-----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, WRpIcvw7Af39PYcqF1m1kRXGaX5a+3B7I+h+KWzMAiHz1FsjsKlIS7rWCzARfkyr FOxnn8o9ZoREJoG9/sq6Ow== 0000950148-96-000375.txt : 19960314 0000950148-96-000375.hdr.sgml : 19960314 ACCESSION NUMBER: 0000950148-96-000375 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950131 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960313 SROS: AMEX SROS: BSE SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARWOOD LODGING TRUST CENTRAL INDEX KEY: 0000048595 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 520901263 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06828 FILM NUMBER: 96534497 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 /MD/ DATE OF NAME CHANGE: 19930506 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARWOOD LODGING CORP CENTRAL INDEX KEY: 0000316206 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 521193298 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-07959 FILM NUMBER: 96534498 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 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS CORP DATE OF NAME CHANGE: 19920703 8-K/A 1 FORM 8-K/A 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A2 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): January 31, 1995 Commission File Number: 1-6828 Commission File Number: 1-7959 STARWOOD LODGING STARWOOD LODGING 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.) 11835 West Olympic Blvd., Suite 695 11835 West Olympic Blvd., Suite 675 Los Angeles, California 90064 Los Angeles, California 90064 (310) 575-3900 (310) 575-3900 (Address of principal executive (Address of principal executive offices, including zip code) offices, including zip code) (310) 575-3900 (310) 575-3900 (Registrant's telephone number, (Registrant's telephone number, including area code) including area code) Hotel Investors Trust Hotel Investors Corporation 11845 W. Olympic Blvd., Suite 550 11845 W. Olympic Blvd., Suite 560 Los Angeles, California 90064 Los Angeles, California 90064 (Former name or former address, (Former name or former address, if changed since last report) if changed since last report)
============================================================================= The undersigned Registrants hereby amend the following items, the financial statements, Pro Forma Financial Information and Exhibits of their Form 8-K dated January 31, 1995 as set forth in the pages attached hereto: 2 Item 7 of the Joint Current Report on Form 8-K dated January 31, 1995 filed by Starwood Lodging Trust and Starwood Lodging Corporation is hereby amended to read in its entirety as follows: ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Businesses Acquired. See Index to Financial Statements (page F-1). (b) Pro Forma Financial Information. See Index to Financial Statements (page F-1). (c) Exhibits. 2A. Formation Agreement dated as of November 11, 1994 among the Trust, the Corporation, the Starwood Partners and Starwood (incorporated herein by reference to Exhibit 2 to the Registrants' Current Report on Form 8-K dated November 16, 1994). 2B. Exchange Rights Agreement dated as of January 1, 1995 among the Trust, the Corporation, the Realty Partnership, the Operating Partnership and the Starwood Partners. 2C. Registration Rights Agreement dated as of January 1, 1995 among the Trust, the Corporation and Starwood. 2D. Limited Partnership Agreement for the Realty Partnership dated as of December 15, 1994 among the Trust and the Starwood Partners. 2E. Limited Partnership Agreement for the Operating Partnership dated as of December 15, 1994 among the Corporation and the Starwood Partners. 3A. Amended and Restated Declaration of Trust. 3B. Articles of Amendment and Restatement of Articles of Incorporation of the Corporation. 3 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, thereto duly authorized. STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION By: /s/ RONALD C. BROWN By: /s/ KEVIN E. MALLORY ----------------------------- ------------------------------ Ronald C. Brown Kevin E. Mallory Vice President and Chief Executive Vice President Financial Officer (Principal Financial Officer) Date: March 12, 1996 4 INDEX TO FINANCIAL STATEMENTS STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION - PRO FORMA (UNAUDITED) Pro Forma Separate and Combined Balance Sheets as of December 31, 1994 . . . . . . . . . F-3 Pro Forma Separate and Combined Statements of Operations for the year ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6 SLT REALTY L.P. AND SLC OPERATING L.P. - PRO FORMA (UNAUDITED) Separate and Combined Balance Sheets as of December 31, 1994 . . . . . . . . . . . . . F-9 Separate and Combined Statements of Operations for the year ended December 31, 1994 . . F-13 STARWOOD WICHITA INVESTORS, L.P. Reports of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . F-15 Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . F-17 Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18 Statements of Changes in Partners' Capital . . . . . . . . . . . . . . . . . . . . . . F-19 Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22 THE FRENCH QUARTER SQUARE Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25 Balance Sheet as of December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . F-26 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27 Statement of Changes in Partners' Capital . . . . . . . . . . . . . . . . . . . . . . . F-28 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30 Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33 Schedule of Operating Revenue and Certain Expenses . . . . . . . . . . . . . . . . . . F-34 Notes to Schedules of Operating Revenue and Certain Expenses . . . . . . . . . . . . . F-35 CAPITOL HILL SUITES Reports of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . F-37 Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . F-39 Statements of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40 Statements of Changes in Stockholders Equity . . . . . . . . . . . . . . . . . . . . . F-41 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43 DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . F-45 Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . F-46 Statements of Operations and Owners' Equity . . . . . . . . . . . . . . . . . . . . . . F-47 Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-48 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-50
F-1 5 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION PRO FORMA SEPARATE AND COMBINED BALANCE SHEETS DECEMBER 31, 1994 (UNAUDITED) The following unaudited Pro Forma Separate and Combined Balance Sheets are presented as if the Reorganization in which the Trust and Corporation contributed substantially all of their assets (subject to all of their liabilities) in exchange for 28.3% general partnership interests in SLT Realty Limited Partnership (the "Realty Partnership") and SLC Operating Limited Partnership (the "Operating Partnership"), (together, the "Partnerships"), and the Starwood Partners contributed cash and other assets, subject to certain liabilities, in exchange for 71.7% limited partnership interests in the Partnerships had occurred on December 31, 1994. The unaudited Pro Forma Combined Balance Sheets should be read in conjunction with the Separate and Combined Historical Financial Statements of Starwood Lodging Trust and Starwood Lodging Corporation and Notes thereto. In management's opinion, all adjustments necessary to reflect the effects of the Reorganization have been made. The unaudited Pro Forma Combined Balance Sheets are not necessarily indicative of what the actual financial position of the Companies would have been at December 31, 1994, nor does it purport to represent the future financial position of the Companies. F-2 6 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED SEPARATE AND COMBINED PRO FORMA BALANCE SHEETS DECEMBER 31, 1994
PRO FORMA STARWOOD STARWOOD STARWOOD LODGING PRO FORMA LODGING LODGING TRUST ADJUSTMENTS TRUST CORPORATION ------------ ------------- ------------- ------------ (A) (B) (C) (D) ASSETS Investment in Partnership .......................... $ $ 10,450,000 $ 10,450,000 $ ------------ ------------- ------------- ------------ Hotel assets held for sale, net .................... 8,281,000 (8,281,000) 304,000 Hotel assets, net .................................. 108,428,000 (108,428,000) 34,172,000 ------------ ------------- ------------- ------------ 116,709,000 (116,709,000) 34,476,000 Mortgage notes receivable, net ..................... 14,049,000 (14,049,000) Investment in joint venture hotel properties ....... 240,000 (240,000) 22,000 ------------ ------------- ------------- ------------ Total real estate investments ................ 130,998,000 (120,548,000) 10,450,000 34,498,000 Cash and cash equivalents .......................... 255,000 (255,000) 4,810,000 Accounts receivable ................................ 698,000 (698,000) 845,000 3,342,000 845,000 (F) Notes receivable - Corporation ..................... 26,916,000 (26,916,000) Notes receivable, net .............................. 1,004,000 (1,004,000) 623,000 Prepaid expenses and other assets .................. 2,374,000 (2,374,000) 5,353,000 ------------ ------------- ------------- ------------ $162,245,000 $(150,950,000) $ 11,295,000 $ 48,626,000 ============ ============= ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) LIABILITIES Secured notes payable & revolving line of credit ... $113,896,000 $(113,896,000) $ $ Mortgage and other notes payable ................... 32,838,000 (32,838,000) 13,748,000 Notes payable - Trust .............................. 26,916,000 Accounts payable and other liabilities ............. 5,061,000 (5,061,000) 845,000 9,704,000 845,000 (F) ------------ ------------- ------------- ------------ 151,795,000 (150,950,000) 845,000 50,368,000 ------------ ------------- ------------- ----------- Commitment and contingencies SHAREHOLDERS' EQUITY (DEFICIT) Trust shares of beneficial interest, (pro forma) $0.01 par value; authorized 100,000,000 shares; outstanding 12,132,948 shares ................... 12,133,000 (12,012,000)(G) 121,000 Corporation common stock, (pro forma) $0.01 par value; authorized 100,000,000 shares; outstanding 12,132,948 shares ................... 1,213,000 Additional paid-in capital ......................... 146,059,000 12,012,000 (G) 158,071,000 64,192,000 Accumulated deficit ................................ (147,742,000) (147,742,000) (67,147,000) ------------ ------------- ------------- ------------ 10,450,000 10,450,000 (1,742,000) ------------ ------------- ------------- ------------ $162,245,000 $(150,950,000) $ 11,295,000 $ 48,626,000 ============ ============= ============= ============
PRO FORMA HISTORICAL PRO FORMA STARWOOD STARWOOD STARWOOD PRO FORMA LODGING LODGING LODGING ADJUSTMENTS CORPORATION COMBINED COMBINED ------------ ------------ ------------- ------------- (E) (C) ASSETS Investment in Partnership .......................... $ (1,742,000) $ (1,742,000) $ $ 8,708,000 ------------ ------------ ------------- ------------- Hotel assets held for sale, net .................... (304,000) 8,585,000 Hotel assets, net .................................. (34,172,000) 142,600,000 ------------ ------------ ------------- ------------- (34,476,000) 151,185,000 Mortgage notes receivable, net ..................... 14,049,000 Investment in joint venture hotel properties ....... (22,000) 262,000 ------------ ------------ ------------- ------------- Total real estate investments ................ (36,240,000) (1,742,000) 165,496,000 8,708,000 Cash and cash equivalents .......................... (4,810,000) 5,065,000 Accounts receivable ................................ (3,342,000) 845,000 4,040,000 1,690,000 845,000 (F) Notes receivable - Corporation ..................... Notes receivable, net .............................. (623,000) 1,627,000 Prepaid expenses and other assets .................. (5,353,000) 7,727,000 ------------ ------------ ------------- ------------- $(49,523,000) $ (897,000) $ 183,955,000 $ 10,398,000 ============ ============ ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) LIABILITIES Secured notes payable & revolving line of credit ... $ $ $ 113,896,000 $ Mortgage and other notes payable ................... (13,748,000) 46,586,000 Notes payable - Trust .............................. (26,916,000) Accounts payable and other liabilities ............. (9,704,000) 845,000 14,765,000 1,690,000 845,000 (F) ------------ ------------ ------------- ------------- (49,523,000) 845,000 175,247,000 1,690,000 ------------ ------------ ------------- ------------- Commitment and contingencies SHAREHOLDERS' EQUITY (DEFICIT) Trust shares of beneficial interest, (pro forma) $0.01 par value; authorized 100,000,000 shares; outstanding 12,132,948 shares ................... 12,133,000 121,000 Corporation common stock, (pro forma) $0.01 par value; authorized 100,000,000 shares; outstanding 12,132,948 shares ................... (1,092,000)(G) 121,000 1,213,000 121,000 Additional paid-in capital ......................... 1,092,000 (G) 65,284,000 210,251,000 223,355,000 Accumulated deficit ................................ (67,147,000) (214,889,000) (214,889,000) ------------ ------------ ------------- ------------- (1,742,000) 8,708,000 8,708,000 ------------ ------------ ------------- ------------- $(49,523,000) $ (897,000) $ 183,955,000 $ 10,398,000 ============ ============ ============= =============
