-----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, EQBwhF/ePQ1SHky4gTRz5moWWCI2E83E/Q5NVMM+01PGCr3/JbGf7c08Rxd2NLrC hbvqp55IXI+Gieo7OPHSag== 0000950152-97-008011.txt : 19971117 0000950152-97-008011.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950152-97-008011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: 97718394 BUSINESS ADDRESS: STREET 1: 1500 TERMINAL TOWER STREET 2: 50 PUBLIC SQUARE CITY: CLEVELAND STATE: OH ZIP: 44113 BUSINESS PHONE: 2162416375 MAIL ADDRESS: STREET 1: 1500 TERMINAL TOWER STREET 2: 50 PUBLIC SQUARE CITY: CLEVELAND STATE: OH ZIP: 44113 FORMER COMPANY: FORMER CONFORMED NAME: BOYKIN LODGING TRUST INC DATE OF NAME CHANGE: 19960604 10-Q 1 BOYKIN LODGING 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 September 30, 1997 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.) Terminal Tower, Suite 1500, 50 Public Square 44113 -------------------------------------------- ---------- (Address of Principal Executive Office) (Zip Code) (216) 241-6375 - ---------------------------------------------------- (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 November 14, 1997: 9,536,251 2 PART I ITEM 1. FINANCIAL STATEMENTS See Index to Financial Statements on page F-1 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BACKGROUND On November 4, 1996, the Company completed an initial public offering (the "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 $173,898,000. 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 $40,000,000 intercompany convertible note (the "Note"). The Note matures on the fifth anniversary of the Offering. If the Note is converted, the Company will receive an additional general partnership interest in the Partnership of 2.8%. 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 hotels (the "Initial Hotels"). Through September 30, 1997, the Company had acquired interests in five additional hotels (these five hotels, along with the Initial Hotels, are collectively referred to as the "Hotels") and the real and personal property of a sixth facility. The Partnership and its subsidiaries lease twelve of the Hotels to Boykin Management Company Limited Liability Company, an Ohio limited liability company (the "Initial Lessee"), and one hotel each to Capstar Hotel Company ("Capstar") and Davidson Hotel Company ("Davidson"), pursuant to leases (the "Percentage Leases"). The Initial Lessee, Capstar and Davidson are referred to as the "Lessees." The Company's principal source of revenue is lease payments from the Lessees pursuant to the Percentage Leases. Percentage Lease revenue is based upon the room, food and beverage and other revenues of the Hotels. The Lessees' ability to make payments to the Company pursuant to the Percentage Leases is dependent primarily upon the operations of the Hotels. Because of the foregoing and the significance of the Initial Lessee to the Company, management believes that a discussion of the historical and pro forma operations of the Initial Lessee and the historical operations of the Initial Hotels is important to an understanding of the business of the Company. During the quarter ended March 31, 1997, the Company acquired two hotel properties for an aggregate consideration of $16.8 million, which was funded with cash proceeds from the Offering. The hotel properties acquired were the 118-room Hilton Melbourne Beach in Melbourne, Florida and the 176-room Holiday Inn Crabtree in Raleigh, North Carolina. The Company plans to invest approximately $3 million in capital improvements in the Holiday Inn Crabtree over the next twelve months. The funds for these improvements will come from borrowings under the Company's $150 million credit facility (the "Credit Facility"). These properties were leased to the Initial Lessee, which operates the properties under long-term Percentage Leases. Also, in March 1997 the Company purchased the real and personal property of the Whitehall Inn located in Daytona Beach, Florida. The Company's total investment was $4.2 million, which was funded with cash proceeds from the Offering. In May 1997 the Company wound-up operations there and began a complete renovation of the property. The renovation, which is expected to cost approximately $6 million, is being funded from borrowings under the Credit Facility. The Company expects to begin operating the property as a resort with a Radisson franchise affiliation in January 1998. The property will be leased to the Initial Lessee, which will operate the resort under a long-term Percentage Lease. 3 During the quarter ended June 30, 1997, the Company acquired the 485- room French Lick Springs Resort in French Lick, Indiana. The acquisition price was $20 million and was funded with borrowings under the Company's Credit Facility. The Company has leased the resort to the Initial Lessee. In the third quarter of 1997, the Company formed a joint venture with Capstar, a publicly traded hotel investment and management company. The joint venture, Boystar Ventures, L.P. ("Boystar"), is 91% owned by the Company, which serves as its sole general partner. Boystar acquired the 196-room Holiday Inn Minneapolis West in Saint Louis Park, Minnesota from an unrelated third-party. The acquisition price was $12.3 million. Boystar intends to commence a $1.5 million upgrade and renovation of the hotel. The Company's 91% share of the acquisition price was funded with borrowings under the Company's Credit Facility. Boystar has leased the hotel to Capstar, which operates the business of the hotel. In the third quarter of 1997, the Company also acquired a 91% interest in Shawan Road Hotel Limited Partnership (the "Davidson Venture," and together with Boystar, the "Joint Ventures") from affiliates of Davidson, a privately held national hotel management company. A Davidson affiliate continues to own the remaining 9% interest in the Davidson Venture. The Davidson Venture retired all of its indebtedness in connection with the transaction. The Davidson Venture owns Marriott's Hunt Valley Inn, a 392-room full service hotel located in the Baltimore, Maryland suburb of Hunt Valley. The Company serves as the Davidson Venture's sole general partner. The acquisition price for the 91% interest acquired by the Company was $27.3 million. The Company's investment was funded with borrowings under the Company's Credit Facility. The Davidson Venture has leased the hotel to Davidson, which continues the business of operating the hotel. The following discusses (i) the Company's actual results of operations for the quarter and nine months ended September 30, 1997 and pro forma results of operations for the quarters and nine months ended September 30, 1997 and 1996, (ii) the Initial Lessee's actual results of operations for the quarter and nine months ended September 30, 1997 and pro forma results of operations for the quarter and nine months ended September 30, 1997 and 1996, and (iii) the historical results of operations for the Initial Hotels for the quarter and nine months ended September 30, 1996. The pro forma results of operations assume that (i) the Offering and related transactions, and (ii) the acquisitions of the Melbourne Beach Hilton, Holiday Inn Crabtree, French Lick Springs Resort, Holiday Inn Minneapolis West, and Marriott's Hunt Valley Inn, all occurred on January 1, 1996. RESULTS OF OPERATIONS THE COMPANY Actual Results of Operations - Quarter ended September 30, 1997 For the quarter ended September 30, 1997, the Company earned $11,959,000 of Percentage Lease revenue. Interest income earned on available funds was $77,000. Real estate related depreciation and amortization was $2,584,000. Real estate and personal property taxes, insurance and ground rent were $1,489,000 in the aggregate. General and administrative expenses were $669,000. Interest expense and amortization of financing costs related to the Credit Facility were $1,075,000. The minority interest in the income of the Partnership and the Joint Ventures described above was $846,000. The Company's net income before extraordinary item was $5,373,000. An extraordinary item of $141,000 resulted from the early extinguishment of debt assumed in the acquisition of Marriott's Hunt Valley Inn. Net income was $5,232,000. Funds From Operations ("FFO") was $8,688,000. FFO consists of income (loss) before minority interest (computed in accordance with generally accepted accounting principles) excluding gains (losses) from debt restructuring and sales of property (including furniture and equipment) plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures. Industry analysts consider FFO to be an appropriate measure of the performance of an equity REIT. FFO should not be considered as a basis for computing distributions or as an 2 4 alternative (i) to net income or other measurements under generally accepted accounting principles, as an indicator of operating performance, or (ii) to cash flows from operating, investing, or financing activities, as a measure of liquidity. FFO would not reflect cash expenditures for capital improvements or principal amortization of indebtedness with respect to the Hotels. Actual Results of Operations - Nine months ended September 30, 1997 For the nine months ended September 30, 1997, the Company earned $28,866,000 of Percentage Lease revenue. Interest income earned on available funds was $337,000. Real estate related depreciation and amortization was $6,931,000. Real estate and personal property taxes, insurance and ground rent were $3,834,000 in the aggregate. General and administrative expenses were $1,708,000. Interest expense and amortization of financing costs related to the Credit Facility were $1,686,000. The minority interest in the income of the Partnership and the Joint Ventures was $1,917,000. The Company's net income was $12,986,000. FFO was $21,883,000. Pro Forma Results of Operations - Quarters ended September 30, 1996 and 1997 For the quarter ended September 30, 1997, the