-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, INB33Obm7uZxUUCCERmFq64h0/XItr3we4RWJ2kg3a6ZaoCgI6YOSVMT7TfgDJsO wzBMo5IZhtUT3+mGnhlyKg== 0000950152-98-004635.txt : 19980518 0000950152-98-004635.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950152-98-004635 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOYKIN LODGING CO CENTRAL INDEX KEY: 0001015859 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341824586 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11975 FILM NUMBER: 98624010 BUSINESS ADDRESS: STREET 1: GUILDHALL BLDG 45 W PROSPECT AVE STREET 2: SUITE 1500 CITY: CLEVELAND STATE: OH ZIP: 44115 BUSINESS PHONE: 2164301200 MAIL ADDRESS: STREET 1: GUILDHALL BLDG 45 W PROSPECT AVE STREET 2: SUITE 1500 CITY: CLEVELAND STATE: OH ZIP: 44115 FORMER COMPANY: FORMER CONFORMED NAME: BOYKIN LODGING TRUST INC DATE OF NAME CHANGE: 19960604 10-Q 1 BOYKIN LODGING COMPANY FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 Commission file number 001-11975 --------- Boykin Lodging Company (Exact Name of Registrant as Specified in Its Charter) Ohio 34-1824586 ------------------------------ ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) Guildhall Building, Suite 1500, 45 W. Prospect Avenue 44115 - ----------------------------------------------------- ---------- (Address of Principal Executive Office) (Zip Code) (216) 430-1200 - ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of Common Shares, without par value, outstanding as of May 15, 1998: 14,042,251 2 PART I ITEM 1. FINANCIAL STATEMENTS BOYKIN LODGING COMPANY INDEX TO FINANCIAL STATEMENTS BOYKIN LODGING COMPANY: Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997.....................................................3 Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997 (unaudited).................................4 Consolidated Statement of Shareholders' Equity for the Three Months Ended March 31, 1998 (unaudited)..........................................5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 (unaudited).................................6 Notes to Consolidated Financial Statements.....................................7 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES: Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997....................................................11 Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and 1997 (unaudited)................................12 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 (unaudited)................................13 Notes to Consolidated Financial Statements....................................14
3 BOYKIN LODGING COMPANY CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND DECEMBER 31, 1997 (AMOUNTS IN THOUSANDS)
(Unaudited) March 31, December 31, 1998 1997 --------- ------------ ASSETS ------ INVESTMENT IN HOTEL PROPERTIES, net $ 273,505 $ 231,651 CASH AND CASH EQUIVALENTS 2,828 1,855 RENT RECEIVABLE FROM LESSEES: Related party lessee 1,547 897 Third party lessees 379 360 DEFERRED EXPENSES, net 1,941 2,055 OTHER ASSETS 2,510 2,037 --------- --------- Total assets $ 282,710 $ 238,855 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ BORROWINGS AGAINST CREDIT FACILITY $ 31,200 $ 91,750 ACCOUNTS PAYABLE AND ACCRUED EXPENSES 4,215 4,688 DIVIDENDS/DISTRIBUTIONS PAYABLE 7,207 4,893 DUE TO LESSEES: Related party lessee 2,339 1,069 Third party lessees 1,106 1,268 MINORITY INTEREST IN JOINT VENTURES 7,223 7,318 MINORITY INTEREST IN OPERATING PARTNERSHIP 12,422 13,054 SHAREHOLDERS' EQUITY: Preferred shares, without par value; 10,000,000 shares authorized; no shares issued and outstanding -- -- Common shares, without par value; 40,000,000 shares authorized; 14,042,251 and 9,542,251 shares issued and outstanding March 31, 1998 and December 31, 1997, respectively, stated at -- -- Additional paid-in capital 229,564 124,430 Retained deficit (12,566) (9,615) --------- --------- Total shareholders' equity 216,998 114,815 --------- --------- Total liabilities and shareholders' equity $ 282,710 $ 238,855 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. -3- 4 BOYKIN LODGING COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED, AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
1998 1997 -------- -------- REVENUES: Lease revenue from related party $ 8,647 $ 7,208 Other lease revenue 2,213 -- Interest income 54 231 -------- -------- 10,914 7,439 -------- -------- EXPENSES: Real estate related depreciation and amortization 3,220 1,941 Real estate and personal property taxes, insurance and ground rent 1,524 1,022 General and administrative 799 488 Interest expense 1,168 52 Amortization of deferred financing costs 130 109 -------- -------- 6,841 3,612 -------- -------- INCOME BEFORE MINORITY INTERESTS 4,073 3,827 MINORITY INTEREST IN JOINT VENTURES (44) -- MINORITY INTEREST IN OPERATING PARTNERSHIP (380) (446) -------- -------- NET INCOME APPLICABLE TO COMMON SHARES $ 3,649 $ 3,381 ======== ======== EARNINGS PER SHARE: Basic $ 0.32 $ 0.36 Diluted $ 0.32 $ 0.35 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic 11,342 9,516 Diluted 11,447 9,575
The accompanying notes to consolidated financial statements are an integral part of these statements. -4- 5 BOYKIN LODGING COMPANY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
Additional Common Paid-In Retained Shares Capital Deficit Total ------ ------- ------- ----- Balance, December 31, 1997 9,542,251 $ 124,430 $ (9,615) $ 114,815 Issuance of common shares, net of offering expenses of $7,366 4,500,000 105,134 -- 105,134 Dividends declared -- -- (6,600) (6,600) Net income -- -- 3,649 3,649 ---------- ---------- ---------- ---------- Balance, March 31, 1998 14,042,251 $ 229,564 $ (12,566) $ 216,998 ========== ========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part of this statement. -5- 6 BOYKIN LODGING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED, AMOUNTS IN THOUSANDS)
1998 1997 ----------- --------- Cash flows from operating activities: Net income $ 3,649 $ 3,381 Adjustments to reconcile net income to net cash flow provided by operating activities- Depreciation and amortization 3,350 2,076 Minority interests 424 446 Changes in assets and liabilities- Rent receivable (669) (1,866) Other assets (489) (328) Accounts payable and accrued expenses (473) (148) Due to lessees 1,108 (239) --------- --------- Net cash flow provided by operating activities 6,900 3,322 --------- --------- Cash flows from investing activities: Acquisitions of hotel properties (37,075) (21,099) Improvements and additions to hotel properties (7,437) (1,004) --------- --------- Net cash flow used for investing activities (44,512) (22,103) --------- --------- Cash flows from financing activities: Payments of dividends and distributions (5,032) (3,091) Borrowings against credit facility 36,200 1,000 Repayment of borrowings against bank credit facility (96,750) -- Net proceeds from issuance of common shares 105,134 -- Additional offering costs -- (14) Cash payments for redemption of certain limited partnership interests (967) -- --------- --------- Net cash flow provided by (used for) financing activities 38,585 (2,105) --------- --------- Net change in cash and cash equivalents 973 (20,886) Cash and cash equivalents, beginning of period 1,855 21,362 --------- --------- Cash and cash equivalents, end of period $ 2,828 $ 476 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. -6- 7 BOYKIN LODGING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1. ORGANIZATION AND INITIAL PUBLIC OFFERING: ----------------------------------------- Boykin Lodging Company (the "Company") is a self-administered equity real estate investment trust ("REIT") that was incorporated February 8, 1996 to acquire equity interests in hotel properties. The Company had no operations prior to November 4, 1996. On November 4, 1996, the Company completed an initial public offering of 8,275,000 common shares. An additional 1,241,250 common shares were