CLDT-2013.12.05-8K/A-Savannah

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K/A
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): January 13, 2014 (December 9, 2013)
 
CHATHAM LODGING TRUST
(Exact name of Registrant as specified in its charter)
 
Maryland
001-34693
27-1200777
(State or Other Jurisdiction
of Incorporation or Organization)
(Commission File Number)
(I.R.S. Employer Identification No.)
50 Cocoanut Row, Suite 211
Palm Beach, Florida

33480
(Address of principal executive offices)
(Zip Code)
(561) 802-4477
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed from last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 





This Current Report on Form 8-K/A amends and supplements the registrant's Current Report on Form 8-K, as filed on December 9, 2013, to include the historical financial statements and unaudited pro forma financial information required by Items 9.01 (a) and (b) related to the registrant's acquisition of the SpringHill Suites by Marriott® Savannah Downtown/Historic District Hotel.
Item 9.01.
Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.

SpringHill Suites by Marriott Savannah Downtown/Historic District in Savannah
NP OGL, LLC
    
Report of Independent Certified Public Accountants
Balance Sheets as of September 30, 2013 and December 31, 2012
Statements of Operations for the nine months ended September 30, 2013 and for the year ended December 31, 2012
Statements of Members' Equity for the nine months ended September 30, 2013 and for the year ended December 31, 2012
Statements of Cash Flows for for the nine months ended September 30, 2013 and for the year ended December 31, 2012
Notes to Financial Statements


(b) Pro Forma Financial Information.

Chatham Lodging Trust
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2013
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2013
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2012



2



(d) Exhibits.

Exhibit
Number
 
Description
23.1
 
Consent of PricewaterhouseCoopers LLP



3



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
CHATHAM LODGING TRUST
 
 
 
Date: January 13, 2014
By:
/s/ Dennis M. Craven
Dennis M. Craven
Executive Vice President and Chief Financial Officer


4



EXHIBIT INDEX

Exhibit
Number
 
Description
23.1
 
Consent of PricewaterhouseCoopers LLP


5




NP OGL, LLC d/b/a SpringHill Savannah
Financial Statements
As of September 30, 2013 and December 31, 2012 and
For the Nine Months Ended September 30, 2013 and
For the Year Ended December 31, 2012



6



Report of Independent Certified Public Accountants





To the Members of
NP OGL, LLC d/b/a SpringHill Suites Savannah

We have audited the accompanying financial statements of NP OGL, LLC d/b/a SpringHill Suites Savannah (“SpringHill Suites Savannah”), which comprise the balance sheets as of September 30, 2013 and December 31, 2012, and the related statements of operations, of members' equity and of cash flows for the nine month period and year then ended, respectively.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SpringHill Suites Savannah at September 30, 2013 and December 31, 2012, and the results of its operations and its cash flows for the nine month period and year then ended, respectively, in accordance with accounting principles generally accepted in the United States of America.


/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida

January 13, 2014


7



NP OGL, LLC
Balance Sheets
(in thousands)
 
September 30, 2013
 
December 31, 2012
Assets:
 
 
 
Hotel Property
 
 
 
Land
$
3,750

 
$
3,750

Buildings and improvements
21,829

 
21,829

Furnishings and equipment
3,025

 
2,955

 
28,604

 
28,534

Less: Accumulated depreciation
(3,519
)
 
(2,839
)
Net hotel property
25,085

 
25,695

 
 
 
 
Cash and cash equivalents
2,170

 
867

Accounts receivable
60

 
74

Prepaid expenses
51

 
43

Deferred financing costs, net of accumulated amortization of $112 as of 2013 and $79 as of 2012
73

 
106

Total assets
$
27,439

 
$
26,785

 
 
 
 
Liabilities and Members' Equity:
 
 
 
Liabilities
 
 
 
Mortgage loan payable
$
23,652

 
$
24,347

Accounts payable and accrued expenses
536

 
225

Total liabilities
24,188

 
24,572

 
 
 
 
Members' equity
3,251

 
2,213

Total liabilities and members' equity
$
27,439

 
$
26,785

The accompanying notes are an integral part of these financial statements.


