638 | 94,638 | |||||||||||||||||||||||
Distributions declared ($0.2000 per share) |
(259,282 | ) | (259,282 | ) | (259,282 | ) | ||||||||||||||||||||||
Balance at June 30, 2011 |
3,011,458 | $ | 3,003 | $ | 26,827,592 | $ | (2,011,494 | ) | $ | 24,819,101 | $ | | $ | 24,819,101 | ||||||||||||||
Six Months Ended | ||||
June 30, 2011 | ||||
Cash Flows Operating Activities |
||||
Net loss |
$ | (1,454,324 | ) | |
Adjustments to net loss: |
||||
Stock-based compensation expense |
94,638 | |||
Increase in due to affiliates |
233,080 | |||
Net changes in other operating liabilities |
308,637 | |||
Net cash used in operating activities |
(817,969 | ) | ||
Cash Flows Investing Activities |
||||
Purchase of equity interest |
(20,466,041 | ) | ||
Net cash used in investing activities |
(20,466,041 | ) | ||
Cash Flows Financing Activities |
||||
Distributions paid |
(40,908 | ) | ||
Proceeds from issuance of shares, net of offering costs |
26,832,028 | |||
Proceeds from note payable |
4,000,000 | |||
Repayment of note payable |
(4,000,000 | ) | ||
Net cash provided by financing activities |
26,791,120 | |||
Change in Cash and Cash Equivalents During the Period |
||||
Net increase in cash and cash equivalents |
5,507,110 | |||
Cash and cash equivalents, beginning of period |
332,989 | |||
Cash and cash equivalents, end of period |
$ | 5,840,099 | ||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 4. | Controls and Procedures |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Shares registered |
100,000,000 | |||
Aggregate price of offering amount registered |
$ | 1,000,000,000 | ||
Shares sold |
2,980,236 | |||
Aggregated offering price of amount sold |
$ | 29,802,358 | ||
Direct or indirect payments to directors, officers, general
partners of the issuer or their associates; to persons
owning ten percent or more of any class of equity
securities of the issuer; and to affiliates of the issuer |
(2,514,254 | ) | ||
Direct or indirect payments to others |
(889,257 | ) | ||
Net offering proceeds to the issuer after deducting expenses |
26,398,847 | |||
Purchases of
real estate related assets |
(20,466,041 | ) | ||
Temporary investments in cash and cash equivalents |
$ | 5,932,806 | ||
Item 6. | Exhibits |
Exhibit No. | Description | |||
10.1 | Amended and Restated Limited Liability Company Operating Agreement of
Long Beach Hotel Properties, LLC, dated as of May 2, 2011, by and
between CWI Long Beach Hotels, LLC and LBHP-Ensemble Partners, LLC
(Incorporated by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K filed on May 11, 2011) |
|||
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101 | The following materials from Carey Watermark Investors Incorporateds
Quarterly Report on Form 10-Q for the quarter ended June 30, 2011,
formatted in XBRL (eXtensible Business Reporting Language): (i)
Consolidated Balance Sheets at June 30, 2011 and December 31, 2010,
(ii) Consolidated Statements of Operations for the three and six
months ended June 30, 2011, (iii) Consolidated Statements of Equity
for the six months ended June 30, 2011 and fiscal 2010, (iv)
Consolidated Statement of Cash Flows for the six months ended June 30,
2011, and (v) Notes to Consolidated Financial Statements.* |
* | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
Carey Watermark Investors Incorporated |
||||
Date: August 12, 2011 | By: | /s/ Mark J. DeCesaris | ||
Mark J. DeCesaris | ||||
Chief Financial Officer (Principal Financial Officer) |
||||
Date: August 12, 2011 | By: | /s/ Thomas J. Ridings, Jr. | ||
Thomas J. Ridings, Jr. | ||||
Chief Accounting Officer (Principal Accounting Officer) |
Exhibit No. | Description | |||
