preliminary-offering-memorandum.docx

1021-00002 · Verimark Hospitality Group · Offering Documents

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PRELIMINARY OFFERING MEMORANDUM (Subject to Completion) Dated June 3, 2024

The information in this preliminary offering memorandum is not complete and may be changed. These securities may not be sold nor may offers to accept be solicited prior to the time a final offering memorandum is delivered. This preliminary offering memorandum does not constitute an offer to sell or a solicitation of an offer to buy in any jurisdiction where such offer or solicitation is unlawful.

VERIMARK HOSPITALITY GROUP INC.

$500,000,000

8.250% Senior Notes due 2031

Verimark Hospitality Group Inc., a Delaware corporation ("VHG," the "Issuer," the "Company," "we," "us," or "our"), is offering $500,000,000 aggregate principal amount of its 8.250% Senior Notes due 2031 (the "Notes"). The Notes will mature on July 1, 2031. Interest on the Notes will accrue at the rate of 8.250% per annum and will be payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2025.

Issue Price: [●]% of par (to be determined at pricing)

The Notes will be the Issuer's senior unsecured obligations and will rank pari passu in right of payment with all of the Issuer's existing and future senior indebtedness and senior in right of payment to all of the Issuer's future subordinated indebtedness. The Notes will be effectively subordinated to all of the Issuer's existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness, and will be structurally subordinated to all existing and future indebtedness and other obligations of the Issuer's non-guarantor subsidiaries.

Guarantees. The Notes will be fully and unconditionally guaranteed, jointly and severally, by each of the Issuer's existing restricted subsidiaries that guarantee any Credit Facility or capital markets indebtedness, namely: Verimark Resort Holdings LLC, VHG Properties Inc., Bayshore Hotel Management LLC, Verimark Capital Holdings LLC, and Pinnacle Lodging Enterprises Inc. (collectively, the "Guarantors"). Each guarantee will be a senior unsecured obligation of the applicable Guarantor. Future restricted subsidiaries that guarantee other indebtedness of the Issuer will also be required to guarantee the Notes.

Optional Redemption. The Notes will be redeemable, in whole or in part, at the Issuer's option, at the redemption prices described in "Description of Notes — Optional Redemption." The Issuer expects that the Notes will be callable at 104.125% of the principal amount thereof on or after July 1, 2027; at 102.063% of the principal amount thereof on or after July 1, 2028; and at 100.000% of the principal amount thereof on or after July 1, 2029. Prior to [●], the Notes may be redeemed at a make-whole premium. In addition, prior to July 1, 2027, the Issuer may redeem up to 40% of the original aggregate principal amount of the Notes at 108.250% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more qualifying equity offerings. See "Description of Notes — Equity Clawback."

Change of Control. Upon the occurrence of a Change of Control Triggering Event, the Issuer must offer to repurchase all outstanding Notes at 101.000% of the principal amount thereof, plus accrued and unpaid interest. See "Description of Notes — Change of Control."

The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. The Notes are being offered and sold to qualified institutional buyers in the United States in reliance on Rule 144A under the Securities Act and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act. For a description of certain restrictions on resale, see "Plan of Distribution" and "Transfer Restrictions."

There is no established trading market for the Notes. The Notes will not be listed on any securities exchange or quotation system. Verimark Hospitality Group Inc.'s common stock is listed on the Nasdaq Stock Market under the ticker symbol "VMRK."

The Notes have been assigned a rating of B1 (stable outlook) by Crestline Ratings Group and B+ (stable outlook) by Broadmark Rating Services Inc. A credit rating is not a recommendation to buy, sell, or hold securities and may be subject to revision, suspension, or withdrawal at any time. See "Risk Factors — Risks Related to Our Indebtedness and the Offering."

Investing in the Notes involves significant risks. See "Risk Factors" beginning on page [●].

Joint Bookrunners

Kensington Barrow & Co. (Lead Left Bookrunner)

Ridgeline Capital Markets LLC

Co-Manager

Stonebridge Marvelo Securities Inc.

The date of this Preliminary Offering Memorandum is June 3, 2024.

NOTICE TO INVESTORS

This offering memorandum is confidential and has been prepared by the Issuer solely for use in connection with the proposed offering of the Notes described herein (the "Offering"). This offering memorandum is being provided on a confidential basis solely for the purpose of enabling prospective investors to evaluate an investment in the Notes and may not be reproduced, redistributed, or passed on, directly or indirectly, to any other person or published, in whole or in part, for any other purpose. Any reproduction or distribution of this offering memorandum, in whole or in part, and any disclosure of its contents or use of any information herein for any purpose other than considering an investment in the Notes offered hereby is prohibited.

This offering memorandum is being furnished on a confidential basis to a limited number of persons who are either (i) "qualified institutional buyers" ("QIBs") as defined in Rule 144A under the Securities Act, or (ii) non-U.S. persons (as defined in Regulation S under the Securities Act) outside the United States. Distribution of this offering memorandum to any person other than the prospective investor to whom this offering memorandum is provided and any person retained to advise such prospective investor with respect to the purchase of the Notes is unauthorized, and any disclosure of any of its contents without the prior written consent of the Issuer is prohibited. By accepting delivery of this offering memorandum, each prospective investor agrees to the foregoing restrictions and to make no photocopies of this offering memorandum or any documents referred to herein.

No Representation or Warranty by the Initial Purchasers. The Initial Purchasers named herein (Kensington Barrow & Co., Ridgeline Capital Markets LLC, and Stonebridge Marvelo Securities Inc., collectively, the "Initial Purchasers") make no representation or warranty, express or implied, as to the accuracy or completeness of any of the information set forth in this offering memorandum. Nothing contained in this offering memorandum is, or shall be relied upon as, a promise or representation by the Initial Purchasers, whether as to the past or the future. The Initial Purchasers assume no responsibility for the accuracy or completeness of the information contained herein.

Sole Responsibility of the Issuer. Responsibility for the accuracy and completeness of the information contained in this offering memorandum rests solely with the Issuer. The Issuer confirms that the information contained in this offering memorandum is accurate in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and based on reasonable assumptions, and that there are no other facts the omission of which would make any statement herein or this offering memorandum as a whole misleading.

Reliance on This Offering Memorandum Only. Investors are required to rely only on the information contained in this offering memorandum in making an investment decision with respect to the Notes. No person has been authorized to give any information or to make any representation concerning the Issuer, the Guarantors, or the Notes (other than as contained herein), and, if given or made, any such other information or representation should not be relied upon as having been authorized by the Issuer, the Guarantors, or any of the Initial Purchasers.

Currency of Information. The information contained in this offering memorandum is accurate only as of the date of this offering memorandum, regardless of the time of delivery of this offering memorandum or any sale of the Notes. The Issuer's business, financial condition, results of operations, and prospects may have changed since such date. Neither the delivery of this offering memorandum at any time after the date hereof nor any sale of the Notes shall, under any circumstances, create an implication that there has been no change in the affairs of the Issuer or any Guarantor since the date hereof, or that the information set forth in this offering memorandum is correct as of any time subsequent to such date. The Issuer does not assume any obligation to update or revise this offering memorandum (other than as required pursuant to applicable law), whether as a result of new information, future events, or otherwise.

Not an Offer in Restricted Jurisdictions. This offering memorandum does not constitute an offer to sell or a solicitation of an offer to buy in any jurisdiction in which such offer or solicitation is unlawful. No action has been or will be taken in any jurisdiction by the Issuer or the Initial Purchasers that would permit a public offering of the Notes, or the possession, circulation, or distribution of this offering memorandum or any other material relating to the Issuer or the Notes, in any jurisdiction where action for that purpose is required. Accordingly, the Notes may not be offered or sold, directly or indirectly, and neither this offering memorandum nor any other offering material or advertisements in connection with the Notes may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction.

Forward-Looking Statements. This offering memorandum contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These statements relate to, among other things, the Issuer's business strategy, financial projections, anticipated capital expenditures, industry trends, and expected operating results. Forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms "may," "will," "expects," "intends," "plans," "projects," "estimates," "anticipates," "believes," "could," "seeks," or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that could cause the Issuer's actual results, performance, or achievements to differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include those described under "Risk Factors" and elsewhere in this offering memorandum. The Issuer undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

Industry and Market Data. Certain industry and market data included in this offering memorandum have been obtained from third-party sources that the Issuer believes to be reliable, including STR, Inc. (formerly Penmark Enterprises), the American Hotel & Lodging Association, the U.S. Travel Association, the Bureau of Labor Statistics, and the U.S. Bureau of Economic Analysis. The Issuer has not independently verified the accuracy of such data and makes no representation as to the accuracy or completeness thereof. Projections, assumptions, and estimates of future performance and the future performance of the hospitality industry in which the Issuer operates are necessarily subject to a high degree of uncertainty and risk due to range factors, including those described under "Risk Factors."

Non-GAAP Financial Measures. This offering memorandum includes references to "Adjusted EBITDA," "Pro Forma Total Debt," "Pro Forma Net Leverage Ratio," "Pro Forma Interest Coverage Ratio," "Pro Forma Fixed Charge Coverage Ratio," and other financial measures that are not calculated in accordance with United States Generally Accepted Accounting Principles ("GAAP"). These non-GAAP financial measures are presented because management believes they provide useful information to investors in evaluating the Issuer's operating performance and financial condition and facilitate comparison with other companies in the hospitality industry. Non-GAAP financial measures should not be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is included in this offering memorandum under "Management's Discussion and Analysis of Financial Condition and Results of Operations — Adjusted EBITDA Reconciliation."

Enforcement of Civil Liabilities. Certain of the Issuer's officers and directors, and certain experts named in this offering memorandum, are residents of the United States. Non-U.S. investors may have difficulty effecting service of process within their home jurisdictions upon any such persons. In addition, there can be no assurance that the courts of jurisdictions outside the United States would enforce judgments of courts outside the United States obtained in actions against the Issuer or the Guarantors based upon the civil liability provisions of applicable securities laws, or would enforce, in original actions, liabilities against the Issuer or the Guarantors based upon such laws. The Notes, the Indenture, the Purchase Agreement, and the Registration Rights Agreement are each governed by and construed in accordance with the laws of the State of New York.

General Notice. Each investor must comply with all applicable laws and regulations in force in any jurisdiction in which it purchases, offers, or sells the Notes or possesses or distributes this offering memorandum, and must obtain any consent, approval, or permission required by it for the purchase, offer, or sale by it of the Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, or sales. None of the Issuer, the Guarantors, or the Initial Purchasers shall have any responsibility therefor.

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SUMMARY

The following summary highlights selected information contained elsewhere in this offering memorandum and is qualified in its entirety by the more detailed information and the financial statements, including the notes thereto, appearing elsewhere in this offering memorandum. This summary does not contain all of the information that may be important to you. You should read the entire offering memorandum carefully, including the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Notes," and our financial statements and the related notes thereto included elsewhere in this offering memorandum, before making an investment decision.

Unless otherwise indicated or the context otherwise requires, references in this offering memorandum to the "Company," "VHG," the "Issuer," "we," "us," and "our" refer to Verimark Hospitality Group Inc. and its consolidated subsidiaries, taken as a whole. References to the "Notes" refer to the 8.250% Senior Notes due 2031 offered hereby. References to the "Offering" refer to the offering of the Notes contemplated by this offering memorandum. References to the "Indenture" refer to the indenture governing the Notes, to be dated as of the closing date, among VHG, the Guarantors, and Fidelitas Trust Company, N.A., as trustee. References to "LTM" mean the twelve-month period ended March 31, 2024.