issued by the Company on November 29, 1996 upon an exercise in-full of the underwriters' over-allotment option (together with the initial public offering, the "Initial Offering"). The offering price of all shares sold was $20 per share, resulting in gross proceeds of approximately $190,325 and net proceeds (less the underwriters' discount and offering expenses) of approximately $173,898. The Company contributed all of the net proceeds of the Initial Offering to Boykin Hotel Properties, L.P., a limited partnership (the "Partnership") in exchange for (i) an 84.5% general partnership interest in the Partnership, and (ii) a $40,000 Intercompany Convertible Note (the "Note"). The Note matures on the fifth anniversary of the closing of the Initial Offering. Interest on the Note accrues at a rate equal to 9.5% per annum, increasing to 9.75% per annum on the third anniversary of the completion of the Initial Offering, and is payable quarterly. The Note may be prepaid in full, but not in part, at any time. The Company will have the right to convert the Note after the second anniversary of the completion of the Initial Offering, and prior to maturity and in advance of any proposed prepayment by the Partnership, into additional equity interests in the Partnership at face value based on the initial offering price of the Company's common shares. The Company is the sole general partner of the Partnership. The Note is secured by mortgages on certain hotel properties. The Partnership used a substantial portion of the proceeds from the Company and issued limited partnership interests representing approximately 15.5% of the Partnership to acquire nine hotel properties (the "Initial Hotels"). In 1997, the Company acquired interests in eight additional hotels and two more during the first quarter of 1998, bringing the total number of hotels owned at March 31, 1998 to 19 with an aggregate of 5,136 guest rooms (collectively, the "Hotels"). The Partnership and its subsidiaries lease fifteen of the Hotels to Boykin Management Company Limited Liability Company, an Ohio limited liability company ("BMC"), two Hotels to CapStar Hotel Company ("CapStar"), one Hotel to Davidson Hotel Company ("Davidson") and one Hotel to Outrigger Lodging Services ("Outrigger") pursuant to leases which contain provisions for rent based on the revenues of the Hotels (the Percentage Leases). Each Percentage Lease obligates the lessees' to pay rent equal to the greater of the minimum rent or a percentage rent based on the gross revenues of each hotel. The lessees hold the franchise agreement for each franchised hotel. The Partnership owns a 100% equity interest in the fifteen Hotels leased by BMC. The remaining four Hotels are owned by joint ventures, three of which the Partnership has a 91% equity interest and the other an 80% equity interest. The minority interests in these Hotels are owned by CapStar, Davidson and Outrigger, or their affiliates, respectively. BMC is owned by Robert W. Boykin, Chairman, President and Chief Executive Officer of the Company (53.8%) and his brother, John E. Boykin (46.2%). Pursuant to the Partnership Agreement, the limited partners of the Partnership received exchange rights, which enable them to cause the Partnership to pay cash for their interests in the Partnership, or at the Company's election, to exchange common shares for such interests. The exchange rights may be exercised in whole or in part. The number of common shares initially issuable to the limited partners upon exercise of the exchange rights was 1,378,000. The number of shares issuable upon exercise of the exchange rights will be adjusted upon the occurrence of stock splits, mergers, consolidations or similar pro rata share transactions, which otherwise would have the effect of diluting the ownership interests of the limited partners or the shareholders of the Company. -7- 8 Basis of Presentation - --------------------- The Company exercises unilateral control over the Partnership. Therefore, the financial statements of the Company and the Partnership are consolidated. All significant intercompany transactions and balances have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the period ended December 31, 1997. 2. FOLLOW-ON EQUITY OFFERING AND PURCHASE OF PARTNERSHIP UNITS: ------------------------------------------------------------ In February 1998, the Company completed a follow-on equity offering (the "Offering") of 4,500,000 common shares. The Offering price of the shares was $25 per share, resulting in gross proceeds of approximately $112,500 and net proceeds (less the underwriters' discount and offering expenses) of approximately $106,313. The Company contributed all of the net proceeds to the Partnership which were used by the Partnership to pay existing indebtedness under the Company's credit facility, purchase limited partnership units from two unaffiliated limited partners, fund the acquisitions of two hotels purchased in March 1998 (Note 6) and for general corporate purposes. The Company purchased 40,976 outstanding limited partnership units for aggregate cash consideration of $967. The excess of the aggregate purchase price paid over the capital account balances of the units purchased was $562 and was recorded as additional investment in hotel properties. As a result of the Offering and the purchase of the limited partnership units, the Company increased its ownership percentage in the Partnership to 90.3% 3. PROPOSED MERGER WITH RED LION INNS LIMITED PARTNERSHIP: ------------------------------------------------------- The Company entered into an agreement and plan of merger (the "Merger Agreement") on December 30, 1997 with Red Lion Inns Limited Partnership ("Red Lion"), under which the Company agreed to acquire the portfolio of 10 DoubleTree-licensed hotels owned by Red Lion (the "DoubleTree Hotels"). If the proposed merger is consummated, the DoubleTree Hotels will continue to be managed by DoubleTree Hotels Corporation and will be leased to Westboy LLC, a wholly-owned subsidiary of BMC. Under the Merger Agreement, the Company will issue 3,110,048 common shares and pay approximately $35,300 in cash to the Red Lion limited partners and general partner. The Partnership will become responsible for Red Lion's liabilities, which the Company estimates will be approximately $156,000. At the time of the announcement of the Merger Agreement, the consideration value was expected to total approximately $271,250. 4. NEW ACCOUNTING STANDARDS: ------------------------- Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income," which requires disclosure of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as changes in shareholders' equity from nonowner sources. SFAS No. 130 is not applicable to the Company as it has no items of other comprehensive income, as defined. -8- 9 In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position (SOP) 98-5 "Reporting on the Costs of Start-Up Activities" which is effective for the Company as of January 1, 1999. This SOP requires start-up and organization costs to be expensed as incurred and also requires previously deferred start-up costs to be recognized as a cumulative effect adjustment in the statement of income. In the opinion of management, the effect of adopting this SOP will not have a material impact on the Company's consolidated financial statements. 5. NET INCOME PER SHARE AND PARTNERSHIP UNITS: ------------------------------------------- The Company's basic and diluted earnings per share for three months ended March 31, 1998 under SFAS No. 128, "Earnings per Share" are as follows: Basic earnings per common share $ .32 Diluted earnings per common share $ .32
