-----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, REFIW/B7eZpILP84OXUuPrIsqpW7CfwL7Cklurao6BXI9re8ADYjPRY3BfRT4KpF ZwSpTU3E8jUnayd62W4jOg== 0000950153-97-000754.txt : 19970815 0000950153-97-000754.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950153-97-000754 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06828 FILM NUMBER: 97660110 BUSINESS ADDRESS: STREET 1: 2231 E CAMELBACK RD STREET 2: STE 10 CITY: PHOENIX STATE: AZ ZIP: 80516 BUSINESS PHONE: 6028523900 MAIL ADDRESS: STREET 1: 2231 E CAMELBACK RD STREET 2: STE 10 CITY: PHOENIX STATE: AZ ZIP: 85016 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07959 FILM NUMBER: 97660111 BUSINESS ADDRESS: STREET 1: 2231 E CAMELBACK RD, 4TH FL CITY: PHOENIX STATE: AZ ZIP: 85016 BUSINESS PHONE: 6028523900 MAIL ADDRESS: STREET 1: 2231 E CAMELBACK RD. 4TH FL CITY: PHOENOX STATE: AZ ZIP: 85016 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED 6/30/97 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ 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.) 2231 East Camelback Road, Suite 410 2231 East Camelback Road, Suite 400 Phoenix, AZ 85016 Phoenix, AZ 85016 (Address of principal executive (Address of principal executive offices, including zip code) offices, including zip code) (602) 852-3900 (602) 852-3900 (Registrant's telephone number, (Registrant's telephone number, including area code) including area code)
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 45,557,144 Shares of Beneficial Interest, par value $0.01 per share, of Starwood Lodging Trust paired with 45,557,144 Shares of Common Stock, par value $0.01 per share, of Starwood Lodging Corporation, outstanding as of July 29, 1997. 2 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following financial statements of Starwood Lodging Trust and Starwood Lodging Corporation are provided pursuant to the requirements of this item. INDEX TO FINANCIAL STATEMENTS Starwood Lodging Trust and Starwood Lodging Corporation: Combined Consolidated Balance Sheets - As of June 30, 1997 and December 31, 1996 Combined Consolidated Statements of Operations - For the three and six months ended June 30, 1997 and 1996 Combined Consolidated Statements of Cash Flows - For the six months ended June 30, 1997 and 1996 Starwood Lodging Trust: Consolidated Balance Sheets - As of June 30, 1997 and December 31, 1996 Consolidated Statements of Operations - For the three and six months ended June 30, 1997 and 1996 Consolidated Statements of Cash Flows - For the six months ended June 30, 1997 and 1996 Starwood Lodging Corporation: Consolidated Balance Sheets - As of June 30, 1997 and December 31, 1996 Consolidated Statements of Operations - For the three and six months ended June 30, 1997 and 1996 Consolidated Statements of Cash Flows - For the six months ended June 30, 1997 and 1996 Notes to Financial Statements 2 3 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
June 30, December 31, 1997 1996 ----------- ----------- ASSETS Hotel assets held for sale - net ............................... $ 21,637 $ 21,644 Hotel assets - net ............................................. 1,624,340 1,100,030 ----------- ----------- 1,645,977 1,121,674 Mortgage notes receivable - net ................................ 80,053 90,741 Investments .................................................... 440 948 ----------- ----------- Total real estate investments ............................... 1,726,470 1,213,363 Cash and cash equivalents ...................................... 42,039 25,426 Accounts, interest and rent receivable ......................... 61,270 43,278 Notes receivable - net ......................................... 2,744 2,930 Inventories, prepaid expenses and other assets ................. 42,368 27,743 ----------- ----------- $ 1,874,891 $ 1,312,740 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Collateralized notes payable and revolving lines of credit ..... $ 568,037 $ 422,334 Mortgage and other notes payable ............................... 139,356 57,232 Accounts payable and other liabilities ......................... 64,887 57,296 Distributions payable .......................................... 22,745 19,258 ----------- ----------- 795,025 556,120 ----------- ----------- Commitments and contingencies MINORITY INTEREST .............................................. 262,958 163,959 ----------- ----------- SHAREHOLDERS' EQUITY Trust shares of beneficial interest at June 30, 1997 and December 31, 1996; $.01 par value; authorized 100,000,000 shares; outstanding 45,555,188 and 40,078,000 at June 30, 1997 and December 31, 1996, respectively .................... 456 401 Corporation common stock at June 30, 1997 and December 31, 1996; $.01 par value; authorized 100,000,000 shares; outstanding 45,555,188 and 40,078,000 at June 30, 1997 and December 31, 1996, respectively .................... 456 401 Additional paid-in capital ..................................... 1,091,757 827,760 Distributions in excess of earnings ............................ (275,761) (235,901) ----------- ----------- 816,908 592,661 ----------- ----------- $ 1,874,891 $ 1,312,740 =========== ===========
See accompanying notes to financial statements. 3 4 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended June 30, --------------------------- 1997 1996 --------- -------- REVENUE Rooms ............................................................ $ 142,258 $ 52,002 Food and beverage ................................................ 57,356 13,821 Other ............................................................ 15,004 6,844 --------- -------- Total hotel revenue ............................................ 214,618 72,667 Gaming ........................................................... 3,807 6,914 Interest from mortgage and other notes ........................... 3,127 2,236 Rents from leased hotel properties and income from investments .................................................... 243 282 Management fees and other income ................................. 1,858 913 Gain (loss) on sales of real estate investments .................. (504) (347) --------- -------- 223,149 82,665 --------- -------- EXPENSES Rooms ............................................................ 33,630 12,874 Food and beverage ................................................ 41,799 10,673 Other ............................................................ 67,323 25,032 --------- -------- Total hotel expenses ........................................... 142,752 48,579 Gaming ........................................................... 4,159 6,357 Interest ......................................................... 12,820 5,549 Depreciation and amortization .................................... 29,827 6,130 Administrative and general ....................................... 7,733 2,992 --------- -------- 197,291 69,607 --------- -------- Income before minority interest .................................. 25,858 13,058 Minority interest ................................................ 7,723 4,537 --------- -------- Income before extraordinary item ................................. 18,135 8,521 Extraordinary item due to early extinguishment of debt (net of $413,000 minority interest) .................................... -- 1,077 --------- -------- NET INCOME ............................................. $ 18,135 $ 9,598 ========= ======== EARNINGS PER PAIRED SHARE Income before extraordinary item ................................. $ 0.38 $ 0.36 Extraordinary item ............................................... -- 0.05 --------- -------- NET INCOME PER PAIRED SHARE ............................ $ 0.38 $ 0.41 ========= ======== Weighted Average Number of Paired Shares ......................... 47,764 23,335 ========= ========
See accompanying notes to financial statements. 4 5 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six months ended June 30, ------------------------- 1997 1996 ---------- ---------- REVENUE Rooms.......................................................... $249,231 $ 89,128 Food and beverage.............................................. 100,894 23,648 Other.......................................................... 26,670 10,193 -------- -------- Total hotel revenue.......................................... 376,795 122,969 Gaming......................................................... 7,727 13,743 Interest from mortgage and other notes......................... 7,213 4,761 Rents from leased hotel properties and income from investments.................................................. 441 465 Management fees and other income............................... 4,196 1,653 Gain (loss) on sales of real estate investments................ (504) (347) -------- -------- 395,868 143,244 -------- -------- EXPENSES Rooms.......................................................... 60,619 22,027 Food and beverage.............................................. 75,481 18,512 Other.......................................................... 124,374 43,622 -------- -------- Total hotel expenses......................................... 260,474 84,161 Gaming......................................................... 8,248 12,192 Interest....................................................... 23,311 8,772 Depreciation and amortization.................................. 54,387 13,790 Administrative and general..................................... 13,548 5,365 -------- -------- 359,968 124,280 -------- -------- Income before minority interest................................ 35,900 18,964 Minority interest.............................................. 9,891 6,353 -------- -------- Income before extraordinary item............................... 26,009 12,611 Extraordinary item due to early extinguishment of debt (net of $413,000 minority interest)................................... -- 1,077 -------- -------- NET INCOME........................................... $ 26,009 $ 13,688 ======== ======== EARNINGS PER PAIRED SHARE Income before extraordinary item............................... $ 0.56 $ 0.57 Extraordinary item............................................. -- 0.05 -------- -------- NET INCOME PER PAIRED SHARE.......................... $ 0.56 $ 0.62 ======== ======== Weighted Average Number of Paired Shares....................... 46,063 22,016 ======== ========
See accompanying notes to financial statements. 5 6 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Six months ended June 30, ------------------------- 1997 1996 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss).................................................. $ 26,009 $ 13,688 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest................................................ 9,891 6,353 Extraordinary items due to early extinguishment of debt.......... -- (1,077) Depreciation and amortization.................................... 54,387 13,790 Accretion of discount............................................ (2,890) (1,560) Warrants and paired shares issued as compensation................ 1,786 -- (Gain) loss on sales of real estate investments.................. 504 347 Changes in operating assets and liabilities: Increase in accounts receivable, inventories, prepaid expenses and other assets............................................... (24,555) (24,394) Increase (decrease) in accounts payable and other liabilities.... (2,172) 11,868 --------- --------- Net cash provided by operating activities.............. 62,960 19,015 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties.................................... (282,662) (223,469) Improvements and additions to hotel assets......................... (63,608) -- Purchase of investments............................................ (432) (509) Sales of investments............................................... 940 955 Net proceeds from sales of hotel assets............................ 7,261 3,684 Purchase of mortgage and other notes receivable.................... -- (20,113) Principal received on mortgage and other notes receivable.......... 13,754 2,570 --------- --------- Net cash used in investing activities.................. (324,747) (236,882) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under collateralized notes payable and revolving lines of credit........................................................ 180,682 111,062 Borrowings under mortgage and other notes payable.................. 98,000 468 Payments on collateralized notes payable and revolving lines of credit........................................................... (35,000) -- Principal payments on mortgage and other notes payable............. (26,126) (4,611) Net proceeds from equity offerings................................. 129,667 62,363 Contributed capital and adjustments................................ (450) 77,799 Stock repurchase................................................... (25,724) -- Distributions paid................................................. (42,649) (19,529) --------- --------- Net cash provided by financing activities.............. 278,400 227,552 --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS............................. 16,613 9,685 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD........................................................ 25,426 9,332 --------- --------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD............................................................ $ 42,039 $ 19,017 ========= =========
See accompanying notes to financial statements. 6 7 STARWOOD LODGING TRUST UNAUDITED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
June 30, December 31, 1997 1996 ----------- ----------- ASSETS Hotel assets held for sale - net............................................. $ 19,851 $ 12,615 Hotel assets - net........................................................... 1,511,145 988,309 ---------- ---------- 1,530,996 1,000,924 Mortgage notes receivable - net.............................................. 80,053 90,741 Mortgage notes receivable - Corporation...................................... 89,930 88,077 Investments.................................................................. 440 948 ---------- ---------- Total real estate investments.......................................... 1,701,419 1,180,690 Cash and cash equivalents.................................................... 4,324 3,810 Rent and interest receivable................................................. 12,805 12,617 Notes receivable - net....................................................... 1,980 2,237 Notes receivable - Corporation............................................... 50,310 17,741 Prepaid expenses and other assets............................................ 12,889 16,271 ========== ========== $1,783,727 $1,233,366 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Collateralized notes payable and revolving lines of credit................... $ 568,037 $ 422,334 Mortgage and other notes payable............................................. 137,913 55,269 Accounts payable and other liabilities....................................... 21,760 9,200 Distributions payable........................................................ 22,646 19,258 ---------- ---------- 750,356 506,061 ---------- ---------- Commitments and contingencies MINORITY INTEREST............................................................ 251,977 158,005 ---------- ---------- SHAREHOLDERS' EQUITY Trust shares of beneficial interest at June 30, 1997 and December 31, 1996; $.01 par value; authorized 100,000,000 shares; outstanding 45,555,188 and 40,078,000 at June 30, 1997 and December 31, 1996, respectively.................................. 456 401 Additional paid-in capital................................................... 977,212 729,276 Distributions in excess of earnings.......................................... (196,274) (160,377) ---------- ---------- 781,394 569,300 ========== ========== $1,783,727 $1,233,366 ========== ==========
See accompanying notes to financial statements. 7 8 STARWOOD LODGING TRUST UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended June 30, ----------------------- 1997 1996 -------- -------- REVENUE Rents from Corporation...................................... $ 54,566 $ 14,250 Interest from Corporation................................... 2,748 1,915 Interest from mortgage and other notes...................... 3,127 2,192 Rents from other leased hotel properties and income from joint ventures........................................... 243 282 Other income................................................ 229 667 Gain (loss) on sales of real estate investments............. -- (347) -------- -------- 60,913 18,959 -------- -------- EXPENSES Interest.................................................... 12,801 5,417 Depreciation and amortization............................... 22,567 3,830 Administrative and general.................................. 2,904 1,542 -------- -------- 38,272 10,789 -------- -------- Income before minority interest............................. 22,641 8,170 Minority interest........................................... 5,797 2,570 -------- -------- NET INCOME........................................ $ 16,844 $ 5,600 ======== ======== NET INCOME PER SHARE.............................. $ 0.35 $ 0.24 ======== ======== Weighted Average Number of Shares........................... 47,764 23,335 ======== ========
See accompanying notes to financial statements. 8 9 STARWOOD LODGING TRUST UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six months ended June 30, ----------------------- 1997 1996 -------- -------- REVENUE Rents from Corporation..................................... $ 95,505 $ 27,770 Interest from Corporation.................................. 5,290 4,103 Interest from mortgage and other notes..................... 7,213 4,696 Rents from other leased hotel properties and income from joint ventures.......................................... 441 465 Other income............................................... 1,551 1,073 Gain (loss) on sales of real estate investments............ -- (347) -------- -------- 110,000 37,760 -------- -------- EXPENSES Interest................................................... 23,260 8,585 Depreciation and amortization.............................. 42,801 7,216 Administrative and general................................. 5,117 2,730 -------- -------- 71,178 18,531 -------- -------- Income before minority interest............................ 38,822 19,229 Minority interest.......................................... 9,760 6,487 -------- -------- NET INCOME....................................... $ 29,062 $ 12,742 ======== ======== NET INCOME PER SHARE............................. $ 0.63 $ 0.58 ======== ======== Weighted Average Number of Shares.......................... 46,063 22,016 ======== ========