8



NP OGL, LLC
Statements of Operations
(in thousands)

 
For the Nine Months Ended
 
For the Year Ended
 
September 30, 2013
 
December 31, 2012
Revenue:
 
 
 
Room
$
4,938

 
$
5,917

Food and beverage
91

 
83

Other
505

 
615

Total revenue
5,534

 
6,615

 
 
 
 
Expenses:
 
 
 
Hotel operating expenses:
 
 
 
Room
793

 
944

Food and beverage expense
259

 
287

Telephone expense
10

 
13

Other expense
123

 
165

General and administration
369

 
530

Franchise fees
432

 
521

Advertising and promotions
154

 
196

Utilities
143

 
183

Repairs and maintenance
152

 
184

Management fees
277

 
331

Total hotel operating expenses
2,712

 
3,354

 
 
 
 
Depreciation and amortization of franchise fees
682

 
900

Property taxes and insurance
281

 
357

General and administrative
4

 
20

Total operating expenses
3,679

 
4,631

 
 
 
 
Operating income
1,855

 
1,984

Interest expense, including amortization of deferred fees
(807
)
 
(1,118
)
Net income
$
1,048

 
$
866

The accompanying notes are an integral part of these financial statements.


9



NP OGL, LLC
Statements of Members' Equity
For the year ended December 31, 2012 and the nine months ended September 30, 2013
(in thousands)

 
Total Equity
Balance at January 1, 2012
$
2,347

Distribution to members'
(1,000
)
Net income
866

Balance at December 31, 2012
2,213

Distribution to members'
(10
)
Net income
1,048

Balance at September 30, 2013
$
3,251

The accompanying notes are an integral part of these financial statements.


10


NP OGL, LLC
Statements of Cash Flows
(in thousands)

 
For the Nine Months Ended
 
For the Year Ended
 
September 30,
 
December 31,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
1,048

 
$
866

Adjustments to reconcile net income loss to net cash provided by operating activities:
 
 
 
Depreciation expense
680

 
897

Amortization of deferred franchise fees
2

 
3

Amortization of deferred financing fees included in interest expense
31

 
41

Changes in operating assets and liabilities:
 
 
 
Decrease in accounts receivable
14

 
153

Increase in prepaid expenses
(8
)
 

Increase in accounts payable and accrued expenses
311

 
13

Net cash provided by operating activities
2,078

 
1,973

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(70
)
 
(60
)
Net cash used in investing activities
(70
)
 
(60
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Repayments on mortgage loan payable
(695
)
 
(1,043
)
Distribution to members
(10
)
 
(1,000
)
Net cash used in by financing activities
(705
)
 
(2,043
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
1,303

 
(130
)
Cash and cash equivalents, beginning of period
867

 
997

 
 
 
 
Cash and cash equivalents, end of period
$
2,170

 
$
867

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
776

 
$
1,076

The accompanying notes are an integral part of these financial statements.

11






NP OGL, LLC
Notes to Financial Statements
September 30, 2013 and December 31, 2012
(in thousands)




1.
Business and Basis of Presentation

These financial statements are the financial statements of NP OGL, LLC d/b/a SpringHill Suites Savannah (hereinafter the "Company" or the "hotel"). The SpringHill Suites by Savannah is a 160-room hotel located at 150 Montgomery Street, Savannah, Georgia. The Hotel is 100% owned by NP OGL, LLC, a limited liability corporation formed in Georgia. The hotel commenced operations in September 2009.
The hotel operates under a franchise agreement with Marriott International ("Marriott") and is subject to a management agreement with North Point Hospitality Group, Inc. Two of the members of the Company consist of the Founder and the President and CEO of North Point Hospitality Group, Inc.

2.
Summary of Significant Accounting Policies

Basis of Presentation. The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment in hotel property, net. The hotel property is recorded at cost and is depreciated using the straight-line method over the estimated useful lives of the assets (5 to 10 years for furniture and equipment and 15 to 40 years for buildings and improvements). During construction, costs directly related to the development of the hotel including property taxes and insurance, and interest incurred, were capitalized. Maintenance and repairs are charged to operations as incurred. The Hotel was deemed to be held for use as of September 30, 2013 and December 31, 2012 and no facts and circumstances were noted which would indicate that the carrying value may not be recoverable.  As such, no impairment provisions were recorded during as of September 30, 2013 or December 31, 2012, respectively.  

Cash and cash equivalents. All highly liquid cash investments with a maturity of three months or less when purchased are considered to be cash equivalents. Cash equivalents are placed with reputable institutions and the balances may at times exceed federally insured deposit levels; however, the hotel has not experienced any losses in such accounts.

Accounts receivable. Hotel receivables consists of amounts owed by guests staying in the hotel at September 30, 2013 and December 31, 2012 and amounts due from business customers or groups. The Company estimates the allowance for doubtful accounts at a level believed to be adequate to absorb estimated losses. Evaluation of the adequacy of the allowance is primarily based on past loss experience, current economic conditions, and other relevant factors. The allowance for doubtful accounts was $0 at September 30, 2013 and December 31, 2012.

Prepaid expenses. Prepaid expenses consist primarily of prepaid insurance and property taxes which are expensed over the term of the insurance coverage and tax period on a straight line basis.