Basic earnings per share is based on the weighted average number of common shares outstanding during the period whereas diluted earnings per share adjusts the weighted average shares outstanding for the effect of all dilutive securities. The weighted average number of shares used in determining basic and diluted earnings per share was 11,342,000 and 11,447,000, respectively, for the three months ended March 31, 1998. At March 31, 1998, a total of 1,291,000 limited partnership units were issued and outstanding. The basic and diluted weighted average number of common shares and limited partnership units outstanding for the three months ended March 31, 1998 was 12,658,000 and 12,763,000, respectively. 6. ACQUISITIONS OF HOTEL PROPERTIES: --------------------------------- During the quarter ended March 31, 1998, the Company acquired, in a single transaction, two hotel properties for an aggregate consideration of $37,000 which was funded with cash proceeds from the Offering and borrowings under the Company's credit facility. The hotel properties acquired were the 317-room Knoxville Hilton in Knoxville, Tennessee and the 251-room High Point Radisson in High Point, North Carolina. These properties are leased to and managed by BMC under long-term Percentage Leases. The acquisitions were accounted for as purchases and accordingly, the operating results of the acquired properties have been included in the accompanying consolidated financial statements commencing on the date of acquisition. 7. CREDIT FACILITY: ---------------- The Company has a credit facility with a group of banks which enables the Company to borrow up to $150,000, subject to borrowing base and loan-to-value limitations, at a rate of interest that fluctuates at LIBOR plus 1.40% to 1.75% (7.19% at March 31, 1998), as defined. The Company is required to pay a .25% fee on the unused portion of the credit facility. The credit facility expires in November 1999, with an additional one-year extension at the Company's option, and is secured by first mortgages on thirteen of the Hotels. As of March 31, 1998 and December 31, 1997, the Company had $91,750 and $31,200, respectively, outstanding against the credit facility. The credit facility requires, among other things, the Company to maintain a minimum net worth, a coverage ratio of EBITDA to debt service, and a coverage ratio of EBITDA to debt service and fixed charges. Further, the Company is required to maintain its franchise agreement at each Hotel and to maintain its REIT status. The Company was in compliance with its covenants at March 31, 1998 and December 31, 1997. 8. PERCENTAGE LEASE AGREEMENTS: ---------------------------- The Percentage Leases have noncancelable remaining terms ranging from three to 10 years, subject to earlier termination on the occurrence of certain contingencies, as defined. The rent due under each Percentage Lease is the -9- 10 greater of minimum rent, as defined , or percentage rent. Percentage rent applicable to room and other hotel revenue varies by lease and is calculated by multiplying fixed percentages by the total amounts of such revenues over specified threshold amounts. Both the minimum rent and the revenue thresholds used in computing percentage rents are subject to annual adjustments based on increases in the United States Consumer Price Index ("CPI"). Percentage rent applicable to food and beverage revenues is calculated by multiplying fixed percentages by the total amounts of such revenues. Percentage Lease revenue for the three months ended March 31, 1998 and 1997 was $10,859 and $7,208, respectively, of which approximately $2,302 and $2,172, respectively, was in excess of minimum rent. Future minimum rentals (ignoring future CPI increases) to be received by the Company from BMC and from other lessees pursuant to the Percentage Leases for each of the years in the period 1998 to 2002 and in total thereafter are as follows:
Other BMC Lessees Totals --- ------- ------ 1998 $ 27,542 $ 8,431 $ 35,973 1999 28,107 8,725 36,832 2000 28,107 8,925 37,032 2001 21,905 8,925 30,830 2002 15,074 7,526 22,600 Thereafter 37,257 27,201 64,458 ------ ------ ------ $157,992 $69,733 $227,725 ======== ======= ========
9. RELATED PARTY TRANSACTIONS: --------------------------- The Chairman, President and Chief Executive Officer of the Company is the majority shareholder of BMC. BMC was a significant source of the Company's Percentage Lease revenue through March 31, 1998. At March 31, 1998 and December 31, 1997, the Company had rent receivable of $1,547 and $897, respectively, due from BMC. At March 31, 1998 and December 31, 1997, the Company had a payable to BMC of $2,339 and $1,069, respectively, primarily for the reimbursement of capital expenditure costs incurred on behalf of the Company. 10. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES: -------------------------------------------------- During the quarters ended March 31, 1998 and 1997, the noncash financing transactions consisted of $7,207 and $4,902, respectively, of dividends and Partnership distributions which were declared but not paid as of March 31, 1998 and 1997, respectively. Interest paid during the quarter ended March 31, 1998 was $1,598. There was no interest paid during the quarter ended March 31, 1997. 11. SUBSEQUENT EVENTS: ------------------ In May 1998, the Company acquired the 208-room Pink Shell Resort in Fort Myers Beach, Florida for net cash consideration of $19,250, after $2 million of purchase price funded by South Seas Resorts (South Seas), the lessee of the hotel. The acquisition was funded through borrowings under the Company's credit facility. South Seas leases and manages the property under a long-term Percentage Lease. -10- 11 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND DECEMBER 31, 1997 (AMOUNTS IN THOUSANDS)
(Unaudited) March 31, December 31, ASSETS 1998 1997 ------ ---------- ----------- CASH AND CASH EQUIVALENTS $ 5,622 $ 6,862 ACCOUNTS RECEIVABLE: Trade, net of allowance for doubtful accounts of $128 and $84 at March 31, 1998 and December 31, 1997, respectively 11,155 3,859 Boykin Hotel Properties, L.P. 2,339 1,069 Red Lion Inns Limited Partnership 1,328 -- INVENTORIES 2,192 788 PROPERTY AND EQUIPMENT, net 419 366 INVESTMENT IN BOYKIN LODGING COMPANY 529 529 PREPAID EXPENSES AND OTHER ASSETS 2,326 908 ------- ------- Total assets $25,910 $14,381 ======= ======= LIABILITIES AND MEMBERS' CAPITAL -------------------------------- RENT PAYABLE: Boykin Hotel Properties, L.P. $ 1,547 $ 897 Red Lion Inns Limited Partnership 941 -- ACCOUNTS PAYABLE: Trade 3,612 1,746 Advance deposits 1,310 259 Bank overdraft liability 1,721 2,837 Former owners and affiliate -- 2 ACCRUED EXPENSES: Accrued payroll 1,961 391 Accrued vacation 2,492 893 Accrued sales, use and occupancy taxes 2,068 646 Other accrued liabilities 7,116 2,437 ------- ------- Total liabilities 22,768 10,108 ------- ------- MEMBERS' CAPITAL: Capital contributed 3,000 3,000 Retained earnings (deficit) 104 1,235 Unrealized appreciation on investment 38 38 ------- ------- Total members' capital 3,142 4,273 ------- ------- Total liabilities and members' capital $25,910 $14,381 ======= =======
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. -11- 12 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED, AMOUNTS IN THOUSANDS)
1998 1997 -------- -------- REVENUES: Room revenue $ 32,518 $ 15,760 Food and beverage revenue 15,928 6,071 Other hotel revenue 2,989 1,149 Other revenue 755 771 -------- -------- Total revenues 52,190 23,751 -------- -------- EXPENSES: Departmental expenses of hotels -- Rooms 8,001 3,508 Food and beverage 12,161 4,539 Other 1,563 570 Cost of goods sold of nonhotel operations 251 168 Percentage lease expense 14,734 7,208 General and administrative 5,937 2,937 Advertising and promotion 2,631 1,023 Utilities 2,520 954 Franchisor royalties and other charges 1,683 1,141 Repairs and maintenance 2,015 1,100 Depreciation and amortization 22 20 Management fee expense 1,787 -- Other 16 45 -------- -------- Total expenses 53,321 23,213 -------- -------- NET (LOSS) INCOME $ (1,131) $ 538 ======== ======== COMPREHENSIVE (LOSS) INCOME $ (1,131) $ 538 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. -12- 13 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED, AMOUNTS IN THOUSANDS)
