-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, KoGwO+gTg+MF99kSL9ZhEpwQ5ilS9tGUHnaKcnm65OVEmCST9jp+Gzx3IZPtlxga xD0O1BkkSyx76mOh3qx30Q== 0000950148-94-000366.txt : 19940822 0000950148-94-000366.hdr.sgml : 19940822 ACCESSION NUMBER: 0000950148-94-000366 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOTEL INVESTORS TRUST /MD/ CENTRAL INDEX KEY: 0000048595 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 520901263 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06828 FILM NUMBER: 94544182 BUSINESS ADDRESS: STREET 1: 11845 W OLYMPIC BLVD STREET 2: SUITE 550 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105753900 MAIL ADDRESS: STREET 1: 11845 W OLYMPIC BLVD STREET 2: SUITE 550 CITY: LOS ANGELES STATE: CA ZIP: 90064 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS DATE OF NAME CHANGE: 19800720 FORMER COMPANY: FORMER CONFORMED NAME: MARRIOTT INN PARTICIPATING INVESTORS DATE OF NAME CHANGE: 19720106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOTEL INVESTORS CORP CENTRAL INDEX KEY: 0000316206 STANDARD INDUSTRIAL CLASSIFICATION: 6500 IRS NUMBER: 521193298 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07959 FILM NUMBER: 94544183 BUSINESS ADDRESS: STREET 1: 11845 W OLYMPIC BLVD STREET 2: SUITE 560 CITY: LOS ANGELES STATE: CA ZIP: 90064 BUSINESS PHONE: 3105753900 MAIL ADDRESS: STREET 1: 11845 W OLYMPIC BLVD STREET 2: SUITE 560 CITY: LOS ANGELES STATE: CA ZIP: 90064 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1994 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the quarterly period ended June 30, 1994 -------------------------- OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from _________ to _________ Commission File Number: 1-6828 Commission File Number: 1-7959 HOTEL INVESTORS HOTEL INVESTORS TRUST CORPORATION (Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter) Maryland Maryland (State or other jurisdiction (State or other jurisdiction of incorporation or organization) of incorporation or organization) 52-0901263 52-1193298 (I.R.S. employer identification no.) (I.R.S. employer identification no.) 11845 W. Olympic Blvd., Suite 550 11845 W. Olympic Blvd., Suite 560 Los Angeles, California 90064 Los Angeles, California 90064 (Address of principal executive (Address of principal executive offices, including zip code) offices, including zip code) (318) 575-3900 (310) 575-3900 (Registrant's telephone number, (Registrant's telephone number, including area code) including area code)
Indicate by check mark whether the Registrants (1) have filed all reports required 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No _____. ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 12,132,948 Shares of Beneficial Interest, $1.00 par value, of Hotel Investors Trust paired with 12,132,948 Shares of Common Stock, par value $.10 per share, of Hotel Investors Corporation outstanding as of August 12, 1994. ================================================================================ 2 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q which mandate adherence to Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management of the Trust and the Corporation, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The financial statements presented herein have been prepared in accordance with the accounting policies described in the registrants' Joint Annual Report on Form 10-K for the year ended December 31, 1993, (the "1993 Form 10-K"), and should be read in conjunction therewith. The accompanying financial statements have been prepared assuming Hotel Investors Trust (the "Trust") and Hotel Investors Corporation (the "Corporation") will continue as going concerns. The Trust was in default at December 31, 1992 on its obligations to repay indebtedness under the Trust's line of credit and certain note agreements. Effective January 28, 1993, the Trust entered into a Credit Agreement with its lenders to restructure such indebtedness. The Credit Agreement, among other things, requires the Trust to comply with specific financial covenants and operating restrictions and to make substantial interim principal and other payments. The Trust's ability to comply with the requirements of the Credit Agreement, for which the inability to comply therewith would result in a default under the Credit Agreement, cannot presently be determined. Because of the substantial operating losses and cash flow deficiencies experienced by the Corporation, which also has a deficiency in net assets, the ultimate recovery of all amounts due to the Trust from the Corporation is highly uncertain. These conditions raise substantial doubt about the ability of the Trust and the Corporation to continue as going concerns. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Reorganization As previously disclosed on the registrants' Joint Form 8-K dated June 13, 1994, the Trust and the Corporation, subject to shareholder and stockholder approval, have agreed with Starwood Capital Group, L.P., a private investment firm, to create an "UPREIT" structure. In connection with the "UPREIT" structure it is contemplated that two limited partnerships would be formed (the "Reorganization"). The Trust would be the general partner and contribute to SLT Realty Limited Partnership all of its assets subject to its liabilities. The Corporation and its subsidiaries would be the general partners and contribute to SLC Operating Limited Partnership all of their assets subject to their liabilities. Starwood Capital Group, L.P., and its affiliates - 2 - 3 would be the limited partners in the two partnerships and would contribute cash and a portfolio of hotel equity and mortgage interests, subject to certain existing debt. Starwood's limited partnership interests would be exchangeable into paired shares of the Trust and the Corporation, such that on a fully converted basis, Starwood would own between 67% and 75% of the outstanding paired shares of the Trust and Corporation (but subject to limitations to preserve the REIT status of the Trust and its paired share structure with the Corporation). Starwood has also agreed, at the Trust's option, to purchase the Trust's Albany, Georgia property for approximately $6 million and to loan to the Trust up to an additional $5 million as a a short-term first mortgage loan or defer certain amortization of senior secured Trust debt held by Starwood pending completion of the transaction; and the Trust would use the proceeds to make certain payments on its