    

12






NP OGL, LLC
Notes to Financial Statements
September 30, 2013 and December 31, 2012
(in thousands)


    
Deferred Financing Costs. Deferred financing costs are being amortized using the straight-line method over the term of the related loan and are included in interest expense on the statements of operations. For the year ended December 31, 2012 and the nine months ended September 30, 2013, $41 and $31, respectively, was amortized to expense.

Fair Value Measurements. Management believes that the carrying values of the Company's cash and cash equivalents, accounts receivable, prepaid expenses and accounts payable and accrued expenses approximate their fair values due to their short-term nature.

Revenue and Expense Recognition. Revenue from room rental, food and beverage and telephone usage is recognized as services are provided and when collection is reasonably assured. Hotel expenses are recognized as incurred.

Income Taxes. Generally no provision for income taxes is made in the accompanying financial statements because the Company is not subject to state or federal income taxes; such taxes are the responsibility of the individual members. The FASB provides guidance for how uncertain tax positions should be recognized, measured, disclosed and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained “when challenged” or “when examined” by the applicable tax authority. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Company recognizes interest and penalties related to unrecognized tax benefits as adjustments to interest expense and general and administrative expenses, respectively. The Company is not subject to examination of U.S. federal and state tax authorities for tax years before 2009. For the year ended December 31, 2012 and nine months ended September 30, 2013, management has determined that there are no material uncertain income tax positions. The Company is not subject to examination of U.S. federal and state tax authorities for tax years before 2009, however, all years beginning in 2009 remain open for examination.  For the year ended December 31, 2012 and nine months ended September 30, 2013, management has determined that there are no material uncertain income tax positions.

Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

3.
Hotel Management Agreement (Related Party)    

The Company has executed a management agreement with North Point Hospitality Group, Inc to operate the Hotel on its behalf. Base management fees are calculated as 5% of gross revenues. There are no incentive management fees. The agreement may be terminated by either party by giving a written 90-day notice or at the time the hotel is sold. During the nine months ended September 30, 2013 and the year ended December 31, 2012, the Company incurred $277 and $331, respectively, in management fees.



13






NP OGL, LLC
Notes to Financial Statements
September 30, 2013 and December 31, 2012
(in thousands)


4.
Franchise Agreement

The Hotel is subject to a franchise agreement with Marriott International, Inc to operate under the Marriott SpringHill Suites brand. The agreement expires on September 24, 2019 and is not renewable. Under the agreement, royalty fees are equal to 5% of hotel gross room revenues. Marketing fees are generally 2.5% of hotel gross room revenues (as defined) but may periodically be increased by the franchisor up to 3.5% at the discretion of the franchisor. Franchise expenses for the nine months ended September 30, 2013 and the year ended December 31, 2012 were $432 and $521, respectively.

5.
Mortgage Loan Payable

The mortgage loan was issued on January 31, 2008, was collateralized by the SpringHill Suites by Marriott Savannah Downtown/Historic Hotel and was guaranteed by J.K. Patel and S. Jay Patel. The loan was modified on April 26, 2011 to $26.1 million and bears an interest rate of bank prime and will never be less than 4.25% per annum and matures on March 30, 2014. Monthly principal payments of $86,955 plus accrued interest are due on the 30th of each month based on a 25 year amortization period with a balloon payment at the maturity date. The loan requires the company to maintain a debt coverage ratio at December 31 of each year of not less than 1.25 to 1.0. The Company was in compliance with its debt covenants as of September 30, 2013 and December 31, 2012.

6. Commitments and Contingencies

The Company is subject to certain claims arising in the normal course of business. In the opinion of management, the results of these claims will not have a material impact on the Company's financial condition or results of operations.
7.
Subsequent Events

On December 5, 2013, the hotel was sold for $39.8 million to Chatham Lodging Trust. The mortgage debt was repaid in full at that time.
The Company has evaluated subsequent events from the balance sheet date through January 13, 2014, the date the financial statements were available to be issued, and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements.


14



UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF CHATHAM LODGING TRUST

Chatham Lodging Trust (“Chatham”) was formed as a Maryland real estate investment trust (“REIT”) on October 26, 2009. Chatham completed its initial public offering (“IPO”) and concurrent private placement of common shares of beneficial interest on April 21, 2010. Chatham raised approximately $158.7 million, net of underwriting discounts and commissions and other offering costs. On February 8, 2011, Chatham completed a second public offering of common shares, raising approximately $69.4 million, net of underwriting discounts and commissions and other offering costs. On January 14, 2013, Chatham completed a third public offering of common shares, raising approximately $48.5 million and a partial exercise of the underwriters’ option to purchase additional shares raising approximately $1.4 million both net of underwriting discounts and commissions and other offering costs. On June 18, 2013, Chatham completed a fourth public offering of common shares, raising approximately $70.2 million and a partial exercise of the underwriters' option to purchase additional shares raising approximately $7.4 million both net of underwriting discounts and commissions and other offering costs. On September 30, 2013, Chatham completed a fifth public offering of common shares, raising approximately $56.8 million and on October 11, 2013, an exercise of the underwriters' option to purchase additional shares raising approximately $8.5 million both net of underwriting discounts and commissions and other offering costs.