1998 1997 ---------- --------- Cash flows from operating activities: Net (loss) income $(1,131) $ 538 Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities Depreciation and amortization 22 20 Changes in assets and liabilities-- Accounts receivable (9,894) (454) Inventories (1,404) (66) Prepaid expenses and other assets (1,418) (476) Rent payable 1,591 1,866 Accounts payable 1,799 (30) Other accrued liabilities 9,270 1,091 ------- ------- Net cash (used for) provided by operating activities (1,165) 2,489 ------- ------- Cash flows from investing activities: Property additions (75) (11) ------- ------- Net cash used for investing activities (75) (11) ------- ------- Cash flows from financing activities: Payments of obligations to former owners -- (16) Collections of amounts due from former owners -- 7 ------- ------- Net cash used for financing activities -- (9) ------- ------- Net change in cash and cash equivalents (1,240) 2,469 Cash and cash equivalents, beginning of period 6,862 5,469 ------- ------- Cash and cash equivalents, end of period $ 5,622 $ 7,938 ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements. -13- 14 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (DOLLAR AMOUNTS IN THOUSANDS) 1. DESCRIPTION OF BUSINESS: ------------------------ Boykin Management Company Limited Liability Company and its subsidiaries (collectively, "BMC") (i) lease and operate full and limited service hotels located throughout the United States pursuant to long-term percentage leases; (ii) manage full and limited service hotels located throughout the United States pursuant to management agreements; (iii) provide national purchasing services to hotels, and (iv) provide interior design services to hotels and other businesses. 2. ORGANIZATION: ------------- BMC commenced operations on November 4, 1996 as an Ohio limited liability company. BMC is indirectly owned by Robert W. Boykin (53.8%) and John E. Boykin (46.2%). Robert W. Boykin is the Chairman, President and Chief Executive Officer of Boykin Lodging Company (the "Company"). Pursuant to formation transactions related to the November 4, 1996 initial public offering of the Company, Boykin Management Company ("former BMC") and Bopa Design Company (doing business as Spectrum Services), wholly owned subsidiaries of The Boykin Company ("TBC"), were merged into subsidiaries of BMC. In addition, Purchasing Concepts, Inc. ("PCI") contributed its assets to a subsidiary of BMC and that subsidiary assumed PCI's liabilities. TBC and PCI are related through common ownership. BMC and its subsidiaries are the successors to the businesses of former BMC, Spectrum Services and PCI. As BMC, former BMC, Spectrum Services and PCI were related through common ownership, there were no purchase accounting adjustments to the historical carrying values of the assets and liabilities of former BMC, Spectrum Services and PCI upon merger into or contribution to the subsidiaries of BMC. In connection with the formation of BMC, certain assets and liabilities of nine of the BMC Hotels (Note 5) were assumed by BMC. 3. BASIS OF PRESENTATION: ---------------------- These financial statements have been prepared in accordance with generally accepted accounting principles for the interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to BMC's consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the period ended December 31, 1997. 4. NEW ACCOUNTING STANDARDS: ------------------------- Effective January 1, 1998, BMC adopted Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income," which requires disclosure of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as changes in members' capital from nonowner sources, which for BMC, consist of differences between the cost basis and fair market value of its -14- 15 investment of 20,000 common shares in the Company . For the quarter ended March 31, 1998, there were no differences between net income and comprehensive income. 5. PERCENTAGE LEASE AGREEMENTS: ---------------------------- BMC leases 15 hotels (the "BMC Hotels") from the Partnership, pursuant to long-term leases (Percentage Leases). The BMC Hotels are located in Cleveland, Ohio (2); Columbus, Ohio; Buffalo, New York; Berkeley, California; Raleigh, North Carolina; Charlotte, North Carolina (2); High Point, North Carolina; Knoxville, Tennessee; Ft. Myers, Florida; Melbourne, Florida (2); Daytona Beach, Florida; and French Lick, Indiana. The Percentage Leases have noncancellable remaining terms ranging from three to ten years, subject to earlier termination on the occurrence of certain contingencies, as defined. The Percentage Leases do not contain renewal terms. BMC is required to pay the higher of minimum rent, as defined, or a percentage rent. Percentage rent applicable to room and other hotel revenue varies by lease and is calculated by multiplying fixed percentages by the total amounts of such revenues over specified threshold amounts. Percentage rent related to food and beverage revenues is generally at 6% of such revenues. Both the threshold amounts used in computing percentage rent and minimum rent on room and other hotel revenues are subject to annual adjustments as of January 1 of each year based on increases in the United States Consumer Price Index. Other than real estate and personal property taxes, casualty insurance and capital improvements, which are obligations of the Partnership, the Percentage Leases require BMC to pay all costs and expenses incurred in the operation of the BMC Hotels. The Percentage Leases require BMC to indemnify the Company against all liabilities, costs and expenses incurred by, imposed on or asserted against the Partnership in the normal course of operating the BMC Hotels. 6. PERCENTAGE LEASE AGREEMENT WITH RED LION: ----------------------------------------- The Company entered into an Agreement and Plan of Merger (the "Merger Agreement") on December 30, 1997 with Red Lion Inns Limited Partnership ("Red Lion"), under which the Company agreed to acquire the portfolio of 10 DoubleTree-licensed hotels owned by Red Lion (the "DoubleTree Hotels"). The DoubleTree Hotels contain 3,062 guest rooms and are located in California, Oregon, Washington, Colorado, Idaho and Nebraska. Effective January 1, 1998, the Doubletree Hotels were leased or subleased to Westboy LLC, a wholly-owned subsidiary of BMC. Pursuant to this lease agreement, Westboy LLC is required to pay a base monthly rental of $1,700 plus a percentage rental. The lessor is responsible for certain costs of the DoubleTree Hotels, including property taxes, property insurance, capital expenditures, depreciation expense and ground lease rental. If the proposed merger is consummated, the Doubletree Hotels will continue to be managed by DoubleTree and to be leased to Westboy LLC. 7. RELATED PARTY TRANSACTIONS: --------------------------- At March 31, 1998 and December 31, 1997 BMC had receivables from the Partnership of $2,339 and $1,069, respectively, primarily for the reimbursement of capital expenditure costs incurred on behalf of the Partnership. At March 31, 1998 and December 31, 1997 BMC had payables to the Partnership of $1,547 and $897, respectively, for amounts due pursuant to the Percentage Leases. -15- 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BACKGROUND Boykin Lodging Company, an Ohio corporation (the "Company"), is a self-administered equity real estate investment trust ("REIT") that owns hotels throughout the United States and leases its properties to established hotel operators. The Company's primary business strategies are: - acquiring full service commercial and resort hotels on an accretive basis and at a discount to replacement cost; - developing strategic alliances and relationships with both a network of high quality lessees and franchisors of the hotel industry's premier upscale brands, and; - achieving revenue growth in its