outstanding senior secured debt and retire a portion of the warrants issued to its senior lenders in connection with the restructuring of the senior secured debt in January 1993. Starwood previously purchased or has under contract to purchase in excess of $75 million of the Trust's outstanding senior secured debt. Income Taxes The Trust recently discovered that there are issues concerning its having met all of the requirements for maintenance of REIT status for prior years. On July 27, 1994, the Trust applied to the IRS for permission to terminate its election to be taxed as a REIT retroactively to 1991 and to re-elect REIT status for 1995. Because the Trust had net losses and did not pay any dividends for 1991, 1992 and 1993 and expects to incur a net loss for tax purposes and not pay any dividends for 1994, if the IRS grants the Trust's request, the Trust will not owe any federal income tax and the Holders of Paired Shares will not be adversely affected for these years. In addition, the granting of the Trust's request will not effect the pairing status of the Trust and the Corporation shares. Net Income (Loss) Per Paired Share Net income (loss) per paired share has been computed using the weighted average number of common and common equivalent Paired Shares outstanding which includes the dilutive effect of stock options and warrants outstanding for the six months and three months ended June 30, 1994. Other See Item 1, Part II, for information regarding legal proceedings and preliminary settlement of shareholder litigation. - 3 - 4 Hotel Investors Trust and Hotel Investors Corporation: Combined Balance Sheets - As of June 30, 1994 and December 31, 1993 Combined Statements of Operations - For the three months ended June 30, 1994 and 1993 Combined Statements of Operations - For the six months ended June 30, 1994 and 1993 Combined Statements of Cash Flows - For the six months ended June 30, 1994 and 1993 Hotel Investors Trust: Balance Sheets - As of June 30, 1994 and December 31, 1993 Statements of Operations - For the three months ended June 30, 1994 and 1993 Statements of Operations - For the six months ended June 30, 1994 and 1993 Statements of Cash Flows - For the six months ended June 30, 1994 and 1993 Hotel Investors Corporation: Balance Sheets - As of June 30, 1994 and December 31, 1993 Statements of Operations - For the three months ended June 30, 1994 and 1993 Statements of Operations - For the six months ended June 30, 1994 and 1993 Statements of Cash Flows - For the six months ended June 30, 1994 and 1993 - 4 - 5 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION COMBINED BALANCE SHEETS (Unaudited)
June 30, December 31, 1994 1993 ------------ ------------ ASSETS Hotel assets, net....................................... $161,284,000 $167,249,000 Mortgage notes receivable, net ......................... 10,791,000 11,642,000 Investment in joint venture hotel properties............ 304,000 281,000 ------------ ------------ Total real estate investments .................... 172,379,000 179,172,000 Cash and cash equivalents .............................. 8,155,000 5,652,000 Accounts receivable .................................... 5,698,000 4,360,000 Notes receivable, net .................................. 1,667,000 1,717,000 Inventories, prepaid expenses and other assets ......... 4,445,000 4,451,000 ------------ ------------ $192,344,000 $195,352,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Secured notes payable and revolving line of credit .... $127,397,000 $128,802,000 Mortgage and other notes payable ...................... 41,277,000 42,084,000 Accounts payable and other liabilities ................ 9,735,000 11,140,000 ------------ ------------ 178,409,000 182,026,000 ------------ ------------ Commitments and contingencies SHAREHOLDERS' EQUITY Trust shares of beneficial interest, $1.00 par value; authorized 30,000,000 shares; outstanding 12,132,948 shares .................................. 12,133,000 12,133,000 Corporation common stock, $0.10 par value; authorized 30,000,000 shares; outstanding 12,132,948 shares ...................... 1,213,000 1,213,000 Additional paid-in capital ............................ 210,497,000 210,497,000 Share purchase notes .................................. (280,000) (291,000) Accumulated deficit ................................... (209,628,000) (210,226,000) ------------ ------------ 13,935,000 13,326,000 ------------ ------------ $192,344,000 $195,352,000 ============ ============
- 5 - 6 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION COMBINED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, --------------------------- 1994 1993 ----------- ----------- REVENUE Hotel ................................................. $21,308,000 $22,618,000 Gaming ................................................ 7,125,000 6,804,000 Interest from mortgage and other notes ................ 407,000 355,000 Management fees and other ............................. 249,000 151,000 Rents from leased hotel properties .................... 313,000 263,000 Gain on sale of hotel assets........................... 592,000 119,000 ----------- ----------- 29,994,000 30,310,000 ----------- ----------- EXPENSES Hotel operations ...................................... 15,556,000 17,454,000 Gaming operations ..................................... 6,166,000 5,873,000 Interest .............................................. 4,333,000 3,897,000 Depreciation and amortization ......................... 1,947,000 2,197,000 Administrative and operating .......................... 1,059,000 1,093,000 ----------- ----------- 29,061,000 30,514,000 ----------- ----------- NET INCOME (LOSS) $ 933,000 $ (204,000) =========== =========== NET INCOME (LOSS) PER PAIRED SHARE $0.07 $(0.02) =========== =========== Weighted average number of paired shares 13,143,666 12,132,948 =========== ===========