10.1 | Amended and Restated Limited Liability Company Operating Agreement of
Long Beach Hotel Properties, LLC, dated as of May 2, 2011, by and
between CWI Long Beach Hotels, LLC and LBHP-Ensemble Partners, LLC
(Incorporated by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K filed on May 11, 2011) |
|||
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||
101 | The following materials from Carey Watermark Investors Incorporateds
Quarterly Report on Form 10-Q for the quarter ended June 30, 2011,
formatted in XBRL (eXtensible Business Reporting Language): (i)
Consolidated Balance Sheets at June 30, 2011 and December 31, 2010,
(ii) Consolidated Statements of Operations for the three and six
months ended June 30, 2011, (iii) Consolidated Statements of Equity
for the six months ended June 30, 2011 and fiscal 2010, (iv)
Consolidated Statement of Cash Flows for the six months ended June 30,
2011, and (v) Notes to Consolidated Financial Statements.* |
* | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
1. | I have reviewed this Quarterly Report on Form 10-Q of Carey Watermark Investors Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting. |
/s/ Michael G. Medzigian
|
||
Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Carey Watermark Investors Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting. |
/s/ Mark J. DeCesaris
|
||
Chief Financial Officer |
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Carey Watermark Investors Incorporated. |
/s/ Michael G. Medzigian
|
||
Chief Executive Officer |
||
Date August 12, 2011 |
||
/s/ Mark J. DeCesaris
|
||
Chief Financial Officer |
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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
CWI shareholders' equity | Â | Â |
Listed shares, par value | $ 0.001 | Â |
Listed shares, authorized | 300,000,000 | Â |
Listed shares, issued | 3,011,458 | 23,222 |
Listed shares, outstanding | 3,011,458 | 23,222 |
Consolidated Statements of Income (Unaudited) (USD $)
|
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2011
|
Jun. 30, 2011
|
|
Operating Expenses | Â | Â |
General and administrative | $ (692,825) | $ (1,412,647) |
Property expenses | (32,420) | (32,420) |
Operating Expenses, Total | (725,245) | (1,445,067) |
Other Income and Expenses | Â | Â |
Interest expense (Note 3) | (9,257) | (9,257) |
Other Income and Expenses, Total | (9,257) | (9,257) |
Net loss | $ (734,502) | $ (1,454,324) |
Loss Per Share | Â | Â |
Basic and diluted | $ (0.34) | $ (1.13) |
Weighted Average Shares Outstanding | Â | Â |
Basic and diluted shares outstanding | 2,167,745 | 1,292,264 |
Distribution declared per share | $ 0.1000 | $ 0.2000 |
Document and Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 05, 2011
|
|
Document Entity Information [Abstract] | Â | Â |
Document Type | 10-Q | Â |
Document Period End Date | Jun. 30, 2011 | |
Amendment Flag | false | Â |
Document Fiscal Period Focus | FY | Â |
Document Fiscal Year Focus | 2011 | Â |
Current Fiscal Year End Date | --12-30 | Â |
Entity Central Index Key | 0001430259 | Â |
Entity Current Reporting Status | Yes | Â |
Entity Registrant Name | Carey Watermark Investors Incorporated | Â |
Entity Voluntary Filers | No | Â |
Entity Well-known Seasoned Issuer | Yes | Â |
Entity Common Stock, Shares Outstanding | Â | 3,327,594 |
Entity Filer Category | Non-accelerated Filer | Â |
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Commitments and Contingencies
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Commitments and Contingencies [Abstract] | Â |
Commitments and Contingencies | Note 5. Commitments and Contingencies
At June 30, 2011, we were not involved in any material litigation.