On December 27, 2012, Chatham acquired the Hampton Inn Portland Downtown in Portland, Maine for $28.0 million. On February 5, 2013, Chatham acquired the Courtyard by Marriott Houston Medical Center in Houston, Texas for $34.8 million. On August 9, 2013, Chatham acquired the Hampton Inn and Suites hotel by Hilton in Exeter, New Hampshire for $15.2 million. These acquisitions were not deemed significant and therefore are not included in the pro forma financial information.

On June 17, 2013, Chatham acquired the 178-room Hyatt Place® Pittsburgh North Shore hotel in Pittsburgh, Pennsylvania (the “North Shore Hotel”) for a cash purchase price of $40.0 million, plus customary pro-rated amounts and closing costs.
    
On October 31, 2013, Chatham acquired the 231-room Residence Inn by Marriott Bellevue hotel in Bellevue, Washington (the "Bellevue Hotel") for a cash purchase price of $73.2 million, plus customary pro-rated amounts and closing costs.

On December 5, 2013, Chatham acquired the 160-room SpringHill Suites by Marriott Savannah Downtown/Historic hotel in Savannah, Georgia (the "Savannah Hotel") for a cash purchase price of $39.8 million, plus customary pro-rated amounts and closing costs.

The unaudited pro forma consolidated balance sheet as of September 30, 2013 includes the pro forma financial information as if the Bellevue and Savannah Hotels were acquired on September 30, 2013.

The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2013 includes the pro forma financial information as if the North Shore, Bellevue and Savannah Hotels were acquired on January 1, 2012.

The unaudited pro forma consolidated statement of operations for the year ended December 31, 2012 includes the pro forma financial information as if the North Shore, Bellevue and Savannah Hotels were acquired on January 1, 2012.

The unaudited pro forma financial information is not necessarily indicative of what Chatham’s results of operations or financial condition would have been assuming such transactions had been completed at the dates described above, nor is it indicative of Chatham’s results of operations or financial condition for future periods. In management’s opinion, all material adjustments necessary to reflect the effects of the significant acquisition described above have been made. In addition, the unaudited pro forma financial information is based upon available information and upon assumptions and estimates, some of which are set forth in the notes to the unaudited pro forma financial information, which we believe are reasonable under the circumstances. The unaudited pro forma financial information and accompanying

15



notes should be read in conjunction with the historical financial statements and notes thereto of Chatham in Chatham’s 2012 Annual Report on Form 10-K, the Quarterly Report on Form 10−Q for the nine months ended September 30, 2013, the Form 8-K filed on June 12, 2013, the Form 8-K filed on September 24, 2013 and the 8-K/A filed on December 11, 2013.



16



CHATHAM LODGING TRUST
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2013
(in thousands except share data)
 
Chatham
Lodging
Trust (1)
 
Acquisition of Bellevue Hotel (2)
 
Acquisition of Savannah Hotel (3)
 
Offering Adjustments (4)
 
ProForma
Chatham
Lodging Trust
Assets:
 
 
 
 
 
 
 
 
 
Investment in hotel properties, net
$
543,709

 
$
71,757

 
$
39,750

 
$

 
$
655,216

Cash and cash equivalents
60,401

 
(72,123
)
 
(39,960
)
 
95,089

 
43,407

Restricted cash
5,062

 

 

 

 
5,062

Investment in unconsolidated real estate entities
515

 

 

 

 
515

Hotel receivables (net of allowance for doubtful accounts of $42)
2,249

 
240

 
35

 

 
2,524

Deferred costs, net
5,647

 

 

 
137

 
5,784

Prepaid expenses and other assets
2,387

 
60

 
1

 

 
2,448

Total assets
$
619,970

 
$
(66
)
 
$
(174
)
 
$
95,226

 
$
714,956

 
 
 
 
 
 
 
 
 
 
Liabilities and Equity:
 
 
 
 
 
 
 
 
 
Debt
$
175,208

 
$

 
$

 
$
47,580

 
$
222,788

Revolving credit facility
48,500

 

 

 
39,000

 
87,500

Accounts payable and accrued expenses
11,885

 
1

 
1

 
137

 
12,024

Distributions payable
1,900

 