Company's pro forma revenue from Percentage Leases was $11,557,000, representing a $986,000, or 9.3%, increase over pro forma Percentage Lease revenue for the quarter ended September 30, 1996. Pro forma Percentage Lease revenue for the third quarter 1997 increased over that of 1996 primarily as a result of increases in the average daily rates and occupancy at the Hotels. See "Results of Operations -- The Initial Lessee -- Pro Forma Results of Operations." Property taxes, insurance and ground rent for the quarter increased $190,000, or 13.9%, reflecting increased real estate taxes and additional ground rent based upon percentages of increased sales. General and administrative expenses increased $306,000, or 84.3%, as a result of increased staff levels and incentive compensation plans introduced in 1997. Net income before extraordinary item increased $488,000, or 10.6%, primarily through increased revenues. FFO for the quarter ended September 30, 1997 and pro forma FFO for the quarter ended June 30, 1996 was $8,054,000 and $7,582,000, respectively. The increase in FFO in 1997 is attributable to the increase in Percentage Lease revenues. Pro Forma Results of Operations - Nine months ended September 30, 1996 and 1997 For the nine months ended September 30, 1997, the Company's pro forma revenue from Percentage Leases was $32,560,000, representing a $2,534,000, or 8.4%, increase over pro forma Percentage Lease revenue for the nine months ended September 30, 1996. Pro forma Percentage Lease revenue for the first three quarters of 1997 increased over that of 1996 primarily as a result of (i) increases in the occupancies and average daily rates at the Hotels, and (ii) $250,000 of revenues from the Daytona property prior to its closure. See "Results of Operations -- The Initial Lessee -- Pro Forma Results of Operations." Property taxes, insurance and ground rent for the period increased $389,000, or 9.6%, reflecting increased real estate taxes and additional ground rent based upon percentages of increased sales. General and administrative expenses increased $620,000, or 57.0%, as a result of increased staff levels and incentive compensation plans introduced in 1997. Net income before extraordinary item increased $1,415,000, or 11.9%, primarily through increased revenues. Pro forma FFO for the nine months ended September 30, 1997 and 1996 was $22,589,000 and $21,087,000, respectively. The increase in FFO in 1997 is attributable to the increase in Percentage Lease revenues. 3 5 THE INITIAL LESSEE Actual Results of Operations - Quarter ended September 30, 1997 For the quarter ended September 30, 1997, the Initial Lessee had revenues of $31,566,000. The Percentage Lease expense during the period was $10,556,000 while departmental expenses of the Hotels and other expenses of the Initial Lessee were $20,600,000 in the aggregate. Net income for the period was $410,000. Actual Results of Operations - Nine months ended September 30, 1997 For the nine months ended September 30, 1997, the Initial Lessee had revenues of $86,192,000. The Percentage Lease expense during the period was $27,463,000 while departmental expenses of the Hotels and other expenses of the Initial Lessee were $56,851,000 in the aggregate. Net income for the period was $1,878,000. Pro Forma Results of Operations - Quarter ended September 30, 1996 and 1997 Room revenue increased by $1,810,000, or 9.6% in 1997 over 1996, as a result of an increase in ADR from $87.48 in 1996 to $93.59 in 1997 and an increase in occupancy rates from 74.8% in 1996 to 75.9% in 1997. Food, beverage, and other hotel revenues increased $323,000, or 3.2%, reflecting slightly increased occupancy levels and price increases. Non-hotel revenues increased $234,000 as a result of increased third party service fees. Departmental expenses increased $880,000, or 8.2%, because of increased revenue levels and general inflationary pressures, but stayed relatively stable as a percentage of hotel revenues, increasing from 37.1% in 1996 to 37.4% in 1997. Cost of goods sold for non-hotel operations decreased significantly because of a shift away from furniture and equipment sales towards fee based purchasing services at the interior design subsidiary. General and administrative expenses increased $839,000, or 33.1%, as a result of increased sales levels, staffing changes, and management incentive compensation plans implemented in 1997. Sales and marketing expenses increased $278,000, or 26.6%, in line with increased revenues and additional promotional efforts at the hotels. Pro forma Percentage Lease expense increased 10.0%, or $921,000, due to revenue increases at the Hotels and the application of the Percentage Lease formulas. Pro forma net income decreased $204,000, reflecting the variations in operating expenses discussed above. Pro Forma Results of Operations - Nine months ended September 30, 1996 and 1997 Room revenue increased by $4,625,000, or 8.7%, in 1997 over 1996, as a result of an increase in ADR from $86.69 in 1996 to $91.99 in 1997, and an increase in occupancy from 71.3% in 1996 to 72.4% in 1997. Also, $442,000 of the increase in room revenues relates to room revenues from the Daytona property prior to its closure. Food, beverage, and other hotel revenues increased $1,048,000, or 3.7%, reflecting increased occupancy levels and price increases. Non-hotel revenues increased from $1,663,000 to $2,050,000, largely from fees from third-party management contracts which commenced at the end of the first quarter of 1996. Departmental expenses increased $1,650,000, or 5.3%, because of increased revenue and occupancy levels and general inflationary pressures, but decreased as a percentage of hotel revenues from 38.2% in 1996 to 37.6% in 1997 generally due to increased ADR. Cost of goods sold for non-hotel operations decreased significantly because of a shift away from furniture and equipment sales towards fee based purchasing services at the interior design subsidiary. General and administrative expenses increased $1,902,000, or 23.1%, as a result of increased sales levels, 4 6 staffing changes, and management incentive compensation plans implemented in 1997. Sales and marketing expenses increased $512,000, or 15.9%, because of increased revenues and additional promotional efforts at the hotels. Pro forma Percentage Lease expense increased 9.3%, or $2,410,000, because of revenue increases at the Hotels and the application of the Percentage Lease formulas. Approximately $250,000 of the increase in percentage lease expense related to lease payments for the Daytona property prior to its closure. Pro forma net income increased $133,000, reflecting relatively stable profitability at the leased Hotels and increases in non-hotel revenues. THE INITIAL HOTELS - ACTUAL RESULTS OF OPERATIONS Actual Results of Operations - Quarter ended September 30, 1996 For the quarter ended September 30, 1996, revenues at the Initial Hotels were $22,826,000. Departmental expenses were $8,196,000, or 35.9% of revenues. Hotel operating expenses exclusive of interest, depreciation and amortization were $8,478,000 or 37.1% of revenues. The income before extraordinary item was $207,000. Actual Results of Operations - Nine months ended September 30, 1996 For the nine months ended September 30, 1996, revenues at the Initial Hotels were $66,723,000. Departmental expenses were $24,737,000, or 37.1% of revenues. Hotel operating expenses exclusive of interest, depreciation and amortization were $24,043,000 or 36.0% of revenues. The income before extraordinary item was $391,000. The extraordinary item reflected a loss of $1,315,000 on early extinguishment of debt from the refinancing of the mortgage notes payable with respect to two of the Initial Hotels in January 1996. 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. Except for the Joint Ventures, where the Lessee's partnership interests are pledged to the Company, 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 September 30, 1997, the Company had $1,467,000 of cash and cash equivalents and had $59,000,000 of borrowings against the Credit Facility. The Company intends to acquire and develop additional hotel properties and will incur indebtedness to fund such acquisitions and development. The Company may also incur indebtedness to meet distribution requirements imposed on a REIT under the Internal Revenue Code to the extent that working capital and cash flow from the Company's investments are insufficient to make the required distributions. The terms of the Company's $150 million Credit Facility permit borrowings for that purpose, but impose certain limitations on the Company's ability to engage in other borrowings. The original $75 million Credit Facility had a three-year term ending on November 3, 1999. Borrowings against the Credit Facility bore interest at a floating rate of prime plus .5%, or at the Company's election, 2.0% over various Eurodollar (LIBOR) rates. The Credit Facility was amended on October 15, 1997 to increase the maximum amount of borrowings to $150 million. The amendment also reduced the interest rate so that it fluctuates from 1.40% to 1.75% over LIBOR, depending upon the Company's debt levels, and extended the term of the Credit Facility by one year. The Company 5 7 is required to pay a .25% fee on the unused portion of the Credit Facility. The Credit Facility requires, among other things, the maintenance of a minium net worth, and specified coverage ratios of EBITDA to debt service and EBITDA to debt service and fixed charges. The Company obtained the Credit Facility to assist it in funding its acquisitions and development of additional hotels and for certain other purposes, including capital expenditures and working capital, as necessary. Borrowings under the Credit Facility are secured by first mortgages on thirteen of the Hotels including lease revenues generated from such properties. The Company may seek to