- 6 - 7 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION COMBINED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, --------------------------- 1994 1993 ----------- ----------- REVENUE Hotel ................................................. $41,894,000 $43,081,000 Gaming ................................................ 14,313,000 13,483,000 Interest from mortgage and other notes ................ 762,000 692,000 Management fees and other ............................. 308,000 406,000 Rents from leased hotel properties .................... 463,000 461,000 Gain on sale of hotel assets........................... 592,000 108,000 ----------- ----------- 58,332,000 58,231,000 ----------- ----------- EXPENSES Hotel operations ...................................... 31,124,000 33,819,000 Gaming operations ..................................... 12,159,000 11,608,000 Interest .............................................. 8,458,000 7,541,000 Depreciation and amortization ......................... 4,013,000 4,413,000 Administrative and operating .......................... 1,980,000 2,330,000 ----------- ----------- 57,734,000 59,711,000 ----------- ----------- NET INCOME (LOSS) $ 598,000 $(1,480,000) =========== =========== NET INCOME (LOSS) PER PAIRED SHARE $0.05 $(0.12) =========== =========== Weighted average number of paired shares 13,162,440 12,132,948 =========== ===========
- 7 - 8 HOTEL INVESTORS TRUST AND HOTEL INVESTORS CORPORATION COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, -------------------------------- 1994 1993 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ...................................... $ 598,000 $(1,480,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ........................ 4,013,000 4,413,000 Capitalized loan costs and deferred interest ......... 1,339,000 5,821,000 (Gain) loss on sales of hotel assets ................. (592,000) (108,000) Changes in operating assets and liabilities: Accounts receivable, inventories, prepaid expenses and other assets........................................ (1,332,000) (2,131,000) Accounts payable and other liabilities ............... (1,405,000) (6,737,000) ----------- ----------- Net cash provided by operating activities ........................... 2,621,000 (222,000) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to hotel assets .............................. (1,098,000) (3,055,000) Net proceeds from sales of assets ...................... 3,674,000 3,912,000 Increase in mortgage notes receivable................... (1,985,000) Principal received on notes receivable ................. 846,000 164,000 Other intangible assets................................. (8,000) Acquisition of minority interest ....................... (1,575,000) ----------- ----------- Net cash provided by (used in) investing activities .......................... 3,422,000 (2,547,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgage and other notes payable .................................. (807,000) (444,000) Principal payments on secured notes payable and revolving line of credit ............................. (6,044,000) (2,537,000) Borrowings under mortgage and other notes .............. 746,000 Increase in secured notes payable and revolving line of credit ............................. 3,300,000 Distributions to minority shareholders ................. (21,000) Principal received on share purchase notes ............. 11,000 5,000 ----------- ----------- Net cash provided by financing activities .......................... (3,540,000) (2,251,000) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ 2,503,000 (5,020,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................. 5,652,000 10,517,000 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 8,155,000 $ 5,497,000 =========== ===========
- 8 - 9 HOTEL INVESTORS TRUST BALANCE SHEETS (Unaudited)
June 30, December 31, 1994 1993 ------------ ------------ ASSETS Hotel assets, net ...................................... $ 125,065,000 $ 129,918,000 Mortgage notes receivable, net ......................... 10,791,000 11,642,000 Investment in joint venture hotel properties ........... 293,000 276,000 ------------- ------------- Total real estate investments .................... 136,149,000 141,836,000 Cash and cash equivalents .............................. 1,468,000 918,000 Accounts receivable .................................... 702,000 1,011,000 Notes receivable - Corporation ......................... 89,535,000 87,486,000 Notes receivable, net .................................. 1,016,000 1,025,000 Prepaid expenses and other assets ...................... 709,000 569,000 ------------- ------------- $ 229,579,000 $ 232,845,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Secured notes payable and revolving line of credit ..... $ 127,397,000 $ 128,802,000 Mortgage and other notes payable ....................... 27,144,000 27,724,000 Accounts payable and other liabilities ................. 2,688,000 4,114,000 ------------- ------------- 157,229,000 160,640,000 ------------- ------------- Commitments and contingencies SHAREHOLDERS' EQUITY Trust shares of beneficial interest, $1.00 par value; authorized 30,000,000 shares; outstanding 12,132,948 shares ................................... 12,133,000 12,133,000 Additional paid-in capital ............................. 204,640,000 204,640,000 Share purchase notes ................................... (280,000) (291,000) Accumulated deficit .................................... (144,143,000) (144,277,000) ------------- ------------- 72,350,000 72,205,000 ------------- ------------- $ 229,579,000 $ 232,845,000 ============= =============
- 9 - 10 HOTEL INVESTORS TRUST STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, ------------------------------- 1994 1993 ---------- ---------- REVENUE Rents from Corporation ..................................... $4,143,000 $4,189,000 Interest from Corporation .................................. 426,000 399,000 Interest from mortgage and other notes ..................... 399,000 320,000 Rents from other leased hotel properties ................... 313,000 263,000 Other ...................................................... 93,000 146,000 Gain on sale of hotel assets................................ 579,000 160,000 ---------- ---------- 5,953,000 5,477,000 ---------- ---------- EXPENSES Interest.................................................... 3,996,000 3,573,000 Depreciation and amortization .............................. 1,313,000 1,435,000 Administrative and operating ............................... 356,000 428,000 ---------- ---------- 5,665,000 5,436,000 ---------- ---------- NET INCOME (LOSS) $ 288,000 $ 41,000 ========== ========== NET INCOME (LOSS) PER SHARE $0.02 $0.00 ========== ==========