See accompanying notes to financial statements. 9 10 STARWOOD LODGING TRUST UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Six months ended June 30, -------------------------- 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income........................................................... $ 29,062 $ 12,742 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest.................................................. 9,760 6,487 Depreciation and amortization...................................... 42,801 7,216 Accretion of discount.............................................. (2,890) (1,560) Deferred interest - Corporation.................................... (2,024) 1,607 Warrants and paired shares issued as compensation.................. 551 -- (Gain) loss on sales of real estate investments.................... -- 347 Changes in operating assets and liabilities: Increase in rent and interest receivable, prepaid expenses and other assets................................................... 1,151 (14,966) Increase (decrease) in accounts payable and other liabilities...... 2,797 2,202 --------- --------- Net cash provided by operating activities................ 81,208 14,075 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties...................................... (282,662) (199,473) Improvements and additions to hotel assets........................... (54,683) -- Purchase of investments.............................................. (432) -- Sales of investments................................................. 940 955 Net proceeds from sales of hotel assets.............................. -- 3,684 Purchase of mortgage and other notes receivable...................... -- (20,113) Principal received on mortgage and other notes receivable............ 13,564 2,555 Net change in notes receivable - Corporation......................... (32,398) (21,878) --------- --------- Net cash used in investing activities.................... (355,671) (234,270) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under collateralized notes payable and revolving lines of credit.................................................... 180,682 111,062 Borrowings under mortgage and other notes payable.................... 98,000 -- Payments on collateralized notes payable and revolving lines of credit.......................................................... (35,000) -- Principal payments on mortgage and other notes payable............... (25,606) (1,587) Net proceeds from equity offerings................................... 123,215 59,244 Contributed capital and adjustments.................................. 512 77,900 Stock repurchase..................................................... (24,438) -- Distributions paid................................................... (42,388) (19,529) --------- --------- Net cash provided by financing activities................ 274,977 227,090 --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS................................ 514 6,895 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD...................................................... 3,810 710 --------- --------- CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD.............................................................. $ 4,324 $ 7,605 ========= =========
See accompanying notes to financial statements. 10 11 STARWOOD LODGING CORPORATION UNAUDITED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
June 30, December 31, 1997 1996 --------- --------- ASSETS Hotel assets held for sale - net.............................. $ 1,786 $ 9,029 Hotel assets - net............................................ 113,195 111,721 -------- -------- Total real estate investments........................... 114,981 120,750 Cash and cash equivalents..................................... 37,715 21,616 Accounts receivable........................................... 48,465 30,661 Notes receivable.............................................. 764 693 Inventories, prepaid expenses and other assets................ 29,479 11,472 -------- -------- $231,404 $185,192 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage and other notes payable.............................. $ 1,443 $ 1,963 Mortgage notes payable - Trust................................ 89,930 88,077 Notes payable - Trust......................................... 50,310 17,741 Accounts payable and other liabilities........................ 43,127 48,096 Distributions payable......................................... 99 -- -------- -------- 184,909 155,877 -------- -------- Commitments and contingencies MINORITY INTEREST............................................. 10,981 5,954 -------- -------- SHAREHOLDERS' EQUITY Corporation common stock at June 30, 1997 and December 31, 1996; $.01 par value; authorized 100,000,000 shares; outstanding 45,555,188 and 40,078,000 at June 30, 1997 and December 31, 1996, respectively................... 456 401 Additional paid-in capital.................................... 114,545 98,484 Accumulated deficit........................................... (79,487) (75,524) -------- -------- 35,514 23,361 -------- -------- $231,404 $185,192 ======== ========
See accompanying notes to financial statements. 11 12 STARWOOD LODGING CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended June 30, -------------------------- 1997 1996 --------- --------- REVENUE Rooms........................................................... $142,258 $ 52,002 Food and beverage............................................... 57,356 13,821 Other........................................................... 15,004 6,844 -------- -------- Total hotel revenue........................................... 214,618 72,667 Gaming.......................................................... 3,807 6,914 Interest from notes receivable.................................. -- 44 Management fees and other income................................ 1,629 246 Gain (loss) on sales of hotel assets............................ (504) -- -------- -------- 219,550 79,871 -------- -------- EXPENSES Rooms........................................................... 33,630 12,874 Food and beverage............................................... 41,799 10,673 Other........................................................... 67,323 25,032 -------- -------- Total hotel expenses.......................................... 142,752 48,579 Gaming.......................................................... 4,159 6,357 Rent - Trust.................................................... 54,566 14,250 Interest - Trust................................................ 2,748 1,915 Interest - other................................................ 19 132 Depreciation and amortization................................... 7,260 2,300 Administrative and general...................................... 4,829 1,450 -------- -------- 216,333 74,983 -------- -------- Income before minority interest................................. 3,217 4,888 Minority interest............................................... 1,926 1,967 -------- -------- Income before extraordinary item................................ 1,291 2,921 Extraordinary item due to early extinguishment of debt (net of $413,000 minority interest)................................... -- 1,077 -------- -------- NET INCOME............................................ $ 1,291 $ 3,998 ======== ======== EARNINGS PER SHARE Income before extraordinary item................................ $ 0.03 $ 0.12 Extraordinary item.............................................. -- 0.05 -------- -------- NET INCOME PER SHARE.................................. $ 0.03 $ 0.17 ======== ======== Weighted Average Number of Shares............................... 47,764 23,335 ======== ========
See accompanying notes to financial statements. 12 13 STARWOOD LODGING CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six months ended June 30, -------------------------- 1997 1996 --------- --------- REVENUE Rooms........................................................... $249,231 $ 89,128 Food and beverage............................................... 100,894 23,648 Other........................................................... 26,670 10,193 -------- -------- Total hotel revenue........................................... 376,795 122,969 Gaming.......................................................... 7,727 13,743 Interest from notes receivable.................................. -- 65 Management fees and other income................................ 2,645 580 Gain (loss) on sales of hotel assets............................ (504) -- -------- -------- 386,663 137,357 -------- -------- EXPENSES Rooms........................................................... 60,619 22,027 Food and beverage............................................... 75,481 18,512 Other........................................................... 124,374 43,622 -------- -------- Total hotel expenses.......................................... 260,474 84,161 Gaming.......................................................... 8,248 12,192 Rent - Trust.................................................... 95,505 27,770 Interest - Trust................................................ 5,290 4,103 Interest - other................................................ 51 187 Depreciation and amortization................................... 11,586 6,574 Administrative and general...................................... 8,431 2,635 -------- -------- 389,585 137,622 -------- -------- Loss before minority interest................................... (2,922) (265) Minority interest............................................... 131 (134) -------- -------- Loss before extraordinary item.................................. (3,053) (131) Extraordinary item due to early extinguishment of debt (net of $413,000 minority interest)................................... -- 1,077 -------- -------- NET INCOME (LOSS)..................................... $ (3,053) $ 946 ======== ======== EARNINGS (LOSS) PER SHARE Loss before extraordinary item.................................. $ (0.07) $ (0.01) Extraordinary item -- 0.05 -------- -------- NET INCOME (LOSS) PER SHARE........................... $ (0.07) $ 0.04 ======== ======== Weighted Average Number of Shares............................... 46,063 22,016 ======== ========
See accompanying notes to financial statements. 13 14 STARWOOD LODGING CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Six months ended June 30, ------------------------- 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net loss ........................................................... $ (3,053) $ 946 Adjustments to reconcile net loss to net cash provided by operating activities: Minority interest ................................................ 131 (134) Extraordinary items due to early extinguishment of debt .......... -- (1,077) Depreciation and amortization .................................... 11,586 6,574 Deferred interest - Trust ........................................ 2,024 (1,607) Paired shares issued as compensation ............................. 1,235 -- (Gain) loss on sale .............................................. 504 -- Changes in operating assets and liabilities: Increase in accounts receivable, inventories, prepaid expenses and other assets ............................................... (25,706) (9,428) Increase (decrease) in accounts payable and other liabilities .... (4,969) 9,666 ------- ------ Net cash provided by (used in) operating activities .... (18,248) 4,940 ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of hotel properties .................................... -- (23,996) Improvements and additions to hotel assets ......................... (8,925) -- Purchase of investments ............................................ -- (509) Net proceeds from sales of hotel and gaming assets ................. 7,261 -- Principal received on notes receivable ............................. 190 15 ------- ------ Net cash used in investing activities .................. (1,474) (24,490) ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under mortgage and other notes payable .................. -- 468 Principal payments on mortgage and other notes payable ............. (520) (3,024) Net proceeds from equity offerings ................................. 6,452 3,119 Contributed capital and adjustments ................................ (962) (101) Stock repurchase ................................................... (1,286) -- Distributions paid ................................................. (261) -- Net change in notes payable - Trust ................................ 32,398 21,878 ------- ------ Net cash provided by financing activities .................... 35,821 22,340 ------- ------ INCREASE IN CASH AND CASH EQUIVALENTS .............................. 16,099 2,790 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD .................................................... 21,616 8,622 ------- ------ CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ........................................................... $37,715 $ 11,412 ======= =======
See accompanying notes to financial statements. 14 15 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1. INTERIM FINANCIAL STATEMENTS The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q which mandate adherence to Rule 10-01 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of Starwood Lodging Trust (the "Trust") and Starwood Lodging Corporation (the "Corporation"), all adjustments necessary for a fair presentation, consisting only of normal recurring accruals, have been included. The financial statements presented herein have been prepared in accordance with the accounting policies described in the Registrants' Joint Annual Report on Form 10-K for the year ended December 31, 1996 and should be read in conjunction therewith. NOTE 2. BASIS OF PRESENTATION The Trust and the Corporation (together, the "Company") have unilateral control of SLT Realty Limited Partnership ("Realty") and SLC Operating Limited Partnership ("Operating"), respectively, and therefore, the historical financial statements of Realty and Operating are consolidated with those of the Trust and the Corporation, respectively. Unless the context otherwise requires, all references herein to the "Company" refer to the Trust and the Corporation, and all references to the "Trust" and to the "Corporation" include the Trust and the Corporation and those entities respectively owned or controlled by the Trust or the Corporation, including Realty and Operating. Information with respect to the shares of beneficial interest of the Trust which are paired with shares of common stock of the Corporation (the "Paired Shares"), has been adjusted to reflect a three-for-two stock split effective January 27, 1997. The total number of units outstanding in each of Realty and Operating was 58,394,358 at June 30, 1997. For the three and six months ended June 30, 1996, the Company accounted for its 58.2% investment in the joint venture that owns the Boston Park Plaza under the equity method of accounting. Beginning with the Company's Joint Annual Report on Form 10-K for the year ended December 31, 1996, the Company has consolidated the results from the Boston Park Plaza and, accordingly, has recorded a minority interest relating to the 41.8% third party minority interest in such joint venture. In addition, the Company has restated its results for the three and six months ended June 30, 1996 to reflect the consolidation of this investment. NOTE 3. 1997 ACQUISITIONS On January 8, 1997, the Company completed the purchase of the 220-room Deerfield Beach Hilton Hotel, located in Deerfield Beach, Florida, for approximately $11.5 million in cash. On January 17, 1997, the Company completed the purchase of the 263-room Radisson Hotel Denver South, located in Denver, Colorado, for approximately $21.75 million in cash. 15 16 On February 14, 1997, the Company acquired HEI Hotels, LLC ("HEI"), a Westport, Connecticut-based hotel operating company, which manages 19 hotels, and ten hotel properties (the "HEI Owned Hotels") that HEI owned in a joint venture with PRISA II, an institutional real estate investment fund managed by Prudential Real Estate Investors. Realty and Operating issued to PRISA II and the owners of HEI, limited partnership interests in Realty and Operating which are exchangeable for approximately 6.548 million Paired Shares of the Trust and Corporation (valued for purposes of the transaction at approximately $215 million), and paid $112 million in cash and notes in connection with the transaction. The HEI Owned Hotels consist of ten hotel assets (all of which are managed by the Company) with 3,040 hotel rooms, located in Long Beach, California; Norfolk, Virginia; Baltimore, Maryland; Edison, New Jersey; Arlington, Virginia; Charleston, South Carolina; King of Prussia, Pennsylvania; Santa Rosa, California; Novi, Michigan; and Atlanta, Georgia. The nine additional hotels managed by HEI (the "HEI Managed Hotels"), which contain a total of 2,297 rooms, are located in Houston, Texas; Ontario, California; Grand Junction, Colorado; Danbury, Connecticut; Princeton, New Jersey; Smithtown, New York; Wilmington, Delaware; Bethesda, Maryland and Virginia Beach, Virginia. On February 21, 1997, the Company completed the purchase of the 578-room Days Inn in Chicago, Illinois for approximately $48 million in cash. On March 11, 1997, the Company completed the purchase of the 120-suite Hermitage Suites Hotel in Nashville, Tennessee for approximately $15.8 million, comprised of limited partnership interests in Realty and Operating exchangeable for 233,106 Paired Shares of the Trust and the Corporation (valued for the purposes of this transaction at $9.4 million) and $6.4 million in cash. On March 12, 1997, the Company completed the purchase of the 100-room Hotel De La Poste in New Orleans, Louisiana for approximately $16.0 million in cash. On April 3, 1997, the Company completed the purchase of the 264-suite Marriott Suites hotel in San Diego, California for approximately $32.5 million in cash. On April 4, 1997, the Company completed the purchase of the 129-room Tremont Hotel in Chicago, Illinois for approximately $14.4 million cash. On May 7, 1997, the Company completed the purchase of the 172-room Raphael Hotel in Chicago, Illinois for approximately $17.8 million in cash. On June 12, 1997, the Company completed a transaction resulting in operating and ownership control of the 480-room Stamford Sheraton Hotel in Stamford, Connecticut. The Company had acquired, in October 1996, first mortgage and other notes secured by the hotel for $10.3 million. The total cost of the acquisition, including the purchase of the mortgage notes, was approximately $14.6 million. 