increase the amount of the Credit Facility, 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 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, from borrowings under the Credit Facility or other borrowings or from the proceeds from additional issuances of common shares or other securities. The Percentage Leases require the Company to establish aggregate minimum reserves for capital expenditures of 4% 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 nine months ended September 30, 1997, the Company made $6,816,000 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 percentage leases, which results in changes in the Company's revenues based on changes in the revenues of the hotels operated by its Lessees. Therefore, the Company relies entirely on the performance of the hotels and its 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 largest expense item is the depreciation of its investments in hotel properties. The Company's other expenses (general and administrative costs, real estate and personal property taxes, property and casualty insurance, and ground rent) are subject to inflation and are expected to increase with the general rate of inflation. SEASONALITY The Hotels' operations historically have been seasonal. The Hotels located in Florida experience their highest occupancy in the first quarter. The balance of the Hotels maintain higher occupancy rates during the second and third quarters. The seasonality pattern can be expected to cause fluctuations in the Company's quarterly lease revenue under its hotel leases. The Company anticipates that its cash flow from its hotel leases will be sufficient to enable the Company to make quarterly distributions. To the extent that cash flow from operations is insufficient during any quarter because of temporary or seasonal fluctuations in hotel 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. 6 8 BOYKIN LODGING COMPANY INDEX TO FINANCIAL STATEMENTS BOYKIN LODGING COMPANY: Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 .............F-2 Consolidated Statements of Income for the three and nine-month periods ended September 30, 1997 ...........................................................F-4 Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 1997 .................................................................F-5 Consolidated Statement of Cash Flows for the nine months ended September 30, 1997 ......F-6 Notes to Consolidated Financial Statements .............................................F-7 BOYKIN MANAGEMENT COMPANY LIMITED LIABILITY COMPANY AND SUBSIDIARIES: Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 .............F-13 Consolidated Statements of Operations for the three and nine-month periods ended September 30, 1997 ...........................................................F-14 Consolidated Statement of Cash Flows for the nine months ended September 30, 1997 ......F-15 Notes to Consolidated Financial Statements .............................................F-16 INITIAL HOTELS: Combined Balance Sheet as of September 30, 1996 ........................................F-20 Combined Statement of Operations for the three and nine-month periods ended September 30, 1996 ...........................................................F-21 Combined Statement of Cash Flows for the nine months ended September 30, 1996 ..........F-22 Notes to Combined Financial Statements .................................................F-24 BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC. AND BOPA DESIGN COMPANY: Combined Statement of Net Assets as of September 30, 1996 ..............................F-28 Combined Statement of Revenues and Expenses for the three and nine-month periods ended September 30, 1996 ...................................................F-29 Notes to Combined Financial Statements .................................................F-30
F-1 9 BOYKIN LODGING COMPANY ---------------------- CONSOLIDATED BALANCE SHEETS --------------------------- AS OF SEPTEMBER 30, 1997 AND DECEMBER 31,1996 --------------------------------------------- (unaudited, dollar amounts in thousands) ----------------------------------------
September 30, December 31, 1997 1996 ------------- ------------ ASSETS ------ INVESTMENT IN HOTEL PROPERTIES, net $194,213 $113,322 CASH AND CASH EQUIVALENTS 1,467 21,362 RENT RECEIVABLE FROM LESSEE- Related party lessee 4,471 306 Third party lessee 659 - DEFERRED EXPENSES, net 1,483 1,509 OTHER ASSETS 952 772 -------- -------- Total assets $203,245 $137,271 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ BORROWINGS AGAINST CREDIT FACILITY $ 59,000 $ ACCOUNTS PAYABLE AND ACCRUED EXPENSES 4,137 2,433 DIVIDENDS/DISTRIBUTIONS PAYABLE 4,894 3,091 DUE TO RELATED PARTY LESSEE 2,496 681 MINORITY INTEREST IN JOINT VENTURES 1,433 - MINORITY INTEREST IN OPERATING PARTNERSHIP 13,657 14,045
F-2 10
September 30, December 31, 1997 1996 ------------ ------------ 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; 9,536,251 and 9,516,251 shares issued and outstanding at September 30, 1997 and December 31, 1996, respectively, stated at - - Additional paid-in capital 124,304 123,828 Retained deficit (6,676) (6,807) --------- --------- 117,628 117,021 --------- --------- Total shareholders' equity $ 203,245 $ 137,271 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-3 11 BOYKIN LODGING COMPANY ---------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 ------------------------------------------------------------- (unaudited, amounts in thousands except for per share data)
Three Months Nine Months Ended Ended September 30, September 30, 1997 1997 ------------- ------------- REVENUES: Lease revenue from related party $ 10,556 $ 27,463 Other lease revenue 1,403 1,403 Interest income 77 337 -------- -------- 12,036 29,203 -------- -------- EXPENSES: Real estate related depreciation and amortization 2,584 6,931 Real estate and personal property taxes, insurance and ground rent 1,489 3,834 General and administrative 669 1,708 Interest expense 966 1,359 Amortization of deferred financing costs 109 327 -------- -------- 5,817 14,159 -------- -------- INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM 6,219 15,044 MINORITY INTEREST IN JOINT VENTURES (92) (92) MINORITY INTEREST IN OPERATING PARTNERSHIP (754) (1,825) -------- -------- INCOME BEFORE EXTRAORDINARY ITEM 5,373 13,127 EXTRAORDINARY ITEM -- loss on early extinguishment of debt, net of minority interest of $14 (141) (141) -------- -------- NET INCOME APPLICABLE TO COMMON SHARES $ 5,232 $ 12,986 ======== ======== EARNINGS PER SHARE: Income before extraordinary item $ .56 $ 1.37 Extraordinary item (.01) (.01) -------- -------- Net income $ .55 $ 1.36 ======== ======== Weighted average number of shares 9,522 9,518 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-4 12 BOYKIN LODGING COMPANY ---------------------- CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY ---------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 -------------------------------------------- (unaudited, dollar amounts in thousands)
Common Paid-In Retained Shares Capital Deficit Total ----------- ------------ ------------ ------------ Balance, December 31, 1996 9,516,251 $123,828 $ (6,807) $117,021 Additional offering expenses - (14) - (14) Dividends declared - - (12,855) (12,855) Shares issued 20,000 490 - 490 Net income - - 12,986 12,986 ----------- ------------ ------------ ------------ Balance, September 30, 1997 9,536,251 $124,304 $ (6,676) $117,628 =========== ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. F-5 13 BOYKIN LODGING COMPANY ---------------------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 -------------------------------------------- (unaudited, amounts in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,986 Adjustments to reconcile net income to net cash provided by operating activities- Extraordinary item - loss on early extinguishment of debt, net of minority interest 141 Depreciation and amortization 7,017 Minority interest 1,917 Changes in assets and liabilities- Rent receivable (4,824) Other assets (207) Accounts payable and accrued expenses 1,313 Due to affiliate 1,815 -------- Net cash provided by operating activities 20,158 -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of hotel properties (68,734) Improvements and additions to hotel properties (6,816) -------- Net cash flow used for investing activities (75,550) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of dividends and distributions (12,886) Cash payments for redemption of certain limited partnership interests (827) Borrowings against credit facility 59,000 Proceeds from issuance of common shares 490 Retirement of mortgage debt assumed (10,266) Additional offering costs (14) -------- Net cash flow provided by financing activities 35,497 -------- NET CHANGE IN CASH AND CASH EQUIVALENTS (19,895) CASH AND CASH EQUIVALENTS, beginning of period 21,362 -------- CASH AND CASH EQUIVALENTS, end of period $ 1,467 ========