We will be liable for certain expenses of the offering described in our prospectus, which include filing, legal, accounting, printing and escrow fees, which are to be deducted from the gross proceeds of the offering. We will reimburse Carey Financial or one of its affiliates for expenses (including fees and expenses of its counsel) and for the costs of any sales and information meetings of Carey Financial's registered representatives or employees of one of its affiliates relating to the offering. The total underwriting compensation to Carey Financial and other dealers in connection with the offering shall not exceed limitations prescribed by the Financial Industry Regulatory Authority, Inc. The advisor has agreed to be responsible for the repayment of (i) organization and offering expenses (excluding selling commissions to Carey Financial with respect to shares held by clients of it and selected dealers and fees paid and expenses reimbursed to selected dealers) which exceed 2% of the gross proceeds of the offering and (ii) organization and offering expenses (including selling commissions, fees and fees paid and expenses reimbursed to selected dealers) which exceed 15% of the gross proceeds of the offering. |
Business
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Business [Abstract] | Â |
Business | Note 1. Business
Organization Carey Watermark Investors Incorporated (together with its consolidated subsidiaries, “CWI”, “we”, “us”, or “our”) is a Maryland corporation formed in March 2008 for the purpose of acquiring, owning, disposing of and, through our advisor, managing and seeking to enhance the value of, interests in lodging and lodging related properties primarily in the United States (“U.S.”). We intend to conduct substantially all of our investment activities and own all of our assets through CWI OP, LP, our “Operating Partnership.” We are a general partner and a limited partner and own a 99.985% capital interest in the Operating Partnership. Carey Watermark Holdings, LLC (“Carey Watermark Holdings”), which is owned indirectly by W. P. Carey & Co. LLC (“W. P. Carey”) and Watermark Capital Partners, LLC (“Watermark Capital Partners”), holds a special general partner interest in the Operating Partnership. We began operations on March 3, 2011.
We are managed by our advisor, Carey Lodging Advisors, LLC, a related party. Our advisor will manage our overall portfolio, including providing oversight and strategic guidance to the independent property operators that manage our properties. Our subadvisor, CWA, LLC, a subsidiary of Watermark Capital Partners, provides services to the advisor primarily relating to acquiring, managing, financing and disposing of our assets and overseeing the independent property operators that manage the day-to-day operations of our properties. In addition, the subadvisor provides us with the services of our chief executive officer during the term of the subadvisory agreement, subject to the approval of our independent directors.
Public Offering
On September 15, 2010, our Registration Statement on Form S-11 (File No. 333-149899), covering an initial public offering of up to 100,000,000 shares of common stock at $10.00 per share, was declared effective under the Securities Act of 1933, as amended (the “Securities Act”). The Registration Statement also covers the offering of up to 25,000,000 shares of common stock at $9.50 pursuant to our distribution reinvestment plan. Our initial public offering is being offered on a “best efforts” basis by Carey Financial, LLC, an affiliate of the advisor (“Carey Financial”), and other selected dealers. We intend to use the net proceeds of the offering to acquire, own and manage a portfolio of interests in lodging and lodging related properties. While our core strategy is focused on the lodging industry, we may also invest in other real estate property sectors. From the beginning of our offering through June 30, 2011, we raised $29,744,843. There can be no assurance that we will successfully sell the full number of shares registered.
On March 19, 2008, Carey REIT II, Inc. (“Carey REIT II”), a wholly-owned subsidiary of W. P. Carey and an affiliate of our advisor, purchased 1,000 shares of our common stock for $9,000 and was admitted as our initial stockholder. Additionally, on August 16, 2010, we received a capital contribution of $200,000 in cash from Carey REIT II in exchange for 22,222 shares of our common stock. Carey REIT II purchased its shares at $9.00 per share, net of commissions and fees, which would have otherwise been payable to Carey Financial. On October 13, 2010, Carey Watermark Holdings purchased a capital interest in the Operating Partnership representing its special general partnership interest of 0.015% for $185,625.
|
Stock-Based Compensation and Equity
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Stock Based Compensation [Abstract] | Â |
Stock Based Compensation | Note 6. Stock-Based Compensation
2010 Equity Incentive Plan and Directors Incentive Plan – 2010 Incentive Plan
We maintain the 2010 Equity Incentive Plan, which authorizes the issuance of shares of our common stock to non-employees. The 2010 Equity Incentive Plan provides for the grant of RSUs, performance share units, and dividend equivalent rights. We also maintain the Directors Incentive Plan — 2010 Incentive Plan which authorizes the issuance of shares of our common stock to our independent directors. The Directors Incentive Plan — 2010 Incentive Plan provides for the grant of RSUs and performance share units. A maximum of 4,000,000 awards may be granted, in the aggregate, under these two plans.
