Item 8.01 Other Events
Supplement to Definitive Proxy Statement
This is a supplement to the Definitive Proxy Statement on Schedule 14A filed by
Condor Hospitality Trust, Inc., a Maryland corporation (the "Company", "we" or
"us"), with the Securities and Exchange Commission (the "SEC") on October 18,
2021 (the "Definitive Proxy Statement") and mailed to Company shareholders in
connection with the solicitation of proxies for use at the special meeting of
shareholders of the Company to be held on November 12, 2021 at 11:00 a.m.
Eastern time in virtual-only format via live webcast at
www.virtualshareholdermeeting.com/CDOR2021SM2 (there is no physical location for
the special meeting). The Definitive Proxy Statement is amended and supplemented
by the information set forth in this Current Report on Form 8-K, which should be
read as part of, and in conjunction with, the information contained in the
Definitive Proxy Statement. To the extent that information set forth below
differs from information contained in the Definitive Proxy Statement, the
information set forth below shall supersede such information contained in the
Definitive Proxy Statement. Except as otherwise set forth below, the information
set forth in the Definitive Proxy Statement remains unchanged, and capitalized
terms used in this Current Report on Form 8-K but not otherwise defined herein
have the meanings ascribed to those terms in the Definitive Proxy Statement.
On November 2, 2021, the Company has received a demand letter (the "Demand
Letter") on behalf of a purported stockholder of the Company regarding the
Definitive Proxy Statement. As of the date of this filing, the Company has not
received any other demand letters or received notice of any litigation arising
from our actions in connection with the Portfolio Sale or the Plan of
Liquidation.
While the Company believes that no supplemental disclosure is required to be
made to the Definitive Proxy Statement under applicable law and that the
allegations and claims asserted in the Demand Letter are without merit, in order
to reduce the risk of the Demand Letter delaying or adversely affecting the
Portfolio Sale and to minimize the costs, risks and uncertainties inherent in
defending the claims asserted in the Demand Letter, and without admitting any
liability or wrongdoing, the Company has determined to voluntarily supplement
the Definitive Proxy Statement as provided below.
Nothing in this Current Report on Form 8-K shall be deemed an admission of the
legal necessity or materiality under applicable laws of any of the disclosures
set forth herein. To the contrary, the Company specifically denies all
allegations and claims in the Demand Letter that any additional disclosure was
or is required.
This Current Report on Form 8-K and the disclosure provided herein does not
affect the consideration to be paid to the Company in connection with the
Portfolio or the timing of the special meeting of the Company's shareholders
scheduled to be held on November 12, 2021 at 11:00 a.m. Eastern time as
described in the Definitive Proxy Statement. The Company's board of directors
continues to recommend that Company shareholders vote "FOR" the Portfolio Sale
Proposal and "FOR" the other proposals being considered at the special meeting.
The following underlined language is added to the third full paragraph on page
27 of the Definitive Proxy Statement concerning the Background.
Following the issuance of the press release, HWE commenced marketing the
Portfolio. Between June 21, 2021 and August 12, 2021 HWE contacted over 436
potential bidders of whom 126 executed non-disclosure agreements with customary
terms, including Blackstone. Fifty-four of the non-disclosure agreements contain
a provision restricting the counterparty from requesting that the Company waive
an agreed-upon standstill without first securing the prior consent of the
Company's board of directors. For the remaining non-disclosure agreements-
including the prospective purchasers who submitted revised and improved offers -
the standstill obligation terminated on September 22, 2021 upon the execution of
the Purchase Agreement. Each party that entered into a non-disclosure agreement,
including Blackstone, was provided access by HWE to a virtual data room which
contained hotel property information and STR Reports. Jeffer Mangels Butler &
Mitchell LLP ("Jeffer Mangels") and McGrath North, law firms representing the
Company, drafted a hotel purchase and sale agreement, which HWE added to the
virtual data room. During the marketing process, HWE, in consultation with Mr.