16 17 NOTE 4. TAX EXEMPT BONDS On February 20, 1997, the Company guaranteed bonds issued by The Philadelphia Authority for Industrial Development in the principal amount of $39.5 million due October, 2013 (the "Tax Exempt Bonds"). The Tax Exempt Bonds bear interest at a rate of 6.5% with no principal amortization, were issued at a discount to yield 6.7% and are secured by two hotels of the Company located at the Philadelphia International Airport. Net proceeds from the Tax Exempt Bonds of approximately $37.6 million were used to partially fund the acquisition of the 578-room Days Inn in Chicago, Illinois. NOTE 5. EQUITY On March 26, 1997, the Company completed a public offering of 3,000,000 Paired Shares (the "March 1997 Offering"). Net proceeds from the March 1997 Offering of approximately $130.0 million were used, in part, to fund the acquisition of the 264-suite Marriott Suites hotel in San Diego, California and the 129-room Tremont Hotel and the 172-room Raphael Hotel, both located in Chicago, Illinois. In April 1997, the Company repurchased 703,500 paired shares with a par value of $0.01 per paired share for an aggregate cost of approximately $25.7 million. NOTE 6. HOTEL ASSETS HELD FOR SALE At June 30, 1997, the Company's portfolio included five hotel properties which were held for sale. The five properties include the 151-room Bay Valley Resort in Bay City, Michigan, the 155-room Tyee Hotel in Olympia, Washington, the 166-room Best Western in Las Cruces, New Mexico, the 175-room Best Western Airport in El Paso, Texas and the 142-room Best Western in Savannah, Georgia. On April 15, 1997, the Company sold the Radisson Marque Hotel in Winston-Salem, North Carolina for approximately $7.6 million in cash. NOTE 7. INTEREST RATE HEDGING AGREEMENTS The Company enters into interest rate protection agreements as a means of managing interest rate exposure on anticipated transactions. The agreements are with major financial institutions which are expected to fully perform under the terms of the agreements thereby mitigating the credit risk from the transactions. The differential to be paid or received under these agreements is accrued consistent with the terms of the agreements and market interest rates and is recognized, using the effective interest method, in interest expense over the remaining term of the related debt. In order for the amount paid or received to be deferred under such agreements, and therefore be treated as a hedge, the Company must determine that it is probable that the future issuance of debt anticipated by the contract will occur. In order to assess whether this criteria has been met, the Company reviews their current projections to determine if the issuance of such debt is still in line with the Company's plans and whether the Company has the ability to issue such debt. 17 18 If the Company were not to issue the anticipated debt, the Company would still pay or receive the amount determined at settlement and would treat such amount as a loss or gain, accordingly and include it in continuing operations. Further, if prior to settlement, the Company were to determine that an interest rate protection agreement no longer qualified to be treated as a hedge, the Company would record a gain or loss at each reporting date based upon a calculation of what the settlement would have been had it been settled at such reporting date. On May 27, 1997, the Company entered into an interest rate protection agreement, which had the effect of fixing the base rate of interest at 6.773% for debt that the Company intends to issue in October 1997 with an aggregate notional principal amount of $100 million and a term to maturity of five years. The actual interest rate will be determined by reference to this base rate. NOTE 8. COMBINED PRO FORMA FINANCIAL INFORMATION Due to the impact of the 19 hotels acquired by the Company in the six months ending June 30, 1997, the following combined pro forma statements of operations are presented to supplement the historical statements of operations. These combined pro forma statements reflect the acquisition of the HEI Owned Hotels as if they occurred on January 1, 1996:
Three months ended Six months ended June 30 June 30 ------------------------- -------------------- 1997 1996 1997 1996 ------------------------- -------------------- Combined (in thousands, except per share amounts) Revenues ................................. $223,149 $108,641 $407,941 $191,481 Net income ............................... $ 18,223 $ 15,023 $ 27,564 $ 21,900 Net income per share ..................... $ 0.38 $ 0.64 $ 0.60 $ 0.99
NOTE 9. SUBSEQUENT EVENTS On July 10, 1997, the Company acquired the 385-room Radisson Plaza Hotel at Town Center in Southfield, Michigan for approximately $40 million. On August 5, 1997 the Company announced that it has entered into an agreement to acquire a portfolio of three full-service, luxury properties located in Mexico. The portfolio includes the 229-room Westin Regina Resort in Los Cabos, Mexico, the 385-room Westina Regina Resort in Cancun, Mexico, and the 280-room Westin Regina Resort in Puerto Vallarta, Mexico. The Company expects to purchase the portfolio from Bancomer, S.A., a subsidiary of Grupo Financiero Bancomer, for approximately $133 million. On August 8, 1997 the Company announced that it has entered into an agreement to acquire 15 full-service hotels, with 4,252 rooms for approximately $470 million. The properties are predominantly located in the northeastern United States with a large concentration of the properties located in suburban Boston. The Company expects to purchase the properties from Flatley Co./Tara Hotels, a privately held company. NOTE 10. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.128, Earnings Per Share (SFAS 128) which specifies the computation, presentation, and disclosure requirements for earnings per share. SFAS 128 replaces the presentation of primary and fully diluted EPS pursuant to Accounting Principles Board Opinion No. 15 Earnings Per Share (APB 15) with the presentation of basic and diluted EPS. Basic EPS' excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company is required to adopt SFAS 128 with its December 31, 1997 financial statements and restate all prior period EPS information. The Company will continue to account for EPS under APB 15 until that time. A summary of the Company's basic EPS and diluted EPS for the three and six months ended June 30, 1997 and 1996 follows: 18 19
Three months ended June 30, 1997 Three months ended June 30, 1996 --------------------------------------------------------------------------- BASIC EARNINGS PER SHARE Trust Corporation Combined Trust Corporation Combined --------------------------------------------------------------------------- Income before extraordinary item...... $ 0.37 $ 0.03 $ 0.40 $0.24 $ 0.12 $ 0.36 Extraordinary item.................... - - - - 0.05 0.05 ============ =========== ============ ============ =========== ============ Net income per share.................. $ 0.37 $ 0.03 $ 0.40 $ 0.24 $ 0.17 $ 0.41 ============ =========== ============ ============ =========== ============ DILUTED EARNINGS PER SHARE Income before extraordinary item...... $ 0.35 $ 0.03 $ 0.38 $ 0.24 $ 0.12 $ 0.36 Extraordinary item.................... - - - - 0.05 0.05 ============ =========== ============ ============ =========== ============ Net income per share.................. $ 0.35 $ 0.03 $ 0.38 $ 0.24 $ 0.17 $ 0.41 ============ =========== ============ ============ =========== ============ Six months ended June 30, 1997 Six months ended June 30, 1996 --------------------------------------------------------------------------- BASIC EARNINGS PER SHARE Trust Corporation Combined Trust Corporation Combined --------------------------------------------------------------------------- Income before extraordinary item...... $ 0.66 $(0.07) $ 0.59 $ 0.58 $(0.01) $ 0.57 Extraordinary item.................... - - - - 0.05 0.05 ============ =========== ============ ============ =========== ============ Net income per share.................. $ 0.66 $(0.07) $ 0.59 $ 0.58 $ 0.04 $ 0.62 ============ =========== ============ ============ =========== ============ DILUTED EARNINGS PER SHARE Income before extraordinary item...... $ 0.63 $(0.07) $ 0.56 $ 0.58 $(0.01) $ 0.57 Extraordinary item.................... - - - - 0.05 0.05 ============ =========== ============ ============ =========== ============ Net income per share.................. $ 0.63 $(0.07) $ 0.56 $ 0.58 $ 0.04 $ 0.62 ============ =========== ============ ============ =========== ============
In February 1997, the Securities and Exchange Commission issued Financial Reporting Release No. 48, Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments, (FRR 48). FFR 48 requires clarification and expansion of existing disclosures for derivative financial instruments, other financial instruments and derivative commodity instruments, as defined therein. The amendments require enhanced disclosure with respect to these derivative instruments in the footnotes to the financial statements. These disclosures are required in filings that include financial statements for periods ending after June 15, 1997, and accordingly have been included herein in the footnotes to the Company's financial statements for the quarter ended June 30, 1997. Additionally, the amendments expand existing disclosure requirements to include quantitative and qualitative discussions with respect to market risk inherent in market risk sensitive instruments. These amendments are designed to provide additional information about market risk sensitive instruments which investors can use to better understand and evaluate market risk exposures of registrants, including the Company. These disclosures, subject to certain market capitalization requirements, as defined, are effective for filings that include annual financial statements for years ending after June 15, 1998. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130), which establishes standards for reporting and display of comprehensive income and its components. This statement requires a separate statement to report the components of comprehensive income for each period reported. The provisions of this statement are effective for fiscal years beginning after December 15, 1997. Management believes that they currently do not have items that would require presentation in a separate statement of comprehensive income. 19 20 In June 1997, the FASB also issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, (SFAS 131), which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and require that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for periods beginning after December 15, 1997. Management believes this statement may require expanded disclosure in the Company's financial statements. 20 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis should be read in conjunction with the Management's Discussion and Analysis included in the Company's Joint Annual Report on Form 10-K for the year ended December 31, 1996. HISTORICAL RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 THE TRUST Rents from the Corporation, which are based largely on hotel revenues, increased $40.3 million and $67.7 million for the three and six months ended June 30, 1997, respectively as compared to the corresponding periods of 1996. The increase was primarily the result of rents earned by the Trust on 41 hotels containing approximately 13,200 rooms (the "Acquired Hotels") acquired by the Trust since June 30, 1996. The investment in the Acquired Hotels (the 177-room Days Inn in Philadelphia, Pennsylvania and 251-suite Doubletree Guest Suites at the Philadelphia airport in Philadelphia, Pennsylvania acquired in July 1996; a portfolio of 8 hotels owned by an institution (the "Institutional Portfolio"), a portfolio of 9 hotels owned by Hotels of Distinction Ventures, Inc. (the "HOD Portfolio") (excluding the 293-room Radisson Marque in Winston-Salem, North Carolina which was acquired by the Corporation), and the 294-room Marriott Forrestal Village in Princeton, New Jersey acquired in August 1996; the 121-room Doral Tuscany and the 199-room Doral Court in New York, New York acquired in September 1996; the 257-room Westwood Marquis in Los Angeles, California acquired in December 1996; the 220-room Deerfield Beach Hilton in Deerfield Beach, Florida and 263-room Radisson Denver South in Denver, Colorado acquired in January 1997; the HEI Owned Hotels and the 578-room Days Inn Chicago acquired in February 1997; the 120-suite Hermitage Suites in Nashville, Tennessee and the 100-room Hotel De La Poste in New Orleans, Louisiana acquired in March 1997; the 264-suite Marriott Suites hotel in San Diego, California and the 129-room Tremont Hotel in Chicago, Illinois acquired in April 1997; the 172-room Raphael Hotel in Chicago, Illinois acquired in May 1997; and the 480-room Stamford Sheraton Hotel in Stamford, Connecticut acquired in June 1997), accounted for increased rents of $38.1 million and $63.9 million for the three and six months ended June 30, 1997, respectively as compared to the corresponding periods in 1996. Rents earned on hotels acquired during the six months ended June 30, 1996, and thereby owned for a partial period in 1996 and a full period in 1997 (the 442-room Clarion Hotel located at the San Francisco Airport, the 308-suite Doubletree Guest Suites in Irving, Texas, the 254-suite Doubletree Guest Suites in Ft. Lauderdale, Florida, and the 260-room Westin in Tampa, Florida acquired in April 1996), increased by $2.2 million and $3.4 million for the three and six months ended June 30, 1997, respectively as compared to the same periods in 1996. In addition, rents earned by the Trust from continuously owned properties leased to the Corporation increased by approximately $400,000 for the six months ended June 30, 1997, as compared to the corresponding period in 1996. Interest from the Corporation increased by approximately $833,000 and $1.2 million for the three and six months ended June 30, 1997, respectively as compared to the corresponding periods of 1996. The increase in interest income was primarily a result of interest paid on the 21 22 first mortgage of the Midland Hotel in Chicago, Illinois which was acquired by the Corporation in March 1996. Interest from mortgage and other notes amounted to $3.1 million and $7.2 million for the three and six months ended June 30, 1997, respectively as compared to $2.2 million and $4.7 million for the corresponding periods in 1996. The increase resulted from the purchase during the third quarter of 1996 of debt obligations in part secured by the 305-room Holiday Inn in Milpitas, California and a first mortgage note secured by the King 8 Hotel, Gambling Hall and Truck Plaza located in Las Vegas, Nevada which was sold in the fourth quarter of 1996. The increase was offset in part by principal amortization. Other income for the six months ended June 30, 1997 includes a $1.2 million gain (net of related expenses) realized in connection with the sale of securities. Interest expense increased by approximately $7.4 million and $14.7 million for the three and six months ended June 30, 1997, respectively as compared to the corresponding periods of 1996. The increase was due to borrowings under two loan facilities and a term loan (the "Lehman Facilities") with Lehman Brothers, Inc. and certain of its affiliates ("Lehman Brothers"), and a loan facility with Goldman Sachs (the "Goldman Facility" and together with the Lehman Facilities, the "Credit Facilities"); a mortgage secured by the Doral Court and Doral Tuscany in New York, with the Sumitomo Trust and Banking Co., Ltd. ("Sumitomo") (the "Doral Mortgage"); a mortgage secured by the Boston Park Plaza with the Life Insurance Company of Georgia ("Georgia Life") (the "BPP Mortgage"); a short term loan with The Prudential Insurance Company of America on behalf of Prudential Property Investment Separate Account II ("Prudential") (the "Prudential Loan"); and the Tax Exempt Bonds, used to acquire the above mentioned properties offset by the net proceeds from two public offerings in 1996 and the March 1997 Offering. Depreciation and amortization expense increased by approximately $18.7 million and $35.6 million during the three and six months ended June 30, 1997, respectively as compared to the corresponding periods of 1996, principally due to the acquisition of the Acquired Hotels. Administrative and general expenses for the three months ended June 30, 1997 increased by approximately $1.4 million to $2.9 million, as compared to $1.5 million for the corresponding period of 1996. Administrative and general expenses for the six months ended June 30, 1997 increased by approximately $2.4 million to $5.1 million as compared to $2.7 million for the corresponding period in 1996. The increases resulted predominantly from expenses incurred as a result of the awards granted under the Trust's Long-Term Incentive Plan and the increase in payroll costs commensurate with the Company's growth. Minority interest represents primarily the interest of the limited partners in Realty for the three and six months ended June 30, 1997. Minority interest also represents the interests of third parties in consolidated joint ventures, including approximately $796,000 and $904,000 for three and six months ending June 30, 1997, respectively relating to the 41.8% minority interest of a third-party in the joint venture that owns the Boston Park Plaza hotel and approximately $67,000 and $149,000 for the three and six months ending June 30, 1997, respectively relating to the 6.5% minority interest of a third-party in the joint venture that owns the Westwood Marquis. 