The accompanying notes to consolidated financial statements are an integral part of this statement. F-6 14 BOYKIN LODGING COMPANY ---------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SEPTEMBER 30, 1997 ------------------ (unaudited, dollar amounts in thousands except per share data) 1. ORGANIZATION AND INITIAL PUBLIC OFFERING: ----------------------------------------- Boykin Lodging Company (the Company) 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 shares of common stock. An additional 1,241,250 shares of common stock 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 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 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 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 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 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 (and assuming that the value of one Partnership unit equals the value of one common share). 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) from various entities, to finance certain capital improvements, and for general working capital purposes. The Partnership leases the Initial Hotels to Boykin Management Company Limited Liability Company (the Initial Lessee) pursuant to leases which contain provisions for rent based on the revenues of the hotels (the Percentage Leases). Each Percentage Lease obligates the Initial Lessee to pay rent equal to the greater of the minimum rent or a percentage rent based on the gross revenues of each hotel. The Initial Lessee holds the franchise agreement for each hotel. The Initial Lessee 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, F-7 15 -2- which otherwise would have the effect of diluting the ownership interests of the limited partners or the shareholders of the Company. 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- and nine-month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. 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, 1996. 2. NET INCOME PER SHARE AND PARTNERSHIP UNITS: ------------------------------------------- Net income per share is based on the weighted average number of common shares and common equivalent shares outstanding during the period. Outstanding options are included as common equivalent shares using the treasury stock method when the effect is dilutive. The weighted average number of shares used in determining net income per share was 9,521,903 and 9,518,156 for the three- and nine-month periods ended September 30, 1997, respectively. At September 30, 1997, a total of 1,340,718 limited partnership units were issued and outstanding. The weighted average number of common shares and limited partnership units outstanding for the three- and nine-month periods ended September 30, 1997 were 10,872,942 and 10,871,890, respectively. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," in March 1997, which will revise the calculation methods and disclosures regarding earnings per share. As required by the Statement, the Company will adopt SFAS No. 128 in the fourth quarter of 1997. The Company's pro forma earnings per share that would have been reported had the new standard been previously in effect are as follows:
Three Months Nine Months Ended September Ended September 30, 1997 30, 1997 ----------------- ----------------- Basic earnings per common share $.55 $1.36 Diluted earnings per common share .55 1.36
F-8 16 -3- 3. ACQUISITIONS OF HOTEL PROPERTIES: --------------------------------- Acquisitions of Businesses - -------------------------- During the quarter ended March 31, 1997, the Company acquired two hotel properties for an aggregate consideration of $16.8 million which was funded with cash proceeds from the Offering. The hotel properties acquired were the 118-room Hilton Melbourne Beach in Melbourne, Florida and the 176-room Holiday Inn Crabtree in Raleigh, North Carolina. These properties were leased to the Initial Lessee which operates the properties under long-term Percentage Leases. These 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 their respective dates of acquisition. In April, the Company acquired a 485-room resort in French Lick, Indiana for an aggregate consideration of $20 million. The purchase price was funded with borrowings under the Company's credit facility. This property was leased to the Initial Lessee which operates the property under a long-term Percentage Lease. In July 1997, the Company entered a joint venture with CapStar Hotel Company (CapStar) forming BoyStar Ventures, in which the Partnership has a 91% interest. BoyStar Ventures purchased the 196-room Holiday Inn - Minneapolis West located in Minneapolis, Minnesota for a cash purchase price of $12.3 million. The Company's share of the purchase price was funded through borrowings under the Company's credit facility. CapStar leases and manages the property. In July 1997, the Company acquired a 91% interest in Marriott's Hunt Valley Inn, a 392-room, full-service hotel located in a suburb of Baltimore, Maryland, for cash consideration of $27.3 million. The purchase price was funded through borrowings under the Company's credit facility. Davidson Hotel Company leases and manages the property. The retirement of mortgage debt assumed in this transaction resulted in an extraordinary charge of $141, net of minority interest. Acquisition of Hotel Assets - --------------------------- In March 1997, the Company purchased the real and personal property of the Whitehall Inn in Daytona Beach, Florida. The Company's total investment was $4.2 million, which was funded with cash proceeds from the Offering. The Company discontinued operations at the Whitehall Inn in May 1997 and began a complete renovation of the property. The renovation, which is expected to cost $6 million, is being funded from borrowings under the credit facility. The Company expects to begin business operations as a resort with a major hotel franchise affiliation in January 1998. The property will be leased to the Initial Lessee which will manage the resort under a long-term Percentage Lease. 4. REDEMPTION OF PARTNERSHIP INTERESTS: ------------------------------------ In June 1997, 22,896 limited partnership units in the Partnership were redeemed for aggregate cash consideration of $500,000. In September 1997, 14,356 limited partnership units were redeemed for aggregate cash consideration of $327,000. The excess of the aggregate redemption price paid over the capital account balances of the units redeemed was $448,000 and was recorded as additional investment in hotel properties. As a result of the redemptions, the Company's general partnership interest in the Partnership increased from 84.5% to 84.9%. F-9 17 -4- 5. CREDIT FACILITY: ---------------- In November 1996, the Company obtained a three-year commitment for a $75,000 credit facility to be used for acquisitions, capital improvements, working capital and general corporate purposes. Borrowings against the credit facility bear interest at a floating rate of prime rate plus .5% (8.75% and 9% at December 31, 1996 and September 30, 1997, respectively) or, at the Company's election, 2% over various Eurodollar (LIBOR) rates. The Company is required to pay a .25% fee on the unused portion of the credit facility. As of December 31, 1996, the Company had no outstanding borrowings against the credit facility. As of September 30, 1997, the Company had $59,000 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 of the hotel properties and to maintain its REIT status. The Company was in compliance with its covenants at December 31, 1996 and September 30, 1997. On October 15, 1997, the Company secured a $75,000 increase in the existing credit facility and a one year extension of the term of the credit facility. The maximum amount of borrowings that may be made under the credit facility is $150,000 (subject to borrowing base and loan-to-value limitations). Until November 30, 1997, interest on credit facility borrowings will be at LIBOR plus 1.75%; after November 30, 1997, interest will fluctuate at LIBOR plus 1.40% to 1.75%. The credit facility is secured by first mortgages on thirteen of the Company's hotel properties. 6. PERCENTAGE LEASE AGREEMENTS: ---------------------------- The Percentage Leases have noncancelable terms ranging from four to 10 years, subject to earlier termination on the occurrence of certain contingencies, as defined. The rent due under each Percentage Lease is the 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 beginning January 1, 1997, based on increases in the United States Consumer Price Index. Percentage rent applicable to food and beverage revenues is calculated as 6% of such revenues. Percentage Lease revenue for the three- and nine-month periods ended September 30, 1997 was $11,959 and $28,866, respectively, of which approximately $5,014 and $10,872, respectively, was in excess of minimum rent. Future minimum rentals (ignoring future CPI increases) to be received by the Company from the Initial Lessee 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:
Initial Other Lessee Lessees Totals ----------- ---------- ----------- 1998 $ 23,791 $ 5,071 $ 28,862 1999 23,791 5,071 28,862 2000 23,791 5,071 28,862 2001 17,693 5,071 22,764 2002 10,952 5,071 16,023 Thereafter 30,309 24,349 54,658 ----------- ---------- ----------- $130,327 $ 49,704 $180,031 =========== ========== ===========
F-10 18 -5- 7. RELATED PARTY TRANSACTIONS: --------------------------- The Chairman, President and Chief Executive Officer of the Company is the majority shareholder of the Initial Lessee. The Initial Lessee was a significant source of the Company's Percentage Lease revenue through September 30, 1997. At September 30, 1997 and December 31, 1996, the Company has rent receivable of $4,471 and $306, respectively, due from the Initial Lessee. At September 30, 1997 and December 31, 1996, the Company had a payable to the Lessee of $2,496 and $681, respectively, primarily for the reimbursement of capital expenditure costs incurred on behalf of the Company. In September 1997, the Initial Lessee purchased 20,000 common shares of the Company for cash consideration if $490. The Company utilized the proceeds to purchase 20,000 additional general partner units in the Partnership. 8. STATEMENT OF CASH FLOWS, SUPPLEMENTAL DISCLOSURES: -------------------------------------------------- During the nine-month period ended September 30, 1997, the noncash financing transactions consisted of $4,894 of dividends and Partnership distributions which were declared but not paid as of September 30, 1997. Interest paid during the nine-month period ended September 30, 1997 was $875. 9. SUBSEQUENT EVENTS: ------------------ In October 1997, the Company announced that it would begin a $5,000 renovation of the Berkeley, California hotel property. In addition, the franchise at the property will be changed from Marriott to Radisson effective January 1, 1998. 10. PRO FORMA FINANCIAL INFORMATION: -------------------------------- The pro forma financial information set forth below is presented as if (i) the Offering and the related formation transactions and (ii) the acquisitions of the properties discussed in Note 3 had been consummated as of January 1, 1996. The pro forma financial information is not necessarily indicative of what actual results of operations of the Company would have been assuming the Offering and the related formation transactions and the acquisitions had been consummated as of January 1, 1996 nor does it purport to represent the results of operations for future periods. F-11 19 -6-