The accompanying notes are an integral part of the pro forma combined balance sheets. F-3 7 ___________________ (A) Reflects the historical balance sheet of the Trust as of December 31, 1994. (B) Reflects the contribution, at historical cost, of the assets and liabilities of the Trust to the Realty Partnership. (C) The Trust and the Corporation are the general partner and managing general partner of the Realty Partnership and the Operating Partnership, respectively. As a condition of the Reorganization, the Starwood Partners nominated a majority of the respective Board members of the Trust and the Corporation. Neither the Trust nor the Corporation is considered to have unilateral control of the Realty Partnership or the Operating Partnership for accounting purposes. Therefore, the Trust and the Corporation will account for their respective investments in the Realty Partnership and the Operating Partnership under the equity method of accounting in accordance with generally accepted accounting principles. (D) Reflects the historical balance sheet of the Corporation as of December 31, 1994. (E) Reflects the contribution, at historical cost, of the assets and liabilities of the Corporation to the Operating Partnership. (F) Represents the recognition of a liability and a receivable related to the settlement of shareholder litigation. Subsequent to the settlement of certain shareholder actions, Leonard M. Ross and his affiliates ("Ross"), who hold 1,190,400 Paired Shares and had opted out of the settlement, had threatened litigation against the Trust and the Corporation. In October 1994, Starwood Capital Group, L.P. ("Starwood Capital") entered into an agreement with Ross to settle the threatened litigation in which Starwood Capital agreed to purchase Ross' paired shares, at Ross' election, in a 60-day period beginning December 15, 1995 at a price of $5.625. Starwood Capital also has the right to elect to purchase such Paired Shares at the same time and on the same terms. The Trust and Corporation have also agreed that under certain circumstances they may be obligated severally to indemnify Starwood Capital with respect to Starwood Capital's obligations to Ross, up to a maximum of $1.8 million, upon receipt of a full release from Starwood Capital of all of the claims assigned by Ross. The estimated fair value of the put/call provisions of the Ross settlement agreement at the time of the agreement was approximately $2,648,000 and was charged against the earnings of the Trust and Corporation in 1994. In addition, a liability was established for the present value of the expected indemnification for $845,000 for both the Trust and the Corporation. The Realty Partnership and the Operating Partnership will reimburse the Trust and the Corporation, respectively, for all amounts paid in respect of such indemnification obligation. Therefore, the Trust's and the Corporation's pro forma balance sheets each reflect a related liability and receivable of $845,000. To the extent that the amount of the ultimate indemnification, if any, is less than $1,800,000, the difference will be reflected in the income of the respective Partnerships. (G) Reflects the revision of par value of authorized shares. F-4 8 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION PRO FORMA SEPARATE AND COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 (UNAUDITED) The following unaudited Pro Forma Separate and Combined Statements of Operations are presented as if the Reorganization in which the Trust and Corporation contributed substantially all of their assets (subject to all of their liabilities) in exchange for 28.3% general partnership interests in the Partnerships and the Starwood Partners contributed cash and other assets, subject to certain liabilities, in exchange for 71.7% limited partnership interests in the Partnerships had occurred on January 1, 1994. The unaudited Pro Forma Combined Statements of Operations should be read in conjunction with the Combined Historical Financial Statements of Starwood Lodging Trust and Starwood Lodging Corporation and Notes thereto. In management's opinion, all adjustments necessary to reflect the effects of the Reorganization have been made. The unaudited Pro Forma Statements of Operations are not necessarily indicative of what actual results of operations of the Companies would have been assuming the Reorganization had occurred on January 1, 1994, nor do they purport to represent the Companies' results of operations for future periods. F-5 9 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED SEPARATE AND COMBINED PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
PRO FORMA STARWOOD STARWOOD STARWOOD LODGING PRO FORMA LODGING LODGING TRUST ADJUSTMENTS TRUST CORPORATION ----------- ------------ -------- ------------ (A) (B) (C) REVENUE Income (loss) from investment in Partnerships ..... $ $ 838,000 $838,000 $ Hotel ............................................. 82,668,000 Gaming ............................................ 27,981,000 Rents from Corporation ............................ 16,906,000 (16,906,000) Interest from Corporation ......................... 1,730,000 (1,730,000) Interest from mortgage and other notes ............ 1,512,000 (1,512,000) 42,000 Rents from other leased hotel properties .......... 927,000 (927,000) Management fees and other income .................. 164,000 (164,000) 247,000 Gain (loss) on sales of hotel assets .............. 432,000 (432,000) 24,000 ----------- ------------ -------- ------------ 21,671,000 (20,833,000) 838,000 110,962,000 ----------- ------------ -------- ------------ EXPENSES Hotel operations................................... 60,829,000 Gaming operations.................................. 24,454,000 Rent - Trust....................................... 16,906,000 Interest - Trust................................... 1,730,000 Interest - other................................... 16,265,000 (16,265,000) 1,341,000 Depreciation and amortization...................... 5,205,000 (5,205,000) 2,956,000 Administrative and operating....................... 1,583,000 (1,583,000) 2,620,000 Shareholder litigation............................. 1,324,000 (1,324,000) 1,324,000 Provision for losses............................... 759,000 (759,000) ----------- ------------ -------- ------------ 25,136,000 (25,136,000) 112,160,000 ----------- ------------ -------- ------------ NET INCOME (LOSS) $(3,465,000) $ 4,303,000 $838,000 $ (1,198,000) =========== ============ ======== ============ NET INCOME (LOSS) PER SHARE (E) $(0.28) $0.07 $(0.10) =========== ======== ============
PRO FORMA HISTORICAL PRO FORMA STARWOOD STARWOOD STARWOOD PRO FORMA LODGING LODGING LODGING ADJUSTMENTS CORPORATION COMBINED COMBINED ------------- ----------- --------------- --------- (D) REVENUE Income (loss) from investment in Partnerships ..... $ (742,000) $(742,000) $ $192,000 Hotel ............................................. (82,668,000) 82,668,000 Gaming ............................................ (27,981,000) 27,981,000 Rents from Corporation ............................ Interest from Corporation ......................... Interest from mortgage and other notes ............ (42,000) 1,554,000 Rents from other leased hotel properties .......... 927,000 Management fees and other income .................. (247,000) 411,000 Gain (loss) on sales of hotel assets .............. (24,000) 456,000 ------------- --------- ------------ -------- (111,704,000) (742,000) 113,997,000 192,000 ------------- --------- ------------ -------- EXPENSES Hotel operations................................... (60,829,000) 60,829,000 Gaming operations.................................. (24,454,000) 24,454,000 Rent - Trust....................................... (16,906,000) Interest - Trust................................... (1,730,000) Interest - other................................... (1,341,000) 17,606,000 Depreciation and amortization...................... (2,956,000) 8,161,000 Administrative and operating....................... (2,620,000) 4,203,000 Shareholder litigation............................. (1,324,000) 2,648,000 Provision for losses............................... 759,000 ------------- --------- ------------ -------- (112,160,000) 118,660,000 ------------- --------- ------------ -------- NET INCOME (LOSS) $ 456,000 $(742,000) $ (4,663,000) $192,000 ============= ========= ============ ======== NET INCOME (LOSS) PER SHARE (E) $(0.06) $(0.38) $0.01 ========= ============ ========
The accompanying notes are an integral part of the pro forma separate and combined statements of operations. F-6 10 ___________________ (A) Reflects the historical statements of operations of the Trust for the year ended December 31, 1994. (B) Reflects the elimination of the revenues and expenses of the Trust recorded in the Realty Partnership and the recognition of the related investment income. (C) Reflects the historical statements of operations of the Corporation for the year ended December 31, 1994. (D) Reflects the elimination of the revenues and expenses of the Corporation recorded in the Operating Partnership and the recognition of the related investment loss. (E) Net income (loss) per share has been computed using the weighted average number of common and common equivalent shares outstanding which, for periods with net income, includes the dilutive effect of stock options and warrants outstanding. F-7 11 SLT REALTY L.P. AND SLC OPERATING L. P. PRO FORMA SEPARATE AND COMBINED BALANCE SHEETS DECEMBER 31, 1994 (UNAUDITED) The following unaudited Pro Forma Separate and Combined Balance Sheets are presented as if the Reorganization in which the Trust and the Corporation contributed substantially all of their assets (subject to substantially all of their liabilities) in exchange for 28.3% general partnership interests in the Partnerships and the Starwood Partners contributed cash and other assets, subject to certain liabilities, in exchange for 71.7% limited partnership interests in the Partnerships had occurred on December 31, 1994. The unaudited Pro Forma Combined Balance Sheets should be read in conjunction with the Separate and Combined Historical Financial Statements of Starwood Lodging Trust and Starwood Lodging Corporation and Notes thereto. In management's opinion, all adjustments necessary to reflect the effects of the Reorganization have been made. The audited Pro Forma Combined Balance Sheets are not necessarily indicative of what the actual financial position of the Partnerships would have been at December 31, 1994, nor does it purport to represent the future financial position of the Partnerships. F-8 12 SLT REALTY LP AND SLC OPERATING LP UNAUDITED SEPARATE AND COMBINED PRO FORMA BALANCE SHEETS DECEMBER 31, 1994