- 10 - 11 HOTEL INVESTORS TRUST STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, --------------------------------- 1994 1993 ----------- ----------- REVENUE Rents from Corporation .................................... $ 8,456,000 $ 8,348,000 Interest from Corporation ................................. 841,000 744,000 Interest from mortgage and other notes .................... 738,000 613,000 Rents from other leased hotel properties .................. 463,000 461,000 Other ..................................................... 119,000 252,000 Gain on sale of hotel assets............................... 579,000 141,000 ----------- ----------- 11,196,000 10,559,000 ----------- ----------- EXPENSES Interest .................................................. 7,775,000 6,928,000 Depreciation and amortization ............................. 2,565,000 2,854,000 Administrative and operating .............................. 722,000 944,000 ----------- ----------- 11,062,000 10,726,000 ----------- ----------- NET INCOME (LOSS) $ 134,000 $ (167,000) =========== =========== NET INCOME (LOSS) PER SHARE $0.01 $(0.01) =========== ===========
- 11 - 12 HOTEL INVESTORS TRUST STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, --------------------------- 1994 1993 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ..................................... $ 134,000 $ (167,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ........................ 2,565,000 2,854,000 Capitalized loan costs and deferred interest ........ 1,339,000 5,821,000 (Gain) loss on sales of hotel assets ................ (579,000) (141,000) Changes in operating assets and liabilities: Accounts receivable, prepaid expenses and other assets ...................................... 169,000 599,000 Accounts payable and other liabilities............... (1,426,000) (7,171,000) ---------- ---------- Net cash provided by operating activities .......................... 2,202,000 1,795,000 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to hotel assets .............................. (763,000) (161,000) Net proceeds from sales of assets ..................... 3,668,000 3,307,000 Increase in mortgage notes receivable.................. (1,985,000) Principal received on mortgage and other notes receivable .......................... 805,000 142,000 Other intangible assets................................ (8,000) Net changes in notes receivable - Corporation .......... (2,049,000) (308,000) Acquisition of minority interest ...................... (1,575,000) ---------- ---------- Net cash provided by (used in) investing activities .......................... 1,661,000 (588,000) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgage and other notes payable ................................. (580,000) (408,000) Principal payments on secured notes payable and revolving line of credit ............................ (6,044,000) (2,537,000) Payments to minority shareholders ..................... (18,000) Increase in secured notes payable and revolving line of credit ............................ 3,300,000 Principal received on share purchase notes ............ 11,000 ---------- ---------- Net cash provided by (used in) financing activities .......................... (3,313,000) (2,963,000) ---------- ---------- DECREASE IN CASH AND CASH EQUIVALENTS ................................ 550,000 (1,756,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................. 918,000 2,615,000 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $1,468,000 $ 859,000 ========== ==========
- 12 - 13 HOTEL INVESTORS CORPORATION BALANCE SHEETS (Unaudited)
June 30, December 31, 1994 1993 ------------ ------------ ASSETS Hotel assets, net ..................................... $ 36,219,000 $ 37,331,000 Investment in joint venture hotel properties .......... 11,000 5,000 ------------ ------------ Total real estate investments ................... 36,230,000 37,336,000 Cash and cash equivalents ............................. 6,687,000 4,734,000 Accounts receivable ................................... 4,996,000 3,349,000 Notes receivable ...................................... 651,000 692,000 Inventories, prepaid expenses and other assets ........ 3,736,000 3,882,000 ------------ ------------ $ 52,300,000 $ 49,993,000 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT LIABILITIES Mortgage and other notes payable ...................... $ 14,133,000 $ 14,360,000 Notes payable - Trust ................................. 89,535,000 87,486,000 Accounts payable and other liabilities ................ 7,047,000 7,026,000 ------------ ------------ 110,715,000 108,872,000 ------------ ------------ Commitments and contingencies SHAREHOLDERS' DEFICIT Corporation common stock, $0.10 par value; authorized 30,000,000 shares; outstanding 12,132,948 shares ...................... 1,213,000 1,213,000 Additional paid-in capital ............................ 5,857,000 5,857,000 Accumulated deficit ................................... (65,485,000) (65,949,000) ------------ ------------ (58,415,000) (58,879,000) ------------ ------------ $ 52,300,000 $ 49,993,000 ============ ============
- 13 - 14 HOTEL INVESTORS CORPORATION STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, --------------------------- 1994 1993 ----------- ----------- REVENUE Hotel ................................................. $21,308,000 $22,618,000 Gaming ................................................ 7,125,000 6,804,000 Interest from notes receivable ........................ 8,000 35,000 Management fees and other income ...................... 156,000 5,000 Gain (loss) on sales of hotel assets................... 13,000 (41,000) ----------- ----------- 28,610,000 29,421,000 ----------- ----------- EXPENSES Hotel operations ...................................... 15,556,000 17,454,000 Gaming operations ..................................... 6,166,000 5,873,000 Rent - Trust .......................................... 4,143,000 4,189,000 Interest - Trust ...................................... 426,000 399,000 Interest - other ...................................... 337,000 324,000 Depreciation and amortization ......................... 634,000 762,000 Administrative and operating .......................... 703,000 665,000 ----------- ----------- 27,965,000 29,666,000 ----------- ----------- NET INCOME (LOSS) $ 645,000 $ (245,000) =========== =========== NET INCOME (LOSS) PER SHARE $0.05 $(0.02) =========== ===========