hotels through selective renovation and its lessees' strong management performance. On November 4, 1996, the Company completed an initial public offering (the "Initial Offering") of 8,275,000 shares. An additional 1,241,250 common shares were issued by the Company on November 29, 1996 upon an exercise in full of the underwriters' over-allotment option. The net proceeds to the Company from these transactions were $173.9 million. The Company contributed all of the net proceeds to Boykin Hotel Properties, L.P., an Ohio limited partnership (the "Partnership") in exchange for (i) an 84.5% general partnership interest in the Partnership, and (ii) a $40 million intercompany convertible note (the "Note"). The Note matures on the fifth anniversary of the Initial Offering. On conversion of the Note, the Company will receive an additional general partnership interest in the Partnership of 1.3%. The Company is the sole general partner of the Partnership. The Partnership used a substantial portion of the proceeds from the Company and issued limited partnership interests representing approximately 15.5% of the Partnership to acquire nine hotel properties (the "Initial Hotels"). In 1997, the Company acquired interests in eight additional hotels and two more during the first quarter of 1998, bringing the total number of hotels owned at March 31, 1998 to 19 with an aggregate of 5,136 guest rooms (collectively, the "Hotels"). The Partnership and its subsidiaries lease fifteen of the Hotels to Boykin Management Company Limited Liability Company, an Ohio limited liability company ("BMC"), two Hotels to CapStar Hotel Company ("CapStar"), one Hotel to Davidson Hotel Company ("Davidson") and one Hotel to Outrigger Lodging Services ("Outrigger") pursuant to leases which contain provisions for rent based on the revenues of the Hotels (the Percentage Leases). The Partnership owns a 100% equity interest in the fifteen Hotels leased by BMC. The remaining four Hotels are owned by joint ventures, three of which the Partnership has a 91% equity interest and the other an 80% equity interest. The minority interests in these Hotels are owned by CapStar, Davidson and Outrigger, or their affiliates, respectively. On December 30, 1997, the Company entered into an agreement and plan of merger (the "Merger Agreement") with Red Lion Inns Limited Partnership ("Red Lion"), under which the Company agreed to acquire the portfolio of 10 DoubleTree-licensed hotels owned by Red Lion (the "DoubleTree Hotels"). The DoubleTree Hotels contain 3,062 guest rooms and are located in California, Oregon, Washington, Colorado, Idaho and Nebraska. If the proposed merger is consummated, the DoubleTree Hotels will continue to be managed by DoubleTree Hotels Corporation and will be leased to Westboy LLC, a wholly-owned subsidiary of BMC. Under the Merger Agreement, the Company will issue 3,110,048 common shares and pay approximately $35.3 million in cash to the Red Lion limited partners and general partner. The Partnership will become responsible for Red Lion's liabilities, which the Company estimates will be approximately $156 million. At the time of the announcement of the Merger Agreement, the consideration value was expected to total approximately $271 million. The Company expects to complete the proposed merger in May 1998. Consummation of the proposed merger is subject to various conditions, including approval by the Red Lion limited partners and approval by the Company's shareholders of the issuance of the common shares. There is no assurance that the proposed merger will be completed. The Company's principal source of revenue is lease payments from its lessees' pursuant to the Percentage Leases. Percentage Lease revenue is based upon the room, food and beverage and other revenues of the Company's hotels. The lessees' ability to make payments to the Company pursuant to the Percentage Leases is dependent -16- 17 primarily upon the operations of the Hotels. Because of the foregoing and the significance of BMC to the Company, management believes that a discussion of the operations of BMC is important to an understanding of the business of the Company. FIRST QUARTER HIGHLIGHTS In February 1998, the Company completed a follow-on equity offering (the "Offering") of 4,500,000 common shares, pursuant to the Company's $300 million shelf registration statement, which provides for the issuance of up to $300 million in securities over the next two years . The Offering price of the shares was $25 per share, resulting in gross proceeds of approximately $112.5 million and net proceeds (less the underwriters' discount and offering expenses) of approximately $106.3 million. The Company contributed all of the net proceeds to the Partnership which were used by the Partnership to pay existing indebtedness under the Company's $150 million credit facility, purchase limited partnership units from two unaffiliated limited partners, fund the acquisitions of two Hotels purchased in March 1998 and for general corporate purposes. As a result of the Offering and the purchase of the limited partnership units, the Company increased its ownership percentage in the Partnership to 90.3%. During the quarter ended March 31, 1998, the Company acquired, in a single transaction, two hotel properties for an aggregate consideration of $37 million which was funded with cash proceeds from the Offering and borrowings under the Company's credit facility. The hotel properties acquired were the 317-room Knoxville Hilton in Knoxville, Tennessee and the 251-room High Point Radisson in High Point, North Carolina. These properties are leased to and managed by BMC under long-term Percentage Leases. In January 1998, the Company reopened the Daytona Beach Radisson Resort following a complete $7 million renovation of the hotel. During the first quarter of 1998, the Company also continued its $3.6 million renovation of the Crabtree Holiday Inn in Raleigh, North Carolina and began significant renovations at the Berkeley Marina Radisson and the Cleveland Airport Marriott (estimated at $6 million each). The Company expects to complete these renovations in the second and third quarters of 1998 and the Company expects that these properties will be adversely impacted during the renovation periods. Once complete, however, the Company expects these hotels to contribute significantly to earnings going forward. The Company also began a $1.5 million renovation at the Holiday Inn Minneapolis West and $2 million of general upgrades at the French Lick Springs Resort. Management expects the capital expenditures of these properties to improve their operating results and should not be adversely impacted of the magnitude of the Crabtree, Berkeley and Cleveland Airport hotels. RESULTS OF OPERATIONS The following discusses (i) the Company's results of operations for the quarter ended March 31, 1998 compared to the same period in 1997, and (ii) BMC's results of operations for the quarter ended March 31, 1998 compared to the same period in 1997. THE COMPANY For the three months ended March 31, 1998 Percentage Lease revenue increased to $10.9 million, or 50.7%, from $7.2 million for the same period in 1997. The increase was primarily because of an increase in the number of Hotels owned by the Company from 12 to 19 at March 31, 1997 and 1998, respectively. Percentage Lease revenue payable by BMC represented $8.6 million, or 79.6%, of total Percentage Lease revenue, compared to 100% in 1997. Income before minority interests increased to $4.1 million in 1998 compared to $3.8 million in 1997. As a percent of total revenue, income before minority interest decreased to 37.3% in 1998 from 51.4% in 1997, primarily resulting from (i) an increase in interest expense to $1.2 million in 1998, or 10.7%, of total revenues in 1998, compared to $52, or .1%, in 1997, (ii) an increase in real estate related depreciation and amortization, as a percent of total revenue, from 26.1% in 