 

 

 
1,900

Total liabilities
237,493

 
1

 
1

 
86,717

 
324,212

 
 
 
 
 
 
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
Preferred shares, $0.01 par value, 100,000,000 shares authorized and unissued at September 30, 2013 and December 31, 2012

 

 

 

 

Common shares, $0.01 par value, 500,000,000 shares authorized; 22,558,058 shares issued and outstanding, respectively, at September 30, 2013
256

 

 

 
5

 
261

Additional paid-in capital
425,331

 

 

 
8,504

 
433,835

Accumulated deficit
(45,138
)
 
(67
)
 
(175
)
 

 
(45,380
)
Total shareholders’ equity
380,449

 
(67
)
 
(175
)
 
8,509

 
388,716

 
 
 
 
 
 
 
 
 
 
Noncontrolling Interests:
 
 
 
 
 
 
 
 
 
Noncontrolling Interest in Operating Partnership
2,028

 

 

 

 
2,028

 
 
 
 
 
 
 
 
 
 
Total equity
382,477

 
(67
)
 
(175
)
 
8,509

 
390,744

Total liabilities and equity
$
619,970

 
$
(66
)
 
$
(174
)
 
$
95,226

 
$
714,956



See Notes to Unaudited Pro Forma Consolidated Balance Sheet

17



NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)

The Unaudited Pro Forma Consolidated Balance Sheet assumes the following occurred on September 30, 2013

Completion of the purchase of the Bellevue Hotel.
Completion of the purchase of the Savannah Hotel.
Payment of non-recurring acquisition costs and expenses of approximately $248 related to the acquisition of the Bellevue and Savannah Hotels.
New mortgage debt of $47.6 million and increased borrowings on the senior secured revolving credit facility of $39.0 million.
An exercise of the underwriter's over-allotment option resulting in the issuance of $487,500 shares at a closing price of $18.35 per share, net of underwriter's discounts.
Notes and Management Assumptions:

1) Represents Chatham’s unaudited historical consolidated balance sheet as of September 30, 2013. Expenses of $5 were included prior to September 30, 2013 related to the acquisition of the Bellevue Hotel.

2 & 3) The following adjustment records the preliminary allocation of the purchase price for the Bellevue and Savannah Hotels based on the estimated fair value of the assets received, the liabilities assumed and the consideration transferred which was funded through use of proceeds from the assumed offering.

 
Bellevue Hotel
Savannah Hotel
Land
$
13,800

$
7,950

Building
56,957

27,825

Furniture, fixtures and equipment
1,000

3,975

Cash and cash equivalents
(72,058
)
(39,787
)
Hotel receivables
240

35

Prepaid expenses and other assets
60

1

Accounts payable and accrued expenses
1

1

 
$

$


The estimated costs incurred by Chatham to complete the purchase of the Bellevue and Savannah Hotels are as follows:
 
Bellevue Hotel
Savannah Hotel
Closing costs
$
42

$
47

Accounting fees related to audit and review
13

125

Legal fees
12

9

 
$
67

$
181


4) Assumed proceeds from the issuance of 487,500 shares at the closing price of $18.35 per share, net of estimated offering costs and a 4.5% underwriters discount based on the quantity of shares sufficient to consummate the Bellevue acquisition and new mortgage debt of $47.6 million to raise cash to complete the Bellevue transaction. The loan has a fixed interest rate of 4.9655% and has a 10-year term, a 30-year amortization payment schedule, is interest only until January 2015 and required $0.1 of debt issuance costs. Assumed $39.0 million borrowed on the Company's senior secured revolving credit facility to complete the Savannah transaction. The the variable interest rate was 2.69% at September 30, 2013.

18



CHATHAM LODGING TRUST
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(in thousands except share and per share data)
 
Chatham
Lodging
Trust (1)
 
North Shore
Hotel (2)
 
Bellevue Hotel (3)
 
Savannah Hotel (4)
 
Pro Forma
Adjustments
 
 
ProForma
Chatham
Lodging Trust
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Room
$
86,377

 
$
2,819

 
$
8,494

 
$
4,938

 
$

 
 
$
102,628

Food and beverage
717

 
261

 
160

 
91

 

 
 
1,229

Other operating
3,575

 
170

 
457

 
505

 

 
 
4,707

Cost reimbursements from unconsolidated real estate entities
1,226

 

 

 

 

 
 
1,226

Total revenue
91,895

 
3,250

 
9,111

 
5,534

 

 
 
109,790

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Room
18,460

 
700

 
1,563

 
793

 

 
 
21,516

Food and beverage expense
506

 
142

 
95

 
259

 

 
 
