MHI HOSPITALITY CORPORATION AND PREDECESSOR
CONSOLIDATED AND COMBINED BALANCE SHEETS
MHI The
The
Hospitality Predecessor Predecessor
December 31, December 31, December 31,
2004 2003
2002
ASSETS
Investment in hotel properties,
net
$78,418,173 $27,941,021 $27,718,222
Cash and cash equivalents
8,314,353 67,365
154,381
Restricted real estate
tax
escrows
637,627 728,452
792,737
Accounts receivable
1,161,159 527,436
673,561
Accounts receivable-affiliate
400,216 1,007,154 754,650
Prepaid expenses, inventory
and
other assets
1,602,633 260,397
279,898
Shell Island lease purchase
3,500,000
- -
Deferred financing costs,
net 198,083
225,631 227,289
TOTAL ASSETS
$94,232,244 $30,757,456 $30,600,738
LIABILITIES
& OWNERS' EQUITY
Mortgage loans
$25,753,188 $29,640,738 $30,548,250
Note payable related party
2,000,000
- -
Short term loans/lines
of credit
- 450,000 300,000
Accounts payable and accrued
expenses
5,177,184 2,706,169 2,748,754
Advance Deposits
336,302 127,688
81,761
Due to affiliate
100,000
- -
Total liabilities
33,366,674 32,924,595 33,678,765
Minority Interest in Operating
Partnership
21,118,257
- -
Commitments and contingencies (see
Note 9)
OWNERS' EQUITY
Preferred stock, par value
$0.01, 1,000,000
shares
authorized, 0 shares
issued and outstanding
- -
-
Common stock, par value
$0.01,
49,000,000 shares
authorized,
6,000,000 shares
issued and
outstanding
60,000
- -
Additional paid in capital
42,221,535
- -
Accumulated deficit
(2,534,222)
- -
Owners' equity accounts
- (2,167,139) (3,078,027)
TOTAL OWNERS'
EQUITY
39,747,313 (2,167,139) (3,078,027)
TOTAL LIABILITIES AND OWNERS'
EQUITY
$94,232,244 $30,757,456 $30,600,738
MHI HOSPITALITY CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
MHI The
Hospitality Predecessor
Period From Period From The
The
December 21, January 1, Predecessor Predecessor
2004 to 2004 to Year Ended
Year Ended
December 31, December 20, December 31, December 31,
2004 2004
2003 2002
Revenue
Rooms department
$438,603 $16,859,415 $15,828,663 $15,660,065
Food and beverage
department
191,609 8,123,306 7,772,413
7,412,848
Other operating
departments
28,946 889,144
834,130 886,114
- -
-
Total revenue 659,158
25,871,865 24,435,206 23,959,027
EXPENSES
Hotel operating expenses
Rooms department
156,380 4,336,704 4,143,106
3,920,916
Food and beverage
department
196,817 5,767,897 5,563,915
5,398,453
Other operating
departments
10,174 454,037
416,213 420,284
Indirect
608,706 9,692,125 9,417,723
9,181,786
- -
-
Total hotel
operating
expenses
972,077 20,250,763 19,540,957 18,921,439
Depreciation and
amortization
172,899 1,714,734 2,045,250
2,236,136
Corporate general and
administrative
Startup costs
722,550
- -
-
Management
restructuring
fee 2,000,000
- -
-
Other
1,080,068
- -
-
Total operating
expenses 4,947,594
21,965,497 21,586,207 21,157,575
OPERATING INCOME
< LOSS >
(4,288,436) 3,906,368 2,848,999
2,801,452
Other income (expense)
Interest expense
(57,437) (2,228,427) (2,369,422) (2,481,528)
Interest income
340 1,753
3,668 9,379
Income <
loss > from
minority interests
- (90,877) (190,177)
(226,478)
Gain (loss) on
disposal of
assets -
- (1,135)
-
Income < loss > before
minority interest in
operating
partnership and
income taxes
(4,345,533) 1,588,817 291,933
102,825
Minority Interest in predecessor company
- (595,539) (152,097)
(224,864)
Minority interest in
operating partnership
1,611,311
- -
-
Income tax benefit
200,000
- -
-
Net income < loss >
$(2,534,222) $993,278 $139,836
$(122,039)
Loss per share
(0.42) -
- -
Number of shares
outstanding
6,000,000 -
- -
MHI HOSPITALITY AND CORPORATION AND PREDECESSOR
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
MHI The
Hospitality Predecessor
Period From Period From The
The
December 21, January 1, Predecessor Predecessor
2004 to 2004 to Year Ending Year Ending
December December December
December
31, 20,
31, 31,
2004 2004
2003 2002
Cash Flows from Operating Activities:
Net Income (Loss)
$(2,534,222) $993,278 $139,836 $(122,039)
Adjustments to reconcile
net income (loss)
to
net cash used in
operating activities:
Depreciation
and
amortization
172,899 1,714,734 2,045,250 2,236,136
Deferred income
taxes (200,000)
Equity in
net (income)
loss
of partnership
investments
- 90,877 190,177
226,478
Minority interest
in
operating
partnership (1,611,311) 595,539
152,097 224,864
(Gain)/Loss
on disposal
of property and
equipment
- -
1,135 - Changes
in assets and liabilities:
Restricted Cash
- 90,825 64,285
(100,218)
Accounts receivable (413,689) (220,034)
146,125 (112,753)
Inventory and prepaid expenses
(541,702) (34,682) 15,100
(92,690)
Other assets, net of
accumulated
amortization
(585,355) (78,822) (47,310)
(17,184) Accounts payable and accrued expenses
2,606,641 (135,627) (42,028)
(174,611)
Accrued expenses
Advance deposits 126,092