Blackham, instructed the potential purchasers to submit initial indicative
offers on August 12, 2021, of which eleven were received, and to submit best and
final offers on August 20, 2021, of which seven were received. We refer to the
eleven prospective purchasers who submitted indicative offers, aside from Buyer,
as "Party B" through "Party K".
The following language is added to the fourth full paragraph on page 28 of the
Definitive Proxy Statement concerning the Background.
Between August 23, 2021 and September 22, 2021, the Company's management and
representatives of Blackstone and their respective counsel engaged in
negotiations regarding the Portfolio Sale. There have been no communications
regarding post-transaction employment, directorships and benefits.
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The table under the heading "THE PORTFOLIO SALE AND THE PLAN OF
LIQUIDATION-Summary of Financial Analysis of our Financial Advisor-Analysis of
Selected Precedent Portfolio Sale" on page 36 of the Proxy Statement is hereby
revised, supplemented and replaced in its entirety as follows:
Date Owner/Buyer Seller $/Key
Jul-21 Flynn Properties, Varde Partners Apple Hospitality REIT $98,922
May-21 Davidson Kempner Starwood Capital 278,431
Mar-21 Highgate Holdings, Cerberus Colony Capital (REIT) 124,339
Jan-20 Arbor Lodging Partners BRE Select Hotels 143,893
Dec-19 AHIP REIT TMI Hospitality (Starwood) 158,770
Dec-19 Sharpen Capital AHIP REIT 56,090
Nov-19 Dune RE Partners LP Schulte Hospitality 149,326
Aug-19 Singerman Real Estate RLJ Lodging Trust 82,971
Jul-19 Choice Hotels Fillmore Cap Prtnrs 290,323
Jun-19 BREIT RLJ Lodging Trust 122,314
Apr-19 Arbor Lodging Partners Summit Hotel Properties 165,644
Jan-19 SREIT Noble Investment Group 216,446
Nov-18 Blackstone PEG Development 229,130
Oct-18 Unilmmo: Global Regent Partners 398,026
Sep-18 PEG Development Blackstone 123,574
Mar-18 Jason Kotter Ameritel Inns 212,103
Sep-17 Hospitality Props Trust Blackstone 83,485
Jul-17 Aspect Investment Partners Lightstone VP REIT II 129,820
Jun-17 AHIP REIT MCR Development 173,305
Jun-17 Summit Hotel Properties Xenia 200,492
Oct-16 China Life Starwood Capital 131,709
Oct-16 StepStone Real Estate The Generation Cos 80,494
The following underlined language is added to the last sentence of the second
paragraph under the heading "THE PORTFOLIO SALE AND THE PLAN OF
LIQUIDATION-Summary of Financial Analysis of our Financial Advisor-Liquidation
Analysis" on page 38 of the Proxy Statement.
KeyBanc further refined the analysis to focus on upper-midscale to upscale
properties that more closely matched the type and quality of hotel property in
Condor's Portfolio and subsequently applied a 15% portfolio premium to the
average of the selected transactions, which premium percentage was determined
based on KeyBanc's professional judgment and experience.
The second, third and fourth sentences of the second paragraph under the heading
"THE PORTFOLIO SALE AND THE PLAN OF LIQUIDATION-Summary of Financial Analysis of
our Financial Advisor-Discounted Cash Flow Analysis" beginning on page 38 of the
Proxy Statement are hereby revised, supplemented and replaced in its entirety as
follows:
The unlevered free cash flows were calculated by taking Hotel EBITDA and
subtracting capital expenditures (assuming property improvement program costs of
$12.5 million in each of 2022 and 2023 as directed by the Company), as follows:
Financial Projections
2022P 2023P 2024P 2025P 2026P
Total Revenue $63.5 $76.6 $81.9 $86.0 $88.8
Less: Hotel Operating Expenses ($42.9) ($49.3) ($51.6) ($53.6) ($55.2)
Hotel EBITDA $20.7 $27.3 $30.4 $32.4 $33.6
Less: Capital Expenditures ($12.5) ($12.5) ($3.3) ($3.4) ($3.6)
Unlevered Free Cash Flow $8.2 $14.8 $27.1 $29.0 $30.1
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The residual value of the Portfolio at the end of the forecast period, or
"terminal value," was estimated by applying a range of plus or minus 5.0% to the
average $ / key multiple of $165,891, which was based on the average of the
Selected Portfolio Sale Comparables, and which was applied to the Portfolio key
count, yielding the following low-end and high-end terminal values prior to
discounting the values to the present time period:
Low-End Terminal Value DCF Calculation High-End Terminal Value DCF Calculation
# of Keys 1,908 # of Keys 1,908
$ / Key $157.6 $ / Key $174.2
Terminal Real Estate Value $300.7 Terminal Real Estate Value $332.3
The following is added below the Summary Financials table and associated
footnotes on page 40 of the Definitive Proxy Statement concerning Financial
Projections.