1,002

Telephone expense
643

 

 
22

 
10

 
 
 
 
675

Other expense
1,157

 
20

 
34

 
123

 
 
 
 
1,334

General and administration
8,493

 
306

 
645

 
369

 

 
 
9,813

Franchise and marketing fees
6,807

 
172

 

 
432

 
729

(5)
 
8,140

Advertising and promotions
2,046

 
197

 
541

 
154

 
 
 
 
2,938

Utilities
3,675

 
95

 
360

 
143

 

 
 
4,273

Repairs and maintenance
4,711

 
112

 
289

 
152

 

 
 
5,264

Management fees
2,430

 
114

 
871

 
277

 
(683
)
(6)
 
3,009

Insurance
543

 

 

 

 

 
 
543

Total hotel operating expenses
49,471

 
1,858

 
4,420

 
2,712

 
46

 
 
58,507

 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
12,526

 
601

 
1,763

 
682

 
(164
)
(7&8)
 
15,408

Property taxes and insurance
6,329

 
263

 
331

 
281

 

 
 
7,204

General and administrative
5,956

 

 
82

 
4

 
(86
)
(9)
 
5,956

Hotel property acquisition costs and other charges
2,581

 

 

 

 
(804
)
(10)
 
1,777

Reimbursed costs from unconsolidated real estate entities
1,226

 

 

 

 

 
 
1,226

Total operating expenses
78,089

 
2,722

 
6,596

 
3,679

 
(1,008
)
 
 
90,078

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
13,806

 
528

 
2,515

 
1,855

 
1,008

 
 
19,712

Interest and other income
124

 

 

 

 

 
 
124

Interest expense, including amortization of deferred fees
(8,433
)
 
(219
)
 
(897
)
 
(807
)
 
(1,148
)
(11)
 
(11,504
)
Loss on early extinguishment of debt
(933
)
 

 

 

 

 
 
(933
)
Loss from unconsolidated real estate entities
(1,394
)
 

 

 

 

 
 
(1,394
)
Income before income tax benefit
3,170

 
309

 
1,618

 
1,048

 
(140
)
 
 
6,005

Income tax expense
(75
)
 

 

 

 
(120
)
(12)
 
(195
)
Net income
$
3,095

 
$
309

 
$
1,618

 
$
1,048

 
$
(260
)
 
 
$
5,810

 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share data:
 
 
 
 
 
 
 
 
 
 
 
 
Basic - income per common share
$
0.15

 
 
 
 
 
 
 
 
 
 
$
0.29

 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted - income per common share
$
0.15

 
 
 
 
 
 
 
 
 
 
$
0.29

 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted - weighted average number of common shares outstanding
19,308,809

 
 
 
 
 
 
 
487,500

(13)
 
19,796,309

 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted - weighted average number of common shares outstanding
19,539,941

 
 
 
 
 
 
 
487,500

(13)
 
20,027,441

See Notes to Unaudited Pro Forma Consolidated Statement of Operation


19



NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(in thousands, except share and per share data)

1)
Represents the unaudited historical results of operations of Chatham for the nine months ended September 30, 2013.
2)
Represents the unaudited results of operations of the North Shore Hotel for the nine months ended September 30, 2013.
3)
Represents the unaudited results of operations of the Bellevue Hotel for the nine months ended September 30, 2013.
4)
Represents the audited results of operations of the Savannah Hotel for the nine months ended September 30, 2013.
5)
Reflects the adjustment to franchise fees of 8% based on the newly acquired franchise agreement that will be payable on the Bellevue Hotel of $729.
6)
Reflects the adjustment to management fees of $(683) for contractual differences related to the fees required to be paid under the old management agreements compared to the new contracts or proposed agreements. The Bellevue hotel decreased from 7% to 3% and the Savannah Hotel decreased from 5% to 3%. Accounting and management fees are as follows (in thousands):
 
 
Description
New Fees
Old Fees
Adjustment
North Shore Hotel
 
Accounting and other fees
12

29

(17
)
Bellevue Hotel
 
Accounting and other fees
23

233

(210
)
Bellevue Hotel
 
Management fee
273

638

(365
)
Savannah Hotel
 
Accounting and other fees
20


20

Savannah Hotel
 
Management fee
166

277

(111
)
 
 
 
494

1,177

(683
)
7)
Reflects net decrease to depreciation expense based on Chatham’s cost basis in the North Shore, Bellevue and Savannah Hotels and the predecessor's accounting policy for depreciation of ($171). Depreciation is computed by Chatham using the straight-line method over the estimated useful lives of the assets, five years for furniture and equipment, 15 years for land improvements and 40 years for buildings and five to 15 years for building improvements. Depreciation is as follows (in thousands):
        