During the six months ended June 30, 2011, we issued 2,000 RSUs to each of our four independent directors. The market value of these units, which vested immediately, was $80,000, which we recognized as stock-based compensation expense. We also recognized $14,638 in amortization expense related to 16,000 RSUs issued to employees of our subadvisor during March 2011. The non-employee awards vest over three years.
|
Consolidated Statement of Equity (Parenthetical) (USD $)
|
Dec. 31, 2010
|
---|---|
Statement of Stockholders Equity [Abstract] | Â |
Private Placement Par Value | $ 0.001 |
Private Placement per share value | $ 9 |
Basis of Presentation
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Basis Of Presentation [Abstract] | Â |
Basis of Presentation | Note 2. Basis of Presentation
Basis of Presentation
Our interim consolidated financial statements have been prepared, without audit, in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the U.S. (“GAAP”).
In the opinion of management, the unaudited financial information for the interim periods presented in this Report reflects all normal and recurring adjustments necessary for a fair statement of results of operations, financial position and cash flows. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2010, which are included in our 2010 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.
We had no significant operations as of June 30, 2011. Our operating expenses for the three and six months ended June 30, 2011 consist primarily of administrative expenses primarily related to personnel related costs and legal and professional fees. Activity for the three and six months ended June 30, 2010 was nominal and, therefore, is not presented.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.
Basis of Consolidation
The consolidated financial statements reflect all of our accounts, including those of our majority-owned and/or controlled subsidiaries. The portion of equity in a subsidiary that is not attributable, directly or indirectly, to us is presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.
The Financial Accounting Standards Board (“FASB”) has issued amended guidance related to the consolidation of variable interest entities (“VIEs”). The amended guidance affects the overall consolidation analysis, changing the approach taken by companies in identifying which entities are VIEs and in determining which party is the primary beneficiary, and requires an enterprise to qualitatively assess the determination of the primary beneficiary of a VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The amended guidance changes the consideration of kick-out rights in determining if an entity is a VIE. Additionally, the guidance requires an ongoing reconsideration of the primary beneficiary and provides a framework for the events that trigger a reassessment of whether an entity is a VIE.
We performed an analysis of all of our subsidiary entities to determine whether they qualify as VIEs and whether they should be consolidated or accounted for as equity investments in an unconsolidated venture. As a result of our assessment, we have concluded that none of our subsidiaries is a VIE and all are consolidated under the voting model.
We account for the capital interest held by Carey Watermark Holdings in the Operating Partnership as a noncontrolling interest. Carey Watermark Holdings' special general partner interest will entitle it to receive distributions of 10% of available cash generated by Operating Partnership operations, subject to certain limitations. In addition, in the event of the dissolution of the Operating Partnership, Carey Watermark Holdings will be entitled to receive distributions of up to 15% of net proceeds, provided certain return thresholds are met for the initial investors in the Operating Partnership. In the current period, we reallocated $185,625 of noncontrolling interest contributions to the general partner's additional paid in capital, in accordance with ASC 323 Equity Method and Joint Ventures. As a result of issuing additional shares, and thereby the Operating Partnership issuing additional units, we have reallocated our equity accounts in accordance with GAAP. Based on the terms of the Operating Partnership agreement and that the initial investors not yet earning their minimal return, the non-controlling interest representing Carey Watermark Holding's interest in the Operating Partnership has absorbed the operating losses to the extent of its original investment.
Equity Investments in Real Estate
We evaluate our equity investments in real estate on a periodic basis to determine if there are any indicators that the value of our equity investment may be impaired and whether or not that impairment is other-than-temporary. To the extent impairment has occurred, we measure the charge as the excess of the carrying value of our investment over its estimated fair value, which is determined by multiplying the estimated fair value of the underlying venture's net assets by our ownership interest percentage.