The following additional information is provided with respect to the
calculations of the above financial projections (i) all line items used to
calculate Hotel EBITDA; and (ii) projected net operating income and all
underlying items. Projected cash flows were not calculated.
2022P 2023P 2024P 2025P 2026P
Revenue
Rooms $59,184,858 $71,638,351 $76,727,937 $80,542,800 $83,220,150
Food & Beverage 1,836,552 2,178,583 2,315,096 2,429,195 2,514,921
Other Operated Depts. 2,207,050 2,431,359 2,516,456 2,604,532 2,695,691
Miscellaneous Income 302,400 369,600 382,536 395,925 409,782
Total Revenue 63,530,860 76,617,892 81,942,026 85,972,452 88,840,544
Departmental Expenses
Rooms 12,866,626 14,975,545 15,719,980 16,352,791 16,850,314
Food & Beverage 1,436,897 1,833,413 1,943,750 2,032,411 2,093,799
Other Operated Depts 652,228 743,023 765,313 788,273 811,921
Total Departmental 14,955,752 17,551,981 18,429,043 19,173,474 19,756,035
Expenses
Total Departmental Profit 48,575,108 59,065,911 63,512,983 66,798,978 69,084,509
Undistributed Oper.
Expenses
Admin & Gen 4,989,600 5,399,880 5,561,876 5,728,733 5,900,595
Info. & Telecomm Systems 932,417 1,124,098 1,157,821 1,192,556 1,228,333
Franchise Fees
6,338,959 7,679,757 8,227,992 8,647,733 8,935,063
Marketing 2,974,896 3,545,338 3,651,698 3,761,249 3,874,086
Utility Costs 2,420,600 2,656,413 2,789,203 2,902,673 2,990,910
Property Oper. & Maint 2,286,832 2,727,266 2,809,084 2,893,356 2,980,157
Total Undistributed Oper. 19,943,304 23,132,752 24,197,675 25,126,300 25,909,143
Expenses
Gross Operating Profit 28,631,804 35,933,160 39,315,308 41,672,678 43,175,366
Management Fees 1,905,926 2,298,537 2,458,261 2,579,174 2,665,216
Income Before Fixed 26,725,879 33,634,623 36,857,047 39,093,505 40,510,149
Charges
Fixed Charges
Insurance 939,106 967,279 996,298 1,026,186 1,056,972
Property Taxes 5,027,880 5,178,716 5,334,078 5,494,100 5,658,923
Rent 84,780 85,108 87,661 90,291 92,999
Total Fixed Charges 6,066,766 6,300,103 6,489,106 6,683,779 6,884,293
Hotel EBITDA 20,659,113 27,334,520 30,367,941 32,409,726 33,625,857
Reserve for Replacement 2,541,234 3,064,716 3,277,681 3,438,898 3,553,622
Hotel NOI 18,117,879 24,269,804 27,090,260 28,970,827 30,072,235
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Cautionary Statement Regarding Forward-Looking Statements
This Current Report on Form 8-K (including statements about the expected timing
of the special meeting, the sale of the Company hotel portfolio) contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements, which are based
on current expectations, estimates and projections about the industry and
markets in which Condor Hospitality Trust, Inc. ("Condor"), operates and beliefs
of and assumptions made by Condor management, involve uncertainties that could
significantly affect the financial or operating results of Condor. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
"will," "should," "may," "projects," "could," "estimates" or variations of such
words and other similar expressions are intended to identify such
forward-looking statements, which generally are not historical in nature, but
not all forward-looking statements include such identifying words. All
statements that address operating performance, events or developments that we
expect or anticipate will occur in the future - including statements relating to
creating value for shareholders, benefits of the proposed transaction to
shareholders and employees - are forward-looking statements. These statements
are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Although we believe
the expectations reflected in any forward-looking statements are based on
reasonable assumptions, we can give no assurance that our expectations will be
attained and therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements. For example,
these forward-looking statements could be affected by factors including, without
limitation, risks associated with (i) national, international, regional and