22 23 THE CORPORATION Hotel revenues increased by approximately $142.0 million and $253.8 million for the three and six months ended June 30, 1997, respectively as compared to the corresponding periods of 1996. The leasing and assumption of management of the Acquired Hotels and the addition of the 293-room Radisson Marque hotel in Winston-Salem, North Carolina resulted in increases in hotel revenues of approximately $132.4 million and $227.7 million for the three and six months ended June 30, 1997, respectively. Furthermore, the leasing, assumption of management, and addition of hotels during the six months ended June 30, 1996 (the 442-room Clarion Hotel located at the San Francisco Airport, the 308-suite Doubletree Guest Suites in Irving, Texas, the 254-suite Doubletree Guest Suites in Ft. Lauderdale, Florida, the 260-room Westin in Tampa, Florida and the 257-room Midland Hotel in Chicago, Illinois) resulted in increases in hotel revenues of approximately $3.0 million and $17.1 million for the three and six months ended June 30, 1997, respectively as compared to the same periods in 1996. The remaining increase of $6.6 million and $9.0 million for the three and six months ended June 30, 1997, respectively is attributable to other continuously owned properties. Hotel gross margin for the three months ended June 30, 1997 was $71.9 million, or 33.5% of hotel revenues, as compared to $24.1 million, or 33.2% of hotel revenues, for the same period of 1996. Hotel gross margin for the six months ended June 30, 1997 was $116.3 million, or 30.9% of hotel revenues, as compared to $38.8 million, or 31.6% of hotel revenues, for the same period of 1996. The decrease in gross margin percentage for the six months ended June 30, 1997 was primarily due to the increase in the food and beverage revenue component of total hotel revenue (26.8% and 19.2% for the six months ended June 30, 1997 and 1996, respectively) resulting from the Company's continued investment in full-service hotels offset, in part, by increases in room revenue per available room ("REVPAR") and the termination of third-party management agreements. Gaming revenues for the three months ended June 30, 1997 as compared to the corresponding period in 1996, decreased by approximately $3.1 million to $3.8 million. Gaming revenues for the six months ended June 30, 1997, as compared to the corresponding period in 1996, decreased by approximately $6.0 million to $7.7 million. Gaming gross margin for the three months ended June 30, 1997 was a loss of $352,000, as compared to a profit of $557,000 for the corresponding period in 1996. Gaming gross margin for the six months ended June 30, 1997 was a loss of $521,000, as compared to a profit of $1.6 million for the corresponding period in 1996. The decrease in gaming revenues and the decline in gaming gross margin predominately resulted from the sale of the Bourbon Street Hotel and Casino in September 1996. The real property of the King 8 was also sold in 1996 for approximately $18.8 million. The sale of the personal property of the King 8 for $3 million is scheduled to close following the receipt by the purchaser or his designee of required gaming licenses and approval. A subsidiary of the Corporation leases the real property from the purchaser and has agreed to continue to operate the hotel and casino while the purchaser obtains required gaming licenses and approvals. Management fees and other income for the three months ended June 30, 1997 includes approximately $314,000 of management fee income from the joint venture that owns the Boston Park Plaza hotel and approximately $891,000 of management fee income from the HEI Managed 23 24 Hotels. Management fees and other income for the six months ended June 30, 1997 includes approximately $471,000 of management fee income from the joint venture that owns the Boston Park Plaza hotel and approximately $1.2 million of management fee income from the HEI Managed Hotels. Administrative and general expenses for the three months ended June 30, 1997 increased to $4.8 million or 2.2% of revenues, as compared to $1.5 million or 1.8% of revenues for the corresponding period of 1996. Administrative and general expenses for the six months ended June 30, 1997 increased to $8.4 million or 2.2% of revenues, as compared to $2.6 million or 1.9% of revenues for the corresponding period in 1996. The increase was primarily a result of increases in payroll costs commensurate with the Company's growth, the assumption of management of hotels previously operated by third-parties, and expenses incurred as a result of awards granted under the Corporation's Long-Term Incentive Plan. Depreciation and amortization expense increased by approximately $5.0 million for each of the three and six months ended June 30, 1997 as compared to the corresponding periods of 1996. Minority interest represents primarily the interest of the limited partners in Operating. Minority interest also represents the interests of third parties in consolidated joint ventures including approximately $1.4 million and $952,000 for the three and six months ended June 30, 1997, respectively relating to the 41.8% minority interest of a third-party in the joint venture that owns the Boston Park Plaza hotel. For information with respect to rent and interest paid to the Trust during the three and six months ended June 30, 1997 and 1996, see, "The Trust" immediately above. EXTERNAL GROWTH During the six months ended June 30, 1997 the Company acquired equity interests in 19 hotels containing more than 5,300 rooms at a combined cost exceeding $500 million, as follows: the 220-room Deerfield Beach Hilton in Deerfield Beach, Florida (January 1997); the 263-room Radisson Denver South in Denver, Colorado (January 1997); the HEI Owned Hotels consisting of 3,040 rooms (February 1997); the 578-room Days Inn in Chicago, Illinois (February 1997); the 120-suite Hermitage Suites Hotel in Nashville, Tennessee (March 1997); the 100-room Hotel De La Poste in New Orleans, Louisiana (March 1997); the 264-suite Marriott Suites hotel in San Diego, California (April 1997); the 129-room Tremont Hotel in Chicago, Illinois (April 1997); the 172-room Raphael Hotel in Chicago, Illinois (May 1997); and the 480-room Sheraton in Stamford, Connecticut (June 1997). INTERNAL GROWTH On a same-store-sales basis, including the results of all hotels acquired prior to June 30, 1997 for the period from their respective dates of acquisition if acquired in 1997 as compared to the same period in 1996 and excluding hotels held for sale and hotels under substantial renovation during the second quarter (the Doral Inn in New York, New York, the Doubletree Guest Suites in Philadelphia, Pennsylvania (to be reflagged Westin), and the Westin in Tampa, 24 25 Florida), REVPAR for the three months ended June 30, 1997 increased 10.0% from $66.82 to $73.52 over the same period in 1996. The increase in REVPAR resulted from an increase in average daily rate ("ADR") of 9.4%, from $90.89 to $99.46, while the occupancy rate increased by less than one percentage point to 73.9%. On a same-store-sales basis, including the results of all hotels acquired prior to June 30, 1997, for the period from their respective dates of acquisition if acquired in 1997 as compared to the same period in 1996 and excluding hotels held for sale and hotels under substantial renovation during the second quarter (the Doral Inn in New York, New York, the Doubletree Guest Suites at the Philadelphia airport in Philadelphia, Pennsylvania, and the Westin in Tampa, Florida), REVPAR for the six months ended June 30, 1997, increased 7.7% from $65.85 to $70.93 over the same period in 1996. The increase in REVPAR resulted from an increase in ADR of 9.4%, from $91.73 to $100.33, while the occupancy rate decreased slightly from 71.8% to 70.7%. The overall REVPAR increase for the three and six months ended June 30, 1997 was largely attributable to the strong increase in REVPAR at the Company's upscale hotels. These hotels experienced an increase in REVPAR of 9.7% and 8.1% for the three and six months ended June 30, 1997, respectively as compared to the corresponding periods of 1996. ADR for the Company's upscale hotels increased 9.2% and 8.8% for the three and six months ended June 30, 1997, respectively as compared to the corresponding periods in 1996 while occupancy rates increased by less than one basis point for the three months ended June 30, 1997 and decreased by less than one basis point for the six months ended June 30, 1997. 25 26 The following tables summarize average occupancy, ADR and REVPAR on a year-over-year basis for the Company's 86 owned and operated (including Company owned but third-party managed hotels, third party owned but Company managed hotels, and including hotels acquired during 1997 for the period beginning with their respective dates of acquisition and ending at the end of each period), non-gaming hotels for the three and six months ended June 30, 1997 and 1996:
THREE MONTHS ENDED JUNE 30 -------------------------- 66 Upscale Hotels 1997 1996 -------------------------- Occupancy Rate.................. 75.4% 75.0% ADR............................. $103.04 $94.38 REVPAR.......................... $ 77.72 $70.82 REVPAR % change................. 9.7%
THREE MONTHS ENDED JUNE 30 -------------------------- 20 Midscale/Economy Hotels 1997 1996 -------------------------- Occupancy Rate.................. 62.7% 68.0% ADR............................. $76.95 $68.75 REVPAR.......................... $48.27 $46.74 REVPAR % change................. 3.3%
THREE MONTHS ENDED JUNE 30 -------------------------- 78 Non-Gaming Hotels(1) 1997 1996 -------------------------- Occupancy Rate.................. 73.9% 73.5% ADR............................. $99.46 $90.89 REVPAR.......................... $73.52 $66.82 REVPAR % change................. 10.0%
SIX MONTHS ENDED JUNE 30 ------------------------ 66 Upscale Hotels 1997 1996 ------------------------ Occupancy Rate.................. 72.4% 72.9% ADR............................. $104.10 $95.66 REVPAR.......................... $ 75.38 $69.72 REVPAR % change................. 8.1%
SIX MONTHS ENDED JUNE 30 ------------------------ 20 Midscale/Economy Hotels 1997 1996 ------------------------ Occupancy Rate.................. 59.3% 66.3% ADR............................. $74.23 $65.97 REVPAR.......................... $44.04 $43.75 REVPAR % change................. 0.7%
SIX MONTHS ENDED JUNE 30 ------------------------ 78 Non-Gaming Hotels(1) 1997 1996 ------------------------ Occupancy Rate.................. 70.7% 71.8% ADR............................. $100.33 $91.73 REVPAR.......................... $ 70.93 $65.85 REVPAR % change................. 7.7%
(1) Excluding five hotels held for sale and three hotels under substantial renovation during the quarter. Management believes that increases in REVPAR resulted primarily from increases in demand due to continued favorable economic conditions which have resulted in increased 26 27 business and leisure travel throughout the United States, while the supply of hotel rooms has not increased as rapidly, particularly in major urban locations. Revenue increases for the quarter were greatest at hotels located in the major urban markets of New York, Philadelphia, San Francisco, San Diego, and Chicago. REVPAR was positively impacted by the Easter holiday which fell during the first quarter of 1997 and during the second quarter of 1996. Management believes that there are several important factors that have contributed to the improved profitability of hotel properties, including increased ADR and effective cost management. Because a substantial portion of the hotels' operating costs and expenses are generally fixed, the Company derives substantial operating leverage from increases in revenue. However, the Company's continued investment in full-service properties has led to a larger component of food and beverage revenue when compared to the same period last year. Consequently, gross margins for the six months ended June 30, 1997 declined to 30.9% from 31.6% in the corresponding period in 1996. During the six months ended June 30, 1997, consistent with its business objective to capture the economic benefits otherwise retained by third-party operators, the Corporation assumed management of the 19 hotels acquired during the period. Management believes that the assumption of direct control over the operations of these hotels will allow the Corporation to effectively use the experience of management to improve operations. In addition, during the six months ended June 30, 1997 the Corporation assumed management of the HEI Managed Hotels. During the three months ended June 30, 1997, the Company completed the renovation of the Edmond Meany Tower in Seattle, Washington. Renovations have begun and are scheduled to be completed in 1997 and 1998 for the Sheraton Colony Square in Atlanta, Georgia, the Clarion Hotel at the San Francisco Airport, Westin in Tampa, Florida, the Doubletree Guest Suites at the Philadelphia airport in Philadelphia, Pennsylvania, the Westwood Marquis in Los Angeles, California, and the Doral Inn, the Doral Tuscany and the Doral Court in New York. In addition, the Boston Park Plaza's renovation is currently scheduled to begin in November 1997 during a seasonally weak period. SEASONALITY AND DIVERSIFICATION Demand is affected by normally recurring seasonal patterns. Generally the Company's portfolio of hotels as a whole has performed better in the second and third quarters due to decreased travel in the winter months. Acquisitions and renovations have affected this seasonality, however the second quarter continues to represent a better performing period. Additional acquisitions and renovations may further affect the seasonality of the Company's current portfolio. The Company has continued to implement a business strategy of franchise and geographic diversification. 27 28 COMBINED LIQUIDITY AND CAPITAL RESOURCES CASH FLOW PROVIDED BY OPERATING ACTIVITIES The principal source of cash used to fund the Company's operating expenses, interest expense, recurring capital expenditures and distribution payments by the Trust is cash flow provided by operating activities. The Company anticipates that cash flow provided by operating activities will provide the necessary funds on a short and long term basis to meet operating cash requirements including all distributions to shareholders by the Trust. During the second quarter of 1997, the Trust paid a distribution of $0.39 per share declared in the first quarter of 1997. During the third quarter of 1997, the Trust paid a distribution of $0.39 per share declared in the second quarter of 1997. CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES The Company intends to finance the acquisition of additional hotel properties, major hotel renovations and capital improvements and provide for general corporate purposes through the Credit Facilities, through additional lines of credit and, when market conditions warrant, through the issuance of additional equity or debt securities. During the quarter, the maturity date of a $94 million non-recourse secured term loan (the "Term Loan"), which was originally due April 26, 1997, was extended to October 26, 1997, on the same terms and conditions and with a right to further extend at the Company's option to April 1998. Also during the quarter, the maturity date of the Prudential Loan, which was originally due May 30, 1997, was extended to July 14, 1997. On June 12, 1997, the Company completed a transaction resulting in operating and ownership control of the 480-room Stamford Sheraton Hotel in Stamford, Connecticut. In connection with this transaction, the Company entered into a $10.25 million mortgage agreement with Lehman Brothers (the "Stamford Note"). The Stamford Note is secured by the Stamford Sheraton, bears interest at LIBOR plus 225 basis points and matures on January 31, 2000. 28 29 The following is a summary of the Credit Facilities, the Doral Mortgage, the BPP Mortgage, the Prudential Loan, and the Tax Exempt Bonds as of June 30, 1997:
AMOUNT OUTSTANDING AT FACILITY/LENDER EXPIRATION DATE AMOUNT OF FACILITY 6/30/97 INTEREST RATE AT 6/30/97 --------------- --------------- ------------------ ------- ------------------------ Mortgage Facility/ October 27, 1997 $71.0 million $70.6 million One Month LIBOR + 1.75% Lehman Brothers..... (7.44%) Acquisition Facility/ October 1, 1998 $135.0 million $96.8 million One, Two, or Three Month Lehman Brothers..... LIBOR + 1.625% (7.31%) Term Loan/ October 26, 1997 $93.96 million $93.96 million One, Two, or Three Month Lehman Brothers..... LIBOR + 1.95% for first $23.96 million and +1.75% for $70.0 million (7.64% and 7.19%) Goldman Facility/ August 16, 1997 $300.0 million $268.0 million One Month LIBOR +1.75% to Goldman Sachs....... Extendible to 8/16/97 and +2.75% thereafter February 16, 1998 (7.44%) Stamford Note/ January 31, 2000 $10.25 million $10.25 million One Month LIBOR +2.25% (7.94%) Lehman Brothers..... Doral Mortgage/ September, 2001 $27.4 million $27.4 million 7.64% Sumitomo............ BPP Mortgage/ May, 2003 $25.0 million $25.0 million 8.42% Georgia Life........ Tax Exempt Bonds/..... October, 2013 $39.5 million $39.5 million 6.70% Prudential Loan/ July 14, 1997 $72.0 million $72.0 million 7.00% Prudential.......... --------------------------------------- Totals $774.11 million $703.51 million =======================================