 
 
New Depreciation Expense
Old Depreciation Expense
Adjustment
North Shore Hotel
 
537

601

(64
)
Bellevue Hotel
 
1,218

1,763

(545
)
Savannah Hotel
 
1,118

680

438

 
 
2,873

3,044

(171
)
8)
Reflects the increase to amortization of franchise fees of $7 based on the franchise application fees paid of $71 and the term of the new agreement which is 17 years from the closing of the purchase of the North Shore Hotel, application fees paid of $115 and the term of the new agreement which is 20 years from the closing of the purchase of the Bellevue Hotel and application fees paid of $64 and the term of the new agreement which is 20 years from the closing of the purchase of the Savannah Hotel. Franchise fees are as follows (in thousands):

20



 
 
New Amortization Expense
Old Amortization Expense
Adjustment
North Shore Hotel
 
2


2

Bellevue Hotel
 
4


4

Savannah Hotel
 
3

2

1

 
 
9

2

7

9)
Reflects the elimination of corporate general and administrative selling fees of $82.0 at the Bellevue and $ 4.0 at the Savannah Hotels which are not recurring and thus excluded from the unaudited pro forma results of operations.
10)
Reflects the adjustment for hotel acquisition costs for the hotels acquired that are included in Chatham's historical results reflected in the pro forma and are not recurring and thus excluded from the unaudited pro forma results of operations.
11)
Reflects the incremental interest expense of (1,174) paid for the Bellevue and North Shore Hotels and the interest from our secured senior credit facility associated with acquiring the Savannah Hotel offset by loan amortization costs for the Savannah Hotel of $26 that are not recurring. The Bellevue loan has a fixed interest rate of 4.9655% and has a 10-year term, a 30-year amortization payment schedule and is interest only until January 2015.
12)
Reflects the adjustment to recognize income tax expense at an effective rate of 40% on the taxable income of Chatham’s TRS for the North Shore, Bellevue and Savannah Hotels of $120.
13)
Adjustment to reflect shares issued to fund acquisition as outstanding during the period.



21



CHATHAM LODGING TRUST
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
(in thousands except share and per share data)
 
Chatham
Lodging
Trust (1)
 
North Shore
Hotel (2)
 
Bellevue Hotel (3)
 
Savannah Hotel (4)
 
Pro Forma
Adjustments
 
 
ProForma
Chatham
Lodging Trust
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Room
$
94,566

 
$
6,415

 
$
9,654

 
$
5,917

 
$

 
 
$
116,552

Food and beverage
253

 
610

 
229

 
83

 
 
 
 
1,175

Other
4,023

 
351

 
550

 
615

 

 
 
5,539

Cost reimbursements from unconsolidated real estate entities
1,622

 

 

 
 
 

 
 
1,622

Total revenue
100,464

 
7,376

 
10,433

 
6,615

 

 
 
124,888

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Room
20,957

 
1,499

 
1,924

 
945

 

 
 
25,325

Food and beverage expense
307

 
284

 
136

 
287

 

 
 
1,014

Telephone expense
718

 

 
46

 
13

 
 
 
 
777

Other expense
1,508

 
53

 
43

 
165

 
 
 
 
1,769

General and administration
9,546

 
616

 
782

 
530

 

 
 
11,474

Franchise fees
7,529

 
389

 

 
521

 
835

(5)
 
9,274

Advertising and Promotions
2,257

 
322

 
681

 
196

 

 
 
3,456

Utilities
4,081

 
221

 
443

 
183

 

 
 
4,928

Repairs and maintenance
4,958

 
198

 
425

 
183

 

 
 
5,764

Management fees
2,646

 
258

 
1,041

 
331

 
(842
)
(6)
 
3,434

Insurance
523

 

 

 

 

 
 
523

Total hotel operating expenses
55,030

 
3,840

 
5,521

 
3,354

 
(7
)
 
 
67,738

 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
14,273

 
1,287

 
2,343

 
900

 
(192
)
(7&8)
 
18,611

Property taxes and insurance
7,088

 
376

 
376

 
357

 

 
 
8,197

General and administrative
7,565

 

 
40

 
20

 
(60
)
(9)
 
7,565

Hotel property acquisition costs and other charges
236

 

 

 

 


 
236

Reimbursed costs from unconsolidated real estate entities
1,622

 

 

 

 

 
 
1,622

Total operating expenses
85,814

 
5,503

 
8,280

 
4,631

 
(259
)
 
 
103,969

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
14,650

 
1,873

 
2,153

 
1,984

 
259

 
 
20,919

Interest and other income
55

 

 
8

 
 
 
(8
)
(10)
 
55

Interest expense, including amortization of deferred fees
(14,641
)
 