For the Nine Months Ended September 30, ----------------------- 1997 1996 -------- -------- Lease revenue $ 32,560 $ 30,026 Real estate related depreciation and amortization (7,883) (7,981) Real estate and personal property taxes, insurance and ground rent (4,430) (4,041) General and administrative (1,708) (1,088) Interest expense (3,403) (3,403) Amortization of deferred financing costs (327) (327) -------- -------- Income before minority interest and extraordinary item 14,809 13,186 Minority interest (1,866) (1,658) -------- -------- Income before extraordinary item $ 12,943 $ 11,528 ======== ======== Income per share before extraordinary item $ 1.36 $ 1.21 ======== ========
F-12 20 BOYKIN MANAGEMENT COMPANY ------------------------- LIMITED LIABILITY COMPANY AND SUBSIDIARIES ------------------------------------------ CONSOLIDATED BALANCE SHEETS --------------------------- AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 ---------------------------------------------- (unaudited, amounts in thousands)
ASSETS ------ September 30, December 31, 1997 1996 ------------- ------------ Cash and cash equivalents $ 11,493 $ 5,469 Accounts receivable- Trade, net of allowance for doubtful accounts of $44 and $68 at September 30, 1997 and December 31, 1996, respectively 5,199 2,933 Boykin Hotel Properties, L.P. 2,496 681 Former owners - 69 Inventories 777 470 Property and equipment, net 306 312 Investment in Boykin Lodging Company 490 - Prepaid expenses and other assets 898 587 -------- -------- $ 21,659 $ 10,521 ======== ======== LIABILITIES AND MEMBERS' CAPITAL -------------------------------- Rent payable to Boykin Hotel Properties, L.P. $ 4,471 $ 306 Accounts payable- Trade 1,806 1,567 Advance deposits 342 224 Bank overdraft liability 4,249 1,234 Former owners - 373 Affiliate - 267 Other 355 8 Accrued expenses- Accrued payroll 810 716 Accrued vacation 986 784 Accrued sales, use and occupancy taxes 1,021 702 Other accrued liabilities 3,187 1,786 -------- -------- 17,227 7,967 Members' capital- Capital contributed 3,000 3,000 Retained earnings (deficit) 1,432 (446) -------- -------- 4,432 2,554 -------- -------- $ 21,659 $ 10,521 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-13 21 BOYKIN MANAGEMENT COMPANY ------------------------- LIMITED LIABILITY COMPANY AND SUBSIDIARIES ------------------------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 ------------------------------------------------------------- (unaudited, amounts in thousands)
Three Months Nine Months Ended Ended September 30, September 30, 1997 1997 --------------- --------------- REVENUES: Room revenue $ 20,705 $ 56,117 Food and beverage revenue 7,841 22,215 Other hotel revenue 2,478 5,810 Other revenue 542 2,050 -------- -------- Total revenues 31,566 86,192 -------- -------- EXPENSES: Departmental expenses of hotels- Rooms 4,568 12,442 Food and beverage 5,794 16,190 Other 1,241 2,927 Cost of goods sold of nonhotel operations 69 484 Percentage lease expense 10,556 27,463 General and administrative 3,376 9,776 Advertising and promotion 1,324 3,596 Utilities 1,278 3,429 Franchisor royalties and other charges 1,564 4,121 Repairs and maintenance 1,376 3,806 Depreciation and amortization 20 61 Other (10) 19 -------- -------- Total expenses 31,156 84,314 -------- -------- NET INCOME $ 410 $ 1,878 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-14 22 BOYKIN MANAGEMENT COMPANY ------------------------- LIMITED LIABILITY COMPANY AND SUBSIDIARIES ------------------------------------------ CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 -------------------------------------------- (unaudited, amounts in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,878 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 61 Changes in assets and liabilities- Accounts receivable (4,081) Inventories (307) Prepaid expenses and other assets (311) Accounts payable 3,452 Rent payable 4,165 Other accrued liabilities 2,016 -------- Net cash provided by operating activities 6,873 -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (55) Investment in Boykin Lodging Company (490) -------- Net cash used for investing activities (545) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of obligations to former owners (373) Collections of amounts due from former owners 69 -------- Net cash used for financing activities (304) -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 6,024 CASH AND CASH EQUIVALENTS, beginning of period 5,469 -------- CASH AND CASH EQUIVALENTS, end of period $ 11,493 ========
The accompanying notes to consolidated financial statements are an integral part of this statement. F-15 23 BOYKIN MANAGEMENT COMPANY ------------------------- LIMITED LIABILITY COMPANY AND SUBSIDIARIES ------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ SEPTEMBER 30, 1997 ------------------ (unaudited, dollar amounts in thousands) 1. DESCRIPTION OF BUSINESS: ------------------------ Boykin Management Company Limited Liability Company and its subsidiaries (collectively, the Lessee) (i) manage and operate full and limited service hotels located throughout the United States; (ii) provide national purchasing services to hotels, and (iii) provide interior design services to hotels and other businesses. 2. ORGANIZATION: ------------- The Lessee commenced operations on November 4, 1996 as an Ohio limited liability company. The Lessee is effectively 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 (BMC) and Bopa Design Company (doing business as Spectrum Services), wholly owned subsidiaries of The Boykin Company (TBC), were merged into subsidiaries of the Lessee. In addition, Purchasing Concepts, Inc. (PCI) contributed its assets to a subsidiary of the Lessee and that subsidiary assumed PCI's liabilities. TBC and PCI are related through common ownership. The Lessee and its subsidiaries are the successors to the businesses of BMC, Spectrum Services and PCI. As the Lessee, 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 BMC, Spectrum Services and PCI upon merger into or contribution to the subsidiaries of the Lessee. In connection with the formation of the Lessee, certain assets and liabilities of nine of the Hotels (Note 4) were assumed by the Lessee. 3. BASIS OF PRESENTATION: ---------------------- 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- and the nine-month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the Lessee's consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the period ended December 31, 1996. F-16 24 -2- 4. PERCENTAGE LEASE AGREEMENTS: ---------------------------- The Lessee leases 12 hotels (the Hotels) from Boykin Hotel Properties, L.P. (the Partnership), a partnership in which the Company has a general partnership interest, pursuant to long-term leases (Percentage Leases). The Hotels are located in Cleveland, Ohio (2), Columbus, Ohio; Buffalo, New York; Berkeley, California; Raleigh, North Carolina; Charlotte, North Carolina (2); Ft. Myers, Florida; Melbourne, Florida (2); and French Lick, Indiana. The Percentage Leases have noncancelable terms ranging from four to ten years, subject to earlier termination on the occurrence of certain contingencies, as defined. The Percentage Leases do not contain renewal terms. The Lessee 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 at 6% of such revenues in all of the Percentage Leases. Both the threshold amounts used in computing percentage rent and minimum rent are subject to annual adjustments beginning January 1, 1997 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 the Lessee to pay all costs and expenses incurred in the operation of the Hotels. The Percentage Leases require the Lessee 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 Hotels. Future minimum rent (ignoring CPI increases) to be paid by the Lessee under the Percentage Leases at September 30, 1997 for each of the years in the period 1998 to 2002 and in total thereafter is as follows: 1998 $ 23,791 1999 23,791 2000 23,791 2001 17,693 2002 10,952 Thereafter 30,309 -------- $130,327 ========
Rent expense for the three- and nine-month periods ended September 30, 1997 was $10,556 and $27,463, respectively, of which approximately $4,607 and $10,465, respectively, was in excess of minimum rent. 5. RELATED PARTY TRANSACTIONS: --------------------------- At September 30, 1997, the Lessee has a receivable from the Partnership of $2,496, primarily for the reimbursement of capital expenditure costs incurred on behalf of the Partnership. In September 1997, the Lessee purchased 20,000 common shares of the Company for cash consideration of $490. F-17 25 -3- 6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED): -------------------------------------------- The following unaudited pro forma condensed statements of operations for the nine-month periods ended September 30, 1997 and 1996 are presented as if the Lessee leased and operated from January 1, 1996 all of the Hotels owned by the Partnership as of September 30, 1997. The pro forma condensed statements of operations do not purport to present what actual results of operations would have been if the Hotels were operated by the Lessee pursuant to the Percentage Leases from January 1, 1996 or to project results for any future period.