Stock-Based Compensation
We have granted restricted share units (“RSUs”) to certain employees of our subadvisor and independent directors. Stock-based compensation expense for awards made to non-employees is based on the fair value of the services received. Stock-based compensation expense for awards made to directors is based on the grant date fair value estimated in accordance with current accounting guidance for share-based payments. We recognize these compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award. We include stock-based compensation within General and administrative expense.
Acquisition Costs
We immediately expense all acquisition costs and fees associated with transactions deemed to be business combinations, but we capitalize these costs for transactions deemed to be acquisitions of an asset or equity investment. To the extent we make investments that are deemed to be business combinations, our results of operations will be negatively impacted by the immediate expensing of acquisition costs and fees incurred. During the three and six months ended June 30, 2011 we capitalized $1,311,794 related to our acquisition that was finalized during the second quarter of 2011.
Future Accounting Requirements
The following Accounting Standards Updates (“ASUs”) promulgated by the Financial Accounting Standards Board (“FASB”) are applicable to us in current or future reports, as indicated:
ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations — In December 2010, the FASB issued an update to Accounting Standards Codification Topic (“ASC”) 805, Business Combinations. The amendments in the update clarify that the pro forma disclosures required under ASC 805 should depict revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. Additionally, the amendments expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination(s) included in the reported pro forma revenue and earnings. These amendments impact the form of our disclosures only, are applicable to us prospectively and are effective for our business combinations for which the acquisition date is on or after December 15, 2010.
ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs — In May 2011, the FASB issued an update to ASC 820, Fair Value Measurements. The amendments in the update explain how to measure fair value and do not require additional fair value measurements, nor are they intended to establish valuation standards or affect valuation practices outside of financial reporting. These new amendments will impact the level of information we provide, particularly for level 3 fair value measurements and the measurement's sensitivity to changes in unobservable inputs, our use of a nonfinancial asset in a way that differs from that asset's highest and best use, and the categorization by level of the fair value hierarchy for items that are not measured at fair value in the balance sheet but for which the fair value is required to be disclosed. These amendments are expected to impact the form of our disclosures only, are applicable to us prospectively and are effective for our interim and annual periods beginning in 2012.
ASU 2011-05, Presentation of Comprehensive Income — In June 2011, the FASB issued an update to ASC 220, Comprehensive Income. The amendments in the update change the reporting options applicable to the presentation of other comprehensive income and its components in the financial statements. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. Additionally, the update requires the consecutive presentation of the statement of net income and other comprehensive income. Finally, the update requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. These amendments impact the form of our disclosures only, are applicable to us retrospectively and are effective for our interim and annual periods beginning in 2012. |
Agreements and Transactions with Related Parties
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6 Months Ended |
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Jun. 30, 2011
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Agreements And Transactions With Related Parties [Abstract] | Â |
Related Party Transactions Disclosure Text Block | Note 3. Agreements and Transactions with Related Parties
Effective September 15, 2010, we entered into a dealer manager agreement with Carey Financial, whereby Carey Financial will receive a selling commission of up to $0.70 per share sold and a dealer manager fee of up to $0.30 per share sold, a portion of which may be re-allowed to the selected broker dealers. During the six months ended June 30, 2011, we began admitting shareholders and sold 2,980,236 shares and reflected the related offering proceeds of $29,744,843 net of such commissions of $2,912,816.