- 14 - 15 HOTEL INVESTORS CORPORATION STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended June 30, --------------------------- 1994 1993 ----------- ----------- REVENUE Hotel ................................................. $41,894,000 $43,081,000 Gaming ................................................ 14,313,000 13,483,000 Interest from notes receivable ........................ 24,000 79,000 Management fees and other income ...................... 189,000 154,000 Gain (loss) on sales of hotel assets................... 13,000 (33,000) ----------- ----------- 56,433,000 56,764,000 ----------- ----------- EXPENSES Hotel operations ...................................... 31,124,000 33,819,000 Gaming operations ..................................... 12,159,000 11,608,000 Rent - Trust .......................................... 8,456,000 8,348,000 Interest - Trust ...................................... 841,000 744,000 Interest - other ...................................... 683,000 613,000 Depreciation and amortization ......................... 1,448,000 1,559,000 Administrative and operating .......................... 1,258,000 1,386,000 ----------- ----------- 55,969,000 58,077,000 =========== =========== NET INCOME (LOSS) $ 464,000 $(1,313,000) =========== =========== NET INCOME (LOSS) PER SHARE $0.04 $(0.11) =========== ===========
- 15 - 16 HOTEL INVESTORS CORPORATION STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, --------------------------------- 1994 1993 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ..................................... $ 464,000 $(1,313,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ....................... 1,448,000 1,559,000 Gain (loss) on sales of hotel assets ................ (13,000) 33,000 Changes in operating assets and liabilities: Accounts receivable inventories, prepaid expenses and other assets ...................................... (1,501,000) (2,730,000) Accounts payable and other liabilities............... 21,000 434,000 ----------- ----------- Net cash provided by (used in) operating activities .......................... 419,000 (2,017,000) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to hotel assets ............................. (335,000) (2,894,000) Net proceeds from sales of hotel assets ............... 6,000 605,000 Principal received on notes receivable ................ 41,000 22,000 ----------- ----------- Net cash used in investing activities .......................... (288,000) (2,267,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in notes payable - Trust ................... 2,049,000 308,000 Principal payments on mortgage and other notes payable ................................. (227,000) (36,000) Borrowings under mortgage and other notes ............. 746,000 Payments to minority shareholders ..................... (3,000) Principal received on share notes...................... 5,000 ----------- ----------- Net cash provided by financing activities .......................... 1,822,000 1,020,000 ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ 1,953,000 (3,264,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................. 4,734,000 7,902,000 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 6,687,000 $ 4,638,000 =========== ===========
- 16 - 17 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis should be read in conjunction with the Management's Discussion and Analysis included in the 1993 Form 10-K (the "1993 Form 10-K MD&A") for the year ended December 31, 1993. The sections of the "Recent Developments" portion of Items 1 and 2 of Part I of the 1993 Form 10-K captioned "Debt Restructuring", "Acquisition of Assets of U.S. Equity", "Milwaukee Marriott Hotel", "Northview Corporation", "Certain Property Sales and Related Transactions", "Mortgage Notes Payable Maturing in 1994" and the discussions of seasonality, competition, and certain environmental matters included in those Items under the heading "Other Information," are specifically incorporated by reference herein. As discussed in Items 1 and 2 of the 1993 Form 10-K under the caption "Recent Developments - Debt Restructuring", on January 28, 1993 the Trust entered into the Credit Agreement which restructured its previously unsecured notes payable to two banks and three insurance companies as a secured term loan (the "Term Loan") and a secured revolving line of credit (the "Line of Credit") (together the "Restructured Debt"). Although the Trust is not in default under the Credit Agreement through the date of this Form 10-Q, the Trust's ability to comply in the future with the requirements of the Credit Agreement cannot presently be determined. Further, because of the substantial operating losses and cash flow deficiencies experienced by the Corporation, which also has a deficiency in net assets, the ultimate recovery of all amounts due to the Trust from the Corporation is highly uncertain. These conditions raise substantial doubts about the Trust's and the Corporation's ability to continue as going concerns. The Trust and Corporation must continue to sell properties to meet the principal payment requirements of the Credit Agreement. Further, the Trust may be required to further restructure the indebtedness of the Corporation to the Trust on an annual or long-term basis if the Corporation is to continue to operate. Sales of hotel properties have impacted and will continue to impact revenues and expenses of the Trust and the Corporation. Because the Credit Agreement requires the net proceeds from hotel sales to be applied to the repayment of debt, sales of hotels will result in decreased interest expense for the Trust. In addition, the income of the Trust will be decreased as the Trust will no longer receive rental income from the Corporation after a property has been sold, which may be offset by interest income on any notes receivable generated from a sale. Sales of hotel properties will also decrease the depreciation and amortization expense of the Trust. The aggregate impact on revenues and expenses will depend on the properties to be sold, the terms of the sales and the timing of the sales. See Part I, Item 1 under the heading "Reorganization" and "Liquidity and Capital Resources" below for information regarding the Reorganization of the Trust and the Corporation. - 17 - 18 Results of Operations for the Six and Three Months Ended June 30, 1994 and 1993 Trust: Rents from Corporation increased $108,000 and decreased by $46,000 for the six and three months ended June 30, 1994, respectively, as compared to the corresponding periods of 1993. The increase in rental income during the six months ended June 30, 1994 is due to increased hotel revenues for the hotels leased by the Corporation from