Overview of Verimark Hospitality Group Inc.

Verimark Hospitality Group Inc. is a Delaware corporation whose common stock is publicly traded on the Nasdaq Stock Market under the ticker symbol "VMRK." The Company's Central Index Key (CIK) with the Securities and Exchange Commission is 0001847293, and its Employer Identification Number (EIN) is 84-3291057. The Company's principal executive offices are located at 2400 Brickell Bay Drive, Suite 3100, Miami, Florida 33129.

We are a leading owner and operator of full-service hotels and resort properties in the United States. As of the date of this offering memorandum, we own and operate a portfolio comprising 47 full-service hotels and 12 resort properties across 19 U.S. states and the U.S. Virgin Islands, totaling approximately 18,400 rooms. Our properties include urban business-class hotels, convention center-adjacent properties, boutique lifestyle hotels, and destination resort properties situated in premier leisure markets. We generate revenue primarily through room revenue, food and beverage operations, resort fees, conference and event services, and hotel management fees.

Our senior leadership team brings decades of experience across the hospitality and lodging sectors:

• Marcus J. Delano — President and Chief Executive Officer

• Patricia R. Henning — Executive Vice President and Chief Financial Officer

• David K. Moretti — Senior Vice President, General Counsel, and Secretary

• Eleanor M. Vasquez — Chairman of the Board of Directors

• Raymond T. Ochoa — Executive Vice President and Chief Operating Officer

For the twelve-month period ended March 31, 2024, we generated total revenue of approximately $1,820,000,000 and Adjusted EBITDA of approximately $412,000,000. Our revenue recovery from the COVID-19 pandemic has been robust, reflecting strong demand fundamentals across both our leisure resort and urban business-travel segments.

COVID-19 Impact and Recovery. The COVID-19 pandemic severely disrupted the global hospitality industry beginning in early 2020. In response to the unprecedented revenue declines experienced during 2020 and 2021, VHG drew heavily on its credit facilities and incurred approximately $475 million in pandemic-era secured term loan debt under its Amended and Restated Credit Agreement with a syndicate of lenders led by Greystone National Bank, N.A. This indebtedness was necessary to maintain operations, retain key employees, preserve our property portfolio, and position the Company for recovery. With the strong recovery in travel demand experienced during 2022, 2023, and continuing into 2024, we are now positioned to refinance this legacy pandemic-era secured indebtedness with the proceeds of this Offering, thereby extending our maturity profile, removing maintenance covenants, and transitioning to an unsecured capital structure more appropriate for a company of our scale and credit profile.

The Offering

The following is a summary of the principal terms of the Notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. For a more detailed description, see "Description of Notes."

Use of Proceeds

We estimate that the net proceeds from this Offering will be approximately $[●] (estimated at approximately $483,750,000 based on an assumed issue price of [●]% and an initial purchasers' discount of [●]%). We intend to use the net proceeds from this Offering as follows:

The Existing Credit Facility is the Amended and Restated Credit Agreement dated March 15, 2021, among VHG as borrower, the lenders party thereto, and Greystone National Bank, N.A. as administrative agent (Loan No. GNB-SYN-2021-04417). See "Use of Proceeds" and "Description of Other Indebtedness — Existing Credit Facility" for additional information.

The $150 million revolving credit facility under the Existing Credit Facility, which is currently undrawn, is expected to remain in place and will not be repaid with the proceeds of this Offering.

Summary Corporate and Organizational Structure

The following chart summarizes our corporate and organizational structure, including the Guarantors of the Notes, after giving pro forma effect to the Offering and the application of the net proceeds therefrom:

Verimark Hospitality Group Inc. (Delaware corporation; Nasdaq: VMRK) Issuer of the Notes |

Verimark Capital Holdings LLC (Delaware LLC) — Intermediate Holding Company — Guarantor

• Verimark Resort Holdings LLC (Delaware LLC) — Resort Property Portfolio — Guarantor

• VHG Properties Inc. (Delaware corporation) — Fee-Simple Interests in 32 Hotel Properties — Guarantor

• Bayshore Hotel Management LLC (Florida LLC) — Hotel Management and Operations — Guarantor

• Pinnacle Lodging Enterprises Inc. (Delaware corporation) — Acquired Hotel Brand Subsidiary — Guarantor

All five subsidiaries identified above are Guarantors of the Notes.

Summary Historical and Pro Forma Financial Data

The following table presents selected historical and pro forma financial data for VHG. The pro forma data gives effect to the issuance of the Notes and the application of the estimated net proceeds as described under "Use of Proceeds," as if such transactions had occurred on March 31, 2024 (for balance sheet data) or April 1, 2023 (for income statement data). This data should be read in conjunction with "Selected Historical Financial Data," "Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and related notes included elsewhere in this offering memorandum.

(1) Reflects weighted average interest expense under the Existing Credit Facility at SOFR + 375 bps (Term Loan A) and SOFR + 425 bps (Term Loan B), based on a blended SOFR rate during the applicable period.

The semi-annual interest payment on the Notes will be $20,625,000, payable on each January 1 and July 1, representing annual interest expense of $41,250,000 ($500,000,000 × 8.250%).

RISK FACTORS

An investment in the Notes involves a high degree of risk. You should carefully consider the following risk factors, together with all other information contained in this offering memorandum, including our financial statements and the related notes thereto, before deciding to purchase the Notes. If any of the following risks actually occur, our business, financial condition, results of operations, cash flows, and ability to service our debt, including the Notes, could be materially and adversely affected. In that event, holders of the Notes could lose all or part of their investment. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, and results of operations.

Risks Related to Our Business and Industry

Our business is heavily dependent on travel and tourism demand, which is cyclical and subject to disruption.

The hospitality industry is cyclical and highly sensitive to changes in general economic conditions, consumer confidence, and disposable income levels. Demand for hotel rooms and resort services is directly correlated with business travel budgets, leisure travel patterns, and overall macroeconomic health. During economic downturns, consumers and businesses reduce travel spending, which results in lower occupancy rates, reduced average daily rates ("ADR"), and decreased revenue per available room ("RevPAR") across our portfolio.

In particular, the COVID-19 pandemic demonstrated the extreme vulnerability of the hospitality industry to public health crises. Beginning in March 2020, the unprecedented travel restrictions, government-mandated shutdowns, and collapse in consumer demand caused occupancy rates across our portfolio to decline by more than 70% during the second quarter of 2020. Although demand has substantially recovered, we cannot assure you that future pandemics, epidemics, or other public health emergencies will not cause similar or even more severe disruptions to our operations.

Other potential disruptions include acts of terrorism or war, natural disasters, significant weather events, fuel price increases, airline disruptions, changes in government travel policies, and geopolitical instability. Any prolonged period of reduced travel demand could materially and adversely affect our revenue, operating margins, cash flows, and ability to service our indebtedness, including the Notes.

Our operations are geographically concentrated, which exposes us to regional economic and weather-related risks.

Our portfolio of 47 full-service hotels and 12 resort properties is concentrated across 19 U.S. states and the U.S. Virgin Islands. While we have a diversified footprint, certain of our key markets — including Florida, California, New York, Hawaii, and the U.S. Virgin Islands — represent a disproportionate share of our total revenue and Adjusted EBITDA. A regional economic downturn, natural disaster (including hurricanes, earthquakes, wildfires, or flooding), or other adverse event disproportionately affecting one or more of these key markets could have a material adverse effect on our results of operations and financial condition.

In particular, a significant number of our resort properties are located in coastal areas that are susceptible to hurricanes and tropical storms. While we maintain comprehensive property and casualty insurance, including windstorm coverage, there can be no assurance that our insurance coverage will be sufficient to cover all losses incurred, or that we will be able to obtain or renew insurance on favorable terms or at all.

The hospitality industry is intensely competitive.

The hospitality industry is intensely competitive. We compete for guests with other hotel and resort operators, online travel agencies, alternative lodging platforms (including Ridgeline Data Systems and Pinnacle Health IT), and other accommodation providers. Many of our competitors have greater financial resources, more extensive brand recognition, and larger marketing budgets than we do. Our ability to compete effectively depends on a number of factors, including location, room quality, service levels, brand reputation, pricing, and the effectiveness of our marketing and distribution strategies.

The continued growth of alternative lodging platforms and sharing-economy accommodations has introduced additional competitive pressures. If we are unable to differentiate our properties and maintain competitive pricing, our occupancy rates, ADR, and RevPAR could be adversely affected. In addition, new hotel construction in markets where we operate could increase the supply of available rooms and put downward pressure on room rates.

We depend on key personnel, and the loss of any of our senior executives could adversely affect our business.

Our success depends in significant part on the continued services and leadership of our senior executive team, including Marcus J. Delano, our President and Chief Executive Officer; Patricia R. Henning, our Executive Vice President and Chief Financial Officer; and Raymond T. Ochoa, our Executive Vice President and Chief Operating Officer. Each of these individuals has deep expertise in the hospitality industry and extensive relationships with hotel owners, operators, franchisors, lenders, and other industry participants. The unexpected loss of any of these key executives, or our inability to attract and retain other qualified senior personnel, could disrupt our operations, impair our strategic initiatives, and adversely affect our business and financial condition.

Real estate and property-related risks could adversely affect the value of our portfolio.

As an owner and operator of hotel and resort properties, we are subject to range risks inherent in real estate ownership, including: changes in real estate values and local market conditions; the inability to sell or re-lease properties on favorable terms; the need for significant capital expenditures for renovation, refurbishment, or maintenance; compliance with Americans with Disabilities Act requirements and other building codes; environmental contamination or remediation obligations; increases in real estate taxes and insurance premiums; and the potential for uninsured or underinsured losses from catastrophic events.

Many of our hotel properties are older and require ongoing investment to maintain competitive standards. Our capital expenditure program, which totaled approximately $48 million during the LTM period ended March 31, 2024, may need to increase significantly in future periods to address deferred maintenance, renovate aging properties, and respond to changing guest expectations. There can be no assurance that we will have sufficient resources to fund required capital expenditures while simultaneously servicing our indebtedness.

Risks associated with hotel management and franchise agreements could adversely affect our operations.

Certain of our properties operate under management or franchise agreements with third-party hotel brands. These agreements impose operating standards, marketing requirements, and fees that may reduce our operating flexibility and profitability. The termination or non-renewal of any material management or franchise agreement, or the imposition of unfavorable terms upon renewal, could adversely affect our revenues and competitive position. In addition, negative publicity or operational failures at other hotels operated under the same brand could adversely affect our properties.

Increases in labor costs and difficulty in attracting and retaining a qualified workforce could adversely affect our profitability.

Labor costs represent a significant portion of our operating expenses. The hospitality industry has experienced significant labor shortages and wage inflation in recent years, particularly in the wake of the COVID-19 pandemic. Minimum wage increases, changes in overtime regulations, healthcare mandates, and other labor-related legislative or regulatory developments could increase our labor costs. Additionally, certain of our employees are covered by collective bargaining agreements, and work stoppages, strikes, or unfavorable renegotiation of such agreements could disrupt our operations.

Information technology failures and cybersecurity breaches could harm our business.

We rely extensively on information technology systems to manage reservations, process payments, maintain guest data, operate our loyalty programs, and conduct day-to-day business operations. Our systems and the systems of our third-party service providers may be vulnerable to cyberattacks, ransomware, data breaches, computer viruses, and other security incidents. A significant data breach involving guest personal information, including credit card data, could result in significant financial losses, regulatory penalties, litigation, reputational harm, and loss of guest confidence. The costs of implementing and maintaining adequate cybersecurity measures continue to increase, and there can be no assurance that our measures will be effective in preventing all security breaches.