STARWOOD PRO FORMA STARWOOD LODGING STARWOOD PRO FORMA SLT REALTY LODGING TRUST PARTNERS ADJUSTMENTS PARTNERSHIP CORPORATION ------------ ----------- ------------- ------------ ----------- (A) (B) (C) (D) ASSETS Hotel assets held for sale, net ............... $ 8,281,000 $ $ $ 8,281,000 $ 304,000 Hotel assets, net ............................. 108,428,000 30,371,000 138,799,000 34,172,000 ------------- ----------- ------------- ------------ ------------ 116,709,000 30,371,000 147,080,000 34,476,000 Mortgage notes receivable, net ................ 14,049,000 48,860,000 62,909,000 Investment in joint venture hotel properties .. 240,000 240,000 22,000 ------------- ----------- ------------- ------------ ------------ Total real estate investments ............. 130,998,000 79,231,000 210,229,000 34,498,000 11,446,000 Cash and cash equivalents ..................... 255,000 12,568,000 (1,377,000)(E) 11,446,000 4,810,000 Accounts receivable ........................... 698,000 698,000 3,342,000 Notes receivable - Corporation ................ 26,916,000 26,916,000 Notes receivable, net ......................... 1,004,000 1,004,000 623,000 Prepaid expenses and other assets ............. 2,374,000 1,377,000 (E) 3,751,000 5,353,000 ------------- ----------- ------------- ------------ ------------ $ 162,245,000 $91,799,000 $254,044,000 $ 48,626,000 ============= =========== ============= ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) LIABILITIES Secured notes payable & revolving line of credit (I) .................................. $ 113,896,000 $ $ $113,896,000 $ Mortgage and other notes payable .............. 32,838,000 58,885,000 (6,000,000)(F) 85,723,000 13,748,000 Notes payable - Trust ......................... 26,916,000 Accounts payable and other liabilities ........ 5,061,000 (480,000)(G) 4,581,000 9,704,000 ------------- ----------- ------------- ------------ ----------- 151,795,000 58,885,000 (6,480,000) 204,200,000 50,368,000 ------------- ----------- ------------- ------------ ----------- Commitments and contingencies PARTNERS' CAPITAL ............................. 32,914,000 10,450,000 (H) 49,844,000 6,000,000 (F) 480,000 (G) ----------- ------------- ------------ 32,914,000 16,930,000 49,844,000 ----------- ------------- ------------ SHAREHOLDERS' EQUITY (DEFICIT) Trust shares of beneficial interest, (pro forma) $.01 par value; authorized 100,000,000 shares; outstanding 12,132,948 shares ......................... 12,133,000 (12,133,000)(H) Corporation common stock, (pro forma) $0.01 par value; authorized 100,000,000 shares; outstanding 12,132,948 shares ...... 1,213,000 Additional paid-in capital .................... 146,059,000 (146,059,000)(H) 64,192,000 Accumulated deficit ........................... (147,742,000) 147,742,000 (H) (67,147,000) ------------- ----------- ------------- ------------ ------------ 10,450,000 (10,450,000) (1,742,000) ------------- ----------- ------------- ------------ ------------ $ 162,245,000 $91,799,000 $254,044,000 $ 48,626,000 ============= =========== ============= ============ ============
HISTORICAL PRO FORMA STARWOOD PRO FORMA STARWOOD PRO FORMA SLC OPERATING LODGING SLT & SLC PARTNERS ADJUSTMENTS PARTNERSHIP ELIMINATIONS COMBINED COMBINED ---------- ------------ ------------- ------------ ------------ ------------ (D) (C) ASSETS Hotel assets held for sale, net ..... $ $ $ 304,000 $ 8,585,000 $ 8,585,000 Hotel assets, net ................... 3,701,000 37,873,000 142,600,000 176,672,000 ---------- ------------ ----------- ------------- ------------ 3,701,000 38,177,000 151,185,000 185,257,000 Mortgage notes receivable, net ...... 14,049,000 62,909,000 Investment in joint venture hotel properties ........................ 22,000 262,000 262,000 ---------- ------------ ----------- ------------- ------------ Total real estate investments .. 3,701,000 38,199,000 165,496,000 248,428,000 Cash and cash equivalents ........... 2,126,000 (1,377,000)(E) 5,559,000 5,065,000 15,331,000 Accounts receivable ................. 463,000 3,805,000 4,040,000 4,503,000 Notes receivable - Corporation ...... (26,916,000) Notes receivable, net ............... 623,000 1,627,000 1,627,000 Prepaid expenses and other assets ... 587,000 1,377,000 (E) 7,317,000 7,727,000 12,742,000 ---------- ------------ ----------- ------------- ------------ $6,877,000 $55,503,000 $ 183,955,000 $282,631,000 ========== ============ =========== ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) LIABILITIES Secured notes payable & revolving line of credit (I) ................ $ $ $ $ 113,896,000 $113,896,000 Mortgage and other notes payable .... 13,748,000 46,586,000 99,471,000 Notes payable - Trust ............... 26,916,000 (26,916,000) Accounts payable and other liabilities ....................... 1,408,000 (480,000)(G) 10,632,000 14,765,000 15,213,000 ---------- ------------ ----------- ------------- ------------ 1,408,000 (480,000) 51,296,000 175,247,000 228,580,000 ---------- ------------ ----------- ------------- ------------ Commitments and contingencies PARTNERS' CAPITAL ................... 5,469,000 (1,742,000)(H) 4,207,000 54,051,000 480,000 (G) ---------- ------------ ----------- ------------ 5,469,000 (1,262,000) 4,207,000 54,051,000 ---------- ------------ ----------- ------------ SHAREHOLDERS' EQUITY (DEFICIT) Trust shares of beneficial interest, (pro forma) $.01 par value; authorized 100,000,000 shares; outstanding 12,132,948 shares ..... 12,133,000 Corporation common stock, (pro forma) $0.01 par value; authorized 100,000,000 shares; outstanding 12,132,948 shares ..... (1,213,000)(H) 1,213,000 Additional paid-in capital .......... (64,192,000)(H) 210,251,000 Accumulated deficit ................. 67,147,000 (H) (214,889,000) ---------- ------------ ----------- ------------- ------------ 1,742,000 8,708,000 ---------- ------------ ----------- ------------- ------------ $6,877,000 $55,503,000 $ 183,955,000 $282,631,000 ========== ============ =========== ============= ============
The accompanying notes are an integral part of the pro forma separate and combined balance sheets. F-9 13 __________________ (A) Reflects the historical balance sheet of the Trust as of December 31, 1994. (B) Reflects the historical cost of the assets (net of certain liabilities) contributed by the Starwood Partners. The Starwood Partners acquired four hotel properties which were contributed, as follows:
COST YEAR NUMBER PROPERTY LOCATION BASIS (1) ENCUMBRANCE BUILT OF ROOMS -------- -------- --------- ----------- ----- -------- Capitol Hill Suites Washington, D.C. $ 8,709,000 $ 617,000 1955 152 French Quarters Suites (2) Lexington, KY 12,053,000 898,000 1989 155 Doubletree Hotel Rancho Bernardo, CA 8,180,000 6,800,000 1987 209 Harvey Wichita Hotel Wichita, KS 5,130,000 2,122,000 1974 259 ----------- ----------- $34,072,000 $10,437,000 =========== ===========
___________________ (1) $3,701,000 of costs related to the properties was contributed to the Operating Partnership. (2) Includes 38,000 square feet of retail space and 12,000 square feet of office space. During 1994 a Starwood Partner purchased from the Trust the Albany Holiday Inn, with a net book value of $5,200,000, for $6,000,000 in cash. The cash proceeds from the sale were used by the Trust to make a principal paydown on the Secured Notes Payable. In connection with the Reorganization, the Starwood Partner contributed the property to the Realty Partnership. Because the Starwood Partner had the right to sell the hotel back to the Trust for the purchase price plus a 10% return on its investment, the transaction was recorded as a financing. The pro forma balance sheets reflect the Trust as owning the Albany Holiday Inn. The mortgage notes receivable, acquired in 1993 at a discount, consist of the following: Three performing mortgage notes to affiliated borrowers collateralized by three full service hotels (aggregating 1,230 rooms) in the Dallas, Texas area. The mortgage notes, maturing on December 31, 2002, are cross-collateralized, are guaranteed by certain persons and have cost bases and outstanding principal balance at December 31, 1994 as follows:
OUTSTANDING PRINCIPAL COLLATERAL BALANCE COST BASIS REFERENCE ---------- ------- ---------- --------- Harvey Hotel Addison . . . . . . $10,403,000 $ 7,226,000 (a) Harvey Hotel Bristol . . . . . . 16,645,000 11,550,000 (a) Harvey Hotel DFW . . . . . . . . 25,892,000 17,967,000 (a) ----------- ----------- 52,940,000 36,743,000 OTHER MORTGAGE NOTES: - --------------------- Atlantic City Quality Inn . . . . 11,411,000 4,365,000 (b) Secaucus, New Jersey Ramada . . . 12,458,000 7,752,000 (b) ----------- ----------- $76,809,000 $48,860,000 =========== ===========
F-10 14 (a) Represents a first mortgage note bearing interest at 8% (which was purchased at a discount which reflects a 16.1% effective rate) payable quarterly in arrears. The mortgage note is non-recourse, has a 15-year amortization period and a balloon payment at maturity. (b) The mortgage notes bear interest at various rates (which were purchased at a discount, which reflects a 19.1% aggregate effective rate) and are payable monthly in arrears, except that for the months of November 1994 through April 1995, debt service of the Atlantic City Quality Inn shall accrue and be payable from excess cash flow. Commencing May 1, 1995 fixed payments of debt service shall be required to be resumed. The mortgages are non-recourse and mature between 1996 and 2010. Notes payable consists of the following: (a) A $39,013,000 note issued in connection with the acquisition of the Harvey mortgage notes receivable under the terms of a Loan Agreement with a third party dated October 15, 1993. The note is non-recourse and matures on January 31, 2003 and bears interest on a monthly basis at variable rates based on the London Interbank Offer Rate (LIBOR) Eurodollar rate plus 3%. (b) A $2,122,000 construction loan funded in 1994 used to renovate the Harvey Wichita Hotel. The note bears interest at 7.75%. Principal and interest are payable monthly and the note matures in 2000. In addition, as part of the Reorganization, the Realty Partnership assumed other mortgage notes payable in the aggregate principal amount of $17,750,000, which notes were refinanced with the proceeds of a loan pursuant to a new credit agreement. (C) The Trust and the Corporation are general partner and managing partner of the Realty Partnership and the Operating Partnership, respectively, and as such will be liable for the obligations of the Realty Partnership and the Operating Partnership, respectively. As a condition to the Reorganization, the Starwood Partners nominated a majority of the respective Board members of the Trust and the Corporation upon the Reorganization. Neither the Trust nor the Corporation is considered to have unilateral control of the Realty Partnership or the Operating Partnership for accounting purposes. Therefore, the assets and liabilities of the Realty Partnership and the Operating Partnership have been accounted for based on the historical costs of the contributed assets and liabilities of the Trust, the Corporation and the Starwood Partners. (D) Reflects the historical balance sheet of Starwood Lodging Corporation as of December 31, 1994. (E) Reflects the payment of organization costs related to the formation of the Partnerships. (F) Reflects the contribution of the advance related to the Albany Holiday Inn Hotel by the Starwood Partners. (G) Represents an obligation related to shareholder litigation assumed by the Starwood Partners. Subsequent to the settlement of certain shareholder actions, Leonard M. Ross and his affiliates ("Ross"), who hold 1,190,400 Paired Shares and had opted out of the settlement, had threatened litigation against the Trust and the Corporation. In October 1994, Starwood Capital Group, L.P. ("Starwood Capital") entered into an agreement with Ross to settle the threatened litigation in which Starwood Capital agreed to purchase Ross' paired shares, at Ross' election, in a 60-day period beginning December 15, 1995 at a price of $5.625. Starwood Capital also has the right to elect to purchase such Paired Shares at the same time and on the same terms. The Trust and Corporation have also agreed that under certain circumstances they may be obligated severally to indemnify Starwood Capital with respect to Starwood Capital's obligations to Ross, up to a maximum of $1.8 million, upon receipt of a full release from Starwood Capital of all of the claims assigned by Ross. The estimated fair value of the put/call provisions of the Ross settlement agreement at the time of the agreement was approximately $2,648,000 and was charged against the earnings of the Trust and Corporation in 1994. In addition, a liability was established for the present value of the expected indemnification for $845,000 for both the Trust and the Corporation. The Realty Partnership and the Operating Partnership will reimburse the Trust and the Corporation, respectively, for all amounts paid in respect of such indemnification obligation. Therefore, the Partnership's pro forma balance sheets each reflect a liability of $845,000 to reimburse the Trust and the Corporation. To the extent that the amount of the ultimate indemnification, if any, is less than $1,800,000, the difference will be reflected in the income of the respective Partnerships. (H) Reflects the establishment of the Partners' capital accounts. F-11 15 SLT REALTY L.P. AND SLC OPERATING L.P. PRO FORMA SEPARATE AND COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 (UNAUDITED) The following unaudited Pro Forma Separate and Combined Statements of Operations are presented as if the Reorganization in which the Trust and the Corporation contributed substantially all of their assets (subject to substantially all of their liabilities) in exchange for 28.3% general partnership interests in the Partnerships and the Starwood Partners contributed cash and other assets, subject to certain liabilities, in exchange for 71.7% limited partnership interests in the Partnerships had occurred on January 1, 1994. The unaudited Pro Forma Combined Statements of Operations should be read in conjunction with the Combined Historical Financial Statements of Starwood Lodging Trust and Starwood Lodging Corporation and Notes thereto. In management's opinion, all adjustments necessary to reflect the effects of the Reorganizations have been made. The unaudited Pro Forma Statements of Operations are not necessarily indicative of what actual results of operations of the Partnerships would have been assuming the Reorganization had occurred on January 1, 1994, nor do they purport to represent the Partnerships' results of operations for future periods. F-12 16 SLT REALTY LP AND SLC OPERATING LP UNAUDITED SEPARATE AND COMBINED PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