As previously discussed, during the second quarter ended June 30, 1997, the Company completed the renovation of the Edmond Meany Tower Hotel in Seattle, Washington. Hotels with significant renovations in progress at the end of the second quarter and planned for 1997 and 1998, included the Sheraton Colony Square in Atlanta, Georgia; the Westin in Tampa, Florida; the Doubletree Philadelphia Airport in Philadelphia, Pennsylvania; the Westwood Marquis in Los Angeles, California; the Clarion Hotel at the San Francisco Airport; and the Doral Inn, Doral Tuscany and Doral Court in New York, New York. In addition, the Boston Park Plaza's renovation is currently scheduled to begin in November 1997 during a seasonally weak period. The Company plans to expend in excess of $100 million for renovations in 1997 including the renovations mentioned above. Major and minor renovations, expansions and upgrades of other hotels are also being contemplated. In addition, the Company intends to develop new hotels on a selective basis and, as of June 30, 1997, had begun construction of a 426-room hotel in downtown Seattle, Washington and a 423-room hotel in San Francisco, California. Sources of capital for major renovations, expansions and upgrades of hotels as well as new construction are expected to be excess funds from operations, additional debt financing, and additional equity raised in the public and private markets. As of June 30, 1997, since January 1, 1996, the Company has invested over $1.3 billion in acquisitions of hotel assets. As part of its investment strategy, the Company plans to continue 29 30 to acquire additional hotels. Future acquisitions are expected to be funded through further draws under the Credit Facilities, draws under new lines of credit, issuance of long-term debt on either a secured or unsecured basis, issuance of limited partnership units by Realty and Operating that are exchangeable for Paired Shares and the issuance of additional equity or debt securities by the Company. The Company intends to incur additional indebtedness in a manner consistent with its policy of maintaining a ratio of debt-to-total market capitalization of not more than 50%. On April 3, 1997, the Company announced that it was working with institutional lenders on the development of new credit facilities for up to $700 million which would consolidate and replace current credit facilities and provide capacity for future acquisitions. In July, 1997, the Company entered into a $200 million three-year unsecured term loan arranged by Bankers Trust Company and co-arranged by affiliates of Goldman Sachs and Lehman Brothers. The term loan bears interest at a rate which will vary depending upon the leverage of the Company starting at LIBOR plus 112.5 basis points. The initial rate is LIBOR plus 162.5 basis points. Proceeds from the term loan were used to finance the repayment of existing indebtedness, including the Prudential Loan and for the acquisition of the 385-room Radisson Plaza Hotel at Town Center in Southfield, Michigan. During the quarter ended June 30, 1997, the Trust and the Corporation repurchased 703,500 paired shares at an aggregate cost of approximately $25.7 million. Management of each of the Trust and of the Corporation believes that it will have access to capital resources sufficient to satisfy the cash requirements of each of the Trust and the Corporation and to expand and develop their business in accordance with their strategy for future growth. FUNDS FROM OPERATIONS Management believes that funds from operations ("FFO") is one measure of financial performance of an equity REIT such as the Trust. Combined FFO (as defined by the National Association of Real Estate Investments Trusts) (1) for the three months ended June 30, 1997 grew by 184.6% to $51.8 million, compared to combined FFO of $18.2 million for the corresponding period in 1996. Combined FFO for the six months ended June 30, 1997 grew by 171.1% to $85.0 million, compared to combined FFO of $31.3 million for the corresponding period in 1996. The following table shows the calculation of historical combined FFO for the indicated periods:
Three months ended June 30 ------------------- 1997 1996 ------------------- (in thousands) Income before extraordinary item and minority interest......................... $25,858 $13,058 Real estate related depreciation and amortization.............................. 29,827 6,130 Amortization of financing costs ............... (942) (482) Loss on sale of real estate investments ....... 504 347 Minority interest-consolidated joint ventures ..................................... (3,407) (844) ------- ------- Funds From Operations ......................... $51,840 $18,209 ======= =======
30 31
Six months ended June 30 ---------------------- 1997 1996 ---------------------- (in thousands) Income before extraordinary item and minority interest $35,900 $18,964 Real estate related depreciation and amortization .... 54,387 13,790 Amortization of financing costs ...................... (2,063) (761) Loss on sale of real estate investments .............. 504 347 Minority interest-consolidated joint ventures ........ (3,775) (1,006) ------ ------- Funds From Operations ................................ $84,953 $31,334 ======= =======
- ------------- (1) With respect to the presentation of FFO, management elected early adoption of the "new definition" as recommended in the March 1995 NAREIT White Paper on FFO beginning January 1, 1995. Management and industry analysts generally consider funds from operations to be one measure of the financial performance of an equity REIT that provides a relevant basis for comparison among REITs and it is presented to assist investors in analyzing the performance of the Company. FFO is defined as income before minority interest (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructuring and sales of property, and real estate related depreciation and amortization (excluding amortization of financing costs). FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered an alternative to net income as an indication of the Company's financial performance or as an alternative to cash flows from operating activities as a measure of liquidity. FFO includes $1.5 million and $780,000 of interest income recognized in excess of the interest received on mortgage notes receivable (as a result of the notes having been purchased at a discount) for the three months ended June 30, 1997 and 1996, respectively. FFO includes $2.9 million and $1.6 million of interest income recognized in excess of interest received on mortgage notes receivable for the six months ended June 30, 1997 and 1996, respectively. 31 32 PART II. - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities Recent Sales of Unregistered Securities During the quarter ended June 30, 1997, the Trust and the Corporation issued 38,215 Paired Shares in exchange for a like number of limited partnership units of Realty and Operating. The issuance of Paired Shares by the Trust and the Corporation was exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) of the Securities Act. Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. 10.1 Form of Amendment No. 2 to Indemnification Agreement dated June 26, 1997 between Starwood Lodging Trust and each of its Trustees and executive officers (Messrs. Ronald C. Brown, Bruce W. Duncan, Steven R. Goldman, Madison F. Grose, Gary M. Mendell, Roger S. Pratt, Stephen R. Quazzo, Daniel H. Stern and Barry S. Sternlicht). 10.2 Form of Amendment No. 2 to Indemnification Agreement dated June 26, 1997 between the Starwood Lodging Corporation and each of its Directors and executive officers (Messrs. Jean-Marc Chapus, Eric A. Danziger, Theodore W. Darnall, Jonathan D. Eilian, Bruce M. Ford, Graeme W. Henderson, Earle F. Jones, Michael A. Leven, Alan M. Schnaid and Barry S. Sternlicht). 32 33 10.3 Form of Amendment No. 2 to Amended and Restated Loan Agreement dated April 25, 1997 between SLT Realty Limited Partnership, Starwood Lodging Trust, CP Hotel Realty Limited Partnership, Midland Building Corporation and Lehman Brothers Holdings Inc., D/B/A Lehman Capital, a Division of Lehman Brothers Holdings Inc. 10.4 Form of letter dated April 9, 1997 from SLT Realty Limited Partnership and Starwood Lodging Trust (collectively the "Borrowers") to Prudential Property Investment Separate Account II whereby the Borrowers exercised their option to extend the maturity date of the Purchase Money Promissory Note, in the original amount of $97,500,000, dated February 14, 1997, from April 15, 1997 to May 14, 1997. 10.5 Form of Amendment to Purchase Money Promissory Note dated April 26, 1997 between SLT Realty Limited Partnership and Starwood Lodging Trust (together "Makers") in favor of the Prudential Insurance Company of America, on behalf of Prudential Property Investment Separate Account II ("Payee"). 10.6 Form of Amendment No. 2 to Purchase Money Promissory Note dated May 28, 1997 between SLT Realty Limited Partnership and Starwood Lodging Trust (together "Makers") in favor of the Prudential Insurance Company of America, on behalf of Prudential Property Investment Separate Account II ("Payee"). 10.7 Form of Employment Agreement between Starwood Lodging Trust and Barry S. Sternlicht dated as of June 30, 1997. 11. Combined statement regarding computation of per share earnings. (b) Reports on Form 8-K. None. 33 34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STARWOOD LODGING TRUST STARWOOD LODGING CORPORATION Registrant Registrant /s/ RONALD C. BROWN /s/ ALAN M. SCHNAID - ------------------------------ --------------------------------------- Ronald C. Brown Alan M. Schnaid Senior Vice President and Vice President and Corporate Controller Chief Financial Officer (Principal Accounting Officer) (Principal Financial Officer) Date: August 14, 1997. 34 EX-10.1 2 FORM OF AMENDMENT NO.2 INDEM AGMT (STARWOOD TRUST 1 Exhibit 10.1 AMENDMENT NO. 2 TO INDEMNIFICATION AGREEMENT June 26, 1997 Starwood Lodging Trust 2231 East Camelback Road, Suite 410 Phoenix, Arizona 85016 Re: Indemnification Agreement Gentlemen: Please refer to the Indemnification Agreement (the "Agreement") dated as of March 1, 1996, and Amendment No. 1 to Indemnification Agreement ("Amendment No. 1"), each between Starwood Lodging Trust, a Maryland real estate investment trust (the "Trust") and the undersigned. Defined terms used herein have the same meaning as in the Agreement. The Agreement as previously amended and clarified is hereby further amended and clarified as follows (paragraph numbers below correspond to the Article or Section numbers of the Agreement affected by that paragraph): 2. The obligation to indemnify set forth in Article 2 of the Agreement is intended to include the obligation to advance expenses to Indemnitee. 4. The first paragraph of Article 4 of the Agreement is without limitation on the provisions of Article 2 of the Agreement. 5. The exceptions to the indemnification obligations under Article 3 and the expense advance obligations under Article 4, as set forth in subparagraphs (a) through (f) of Article 5, are subject to any contrary determination by a court of competent jurisdiction. 11. The reference to Article 4 in Section 11(a)(i) and the reference to Article 3 in Section 11(b) shall be deemed to include in each case a reference to Article 2 as well. Yours very truly, AGREED TO: Starwood Lodging Trust, a Maryland real estate investment trust By:_________________________________ Its:________________________________ EX-10.2 3 FORM OF AMENDMENT NO.2 INDEM AGMT (STARWOOD CORP 1 Exhibit 10.2 AMENDMENT NO. 2 TO INDEMNIFICATION AGREEMENT June 26, 1997 Starwood Lodging Corporation 2231 East Camelback Road, Suite 400 Phoenix, Arizona 85016 Re: Indemnification Agreement Gentlemen: Please refer to the Indemnification Agreement (the "Agreement") dated as of March 1, 1996, and Amendment No. 1 to Indemnification Agreement ("Amendment No. 1"), each between Starwood Lodging Corporation, a Maryland corporation (the "Corporation") and the undersigned. Defined terms used herein have the same meaning as in the Agreement. The Agreement as previously amended and clarified is hereby further amended and clarified as follows (paragraph numbers below correspond to the Article or Section numbers of the Agreement affected by that paragraph): 2. The obligation to indemnify set forth in Article 2 of the Agreement is intended to include the obligation to advance expenses to Indemnitee. 4. The first paragraph of Article 4 of the Agreement is without limitation on the provisions of Article 2 of the Agreement. 5. The exceptions to the indemnification obligations under Article 3 and the expense advance obligations under Article 4, as set forth in subparagraphs (a) through (f) of Article 5, are subject to any contrary determination by a court of competent jurisdiction. 11. The reference to Article 4 in Section 11 (a)(i) and the reference to Article 3 in Section 11(b) shall be deemed to include in each case a reference to Article 2 as well. Yours very truly, AGREED TO: Starwood Lodging Corporation. a Maryland corporation By:______________________________ Its:_____________________________ EX-10.3 4 FORM OF AMENDMENT 2 TO RESTATED LOAN AGREEMENT 1 Exhibit 10.3 SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT This Second Amendment to Amended and Restated Loan Agreement is made as of April 25, 1997 between SLT Realty Limited Partnership ("Borrower"), Starwood Lodging Trust (the "REIT"), CP Hotel Realty Limited Partnership ("CP"), Midland Building Corporation ("Midland") and Lehman Brothers Holdings Inc., D/B/A Lehman Capital, a Division of Lehman Brothers Holdings Inc. ("Lender"). All capitalized words and phrases not otherwise defined herein shall have the meanings set forth in that certain Amended and Restated Loan Agreement dated as of April 26, 1996, as amended by that certain First Amendment To Amended and Restated Loan Agreement dated as of August 29, 1996, each between Borrower, the REIT, CP, Midland and the Lender (the "Loan Agreement"). Preliminary Statement The Maturity Date of the Loan is April 26, 1997. Borrower, the REIT, CP, Midland and Lender have agreed to extend the Maturity Date of the Loan and provide for the payment of certain extension fees. NOW THEREFORE, in consideration of the mutual covenants and agreement hereinafter set forth and in and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto consent and agree as follows: 1. The Loan Agreement is hereby modified and amended as follows: The definition of Maturity Date is hereby deleted and the following substituted therefor: "Maturity Date" shall mean October 26, 1997 or such earlier date on which the principal balance of the Loan and all other sums due in connection with the Loan shall be due as a result of the acceleration of the Loan. 2. Borrower shall have the right to extend the Maturity Date for one additional six (6) month period by giving Lender written notice to extend no later than September 26, 1997, but no earlier than August 26, 1997, and by paying an additional extension fee equal to 0.25% of the then outstanding principal balance of the Loan (the "Additional Extension Fee"). Upon Lender's receipt of such notice and the Additional Extension Fee, and provided that no monetary Default or Event of Default has occurred and is continuing, and Borrower has complied with the terms and conditions of paragraph 4 of this Agreement, the Maturity Date shall be extended to April 26, 1998. 3. Simultaneously with the execution and delivery of this Agreement and as a condition precedent to the extension of the Maturity Date, Borrower shall pay to Lender the sum of $234,900.00 as consideration for the extension of the Maturity Date. 2 4. Notwithstanding anything to the contrary in Section 5.19 of the Loan Agreement, Borrower and/or Guarantor shall spend (i) the Minimum Spending Requirement for each Real Property Asset on or before October 26, 1997, (ii) the Deferred Maintenance Spending Requirement for each Real Property Asset other than the Real Property Asset identified as the Holiday Inn-Calverton on Schedule 1 of the Loan Agreement, on or before October 26, 1997 and (iii) the Deferred Maintenance Spending Requirement for the Holiday Inn-Calverton on or before June 1, 1997. Prior to May 26, 1997, Borrower shall deliver evidence reasonably satisfactory the Lender of the amount of the Minimum Spending Requirement and Deferred Maintenance Spending Requirement that has been spent to date, together with an itemization of the work for which such amounts were spent and a budget showing in reasonable detail the remaining work to be done, the amounts to be spent and the schedule of expenditures, each of which shall be reasonably satisfactory the Lender. Upon Lender's receipt and review of the foregoing evidence, Lender may, in its sole discretion, extend the dates by which the Minimum Spreading Requirement and the Deferred Maintenance Spending Requirement must be spent to a date no later than April 26, 1998. 5. Borrower, the REIT, CP and Midland shall pay all of Lender's reasonable out-of-pocket costs and expenses, including reasonable attorneys' fees and disbursements, in connection with the execution of this Agreement and any documentation in connection with an additional extension of the Maturity Date. 6. Borrower, the REIT, CP and Midland represent, warrant and covenant that (i) to the best of their knowledge, no Event of Default has occurred and is continuing and (ii) there are no offsets, counterclaims or defenses against the Loan, this Agreement, the Loan Agreement or any of the Loan Document and that Borrower, the REIT, CP and Midland each has full power, authority and legal right to execute this Agreement and to keep and observe all of the terms of this Agreement on their part to be observed or performed. 7. Except as expressly modified pursuant to this Agreement, all of the terms, covenants and provisions of the Loan Agreement and the other Loan Documents shall continue in full force and effect. In the event of any conflict or ambiguity between the terms, covenants and provisions of this Agreement and those of the Loan Agreement and the other Loan Documents, the terms, covenants and provisions of this Agreement shall control. 8. This Agreement may not be modified, amended, waived, changed or terminated orally, but only by an agreement in writing signed by the party against whom the enforcement of the modification, amendment, waiver, change or termination is sought. 9. This Agreement shall be binding upon and inure to the benefit of Borrower, the REIT, CP, Midland, Lender, all future holders of the Note and their respective successors and assigns. 10. This Agreement may be executed in any number of duplicate originals and each such duplicate original shall be deemed to constitute but one and the same instrument. 3 11. If any term, covenant or condition of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. 