1997 to 29.5% in 1998, and (iii) a slight increase in real estate and personal property taxes, insurance, ground rent to 14.0% of total revenues in 1998, compared to 13.7% in 1997, and (iv) an increase in general and administrative expenses, as a percent of total revenues, from 6.6% in 1997 to 7.3% in 1998. Interest -17- 18 expense in 1997 was unusually low due to minimal borrowings under the Company's credit facility as the remaining funds from the Company's Initial Offering were used to fund first quarter 1997 acquisitions. The Company's net income increased 7.9% to $3.6 million for the three months ended March 31, 1998, compared to $3.4 million in 1997. Minority interest applicable to the operating partnership decreased to $380 in 1998, or 3.5%, of total revenues, compared to $446, or 6.0%, in 1997. The common shares issued as part of the February 1998 Offering had the effect of diluting the limited partners ownership interests in the Partnership. The White Paper on Funds From Operations ("FFO") approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in March 1995 defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and sales of properties, plus real estate related depreciation and amortization and after comparable adjustments for the Company's portion of these items related to unconsolidated entities and joint ventures. The Company believes that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of the ability of the Company to incur and service debt, to make capital expenditures and to fund other cash needs. The Company computes FFO in accordance with standards established by NAREIT which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than the Company. FFO does not represent cash generated from operating activities determined by GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. FFO may include funds that may not be available for management's discretionary use due to functional requirements to conserve funds for capital expenditures and property acquisitions, and other commitments and uncertainties. The following is a reconciliation between net income and FFO for the three months ended March 31, 1998 and 1997, respectively, (in thousands):
1998 1997 ---- ---- Net income $ 3,649 $ 3,381 Real estate related depreciation and amortization 3,220 1,941 Minority interest 424 446 FFO applicable to joint venture minority interest (71) - --------- --------- Funds from operations $ 7,222 $ 5,768 ======== =========
BMC For the quarter ended March 31, 1998 BMC's hotel revenues increased 123.8%, to $51.4 million, compared to $23.0 million for the same period in 1997. The increase was attributable to an increase in the number of hotels leased by BMC from 12 to 25 at March 31, 1997 and 1998, respectively, primarily because of the January 1, 1998 commencement of the Percentage Lease related to the 10 DoubleTree Hotels leased by Westboy LLC. The DoubleTree Hotels contributed $25.0 million of revenues to BMC during the quarter ended March 31, 1998. The remaining increase in hotel revenues resulted from an additional three hotels leased from the Partnership. BMC recorded a net loss of $1.1 million for the quarter ended March 31, 1998 compared to $538 of net income in 1997. The loss in 1998 was primarily due to the seasonality of the majority of new hotels leased which experience their lowest occupancy in the first quarter compared to the other three quarters of the year. These hotels were expected to -18- 19 experience a loss in the first quarter resulting from their requirement to pay minimum rent under the respective Percentage Leases. The Percentage Lease expense for the quarter ended March 31, 1998 increased 104.4%, to $14.7 million, compared to $7.2 million for the same period in 1997. Percentage Lease expense in 1998 of $6.1 million related to the DoubleTree Hotels was the primary reason for the increase. The remaining increase in Percentage Lease expense resulted from the increased number of hotels leased from the Partnership. Departmental and other hotel operating expenses, consisting primarily of rooms expenses, food and beverage costs, franchise fees, utilities, repairs and maintenance, management fees, and other general and administrative expenses of the hotels were $38.3 million in the quarter ended March 31, 1998 compared to $15.8 million for the same period in 1997. As a percent of hotel revenues, the departmental and other hotel operating expenses increased to 74.5% in 1998 from 68.9% in 1997 primarily because of $1.8 million of management fee expense to DoubleTree, the manager of the DoubleTree Hotels, pursuant to a management agreement between Westboy LLC and DoubleTree. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash to meet its cash requirements, including distributions to shareholders, is its share of the Partnership's cash flow from the Percentage Leases. The lessees' obligations under the Percentage Leases are unsecured and the lessees' ability to make rent payments to the Partnership under the Percentage Leases, and the Company's liquidity, including its ability to make distributions to shareholders, are dependent on the lessees' ability to generate sufficient cash flow from the operation of the Hotels. On March 31, 1998, the Company had $2.8 million of cash and cash equivalents and had outstanding borrowings totaling $31.2 million against its credit facility. On May 1, 1998, the Company acquired the 208-room Pink Shell Resort in Fort Myers Beach, Florida for net cash consideration of $19.3 million, after $2 million of purchase price funded by South Seas Resorts ("South Seas"), the lessee of the hotel. The acquisition was funded through borrowings under the Company's credit facility. The borrowings under the Company's credit facility increased to $57.2 million on May 1, 1998 to fund the acquisition of the Pink Shell Resort and to fund capital expenditures, primarily for renovations. For information relating to the terms of the Company's current $150 million credit facility, reference is made to Note 7 of the Notes to Consolidated Financial Statements of Boykin Lodging Company discussed within this Form 10-Q. The Company obtained its credit facility to assist in funding its acquisitions and development of additional hotels and for certain other purposes, including capital expenditures and working capital, as necessary. The Company has obtained a commitment for a new unsecured credit facility of up to $250 million, to be available on completion of the Proposed Merger. The Company also obtained a commitment for a $130 million 10-year term loan (the "Fixed Rate Loan") secured by the Doubletree Hotels, with a rate of interest at a spread over the 10-year United States Treasury Bond upon closing of the loan. Interest only will be paid for the first two years, with principal repayments commencing in the third loan year based on a 25-year amortization schedule. The Company anticipates that the Fixed Rate Loan and new credit facility will enable the Company to finance the Proposed Merger and to meet its anticipated cash needs for the next year. The Company may seek to negotiate additional credit facilities, or issue debt instruments. Any debt incurred or issued by the Company may be secured or unsecured, long-term, medium-term or short-term, bear interest at a fixed or variable rate, and be subject to such other terms as the Board of Directors considers prudent. The Company estimates that on a pro forma basis, giving effect to the purchase of the Pink Shell Resort in May 1998, the closing of the Proposed Merger, and the borrowings under the Fixed Rate Loan and the new credit facility, the Company would have approximately $254 million in outstanding indebtedness and available borrowing capacity under the new credit facility of $126 million. The Company will acquire or develop additional hotel properties only as suitable opportunities arise, and the Company will not undertake acquisition or development of properties