STARWOOD PRO FORMA STARWOOD LODGING STARWOOD PRO FORMA SLT REALTY LODGING TRUST PARTNERS ADJUSTMENTS PARTNERSHIP CORPORATION ----------- ---------- ----------- ----------- ------------ (A) (B) (C) REVENUE Hotel ................................... $ $ $ $ $ 82,668,000 Gaming .................................. 27,981,000 Rents from Corporation .................. 16,906,000 3,266,000 (D) 20,172,000 Interest from Corporation ............... 1,730,000 1,730,000 Interest from mortgage and other notes .. 1,512,000 8,252,000 9,764,000 42,000 Rents from other leased hotel properties 927,000 927,000 Management fees and other income ........ 164,000 164,000 247,000 Gain (loss) on sales of hotel assets .... 432,000 432,000 24,000 ----------- ----------- ------------ ----------- ------------ 21,671,000 8,252,000 3,266,000 33,189,000 110,962,000 ----------- ----------- ------------ ----------- ------------ EXPENSES Hotel operations ........................ 60,829,000 Gaming operations ....................... 24,454,000 Rent - Trust ............................ 16,906,000 Interest - Trust ........................ 1,730,000 Interest - other ........................ 16,265,000 4,297,000 (868,000)(E) 19,694,000 1,341,000 Depreciation and amortization ........... 5,205,000 1,049,000 610,000 (F) 6,864,000 2,956,000 Administrative and operating ............ 1,583,000 1,583,000 2,620,000 Shareholder litigation .................. 1,324,000 1,324,000 1,324,000 Provision for losses .................... 759,000 759,000 ----------- ----------- ------------ ----------- ------------ 25,136,000 5,346,000 (258,000) 30,224,000 112,160,000 ----------- ----------- ------------ ----------- ------------ NET INCOME (LOSS) $(3,465,000) $ 2,906,000 $ 3,524,000 $ 2,965,000 $ (1,198,000) =========== =========== ============ =========== ============
HISTORICAL PRO FORMA STARWOOD PRO FORMA STARWOOD PRO FORMA SLC OPERATING LODGING SLT & SLC PARTNERS ADJUSTMENTS PARTNERSHIP ELIMINATIONS COMBINED COMBINED ----------- ----------- ------------- ------------ ------------- ------------ (B) REVENUE Hotel ................................... $16,459,000 $ $ 99,127,000 $ 82,668,000 $ 99,127,000 Gaming .................................. 27,981,000 27,981,000 27,981,000 Rents from Corporation .................. (20,172,000) Interest from Corporation ............... (1,730,000) Interest from mortgage and other notes .. 42,000 1,554,000 9,806,000 Rents from other leased hotel properties 927,000 927,000 Management fees and other income ........ 247,000 411,000 411,000 Gain (loss) on sales of hotel assets .... 24,000 456,000 456,000 ----------- ----------- ------------ ------------ ------------ 16,459,000 127,421,000 113,997,000 138,708,000 ----------- ----------- ------------ ------------ ------------ EXPENSES Hotel operations ........................ 12,775,000 73,604,000 60,829,000 73,604,000 Gaming operations ....................... 24,454,000 24,454,000 24,454,000 Rent - Trust ............................ 3,266,000(D) 20,172,000 (20,172,000) Interest - Trust ........................ 1,730,000 (1,730,000) Interest - other ........................ 1,341,000 17,606,000 21,035,000 Depreciation and amortization ........... 1,233,000 610,000(F) 4,799,000 8,161,000 11,663,000 Administrative and operating ............ 2,620,000 4,203,000 4,203,000 Shareholder litigation .................. 1,324,000 2,648,000 2,648,000 Provision for losses .................... 759,000 759,000 ----------- ----------- ------------ ------------ ------------ 14,008,000 3,876,000 130,044,000 118,660,000 138,366,000 ----------- ----------- ------------ ------------ ------------ NET INCOME (LOSS) $ 2,451,000 $(3,876,000) $ (2,623,000) $ (4,663,000) $ 342,000 =========== =========== ============ ============ ============
The accompanying notes are an integral part of the pro forma separate and combined statements of operations. F-13 17 (A) Reflects the historical statements of operations of the Trust for the year ended December 31, 1994. Operations for properties sold are not considered material to the pro forma presentation. (B) Reflects the pro forma statement of operations of the assets and liabilities contributed by the Starwood Partners for the year ended December 31, 1994. (C) Reflects the historical statement of operations of the Corporation for the year ended December 31, 1994. Operations for properties sold are not considered material to the pro forma presentation. (D) Reflects rents on the hotel assets contributed by the Starwood Partners leased to the Operating Partnership. The leases between the Trust and the Corporation provide for annual base or minimum rents, plus contingent or percentage rents based on the gross revenue of the properties and are accounted for as operating leases. (E) Reflects the reduction of interest expense as a result of debt payments from cash contributed by the Starwood Partners and the elimination of interest related to the contribution of the Albany Holiday Inn by the Starwood Partners. (F) Reflects the amortization of organization costs related to the formation of the Partnerships over a five-year period. (G) A Starwood Partner has guaranteed the cash flow from the Harvey Wichita Hotel (which is defined for purposes of the guarantee as cash received by the Operating Partnership from the hotel, less management fees and capital expenditures for the hotel) in the amount of $700,000, $800,000 and $900,000 for the three years following the Reorganization. Related payments, if any, will be accounted for as a reduction in the basis of the property decreasing depreciation expense over the remaining life of the assets. No adjustments for the guarantee have been made as any payments to be received are dependent upon the future operations of the hotel which are not expected to be comparable to the historical operation reflected in the pro forma periods. F-14 18 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Starwood Wichita Investors, L.P. In our opinion, the accompanying balance sheet and the related statements of operations, of changes in partner's capital and of cash flows present fairly, in all material respects, the financial position of Starwood Wichita Investors, L.P. at December 31, 1994 and 1993 and the results of its operations and its cash flows for the year ended December 31, 1994 and the period December 17, 1993 (inception) to December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Starwood Wichita Investors, L.P.'s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP January 27, 1995 Dallas, Texas F-15 19 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Starwood Wichita Investors, L.P. In our opinion, the accompanying statements of operations, of changes in division equity/(deficit) and of cash flows present fairly, in all material respects, the results of operations and cash flows for the Wichita East Hotel for the period January 1, 1993 to December 19, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Wichita East Hotel management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP October 28, 1994 Dallas, Texas F-16 20 STARWOOD WICHITA INVESTORS, L.P. BALANCE SHEET - --------------------------------------------------------------------------------
DECEMBER 31, 1994 1993 ---------- ---------- ASSETS Cash and cash equivalents $ 96,648 $ 28,542 Accounts receivable, net of allowance for doubtful accounts ($3,149 at December 31, 1994 and $812 at December 31, 1993, respectively) 201,636 38,838 Inventories 106,132 125,419 Fixed assets, net of accumulated depreciation (Note 4) 5,129,816 3,538,202 Other 130,016 71,677 ---------- ---------- Total assets $5,664,248 $3,802,678 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable - trade $59,941 73,999 Accounts payable - related parties 57,671 1,306 Accrued compensations 41,224 52,046 Accrued taxes other than income 104,072 68,915 Other accrued liabilities 70,485 29,246 Capital lease obligations (Note 5) 126,968 145,136 Long-term debt (Note 6) 2,121,535 ---------- ---------- Total liabilities 2,581,896 370,648 ---------- ---------- Partners' capital (Note 7) 3,082,352 3,432,030 ---------- ---------- Total liabilities and partners' capital $5,664,248 $3,802,678 ========== ==========
The accompanying notes are an integral part of these financial statements. F-17 21 STARWOOD WICHITA INVESTORS, L.P. STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
Predecessor For the period For the period December 17, 1993 For the period January 1, 1993 to (inception) to January 1, 1994 to December 19, 1993 December 31, 1993 December 31, 1994 ------------------ ----------------- ------------------ Revenues: Rooms $2,409,409 $ 23,944 $2,763,850 Food and beverage 791,811 9,002 1,017,421 Telephone 107,832 868 148,404 Other 78,569 2,185 52,694 ---------- -------- ---------- 3,387,621 35,999 3,982,369 Cost of sales - distributed operating expenses: Rooms 868,308 19,938 1,006,473 Food and beverage 859,543 18,779 1,052,438 Telephone 66,571 1,242 78,832 Other 30,720 276 ---------- -------- ---------- 1,562,479 (4,236) 1,844,626 ---------- -------- ---------- Operating department income: Undistributed operating expenses: Administrative and general 594,711 10,616 510,017 Advertising and promotion 352,041 9,221 504,959 Property operation and maintenance 693,351 22,056 629,468 ---------- -------- ---------- 1,640,103 41,893 1,644,444 ---------- -------- ---------- Fixed charges: Depreciation 422,555 18,236 501,095 Real estate taxes and insurance 135,607 2,327 138,515 Interest 67,080 Other charges 157,876 1,278 18,170 ---------- -------- ---------- (793,662) (67,970) (524,678) Operating loss for the period Other income 118,430 Loss on sale (21,756) ---------- -------- ---------- Net loss for the period $ (696,988) $(67,970) $ (524,678) ========== ======== ==========
The accompanying notes are an integral part of these financial statements. F-18 22 STARWOOD WICHITA INVESTORS, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL - --------------------------------------------------------------------------------
For the period December 17, 1993 (inception) to December 31, 1993 ------------------ Partners' capital, beginning of period $ 0 Partners' contributed capital 3,500,000 Net loss for period (67,970) ---------- Partners' capital, end of period $3,432,030 ========== For the period January 1, 1994 to December 31, 1994 ------------------ Partners' capital, beginning of period $3,432,030 Partners' contributed capital 175,000 Net loss for period (524,678) ---------- Partners' capital, end of period $3,082,352 ==========
- -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN DIVISION EQUITY (DEFICIT) (Predecessor)
For the period January 1, 1993 to December 31, 1993 ------------------ Division equity, beginning of period $ 3,884,613 Capital withdrawal (3,287,797) Net loss for period (696,988) ----------- Division deficit, end of period $ (100,172) ===========
The accompanying notes are an integral part of these financial statements. F-19 23 STARWOOD WICHITA INVESTORS, L.P. STATEMENT OF CASH FLOWS - --------------------------------------------------------------------------------