12. This Agreement shall be governed by and construed in accordance with the laws of the State of New York and the applicable laws of the United States of America. [NO FURTHER TEXT ON THIS PAGE] 4 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. SLT REALTY LIMITED PARTNERSHIP By: Starwood Lodging Trust, its general partner BY:/s/ Ronald C. Brown ------------------------------------ Name: Ronald C. Brown Title: Senior Vice President STARWOOD LODGING TRUST By:/s/ Ronald C. Brown ------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President CP HOTEL REALTY LIMITED PARTNERSHIP By: SLT Realty Limited Partnership, its general partner By: Starwood Lodging Trust, its general partner By:/s/ Ronald C. Brown -------------------------------- Name: Ronald C. Brown Title: Senior Vice President MIDLAND BUILDING CORPORATION By: ------------------------------------------ Name: Nir E. Margalit Title: Secretary 5 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. SLT REALTY LIMITED PARTNERSHIP By: Starwood Lodging Trust, its general partner By: ------------------------------------ Name: Ronald C. Brown Title: Senior Vice President STARWOOD LODGING TRUST By: ------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President CP HOTEL REALTY LIMITED PARTNERSHIP By: SLT Realty Limited Partnership, its general partner By: Starwood Lodging Trust, its general partner By: -------------------------------- Name: Ronald C. Brown Title: Senior Vice President MIDLAND BUILDING CORPORATION By: /s/ Nir E. Margalit ------------------------------------------ Name: Nir E. Margalit Title: Secretary 6 LEHMAN BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation By:/s/ Francis X. Gilhool ------------------------------------------ Name: Francis X. Gilhool Title: SVP 7 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. SLT REALTY LIMITED PARTNERSHIP By: Starwood Lodging Trust, its general Partner By: ------------------------------------ Name: Ronald C. Brown Title: Senior Vice President STARWOOD LODGING TRUST By: ------------------------------------------ Name: Ronald C. Brown Title: Senior Vice President CP HOTEL REALTY LIMITED PARTNERSHIP By: SLT Realty Limited Partnership, its general partner By: Starwood Lodging Trust, its general partner By: -------------------------------- Name: Ronald C. Brown Title: Senior Vice President MIDLAND BUILDING CORPORATION By:/s/ Nir E. Margalit ------------------------------------------ Name: Nir E. Margalit Title: Secretary 8 LEHMAN BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation By:/s/ Francis X. Gilhool ------------------------------------------ Name: Francis X. Gilhool Title: SVP EX-10.4 5 FORM OF LETTER FROM SLT AND STARWOOD TRUST 1 Exhibit 10.4 SLT REALTY LIMITED PARTNERSHIP 2231 East Camelback Road Suite 410 Phoenix, Arizona 85016 STARWOOD LODGING TRUST 2231 East Camelback Road Suite 410 Phoenix, Arizona 85016 April 9,1997 VIA FACSIMILE Prudential Property Investment Separate Account II c/o Prudential Real Estate Investors 8 Campus Drive Parsippany, NJ 07054 Attn: Gary L. Kauffman (Fax 201 683-1790) Attn: James P. Walker, Esq. (Fax 201 683-1788) Ladies and Gentlemen: Pursuant to the terms of that certain Purchase Money Promissory Note, in the original amount of $97,500,000.00, by and between the undersigned and Prudential Property Investment Separate Account II, dated February 14, 1997, notice is hereby given under section 1. (c). that the undersigned hereby exercise their option to extend the maturity date of said note from April 15, 1997 to May 14, 1997. Very truly yours, SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: STARWOOD LODGING TRUST, a Maryland real estate investment trust, its general partner By: /s/ Ronald Brown ----------------------------------------- Ronald Brown, Senior Vice President and Chief Financial Officer cc: Robert S. Insolia, Esq. (Fax 212 326-2061) EX-10.5 6 FORM OF AMENDMENT TO PURCHASE PROMISSORY NOTE 1 Exhibit 10.5 AMENDMENT TO PURCHASE MONEY PROMISSORY NOTE WHEREAS, SLT Realty Limited Partnership, as Maker, executed and delivered to The Prudential Insurance Company of America, as Payee, a certain promissory note, dated as of February 14, 1997, in the principal amount of $97,500,000.00 (the "Note"), which Note had original maturity date of April 15, 1997 which was extended to May 14, 1997 by Maker's election; and WHEREAS, the parties now intend to extend the maturity date of the Note to May 30, 1997; NOW THEREFORE, Maker and Payee agree as follows: 1. The capitalized terms used herein shall have the same meaning ascribed to them in the Note. 2. The Maturity Date of the Note is extended to May 30, 1997. 3. All other terms of the Note are unmodified and remain in full force and effect. IN WITNESS WHEREOF, Maker and Payee have caused this Amendment to be executed and delivered on the 26th day of April, 1997. SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: STARWOOD LODGING TRUST, a Maryland real estate investment trust, its general partner By: /s/ Ronald Brown ------------------------------------------ Ronald Brown, Senior Vice President and Chief Financial Officer THE PRUDENTAL INSURANCE COMPANY OF AMERICA By: /s/ Gary L. Kauffman ------------------------------------------ Gary L. Kauffman, Vice President EX-10.6 7 FORM OF AMENDMENT #2 TO PURCHASE NOTE 1 Exhibit 10.6 SECOND AMENDMENT TO PURCHASE MONEY PROMISSORY NOTE WHEREAS, SLT Realty Limited Partnership, as Maker, executed and delivered to The Prudential Insurance Company of America, as Payee, a certain promissory note, dated as of February 14, 1997, in the principal amount of $97,500,000.00 (the "Note"), which Note had an original maturity date of April 15, 1997 which was extended to May 14, 1997 by Maker's election and by amendment was further extended to May 30, 1997; and WHEREAS, the parties now intend to extend the maturity date of the Note to July 14, 1997; NOW THEREFORE, Maker and Payee agree as follows: 1. The capitalized terms used herein shall have the same meaning ascribed to them in the Note. 2. The Maturity Date of the Note is extended to July 14, 1997. 3. All other terms of the Note are unmodified and remain in full force and effect. IN WITNESS WHEREOF Maker and Payee have caused this Amendment to be executed and delivered on the 28th day of May, 1997. SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: STARWOOD LODGING TRUST, a Maryland real estate investment trust, its general partner By: /s/ Ronald Brown ------------------------------------------ Ronald Brown, Senior Vice President and Chief Financial Officer THE PRUDENTAL INSURANCE COMPANY OF AMERICA By: /s/ Gary L. Kauffman ----------------------------------------- Gary L. Kauffman, Vice President EX-10.7 8 EMPLOYMENT AGREEMENT 1 Exhibit 10.7 EMPLOYMENT AGREEMENT between STARWOOD LODGING TRUST and BARRY S. STERNLICHT Employment Agreement ("Agreement") dated as of June 30, 1997, between Barry S. Sternlicht (the "Executive") and Starwood Lodging Trust, a Maryland real estate investment trust (the "Company"), with its principal office at 2231 East Camelback Road, Suite 410, Phoenix, Arizona 85016. WHEREAS, the Executive has served as Chairman and Chief Executive Officer of the Company since December 1994 and currently serves as such; WHEREAS, the Company desires to continue the services of Executive as its Chairman and Chief Executive Officer and to enter into an agreement embodying the terms of such continuing relationship; and WHEREAS, Executive is willing to accept such continued employment upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the agreements and covenants contained herein, the Executive and the Company hereby agree as follows: ARTICLE I Employment and Term Section 1.01 Position; Responsibilities. (a) The Company hereby employs and continues the employment of Executive as its Chairman and Chief Executive Officer ("CEO") upon the terms and conditions hereinafter set forth. (b) As CEO, Executive shall at all times be the senior-most officer of the Company, with the duties, responsibilities and authority customarily associated with such position and consistent with such duties, responsibilities and authority as has heretofore been his as CEO. Such duties include authority and responsibility for acquisitions, divestitures, finance and investor relations, subject to policies adopted by the Board of Trustees of the Company (the "Board"). Executive shall perform such other additional duties and services of senior executive nature, consistent with his position, as may be requested of him from time to time by the Board. Executive shall report directly and solely to the Board. 2 Section 1.02 Performance of Duties; Other Commitments and Activities. (a) Executive shall at all times endeavor to duly and faithfully perform all of his duties hereunder to the best of his abilities. (b) Executive shall devote such time and effort as may be necessary and appropriate from time to time in the circumstances for the proper discharge of his duties and obligations under this Agreement. The Company acknowledges that Executive is involved in other business endeavors including with Starwood Capital Group L.L.C. ("SCG") and as a consequence performs multiple executive roles. Subject to the Executive's duties and obligations to the Company as set forth in this Section 1.02(b), and subject to non-competition agreement between the Company and Executive and between the Company and SCG, the Company consents to the continuation of Executive's additional business endeavors and multiple executive roles. (c) Executive's base of operations under this Agreement shall continue to be Greenwich, CT, although Executive may, at his election, render his services from other locations. Executive shall not be required to relocate or render services, on other than a temporary basis, outside of such town. Section 1.03 Term. Executive's term of employment under this Agreement (the "Term") shall commence on the date hereof (the "Commencement Date") and shall expire on August 31, 1999, unless extended or sooner terminated as herein provided. In the event the Company and Executive have not, by August 1, 1999, agreed to an extension of Executive's employment by the Company, the Executive shall, for purposes of Section 2.04 hereof and for all other purposes set forth in this Agreement, be deemed to have terminated for "Good Reason" on August 31, 1999. Section 1.04 Representation and Warranty of Executive. Executive hereby represents and warrants to the Company that he is not aware of any presently existing fact, circumstance or event (including, but without limitation, any health condition or legal constraint) which would preclude or restrict him from providing to the Company the services contemplated by this Agreement, or which would give rise to any breach of any term or provision hereof, or which could otherwise result in the termination of his employment hereunder for Cause or Good Reason (as such terms are hereinafter defined). Section 1.05 Representation and Warranty of Company. The Company hereby represents and warrants to Executive that (i) it is not aware of any fact, circumstance or event which would give rise to any breach of any term or provision of this Agreement or any agreement covering any Existing Awards (as hereinafter defined), or which would form the basis for any claim or allegation that (A) Executive's employment hereunder could be terminated for Cause or Good Reason hereunder, or (B) the rights of Executive under any Existing Award should be in whole or any part limited, forfeited or otherwise restricted; and (ii) it has received all authorizations and has taken all actions, necessary or appropriate for the 2 3 due execution, delivery and performance of this Agreement, all Existing Awards, and all Plan Agreements (as hereinafter defined), including all amendments thereto effected by this Agreement. ARTICLE II Compensation Section 2.01 General. The Company shall compensate Executive for all of his services under this Agreement, as set forth herein. Section 2.02 Basic Compensation. Executive's minimum annual salary ("Base Salary") shall continue at the rate of $250,000 and shall be payable in bi-weekly or other installments in accordance with the Company's normal payment schedule for senior management (not less frequently than monthly). The Base Salary shall be subject to annual review commencing at the end of 1997 and at the end of each year thereafter during the Term, and may be increased (but not decreased) for subsequent years. Executive's Base Salary shall at all times be no less than the salary of any other executive of the Company or any executive of Starwood Lodging Corporation (the "Corporation"). Section 2.03 Incentive Compensation. In addition to the Base Salary, the Company shall pay to the Executive as incentive compensation ("Incentive Compensation") in respect of each fiscal year (or portion thereof) of the Company, an amount determined in accordance with any bonus or short term incentive compensation program (which may be based upon achieving certain specified performance criteria) which may be established by the Board either for the Executive or for senior management generally. Executive's Incentive Compensation shall at all times be no less than the incentive compensation awarded to any other executive of the Company or any executive of the Corporation. All Incentive Compensation earned under this Section 2.03 shall be payable as soon as reasonably practicable, but in no event later than 120 days after the end of the relevant fiscal year of the Company. Section 2.04 Equity Incentive and Other Benefit Programs. (a) Executive has previously been granted certain options, warrants, restricted stock and performance awards (collectively, the "Existing Awards"), summarized on the attached Exhibit A, under the Starwood Lodging Trust 1995 Long-Term Incentive Plan (amended and restated as of August 12, 1996) (the "LTIP"), which were approved by the shareholders of the Company at the annual meeting of shareholders held December 30, 1996 (as well as certain options which were granted under the Starwood Lodging Trust 1995 Share Option Plan, prior to the amendment and restatement as of August 12, 1996) (the "Pre-Existing Awards"), all of which grants and awards are hereby confirmed as having been duly and validly authorized and issued, and being in full force and effect as of the date of execution of this Agreement. 3 4 Nothing in this Agreement shall be deemed to modify or otherwise affect any of the terms or provisions (including, but without limitation, any contingencies) of any Pre-Existing Awards. (b) Notwithstanding any provision to the contrary contained in any agreement(s) (each, a "Plan Agreement") covering the relevant grant of Existing Awards, the following terms shall apply with respect to such grants (the relevant provisions of this Agreement constituting an amendment to the relevant Plan Agreement(s) to the extent necessary to effectuate the same): (i) with respect to the Three Year Option and the Five Year Option noted on Exhibit A, together with the Performance Awards relating thereto (collectively, the "Recent Options"), (A) termination for Cause and for Good Reason shall be as set forth in and subject to this Agreement and (B) in the event the Executive's employment by the Company shall terminate for any reason other than (1) termination by the Company for Cause, or (2) termination by the Executive without Good Reason (any such termination specified in this clause (B), a "Non-Cause Termination"), all unvested portions of the Recent Options shall thereupon immediately vest in full, free of restrictions (except that Executive may not exercise or sell with respect to such unvested portions for a period of one-year from the date of Termination if the reason for such Termination shall have been the failure of the Company and Executive to agree to an extension of Executive's employment by the Company by August 1, 1999), and the Recent Options shall remain exercisable until the third anniversary of the date of such termination; (ii) with respect to the remainder of the Existing Awards and all Pre-Existing Awards, in the event of any Non-Cause Termination, all unvested portions of such Awards shall thereupon immediately vest in full, free of restrictions (except that Employee may not exercise or sell with respect to such unvested portions for a period of one-year from the date of Termination if the reason for such Termination shall have been the failure of the Company and Executive to agree to an extension of Executive's employment by the Company by August 1, 1999), and shall remain exercisable for the period provided by the terms of such Awards but no less than a period ending three years from the date of termination of employment hereunder; and (iii) no unvested portion of any Existing Award shall be subject to forfeiture or restriction under any circumstance other than in the event of a termination for Cause, or, in the case of the Recent Options, by Executive without Good Reason. Executive shall be eligible for grants in the future of additional Paired Options, Paired Shares and Performance Awards under the LTIP (any such future grants, collectively, "Subsequent Awards"). All Paired Shares included in or underlying any Existing Awards or Pre-Existing Awards will be subject to applicable resale and other restrictions as set forth in the Plan Agreement(s). The Company shall use its best efforts to file and keep effective a registration statement on Form S-8 with the Securities and Exchange Commission covering such Paired Shares. (c) The Executive shall be entitled to participate in the LTIP, any successor plan and all employee benefit plans, including retirement programs, if any, group health care plans, and all fringe benefit plans, of the Company. Such plans shall at all times be comparable to those made available to the senior-most management of the Corporation and the Executive 4 5 shall be entitled to participate in such on a basis and to an extent that is no less favorable to the Executive than is made available to any other executive of the Company or the Corporation. Section 2.05 Expense Reimbursements. The Company shall reimburse the Executive for all proper expenses incurred by him in the performance of his duties hereunder in accordance with the policies and procedures of the Company as in effect from time to time. Section 2.06 Withholding. The Base Salary and all other payments to the Executive for his services to the