82,522 45,928
548
Net cash provided
by
(used
in) operating
activities
(2,980,647) 3,098,610 2,710,595 2,068,531
Cash flows from investing
activities:
Acquisition of hotel
properties
(54,620,919) -
- -
Acquisition of
leasehold interest
(3,500,000) -
- -
Improvements and
additions to hotel
properties
- (927,689)(1,278,647) (1,213,987)
Proceeds from sale of
assets
- -
- -
Net Cash used
in
investing
activities (58,120,919) (927,689)(1,278,647) (1,213,987)
Cash flows from financing
activities:
Proceeds from sale
of common stock
60,000,000
- -
-
Payment of issuance
costs related to
sale
of common stock
(5,192,627) -
- - Members'
capital contributed
13,470,248 60,000 1,123,454
158,077 Members' capital distributed
- (2,462,169) (320,501) (474,000)
Capital contributed to
Brownestone Partners,
LLC -
(60,000)(1,118,953) (158,077)
Distributions received
from Brownestone
Partners,
LLC
- 95,389
- -
Minority party distributions
- -
(184,000) (276,000)
Payments to related party
1,138,298 (431,360) (252,505)
811,381
Proceeds from borrowing
- 2,000,000 150,000
-
Payment of loans
- (1,234,500) (759,217) (992,846)
Proceeds from capital
lease obligations
- -
- - Payment
of capital lease obligations
- (57,811) (157,242) (200,677)
Net
cash provided by
(used in) financing
activities
69,415,919 (2,090,451) (1,518,964) (1,132,142)
Net increase
(decrease)in cash 8,314,353 80,470
(87,016) (277,598)
Cash and cash
equivalents at the
beginning of the
period
- 67,365 154,381
431,979
Cash at the end of
the year
$8,314,353 $147,835 $67,365
$154,381
Supplemental disclosures:
Cash paid during the year
for interest
$2,804 $2,228,427 $2,369,422 $1,789,493
MHI HOSPITALITY CORPORATION AND PREDECESSOR
CONSOLIDATED AND COMBINED FFO RECONCILIATION
The following table reconciles net
loss to FFO for the period from December 21, 2004 through December 31,
2004:
MHI The
Hospitality Predecessor
Period From Period From The
The
December 21, January 1, Predecessor Predecessor
2004 to 2004 to Year Ended
Year Ended
December 31, December 20, December 31, December 31,
2004 2004
2003 2002
Net income (loss)
$(2,534,221) $993,278 $139,836
$(122,039)
Add minority
interest
(1,611,311) 595,539 152,097
224,864
Add depreciation and
amortization
172,899 1,714,734 2,045,250 2,236,136
Add loss on disposal of
property
- -
1,135 -
FFO
$(3,972,633) $3,303,551 $2,338,318 $2,338,961
Funds from Operations, FFO, is used
by industry analysts and investors as a supplemental operating performance
measure of an equity REIT. FFO is calculated in accordance with the definition
that was adopted by the Board of Governors of the National Association
of Real Estate Investment Trusts, NAREIT. FFO, as defined by NAREIT, represents
net income or loss determined in accordance with GAAP, excluding extraordinary
items as defined under GAAP and gains or losses from sales of previously
depreciated operating real estate assets, plus certain non- cash items
such as real estate asset depreciation and amortization, and after adjustment
for any minority interest from unconsolidated partnerships and joint ventures.
Historical cost accounting for real estate assets in accordance with GAAP
implicitly assumes that the value of real estate assets diminishes predictably
over time. Since real estate values instead have historically risen or
fallen with market conditions, many investors and analysts have considered
the presentation of operating results for real estate companies that use
historical cost accounting to be insufficient by itself. Thus, NAREIT created
FFO as a supplemental measure of REIT operating performance that excludes
historical cost depreciation, among other items, from GAAP net income.
Management believes that the use of FFO, combined with the required GAAP
presentations, has improved the understanding of the operating results
of REITs among the investing public and made comparisons of REIT operating
results more meaningful. Management considers FFO to be a useful measure
of adjusted net income (loss) for reviewing comparative operating and financial
performance because we believe FFO is most directly comparable to net income
(loss), which remains the primary measure of performance, because by excluding
gains or losses related to sales of previously depreciated operating real
estate assets and excluding real estate asset depreciation and amortization,
FFO assists in comparing the operating performance of a company's real
estate between periods or as compared to different companies. Although
FFO is intended to be a REIT industry standard, other companies may not
calculate FFO in the same manner as we do, and investors should not assume
that FFO as reported by us is comparable to FFO as reported by other REITs.
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