Predecessor For the period For the period December 17, 1993 For the period January 1, 1993 to (inception) to January 1, 1994 to December 19, 1993 December 31, 1993 December 31, 1994 ------------------ ----------------- ------------------ Cash flows from operating activities: Net loss $ (696,988) $ (67,970) $ (524,678) Adjustments to reconcile net loss from operations to net cash used in operating activities: Depreciation 422,555 18,236 501,095 Loss on sale of property 21,756 Change in operating assets Accounts receivable (83,753) (38,838) (167,796) Inventory 101,636 (125,419) 19,287 Other assets 215,103 (71,677) (104,711) Accounts payable 175,035 75,305 138,121 Accrued liabilities (313,508) 150,207 21,133 ----------- ----------- ----------- Net cash used in operating activities: (158,164) (60,156) (117,549) Cash flows from investing activities: Capital expenditures (152,240) (3,411,302) (2,237,848) Proceeds from sale of property 3,287,797 ----------- ----------- ----------- Net cash provided by/(used in) investing activities 3,135,557 (3,411,302) (2,237,848) Cash flows from financing activities: Division equity withdrawal (3,287,797) 3,500,000 Partners' capital contribution 175,000 Capital lease payments (11,302) 126,968 Proceeds from long-term debt 2,121,535 ----------- ----------- ----------- Net cash provided by/(used in) financing activities (3,299,099) 3,500,000 2,423,503 Net cash increase (decrease) in cash $ (321,706) $ 28,542 $ 68,106 Cash at beginning of period 379,864 28,542 ----------- ----------- ----------- Cash at end of period $ 58,158 $ 28,542 $ 96,648* =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH Cash paid during the period for: Interest $ 8,269 $ -0- $ 67,080 Income taxes -0- -0- -0-
(Continued) F-20 24 SUPPLEMENTARY SCHEDULES OF NON-CASH ACTIVITIES In addition to the capital assets purchased, the Partnership assumed certain capital obligations entered into by the Predecessor. See Note 5 for further discussion of the assumed capital leases. * Cash balances include cash held in escrow related to the long-term debt. The accompanying notes are an integral part of these financial statements. F-21 25 STARWOOD INVESTORS, L.P. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION Starwood Wichita Investors, L.P. (the "Partnership"), a Delaware limited partnership, was formed on December 17, 1993 for the purpose of acquiring interests in real estate investments. Starwood Opportunity Fund II, L.P. ("SOF-II") is the general partner with 1% interest. SOF-II is also a limited partner owning 89% with the remaining 10% interest owned by Wichita Harvey Partners, Ltd. ("Harvey"). The Partnership acquired the Wichita East Hotel from The Travelers Insurance Company on December 20, 1993. The Travelers Insurance Company (the "Predecessor"), a Connecticut corporation, acquired the real estate property through bankruptcy proceedings and held the hotel until they sold it to the Partnership on December 20, 1993. Although the Partnership was formed and had activity on December 17, 1993, the operations of the hotel are not included in the Partnership's accounts until the hotel changed ownership on December 20, 1993. The operations of the hotel are included in the Predecessor financial records through December 19, 1993. The hotel is operated under a management agreement with Harvey Hotel Management Corporation and has 259 rooms. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS For purpose of reporting cash flows, cash and cash equivalents include cash in banks and cash on hand. FIXED ASSETS Fixed assets are stated at cost. Depreciation is provided using accelerated methods over the estimated useful lives of the related assets, generally five to 39 years. The costs of repairs and minor renewals that do not significantly extend the life of the property and equipment are normally expensed as incurred. The costs of major renovation projects are capitalized and depreciated over the related period of benefit. INVENTORIES Food, linen, china, liquor and other inventories are valued at the lower of cost or market on a first-in, first-out basis. INCOME TAXES No provision for income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is generally not subject to federal or state income taxes and the tax effects of its activities flow through to the partners. No provision for income tax is provided in the Predecessor financial statements as the hotel is represented as a stand-alone entity with no prior history. Therefore, the loss incurred for the period January 1, 1993 to December 19, 1993 is assumed to have no carryback period or benefit. 3. RELATED PARTY TRANSACTIONS The Partnership has signed a management agreement with Harvey Hotel Management Corporation, a related party to Harvey. The Partnership will pay Harvey Hotel Management Corporation a management fee for operating the hotel. For the period from December 20, 1993 to December 31, 1994, the agreement provides an incentive fee which shall be equal to 20% of the "net operating income" (as defined in the agreement to exclude depreciation, amortization, interest, capital expenditures, and management fees). The incentive fee is subordinate to distributions to owners. For years ending after December 31, 1994, the management fee will be the lesser of $100,000 or total excess cash flows, as defined in the management agreement, plus 25% of the excess cash flow after deducting the amount specified above for incentive fees. For the year ended December 31, 1994 and during the period December 20, 1993 through December 31, 1993, no management fee was incurred. The Predecessor had Harvey Hotel Management Corporation manage the operations of the real estate property during the period January 1, 1993 to December 19, 1993. Management and marketing expenses paid to Harvey Hotel Management Company for the period were approximately $160,000. F-22 26 The management agreement also details a preference fee to be paid to Harvey Hotel Management Corporation upon the sale or refinancing of the hotel. The agreement states that net sale (or refinancing) proceeds will be distributed to the owners until they have received a return of their capital contributions, plus an internal rate of return of 15% (as defined) on those contributions. After the return of capital, Harvey Hotel Management Corporation will receive a preference fee equal to 20% of the remaining proceeds. 4. FIXED ASSETS Fixed assets consist of the following:
December 31, --------------------------- 1993 1994 ---------- ---------- Land $ 341,130 $ 341,130 Building and improvements 3,536,875 1,934,512 Furniture and equipment 1,627,006 1,135,660 Equipment under capital leases 144,136 145,136 ---------- ---------- 5,649,147 3,556,438 Less: accumulated depreciation (519,331) (18,236) ---------- ---------- $5,129,816 $3,538,202 ========== ==========
Depreciation expense for the year ended December 31, 1994 was $501,095 and includes depreciation on assets recorded under capital leases. Depreciation expense for the period December 20, 1993 to December 31, 1993 was $18,236. The land, building and furniture was purchased for approximately $3,500,000 on December 20, 1993. 5. LEASES The Partnership assumed certain capital equipment leases in the operation of the real estate property which extend through 2000. At the end of the lease term the Partnership has the option to purchase the equipment at the fair market value of the equipment. Capital lease obligations are summarized below for the years ending December 31: 1995 $ 29,357 1996 29,357 1997 29,357 1998 29,357 1999 29,357 Thereafter 9,786 -------- Net minimum lease payments under capital leases 156,571 Less amount representing interest (29,603) -------- Present value of net minimum lease payments under capital leases $126,968 ========
F-23 27 The Partnership leases various equipment under operating leases for use in the operation of the property. Minimum rental commitments under non-cancellable leases are as follows at December 31: 1995 $ 7,688 1996 4,752 1997 1,386 ======= Total minimum lease payments $13,826 =======
Rent expense for the year ended December 31, 1994 was $3,915. Rent expense for the period January 1, 1993 to December 19, 1993 was $6,253, and totaled $280 for the remainder of the year. The Partnership leases space to various tenants for a hotel gift shop, hair salon, and a rooftop antenna. The minimum lease rental income under non-cancellable leases for 1994 was approximately $8,666. The leases expire on various dates from 1995 to 1999. 6. LONG-TERM DEBT On April 15, 1994, the Partnership entered into a construction loan with Bank IV Kansas for the purpose of renovating the property. The construction loan is for $2,250,000 and carries an interest rate of 7.75% during the construction period. The Partnership paid a commitment fee in the amount of $15,000 to secure this financing. The loan, totaling $2,121,535, was converted to permanent financing with an annual interest rate of 7.75% fixed for a five-year term. A balloon payment in the amount of $1,466,490 is due January 1, 2000. Payments of principal and interest are due monthly and total $22,675. Principal repayments during each of the next five years are as follows: 1995 $ 111,587 1996 120,549 1997 130,230 1998 140,690 1999 151,989 2000 1,466,490 ---------- Total $2,121,535 ==========
7. PARTNERS' CAPITAL At December 31, 1994, total partners' capital was comprised of the following:
Partners' Capital Partners' Capital Contributions Net Loss Capital ---------- ------------- --------- ---------- SOF-II (90%) $3,088,827 $157,500 $(472,210) $2,774,117 Harvey (10%) 343,203 17,500 (52,468) 308,235 ---------- -------- --------- ---------- $3,432,030 $175,000 $(524,678) $3,082,352 ========== ======== ========= ==========
Net loss of the Partnership is allocated to the partners, on a pro rata basis, in accordance with the Partnership Agreement. The Partnership Agreement states that partner contributions will be limited to $5,340,000 for SOF-II and $600,000 for Harvey. The Agreement requires that contributions be made on a pro rata basis, as needed for hotel renovations or operations. F-24 28 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Starwood Capital Group In our opinion, the accompanying balance sheet and the related statement of operations, of changes in partner's capital and of cash flows present fairly, in all material respects, the financial position of The French Quarter Square at December 31, 1994 and the results of its operations and its cash flows for the period August 1, 1994 to December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of The French Quarter Square's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The accompanying financial statements of the French Quarter Square have been prepared assuming that the Partnership owns its properties. As discussed in Note 7, a lawsuit has been filed which disputes this ownership. The ultimate outcome of the litigation cannot be determined at present. No provision for any liability that may result upon adjudication has been made in the accompanying financial statements. PRICE WATERHOUSE LLP March 3, 1995 Dallas, Texas F-25 29 THE FRENCH QUARTER SQUARE BALANCE SHEET DECEMBER 31, 1994 - ------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 214,517 Accounts receivable 104,820 Inventories 25,868 Prepaid expenses 117,398 Fixed assets, net of accumulated depreciation (Note 3) 12,053,911 Other 50,561 ----------- Total assets $12,567,075 =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable - trade $ 105,162 Accrued sales and use taxes 55,826 Accrued payroll 26,948 Other accrued liabilities 19,327 Deferred revenue 70,023 Notes payable 47,369 Debt allocation (Note 5) 898,000 ----------- Total liabilities 1,222,655 ----------- Contingencies and uncertainties (Note 7) Partners' capital 11,344,420 ----------- Total liabilities and partners' capital $12,567,075 ===========
The accompanying notes are an integral part of these financial statements. F-26 30 THE FRENCH QUARTER SQUARE STATEMENT OF OPERATIONS FOR THE PERIOD AUGUST 1, 1994 TO DECEMBER 31, 1994 - ------------------------------------------------------------------------ Revenues: Rooms $1,415,866 Food and beverage 422,650 Telephone and other 124,381 Rental 290,010 Expense reimbursements 49,939 ---------- 2,302,846 ---------- Cost of sales - distributed operating expenses: Rooms 340,427 Food and beverage 429,269 Telephone 31,191 Other 19,798 ---------- 820,685 ---------- Operating department income: 1,482,161 ---------- Undistributed operating expenses: Administrative and general 284,568 Advertising and promotion 162,019 Property operation and maintenance 245,622 ---------- 692,209 ---------- Fixed charges: Depreciation 311,856 Real estate taxes and insurance 75,615 Interest 24,000 ---------- 411,471 ---------- Net income for the period $ 378,481 ==========
The accompanying notes are an integral part of these financial statements. F-27 31 THE FRENCH QUARTER SQUARE STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE PERIOD AUGUST 1, 1994 TO DECEMBER 31, 1994 - -------------------------------------------------------------------------------- Partners' capital, beginning of period $13,454,003 Distributions to partners (2,915,035) Contributions from partners 426,971 Net income for period 378,481 ----------- Partners' capital, end of period $11,344,420 ===========