We are subject to extensive regulatory and compliance requirements.

Our operations are subject to a broad array of federal, state, and local laws and regulations, including those relating to environmental protection, health and safety, food and beverage service, liquor licensing, fire safety, accessibility, zoning, land use, and labor and employment. Changes in applicable laws and regulations, or the interpretation or enforcement thereof, could increase our compliance costs, require us to modify our operations, or expose us to fines, penalties, or litigation. We are also subject to anti-money laundering and anti-corruption laws, including the Bank Secrecy Act and the USA PATRIOT Act, with respect to certain cash transactions at our properties.

Risks Related to Our Indebtedness and the Offering

We will have substantial indebtedness following this Offering.

Upon completion of this Offering and the application of the net proceeds as described in "Use of Proceeds," we will have approximately $500,000,000 aggregate principal amount of Notes outstanding, representing our sole term indebtedness (our $150 million revolving credit facility will remain in place and is currently undrawn). Our substantial indebtedness could:

• require us to dedicate a significant portion of our cash flow from operations to the payment of interest on the Notes, thereby reducing the availability of cash flow to fund working capital, capital expenditures, and other general corporate purposes;

• increase our vulnerability to adverse general economic and industry conditions;

• limit our ability to borrow additional funds on favorable terms or at all, or to refinance existing indebtedness;

• limit our flexibility in planning for, or reacting to, changes in our business and the hospitality industry;

• place us at a competitive disadvantage compared to our competitors that have less debt;

• restrict our ability to make strategic acquisitions, investments, or capital improvements; and

• increase the risk that we may default on our indebtedness, including the Notes.

Our ability to service our indebtedness, including making scheduled interest payments on the Notes ($41,250,000 per annum), will depend upon our future operating performance and our ability to generate sufficient cash flows, which is subject to prevailing economic conditions, the cyclicality of the hospitality industry, and financial, business, and other factors, many of which are beyond our control.

The Notes are senior unsecured obligations and are effectively subordinated to our secured indebtedness.

The Notes will be senior unsecured obligations of VHG. Although the Notes will rank pari passu in right of payment with all of our existing and future senior indebtedness, the Notes will be effectively subordinated to any existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness. As of the date of this offering memorandum, after giving pro forma effect to the Offering and the application of net proceeds, we will have no secured term indebtedness outstanding (the Existing Credit Facility will be repaid in full and all liens released). However, the Indenture governing the Notes will permit us to incur additional secured indebtedness in the future, including under the permitted liens basket of up to $50,000,000 and under the general permitted indebtedness basket of up to $75,000,000, as well as any additional secured indebtedness permitted by the incurrence-based Fixed Charge Coverage Ratio test. To the extent we incur secured indebtedness in the future, the holders of such secured indebtedness will have a prior claim on the assets securing such indebtedness, and in the event of a bankruptcy, liquidation, or similar proceeding, those assets would be available to satisfy obligations under such secured indebtedness before any payment could be made on the Notes.

Additionally, the Notes will be structurally subordinated to all existing and future indebtedness and other obligations (including trade payables) of our non-guarantor subsidiaries. While all of our existing restricted subsidiaries will guarantee the Notes, we may form or acquire subsidiaries in the future that will not be required to guarantee the Notes unless they guarantee other indebtedness.

The Indenture contains incurrence-based covenants rather than maintenance covenants, which permit significant flexibility.

Unlike the Existing Credit Facility, which contains maintenance-based financial covenants requiring us to comply with specified financial ratios on an ongoing basis, the Indenture governing the Notes will contain incurrence-based covenants that restrict our ability to take certain actions only at the time we seek to incur additional indebtedness, make restricted payments, or engage in certain other transactions. Incurrence-based covenants provide the Issuer with greater operational flexibility, but also provide holders of the Notes with less protection than maintenance covenants. For example, even if our financial performance deteriorates significantly after the issuance of the Notes, we will not be in default under the Indenture so long as we do not attempt to incur additional indebtedness or make restricted payments in excess of the applicable baskets and we continue to make scheduled interest and principal payments on the Notes. This structure may permit us to take actions that could impair our ability to service the Notes without triggering an Event of Default under the Indenture.

The change of control provisions may not adequately protect holders in certain transactions.

The Indenture will require us to offer to repurchase the Notes at 101% of the principal amount upon a Change of Control Triggering Event. However, the definition of "Change of Control" in the Indenture may not cover all transactions that could constitute a change in control of VHG in a broader sense. Certain leveraged recapitalizations, significant asset sales that do not constitute a sale of "all or substantially all" of our assets, and other significant corporate events may not trigger a change of control offer. Additionally, we may not have sufficient financial resources at the time of a Change of Control Triggering Event to repurchase all of the outstanding Notes, and our failure to make such an offer or to repurchase Notes validly tendered in such an offer would constitute an Event of Default under the Indenture.

There is no public market for the Notes, and the Notes may not be freely transferable.

The Notes have not been and will not be registered under the Securities Act and will be subject to significant restrictions on transfer. There is no established trading market for the Notes, and we do not intend to apply for listing of the Notes on any securities exchange or quotation system. Although the Initial Purchasers have informed us that they currently intend to make a market in the Notes, they are under no obligation to do so and may discontinue market-making at any time. Accordingly, there can be no assurance that an active trading market for the Notes will develop or, if one develops, that it will be maintained. If an active trading market does not develop or is not maintained, holders of the Notes may experience difficulty selling their Notes or may be unable to sell them at all. The liquidity of any market for the Notes will depend upon a number of factors, including general economic conditions, our financial condition and results of operations, the number of holders of the Notes, the interest of securities dealers in making a market in the Notes, and the restrictions on resale of the Notes.

Credit ratings assigned to the Notes are not recommendations and may be downgraded or withdrawn.

The Notes have been assigned a rating of B1 (stable outlook) by Crestline Ratings Group and B+ (stable outlook) by Broadmark Rating Services Inc. Credit ratings are not recommendations to purchase, hold, or sell the Notes and do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security. Credit ratings are subject to revision, suspension, or withdrawal at any time by the assigning rating organization. A downgrade, suspension, or withdrawal of the credit ratings assigned to the Notes could adversely affect the market price and trading liquidity of the Notes.

We may not be able to file or cause to become effective the exchange offer registration statement within the required timeframes.

Under the Registration Rights Agreement, we will be obligated to file an Exchange Offer Registration Statement with the SEC within 180 days after the closing date of this Offering (by January 4, 2025) and to cause such registration statement to become effective within 365 days after the closing date (by July 8, 2025). If we fail to satisfy these obligations, additional interest of 0.25% per annum will accrue on the Notes for the first 90 days of non-compliance, increasing to 0.50% per annum thereafter, up to a maximum of 1.00% per annum. While we intend to comply with our obligations under the Registration Rights Agreement, there can be no assurance that we will be able to do so within the required timeframes, particularly in light of the SEC review process and other factors beyond our control. In such event, the additional interest obligations would increase our annual interest expense on the Notes by up to $5,000,000 per annum (at the maximum additional interest rate of 1.00%).

Risks Related to Tax Matters

Changes in U.S. federal income tax laws could adversely affect the value of the Notes.

Legislative, judicial, or administrative changes to U.S. federal income tax laws may be enacted or adopted that could affect the U.S. federal income tax consequences of the purchase, ownership, and disposition of the Notes. Any such changes, including changes with retroactive application, could adversely affect the after-tax return to holders of the Notes and the market value of the Notes. We cannot predict whether, when, in what form, or with what effective dates, tax laws or regulations may be amended, enacted, or adopted, or whether new interpretations of existing tax laws will be issued.

Treatment of original issue discount could affect the timing of income recognition.

If the Notes are issued at a discount to their stated principal amount, they may be treated as issued with original issue discount ("OID") for U.S. federal income tax purposes. In that case, U.S. holders would be required to include OID in gross income as it accrues under the constant-yield method, regardless of whether the holder uses the cash or accrual method of accounting. This could result in U.S. holders recognizing taxable income in advance of the receipt of corresponding cash payments. See "Certain U.S. Federal Income Tax Considerations — Original Issue discount" for additional information.

Non-U.S. holders may be subject to U.S. withholding tax or FATCA withholding.

Although interest on the Notes is generally expected to be exempt from U.S. federal withholding tax for non-U.S. holders under the portfolio interest exemption, non-U.S. holders must comply with applicable IRS certification requirements. Failure to properly certify non-U.S. status could result in the imposition of U.S. withholding tax at a rate of 30% (or a reduced treaty rate). In addition, payments on the Notes may be subject to withholding under the Foreign Account Tax Compliance Act ("FATCA") if the beneficial owner is a "foreign financial institution" or "non-financial foreign entity" that fails to comply with applicable FATCA requirements. See "Certain U.S. Federal Income Tax Considerations — Non-U.S. Holders."

THE COMPANY

Business Overview

Verimark Hospitality Group Inc. is a leading owner and operator of full-service hotels and resort properties in the United States. Founded in 2011 and headquartered in Miami, Florida, we have assembled a diversified portfolio of 47 full-service hotels and 12 resort properties comprising approximately 18,400 rooms across 19 U.S. states and the U.S. Virgin Islands. Our properties range from urban business-class hotels and convention center-adjacent properties in major metropolitan markets to boutique lifestyle hotels and destination resort properties situated in premier leisure destinations.

Revenue Model. We generate revenue through four primary channels:

• Room Revenue. Room revenue constitutes the largest component of our total revenue, representing approximately 62% of total revenue for the LTM period ended March 31, 2024. Room revenue is driven by occupancy rates and average daily rates across our portfolio.

• Food and Beverage. Food and beverage revenue, generated through on-property restaurants, bars, lounges, room service, banquet and catering operations, and minibar services, represented approximately 23% of total revenue for the LTM period.

• Resort Fees and Other Revenue. Resort fees, parking revenue, spa revenue, recreation fees, and other ancillary charges represented approximately 10% of total revenue for the LTM period.

• Management Fees. Management fees earned by Bayshore Hotel Management LLC for the management and operation of certain properties represented approximately 5% of total revenue for the LTM period.

Competitive Strengths. We believe the following competitive strengths differentiate us in the market:

• Diversified, High-Quality Portfolio. Our 59-property portfolio is geographically diversified across 19 states and the U.S. Virgin Islands, with exposure to both urban business-travel and leisure resort markets.

• Strong Revenue Recovery and Growth Trajectory. Our LTM revenue of $1.82 billion and LTM Adjusted EBITDA of $412 million demonstrate the strong recovery and growth trajectory of our business following the pandemic.

• Fee-Simple Ownership. A significant majority of our properties are owned in fee simple through VHG Properties Inc. and Verimark Resort Holdings LLC, providing us with greater operational control and the ability to capture the full economic value of property appreciation.

• Experienced Management Team. Our senior leadership team has an average of more than 25 years of experience in the hospitality, real estate, and finance sectors.

• Scalable Operating Platform. Bayshore Hotel Management LLC operates a centralized hotel management platform that generates operating efficiencies, including centralized revenue management, procurement, human resources, and technology systems.

Business Strategy. Our strategy is focused on: (i) driving revenue growth through yield management and targeted capital investment in our existing portfolio; (ii) pursuing accretive acquisitions of full-service hotels and resort properties in attractive markets; (iii) optimizing our capital structure to reduce borrowing costs and extend maturities; and (iv) returning value to shareholders through prudent capital allocation, subject to the terms of our indebtedness.