the Trust (which resulted in higher percentage rents) offset by a decrease in such rents of $274,000 resulting from the sale of hotels in Tucker, Georgia (June 1993) and St. Louis, Missouri (December 1993). The decrease in rental income for the three months ended June 30, 1994 is due to a decrease of $120,000 resulting from the hotel sales partially offset by increased rents for the hotels which continue to be leased by the Corporation from the Trust. Interest from Corporation increased by $97,000 for the six months ended June 30, 1994 and $27,000 for the three months ended June 30, 1994, respectively, as compared to the corresponding periods of 1993. The increase in interest income is a result of the higher amounts outstanding under the Milwaukee notes, which increased from $13,667,000 at December 31, 1992 to $15,185,000 at December 31, 1993 as a result of the making of certain capital improvements. (For information pertaining to such notes, see the 1993 Form 10-K under the caption "Milwaukee Marriott Hotel".) Gain (loss) on sales of hotel assets for the six and three months ended June 30, 1994, respectively, reflects a gain of $634,000 for the May 1994 all cash sale of the hotel property located in Austin, Texas offset by a discount of $55,000 resulting from the early payoff of the mortgage note receivable relating to the Spartanburg, South Carolina property which was sold in 1992. Gain (loss) on sales of hotel assets for the six and three months ended June 30, 1993 included the January 1993 sale of the hotel property located in Smyrna, Georgia which resulted in a $19,000 loss and the June 1993 sale of the hotel property located in Tucker, Georgia which resulted in a $160,000 gain. Interest expense increased by $847,000 for the six months ended June 30, 1994 as compared to the corresponding period of 1993. Interest expense increased by $423,000 for the three months ended June 30, 1994 as compared to the corresponding period of 1993. The increases are due to an increase in the interest rate payable on borrowings outstanding under the Term Loan and the Line of Credit. Depreciation and amortization expense decreased by $289,000 and $122,000 during the six and three months ended June 30, 1994, respectively, as compared to the corresponding period of 1993, principally due to the above mentioned property sales and to provisions for investment losses recorded in the third and fourth quarters of 1993, which reduced depreciable book values. - 18 - 19 Administrative and operating expenses decreased by $222,000 and $72,000 during the six and three months ended June 30, 1994, respectively, as compared to the corresponding period in 1993. The decreases are a result of lower professional fees and insurance expense. Corporation: Hotel revenues decreased by $1,187,000 and $1,310,000 for the six and three months ended June 30, 1994, respectively, as compared to the corresponding period of 1993. The hotel sales discussed above resulted in decreased revenue of $1,752,000 and $1,003,000 for the six and three months ended June 30, 1994, respectively, as compared to the corresponding period of 1993. In March 1994 the franchise agreement and management agreement with Marriott Corporation for the Dallas property were terminated. The property is now being managed for the Corporation by Sage Hospitality and is being operated as an independent hotel and has been renamed the Dallas Park Central Hotel. Revenues at the Dallas property decreased by $1,139,000 and $1,121,000 for the six and three months ended June 30, 1994. The decreases from property sales and the Dallas property were offset by increased revenues of $1,704,000 and $814,000 for the six and three months ended June 30, 1994, respectively, at the properties which continue to be leased from the Trust by the Corporation including increases of $742,000 and $431,000 for the six months and the three months ended June 30, 1994, respectively, at the Milwaukee Marriott, which was renovated during 1993. The following table summarizes average occupancy and average room rates for properties which continue to be operated by the Corporation under lease from the Trust as of June 30, 1994:
Six Months Ended Three Months Ended June 30, June 30, ---------------- ------------------ Including Dallas Park Central: 1994 1993 1994 1993 ------------------------------ ------ ------ ------ ------ Occupancy Rate 66.0% 62.9% 67.6% 65.3% Average Room Rate $56.54 $57.55 $56.11 $58.01 Excluding Dallas Park Central: ------------------------------ Occupancy Rate 67.6% 62.7% 70.8% 65.3% Average Room Rate $56.27 $56.75 $56.08 $57.15
Management of the Corporation believes that the increases in the average occupancy rate resulted primarily from more favorable economic conditions which have created increased business and pleasure travel throughout the United States. Gaming revenues for the first six months of 1994 as compared to the corresponding period of 1993 increased by $830,000 or 6.2% to $14,313,000. Gaming revenues for the three months ended June 30, 1994 increased by $321,000 or 4.7% to $7,125,000 as compared to the corresponding period of 1993. Management believes that the higher revenues at the two gaming facilities are a result of increased travel to the Las Vegas area, and in particular, increased - 19 - 20 customer traffic due to the proximity of the King 8 Hotel and Casino to several large hotel/casinos completed during 1993. Hotel expenses for the first six months of 1994 were $31,124,000 or 74.3% of hotel revenues as compared to $33,819,000 or 78.5% of hotel revenues for the first six months of 1993. Hotel expenses were $15,556,000 or 73.0% of hotel revenues as compared to $17,454,000 or 77.2% of hotel revenues for the three months ended June 30, 1994 and 1993, respectively. The decreases in hotel expenses as a percentage of hotel revenue are primarily due to the lower cost of operating the Dallas property (see discussion of hotel revenues above) where operating expenses have historically been higher than at other hotel properties and the additional operating margin resulting from the renovation of the Milwaukee Marriott discussed above. Gaming expenses were $12,159,000 or 85.0% of gaming revenues as compared to $11,608,000 or 86.1% for the six months ended June 30, 1994 and 1993, respectively. Gaming expenses were $6,166,000 or 86.5% of gaming revenues as compared to $5,873,000 or 86.3% for the three months ended June 30, 1994 and 1993, respectively. Management