Effective September 15, 2010, we entered into an advisory agreement with the advisor to perform certain services for us, including managing the offering and our overall business, identification, evaluation, negotiation, purchase and disposition of lodging related properties and the performance of certain administrative duties. Pursuant to the advisory agreement, upon reaching the minimum offering amount of $10,000,000 on March 3, 2011, we became obligated to reimburse the advisor for all organization and offering costs incurred in connection with our offering, up to a maximum amount (excluding selling commissions and the dealer manager fee) of 2% of the gross proceeds of our offering and distribution reinvestment plan. Through June 30, 2011, the advisor has incurred organization and offering costs on our behalf of approximately $73,598 and $4,153,929, respectively. However at June 30, 2011, we were only obligated to pay $594,240 of these costs because of the 2% limitation described above. The advisor will also receive acquisition fees of 2.5% of the total investment cost of the properties acquired and loans originated by us not to exceed 6% of the aggregate contract purchase price of all investments and loans. We will also pay the advisor an annual asset management fee equal to 0.50% of the aggregate average market value of our investments. Carey Watermark Holdings, an affiliate of the advisor, will receive a 10% interest in distributions of available cash by the Operating Partnership and a subordinated interest of 15% of the net proceeds from the sale, exchange or other disposition of operating partnership assets. The advisor will also receive disposition fees of up to 1.5% of the contract sales price of a property. We will also pay the advisor a loan refinancing fee of up to 1% of a refinanced loan, if certain conditions described in our prospectus are met.
Additionally, effective September 15, 2010, the advisor entered into a subadvisory agreement with the subadvisor, whereby the advisor will pay 20% of the aforementioned fees earned under the advisory agreement to the subadvisor. In addition, the subadvisor owns a 20% interest in Carey Watermark Holdings. For the three and six months ended June 30, 2011, we reimbursed the subadvisor for personnel costs and other charges totaling $88,210 and $236,841, respectively. In addition, included in our cost to acquire the two hotel properties described in Note 4 is an acquisition fee of $1,085,206 paid to our advisor, which was capitalized.
Also, as part of our investment in the joint venture described in Note 4, on May 4, 2011, a subsidiary of W.P. Carey provided us with a $4,000,000 loan at a rate of 30-day London inter-bank offered rate plus 2.5%. This note was repaid on June 6, 2011, its maturity date.
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Equity Investment in Real Estate and the REITs
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6 Months Ended |
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Jun. 30, 2011
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Equity Investments in Real Estate and REITs [Abstract] | Â |
Equity Investments in Real Estate and REITs | Note 4. Equity Investment in Real Estate
Together with an unrelated third party, we own an interest in two lodging properties through a joint venture that we do not control but over which we exercise significant influence, as described below. We account for this investment under the equity method of accounting (i.e., at cost, increased or decreased by our share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting, such as basis differences from other-than-temporary impairments). Earnings for our equity method investments are recognized in accordance with each respective investment agreement and, where applicable, based upon the allocation of the investment's net assets at book value as if the investment was hypothetically liquidated at the end of each reporting period.
Acquisition
On May 5, 2011, we completed a joint venture investment in Long Beach Hotel Properties, LLC with LBHP-Ensemble Hotel Partners, LLC (“Ensemble”), the members of which were the then owners of the leasehold interests in two waterfront hotel properties in Long Beach, CA: the Hotel Maya, a Doubletree by Hilton Hotel (the “Hotel Maya”); and the Residence Inn Long Beach Downtown (the “Residence Inn”).
We acquired a 49% interest in this venture (the “Venture”) for $43,642,044, which includes our allocable share of the Venture's debt of $22,851,003 and an acquisition fee of $1,085,206 paid to the advisor as well as other transaction costs. On the date of our acquisition, the Venture's total capitalization, including partner equity and debt, was approximately $88,000,000. We have the right, subject to certain conditions, to increase our ownership in the Venture to 50%. Our investment was made in the form of a preferred equity interest that carries a cumulative preferred dividend of 9.5% per year and is senior to Ensemble's equity interest. At June 30, 2011, the carrying amount of this investment was $20,466,041. We record our share of the net income or loss in the Venture on a one-quarter lag basis because we prepared our consolidated financial statements prior to receiving the Venture's consolidated financial statements.
Both properties are subject to mortgage financing. The financing on the Hotel Maya is a three-year, $15,000,000 mortgage that bears interest at 6.5% per year. The financing on the Residence Inn is a 10-year, $31,875,000 mortgage that bears interest at 7.25% per year. The Venture is a guarantor of the mortgage financing on the Hotel Maya. Ensemble has agreed to be responsible for, and has indemnified us regarding, any and all amounts due under the guarantee. Our investment was financed in part by a $4,000,000 loan from a subsidiary of W. P. Carey (Note 3).