COVID-19 Impact and Recovery. The COVID-19 pandemic had a profound and unprecedented impact on our operations. In 2020, our total revenue declined by approximately 58% from 2019 levels, and we temporarily suspended operations at 14 of our properties. In response, we took aggressive measures to preserve liquidity, including furloughing approximately 9,200 employees, reducing capital expenditures to maintenance-only levels, suspending our common stock dividend, and drawing on our revolving credit facility. We also entered into the Amended and Restated Credit Agreement dated March 15, 2021, with a syndicate of lenders led by Greystone National Bank, N.A., which provided us with $500 million in term loan financing (Term Loan A of $300 million and Term Loan B of $200 million) and a $150 million revolving credit facility. This pandemic-era financing was critical to our survival and ongoing operations during the most acute phase of the crisis.

The hospitality industry has experienced a strong recovery since 2021, driven by pent-up leisure demand, the resumption of business travel, and favorable macroeconomic conditions. Our portfolio has benefited from this recovery, with LTM RevPAR reaching $164 for the period ended March 31, 2024, compared to $57 during the fiscal year ended December 31, 2020. We have recalled all furloughed employees, reopened all temporarily closed properties, and reinstated our capital investment programs. With the strong recovery of our business and cash flow generation, we are now positioned to refinance our pandemic-era secured term loan debt through this Offering.

Properties

The following table summarizes our hotel and resort properties by state and territory as of the date of this offering memorandum:

Note: Room counts are approximate and may vary slightly due to renovations in progress as of the date of this offering memorandum. Certain properties include condominium units that are managed by Bayshore Hotel Management LLC and available for rental; such units are not included in the room counts above.

Fee-Simple Interests. VHG Properties Inc. holds fee-simple interests in 32 hotel properties. The remaining hotel properties are held under long-term ground leases or are owned by joint ventures in which VHG holds a controlling interest. All 12 resort properties are held through Verimark Resort Holdings LLC.

Management

Marcus J. Delano — President and Chief Executive Officer. Mr. Delano, age 54, has served as President and Chief Executive Officer of VHG since 2016. Prior to joining VHG, Mr. Delano served as President and Chief Operating Officer of Seabreeze Hotels International, a privately held hotel management company, from 2008 to 2016. Mr. Delano holds a Bachelor of Science in Hotel Administration from Cornell University and a Master of Business Administration from the Wharton School of the University of Pennsylvania.

Patricia R. Henning — Executive Vice President and Chief Financial Officer. Ms. Henning, age 48, has served as Executive Vice President and Chief Financial Officer of VHG since 2019. Prior to joining VHG, Ms. Henning served as Senior Vice President of Finance at Horizon Lodging Group from 2014 to 2019 and as Vice President in the Lodging, Gaming and Leisure Investment Banking Group at Ashford Bancorp from 2006 to 2014. Ms. Henning holds a Bachelor of Arts in Economics from Duke University and a Master of Business Administration from Harvard Business School. Ms. Henning is a Certified Public Accountant licensed in the State of New York.

David K. Moretti — Senior Vice President, General Counsel, and Secretary. Mr. Moretti, age 51, has served as Senior Vice President, General Counsel, and Secretary of VHG since 2017. Prior to joining VHG, Mr. Moretti was a partner in the Real Estate and Hospitality Practice Group at Halsey & Ostrander LLP, where he practiced from 2001 to 2017. Mr. Moretti holds a Bachelor of Arts from Georgetown University and a Juris Doctor from Columbia Law School.

Eleanor M. Vasquez — Chairman of the Board of Directors. Ms. Vasquez, age 62, has served as Chairman of the Board of Directors of VHG since 2018. Ms. Vasquez is the founder and Managing Partner of Vasquez Capital Partners, a private investment firm focused on the hospitality and leisure sectors. Previously, she served as President of Global Development at Northgate Group from 2004 to 2014. Ms. Vasquez holds a Bachelor of Arts from Stanford University and a Master of Business Administration from INSEAD.

Raymond T. Ochoa — Executive Vice President and Chief Operating Officer. Mr. Ochoa, age 49, has served as Executive Vice President and Chief Operating Officer of VHG since 2020. Prior to joining VHG, Mr. Ochoa served as Senior Vice President of Operations at Westmark Industries from 2017 to 2020 and in various operational leadership roles at Northgate Industries from 2003 to 2017. Mr. Ochoa holds a Bachelor of Science in Hospitality Management from the University of Nevada, Las Vegas.

Board of Directors. Our Board of Directors currently consists of nine members, seven of whom are independent directors. In addition to Ms. Vasquez (Chairman) and Mr. Delano (who serves as a director by virtue of his position as CEO), our independent directors bring diverse expertise in hospitality, real estate, finance, accounting, and public company governance. Our Board has established Audit, Compensation, and Nominating and Corporate Governance committees, each comprised entirely of independent directors.

Organizational Structure

The following sets forth a complete description of our corporate and organizational structure as of the date of this offering memorandum, after giving pro forma effect to the Offering and the application of the net proceeds therefrom.

Verimark Hospitality Group Inc. (Delaware corporation, Nasdaq: VMRK) is the parent company and Issuer of the Notes. VHG is a publicly traded company that, directly and through its subsidiaries, owns and operates the hotel and resort properties comprising our portfolio.

Verimark Capital Holdings LLC (Delaware limited liability company) is a wholly owned intermediate holding company subsidiary of VHG. Verimark Capital Holdings LLC holds VHG's equity interests in each of the operating and property-holding subsidiaries listed below. Verimark Capital Holdings LLC is a Guarantor of the Notes.

Verimark Resort Holdings LLC (Delaware limited liability company) is a wholly owned subsidiary of Verimark Capital Holdings LLC. Verimark Resort Holdings LLC holds the fee-simple interests and leasehold interests in the Company's 12 resort properties. Verimark Resort Holdings LLC is a Guarantor of the Notes.

VHG Properties Inc. (Delaware corporation) is a wholly owned subsidiary of Verimark Capital Holdings LLC. VHG Properties Inc. holds fee-simple interests in 32 of the Company's hotel properties, as well as the Company's interests in joint ventures holding certain additional hotel properties. VHG Properties Inc. is a Guarantor of the Notes.

Bayshore Hotel Management LLC (Florida limited liability company) is a wholly owned subsidiary of Verimark Capital Holdings LLC. Bayshore Hotel Management LLC provides hotel management and operational services for all of the Company's properties and employs substantially all of the Company's hotel-level personnel. Bayshore Hotel Management LLC is a Guarantor of the Notes.

Pinnacle Lodging Enterprises Inc. (Delaware corporation) is a wholly owned subsidiary of Verimark Capital Holdings LLC. Pinnacle Lodging Enterprises Inc. was acquired by VHG in 2019 and holds certain hotel brand intellectual property, trademarks, and related assets. Pinnacle Lodging Enterprises Inc. is a Guarantor of the Notes.

All five subsidiaries identified above are Guarantors of the Notes. As of the date of this offering memorandum, VHG does not have any material non-guarantor subsidiaries.

USE OF PROCEEDS

We estimate that the net proceeds from this Offering will be approximately $[●] (estimated at approximately $483,750,000 based on an assumed issue price of [●]% of par less an initial purchasers' discount of [●]% (expected to be approximately 1.750%, or $8,750,000 on $500,000,000 principal amount), before deducting estimated transaction fees and expenses payable by us). The final net proceeds amount will be determined and disclosed in the Final Offering Memorandum.

We intend to use the net proceeds from this Offering as set forth in the following table:

Description of the Existing Credit Facility Being Refinanced. The Existing Credit Facility is the Amended and Restated Credit Agreement dated as of March 15, 2021 (as amended, supplemented, or otherwise modified from time to time, the "Existing Credit Agreement"), among Verimark Hospitality Group Inc. as borrower, the lenders party thereto (consisting of Greystone National Bank, N.A.; Harborview Lending Group; Cascade Federal Bank; and Meriden Commercial Finance LLC), and Greystone National Bank, N.A. as administrative agent (Loan No. GNB-SYN-2021-04417). The Existing Credit Agreement provides for a senior secured credit facility consisting of:

• Term Loan A: Original principal amount of $300,000,000; outstanding principal as of April 1, 2024: $280,142,819.16; interest rate of SOFR + 375 basis points;

• Term Loan B: Original principal amount of $200,000,000; outstanding principal as of April 1, 2024: $187,200,000.00; interest rate of SOFR + 425 basis points; and

• Revolving Credit Facility: Commitment amount of $150,000,000; currently undrawn.

The aggregate outstanding principal under the Existing Credit Facility as of April 1, 2024, was $467,342,819.16. The Existing Credit Facility matures on March 15, 2026. Borrowings under the Existing Credit Facility are secured by substantially all assets of VHG and the subsidiary guarantors, including hotel and resort properties, personal property, and equity interests in subsidiaries.

We intend to use the net proceeds of this Offering to repay in full the outstanding principal balance under the Term Loans ($467,342,819.16), together with estimated accrued and unpaid interest through the expected closing date ($4,207,180.84) and a prepayment premium of 0.50% of the outstanding principal ($2,336,714.10). Upon such repayment, the Term Loans will be terminated and all liens securing the Existing Credit Facility will be released, including the filing of UCC-3 termination statements and the recording of mortgage and deed of trust releases in the applicable jurisdictions.

The $150 million revolving credit facility under the Existing Credit Agreement, which is currently undrawn, will remain in place and will not be repaid with the proceeds of this Offering. We expect that the revolving credit facility will either continue in its current form with conforming amendments to reflect the repayment of the Term Loans and the issuance of the Notes, or will be replaced by a new revolving credit facility on substantially similar terms.

The remaining net proceeds of the Offering, after application of proceeds as set forth above, will be used for transaction fees and expenses and general corporate purposes.

Rationale for Refinancing. We are pursuing this refinancing in order to: (i) extend our debt maturity profile from March 15, 2026 (the maturity of the Existing Credit Facility) to July 1, 2031 (the maturity of the Notes), an extension of approximately five years and four months; (ii) transition from a secured to an unsecured capital structure, thereby unencumbering our hotel and resort properties and providing us with greater financial flexibility; (iii) eliminate the maintenance-based financial covenants under the Existing Credit Facility and replace them with the more flexible incurrence-based covenants of the Indenture; and (iv) access the public high yield capital markets to diversify our sources of financing.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2024, on: (i) an actual basis; and (ii) an as adjusted basis to give pro forma effect to the issuance of $500,000,000 aggregate principal amount of Notes in this Offering and the application of the estimated net proceeds as described under "Use of Proceeds," as if such transactions had occurred on March 31, 2024.

This table should be read in conjunction with "Use of Proceeds," "Selected Historical Financial Data," "Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and related notes included elsewhere in this offering memorandum.

(1) Reflects the addition of approximately $3,000,000 in net proceeds designated for general corporate purposes. (2) Reflects the one-time charge for prepayment premium ($2,336,714), write-off of unamortized deferred financing costs associated with the Existing Credit Facility, and transaction expenses, net of tax.