believes that increased gaming revenues, coupled with improved casino win percentages, have resulted in the decrease in gaming expenses as a percentage of gaming revenues for the six months ended June 30, 1994. Administrative and operating expenses decreased by $128,000 and increased by $38,000 for the six and three months ended June 30, 1994, respectively, as compared to the corresponding periods of 1993. The decrease for the six months ended June 30, 1994 is primarily a result of a reduction in the level of corporate staff. Depreciation expense decreased by $111,000 and $128,000 for the six months and the three months ended June 30, 1994, respectively, as compared to the corresponding periods of 1993. The decreases are a result of the sale of hotels (see "Trust" immediately above) partially offset by an increase as a result of the $4,300,000 renovation of the Milwaukee Marriott Hotel completed in December 1993. For information with respect to rent and interest to the Trust during the six and three months ended June 30, 1994 and 1993, see "Trust" immediately above. - 20 - 21 Liquidity and Capital Resources The primary sources of liquidity for the Trust are cash generated from operations (i.e., its rents) and net proceeds from the sale of hotels. The primary demands on the Trust's capital resources are debt service payments, the funding of capital improvements to the Trust's properties and the making of additional loans and advances to the Corporation. As of December 31, 1992, an aggregate of $87,490,000 was owed by the Corporation to the Trust as accrued but unpaid rent and other indebtedness. As of January 1, 1993, a total of $448,000 of then accrued and unpaid rents and interest were added to the intercompany debt. During 1993 and 1994, no interest accrued or will accrue on the Corporation's debt to the Trust; beginning January 1, 1995, the outstanding principal balance of the Corporation's debt to the Trust will bear interest at an annual rate equal to the prime rate of one of the Trust's banks from time to time plus 2%. However, there can be no assurance that the Corporation will be able to meet its debt obligations to the Trust in future years. The 1993 restructuring of the leases between the Trust and the Corporation, the two-year interest moratorium on the Corporation's debt to the Trust, and the sales of the Trust's hotels which were made in 1993 and that are anticipated to be made in 1994 are expected to lower the rents and interest received by the Trust from the Corporation in 1994. The Trust will seek to generate from its operations sufficient cash flow to pay the interest due on the Term Loan, the Line of Credit and the Trust's other mortgage debt, as well as to fund required capital improvements; however, debt principal payments are expected to be made primarily from the proceeds of hotel sales and (in the case of mortgage debt other than the Restructured Debt) from debt refinancings. (For information with respect to such mortgage debt, see the 1993 Form 10-K under the caption "Mortgage Notes Payable Maturing in 1994".) There can be no assurance, however, that either the Trust's operations or the Trust's sale of hotels will produce sufficient cash to make the required payments of principal and interest. (See "Recent Developments - Debt Restructuring" included in Items 1 and 2 of the 1993 Form 10-K.) As of the date of this Form 10-Q, the Trust has made payments totaling $3,964,000 against the $9.0 million mandatory principal payment which is due under the Term Loan on August 31, 1994. The Trust has exercised the put option for the $6,000,000 sale of the Albany property to Starwood (see Part I, Item 1 under the heading Reorganization). Starwood is obligated, subject to certain conditions, to purchase the property prior to the due date of the mandatory principal payment. In addition, $1,428,000 would be available upon receipt of the payoff of a mortgage note receivable which matures prior to August 31, 1994. There can be no assurance that the sale transaction or the mortgage note payoff will occur or that the Trust will have sufficient funds available to make the payment of the $5,036,000 remaining due for the mandatory principal payment under the Term Loan on August 31, 1994. The primary source of liquidity for the Corporation is cash generated from operations - i.e., from sales of rooms, food and beverages at the hotels and hotel/casinos the Corporation leases from the Trust and gaming revenues at the two Nevada properties, net of - 21 - 22 management fees with respect to the nine hotels managed by independent management companies. The primary demands on the Corporation's capital resources are the payment of rents and interest due to the Trust and the Corporation's general and administrative expenses. The two-year interest moratorium on the Corporation's debt to the Trust and the reduction in future rentals due to the Trust are expected to improve the Corporation's 1994 cash flows and income, although sales of the Trust's hotels managed by the Corporation are expected to reduce the Corporation's revenues. The Corporation may continue to incur cash flow deficiencies and the Corporation expects to continue to request that the Trust loan the Corporation the funds required to meet those deficiencies. The Corporation currently has no other means of obtaining the funds to cover its cash flow deficiencies or to repay the principal amount of the Corporation's debt to the Trust. As described in Items 1 and 2 of the 1993 Form 10-K under the caption "Recent Developments - Debt Restructuring", the Credit Agreement requires that the Trust and the Corporation apply on a daily basis any cash in excess of certain specified thresholds to borrowings outstanding under the Revolving Line of Credit. Amounts so paid are available for future borrowings to pay interest on the Restructured Debt, to make principal payments on the Term Loan and to pay other expenses incurred in connection with Hotel Investors' operations. As of June 30, 1994, $2,553,000 was available to the Trust under the Revolving Line of Credit. However, should the Trust or the Corporation fail to comply with its obligations under the Credit Agreement and related documents, the Trust's lenders will have the power to substantially restrict the Trust's and the Corporation's access to and ability to utilize its cash. The Trust intends to make during 1994, to the extent that the Trust has the necessary funds available, improvements