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Consolidated Statement of Equity (USD $)
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Total
USD ($)
|
Shares [Member]
|
Common Stock [Member]
USD ($)
|
Additional Paid In Capital [Member]
USD ($)
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Distributions In Excess Of Accumulated Earnings [Member]
USD ($)
|
Total Cwi Shareholders [Member]
USD ($)
|
Noncontrolling Interest [Member]
USD ($)
|
---|---|---|---|---|---|---|---|
Equity Beginning Balance at Dec. 31, 2009 | $ 8,663 | Â | $ 1 | $ 8,999 | $ (337) | $ 8,663 | $ 0 |
Shares Issued Beginning at Dec. 31, 2009 | Â | 1,000 | Â | Â | Â | Â | Â |
Contributions from noncontrolling interest | Â | Â | Â | Â | Â | Â | 185,625 |
Shares, $0.001 par value, issued to the advisor at $9.00 per share, value | 200,000 | Â | 22 | 199,978 | Â | 200,000 | Â |
Shares, $0.001 par value, issued to the advisor at $9.00 per share, shares | Â | 22,222 | Â | Â | Â | Â | Â |
Net income | (297,551) | Â | Â | Â | (297,551) | (297,551) | 0 |
Ending Balance at Dec. 31, 2010 | 96,737 | Â | 23 | 208,977 | (297,888) | (88,888) | 185,625 |
Shares Issued Ending at Dec. 31, 2010 | Â | 23,222 | Â | Â | Â | Â | Â |
Reallocation of noncontrolling interest | Â | Â | Â | 185,625 | Â | 185,625 | (185,625) |
Stock based compensation, shares | Â | 8,000 | Â | Â | Â | Â | Â |
Stock based compensation, value | 94,638 | Â | 8 | 94,630 | Â | 94,638 | Â |
Shares issued, net of offering costs, shares | Â | 2,980,236 | Â | Â | Â | Â | Â |
Shares issued net of offering costs, value | 26,341,332 | Â | 2,972 | 26,338,360 | Â | 26,341,332 | Â |
Distributions declared ($0.2000 per share) | (259,282) | Â | Â | Â | (259,282) | (259,282) | Â |
Net income | Â | Â | Â | Â | (1,454,324) | (1,454,324) | 0 |
Ending Balance at Jun. 30, 2011 | $ 24,819,101 | Â | $ 3,003 | $ 26,827,592 | $ (2,011,494) | $ 24,819,101 | $ 0 |
Shares Issued Ending at Jun. 30, 2011 | Â | 3,011,458 | Â | Â | Â | Â | Â |
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end
Consolidated Balance Sheets (Unaudited) (USD $)
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Jun. 30, 2011
|
Dec. 31, 2010
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Assets | Â | Â |
Equity investments in real estate | $ 20,466,041 | $ 0 |
Cash and cash equivalents | 5,840,099 | 332,989 |
Other Assets, net | 29,947 | 0 |
Total assets | 26,336,087 | 332,989 |
Liabilities and Equity | Â | Â |
Accounts Payable Accrued Expenses And Other Liabilities | 499,389 | 190,752 |
Due to affiliates | 799,222 | 45,500 |
Distributions payable | 218,375 | 0 |
Total liabilities | 1,516,986 | 236,252 |
CWI shareholders' equity | Â | Â |
Common stock $0.001 par value; authorized 300,000,000 shares; issued and outstanding, 3,011,458 and 23,222 shares, respectively | 3,003 | 23 |
Additional paid-in capital | 26,827,592 | 208,977 |
Distributions in excess of accumulated losses | (2,011,494) | (297,888) |
Total Carey Watermark Investors Incorporated shareholders' equity | 24,819,101 | (88,888) |
Noncontrolling interests | 0 | 185,625 |
Total equity | 24,819,101 | 96,737 |
Total liabilities and equity | $ 26,336,087 | $ 332,989 |