(701
)
 
(1,207
)
 
(1,118
)
 
(2,345
)
(11)
 
(20,012
)
Loss from unconsolidated real estate entities
(1,439
)
 

 

 
 
 

 
 
(1,439
)
Income (loss) before income tax benefit
(1,375
)
 
1,172

 
954

 
866

 
(2,094
)
 
 
(477
)
Income tax expense
(75
)
 

 

 

 
(169
)
(12)
 
(244
)
Net income (loss)
$
(1,450
)
 
$
1,172

 
$
954

 
$
866

 
$
(2,263
)
 
 
$
(721
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share data:
 
 
 
 
 
 
 
 
 
 
 
 
Basic - income (loss) per common share
$
(0.12
)
 
 
 
 
 
 
 
 
 
 
$
(0.04
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted - weighted average number of common shares outstanding
13,811,691

 
 
 
 
 
 
 
4,461,580

(13)
 
18,273,271

See Notes to Unaudited Pro Forma Consolidated Statement of Operation


22



NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
(in thousands, except share and per share data)

1)
Represents the historical results of operations of Chatham for the year ended December 31, 2012.
2)
Represents the historical results of operations of the North Shore Hotel for the year ended December 31, 2012.
3)
Represents the historical results of operations of the Bellevue Hotel for the year ended December 31, 2012.
4)
Represents the historical results of operations of the Savannah Hotel for the year ended December 31, 2012.
5)
Reflects the adjustment to franchise fees of 8% based on the newly acquired franchise agreement that will be payable on the Bellevue Hotel of $835.
6)
Reflects the adjustment to management fees of $ (842) for contractual differences related to the fees required to be paid under the old management agreements compared to the new contracts or proposed agreements. The Bellevue hotel decreased from 7% to 3% and the Savannah Hotel decreased from 5% to 3%. Accounting and management fees are as follows (in thousands):
 
 
Description
New Fees
Old Fees
Adjustment
North Shore Hotel
 
Accounting and other fees
26

65

(39
)
Bellevue Hotel
 
Accounting and other fees
30

310

(280
)
Bellevue Hotel
 
Management fee
313

730

(417
)
Savannah Hotel
 
Accounting and other fees
26


26

Savannah Hotel
 
Management fee
198

330

(132
)
 
 
 
593

1,435

(842
)
7)
Reflects net decrease to depreciation expense based on Chatham’s cost basis in the North Shore, Bellevue and Savannah Hotels and the predecessor's accounting policy for depreciation of ($202). Depreciation is computed by Chatham using the straight-line method over the estimated useful lives of the assets, five years for furniture and equipment, 15 years for land improvements and 40 years for buildings and five to 15 years for building improvements. Depreciation is as follows (in thousands):
        
 
 
New Depreciation Expense
Old Depreciation Expense
Adjustment
North Shore Hotel
 
1,210

1,287

(77
)
Bellevue Hotel
 
1,624

2,343

(719
)
Savannah Hotel
 
1,491

897

594

 
 
4,325

4,527

(202
)
8)
Reflects the increase to amortization of franchise fees of $10 based on the franchise application fees paid of $71 and the term of the new agreement which is 17 years from the closing of the purchase of the North Shore Hotel and application fees paid of $75 and the term of the new agreement which is 20 years from the closing of the purchase of the Bellevue Hotel and application fees paid of $64 and the term of the new agreement which is 20 years from the closing of the purchase of the Savannah Hotel. Franchise fees are as follows (in thousands):

23



        
 
 
New Amortization Expense
Old Amortization Expense
Adjustment
North Shore Hotel
 
4


4

Bellevue Hotel
 
6


6

Savannah Hotel
 
3

3


 
 
13

3

10

9)
Reflects the elimination of corporate general and administrative selling fees of $40.0 at the Bellevue and $20.0 at the Savannah Hotels which are not recurring and thus excluded from the pro forma results of operations.
10)
Reflects the elimination of interest income at the Bellevue hotel which is not recurring.
11)
Reflects the incremental interest expense of (2,527) paid for the Bellevue and North Shore Hotels and the interest from our secured senior credit facility associated with acquiring the Savannah Hotel offset by the incremental loan amortization expense of $182 at the North Shore and Savannah Hotels. The Bellevue loan has a fixed interest rate of 4.9655% and has a 10-year term, a 30-year amortization payment schedule and is interest only until January 2015.
12)
Reflects the adjustment to recognize income tax expense at an effective rate of 40% on the taxable income of Chatham’s TRS for the North Shore, Bellevue and Savannah Hotels of $167.
13)
Adjustment to reflect shares issued to fund acquisition as outstanding during the period.


24