Nine Months Ended September 30, ---------------------- 1997 1996 ------- ------- Room revenue $58,048 $53,423 Food and beverage revenue 23,122 22,281 Other hotel revenue 6,180 5,973 Other revenue 2,050 1,663 ------- ------- Total revenues 89,400 83,340 ------- ------- Departmental expenses of hotels 32,824 31,174 Cost of goods sold of nonhotel operations 484 993 Percentage Lease expense 28,229 25,819 Other expenses 25,998 23,622 ------- ------- Net income $ 1,865 $ 1,732 ======= =======
F-18 26 INITIAL HOTELS -------------- COMBINED BALANCE SHEET ---------------------- AS OF SEPTEMBER 30, 1996 ------------------------ (unaudited, amounts in thousands)
ASSETS ------ INVESTMENTS IN HOTEL PROPERTIES, at cost: Land $ 8,572 Buildings and improvements 96,989 Furniture and equipment 38,581 Construction in progress 980 -------- 145,122 Less- Accumulated depreciation 68,394 -------- Net investment in hotel properties 76,728 CASH AND CASH EQUIVALENTS 2,666 ACCOUNTS RECEIVABLE, net of allowance for doubtful accounts of $24 3,698 INSURANCE CLAIM RECEIVABLE 380 RECEIVABLE FROM AFFILIATE 525 INVENTORIES 441 PREPAIDS AND OTHER ASSETS 1,195 CASH HELD IN ESCROW 3,141 DEFERRED EXPENSES, net 2,347 -------- $ 91,121 ========
The accompanying notes to combined financial statements are an integral part of this combined balance sheet. F-19 27 INITIAL HOTELS -------------- COMBINED BALANCE SHEET ---------------------- AS OF SEPTEMBER 30, 1996 ------------------------ (unaudited, amounts in thousands)
LIABILITIES AND PARTNERS' DEFICIT --------------------------------- MORTGAGE NOTES PAYABLE $ 132,439 ADVANCES FROM AND ACCRUED INTEREST DUE TO PARTNERS 7,909 ACCOUNTS PAYABLE: Trade 2,028 Management fees to related party 1,132 Bank overdraft 125 ACCRUED EXPENSES AND OTHER LIABILITIES 5,135 COMMITMENTS AND CONTINGENCIES - --------- 148,768 PARTNERS' DEFICIT (57,647) --------- $ 91,121 =========
The accompanying notes to combined financial statements are an integral part of this combined balance sheet. F-20 28 INITIAL HOTELS -------------- COMBINED STATEMENTS OF OPERATIONS --------------------------------- FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 ------------------------------------------------------------- (unaudited, amounts in thousands)
Three Months Nine Months Ended Ended September 30, September 30, 1996 1996 ------------- ------------- REVENUES FROM HOTEL OPERATIONS: Room revenue $ 15,960 $ 45,532 Food and beverage revenue 5,549 17,535 Other revenue 1,317 3,656 -------- -------- Total revenues 22,826 66,723 -------- -------- EXPENSES: Departmental expenses- Rooms 3,374 10,129 Food and beverage 4,160 12,731 Other 662 1,877 General and administrative 1,933 5,687 Advertising and promotion 855 2,650 Utilities 981 2,731 Management fees to related party 1,059 2,968 Franchisor royalties and other charges 1,340 3,600 Repairs and maintenance 1,040 3,061 Real estate and personal property taxes, insurance and rent 1,006 2,911 Interest expense 3,800 11,375 Interest expense on partner advances 184 558 Depreciation and amortization 1,961 5,619 Other 264 435 -------- -------- Total expenses 22,619 66,332 -------- -------- Income before extraordinary item 207 391 EXTRAORDINARY ITEM -- LOSS ON EARLY EXTINGUISHMENT OF DEBT -- (1,315) -------- -------- NET INCOME (LOSS) $ 207 $ (924) ======== ========
The accompanying notes to combined financial statements are an integral part of these combined statements. F-21 29 INITIAL HOTELS -------------- COMBINED STATEMENT OF CASH FLOWS -------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 -------------------------------------------- (unaudited, amounts in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (924) Adjustments to reconcile net loss to net cash provided by operating activities- Net loss of Pacific Ohio Partners for the period October 1, 1995 to December 31, 1995, excluded from the combined statement of operations (69) Depreciation and amortization expense 8,005 Deferred interest expense on partner advances 558 Extraordinary loss on early extinguishment of debt 1,315 Payments for franchise fees and other deferred costs (155) Changes in assets and liabilities- Receivables (1,192) Inventories, prepaids and other assets (368) Cash held in escrow (534) Accounts payable, accrued expenses and other liabilities (1,218) -------- Net cash provided by operating activities 5,418 -------- CASH FLOWS FROM INVESTING ACTIVITIES: Improvements and additions to hotel properties, net (2,503) Purchase of assets of Lake Norman Hotels (9,721) -------- Net cash used for investing activities (12,224) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on mortgage notes payable (43,417) Proceeds from refinancing and new borrowings of mortgage debt 51,173 Payment of debt prepayment premium and debt issuance costs (228) Payments on advances from partners (400) Payments for deferred financing costs (171) Capital contributions 1,406 Cash distributions paid (1,800) -------- Net cash provided by financing activities 6,563 --------
F-22 30 -2- NET CHANGE IN CASH AND CASH EQUIVALENTS $ (243) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,909 ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,666 ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 9,785 SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Prepayment penalty financed with additional borrowing $ 1,246
The accompanying notes to combined financial statements are an integral part of this combined statement. F-23 31 INITIAL HOTELS -------------- NOTES TO COMBINED FINANCIAL STATEMENTS -------------------------------------- AS OF SEPTEMBER 30, 1996 ------------------------ (unaudited, dollar amounts in thousands) 1. ORGANIZATION AND BASIS OF PRESENTATION: --------------------------------------- Organization - ------------ The Initial Hotels consist of the following hotels: Number of Property Name Location Rooms - -------------------------------------- --------------------------- ----------- Berkeley Marina Marriott Berkeley, California 373 Buffalo Marriott Buffalo, New York 356 Cleveland Airport Marriott Cleveland, Ohio 375 Cleveland Marriott East Beachwood, Ohio 403 Columbus Marriott North Columbus, Ohio 300 Melbourne Quality Suites Inn Melbourne, Florida 208 Radisson Inn Sanibel Gateway Ft. Myers, Florida 157 Hampton Inn Charlotte, N. Carolina 117 Holiday Inn Charlotte, N. Carolina 119 Boykin Management Company (BMC) was involved in the development of each of the above hotels except the Hampton Inn and Holiday Inn and has managed all of the Initial Hotels excluding the Hampton Inn and Holiday Inn since their respective inceptions. The hotels were owned by partnerships (Boykin Partnerships) in which the shareholders of The Boykin Company (TBC), BMC's parent company, and certain officers and employees of BMC (collectively, BMC Affiliates) had significant direct and indirect ownership interests. As of September 30, 1996, the Initial Hotels were owned as follows: Partnership Interest ----------------------- BMC Third Affiliates Party ------------ ---------- Berkeley Marina Associates, L.P. (BMLP) 100% 0% Buffalo Hotel Joint Venture (BHJV) 50% 50% Pacific Ohio Partners (POP) 100% 0% Beachwood Hotel Joint Venture (Beachwood) 35% 65% Columbus Hotel Joint Venture (CHJV) 50% 50% Melbourne Oceanfront Hotel Associates (MOHA) 100% 0% Fort Myers Hotel Partnership (FMHP) 100% 0% B.B.G., I, L.L.C. (BBG) 46% 54% F-24 32 -2- Boykin Lodging Company (the Company) is an Ohio corporation which has been established to acquire equity interests in hotel properties. The Company sold 8,275,000 shares of its common stock in an initial public offering on November 4, 1996. On November 29, 1996, the underwriters exercised their overallotment option and purchased an additional 1,241,250 of the Company's common shares (together with the initial public offering, the Offering). The Company contributed all of the net proceeds of the Offering to Boykin Hotel Properties, L.P., an Ohio limited partnership (the Partnership) in exchange for an approximate 84.5% general partnership interest and a $40 million convertible note (the Note). The partners of the Boykin Partnerships contributed their respective partnership interests to the Partnership in exchange for cash and partnership interests. The Partnership used a portion of the proceeds from the sale of the general partnership interest and the Note to the Company to retire mortgage indebtedness encumbering the Initial Hotels. All of the Initial Hotels are leased to Boykin Management Company Limited Liability Company (the Lessee) pursuant to operating leases which contain provisions for rent based on the revenues of the Initial Hotels. The Lessee is an affiliate of TBC. Basis of Presentation - --------------------- Management believes that these combined financial statements result in a more meaningful presentation of the Initial Hotel businesses acquired by the Partnership and thus appropriately reflect the historical financial position and results of operations of the predecessor of the Company. All significant intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to 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 of the combined financial position of the Initial Hotels as of September 30, 1996 and the results of their operations and cash flows for the three- and nine-month periods ended September 30, 1996 have been included. Operating results for the interim periods ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information refer to the combined financial statements of the Initial Hotels and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. 2. ACCOUNTING PERIODS: ------------------- POP has a fiscal year end of September 30. In order to show comparable operations during the three- and nine-month periods ended September 30, 1996, POP's operating results were adjusted to exclude the three-month period October 1 to December 31, 1995. The total revenues of POP excluded from the combined statement of operations for the nine-month period ended September 30, 1996 was $3,328 and total net loss was $69. In the opinion of management, the effect of nonconforming period ends is not material to the combined financial statements. F-25 33 -3- 3. ACQUISITION: ------------ On February 8, 1996, BBG acquired the Holiday Inn and Hampton Inn from Norman Associates and Norman Associates II in exchange for aggregate cash consideration of $9,721. BBG funded the purchase price with first and second mortgage debt borrowings aggregating $9,500 and contributed capital. The acquisition was accounted for as a purchase and, accordingly, the operating results of the Holiday Inn and Hampton Inn have been included in the accompanying combined financial statements commencing February 8, 1996. Following is pro forma data assuming that the acquisition of the Holiday Inn and the Hampton Inn discussed above occurred as of January 1, 1996. The primary pro forma adjustments to historical operating results are (i) to increase depreciation expense for the effect of the purchase accounting adjustments to the carrying values of investments in hotel properties; (ii) to adjust management fee expense of the Holiday Inn and Hampton Inn; and (iii) to increase interest expense to reflect the terms of the new mortgage debt and the amortization of related deferred financing costs.