The accompanying notes are an integral part of these financial statements. F-28 32 THE FRENCH QUARTER SQUARE STATEMENT OF CASH FLOWS FOR THE PERIOD AUGUST 1, 1994 TO DECEMBER 31, 1994 - ----------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 378,481 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 311,856 Change in operating assets and liabilities Accounts receivable (104,820) Inventory (25,868) Other assets (167,959) Accounts payable 105,162 Accrued liabilities 102,101 Deferred revenue 70,023 ---------- Net cash provided by operating activities 668,976 ---------- Cash flows from financing activities: Distributions to partners (2,915,035) Contributions from partners 426,971 Note payable 47,369 Debt allocation 898,000 ---------- Net cash used in financing activities (1,542,695) Net decrease in cash (873,719) Cash at beginning of period 1,088,236 ---------- Cash at end of period $ 214,517 ==========
The accompanying notes are an integral part of these financial statements. F-29 33 THE FRENCH QUARTER SQUARE NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION The French Quarter Square (the "Partnership") owns and operates a 155 room hotel, a 37,500 square foot shopping center and a 12,000 square foot office building (the "Properties") located in Lexington, Kentucky. The shopping center and office space were completed in 1988 and the hotel was completed in 1989. On August 4, 1994, for an aggregate purchase price of approximately $14.8 million, Berl Holdings, L.P. ("Berl") in combination with one of its limited partners, Starwood Opportunity Fund II, L.P. ("SOF II"), acquired the Properties, a nearby warehouse, 7.4 acres of undeveloped land and certain monetary interests of Kentucky Central Life Insurance Company in the operating accounts of the real estate and other amounts due them under a settlement agreement with the previous owners with respect to the mortgage. The purchase price, less the estimated value of the monetary interests acquired, was allocated by management between the real assets acquired by Berl and those acquired by SOF II (the warehouse and the undeveloped land) and, thereafter, between the land, building and improvements, and furniture, and equipment based on the relative estimated fair value of the individual property components. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements include the accounts of the Properties, as included in the financial records of Berl, as if it were a separate legal entity and these records have been prepared using generally accepted accounting principles. CASH AND CASH EQUIVALENTS For purpose of reporting cash flows, cash and cash equivalents include cash in banks and cash on hand. FIXED ASSETS Fixed assets are stated at cost. Depreciation is provided using accelerated methods over the estimated useful lives of the related assets, generally five to 39 years. The costs of repairs and minor renewals that do not significantly extend the life of the building and improvements are normally expensed as incurred. The costs of major renovation projects are capitalized and depreciated over the related period of benefit. INVENTORIES Food, linen, china, liquor and other inventories are valued at the lower of cost or market on a first-in, first-out basis. REVENUE RECOGNITION Hotel revenues are recognized when earned. Office and retail revenues are recognized on a straight-line basis over the life of the respective leases. INCOME TAXES No provision for income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is generally not subject to federal or state income taxes and the tax effects of its activities flow through to the partners. F-30 34 3. FIXED ASSETS Fixed assets consist of the following at December 31, 1994: Land $ 1,236,576 Building and improvements 10,060,739 Furniture and equipment 1,068,452 ----------- 12,365,767 Less: accumulated depreciation (311,856) ----------- $12,053,911 ===========
Depreciation expense for the period August 1, 1994 to December 31, 1994 was $311,856. 4. LEASES The office and retail properties are leased under operating leases with initial non-cancellable contracts starting at thirty-six months. Some leases provide for tenant reimbursement of certain common area maintenance expenses, insurance and real estate taxes on a monthly basis. A summary of the future minimum rentals to be received under non-cancellable operating leases is as follows: Year ending December 31: 1995 $ 503,443 1996 378,871 1997 305,724 1998 292,641 1999 252,370 Thereafter 1,266,913 ---------- $2,999,962 ==========
Certain retail leases require percentage rents to be paid after sales for individual retailers have reached a specified level. 5. JOINT BORROWING DEBT ALLOCATION Berl, through its interest in Starwood-Huntington Partners, L.P. ("Starwood-Huntington"), a majority owned affiliated partnership, acquired the fee title to the Doubletree Club Hotel of Rancho Bernardo, California which was financed in part through a $6.8 million mortgage on the acquired property. The remaining purchase price was financed through a $1.95 million borrowing by Berl secured by the French Quarter hotel property and two other hotel properties owned by Berl. The proceeds of this borrowing were contributed by Berl into Starwood-Huntington. The two mortgages contain cross-default provisions which effectively cross-collateralize all four hotel properties. The mortgage loans accrue interest at LIBOR plus 2.5%, payable monthly. Principal is due upon maturity in September, 1995. It is contemplated that the mortgage will be repaid with proceeds from a public offering made by Hotel Investors Trust. A pro rata portion of the Berl loan and the related interest expense have been reflected in these financial statements based on the relative 1994 acquisition prices of the Properties. 6. SUBSEQUENT EVENT Effective January 1, 1995, pursuant to a Plan of Reorganization executed on February 1, 1995, the Properties, subject to related secured mortgage obligations, along with other real estate assets, mortgage receivables and cash were transferred into two newly formed Operating Partnerships between Hotel Investors Trust/Hotel Investors Corporation (a real estate investment trust and a corporation trading publicly on a paired basis) and certain entities controlled by Starwood Capital Group, LP (including Berl and Starwood-Huntington) in exchange for a majority of the Operating Partnership's interests. Concurrently with these transactions, Hotel Investors Trust/Hotel Investors Corporation F-31 35 contributed substantially all of their net assets and operations into the Operating Partnerships and changed their name to Starwood Lodging Trust and Starwood Lodging Corporation, respectively. 7. CONTINGENCIES AND UNCERTAINTIES Kentucky Central Life Insurance Company ("KCL") sold the hotel, office and retail property to Berl. This sale was part of a pooled asset sale conducted by the Kentucky Insurance Commissioner as rehabilitator of KCL. At the time of the sale, the Kentucky Circuit Court had approved the sale, and KCL had appealed such approval. These appeals were transferred to the Kentucky Supreme Court and are pending. Neither Berl or SOF II are party to this litigation. In the event that the Commissioner loses this appeal and the sales are voided, Berl and SOF II have secured return of their purchase price by escrowing the proceeds at closing and by obtaining title insurance affirmatively covering this risk. F-32 36 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of the Starwood Capital Group We have audited the accompanying schedules of operating revenue and certain expenses of the French Quarter Square (the "Properties") for the period January 1 to July 31, 1994 and the year ended December 31, 1993. These schedules are the responsibility of the Properties' management. Our responsibility is to express an opinion on these schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the schedules of operating revenue and certain expenses are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall schedule presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying schedules of operating revenue and certain expenses were prepared on the basis described in Note 1 and is not intended to be a complete presentation of the Properties' revenues and expenses. In our opinion, the schedules of operating revenue and certain expenses audited by us present fairly, in all material respects, the operating revenue and certain expenses of the French Quarter Square, on the basis described in Note 1, for the period January 1 to July 31, 1994 and the year ended December 31, 1993, in conformity with generally accepted accounting principles. PRICE WATERHOUSE LLP Dallas, Texas March 3, 1995 F-33 37 THE FRENCH QUARTER SQUARE SCHEDULES OF OPERATING REVENUE AND CERTAIN EXPENSE FOR THE PERIOD JANUARY 1 TO JULY 31, 1994 AND THE YEAR ENDED DECEMBER 31, 1994 - --------------------------------------------------------------------------------
For the Year For the Period Ended January 1 to December 31, 1993 July 31, 1994 ----------------- -------------- Operating revenue: Rooms $3,280,411 $1,898,664 Food and beverage 1,165,305 654,654 Telephone and other 167,231 76,034 Rental 721,356 278,223 Expense reimbursements 6,266 36,819 ---------- ---------- 5,340,569 2,944,394 Certain expenses (Note 1): Cost of sales 1,827,710 1,125,362 General and administrative 500,146 316,673 Marketing 399,519 240,699 Energy costs 260,755 149,274 Management fees 271,313 147,685 Real estate taxes 186,509 Insurance and property operations 297,398 169,444 Common area maintenance 36,318 18,912 Other expenses 46,130 32,658 ---------- ---------- 3,825,798 2,200,707 ---------- ---------- Operating revenue in excess of certain expenses $1,514,771 $ 743,687 ========== ==========
The accompanying notes are an integral part of these financial statements. F-34 38 THE FRENCH QUARTER SQUARE NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying schedule of operating revenue and certain expenses relates to the operations of the French Quarter Square (the Properties) located in Lexington, Kentucky. The Properties consist of a 155 room hotel, a 37,500 square foot shopping center and a 12,000 square foot office building. The shopping center and office space were completed in 1988 and the hotel was completed in 1989. BASIS OF PRESENTATION This schedule was prepared for the partners of Starwood Capital Group (the Partners), who acquired the Properties in an acquisition from Kentucky Central Life Insurance Company on August 1, 1994. Kentucky Central Life Insurance received the properties through a deed in lieu of foreclosure on June 15, 1994. Prior to ownership by Kentucky Central Life Insurance Company, the Properties were owned by French Quarter Square Limited (Predecessor), a Kentucky limited partnership, who had filed for protection under Chapter 11 Bankruptcy on September 21, 1993. The Partners are contemplating selling these properties to Hotel Investors Inc. for inclusion in a real estate investment trust portfolio. Accordingly, certain expenses which may not be comparable to the expenses expected to be incurred in the proposed future operations of the Properties, have been excluded under the assumption that the potential transaction described above will be consummated. Expenses excluded consist of depreciation and valuation adjustments to the building and improvements, interest expense on certain debt incurred by the Properties to acquire and develop the property, and amortization of expenses not directly related to the proposed future operations of the Hotel. REVENUE AND EXPENSE RECOGNITION The accompanying schedule of operating revenue and certain expenses has been prepared on the accrual basis of accounting. Rooms revenue for the hotel is recognized daily on a check-in basis. Rental revenue for the office and shopping center is recognized on a monthly basis. All other revenue is recognized when earned. 2. RELATED PARTY TRANSACTIONS During the seven-month period ended July 31, 1994 and the year ended December 31, 1993, the hotel incurred approximately $400,000 and $240,000, respectively, in charges from French Quarter Properties Inc. (a related party) for marketing and management services. Payments totaling approximately $150,000, for management fees and leasing commissions incurred prior to January 1, 1993, were paid to Graves/Turner Developments on various dates between September 2, 1993 and September 21, 1993. In addition, approximately $16,000 and $271,000, respectively, in management fees were incurred and paid to Graves/Turner Development for management services rendered during the seven-month period ended July 31, 1994 and the year ended December 31, 1993, respectively. 3. FUTURE MINIMUM RENTALS UNDER OPERATING LEASES The Property is leased under operating leases with initial non-cancellable contracts starting at thirty-six months. Some leases provide for tenant reimbursement of certain common area maintenance expenses, insurance and real estate taxes on a monthly basis. F-35 39 A summary of the future minimum rentals to be received under non-cancellable operating leases is as follows:
Year Ending December 31, ------------------------ 1995 $ 503,443 1996 378,871 1997 305,724 1998 292,641 1999 252,370 Thereafter 1,266,913 ---------- $2,999,962 ==========
Several of the retail leases require percentage rents to be paid after sales for individual retailers have reached a specified level. F-36 40 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Berl Holdings, L.P. In our opinion, the accompanying balance sheet and the related statement of operations and retained earnings and of cash flows present fairly, in all material respects, the financial position of Capitol Hill Suites at December 31, 1994, and the results of its operations and its cash flows for the period July 14, 1994 (acquisition) to December 31, 1994 in conformity with generally accepted accounting principles. These financial statements are the responsibility of Capitol Hill Suites' management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with generally accepted auditing standards which requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Price Waterhouse LLP Washington, DC March 2, 1995 F-37 41 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Berl Holdings, L.P. In our opinion, the accompanying balance sheet at December 31, 1993 and the related statement of operations, changes in stockholder's equity and of cash flows present fairly, in all material respects, the financial position and results of operations and cash flows for Capitol Hill Suites for the period January 1, 1994 to July 13, 1994, and the year ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Capitol Hill Suites' management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with generally accepted auditing standards which requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Price Waterhouse LLP Washington, DC March 2, 1995 F-38 42 CAPITOL HILL SUITES BALANCE SHEET - --------------------------------------------------------------------------------
DECEMBER 31, --------------------------- 1993 1994 (PREDECESSOR) ---------- ------------- ASSETS Cash $ 192,335 $ 91,175 Accounts receivable 64,142 130,711 Inventory, at cost 57,206 51,097 Other 29,736 20,543 Fixed assets: Land 1,275,528 2,258,000 Building and building improvements 6,713,347 5,640,117 Furniture, fixtures and equipment 719,724 419,093 ---------- ---------- 8,708,599 8,317,210 Less: Accumulated depreciation 204,124 523,591 ---------- ---------- 8,504,475 7,793,619 ---------- ---------- Total assets $8,847,894 $8,087,145 ========== ========== LIABILITIES AND DIVISION EQUITY Accounts payable $ 139,422 $ 141,597 Accounts payroll 40,596 20,243 Other accrued expenses 54,238 20,244 Mortgage payable (Note 3) 617,000 ---------- ---------- Total liabilities 851,256 182,084 ---------- ---------- Division equity 7,996,638 7,905,061 ---------- ---------- Total liabilities and division equity $8,847,894 $8,087,145 ========== ==========
The accompanying notes are an integral part of these financial statements. F-39 43 CAPITOL HILL SUITES STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------
For the period Predecessor July 14, 1994 For the period (acquisition) to January 1, 1994 to Year ended December 31, 1994 July 13, 1994 December 31, 1993 ----------------- ------------------ ----------------- Revenues: Suites $1,412,222 $1,856,654 $3,146,322 Telephone 50,196 58,061 101,665 Other 50,618 56,455 147,330 ---------- ---------- ---------- 1,513,036 1,971,170 3,395,317 Departmental expenses: Suites 416,777 519,190 875,318 Telephone 18,340 22,642 47,705 Other 16,796 20,368 48,232 ---------- ---------- ---------- 451,913 562,200 971,255 ---------- ---------- ---------- Gross profit 1,061,123 1,408,970 2,424,062 ---------- ---------- ---------- Other expenses: General and administrative 166,206 222,244 418,513 Advertising and promotion 81,992 110,942 210,317 Utilities 57,921 66,962 133,693 Maintenance and repairs 93,454 124,995 185,766 Insurance and taxes 74,234 60,518 152,834 Depreciation and amortization 204,124 154,575 253,600 Management fees 40,888 102,562 156,874 Other 6,696 3,865 ---------- ---------- ---------- 725,515 846,663 1,511,597 ---------- ---------- ---------- Income from hotel operations 335,608 562,307 912,465 Interest expense 16,000 ---------- ---------- ---------- Other 95,238 ---------- ---------- ---------- Net income $ 319,608 $ 467,069 $ 912,465 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-40 44 CAPITOL HILL SUITES STATEMENT OF CHANGES IN DIVISION EQUITY - --------------------------------------------------------------------------------
For the period July 14, 1994 (acquisition) to December 31, 1994 ----------------- Contributed capital $8,515,307 Capital withdrawal (838,277) Net income for period 319,608 ---------- Division equity, ending $7,996,638 ==========
- -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (Predecessor)
For the period January 1, 1994 to July 13, 1994 ------------------ Stockholder's equity, beginning $7,905,061 Capital withdrawal (8,315,397) Distributions to stockholder, net (194,268) Net income for period 467,069 ---------- Stockholder's equity, ending $ (137,535) ==========
For the period January 1, 1993 to December 31, 1993 ------------------ Stockholder's equity, beginning $7,697,976 Distributions to stockholder, net (705,380) Net income for period 912,465 ---------- Stockholder's equity, ending $7,905,061 ==========
The accompanying notes are an integral part of these financial statements. F-41 45 CAPITOL HILL SUITES STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
For the period Predecessor July 14, 1994 For the period (acquisition) to January 1, 1994 to Year ended December 31, 1994 July 13, 1994 December 31, 1993 ----------------- ------------------ ----------------- Cash flows from operating activities: Net income $ 319,608 $ 467,069 $ 912,465 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 204,124 154,575 253,600 Gain on sale of fixed assets (3,821) Changes in assets and liabilities: (Increase) decrease in accounts receivable (14,104) 130,711 16,238 (Increase) decrease in inventory (5,745) 51,097 7,727 (Increase) decrease other (7,183) 20,543 (3,249) Increase (decrease) in accounts payable 139,422 (141,597) 41,351 Decrease in accrued payroll (7,131) (20,243) (27,116) Decrease in other accrued expenses (10,279) (20,244) (63,389) ----------- ---------- ---------- Net cash provided by operating activities 618,712 641,911 1,133,806 Cash flows from investing activities: Capital expenditures (8,720,407) (264,557) (527,883) Proceeds from sale of fixed assets 8,315,397 3,821 ----------- ---------- ---------- Net cash (used in) provided by investing activities (8,720,407) 8,050,840 (524,062) Cash flows from financing activities: Partners' capital contribution 8,515,307 Proceeds from mortgage borrowings 617,000 Capital withdrawal (838,277) (8,315,397) Distributions to stockholder, net (194,268) (705,380) ----------- ---------- ---------- Net cash provided by/(used in) financing activities 8,294,030 (8,509,665) (705,380) Net increase in cash 192,335 183,086 (95,636) Cash, beginning 91,175 186,811 ----------- ---------- ---------- Cash, ending $ 192,335 $ 274,261 $ 91,175 =========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-42 46 CAPITOL HILL SUITES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994 NOTE 1 - ORGANIZATION Capitol Hill Suites (the Property), a 152 room suites hotel located in Washington D.C., was acquired by Berl Holdings, L.P. (Berl) on July 14, 1994 from Capitol Hill Holdings, Inc. (the Predecessor) which had acquired the Property from a subsidiary of Marine Midland Realty Credit Corporation, in 1991. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements include the accounts of the Property, as included in the financial records of Berl and the Predecessor, as if it were a separate legal entity and have been prepared using the accrual basis of accounting. CASH AND CASH EQUIVALENTS The Property considers highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INVENTORY Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. FIXED ASSETS Fixed assets are recorded at the lower of cost or net realizable value based on fair value allocations as determined by management at the acquisition date. Building and building improvements, furniture and fixtures and equipment are depreciated using the straight-line method over estimated lives ranging from 5 to 30 years. The costs of repairs and minor renewals that do not significantly extend the life of the property and equipment are normally expensed as incurred. The costs of major renovation projects are capitalized and depreciated over the related period of benefit. INCOME TAXES At December 31, 1994, the Property is owned by a partnership, as such, the Property is not subject to federal or state income taxes; the tax effect of the property's activities accrues to its partners. Accordingly, no provision or benefit for income taxes is necessary in the financial statements for the period from July 14, 1994 to December 31, 1994. The Predecessor corporation is a participant in a joint venture under which the venture partner is allocated substantially all of the results of operations for tax purposes. The venture partnership is a foreign corporation which has substantial losses for which no benefit had previously been realized. Accordingly, no provision or benefit for federal or state income taxes is provided for in the financial statements for the period January 1, 1994 to July 13, 1994. NOTE 3 - MORTGAGE PAYABLE Berl through its interest in Starwood-Huntington Partners, L.P. ("Starwood-Huntington"), a majority owned affiliated partnership, acquired the fee title to the Doubletree Club Hotel of Rancho Bernardo, California for $8.25 million which was financed in part through a $6.8 million mortgage on the acquired property. The remaining purchase price was financed through a $1.95 million borrowing by Berl secured by the Property and two other hotel properties owned by Berl. The proceeds of this borrowing were contributed by Berl into Starwood-Huntington. The two mortgages contain cross-default provisions, which effectively cross-collateralize all four hotel properties. The mortgage loans accrue interest at LIBOR plus 2.5%, payable monthly. Principal is due upon maturity in September, 1995. F-43 47 A pro rata portion of the Berl loan and the related interest expense have been reflected in these financial statements based on the relative 1994 acquisition prices of the three properties securing the loan. NOTE 4 - MANAGEMENT AGREEMENT On July 14, 1994, Berl entered into a management agreement with Hospitality Partners (Hospitality), a minority limited partner in Berl. The agreement provides for a monthly management fee of 8.5% (10% under predecessor) of adjusted net operating income, as defined in the agreement. The agreement also provides for an incentive fee equal to 20% of adjusted net operating income, as defined by the agreement, in excess of certain thresholds, which were increased concurrent with the acquisition described in Note 1. The management and incentive fees for the period July 14, 1994 to December 31, 1994 the period January 1, 1994 to July 13, 1994 and the years ended December 31, 1993, approximated $41,000, $103,000 and $157,000, respectively. During the period July 14, 1994 through December 31, 1994 and the period January 1, 1994 through July 13, 1994, $20,000 and $25,000, respectively was paid to Hospitality for certain accounting services provided to the Suites. NOTE 5 - SUBSEQUENT EVENT Effective January 1, 1995 pursuant to a Plan of Reorganization executed on February 1, 1995, the Property and related hotel operations, subject to related secured mortgage obligations, along with other real estate assets, mortgage receivables and cash were transferred into two newly formed Operating Partnerships between Hotel Investors Trust/Hotel Investors Corporation (a real estate investment trust and a corporation trading publicly on a paired basis) and