Company shall be subject to all withholding and deductions required by federal, state or other law (including those authorized by the Executive but not otherwise required by law), including but not limited to state, federal and local income taxes, unemployment tax, Medicare and FICA, together with such deductions as Executive may from time to time specifically authorize under any employee benefit program which may be adopted by the Company for the benefit of its senior executives or Executive. ARTICLE III Termination of Employment Section 3.01 Termination. (a) Executive's employment hereunder shall be terminable by either party with or without Cause and with or without notice except as otherwise provided herein, but with the effect set forth herein. (b) Executive shall give the Company at least 30 days' advance written notice prior to any termination by Executive other than for Good Reason. The Company shall give Executive at least 30 days' advance written notice prior to any termination of Executive without Cause. (c) Executive may resign and terminate his employment hereunder for Good Reason (which shall also be deemed a termination by the Company other than for Cause), subject, however, to prior delivery to the Company of a Preliminary Notice of Good Reason and the failure of the Company to remedy the same within the cure period provided below. For purposes of this Agreement, "Good Reason" means (i) the failure to elect and continue Executive as CEO or Chairman of the Company or to nominate Executive for re-election as a member of the Board (unless a Cause Termination Notice (as hereinafter defined) shall theretofore have been given to Executive); (ii) the failure to assign Executive duties, authorities, responsibilities and reporting requirements consistent with his position and otherwise as set forth herein, or if the scope of any of Executive's material duties or responsibilities as CEO of the Company is reduced or expanded to a significant degree without Executive's prior consent, except for any reduction in duties and responsibilities due to Executive's illness or disability or temporary suspensions of duties and responsibilities pending results of any Board commissioned investigation as to potential Cause for termination of Executive's employment and except if a Cause Termination Notice shall theretofore have been 5 6 given to Executive; (iii) a reduction in or a substantial delay in the payment of Executive's compensation or benefits from those required to be provided in accordance with the provisions of this Agreement, including under or in connection with any Existing Award or Pre-Existing Award; (iv) a requirement by the Company or the Board, without Executive's prior consent, that Executive be based outside of Greenwich, Connecticut, other than on travel reasonably required to carry out Executive's obligations under the Agreement; (v) the failure of the Company to indemnify Executive (including the prompt advancement of expenses), or to maintain directors' and officers' liability insurance coverage for Executive, in accordance with the provisions of Section 5.12; (vi) the Company's purported termination of the Executive's employment for Cause other than in accordance with the requirements of this Agreement; (vii) a Change of Control, as such term is defined and used in the LTIP, shall have occurred (unless a Cause Termination Notice shall theretofore have been given to Executive); or (viii) any other breach by the Company of any provision of this Agreement; provided, that in the event Good Reason is based on clause (ii), (iii), (iv), (v) or (viii) above, (a) "Good Reason" shall not include acts which are cured by the Company within 30 days from receipt by the Company of a written notice from Executive (a "Preliminary Notice of Good Reason") identifying in reasonable detail the act or acts constituting Good Reason, (b) Good Reason shall not exist unless the Preliminary Notice of Good Reason shall have been given by Executive within 60 days after learning of the act, failure or event (or, in the case of a series of related acts, failures or events, within 120 days of the first such act, failure or event) which Executive alleges constitutes Good Reason hereunder, (c) if the Company has failed to cure as provided above, Good Reason shall not exist unless Executive shall have given notice of termination hereunder for Good Reason within 60 days from delivery of the Preliminary Notice of Good Reason (which termination shall be effective 30 days from the giving of such notice), and (d) if the Company has commenced an expedited arbitration in the manner prescribed below within 15 days after receipt of the Executive's notice of termination called for under the immediately preceding clause (c), such termination shall be effective as a termination of employment and shall be deemed a termination by Executive for Good Reason unless and until the Arbitrator shall have determined otherwise. If the Company has timely commenced such an arbitration proceeding, in the manner prescribed below, no payments shall be due Executive under Section 3.02 (i) or (ii) hereof until the conclusion of the arbitration proceeding or further proceeding contemplated by Section 5.04 hereof and only if an award is rendered by the Arbitrator in favor of Executive. Notwithstanding the foregoing, if the Company fails to file a demand for arbitration with the American Arbitration Association ("AAA") and pay the requisite fees pursuant to Rule 4 of the AAA's National Rules for the Resolution of Employment Disputes effective June 1, 1996 (the "National Rules") within 30 days after receipt of notice of termination from the Executive, and diligently pursue such proceeding in accordance with the procedures set forth in Section 5.04 hereof, Executive's termination of employment from the Company shall be conclusively presumed to have been for Good Reason. (d) The Company shall have the right to terminate Executive's employment hereunder for Cause. For purposes hereof, "Cause" shall be defined as Executive's having (a) been convicted of a criminal offense constituting a felony, (b) committed one or more acts or omissions 6 7 constituting fraud or wilful misconduct, including such acts or omissions which constitute a breach of his fiduciary duties under Maryland laws as an officer of the Company or member of the Board, or (c) failed, after written warning from the Board specifying in reasonable detail the breach(es) complained of, to substantially perform his duties under this Agreement (excluding, however, any failure to meet any performance targets), except where such failure results from Executive's incapacity due to physical or mental illness. Notwithstanding the foregoing, termination by the Company for Cause shall not be effective until and unless each of the following provisions shall have been complied with: (i) notice of intention to terminate for Cause, the giving of which shall have been authorized by a vote of not less than 50% of all disinterested Trustees then in office, which shall include a written statement of the particular acts or circumstances which are the basis for the termination for Cause and provide a reasonable period (not less than 30 days) to cure (a "Preliminary Cause Notice"), shall have been given to Executive by the Board within sixty days after the Company first learns of the act, failure or event constituting Cause; and (ii) Executive shall not have cured the acts or circumstances complained of within the cure period; and (iii) the Board shall have called an in personam meeting of the Board, at which termination of Executive is an agenda item, and shall have provided Executive with not less than 20 days' notice thereof; and (iv) Executive shall have been afforded the opportunity, accompanied by counsel, to provide written materials to the Trustees in advance of such meeting and, if he so desires, to personally address the Trustees at such meeting; and (v) the Board shall have provided, within three business days after such meeting, a written notice of termination for Cause, stating that, based upon the evidence it has received and reviewed, and specifying in reasonable detail the acts and circumstances complained of, it has voted by a vote of at least a majority of all of the disinterested Trustees then in office to terminate Executive for Cause (such a notice, a "Cause Termination Notice"), which such Notice shall be effective on the sixteenth day after receipt thereof by Executive, subject to the provisions hereof; provided that if Executive has commenced an expedited arbitration in the manner prescribed below within 15 days after his receipt of the Cause Termination Notice, disputing the Company's right under this Agreement to so terminate for Cause, Executive shall not be deemed to have been terminated for Cause unless and until the Arbitrator shall thereafter have determined that the Executive was properly terminated for Cause in accordance with the provisions hereof; and provided, further that the Company may suspend the Executive (a) with pay, at any time after any indictment of Executive for a criminal offense constituting a felony or after the giving of the Preliminary Cause Notice, and (b) without pay, at any time after the giving of the Cause Termination Notice, except that any payments not so made shall be made within three business days after the Arbitrator shall have made a determination that Executive was terminated other than in compliance with the foregoing provisions relating to termination for Cause. If Executive or his representative fails to file a demand for arbitration with the AAA and pay the requisite fees pursuant to Rule 4 of the National Rules within 30 days of his receipt of a Cause Termination Notice from the Board, and diligently pursue such proceeding in accordance with the procedures set forth in Section 5.04 hereof, such termination shall, for purposes of Section 3.02 hereof, be conclusively presumed to have been for Cause, it being understood and agreed 7 8 that any decision of the Arbitrator that Executive has been terminated hereunder for Cause, or any failure of Executive to contest the Company's allegations of Cause hereunder (by failing to file and/or prosecute a demand for arbitration or otherwise), is not intended to, and shall not, have any effect or bearing whatsoever on any Pre-Existing Award, and the parties specifically agree and undertake that, notwithstanding anything to the contrary, no finding of any Arbitrator pursuant hereto that Executive was properly terminated for Cause under this Agreement shall be binding upon or admissible in any court or other proceeding in which any Pre-Existing Awards are at issue. If the Arbitrator declines to rule that the Executive was terminated for Cause, Executive shall be treated as having been terminated without Cause and Executive shall have the rights provided under Section 3.02 below and provided elsewhere in this Agreement with respect to a termination without Cause. For all purposes of this Agreement, "Good Reason" and "Cause" shall have the applicable defined meaning as set forth above in this Section 3.01. No termination of Executive's employment shall require that Executive resign any other position (including as Trustee or Chairman) he may then be holding with the Company; provided, however, that (i) if Executive's employment hereunder is terminated for Cause under the above provisions, Executive shall resign forthwith from all positions he may then be holding with the Company, if requested to do so by the Board, and (ii) if Executive terminates his employment hereunder other than for Good Reason, Executive shall resign forthwith from all such positions, if requested to do so by the Board, except for any position to which he has been elected by the shareholders of the Company (such as Trustee). Section 3.02 Severance Package. In the event the Executive's employment under this Agreement is terminated by the Company other than for Cause (and a termination due to the Executive's death or permanent disability shall be treated for purposes of this Agreement as a termination by the Company other than for Cause) or is terminated by the Executive for Good Reason, then, as and for a severance package ("Severance Package"), (i) Executive shall, subject only to the delays permitted by Section 3.01 for arbitration, receive (A) an amount, which shall be payable in one lump sum as soon as practicable, but in any event within 30 days of the date of determination that Executive's termination is (x) other than for Cause, or (y) for Good Reason as applicable, equal to two years of Base Salary based on the Base Salary then in effect; provided, however, that the foregoing payment shall be increased if and to the extent any other executive of the Company or any executive of the Corporation shall become entitled upon his or her termination of employment to a greater amount or measurement of payment as part of his or her severance package, and (B) Company paid medical insurance benefits available to other senior executives of the Company during the 12-month period subsequent to termination of employment, all 8 9 costs of which shall be paid by the Company (and thereafter all COBRA rights available to the Executive shall be paid by the Executive); and (ii) All Pre-Existing Awards and Existing Awards shall, notwithstanding any provision to the contrary contained in any Plan Agreement(s) covering the same (the relevant provisions of this Agreement constituting an amendment to the relevant Plan Agreement(s) to the extent necessary to effectuate the same), immediately vest in full (with all Performance Periods with respect to all Pre-Existing and Existing Awards terminating on the effective date of Executive's termination of employment and all relevant Performance Measures being computed through such date), with preservation of all of Executive's rights relating to all Existing Awards and under the relevant agreements granting or otherwise governing same for the full terms thereof, and, following timely exercise of any such Awards, Executive shall receive title to the shares issued upon exercise or otherwise in respect thereof free and clear of any lien, claim or encumbrance by, through or under the Company. If a corporate transaction which would constitute a Change of Control event under the LTIP is agreed to during the pendency of an arbitration hereunder, the Company will include appropriate provisions which will enable the Executive to participate in such Change of Control event as if the arbitration were resolved favorably to the Executive, but subject to such a favorable resolution. The parties agree that the foregoing shall be the Executive's sole and exclusive monetary remedy under this Agreement by reason of termination by the Executive for Good Reason or by the Company other than for Cause, it being agreed that as his actual damages under this Agreement would be difficult to measure or quantify and would be impracticable to determine, such amount shall constitute liquidated damages under this Agreement for the Executive by reason of such termination by Executive for Good Reason, or by reason of any termination by the Company other than for Cause hereunder. Such payments shall not be reduced or limited by amounts Executive might earn or be able to earn from other employment or ventures. The parties agree that the Company shall have no recourse whatsoever to any monetary remedy by reason of Executive's termination of employment, other than for reimbursement of actual out-of-pocket damages actually suffered and incurred by the Company as a direct result of Executive's termination for Cause hereunder (excluding the costs of identifying and/or hiring any replacement for Executive, or any attorney's fees or costs of investigation, which shall be borne solely by the Company), all of which are hereby waived; provided, however, that the foregoing limitation shall not apply to any claims the Company may have against Executive relating to tortious conduct by Executive which causes damage to the Company. Section 3.03 Rights on Termination for Cause or Without Good Reason. No Severance Package shall be due or owing to the Executive in the event that the Company shall duly terminate the Executive's employment for Cause or in the event that the Executive shall terminate his employment with the Company for reasons other than Good Reason (it being 9 10 understood and agreed that the provisions hereof relating to Existing or Pre-Existing Awards, including those set out in Section 2.04, shall not be affected thereby); provided, however that Executive shall in all events be paid all accrued but unpaid Base Salary, awarded but unpaid Incentive Compensation, and other benefits through the date of termination. In addition, in the event that the Company shall terminate the Executive's employment for Cause or in the event that the Executive shall terminate his employment with the Company for reasons other than Good Reason, then except as provided in Section 2.04 above or in the following two sentences, all unvested Recent Options, unvested Performance Awards and unvested restricted Paired Shares then held by Executive shall automatically be forfeited (subject, however, to any contrary provisions in the relevant Plan Agreements, as amended through the date of termination, relating to such Recent Options, Awards or Paired Shares, or any contrary determination of the Board in its sole discretion). No forfeiture of unvested Recent Options, Performance Awards or unvested restricted Paired Shares required hereby shall occur or be effective until 15 days after the later of (i) the conclusion of any arbitration proceeding or further proceeding contemplated by Section 3.01 hereof, or (ii) if no arbitration proceeding is commenced, until the time for commencing such a proceeding has lapsed, or (iii) with respect to Pre-Existing Awards, the determination by a court of competent jurisdiction that cause, as such term is defined and used in the relevant Plan Agreement(s) covering the grants of the Pre-Existing Awards, has occurred (the latest of such three dates being referred to herein as the "Forfeiture Date"), but, except as otherwise provided in Section 2.04 above or in the relevant Plan Agreement(s) governing the terms thereof, no additional service-based or time-based vesting shall occur