Three Months Nine Months Ended Ended September 30, September 30, 1996 1996 ------------- ------------ Total revenues $22,825 $67,139 Income (loss) before extraordinary item 275 (259) Net income (loss) 275 (1,056)
4. MORTGAGE NOTES PAYABLE: ----------------------- Mortgage notes payable had various repayment terms and had various scheduled maturity dates during the period 1998 to 2004. Interest rates on the mortgage notes ranged from 8.54% to 13.25%. Certain of the mortgage notes required the payment of additional interest upon maturity or repayment in full. The additional interest was charged to interest expense utilizing the effective interest rate method over the contractual term of the notes and was $543 and $1,234 for the three- and nine-month periods ended September 30, 1996, respectively. All of the mortgage notes payable were collateralized by investments in hotel properties and were paid off with a portion of the proceeds from the Offering. Debt Extinguishment - ------------------- The refinancing and concurrent payment of a prepayment penalty on the BHJV mortgage note resulted in an extraordinary loss due to the early extinguishment of debt in the amount of $1,315 for the nine-month period ended September 30, 1996. 5. RELATED PARTY TRANSACTIONS: --------------------------- A substantial portion of the Initial Hotels' management and accounting functions were performed by BMC, for a fee computed as specified in each hotel's management agreement. The base management fee was based on percentages of hotel revenues of 3% or 3.5% except for the Holiday Inn and Hampton Inn for which the fees were calculated as 5% of hotel revenues. In addition, if specified operating results were achieved, an incentive fee was due to BMC. The management agreements with BMC expired at various dates through September 30, 2010. Certain other costs relating to purchasing and design services are incurred by an affiliate of BMC and billed to the hotels. Such purchases approximated $48 and $98 for the three- and F-26 34 -4- nine-month periods ended September 30, 1996, respectively. Furthermore, the hotels made purchases of hotel furnishings through an affiliate of BMC. These purchases amounted to approximately $217 and $915 for the three- and nine-month periods ended September 30, 1996, respectively. Receivables from and payables to affiliates represent amounts due from or to BMC and its affiliates applicable to insurance charges and various other items. BBG paid a 1% asset management fee to an affiliate of its third-party owner. 6. ADVANCES FROM PARTNERS: ----------------------- Partner advances consisted of the following: Advances from partners used to complete construction and to fund operation, bearing interest at 10% per annum $2,637 Accrued interest payable on advances from partners 5,272 ------ $7,909 ======
The advances from partners and related accrued interest thereon were paid off by the Partnership with a portion of the proceeds from the Offering. Total interest expense on partner advances was $184 and $558 for the three- and nine-month periods ended September 30, 1996, respectively. F-27 35 BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC. ---------------------------------------------------- AND BOPA DESIGN COMPANY ----------------------- COMBINED STATEMENT OF NET ASSETS -------------------------------- AS OF SEPTEMBER 30, 1996 ------------------------ (unaudited, amounts in thousands) CASH AND CASH EQUIVALENTS $ 39 MANAGEMENT FEES AND OTHER RECEIVABLES DUE FROM: Affiliates 3,438 Other 2,172 PROPERTY AND EQUIPMENT, net 367 DESIGN COSTS IN EXCESS OF BILLINGS 170 PREPAID EXPENSES, DEPOSITS AND OTHER ASSETS 54 ------ Total assets 6,240 ------ ACCOUNTS PAYABLE: Affiliates 211 Other 61 ADVANCE BILLINGS FOR DESIGN SERVICES 392 ACCRUED PAYROLL 173 OTHER ACCRUED EXPENSES 633 NOTES PAYABLE 1,420 ------ Total liabilities 2,890 ------ NET ASSETS $3,350 ======
The accompanying notes to combined financial statements are an integral part of this combined statement. F-28 36 BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC. ---------------------------------------------------- AND BOPA DESIGN COMPANY ----------------------- COMBINED STATEMENTS OF REVENUES AND EXPENSES -------------------------------------------- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 --------------------------------------------- AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 -------------------------------------------- (unaudited, amounts in thousands)
Three Months Nine Months Ended Ended September 30, September 30, 1996 1996 ------------- ------------- REVENUES: Management fees- Affiliates $1,066 $3,001 Other 272 699 Design and other fees- Affiliates 335 1,635 Other 148 875 Interest income- Affiliates 36 198 Other 12 89 ------ ------ Total revenues 1,869 6,497 ------ ------ EXPENSES: Cost of sales and operating expenses 405 2,299 Selling, general and administrative expenses 776 2,362 Depreciation and amortization expense 22 62 Rent 27 89 Interest 27 88 Other, net 8 10 ------ ------ Total expenses 1,265 4,910 ------ ------ REVENUES IN EXCESS OF EXPENSES $ 604 $1,587 ====== ======
The accompanying notes to combined financial statements are an integral part of these combined statements. F-29 37 BOYKIN MANAGEMENT COMPANY, PURCHASING CONCEPTS, INC. ---------------------------------------------------- AND BOPA DESIGN COMPANY ----------------------- AS OF SEPTEMBER 30, 1996 ------------------------ NOTES TO COMBINED FINANCIAL STATEMENTS -------------------------------------- (unaudited, dollar amounts in thousands) 1. DESCRIPTION OF BUSINESSES: -------------------------- Boykin Management Company (BMC), a wholly owned subsidiary of The Boykin Company (TBC), and certain of its subsidiaries managed and operated full and limited service hotels located throughout the United States pursuant to management agreements. Purchasing Concepts, Inc. (PCI), related to TBC through common ownership, provided national purchasing services to hotels and restaurants. Bopa Design Company (doing business as Spectrum Services), a wholly owned subsidiary of TBC since January 1, 1996, provided interior design services to hotels and other businesses. Certain of the hotels managed by BMC and served by PCI and Spectrum Services were related to BMC, PCI and Spectrum Services through common ownership. 2. BASIS OF PRESENTATION: ---------------------- Pursuant to formation transactions related to the November 4, 1996 initial public offering of Boykin Lodging Company, BMC and Spectrum Services merged into subsidiaries of Boykin Management Company Limited Liability Company (BMCL), a newly formed Ohio Limited Liability Company. Prior to such mergers, BMC and Spectrum Services transferred certain assets and liabilities to TBC pursuant to an Assignment and Assumption Agreement. In addition, PCI contributed its assets to a subsidiary of BMCL and that subsidiary assumed PCI's liabilities. BMCL and its subsidiaries are the successors to the businesses of BMC, PCI and Spectrum Services. BMCL is the lessee of nine hotels formerly affiliated with TBC which were acquired by Boykin Hotel Properties, L.P., a partnership in which Boykin Lodging Company is the general partner. The hotels are leased pursuant to long-term leases which provide for the payment of rents based on percentages of hotel revenues. The accompanying financial statements present on a historical combined basis the net assets of BMC, PCI and Spectrum Services that ultimately were merged into or contributed to BMCL and its subsidiaries and the related revenues and expenses of such businesses. Assets and liabilities of BMC, PCI and Spectrum Services which were not merged into or contributed to BMCL and its subsidiaries and the items of revenues and expenses related to such assets and liabilities have been excluded from the accompanying financial statements. Accordingly, the accompanying financial statements are not intended to be a complete presentation of the combined assets, liabilities, revenues and expenses of BMC, PCI and Spectrum Services (collectively, the Combined Entities). These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to 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 F-30 38 -2- financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the net assets of the Combined Entities as of September 30, 1996 and their revenues and expenses for the three- and nine-month periods ended September 30, 1996 have been included. Operating results for the three- and nine-month periods ended September 30, 1996 are not necessarily indicative of the results that may be expected for a full year. For further information, refer to the combined financial statements of the Combined Entities and footnotes thereto included in Boykin Lodging Company's annual report on Form 10-K for the year ended December 31, 1996. 