SELECTED HISTORICAL FINANCIAL DATA

The following table presents selected historical financial data for VHG. The selected historical financial data for the fiscal years ended December 31, 2023, 2022, and 2021 have been derived from our audited consolidated financial statements, which have been audited by Palladian & Howe LLP, independen

CONFIDENTIAL — FOR USE ONLY BY QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND BY NON-U.S. PERSONS IN OFFSHORE TRANSACTIONS PURSUANT TO REGULATION S UNDER THE SECURITIES ACT
PRELIMINARY OFFERING MEMORANDUM (Subject to Completion) Dated June 3, 2024
The information in this preliminary offering memorandum is not complete and may be changed. These securities may not be sold nor may offers to accept be solicited prior to the time a final offering memorandum is delivered. This preliminary offering memorandum does not constitute an offer to sell or a solicitation of an offer to buy in any jurisdiction where such offer or solicitation is unlawful.
VERIMARK HOSPITALITY GROUP INC.
$500,000,000
8.250% Senior Notes due 2031
Verimark Hospitality Group Inc., a Delaware corporation ("VHG," the "Issuer," the "Company," "we," "us," or "our"), is offering $500,000,000 aggregate principal amount of its 8.250% Senior Notes due 2031 (the "Notes"). The Notes will mature on July 1, 2031. Interest on the Notes will accrue at the rate of 8.250% per annum and will be payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2025.
Issue Price: [●]% of par (to be determined at pricing)
The Notes will be the Issuer's senior unsecured obligations and will rank pari passu in right of payment with all of the Issuer's existing and future senior indebtedness and senior in right of payment to all of the Issuer's future subordinated indebtedness. The Notes will be effectively subordinated to all of the Issuer's existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness, and will be structurally subordinated to all existing and future indebtedness and other obligations of the Issuer's non-guarantor subsidiaries.
Guarantees. The Notes will be fully and unconditionally guaranteed, jointly and severally, by each of the Issuer's existing restricted subsidiaries that guarantee any Credit Facility or capital markets indebtedness, namely: Verimark Resort Holdings LLC, VHG Properties Inc., Bayshore Hotel Management LLC, Verimark Capital Holdings LLC, and Pinnacle Lodging Enterprises Inc. (collectively, the "Guarantors"). Each guarantee will be a senior unsecured obligation of the applicable Guarantor. Future restricted subsidiaries that guarantee other indebtedness of the Issuer will also be required to guarantee the Notes.
Optional Redemption. The Notes will be redeemable, in whole or in part, at the Issuer's option, at the redemption prices described in "Description of Notes — Optional Redemption." The Issuer expects that the Notes will be callable at 104.125% of the principal amount thereof on or after July 1, 2027; at 102.063% of the principal amount thereof on or after July 1, 2028; and at 100.000% of the principal amount thereof on or after July 1, 2029. Prior to [●], the Notes may be redeemed at a make-whole premium. In addition, prior to July 1, 2027, the Issuer may redeem up to 40% of the original aggregate principal amount of the Notes at 108.250% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more qualifying equity offerings. See "Description of Notes — Equity Clawback."
Change of Control. Upon the occurrence of a Change of Control Triggering Event, the Issuer must offer to repurchase all outstanding Notes at 101.000% of the principal amount thereof, plus accrued and unpaid interest. See "Description of Notes — Change of Control."
The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. The Notes are being offered and sold to qualified institutional buyers in the United States in reliance on Rule 144A under the Securities Act and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act. For a description of certain restrictions on resale, see "Plan of Distribution" and "Transfer Restrictions."
There is no established trading market for the Notes. The Notes will not be listed on any securities exchange or quotation system. Verimark Hospitality Group Inc.'s common stock is listed on the Nasdaq Stock Market under the ticker symbol "VMRK."
The Notes have been assigned a rating of B1 (stable outlook) by Crestline Ratings Group and B+ (stable outlook) by Broadmark Rating Services Inc. A credit rating is not a recommendation to buy, sell, or hold securities and may be subject to revision, suspension, or withdrawal at any time. See "Risk Factors — Risks Related to Our Indebtedness and the Offering."
Investing in the Notes involves significant risks. See "Risk Factors" beginning on page [●].
Joint Bookrunners
Kensington Barrow & Co. (Lead Left Bookrunner)
Ridgeline Capital Markets LLC
Co-Manager
Stonebridge Marvelo Securities Inc.
The date of this Preliminary Offering Memorandum is June 3, 2024.
NOTICE TO INVESTORS
This offering memorandum is confidential and has been prepared by the Issuer solely for use in connection with the proposed offering of the Notes described herein (the "Offering"). This offering memorandum is being provided on a confidential basis solely for the purpose of enabling prospective investors to evaluate an investment in the Notes and may not be reproduced, redistributed, or passed on, directly or indirectly, to any other person or published, in whole or in part, for any other purpose. Any reproduction or distribution of this offering memorandum, in whole or in part, and any disclosure of its contents or use of any information herein for any purpose other than considering an investment in the Notes offered hereby is prohibited.
This offering memorandum is being furnished on a confidential basis to a limited number of persons who are either (i) "qualified institutional buyers" ("QIBs") as defined in Rule 144A under the Securities Act, or (ii) non-U.S. persons (as defined in Regulation S under the Securities Act) outside the United States. Distribution of this offering memorandum to any person other than the prospective investor to whom this offering memorandum is provided and any person retained to advise such prospective investor with respect to the purchase of the Notes is unauthorized, and any disclosure of any of its contents without the prior written consent of the Issuer is prohibited. By accepting delivery of this offering memorandum, each prospective investor agrees to the foregoing restrictions and to make no photocopies of this offering memorandum or any documents referred to herein.
No Representation or Warranty by the Initial Purchasers. The Initial Purchasers named herein (Kensington Barrow & Co., Ridgeline Capital Markets LLC, and Stonebridge Marvelo Securities Inc., collectively, the "Initial Purchasers") make no representation or warranty, express or implied, as to the accuracy or completeness of any of the information set forth in this offering memorandum. Nothing contained in this offering memorandum is, or shall be relied upon as, a promise or representation by the Initial Purchasers, whether as to the past or the future. The Initial Purchasers assume no responsibility for the accuracy or completeness of the information contained herein.
Sole Responsibility of the Issuer. Responsibility for the accuracy and completeness of the information contained in this offering memorandum rests solely with the Issuer. The Issuer confirms that the information contained in this offering memorandum is accurate in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and based on reasonable assumptions, and that there are no other facts the omission of which would make any statement herein or this offering memorandum as a whole misleading.
Reliance on This Offering Memorandum Only. Investors are required to rely only on the information contained in this offering memorandum in making an investment decision with respect to the Notes. No person has been authorized to give any information or to make any representation concerning the Issuer, the Guarantors, or the Notes (other than as contained herein), and, if given or made, any such other information or representation should not be relied upon as having been authorized by the Issuer, the Guarantors, or any of the Initial Purchasers.
Currency of Information. The information contained in this offering memorandum is accurate only as of the date of this offering memorandum, regardless of the time of delivery of this offering memorandum or any sale of the Notes. The Issuer's business, financial condition, results of operations, and prospects may have changed since such date. Neither the delivery of this offering memorandum at any time after the date hereof nor any sale of the Notes shall, under any circumstances, create an implication that there has been no change in the affairs of the Issuer or any Guarantor since the date hereof, or that the information set forth in this offering memorandum is correct as of any time subsequent to such date. The Issuer does not assume any obligation to update or revise this offering memorandum (other than as required pursuant to applicable law), whether as a result of new information, future events, or otherwise.
Not an Offer in Restricted Jurisdictions. This offering memorandum does not constitute an offer to sell or a solicitation of an offer to buy in any jurisdiction in which such offer or solicitation is unlawful. No action has been or will be taken in any jurisdiction by the Issuer or the Initial Purchasers that would permit a public offering of the Notes, or the possession, circulation, or distribution of this offering memorandum or any other material relating to the Issuer or the Notes, in any jurisdiction where action for that purpose is required. Accordingly, the Notes may not be offered or sold, directly or indirectly, and neither this offering memorandum nor any other offering material or advertisements in connection with the Notes may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction.
Forward-Looking Statements. This offering memorandum contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These statements relate to, among other things, the Issuer's business strategy, financial projections, anticipated capital expenditures, industry trends, and expected operating results. Forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms "may," "will," "expects," "intends," "plans," "projects," "estimates," "anticipates," "believes," "could," "seeks," or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that could cause the Issuer's actual results, performance, or achievements to differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include those described under "Risk Factors" and elsewhere in this offering memorandum. The Issuer undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
Industry and Market Data. Certain industry and market data included in this offering memorandum have been obtained from third-party sources that the Issuer believes to be reliable, including STR, Inc. (formerly Penmark Enterprises), the American Hotel & Lodging Association, the U.S. Travel Association, the Bureau of Labor Statistics, and the U.S. Bureau of Economic Analysis. The Issuer has not independently verified the accuracy of such data and makes no representation as to the accuracy or completeness thereof. Projections, assumptions, and estimates of future performance and the future performance of the hospitality industry in which the Issuer operates are necessarily subject to a high degree of uncertainty and risk due to range factors, including those described under "Risk Factors."
Non-GAAP Financial Measures. This offering memorandum includes references to "Adjusted EBITDA," "Pro Forma Total Debt," "Pro Forma Net Leverage Ratio," "Pro Forma Interest Coverage Ratio," "Pro Forma Fixed Charge Coverage Ratio," and other financial measures that are not calculated in accordance with United States Generally Accepted Accounting Principles ("GAAP"). These non-GAAP financial measures are presented because management believes they provide useful information to investors in evaluating the Issuer's operating performance and financial condition and facilitate comparison with other companies in the hospitality industry. Non-GAAP financial measures should not be considered in isolation or as a substitute for financial measures calculated in accordance with GAAP. A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is included in this offering memorandum under "Management's Discussion and Analysis of Financial Condition and Results of Operations — Adjusted EBITDA Reconciliation."
Enforcement of Civil Liabilities. Certain of the Issuer's officers and directors, and certain experts named in this offering memorandum, are residents of the United States. Non-U.S. investors may have difficulty effecting service of process within their home jurisdictions upon any such persons. In addition, there can be no assurance that the courts of jurisdictions outside the United States would enforce judgments of courts outside the United States obtained in actions against the Issuer or the Guarantors based upon the civil liability provisions of applicable securities laws, or would enforce, in original actions, liabilities against the Issuer or the Guarantors based upon such laws. The Notes, the Indenture, the Purchase Agreement, and the Registration Rights Agreement are each governed by and construed in accordance with the laws of the State of New York.
General Notice. Each investor must comply with all applicable laws and regulations in force in any jurisdiction in which it purchases, offers, or sells the Notes or possesses or distributes this offering memorandum, and must obtain any consent, approval, or permission required by it for the purchase, offer, or sale by it of the Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, or sales. None of the Issuer, the Guarantors, or the Initial Purchasers shall have any responsibility therefor.
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SUMMARY
The following summary highlights selected information contained elsewhere in this offering memorandum and is qualified in its entirety by the more detailed information and the financial statements, including the notes thereto, appearing elsewhere in this offering memorandum. This summary does not contain all of the information that may be important to you. You should read the entire offering memorandum carefully, including the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Notes," and our financial statements and the related notes thereto included elsewhere in this offering memorandum, before making an investment decision.