local economic climates; (ii) the potential liability for a failure to meet
regulatory requirements, including the maintenance of real estate investment
trust status; (iii) risks associated with the ability to consummate the
transactions; (iv) potential changes to tax legislation; (v) the potential
impact of announcement of the proposed transaction or consummation of the
proposed transactions on relationships, including with employees; (vi) the
unfavorable outcome of any legal proceedings that may be instituted against
Condor; (vii) impacts relating to COVID-19 or other pandemics or catastrophic
events; and (viii) those additional risks and factors discussed in reports filed
with the SEC by Condor from time to time, including those discussed under the
heading "Risk Factors", the Definitive Proxy Statement and in its filed reports
on Form 10-K and 10-Q. Except to the extent required by applicable law or
regulation, Condor disclaims any duty to update any forward-looking statements
contained in this communication or to otherwise update any of the
above-referenced factors.
Additional Information and Where to Find It
The proposed transactions will be submitted to the Company's shareholders for
their consideration. In connection with the proposed transactions, the Company
has filed relevant materials with the SEC, including the Definitive Proxy
Statement on Schedule 14A which was mailed to shareholders on October 18, 2021.
This communication is not a substitute for the Definitive Proxy Statement or for
any other document that the Company may file with the SEC and send to the
Company's shareholders in connection with the proposed transaction. BEFORE
MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE PROPOSED
TRANSACTIONS INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ THE
PROXY STATEMENT AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR
ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED TRANSACTIONS. Investors and security holders will
be able to obtain free copies of the Definitive Proxy Statement (including this
supplement), any amendments or supplements thereto and other relevant materials,
and any other documents filed by the Company with the SEC through the website
maintained by the SEC at http://www.sec.gov. In addition, copies of the
documents filed by the Company with the SEC will be available free of charge on
the Company's website at www.condorhospitality.com, or by contacting the Company
at Investor Relations by phone at 301-861-3305 or by email at
investors@trustcondor.com. or by requesting them in writing to Condor
Hospitality Trust, Inc., 1800 West Pasewalk Avenue, Suite 120, Norfolk, Nebraska
68701, or by telephone at (301) 861-3305.
Participants in the Solicitation
The Company and certain of its respective directors and executive officers and
other members of management and employees may be deemed to be participants in
the solicitation of proxies from the Condor shareholders in respect of the
proposed transactions under the rules of the SEC. Information about Condor's
directors and executive officers is available in Condor's proxy statements dated
November 16, 2020, for its 2020 annual meeting, and December 14, 2020, for a
2021 special meeting, and its Annual Report on Form 10-K for the year ended
December 31, 2020 and amendment thereto on Form 10-K/A filed with the SEC and
subsequent reports which may be filed with the SEC. Other information regarding
the participants in the proxy solicitation and a description of their direct and
indirect interests, by security holdings or otherwise, are contained in the
Definitive Proxy Statement and other relevant materials to be filed with the SEC
regarding the transactions. Investors should read the Definitive Proxy Statement
carefully before making any voting or investment decisions. You may obtain free
copies of these documents from Condor using the sources indicated above.
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