with respect to any such Recent Options, Performance Awards or Paired Shares following the date Executive's employment is deemed terminated under Section 3.01. It is expressly agreed that Executive may exercise vested options and other Existing and Pre-Existing Awards, and receive a settlement of vested Performance Awards, at any time prior to the Forfeiture Date. In all other respects, the terms of the grant of any such options or award of any such Paired Shares shall govern. ARTICLE IV Confidential Information; Inducing Company Employees Section 4.01 Confidential Information. Except in the course of his employment with the Company, or as he may be required pursuant to any law or court order or similar process, the Executive shall not at any time either during or after his termination of employment hereunder, directly or indirectly disclose or use any secret, proprietary, confidential information or data of the Company or the Corporation, or any of their respective subsidiaries or affiliates; provided, however, that after the expiration of 18 months from such termination of employment, the Company's sole remedy shall be to seek and procure appropriate equitable remedies. In the event of any dispute between the Executive and the Company or between the Executive or the Company and others, the Executive shall cooperate with the Company as to redaction or other protective measures with respect to any unnecessary public disclosure of any such confidential information or proprietary data. 10 11 Section 4.02 Inducing of Company Employees. Except in the course of his employment with the Company, or with the prior written approval of the Board, Executive shall not at any time through the 12 month period after his termination of employment hereunder, in any way directly or indirectly hire, attempt to hire, or cause to be hired any person or persons who to Executive's best knowledge was employed at any time during the period commencing six months prior to such termination by the Company, the Corporation, or their respective subsidiaries or SLT Realty Limited Partnership or SLC Operating Limited Partnership. ARTICLE V Miscellaneous Section 5.01 Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to the Secretary of the Company at the Company's principal executive office, and if to the Executive, to his address on the books of the Company (or to such other address as the Company or Executive may give to the other for purposes of notice hereunder). Copies of all notices given to Executive shall be sent to: Dennis Block, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Copies of all notices given to the Company shall be sent to: Sidley & Austin 555 West Fifth Street Los Angeles, California 90013-1010 Attention: Sherwin L. Samuels, Esq. All notices, requests or other communications required or permitted by this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by mailing via certified mail, postage prepaid, return receipt requested, in the United States mails to the last known address of the party entitled thereto, or (c) by reputable overnight courier service. The notice, request or other communication shall be deemed to be received upon actual receipt by the party entitled thereto; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 11 12 Section 5.02 Assignment and Succession. The rights and obligations of the Company under this Agreement may not be assigned in whole or any part except in the case of a consolidation or merger with, or a transfer of all or substantially all of the assets of the Company to, another entity acceptable to Executive, which not later than 15 days prior to the consummation of such combination transaction expressly assumes in a writing satisfactory in form and substance to Executive all of the Company's obligations to Executive hereunder, under all Existing and Pre-Existing Awards and any Subsequent Awards and otherwise. No such assignment shall limit or restrict Executive's right to terminate this Agreement for Good Reason, which right shall remain absolute. Executive's rights and obligations hereunder are personal and may not be assigned; provided, however that in the event of the termination of the Executive's employment due to the Executive's death or permanent disability, the Executive's legal representative shall have the right to receive the Severance Package as more particularly set forth in Section 3.02 above. This Agreement shall inure to the benefit of and be enforceable by Executive's heirs, beneficiaries and/or legal representatives. Section 5.03 Headings. The Article, Section, paragraph and subparagraph headings are for convenience of reference only and shall not define or limit the provisions hereof. Section 5.04 Arbitration. In the event of any controversy, dispute or claim arising out of or related to this Agreement or the Executive's employment by the Company, the parties shall negotiate in good faith in an attempt to reach a mutually acceptable settlement of such dispute. If negotiations in good faith do not result in a settlement of any such controversy, dispute or claim, it shall, except as otherwise provided for herein be finally settled by expedited arbitration conducted by a single arbitrator selected as hereinafter provided (the "Arbitrator") in accordance with the National Rules, subject to the following (the parties hereby agreeing that, notwithstanding the provisions of Rule 1 of the National Rules, in the event that there is a conflict between the provisions of the National Rules and the provisions of this Agreement, the provisions of this Agreement shall control): (a) The Arbitrator shall be determined from a list of names of five impartial arbitrators each of whom shall be an attorney experienced in arbitration matters concerning executive employment disputes, supplied by the AAA chosen by Executive and the Company each in turn striking a name from the list until one name remains (with the Company being the first to strike a name). (b) The expenses of the arbitration shall be borne equally by each party; and each party shall bear its own legal fees and expenses, except that the prevailing party shall be awarded his or its reasonable attorney's fees and expenses with respect to such dispute. (c) The Arbitrator shall determine whether and to what extent any party shall be entitled to damages under this Agreement; provided that no party shall be entitled to punitive or consequential damages (including, in the case of the Company, any claim for alleged lost 12 13 profits or other damages that would have been avoided had Executive remained an employee), and each party waives all such rights if any. (d) The Arbitrator shall not have the power to add to nor modify any of the terms or conditions of this Agreement. The Arbitrator's decision shall not go beyond what is necessary for the interpretation and application of the provision(s) of this Agreement in respect of the issue before the Arbitrator. The Arbitrator shall not substitute his or her judgment for that of the parties in the exercise of rights granted or retained by this Agreement. The Arbitrator's award or other permitted remedy, if any, and the decision shall be based upon the issue as drafted and submitted by the respective parties and the relevant and competent evidence adduced at the hearing. (e) The Arbitrator shall have the authority to award any remedy or relief (including provisional remedies and relief) that a court of competent jurisdiction could order or grant. The Arbitrator's written decision shall be rendered within sixty days of the closing of the hearing. The decision reached by the Arbitrator shall be final and binding upon the parties as to the matter in dispute. To the extent that the relief or remedy granted by the Arbitrator is relief or remedy on which a court could enter judgment, a judgment upon the award rendered by the Arbitrator shall be entered in any court having jurisdiction thereof (unless in the case of an award of damages, the full amount of the award is paid within 10 days of its determination by the Arbitrator). Otherwise, the award shall be binding on the parties in connection with their continuing performance of this Agreement and, except as otherwise provided herein with respect to Existing Grants, in any subsequent arbitral or judicial proceedings between the parties. (f) The arbitration shall take place in New York, New York or Chicago, Illinois, as elected by the party commencing arbitration. (g) The arbitration proceeding and all filing, testimony, documents and information relating to or presented during the arbitration proceeding shall be disclosed exclusively for the purpose of facilitating the arbitration process and in any court proceeding relating to the arbitration, and for no other purpose, and shall be deemed to be information subject to the confidentiality provisions of this Agreement. (h) The parties shall continue performing their respective obligations under this Agreement notwithstanding the existence of a dispute while the dispute is being resolved unless and until such obligations are terminated or expire in accordance with the provisions hereof. (i) The parties may obtain a pre-hearing exchange of information including depositions, interrogatories, production of documents, exchange of summaries of testimony or exchange of statements of position, and the Arbitrator shall limit such disclosure to avoid unnecessary burden to the parties and shall schedule promptly all discovery and other 13 14 procedural steps and otherwise assume case management initiative and control to effect an efficient and expeditious resolution of the dispute. At any oral hearing of evidence in connection with an arbitration proceeding, each party and its counsel shall have the right to examine its witness and to cross-examine the witnesses of the other party. No testimony of any witness, or any evidence, shall be introduced by affidavit, except as the parties otherwise agree in writing. (j) Notwithstanding the dispute resolution procedures contained in this Section 5.04, either party may apply to any court sitting in the County, City and State of New York (i) to enforce this agreement to arbitrate, (ii) to seek provisional injunctive relief so as to maintain the status quo until the arbitration award is rendered or the dispute is otherwise resolved, (iii) to confirm any arbitration award, or (iv) to challenge or vacate any final judgment, award or decision of the Arbitrator that does not comport with the express provisions of this Section 5.04. Section 5.05 Invalidity. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired. Section 5.06 Waivers. No omission or delay by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof, or the exercise of any other right, power or privilege. Section 5.07 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Section 5.08 Entire Agreement. Except as otherwise provided or referred to herein, this Agreement contains the entire understanding of the parties and supersedes all prior agreements and understandings relating to the subject matter hereof. This Agreement may not be amended, except by a written instrument hereafter signed by each of the parties hereto. Section 5.09 Interpretation. The parties hereto acknowledge and agree that each party and its or his counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its drafting. Accordingly, (i) the rules of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement, and (ii) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto and not in favor of or against any party regardless of which party was generally responsible for the preparation of this Agreement. Except where the context requires otherwise, all references herein to Sections, paragraphs and clauses shall be deemed to be reference to Sections, paragraphs and clauses of this Agreement. The words "include", "including" and "includes" shall be deemed in each case to be followed by the 14 15 phrase "without limitation". The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Section 5.10 Governing Law. This Agreement and the performance hereof shall be construed and governed in accordance with the internal laws of the State of New York without reference to principles of conflict of laws. Section 5.11 Indemnification. In addition to any additional benefits provided under applicable state law, as a Trustee and officer of the Company, the Executive shall be entitled to the benefits of: (a) those provisions of the Declaration of Trust of the Company, as amended, and of the Trustees Regulations of the Company, as amended, which provide for indemnification of officers and Trustees of the Company (and no such provision shall be amended in any way to limit or reduce the extent of indemnification available to Executive as a Trustee or officer of the Company), (b) the Indemnification Agreement between the Company and Executive dated as of June 8, 1995, as amended through the date hereof (the "Indemnification Agreement"). The rights of Executive under such indemnification obligations shall survive the termination of this Agreement and be applicable for so long as the Executive may be subject to any claim, demand, liability, cost or expense, which the indemnification obligations referred to in this Section are intended to protect and indemnify him against. The Company shall, at no cost to the Executive, use its best efforts to at all times include the Executive during the term of Executive's employment hereunder and for so long thereafter as Executive may be subject to any such claim, as an insured under any directors' and officers' liability insurance policy maintained by the Company, which policy shall provide such coverage in such amounts as the Board shall deem appropriate for coverage of all Trustees and officers of the Company. Section 5.12 Disclaimer. The name "Starwood Lodging Trust" is the designation of a Maryland real estate investment trust and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated, and all persons dealing with Starwood Lodging Trust must look solely to Starwood Lodging Trust's property for the enforcement of any claims against Starwood Lodging Trust, as the Trustees, officers, agents and security holders of Starwood Lodging Trust assume no personal obligations of Starwood 15 16 Lodging Trust, and their respective property shall not be subject to claims of any person relating to such obligation. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer and the Executive has signed this Agreement as of the day and year first above written. STARWOOD LODGING TRUST By: ---------------------------- Name: -------------------------- Its: --------------------------- ------------------------------- BARRY S. STERNLICHT 16 17 EXHIBIT A to EMPLOYMENT AGREEMENT between STARWOOD LODGING TRUST and BARRY S. STERNLICHT DATED AS OF JUNE 30, 1997 Existing Awards: 1. Award as of February 21, 1996 of 30,000 Paired Shares in the form of warrants vesting over a one year period; 2. Paired Option to purchase 975,000 Paired Shares vesting over the three year period August 12, 1996 to August 12, 1999; 3. Paired Option to purchase 450,000 Paired Shares vesting over the five year period August 12, 1996 to August 12, 2001; 4. Performance Awards relating to all Paired Shares underlying the above Paired Options granted to Barry S. Sternlicht. Pre-Existing Awards: 1. Paired Option to purchase 616,500 Paired Shares granted June 29, 1995. 2. Paired Option to purchase 9,000 Paired Shares granted June 29, 1995. 3. Paired Option to purchase 120,000 Paired Shares granted April 30, 1996. 4. Paired Option to purchase 9,000 Paired Shares granted June 30, 1996. 17 EX-11 9 COMBINED STATEMENT REGARDING PER SHARE EARNINGS 1 STARWOOD LODGING TRUST AND STARWOOD LODGING CORPORATION UNAUDITED COMBINED COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) EXHIBIT 11
Three months ended Six months ended June 30, June 30, ------------------ ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- Income before extraordinary item....... $18,135 $ 8,521 $26,009 $12,611 Extraordinary item..................... -- 1,077 -- 1,077 ------- ------- ------- ------- Net income............................ $18,135 $ 9,598 $26,009 $13,688 ======= ======= ======== ======= Weighted average number of paired shares outstanding during the period.. 45,537 23,335 43,719 22,016 Stock option equivalents............. 1,835 -- 1,945 -- Restricted stock equivalents......... 391 -- 398 -- Deferred stock equivalents........... 1 -- 1 -- ------- ------- ------- ------- Paired shares used for computation of primary earnings per share............ 47,764 23,335 46,063 22,016 Additional dilution from stock option equivalents......................... 321 -- 208 -- ------- ------- ------- ------- Paired shares used for computation of fully diluted earnings per share...... 48,085 23,335 46,271 22,016 ======= ======= ======= ======= PRIMARY EARNINGS PER PAIRED SHARE Income before extraordinary item...... $ 0.38 $ 0.36 $ 0.56 $ 0.57 Extraordinary item.................... -- 0.05 -- 0.05 ------- ------- ------- ------- Net income per share.................. $ 0.38 $ 0.41 $ 0.56 $ 0.62 ======= ======= ======= ======= FULLY DILUTED EARNINGS PER PAIRED SHARE Income before extraordinary item...... $ 0.38 $ 0.36 $ 0.56 $ 0.57 Extraordinary item.................... -- 0.05 -- 0.05 ------- ------- ------- ------- Net income per share.................. $ 0.38 $ 0.41 $ 0.56 $ 0.62 ======= ======= ======= =======
EX-27.1 10 FINANCIAL DATA SCHEDULE FOR STARWOOD TRUST
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K. 0000048595 STARWOOD LODGING TRUST 1 U.S. DOLLARS 3-MOS DEC-31-1997 APR-01-1997 JUN-30-1997 1 4,324,000 0 235,078,000 0 0 13,329,000 1,530,996,000 0 1,783,727,000 44,406,000 0 0 0 456,000 1,032,915,000 1,783,727,000 0 60,913,000 0 0 25,471,000 0 12,801,000 16,844,000 16,844,000 16,844,000 0 0 0 16,844,000 0.35 0
EX-27.2 11 FINANCIAL DATA SCHEDULE FOR STARWOOD CORP
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ON THE JOINT ANNUAL REPORT ON FORM 10K. 0000316206 STARWOOD LODGING CORPORATION 1 U.S. DOLLARS 3-MOS DEC-31-1997 APR-01-1997 JUN-30-1997 1 37,715,000 0 49,229,000 0 0 29,479,000 114,981,000 0 231,404,000 43,226,000 0 0 0 456,000 46,039,000 231,404,000 218,425,000 219,550,000 0 146,911,000 66,655,000 0 2,767,000 1,291,000 1,291,000 1,291,000 0 0 0 1,291,000 0.03 0
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