unless adequate sources of financing are available. Funds for future acquisitions or development of hotels are expected to be derived, in whole or in part, -19- 20 from borrowings under the Fixed Rate Loan, credit facility or other borrowings or from the proceeds of additional issuances of Common Shares or other securities. In November 1997, the Company filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to $300 million in securities over the next two years. Securities issued under this registration statement may be preferred shares, depository shares, common shares or any combination thereof and may be issued at different times, depending on market conditions. Warrants to purchase these securities may also be issued. The terms of issuance of any securities covered by this registration statement would be determined at the time of their offering. The $112.5 million of common shares sold in the Offering were sold under this registration statement. The Percentage Leases require the Company to establish aggregate minimum reserves for capital expenditures equal to specified percentages of total revenues of the Hotels. In addition, the Company intends to make funds available from the Credit Facility, as needed. The Company intends to use the reserve for capital improvements to the Hotels and refurbishment and replacement of FF&E, but may make other uses of amounts reserved that it considers appropriate from time to time. The Company anticipates making similar arrangements with respect to future hotels that it may acquire or develop. During the quarter ended March 31, 1998, the Company made $7.4 million of capital expenditures. The Company considers the majority of these improvements to be revenue-producing and therefore these amounts have been capitalized and are being depreciated over their estimated useful lives. INFLATION The Company's revenues are based on the Percentage Leases, which result in changes in the Company's revenues based on changes in the revenues of the Hotels. Therefore, the Company relies entirely on the performance of the Hotels and the lessees' ability to increase revenues to keep pace with inflation. Operators of hotels in general, and the Company's lessees, can change room rates quickly, but competitive pressures may limit the lessees' ability to raise rates faster than inflation. The Company's general and administrative costs, as well as real estate and personal property taxes, property and casualty insurance and ground rent, are subject to inflation. SEASONALITY The Hotels' operations historically have been seasonal. Fifteen of the Hotels maintain higher occupancy rates during the second and third quarters. The four Hotels located in Florida, and the Pink Shell Resort, also located in Florida, experience their highest occupancy rates in the first quarter. The seasonality pattern can be expected to cause fluctuations in the Company's quarterly lease revenue under the Percentage Leases. The Company anticipates that its cash flow from the Percentage Leases will be sufficient to enable the Company to make quarterly distributions at the current rate for the next twelve months. To the extent that cash flow from operations is insufficient during any quarter because of temporary or seasonal fluctuations in Percentage Lease revenue, the Company expects to utilize cash on hand or borrowings to make those distributions. No assurance can be given that the Company will make distributions in the future at the current rate, or at all. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. -20- 21 PART II ITEM 1. LEGAL PROCEEDINGS The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect the financial statements of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS In February 1998, the Company completed the Offering of 4,500,000 common shares, pursuant to the Company's $300 million shelf registration statement, which provides for the issuance of up to $300 million in securities over the next two years . The Offering price of the shares was $25 per share, resulting in gross proceeds of approximately $112.5 million and net proceeds (less the underwriters' discount and offering expenses) of approximately $106.3 million. The Company contributed all of the net proceeds to the Partnership which were used by the Partnership to pay existing indebtedness under the Company's $150 million credit facility, purchase limited partnership units from two unaffiliated limited partners, fund the acquisitions of two Hotels purchased in March 1998 and for general corporate purposes. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -------- 2.1*** Agreement and Plan of Merger dated as of December 30, 1997 by and among Red Lion Inns Limited Partnership, Red Lion Properties, Inc., Red Lion Inns Operating L.P., Boykin Hotel Properties, L.P., Boykin Lodging Company, Boykin Acquisition Corporation I, Inc., Boykin Acquisition Corporation II, Inc., and Boykin Acquisition Partnership, L.P. 3.1* Amended and Restated Articles of Incorporation 3.2* Code of Regulations 4.1* Specimen Share Certificate 10.1* Limited Partnership Agreement of Boykin Hotel Properties, L.P. 10.2* Form of Registration Rights Agreement 10.3* Long-Term Incentive Plan 10.4* Directors' Deferred Compensation Plan 10.5* Employment Agreement between the Company and Robert W. Boykin 10.6* Employment Agreement between the Company and Raymond P. Heitland 10.7* Employment Agreement between the Company and Mark L. Bishop 10.8* Form of Percentage Lease 10.9* Intercompany Convertible Note 10.10* Agreements with General Partners of the Contributed Partnerships 10.11* Form of Noncompetition Agreement 10.12* Alignment of Interests Agreement 10.13** Description of Employment Arrangement between the Company and Paul A. O'Neil 27 Financial Data Schedule -21- 22 99.1*** Partnership Interest Assignment Agreement dated as of December 30, 1997 by and among Red Lion Properties, Inc., Boykin Hotel Properties, L.P., Boykin Lodging Company and West Doughboy LLC. 99.2*** Percentage Lease Agreement dated as of December 30, 1997 by and between Red Lion Inns Operating L.P. and Westboy LLC 99.3*** Termination of Management Agreement dated as of December 30, 1997 by and between Red Lion Inns Operating L.P. and Red Lion Hotels, Inc. 99.4*** Management Agreement dated as of December 30, 1997 by and between Red Lion Hotels, Inc. and Westboy LLC. 99.5*** Owner Agreement dated as of December 30, 1997 by and among Red Lion Inns Operating L.P., Westboy LLC and Red Lion Hotels, Inc. 99.6*** Joint Press Release of Red Lion Inns Limited Partnership and Boykin Lodging Company dated as of December 30, 1997. * Incorporated by reference from Amendment No. 3 to the Company's Registration Statement on Form S-11 (Registration No. 333-6341) (the "Form S-11") filed on October 24, 1996. Each of the above exhibits has the same exhibit number in the Form S-11. ** Incorporated by reference from the Company's Form 10-Q for the quarter ended June 30, 1997. *** Incorporated by reference from the Company's Form 8-K filing on January 8, 1998 related to the Proposed Merger. (b) Reports on Form 8-K -------------------
Date Filed Items Reported Summary ---------- -------------- ------- 1) January 8, 1998 (date of report - December 30, 1997) Item 5 (other events) The Company announced the Proposed Merger agreement with Red Lion Inns Limited Partnership, Red Lion Properties, Inc. and Red Lion Inns Operating L.P. 2) January 28, 1998 (date of report - January 28, 1998) Item 7 (financial statements, Financial statements related to pro forma financial information Proposed Merger for Red Lions and exhibits) Inns Limited Partnership. Item 7 (financial statements, Financial statements related to pro forma financial information the Company's acquisitions of and exhibits) Marriott's Hunt Valley Inn and the Holiday Inn Minneapolis West. 3) February 5, 1998 (date of Amended Form 8-K/A for January report - January 28, 1998) 28, 1998 Form 8-K filing.