Unless otherwise indicated or the context otherwise requires, references in this offering memorandum to the "Company," "VHG," the "Issuer," "we," "us," and "our" refer to Verimark Hospitality Group Inc. and its consolidated subsidiaries, taken as a whole. References to the "Notes" refer to the 8.250% Senior Notes due 2031 offered hereby. References to the "Offering" refer to the offering of the Notes contemplated by this offering memorandum. References to the "Indenture" refer to the indenture governing the Notes, to be dated as of the closing date, among VHG, the Guarantors, and Fidelitas Trust Company, N.A., as trustee. References to "LTM" mean the twelve-month period ended March 31, 2024.
Overview of Verimark Hospitality Group Inc.
Verimark Hospitality Group Inc. is a Delaware corporation whose common stock is publicly traded on the Nasdaq Stock Market under the ticker symbol "VMRK." The Company's Central Index Key (CIK) with the Securities and Exchange Commission is 0001847293, and its Employer Identification Number (EIN) is 84-3291057. The Company's principal executive offices are located at 2400 Brickell Bay Drive, Suite 3100, Miami, Florida 33129.
We are a leading owner and operator of full-service hotels and resort properties in the United States. As of the date of this offering memorandum, we own and operate a portfolio comprising 47 full-service hotels and 12 resort properties across 19 U.S. states and the U.S. Virgin Islands, totaling approximately 18,400 rooms. Our properties include urban business-class hotels, convention center-adjacent properties, boutique lifestyle hotels, and destination resort properties situated in premier leisure markets. We generate revenue primarily through room revenue, food and beverage operations, resort fees, conference and event services, and hotel management fees.
Our senior leadership team brings decades of experience across the hospitality and lodging sectors:
• Marcus J. Delano — President and Chief Executive Officer
• Patricia R. Henning — Executive Vice President and Chief Financial Officer
• David K. Moretti — Senior Vice President, General Counsel, and Secretary
• Eleanor M. Vasquez — Chairman of the Board of Directors
• Raymond T. Ochoa — Executive Vice President and Chief Operating Officer
For the twelve-month period ended March 31, 2024, we generated total revenue of approximately $1,820,000,000 and Adjusted EBITDA of approximately $412,000,000. Our revenue recovery from the COVID-19 pandemic has been robust, reflecting strong demand fundamentals across both our leisure resort and urban business-travel segments.
COVID-19 Impact and Recovery. The COVID-19 pandemic severely disrupted the global hospitality industry beginning in early 2020. In response to the unprecedented revenue declines experienced during 2020 and 2021, VHG drew heavily on its credit facilities and incurred approximately $475 million in pandemic-era secured term loan debt under its Amended and Restated Credit Agreement with a syndicate of lenders led by Greystone National Bank, N.A. This indebtedness was necessary to maintain operations, retain key employees, preserve our property portfolio, and position the Company for recovery. With the strong recovery in travel demand experienced during 2022, 2023, and continuing into 2024, we are now positioned to refinance this legacy pandemic-era secured indebtedness with the proceeds of this Offering, thereby extending our maturity profile, removing maintenance covenants, and transitioning to an unsecured capital structure more appropriate for a company of our scale and credit profile.
The Offering
The following is a summary of the principal terms of the Notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. For a more detailed description, see "Description of Notes."
Use of Proceeds
We estimate that the net proceeds from this Offering will be approximately $[●] (estimated at approximately $483,750,000 based on an assumed issue price of [●]% and an initial purchasers' discount of [●]%). We intend to use the net proceeds from this Offering as follows:
The Existing Credit Facility is the Amended and Restated Credit Agreement dated March 15, 2021, among VHG as borrower, the lenders party thereto, and Greystone National Bank, N.A. as administrative agent (Loan No. GNB-SYN-2021-04417). See "Use of Proceeds" and "Description of Other Indebtedness — Existing Credit Facility" for additional information.
The $150 million revolving credit facility under the Existing Credit Facility, which is currently undrawn, is expected to remain in place and will not be repaid with the proceeds of this Offering.
Summary Corporate and Organizational Structure
The following chart summarizes our corporate and organizational structure, including the Guarantors of the Notes, after giving pro forma effect to the Offering and the application of the net proceeds therefrom:
Verimark Hospitality Group Inc. (Delaware corporation; Nasdaq: VMRK) Issuer of the Notes |
Verimark Capital Holdings LLC (Delaware LLC) — Intermediate Holding Company — Guarantor
• Verimark Resort Holdings LLC (Delaware LLC) — Resort Property Portfolio — Guarantor
• VHG Properties Inc. (Delaware corporation) — Fee-Simple Interests in 32 Hotel Properties — Guarantor
• Bayshore Hotel Management LLC (Florida LLC) — Hotel Management and Operations — Guarantor
• Pinnacle Lodging Enterprises Inc. (Delaware corporation) — Acquired Hotel Brand Subsidiary — Guarantor
All five subsidiaries identified above are Guarantors of the Notes.
Summary Historical and Pro Forma Financial Data
The following table presents selected historical and pro forma financial data for VHG. The pro forma data gives effect to the issuance of the Notes and the application of the estimated net proceeds as described under "Use of Proceeds," as if such transactions had occurred on March 31, 2024 (for balance sheet data) or April 1, 2023 (for income statement data). This data should be read in conjunction with "Selected Historical Financial Data," "Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and related notes included elsewhere in this offering memorandum.
(1) Reflects weighted average interest expense under the Existing Credit Facility at SOFR + 375 bps (Term Loan A) and SOFR + 425 bps (Term Loan B), based on a blended SOFR rate during the applicable period.
The semi-annual interest payment on the Notes will be $20,625,000, payable on each January 1 and July 1, representing annual interest expense of $41,250,000 ($500,000,000 × 8.250%).
RISK FACTORS
An investment in the Notes involves a high degree of risk. You should carefully consider the following risk factors, together with all other information contained in this offering memorandum, including our financial statements and the related notes thereto, before deciding to purchase the Notes. If any of the following risks actually occur, our business, financial condition, results of operations, cash flows, and ability to service our debt, including the Notes, could be materially and adversely affected. In that event, holders of the Notes could lose all or part of their investment. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, and results of operations.
Risks Related to Our Business and Industry
Our business is heavily dependent on travel and tourism demand, which is cyclical and subject to disruption.
The hospitality industry is cyclical and highly sensitive to changes in general economic conditions, consumer confidence, and disposable income levels. Demand for hotel rooms and resort services is directly correlated with business travel budgets, leisure travel patterns, and overall macroeconomic health. During economic downturns, consumers and businesses reduce travel spending, which results in lower occupancy rates, reduced average daily rates ("ADR"), and decreased revenue per available room ("RevPAR") across our portfolio.
In particular, the COVID-19 pandemic demonstrated the extreme vulnerability of the hospitality industry to public health crises. Beginning in March 2020, the unprecedented travel restrictions, government-mandated shutdowns, and collapse in consumer demand caused occupancy rates across our portfolio to decline by more than 70% during the second quarter of 2020. Although demand has substantially recovered, we cannot assure you that future pandemics, epidemics, or other public health emergencies will not cause similar or even more severe disruptions to our operations.
Other potential disruptions include acts of terrorism or war, natural disasters, significant weather events, fuel price increases, airline disruptions, changes in government travel policies, and geopolitical instability. Any prolonged period of reduced travel demand could materially and adversely affect our revenue, operating margins, cash flows, and ability to service our indebtedness, including the Notes.
Our operations are geographically concentrated, which exposes us to regional economic and weather-related risks.
Our portfolio of 47 full-service hotels and 12 resort properties is concentrated across 19 U.S. states and the U.S. Virgin Islands. While we have a diversified footprint, certain of our key markets — including Florida, California, New York, Hawaii, and the U.S. Virgin Islands — represent a disproportionate share of our total revenue and Adjusted EBITDA. A regional economic downturn, natural disaster (including hurricanes, earthquakes, wildfires, or flooding), or other adverse event disproportionately affecting one or more of these key markets could have a material adverse effect on our results of operations and financial condition.
In particular, a significant number of our resort properties are located in coastal areas that are susceptible to hurricanes and tropical storms. While we maintain comprehensive property and casualty insurance, including windstorm coverage, there can be no assurance that our insurance coverage will be sufficient to cover all losses incurred, or that we will be able to obtain or renew insurance on favorable terms or at all.
The hospitality industry is intensely competitive.
The hospitality industry is intensely competitive. We compete for guests with other hotel and resort operators, online travel agencies, alternative lodging platforms (including Ridgeline Data Systems and Pinnacle Health IT), and other accommodation providers. Many of our competitors have greater financial resources, more extensive brand recognition, and larger marketing budgets than we do. Our ability to compete effectively depends on a number of factors, including location, room quality, service levels, brand reputation, pricing, and the effectiveness of our marketing and distribution strategies.
The continued growth of alternative lodging platforms and sharing-economy accommodations has introduced additional competitive pressures. If we are unable to differentiate our properties and maintain competitive pricing, our occupancy rates, ADR, and RevPAR could be adversely affected. In addition, new hotel construction in markets where we operate could increase the supply of available rooms and put downward pressure on room rates.
We depend on key personnel, and the loss of any of our senior executives could adversely affect our business.
Our success depends in significant part on the continued services and leadership of our senior executive team, including Marcus J. Delano, our President and Chief Executive Officer; Patricia R. Henning, our Executive Vice President and Chief Financial Officer; and Raymond T. Ochoa, our Executive Vice President and Chief Operating Officer. Each of these individuals has deep expertise in the hospitality industry and extensive relationships with hotel owners, operators, franchisors, lenders, and other industry participants. The unexpected loss of any of these key executives, or our inability to attract and retain other qualified senior personnel, could disrupt our operations, impair our strategic initiatives, and adversely affect our business and financial condition.
Real estate and property-related risks could adversely affect the value of our portfolio.
As an owner and operator of hotel and resort properties, we are subject to range risks inherent in real estate ownership, including: changes in real estate values and local market conditions; the inability to sell or re-lease properties on favorable terms; the need for significant capital expenditures for renovation, refurbishment, or maintenance; compliance with Americans with Disabilities Act requirements and other building codes; environmental contamination or remediation obligations; increases in real estate taxes and insurance premiums; and the potential for uninsured or underinsured losses from catastrophic events.
Many of our hotel properties are older and require ongoing investment to maintain competitive standards. Our capital expenditure program, which totaled approximately $48 million during the LTM period ended March 31, 2024, may need to increase significantly in future periods to address deferred maintenance, renovate aging properties, and respond to changing guest expectations. There can be no assurance that we will have sufficient resources to fund required capital expenditures while simultaneously servicing our indebtedness.
Risks associated with hotel management and franchise agreements could adversely affect our operations.
Certain of our properties operate under management or franchise agreements with third-party hotel brands. These agreements impose operating standards, marketing requirements, and fees that may reduce our operating flexibility and profitability. The termination or non-renewal of any material management or franchise agreement, or the imposition of unfavorable terms upon renewal, could adversely affect our revenues and competitive position. In addition, negative publicity or operational failures at other hotels operated under the same brand could adversely affect our properties.
Increases in labor costs and difficulty in attracting and retaining a qualified workforce could adversely affect our profitability.