3. REVENUES: --------- BMC has management agreements with several entities to manage the operations of hotels and restaurants. Generally, BMC receives a fee based upon percentages of revenues. In certain management contracts, BMC is entitled to additional incentive fees in the event the managed property achieves specified operating results. Certain contracts also include limitations on management fees, or restrict payment of earned fees to BMC based upon the defined cash flow of the related property. PCI provides national purchasing services to hotels and restaurants and Spectrum Services provides interior design services to hotels and other businesses. Revenues from affiliates in the accompanying combined statements of revenues and expenses represent revenues earned by the Combined Entities on goods or services provided to various hotel properties in which the respective owners of the Combined Entities or their affiliates had direct or indirect ownership interests. Other revenues consisted primarily of telephone commissions. 4. NOTES PAYABLE: -------------- Notes payable consisted of the following at September 30, 1996: Installment note payable to a bank in quarterly installments of $75, plus interest at prime plus 1/2%; last installment due September 1, 1999; guaranteed by TBC and certain TBC shareholders $ 775 $1,000 line of credit with a bank, due on demand; bearing interest at prime; guaranteed by TBC and certain TBC shareholders 645 ------ $1,420 ======
All of the debt shown above was retired by BMCL upon completion of the formation transactions discussed in Note 2. 5. COMMITMENTS AND CONTINGENCIES: ------------------------------ BMC was a guarantor of the mortgage debt (only in the event certain specified limited events occur) of Melbourne Oceanfront Hotel Associate, Fort Myers Hotel Partnership, Berkley Marina Associates Limited Partnership and Pacific Ohio Partners, all of which were related parties. F-31 39 -3- All of the guaranteed debt was paid off by Boykin Hotel Properties, L.P. on November 4, 1996. 6. RELATED PARTY TRANSACTIONS: --------------------------- Management fees and other receivables due from affiliates are comprised of the following at September 30, 1996: Management fees receivable $ 297 Design fees receivable 47 Loans and interest receivable from Boykin Columbus Joint Venture (BCJV) 3,094 ------ $3,438 ======
In general, the above amounts are due from partnerships or joint ventures in which certain owners and officers of PCI, Spectrum Services or TBC, had ownership interests. These partnerships or joint ventures owned hotel properties which were managed by BMC. The shareholders of TBC, certain of their family members and certain officers of BMC are material partners in BCJV. BMC advanced funds to BCJV in connection with the construction of a hotel in Columbus, Ohio and to fund operating deficits of that hotel. The loans receivable from BCJV accrued interest at 10% per annum. Interest income earned on the loans to BCJV was $77 and $211 for the three- and nine-month periods ended September 30, 1996, respectively. The loans and interest receivable from BCJV were paid off on November 4, 1996. Accounts payable to affiliates are comprised of property insurance retro premium adjustments and telephone commissions received by BMC and payable to the various affiliated hotels at the respective statement dates. Advance billings for design services and design costs incurred in excess of billings are related primarily to projects for affiliates. F-32 40 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 condition of the Company. ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES On September 5, 1997, the Company sold 20,000 Common Shares to the Initial Lessee for $490,625 or $24.53 per share. The Initial Lessee purchased the shares in connection with its employee incentive compensation program. The sale was exempt from registration under the Securities Act of 1933, as amended, pursuant to Regulation D, Rule 506. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -------- 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 11 Statement re Computation of Per Share Earnings 27 Financial Data Schedules
* 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. (b) Reports on Form 8-K ------------------- None 41 FORWARD-LOOKING STATEMENTS -------------------------- This Form 10-Q contains forward-looking statements. Although the Company believes that its acquisition and redevelopment plans are based upon reasonable assumptions, it can give no assurance that such expectations will be realized. Factors that could cause actual results to differ materially from the Company's expectations include the Company's financial performance, real estate market conditions, execution of the Company's hotel acquisition programs, difficulties with contractors hired to redevelop or renovate properties, changes in local or national economic conditions, and other similar risks. 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 ------------------------------------- November 14, 1997 Robert W. Boykin Director, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) /s/ Raymond P. Heitland ------------------------------------- November 14, 1997 Raymond P. Heitland Director, Chief Financial Officer (Principal Accounting Officer) 42 EXHIBIT INDEX
Sequentially Numbered Exhibit Pages ------- ------------ 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 ** 11 Statement re Computation of Per Share Earnings 27 Financial Data Schedules
* Incorporated by reference from Amendment No. 3 to the Company's registration statement on Form S-11 (the "Form S-11") filed on (Registration No. 333-6341) 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. EX-11 2 EXHIBIT 11 1
EXHIBIT 11 BOYKIN LODGING COMPANY COMPUTATION OF EARNINGS PER SHARE FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 (amounts in thousands, except per share data) For the Three For the Nine Months Ended Months Ended September 30, 1997 September 30, 1997 ------------------ ------------------ INCOME: Income before extraordinary item $ 5,373 $ 13,127 Extraordinary loss, net of minority interest (141) (141) -------------- -------------- Net income $ 5,232 $ 12,986 ============== ============== PER SHARE AMOUNTS REPORTED TO SHAREHOLDERS--NOTE 1: Income before extraordinary item $ 0.56 $ 1.37 Extraordinary loss, net of minority interest (0.01) (0.01) -------------- -------------- Net loss $ 0.55 $ 1.36 ============== ============== PRIMARY: Weighted average shares outstanding 9,522 9,518 Dilutive stock options--note 2 74 57 -------------- -------------- Totals 9,596 9,575 ============== ============== Per share amounts Income before extraordinary item $ 0.56 1.37 Extraordinary loss, net of minority interest (0.01) (0.01) -------------- -------------- Net income $ 0.55 $ 1.36 ============== ============== FULLY DILUTED: Weighted average shares outstanding 9,522 9,518 Dilutive stock options 123 123 -------------- -------------- Totals 9,645 9,641 ============== ============== Per share amounts Income before extraordinary item $ 0.56 $ 1.36 Extraordinary loss, net of minority interest (.01) (.01) -------------- -------------- Net income $ 0.55 $ 1.35 ============== ============== Note 1--Per share earnings have been computed and reported to the shareholders pursuant to APB Opinion No. 15, which provides that "any reduction of less than 3% in the aggregate need not be considered as dilution in the computation and presentation of earnings per share data." Note 2--Dilutive stock options are calculated based on the treasury stock method. For primary per share earnings, the average market price per share during the period is used. For fully diluted per share earnings, the yearend market price per share, if higher than the average market price is used.
EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF BOYKIN LODGING COMPANY AS OF SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1,467,000 0 5,130,000 0 0 0 194,213,000 0 203,245,000 0 59,000,000 0 0 0 117,628,000 203,245,000 0 29,203,000 0 12,473,000 1,917,000 0 1,686,000 13,127,000 0 13,127,000 0 141,000 0 12,986,000 1.36 1.35 The registrant uses an unclassified balance sheet. Therefore, total current assets and total current liabilities are not applicable.
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