certain entities controlled by the Starwood Capital Group and/or its affiliates (including Berl and Starwood-Huntington) in exchange for majority interest of the Operating Partnerships interests. Concurrently with these transactions, Hotel Investors Trust/Hotel Investors Corporation contributed substantially all of their net assets and operations into the Operating Partnerships and changed their names to Starwood Lodging Trust and Starwood Lodging Corporation, respectively. F-44 48 INDEPENDENT AUDITORS' REPORT Starwood Lodging Trust Starwood Lodging Corporation We have audited the accompanying balance sheets of the Doubletree Club Hotel of Rancho Bernardo (the "Hotel") as of December 31, 1994 and 1993, and the related statements of operations and owners' equity and of cash flows for the periods September 16, 1994 to December 31, 1994 and January 1, 1994 to September 15, 1994 and for the year ended December 31, 1993. These financial statements are the responsibility of the Hotel's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Doubletree Club Hotel of Rancho Bernardo at December 31, 1994 and 1993, and the results of its operations and its cash flows for the periods September 16, 1994 to December 31, 1994 and January 1, 1994 to September 15, 1994 and for the year ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, the Hotel was acquired by Starwood-Huntington Partners, L.P. on September 16, 1994 in a transaction accounted for as a purchase. As a result of the acquisition, the financial statements for the period subsequent to the acquisition are presented on a different basis of accounting than that in the preceding periods and are therefore not directly comparable. Deloitte & Touche LLP Los Angeles, California March 24, 1995 F-45 49 DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO BALANCE SHEEETS DECEMBER 31, 1994 AND 1993 - --------------------------------------------------------------------------------
SUCCESSOR PREDECESSOR --------- ----------- DECEMBER 31, -------------------------- ASSETS 1994 1993 CURRENT ASSETS: Cash and cash equivalents (Note 1) $ 190,217 $ 283,062 Accounts receivable, less allowance for doubtful accounts of $12,240 in 1994 and $5,772 in 1993 91,913 65,999 Due from Operator (Note 2) 126,000 Deferred financing costs, net of accumulated amortization of $22,750 54,964 Inventories (Note 1) 11,227 10,124 Prepaid expenses 29,311 2,499 ---------- ---------- Total current assets 377,632 487,684 RESTRICTED CASH (Note 2) 328,394 PROPERTY AND EQUIPMENT, Net (Notes 1 and 4) 8,180,392 8,091,886 OTHER ASSETS 529 ---------- ---------- TOTAL $8,558,024 $8,908,493 ========== ========== LIABILITIES AND OWNERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 104,955 $ 21,445 Due to Operator (Note 2) 17,206 Accrued expenses, including pre-petition liabilities of $59,618 in 1993 166,785 221,780 Notes payable (Note 5) 6,800,000 ---------- ---------- Total current liabilities 7,071,740 260,431 OWNERS' EQUITY 1,486,284 8,648,062 ---------- ---------- TOTAL $8,558,024 $8,908,493 ========== ==========
See notes to financial statements. F-46 50 DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO STATEMENTS OF OPERATIONS AND OWNERS' EQUITY PERIOD SEPTEMBER 16, 1994 TO DECEMBER 31, 1994 AND JANUARY 1, 1994 TO SEPTEMBER 14, 1995 AND YEAR ENDED DECEMBER 31, 1993 - --------------------------------------------------------------------------------
SUCCESSOR PREDECESSOR ------------- --------------------------------- SEPTEMBER 16- JANUARY 1- DECEMBER 31, SEPTEMBER 15, DECEMBER 31, 1994 1994 1993 REVENUES Room $ 868,926 $2,392,008 $2,914,592 Food and beverage 46,354 134,854 197,863 Telephone 50,525 146,027 173,716 Other 31,647 82,917 49,251 ---------- ---------- ---------- Total revenues 997,452 2,755,806 3,335,422 ---------- ---------- ---------- COST OF SALES: Room 174,129 512,552 647,623 Food and beverage 53,379 129,125 143,377 Telephone 14,402 37,228 48,957 Other 3,585 12,693 15,249 ---------- ---------- ---------- Total cost of sales 245,495 691,598 855,206 ---------- ---------- ---------- 751,957 2,064,208 2,480,216 ---------- ---------- ---------- EXPENSES: Operating (Note 2) 327,135 874,208 1,118,253 General and administrative 127,293 341,633 437,602 Management and royalty fees (Note 2) 49,937 138,008 166,211 Depreciation and amortization 219,302 329,037 462,348 Interest 156,378 ---------- ---------- ---------- Total expenses 880,045 1,682,886 2,184,414 ---------- ---------- ---------- NET (LOSS) INCOME (128,088) 381,322 295,802 OWNERS' EQUITY: Beginning of period 1,688,780 8,648,062 9,007,939 Contributions 246,290 Distributions, net (Note 6) (320,698) (107,966) (655,679) ---------- ---------- ---------- End of period $1,486,284 $8,921,418 $8,648,062 ========== ========== ==========
See notes to financial statements. F-47 51 DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO STATEMENTS OF CASH FLOWS PERIODS SEPTEMBER 16, 1994 TO DECEMBER 31, 1994 AND JANUARY 1, 1994 TO SEPTEMBER 15, 1994 AND YEAR ENDED DECEMBER 31, 1993 - -------------------------------------------------------------------------------
SUCCESSOR PREDECESSOR -------------- ---------------------------------- SEPTEMBER 16 - JANUARY 1 - DECEMBER 31, SEPTEMBER 15, DECEMBER 31, 1994 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (128,088) $ 381,322 $ 295,802 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 219,302 329,037 462,348 Provision for doubtful accounts 12,240 12,334 1,098 Changes in operating assets and liabilities: Accounts receivable 29,204 (90,683) (6,548) Due from Operator 126,000 Inventories 1,377 (2,481) (246) Prepaid expenses and other assets (29,311) 2,502 1,296 Deferred financing costs (77,714) Accounts payable 104,955 124,867 1,109 Due to Maruko, Inc. 32,136 44,321 Due to Operator 2,896 585 Accrued expenses 135,500 51,781 (1,384) ----------- --------- --------- Net cash provided by operating activities 267,465 969,711 798,381 ----------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Hotel (8,488,779) Purchase of property and equipment (2,841) (1,900) (36,576) Increase in restricted cash (78,365) (106,699) ----------- --------- --------- Net cash used in investing activities (8,491,620) (80,265) (143,275) ----------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Owner's capital contribution 1,935,070 Distributions (320,698) (275,000) (700,000) Increase in notes payable 6,800,000 ----------- --------- --------- Net cash provided by (used in) financing activities 8,414,372 (275,000) (700,000) ----------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 190,217 614,446 (44,894) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - 283,062 327,956 ----------- --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 190,217 $ 897,508 $ 283,062 =========== ========= ========= (Continued)
See notes to financial statements. F-48 52 DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO STATEMENTS OF CASH FLOWS PERIODS SEPTEMBER 16, 1994 TO DECEMBER 31, 1994 AND JANUARY 1, 1994 TO SEPTEMBER 15, 1994 AND YEAR ENDED DECEMBER 31, 1993 - ------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Amounts due to Maruko, Inc. of $167,034 and $44,321 were credited to owners' equity in the period ended September 15, 1994 and the year ended December 31, 1993, respectively. On September 16, 1994, Starwood-Huntington Partners, L.P. purchased the Hotel for $8,488,779. In conjunction with the acquisition, assets acquired and liabilities assumed were as follows: Fair value of assets acquired $8,520,184 Cash paid $8,488,779 Liabilities assumed $ 31,405
See notes to financial statements. (Concluded) F-49 53 DOUBLETREE CLUB HOTEL OF RANCHO BERNARDO NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Information - The Doubletree Club Hotel of Rancho Bernardo (the "Hotel") was owned jointly by Maruko, Inc. ("Maruko"), a Japanese corporation, and individual Japanese investors. Compri Management Corporation No. 8 (the "Operator") operated the Hotel under management and franchise agreements with Maruko (see Note 2). Maruko applied to the Tokyo District Court for protection from creditors under the Corporation Reorganization Law on August 29, 1991 and under Chapter 11 with the United States Bankruptcy Court on October 30, 1991. On July 1, 1994, the Tokyo District Court approved Maruko's plan for reorganization under the Corporation Reorganization Law in Japan, and on February 3, 1994, the United States Bankruptcy Court approved Maruko's application for reorganization under Chapter 11. As part of the bankruptcy proceedings, Maruko sold the Hotel to Starwood-Huntington Partners, L.P. on September 16, 1994. Effective January 1, 1995 the assets and liabilities of the Hotel were contributed by Starwood-Huntington Partners, L.P. to SLT Realty L.P. and SLC Operating L.P., in exchange for partnership interests. Cash and Cash Equivalents - The Hotel considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Inventories - Inventories, consisting primarily of food and beverage, are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Property and Equipment - Property and equipment are stated at the lower of cost or net realizable value. Depreciation is computed on the straight-line and accelerated methods over the estimated useful lives of the respective assets. Income Taxes - No provision has been made for income taxes in the financial statements, as any taxable income or loss of the Hotel is included in the income tax returns of Maruko and the individual Japanese investors for the periods ending on or before September 15, 1994, and of Starwood-Huntington Partners, L.P. for the period September 16, 1994 through December 31, 1994. 2. MANAGEMENT AND FRANCHISE AGREEMENTS The management fee consists of a base fee of 5% of gross revenue, as defined, and a 10% incentive fee on the amount by which net operating income, as defined, exceeds $1,500,000. The franchise agreement requires a royalty fee of 3% of gross room revenues. However, this fee is deductible from the aforementioned 5% base management fee. The management and royalty fees amounted to $49,937 and $138,008 for the periods September 16, 1994 to December 31, 1994 and January 1, 1994 to September 15, 1994, respectively, and $166,211 for the year ended December 31, 1993. No incentive fee was earned. The franchise agreement requires the Hotel to contribute 3% of gross room revenues to the Operator for marketing services. This fee, which is included in operating expenses, amounted to approximately $26,000 and $72,000 for the periods September 16, 1994 to December 31, 1994 and January 1, 1994 to September 15, 1994, respectively, and $88,000 for the year ended December 31, 1993. The Operator provides centralized accounting and data processing services to the Hotel in accordance with the management agreement. The cost of these services amounted to $12,000 and $36,000 for the periods F-50 54 September 16, 1994 to December 31, 1994 and January 1, 1994 to September 15, 1994 and $48,000 for the year ended December 31, 1993. The management agreement with Maruko included a provision for the establishment of a fund for replacement of furniture and fixtures, equal to 3% of gross revenues. The fund is classified as restricted cash in the accompanying balance sheets. The $126,000 due from the Operator in 1993 was non-interest bearing and was paid in 1994. 3. RELATED PARTIES Maruko paid $167,034 for the period ended September 15, 1994 and $44,321 for the year ended December 31, 1993 for various expenses on behalf of the Hotel (see Note 6). 4. PROPERTY AND EQUIPMENT Property and equipment are summarized as follows:
DECEMBER 31 ------------------------------- 1994 1993 LIVES Land and improvements $1,255,872 $1,510,346 Building and improvements 6,221,530 5,701,382 10 to 40 years Furniture and equipment 899,542 2,342,324 3 to 10 years ---------- ---------- 8,376,944 9,554,052 Less accumulated depreciation 196,552 1,462,166 ---------- ---------- $8,180,392 $8,091,886 ========== ==========
5. NOTES PAYABLE At the time of the purchase of the Hotel, Starwood-Huntington Partners, L.P. obtained a note payable to Lexington Mortgage Company. The note, which bears interest at LIBOR plus 2.5% (10.25% at December 31, 1994), is due in October 1995. Interest paid in the period ended December 31, 1994 was $108,210. 6. DISTRIBUTIONS Certain amounts payable to Maruko will not be settled by cash payments. Accordingly, such amounts have been credited to owners' equity (see Note 3). The Hotel distributed $275,000 and $700,000 in cash to Maruko for the period January 1, 1994 to September 15, 1994, and for the year ended December 31, 1993, respectively. F-51 -----END PRIVACY-ENHANCED MESSAGE-----