to the Trust's properties that are necessary to maintain the properties in good condition or that are required by franchisors or applicable health and safety and other laws. The Trust expects that provided funds are available, the cost of such improvements will be approximately $3,720,000 during 1994. As discussed in Items 1 and 2 of the 1993 Form 10-K, Hotel Investors' capital improvements are subject to the approval of the Trust's lenders. For information with respect to potential hazardous waste contamination and the presence of asbestos at certain of the Trust's hotels and the possible impact thereof on the Trust's and the Corporation's financial position, see "Other Information - Certain Environmental Matters" included in Items 1 and 2 of the 1993 Form 10-K. - 22 - 23 PART II OTHER INFORMATION Item 1. Legal Proceedings On July 20, 1994, the United States District Court for the Southern District of California entered a Final Judgment of Dismissal With Prejudice ("Final Judgment") of the two purported class actions filed in that Court entitled Naomi Horowitz v. Hotel Investors Trust et al and Joyce Uttan I.R.A. et al v. Hotel Investors Trust et al ("Final Judgment"). For additional information with respect to these actions and the related derivative action filed in the Superior Court of the State of California for San Diego County captioned Richard Carno and Sonem Partners Ltd. v. Ronald A. Young et al., see information included in Item 3 of the 1993 Form 10-K under the caption "Naomi Horowitz v. Hotel Investors Trust et al; Joyce Uttan I.R.A. et al v. Hotel Investors Trust et al," which information is incorporated herein by reference. The Uttan, Horowitz, and Carno cases are collectively referred to herein as the "Shareholder Actions." Pursuant to the Final Judgment, the District Court, among other things, approved the settlement set forth in stipulations of settlement ("Stipulation") entered into among the plaintiffs and defendants in the Shareholder Actions, as well as the insurance company that issued Hotel Investors' directors and officers policy applicable to the period to which Shareholder Actions relate. Under the Final Judgment, all claims that were or might have been made in the Shareholder Actions are deemed released as of the Effective Date (as defined in the Stipulation), and a $3,205,000 cash settlement fund is to be established which, after the deduction of fees and costs to plaintiffs' counsel, will be distributed to qualified members of the certified plaintiff classes according to an allocation formula that includes a calculation based on certain shares that have opted out of the settlement. Of the settlement fund, $2,500,000 will be paid by the insurance company, $400,000 will be paid by Hotel Investors, and $350,000 will be paid by Messrs. John Rothman and Ronald Young. Upon completion of the claims administration process, any funds remaining, up to a limit of $325,000, shall be returned to the parties who contributed to the settlement fund on a pro rata basis. The parties contributing to the settlement fund have previously established a separate $45,000 fund to be used for purposes of notifying the classes and otherwise administering the settlement. Legal fees and other costs incurred by the defendants in the Shareholder Actions prior to October 12, 1993, will be paid by Hotel Investors; subsequent defense costs will be paid by the insurance company. An aggregate of approximately 1,199,000 shares opted out of the settlement. On July 25, 1994, the Superior Court entered an Order Determining Good Faith, pursuant to which the Court determined that the settlement of the Carno case, as reflected in the Stipulation, was made in good faith, and that all claims that were made or might have been made in that action were released and discharged. The Stipulation also requires that the Trust's Board of Trustees and the Corporation's Board of Directors establish a joint transaction committee of independent Trustees and Directors - 23 - 24 to make recommendations to those Boards with respect to any transaction proposed in the future by management and having a fair market value of $20 million or more. In connection with the settlement of the Shareholders Actions, Messrs. Young and Rothman and certain of their affiliated partnerships have terminated the management agreements that existed between those partnerships and the Corporation's subsidiary, Western Host, Inc. (the "Management Contracts"), and Western Host has agreed to forbear from disputing such action and has withdrawn as a general partner of two additional affiliated partnerships. In satisfaction of any damages that Hotel Investors may incur as a result of the termination of the Management Contracts, Messrs. Rothman and Young have provided to Hotel Investors an irrevocable letter of credit in the amount of $800,000 and have a one-year term. Upon final Court approval of the Shareholder Actions, proceeds from the letter of credit would be paid to Hotel Investors, and the parties to the Management Contracts, Messrs. Rothman and Young and Hotel Investors, will release all of their respective claims related to the termination of the Management Contracts. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) The following Exhibits are filed as part of this Form 10-Q:
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- 99.1 Pages 11 (beginning at "Recent Developments") through 20 (concluding at "Regulation and Licensing") of the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1993 (the "1993 Form 10-K") (incorporated by reference to the 1993 Form 10-K (SEC File Nos. 1-6828/1-7959)).
- 24 - 25 (b) Reports on Form 8-K The Trust and the Corporation filed a Joint Form 8-K dated June 13, 1994, to report under Item 5 of Form 8-K the Reorganization described under "Reorganization" in Item 1 or this Form 10-Q. - 25 - 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOTEL INVESTORS TRUST HOTEL INVESTORS CORPORATION Registrant Registrant /s/ MICHAEL W. MOONEY /s/ KEVIN E. MALLORY - - - ----------------------------------------------- -------------------------------------------------- Michael W. Mooney Kevin E. Mallory Vice President and Chief Executive Vice President (Principal Financial Officer Executive Officer) Hotel Investors Trust Hotel Investors Corporation Hotel Investors Corporation has no chief financial officer or principal accounting officer.
Date: August 12, 1994 - 26 - -----END PRIVACY-ENHANCED MESSAGE-----