Labor costs represent a significant portion of our operating expenses. The hospitality industry has experienced significant labor shortages and wage inflation in recent years, particularly in the wake of the COVID-19 pandemic. Minimum wage increases, changes in overtime regulations, healthcare mandates, and other labor-related legislative or regulatory developments could increase our labor costs. Additionally, certain of our employees are covered by collective bargaining agreements, and work stoppages, strikes, or unfavorable renegotiation of such agreements could disrupt our operations.
Information technology failures and cybersecurity breaches could harm our business.
We rely extensively on information technology systems to manage reservations, process payments, maintain guest data, operate our loyalty programs, and conduct day-to-day business operations. Our systems and the systems of our third-party service providers may be vulnerable to cyberattacks, ransomware, data breaches, computer viruses, and other security incidents. A significant data breach involving guest personal information, including credit card data, could result in significant financial losses, regulatory penalties, litigation, reputational harm, and loss of guest confidence. The costs of implementing and maintaining adequate cybersecurity measures continue to increase, and there can be no assurance that our measures will be effective in preventing all security breaches.
We are subject to extensive regulatory and compliance requirements.
Our operations are subject to a broad array of federal, state, and local laws and regulations, including those relating to environmental protection, health and safety, food and beverage service, liquor licensing, fire safety, accessibility, zoning, land use, and labor and employment. Changes in applicable laws and regulations, or the interpretation or enforcement thereof, could increase our compliance costs, require us to modify our operations, or expose us to fines, penalties, or litigation. We are also subject to anti-money laundering and anti-corruption laws, including the Bank Secrecy Act and the USA PATRIOT Act, with respect to certain cash transactions at our properties.
Risks Related to Our Indebtedness and the Offering
We will have substantial indebtedness following this Offering.
Upon completion of this Offering and the application of the net proceeds as described in "Use of Proceeds," we will have approximately $500,000,000 aggregate principal amount of Notes outstanding, representing our sole term indebtedness (our $150 million revolving credit facility will remain in place and is currently undrawn). Our substantial indebtedness could:
• require us to dedicate a significant portion of our cash flow from operations to the payment of interest on the Notes, thereby reducing the availability of cash flow to fund working capital, capital expenditures, and other general corporate purposes;
• increase our vulnerability to adverse general economic and industry conditions;
• limit our ability to borrow additional funds on favorable terms or at all, or to refinance existing indebtedness;
• limit our flexibility in planning for, or reacting to, changes in our business and the hospitality industry;
• place us at a competitive disadvantage compared to our competitors that have less debt;
• restrict our ability to make strategic acquisitions, investments, or capital improvements; and
• increase the risk that we may default on our indebtedness, including the Notes.
Our ability to service our indebtedness, including making scheduled interest payments on the Notes ($41,250,000 per annum), will depend upon our future operating performance and our ability to generate sufficient cash flows, which is subject to prevailing economic conditions, the cyclicality of the hospitality industry, and financial, business, and other factors, many of which are beyond our control.
The Notes are senior unsecured obligations and are effectively subordinated to our secured indebtedness.
The Notes will be senior unsecured obligations of VHG. Although the Notes will rank pari passu in right of payment with all of our existing and future senior indebtedness, the Notes will be effectively subordinated to any existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness. As of the date of this offering memorandum, after giving pro forma effect to the Offering and the application of net proceeds, we will have no secured term indebtedness outstanding (the Existing Credit Facility will be repaid in full and all liens released). However, the Indenture governing the Notes will permit us to incur additional secured indebtedness in the future, including under the permitted liens basket of up to $50,000,000 and under the general permitted indebtedness basket of up to $75,000,000, as well as any additional secured indebtedness permitted by the incurrence-based Fixed Charge Coverage Ratio test. To the extent we incur secured indebtedness in the future, the holders of such secured indebtedness will have a prior claim on the assets securing such indebtedness, and in the event of a bankruptcy, liquidation, or similar proceeding, those assets would be available to satisfy obligations under such secured indebtedness before any payment could be made on the Notes.
Additionally, the Notes will be structurally subordinated to all existing and future indebtedness and other obligations (including trade payables) of our non-guarantor subsidiaries. While all of our existing restricted subsidiaries will guarantee the Notes, we may form or acquire subsidiaries in the future that will not be required to guarantee the Notes unless they guarantee other indebtedness.
The Indenture contains incurrence-based covenants rather than maintenance covenants, which permit significant flexibility.
Unlike the Existing Credit Facility, which contains maintenance-based financial covenants requiring us to comply with specified financial ratios on an ongoing basis, the Indenture governing the Notes will contain incurrence-based covenants that restrict our ability to take certain actions only at the time we seek to incur additional indebtedness, make restricted payments, or engage in certain other transactions. Incurrence-based covenants provide the Issuer with greater operational flexibility, but also provide holders of the Notes with less protection than maintenance covenants. For example, even if our financial performance deteriorates significantly after the issuance of the Notes, we will not be in default under the Indenture so long as we do not attempt to incur additional indebtedness or make restricted payments in excess of the applicable baskets and we continue to make scheduled interest and principal payments on the Notes. This structure may permit us to take actions that could impair our ability to service the Notes without triggering an Event of Default under the Indenture.
The change of control provisions may not adequately protect holders in certain transactions.
The Indenture will require us to offer to repurchase the Notes at 101% of the principal amount upon a Change of Control Triggering Event. However, the definition of "Change of Control" in the Indenture may not cover all transactions that could constitute a change in control of VHG in a broader sense. Certain leveraged recapitalizations, significant asset sales that do not constitute a sale of "all or substantially all" of our assets, and other significant corporate events may not trigger a change of control offer. Additionally, we may not have sufficient financial resources at the time of a Change of Control Triggering Event to repurchase all of the outstanding Notes, and our failure to make such an offer or to repurchase Notes validly tendered in such an offer would constitute an Event of Default under the Indenture.
There is no public market for the Notes, and the Notes may not be freely transferable.
The Notes have not been and will not be registered under the Securities Act and will be subject to significant restrictions on transfer. There is no established trading market for the Notes, and we do not intend to apply for listing of the Notes on any securities exchange or quotation system. Although the Initial Purchasers have informed us that they currently intend to make a market in the Notes, they are under no obligation to do so and may discontinue market-making at any time. Accordingly, there can be no assurance that an active trading market for the Notes will develop or, if one develops, that it will be maintained. If an active trading market does not develop or is not maintained, holders of the Notes may experience difficulty selling their Notes or may be unable to sell them at all. The liquidity of any market for the Notes will depend upon a number of factors, including general economic conditions, our financial condition and results of operations, the number of holders of the Notes, the interest of securities dealers in making a market in the Notes, and the restrictions on resale of the Notes.
Credit ratings assigned to the Notes are not recommendations and may be downgraded or withdrawn.
The Notes have been assigned a rating of B1 (stable outlook) by Crestline Ratings Group and B+ (stable outlook) by Broadmark Rating Services Inc. Credit ratings are not recommendations to purchase, hold, or sell the Notes and do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security. Credit ratings are subject to revision, suspension, or withdrawal at any time by the assigning rating organization. A downgrade, suspension, or withdrawal of the credit ratings assigned to the Notes could adversely affect the market price and trading liquidity of the Notes.
We may not be able to file or cause to become effective the exchange offer registration statement within the required timeframes.
Under the Registration Rights Agreement, we will be obligated to file an Exchange Offer Registration Statement with the SEC within 180 days after the closing date of this Offering (by January 4, 2025) and to cause such registration statement to become effective within 365 days after the closing date (by July 8, 2025). If we fail to satisfy these obligations, additional interest of 0.25% per annum will accrue on the Notes for the first 90 days of non-compliance, increasing to 0.50% per annum thereafter, up to a maximum of 1.00% per annum. While we intend to comply with our obligations under the Registration Rights Agreement, there can be no assurance that we will be able to do so within the required timeframes, particularly in light of the SEC review process and other factors beyond our control. In such event, the additional interest obligations would increase our annual interest expense on the Notes by up to $5,000,000 per annum (at the maximum additional interest rate of 1.00%).
Risks Related to Tax Matters
Changes in U.S. federal income tax laws could adversely affect the value of the Notes.
Legislative, judicial, or administrative changes to U.S. federal income tax laws may be enacted or adopted that could affect the U.S. federal income tax consequences of the purchase, ownership, and disposition of the Notes. Any such changes, including changes with retroactive application, could adversely affect the after-tax return to holders of the Notes and the market value of the Notes. We cannot predict whether, when, in what form, or with what effective dates, tax laws or regulations may be amended, enacted, or adopted, or whether new interpretations of existing tax laws will be issued.
Treatment of original issue discount could affect the timing of income recognition.
If the Notes are issued at a discount to their stated principal amount, they may be treated as issued with original issue discount ("OID") for U.S. federal income tax purposes. In that case, U.S. holders would be required to include OID in gross income as it accrues under the constant-yield method, regardless of whether the holder uses the cash or accrual method of accounting. This could result in U.S. holders recognizing taxable income in advance of the receipt of corresponding cash payments. See "Certain U.S. Federal Income Tax Considerations — Original Issue discount" for additional information.
Non-U.S. holders may be subject to U.S. withholding tax or FATCA withholding.
Although interest on the Notes is generally expected to be exempt from U.S. federal withholding tax for non-U.S. holders under the portfolio interest exemption, non-U.S. holders must comply with applicable IRS certification requirements. Failure to properly certify non-U.S. status could result in the imposition of U.S. withholding tax at a rate of 30% (or a reduced treaty rate). In addition, payments on the Notes may be subject to withholding under the Foreign Account Tax Compliance Act ("FATCA") if the beneficial owner is a "foreign financial institution" or "non-financial foreign entity" that fails to comply with applicable FATCA requirements. See "Certain U.S. Federal Income Tax Considerations — Non-U.S. Holders."
THE COMPANY
Business Overview
Verimark Hospitality Group Inc. is a leading owner and operator of full-service hotels and resort properties in the United States. Founded in 2011 and headquartered in Miami, Florida, we have assembled a diversified portfolio of 47 full-service hotels and 12 resort properties comprising approximately 18,400 rooms across 19 U.S. states and the U.S. Virgin Islands. Our properties range from urban business-class hotels and convention center-adjacent properties in major metropolitan markets to boutique lifestyle hotels and destination resort properties situated in premier leisure destinations.
Revenue Model. We generate revenue through four primary channels:
• Room Revenue. Room revenue constitutes the largest component of our total revenue, representing approximately 62% of total revenue for the LTM period ended March 31, 2024. Room revenue is driven by occupancy rates and average daily rates across our portfolio.
• Food and Beverage. Food and beverage revenue, generated through on-property restaurants, bars, lounges, room service, banquet and catering operations, and minibar services, represented approximately 23% of total revenue for the LTM period.
• Resort Fees and Other Revenue. Resort fees, parking revenue, spa revenue, recreation fees, and other ancillary charges represented approximately 10% of total revenue for the LTM period.
• Management Fees. Management fees earned by Bayshore Hotel Management LLC for the management and operation of certain properties represented approximately 5% of total revenue for the LTM period.
Competitive Strengths. We believe the following competitive strengths differentiate us in the market:
• Diversified, High-Quality Portfolio. Our 59-property portfolio is geographically diversified across 19 states and the U.S. Virgin Islands, with exposure to both urban business-travel and leisure resort markets.