-22- 23 4) February 18, 1998 (date of Item 7 (financial statements, The Company completed a follow- report - February 18, 1998) pro forma financial information on equity offering of 4,500,000 and exhibits) common shares. 5) March 27, 1998 (date of report - March 12, 1998) Item 5 (other events) The Company acquired the High Point Radisson in High Point, North Carolina and the Knoxville Hilton in Knoxville, Tennessee.
FORWARD-LOOKING STATEMENTS -------------------------- This Form 10-Q contains statements that constitute forward-looking statements. Those statements appear in a number of places in this Form 10-Q and the documents incorporated by reference herein and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to (i) the leasing, management or performance of the Hotels, the DoubleTree Hotels and other hotels to be acquired; (ii) the adequacy of reserves for renovation and refurbishment; (iii) potential acquisitions by the Company, including the Proposed Merger; (iv) the Company's financing plans; and (v) trends affecting the Company's or any hotel's financial condition or results of operations. Prospective investors are cautioned that any such forward-looking statement is not a guarantee of future performance and involves risks and uncertainties, and that actual results may differ materially from those in the forward-looking statement as a result of various factors. The information contained in this Form 10-Q and in the documents incorporated by reference herein identifies important factors that could cause such differences. With respect to any such forward-looking statement that includes a statement of its underlying assumptions or bases, the Company cautions that, while it believes such assumptions or bases to be reasonable and has formed them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material depending on the circumstances. When, in any forward-looking statement, the Company or its management expresses an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the stated expectation or belief will result or be achieved or accomplished. SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. BOYKIN LODGING COMPANY /s/ Robert W. Boykin ------------------------------------- May 15, 1998 Robert W. Boykin Director, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) /s/ Raymond P. Heitland ------------------------------------- May 15, 1998 Raymond P. Heitland Director, Chief Financial Officer (Principal Accounting Officer) -23- 24 EXHIBIT INDEX Exhibits -------- 2.1*** Agreement and Plan of Merger dated as of December 30, 1997 by and among Red Lion Inns Limited Partnership, Red Lion Properties, Inc., Red Lion Inns Operating L.P., Boykin Hotel Properties, L.P., Boykin Lodging Company, Boykin Acquisition Corporation I, Inc., Boykin Acquisition Corporation II, Inc., and Boykin Acquisition Partnership, L.P. 3.1* Amended and Restated Articles of Incorporation 3.2* Code of Regulations 4.1* Specimen Share Certificate 10.1* Limited Partnership Agreement of Boykin Hotel Properties, L.P. 10.2* Form of Registration Rights Agreement 10.3* Long-Term Incentive Plan 10.4* Directors' Deferred Compensation Plan 10.5* Employment Agreement between the Company and Robert W. Boykin 10.6* Employment Agreement between the Company and Raymond P. Heitland 10.7* Employment Agreement between the Company and Mark L. Bishop 10.8* Form of Percentage Lease 10.9* Intercompany Convertible Note 10.10* Agreements with General Partners of the Contributed Partnerships 10.11* Form of Noncompetition Agreement 10.12* Alignment of Interests Agreement 10.13** Description of Employment Arrangement between the Company and Paul A. O'Neil 27 Financial Data Schedule 99.1*** Partnership Interest Assignment Agreement dated as of December 30, 1997 by and among Red Lion Properties, Inc., Boykin Hotel Properties, L.P., Boykin Lodging Company and West Doughboy LLC. 99.2*** Percentage Lease Agreement dated as of December 30, 1997 by and between Red Lion Inns Operating L.P. and Westboy LLC 99.3*** Termination of Management Agreement dated as of December 30, 1997 by and between Red Lion Inns Operating L.P. and Red Lion Hotels, Inc. 99.4*** Management Agreement dated as of December 30, 1997 by and between Red Lion Hotels, Inc. and Westboy LLC. 99.5*** Owner Agreement dated as of December 30, 1997 by and among Red Lion Inns Operating L.P., Westboy LLC and Red Lion Hotels, Inc. 99.6*** Joint Press Release of Red Lion Inns Limited Partnership and Boykin Lodging Company dated as of December 30, 1997. * Incorporated by reference from Amendment No. 3 to the Company's Registration Statement on Form S-11 (Registration No. 333-6341) (the "Form S-11") filed on October 24, 1996. Each of the above exhibits has the same exhibit number in the Form S-11. ** Incorporated by reference from the Company's Form 10-Q for the quarter ended June 30, 1997. *** Incorporated by reference from the Company's Form 8-K filing on January 8, 1998 related to the Proposed Merger. -24- EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF BOYKIN LODGING COMPANY AS OF MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 2,828 0 1,926 0 0 0 273,505 0 282,710 0 31,200 0 0 0 216,998 282,710 0 10,914 0 5,543 424 0 1,298 3,649 0 3,649 0 0 0 3,649 .32 .32 Registrant Utilizes an Unclassified Balance Sheet therefore Total Current Assets and Total Current Liabilities are not applicable.
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