• Strong Revenue Recovery and Growth Trajectory. Our LTM revenue of $1.82 billion and LTM Adjusted EBITDA of $412 million demonstrate the strong recovery and growth trajectory of our business following the pandemic.
• Fee-Simple Ownership. A significant majority of our properties are owned in fee simple through VHG Properties Inc. and Verimark Resort Holdings LLC, providing us with greater operational control and the ability to capture the full economic value of property appreciation.
• Experienced Management Team. Our senior leadership team has an average of more than 25 years of experience in the hospitality, real estate, and finance sectors.
• Scalable Operating Platform. Bayshore Hotel Management LLC operates a centralized hotel management platform that generates operating efficiencies, including centralized revenue management, procurement, human resources, and technology systems.
Business Strategy. Our strategy is focused on: (i) driving revenue growth through yield management and targeted capital investment in our existing portfolio; (ii) pursuing accretive acquisitions of full-service hotels and resort properties in attractive markets; (iii) optimizing our capital structure to reduce borrowing costs and extend maturities; and (iv) returning value to shareholders through prudent capital allocation, subject to the terms of our indebtedness.
COVID-19 Impact and Recovery. The COVID-19 pandemic had a profound and unprecedented impact on our operations. In 2020, our total revenue declined by approximately 58% from 2019 levels, and we temporarily suspended operations at 14 of our properties. In response, we took aggressive measures to preserve liquidity, including furloughing approximately 9,200 employees, reducing capital expenditures to maintenance-only levels, suspending our common stock dividend, and drawing on our revolving credit facility. We also entered into the Amended and Restated Credit Agreement dated March 15, 2021, with a syndicate of lenders led by Greystone National Bank, N.A., which provided us with $500 million in term loan financing (Term Loan A of $300 million and Term Loan B of $200 million) and a $150 million revolving credit facility. This pandemic-era financing was critical to our survival and ongoing operations during the most acute phase of the crisis.
The hospitality industry has experienced a strong recovery since 2021, driven by pent-up leisure demand, the resumption of business travel, and favorable macroeconomic conditions. Our portfolio has benefited from this recovery, with LTM RevPAR reaching $164 for the period ended March 31, 2024, compared to $57 during the fiscal year ended December 31, 2020. We have recalled all furloughed employees, reopened all temporarily closed properties, and reinstated our capital investment programs. With the strong recovery of our business and cash flow generation, we are now positioned to refinance our pandemic-era secured term loan debt through this Offering.
Properties
The following table summarizes our hotel and resort properties by state and territory as of the date of this offering memorandum:
Note: Room counts are approximate and may vary slightly due to renovations in progress as of the date of this offering memorandum. Certain properties include condominium units that are managed by Bayshore Hotel Management LLC and available for rental; such units are not included in the room counts above.
Fee-Simple Interests. VHG Properties Inc. holds fee-simple interests in 32 hotel properties. The remaining hotel properties are held under long-term ground leases or are owned by joint ventures in which VHG holds a controlling interest. All 12 resort properties are held through Verimark Resort Holdings LLC.
Management
Marcus J. Delano — President and Chief Executive Officer. Mr. Delano, age 54, has served as President and Chief Executive Officer of VHG since 2016. Prior to joining VHG, Mr. Delano served as President and Chief Operating Officer of Seabreeze Hotels International, a privately held hotel management company, from 2008 to 2016. Mr. Delano holds a Bachelor of Science in Hotel Administration from Cornell University and a Master of Business Administration from the Wharton School of the University of Pennsylvania.
Patricia R. Henning — Executive Vice President and Chief Financial Officer. Ms. Henning, age 48, has served as Executive Vice President and Chief Financial Officer of VHG since 2019. Prior to joining VHG, Ms. Henning served as Senior Vice President of Finance at Horizon Lodging Group from 2014 to 2019 and as Vice President in the Lodging, Gaming and Leisure Investment Banking Group at Ashford Bancorp from 2006 to 2014. Ms. Henning holds a Bachelor of Arts in Economics from Duke University and a Master of Business Administration from Harvard Business School. Ms. Henning is a Certified Public Accountant licensed in the State of New York.
David K. Moretti — Senior Vice President, General Counsel, and Secretary. Mr. Moretti, age 51, has served as Senior Vice President, General Counsel, and Secretary of VHG since 2017. Prior to joining VHG, Mr. Moretti was a partner in the Real Estate and Hospitality Practice Group at Halsey & Ostrander LLP, where he practiced from 2001 to 2017. Mr. Moretti holds a Bachelor of Arts from Georgetown University and a Juris Doctor from Columbia Law School.
Eleanor M. Vasquez — Chairman of the Board of Directors. Ms. Vasquez, age 62, has served as Chairman of the Board of Directors of VHG since 2018. Ms. Vasquez is the founder and Managing Partner of Vasquez Capital Partners, a private investment firm focused on the hospitality and leisure sectors. Previously, she served as President of Global Development at Northgate Group from 2004 to 2014. Ms. Vasquez holds a Bachelor of Arts from Stanford University and a Master of Business Administration from INSEAD.
Raymond T. Ochoa — Executive Vice President and Chief Operating Officer. Mr. Ochoa, age 49, has served as Executive Vice President and Chief Operating Officer of VHG since 2020. Prior to joining VHG, Mr. Ochoa served as Senior Vice President of Operations at Westmark Industries from 2017 to 2020 and in various operational leadership roles at Northgate Industries from 2003 to 2017. Mr. Ochoa holds a Bachelor of Science in Hospitality Management from the University of Nevada, Las Vegas.
Board of Directors. Our Board of Directors currently consists of nine members, seven of whom are independent directors. In addition to Ms. Vasquez (Chairman) and Mr. Delano (who serves as a director by virtue of his position as CEO), our independent directors bring diverse expertise in hospitality, real estate, finance, accounting, and public company governance. Our Board has established Audit, Compensation, and Nominating and Corporate Governance committees, each comprised entirely of independent directors.
Organizational Structure
The following sets forth a complete description of our corporate and organizational structure as of the date of this offering memorandum, after giving pro forma effect to the Offering and the application of the net proceeds therefrom.
Verimark Hospitality Group Inc. (Delaware corporation, Nasdaq: VMRK) is the parent company and Issuer of the Notes. VHG is a publicly traded company that, directly and through its subsidiaries, owns and operates the hotel and resort properties comprising our portfolio.
Verimark Capital Holdings LLC (Delaware limited liability company) is a wholly owned intermediate holding company subsidiary of VHG. Verimark Capital Holdings LLC holds VHG's equity interests in each of the operating and property-holding subsidiaries listed below. Verimark Capital Holdings LLC is a Guarantor of the Notes.
Verimark Resort Holdings LLC (Delaware limited liability company) is a wholly owned subsidiary of Verimark Capital Holdings LLC. Verimark Resort Holdings LLC holds the fee-simple interests and leasehold interests in the Company's 12 resort properties. Verimark Resort Holdings LLC is a Guarantor of the Notes.
VHG Properties Inc. (Delaware corporation) is a wholly owned subsidiary of Verimark Capital Holdings LLC. VHG Properties Inc. holds fee-simple interests in 32 of the Company's hotel properties, as well as the Company's interests in joint ventures holding certain additional hotel properties. VHG Properties Inc. is a Guarantor of the Notes.
Bayshore Hotel Management LLC (Florida limited liability company) is a wholly owned subsidiary of Verimark Capital Holdings LLC. Bayshore Hotel Management LLC provides hotel management and operational services for all of the Company's properties and employs substantially all of the Company's hotel-level personnel. Bayshore Hotel Management LLC is a Guarantor of the Notes.
Pinnacle Lodging Enterprises Inc. (Delaware corporation) is a wholly owned subsidiary of Verimark Capital Holdings LLC. Pinnacle Lodging Enterprises Inc. was acquired by VHG in 2019 and holds certain hotel brand intellectual property, trademarks, and related assets. Pinnacle Lodging Enterprises Inc. is a Guarantor of the Notes.
All five subsidiaries identified above are Guarantors of the Notes. As of the date of this offering memorandum, VHG does not have any material non-guarantor subsidiaries.
USE OF PROCEEDS
We estimate that the net proceeds from this Offering will be approximately $[●] (estimated at approximately $483,750,000 based on an assumed issue price of [●]% of par less an initial purchasers' discount of [●]% (expected to be approximately 1.750%, or $8,750,000 on $500,000,000 principal amount), before deducting estimated transaction fees and expenses payable by us). The final net proceeds amount will be determined and disclosed in the Final Offering Memorandum.
We intend to use the net proceeds from this Offering as set forth in the following table:
Description of the Existing Credit Facility Being Refinanced. The Existing Credit Facility is the Amended and Restated Credit Agreement dated as of March 15, 2021 (as amended, supplemented, or otherwise modified from time to time, the "Existing Credit Agreement"), among Verimark Hospitality Group Inc. as borrower, the lenders party thereto (consisting of Greystone National Bank, N.A.; Harborview Lending Group; Cascade Federal Bank; and Meriden Commercial Finance LLC), and Greystone National Bank, N.A. as administrative agent (Loan No. GNB-SYN-2021-04417). The Existing Credit Agreement provides for a senior secured credit facility consisting of:
• Term Loan A: Original principal amount of $300,000,000; outstanding principal as of April 1, 2024: $280,142,819.16; interest rate of SOFR + 375 basis points;
• Term Loan B: Original principal amount of $200,000,000; outstanding principal as of April 1, 2024: $187,200,000.00; interest rate of SOFR + 425 basis points; and
• Revolving Credit Facility: Commitment amount of $150,000,000; currently undrawn.
The aggregate outstanding principal under the Existing Credit Facility as of April 1, 2024, was $467,342,819.16. The Existing Credit Facility matures on March 15, 2026. Borrowings under the Existing Credit Facility are secured by substantially all assets of VHG and the subsidiary guarantors, including hotel and resort properties, personal property, and equity interests in subsidiaries.
We intend to use the net proceeds of this Offering to repay in full the outstanding principal balance under the Term Loans ($467,342,819.16), together with estimated accrued and unpaid interest through the expected closing date ($4,207,180.84) and a prepayment premium of 0.50% of the outstanding principal ($2,336,714.10). Upon such repayment, the Term Loans will be terminated and all liens securing the Existing Credit Facility will be released, including the filing of UCC-3 termination statements and the recording of mortgage and deed of trust releases in the applicable jurisdictions.
The $150 million revolving credit facility under the Existing Credit Agreement, which is currently undrawn, will remain in place and will not be repaid with the proceeds of this Offering. We expect that the revolving credit facility will either continue in its current form with conforming amendments to reflect the repayment of the Term Loans and the issuance of the Notes, or will be replaced by a new revolving credit facility on substantially similar terms.
The remaining net proceeds of the Offering, after application of proceeds as set forth above, will be used for transaction fees and expenses and general corporate purposes.
Rationale for Refinancing. We are pursuing this refinancing in order to: (i) extend our debt maturity profile from March 15, 2026 (the maturity of the Existing Credit Facility) to July 1, 2031 (the maturity of the Notes), an extension of approximately five years and four months; (ii) transition from a secured to an unsecured capital structure, thereby unencumbering our hotel and resort properties and providing us with greater financial flexibility; (iii) eliminate the maintenance-based financial covenants under the Existing Credit Facility and replace them with the more flexible incurrence-based covenants of the Indenture; and (iv) access the public high yield capital markets to diversify our sources of financing.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2024, on: (i) an actual basis; and (ii) an as adjusted basis to give pro forma effect to the issuance of $500,000,000 aggregate principal amount of Notes in this Offering and the application of the estimated net proceeds as described under "Use of Proceeds," as if such transactions had occurred on March 31, 2024.
This table should be read in conjunction with "Use of Proceeds," "Selected Historical Financial Data," "Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and related notes included elsewhere in this offering memorandum.
(1) Reflects the addition of approximately $3,000,000 in net proceeds designated for general corporate purposes. (2) Reflects the one-time charge for prepayment premium ($2,336,714), write-off of unamortized deferred financing costs associated with the Existing Credit Facility, and transaction expenses, net of tax.
SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data for VHG. The selected historical financial data for the fiscal years ended December 31, 2023, 2022, and 2021 have been derived from our audited consolidated financial statements, which have been audited by Palladian & Howe LLP, independen

VERIMARK HOSPITALITY GROUP INC.

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